Special Report: Compliance Technology, page 11
www.securitiesindustry.com
JULY 23, 2007
NEWS DESK
Private equity deals keep coming;
Eurex’s emerging-market initiative;
and more. PAGE 3
PERSPECTIVES
GUEST COMMENT: Windows server
administrators are well aware of the
security flaw known as the “everyone
problem,” yet it still poses a threat to
firms’ unstructured data, writes
Raphael Reich. PAGE 4
SPECIAL REPORT
Many in the U.S. securities industry
support principles-based regulation, the
U.K. model that is a departure from
the highly prescriptive rules-based approach that they are accustomed to. But
the need for new systems suggests that
compliance costs won’t be falling, say
expert observers. Also in this report: e-records management, hedge funds and
anti-money laundering. PAGE 11
DEPARTMENTS
TRADING: A year since institutional
fixed-income platform Thomson
Trade Web launched its retail business,
it announces completion of
a 100-branch deployment
for Janney Montgomery
Scott. The ease of integration with Thomson’s wealth management and back-office systems is contributing to Trade Web Retail’s growth,
says director Peter Adams. PAGE 6
Top Financial Firms
Join Effort to Make
Databases Compatible,
Software Supplier Says
BYJEFFREYKUTLER
Two months since announcing the launch of a large-corporate consortium to promote
easier conversions of databases
from one vendor’s system to another’s, Silicon Valley data server
company ANTs Software said that
it has ten charter members including some of the biggest names
on Wall Street.
ANTs president and CEO
Joseph Kozak said in an interview
last week that 40 to 50 companies
expressed interest in joining the
group ANTs organized, the Compatibility Server Consortium, but
the circle will not widen until the
more contained pilot phase is
completed late this year. ANTs has
a working partnership with Oracle Corp., and support from that
database giant and its Independent
Oracle User Group (IOUG) was
instrumental in generating the
early momentum.
The initial focus of the consortium, addressing a desire that is
now strong in the financial indus-
Continued on page 20
Exchanges Step
Up to Challenge
of Credit Swaps
BYJOHNHINTZE
Major derivatives exchanges
see opportunities in the
rapid growth of over-the-counter
credit default swaps (CDS), but
their attempts to bring out
exchange-traded products that
let investors take positions in
that burgeoning market have
yet to generate much investor
enthusiasm.
Several broker-dealers active
across the equities, options and
futures asset classes told
Securities Industry News that customer
demand for the listed products is
minimal at best. As of July 18,
neither the Chicago Mercantile
Exchange (CME) nor the Chicago Board of Trade (CBOT) on
the futures side, nor the Chicago Board Options Exchange had
handled any trades since their
products launched on June 18,
June 25 and June 19, respectively. Eurex, the Frankfurt-based
joint venture of Deutsche Borse
and SWX Group of Switzerland
that agreed in May to acquire International Securities Exchange
of New York, was the first exchange to offer a CDS index-based product, starting March 27.
Since then, a spokesperson said,
it has executed 3,600 trades (see
sidebar, page 21).
“Traditionally, credit default
products have been over the
Continued on page 21
Separately Managed Account Assets
$ billions
$1,000
2001 2002 2003 2004 2005 2006 1Q07
Source: Money Management Institute, Dover Financial Research
SMA Standardization Poised to Advance
DTCC readying for first seven message types this year
BYCHRISKENTOURIS accounts service, a centralized mes-
The separately managed accounts saging gateway.
(SMA) industry will be taking “The goal is to reduce cost and
a major step to promote straight- operational risk in the managed ac-through processing later this year counts industry while making oper-when Depository Trust & Clearing ations more scalable for all partici-Corp. (DTCC) and some of the pants,” said Ann Bergin, managing
biggest market participants begin director and general manager of
using standardized messages for ac- DTCC wealth management services,
count opening and maintenance. who spoke at a conference on SMAs
The XML, or extensible markup in New York last month hosted by
language, standards were developed MMI and DTCC.
by a committee of the Washington, Seven new messages of the total
D.C.-based Money Management In- of 24 covering the SMA life cycle will
stitute (MMI), including DTCC, to be the first to be launched this year.
streamline communications between Citigroup Global Transaction Ser-hundreds of managers of SMAs and vices (GTS) will translate messages
the broker-dealers who sponsor the from brokerage Smith Barney—also
accounts and use DTCC’s managed Continued on page 18
$944.8
Assets
Growth
25%
31%
$800
$678.1 $889.0
25%
$600
$575.0
$497.3
18%
$400 $399.7 $398.7
16%
$200
COMPLIANCE: NYSE Regulation fines
Piper Jaffray $150,000 for Reg SHO
violations, raising questions about
whether that’s enough to be a deterrent.
PAGE 6
China Cleanup Nears Completion
Bad brokerages culled; new products coming
BY WANG FANGQING
The three-year overhaul of China’s securities
industry, including better risk management
measures, share ownership reforms, and the introduction of new products, will be completed in August, according to regulators. A moratorium on
new investments by foreign brokerage companies,
put in place while the changes were being made,
could be lifted this fall.
New disclosure rules will affect areas such as se-
p3 curities issuance, accounting standards and sales of
p22 shares, and more resources will be dedicated to se-
p22 curities-related criminal investigations. The China
Securities Regulatory Commission (CSRC) will also
require brokerages to use third-party custodians as
of September.
“The cleanup work was triggered mainly by the
embezzlement of client money,” said Shanghai-based
Haitong Securities Co. analyst Lu Chen. During the
stock market downturn of 2001, some Chinese brokerages engaged in illegal behavior such as invest-
Continued on page 20
TRADING: Electronic Specialist,
following a recent capital infusion,
names former E-Trade executive
Joshua Levine CEO. PAGE 7
TRADING: Bank of America releases
derivatives-trading enhancements
and a liquidity-aggregating equity
algorithm. PAGE 8
TRADING: Credit Suisse Advanced
Execution Services chooses thinkorswim’s thinkpipes as front end for options algorithms. PAGE 8
▼
People in the News
Company Index
People Index
▲
On the Web
ITG’s Canadian matching
platform; LSE’s hedge fund
listing plan; and more.
See Breaking News at:
www.securitiesindustry.com.
Strength in Numbers: Knight’s ECN
Invites Investors; Bids Hits Milestone
BYJOHNHINTZE
Executing brokerage Knight
Capital Group, which in
2005 acquired the Attain electronic communications network
(ECN) and renamed it Direct
Edge, has sold a minority stake
in the operation to Citadel Derivatives Group. The move an-
Thomas Joyce
ticipates Direct Edge’s seeking
exchange status and parallels other alternative trading
venues that have prospered through the support of multiple owners.
Even after instituting an attractive fee structure
early this year, Direct Edge’s two trading platforms,
EDGA and EDGX, languished below 200 million
shares a day during the spring, while Kansas City-based BATS Trading saw its volume surpass 300 million. The two-year-old BATS ECN has admitted eight
financial institutions as shareholders.
Another case in point is the Bids Trading alterna-
Continued on page 19
