Bridging the Week Articles

Gary DeWaal’s Bridging the Week: September 30 to October 4, and October 7, 2013 (Compliance Officers, SEFs and AIF Reporting)

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In a week punctuated by the beginning of trading on Swap Execution Facilities and the simultaneous shut down of the US Commodity Futures Trading Commission, other important developments occurred internationally and in the US relevant to all financial service participants. These matters included:

1. Compliance officers are in the cross hairs once again of the UK FCA and the US SEC: UK Compliance Officer sued by the FCA, while the SEC issued a Frequency Asked Questions regarding the potential liability of legal and compliance officers for business persons under a failure to supervise theory (with Valuable Lessons Learned);
2. ADM Investor Services, Inc. was fined by the CFTC for segregation violations (with Valuable Lessons Learned);
3. CFTC issued FAQs related to commodity options;
4. CFTC issued No-Action relief related to SEFs just prior to closing its doors, including to an Australian (but not European) multilateral trading facility offering swaps to US persons;
5. ESMA finalized alternative investment funds’ reporting requirements;
6. EUREX scheduled implementation of its Excessive System Usage Fee and Order to Trade Ratio to discourage High Frequency Trading; and additional articles too.

Gary DeWaal’s Bridging the Week: September 23 to 27 and 30, 2013

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Last week, brokers once again learned through enforcement actions against ICAP Europe that failure to maintain a robust supervisory system over their employees can be costly and embarrassing. However, brokers also learned in a NY court decision involving Amaranth Advisors, that the threshold to hold futures commission merchants liable for their clients’ possible manipulative practices is very very high.

This week swap dealers and other users of swaps will learn whether the decision of the US Commodity Futures Trading Commission to force trading of certain swaps by US persons onto registered Swap Execution Facilities on October 2 promotes transparency and liquidity, engenders anger and confusion, results in a bit of both, or ends up being postponed at least in part. And, who can keep up with all the last minute flurry of guidance and no action letters?

These and other matters covered this week on Bridging the Week are:

1. Yet another trader was sued by the CFTC after allegedly causing large losses to his employer following efforts to disguise trading losses by making false entries into his employer’s internal bookkeeping system;
2. Industry organizations and participants continued to fight against proposed mandatory top up to customer funds’ requirements and a proposed BIS leverage ratio framework that could materially hurt FCMs and their customers;
3. ESMA considers the application of its rules to transactions between non-EU entities; it will make a proposal to the European Commission by November 15;
4. FINRA offered guidance to Broker Dealers regarding suitability while NFA offered guidance to Commodity Pool Operators and Commodity Trading Advisors regarding disclosures;
5. Vision Financial Markets, a US-based FCM, was fined in two separate CFTC actions, one for segregation violations, and one for failure to supervise (in connections with positions limits monitoring);
6. RJ O’Brien, also a US-based FCM, was fined too by the CFTC related to a one day segregation violation; and plenty of other industry developments too.

Gary DeWaal’s Bridging the Week: September 16 to 20 and 23, 2013

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During the week of September 16 to 20, 2013, the biggest news was the coordinated enforcement actions by four international regulators against JP Morgan related to its London Whale incident. But what also was big news was that the US Commodity Futures Trading Commission was not among the regulators joining in this coordinated enforcement action — for now. Why?

However, the JP Morgan matter was just the tip of the iceberg in a very hectic week featuring many interesting US litigation developments, new regulatory requirements, regulatory proposals, and an important speech by the CEO of the UK Financial Conduct Authority — all potentially impacting a wide-range of industry participants worldwide. These matters – all covered in this week’s Bridging the Week – include:

1. four regulators sued JP Morgan; why was the CFTC not the fifth;
2. DRW Investments sued the US CFTC to avoid a possible enforcement action;
3. an amended complaint was filed by MF Global Holdings litigation trustee against John Corzine and other principals;
4. the US SEC charged 23 firms (many from the managed money industry) in connection with unlawful short sales related to initial public offerings; simultaneously the SEC issued a Risk Alert;
5. the US CFTC seeks public comment on CME’s proposed new EFRP rules (including banning transitory EFRPs);
6. IBs’, FCMs’, RFEDs’ and certain CTAs’ taping requirement becomes effective December 21;
7. ICE Clear US will require a greater percentage (50%) of clearing member guaranty fund deposit in cash, effective December 31;
8. UK FCA CEO Martin Wheatley gave his view on derivatives’ cross border regulation at last week’s London ISDA conference: why can’t we all just get along (internationally);
9. CTAs’ first quarterly report is due at NFA November 14; and more.

Gary DeWaal’s Bridging the Week: September 9 to 13 and 16, 2013

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Most of the global news involving financial services during the past week came from the United States and from exchanges regulated by the CFTC. The news involved automated trading, wash sale prevention, and the correct way to conduct exchanges of futures for related positions. The main topics this week on Gary DeWaal’s Bridging the Week are:

1. CFTC issued a concept release on automated trading; seeks views on 124 questions;
2. ICE Exchanges in US and Europe will require use of self trade prevention functionality as of November 1 for proprietary traders with direct market access;
3. CFTC issued rule enforcement reviews for three exchanges; EFRPs singled out in one (again); and
4. CME seeks to ban all transitory EFRPs and increase record keeping and other requirements related to non-transitory EFRPs for traders and brokers.

Gary DeWaal’s Bridging the Week: September 2 to 6 and 9, 2013

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It would be unfair to say that last week, September 2-6, 2013, was the slowest week of the year regarding regulatory news impacting financial services’ firms worldwide. However when one of the most significant regulatory developments was a press release on the website of the Australian Securities & Investments Commission heralding “Improved Pet Insurance Disclosure,” perhaps it wasn’t one the most active weeks of regulatory news either. That being said, there were a few very important items worth reviewing that are covered on this week’s Bridging the Week, including:

1. the UK FCA sued and settled with Aberdeen Asset Managers and Aberdeen Fund Management, large asset managers, for approximately $11.25 Million regarding customer protection rules’ violations;
2. the USA CFTC sued and settled with Macquarie Futures USA, LLC for $150,000 also regarding customer protection rules’ violations;
3. the Basel Committee on Banking Supervision and IOSCO issued their “Final Framework Regarding Margin for Non-Cleared Derivatives;”
4. ESMA issued advice to the European Commission on six countries’ (including the USA’s) rule equivalence to EMIR;
5. the USA CFTC issued No Action relief for financial reporting by certain CPOs trading for Controlled Foreign Corporations,

and more:

There is even a link to the article on pet insurance disclosure too!

Gary DeWaal’s Bridging the Week: August 26-30 and September 3, 2013

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As summer unofficially ends in the United States and a new school year is about to begin for students, fittingly, international regulators have issued a few report cards for the last semester on the rollout of some important worldwide regulatory initiatives (regarding BASEL III and the international coordination of OTC derivatives regulation), as well as a few salient life messages: lying is bad (especially to your Chief Compliance Officer)(this in connection with an SEC enforcement action against a former employee of Boulder Investment Advisers), and don’t try to hide your big mistakes (this in connection with a CFTC enforcement action against an ex-Goldman, Sachs trader)!

Moreover, the Financial Stability Board, the high level international coordinator of worldwide national financial authorities, has called for changes and potential changes in the way that financial services’ firms conduct securities lending and repurchase activities. If implemented these ideas could pose yet another material threat to potential revenue by financial services’ industry players.

These developments, as well as:

1. a CFTC enforcement action against the former external auditor for Peregrine Financial Group;
2. a SEC Business Continuity Advisory just for Investment Advisers; and
3. new regulatory developments in China,

are the principal items this week on Gary DeWaal’s Bridging the Week for August 26 to 30 and September 3, 2013.

Gary DeWaal’s Bridging the Week: August 19-23 and 26, 2013

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This week on Gary DeWaal’s Bridging the Week, algorithmic trading gets most of the headlines because of a proposed rule change by FINRA in the United States, guidance issued by ASIC in Australia, and an all broker dealer review in China. Also reviewed this Week on Bridging the Week are:

1. A CFTC Interpretation on Retail Commodity Transactions;
2. FATCA Reporting Begins;
3. PCAOB Issues a Very Disturbing Report on Audits of US Broker Dealer Capital and Reserve Calculation Computations, among other things,

and more

Bridging the Week: August 12-16 and 19, 2013

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In case you missed it Monday, this week, Bridging the Week reviews “Lessons Learned” from enforcement actions brought against two former JP Morgan traders as well as: (1) the CFTC, FINRA and the SEC provide guidance for business continuity plans after surveying financial intermediaries’ response to Superstorm Sandy; (2) IOSCO and CPSS seek advice on recovery plans for financial market intermediaries such as clearing houses and trade repositories; (3) the CFTC issues final risk management standards for systemically important designated clearing organizations; (4) ASIC announces new high frequency trading guidance effective February 2014, and more.

Bridging the Week: August 5 - 9 and August 12, 2013

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What are the top systemic risks to the financial services industry? Has another senior compliance officer been sanctioned again? And, when are fancy compliance systems not enough?

This week, Gary DeWaal’s Bridging the Week examines interesting and important international developments impacting the financial services industry, including:

1. DTCC (USA) publishes an important “think piece” on systemic risks increasingly impacting industry participants;
2. the UK FCA penalizes a senior compliance officer for not performing his job adequately;
3. ASIC (Australia) penalizes a brokerage firm for not adequately dealing with wash trading by a client — despite having a well-regarded compliance monitoring system that flagged the relevant trades;
4. ESMA (Europe) updates its EMIR Q&As;
5. FINRA (USA) fines a brokerage firm for AML violations and for missing red flags;
and more.

Also at least one international regulator is concerned about the lack of gender diversity in senior positions at public corporations!

Bridging the Week: July 29 - August 2, and August 5, 2013

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This week on Gary DeWaal’s “Bridging the Week: July 29 - August 2 and August 5, 2013,” Gary DeWaal and Associates’ update on the most relevant industry developments worldwide from the prior week, Gary discusses:

1. The US CFTC’s criticism of the CME over its monitoring of so-called off-exchange EFRP transactions and what this may mean for industry participants;
2. The SEC’s new capital and customer funds’ protection rules;
3. FERC’s suit against and settlement with JP Morgan over its alleged manipulation of California and Midwest electricity markets;

and more.