EU Bonuses, Ice Trade Vault, Barclays: Compliance

Senior hedge-fund and private-equity managers face longer waits for bonuses under proposals from the European Union’s top markets regulator.

Bonuses for risk-taking employees should be withheld for a certain length of time to align managers’ interests with the long-term performance of the fund, the European Securities and Markets Authority said yesterday. Staff with the “most material impact on the risk profile” of the fund should be subject to longer retention periods, ESMA said without specifying how long.

Payouts for managers at financial firms have been under scrutiny from regulators and lawmakers since the fall of Lehman Brothers Holdings Inc. in 2008. European finance ministers in 2010 approved a law, known as the Alternative Investment Fund Managers Directive, which gave ESMA power to set rules for hedge funds and private-equity firms, regulating their pay and access to EU investors. Member states have until July 2013 to implement the directive.

National authorities should judge whether the bonus retention periods proposed by hedge funds and private equity firms are sufficient, ESMA said.

Hedge funds and private-equity firms have until Sept. 27 to comment on ESMA’s proposals. Firms should also avoid paying bonuses from a pool of capital if their “financial situation would no longer be sound,” the regulator said.

Compliance Policy

U.S. Consumer Bureau Issues Rule on Attorney-Client Privilege

The U.S. Consumer Financial Protection Bureau issued a final rule under which it pledges to honor attorney-client privilege when it shares information from banks with other federal and state agencies.

In January, the bureau advised banks that it supervises -- those with more than $10 billion in assets -- that giving CFPB information doesn’t waive any associated privilege. The rule states that privilege also remains intact if the bureau shares information with other federal or state agencies, it said in the statement.

Bank lawyers have argued that the CFPB could obtain information covered by attorney-client privilege and share it with other officials, notably state attorneys general. The bureau isn’t covered by a 2006 law that requires other regulators such as the Federal Deposit Insurance Corp. to respect this privilege.

India Proposes Monetary Threshold to Invoke Tax Avoidance Rules

India’s Central Board of Direct Taxes has recommended a monetary threshold to avoid the indiscriminate application of the general anti-tax avoidance rules, it said in a statement.

The board also recommended against invoking the anti-tax avoidance rules for foreign institutional investors who refrain from using overseas tax shelters to invest in the South Asian nation, according to the statement.

The anti-tax avoidance rules will be effective from April 1, 2013, according to the statement.

Compliance Action

CFTC Approves ICE Application for Dodd-Frank Swap Database

The U.S. Commodity Futures Trading Commission granted provisional registration to Intercontinental Exchange Inc.’s information database on interest rate, credit and other swaps as the first swap-data repository required under the Dodd-Frank Act.

The approval of ICE Trade Vault LLC was announced by the Washington-based agency in an e-mail statement yesterday.

Dodd-Frank, the regulatory law enacted in 2010, called for the databases to increase swaps market transparency after largely unregulated trades helped fuel the 2008 credit crisis.

FSA Reaches Agreement with Banks on Derivatives Probe

Barclays Plc, Royal Bank of Scotland Group Plc and Britain’s two other biggest banks will compensate small and medium-sized businesses improperly sold interest-rate derivatives following a probe by the U.K. financial regulator.

The four lenders, including Lloyds Banking Group Plc and HSBC Holdings Plc, will also stop selling interest rate collars to retail customers as part of a settlement with the Financial Services Authority, the regulator said in a statement today. While the FSA found “serious failings” by the banks dating back to 2001, it stopped short of fining the firms. Banks offered derivatives to small business and individual customers on concern that they might not be able to service loans if floating rates rose.

The compensation plan is the second blow in a week to an industry already under investigation for attempting to rig global interest rates.

The FSA didn’t say how much the banks could have to spend to compensate customers. Sixteen financial firms paid 1.9 billion pounds ($3 billion) in 2011 after the FSA found they improperly sold clients payment-protection insurance. Hector Sants, the regulator’s chief executive officer, said in a speech last year that customers may receive as much as 9 billion pounds as a result of the PPI probe.

Companies made about 605 complaints last year over banks’ bundling of interest-rate swaps with loans, FSA Chairman Adair Turner said in a letter to lawmakers last month. The London-based watchdog initially didn’t see any “widespread, underlying issues” with the practice and instructed firms to review their sales systems, Turner said.

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SEC Might Demand Nasdaq Trading Systems Upgrade, WSJ Reports

The U.S. Securities and Exchange Commission may force Nasdaq OMX Group Inc. to upgrade its trading systems after technical problems marred Facebook Inc.’s initial public offering, the Wall Street Journal reported, citing people familiar with the investigation.

Regulators may tell the exchange to improve how its computers handle share sales and other functions, the Journal reported. The regulator hasn’t decided whether any enforcement action is necessary after the May 18 trading mishaps, the report said. The request could add to costs for the company, the Journal said.

John Nester, an SEC spokesman, declined to comment. One after-hours phone call and two e-mails to Nasdaq spokesmen weren’t immediately returned.


Obama’s Health-Care Overhaul Upheld by U.S. Supreme Court

The U.S. Supreme Court upheld the core of President Barack Obama’s health-care overhaul, giving him an election-year triumph and preserving most of a law that would expand insurance to millions of people and transform an industry that makes up 18 percent of the nation’s economy.

The justices, voting 5-4, said Congress has the power to make Americans carry insurance or pay a penalty. That requirement is at the center of the law, which also forces insurers to cover people with pre-existing health conditions. The court limited the law’s extension of the Medicaid program for the poor by saying the federal government can’t threaten to withhold existing money from states that don’t fully comply.

Chief Justice John Roberts, writing for the court, said Congress had the authority to impose the insurance requirement under its power to levy taxes. Justices Antonin Scalia, Anthony Kennedy, Clarence Thomas and Samuel Alito dissented, saying they would have struck down the entire statute.

Among the majority, Justices Ruth Bader Ginsburg and Sonia Sotomayor voted to uphold the entire statute. Justices Stephen Breyer and Elena Kagan agreed with Roberts in limiting the Medicaid expansion.

From the beginning, the law divided the public, with opposition fueling the Tea Party movement and helping produce the 2010 Republican takeover of the House. A Bloomberg National Poll conducted in March found that 37 percent of respondents said the law should be repealed, 11 percent said it should be left alone and 46 percent said it may need small modifications.

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Daimler Resignation May Be Inside Information, Court Says

A former Daimler AG executive’s plan to resign may have been inside information that was wrongly concealed from shareholders, the European Union’s top court said in a ruling that may force companies to review disclosure rules.

The European Court of Justice in Luxembourg ruled on a shareholder lawsuit that claims the automaker didn’t disclose Juergen Schrempp’s 2005 resignation as chief executive officer as quickly as it should have. A final decision on the case must be made by German courts.

Daimler, the world’s third-largest maker of luxury cars, was fined by German financial regulator BaFin in 2007 for failing to disclose Schrempp was leaving before its board decided he should go. Daimler shares surged as high as 42.95 euros on the news, according to a court filing, and shareholders who sold before the announcement are seeking compensation.

Daimler said the court backed its argument that the definition of inside information shouldn’t rely on whether a future event may affect the share price, said Ute Wuest von Vellberg, a spokeswoman for the Stuttgart, Germany-based company.

‘It’s decisive whether it can really be expected that the event or circumstance will occur in the future,’’ Wuest von Vellberg said. “It remains to be seen how Germany’s Federal Court of Justice will decide on the basis of the European Court of Justice decision.”

Germany’s Federal Court of Justice, the country’s highest civil tribunal, is examining an appeal and asked for the EU court’s advice.

The case is C-19/11 Markus Geltl v Daimler AG.

Special Section: Libor Probe

Barclays Ordered to Address Libor Probe Impact on 2010 Agreement

Barclays Plc and the U.S. Justice Department were ordered by a federal judge to explain how the bank’s settlement of allegations involving its manipulation of Libor should effect a 2010 deferred prosecution agreement.

U.S. District Judge Emmet Sullivan in Washington yesterday issued the one-sentence order calling for a joint report to be filed by July 11. The order came three days after lawyers for both parties were in his courtroom for an update on the 2010 agreement, which involves a $298 million settlement with the U.S. over illegal dealings with such nations as Sudan and Iran.

Barclays Plc was on June 27 fined 290 million pounds ($451.4 million), by regulators in the U.S. and U.K. after admitting it submitted false London and euro interbank offered rates. Part of that fine went to the Justice Department, which agreed not to prosecute the bank for what it called “illegal conduct.”

Mark Lane, a spokesman for London-based Barclays, declined to comment on the order. Alisa Finelli, a Justice Department spokeswoman, said she couldn’t immediately comment yesterday.

Barclays, Britain’s second-biggest bank by assets, must comply with the terms of the deferred prosecution agreement, which was approved by the judge on Aug. 18, 2010, until Aug. 16. Such agreements allow a company to avoid a criminal conviction as long as the terms of the deal are met.

The case is U.S. v. Barclays Bank Plc, 10-cr-00218, U.S. District Court, District of Columbia (Washington).

U.K.’s Hoban Says Libor Rules Need Criminal Sanctions

U.K. Treasury Secretary Mark Hoban discussed Barclays Plc’s role in manipulating Libor.

He talked from London with Linzie Janis on Bloomberg Television’s “Countdown.”

For the video, click here.

Chen Says Potential Libor Lawsuits to Dwarf Bank Fines

Sandy Chen, a banking analyst at Cenkos Securities Plc, talked about the potential impact of lawsuits arising from the global investigation into interest-rate manipulation.

He spoke with Manus Cranny on Bloomberg Television’s “Last Word.”

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Barclays CEO Diamond Becomes Political Target Over Libor

Barclays Plc Chief Executive Officer Robert Diamond has become the target of the Conservative-led coalition after the bank this week was fined 290 million pounds ($450 million) for attempting to manipulate the inter-bank lending rate, known as Libor.

Newspapers urged Diamond to quit and in a press conference today, Bank of England Governor Mervyn King added his voice, calling for “a real change in the culture of the industry” and “leadership of an unusually high order.”

The scandal doesn’t just threaten Diamond’s job. It has wiped out his efforts in 2011 to make the case for the finance industry in the wake of the credit crunch that plunged much of the world into recession. Instead, Parliament heard calls for prosecutions of those involved in the latest revelations.

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Osborne Pledges to Pursue Criminal Probe, Consider Taxpayers

Chancellor of the Exchequer George Osborne said Britain’s financial regulator is looking at whether it can bring criminal charges over the attempt by banks to manipulate the inter-bank lending rate, or Libor, as he promised new laws to prevent market abuse.

Osborne said he couldn’t comment whether there are plans to prosecute executives at Barclays Plc or other banks after the London-based lender was fined $451 million for attempting to manipulate Libor. The Financial Services Authority will “use every power available to them,” he said.

Osborne made the remarks to lawmakers in London yesterday.

Bringing criminal charges “is absolutely what the authorities are looking at,” he said. Serious Fraud Office investigators are in talks with the FSA over the rate-rigging scandal, Osborne said.

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Separately, Osborne said the U.K. is examining whether the fine paid by Barclays can be channeled to taxpayers rather than going into a fund that reduces the amount other banks have to pay in case of wrongdoing.

“We are specifically looking at whether this fine can go to the taxpayer,” Osborne told lawmakers in Parliament yesterday.

Cameron Presses Barclays CEO With Call for Accountability

Barclays Plc Chief Executive Officer Robert Diamond was urged by U.K. Prime Minister David Cameron to show accountability after the bank was fined $451 million for attempting to manipulate the inter-bank lending rate, known as Libor.

“I’m determined we learn all the lessons from what has happened at Barclays,” Cameron told reporters as he arrived in Brussels for a European Union summit. “People have to take responsibility for the actions and show how they’re going to be accountable for those actions. It’s very important that goes all the way to the top of the organization.”

Barclays, the U.K.’s second-largest bank by assets, said June 27 that Diamond and three other executives will forgo their bonuses this year.

Business Secretary Vince Cable, a Liberal Democrat who has been a critic of the bonus culture at banks, said the government could remove Diamond if he fails to provide adequate answers about his organization’s practices.

For more, click here.

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