Relaxing Yuan, EBA Moral Bonuses, Schapiro: Compliance

China may relax or abolish a rule that requires Renminbi Qualified Foreign Institutional Investors to keep most of their funds in bonds, according to the Hong Kong Monetary Authority, a move that may boost demand for stocks.

The first batch of yuan QFII funds, approved in December 2011 with a 20 billion-yuan quota, are required to invest at least 80 percent of their assets in bonds, with the rest going into equities or kept as cash.

China Securities Regulatory Commission Chairman Guo Shuqing has cut trading fees, pushed companies to increase dividends and allowed trust companies to buy equities since taking over a year ago, in an effort to shore up China’s stock market. The benchmark Shanghai Composite Index is headed for its third straight year of declines.

China may also expand the RQFII program, which now is open only to Hong Kong units of Chinese financial companies, to include institutions based in the city, said Norman Chan, chief executive of Hong Kong’s de facto central bank. Guo supports opening the program to all types of Hong Kong-based financial institutions, Chan told reporters in Beijing after meeting with Guo.

Hong Kong’s biggest banks have been lobbying China to relax restrictions on yuan businesses in the city as competition from London, Singapore and Taiwan intensifies.

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Separately, China scrapped a ceiling on investments by overseas sovereign wealth funds and central banks in its capital markets, part of government efforts to encourage long-term foreign ownership and shore up slumping equities.

SWFs, central banks and monetary authorities can now exceed the $1 billion limit that still applies to other qualified foreign institutional investors, according to revised regulations posted Dec. 13 on the State Administration of Foreign Exchange’s website.

Introducing more long-term funds from abroad will help improve market confidence, promote stable growth in capital markets and provide “robust” investment returns to domestic investors, the regulator said in May, a month after the government more than doubled the total quota for QFIIs to $80 billion from $30 billion.

QFIIs can repatriate their principal and investment returns after a lock-up period ends, though the monthly net remittances cannot exceed 20 percent of their total onshore assets as of the previous year, according to the Dec. 13 rules. Open-ended China funds can remit funds on a weekly basis under the new regulation, compared with monthly in the previous version announced in 2009.

Compliance Policy

Bonus Disclosures Risk Backfiring by Boosting Broker Pay Demands

Forcing Wall Street brokers to disclose bonuses they receive to switch firms is likely to backfire on the industry as workers use the information to seek higher pay, recruiters and former brokers said.

The Financial Industry Regulatory Authority, Wall Street’s self-regulator, is seeking public comment on a plan meant to protect customers by requiring brokers to disclose incentives when changing employers. Conflicts may arise if payments encourage brokers to push products to clients that aren’t needed or suitable. The rules would apply only to bigger brokerages that can afford to pay up-front bonuses for new recruits.

Approval of the plan may mean leverage for brokers to demand higher pay, said David Glazer, president of New York- based ECG Resources Inc., which recruits brokers with clients who have at least $25 million to invest.

Finra’s board of governors voted to begin the public comment period, which typically lasts one to two months. The plan would need approval from the U.S. Securities and Exchange Commission. Nancy Condon, a Finra spokeswoman in Washington, said she couldn’t comment on whether the board of governors contemplated how the plan might influence compensation discussions before it sought comment.

“The focus of this proposal is investor protection,” Condon said in an e-mailed statement. “It is important to make sure that investors have all relevant information when they are considering a move to a new firm.”

Liz Pierce, a spokeswoman for the Securities Industry and Financial Markets Association, said it’s too early to comment on the proposal.

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Japan May Keep 5% Cap on Bank Ownership of Companies, Panel Says

Banks may be allowed to hold more than 5 percent stakes in companies that are facing rehabilitation by local or central governments, a Financial Services Agency panel said in a discussion paper.

The document was distributed by the panel on bank regulations after it met in Tokyo Dec. 13. The panel has been considering raising the cap.

The panel, under the prime minister’s financial advisory committee, has been discussing measures to strengthen financial crisis response preparedness.

Bonuses Paid in Subordinated Debt Should Be Mandatory, EBA Says

Senior bankers should be required to receive some of their annual bonus in bonds that would suffer losses during a financial crisis, Europe’s top banking regulator said.

A “mandatory share” of bonuses for top management should be paid in so-called bail-in bonds, which can be written down when the lender’s capital dips below a safe level, the European Banking Authority said in an opinion on proposals to separate banks’ commercial and investment units.

The EBA said such measures may contribute to overall efforts to “reduce moral hazard.”

Michel Barnier, the European Union’s financial services chief, has said that he’s weighing proposals made by an advisory group led by European Central Bank Governing Council member Erkki Liikanen. The measures, which would force lenders to set up legally separate trading entities, are a “good basis” for future EU policy making, Barnier has said.

Compliance Action

ECB Set to Directly Supervise 80% of Euro-Area Banking Assets

The European Central Bank is set to directly supervise about 150 banks, accounting for about 80 percent of the euro area’s banking assets, according to tentative estimates given by a European Union official.

The percentage of banking assets subject to direct ECB supervision will be highest in nations with highly concentrated banking industries such as the Netherlands, said the official, who isn’t authorized to be identified, in line with EU policy.

The ECB will take on bank oversight duties by March 2014, or whenever the central bank says it is ready, under an accord reached by finance ministers last week.

Structured Products Facing Mis-Selling Risks Cautions Regulator

Near-zero interest rates in Europe are causing investors to seek higher-yielding assets and could lead to improper sales of structured products to individual investors, according to a market regulator.

Paris-based European Securities and Markets Authority will need to remind European supervisors and banks about proper selling practices for complex investments such as structured products, ESMA Chairman Steven Maijoor said in a Dec. 12 speech. His comments echo remarks from Richard Ketchum, chief executive officer of the U.S. Financial Industry Regulatory Authority, who said Sept. 27 regulators may need to increase oversight if banks don’t clamp down on improper sales practices.

Supervisors are paying particular attention to the quantity and quality of information provided to investors by product creators and distributors to enhance transparency in Europe’s 820 billion-euro ($1.1 trillion) market for individual investors.

European Union-wide regulations for structured products, which will require banks to provide so-called key information documents for the products they sell to describe the main characteristics and risks, could be in place by the end of 2014.

Monte Paschi Rescue Aid Wins Temporary Approval From EU

Banca Monte dei Paschi di Siena SpA won temporary European Union approval for a 3.9 billion-euro ($5.1 billion) recapitalization from the Italian government to help it meet minimum capital requirements.

Monte Paschi, the world’s oldest bank, must submit a restructuring plan within six months before regulators can make a final decision on the state aid, the European Commission said in an e-mailed statement today. The EU has to approve large state payments to banks and can require lenders to shed businesses to compensate for the harm the aid may cause rivals.

“The commission found that the recapitalization of Monte Paschi through hybrid capital is necessary to preserve the stability of the Italian financial system,” the Brussels-based authority said in the statement.

Monte Paschi is the only Italian bank still lacking minimum capital requirements set by the European Banking Authority. The Siena-based bank is borrowing the funds by selling bonds to the state and giving shares to the Treasury instead of interest on the debt if it reports an annual loss. The bank must give shares to the government at market value instead of the higher book value, the Italian government said last week.

Monte Paschi and the Italian Finance Ministry declined to comment on the EU announcement.

Courts

Four Charged in U.K. for Bribing Nigerian Officials to Cut Taxes

Four former Swift Technical Energy Solutions Ltd. employees were charged with conspiring to bribe Nigerian officials to lower the taxes their workers paid in the country.

Three men and one woman, all British nationals, were charged this morning at a London criminal court following a two- year probe of the company, which is a Nigerian subsidiary of the Swift Group companies, the U.K. Serious Fraud Office said in an e-mailed statement today.

The defendants -- a former chief financial officer, tax manager, financial controller and area director for Nigeria -- allegedly paid a total of 180,000 pounds ($292,000) in bribes in 2008 and 2009 to agents of the Rivers State Board of Internal Revenue and the Lagos State Board of Internal Revenue, according to prosecutors.

The defendants were released on bail.

Weavering Founder Charged With Fraud Over Hedge Fund’s Collapse

Weavering Capital (UK) Ltd. founding director Magnus Peterson was charged by British prosecutors with fraud and fraudulent trading over the collapse of the hedge fund in 2009.

Peterson, 49, was also charged with false accounting and forgery in the six years leading up to Weavering’s demise, the Serious Fraud Office said Dec. 14in an e-mailed statement. The fund had about $640 million under management in late 2008. It collapsed in March 2009 and was put into administration.

Weavering was an English incorporated firm whose primary function was to act as investment adviser to the Cayman Islands- based Weavering Macro Fixed Income Fund Ltd., the SFO said. Peterson is a Swedish citizen living in Kent, England.

The SFO reopened its probe into Peterson and the collapse of the hedge fund in July after the agency’s previous director closed the case last year.

Peterson’s lawyer, Monty Raphael, didn’t immediately respond to a request for comment.

SAC E-Mails Show Cohen Consulted on Dell Trade at Heart of Probe

Two days before Dell Inc. (DELL) was set to report second-quarter 2008 earnings, Jon Horvath, a technology analyst at SAC Capital Advisors LP, e-mailed his boss Michael S. Steinberg and another portfolio manager to warn that the computer maker would miss earnings estimates.

“I have a 2nd hand read from someone at the company,” Horvath began the Aug. 26 message, which provided details on gross margins, expenditures and revenue. “Please keep to yourself as obviously not well known.”

Steinberg, a 15-year veteran of the hedge fund founded by billionaire Steven A. Cohen, responded: “Yes normally we would never divulge data like this, so please be discreet. Thanks.”

The e-mails indicate Steinberg, the longest-serving SAC employee linked to the U.S. insider-trading probe, discussed the Dell trade with Cohen. While neither has been accused of any wrongdoing, the messages were admitted as evidence at the New York insider-trading trial of two hedge-fund managers last week after a judge ruled they supported prosecutor claims that Steinberg should be considered an unindicted co-conspirator.

Steinberg, 40, worked at SAC’s Sigma Capital Management unit and was one of 15 portfolio managers handling technology, media and telecommunications stocks before he was placed on leave in September.

SAC, which is based in Stamford, Connecticut, and manages $14 billion, was told by the Securities and Exchange Commission that the agency is considering pursuing civil fraud claims related to alleged insider trading by former SAC portfolio manager Mathew Martoma, who traded stocks of two drug makers.

Horvath pleaded guilty to conspiracy and securities fraud in September related to the Dell trade and said he had passed confidential information to his portfolio manager, who, he said, traded on the tips.

Jonathan Gasthalter said last month that Cohen and SAC are confident they acted appropriately and will continue to cooperate with the government’s inquiry. He declined last week to comment on the Dell e-mails. Steinberg’s lawyer, Barry Berke, declined to comment on the e-mails or the judge’s ruling.

The e-mail case is U.S. v. Newman, 1:12-cr-00121, U.S. District Court, Southern District of New York (Manhattan).

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Interviews

SEC’s Mary Schapiro Looks Back Over Four Years as Chairman

Mary Schapiro, on her last day as chairman of the Securities and Exchange Commission, said she entered her position during “a pretty dark time” and doesn’t know what she “could have done differently” after four years.

She added that she sees broad agreement to increase penalties, and commented that she would have liked to achieve self-funding for the agency.

Schapiro talked with Bloomberg’s Arthur Levitt on Bloomberg Radio’s “Bloomberg Surveillance.”

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Harvard Professor Scott Says Company Fines Miss the Target

Hal Scott, president and director of Committee on Capital Markets Regulation and a professor at Harvard Law School, said regulators should target individual wrongdoing and not impose fines that affect only shareholders.

Scott talked with Bloomberg’s Tom Keene on Bloomberg Radio’s “Bloomberg Surveillance.”

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TARP’s Barofsky Says HSBC Accord Emboldens Banks to Cross Line

Neil Barofsky, former special inspector for the U.S. Treasury’s Troubled Asset Relief Program and Bloomberg Television contributing editor, talked about HSBC Holdings Plc (HSBA)’s agreement to pay $1.92 billion to settle U.S. probes of money laundering in the largest such accord ever.

Barofsky spoke with Stephanie Ruhle and Erik Schatzker on Bloomberg Television’s “Market Makers.”

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Monti Says ECB Will Oversee 15 Italian Banks

Italian Prime Minister Mario Monti talked about European Central Bank oversight of financial institutions and answers questions on whether he will seek election next year.

He spoke at a news conference in Brussels at the conclusion of a leaders’ summit.

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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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