Bridging the Week by Gary DeWaal: June 22 to 26 and 29, 2015 (Clawbacks, Third-Party Payments, Block Trades, Trade Allocations, Governance; Reg SCI)

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Published Date: June 28, 2015

Material developments in the financial services industry worldwide appeared to take a pause last week, although regulators in the United Kingdom implemented tougher new rules on senior bankers’ deferred compensations and potential clawbacks. In addition, two FINRA actions reminded brokers of the hazards of permitting third-party wire transfers, while two ICE Futures exchanges updated their block trade guidance. As a result, the following matters are covered in this week’s Bridging the Week:

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My View: I accept that imposing deferrals and potential clawbacks on senior executives' bonuses theoretically helps improve the compliance culture at firms by better aligning compensation with risks. However, when the period of time for deferrals and potential clawbacks is too great it causes an implicit discount of potential compensation in the minds of recipients that disrupts the alignment. Potential compensation too far in the future that is effectively written off immediately is not likely to serve as an inducement to better behavior today. The durations imposed by the UK regulators are likely too long to influence behavior in the manner contemplated.

Compliance Weeds: Futures and securities brokerage firms should have rigorous procedures regarding the acceptance of funds from, or transmission of funds to, third parties not in the names of the accounts on their books – even if controlled by the same beneficial owner. Moreover, movement of funds and/or positions from one account to an account of a different beneficial owner – even at the same broker-dealer or futures commission merchant – other than for documented errors (and subject to non-production management sign-off) should be strictly proscribed.

Compliance Weeds: Ordinarily, when placing orders on behalf of multiple accounts, account managers must provide a futures commission merchant with information at or before the time an order is placed, which identifies the number of contracts to be allocated to each account. However, certain eligible account managers, including registered commodity trading advisors, futures commission merchants and introducing brokers may place bunched orders for multiple accounts and allocate filled orders to individual accounts after execution, as long as prior to the end of the trading day. However, all trades must be allocated in a fair and equitable manner “so that no account or group of accounts consistently receives favorable or unfavorable treatment over time.” Allocation procedures must be capable “to permit independent verification of the fairness of allocations over time,” and an account manager must analyze each of its trading programs at least once a quarter to ensure that its allocation method was fair and equitable. Other conditions also apply. FCMs executing or clearing customer accounts for account managers who engage in post-trade allocations must monitor for “unusual allocation activity.” If an FCM has actual or constructive knowledge that allocation activity is fraudulent, it “must take appropriate activity.” NFA recognizes, however, that an FCM’s ability to monitor trading is a function of the amount of information it has. For example, an FCM that executes and clears for a customer will have more information than an FCM that either executes or clears. FCMs also have certain recordkeeping obligations in connection with post-execution allocation accounts. (Click here for additional details in NFA’s Interpretive Notice 9029 (2014): The Allocation of Bunched Orders for Multiple Accounts.)

And even more briefly:

For more information, see:

Because of Past Trade Allocation Issues, Registrant Can Operate Pools But Not Individual Managed Accounts Says NFA:


Broker-Dealers Cited by FINRA for Not Monitoring Transfers From Client Accounts to Third Parties:

CFTC Commissioner Bowen Recommends Considering EMIR Governance Clearinghouse Standards for US DCMs and SEFs:

CFTC to Host Made Available to Trade Roundtable:

FINRA Proposes to Decrease Delay in Publishing Historical Trade Data:

ICE Futures Exchanges Update Block Trade Guidance:

ICE Futures Europe Guidance:

ICE Futures U.S. FAQs:

IOSCO Seeks Comments on Fees and Expenses for Collective Investment Vehicles:

Leap Second Is Here:


See also sample exchange notifications:
ICE Futures U.S.:
ICE Futures Europe:

Moody’s Proposes Standardized Rating Methodology for Clearinghouses:

Monetary Authority of Singapore Sanctions SGX for Fall 2014 Market Outages:

NFA Proposes to Change Makeup of Board of Directors:

SEC Commissioner Recommends Applying Reg SCI to Brokers to Enhance Cybersecurity:

UK Regulators Implement Tougher Pay Rules for  Banking Institutions’ Senior Managers:

Policy Statement:
Supervisory Statement:

The information in this article is for informational purposes only and is derived from sources believed to be reliable as of June 27, 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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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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Gary DeWaal
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