The European Union plans to force investors that trade stock in dark pools, or private venues that don’t display prices in advance, to disclose more information about their activities.
The European Commission proposed placing transparency requirements on the so-called dark pools to reduce threats to financial stability. The EU measures are part of an overhaul of the Markets in Financial Instruments Directive, or Mifid.
Dark pools are being probed by regulators in both the EU and U.S. because of concerns that their lack of transparency increases price volatility. The U.S. Securities and Exchange Commission proposed last year that dark pools should have to publicly report some bids once they handle 0.25 percent of a stock’s average daily volume. Such trading has also been scrutinized by the Committee of European Securities Regulators.
The commission may require “organized trading” to be subject to minimum requirements, including disclosure of the kinds of trades that can be executed, and who is allowed to participate. Waivers that allow investors not to disclose pre- trade information on regulated exchanges should be “subject to further clarification and in some cases restrictions,” the commission said.
Executives from NYSE Euronext and Nasdaq OMX Group Inc. have argued that unrestricted trading outside exchanges may hurt the ability of markets to gather enough buy and sell demand to produce fair prices.
The commission is seeking views on its plans until February 2011. Any final proposals would have to be approved by national governments and the European Parliament to become law.
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Wall Street Asks Agencies to Slow Down on New Derivatives Rules
Eleven financial-industry trade associations representing Wall Street banks, hedge funds and swaps dealers are asking federal regulators writing new derivatives rules to slow down.
In a letter sent to the Commodity Futures Trading Commission and the Securities and Exchange Commission, the groups called for extending public comment periods on some regulatory proposals and said firms should be given more time to implement new directives.
The agencies have begun writing hundreds of rules arising from the Dodd-Frank regulatory overhaul legislation that became law in July. The effort is designed to increase transparency in the derivatives industry, including bringing additional firms under CFTC oversight and requiring most trades to be cleared or traded on an exchange.
While the federal agencies have some leeway in writing the rules, the law requires most of the rulemaking to be completed by July. John Nester, an SEC spokesman, declined to comment; Scott Schneider, a spokesman for the CFTC, didn’t return a call seeking comment.
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Stock Orders That Are Canceled Should Spur Penalties, ICI Says
Canceled requests to buy or sell stocks on exchanges should result in fees when they exceed preset thresholds, according to an executive of the Investment Company Institute, a Washington- based trade group of mutual funds and institutional investors.
When the ratio of cancelations to executed orders exceeds a limit, high-frequency trading firms should pay a penalty, Ari Burstein, senior counsel for securities regulation in the capital markets group at ICI, said Dec. 7 at a conference in New York sponsored by Terrapinn Ltd. Some firms cancel more than nine out of every ten orders they send to exchanges, he said.
U.S. regulators began gathering information about high- frequency trading, in which firms may submit hundreds of orders in fractions of a second, more than a year ago. In a January study, the Securities and Exchange Commission raised questions about some of the practices, including canceled orders that accompany trading. High-frequency firms account for more than half of U.S. equities volume, according to the SEC.
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Bankers Fail to Soften EU Bonus Rules, Lawyers Say
Bankers failed to soften European rules on bonuses that will limit cash payouts and impose minimum share retention periods, lawyers said.
The rules, to be approved by European Union regulators at a two-day meeting in London starting today, are likely to be similar to those proposed earlier this year, which limited bankers to receiving a maximum of a quarter of their bonuses in immediate cash payouts.
Regulators throughout the European Union must adopt the proposals from the Committee of European Banking Supervisors as part of a range of measures to rein in the risk-taking blamed for causing the worst financial crisis. Banking groups including the British Bankers’ Association lobbied to change the rules, arguing that any agreement on bonuses needed to apply around the globe.
Franca Rosa Congiu, spokeswoman for CEBS, declined to comment on the final guidelines.
European rules will include provisions for national regulators to take back bonuses paid to senior managers whose risks are later found to have caused losses at a financial firm.
Insurers Say Too-Big-To-Fail List May Create Market Distortions
A Financial Stability Board list of insurers considered too big to fail may distort the market and put some companies at a disadvantage, according to an industry association.
Rules applied to insurers designated systemically important “would introduce market distortions and decrease the risk capacity of the industry,” the Geneva Association, which represents 90 insurers worldwide, told the FSB and International Association of Insurance Supervisors in Basel Dec. 7.
The Basel-based IAIS said on Nov. 2 that it’s helping the FSB compile a list of systemically important banks and insurers that would face tougher capital requirements.
The Geneva association said higher capital requirements are already being set by Solvency II, the new rules for European insurers that will be implemented in 2013.
Regulators May Miss Swaps Reform Deadline, Credit Suisse Says
U.S. regulators may miss the deadline for some new regulations in the $583 trillion private derivatives market because of the number and complexity of the required rules, according to Credit Suisse Group AG.
The Dodd-Frank Act, signed into law in July to overhaul Wall Street practices, requires most derivative reforms to be implemented by July 2011.
The Commodity Futures Trading Commission and Securities and Exchange Commission are unlikely to meet that deadline for complex issues such as position limits and a mandatory clearing requirement for most swaps, New York analyst Howard Chen wrote in a note to clients with other analysts yesterday.
Congress mandated that most swaps be processed by clearinghouses after being traded on regulated exchanges or so- called swaps-execution facilities to lessen risk and increase price transparency. Regulators are writing the rules after the over-the-counter derivatives market complicated efforts to resolve the financial crisis.
The changes could lead to 10 percent volume growth for exchanges CME Group Inc. and Intercontinental Exchange Inc., Chen said in the report. Chen didn’t immediately respond to e- mailed questions for further comment.
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British Bankers’ Association to Increase Dollar Libor Panel
The number of banks contributing to the London interbank offered rate in dollars, or Libor, the rate that lenders say they charge each other, will increase in February, according to the British Bankers’ Association.
From Feb. 1, the dollar Libor panel will move from 16 constituents to 20, the BBA said in a press release yesterday. The new contributing lenders will be Bank of Nova Scotia, BNP Paribas SA, Credit Agricole Corporate & Investment Bank and Mizuho Bank, the BBA said.
The methodology for calculating the rates will remain unchanged, according to the BBA.
CFTC’S Chilton Urges Position Limits, High-Frequency Trade Curbs
U.S. regulators should move quickly to set position limits in energy and metals markets required by the Dodd-Frank financial regulation law, Commodity Futures Trading Commissioner Bart Chilton said.
Childton made the remarks yesterday in a prepared speech for the High Frequency Trading USA 2010 Conference in New York. “There is no regulatory escape valve,” he said.
The CFTC, which must set position limits to the two markets by mid-January, has yet to unveil proposals for public comment, said Chilton, a Democrat who has called for the agency to consider the measure as soon as possible. Commissioners aren’t planning to take up position limits at a rulemaking meeting scheduled for tomorrow.
Money has flowed into commodities markets at a “blistering pace” since June 2008, Chilton said. Hedge funds, index funds and pension funds now more than $149 billion in commodity futures contracts, the most ever, he said.
Chilton said regulators should also consider rules to limit high-frequency trading because of its potential to cause market disruptions similar to the May 6 stock-market crash.
Wellink Says He’s Confident U.S. Will Implement Basel III Rules
European Central Bank Governing Council member Nout Wellink said he’s is confident the U.S. will implement the new so called Basel III rules on banking regulation.
“I trust they will deliver but there’s always a parliament which can delay processes,” Wellink told reporters in Frankfurt yesterday. During the process of working on the new rules the U.S. “was very helpful” and Treasury Secretary Timothy “Geithner was very supportive,” he added.
When asked whether regulators will publish a list of systemically important banks drawn up by the Basel committee and the Financial Stability Board, Wellink said there hasn’t been a decision yet.
Pinedo Says Banks Need to Reconsider Funding Levels
Anna Pinedo, a partner at Morrison & Foerster LLP, talked with Bloomberg Law’s Lee Pacchia about the U.S. banking system, the Dodd-Frank financial regulation overhaul law, the Basel III accords and the prospects for consolidation in the industry.
For the video, click here.
Barnier Says EU Creating Dark Pool Rules ‘Brick by Brick’
European Union Financial Services Commissioner Michel Barnier spoke yesterday at a news conference in Brussels about proposals to place transparency requirements on so-called dark pools to reduce threats to financial stability.
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Comings and Goings
Bachus Selected by Republicans as Wall Street Overseer
U.S. Representative Spencer Bachus has been selected by House Republicans to become chairman of the House Financial Services Committee when his party takes power next month.
The Alabama lawmaker, who has been the panel’s top minority member since 2007, was chosen during a closed-door conference meeting in Washington yesterday. He will replace Representative Barney Frank, the Massachusetts Democrat who led the committee during the worst financial crisis since the Great Depression and spearheaded the regulatory overhaul that bears his name.
Bachus, 62, is aligned with Republicans pushing for free markets and less-intrusive regulation. From the beginning of debate over what became the Dodd-Frank law, he led opposition to measures such as resolution authority to wind-down failing firms, calling them “back-door bailouts.” He also fought against the Consumer Financial Protection Bureau, and questioned the legality of President Barack Obama’s appointment of Harvard Law School Professor Elizabeth Warren to an advisory position.
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To contact the editor responsible for this report: David E. Rovella at firstname.lastname@example.org.