TRADING p. 8
Fusing High Frequency Firms
OPERATIONS p. 14
The LSE-Euroclear Fee Ti;
RISK p. 15
Hedge Funds Seek Strong Medicine
TECHNOLOGY p. 18
Will Sun Rise Again?

Derivatives
Regulation:
Bonanza for
Clearing Houses
SPECIAL REPORT
SEC’s “Naked”
Proposal May Hurt
Small Dealers
By Carol E. Curtis

When the House passed The
Wall Street Reform and Con-
sumer Protection Act on De-
cember 11, Congress acted
for the ;rst time to regulate
over-the-counter derivatives, a
signi;cant part of the ;nancial
markets that played an impor-
tant role in the ;nancial melt-
down—and that still poses
a potential risk to the broad
economy.
Clearing houses could be
big winners, as a result.

While the Senate is still in the initial stages of consider-ing its own ;nancial reform package, central clearing for standardized OTC derivatives, as mandated by the House bill, is likely to be written into law before long.

“The major issues will stay pretty close to what they are in the House,” says Kevin McPartland, a senior analyst at New York-based research ;rm Tabb Group and author

By Alexa Jaworski
UPON ITS ACQUISITION OF
the ISE Stock Exchange from
the International Securities

Direct Edge Picks Up Where ISE Left Off

CONTINUED ON PAGE 16

COMING CLEAN

Legislation designed to curb tax evasion abroad will mean revealing and constantly updating more data than ever before —on both direct and indirect investors.

FULL STORY ON PAGE 12

By John Hintze

THE SECURITIES AND EXchange Commission posted proposed rules Wednesday that would require all broker-dealers to apply pre-trade risk checks on any orders—for customers or their own accounts— executed over market centers to which they provide access.

That came as a relief to some ;rms, including smaller ones, which provide un;ltered or “naked” access to high-frequency traders. Such a rule would establish risk-management standards that ultimately fortify their ;rms’ capital against trading mishaps.

But there may be a down-side as well. The SEC also proposes that broker-dealers control their risk management systems in-house, rather than outsourcing the risk controls to

CONTINUED ON PAGE 10

securitiesindustry.com • A SourceMedia brand
Exchange in December 2008,
Jersey City, N.J.-based Direct
Edge found it had inherited
the answer to a ques-
tion faced by almost
all trading venues
today:
How to transform your
;rm’s technology infrastruc-
ture in order to handle unprec-
edented growth in the amount
of market data that has to be
handled in the support of elec-
tronic trading—and reduce
latency, at the same time?

The answer was already
in place for Direct Edge,
which operates the EDGA

and EDGX trading
venues as well.
Several months
earlier, the ISE Stock
Exchange had installed soft-
ware to ;lter and distribute
incoming messages to trad-
ing applications from 29West,
a Chicago-based provider of
messaging systems. The ;rm
also currently serves Chi-X