EU Algorithm Scrutiny, Warren’s Enforcers, Fed Data: Compliance

High-frequency traders face European Union limits on the number of orders they can place, as well as requirements to tell regulators how their computer algorithms work.

They wouldn’t be allowed to exceed a “ratio of orders to transactions executed” under draft EU proposals obtained by Bloomberg News. Carlos Tavares, chairman of the Committee of European Securities Regulators, or CESR, said in an interview on Nov. 29 that regulators have to understand the trading to be certain “there aren’t any embedded market abuse practices.”

The Commodity Futures Trading Commission, the top U.S. commodity regulator, said in October it would review algorithmic trading and other practices such as “spoofing” and “quote stuffing” as part of the Dodd-Frank financial legislation, the largest rewrite of Wall Street rules since the 1930s.

The EU measures are part of an overhaul of the Markets in Financial Instruments Directive, or Mifid, scheduled to be published Dec. 8 by Michel Barnier, the European Union’s financial services commissioner.

The proposals would give a new European Securities and Markets Authority powers to write EU-wide rules for transparency waivers for dark-pool transactions and to notify national regulators of policy breaches.

For more, click here.

Compliance Policy

Elizabeth Warren Recruits Dodd-Frank Enforcers From 50 States

Elizabeth Warren, the Harvard University law professor deputized by President Obama to police consumer finance, is recruiting 50 state prosecutors to help. She may even decide to bankroll their work.

The attorneys general say they are now invited to the nation’s capital and talk with Warren by telephone almost weekly as she sets up the Bureau of Consumer Financial Protection. On Nov. 30, Warren traveled to Fort Lauderdale, Florida, to plot strategy at the prosecutors’ winter meeting.

Bernard Nash, a law partner at Dickstein Shapiro LLP in Washington, said Warren’s alliance with state prosecutors will strengthen both her hand and theirs. It will also antagonize banks, who opposed the creation of the consumer bureau.

The Dodd-Frank financial overhaul that became law in July revamped the relationship between federal agencies and state enforcers, and Warren has seized on that change.

The law gives state attorneys general the authority to enforce regulations written by the new bureau in court, and allows the agency to take part in the case. A vote by a majority of the states can force the bureau to consider adopting a new regulation.

For more, click here.

China Regulator Denies Speculation About Futures Manipulation

China’s futures industry regulator denied speculation that a foreign financial company contributed to a Nov. 12 stock market slump by manipulating trading in index futures.

Song Anping, deputy director of the Department of Futures Supervision at the China Securities Regulatory Commission, said in a telephone interview that it would be “very unlikely for global banks or other global institutions to manipulate the index futures market” because no foreign institutions have been “officially” allowed into the market.

China started index futures trading in April in a push to ease stock-market volatility and give investors a way to protect themselves against equities swings. The country has yet to allow so-called Qualified Foreign Institutional Investors, or QFIIs, to trade index futures under a program that gives them access to China’s equity market.

Solvency II Introduction Needs Transition Period, Ceiops Says

A new risk-based regulatory framework for European insurers should be introduced with a transition period, the regulator developing the rules said.

“We shouldn’t postpone the introduction of Solvency II, but rather phase in the implementation,” Gabriel Bernardino, chairman of the Committee of European Insurance and Occupational Pension Supervisors, or Ceiops, said at a conference in Paris yesterday.

Frankfurt-based Ceiops is developing Solvency II together with local supervisors in Europe. The rules, scheduled for introduction in 2013, have been tested by the industry in a fifth quantitative impact study, named QIS5. Ceiops plans to publish the results of the study in March, secretary general Carlos Montalvo said in an interview on Oct. 22.

FASB to Negotiate on Fair-Value, New IASB Head Tells Les Echos

The U.S. Financial Accounting Standards Board “is ready to move towards a more balanced approach” on whether to apply fair-value accounting to all financial assets, a position that has threatened convergence with the London-based International Accounting Standards Board, Les Echos said, citing IASB incoming president Hans Hoogervorst.

The two groups should have finished harmonizing international accounting standards to be applied worldwide when Hoogervorst takes office on July 1, he told the newspaper.

“IASB governance needs to be strengthened” and accounting standards should be kept clear and consistent to avoid confusion for investors and the general public, Hoogervorst said, according to the newspaper.

Special Section: Fed Borrowing Disclosure

Fed Reveals Foreign Banks Loans, Some Collateral Data Withheld

Federal Reserve data showing UBS AG and Barclays Plc ranked among the top users of $3.3 trillion from emergency programs is stoking debate on whether U.S. regulators bear responsibility for aiding other nations’ banks.

UBS was the biggest borrower under the Commercial Paper Funding Facility, with $74.5 billion overall, more than twice as much as Citigroup Inc., the top U.S. bank recipient, according to the data released yesterday. London-based Barclays took the biggest single amount under another program that made overnight loans, when it got $47.9 billion on Sept. 18, 2008.

The first detailed accounting of U.S. efforts to spare European banks may add to scrutiny of the central bank, already at its most intense in three decades. The Fed, which released data on 21,000 transactions, said in a statement that its 11 emergency programs helped stabilize markets and support economic recovery. The Fed said there have been no credit losses on rescue programs that have been closed.

For three of the Fed’s six emergency facilities, the central bank released information on groups of collateral it accepted by asset type and rating, without specifying individual securities. Among them was the Primary Dealer Credit Facility, created in March 2008 to provide loans to brokers as Bear Stearns Cos. collapsed.

Fed spokeswoman Susan Stawick in Washington declined to comment.

The secrecy surrounding Fed bailouts led lawmakers to demand disclosure after the central bank approved aid dwarfing the federal government’s $700 billion Troubled Asset Relief Program.

For more on the Fed and foreign banks, click here.

For more about the collateral disclosures, click here.

For a video report by Bloomberg’s Lizzie O’Leary on the European banks topping the list of borrowers accessing the Fed funds, click here.

Eisenbeis Says Fed Disclosures Raise More Questions

Robert Eisenbeis, chief monetary economist at Cumberland Advisors Inc., discussed the Federal Reserve’s report on users of its $3.3 trillion in emergency programs.

Eisenbeis spoke with Erik Schatzker on Bloomberg Television’s “InsideTrack.”

For the video, click here.

Compliance Action

South Korea Doesn’t Plan to Adjust Capital Control Steps

South Korea isn’t considering adjusting the timing and strength of measures to rein in rapid foreign capital inflows into the country because of North Korea-related issues, Financial Supervisory Service Governor Kim Jong Chang said.

The country may consider reintroducing taxes on bond holdings by foreigners, adjusting the limit on banks’ foreign- currency derivatives products or introducing bank levies for capital control, he said.

Facebook Seeks Friends in Washington as Privacy Concerns Mount

Facebook Inc. is expanding its Washington office and consulting with privacy advocates as lawmakers question how well the world’s largest social-networking site protects the personal information of users.

The company is looking for a public-policy expert and a deputy press spokesman, following the June hiring of Marne Levine to head its Washington office. Levine is a former top aide to Larry Summers, director of President Barack Obama’s National Economic Council. The new hires would bring Facebook’s Washington team to eight, up from zero three years ago.

Tighter privacy rules being discussed in Washington might limit the ability of companies such as Facebook and Google Inc. to tailor ads to users of their sites and curb sales growth.

Congress, the Federal Trade Commission and the Commerce Department are considering how to impose additional privacy safeguards on Internet companies that amass user data, and the White House in October established a task force of more than a dozen federal offices to address privacy concerns.

The FTC yesterday called for a “do-not-track” option for Internet users to allow them to block monitoring of their online movements, used to compile profiles for marketers.

The company says it gives users the ability to determine how much information they share, and that Facebook policies prohibit revealing details that identify individuals to third parties.

For more, click here.

Interviews/Speeches

Financial Overhaul to Boost Physical Commodities, Fan Says

The most sweeping rewrite of Wall Street rules since the 1930s will encourage traders to invest in physical commodities, potentially keeping supply off the market and affecting prices, said Jennifer Fan, a partner and senior portfolio manager with Arrowhawk Commodity Strategies, a hedge fund in Darien, Connecticut.

Fan made the remarks yesterday at the Bloomberg Link Hedge Fund and Investor Briefing in New York during a panel titled Timing the Peak of the Global Commodities Rush.

For more, click here.

Toronto-Dominion Won’t Give Guidance on Basel Impact

Toronto-Dominion Bank doesn’t plan to give specific guidance on the impact of new capital requirements, Chief Executive Officer Edmund Clark said yesterday, adding that the bank will have no trouble meeting the standard under the rules.

Banks have until 2019 to meet an overhaul of bank regulation drawn up by the Basel Committee on Banking Supervision. National Bank of Canada told investors this week it expects to meet that target by the end of 2012.

Canadian Imperial Bank of Commerce Chief Risk Officer Tom Woods told investors yesterday the bank expects to have its capital ratios above the 2019 minimums by Nov. 1, 2012.

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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