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Liquidity "Not an Exact Science" Regulators Warned

By John Bakie
January 14, 2016, The Trade

Liquidity cannot be measured in the exacting ways regulators are seeking to impose, the US Securities and Exchange Commission (SEC) has been warned by an asset management group.

In a response to the SEC’s recently proposed liquidity management rules, the Securities Industry and Financial Market Association’s (SIFMA) asset management group said the rules as they stand are far too rigid and could be detrimental for end investors.

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Regulation Watch: Setting the Precedent

By Henry Yegerman
January 12, 2016, The Trade

Current industry discussions on best execution tend to focus on the implementation of the Markets In Financial Instruments Directive II (MiFID II).

The topics being discussed, though, are global and reflect common issues shared by the U.S. and other major equity markets. While the challenges of achieving best execution are the same, the ways and means used to achieve it have been different.

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Comment: Eight U.S. Regulatory Predictions for 2016

By Annette L. Nazareth and Gabriel D. Rosenberg
January 8, 2016, Financial Times

Last year we offered our 10 regulatory reform predictions for 2015, which turned into a busy year in the financial regulatory space. Here are our predictions for 2016:

1. Pace of new regulation slows in face of election

This year will provide a (brief) respite from the recent frenetic pace of financial regulatory rulemaking, due largely to the looming presidential and congressional elections. With some possible exceptions, regulators will be reluctant to propose or adopt controversial rules that could have political implications. For example, while much work is probably going on behind the scenes in preparation for regulation of the shadow banking system (see prediction #8), we believe the election will mean that these proposals will not see the light of day until 2017.

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Clearing Quarterly: T+2 Migration Picks Up Speed

By Rob Daly
December 30, 2015, Traders Magazine

The migration to a T+2 settlement cycle is about to get real for a lot of financial services firms. Although the Industry Steering Committee, the industry working group that is shepherding Wall Street through the long-evolved clearing and settlement process, has set a go-live date sometime in the third quarter of 2017, this coming year will be when everyone will need to roll up their sleeves and prepare their internal systems and processes for the change.

At presstime, the steering committee was still working to deliver an industry-wide implementation plan that the Securities and Exchange Commission requested to be in place no later than December 18.

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Comment: What the SEC Derivative Proposal Means for Leveraged & Inverse ETFs

By Tom Lydon
December 29, 2015, ETF Trends

Exchange traded funds that utilize derivative financial tools to achieve their intended strategies have drawn greater scrutiny from regulators. However, the investment vehicles have been working as intended for more sophisticated investors whom understand the tools.

Analysis of their market activity illustrates that leveraged exchange-traded funds have been used properly since they were registered in 2006, serving their intended purpose for suitable investors. Leveraged and inverse ETFs utilize derivatives contracts to enhance daily index returns. For instance, most leveraged ETFs are designed to produce double or triple the performance of the underlying market on a daily basis while inverse options reflect the opposite moves to a benchmark. Suitable investors who understand the risks associated with daily leveraged investment results should be willing to actively monitor their investments. Many investors who have utilized leveraged or inverse strategies to hedge their portfolios have looked to Direxion or ProShares ETF options for magnified equity or bond exposure.

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Securities Regulations to Watch in 2016

By Ed Beeson
December 24, 2015, Law360

After seven years under the Obama administration, financial regulators will spend 2016 trying to wrap up as much as they can before the inevitable change of guard in January 2017. From the U.S. Securities and Exchange Commission cementing vast new rules for asset managers to the U.S. Commodity Future Trading Commission brokering a key agreement on swaps rules with its European counterparts, both agencies have busy years ahead.

Glancing at the SEC’s unified agenda confirms this. As of the end of 2015, there were 62 rulemakings...

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After Delays Are Cleared, New Rules Will Lead to Big Changes

By Rick Baert
December 28, 2015, Pensions&Investments

The new year is expected to be an uncertain one for regulations in trading because of delays in European market rules and a U.S. pilot on tick sizes, as well as a proposal to increase transparency in dark-pool trading.

But make no mistake, said Kevin Cronin, director, global head of trading, at Invesco Ltd., Atlanta. Once the delays are gone and proposals become regulations, there will be big changes affecting institutional trading, both in 2016 and beyond. “There are a lot of things that, if they go into effect, could change the landscape of trading — in equities, but also in fixed income, derivatives,” Mr. Cronin said. “It could be a very impactful year.”

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SEC Proposes New Limits on Derivative Use

By Chris Dieterich
December 26, 2015, Barron's

Leveraged exchange-traded funds—the hot rods of the trading world—have long drawn the ire of regulators keen on investor protection. And recently proposed rules to curtail the use of derivatives in funds could eradicate the most souped-up products in this $27 billion corner of the ETF industry, and bring major overhauls for scores of other alternative funds.

Leveraged ETFs, first introduced in 2006, amplify the daily price swings of an index. Take the $685 million Direxion Daily S&P 500 Bull 3X Shares (ticker: SPXL), an ETF that promises price moves that are three times that of the S&P 500 on any given day. On a day like Aug. 24, when stocks fell 3.9%, the worst session for U.S. stocks in four years, this ETF’s price decline fell by 12%. Regulators have long worried that the nature of leveraged ETFs—which are meant to be traded, not even held overnight—was too confusing for many investors, who would hold them too long. In particular, the SEC seems to be targeting triple-leveraged, or 3X funds, as the most egregious. It’s not a bad call: The 3x Direxion ETF would have lost a buy-and-hold investor nearly 9% in the year ended last Tuesday, a steep decline versus the flat return of the SPDR S&P 500 (SPY), according to Morningstar.

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Regulators' Definition of Liquidity Is a Bit...Fluid

By Mark Cobley
December 18, 2015, Financial News

The report, available here, is a look at how the world’s financial regulatory authorities – like the U.S.’s Securities and Exchange Commission, or the U.K.’s Financial Conduct Authority – might handle “exceptional situations” when funds face “significant redemption pressure”.

The report features responses from 27 of the 124 members of the International Organisation of Securities Commissions, including the principal regulators in the world’s biggest markets, such as China, France, Germany, Hong Kong, Italy, Japan, Singapore, South Africa, Switzerland, the U.K. and USA.

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The Best Way to Inside Trade: Unlisted Derivatives Outside U.S.

By Matt Robinson
December 16, 2015, Bloomberg Business

U.S. regulators are becoming increasingly concerned about a complicated derivative that’s popular abroad and was used by scammers to earn millions of dollars based on inside information.

The derivatives, called contracts for differences, are banned in the U.S. and have proven difficult for regulators like the Securities and Exchange Commission to track since they don’t trade on exchanges. They’re legal in the U.K. and becoming more common there, with the number of people who trade CFDs increasing by 14 percent to 24,000 in 2014 from a year earlier, according to a survey from research firm Investment Trends.

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