Naked Access, Offshore Tax, Robo-Signers: Compliance
The U.S. Securities and Exchange Commission is poised to ban brokers from letting clients make unsupervised trades on stock exchanges in a practice known as naked-sponsored access, as it grows increasingly concerned that a rogue transaction could roil markets.
SEC commissioners will vote Nov. 3 on a rule that would require brokerages to implement risk controls to monitor client trades, the agency said yesterday in a statement on its website. SEC officials first proposed the regulation in January, saying they were concerned that a computer malfunction or human error might trigger an order that could erode a firm’s capital.
The SEC is cracking down on computerized trading following the May 6 crash that erased $862 billion of value from equities in 20 minutes.
The proposed rule would “effectively prohibit broker dealers from providing” so-called naked-sponsored access, allowing a customer to bypasses pre-trade risk controls, according to the agency’s statement. Naked access accounts for about 38 percent of U.S. equities trading, according to a December study by Aite Group LLC.
The proposal stems from a provision of the Dodd-Frank regulatory overhaul law.
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Compliance Policy
China Commodities Drop on Concern Regulators to Tighten Rules
Commodities in China snapped a rally, led by rice, zinc, soybean oil and rubber, on growing concerns that security regulators may tighten trading rules to curb excessive speculation.
The Zhengzhou Commodity Exchange, China’s first such bourse, yesterday increased the margin requirement for rice, rapeseed oil, wheat and sugar trading to 8 percent from 3 percent or 4 percent, a statement on its website said Oct. 26. The exchange will track “abnormal” trade and recommend investigation by watchdogs, a separate statement dated Oct. 25 said.
China’s increased liquidity after the financial crisis and government curbs on property investments have stoked commodity prices. Security regulators will likely impose further trading limits on products if self-regulation by bourses and the futures industry fails to cool the markets, Wang Chen, director of research at Wanda Futures Co., said in a telephone interview. China’s futures exchanges are directly controlled by the China Securities Regulatory Commission, according to their websites.
Germany, Swiss to Negotiate Tax on Offshore Accounts
Germany and Switzerland will negotiate a withholding tax that raises revenue from offshore Swiss bank accounts while keeping client identities secret.
The talks, starting early next year, will aim to resolve the issue of stolen client data, the two countries’ finance ministries said yesterday. Swiss Finance Minister Hans-Rudolf Merz and his German counterpart, Wolfgang Schaeuble, signed a tax agreement in Bern, allowing investigators to request assistance in tracking down undeclared money deposited by German nationals.
The withholding tax proposed by Swiss banks on the interest, dividends, capital gains and investment income earned by foreign citizens with offshore accounts could raise about 1.6 billion euros ($2.2 billion) a year for the German government, according to Bach. The deal with Germany follows a similar accord that Switzerland signed with the U.K. two days ago.
Schaeuble declined to comment on how much revenue the tax could raise for Germany.
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Bond Investors to Complain Over Bearing Costs of Robo-Signing
Mortgage-bond investors represented by Dallas lawyer Talcott Franklin will send letters to securities trustees complaining that they shouldn’t bear the costs of loan servicers’ so-called robo-signing.
The investors, who Franklin has said own more than $500 billion of the securities, are “pretty disturbed” that mortgage-bond trusts are being forced to pay penalties after loan servicers including Detroit-based Ally Financial Inc. filed false affidavits in foreclosure cases, he said. Judges are forcing the trusts to cover homeowners’ attorney fees when servicer misdeeds are discovered, he said.
Franklin said the group of investors coordinating through his firm’s RMBS Investor Clearing House now own more than 25 percent of so-called voting rights for about 2,600 mortgage securitizations, and more than 50 percent for about 1,150 deals.
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Banks Can’t Be Complacent on Capital, Dickson Says
Canadian banks that are considering boosting their dividends should take into account the “uncertain” economy and higher capital levels that will soon be required, Julie Dickson, the superintendent of the Office of the Superintendent of Financial Institutions, Canada’s banking regulator, said. Banks have been awaiting new capital rules, which are expected to be approved next month by Group of 20 leaders.
Canadian banks ranked as the world’s soundest for the last three years, according to the Geneva-based World Economic Forum, and survived the worst financial crisis since the Great Depression without requiring government bailouts.
Dickson said that although Canada’s financial institutions weathered the “financial storm” better than many of its international peers, changes are still happening in regulatory reforms under the recently announced Basel III capital rules, Dickson said.
EU Commission Suggests Region-Wide Music Sales Rules in 2011
The European Commission said it will next year propose measures to lift restrictions on sales of online music. The move may allow traders in one of the 27 European Union states to sell to customers anywhere in the bloc.
The plans are part of possible changes to the EU’s rules designed to increase trade in the region, the commission said in an e-mailed statement yesterday.
The EU executive said it’s seeking views on the internal market measure over the next four months and plans to publish a draft law next year.
Barnier Will Focus on Commodities Trading, Basel on U.S. Trip
European Union Financial Services Commissioner Michel Barnier will meet with U.S. officials this week in a bid to avoid clashes with American regulators over new rules for commodities and derivatives trading.
Barnier will have two meetings with Gary Gensler, the U.S. Commodities and Futures Trading Commission chairman, and is scheduled to spend part of the six-day trip at the Chicago Mercantile Exchange. He’ll also meet with U.S. Treasury Secretary Timothy F. Geithner for talks on global capital requirements.
The EU is planning an overhaul of derivatives rules and has proposed fines for traders that don’t report details of their contracts and measures to force more transactions through central clearinghouses. The U.S. in July adopted the Dodd-Frank Act, which gave Gensler’s agency the ability to establish rules governing the $615 trillion over-the-counter derivatives market.
Barnier has said the EU rules may seek to crack down on options trading and the build-up of large positions that lead to volatility.
The commissioner is also reviewing the 27-nation bloc’s Markets in Financial Instruments Directive, or Mifid, as part of a wider overhaul of financial regulation following the worst financial crisis since the Great Depression. The European Commission is scheduled to make a full legislative proposal by March.
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Compliance Action
U.K. Banks Face $8 Billion in PPI Costs, Analyst Says
Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc are among U.K. banks that may have to pay as much as 5.1 billion pounds ($8 billion) in compensation and costs for mis- selling payment protection insurance, or PPI, Morgan Stanley analysts said.
PPI is used to cover payments on credit cards and mortgages in case of sickness or unemployment. Consumers typically are unaware they can shop competitively for PPI.
Lloyds may make the biggest payout at 1.5 billion pounds, while RBS may pay 800 million pounds, analysts led by Chris Manners said in a report yesterday. The total cost to the banks is most likely to be about 2.6 billion pounds and may be as little as 740 million pounds, the analysts said.
“We see the risk to U.K. banks from PPI mis-selling as manageable,” wrote Manners. “Most of the impact of lost PPI revenue has already been felt.”
The U.K.’s competition regulator said this month that it would ban British banks from selling most types of PPI at the same time they sell the underlying loan after the FSA imposed 12.6 million pounds of fines on lenders for mis-selling the policies. Bank of America Corp. posted a $592 million charge linked to PPI claims on Oct. 19.
Ex-San Diego Officials Agree to Pay Fines to End SEC Fraud Case
Four former San Diego officials agreed to pay $80,000 to settle a Securities and Exchange Commission fraud suit that accused them of failing to disclose the size of pension-fund shortfalls when the city sold bonds.
The settlements, which a judge must approve, would conclude a case filed more than two years ago against the officials, including former City Manager Michael Uberuaga and one-time Treasurer Mary Vattimo. The officials didn’t admit or deny the allegations, according to court documents. The city of San Diego settled an SEC fraud case without paying fines in 2006.
The actions stem from the city’s decisions, dating to the mid-1990s, to increase pension benefits while failing to set aside enough money to cover the cost, and to use investment returns to pay health-care costs. The strategy backfired when the Internet stock bubble collapsed, leaving the city to contend with gaps between its assets and what it promised workers.
The SEC has since established a unit to crack down on fraud in the $2.8 trillion municipal bond market, including cases tied to pension funds.
Lawyers for the four former officials didn’t immediately return calls seeking comment.
Google Privacy Probe Dropped by FTC After Assurances
The U.S. Federal Trade Commission ended its investigation of Google Inc.’s collection of data over unsecured wireless networks after the company said it will improve privacy safeguards in its Street View mapping project.
The agency said the Mountain View, California-based company also agreed not to use the data, according to a letter yesterday from David Vladeck, director of the FTC’s Bureau of Consumer Protection, to Albert Gidari, a lawyer for Google.
Google, owner of the world’s most popular search engine, uses cars to photograph streets and houses to update Street View. The company admitted the cars also collected data from Wi- Fi networks, prompting an outcry by privacy advocates and lawmakers and spurring private lawsuits, European investigations and the FTC probe.
“We welcome the news that the FTC has closed its inquiry and recognized the steps we have taken to improve our internal controls,” said Christine Chen, a Google spokeswoman, in an e- mailed statement. “We did not want and have never used the payload data.”
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German Government Examining WestLB’s Plea For Deadline Extension
Chancellor Angela Merkel’s government is “examining” WestLB AG’s plea to extend a Dec. 31 deadline for the sale of its Westdeutsche ImmobilienBank AG unit, Finance Ministry spokesman Martin Kreienbaum said yesterday at a regular government press conference.
WestLB Oct. 26 rejected current offers for Westdeutsche ImmobilienBank as unacceptable, and asked the government to apply to the European Commission for an extension of the deadline to sell the unit.
Courts
Ex-HannStar Executive to Plead Guilty to Price Fixing
A former HannStar Display Corp. executive will plead guilty to price-fixing of liquid crystal display panels and agree to serve seven months in jail, U.S. prosecutors said in a statement.
According to a felony charge filed yesterday in federal court in San Francisco, Jui Hung Wu, a resident of Taiwan and former director of global sales for HannStar, conspired from September 2001 to January 2006 to eliminate competition in the display industry, the Justice Department said in the e-mailed statement.
Under the agreement, which must be approved by a judge, Wu will pay a $20,000 criminal fine, according to the statement. Wu met with other executives in the flat-screen industry and agreed to charge prices at predetermined levels, the U.S. said.
Court documents do not name Wu’s lawyer and Gina Talamona, a Justice Department spokeswoman, couldn’t immediately provide information about who represents him.
The case is U.S. v Jui Hung Wu, 10-00781, U.S. District Court, Northern District of California (San Francisco).
Tiger Asia Gets SEC Subpoena After Hong Kong Probe
Tiger Asia Management LLC, the New York-based hedge-fund firm led by Bill Hwang, received a subpoena from the U.S. Securities and Exchange Commission, following allegations of insider trading by Hong Kong’s securities regulator.
Tiger Asia told clients it’s cooperating with the SEC.
The SEC has requested trading records and other documents, Tiger Asia told investors in a letter dated Oct. 12. The firm said it assumes the subpoena was prompted by the probe in Hong Kong, according to the letter, a copy of which was obtained by Bloomberg News.
The Hong Kong Securities and Futures Commission in August of last year applied for a High Court injunction to freeze some Tiger Asia assets, saying the firm had engaged in insider dealing and market manipulation involving China Construction Bank Corp. shares. In April, the Hong Kong regulator sought to ban Tiger Asia from trading there, the first time it appealed to a court for such a prohibition.
Shawn Pattison, a spokesman for the hedge fund, declined to comment, as did John Nester, a spokesman for the SEC in Washington.
Hedge funds have come under scrutiny by regulators worldwide after the global financial crisis.
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Comings and Goings
CEBS Seeks to Fill Top Jobs at New European Banking Authority 91
The Committee of European Banking Supervisors said it’s advertising for candidates to fill the top jobs at the agency that will replace it in 2011.
CEBS said it’s seeking applications for chair and executive director of the new European Banking Authority, which will be based in London.
To contact the reporter on this story: Carla Main in New Jersey at cmain2@bloomberg.net.
To contact the editor responsible for this report: David E. Rovella at drovella@bloomberg.net.
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