Crop Insurance, Short-Sell Fight, Data Backup: Compliance

Critics of the U.S. crop insurance program are calling for cuts to it and other agribusiness subsidies as Congress revamps farm policy.

A bipartisan group of lawmakers planned to meet yesterday in Washington to re-examine U.S. farm spending for the next five years.

Under the insurance program, the U.S. taxpayer subsidizes the majority of premiums paid by farmers, covers much of the administrative costs tallied by insurers to run the program, and guarantees that all losses are covered, according to a series of articles published by Bloomberg News this week.

Crop insurance covered $117 billion worth of product in 2012, including almost all the corn, soybeans, cotton and wheat produced in the country. The U.S. Department of Agriculture spent about $14 billion last year on the program, due to drought.

Supporters of crop insurance are stepping up their lobbying to preserve the program’s funding levels.

Richard Gibson, founder of American Agrisurance Inc. and a business consultant, told agents of NAU Country Insurance Co. in an e-mail this week to lobby their lawmakers. In e-mails to agents, he criticized Bloomberg News stories that examined the program’s costs and vulnerability to fraud. Crop insurers and the USDA said subsidized insurance helps stabilize food prices and protects farmers from the vagaries of weather.

Adjustments to the farm bill are still possible as both houses of Congress reconcile separate measures in a conference to shape the final law.

The House legislation is H.R. 2642; Senate is S.954.

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Compliance Policy

SEC’s White to Push Exchange Executives for Better Data Backups

Exchange executives and securities regulators discussed improvements in systems for distributing price data as they met in Washington yesterday in the latest attempt to strengthen the fragmented U.S. equity market.

Securities and Exchange Commission Chairman Mary Jo White was expected to hold private talks with the chief executive officers of the 13 U.S. stock exchanges to discuss the Aug. 22 failure in Nasdaq OMX Group Inc.’s backup system for disseminating prices, which prompted a three-hour trading halt for thousands of companies.

The malfunction was the latest in a series of mishaps that have shaken confidence in computerized trading since May 6, 2010, when an algorithm briefly caused markets to erase about $862 billion in share value. The SEC expects Nasdaq and NYSE Euronext to explain that incident and coordinate with other exchange operators to prevent future occurrences.

White, who was a Nasdaq Stock Market Inc. board member from 2002 to 2006, has said she will seek new protocols for breaking trades if a network fails and push to advance rules that would require exchanges to show trading can continue through natural disasters and programming glitches.

Nasdaq’s computers were flooded Aug. 22 with data from NYSE Arca, a rival exchange, revealing a bug in Nasdaq’s software that disabled systems that should have prevented the malfunction from snowballing, according to a statement. Nasdaq experienced another glitch with the system on Sept. 4.

The private meeting was expected to focus new scrutiny on the price networks, known as securities information processors, or SIPs that distribute stock prices to the public.

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Fed District Bank Presidents Support SEC Money Fund Proposal

Presidents of the 12 Federal Reserve District banks backed a Securities and Exchange Commission proposal for regulation of money market mutual funds, saying the measure will better safeguard investors and financial stability.

“We believe the SEC is well-positioned to implement meaningful reforms,” the Fed district bank presidents said to the SEC in a letter dated Sept. 12 and released by the Boston Fed. Such measures “not only better protect investors but also address the risks to financial stability posed by MMMFs,” they said.

Courts

Visa-MasterCard Judge Questions Lawsuit Shield in Fee Accord

A federal judge said he is concerned that the Visa Inc. (V) and MasterCard Inc. (MA) multibillion-dollar price-fixing settlement over merchant swipe fees might go too far in protecting the card firms from future lawsuits over new payment technologies.

U.S. District Judge John Gleeson heard arguments yesterday in Brooklyn, New York, over whether to grant final approval to the nationwide class-action settlement, which aims to end future antitrust battles with U.S. merchants over fee-setting practices. Scores of big-box retailers and other consumer businesses oppose the settlement in part because they think the release is too broad.

Visa, based in Foster City, California, and MasterCard, based in Purchase, New York, asked the judge to grant final approval in order to put to rest antitrust claims over fees paid by U.S. merchants to support the credit-card networks.

New payment technologies such as contactless or mobile phone-based payment systems might offer opportunities for merchants to reduce or escape from interchange fees, Michael Canter, a lawyer for some of the objectors, said in the hearing.

Developed by banks half a century ago, Visa and MasterCard have been subject to government scrutiny over their business practices for decades, Georgetown University law professor Adam Levitin wrote in 2008. The card firms faced an antitrust suit filed by Wal-Mart Stores Inc. (WMT) and other retailers in 1996 and actions by the Justice Department, leading to some rule changes.

Bank-owned groups spun off the card companies through initial public offerings in 2006 and 2008 in a move that merchants alleged was intended to dodge antitrust liability.

The card companies received final approval of their previous settlement of more than $4 billion in January 2004. The current case was brought against them in 2005.

Merchants are expected to receive about one-third of a year’s worth of interchange payments if final approval is granted and the order isn’t delayed by an appeal. That estimate is based on assumptions about the number of merchants that will file claims and other factors.

The case is In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 05-md-01720, U.S. District Court, Eastern District of New York (Brooklyn).

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U.K. Wins Backing in Court Fight Over EU Short-Selling Rules

The U.K. was denied a veto over rules giving a European Union agency powers to ban short selling, a top judge said in an opinion that boosts Britain’s chances of winning a turf war with EU financial regulators.

Emergency powers granted to the European Securities and Markets Authority were based on a flawed interpretation of EU treaties, Niilo Jaeaeskinen, an advocate general at the EU Court of Justice said in a non-binding opinion yesterday. A unanimous vote among nations should have been required to ensure “enhanced democratic input.”

The short-selling skirmish is one of several legal U.K. challenges against EU financial regulations at the bloc’s courts, including opposition to a proposed common financial transactions tax. U.K. opposition has prompted warnings from EU officials that it can’t pick and choose the terms of its relationship with the bloc.

The Luxembourg-based court follows these opinions in a majority of cases and normally rules about six months later.

A provision in the short-selling rules that grants ESMA the powers to intervene in the financial markets to regulate or prohibit short selling was adopted in a manner that goes beyond what is “necessary for the establishment or functioning of the internal market,” the court said in the opinion.

Jaeaeskinen dismissed the government’s remaining claims.

If the full court disagrees on the interpretation, “then the U.K.’s challenge could still be lost,” Michael Wainwright, a partner at Eversheds LLP in London, said in an e-mail.

“We take note of the advocate general opinion,” Chantal Hughes, a spokeswoman for Barnier, said in an e-mail. “We will look at it carefully, and need to wait for the court’s final ruling.”

Interviews

Isakson Might Support Summers, Questions Independence

U.S. Senator Johnny Isakson, a Republican from Georgia, talked about the outlook for President Barack Obama’s nomination to lead the Federal Reserve.

Isakson, who spoke with Bloomberg reporters and editors in Washington, also discussed Obama’s nomination of Representative Mel Watt to lead the Federal Housing Finance Agency.

For the audio, click here.

Warren Says Congress Should Act Now on Too Big to Fail Measure

U.S. Senator Elizabeth Warren said banks remain too big to fail even amid the progress that has been made on financial regulation since the 2008 credit crisis.

“If Dodd-Frank gives the regulators the tools to end too big to fail, great -- end too big to fail,” Warren, a Massachusetts Democrat, said of the Wall Street rules overhaul in a Washington speech yesterday. “If the regulators won’t end too big to fail, then Congress must act to protect our economy and prevent future crises.”

Warren, who set up the Consumer Financial Protection Bureau before being elected to Congress in 2012, used her speech at an event marking the fifth anniversary of the crisis to promote her proposal to re-create the Glass-Steagall Act, the 1930s law that separated commercial and investment banking.

The senator’s call to end too big to fail aligns her with Federal Reserve Governor Daniel Tarullo and Federal Deposit Insurance Corp. Vice Chairman Thomas Hoenig. While regulators and lawmakers acknowledge the problem still exists, consensus hasn’t formed around a single approach.

Previous Senate attempts to revive Glass-Steagall, which was repealed in 1999, or otherwise limit the size of banks have failed to gain enough support to become law.

To contact the reporter on this story: Carla Main in New York at cmain2@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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