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Bridging the Week by Gary DeWaal: February 15 – 19 and 22, 2016 (Culture; False Documents; Home Court Advantage; Trade Options; Automated Trading Systems)

Jump to: Bridging the Week    My View    Culture and Ethics    Trade Practices (including Disruptive Trading)    Systems and Controls    Forum Selection   
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Published Date: February 21, 2016

A review by the Inspector General of the Securities and Exchange Commission concluded there was no home court advantage for cases tried before the agency's own administrative tribunals, while the Financial Industry Regulatory Authority announced a sweep to help evaluate broker-dealers’ compliance cultures. Meanwhile, the Singapore Exchange proposed to amend its rules to ratchet down a somewhat prescriptive approach to regulating automated trading systems accessing its electronic platform to a far more principles-based manner. As a result, the following matters are covered in this week’s edition of Bridging the Week:

Video Version:

Article Version:

Briefly:

Culture and Ethics: FINRA’s reflection on the elements of what constitutes an exemplary compliance culture superficially sounds good, but saying that a good compliance culture is one “that consistently places ethical considerations and client interests at the center of business decisions” is fraught with danger. Regrettably, not all client interests are legitimate, and a broker that only does what clients want will likely run into regulatory problems at some point. At a minimum, only legitimate client interests should be honored. In addition, elevating ethical considerations to the center of business decisions sounds noble, but, in the end, there may be disagreement among reasonable persons as to what constitutes appropriate ethical standards. It is far better for companies to mandate that their employees endeavor at all times to comply with the spirit let alone the letter of all applicable legal and regulatory requirements. But, in any case, the danger of regulating and micromanaging (including quantifying) compliance culture is that something surely will be missed and the proverbial forest will be lost but for the trees. Firms should mandate the application of a far more simple and direct test to ensure good culture: the grandmother test. If you would be embarrassed to sit at breakfast with your 90-year-old grandmother when she picks up her morning tabloid and reads about your conduct on the front page, don’t do it! It’s simple, but it works – at least for most grandmothers!

My View: SGX is commended for proposing to amend its current rules to transform somewhat prescriptive requirements to principles-based requirements. This reflects that obligations around automated trading should not be one-size-fits-all, but must be tailored to meet firms’ and clients’ specific businesses and practices as well as potential risk to a marketplace.

And more briefly:

For more information, see:

Canadian Regulator Announces 2016 Compliance Priorities:
http://www.iiroc.ca/Documents/2016/c4c52ff7-26a5-421a-9621-1e6692687566_en.pdf

CFTC Motion to Expand Proof in Spoofing Case Denied:
/ckfinder/userfiles/files/Oystacher%20CFTC%20Motion%20Denied%202%2017%2016.jpeg

CFTC Provides Reporting Relief to Trade Option Users:
http://www.cftc.gov/idc/groups/public/@lrlettergeneral/documents/letter/16-10.pdf

Comment Period Extended for CFTC Draft Technical Specifications for Certain Swap Data Elements:
http://www.cftc.gov/idc/groups/public/@newsroom/documents/file/specificationsswapdata122215.pdf

FINRA Seeks to Identify How Some Members Implement Cultural Values:
http://www.finra.org/industry/establishing-communicating-and-implementing-cultural-values

Former Broker-Dealer CEO Sentenced to Six Months Imprisonment for Creating False Documents for SEC Production:
http://www.justice.gov/usao-sdny/pr/ceo-broker-dealer-sentenced-manhattan-federal-court-obstructing-regulatory-examination

No Home Court Advantage in Administrative Proceedings Says SEC Inspector General:
https://www.sec.gov/oig/reportspubs/Final-Report-of-Investigation.pdf

Research Analyst Fined by SEC for Falsely Rating Client to Keep Relationship:
https://www.sec.gov/litigation/admin/2016/34-77150.pdf

Singapore Exchange Consults on Adopting Principles-Based Non-Prescriptive Pre-Trade Risk Control Requirements:
http://www.sgx.com/wps/wcm/connect/fe9179cd-c15d-43bd-9412-10bb1cb44d67/TitanDTDC_PubConsult_F_18Feb2016.pdf?MOD=AJPERES

The information in this article is for informational purposes only and is derived from sources believed to be reliable as of February 20, 2016. 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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