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Navigating Cybersecurity on a Stretch of "Regulatory Rapids"

In this shared commentary, Aplomb Strategies writes that when considering a firm’s governance structure, a holistic approach makes the most sense.

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February 1, 2012

Top Predictions for 2012

By James Armstrong

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  • Top Predictions for 2012

As regulators start to press their agendas for the coming year, Traders Magazine asked some industry experts what they expect to be the biggest regulatory and market structure issues of 2012. Here are their responses:

POLITICIZATION OF THE REGULATORY DEBATE

Regulatory issues will continue to make headlines over the next year, according to Alison Crosthwait, managing director for global market structure research at Instinet. With media outlets competing for attention and politicians concerned with earning points in an election year, there is little incentive for thoughtful debate about how to better regulate equity markets.

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Robert Hegarty, global head of market structure at Thomson Reuters, said both the presidential and congressional elections in November will have a strong impact on regulation in the future. Agencies that are already dealing with a backlog from Dodd-Frank will be reluctant to take on new initiatives.

"There's clearly a feeling in D.C. that whatever we do this year could get unwound next year by the new Administration, the new Congress," Hegarty said. "Do we really want to push forward with all these regulations only to have them go through a repeal process in 2013?"

 

NEW THRESHOLD PROPOSALS

Politicization of the market-structure debate could encourage proposals that would have dire impacts on capital markets, such as speed limits on orders, rules on minimum order duration or regulatory charges on message traffic, according to Crosthwait.

"We cannot hold ourselves back as an industry, as technological advancement will continue regardless," Crosthwait said. "In addition, the enforcement of many of these proposals is just not feasible."

A prime example of unwise regulation is the financial transaction tax, which has been proposed in Europe and has even been suggested by some in the United States. Jamie Selway, head of liquidity management at ITG, said while a transaction tax will generate election-year buzz, it won't be seriously considered.

 

BETTER DEFINITIONS FOR HIGH-FREQUENCY TRADING

In recent years the debates surrounding high-frequency trading have been hindered by the fact that people in the industry have been unable to agree on what HFT actually is. Hegarty predicts that the next year will bring some clarity to the definition of HFT.

"We may not come down with any rulings or judgments on high-frequency trading, but I'm optimistic that we'll actually be able to define it as an industry much better than we have been able to do in the past," Hegarty said.

Selway said the public could get its first real look at a definition for HFT when a high-frequency firm goes public and has to file an S-1 form for its initial public offering.

 

BULL MARKET FOR PAPERWORK

Regulators are increasingly asking traders to provide more information, as is made evident by the Large Trader Identification Program and the proposed Consolidated Audit Trail.