www.securitiesindustry.com
OCTOBER 22, 2007
NEWS DESK
Transact Tools offers BATS connectivity; BT Radianz signs Instinet’s
Chi-X Europe for Proximity hosting.
PAGE 3
PERSPECTIVES
COMMENT: The EU’s Markets in Financial Instruments Directive is less
than two weeks from taking effect, but
a litany of unresolved issues and slow-to-adopt member states may mean
that its full impact is not felt for some
time—possibly more than a year.
PAGE 4
ORIGINAL SOURCES: In an increasingly
globalized economy, regulators are
finding common ground, says SEC
chairman Christopher Cox, but that
doesn’t mean that a single regulatory
regime makes sense. “Different markets can legitimately have different
concerns” that arise “from unique circumstances,” says Cox. PAGE 6
SEC’s Redemption
Fee Rule Goes Live
Unexpected charges
could spark concerns
BY CAROL E. CURTIS
The Securities and Exchange
Commission’s Rule 22c- 2, or
the redemption-fee rule, became
effective last week, after two extensions of last year’s Oct. 16 deadline—but the consequences for
mutual funds and their intermediaries are far from certain.
One in a series of reforms
prompted by the market-timing
and late-trading scandals that in
2003 shook the industry, Rule 22c-
2 requires mutual fund boards to
determine whether short-term redemption fees are necessary to prevent market-timing abuses in their
funds. They must also enter into
formal agreements with intermediaries such as broker-dealers and
retirement plan administrators to
gain access to trading and shareholder information.
The reason for the delay, experts
say, is that the redemption-fee policy is one of the most daunting
compliance issues the mutual fund
sector has faced, and for broker-dealer intermediaries and their customers, there may be some unintended consequences.
The rule’s ramifications “are still
not well understood,” says Jeff Lev-
Continued on page 19
LiquidityHub Gives New Look
To Institutional E-bond Trading
Streaming protocol offers alternative to Trade Web RFQ
BY SHANE KITE lyon, Citigroup, Deutsche Bank,
Multidealer e-bond trading sys- Goldman Sachs Group, HSBC, JP
tem LiquidityHub launches Morgan Chase & Co., Lehman
today, offering euro in- Brothers, Merrill Lynch
terest-rate swaps liq- & Co., Morgan Stanley,
uidity from the plat- Royal Bank of Scotland,
form’s broker-dealer Société Générale and
owners via a format UBS.
new to institutional Four of the dealers
fixed-income trading: are not yet live on the
therequest-for-stream system, though they
(RFS) protocol. Robert MacLeod expect to be phased in
The platform is shortly, according to a
backed by 16 of the world’s largest LiquidityHub spokesperson, who
firms: ABN Amro, Bank of America, would not name the four.
Barclays Capital, BNP Paribas, Ca- Continued on page 17
VIEWPOINTS: Brokerage consolidation is leading to “a Costco-type
strategy” of one-stop shopping, says
Packy Jones, CEO of Jones Trading,
in which larger firms are
“no longer able to dig
deep into a trade and
babysit it all day.” Having
accumulated 18 former heads of trading desks, Jones claims his firm caters
to traders whose needs “transcend
what is available in the visible and electronic marketplace.” PAGE 8
DEPARTMENTS
TRADING: The Philadelphia Stock Exchange is the latest regional exchange to
entertain offering services to electronic communications networks that are
seeking out multiple display facilities.
PAGE 10
‘Light’ Swift Will Ease Adoption
Scaled-down interface to appeal to low-volume users
BY JOHN SANDMAN torically has encountered limited
Anew, light-weight interface success in appealing to fund man-
being developed by Swift is agers. A widely held perception has
expected to attract low-volume, been that becoming a Swift cus-
low-value users to its messaging tomer is an expensive proposition.
network. Consequently, the new interface
Plans for the as-yet-unnamed will likely come with a new pricing
SwiftNet interface were unveiled model that offers an affordable
by CEO Lazaro Campos at Swift’s point of entry for users that cur-
Sibos conference in Boston on Oct. rently have cheaper alternatives.
2; it received final approval at a “Today, if you need to connect
board meeting two days earlier. to Swift, you need software and
The La Hulpe, Belgium-based other infrastructure and it is a com-network and messaging utility his- Continued on page 22
TECHNOLOGY: Virtualization technology from Egenera has allowed firms like
Fisher Investments to pare down the
number of servers in their data centers
and has simplified disaster recovery.
PAGE 10
Investors Find Passage to India
In emerging-economy competition,
India is seeing rapid expansion
BY J.R. MAGEE
India, rich in history and tradition, has not always
been rich in other ways. But the country’s emerg-
ing-market status is on the rise due to a strong infra-
structure, advanced technology, institutional investor
confidence and a growing set of Western alliances,
p3 even as it competes with other up-and-comers.
p22 Sandeep Hebbar, senior analyst in Bangalore, India
p22 for Boston-based research firm Celent, said that India’s
use of technology and the faith of foreign institutional
investors are key to its current level of global influ-
ence. According to a Celent report, “The Indian Ex-
change-Traded Securities Market,” released Sept. 19
and authored by Hebbar, “Over the past four years,
the Indian equity market has outperformed most of
the global markets, with an annual return exceeding
30 percent each year.”
Indian Equity Market Capitalization
(US$ Billions)
Finra Says Portfolio
Margin Accounts Can
Include Convertibles
BY JOHN HINTZE
Portfolio margin accounts,
which in December expanded to include equities, are
now on track to add convertible
bonds, a step toward bringing
more fixed-income products into
the higher-leverage accounts.
It has been widely expected
that the accounts, which provide investors with significant
margin relief, would grow to include an increasing range of financial instruments. The Securities and Exchange Commission has approved, through the
formal regulatory approval
process, the inclusion of stocks,
over-the-counter derivatives,
exchange-traded funds, options
on narrow-based indices and
single-stock futures.
More recently, the Financial
Industry Regulatory Authority
(Finra) has interpreted the
SEC’s portfolio margining rules
to include convertibles.
“This would be the first
fixed-income instrument to be
included in portfolio margining, which comes as a little bit
of a surprise because convertibles were not in the original releases” of the rules, said Douglas Engmann, managing director of equities for North
America at Fimat, a broker-dealer affiliate of France’s So-
Continued on page 21
TECHNOLOGY : The Financial Services
Technology Consortium’s industry resiliency initiative to develop operational
risk benchmarks has entered its final
stage of development. PAGE 13
▼
People in the News
Company Index
People Index
▲
On the Web
Shenzhen signs MOUs; new
proxy voting messages from
Swift; a UNX service bureau.
See Breaking News at:
www.securitiesindustry.com.
Source: SEBI, Celent
The current capitalization of the Indian market is
$1 trillion, and Celent expects that to reach $1.4 trillion by the end of 2008.
“The most significant investor group over the past
few years has been foreign institutional investors, over
half of which are registered in the U.S. and U.K.,”
wrote Hebbar. “They have invested a net of $33 bil-
Continued on page 20
