Compliance Newsflashes: NYSE Brings Down the Hammer on Bear Stearns, and more

Bear Stearns Fined $1.5 Million By NYSE

Bear Stearns & Co. Inc. took one on the chin this week. The New York Stock Exchange Regulation (NYSE) arm censured and fined the firm $1.5 million for trading violations in connection with index arbitrage trading, failure to supervise suspicious brokerage accounts and improper communications by a research analyst.

Bear Stearns was engaged in index arbitrage trading involving single transaction and basket trades, and employed hedging strategies involving both the NYSE and Nasdaq index products. According to the NYSE, on three separate occasions, the firm violated NYSE and Exchange Act rules when using the SuperDot system to deliver these equities and derivatives trades to the floor.

Despite having written policies and procedures in place, Bear Stearns also failed to meet NYSE requirements on suspicious activity in ten accounts controlled by a foreign customer. Bear Stearns failed to make reasonable inquiry or conduct review regarding hundreds of transactions conducted by the customer, who previously had been the subject of foreign news reports alleging fraud and financial impropriety.

The final regulatory breach came from a Bear Stearns research analyst who, in an Internet video, expressed an extremely favorable opinion of a public offering for which the firm served as co-lead underwriter. According to the NYSE, the analyst's comments failed to present fair and balanced information regarding the potential risk and rewards of an investment in the offering.

These compliance failures and associated fines are indications of weak internal controls, according to Susan Merrill, chief of enforcement, NYSE Regulation. "Executives must understand that the cost of doing business always includes sufficient resources and personnel to fulfill operational and compliance requirements and also to remedy problems when they are uncovered," she said in a release.

NYSE Regulation Offers New Web Training

New York Stock Exchange Regulation (NYSE), in association with The Securities Industry/Regulatory Council on Continuing Education, has a launched netCEP(SM), a new web-based continuing education and general training tool.

The netCEP(SM) application provides individuals and NYSE member firms with Internet access to a library of instructional materials and general rule, product and compliance training. Securities industry professionals can update their knowledge on rules governing a wide range of practice areas. Subjects include suitability and sales practices, breakpoints, options, public communications, proper handling of customer accounts, business conduct, and trade and settlement practices. The material in the scenario library is continuously updated to reflect current industry regulations.

When deployed within a member firm, netCEP(SM) offers the Learning Management System (LMS), which includes training-management tools and reports. A firm-designated administrator can use the LMS to select and assign specific scenarios for individuals or groups.

The system also can create and manage lesson plans to focus on specific topics, and package and deliver a firm's customized training. Annual subscription rates vary depending on the number of individuals using netCEP(SM) and the services selected.

Asset Control and b-next Partner for MiFID Solutions

Data management solution provider Asset Control and German software developer and consultancy b-next have partnered to address the compliance and market conformity issues raised by the Markets in Financial Instruments Directive (MiFID). Under the AC Alliance program, b-next will integrate its MACOC suite of applications for regulatory compliance requirements with Asset Control's flagship AC Plus product.

The joint solution will provide the banking community with a homogeneous response to MiFID's best execution and conflict of interest requirements. "Our MACOC Suite of solutions is today's leading platform for regulatory requirements in the financial industry," said Wolfgang Fabisch, managing director of b-next, in a release. "We have started very early to implement a dedicated module for MiFID, and our link with Asset Control will produce a high-performance, robust solution delivering optimum quality in terms of data and processes." The MACOC Suite from b-next provides a single platform enabling financial services organizations to comply efficiently with various regulatory mandates and benefit from the added value of turning regulatory obstacles into marketable advantages.

The AC Plus modular framework from Asset Control includes solutions addressing market risk, counterparty credit risk, security master, research and corporate actions, as well as global data networking and administration. Handling data from vendors and internal systems, these solutions collect, validate, normalize and consolidate data into cleansed golden copy sets for business use.

The European Union's MiFID regulation will go into effect in fall of 2007.