Special Report: OTC Derivatives, page 11
www.securitiesindustry.com
OCTOBER 6, 2008
NEWS DESK
SEC Puts Off
HSBC integrates technology and
operations staff under new position;
Integral Development introduces
low-latency forex execution system;
and more. PAGE 3
Decision on Short
Sale Solution
PERSPECTIVES
BYJOHNHINTZE
GUEST COMMENT: As convergence
efforts continue, KPMG’s Brent Oswald cautions that there are significant differences between International Financial Reporting Standards
and U.S. GAAP as applied to investment companies. PAGE 4
SPECIAL REPORT
The Securities and Exchange
Commission dashed hopes
for a long-term answer to short
selling concerns last week by simply
extending emergency orders issued
in mid-September, leaving the industry in the dark about the route
regulators will ultimately take.
Duncan Niederauer
An increasing number of firms are
outsourcing their processing of over-
the-counter derivatives
to global custodians
and specialist providers.
However, many investment managers don’t
believe that any single offering can
meet all their needs, and others are
hesitant about outsourcing operational work. “Ultimately, it comes
down to the judgment of senior
management as to whether or not
they believe in the concept of outsourcing and the level of customization they can receive from the service provider,” says Omgeo’s Tim
Lind. Also in this report: With counterparty risk rising on the industry’s
agenda, it isn’t a question of whether
a central counterparty will emerge,
but which model will be adopted.
Short-sale solutions could include reinstatement of the uptick
rule or applying so-called circuit
breakers to individual securities
whose prices drop precipitously—
two possibilities raised by NYSE
Euronext executives on Oct. 1,
hours before the SEC acted.
also holds for the requirement that
institutional money managers file
weekly reports on short sales, as
well as the easing of restrictions on
issuers to repurchase their shares.
The ban on short selling for
about 900 financial institution
stocks was extended by the agency
until three days after the enactment
of legislation to provide relief to
firms burdened by problematic
mortgage loans and securities, or
Oct. 17 at the latest. That deadline
The commission did offer some
clarity on short-sale disclosures,
stating that they “will be made only
to the SEC” rather than publicly
released. The Coalition of Private
Investment Companies—a hedge
fund trade group—called that move
important “to protect the confidentiality of investors’ portfolio
management strategies.”
Also extended was the “hard
close” emergency order mandating
that short sellers deliver securities
Continued on page 20
PAGE 11
September Surge for Dark Pools
DEPARTMENTS
TRADING: GFI Group’s chief operating officer, Ronald Levi, discusses
his firm’s strategies in the aftermath
of the Lehman Brothers collapse.
Though recent market turmoil
spurred by the collapse of
several storied financial institutions
has been painful for Wall Street, it
has been good for business for ex-
ecution venues. But independent Alfred Eskandar
dark liquidity pools may be bene-
fitting more than broker-owned much,” given the current environ-
platforms or the displayed markets. ment, said Alfred Eskandar, head
During the week of Sept. 15, of global corporate strategy at New
Liquidnet says its market share York-based Liquidnet, adding that
p22 rose about 30 percent, with an av- it’s a “bittersweet” trend. “In one
p22 erage daily volume of 155 million respect we’re absolutely happy with
shares—the best week in the the volumes and the way the com-
firm’s history. While overall mar- pany is performing and the way our
ket volumes dropped 43 percent members are looking to us in their
the following week, the buy-side flight to quality,” he said. “But at
block-trading platform says it the same time you’d want that to
continued to see record crossing be the case in the best of times, not
rates and an average daily volume the worst of times. That’s the para-
of 95.7 million. dox we find ourselves in right now.”
“It’s kind of hard to celebrate too Continued on page 20
Is volatility benefiting
independently operated
venues disproportionally?
PAGE 6
BYALEXAJAWORSKI
DATA MANAGEMENT: A greater
number of firms are turning to independent providers for over-the-counter derivatives pricing, says an
OTC Valuations study. PAGE 6
COMPLIANCE:
Anti-money-laundering systems vendor Norkom Technologies is teaming with IBM to deliver a more comprehensive approach
to combating financial crimes. PAGE 8
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On the Web
JP Morgan takes SmartPool
stake; new options symbology
could prove costly; and more.
See Breaking News at:
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Momentum Builds for CDS
Oversight—But in What Form?
Regulators and industry focusing on risk, transparency
BYSHANEKITE Lehman Brothers and Ameri-
Regulation is coming to the can International Group, have
credit default swaps (CDS) led to calls for an overhaul.
market. That outcome was virtual- A day before Cox’s testimo-
ly assured long before Securities and ny, Eric Dinallo, chairman of
Exchange Commission chairman New York’s Insurance Depart-
Christopher Cox asked Congress to ment, announced that his
grant the agency authority to over- agency in January will begin
seecreditderivatives. regulating all credit default
Cox made his request during the swaps bought by investors who
Senate Banking Committee’s tense own the debt to which the de-
Sept. 23 hearing, where a collection rivatives are linked. The con-
of the nation’s regulatory heads tracts, he said, should be con-
gathered to discuss solutions to the sidered insurance. CDS used by
ongoing financial crisis. However, firms to speculate, or short, a
the initial steps in what experts sug- firm’s debt would not be cov-
gest will be a large-scale movement ered, added Dinallo.
to standardize and streamline the What portions of the CDS
CDS marketplace came weeks ear- market the SEC would super-
lier, when the Financial Accounting vise is an open question. All the
Standards Board (FASB) made majorindependentbroker-deal-
changes to its rulebook. ers have transitioned to, or been
The lack of standards, infra- acquired by, commercial
structure and transparency in the banks—entities the Federal Re-
CDS sector, and the role derivatives serve, which is seeking greater
played in the demise of Bear Stearns, Continued on page 22
EuroCCP Points to Clearing
Ramifications of Fortis Woes
DTCC subsidiary says it has capacity to support EMCF business
BYCHRISKENTOURIS the Netherlands and Luxem-
EuroCCP courted controversy bourg on Sept. 29 took a 49
last week by stating it is pre- percent holding in Fortis, pro-pared to take over the business ser- viding the troubled firm with
viced by Fortis’ European Multilat- Continued on page 18
eral Clearing Facility (EMCF)
should the financial difficulties of
its parent create problems for its
member firms.
The governments of Belgium,
Diana Chan
