Saudi Exchange, Muni Board Aids IRS, 401(k)s: Compliance

Saudi Arabia’s Capital Market Authority is in discussions with international banks to open the country’s stock exchange to foreign investors early next year, three bankers familiar with the matter said.

The market regulator is working with the banks to prepare for the introduction of foreign investors to the region’s largest stock market as early as the first quarter of 2012, said the bankers, who declined to be identified because the discussions are private.

Foreign, non-Persian Gulf investors currently can’t directly invest in Saudi shares. The kingdom allowed citizens of neighboring Gulf countries to buy and sell shares freely in 2007. Non-resident foreigners are permitted to trade through share-swap transactions and exchange-traded funds, with the market regulator approving the first ETF in March 2010.

A spokesman for the Capital Market Authority wasn’t immediately able to comment and the media relations officer at the stock exchange declined to comment when contacted by Bloomberg News.

MSCI Inc. (MSCI), whose stock indexes are tracked by investors with about $3 trillion in assets, classifies all seven Persian Gulf’s bourses except Saudi Arabia’s as frontier markets.

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Compliance Policy

U.S. Municipal Bond Regulator to Aid IRS With Data on Market

The U.S. municipal-bond market’s regulator said it will provide data to the Internal Revenue Service to assist with efforts to ensure that securities offerings comply with federal tax laws.

The Municipal Securities Rulemaking Board, a self- regulator, collects and disseminates data on trading prices as well as initial offering statements and other documents tied to bond deals. The Alexandria, Virginia-based board said yesterday that the agreement extends to the IRS an arrangement it has with other agencies that enforce its rules.

The IRS oversees whether bond sales by state and local government agencies comply with the rules of their exemption, which allows investors to collect tax-free interest. It has the power to strip bonds of the tax break. The IRS also monitors Build America Bonds, securities sold in 2009 and 2010 that provide direct interest subsidies to local governments.

Labor Department Issues Rule on Personalized Advice for 401(k)s

The U.S. Labor Department issued a rule yesterday to expand access to personalized investment advice for workers in retirement savings plans, Assistant Secretary of Labor Phyllis Borzi said.

Advisers to 401(k)-type plans or IRAs will be able to recommend investments and receive fees from investment companies that offer funds in two cases: if they earn the same level of compensation no matter what products they select or if they use a computer model to pick the investments that has been certified by an independent third party, the department said. In both cases, the adviser also must satisfy other conditions such as disclosing fees and having an annual audit.

Investment providers may have a conflict of interest when it comes to giving participant-level advice because of their variable compensation, which means they may have incentive to steer investors to funds with higher fees, said Marcia Wagner, managing director of the Wagner Law Group in Boston. This provides a way of offering advice without triggering a prohibited transaction, Wagner said.

The regulation applies to those who are fiduciary investment advisers as of Dec. 27, according to the Labor Department.

Other rules around costs in retirement plans take effect next year, including regulations requiring certain fee disclosures by providers of 401(k) investments to plan sponsors, according to the department.

U.S. Mortgage Plan Expanded to Aid Underwater Borrowers

U.S. regulators will let qualified homeowners refinance mortgages regardless of how much their houses have dropped in value, expanding a government effort to chip away at one of the economy’s most unyielding problems.

The Federal Housing Finance Agency will also enhance the Home Affordable Refinance Program by eliminating some fees, reducing others and waiving some risk for lenders, Edward J. DeMarco, the agency’s acting director, said yesterday.

HARP, which was introduced in 2009 to help homeowners get lower interest rates, was initially limited to borrowers whose mortgages were no greater than 125 percent of the value of their homes. To qualify, borrowers must be making on-time payments on loans owned or guaranteed by Fannie Mae or Freddie Mac, the mortgage-finance firms taken into U.S. conservatorship in 2008.

The program applies to borrowers whose existing loans were issued before June 2009. Borrowers must have made on-time payments for the last six months and report not more than one late payment in the past year. Mortgages must be worth at least 80 percent of a property’s value to be refinanced. The program expires at the end of 2013.

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China Regulator Approves Methanol Trading on Zhengzhou Exchange

China’s securities regulator approved the Zhengzhou Commodity Exchange to start trading of methanol futures contracts, according to a statement on the regulator’s website yesterday.

The bourse should “strictly monitor the early stages of methanol futures trading, especially on the actual delivery of the futures contracts,” the China Securities Regulatory Commission said, according to a report yesterday by Xinhua.

EU Sets Out for Next Summit Ruling Out ECB to Boost Rescue Fund

European leaders reached the halfway mark of their marathon to end the debt crisis, outlining plans to aid banks and ruling out tapping the European Central Bank’s balance sheet to boost the region’s rescue fund.

Stocks advanced and the euro rose after Europe’s 13th crisis-management summit in 21 months, which also explored how to strengthen the International Monetary Fund’s role. The leaders excluded a forced restructuring of Greek debt, sticking with the tactic of enticing bondholders to accept losses to help restore the country’s finances. China said yesterday that it had “faith” in the European Union’s ability to tackle the crisis.

Greece’s deteriorating finances have narrowed Europe’s room for maneuver in battling the contagion, which threatens to pitch the country into default, rattle the banking system, infect Spain and Italy and tip the world economy into recession.

The complete blueprint won’t come together until a summit that begins tomorrow, which has given German Chancellor Angela Merkel time to go back to Berlin to brief her lawmakers and seek their approval for the next steps.

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Corrupt Money Flows Into Shell Companies, Trusts, Study Finds

Most large-scale corruption cases involve the use of legal entities such as shell companies, foundations and trusts, according to a joint study by the World Bank and the United Nations Office on Drugs and Crime.

The study examines how corrupt public officials exploit such “opaque” entities to conceal bribes, embezzled assets and other criminal proceeds, and says governments should take steps to improve corporate transparency.

The study, which urges governments to expand law enforcement training and investigatory resources, is based on an analysis of 150 large-scale corruption cases around the world and an examination of the practices in 40 jurisdictions.

Japan to Extend Short-Sale Restrictions Until April 30

Japan’s Financial Services Agency said it will maintain restrictions on stock short selling until April 30.

The agency will continue to ban so-called naked short selling. Holders of a short position exceeding a certain level must also report to stock exchanges.

The agency made the announcement yesterday in a statement.

Compliance Action

Credit Suisse Fined $9.5 Million by U.K. Regulators on Controls

Credit Suisse Group AG (CSGN)’s U.K. unit was fined 5.95 million pounds ($9.5 million) for not adequately advising customers regarding the risk of complex financial products.

Credit Suisse had “poor” systems and controls and didn’t maintain its records on advice regarding structured capital at- risk products, or SCARPs, over a three-year period until the end of 2009, the U.K.’s Financial Services Authority said today. The bank failed to have internal controls on advising customers and assessing the desired level of customer risk.

The Zurich-based bank will also reimburse customers who were advised to purchase one of the products when it didn’t match the risk level they were willing to take on investments. Credit Suisse customers in the U.K. invested more than 1 billion pounds in SCARPs, the regulator said.

The fixed-term securities typically provide clients the opportunity for greater returns from the performance of an index or asset.

Credit Suisse cooperated with the investigation and received the regulator’s standard 30 percent discount on the fine for settling early.

“We deeply regret the failings of systems and controls in the period 2007-2009 around the provision of advice to U.K. private-banking clients,” Sally Rubery, a spokeswoman for the bank, said in an e-mailed statement. She added that the bank has made “significant improvements” to its processes and controls and is confident it is currently in compliance with regulatory obligations.

Halliburton Conducting Internal Investigation of Angola Business

Halliburton Co. (HAL), the world’s second-largest oilfield- services provider, said it’s conducting an internal investigation of its Angolan operations after receiving an anonymous e-mail alleging violation of the U.S. Foreign Corrupt Practices Act.

The e-mail, received in December 2010, cited conflicts of interest, self-dealing and the failure to act on possible violations of the company’s business code and the FCPA, according to the disclosure that the Houston-based company made in a federal filing Oct. 21.

The violations were alleged to be “principally” through the use of an Angolan vendor, according to the filing. Halliburton said it met with the Justice Department and the U.S. Securities and Exchange Commission in the third quarter to brief them on the investigation’s status and provide documents. The company intends “to continue to cooperate” with their inquiries as they investigate this matter, it said in the statement.

The disclosure is not expected to “really impact valuation” or result in a “meaningful” fine or settlement, Roger Read, an analyst at Morgan Keegan & Co. in Houston, who rates the shares at “outperform” and owns none, said yesterday in a telephone interview.

Uralkali Faces Antitrust Probe Over Russian Potash Prices

Russia’s antitrust watchdog opened a probe into OAO Uralkali, the world’s biggest potash producer by volume, over increases in its domestic prices for the soil nutrient, following complaints from unidentified customers.

The increase doesn’t correspond to Uralkali’s cost growth and there are signs that the prices are “monopolistically” high, the Federal Anti-Monopoly Service said yesterday on its website, after analyzing data from fertilizer producers.

Uralkali said in a statement “it supplies potash to the domestic market in full compliance with current legislation,” and will cooperate fully with the investigation.

Pipeline Settles With U.S. SEC Over Dark Pool Claims

Pipeline Trading Systems LLC, the seven-year-old dark pool operator specializing in block trades, will pay $1 million to resolve U.S. claims it failed to provide the confidentiality and liquidity it advertised to customers.

Fred Federspiel, the nuclear physicist who founded Pipeline in 2004, and Alfred Berkeley III, a former Nasdaq Stock Market Inc. president who is Pipeline’s chairman, both agreed to pay $100,000 to settle the claims, the Securities and Exchange Commission said yesterday in an administrative order.

The trading platform advertised by New York-based Pipeline was billed as a “crossing network” that matched customer orders with those from other clients, providing what’s called “natural liquidity,” the SEC said. Those claims were misleading, because Pipeline’s parent company owned a trading entity that filled the vast majority of customer orders, according to the order.

The problem Pipeline faced, the difficulty in matching blocks when investors want to trade, is one many operators of dark pools deal with as they build their venues and seek more orders, Larry Tabb, founder of research firm Tabb Group LLC in New York, said in a phone interview.

Brokers running dark pools often address this by enabling a stream of orders from their own firm’s market-making units or by allowing outside automated traders or high-frequency firms to fill that role within their system, Tabb said.

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SAC Capital Netted $14 Million in Trading Flagged by Regulator

SAC Capital Advisors LP, the hedge fund run by billionaire Steven A. Cohen, made at least $14 million in the past 10 years on suspicious trades, according to the Financial Industry Regulatory Authority.

The brokerage industry’s self-regulatory body referred trades in 19 companies to the U.S. Securities and Exchange Commission for further investigation, according to Finra documents reviewed by Bloomberg News and to two people briefed on the matter. The hedge fund’s bets -- on stocks including United Therapeutics Corp. (UTHR), Genentech Inc. and ViroPharma Inc. (VPHM) -- drew Finra’s attention because they were made before market- moving events such as acquisitions and the release of clinical- trial results for new drugs.

Finra, which monitors securities markets for price spikes linked to news such as mergers and earnings, made 259 referrals to the SEC last year for possible insider trading. The information isn’t an allegation or proof of securities-law violations. SAC Capital, which oversees about $14 billion, hasn’t been accused of any wrongdoing involving the transactions.

“Every day our firm transacts in thousands of securities and, given this level of activity, it is not surprising that we would be included in a small percentage of Finra referrals,” Jonathan Gasthalter, a spokesman for Stamford, Connecticut-based SAC Capital, said in an e-mailed statement. “No one at Finra has ever contacted the firm, spoken with our investment professionals or reviewed our research in connection with these matters. We have experienced inquiries by the SEC over the years and cooperated fully, without any negative finding or charge.”

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Interviews/Speeches

BOE’s Haldane Says Regulators Need New Ways to Control Bank Risk

Andrew Haldane, the Bank of England’s executive director for financial stability, said new bank capital rules don’t go far enough and regulators must look at better ways of controlling excessive risk-taking.

“The risks from banking have been widely spread socially, but the returns to bankers have been narrowly kept privately,” Haldane said in a speech in London yesterday. “That risk/return imbalance has grown over the past century. Shareholder incentives lie at its heart.”

In addition to tougher capital rules, Haldane proposed the use of so-called contingent convertible securities that would switch from debt to equity under certain measures of capital adequacy, improving governance at banks by extending voting rights beyond equity holders and changing executives’ “performance metrics.”

Haldane also said lenders should change how they calculate performance-based pay for executives and end the “equity dictatorship” that pushes them into excessive risk taking.

“The risks from banking have been widely spread socially, but the returns to bankers have been narrowly kept privately,” Haldane said in a speech in London late yesterday. “That risk- return imbalance has grown over the past century. Shareholder incentives lie at its heart.”

Haldane’s comments came as campaigners in London set up a second camp as part of global protests against banks that began in New York. A member of the Bank of England’s Financial Policy Committee, he said that there is a need for “fundamental reform” before banks’ incentives are “properly aligned with the public good.”

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ECB’s Praet Says CCP Rules Not High Enough on Officials’ Agenda

European Central Bank executive board member Peter Praet said officials haven’t placed sufficient weight on the need for new rules to cope with the failure of central clearinghouses.

“It is a key issue which has not yet been put sufficiently high on the agenda,” he told reporters on the sidelines of an event in Brussels yesterday.

The European Commission “has said by the end of next year there will be a resolution framework for CCPs,” or central clearing parties, “so I think that is very good news,” he said.

To contact the reporter on this story: Carla Main in New Jersey at cmain2@bloomberg.net.

To contact the editor responsible for this report: Michael Hytha at mhytha@bloomberg.net.

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