Benchmarks underpinning markets from oil to currencies face tougher oversight under plans by global regulators to prevent any repeat of Libor-style fraud.
Rates should be based as much as possible on real transaction data, rather than estimates, and banks should tackle conflicts of interest, the International Organization of Securities Commissions, a Madrid-based group that harmonizes global market rules, said in guidelines published yesterday.
Authorities are grappling with a growing number of rate-setting scandals. The measures are “an important step” in restoring the credibility of tarnished benchmarks, Martin Wheatley, chief executive officer of the U.K. Financial Conduct Authority and a co-head of the Iosco benchmark task force, said in a statement. “These principles set out clear and robust standards.”
Probes into potential rigging have expanded beyond interbank lending rates to include benchmarks underpinning energy prices, currency trades and derivatives.
The U.S. Federal Energy Regulatory Commission this week ordered Barclays and four former traders to pay a combined $487.9 million in fines, as part of an investigation of alleged manipulation of energy markets.
In a separate probe, the U.S. Commodity Futures Trading Commission is reading through 1 million e-mails and instant messages from traders for evidence of manipulation of the ISDAfix rate.
Organizations that administrate benchmarks will be required by regulators to “publicly disclose their compliance” with the guidelines within 12 months, Iosco said. The group will carry out a review in 18 months to see how well the measures have been enforced.
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SEC Said Near Proposal on Disclosure of CEO-to-Worker Pay Ratios
Public companies would be required to disclose how much more their chief executives are paid than rank-and-file workers under a rule to be proposed next month by U.S. securities regulators, according to two people familiar with the matter.
The Securities and Exchange Commission proposal, part of the 2010 Dodd-Frank overhaul of financial markets, would require companies to calculate and disclose their CEO’s compensation as a multiple of average worker pay, said the people, who spoke on condition of anonymity because the commission’s agenda has not been made public.
Groups representing corporations oppose the law’s pay-ratio mandate, saying the information will be difficult to compile and isn’t material to investors. Supporters say the data would help investors monitor CEO pay and employee morale.
The SEC could vote to introduce the regulation as soon as Aug. 21, said one of the people. If the proposal is approved, the vote would open a lengthy public-comment period before the commission would vote on a final version.
Proponents of the rule, including unions and activist investors, say mandatory disclosure would help inform shareholders on advisory “say-on-pay” votes at companies’ annual meetings.
SEC spokesman Judith Burns declined to comment.
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Cyber Attack Should Be Deemed Systemic Risk, Exchange Study Says
A “significant” number of exchanges have fought off sabotage via the Internet in the last year and the majority of bourses worldwide say it is a systemic risk to markets, according to a study co-authored by the World Federation of Exchanges.
About 53 percent of exchanges surveyed have been hit by a cyber-attack in the past year. American venues were most likely, with 67 percent saying they had to fight them off, the joint study by the International Organization of Securities Commissions and the WFE found. About 89 percent say it represents a systemic risk, the study said.
“A number of respondents could envision a large-scale, coordinated and successful cyber-attack on financial markets having a substantial impact on market integrity and efficiency,” the study said. Asked to define such an attack, “the majority of respondents proposed scenarios with more far-reaching consequences, such as halting trading,” it said.
About 59 percent of exchanges in the report said there’s a framework for sanctions against cybercrime in their jurisdiction. Of these, 55 percent said that sanction regimes are an effective deterrent.
Exchanges said “100 percent security is illusionary,” and about a quarter said the current measures may not be sufficient to withstand a large-scale and coordinated attack.
Nigerian Stock Exchange Plans Trading Halts to Curb Volatility
The Nigerian Stock Exchange (NGSEINDX) plans to halt trading if there’s a drop of 5 percent in a bid to avert a crash in an index that’s rallied 31 percent this year, the second-best performing equity market in Africa.
The exchange is proposing a rule to stop trading in all securities for 30 minutes if there’s “extraordinary market volatility” on the Lagos-based bourse, it said in notice on its website. If the market falls another 5 percent, trading will be halted for the day, it said.
Nigeria’s exchange is putting in the measures after a market crash in 2008, spurred by a global financial crisis, prompted foreign investors to sell out of Africa’s biggest oil producer.
The exchange wants public comments on the plan before July 22 with the rule coming into effect after approval by the Securities and Exchange Commission.
Ligresti Family Members Arrested in Fondiaria-SAI Probe
Members of Italy’s Ligresti family, who once controlled insurer Fondiaria-SAI SpA, were arrested yesterday on charges of false accounting and market manipulation, police said.
Salvatore Ligresti and his two daughters were among seven people taken into custody by Italy’s financial police, according to an e-mailed statement from its Turin office. They are accused of misleading at least 12,000 investors by concealing 600 million euros ($789 million) of losses at Fondiaria-SAI in its 2010 accounts.
Ligresti is under house arrest, while his daughters Giulia Maria and Jonella are being detained at an undisclosed jail, police said. Three former Fondiaria executives, Emanuele Erbetta, Antonio Talarico and Fausto Marchionni also have been charged. An arrest warrant was issued for Gioacchino Paolo Ligresti, one of Salvatore Ligresti’s sons, who is in Switzerland, police said.
Gian Luigi Tizzoni, a defense attorney for the Ligrestis, wasn’t immediately available to comment on the case.
According to the police statement, the Ligrestis underestimated the company’s reserves for outstanding insurance claims, allowing it to distribute 253 million euros of earnings to the family holding company Premafin Finanziaria SpA, instead of losses.
MetLife Nears Systemic-Risk Label on Latest U.S. Panel Decision
MetLife Inc. (MET), the largest U.S. life insurer, was moved to the last stage of a regulatory review that may impose extra Federal Reserve oversight.
The Financial Stability Oversight Council, a group of regulators led by Treasury Secretary Jacob J. Lew, voted to move New York-based MetLife into a third round of evaluation that may label the company systemically important, the insurer said July 16 in a statement. The designation indicates a firm could endanger the financial system if it were to fail.
“Not only does exposure to MetLife not threaten the financial system, but I cannot think of a single firm that would be threatened by its exposure to MetLife,” MetLife Chief Executive Officer Steven Kandarian said in the statement. “The life-insurance industry is a source of financial stability.”
Kandarian, 61, has said the insurer doesn’t have enough “interconnectedness” with other companies to damage the broader economy. The Fed can impose tighter capital rules on companies named systemically important.
MetLife wasn’t included in the initial round of designations because it was already overseen by the Fed, stemming from its ownership of a bank. The company sold deposits to end the central bank’s oversight this year.
Prudential Financial Inc. (PRU) the second-largest U.S. life insurer, received the risk label and is appealing the decision to the council. MetLife had $842 billion in assets as of March 31, while Prudential held $724 billion.
MetLife and Prudential have been pressuring the Fed to avoid bank-like capital rules for insurers that are declared systemically important and subjected to Fed supervision.
Prudential won the support of the Federal Housing Finance Agency during a vote of U.S. regulators last month, two people familiar with the matter said.
The Financial Stability Oversight Council voted 7-2 to designate an unidentified company as systemically important, meaning the firm could endanger the financial system if it were to fail, according to minutes of the June 3 meeting released yesterday by the Treasury Department. The company was Prudential, said the people, who asked not to be identified because the information wasn’t officially released.
Bob DeFillippo, a Prudential spokesman, declined to comment.
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Gupta Ordered to Pay $13.9 Million in SEC Insider-Trading Case
Rajat Gupta, the former Goldman Sachs Group Inc. (GS) director who was found guilty of passing confidential tips to now-jailed billionaire hedge-fund manager Raj Rajaratnam, was ordered to pay $13.9 million in a related U.S. regulatory lawsuit.
Gupta, 64, was also permanently barred from acting as an officer or director of a public company and from associating with any broker or investment adviser, the Securities and Exchange Commission said July 16, citing an order by U.S. District Judge Jed Rakoff in Manhattan.
Gupta was found guilty on June 15, 2012, of divulging confidential information to the Galleon Group LLC co-founder about Berkshire Hathaway Inc.’s $5 billion investment in Goldman Sachs as well as nonpublic details about the bank’s financial results for the second and fourth quarters of 2008. In October, Gupta was sentenced to two years in prison and ordered to pay a $5 million criminal fine. He is free pending his appeal of the decision.
The order couldn’t immediately be located in the court’s electronic records. Gary Naftalis, Gupta’s attorney at Kramer Levin Naftalis & Frankel LLP, Frankel LLP, confirmed that Rakoff sent an order to lawyers in the case last night imposing the penalty of $13.9 million on Gupta. He declined to comment on Rakoff’s order. Gupta has appealed his conviction and the fines and penalties could be vacated if he wins on appeal.
The case against Gupta, who was previously a managing partner at McKinsey & Co. Inc., became a centerpiece of a broader insider-trading crackdown by the SEC and federal prosecutors in New York. Gupta was the highest-profile corporate figure ensnared in the probe.
Rajaratnam, 56, in June lost an appeal of his 2011 conviction for conspiracy and securities fraud and is serving an 11-year prison sentence at the Federal Medical Center Devens in Ayer, Massachusetts.
Gupta’s appeal is U.S. v. Gupta, 12-4448, U.S. Court of Appeals for the Second Circuit (Manhattan).
Schindler Loses Bid to Overturn 143.7 Million-Euro Cartel Fine
Schindler Holding AG (SCHP) lost a European Union court bid to overturn a 143.7 million-euro ($188.5 million) cartel fine for colluding with competitors on prices for elevators and escalators.
The EU Court of Justice, the EU’s highest tribunal, in Luxembourg rejected the appeal today.
The European Commission fined five companies 992.3 million euros in February 2007 for setting prices in Belgium, Germany, Luxembourg and the Netherlands between at least 1995 and 2004. They rigged contract bids, allocated projects to each other and shared confidential information, the EU said.
Schindler, based in Ebikon, Switzerland, said it will closely analyze the ruling. The company paid the full amount of the fine in 2007, according to a statement on its website.
The case is: C-501/11 P, Schindler Holding Ltd., Schindler Management AG, Schindler SA, Schindler Sarl, Schindler Liften BV and Schindler Deutschland Holding GmbH v. European Commission.
Billionaire Sawiris Wins U.K. Lawsuit Over $88 Million Deal Fee
Egyptian billionaire Naguib Sawiris won a lawsuit at the U.K.’s highest court over a 67 million euro ($88 million) brokerage fee against Alessandro Benedetti, an Italian businessman.
Benedetti overcharged Sawiris by 31 million euros for advice on the purchase of Wind Telecomunicazioni SpA, based on market rates for deal advice, judges at the U.K.’s Supreme Court said in a decision published today. Benedetti had challenged a lower court ruling from 2010 that reduced his fee to 36 million euros.
“Since that figure is significantly greater than the market value of the services rendered, namely 36.3 million euros, it follows that he is not entitled to any further payment,” David Neuberger, one of the judges, said in the ruling.
Sasha Radoja, a spokeswoman for Benedetti’s lawyers at Herbert Smith Freehills LLP, didn’t immediately respond to a phone call seeking comment.
The case is Benedetti v. Sawiris, High Court of Justice Chancery Division, HC07C2262.
Bernanke Testifies on Fed Policy, Economy and Systemic Risk
He also provided an update on progress relating to reducing systemic risk among the largest national firms, in particular discussing rules relating to capital buffers.
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Global Banks in ‘No-Win’ Situation, Mizuho’s Antos Says
Jim Antos, a Hong Kong-based analyst at Mizuho Securities Asia Ltd., talked about the outlook for the global banking industry.
He spoke with Rishaad Salamat on Bloomberg Television’s “On the Move.”
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Lew Warns Congress Against Changing Dodd-Frank Financial Rules
U.S. Treasury Secretary Jacob J. Lew said he is “stepping on the accelerator” to implement the Dodd-Frank Act and warned lawmakers against trying to change the financial rules overhaul.
The comments were part of remarks prepared for the CNBC Institutional Investor Delivering Alpha Conference in New York yesterday. “Major change is under way and will continue as the powerful tools created in Dodd-Frank are implemented fully.”
Some lawmakers in Washington are trying to push through modifications. U.S. Senator Elizabeth Warren, a Massachusetts Democrat, John McCain, an Arizona Republican, and a bipartisan group of lawmakers have introduced a bill aimed at re-creating the Glass-Steagall Act, the Depression-era measure that separated commercial and investment banking. Another Senate proposal would limit bank size without restoring Glass-Steagall.
In Lew’s address yesterday, he said the main elements of Dodd-Frank “will be substantially in place” by the end of this year.
He called the Volcker rule ban on proprietary trading “particularly important, and I will continue to push for swift completion of a rule that keeps faith with the intent of the statute and the president’s vision.”
Comings and Goings/Executive Pay
European Banks at Disadvantage to U.S. Peers on Pay, Mercer Says
Europe’s “onerous” caps on banker bonuses are putting the region’s firms at a disadvantage to their peers in the U.S. and emerging markets when hiring outside their home market, according to a survey by Mercer LLC.
Three out of four firms polled said European Union rules capping banker bonuses at no more than twice fixed pay have created an “un-level playing field,” the human-resources consultant said in an e-mailed statement today. Only 22 percent said the rules benefited their firms, Mercer said, citing the April survey of 78 firms including BNP Paribas SA (BNP), UBS AG (UBSN), HSBC Holdings Plc (HSBA), Credit Suisse Group AG (CSGN) and Deutsche Bank AG. (DBK)
The EU introduced the restrictions in February to limit excessive pay-outs and curb irresponsible risk taking after the industry received a taxpayer rescue in 2008. The rules may trigger an increase of 500 million pounds ($761 million) in bankers’ total base salaries, Andrew Bailey, Britain’s chief banking supervisor, said in March.
“The clearest trend in the face of bonus caps is an increase in base salaries,” said Vicki Elliott, senior partner at Mercer, said in the statement.
Cordray Sworn In as Director of Consumer Protection Bureau
Cordray was confirmed by the Senate July 16. The 66-34 vote ended a battle between the Obama administration and Senate Republicans over the structure of the agency and the use of presidential appointment powers that created uncertainty over the legality of agency’s rulings and enforcement actions.
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