Category:Finance & Banking
High-Frequency Trading and its Need for Increased Regulation
With the rapid innovation of technology penetrating our lives comes the need for increased regulation on the industries that are being impacted, and the stock market is no different. In the late nineties, the Securities and Exchange Commission (SEC) approved the use of an electronic stock exchange system and by 1998, they authorized the use of High- Frequency Trading (HFT). HFT is a method of electronic stock trading where the trader uses high powered technology to complete automated trading at a large volume and speed. Because these trades are not made by people, but instead computers, they can be executed within millionths of a second. As the speed that HFTs have allowed for stocks to be traded at has decreased over time, their popularity has increased. By 2012, it was estimated that HFT accounted for almost 50 percent of all U.S. equity trades. Their popularity is contributed to HFT’s ability to allow traders to ensure they have the most up to date information on the market and ensure that they get the lowest price. This gives traders the power to buy and sell at high speeds, increasing liquidity in the market.
Financial Regulation During COVID-19
Coronavirus (COVID-19) has shaken the world economy, not the least of which the financial industry. As the financial industry has adapted to work-from-home life under the coronavirus pandemic, industry regulators such as the SEC and the Financial Industry Regulatory Authority (FINRA) have been forced to adapt rules to changing circumstances and shift their enforcement priorities to pandemic related fraud.
Bipartisan Bill Seeks to Force Chinese Companies to Play by the Rules
On Wednesday May 20, the Senate unanimously passed legislation aimed to curb the ability of Chinese companies to avoid audit requirements. The bill was introduced by Republican Senator John Kennedy of Louisiana and Democratic Senator Chris Van Hollen of Maryland. Senator Kennedy provided the following comment in a press release announcing the legislation: “It’s asinine that we’re giving Chinese companies the opportunity to exploit hardworking Americans—people who put their retirement and college savings in our exchanges—because we don’t insist on examining their books. I hope my colleagues in the House will immediately send this bill to the President’s desk so we can protect Americans and their savings.”
Employer Compliance with CARES Act
On March 27, 2020, President Donald J. Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (H.R. 748), otherwise known as the “CARES” Act. Originally introduced in January as the Middle-Class Health Benefits Tax Repeal Act, the bill was then revised to address the needs of the United States amid the coronavirus pandemic. The bi-partisan CARES Act, with strong support from the White House, ultimately passed the House of Representatives with a 419-6 roll call and the Senate with 96-0 votes.
Financial Fair Play’s Impact on European Football
In the past 12 years, Manchester City has seen a dramatic rise to the European Elite. In 2008, Sheikh Mansour, who has ties to the United Arab Emirates’ royal family, took over ownership of the club. Following the take-over, Manchester City has gone on to win 10 major trophies. On February 14, 2020, Manchester City was handed a two year ban on European competitions, as well as a $32.5 million fine. This is the largest fine ever by Union of European Football Associations (“UEFA”), the governing body of European Football. The UEFA found that Manchester City overstated its sponsorship revenue in its accounts. This, according to the Adjudicatory Chamber of the Club Financial Control Body, is a “serious breach” of Licensing and Financial Fair Play. If the ban is upheld, Manchester City would be fined approximately $232.5 million, a sum of the initial fine plus potential winnings in European Football competitions. According to Simon Chadwick, director at the Centre for the Eurasian Sport Industry, “UEFA must win this ban, if it doesn’t then its position on Financial Fair Play beings to unravel.” This is a pivotal moment in UEFA’s history as a governing body.
Section 1071: Hold for Commentary or Lost During a Trump Administration?
As a part of the large and cumbersome Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”), Section 1071 was enacted to amend the Equal Credit Opportunity Act (15 U.S.C. 1691 et. seq.) to impose data collecting requirements on financial institutions. Pursuant to Section 1071 (the “Rule”), financial institutions are required to compile, maintain, and submit to the Consumer Financial Protection Bureau (“CFPB”) certain information concerning credit applications by women-owned, minority-owned, and small businesses. The Rule was not slated to go into effect until the CFPB issues necessary implementing regulations. Unfortunately, nearly 8.5 years later, there is still no guidance. Consumers and financial institutions alike are at a sort of standstill, unclear on the contours of its reporting requirements. In November of 2019, the CFPB published a letter to financial institutions promising to develop rules “expeditiously;” the CFPB later hosted an information-gathering symposium on the Rule, yet there is still no clear guidance.
Market Integrity Enforcement Update
In addition to enforcement agencies attempting to tame the seemingly untameable world of cryptocurrency trading, agencies continue to tackle issues of market manipulation, including spoofing, as well as push into investigating international corruption in an effort to maintain economic and market integrity. As new developments emerge, compliance directors and operations associates will hopefully gain more guidance on coaching traders on exchange rules.
Data Privacy Rules Step Up to the Next Level
The Federal Trade Commission (“FTC”) recently proposed two amendments to the Privacy Rule and Safeguards Rule under the Gramm-Leach-Bliley Act (“GLBA”). The Safeguards Rule requires financial institutions to develop, implement, and maintain a comprehensive information security system. This rule went into effect in 2003. The Privacy Rule requires financial institutions to inform customers about its information-sharing practices and allows customers to opt out of having their information shared with certain third parties. This rule went into effect in 2000. The recent amendments to these two rules are intended to further protect consumers’ data from third parties. However, the changes could also adversely affect businesses.
FINRA Releases Regulatory Notice Announcing 529 Plan Share Class Initiative
On January 28, 2019 the Financial Industry Regulatory Authority (FINRA) released Regulatory Notice 19-04 announcing a 529 Plan Share Class Initiative encouraging firms to self-report potential violations. Broker-Dealers are encouraged to consider self-reporting under the initiative if they have identified specified failures in connection with 529 plan recommendations, and have the ability to assess the impact of the failures. Firms have until April 1st to notify FINRA in writing if it has decided to self-report.
Goldman Sachs Under Intense Scrutiny for Role in Sovereign Wealth Fund Fraud
On Christmas Day 2013, The Wolf of Wall Street debuted to rave reviews and quickly became director Martin Scorsese’s top-grossing film. Audiences loved Leonardo DiCaprio’s portrayal of Jordan Belfort, an aggressive stockbroker who rapidly rises to wealth through smooth talking and high-pressure sales tactics. The film is filled with outrageous partying, unethical Wall Street stockbrokers and bankers, and culminates in the arrest of Belfort and the downfall of his criminal enterprise. While certain scenes from the film were arguably embellished, the film is based on a true story. The more amazing true story, however, is that The Wolf of Wall Street was funded and produced through a massive fraud that makes Jordan Belfort’s escapades look miniscule. On November 1, 2018, Timothy Leissner, a Goldman Sachs partner, plead guilty to conspiring to launder money and violating foreign antibribery laws for his role in a massive scandal that involves the prime minister of Malaysia, Middle Eastern sovereign wealth funds, and even Paris Hilton.