Compliancex

Knight Capital Secures Lifeline

Knight Capital announced today that it has made a $400 million rescue deal with a group of investors.

The deal will temporarily prevent a collapse in the wake of the recent trading snafu, says the New York Times Dealbook. The news service also noted that the New York Stock Exchange had temporarily revoked the firm’s market making responsibilities as the calamity commenced. The rescue package was arranged by the Jefferies Group and is said to include investments from TD Ameritrade, the Blackstone Group, and others.

“We are grateful for the support of these leading Wall Street firms that came together to invest in Knight,” said the firm’s big wheel Tom Joyce.

According to the Dealbook, Knight Capital said the investors agreed to purchase $400 million of the brokerage firm’s preferred stock. Further, Knight will also expand its board by adding three new members. The deal could provide the investors with more than 260 million shares of the firm who will have the right to buy new shares at $1.50 a piece.

SEC Chairman Schapiro Chimes in on Knight Capital

SEC head honcho Mary Schapiro said in a statement on Friday that Knight Capital’s “trading error” reflects the type of event that should alarm investors and regulators alike. However, the statement released on the regulator’s website also said that the SEC still believes the US markets are the most “resilient, efficient, and robust in the world.”

That being said, the SEC remains concerned that though reliance on computers is growing and inevitable, this is not to say that the agency “should not endeavor to reduce the likelihood of technology errors and limit their impact when they occur.”

The regulatory big wheel also noted how several of the measures the SEC instituted in the wake of the May 2010 “Flash Crash” helped to limit the impact of Knight’s glitch, even though several stocks saw dramatic swings in share prices as the crisis unfolded.

New York Fed Faces New Scrutiny in Libor Rigging Scandal

The Congressional scrutiny of the New York Fed’s failure in policing the Libor rigging matter intensified last week, according to Dealbook.

In a letter to the New York Fed and the Federal Reserve Board in Washington, Senator Sherrod Brown “challenged” the regulatory watchdogs to defend their tepid response to the rate-rigging fiasco.

Mr. Brown has questioned why the New York Fed, despite knowing that some banks were reporting false rates, pushed for broad reforms of the rate-setting process rather than penalizing the “illegal” behavior.

Of course, the keyword there is illegal, and since the oversight of Libor is under the aegis of the British Banking Association and it appears there is no guiding statutory authority, the term illegal may only be hyperbole.

Mr. Brown, an outspoken critic of lax regulation, was said to be “unconvinced.”

Finra Expels Biremis Corp

The Financial Industry Regulatory Authority (Finra) announced last week that it had expelled Biremis, Corp (formerly known as Swift Trade Securities) and barred its President and Chief Executive Officer, Peter Beck, for supervisory violations in connection with manipulative trading activities such as “layering.”

Layering involves the placement of non-bona-fide orders on one side of the market in order to cause market movement that will result in the execution of an order entered on the opposite side of the market, after which the non-bona-fide orders are then canceled.

The firm was also found to have been involved in other shenanigans like short sale violations, failure to implement an adequate anti-money laundering program, and financial, operational and numerous other securities law violations.

The self regulatory organization also found that during various periods from June 2007 to June 2010, the firms and its CEO failed to establish a supervisory system to achieve compliance with the applicable laws and regulations prohibiting manipulative trading activity.

CFTC to Host a Roundtable on Customer Protections for FCM Clients

The CFTC has a roundtable slated for this Thursday, August 9^th to discuss customer protection requirements for futures commission merchants (FCMs).

The objective of the roundtable is to gather public input on a variety of ideas to further protect customers. In particular, the event will focus on Self-Regulatory Organization (SRO) requirements for examinations of FCMs.

That discussion will also consider the CFTC’s oversight of SRO examination programs, the role of the independent CPA in the examination process, and protection requirements for FCMs, including proposals from the CFTC and various proposed alternatives to the current system for segregating customer funds.