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Muni-Market Cuts, Danes’ Cibor, China OTC: Compliance

Aug. 6 (Bloomberg) -- Wall Street bond dealers may be cutting their commitment to trading municipal securities as regulations have increased transparency, according to preliminary findings of an industry-backed study.

Rules imposed in 2005 have improved the efficiency of the $3.7 trillion muni-bond market by requiring dealers to disclose trade data to regulators within 15 minutes, said Erik Sirri, a former U.S. Securities and Exchange Commission regulator who is studying the market. The changes have cut borrowing costs for states and cities, Sirri said Aug. 3 at a municipal-finance conference at Brandeis University in Waltham, Massachusetts.

Yet fewer dealers are involved in transactions than previously, which may reduce the market’s liquidity, he said.

The Municipal Securities Rulemaking Board in 2005 began requiring so-called real-time pricing, which requires dealers to release trade data within 15 minutes of a transaction, down from 24 hours previously. Last year, the industry’s self-regulatory organization in Alexandria, Virginia, hired Sirri to study transaction data it collects and makes public on its website.

Sirri said his comments were based on his initial findings. He said the full report would be ready in about a month.

A Federal Reserve report in March showed that Wall Street securities firms had cut their inventories of state and local-government bonds by 21 percent last year to $31.5 billion, the lowest level since 2004. The companies act as intermediaries for buyers and sellers, using their capital to warehouse any extra bonds to resell later. That can spur both profits and losses when markets are volatile, while providing liquidity.

Compliance Policy

China Approves Expansion of OTC Market Trial, Securities Says

China’s State Council has approved the expansion of an over-the-counter stock market trial as regulators seek to wean companies in the world’s second-largest economy off their dependency on bank loans.

The trial, which began with an OTC market in Beijing’s Zhongguancun Science Park, will be expanded to three additional high-tech zones in the cities of Shanghai, Wuhan and Tianjin, the China Securities Journal reported Aug. 3, citing the China Securities Regulatory Commission. Beijing’s OTC market trails began in 2006, according to the city government.

China is encouraging companies to raise more money through stock and bond sales to reduce their dependency on bank loans and increase the transparency of their finances.

The regulator supports sales of bonds and public shares by private companies, and encourages them to list overseas, the CSRC said on May 25.

Compliance Action

Danish Central Bank Says Replacing Cibor Is ‘Not Realistic’

Denmark’s central bank said replacing the Copenhagen interbank offered rate is “not realistic” as the government embarks on a probe of Cibor following speculation that lenders have fixed the rate too high.

Central bank spokesman Karsten Biltoft said in an e-mailed response to questions received Aug. 3 that replacing Cibor is not realistic “given the large amount of outstanding contracts.” He added that other relevant supplements may also be considered.

The Danish central bank handed over publication of Cibor, which is based on quotes from lenders including Danske Bank A/S and Nordea Bank AB, to Nasdaq OMX Group Inc. in April last year, saying it could no longer “assess the quality” of the rate. Barclays Plc will cease to provide bids for Cibor, reducing the number of quoting banks to seven, the Danish Bankers Association said Aug. 3.

Business Minister Ole Sohn is reviewing whether a full investigation of Cibor is needed after analysts at Stockholm-based SEB AB said it had been fixed too high. Sohn has proposed creating an external authority to replace bank oversight of Cibor, Borsen reported this week.

The Bankers Association is conducting its own review of the rate, due to be completed by the end of the summer, Joergen A. Horwitz, the group’s director, said in an interview last month.

For more, click here.

American Express May Be Forced to Pay Refunds Amid CFPB Review

American Express Co., the biggest credit-card issuer by purchases, said it may be forced to refund customers as bank regulators weigh enforcement actions based on consumer-protection laws.

The lender “currently believes” the Consumer Financial Protection Bureau will take enforcement action against at least one of the company’s units and possibly a second, similar to measures the Federal Deposit Insurance Corp. had said previously it intends to pursue, New York-based AmEx said Aug. 2 in a quarterly filing.

The bank and its subsidiaries “continue to make changes to certain of their card practices and products and established accruals for, among other costs, expected refunds to cardmembers,” American Express said in the filing.

U.S. financial firms face inquiries and information requests from regulators reviewing the sale of add-on credit-card products.

Hungarian Antitrust Body Confirms Investigation Into MasterCard

Hungary’s antitrust regulator confirmed that it’s investigating alleged abuses by MasterCard Inc., the world’s second-biggest payments network, over the company’s dominant position on the interbank market.

Interbank commissions charged by MasterCard, whose market share exceeds 75 percent in Hungary, “may serve to squeeze out” its “only serious competitor,” Visa Europe Ltd., on which the European Commission has imposed price limits, the Budapest-based regulator said Aug. 3 by e-mail.

MasterCard was informed of the investigation in June, the company said Aug. 1 in a quarterly report. The probe focuses on a period beginning December 2010, it said.

Visa Europe, which operates the European Union’s largest payment-card network, has received an antitrust complaint from the bloc’s regulators over the fees it charges to process cross-border credit-card payments. The company can defend itself in writing or seek a hearing before EU regulators decide on fines that could reach 10 percent of annual sales.

Hungary’s antitrust regulator fined MasterCard and Visa Europe in 2009, saying they colluded with local banks on fees charged to credit-card customers. MasterCard denies any wrongdoing and appealed that decision.

Teva Subpoenaed by U.S. Regulators in Overseas Bribery Probe

Teva Pharmaceutical Industries Ltd., the world’s largest maker of generic medicines, said it received a subpoena from U.S. regulators in connection with a bribery investigation in Latin America.

Teva is cooperating with the Securities and Exchange Commission’s July 9 request to provide documents regarding compliance with the Foreign Corrupt Practices Act, the Petach Tikva, Israel-based company said yesterday in a regulatory filing.

Drugmakers and manufacturers of medical devices have reported getting requests in the past year for information from U.S. prosecutors and regulators on compliance with the act in Europe and South America.

“Teva is also conducting a voluntary investigation into certain business practices which may have FCPA implications and has engaged independent counsel to assist in its investigation,” the company said in the filing. “These matters are in their early stages and no conclusion can be drawn at this time as to any likely outcomes.”

Knight Investors Eye Prize in Market-Making for Individuals

The investors who bailed out Knight Capital Group Inc. by purchasing $400 million in convertible securities are gaining control of the biggest trading partner for individuals in the world’s largest stock market.

While last week’s $440 million trading loss highlighted Knight’s importance to institutional traders, the company accounted for 29 percent of the average monthly volume in U.S. equity trading by individuals in the first quarter, according to a June 7 presentation. Stifel Nicolaus & Co. and TD Ameritrade Holding Corp., two of the firm’s rescuers, sent 38 percent and 9 percent of market orders in New York Stock Exchange-listed securities to Knight last quarter, respectively, according to public execution-disclosure statements.

Knight was saved from insolvency by Getco LLC, Blackstone Group LP, Stephens Inc. and Jefferies Group Inc., as well as Stifel and TD Ameritrade, according to people familiar with the matter who asked not to be identified because the agreements aren’t public. Knight’s mishap sent 140 stocks into sudden swings at the Aug. 1 open, the latest breakdown to challenge the integrity of the world’s biggest stock market.

The rescue involves a $400 million cash infusion through the sale of convertible preferred securities, according to a regulatory filing today.

Kara Fitzsimmons, a Knight spokeswoman, declined to comment before the release of the filing. Fred Tomczyk, TD Ameritrade’s president and chief executive officer, declined to speak as he left Knight’s headquarters in Jersey City, New Jersey yesterday.

Sophie Sohn, a spokeswoman for Chicago-based Getco, declined to comment. Representatives for Stifel, Blackstone, Stephens and Jefferies didn’t respond to calls and e-mails seeking comment.

Knight is the dominant firm in equity wholesaling, the business of executing orders off exchanges primarily for brokerages such as Scottrade Inc. and TD Ameritrade, according to Larry Tabb, chief executive officer of research firm Tabb Group LLC in New York.

For more, click here.

U.S. Consumer Bureau Probes AIG Over Mortgage Insurance Business

The Consumer Financial Protection Bureau is investigating American International Group Inc. over issues related to mortgage insurance, the company said in an Aug. 2 regulatory filing.

AIG said the CFPB issued a civil investigative demand, an early step in a probe, in June. On July 24, the bureau suspended the deadlines for complying with the demand “pending discussions that could resolve the investigation,” AIG said.

State and federal regulators have in recent years examined the propriety of payments between lenders and insurers for policies covering mortgages, and whether they comply with the Real Estate Settlement Procedures Act.


Ex-UBS Executives Gave FGIC Early Notice on Bids, Witness Says

Two former UBS AG municipal-bond executives accused of rigging bids gave a contact at a General Electric Co. unit early notice of how much to bid on bonds, a former colleague testified.

Mark Zaino, who worked on the bond desk at UBS with the defendants, on Aug. 2 walked jurors in federal court in Manhattan through three transactions, involving bond issues for Puerto Rico, the Massachusetts Educational Financing Authority and a Rhode Island housing project.

Zaino testified that defendants Gary Heinz and Michael Welty often worked with a contact at GE’s Financial Guaranty Insurance Co. and gave FGIC early notice of how high or low to bid on bonds. The men are on trial along with Peter Ghavami, the former head of UBS’s municipal-derivatives group.

Zaino, whose testimony was met with frequent objections from defense attorneys, said he hadn’t directly participated in the Puerto Rico or Rhode Island deals and knew about them because the group members discussed their work with each other.

Ghavami, Heinz and Welty are charged with conspiracy to defraud municipal-bond issuers and U.S. tax authorities by fixing the prices on the investing agreements.

Zaino told jurors during testimony earlier last week that he pleaded guilty to three criminal counts in 2010 and is testifying in the hopes of reducing a possible 35-year prison sentence.

The case is U.S. v. Ghavami, 10-cr-1217, U.S. District Court, Southern District of New York (Manhattan).

Ivory Coast Sets Up Commerce Court to Boost Business Confidence

Ivory Coast, the world’s biggest cocoa producer, will open a special court to hear legal complaints from the country’s business community in a bid to improve investor confidence in the West African nation.

Francois Komoin, president of the court, said that the role of the court will be make investors “more comfortable putting their money in Ivory Coast.” He made the remarks Aug. 3 in Abidjan, the commercial capital where the body will be based.

Ivory Coast, the biggest economy in West Africa’s monetary union, has forecast growth of 8.2 percent this year after a 4.7 percent contraction in 2011. The country is recovering from post-election violence last year.

The court, which will start operating Oct. 1, is a pilot project, Komoin said.

MasterCard Files Appeal on Card Fees With EU’s Highest Court

MasterCard Inc. is asking the European Union’s highest court to overturn an EU decision that the company’s cross-border card fees breach antitrust rules.

MasterCard filed its appeal at the EU Court of Justice in Luxembourg in a case that may affect the future of card payment systems in Europe. MasterCard told a lower EU court in a hearing last year that it can’t operate without the fees it charges on credit-card payments. The company lost its first appeal and has now taken its fight to the top EU court.

The EU General Court, the bloc’s second-highest, in May backed the European Commission’s 2007 decision that MasterCard’s levies unfairly inflated the transaction fees paid by retailers for processing payments.

The case tests whether such levies are unfair to retailers and customers and could be a road-map for national regulators to pursue their own complaints. Visa Europe Ltd., operator of the EU’s largest payment-card network, was sent an antitrust complaint over its cross-border credit-card payment fees, EU regulators said July 31.

Visa Europe has reduced similar fees for debit cards to settle a 2009 EU complaint. The company split from Visa Inc. before the U.S. card company’s initial public offering in early 2008.

While MasterCard agreed to fee changes in 2009 in a settlement with the Brussels-based EU regulator to avoid a daily penalty of as much as 3.5 percent of sales, it asked the court to quash the EU antitrust agency’s findings. The fee cuts will save consumers 200 million euros ($247 million) a year, the commission said at the time.

Five U.K. retailers, including Wal-Mart Stores Inc.’s Asda, have filed separate lawsuits in London against MasterCard, according to court documents dated May 23.

The commission declined to comment on the appeal.

Rulings by the EU Court of Justice are binding and cannot be appealed.


Grimstone Says Boardrooms Must Fix London’s Reputation

Gerry Grimstone, chairman of TheCityUK, a lobby group for London’s financial district, talked about the industry’s reputation following the Libor rate-setting scandal.

He spoke with Maryam Nemazee on Bloomberg Television’s “The Pulse.”

For the video, click here.

Cantor’s Matthews ‘Not Sure’ if Firm Will Buy Knight

Shawn Matthews, chief executive officer of Cantor Fitzgerald LP’s broker-dealer unit, discussed the firm’s hiring plans and strategy, and the outlook for Knight Capital Group Inc.

Matthews spoke with Stephanie Ruhle on Bloomberg Television’s “Market Makers.”

For more, click here.

Comings and Goings

Sunstein Wins Business Plaudits, Criticism on Exit

Cass Sunstein, the chief regulatory adviser for President Barack Obama, said Aug. 3 he will resign, leaving behind a record criticized by both political opponents and White House allies.

Sunstein, 57, will return to Harvard Law School later this month after three years at the White House Office of Information and Regulatory Affairs, which oversees federal rules. In that role, Sunstein pushed agencies to weed out unnecessary or outdated regulations and ordered them to consider the cumulative financial burdens of rulemaking when crafting new directives.

Rules during the first 32 months of the Obama administration cost $19.9 billion and delivered $91 billion in net benefits, according to the Office of Management and Budget, the parent agency of OIRA.

Sunstein will be replaced on an interim basis by Boris Bershteyn, the general counsel of OMB.

John Graham, who ran OIRA in George W. Bush’s first term, said Sunstein was an able administrator during a “highly polarized time.” Sunstein also was hailed by the Business Roundtable, a Washington-based group of business executives.

Mitt Romney, the presumptive Republican presidential nominee, has run campaign ads promising that on “Day 1” in the White House, he will begin “repealing jobs-killing regulations that are costing the economy billions.”

Environmental and safety advocates said Aug. 3 Sunstein was overly deferential to business interests and less effective in strengthening consumer protections.

For more, click here.

To contact the reporter on this story: Carla Main in New Jersey at

To contact the editor responsible for this report: Michael Hytha at

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