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Money Funds, TrueEX ‘Go-Ahead’, Cotton Trade: Compliance

U.S. Treasury Secretary Timothy F. Geithner revived the stalled negotiations concerning the $2.6 trillion money-market mutual fund industry, using legislative authority.

Geithner prompted a new round of dealmaking among regulators, funds and banks when he used the 2010 Dodd-Frank Act to force the issue back onto the SEC’s agenda.

The money-market mutual-fund industry, which provides critical short-term financing for companies and financial firms, pushed against the rules in the first round of talks and could still be successful in derailing them, analysts said.

Securities and Exchange Commission Chairman Mary Schapiro in August gave up on a plan to strengthen regulation of the funds after three of the agency’s five commissioners told her they opposed it. One of those commissioners, Daniel Gallagher, said last week that he probably would vote for a new version.

Geithner’s move -- his first under new powers created by Dodd-Frank -- puts the ball back in the SEC’s court. If the SEC doesn’t pass new regulations, Geithner said in a letter Sept. 27, the council should use its Dodd-Frank authority to designate activities of money market funds a systemic threat, effectively ordering the agency to take action.

The Financial Stability Oversight Council also has the authority to designate individual firms or their payment, clearing and settlement activities as systemically important, which would put them under heightened government supervision.

Geithner recommended that the SEC consider three steps to reduce the risk funds might pose to the financial system: floating net asset values, requiring funds to hold capital buffers of “adequate size,” and imposing capital and enhanced liquidity standards, possibly with redemption fees. The changes are similar to those proposed by Schapiro.

The SEC is already laying the ground for compromise and passage of a new plan. While the fund industry has been united in its general opposition to Schapiro’s plan, individual companies have staked out different positions on the options and made varying overtures to the SEC on what new rules might be acceptable.

For more, click here.

Compliance Policy

FSOC Moves Closer to Designating Firms Systemically Important

The Financial Stability Oversight Council voted Sept. 28 to move closer to designating some non-bank financial companies as systemically important, the U.S. Treasury Department said in a statement. The Treasury didn’t name the companies or give the number of firms it would put under heightened supervision by the Federal Reserve.

The council, a group of regulators created to prevent another financial crisis, “discussed a number of topics related to domestic and global markets, including recent developments in Europe,” according to the Treasury statement.

Compliance Action

CFTC Grants TrueEX Exchange Status to Offer Interest-Rate Swaps

The Commodity Futures Trading Commission granted designated contract market status to trueEX, a swaps exchange founded by Sunil Hirani.

The market, which expects to offer trading in interest-rate swaps in the first quarter, is the first exchange approved after passage of the Dodd-Frank Act in 2010, the CFTC said in a statement Sept. 28 on its website. Hirani, 46, co-founded Creditex Inc., a credit-swaps brokerage he sold to Intercontinental Exchange Inc. in 2008 for $513 million.

Unlike exchanges in the futures market, trueEX will allow users to send trades to the clearinghouse of their choice, according to the statement. Exchange owners such as CME Group Inc. and Intercontinental process futures with clearinghouses they own. Under Dodd-Frank, exchanges or swap execution facilities must offer investors the choice of where their transactions are cleared.

U.S. Regulators Fines on Cotton Trading Limits Tops $2 Million

U.S. regulators imposed more than $2 million in fines this week involving excessive speculation in the cotton market during 2010 and 2011, when prices more than tripled on their way to a record high before plunging.

JPMorgan Chase Bank, a unit of JPMorgan Chase & Co., agreed to pay a penalty of $600,000 and Australia & New Zealand Banking Group Ltd. was also ordered to pay $350,000, the U.S. Commodity Futures Trading Commission said Sept. 27 in separate statements. On Sept. 25, the agency said Sheenson Investments Ltd. and its founder Ge Weidong, based in Shanghai, China, agreed to pay $1.5 million.

ANZ, based in Melbourne, exceeded the cotton limit on one day in February 2011 and those for wheat on the Chicago Board of Trade in August 2010, the CFTC said.

JPMorgan declined to comment through Jennifer Zuccarelli, a spokeswoman in New York.

“These breaches of CFTC regulations were inadvertent, technical in nature and confined to a small number of transactions,” ANZ Chief Risk Officer Nigel Williams said in an e-mailed statement. “Ensuring we are compliant with regulations is a key priority in every part of ANZ.”

Sheenson Investments agreed to pay a “disgorgement” fine of $1 million for ill-gotten gains and a $500,000 civil penalty to settle the charges that they exceeded speculative position limits in soybean-oil and cotton futures, the CFTC said in a Sept. 25 statement. Calls to Sheenson from Bloomberg in Shanghai were not answered.

Ex-Cantor Fitzgerald Traders Lose Market-Abuse Penalty Case

Two former traders at Cantor Fitzgerald LP’s London unit and a Swiss fund manager lost a case against the U.K. finance regulator over disciplinary penalties for committing market abuse.

Stefan Chaligne, an equity-fund investment manager, instructed Cheickh Tidiane Diallo and Patrick Sejean at Cantor Fitzgerald to trade on his behalf with the goal of driving up the share prices for certain companies. He must pay a 900,000-pound ($1.46 million) fine and 362,950 euros ($469,548) disgorgement, a London-based financial tribunal ruled Sept. 28. He is also banned from working in the U.K. finance industry.

Sejean must pay a 650,000-pound fine the tribunal ruled, 100,000 pounds more than the one the FSA first sought to impose. He was also banned from working in the industry.

A ban against Diallo, who had maintained that a ban was too severe, was also upheld.

Chaligne, a French citizen who lives in Switzerland, requested trades through Cantor Fitzgerald on Dec. 31, 2007, and Jan. 31, 2008, according to the Financial Services Authority.

He traded in eight stocks and American Depositary Receipts valued at about 5 million pounds on European and North American stock exchanges in 2007, giving instructions to Diallo and Sejean “to make the prices of all the stocks as high as possible on the close,” the regulator said.

Chaligne said he has asked that the disgorgement part of the fine be paid to his investors.

For more, click here.

Huhtamaki and 12 Packaging Firms Sent EU Antitrust Objections

Huhtamaki Oyj and 12 other makers of food packaging were sent statements of objections by European Union antitrust regulators over a suspected cartel.

The European Commission sent its formal list of objections to manufacturers or distributors of polystyrene foam trays and polypropylene rigid trays used to package fish, meat or cheese in the retail industry, it said in a statement Sept. 28. Regulators can fine companies up to 10 percent of yearly sales for agreeing to fix prices. The commission has concerns about possible price fixing, market sharing and customer allocation, it said in the statement. It didn’t name the companies.

Huhtamaki said the EU informed it of alleged anticompetitive behavior in southwest Europe, northwest Europe and France for 2000-2009. Most of its operations in this industry were shut down or sold off between 2006 and 2010, it said in a statement.

Eco-Bat Says It’s Cooperating With EU on Lead Investigation

Eco-Bat Technologies Ltd., the Matlock, England-based lead producer, said it’s cooperating with a European Commission investigation into prices paid for used batteries and lead scrap by “certain industry participants.”

Eco-Bat and some subsidiaries are included in the investigation, Ian Davies, group finance director at Eco-Bat, said in an e-mail Sept. 28. He said Eco-Bat won’t comment further. An e-mail to the competition area of the commission wasn’t immediately returned after business hours.


U.S. Court Blocks Dodd-Frank Curbs on Derivatives Speculation

U.S. efforts to curb speculative derivatives trading in the wake of the 2008 financial crisis were blocked by a federal judge, who ruled that regulators botched the process used to put new limits in place.

Less than two weeks before curbs were set to take effect, U.S. District Judge Robert Wilkins in Washington ruled that the 2010 Dodd-Frank Act required more study before setting caps on positions in oil, natural gas, wheat and other commodities. The Commodity Futures Trading Commission failed to first assess if the rule, slated to take effect Oct. 12, was necessary and appropriate under the law, the judge ruled Sept. 28.

The lawsuit, filed in federal court in December by the Securities Industry and Financial Markets Association and the International Swaps and Derivatives Association Inc., was part of the financial industry’s efforts to challenge Dodd-Frank, the law enacted following the 2008 credit crisis. The associations represent JPMorgan Chase & Co., Goldman Sachs Group Inc., Morgan Stanley and other banks and energy trading firms.

The so-called position limits rule spurred more than 13,000 public comments from supporters such as Delta Air Lines Inc. and opponents including Barclays Plc.

After the ruling, Gary Gensler, CFTC chairman, said in a statement, “I believe it is critically important that these position limits be established as Congress required,” adding that “we are considering ways to proceed.”

The commission estimated that the limits would affect 85 energy trading firms, 12 metals traders and 84 traders of certain agricultural contracts. The agency could decide to appeal the decision or try to pass a new rule limiting positions.

Ken Bentsen, executive vice president at Sifma, described the ruling as “a win for all market participants in the economy when regulators have to follow the law clearly and do the economic analysis Congress has deemed is necessary.”

For more, click here.

Ex-SAC Analyst Horvath Pleads Guilty in Insider Case

Jon Horvath, a former technology analyst at a unit of Steven Cohen’s $14 billion hedge fund SAC Capital Advisors LP, pleaded guilty to passing nonpublic information to his portfolio manager, who traded on the tips.

Horvath, 42, pleaded guilty Sept. 28 before U.S. District Judge Richard Sullivan in Manhattan to one count of conspiracy to commit securities fraud and two counts of securities fraud. The judge said Horvath, who is cooperating with the U.S. probe and may testify, faces a maximum of 45 years in prison.

The plea came days after it was revealed that Michael Steinberg, a hedge fund manager at SAC Capital’s Sigma Capital Management Ltd. and Horvath’s former supervisor, is an unindicted co-conspirator in the $62 million insider trading scheme tied to technology stocks, two people familiar with the matter said.

In his guilty plea, Horvath said that after obtaining nonpublic information on Dell Inc. and Nvidia Corp., he “provided the information to the portfolio manager I worked for and we executed trades,” on the information. Horvath didn’t name Steinberg in his plea.

The case is U.S. v. Newman, 12-00124, U.S. District Court, Southern District of New York (Manhattan).


Invictus’s Mustafa Says ‘Shocks’ Coming to Banks

Kamal Mustafa, chief executive officer at Invictus Consulting Group LLC, discussed community banks and regulation. Mustafa talked with Bloomberg’s Pimm Fox and Courtney Donohoe on Bloomberg Radio’s “Taking Stock.”

For the audio, click here.

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