Finra Expands Trace, U.K. Ring Fencing, FACTA: Compliance

The Financial Industry Regulatory Authority, the non-governmental regulator of brokerages, is moving to disclose trade information on additional types of securitized debt.

Finra’s board has authorized its staff to seek approval from the U.S. Securities and Exchange Commission for the update to data released through its Trade Reporting and Compliance Engine, or Trace, according to a posting July 11 on its website. The proposal will cover bonds backed by assets including car loans and student borrowing, Finra said. It won’t extend to home-loan bonds known as collateralized mortgage obligations.

Finra has been expanding Trace to securitized debt after the opacity of trading in securities including home-loan bonds without government backing contributed to the 2008 financial crisis.

The regulator has already started releasing trade-by-trade information on government-backed mortgage securities and aggregated data on a broader range of securitized debt.

The Trace system started in 2002, providing the first real-time data on most corporate bond trading to anyone with Internet access.

Compliance Policy

U.K. Seeks to Tighten Client-Money Rules After Lehman, MF Global

The U.K. markets regulator is seeking to strengthen rules for protecting ring-fenced client accounts after the financial collapses of Lehman Brothers International Europe and MF Global Holdings Ltd. exposed failings in the current framework.

The Financial Conduct Authority said it is seeking input from the industry on whether to make changes to current rules to allow client money to be returned faster if a firm is bankrupt. Client-asset rules apply to about 1,500 banks, brokerages and other companies in the U.K. which hold more than 100 billion pounds ($151 billion) of client money, the regulator said in a statement July 12.

“Under the current regime, accuracy is effectively prioritized, leading to a regime that takes months, and in some cases years, to return client money,” the regulator said in a consultation paper.

The agency stepped up enforcement of client-money rules after the bankruptcy of Lehman Brothers Holdings Inc. in 2008. The New York-based bank’s former U.K. unit failed to segregate billions of dollars of client funds from its own accounts, leaving creditors with competing claims that resulted in years of litigation. The issue resurfaced in the administration of MF Global’s U.K. unit.

The regulator has said that it will overhaul rules on the treatment of margin assets posted by failed companies for their derivatives trades. It also proposed that investment companies could divide up clients’ money into ring-fenced sub-pools, so not all clients would face the same losses in the event of insolvency.

Dodd-Frank Overseas Swap Guidance Approved After Europe Deal

The top U.S. derivatives regulator approved final guidelines allowing greater reliance on overseas rules for cross-border trades a day after breaking an impasse July 11 with European authorities on how to oversee the $633 trillion global swaps market.

The Commodity Futures Trading Commission, meeting in Washington, voted 3-1 to complete guidelines allowing many cross-border trades to be governed by overseas rules when they’re comparable to U.S. rules. The document will determine how dozens of regulations increasing collateral and conduct standards apply to the trades by JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS), Barclays Plc (BARC) and other banks and hedge funds.

The agreement was being considered a day after U.S. and European officials announced last week they had reached a deal on how to jointly oversee the market. Their agreement broke a deadlock on the reach of the CFTC’s rules, a source of controversy among European and Asian regulators.

CFTC Chairman Gary Gensler was criticized by foreign officials and banks for overreaching and seeking to apply Dodd-Frank Act regulations too expansively in cross-border trades. The document makes it less probable that markets will be fragmented than earlier CFTC proposals would have resulted in, Mark Wetjen, one of three Democratic commissioners, said in remarks prepared for the meeting.

The commissioners also approved, by a 3-1 vote, a separate document phasing in the guidance through the end of the year, with some of the first requirements taking effect in mid-September.

Compliance Action

FSOC’s Role in Money-Fund Rule Sparks Probe by House Republicans

House Republican investigators have asked five U.S. financial regulators to produce records showing the extent to which their rulemaking has been influenced by the Financial Stability Oversight Council.

The House Government Oversight and Reform Committee sent the request July 10 after obtaining what its members say is evidence of interference by the FSOC in rulemaking by the Securities and Exchange Commission last year. Those records show former SEC Chairman Mary Schapiro and her aides coordinated with FSOC officials to build support for and write a money-market mutual funds rule before other SEC commissioners had seen the proposal.

FSOC is an umbrella group of financial regulators led by the Treasury secretary. It was created by the Dodd-Frank Act to identify and respond to threats to financial stability. The SEC is an independent agency charged with overseeing capital markets.

Judy Burns, an SEC spokeswoman, didn’t immediately respond to a request for comment.

IRS, Treasury Delay FATCA Tax-Evasion Law by Six Months

The Internal Revenue Service is giving overseas banks a six-month delay to the start of the Foreign Account Tax Compliance Act, the Treasury Department said. The law is designed to curb tax evasion by Americans abroad.

The extension of the act, or FATCA, follows a previous one-year delay announced in 2011. The latest extension, to July 1, 2014, will allow foreign banks time to comply with the law “while helping ensure efficient implementation,” the Treasury said in a statement July 12.

Financial institutions including Toronto-Dominion Bank of Canada and Allianz SE (ALV) of Germany have expressed concerns that FATCA is too complex.

FATCA, passed by the U.S. Congress in 2010, will require financial institutions based outside the country to obtain and report information about income and interest payments accrued to the accounts of American clients. Banks and account holders that don’t comply would face a withholding tax of as much as 30 percent.


Texas Money Manager Sued by Regulators Over Forex Fraud Claims

A Texas money manager was sued by U.S. regulators over claims that he defrauded investors in a foreign-exchange trading scheme.

Kevin G. White siphoned away about $1.7 million of the $7 million he raised from investors since September 2011 by falsely claiming his currency trading strategy yielded returns of more than 393 percent since its inception in January 2009, the Securities and Exchange Commission said in a complaint filed at federal court in Texas July 9 and unsealed late in the day on July 11.

The Commodity Futures Trading Commission filed a parallel action freezing the assets of White and his firms, KGW Capital Management LLC, Revelation Forex Fund LP and RFF GP LLC.

The SEC lawsuit was unveiled one day after Commissioner Luis Aguilar faulted the agency for failing to adopt a rule required by the 2010 Dodd-Frank Act to address abusive sales practices and risks associated with the retail foreign-exchange market. The CFTC adopted related rules in 2010.

Both agencies are seeking trading bans, disgorgement of ill-gotten gains and unspecified financial penalties.

A phone call to Kelly Crawford, the court-appointed receiver at Scheef & Stone LLP, wasn’t immediately returned. A phone call to a Plano, Texas, number listed to White wasn’t answered. The SEC said White had no known defense counsel.

Annaly Directors Sued by Investor Over Management Shift

Annaly Capital Management Inc. (NLY) directors were sued by a shareholder over the real-estate investment trust’s plan to be managed by a separate firm that would employ its current executives.

Investor Jeffrey L. Doppelt filed the lawsuit in New York State Supreme Court in Manhattan July 11, accusing the directors of breaching their fiduciary duties and seeking to rescind the move.

Investors in New York-based Annaly, the largest REIT that buys mortgage debt, approved the management shift in May. The move left Annaly, which ended 2012 with $133.5 billion of assets, with a management structure similar to rivals.

The plan transferred the company’s entire management capability to the separate firm “for no consideration,” according to the complaint. The directors made no effort to assess the value of that capability, which the company has paid millions of dollars for in the past, Doppelt said in the filing.

“The externalization permits the manager to engage in other investment management business by managing the assets of third parties for a fee,” Doppelt said in the complaint. “This business of earning investment management fees, a corporate opportunity belonging to Annaly, has been usurped by Annaly’s executives.”

Jay Diamond, a spokesman for Annaly, didn’t immediately return telephone and e-mail messages seeking comment on the suit.

The case is Doppelt v. Denahan, 652447/2013, New York State Supreme Court, New York County (Manhattan).

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

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

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