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Compliance
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SEC's Schapiro Steps Up Efforts To Ensure Integrity And Capacity Of Computer Program Traders |
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Tuesday, August 07, 2012 12:14
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Tags: high-frequency trading | regulation | sec SEC chair Mary Schapiro came down staunchly against Knight Capital LLC after its computer trading debacle on Wednesday, August 1, forcing the firm to find help elsewhere as it faced debilitating losses. The computer trading error has prompted the SEC to step up mandates that exchanges and other trade centers ensure the integrity and capacity of their systems. This Website Is For Financial Professionals Only
Such errors significantly erode confidence in the capital markets. This was no more evident than during the Knight trading snafu when even its best customers halted routing any trades at all through Knight.
There are a couple of rules already in place which Schapiro says lessened the impact of the snafu. First, there are circuit breakers that were recently instituted to halt trading on stocks undergoing wild price volatility. These also identify which trades are allowed to be broken.
Second, there is a requirement for companies who enter the market to trade fast and furiously to check their operating systems for possible malfunctions. Whether Knight followed these rules is the focus of an upcoming SEC investigation.
A trading group ultimately came to Knight’s rescue as it teetered on the brink of evaporation. But the firm’s troubles may not be over yet.
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Government Accountability Office (GOA) Says FINRA Should Review 10 Of Its Rules |
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Thursday, July 26, 2012 15:38
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Tags: FINRA | regulation | sec
There are 10 rules the Government Accountability Office (GAO) says that FINRA should review. One of those includes instituting a system designed to review rules on a regular basis. Since there is no such system in place, there is no capability for measuring on a systematic basis if the rules FINRA institutes are being effective. This Website Is For Financial Professionals Only
Other rules have to do with the process for arbitration and registration forms, coordination of U4 filings with Rule 4530 filings, self-reporting under Rule 4530, updating related corporate guidelines, and amendment of Rule 8210, which has to do with non-securities information and documents FINRA requests from firms.
Whether the information on those documents should be disclosed is another area that should be reviewed, along with the circulation of a coherent standard for supervision. The GAO also says the requirement for annual compliance meetings for registered persons should be eliminated.
Usage of the phrase internal use only should be clarified even though, currently, under NASD Rule 3010 says that firms are required to supervise these communications. Lastly, FINRA rules that duplicate SEC rules should be eliminated.
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Bachus Backtracks After Democrats Introduce Bill Saying SEC Should Regulate RIAs; A Surprising Turn Of Events But Debate Will Likely Drag Into 2013 |
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Thursday, July 26, 2012 00:41
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Tags: Advisor businesses | FINRA | RIA compliance | RIAs
On a day when major news broke about the regulation of Registered Investment Advisers, Investment News’s Mark Schoeff Jr. yesterday did the best job of reporting on new developments in one of the biggest stories currently affecting private wealth advisors. Schoeff got a statement from Spencer Bachus, Republican chairman of the House Financial Services Committee, and Bachus made some surprising comments.
This Website Is For Financial Professionals Only
“From the beginning, I have been willing to listen to and work with anyone who has an idea about how to correct the current lack of examinations,” Bachus said in a prepared statement. “Our only goal should be to deter bad actors and to protect American investors. I see no way to do that without timely examinations."
Then Bachus added a surprise, “Who conducts those examinations and how is still open for debate, as far as I'm concerned.”
Moreover, Bachus put his own bill to regulate RIAs — which would put FINRA in charge of overseeing examinations of RIAs — on hold indefinite hold, as Schoeff reported in his lead.
Bachus backtracked on his own bill! Is his support for making FINRA the regulatory body responsible for RIA examinations wavering?
Schoeff gives no indication, and since Washington politics is not my specialty, I wouldn’t venture a guess.
The timing of Bachus’s backtracking could not have been more curious, however. As Schoeff mentions, it came just hours after legislation was introduced Wednesday morning by Rep. Maxine Waters (D-Calif.) that would allow the SEC to charge user fees for exams -- an approach backed by RIAs not affiliated with a Broker-Dealer. Waters’ bill would maintain the Securities and Exchange Commission's purview over investment advisers and RIAs would pay fees to fund the required regulatory regime and bureaucracy.
Schoeff reminds us that time is running out for Washington to arrive at a decision on how to regulate RIAs.
This is typical Washington politics. It will be the end of September before you know it, time for the election-year recess. Nothing will get done.
As reported here many months ago, it’s unlikely an decision will be made on the issue of RIA regulation until after the fall election, and then, depending on who wins the presidential race, a decision might wait until after January.
Schoeff’s reporting outdid other magazines most popular with RIAs that have a Washington correspondent. Neither AdvisorOne nor Financial Planning published Bachus’s prepared statement.
If any readers have insight into what Bachus is thinking, please speak up.
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With So Little Action On Dodd-Frank Over The Past Two Years, Many Are Dubbing It Dud-Frank |
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Tuesday, July 24, 2012 12:52
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Tags: Dodd-Frank | regulation | sec
The Dodd-Frank Act was supposed to be the cure-all for regulatory malfeasance. Instead, its ineffectiveness and the slow and painful process has only resulted in 123 of the 398 rule making requirements coming into being. Of the SEC’s 95 mandatory regulations, only 28 have been finalized. This Website Is For Financial Professionals Only
This has earned the Act the moniker Dud-Frank. The act has been placed practically in stalemate mode from the authority it gave the SEC to place anyone who gives retail investors advice under the fiduciary umbrella.
This provision and the SEC’s struggle to come up with a uniform definition of fiduciary has divided the industry even further between registered representatives at large firms who are currently only held to a standard of suitability and independent RIAs who differentiate themselves much more strictly as fiduciaries.
The regulatory impact of Dodd-Frank is almost non-existent. The greatest impact has probably been felt in the family office industry since Dodd-Frank for the first time explicitly defined a family office and a family member. This caused many family offices to have to register as investment advisors and threatened the privacy families of wealth have traditionally held dear.
One impact the Act has made on investment advisors has been to require small to midsize advisors to register on the state level rather than the federal level. Private fund advisors have also had to register so the SEC may more closely monitor dark pools.
Mandatory arbitration clauses in brokerage agreements is also slated to be banned, although no action on that front has been taken. Certain provisions of Dodd-Frank will only affect certain segments of advisors.
So the issue of how all the provisions will be enacted has become very complex. It’s projected another year will go by before the full ramifications—or the Act’s effectiveness—can be determined.
Commentary from the industry has obviously had a hand in keeping new regulatory mandates in balance. The state of Dodd-Frank at this point clearly shows the complexity of this issue and the difficulty in coming up with the appropriate protections without prohibitivly restricting investment activity. |
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Dodd-Frank Mandates Registering Municipal Advisors But Congressional Committee Says SEC's Proposed Rule Is Over The Top |
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Monday, July 23, 2012 13:16
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Tags: Dodd-Frank | municipal bonds | regulation
A Congressional hearing on Friday, both Republicans and Democrats said that legislation the SEC is seeking that would require municipal advisors to register crosses into over regulation. The legislation was mandated by Dodd-Frank and was proposed by the SEC in December 2010. This Website Is For Financial Professionals Only
The fear of the industry is that the rule would classify too many people—even local officials and bank tellers—as fiduciaries, subjecting them to fiduciary standards and increasing costs for local and state governments.
A new bill was introduced that more specifically classifies municipal advisors as those who formally give advice to governments on financing municipal projects. This exemption would also include brokers and municipal securities dealers. It would also prevent municipal advisors from being classified as fiduciaries.
The mandate for municipal advisors to register comes as the result of the current ability for practically anyone to label himself as an advisor, even if they are not qualified to be one or have fraudulent intent.
But the SEC’s proposed rule goes overboard and could even include municipal underwriters. Part of being an underwriter is being impartial to either side. If an underwriter had to become a fiduciary, loyalty to one side or the other would have to enter the picture.
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