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The Trade Lifecycle: Behind the Scenes of the Trading Process by Robert Baker

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24
Regulatory, Legal and Compliance

24.1 REGULATORY REQUIREMENTS

In order to regulate the financial services industry, most governments have set up regulatory bodies which have legal powers and responsibilities. For example, in Britain there is the Financial Services Authority (FSA), in the US there are at least five different regulators including the Federal Deposit Insurance Corporation (FDIC) and the Securities and Exchange Commission (SEC) and in Brazil the Comissao de Valores Mobiliarios.
The regulators have several aims including:
• to enforce applicable laws;
• to prosecute cases of market misconduct, such as insider trading;
• to license providers of financial services;
• to protect clients and investigate complaints;
• to maintain confidence in the financial system.
A regulated entity has several responsibilites to the regulator in its operating jurisdiction.

24.1.1 Registration

The entity must register with the regulator. Registration involves stating:
• scope of trading activity
• capital provision
• personnel
• demonstrable expertise in the chosen area of business
• internal controls and procedures to manage trading.
The regulator will inspect the entity and if everything is in order grant permission for certain activities. Each activity will have a list of trading types permitted. For example a hedge fund might be allowed to arrange (bring about) deals in investments for the following set of instruments:12
• certificates representing certain security
• commodity future ...

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