Executives from exchange operators and fund companies are starting to join lawmakers and regulators in warning that the world’s largest equities market is beset with conflicts that may harm investors and undermine confidence.
Support for a solution increased at a June 17 hearing led by U.S. Senator Carl Levin, as representatives of New York Stock Exchange owner Intercontinental Exchange Inc. (ICE), IEX Group Inc. and Vanguard Group Inc. said trading rebates and payments to brokers for investor trades warrant greater government scrutiny.
The systems, embedded in markets over the past two decades, were cited as one of the reasons high-frequency firms now account for about half of volume.
Thomas Farley, president of ICE’s NYSE Group, called for the elimination of the rebate system known as maker-taker, saying an outright ban would reduce conflicts and complexity in the market that are discouraging investors from trading.
The hearing focused on potential conflicts of interest among brokers and mostly steered clear of high-frequency traders. Senators led by Levin grilled brokerages and stock-market executives over the various incentives that underpin U.S. equity trading.
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China Auditor Blames Wealth Fund Management for Overseas Losses
Mismanagement at China Investment Corp., the nation’s $575 billion sovereign wealth fund, led to overseas investment losses that might widen, according to the National Audit Office.
Dereliction of duty by managers and inadequate due diligence and post-investment management were identified in 12 investments made abroad by the fund from 2008 to 2013, according to an audit last year that didn’t identify the individual cases.
Six were unprofitable; four had unrealized losses; and two may lose money, according to the report, released yesterday on the auditor’s website. It didn’t name the investments or disclose their sizes.
CIC’s press office didn’t immediately respond to an e-mail seeking comment on the report.
Newcrest to Pay A$1.2 Million in Disclosure Breach Inquiry
The final penalties will be determined by the Federal Court, the Australian Securities and Investments Commission said yesterday in a statement. The settlement doesn’t involve any action being taken by ASIC against employees, Newcrest said in a separate statement.
The regulator alleged that Newcrest selectively disclosed information in analyst briefings ahead of an announcement in June last year. Australia requires companies to disclose all market-sensitive information to the Australian Stock Exchange.
ASIC hasn’t alleged that Newcrest knowingly or intentionally “contravened its continuous disclosure obligations,” the company said.
An internal review completed by Newcrest in September found no “smoking gun” evidence indicating any analysts had received selective briefings, according to Maurice Newman, a former chairman of the Australian Securities Exchange who led the study on its behalf. In response to Newman’s report, Newcrest pledged to restrict its dealings with investors and analysts.
“Newcrest takes its disclosure obligations very seriously and sincerely regrets the contraventions,” Chairman Peter Hay said in the statement.
The company has cooperated fully, Newcrest said in the statement.
Japanese Financial Regulator Steps Up M&A Oversight, Nikkei Says
Japan’s Financial Services Agency plans to review financial statements of about 4,000 companies, Nikkei newspaper reported.
The purpose is to see how the companies report purchase prices, goodwill and other aspects of merger and acquisition deals, the newspaper reported, without attribution.
Comings and Goings
American Apparel Dismisses CEO Dov Charney for Misconduct
American Apparel Inc. (APP) replaced its chief executive officer, Dov Charney, who has faced accusations of sexual harassment, after an investigation into misconduct at the casual clothing maker he created.
The board named Chief Financial Officer John Luttrell, a former executive with retailers Old Navy Inc., Wet Seal Inc. and Cost Plus Inc., as its interim CEO, according to a statement yesterday. Charney was suspended and will be terminated for cause after a contractual 30-day wait, Los Angeles-based American Apparel said.
“We take no joy in this, but the board felt it was the right thing to do,” Allan Mayer, who has been lead director for the past three years, said in the statement. “Dov Charney created American Apparel, but the company has grown much larger than any one individual and we are confident that its greatest days are still ahead.”
An outside spokesman for the company declined to comment on the alleged misconduct or talks with lenders. Charney didn’t respond to a request for comment sent to his American Apparel e-mail.