Friday, May 15, 2015

Thursday, May 14 GAFI Recap: Reg NMS, The FRBs $5B Term Deposit Facility, Nationwide Insurance & More Insider Trading

Commissioner Daniel M. Gallagher is not in favor of Reg NMS.
Federal Reserve will resume testing the Term Deposit Facility 
Nationwide Life Insurance charged
SEC charged a father and son in New York for insider trading
SEC settled with a former Microsoft employee and friend on insider trading charges

  • Commissioner Daniel M. Gallagher gave a statement at the Inaugural Meeting of the Market Structure Advisory Committee. Not surprisingly, Gallagher, being one of the Commission's most vocal advocates against financial regulation, is not in favor of Reg NMS. "Reg NMS in particular," Gallagher states, "has come to stand as the Commission’s poster child for unintended consequences and the need for the Commission to institute retrospective reviews of its rules." He goes on to say, "I am therefore thrilled the Committee is starting its review with an examination of Rule 611 of Reg NMS.  One would be hard pressed to find a more perfect example of regulatory distortion of market competition."
  • The Federal Reserve will resume testing the Term Deposit Facility (TDF). The first two operations will be on May 21 and May 28. The term will be 14-day and 7-day, respectively. The maximum individual award amount will be set at $5 billion, and the rate will be the IOER (currently 25 basis points) plus a fixed spread of 1 basis point. Complete details are to be announced the day prior to each offering.
  • The SEC charged Nationwide Life Insurance Company with violating pricing rules. Nationwide agreed to settle and pay an $8 million penalty. Nationwide’s prospectus "stated that mutual fund orders received before 4 p.m. at its home office in Columbus, Ohio, would receive the current day’s price and orders received after 4 p.m. would receive the next day’s price." However, the investigation found that Nationwide intentionally delayed picking up mail related to its variable contracts business. "Therefore, in spite of receiving customer orders and other variable contract mail in its P.O. boxes at least several hours before the 4 p.m. cut-off time". "For more than a 15-year period, Nationwide intentionally delayed the delivery of untracked mail containing orders from customers and processed them at the next day’s prices in violation of the law," said Sharon B. Binger, Director of the SEC’s Philadelphia Regional Office. Shame on you Nationwide, shame on you.
  • The SEC charged a father and son in New York with conspiring to create an insider trading scheme involving tips of nonpublic information via coded e-mail messages about golf. The SEC alleges that Sean R. Stewart, currently a managing director at Perella Weinberg Partners, a prominent investment bank, routinely provided his father, Robert K. Stewart, with tips and "confidential information about future mergers and acquisitions involving clients of two investment banks where he has worked during the past few years."  Prior to working for Perella Weinberg Partners, Stewart worked at JPMorgan Chase & Co.  The father is a certified public accountant and was arrested Thursday morning. The son has not yet been arrested.
  • The SEC settled with a former Microsoft employee and friend on insider trading charges filed in 2013. The two were accused of unlawfully trading nonpublic information about Microsoft (Nasdaq: MSFT). Brian D. Jorgenson, a ex-Senior Portfolio Manager within Microsoft's corporate finance department and Sean T. Stokke, a long time friend of Jorgenson's, admitted to the scheme and they will both be jointly liable for over $400,000 in " ill-gotten gains realized from their illegal trading as well as prejudgment interest." Both men pled guilty to criminal charges and Jorgenson was sentenced to 24 months in jail, while Stokke was sentenced to 18 months in jail.