Commentaries

Bridging the Week by Gary DeWaal: February 16 to 20 and 23, 2015 (AML; Block Trades; EFRPs; Conflicts; Insider Trading)

Jump to: AML and Bribery    Block Trades and EFRPs    Bridging the Week    Compliance Weeds    Insider Trading    Managed Money   
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Published Date: February 22, 2015

A shortened workweek in the United States because of President’s Day and in Asia because of the Lunar New Year seems to have induced a very light week of news impacting the financial services industry. However, during the week, CME Group sanctioned a number of firms for miscues in handling EFRPs and block trades, while FINRA brought an action against a broker-dealer for not following up on numerous AML red flags. As a result, the following matters are covered in this week’s Bridging the Week:

Video Version:

Article Version:

Briefly:

Compliance Weeds: Once again CME Group has highlighted through disciplinary actions the detailed rules that must be followed in connection with EFRP and block trade transactions (similar detailed rules exist on other futures exchanges too). EFRPs have strict requirements related to recordkeeping, reporting and the nature of acceptable instruments that may qualify as the related position in an EFRP, among other requirements. Block trades also have strict requirements related to minimum size, reporting, and using information derived from potential block trades. Violation of these requirements may not only constitute a violation of CME Group’s rules, but also the rules of the CFTC prohibiting noncompetitive transactions. (Click here for an article on other CME Group disciplinary actions involving EFRPs and block trades, “CME Initiates and Resolves Still More Disciplinary Proceedings for EFRP and Block Trade Violations” in the April 28 to May 2 and May 5, 2014 edition of Bridging the Week.)

Compliance Weeds: In connection with its review of asset management firms’ practices related to controlling the risk of unauthorized and prohibited trading on inside information and manipulation, FCA listed six steps firms should take to minimize abuse: (1) minimizing the possibility that inside information might be received but not identified as such; (2) restricting access to inside information and preventing its improper disclosure; (3) utilizing pre-trade controls to help prevent insider trading and potentially manipulative trading; (4) utilizing effective post-trade surveillance; (5) maintaining and enforcing personal account policies that reduce the risk of improper trading (e.g., pre-trade checks against restricted lists and minimum holding periods); and (6) requiring ongoing training of employees. The FCA publication provides many specific examples of how firms have endeavored to implement these steps with a characterization of their efforts as effective or not. Comparison of firms’ own practices against the FCA’s analysis might prove helpful to firms seeking to enhance their own procedures.

And even more briefly:

For more information, see:

Broker-Dealer Fined by SEC for Acting in Dual, Conflicting Roles in Connection With CDO Liquidations:
http://www.sec.gov/litigation/admin/2015/34-74305.pdf

Clearinghouse Recovery and Resolution to Be Addressed by Upcoming CFTC Roundtable:
http://www.cftc.gov/PressRoom/PressReleases/pr7124-15

CME Group Reminds Members of Regulatory Requirements for EFRPs and Block Trades Through Disciplinary Actions:

Sample Disciplinary Actions:

http://www.cmegroup.com/tools-information/lookups/advisories/disciplinary/NYMEX-14-9862-BC-MAREX-SPECTRON-ASIA-PTE-LTD.html
http://www.cmegroup.com/tools-information/lookups/advisories/disciplinary/NYMEX-12-8894-BC-MAREX-FINANCIAL-LIMITED.html
http://www.cmegroup.com/tools-information/lookups/advisories/disciplinary/NYMEX-12-8894-BC-MAREX-SPECTRON-ASIA-PTE-LTD.html
http://www.cmegroup.com/tools-information/lookups/advisories/disciplinary/NYMEX-12-8894-BC-MAREX-SPECTRON-INTERNATIONAL-LIMITED.html

FCA Discusses Good and Bad Practices Asset Managers Follow to Control Risks of Insider Trading:
http://www.fca.org.uk/static/documents/thematic-reviews/tr15-01.pdf

FIA Summarizes HFT Issues Under MiFID II and MiFR:
https://europe.fia.org/articles/special-report-series-part-four-algorithmic-and-high-frequency-trading

FINRA Sanctions Broker-Dealer for Failing Adequately to Monitor Red Flags Regarding Suspicious Trading Activity:
http://disciplinaryactions.finra.org/viewdocument.aspx?DocNB=38718

ICE to Launch New LBMA Gold Price, Replacing London Gold Fix, on March 20:
http://otp.investis.com/clients/us/intercontinental_exchange_group/usn/usnews-story.aspx?cid=953&newsid=28660

NFA Reminds Swaps Dealers and MSPs to Update Annually and Keep Current the SD-MSP Questionnaire:
http://www.nfa.futures.org/news/newsNotice.asp?ArticleID=4540

The information in this article is for informational purposes only and is derived from sources believed to be reliable as of February 21, 2015. No representation or warranty is made regarding the accuracy of any statement or information in this article. Also, the information in this article is not intended as a substitute for legal counsel, and is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. The impact of the law for any particular situation depends on a variety of factors; therefore, readers of this article should not act upon any information in the article without seeking professional legal counsel. Katten Muchin Rosenman LLP may represent one or more entities mentioned in this article. Quotations attributable to speeches are from published remarks and may not reflect statements actually made.

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ABOUT GARY DEWAAL

Gary DeWaal

Gary DeWaal is currently Special Counsel with Katten Muchin Rosenman LLP in its New York office focusing on financial services regulatory matters. He provides advisory services and assists with investigations and litigation.


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