Financial Regulatory Forum

Exchange traded funds’ growth raises multiple regulatory issues

By  Patrick Conroy, James Overdahl, Robert Patton and Raymund Wong; NERA Consulting, Thomson Reuters Accelus contributing authors. The views expressed are their own.

NEW YORK, Oct. 19 (Thomson Reuters Accelus) – Exchange-traded fund (ETF) strategies continue to increase in scope, involving active management and more sophisticated financial instruments. The increasing flexibility and versatility of ETFs have been accompanied by claims by regulators and others of destabilizing effects on markets and potential for abuse by market professionals. Moreover, the suitability of ETFs for retail investors and even institutions has become a source of greater concern. Furthermore, the size of the ETF market has more than tripled by number of ETFs, and more than doubled by net dollar value of assets, over the past four years, as you can see from this chart. (more…)

COLUMN – Rogue traders, delta trading and exchange-traded funds

By Helen Parry, the views expressed are her own.

LONDON, Oct. 7 (Thomson Reuters Accelus) - There are many common features in cases of rogue or unauthorised trading, including the use by ostensibly riskless arbitrage traders of fictitious trades on internal systems to mask their unhedged positions. One obvious feature that is present in many rogue trader cases has been a failure in trade confirmation systems and controls. This feature frequently appears conterminously with the fact that a trader has intimate knowledge of and/or power and influence over middle and back office systems. (more…)

U.S. SEC finds a new asset class for insider trading: ETFs

By Stuart Gittleman

NEW YORK, Sept. 22 (Thomson Reuters Accelus) – In its first such action involving exchange-traded funds, the Securities and Exchange Commission charged a former Goldman Sachs employee with trading on confidential information about the firm’s trading strategies and plans he learned while working on its ETF desk.

An SEC official said the facts of the case may be unique. But the element of arbitrage in underlying components of the ETF echoes mutual fund trading probes in 2003 that rocked the industry.  (more…)

Rogue traders will always pose risk to compliance controls, says industry

Traders work at their desks in front of the DAX indexBy Martin Coyle and Alex Robson

LONDON/NEW YORK, Sept. 16 (Thomson Reuters Accelus) – The $2 billion rogue trading incident at UBS demonstrates that determined individuals will always be able to circumvent internal systems and controls despite the recent regulatory scrutiny on this area, industry officials said. The case also highlighted the need for banks to think about their reward structures, they added.

UBS yesterday confirmed that 31-year-old London-based trader Kweku Adoboli had lost the bank around $2 billion in unauthorised deals. The director of exchange-traded funds (ETFs) and “Delta 1″ was arrested on suspicion of fraud at his desk by City of London Police at 3:30am. (more…)

U.S. SEC warns investors on leveraged exchange-traded funds

Securities and Exchange Commission Chairwoman Mary Schapiro

By Ross Kerber
BOSTON, Aug 18 (Reuters) – Federal securities officials warned investors for the first time on Tuesday that leveraged exchange-traded funds could lead to big losses.

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