Securities Industry News - August 25, 2008

AUGUST 25, 2008

NEWS DESK

Rosenblatt Securities gives clients direct access to Bids Trading; Cuttone & Co. builds out prime brokerage platform. PAGE 3

PERSPECTIVES

GUESTCOMMENT: As the regulatory environment grows more complex, a “mature data management strategy can satisfy tactical requirements and simultaneously provide significant competitive advantage,” writes Capgemini’s Jeff Deyerle. PAGE 4

In Dispute Over

Commission

Sharing, SEC

Opinion Could

Force Bulge

Brackets’ Hand

VIEWPOINTS: Emerging markets in Asia, Eastern Europe and Latin America are showing increased interest in the FIX protocol as they seek to open and expand their markets internationally. “We are witnessing a growing appetite within each market for the many benefits electronic trading and the FIX protocol present,” says FIX Protocol Ltd.’s Scott Atwell. PAGE 8

DEPARTMENTS

STANDARDS & PROTOCOLS: Swift is increasing cover payment transparency with an enhanced message format that identifies both the party sending the funds transfer and the bank receiving it. PAGE 6

COMPLIANCE: The Securities and Exchange Commission introduces a Web site for mutual funds seeking guidance on anti-money laundering, as well as a hotline for emergency reports. PAGE 6

BYJOHNHINTZE

The Securities and Exchange Commission will soon clarify how compliance conflicts can be avoided when institutional in-

vestors pay brokers for services that are “unbundled” from execution costs. That guidance could help resolve issues around commission-sharing arrangements (CSAs), as some of Wall Street’s biggest firms are refusing to accept payments from the programs.

Paying for brokerages’ unbundled services, which range from research and trade analytics to capital introduction, has been a hot-button issue for bulge-bracket firms for several years.

TRADING: Order-routing and connectivity services provider OES MarketGroup plans to roll out a platform that will link equities and derivatives venues across Europe. PAGE 10

DATA MANGEMENT: Avox signs deal with Xinhua Finance to deliver global business entity data to institutional investors in mainland China and brokers in Taiwan. PAGE 10

ASSETMANAGEMENT: An IRS ruling has limited the ability of investors in funds of hedge funds to deduct management fees from their federal income taxes. PAGE 11

People in the News Company Index

People Index

On the Web

‘Boutique’ Prime Brokers Take On Trappings of Majors

BYJOHNHINTZE

In a sign of their maturity—and desire to draw larger clients— two prime brokers that clear through bigger custodians and a long-term hedge fund service provider are adding offerings that historically only the largest firms have supplied.

So-called mini-primes began to emerge several years ago, as the number of hedge funds increased _p3and the larger, self-clearing prime _p15brokers focused their attention on p15 the top 10 percent. Executives at Gar Wood Securities and Merlin Securities, however, dislike the mini-prime moniker, preferring to be known as “boutiques,” which may be a more accurate description as they expand beyond acting as introducing brokers for larger Continued on page 13

SEC unveils Edgar successor; BATS gets exchange approval; Turquoise begins operations. See Breaking News at: www.securitiesindustry.com.

www.securitiesindustry.com

Direct Edge Gets Equities

Exchange in ISE Deal

Michael Plunkett

New York-based agency broker Instinet was one of the first firms to establish a CSA program—BrokerShare—allowing clients to accrue trading-com-mission credits by using its global execution services. Those customers then direct Instinet to pay brokers and other participants for services, including research, that are eligible under Section 28(e) of the Securities and Exchange Act of 1934, which enables money managers to generate commission dollars to pay for such services without violating their fiduciary responsibilities.

William O’Brien

Holdings, Sun Trading and VDM Capital, will own the remaining 8.76 percent. The Citadel unit and Knight are also investors in the ISE Stock Exchange.

The industry has been waiting since spring for Direct Edge, which began life as the Attain ECN before being acquired by Knight in 2005, to file exchange-status applications with the Securities and Exchange Commission for its two trading platforms. As an ECN, DMA Opens Opportunities in India ^Direct ^Edge ^currently ^displaysquotes for its EDGA and EDGX systems on the Chicago-based National Stock Exchange.

Instinet, a Nomura Holdings

Continued on page 12

BY MICHAEL EGGEBRECHT AND DAWN KISSI

Direct Edge, seeking to further accelerate its rapid growth, announced Friday that it has signed a definitive agreement with the International Securities Exchange that will make the ISE Stock Exchange a wholly owned subsidiary of the innovative electronic communications network (ECN).

Under the deal, ISE will become the largest single shareholder in Direct Edge, paying $123 million for a 31.54 percent stake. Following the completion of the transaction, expected in the fourth quarter, the ECN’s existing investors—Knight Capital Group, Citadel Investment Group’s derivatives arm and Goldman Sachs—will each hold 19.9 percent shares. The ISE Stock Exchange’s backers, including Bear Stearns, Deutsche Bank, E-Trade Financial, Interactive Brokers Group, JP Morgan Chase & Co., Merrill Lynch & Co., Nomura

Modern infrastructure could boost global profile

BY MAYUR PAHILAJANI

BNP Paribas offers direct-market access (DMA) to exchanges across the Asia-Pacific region—in Australia, Hong Kong, Japan, Korea, Singapore, Taiwan and Thailand. This summer, India, Asia’s second-largest economy, joined the list.

In fact, BNP last month became the first brokerage to execute a DMA order in the country, placing a trade on the National Stock Exchange of India (NSE) through a local broker partner, Kochi-based Geojit Financial Services. BNP, which owns 49 percent of Geoji, has invested more than EUR500 million ($743 million) over the past three years in Indian securities firms. In July, the French bank announced that it had created a joint-venture firm with Geojit—