Cheetah Rules, Wal-Mart Monitor, Citigroup: Compliance
Commodity Futures Trading Commissioner Bart Chilton said in speech yesterday in Dallas that high-frequency traders, known as cheetahs, need to be registered, and should be required to be tested before introduced into the trading environment, according to remarks prepared for delivery.
He said it should be mandatory to have kill switches in event of cheetah programs going feral. Cheetahs should be required to create pre-trade risk controls to prevent cross- trading, he said. Chilton also recommended penalties if there is a flash crash.
Separately, high-frequency traders should be registered, and traders who violate his proposed rules should be penalized on a per-second basis, Chilton said yesterday in a Bloomberg Television interview.
Wal-Mart Creates Overseas Monitor Role Amid Corruption Probe
Wal-Mart Stores Inc. (WMT), the world’s largest retailer, created a position to monitor its international business units amid a bribery probe at the company’s Mexico operations.
Daniel Trujillo will start as senior vice president and chief compliance officer of its international operations on Oct. 29, according to a company memo. Trujillo will be responsible for reviewing, assessing and integrating compliance outside the U.S., Wal-Mart said.
The U.S. Justice Department and the U.S. Securities and Exchange Commission are investigating possible violations of the Foreign Corrupt Practices Act. The government agencies are probing allegations that Wal-Mart systematically bribed Mexican officials so it could more quickly open stores.
“Wal-Mart is committed to having strong and effective compliance programs around the world,” David Tovar, a Wal-Mart spokesman, said in an e-mailed statement. “Over the past 18 months, we have made improvements to our global compliance programs and have taken a number of specific, concrete actions with respect to our processes, procedures and people.”
The Wall Street Journal reported the hiring earlier yesterday.
Nomura Gets Biggest Fine in 12 Years by Japan Brokers Group
Nomura Holdings Inc. (8604) was fined 300 million yen ($3.8 million), the biggest penalty by the Japan Securities Dealers Association against any firm in 12 years, after employees leaked information on clients’ plans.
The Nomura Securities Co. domestic brokerage unit lacked internal controls to safeguard information on share sales it managed in 2010, the self-regulatory group for brokers said in a statement on its website yesterday. The fine follows an Aug. 3 order by regulators that Tokyo-based Nomura, Japan’s biggest brokerage, improve compliance.
Brokerages in Japan are seeking an end to a crackdown on confidentiality breaches that cost Nomura’s two top executives their jobs and implicated staff from at least four securities firms.
Japanese politicians have urged that rules barring the government from imposing fines against companies that leak information be toughened. The Financial Services Agency is preparing legislation that would establish penalties for tipsters and impose stricter punishment for insider trading.
Nomura said in June that employees provided information on offerings it arranged for Mizuho Financial Group Inc. (8411), Inpex Corp. (1605) and Tokyo Electric Power Co. (9501) to traders who sold the stocks before the deals were announced in 2010.
The revelations tarnished Nomura’s reputation and led it to lose underwriting deals. Nomura’s fine exceeds the 200 million yen the dealers’ association imposed on SMBC Nikko Securities Inc. (8316) in June and was the biggest since Minami Securities was docked 500 million yen in 2000.
Turkey Loopholes on Terror Finance Risk OECD Blacklist
Turkey has failed to tighten laws blocking financing of terrorist groups, and risks being put on a list of non-complying countries that includes Iran and North Korea, said academics and analysts from Istanbul to Washington.
The Financial Action Task Force sponsored by the Organization for Economic Cooperation and Development warned in June it would “call upon its members to apply countermeasures” against Turkey if rules weren’t tightened by October. Kenya and Myanmar are the other two countries at risk of joining the blacklist. The group meets in Paris today to address the issue.
OECD concerns include inadequate monitoring of bank transfers and unwillingness to freeze accounts. A terror financing bill drafted to address them is still held up in Turkey’s parliament.
Hakki Koylu, deputy chairman of parliament’s Justice Committee, said Turkey is “already implementing measures against terrorist financing” and can freeze assets where needed under existing laws. He said the government backs the new rules required by the OECD, and the only reason they haven’t made it onto the statute books is that “parliament’s agenda is just busy.”
Turkey is non-compliant with 10 out of 40 Task Force recommendations, and only fully compliant with three, according to Safak Herdem, a partner at Istanbul law firm Herdem & Co. and author of a study on the issue.
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U.K.’s FSA Tells RBS to Consider Selling Unit, Sky Says
The U.K.’s Financial Services Authority Managing Director Andrew Bailey said in letter to Royal Bank of Scotland Chief Executive Officer Stephen Hester last week that selling the Citizens unit and shrinking global banking and markets operations could help boost its capital position, Sky reported, without saying where it got the information.
U.K. Financial Investments, which manages the government’s 82 percent stake in Royal Bank of Scotland, gave the bank a similar message previously, according to Sky.
The FSA and the bank declined to comment on the matter, Sky reported.
Hedge Fund Ikos Can’t Search Ex-Employee Computers, Judge Rules
Ikos Asset Management Ltd. affiliates lost a bid for a court order to search the computers of former employees Sam Gover and Peter Ho for confidential information and software it says was taken from the hedge fund.
Judge Timothy King in London rejected an application made by Ikos Cif Ltd. and Phaestos Ltd. in a written decision yesterday, saying it was “in truth an unjustified fishing expedition” to find evidence of wrongdoing.
Gover and Ho are involved in separate lawsuits against Ikos claiming they are owed 6 million pounds ($9.7 million) in unpaid bonuses. Ikos is also suing them for the return of 12 million pounds in bonus payments because they didn’t comply with their duties, King said in the ruling.
Gover and Ho now run hedge fund Altiq LLP, which competes with Ikos, according to the ruling. Ikos claimed in its lawsuit that the men took information about the fund’s profits and bonus payments and may have used its software. There is no evidence the pair misused any information, King said.
Jonathan Chamberlain, the lawyer representing Gover and Ho, declined to comment in an e-mail. Ikos’s lawyer, Alan Watts, didn’t immediately respond to an e-mail seeking comment.
Ex-Banker Girlfriends Doubled Cash on Insider Tips, FSA Says
Christina Weckwerth and Jessica Mang, two girlfriends of former Mizuho International Plc investment banker Thomas Ammann, reaped returns of more than 2 million pounds ($3.2 million) trading on illegal tips about Canon Inc. (7751)’s acquisition of OCE NV, prosecutors said.
Both women paid half the profits they made to Ammann, Amanda Pinto, a lawyer for the U.K. Financial Services Authority, said in opening arguments at a London criminal court yesterday.
Weckwerth and Mang were each charged with one count of insider trading relating to events that occurred in 2009. They have pleaded not guilty. Insider trading in the U.K. can be punished by as much as seven years in prison.
Canon, the Tokyo-based maker of cameras and photocopiers, agreed to buy OCE in a 730 million-euro deal in November 2009.
Ammann, who worked for the Mizuho mergers and acquisitions team that advised Canon on the deal, pleaded guilty earlier this year to insider trading and encouraging both women to commit insider trading, Pinto said.
UBS Fixed Trading Loophole Used by Adoboli, Risk Officer Says
UBS AG (UBSN) fixed a loophole allegedly used by former trader Kweku Adoboli to hide unauthorized transactions by giving them long-term settlement dates, the bank’s risk officer said at a London criminal trial.
The bank’s system for flagging extended trades with settlement periods longer than 14 days -- and calling their counterparties for verification -- stopped functioning and was reinstated after Adoboli was arrested last year for allegedly causing a $2.3 billion loss, Colin Bell, the bank’s global head of operational risk, said in a London court yesterday.
Prosecutors have said Adoboli, who is on trial for fraud and false accounting, hid the risk of his trades by booking fake hedges while he worked at the exchange-traded funds desk in London. He’s also accused of creating a secret internal account, his so-called umbrella, where he parked trading profits to cover future losses. Adoboli, 32, has pleaded not guilty and his lawyers have sought to show he didn’t act alone and traders were encouraged to exceed trading limits to increase profits.
Banks’ Capital Gap May Threaten U.K. Lending, FSA’s Bailey Says
Some U.K. banks may have a “capital gap” that could limit their ability to lend to businesses and households, said Andrew Bailey, head of banking supervision at the Financial Services Authority.
The gap, the difference between the book value and market value of banks’ capital, must be dealt with by regulators to ensure the U.K.’s economic recovery, Bailey said in a speech in London today to business executives.
“The danger of a very slow resolution of the capital gap is that new lending to the economy is seriously restrained,” Bailey said, according to an e-mailed copy of his prepared remarks.
Lending growth has remained slow despite the FSA relaxing guidance on how U.K. banks calculate liquidity and capital buffers, according to the regulator. The FSA last month relaxed the amount of funds U.K. banks must keep in reserve in an effort to spur lending and stimulate credit growth.
The full answer to the capital gap isn’t yet clear, Bailey said today, and possibilities include encouraging lenders to raise new capital and to allocate existing reserves to growth- inducing lending.
One option could be to encourage banks to issue so-called contingent convertible bonds, or CoCos, a form of fixed income security that would automatically convert into ordinary shares if a bank’s capital falls through a pre-fixed floor.
Levitt Sees ‘Other Changes’ at Citigroup
Pandit was replaced by Michael Corbat, who led Citigroup in Europe, the Middle East and Africa. Levitt, a Bloomberg LP board member, spoke with Erik Schatzker and Stephanie Ruhle on Bloomberg Television’s “Market Makers.”
For the video, click here and for more, see Comings and Goings, below.
Comings and Goings
Citigroup Expanded Shadow Banking as Pandit Urged Regulation
Vikram Pandit, who abruptly resigned yesterday as chief executive officer of Citigroup Inc., was among the most vocal critics of shadow banking, the lightly regulated lending that can mask risk in the financial system. He was also among the kings of the business.
Under Pandit, Citigroup arranged more than $7 billion of collateralized loan obligations in the U.S. this year through September, three times as much as the same period in 2011 and more than any other lender, according to data compiled by Bloomberg and Morgan Stanley. The bank also caters to money- market funds, managed share sales in mortgage real estate investment trusts and runs a stable of internal credit funds.
All are part of a shadow-banking system that offers complex forms of credit and that led to billions of dollars in losses during the financial crisis. While regulators from Washington to Brussels say they’re scrutinizing this lending to prevent another calamity, banks including Citigroup, Goldman Sachs Group Inc. (GS) and JPMorgan Chase & Co. (JPM) are among its biggest enablers.
Pandit, 55, criticized lawmakers for neglecting unregulated entities while saddling lenders such as his with restrictions.
Shadow-banking assets in 11 countries including the U.S. have more than doubled since 2002 to $51 trillion, an amount equal to about half of total bank assets in those nations, according to a 2011 report by the Financial Stability Board, which coordinates the work of regulators, central bankers and policy makers.
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Euroclear’s Wicks Replaces Barclays’s Agius as BBA Chairman
The British Bankers’ Association, the lobby group that oversees Libor, said Euroclear SA’s Nigel Wicks will replace Marcus Agius as chairman in the wake of the rate-rigging scandal.
Wicks’s appointment was announced today at the BBA’s international banking conference in London, the group said in a statement. Wicks, a former British civil servant, is chairman of Brussels-based Euroclear and is due to retire from the trade- settlement company in January.
As a civil servant, Wicks, 72, was private secretary to three British prime ministers, Margaret Thatcher, James Callaghan and Harold Wilson. The former U.K. executive director of the World Bank and the International Monetary Fund was also a member of the European Union’s so-called Committee of Wise Men on European Securities Regulation from 2000 to 2001.
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