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from Financial Regulatory Forum:

Forget HFT; “High Intelligence Trading” is the new frontier for technology, markets, regulation

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By Henry Engler, Compliance Complete

NEW YORK, Apr. 10, 2014 (Thomson Reuters Accelus) - While fast is good, smart is better, and with untold resources of computing power and memory banks in the clouds, the new frontier in electronic trading combines sophisticated intelligent software with rapid-fire processing, enabling traders to stay one step ahead of the regulators.

“What’s the difference between pure speed and adding intelligence to that speed?” asked Terry Keene, head of iSys, a technology integration firm, at a conference focused on high performance computing. The answer is “big data analytics” that brings decision-making and trading to a “near-time” environment, he added.

Companies small and large, including IBM, are at the forefront of leveraging so-called “big data” and ever faster and more powerful computing power. The outcome for market participants, particularly buy-side firms, is an environment that makes millisecond trading decisions more dependent on analytics and information scoured from a variety of sources.

“Over the past 18 months people started to understand data,” said George Kledaras, chief executive of Fix Flyer, a technology company with a focus on the FIX protocol, a long-standing communications standard developed for securities transactions and markets.

from Financial Regulatory Forum:

Special report: UK regulators face mounting concerns over their handling of multi-million pound fund collapse

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By Alex Davidson, Compliance Complete

LONDON, Apr. 4, 2014 (Thomson Reuters Accelus) - Regulators face searching questions about whether they acted effectively in the multi-million pound collapse in 2012 of an unregulated collective investment scheme (UCIS). The then Financial Services Authority's (FSA) decisions concerning the Connaught Income Fund, Series 1, a UK-domiciled fund based in London, will come under fresh scrutiny at a debate in Westminster Hall, between members of parliament and HM Treasury this month, subject to scheduling. The Financial Conduct Authority (FCA) has said that the FSA, its predecessor body, acquitted itself well in dealing with the situation. Detractors, including investors, MPs and independent financial advisers (IFAs), have said the regulator failed to act appropriately on warnings about the misappropriation of multiple millions of pounds from the fund.
Some have found fault with the regulator, fund operators and IFAs who sold the Connaught fund, but it remains to be seen who, if anyone, will be held broadly accountable. Critics of the regulator have said it failed to investigate effectively evidence of financial misappropriation and insolvency, at Tiuta Plc (Tiuta), a regulated mortgage lender, to which the fund was lending money. The evidence was provided by whistleblower George Patellis, chief executive of Tiuta, which, like its unregulated subsidiary,Tiuta International (TIL), was a specialist partner to the Connaught fund.

In March 2011, Patellis informed the FSA he had discovered fictitious secured loans in the loan book of the fund and that the books of Tiuta had been arranged to pretend it was solvent when it had a multi-million pound deficit. Notwithstanding his subsequent provision of evidence, seen by Compliance Complete, the FSA did not close down Tiuta or require the regulated fund operator, Blue Gate Capital, to suspend the fund's operations. Tiuta continued to trade. Tamlyn Stone, director of compliance oversight at Blue Gate, declined to comment.

from Breakingviews:

Deadly assault brings new kind of risk to China

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By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The shocking knife attack that left at least 33 dead in Kunming railway station brings a new kind of risk to China. Investors’ belief in the relative stability of the People’s Republic has allowed it to weather political purges and border disputes without upsetting asset prices or capital flows. But rising ethnic tension could lead to a damaging recalculation at a fragile time.

from Financial Regulatory Forum:

“Big data” tools will improve regulatory oversight, FINRA’s di Florio says

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By Stuart Gittleman, Compliance Complete

NEW YORK, Feb. 25 (Thomson Reuters Accelus) - The Financial Industry Regulatory Authority is developing a suite of "big data" information sources and analytics to improve regulatory oversight of securities firms, according to Carlo di Florio, FINRA's chief risk officer and head of strategy.

Leveraging technology and analytics can make for a "unique moment in regulation [that lets regulators] see things they couldn't have seen or understood as well before," di Florio said at an event this week hosted by the Securities Industry and Financial Markets Association compliance and legal society.

from Financial Regulatory Forum:

Big banks fall short on data requirements, but regulators may share in the blame

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By Bora Yagiz, Compliance Complete

NEW YORK, FEB. 11 (Thomson Reuters Accelus) - An international study for a bank regulators' group has found deficiencies in the way banks measured and reported counterparty exposures. But the regulators themselves may share responsibility for the shortcomings, as they have provided little specific guidance for the banks.

The report by the Senior Supervisors Group (SSG) --a forum of senior officials from banking regulatory agencies of several countries-- found that 19 participating large banks fall short in some areas of data aggregation and quality. The report was based on the banks' own self-assessments.

from Financial Regulatory Forum:

Small banks await regulatory fix on Trust Preferred Securities portion of the Volcker rule for capital decisions

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By Bora Yagiz, Compliance Complete

NEW YORK, Jan. 24 (Thomson Reuters Accelus) - Banks that have relied over the years on a special type of assets to fulfill their capital requirements may soon have to restructure their investment portfolios to bring it in line with the Volcker rule limiting risky trading by banks. At stake is the treatment of the Trust Preferred Securities (TRuPS), whose inclusion as “investments in entities referred to as covered funds” such as collateralized loan obligations and collateralized debt obligations, would oblige banks to divest them in compliance with the Volcker rule.

The intent behind the complex Volcker rule is clear. It is aimed at limiting the exposure of banks to certain type of “covered funds” such as hedge funds or private equity funds to 3 percent, and to prevent them from engaging in proprietary trading, namely, trading with their customers’ funds for their own short term gains rather than trade on their clients’ behalf. It is, therefore, a rule to make banks’ investments less risky and more transparent.

from Financial Regulatory Forum:

Regulators release public portions of resolution plans for smaller banks

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By Bora Yagiz, Compliance Complete

NEW YORK, Jan. 16 (Thomson Reuters Accelus) - The Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC) released the public portions of resolution plansfor 116 institutions that submitted plans for the first time in December 2013, a group comprising smaller banks affected by Dodd-Frank requirements for winding-up plans.

The Dodd-Frank Act requires that bank holding companies (and foreign companies treated as bank holding companies) with total consolidated assets of $50 billion or more and nonbank financial companies designated for enhanced prudential supervision by the Financial Stability Oversight Council periodically submit resolution plans to the Federal Reserve Board and the FDIC. Each plan must describe the company’s strategy for rapid and orderly resolution in the event of material financial distress or failure of the company, and include both a public and confidential section.

from Financial Regulatory Forum:

FINRA exam priorities for 2014 incorporate enterprise wide, risk-based approach

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By Nick Paraskeva, for Compliance Complete

NEW YORK, Jan.7 (Thomson Reuters Accelus) - Broker dealers have been put on notice of regulatory priority areas where they will be examined in 2014. The topics seen as posing greatest risk to investors and markets were issued in a letter by the Financial Industry Regulatory Authority (FINRA) on the first day of the year. They include new areas such as seeing patterns of suspicious activity by representatives, including questioning firms why they hired the persons.

"We encourage firms to use this guidance along with their own analysis to enhance their programs as we will be examining for strong controls and robust compliance efforts in these areas" stated Susan Axelrod, FINRA Executive Vice President, Regulatory Operations, on release of the letter to member firms.

from Financial Regulatory Forum:

Federal Reserve issues technical fix to market-risk capital rule to conform with Basel III

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By Bora Yagiz, Compliance Complete

NEW YORK, Dec. 12 (Thomson Reuters Accelus) - The Federal Reserve Board issued a final rule that makes technical changes to the Board's market-risk capital rule to align it with the Basel III revised capital framework adopted by the Board earlier this year.

The market-risk capital rule is used by banking organizations with significant trading activities to calculate regulatory capital requirements for market risk. Technical changes include the following:

from Financial Regulatory Forum:

The future of the U.S. resolution regime: toward “a tale of two models”?

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By Bora Yagiz, Compliance Complete

NEW YORK, Nov. 25 (Thomson Reuters Accelus) - The U.S. Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC) may be far from putting the final touches on titles I and II of the Dodd-Frank Act -- the preparation of resolution plans within the framework of enhanced prudential standards, and the authority of FDIC to become the receiver of a failed non-bank financial or holding company and unwind it respectively. But comments by regulators and a conference in Washington last month held by the Federal Reserve Board and Federal Reserve Bank of Richmond on the topic reveal that some consensus is emerging on the structure and implementation of the resolution regime as well as its future course.

The Origin 

Resolution plans (also known as “living wills”) require all systemically important financial institutions (SIFI) to provide a detailed account of their ownership structure and contractual obligations, a list of their major counterparties, clarification on cross-guarantees tied to different securities, information as to whom their collateral is currently pledged, and an analysis of their resolution options under U.S. Bankruptcy Code.

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