Regulators probing the alleged manipulation of global interest rates are focusing on what traders involved in setting the benchmark say were routine discussions condoned by their superiors.
Staff responsible for submissions to the London interbank offered rate regularly discussed where to set the measure with traders sitting near them, interdealer brokers and counterparts at rival banks, according to money-market traders with direct knowledge of procedures at three firms. The talks became common practice after money markets froze in 2007, making it difficult for individual bankers to gauge the cost of borrowing from other lenders, said the traders, who asked not to be identified because they weren’t authorized to speak about the subject.
The investigation by regulators in the U.K., U.S. Canada, Japan and the European Union, is the latest black eye for an industry smarting from criticism that it caused a global financial crisis in 2008. The probes have called into question whether firms can be trusted to set with no regulatory oversight a rate that is the basis for about $360 trillion of securities from floating-rate mortgages to commercial loans.
Traders interviewed said there were no rules stopping talks between employees, or guidelines on how the rate should be set. The British Bankers’ Association, the London-based lobby group that publishes the rate, said it has never required banks to erect Chinese walls between those setting the rate and traders making bets on the future direction of the measure, leaving it up to the firms themselves and their regulators.
Spokesmen at lenders that contribute to Libor -- Credit Suisse AG (CSGN), Societe Generale SA (GLE), Bank of America Corp., Royal Bank of Scotland Group Plc, JPMorgan Chase & Co. (JPM), Citigroup Inc. (C), Lloyds Banking Group Plc (LLOY), HSBC Holdings Plc (HSBA) and UBS AG (UBSN) -- declined to comment on what internal controls they have for their submissions.
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Safety Rules for U.S. Nuclear Plant Outages, Fuel Pools Advance
The U.S. Nuclear Regulatory Commission moved closer to imposing tougher safeguards at the nation’s reactors, a year after a disaster in Japan that triggered radiation leaks from a crippled power plant.
A majority of commissioners led by Chairman Gregory Jaczko voted to issue three orders for safety steps at 104 operating reactors. The agency now will complete writing of the rules for release by March 9, NRC spokesman David McIntyre said in an e- mail. Companies including Southern Co. (SO) and Exelon Corp. (EXC) would have until early next year to write a plan and comply by 2016.
A 9-magnitude earthquake and tsunami on March 11 crippled Tokyo Electric Power Co. (9501)’s Fukushima Dai-Ichi plant, causing explosions, radiation leaks and meltdowns. The NRC and the nuclear industry have been studying the disaster to bolster U.S. plant protection from floods, quakes and power failures that prevent the cooling of atomic waste.
The NRC’s rules would require that plant owners have sufficient equipment on site to handle blackouts as well as adequate instruments to monitor pools holding spent fuel during an emergency.
The commission’s staff expects to prepare the technical plans for the rules by August, giving reactor owners until February 2013 to write individual compliance plans and to take action no later than Dec. 31, 2016.
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Greek Samurai Bond Holders in Japan May Be Exempt From Swap
Holders of 108.7 billion yen ($1.33 billion) of Greece’s yen-denominated bonds who live in Japan may not be affected by an agreed debt swap as part of the biggest restructuring in history.
The swap agreed to on Feb. 24, known as private sector involvement, or PSI, doesn’t apply to the holders because of the time limits and Japanese legal requirements, Shinsei Bank Ltd. (8303), Mizuho Corporate Bank Ltd. (MIZC) and Aozora Bank Ltd. (8304), fiscal agents for the securities in Japan, said in statements March 2. Greece last week formally offered to exchange some bonds for new notes, with investors taking a 53.5 percent haircut.
Greece is seeking to reduce national debt in order to meet the terms of a 130 billion-euro ($173 billion) international bailout.
“The Greek government isn’t in a position to promise anything at this moment regarding the treatment of the aforementioned bonds owned by residents in Japan,” Shinsei Bank said in the statement. Greece will notify the result of the current PSI offer to the fiscal agents “without any delay.”
Toshiharu Mashita, a spokesman for Japan’s Financial Services Agency in Tokyo, said the agency is aware of the statements, while declining to comment further.
Japan’s Chief Cabinet Secretary Osamu Fujimura said at a briefing in Tokyo March 2 that he hadn’t heard about the Greek Samurai bond report.
BlackRock Says Money Funds Would Survive Floating Share Price
BlackRock Inc. (BLK), the world’s largest asset manager, said money market mutual funds would survive without their stable $1 share price if a reform plan being drafted by regulators included key additions.
The company, which previously opposed the idea, published a report March 2 outlining how regulators could make a floating net-asset value, or NAV, acceptable to investors and managers.
BlackRock, in seeking a workable version of the plan, stands in contrast with industry peers as the three-year effort to make money funds more stable approaches a key phase. Boston- based Fidelity Investments, Federated Investors Inc. (FII) in Pittsburgh and leaders of the fund industry’s main trade group have rejected the floating NAV idea, saying it would destroy the $2.6 trillion product.
While a floating NAV will hurt the industry, regulators are insisting on further reforms and alternative proposals are unacceptable, the BlackRock report said.
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SEC Accounting of Record Enforcement Year in 2011 Doesn’t Add Up
U.S Securities and Exchange Commission officials have been citing a jump in the number of enforcement actions last year as proof that an overhaul of the agency’s investigative force is bearing fruit. The claim isn’t supported by a detailed examination of the statistics.
SEC Enforcement Director Robert Khuzami said in November that the unit filed 735 actions in fiscal 2011, “a record- breaking performance during a period of resource constraints.” Citing the numbers, SEC Chairman Mary Schapiro told a Washington conference last week that the agency’s changes “are already producing record results.” The SEC also noted the record numbers in justifying its 2013 budget request to Congress.
Still, more than 230, or 31 percent, of the 735 matters weren’t new. They were so-called follow-on administrative proceedings that institute penalties in cases that already had been brought, the examination by Bloomberg News shows.
Excluding those actions, such as barring people who’ve already been found guilty of fraud from working in the industry, the SEC filed 499 original cases last year, fewer than the 520 in 2009, the year before the reorganization. In 2009, 144, or 22 percent, of the 664 total actions were follow-on proceedings.
The SEC has been under pressure for more than three years to show results, while struggling to get additional funding from Congress. Schapiro is scheduled to defend her budget request tomorrow before a House panel.
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GlaxoSmithKline Antitrust Probe Dropped by EU Commission
The European Commission said it ended an antitrust probe into GlaxoSmithKline Plc (GSK) over possible collusion to keep cheaper copies of medicines off the market after a complaint against the company was withdrawn.
“The Commission examined whether there may have been violation of EU competition law by GlaxoSmithKline,” Antoine Colombani, a spokesman for the regulator, said in an e-mail. The case involving generic-drug producer Synthon BV concerned “possible anticompetitive agreements or concerted practices in order to delay or exclude generic competition,” he said. Colombani declined to elaborate on Synthon’s role in the probe.
The announcement came a day after European Union regulators dropped a similar probe into AstraZeneca Plc (AZN), the U.K.’s second- biggest drugmaker, and Takeda Pharmaceutical Co. (4502)’s Nycomed unit over possible collusion to keep cheaper copies of medicines off the market. That case was brought to a halt because of a lack of evidence.
Antitrust regulators on both sides of the Atlantic are focusing on how settlements between companies that make branded medicines and generic-drug producers might harm consumers.
Glaxo didn’t respond to a voice-mail message and Synthon, based in Nijmegen, the Netherlands, didn’t respond to an e-mail seeking comment.
AIJ’s Pension Scandal Resembles Livedoor Affair, GFIA Says
Japanese pension funds may shun smaller hedge funds in favor of larger ones after the suspension of AIJ Investment Advisors Co. by the nation’s regulator for possibly losing clients’ money, according to GFIA Pte.
AIJ was suspended on Feb. 24 by Japan’s financial regulator after it couldn’t account for all of the 185.3 billion yen ($2.3 billion) it managed for clients as of March 2011. Japanese pensions including those representing unions were among clients that had money with AIJ, which hasn’t been accused of wrongdoing.
The suspension of AIJ that sparked the biggest investigation in the history of Japan’s fund industry resembles the impact on the hedge fund industry after executives at Internet provider Livedoor Co. were arrested in 2006 for fabricating profits, according to a client report by GFIA, which advises investors seeking to allocate money to hedge funds. Livedoor raised concerns about the finances of second-tier companies that many Japan-focused hedge funds had invested in.
“We think this will be the Japanese pension fund industry’s ‘Livedoor moment,’” said Peter Douglas, principal of Singapore-based GFIA. “The tap of Japanese pension fund money, to boutique managers, will turn off.”
Japanese pensions have been trying to diversify their investments beyond traditional assets such as bonds and equities into alternative investments that include hedge funds, as they face challenges funding retirement benefits in an aging society.
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EU to Decide on Future of Google Antitrust Probe Next Month
European Union regulators must decide next month on the future of their antitrust probe into Google Inc. (GOOG), the region’s competition commissioner said.
Joaquin Almunia said investigators still must define their objections and clarify concerns over the world’s largest search engine. Last year, he said that the probe focused on whether the company is a gatekeeper to the Internet that can influence users’ behavior.
Google, based in Mountain View, California, is under growing pressure from global antitrust agencies probing whether the company is thwarting competition in the market for Web searches. While Microsoft Corp. (MSFT) and partner Yahoo! Inc. (YHOO) have about a quarter of the U.S. Web-search market, Google has almost 95 percent of the traffic in Europe, Microsoft said in a blog post last year, citing data from regulators.
The EU is investigating claims of anticompetitive actions by Google. Microsoft and shopping-comparison site Foundem are among companies that asked for a review.
Al Verney, a spokesman for Google in Brussels, said the company continues “to work closely and cooperatively with the European commission to explain how our business works.”
CBOE Joins Bats Among Exchange Owners Receiving SEC Inquiries
CBOE Holdings Inc. (CBOE) became the second exchange operator in a week to report contact from the U.S. Securities and Exchange Commission.
The owner of the country’s biggest options venue said regulators are investigating whether it is complying with the obligations of a self-regulatory organization. Bats Global Markets Inc. (BATS), another U.S. exchange operator, said Feb. 23 that the SEC asked for information about the development of types of orders customers use on its venues.
CBOE owns the Chicago Board Options Exchange, founded in 1973 as the first U.S. market for equity derivatives. As self- regulatory organizations, American exchanges are required to write rules for their markets, monitor trading and ensure that they and their customers aren’t breaking securities laws.
The disclosure was made in Chicago-based CBOE’s annual report from Feb. 28. John Nester, an SEC spokesman, declined to provide further information. Gail Osten, a spokeswoman for CBOE Holdings Inc., declined to comment.
“The SEC is investigating CBOE’s compliance with its obligations as a self-regulatory organization under the federal securities laws,” CBOE said in the filing. “The company is cooperating with the investigation, which is ongoing, and is conducting its own review of its compliance.”
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Defunct Brokerage’s CEO Fined $10 Million Over CMO Fraud Claims
The former chief executive officer of Brookstreet Securities Corp. must pay more than $10 million to resolve fraud claims related to the 2008 financial crisis, the U.S. Securities and Exchange Commission said March 2.
Stanley C. Brooks was ordered to pay the penalty by U.S. District Judge David O. Carter, who ruled in Los Angeles on a suit stemming from Brookstreet’s sales of collateralized mortgage obligations to more than 1,000 investors for whom the securities were unsuitable, the SEC said in a statement. Brooks, who ran the Irvine, California-based brokerage before it ceased operations in 2007, was sued in 2009, the SEC said.
The fraud contributed to the firm’s collapse, the SEC said.
The SEC is awaiting a federal court ruling on its claims against eight Brookstreet brokers tried in Florida last year on allegations they misrepresented similar securities. The agency settled with two other brokers in the Florida case.
Gregory J. Sherwin, who was listed in court documents as an attorney for Brooks, didn’t immediately return a telephone call seeking comment.
Bove Says Dodd-Frank ‘Very Negative’ for Small Banks
Richard Bove, an analyst at Rochdale Securities LLC, talked about the impact of the Dodd-Frank financial regulatory overhaul law on the U.S. banking industry.
Bove, who spoke with Betty Liu on Bloomberg Television’s “In the Loop,” also discussed the outlook for Bank of America Corp.
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Wilson Says Dodd-Frank Act Created ‘Undue Burdens’
Harry Wilson, a former adviser to President Barack Obama’s Auto Task Force, talked about the impact of the Dodd-Frank Act on financial markets.
Wilson, who spoke with Betty Liu on Bloomberg Television’s “In the Loop,” also discussed the race for the Republican presidential nomination and Obama’s handling of the financial crisis.
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Gensler Warns of Risk of Energy ‘Loophole’ in Swap Dealer Rule
The U.S. Commodity Futures Trading Commission should limit the costs of the Dodd-Frank Act’s swap dealer regulation for commercial companies without creating a loophole for BP Plc (BP) and other energy firms, said Gary Gensler, the agency’s chairman.
The CFTC is preparing to complete a final regulation defining which banks, hedge funds, energy firms and other companies will be swap dealers and will face the highest capital and collateral requirements to reduce risk in the swaps market. The law is “very clear” and applies to financial and non- financial companies that are engaging in dealing activity, Gensler told reporters after a speech at George Washington University.
In 2000, certain electronic markets were excluded from commission oversight under the so-called Enron loophole, named for the energy company that collapsed in late 2001. “I think it would be a mistake to end up with what would be sort of this era’s BP loophole,” Gensler said.
The agency may vote on the swap dealer rule on March 20, a person briefed on the matter said last week.
Comings and Goings
Obama NLRB Recess-Appointment Challenge Rejected by Judge
A judge rejected a challenge to U.S. President Barack Obama’s recess appointments to the National Labor Relations Board, calling it a “political dispute.”
U.S. District Judge Amy Berman Jackson in Washington March 2 said the National Federation of Independent Business and other trade groups “attempted to shoehorn a challenge” to the recess appointments into a case over a rule mandating that companies notify workers of their rights to form a union.
Karen Harned, executive director of NFIB’s Small Business Legal Center, said in an e-mailed statement that the group will appeal the rulings.
The Washington lawsuit is one of at least four labor cases where parties have argued that the recess appointments were unconstitutional, thus leaving the board without a quorum to transact business or enforce regulations.
The case is National Association of Manufacturers v. National Labor Relations Board, 11-cv-01629, U.S. District Court, District of Columbia (Washington).
EU Weighs Quotas as Firms Fail to Add Female Board Members
The European Union’s justice chief Viviane Reding is weighing possible quotas to promote more women to board level after companies made “limited progress” on redressing the gender imbalance.
Reding last year asked businesses to appoint more women to company boards. LVMH Moet Hennessy Louis Vuitton SA is among only 24 companies that signed to increase female board members to 30 percent by 2015 and 40 percent by 2020. The European Commission will now weigh “possible action at EU level, including legislative measures,” she said in a statement today. Regulators will decide on their next steps later this year.
Reding is “very disappointed because there have been a lot of nice words and very few deeds” toward bringing women into boardrooms, she said in an interview with Bloomberg TV. “The companies last year told me ‘we will do that by ourselves.’”
British companies may face quotas unless they promote more women to board level, U.K. Prime Minister David Cameron said last month, arguing that businesses are “failing” the economy by not having enough females in senior positions.
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