China Barrier Eases, Sweden Dodges, Mexico Probe: Compliance

China’s securities regulator plans to lower entry barriers for overseas funds, encouraging investment in domestic securities as it seeks to broaden and deepen the country’s capital markets.

China will speed up approval of so-called qualified foreign institutional investors and broaden the types of companies that are allowed to invest, according to a People’s Daily article that the China Securities Regulatory Commission posted on its website May 18. It may also grant quotas for pension funds from Hong Kong, Taiwan and Singapore under a system outside the QFII program, depending on demand, the regulator said, confirming a report in the Wall Street Journal.

CSRC Chairman Guo Shuqing said in February that the country needs to develop capital markets faster as it seeks to overhaul its economy. Authorities more than doubled quotas for QFIIs last month to $80 billion from $30 billion. The regulator has approved 167 institutions under the program.

Introducing more long-term funds from abroad “will help improve domestic investors’ confidence” and further open up the capital markets, the regulator said in the article from the official Communist Party newspaper. The foreign institutions “will help form a rational investment culture” for Chinese markets as they mainly invest in blue-chips and seek long-term returns, it said.

Institutions controlled by a single entity will be allowed to apply for separate QFII quotas, and limits on asset allocation will also be relaxed, the regulator said.

Compliance Policy

CFTC Proposes Easing Aggregation Rules, Makes Final Rule on Data

The U.S. Commodity Futures Trading Commission approved a notice of proposed rulemaking that would modify the agency’s aggregation provisions for limits on speculative positions.

The proposed rulemaking was announced by the CFTC in a statement May 18.

Separately, the agency approved a final rule on swap data recordkeeping and reporting requirements for counterparties to swaps executed before the Dodd-Frank Act became law, according to an announcement by the commission online.

The goal of the final rule is to specify what records must be kept and what data must be reported. In addition, the recordkeeping will ensure historical swap data will be available to regulators.

Compliance Action

Google Given a ‘Matter of Weeks’ to Submit Remedies in EU Probe

Google Inc. must submit remedies within weeks to assuage European Union regulators’ antitrust concerns to avoid a formal complaint and possible fines, EU Competition Commissioner Joaquin Almunia said.

Almunia asked the company to send him proposals within “a matter of weeks” to eliminate concerns that Google promotes its own specialist “vertical” search services, that it copies rival content including travel and restaurant reviews and that its contracts with software developers prevent ads from being moved to different services.

Google, based in Mountain View, California, is under growing pressure from global regulators probing whether the company is thwarting competition in the market for Web searches. The U.S. Federal Trade Commission and antitrust agencies in Argentina and South Korea are also scrutinizing the company.

Google disagrees with the commission’s conclusions and is “happy to discuss any concerns they might have,” Al Verney, a Brussels-based spokesman for the company, said in an e-mailed statement.

SEC Will Review Facebook Trade Reporting Problems at Nasdaq

The U.S. Securities and Exchange Commission said it will review problems Nasdaq OMX Group Inc. said it had reporting trades in Facebook Inc. during its first day as a publicly traded company.

“As is our practice, staff will review the incident with Nasdaq to determine its cause and steps that will be taken to address it,” John Nester, an SEC spokesman, said in an e-mailed statement May 18.

The pricing of the first transaction following May 17’s $16 billion stock sale took a half hour longer than Nasdaq’s forecast. About 40 minutes later, the second-largest U.S. equities exchange operator said it was investigating an issue in reporting trades from the opening auction back to the brokerages that made them. Nasdaq later said it delivered the messages.

The SEC routinely reviews reports of trading disruptions.

Rob Madden, a spokesman for Nasdaq OMX, didn’t immediately respond to a request for comment.

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Sweden FSA Dodges Rules to Foster Corporate Debt Market

Sweden’s financial watchdog is dodging its own rules in an effort to nurture a burgeoning corporate bond market spawned by tighter bank credit standards.

The Financial Supervisory Authority is letting corporate debt traders keep daily bond and pricing data to themselves, even though they’re required to follow the same transparency rules that apply to sovereign and mortgage debt. The FSA says the compromise is borne of necessity as regulators work out how to support a nascent market.

As Swedish companies try to fill the gap created by tighter bank credit amid stricter capital rules, they’re struggling to persuade bond investors their market meets international standards. Corporate bond issuance in the largest Nordic economy has risen 2 percent this year to 26.3 billion kronor ($3.7 billion). Yet the market still lags behind neighboring Norway, where 45 billion kroner ($7.5 billion) in corporate and financial debt was sold in the period, according to data compiled by Bloomberg.

The FSA said it’s looking over other measures that would improve corporate bond transparency and expects to have a new model next year, Anna Jegnell, executive director of markets at the Stockholm-based FSA, said in an interview.

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CME Expands Grain-Trading Hours May 20 to Match ICE Markets

CME Group Inc., the world’s largest futures exchange, anticipated expanding grain-trading hours beginning May 20 after U.S. regulators approved a plan intended to thwart new competition from IntercontinentalExchange Inc.

Trading on the CME’s Chicago Board of Trade was set to increase to 21 hours a day starting at 5 p.m. yesterday, up from 17 hours, after the U.S. Commodity Futures Trading Commission approved the plan, the Chicago-based exchange said May 18 in a statement on its website.

Hours will be expanded for corn, mini-sized corn, soybeans, mini-sized soybeans, wheat, mini-sized wheat, soybean meal, soybean oil, rough rice, oats and ethanol futures and options and related calendar-spread options and inter-commodity spread options, the CME said.

The National Grain & Feed Association and the North American Export Grain Association, the two largest U.S. grain-handling organizations, said May 17 they ended their opposition to the change because it allows for the trading day to end at 2 p.m., giving companies enough time to tally up the day’s trading before a new period starts.

The delay in matching the expanded hours at ICE reflected the extra pressure on the dominant CME markets to make sure that the changes would be acceptable to key market participants, according to Bart Chilton, one of five CFTC commissioners.

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Mexican Regulator Probing Bond Trades for Volume Manipulation

Mexico is investigating whether banks and brokerages manipulated trading volumes in the government debt market, the head of the nation’s securities regulator said.

Officials are looking into the possibility that about four institutions and eight people tried to elevate volumes to boost their status as market makers, Guillermo Babatz, president of the National Banking and Securities Commission, said in an interview in Acapulco, Mexico.

The suspected violations occurred in 2009 and 2010 and have formed part of an investigation that’s gone on for more than two years, according to Babatz, who declined to identify the people or institutions.

The commission plans to make a decision on possible sanctions by July, he said.


MF Global $1 Billion Vanished Into Brokerage, Court Is Told

MF Global Holdings Ltd. still can’t trace where some of the money went when its brokerage collapsed, including $1 billion that “vanished” into the brokerage unit MF Global Inc., an attorney told a bankruptcy court.

Brett Miller, a lawyer for MF Global Holdings’ Chapter 11 estate, told U.S. Bankruptcy Judge Martin Glenn in Manhattan May 18 that court papers detailing the assets and debts of five of its six bankrupt units would likely to be filed May 18. Details on the sixth, MF Global USA, which filed for bankruptcy in March, will take about another week, he added.

A report is due June 4 from Chapter 11 trustee Louis Freeh on the results of a probe into how the brokerage failed last October.

As MF Global Holdings unwinds in bankruptcy to repay creditors, its former operating unit, MF Global Inc., is liquidating under the Securities Investor Protection Act to repay customers who are estimated to be out $1.6 billion.

The holding company and brokerage each has its own trustee, and the two have disagreed on whether certain assets belong to customers or creditors.

The brokerage case is Securities Investor Protection Corp. v. MF Global Inc., 11-02790, U.S. District Court, Southern District of New York (Manhattan). The parent’s bankruptcy case is MF Global Holdings Ltd., 11-bk-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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Seattle Fund Manager Charged With Diverting $46 Million

Mark Spangler, former chairman of the National Association of Personal Financial Advisors, was indicted on charges that he secretly diverted $46 million from investors to risky startup companies he co-owned.

Spangler, the Seattle-based head of Spangler Group and co-founder of Tamarac Inc. and TeraHop Networks Inc., told investors that their funds were conservatively invested in publicly traded companies and bonds, U.S. Attorney Jenny Durkan in Seattle said in a statement on her website. A federal grand jury May 17 indicted Spangler on 23 counts of wire fraud, money laundering and investment adviser fraud, Durkan said.

The U.S. Securities and Exchange Commission said May 17 it is suing Spangler. He is scheduled to appear in federal court in Seattle tomorrow.

Spangler, 57, established funds as early as 1998, Durkan said. He didn’t tell customers he was diverting significant amounts of money to Tamarac and TeraHop, prosecutors said. TeraHop, a Georgia company, is no longer in business. Tamarac, based in Seattle, provides software to financial planners.

Spangler cooperated with the government’s investigation, said Jon Zulauf, his attorney.

“We are disappointed that charges have been filed,” Zulauf said in a telephone interview. The lawyer said he and his client will fight the charges.

The criminal case is U.S. v. Spangler, 12-133, and the SEC case is SEC v. Spangler, 12-856, U.S. District Court, Western District of Washington (Seattle).

Ex-UBS Trader Karpe Fined $2 Million for Unauthorized Trading

The former head of a trading desk at UBS AG’s wealth-management unit in London must pay 1.25 million pounds ($2 million) for unauthorized trading after he lost his challenge to the penalty levied by the U.K. finance regulator.

Sachin Karpe is also accused by the Financial Services Authority of moving money between client accounts to hide losses from unauthorized foreign-exchange trades and helping Indian billionaire Anil Ambani’s company invest more than $250 million in an offshore trust in violation of Indian law. The FSA fine against him was upheld by a London tribunal today.

Karpe, who was fired from his post overseeing accounts for Indian clients on the bank’s Asia-2 desk, only challenged the fine by the regulator, not a lifetime ban from working in Britain’s financial-services industry. Karpe, who wasn’t at the hearing, submitted evidence that the levy would cause financial hardship.

At the hearing, Karpe’s lawyer argued he didn’t circumvent any rules because the UBS unit had no controls in place to prevent unauthorized trading in client accounts.

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Too Much Regulation Caused JP Morgan $2B Loss, Whalen Says

Last week JP Morgan Chase & Co. acknowledged a trading loss of at least $2 billion, fueling calls by some observers for more regulation of financial institutions. Chris Whalen, a Senior Managing Director at Tangent Capital Partner, told Bloomberg Law’s Lee Pacchia that it was actually too much regulation that led to the loss.

Jeff Madrick, a Senior Fellow at the Roosevelt Institute, maintained instead that regulators need to clamp down on financial institutions if the dangers of such losses are to be minimized.

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Banks Should Be Allowed to Fail, Sorrentino Says

Frank Sorrentino, chairman and chief executive officer of North Jersey Community Bank, talked about JPMorgan Chase & Co.’s $2 billion trading loss and regulation of the financial industry.

He spoke with Mark Crumpton on Bloomberg Television’s “Bottom Line.”

For the video, click here.

Belka Says Western European Banks Need to Deleverage

Polish Central Bank Governor Marek Belka gave a keynote speech about the risks facing Europe’s banking system.

He spoke at the European Bank of Reconstruction and Development’s annual conference in London.

For the video, click here.

Comings and Goings

Osborne’s Scope to Reshape Bank of England Widens on Posen Exit

Chancellor of the Exchequer George Osborne’s scope to reshape the Bank of England just got wider as the departure of policy maker Adam Posen lengthens the list of key staff to appoint as he also redesigns the institution.

Posen, 45, will leave the central bank at the end of August before becoming president of the Washington-based Peterson Institute, according to a statement released May 18 in London. That will further pile up Osborne’s Bank of England inbox as he drives through legislation to revamp its role and considers how to fill multiple vacancies in its leadership.

Posen’s exit will remove one of the most vocal policy makers at the Bank of England, whose pronouncements often presaged shifts in officials’ stance. With decisions also due on the successor to Governor Mervyn King and Deputy Governor Charles Bean, Osborne’s personnel choices may have as important a legacy on the central bank as his plans to return financial regulation to the institution.

The government has been counting on the central bank to adopt loose monetary policy as it pursues the biggest fiscal squeeze since World War II.

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