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PAGE 20
HOW WALL STREET OPERATES
Volume 21 Number 19 • September 7, 2009
CASE STUDY p. 6
Jones Trading Goes Global
DATA MANAGEMENT p. 8
Europe Doesn’t Go to the Tape
EXCHANGES p. 10
Funds Fall Off Cliff
RULES p. 18
The Uncertainty of Reform
$6.3 Million Loss
Raises New Issue
About Access
SOUTHWEST SECURITIES
has already announced it will
take a $6.3 million loss in its
first quarter, which started
June 22.
The charge stems from a
clearing correspondent customer for which Southwest
acted as a qualified special representative (QSR).
The snafu, in which the
customer could not complete a
short sale involving 2. 3 million
shares, bears similarities to today’s controversial sponsored-access arrangements. Just as
when a broker-dealer sponsors
a customer’s direct access to
an exchange using its market
participation code, the broker’s
capital is at risk if something
goes wrong when it is the QSR
of a customer.
QSRs permit a broker-dealer who is a correspondent of a
clearing house to trade direct-
CONTINUED ON PAGE 4
COMPETITIVEINSIGHT
“Material”
Disclosures
Strain Dealers of
Municipal Bonds
By Chris Kentouris
MUNICIPAL BOND DEALERS
are facing tough operational
challenges as they try to keep up
with regulatory requirements
to disclose more information to
investors on the financial condition of the pieces of debt investors are purchasing.
The Municipal Securities
Rulemaking Board (MSRB),
the self-regulatory agency
governing dealers in the $2.7
trillion market, released a new
interpretative letter in July
saying dealers continued to
be responsible for researching the suitability of a bond for
an investor and setting a fair
price—but now they also must
disclose “material information”
on changes in the financial condition of the municipal issuer
or third-party obligors. Those
obligors include low-income
housing, hospital or sports facility developers that get proceeds from municipal bonds as
so-called conduit funding of
their projects.
Dealers now will be expected to maintain detailed records
of their sales practices and internal oversight and pricing,
as well.
meaningful benchmark on
which to base rewards for
good risk management. One
candidate: A measure known
as risk-adjusted return on
capital. UBS instead has instituted a “bonus bank.”
FULL STORY ON PAGE 16 CONTINUED ON PAGE 14
FULL STORY ON PAGE 12
A PROXY
ON YOUR HOUSE
Broadridge Financial built a monopoly
mailing paper materials to shareholders.
Electronics could change that.
Rewarding Risk Management securitiesindustry.com • A SourceMedia brand
By Tom Steinert-Threlkeld
IF THERE IS TO BE MEAN-
ingful management of risk in
a securities firm, there has to
be meaningful incentive to
manage risk just as there is to
trade in it.
That requires, in turn, a
