Defining ‘Swaps Dealer,’ China WTO Victory: Compliance

The U.S. Securities and Exchange Commission proposed definitions to determine which firms will face higher capital and margin requirements under new rules for the $583 trillion over-the-counter swaps market.

SEC commissioners voted 5-0 Dec. 3 to seek comment on proposals designed to match those endorsed by the Commodity Futures Trading Commission in a 3-2 vote on Dec. 1. The two Washington-based agencies are charged with revamping oversight of derivatives markets under the Dodd-Frank financial overhaul law.

The Dodd-Frank law aims to shift most swaps to clearinghouses, exchanges and other trading platforms to increase transparency. The law gives the SEC authority over securities-based swaps, with the CFTC overseeing the rest of the market.

The SEC proposal defines security-based swap dealers as firms that are commonly understood to be security-based swaps dealers, make a market in security-based swaps and regularly enter such swaps with counterparties. The measure provides an exclusion for firms that enter into such swaps for their own accounts on an irregular basis.

The definitions will be subject to public comment for 60 days, and the proposals won’t become official until they pass second votes from both the SEC and the CFTC.

For more, click here.

Compliance Policy

WTO Panel Rules Against EU’s Policy on Anti-Dumping Duties

The European Union’s method of applying extra duties on imports it considers to be unfairly priced breaks global trade law, the World Trade Organization said in a ruling.

WTO judges in Geneva concluded the EU’s policy of imposing a single blanket duty on imports discriminates against Chinese exporters, according to the ruling, posted on the trade body’s website Dec. 3. The win is China’s first over the EU at the WTO.

The decision comes more than a year after China lodged a complaint against the EU over the 27-nation bloc’s plan to impose five-year levies on imports of Chinese iron or steel fasteners, valued at about 575 million euros ($769 million) in 2007. The EU said at the time that the tariffs would “prevent further distortions and restore fair competition.”

The ruling may have broader implications by compelling the EU to begin imposing anti-dumping tariffs on a company-by- company basis. The WTO panel gave specific remedies for the EU to take on some points and declined to make recommendations on others, according to the Dec. 3 statement. Both parties have the right to appeal.

Tweeting Rules May Leave Brokers With Little to Say to Clients

Securities firms are largely absent from the social-media revolution taking place through sites such as LinkedIn and Twitter that are redefining the way businesses reach their customers.

Regulators and company rules at brokerages have slowed the adoption of social media by the financial services industry, and limiting their access to cheap and easy-to use competitive tools, said Margaret Paradis, a New York-based partner at law firm Baker & McKenzie, who advises brokers and fund managers.

The U.S. Securities and Exchange Commission says all broker stock recommendations must be “suitable” for individual clients by measuring their risk tolerance, security holdings, income, net worth and investment objectives, according to the agency’s website. Tweeting a stock pick or posting it on Facebook generally breaks this rule, said David Sobel, executive vice president and compliance officer at New York-based Abel/Noser Corp., which helps clients lower trading costs and does allow its employees to use LinkedIn for networking.

Firms such as Bank of America’s Merrill Lynch & Co. and TD Ameritrade Holding Corp. generally restrict all broker-to- investor interaction on social media sites because of concerns they may violate SEC rules and those of the Financial Industry Regulatory Authority, the non-governmental body that oversees almost 5,000 brokerages. Brokers who break the rules may be fined or suspended, Finra said.

Finra released a regulatory notice in January with guidelines for firms using social media.

For more, click here.

Stock Research Rules May Be Unaffected by U.S. Trading Probe

Rules for analysts researching stocks probably won’t be affected by the U.S. insider-trading investigation that has resulted in the arrest of one “expert-network” employee, securities lawyers and law professors said.

An Asia technology specialist at Primary Global Research LLC, which matches investors with industry experts, was accused of leaking inside information as part of what U.S. Attorney General Eric Holder called a “very serious” criminal probe of illegal trading on Wall Street. Investigators have raided three hedge funds and subpoenaed money managers including Janus Capital Group Inc.

The actions, which are an extension of federal cases filed last year that have yielded 14 guilty pleas, are raising questions about whether regulators are redefining what constitutes legitimate stock research, especially the practice of digging up small pieces of information to create a broader understanding of a company, industry or trend. That’s probably not the case, according to lawyers and academics.

Expert networks have grown into an industry with $450 million to $500 million in revenue in the past year, Mayhew estimates. The crackdown has caused much of their business to be suspended or stopped because clients are concerned, Mayhew said.

For more, click here.

China Issues Policies to Promote Medical Investment, Xinhua Says

China announced new policies aimed at promoting private investment, including from overseas, in the country’s medical industry, Xinhua News Agency said, citing a statement posted on the government website in Chinese.

The government will simplify procedures for overseas investment in hospitals and has ordered local governments to end regulations impeding the development of non-governmental medical institutions, the official news agency reported.

Medicine will be recategorized as an industry that allows foreign investment from one in which only limited overseas participation is allowed, Xinhua said.

FTC May Enforce Voluntary Privacy Policies for Online Browsing

The Federal Trade Commission may hold advertisers accountable for their voluntary pledges giving consumers control over online browsing, the head of the agency’s Bureau of Consumer Protection said.

Companies that promise to respect a consumer’s decision to avoid online tracking may be challenged when such an agreement is breached, David Vladeck said Dec. 2. The FTC has power to act when companies engage in unfair and deceptive trade practices.

“We believe we have the ability and the enforcement authority,” Vladeck said in Washington at a hearing of a House Energy and Commerce Committee panel that is considering whether legislation is needed for a do-not-track system. “We are up to the task.”

The FTC is recommending a do-not-track option for online browsing and pressing advertisers to make their data practices clearer for consumers as part of a policy framework released Dec. 2. If Congress passes a do-not-track law, the FTC wants to increase its enforcement power with rule-making authority, Vladeck said in his prepared testimony.

Daniel Weitzner, associate administrator of the Commerce Department’s National Telecommunications and Information Administration, at the hearing urged the establishment of “ground rules to create a privacy framework that enhances trust and encourages innovation.” Weitzner said the department will convene industry and consumer groups and help the FTC on a do- not-track proposal.

For more, click here.

EU Rules May Limit Upfront Cash Bonuses for Bankers, Times Says

New European regulations are expected to restrict upfront cash bonuses for bankers to 20 percent of their total award, the Times of London reported Dec. 4, citing senior City sources.

The rules are scheduled to be published after a meeting of the London-based Committee of European Bank Supervisors on Dec. 10, according to the report.

China Must Curb ‘Excessive’ Futures Trading, Securities Says

China must curb “excessive” trading and speculation in its futures markets to reduce risks and rein in inflation expectations, the official China Securities Journal reported, citing Jiang Yang, an assistant to chairman of the China Securities Regulatory Commission.

Separately, China will revise investment rules to include regulations for private-equity funds, the Journal reported on its website, citing Shang Fulin, chairman of the CSRC.

Compliance Action

U.S. Proposes Requiring Backup Cameras in All New Cars

U.S. auto-safety regulators proposed requiring backup cameras on all new vehicles by 2014 to prevent drivers from backing over pedestrians, a rule that may cost as much as $2.7 billion.

The National Highway Traffic Safety Administration, which published the proposed rule Dec. 3, said an average of 292 people die each year from back-over accidents, which primarily kill children and the elderly. To equip a new-vehicle fleet of 16.6 million produced in a year would cost from $1.9 billion to $2.7 billion, the agency said in the proposal, calling the cost “substantial” and saying it might reduce back-over deaths and injuries by almost half.

Gentex Corp., which makes camera-based automotive safety systems, may benefit from the rule, said Kevin Tynan, an automotive analyst for Bloomberg LP.

The Alliance of Automobile Manufacturers and the Association of International Automobile Manufacturers, whose members include U.S. and non-U.S.-based carmakers, said they are reviewing the rule.

A rule to enhance rear-view visibility for drivers was required by a 2007 law named after a child accidentally killed when his father backed over him.

Osborne Orders Review of Bank Inquiry Secrecy, Telegraph Says

U.K. Chancellor of the Exchequer George Osborne ordered a review of laws on the secrecy of official inquiries into the banking crisis, the Sunday Telegraph reported, citing unnamed senior persons at the Treasury.

Osborne is frustrated at a lack of transparency after the Financial Services Authority refused to publish its investigation into a bailout of Royal Bank of Scotland Group Plc, the newspaper said. An unnamed Treasury person said it was unclear whether any changes could be made retrospectively so that the RBS report could be published in full, the Telegraph reported.


FDIC Lawsuit Threat May Boost Banks’ Insurance Coverage Costs

A lawsuit brought by the Federal Deposit Insurance Corp. against former officers and board members of failed banks could signal higher insurance costs for insurance costs for banks, according to an analyst.

On Nov. 1, the FDIC sued 11 former officers and board members of Heritage Community Bank, a Glenwood, Illinois-based lender closed by regulators last year. The complaint alleges that the bank’s leaders ignored losses on risky commercial real estate loans while paying millions of dollars in dividends and bonuses.

The lawsuit, seeking at least $20 million, foreshadows a likely wave of litigation against the people who ran the 314 banks that have failed since the start of 2008, Bloomberg Businessweek reported in its Dec. 6 issue. The FDIC has authorized lawsuits to recover more than $2 billion from scores of former bank officials.

Whatever the FDIC wins will probably come from directors- and­officers insurance, which companies buy to cover damages when managers are found liable in lawsuits filed by shareholders or regulators. The FDIC “has a fiduciary duty to collect money,” says Jeff Gerrish, a Memphis, Tennessee, attorney for community banks who in the early 1980s oversaw the agency’s division in charge of suing directors of failed institutions. “It will bring a claim where there’s insurance or where the directors have a personal ability to pay.”

For more, click here.

Kinnucan Gets Subpoena in U.S. Insider-Trading Probe

John Kinnucan, the analyst who refused to cooperate with an Federal Bureau of Investigation request to wiretap clients, said he was subpoenaed as part of a federal probe into possible insider trading.

The information request was delivered Dec. 3 and seeks e- mails, financial and trading records, client contracts and other documents for the past two years, Kinnucan said in a telephone interview. Kinnucan said he’s cooperating and has not been accused of any wrongdoing.

News of the subpoena was reported Dec. 3 by Business Insider.

For more, click here.

AstraZeneca Raided By European Antitrust Officials

AstraZeneca Plc, the U.K.’s second-biggest drugmaker, was raided by European Union antitrust officials as part of a probe into whether companies colluded to keep cheaper copies of medicines off the market.

The European Commission said it raided the premises of “a limited number of” pharmaceutical companies that may have slowed the sale of generic medicines. AstraZeneca said inspections at its premises concerned the ulcer drug Nexium.

Antitrust regulators on both sides of the Atlantic are focusing on how settlements between branded-drug makers and generic manufacturers might harm consumers. Makers of generics are vying for a share of the ulcer-treatment market after AstraZeneca lost European patent protection on Nexium sales in March.

“We can confirm we are subject of inspections by certain competition authorities which relate to alleged practices regarding esomeprazole (Nexium) in Europe,” AstraZeneca, based in London, said in an e-mailed statement. “We are cooperating with the authorities.”

Amelia Torres, a commission spokeswoman, declined to comment beyond the statement. Colin Mackay, a spokesman for the European Federation of Pharmaceutical Industries & Associations, declined to comment.


Swiss Life’s Pfister Sees Advantages of Tougher Rules, NZZ Says

Swiss Life Holding AG Chief Executive Officer Bruno Pfister said he sees “certain advantages” of Swiss insurers being forced to introduce higher capital buffers than European rivals, NZZ am Sonntag reported.

“It would be okay to ask for 10 percent to 20 percent more capital than European” supervisors, Pfister told the Zurich- based newspaper in the interview. “We could benefit because we’d offer more security in that case.”

Pfister also said that regulatory “differences should remain within reason.” If “they are too big,” it would hurt Swiss customers “because products are becoming too expensive,” he told the newspaper.

Comings and Goings

JPMorgan, Deutsche Bank Vie for Rich as Rules Change

JPMorgan Chase & Co., Deutsche Bank AG and Citigroup Inc. are hiring bankers who cater to millionaire clients as more stringent capital rules reduce returns from investment banking.

JPMorgan, the biggest U.S. bank by market value, plans to increase its wealth management staff in Europe, the Middle East and Africa by as much as 20 percent a year until 2013. Frankfurt-based Deutsche Bank is bulking up its Asia business after buying Sal. Oppenheim Group, Germany’s biggest independent private bank, nine months ago, said spokesman Klaus Winker.

Leaders for the Group of 20 nations approved plans last month at a meeting in Seoul to more than double capital requirements for banks after the industry posted losses of more than $1.3 trillion from 2007 through 2009. The change provides renewed impetus for banks to focus on less risky and less capital-intensive units such as overseeing assets for wealthy clients, said Cedric Tille, a professor at the Graduate Institute in Geneva.

While private banks need capital to cover loans to wealthy customers, client assets are considered low-risk because they are “other peoples’ money,” said Bob Fawl, managing partner at Boston-based Basis Point Group LLC, an industry consulting firm.

For more, click here.

SEC Considers Former Insiders to Head Audit-Industry Watchdog

The U.S. Securities and Exchange Commission is evaluating two former agency officials to fill the year-old vacancy at the top of the board that oversees auditors of public companies.

James R. Doty, who served as SEC general counsel from 1990 to 1992, and John J. Huber, who headed the agency’s corporation finance division in the 1980s, are the leading candidates to head the Public Companies Accounting Oversight Board, said three people familiar with the matter who declined to be identified because the process isn’t public.

John Heine, an SEC spokesman, declined to discuss the agency’s progress on appointments or confirm that Chairman Mary Schapiro has narrowed the field of candidates. PCAOB spokeswoman Colleen Brennan said her office can’t discuss candidates.

Huber and Doty didn’t respond to telephone calls seeking comment.

For more, click here.

U.K.’s FSA Appoints Prior-Palmer, Stansbury as Senior Advisers

The U.K.’s Financial Services Authority has appointed Simon Prior-Palmer and Robert Stansbury as senior advisers, according to a statement on the organization’s website.

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.