One in four hedge funds is already clearing over-the-counter derivative trades, up from none in October, before new rules require changes later this year to the $583 trillion market, according to analysts at UBS AG.
Most interest-rate, credit-default and other swaps bought and sold by money managers will be required to be processed by a clearinghouse later this year under new U.S. regulations. UBS analysts led by Alex Cram in New York surveyed money managers to gauge how they’re reacting to the changes, following an initial survey in October, they said in a note to clients yesterday.
About 50 firms responded to the survey, Cram said in an e-mail. That would include 12 or 13 hedge funds, according to the percentage breakdown of respondents in the note.
“The results from the current survey seem to indicate an increasing level of urgency on the buy side around preparing for the clearing of OTC derivatives,” he wrote.
Congress last year mandated that most OTC derivatives trade on exchanges or similar electronic systems and be processed by clearinghouses after credit-default swaps contributed to the financial crisis. Clearinghouses increase stability in OTC derivatives markets as well as transparency for regulators.
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Special Section: Senate Hearing on SEC
Schapiro Says Ex-Counsel Should Have Avoided Madoff Work
Securities and Exchange Commission Chairman Mary Schapiro said David M. Becker, the agency’s former general counsel, should’ve declined to work on policy related to Bernard Madoff’s Ponzi scheme because of his family’s ties to the imprisoned money manager.
“I wish that Mr. Becker had recused himself, absolutely,” Schapiro told lawmakers at a House Oversight and Government Reform subcommittee hearing yesterday. “It would have been appropriate.”
Becker, 63, was sued over $1.5 million he and his brothers reaped when they received their parents’ Madoff holdings after their mother died in 2004. Becker said the lawsuit, filed by the bankruptcy court trustee unwinding Madoff’s business, played no role in his decision to leave the SEC last month and that his Madoff work had been cleared by the agency’s ethics counsel.
Schapiro, who promised a “top-to-bottom” review of the SEC’s ethics program, said she agreed after Becker was hired as general counsel in 2009 that his work on Madoff policy wouldn’t constitute a conflict of interest. Separately during the hearing, Schapiro told the panel that SEC budget cuts sought by Republican lawmakers would force staff furloughs, halt technology improvements and block implementation of Dodd-Frank Act rules. Those areas would be “profoundly impacted,” she said, forcing “extremely difficult choices.”
Schapiro and five unit chiefs testified at House and Senate hearings on SEC spending amid Republicans calls to slash the agency’s budget by $25 million over the next six months. The SEC officials pressed their case for funding to carry out new duties imposed by the financial-regulation overhaul and boost market oversight after missing Bernard Madoff’s Ponzi scheme.
Schapiro cited to the Boston Consulting Group’s 263-page report, which her aides presented to Congress yesterday.
Federal spending for the current fiscal year -- including the SEC budget -- has been frozen at fiscal 2010 levels by a congressional standoff as Republicans who control the House push to cut spending across the board to reduce the federal deficit.
President Barack Obama’s 2012 budget, released Feb. 14, would give the agency a $305 million increase from the 2010 level and a 16 percent increase in staff.
The budget impasse is keeping the agency from improving its market surveillance capabilities, which have been “severely limited by our lack of technology,” Schapiro said, citing it as one of the main areas where the new funding would be used.
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Schapiro, Katz, Cramming, Chairman Testify on Capitol Hill
In addition to testimony by Schapiro, Jonathan Katz, a former secretary at the SEC, Stephen Cramming, a former trial attorney at the regulator, and Helen Chairman, a partner at Becker & Poliakoff LLP, also spoke before the House Oversight and Government Reform Committee in Washington.
For video of the testimony, click here.
Issa Says Schapiro Hasn’t Kept Promise to ‘Fix’ SEC
U.S. Representative Darrell Issa, a California Republican and chairman of the House Oversight and Government Reform Committee, talked yesterday about the performance of Securities and Exchange Commission Chairman Mary Schapiro.
Issa said “public confidence is everything” with respect to the SEC, and Schapiro “crossed the line” when she allowed general counsel David M. Becker to “weigh in” on decisions affecting the valuation of claims stemming from Bernard Madoff’s Ponzi scheme, knowing that he had a personal interest in the matter.
Issa spoke with Carol Massar and Matt Miller on Bloomberg Television’s “Street Smart.”
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Movie Theaters Fight to Keep 1,460-Calorie Popcorn From Rule
Movie theater chains are fighting a U.S. requirement that they disclose that their popcorn contains as many as 1,460 calories, or equal to almost three Big Macs.
Chain restaurants with at least 20 U.S. locations will have to post the calorie content of menu items under a provision in the health-care law. Regulators will propose rules by March 23 and can include concession stands and grocery stores, according to guidance that came out last year.
Movie theaters and grocery stores are lobbying the Food and Drug Administration to avoid the proposed regulation. Theater chains led by Knoxville, Tennessee-based Regal Entertainment Group, the biggest U.S. chain by sales, generate as much as one-third of their annual revenue from concessions. Congress didn’t mention theaters in the law and the idea of regulating them never came up at legislative hearings, said Patrick Corcoran, a spokesman for the National Association of Theatre Owners, a Washington-based trade group.
Movie theater chains were supposed to be targeted by the mandate, said Representative Rosa DeLauro, a Connecticut Democrat who sponsored a food-labeling bill in the House of Representatives that was incorporated into the health-care law.
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House Proposes Oil Bill; Clean Energy Thwarted by Rules
Republicans in the U.S. House said they plan to introduce a series of energy bills that would attempt to expand domestic oil exploration as gasoline prices continue to rise.
The proposals will include legislation that would increase access to domestic energy sources, speed regulatory review for new pipelines and wells, and expand all forms of energy in the U.S., House Speaker John Boehner and other Republicans said at a news conference yesterday. They said the administration of President Barack Obama has thwarted efforts at developing domestic oil sources, a claim denied by the White House.
Separately, renewable-energy projects such as wind farms and solar fields are just as hard to build in the U.S. as coal-fired power plants because of regulatory obstacles and activists’ protests, the U.S. Chamber of Commerce said.
Energy projects valued at $576.6 billion were abandoned, delayed or challenged by the state governments or environmentalists, according to a Chamber report released yesterday. The Chamber is urging lawmakers to rein in “excessive regulation” and President Thomas Donohue has led criticism of regulations enacted during the Obama administration.
The report listed 351 projects delayed by state and federal action or by local protests.
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EPA to Issue E15 Label Rules in Next Few Months, Chief Says
The U.S. Environmental Protection Agency plans to issue final rules for labeling gasoline pumps that carry a higher blend of ethanol within months, Administrator Lisa Jackson said.
Jackson made the remarks yesterday in testimony before the House Agriculture Committee about the EPA’s fiscal budget.
The EPA has been crafting label requirements after granting a request from ethanol producers to raise the amount of the corn-based additive in fuel for vehicles made for the 2001 model year and later. Refiners will be able to blend gasoline with as much as 15 percent ethanol, up from 10 percent.
The blend can’t be sold until federal rules are in place to ensure that so-called E15 is labeled properly at gasoline pumps. The requirements are aimed at preventing use of the fuel in vehicles that aren’t approved to handle the new blend. Some environmental groups and other opponents of E15 say they aren’t convinced labeling measures will be enough to prevent damage to engines.
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Norway Backs Sweden in Seeking Toughest Bank Capital Rules
Norway is signaling it may follow Sweden’s target of imposing some of the world’s toughest capital requirements on lenders as policy makers in Scandinavia embrace post-crisis measures that banks warn will undermine competition.
Sweden’s regulator said this week it wants banks to target capital ratios as high as 12 percent, and will probably require systemically important lenders to aim for 15 percent by 2013. The proposals have prompted the biggest Nordic lender, Nordea Bank AB, to criticize policy makers, arguing that stricter rules will distort competition and hurt the economy. Regulators in Norway, home to the Nordic region’s second-biggest lender by market value DnB NOR ASA, say tighter rules are needed to stem the risk of a housing bubble.
The Basel Committee for Banking Supervision set standards in December that will require lenders to have a minimum core Tier 1 capital ratio, a measure of financial strength, of 7 percent plus a counter-cyclical buffer of 2.5 percentage points. Banks have until 2019 to phase in the requirements. Basel is also working on a model that will require systemically important banks to have even higher buffers.
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States May Avoid Health-Law Mandates by Matching Coverage
U.S. states will be able to avoid mandates in the health-care overhaul starting in 2017 by matching or exceeding the law’s expansion of insurance coverage and maintaining its consumer protections.
Under rules set to be issued yesterday by the Obama administration, states may dodge provisions that have sparked debate such as a mandate that most Americans obtain insurance. To gain approval, the states also will have to prove their plans won’t add to the deficit.
Vermont’s governor, Democrat Peter Shumlin, has said he seeks to use an escape clause in the law to create a government-run health system that would cover every resident and put private insurers, including Cigna Corp., out of business in that state.
The “innovation waivers” the government may issue in six years enact that clause and will “empower states to take the lead on implementing” the law, said Kathleen Sebelius, President Barack Obama’s health secretary, in a statement.
The plan still gives the U.S. government final say over what states must do to gain an exemption, said Michelle Dimarob, a spokeswoman for House Ways and Means Committee Chairman Dave Camp, Republican of Michigan.
SEC Suspends Trading in Securities of Five Companies
The U.S. Securities and Exchange Commission said in an e-mailed statement that it temporarily suspended trading in five companies.
The companies are: Admiralty Holding Co., American Consolidated Management Group Inc., DnC Multimedia Corp., Dorsey Trailers Inc. and ElectraCapital Inc.
Trading was suspended “due to a lack of current and accurate information about the companies because they have not filed certain periodic reports,” with the SEC, the agency said yesterday in the statement.
Unnim, Bankinter to Address Capital Requirements in Spain
Unnim, a grouping of Spanish savings banks, is considering “different alternatives” to raise capital, including seeking funds from the state-rescue facility known as the FROB. It commented about the capital needs in an e-mailed statement yesterday.
The Bank of Spain said 12 lenders in the country need to raise capital, of which eight are savings banks or “cajas.” It made the comment in a statement yesterday.
Separately, Bankinter SA needs 333 million euros of capital, the Bank of Spain said in a statement on its website. The bank has said it will issue 406 million euros in bonds that must be converted into shares.
Rajaratnam Jurors Told of Inside Tips by Ex-McKinsey Director
Anil Kumar, then a McKinsey & Co. director, was secretly updating Raj Rajaratnam while he helped Advanced Micro Devices Inc.’s management negotiate a deal to sell chips to Hewlett-Packard Co., Kumar told jurors.
Kumar, 52, testifying in Rajaratnam’s criminal insider-trading trial in Manhattan federal court yesterday, said Rajaratnam, the co-founder of Galleon Group LLC, covertly hired him as a consultant in 2003 for $500,000 a year in violation of McKinsey rules. The money was paid into a Swiss bank account, he said.
Beginning in 2004, Kumar began giving Rajaratnam information about AMD’s finances, products and sales, he said. Some of the first leaks centered on the efforts of AMD, Kumar’s client, to sell $400 million of micro-processing chips to HP, a deal that could dramatically increase AMD profits, he said.
In other evidence presented yesterday, jurors heard wiretap recordings of Rajaratnam speaking to Kumar.
Rajaratnam, 53, is the central figure in the largest crackdown on hedge-fund insider trading in U.S. history. The Sri Lankan-born money manager is accused of making $45 million from confidential information leaked by corporate insiders and hedge fund traders. His trial started March 8.
Rajaratnam, who has denied wrongdoing, said he made his trades as a result of legitimate Galleon research.
The case is U.S. v. Rajaratnam, 1:09-cr-01184, U.S. District Court, Southern District of New York (Manhattan).
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FDIC’s Bair Warns of Possible Agriculture Credit Problem
Federal Deposit Insurance Corp. Chairman Sheila Bair spoke about the possibility a steep rise in farmland prices in recent years could spark an agricultural credit problem sometime down the road.
Bair made the remarks at an FDIC farmland price symposium in Arlington, Virginia. Her speech touched on FDIC “farm bank” oversight and monitoring of risks.
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Millstein Says Some ‘Too Big to Fail’ Bigger Post-Crisis
Jim Millstein, former chief restructuring officer for the U.S. Treasury, talked about the effectiveness of the Troubled Asset Relief Program.
Millstein, who spoke with Erik Schatzker on Bloomberg Television’s “InsideTrack,” also discussed the performance of American International Group Inc. and the profit made by the U.S. government from TARP.
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Bernstein’s Moffett Says Telecom Returns to Monopoly
Craig Moffett, an analyst with Sanford C. Bernstein, said 25 years after deregulation, the telecommunications industry is headed “back to concentration and monopoly.”
Moffett talked with Bloomberg’s Ken Prewitt and Tom Keene on Bloomberg Radio’s “Bloomberg Surveillance.”
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Comings and Goings
Federal Housing Administration Head David Stevens to Resign
Federal Housing Administration Commissioner David H. Stevens, who took over the agency in the midst of the worst economic downturn since the 1930s, said he will leave the post in mid-April.
Stevens, former president of real estate brokerage Long & Foster, said yesterday he is considering a return to the private sector.
Stevens’s departure will leave President Barack Obama with two important housing posts to fill as homeowners continue to struggle and foreclosures remain at record levels.
The Federal Housing Finance Agency, which regulates government-run mortgage companies Fannie Mae and Freddie Mac, hasn’t had a permanent director since James Lockhart left in August 2009. Edward DeMarco, Lockhart’s top deputy, was appointed acting director.