Wall Street And Tech - All Stories

Wall Street And Tech - All Storieshttp://www.wallstreetandtech.comWallStreetAndTechen-usCopyright 2011, United Business Media.2012-02-02T10:59:12Zhttp://www.wallstreetandtech.com/articles/232600130When Facebook Answers to Wall StreetTo meet Wall Street's demands for ever increasing revenues, Facebook's IPO likely means more ads and even more changes to its "privacy" policy.As we all know, once a company goes public, Wall Street expects better results each quarter. That means, a company such as Facebook must continue to find new ways to boost revenues, which are already amount to multi billions annually. So what can Facebook do? Expect increasing ads, different forms of marketing and even more changes to Facebook’s “lack-of-privacy” policy. Here is American Public Media’s <a href=http://www.marketplace.org/ target="_blank">Marketplace</a> take on what the Facebook IPO means to Wall Street and Facebook’s 800 million users. <iframe src="http://www.marketplace.org/node/50629/player/popout" width="450" height="200" ></iframe>2012-01-27T10:47:52Zhttp://www.wallstreetandtech.com/articles/232500614Do Stock Exchange Operators Need More Rules to Monitor Trading Platforms?After a series of technology glitches over the past year, the SEC is setting up new standard for trading systems that would impact 13 US stock exchanges and smaller venues, according to today's Wall Street Journal.Regulators are said to be scrutinized the trading systems used by U.S. stock exchanges as a result of several technology breakdowns that occurred over the past year. According to an article in today’s <a href=http://www.wsjonline.com target=”_blank”>Wall Street Journal</a>, the <a href=http://www.sec.gov target=”_blank”>Securities and Exchange Commission</a> is looking to set standards for trading systems that will give the agency the authority to intervene when problems flare up. The regulatory body is focusing on technology in the wake of the May 2010 ‘flash crash’ which illustrated how interdependent electronic trading platforms can impact one another. Also, over the past year, exchanges run by Nasdaq OMX Group and Direct Edge have had technical glitches that forced them to reimburse investors for millions of dollars of losses. The article notes that minor server outages, such as the one impacting trading data for some stocks on the New York Stock Exchange this week, are more typical. As the article notes, exchanges are spending hundreds of millions of dollars to build state-of-the-art data centers, hardware and networks to capture the business of high frequency traders. But are they focusing on speed at the expense of stability? On the other hand, the current guidelines adhered to by exchanges and automated trading systems for maintaining computer operations, telecommunications networks, data security and back up systems in case of disaster, may not be up-to-date, the article suggests. These guidelines were set by the SEC in the 1980s, reports the Wall Street Journal, which points out that these guidelines are “voluntary” though the exchanges treat then as rules, contend exchange officials who are not identified in the article. As a consequence of their voluntary nature, and the reality that trading is so sophisticated today, regulators find these guidelines difficult to enforce, and would prefer to have a rule on the books. The idea is to lay out clear standards for the 13 U.S. stock exchanges and smaller trading venues (i.e. 40 dark pools) that span the market and run on different technologies. The rules may have the support of Democratic and Republican members of the Commission. The article points out that exchanges feel the current guidelines provide flexibility and have worked for more than two decades including the evolution of electronic trading. But, strict rules or standards may not be necessary because the primary motivator for avoiding outages is competition. If the exchanges don’t maintain their systems, or suffer repeated glitches, they will simply lose business and force their customers to route to another venue. The "reputational hit" may be all that exchanges need to maintain their technology, Sang Lee, Aite Group managing partner, tells the Wall Street Journal. 2012-01-20T10:49:42Zhttp://www.wallstreetandtech.com/articles/232500191How the Government Flips Insider Trading WitnessesAn F.B.I. agent has persuaded Wall Street suspects to collect evidence against their business colleagues or friends, playing a key role in the government's insider trader investigations. Did you ever wonder how federal prosecutors have been so successful in tracking down insider trading cases on Wall Street? This is no longer a mystery. Today's <a href=http://www.wsjonline.com target=”_blank”>Wall Street Journal</a> reports there’s an F.B.I. agent based in New York who specializes in persuading people to become a witness against their business associates or friends. The agent, David Makol, who shows up at unexpected places -- such as when his subjects are in gym parking lots or having breakfast at Wendy's, reportedly played a role in the government's latest insider trading investigation to shake-up Wall Street. On Wednesday, the U.S. attorney's office charged 7 investment analysts/traders with using illegal tips to profit from trading in Dell's stock. Those charged included the co-founder of a prominent hedge fund, Level Global, and a former trader at Diamondback. The WSJ reports that many of the government's cases over the past two years have relied on evidence gathered by witnesses that Makol "flipped" to the government's side. Makol, a 41-year old forensic accountant and son of a forklift drive, declined to be interviewed by the Wall Street Journal, but was photographed on Wednesday, the day of the insider trading raids. According to the WSJ, Markol, an avid runner and Boston sport fan, is part of a Brooklyn-based FBI squad known as C-35. He also teamed up with a competing squad in Manhattan to help flip Galleon Group trader David Slain, which led to last May's conviction of hedge fund honcho Raj Rajaratnam. One tactic used is to gather information about the suspect's regular routines and personal details, like his wife's name. In one scenario, Makol approached Karl Motey, an independent stock researcher, who had just finished his workout, when he was in the gym parking lot. Wearing suits, the F.B.I. agents spoke with Motey in a coffee shop and within a few minutes, he admitted to insider trading in technology companies. The WSJ reports that within a week, Motey met with prosecutors in New York and agreed to gather evidence on investment fund employees leading to Wednesday's arrests. Defense lawyers on Wall Street have criticized the use of these techniques, particularly the use of wiretaps, by F.B.I. agents in these insider-trading probes, since such tactics were previously deployed in organized crime more so than white-collar investigations. Such overbearing techniques are used more often than people realize, a defense lawyer, told the Wall Street Journal. In the case of Motey, who taped dozens of phone calls for the F.B.I., he pleaded guilty to securities fraud and conspiracy in December and is awaiting sentencing. Meanwhile, a F.B.I. spokesman defends their actions telling the WSJ, this is the way the government needs to gather evidence in complex cases. Click here for the full <a href=http://online.wsj.com/article/SB10001424052970203735304577169154000870984.html?mod=WSJ_hp_LEFTTopStories Target=”_blank”>Wall Street Journal</a> article2012-01-19T12:37:51Zhttp://www.wallstreetandtech.com/articles/232500137Pipeline Transforms Itself into AritasYesterday, the former Pipeline Trading Systems said it's new name is Aritas, citing many changes, including product updates, it's made since it reached a settlement with the SEC. After surviving a media storm in the past three months over an SEC settlement disclosing that buy side orders were matched outside of its dark pool with an affiliated trading entity, Pipeline Trading Systems LLC is looking for a second chance. The company said yesterday that it has changed the name of the business to Aritas Securities LLC, replacing Pipeline Trading Systems. The new identity is the culmination of a number of steps it has taken since a settlement was announced on Oct. 24 with the SEC requiring it to pay a $1 million fine for violations related to Reg ATS and the confidentiality of customer information. Here are the major steps: After severing ties with senior management (a.k.a. Fred Federspiel, a founder and CEO and Alfred Berkeley, its former chairman), the board <a href=http://www.advancedtrading.com/crossingnetworks/231903157 target=”_blank”>hired Jay Biancamano</a> in November as executive chairman to restore credibility with institutional customers and get the business back on track. The company also discontinued operations of its controversial affiliate Milstream Securities, a wholly owned trading entity that traded against buy-side order flow without their knowledge and matched 80 percent of the orders in Pipeline’s BlockBoard ATS. Management has also completed work on a new version of its product Alpha Pro, updated its Algorithm Switching Engine and reorganized its internal structure. In the European Union, Aritas Financial Ltd. will succeed Pipeline Financial Group Ltd., where it will offer updated versions of Alpha Pro and the Algorithmic Switching Engine. Aside from revamping its products, the company is counting on new leadership under Biancamano to rectify mistakes from the past and chart a new path. <blockquote>“Of all that we’ve done here in the past three months, the most important thing is to dedicate ourselves to doing business with the utmost integrity,” said Aritas Executive Chairman Jay Biancamano. “Pipeline created great, game-changing technology, and clients continue to see the value in that technology. With a fresh commitment to serving our customers transparently, Aritas will offer them a new opportunity to take advantage of our unique offerings. The popularity of Alpha Pro was growing rapidly prior to Pipeline’s SEC agreement. We believe we can regain that momentum and build on it in 2012.”</blockquote> Aritas Financial Ltd. is also looking to regain momentum in the European Union where it will offer a multilateral-trading-facility (MTF) block liquidity, not related to the ATS in the US. Obviously, the board of directors is eager to put the past behind it. But can a new name erase this painful episode? That’s a difficult question. It will be interesting to see if institutional traders feel comfortable enough to trust their order flow to the new Aritas. In the meantime, Aritas continues to operate its ATS "as an alternative to blotter scraping" — which is a reference to Liquidnet. But will Aritas be prepared to scrap its U.S. equities dark pool if it doesn’t attract enough liquidity? In a previous interview shortly after he was appointed executive chairman, Biancamano said that Pipeline generated about 30 percent of its revenues from the ATS and 70 percent from software. While Aritas software products, AlphaPro and the algo switching engine, are evidently most important to its future revenues, the company's future will depend on regaining trust with clients. 2012-01-13T11:28:51Zhttp://www.wallstreetandtech.com/articles/232400353MF Global's Bankruptcy Impacts BloombergThe loss of subscription revenue from MF Global's collapse, is causing suffering at Bloomberg, reports The New York Times.The bankruptcy of <a href=http://www.mfglobal.com target=”_blank”>MF Global</a> shocked farmers, commodity trading advisors and other types of investors who are clamoring for $1.2 billion in missing customer funds, but it also has impacted Bloomberg L.P., a supplier of computer terminals to the futures and commodities brokerage firm. According to today’s <a href=http://www.nytimes.com target=”_blank”>New York Times</a>, the financial information giant lost 600 subscriptions to its market data and news terminals, which amounts to $1 million in monthly revenue, after MF Global filed for bankruptcy on Oct. 31. While $1 million is a small sum next to the $7 billion in revenues that Bloomberg reportedly generates from selling its terminals around the globe, it underscores the interdependent relationship that exists between the fortunes of Wall Street firms and their technology/financial information providers. The loss of business from MF Global caused the Bloomberg staff to miss their sales targets by 12 percent in 2011, and could impact their bonuses, reports the New York Times article. According to a bankruptcy filing first in a Manhattan court, Bloomberg Finance, LP is owed $276,064 by MF Global. But Bloomberg is not the only technology vendor suffering from the bankruptcy. A list of MF Global Holding's unsecured creditors and shareholders includes Caplin Systems Ltd., owed $427,520; Headstrong Services, an IT consultant, owed $3.9 million, according to the story <a href= http://www.wallstreetandtech.com/trading-technology/232200547 target=”_blank”>“Bankrupt MF Global Sticks Tech Vendors with Unpaid Bills” in Wall Street & Technology</a>. However, the New York Times points out that subscription fees from Bloomberg customers contribute 85 percent of the company’s revenues and go toward paying for the company’s huge global news operations. Still, the company has 314,000 terminals worldwide, so 600 terminals lost is no more than a speck on an elephant’s back. Also, Bloomberg has survived turbulence on Wall Street before as when Lehman Brothers, which had 3,500 subscriptions, went bankrupt in September 2008. And despite the challenging market in 2011, Bloomberg had a good year since subscriptions in total were up by 14,000, a company representative told the Times. Another interesting aspect of this story is that MF Global, led by Jon Corzine, the former Goldman Sachs executive, apparently spared no expense in awarding Bloomberg terminals – which cost as much as $1,600 a month per terminal— to its employees. Even though MF Global was a moderate size brokerage firm with 2,500 employees, nearly one-third had subscriptions to Bloomberg terminals, a sign that the firm was rolling the dice on its expenses as well as European debt. Not only did the futures and options traders need to have real-time market data, news and analytics, but reportedly, even a human resource employee had an elite Bloomberg terminal on its desktop, the Times article noted. Click here for <a href= http://dealbook.nytimes.com/2012/01/12/bloomberg-suffers-too-in-collapse-of-mf-global/?nl=business&emc=dlbka35 target=”_blank”>The New York Times article</a>. 2012-01-10T11:50:48Zhttp://www.wallstreetandtech.com/articles/232400058SunGard's Top Ten Historical Data Predictions Call For Ecosystem While banks and asset managers are facing demands for more frequent risk reporting and analytics, but big banks and asset managers still run multiple historical data silos. Yesterday <a href=http://www.sungard.com target="_blank">SunGard</a> published a list of ten historical market data trends for 2012, forecasting that firms will need more timely and consistent risk reporting to meet new regulations and investor demands. No. 2 is that regulators and investors will want more frequent risk reports, almost daily, while on-demand data will be needed to meet more advanced analytics. I spoke with Oliver Muhr, SVP of SunGard’s MarketMap business unit, which spans the gamut of real-time and historical market data solutions, to get his view on the underlying drivers for these 2012 predictions. “While everybody is talking about new regulations, they need to get ready,” says Muhr, who predicts there will be more and more demand from internal and external business customers for historical data. Beyond compliance with new regulations, firms can use data management solutions to “differentiate themselves with new or better services to make their data more quickly,” Muhr suggested. Practitioners such as MBAs and CFAs want more flexible data management solutions that require less IT support so they can spend more time discovering market opportunities, wrote SunGard's Muhr in his list of<a href=http://www.sungard.com/pressreleases/2012/marketmap010912.aspx. target="_blank"> top 10 predictions</a>. Quants who are supporting electronic trading strategies will need for their firms to implement platforms that can store vast quantities of data and quickly retrieve and accurately process historical and time series data. However, SunGard is also predicting that demand for more timely risk reporting by regulators and investors as well as the need for larger data sets to feed predictive models, will put a strain on existing data infrastructures. Home-grown tools are the norm inside big banks, big asset managers with portfolio managers and risk managers who need access to historical data. Also economists or public sector agencies have to deal with historical data and run analytics on top of the data. “On the historical side of market data, we see more home-grown systems, silos for US equity prices,” said Muhr. SunGard has found that banks have four, five or six homegrown systems for U.S.equities alone, says Muhr. These home grown applications and silos are not designed for nor are they capable of handling those new demands, Muhr contends. “What banks and other firms want is more of an ecosystem where you can create scale and efficiencies around your existing data," said Muhr. This will enable them to use historical data with other open source tools such as R, a statistical toolkit for creating queries on top of historical data, and open source programs like Jasper Software for creating reports, said Muhr. On the data and content side, there is a lot of work involved in maintaining data quality and consistency, such as checking on the accuracy and format of data from the exchanges. While firms can do this on their own, managed data can bring efficiencies and scale, notes Muhr. Another challenge is analyzing the relationships between asset classes, such as complex derivatives, and this in turn is going to fuel the need for standardized entity and security identifiers and cross symbology services. These are translators between various identifiers offered by Bloomberg and Reuters, notes Muhr. This is a huge problem for big financial institutions, but takes two minutes for MarketMap, said Muir. Another aspect of historical data management is storage. “Historical data management is all about a technology container and logic and how to store historical information,” explained Muhr. Vector storage, rather than traditional relational database, will be needed since it lends itself to storage of tick data from exchanges, every data, week or month, and then to run analytics on top of that, said the company. Firms are focused on controlling variable data costs by centralizing historical data in one location to assess best price, according to the vendor’s top 10 predictions. “We’re talking more about an ecosystem where you can cross leverage data for your applications,” emphasized Muhr. By sharing data across different units, “You can break down those silos of having ten databases for US equities within the same company,” he said. Obviously, SunGard sees a business opportunity in these predictions since it provides a range of light-weight and scalable data feeds and analytics as well as a technology stack that firms can use to store their own proprietary data, and clean it and run reports on top of it. 2012-01-05T12:06:43Zhttp://www.wallstreetandtech.com/articles/232301345Swiss Central Banker Faces Insider Trading AllegationsA weekly paper alleges that Switzerlands top central banker profited from currency trades, but are the charges the work of political enemies?In an ironic turn of events, Switzerland’s top central banker Philipp Hildebrand is facing allegations of insider trading on foreign currency trades from critics who claim that he profited from taking measures to stem the rise of the country’s strong currency. The situation is comparable to US Fed Chairman Ben Bernanke executing currency trades for his personal account while trying to stabilize the U.S. dollar against the euro. According to the <a href=http://www.nytimes.com target=”_blank”>New York Times</a>, Hildebrand, who is chairman of the Swiss central bank, is under pressure to come clean on his currency trades after a report by Welwoche, a weekly magazine with ties to a right wing political group, alleged that Hildebrand bought dollars in October after he oversaw measures in September to prevent the strong Swiss franc's from rising further since this was hurting exporters. Specifically, the report said Hildebrand made 75,000 francs or $79K from dollar trades. The publication cited copies of statements obtained by an employee of a private bank where Hildebrand had an account. Interestingly, Hildebrand previously worked at a New York hedge fund Moore Capital Management, and is known internationally for drafting the controversial Basel III regulations, which would require banks to limit their leverage and boost their risk management and capital reserves. Many banks across the world hate these regulations because they will have to set aside higher capital reserves to prevent another financial crisis, which will curtail their ability to invest in other profitable activities. It’s plausible that the rumors are unfounded and politically motivated since the rightist Swiss Peoples’ Party has been critical of Hildebrand’s policies on enacting tougher banking regulations. Apparently, Hildebrand made enemies both at home and abroad for attempting to impose tougher rules on Credit Suisse and UBS, the nation’s biggest banks, than those in other countries. The Swiss central banker also ticked off his former financial colleagues with comments against banker compensation and risk management. The private bank, Bank Sarasin, where Hildebrand kept an account, revealed that one of its employees leaked information about the currency trades to a lawyer close to Swiss People’s Party. The employee has been fired and turned over to the police for violating Swiss secrecy laws, according to a statement from the bank, reported by the New York Times. But the council that oversees the central bank reportedly hired PricewaterhouseCoopers to examine “rumors” about the transactions made by Hildebrand and members of the family. On Wednesday, the central bank released a report by Pricewaterhouse Coopers saying it had examined more than $2 million in transactions related to family financial transactions involving the purchase of real estate, and found no violations of central bank rules. Even if these allegations aren't true, the family should keep better tabs on monitoring one another's trades. Pricewaterhouse found that Kashya Hillebrand, the central banker’s wife, who met her husband at Moore Capital in the 1990s, made one of the trades without her husband’s knowledge. From <a href= http://www.nytimes.com/2012/01/05/business/global/05iht-snb05.html?pagewanted=2&_r=1&sq=Insider%20Trading%20Accusations&st=Search&scp=1 target=”_blank”>The New York Times story</a>: <blockquote>According to the PricewaterhouseCoopers auditors, Mrs. Hildebrand made a $500,000 currency transaction in August, days before the central bank stepped up its intervention in currency markets. But e-mails indicated that Mr. Hildebrand learned of the transaction only after the fact, and then instructed Bank Sarasin not to make any more trades without his approval, the auditors said.</blockquote> Citing her work in the banking and financial industry for more than 15 years, Mrs. Hildebrand, who owns an art gallery in Zurich, told a Swiss television station, “I felt at ease with this transaction,” according to the New York Times which gleaned the quote from Reuters. So far the council overseeing the Swiss National Bank is standing by Hildebrand. The central banker is expected to respond by making a statement today. 2012-01-03T11:15:33Zhttp://www.wallstreetandtech.com/articles/232301185Avoiding Another MF GlobalTips for futures and commodities trading firms choosing FCMs in 2012.As the search continues for $1.2 billion in missing customer funds that may have vanished during bankrupt <a href=http://www.mfglobal.com target="_blank"> MF Global’s</a> last week of frantic trading, hedgers and farmers that placed their trust in the bankrupt FCM, are feeling ripped off. While investigators and regulators are still searching for the missing funds, the question is what steps can retail traders and institutions take to avoid the next MF Global? Clearly, futures and commodities traders need to deploy better risk management practices to avoid the next MF Global. One CTA told me that he used MF Global as a bank and had two-thirds of his assets there and one third was with a second FMC. Oddly enough, this firm kept its excess cash in Treasury-bills at MF Global, based on the view that U.S. government would guarantee the return of money invested in T-bills, but those positions were liquidated in the bankruptcy. There are a couple of tangible steps that would not only serve FCM customers but are good business practices across the financial transaction spectrum, according to Russ Chrusciel, product manager, SunGard’s Global Trading business. First, people need to talk to others in the trading industry about their relationships with FCMs, says Chrusciel. Since this whole business is still a relationship-based business, Chrusciel says, “Speak candidly with two or three clients about how the relationship from the FCM to the end client is being handled,” advises Chrusciel. However, in MF Global’s case, the firm had a good reputation, and it was easy to be spell bound by the reputation of former CEO Jon Corzine, who was a former senator and governor of New Jersey, and a former CEO of Goldman Sachs. On a more macro level, customers should get access to potential rating reports from third party firms, adds Chrusciel. The problem, here, however, is that Standard & Poor’s and Moody’s were late in downgrading MF Global. Both agencies had investment grade ratings on MF Global until after its earnings call in late October. But if customers had checked with alternative ratings firms, they would have spotted the red flags sooner. For example, Rapid Ratings, a quantitatively based ratings firm, had a low rating on the stock as far back as 2009 and downgraded it in 2010 to junk status. “Our system is reacting to how well a company’s able to withstand a shock from the inside or outside. A company like MF Global was rated 23 — the equivalent of an S&P CCC- and a Moody’s Caa3. It’s not only junk, it’s deep junk,” explains James Gellert, CEO of Rapid Ratings. The bottom line is that folks to need to diversify their risks when it comes to picking an FCM. “Just like in the trading strategy or in money management, more and more trading firms and money managers are going to use portfolio theory in their FCM relationships,” says SunGard’s Chrusciel. “If they had one primary FCM perhaps they’re going to have accounts with two or three different firms, so they’ll have the ability to conduct their business in some shape or form, says SunGard’s executive. In the wake of MF Global, no doubt many firms will be evaluating their risk exposures to FCMs and other brokers. Not only are they diversifying the number of FCMs they utilize for executing futures and options trades, but commodity trading advisors and other trading firms are no longer keeping excess margin money at these firms. Unfortunately, it’s believed that MF Global raided the segregated accounts of its customers to margin and collateral calls with counterparties and banks. While MF Global customers are protected on the securities side (up to $500,000 per account) through <a href=http://www.sipc.org/ target"_blank">SIPC</a> (Securities Investor Protection Corp.), there is no such guarantee fund on the futures side. No longer putting all their eggs in one basket when it comes to picking an FCM is probably the most prudent action. 2011-12-21T11:36:44Zhttp://www.wallstreetandtech.com/articles/232300914Is Oracle Earnings Forecast Ominous for Other Tech Providers?Oracle's 2012 earnings forecast is causing concern among investors who worry that industrywide technology profits may sag next year.<a href=http://www.oracle.com/us/industries/financial-services/018739.htm target="_blank">Oracle</a>, the technology industry behemoth that has deep penetration in the financial services market, issued a forecast for 2012 that is causing some concern among investors. The database and CRM product provider saw license revenue grow by only 2 percent this past quarter and actually saw maintenance revenue drop, quarter to quarter, for the first time in many years. What this means for the broader technology market remains to be seen, but investors who are already concerned about a sluggish US economy and an unstable euro, have weakening tech profits to add to the list of worries. Here's some more analysis from the <a href=http://online.wsj.com/home-page target="_blank">Wall Street Journal</a>: <object id="wsj_fp" width="512" height="363"><param name="movie" value="http://s.wsj.net/media/swf/VideoPlayerMain.swf"></param><param name="allowFullScreen" value="true"></param><param name="allowscriptaccess" value="always"></param><param name="flashvars" value="videoGUID={54E14BAA-68CE-4C58-ADF1-C203DC589765}&playerid=1000&plyMediaEnabled=1&configURL=http://wsj.vo.llnwd.net/o28/players/&autoStart=false" base="http://s.wsj.net/media/swf/"name="flashPlayer"></param><embed src="http://s.wsj.net/media/swf/VideoPlayerMain.swf" bgcolor="#FFFFFF"flashVars="videoGUID={54E14BAA-68CE-4C58-ADF1-C203DC589765}&playerid=1000&plyMediaEnabled=1&configURL=http://wsj.vo.llnwd.net/o28/players/&autoStart=false" base="http://s.wsj.net/media/swf/" name="flashPlayer" width="512" height="363" seamlesstabbing="false" type="application/x-shockwave-flash" swLiveConnect="true" pluginspage="http://www.macromedia.com/shockwave/download/index.cgi?P1_Prod_Version=ShockwaveFlash"></embed></object>2011-12-20T12:20:39Zhttp://www.wallstreetandtech.com/articles/232300854Cha Ching! The Sound of Colocation FeesA regulatory filing by NYSE Arca offers a glimpse into NYSE Euronext's plans to allow vendors into its Mahwah data center, and what it will charge them for hosting applications per user in the colocation facility. As exchanges look to generate more revenues from colocation services provided in their liquidity centers, <a href=http://www.nyse.com target=”_blank”>NYSE Euronext</a> took steps to expand the scope of users of its colocation services in its Mahwah, New Jersey data center. A <a href= www.sec.gov/rules/sro/nysearca/2011/34-65625.pdf target=”_blank”> regulatory filing</a> dated Oct. 26, 20011 provides insight into NYSE Euronext’s plans to open up the Mahwah data center to third party application providers. The filing notifies the SEC of a proposed rule change by NYSE Arca, one of three U.S. equities matching engines housed in the Mahwah data center. On October 11, 2011, NYSE Arca filed a notice with the <a href=www.sec.gov target=”_blank”>Securities and Exchange Commission</a> requesting to expand the scope of users for colocation services in its Mahwah data center, to include vendors. Previously, the only users of colocation services were electronic trading permit (ETP) holders and sponsored participants. But under the proposed rule change, users could include non-ETP Holder broker-dealers and vendors. <blockquote>“The exchange anticipates that the potential additional users would provide, for example, hosting, service bureau, technical support, risk management, order routing and market data delivery services to customers while the user is co-located in the Exchange’s data center.”</blockquote> In the filing, NYSE Arca also proposes to amend its fees for colocation since the vendors would provide hosting for hosted user inside the colocation facility. From the filing, the exchange proposes to charge a fee of $500 per month for each hosted user (end customer) that the user (vendor) hosts in the exchange’s data centers. This sounds like the vendor will need to pay $500 per month for each user they are hosting in the colo facility. Beyond this, the vendors would charge their customers fees (set independently) which the exchange would not share in. While the filing has some confusing language around the terms User and Hosted User, it defines "hosting"as supporting the end user's technology, either hardware or software in the user's co-location space. Evidently, vendors will need to pay to be in the colocation space and naturally, end users (presumably brokers, market makers, and hedge funds and possibly, buy side firms sponsored by member firms), will pay fees to the vendors as well as to the data center for renting colocation space. One can quickly see how colocation is shaping up to be a lucrative business for exchanges. 2011-12-14T11:53:03Zhttp://www.wallstreetandtech.com/articles/232300507CME Exec Drops Bombshell that Corzine Knew About Customer Fund TransfersThe executive chairman of the CME told lawmakers that MF Global borrowed $175 million from customer accounts and implied that its former CEO Jon Corzine knew about it.In yesterday’s senate hearing about the collapse MF Global, <a href=http://www.cme.com target="_blank">CME Group</a> executive chairman Terrence Duffy tossed a grenade when he implied that Jon Corzine, the former CEO of the brokerage firm, knew about the transfer of customer funds, though he stopped short of suggesting it was illegal. According to today’s <a href=http://www.nytimes.com target=”_blank”>New York Times</a>, Duffy told lawmakers that <a href=http://www.mfglobal.com target="_blank">MF Global</a> had used $175 million in customer funds to lend from the futures side of the business over to another part of the firm, and that Corzine knew about the transfer. <blockquote>“Mr. Corzine was aware of the loans being made,” Mr. Duffy told the Senate Agriculture Committee, adding that MF Global had submitted documents to the CME, the major exchange where MF Global did business, that kept “regulators in the dark.”</blockquote> But CME’s executive did not mention this piece of controversial information in his prepared remarks submitted prior to his testimony, so it surprised lawmakers. As for the source of this information, Duffy told lawmakers he heard it from one of his lawyers, who learned of the details from a lower-level CME auditor, who had spoken with an MF Global employee. The unidentified MF Global employee indicated that Mr. Corzine had known MF Global had used customer funds to lend to itself. Duffy told lawmakers that he referred the information to the Justice Department, which is investigating some of the customer’s missing money. But Corzine was no longer in the room to defend himself, or to offer an alternative version of the story. Duffy dropped this bombshell at a time when the CME, the front-line regulator for MF Global, has been criticized for not discovering that cash had vanished from the brokerage firm’s segregated customer accounts. The comment caused “confusion” at the Senate Agriculture Committee hearing where Corzine along two of his two former colleagues, MF Global’s COO Bradley Abelow and CFO Henri Steenkamp had testified minutes before. All three executives claim to know nothing about the $1.2 billion in missing customer funds that were allegedly moved from the futures side to the proprietary trading side to invest in European sovereign debt. However, brokerage houses are allowed to borrow customer funds if they replace it immediately with collateral, according to Jill Sommers, commission of the Commodity Futures Trading Commission (CFTC) who testified last week. While such a transfer may not be illegal, brokers need to replace the customer cash with a placeholder security. <blockquote>“Reg 1.25 never allowed an FCM to take funds out of a customer aggregated account and invest it without simultaneously putting it back,” stated Sommers. “If the money is moved from a [segregated] account to a permissible investments, the exact amount has to be put back into the customer segregated accounts,” said Sommers last week.</blockquote> Corzine told lawmakers in the prior panel that he knew nothing about the transfer of customer funds. Corzine drummed away at the point that he never gave any instructions to authorize misuse of customer money and that he didn’t have access to documents. When the former MF Global executives were pressed by lawmakers to name which employees were responsible for safeguarding customer money, or had the power to authorize transfers, former CFO Steenkamp evasively answered — “In MF Global Inc. my understanding is there were numerous controls in place.” Lawmakers who represent farmers, grain elevator operators and food companies – are furious since their constituents are out of cash and relying upon them to get answers, so there is a lot of finger pointing going on, and regulators are on the hot seat too. With plenty of blame to go around, one MF Global client is blaming the CME for not detecting the shortfall in customer-segregated accounts. “They’re the designated regulatory authority. They should have been in there five days leading up to this…to verify customer funds,” says Ken Kinkopf, founder and president of Kinkopf Capital Management, a commodity trading advisor (CTA) in Chicago whose assets are frozen in the MF Global bankruptcy. “They were stating that everything was secure and they were meeting their requirements. But obviously this wasn’t true.”2011-12-06T14:07:04Zhttp://www.wallstreetandtech.com/articles/232300031With MF Global Rule, Regs Finally Take One Small Step In Right DirectionIn so far as it increases transparency into how funds are handled, it is a positive step -- but regs still have much more to do.At long last, regulators seem to be at least taking one step in the right direction, though they still have a long road ahead. The MF Global Rule which limits investment choices for client funds and was approved by the CFTC yesterday squarely aims to pacify investors whose confidence has been bruised by the sudden collapse of MF Global. In so far as the rule increases transparency with customers and into how funds are handled, it is a positive step on the part of regulators, says Matt Simon, senior analyst, TABB Group. The MF Global rule limits the ability of firms to invest client money in risky foreign sovereign debt, while also banning in-house repurchase agreements, or repos, in which one part of a futures firm swaps customer assets for securities such as municipal bonds or foreign-government bonds held at another part of the firm. "Client money needs to be in safe hands and this is a clear message," Simon says of the new CFTC rule. By imposing stricter limits on repo agreements and getting rid of potential sovereign debt investment, the CFTC seems to be trying to build back the confidence of the futures customer base. "This is probably a needed step." In its statement, the CFTC also said it will remove its reliance on credit ratings agencies, making it less easy for firms to invest their client money in certain instruments - a provision originally set out in the Dodd-Frank Financial Act which is a strong stand that major credit rating agencies are not always a reliable source when it comes to investing client funds, Simon points out. Still, regulators still have a lengthy road ahead of them if they want to fully restore investor confidence, and prevent another MF Global scandal from unfolding at another firm down the line. "Regulators still need to look at audits and the right way to do compliance examinations, among other things," Simon notes. The MF Global rule itself isn't devoid of potential problems, John Jay, senior analyst at Aite Group, adds. A rule that is too specific in its scope can cause trouble, he points out. "Sovereign debt could mean a specter of things. What if it refers to German debt, which right now is very safe?" Meanwhile, regulators still need to explain to the public how MF Global's disgraced CEO, Jon Corzine, was able to lobby the CFTC so powerfully that the regulator, which had voted unanimously to approve the so-called MF Global Rule in 2010, delayed action for over a year. Lobbying on behalf of the industry and a company is permissible and completely legal, Aite's Jay points out. But "what really gives off a bad appearance is Corzine's proximate activities. It's one thing to lobby against such a rule. But Corzine did something proximate to the action he took. At the end of the day it was the very thing that blew up the company," he notes. Regulators have notoriously come under investors' fire for years, and more so since the 2008 financial crisis, and the 2009 Madoff scandal. They have made some progress since then at boosting investor confidence that changes are underway. The wide-reaching Dodd-Frank Act was passed last year, in light of the Madoff scandal regulators have implemented a seemingly successful whistleblower program, and now the MF Global Rule will aim to further limit firms taking undue risk with client money. But if regulators really want to keep up with the industry they are overseeing, they need to up the ante on their technology. In a statement this week, CFTC Commissioner Scott O'Malia noted that the Commission is "currently overseeing a 21st century market with 20th century tools." "It is that time of year again when I start to fill out my Christmas list. This year I have some new requests and I am going to ask again for things I didn't get last year," CFTC Commissioner Scott O'Malia said in a statement this week. One of his wishes is that the "Commission continues its early efforts to reorganize itself around technology," he said. "This year, the Congress appropriated $55 million for technology alone. This funding will allow the Commission's new Office of Data and Technology to facilitate a comprehensive approach to developing advanced technology aimed at automating regulatory functions and improving the Commission's data analysis in support of mission-critical functions under the Commodity Exchange Act. I feel that it would be a missed opportunity if the Commission doesn't capitalize on this targeted investment to focus on developing a strategic plan for technology investment for the next several years," O'Malia added. O'Malia said he also hopes the Commission will "schedule a series of roundtables to provide market participants an opportunity to fully vet their concerns with staff before they are in that sea of uncertainty between effective dates and implementation dates." Technology on its own isn't enough. Regulators need to make sure they listen to the industry's concerns on an ongoing basis - and not just after another scandal or crisis - and that they also conscientiously investigate firms, even using old-fashioned procedures. For example, the Dodd-Frank whistleblower program should ensure that the next time someone tries to lift the lid on another Madoff's criminal activities, he is actually listened to. But regulators still have a way to go. For instance, they need to make sure there is no way another Corzine could so greatly influence a watchdog as to delay a rule just to protect his own firm's dodgy activities, without anyone raising an eyebrow. It's no easy task to spot the next fraud before it happens, but it's something regulators are ultimately responsible for doing: prevention of course, is always so much better than a cure. 2011-12-05T13:18:27Zhttp://www.wallstreetandtech.com/articles/232200744Regs Crack The Whip On Wall Street Risk-Taking With New "MF Global" RuleThe rule had been approved months ago but was delayed due to strong opposition from none other than Jon Corzine, the disgraced former CEO of MF Global.In light of the MF Global collapse, federal regulators are cracking the whip on Wall Street risk-taking. On Monday, the Commodity Futures Trading Commission approved the "MF Global rule," named after disgraced brokerage firm believed to have improperly used hundreds of millions of dollars of customer money. The new rule will limit investment choices for customer cash in futures firms, mainly preventing firms from using client funds to buy foreign sovereign debt. It also forbids a complex transaction that allowed MF Global to basically borrow money from its own customers. Until now, brokerage firms could invest client money in a number of securities, including sovereign debt. The list of permitted investments grew under the administration of President George W. Bush, the <a href="http://dealbook.nytimes.com/2011/12/05/regulators-approve-mf-global-rule/" target="_blank">New York Times</a> reports. [subscription required]. But under the new MF Global rule, if firms want to invest customer funds in foreign government bonds, they must petition the agency for a special exemption. The new rule also bans in-house repurchase agreements, or repos, in which one part of a futures firm swaps customer assets for securities such as municipal bonds or foreign-government bonds held at another part of the firm, pocketing the higher interest rates the securities yield, the Wall Street Journal <a href="http://online.wsj.com/article/SB10001424052970204903804577080280622231726.html" target="_blank">notes</a>. [subscription required]. From the Wall Street Journal: <blockquote> Since such deals are done internally, they expose customers to a firms' ability to manage risk, critics of the practice say. They also leave it up to the firm to price the securities, leading to potential accounting abuses. "I believe there is an inherent conflict of interest between parts of a firm doing these transactions," CFTC Chairman Gary Gensler said. The existing policy had been in place since 2005.</blockquote> The Commodity Futures Trading Commission (CFTC), which voted unanimously to approve the rule in 2010, had originally planned to finalize it months ago -- but delayed action due to strong opposition and a powerful lobbying campaign the futures industry, largely from Jon Corzine, the former governor of New Jersey and CEO of MF Global, who resigned from the his position at the brokerage last month, amid the scandal. At the time, Corzine said the rules were unnecessary because federal laws already prevented brokerage firms from mixing client money with company funds. The Times reports that in a letter, MF Global insisted to regulators that they were trying to "fix something that is not broken." On Monday, the CFTC voted 5-0 for the rule. Under the new rule, firms trading futures can still invest customer cash in securities, but they would have to do so through a third party such as a bank, in a bid to provide more transparency. From the New York Times: <blockquote> The revelation that client money was missing at MF Global has incited panic in the once-quiet futures industry. MF Global's customers, including farmers, hedge funds and other investors, are still owed millions of dollars. Now, some customers say they are losing faith in a system that promised to protect their money. While brokerage firms can invest client money, such funds must never be comingled with company funds. MF Global violated that principle in its final chaotic days, tapping its segregated client accounts to meet its own financial obligations, people briefed on the matter have said. About $200 million in customer money that disappeared from MF Global surfaced at one point at JPMorgan Chase in Britain, the people said. The missing money, thought to be as much as $1.2 billion, has prompted several federal investigations in recent weeks. The futures commission is leading the hunt for the money, while the Federal Bureau of Investigation is examining potential wrongdoing. Some regulators are also examining a flood of new rules for brokerage firms, part of an effort to prevent a repeat of the MF Global debacle. </blockquote> Among these is the SEC, which is examining new regulations for accounting disclosures. "As recent events have highlighted, the protection and preservation of customer funds is fundamental to our markets," Scott O'Malia, a Republican member of the CFTC, said in a statement. "By limiting investments of customer funds to a subset of instruments that currently have minimal risk, this final rule is a step towards enhancing customer protection." 2011-12-02T12:36:28Zhttp://www.wallstreetandtech.com/articles/232200640Multi-Billion Dollar Traditional Asset Managers Now Using Twitter As Source of Breaking NewsLarge hedge funds and traditional asset managers, rather than start-ups, are now using social media as a source of breaking news, not just as a sentiment indicator.While asset managers have traditionally used social media as a sentiment indicator to gauge people's positive or negative feelings about a particular issue or company, they are now increasingly also using breaking news culled from Twitter and other social media feeds for their algorithms, and trading on it. It is multi-billion dollar hedge funds and other large, traditional asset managers, rather than start-ups that are driving the trend, says Seth McGuire, director of asset management and financial technology, Gnip. One of the latest indicators of Twitter's worth as a news feed - and not just as a channel for idle gossip - was Osama Bin Laden's death. Keith Urbahn, the former chief of staff for Don Rumsefeld, is widely credited with the breaking that story through Twitter . The story was rapidly re-tweeted, and within 19 tweets, a company called DataMinr had identified this as an important and breaking story. DataMinr then sent an alert about the news to their clients, including hedge funds, McGuire explains Ultimately, news of Bin Laden's death broke on Twitter a full 20 minutes before the story appeared on traditional news sites and TV networks, so that traders and investors were able to feed the information into their algos and act on it within just few minutes. With market volatility at record levels, it makes sense for firms to aggregate data from various countries and use it to as an additional indicator to trade currencies or equities, McGuire points out. Tweets about the euro crisis for example can also capture the mood of the market in the U.S., he explains. As for concerns that breaking news on Twitter sometimes isn't reliable enough to act on, McGuire counters criticism by saying the truth often lies in the numbers, and a close look at who is "retweeting" the news. In other words, if a large enough number of people are tweeting the news, it is more likely to be true. "You see a greater rate of retweets repurposed when it's true. It's a crowd sourcing exercise," says McGuire. (Although I think any news on Twitter should initially be taken with a grain of salt as any one tweet can spread incredibly quickly). But equally important, says McGuire, is to see who is retweeting the news. "People retweet content from users they trust," he says. 2011-11-30T08:32:53Zhttp://www.wallstreetandtech.com/articles/232200421Cloud of Uncertainty Over Entire U.S. Financial System A look at the S&P's shock downgrade of major banks worldwide. Standard & Poor's downgraded all big U.S banks, in a lowering of credit ratings that hit 37 financial institutions worldwide. Banks including JP Morgan Chase went from A+ to A; Goldman Sachs, Bank of America, Morgan Stanley and Citigroup were downgraded from A to A-. This Marketplace Morning report looks at how the European debt crisis played into the downgrades and its potential impact on the world's financial system. <iframe src="http://www.marketplace.org/node/48368/player/popout" width="600" height="300" ></iframe>2011-11-29T11:42:50Zhttp://www.wallstreetandtech.com/articles/232200365Why Dubai Could Be A Banker's Next Best Career MoveAs Citi, Credit Suisse and UBS among others lay off thousands of employees, a banker's best bet might just be in the emerging markets.As U.S banks continue to lay off thousands of employees, job opportunities are increasingly cropping up in emerging markets. According to a report by Accenture, financial institutions in the Gulf are racing to adapt to more demanding customers, but at the same time they are facing a serious shortage of skilled bankers. The survey found that 69 percent of executives from the largest banks in the Gulf region cited a skills shortage as the biggest challenge facing the Gulf Cooperation Council (GCG). This is indicative of a broader trend, which is seeing an increasing number of job opportunities shift to emerging markets just as Western banks, from UBS to Citi and Credit Suisse, are laying of thousands of employees. In China, 95% of financial industry professionals acknowledge a skills shortage, with more than 28% seeing it as "chronic," according to eFinancialCareers. India too is undergoing a shortage of skilled bankers: research shows that the country will need to fill 5 million financial sector jobs by 2015. In the Gulf region, Accenture's survey of 47 C-level executives from the banking industry in Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates revealed that attracting and retaining talent will be the most important strategy their banks will use to increase shareholder value, according to 89 percent of respondents. As competition heats up in the region fueling the battle for talent, "banks will be looking for the skills required to develop more innovative products and to manage and grow their businesses," commented Amr Elsaadani, managing director of Accenture's banking practice in the Middle East. U.S. bankers take note: to address skill shortages and retain talent in the Gulf region, banks are revamping compensation through higher salaries and bonuses (51 percent) and are increasing transparency in career paths (47 percent). More than half the banks surveyed (53 percent) have also instituted coaching and mentoring programs. 2011-11-28T11:16:40Zhttp://www.wallstreetandtech.com/articles/232200243Extreme Volatility Is The New Way For The MarketsVolatility is here to stay. But what's driving the market swings?2011 has been a year of historic volatility in the financial markets. Theories behind the wild market swings include a surge in electronic trading to the growth of hedge funds and the eurozone crisis. Here's a look from MarketPlace Morning News at what's driving the volatility both short-term and long-term. <iframe src="http://www.marketplace.org/node/48188/player/popout" width="600" height="300" ></iframe> 2011-11-28T10:48:10Zhttp://www.wallstreetandtech.com/articles/232200238Algos Once Again Come Under FireRogue algos have been increasingly scrutinized by regulators and critics since the Flash Crash.Highlighting broadening concerns about the reliability of trading algorithms, CME Group has fined high-frequency trading firm Infinium Capital Management a total of $850,000 for three separate computer malfunctions that shook futures markets in 2009 and 2010. Trading programs at Infinium, one of the biggest automated trading firms in the U.S., went haywire on two separate days in October 2009, causing the uncontrolled selling of e-mini contracts on CME, the New York Times <a href="http://www.nytimes.com/2011/11/26/business/high-frequency-trading-firm-fined-by-cme.html" target="_blank">reported</a>. A few months later, in February 2010, Infinium lost control of an algorithm that had been created the previous night with little back-testing, according to a report in the <a href="http://www.ft.com/cms/s/0/f97e0668-1783-11e1-b157-00144feabdc0.html#axzz1f0zLwBzi" target="_blank">Financial Times</a>. The algo bought oil futures in rapid succession on the CME. The Chicago-based futures exchange operator charged Infinium for "acts detrimental" to the marketplace in the October incident and for failing to supervise its activities in both cases. Infinium neither admitted nor denied the rule violations. From the Financial Times: <blockquote> Bart Chilton, a commissioner at the Commodity Futures Trading Commission, the US futures regulator, and one of the most outspoken critics of what he calls "cheetah traders", told the Financial Times that the Infinium case highlighted the problem. "These superfast trading systems, when they go feral, can do so in a hurry," Mr Chilton said. "They are out there trying to scoop up micro-dollars in milliseconds. I do question the value they add to markets. And get this, they aren't even required to be registered with the regulator. That needs to change." </blockquote> Rogue algos that have the potential to send markets into a tail-spin have come under fire since the May 6, 2010 Flash Crash which saw markest plunge and recover within 20 minutes. Critics claim that many algos are not properly tested before being used in the markets, and that by the time humans are able to intervene to correct a problem extensive damage can already have taken place. In Europe, automated trading is also being scrutinized. The European Commission has proposed that firms that use trading algos would also have to provide regulators with a description of their strategies.2011-11-23T10:21:40Zhttp://www.wallstreetandtech.com/articles/232200174Bankers Finally Recognize Appetite For Wealth Management AppsStill, while they are taking small steps in the right direction, financial organizations still have a way to go to meet and exceed their wealth management clients' expectations.Banks are finally taking note of their private banking clients' appetite for wealth management smartphone apps that allow them to track their portfolios almost in real-time. Despite demand from investors for such apps, wealth managers have been slow to embrace smartphone apps for their clients due to security concerns but also, oddly, to a misconstrued impression that private banking clients do not want that kind of relationship with their bankers. Still, it looks like private bankers are now coming round to the idea. The PricewaterhouseCoopers Asia Pacific Private Banking Survey 2011 found that nearly 50 percent of private banks expected to use mobile technologies over the next two years, the New York Times <a href="http://www.nytimes.com/2011/11/23/business/global/with-apps-wealth-management-goes-mobile.html?_r=1&ref=technology" target="_blank">reports</a>. In a sign that private bankers might finally be catching up with the times, 35 percent also said that in the next couple of years they expect to interact more with their clients -- wait for it -- through social media. From the New York Times: <blockquote> "I think banks will have to go that way," said Nick Pollard, chief executive of RBS Coutts Asia. The venerable British private bank is using YouTube, Twitter and Facebook to reach out to its clients; a smartphone app is in the works. "It's less about today's clients and more about tomorrow's clients," he said. "Whether we like it or not, this generation and certainly the next one has no boundaries when it comes to accessing information."</blockquote> JP Morgan, Merrill Lynch and UBS are part of a small group of banks that are now offering apps to their wealth management clients. Still, there is much banks must still do to present their clients not just with apps, but with apps that are actually exciting and do things most private banking clients are pining for. In the New York Times article, Steffen Binder, managing director of MyPrivateBanking, highlights a "lack of brokerage and trading features, too little informational content as banks are proving hesitant to open their research libraries to app users, little integration with social media," and poor communication facilities, since there is no direct link to send messages to a personal adviser or even the possibility to get a call-back or chat with an adviser. Banks should take note. They usually proudly promote themselves as being at the cutting-edge of new technology. But here's the thing: most consumer sites, from Ikea to AT&T have had instant chat features for years. It's time banks stop thinking that private banking clients, or any other segment of clients, live on a different planet. We all live in a world where we want to stay connected with our banks and businesses 24/7 in as seamless a way as possible. Banks need stop making other assumptions and start meeting, and exceeding, their clients' expectations.2011-11-23T10:09:58Zhttp://www.wallstreetandtech.com/articles/232200171Bank of America Told to Clean Up its ActRegulators have delivered a warning to Bank of America: Clean up your act, or face enforcement actions.The board of Bank of America has received a stern message from regulators that it must strengthen itself or face enforcement action. Regulators want BofA's to do a better job of managing risk. While there are still a lot of concerns about Bank of America, including its still large exposure to mortgage debt, these concerns from regulators just add to the list of things that investors, regulators and the public has about the bank. Even with all of the changes since the 2008 financial crisis, many still worry that BofA is still a "too big to fail" institution that might have to rely on the public's support if another crisis happens. Watch the full Wall Street Journal video: <object id="wsj_fp" width="512" height="363"><param name="movie" value="http://s.wsj.net/media/swf/VideoPlayerMain.swf"></param><param name="allowFullScreen" value="true"></param><param name="allowscriptaccess" value="always"></param><param name="flashvars" value="videoGUID={BEEB110E-3AE0-4D24-BBA9-2F10DA98835E}&playerid=1000&plyMediaEnabled=1&configURL=http://wsj.vo.llnwd.net/o28/players/&autoStart=false" base="http://s.wsj.net/media/swf/"name="flashPlayer"></param><embed src="http://s.wsj.net/media/swf/VideoPlayerMain.swf" bgcolor="#FFFFFF"flashVars="videoGUID={BEEB110E-3AE0-4D24-BBA9-2F10DA98835E}&playerid=1000&plyMediaEnabled=1&configURL=http://wsj.vo.llnwd.net/o28/players/&autoStart=false" base="http://s.wsj.net/media/swf/" name="flashPlayer" width="512" height="363" seamlesstabbing="false" type="application/x-shockwave-flash" swLiveConnect="true" pluginspage="http://www.macromedia.com/shockwave/download/index.cgi?P1_Prod_Version=ShockwaveFlash"></embed></object>2011-11-23T09:39:37Zhttp://www.wallstreetandtech.com/articles/232200162Wall Street 2011 Bonuses Fall 30 PercentPoor market conditions and increased regulatory scrutiny contribute to large drop in 2011 bonuses.It appears that Wall Street bonuses, on average, will be 30 percent lower this year than in 2010, due to poor market conditions and increased scrutiny on bonus allocations by regulators. And the 30 percent drop is just for the equities crowd. Fixed income professionals will likely see their bonuses fall even farther, according to <a href=http://www.marketplace.org/topics/business/economy-40/wall-street-bonuses-fall target="_blank">this feature</a> on American Public Media's Economy 4.0 website. However, bonuses should still be robust, averaging $100,000. Meanwhile, regulators and politicians are still trying to figure out a way to solve the bonus controversy. For most of the population, financial services bonuses are extremely unpopular, since the industry financial incentives are viewed as encouraging risk (at the public's expense). In the industry, financial incentives are a way of life. To solve this problem, financial firms and regulators are still looking at ways to balance the need for financial incentives without encouraging excessive risk. One possible solution is to delay bonuses one or two years, so if a trade or strategy goes bad, the bonuses can be withheld. Here is the full segment: <iframe src="http://www.marketplace.org/node/48140/player/popout" width="480" height="240" ></iframe>2011-11-22T12:18:01Zhttp://www.wallstreetandtech.com/articles/232200090High-Frequency Traders Prowl The Web For Even More DataMarket data both on and off the web is skyrocketing and as hedge funds rebound, they are trying to digest it as quickly as possible.The amount of market data high frequency traders are using as trading indicators continues to grow more rapidly than Facebook can add users or change its privacy policies, and vendors are scrambling to offer new technology that can help firms - and algos - find the data, sort it and leverage it. One of the latest vendors to tap into hedge funds' increasing use of micro-blogging data as a trading indicator is Gnip, a provider of public social media data for enterprise applications, which now delivers more than 1 billion social media activities every day to its customers. At the start of 2011, <a href="http://gnip.com" target="_blank">Gnip</a> was delivering 300 million social activities per month. By May, that number was up to 3 billion activities. And in October, it delivered 30 billion activities. At this rate, the vendor estimates it will be providing its clients with 300 billion activities per month by March of 2012. In a bid to incorporate the most "relevant" social media data streams into a single solution for hedge funds and high-frequency traders, the vendor has launched a product called Gnip MarketStream, which aggregates high-volume, low latency new media for trend analysis. The service provides hedge fund managers, traders and signal providers with real-time streams of public data from Twitter and StockTwits, a financial platform that provides real time trading research data and allows investors to share market insights, ideas, charts and news. Ultimately, market data both on and off the web is skyrocketing and as hedge funds try to digest it as quickly as possible and to make intelligent use of it, they need to make sure they have an efficient storage and retrieval platform, can integrate various data sets and can provide tools to help their traders understand the data and patterns. [See 5 Steps To Turning The Market Data Challenge Into An Opportunity <a href="wallstreetandtech.com/digital-edition/dec2011" target="_blank">in our latest digital issue.</a>] "In terms of storing data and helping firms deal with data as efficiently as possible, the biggest step is to try to take robust information and consistent information across the attributes of a product transaction or a portfolio," says Peter Sanchez, CEO of Northern Trust Hedge Fund Services, which currently handles one million trades a day, with peaks of 4 million transactions. The need for more robust attributes around data is more pressing for hedge funds than for traditional asset managers, since they need to get more accurate pricing on a real time basis, he adds. With the aim of helping its clients sift through market data more efficiently, Northern Trust Hedge Fund Services provides its clients with the ability to access, configure and manage live data across current and historical transactions, as well as to generate heat maps, dot plots, pie charts and bar graphs through its hedge Fund Passport Application Suite. In the meantime, as they continue to lap up more data, hedge funds are rapidly regaining lost ground. According to McKinsey analysis for Northern Trust, hedge fund assets will have reached an estimated $1.8 trillion in AUM by the end of 2011, and are expected to grow to $2.4 trillion in 2013. 2011-11-18T12:36:37Zhttp://www.wallstreetandtech.com/articles/231903384Algos for Active TradersFidelity Investments is offering two algorithmic trading strategiesto its most active trader clients, placing them on a more level playing field with institutions.Retail investors, who may have felt left out of the algorithmic trading game, can now get access to institutional grade trading strategies from Fidelity Investments, according to the brokerage firm. Yesterday, Fidelity, the Boston-based brokerage giant, said eligible retail investors using its Active Trader Pro platform could take advantage of two trading algorithms originally designed for institutional clients — namely Volume Average Price (VWAP) and Target Volume (TVOL) algorithms— to help them navigate the volatile market. The idea is that retail investors could use the algorithms to break up large orders by executing them throughout the day, rather than submitted all at once, which would incur market impact. “Algorithms are computer programs that execute large orders over time with the goal of optimizing execution costs and managing risk,” stated Derrick Chan, VP of financial engineering and electronic trading at Fidelity in the release. The VWAP strategy is meant to deliver the average volume-weighted price from time of entry to the end of the trading day, explains Fidelity’s Chan, which the firm said is similar to investors using dollar-cost averaging strategies when investing longer-term in mutual funds or in their workplace retirement accounts. With the TVOL algo, though similar to VWAP, investors gain more control over the pace at which their order is executed in the market by choosing a target participation rate of 5, 10 or 20 percent of the volume. Investors using the two strategies will also gain access to Fidelity’s huge natural liquidity network, one of the largest liquidity networks in the industry, which connects with more than 45 domestic market venues which it evaluates for best price and execution speed. The moves by Fidelity go along way toward leveling the playing field for retail investors who are active traders. While active traders already have direct-market access trading, the algorithms offer them the flexibility to trade more patiently, notes Fidelity’s Chan, who claims, “they can save on both spread and market impact costs.” Though users of VWAP and TVOL algos would execute trades in multiple steps, investors will pay Fidelity’s single $7.95 online domestic equity commission, the company points out. Also, retail investors will be leveraging Fidelity’s infrastructure – high-speed networks and smart order routers and access to dark liquidity. However, Fidelity is not offering institutional-style algo trading to all of its active traders. To qualify for algo trading, the Active Trader Pro customer must live in a household whose active trading activity is 120 or more trades a year, which means they would receive streaming news, streaming Level II quotes, streaming interactive charting, times and sales data and directed trading. Though someone who executes 36 or more trades a year would qualify for Active Trader Pro— and someone who generates 72 trades a year would receive streaming watch lists and static Level II quotes —both would still not qualify for algo trading, according to Fidelity’s criteria. While not all retail investors are trading 120 times a year, those who meet the criteria now have a shot at competing in the highly fragmented, super fast U.S. equity-market structure. It will be interesting to see if Fidelity expands the algorithmic offering to less sophisticated customers, and whether its competitors at Schwab, E*Trade and TD Ameritrade, follow in its footsteps. 2011-11-17T10:22:37Zhttp://www.wallstreetandtech.com/articles/231903241MF Global Post-Mortem Is UnderwayFederal prosecutors have issued subpoenas and the trustee charged with recovering the money has hired a team of 200 accountants.The MF Global post-mortem is underway, and looks like it will take at least several more weeks to complete. As of press time, regulators have still not found the missing $600 million dollars. Federal prosecutors in Chicago and New York have now issued subpoenas to gather company records in the probe of the firm's collapse, a sign of an intensifying Justice Department criminal investigation, the Wall Street Journal <a href="http://online.wsj.com/article/SB10001424052970203699404577042510797468138.html?mod=WSJ_hp_LEFTWhatsNewsCollection" target="_blank">reports</a> (subscription required). While hundreds of the firm's customers are rightly up in arms about their frozen accounts and have little they can do right now, the big accounting firms have rarely been as busy. James Giddens, the trustee who is charged with returning customers' funds, has hired the accounting firm Deloitte to create a claims process for customers, as well as Ernst & Young, to look through the firm's books, which by all accounts, have so far proved to be a complete mess. According to the <a href="http://dealbook.nytimes.com/2011/11/16/with-mf-global-money-still-lost-suspicions-grow/?ref=business" target="_blank">New York Times</a>, Giddens has gathered a team of no less than 200 people (200!) to unwind MF Global, in addition to the 200 or so MF Global employees who have been kept on to help with the massive job. The team now faces the uphill struggle of trying to understand exactly how the firm operated, by carrying out dozens of interviews with staff members and reviewing of thousands of transactions. The Times reports that the accounting team's task has, unsurprisingly, been grueling. From the NY Times: <blockquote>"One lawyer for the trustee returned from his honeymoon and worked a 21-hour day. Another lawyer held a conference call from the emergency room of a hospital where a close relative was undergoing an operation. A group dispatched to Chicago had no time to pack, buying clothes when they arrived. So far, the trustee has transferred the holdings of about 15,000 MF Global customers to new brokers, along with some of the collateral backing their trades. On Tuesday, Mr. Giddens said he was seeking approval to return 60 percent of the money sitting in separate cash accounts, a move the Commodity Futures Trading Commission supports. A New York bankruptcy court judge is to hear the request Thursday morning."</blockquote> Still, countless customers are still in the dark about their money. There are calls for the Commodity Futures Trading Commission to adopt new transparency measures and keep a closer eye on futures firms. The CFTC is the primary regulator for MF Global's futures-trading operation, but the firm also is overseen by the SEC and FINRA. At the bankruptcy hearing on Wednesday, the Times reports that "Judge Martin Glenn asked a lawyer for the trustee if he knew whether customer money had been mingled with company cash" -- a major violation of Wall Street rules and a potential explanation for mission millions. The trustee's lawyer, James Kobak of Hughes Hubbard & Reed, reportedly replied: "I don't think anybody knows the answer." In the meantime, our readers have been commenting on the evolving scandal following my last <a href="http://wallstreetandtech.com/regulatory-compliance/231902872" target="_blank">blog </a> on MF Global, Hall Of Shame: MF Global's Books Are A Complete "Disaster". "Interesting to think about Corzine's comments during the firm's latest financial quarterly webcast. He constantly referred to how he is creating "the way forward" for the firm. Apparently "the way forward' needed $600 million of customers' money," one reader wrote. Prevention is better than cure, another reader points out. "If they already knew that it was in shambles then they should have rectified the matter early on. If they did they wouldn't be having the situation they are having right now. As the MF Global scandal continues to unravel, it should all provide good fodder for the Occupy Wall Street protesters, who after the closing of Zuccotti Park earlier this week have today started gathering again in Lower Manhattan to start demonstrations marking the movement's second month anniversary. They are currently facing an army of police in riot gear and on horseback. Let's hope regulators and politicians show the same kind of determination (minus the riot gear and horses) in trying to prevent another MF Global scandal from happening in the future. After all, it is the fourth Federal Reserve primary trader to fail in the past four years, and is just the latest in a long list of firms that have collapsed without any trace of their customers' money. 2011-11-15T12:55:49Zhttp://www.wallstreetandtech.com/articles/231903063Does Occupy Wall Street Stand A Chance of Rising Again?A look at what protesters now need to do.Mayor Bloomberg has asked police officers to remove Occupy Wall Street protesters from Zuccotti Park, which has been their New York City encampment since mid-September. Nearly 200 people were arrested during the operation, which the mayor ordered so that the park could be cleaned up.Since protesters hadn’t let anyone approach the park with a hose and water in weeks, it was in desperate need of a clean-up. There has been talk of diseases rapidly spreading, even of one locally known as ‘Occupy Wall Street Lung.” Which brings us to the first point protesters should heed: no one will take you seriously unless you clean up. After all, you wouldn’t go to a job interview without showering and making an effort with your appearance, would you? And isn’t that one of the points protesters are angry about, The lack of jobs? Well here’s news: it might be fun to play drums and camp out for weeks, but if you want to get your point across you’ve got to look like you really want a job, and aren't just happy to hang out with your friends and get angry at the nasty tactics of the police who want to boot you out. Understandably, residents who live near Zuccotti Park breathed a collective sigh of relief when the police moved in. They can’t be blamed. No matter how much good will they initially showed protesters, no one wants to see their neighborhood turned into a dirty tent city. At least not in New York City. Secondly, protesters need to realize that freedom of speech doesn’t just apply to them. Bloomberg noted that by closing the park he wanted to return the site to ‘regular people’ who have a right to enjoy it too, alongside the protesters. Well, fair enough. Protesters can’t expect to enjoy their own freedom of speech while restricting the movement of others who aren’t joining in the protest. Which brings us to the last point: It has been over two months since the Occupy Wall Street protest took off. How can the movement still not have a leader? It desperately needs someone to voice their opposition to Wall Street in a much clearer manner so that Wall Street, the government and the public can actually understand what it is they are protesting against, and finally take them seriously. They also need to be able to act as a unified voice that can speak in a level-headed manner to the police and other authorities. Still, this is unlikely to mark the end of the Occupy Wall Street movement. At least not yet. As of Tuesday morning, lawyers for the protesters obtained a temporary restraining order barring the city and the park’s private landlord from evicting protesters or removing their belongings. Justice Lucy Billings of State Supreme Court in Manhattan, scheduled a hearing for Tuesday. Protesters are now looking to take over other buildings or parks. If only they could get their act together, they are plenty of <a href="http://wallstreetandtech.com/financial-risk-management/231902047" target="_blank">reasons</a> to continue their protest. Millions are still unemployed, and little has changed on Wall Street and Main Street since the 2008 financial meltdown. So here's some advice for the protesters: go home, at least for today, have a good shower, put the drums away, elect a leader, and come back with a list of specific points you want to make. And don’t run away when the first big snowstorm hits the City.2011-11-11T13:06:22Zhttp://www.wallstreetandtech.com/articles/231902872Hall Of Shame: MF Global’s Books Are A Complete “Disaster”It's happening again: According to reports, the firm’s books had incomplete transactions, and numbers that just didn't seem to add up.Regulators hunting for about $600 million in customer money that went missing shortly before MF Global Holdings went bust have been taken aback by how poorly kept the securities firm's records are. "Their books are a disaster," Scott O'Malia, a commissioner at the Commodity Futures Trading Commission, one of the regulators leading a hunt that has stretched 10 days so far, said in an <a href="http://online.wsj.com/article/SB10001424052970203537304577030440112366870.html?mod=WSJ_business_whatsNews" target="_blank">interview (subscription required) </a> with the Wall Street Journal. "We're trying to figure out what numbers are the real numbers." According to reports from some who saw MF Global’s trading records and balance sheet before the company filed for bankruptcy on October 31, the firm’s books had incomplete transactions, and numbers that just didn't seem to add up. From the WSJ: <blockquote> "I always knew the records were in shambles, but I didn't know to what extent," said Thomas Peterffy, chief executive of Interactive Brokers Group Inc., which had for years considered doing a deal with MF Global. The company walked away from a handshake agreement to rescue MF Global after discrepancies in its books emerged, according to people involved in the discussions. </blockquote> Regulators say nearly $600 million is missing from customer accounts. Routine information about assets and positions on MF Global's books apparently took hours to produce, whereas such information should be accessible instantly. MF Global itself says problems with its trading records and balance sheet largely resulted from the chaos that submerged the firm as it shrank its assets by roughly half in a desperate bid to survive a run on the company. Yet MF Global's books and records were regularly reviewed by CME Group, the Chicago-based exchange operator that regulates futures firms. In a statement, James W. Giddens, the bankruptcy trustee for MF Global's U.S. brokerage unit, promised to conduct a "deliberate, thorough and independent" investigation "around the clock." Giddens said the trustee now trying to recover funds has received "thousands of inquiries" from investors. While MF Global’s unraveling is quite different from the white collar crime of the century – Madoff’s Ponzi scheme -- there are some similarities too. Millions of dollars (billions in Madoff’s case) gone missing, investors rightly enraged and wanting to know where their money is, and regulators who somehow missed all the signs that something in the books wasn’t right. Further, MF Global is the fourth Federal Reserve primary trader to fail in the past four years. Surely it is time that someone, be it the Fed or another regulator, start providing more effective oversight. After all, there is no amount of cutting-edge technology that can help a firm, or regulators, if processes aren't being followed correctly at all levels, and if the intent to spot something wrong isn't there in the first place.2011-11-09T12:01:52Zhttp://www.wallstreetandtech.com/articles/231902672A New Jobs MarketPlace That Could Change The Way Wall Street Hires IT StaffA potential solution for Wall Street firms who want to cut costs while staying on the look out for advanced developers from different parts of the world.Real innovators tend to move from one big invention to another, rather than resting on their laurels, as we showed in Wall Street & Technology’s recent <a href=" <a href="http://www.wallstreetandtech.com/top-innovators/2011/intro" target="_blank"> list </a> of top 10 innovators of the decade. Philip Rosedale’s most famous invention,<a href=" http://secondlife.com/whatis/?lang=en-US" target="_blank">Second Life </a> , created a buzz among finance aficionados, with its ‘fake’ stock market and currency. Although Second Life, a virtual world populated by avatars, never lived up to its hype, it did spawn a number of imitators and led to the rise of virtual trade events which have become a staple of Wall Street & Techology’s events program <a href="https://www.techwebonlineevents.com/ars/eventregistration.do?mode=eventreg&F=1003635&K=2WST" target="_blank">too </a> . Like other true innovators before him, Rosedale is not one to stop and marvel at his one and only invention, or one to lick his wounds if it doesn’t quite work out. This past spring, Rosedale quietly launched a work exchange site called Coffee and Power, which could have a bigger impact on Wall Street and Main Street than Second Life ever did. Coffee and Power is a <a href="http://www.coffeeandpower.com/#!category=building-software&type=will" target="_blank">site</a> where people buy and sell jobs, from paying $2 for someone to ‘like’ their Facebook page, to $5 for fixing any css/javascript issues in a website to $20 for creating a PowerPoint presentation, or a larger sum for writing sophisticated software. From the <a href="http://www.nytimes.com/2011/11/07/technology/coffee-and-power-site-aims-to-get-jobs-done-bit-by-bit.html?src=me&ref=technology" target="_blank">New York Times</a> : <blockquote> “To prove his point that a work exchange could function, Mr. Rosedale built the software for his new company by hiring programmers from around the world and dividing up the work into about 1,600 individual tasks, from setting up databases to fixing bugs. “We think it’s the new model for how software will be written,” he said. “It worked so well that we decided to extend it to all sorts of work.” […] As with Second Life, the business has a virtual currency for buying, selling or bestowing tasks as gifts. Coffee and Power takes a 15 percent fee for moving the money back into real dollars.</blockquote> Wall Street has been outsourcing for years. But as companies continue to cut costs while staying on the look out for advanced developers from different parts of the world, a marketplace like Coffee and Power – perhaps one specifically targeted at the financial and technology industry -- could have an impact in the future in the way firms hire additional IT contractors. After all, despite Wall Street’s broad layoffs, very specialized IT workers who are at the cutting-edge of new developments are always in high-demand. 2011-11-08T12:16:10Zhttp://www.wallstreetandtech.com/articles/231902580Fund Managers Catch A Break From The SECForm PF’s final rules aren’t as bad as anticipated.Form PF’s final rules for hedge funds and private equity businesses, announced last week by the SEC, aren’t as bad as anticipated, according to Kinetic Partners, a compliance advisory firm. Firms will now have to disclose more information to the U.S. government than previously required, and as such each organization should plan how they will address the Form’s requirements carefully, Kinetic pointed out. Hedge funds and private equity firms across the board have been complaining about Form PF being extremely a burden of little value to regulators. Its main purpose is to collect information for the Financial Stability Oversight Council, as outlined in Dodd-Frank, so that it can assess whether certain investment advisers possess inherent financial systematic risk. “It’s a very onerous rule,” Peter Sanchez, CEO, Northern Trust Hedge Fund Services, pointed out at a breakfast meeting. He said the administrator, whose biggest client is Citadel, is currently developing a Form PF reporting solution. Still, despite industry concerns, the final Form PF rules, which applies to private funds managed by registered investment advisers, commodity advisers and commodity pool operators, will actually make it easier than previously thought to report earnings. One of the major differences the SEC has made in comparison to the Form’s original version is the assets under management at which private fund advisors must report, which was raised from $1 billion to $1 .5 billion, Kinetic pointed out. Further, advisors will now have a 60-day reporting deadline as opposed to the 15-day deadline originally proposed. In yet another lucky break for fund managers, Form PF will take effect later than the original deadline: advisors with over $5 billion in assets under management will be the first to be affected, but won’t have to start reporting until the middle of 2012. Still, hedge funds and private equity firms are faced with a barrage of demands for more transparency that is transforming the industry, Sanchez of Northern Trust pointed out. In addition with new SEC regulations on transparency, firms are faced with new demands on tax and risk reporting, he said. Meanwhile, administrators are expected to do more than before, from carrying out upfront valuations to handling the rapid growth of funds from equities to multi-asset strategies, Sanchez said.