Financial Regulatory Forum

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

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. (more…)

Book by high-profile author Lewis may spur high-frequency-trading reform push, success unclear

By Emmanuel Olaoye, Compliance Complete

WASHINGTON/NEW YORK, Apr. 2, 2014 (Thomson Reuters Accelus) - During a clip on Sunday night’s “60 Minutes” program, host Steve Kroft asked bestselling author Michael Lewis why he was so opposed to high frequency trading.

“If it wasn’t so complicated, it would be illegal,” said Lewis, who is the author of a new book called “Flash Boys: A Wall Street Revolt.”  (more…)

Cybersecurity and the board of directors: avoiding personal liability — Part II of III

By Steven L. Caponi, Compliance Complete contributing author

NEW YORK, Aug. 6 (Thomson Reuters Accelus) - The first article in this three-part series discussed how legal principles governing directors’ fiduciary duties may be applied to cybersecurity and the risks posed by cyber attacks. To summarize, Delaware’s corporate law places an affirmative obligation on fiduciaries to keep informed of serious risks facing the enterprise. The failure to exercise appropriate oversight in the face of known risks constitutes a breach of the duty of loyalty, a breach that cannot be exculpated under 8 Del. C. §102(b)(7).

In Part II of this series, we explore the “red flags” placing directors on notice of their obligation to proactively manage cyber security risks, and that expose a complacent board to costly litigation and the specter of personal liability. When evaluating whether a particular issue warrants board consideration, directors and officers should look at the nature of the risk, its potential impact on the company, and the extent to which the risk is foreseeable.  (more…)

Cybersecurity and the board of directors: avoiding personal liability – Part I of III

By Steven L. Caponi, Contributing author for Compliance Complete

NEW YORK, July 25 (Thomson Reuters Accelus) - The likelihood of a cybersecurity breach hitting one’s company in the near future is as certain as will be the resulting drop in shareholder value, finger pointing, fines, regulatory headaches and civil litigation alleging the board was asleep at the wheel in the face of a known danger. In a letter to the Chairman of the Securities and Exchange Commission from five U.S. senators, including Commerce committee Chairman Jay Rockefeller, the Senators noted:

“Every day, malicious actors attack and disrupt computer networks to steal valuable trade secrets, intellectual property, and financial and confidential information, causing significant damage to the United States Government, our citizens, our business, and our country.”  (more…)

Cybersecurity in Canada: Finance industry, government seek ways to share data

By Daniel Seleanu, Compliance Complete

TORONTO/NEW YORK, July 18 (Thomson Reuters Accelus) - More cooperation with government intelligence agencies would improve the Canadian financial industry’s cyber security capabilities, regulatory and industry experts told Thomson Reuters. Financial institutions have deployed defences, but face considerable threat from cyber-criminals intent on committing fraud, stealing sensitive information, and disrupting their networks.

To mitigate those risks, security and financial experts have called for an enhanced information-sharing system that would allow firms to provide detailed cyber-attack statistics to the government in exchange for intelligence on emergent threats and mitigation strategies. To date, attempts to establish such a system have had little result.  (more…)

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…)

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…)

Regulators globally seek to curb supercomputer trading glitches

By Christopher Elias

LONDON, Aug. 31, (Business Law Currents) - A series of stock market glitches has prompted regulators around the world to introduce new regulations to limit the impact of computer malfunctions on trading. Shielding markets from another Knight Capital disaster, the new rules seek to defend market participants from malicious machines and risky robots. (more…)

Knight Capital crisis brings new push for rules on trading, technology, structure

By Nick Paraskeva

NEW YORK, Aug. 6 (Thomson Reuters Accelus) - The near-collapse of equity market maker Knight Capital after sending erroneous trades to the New York Stock Exchange last week is the latest in a string of errors causing heavy losses and disrupting markets. While smaller in dollar terms than losses from JPMorgan’s ‘London whale’ or UBS’ rogue trader, it is causing regulators to review firms’ compliance and controls over operational risks, and rules for restructuring of equity markets.

“The apparent trading error by Knight Capital Group reflects the type of event that can raise concerns for investors about our nation’s equity markets,” SEC chairman Mary Schapiro said on Friday. “I have asked SEC staff to accelerate ongoing efforts to propose a rule to require exchanges and other market centers to have specific programs in place to ensure the capacity and integrity of their systems”. (more…)

Collateral management reform could herald benefits for risk managers

By Rachel Wolcott

LONDON/NEW YORK, July 30 (Thomson Reuters Accelus) - Risk managers could benefit from the financial services industry’s revamp of collateral management services in preparation for the new regulatory requirements that will drive demand for high-quality collateral. New regulations for the clearing of over-the-counter (OTC) derivatives through central counterparties (CCPs) alone could increase demand for high-quality collateral to $2 trillion or more, according to some estimates. In response, some firms are aiming for a more universal approach to collateral management.

Many firms still take a rather old-fashioned view of collateral management. It is often fragmented and inefficient. Most firms operate collateral management in silos determined by geography or asset class. This can lead to poor communication between different collateral management functions — for example, repo staff might not speak to the securities lending unit, or the New York office might not speak to its UK counterpart as much or as often as it should.  (more…)

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