www.securitiesindustry.com
NOVEMBER 10, 2008
NEWS DESK
Global connectivity key to futures
industry, says report; ICE Clear Europe goes live; Regional Bond Dealers Association forms technology
committee. PAGE 3
PERSPECTIVES
GUEST COMMENT: With the Treasury’s office of foreign assets control increasing penalties for violating sanctions, financial institutions
should reconsider the resources
dedicated to Ofac compliance, write
David DiBari, Steven Gatti and
Matthew Hsu of Clifford Chance.
PAGE 4
FinCEN Pulls
Plug on Hedge
Fund AML
BYJOHNSANDMAN
Six years since they were first
proposed by the Financial
Crimes Enforcement Network
(FinCEN), anti-money-laundering
(AML) regulations for unregistered
investment companies, commodities trading advisers and investment
advisers have been taken off the
table for the foreseeable future.
In an Oct. 30 statement, FinCEN—the Treasury Department
arm that enforces the Bank Secrecy
Act (BSA) and AML mandates of the
USA Patriot Act—said it “will not
proceed with BSA requirements for
these entities without publishing new
Continued on page 16
Phil Pendergraft
ORIGINAL SOURCES: A new administration will soon begin looking at
what went wrong with
the regulatory system
and how to ensure that it
becomes more rational
and “the protection of
consumers more consistent across
functional lines,” says the Financial
Industry Authority’s Mary Schapiro,
who offers her advice on the inevitable restructuring. PAGE 6
DEPARTMENTS
STANDARDS & PROTOCOLS: XBRL
US is aiming to standardize the delivery of corporate actions data and
proxy statements, and possibly information on mortgage-backed securities. PAGE 8
In Unstable Market, Clearer
Penson Sees Stable Growth
CEO Pendergraft credits new business, tech focus
Hedge Fund Assets by Location
Share
CLEARING & SETTLEMENT: The
Committee of European Securities
Regulators plans to assess the effects
of the Markets in Financial Instruments Directive and clarify its post-trade transaction reporting policies.
PAGE 10
BYJOHNHINTZE and president Daniel Son—put in
While many of its broker- place several years ago. Penson
dealer brethren have suf- started out in 1995 as a clearing
fered along with the financial mar- firm, primarily supporting broker-kets, Penson Worldwide’s third- dealer correspondents that catered
quarter net revenues increased 16 to active traders using electronic
percent year over year and net in- trading systems. But over the last
come tripled, to $7.5 million. Dri- five years it has expanded aggres-ven partly by technology services sively, acquiring direct-market ac-and higher clearing and commis- cess (DMA) provider Nexa Tech-sion fees, Penson’s non-interest rev- nologies in 2004 and Tick Data,
enues, reported late last month, which offers historical trade data to
were up 30 percent. model e-trading strategies, the fol-
Given the daunting headwinds, lowing year.
the firm’s strong growth reflects the Although still relatively small
diversification strategy its co- compared to brokers with sizable
founders—CEO Phil Pendergraft Continued on page 12
Source: IFSL Research
TRADING : The Tokyo Stock Exchange and Markit Group are pursuing an alliance that could improve
Japan’s post-trade infrastructure for
over-the-counter derivatives.
PAGE 10
Cutting Brokers, Calpers To Revamp Relationships
New Criteria
Could Halt
Business Process
Patent Flood
Appeals court ruling
applies new restrictions
BYCHRISKENTOURIS
In a decision that could prompt
a flurry of legal activity, the
U.S. Court of Appeals for the
Federal Circuit has made it more
difficult to obtain protection for
business methodologies.
In an Oct. 30 ruling, the
court upheld the denial of a
patent for Bernard Bilski, who
devised a methodology for
hedging risks in commodities
trading. Business processes, said
the court, are patentable only if
they are tied to a particular machine or transform a certain
item “from one state to another.” Limiting the patent to a
specific field of use, added the
court, is not sufficient.
Patents for business processes have become commonplace
in the financial services industry as banks and brokerages
have moved to ensure a competitive edge. The floodgates
were opened by a 1998 ruling
that allowed State Street Corp.
to acquire a patent on the “hub
and spoke” approach to mutual
fund management. Now, that
same court may stem the tide.
“The fact that Bilski applied
Continued on page 18
DATAMANAGEMENT: Riskdata hopes
to improve hedge fund transparency by publishing daily value at risk
indicators, including a new measurement—ShockVaR. PAGE 14
▼
Company Index
People Index
▲
p19
p19
On the Web
IASB offers fair-value accounting
guidance; Nasdaq OMX buys
market intelligence provider
Bloom. See Breaking News at:
www.securitiesindustry.com.
BYJOHNHINTZE
In January, the California Public
Employees’ Retirement System
(Calpers) will begin consolidating
its institutional broker relationships
using a methodology developed by
its investment arm to manage executing broker-dealers. The new,
more quantitative approach could
potentially give more access to up-and-comers.
Calpers, which has more than
$190 billion in assets under management, currently uses about 80
brokers to execute trades. Those are
coveted spots in the broker-dealer
community and will become more
so as the nation’s largest pension
fund seeks to reduce the number of
firms with which it actively deals.
“Staff will be working with a
much smaller set of brokers, allowing a more informed evaluation
of capabilities as well as more
meaningful and leverageable relationships,” said a report to the
Calpers board’s investment committee, signed by interim chief investment officer Anne Stausboll and
two other top executives in the investment division.
Calpers plans to create several
pools of brokers, working most
closely with “core” firms while evaluating the capabilities and usefulness of “developmental” ones. A
broker’s status will be determined
by a questionnaire—available from
the pension fund’s Web site—that
Calpers staff and a diversity consul-
tant will analyze. Broker-dealers not
falling into either of the first two
categories will be placed in a
queue—allowing them to automatically be considered when the review
process begins again—or rejected,
requiring them to apply again.
“Brokers who are classified as
queue brokers and those who are
rejected will receive an evaluation
of why they were not selected,” the
Calpers report notes.
As a public pension fund,
Calpers, whose investment committee expressed support for the
plan Oct. 20, has sought to achieve
best execution—results have been
“very good,” according to the report—and provide opportunity to
Continued on page 16
