The 1940 Act

1.  Jim Hamilton’s World of Securities Regulation: COSO Emphasizes Tone at the Top and Outside Auditors in Monitoring Internal Controls: COSO has proposed guidance on monitoring internal controls that relies heavily on tone at the top and risk assessment, as well as having a role for the outside auditors of the company’s financial statements. The board and its audit committee also have key roles to play in the effective monitoring of internal controls. According to COSO, monitoring is an integral part of internal control over financial reporting. Further, it is important that internal control be viewed as a continuous process and that effective monitoring be implemented as a component of that process.

2. Securities Law Prof Blog: Cox Testifies on Credit Rating Ratings’ Role in Subprime Markets: Testimony:The Role and Impact of Credit Rating Agencies on the Subprime Credit Markets, by Chairman Christopher Cox, U.S. Securities & Exchange Commission, Before the U.S. Senate Committee on Banking, Housing and Urban Affairs, September 26, 2007.

3.  The Big Picture: Brokers’ Fictitious Gains: Friday’s WSJ had this insightful column on Wall Street’s earnings, Brokers’ Head-Scratcher.

“Still, some investors remained concerned about earnings quality, in part, because the firms all benefited from a tumble in the value of their own debt. Accounting rules require firms to take a gain on such declines if they are applying market values to some forms of debt or financial instruments.

At Bear Stearns, the already dismal quarter would have been even worse without about $225 million in such gains. Morgan Stanley, which also had a rocky quarter, said it booked $390 million in such debt-related gains, while Goldman said it benefited from nearly $300 million in this way. Lehman didn’t specify its gains, but said they helped lower to $700 million the hit the firm took from markdowns on loans and securities.”

3.  Hedge Funds Weblog: Alex Akesson: Habitat for Humanity Works with Hedge Funds: An initiative by the hedge fund community to provide New York City families with home ownership opportunities through Habitat for Humanity NY, has announced the launch of a campaign called Hedge Funds for Habitat.

4.  TheCorporateCounsel.net: Broc Romanek and Dave Lynn: What in the XBRL is Going On?: Yesterday, the SEC pulled out all the stops in marketing its “landmark” announcement that the XBRL taxonomy for US GAAP is ready to be tested by third parties (but not the general public quite yet), with an intended completion date of December 5th. It certainly is quite an achievement for the team that has worked closely with the SEC Staff to get this project moving faster than imaginable. This development follows last week’s announcement that the SEC has made the source code for its Interactive Financial Report Viewer available for free use by the market.

5.  Seeking Alpha: A Technical Look at Russell 2000: Interesting to view thisRussell 2000 which focuses on more of the smaller stocks in the market than the Dow or SP500. After being the quickest to spike post-Fed, it has now given back much of that gainin the past 2 days. More importantly, the technical picture is starting to get dicey. It is once again testing its 50 and 200 day moving averages. A close below would once again put us on the bearish camp in this section of the stock market.

6. Where Does All My Money Go: How Convertible Bond Arbitrage Works I: To speak about convertible bond arbitrage first we should look
individually at convertible bonds and then separately at arbitrage itself. Once we have a handle on these two distinct concepts we can then put them together and have some fun! …uh, okay maybe fun is the wrong word. Replace that with “learn how people with lots more money than us make money way too easily”.

7.  MarketWatch,  Barbara Kollmeyer: Making Sense of the Dollar; what the big buck decline means for the investors of foreign funds and stocks:

LOS ANGELES (MarketWatch) — Given the prognosis for a weaker U.S. dollar, with a possible U.S. recession waiting in the wings, foreign funds may be one of the better places to stash cash for the foreseeable future.The dollar is losing ground hand over fist. It currently takes over $1.41 to buy one euro — record territory — while two of your hard-earned dollars are needed to buy one British pound. The Canadian loonie has now evenly matched up with the U.S. dollar, something that hasn’t happened since 1976. But many international mutual funds have experienced one of the few silver linings from the dollar’s decline that started in 2002. Foreign funds that don’t hedge for currency risk — it’s either trimmed or eliminated completely in a hedged fund — have gotten a nice tailwind.8. Securities Law Prof Blog: FINRA Proposes Rule to Limit Dispositive Motions in Arbitration: FINRA announced today that its Board of Governors approved rule amendments designed to limit significantly the number of dispositive motions - more commonly known as motions to dismiss — filed in its arbitration forum and to impose strict sanctions against parties who engage in abusive motions practices. Under FINRA’s proposal, if a party (typically a respondent firm) files a dispositive motion before a claimant finishes presenting its case, the arbitration panel would be limited to three grounds on which to grant the motion: if the parties settled their dispute in writing; “factual impossibility,” meaning the party could not have been associated with the conduct at issue; or the existing 6-year time limit on the submission of arbitration claims.

9. The Times, Christine Seib: Credit Suisse sheds 150 staff from mortgage-backed securities work: Credit Suisse yesterday became the latest bank to cut jobs in the wake of the global credit crunch when the Swiss bank shed 150 employees working on mortgage-backed securities. The jobs to go are mainly in New York, with a few lost in London, according to Credit Suisse insiders. In a statement, the bank said: “In line with the current environment and outlook, we have made targeted reductions.” Mortgage-related investments have been among the hardest-hit areas of business after the collapse of the sub-prime market in the United States. As defaults rose on mortgages given to people with poor credit histories, investors shied away from securities backed by packaged-up mortgages.

10.  Financial News Online, Paula Schaap: Banks lose trading edge over hedge funds: MTS Group, the European government bond trading electronic market, will allow hedge funds to trade directly through its platform, short-circuiting the banks and brokers that previously had a lock on the business. Banks and interdealer brokers had opposed the move since they stand to lose fees if the hedge funds no longer have to use them to trade in the bond markets. MTS had set up a committee to study opening its membership to hedge funds, after alternative investors, including Citadel Investment Group, Vega Asset Management, DRW Holdings, DE Shaw Group and Susquehanna Financial lobbied it for access.