Financial Regulatory Forum

Kill switches may be too difficult to implement despite new call by CFTC member, expert says

By Emmanuel Olaoye, Compliance Complete

WASHINGTON, Oct. 17 (Thomson Reuters Accelus) - CFTC Commissioner Bart Chilton has called for high frequency traders, or “cheetahs” to face so-called kill switches that would shut down a broker dealer’s trading over erroneous orders or technology glitches. But a trading expert said the measure may be too difficult to implement in practice.

The problem with kill switches lies with the timing of the decision to turn off electronic trading, said Bernard Donefer, a professor of Trading Technology and Risk management in financial markets at Baruch College and NYU Stern School of Business.  (more…)

U.S. self-regulatory bodies move toward cost-benefit analysis

By Nick Paraskeva, Compliance Complete contributing author

NEW YORK, Oct. 9 (Thomson Reuters Accelus) - The financial industry’s self-regulatory organizations (SROs) are being pressed to conduct more rigorous cost-benefit analyses of their rules, to the same standards as federal regulators. This follows recent court judgments overturning rules issued by the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC), in cases brought by the industry on grounds that the rules lacked such an analysis.

“Any rulemaking, whether by an SRO or by the SEC, should be the product of a careful and balanced assessment of the potential consequences that could arise,” said SEC Commissioner Daniel Gallagher at SIFMA’s Market Structure Conference last week. Gallagher advocated the change as part of a call for a fundamental review of the U.S. self-regulatory structure, which consists of both regulators and exchanges. (more…)

EXCLUSIVE: Credit derivatives market can expect specific rules, says regulator

By Rachel Wolcott, Compliance Complete

LONDON, Oct. 4 (Thomson Reuters Accelus) - Credit derivatives dealers can expect to see specific rules and regulations to address some of the peculiarities of that market, said Edouard Vieillefond, director in charge of regulation policy and international affairs at French regulator Autorité des marchés financiers (AMF). Despite the huge amount of regulation already aimed at the broader derivatives market, there is concern that it will be insufficient to cover continuing questions that regulators have about its functioning.

“The question is will the reform currently under finalisation or implementation, such as EMIR in Europe, be enough? Credit default swaps are derivatives on credit that look like insurance products. They are so specific they may deserve specific treatment and additional regulatory requirements or perhaps a better harmonisation of the prudential and the traditional market conduct regulation,” Vieillefond told Compliance Complete. (more…)

Mortgage lawsuit against JPMorgan offers refresher on basic compliance lessons

By Stuart Gittleman

NEW YORK, Oct. 3 (Thomson Reuters Accelus) - Securities issuers that claim to have conducted due diligence on their offerings should address and remediate problems found and not ignore red flags, as made clear by the New York state fraud lawsuit against JPMorgan over they way its Bear Stearns unit dealt in mortgage securities. (more…)

IA brief: State laws may require firms to re-think social media policies

By Jason Wallace

NEW YORK, Oct. 3 (Thomson Reuters Accelus) – Federal and state privacy legislation aiming to protect against employer access to private social media websites may put the investment industry in a bind — unable to fully supervise social-media and electronic communications used by their representatives.

Broker-dealers and investment advisory firms have been carefully embracing social media over the last few years. Firms have shaped policies and procedures with a balance between the needs and wants of their representatives while still making it possible to supervise and ensure compliance with regulatory regulations and guidance.

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Two U.S. courts offer whistleblowers conflicting guidance on protections for internal reporting

By Gordon Schnell and Marlene Koury, Thomson Reuters Accelus contributing authors

NEW YORK, Sept. 26 (Thomson Reuters Accelus) - Two recent and conflicting court decisions leave an open question over exactly who is covered by the Dodd-Frank Act whistleblower protections.

Under the recently implemented whistleblower provisions of the Dodd-Frank Act, whistleblowers who report violations of the securities laws are supposed to be protected from being fired. These protections — which can include reinstatement, double back pay and special damages — are designed to serve as an incentive for whistleblowers to come forward despite the risk that they will be retaliated against for exposing their employers’ wrongdoing. (more…)

Financial cybercrime a national security threat, U.S. Justice Department official warns

By Julie DiMauro and Stuart Gittleman

NEW YORK, Sept. 21 (Thomson Reuters Accelus) - U.S.-based financial services institutions that don’t tell law enforcement agencies about having been victimized by cybercrime are compromising the nation’s security as well as that of their firms, a top Department of Justice official warned this week.

The remarks on Wednesday by Lanny Breuer, assistant attorney general for the department’s criminal division, came as a financial industry group warned banks to be on heightened alert for cyber attacks after Bank of America and JPMorgan Chase experienced unexplained outages on their public websites. (more…)

New U.S. FinCEN director must bolster agency under pressure over Iran sanctions, money laundering

By Brett Wolf

NEW YORK, Sept. 21 (Thomson Reuters Accelus) - When former Justice Department official Jennifer Shasky Calvery takes the reins at the U.S. Treasury Department’s anti-money laundering bureau on Monday, her first job is to revive the beleaguered agency amid pressure over Iran sanctions and money-laundering enforcement, sources said.

Shasky Calvery is a former prosecutor who cut her teeth dismantling international organized crime groups and tracking down their money. She will need all her leadership and diplomacy skills to boost the bureau’s morale, which has plummeted with the loss of skilled leaders and withering criticism from many fronts, and outline the policies with which she will make her mark as the new head of the Financial Crimes Enforcement Network (FinCEN). (more…)

“Volcker rule” exemption for liquidity management remains half-thought

By Bora Yagiz

NEW YORK, Sept. 19 (Thomson Reuters Accelus) - The question what distinguishes a “trading account” from a legitimate liquidity management program will be a primary concern as no less than four regulators, namely the Federal Reserve, the Securities and Exchange Commission (SEC), the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency, finish work on the “Volcker rule” limiting risky trading by banks. The regulators jointly proposed last year the provisions for implementing section 619 of the Dodd Frank Act. Final rules are expected by year end.

The July 2012 statutory deadline for what is commonly referred to as the Volcker rule has already been missed, and the 298-pages of proposed rules have attracted more than 17,000 comment letters and sparked a heated debate across the industry. This is because the regulators aim for a complete overhaul of trading activities by severely restraining any “banking entity” from “proprietary trading,” thereby preventing undue risk exposure of consumers’ and taxpayers’ money.

The devil will be in the interpretation of many of these rules. The definition of “trading account” will likely be the most critical premise, as the rest of the rules will be built upon it.

IA brief: California broadens scope of private-adviser exemption

By Jason Wallace

NEW YORK, Sept. 12 (Thomson Reuters Accelus) - California has broadened registration exemptions for private-fund advisers in a final rule adopted by the state Department of Corporations that considers the manager and its fund-investor characteristics rather than “assets under management” (AUM) or the number of clients.

The move aims to minimize regulatory requirements on a venture-capital industry considered to be a lifeblood for the emerging firms that fuel California’s high-tech economy, and responds to changes in registration requirements under national Dodd-Frank Wall Street reforms. (more…)

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