www.securitiesindustry.com
FEBRUARY 11, 2008
NEWS DESK
An Avox-GoldenSource data alliance; NeoNet connects to Eurex;
GL Trade completes FNX integration; and more. PAGE 3
PERSPECTIVES
GUEST COMMENT: The recent internal fraud at Société Générale
“should serve as a wake-up call to any
organization that has not addressed
the issue of privileged password management,” writes Cyber-Ark Software’s Calum Macleod. PAGE 4
ORIGINAL SOURCES: The U.K.’s Financial Services Authority has released its annual Financial Risk Outlook, which FSA head Callum McCarthy calls “a prudent attempt to
highlight the risks that could impact
consumers and firms in a less benign
economy.” PAGE 6
DEPARTMENTS
TRADING: With the Markets in Fi-
nancial Instruments Directive opening up Europe to multiple venues,
U.S.-style fragmentation
is likely to result, meaning that “
trading is now an arms race, and smart-order routing is key,” says Credit Suisse’s George Andreadis. PAGE 8
Dec. 7. The group announced last
month that it was in talks to buy
the New York Mercantile Exchange (Nymex) for $11 billion in
cash and stock. Each of those exchanges has cleared its own listed
products—a vertical business structure, unlike the equity and options
markets, and one that critics have
long said inhibits competition and
Continued on page 16
CLEARING & SETTLEMENT: The London Stock Exchange plans to route executed orders to whichever clearinghouse its members pick. PAGE 8
TRADING: Interdealer broker GFI
Group has purchased trading platform
vendor Trayport. PAGE 10
ASSET SERVICING: Paladyne Systems
adds SunGard’s portfolio management
software to its hosted service. PAGE 12
DOJ: Futures Structure ‘Anti-competitive’
CME, Nymex say vertical clearing key to global competitiveness
BY JOHN HINTZE
The U.S. Department of Justice (DOJ) last week called
the vertical structure of U.S. futures exchanges anti-competitive
and costly for investors. Though
the statement is unlikely to result
in imminent regulatory changes, it
highlights the growing concerns
that have prompted global banks
to launch competing execution
venues.
The DOJ’s letter, issued on Feb.
6, was a response to the Treasury
Department’s request for comments, filed in October, on how
best to bolster U.S. competitiveness in the capital markets. The
22-page letter cites the DOJ’s experience investigating anti-competitive behavior across the U.S.
financial markets and concludes
that “current rules and policies related to clearing futures contracts
may be unnecessarily inhibiting
competition among futures exchanges in the development and
trading of financial futures contracts, to the detriment of the
economy and consumers.”
The biggest U.S. futures market operator is CME Group, consisting of the Chicago Mercantile
Exchange and Chicago Board of
Trade (CBOT), which merged on
Rainbow Rises in
Europe: Derivatives
Get New Platform
BY JOHN HINTZE
The latest in a series of trading
venues started by groups of
often overlapping global financial
institutions, a new European platform could address fungibility issues in the listed derivatives market
and ultimately reduce costs for investors.
The co-owners of the platform—Project Rainbow—include
Barclays Capital, Deutsche Bank,
Goldman Sachs, JP Morgan Chase
& Co., MF Global, NewEdge and
UBS, the Financial Times said on
Continued on page 18
Indian Outsourcing Prime for Consolidation
Experts see a run on specialists, as big vendors get bigger
BY SAVITA IYER-AHRESTANI tion technology service providers
At least once a month, neoIT, and BPO ventures that are facing
an outsourcing consultancy in pressure to bring on clients. More
San Ramon, Calif., gets an unso- established Indian vendors are also
licited message from a newly mint- trying to remain competitive,
ed business process outsourcing Davison says. That drive to stay at
(BPO) entity in India seeking the forefront is one of the main
clients. These are companies that reasons why mergers and acquisi-
p18
p18 undoubtedly know how tions are likely to in-
to deliver the services crease this year.
they offer, says neoIT “While niche
head of research Dean providers can be suc-
Davison, but are unable cessful,” it is a tenu-
to drum up the business ous position to be in,
they need to survive in asserts Davison, “par-
the BPO space—an ticularly as the eco-
area that has become so Venkatesh Roddam nomic downturn
saturated, experts don’t see any op- takes hold in the U.S. and corpo-
tion but consolidation. rations are likely to become more
It isn’t just the newer informa- Continued on page 15
ASSETSERVICING: Charles River links
its order management system to post-trade communications provider
Omgeo in Japan. PAGE 14
TECHNOLOGY: A Chinese securities
firm gets a new enterprise risk system,
courtesy of IBM and Algorithmics.
PAGE 14
▼
Company Index
People Index
▲
On the Web
Bids links to LatentZero;
Trading Metrics offers latency-measurement tool; and more.
See Breaking News at:
www.securitiesindustry.com.
Labor Shifts Fee-Disclosure Burden
Good news for plan sponsors;
new demands on fund companies
BY CHRIS KENTOURIS
In a pair of interrelated rulings
affecting pension plans under
the Employee Retirement Income
Security Act (Erisa) of 1974, the
U.S. Department of Labor (DOL)
appears to have reduced some of
the administrative burdens of pension plan sponsors, but may be
putting additional strain on investment fund companies.
In a final rule published in November, the DOL backed down
from its mandate that plan sponsors report in Schedule C of Form
5500 “indirect compensation” paid
to asset managers receiving more
than $5,000 annually, as long as the
investment adviser provides the
sponsor with “specific written disclosures.” Included in indirect
compensation are commissions
Plan sponsors can take
advantage of an
“alternative reporting
option” if investment
managers “disclose the
existence of the indirect
compensation, the services
provided … the amount of
the compensation … and
the identity of the party or
parties paying and
receiving the
compensation.”
—U.S. Department of Labor
Federal Register, Nov. 16
spent by investment managers
on proprietary and third-party
research as well as 12-b1 fees
and float income.
MTS Faces Looming
Threat to Dominance
In Government Bonds
BY SHANE KITE
The Italy-based MTS group of
fixed-income platforms—
long dominant in the interdealer,
electronic trading of European
government bonds—is facing
growing competition as multiple
countries are opening up trading
to competitors.
Form 5500—plan sponsors’ version of an annual report—is reviewed not only by
the DOL but also by the Internal Revenue Service and
the Pension Benefit Guaranty Corp. to ensure that sponsors retain their tax-exempt
status and are financially
sound.
Belgian and Dutch regulators
have told broker-dealers they may
provide liquidity on other interdealer platforms, as long as the brokers and platforms fulfill certain
criteria. Several other countries are
expected to follow their lead.
The bad news for investment fund companies is that
the DOL also wants to change
Rule 408(b) 2 to require that
service providers make additional disclosures on fees and
conflicts of interest before a
plan sponsor signs a contract
Continued on page 15
The Dutch State Treasury
Agency (DSTA) last week released
the liquidity and market-making
requirements that dealers must
meet to use other trading platforms
for bonds issued by the Netherlands government. Meanwhile, the
Belgium Debt Agency has approved Icap’s Broker Tec system and
an eSpeed-powered platform from
Cantor Fitzgerald’s BGC Group
for secondary market-making in
Continued on page 16
