Browsing: Regulatory Environment

Hedge fund regulation, UCITS, Court Rulings, Regulatory developments

Regulatory Environment

Rest in Peace Margaret Thatcher

Apr 10th, 2013 | Filed under: Currencies, Regulatory

The great success of the Thatcher-era Big Bang was that it shocked the Square Mile out of insularity. The turnover and value of London-based equity transactions increased from roughly £500 million in 1986 to more than £2 billion nine years later. Read More

Stop the Presses: IOSCO Calls for Balancing and Monitoring

Apr 4th, 2013 | Filed under: Derivatives, Regulatory

IOSCO's new draft report says that regulators ought to do a lot of "monitoring" of the consequences of changes in market structure. A little less predictably: it goes into some detail on the diversity of regulatory systems that bear on the question of fragmentation. Read More

The LIBOR Scandal: Not an Antitrust Issue

Apr 1st, 2013 | Filed under: Legislation/Court rulings

In an odd-seeming juxtaposition, a decision issued by the U.S. District Court in Manhattan on March 29, one sharply limiting the private plaintiffs' lawsuit against the banks involved in the LIBOR scandal, relies upon a precedent set by the Supreme Court in 1977 involving ... bowling centers. Read More

Dallas Fed. Judge: SEC May Proceed Against Cuban

Mar 31st, 2013 | Filed under: Regulatory

Though the charges against him are civil, not criminal, Mark Cuban may be the Amanda Knox of the jurisprudence of insider trading. He had reason to believe himself vindicated in July 2009, but now the SEC has successfully revived the matter and Cuban faces a trial. Read More

NG Futures Traders: Who’s Your Regulator?

Mar 24th, 2013 | Filed under: Commodities, CTA, Regulatory, Energy

As a three-judge panel of the D.C. Appeals Court saw it, there were two questions in the Brian Hunter case. First, did the CEA’s language encompass manipulation of NG futures contracts as part of the exclusive jurisdiction of intervener CFTC? Second, if so, was that repealed or modified by the 2005 legislation? Read More

Cap Gains Tax Records: The Fall-Out of the EESA of 2008

Mar 14th, 2013 | Filed under: Regulatory

In 2008 the U.S. Congress mandated a significant compliance upgrade for brokers and other financial intermediaries, in regard to their 1099-B income reporting obligations. Now new IRS releases recognize that discrepancies will exist between a taxpayer's records of securities transactions and those of the broker, and they attempt to adjust for that. But traps for the unwary remain.Read More

Accountants’ Quarrel: How Many Buckets for Credit Impairment

Mar 12th, 2013 | Filed under: Regulatory

A threatened divergence arises because the IASB proposes to distinguish between assets with a 12-month allowance balance and those with a lifetime expected loss balance. This is a 'two bucket' model, according to an update recently presented to the G-20, although for historical reasons it is still sometimes called the three-bucket model.Read More

IOSCO: 15 Rules for Avoiding Liquidity Failures

Mar 10th, 2013 | Filed under: Regulatory

Collective investment schemes aren't banks. They aren't in the maturity transformation business. Furthermore, they don't want to stumble into that line of business accidentally, either.Read More

HFT-Limiting Experiment Underway in Germany

Mar 7th, 2013 | Filed under: Algorithmic and high-frequency trading, Regulatory

The Germans seem prepared to experiment with limits on high-frequency trading, as we see in a recent Bundestag vote that leaves the particulars to BaFin. I spoke recently to David Weild, a former vice chairman of NASDAQ, about this experiment and about related issues.Read More

Lehman: Don’t Blame Canada: Blame Iksil!

Mar 4th, 2013 | Filed under: Derivatives, Regulatory

Lehman's adversary proceeding may yet raise the important issues of risk management that arise out of the relationships among the major Wall Street players at times of crisis. But the latest 'Blame the whale' request by the bankruptcy lawyers involved is a blatant distraction and diversion. Read More

Basel/IOSCO ‘Near Final’ Proposal: Part Two

Mar 3rd, 2013 | Filed under: Derivatives, Regulatory, Forex

This is the second of a two-part discussion of a paper jointly issued by Basel and IOSCO on margin requirements for non-centrally cleared derivatives. The new paper solicits feedback on the phase-in timeline it proposes, a phase-in designed to provide flexibility so the affected markets can meet "operational and logistical challenges" by which they might otherwise be stymied. Read More

Basel/IOSCO ‘Near Final’ Proposal: Part One

Feb 28th, 2013 | Filed under: Derivatives, Regulatory

This is the first of a two-part discussion of a paper jointly issued by Basel and IOSCO on margin requirements for non-centrally cleared derivatives. The new paper solicits feedback on only four still-open issues, and the list of issues itself illustrates the near finality they claim for this paper.Read More

SEC Laying Groundwork for Alt-Increments Trial

Feb 20th, 2013 | Filed under: Regulatory

In the February 5th roundtable on the use and consequence of penny increments (decimalization), an event hosted by the SEC, several strong voices spoke in favor of alternative tick sizes, and others pressed for at least a pilot program. It appears that the SEC may have thought of this gathering as a way of laying the foundation for the latter. Read More

Intellectual Property Rights in Software: Go Ask Alice

Feb 13th, 2013 | Filed under: Regulatory

Lawyers argued an intellectual property issue of great significance to our readers before the Federal Circuit Court of Appeals en banc, on Friday, February 8, 2013. They were disputing a patent claim that, if upheld, will make life a lot more complicated than it already is for those attempting to provide the infrastructure of the alternative-investment industry. Read More

UCITS Brand: Time for a Restricted Extension

Feb 11th, 2013 | Filed under: Regulatory, UCITs

The authors want a new "Restricted UCITS" label created to ward off a possible arms race in which depositaries otherwise will attempt to satisfy their clients in a competitive way in an escalation that will end with them "offering guarantees for risks they cannot really control." Read More

HF Investors and Managers Differ On Impact of New Regulations

Feb 6th, 2013 | Filed under: Hedge Fund Industry Trends, Regulatory

Forty-three percent of managers see Dodd-Frank as having a negative impact; 35 percent see it as having no impact at all; only 22 percent see it as a positive. The positive they see in it may simply be the presumed improved access to institutions that are “keen to invest in vehicles with some degree of regulated oversight,” in the words of Preqin's Amy Bensted.Read More

Pensions: Public Choices and Investor Caution

Feb 5th, 2013 | Filed under: Institutional Investing, Regulatory

The great political problem (what economists these days call a 'public choice' problem) is that politicians worldwide have every incentive to defer or avoid decisions about pension reform, however urgent or necessary that reform. Investors should be aware, and be wary. Read More

Intermediaries: Watch Who You’re Calling Sophisticated

Feb 3rd, 2013 | Filed under: Regulatory

IOSCO reminds investment banks and other intermediaries that they "may make the reasonable choice of treating all customers as retail because doing so may be more cost-effective than establishing separate categories for customers." Those words appear in a footnote but, given the context created in the rest of the report, they seem rather pointed. Read More

Delaware Struggles with Corporate-Auction Questions: Don’t Ask

Jan 14th, 2013 | Filed under: Regulatory

The directors of a corporation selling itself have a duty to their shareholders to familiarize themselves with all the material facts, and they are to be discouraged from stuffing wax in their ears in order to avoid hearing anything inconvenient. Read More

Bondholder v. Sovereign: An Empirical Analysis

Jan 9th, 2013 | Filed under: Hedge Fund Regulation

In 1992 the Supreme Court ruled that the issuance of bonds is itself a commercial activity, thus bond defaults by sovereigns are clearly subject to litigation in U.S. courts. One of the more intuitive findings of the authors of a new empirical study of such lawsuits is that the identity of the characteristic plaintiffs has changed over time. Read More

Letter to Basel Asks: Does Gradualism Matter?

Jan 8th, 2013 | Filed under: Regulatory

So why not just say: ‘everybody has to have a CCP for everything!’? If we cannot for reasons of practicality do that all at once, why not do it more gradually? There are lots of good answers to that. Read More

AIFMD Still Gives ‘Substantial Leverage’ a Number

Jan 2nd, 2013 | Filed under: Regulatory

Under the new directive, if an alternative investment fund manager manages AIFs that employ "substantial leverage," then this AIFM must include in the information it reports to its EU member home state's competent authority the overall level of leverage employed by each fund. That authority may then require further information as it pertains to systemic risk. Read More

A Look at Global Financial Regulation

Dec 13th, 2012 | Filed under: Regulatory

Vikas Shah looks at the state of global regulation and what it means to the global alternative investment community.Read More

Meditations on Adoboli’s Conviction

Dec 3rd, 2012 | Filed under: Regulatory

The ETF desk of UBS was in the business of trying to pick up as many coins as it could. It employed people like Adoboli as, so to speak, its arms and fingers. It also employed people like Steward as eyes and legs – their job was to get the bank out of the way of the steam roller in time. In this case, Adoboli became the steam roller. Read More

The ‘80s Language that Disappeared: Part of a Sovereign Debt Mystery

Nov 14th, 2012 | Filed under: Regulatory

Recent scholarship shows that pari passu language has not been copied mechanically from one form into another down through the decades, that the precise wording has varied over time, in ways that may shed some critical light on its contemporary meaning and function. Read More

Post-Election Thoughts: Incumbency and the Volcker Rule

Nov 7th, 2012 | Filed under: Regulatory

Well … that’s over with.  It was a good election year for incumbents all around. As of Wednesday morning, it appears that the composition of the House of Representatives will not change greatly as a consequence of Tuesday’s election.  The Republicans will lose some seats net, but they’ll retain theirRead More

Interfering with the Gears of Default & Restructure

Nov 4th, 2012 | Filed under: Regulatory

A three-judge panel of the Court of Appeals for the Second Circuit has ruled against Argentina on a case arising out of Argentina's 2001 default and its subsequent efforts to restructure its debt. On the substance of the case, the panel interpreted the pari passu language of the issuing documentation in the way the plaintiffs desired. As to remedy, the result is a bit more ambiguous. Read More

Portfolio Planning on the Way to the Fiscal Cliff

Nov 1st, 2012 | Filed under: Currencies, Risk management, Regulatory

The notion of a flight to safety has never before sounded so paradoxical. The impending fiscal cliff illustrates the unsustainable fiscal position of the U.S. Treasury, and the uncertainties this creates may generate a flight to the presumed safety of ... U.S. Treasuries.Read More

AIMA’s Caveats to the UCITS V Proposal

Oct 24th, 2012 | Filed under: Hedge Fund Industry Trends, Regulatory, UCITs

The EC is proposing changes in UCITS, especially targeted at the roles and liabilities of depositaries. We summarize here the proposal itself, and a responsive position paper put out by the Alternative Investment Management Association. Read More

Privity of Contract in the Caymans, Part II

Oct 9th, 2012 | Filed under: Regulatory

This is the second of a two-part discussion of recent developments in the Cayman Islands concerning the interpretation and enforcement of side letters. Today, we discuss Mr. Justice Charles Quin's decision in Lansdowne Limited & Silex Trust Company v. Matador Investments. Read More

Privity of Contract in the Caymans, Part I

Oct 8th, 2012 | Filed under: Regulatory

This is the first of a two-part discussion of recent developments in the Cayman Islands concerning the interpretation and enforcement of side letters. Today, we discuss Mr. Justice Charles Quin's decision in Medley Opportunity Fund v. Fintan Master Fund and Nautical Nominees. Read More

Pre-merger Notices and the ‘Passive Investor’ Exception

Oct 2nd, 2012 | Filed under: Regulatory

If you request seats on the board of a company, you’ll have a rough time later maintaining that, at the time you did so and for two months thereafter, you had no intention “of participating in the formulation, determination, or direction of the basic business decisions of the issuer.” That’s what board seats are for!Read More

Registration Deadline for Formerly Exempt CPOs Looms

Oct 1st, 2012 | Filed under: Commodities, Regulatory

The great thing about the now-expiring exemption provided by regulation 4.13(a)(4) was that it didn't impose on the exempt CPO any limits on the number of participants or on the amount of futures trading the operator of the pool could conduct. The sad thing is that it is now expiring: tick-tock.Read More

Hedge Funds and Their World: Slow Recovery Ahead

Sep 25th, 2012 | Filed under: Hedge Fund Industry Trends, Hedge Fund Regulation

Markets are bullish on the United States in particular, though this is so only with some obvious qualifications: they don’t expect that a go-go climate will return any time soon, but they do expect a slow-and-real recovery. Likewise, markets are modestly bullish on at least the north of Europe.Read More

BC Court Decision: Empty Voting and Anonymous Requisitioning

Sep 23rd, 2012 | Filed under: Regulatory

One plausible explanation of Mason’s opposition to the TELUS restructuring is that eliminating the non-voting shares would also eliminate the possibility of arbitrage between the two classes of shares. At any rate: Mason has, as the court’s opinion put the point, “voting control over approximately 20% of the Common Shares, while holding a relatively small net economic interest in TELUS.”Read More

Disclosures and Paperwork Burdens Under Fair Value Rules

Sep 19th, 2012 | Filed under: Regulatory

As a McGladrey white paper issued this spring makes clear, reporting entities now must disclose quantitative information about the unobservable inputs used in Level 3 Fair Value measurements. These may include: prepayment rates; credit risk adjustments; default rates; control premiums; loss severities.Read More

Preempting the Search for Loopholes in Singapore

Sep 12th, 2012 | Filed under: Regulatory

The GFIA has offered an analysis of recently issued regulations from the Monetary Authority of Singapore in the August issue of its "Research Insights." It notes that their key concept is the requirement of a risk management framework, a requirement which has been left largely undefined, apparently because the MAS is disinclined to encourage a frantic search for loopholes via any detailed code. Read More

Evolution, Revolutions, and Obligated Liquidity

Sep 5th, 2012 | Filed under: Regulatory

Early in this century the RFQ model, a click-to-trade billboard system, itself became the primary driver of the growing trading volumes in corporate bonds, taking the market right through the crisis of 2008. Perrotta rather puckishly associates the rise of the RFQ with Charles Darwin, contrasting evolution with revolution, visionary re-makings with incremental adaptations.Read More

The Second Circuit: Jury Instructions and Insider Trading

Aug 27th, 2012 | Filed under: Regulatory

As one academic study has put it, the mosaic defense is that “insider trading violations should not result when a perceptive analyst reaches a conclusion about a corporate action or event through an analysis of public information and items of nonmaterial nonpublic information [as a result of] good analytical skills.” In this case, it availed naught. Contorinis was found guilty, in October 2010, of seven counts of securities fraud and one count of conspiracy. He was sentenced to six years in prison and the forfeiture of $12.65 million.Read More

Walling Out Those Movie-Fan Freeloaders

Aug 13th, 2012 | Filed under: Regulatory

Many bondholders will be willing to accept a haircut on their bonds in order to ward off a default by an issuer, especially perhaps a sovereign or a bank. But they will worry about the hold-outs -- those who'll try to get the same benefit although parked across the street. The worry may remind us of the reasons for the decline of the drive-through theatre industry. Read More

The Global Reach of the IRS

Jul 23rd, 2012 | Filed under: Regulatory

FACTA follows from the distinct nature of the obligations the U.S. imposes on its citizens living and/or earning abroad. It represents, as the white paper says, the Internal Revenue Service “extending its long reach” in order that non-US companies will have to help it collect taxes. Any foreign financial institution worldwide that does not agree to reporting, disclosure, and withholding of its US clients’ assets will be subject to a 30 percent withholding tax itself on its US sourced income. Read More

Dear SEC: Comments on the JOBS Act

Jul 19th, 2012 | Filed under: Hedge Fund Industry Trends, Hedge Fund Regulation, Real Estate, Private Equity, Regulatory

A veteran of hedge funds and private equity, Jeff Joseph offers some comments to the U.S. Securities and Exchange Commission on the JOBS Act and what this legislation has the potential to mean to the global alternative investment community.Read More

IOSCO and the Distance from Pittsburgh

Jun 19th, 2012 | Filed under: Derivatives, Regulatory

IOSCO, the international policy body for securities regulators, has this month published its own final report on international standards for the regulation of derivatives market intermediaries. This continues a course followed by international bodies ever since the G20 summit: the drift away from the grand idea of treating all derivatives in a standardized way, toward acceptance of the unharnessed character of the OTC world, though for all that a renewed insistence on regulating the particulars.Read More

A Sigh of Relief from Credit-Bidding Distressed Asset Investors

Jun 12th, 2012 | Filed under: Alpha Strategies, Regulatory

Decisions by the Fifth and Third Circuit Courts of Appeal in 2009-2010 threw into doubt the right of lienholders to credit bid at an auction pursuant to a cram-down reorganization plan. The problem was the vague phrase "indubitable equivalent," and its overly literal interpretation by those two Courts.Read More

Sound Alternatives Practices in the Great White North

May 29th, 2012 | Filed under: Hedge Fund Regulation

The meat of the guide addresses what AIMA Canada considers sound practice in marketing and promotion, such as in the calculation and presentation of returns, in selecting a benchmark relevant to a specific strategy, and in explaining the various ratios used for the same purpose. It notes that the Association for Investment Management and Research’s Performance Presentation Standards (AIMR-PPS) recommend using a time-weighted method for the calculation of returns, a model otherwise known as the Modified Dietz method.Read More

Discussing Passports and UCITS Wrappers with John Adams

May 22nd, 2012 | Filed under: Regulatory, UCITs

The member states of the EU are expected to enact the pertinent legislation in July 2013. Then a London-based fund will be able to market in Italy by virtue of an intra-EU “passport,” although a hedge fund firm in New York or Hong Kong won’t be able to get such a passport for some time to come. The outsiders will have to work country-by-country, and this may well put them at a serious competitive disadvantage.Read More

The Volcker Rule and a Trade Gone Wrong

May 21st, 2012 | Filed under: Institutional Investing, Regulatory

The case in favor of the Volcker rule has long been that the line between speculation on the one hand and hedging on the other is a fairly clear one, that reasonable people “know it when they see it,” and that accordingly it is perfectly plausible to prohibit banks from engaging in the one when encouraging them to engage in the other. But recent news concerning JPMorgan sharply challenges this notion. Read More

Simplifying the JOBS Act for Alternative Investment Vehicles

May 10th, 2012 | Filed under: Hedge Fund Regulation

By Ron S. Geffner, Partner, Head of Financial Services, Sadis & Goldberg LLP On April 5, 2012, President Obama signed the Jumpstart Our Business Startups Act, H.R. 3606 (“JOBS Act“). The JOBS Act requires the Securities & Exchange Commission (“SEC“) to revise existing rules to implement many of the provisionsRead More