www.securitiesindustry.com
JANUARY 5, 2009
NEWS DESK
Investment Technology Group is
integrating its TCA offering with
MarketAxess’ compliance suite;
ISE Stock Exchange becomes Direct Edge subsidiary. PAGE 3
PERSPECTIVES
GUEST COMMENT:
As they establish relationships with multiple
prime brokers in increasing numbers, hedge funds will have to develop the infrastructure and business practices necessary to maintain controls over their data, writes
Advent Software’s Chris Momsen.
PAGE 4
SPECIAL REPORT
As exchanges prepare to clear credit derivatives and regulators push to
mandate price reporting, disputes are surfacing about the best way
to mitigate counterparty risk and increase
transparency. “We’ll probably have
two or three or maybe four different
approaches to this on a competitive
basis,” said Goldman Sachs managing director E. Gerald Corrigan, “but
over time I’d rather we gravitate toward a single, global” central counterparty. But dealers, for one, envision the services splitting market
share across regions and products—
keeping clearing fees and collateral
requirements low. Also in this report:
Spending cuts may miss executions
systems; global opportunities in a
worldwide crisis; volatility spurs options technology growth.
As the Economy Goes...
Hedge Funds
Giving SMAs
Warm Embrace
Investor demands for
access, transparency
spurring adoption
BYJOHNHINTZE
George Soros, in recent testimony before Congress, predicted that the global financial crisis will wipe out as much as three-fourths of hedge fund assets. Fearing massive losses, many fund
managers have turned to separately managed accounts (SMAs)
to appease investors.
“Currently, SMAs make up
about 25 percent of our business,
compared to about 10 percent in
2007. That number will probably
double in 2009,” said Michael
Murray, partner at Shoreline
Trading, a New York broker-dealer offering prime services to
hedge funds and asset managers.
James Zurlo, head of prime
Michael Murray
Source: Bernstein Strategy Group; First Call
In a presentation given in October to its portfolio companies, venture capital firm Sequoia Capital noted that technology spending
closely follows the performance of the S&P 500 index.
Start-Ups Feel VC Squeeze
BY TOM GROENFELDT
As venture capital firms suffer
through the credit crunch,
the companies they have invested
in, including financial technology
start-ups, are finding it difficult to
secure additional funding.
For example, New York-based
Trading Metrics, a latency-mea-
surement technology provider
with paying customers and a distribution deal with Thomson
Reuters, recently ran out of money
and is reorganizing as a smaller
shop with three developers.
In October, leading venture
capital firm Sequoia Capital called
Continued on page 12
PAGE 7
New ADR
Policies Pose
Problems for
Foreign Issuers
Outgoing CFTC Chair Offers
Take on Regulatory Revamp
DEPARTMENTS
TECHNOLOGY:
With potential attendees considering staying home, many
financial services conference organizers are planning to make drastic adjustments to their upcoming events.
PAGE 3
brokerage sales at Chicago-based
Gar Wood Securities, said his
firm, which provides similar services, has told the managers it
works with that it can support
SMAs and “they should take a serious look at the accounts.”
A traditional hedge fund account is opened by the manager
and assets are purchased on behalf of the fund and pooled.
Clients are limited partners and
rely on the manager or fund administrator for performance information. That arrangement,
combined with long lockup periods, has put considerable power
in the hands of fund managers,
who largely performed dismally
in last year’s volatile markets.
Investor concerns have intensified since Bernard Madoff’s alleged Ponzi scheme came to light
last month. Though Madoff wasn’t a hedge fund manager, his investors were also given few details
about investment strategy, trusting his acumen and account statements. Increasingly, investors
struggling through the credit cri-
Continued on page 14
TECHNOLOGY
: Even before the financial crisis hit, Wall Street adoption of Microsoft’s Windows Vista operating system was slow. Now, with
IT budgets tightening across the industry, firms are not rushing to make
the switch. PAGE 6
Walter Lukken
▼
Company Index
People Index
p15
p15
▲
On the Web
JP Morgan implements new corporate actions platform; SEC
mandates XBRL filing. See
Breaking News at:
www.securitiesindustry.com.
BYCHRISKENTOURIS
Amendments to the rules that
exempt foreign stock issuers
from U.S. reporting requirements
have made it easier for banks to set
up unsponsored American Depositary Receipt (ADR) programs.
But for non-U.S. companies the
new policies could prove to be a
mixed blessing.
Under the revised Rule 12g3-
2(b) of the Securities Exchange
Act, foreign firms automatically
qualify for a reporting exemption
if they meet certain trading and
Web disclosure requirements. Previously, they had to apply with the
Securities and Exchange Commission. The change has allowed
depositary agents Bank of New
Continued on page 12
SEC, CFTC merger would
be a mistake, says Lukken
BYJOHNHINTZE
President-elect Barack Obama
has indicated that revamping
the financial regulatory system
will be an early priority for his administration. And while the form
that the new structure will take—
and what that will mean for existing regulatory bodies—is a matter of speculation, recommendations are in no short supply, including a proposal from outgoing
Commodity Futures Trading
Commission head Walter
Lukken.
Playing key roles in Obama’s
plans, assuming their nominations
are approved, will be former Treasury Department undersecretary
Gary Gensler and Mary Schapiro,
CEO of the Financial Industry
Regulatory Authority (Finra).
Gensler, who will become chairman of the CFTC, has been a senior adviser for former Sen. Paul
Sarbanes—co-author of the 2002
Sarbanes-Oxley Act—and spent
18 years at Goldman Sachs.
Schapiro, head of NASD before
the self-regulatory organization
(SRO) merged with the member-
Continued on page 14
