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Paying Market Makers, EU Credit Rating, JPMorgan: Compliance

Regulators should consider allowing smaller companies to pay broker-dealers to make markets in their shares as a way to spur trading and encourage initial offerings, NYSE Euronext and Nasdaq OMX Group Inc. executives said yesterday.

Such a change in regulations would increase the ability of investors to buy and sell stock by boosting market makers’ economic incentives, Joseph Mecane, co-head of U.S. listings and cash execution at NYSE Euronext, said at a subcommittee meeting of the House Committee on Oversight and Government Reform. The Financial Industry Regulatory Authority, which oversees almost 4,500 brokers, banned the practice in 1997, he said.

U.S. policy makers, regulators and exchanges are seeking ways to improve trading in smaller companies in order to encourage more of them to go public. Rules adopted in the last decade have driven up costs for companies that want to sell shares and shifted trading incentives toward higher-capitalization stocks, according to a report last month by the IPO Task Force, a group of private securities professionals.

NYSE Arca, a venue run by NYSE Euronext, will propose rules to the Securities and Exchange Commission for a pilot program in which issuers pay market makers to supply liquidity in exchange-traded funds, Mecane said.

Nasdaq OMX also plans to propose liquidity payment programs by issuers in its new BX Venture Market, which caters to smaller companies, and for “less-followed ETFs,” Eric Noll, executive vice president for transaction services, said yesterday. The ETF proposal will be sent to the SEC this week and the BX Venture proposal by the end of the year, Noll said in a phone interview.

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Compliance Policy

EU Proposes Tougher Regulation on Credit-Ratings Companies

The European Union proposed tougher regulations to rein in credit-ratings companies while opting to postpone plans to ban credit ratings on countries negotiating international bailouts.

EU Financial Services Commissioner Michel Barnier said yesterday’s proposals would force companies to rotate credit ratings firms they use to bolster competition. He said more work was needed on plans to ban some sovereign ratings as well as temporarily prohibit mergers and acquisitions by the largest ratings firms.

Barnier said in a statement yesterday that credit rating agencies should follow stricter rules and be more transparent about their ratings “and be held accountable” for mistakes. He wants to see “increased competition.”

Separately, the price and accuracy of credit ratings would improve with greater competition among providers, the U.K.’s Financial Services Authority said in a report yesterday.

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European Regulator Aims for November Deadline on Capital Data

The European Banking Authority will publish additional data on how much capital banks need to raise by the end of November, the watchdog’s chairman said yesterday.

The EBA is “collecting the information from the supervisors and the September data and we are now putting together all this information,” Andrea Enria, EBA chairman, told reporters in Frankfurt. The regulator will also give clarity on the use of so-called contingent-capital in reaching capital targets, Enria said.

Europe’s banks will need to raise 106 billion euros ($143 billion) in fresh capital under tougher rules being introduced in response to the euro area’s sovereign-debt crisis, the European Banking Authority said last month. The extra reserves are needed to meet a temporary requirement for lenders to hold 9 percent in core reserves, after sovereign-debt writedowns.

Reuters reported yesterday that banks would get the information Nov. 18.

Compliance Action

Chase Must Reimburse Customers $1.9 Million on Finra Order

The Financial Industry Regulatory Authority ordered JPMorgan Chase & Co. to reimburse customers more than $1.9 million for losses incurred from recommending unsuitable investments and fined the firm $1.7 million.

Brokers with Chase Investment Services Corp. made almost 260 unsuitable recommendations to customers to purchase unit investment trusts with significant holdings in high-yield bonds, resulting in losses of about $1.4 million. The firm’s brokers also recommended the purchase of floating-rate loan funds, which may be illiquid or subject to significant credit risk, to conservative customers, resulting in losses of almost $500,000, according to a statement yesterday by Finra, the Washington-based self regulator for the securities industry.

JPMorgan neither admitted to nor denied the charges, according to the release.

Michelle Ong, a Finra spokeswoman, declined to comment beyond the release. Tom Kelly, a JPMorgan spokesman, declined to comment on the order.

U.K. SFO Said to Start Probe of Japan’s Olympus Corp.

U.K. prosecutors are opening a formal investigation into Olympus Corp. after the company said it hid losses from investors, a person familiar with the probe said.

The U.K.’s Serious Fraud Office, which prosecutes white-collar crime, is working with the U.S. Federal Bureau of Investigation and the Department of Justice, according to the person, who declined to be identified because they weren’t authorized to speak about the case.

Qualcomm Quizzed Again by EU Regulators Over Antitrust Complaint

Qualcomm Inc., the biggest maker of chips for mobile phones, was asked for information by European Union regulators investigating an antitrust complaint, two years after the EU dropped an investigation of the company.

The European Commission asked Qualcomm last month to supply “additional documents and information” related to a complaint filed last year by Icera Inc., a maker of wireless chips, the company said in a regulatory filing.

San Diego-based Qualcomm said in the filing that it continues to “cooperate fully with the commission’s preliminary investigation.”

Nvidia Corp., a maker of graphics chips, earlier this year bought closely held Icera for $367 million to add radio processors needed in phones and tablets.

Nvidia declined to immediately comment.

European Banks Threaten to Review Hungarian Units on Loan Law

Seven western European banks active in Hungary told the European Union that they’ll review the viability of their units because of losses imposed by the government, according to two people familiar with the matter.

In a letter dated yesterday to Michel Barnier, the EU’s financial services commissioner, banks headquartered in Austria, Italy, Belgium and Germany urged the European Commission to “take urgent and immediate action” against Hungary’s law forcing them to take losses on foreign-currency mortgages, according to the two people, who have seen the letter.

It was signed by the chief executive officers of UniCredit SpA, Erste Group Bank AG, Raiffeisen Bank International AG and its parent RZB, KBC Groep NV, Intesa Sanpaolo SpA and Oesterreichische Volksbanken AG as well as the chief financial officer of Bayerische Landesbank, according to the people, who declined to be identified because the letter isn’t public.

The letter pointed out the “potential losses imposed by the Hungarian government” on the banks’ Hungarian units, noting that the resulting stress “contributes to the current instability of the European banking market.”

Ex-CEO Agrees to Return $2.8 Million in SEC Clawback Case

A former chief executive officer will return $2.8 million in bonus pay and stock profits to resolve U.S. Securities and Exchange Commission claims stemming from a clawback provision in the Sarbanes-Oxley Act.

Maynard L. Jenkins, who ran CSK Auto Corp. from 1997 to 2007, was subjected to sanctions even though he wasn’t personally accused of wrongdoing when the agency sued the company for filing false financial statements from 2002 to 2004, the SEC said yesterday in a statement. The case marks the SEC’s first clawback against an individual who wasn’t alleged to have otherwise violated the securities laws, the agency said.

“CEOs should know that they can be deprived of bonuses or stock profits they received while accounting fraud was occurring on their watch,” SEC Enforcement Director Robert Khuzami said in the statement.

Sarbanes-Oxley, enacted in 2002 to combat corporate fraud after accounting scandals at Enron Corp. and WorldCom Inc., gives the SEC authority to seize payouts to CEOs and chief financial officers at companies that restate earnings “as a result of misconduct.”

The SEC previously sued four former CSK Auto executives for accounting fraud, and separately charged the company for filing false statements, the agency said. The Justice Department brought a criminal indictment against the same executives, who pleaded guilty to various charges. CSK agreed to pay a $20.9 million penalty under a non-prosecution agreement with the Justice Department.

The settlement calling for Jenkins to return the money to O’Reilly Automotive Inc., which acquired CSK in 2008, is subject to court approval, the SEC said.

“The SEC makes no allegation of wrongdoing by Mr. Jenkins and concedes he had no involvement in or knowledge of the wrongdoing of others at the company,” John Spiegel, a Munger, Tolles & Olson LLP law partner who represented Jenkins, said in an e-mailed statement.

H&R Block Antitrust Loss Is Win for U.S. Ahead of AT&T Trial

H&R Block Inc.’s decision to abandon its acquisition of the maker of TaxAct products is a victory for the U.S. Justice Department as it prepares for a trial to stop AT&T Inc.’s purchase of T-Mobile USA Inc.

H&R Block, in a filing with the Securities and Exchange Commission, said yesterday it ended its proposed $287.5 million purchase of closely held 2SS Holdings Inc. The decision followed U.S. District Judge Beryl Howell’s Oct. 31 ruling that the merger violates antitrust laws.

“It’s a complete victory for the Justice Department and one that AT&T has to notice,” said Jeffrey S. Jacobovitz, an antitrust litigator with McCarthy, Sweeney & Harkaway PC in Washington.

The judge said company documents, testimony and other evidence showed that TaxAct’s competition “constrained” H&R Block’s prices, and combining the companies would probably cause prices to rise “to the detriment of the American taxpayer.”

The H&R Block case marked the first time in seven years the Justice Department has gone to trial since failing in 2004 to stop Oracle Corp.’s $8.4 billion purchase of PeopleSoft Inc., according to department data. The government’s case against AT&T is scheduled for a trial of four to six weeks beginning Feb. 13.

The company doesn’t expect any termination penalties, it said in the SEC filing.

Wayne Watts, AT&T’s general counsel, said in a statement that the H&R Block case “has nothing in common” with AT&T’s.

“It involves a different industry, a different market, and a different competitive landscape,” Watts said. “The hyper-competitive wireless industry and the enormous network efficiencies and consumer benefits that result from our merger distinguish our case from any other.”

The H&R Block case is U.S. v. H&R Block, 1:11-cv-00948, and the AT&T case is U.S. v. AT&T Inc., 11-cv-01560, U.S. District Court, District of Columbia (Washington).

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Glencore Awaits Antitrust Approval Before Optimum Bid

Glencore International Plc, the world’s biggest publicly traded commodities supplier, will wait for antitrust approval for past transactions before making a mandatory offer for South Africa’s Optimum Coal Holdings Ltd.

Optimum, the country’s fourth-largest coal exporter, said Glencore and businessman Cyril Ramaphosa will bid at least 38 rand a share to acquire the stake it doesn’t already own in the company. The offer isn’t expected before the end of the first quarter of 2012, Optimum said today in a statement.

The investor group has also concluded a conditional agreement to buy Mercuria Energy Asset Management BV’s shares, Optimum said. Mercuria holds a 15 percent stake in Optimum and has a marketing agreement with the company.

Glencore Chief Executive Officer Ivan Glasenberg, who led the company to a $10 billion initial public offering in May, said in August the commodities trader is “aggressively” seeking mergers and acquisitions as market valuations slide. Buying Optimum would expand Glencore’s South African energy-coal production. The assets include the country’s third-largest opencast mine, bought from BHP Billiton Ltd. in June 2008.


Otkritie Says Banker Embezzled $18 Million ‘Golden Hellos’

Otkritie Financial Corp., a Russian brokerage partly owned by state-run VTB Group, said in a civil lawsuit that George Urumov, a senior executive in its London office, embezzled at least $17.8 million in signing bonuses meant for colleagues.

Otkritie, based in Moscow, said it suffered a loss of at least $23 million through the deception.

Alexey Karakhan, a Moscow-based spokesman for Otkritie, said by mobile phone that Urumov had been suspended. Howard Snell, head of Otkritie’s London office, declined to comment when reached on his mobile phone. Urumov couldn’t be reached for comment through Otkritie’s press office.

The case is Otkritie versus Urumov, High Court of Justice, Queen’s Bench Division, No. 11-1182.

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Fed’s Fisher Says Regulators Should Break Up ‘Behemoth’ Banks

Federal Reserve Bank of Dallas President Richard Fisher said regulators should break up so-called too-big-to-fail financial institutions to curtail the risk they pose to financial stability.

“Downsizing the behemoths over time into institutions that can be prudently managed and regulated across borders is the appropriate policy response,” Fisher said. He made the remarks in the text of a speech given yesterday in New York.

Regulators in the U.S. and abroad have attempted to address the risks posed by such systemically important financial institutions, and if “properly implemented,” the Dodd-Frank overhaul legislation “might assist in reining in the pernicious threat to financial stability,” Fisher said.

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Comings and Goings

Irish Central Bank Said to Approve Duffy as Allied Irish CEO

Ireland’s central bank approved the appointment of David Duffy as chief executive officer of government-owned Allied Irish Banks Plc, ending a year-long search, two people with knowledge of the discussions said.

Duffy, 50, would be Allied Irish’s fourth leader in two years after Eugene Sheehy stepped down in 2009.

Allied Irish nominated the former executive at South Africa’s Standard Bank Group Ltd. for the role last month, subject to central bank and government approval, said the people, who declined to be identified because the negotiations are private. The appointment still needs government approval, they said. Allied Irish, the nation’s second-biggest bank by assets, received a 21 billion-euro ($28 billion) bailout following the collapse of the country’s real-estate bubble.

Duffy didn’t immediately return an e-mail seeking comment. Central Bank spokeswoman Nicola Faulkner, Finance Ministry spokesman Eoin Dorgan and Allied Irish spokesman Ronan Sheridan each declined to comment on the appointment.

The Sunday Business Post identified Duffy as a potential CEO on Oct. 16.

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