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December 1, 2011

Top 10 Stories in 2011

Top 10 Stories in 2011

By By James Armstrong, John D'Antona Jr., Peter Chapman

As 2011 nears its close, Europe, staying employed and Pipeline Trading were the most discussed topics this year, according to traders. For investors and equity traders, the end of July marked a watershed moment. That's when volatility kicked up and volumes skyrocketed after fears of a financial blowup emerged in Europe from the region's debt crisis. And stock markets took it on the chin, as a correction briefly hit the 20-percent mark-a bear market-before recovering to positive territory in October.

Up until then, the first half of the year-to put it bluntly-was slow on the trading front, as volumes stagnated. Consequently, a number of firms laid off trading professionals and the fears of further layoffs continued through the fall-despite the uptick in trading volume in the last half of the summer. Brokerage firms, from the bulge to the independents, handed out pink slips, while the buyside had its own concerns.

As a result, it should not come as a surprise that total compensation is expected to be down between 20 and 30 percent for equities trading pros this year. That comes after a similar decline in equities compensation last year. Some say the closing of proprietary trading desks, which will be required by Dodd-Frank, has also shrunk compensation.

Pipeline Trading provided its own lesson in prop trading. As it turns out, the block crossing network had an affiliate broker-dealer facilitating trades-not the natural liquidity that it claimed to offer. The Securities and Exchange Commission smacked the firm and its two top execs with a total of $1.2 million in fines. The action put a new focus on dark pools and forced the buyside to scramble to learn all it could about routing practices and how pools operate.

Meanwhile, lower Manhattan's Zuccotti Park took on the look of an urban Woodstock in September, as hundreds of disenfranchised mostly recent college graduates decried corporate greed and the workings of the financial system. The group, "Occupy Wall Street," became a lightning rod for a hodgepodge of points of view, from the Green Movement to redistributing wealth in America. As the weather grew colder, however, the OWS crowd dug in its heels and pitched tents. They built themselves a makeshift city, and by doing so, offered their own version of a popular saying during the protests of the 1960s: "Turn on, tune in, and camp out." Amid this backdrop, Traders Magazine presents the top stories of the year.

>>Pipeline Fine Shocks Trading World

Traders were shocked this year when Pipeline Trading Systems agreed to pay $1 million to settle charges brought by the Securities and Exchange Commission. Regulators alleged the company failed to disclose that, at times, more than 97 percent of the orders in its dark pool were filled by a trading operation affiliated with the firm.

The SEC also reached settlements with Pipeline founder Fred Federspiel and company chairman Alfred Berkeley, who each agreed to pay a $100,000 fine for their involvement. Berkeley is also a former president of Nasdaq. Under the agreement, neither man admitted nor denied wrongdoing.

Pipeline launched its alternative trading system in 2004, billing itself as a crossing network that matched orders to provide natural liquidity. But the SEC claimed Pipeline's liquidity was anything but natural.