German Chancellor Angela Merkel’s choice of coalition partner will play a key role in deciding how far the foreign-exchange market is burdened by a proposed financial-transactions tax in 11 European Union states.
Merkel, who last year backed a European Commission plan for a broad-based tax on trades in stocks, bonds, derivatives and other assets, is due to start talks on forming a government with the opposition Social Democrats today. The SPD has pledged to make the delayed levy a high priority if a coalition with Merkel’s Christian Democratic bloc emerges. Currency traders are seeking an exemption from the tax, saying it would reduce liquidity and push up costs for companies and pension funds.
The tax may increase some trading costs by as much as 4,700 percent, according to the London-based currency unit of the Global Financial Markets Association, which represents 22 firms responsible for 90 percent of the turnover in the $5.3 trillion-a-day foreign-exchange market.
Under the proposals, a levy of 10 basis points, or 0.01 percent, would be applied to stock and bond trades and 1 basis point on derivative transactions, with some exemptions for primary-market sales and trades with the European Central Bank.
While foreign-exchange trading for immediate delivery, so-called spot transactions, would be excluded from the levy to avoid restricting the movement of capital, the commission has not extended this exemption to other forms of currency trade. The tax, which is still under development, may be applied to forwards, swaps, non-deliverable forward contracts and options that make up two-thirds of the market.
The tax would typically increase transaction costs for currency-market participants by between 300 percent and 700 percent for corporates, and 700 percent to 1,500 percent for pension fund managers, the GFMA said.
The EU Commission, the architect of the levy, says it may generate as much as 35 billion euros ($47 billion) annually.
The proposals are a threat to the euro-area recovery because they may cramp businesses’ ability to hedge currency-market positions and act as a levy on trade into and out of the euro area, the GFMA says.
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Dodd-Frank Change Among Bills Shunted by Shutdown Politics
Measures affecting Dodd-Frank Act requirements and the first bill to increase U.S. port dredging since 2007 won’t move forward in Congress while the government remains shut down, according to two Republican leadership aides.
The House probably won’t move legislation on any topic other than government funding until a deal is reached to end the current impasse, according to the aides, who spoke on condition of not being identified in discussing legislative strategy.
One of the Dodd-Frank bills would narrow what’s known as the swaps push-out rule, which requires insured depository institutions to hand their swaps activities to affiliates. The other would require the U.S. Securities and Exchange Commission to identify potential effects on investors before setting rules to implement the law passed in 2010.
Both those bills, H.R. 992 and H.R. 2374, were so far along that an open meeting was set for Sept. 28 to determine how many amendments would be debated on the floor of the House of Representatives. The meeting was put off indefinitely.
The House had tentatively set aside part of next week to debate the port-dredging measure, H.R. 3080. The shutdown and efforts to resolve the impasse have clouded that schedule.
At least 20 Republicans have said they would support a clean spending bill, enough to guarantee passage if Democrats also supported such a measure. There’s no indication House Speaker John Boehner, who has sought to defund or delay the 2010 health care law known as Obamacare, would bring such a bill to the House floor.
If the shutdown persists, it may also delay House consideration of a bill to block the implementation of federal regulations dealing with hydraulic fracturing, H.R. 2728, as well as action on border-security legislation.
Crowd-Funding Sites Face Possible Regulation, EU’s Barnier Says
Michel Barnier, the European Union’s financial services chief, said he’s considering possible regulation of crowd funding, in a bid to protect users and stimulate the industry.
Barnier said the European Commission, the EU’s executive arm, is examining the need for a “single European framework” for crowd-financing services and will consult on possible measures until Dec. 31, according to a statement on its website yesterday.
Crowd-financing services, such as Kickstarter Inc., manage Internet sites that allow entrepreneurs to appeal for funding for specific projects and to raise financing from a large number of individual contributors.
“The ultimate objective of this consultation is to gather data about the needs of market participants and to identify the areas in which there is a potential added value in EU action to encourage the growth of this new industry, either through facilitative, soft-law measures or legislative action,” the commission said.
Global regulators have cited the fledgling industry as “an important emerging innovation” that might present threats to market stability if left unregulated.
The International Organization of Securities Commissions, a group bringing together authorities from more than 100 nations, said last month it would “develop guidance” on the regulation of the industry.
EU Weighs Reining in Proposed Board for Handling Bank Failures
The European Union may scale back the powers of a planned central board for handling failing euro-area banks in a bid to assuage concerns that the current blueprint would rob governments of control over their budgets.
EU financial-services chief Michel Barnier has proposed a single resolution mechanism for handling euro-area bank failures, part of the bloc’s three-pronged effort to create a banking union. Under his plan, the European Commission would decide when action is needed at a failing bank, and the board would make preparatory and operational decisions on how regulators should intervene.
Officials from the 28 EU member states are weighing a range of options for tackling the potential threat to fiscal sovereignty, according to a document obtained by Bloomberg News. The resolution plan is part of a bid by the euro area to break financial links between sovereigns and banks by centralizing oversight and crisis management of failing lenders.
German Finance Minister Wolfgang Schaeuble said the commission’s proposal must be overhauled because it’s on shaky legal ground and might endanger national control of budgets.
Barnier’s plan needs approval by a weighted majority of national governments and by the European Parliament before it can take effect.
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HSBC India Client Convicted of Hiding Accounts From IRS
Ashvin Desai, a client of HSBC Holdings Plc (HSBA) and the owner of a medical-device company in San Jose, California, was convicted of tax crimes relating to accounts in India valued at as much as $7.7 million.
Jurors in federal court in San Jose yesterday convicted Desai of all eight counts against him, including filing false tax returns, aiding in preparing false returns and failing to file Reports of Foreign Bank and Financial Accounts, or FBARs, according to court records. Desai owns Prosurg Inc., which makes devices for treating urological and gynecological disorders.
U.S. prosecutors have charged about 70 taxpayers and 30 bankers, lawyers and advisers in a five-year crackdown on offshore tax evasion. Several clients of London-based HSBC, the largest European bank, have been convicted.
Desai, of San Jose, faces as long as 10 years in prison. U.S. District Judge Edward Davila set sentencing for Jan. 27.
His attorney, Martin Schainbaum, didn’t immediately return a call seeking comment on the verdict.
The case is U.S. v. Desai, 11-cr-00846, U.S. District Court, Northern District of California (San Jose).
Hannam Shows a Woolly Grasp of Confidentiality, FCA Says
Ian Hannam, formerly one of JPMorgan Chase & Co. (JPM)’s top merger advisers, is fighting a proposed market-abuse fine with a “woolly, implicit understanding of confidentiality,” lawyers for a U.K. regulator told a court.
Hannam is contesting a 450,000 pound ($728,000) civil market-abuse fine from the Financial Conduct Authority in a London trial that started in July. Hannam was seeking more bidders for Heritage Oil Plc (HOIL), when he disclosed to an investor in 2008 that another potential acquirer had made an offer.
If the information Hannam passed on his client Heritage Oil Plc is “not inside information, what is inside information?” Richard Boulton, a lawyer for the FCA, said during closing arguments yesterday. He argued that a victory for Hannam would open “the floodgates” to selective disclosure of inside information.
Hannam, who resigned from the New York-based bank after the civil fine, is one of the highest-profile finance workers the regulator has sought to fine. His lawyers contested the size of the fine, pointing out that it was “higher than many cases of deliberate disclosure” by other dealers. They also argued in court documents that regulators were making “an example out of him” because of his senior position at the bank.
Two e-mail messages form the basis of the FCA’s case. Hannam has said the notes were in the best interest of his client, Heritage Oil.
Goodhart Says Treasury Yields May Fall Amid Shutdown
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IMF’s Lagarde Says Calls Limit Accord ‘Mission-Critical’
International Monetary Fund Managing Director Christine Lagarde spoke about the global economy, U.S. fiscal policy and banking regulations.
Lagarde spoke at George Washington University in Washington.
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