Vacant Channels, Web Rules, Proxy Firms: Compliance
The U.S. House of Representatives voted yesterday to repeal language in the Dodd-Frank financial- regulation law that was faulted for giving the Securities and Exchange Commission too much power to withhold documents from the public.
The House approved the repeal after the Senate voted on a similar measure this week. Representative Barney Frank, chairman of the House Financial Services Committee, said his chamber acted so President Barack Obama could enact removal of the Freedom of Information Act exemption as quickly as possible.
“We decided that the best way to proceed was to concur with the Senate so that the president could sign legislation that solves the immediate problem,” Frank, a Massachusetts Democrat, said in a statement. “We have bipartisan agreement that further action is necessary and we will begin that work.”
The financial overhaul law signed by Obama in July says the SEC doesn’t have to release records gathered for “surveillance, risk assessments, or other regulatory and oversight activities.” Lawmakers criticized the SEC for seeking the FOIA provision, saying the agency might use the authority to limit transparency and hide regulatory failures.
SEC Chairman Mary Schapiro, testifying before Congress last week, said her agency sought the measure to encourage money- managers and brokerages to turn over documents during inspections. Firm are sometimes hesitant to release information out of concern that it will later be made public through a FOIA request, she said.
Compliance Action
FCC Opens Vacant TV Airwaves for $4 Billion Market
Federal regulators cleared the way for technology companies to use vacant television channels for wireless data and Internet services.
The Federal Communications Commission voted 5-0 yesterday to adopt rules for using the airwaves, known as white spaces. Microsoft Corp., Google Inc., Hewlett-Packard Co., Motorola Inc. and Sprint Nextel Corp. are laying plans to exploit the airwaves, which exist in all U.S. cities.
“Today we open a new platform for American innovation” that will lead to billions of dollars in private investment, said FCC Chairman Julius Genachowski.
The airwaves travel in the spectrum between television channels, and like TV signals they carry far and penetrate walls. Uses may include wireless Internet connections, remote monitoring of industrial systems such as power plants, and taking over some mobile-phone traffic to ease sluggishness for users of devices such as Apple Inc.’s iPhone.
“The FCC’s decision will create opportunities for American companies to remain at the forefront of technological innovation,” Craig Mundie, Microsoft’s chief research and strategy officer, said in an e-mailed statement. The vote will help lure investment in uses for high-speed wireless Internet service, or broadband, Mundie said.
White-space applications may generate $3.9 billion to $7.3 billion in economic value each year, according to a September 2009 study funded by Microsoft and written by Richard Thanki, a London-based analyst with Perspective Associates.
New York and Los Angeles, the nation’s two biggest media markets with multiple TV stations, may have few vacant channels for the devices, according to an FCC fact sheet. Most markets have five or more empty channels.
To hear an interview with Julius Genachowski, click here.
Web Rules Plan Said to Be Weighed by U.S. Lawmakers
U.S. regulators would get authority over Internet-traffic practices of companies such as AT&T Inc. and Comcast Corp. for two years in a plan being weighed by congressional staff, two people involved with the talks said.
Legislation letting the Federal Communications Commission regulate Internet service providers was being discussed with industry representatives yesterday by aides to Representative Henry Waxman, chairman of the House Energy and Commerce Committee, according to the people, who asked not to be identified discussing the private talks.
The two years would give the FCC and Congress time to permanently resolve a long-running fight over rules on net neutrality. Internet-service providers would be barred under such regulations from selectively blocking or slowing content going to subscribers while favoring their own offerings and those of business partners.
“I’m pleased that Chairman Waxman and the other members of Congress who are involved are making a real effort,” FCC Chairman Julius Genachowski said yesterday at a news conference in Washington. “I admire and I appreciate the effort and I hope it succeeds.”
The compromise would let the FCC claim authority over Web service delivered over wires, such as by cable and fiber-optic lines, while allowing the agency to write less-stringent rules for wireless services such as mobile phones, the people said.
Dallas Hedge Fund Will Pay $2.6 Million to Resolve SEC Claims
Carlson Capital LP, a Dallas-based hedge-fund adviser, agreed to pay more than $2.6 million to resolve U.S. regulatory claims that it took part in four public stock offerings after betting against the securities involved.
The company, which manages about $5.1 billion in assets, violated a Securities and Exchange Commission rule barring traders from short-selling securities within five days before participating in a public offering, the agency said yesterday in a statement announcing the settlement. Short-sellers, who use borrowed shares to bet that a stock will fall, can manipulate prices before an offering, the SEC said.
Carlson Capital portfolio managers in 2008 bought shares of three companies after they placed bets against the same stocks during the restricted period, the SEC said. In another instance, a portfolio manager bought stock in an offering after a colleague had shorted the equity, the agency said.
“Investment advisers must recognize that combined trading by different portfolio managers can still constitute a clear violation,” said Antonia Chion, associate director in the SEC’s enforcement division. “This is true even when the portfolio managers have different investment approaches and generally make their own trading decisions.”
Carlson Capital agreed to resolve the claims without admitting or denying wrongdoing.
“We are pleased to resolve this matter and believe that this agreement is in the best interests of the firm and our investors,” Jonathan Gasthalter, a spokesman for Carlson Capital, said yesterday in a telephone interview.
Appaloosa Management LP, the Chatham, New Jersey-based hedge fund run by David Tepper, agreed to pay about $1.3 million in July to settle similar claims by the SEC. Appaloosa didn’t admit or deny wrongdoing.
Paper-Envelope Companies Raided by EU Antitrust Investigators
European Union antitrust regulators said they made unannounced visits to paper-envelope manufacturers last week to investigate possible price-fixing.
Officials raided the premises of companies in France, Denmark, Spain and Sweden on Sept. 14, the European Commission said in an e-mailed statement yesterday. It didn’t name the companies.
The commission, the 27-nation EU’s competition agency, said it had “reasons to believe” that the manufacturers may have “coordinated price increases and allocated customers on several European markets.”
Under EU law, the commission can fine companies found to be in violation of competition rules as much as 10 percent of their annual sales. The regulator imposed 1.6 billion euros ($2.13 billion) in cartel fines last year. There is no deadline for an EU cartel investigation.
Compliance Policy
SEC Renews Focus on Equity-Market Structure, Cook Says
The U.S. Securities and Exchange Commission is renewing its focus on market structure even as it works on rules to comply with the Dodd-Frank Act, said Robert Cook, director of the agency’s division of trading and markets.
The SEC will focus on “preserving advantages of the market structure while we address any potential flaws,” Cook said at a Security Traders Association conference in Washington. He said the May 6 plunge “brought a whole new dimension to the discussion” that was already under way.
While the SEC introduced short-term remedies to address problems exposed on May 6, the agency is now considering the role of liquidity providers in the current market, in which high-frequency trading accounts for more than half of equities volume. A joint report by the SEC and Commodity Futures Trading Commission about the May 6 plunge that briefly erased $862 billion in value found that some firms providing bids and offers to investors reined in their activity, exacerbating a “liquidity mismatch” between buyers and sellers.
“What obligations should they have?” Cook said. “What obligations should they not have?” The SEC is also examining the ratio of order cancellations to trades and other issues related to market data, he said.
The renewed focus on rules guiding equities trading comes as the SEC and Commodity Futures Trading Commission are analyzing over-the-counter markets and beginning the rulemaking process for swaps. The Dodd-Frank Act was signed into law in July. An updated report on the May 6 plunge is due to be released this month.
For more, click here.
Proxy Advisory Firms May Need SEC Oversight, NYSE Panel Says
The U.S. Securities and Exchange Commission should study whether proxy advisory firms need more regulation, a New York Stock Exchange panel on corporate governance said.
The SEC said July 14 it was seeking input on whether to consider rule revisions to promote greater transparency at the firms, which advise shareholders on how to vote on public company proxy questions such as the nomination of dissident directors to a company’s board.
A 32-page report released yesterday also recommends “market-based governance solutions whenever possible” and says corporate boards may benefit from having more than one non- independent director. The panel also said proxy firms should have to disclose their policies and methodologies, all material conflicts of interest, and company responses to their analyses.
“Proxy advisory firms are not regulated today, yet they are playing a very important role for many institutions in making voting decisions,” Larry W. Sonsini, the panel’s chairman, said in an interview. “The question is whether or not there ought to be some regulation, whether or not there needs to be disclosures of potential conflicts of interests, or perhaps more transparency as to what their voting guidelines are. That’s something we think the SEC ought to take a look at.”
Sonsini is chairman of Wilson Sonsini Goodrich & Rosati, a Palo Alto, California-based law firm known for representing technology companies. He is a director of Echelon Corp., and a former director of companies including Brocade Communications Systems Inc. and Novell Inc.
A spokesman for Institutional Shareholder Services Inc., a subsidiary of MSCI Inc. that says it is the leading provider of corporate governance advice, said the firm would respond to the SEC’s so-called concept release within a couple of weeks.
“We plan on letting that speak for us on this case,” Gary Hewitt, the spokesman, said.
The NYSE, whose parent NYSE Euronext is the biggest operator of U.S. stock exchanges, convened the panel last year to undertake a comprehensive review of corporate governance principles, the report said. The recommendation on proxy advisory firms was one of 10 principles in the report.
The principle addressing the composition of corporate boards said that while independent directors should constitute a majority in accordance with NYSE standards for listed companies, “a properly functioning board can include more than one non- independent director.”
Fed Is Working on New Ways to Identify Risks
Federal Reserve Bank of Chicago President Charles Evans said there is an “obvious” need for regulators to do a better job identifying risks common to financial markets in the U.S. and overseas.
An overhaul of U.S. financial regulation signed into law by President Barack Obama in July leaves several unanswered questions for regulators to resolve, such as the appropriate level of capital for large, systemically important firms, Evans said in opening remarks at a conference held at the bank yesterday.
“As we have seen during the recent global crisis, the interconnectedness of financial markets goes beyond our domestic borders,” he said. “It is obvious that we need to do a better job of identifying cross-border linkages and their associated risks.”
The 52-year-old regional bank chief is the first Fed official to speak publicly since the Federal Open Market Committee’s Sept. 21 meeting, where policy makers said they would be willing to ease monetary policy further to spur growth and support prices. Evans has led the Chicago Fed since September 2007 and doesn’t vote on the rate-setting Federal Open Market Committee this year. He didn’t comment on monetary policy yesterday.
To hear his remarks, click here.
U.K. Regulator Tells Companies to Stop Leaks to Media
The Financial Services Authority told companies to crack down on leaks to the media before mergers and other deals and “establish a much stricter culture that firmly and actively discourages leaks.”
Disclosures “threaten market integrity” and publicly traded companies should more strictly control executives’ communication with reporters, the U.K. regulator said yesterday.
“We are particularly concerned about the suspected practice of core insiders strategically leaking inside information,” the FSA said in its Market Watch newsletter posted on its website.
The FSA has targeted market abuse and insider trading for more than two years and has said that in 2008 suspicious trades took place before 29.3 percent of U.K. takeover announcements. The regulator said in March it may tape traders’ mobile- telephone calls in an effort to eradicate illegal behavior.
The regulator has contacted chairmen of companies and sent cease-and-desist letters to warn firms against leaks, said Chris Hamilton, an FSA spokesman.
“Despite our focus on how firms could tighten their controls,” leaks “do not appear to have reduced,” the FSA said in the newsletter. “We are concerned that senior management at regulated/unregulated firms and issuers may not be doing enough to set a suitable anti-leaking culture.”
For more, click here.
FSA to Have Hedge Fund Town Hall Meetings on New Bonus Rules
The Financial Services Authority will consult with asset managers at “town hall meetings” before making changes to its bonus code to comply with European Union rules, a senior agency official said.
Forcing asset managers to comply with bonus rules originally designed for banks could cause “systemic disruption” because of the “fundamental differences in underlying business models,” Dan Waters, director of the FSA’s asset management sector, said in a speech at a conference for hedge funds and private equity firms in London yesterday.
Waters said the FSA needs to “engage more intensively with the asset management industry” as the regulator consults on changes to its bonus code. “We are in the process of doing this and are arranging consultative town hall meetings over the coming weeks.”
The U.K. financial regulator proposed expanding the firms covered by rules on bonuses and compensation from 27 banks to 2,500 firms, including building societies and hedge funds, earlier this year to comply with European Union legislation on banks’ capital which comes into force in 2011.
The proposed compensation rules require that at least 40 percent of bonuses be deferred for at least three years and that a minimum of 50 percent are paid in shares.
Ackermann Says Banks Risk ‘Dangerous Race’ on Rules
Deutsche Bank AG Chief Executive Officer Josef Ackermann said markets may demand that banks reach new regulatory requirements far ahead of deadlines set by regulators and central bankers in Basel.
“This could be a very dangerous race to the top,” Ackermann said at a conference in Frankfurt yesterday. Markets may “punish” lenders that don’t meet capital targets soon enough, leading banks to shrink their balance sheets and cut lending, which may affect the economy, he said.
Regulators of the Basel Committee on Banking Supervision this month reached an agreement for rules that more than double capital requirements for banks, while giving them as long as eight years to comply. Deutsche Bank will fulfill all new requirements by 2013, Ackermann reiterated yesterday, ahead of rules for lenders to have a 4.5 percent common equity within five years, and to add an additional 2.5 percent buffer by 2019.
Deutsche Bank is raising about 10.2 billion euros ($13.6 billion) in Europe’s biggest rights offer this year to acquire Deutsche Postbank AG and boost reserves. Banks shouldn’t expect that markets will always be willing to provide them with the capital they seek, especially as dividends and profitability decline with tighter rules, Ackermann said.
Germany’s 10 biggest lenders may need about 105 billion euros in fresh capital because of new rules, the Association of German Banks said on Sept. 6.
Bernanke, Bair, to Testify Sept. 30 on Banking Regulations
The Senate Banking Committee plans to hold a hearing about implementation of the financial regulatory overhaul signed into law by President Obama this summer.
Federal Reserve Chairman Ben S. Bernanke and Federal Deposit Insurance Corp. Chairman Sheila Bair are among regulators scheduled to testify at the Sept. 30 hearing. The hearing will also include Mary Schapiro, chairman of the Securities and Exchange Commission; Gary Gensler, chairman of the Commodity Futures Trading Commission and John Walsh, the acting Comptroller of the Currency.
The hearing is being held to “make sure that the new law is being implemented swiftly and as Congress intended,” according to a release from the Senate Banking Committee.
Whitman Opposes Plan to Suspend Greenhouse-Gas Law
Meg Whitman, the former EBay Inc. chief executive officer running to replace Arnold Schwarzenegger as California’s governor, said she opposes a ballot measure to block the state’s landmark greenhouse-gas law.
The November ballot measure, Proposition 23, which is financed by the oil industry, would suspend a law scheduled to begin regulating carbon emissions in 2012. Opponents of the law, which was sponsored by Schwarzenegger in 2006, say it will force businesses to leave the state.
Proposition 23 would suspend the law until California’s unemployment rate, now at 12.4 percent, drops below 5.5 percent for four consecutive quarters. That has only happened four times in the past 30 years. Whitman said the law, known as AB 32, instead should be postponed for one year to allow California’s economy to rebound.
“While Proposition 23 does address the job-killing aspects of AB 32, it does not offer a sensible balance between our vital need for good jobs and the desire of all Californians to protect our precious environment,” Whitman, 54, said in a statement. “It is too simple of a solution for a complex problem.”
Whitman, a Republican running against Attorney General Jerry Brown, a former governor, also said she opposes a measure to legalize and tax marijuana and another that would allow budgets in the state to be approved by a simple majority vote of the Legislature instead of the current two-thirds requirement.
Brown, a 72-year-old Democrat who led the state from 1975 to 1983, also opposes Proposition 23 and has made the creation of clean-energy jobs a cornerstone of his campaign.
He and Whitman are tied in a public opinion poll released yesterday. The Field Poll found both were supported by 41 percent of likely voters surveyed. Whitman has spent a record $119 million of her own money on her campaign.
To contact the reporter on this story: Ellen Rosen in New York at erosen14@bloomberg.net
To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.
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