IRS Money Fund Rule, Swiss Banks, Oil Market: Compliance

The U.S. Internal Revenue Service has proposed a change in tax rules to ease the impact on investors should the U.S. Securities and Exchange Commission force some money-market mutual funds to abandon their fixed $1 share price.

The plan, outlined in a notice posted July 3, would exempt small losses on the sale of money-fund shares from the wash-sale rule, which prohibits investors from recognizing a loss when selling a security if they repurchase the same security within 30 days.

SEC commissioners on June 5 approved a proposal aimed at making money funds less susceptible to runs that could destabilize the short-term credit markets in which they invest. One of the options in the proposal would require institutional funds that invest in corporate debt to drop their $1 share price for a floating price that tracks the market value of their holdings.

The IRS invited public comment on the proposal through Oct. 28. The plan falls short of addressing an industry concern that floating-value funds would introduce record-keeping burdens by making small gains and losses taxable transactions, Joan Swirsky, an attorney at Philadelphia law firm Stradley, Ronon, Stevens & Young LLP, said in an interview.

Compliance Policy

Swiss Banks May Lose $522 Million Payment From U.K. Accord

UBS AG, Credit Suisse Group AG (CSGN) and other Swiss banks may lose most of the 500 million-franc ($522 million) guarantee payment they made to the U.K. government as part of a tax deal, the Swiss Bankers Association said.

That payment, under an accord signed by Switzerland and the U.K. in October 2011, covered the failure by bank clients to disclose undeclared money in the past. With fewer untaxed U.K. assets in Switzerland than previously expected, the banks may not be reimbursed by their British customers, the Basel-based association said in an e-mailed statement July 5.

Switzerland and the U.K. signed the agreement to settle a dispute over tax evasion by wealthy Britons holding offshore accounts with Swiss private banks. With many British clients opting for voluntary disclosure and others holding resident non-domiciled status, which means they don’t fall under the withholding tax deal, repayments by bank customers will be smaller than expected, the association said.

The shortfall may cost Credit Suisse as much as 90 million francs, which will be booked in the second quarter, the bank said in an e-mailed statement.

UBS’s share of the upfront payment is approximately 100 million francs, Dominique Gerster, a spokesman for the Zurich-based bank, said in an e-mailed statement.

“We will take into account all information available to us in our assessment of the impact of the arrangement on our second-quarter results,” he said.

Switzerland is trying to shake off its reputation as a tax haven. Under the accord with the U.K., Swiss banks will levy a withholding tax of 27 percent on capital gains earned by Britons with offshore accounts.

Oil Market Harder to Oversee Than Power or Gas, EU Official Says

Oil markets are more difficult to regulate than power and natural gas because they need international rules to govern trading across continents, according to the top aide to European Union Energy Commissioner Guenther Oettinger.

While preventing abuse in power and gas markets is easier because trade in those commodities rarely extends overseas, oil presents a bigger challenge and is too diverse for a single body to monitor effectively, said Philip Lowe, the director general for energy at the European Commission. The bloc’s competition arm is investigating potential price manipulation in crude, refined products and biofuels transactions.

Antitrust officials from the EU’s competition arm raided Royal Dutch Shell Plc (RDSA), BP Plc (BP/), Statoil ASA (STL) and energy news and price publisher Platts in May to investigate allegations of price manipulation and collusion by traders in crude, refined-product and biofuels markets.

Electricity and gas are mostly traded on a national or regional basis because they aren’t as easily stored or transported, whereas oil is shipped around the globe to reach consumers. Europe was the biggest importer of oil last year.

The bloc is discussing whether it should convert proposals by international regulators on oil-price reporting into binding EU law.

Platts is a unit of New York-based McGraw Hill Financial Inc. (MHFI) while ICIS is owned by Reed Elsevier. Bloomberg LP, the parent of Bloomberg News, competes with Platts and other companies in providing energy-markets news and information.

China Securities Regulator Studies Ways to Add A-Shares to MSCI

The China Securities Regulatory Commission is studying technical issues related to so-called A-shares, in addition to the MSCI index with relevant parties, according to a statement posted on the commission’s website.

A-shares are shares of Chinese companies that trade on stock exchanges in China; they are generally unavailable for direct purchase by foreigners.

The commission is also studying reducing administrative approvals needed for mergers, acquisitions and reorganizations, according to the statement.

Separately, the commission granted approval for the China Financial Futures Exchange to start government bond futures trading, according to a statement posted to the commission website. Preparation work for government bond futures trading will take about 2 months, according to a separate statement on the website.

Compliance Action

Goldman Sachs Given Two-Year Phase-Out for Some Swaps Trades

Goldman Sachs Group Inc. (GS) will have another two years to separate derivatives trading from units that get federal backing, according to a letter to the bank posted on the Federal Reserve website.

The Fed said in the letter that the New York-based bank must determine whether to kill the swaps activity or move them to properly capitalized affiliates. Under the Dodd-Frank Act rule requiring the swaps push-out, interest-rate and some credit swaps can still be traded inside the bank.

Dodd-Frank overhauled swaps trading in an effort to make the industry less vulnerable to a crisis such as the one that struck in 2008. The law requires equity, some commodity and non-cleared credit derivatives be pushed out of bank units with access to deposit insurance and the Fed’s discount window.

Andrew Williams, a spokesman for Goldman Sachs in New York, declined to comment on the extension.


Piedmont Says Official Signed Swap in Language He Couldn’t Read

The official in the Italian region of Piedmont who signed interest-rate swaps with Dexia Crediop SpA and Intesa Sanpaolo SpA (ISP) didn’t speak English well enough to understand the contracts, according to the region’s documents at a London court hearing.

The province also argued the swap isn’t valid under Italian law and contained hidden profits for the banks.

Piedmont, which says it was wined and dined by the banks, signed swaps to cover its interest-rate exposure on a 1.8 billion euro ($2.3 billion) bond issue in 2006, and hasn’t made payments since January 2012, the two Italian banks said in court documents. Dexia and Intesa asked a U.K. court to order immediate repayment of about 36 million euros without the need for a trial.

Spokesmen for Dexia and Intesa in Italy declined to immediately comment. Andrew Wass, a U.K. lawyer for Piedmont didn’t immediately respond to an e-mail seeking comment.

The officials relied on the banks’ advice, Piedmont said, asking the court to take the case to trial.

The banks’ lawyers said in court documents that Piedmont has no chance of success and continues to fail to meet its obligations.

The case is Dexia Crediop SpA v. Regione Piemonte, High Court of Justice, Queen’s Bench Division Commercial Court.

Citigroup Wins Dismissal of Former Client’s Forex Bets Lawsuit

Citigroup Inc. (C) won dismissal of a Hong Kong lawsuit by former private banking client Natamon Protpakorn seeking $17.9 million for damages from currency bets liquidated when the bank closed her positions.

Citigroup had “good reason” to be concerned about the sources of Natamon’s wealth, High Court Judge Jonathan Harris said in the judgment delivered July 8. Such concerns “might reasonably be expected to cause it to wish to close her account,” he said.

Natamon, a Thai national who had previously been a client of UBS AG (UBSN), first sued Citigroup’s Hong Kong unit in 2005. She claimed the bank had persuaded her to invest in foreign exchange trades in 2001 and then unfairly closed her positions in 2004, according to previous rulings from the eight-year legal battle.

Natamon’s lawyer Christine Tsang said before the verdict was delivered that her client wouldn’t comment. Citigroup’s Hong Kong-based spokesman Richard Tesvich declined to comment.

Citigroup staff became concerned about Natamon’s account when they discovered in 2004 that the Japanese man who directed her trading positions had been convicted of fraud, according to the judgment.

The case is Natamon Protpakorn v. Citibank NA, HCCL5/2011 in Hong Kong’s Court of First Instance.

To contact the reporter on this story: Carla Main in New Jersey at

To contact the editor responsible for this report: Michael Hytha at

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