Asia BrokerDealers Ramp Up For More ETFs

Posted on March 20, 2015 by admin

Brokerdealer.com blog update profiles brokerdealers’ push for a more diversified market in Hong Kong. In an effort to listen to the brokerdealers and diversify the market, Hong Kong’s Securities & Futures Commission is looking into allowing more off shore ETFs. An extract from AsianInvestor article, “SFC mulls more foreign ETF listings in HK” tells us more.

Hong Kong’s Securities & Futures Commission (SFC) is considering allowing more offshore ETFs, including from the US to be cross-listed in Hong Kong.

The move comes amid calls by some industry players from Hong Kong to diversify its ETF business, because the product range at present is predominantly Greater-China focused.

A senior executive in the ETF business told AsisanInvestor that the SFC that set up a working group to look into expanding the scope of the ETF industry and further developing int. It reached out to individual fund managers towards the end of last year to solicit interest on cross-listing their offshore ETFs in Hong Kong.

The senior executive said their group was interested in listing its American ETF in Hong Kong, but the decision hinges on the SFC and will involve a change in regulatory policy.

To read the full article from AsianInvestor, click here.

Will BrokerDealer Top Cop Really Get Tough? Fiduciary or Not?

Posted on March 18, 2015 by admin

BrokerDealer.com blog update profiling behind-the-scenes posturing as to whether the SEC might impose a new standard that imposes the concept of “fiduciary obligation” on brokerdealers is courtesy of extract from March 17 New York Times “SEC Chief May Toughen Rules For Brokers.” Below is the snapshot with credit to NYT reporter MICHAEL J. de la MERCED

The chairwoman of the Securities and Exchange Commission announced on Tuesday that she planned to explore setting a higher standard for brokers in dispensing investment advice, putting the agency in the middle of a potential fight between the Obama administration and the financial industry.

Speaking at a conference hosted by the Securities Industry and Financial Markets Association, one of Wall Street’s main trade groups, the chairwoman, Mary Jo White, expressed her personal support for setting up a so-called uniform standard of fiduciary duty.

Such a move would hold stockbrokers and brokerdealers to a fiduciary duty standard, under which they must put their clients’ interests ahead of their own. Registered investment advisers already fall under that higher bar, while brokers follow a looser “suitability” standard that requires them only to mind customers’ needs and appetite for financial risk.

“I believe the S.E.C. has an obligation” to create a uniform standard, Ms. White told the association’s conference.

Ms. White’s comments were her first public thoughts on the matter, coming months after the chairwoman promised to outline her position on the issue.

The S.E.C. has the authority — but no obligation — to create the new standard, thanks to a provision in the Dodd-Frank financial regulation overhaul. The Obama administration backed a similar initiative by the Labor Department to create a higher standard for brokers who oversee retirement investments.

A new standard from the commission would carry more weight, however, since it would encompass all brokers and not just those who oversee retirement accounts.

Behind the call for a tougher standard is concern that loose rules have potentially cost consumers billions of dollars each year. A memo from the White House that surfaced in January estimated that investors lost between $8 billion and $17 billion from their I.R.A.s last year because of a lack of protections.

To read the entire NYT story, please click here.

Push For More Transparency Exposes Broker-Dealer Profit Centers

Posted on March 3, 2015 by admin

Brokerdealer.com blog update is courtesy of Think Advisor. With a push for more transparency in the brokerdealer industry, profit centers are being exposed.

There’s nothing wrong with broker-dealers being profitable, but how those profits are obtained could use a good dose of disclosure. Representatives deserve to know that what they are paying is a true cost and what they are receiving is the best possible commission from a vendor.

First, let’s look at the profit centers that are relatively obvious to reps. In addition to the spreads broker-dealers receive from payout grids, there are two other primary sources of broker-dealer profit: revenue sharing and markup.

REVENUE SHARING BETWEEN BDS AND VENDORS

Revenue sharing happens between the broker-dealer and the product vendors, so it’s of little concern to reps. For example, on mutual funds and variable annuities, broker-dealers will negotiate with vendors to earn basis points (bps) on assets or sales of products their reps sell.

Broker-dealers will typically make 1 to 10 bps on either assets or sales of products, with small firms making only 1 or 2 bps and larger firms making 8 or more. Larger firms also have the ability to make these basis points on both assets and sales as they leverage their scale to obtain more.

On REITs and alternative investments, BDs earn between 1% and 1.5% extra in commissions on those product sales, which is called “marketing reallowance.” You may have noticed the increasingly large REIT and alts presence at BD conferences over the last five years—it’s simply because these vendors are currently willing to spend more to get in front of reps.

MARKUP CHARGES ON CLEARING FIRM COSTS

Markups, such as ticket charges, are something that representatives recognize as a profit center when they look at their various costs and see that firms differ on what they charge for them. It may not be apparent how much the markups are, or how extensively the costs incorporate overall costs, but reps recognize that there is a spread between clearing firms’ costs and what broker-dealers charge the representative.

For example, a clearing firm commonly charges $1 for postage and handling fees, and the broker-dealer charges between $4 and $7. A stock ticket charge from the clearing firm may be $9, but they charge the rep $19. BD scale is a primary factor in how low a firm is able to negotiate with the clearing firm: Small broker-dealers may be able to negotiate perhaps $12 from the clearing firm on stock ticket charges, while a large broker-dealer can negotiate down to $5.

For the rest of the article on ThinkAdvisor, click here.

Cybercriminals Assault BrokerDealers; Most BDs Bamboozled by MITB and Phishing Schemes

Posted on February 5, 2015 by admin

BrokerDealer.com blog update courtesy of extract below from 3 Feb WSJ story by Matthias Rieker

More than half of U.S. brokerage firms surveyed by regulators said they had been targeted by email scams aimed at tricking them into wiring away client money.

In many cases, brokers fell for the impostors and their firms had to reimburse their clients. Of the brokerage firms that received the fraudulent emails, 26% reported losses of more than $5,000, according to the Securities and Exchange Commission.

The SEC last year sampled 106 firms—57 broker-dealers and 49 registered investment advisers—to assess the industry’s cybersecurity risk.

On Tuesday, the regulator said 88% of the broker-dealers and 74% of RIAs it examined for its report had experienced some form of a cyberattack. The agency didn’t say in what years the attacks occurred.

The wealth-advisory industry has long been struggling with what security experts and advisers say has been an onslaught of fraudulent wire-transfer requests, many resulting from client email accounts being hacked. Fifty-four percent of broker-dealers and 43% of RIAs said they had received fraudulent emails seeking to transfer client money.

Fifty-four percent of broker-dealers and 43% of advisers said they had received fraudulent emails seeking to transfer client money.

For example, a former Morgan Stanley Smith Barney adviser—whose client’s email had been hacked—wired a total of $521,500 in four requests over two months last year. Also, a former Wells Fargo adviser failed to confirm two wire transfers for a total of $67,532 over two months in 2012 that turned out to be from an impostor.

The Financial Industry Regulatory Authority, Wall Street’s self-regulator, suspended and fined both advisers last month. Neither admitted or denied the allegations, and their firms fired them, according to Finra. Morgan Stanley and Wells Fargo declined to comment on the cases.

Like most firms, Morgan Stanley and Wells Fargo have strict procedures on how to thwart such scammers, but some advisers haven’t been vigilant enough to ensure the requests are actually from their clients. Of the broker-dealers that reported losses from fraudulent emails, a quarter said the losses were the result of employees not following the firms’ authentication procedures, the SEC said.

SEC chairwoman Mary Jo White says assessing the readiness of market participants and providing investors with information on how to better protect online investments from cyberthreats is an important focus of her agency.

Finra said that last year it brought 37 cases related to the improper transfer of investors’ money to third-party accounts.

“Cybersecurity threats know no boundaries,” SEC Chair Mary Jo White said in statement. “That’s why assessing the readiness of market participants and providing investors with information on how to better protect their online investment accounts from cyber threats has been and will continue to be an important focus of the SEC.”

The SEC also said it found that 58% of broker-dealers but only 21% of RIAs are insured against losses from cyberattacks. One broker-dealer and one adviser reported that they had filed claims, the SEC said.

For the full story from the WSJ, please click here

FINRA and MSRB Pair Up Re Pay-To-Play Rules

Posted on January 4, 2015January 4, 2016 by admin

(National Law Review)-FINRA and MSRB Propose New Pay-to-Play Restrictions on Broker-Dealer Solicitors and Municipal Advisors; Rules Will Trigger SEC Investment Advisor Third-Party Solicitation Ban

The following brokerdealer.com update is courtesy of submission to National Law Review by Greenberg Traurig, LLP

On Dec. 16, 2015, the Financial Industry Regulatory Authority (FINRA) and Municipal Securities Rulemaking Board (MSRB) simultaneously filed with the Securities and Exchange Commission (SEC) rule proposals that will have broad and substantial impacts on the political giving of broker-dealers, investment advisers and municipal advisors and their ability to engage in business with governmental entities under SEC, FINRA and MSRB rules.

The FINRA proposal seeks to establish so-called pay-to-play restrictions on broker-dealers that engage in certain distribution and solicitation activities on behalf of investment advisers (third-party solicitors) under new FINRA Rule 2030, on Engaging in Distribution and Solicitation Activities with Government Entities, and associated FINRA Rule 4580, on Books and Records Requirements for Government Distribution and Solicitation Activities. The MSRB proposal would extend to municipal advisors (including certain third-party solicitors) its existing pay-to-play rule applicable to municipal securities broker-dealers, MSRB Rule G-37, Political Contributions and Prohibitions on Municipal Securities Business and Municipal Advisory Business.

The FINRA rules, and in part the MSRB rule amendment, are designed to complement the SEC’s existing pay-to-play rule for investment advisers, Rule 206(4)-5 under the Investment Advisers Act of 1940. When effective, the FINRA and MSRB rules would trigger compliance requirements under the SEC’s ban on third party solicitations on behalf of investment advisers under SEC Rule 206(4)-5, as provided for under SEC staff’s current no-action posture which has put this provision of the SEC pay-to-play rule in abeyance subject to completion of FINRA and MSRB rulemaking.

While each rule has its own unique provisions, the SEC, FINRA and MSRB pay-to-play rules generally create two-year bans, or “time-outs,” from engaging in investment advisory, underwriting/distribution or municipal advisory activities with state or local governmental entities if the investment adviser, broker-dealer or municipal advisor firm or specific professionals within the firm have made political contributions to elected officials of such governmental entities, subject to permitted de minimis contributions. The rules also prohibit such firms and professionals from soliciting or coordinating political contributions by others to elected officials of governmental entities with which they are undertaking or seeking business, or to state or local political parties within any jurisdiction where such business is being undertaken or sought.

In addition, the SEC rule prohibits investment advisers from paying a third-party to solicit on their behalf a governmental entity for investment advisory business unless such third-party is subject to the SEC, FINRA or MSRB pay-to-play rule. The MSRB rule also includes a public disclosure regime that requires quarterly information filings with the MSRB that are made public on the MSRB’s Electronic Municipal Market Access (EMMA) website. Finally, the Commodity Futures Trading Commission (CFTC) also has adopted its own pay-to-play rule for swap dealers entering into swap transactions with governmental special entities, Rule 23.451 on Political Contributions By Certain Swap Dealers. Firms covered by one or more of these pay-to-play rules will need to engage in extensive compliance and recordkeeping activities that take into account the range of activities they undertake and the varying requirements of the applicable SEC, CFTC, FINRA and/or MSRB rules.

The FINRA and MSRB proposals are subject to the SEC’s public comment and approval process, and the restrictions and related requirements would apply only for contributions made after the effective date, which would be a date to be announced no sooner than 6 months after SEC approval.