Industry Faces Heavy Regulation, Says AT Summit Keynote

Brokers and hedge funds are bracing for a plethora of new regulations, including the new short selling rule, hedge fund registration and tougher FINRA examinations.

Hedge fund registration, short selling rules and tougher broker-dealer examinations are among the plethora of new regulations that the Securities and Exchange Commission and the Financial Industry Regulatory Authority will be rolling out in the near future, according to a keynote speaker at the AT Buy-side Trading Summit in Naples, Florida.

Michael Levas, chief investment officer & managing member of Olympian Capital Management, spoke about what lies ahead for the markets and the theme was intense regulatory scrutiny. With a new short-sale rule taking effect on Nov. 10th, hedge funds that use long and short strategies are affected as well as broker dealers.

The rule, first proposed on Feb. 24, 2010, restricts short selling activity in any equity security traded on a U.S. exchange or U.S. market in which there has been a 10 percent intraday price decline from the previous day’s closing price.

All exchanges, ATSs (alternative trading systems) and over-the-counter market makers and broker-dealers will be required to establish and implement procedures to make sure that short-sales are not executed or displayed at or below the national best bid. “This is going to drive up the cost because compliance managers and broker-dealers are going to have to change their compliance manuals and of course, this is going to be passed onto their clients at some point,” Levas warned Summit attendees.

Levas also covered the new FINRA examinations for regulating broker dealers. “They will be coming into your firm and asking you questions point blank,” said Levas. The regulators will be looking at fraud detection, information barriers, variable annuities, pandemic preparedness/business continuity planning, branch office supervision, outsourcing and inventory and collateral valuation, said Levas. They will also examine customer margin debits collateralized by nonmarketable securities. “They want to make sure that collateral has some value,” said Levas. Accounting and spreadsheet controls will also be put under the microscope.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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