FINRA Calls for Surveillance by “Unified Single Regulator” & Studying Facebook

Rick Ketchum, FINRA chairman and CEO called for the creation of a single repository of data on all trades on all markets so that the financial industry could be “surveilled by a unified single regulator.” A single regulator can “bring the best technology, the best people, and a unified set of rules” to bear on markets. He called his proposal “somewhat daunting” but “a significant undertaking and a baby step” at the same time.

Sure as with other updated and proposed Reguatory matters the primary goal is enhanced Regulation - but SRO mergers like any other will produce headcount reduction to achieve resultant cost-cutting.

Ketchum said FINRA “would do a good job” at creating and surveilling a single data base. But there are alternatives, he told Securities Industry News.


“If you don’t, things will fall through” the cracks, he said in comments delivered at SIFMA's annual meeting. The problem that the single database and the single “surveilling” body would respond to is increasing “fragmentation we see in the markets and the increasing number of genuine liquidity centers, and what these do to the ability of regulators to oversee the markets,’’ said Ketchum. Ketchum is a former regulator of multiple markets at NYSE Regulation. A decade ago, a single market – the NYSE – dominated trading and that made surveillance relatively easy. But, in 2009, the majority of trading is occurring on electronic networks and dark pools. The exchanges have been empowered to police trading and activities, but that is getting more difficult, Ketchum said, as market activity disperses.

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In another regulatory news, FINRA has set up a task force of to explore how regulation can embrace technology advancements to improve the flow of information between firms and customers without compromising investor protection. Bankers and analysts increasingly want to use social networking to connect and interact with customers. Ketchum said Social networking sites like Facebook and LinkedIn raise "serious new challenges."

Most firms prohibit their employees from using sites like Facebook for business, partly because of the difficulties they pose for firms' ability to meet supervision and record-keeping requirements. Ketchum said "Nevertheless, interest in these sites is inevitable and will not go unabated," he said.

Mark Zuckerberg (pictured) founder and CEO of Facebook, delivers a keynote address at the company's annual conference on July 23, 2008.

Registration Bill Includes One-Year ‘Transition,’ Requires Compliance Officers

Hedge fund registration in the U.S. again approaching. House Committee yesterday approved a bill that includes a one-year transition period before registration with the S.E.C is mandatory. The bill’s author, Rep. Susan Kosmas (picture from FinAlternatives) said the delay is needed to allow both sides to get their ducks in a row.

“The SEC will need time to prepare for the additional responsibilities that will come from the registration of potentially thousands of new managers,” Kosmas claimed, despite the fact the SEC has itself imposed mandatory registration of hedge funds four years ago before that rule was tossed by the courts. Kosmas also said that hedge funds needed time to set up the infrastructure for registration and the inspections that will follow it: Among other things, the bill would require hedge funds to hire chief compliance officers.

The head of the agency charged with overseeing hedge funds threw her support behind requiring the hedge fund managers to register. Speaking at the 2009 SIFMA Annual Meeting, Mary Schapiro said that hedge funds “have flown under the radar for far too long” and that she “will work with Congress to avoid creating broad new carve-outs or exceptions that could come back to haunt investors in later years.”

When you need a Partner to staff for Compliance, be sure to contact Rosenthal Recruiting at (973) 826-0537, via
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Goldman Meets and Makes its Case to SEC: Dark Pools, Short Sales Help Cut Costs

“Dark Pools” benefit both institutional and retail trading by bringing down transaction costs, Goldman Sachs said in a memo to the S.E.C.

Last week the S.E.C. voted to make dark pools more transparent, such as revealing electronic trading messages that are sent to a limited group of market participants.

Tiny Memo URL is http://tiny.cc/ozoom
From: Smeeta Ramarathnam, Office of Commissioner Aguilar
Date: October 22, 2009
Re: Meeting with Representatives from Goldman Sachs

On September 24, 2009, Smeeta Ramarathnam and Zak May, Counsels to Commissioner Aguilar, met with the following representatives from Goldman Sachs: Paul Russo, Managing Director, Equities Division; William Conley, Managing Director, Global Securities Lending, and C. Annette Kelton, Managing Director, Associate General Counsel to discuss issues involving market structure including short selling, dark pools and Reg ATS, high frequency trading and exchange co-location, sponsored access, flash trading and IOIs. The representatives provided the attached materials entitled, “Market Structure Overview.”Bloomberg Article

The Wall Street Employment Scene

Q&A w/Bill Singer:Do you think we've seen the worst?

Rosenthal: Although improved since the Bear and Lehman crises, I don't think we will ever return to the staffing levels of the last bull market, at least, not for this generation. We are still adjusting to the new world order.

Singer: What are the chances of Wall Street embarking upon the rehiring of the tens of thousands of folks who have been laid off during the Great Recession? Read more at Bill Singer's BrokeandBroker.com

“This should serve as a wake-up call for Wall Street”

Insider trading case brought against Raj Rajaratnam, self-made billionaire who founded the Galleon Group

Case is fascinating on multiple levels. Sheer size of the purported network, with unnamed co-conspirators and tipsters, is tantalizing. Who was the unnamed investor-relations employee who allegedly illegally spilled the beans on Google earnings? Who was the Akamai executive who did the same? Moody’s analyst who divulged that Hilton Hotels was about to be acquired by the Blackstone Group ahead of the formal announcement?

Shown above are Danielle Chiesi, former Bear Stearns executive who played a major role in the purported scheme; Robert Moffat of I.B.M. who fed information into the network; Mark Kurland, Ms. Chiesi’s colleague hedge fund New Castle Partners; and Anil Kumar, a McKinsey & Company executive who also tipped the insider traders. The fifth named defendant is Rajiv Goel, an Intel executive.

“This case should serve as a wake-up call for Wall Street,” Preet Bharara, US attorney, said at a news conference. “These people were privy to inside information, but they didn’t know one secret, that we were listening.” Click to go to NYT Recap.

Prosecutors were quick to point to the development as a sign of how seriously they took white-collar crime, using techniques employed in investigations of the Mafia and drug cartels. That they intended today’s case as a shot across the bow of hedge funds is unmistakeable.

Who is Raj Rajaratnam ? As of early 2009 the richest Sri Lankan-born person in the world. He studied engineering at the University of Sussex in England. Rajaratnam moved to the US in 1981 and earned an M.B.A. from Wharton.

Rajaratnam started his career as an analyst at Needham & Co.. Promoted to president in 1991 then launched Galleon six years later. He says his best ideas come from frequent visits with companies and conversations with execs who invest in his fund. Hatip Wikipedia.

OVER 20% Of Hedge Funds Misrepresent Something To Clients

More than one in five hedge fund managers are lying to their investors, according to a new report.

The study, conducted by a quartet of academics, founded that 21% of hedge funds misrepresent past legal or regulatory problems, while nearly three in 10 offer incorrect or unverifiable information about other topics, including assets under management and performance, the study shows.

The study looked at 444 due-diligence reports on 403 different hedge fund managers commissioned by investors between 2003 and 2008, and found that 42% contained “verification problems.”

Of that 42%, half are cases where “the manager verbally stated incorrect information.” This was reported by FINalternatives.

Wall St. on Trial: E-mail-Heavy Case Could Benefit The Defense

Several former prosecutors say that the coming criminal trial of former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin, brought up on fraud charges in connection with the implosion of two funds, is far from a slam dunk. And they say that any attempt by the government to build a case based on anti-Wall Street sentiment could backfire.

For the blood-thirsty, there’s the specter of retribution for an act that some believe tipped the first domino in the global financial crisis. For those who think bailout-happy Washington has taken it too easy on the financial sector, the prosecution of two hedge fund managers, ­ the era’s shadowy and iconic Wall Street players, ­ represents the first instance of government pushing back. And then there’s the legal community, eager to see whether an indictment so rich in seemingly damning e-mail messages will in fact yield guilty verdicts. NYT has a former litigator's analysis of the coming trial.

Next-Gen NYSE Trading Floor: Hybrid of Live and Electronic

NYSE redesign, already under way at the Big Board's main trading room, is part of a broader strategic shift at the exchange. The exchange wants to lure more electronic traders directly to the floor, creating a hybrid world where they can take in the person-to-person "buzz" of live traders while still executing trades by computer.

The changes could bring about another big cultural change: traders will be able to sit at stations similar to desks used throughout Wall Street, instead of standing or perching on stools, as is Big Board custom. WSJ has more and provides rendering from Perkins Eastman Architects. The Architects, who also designed newly renovated Times Square half-price Broadway ticket booth, said the plan could "bring back some of the excitement" to the room. "We're taking out the blocky booths and replacing them with something nice," said Lou Pastina, EVP of NYSE operations.

Third of Wall St Expects Bigger 2009 Bonus

Bloomberg reports on survey from a leading Career website: “This finding may rile regulators who have concluded that compensation arrangements often created incentives for risk- taking with insufficient regard to longer-term risks.” Of the quarter of respondents who anticipate a smaller bonus, 54% attribute it to their firm’s performance and 20% to a change in pay structure. Citi, Morgan Stanley and UBS increased salaries for some while adjusting bonus policies.

How Private Equity Can Win While Their Companies Lose

Private equity firms, former executives and Investment Banks profited as the Simmons Bedding Company fell into bankruptcy, devastating its bondholders and employees.

Presidents have slumbered on its mattresses aboard Air Force One. Dignitaries have slept on them in the Lincoln Bedroom. Its advertisements have featured Henry Ford and H. G. Wells. Eleanor Roosevelt extolled the virtues of the Simmons Beautyrest mattress, and the brand was immortalized on Broadway in Cole Porter’s song “Anything Goes.”

Its recent history has been notable, too, but for a different reason.

Simmons says it will soon file for bankruptcy protection, as part of an agreement by its current owners to sell the company — the seventh time it has been sold in a little more than two decades — all after being owned for short periods by a parade of different investment groups, known as private equity firms, which try to buy undervalued companies, mostly with borrowed money.

Thomas H. Lee Partners of Boston has not only escaped unscathed, it made a profit. THL bought Simmons in 2003, pocketed around $77 million in profit, collected hundreds of millions of dollars from the company in the form of special dividends. It also paid itself millions more in fees, first for buying the company, then for helping run it. Last year, the firm even gave itself a small raise.

Prior to this, investment banks also cashed in. A succession of private equity buyers came and went. Merrill Lynch Capital Partners bought Simmons in 1991 for $32 million for a 60 percent stake in the company and the assumption of its debt. Merrill sold it to Investcorp, an investment group based in Bahrain, for $265 million in 1996. Two years later, Investcorp sold the company to Fenway Partners for $513 million. Go to Full NYT article.


MORE to SEEA Video look at how private equity dealmakers can win while their companies, like Simmons Bedding, lose.