Latour Fined, Dodd Frank-Insurers, Dark Pools: Compliance

A Tower Research Capital LLC unit agreed to pay a record $16 million penalty to settle U.S. regulatory claims that it didn’t hold enough capital to support its high-frequency trading.

Latour Trading LLC failed to maintain minimum levels of net capital on 19 of 24 reporting dates over a two-year period starting in 2010, the Securities and Exchange Commission said in a statement yesterday. Its capital shortfall ranged from $2 million to as much as $28 million, the SEC said.

The $16 million penalty is 40 times the previous high that a firm has paid for violating the capital provision, the agency said.

Latour accounted for as much as 9 percent of the volume for the entire U.S. stock market during the period of the violations, according to the SEC.

Nicolas Niquet, Latour’s former chief operating officer, agreed to pay $150,000 to resolve claims that he was responsible for the company’s insufficient capital cushion. New York-based Latour and Niquet didn’t admit or deny wrongdoing in settling the SEC’s allegations.

“Latour has fully remediated the problems described in the commission order and we are pleased to put them behind us,” the company said in an e-mailed statement. “We take our regulatory obligations seriously, strive to continuously enhance our compliance infrastructure, and are committed to complying with all rules and regulations applicable to our businesses.”

Harry Weiss, an attorney representing Latour and Niquet, declined to comment on the settlement.

Compliance Policy

Insurer Capital Rules Sought by Tarullo Backed in House Measure

The Federal Reserve would get more flexibility to set separate capital standards for systemically important insurance companies under legislation passed by the U.S. House of Representatives.

The measure, adopted Sept. 16 as part of a package of changes to the Dodd-Frank Act, would let the Fed treat insurers such as Prudential Financial Inc. and MetLife Inc. differently than big banks in imposing safeguards demanded by the 2010 law. It would modify a Dodd-Frank provision written by Senator Susan Collins, a Maine Republican, who has said it wasn’t meant to apply similarly to insurers and lenders.

While the vote moves the revision closer to becoming law, obstacles remain in the form of House amendments that would change rules governing mortgages, derivatives end-users and collateralized loan obligations. Those proposals will require negotiation with the Senate, which passed a bill in June that addressed only the rule for insurers.

CFTC Seeking Comment on Overseas Impact of Swap-Collateral Rules

The U.S. Commodity Futures Trading Commission has released revised collateral rules for swaps traded directly between banks, manufacturers and other firms while seeking comment on how to apply the regulations overseas.

The request for input on how to apply the rules to foreign banks and overseas units of U.S. firms came as CFTC members voted unanimously yesterday to re-propose the collateral measure. The vote comes a day after a federal judge upheld the agency’s guidelines for how cross-border rules should be applied.

The CFTC rules largely mirror those released Sept. 3 by the Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency. They aim to exempt end-users, who employ swaps to hedge business risks, and broaden the types of cash, bonds, equities and other assets that can be used to back trades.

Commissioners Mark Wetjen, J. Christopher Giancarlo and Sharon Y. Bowen said the international application of the regulations remains an important element of debate for the commission. The proposal seeks comment on different ways to oversee compliance with the collateral requirements for trades overseas.

Compliance Action

Dark Pools Face Up to More Transparent Future as Threats Mount

Off-exchange markets, accounting for more than 40 percent of dark-pool volume, have publicly disclosed rules of operation that were previously hidden.

The private venues host 17 percent of trading in the $24 trillion U.S. stock market. They’re taking the disclosure step amid New York Attorney General Eric Schneiderman’s accusation that Barclays Plc misled clients about the presence of high-frequency traders in its private stock market.

Banks and brokers that own the markets are finding it harder to maintain the secrecy that used to define the venues. Schneiderman is scrutinizing the biggest dark pools, according to a person familiar with the matter, while the U.S. Securities and Exchange Commission is probing the industry. The Financial Industry Regulatory Authority’s board meets this week to decide whether to make private venues give it more data.

Reacting to the controversy, customers are demanding more information about how orders are processed, according to John Cosenza, co-head of electronic trading at Cowen & Co., a New York-based brokerage.

Bloomberg LP, the parent of Bloomberg News, owns a stake in Bids Trading LP, which operates a dark pool.

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