Securities Industry News - August 17, 2009

UNCLAIMED FUNDS

Bernard Madoff’s are frozen. Under debate: Who should find “lost” investors.

PAGE 4

HOW WALL STREET OPERATES

Volume 21 Number 18 • August 17, 2009

TRADING p. 6 Tools for Timekeeping

OPERATIONS p. 8 What Price is Right?

RISK p. 12

Question of Spending

CASE STUDY p. 20 No-Momentum Trading

Ghosts in the
Machine: Attacks
May Come From
Inside Computers
SPECIAL REPORT
By Shane Kite

THE NEXT WAVE OF HACKing into computers and stealing data will not be requests or code coming from remote points across the Web, security experts are warning.

Instead, the most sophisticated Trojan Horses appearing on Wall Street financial systems may be threaded into the silicon of integrated circuits by design, their malicious instructions baked right into the tiny physical aspects and intricate mapping of the chip itself, according to scientists and academics working with the National Institute of Standards and Technology, the White House and the Financial Services Information Sharing and Analysis Center in Dulles, Va.

Detecting such malware after a chip is fabricated will be extremely difficult, if not impossible, these experts say, because the microchips that run servers have millions to billions of transistors in them.

By Chris Kentouris

WHAT WOULD HAPPEN IF a global custodian bank servicing U.S. fund managers were to be held liable by the Securities and Exchange

Commission for the total val- CONTINUED ON PAGE 18

FULL STORY ON PAGE 14

Accounting for Structured Transactions Forcing System Overhauls

SWEEPING CHANGE
The structure of the options market
changes August 31. With it comes
“the potential for mischief.”
By John Hintze

FINANCIAL FIRMS ENGAGED in structured transactions— all the rage over the last decade—face recent accounting changes that could dramatically increase their capital requirements and more immediately require major operational changes in their asset-tracking systems, as well as books and records.

Some structured financial transactions such as mortgage-backed securities (MBS) and securitizations of credit card receivables, have become mainstream and others are highly esoteric. Brokers such as Goldman Sachs and Morgan Stanley, major banks including Bank of America and Wells Fargo, as well as asset-manag-ers like Blackrock have noted

The European Commission wants to hold European depositary banks to a higher standard of investor protection than currently exists anywhere. Under Article 17. 5 of legislation proposed to oversee the alternative investments industry, the EC would have European depositaries, which typically perform safekeeping and recordkeeping services for investment funds, responsible for making investors whole for the wrongdoings or bankruptcy of subcustodian banks and prime

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In Europe, Custodians May Be Forced To Repay Investors For Madoff-Style Losses

ue of losses suffered through the wrongdoing of processing agents far removed from its oversight?

If you have passed the bar, it’s a good bet there would be an irate crowd at the SEC’s doorstep. That’s judging from the response of three New York securities law experts questioned by Securities Industry News about such a possibility, engendered by how the European Commission is prepared to deal with depositary banks, that continent’s equivalent. Each attorney gave the same answer: “You gotta be kidding me.”