Browsing: Regulatory Environment

Hedge fund regulation, UCITS, Court Rulings, Regulatory developments

Regulatory Environment

Should Governments Slow Trading Down by Taxing It?

Feb 5th, 2015 | Filed under: Algorithmic and high-frequency trading, Hedge Fund Strategies, Regulatory, Technology

A physicist recently suggested that exchanges might do well to change the nature of the trading they host, holding batch auctions every one-hundredth of a second to better serve their real economic functions. Then a commenter proposed that taxation could achieve the same effect. Our physicist went back to the drawing board to consider this. Read More


Basel Committee’s Latest Progress Report: Buy IT

Feb 4th, 2015 | Filed under: Regulatory

Out of the 31 banks surveyed by the Basel Committee for its latest progress report on risk data aggregation, 45% reported that they will not be in compliance with the Basel demands by the deadline, a year from now. But surely there is a profit opportunity in here for someone. Read More


Crowdfunding: In the Gun Sights of Patent Plaintiffs

Feb 3rd, 2015 | Filed under: Regulatory, Crowdfunding, Intellectual Property, Legislation/Court rulings

The first of the three patents cited by the plaintiffs was filed at a time when the crowdfunding exemption movement was making a fair amount of noise on Capitol Hill, though it had not yet had tangible success. One might already entertain certain suspicions. Read More


Stifling Debate on Classified Boards: Je Suis Charlie!

Feb 2nd, 2015 | Filed under: Hedge Fund Strategies, Regulatory

Unfortunately, Gallagher and Grundfest aren't simply contributing to the on-going debate over shareholder activism, classified boards, etc. They're trying to stifle it by suggesting a litigation campaign against the side they oppose. Shame on them. Read More


Financing For Knights in Shining, or in Sooty, Armor

Jan 29th, 2015 | Filed under: Private Equity, Risk management, Regulatory

There are certain deals that banks don't want to touch with the longest lance in a joust. That doesn't mean the deals don't get done: it means they go by default to the non-bank financiers. We look at the divide. Read More


Competing Bankruptcy Filings for Caesar’s: Third-Party Releases

Jan 25th, 2015 | Filed under: Private Equity, Insolvency, Legislation/Court rulings

A legal donnybrook has begun for control of Caesar's assets. An important side issue involves bankruptcy court treatment of non-debtors seeking release from alleged liabilities of their own, and a split amongst the appeals court circuits over such treatment. Read More


Let’s Hope Nothing Comes of Sprecher’s Grand Bargain

Jan 13th, 2015 | Filed under: Algorithmic and high-frequency trading, Regulatory, Technology

Sprecher proposes that the exchanges and the investment banks enter into a deal, and that regulators confirm it by various tweaks in the NMS. The whole dynamic that the "grand bargain" represents is a disturing one, old-fashioned smoke-filled-room cronyism. Read More


The SEC Takes a Limited View of Janus’ Limited View

Dec 29th, 2014 | Filed under: Derivatives, Regulatory, Legislation/Court rulings

A December 15 opinion by the SEC limits the significance of a Supreme Court decision of three years ago, and so at least pending appeal it broadens the applicability of the basic anti-fraud rule 10b-5 to the employees of an investment adviser. Read More


The Magnetism of Insider Trading: Part Two

Dec 28th, 2014 | Filed under: Hedge Fund Strategies, Alpha Hunters, Legislation/Court rulings

In Part One Faille discussed the Newman/Chiasson decision of a three-judge panel of the appeals court. In this follow-up, he discussed consequences, starting (but not ending) with the good news this offers Michael Steinberg. Read More


Yes, Speech is Free for Short Sellers, Too

Dec 23rd, 2014 | Filed under: Media Coverage of Hedge Funds, Hedge Fund Strategies, Legislation/Court rulings

The success of Wynn's lawsuit would have chilled free speech by short sellers. So let us take a moment to celebrate its quick demise at the hands of Judge Orrick. As a general rule, though, when a plaintiff quotes an expression from a transcript that, in fact, is immediately preceded by the word "not," and the plaintiff leaves the "not" out of the quote ... things are knotty. Read More


The Magnetism of Insider Trading: Part One

Dec 16th, 2014 | Filed under: Hedge Fund Strategies, Alpha Hunters, Legislation/Court rulings

A three-judge panel of the appeals court instructed the district court to "dismiss the indictment with prejudice as it pertains to Newman and Chiasson." Here we discuss why. in the second part, we'll discuss the likely consequences. Read More


Plans for a Nickel-Tick Pilot: Trouble in the Details

Dec 15th, 2014 | Filed under: Algorithmic and high-frequency trading, Regulatory, Technology

Observers of the slow slog toward an empirical test of larger tick sizes have raised concerns about the details of the three-track plan under consideration. In particular, there's an order-protection feature for one of the three "tracks" that has raised the hackles of Larry Tabb and the STARead More


Capital Markets, Derivatives and the Law

Nov 23rd, 2014 | Filed under: Derivatives, Legislation/Court rulings

Alan Rechtschaffen quotes two definitions of "moral hazard" in this book. The first, from Ben Bernanke, seems to get the book off to a rather awkward start. The second, from Zachary Gubler much later on, represents something of a recovery. Read More


Judge David Carter’s Valeant Decision: A Close Reading

Nov 11th, 2014 | Filed under: Hedge Fund Strategies, Alpha Strategies, Legislation/Court rulings

Carter's decision allows Pershing Square to vote its equity in Allergan in ways favorable to Valeant's planned purchase thereof. More is going on here than just another incident in the consolidation of the biopharm world. Read More


The Undead Enron Model Returns to the World above Ground

Nov 2nd, 2014 | Filed under: Commodities, Regulatory, Legislation/Court rulings, Energy

Enron was once the leader in a category of merchant traders that mediated in the world of energy commodities. Enron died, and banks largely took it over. Yet in spirit, at least, Enron is back. Read More


Two Types of Secrecy: Proprietary Trading Data and the Doomsday Book

Oct 26th, 2014 | Filed under: Legislation/Court rulings

Christopher Faille offers some personal thoughts about the Starr International/AIG litigation, and about the hush-hush Federal Reserve Doomsday Book. This leads to the deeper question of the openness of the U.S. as a society. Read More


Untangling the web of HFT

Oct 13th, 2014 | Filed under: Algorithmic and high-frequency trading, Regulatory, Technology

What is the real issue behind intermarket sweep orders, and the recent dust-up over an NYSE rules change? Faille answers: Privilege. Read More


Late September Bombshell from Judge Lamberth

Oct 8th, 2014 | Filed under: Alpha Hunters, Insolvency, Legislation/Court rulings

As the editorial page of the Wall Street Journal reminded us recently, investors sometimes gamble on politics. That is their right, but good capitalist hygiene is served when, once in a while, such a bet goes badly wrong. Read More


Footnote 13: Barclays Did ‘Change the Number’

Oct 7th, 2014 | Filed under: Algorithmic and high-frequency trading, Institutional Investing, Regulatory

The most intriguing revelation in the exchange of briefs between the State of New York and Barclays appears in a humble footnote, where Barclays seems to concede that an employee was pressured to change an internalization number. But it was just the once.... Read More


Exemptions and Pools: CFTC Harmonizes with the JOBS Act

Sep 17th, 2014 | Filed under: Hedge Fund Regulation, Commodities

Two rules within the CFTC rulebook that offer exemptions for certain CPOs from certain regulatory requirements mirrored the original pre-JOBS Act Reg D on the SEC side. But of course we are now in a post-JOBS Act world, and the CFTC staff has now acted, not through a rule change but by staff letter, to harmonize with its sister agency and with the JOBS Act mandate. Read More


Is Liability Insurance an Estate Asset in Bankruptcy?

Sep 16th, 2014 | Filed under: Derivatives, Insolvency, Legislation/Court rulings

The Manhattan bankruptcy court has now granted individual defendants in the MF Global matter, including Jon Corzine, access to funds from their D&O insurance. But it wasn't easy for them to get here, and therein lies our moral. Read More


Merger Arb: Getting Your Stick to Where the Puck Will Be

Sep 8th, 2014 | Filed under: Performance, Analytics & Metrics, Alpha Strategies, Legislation/Court rulings

Christopher Faille speaks to Matt Porzio, the VP of Strategy and Product Marketing at Intralinks, about the data behind Intralinks' DFI. Read More


SEC Adopts Changes to Regulation AB: More Transparency

Sep 3rd, 2014 | Filed under: Derivatives, Regulatory

The SEC's new rules for asset backed securities require asset level disclosures both at the time of offering and later, on an ongoing basis. The disclosures are required to appear in a standardized XML format.Read More


Clearing Obligation: ESMA Releases CP Comments

Aug 26th, 2014 | Filed under: Derivatives, Regulatory

The clearing-for-everything parade continues. Christopher Faille reviews three representative comments among those just released by ESMA, elicited by its consultation paper on the new clearing obligation for interest-rate swaps. Read More


Responding to a Challenging Tweet about Front-Running

Aug 19th, 2014 | Filed under: Algorithmic and high-frequency trading, Regulatory, Technology

What do I mean by "front run," asked a reader. I use the term for a range of situations in which one party trades on the basis of advance [non-public] information of another party's upcoming trade, Faille replies. Read More


SIP and the Law of Unintended Consequences

Aug 12th, 2014 | Filed under: Algorithmic and high-frequency trading, Regulatory, Technology

Christopher Faille reviews the basic facts about SIP, the Securities Information Processor, and cites (with some incredulity) a new contention in some quarters that SIP isn't all that important because nobody really relies upon it. Read More


Terwilliger’s Legal Troubles: Give Mark Cuban a Cigar

Aug 7th, 2014 | Filed under: Media Coverage of Hedge Funds, Alpha Strategies, Regulatory

The great thing about short sellers has always been that -- if they're good -- it's because they have a keen nose that can smell a boiler room. If they are open about what they're doing, they can also serve as a valuable red light for others in connection with overblown enthusiasms. Don't be the bag holder. Read More


Herbalife’s Earnings and Ackman’s Timing: Part II

Aug 5th, 2014 | Filed under: Hedge Fund Strategies, Legislation/Court rulings

Herbalife (NYSE: HLF) may survive the tricky game it is playing. One critical point: even on the worst plausible reading of its behavior, Herbalife as a corporation or a stock isn't a chain letter. The products it offers its distributors and the public -- they are the chain letters. That's an important practical (though not a legal) distinction. Read More


Herbalife’s Earnings and Ackman’s Timing: Part I

Aug 4th, 2014 | Filed under: Hedge Fund Strategies, Legislation/Court rulings

Herbalife (NYSE: HLF) is playing a tricky sort of game right now: outlast the high-profile short. If its underlying business model is sustainable it can win that game. It may also be able to win, or Ackman may lose, even if the model isn't sustainable, although in that case Ackman's odds are obviously better. Read More


Eurex Clearing and DB Group: New Paper on CCPs

Jul 29th, 2014 | Filed under: Derivatives, Risk management, Regulatory

If such institutions as the ECB keep rewarding indebtedness, then over time they get their way. They'll get a lot of deal making, even if it amounts to a frenzy. Then investors will demand funds that play to that frenzy. Read More


AIFMD Depositary: Developing an operating model

Jul 20th, 2014 | Filed under: Regulatory

Much has been said about international regulation and its chilling effect on funds. Guest columnists Shane Brett and Alan Meaney look at set-ups and solutions.Read More


Regulatory reporting – key considerations for fund managers and service providers

Jul 15th, 2014 | Filed under: Hedge Fund Operations and Risk Management, Regulatory

Keeping track of the AIFMDs, FATCAs without drowning in the alphabet soup is hard work. A new paper from Grant Thornton offers some ideas on how to wade through the soup while you're looking for alpha.Read More


SCOTUS Gives NML a Sweeping Win Over Argentina

Jun 25th, 2014 | Filed under: Alpha Strategies, Regulatory, Emerging markets

Justice Scalia's opinion has the support of Justices who aren’t, to say the least, reliable allies of Scalia’s in the kind of ideologically driven splits that draw so much MSM attention, Obama appointee Elena Kagan as well as Clinton appointee Stephen Breyer are on board. On Monday, June 16th, the U.S. Supreme Court delivered a stunningly complete victory for NML Capital, the holdout bondholder in the much-watched litigation arising out of Argentina’s 2001 bond defaults. On the one hand, SCOTUS refused to hear Argentina’s appeal from the Second Circuit’s decision on what the issuing documents meant by the pari passu language. A decision not to decide has no precedential significance itself, but this of course leaves the Second Circuit’s decision, issued in October 2012, intact. Both as a matter of the law as it applies to this case, and as a matter of precedential significance for many similarly worded documents, the Second Circuit is the circuit that counts. What is Left Standing? The Second Circuit left standing, and now the Supreme Court has also left standing, a district court injunction against any payments that in any way rank holders of the restructured debt over the hold-outs. What the Second Circuit said was that in the pari passu clause in the issuing documentation of these Fiscal Agency Agreement bonds (FAA), the sovereign “manifested an intention to protect bondholders from more than just formal subordination.” The language was there to protect them precisely from what Argentina has more recently tried to do, that is, to protect them from any arrangement by which “Argentina as payor [discriminates] against the FAA bonds in favor of other unsubordinated foreign bonds.” On the same day (a few minutes later) SCOTUS also delivered a full-dress opinion on a related issue. The New York district court has interpreted the Foreign Sovereign Immunities Act of 1976 narrowly, so as to allow for discovery orders that assist NML in its search for Argentina assets in third countries where they may not be immune. Since Argentina owes NML more than $1.5 billion, it has plenty of incentive to continue this search. The Supreme Court upheld that statutory construction. The opinion wasn’t closely split. There was one dissent (Justice Ginsburg) and one recusal (Sotomayor). Still, the opinion for the other seven Justices, written by Justice Scalia, had the support of Justices who aren’t, to say the least, reliable allies of Scalia’s in the kind of ideologically driven splits that draw so much MSM attention. The 7-justice majority included Obama appointee Elena Kagan as well as Clinton appointee Stephen Breyer. What Happens Next? Argentina’s immediate reaction was that it will fight on, apparently by continuing to pay the favored creditors [Exchange Bondholders] and by continuing to exclude from these payments the FAA hold-outs. “What I cannot do as President is submit the country to such extortion,” says President Cristina Fernandez. The legal fight is over, though. And I should add that part of what SCOTUS has let stand here is a district court order the copies of its pro-holdout injunction be provided to “all parties involved, directly or indirectly, in advising upon, preparing, processing, or facilitating any payment on the Exchange bond.” Argentina’s New York agents cannot now give out money to the Exchange bondholders without aiding and abetting the defiance of a court order. Argentina must now either pay $907 million to the plaintiffs by the end of this month, or lose the ability to use U.S. financial intermediaries of any kind to pay the holders it has favored. The only possible means by which Argentina can resist the “blackmail” now and continue to pursue the policy it has in recent years is if it can pay the favored creditors without the involvement of any financial intermediary subject to U.S. court orders. This would prove tricky, especially with a tight schedule. The Rest of the World And of course even success there leaves Argentine open to the second of SCOTUS’ two punches, discovery and perhaps successful seizure of assets in third countries. Leaving Argentine matters to the side: what will be the consequence of NML’s victory in this matter, and the now-regnant Second Circuit reading of the pari passu clause, on the market for EM nation bonds? If, as at least some authoritative sources have indicated through this long fight, the pari passu language used in Argentina in the FAA followed “standard language included in substantially the same form in numerous credit documents” and if this decision changes how that language has been understood, then the markets will have to develop work-arounds: because from time to time sovereigns will default, and some sort of restructuring will have to occur. How those work-arounds will work is beyond me. But then, given my poor record trying to predict the twists and turns of this saga that is perhaps for the best. Read More


Isn’t all Software Abstract?: A Meditation on Alice Corp.

Jun 24th, 2014 | Filed under: Regulatory, Technology, Intellectual Property

Justice Thomas writes, "Deciding whether or not a particular claim is abstract can feel subjective and unsystematic, and the debate often trends toward the metaphysical, littered with unhelpful analogies and generalizations.” He has not given the debate a different turn, it will continue to trend toward the metaphysical etc. Read More


‘I, Algorithm’ Or, Can the Mindless be Reckless?

Jun 19th, 2014 | Filed under: Algorithmic and high-frequency trading, Regulatory, Technology

Who or what is responsible if an ATS' self-learning behavior drifts into terrain that, performed by a human, would constitute manipulative behavior? Does it matter than another algorithm has lately passed the Turing test? Read More


A Far-sighted View: Fund Alignment Rights Are Wave of the Future

Jun 12th, 2014 | Filed under: Hedge Fund Industry Trends, Hedge Fund Regulation, Hedge Fund Strategies, Fees

Guest columnist Rick Ehrhart looks at hedge fund incentive compensation.Read More


Loosening the Bank/Sovereign Feedback Loop

Jun 11th, 2014 | Filed under: Regulatory, Insolvency

Crisis-ridden banks yield crisis-ridden sovereigns, and vice versa. One way to make both institutions more resilient going forward is to loosen the feedback loop that connects their troubles. How to do that? Read More


SIFMA Wins a Famous Victory: We Sort it Out

Jun 4th, 2014 | Filed under: Regulatory, Legislation/Court rulings

We catch up with litigation and administrative actions over the market data fees that exchanges are allowed to charge their customers, issuers, brokers, or dealers. One of the Lake Poets clues us in to what all the fighting means. Read More


Private Lawsuits Over Order Types Used to Facilitate HFT

Jun 2nd, 2014 | Filed under: Algorithmic and high-frequency trading, Legislation/Court rulings

HFTs and trading venues alike have worked hard to fit their practices into the Reg NMS framework. As a consequence, violations of NMS “are unlikely” Dolgopolov writes, “to provide a basis for civil liability of HFTs who use such orders because of their compliance – however formalistic – with this regulatory norm.”Read More


MiFID Implementation Consultation: A Rocky Start

May 28th, 2014 | Filed under: Algorithmic and high-frequency trading, Derivatives, Regulatory

ESMA defines HFT as “a special class of algorithmic trading in which computers make decisions to initiate orders based on information that is received electronically, before human traders are capable of processing the information they observe and of taking a decision in relation thereto.” It then decides that needs further definition.Read More


A Nordic View of Banking Union

May 20th, 2014 | Filed under: Currencies, Regulatory

Recently we discussed Dr. Stiglitz' view of the Eurozone, a view offered to an Italian audience, with Italy (and Greece) foremost in mind. Today we complement that with Deputy Governor Hakkarainen's view of the Eurozone. He looks down at the same map from the north, with Finland and Sweden foregrounded. Read More


McGonagle Testifies to the Michael Lewis Hearings

May 15th, 2014 | Filed under: Algorithmic and high-frequency trading, Regulatory, Technology, Legislation/Court rulings

After some preliminaries, McGonagle got around to the central subject of his testimony, the Concept Release on Automated Trading that the CFTC had issued back in September 2013. Much of his testimony was designed to give Congress an inkling of the range of reactions the CR has since elicited. Read More


Indexical Question: How Much Transparency is Enough?

Jul 10th, 2013 | Filed under: Regulatory, ETFs

In an initial consultation report in January of this year, the IOSCO Board took an aggressive position on transparency, saying that transparency of indexes used for ETFs should be such that market participants have "the ability to replicate a published Benchmark level...." The new final statement, EDHEC complains, has lost that language.Read More


Rajaratnam Prosecution Sends a Signal: Traders Notice

Jun 25th, 2013 | Filed under: Hedge Fund Industry Trends, Risk management, Legislation/Court rulings

The arrest of Rajaratnam almost four years ago and the subsequent anti-insider enforcement activity doesn't of course come as news. But it raises fascinating questions about consequences: what have been the consequences amongst traders? Read More


New Tweaks to MiFID/MiFIR Recall College Daze

Jun 18th, 2013 | Filed under: Algorithmic and high-frequency trading, Regulatory

MiFIR includes provisions that allow for "dark pools" and that limit the size -- or, if you will, the depth -- of such pools. On June 10, 2013, authorities in Brussels released a new proposal for tweaks of MiFIR in general and these provisions in particular.Read More


Push-back Grows Against the FTT and Its Cascade

Jun 6th, 2013 | Filed under: Regulatory

“The analyses we’ve done show that the project, as it has been prepared by the commission, will first of all raise nothing at all, there’ll be no revenue,” one prominent Euro-banker says. According to earlier forecasts, the FTT was supposed to raise between €30 and €35 billion. So the prospective return has gone from €35 billion to zero? Read More


Supreme Court Accepts Fidelity Whistle-Blower Appeal

May 30th, 2013 | Filed under: Regulatory

One case now before the U.S. Supreme Court poses the issue of the proper interpretation of the whistle-blower protection offered by Sarbanes-Oxley. The underlying problem is that when Congress wrote that statute it had in mind operational companies like Enron, or WorldCom, or Tyco International. The very different world of investment advisers and their funds, [where the public entities are the funds proper which employ no one], wasn't on its collective mind. Read More


CFTC Approves New Swaps Rules: Uses Some Old Jargon

May 22nd, 2013 | Filed under: Derivatives, Regulatory

Under the Dodd-Frank Act, and the implementing rules now approved by the CFTC, trades that aren't "large notional swaps" are to be reported more rapidly and thoroughly than those that are. This of course makes the definition of a large notional swap (a/k/a a block trade) an important matter.Read More


Abstraction, Patents, and the Latest Alice Ruling: A Scorecard

May 16th, 2013 | Filed under: Regulatory

The Federal Circuit's effort to address en banc the district court's rejection of the applicability of patent law to a fairly commonplace hedge against settlement risk seems to have broken down in confusion. This may have profound implications for both the traditional and the alternative asset management industry. Read More


The EU’s AIFMD and Your Road Show

May 14th, 2013 | Filed under: Regulatory

Shane Brett, of Global Perspectives, makes the point that the "non-European world" is in no position to ignore the implementation of AIFMD. Although the implementation will be gradual, by 2018 any manager from anywhere who wants to bring his road show to a European city will have to be fully compliant. Read More