Depository Trust Move, UBS Short Sales, Solvay Fine Annulled: Compliance
Stock Chart for UBS AG (UBSN)
A meeting of European Union finance ministers scheduled for today to decide on bank recapitalization was canceled while two summits of EU leaders will proceed as planned to discuss tackling the sovereign-debt crisis.
The finance ministers’ meeting was call off because the bank-recapitalization issue cannot be decided before other elements of the rescue package, a person familiar with the matter said on condition of anonymity. Summits of the 27 EU leaders and 17 heads of the euro area will take place as scheduled, EU President Herman Van Rompuy said.
At meetings starting at 6 p.m. today in Brussels, the European leaders will seek to reach agreement on expanding the euro-area rescue fund and determining the size of bondholder writedowns on Greek debt, as well as recapitalizing banks.
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DTCC’s Faryniarz Warns of Move From U.S. on Dodd-Frank Concern
The Depository Trust & Clearing Corporation may move its data outside the U.S. should an American law spur companies in other countries to stop sending it information on trades, an executive said.
The DTCC houses a trade repository for credit-default and equity swaps.
The U.S. Dodd-Frank Act, passed in 2010, requires foreign market overseers to compensate U.S.-based trade repositories for legal expenses when shared information becomes public. That will fragment oversight because foreign regulators won’t be willing to pay and may require firms that trade derivatives to report to local entities instead of a global one, Dan Faryniarz, managing director of derivatives market structure and industry relations at DTCC, said in Hong Kong yesterday.
The DTCC, the biggest trade repository for over-the-counter derivatives, collects details on trades, such as their size and the identities of the counterparties, for use by regulators. Forcing overseas authorities to compensate the DTCC for lawsuits that may arise if its data are released will hinder the free flow of information, Faryniarz said during a panel at an International Swaps and Derivatives Association conference.
Regulators worldwide are increasing scrutiny of over-the- counter derivatives after their relative opacity was blamed for masking systemic risk before the 2008 collapse of Lehman Brothers Holdings Inc. (LEHMQ)
Bank-Capital Rules for Trade Financing Eased by Basel Group
Global bank regulators have eased parts of bank-capital rules to counter concerns from lenders that the measures may harm international trade.
The Basel Committee on Banking Supervision said it had waived some rules on the reserves lenders must hold against guarantees for importers and exporters so as to protect growth in emerging markets.
The changes “will improve the access to, and lower the cost of, trade-finance instruments for low-income countries,” the Basel committee said in a statement on its website yesterday.
Governments are seeking to bolster banks’ reserves to prevent a repeat of the turmoil that followed the collapse of Lehman Brothers Holdings Inc. and restore market confidence damaged by the euro zone’s fiscal crisis. Yesterday’s measures will apply to current capital rules as well as proposals known as Basel III, which will more than triple the core capital that lenders must hold.
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Danish Banks Demand End to Short-Sale Ban on Liquidity Drain
Denmark’s banks are demanding an end to a short-sale ban on their shares that’s been in place since the end of 2008, arguing the measure has depleted liquidity and scared off equity investors.
While banks initially welcomed the short-sale ban, the industry has been urging legislators to lift it since the end of 2009, after it became apparent that equity investors were shunning the Danish market, Mick Sayed, a director at the Danish Bankers Association in Copenhagen, said in an interview.
Lenders in the Nordic country are also struggling to emerge from a debt funding crisis after two failures this year triggered senior creditor losses.
The government has signaled that Denmark’s ban on shorting financial stocks will stay in place until European Union rules designed to restrict speculative trading become effective in about a year’s time.
The EU reached a deal on Oct. 18 paving the way for curbs on so-called naked short-selling as part of a draft law on financial markets. The deal also includes an optional ban on trading in naked credit default swaps on sovereign debt that would apply unless investors hold the underlying government bonds or securities that track it.
The agreement still requires formal approval by the EU’s 27 national governments and the European Parliament. The parliament is scheduled to vote on it next month.
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‘No Constraint’ on Rules SEC, Agencies Can Impose, Congress Told
The U.S. Securities and Exchange Commission and other independent federal regulators should face greater scrutiny before imposing rules on business, opponents of the current regulatory process said yesterday.
They testified in favor of a measure that would require independent federal agencies to do the same cost-benefit analysis of proposed regulations that the White House requires of all other executive government departments.
The issue has taken on greater urgency as the SEC moves to implement rules under the Dodd-Frank financial overhaul that may have a major effect on financial institutions and the economy.
In practices dating back two decades, both Democratic and Republican administrations have required executive departments to submit an analysis of costs and benefits when proposing major new rules. Independent agencies, where the president lacks the power to remove the chairman or a member, are exempt from those requirements.
Committee Democrats said yesterday that imposing the standard on the independent agencies would delay new regulations, undercutting protections they said are necessary for health and safety and adding to the unease of business owners.
UBS Will Pay $12 Million for Short-Sale Supervision Failures
UBS AG (UBSN), Switzerland’s biggest bank, will pay $12 million to resolve Financial Industry Regulatory Authority claims that a brokerage unit allowed millions of short-sale orders to be placed without reasonable grounds to believe that the securities could be delivered.
The supervisory system for locating and marking orders at UBS Securities LLC was “significantly flawed” and contributed to violations across its equities-trading business, Washington- based Finra said in a statement yesterday. The company’s framework wasn’t designed for regulatory compliance until at least 2009, the industry-funded brokerage watchdog said.
In a short sale, an investor sells a security it doesn’t own, betting the price will decline before it’s time to deliver the shares. Under a rule known as Reg SHO, brokers can only accept short-sale orders when they can reasonably ensure the shares needed to cover the bets will be available to the investor at the time of delivery.
In settling the claims, UBS consented to the findings without admitting or denying wrongdoing, Finra said.
“UBS made a substantial investment to upgrade systems and procedures, including supervisory protocols, IT change control processes, and compliance programs to tighten its Reg SHO controls,” Christiaan Brakman, a spokesman for the Zurich-based bank, said in an e-mailed statement. “This investigation is concluded and all issues identified by Finra and UBS have been remediated.”
CPP Group to Sell Non-Insured Product as FSA Probe Continues
CPP Group Plc (CPP), a U.K. company that provides protection against credit-card and identity theft, said it plans to sell non-insured identity protection in place of an offering it suspended following a regulatory probe in March.
The York, U.K.-based company, which stopped selling insured entity protection after talks with the Financial Services Authority, is marketing a new product with similar features that is outside the purview of the regulator, the company said. It provides customers Web tools to detect identity fraud and offers case worker services. Unlike the previous product, it does not offer insurance for expenses incurred.
The suspended insured protection offering, one of its main products, will be scrapped completely, only renewing existing customers, Chief Financial Officer Shaun Parker said in a phone interview. The company is hopeful business partners will sell the non-insured identity protection product in its place after the probe is concluded, he said. It will continue to sell card protection, also currently under investigation.
Telefonica, Portugal Telecom Get Antitrust Complaint From EU
Telefonica SA (TEF) and Portugal Telecom SGPS SA (PTC), Spain and Portugal’s biggest telephone companies, got a European Union antitrust complaint for agreeing not to compete in each other’s home country during 2010 and 2011.
The European Commission sent the statement of objections because it “believes that the object of the agreement was to partition markets, resulting in potentially higher prices and less choice for customers,” it said in an e-mail yesterday.
Telefonica and Portugal Telecom’s cancellation of the non- compete deal in February “does not erase the fact that the agreement existed in the first place,” the Brussels-based antitrust regulator said. Regulators can fine companies up to 10 percent of annual revenue or require them to change the way they do business if they strike deals that unfairly block rivals or harm competition. Telefonica and Portugal Telecom can reply to the EU’s charges in writing and ask for a hearing to defend themselves.
Telefonica declined to comment and Portugal Telecom declined to immediately comment on the EU complaint.
Ex-Goldman Director Gupta Said to Face Charges in Galleon Probe
Rajat Gupta, the former Goldman Sachs Group Inc. (GS) director once accused of feeding inside information to Galleon Group LLC’s Raj Rajaratnam, will face federal charges, a person familiar with the matter said, making him the highest-ranking executive to be named in the probe.
Gupta, 62, will surrender to FBI agents in New York today, the person said. After a four-year securities-fraud investigation of insider trading at hedge funds, Gupta will be charged in a case prosecuted by Manhattan U.S. Attorney Preet Bharara, according to the person, who declined to be identified because the matter isn’t public.
“Any allegation that Rajat Gupta engaged in any unlawful conduct is totally baseless,” his lawyer, Gary Naftalis, said in an e-mailed statement after the charges were reported yesterday. “He did not trade in any securities, did not tip Mr. Rajaratnam so he could trade, and did not share in any profits as part of any quid pro quo.”
The case against Gupta comes seven months after federal prosecutors in court first called him and Rajaratnam’s brother Rengan “unindicted co-conspirators.”
Gupta isn’t being charged based on evidence provided by Raj Rajaratnam, said the person familiar with the matter. The charges against him are based on evidence uncovered by the Federal Bureau of Investigation’s investigation, the person said.
Ellen Davis, a spokeswoman for Bharara, declined to comment. Jim Margolin, an FBI spokesman, didn’t immediately return a call seeking comment yesterday.
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Solvay $32 Million Antitrust Fines Annulled by EU Top Court
Solvay SA (SOLB) won a bid to annul antitrust fines totaling 23 million euros ($32 million) at the European Union’s top court in a ruling that will boost the company’s fourth-quarter profit by 15 million euros.
The European Commission, the 27-nation EU’s antitrust regulator “failed to respect Solvay’s right of access to the procedural file and its right to be heard,” the EU Court of Justice ruled in Luxembourg yesterday.
The commission in December 2000 re-imposed fines on the Brussels-based company, the world’s largest soda-ash maker, a few months after an EU court threw out penalties originally levied in 1990. In its appeal, Solvay argued it didn’t have access to all the documents on which the commission’s claims were based. The agency admitted it had misplaced some documents, according to the court. The missing sub-files may have contained evidence that would have enable Solvay to offer an interpretation of the facts useful to its defense, the court said.
Amelia Torres, a spokeswoman for the commission, said the regulator would study the judgments carefully and that EU procedures “have changed fundamentally in many aspects” since the first fine was imposed more than 20 years ago.
The cases are C-109/10 P, C-110/10 P, Solvay v. European Commission.
Oppenheimer Rochester Funds Lose Dismissal Bid, Face Trial
Massachusetts Mutual Life Insurance Co.’s Oppenheimer Rochester Funds lost a motion to dismiss a group of 32 class- action securities fraud lawsuits when a federal judge in Colorado moved the cases forward for trial.
Shareholders in seven Oppenheimer municipal bond funds sued in federal courts nationwide, consolidated in 2009, alleging they were marketed as stable income-seeking funds “when in fact they employed extremely risky investment strategies,” U.S. Senior District Judge John L. Kane in Denver wrote in an order yesterday.
The consolidated case is In Re Oppenheimer Rochester Funds Group Securities Litigation, 09-md-02063, U.S. District Court, District of Colorado (Denver).
TARP Did Not Make Money For US Taxpayers, Barofsky Says
Neil Barofsky, Senior Fellow at NYU School of Law and former special inspector general for the Troubled Asset Relief Program (TARP), talked with Bloomberg Law’s Lee Pacchia about the federal government’s regulatory response to the financial crisis of 2008 and the prospects for the financial industry going forward.
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Burns Says Criminal Case Against SAC Capital Unlikely
Douglas Burns, a formal federal prosecutor, talked about scrutiny of SAC Capital Advisors LP’s trading activity. The Financial Industry Regulatory Authority says the hedge fund run by billionaire Steven A. Cohen, made at least $14 million in suspicious trades in the past 10 years and has referred the trades to the U.S. Securities and Exchange Commission for further investigation.
Burns spoke with Erik Schatzker and Stephanie Ruhle on Bloomberg Television’s “Inside Track.”
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Comings and Goings
Wetjen Formally Joins CFTC to Complete Dodd-Frank Swaps Rules
Wetjen, who was confirmed unanimously by the Senate on Oct. 21, replaces fellow Democrat Michael V. Dunn on the five-member commission.
The CFTC and Securities and Exchange Commission are leading efforts to write new derivatives regulations.
To contact the editor responsible for this report: Michael Hytha at email@example.com.
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