Special Report: Options Technology—From Algos to OTC, page 9
www.securitiesindustry.com
APRIL 14, 2008
NEWS DESK
New applications from Broadridge
help self-clearing broker-dealers
streamline workflow; the Montreal Exchange and Options Industry
Council seek to educate Canadian
investors on options; Citigroup
takes a stake in Tradeweb. PAGE 3
PERSPECTIVES
GUEST COMMENT: Guidelines from
the SEC and FSA on the services
that can be expensed using soft dollars could “radically alter” how
firms “select and pay for trading
systems technology,” writes Portware’s Harrell Smith. “Given the
millions of dollars that brokers have
sunk into developing or purchasing client-facing trading systems,
brokers are loath to comply with
the new regulations.” PAGE 4
SPECIAL REPORT
Some of Wall Street’s biggest firms
are working to make algorithms as
much a part of the options market
as they are in equities. With penny
pricing making it more difficult to
move institutionally
sized orders, it “makes
sense for options traders
at this point to start
playing and experimenting with the same tools that equities, futures and FX traders have
been using successfully,” says Credit Suisse’s Dan Mathisson. Also in
this report: Over-the-counter options present a promising opportunity for platform providers; an options trading venue aims to bring liquidity back to the regulated world;
and more. PAGE 9
DEPARTMENTS
TRADING: Looking to add revenue
outside of the volatile fixed-income
markets, bond trading platform operators are buying technology vendors and service providers.
PAGE 6
Shakeup at Division of Trading and Markets
SEC reorganizing staff to
meet new challenges
BYJOHNHINTZE
Amid historic market turbulence and the unfolding of
controversial regulations, the Securities and Exchange Commission’s division of trading and markets is undergoing a major reorganization that will shift the responsibilities of top officers.
The SEC has been searching for
a second deputy director to join
Robert Colby in the division since
November, around the time it
changed its name from the division
of market regulation. The new
name as well as the new position—
unfilled as of last week—reflect legislative and market changes that
Robert Colby
have expanded the outfit’s scope.
However, even with a wider mandate, bringing on another deputy
director by definition divides the
deputy-level responsibilities.
Several sources familiar with developments at the agency said independently that Colby, deputy director since 1993, will retain his
Erik Sirri
title but is expected to focus on running the automation review policy
unit. That program was already
under his purview.
“There’s no reason to create that
job other than to take away some
of Bob Colby’s responsibilities,”
said a former SEC staffer. “Not be-
Continued on page 19
Swift Moving to
Streamline Corporate
Action Processing
Testing initiative follows
plans to upgrade formats
BYCHRISKENTOURIS
Swift’s new testing program will
allow its members and vendors
to see how their usage of corporate
action messages stacks up against
market practice guidelines established by global and local business
standards groups.
The initiative, announced at the
Swift Operations Forum for the
Americas (Sofa) in New York last
week, is part of a broad-reaching
Continued on page 7
Fidelity Enters Self-clearing Outsourcing
BYJOHNHINTZE months away, hopefully, from de-
Fidelity Investments’ clearing livering the first client onto the
business, National Financial platform,” Malo said.
Services (NFS), is planning to offer National Financial began build-a processing and operations out- ing the platform, which lets clients
sourcing service to self-clearing bro- retain their Depository Trust &
ker-dealers—a sizable market seg- Clearing Corp. (DTCC) codes and
ment. The strategy, announced last back-office responsibilities, about
week, is similar to that employed by four years ago, according to Malo.
Broadridge Financial Solutions. In spring 2004, Automatic
NFS president and CEO Nor- Data Processing (ADP), the
man Malo said the new outsourc- largest supplier of trade processing unit is about three months away ing software to self-clearing bro-from testing the platform with its kerages, purchased two corre-first client—a self-clearing broker spondent clearing firms. In early
currently using technology from 2005 it rolled out a service pro-one of the top three trade process- viding traditional, fully disclosed
ing vendors. “We’re now about six Continued on page 17
Regulators Shine
Light on Auction
Rate Securities
BYCAROLE. CURTIS
Following a series of law
suits by investors against
brokerages, the Financial Industry Regulatory Authority
(Finra) and the Securities and
Exchange Commission are
looking into possible irregular-ities in auction rate securities
(ARS).
Finra, which recently sent securities firms a survey on ARS,
has reportedly begun a sweep
investigation, with help from the
SEC. John Heine, spokesperson
for the commission, said that
“while we cannot discuss specific matters ... we are looking
into representations made to investors when they purchased
auction rate securities.”
More than $300 billion of
ARS are held by individual and
institutional investors, including corporations and mutual
funds. They are long-term
bonds with interest rates set in
auctions held every 7 to 35 days
by large banks such as Citigroup, Goldman Sachs, Merrill
Lynch & Co. and UBS. Since
the inception of the market
more than two decades ago, the
bonds have been viewed as virtually the equivalent of cash, and
brokers have sold the securities
as liquid, safe alternatives to
Continued on page 16
TRADING: The expansion of the
pilot of penny-increment pricing
for options is expected to accentuate trends that have been unfolding since the program began.
PAGE 12
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On the Web
Recognizing a Need for Mutual Recognition
Regulators, trade associations press for transatlantic cooperation
BY REKHA MENON sioner Charlie McCreevy discussed
Atransatlantic securities mar- a “mutual recognition” framework
ket, long the subject of acad- for EU and U.S. securities markets.
p3 emic discourse and informal dia- Such an arrangement would en-
p19 logue between Europe and the able European stock exchanges and
p19 U.S., could soon become a reality broker-dealers to operate in the
as regulators and trade groups alike U.S. under the supervision of their
continue to push the concept of home regulators; U.S.-based mar-cross-border cooperation. ket participants, in turn, would re-
Securities and Exchange Com- ceive reciprocal treatment from
mission chairman Christopher Cox EU agencies. Regulators say that
in early February took a step in that mutual recognition could poten-direction, when he and European tially provide investors with a
Union internal market commis- broader and deeper transatlantic
“By beginning to build
a sturdy basis for
cooperation among
securities regulators …
we can greatly improve
investor protection and
market efficiency
worldwide.”
-Christopher Cox,
SEC chairman
Regulators open U.S. to Chinese investors; RBC forms a
unified prime services unit.
See Breaking News at:
www.securitiesindustry.com.
market, promote greater diversification of securities portfolios, significantly reduce overseas trading
Continued on page 18
