Law and Compliance


Insider Trading Law After the Newman Decision: What Does It Mean to Financial Industry Professionals?

In December 2014, the United States Court of Appeals for the Second Circuit issued what has been described as a landmark decision in United States v. Newman.  In its decision, the Court vacated the insider trading convictions and sentences of Anthony Chiasson and Todd Newman, two hedge fund professionals convicted of insider trading after trial in federal court in Manhattan.  The decision has been greeted by the white collar defense bar as an important repudiation of the Government’s heavy handed pursuit of insider trading. 

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Ammo for Your Plain-Language Battle with Compliance

writing for dollars, writing to please

“Our compliance officer makes us write like this.” That’s the complaint I sometimes hear when I push financial professionals to write better. If you’d like to push back, consider  the point made by Joseph Kimble in Writing for Dollars, Writing to Please: The case for plain language in business, government, and law. Kimble is a lawyer who has taught legal writing for 30 years at Thomas Cooley Law School.

Lawyers and compliance professionals say that legal jargon is necessary to protect your firm. However, Kimble suggests that jargon may be part of the problem. How’s that? Readers often fail to understand legalese and other jargon. As Kimble says, “…this in turn will be more likely to engender disputes and litigation that never should have happened in the first place.” This makes me think of some of my pet peeves, such as the use of “mitigate.

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Will the Fed Need a Bailout? Nonsense!

“As stimulus tab rises for Fed, worries grow it may require a bailout” is the title of an article published in Los Angeles Times and blogged in CFA Institute's "Future of Finance."

I'll say it bluntly: This is nonsense. The logic goes that as interest rates rise, the value of the bonds on the Fed's balance sheet lose value and the central bank will be bankrupt—requiring the taxpayers to bail it out. This is wrong on many different levels.

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Book Review: The Billionaire's Apprentice


The billionaire is Raj Rajaratnam. Rajaratnam's Galleon hedge fund had put him into the billionaire net worth group. He is currently serving a sentence of 11 years after being arrested for insider trading.

His apprentice was Rajat Gupta. Gupta was the managing director of Mckinsey & Co. He has been sentenced to two years for conspiracy and securities fraud.

Anita Raghavan's The Billionaire's Apprentice: The Rise of The Indian-American Elite and The Fall of The Galleon Hedge Fund is the detailed account of what happened—a graphic story of foolish and reckless greed.

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Recent Research: Highlights from March 2013

"Derivatives in Islamic Finance: There is No Right Way to Do the Wrong Thing – Opportunities for Investors"
The Journal of Investing (Spring 2013)
Andreas A. Jobst

Derivatives are few and far between in countries where the compatibility of financial transactions with Islamic law requires the development of shari’ah-compliant structures. However, as Islamic finance continues to develop rapidly, the rising opportunity cost of limited shari’ah-compliant risk transfer mechanisms has raised questions about the scope of religious restrictions on the use of derivatives, and the scope for efficient risk management techniques for investors. Islamic finance is governed by the shari’ah, which bans speculation and gambling, and stipulates that income must be derived as profits from the shared generation of goods and services between counterparties rather than interest or a guaranteed return. The article explains the fundamental legal principles underpinning Islamic derivatives by reviewing accepted contracts and the scholastic debate surrounding existing financial innovation in this area, in order to generate an axiomatic perspective on a principle-based permissibility of derivatives under Islamic law. An overview of recent standardization efforts also is provided.

"Pricing American Options in the Heston Model: A Close Look at Incorporating Correlation"
The Journal of Derivatives (Spring 2013)
Peter Ruckdeschel, Tilman Sayer, and Alexanger Szimayer

The Binomial model and similar lattice methods are workhorses of practical derivatives valuation. But returns processes more realistic than lognormal diffusions with constant parameters easily create difficulties for them. One of the most important extensions of the Black-Scholes paradigm is to allow stochastic volatility, but even nonstochastic timevarying volatility destroys the important property that the tree recombines, which limits the growth in the number of nodes as time advances. Stochastic volatility introduces a second random variable, which then requires adding another dimension to the tree, under the constraint that the return and volatility changes must maintain the same degree of correlation as in the data. The Heston model features correlation in return and volatility shocks, but building it into a lattice is tricky. In this article, Ruckdeschel, Sayer, and Szimayer develop a lattice method that begins with a binomial tree for the volatility and a trinomial tree for stock price, and then connects them in such a way that the empirical degree of correlation between return and volatility is maintained. Efficiency relative to existing methods is increased, and in some cases it is possible to improve performance further by matching higher moments as well.

"Key Drivers of Private Equity Firm Certification at Initial Public Offering"
The Journal of Private Equity (Spring 2013)
Mike Hopkins and Donald G. Ross

Private equity firms have been shown to add considerable value to investee companies. This article examines buy-side financial analyst perceptions of the determinants of private equity firm value added. The findings reveal significant relationships between the attractiveness of private equity firms’ IPOs and 1) their reputations, 2) their level of retained ownership, 3) the duration of their involvement prior to the IPO, and 4) the interaction between duration and intensity of involvement. The research reveals certification effects are best explained by theories of resource exchange and reduced informational asymmetries with reduced agency risk being a much lesser influence.

"An Investor’s Low Volatility Strategy"
The Journal of Index Investing (Spring 2013)
Li-Lan Kuo and Feifei Li

Investors are displaying a fast-rising appetite for low volatility strategies, given growing academic and empirical evidence of consistent outperformance over the markets from which they are drawn. However, many existing low volatile strategies are optimized, creating biases toward smaller cap stocks and over-concentration in a small number of sectors and/or countries. Instead, we develop a heuristic-based design that leads to a practical portfolio with a superior Sharpe ratio as well as more investor-friendly attributes, including a lower turnover rate, higher investment capacity, relative transparency, and broader market representativeness.

NYSSA Discount on Journals


Recent Research: Highlights from May 2012

"The Death of Diversification Has Been Greatly Exaggerated"
The Journal of Portfolio Management (Spring 2012)
Antti Ilmanen and Jared Kizer

Diversification is famously referred to as the only “free lunch” in investing, but it has been under assault since the 2007–2009 global financial crisis, when virtually all longonly asset classes moved down together. Ilmanen and Kizer argue that the attacks are undeserved. Most investors were never as diversified as they thought they were, and there is ample room for improvement by shifting the focus from asset class diversification to factor diversification. They show that diversification into and across factors has been much more effective in reducing portfolio volatility and market directionality than asset class diversification. The benefits are greatest for long–short investing, which requires shorting and leverage but are also meaningful in a long-only context.

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Recent Research: Highlights from March 2012

"Topics in Applied Investment Management: From a Bayesian Viewpoint"
The Journal of Investing (Spring 2012)
Harry M. Markowitz

When John Guerard, the special editor for this issue, was assembling the articles to be published, he asked Harry Markowitz to write the introduction. By the author’s own words, once he had completed that task he could see that his remarks were more like discussant comments than an introduction and could equally well be read after reading the articles.

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Implications of New Accounting Standards

Accounting standards are modified on a regular basis and several changes will affect your analysis of financial statements in the coming months.  To put them into perspective, you might first ask yourself some other questions:

  • How does your organization approach such changes in accounting standards?
  • What does that say about your investment process?

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Worldview Podcast: Expecting the Unexpected

Worldview PodcastThej Gurumurthy, the cofounder and COO of Syven Global Services, a research and analytics firm, shares a personal anecdote regarding the unforeseen pitfalls of doing business in our globalizing world. Corruption, he suggests, is an unfortunate fact of life in many places, and as difficult as it may be to understand and navigate these cultural differences, anyone doing business outside of their comfort zone must be prepared to deal with anything.

If you want to watch the webcast of this entire event or any other NYSSA program, visit NYSSA's On-Demand website.


Recent Research: Highlights from August 2011

Risk-Based Asset Allocation: A New Answer to an Old Question? The Journal of Portfolio Management (Summer 2011). Wai Lee.

In recent years, we have witnessed an alarmingly large and growing amount of literature on portfolio construction approaches focused on risks and diversification rather than on estimating expected returns. Numerous simulations applied to different universes have been documented in support of these approaches based on their apparent outperformance versus passive market capitalization–weighted or static fixed-weight portfolios. Many studies attribute the better performance of these risk-based asset allocation approaches to superior diversification. Given the absence of clearly defined investment objective functions behind these approaches as well as the metrics used by these studies to evaluate ex post performance, Lee puts these approaches into the same context of mean-variance efficiency in an attempt to understand their theoretical underpinnings. In doing so, he hopes to shed some light on what these approaches attempt to achieve and on the characteristics of the investment universe, if indeed these approaches are meant to approximate mean-variance efficiency. Rather than adding to the already large collection of simulation results, Lee uses some simple examples to compare and contrast the portfolio and risk characteristics of these approaches. He also reiterates that any portfolio which deviates from the market capitalization–weighted portfolio is an active portfolio. He concludes that there is no theory to predict, ex ante, that any of these risk-based approaches should outperform.

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Commodities are Different (in a "Full World")

Foreign Policy’s recent “How Goldman Sachs Created the Food Crisis” reflects the dangerous, myopic thinking all too prone to “blame Wall Street” that is a natural consequence of Wall Street’s appalling, anti-social behavior in recent years.

I am no apologist for Wall Street’s modern business practices and ethics, and certainly not for Goldman Sachs, as reflected in this blog and in my 2009 Blankfein Letters. But to confuse the historic shift underway in the commodities markets that is a result of our “full world” economy with Goldman’s or any other Wall Street speculator’s bad behavior is missing the critical point.

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SEC Rules on Wall Street Pay—Major Intrusion or Minor Annoyance?

CFA InstituteWhen the U.S. Securities and Exchange Commission (SEC) took aim at incentive pay packages at financial institutions in a recent controversial proposal, it was the culmination of a three-year push to rein in executive pay at large banks, brokerages, and hedge funds. The move was not unexpected fol- lowing an era of lucrative incentives that were deemed to have fueled excessive risk taking and contributed to a global financial collapse. The crisis prompted a government rescue and, in turn, an angry reaction from Congress. The effects of the crisis will be long lasting, as reflected in our recent CFA Institute Financial Market Integrity Outlook Survey.

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The President's Counsel on Jobs and Competitiveness ... and Tax Avoidance

The NY Times report by David Kocieniewski on GE’s aggressive tax strategies under the leadership of John Samuels, a former Treasury Department tax lawyer, which enabled the company to pay no income taxes to Uncle Sam on their $5.1 billion of US-based income has many justifiably outraged.

Some, including GE on their website, are saying what GE is doing is legal so they are doing their job for shareholders. No one at GE made “the system.” They just compete in it.

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Practical Issues with Performance-Based Fees

CFA Institute

Performance-based fee compensation relies on performance fee models that require specific parameters to be clearly stipulated in the fund prospectus and investment management agreement. Ambiguity in such documents has led to financial costs for funds and investors. Detailed regulatory guidance and industry standards are needed to address the practical issues related to performance fees.

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The Possible Misdiagnosis of a Crisis

CFA InstituteThe illness underlying the 2007–08 financial crisis might have been misdiagnosed, as is strongly suggested by some elementary principles of finance and development economics. Moreover, there is an explanation for the crisis that is fully consistent with rational beliefs and well-functioning markets. If this explanation is true, public policy prescriptions should be reexamined because there is a danger that the attempted cure is worse than the disease.

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Compliance issues weigh on social media use

Social media use is exploding, especially among the over-50 crowd. The typical image of social networking as a tool primarily used by teenagers couldn’t be more wrong: social media use is growing the fastest among older Americans, according to the Pew Internet and American Life Project.

So your clients are using social media; if you’re not there, you may have trouble distinguishing yourself from the crowd. While social media is a rapidly evolving space, the major venues—at least currently—are Facebook, Twitter, LinkedIn, and YouTube. Each has an individual identity, with the most business friendly site, at least ostensibly, being LinkedIn.

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Recent Research: Highlights from February 2011

Policy Portfolios and Rebalancing Behavior.” The Journal of Portfolio Management (Winter 2011). Martin L. Leibowitz and Anthony Bova.

An institutional fund typically has a multi-asset allocation—the policy portfolio—that is maintained over time. When allocations shift, the fund rebalances back to the policy portfolio. The discipline of the policy portfolio has many benefits: simplicity, convenient benchmarking, and a minimum of organizational frictions. Its very routine nature can lead, however, to an overemphasis on relative returns and an insensitivity to fundamental changes in fund status and market structure. In 2003, the late Peter Bernstein questioned whether rigid adherence to the policy portfolio made sense, given frequent market dislocations and high levels of volatility. In this article, Liebowitz and Bova attempt to shed further light on the Bernstein question by analyzing the risk tolerance and return assumptions of a basic two-asset (equity and cash) fund. One key finding is that policy portfolio rebalancing implicitly assumes that the risk tolerance and return premiums remain fixed over time. But few funds have the sponsorship, liquidity, or organizational conviction to keep such a constant risk tolerance in the face of severely adverse markets. One argument for the policy portfolio rebalancing is that assets become “cheaper” after a decline, but this is inconsistent with a constant return premium. Moreover, “cheaper” assets should actually call for rebalancing beyond the original policy portfolio to a more aggressive allocation. One idea for a more pro-active, market-sensitive process is to develop pre-planned contingency actions for various market scenarios.

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2011 Brings Financial Statement Changes

Although the US Securities and Exchange Commission has yet to make up its mind on whether the US will abandon US Generally Accepted Accounting Principles (GAAP) in favor of the International Financial Reporting Standards (IFRS), that doesn’t mean financial statement accounting is standing still. Rule changes and clarifications by various US based accounting standards boards affect a number of areas in US financial statements.

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2010—The Year of the Integrated Report

Corporations are clearly increasing the quantity and quality of their environmental, social, and governance reporting in response to investor pressure and a growing awareness of the consequences of a failure to manage the associated risks. But few have taken the next step—to formally integrate their financial and ESG reporting. However, 2010 may be remembered as the year the integrated reporting movement truly began to gather steam.

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Solutions for Hedge Fund Managers Considering the GIPS Standards

Although the GIPS standards do not address the particular challenges of hedge funds, claiming compliance is possible and increasingly important for hedge funds. Creation of a client presentation, the process and frequency of portfolio valuation, and net performance stream calculation methodology are some of the issues hedge funds tackle in claiming compliance.

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Introduction to Islamic Finance (Part I): Context and Concepts

Globally, Islamic finance is one of the fastest growing areas of finance, however measured. So says the popular press. Practitioners concur. The foundation for such assertions, like much that is “known” about Islamic finance, is anecdotally based. Hard numbers are elusive and probably nonexistent.

The dramatic rate of growth of modern Islamic finance, since its birth in the mid‐1990s, is clear. Lawyers, accountants, bankers, and investment firms now proclaim long experience with Islamic finance, enhancing the pool of anecdotal evidence. The publicity, the perception of growth, the simultaneous influx of oil wealth into traditionally Muslim countries, the formation of financial centers, and the rapid regional expansions all work to further expand both interest in and assertions of experience.

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Micro-origins of the Financial Crisis

The current global financial crisis and the US government’s response to it—bailouts of too-big-to-fail banks, tax-financed props for an ailing auto industry, mortgage-rescue plans for overextended households—have upset the public’s sense of fair play. Citizens have also had to struggle with their attempts to link the fragile, ethereal, economic construct revealed by recent events to the concrete realities of food on their tables and roofs over their heads. And they don’t want to have to study the intricacies of monetary policy, public debt management, and international capital flows to maintain their faith in capitalism.

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EU Banks Sovereign Debt Mystery Deepens

EU Banks Sovereign Debt Mystery Deepens
Just when you thought it was safe to trust European banks again, the Wall Street Journal analyzed recent EU bank stress tests and found that a number of banks underreported their sovereign debt liabilities. Many investors, and EU regulators, were hoping to put the Greek debt crisis in firmly in the rear view mirror, but given the spotty nature of the bank’s disclosures, this may heighten concerns, rather than put them to rest.

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One Big Happy Family: The Global Crisis Tests Postwar Alignments


If the global institutions and alignments created after World War II were looking a bit long in the tooth at the dawn of the 21st century, the economic crisis has pushed them one step closer toward irrelevance, if not extinction. Up-and-coming powers like China and India, no longer content with a subsidiary role on the global stage, are clamoring for more power, and the financial crisis is giving them the opportunity to explode the political and economic status quo.

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Commentary: From Risk to Uncertainty

Stress-test complacency will be a cause of the next financial meltdown.

Economic commentators have been increasingly using the word “uncertainty” as of late. The context has included the business climate, the stimulate vs. austerity debate, and forecasting the investment outlook across capital markets. 

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Clawbacks in Play with SEC, Dodd-Frank

Act 4, Scene 1—that’s where we are in the drama over corporate clawbacks. Put on stage by SOX (Sarbanes-Oxley), the clawback drama took its latest turn with the passage of the recent financial reform legislation, which goes farther than either SOX or the SEC have moved to date.

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Danse Macabre: The Banking and Brokerage Sectors Reel from Crisis to Crisis

Danse Macabre The financial services sector is caught in a death waltz, spun around by bad loans, trapped in the embrace of plunging stock prices, and dizzied by embarrassing scandals. And like Hans Christian Andersen’s little girl with the red shoes, it’s driven to keep on dancing. Nearly a trillion dollars in government bailouts have sunk almost without a trace, leaving global stakeholders desperate to stop the music.

What kind of future can possibly be in store for us? Chastened executives may wince at the thought of government regulators and outside forces reshaping the industry, but transformation is by now a foregone conclusion. The only questions are what types of institutions will live to see another sunrise, and what attributes executives must cultivate to ensure that their companies are among those that endure.

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Poll: The Goldman Sachs Ruling

On April 16 the SEC filed charges against Goldman Sachs for defrauding investors in a mortgage-backed collateralized debt obligation. The SEC alleged that Goldman Sachs omitted and misstated crucial facts about the CDO, most importantly the role of the hedge fund firm, Paulson & Co.’s direct involvement in the selection of the portfolio and bet against the deal. Three months of uncertainty over the case ended last week when Goldman Sachs agreed to make a $550 million settlement with U.S. regulators. While some watchdogs are disappointed that the settlement is much lower than the estimated $1 billion, others believe that $550 million is enough to stir a change and influence other institutions to employ better business practices. Tell us what you think. 


Wall Street Meets the EPA

Where can I, as a securities analyst or portfolio manager, gain access to free, consistent, and reliable data on sector-based environmental performance that avoid the current limits of voluntary company reporting?

This question was central to a session entitled “Dialogue to Explore the Use of EPA Data in Financial and Investment Analysis,” held in New York City on June 19, 2008. The invitation to the meeting, which attracted 85 participants drawn in large part from the financial-services industry, was jointly issued by the New York Society of Security Analysts, Inc. (NYSSA), and the US EPA (Environmental Protection Agency) Region 2 (which includes New York). The meeting was part of the EPA’s National Dialogue on Access to Environmental Information, an attempt to cope with the increasing demand for environmental information from numerous professional sectors, including community leaders, academics, and the financial sector.

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The Ghost of Credit Past: The Specter of the Heilig-Meyers Fiasco Haunts Today's Failed Lenders

“Heilig-Meyers: From AAA to Junk Bond”

“CDO Ratings Are Whacked by Moody’s—AAA to Junk in a Day Raises More Questions about Credit Agencies”

The first of these headlines appeared from Credit Card Management in 2001, and announced the collapse of what was then one of the largest American furniture retailers. The origins of that collapse lie in the late 1990s, when Heilig-Meyers began to service its own debt. As much as 75% of its sales were made with two-year installment loans.

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Rise and Shine: ARRA Stimulates the Municipal Funding Market

Rise-and-Shine With the implementation of TARP (Troubled Asset Relief Program) and the passage of ARRA (American Recovery and Reinvestment Act of 2009), the federal government has pledged to rebuild the United States, both literally and figuratively. Some of the methods President Barack Obama’s administration will employ to revive the economy include monetary support for financial institutions, bringing liquidity back to the credit markets, and creating jobs by reconstructing aging infrastructure. Traditionally, the funding for these tremendously expensive fiscal policies has come either from increased taxes, or from municipalities borrowing money by issuing municipal bonds, or munis.

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Commentary: Shareholder Activism in a Post-Lehman World

As the global economy gradually recovers from the impact of the worst global financial crisis since the 1930s, companies continue to lay off thousands of employees and financial institutions are expected to write down trillions of dollars of toxic assets. In addition, governments have spent or committed to spend exponential sums of money in order to stabilize their economies. Investors have been particularly affected by the consequences of the financial crisis, having suffered a significant reduction in the value of their investments in a number of companies. According to the World Federation of Exchanges, as of February 2009, the global equity market capitalization was estimated to have reduced by $31 trillion since the peak prior to the crisis.

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Commentary: Goldman v. United States—What it Really Means

“It is not what a lawyer tells me I may do; but what humanity, reason and justice tell me I ought to do.”

I invoked these words of the statesman and philosopher Edmund Burke to close my December 31, 2009, letter to Lloyd Blankfein. They now have particular resonance. I don’t know if, as the SEC has charged, Goldman committed fraud. However, to focus on the legal technicalities of the case is to miss the larger point. At its core, Wall Street’s failure, and Goldman’s, is a failure of moral leadership that no laws or regulations can ever fully address. Goldman v. United States is the tipping point that provides society with an opportunity to fundamentally rethink the purpose of finance. That reexamination will extend far beyond round one of financial reform and will be far more transformative.

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The CDS Market Goes Straight

Illustration by Mark AndresenMedia reports in recent months have been filled with accounts of CDSs (credit default/derivative swaps), those complex, opaque instruments sold by AIG that nearly toppled the global financial system. They are the cornerstone of a $700 trillion worldwide industry that has sliced, diced, and shifted astronomical amounts of risk around the financial services sector at dizzying speed and—according to critics—within a regulatory vacuum. On the subject of disclosure, for instance, Fed chairman Ben Bernanke recently lamented the insufficiency of contract-for-difference regulation, noting that few regulators, investors, AIG employees, or AIG shareholders ever knew that the once-mighty AAA-rated insurance behemoth was actually a giant hedge fund that happened to be strapped onto an insurance company.

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Successful Self-Regulation of the CDS Market

Many politicians argue that letting Wall Street sort out the CDS risk problem itself, without massive government intervention, is like letting foxes regulate their own access to the chicken coop. Nonetheless, in recent years, coordinated efforts between the Federal Reserve Bank of New York and industry participants working through the Operations Management Group have made notable progress in addressing public concerns about the CDS market.

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Steps for Implementing the RIA Business Model

A good number of CFA® charterholders consider adopting the RIA (registered investment adviser) business model. There are several reasons to do so. Some institutions and individuals only hire RIAs. Even clients who do not require that an adviser be registered may find registered advisers more appealing. (It should be noted, however, that a federally registered adviser may not make any inference that government registration equals government approval of the adviser; most if not all states are likely to have the same restriction.) In addition, a charterholder might be attracted to the structured disclosure form (Form ADV), which allows the adviser to provide clients with detailed information about his or her business, including advisory personnel, fees, and any conflicts of interest.

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Knowledge of Good and Evil: A Brief History of Compliance

The JungleAdam’s bite of forbidden fruit marked the first recorded compliance violation, but not the last. Corporations perpetually struggle to stay compliant with the ever-increasing complexity of laws, rules, and regulations. A board of directors that fails to oversee a system of compliance may not only call into question its fiduciary duty standards, but may give rise to claims of tort liability or even criminal liability. Effective management of compliance risk and reputational risk requires a firm to link ethical business behavior to its culture: to establish ethics as an integral part of a company’s continued business success.

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The Prudent Man Standard

Janusz Kapusta/Stock Illustration SourceAmong the most significant of the damages to result from the recent market turmoil may be the losses suffered by US pension plans. In 2008, DB (defined benefit) plans plummeted from fully funded or even over-funded status to historically large deficit levels. Pension health, as measured by the ratio of assets to liabilities, dropped precipitously during the same period, from 104% to 75%, leaving a $400 billion funding gap (Mercer 2009). Many of these now underfunded plans are sponsored by companies facing drastic deterioration in financial health or, in some cases, potential bankruptcy. The PBGC (Pension Benefit Guaranty Corporation), the agency responsible for insuring DB plans, is itself experiencing significant and rising deficits (Elliott 2009). The result may be escalating uncertainty as to the status and future of benefits for a large number of pension plan participants.

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The Hierarchy of Risk: A New Approach to Risk Management

Risk culture is comprised of those values and behaviors, on the parts of both management and employees, which define an organization’s awareness of and approach to risk. As the financial crisis continues, the most successful firms have been those possessing risk cultures with high awareness, quick escalation, and strategic flexibility. There are echoes of behavioral finance in the way an organization’s view of risk may be skewed by its current investment appetite, its compensation and incentives, and its degree of knowledge of historical risk. Complicating this risk culture is quantitative modeling of limited historical data, decreasing transparency due to financial product innovation, and overreliance on credit ratings.

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Your Track Record and Compliance History Are Your Franchise

NYSSA Commodity Instructor Michael Martin is interviewed by Stacy-Marie Ishmael of the Financial Times on OTC derivatives regulation and trader compensation at the Milken Global Conference April 28, 2010 in Beverly Hills.


GIPS 2010: Major Changes to Global Standards Concern Investors

GIPS® (Global Investment Performance Standards) are about to undergo their second major revision since they were introduced in 1999. Because the standards are widely accepted, it’s critical for investment professionals to familiarize themselves with the changes that are in the works.

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SEC in a Quandry over Its Push for IFRS

Illustration by Mark Andresen The seemingly unstoppable juggernaut of US IFRS (International Financial Reporting Standards) adoption has collided with the global financial crisis, one of the few barriers that may be capable of derailing the rush to a single international accounting standard. Adoption of IFRS in the US is now far from a given, and even the roadmap published by the US SEC (Securities and Exchange Commission) in November 2008 has the potential to be sidetracked or possibly abandoned now that President Obama’s administration has taken office.

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The CFTC Should Sit on Their Hands

There are several things that the Commodity Futures Trading Commission (CFTC) will be considering as they convene hearings. Hopefully they will hear well-researched, and well-thought-out opinions, unlike that of Michael Masters—whose testimony was slammed equally by the left and the right, by the likes of Nobel Laureate Paul Krugman and commodity trader Jim Rogers. Among the issues that the CFTC is looking at are transparency in the markets and the position reporting limits where there are not currently any Federal guidelines. A third issue is the stratification of the COT—the commitment of traders—which characterizes how the market participants are biased in the marketplace. Ultimately, these make for good talking points, but regulation in these areas will not stamp out speculation nor insure Americans against high commodity prices.

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An Update on Changes to Financial Statements

Michael Moran, of Goldman Sachs’s Global Markets Institute, kicked off January’s “Changes to 2009 Financial Statements” (an event sponsored by NYSSA’s Improved Corporate Reporting Committee), and he could not have given us a more timely presentation on accounting for transfers of financial assets if he had read an advance copy of the Valukas Report on Lehman Brothers. 

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The G-20 Agenda for Regulatory Reform

Meeting behind impressive security barricades in a revitalized Pittsburgh, Pennsylvania, representatives of the G-20 (Group of 20) nations announced agreements in principal on a number of fronts, including financial services regulation, stimulus efforts, global trade, reallocation of IMF (International Monetary Fund) shares, and rebalancing national economies. The group affirmed its new standing as the global economic forum of record, formally eclipsing the G-7 (Group of 7) and the G-8 (Group of 8).

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The Seven Deadly Frictions of Subprime Mortgage Credit Securitization

The securitization of mortgage loans is a complex process that involves a number of different players. Figure 1 provides an overview of the players, their responsibilities, the important frictions that exist between the players, and the mechanisms used to mitigate these frictions. An overarching friction which plagues every step in the process is asymmetric information: usually one party has more information about the asset than another. Understanding these frictions and evaluating the options for allaying them is essential to understanding how the securitization of subprime loans can go awry. (For a more extended description of some of these frictions, see “Securitisation: When It Goes Wrong …” in the September 20, 2007, Economist.)

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Mending the Seams: International Regulatory Reform

Illustration by Mark AndresenAs the global economy begins to find its way back from the brink following the financial crisis, the impetus is shifting from the day-to-day efforts to keep the system afloat to the long-term fixes that are needed to maintain and increase its stability and flexibility. All eyes are on the national governments and regulators who continue to shape a structure that either will be up to the task of managing an increasingly globalized economy or will fall short of the mark, resulting in the lack of a sustainable recovery, further crises, or both.

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Revisiting StoneRidge: Congress Could Restore Aiders' and Abettors' Liability

A bill introduced to Congress this past summer, and subsequently handed over to a Senate subcommittee for further consideration and/or revisions, could reverse a hotly debated January 2008 US Supreme Court decision. That decision, Stone-Ridge Investment Partners LLC v. Scientific-Atlanta Inc., upheld a lower appeals court’s April 2006 decision that secondary participants in a corporate fraud cannot be held legally liable for their behind-the-scenes participation in the scheme. Their actions, the high court reasoned, were simply too far removed from and could not have been known by investors.

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Interview: Stephen Harbeck and Irving Picard on the Lehman and Madoff Cases

Irving PicardThe SIPC® (Securities Investor Protection Corporation), the organization created by Congress and empowered to protect customers when a broker-dealer goes belly up, is facing two of the most challenging proceedings in its 39-year history. It was called in to protect the holdings of brokerage customers of both Lehman Brothers and Bernard L. Madoff Investment Securities LLC. Lehman Brothers filed for Chapter 11 in mid-September 2008, while Madoff’s multibillion-dollar house of cards began to tumble in December.

Continue reading "Interview: Stephen Harbeck and Irving Picard on the Lehman and Madoff Cases" »


Disparities Seen in Federal Securities Fraud Sentences

In every criminal case, the defendant must make a critical decision: go to trial or plead guilty. A slew of factors go into that decision. Three questions loom largest: how likely will the defense prevail at trial, what sentence do we anticipate if the defendant pleads guilty, and what is the likely sentence if the defendant is found guilty after trial? Here, we will concentrate on the latter two questions, which touch on the vagaries of sentences in securities fraud cases in the post-guidelines world.

Continue reading "Disparities Seen in Federal Securities Fraud Sentences " »


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NYSSA Market Forecast™: Investing In Turbulent Times
January 7, 2016

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CFA® Level I 4-Day Boot Camp

Thursday November 12, 2015
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Monday January 11, 2016
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