Category: SEC

US Options Exchange Leaders Close to Reaching Erroneous Trade Rule Agreement

According to The Wall Street Journal, US Options Exchange leaders have stated that they are close to instituting universal rules for erroneous trades.

While they mentioned that there are still a few discrepancies between the 12 U.S. options exchanges, exchange leaders stated at the Futures Industry Association’s Futures & Options Expo that they were confident in coming to an agreement as early as next week.

The erroneous trade agreement is coming together rather smoothly, as it was only back in September when the Securities Exchange Commission’s Mary Jo White expressed the need to build confidence within the markets and ensure participants that they can operate under many different scenarios.

SEC Commissioner White’s concern springs from a string of erroneous trades by Goldman Sachs back in August. The firm accidently issued a large number of stock-options to be traded at well below the appropriate market value. The differing rules left many traders unsure of what would happen to the trade and resulted in various solutions.

The new rule will alter the operations of the options market to be more like the stock market, where “obvious” trading errors are already handled under a single blanket set of rules.

CFTC and SEC Working to Strengthen Volcker Rule

According to Bloomberg.com, CFTC Chairman Gary Gensler and Kara Stein of the SEC have expressed concerns that changes need to be made to the Volcker rule. Scheduled to be set in place by the end of the year, Gensler and Stein are worried that a section of the rule, designed to limit banks’ ability to engage in proprietary trading, contains a loophole that would allow banks to continue trading by classifying it as hedging activity.

In order to prevent this, the Volcker rule will be revised to clearly define what will be considered legitimate hedging and what will be considered proprietary trading.

Tightening the Volcker rule is considered by regulatory agencies to be important for preventing a financial crisis similar to 2008. However, many worry that doing so may heavily affect banks’ profits; Standard and Poor’s has stated that big banks may lose a total of anywhere from two to ten billion dollars a year depending on how the Volcker rule pans out.

Many are also worried about whether or not the Volcker rule will be ready to be passed by the end of the year, with these revisions coming last minute and the government shutdown slowing the CFTC’s ability to work on the rule.

It seems that most banks are preparing for the rule despite delays; many have already begun to halt trading and pull out of investments that will be outlawed after the Volcker rule is put in place.

SEC Chair discusses refining company disclosure reports

SEC Chair Mary Jo White spoke about the SEC and its disclosure policies at a leadership conference in National Harbor, Md. The Securities and Exchange Commission posted the transcript on their website SEC.gov.

During her speech White talked about the need for disclosure, stating that without it, investors would be unable to make informed decisions, and could unwittingly be putting themselves at risk. Among the information companies must disclose to the SEC, White mentions the inclusion of the company’s current, future, and occasionally past business model; recent past and present profit history, as well as future profit estimations; details about large shareholders, loan history and future loans; and a detailed descriptions of company officers and directors, how much they are paid, and why.

While White feels all of the provided information she mentioned is or has been useful to investors, she wonders if there isn’t a more efficient way to provide this information, fearing that the often lengthy reports can be difficult for investors to work through.

Citing examples of the many times these reports have been revised over the years, adding and removing required information, White feels that they should be looking into further revising the disclosure reports. According to White, it may be time to consider what is no longer needed in the reports, and to see how much information can be found online and elsewhere. White would also like to see less repetition within reports, and feels that time limits for reports should be tightened.

In conclusion, White says that there may not be one proper disclosure report for everyone, and that the concerns she had spoken should be considered as the disclosure process is further refined.

The SEC CEO Payment-Ratio Rule comes under heavy scrutiny

According to Bloomberglaw.com, the Securities Exchange Commission (SEC) implemented an interesting new rule in September that requires public companies to disclose the ratio of their CEO pay to median worker compensation. And many seem less than pleased about it.

With this new rule, all public companies will have to disclose to the SEC the median total compensation of all employees aside from the CEO, the compensation of the CEO, and the ratio between the two.

The new rule is mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law in 2010 as a means to create more transparency in the financial services industry in response to the 2008 financial crises.

The rule has been put in place to give investors information on income disparity between CEOs and their employees. This disparity has been said to be increasing within the U.S. and it is believed by many that it links to employee morale and productivity, which directly influences a company’s profitability.

However, not everyone agrees with the SEC. Many business organizations say that this information would in fact provide very little information on a company’s profitability and would merely reflect the size and composition of a company’s workforce. Many are also adding that the benefits of this rule would be heavily outweighed by the effort it would take to calculate median employee compensation.

It seems that these complaints will fall onto deaf ears at the SEC, and, because the rule is mandated by the Dodd Frank Act, a court battle will most likely support the rule. Companies should expect to begin to have to disclose this information sometime in 2016.

Obama Puts Pressure on Regulators to Push Dodd-Frank

President Barack Obama met with Wall St regulators on Monday, August 19th 2013 to discuss the progress made after the 2010 passing of the Dodd-Frank Act. According to The Wall Street Journal, Obama is urging key regulators to implement many sections of the Act in order to avoid any situation similar to the Great Recession. In attendance at this meeting were key players from the Securities and Exchange Commission, Commodity Futures Trading Commission, and the Treasury.

While the Dodd-Frank was passed and signed into law in 2010, many of the key regulatory reforms still haven’t become a reality, including the controversial “Volcker Rule,” which was created to limit proprietary trading and the liabilities larger banks may hold at a time. According to an article in the Wall Street Journal, Treasury secretary Jacob Lew predicts that the Volcker Rule will be in effect by the end of the year. Others remain less optimistic, citing the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) both encountering budget restrictions.

According to an report done by  Davis Polk & Wardwell LLP, less the 40% of the rules in the Dodd Frank were finished by July 1st, 2012.

 

 

Top Regulators Meet With Obama On Dodd-Frank Progress

It was announced on Sunday that President Obama is planning to meet with key regulatory officials Today to discuss the advancement of Dodd-Frank. Representatives from the Treasury, the Consumer Financial Protection Bureau, the Federal Housing Finance Agency, the Commodity Futures Trading Commission, the Securities and Exchange Commission and the National Credit Union Administration will be in attendance.

Since being signed into law in 2010, the Dodd-Frank has been the target of both praise and criticism. On the one hand, it’s supporters have purported Dodd-Frank brought increased sustainability and accountability to the regulatory system, but it’s critics have commented on its broad reach. The reforms within the Dodd-Frank Act extended from anti-predatory lending and mortgage reform, to imposing rules on derivatives.

The Commodity Futures Trading Commission’s (CFTC’s) chairman, Gary Gensler, will be present at the talks, along with key members from other financial regulatory agencies. According to Bloomberg, White House press secretary Josh Earnest says that President Barack Obama wishes to meet with the regulators because he wants to press the importance of implementing all of the Dodd-Frank Act’s reforms.

 

 

Christopher Ehrman made Director of Whistleblower Office at CFTC

Christopher Ehrman, previously an attorney at the Securities and Exchange Commission (SEC) has been named as the new Director of Whistleblower Office at the Commodities Futures Trading Commission (CFTC).

The Whistleblower Office was created by a provision in the Dodd Frank Wall Street Reform and Consumer Protection act, which was signed into law almost three years ago by President Obama. The Office was intended to create financial incentives and restitution, as well as anti-retaliatory protection, for those who provide information to the CFTC regarding violations of regulation.

Christopher Ehrman was most recently an Assistant Director at the Office of Market Intelligence at the Securities and Exchange Commission, and brings with him extensive regulatory experience. As Gary Gensler said, in a CFTC press release that came out today, “Chris, who comes to us after many years of experience in the SEC’s Enforcement Division, takes on an important role at the Commission to oversee our Whistleblower program and engage with people who report misconduct in the futures and swaps markets.” Ehrman was a practicing attorney at the SEC before being promoted to Assistant Director, and has his JD from the University of Kentucky.

A full document press release can be found on the CFTC’s website.

Gensler Urges Fast Action on Cross-Border Derivatives

The U.S. Commodity Futures Trading Commission (CFTC) planned to have cross-border derivative guidance finished by July 12th, and on June 25th CFTC Chairman Gary Gensler assured Senators that this deadline would be kept, despite some opposition.

Gary Gensler, Chairman of the CFTC, told members of the Senate Appropriations committee that the CFTC would let the extension expire and continue reformation. He also mentioned that swap participants, including big banks, were ready to comply with the regulations. An exemption from cross-border swap regulation is set to expire on June 12th, meaning firms participating in swaps would have to finalize compliance by that date.

Mark Wetjen, another CFTC commissioner, explained in an address on June 25th to the Futures Industry Association expo in London that these firms may need more time under guidance, and that a final policy would have to be ‘clear and workable.’ Republican CFTC commissioners Jill Sommers and Scott O’Malia have also expressed Wetjen’s sentiment. They recommend that the final policy be made keeping foreign regulatory policy in mind, as well as the regulation from the Federal Trade Commission. All three have advocated for a more transitory policy that would ease swap dealers into the period after the deadline.

Another concern for Gensler is the possibility of his term being over before he has time to usher through this regulatory policy. While his term technically expired in April, his position could be reappointed by as early as July. Bart Chilton, another CFTC commissioner, may also be replaced this July.

Wall Street to Face Cyber-Attack in Exercise

Can Wall Street survive an all-out cyber-attack? According to Reuters, that question will be answered on June 28. That is when SIFMA (Securities Industry and Financial Markets Association) plans to commence Quantum Dawn 2, an exercise that will simulate the confusion and turmoil that a successful hacker attack can cause.

The exercise will take place from 9 a.m. to 2:30 p.m. and participants will face viruses that will try to invade trading systems and induce latency in trades, all of which will necessitate active communication and teamwork to overcome.

“The drill involves not just big Wall Street firms like Citigroup and Bank of America, but the Department of Homeland Security, the Treasury Department, the Federal Reserve, [and] the Securities and Exchange Commission, according to SIFMA officials,” reports Reuters.

In Quantum Dawn 1, which took place in 2011, SIFMA members were given the opportunity to gather in one location to communicate and compare notes. In the upcoming Quantum Dawn 2, members will be located in their own offices so the simulation can more realistically portray how communications will work in the event of a real attack; through phone calls and email.

 

U.S. House Passes Bill To Loosen Federal Grip on FX Derivative Trading

The U.S. House has passed a bill that will loosen the federal government’s grip over the trading of foreign derivatives.

The FX exemption was passed by a bipartisan group of lawmakers on a 301-124 vote.

According to Bloomberg, supporters of the bill feel that this exemption is crucial to giving U.S. firms a strong position in the foreign exchange markets. However, opponents feel that regulation systems in outside countries are weaker and could result in endangering the financial system as a whole.

The Commodity Futures Trading Commission (CFTC) was prepared to supervise all derivatives trading, including FX trading ─however the Securities and Exchange Commission (SEC) took a more hands-off approach by allowing overseas derivative trading to bypass U.S. regulation if the country in which they occur had a regulation system that closely resembles our own.