Friday, November 30, 2012
Tuesday, November 13, 2012
Monday, November 12, 2012
FUND MANAGERS CLEARED
NEW YORK (Reuters) - Money market pioneer Bruce Bent and his son on Monday were cleared of civil fraud charges that they misled investors in the early days of the 2008 financial crisis, a family spokesman said.
The Manhattan federal jury's verdict is a blow to U.S. securities regulators in one of the few civil cases accusing individuals on Wall Street of wrongdoing during the crisis.
Bent's son, Bruce Bent II, was found liable on one negligence claim, according to the family spokesman, Mark Arena. Both men were cleared of violating civil securities laws, the spokesman said.
The U.S. Securities and Exchange Commission had accused Bruce Bent and Bruce Bent II of lying to investors and fund trustees in attempts to stop a run on their Reserve Fund in September 2008, as financial markets were roiled in the wake of the bankruptcy of Lehman Brothers.
At the trial, a lawyer for the Bents argued that the men were acting in good faith and said the funds had fallen victim to the economic maelstrom of September 2008.
The SEC was closed for Veterans Day and a spokesman could not be immediately reached for comment.
(Reporting By Basil Katz and Sarah Lynch; Editing by Martha Graybow)
Tuesday, November 6, 2012
WHY COULD WALL STREET NOT WEATHER A STORM
By ARTHUR LEVITT
Hurricane Sandy's impact on U.S. stock and bond markets is just the latest example of inattention to the stability, security and continuity of basic infrastructure. The result of this inattention is a financial market that aspires to be world-class, but in one critical dimension is hopelessly and stubbornly provincial and prone to disasters, small and large.
Before the storm hit, the New York Stock Exchange NYX -5.23% and its members failed to agree to keep markets open through existing channels, thereby shutting down stock and bond trading for two days last week. But there have been other market breakdowns.
Nasdaq failed to execute trade offers during the Facebook FB -0.37% IPO in May. And thanks to software errors in high-speed trading firms and "fat finger" errors by human traders, it's becoming clearer that many major market participants simply have not properly tested their existing trading systems or prevented fraud and error from creeping into their trading books.
On their best days, U.S. financial markets are the best in the world as places to raise and distribute capital. But the interior plumbing of these markets is not uniformly trustworthy and tested. Some firms and some markets have done the necessary work. Others have not. And neither the markets nor the regulators have done enough to hold market participants uniformly accountable for shortcomings.
Enlarge Image
Associated Press
The floor of the New York Stock Exchange on the day Hurricane Sandy landed.
This is not for lack of the necessary technology. We have high-speed telecommunications, a heightened awareness of risk from natural and man-made disasters, and the ability to disperse market operations across multiple sites around the country and the world. Yet we fail to deploy all these tools properly, with the result that our financial markets are prone to disasters, small and large. We often take new listings as a proxy for financial and economic vitality. Yet 100% confidence in the continuity and resiliency of financial markets in moments of crisis would be a better indicator of national economic well-being.
In the past few decades unplanned closures ranging from several minutes to several hours have occurred after power dips, snowstorms and connection problems with market computers. Since 9/11, no one could honestly assert that New York's financial markets are free from the risk of a complete and instantaneous shutdown.
It has long been known that U.S. financial markets are too dependent on the equipment and personnel in Manhattan—and that Nasdaq, NYSE and their members needed to create duplicate trading offices and links to maintain market continuity in emergencies. As chairman of the Securities and Exchange Commission in the 1990s, I insisted that financial markets make the investments needed to develop alternative trading locations.
NYSE did make investments in backup power generation and remote trading platforms—both necessary steps. But in the end, those systems did not have the full confidence of the market's members, who ultimately decided to suspend trading when the storm arrived—by which point the hurricane had been downgraded to a "post-tropical cyclone."
Nasdaq fared better in the storm but still bears the black mark from its handling of the Facebook IPO. In that fiasco, purchase and sale orders were not processed correctly or at all.
The core function of any financial market is the matching of buyers and sellers. If a market can't do that efficiently and accurately, it needs to reassess everything it does and stands for.
The problem here is not episodic. It reflects a pattern of failure in the core functioning of U.S. financial markets. And it suggests a deeper flaw in the management and regulation of these markets.
A simple principle should be adopted: If you want to run a financial market, you have to be resilient in responding to natural and man-made disasters. That requires redundancy in trading operations and staff, and the ability to operate without any single geographical choke point.
Significant members of the market should be required to meet that same standard; smaller members merely would need arrangements in place to have orders processed through a firm that meets the higher standard. In the end, a firm that is not resilient enough to be able to trade after a disaster should not be a member of the market.
Trillions of dollars are at stake. The reputation of the U.S. as the world's financial capital is at stake. Investors, already wary of financial markets due to the perception that some participants have special advantages, are unlikely to remain in public markets when they see these kinds of continuing failures. Investors conclude, correctly, that their interests in access to liquid and reliable financial markets stand near the bottom of exchange priorities. Given the evidence, they have good reason to believe that is the case.
Today, all financial market participants and market leaders must know that the Hurricane Sandy episode puts their very reputation at risk. If they can't repair the damage done after this latest failure, there is no reason to believe they ever will.
Mr. Levitt served as the chairman of the U.S. Securities and Exchange Commission from 1993 to 2001.
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