Crypto frenzy is rife with ‘hucksters, fraudsters, scam artists’

The current crypto frenzy is “reminiscent of what we had in the 1920s before the federal securities laws were put in place,” said U.S. Securities and Exchange Commission Chairman Gary Gensler. He went on to add that “... Hucksters. Fraudsters. Scam artists. Ponzi schemes. The public is left in line at the bankruptcy court.”

“The crypto securities markets should not be allowed to undermine the well-earned trust the public has in the capital markets,” Gensler said. “The crypto markets should not be allowed to harm investors.”

The SEC this week brought separate actions against Binance and Coinbase, alleging they had unlawfully offered securities intermediation functions without registering them with the regulatory agency. The agency also alleged Coinbase commingled its exchange, broker-dealer and clearinghouse functions. The SEC also accused Binance of commingling investors’ assets.

Read the full article HERE.

Robinhood’s Big Gamble

In eliminating barriers to investing in the stock market, is the app democratizing finance or encouraging risky behavior? The app gives new investors an easy way to buy and sell stocks. Its founders say that it could help reduce inequality, but critics fear that it will only reinforce the wealth gap.

Read Sheelah Kolhatkar's article in The New Yorker HERE.

A market is springing up for “regtech”, fintech’s nerdy new offspring

"On September 29th, IBM announced the purchase of Promontory, a 600-strong consultancy whose senior staff include former officials from the Federal Reserve, the World Bank, the Securities and Exchange Commission and other regulators. The hope is that person and machine will combine into a vast business. Promontory was founded in 2001 by Eugene Ludwig, who had headed one of America’s primary bank-supervisory agencies. It grew first because of the slathering of new rules during the previous, Bush administration and then prospered, says Mr Ludwig, as this process expanded under Barack Obama".

Read the full article in The Economist

Pressure builds to delay MiFID II reforms

From Finextra –

“Pressure is mounting on the European Commission to postpone the implementation of securities market reforms under MiFID II by a year, as banks and brokers struggle to adapt their IT systems to meet the 2017 timetable.”

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International Securities Settlement & Custodial Training

2/3 July 2015 – London

Course Description

This 2 day training program is designed to provide delegates with practical knowledge about the key concepts, systems, processes and procedures in international securities settlement and custodial services as well as operational risks involved.

You will have a chance to gain skills necessary to facilitate day-to-day transactions and communication processes between all parties involved as well as all stages about clearing and settlement process, the role of exchanges and clearing houses, functioning of the settlements department, role of payments in the settlements.

Day two focuses on the role and functioning of global custody, services provided, derivatives settlements, corporate actions and risk management. You will also learn about the latest sector's trends and changes.

You will also learn about the impact of the MiFID and Target 2 Securities initiatives on the market.

The course is conducted by senior experts with many years of international experience and includes many international case studies and exercises.

What You Will Learn

By attending this program you will gain:

• Practical understanding of international securities settlement processes and custodial services, key players and concepts and relationships between them
• A clear understanding of the operational risks involved in these two services
• An update on recent developments of international securities settlement and custodial services including Target 2 Settlements and MiFID
• An understanding and appreciation of the communication processes between all the parties involved in a given transaction

REGISTER NOW

Cooperating with Regulators? The Pros and Cons

From Wealth Management.com -

“While securities regulators say self-reporting offenses and cooperating with authorities may help advisors and firms get off easier, industry lawyers say there are negative consequences, including reputational damage and costly internal investigations.

When the Justice Department assesses an appropriate resolution in a case, a major determining factor is whether there’s been cooperation with enforcement, said Bill Stellmach, principal deputy chief of the fraud section at the DOJ, during the Practising Law Institute’s enforcement seminar Friday.’

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High-Frequency Din Rises as Trading Inquiries Evoke Market’s Past Scandals

From Bloomberg Business

“Scrutiny of high-frequency trading is stirring memories among investment veterans of earlier scandals when the government targeted price-fixing and fraud in U.S. equity markets.

Michael Lewis’s book “Flash Boys” and probes by the New York attorney general and Federal Bureau of Investigation are spurring outcry from Washington to Newport Beach, California, as investors and politicians ask if exchanges are rigged. Shares of Nasdaq OMX Group and Intercontinental Exchange Group have lost at least 8.8 percent in 2014 after each posted their best annual gains since 2007 and 2006, respectively.’

read more>>

The key steps in clearing and settling in the securities trade

Stanley Epstein - Principal Associate - Citadel Advantage

We have all been concerned these past few years about the ongoing financial crisis which erupted so suddenly and devastatingly in the middle of 2008. Much concern has been expressed regarding maintaining financial stability. One of the many ways of doing this is by strengthening the financial infrastructure both at a domestic level or internationally.

One of these vital financial infrastructural processes involves the clearing and settling in the securities trade. In this short article we will take a closer look at the securities clearing and settling process.

Securities clearing and settlement includes several key steps. This includes:

• Confirmation of the terms of the trade by the direct market participants, 
• Calculation of the obligations of the counterparties resulting from the confirmation process, known as “clearance”, and 
• Final transfer of securities (“delivery”) in exchange for final transfer of funds (“payment”) in order to settle the obligations. 

There are a number of different ways that each of these stages can be carried out.

Also there are a number of special services that are supplementary to these activities and that also form a part of the securities industry.

These activities include:

1. Confirmation of trade details. This occurs between direct market participants and indirect market participants (institutional investors and foreign investors or their agents). This first step in the clearing and settlement process is to make certain that the counterparties to the trade (the buyer and the seller) agree on the terms, that is, the security involved, the price, the amount to be exchanged, the settlement date and the counterparty. This process of trade confirmation can take place in a number of different ways. The trading mechanism itself often determines how it takes place.
2. Clearance. Clearing occurs after trades have been confirmed. Clearing is the process involving the computation of the obligations of the counterparties to make deliveries or to make payments on the settlement date. The settlement instructions are then communicated to central securities depositories and to custodians that many investors use for the safekeeping of their securities. Clearance usually occurs in one of two ways. Many systems calculate the obligations for every trade individually. This means that clearance occurs on a gross or trade-for-trade basis. In other systems, the obligations are subject to netting. In some markets, a central counterparty interposes itself between the two counterparties to a securities trade, taking on each party’s obligation in relation to the other. By achieving netting of the underlying trade obligations, the use of a CCP reduces credit risk (both replacement cost and principal risk) and liquidity risk for the trade counterparties. Netting arrangements are becoming more common in securities markets with high volumes of trades because properly designed netting significantly reduces the gross exposures in such markets.
3. Delivery versus Payment. This relates to the linkage of transfer instructions by a securities transfer system and a funds transfer system and often involves several stages during which the rights and obligations of the buyer and the seller are significantly different. Very often accounts may have been debited or credited, but the transfer remains provisional, and one or more parties may hold the right by law or agreement to cancel the transfer. If the transfer can be rescinded by the sender of the instruction, the transfer is said to be revocable. Even if the instruction is irrevocable, if a party such as the system operator or a liquidator can rescind the transfer, it is considered only provisional. Only at the stage at which the transfer becomes final, that is, an irrevocable and unconditional transfer, is the obligation discharged. Final transfer of a security by the seller to the buyer constitutes delivery, and final transfer of funds from the buyer to the seller constitutes payment. When delivery and payment have occurred, the settlement process is complete.
4. Registration. Many settlement systems have associated “registries” in which the ownership of securities is listed in the records of the issuer. Registrars typically assist issuers in communicating with securities owners about corporate actions, dividends, etc.
5. Safekeeping or custody. This is an ongoing part of the securities settlement process after the final settlement of a trade. While securities are normally held in a CSD, many of the ultimate holders of securities are not direct members of these depositories. Rather, investors establish “custody” relationships with depository members, who provide safekeeping and administrative services related to the holding and transfer of the securities. Custodians keep records of securities holdings on behalf of investors, monitor the receipt of dividends and interest payments and corporate actions (for example share repurchases, mergers and acquisitions).

So even while the principles involved in the clearing and settling of securities may be simple and fairly easily understood, their inner working are far more complex. Local and international permutations can be highly complex in terms of process, practice and principle.