TRADING

Are Fund Managers Ready for the Coming Clash of Option Symbols?

PAGE 10

VOLUME 21 NUMBER 16

COMMENT p. 4

A New Day at The News

DATA MGT. p. 16 Stopping the Flood

TECHNOLOGY p. 17 More Firepower for Fidelity

JULY 20, 2009

OPERATIONS p. 19 When The Clouds Get Dark

How A Morgan Stanley Exec May Have Committed the Perfect Ops Crime. Well, Almost.

Trading TradeOff: When To Monitor
Sponsored Access To Exchanges
By Chris Kentouris

BARINGS, SOCIETE GENE-rale, Goldman Sachs and UBS: All Wall Street powerhouses where so-called rogue traders and quant executives made off with multimillions of dollars worth of profits or proprietary code.

Such cases have prompted plenty of scrutiny on how unscrupulous executives bypassed what should have been solid checks and balances in taking advantage of the front office,

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SPECIAL REPORT
By John Hintze

WALL STREET HEAVYweight Goldman Sachs, now launching its own sponsored-access service to lend clients its identification to access securities exchanges directly, said last week it favors monitoring client orders prior to execution.

“Our view is that there is a real need for pre-trade checks in the use of sponsored access to fulfill [broker-dealers’] regulatory responsibilities,” said Greg Tusar, managing director at Goldman.

Goldman’s stand in favor of pre-trade instead of post-trade monitoring of sponsored clients’ activity is one side of a debate in which regulators may choose a middle ground. The regulators’ decision on how to monitor sponsored access may also influence their deliberations on restricting short sales.

Even though it publicly is taking a stance in favor of pre-trade monitoring—which can slow down the execution of trades in high-speed markets where milliseconds count— Goldman has yet to submit a comment letter on Nasdaq’s January proposal to standardize sponsored-access arrangements. But Goldman says it has discussed the issue with regulators.

In sponsored access, a broker-dealer lends its market participation identification

(MPID) number to clients for
them to trade on exchanges
the minimum that is necessary,”
said Andrew Donohue, director
of the SEC’s Division of Invest-
ment Management, at a hear-
ing on hedge fund regulation
called by the Senate securities
subcommittee, chaired by U.S.

Senator Jack Reed ( D-RI).

Donohue spoke of a “ regulatory gap” under which

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CASE STUDY

Inside Out: The Efficiency

Of Wedbush Morgan

Page 21

without going through the broker’s trading system, to avoid slowing down the execution. That places responsibility on the broker-dealer to make sure the participant abides by securities regulations, and that its trading, which can involve hundreds or thousands of orders a second, does not run amok.

securitiesindustry.com a SourceMedia brand

CODE GREEN

Goldman Sachs and UBS each have filed charges against former employees they allege stole proprietary computer coding. Millions in trading profits may depend on such crackdowns.

FULL STORY ON PAGE 12

Advisers May Find Themselves Targets in Hedge Fund Regulation

Unchecked errors or unintended repeat orders could deplete broker-dealers’ capital, and potentially wreak havoc in the broader market. Concerns have arisen, however, about whether all broker-dealers are able to fulfill that duty in today’s electronic trading environment, and according to which standards.

“In the case of high-frequency trading, in particular

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ONtheWEB securitiesindustry.com

By Carol E. Curtis

IN A BELLWETHER HEARing Wednesday, members of the Senate were told that regulation of hedge fund advisers—an approach already tried by the Securities and Exchange Commission—is the cornerstone to crafting a regime for hedge fund oversight.