The launch of Tradeverse, a new data platform by global Fintech leader Broadridge Financial Solutions, will help trading firms eliminate data silos, unleash the potential of their data across the enterprise and better manage costs, reconciliation, and the data quality and lineage challenges of firms typical complex platform ecosystems.
Tradeverse consolidates real-time, multi-asset class data from multiple vendor applications and platforms from orders and executions through settlement into a unified, harmonized data platform. It reduces errors, simplifies access with a common data ontology across front, middle and back office and incorporates robust security to protect sensitive information and maintain data integrity. The clear data structure unlocks insights for all key functions – trading desks, operations, risk, finance, and regulatory – by providing a trusted and transparent data source.
“A Tradeverse implementation we’ve recently completed with a global bank is proving the power of harmonizing trade data” said Hugh Daly, Head of Data and AI, Capital Markets, Broadridge. “The solution delivers efficiencies for their regulatory reporting and compliance teams, allowing direct access to the data for business users initiating complex searches using natural language.”
Many enterprise data warehouse projects fail to deliver the expected benefits due to the complexity arising from disparate representations of the source data. Tradeverse is focused on ensuring true data harmonization. The application of business logic and constraint of the data ontology is critical to that. This leads to seamless access to high quality data, which ultimately accelerates time-to-value for multiple AI initiatives.
In another use case, the Securities Operations team of a top ten capital markets firm is using Tradeverse’s harmonized data platform coupled with Broadridge’s Generative AI tool for Operations (OpsGPT) to empower users. This is allowing the teams to identify and implement productivity gains such as settlement fails analysis that were previously incredibly hard to capture in a fragmented ecosystem.
Tradeverse will be the cornerstone of a number of innovative value-add business solutions that Broadridge will bring to market in the coming months
B2C2 has appointed Cactus Raazi as Chief Executive Officer of the B2C2 US business. Based at the company’s New Jersey office, he will report to Thomas Restout, Group CEO, and will be a member of the B2C2 executive committee. Previously, Raazi was US CEO and Co-Head Americas at Amber Group, where he led Amber’s revenue growth and regulatory engagement. Prior to Amber, he held regional and global leadership roles at Goldman Sachs, Nomura and Tradeweb in the USA and Europe before founding and exiting a FinTech startup.
Eric Kohler
Kepler Cheuvreux has appointed Eric Kohler as a member of its high touch trading team, GlobalTrading reported. Based in New York, he will contribute to the continued growth of the firm’s execution footprint and North American presence, a strategic priority for the company.Kohler has 15 years of industry experience and joins Kepler Cheuvreux from Citi, where he was most recently an i nternational equity trader. He also held a sales and trading analyst role in the firm’s commodities division, before which he worked in product control on the G10 rates and finance desk.
TD Securities (TDS) has promoted Carl Hayes, Managing Director, as the new Head of European Cash Equities. Based in London, Hayes reports to Sharon Kim, Executive Managing Director and Region Head of Europe, TD Securities and Senior Vice President, TD Bank Group. Hayes joined Cowen Execution Services Limited (CESL) as Head of European Sales Trading in 2019. He has had a pivotal role in shaping the business strategy and driving its execution.
Isabelle Mateos y Lago has been appointed BNP Paribas Chief Economist, replacing William de Vijlder, current BNP Paribas Chief Economist since 2014, who will be retiring in a few months’ time. He will take on the role of Economic Adviser to the Group’s General Management, reporting to Lars Machenil. Mateos y Lago has over 25 years’ experience in international economics, finance and public policy. She joins BNP Paribas from BlackRock where she served since 2015 and was Chief Macro Investment Strategist at the BlackRock Investment Institute and then Chief Markets Strategist in the Financial and Strategic Investors Group until 2024.
The TCW Group, a global asset management firm, has continued its global expansion with the opening of a new office in Dubai, UAE. As part of the establishment of the DIFC office, Wael Younan will relocate from New York to Dubai to lead and grow the new office. Younan together with Peter Moore co-head TCW’s Sovereign Wealth Group. Moore remains based in Los Angeles and will continue to work closely with Younan on the ongoing growth of TCW’s sovereign wealth relationships in the Middle East and globally.
If you have a new job or promotion to report, let me know at alyudvig@marketsmedia.com
TECH TUESDAY is a weekly content series covering all aspects of capital markets technology. TECH TUESDAY is produced in collaboration with Nasdaq.
The “long” of it
Nandeep Bansal, Nasdaq
13F-2, the first SEC-driven short-selling regulation which goes into effect on January 2, 2025 with implications for institutional investors ─ including broker-dealers, investment advisers, banks, insurance companies, pension funds, and corporations ─ requires continuous monitoring of an investor’s short positions and monthly disclosures (Form SHO) on breaching the designated thresholds for both reporting and non-reporting company issuers.
This category effectively captures everything outside the reporting company definition, including any holdings in private companies, US issuers trading on the over-the-counter (OTC) markets, and even non-US-listed issuers. Disclosure is required for managers with holdings breaching a gross short position of US$500,000 in issuers during the month, as opposed to a monthly average.
Unsurprisingly, the regulation poses a number of challenges that institutions will need to address in order to be fully compliant.
Main Compliance Challenges for Market Participants
Data collection and calculations:
Identifying whether an equity security falls under a given threshold will require institutions to obtain source data as disseminated in various reports filed with the SEC, a potentially time-consuming and complex process. Adding to the complication is the fact that the universe of in-scope securities under 13F-2 is notably broader than under 13F-1 (view the key differences here), as the former includes not only US-listed equities but also OTC equities as well as foreign equities. Lastly, threshold-breach assessments are based on gross-short positions, the institution’s long positions must still be processed in order to calculate the net holdings in a given issuer of the affected assets. Meeting these challenges demands a robust system that actively identifies the required data and automatically performs the appropriate calculations at the relevant stage.
Monitoring:
For reporting companies, the need to disclose is unknown until the end of the month, making it crucial that institutions assess and monitor their positions while performing the necessary daily calculations across entity structures, to mitigate any month-end surprises. For non-reporting companies, institutions will need to monitor their positions daily to identify if a disclosure obligation will arise at month-end. Managing this challenge requires a system that easily tracks holdings and hosts an array of analytical capabilities to better analyze the institution’s funds and portfolio.
XML submission:
Disclosure Form SHO must be submitted in a machine- readable XML format, necessitating access to the relevant technical capabilities to generate the form in line with the designated technical schema.
The “short” of it
In the ever-evolving regulatory landscape, SEC Rule 13F-2 places the need for a solution that supports seamless and efficient calculation and reporting front and center, specifically, one that enables market participants to:
Calculate daily gross-short positions, based on their beneficial ownership and generate the reports for the investors in structured, machine-readable language for seamless reporting. Address the complexity of calculating short positions held in reporting and non-reporting company issuers, across different entities within the group. Calculate holdings, determine if they have breached any notable SEC thresholds, and raise appropriate alerts that notify investors to submit filings in a timely and efficient manner.
As this latest Rule takes effect, collaboration between investment managers and technology providers is instrumental. The Nasdaq AxiomSL team looks forward to working with affected organizations to interpret, understand impacts and implement a future-forward approach calculation and reporting that will prepare them not just for SEC Rule 13F-2 but also the swath of regulatory initiatives globally that require more frequent calculation and reporting.
Nandeep Bansal is Global Shareholding Disclosure (GSD) Product Manager at Nasdaq.
Creating tomorrow’s markets today. Find out more about Nasdaq’s offerings to drive your business forward here.
Traders are feeling better about the markets than they have any time in the past two years with 56% reporting a bullish outlook for the next three months, up ten points from the second quarter.
This is according to the latest Charles Schwab Trader Sentiment Survey, a quarterly survey that explores the outlooks, expectations, and perspectives of traders at Charles Schwab.
Trader optimism extends beyond the short-term market outlook, with nearly six in ten traders feeling it is a good time to invest (up 11 points QoQ) and more than half saying they are better off financially compared to a year ago (up five points QoQ and seven points YoY). Additionally, most traders (69%) are confident in their decision-making.
Trader confidence trends
4Q ‘23
1Q ‘24
2Q ‘24
3Q ‘24
Good time to invest
41%
49%
48%
59%
Better off financially
33%
54%
55%
60%
Confident in decision-making
64%
68%
69%
69%
Inflation, which was traders’ top concern last quarter, fell to third place while expectations for Fed rate cuts increased. Thirty-three percent of those surveyed expect rate cuts of 50 basis points or more in the remainder of the year, up from 25% of respondents predicting such cuts last quarter.
James Kostulias
“Coming into the third quarter, traders reported higher levels of optimism about the markets and economy – and continued confidence in their own decision-making,” said James Kostulias, head of Trading Services at Charles Schwab.
“While we have seen increased market volatility since fielding our Q3 survey, we’re seeing some longer-term positivity among traders, and they are in a better position than ever before to manage volatility and market risks in a nuanced way thanks to the insights, education, and professional-grade platforms and tools at their fingertips.”
Sector and asset class views
Traders favored AI stocks (62%) with bullishness toward the segment increasing six points from Q2. They point to Information Technology (49%) as the sector that will be most impacted by the rise of AI, followed by Health Care (15%).
Looking across sectors, traders were most bullish toward Information Technology followed by Energy, Health Care, and Utilities. They were least bullish on Real Estate and Consumer Discretionary.
Bullish Sector Sentiment
2Q ‘24
3Q ‘24
Information Technology
51%
61%
Energy
64%
57%
Health care
40%
49%
Utilities
37%
45%
Finance
30%
40%
Communications
29%
37%
Consumer Discretionary
20%
23%
Real Estate
19%
21%
When asked about asset classes and styles, traders reported increasingly positive sentiment toward growth stocks, mega cap tech, domestic stocks, and equities in general. Fewer traders were bullish on spot Bitcoin ETFs and spot ether ETFs.
Bullish sentiment over next three months
1Q ‘24
2Q ‘24
3Q ‘24
Artificial intelligence stocks
61%
56%
62%
Domestic stocks
52%
51%
59%
Growth stocks
50%
47%
58%
Mega cap tech stocks
49%
47%
57%
Equities in general
48%
50%
57%
Value stocks
54%
49%
53%
Spot Bitcoin ETFs
N.A.
N.A.
22%
Spot ether ETFs
N.A.
N.A.
21%
Looking at which instruments traders are considering trading in Q3, a modest percentage are interested in trading spot Bitcoin ETFs (13%) and spot ether ETFs (11%). Most are considering trading options (65%) and almost half (48%) plan to trade AI stocks.
Election comes into focus
The political landscape in D.C. is a top concern among traders, followed by worries that the market is due for a correction.
Primary concerns within the next three months
2Q ‘24
3Q ‘24
The political landscape in Washington D.C.
15%
20%
Market is due for a correction
13%
13%
Inflation
19%
10%
Geopolitical/global macro issues
11%
8%
AI bubble
3%
7%
Potential of a recession
4%
7%
Most traders (94%) believe the presidential election will have at least some impact on financial markets. As the election approaches, almost half (44%) say they are reducing risk in their portfolio and 25% are engaging in options hedging to navigate the election’s impact in advance.
“A lot has happened in the election in the past few weeks, and traders will continue to be hit with a constant stream of news between now and Election Day,” said Kostulias. “What we see from our survey data is that traders plan to take a measured approach to trading in relation to the election. A sizeable portion are taking steps to manage risk, and even more are leaving the election out of their trading plans–a good indication that they are paying close attention but not being overly reactive.”
By Donald McElligott, VP of Compliance Supervision, Global Relay
Donald McElligott
In recent years, communication compliance has become a minefield to navigate, especially as regulators issue ever-increasing fines. So far this year, the U.S. Securities and Exchange Commission (SEC) has issued over $480 million in fines for recordkeeping and off-channel communication compliance failures, with more rumored to come.
In the wake of these crackdowns, it’s no wonder that businesses are turning to evolving technology – like artificial intelligence (AI) – to help effectively monitor communications, identify regulatory breaches, and report failures to mitigate potential penalties.
But implementing advancing technology is not always simple. Firms must choose the right frameworks and architectures to fit their compliance needs, ensure they stay ahead of regulators, and avoid fines further down the road.
Regulatory oversight is growing
As a first step toward building effective communication compliance, firms must understand the regulatory space they are operating in. For several years, regulatory agencies in the U.S., like the SEC and the Financial Industry Regulatory Authority (FINRA), have taken more direct stances around communication compliance than peers in other jurisdictions.
In 2021, the SEC launched an initiative to monitor and curb the use of ‘off-channel’ communications, particularly those sent through messaging platform WhatsApp. Since then, the agency has imposed more than $2 billion in fines to firms for failing to maintain and preserve electronic communications.
And this trend is set to continue – in July, the SEC targeted 26 financial firms, issuing nearly $393 million in fines for failing to keep adequate records of electronic communications. Similarly, FINRA has cracked down on AI-created communication and chatbot communication, emphasizing that stricter oversight of these channels will better ensure compliance and prevent misleading communications.
With increasing pressure from regulators, financial firms must lean into technology resources in order to ensure they meet the standards for communications compliance across the territories they operate in.
Technology is a gamechanger for communication compliance – but where to start?
Before identifying which platforms and tools they want to use, firms need to pinpoint their specific pain points and which compliance tools are needed to solve these issues. For example, firms with complex, multi-vendor solutions waste a lot of time reviewing content spread across multiple channels and platforms. A single solution to consolidate all communications into one system streamlines performance, increases efficiency, and helps reduce risk.
Additionally, each firm will have its own unique set of requirements to manage their specific compliance needs. One company may need a more robust and cooperative system to satisfy audit requirements or submit more timely responses to discovery requests, while another’s main concern might be the need to strengthen data integrity and security. Identifying specific needs is key to efficient workflows and mitigating risk.
Another important step is to determine if an internal system or third-party partner works better to meet an organization’s needs. Companies looking to create their own internal systems should look for solutions that seamlessly integrate into existing infrastructure and architectures and can adapt with emerging technology. For example, tools like OpenAI’s compliance application programming interfaces (API) for enterprise customers allow companies to manage their data, while still prioritizing privacy and compliance with regulatory standards, and compliantly capturing and archiving prompts, conversations, and file attachments between individual users and the ChatGPT bot.
Conversely, working with a third-party partner requires firms to focus on consolidation. While external partners can be vital for effective processes, using multiple partners for critical operations adds complexity, which can expose firms to compliance gaps. Firms should use this opportunity to simplify and streamline their processes and avoid risks to operational resilience – especially with more regulators focusing on this area.
It’s also critical for businesses to have a start-to-end plan after they begin monitoring and capturing employee communication. Firms will need to factor in how to migrate data from old end-of-life (EOL) technologies and systems to newer solutions. Regulators will want to see this step featured in business continuity plans and know that a firm has sought out the least disruptive solution possible. Migrating large amounts of data, while maintaining strict chain-of-custody controls, can be a challenging process. This may require working with a migration partner with expertise in EOL transitions within regulated industries.
Organizations also need a plan for how and when to report breaches in case there is a communication compliance failure. The SEC has outlined that a company’s decision to directly disclose recordkeeping rule violations can potentially reduce the fine it receives. Prompt self-reporting, as well as a firm’s level of cooperation during an investigation, and clear efforts to prevent off-channel communications, can help reduce fines.
The path toward compliant communications is tech-focused and action oriented
In today’s era of intense regulatory oversight around business communication, firms must determine how to capture, store and analyze communication data, which technologies they will employ to achieve compliant data capture, how they will set these steps into action through EOL data migration plans, and a course of action on how and when to self-report in the case of a data breach. Technology solutions, like AI, and digital upgrades, such as data management platforms, will serve as the backbone to achieving compliant communication and ensuring outlined plans can become reality.
FLASH FRIDAY is a weekly content series looking at the past, present and future of capital markets trading and technology. FLASH FRIDAY is sponsored by Instinet, a Nomura company.
Generation Z, or Gen Z, is the generation of people born between 1997 and 2012. They come after the Millennial generation and before Generation Alpha.
Here are some things to know:
Age: In 2024, the oldest members of Gen Z are in their late 20s, while the youngest are around 12 years old.
Parents: Most Gen Zers are the children of Generation X or younger Baby Boomers.
Consumer habits; Gen Zers prefer debit cards over other payment methods, and are cautious about using credit cards.
Slang: Gen Z slang includes “lit”, which is used to describe something remarkable, interesting, or fun.
Events: Gen Zers have experienced the COVID-19 pandemic, the #MeToo movement, the George Floyd protests, and the overturn of Roe v. Wade
Today, we’re excited to introduce a couple of Deutsche Bank zoomers.
Adam Lerner
Adam Lerner, Vice President, Quant Trader, Deutsche Bank
Briefly describe your educational background and work experience, including current role/responsibilities.
After I graduated from Carnegie Mellon University in 2019, where I studied Computational Finance, I joined Deutsche Bank as an analyst in the Rates Derivative Structuring business. My experience in the firm’s summer internship program helped prepare me for my first post-college role. I’m currently a quant trader in the Electronic Foreign Exchange Spot Trading business. Our team helps optimize the eSpot offering using methods ranging from simple and intuitive, to machine learning and AI.
What do you like to do outside work?
Outside of work, I enjoy playing sports and recently joined a recreational kickball league. It’s been a great opportunity to continue to play a sport I enjoy, as well as meet new people and make new friends.
Is it true Gen Z hates to talk on the phone?
While a surprise call can sometimes be a bit jarring, a pre-scheduled video call with colleagues or clients is always welcome. I have found that a phone or video call is often far more efficient when working through a complicated challenge. For example, my team, which is globally run across four offices, has a video call running all day that allows us to stay well-informed and connect with colleagues across geographies.
What is the best aspect of your job?
The best aspect of my job is the people I work with and the work we do. I enjoy the mix of quantitative analysis and market intuition in my day-to-day. My colleagues are incredibly smart and are always willing to help share different perspectives or solutions, which provides a wealth of ideas for me to research.
What advice would you offer someone looking to “break” into the field of finance?
The advice I would offer is when networking within an organization, I’d recommend going for depth and not breadth. Developing a deeper relationship with one or two members of an organization can often be more beneficial than speaking once with many more.
Preston Bryant
Preston Bryant, Vice President, Structuring Associate, Deutsche Bank
Briefly describe your educational background and work experience, including current role/responsibilities.
I joined Deutsche Bank after graduating from Carnegie Mellon University in 2019, where I studied finance and accounting. I also took part in the firm’s summer internship program my sophomore year. I began my post-graduate career with the bank as an analyst on the Social Infrastructure Direct Lending desk. I was responsible for assisting on underwriting by modeling cash flows for deals and preparing credit memos. My responsibilities as a vice president on the desk have grown to cover the entire investment process from origination to underwriting, structuring, and legal negotiation.
How did you get interested in the world of finance / fintech / asset management?
I became interested in the world of finance through basketball. As an avid basketball fan and life-long Knicks fan, I would see players traded for other players and draft picks, this sparked my interest in the finance and negotiation process of building and managing a professional basketball team and franchise. As I got older it gave me an appreciation for those business fundamentals and I decided to pursue my interests in the markets.
What is the best aspect of your job?
The best aspect of my job is the constant learning that is required, whether it is understanding a new credit structure or legal concept, every deal presents new challenges, which is interesting and intellectually rewarding.
Do you participate in any extracurricular activities at work?
I’m active in Deutsche Bank’s recruiting program where I support our recruiting efforts, as well as provide interview preparation and mentoring. I’ve had many great mentors throughout my career, so it is important to me to serve as a mentor to others at the firm. One of the most rewarding aspects of my professional career is watching individuals I’ve mentored grow in their careers.
Kepler Cheuvreux was the winner of this year’s best electronic equities trading award at the European Market’s Choice Awards. Bobbie Port, KCx’s Head of Electronic Distribution, tells Global Trading what has led to the firm’s success.
Bobbie Port, Head of Electronic Distribution, KCx.
What has driven your success this year? This year, we have achieved revenue growth, improved market share, and increased client mandates across all our execution businesses.
Following the launch of our new global execution strategy, we set about improving our engagements with our clients. Through constant client consultations and partnerships, we focus on delivering products designed to respond to the evolving needs of our clients. Our clear priority is to remain focused on our mission statement “to build solutions which clients love”.
Our KCx API Analytical Suite enables clients to access the same forecasts and analytics that we use for our own quantitative intelligence, which powers our trading engine.
Our new liquidity-seeking algorithm, Pulse, launched in Q3/23. It targets arrival price and strategically prioritises non-displayed venues to source liquidity. The adoption rate has been very impressive, with over 500 clients now using the algorithm.
By leveraging our Flow Aggregation design, we have successfully implemented aggregation of multiple orders to support consolidation of algorithmic flows for the same security, improving execution quality, reducing market impact, reducing costs, and boosting overall trading efficiency.
Our DynVWAP model utilises our new proprietary volume forecasting and uses real-time data to continuously predict volume distribution throughout the trading day. The model enables us to manage unexpected events, such as sudden spikes in volatility or liquidity, more effectively.
How have you focused investment to support this growth? As our electronic trading business grows our priority is to deliver innovative products for our clients. To support this growth, we have focused our investments into diverse talent, new expertise and technology advancements.
In the past two years, we have made deliberate efforts to recruit talent from a variety of sectors, including stock exchanges, technology and asset management firms. This approach has brought fresh perspectives and innovative solutions.
As our electronic trading footprint has been growing, we have introduced two newly formed teams; Algo Trading and Market Structure. The Algo Trader role bridges the gaps between trading, sales trading, and quants, breaking down traditional barriers across teams. The market structure role oversees macro and micro level content and provides key regulatory insights to assist clients in navigating the complexities of the equities trading ecosystem.
Continuous investment into our custom framework allows us to maintain a resilient and agile platform that can sustain the increasing growth of our algorithmic usage. This framework offers high flexibility, allowing users to tailor trading algorithms by designing their own specifications with our team to meet their unique needs and preferences to fine-tune the approach with precision.
We expanded our global fix specification with over 70 new algorithmic parameters, allowing for greater customization and precision in executing client strategies. This formed the foundation for new product rollout such as PAIRs Algo Trading, Scaling Close, CBOE Super Sweep, Swiss AVD and TAL.
What has been customer response? Our clients value our transparent, proactive and collaborative approach. We have successfully established a strong foundation of customer loyalty, with clients consistently supporting and partnering with us as we introduce new products. The market clearly appreciates disruption and continuous change driven by agility.
We are pleased to see significant progress in the US, both in acquiring US-based clients and trading in to the US market. Through 2023 and 2024, 15% of our new client acquisitions came from the US, making it our second most successful region after the UK, which accounted for over 30% of new clients. The US is now our second-highest region in terms of executed volumes.
According to an industry survey, we rank in the top 10 for European Cash Equities (Execution and Research). Our low-touch product gained share in all client regions, with double-digit gains across the US and Europe. More interestingly, our recent investments and client engagements have further strengthened our high-touch offering, with double to triple-digit share increases.
In which areas are you building the team (numbers/skills etc), and why? We are strengthening all KCx teams, having welcomed over twenty new members since early 2022. Ten new members sit within Electronic Distribution and the Quant space, reflecting our commitment to expanding our algo product offering.
The US region is a core part of our strategy and one of our fastest growing offices, now housing a team of trading specialists. We are investing significantly in both personnel and product development, reinforcing our commitment to expanding our presence and capabilities in that region. In the last year, we have fostered new relationships with market leading technology firms, venue operators, and execution partners to enhance our access to unique liquidity.
Our clients will notice an increased focus on market structure. There is a growing interest from our European clients to understand US microstructure and how this compares to Europe, such as guidance around the US SIP versus the potential EU consolidated tape, and the ATS ecosystem versus the MTFs and Periodic auctions, that exist in Europe. Lastly, our US clients have shown interest in the Microwave technology developed in Europe, a technology that has been highly effective in the US.
How will the market see your offering evolve over the next twelve months? The market should expect more innovation, products and advancements in our technology over the next 12 months.
Our partnership with Adaptive will bring multiple benefits to our client base. This a very ambitious project aims to deliver a proprietary, scalable sequencer-based architecture known as KCx Omni enabling us to continue innovating at a rapid pace. The new architecture will greatly enhance our electronic trading capabilities.
An extra layer of integration will include our API powered TCA platform KCx Vector, delivering advanced analytics and customized TCA for order performance monitoring, live TCA, pre- and post-trade analytics.
In 2022, we selected BMLL as a partner. By leveraging BMLL’s order book analytics and advanced insights we better understand market microstructure and optimise our trading strategies. Clients will notice improved routing capabilities in the US and EU.
Client demand in Portfolio trading has increased over the last 12 months. To enhance our offering, we invested in a new PT system that has already been deployed across our execution desks. This upgrade not only strengthens our existing services but also empowers our expansion into new markets, including APAC, and MENA (via our European entity).
The Kepler Cheuvreux team at this year’s EMCAs on 3rd July.
The World Federation of Exchanges (WFE), the global industry association for exchanges and central clearing counterparties, has published recommendations that establish good practice for crypto-asset custody providers, drawing lessons from traditional financial markets to guide the emerging digital asset space.
Nandini Sukumar
The ruling against FTX and Alameda in the US earlier this month exemplifies the broader shift in expectations for the crypto industry to be held to higher standards closer to that of well-functioning finance, ensuring stronger protections for investors.
The next area that needs addressing is the inadequate custody control amongst crypto platforms, which underscores the risk to both market integrity and investor protection. Without proper custody controls there is a heightened risk of financial loss, fraud and mismanagement. This undermines investor confidence and the overall integrity of markets.
The report addresses the urgent need for regulation and best practices in the wake of high-profile failures within the crypto industry and this can make the difference in attracting investment from institutions yet to allocate to crypto.
Nandini Sukumar, Chief Executive Officer, at the WFE commented, “The FTX collapse and longstanding worries about insufficient custody controls in the crypto industry highlight risks to both market integrity and investor protection. Crypto custody providers should learn from more traditional markets that have a track record of functioning well and can start by following the recommendations we have set out today.”
The WFE recommends that crypto custody providers:
Consider segregating client assets to ensure they are protected in the event of a company’s bankruptcy.
Ensure client assets remain bankruptcy-remote, ie, separate from those of other persons, whether legal or natural.
Address cyber risks through thoughtful technology architecture decisions and the operation of mature cyber security programmes.
Provide more than a place to hold or administer assets.
Ensure that conflicts of interest are adequately managed and addressed.
Manage all aspects of operational resilience across their support model.
Disclose risks in a way that is clear and understandable, particularly for retail customers.
Have adequate insurance and/or surety bonds and disclose these policies in clear understandable terms.
Seek independent audits from reputable and credible auditors to provide an assessment of financial statements, process and controls.
Richard Metcalfe, Head of Regulatory Affairs at the WFE, commented: “While these technological innovations and the associated concerns about managing generative AI are significant, it is important to remember that, as trusted third parties providing secure and regulated platforms for trading securities, our members are already carefully scrutinising tools and establishing controls to govern AI use. The US Treasury should therefore take care to design an AI regulatory framework which is principles based, to maintain flexibility and encourage innovation. We also need to have an incremental approach to AI regulation, allowing for gradual adjustments and learning, ensuring that regulations do not hinder technological progress.”
The Commodity Futures Trading Commission has issued an order filing and settling charges against Nasdaq Futures, Inc., formerly a designated contract market (DCM). The order finds Nasdaq Futures, Inc. failed to properly establish, monitor, or enforce rules related to an incentive program Nasdaq Futures, Inc. offered to certain traders on its DCM.
Ian McGinley
The order also finds Nasdaq Futures, Inc. did not fully disclose this incentive program’s details to the CFTC or the public consistent with the requirements of the Commodity Exchange Act (CEA) and Commission Regulations.
In addition, the order finds Nasdaq Futures, Inc. made false and misleading statements to the CFTC regarding the incentive program. The order requires Nasdaq Futures, Inc. to pay a $22 million civil monetary penalty.
“The CFTC’s oversight regime depends upon CFTC-designated exchanges providing the CFTC and market participants accurate information,” said CFTC Director of Enforcement Ian McGinley.
“Nasdaq Futures, Inc.’s conduct here represents significant violations of both its duty to provide such information and several statutory Core Principles applicable to CFTC-designated exchanges.”
Case Background
The order finds from July 2015 through July 2018, Nasdaq Futures, Inc. operated as a DCM focused on energy commodity futures contracts. Nasdaq Futures, Inc. offered various incentive programs to certain traders on its contract market, including its “Designated Market Maker” (DMM) program. The DMM program, as disclosed to the CFTC and the public, paid a fixed monthly stipend to market makers. However, Nasdaq Futures, Inc. also made payments to a select number of DMM program participants that were based on the total volume of contracts those participants traded; this volume-based component was not disclosed to the CFTC, as required by the CEA and associated regulations. In fact, Nasdaq Futures, Inc.’s rule submissions to the CFTC regarding its incentive programs omitted or explicitly denied the existence of a volume-based incentive as part of the DMM program. In addition, when interviewed by CFTC staff about whether Nasdaq Futures, Inc. paid DMM program participants for trade volume, its employees repeatedly stated there was no volume-based component to the DMM program. Nasdaq Futures, Inc. reasonably should have known all such denials, statements, and omissions were false and misleading at the time.
Further, Nasdaq Futures, Inc.’s failure to disclose this volume-based component of the DMM program to the CFTC, the public, its own compliance staff, and regulatory service provider led to the violation of several DCM Core Principles mandated in the CEA. Finally, Nasdaq Futures, Inc. did not follow its regulatory service provider’s recommendation to contact three DMM program participants about certain trading activity or document why it did not, in violation of a CFTC Regulation.
The CFTC appreciates the assistance of the National Futures Association.
The Division of Enforcement staff responsible for this matter are Brett Shanks, Elsie Robinson, Jeff Le Riche, Brandon Wozniak, Margaret Aisenbrey, Jordon Grimm, Christopher Reed, Charles Marvine, and former staff member Jo Mettenburg.
The Securities and Exchange Commission has adopted amendments to reporting requirements on Form N-PORT to provide the Commission and investors with more timely information about certain registered investment companies (funds).
Form N-PORT reports provide important information about a fund’s portfolio holdings and related information to help assess a fund’s risks.
The amendments will provide the Commission with timelier information about funds’ portfolio investments, which will promote more effective regulatory monitoring and oversight of the fund industry for the benefit of fund investors.
The amendments also will triple the amount of Form N-PORT data available to investors in a given year, enhancing investors’ ability to review and monitor information about their funds’ portfolios.
Gary Gensler, SEC
“Reliable, accessible data benefits everyone,” said SEC Chair Gary Gensler.
“These amendments will benefit investors through greater transparency of funds’ investment portfolios and improve the Commission’s oversight of the asset management industry,” he said.
The Form N-PORT amendments will require funds that are required to report on the form—generally registered open-end funds, registered closed-end funds, and exchange-traded funds organized as unit investment trusts—to file reports on Form N-PORT on a monthly basis within 30 days after the end of the month to which they relate.
Currently, funds file these monthly reports on a quarterly basis within 60 days after quarter-end. The amendments will also make funds’ monthly reports on Form N-PORT available to the public 60 days after the end of each month instead of every third month of a quarter only.
In addition, the Commission adopted reporting amendments and provided guidance related to open-end fund liquidity risk management program requirements.
Specifically, the Commission adopted amendments to Form N-CEN requiring open-end funds to report certain information about service providers used to fulfill liquidity risk management program requirements so that the Commission can track certain liquidity risk management practices.
The Commission also provided guidance related to certain aspects of open-end fund liquidity risk management program requirements to address questions raised through outreach and monitoring.
The amendments to Forms N-PORT and N-CEN will become effective on November 17, 2025. Funds generally will be required to comply with the amendments for reports filed on or after that date, except that fund groups with net assets of less than $1 billion will have until May 18, 2026, to comply with the Form N-PORT amendments.
Greater Expectations: Technology as a Solution to Increasing Regulation
By Donald McElligott, VP of Compliance Supervision, Global Relay
In recent years, communication compliance has become a minefield to navigate, especially as regulators issue ever-increasing fines. So far this year, the U.S. Securities and Exchange Commission (SEC) has issued over $480 million in fines for recordkeeping and off-channel communication compliance failures, with more rumored to come.
In the wake of these crackdowns, it’s no wonder that businesses are turning to evolving technology – like artificial intelligence (AI) – to help effectively monitor communications, identify regulatory breaches, and report failures to mitigate potential penalties.
But implementing advancing technology is not always simple. Firms must choose the right frameworks and architectures to fit their compliance needs, ensure they stay ahead of regulators, and avoid fines further down the road.
Regulatory oversight is growing
As a first step toward building effective communication compliance, firms must understand the regulatory space they are operating in. For several years, regulatory agencies in the U.S., like the SEC and the Financial Industry Regulatory Authority (FINRA), have taken more direct stances around communication compliance than peers in other jurisdictions.
In 2021, the SEC launched an initiative to monitor and curb the use of ‘off-channel’ communications, particularly those sent through messaging platform WhatsApp. Since then, the agency has imposed more than $2 billion in fines to firms for failing to maintain and preserve electronic communications.
And this trend is set to continue – in July, the SEC targeted 26 financial firms, issuing nearly $393 million in fines for failing to keep adequate records of electronic communications. Similarly, FINRA has cracked down on AI-created communication and chatbot communication, emphasizing that stricter oversight of these channels will better ensure compliance and prevent misleading communications.
With increasing pressure from regulators, financial firms must lean into technology resources in order to ensure they meet the standards for communications compliance across the territories they operate in.
Technology is a gamechanger for communication compliance – but where to start?
Before identifying which platforms and tools they want to use, firms need to pinpoint their specific pain points and which compliance tools are needed to solve these issues. For example, firms with complex, multi-vendor solutions waste a lot of time reviewing content spread across multiple channels and platforms. A single solution to consolidate all communications into one system streamlines performance, increases efficiency, and helps reduce risk.
Additionally, each firm will have its own unique set of requirements to manage their specific compliance needs. One company may need a more robust and cooperative system to satisfy audit requirements or submit more timely responses to discovery requests, while another’s main concern might be the need to strengthen data integrity and security. Identifying specific needs is key to efficient workflows and mitigating risk.
Another important step is to determine if an internal system or third-party partner works better to meet an organization’s needs. Companies looking to create their own internal systems should look for solutions that seamlessly integrate into existing infrastructure and architectures and can adapt with emerging technology. For example, tools like OpenAI’s compliance application programming interfaces (API) for enterprise customers allow companies to manage their data, while still prioritizing privacy and compliance with regulatory standards, and compliantly capturing and archiving prompts, conversations, and file attachments between individual users and the ChatGPT bot.
Conversely, working with a third-party partner requires firms to focus on consolidation. While external partners can be vital for effective processes, using multiple partners for critical operations adds complexity, which can expose firms to compliance gaps. Firms should use this opportunity to simplify and streamline their processes and avoid risks to operational resilience – especially with more regulators focusing on this area.
It’s also critical for businesses to have a start-to-end plan after they begin monitoring and capturing employee communication. Firms will need to factor in how to migrate data from old end-of-life (EOL) technologies and systems to newer solutions. Regulators will want to see this step featured in business continuity plans and know that a firm has sought out the least disruptive solution possible. Migrating large amounts of data, while maintaining strict chain-of-custody controls, can be a challenging process. This may require working with a migration partner with expertise in EOL transitions within regulated industries.
Organizations also need a plan for how and when to report breaches in case there is a communication compliance failure. The SEC has outlined that a company’s decision to directly disclose recordkeeping rule violations can potentially reduce the fine it receives. Prompt self-reporting, as well as a firm’s level of cooperation during an investigation, and clear efforts to prevent off-channel communications, can help reduce fines.
The path toward compliant communications is tech-focused and action oriented
In today’s era of intense regulatory oversight around business communication, firms must determine how to capture, store and analyze communication data, which technologies they will employ to achieve compliant data capture, how they will set these steps into action through EOL data migration plans, and a course of action on how and when to self-report in the case of a data breach. Technology solutions, like AI, and digital upgrades, such as data management platforms, will serve as the backbone to achieving compliant communication and ensuring outlined plans can become reality.