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China ‘Great Firewall,’ Capital-CoCos, EU Carbon: Compliance

China has set up a new department to supervise the Internet, as the government steps up efforts to tighten control over the world’s largest online market.

The State Internet Information Office, created under the cabinet, will oversee efforts to “strengthen management of Internet content,” and is responsible for “day-to-day regulation” of news and related services, the official Xinhua News Agency reported yesterday, citing the State Council. The new office will also monitor services including online games and videos, Xinhua said.

China’s system of Internet surveillance, also known as the “Great Firewall,” requires domestic operators including Baidu Inc. and Tencent Holdings Ltd. to self-censor content deemed unacceptable to the government, and blocks overseas services such as Google Inc.’s YouTube. The new information office may be a way for the government to “formalize” these controls, according to Duncan Clark, chairman of industry consultants BDA China.

It’s unclear how the new body will share work with various industry regulators including the Ministry of Industry and Information Technology, Ministry of Culture and the General Administration of Press and Publication, Clark said.

China had 457 million Internet users at the end of last year, according to the China Internet Network Information Center, a government-affiliated group that compiles industry statistics. That’s more than the combined populations of the U.S. and Japan.

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Compliance Policy

Basel Committee May Let Banks Use CoCos in Capital Surcharge

Global regulators may allow too-big-to-fail banks to use contingent convertible bonds to meet additional capital requirements designed to save them from collapse in a crisis.

So-called CoCo bonds, which convert into a bank’s ordinary shares if a specific trigger event occurs, are being considered for the capital surcharge by the Basel Committee on Banking Supervision, said Lars Frisell, chief economist of the Swedish Financial Supervisory Authority and a member of the Basel committee. There is some skepticism from regulators who question how well the instruments will work in practice, he said.

Regulators are exploring the use of CoCos to protect taxpayers from having to foot the bill of future bank rescues. Switzerland proposed that the country’s two largest banks, UBS AG and Credit Suisse Group AG, could use CoCos to satisfy part of a capital surcharge imposed at the national level.

The FSB brings together finance ministries, regulators and central banks from the G-20 countries. The Basel committee brings authorities from 27-countries including the U.K., U.S. and China, to set regulatory standards for lenders.

CoCos automatically become equity when preset triggers are breached, supplying a buffer against losses in a crisis.

Most members of the Basel committee are “healthily skeptical” about CoCos, Frisell said, adding that he didn’t think this would prevent them from forming part of the surcharge plans.

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EU Carbon Emissions Permits Plan May ‘Kill Off’ Polish Companies

European Union regulations that will allocate free carbon-dioxide permits to companies in the next phase of the world’s biggest emissions trading system may “kill off” Polish coal-dependent companies, an official said.

The methodology chosen by the European Commission, the EU’s regulatory arm, is illegal and discriminates against coal-based energy production, said Zbigniew Kamienski, deputy director at the economic development department of Poland’s Economy Ministry. Poland may sue the commission over the plan, he said.

The commission last week adopted 52 carbon efficiency benchmarks for distributing a dwindling supply of free emissions allowances to companies from 2013 to 2020.

The EU emissions trading system, which started in 2005, is the cornerstone of the bloc’s policy to cut greenhouse gases blamed for climate change. While the EU has given away the majority of emissions permits since the program began, it will sell the majority of them in the next phase, with free allocations given to the most efficient installations.

Poland generates about 95 percent of its energy from coal.

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Egypt Reverses Decision to Lower Brokerages Cash Reserves

Egypt’s financial markets’ regulator decided to reverse a temporary rule that lowered the cash-reserves requirements for brokerages to 5 percent of their capital from 10 percent.

The measure will expire at the close of business on May 12, the Cairo-based Egyptian Financial Supervisory Authority said in a statement on its website yesterday.

SEC Requests Comment on Increased Disclosure for Short Sellers

U.S. regulators asked for public comment on a plan to require real-time reporting of bearish stock bets known as short sales, a measure called for by the Dodd-Frank Act passed last year.

The Securities and Exchange Commission is considering a volunteer pilot program in which each short-sale trade would be immediately reported on the so-called consolidated tape where all equity transactions are recorded. The agency, which must submit its findings to Congress by July 21, is also studying real-time disclosure of short-sale positions either publicly or to regulators, according to a statement yesterday.

The SEC opened the comment period with 23 questions on the monitoring of short selling. It’s seeking comment “on both the existing uses of short selling in securities markets and the adequacy or inadequacy of currently available information regarding short sales,” the regulator said.

The SEC’s report on short selling will be one of more than 20 studies required of the SEC by Dodd-Frank.

Compliance Action

ICE Clear Europe Will ‘Cooperate’ With EU CDS Probe, ICE Says

IntercontinentalExchange Inc. said its European derivatives clearing arm ICE Clear Europe “intends to cooperate with” the European Union’s antitrust probe into its arrangements with banks for the clearing of credit-defaults swaps.

“It is too early in the proceedings to determine whether a finding of infringement will be made or the likely range of penalties, if any, if such finding is made” by the European Commission, it said in a U.S. regulatory filing yesterday.

U.K. Charges Three Former Directors Over Torex Retail Collapse

U.K. prosecutors charged three men in connection with the collapse of Torex Retail Plc, including the firm’s former chairman.

The men were charged with conspiracy to defraud, the Serious Fraud Office said yesterday in a statement. Two of them were also charged with false accounting.

The SFO said the investigations are continuing and a further announcement will be made May 9.

Those charged were Robert Loosemore, Torex’s former chairman, Mark Woodbridge, a former accountant at the company, and Nigel Horn, who was the legal director, the SFO said.

Torex Retail’s shares were suspended from trading in London in January 2007 after the SFO started its investigation. The probe was followed by overhauls of the company’s management and it went into administration later that year. Its assets were bought by New York-based private equity group Cerberus Capital Management for 204.4 million pounds ($338 million).

Lawyers for the men, Jo Rickards at DLA Piper LLP, Eve Giles at Kingsley Napley LLP and Peter Binning at Corker Binning, didn’t immediately respond to requests for comment.

Turkish Stocks Fall First Day in Five on Bank Regulator Warning

Turkish stocks snapped a four-day winning streak after a regulator said it may take action against banks that break limits on mortgage lending.

The Banking Regulation and Supervision Agency in Ankara has the right to “relieve banks of their powers” should they not adhere to rules such as providing mortgages of a maximum of 75 percent of the value of a property, chief regulator Tevfik Bilgin said in a telephone interview yesterday.

Turkish bank lending increased an annual 35.7 percent in the week to April 22, the same pace as the previous week. That’s in spite of government efforts to curb loan growth by increasing reserve requirements at lenders. The government and central bank say lenders should cap loan growth at 25 percent this year.

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UBS Agrees to Pay $160.2 Million in U.S. Muni Bid-Rig Probe

UBS AG, Switzerland’s largest bank, agreed to pay $160.2 million to settle charges it rigged bids on at least 100 U.S. municipal-bond transactions that generated “millions of dollars in ill-gotten gains.”

UBS will pay $47.2 million to settle Securities and Exchange Commission charges and $113 million to end cases brought by other federal and state authorities, the SEC said yesterday in Washington. Some of the money will be returned to municipalities, the SEC said.

The settlement agreements, which involved 25 states, are part of criminal and civil investigations into a conspiracy by financial firms and municipal advisers to overcharge state and local governments for investment products. UBS’s activity threatened the tax-exempt status of $16.5 billion of municipal bonds, the SEC said.

“UBS is pleased to have resolved this matter with its regulators,” the Zurich-based company said in a statement. “The underlying transactions were entered into in a business that no longer exists at UBS and involved employees who are no longer with the firm.”

UBS said the settlement costs were accounted for in previous quarters and won’t affect future results.

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BofA, Wells Fargo Mortgage Papers Challenged in North Carolina

Bank of America Corp. and Wells Fargo & Co., lenders already being probed for faulty home foreclosure practices, were accused by a county official in North Carolina of using mortgage documents that were possibly forgeries.

The signatures of the same names on more than 4,500 documents handled by Lender Processing Services Inc. for real estate valued at $624.8 million varied enough to raise doubts about their validity, Jeff Thigpen, register of deeds in Guilford County, North Carolina, told reporters yesterday in Greensboro.

Most of the documents were certificates of satisfaction filed on behalf of San Francisco-based Wells Fargo, Bank of America, based in Charlotte, North Carolina, and other institutions showing the payoff of home mortgages, he said.

Jason Menke, a Wells Fargo spokesman, said the bank’s practices regarding certificates of satisfaction are “appropriate and pose no risk or harm to homeowners in the Carolinas or anywhere else.”

Michelle Kersch, a spokeswoman for Lender Processing Services, said by e-mail that when the company learned of improper signing practices at its subsidiary Docx in November 2009 the process was halted, clients notified and the unit ultimately shut down.

“The signing procedures at Docx were not consistent with LPS’s policies and practices nor were they approved of by LPS’s senior management,” she said.

Jumana Bauwens, a spokeswoman for Bank of America, didn’t respond to an e-mail and phone call seeking comment.

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Mediaset Challenges EU Over $7.5 Million in Decoder Subsidies

Mediaset SpA, the company controlled by Italian Prime Minister Silvio Berlusconi, told the European Union’s highest court that an EU order forcing it to repay Italy about 5 million euros ($7.5 million) in subsidies for the purchase of digital-broadcast decoders was unsubstantiated.

A lower EU court last year failed to assess whether the European Commission had “sufficiently established” that Mediaset benefited from the subsidies, a lawyer for the Milan-based company said yesterday.

The Brussels-based European Commission, the executive agency for the 27-nation EU, in January 2007 said the subsidies amounted to more than 200 million euros for Italians who purchased digital terrestrial decoders, while satellite technology was excluded. Mediaset was among companies that indirectly benefited from the aid, the commission said.

“By excluding one of the major players” from being able to benefit from the subsidies, “Italy created an unnecessary and excessive distortion of competition,” Bernd Martenczuk, a lawyer for the commission, told the court.

The commission started probing the subsidies after complaints from satellite-television operators, including Sky Italia and Centro Europa 7.

The case is C-403/10 P, Mediaset v. Commission.

HSBC Seeks Dismissal of $9 Billion Madoff Trustee Lawsuit

HSBC Holdings Plc asked a judge to dismiss a lawsuit filed by the trustee liquidating Bernard L. Madoff’s firm, saying he isn’t allowed by law to bring such suits on behalf of the confidence man’s customers.

Trustee Irving H. Picard in December sued HSBC and a dozen so-called feeder funds for $9 billion, accusing them of aiding Madoff’s fraud and failing to take steps to protect investors. A U.S. District Court judge temporarily took the case out of bankruptcy court to decide whether Picard can bring common-law claims such as unjust enrichment and can sue on behalf of customers, since his job is to liquidate the Madoff firm.

Amanda Remus, a Picard spokeswoman, declined to comment.

The appeal is Irving H. Picard v. HSBC Bank Plc, 11-cv-0763, U.S. District Court, Southern District of New York (Manhattan).

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Berenzweig Sees Rajaratnam Verdict Delayed by Two Weeks

Seth Berenzweig, managing partner at Berenzweig Leonard, talked about the insider-trading trial of Galleon Group LLC co-founder Raj Rajaratnam.

Berenzweig, who spoke with Margaret Brennan on Bloomberg Television’s “InBusiness,” also discussed a U.S. probe into Goldman Sachs Group Inc. following a Senate referral that the firm misled clients about mortgage-linked securities.

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SEC Head Walter Says Muni Market Needs Congress to Act

Individual investors in municipal bonds are treated like “second-class citizens” because of a lack of oversight, and action by Congress may help, Securities and Exchange Commission Commissioner Elisse Walter said.

Walter told the National Federation of Municipal Analysts conference in Charleston, South Carolina, yesterday that the SEC wants a law empowering it to set “basic disclosure standards.” The agency has heard complaints from both individual and institutional investors about the quality and timeliness of information from issuers, she said.

The SEC has no desire to review muni bond deals before they are sold in the $2.93 trillion market, she said. An amendment to the 1934 Securities Exchange Act restricts the SEC and Municipal Securities Rulemaking Board from requiring issuers to file offering documents, with the burden currently on underwriters. The SEC reviews and approves rules made by the board, which is an industry self-regulatory organization.

One of her greatest concerns, she said, is the “awful state of affairs” because of the lack of insight into pricing when a person sells bonds.

There should be a structure to improve “pretrade transparency,” Walter said. It’s in the best interest of municipal-bond sellers, she said.

Comings and Goings

SEC’s Schapiro Says Agency to Start Hiring, Bolster Technology

The U.S. Securities and Exchange Commission is using a $74 million funding boost stemming from a congressional budget compromise to hire derivatives specialists, SEC Chairman Mary Schapiro told lawmakers.

The money will partially address the agency’s “capacity gap” by allowing hiring in its enforcement, inspections and trading and markets units, Schapiro said yesterday in testimony prepared for a Senate Appropriations subcommittee hearing on fiscal year 2012 budgets for the SEC and the Commodity Futures Trading Commission.

The money will also be used to boost oversight of credit-rating and catch up on Dodd-Frank Act requirements, Schapiro said.

CFTC Chairman Gary Gensler, who was also expected to address the committee, said in prepared remarks that the money could be used to hire additional employees to oversee an estimated 300 futures brokers and swap dealers, 20 clearinghouses and as many as 40 so-called swap execution facilities required by Dodd-Frank.

The two agencies -- which had been operating under their fiscal 2010 budget limits during a congressional stalemate over spending for the current fiscal year -- got additional funding under a compromise plan approved last month.

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