Canada HFT, Dark Pools, European Bonuses: Compliance

The Ontario Securities Commission may consider measures to regulate high-frequency trading if evidence of predatory activity is found as it reviews its market-structure policies, Chairman Howard Wetston said.

Canadian securities regulators are investigating high-frequency trading, a catch-all term for automated buying and selling at paces far faster than humans can perceive. The practice, which provides the majority of liquidity in some markets, has come under increased scrutiny in the U.S. this year.

The commission is awaiting the results of a study from the Investment Industry Regulatory Organization of Canada on the impact of high-frequency trading practices on the Canadian market. The study will assess whether those practices are hurting the quality of the market, Wetston said.

Compliance Policy

Dark Pools Take Larger Share of Trades Even as SEC Scrutinizes

The rise of off-exchange trading in the U.S. stock market continues unabated even as regulators question the wisdom of allowing the shift to continue.

Shares changing hands in private venues such as dark pools accounted for 40 percent of total share volume on June 10, according to data compiled by Bloomberg. That’s the most since 42 percent took place off-exchange on June 22, 2012.

The high came after Securities and Exchange Commission Chairman Mary Jo White last week voiced concerns about the level of trading on venues where bids and offers are kept private, masking the true depth of demand for shares.

Alternative trading systems, broker-run private venues that include dark pools, have been under increasing scrutiny in recent months.

Compliance Action

Credit Suisse Fined for Product With No Chance of Maximum Return

A unit of Credit Suisse Group AG was fined by the U.K. markets regulator for promoting a product that garnered 797 million pounds ($1.35 billion) in investments and had about a zero percent chance of reaching its maximum return.

The Financial Conduct Authority fined the Zurich-based bank 2.4 million pounds, the regulator said in a statement today. Yorkshire Building Society, which sold about 75 percent of the total amount invested in Credit Suisse’s Cliquet product, was told to pay 1.4 million pounds.

The firms must also contact customers who bought the product from November 2009 to June 2012 and give them the chance to exit it, without penalty or interest, the FCA said. About 83,777 typically “unsophisticated” investors bought the savings product, according to the regulator.

“We accept the findings of the FCA’s final notice,” Credit Suisse said in a statement. “We have taken this matter very seriously, have fully co-operated with the FCA’s investigation and have agreed a comprehensive redress process.”

Yorkshire Building Society “fully accepts the decision made by the FCA and we apologize to our customers,” the company said in a statement. “We are committed to doing all we can to put this right as soon as possible and ensure a fair outcome for customers.”


Big Brokers Need More Capital to Avert Failure, SEC’s Stein Says

The biggest Wall Street brokerages should face stricter capital requirements as regulators search for tools to limit the impact of a firm’s failure on the broader financial system, U.S. Securities and Exchange Commissioner Kara M. Stein said June 12.

She made the remarks at the Peterson Institute for International Economics in Washington.

The agency should update its capital rules for large broker-dealers such as those owned by Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley to help prevent a repeat of the 2008 financial crisis, when similar firms became heavy users of the Federal Reserve’s emergency-lending facilities, Stein said.

The SEC’s rules should better account for the risk posed by short-term funding markets on which brokers rely, she said.

Stein’s comments come as the SEC has said it’s considering new funding rules for brokers.

Comings and Goings/Executive Pay

Europe Weighs Ban on Bank Allowances Aimed at Dodging Bonus Cap

The European Banking Authority said it may restrict role-based payouts for senior bankers as it seeks to crack down on potential loopholes in rules curbing incentives for risky behavior.

The EBA has “concerns that these practices do not conform to the requirements” capping bonuses at no more than twice salary, the agency, set up in 2011 to harmonize banking regulation across the 28-nation European Union, said in a report published on its website June 13.

Lawmakers campaigned for the bonus caps in a bid to clamp down on the gambling culture they blamed for triggering the 2008 financial crisis. Some lenders with U.K. operations responded by giving employees cash allowances depending on seniority, known as role-based pay, to evade the restrictions. Banks consider these allowances as part of salary, so they are unaffected by bonus caps.

The EBA will decide how to treat allowances in an update of pay policy guidelines later this year.

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