www.securitiesindustry.com
MARCH 17, 2008
NEWS DESK
Tabb Group sees “consolidated
proliferation”; Direct Edge opens
new headquarters; Skyler Technology upgrades liquidity management solution. PAGE 3
PERSPECTIVES
GUEST COMMENT: In an environment where markets are complex
and unpredictable, information and incentives
“lie at the very heart of
good risk management,”
says the Federal Reserve’s Randall
Kroszner. “Information is vital to
good decisionmaking, and incentives send the right signals and create beneficial outcomes both within
individual institutions and to the financial system as a whole.” PAGE 4
DEPARTMENTS
TRADING: The International Securities Exchange and Nasdaq Options
Market have received permission to
offer reserve orders—a common feature in the equities market. PAGE 8
SEC, CFTC Cooperation Could Push
Portfolio Margin’s Cross-Asset Goals
Christopher Cox
TRADING: Fixed-income platform
Tradeweb seeks to spur online interest
rate swaps trading with the addition of
six global dealers—who are also backers—to its U.S. dollar swaps market.
PAGE 8
TECHNOLOGY: Coral8 and Aite
Group cite data quality monitoring,
fraud detection for block-trading
venues and real-time risk management
as new applications for event processing technology. PAGE 9
BYJOHNHINTZE
The announcement last week
that the Securities and Exchange Commission and Commodity Futures Trading Commission (CFTC) have agreed to work
more closely together on overlapping issues may be a boon to bro-
Andreas Preuss Wayne Luthringhausen kers’ aim to marry futures and securities in portfolio margin ac-
ISE, Eurex To Forge Transatlantic Link counts.
Those accounts, which were ap-
OCC chief executive says more connections could follow proved by the SEC in December
BYALEXAJAWORSKI Eurex and Eurex Clearing signed a 2006, permit the use of risk-based
Derivatives exchange Eurex, its term sheet with the OCC, the cen- rules to cross-margin a variety of fi-International Securities Ex- tral counterparty for all U.S.-list- nancial instruments in a single ac-change (ISE) subsidiary and the ed options contracts. count. The rules, written by the
Options Clearing Corp. (OCC) Calling it the first modern New York Stock Exchange and
have unveiled plans to create a transatlantic securities link “that Chicago Board Options Exchange,
transatlantic link that will allow provides not only for trading but include single-stock futures, which
Eurex customers to clear contracts also for clearing,” Andreas Preuss, can already be used in securities ac-traded on ISE through their exist- CEO of Eurex, said at a press con- counts.
ing accounts at Eurex Clearing. ference that on the trading side, Also included in the rules are fu-
The link, slated for launch by Eurex customers will have full ac- tures on broad-based equity index-the second half of 2009, subject to cess to ISE products through their es such as the S&P 500 and Russell
regulatory approval, was announced existing connection. “Our goal in 2000—most commonly used to
Wednesday at the Futures Indus- structuring it this way is to make ac- hedge equity market risk—but they
try Association’s annual conference cess as seamless as possible,” he said. cannot yet be included in portfolio
in Boca Raton, Fla., where ISE, Continued on page 18 margin accounts. Futures accounts
TRADING: The upstart global futures exchange now has a name—
the ELX Electronic Liquidity Exchange—and an independent software vendor program. PAGE 10
TRADING: The NYSE Hybrid Market has begun offering floor brokers
a credit for providing liquidity.
PAGE 10
are subject to the CFTC’s customer protection rules, which
require futures commission
merchants (FCMs) to segregate
clients’ funds from their own in
case of bankruptcy. Securities
accounts, on the other hand, including portfolio margin accounts, are insured and the return of their assets handled by
the Securities Investor Protection Corp. (SIPC).
Those differences, enforced
by statute, have been a source
of contention for the regulators as well as the exchanges
they regulate. In a March 11
press conference with Walter
Lukken, the CFTC’s acting
chairman, SEC chairman
Christopher Cox noted that,
increasingly, futures contracts
are based less on commodities
and more on financial instruments, where distinctions between the markets blur. “There
should not be counterproduc-
Continued on page 15
TECHNOLOGY: Ernst & Young says
many global financial services firms
have ineffective or nonexistent information technology risk management programs. PAGE 13
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On the Web
State Street acquires Financial
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See Breaking News at:
www.securitiesindustry.com.
SEC’s ADV Changes: Much Ado?
Soft-dollar practices may remain opaque
BYCHRISKENTOURIS
The Securities and Exchange Commission’s proposed changes to Form ADV, filed by investment advisers when they register with the agency,
could improve disclosure of conflicts of interest, but
observers say they may not shine as bright a light on
soft-dollar commission practices.
The amendments would require more than 10,000
registered investment advisers, including those who
manage hedge funds, to provide “clear, current and
meaningful disclosure in narrative form to nearly 20
million clients,” according to the SEC. The plain-English brochures would be available to the public
on the commission’s Web site.
Comments on the proposal, published in the
Federal Register on March 3 after receiving unanimous
approval from the commission last month, are due
by May 18.
The brochures are intended to give investors more
detailed information about an investment adviser’s
business practices, types of advisory services provided, investment risks, any soft-dollar arrangements,
possible conflicts of interest and disciplinary history.
They would also address a developing area of con-
Continued on page 17
FSA: Traders Must Record Client
Order Telephone Conversations
BYJOHNSANDMAN
Adding new compliance burdens to financial services
firms still getting up to speed with
the European Union’s Markets
in Financial Instruments Directive (MiFID), the U.K.’s Financial Services Authority (FSA) will
require that they record tele- Tim Furmidge
phone conversations and other electronic communications.
The new rules, which are intended to “help deter
and detect market abuse in the U.K.,” according to
the FSA, will become operational in March 2009. All
communications, including telephone calls, e-mail,
instant messages and faxes, “relating to client orders
and the conclusion of transactions in the equity, bond
and derivatives markets” will be affected.
FSA spokesperson Abi Jones explained that “the rules
apply to activities carried on by firms managed by an
authorized person in the U.K.” and include communications with “individuals and entities outside the U.K.”
Currently, the FSA has no rules concerning the
recording and retention of telephone or electronic communications, though it does offer “guidance on the cir-
Continued on page 16
