Hank Brink Pg-23

9'12'13 WORKING STORY BOARD.
docx
1 RULE NEWS FINRA
FINRA BOARD OF GOVERNORS: RULEMAKING ITEMS FOR DISCUSSION AT THE SEPTEMBER MEETING The FINRA Board of Governors will consider the following rulemaking items at its September 2013 meeting. After the September 19 meeting, FINRA will notify firms via email about the Board's actions on these items and anticipated next steps, if any. Alternative Display Facility (Adf). The Board will consider several proposed amendments to the rules governing the ADF, including changes in connection with the migration of the ADF to a new technology platform, requirements for new participants to the ADF, and order reporting procedures. Alternative Trading System (ATS) Aggregate Volume Data Fee . The Board will consider proposed fees to be applied to the receipt by professionals of ATS aggregate volume data published by FINRA. DISCLOSURES RELATED TO RECRUITMENT PRACTICES AND ACCOUNT TRANSFERS. The Board will consider an updated proposal to require disclosure of compensation a registered representative receives in connection with changing firms and other important considerations for a customer deciding whether to follow the representative to the new firm. EQUITY TRADE REPORTING. The Board will consider proposed amendments to the FINRA trade reporting rules in connection with the migration of FINRA equity trade reporting facilities to a new technology platform.
BEHIND THE NEWS
FINRA
FINRA AUGUST 2013 MONTHLY RECAP September 11, 2013 Revisit the latest FINRA Notices, compliance resources and news from August 2013. PODCAST: August 2013 Monthly Recap (10 min. 30 sec.) 3A WHOS NEWS SEC
NEW SEC DIRECTORS FOR BOSTON AND SAN FRANCISO REGIONAL OFFICES. SEC NAMES JINA L. CHOI AS DIRECTOR OF SAN FRANCISCO REGIONAL OFFICE SEC PRESS RELEASE 13-177 Washington D.C., Sept. 11, 2013 The Securities and Exchange Commission today announced the appointment of Jina L. Choi as director of the San Francisco Regional Office, where she will oversee enforcement and examinations in Northern California and the Pacific Northwest. Ms. Choi joined the SEC staff in 2000 and became a branch chief in 2005 before being promoted to assistant director in 2010. In addition to managing cases in the San Francisco office, Ms. Choi has helped lead investigations in the nationwide Market Abuse Unit that focuses on insider trading and other complex manipulation schemes.
pg. 1
9'12'13 WORKING STORY BOARD.docx

The San Francisco office has a rich history of robust enforcement activity and is staffed by immensely talented people dedicated to the SECs mission, said Andrew J. Ceresney, Co-Director of the SECs Division of Enforcement. Jina has shown great distinction, judgment, and tenacity in working to protect investors since joining the enforcement staff more than a decade ago. She will be an outstanding leader of the office, and we are delighted to have her join our leadership team. Andrew J. Bowden, Director of the SECs Office of Compliance Inspections and Examinations, said, Jinas focus and energy have enabled her to establish a great reputation and rapport with the exam team. We are thrilled that she has agreed to lead the San Francisco office. Ms. Choi said, I am honored and delighted to have been selected to serve as the h ead of the San Francisco office. I know firsthand the exceptional talent and dedication of the San Francisco staff and look forward to leading our offices efforts t o protect investors and ensure fair and orderly markets. Ms. Choi supervised investigations that resulted in enforcement actions against a Latvian trader and several firms for a massive online account intrusion scheme involving the manipulation of prices of more than 100 NYSE and Nasdaq securities, a former UBS financial adviser for misappropriating funds from clients, and an international insider trading scheme involving repeated leaks of confidential deal information to family members in the United Kingdom. In addition to her extensive SEC experience, Ms. Choi has served as an Assistant U.S. Attorney in the Northern District of Texas, where she worked in the cybercrime/anti-terrorism and general crimes sections. Ms. Choi also served as a trial attorney in the Civil Rights Division at the U.S. Department of Justice. She began her legal career as a law clerk to the Honorable Robert P. Patterson, Jr. in the U.S. District Court for the Southern District of New York. Ms. Choi earned her bachelors degree from Oberlin College and her J.D. from Yale Law School.
3B
WHOS NEWS
SEC
SEC NAMES PAUL LEVENSON AS DIRECTOR OF BOSTON REGIONAL OFFICE SEC PRESS RELEASE 13-179 Washington D.C., Sept. 12, 2013 The Securities and Exchange Commission today announced that Paul Levenson has been named director of the Boston Regional Office, where he will oversee enforcement and examinations in the New England region. Mr. Levenson joins the SEC from the U.S. Attorneys Office for the District of Massachusetts, where he is an Assistant U.S. Attorney and Chief of the Economic Crimes Unit that is responsible for investigations and prosecutions of financial crimes. Mr. Levenson has successfully coordinated many criminal investigations with the SECs Division of Enforcement during his tenure i n the U.S. Attorneys Office. He will begin working at the SEC in late October. Paul has served with great distinction as a supervisor and prosecutor of securities and other white collar cases, said Geor ge S. Canellos, Co-Director of the SECs Division of Enforcement. We are thrilled that he will be brin ging his formidable legal skills, vast experience, and judgment to the SEC as leader of our Boston Regional Office. Andrew J. Bowden, Director of the SECs Office of Compliance Inspections and Examinations, said, Paul has been working energetically and effectively to protect investors for the last 23 years. He also is an excellent manager. We are excited that he has decided to continue his work with our dedicated team in Boston. Mr. Levenson said, I am honored to have been chosen as the regional director of the SECs Boston office. As a federal prosecutor in Massachusetts, I have worked closely with the lawyers and examiners in the Boston office and have been enormously impressed by their talent, professionalism, and dedication to enforcing the federal securities laws. I look forward to working with them to carry out the SECs mission of investor protection and fair and orderly markets.
pg. 2

Mr. Levenson joined the U.S. Attorneys office in 1989 and served in the civil division as well as the Economic Crimes Unit and Public Corruption Unit. He has led the Economic Crimes Unit since 2007. Mr. Levenson has helped lead the investigation and prosecution of white collar crimes ranging from securities fraud, foreign bribery, tax fraud, insurance fraud, bank fraud, health care fraud, official corruption, and embezzlement. Mr. Levenson previously was a litigation associate at Kaye, Scholer, Fierman, Hays & Handler in Washington D.C. from 1985 to 1987. He later worked at Gibson, Dunn & Crutcher in New York before joining the U.S. Attorneys Office in Massachusetts. He began his legal career as a law clerk to the Honorable Stanley A. Weigel of the U.S. District Court for the Northern District of California. Mr. Levenson earned his bachelors degree from Harvard College and his law degree from Harvard Law School. 4 REGULATORS & POLITICIANS SEC SPEECH
CURRENT SEC PRIORITIES REGARDING HEDGE FUND MANAGERS NORM CHAMP, SEC DIRECTOR OF THE DIVISION OF INVESTMENT MANAGEMENT PLI Hedge Fund Management Conference, New York, New York Sept. 12, 2013 Thank you, Nora, for the kind introduction. Good morning and thank you for inviting me to speak to you today it is a privilege to open-up this seminar on behalf of such a distinguished panel of seasoned practitioners, some of which are current or former colleagues. I am certain that you will benefit from their invaluable insight into some of the trends and challenges facing the hedge fund industry. Before proceeding, let me remind you that the views I express are my own and do not necessarily reflect the views of the Commission, any of the Commissioners, or any of my colleagues on the staff of the Commission.[1] This is truly an opportune time to examine the regulatory landscape for hedge funds and their advisers many of you are probably returning from vacations during a summer that witnessed the third anniversary of the enactment of the Dodd-Frank Act and just in time for the effective date of some significant rulemakings relating to a private placement exemption often used by hedge funds. As you know, the Dodd-Frank Act imposed greater oversight on advisers to hedge funds, while recent changes were made to the private placement exemptions by the JOBS Act. These changes create both opportunities and challenges for those advisers managing hedge funds. For this morning, I will begin with a discussion on what you are likely most interested in the general solicitation and the bad actor rules. Afterward, I will focus on our continuing efforts to be better informed regulators. In the post-Dodd-Frank era, we are more cognizant regulators not only because of the enhanced data we receive from you regarding the size and operations of your industry, but also due to our continuous efforts to improve our ability to use that data and our heightened focus on industry awareness. After an overview of what we now know about your industry and how we intend to use it, Ill highlight some regulatory initiatives of interest to the hedge fund industry. However, before I finish this morning, I want to briefly share some thoughts on the importance of a robust culture of compliance, which is underscored by the recent Commission actions against hedge fund managers for insider trading. GENERAL SOLICITATION AND BAD ACTORS. Over the summer, the Commission adopted two significant Congressionally-mandated changes to Rule 506 of Regulation D the private placement exemption that many hedge funds rely on to offer their interests in the U.S. Before addressing some specific aspects of these rules, it may be helpful to quickly revisit how we got here. As most of you know, the JOBS Act mandated that the Commission lift the ban on general solicitation and general advertising to, among other things, provide new ways for companies to raise capital. We are committed to taking steps to pursue additional investor safeguards if and where such measures become necessary once the ban on general solicitation is lifted.[2] In other words, as we fulfill our mission to facilitate capital formation, we remain focused on strong investor protections. Therefore, in connection with the changes to Rule 506, the Commission proposed additional amendments intended to enhance the Commissions ability to evaluate the development of market practices in Rule 506 offerings and address certain concerns raised by commenters related to the types of investors that would be attracted by general solicitation.[3]
pg. 3

LIFTING THE BAN ON GENERAL SOLICITATION. The first change to Rule 506 eliminates the prohibition on general solicitation and general advertising for certain offerings, including hedge fund offerings, provided that the conditions of the new rule are met.[4] Once the removal of the ban goes effective in the next few weeks, hedge fund issuers will be able to use a number of previously unavailable solicitation and advertising methods when seeking potential investors. However, with these new marketing opportunities also comes greater responsibility. The final rule permits issuers to use general solicitation and general advertising to offer their securities if, among other things, issuers take reasonable steps to verify accredited investor status, and all purchasers of the securities are accredited inv estors meaning that, at the time of the sale of the securities, they fall within one of the categories of persons who are accredited investors, or the issuer reasonably believes that they do. Determination of the reasonableness of the steps taken to verify that an investor is accredited is by an objective assessment by an issuer, and in response to comments, the final rule provides a nonexclusive list of methods that issuers may use to satisfy the verification requirement for individual investors. With general solicitation and general advertising soon to be an option, I want to reiterate the Commissions reminder from the adopting release that advisers to private funds are subject to an anti-fraud rule that prohibits fraudulent and misleading conduct with respect to fund investors, including making untrue statements of material fact to those investors.[5] In the adopting release, the Commission also noted that investment advisers that have implemented appropriate policies and procedures regarding the nature and content of private fund sales literature are less likely to use materially misleading advertising materials, or otherwise violate federal securities law.[6] Accordingly, advisers should carefully review their policies and procedures to determine whether they are reasonably designed to prevent the use of fraudulent or misleading advertisements and update those policies where necessary, particularly if the hedge funds intend to engage in general solicitation activity. Hedge fund sponsors intending to rely on the new rule should also consider whether their current practices for verifying accredited investor status meet the requirements of the new rule. Simultaneously with the adoption of these amendments, the Commission also issued a proposal designed to enable the Commission to evaluate how general solicitation impacts investors in the private placement market. The proposed measures include, among other things, expanding the information that issuers must include on Form D, requiring issuers to file the Form D before a general solicitation begins and when an offering is completed, and putting in place a more effective mechanism for enforcing compliance with Form D filing requirements. Given that private funds raise a significant amount of capital in Rule 506 offerings, the proposal contains several amendments specific to private funds. For example, private fund issuers would be required to include a legend in any written general solicitation materials disclosing that the securities being offered are not subject to the protections of the Investment Company Act of 1940. With respect to written general solicitation materials containing performance data, additional disclosure would be required to explain the limitations on the usefulness of such data and provide context to understand the data presented. The Commission also proposed to extend guidance contained in Rule 156 under the Securities Act of 1933, currently applicable to registered funds, on when information in sales literature could be fraudulent or misleading for purposes of the federal securities laws. This guidance would apply to all private funds whether or not they are engaged in general solicitation activities. In the proposing release, the Commission expressed its view that private funds should now begin considering the principles underlying existing guidance. Furthermore, the Commission requested comment on additional manner and content restrictions on private fund solicitation materials. In particular, we are interested in hearing your thoughts on content restrictions on performance advertising generally, and content standards specific to certain types of performance advertising, such as model or hypothetical performance. We also are interested in your views on whether private funds should be subject to standardized performance reporting and if so, what reporting standards should apply. In order to assist the Commissions efforts to assess developments in the Rule 506(c) market, an inter -Divisional group has been created within the Commission to review the new market and the practices that develop. Staff from the Division of Investment Management will play a key role in this initiative, and will work closely with staff from the Division of Corporation Finance, the Division of Economic and Risk Analysis (DERA), formerly the Division of Risk, Strategy and Financial Innovation, the Division of Trading and Markets, the Office of Compliance Inspections and Examinations, (OCIE), and the Division of Enforcement. As
pg. 4

part of the work plan, staff will, among other things, evaluate the range of accredited investor verification practices used by issuers and other participants in these offerings, and endeavor to identify trends in this market, including in regard to potentially fraudulent behavior. Commission staff will also develop risk characteristics regarding the types of issuers and market participants that conduct or participate in offerings involving general solicitation and general advertising and the types of investors targeted in these offerings. In addition, Ive instructed Division of Investment Management rulemaking and risk and examination staff to pay particular attention to the use of performance claims in the marketing of private fund interests. In particular, this review will endeavor to identify potentially fraudulent behavior and to assess compliance with the federal securities laws, including appropriate Investment Advisers Act provisions. I encourage you to provide us information about what you are seeing develop in regards to general solicitation by private funds, particularly advertisements that appear to raise concerns. Separately, the Commission has also begun a review of the definition of accredited investor as it relates to natural persons. The Commission also requested comment on the definition of accredited investor in its recent proposing release. Your input into all these regulatory initiatives is important. With the comment period for the proposals regarding the Rule 506(c) market about to close, we strongly encourage you to submit comments if you have not done so already. THE BAD ACTOR AMENDMENT. Under the second adopted amendment, commonly referred to as the bad actor amendment, an issuer cannot rely on the Rule 506 exemption from registration if the issuer or any other person covered by the rule is disqualified by a triggering event, which includes certain criminal convictions, certain SEC cease -and-desist orders and court injunctions and restraining orders.[7] In addition to issuers such as hedge funds, other potential bad actors under the rule could include a hedge funds general partner or managing member, its investment adviser and principals, significant shareholders holding voting interests, affiliated issuers and any placement agent or other compensated solicitor. The final rule provides an exception from disqualification for issuers that can show they did not know and, in the exercise of reasonable care, could not have known that a covered person with a disqualifying event participated in the offering. Given the serious consequences of a bad actor finding, hedge fund advisers should take care when hiring employees and screening investors, and conduct appropriate due diligence when retaining third party solicitors. Also, it is important to note that while disqualification applies only for triggering events that occur after the effective date of the rule, matters that existed before the effective date of the rule that would otherwise be disqualifying are required to be disclosed to investors. I understand that the staff has received some interpretative questions with respect to the application of these rules, especially to private funds and their advisers. Right now, the staff is in listening and information collection-mode, and is evaluating the need for guidance. WHAT WE NOW KNOW ABOUT THE INDUSTRY. As I alluded to earlier, as a result of registration and reporting reforms introduced by, or tangential to, Dodd-Frank, we now have a more complete picture of the hedge fund universe, including insight into (for starters) the number of advisers and funds, the different types of funds, the strategies that they employ, and the makeup of their investor base. Now, it is critical to the execution of our mission that we are able to translate being better informed regulators into being more effective regulators. Today, the Commissions registrant population consists of over 10,825 advisers, with 2,572 of these advising at least one hed ge fund.[8] Overall, advisers of hedge funds account for over $4.6 trillion in cumulative regulatory assets. In addition to hedge fund advisers registered with the Commission, we also have exempt reporting advisers, or ERAs, who are those advisers that are exempt from registering with the Commission, but are subject to limited reporting about their businesses and their private fund clients. The Commission has approximately 2,400 ERAs, with 767 advisers or 32% of these managing hedge funds accounting for over $819 billion in regulatory assets. This improved information is the result of upgrades to Form ADV and the arrival of Form PF. In 2011, the Commission adopted amendments to Form ADV requiring significant additional information with respect to, among other things, the identity of hedge fund clients, amount of gross assets, names of service providers to these hedge funds, and the number and types of hedge fund investors.[9] Also in 2011 the Commission adopted new Form PF jointly with the Commodity Futures Trading Commission. Form PF requires advisers to report the use of leverage, counterparty credit risk exposure, and trading practices for each hedge and other private fund managed by the adviser.[10] In the summer of 2012, the Commission began to receive the first set of
pg. 5

Form PF filings from the largest advisers of hedge funds and other private funds, and received a complete set of initial filings from all reporting advisers earlier this year. HOW WE CAN USE THE NEW INFORMATION. While the primary aim of Form PF was to create a source of data for the Financial Stability Oversight Council (FSOC) to use in assessing systemic risk,[11] the Commission, consistent with statutory authority, is using the information to support its own regulatory programs, including examinations, investigations and investor protection efforts relating to private fund advisers. Through a coordinated effort of staff across the Commission, we have identified a number of uses of the information. For example, last year the Division of Investment Management created its Risk and Examinations Office (REO). REO is a multidisciplinary office staffed with analysts with strong quantitative backgrounds, along with examiners, lawyers and accountants. REO intends to conduct rigorous quantitative and qualitative financial analysis of the investment management industry, strategically important investment advisers and funds. REO, in collaboration with the DERA, is using Form PF data to develop risk-monitoring analytics, as well as to provide internal periodic reports regarding the private fund industry and particular market segments. Division staff also will use Form PF data to inform policy and rulemaking with regard to private funds, and we intend to use aggregated, non-proprietary data in our consultative work with other securities regulators on issues of mutual interest. Similarly, other divisions are beginning to utilize this data to advance their missions. For example, the Commissions Asset Management Unit of the Division of Enforcement is working with DERA to develop analytic tools to integrate Form PF data into research and due diligence related to investigative work and other enforcement matters. Also, the OCIE anticipates using the information collected on Form PF for, among other things, conducting pre-examination research and due diligence. That said, I know that the hedge fund industry has raised concerns about the confidentiality of Form PF data. However, I can reassure you that the Commission takes the protection of the confidentiality of this information very seriously. To comply with enhanced confidentiality provisions established under the Dodd-Frank Act with respect to Form PF, Commission staff has developed a secure filing environment for Form PF to protect the information when and after it is filed. In addition, we have established an inter-Divisional steering committee to address internal data use and create a comprehensive policy on access to and use of Form PF data. Our experience with Form PF data is in its early stages and the utility of the data collection will develop as the collective experience with the information evolves. Of critical importance to expanding the utility of the data is our confidence in the information provided by filers. Division staff is proactively trying to improve data quality by, for example, issuing FAQs on interpretive issues that commonly arise from filers in fact, we most recently updated our FAQs last month.[12] During this process, the staff has benefited immensely from the open and continuous dialogue with you, and we want to continue that practice. INDUSTRY OUTREACH. As a complement to the data that we receive, we are working to improve our awareness of the industry through a hands-on outreach initiative. While data is important for providing census information, identifying aberrational performance and systemic trends, it does not give you a sense of a firms culture and approach to compliance. In order to get a first-hand view of advisers systems, controls and culture, REO staff, OCIE leadership and I have met with senior management of many larger, strategically important advisers many of which have an institutional line of business through which they manage private funds. Also, our colleagues in OCIE have begun their presence exam initiative, which is part of an outreach to engage directly with newly registered advisers to private funds.[13] This initiative is focused on five key areas of risk: marketing, portfolio management, conflicts of interest, safety of client assets and valuation. OCIE is still in the engagement phase of this initiative and expects to report back to the industry at the conclusion of the program. During a panel later this morning, I believe my colleague from OCIE will be sharing with you some of the preliminary findings and observations from that initiative. We hope to continue directly interacting with you and your colleagues, and by working together better ensure that the industry operates in the best interests of clients and fund investors. OTHER REGULATORY INITIATIVES. After several years of diligent work, I am happy to report that the Dodd-Frank mandated rulemaking directly related to investment advisers is complete. While there are outstanding proposals on the Volcker
pg. 6

Rule and incentive compensation, each of which may impact investment advisers that charge performance fees and/or accept investments from or are owned by banks or bank sponsored funds, the Division will attempt to turn some of its attention to other regulatory initiatives regarding advisers to hedge and other private funds. As I have previously announced, one of our longer term initiatives is a review of the rules that apply to private fund advisers. Although the principles-based Advisers Act regime has largely stood the test of time, despite being applied to an increasingly diverse set of adviser business models, the staff is evaluating whether Advisers Act rules require modernization to reflect the current business and operations of private fund advisers. This initiative has been spurred, at least in part, by the inquiries and feedback that we receive from industry stakeholders, especially from new registrants, and your input helps inform our assessment. As such, please continue to bring your issues and challenges to our attention. As one might expect, a review of the Advisers Act regime is no small task and the process, along with any potential rulemaking, will take time to run its course to ensure that we get it right. That being said, the Division has and will actively consider providing guidance where appropriate. For example, with respect to the Advisers Act custody rule, we are open to public input on issues and concerns regarding implementation of the rule. Just last month the Divisions staff issued guidance regarding the application of the custody rule to private stock certificates, which rightly focused on investor protections provided by fund audits.[14] Although we understand that this guidance may not end our work in regard to the custody rule, it does represent a significant step forward and is an example of our efforts to clarify the application of the rules, while at the same time promoting robust investor protection. COMPLIANCE INSIDER TRADING. Earlier, I touched upon our outreach initiative designed to get a sense of an advisers culture of compliance. While our experience thus far generally confirms that most investment advisers attempt to do the right thing in fulfilling their regulatory compliance obligations, the recent highly-publicized string of insider trading cases in the hedge fund industry highlights the need for improvement. During one of todays panels, you will hear about good practices to improve controls on the misuse of material non-public information, so I will keep my remarks high-level. To borrow a recent quote from Harvey Pitt, a former Ch airman of the Commission, [w]hen it comes to compliance, you have to live, eat, breathe and drink it.[15] This observation is particularly fitting with respect to the prevention of insider tra ding. As you know, the Advisers Act requires advisers to establish, maintain and enforce written policies and procedures reasonably designed to prevent misuse of insider information.[16] In addition, Advisers Act provisions require, among other things, the adoption of a written code of ethics that sets forth standards of business conduct and that requires compliance with federal securities laws. However, the prosecution of alleged insider trading continues to be an area of active enforcement by the Commission. Indeed, the prevalence of insider trading negatively impacts investor confidence.[17] In light of these cases, advisers should revisit their compliance policies and procedures and assess whether they effectively provide a comprehensive framework for the identification and prevention of the misuse of non-public information. In addition, advisers should provide continuous training and guidance to ensure that employees know what to do or, more importantly, what to refrain from doingwhen they come into possession of inside information. CONCLUSION. I appreciate the opportunity to share my thoughts on these issues of interest to investment advisers and the larger hedge fund community. The Division works to protect investors, promote informed decision making, and facilitate appropriate innovation in investment products and services through regulating the asset management industry. Thank you for your time this morning.
REGULATORS & POLITICIANS
SEC SPEECH
REMARKS AT SOCIETY OF CORPORATE SECRETARIES & GOVERNANCE PROFESSIONALS SEC COMMISSIONER DANIEL GALLAGHER 67th National Conference, Seattle, Washington July 11, 2013
pg. 7

Thank you Bob [Lamm] for your very kind introduction. I am delighted to be able to participate in this conference and to address so many of the governance professionals who are on the front lines dealing with the myriad of mandates set forth in federal and state laws and regulations. In addition to engaging with shareholders, drafting disclosure documents, and dealing with the everyday fire drills that occur at your companies, you and your teams ensure that board members and management have the appropriate knowledge and resources to properly discharge their duties. This is a full days work, which is why so many of you often end up doing board minutes at night. While much of the work you do may sometimes seem thankless, the importance of your work is certainly not lost on me or, I hope, on your CEOs and boards. On that note, I need to provide the standard disclaimer that my remarks today are my own and do not necessarily reflect the views of the Commission or my fellow Commissioners. Before I begin, I would like to take a moment to acknowledge my colleagues Elisse Walter and Troy Paredes, who are nearing the end of their tenure as Commissioners. Elisse and Troy joined the Commission within a month of one another during the turbulent summer of 2008, right around the time I became the deputy director of trading and markets, and have since then devoted themselves to furthering the SECs mission during a particularly difficult time. They have done yeomans work and they will both be missed. Id like to say a few additional words about Troy, who has over the course of his five years as a Commissioner been a quiet but formidable intellectual force, applying his intelligence and expertise to the subjects of disclosure reform and corporate governance, among many others. Troy has, in addition to being a valued colleague, been a great friend to me as well, and there is no one with whom Id rather have an hour-long midnight conversation about the subtle implications of a single footnote buried deep within a thousand-page draft rule release. The SEC is first and foremost a disclosure agency. As stated on the Commissions website: [t]he laws and rules that govern the securities industry in the United States derive from a simple and straightforward concept: all investors, whether large institutions or private individuals, should have access to certain basic facts about an investment prior to buying it, and so long as they hold it.[1] The federal corporate disclosure regime was established by Congress and serves as a cornerstone of the Commissions tripartite mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. The underlying premise of the Commissions disclosure regime is that if investors have the appropriate information, they can make rational and informed investment decisions. This is not to say that the disclosure regime was meant to guarantee that investors receive all information known to a public company, much less to eliminate all risk from investing in that company. Instead, the point has always been to ensure that they have access to material investment information. One of the underpinnings of this approach is the expectation that through this disclosure regime, companies and their management benefit from the oversight and interaction with the companies owners. President Franklin D. Roosevelt, in a message to Congress encouraging the enactment of the Securities Act, also noted that a mandatory disclosure regime adds to the ancient rule of caveat emptor, the further doctrine, let the seller also beware. It puts the burden of telling the whole truth on the selle r. It should give impetus to honest dealing in securities and thereby bring back public confidence.[2] Through issuer disclosure, shareholders are able to make informed decisions and hold boards and management accountable for any misallocation or misuse of their invested funds. If shareholders are displeased, they have the ability to change the behavior of management and direction of the company by exercising their votes at shareholder meetings or, alternatively, voting with their feet, so to speak, by selling their stock. So, given the historical justifications as well as the logic and rationale behind this mandatory disclosure framework, how has the Commission done in ensuring the proper operation of this system? Arguably, the Commissions disclosure regime has been subject to the classi c Washington scourge of regulatory creep, in spite of the principle that investors should have access to basic facts. The beauty of the disclosure regime as created by Congress almost 80 years ago was that it did not require government regulators to judge the merits of a company, its board or management structure, or its business practices those judgments were intended to remain in the hands of investors armed with the knowledge provided by the disclosure of material information. Today, however, some of our disclosure rules are being used by special interest groups, who do not necessarily have the best interests of all shareholders in mind, to pressure public companies on certain governance and business practices. The Commissions recent disclosure ru les regarding conflict minerals from the Congo and extractive resource payments made by oil, gas and mining companies are good examples.
pg. 8

As many of you probably know, last week, Judge John D. Bates from the D.C. District Court vacated the Commissions a rbitrary and capricious resource extraction rule citing two substantial errors on the part of the Commission: misreading the statut e to mandate public disclosure of the reports required to be provided to the Commission and refusing to grant any exemptions to the disclosure requirement.[3] While the information required by these rules may be germane for humanitarian purposes, one would be hard pressed to argue that this disclosure is material to investors in evaluating the performance and determining the value of a company. In his opinion, Judge Bates wrote, As the Supreme Court has recognized, no legislation pursues its purposes at all costs.[4] It has been the Commissions responsibility since its establishment to apply its expertise to de fine the parameters of the disclosure required by congressional mandates. Even when those mandates are unusually prescriptive, it is incumbent upon the Commission to use its exemptive authority to balance the value to investors of new disclosure requirements against their costs. In promulgating new disclosure requirements, the Commission must be mindful about whether the information in question would be objectively material to investors, and would the benefits of disclosure outweigh the costs, which are ultimately and inevitably passed on to investors. The vital importance and proven value of our disclosure regime as a whole does not and should not lead to the conclusion that more government-mandated disclosure is always better. In a speech earlier this year, Commissioner Paredes expressed a concern that I share, noting that the expansion of mandatory disclosure requirements may lead to information overload,[5] not just in volume but also in the complexity of presentation. When the Commission-mandated public disclosure documents of public companies run well into the hundreds of pages, we have to question whether such documents are at all understandable, and of any utility, to investors. When disclosure documents start to resemble treatises, the wheat gets lost in the chaff. With too much information, it often becomes difficult for investors to focus and determine what is useful and what is not. As Justice Thurgood Marshall warned almost 40 years ago, disclosure requirements with unnecessarily low materia lity standards risk simply bur[ying] the shareholders in an avalanche of trivial information a result that is hardly conducive to informed decision making.[6] When investors are inundated with immaterial information, it increases the likelihood that th ey will miss key disclosures. Even more likely is the possibility that investors, despairing about the voluminous compilations of corporate minutiae contained in company filings, will never even look at disclosure documents. In either case, the result is that investors are left less informed when making investing decisions than they would be if presented with a document that didnt require a magnifying glass to read and a PhD to understand. The irony that the vast expansion of the Commissions mandatory d isclosure regime may help incentivize investors to throw their hands up and simply ignore company filings is not lost on me or, Im sur e, all of you. Given the importance of this issue, it is critical for the Commission to engage with issuers and shareholders to rethink whether the mandatory disclosure rules in their current form are still valuable and whether in some cases it may be better for investors if there was a lower volume, but an overall higher quality, of disclosure. As Ive noted repeatedly, disclosure is not costless to issuers, and we cannot forget because far too many policy makers do forget that its the shareholders who ultimately bear the burden of increased costs on issuers. If excessive disclosure negatively impacts investors ab ility to process the information with which they are presented, it fundamentally undermines the utility of the disclosure regime. We need to understand what information investors find useful and beneficial, but we also need to develop a better understanding of the costs of disclosure, especially in light of the tendency to require disclosure on a more and more granular level. Another unintended consequence of the increase in mandated disclosure is the rise of proxy advisory firms and the increasing willingness of investment advisers and large institutional investors to rely on such firms in order to ostensibly carry out their fiduciary duties. Shareholder voting has undergone a remarkable transformation over the past few decades, with particularly marked changes occurring over the past 10 years. The rise of institutional shareholders as the majority owners of public company shares as well as the increased desire of some policy makers to give shareholders greater influence and power in corporate governance has led to the current dynamic. In todays world, institutional shareholders vote billions of shares each year on thousands of ballo t items for the thousands of companies in which they invest. The quantity and length of the documents that shareholders have to review in order to make informed voting decisions has steadily increased over the past few years, as has the average number of items they are asked to vote on which, by some estimates, increased by roughly 50% from 2003 to 2011.[7] Given the sheer volume of votes, institutional shareholders, particularly investment advisers, may view their responsibility to vote on proxy matters with more of a compliance mindset than a fiduciary mindset. Sadly, the Commission may have been a significant enabler of this. In 2003, the SEC adopted a new rule and rule amendments under the Investment Advisers Act of
pg. 9

1940 addressing an investment adviser's fiduciary obligation to its clients when the adviser has authority to vote its client s proxies. Pursuant to the rule, an investment adviser that exercises voting authority over its clients proxies is required, among other things, to adopt policies and procedures reasonably designed to ensure that it votes those proxies in the best interests of its clients.[8] One concern that the Commission was trying to address in that rulemaking was an investment advisers potential conflicts of interest when voting a clients securities on matters that affected its own interests. In the adopting release, the Commission noted that an adviser could demonstrate that the vote was not a product of a conflict of interest if it voted client securities, in accordance with a pre-determined policy, based upon the recommendations of an independent third party.[9] As Ive noted before, this was akin to what the Commission had earlier done with credit rating agencies essentially, mandating the use of third party opinions. When proxy advisors asked the SEC staff for guidance and clarity with respect to the new rule, they got their wish in the form of a pair of staff no-action letters effectively blessing the practice of investment advisers simply voting the recommendations provided by proxy advisers.[10] At the risk of stating the obvious, staff no-action letters are not approved by the Commission, and do not necessarily represent the view of the Commission or the Commissioners. It has been argued that these two letters provide investment advisers a potential safe harbor against claims of conflicts of interest when they vote their client proxies. In one letter, the SEC staff advised that an investment adviser that votes client proxies in accordance with a pre-determined policy based on the recommendations of an independent third party will not necessarily breach its fiduciary duty of loyalty to its clients even though the recommendations may be consistent with the advisers own interests. In essence, the recommendations of a third party that is in fact independent of an investment advis er may cleanse the vote of the advisers conflict.[11] I am very concerned that these letters have unduly increased the role of proxy advisory firms in corporate governance. I also have grave concerns as to whether investment advisers are indeed truly fulfilling their fiduciary duties when they rely on and follow recommendations from proxy advisory firms. It is troubling to think that institutional investors, particularly investment advisers, are treating their responsibility akin to a compliance function carried out through rote reliance on proxy advisory firm advice rather than actively researching the proposals before them and ensuring that their votes further their clients interests. The last thing we should want is for investment advisers to adopt a mindset that leads to them blindly casting their votes in line with a proxy advisors recommendations, especially given the fact that such recommendations are often not tailored to a funds unique strategy or investment goals. As one academic article has argued: [i]f the institutional investor s are only using the proxy advisor voting recommendations to meet their compliance requirement with the lowest cost, these payments will not compensate proxy advisors for conducting research that is necessary to determine appropriate corporate governance structures for individual firms. Under this scenario, the resulting recommendations will tend to be based on simple, low cost approaches that ignore the complex contextual aspects that are almost certainly instrumental in selecting the corporate governance structure for individual firms.[12] So what should the Commission do? I believe that we should replace these two staff no-action letters with Commission-level guidance. Such guidance should seek to ensure that institutional shareholders are complying with the original intent of the 2003 rule and effectively carrying out their fiduciary duties. Commission guidance clarifying to institutional investors that they need to take responsibility for their voting decisions rather than engaging in rote reliance on proxy advisory firm recommendations would go a long way toward mitigating the concerns arising from the outsized and potentially conflicted role of proxy advisory firms. In addition, as I have stated in the past, I believe that the Commission should fundamentally review the role and regulation of proxy advisory firms and explore possible reforms, including, but not limited to, requiring them to follow a universal code of conduct, ensuring that their recommendations are designed to increase shareholder value, increasing the transparency of their methods, ensuring that conflicts of interest are dealt with appropriately, and increasing their overall accountability. I am not alone in raising these issues, as evidenced by the work in Europe by ESMA regarding proxy advisors as well as by the recent Congressional hearing hosted by Congressman Scott Garrett discussing many of these topics.[13] To be clear, I realize that proxy advisors can provide important information to institutional investors and others. However, what European policymakers and our own Congress have highlighted is that changes need to be made so that proxy advisors are subject to oversight and accountability commensurate with their role.
pg. 10

Thank you all for your attention. I've appreciated the opportunity to be here today and share my views on these vitally important subjects, and I wish you a successful conclusion to this conference. 6 COMPLIANCE RESOURCES SEC
SEC OFFICE OF INVESTOR EDUCATION AND ADVOCACY SEC-NASAA INVESTOR BULLETIN MAKING SENSE OF FINANCIAL PROFESSIONAL TITLES PUBLISHED 9/11/13 The Securities and Exchange Commissions (SEC) Office of Investor Education and Advocacy and the North American Securities Administrators Association (NASAA) are jointly issuing this Investor Bulletin to help investors better understand the titles used by financial professionals. The requirements for obtaining and using these titles vary widely, from rigorous to nothing at all. To use certain titles, a financial professional may need to pass exams, meet ethical standards, have relevant work experience, and undertake continuing education. Other titles, however, may be obtained with little time, effort, and experience. Neither the SEC nor NASAA endorses any financial professional titles. We encourage you to look beyond a financial professionals title to determine whether he or she can provide the type of financial services or products you need. REGISTRATION OR LICENSING STATUS OF FINANCIAL PROFESSIONALS . Financial professional titles and licenses are not the same. A financial professional may use various titles whether or not he or she is registered or licensed with a regulatory authority. Financial professionals that are registered as a broker-dealer or investment adviser have obtained registrations and licenses granted by federal or state regulatory authorities. Working with a financial professional who is registered with or licensed by federal or state authorities affords you certain legal protections. The same financial professional may register in more than one capacity. For example, many financial professionals register as both a registered representative with a broker-dealer firm and an investment adviser. Also, a financial professional selling some insurance products, such as variable annuities, may be regulated as both a registered representative of a broker-dealer and an insurance agent. Insurance agents are subject to state insurance laws and are regulated by state insurance regulators. USE OF TITLES BY FINANCIAL PROFESSIONALS. Do not rely solely on a title to determine whether a financial professional has the expertise that you need find out what the title means and what the financial professional did to obtain it. Some titles are granted by private organizations, such as a trade group. While some private groups that grant titles may provide a method for you to complain about one of their members and can discipline a member for misconduct, there are other groups that do not take complaints or discipline their members. Still other titles may be simply purchased, or even made up by financial professionals hoping to imply that they have certain expertise or qualifications; such titles are generally marketing tools and are not granted by a regulator. As with any title, you should verify a financial professional is really qualified to advise you. See How to Check on the Financial Professionals Title below for more information. HOW TO CHECK ON THE FINANCIAL PROFESSIONALS TITLE. If a financial professional tells you that he or she has a certain professional title ask questions. Some questions you can ask include: Who awarded your title? n What are the training, ethical, and other requirements to receive the title? Did you have to take a course and pass a test? Does the designation require a certain level of work experience or education? to maintain the designation, are you required to take refresher courses? How can I verify your standing with this organization?
pg. 11

Investment advisers are required to provide to their customers a brochure about their employees. If an employee lists a professional title, the brochure supplement must include an explanation of the minimum qualifications required for this professional title.You may also learn about financial professional titles online at the Financial Industry regulatory Authoritys (FINRA) website page, understanding Investment Professional Designations available at: http://apps.finra.org/DataDirectory/1/prodesignations.aspx.. This website provides information such as: A description of the education and experience requirements for certain titles; and, Information about the organizations granting certain titles, including information about continuing educa-tion requirements, public disciplinary or investor complaint processes, if any, and tools to check the status of a financial professional.
Like the SEC and state securities regulators (NASAA), FINRA does not grant, approve or endorse any professional designation. Professional organizations also may offer information online about the titles that they grant. In some cases, the granting organizations website may allow you to verify that a person has earned a certain t itle. For example, the website of the Certified Financial Planner Board of Standards http://www.cfp.net/allows visitors to search for CFP professionals to verify CFP certification. Even after checking, it may not be clear to you whether a title represents relevant expertise, a marketing tool, or something else. Thats why you should always check the financial professionals background, rather than relying solely on the professionals title. To do your own online research about a brokers or investment advisers professional qualifications, experience, education, and any disciplinary history, visit: The SECs Investment Adviser Public Disclosure website at: http://www.adviserinfo.sec.gov, or BrokerCheck, a FINRA website at: http://www.finra.org/ Investors/toolsCalculators/BrokerCheck/. Your states securities regulator can also provide all of this information to you and help you understand how to interpret the information. to find your states securities regulator, go to the NASAA website at http://www.nasaa.org/about-us/contact-us/contact-yourregulator/.
KEY QUESTIONS YOU SHOULD CONSIDER ASKING A FINANCIAL PROFESSIONAL ABOUT FINANCIAL PROFESSIONAL TITLES GENERAL QUESTIONS Are you employed by a registered broker-dealer? If yes, use FINRAs BrokerCheck website, available at www.finra.org/Investors/ToolsCalculators/BrokerCheck, to find out about the financial professionals qualifications, experience, education, and disciplinary history. Are you employed by a registered investment adviser? If yes, are you registered with a state securities regulator or the SEC? If the financial professional is registered with the SEC, use the SECs Investment Adviser Public Disclosure website, available at www.adviserinfo.sec.gov, to find out about the financial professionals registrations, qualifications, experience, education, and disciplinary history. Are you or your firm registered with a state securities regulator? If so, contact that regulator to find out where you can find out about the financial professionals registrations, qualifications, experience, education, and disciplinary history. A list of state securities regulators is available on the North American Securities Administrators Association website at http://www.nasaa.org/about-us/contact-us/contact-your-regulator/. Are you or your firm registered with any other state or federal regulator? If so, contact that regulator to find out about the financial professionals registrations, qualifications, experience, education, and discipli nary history.
QUESTIONS REGARDING SPECIFIC FINANCIAL PROFESSIONAL TITLES What is the name of the organization that awards the financial professional title?
pg. 12

What are the training, ethical, and other requirements to receive the financial professional title? Did you have to take a course and take a test? Does the financial professional title require a certain level of work or educational experience? To maintain the financial professional title, are you required to attend periodic continuing education courses? Confirm any information the financial professional provides you regarding his or her financial professional title. This information may be available on the website of the organization that awards the financial professional title, or you may also check FINRAs website page Understanding Investment Professional Designations available at http://apps.finra.org/DataDirectory/1/prodesignations.aspx. Contact the organization issuing the financial title to confirm that the financial professional is currently authorized to use the title and to determine if they have any disciplinary history.
COMPLIANCE RESOURCES
SEC
COMPLIANCE OUTREACH PROGRAM - INVESTMENT ADVISORS NEW YORK REGIONAL OFFICE SEPTEMBER 13, 2013 AGENDA Registration (9:00 am 9:30 am) Welcome and Opening Remarks (9:30 am 9:45 am) Ken C. Joseph, Associate Director, New York Regional Office Examination Program Panel 1: Newly Registered Advisers (9:45 am 10:45 am) William J. Delmage, Assistant Director Linda A. Heaphy, Exam Manager Nell Spekman, Staff Accountant Joseph P. DiMaria, Assistant Director Raymond J. Slezak, Assistant Director Break (10:45 am 11:00 am) Panel 2: Form PF (11:00 am 11:45 am) Anthony Fiduccia, Assistant Director Marc Wyatt, Senior Specialized Examiner, National Exam Program Alpa Patel, Senior Counsel, Division of Investment Management Panel 3: Recent Developments (11:45 am 12:30 pm) Kathleen Furey, Senior Counsel Jon Hertzke, Assistant Director, Division of Investment Management, Risk and Examinations Office Kenneth OConnor, Exam Manager, Division of Investment Management, Risk and Examinations Office Valerie Szczepanik, Assistant Director, Division of Enforcement, AMU Break (12:30 pm 12:45 pm) Panel 4: Investment Advisers and Dual Registration (12:45 pm 1:30 pm) Dawn M. Blankenship, Assistant Director George DeAngelis, Assistant Director Jennifer A. Grumbrecht, Assistant Director Jennifer Klein, Exam Manager Closing Remarks/Q&A (1:30 pm 1:45 pm) Ken C. Joseph, Associate Director
pg. 13

FUND/ADVISER CHIEF COMPLIANCE OFFICERS Speaker Bios - Compliance Outreach Program, New York Regional Office, September 13, 2013 Risk Profiling and the Exam Selection Process (September 10, 2013; ) The Division of Investment Managements Risk and Examinations Office Recent Developments Form PF Presentation Examination Process Investment Advisers and Dual Registration 2014 Exam Initiatives/Focus Areas Agenda - Compliance Outreach Program, New York Regional Office, September 13, 2013
ON THE MOVE
DEALBOOK
MORGENTHALER PARTNERS HANG OUT A SHINGLE WITH $175 MILLION FUND September 12, 2013, 7:00 am Three partners at the venture capital firm Morgenthaler Ventures are striking out on their own, with a new fund to make earlystage investments in software companies. The new fund, known as the Canvas Venture Fund, has attracted $175 million, the partners plan to announce on Thursday. It is the first fund raised by a company they recently formed, the Morgenthaler Technology Investment Company. For Morgenthaler Ventures, the offshoot represents another step in the evolution of one of Silicon Valleys oldest firms. The three partners Gary Little, Rebecca Lynn and Gary Morgenthaler will remain partners at Morgenthaler Ventures even as they run their new fund. Founded 1968 by David Morgenthaler, who is Garys father, Morgenthaler Ventures has moved from a generalist approach to one of greater specialization. Last year, the firms life sciences group joined with partners from Advanced Technology Ventures to form Lightstone Ventures, which invests in medical device and biotechnology companies. The move toward becoming a boutique was motivated in part by pressures in the broader venture capital market, Mr. Little said. The landscape has evolved into the global brand V.C.s that have multiple funds in multiple countries, and then the speciali st boutique firms, he said. Its been challenging for those that are in the middle. Based in Menlo Park, Calif., the Canvas fund plans to make early investments known in the industry as Series A and Series B in software firms serving businesses and other information technology companies. There is a good chance that one of the fir st investments will be in the financial technology area, Mr. Little said. To raise their fund, the Canvas team turned to investors that had previously committed money to the latest Morgenthaler Venture funds. Though the new fund had an initial target size of $150 million, the partners allowed the size to climb to $175 million amid strong demand. At least one investor had concerns about the fund growing that large. On balance, we would have preferred them not to have done that, said Ashton Newhall, a co -managing general partner at Greenspring Associates, a fund near Baltimore that invested $10 million to $20 million in Canvas. But I think theres a rath er cohesive argument for why, and what theyre planning to do. Canvas said it planned to take a selective, thoughtful approach to investments by focusing on large stakes ranging from $5 million to $15 million. Mr. Little contrasted his strategy with that of other investors that make a lot of smaller investments and then nurture the ones that do well.
pg. 14

In the past, the Morgenthaler name has been behind some big successes in technology, including Apple. Its portfolio also includes Evernote and the Lending Club. For another investor in the Canvas fund, Industriens Pensions, a private pension fund in Denmark, investments in the Morgenthaler funds have been among its best performers, according to Soren Thinggaard Hansen, the pensions head of private equity. When it came to investing in Canvas, the specialized focus was a selling point, said Mr. Hansen, who committed $20 million. Software and services is quite an attractive area, he said. Thats one of the areas where it actually pays out to be an ea rly mover.
WHOS NEWS
DEALBOOK
MARK CUBAN INVESTS IN START-UP TO CONNECT COMPANIES TO M.B.A.S September 12, 2013, 6:29 am CUBAN TAKES TIME OUT FROM HIS BATTLE WITH THE SEC OVER INSIDER TRADING CHARGES. It started with a cold call: an e-mail in July to the billionaire investor Mark Cuban, asking him for money. The company seeking the financing, HourlyNerd, had a payment due to its development firm, so it ruled out applying to appear on Shark Tank, the venture capital reality show starring Mr. Cuban, because that would take too long. To the surprise of Robert D. Biederman, a co-founder of HourlyNerd, Mr. Cuban responded about 15 minutes later. He was in. After some back and forth with Mr. Cubans lawyers, Mr. Biederman received word that the billionaire would commit $450,000, far more than the companys founders had expected. My heart kind of stopped, said Mr. Biederman, 27, who was at the gym when he received the news. It was definitely the most exciting moment of my business career. Granted, Mr. Biedermans business career is still getting going. He and his co -founders started the company in a class at Harvard Business School, where he is in his second year. The seed financing, which the company plans to announce on Thursday, totals $750,000 and includes investments from Accanto Partners and Connect Ventures. That compares with the $5,000 that the company received initially through a class at Harvard. In connection with the investment, Robert Doris, the founding partner of Accanto, is joining HourlyNerds board. Through its online marketplace, HourlyNerd puts companies in touch with M.B.A. students and graduates looking to offer consulting services part time. The company says it can offer businesses high-quality consultants at a low price, typically $25 to $75 an hour. I invested because I saw the value the service offered to many of my portfolio companies, Mr. Cuban said in an e-mail. For any number of reasons, its hard for start-ups and early-stage companies to hire great brain power. HourlyNerd allows these companies to bring in affordable expertise and pay for it only as long as yo u need it. After starting in February, HourlyNerd says it has grown to include more than 300 companies on its platform, with more than 900 M.B.A.s from a number of business schools.
pg. 15

The company whose founders include Peter Maglathlin, Joe Miller and Patrick Petitti grew out of Harvards Field 3 course, which requires students to start a company. It placed second out of 150 companies in a competition at Harvard in May, behind a company that assists in elderly care. Harvard Business School recently faced controversy when Jodi Kantor of The New York Times wrote about an experiment in gender equity at the school. The article referred to Section X, a secret society of ultrawealthy students known for decadent parties. DealBook couldnt help asking whether Mr. Biederman is a member. Unfortunately, he said, Im not cool enough. 10 WHAT WENT WRONG DEALBOOK
NEW YORK REGULATOR SEES ABUSE INCREASING UNDER NEW INSURANCE RULES September 11, 2013, 10:03 pm Several big life insurers are going to have to set aside a total of at least $4 billion because New York regulators believe they have been manipulating new rules meant to make sure they have adequate reserves to pay out claims. The development stems from contentions by insurance compa nies that states regulations are forcing them to hold too much money in reserve. Many of them have engaged in secretive transactions to artificially bolster their balance sheets, often through shell companies in other states or countries. Regulators, who want to be sure companies have enough real liquid assets to pay all claims, have struggled to find a solution that all 50 states can agree on, and decided to test a new framework of rules. On Friday, New York State plans to drop out of that agreement, according to a letter from Benjamin M. Lawsky, the financial services superintendent, to his fellow state insurance regulators. In the letter, which was reviewed by The New York Times, Mr. Lawsky said the test, which started in 2012, showed that the new framework did not work and was, in fact, making the gamesmanship and abuses in the industry even worse. The move appears to be another attempt by Mr. Lawsky to address the much broader potential problem of the life insurance industrys use of the secretive transactions. He has derided them as financial alchemy because they seem to create surplus assets out of thin air. In June, Mr. Lawsky called on other state insurance regulators to join him in blocking any more of these transactions. But other regulators said they wanted instead to keep pursuing a test of the new regulatory framework. The test covers a narrow segment of the life insurance business, but state regulators, through the National Association of Insurance Commissioners, are committed to extending the framework to all parts of the life insurance industry over the next few years. But the new framework is so loose as to be practically illusory, Mr. Lawsky said in his letter. A sample of 16 insurers in the test were expected to increase their reserves by $10 billion, he said, but instead only $668 million was added. And that was at just five of the 16 companies; the others did not report any reserve increase at all and in fact seemed inclined to reduce their reserves by about $4 billion. This cannot possibly be the compromise that we as insurance regulators had in mind, he told the other commissioners in his letter. Starting on Friday, New York will revert to its previous way of calculating reserves, at least for the type of life insurance being tested, requiring insurers that offer it to add a total of $4 billion to their reserves. Known as universal life with secondary guarantees, the insurance offers both death benefits and a cash value to policyholders. Because its design is highly flexible, it has for years been subject to questions about the amount of reserves that should back it. Leading companies that sell such insurance include Lincoln National, Genworth, Principal, John Hancock, U.S. Life and Sun Life. When asked about New Yorks move, company officials said they could not comment because they still knew little about it.
pg. 16

It was not clear what portion of the $4 billion each company would have to come up with, or how much time they would have. The total amount could ultimately be higher if regulators in other states decide to join Mr. Lawsky. People briefed on his decision said they did not expect any of the affected insurers to stop doing business in New York State but said they might start charging more for this type of policy in the future. Mr. Lawsky also said he wanted the other insurance regulators to reconsider their commitment to adopting the new framework in its entirety, given its performance on the current test. Adopting it at this point represents a potent cocktail that puts policyholders and taxpayers at significant risk, he said. Companies have been arguing for years that state insurance regulations are too formulaic, forcing them to hold far more reserves than necessary. The proposed new framework, known as principl e-based reserving, would free insurance actuaries from having to follow statutory requirements in their calculations, allowing them instead to use their own data and assumptions. While regulators grappled with the reserve question and one another, a wave of transactions washed through the life insurance industry, sweeping billions of dollars worth of business offshore, where reserve requirements are different. The transaction s, known as captive reinsurance, often involve the creation of subsidiaries, known as captives, that then sell reinsurance to their parent companies, which removes billions of dollars of policy obligations from the parents books. In recent years, some states have been promoting themselves as good places to set up captives, promising insurers an offshorestyle regulatory environment without the need to go offshore. The transactions allow insurers to do other things with their money besides locking it up to pay future claims. But as they have become widespread, concerns have grown that insurers are lowballing their reserves and adding a large amount of hidden leverage to the life insurance industry. In August, Moodys Investors Service estimated that captive reinsurance had artificially bolstered life insurers balance she ets by $324 billion. The estimate covered a much wider sector than the one being monitored by New York State and included transactions conducted throughout the life insurance industry, as well as long-term care and disability insurance. Its finding suggests that as much as 85 percent of the sectors aggregate capital and surplus is being enhanced by reinsurance through affiliated companies. Moodys noted that the transactions did vary, and that not all of them caused hidden capital shortfalls . Some insurers do not engage in them at all. The National Association of Insurance Commissioners has reacted to Mr. Lawskys June proposal with concern, saying he appeared to be giving the federal government reasons to step into the realm of insurance regulation, something the states generally oppose. The Dodd-Frank financial overhaul law created a body called the Federal Insurance Office within the Treasury Department, which has been studying state insurance regulation and is supposed to report on how current practices could be improved. Its report is more than a year overdue, but at an association meeting in late August, some officials said the report was imminent.
11
WHOS NEWS
DEALBOOK
AFTER GOLDMAN AND A BOOK, GREG SMITH EMERGES TO AID REGULATORS September 11, 2013, 3:12 pm Greg Smith created a headache for Goldman Sachs last year when he resigned from the firm through a harshly worded Op-Ed article in the pages of The New York Times. Now it appears that Mr. Smith is back on Wall Streets case. But this time, hes helping regulators draft rules intended to rein in risky trading.
pg. 17

Mr. Smith met with officials at the Securities and Exchange Commission in August to talk about the Volcker Rule, a regulation stemming from the Dodd-Frank financial overhaul that would limit banks ability to trade for their own accounts. The meeting was first reported Tuesday evening by Politico. Armed with a five-point agenda, Mr. Smith advised the regulators not to trust Wall Streets claim that the Volcker Rule would cause liquidity to dry up, according to an S.E.C. memo. He also emphasized the importance of regulating certain arcane financial products where the vast majority of money gets made in the trading business. Mr. Smiths agenda touched on some of the central debates surrounding the regulation, like the difference between market making when a bank facilitates trading by customers and proprietary trading, or trading that puts the banks own capital at risk. But it also suggested a possible second act for Mr. Smith, who wrote a book last year after his Times essay made him briefly the talk of Wall Street. Mr. Smith gave media interviews after the publication of the book Why I Left Goldman Sachs: A Wall Street Story discussing what he saw as a culture of greed with little regard for clients. Word of his meeting with the S.E.C. caused an online stir on Wednesday. Matt Levine, a former Goldman employee who writes for Bloomberg View, had this comment: Who better to tell you how to write the Volcker Rule than a disg runtled former midlevel derivatives salesman? Lots of people, probably!
Former Goldman Sachs Ping-Pong Star Is Keeping Busy, read the headline on Mr. Levines post, a nod to Mr. Smiths table tennis prowess. The news also lit up Twitter, where the wise cracks were plentiful: Ohgoodlord, Greg Smith back to semi-relevance: Former Goldman Sachs Ping-Pong Star Is Keeping Busy http://t.co/vi4JGzeb70 via @BloombergView Tobin Harshaw (@tobinharshaw) 11 Sep 13 SEC starving for info on mrkt practices @TonyFratto: @cate_long Weird to me that theyd meet with Greg Smith on Volcker. @counterparties Cate Long (@cate_long) 11 Sep 13 And just when you think Greg Smiths 15 minutes are over, the former Goldman employee meets with the SEC http://t.co/LwTNp88tLG $GS Katy Finneran (@KatyFinneran) 11 Sep 13 SEC should probably just hire Greg Smith. Probably dont have to worry about the revolving door with his past. http://t.co/6ZUtQiWdpj Nick (@9Joe9) 11 Sep 13
12
BIG BANKS
BLOOMBERG
JPMORGAN REMOVES LENDING BARRIERS IN BOOMING U.S. MARKETS By Prashant Gopal, Heather Perlberg and Dakin Campbell - Sep 11, 2013 JPMorgan Chase & Co. (JPM), the nations largest bank by assets, is easing mortgage lending standards in housing markets hard hit by the crash where prices are surging.
pg. 18

The bank lowered some down payment requirements in Florida, Nevada, Arizona and Michigan because they will no longer be considered distressed states, it informed smaller lenders it buys lo ans from in July. The second-largest U.S. mortgage lender also loosened underwriting requirements for a refinancing program for Federal Housing Administration borrowers. As the economy rebounds and home values climb at about the fastest pace since 2006, lenders including the largest, Wells Fargo & Co. (WFC), JPMorgan, Bank of America Corp. (BAC), and mortgage insurers are easing the tightest credit conditions in two decades, lifting restrictions put in place after the worst real estate bust since the Great Depression. Banks are being forced to compete harder for customers after a spike in borrowing costs from near-record lows slowed refinancing by more than 70 percent and curbed what had been record profits. Historically, you make underwriting as tough as possible when people are lined up at the door and when the lines go away, you start loosening underwriting to get people back, said Guy Cecala, publisher of Inside Mortgage Finance. FED SURVEY. More than 10 percent of banks reported they loosened standards on prime or low-risk residential loans in recent months, according to the Federal Reserves July survey of senior loan officers. The average FICO score for cl osed loans fell to 737 in July, the lowest level since at least August 2011, according to data compiled by Pleasanton, California-based Ellie Mae. Borrowers loan-to-value and debt-to-income ratios also increased from May, signaling lenders are willing to accept more risk to maintain volume. Wells Fargo (WAC), which originated about 1 in 4 U.S. home loans in the first half of the year, has relaxed certain credit standards and is requiring borrowers to put up less equity to buy high-priced homes. The San Francisco-based bank began, on July 13, to offer nonconforming loans with a loan-to-value ratio of 85 percent, up from 80 percent, according to Tom Goyda, a bank spokesman. That means borrowers have to come up with less equity to get financing. The terms on the loans, which are too large for purchase by Fannie Mae (FNMA) and Freddie Mac, apply for new home purchases and refinancing, and dont require mortgage insurance, Goyda said in an e -mail. TOTAL PICTURE. Getting approved for a home loan hinges on a borrowers total financial picture, Goyda said in an e-mailed statement. We are always evaluating our credit standards in light of market conditions and trends. Goyda declined to provide further details on where Wells Fargo has eased underwriting restrictions. JPMorgan removed a minimum 640 credit score requirement for the FHAs s treamlined refinancing program in May, enabling more borrowers to get new home loans at lower interest rates, according to spokeswoman Amy Bonitatibus. Banks are trying to lure more borrowers as mortgage applications plunged last week to a five-year low. Refinancing dropped more than 20 percent, the lowest since June 2009. The industry benefitted from record profit margins last year, when refinancing accounted for 76 percent of last years $1.75 trillion in loan originations. JPMorgan Chief Executive Officer Jamie Dimon told investors in July that rising interest rates could trigger a dramatic reduction in the banks mortgage profits after mortgage fees and related revenue at the bank dropped 20 percent to $1.82 billion in the second quarter, compared with $2.27 billion a year earlier. ELIMINATING JOBS. An increase in lending for home purchases wont be enough to replace a drop in refinancings, JPMorgan Chief Financial Officer Marianne Lake said in a presentation at an investor conference this week . The banks pretaxprofit margins and income on mortgage lending will be slightly negative in the third and fourth quarters as the firm takes time to adjust its fixed costs. The firm is eliminating as many as 19,000 jobs in its mortgage and community-banking divisions through 2014 as Dimon trims expenses, JPMorgan said in February. We continuously review our lending standards to help families buy homes they can afford over the long term, Bonitatibus sai d. We have responded to improvements in the housing market by removing some additional requirements we put in place in hard-hit markets during the crisis.
pg. 19

Bank of America has been easing underwriting standards in markets it designated as soft in certain parts of the country as the housing market improves, said Kris Yamamoto, a company spokeswoman. LOOSENED CREDIT. Since Federal Reserve Chairman Ben S. Bernanke indicated the central bank may slow its purchases of government and mortgage bonds, the average rate on 30-year home loans has risen more than 1.2 percentage points after hitting a low of 3.35 percent in May, according to Freddie Mac data. Loosened mortgage credit would offset some of the impact of rising rates, which make homeownership more expensive, said Jed Kolko, chief economist at San Francisco-based property-listings service Trulia Inc. Because rates are rising, demand for refinancing has plummeted and some banks have suggested that would open up capacity for home-purchase lending. The U.S. homeownership rate fell to 65 percent this year, its lowest level since 1995, according to Census Bureau data, as fewer people were able to qualify for a mortgage. Banks are starting to ease credit with home prices across the country rising 12.1 percent in June from a year earlier, according to the S&P/Case-Shiller index of 20 cities. CASH BUYERS. Prices in some of the hardest-hit markets have rebounded faster. Las Vegas gained 24.9 percent, Phoenix showed a 19.8 percent increase, Detroit rose 16.4 percent Miami-area values were up 14.8 percent. Private-equity firms such as Blackstone Group LP building rental businesses and other cash buyers have helped lift house prices in cities showing some of the biggest gains. Their mass purchases have made it more difficult for borrowers seeking mortgage financing, as they compete for a shrinking supply of properties. In Florida, lenders including JPMorgan and mortgage insurers this year removed many of the additional requirements that had helped to push the share of cash buyers above 45 percent in the second quarter, said Rob Nunziata, co-Chief Executive Officer of FBC Mortgage LLC. FLORIDA DOWN PAYMENTS. JPMorgan decreased the minimum downpayment on mortgages made in Florida for primary residences to 5 percent from 10 percent and down to 10 percent from 20 percent for second homes, according to Bonitatibus. Those restrictions have handcuffed Florida buyers, Nunziata said, also referring to mortgage insurers and banks. When you had restrictions telling buyers they had to put down an extra 5 to 15 percent in some cases, that eliminated a lot of potential buyers from qualifying. Mortgage insurers that restricted coverage during the housing crisis, including MGIC Investment Corp. (MTG) and Genworth Financial Inc. (GNW), have eased underwriting guidelines this year as the market improves. During the crash, borrowers in California, Florida, Nevada and Arizona needed a credit score of at least 700 and could have a maximum loan-to-value ratio of 90 percent to qualify for mortgage insurance with MGIC, said Sal Miosi, vice president of marketing at the Milwaukee-based firm. ADDED COMPLEXITY. Last month, the third-largest U.S. mortgage insurer limited rules so borrowers whose loans qualify for purchase by Fannie Mae or Freddie Mac with credit scores of at least 620 and a loan-to-value ratio up to 97 percent can get insurance coverage, according to Miosi. Additional restrictions werent contributing to the credit quality, they were just adding to complexity, he said. Genworth Financial Inc., the fourth-largest mortgage insurer in the country, broadened credit guidelines in the first quarter of 2013 and reduced pricing, Rohit Gupta, chief executive officer of the companys U.S. mortgage insurance business, said in an emailed statement. Banks are still taking a cautious credit posture, according to David H. Stevens, CEO of the Mortgage Bankers Association.
pg. 20

Youre starting from a very narrow market, so any expansion wouldnt go near the reckless lending practices of the early 2000s, he said. Were in the most conservative overall credit environment for housing finance that weve seen in almost three decades. RISKY LENDING. A decrease in access for interest-only loans and those with terms longer than 30 years led to a slide in a Mortgage Bankers Association measure of loan availability last month. Those types of loans are less attractive to banks as planned rules created by the Consumer Financial Protection Bureau to curb abusive or risky lending kick in next year. Credit has been loosening faster for the wealthiest Americans, since bigger loans are mostly put on bank balance sheets instead of packaged into securities that get sold to investors. Applications for jumbo mortgages of at least $729,000 increased 59 percent in the first four months from a year earlier. Loans of less than $150,000, fell by 2.1 percent, according to the MBA. President Barack Obamas administration has been pushing to expand homeownership opportunities as families rebuilding from the recession face some of the tightest underwriting standards. The president last month introduced new housing reforms targeted at middle-class communities. Borrowers with foreclosures or bankruptcies resulting from a job or income loss can now finance a home purchase with an FHA mortgage as long as they demonstrate 12 months of timely payments, complete housing counseling and otherwise qualify. The FHA, a government mortgage insurer, previously required a three-year wait. More than 7 million houses have been sold for a loss or lost to foreclosure since 2007, according to RealtyTrac. The reaction post-bust was a bit extreme but were returning to more prudent underwriting standards, said Erin Lantz, director of mortgages at Seattle-based Zillow Inc.
13
WHAT WENT WRONG
BLOOMBERG
RBS SUED BY WESTLB BAD BANK OVER CPDO DEAL THAT LOST $42 MILLION By Kit Chellel - Sep 12, 2013 Royal Bank of Scotland Group Plc was sued by the successors of WestLB AG for allegedly misleading the failed German lender in a 2007 derivatives investment that lost more than 60 percent of its value. WestLB lost 31.7 million euros ($42 million) on a 50 million-euro deal linked to constant proportion debt obligations created by RBSs ABN Amro unit, Erste Abwicklungsanstalt and Portigon AG, the two entities that control the remnants of the bank, said in court documents filed Sept. 6 in London. The triple A-rated instruments were considerably riskier than advertised, while ratings companies assessed them using faulty models provided by ABN, according to the claim. Portigon is helping EAA sell Dusseldorf, Germany-based WestLBs holdings and wind up its operations. CPDOs, leveraged vehicles that comprised default insurance linked to company indexes, lost almost all their value after the 2008 collapse of Lehman Brothers Holdings Inc. caused the price of underlying credit-default swaps to fall. Banks have been sued over a variety of products that faltered after the crisis, ranging from interest-rate swaps to mortgage-backed securities. Twelve Australian towns lost more than 90 percent of what they invested in ABN Amros Rembrandt notes, and won A$20 million ($18.5 million) in damages after suing ABN and McGraw Hill Financial Inc. (MHFI)s Standard & Poors for misleading them.
pg. 21

The notes, and the rating assigned to them, were an ABN creation and ultimate liability for the wholesale failure of the notes rests with ABN and RBS, Sean Upson, a lawyer for EAA and Portigon, said in an e -mailed statement. CEASED OPERATIONS. WestLBs push into international investment banking ended when the European Union ordered it to cease operations last year as a condition for 17 billion euros in aid. EAA is a state-backed entity winding down and selling WestLBs assets. Portigon is a service and po rtfolio management provider to EAA and other parties. CPDOs valued at more than $4 billion were sold by banks from 2006 through 2007, according to data compiled by CreditSights Inc. RBS bought Amsterdam-based ABN Amro Holding NV for 72 billion euros in 2007. Sarah Small, a spokeswoman for the bank, declined to comment on the suit. The case is: Erste Abwicklungsanstalt (Anstalt des offentlichen Rechts) & Anr v. The Royal Bank of Scotland Plc & Ors, High Court of Justice, Chancery Division, HC13A01413.
14
RULE NEWS
BLOOMBERG
U.K. BANKS FACE $79 BILLION CAPITAL BOOST IN FUTURE RULES By Ben Moshinsky - Sep 12, 2013 The eight biggest U.K. banks may need to boost capital levels by 50 billion pounds ($79 billion) or shrink their balance sheets by 20 percent to meet tougher international rules in the future, a report said. Regulators may require banks to meet a higher 5 percent leverage ratio, guidelines on transparency and tougher rules on how they weight assets for risk in the next round of capital regulations set by the Basel Committee on Banking Supervision, once the current standards are put in place by 2019, New York-based accounting firm KPMG said in the report. Even before Basel III is fully implemented, Basel IV may be emerging from the mist, KPMG said in the report. International banks have raised about $500 billion in capital in the aftermath of the financial crisis and fall of Lehman Brothers Holdings Inc. five years ago and are moving closer to complying with global capital rules known as Basel III, Mark Carney, chairman of the Financial Stability Board and governor of the Bank of England, said in a speech last week. Global banks had core capital reserves averaging about 9 percent of their risk-weighted assets at the end of 2012, more than the 7 percent required under the updated standards, the Basel committee said in a report last month. The minimum ratio of equity to debt, known as the leverage ratio, is 3 percent. The outlines of Basel IV are already becoming visible, five years before the technical implementation deadline for Basel III, Giles Williams, a financial services partner at KPMG, said in the statement. Care needs to be taken that the banks are not b eing asked to do too much too soon. RELENTLESS LOBBYING. Sheila Bair, the former chairwoman of the Federal Deposit Insurance Corporation, told Bloomberg Television yesterday that banks should be subject to a minimum leverage ratio of 8 percent. The level of bank lobbying of regulators on the leverage ra tio has been disheartening and relentless, Bair said. International standards set by the Basel committee require banks to meet minimum capital requirements, measured as a percentage of their assets. The amount of capital that must be held is linked to the riskiness of the assets, with large banks allowed to use their own models to calculate the likelihood of losses. This process is known as risk-weighting.
pg. 22

The Bank of England in June ordered the five largest U.K. lenders, including Barclays Plc, Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc, to plug a 13.4 billion-pound capital shortfall by the end of the year. The Basel committee brings together bank regulators from nations including the U.K., U.S. and China.
15
WHOS NEWS
BLOOMBERG
BOFAS ROBERTS SAID TO BE NAMED GLOBAL HEAD OF RATES TRADING By Hugh Son - Sep 12, 2013 David Sobotka, who became Bank of America Corp. (BAC)s sole chief of fixed -income trading yesterday, named Will Roberts head of global rates and structured credit, said three people with knowledge of the move. Roberts, 45, spent five years at Goldman Sachs Group Inc. until 2008 and joined Bank of America in 2011 to work with his former boss, co-Chief Operating Officer Thomas K. Montag, said the people, who asked not to be identified because the change hasnt been announced publicly. He will be in charge of sovereign debt, swaps and rate -options trading. Sobotka oversees a business that generated 13 percent of Bank of Americas revenue in 2012. He becomes head of fixed-income, currency and commodities trading after co-leader Gerhard Seebacher said he would leave at the end of the month, the people said. Sobotka reports to Montag, the former Goldman Sachs trading head who became Bank of Americas co -chief operating officer in 2011. Roberts was head of structured credit at New York-based Goldman Sachs and led counterparty portfolio management at Bank of America, the people said. The Charlotte, North Carolina-based firm is the second-biggest U.S. lender by assets. The appointment is the latest change under Sobotka. He named James DeMare head of global mortgages and securitized products after Michael Nierenberg joined Fortress Investment Group LLC, according to a memo obtained by Bloomberg News. 16 Category:
HANK PAULSON CONTINUES HIS PURSUIT OF REDEMPTION 5 YEARS AFTER SERVING AS TREASURY SECRETARY DURING THE CREDIT CRISIS. THIS TIME, HE ADMITS TO HAVING SOUGHT DEVINE GUIDANCE WHEN DEALING WITH THE COLLAPSE OF LEHMAN BROTHERS. LEHMAN BROTHERS ABYSS HAD PAULSON SEEKING PRAYER AMID CRISIS By Henry Paulson, as told to Joe Berlinger and Josh Tyrangiel - Sep 12, 2013 People werent taking Dick Fulds calls the weekend before Sept. 15, because Dick had been in denial for a long t ime. As the chief executive officer of Lehman Brothers, he had asked the New York Fed and the Treasury weeks earlier to put capital into a pool of nonperforming illiquid mortgages that he wanted to put in a subsidiary he called SpinCo and spin off. We had explained that we had no authority to do that. He thought somehow there was something the government could do to help. How could it be that no one would want to buy his company? He just couldnt believe it. I was one of the few people speaking with him, and I told him what was happening: We couldnt find a buyer, and without one, the government was powerless to save Lehman. He was devastated. You would have to be a CEO to really understand what he was going through. He obviously loved the firm -- viewed it as his firm -- and to have it go down when youre at the helm, there cant be much thats more devastating than that professionally. But the Lehman Brothers bankruptcy on Sept. 15 was hardly the end of the crisis. It wasnt the beginning, either.
pg. 23

BUSINESS SCHOOL. My goal had never been to go to Washington. My first year at Harvard Business School, 1969, I stopped studying. I was a good enough student that I could get by, so I spent most of my time at Wellesley College with Wendy Judge and persuaded her to marry me before the second year. Wendy got a job teaching swimming in Quantico, Virginia, so I got a job at the Pentagon. The only time I had ever worn a suit was to go to church. The only management experience I had was at a summer camp in Colorado. But, remarkably, I worked on my first bailout in those days. Lockheed (LMT) was a major defense contractor on the verge of bankruptcy, and the Nixon administration had gone to Congress to get a loan guarantee. I frankly didnt think the government sho uld intervene. The parts of Lockheed which were critical to the national defense could have been bought by other defense contractors, but this was hotly debated. Even then, bailouts were very unpopular. ASK QUESTIONS. As a result of the work I had done on Lockheed, I was approached by the White House. I went to work for a man named Lewis Engman, an assistant director of the White House Domestic Council. I was very green. I had a lot of questions, and Lew was a good mentor. He said, If someone asks you to do something, and it doesnt seem right, ask lots of questions. And any memo you write, ask yourself not only is it the right thing, but how would it look printed on the front page of the Washington Post. I had started work in the Nixon White House in April 1972, just a few weeks before the Watergate breakin. That was terrific advice. It was not hard for me to decide to leave government. In January of 1974, when I joined Goldman Sachs (GS), it never occurred to me I might one day run the firm. If you were interested in management and running a big organization, you went to some industrial company. You didnt work for an investment bank. I picked Goldman Sachs because I was really interested in the ide a of multitasking, working, and advising clients in a lot of industries. EVERYONE FLAWED. Early on at Goldman Sachs someone said, Hank isnt that smart. What he really does is just assimilate and absorb information from others. I took that as a huge compliment. I worked with many CEOs there, som e really good, some not so good. I worked and advised heads of state, government leaders. What I learned was that theres no perfect leader. Everyone is flawed, and their strengths are usually the opposite of their weakness. Hank is candid; Hank is indiscreet. Hank is decisive; Hank acts too quickly. The essential ingredient to the success of these CEOs was the team they put around them. If you dont put people around you t o compensate for your flaws, these big jobs always uncover them. I had turned down being secretary of the Treasury twice in the spring of 2006 when I was approached a third time in April of that year. I accepted. I didnt really know President Bush, and I had negotiated a number of conditions to my coming, includi ng choosing my staff. But those preconditions would mean nothing if I couldnt build a relationship with the president. And I had a terrific boss in George Bush. WARTIME GENERAL. During the financial crisis he basically said, Youre my wartime general, and you can g et to me whenever you need to. Well talk about any issue. And we did. I also was very fortunate to have great partners in Ben S. Bernanke and Timothy Geithner, and our efforts benefited from an extraordinary level of trust and cooperation. In July of 2006 the president was meeting with his economic team at Camp David. He had asked me to make a presentation on entitlement reform. Instead I asked for permission to talk about my concerns that there were real excesses in the economy. The excesses had been building up for many years, and I thought there was a high likelihood there would be a financial crisis while I was in Washington and while he was president. I talked about the over-the-counter derivative market and the lack of transparency there. I talked about the size of hedge funds. I didnt talk about housing. When we finished the conversation, the president said, Hank, what would cause the financial crisis? I said, I dont know, sir. But after it happens, with 20/20 h indsight it will be obvious. MORTGAGE SECURITIES. I had been in Washington for a year when the causes began to reveal themselves. The biggest French bank, BNP Paribas (BNP), had funds that held subprime-related mortgage bonds. Three of those funds were frozen. There were calls for redemption, and there was a liquidity crisis. This led to massive concern across Europe. From that time on we were on high alert.
pg. 24

The presidents working group on financial markets convened and focused immediately on the complexity of mortgage securities. It used to be that if I wanted a mortgage on my home, which I did in 1974, I went to the First National Bank of Chicago. If I had problems, I could have gone to them, and if there was a reasonable solution we could have done a mortgage modification. But the model had changed. We had gone to a securitization model. UNSCRUPULOUS BROKERS. Mortgages were sliced and diced, packaged in securities, and then sold in the public market around the world. Along with innovation came complexity, and complexity is the enemy of transparency. I had high school friends and grade school friends that got put into mortgages by unscrupulous brokers. Some lost their houses, and I spent time with them and looked at what they had been conned into accepting -- they didnt understand what they were signing on for. It was despicable. As we moved into 2008, we had a number of U.S. institutions fail. Countrywide, the biggest originator of mortgages, was bailed out with an equity investment from Bank of America. Citibank, Merrill Lynch, Lehman Brothers, and Morgan Stanley all had trouble with their mortgage portfolios. None of us understood the full extent of what we were dealing with. On March 13, Bear Stearns told us that without assistance they would fail the next day. Theyd lost $2.4 billion the previous year in bad mortgage investments. I figured somewhere in the United States of America there had to be some emergency authorities to prevent a failing investment bank from going into the normal bankruptcy process. But the Fed had no authority to guarantee liabilities or inject capital. Neither did Treasury. We needed a buyer. $2 SHARES. JPMorgan was willing to step in, supply the capital, and guarantee the trading book, but the Fed had to help facilitate that through a loan against a mortgage pool which was relatively illiquid. The original agreement was for the Bear shareholders to get $2 a share, and in order to get the deal done, they needed to get $10 a share. A question I often get is, Didnt that create a moral hazard? The argument goes something like this: If market participants presume that a government is always going to step in to save a failing institution, then those market participants will not subject that institution to the kinds of rigorous analysis and scrutiny that is needed. I had argued that the shareholders of Bear Stearns shouldnt get more than $2 a share, and that argument was less about moral hazard than what was right. GREATER GOOD. If the United States of America through the Fed was making a loan to prevent a bank from failing, why should shareholders get more money? Ben Bernanke and Tim Geithner argued that the greater good was preventing the failure. So I agreed to the terms. But initially I found it abhorrent. The market turned almost immediately to Lehman Brothers, and after Bear Stearns, I was doing everything I could to encourage Dick Fuld to raise capital, to attract a strategic investor, or to sell the company. Meanwhile, Ben and I went to see Barney Frank. We needed emergency resolution authorities to keep failing investment banks out of bankruptcy, just like the government had with commercial banks. Barney said, We wont be able to get Congress to act unless youre prepared to shout, If we dont ge t these authorities, youre going to have an investment bank like Lehman Brothers fail and the consequences will be terrible. Of course, as soon as we started saying that, Lehman would have gone down. FANNIE, FREDDIE. Fannie Mae and Freddie Mac were created to make homeownership more affordable by subsidizing 30-year mortgages. Fannie Mae was set up in 1938, right after the Great Depression, Freddie Mac in 1970. These were government-sponsored entities, or GSEs. They had noble objectives; they also had major flaws. The first was that, although they were not owned by the government and although there was no explicit government guarantee, the market assumed that the United States was behind them. There was an implicit guarantee, even though the government said there wasnt. The second major flaw was they had weak regulation. Congress in its wisdom, or in this case lack thereof, had deprived the regulator of the same broad powers that a banking regulator had to make judgments. On top of all that, these were megainstitutions, nine times larger than Lehman Brothers. They had grown and grown and grown. The elephant was clearly too big for the tent.
pg. 25

Their independent regulator argued that they had plenty of capital, but we watched them in the market every week selling up to $20 billion of debt securities. If they hadnt been able to sell their securities, it would spook investors, and you would get massive selloffs and big price declines and losses by all those holding their securities. If they totally collapsed, you would have Armageddon. EMERGENCY AUTHORITY. In July we went to Congress to get emergency authorities to deal with this threat -authorities we hoped wed never have to use. But by mid -August, we had discovered that the GSEs had a large capital deficiency. After considering a number of options we concluded that we needed a plan where we actually took over the companies on a Sunday so we could open up Monday under new management. One of the CEOs called me and said, Hank, whats going on? I said, I cant tell you. I knew what they would be compelled to do if I talked to them. There is no way those CEOs or boards could agree with anything that undermined their shareholders, because they had a fiduciary duty to protect their shareholders interests. So there was no choice but to move quickly to put them into conservatorship, where, in essence, the government backstopped all of their debt securities. KEEPING SECRETS. When I briefed President Bush on this, he was fascinated. But he had a hard time believing we were going to be able to keep this secret. I said, The first thing these guys need to hear is their heads hitting the floor. Right after stabilizing Fannie and Freddie, on Sept. 7, it became clear that Lehman was going to be under real pressure from investors. Most of the market participants were watching nervously, but expecting Uncle Ben and Uncle Hank would pull a rabbit out of the hat. We needed something dramatic to focus peoples attention on the seriousness of the problem. Ben, Tim, and I decided to bring the heads of the major Wall Street firms into the New York Fed on a Friday to let them know the Fed had no authority to guarantee debt or put in capital, and that the government wasnt going to be there because a loan to a disintegrating investm ent bank in the midst of a run wouldnt be successful. We needed a buyer, and we needed these banks to assist the buyer if necessary. Frankly, I thought we were going to need two buyers that weekend, because I had a very strong view that whether Lehman failed or was bought, the market was going to turn immediately to Merrill Lynch. NO DEAL. That entire weekend was spent going from one meeting to the other while we talked with BofA and Barclays (BARC), hoping to get a transaction for Lehman Brothers. Sunday morning we came in expecting there to be a deal with Barclays, but we got signs that their U.K. regulator would reject the deal. That was just a terrible moment for me. Everyone was waiting for Tim and me to come down and report to them, and I wasnt quite sure what to say. I was gripped with fear. I called Wendy and said, Wendy, you know, I feel that the burden of the wor ld is on me and that I failed and its going to be very bad, and I dont know what to do, and I dont know what to say. Please pra y for me. She went immediately to one of our favorite Bible verses in Second Timothy: For God hath not given us the spirit of fear, bu t of power and of love and of a sound mind. Immediately I felt a sense of peace and renewed confidence. I thanked her and went down to talk to the bankers. We were fortunate that Bank of America bought Merrill Lynch. If they had bought Lehman instead, I believe that Merrill would have failed. That would have been even more harmful. CHANGING LIVES. I remember waking up very early the morning of Sept. 15 in New York and looking out the window at all the people on the street walking to work. Some Im sure worked at Lehman. Some worked at other banks. Others didnt work at any bank. But their lives were about to change in very profound ways. Lehman intensified the crisis -- it was a symptom, not the cause. I dont subscribe to the domino theory when it comes to Lehman. My former colleague, Ed Lazear, had a line thats more apt: The crisis was like a giant popcorn poppe r, and it had been heating these kernels for a year as the crisis went on. Lehman might have been the first to pop, but we knew that weekend that Merrill Lynch and AIG were going to pop next, and many others in the U.S. and Europe were not far behind.
pg. 26

MULTIPLE PROBLEMS. That week was like no other week Ive ever had. We were dealing with multiple problems -the need to prevent the failure of AIG, the likely impending failure of other financial institutions, the need to prevent the implosion of money-market funds, and the need to go to Congress to request emergency authorities. We had been working all week on how to request what we needed from Congress. At the heart of it was the ability to buy illiquid assets from financial institutions. We were talking in terms of hundreds of billions of dollars. It was Thursday evening, Sept. 18, when Ben Bernanke and I met with the congressional leaders. So far many of them had not seen the financial crisis. It hadnt rippled through to their constituents. Ben an d I painted a picture of a financial system which was frozen. Banks werent lending to each other. Credit wasnt flowing normally. I could see 25 percent unemployment, which i s what we had after the Great Depression. There was going to be a disaster if we didnt act immediately. VERY EMOTIONAL. At the end of the week when I came up for air, it occurred to me I hadnt talked to my best friend, my brother Dick. Dick was then a senior vice president, a veteran fixed-income salesman in the Chicago office of Lehman. I called, and he immediately started asking about me. He was very, very worried, because he knows that I take things hard. I told him I didnt really have time to go into an explanation, but that we had done everything we could to save Lehman. He said, I know it. He wasnt asking about what was happening to his stock or his retirement. He focused on me. I was quite emotional, but I didnt have much time to be emotional. Nine days later, on Saturday, Sept. 27, it looked like we were going to get a deal done in Congress to create the $700 billion Troubled Asset Relief Program. But negotiations bogged down and extended late into the night. DRY HEAVES. Now all my life, if Im really exhausted, I get the dry heaves. It sounds like Im really sick, because I make a lot of noise. Rahm Emanuel came by. Harry Reid offered to get a doctor. I said I didnt need it. I play tennis with We ndy, and a couple of times in the hot sun Ive had the dry heaves. Our opponents thought it was a tactic. Wendy would say, Hey, get back out here. Thats disgusting. Of course, it would throw the other people off. In this instance it wasnt a tactic, but I know that it helped accelerate things. At least I thought it had. On Monday the House voted down TARP. Barney Frank, attempting to cheer me up, said, Dont worry, Hank. Sometimes kids have to run away from home and get hungry before they come back. TARP did pass on a second vote, but all week that TARP was passing, the situation was worsening in the markets: Washington Mutual, the largest U.S. savings and loan, failed; Wachovia, the sixth-largest bank, was purchased as it was failing; European banks were teetering; and global credit markets had all but stopped functioning for financial institutions. CHANGING STRATEGIES. We had gone to Congress with the expectation that we would be buying illiquid assets, but it was clear we needed to do something swifter and even more powerful. So we changed strategies and decided to inject capital directly into the banks. My own view has always been to admit when youre wrong and change course quickly. I didnt have to have long debates with the White House staff about how bad the harm to the economy would be if the financial system went down. President Bush had a good feel, and he understood markets. He basically said, Holy cow, youve told the whole world youre going to buy illiquid assets. Its going to be important how you explain it, but of course youve got to put capital in the banks. The best advice he gave me was to do whats right and ignore politics. Sunday, Oct. 12, I called nine CEOs from the systemically important banks and asked them to show up at Treasury on Monday afternoon. We would present the program and ask them within a few hours to sign agreements where they would willingly take the capital. TALLEST MIDGET. Every bank wanted to be the tallest midget: No one wanted to admit they had a problem because they didnt want to stigmatize themselves. So we designed a program that didnt separate the h ealthy banks from the banks under duress, and we moved quickly to inject capital into hundreds of banks to recapitalize our financial system and restore confidence.
pg. 27

The only way we knew to do this was to put forward a program that would be attractive to the financial institutions, so they all would be encouraged to take capital for the good of the country. This was a program unlike any other in history. All of the banks agreed, and for a short period of time, I breathed a sigh of relief. The way I read the polls, TARP was more unpopular than torture. We dont like bailouts in this country. If you take a risk and make money? Thats good. But if you take a risk and the government has to come in and save you? Well, I understood the anger. I was never able to convince the American people that what we did with TARP was not for the banks. It was for them. It was to save Main Street. It was to save our economy from a catastrophe. PUBLIC ANGER. I knew Americans were angry when they thought the banks were hoarding and not lending as much as they would have liked. But how does the government make the banks lend? Even if you nationalize the banks, which we didnt, do you want the government making lending decisions for the banks? Thats a recipe for disaster. The other criticism of TARP, just the man-on-the-street feeling about it, was that in addition to not lending, huge bonuses were being paid to some bank executives. That infuriated me -- the sheer cheekiness of it. Forget whether they were legally entitled to their bonuses, it was such a graceless lack of self-awareness and a total lack of understanding about how the rest of the world and the rest of America looked at them. BIPARTISAN WORK. One of the things that Im proudest of is that we worked with Democrats and Republicans to get Congress to do some pretty extraordinary things -- twice. First with Fannie and Freddie and then with TARP, all before the system collapsed. The Obama administration took those programs, managed them well, and adapted them to market conditions. We had policy continuity across administrations, and the programs we left them worked. When we look at our flagship TARP bank and insurance company capital program, all the money has come back plus $32 billion. Excluding the Obama administrations spending program for mortgage relief, the Treasury has already received more than it dispersed from all TARP investment programs. I get asked all the time, Whats the likelihood of another financial crisis? And I begin by saying its a certainty. As long as we have markets, as long as we have banks, no matter what the regulatory system is, there will be flawed government policies. Those policies will create bubbles. They will manifest themselves in a financial system no matter how its s tructured and how its regulated. But the key thing is to have the tools and the political will to act forcefully to limit a crisis. Now a number of things that we were forced to do during this crisis made the problem worse, beginning with big banks. To get through the night we needed to encourage consolidation, so today we have bigger banks and more concentration. UNACCEPTABLE PHENOMENON. Too-big-to-fail is an unacceptable phenomenon. Thanks to Dodd-Frank, regulators have better tools to deal with the failure of any large financial institution, but more still needs to be done with the shadowbanking markets, which I define to be the money-market funds and the so-called repo market, which supplies wholesale funding to banks. When I came to Washington, Fannie or Freddie guaranteed or insured roughly half the new mortgages in America. Today about 90 percent of all new mortgages are insured by the government. So today its worse. I frankly find it abhorrent to even think about keeping Fannie or Freddie in conservatorship. If we do so, were just sowing the seeds of a future crisis. But overall, do I believe that our financial system is stronger, better capitalized, and better regulated? I sure do. And at the end of the day, more capital is the best defense against bank failure.
17
WHOS NEWS
BLOOMBERG
CREDIT SUISSE NAMES STROBAEK, JAIN TO REPLACE FUSENIG
pg. 28

By Elena Logutenkova - Sep 12, 2013 Credit Suisse Group AG (CSGN) said Gerhard Fusenig, who headed part of its asset management business, will leave Switzerlands second-largest bank. Fusenig, 49, will retire to spend more time with his family, Hans-Ulrich Meister and Robert Shafir, who head the private banking and wealth management division, said in a memo to staff today. Fusenig will stay for several weeks to ensure a smooth transition, according to the memo. Marc Dosch, a spokesman at Credit Suisse in Zurich, confirmed the contents. Credit Suisse Chief Investment Officer Michael Strobaek, who co-headed management of assets on a discretionary basis together with Fusenig, will take over sole responsibility for the unit, according to the memo. Bob Jain, who oversees alternative investments, will head core investments, which includes equities, fixed income, real estate and index solutions on top of his current duties, it said. Credit Suisse managed 390.7 billion francs ($421 billion) in assets, including 110 billion francs in the discretionary business, called multi asset class solutions, at the end of June. The company last year decided to combine asset management with private and corporate banking to improve profitability.
18
REGULATORS & POLITICIANS
BLOOMBERG
CORDRAY SAYS LENDERS READY FOR COMPLIANCE WITH MORTGAGE RULE By Carter Dougherty - Sep 12, 2013 Mortgage lenders will be ready to follow a new underwriting rule that takes effect in January, the director of the Consumer Financial Protection Bureau, Richard Cordray, said today. Most of the institutions have told us that they will be in compliance, Cordray said at a hearing of the House Financial Services Committee in Washington. As part of its overhaul of mortgage rules in the wake of the 2008 financial crisis, CFPB finalized a regulation in January, to take effect one year later, that imposes new mortgage underwriting requirements on lenders. In exchange, they can receive a measure of protection from lawsuits associated with loan origination. Among the requirements of the qualified mortgage rule, as it is called, is that lenders take certain steps to confirm a bo rrowers ability to repay the mortgage. The rule will apply equally to banks such as Wells Fargo & Co. (WFC) and JPMorgan Chase & Co. (JPM) that originate mortgages, and non-bank lenders such as Ocwen Financial Corp. (OCN) and Nationstar Mortgage Holdings Inc. (NSM) Smaller banks have complained that the rule is burdensome enough to drive them out of mortgage lending. Cordray stressed that there are exemptions that often apply to them. For example, if a bank keeps a loan in its portfolio and has less than $2 billion in assets, the loan is automatically a qualified mortgage. Many of them dont seem to fully appreciate that, Cordray said. Later he added, it would be a bad business decision if the y left that money on the table and did not make those loans. Some Democrats who support the CFPB also raised the issue of the regulatory burden associated with the qualified mortgage rule. Paperwork is a nebulous term until you see what paperwork means to a smaller bank, Representative Al Green, a Texas Democrat, told Cordray.
pg. 29

19 EQUITY MARKETS BLOOMBERG via TRADERS MAGAZINE
SEC'S WHITE TO PUSH EXCHANGE EXECUTIVES FOR BETTER DATA BACKUPS Traders Magazine Online News, September 12, 2013 (Bloomberg) Exchange executives and securities regulators will discuss improvements in systems for distributing price data as they meet in Washington today in the latest attempt to strengthen the fragmented U.S. equity market. Securities and Exchange Commission Chairman Mary Jo White plans to hold private talks with the chief executive officers of the 13 U.S. stock exchanges to discuss the Aug. 22 failure in Nasdaq OMX Group Inc.'s backup system for disseminating prices, which prompted a three-hour trading halt for thousands of companies. The malfunction was the latest in a series of mishaps that have shaken confidence in computerized trading since May 6, 2010, when an algorithm briefly caused markets to erase about $862 billion in share value. The SEC expects Nasdaq and NYSE Euronext to explain that incident and coordinate with other exchange operators to prevent future occurrences. "They are encouraging the exchanges to work together to make sure the systems are as redundant as possible," said David A. Herron, chief executive officer of Chicago Stock Exchange Inc., who will attend the meeting. "I think the industry will step up and do the right thing." White, who was a Nasdaq Stock Market Inc. board member from 2002 to 2006, has said she will seek new protocols for breaking trades if a network fails and push to advance rules that would require exchanges to show trading can continue through natural disasters and programming glitches. SEC Enforcement Co-Chief Andrew Ceresney, speaking yesterday at a Practicing Law Institute seminar in New York, said Nasdaq's trading halt demonstrated the need for investigators to take a closer look at whether market participants have adequate policies and safeguards in place to keep up with the technology they use. SNOWBALLING MALFUNCTION. Nasdaq's computers were flooded Aug. 22 with data from NYSE Arca, a rival exchange, revealing a bug in Nasdaq's software that disabled systems that should have prevented the malfunction from snowballing, according to a statement. The challenges were "clearly within the control of Nasdaq OMX," the company said. Nasdaq experienced another glitch with the system on Sept. 4. This time, the backup worked and the problem only lasted six minutes. The exchange said the data feed suffered a "hardware memory failure" that forced a switch to a backup. The private meeting will focus new scrutiny on the price networks, known as securities information processors, that distribute stock prices to the public. The three SIPs for U.S. equity markets are run by Nasdaq and NYSE Euronext. SIPs gather price data from each exchange, consolidate it, and then sell the information to brokers and other securities firms. All exchange participants share the revenue earned from selling the data, which is prescribed by an SEC rule. Nasdaq's recent failures underscore the risk of relying on a single system to disseminate market data. An SEC advisory committee recommended in 2001 that the commission encourage competition by opening up the market-data business to outside consolidators. The commission rejected that idea in a 2005 update of national-market system rules known as Regulation NMS. 'REGULATORY MANDATE'. "This notion that people should pay for the quotes by regulatory mandate was back in a time when you needed mainframe computers and hundreds of millions of dollars to aggregate quotes and provide information to the public about security prices, but we haven't needed that for 25 years," said Harold S. Bradley, who served on the 2001 committee and is a former chief investment officer for the Ewing Marion Kauffman Foundation. "So the SIP ends up being a choke point in a high- frequency trading world and an enormous source of revenue for the exchanges."
pg. 30

A committee that oversees Nasdaq's SIP proposed on Sept. 4 "short-term" actions to prevent future failures. The changes include terminating a connection if the network detects an unusual surge in data traffic and increasing the frequency of stress testing. FUTURE FAILURES. The SEC meeting also will allow White and fellow regulators to explore how a rule proposed in March, known as Regulation SCI, may help prevent future failures of key exchange technology. The exchanges have resisted key sections of the proposal, saying it would cover too many systems and require them to report too much information. The SEC also plans to discuss how a trading halt due to a SIP failure can be better communicated. Some exchanges had systems programmed to stop trading based on a message from the market-data networks. That message couldn't be relayed by Nasdaq's SIP after it went down on Aug. 22. 20 RULE NEWS TRADERS MAGAZINE
NEW FINRA DARK POOL RULE COULD SURFACE NEXT MONTH Traders Magazine Online News, September 11, 2013 John D'Antona Jr. The Financial Industry Regulatory Authority is likely to publish a draft of a rule proposal requiring dark pools to report their trading volume in October or November, Traders Magazine has learned. That will be followed by the submission of a formal rule proposal to the Securities and Exchange Commission before the end of the year. The chances for its approval next year are high, according to industry execs. Christopher Nagy, head of KOR Trading told Traders Magazine that discussions are underway for a formal reporting rule. While no information has been made public by FINRA, he feels confident that a timeline for any possible rule is taking shape. FINRA first announced its plans to promulgate a reporting rule in July. Driving the idea for such a rule are complaints by exchanges that too much trading is taking place off-board in dark pools and brokers internalization engines. Such a disclosure rule is considered a positive first step in achieving an understanding of the extent of dark pool trading. While a formal public regulation has yet to be drafted by Finra, one is in the works both executives said, saying talks began back in June. A draft of the proposed rule is likely as early as October or in November. Once a draft is put out and discussed, a formal rule proposal will be sent to the SEC, presumably later this year with a comment period to follow, likely stretching into 2014. Full approval and implementation could happen during the first half of next year. KOR's Nagy, who has experience in such matters from his days as managing director for order routing and market data strategy and co-head of government relations at TD Ameritrade, said that Finra was currently working with the broker-dealers that run their own dark pools, other alternative trading system operators and the buyside to come up with a reporting system all could work with. "This regulation will get passed," Nagy said of the to-be-announced regulation. "The feeling of some operators is this type of mandate to report is ok but the frequency of said reports needs to be sorted out first." Dan Mathisson, head of equity trading at Credit Suisse, who said he had not seen any proposal yet, agreed with Nagy that a rule governing dark pool volume reporting would likely pass. He told Traders Magazine that he supports the idea of a Finra proposal despite not seeing all the details just yet and that a date of early 2014 for a final rule was likely. Credit Suisse was one of several dark pool operators that self-reported its volumes but subsequently stopped in April due to frustration concerning the lack of uniform reporting criteria among self-reporters, according to Mathisson. FINRA failed to respond to an email seeking comment by press time.
pg. 31
21
WHAT WENT WRONG
NYSE
MOST RECENT DISCLIPLINARY ACTIONS BY NYSE LLC. 13-NYSE-15 13-NYSE-12 13-NYSE-11 13-NYSE-9 13-NYSE-8 13-NYSE-7 13-NYSE-6 13-NYSE-5 13-NYSE-4 13-NYSE-3 13-NYSE-2 13-NYSE-1 22 Barclay Capital Inc. [ 8/7/13] Scott James Wetzel [7/3/13] Knight Capital Americas LLC [ 7/1/13] Brian C. Gilgan Richard S. Cohen Raven Securities Corp Sun Trading LLC Jefferies Execution Services Inc Barclays Capital Inc W.J. Blum & Sons LLC Nomura Securities Fortis Clearing Americas LLC NYSE
RULE NEWS
INFORMATION MEMO 13-18 9/4/13 TO: CEOs. Managing Partners. Compliance And Legal Departments FROM: NYSE REGULATION, INC SUBJECT: NYSE RULE 9520 (Eligibility Proceedings) On July 1, 2013, a new set of NYSE rules governing investigations, discipline of member organizations and covered persons, sanctions, cease and desist authority, and other procedural rules modeled on the rules of the FINRA became effective.1 The new rules include the NYSE Rule 9520 Series, which governs eligibility proceedings for persons subject to statutory disqualifications who are not FINRA members or associated persons. As described in the approval order concerning the adoption of these rules,2 the Exchange is issuing this Information Memo to inform member organizations and covered persons that the interpretive guidance for the FINRA Rule 9520 Series set forth in FINRA Regulatory Notice 09-193 also applies to eligibility proceedings under the NYSE Rule 9520 Series. FINRA carries out these proceedings on behalf of the Exchange under a Regulatory Services Agreement. As noted in a recent rule filing, the Exchange will follow FINRA interpretive guidance concerning the Rule 8000 Series and Rule 9000 Series if the Exchange rule is substantially the same as the FINRA rule.4 The NYSE Rule 9520 Series is substantially the same as the counterpart FINRA rules, except as noted below with respect to hearings. CLICK TO CONTINUE READING IM 13-18. 23 WHAT WENT WRONG CBOE
MOST RECENT DISCLIPLINARY ACTIONS BY CBOE: August 12, 2013: 13-0038 RCI Limited Partnership August 12, 2013: 13-0033 and 13-0034 Coastal Trade Securities, L.L.C. July 29, 2013: 13-0031 Consolidated Trading, LLC, C. Lamberson and I. Shalit July 29, 2013: 13-0014 Toro Trading, LLC July 29, 2013: 13-0008 Hold Brothers Capital, LLC
pg. 32

July 29, 2013: July 10, 2013: July 10, 2013: July 10, 2013: July 10, 2013: 24 12-0086 and 12-0118 Keystone Trading Partners 13-0005 VTrader Pro, L.L.C. 12-0113a Stock USA Execution Services, Inc. 12-0103 Atlantic Trading Indices, LLC 12-0099 and 12-0126 Scout Trading, LLC EQUITY TRADING NASDAQ
NASDAQ OMX TRADER.COM ENHANCEMENTS TO TRADE HALT SEARCH AND CURRENT TRADE HALT PAGE Equity Trader Alert #2013 - 85 Thursday, September 05, 2013 Markets Impacted: All Markets WHAT YOU NEED TO KNOW. NASDAQ OMX Trader.com has made enhancements to the Trade Halt search functionality to allow additional search fields and a rolling year of history. The reason code section on the current halt page now displays the reason code trail of a halt, as well as the definition of the reason code when hovering your cursor. Click to Continue Reading ETA 13-85. 25 WHOS NEWS SEC
SEC NAMES PAUL LEVENSON AS DIRECTOR OF BOSTON REGIONAL OFFICE SEC PRESS RELEASE 13-179 Washington D.C., Sept. 12, 2013 The Securities and Exchange Commission today announced that Paul Levenson has been named director of the Boston Regional Office, where he will oversee enforcement and examinations in the New England region. Mr. Levenson joins the SEC from the U.S. Attorneys Office for the District of Massachusetts, where he is an Assistant U.S. Attorney and Chief of the Economic Crimes Unit that is responsible for investigations and prosecutions of financial crimes. Mr. Levenson has successfully coordinated many criminal investigations with the SECs Division of Enforcement during his tenure in the U.S. Attorneys Office. He will begin working at the SEC in late October. Paul has served with great distinction as a supervisor and prosecutor of securities and other white collar cases, said George S. Canellos, Co-Director of the SECs Division of Enforcement. We are thrilled that he will be bringing his formidable legal skills, vast experience, and judgment to the SEC as leader of our Boston Regional Office. Andrew J. Bowden, Director of the SECs Office of Compliance Inspections and Examinations, said, Paul has been working energetically and effectively to protect investors for the last 23 years. He also is an excellent manager. We are excited that he has decided to continue his work with our dedicated team in Boston. Mr. Levenson said, I am honored to have been chosen as the regional director of the SECs Boston office. As a federal prosecutor in Massachusetts, I have worked closely with the lawyers and examiners in the Boston office and have been enormously impressed by their talent, professionalism, and dedication to enforcing the federal securities laws. I look forward to working with them to carry out the SECs mission of investor protection and fair and orderly markets. Mr. Levenson joined the U.S. Attorneys office in 1989 and served in the civil division as well as the Economic Crimes Unit a nd Public Corruption Unit. He has led the Economic Crimes Unit since 2007. Mr. Levenson has helped lead the investigation and prosecution of white collar crimes ranging from securities fraud, foreign bribery, tax fraud, insurance fraud, bank fraud, health care fraud, official corruption, and embezzlement.
pg. 33

Mr. Levenson previously was a litigation associate at Kaye, Scholer, Fierman, Hays & Handler in Washington D.C. from 1985 to 1987. He later worked at Gibson, Dunn & Crutcher in New York before joining the U.S. Attorneys Office in Massachusetts. He began his legal career as a law clerk to the Honorable Stanley A. Weigel of the U.S. District Court for the Northern District of California. Mr. Levenson earned his bachelors degree from Harvard College and his law degree from Harvard Law School. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX THE FLY ON THE WALL HEADLINE STORIES
News Breaks 09:07 C EDT
September 12, 2013 Citigroup surpasses $500B in alternative assets under administration. Citi announced it has surpassed $500B in alternative assets under administration, which includes over $300B in Hedge Fund assets under administration, and over $200B of committed Private Equity capital under administration. Ackermann to leave Siemens, FT reports. Josef Ackermann is expected to step down as a deputy chairman of the supervisory board of Siemens (SI) in what would be his second departure from a high-profile job in a matter of weeks, reports the Financial Times. The move comes after Ackermann, onetime head of Deutsche Bank (DB), resigned as chairman of Zurich Insurance (ZURVY) following the suicide of company CFO Pierre Wauthier who left a letter containing details of his difficult relationship with Ackermann. Reference Link UBS to host a conference. 13. Best of Americas Conference is being held in London, England on September 12-
07:47 DB EDT
07:42 AMP EDT 07:33 BAC EDT
BofA/Merrill to host a conference. on September 12-13.
19th Annual Canada Mining Conference 2013 is being held in Toronto
07:14 JPM, C EDT
Banks hurt by slowdown in home loans, WSJ reports. Bank executives (C, JPM, BBT) have been hoping they could dull the pain of a plummeting mortgage-refinance market by shifting focus to loans for home purchases. Thats not working out. The Mortgage Bankers Association said mortgage applications fell 13.5% in the week ended Sept. 6 from the previous week. The data reflect a 20% drop in refinancing and a 3% decline in purchase loans, reports the Wall Street Journal.Reference Link
pg. 34
On the Fly: Periodicals Wrap-Up. WALL STREET JOURNAL: Bank executives (C, JPM, BBT) have been hoping they could dull the pain of a plummeting mortgage-refinance market by shifting focus to loans for home purchases. Thats not working out. The Mortgage Bankers Association said mortgage applications fell 13.5% in the week ended Sept. 6 from the previous week. The data reflect a 20% drop in refinancing and a 3% decline in 06:13 JPM, purchase loans, the Wall Street Journal reports...Michael Dell is set to win a bruising, year long battle for control of EDT C his company. His next taskgetting Dell Inc. (DELL) growing againmay be even tougher, the Wall Street Journal reports... REUTERS: Societe Generale (SCGLY) is exploring the sale of its Asia private banking arm, sources say, seeking to exit a market where small managers are getting hit by rising costs and competition. The Singapore-based division could bring about $600M, Reuters reports...
September 11, 2013 JPMorgan close to settlement on debt collection practices, Bloomberg says. JPMorgan is close to a settlement, which is expected to be less than $80M, with the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau over their probe into the bank's credit card debt collection practices, reports Bloomberg, citing two people with knowledge of the matter. Reference Link Morgan Stanley employee files whistle-blower suit, Bloomberg says. Saeed Ahmed says number of high-risk loans expanded, Bloomberg added. Credit audit specialist says he was punished after complaining, Bloomberg continued. JPMorgan close to settlement with OCC on debt collection, Bloomberg says. Citi confirms laying off 120 mortgage employees, DJ says. Citigroup closed an Illinois office dedicated to mortgage refinancing and laid off 120 employees, citing an ongoing decline in refinance volumes, reported Dow Jones, citing a company spokesperson. Bank of America on track to meet expense reduction target. Bank of America sees NII to build over time from $10.4B Q213 level. The company said, "Given the increase in rates during 2Q13, we expect NII excluding market-related items to build over time from $10.4B 2Q13 level." Comment from Barclays Global Financial Services Conference slides presentation. JPMorgan easing mortgage lending standards in some markets, Bloomberg reports. JPMorgan Chase is easing mortgage lending standards in housing markets hard hit by the crash where prices are surging, reports Bloomberg.Reference Link
17:25 JPM EDT
17:01 MS EDT 16:21 JPM EDT 14:33 C EDT 11:29 BAC EDT 11:18 BAC EDT
07:19 JPM EDT
Fed expected to issue rules for physical commodity businesses, WSJ reports. Wall Street is bracing for a ruling that may hasten the exit of several banks (JPM, GS, MS) from businesses such as metals warehousing, oil 07:14 GS, MS, shipping and power generation. The Fed is expected to issue guidelines as soon as this month limiting bank EDT JPM participation in so-called physical-commodities businesses, and the rules would apply to all U.S. banking companies, reports the Wall Street Journal.Reference Link
pg. 35

Hank Brink Pg-23

Transféré par

Informations du document

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Hank Brink Pg-23

Transféré par

Droits d'auteur :

Formats disponibles

9'12'13 WORKING STORY BOARD.

BEHIND THE NEWS

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

REGULATORS & POLITICIANS

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

WHAT WENT WRONG

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

CREDIT SUISSE NAMES STROBAEK, JAIN TO REPLACE FUSENIG

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx

REGULATORS & POLITICIANS

9'12'13 WORKING STORY BOARD.docx

9'12'13 WORKING STORY BOARD.docx