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Mutual Funds Linked to Insider Trading Probe

At Deadline

The Securities and Exchange Commission, Federal Bureau of Investigation and the office of Manhattan U.S. Attorney Preet Bharara are readying insider-trading charges against numerous financial professionals.

The targets of the three-years-in-the-making civil and criminal probes range from consultants to investment bankers to mutual and hedge fund traders and analysts. The regulators are looking into whether nonpublic information is passed along by independent analysts and consultants who work for companies that provide "expert network" services to hedge funds and mutual funds. These companies arrange meetings with current and former managers from hundreds of companies for traders seeking an investing edge.

Separately, the investigators are looking at whether (apparently low-level) bankers at Goldman Sachs leaked information about mergers.

Some reports compare hard-liner Bharara to his predecessor Rudolph Giuliani, who vigorously prosecuted Wall Streeters when he was the Manhattan U.S. attorney in the 1980s.

Canadian Regulator Proposes Circuit Breakers

Canada's Industry Regulatory Organization has proposed the implementation of single-stock circuit breakers.

The IIROC's proposal is similar to one implemented by the Securities and Exchange Commission in June following the so-called Flash Crash on May 6 when the Dow Jones Industrial Average lost more than 600 points in only 12 minutes.

The IIROC's new single-stock circuit breakers would apply to all securities listed on any exchange in Canada and those dually listed in Canada and the U.S, the organization overseeing investment dealers said. The proposal is out for public comment until Jan. 16.

Currently, the IIROC can implement so-called "universal market integrity rules" which allow it to delay, stop or suspend trading at any time when it determines it is in the public interest to create a fair and orderly market. However, in a statement, the IIROC said that such a methodology was not adequate to deal with trading in multiple securities in diverse marketplaces in a short period of time.

Under the IIROC's proposal, the circuit breaker would be implemented when a stock price either increases or decreases past a certain threshold. Trading would be halted for five minutes on shares listed on the Toronto Stock Exchange (TSX) and for those listed on small-cap exchanges such as TSX Venture or CNSX, trading would be halted for 10 minutes. In the case of TSX trading, the threshold for triggering the circuit breaker would be if a price moves by either 10% or 10 trading increments-whichever is greater-over a five minute interval.

On the TSX Venture or CNSX, the trading would be halted if the price of a security moves by the greater of 20% or by 20 trading increments over 10 minutes.