Browsing: Regulatory


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

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

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

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

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

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

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

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

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

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

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

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

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

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