Naked Access, Net Neutrality, News Corp.: Compliance

The U.S. Securities and Exchange Commission banned brokers from letting clients make unsupervised trades on stock exchanges amid concern that a rogue transaction could roil markets.

SEC commissioners voted 5-0 yesterday to approve a rule that requires brokers to implement pre-trade risk controls when clients use the firms’ identification codes to trade directly on exchanges. Agency officials proposed the regulation in January, saying they were concerned that a computer malfunction or human error might trigger an order that would erode a broker’s capital.

The SEC rule targets so-called naked-sponsored access, in which a customer uses a broker’s identification code while bypassing pretrade risk controls. The tactic is used by traders whose strategy of buying and selling thousands of shares in milliseconds would be slowed if they executed through a broker.

The SEC is cracking down on computerized trading that relies on speed to make money after lawmakers questioned the agency’s oversight of electronic markets. The May 6 crash, which temporarily erased $862 billion of value from equities in 20 minutes, also led the SEC to increase scrutiny of high-frequency trading.

Compliance Policy

French ‘Permanent Insiders’ Face Tighter AMF Rules on Trading

Executives at publicly traded French companies face tighter insider-trading rules that would standardize when executives are able to buy and sell shares.

“Quasi-permanent insiders” who know privileged information about their companies should have an independent manager handle their portfolios and create trading plans at least three months before any trade, the Autorite des Marches Financiers said yesterday. Companies should designate an internal ombudsman for insiders to consult and introduce black- out periods of 30 days before publishing reports, the AMF said.

Benoit de Juvigny, a member of the report group, at yesterday’s presentation said many of the practices “are already in place,” though in a “heterogeneous manner.”

The AMF studied U.S. and U.K. treatment of insider trading in drafting the recommendations, which will be reviewed for effectiveness after three years.

SEC Proposes Increased Financial Rewards for Whistleblowers

The U.S. Securities and Exchange Commission took a step toward expanding its ability to reward whistleblowers after the Dodd-Frank financial rules overhaul provided greater incentives for tipsters to come forward. The Dodd-Frank law gives the SEC authority to increase awards for whistleblowers.

SEC commissioners voted 5-0 yesterday to propose a rule that authorizes the agency to pay whistleblowers in enforcement cases where sanctions exceed $1 million. Under the proposal, the agency could give claimants as much as 30 percent of all the money it collects when imposing fines or recouping ill-gotten gains. Awards are currently capped at 10 percent of collected money and limited to insider-trading cases.

The proposal has been criticized on concerns it will trigger a rush of frivolous complaints to the SEC and prompt employees to take grievances directly to the agency, bypassing company investigative processes.

SEC Proposes Rule to Prevent Fraud in Security-Based Swaps

U.S. regulators proposed a rule aimed at preventing securities firms from committing fraud when selling derivatives.

The proposal, approved 5-0 by Securities and Exchange Commission members yesterday, was required by the Dodd-Frank financial rules overhaul. The proposal was described in a statement by the SEC yesterday on the agency’s website.

The purpose of the rule would be to “ensure that market conduct in connection with the offer, purchase or sale of any security-based swap” is subject to the same anti-fraud provisions that apply to all securities, the SEC said in its statement. The antifraud rule also would apply “explicitly” to payments, deliveries, and ongoing obligations and rights, according to the SEC’s statement.

South Africa Doesn’t Want to Cause Hedge Fund Flight

South Africa doesn’t want to deter hedge funds from operating in the country by introducing overly restrictive industry rules, the Financial Services Board said.

South Africa’s regulator expects draft legislation for hedge funds to be adopted by the first half of 2012, and still must decide whether they will be governed by the same rules as mutual funds. While hedge fund managers are currently regulated in South Africa, the funds they oversee aren’t.

Hedge funds offered to private individuals or funds in which pensioners’ savings are invested should be subject to tighter regulation, Patrick Ward, the head of the regulator’s collective investment schemes unit, told the Hedge Funds World Africa conference.

The U.S. and European Union have stepped up regulation of the hedge fund industry blamed by lawmakers for exacerbating the financial crisis.

FSB Plans Regional Groupings to Broaden Its Regulatory Reach

The Financial Stability Board said it’s seeking to add to the number of countries that implement its regulatory principles.

The FSB will set up so-called regional consultation groups, including non-members, to broaden the “applicability and implementation of the policies and standards the FSB promotes,” Mario Draghi, the board’s chairman, said in an e-mailed statement yesterday.

The Group of 20 countries set up the FSB last year, putting it in charge of coordinating efforts to strengthen global financial regulation in the wake of the financial crisis. It replaced the Financial Stability Forum.

Compliance Action

News Corp. Seeks EU Antitrust Approval for BSkyB Deal

News Corp. asked the European Union to approve its proposed takeover of pay-TV provider British Sky Broadcasting Plc in what would be its biggest acquisition.

News Corp. formally notified EU antitrust regulators at the European Commission about its proposal, Jonathan Todd, a spokesman for the agency, said yesterday. The Brussels-based regulator set a Dec. 8 deadline for its review of how the deal might affect the media market among the 27-nation EU.

BSkyB in June rejected an initial bid for the 61 percent of the company that News Corp. doesn’t already own, saying it was too low.

U.K. Business Secretary Vince Cable has authority to intervene in transactions at the same time as the EU antitrust watchdog based on concerns about media plurality and the dissemination of information to the public. Under government guidelines, he must aim to decide within 10 working days.

Britain’s Office of Fair Trading may also attempt to wrest jurisdiction over the approval process from the EU agency within 15 working days of the notification.

Attorneys generally agreed News Corp.’s bid for full control of BSkyB will eventually win approval.

For more, click here.

Google Broke U.K. Data Law, Privacy Regulator Says

Google Inc. violated Britain’s data-protection law when its Street View mapping unit inadvertently gathered personal e-mails and passwords from unsecured wireless networks, the U.K.’s privacy regulator said yesterday.

Google disclosed the security breach in May and said in an Oct. 22 blog post that while the data it collected was mostly fragmentary it included entire e-mails and URLs. The error was a “significant breach” of the U.K.’s Data Protection Act, the Information Commissioner’s Office said yesterday in a statement, adding that the watchdog requires “written legal assurance from Google that this will not happen again.”

European countries including Germany, France, Spain and Italy began probes after Mountain View, California-based Google said that its Street View cars had collected the so-called payload data while photographing roadsides. The U.S. Federal Trade Commission last month ended its probe when Google said it would improve privacy safeguards.

“We are profoundly sorry for mistakenly collecting payload data in the U.K. from unencrypted wireless networks,” Google’s privacy lawyer, Peter Fleischer, said yesterday in a statement. Google has “ cooperated closely” with the ICO, he said.

For more, click here.

Special Section: Midterm Elections Effect

Firms That Fought Dodd-Frank May Gain Under New House

Republicans will try to rein in regulators implementing a sweeping overhaul of financial rules and press for a smaller federal role in the mortgage market as they return to a majority in the House of Representatives and a stronger minority in the Senate.

Taking control of the House and bolstering their position in the Senate will increase Republicans’ sway over the direction and independence of the Consumer Financial Protection Bureau and over any technical fixes Congress makes in rules governing the trading of derivatives. Republicans say they will use the House Financial Services Committee to ensure that regulators such as the Commodity Futures Trading Commission and the new consumer protection bureau don’t write rules that lawmakers consider too restrictive on the banking industry.

A slowdown in rule making or added pressure on regulators may benefit companies such as Goldman Sachs Group Inc., which lobbied against portions of the Dodd-Frank law and predicted the measure would hurt their financial results. The Dodd-Frank act, which requires federal agencies to write more than 240 rules, provide 67 one-time reports and conduct 22 recurring studies, according to an analysis by Davis Polk & Wardwell LLP, will give Republicans a chance to put the spotlight on regulators, said members, analysts and lobbyists.

For more, click here, and see Interviews/Speeches section, below.

AT&T, Verizon, Comcast May Fend Off Web Rules Under Republicans

AT&T Inc., Verizon Communications Inc. and cable companies led by Comcast Corp. may find it easier to block Internet- service regulations with Republicans in charge of the U.S. House, analysts said.

Republicans have warned that Federal Communications Commission Chairman Julius Genachowski’s proposed net neutrality rules could stifle investment. The regulations would forbid providers of high-speed Internet service, or broadband, from interfering with subscribers’ Web traffic.

FCC spokeswoman Jen Howard declined to comment.

The FCC’s Democratic majority is unchanged by the elections, and Genachowski should move ahead to pass “strong net neutrality rules,” Joel Kelsey, a policy analyst with the Washington-based advocacy group Free Press, said in an interview.

Representative Joe Barton of Texas, the top Republican on the House Energy and Commerce Committee, said in an e-mail that one of his first actions “will be to require the Obama administration Federal Communications Commission to explain why it thinks the Internet needs federal government regulation for the first time.”

House’s Royce Says He Will Seek Financial Services Chairmanship

House Republicans returning to power after an Election Day sweep in which they gained at least 60 seats will have to choose between at least two of their own as they select a leader for the panel that oversees Wall Street.

U.S. Representative Ed Royce of California, elected to serve a 10th two-year term yesterday, said he will seek the chairmanship of the House Financial Services Committee, challenging Representative Spencer Bachus of Alabama, the top ranked Republican on the panel.

Royce, 59, has made Fannie Mae and Freddie Mac, the mortgage firms operating under U.S. conservatorship, a focal point in his committee work, drafting a bill in 2003 that would have placed the government-sponsored enterprises under more restrictive oversight. He also sat on the committee of lawmakers responsible for refining the Dodd-Frank financial-regulation bill. Royce opposed the measure, which President Barack Obama signed into law in July.

For more, click here.


Dick Grasso Says Election May Bring Regulators, Business Closer

Yesterday’s elections results, in which Republicans seized control of the U.S. House and narrowed the Senate’s Democratic majority, may mean the U.S. Securities and Exchange Commission will collaborate more with the financial industry to increase transparency and prevent another financial meltdown, according to Dick Grasso.

Regulators “have to have a real-world sense of how the markets are evolving,” Grasso, the former chief executive officer of the New York Stock Exchange, said in an interview on Bloomberg Television’s “In the Loop.”

Grasso said regulators need to consider replacing outdated laws that may no longer suit the changing marketplace, not just making incremental changes to those that already exist.

The country needs “intelligent regulation of derivatives,” Grasso said. Derivatives should be included “into the standardized process of clearing and settlement,” he said, “bringing the tools of risk management to a transparency level that investors can understand.”

Republican Victory Won’t Stop New Rules, Gensler Says

The Republican victory in the congressional election won’t interrupt Commodity Futures Trading Commission efforts to write rules to implement the Dodd-Frank regulatory overhaul of the derivatives industry, Commission Chairman Gary Gensler said yesterday, adding that the agency is “obliged” to follow the statute.

Gensler made the remarks at the Futures Industry Association conference in Chicago. Addressing the impact of the financial crisis is crucial to the public, regardless of the election’s outcome, he said.

The Dodd-Frank financial overhaul, which became law in July, gave the CFTC a year to establish rules governing the $615 trillion over-the-counter derivatives market, including which companies will face higher capital requirements and increased scrutiny. Gensler has asked Congress to increase the agency’s budget by 69 percent next year to $286 million and predicts the agency’s budgeted staff of about 650 will need to grow to more than 1,000 to meet its new demands.

“Our needs are the same regardless of the election,” Gensler said. “Our needs are to implement the statute.”

Republicans in the House could tie up funding to enforce derivatives reform after gaining a majority in the Nov. 2 election, Commodity Futures Trading Commission Commissioner Bart Chilton said in an interview at the conference in Chicago yesterday.

For more, click here and click here.

Thomas Says Government Needs Accommodation, Compromise

Bill Thomas, a former Republican representative from California and now vice chairman of the Financial Crisis Inquiry Commission, talked about the outlook for the Obama administration and Congress following the U.S. midterm elections.

Thomas spoke with Margaret Brennan on Bloomberg Television’s “InBusiness.”

For the video, click here.

Too-Big-to-Fail Banks Must Curb Pay, Japan’s Oku Says

Banks deemed too big to fail must rein in executive pay to curb the excessive risk taking that helped cause the global financial crisis, the head of Japan’s banking lobby said.

“Compensation levels for the financial industry should be similar to the range of paychecks for other industries,” Masayuki Oku, chairman of the Japanese Bankers Association, said in an interview in Tokyo this week.

“To prevent the financial sector from derailing, governance issues such as executives’ ethics and wage policies must be reviewed and improved,” Oku, 65, who is also chairman of Sumitomo Mitsui Financial Group Inc., said in the Nov. 2 interview.

Oku said extra capital surcharges or financial rule changes similar to the U.S. Dodd-Frank law aren’t needed for Japanese lenders because they mainly focus on commercial banking and don’t try to boost profits through leveraged financial products.

For more, click here.

Protecting Customer Money Could Double Clearinghouse Margins

Money managers could pay 150 percent more to guarantee swaps with clearinghouses if the system some prefer for protecting margin is adopted, said Lauren Teigland-Hunt, an attorney who represents hedge funds and institutional investors.

Asset managers are asking regulators such as the Commodity Futures Trading Commission to consider creating rules so that their margin payments aren’t used to help fund the default of another swaps user, Teigland-Hunt said yesterday in Chicago at the Futures Industry Association conference. Clearinghouse rules mandate now that users share the risk of covering defaults.

Swaps clearing, which is now voluntary, will become mandatory for most of over-the-counter derivatives under the Dodd-Frank Act passed in July. Swaps complicated efforts to resolve the financial crisis when it couldn’t be easily determined how interconnected banks had become through trading the contracts.

CFTC Commissioner Michael Dunn, speaking on the same panel discussion as Teigland-Hunt, said the CFTC is taking the issue of segregating customer margin funds seriously.

For more, click here.

Comings and Goings

OCC Names Timothy Ward to Lead Integration of Thrift Regulator

The U.S. Office of the Comptroller of the Currency named Timothy Ward deputy comptroller for thrift supervision to lead the agency’s planning for integration of the Office of Thrift Supervision under terms of the Dodd-Frank financial-regulation law.

The appointment of Ward, who spent 26 years at the OTS before joining the OCC in February, was announced yesterday in an e-mail statement. The Dodd-Frank law calls for the OCC to assume OTS examination functions, supervision and staff by July.

European Medicines Agency’s Chief to Leave Dec. 31

The European Medicines Agency, the EU’s drug regulator, said Executive Director Thomas Loenngren will leave Dec. 31, at the end of his second five-year term.

Andreas Pott, the London-based agency’s head of administration, will serve as acting director beginning Jan. 1, according to the statement.

To contact the reporter on this story: Carla Main in New Jersey at

To contact the editor responsible for this report: David E. Rovella at

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.