U.S. Transaction Tax, Clearinghouses, MF Global: Compliance

Two U.S. lawmakers outlined a proposal to tax U.S. financial transactions at a rate of 0.03 percent and urged the congressional deficit-reduction panel to include the idea in their final proposal.

Senator Tom Harkin of Iowa and Representative Peter DeFazio of Oregon said yesterday they will introduce the companion bills, which would apply the tax to stocks, bonds and all derivatives contracts. The measures exempt initial issuance and debt with an original term of less than 100 days and would take effect on Jan. 1, 2013.

Harkin said at a press conference in Washington that Wall Street can “easily bear this modest tax.”

The lawmakers are introducing their measures after the European Union proposed a similar 0.1 percent tax on trading of stocks and bonds throughout the 27-nation bloc. Harkin and DeFazio also introduced transaction tax measures during the past two years; those measures were not considered by either chamber.

Harkin said he would send a letter to the Joint Select Committee on Deficit Reduction, the so-called supercommittee, recommending it consider the transaction tax in its final product. The lawmakers said one of the goals of the proposal was to drive out some high frequency trading from the market.

Trade groups representing the largest U.S. banks and trading firms oppose the bills.

Compliance Policy

Banks Face Basel Group Capital Rules Over Clearinghouse Risks

Global finance regulators published draft rules laying out how much capital banks should hold to guard against the risk of a clearinghouse defaulting on a derivatives trade.

Banks should hold reserves equivalent to 2 percent of their trades with a clearinghouse, with the value of the trades weighted in line with how much risk they involve, the Basel Committee on Banking Supervision said in a statement on its website.

The committee will complete the rules “around year end” and expects the rules will be implemented in member jurisdiction by January 2013.

The Group of 20 nations is encouraging greater use of clearinghouses in a bid to cut some of the risks attached to derivatives trading.

Separately, the European Union’s plan for recapitalizing banks has “serious problems” that will hurt economic growth and make it harder for some nations to borrow, the Institute of International Finance said.

There is a “clear need” to restore confidence in Europe’s banks, IIF Managing Director Charles Dallara said yesterday in a letter to the Group of 20 nations on the eve of a summit in Cannes, France. Yet the extra capital requirements at the center of the EU’s strategy will come with “considerable cost” because of a flawed scope and approach, he said.

European leaders gathered yesterday before the summit to prevent their crisis-fighting plans from unraveling less than a week after they were hammered out. The euro area’s debt crisis will likely take center stage at the G-20, raising the stakes for banks poised to play a greater role in Greece’s next bailout.

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Republicans Say They Will Try to Limit Merger Conditions at FCC

Republican lawmakers said they would introduce legislation to limit concessions that the Federal Communications Commission may impose on merging companies.

The bill, which seeks to revamp several agency procedures, would require that merger conditions be specific to the deal under consideration, Representative Greg Walden of Oregon, chairman of a House subcommittee that oversees the FCC, said yesterday at a Washington news conference.

Walden, who is chairman of the House Subcommittee on Communications and Technology, said the measure would be reviewed by his panel at a Nov. 16 hearing.

Neil Grace, an FCC spokesman, didn’t immediately comment.

India Said to Delay New Foreign Bank Regulations to Next Year

India, seeking more oversight of foreign banks, will delay new regulations for the lenders as it considers how to tax their local units, a finance ministry official familiar with the decision said.

The government may decide on the tax the banks will be asked to pay to convert branches into subsidiaries when it unveils its annual budget in February, the official said in New Delhi, declining to be identified citing department policy.

D. S. Malik, a spokesman for the finance ministry in New Delhi, didn’t return two calls to his office.

The Reserve Bank of India didn’t provide a timeline for the proposals.

Special Section: MF Global

MF May Have Transferred Customer Money After Audit, CME Says

MF Global Holdings Ltd. may have transferred customer money last week following an audit by CME Group Inc. (CME), which has regulatory authority over the futures broker.

The transfer “may have been designed to avoid detection in so far as MF Global did not disclose or report such transfers” to the Commodity Futures Trading Commission or CME Group, the Chicago-based exchange owner said yesterday an e-mailed statement.

The day it filed the eighth-largest U.S. bankruptcy on Oct. 31, New York-based MF Global disclosed a shortfall in customer accounts that people with knowledge of the matter said may be about $700 million. CME Group, which monitored MF Global’s positions as its designated self-regulatory organization, said Nov. 1 it didn’t know how much client money was missing.

All MF Global customer positions held at CME Group, and not third-party custodians such as banks, are accounted for, the company said in the statement. “MF Global’s customer positions on CME Group exchanges were and continue to be substantially over-collateralized,” CME Group said. The “apparent shortfall” was in accounts held by MF Global, CME Group said.

After CME Group identified “apparent segregation violations” and suspended clearing privileges for MF Global customers this week, 150,000 client accounts “essentially were frozen,” James Giddens, the trustee assigned to liquidate MF Global Inc., said in a filing yesterday.

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MF Global Trustee Talks With Brokers Over Customer Accounts

The trustee liquidating broker-dealer MF Global Inc. is in talks with brokerages that may take over customer accounts or buy “pieces of the business,” said Stephen Harbeck, president of the Securities Investor Protection Corp., which is overseeing the liquidation.

The trustee, James Giddens, won court permission to begin transferring client accounts and collateral.

U.S. Commodity Futures Trading Commission lawyers said in a bankruptcy court document dated yesterday that the agency “intends to take all appropriate action” and work to “ensure that customers maximize their recovery of funds and to discover the reason for the shortfall in segregation.” The broker’s commodity customer funds have a shortfall of $633 million, or about 11.6 percent.

The trustee’s team was in MF Global’s offices in New York yesterday to examine the company’s books and records, Harbeck said. Onsite at MF Global is a team from Giddens’s law firm, Hughes Hubbard & Reed LLP; SIPC’s vice president of operations and her team; and MF Global employees who are assisting with “record retrieval,” Harbeck said.

Giddens, who is in his fourth year as liquidator of Lehman’s brokerage, is either at MF Global’s offices or in constant communication, Harbeck said.

Harbeck said that “eventually” Giddens will bring in forensic accountants. The company’s accounts are frozen, he added.

For more, click here and see Interviews section, below.

Australian and Japanese Exchanges React to MF Global Filing

The Australian Securities & Investments Commission said Deloitte has been named as administrator for MF Global Group in Australia, according to a statement on its website.

Separately, in the company’s Japan unit, MF Global fired 15 employees before filing for bankruptcy, said Kazuyuki Sugimoto, secretary general at the Federation of Foreign Bank Employees Union.

The analysts, traders and sales staff had their employment contracts terminated, Sugimoto said in a telephone interview. Workers from the New York-based securities firm’s Japan unit joined the federation in September, he said.

“We are not able to comment on this,” Clara Goh, MF Global’s Singapore-based spokeswoman for Asia Pacific, wrote in an e-mailed reply to inquiries about the dismissals from Bloomberg News.

The Japanese unit, MF Global FXA Securities Ltd., has 53 employees, according to the Financial Services Agency. The FSA issued an order protecting the assets of the unit and instructed the firm to improve its business, it said in a statement Nov. 1.

The case is In re MF Global Inc., 11-ap-2790, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The parent’s bankruptcy case is MF Global Holdings Ltd. (MF), 11- bk-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Compliance Action

Google Faces at Least Nine Complaints in EU Antitrust Probe

Google Inc. (GOOG) faces at least nine complaints from rivals and customers as part of an antitrust probe by European Union regulators, the company said last week.

The world’s largest search engine said the European Commission told it of six further complaints including ones filed by a Dutch soccer website, a German mapping company and a telephone listings site, Google said in an Oct. 26 regulatory filing.

Google is being investigated by the commission over claims it discriminated against other services in its search results and stopped some websites from accepting rival ads

“On Sept. 16, 2011, we responded to all of the allegations made against us,” Google said in the filing. “We are cooperating with the EC and responding to its information requests.”

The commission has the power to impose fines of as much as 10 percent of revenue for monopoly abuses.

Debit-Fee ‘Flop’ Leaves Banks Seeking $8 Billion in Revenue

Bank of America Corp. (BAC) and its U.S. rivals may struggle to replace the $8 billion in revenue lost because of federal debit- card rules after abandoning plans to extract more fees from customers.

Bank of America said yesterday that it wouldn’t charge debit-card users $5 per month, four weeks after the firm’s announcement of the fee sparked a backlash from customers and lawmakers.

Card issuers must seek other ways to replace revenue and trim costs after the Federal Reserve capped fees on debit-card purchases last month at about half the previous level. The limits, mandated by the Dodd-Frank Act, may cut annual revenue by $8 billion at the biggest U.S. banks, according to data compiled by Bloomberg Government.

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China, Russia, Turkey Yet to Meet Data-Exchange Rules, FSB Says

China, Russia and Turkey are among nations yet to prove they fully comply with international standards on financial regulators cooperating and sharing information, the Financial Stability Board said.

The board, which brings together regulators and finance ministers from 20 nations, made the finding during an evaluation of how well 61 different countries were complying with the rules, the group said in a statement on its website.

“Forty-one of the jurisdictions evaluated by the FSB already demonstrate sufficiently strong adherence to the relevant standards,” the group said. “Eighteen others are implementing reforms to strengthen their adherence” or have requested new assessments from the International Monetary Fund and World Bank on whether they comply with the rules.

Courts

Austrian City Sues Bawag for $35 Million on Swiss Franc Swap

Linz, Austria’s third-biggest city, sued Bawag PSK Bank over a 195 million Swiss franc ($221 million) swap.

Bawag didn’t inform Linz about the potential risks of the 2007 swap, which was used to secure a franc bond, according a copy of the suit posted on Linz’s website. The city is seeking 30.6 million francs in the case.

Disputes over swap agreements, typically used by municipal agencies to lower interest payments, have spread through Europe with lawsuits in Germany, Italy and the U.K. Deutsche Bank AG (DBK) in March lost a case over swaps in the first ruling by Germany’s highest court concerning sales of the products.

Sabine Hacker, a spokeswoman for the bank, didn’t immediately answer a call after business hours today. Bawag, which is controlled by Cerberus Capital Management LP, in March said that it “vehemently” rejected Linz’s claims.

The city has formed a special committee to investigate the swap.

Interviews/Speeches

Kaufman Sees Similarities Between Refco, MF Collapse

Peter Kaufman, president at the Gordian Group, talked about the collapse of MF Global Holdings Ltd. and the similarities to the collapse of Refco Inc. in 2005.

Kaufman spokes with Erik Schatzker and Stephanie Ruhle on Bloomberg Television’s “InsideTrack.”

For more, click here.

Hotchkiss, Kraft, Lomurro on Dodd-Frank, Muni Impact

Lynnette Hotchkiss, executive director of the Municipal Securities Rulemaking Board, John L. Kraft, a partner at Lomurro, Davison, Eastman & Muñoz, P.A., Paul S. Maco, a partner at Vinson & Elkins LLP and a Former Senior Regulator and the U.S. Securities and Exchange Commission, participate in a panel discussion about the potential impact of the Dodd-Frank act on the municipal bond market.

Bloomberg’s William Selway moderates the panel at the Bloomberg Link State and Municipal Finance Conference in New York.

For the video, click here.

Parr Says Capital Rules Will Lead to Lower Bank Returns

Gary Parr, vice chairman of Lazard Ltd. (LAZ), talked about the impact of new financial rules on major U.S. banks and the outlook for the financial industry.

Parr also discussed Federal Reserve monetary policy, Europe’s sovereign debt crisis and MF Global Holdings Ltd.’s filing for bankruptcy protection. He spoke with Deirdre Bolton on Bloomberg Television’s “Money Moves.”

For the video, click here.

Comings and Goings

Canada’s Carney Elected to Succeed Draghi at FSB, FTD Reports

Bank of Canada Governor Mark Carney was appointed to succeed Mario Draghi as head of the Financial Stability Board, Financial Times Deutschland reported, without saying from where it obtained the information.

The decision was taken by FSB officials at a telephone conference yesterday, the German newspaper said in an e-mailed pre-release of today’s edition. Swiss central bank President Philipp Hildebrand will become FSB deputy head, it said.

The decision will be announced at the meeting of Group of 20 leaders in Cannes, France, that starts today.

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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