Fed Rule, NYSE Orders, Deutsche Boerse: Compliance

The Federal Reserve is seeking input on a measure that would bar U.S. banks from acquisitions that push their share of all financial-company liabilities above a 10 percent threshold.

The proposal, released May 8, would implement a Dodd-Frank Act mandate that would match a nationwide 10 percent cap that already applies to deposits. The central bank is inviting public comments until July 8.

The limit is meant to promote financial stability and combat the perception that some U.S. institutions may be too big to fail. It would bolster an existing industry cap prohibiting mergers that create a bank with more than 10 percent of U.S. deposits, “because it also takes into account nondeposit liabilities and off-balance-sheet exposures,” the Financial Stability Oversight Council said in a 2011 report. It listed companies including Bank of America Corp. and JPMorgan Chase & Co. (JPM) as having sufficient liabilities to face restrictions on acquisitions.

The Fed’s proposal, which would need final approval after the comment period, calls for industry liabilities to be calculated as a two-year average of aggregate consolidated liabilities. The liabilities of a financial firm would be the difference between its risk-weighted assets and total regulatory capital.

Compliance Action

NYSE Plans to Curtail Order Types Amid Debate on Their Fairness

The New York Stock Exchange is making plans to pare back the types of orders customers can place, potentially quieting critics who say their proliferation gives high-frequency traders an unfair edge.

NYSE staff have identified more than a dozen to abolish, pending regulatory approval, IntercontinentalExchange Group Inc. (ICE) Chief Executive Officer Jeffrey Sprecher said May 8. He called on other market operators to “adopt a moratorium” on creating new order types.

Order types, the software routines used by brokers to pinpoint the price and size of trades they’re willing to conduct, have been targeted by critics who argue the U.S. stock market is unfairly structured.

Eric Ryan, spokesman for the NYSE, declined to provide further details about the order types that might be eliminated.

U.S. equity trading is spread across more than 50 venues, including the three exchanges run by ICE. Nasdaq OMX Group Inc. (NDAQ) and Bats Global Markets Inc. are the other major exchange owners. About 40 percent of trading takes place off exchanges.

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Courts

Deutsche Boerse Says Court Hearing on Merger Ban Set for June 4

Deutsche Boerse AG’s challenge to the European Commission’s ban on its plans to merge with NYSE Euronext will be heard by the European Union’s General Court on June 4, spokesman Frank Herkenoff said in phone call May 9.

Deutsche Boerse asked an EU court June 16 to overturn a ban on its planned merger with NYSE Euronext, saying regulators made errors when reviewing the deal that would have created the world’s biggest exchange.

Interviews/Commentary

CME President to Testify at Senate High-Speed Trading Hearing

CME Group Inc. (CME) President Terrence Duffy is among witnesses scheduled to appear tomorrow before a Senate Agriculture Committee hearing on high-frequency trading, according to its website.

Vince McGonagle, head of market oversight for the Commodity Futures Trading Commission, is also expected to testify.

Eliminating dark pools, where orders are hidden until transactions are completed, would “fix” the U.S. stock market, Duffy said last month in an interview.

Most of the biggest U.S. broker-dealers own dark pools that trade stocks. “Flash Boys,” the book by Michael Lewis, a columnist for Bloomberg View, argues that dark pools act as a key intersection between high-frequency traders and brokerages’ investor clients.

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

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net. Stephen Farr, Charles Carter

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