Regulatory

Responding to a Challenging Tweet about Front-Running

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

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.


SIP and the Law of Unintended Consequences

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

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.


Terwilliger’s Legal Troubles: Give Mark Cuban a Cigar

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

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.


Eurex Clearing and DB Group: New Paper on CCPs

Jul 29th, 2014 | Filed under: Derivatives, Regulatory, Risk management, Today's Post

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.


AIFMD Depositary: Developing an operating model

Jul 20th, 2014 | Filed under: Regulatory, Today's Post

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.


Regulatory reporting – key considerations for fund managers and service providers

Jul 15th, 2014 | Filed under: Best Practices, Hedge Fund Operations and Risk Management, Regulatory, Today's Post

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.


SEC Officially Pressing for Nickel-Tick Trials

Jul 1st, 2014 | Filed under: Algorithmic and high-frequency trading, Regulatory, Today's Post

Neither liquidity nor a small spread is the be-all and end-all of markets. A spread is a sort of price and, like other prices, spreads can sometimes get too small because someone is cutting corners.


SCOTUS Gives NML a Sweeping Win Over Argentina

Jun 25th, 2014 | Filed under: Alpha Strategies, Emerging markets, Regulatory, Today's Post

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.


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

Jun 24th, 2014 | Filed under: Intellectual Property, Regulatory, Technology, Today's Post

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.


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

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

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?


Loosening the Bank/Sovereign Feedback Loop

Jun 11th, 2014 | Filed under: Insolvency, Regulatory, Today's Post

Crisis-ridden banks yield crisis-ridden sovereigns, and vice versa. One way to make both institutions more resilient going forward is to loosen the feedback loop that connects their troubles. How to do that?


SIFMA Wins a Famous Victory: We Sort it Out

Jun 4th, 2014 | Filed under: Legislation/Court rulings, Regulatory, Today's Post

We catch up with litigation and administrative actions over the market data fees that exchanges are allowed to charge their customers, issuers, brokers, or dealers. One of the Lake Poets clues us in to what all the fighting means.


MiFID Implementation Consultation: A Rocky Start

May 28th, 2014 | Filed under: Algorithmic and high-frequency trading, Derivatives, Regulatory, Today's Post

ESMA defines HFT as “a special class of algorithmic trading in which computers make decisions to initiate orders based on information that is received electronically, before human traders are capable of processing the information they observe and of taking a decision in relation thereto.” It then decides that needs further definition.


A Nordic View of Banking Union

May 20th, 2014 | Filed under: Currencies, Regulatory, Today's Post

Recently we discussed Dr. Stiglitz' view of the Eurozone, a view offered to an Italian audience, with Italy (and Greece) foremost in mind. Today we complement that with Deputy Governor Hakkarainen's view of the Eurozone. He looks down at the same map from the north, with Finland and Sweden foregrounded.


McGonagle Testifies to the Michael Lewis Hearings

May 15th, 2014 | Filed under: Algorithmic and high-frequency trading, Legislation/Court rulings, Regulatory, Technology, Today's Post

After some preliminaries, McGonagle got around to the central subject of his testimony, the Concept Release on Automated Trading that the CFTC had issued back in September 2013. Much of his testimony was designed to give Congress an inkling of the range of reactions the CR has since elicited.


The Yin and Yang of Executive Compensation

Apr 1st, 2014 | Filed under: Alpha Strategies, Best Practices, Regulatory, Today's Post

The lesson for investors in the new Wachtell Lipton document may simply be that a corporation that is careless about compensation at the highest level, that cannot carefully document the reasons for payouts, is asking for trouble and that one must consider whether the market has fully discounted the trouble.


The Market’s Early Experience with SEFs

Mar 23rd, 2014 | Filed under: Derivatives, Regulatory, Today's Post

After a lengthy CFTC deliberation and some controversy, the SEF system, with a "made available to trade" component, has gotten itself up and running. Some early observations from Celent.


Who left the wrench in the markets engine? Maybe the SEC…

Mar 20th, 2014 | Filed under: Algorithmic and high-frequency trading, Regulatory, Technology, Today's Post

There is an arm's race aspect to the trend toward ever-higher speeds in trading, and this has created a "latency risk" in the markets that has an adverse impact on liquidity, a new study shows. This feeds into some ongoing arguments.


Mutual Fund Whistle Blower Case Will Proceed

Mar 9th, 2014 | Filed under: Best Practices, Regulatory, Today's Post

Lawson, the whistle blowing employee of an investment advisor, is protected by SOX. Six Justices agreed on that, although they disagreed on exactly why, or on how far the implications might take future courts.


Depositary-lite and the challenge of implementation

Mar 3rd, 2014 | Filed under: Hedge Fund Industry Trends, Hedge Fund Regulation, Regulatory, Today's Post

AIFMD brings many changes to the table. Grant Thornton Ireland has issued a new paper looking at the ramifications.


Those Action Levers in the Back Office

Mar 2nd, 2014 | Filed under: Derivatives, Regulatory, Risk management, Today's Post

Financial firms still have people manually implementing Excel spreadsheets in connection with various mandated stress tests, a fact that suggests to a Celent research director that Fred Flintstone runs the back office.


Tell Me I’m Reading this Wrong: ‘Mobilize more personal pension savings for…’ Financing?

Feb 19th, 2014 | Filed under: Insolvency, Institutional Investing, Regulatory, Today's Post

Unless Reuters has been utterly misled, a recent report there suggests that Europe's greybeards are considering an astonishingly bad approach to the insolvency of their banking system: soak the pensioners.


Who’s Allowed to Chase Alpha: Detail Work Continues

Feb 12th, 2014 | Filed under: Derivatives, Regulatory, Risk management, Today's Post

The multi-state, multi-national law firm Pillsbury Winthrop Shaw Pittman has offered its clients, especially the banking entities among them, a guide to the principal elements of the newly finalized Volcker Rule, and it touches upon several significant concerns that industry participants have expressed.


Really Fast Information Processors or Tippees?

Jan 27th, 2014 | Filed under: Academic Research, Algorithmic and high-frequency trading, Alpha Strategies, Regulatory, Today's Post

A forthcoming paper by Goldstein et al opens a window onto the convergence of two market-structure issues that, until quite recently, had not even been thought very similar.


IOSCO Cautions About Fragmentation

Dec 17th, 2013 | Filed under: Best Practices, Regulatory, Today's Post

The IOSCO has recommendations for market authorities as to trade execution services. These recommendations are driven by a general sense that technology has brought about increased fragmentation and that this, unless carefully monitored, is a dangerous thing.


Thoughts on Messrs. Gidfar and Hultgren: And on Pronouncing ‘Big Words’

Nov 26th, 2013 | Filed under: Derivatives, Regulatory, Today's Post

A new youtube video that seems aimed at building public sentiment for preserving section 716 of the Dodd-Frank Act intact, is actually after bigger game. And the bigger game is a far better target. But the word "derivatives" is not really that tricky to pronounce.


AIFMD for Americans: What US & Non-EU managers need to do to comply

Nov 19th, 2013 | Filed under: Regulatory, Today's Post

Guest columnist Shane Brett looks at AIFMD and what it means for Americans.


4 Essential Tasks To Prepare For FATCA

Nov 10th, 2013 | Filed under: Regulatory, Today's Post

Guest columnist Shane Brett explains the steps needed for firms to be FATCA-compliant.


AIMA Survey, Interviews: On Regulatory Costs

Oct 27th, 2013 | Filed under: Hedge Fund Regulation, Regulatory, Today's Post

Managers broadly are of the view that the more complex a regulation, the more expensive it is for those affected. The regulations that concern them the most in this respect are: FATCA and AIFMD.


Much ado about nothing..in other words, the JOBS Act is finally here

Oct 13th, 2013 | Filed under: Hedge Fund Industry Trends, Institutional Investing, Regulatory, Retail Investing, Timely Research, Today's Post

Guest columnist Diane Harrison looks at the U.S. JOBS Act for what it is...and isn't.


Is The BIS Working to Cartelize the Banking World?

Sep 24th, 2013 | Filed under: Regulatory, Risk management, Today's Post

A newly issued report by the Bank for International Settlements speaks volumes about what is happening to the world banking system as the new millennium enters its troubled teen years. I refer to the special feature, “How have banks adjusted to higher capital requirements?” written by Benjamin Cohen and included with the BIS’ latest quarterly […]


Principles as Abstractions: The AIMA Offers a Canvas

Sep 9th, 2013 | Filed under: Best Practices, Regulatory, Today's Post

On the too-big-to-fail front, for example, AIMA observes that risks associated with the failure of any particular entity "should be adequately addressed...." That is quite unobjectionable. All problems should be adequately addressed.


The CFTC/HFT Rumors and Some Reflections

Sep 2nd, 2013 | Filed under: Algorithmic and high-frequency trading, Commodities, Regulatory, Today's Post

The CFTC is said to be close to issuing a concept release on high-frequency trading, pushing the regulatory process beyond the agency's earlier talkfests. Christopher Faille muses about an approach the concept release will almost certainly not advocate.


State Street: Bad News for FpML is Good News for Markets

Aug 12th, 2013 | Filed under: Derivatives, Hedge Fund Regulation, Regulatory, Today's Post

Buried in the midst of a wide-ranging report, we have found the news that the old-fashioned FIX protocol is still a vital force, unlikely to be replaced by the flashier open-source FpML.


AIFMD Europe-Wide Standardization: Not Yet Accomplished

Aug 5th, 2013 | Filed under: Hedge Fund Industry Trends, Regulatory, Today's Post

As Julian Young, Partner, EMEIA Asset Management, E&Y put it, some alternative investment fund managers will need to "operate across a patchwork quilt of regulatory standards [in Europe] for the next few years at least" despite the standardization goals that were part of the appeal behind AIFMD.


AIFMD & Private Equity Managers An implementation checklist

Aug 1st, 2013 | Filed under: Private Equity, Regulatory, Today's Post

Guest columnist Shane Brett looks at AIFMD compliance for private equity managers.


Insider Trading and Redemptions: The 7th Circuit Speaks

Jul 28th, 2013 | Filed under: Alternative Mutual Funds, Legislation/Court rulings, Regulatory, Today's Post

According to a new 7th Circuit decision, there is a sharp distinction between insider trading in corporate shares on the one hand, and the redemption of fund shares on the other, at least with regard to the traditional theory of such trades.


Complying with AIFMD

Jul 23rd, 2013 | Filed under: Regulatory, Today's Post

Guest columnist Shane Brett examines AIFMD compliance.


As Clock Ticks Down: Extraterritorial Swaps Resolution

Jul 22nd, 2013 | Filed under: Derivatives, Regulatory, Today's Post

A year ago the CFTC published its "final exemptive order regarding compliance with certain swap regulations." That order was to last for one-year, and thereby set a clock ticking. Negotiations became frantic in recent weeks as the alarm approached. Nobody wanted to hear it ring.


Indexical Question: How Much Transparency is Enough?

Jul 10th, 2013 | Filed under: ETFs, Regulatory, Today's Post

In an initial consultation report in January of this year, the IOSCO Board took an aggressive position on transparency, saying that transparency of indexes used for ETFs should be such that market participants have "the ability to replicate a published Benchmark level...." The new final statement, EDHEC complains, has lost that language.


New Tweaks to MiFID/MiFIR Recall College Daze

Jun 18th, 2013 | Filed under: Algorithmic and high-frequency trading, Regulatory, Today's Post

MiFIR includes provisions that allow for "dark pools" and that limit the size -- or, if you will, the depth -- of such pools. On June 10, 2013, authorities in Brussels released a new proposal for tweaks of MiFIR in general and these provisions in particular.


Push-back Grows Against the FTT and Its Cascade

Jun 6th, 2013 | Filed under: Regulatory, Today's Post

“The analyses we’ve done show that the project, as it has been prepared by the commission, will first of all raise nothing at all, there’ll be no revenue,” one prominent Euro-banker says. According to earlier forecasts, the FTT was supposed to raise between €30 and €35 billion. So the prospective return has gone from €35 billion to zero?


Supreme Court Accepts Fidelity Whistle-Blower Appeal

May 30th, 2013 | Filed under: Best Practices, Regulatory, Today's Post

One case now before the U.S. Supreme Court poses the issue of the proper interpretation of the whistle-blower protection offered by Sarbanes-Oxley. The underlying problem is that when Congress wrote that statute it had in mind operational companies like Enron, or WorldCom, or Tyco International. The very different world of investment advisers and their funds, [where the public entities are the funds proper which employ no one], wasn't on its collective mind.


CFTC Approves New Swaps Rules: Uses Some Old Jargon

May 22nd, 2013 | Filed under: Derivatives, Regulatory, Today's Post

Under the Dodd-Frank Act, and the implementing rules now approved by the CFTC, trades that aren't "large notional swaps" are to be reported more rapidly and thoroughly than those that are. This of course makes the definition of a large notional swap (a/k/a a block trade) an important matter.


Abstraction, Patents, and the Latest Alice Ruling: A Scorecard

May 16th, 2013 | Filed under: Best Practices, Regulatory, Today's Post

The Federal Circuit's effort to address en banc the district court's rejection of the applicability of patent law to a fairly commonplace hedge against settlement risk seems to have broken down in confusion. This may have profound implications for both the traditional and the alternative asset management industry.


The EU’s AIFMD and Your Road Show

May 14th, 2013 | Filed under: Regulatory, Today's Post

Shane Brett, of Global Perspectives, makes the point that the "non-European world" is in no position to ignore the implementation of AIFMD. Although the implementation will be gradual, by 2018 any manager from anywhere who wants to bring his road show to a European city will have to be fully compliant.


Rest in Peace Margaret Thatcher

Apr 10th, 2013 | Filed under: Currencies, Regulatory

The great success of the Thatcher-era Big Bang was that it shocked the Square Mile out of insularity. The turnover and value of London-based equity transactions increased from roughly £500 million in 1986 to more than £2 billion nine years later.


Stop the Presses: IOSCO Calls for Balancing and Monitoring

Apr 4th, 2013 | Filed under: Derivatives, Regulatory, Today's Post

IOSCO's new draft report says that regulators ought to do a lot of "monitoring" of the consequences of changes in market structure. A little less predictably: it goes into some detail on the diversity of regulatory systems that bear on the question of fragmentation.


Dallas Fed. Judge: SEC May Proceed Against Cuban

Mar 31st, 2013 | Filed under: Regulatory, Today's Post

Though the charges against him are civil, not criminal, Mark Cuban may be the Amanda Knox of the jurisprudence of insider trading. He had reason to believe himself vindicated in July 2009, but now the SEC has successfully revived the matter and Cuban faces a trial.


NG Futures Traders: Who’s Your Regulator?

Mar 24th, 2013 | Filed under: Commodities, CTA, Energy, Regulatory, Today's Post

As a three-judge panel of the D.C. Appeals Court saw it, there were two questions in the Brian Hunter case. First, did the CEA’s language encompass manipulation of NG futures contracts as part of the exclusive jurisdiction of intervener CFTC? Second, if so, was that repealed or modified by the 2005 legislation?