Browsing: Regulatory

Regulatory

How ‘Fair’ is New Chapter 11 Reform? New ABI Study Investigates

Jan 14th, 2016 | Filed under: Alpha Strategies, Equity Hedge Funds, Event-Driven Hedge Funds, Hedge Funds, Newly Added, Regulatory, Regulatory Environment, The A.I. Industry

By Konstantin Danilov, CFA Even though the rate of public company bankruptcies is at an all-time low, there has recently been lots of discussion regarding proposed chapter 11 reform.  If enacted, some of these proposals may have interesting implications for distressed debt investors in the future. Proposed Reforms and ResponseRead More


The SEC Staff Proposal on ‘Accredited Investor': Index Thresholds for Inflation, Create Grandfathers

Jan 7th, 2016 | Filed under: Newly Added, Regulatory, Regulatory Environment, The A.I. Industry

Indexation would of course tend to contract the number of accredited investors. But other staff recommendations would have the opposite consequence, expanding the number, especially by allowing investors to qualify “based on other measures of sophistication” such as professional credentials, or the successful completion of an examination. Read More


Top Alpha Stories of 2015: Nerds Win Three, Lose Two

Dec 29th, 2015 | Filed under: Commodities, Industry Size & Managers, Investing in Commodities, Newly Added, Regulatory, Regulatory Environment, Structure of the Hedge Funds Industry, The A.I. Industry

We offer our annual review of the five top Alpha stories of the year ending, in the course of which we mention that these are exciting times in the world of basic biological/medical research. They’ve been exciting at least since the completion of the map of the human genome in 2003, when attention turned to what can be done with that map. Read More


GFT Embraces the ‘Dawn’ of FRTB Requirements

Nov 18th, 2015 | Filed under: Regulatory, Regulatory Environment

The Basel Committee is engaged in a Fundamental Review of the Trading Book. Nothing has been finalized yet, but a new report from GFT Group suggests that the outlines of a new regulatory system for banks and their trading books is taking shape. And GFT is enthusiastic about this.Read More


Looking a ‘Gift’ Horse in the Mouth: The Latest on Section 363

Oct 22nd, 2015 | Filed under: Business News, Insolvency, Regulatory, Regulatory Environment

Something that may look a bit like a "gift plan" in the prohibited sense may turn out to be permissible under section 363 after all, according to a recent ICL decision written by Judge Thomas Ambro, in a precedent that will matter to anyone pursuing a distressed-assets strategy. Read More


Is it my imagination, or is the U.S. SEC cracking down on fund managers? (Video)

Oct 19th, 2015 | Filed under: Hedge Funds, Regulatory

Since the financial crises of 2008-09, regulation of financial firms has increased significantly. Recently the SEC has stepped up its enforcement actions and commensurate fines. What does this mean for managers and the cost of generating alpha?Read More


Merger Arb: News from Delaware’s Chancery Court

Oct 13th, 2015 | Filed under: Hedge Funds, Regulatory, Relative Value Hedge Funds

The court in Delaware clearly doesn’t believe that eliciting certain undramatic tidbits of news as supplemental disclosures is enough to earn plaintiffs’ attorneys their fees. Vice Chancellor Laster in particular has, in his own words, “been giving these [cases] a hard look for a while now,” and with Aruba the court puts its foot down. Read More


Is the FTC loosening its choke-hold on the mergers?

Oct 8th, 2015 | Filed under: Business News, Regulatory, Regulatory Environment

After a hard look at the evidence, Judge Polster couldn't say that the FTC was likely to prevail after a full hearing on its objection to the merger of two medical-equipment sterilizers, so he denied the preliminary injunction. Why this matters. Read More


The Enablers of the Fraudsters, Part I

Sep 1st, 2015 | Filed under: Insolvency, Regulatory

A new lawsuit against the corporate and individual enablers of a securities fraudster moves forward. The former are "alleged" enablers, but the latter is a convicted fraudster, already serving his time. Faille seeks to draw lessons. Part One of Two. Read More


Weintraub of GFT: Basel III Coming Into Force by Increments

Aug 20th, 2015 | Filed under: Asset allocation, Hedge Fund Industry Trends, Regulatory, Risk management

Faille spoke recently to Herman Weintraub, executive director and head of alternative investment practices at GFT, about the impact of the Basel III rule changes upon the HF industry. Weintraub says, one ought to look not at the parts, but at the whole. Read More


SEC’s Daniel Gallagher: Friend of the Beleaguered CCO

Aug 10th, 2015 | Filed under: Hedge Fund Regulation, Regulatory, Risk management

Commissioner Gallagher contends that some recent enforcement actions "have unfairly contorted the rule to treat the compliance function as a new business line," thus giving compliance officers the unwelcome role of business heads. In this and other respects, Gallagher says the agency is setting up a perverse system of incentives for those who ought to be its allies, the CCOs of IAs. Read More


Fractal Ambiguity in the AIFMD Passport Status of the U.S.

Aug 6th, 2015 | Filed under: Regulatory

What does the road to passport status look like for the US, regarding Europe's AIFMD? It looks rocky, and ESMA seems disinclined to draw a legible map. Instead it offers ambiguity and links to further ambiguity in the footnotes of its report.Read More


Enterprise Software Marketers Confirm: Seven is a Sacred Number

Jul 21st, 2015 | Filed under: Regulatory, Technology

God rested on the seventh day of the week of creation. Ever since, the number seven has stood for the completion of an epoch, or of a perfect set. Thus, a German enterprise concern has now listed the "seven pillars" for improved market surveillance through software.Read More


SEC: KKR Misallocated ‘Broken Deal’ Costs

Jul 14th, 2015 | Filed under: Private Equity, Regulatory, Risk management

A recent SEC finding at the expense of KKR illustrates the risk inherent in non-allocation, or careless allocation, of broken-deal expenses, and illustrates that lawyers don't necessarily use the word "deceit" to mean what one might think it means. Read More


Usury Law: Not Too far From the Madden Crowd

Jul 7th, 2015 | Filed under: Derivatives, Legislation/Court rulings, Regulatory

National and international markets have long been accustomed to the fact that various states in the United States have their own usury laws. Still, litigation in the 2d Circuit, arising out of New York, may have a substantial impact on credit markets and their derivatives. Read More


Fractional Reserve Banking: From First Premises

Jun 24th, 2015 | Filed under: Currencies, Regulatory

Banks are in the liquidity transformation business, and that is a critical role. But the ossification of the institutions that perform that role, by tradition, assumption, and concomitant regulation, is a threat to its success. Read More


Basel: What Does IRRBB Demand from Supervisors or Bank Boards?

Jun 18th, 2015 | Filed under: Regulatory

Central bankers now believe that they have to fix as supervisors what central bankers have wrought as money creators. The gnomes of Basel say that the interest rate risk management regime needs work because central bankers have given the world a prolonged period of exceptionally low interest rates, which has inevitably raised the stakes in this area. Read More


Spoofing: The ‘It’ Enforcement Action

Jun 17th, 2015 | Filed under: Algorithmic and high-frequency trading, Derivatives, Hedge Fund Strategies, Regulatory, Technology

Spoofing is probably about as ubiquitous as texting-while-driving. And it is possible to make an example of a spoofer caught red-handed. But it isn't clear what purpose that will serve. The real problem is that a broken market contains a broken set of incentives. Read More


Corporate Governance: Sunday in the Park With George

May 19th, 2015 | Filed under: Emerging markets, Regulatory

The controversy over corporate governance, and whether the changes favored by reformers show up as superior corporate performance (as measured, for example, by Tobin's q) strikes Faille as dangerously abstract. The only way to get to the pointillist painting is by starting with particular data points. Read More


Eurelectric Speaks Up For Grushenka

Apr 16th, 2015 | Filed under: Derivatives, Regulatory, Risk management

Is it possible or desirable to separate "speculation" from operational hedging, so as to clear the way for industries to do the latter without the regulatory burdens that planners want to impose upon the former? Once Europe has decided that speculation is a bad thing, won't it end up pursuing the demon ways that will collapse the proposed distinction? Read More


Liquidity, Leverage and Those Nimble Hedge Funds

Apr 9th, 2015 | Filed under: Derivatives, Hedge Fund Strategies, Regulatory, Risk management

Basel III has given us three different statistics with a common goal, to keep banks to a stable funding profile, neither too illiquid nor too highly leveraged. As these requirements come on-line, what will be the consequences for the relationship between prime brokers and hedge fund managers? Read More


Most Investors Sanguine About Central Clearing Mandates

Mar 22nd, 2015 | Filed under: Derivatives, Hedge Fund Industry Trends, Regulatory

The international push to mandate central clearing has expanded the clearinghouses "well beyond levels the market has ever seen," Greenwich Associates reminds us in a new report. This is an experiment, and there remains some grounds for uncertainty about the outcome. Read More


KPMG, MFA & AIMA: Institutional Investors & Customization

Mar 19th, 2015 | Filed under: Alternative Mutual Funds, Asset allocation, Fees, Hedge Fund Industry Trends, Hedge Fund Strategies, Institutional Investing, Liability Driven Investing, Regulatory

Surveys suggest that certain conspicuous ongoing trends will continue. For example, the classic 20 + 2 fee structure will continue to crumble, replaced by "customized" structures. A full 91% of the small hedge fund managers who filled out a survey agreed with this. A mere 76% of large hedge fund managers did likewise. Read More


ESMA to Member States: You’re Not Doing Enough Re: MiFiD

Mar 18th, 2015 | Filed under: Institutional Investing, Regulatory, Retail Investing

A newly released report tells us that ESMA is unhappy with the national "competent authorities" as to how they've enforced MiFiD. the report implies that the adjective in the phrase "competent authorities" is to be understood as a courtesy rather than a description. Read More


AIMA Reports: Activist Hedge Funds are the Good Guys

Mar 3rd, 2015 | Filed under: Hedge Fund Strategies, Private Equity, Regulatory

Activist investors usually aren't trying to take control of a company. And when they are, managers have strong existing tools to foil them. What activist investors can do is increase share value, over sustained periods.Read More


The Next Big Thing: A Robotic ‘Nexus’ of Contracts

Mar 2nd, 2015 | Filed under: Currencies, Digital currencies, Regulatory, Technology

In some fairly routine middle-critter corporate roles, there may no longer be much need for human managerial involvement. Enter the self-running business entity: another big step toward the obsolescence of human beings some of whom, nonetheless, will get wealthy in the process. Read More


On First Looking Into SEC’s Homer: A Final Rule on Swaps Reporting

Feb 23rd, 2015 | Filed under: Derivatives, Regulatory

Commenters successful pressed for certain changes in this massive new rule during its years of gestation. For example, the rule incorporates a T + 24 approach for the reporting of block trades. But warned, though, blizzards in NYC don't stop the ticking of that 24 hour clock. Read More


A Basis for Pursuing the Pursuers? Sonar-based Whale Hunts

Feb 17th, 2015 | Filed under: Algorithmic and high-frequency trading, Alpha Hunters, Derivatives, Institutional Investing, Regulatory

To the extent that high-frequency trading is analogized to 'insider trading,' it may be in trouble with securities regulators but still in the clear with commodities regulators. After all, the latter do allow hedgers to use non-public material information to protect themselves. But Gregory Scopino doesn't believe pinging and related HFT practices should be in the clear with the CFTC at all. Read More


Should Governments Slow Trading Down by Taxing It?

Feb 5th, 2015 | Filed under: Algorithmic and high-frequency trading, Hedge Fund Strategies, Regulatory, Technology

A physicist recently suggested that exchanges might do well to change the nature of the trading they host, holding batch auctions every one-hundredth of a second to better serve their real economic functions. Then a commenter proposed that taxation could achieve the same effect. Our physicist went back to the drawing board to consider this. Read More


Basel Committee’s Latest Progress Report: Buy IT

Feb 4th, 2015 | Filed under: Regulatory

Out of the 31 banks surveyed by the Basel Committee for its latest progress report on risk data aggregation, 45% reported that they will not be in compliance with the Basel demands by the deadline, a year from now. But surely there is a profit opportunity in here for someone. Read More


Crowdfunding: In the Gun Sights of Patent Plaintiffs

Feb 3rd, 2015 | Filed under: Crowdfunding, Intellectual Property, Legislation/Court rulings, Regulatory

The first of the three patents cited by the plaintiffs was filed at a time when the crowdfunding exemption movement was making a fair amount of noise on Capitol Hill, though it had not yet had tangible success. One might already entertain certain suspicions. Read More


Stifling Debate on Classified Boards: Je Suis Charlie!

Feb 2nd, 2015 | Filed under: Hedge Fund Strategies, Regulatory

Unfortunately, Gallagher and Grundfest aren't simply contributing to the on-going debate over shareholder activism, classified boards, etc. They're trying to stifle it by suggesting a litigation campaign against the side they oppose. Shame on them. Read More


Financing For Knights in Shining, or in Sooty, Armor

Jan 29th, 2015 | Filed under: Private Equity, Regulatory, Risk management

There are certain deals that banks don't want to touch with the longest lance in a joust. That doesn't mean the deals don't get done: it means they go by default to the non-bank financiers. We look at the divide. Read More


Let’s Hope Nothing Comes of Sprecher’s Grand Bargain

Jan 13th, 2015 | Filed under: Algorithmic and high-frequency trading, Regulatory, Technology

Sprecher proposes that the exchanges and the investment banks enter into a deal, and that regulators confirm it by various tweaks in the NMS. The whole dynamic that the "grand bargain" represents is a disturing one, old-fashioned smoke-filled-room cronyism. Read More


The SEC Takes a Limited View of Janus’ Limited View

Dec 29th, 2014 | Filed under: Derivatives, Legislation/Court rulings, Regulatory

A December 15 opinion by the SEC limits the significance of a Supreme Court decision of three years ago, and so at least pending appeal it broadens the applicability of the basic anti-fraud rule 10b-5 to the employees of an investment adviser. Read More


Plans for a Nickel-Tick Pilot: Trouble in the Details

Dec 15th, 2014 | Filed under: Algorithmic and high-frequency trading, Regulatory, Technology

Observers of the slow slog toward an empirical test of larger tick sizes have raised concerns about the details of the three-track plan under consideration. In particular, there's an order-protection feature for one of the three "tracks" that has raised the hackles of Larry Tabb and the STARead More


The Undead Enron Model Returns to the World above Ground

Nov 2nd, 2014 | Filed under: Commodities, Energy, Legislation/Court rulings, Regulatory

Enron was once the leader in a category of merchant traders that mediated in the world of energy commodities. Enron died, and banks largely took it over. Yet in spirit, at least, Enron is back. Read More


Untangling the web of HFT

Oct 13th, 2014 | Filed under: Algorithmic and high-frequency trading, Regulatory, Technology

What is the real issue behind intermarket sweep orders, and the recent dust-up over an NYSE rules change? Faille answers: Privilege. Read More


Footnote 13: Barclays Did ‘Change the Number’

Oct 7th, 2014 | Filed under: Algorithmic and high-frequency trading, Institutional Investing, Regulatory

The most intriguing revelation in the exchange of briefs between the State of New York and Barclays appears in a humble footnote, where Barclays seems to concede that an employee was pressured to change an internalization number. But it was just the once.... Read More


SEC Adopts Changes to Regulation AB: More Transparency

Sep 3rd, 2014 | Filed under: Derivatives, Regulatory

The SEC's new rules for asset backed securities require asset level disclosures both at the time of offering and later, on an ongoing basis. The disclosures are required to appear in a standardized XML format.Read More


Clearing Obligation: ESMA Releases CP Comments

Aug 26th, 2014 | Filed under: Derivatives, Regulatory

The clearing-for-everything parade continues. Christopher Faille reviews three representative comments among those just released by ESMA, elicited by its consultation paper on the new clearing obligation for interest-rate swaps. Read More


Responding to a Challenging Tweet about Front-Running

Aug 19th, 2014 | Filed under: Algorithmic and high-frequency trading, Regulatory, Technology

What do I mean by "front run," asked a reader. I use the term for a range of situations in which one party trades on the basis of advance [non-public] information of another party's upcoming trade, Faille replies. Read More


SIP and the Law of Unintended Consequences

Aug 12th, 2014 | Filed under: Algorithmic and high-frequency trading, Regulatory, Technology

Christopher Faille reviews the basic facts about SIP, the Securities Information Processor, and cites (with some incredulity) a new contention in some quarters that SIP isn't all that important because nobody really relies upon it. Read More


Terwilliger’s Legal Troubles: Give Mark Cuban a Cigar

Aug 7th, 2014 | Filed under: Alpha Strategies, Media Coverage of Hedge Funds, Regulatory

The great thing about short sellers has always been that -- if they're good -- it's because they have a keen nose that can smell a boiler room. If they are open about what they're doing, they can also serve as a valuable red light for others in connection with overblown enthusiasms. Don't be the bag holder. Read More


Eurex Clearing and DB Group: New Paper on CCPs

Jul 29th, 2014 | Filed under: Derivatives, Regulatory, Risk management

If such institutions as the ECB keep rewarding indebtedness, then over time they get their way. They'll get a lot of deal making, even if it amounts to a frenzy. Then investors will demand funds that play to that frenzy. Read More


AIFMD Depositary: Developing an operating model

Jul 20th, 2014 | Filed under: Regulatory

Much has been said about international regulation and its chilling effect on funds. Guest columnists Shane Brett and Alan Meaney look at set-ups and solutions.Read More


Regulatory reporting – key considerations for fund managers and service providers

Jul 15th, 2014 | Filed under: Hedge Fund Operations and Risk Management, Regulatory

Keeping track of the AIFMDs, FATCAs without drowning in the alphabet soup is hard work. A new paper from Grant Thornton offers some ideas on how to wade through the soup while you're looking for alpha.Read More


SCOTUS Gives NML a Sweeping Win Over Argentina

Jun 25th, 2014 | Filed under: Alpha Strategies, Emerging markets, Regulatory

Justice Scalia's opinion has the support of Justices who aren’t, to say the least, reliable allies of Scalia’s in the kind of ideologically driven splits that draw so much MSM attention, Obama appointee Elena Kagan as well as Clinton appointee Stephen Breyer are on board. On Monday, June 16th, the U.S. Supreme Court delivered a stunningly complete victory for NML Capital, the holdout bondholder in the much-watched litigation arising out of Argentina’s 2001 bond defaults. On the one hand, SCOTUS refused to hear Argentina’s appeal from the Second Circuit’s decision on what the issuing documents meant by the pari passu language. A decision not to decide has no precedential significance itself, but this of course leaves the Second Circuit’s decision, issued in October 2012, intact. Both as a matter of the law as it applies to this case, and as a matter of precedential significance for many similarly worded documents, the Second Circuit is the circuit that counts. What is Left Standing? The Second Circuit left standing, and now the Supreme Court has also left standing, a district court injunction against any payments that in any way rank holders of the restructured debt over the hold-outs. What the Second Circuit said was that in the pari passu clause in the issuing documentation of these Fiscal Agency Agreement bonds (FAA), the sovereign “manifested an intention to protect bondholders from more than just formal subordination.” The language was there to protect them precisely from what Argentina has more recently tried to do, that is, to protect them from any arrangement by which “Argentina as payor [discriminates] against the FAA bonds in favor of other unsubordinated foreign bonds.” On the same day (a few minutes later) SCOTUS also delivered a full-dress opinion on a related issue. The New York district court has interpreted the Foreign Sovereign Immunities Act of 1976 narrowly, so as to allow for discovery orders that assist NML in its search for Argentina assets in third countries where they may not be immune. Since Argentina owes NML more than $1.5 billion, it has plenty of incentive to continue this search. The Supreme Court upheld that statutory construction. The opinion wasn’t closely split. There was one dissent (Justice Ginsburg) and one recusal (Sotomayor). Still, the opinion for the other seven Justices, written by Justice Scalia, had the support of Justices who aren’t, to say the least, reliable allies of Scalia’s in the kind of ideologically driven splits that draw so much MSM attention. The 7-justice majority included Obama appointee Elena Kagan as well as Clinton appointee Stephen Breyer. What Happens Next? Argentina’s immediate reaction was that it will fight on, apparently by continuing to pay the favored creditors [Exchange Bondholders] and by continuing to exclude from these payments the FAA hold-outs. “What I cannot do as President is submit the country to such extortion,” says President Cristina Fernandez. The legal fight is over, though. And I should add that part of what SCOTUS has let stand here is a district court order the copies of its pro-holdout injunction be provided to “all parties involved, directly or indirectly, in advising upon, preparing, processing, or facilitating any payment on the Exchange bond.” Argentina’s New York agents cannot now give out money to the Exchange bondholders without aiding and abetting the defiance of a court order. Argentina must now either pay $907 million to the plaintiffs by the end of this month, or lose the ability to use U.S. financial intermediaries of any kind to pay the holders it has favored. The only possible means by which Argentina can resist the “blackmail” now and continue to pursue the policy it has in recent years is if it can pay the favored creditors without the involvement of any financial intermediary subject to U.S. court orders. This would prove tricky, especially with a tight schedule. The Rest of the World And of course even success there leaves Argentine open to the second of SCOTUS’ two punches, discovery and perhaps successful seizure of assets in third countries. Leaving Argentine matters to the side: what will be the consequence of NML’s victory in this matter, and the now-regnant Second Circuit reading of the pari passu clause, on the market for EM nation bonds? If, as at least some authoritative sources have indicated through this long fight, the pari passu language used in Argentina in the FAA followed “standard language included in substantially the same form in numerous credit documents” and if this decision changes how that language has been understood, then the markets will have to develop work-arounds: because from time to time sovereigns will default, and some sort of restructuring will have to occur. How those work-arounds will work is beyond me. But then, given my poor record trying to predict the twists and turns of this saga that is perhaps for the best. Read More


Isn’t all Software Abstract?: A Meditation on Alice Corp.

Jun 24th, 2014 | Filed under: Intellectual Property, Regulatory, Technology

Justice Thomas writes, "Deciding whether or not a particular claim is abstract can feel subjective and unsystematic, and the debate often trends toward the metaphysical, littered with unhelpful analogies and generalizations.” He has not given the debate a different turn, it will continue to trend toward the metaphysical etc. Read More


‘I, Algorithm’ Or, Can the Mindless be Reckless?

Jun 19th, 2014 | Filed under: Algorithmic and high-frequency trading, Regulatory, Technology

Who or what is responsible if an ATS' self-learning behavior drifts into terrain that, performed by a human, would constitute manipulative behavior? Does it matter than another algorithm has lately passed the Turing test? Read More