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February 24, 2006

New Rules to Create Entertainment Guidelines

By Gregory Bresiger

Wining and dining the buyside may soon be a little more difficult.

That's because both NYSE and NASD officials recently announced they were soon going to file with the Securities and Exchange Commission for a new rule on entertainment spending.

Each NASD broker-dealer, NYSE member and member organization will be required to have written entertainment policies, defining what is allowed and prohibited, according to exchange and NASD officials. Each firm will be required to specify dollar limits or require supervisory approval at certain dollar thresholds, they said. (See related story page 22.)

"The purpose of the rule," an NYSE official told Traders Magazine, "is to prohibit the employees of a broker-dealer from providing entertainment to a client, particularly one who is acting in a fiduciary capacity, that is intended to cause the client to act in a manner inconsistent with the best interests of his or her employer or customer." Grace Vogel, executive vice president of NYSE Regulation's division of Member Firm Regulation, also said the Big Board is acting now because it has received many questions over the past few months on what should be an appropriate entertainment policy.

Firms, under the proposed rules, will be able to set the limits on entertainment spending, However, they will be required to keep extensive records.

"The foundational principle of this rule is that conduct cannot undermine the performance of an employee's duty to a customer," according to Robert Glauber, chairman of the NASD.

Vogel added that there are no clear rules now on entertaining. For example, NYSE Rule 350 now prohibits NYSE members from accepting a gift of over $100 per person per year. But, she added, Rule 350 says nothing about entertainment. Nevertheless, despite the previous lack of regulatory guidance, Vogel said most "major firms" have effective policies discouraging lavish and excessive entertaining.

"We have not found any egregious violations," said Vogel, whose entertainment committee has been studying the issue for the last nine months.

Vogel said the NYSE filing is scheduled to be made with the SEC this month.