THUMBS UP ... AND DOWN
Tightening controls on
sponsored access to
markets can go too far.
MONDAY MONITOR
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HOW WALL STREET OPERATES
volume 22 number 7 • April 5, 2010
UPTICK p. 3
E.D. and the S.E.C
MARKETS p. 8
Tech Firms Up For Grabs
SERVICES p. 12
Free Rides Ending for Hedge Funds
LAST WORD p. 23
Physical Goods, Derivative Markets
Systemic Risk? In the U.K. …
It’s the (FSA’s) System
By Chris Kentouris
In november 2008, the
Committee of european Secu-
rities regulators said it want-
ed european regulators to ac-
cept transaction reports using
a new method of identifying
exchange-traded derivatives,
called alternate investment in-
strument codes.
but no securities firm can
use the codes to report deriva-
tive transactions to the U.K.’s
primary regulator, the Finan-
cial Services Authority. that
is because the FSA’s internal
Barometer of Wall Street’s Health
Fin5oindex
1071.17
; 4.29
T 0.4%
See Page 22
Mar. 18 - Mar. 31, 2010
information systems can’t
handle the codes, after more
than a year of trying to adapt.
April 1, 2010, was to be the
latest date on which the U.K.
regulator was to finally begin
to accept transactions using
the codes; the original time-
table was march 31, 2009.
but, for the third time, the
FSA has postponed the date it
set for itself to comply with re-
porting requirements enacted
as part of the european mar-
ket in Financial Instruments
Directive (miFID). only this
time it did not specify a new
target date.
At stake is the processing
and potential review of the
market and systemic risk in-
volving at least 6 million de-
rivatives transactions a day,
with an estimated face value
of more than $1 trillion. the
regulator doesn’t know who is
trading the futures and options
contracts, how much they are
trading and who the counter-
parties are on any given day.
those contracts are list-
ed on the Athens exchange
CONTINUED ON PAGE 10
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SPECIAL REPORT REPORTS ON PAGES 16 & 18
NEW WORLD
STANDARDS
If risk and returns are to be
managed globally, rules for
measuring performance and
dealing with chance must
be crystal clear.
Smart Order
Routing Systems
Getting Smarter
By John Dodge
one-SIze-FItS-All SmArt
order-routing systems are no
longer that smart.
It’s not good enough any
longer, trading firms say, to
simply seek out the best price
and best venue for execution.
now, smart order-rout-
ing systems have to act as an
integral part of algorithmic
trading strategies, working
lightning-fast to compare
prices across roughly 40 lit
and unlit trading venues, make
sure they fit within any num-
ber of myriad strategies that
might be in play at the same
time—and then act. All in
milli- or microseconds.
In short, a smart order-
routing (Sor) system has be-
come part of a larger trading
environment that demands
CONTINUED ON PAGE 6
The Government’s ‘Canary in the Coal Mine’
By Carol E. Curtis
the oFFICe oF FInAnCIAl
research (oFr) occupies just
20 pages in the
Senate banking
Committee’s mas-
sive 1,336-page
financial reform bill—but its
importance far outstrips the
brief space devoted to it.
the oFr, variously
referred to as the office of
research and Analysis (by
The New York Times) and the
CASE
STUDY
national Institute of Finance
(its name in a bill introduced
by Sen. Jack reed, D-r.I.), is
a proposed new
risk body designed
to give financial
regulators the data
and analytic tools they need
to prevent and contain future
financial crises.
It would, in effect, be a kind
of “canary in the coal mine”
for the entire financial system,
providing early warnings of
possible collapses.
