Trade Messaging Protocol, Miami Fund, Quantek: Compliance

Updated on

FIX Protocol Ltd., the London-based organization that owns the global messaging format for financial trading, published a set of European guidelines on how banks should report their equity trades.

Brokers and banks should tag their trades using FIX’s standards so fund managers can tell on which exchange or alternative trading system the order has been executed, FIX said in a statement yesterday. The protocol would also enable them to see whether the transaction occurred in a so-called dark pool, where prices aren’t publicly disseminated, or a lit market.

The guidelines follow requests from fund managers seeking transparency on where and how their trades were executed as market structure and trading practices grow more complex, according to FIX. Since the Markets in Financial Instrument Directive legislation was introduced in 2007 to spur competition, volume has spread across alternative venues such as Bats Chi-X Europe that vie with London Stock Exchange Group Plc, Deutsche Boerse AG and NYSE Euronext.

The guidelines should also flag whether a trade was agency, on behalf of a customer, or principal, on behalf of a bank’s own account, and whether it was executed passively, by posting liquidity, or aggressively, by taking liquidity, Chris Sims, co-chair of the EMEA Business Practices Subcommittee at FIX, said in an interview.

Under the Mifid rules, markets and brokers are permitted to report transactions to any exchange, venue or third party, or publish it on their own website. The European Union is now reviewing the legislation.

Compliance Policy

FSB Agrees on Rules for Identifying Too-Big-to-Fail Insurers

Global regulators agreed on draft rules for identifying insurance companies that should face tougher regulation because their failure would roil global markets.

The Financial Stability Board endorsed a consultation paper setting out a framework for selecting the too-big-to-fail insurers, Mark Carney, chairman of the FSB, said today after a two-day meeting of the board in Hong Kong. The measure extends a 2011 agreement by global regulators to impose stricter capital rules and closer supervision on banks whose collapse could threaten the global economy.

Deutsche Bank AG, BNP Paribas SA and Goldman Sachs Group Inc. were among 29 banks subject to the so-called capital surcharge on globally systemic financial institutions agreed on by the FSB last year. Banks will have to boost reserves by 1 percentage point to 2.5 percentage points above minimum levels determined by international regulators.

The consultation paper will be published ahead of a meeting of Group of 20 leaders in Mexico on June 18-19, according to the FSB, which brings together regulators, finance ministry officials and central bankers from the G-20 countries to devise rules for the financial system.

The FSB confirmed a year-end deadline for agreeing on rules for money-market funds and other so-called shadow banks. The board also said that it will publish a report on banker pay next month.

For more, click here.

Congress to Present Bill Repealing of Parts of Obama Health Law

The House Ways and Means Committee said yesterday that it will hold a markup, or present for debate, amendment and vote, on bills that would repeal part of the Patient Protection and Affordable Care Act, BNA reported.

The bills would repeal the medical-device tax and the ban on using pretax dollars in flexible spending arrangements to buy over-the-counter medicines without a prescription, according to BNA.

Both tax issues were created in the Patient Protection and Affordable Care Act. Republicans in Congress have criticized the

2.3 percent tax on manufacturers and importers of medical devices, which was crafted to raise $20 billion to help pay for the health-care overhaul legislation. The medical-device tax is set to go into effect in 2013.

The change to require consumers to get a prescription before they can use money in flexible spending arrangements to buy over-the-counter medicines was also part of the health-care overhaul. Republicans have argued that the change actually costs the health-care system more money, because it requires people to visit their doctor unnecessarily.

The health-care overhaul also capped the maximum amount of money that individuals can put into their FSAs at $2,500, but House Republicans haven’t announced an intention to roll back that part of the law.

FSA Annual Funding Requirement Reduced by 18.6 Million Pounds

The U.K. Financial Services Authority cut its annual funding requirement by 3.2 percent to 559.8 million pounds ($878 million), down from 578.4 million pounds, the regulator said in an e-mailed statement.

The reduction is due to internal cost controls and the return of a contingency fund set aside to deal with “extreme macro-economic and regulatory events,” the FSA said in the statement.

Taiwan Allows Banks to Accept China’s Bonds as Loan Collaterals

Taiwanese banks are allowed to take China government bonds and certificates of deposit issued by Chinese financial institutions as collaterals for Taiwan dollar-denominated loans, the island’s Financial Supervisory Commission said in a statement on its website.

Germany to Draft Rules on High-Frequency Trading, FTD Reports

Germany’s governing coalition are drafting rules to rein in high-frequency trading, Financial Times Deutschland reported, citing lawmakers.

Market regulators should be able to bring a halt to such trading based on mathematical models and have access to algorithms, according to rules to be drafted by the end of June, the newspaper said. A draft law should be prepared for later this year, according to the newspaper.

Compliance Action

Miami Hedge Fund Misled Clients About Managers’ Stake, SEC Says

A Miami-based hedge fund and two of its executives agreed to pay almost $3 million to resolve U.S. regulatory claims that they deceived investors about their own stake in the fund and failed to disclose conflicts of interest.

Quantek Asset Management LLC falsely represented that it had “skin in the game” along with investors in a $1 billion Latin America-focused hedge fund from 2006 to 2008, the U.S. Securities and Exchange Commission said yesterday in an administrative order. Quantek, which made the claims in due diligence questionnaires and so-called side-letter agreements, also didn’t properly disclose loans to one of the executives and its former parent company, Bulltick Capital Markets Holdings LP, the SEC said.

Javier Guerra, 41, who was the lead principal of Quantek, also agreed to a five year bar from the securities industry and Ralph Patino, 46, Quantek’s former director of operations and head of compliance, consented to a one-year bar, the SEC said. The agency also sanctioned Bulltick, which agreed to a pay a $300,000 penalty.

Guerra said in a statement that he resigned in October 2011 after helping return about $260 million to investors from the fund, which was forced to liquidate amid global financial market turmoil. Stanley Wakshlag, Patino’s attorney, said in an e-mail “We are pleased to have resolved this matter and to have put it behind us.”

Bulltick, which separated from Quantek in 2009, said in a statement that the SEC didn’t allege any securities law violations by any of its current personnel.

“The settlement with the SEC that is announced today concludes the investigation as to Bulltick,” the company said yesterday in the statement. “Bulltick cooperated fully with the SEC at all times during the course of this investigation.”

Guerra, Patina, Quanta and Bull tick resolved the SEC’s claims without admitting or denying wrongdoing.

Chuo Mitsui Fine Sought in Insider Trading Case, Japan SESC Says

Japan’s securities watchdog recommended Chuo Mitsui Asset Trust & Banking Co. and Asoka Asset Management Ltd. be fined for trading on inside information obtained from share sale underwriters.

The Securities and Exchange Surveillance Commission is seeking a penalty of 80,000 yen ($1,000) from Chuo Mitsui, a unit of Sumitomo Mitsui Trust Holdings Inc., related to a Mizuho Financial Group Inc. stock sale, it said in a statement yesterday. Separately, the regulator said it’s asking for a 130,000 yen fine for Asoka Management related to a share offering by Nippon Sheet Glass Co.

Japanese regulators have been probing trades related to stock offerings in response to criticism from investors alleging that leaks on financing plans are eroding market confidence.

Lead underwriters for the Nippon Sheet Glass offering included Daiwa Securities Group Inc. and JPMorgan Chase & Co., the SESC said. Underwriters for the Mizuho deal included Mizuho Securities, Nomura Holdings Inc., JPMorgan and Bank of America Corp.’s Merrill Lynch, it said.

Canada Competition Bureau Says Tribunal Orders CCS Divesture

Canadian Competition Commissioner Melanie Aitken won an order forcing CCS Corp. to sell off a hazardous-waste landfill site, which she said marks the first such challenge since 2005 and sets a precedent for future disputes.

The ruling yesterday by the country’s competition tribunal forces the company to sell the Babkirk site, an asset it acquired when it bought Complete Environmental Inc.

“Today’s ruling sends a clear message to companies who seek to eliminate competitive threats through acquisition,” according to a statement from Aitken. “The Bureau has prevented a multi-billion dollar company from entrenching its monopoly for hazardous waste disposal in Northeastern British Columbia.”


BankAtlantic, Levan Lose Bid to Toss SEC’s Disclosure Fraud Suit

BankAtlantic Bancorp Inc. and its chief executive officer must face a U.S. Securities and Exchange Commission lawsuit alleging they misled investors about the extent of the losses the bank was facing because of a troubled loan portfolio.

U.S. District Judge Robert Scola in Miami ruled yesterday that the SEC can proceed with allegations of disclosure fraud and misrepresentations or omissions in earning statements and investor conference calls. He dismissed parts of two out of the seven counts in the lawsuit against the bank and CEO Alan Levan, while giving the agency permission to amend its complaint.

The judge wrote in reference to one count that survived his review that when viewed as a whole, the allegations go beyond “severe recklessness and touch upon intent to deceive.”

The SEC said in its January complaint that BankAtlantic and Levan made misleading statements in public filings and earnings calls to hide losses on the Fort Lauderdale, Florida-based bank’s commercial and residential land holdings and improperly recorded loans they were trying to sell from the portfolio in late 2007.

Eugene Stearns, an attorney for BankAtlantic and Levan, didn’t respond to e-mail and phone messages seeking comment on yesterday’s ruling.

During a hearing last month, Stearns argued that the suit should be dismissed because the bank disclosed in filings and on analyst conference calls that it was holding loans that would be affected by a real estate downturn.

The case is SEC v. BankAtlantic BanCorp Inc., 12-cv-60082, U.S. District Court, Southern District of Florida (Miami).

Hedge Fund Founder, Ex-Employees Must Pay $450 Million for Fraud

Hedge fund Weavering Capital (UK) Ltd.’s administrators won a lawsuit to recover money from its founder Magnus Peterson and other former employees involved in sham derivative deals that caused its collapse.

Peterson and nine others, including his wife and deputy investment manager Edward Platt, must pay $450 million, Judge Sonia Proudman said.

Weavering’s lawyer Robert Anderson said recovery of the money is “unlikely” because all of the defendants might find themselves bankrupt “in the very near future.”

Weavering’s administrators at MCR, a unit of Duff & Phelps Corp., sued Peterson and the former employees to recoup losses caused when the fund collapsed in March 2009. Peterson told investors he achieved returns of as much as 12 percent a year, while he covered losses with fraudulent swap contracts, administrators said at a London trial last year.

Peterson and Platt, his deputy investment manager, were arrested by the U.K. Serious Fraud Office, which decided last year not to bring criminal charges. The pair represented themselves today and couldn’t immediately comment because the hearing was continuing.

JPMorgan Challenges U.K. SFO with UBS Over Milan Swaps Case

JPMorgan Chase & Co., UBS AG, Deutsche Bank AG and Depfa Bank Plc asked a London court to block U.K. prosecutors from seizing documents that Italian authorities want to use at a criminal trial over derivatives.

Julian Knowles, a lawyer for JPMorgan, Deutsche Bank and Depfa argued that the U.K. Serious Fraud Office shouldn’t be allowed to use “coercive measures” against the banks that wouldn’t be available to prosecutors in Italy.

Prosecutors in Milan accused the four banks, which arranged swaps for the city to restructure its debt, of misleading city officials and earning 101 million euros ($126.7 million) in hidden fees from the deals. The banks, which deny the fraud charges, settled with the city government in March and agreed to unwind its interest-rate swaps, which adjusted payments on 1.7 billion euros of bonds sold in 2005.

The prosecutor leading the case used the accounts of an Italian bank on a similar transaction to show that lenders set terms in their favor in swap deals. A witness testified last week during a trial in Milan over the derivatives sales that the city’s swaps may have broken rules on how municipalities can use derivatives, partly because they were used to raise funds instead of hedging risk.

The U.K. Home Office received a request for assistance in April of last year, which was passed to the director of the Serious Fraud Office, Knowles said. The SFO isn’t investigating the defendants or any of its employees, Knowles said.

The case is: The Queen on the application of UBS Limited v. Serious Fraud Office, CO/3165/2012, High Court of Justice, Queen’s Bench Division.


JPMorgan Seems ‘Out of Control,’ MIT’s Johnson Says

Simon Johnson, a professor at the Massachusetts Institute of Technology and a senior fellow at the Peterson Institute for International Economics, talked about the European sovereign debt crisis and his petition to have JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon removed from the Federal Reserve Bank of New York’s board of directors.

Johnson, who spoke with Tom Keene on Bloomberg Television’s “Surveillance Midday,” also discussed the outlook for further financial regulation.

For the video, click here.

Levitt Says Facebook Reached ‘Too Far’ and Fell Far

Arthur Levitt, former chairman of the U.S. Securities and Exchange Commission and senior adviser to Goldman Sachs, said “if you reach too far, you fall far, and that is exactly what happened to Facebook.” Levitt talked with Bloomberg’s Tom Keene on Bloomberg Radio’s “Bloomberg Surveillance.”

For the audio, click here.

Barnier Says Euro Zone Must Have Banking Union

European Union Financial Services Commissioner Michel Barnier discussed Greece’s financial crisis, the need for an EU banking union and industry regulation.

He spoke in Paris with Bloomberg Television’s Caroline Connan.

For the video, click here.

Comings and Goings

House Cancels Hearing on NRC After Jaczko Successor Named

The House Energy and Commerce Committee has postponed a May 31 hearing on the Nuclear Regulatory Commission after President Barack Obama nominated Allison Macfarlane to replace Gregory Jaczko as chairman of the safety board.

Jaczko had announced his intention to resign following confirmation of a successor. His fellow commissioners have criticized his management style. Supporters said he was a strong advocate for safety as head of the NRC. All five commissioners, including Jaczko, were scheduled to testify at the May 31 hearing.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE