Canada Foreign Takeovers, Dewey Probe, Brazil: Compliance

Canada plans to change its foreign takeover legislation to make reviews more transparent as it seeks to assure business the country remains open to investment.

The changes, introduced April 26 as part of a budget bill, will allow the industry minister to publicly explain why an acquisition has been blocked as long as the information doesn’t cause harm to the businesses involved, Industry Canada said in a news release April 27.

Prime Minister Stephen Harper is seeking to strengthen investor confidence in the review process amid criticism the system is unpredictable, after his government rejected a hostile takeover bid for Potash Corp. of Saskatchewan Inc. by BHP Billiton Ltd in 2010. Harper has said that decision stemmed from unique circumstances.

Under Canada’s foreign-takeover law, known as the Investment Canada Act, the government reviews foreign takeovers valued at more than C$330 million ($336 million) in assets to ensure the transaction represents a “net benefit’ to the nation.

Canada’s system for weighing takeovers is ‘‘highly subjective and unpredictable,” the Toronto-based C.D. Howe Institute said in a study released in December. The rules may have contributed to the decline in Canada’s share of global foreign-direct investment, it said.

The changes will allow the government to disclose when the industry minister has sent a preliminary notice to an investor that that an acquisition isn’t a “net benefit” to the country. The department also said the changes will allow the minister to “accept security” for payment of any court-ordered penalties for contravention of the Investment Canada Act by investors.

The amendments are included in a bill introduced April 26 by Finance Minister Jim Flaherty to implement measures in the March 29 budget.

Compliance Policy

Money Market Funds May Face Tougher Regulation in IOSCO Plan

Global regulators are weighing tougher rules for money market funds over concerns that they may amplify future financial crises.

“Confidence shocks” in such funds can “quickly have a broader macroeconomic impact,” the International Organization of Securities Commissions said in a document published April 27 on its website.

Options being considered by regulators include imposing stricter liquidity requirements on money market funds, and reducing their reliance on credit ratings, IOSCO said.

IOSCO, based in Madrid, is seeking views on the plans until May 28.

Brazil National Monetary Council Simplifies Bank Branch Rules

Brazil’s national monetary council approved a resolution to simplify rules governing local branches, the bank said in a statement published April 27.

The head of central bank’s regulatory department, Sergio Odilon dos Anjos, said the measure could reduce banks’ costs by allowing them to choose the size of their local operations in line with local demand.

Iran Disclosure Rule Now Being Developed By SEC, Chairman Says

Companies may be required to disclose their dealings with Iran under a rule being worked on by the U.S. Securities and Exchange Commission that could expose them to sanctions, the agency chairman told a congressional committee, BNA reported.

SEC Chairman Mary Shapiro said April 25 in a hearing before the Capital Markets Subcommittee of the House Committee on Financial Services that the agency’s staff is “well under way” in developing the rule.

The Senate Appropriations Committee, in a report that accompanied its appropriations bill for the 2012 fiscal year, directed the SEC to issue final rules under the Iran Sanctions Act of 1996.

The Appropriations Committee is concerned that companies have broad discretion under current SEC regulations to decide if disclosure of their activities is required “with respect to business interests in or with a state sponsor of terrorism,” the report said.

China Reviews Plan to Lower Stock Trading Fees, Regulator Says

China is studying and reviewing a proposal to lower fees and costs for stock trading, the China Securities Regulatory Commission said in a statement posted on its website April 27, without elaborating.

Separately, China published proposed rules earlier this month to encourage fund-management companies to regulate purchases by managers of funds that they or their employers run.

The rules will also allow employees of fund-management companies to invest in closed-end funds using non-stock accounts and cancel time limits on holding money-market and cash-management funds, the commission said in statement.

China’s Stock Exchanges Seek to Widen Delisting Procedures

China’s two stock exchanges said they aim to widen criteria for delisting companies to better protect investors’ interests.

The Shanghai Stock Exchange and Shenzhen Stock Exchange are seeking public feedback on planned changes by May 20, according to statements on their websites yesterday. Current procedures don’t “fully serve their purpose” and the changes should allow swifter removal of companies from trading and a faster path to relisting, according to the Shanghai statement.

Guo Shuqing, who was appointed as China’s top securities regulator in October, has pledged to fight insider trading and misconduct in the nation’s securities markets. The agency is studying ways to make its delisting policies more effective as companies use loopholes to avoid removal from trading, according to an April 20 statement on its website.

Among the proposed changes, companies with negative net assets will no longer be allowed to remain listed. The bourse will look at the net income excluding one-time gains of companies seeking to relist, as the benchmark for a true picture of their profit.

The China Securities Regulatory Commission may exclude non-recurring items from net income, as some unprofitable companies use government subsidies or other sources to book profits and avoid delisting, according to its April 20 statement.

Other criteria being considered by the bourses are annual revenue and trading volume, according to exchange statements.

Compliance Action

Dewey & Leboeuf Said to Be Probe Subject as Deadline Nears

Dewey & Leboeuf LLP, the New York law firm fighting to stay alive after more than 70 partners left, is the subject of a criminal probe by state prosecutors into whether managers misled partners about payments due them, a person familiar with the matter said.

The investigation by Manhattan District Attorney Cyrus Vance Jr. is in a preliminary stage and has yet to determine whether a crime has been committed, said the person, who declined to be identified because the matter isn’t public.

Dewey, the No. 3 law firm adviser to banks handling merger deals, faces an April 30 deadline to show bank lenders it has a survival plan, possibly including absorption by another firm or cost-cutting.

The law firm has lost about 72 partners in recent months amid complaints about pay and a plan to restructure the firm. It has drawn about $75 million of a $100 million credit line from banks including JPMorgan Chase & Co. and Citigroup Inc., according to a person familiar with the firm’s finances. The banks extended an initial April 16 deadline to come up with a plan, according to a person familiar with a merger proposal Dewey has presented to other law firms.

Erin Duggan, a spokeswoman for Vance, declined to comment. Angelo Kakolyris, a spokesman for Dewey, didn’t return a call seeking comment on the probe. When reach April 26 he declined to comment on the deadline.

In addition to the bank deadline, the firm also has $125 million in bonds sold to insurance companies in 2010 to refinance previous bank loans.

Dewey placed 28th in American Lawyer’s ranking of the largest 100 law firms, with 190 partners and 2011 revenue of $782 million.

For more, click here.

EU Lawmakers to Vote on Basel Bank Law on May 14, Bowles Says

The European Parliament will vote on a bill that sets bank-capital rules for the 27-nation bloc on May 14, Sharon Bowles, chairwoman of the parliament’s economic and monetary affairs committee, said in an interview in Brussels April 27.

For more, click here, and see Interviews section, below.

JPMorgan, Goldman CEOs to Meet with Fed on Rule, WSJ Says

JPMorgan CEO Jamie Dimon has organized a meeting of bank CEOs with Federal Reserve Governor Daniel Tarullo, the Wall Street Journal reported, citing people it didn’t identify who were familiar with situation.

The meeting set for May 2 in New York and is expected to include Dimon as well as CEOs from Goldman Sachs, Morgan Stanley, and Bank of America. The focus will be the proposal by the Federal Reserve to limit banks’ exposure to other firms and government, according to the people, the newspaper reported.

The draft rule would impact banks with derivatives businesses because it would limit net credit exposures between any two of the nation’s largest banks, according to the newspaper.

The bankers plan to tell regulators that the rule is based on unrealistic standards and may spur “potentially destabilizing” market shifts, the paper wrote, citing two draft letters it obtained.

FSA Launches Redress Scheme Consultation for Arch Cru Investors

The Financial Services Authority started a three-month consultation on establishing a consumer compensation plan, which could deliver more than 100 million pounds ($162 million) to investors who were mis-sold the CF Arch Cru Investment and Diversified funds.

BOX Options Gets SEC Approval to Run U.S. Market as Own Exchange

BOX Options Exchange LLC, owned by the Toronto Stock Exchange operator and seven brokers including Citadel LLC and Interactive Brokers Group Inc., won approval April 27 to become a U.S. securities exchange.

TMX Group Inc., which owns 53.8 percent of parent company BOX Holdings Group LLC, will limit its equity stake in the self-regulatory organization, the entity registered with the U.S. Securities and Exchange Commission that will operate the market, to 40 percent and its voting share to 20 percent, according to the document. Interactive Brokers will have 20 percent of BOX Holdings. Citadel, Citigroup Inc., UBS AG and Credit Suisse Group AG will each own between 3.99 percent and 4.2 percent.

BOX, introduced in 2004, currently uses the exchange license of Nasdaq OMX BX, owned by New York-based Nasdaq OMX Group Inc., to run its options market. The company has been seeking its own license since at least 2008, according to Chief Executive Officer Anthony McCormick.

For more, click here.

Daimler May Complain to Bafin About Disclosure Rules, FT Reports

Daimler AG may complain to Bafin, Germany’s financial regulator, about new rules on reporting financial options that the company says have confused investors, the Financial Times reported.

Daimler had to notify investors this month that, while Deutsche Bank AG had a direct stake of 3.6 percent, additional financial instruments in theory gave the bank almost 18 percent of the voting rights, the newspaper said.

Bodo Uebber, Daimler’s finance chief, said the rules, which came into force in February, create “a high potential for confusion,” adding that the company has “a balanced shareholder structure” and is “not a takeover target,” the FT reported.


Lehman Unit’s Swap Side Deal Not Worth $1 Billion, Court Rules

Lehman Brothers Finance SA won a U.K. case over a side agreement tied to over-the-counter derivatives with Lehman Brothers International Europe, which had valued it at as much as $1 billion.

Judge Michael Briggs in London ruled April 27 in favor of the Swiss-based-affiliate that the so-called side letter, linked with an International Swaps and Derivatives Association master agreement, had no value.

“The insolvency has thrown up a number of cases where ISDA clauses are, for the first time, being tested by the courts,” Guy Usher, a lawyer at Field Fisher Waterhouse who represented Lehman Brothers Finance, said in a statement. He described the decision as “very significant” for the Lehman Brothers Finance estate.

The swaps terminated automatically when LBF defaulted by filing for bankruptcy. LBIE, the London-based unit of Lehman Brothers Holdings Inc., had argued the net close-out amount on the transaction -- covering about 12,000 equity-derivative trades -- should have favored it by $1 billion.

Lawyers for the LBIE didn’t immediately return calls requesting comment.

A U.K. appeals court earlier this month rejected an appeal from administrators at two units of the New York-based parent, saying they couldn’t force buyers of interest-rate swaps to make payments arising from the period after the bank’s 2008 collapse.

At the time of Lehman’s collapse, it had more than 900,000 derivative contracts outstanding.


Donahue Opposes SEC’s Proposed Money Fund Rules

Christopher Donahue, chief executive officer of Federated Investors Inc., talked about the U.S. Securities and Exchange Commission’s proposal for new rules governing the $2.6 trillion U.S. money market fund industry.

Donahue spoke on Bloomberg Television’s “InBusiness with Margaret Brennan.”

For the video, click here.

Borg Says Tougher EU Bank Capital Requirements Needed

Swedish Finance Minister Anders Borg discussed bank capital rules and a European Union proposal to fix core capital requirements at 7 percent of lenders’ fixed-weighted assets.

He spoke with Bloomberg’s Johan Carlstrom in Stockholm.

For the video, click here.

Comings and Goings

BOE to Pay More to Move PRA Home From London’s Canary Wharf

The Bank of England will shift the planned Prudential Regulation Authority from London’s Canary Wharf district to more expensive premises near the central bank’s headquarters.

The Bank of England has signed contracts on 20 Moorgate in the City of London, the U.K. capital’s main financial district, according to an e-mailed statement released today. The building will house the PRA, which will be a unit of the central bank responsible for banking supervision when it takes over from the Financial Services Authority next year.

The estimated extra cost of relocating to Moorgate rather than continuing to use the FSA’s current offices is less than 1 million pounds ($1.6 million) a year over the next 15 years, the central bank said.

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