BlackRock Inc. (BLK), the world’s largest asset manager, warned against over-regulation of market indexes in the wake of the London interbank offered rate-rigging scandal.
Most indexes are based on transaction data and would be burdened by extra costs if they are subjected to regulation, BlackRock managing directors Richard Prager and Stephen Fisher said in a response to proposals from the International Organization of Securities Commissions on reforming global benchmarks.
Prager and Fisher made the statements in a letter dated May 16 and released yesterday by Iosco.
“The cost would ultimately be passed onto the end investor, undermining the core benefits of low-cost passive funds, whilst presenting barriers to entry for new market participants,” they wrote.
Global regulators are working on alternatives to Libor after U.S. and U.K. officials uncovered attempts by banks to manipulate the benchmark rate. Royal Bank of Scotland Group Plc, UBS AG (UBSN) and Barclays Plc (BARC) have been fined a total of about $2.5 billion and at least a dozen firms remain under investigation.
Iosco received more than 40 responses to the consultation, which was led by U.S. Commodity Futures Trading Commission Chairman Gary Gensler and U.K. Financial Conduct Authority Chief Executive Officer Martin Wheatley. Madrid-based Iosco, which brings together markets regulators for more than 100 nations to coordinate their rule-making, will publish final standards later this year.
Iosco responded to the interbank-rate scandal last year by announcing the task force, which is reviewing benchmarks across different financial sectors.
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EU Short-Selling Curbs Made Markets More Stable, Regulator Says
European Union curbs on short selling and naked credit-default swaps made financial markets more stable without increasing government borrowing costs, according to a report by the bloc’s top securities regulator.
The rules, introduced last November, triggered “no compelling impact” on the liquidity of EU government bond markets, the European Securities and Markets Authority said in an e-mailed statement. Still, the EU should make some technical changes to the law to clarify the rules for trading credit-default swaps linked to sovereign debt, the Paris-based ESMA said.
Lawmakers approved the curbs in 2011 in a bid to make markets less volatile and tame speculation by traders who they blamed for driving up governments’ borrowing costs. The rules included a ban on investors’ buying and selling credit-default swaps on sovereign debt unless they have a clear financial stake in whether the government defaults. Nations can opt out if they are concerned about raised borrowing costs.
The U.K. is seeking to overturn the law at the European Court of Justice, claiming that powers handed to ESMA by the legislation are in breach of the bloc’s treaties. The law gives ESMA the power to introduce pan-EU short-selling bans.
Separately, banks in Europe will have to detail their activity by country as part of new transparency measures France wants, French Finance Minister Pierre Moscovici said in an interview with France Info radio.
The scope of disclosure remains to be defined, Moscovici said.
Canada Watchdog Limits Cancellation Fees to Protect Consumer
Canada’s wireless regulator issued a code of conduct for the country’s carriers that will allow users to terminate contracts after two years without cancellation fees and limit extra data and roaming charges.
The guidelines released yesterday by the Canadian Radio-Television and Telecommunications Commission will go into effect for new contracts on Dec. 2, the agency said in a statement.
Jean-Pierre Blais, chairman of the CRTC, who foresees “a more dynamic marketplace,” is reacting to Canadian consumer demands for more clarity on mobile-phone bills and relief from three-year contracts the three largest providers typically insist on. In the U.S., most contracts last two years and T-Mobile US Inc. (TMUS) recently introduced a plan that allows customers to pay for smartphones over time but not be committed to two years of monthly service fees.
In addition to the contract-length and other changes, wireless operators won’t be able to charge cancellation fees that exceed the “device subsidy” for users who end contracts before two years.
EU Seeks Role in Bank Shutdowns That Goes Against German Plan
The European Commission is seeking to give itself the power to shut down failing euro-area banks as part of a draft crisis blueprint that defies German calls for a more decentralized approach.
The Brussels-based authority is set to propose that decisions to force losses on crisis-hit lenders’ creditors, as well as other steps to prevent a disorderly collapse, should be taken largely out of national hands, according to a document obtained by Bloomberg News. While the system would include a “newly-created central resolution body,” final decisions would be taken by the commission itself.
The move puts the commission at odds with Germany (GDBR10), which seeks a centralized approach to bank resolution in the euro area. German Finance Minister Wolfgang Schaeuble has warned that a strong single authority couldn’t be set up under the EU’s current treaties, and that the euro area should opt in the first instance for a networked approach that is reliant on national regulators.
Both the European Central Bank and the commission have, instead, urged rapid progress toward a centralized system in a bid to bolster confidence in the bloc’s banks, and break the financial link between lenders and sovereigns.
Under the commission’s draft blueprint, to be discussed by the institution’s 27-member college tomorrow, an executive board at the central resolution agency would prepare draft decisions for the commission. It would also be able to initiate some measures itself, such as authorizing on-site inspections of banks.
Rengan Rajaratnam Had Plea Talks With U.S. Over Charges
Rengan Rajaratnam, younger brother of imprisoned hedge-fund founder Raj Rajaratnam, has been in plea to resolve his criminal insider-trading prosecution, the U.S. said.
Rajaratnam was indicted in March and accused of conspiring with his brother to trade on material nonpublic information about Clearwire Corp. (CLWR) and Advanced Micro Devices Inc. (AMD) The U.S. charged him with one count of conspiracy to commit securities fraud and six counts of securities fraud. Conspiracy carries a maximum five-year prison sentence, fraud a 20-year maximum.
At his arraignment on March 25 in Manhattan, Rajaratnam pleaded not guilty.
In a May 30 letter, Assistant U.S. Attorney David Massey asked the judge for a delay in the case, which was granted yesterday. Massey said that after Rajaratnam was arraigned, the U.S. Attorney’s Office provided evidence compiled by the government, including wiretap transcripts, summaries and trading records to his defense lawyers, “in order to facilitate plea discussions with the defense.”
Vinoo Varghese, a lawyer for Rajaratnam, said last week that a scheduled June 4 hearing probably will be delayed in order for the defense to review the evidence. Varghese yesterday declined in an e-mail to comment about plea negotiations.
Raj Rajaratnam is serving an 11-year prison sentence after being convicted in 2011 on 14 counts of conspiracy and securities fraud.
The criminal case is U.S. v. Rajaratnam, 13-cr-00211, U.S. District Court, Southern District of New York (Manhattan); the civil case is SEC v. Rajaratnam, 13-cv-01894, Southern District of New York (Manhattan).
Ex-Porsche CFO Haerter Convicted Over Loan in Failed VW Bid
Former Porsche SE Chief Financial Officer Holger Haerter was fined 630,000 euros ($824,000) by a German court for credit fraud in a criminal case over the refinancing of a 10 billion-euro loan during a failed bid to buy Volkswagen AG (VOW) in 2009.
Haerter downplayed Porsche’s liquidity needs and failed to disclose the correct number of put options on VW shares Porsche held during negotiations with BNP Paribas SA (BNP) about the lender’s 500 million-euro share of the syndicated loan, Presiding Judge Roderich Martis said as he delivered the verdict of the Stuttgart Regional Court.
Today’s case is the first criminal verdict in a string of proceedings related to the takeover bid in which Porsche was using an options strategy. Stuttgart-based Porsche is also facing civil suits seeking a total of about 5.5 billion euros in Germany, and prosecutors have extended their market-manipulation probe to cover the 2008 members of Porsche’s supervisory board.
“Many things said were wrong -- we will appeal,” Haerter said after his conviction. “We are sure we will win.”
In a separate indictment in December, prosecutors charged Haerter and former Chief Executive Officer Wendelin Wiedeking over the use of VW options in the bid. It’s not yet been decided whether that case, in which both have denied wrongdoing, should go to trial.
Porsche spokesman Albrecht Bamler declined to comment.
Total CEO Denies Bribes Were Paid on Iranian Gas Contracts
Total SA (FP) Chief Executive Officer Christophe de Margerie, who may be put on trial in France for corruption related to Iranian contracts, denied the company paid bribes for the gas permits.
“What we did wasn’t illegal according to French law,” de Margerie said on LCI television June 2. “We didn’t pay bribes, we didn’t pay Iranian authorities. Our contracts weren’t illegal.”
The Paris prosecutor recommended last week that the company and its CEO, along with two other people, face trial on corruption charges. An investigating magistrate will decide whether a trial will be held.
Total agreed last week to pay $398 million to settle U.S. allegations it made illegal payments to an Iranian official for oil-and-gas contracts that date from the mid-1990s.
Total is barred from commenting on the U.S. settlement, de Margerie said June 2 in his first public comments since last week’s announcements. Total is “more free” to talk about the French case, he said.
“What we did was legal,” he said. “There were no commissions. There were no kickbacks.”
Total, Europe’s third-largest oil company, was charged in federal court in Alexandria, Virginia, last week with three counts of violating the Foreign Corrupt Practices Act as part of a deferred-prosecution agreement. The company also resolved related allegations with the U.S. Securities and Exchange Commission in an administrative case.
A trial on the Iran orders would be the second one for de Margerie related to business in the Middle East. A ruling on the other case, relating to the United Nations oil-for-food relief program for Iraq, has not yet been made.
Davies Says U.S. Risks Dismantling Global Banking
Howard Davies, a former chairman of the Financial Services Authority in the U.K., said a proposal that would require added capital for foreign banks operating in the U.S. would slow bank lending. Davies talked with Bloomberg’s Tom Keene and Michael McKee on Bloomberg Radio’s “Bloomberg Surveillance.”
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EU Weighing Crowd-Financing Rules to Protect Users, Barnier Says
Michel Barnier, the European Union’s financial services chief, said that the bloc is considering proposing rules to spur the development of crowd financing, while protecting entrepreneurs and companies.
He made the remarks at a conference in Brussels yesterday.
Crowd-financings services manage Internet sites that allow entrepreneurs to appeal for funding for specific projects, and so to raise financing from a large number of individual contributors.
Levitt Says Withdrawals from SAC Fund Understandable
Arthur Levitt, former chairman of the Securities and Exchange Commission, said investigators’ focus on SAC Capital Management “has got to impact performance as well as morale” at the hedge fund. Levitt talked with Bloomberg’s Tom Keene and Michael McKee on Bloomberg Radio’s “Bloomberg Surveillance.”
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Comings and Goings/Executive Pay
Bank of Israel Proposes Tighter Rules on Bank Managers’ Salaries
The Bank of Israel proposed tighter rules on bank managers’ salaries, according to an e-mail released by the central bank yesterday.
The draft rules propose that commercial bank executive bonuses be linked to company performance. The rules would also have banks’ salary committees set in advance a maximum ratio between fixed and variable salary.
Israeli banks have high salaries and low efficiency compared to banks worldwide, the supervisor of banks said the statement.
SEC Chairman White Appoints Robert E. Rice as Chief Counsel
Robert E. Rice was appointed as chief counsel at the U.S. Securities and Exchange Commission, SEC Chairman Mary Jo White said in an in e-mailed statement yesterday.
In the role of chief counsel, Rice, 57, will provide legal and policy advice to White as well as counsel the agency “on a wide variety of regulatory matters,” according to a statement on the SEC’s website.
Rice, a former federal prosecutor, was head of governance, litigation and regulation for the Americas at Deutsche Bank in N.Y.
German Energy Watchdog Starts Staffing Insider Trading Unit
Germany’s power and natural-gas grid regulator has appointed more than half the employees it’s seeking for a new unit to combat potential market manipulation in the region’s biggest energy market.
Bundesnetzagentur, based in Bonn, plans to have about 30 people enforcing the European Union’s regulation on wholesale energy market integrity and transparency, known as Remit, according to Jochen Homann, who heads the agency. The watchdog already has 17 people working on the project to collect and check information from power and gas traders active in Germany starting in the middle of 2014.
Homann described the project as “huge,” in an interview at his office in Bonn.
Remit, which came into force in December 2011, is part of the EU’s campaign to clamp down on insider trading and manipulation in the region’s 900 billion-euro ($1.2 trillion) power and gas markets. Regulators say the low level of transparency comes at the expense of private and industrial consumers who pay more to heat their homes or keep factories running if prices are artificially high.
The European Commission raided the offices of major oil production and trading companies last month, seeking information on potential price fixing. In Germany, the Hamburg tax office said May 30 it was probing possible cases of fraud in the power and gas market.
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Dozens of CFPB Staffers Left Agency in Recently, Politico Says
Chief of Staff Garry Reeder, left the Consumer Finance Protection Bureau May 20 to join a consulting firm founded by former Deputy Director Raj Date, who departed in January, Politico reported.
Chris Haspel, senior adviser on servicing and securitization, and Mitch Hochberg, senior counsel on the rule-writing team, will also join Date’s firm. Of 13 regulations lawyers who moved to CFPB from the Federal Reserve, 10 have left. At least three returned to the Fed.
The CFPB workforce is 1,200, including 300 hires in 2013.
“We have consistently met our deadlines,” a CFPB spokeswoman said, adding that staffing issues haven’t slowed down the bureau, according to Politico.
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