Week In Review
February 9, 2009
Schapiro Expected to Beef Up Enforcement
At a time when lawmakers are considering rewriting financial services regulations, even restructuring the whole system, new Securities and Exchange Commission Chairman Mary L. Schapiro is planning to prove her agency's merit by stepping up enforcement and penalties, The Washington Post reports.
Schapiro is reportedly going to do away with a rule that requires the enforcement division to first get the permission of the SEC's attorneys before imposing penalties on wrongdoers. Since the rule was put into place three years ago, fines levied by the SEC have fallen 85%.
She reportedly is also going to ask Congress for additional money so that she can assign up to 15 lawyers per case instead of the current seven or eight; heavy caseloads in recent years have resulted in heavy turnover at the SEC, with the number of lawyers in the enforcement division now down by 10%.
As Schapiro herself said in her inaugural speech, "This crisis has exposed weaknesses and gaps in the regulatory system that have led to a loss of investor confidence. We must help to restore that lost confidence-that is our challenge. Success in this endeavor demands that we as an organization engage in serious self-evaluation. That means taking an honest look at everything we are doing and how we do it."
If Schapiro takes the same steps as she did when she became head of the regulatory division of the NASD in 1996, she is likely to replace key people, including the current head of the division of enforcement, Linda Chatman Thomsen, who has been with the SEC for 13 years. Certainly, there are a number of key openings she needs to fill, among them general counsel, chief accountant and head of corporate finance.
She is also likely to strengthen the Office of Risk Assessment, which former SEC Chairman William H. Donaldson created to detect systemic risk.
Fed Extends Liquidity Programs Through Oct. 30
The Federal Reserve is extending a number of liquidity programs set to end on April 30 through Oct. 30 "in light of continuing substantial strains in financial markets." This includes the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Money Market Investor Funding Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility and the Term Securities Lending Facility. The Fed is also extending swap lines with other central banks through Oct. 30 due to "continued pressures in global U.S. dollar funding markets."
55% of U.S. Hedge Funds Are Registered With SEC
Fifty-five percent of the hedge funds in the U.S. are registered with the Securities and Exchange Commission, according to Hedge Fund Research.
As such, the information might dissuade legislators from passing the Hedge Fund Transparency Act that Sens. Charles Grassley (R-Iowa) and Carl Levin (D-Mich.) recently introduced, which would require all hedge funds to register with the SEC. HFR also indicated that hedge funds lost $154 billion in assets in 2008, whereas they took in $194 billion in 2007.
Morningstar Launches Research, Ratings for European & Asian Funds
Morningstar has unveiled new research and ratings for the 3,000 mutual funds offered in Europe and Asia. With this new service, Morningstar is now offering written analysis on more than 5,000 funds. Worldwide, Morningstar tracks performance and operational data on 110,000 funds globally.
The new ratings and research offer forward-looking insight and assumptions into how a fund might behave under different market conditions and are based upon fundamental criteria, such as expenses, manager experience and investment approach.
"Given the global financial climate, the need for investors and their advisers to have access to objective, unbiased research borne of a completely transparent process has never been greater, said Christopher Traulsen, director of research for Morningstar Europe and Asia. "When others are cutting back their research, we're ramping up our efforts, because we want to elevate the debate beyond 'good fund/bad fund' and help investors maintain realistic performance expectations and manage their portfolios more wisely."
The rating system that Morningstar will apply to the funds, called Morningstar Qualitative Rating, ranges from Elite to Superior, Standard, Inferior or Impaired, based on a fund's ability to outperform its peer group over the long term. Each rating will be accompanied by a detailed Morningstar Fund Research Report, written by analysts to address the fund's investment process, portfolio positioning and investment advisor, including the fund's performance and expenses.
New Jersey Bars ex-Merrill Brokers for Market Timing
The New Jersey Bureau of Securities has barred three former Merrill Lynch brokers for allegedly enabling Millennium Partners to place more than 25,000 market-timing trades. Further, the three-Christopher Chung, Kevin Brunnock and William Savino- must pay $1.15 million in civil penalties.
"The hard-earned money of investors was put at unnecessary risk by the illegal actions of these individuals," said New Jersey Attorney General Anne Milgram.
Vanguard to Enter UK Fund Market