VOX POP: WHAT IS THE IBA’SMOST IMPORTANTROLE TODAY? 15

INTERVIEW: BERNARDKOUCHNER ON THERULE OF LAW 8

H igh-profile barrister MichaelMansfield QC has called for apermanent truth and reconcilia-

tion commission to be established in Britain.“We need this. The established mechanismshave not done the job,” he said.

Speaking at yesterday’s Human RightsInstitute showcase session, Mansfield usedthe Hillsborough disaster in 1989, when 96Liverpool Football Club supporters died at amatch, to illustrate the struggle for transpar-ent investigations.

In that instance, after 23 years of callsfrom the families of the victims, anIndependent Hillsborough Panel was estab-lished to sift through 400,000 released state-ments from the police, emergency servicesand politicians.

The panel discovered a cover-up on anunprecedented scale in the UK. Policeaccusations of drunk and violent behaviouramong fans had been a smear campaign todeflect from poor policing.

“The panel was an interesting model,not used before,” said Mansfield.“Crucially, it was independent of the law,”he added. Because the commission was notrun by a judge, and with only one lawyeron the panel, no one party was represent-ed. “The panel just got on with its job ofoverseeing disclosure. It had credibility,”he said.

Mansfield said that the search for, andacknowledgment of the truth is the biggestmotivation for victims. “The search fortruth actually submerges those primal urgesfor revenge,” he said. “Instead, what thevictims want is for the world to recognisewhat has gone wrong.”

Mansfield argued that a desire to establishcredible mechanisms exists internationallytoo. “The mechanisms we have are under-mined by states that refuse to recognise theirauthority. There has to be a willingness torecognise a consensus so that in future theUN is in a position to establish commis-sions,” he said.

Victims want the publicto knowThroughout the session, a series of otherhigh-profile speakers outlined their template

for peace processes and reconciliation.Justice Richard Goldstone, past Justice ofthe South African Constitutional Court,relayed his experiences from reconciliationin post-apartheid South Africa.

Goldstone led the commission duringreconciliation, when a series of violentattacks within the country threatened todestabilise the process. “We decided thatenquiries should be informal,” he said.“They took place as near as possible towhere the crimes were committed, so thepeople affected could see with their owneyes what the evidence was.”

Goldstone’s enquiries (he led over 40)were also held within two weeks of theincidents taking place, sating victims’ needfor a swift response. Goldstone echoedMansfield’s sentiment as to the reasons forsuch enquiries. “Victims know what hap-

pened,” he said. “They just want the publicto know too.”

Trusting the processThe Irish Peace Process dominated the ses-sion, with a keynote address from MartinMcGuinness, deputy first minister ofNorthern Ireland, and one of the key nego-tiators in the historic Good Friday agreement.

McGuinness insisted that any reconcilia-tion between groups must maintainmomentum if it is to succeed. “Peaceprocesses are like bicycles, they always needto be moving forward,” he said. “If they areallowed to stall, as the Irish process did dur-ing John Major’s tenure [as prime minister]in Britain, then it’s incredibly damaging,”he said.

McGuinness also recognised the role oflawyers in the Irish Peace Process, specifical-ly Pat Finucane, a Belfast solicitor killed byloyalist paramilitaries in 1989.

Two public investigations concluded thatelements of the British state apparatus col-luded in Finucane’s murder, resulting inhigh-profile calls for a public inquiry.However, in October 2011, it wasannounced that a planned public inquirywould be replaced by a less wide-rangingreview.

“The British system has resisted calls forsuch an enquiry because the facts of Pat’smurder highlight the extent of collusionbetween British forces, Unionist paramili-taries and the British political establish-ment,” he said.

The panel, chaired by Juan E Mendez,UN Special Rapporteur on Torture, alsofeatured Ian White of the Glencree Centrefor Reconciliation in Ireland. White, whowas a key figure in the Irish Peace Process,outlined the lessons he had learned duringthe period.

He insisted that groups working for rec-onciliation did not need to trust one anoth-er, just the process itself. “That’s still proba-bly true in Ireland,” he said.

According to White, peace processesmust also be inclusive. Quoting MosheDyan, former Israeli politician, White said:“If you want to make peace, you don’t talkto your friends. You talk to your enemies.”White argued that for peace processes to besustainable they must not simply be inclu-sive, but pro-actively so. “You must findreluctant parties and encourage them to par-ticipate,” he said.

Finally, White insisted that peaceprocesses are never logical, linear or scientif-ic. “Instead, the value is in deep dialogue,”he said. “Most parties in Ireland know thepolitical standpoints of all their opponents,but they rarely know the reasons for them.Deep dialogue helps you understand thesereasons.”

The template for justice

FEATURE: IRELAND’S LEGAL SYSTEMSTRUGGLE 4

Michael Mansfield

Du b l i n C o n f e r e n c e 2 0 1 2 Tu e s d a y , O c t o b e r 2

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S p o n s o r e d b yPublished and prepared for the IBA by IFLR

“The search fortruth actuallysubmerges thoseprimal urges forrevenge”

Martin McGuinness

I f Islamic society doesn’t find a properway of approaching women, its topfemale talent will leave for another coun-

try that will offer them more opportunities. This was the view of Omar Al-Rasheed,

of Omar Al Rasheed Partners in SaudiArabia, who called for lawyers to lookthrough all the religious phrases in theQur’an that are arguably against women andeither neutralise them or provide adequateexplanations for such phrases. “Smart individuals, whether they are

male or female, will not be sustained in asociety that doesn’t treat them equally,” saidAl-Rasheed, who himself has recently hiredthe first Saudi female lawyer.Some believe that the will to change

must come from the women themselves. “Ifwomen want to know how to change theirlives they need to understand what their reli-gion says, they need to read the Qur’an, andthey need to understand what this faith is allabout,” said Diana Hamade of InternationalAdvocates and Legal Services in Dubai.But there remains a lack of clarity around

the rules. Although the harsh penalties thatcan be imposed in the sharia system attractmedia attention, Saudi Arabia doesn’t have awritten penal code. This makes it difficultfor women to understand what they can andcan’t do.“The sad thing about Saudi women is

there is a lot of potential that isn’t beingused,” said Sara Khoja of Clyde & Co inDubai. “Women who are not able to

achieve their potential, that’s where thefocus and improvements have to come.”According to Khoja, she has succeeded

in her career because she left Saudi Arabia.But there are signs of a movement towardschange. “Now I see a new generation ofpeople who are staying and trying to makeprofessional lives,” added the Saudi-bornlawyer. Also speaking on yesterday’s panel,

‘women and Islam: the challenges andopportunities’, Hamade said the interpreta-tion of the Qur’an is responsible for themistreatment of women, not the Qur’anitself.Hamade called for an end to the abuse of

women, which she attributed in part to themisinterpretation of a particularly controver-sial verse in the Qur’an.

Verse 34 of Surat AN-Nessae refers tomen beating women who are guilty of lewdor indecent behaviour. But, said Hamade,the beating up of women, which is usuallyseen as something that the Qur’an hasallowed, is down to a misinterpretation ofthe language used. Hamade argued that the words are not

necessarily what they may mean to a layperson, but were carefully chosen to giveguidance into certain practices. The word‘beat’ was meant to indicate psychologicallyhurting a woman by not dealing with her asa man may otherwise do on a daily basis.The purpose of this is to hurt that womanand make her more obedient, said Hamade. Practices such as women inheriting half

of the man’s property on his death, girlsmarrying at an early age in Islam, and twowomen being equal to one man when giv-ing evidence, have also contributed to thebelief among some that Islam can beoppressive to women. But, said Hamade, the reason that

women in today’s Muslim society are oftenconsidered less valuable than property is notbecause of anything the book of God teach-es: it’s a man-made cultural crime.Differentiation between the sexes was

not supposed to be an advantage for men.Rather, the word of God specifically statesthat men and women are from the same soiland one sex is not meant to be enslaved tothe other. “The Qur’an is very clear anddirect on this,” said Hamade.

D espite the state of paralysis in theSecurity Council, UN legal coun-sel and undersecretary –general

for legal affairs Patricia O’Brien has warnedthat the day of reckoning will come for theperpetrators of violence in Syria.Following Russia and China’s veto of

council resolutions to impose sanctions onSyria, some members of the internationalcommunity have become pessimistic aboutits ability to intervene in the crisis. ButO’Brien assured the audience that appropri-ate action will be taken.

“We are insistent that there will be jus-tice for Syria,” she said. “I truly believe theshadow of justice is hanging over the perpe-trators…there will be a day of reckoning.”Answering questions from CNN’s Todd

Benjamin yesterday afternoon, O’Brien saidthe “paralysis” of the Security Council was aproblem in this situation, and that she “does-n’t see any light at the end of that tunnel”. But when Todd asked if this meant the

Security Council was fit for purpose, shesprung to its defence. She warned to notunderestimate its role, and referenced its

affirmative action in the Libyan violence.Syria dominated discussion in last week’s

General Assembly Session, and O’Brienassured the audience that Syria is “at theheart and centre” of everything the UN isdiscussing.When Benjamin asked the audience

whether there should be a military interven-tion in Syria, the split was 50:50. O’Brienreminded everyone that what might be con-sidered a legitimate use of force, is not nec-essarily a legal use of force.She also reflected on how far the

Council has come. She gave the 1982example of Hafez al-Assad, then president ofSyria, ordering the slaughter of 30,000 peo-ple to quell an ant-government revolt.“The Hama massacre never came to the

attention of the Security Council,” she said,and it barely came up in the other UNorgans. She added that there is not a singlenote on the massacre in her office.Now the entire international community

is focussed on what is happening in Syria,and we are now talking about stopping asingle death, she said.

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UN’s O’Brien promises justice for SyriaKEYNOTE INTERVIEW

Rethinking women in Islam RELIGION

Dame Carol Ajie

R egulators must rethink the definitionof sophisticated investor. The majorstock exchanges have become

increasingly focused on protecting the minor-ity and retail investor-base post-crisis.

But lawyers on yesterday’s ‘Corporategovernance standards: differences betweenstock exchanges and consequence for dis-closure’ panel argued the financial crisis hadproved sophisticated investors were equallycapable of misunderstanding the risks ofcertain investments.

Wong Partnership’s Singapore partnerand panel co-chair, Rachel Eng, said thetime had come to reconsider how the term‘sophisticated investor’ is applied.

Under the majority of regimes, a retireewho had invested all his savings into struc-tured products would be considered asophisticated investor but a 23-year oldeconomics graduate with no practicalinvestment experience would not. “Theretiree has the money to invest, but possi-bly not the understanding,” said Eng, whois also co-chair of the IBA Capital MarketsForum.

An audience member agreed, but saidthe problem went much further than that.“Think of all the subprime-related struc-tured products sold to the various bankinginstitutions in the years pre-crisis,” he said.“They were as sophisticated as you can getand it’s since become known that theydidn’t understand a word of what theyinvested in.”

Debevoise & Plimpton’s London partnerand panel co-chair, Kate Ashton, said therewas tension in this area for governments andexchanges. “Why only let the big institu-tions make more money on these goodinvestments?” she asked. “It’s not fair toprevent people from investing in somethingwhich could be very profitable.”

“Why prevent the young finance gradu-ate who thinks he’s so brilliant from invest-ing? If he’s going to lose all his money thenthat’s a good learning experience,” addedAshton, who is also the IBA CapitalMarkets Forum website officer.

Gavin Nesbitt, from Deacons in HongKong, said the issue there was that everycitizen considered themselves to be a sophis-ticated investor, until something wentwrong at which point they instantly meta-morphosed into a victim.

Perhaps as a result of this, the city’sSecurities and Futures Commission (SFC)had adopted a slightly cautious approach toprotecting retail investors, he said.

This prompted criticism in 2010 whenthe regulator allowed only sophisticatedinvestors, or those willing to invest HKD1million ($130,000), to subscribe to theHong Kong listing of Rusal, a Russianaluminium firm, in a bid to protect retailand minority investors from various risksassociated with the deal.

Hong Kong shareholder activist, DavidWebb, argued at the time the SFC had beenwrong to assume the man on the streetwould not fully fathom what the real risksassociated with the transaction. “The poordo not have a monopoly on ignorance,” hewrote in a 2009 commentary on the move.

Eng said in Singapore’s disclosure- basedregime, there was also a feeling that minori-ty investors could not take care of them-selves. “The onus is therefore on potential

ListCos to disclose as much as possible,” shesaid. “Even so, the regulator will still readthrough the possible risk factors during theprospectus process to make sure that theseare made clear and disclosure is sufficient.”

But McCann Fitzgerald’s David Byersbelieved the regulatory focus on less sophis-ticated investors was changing. RecentEuropean legislation, such as the AlternativeInvestment Management Directive(AIFMD), clearly recognised the need toprotect everybody within the financial sys-tem, he said.

“The AIFMD targets those typicallyviewed as sophisticated investors, such asprivate equity firms,” he said. “Theexchanges are also growing increasinglyaware of the need to protect as manyinvestors as possible,” he said.

Investors must be redefinedEXCHANGE RULES

www.iflr.comIBA Daily News - Tuesday, October 2 2012 3

“Why only let the biginstitutions makemore money onthese goodinvestments?” Kate Ashton, Debevoise & Plimpton

Rachel Eng, Wong Partnership

www.iflr.comIBA Daily News - Tuesday, October 2 20124

D ublin’s Four Courts are the centre of theIrish legal profession. The name maynow be inaccurate since criminal cases

moved to the new Criminal Court of Justice in2010, but it is still vital for barristers to meet, min-gle and share knowledge under the neo-classicaldome of the Round Hall. The oldest law in theIrish statute books dates from 1204, and the senseof tradition in the courts is strong. However, thebuilding’s proud and venerable facade conceals aturbulent history.Until the 17th century, two systems of law oper-

ated in Ireland. Within ‘the Pale,’ the fortified areaencompassing Dublin and its environs which wasunder English jurisdiction, English common lawwas used. The current name of the Four Courtsactually refers to the medieval system of the courtsof Exchequer, Common Pleas, King’s Bench andChancery. From 1297, Ireland also had its own legislature inthe form of the Irish Parliament, although like the courts, itonly held sway within the Pale. Most of Ireland was gov-erned instead by Brehon law. Existing as an oral traditionfrom the first century AD, and written down in the seventhcentury, this was a civil system which was based on compen-sation for the victim rather than punishment for the guiltyparty. The Brehons themselves were judges, successors to theCeltic druids. When the Tudor conquest of Ireland came to a conclu-

sion in 1603, English common law was instituted through-out the whole of Ireland. This development placed strain onboth Parliament and the Four Courts in Dublin, neither ofwhich had ever had a permanent home, although primarilyheld in Dublin Castle. The courts were brought to ChristChurch Lane. Surrounded by a warren of alleyways, entrants

to the courts had to pass through ‘Hell’: a small lanepresided over by a carved demon.These cramped conditions could not last forever, and

construction started in 1776 on the current building, whichwas largely completed by 1796. The late-18th century was aflourishing time for the Irish legal profession. 711 barristerspractised in Ireland in 1793, compared to 604 for the wholeof England and Wales, and the quality of rhetoric and quick-witted exchanges in the courts made them a public spectacleas well as a place for serious deliberation. Following therepeal of the repressive Poyning’s Law in 1783, the IrishParliament introduced several Acts which restored the rightsof Roman Catholics, including the right to practise at thebar with the Roman Catholic Relief Act of 1793.Ireland’s relative legal autonomy came to an end in the

wake of the Irish Rebellion of 1798. This attempt to throw

off British rule resulted in the abolition of the IrishParliament and the establishment of direct rule fromLondon with the 1802 Act of Union. One young lawyer, Robert Emmett, tried to

mount his own rebellion against the Act of Unionin 1803. Ill-equipped and lacking in manpower, hisuprising failed, but not before the Lord Chief Justiceof Ireland had been killed gruesomely by the mob.Emmett was captured, and his trial at Green StreetCourthouse became one of the most famous in Irishhistory. His final speech was such a powerful pieceof oratory, it became famous beyond Ireland:Abraham Lincoln is said to have memorised it. Itsclosing sentence proved inspirational for generationsof Irish republicans: “When my country takes herplace among the nations of the earth, then, and nottill then, let my epitaph be written.”In 1922 during the Civil War, the Four Courts

were almost completely destroyed by artillery fire and ses-sions returned to their historic home of Dublin Castle until1931. Amidst the turmoil, another landmark for Irish legalhistory was reached: in November 1921, Frances Kyle andAverill Deverell became the first women to be called to thebar in Ireland.The Constitution of Ireland came into effect in 1937,

finally severing links with the British government for all butthe six counties of Northern Ireland. The Constitutionremains the basis of Irish law today, and can only be amend-ed by referendum. The current legislature was also estab-lished at this time: the Oireachtas, consisting of an Upperand Lower house, the Seanad Éireann and Dáil Éireannrespectively. The restored Four Courts took their place asthe seat of justice for the new republic: justice that the Irishpeople had waited long enough for.

T he billable hour is taking a long time to die. Itsmany critics say that as clients keep more work in-house and find other ways to cut costs, billing by the

hour is not sustainable. Alternative fee arrangements (AFAs)are apparently the way forward; but are perhaps talked aboutmore than they are implemented. Fixed or capped rates anddiscounts may be popular with clients but, handled badly,unprofitable for firms. However, by pitting the billable houragainst AFAs, lawyers may be ignoring other ways in whichthey could improve their approach to fees.Ori Wiener, consultant with the UK-based Moller PSF

Group, believes that the billable hour in itself is not theproblem. “There are times when [the] billable hour is prob-ably the right approach, and there are times when it’s proba-bly the worst,” he says. Wiener is co-chairing the session‘Are lawyers’ fees fair and reasonable in all the circum-stances?’ today and feels that the way lawyers negotiate feesis just as important as the kind of fees they charge. Persuasive skills in the courtroom do not always translate

to other areas. In Wiener’s opinion, “good lawyers [are] notalways good business people”, and astute clients can use thisto their advantage.Racking up a lot of hours is not always profitable. Some

clients have begun to use the hourly rate as a weapon againstfirms during fee negotiations, especially those in the financial

sector. They can compare one firm’s rates to their rivals evenwhen the work they are doing is not equivalent. Billing bythe hour can make pricing seem simpler than it is in reality.

Too rigidThe reluctance of some partners to delegate work to associ-ates may also be damaging. They fear, rightly or wrongly,

that their performance will be undervalued if they have fewerbillable hours to show, even if they have improved efficiency.Steven Richman, a partner at Duane Morris who is also

speaking at the session, has voiced concerns about the appar-ent rigidity of the billable hour. “The billable hour is a means,not an end... there has to be discretion and flexibility.” Things are changing. Some firms have abandoned the

billable hour altogether due to client demand. ArmenKhachaturyan of Asters in the Ukraine says that he does

not recall the last time he worked with a client based onhourly fees. Khachaturyan’s clients want flat fees andcapped rates, and this is what his firm has to provide inorder to keep the client.Even the desire to maintain a good working relationship

with clients can become a problem if it leads lawyers to takethings too personally. “[Many lawyers] find negotiating ontheir own behalf very stressful because... they feel that criti-cism of the service they provide is implicitly a criticism oftheir individual personality” says Wiener. With this in mind,it is often easier to fall back on standard rates.This reluctance to be creative where fees are concerned

might make life simpler for lawyers, but it does not alwaysmake clients happy – and high prices alone are not alwaysthe problem. If bills are not transparent, clients may feelthey are being charged too much. In Richman’s view, acommon problem is that lawyers are not “engaged andupfront” as matters progress, leading to confusion on thepart of the client.Fees will remain a contentious issue all round in the legal

world, but Wiener believes that one thing is certain:“lawyers need to become more professional and sophisticat-ed in order to meet the needs of their clients and maximisethe benefits to themselves.” Simply jumping on the AFAbandwagon is not the answer.

The long struggle The development of Ireland’s legal system mirrors the country’s struggle with English rule. It now has a justice system to beproud of, says Bryony Bates

DUBLIN LEGAL HISTORY

The best way to billThe billable hour is in terminal decline. But the alternatives are not always a panacea. Bryony Bates explains the difficultiesfacing firms

LAW FIRM MANAGEMENT

“Good lawyers are notalways good businesspeople”

Dublin’s new Criminal Courts of Justice

www.iflr.comIBA Daily News - Tuesday, October 2 20126

T he recession may have taken its tollon Europe’s restaurant industry,but Dublin’s eateries have gone

from strength to strength. The city’srestaurateurs reacted to the credit crunchby coming up with creative menus andgreat dining experiences, with affordableprices. And it’s a strategy that’s paying divi-dends. From traditional Irish fare in historicpubs, to museum cafes serving fusion food,there are plenty of choices for the hungrydelegate.

ElyEly has embraced the concept of showcasingthe best of local Irish produce – a strategythat seems to be working. Located on threesites across the city, this high-quality chain isa jewel in the crown of Dublin’s restaurants.It includes a wine bar, a bar and brasserieand a gastro pub.

The brasserie is one of Dublin’s must-seedestinations for lovers of food, wine andbeer. Situated in a 200 year-old tobacco andwine warehouse, it offers everything from arelaxed family dinner, pre-theatre menus,private dining rooms and after work drinks.The classic menu reflects the best of seasonalIrish produce, with all meats sourcedthrough the family farm in The Burren,County Clare.

O’Neill’s

Visitors to O’Neill’s should be warned thatthey might lose a whole afternoon – andperhaps the evening too – in the pub’s wel-coming interior. This traditional pub has anold world charm, welcoming atmosphereand hearty menu. Located in the centre ofthe city, close to Trinity College, it datesfrom the late nineteenth century, althoughthere has been a pub on the site for 300years. Today, O’Neill’s has a diverse clien-tele and it’s easy to see why this pub hassuch a wide appeal.

O’Neill’s is a prime example of Dublin’sworld-famous pub culture, with numerouslittle snugs and alcoves dotted around therooms. The interior is cosy, with dark woodand stained glass in the windows. The gen-erous servings are frequently remarkedupon, with traditional carvery lunches andSunday roasts a house speciality. Bantry Baymussels, corned beef and cabbage or freshoysters with a side of soda bread are amongthe other temptations for the hungry visitor.

One PicoOne Pico frequently appears in lists ofDublin’s top restaurants. Found onMolesworth Place, it offers a fine diningexperience whose fame stretches far beyondDublin’s borders. It serves modern classic cui-sine with a twist. The menu changes monthlyand the early bird set menu offers the greatvalue that sets Dublin’s restaurants apart.

The Pig’s Ear The Pig’s Ear on Nassau Street is also doingits bit to challenge the stereotype of unimag-inative Irish cuisine. The chef, StephenMcAllister, is perhaps more familiar from tel-evision shows, The Restaurant and TheAfternoon Show. McAllister’s winning formulaincludes good, honest Irish food served in afriendly environment. Indeed, the restaurantrecently received a Michelin Bib Gourmandand previous diners have praised the stellarservice and wonderful introduction to Irishfood. The menu includes organic Irishsalmon with crushed potatoes, beef tongueand cheek Guinness pie with rosemary roastpotatoes and brown bread ice cream withcrushed yellow man and garibaldi biscuits.

Dublin Tasting TrailFor those with an adventurous spirit, fabu-lous food trails runs the Dublin TastingTrail, a tasting and cultural walk around thelesser-known parts of the city. Dublin’seclectic atmosphere – a mix of city, coun-tryside and coastline – is more than matchedby the variety of food it produces. The aimof the tour is to link the food to the historyand culture of where it’s produced andthose who produce it.

The walk lasts two and a half hours, withplenty of opportunities for pit stops. Tasting

trails run every Saturday morning through-out the year and every Friday and Saturdaymorning during the summer months. Thewalk starts from the city centre at 10am andfinishes back in the city around 12.30pm. Itcosts €40 per person.

The Brazen HeadFor those looking for a more gentle form ofentertainment, Dublin’s oldest pub, TheBrazen Head, offers the chance to experi-ence an evening of Irish folklore, story-telling and music while enjoying a tradition-al Irish candlelit dinner.

Running from 7-10pm, the eveningoffers a unique opportunity to travel back toanother time, learning all about Ireland’srich heritage of folklore and stories. Visitorscan hear how Irish people lived off the land,why the potato is such an important part ofIrish history, their beliefs in the other worldof the fairies, as well as live traditional Irishmusic and ballads during dinner.

The event runs every night exceptMonday from April to November and costs€44 for an adult.

Chameleon RestaurantThere’s also plenty on offer for visitorswishing to experience Dublin’s take oninternational cuisine. ChameleonRestaurant, Temple Bar offers a piece of theOrient in the middle of Dublin. Run byhusband and wife team Carol Walsh andKevin O’Toole, the stylish eatery wasfounded in 1994 and specialises in Rijst-tafel(which translates as rice table), an exoticrange of eight to ten dishes that give dinersa taste of Indonesian cooking.

An intimate and ambient restaurant onthree floors, Chameleon opened in 1994 and

has gone on to win numerous awards, includ-ing Bridgestone 100 Best in Dublin 2008 andBeck Best in Temple Bar. All dishes are pre-pared fresh daily and supplied by local artisansuppliers, the only imports are spices fromIndonesia. Previous diners have praised thevariety of vegetarian dishes on the menu.

The Silk Road CafeMuseum cafes might not often make it intolists of best restaurants, but The Silk RoadCafe undoubtedly deserves a mention here.Located on the ground floor of the ChesterBeatty Library, the cafe is considered one ofDublin’s hidden treasures.

As the name suggests, The Silk Road isan eclectic fusion of different nationalities offood, serving a hybrid of Middle Eastern-North African-Mediterranean cuisine. Themenu includes mousakka, falafel and spinachand feta pie, all served in beautiful sur-roundings. Entering through a garden, din-ers will walk into a bright tall-ceilingedbuilding with large, well-spaced tables.World music playing in the backgroundadds to the ambiance.

Combine this with healthy food, friendlystaff, and one of the best museums inEurope being a stone’s throw away (and freeto enter) and it’s not difficult to see why noreview of Dublin’s best eateries would becomplete without a mention of this one-offdestination.

SheridansCheesemongers

Wander off Grafton Street and you mightstumble across Sheridans Cheesemongers at11 Anne Street South. Those in the knowsay this is the best place in Dublin to trackdown a perfectly matured Ardahan, Cooleaor Lavistown. It was founded in 1995,when Seamus and Kevin Sheridan opened ashop in Galway after selling Irish farmhousecheese at the Galway market. Today, visi-tors can see artisanal Irish cheeses piled highon wooden shelves in this hidden gem. Ahighlight of any trip to Sheridans includestasting free samples while learning aboutgourmet Irish cheese from the expert andpassionate staff.

Top ten: Dublin diningFrom fragrant cheesemongers to Michelin-starred restaurants, Dublin’s culinary landscape is impressive. GemmaVarriale highlights the top ten

EATING OUT

Chapter One Chapter One restaurant in Parnell Square is a Dublin institution. An award-winning Michelinstar restaurant in Dublin city centre, its quality is unrivalled. Indeed, it has added to its exten-sive accolades, having recently won the Irish Restaurant Awards’ ‘best restaurant’ of 2012.

Diners have described a meal at Chapter One as perfect from beginning to end, with ele-gantly and colourfully crafted dishes. The four-course evening menu includes mushroom con-sommé with smoked potato and buttermilk foam, quail glazed with truffled honey and mus-tard and warm chocolate mousse with lemon marshmallow and praline. Need we say more?

www.iflr.comIBA Daily News - Tuesday, October 2 20128

B ernard Kouchner is a French doctor and politicianwho co-founded the humanitarian aid agencyMédecins Sans Frontières (MSF) in 1971. After

training as a doctor in France, in 1968 he worked with theRed Cross in Biafra during Nigeria’s civil war. His experi-ences there eventually led to his involvement in foundingMSF. Kouchner also co-founded Médecins du Monde in1980.

From 1998 to 2001 he occupied various positions in theFrench government under a succession of socialist presidents,including Minister for Health and Secretary of State forHumanitarian Action. In 1999, he took up the post of UNSpecial Representative in Kosovo, working to rebuild thecountry after the war there until 2001.

In 2007, he was appointed Minister of Foreign Affairsunder Nicolas Sarkozy, a position he held until 2010. Hisappointment came despite having supported Sarkozy’s social-ist rival Ségolène Royal in the election campaign.

He has been an outspoken advocate for the duty of statesto intervene in other countries to prevent humanitariancrises and spread human rights. He is delivering the keynoteaddress for the session ‘Is the rule of law relevant for the 21stcentury global community?’

How would you define the rule of law?The rule of law is a term that is often used but difficult todefine. The rule of law states that individuals, persons andgovernment shall submit to, obey and be regulated by law,and not arbitrary action by an individual or a group of indi-viduals.

In a political system which considers the rule of law para-mount, the law is supreme over the acts of the governmentand the people.

The rule of law is interpreted differently by some, and itis not always respected. We should always be aware of theneed to protect minorities that don’t have the means to pro-tect themselves.

You have advocated humanitarian interventionthroughout your career how do you think therest of the world should respond to the crisisin Syria?Currently the Syrian population is living a nightmare infront of the eyes of the international community and wehave to do something about it and be involved in the mat-ter. The [UN] Resolutions 43/131 and 45/100 will providehumanitarian assistance, distributing drugs and other aid tothe civil population.

The question is whether public opinion will remain alertfor long, as people get tired of these massacres. I think itmay not, and the reality shows us that humanitarian assis-tance may not reach Syria. Kofi Annan’s plan died due to alack of support and unity in the Security Council.

As I wrote in the New York Times in June, we have tobring Syria to justice and use the international legal systemthrough an appeal to international justice, which is the com-panion of the right to intervene. This is not merely a rhetor-ical position: it is the only path still open. We know theInternational Criminal Court opens cases at the request ofthe Security Council, and unfortunately we know that

Russia and China would block that action by using theirveto. They think there is no need to get involved in anycountry’s internal affairs.

We will have to discuss and negotiate with Russia andChina, and with other countries such as Syria and Iran, andprove to them that it is in everybody’s interests to help theSyrian population.

How would you respond to a common criticismof liberal interventionism, that it leads coun-tries to attack small states that commit humanrights abuses like Libya and Syria while lettingmore powerful countries like China and Russiacontinue?We have to be careful about the use of liberal intervention-ism in this kind of geopolitical matter. From my point ofview, a military response to Syria would lead to a world wargiven that the Middle East is always ready to burst intoflames. We must prevent that and begin with organisedhumanitarian assistance.

Regarding countries like China and Russia, we have totake into account that they are not our future enemies. Allsanctions that could be taken will have to be taken throughthe UN Security Council.

The question is: are China and Russia more legitimate asthey grow exponentially while failing to respect humanrights? We face an interesting dilemma between choosinggrowth without respect for human rights and trying to makethe respect of the rule of law a priority.

How can states maintain their commitment tohuman rights while cooperating with nationsthat commit human rights abuses?It’s a difficult issue to deal with because we are not alwaysaware of everything that’s happening. We must be com-

pletely informed before contracting anything with a countrysuspected of abusing human rights.

Having worked under both socialist and con-servative French presidents, what do you thinkof Francois Hollande?I cannot compare yet the two presidents [Sarkozy andHollande]. Hollande has just started his mandate of presidentand it will take time to see the results of his presidency. Ionly know that the task is heavy and I hope that Hollandewill succeed.

How does the Eurozone crisis threatenEuropean unity?European unity is threatened by the Eurozone crisis, but alsoby the crisis of European governance. We have to build aEuropean leadership that will gather together all Europeansand take into account popular opinion.

We have to give more power to national parliaments andto the European Parliament in order to develop Europeandemocratic governance. We built Europe with an unprece-dented political idea through its economic system. We haveto reconcile politics with the economy before it fades away.

What’s the best way for international organi-sations like the UN to provide global leader-ship while maintaining relations betweenmember states?This is the whole matter and work of diplomacy. Most of thetime, negotiation and discussion lead to a compromise. It takestime and we need to be patient. At the same time, we mustn’tforget to be realistic and act when there is an urgent crisis.

I think that as soon as countries who have conflicting pointsof view agree that it is in everybody’s interest to understandeach other, they are already on the way to reaching a solution.

The intervention medicineMédecins Sans Frontières co-founder Bernard Kouchner talks to Bryony Bates about the duty to intervene, handlingChina and Russia and defining the rule of law

INTERVIEW: BERNARD KOUCHNER

“The rule of law isinterpreted differently bysome, and it is not alwaysrespected”

www.iflr.comIBA Daily News - Tuesday, October 2 201210

I nvestors in US equity markets have seen three high-profile systemic errors this year, two of which involvedhigh frequency trading (HFT) firms praised for develop-

ing some of the fastest, most efficient, liquidity-enhancingalgorithms. The impact of these errors was limited by regu-lations implemented in the wake of the May 2010 FlashCrash – when the Dow Jones plunged and recovered 1000points over 20 minutes.

However, not surprisingly, there are now stronger calls toprevent errors in the first place. Commentators suggest thatexchanges and firms have become overconfident in their sys-tems, hastily launching new algorithms without contingencyplans in an attempt to beat competitors. Regulators acrossthe globe are scrambling for solutions – considering transac-tion taxes, speed restrictions and post-trade monitoring. Butit seems the solution could be as simple as stronger risk man-agement.

In March, Bats Global Markets cancelled its initial publicoffering (IPO) on its own HFT platform after a softwareglitch. Two months later, Facebook’s botched launch onNasdaq occurred.

The most recent trading glitch to catch the world’s atten-tion took place on August 1 when Knight Capital launcheda new algorithm designed to lower prices for retail investors.This was in preparation for a new New York StockExchange (NYSE) retail liquidity plan.

Things went awry almost immediately as Knight execut-ed wild trades for 45 minutes, triggering six of the Securities& Exchange Commission’s (SEC) single stock circuit break-ers. The trades resulted in a $440 million trading loss for themarket-maker, affirmed after the SEC denied Knight’srequest to retroactively block the bad trades. HFT firms,lawyers and academics were all astonished Knight did notrespond to the error sooner.

“They turned on the car, let it drive without a driverdown the street and went back into the house,” HaimBodek, founder and former CEO of Trading Machines, saysof Knight’s new system.

Part of the problem is thought to result from an inability,or unwillingness, of exchanges and firms to retain talentedprogrammers to oversee new systems. Regulators shouldbear in mind the strong human element in this year’s high-profile trade errors.

During the so-called Bats Crash, the exchange was with-out its most senior systems developer, Paul Rose, when abad algorithm forced the HFT platform to pull its IPO inMarch. Rose had left Bats to join Tradebot Systems a fewmonths earlier.

Facebook’s IPO also suffered from a depletion in humancapital. IFLR has been told that a key programmer was notpresent for the erratic IPO.

Speed bumps and risk controlsShortly after Knight’s glitch, the SEC began an investigationinto the firm’s risk management procedures. TheCommission’s market access rule, finalised in November2010 and effective from last year, requires broker-dealerslike Knight to maintain reasonably designed risk manage-ment controls and supervisory procedures. But it has itsshortcomings.

“Unfortunately, it’s all very vague [and] it’s very subjec-tive,” says Irene Aldridge, managing partner of research,development and implementation of high-frequency algo-rithms at Able Alpha Trading. “There are no mandates towhat kind of risk management a firm has to have in order todo this kind of work.”

That could change. According to an August 3 SECrelease, Chairman Mary Schapiro has asked theCommission’s staff to hurry-up a rule proposal that wouldrequire exchanges and other market centres to have specif-

ic programmes in place to ensure the capacity and integri-ty of their systems. Matt Andresen, co-CEO at quantita-tive trading firm Headlands Technologies, says commonbest practices include systemic testing of orders sent toduplicative test environments, pre-trade risk checks donefor all orders to be sent by a new algorithm, loopingchecks in which firms monitor for suspicious and unex-pected systemic behaviour, market data health checks tomake sure data is flowing in properly, and kill switches tostop errant trading.

“If you don’t design those speed bumps and risk con-trols, if you don’t have those operations then you willprobably have an event like this at some point in time,”Bodek says. “The number of times risk controls interceptthese events must be enormous – people screw up all thetime.”

The SEC has also recently backed an initiative to intro-duce greater certainty into the US market by limiting thenumber of cancelled trades.

European fragmentationHow US markets were structured had a considerable impacton its vulnerability to trading glitches. The trade-throughrule fostered inter-linkages between US trading venues.Consequently, whenever there was an erroneous series oftrades caused by rogue algorithms it could affect the entiremarket. This structure is thought to have contributed to theMay 2010 Flash Crash.

Shearman & Sterling’s Dr Andreas Wieland says Europe’smore fragmented trading venues make it much less vulnera-ble to the trading errors that spell disaster in US’ highlyinterconnected markets.”

But Europe is also introducing measures to curb HFTrisks. The Markets in Financial Instruments Directive (MifidII) will introduce a licensing requirement for HFT firmsand a specific regulatory framework for algorithmic tradingactivities.

Germany, however, has pre-empted the proposed EU-wide reform with its own legislation. On July 30, the

German Ministry of Finance published a draft Act for thePrevention of Risks and the Abuse of High FrequencyTrading.

The new rules could slow down HFTs on the country’sregulated markets and multilateral trading facilities. Butlawyers in Frankfurt warn that closer HFT supervision maynot prevent another Knight Capital-like debacle.

The Act addresses many of the regulatory methods envis-aged under Mifid II and those addressed in Iosco’s July 2011report on the impact of technological changes on marketintegrity and efficiency. The reforms aim to better establishsystemic stability in a sector that has to-date operated withlittle supervision.

Wieland says the suggested changes could have enormousconsequences for the German market as some HFT firmsstruggle to comply. But he stresses that market vulnerabilityto algorithmic errors, such as that experienced in the May2010 Flash Crash, and more recently by Knight Capital, wasexacerbated by its specific structure and not just how HFTswere regulated.

The reforms will require HFTs to apply for licensing as afinancial services institution with Germany’s financial regula-tor BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht).Proposed amendments to the German Banking Act and theGerman Securities Trading Act will also enhance the powersof regulatory authorities, in particular requiring HFTs to sub-mit their algorithmic trades and strategies to the regulator.

They avoid the more controversial elements discussed inconnection with Mifid II, such as the requirement for a for-mal market-making obligation and a minimum lifetime fororders. Both would have the potential to destroy the busi-ness models of many HFT firms and would likely havesevere consequences on liquidity and market efficiency atGerman trading venues, if implemented.

“The reforms force firms engaged in algorithmic tradingto implement adequate and sophisticated risk managementstrategies and to ensure the trading system has sufficientcapacity and effective safeguards to prevent erroneousorders,” Wieland says.

Looking for troubleHFT critics have pounced on the Knight Capital, Bats and Facebook trade glitches. But some reforms could do moreharm than good. By IFLR journalists in London, New York and Hong Kong

HIGH FREQUENCY TRADING

“The newly-introduced maximum order-to-trade ratios,could have the effect that certain trading strategies cannot bedeployed with the same leverage or volume as currentlyused, thereby curtailing the activities of HFT firms onGerman venues,” he adds.

Wieland said enhanced focus on HFT firms’ risk manage-ment process was undoubtedly a key tool to prevent a repeatof events like Knight Capital’s trading loss. But he ques-tioned the efficacy of Germany’s approach.

“It is as much surprising as questionable that Germany hasdecided not to wait for a common European solution giventhat the Mifid II proposals are already at a fairly advancedstage,” he says. “Instead, Germany appears to opt – not forthe first time – for a national solution that precedes and pre-empts legislation at an EU level.”

The compliance raceAccording to Wieland, the move had the potential to irritatethe market.

The August 17 deadline for comments on the draft legis-lation left little room for the industry to influence mattersfurther. “This will create substantial challenges for tradingvenues, investment firms and their trading and compliancedepartments,” says Wieland.

Interested parties will need to swiftly analyse the impactof the draft legislation on their business models and practicesand decide whether and how these can be brought intocompliance with the new legislation.

Training of personnel, surveillance and strengthening aculture of compliance will also be crucial to avoid tradingpractices that may subsequently be perceived as marketmanipulation, and consequential investigations, fines andpenalties.

What’s more, if the new legislation is adopted as itstands, HFT firms that wish to continue trading in thecountry will need to quickly prepare for a licence inGermany or may have to cease trading at German tradingvenues. “It may be worth examining alternative solutionssuch as whether a Mifid licence could be obtained inanother EU jurisdiction with a passport into Germany,”he says.

“Some HFT firms could avoid the need for gettinglicensed in Germany and retreat from the German market,”he says. “There is a risk that this could result in less liquidityon German trading platforms.”

Institutions engaged in algorithmic trading should closelymonitor the development and impact of the proposed legis-lation. “It may well be that the proposed legislation will besubject to changes and clarifications during the parliamentaryprocedure,” he adds.

“Whatever the outcome, these suggested changes makeclear that the time for HFT firms, be they US or European,to operate below the radar of regulators is over,” he says.

Nonetheless, people should be aware that even with thebest regulation and risk management systems in place, mis-takes do happen. “The German approach may help regula-tors better supervise HFT firms, but that does not entirelyrule out singular events like Knight Capital from happeningagain,” he says.

Asia: ahead of the game?As regulators in the US and Europe attempt to catch upwith increasingly-sophisticated HFT and algorithmic tradingstrategies, Asian regulators are one step ahead. The tradingstrategy has received widespread media coverage across thecontinent, despite affecting Asian markets less than it doeselsewhere.

Sources tell IFLR that Asian regulators are implement-ing frameworks for electronic trading before it becomesan issue. But counsel fear that increasingly prescriptiveregulations could halt the natural evolution of market

technology and create a substantial compliance burden. The Securities and Exchanges Board of India (Sebi)

released norms for electronic trading in March, while HongKong’s Securities & Futures Commission (SFC) andAustralia’s Securities & Investments Commission (Asic) haverecently released consultation papers detailing new regulato-ry frameworks for HFT and algorithmic trading.

Though global standards for HFT and algorithmic tradingregulation are advised by organisations such as Iosco, eachregulator has taken a different strategy, noting that theirrespective jurisdictions are in varying stages of these strate-gies’ prevalence.

Sebi’s trendsetting Of these jurisdictions, India’s exchanges are the smallestand least sophisticated. However, they are governed bythe strictest rules. Though India’s regulators have beencriticised for the country’s uncertain regulatory environ-ment, counsel have quickly adapted to Sebi’s norms onalgorithmic trading and HFT since they were announcedin March.

Because of the market’s size, an errant algorithm on anIndian exchange is unlikely to destabilise markets globally.Instead, issues arise from the uneven environment createdby HFT and algorithmic trading. Manisha Shah, partner atJ Sagar Associates, says small players face unfair competi-tion from those able to afford the technology for thesestrategies.

Indeed, such a view prompted the Delhi High Court toissue Sebi, the Reserve Bank of India, and Indian stockexchanges with notices in August, calling for responses to aplea seeking to abolish algorithmic trading at stockexchanges as the facility was not available to small investors.The petition, by retail investor group Intermediaries andInvestor Welfare Association, alleges algorithmic trading putssmall investors at a disadvantage in comparison to big bro-kers and foreign institutional investors. The matter is fixedfor hearing on January 29 2013.

www.iflr.comIBA Daily News - Tuesday, October 2 2012 11

HFT in US

stocks has

increased

drastically

over the past

five years

Courtesy of

Nanex

While regulators search for ways to prevent

system errors, the more immediate question

for the market is one of liability. Knight share-

holders are expected to file class actions on

the grounds the company was negligent in

responding to the trading error and did not

include important information on the

functionality of its trading systems in

disclosure statements. Claims against

broker-dealers are typically heard on an

individual basis before Financial Industry

Regulatory Authority (Finra) arbitration

panels – a process sometimes criticised for

a lack of transparency and fairness.

“While there are many problems with

arbitration, it has been getting somewhat

better the last number of years,” according

to Jacob Zamansky, founding partner at

Zamansky & Associates.

A Finra proposal to allow fully public

arbitration panels, rather than a panel

including one financial industry profes-

sional, was approved by the SEC last year

– a move expected to result in fairer

decisions by the three-person panels. This

may be a moot point, though.

The biggest losers in Knight’s

debacle, aside from the company, were its

shareholders. This is because trades in the

six other stocks most affected were

declared erroneous and undone following

the trigger of single-stock circuit breakers.

Broker-dealer shareholders

are not prohibited from filing class-action

law suits like broker-dealer customers are

by their contracts.

“I think that is going to go to court,”

Zamansky says. “I don’t think Knight

Capital will be able to avoid a class action

in a federal court as opposed to

arbitration.”

Ironically, Knight is pursuing remit-

tance of some of its own damages alleged

to have resulted from negligence at the

hands of Nasdaq during the launch of

Facebook’s IPO in May. The firm reported

losses between $30 and $35 million and

has been evaluating all remedies available,

according to a May 23 filing with the SEC.

Other losers in Facebook’s IPO have

already filed their claims against Nasdaq.

Most notable of those is a collection of

retail investors who have claimed losses

resulting from a 30-minute delay in trading

along with subsequent delays in order

confirmations that caused investors to

unknowingly submit repeat buy or sell

orders. The class action, lead by Philip

Goldberg, alleges negligence and was

filed on June 12 in the US District Court for

the Southern District of New York.

Suits against Nasdaq have brought to

the forefront an immunity exchanges are

afforded as self-regulatory organisations.

Immunity will depend on whether

Nasdaq’s system errors arose as part of a

government function.

The US Court of Appeals for the

eleventh circuit has provided some

guidance on where liability begins and

ends for exchanges. In the 2006 case

Weissman v National Association of

Securities Dealers, the court affirmed that

an exchange can be held liable when

performing non-governmental functions,

but recognised earlier case law regarding

immunity in the performance of those

functions. That case involved misleading

Nasdaq advertisements.

Zamansky is one of the lawyers acting

for the class of investors against Nasdaq.

He says immunity does not apply in this

case because Nasdaq was not acting as a

regulator when its systems failed.

“They have an obligation to provide a

system that works properly, and if they are

on notice of a problem they have to act

timely,” Zamansky says. “When you are

talking about markets that execute in a

millisecond, two and half hours of a glitch

is an eternity.”

While it is unclear how the court will

interpret Nasdaq’s liability, Bodek thinks

exchanges and HFT need to be more

exposed to liability over the market-wide

impact of bad algorithms.

Who is liable?

Continued on page 12

Shah believes that India needs to encourage retailinvestors. But she warns that this would be challenging ifmuscled institutional investors dominate.

An in-house counsel at an international bank agrees. Henotes that Indian firms would be disadvantaged becauseinternational funds primarily deploy these strategies. “In amarket like India, there is a tendency to say that foreignfirms have usurped the market via technology,” he says,adding that Sebi would not want to encounter that level ofcriticism.

The most contentious aspect of Sebi’s norms is its indi-vidual algorithm review requirement. Sources discourageindividual algorithm review because its high cost is dispro-portionate to its potential effects on the market. The counselcommented that the individual review especially is an irritantwhen upgrading technology because the algorithm requiresadjustments and therefore Sebi approval.

But he also highlights that Sebi is partially liable forapproved algorithms because of the review: “We don’t haveprotection in any other market, in which responsibility foralgorithms is on the participant. In India, algorithms gothrough exchange approval, so someone else has to look atit. In the worst-case scenario, we may not be held entirelyresponsible.”

He predicts that regulators elsewhere would require indi-vidual algorithm review, which has already been proposed inGermany. As for the next iteration of Sebi’s algorithmictrading norms, Shah said that they may direct stress testing ofexchange and broker systems and encourage retail participa-tion, which would go a long way in increasing investor con-fidence.

Hong Kong queries liabilityIn late July, the SFC released its first consultation paper onthe regulatory framework for electronic trading onexchange-based platforms. This was eagerly anticipated, asrules for electronic trading in Hong Kong have not changedsince 1999. Though the Hong Kong Exchange is the thirdlargest in Asia, HFT and algorithmic trading strategies com-prise a negligible portion of its orders because of a long-standing stamp duty on each trade.

Overall, the SFC’s proposals are less stringent than Sebi’s,and do not require individual algorithm review. However,while Indian counsel are satisfied with Sebi’s risk allocation,Hong Kong counsel are concerned with who is ultimatelyliable for malfunctioning algorithms.

Sources disagree with the consultation paper’s require-ment that providers of automated systems be held ultimatelyresponsible for orders’ compliance to the regulatory require-ments. A director of the Hong Kong Securities Associationwarns that this would especially affect smaller brokers, asmany who provide electronic trading services rely on exter-nal system vendors.

Aside from relying on compliance confirmation from thesystem vendor, small brokers may lack the technical expert-ise to determine whether the electronic trading systems meetthe requirement proposals in the consultation, and that com-pliance would be costly for those without in-house ITexperts. A partner at an international law firm agrees, sayingthat he expects a significant increase in management timededicated to governance and compliance.

Moreover, the partner notes that providers could also faceconcerns regarding direct market access (DMA) services.Under the proposal, providers are responsible for pre-traderisk controls as well as post-trade monitoring. He adds thatwhile providers of electronic trading systems should havesafeguards in place, they cannot control whether third partieschoose to utilise their products in an abusive or manipulativemanner.

Counsel note that Hong Kong faces increasing competi-tion from other less restrictive Asian markets for liquidity.One partner says: “It would be unfortunate to put in placeunnecessarily onerous compliance requirements around HFT

relative to other forms of trading, so that institutions movethis technology to other Asian markets, which could meanless liquidity in Hong Kong.”

Asic’s search for balanceAn alternative to the Hong Kong Exchange is the AustralianStock Exchange (ASX), in which HFT and algorithmic trad-ing play a prominent role. In August 2012, ASX CEOElmer Funke Kupper estimated that HFT account for 15 to25% of trades in the Australian market.

Like Hong Kong’s SFC, Asic is looking to revise its mar-ket integrity rules and in conjunction its guidance on auto-mated trading. However, it is important to note that Asichas completed several iterations of consultation papers on thesubject, while the SFC has not yet received market input onits first consultation paper.

Asic released a consultation paper on August 13 that elab-orates on several measures similar to those detailed in theSFC’s consultation paper. These include an annual review ofsystems and having direct and immediate control of all trad-ing messages, including pre-trade controls. Though the rulesseem similar to those proposed in Hong Kong, Asic has hadmore time to fine-tune its proposals.

Damian Jeffree, director of policy at the AustralianFinancial Markets Association (Afma) said Asic was originallyconsidering a quite prescriptive approach to HFT throughthe market integrity rules, but that would not have been theright approach. The aim is to have proper processes in placeto ensure that systems are well-designed and well-imple-mented, he says.

Moreover, he cautions against targeting particular invest-ment classes in respect to their access to and competence

with technology. “Restricting technological innovation inthe market carries its own risks,” he says. “We expect Asicto be active in regulating HFT but this does not mean thatundue constraints need to be placed on how business isdone.”

But the ASX may change the environment for HFT andalgorithmic trading on its own. Kupper, its CEO, has statedthat ASX has made submissions that suggest how to betterprotect Australia’s markets, including charging HFT transac-tion fees similar to those in Hong Kong.

The rules have worked Securities regulators should be wary of basing HFTreforms on this year’s US trading glitches. Trading lossesresulting from the Bats Crash, Nasdaq’s untimely launchand subsequent delay of Facebook shares, and the KnightCapital debacle were almost exclusive to those companiesand their shareholders. If interpreted in a sense of market-wide impact, the SEC’s post-Flash Crash regulations didtheir job.

Single-stock circuit breakers stopped trading in the stocksmost affected in each instance. This has the downside ofmaking some trades erroneous and partly hurts market cer-tainty, because traders might not know if their trades will bebusted. But the alternative would have meant actual wildprice swings.

“The Knight situation is in some ways a validation ofmarket mechanics,” Andresen says. “A private companymade a series of mistakes which led them to do unprofitabletrades in the market. Clients were not impacted, theexchanges were not impacted and the market data continuedto flow smoothly.”

The question that naturally follows revolves around aninterpretation of best practices. High frequency traders tellIFLR they simply would have done things differently.

Regulators should not bow to public pressure, and notforget the enormous benefits of HFT. “It adds significant liq-uidity to the market,” Wieland says

“A regulatory balance needs to be struck which stabilisesthe market by introducing effective risk management proce-dures, and emphasises the need for proper business continu-ity plans and algorithmic trading stress testing without killingthe industry,” he says.

“Regulators worldwide must work to establish a regu-latory framework that doesn’t put HFT firms out of busi-ness,” Wieland adds. “That would diminish liquidity onthe market and ultimately make markets operate less effi-ciently.”

www.iflr.comIBA Daily News - Tuesday, October 2 201212

HIGH FREQUENCY TRADING

Algorithmic and HFT are increasingly

popular strategies in China, but more

prevalent in the commodities and futures

markets. Local brokers are, however,

becoming more interested in using HFT

strategies on equity exchanges. Citic

Securities, China’s largest broker,

purchased algorithm trading technology

from Nasdaq-listed Progress Software in

May, while broker Guangfa Securities

agreed to use a platform to develop

algorithms by Steambase, a US company.

While the Shanghai Stock Exchange

says that it will implement new rules to

manage HFT, including placing trading

limits on firms with abnormal order

volumes or frequent order cancellations, it

has not yet specified a timeline.

Sources tell IFLR, however, that

regulators are gathering information about

HFT. In China less than 2.5% of trades are

executed via automated trading systems.

In New York, that figure is more than 70%.

Kingsley Ong, partner at Eversheds Hong

Kong, says that there is very limited

systematic risk arising from automated

trading in China for Chinese regulators to

be concerned at this stage.

Ong expects the market for electronic

trading to develop, though. “Development

may be cautious and slow in China, but this

does not digress from the growing trend

and demand for embarrassing automated

trading. As the market becomes more

mature, the trading volumes will likely accel-

erate,” Ong says. He predicts that brokers

will develop more creative algorithms and

innovative ideas for trading in China.

To date, the difficulty with HFT of

equities has been that foreign investors

likely to use automated systems can only

trade A-shares on the equities exchanges

via the Qualified Foreign Institutional

Investor programme. Also, investors must

use exchange traded fund conversions to

get around the T+1 restriction in the A-share

market. That restriction, however, does not

apply to the futures and bond markets.

The Zhengzhou Commodity

Exchange, Dalian Commodity Exchange

and Shanghai Futures Exchange are

among the most popular platforms for

automated trading purveyors, and have

recently taken measures to regulate HFT.

In November 2010, the Shanghai

Futures Index implemented guidelines on

monitoring abnormal transactions – a

move presumed to have been sparked by

irregularities caused by electronic trading.

Its provisions require exchange to monitor

trades and safeguard the exchange from

errant trades, but state that members

should stop their clients’ abnormal trans-

actions. A 2008 regulation had codified

regulatory review of trading software.

There are also exchange rules that limit the

strategies utilised by algorithmic trading,

such as allowing only 500 order cancella-

tions per contract per day.

China’s new arrival

“There are nomandates to what kind of riskmanagement a firm has tohave in order to do this kindof work” Irene Aldridge, Able Alpha Trading

Continued from page 11

P ublic M&A bidding rules varygreatly from country to country,meaning shareholders and corpo-

rate boards are not created equal. And thepotential for competing bidders to push upprices is at the core of value in public M&A.This was the clear message from part one

of yesterday morning’s session Public M&A –selected topics, moderated by Craig Cleaver ofSlaughter and May in London.The discussion was structured around the

scenario of a cash-heavy target facing compet-ing bids from two hedge funds: one whichhas made a formal offer, and another whichhas publicly stated its interest in the company.Using this example, it was shown how thetarget’s value to shareholders changes depend-ing on the number and length of bids. The audience learned how different reg-

ulations – or lack thereof in the US –impact the bidding process in the UK,Germany, France, India and the US.The US has the most open and longest-

running bidding process. India’s mergerregime, on the other hand, typically requirescompeting bids to be formally submittedwithin 15 days of a market rumour. Europeanjurisdictions lie somewhere in the middle.

“I think the way the pricing mechanism isset in India, there is no incentive for a secondbidder to start a rumour,”said panelist ZiaMody, of AZB & Partners in Mumbai. Thisis because rumours would cause price fluctu-ations that could negatively impact the bidderrequired to make its formal offer 15 daysafter stating their interest in the company. That is in stark contrast to the US,

where it can be unclear how many bidderswill be in play as negotiations proceed.Potential acquirers are even allowed to pub-lish press releases stating their interest in atarget, without being required to make aformal offer. This can, however, complicatethe process and drive-up price as a targetcompany’s board usually has a fiduciary-outto consider larger offers. “We love market rumours – they make

money for Wall Street, which is very popu-lar in the local press and national media,”Andrew Nussbaum, a New York partnerwith Wachtell Lipton Rosen & Katz,quipped sarcastically. “You can have many rounds of bids (in

the US),” Nussbaum said. “We’ve had themgo five, six [and] seven rounds. There is noexternal rule as to how many rounds you

can have or how fast they have to go in ourcountry. It’s really up to the board.”In 2006 France’s securities regulator the

AMF (Autorité des Marchés Financiers) imple-mented its version of the UK’s so-calledput-up or shut-up rule.“If the regulator is convinced that some-

body is preparing a bid the AMF asks thepotential bidder publicly whether indeed theyhave the intention to launch the bid or not,”said panelist Jacques Buhart, partner withMcDermott Will & Emery in Paris. “Thepotential bidder has to respond within four orfive days usually. If [the bidder] responds ‘no’[it] is stuck – it cannot launch a bid.” The put-up or shut-up provision is neither

a European Directive nor a provision ofGerman law, but Hengeler Mueller partnerJoachim Rosengarten said there is little incen-tive for a competing bidder to let rumoursspread because it would affect its price.

“Other than that, I think [the Germanbidding process] is quite nice for the share-holders,” Rosengarten said. “This could goon for a while.”The UK is thought to be a less share-

holder-friendly jurisdiction than the US andGermany because there is a cut-off periodfor bids. The UK has an auction procedurefor resolving competing bids.“The auction procedure can be anything

really,” Cleaver said. “You can have fullrounds of bids [for example]. Then therewill be a cut-off point in the process wherefinal bids will be submitted.”Nussbaum said the bidder can control

the clock of when to launch an offer in theUS. This has implications for bidding warsand price. “At some point somebody decides they

would rather take a break-fee than buy thecompany at that particular price,” he said.

L itigation arising out of the LondonInterbank Offered Rate (Libor)scandal is set to be the most compli-

cated ever seen, a former US Securities andExchange Commission (SEC) commissionerwarned yesterday.The $453 million penalty imposed on

Barclays in July by the US CommodityFutures and Trading Commission (CFTC)and the UK’s Financial Services Authority(FSA) for manipulating Libor data, prompt-ed a large-scale review of the rate-settingprocess within global financial institutions.

In Libor reforms published last week,the FSA’s managing director MartinWheatley recommended significantly cur-tailing the number of currencies and matu-rities used in the benchmark rate. CFTCchairman Gary Gensler said yesterday thathe planned to further build on Wheatley’srecommendations.Speaking on yesterday’s ‘Is the storm

over? – the evolving liabilities of financialinstitutions’ panel, the former SEC com-missioner Davis Polk & Wardwell’sAnnette Nazareth said case work arising

out of the Libor scandal would beextremely complex. “There are cross-jurisdictional issues to

consider,” she said. “I also don’t know how you show causa-

tion,” she said. “How do you determinewhat the cause is when you’ve got banksthat were part of the group providing thequotes and yet they were also using Libor intheir own transactions? You’ve got peopleon both sides involved.” The Bank for International Settlements’

Liam Flynn said determining whether or

not financial institutions have credit fortrades won would be offset against tradeslost would also prove complicated. Nazareth said: “It does look like the

only people who are going to win in thatone are the lawyers.” She believed thestorm of litigation post-crisis was far fromover too, at least in the US. “The US isvery litigious society, I don’t think we’regetting near the end of this at all,” she said. ANV Underwriting’s Thomas

Mannsdorfer agreed. “I think we’re goinginto a phase of more litigation,” he said.

www.iflr.comIBA Daily News - Tuesday, October 2 201214

How market rumours shapeglobal M&A

CORPORATE

“The way the pricing mechanism is set inIndia, there is no incentive for a secondbidder to start a rumour”Zia Mody, AZB & Partners

Libor litigation ‘most complicated ever’FINANCIAL SERVICES

www.iflr.comIBA Daily News - Tuesday, October 2 2012 15

VOX POP

QUESTION:What is the IBA’smost importantrole today?

Boris SuabyB & S LegalSlovak RepublicI think the IBA has a strong symbolicrole, in terms of being such a largeinternational legal organisation. It’smy first time at the conference, butfor me it’s a central point to meetother lawyers and gather new ideas.It’s also a good place to start thinkingabout legal issues from a differentperspective.

Pit ReckingerElvinger Hoss & PrussenLuxembourgThrough the annual conference, IBAis able to bring very good legaleducation to its members. Also, ofcourse, the annual conference is aperfect place for networkingopportunities. But for me, the IBA’srole in knowledge-sharing is moreimportant. There is also the benefit of

the various committee conferences, like the InternationalFinancial Law Conference, for the committee’s members.

Gaganpreet Singh PuriKPMGIndiaI’m a forensic accountant with KPMGand it’s my second IBA conference.The practice of law doesn’t justinclude lawyers, but also lawmakersand corporates, and it’s important toknow that this event is useful for usas well as lawyers. I think in thissense, to help it better serve this

function, it would be useful to have more lawmakers here.And not just judges, but government representatives as well.

Andrea Maia,FindResolutionBrasilI think the IBA’s primary role is tobring lawyers together to exchangeideas and learn what is happeningaround the legal world today. I thinkit’s very important to gather lawyerstogether for this purpose as it canhelp us implement practices beingused in other countries. Also I know

the IBA is very active beyond the scope of the conference.

Arthur BraunBPV Braun PartnersCzech RepublicFor me, the IBA is about supportinglocal bar associations in countrieswhere they are weak. I see manyother countries where improvementsstill need to be made. I’m not soconvinced that setting internationalprofessional conduct standards is thebest way, due to differences in local

law regimes. But I think the IBA has a very important role inassisting local bar associations.

Jose Luis Vega MezaPeroni Sosa Tellechea Burt & NarvajaParaguayThe IBA’s most important function isthe platform it provides for thesharing of different jurisdictions’cultures – to learn about localpractices. For me, other LatinAmerica countries are the mostimportant in this sense, but alsoEurope and the US. Paraguay wants

to follow the growth of Brazil and through the IBA we canlearn which doors to knock on to achieve that goal.

Veronica RaffoFerrereUruguayThe best thing about the IBA is theannual conference, as it bringstogether so many lawyers fromdifferent countries and cultures. Notonly does it help you become awareof legal trends from around the world,but also practice trends – the role oflawyers and how to manage law firms.

With the world becoming closer every year, it becomesincreasingly important to know what is happening elsewhere.

Irina AnyukhinaAlrudRussiaThe IBA annual conference is key tothe body’s importance as it helpsyou understand legal trends,legislative developments and hottopics from around the world. Itslobbying and committee activities arevery important as they unite theefforts being made in particular

areas of law, and draw attention to important developmentsaround the world.