Kirsten Wegner named Index Industry Association CEO

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January 17, 2025

Kirsten Wegner, CEO, Index Industry Association

The Index Industry Association (IIA) has appointed Kirsten Wegner as CEO. She replaces Rick Redding, who has held the role since the IIA was founded in 2013.

The IIA aims to improve industry best practices, advocate in the interests of index users and providers, and educate investors on the role of indexes. Its members include ICE, FTSE Russell, S&P Dow Jones Indices, STOXX and Nasdaq.

Wegner is responsible for leaving public policy and communications initiatives at the firm, working with the IIA’s 17 member firms and board of directors.

IIA chair and FTSE Russell CEO Fiona Bassett commented: “The IIA plays a critical role in educating investors on the benefits of indexes, advocating for the best interests of index users and providers worldwide and pushing for the highest industry standards of best practice, independence and transparency. With her specialized background working with financial institutions, regulators and legislators, Kirsten is uniquely qualified to lead the IIA forward.”

Wegner has worked in the financial industry for more than 20 years, and joins the IIA from education and advocacy group the Modern Markets Initiative. She was CEO of the group from 2017 to 2024.

Earlier in her career, Wagner was a government relations director at ISE holdings as they launched their all-electronic options exchange, and served as a senior associate at law firm Squire Patton Boggs, working with financial services and technology clients.

©Markets Media Europe 2024

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Two Sigma fined US$90m by SEC over trading model scandal

By

Lucy Carter

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January 17, 2025

Hedge fund Two Sigma, which holds more than US$60 billion in assets under management, took more than four years to address investment model vulnerabilities, the SEC has found.

Two Sigma employees were aware of vulnerabilities in some of the firm’s algo investment models which could negatively impact client returns in or before March 2019, the SEC reported in its investigation. Concerns were raised that staff had complete read and write access to a database holding the parameters for some live-trading models, and could therefore make changes to these metrics without approval.

Initially, model code for Two Sigma’s live trading system was stored in the ‘Jar’, a secure file that could only be updated by the company’s engineering team. However, as the parameters needed to run the models grew, researchers began to store larger samples in a database called celFS. This database was accessible by researchers and various other personnel, the SEC said.

Connecting these parameters to code in the Jar, some researchers altered the impact of the ‘official’ parameters. “This use of model parameters was important to Two Sigma because it removed redundancy that could result in Two Sigma buying or selling more or less of a specific security than it otherwise desired or intended,” the SEC stated in its report.

In early 2019, employees alerted senior management to this practice. Various individuals and groups, including a TwoSigma co-founder, proposed solutions, but a consensus was not reached on how to best deal with the issue.

The subject was considered a number of times over the following years, including by a senior engineer who wrote in January 2022 that “[i]t is […] dangerous to allow this and efforts are in place to limit and eventually allow only data engineering to have write access”.

Two Sigma did not take action on the issue until June 2022, after an employee accidentally overwrote several models’ parameters. The changes were reversed before market open, and Two Sigma limited access to model parameters stored in celFS to certain engineers. Changes to the models would have to be submitted by written request.

Regardless, between November 2021 and August 2023, a modeller with this access made changes to the decorrelation parameters of 14 live-trading models – many of which he had developed or assisted on himself. Some of the alterations were executed without detection, increasing expected correlation to other Two Sigma models.

However, the modeller also submitted requests for changes as Two Sigma required. “He knew, based on his understanding of the ticket process, [that these] would not be substantively reviewed or questioned,” the SEC said.

These changes prompted investment decisions that would not otherwise have been made, and as a result, some client funds and separately managed accounts overperformed by more than US$400 million – while others underperformed by US$165 million.

It was not until August 2023 that Two Sigma began monitoring the celfS database, and identified the alterations.

In November 2023, senior vice president and quant trader Jian Wu was accused of making these unauthorised changes.

Wu subsequently petitioned the Supreme Court of the State of New York to release the names of those who informed Two Sigma of the action, claiming defamation. The case was disposed in March 2024.

In the petition Wu’s attorney stated: “In truth and in fact, as Two Sigma […] well knew, Two Sigma had no policy or practice covering the changes that petitioner made and any purported loss was a result of Two Sigma’s abysmally weak controls and reckless investment decisions.”

Two Sigma failed to introduce written policies and procedures and to supervise employees, the SEC stated. It also noted that departing employees were asked by Two Sigma to “state as fact that they had not filed a complaint with any governmental agency” between 2019 and 2024. These actions were in violation of the commission’s whistleblower protection rule, it said, discouraging individuals from contacting the authorities at risk of their post-separation payments and benefits.

Two Sigma Investments and Two Sigma Advisors (Two Sigma) neither admitted nor denied the SEC’s charges, but has agreed to a cease and desist order imposing a censure and a US$45 million penalty to both its investment and advisory businesses. Impacted funds and accounts were repaid the US$165 million during the investigation.

On the SEC’s announcement, a spokesperson for Two Sigma said: “After proactively reporting the issue in 2023 and promptly remediating negatively impacted clients, Two Sigma is pleased to have reached a resolution with the SEC, putting this matter behind us. We are committed to acting with the utmost integrity and have made a range of enhancements to our operational policies, procedures, and oversight. We are focused on the future and delivering value for our clients.”

©Markets Media Europe 2024

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SEC loses general counsel and international affairs director

By

Lucy Carter

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January 17, 2025

Megan Barbero, ex-general counsel, SEC; YJ Fischer, ex-director of international affairs, SEC

Departure announcements continue at the SEC, just days before Donald Trump’s inauguration.

General counsel Megan Barbero and director of international affairs YJ Fischer are the latest to hand in their notice, both leaving the commission on 20 January.

They follow chief accountant Paul Munter and chief economist Jessica Wachter, who announced their departures earlier this week. In November 2024 SEC chair Gary Gensler confirmed that he would be leaving the commission once the new government was in place, while trading and markets division director Haoxiang Zhu left in December.

Fischer has been in her role since August 2021, improving international cooperation around enforcement initiatives and the examination of overseas market participants.

Prior to joining the commission, Fisher held roles in the US State Department. In the private sector, she worked on international policy and research and development funding.

Barbero joined the SEC as principal deputy general counsel in July 2021, before being promoted in February 2023. Acting as chief legal officer, she advised the commission in all legal and policy matters.

Earlier in her career, Barbero was deputy general counsel for the US House of Representatives and an attorney at the US Department of Justice civil appellate.

Gensler commented: “I thank Megan for her many years of public service. Her measured advice and judgment have been critical to the decision making of the commission.”

©Markets Media Europe 2024

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Euronext’s bid for single-stock options market share falls short

By

Lucy Carter

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January 16, 2025

Euronext’s expansion of single-stock options is not paying off, with the exchange reporting a decline in traded contracts across the board.

In single stock futures and options, Euronext’s market share was down 10 percentage points to 17% over the year. At year-end, 78 million contracts were traded at the exchange to Eurex’s 302.5 million.

Contracts traded: single stock futures and options

This decline has occurred in spite of measures taken by Euronext in 2024 to minimise the gap between the two exchanges. Coverage was expanded to include all German DAX constituents, Irish single stock options and the Portuguese market, with 31 single-stock options launched in November alone.

Eurex’s reign of dominance over European equity derivatives has only gotten stronger in 2024, despite Euronext’s efforts. The role of the Eurostoxx index as a pan-European benchmark gives Eurex a key advantage in volumes, and it is in non-index derivatives where the real competition is revealed.

The German exchange reported 302.5 million contracts traded in 2024, up 16.7% from 2023’s 268.7 million. Comparing contracts traded in December alone, volumes were up 13% to 27.1 million year-on-year (YoY).

Euronext, by contrast, traded 128.897 million contracts in 2024 – down 4.3% on 2023’s 134.7 million. YoY, too, December volumes fell by 5.2% to 8.7 million.

Total equity derivatives contracts traded

As a result, market share for traded contracts tipped to year-long highs for the exchange in December, with Euronext falling to single digits (9%). This is the lowest the ratio has fallen in 2024.

A Euronext spokesperson told Global Trading: “Eurex, as Euronext, has been impacted by low volatility, mainly on index futures.”

Across equity index futures and options, 50 million index futures and options were traded on Euronext, compared to Eurex’s 751.5 million. This gave Euronext 6% of the market share in December; the highest it reached in 2024 was 7%, and the lowest 5%.

Volatility products saw a spike in interest in 2024, with Eurex’s volatility index derivatives trading 21.7 million contracts over the year – up 20.4% on 2023’s figures, which were at a four-year low. Within this, VSTOXX futures were up 14% YoY to 15 million contracts traded, while the number of VSTOXX options contracts traded rose by 38.2%, reaching 6.6 million.

Looking to the year ahead, after celebrating 10 years as a public company Euronext announced its ‘Innovate for Growth 2027’ strategic plan in November 2024. A spokesperson told Global Trading: “Euronext intends to diversify into fixed income derivatives, as part of a broader diversification strategy. We are confident that our strong local ties and our innovative offering will gain traction and allow us to gain market shares in derivatives trading in Europe.”

Goals of the strategic plan also include new trading services in cash equities, the exchange stated in November.

Eurex is also branching out, announcing that from 6 January its dividend options were directly accessible to US market participants.

On receiving approval from the CFTC, Robbert Booij, CEO of Eurex Frankfurt, said: “Removing access barriers and making our products available to global investors is a top priority for us. With dividend options on key indices such as the EURO STOXX 50 Index and the EURO STOXX Banks Index, US investors have another efficient tool to manage their exposure to the European market.”

©Markets Media Europe 2024

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Wachter and Munter walk away from SEC

By

Lucy Carter

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January 16, 2025

Jessica Wachter, ex-chief economist, SEC; Paul Munter, ex-chief accountant, SEC

Chief accountant Paul Munter and chief economist Jessica Wachter are the latest to announce their departures from the SEC, just days before Donald Trump’s inauguration on 20 January.

In November, SEC chair Gary Gensler announced that he would leave the commission on inauguration day.

Similar changes have been seen at the CFTC, where last week director of enforcement Ian McGinley shared that he would be leaving the commission on 17 January. The week before, chairman Rostin Benham announced that he would be leaving on 20 January.

Munter has been chief accountant since January 2023, after two years as acting chief accountant. Before joining the commission, he was a senior instructor of accounting at the University of Colorado Boulder and lead technical partner for KPMG’s international accounting and International Financial Reporting Standards (IFRS) activities.

On his retirement from federal service, effective 24 January, Munter said: “It has been the honor of my career to serve investors and our markets as the chief accountant for the past four-plus years and lead the outstandingly talented and dedicated professionals of the Office of the Chief Accountant.”

Wachter will leave the SEC on 17 January. She has been chief economist and director of the division of economic and risk analysis since May 2021, leading economic analyses for SEC rule proposals and adoptions. These included bringing the Treasury market into central clearing, the US’s move to T+1 settlement, and improving transparency around cyber attack risks.

Gary Gensler, SEC chair, commented: “As chief economist, [Wachter] ably led a division that has a seat at the table for all of the SEC’s critical decision making, whether it’s policymaking, enforcement, or monitoring markets. I have enjoyed and learned so much from working with Jessica who has been one of my closest advisors. I wish her very well as she returns to academia.”

Before joining the commission, Wachter was a professor at the University of Pennsylvania’s Wharton School. She is returning to the university as the Dr. Bruce I. Jacobs Chair of Quantitative Finance.

©Markets Media Europe 2024

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ASIC nabs CEO from Australian competition watchdog

By

Lucy Carter

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January 16, 2025

ASIC has found a full-time CEO in Scott Gregson, eight months after Joe Longo’s secondment to the Commonwealth Director of Public Prosecutions.

He takes on the role from 17 March, replacing Greg Yanco, who has been interim CEO since 1 June.

Over the past year, ASIC has seen major changes across its senior leadership. Tim Mullaly, executive director for enforcement and compliance, retired in July, replaced by Chris Savundra in October. Yanco’s CEO appointment left the executive director for regulation and supervision position empty, filled by Peter Soros four months later.

Yanco stated in April that he intended to retire from the commission in mid-2025, and Longo informed ASIC that he would not return to the firm, leading to an international search for a permanent CEO.

Gregson is currently CEO of the Australian Competition and Consumer Commission (ACCC), where he has worked since 1996. He previously focused on investigation and enforcement, and held executive general manager roles in mergers and enforcement.

Gina Cass-Gottlieb, ACCC chair, stated: “This is a great loss for the ACCC and a great gain for ASIC. Scott Gregson has made an enormous contribution in his nearly 30 years at the ACCC, and he will be sincerely missed.”

The commission also refreshed its strategic priorities in August, highlighting consistency and transparency as leading concerns. These were determined based on the uncertainty of the economic environment, climate change risk, Australia’s ageing population and the impact of technological change on the financial system.

At the time, Longo said: “While the overarching themes of our existing strategic priorities remain consistent, our updated corporate plan demonstrates how we are evolving and adapting to the changing needs of our operating environment.”

Longo, who remains ASIC chair, has voiced his support for Gregson’s appointment. “Scott will bring extensive experience to this important role. [His] experience supporting digital and technology delivery, and his pedigree in enforcement and compliance, will continue to ensure ASIC is well placed to meet future challenges.”

©Markets Media Europe 2024

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Clearwater Analytics to acquire Enfusion as AM tech provider contest heats up

By

Etienne Mercuriali

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January 15, 2025

Investment management software incumbent, Blackrock-owned Aladdin is attracting competitors. The latest example is Clearwater Analytics which is purchasing front-office solutions provider Enfusion for US$1.5 billion.

Clearwater’s acquisition marks further consolidation in the financial technology sector as asset managers increasingly demand integrated cloud-based solutions. In Europe, 2023 had seen the merger of Axioma and Simcorp in 2023 as part of Deutsche Börse revamped Horizon 2026 strategy for its Investment Management Solutions.

The acquisition combines Clearwater’s middle and back-office expertise with Enfusion’s front-office capabilities, particularly in serving hedge funds and alternative investment managers. The combined entity aims to create what Clearwater chief executive Sandeep Sahai calls “a unified, cloud-native, front-to-back platform” for institutional investors.

Industry observers see the deal as a response to growing demand for integrated investment management solutions. Trium Capital, a London-based multi-manager hedge fund, recently reported annual savings of US$150 thousand after implementing Enfusion’s platform, highlighting the potential cost benefits of cloud-based solutions in the sector.

“The versatility of Enfusion’s platform has been crucial for firms managing complex multi-asset strategies,” said Patrick Mang, chief operating officer at Trium Capital, in a recent client testimonial. “One person can now manage up to ten managed accounts, significantly reducing operational overhead.”

The Idaho-based company, which handles daily reporting on more than US$7.3 trillion in assets and is specialised in revenue analytics, is reinforcing its offering in the investment management space. It will pay US$11.25 per share in an equal mix of cash and stock for Enfusion, representing its largest acquisition to date.

Clearwater expects to achieve US$20 million in cost savings over two years through operational efficiencies, primarily by streamlining administrative expenses. The company also anticipates expanding its total addressable market by US$1.9 billion, particularly in the hedge fund sector where Enfusion has established a strong presence.

The transaction, advised by J.P. Morgan Securities, comes as investment managers face increasing pressure to automate their operations and reduce costs while handling growing complexity in their portfolios. Enfusion’s CEO Oleg Movchan will join the combined entity, though his specific role was not disclosed.

The deal is expected to close, subject to regulatory approvals and customary closing conditions.

Please note this story has been amended to remove mention of Jody Kochansky, who has left Clearwater.

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SEC fines five firms $65m for monitoring breaches

By

Lucy Carter

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January 14, 2025

Sanjay Wadhwa, acting director of the division of enforcement, SEC

Senior staff at Blackstone, KKR, Apollo, Carlyle and Schwab used unauthorised messaging to bypass US rules on monitoring electronic communication, the Securities and Exchange Commission found.

Firms in question were found to have gone against their own recordkeeping requirements and that of the commission, under the Advisers Act, by failing to maintain and preserve their electronic communications.

In the majority of cases, these infractions were committed at a senior level.

Sanjay Wadhwa, acting director of the division of enforcement, commented: “In order to effectively carry out their oversight responsibilities, the Commission’s Examinations and Enforcement Divisions must, and indeed do, rely heavily on registrants complying with the books and records requirements of the federal securities laws. When firms fall short of those obligations, the consequences go far beyond deficient document productions; such failures implicate the transparency and the integrity of the markets and their participants, like the firms at issue here.”

Blackstone’s business divisions Alternative Credit Advisors, Management Partners and Real Estate Advisors have been hit with a US$12 million penalty, the largest of the group. “A Blackstone Alternative Credit Advisors senior managing director exchanged messages with multiple colleagues on an unapproved platform concerning proposed investment advice for a client. Similarly, a Blackstone Management Partners senior managing director exchanged messages with a colleague on an unapproved platform concerning proposed investment advice for a client,” the SEC alleged.

Kohlberg Kravis Roberts & Co also received a fine. The US$11 million penalty resulted from off-channel communications between colleagues and to external market participants, which included discussions on advice and recommendations. One unnamed partner was highlighted as a regular offender, communicating with other partners and senior personnel through non-approved platforms. This resulted in three partners altering or intending to alter their phone settings to ensure messages were deleted after 30 days.

Charles Schwab & Co was given a US$20 million penalty in response to off-channel communications around its broker-dealer business. Additionally, messages sent on firm-issued devices could not be monitored.

At Apollo Capital Management, messages related to recommendations, advice and orders were sent via non-approved platforms. “an Apollo partner exchanged a number of messages on an unapproved platform with Apollo colleagues about a proposed recommendation to increase a position for a client,” the SEC reported.

At Carlyle Investment Management, “a managing director affiliated with Carlyle Credit exchanged several messages with an insurance company regarding the disbursement of funds related to a transaction. In another example, a partner associated with Carlyle exchanged messages with another partner about the performance of a Carlyle investment vehicle.”

“A TPG Capital Advisors principal exchanged multiple messages with a colleague and with personnel at another investment adviser on an unapproved platform concerning a proposed investment by a client fund in a target company,” the SEC added.

The three firms were each given a US$8.5 million penalty.

Santander US Capital Markets’ US$4 million fine was prompted by off-channel communications by senior figures, including managing directors, to individuals both within and external to the company.

Wadhwa commented: “In today’s actions, while holding firms responsible for their recordkeeping failures, the Commission once more recognised and credited a registrant’s self-report, demonstrating yet again that there are tangible benefits to be gained from proactive cooperation.”

PTJ Partners self-reported its violations to the SEC, resulting in a reduced US$600,000 penalty. Violations included communications both between employees and with clients and external market participants. “PJT Partners’ employees responsible for supervising junior employees and their compliance with policies and procedures pertaining to off-channel communications themselves communicated off-channel using their personal devices. Many, but not all, of the sampled employees had begun a regular practice of forwarding off-channel communications to the firm’s systems by early 2022,” the SEC reported.

Robinhood hit with US$45m SEC fine as market maker payments surge

By

Etienne Mercuriali

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January 14, 2025

Robinhood Markets Inc, the US retail broker that made a business model out of payment-for-order-flow (PFOF) -based zero commission trading, has seen two of its business units slapped with $45 million in penalties for operational failings by the Securities & Exchange Commission, some four years after being fined $135 million by the SEC and FINRA.

Robinhood Securities LLC and Robinhood Financial LLC, agreed to pay a combined US$45 million in penalties following regulatory violations, according to the SEC. The charges stem from extensive failures across multiple regulatory domains, including inadequate reporting, cybersecurity vulnerabilities, and mishandling of customer information.

Beloved of retail customers in the US for offering the ability to trade equities, options and cryptocurrencies via a smartphone app without commissions, Robinhood is increasingly a cash cow for market maker firms, which pay for the firm’s retail order flows. Of Robinhood’s $975 million of transaction-based revenues for the first nine quarters of 2024, 14% or $136 million, was paid for by Citadel Securities, with other unnamed market makers paying for another 37% of the total, according to Robinhood filings.

In exchange, Citadel Securities and the other market makers have access to equity volumes running at $137 billion per month and options volumes of 150 million contracts per month according to Robinhood, contributing to their own trading revenues. This monthly volume is high compared to Robinhood’s $106 billion assets under custody, indicative of the rapid trading frequency that is characteristic of the firm’s consumer base.

In the past, this was viewed as exploitative by regulators. In its December 2020 £65 million settlement with Robinhood, the SEC said that between 2018 and 2019, the firm “provided inferior trade prices that in aggregate deprived customers of $34.1 million even after taking into account the savings from not paying a commission.”

In June 2021, the US industry self-regulatory organisation FINRA fined Robinhood $70 million, finding that the firm was responsible for ‘systemic supervisory failures and significant harm suffered by millions of customers’, including a suicide.

Some of the FINRA charges of poor record-keeping are echoed in the latest SEC settlement. The SEC identified over ten separate breaches of securities law provisions spanning from trading activity reporting to safeguarding customer communications. Violations included Robinhood’s failure to submit timely suspicious activity reports between 2020 and 2022 and inadequate protection against identity theft from 2019 through 2022. A cybersecurity lapse in 2021 resulted in unauthorised access to customer data, affecting millions.

Robinhood Securities was found in breach of Regulation SHO, governing short-selling practices, between 2019 and 2023. Inadequate compliance with recordkeeping and reporting standards persisted for over five years, compounded by failures in maintaining critical brokerage data. Both firms conceded to certain findings and agreed to conduct internal audits and address deficiencies.

Sanjay Wadhwa, acting director of the SEC’s division of enforcement, emphasised the gravity of the infractions: “Ensuring broker-dealers adhere to legal obligations is critical to the integrity of our markets and investor protection.”

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BSE expands software vendor list as algo trading spikes

By

Lucy Carter

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January 14, 2025

Bob Cioffi, global head of equities product management, ION Markets

ION has been certified as an independent software vendor for algorithmic trading on BSE, expanding its capabilities with the exchange.

The algorithmic trading capabilities of Fidessa, ION’s trading platform, have been determined as compliant with BSE’s rules, and can now be used by exchange members.

Sandeep Sabnani, product strategy and growth lead for equities, added: “[This] demonstrates the trust and confidence in our Fidessa platform, [and] reinforces our dedication to providing market participants with advanced technology solutions tailored to the needs of the Indian capital markets.”

Algorithmic trading is on the rise in India, being used for more than 55% of trades. Through this approval, ION aims to further support changing market needs.

Bob Cioffi, global head of equities product management at ION, noted: ”India remains a key strategic market for ION and this empanelment enhances our ability to meet the region’s evolving needs.

Fidessa received approval as a cash equities trading vendor on the exchange last year, making ION the second non-Indian provider to join the independent software vendor list. A total of 14 firms have been approved.

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The Index Industry Association (IIA) has appointed Kirsten Wegner as CEO. She replaces Rick Redding, who has held the role since the IIA was founded in 2013.

Hedge fund Two Sigma, which holds more than US$60 billion in assets under management, took more than four years to address investment model vulnerabilities, the SEC has found.

Departure announcements continue at the SEC, just days before Donald Trump’s inauguration.

Euronext’s expansion of single-stock options is not paying off, with the exchange reporting a decline in traded contracts across the board.

Chief accountant Paul Munter and chief economist Jessica Wachter are the latest to announce their departures from the SEC, just days before Donald Trump’s inauguration on 20 January.

ASIC has found a full-time CEO in Scott Gregson, eight months after Joe Longo’s secondment to the Commonwealth Director of Public Prosecutions.

Investment management software incumbent, Blackrock-owned Aladdin is attracting competitors. The latest example is Clearwater Analytics which is purchasing front-office solutions provider Enfusion for US$1.5 billion.

Senior staff at Blackstone, KKR, Apollo, Carlyle and Schwab used unauthorised messaging to bypass US rules on monitoring electronic communication, the Securities and Exchange Commission found.

ION has been certified as an independent software vendor for algorithmic trading on BSE, expanding its capabilities with the exchange.

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