U.K. Gas Prices, Carbon Permits, Level Global: Compliance

The U.K. government said it’s prepared to legislate to clamp down on wholesale natural-gas trading should price-fixing allegations prove true.

The Financial Services Authority, or FSA, is investigating claims last month by the price-reporting company ICIS Heren that “unusual trading activity” may have affected gas prices, according to a statement yesterday. Energy Secretary Ed Davey said he’s asked regulators whether they need more authority.

The probe raises questions about how market prices are determined and whether the biggest utilities, which are involved in setting prices, may also profit by manipulating them. Prime Minister David Cameron’s government has been pressing electricity and gas suppliers to rein in costs after Centrica Plc and SSE Plc raised customer prices.

The investigation broadens the efforts of British financial regulators to curtail market abuses. Martin Wheatley, a managing director at the FSA commissioned to investigate the Libor abuse, had raised concerns it may spread to energy markets.

“Centrica has very robust governance and compliance policies, which regulate its market participation and behavior,” Britain’s biggest energy supplier said yesterday in a statement. “Centrica’s traders are prohibited from providing price information to price-reporting agencies.”

SSE, Britain’s second-largest energy supplier, said it’s “entirely confident that our energy portfolio management team operate in a fair and legitimate way.” SSE raised consumer gas prices by 9 percent from August. Centrica said last month it would increase them about 6 percent starting Nov. 16.

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Compliance Policy

Geithner Steps Up Pressure on SEC to Make Money Funds Safer

U.S. Treasury Secretary Timothy Geithner, stepping up pressure on the Securities and Exchange Commission to make money funds safer, outlined three options to overhaul the $2.6 trillion industry.

Geithner, who spoke yesterday in Washington at a meeting of the Financial Stability Oversight Council, a group formed by the Dodd-Frank Act and charged with addressing systemic financial risks, said the SEC should consider a plan for a capital buffer of 3 percent of assets that may be lowered if other steps are taken to reduce risk. Two other solutions Geithner offered are opposed by the funds industry and were rejected in August by a majority of SEC commissioners.

Representatives for the fund industry, who last month put forth their own plan to reach a compromise, rejected the proposals, saying they didn’t advance the debate. While Geithner has said the SEC is best positioned to address money funds, he has also said that the regulators’ panel, often referred to as FSOC, might intervene and subject funds to oversight by the Federal Reserve if the SEC fails to act.

Two of the options proposed by Geithner yesterday included the major elements of a plan backed by SEC Chairman Mary Schapiro that she abandoned for lack of votes in August. That proposal would have given money funds a choice to either drop their traditional $1 share price for a floating value, or create capital buffers to absorb losses and temporary holdbacks on all withdrawals to discourage investor runs.

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EU Companies Face 40% Quota Rule Favoring Women on Boards

Companies may be required to favor women over equally qualified men for supervisory board seats, as they strive to meet a 40 percent female directors quota the European Union set out in draft rules published today.

The European Commission adopted a proposal aiming to reach the 40 percent level by 2020, Mina Andreeva, a spokeswoman for EU Justice Commissioner Viviane Reding, said in an e-mailed statement. Regulators amended earlier proposals so that companies would only face sanctions if they fail to favor women, even if they don’t manage to meet the quota.

About 13.7 percent of corporate board seats in the EU are held by women, the commission said in a report in March. The measures would apply to some 5,000 listed companies in the EU by 2020 and state-owned companies by 2018, the commission said. Some exclusions would apply.

The draft rules need the backing of most of the EU’s 27 member states and the parliament, which can amend draft laws before they become final.

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Compliance Action

EU Carbon Prices Slump After Commission Unveils Permit-Glut Fix

European Union emission permits dropped, erasing most of the Nov. 12 gains, after the region’s regulator proposed to delay sales of 900 million allowances to curb an oversupply in the world’s biggest carbon market.

Permits for December slid as much as 8.9 percent, their biggest drop since July 18, after gaining 9 percent Nov. 12 on the ICE Futures Europe exchange in London. The European Commission is seeking to postpone sales during the three years through 2015 to the last two years of the next trading phase, which ends in 2020, according to a draft document published Nov. 12 on an EU website.

Carbon permits for December sank to a record in April, losing 83 percent since peaking in 2008, as the region’s financial crisis cut demand from polluters. The commission plans to publish a report today setting out permanent changes to the program to meet its 2050 pollution-reduction target.

The regulator may be forced to soften its plan because of opposition from some countries, according to Deutsche Bank AG.

The number of permits to be delayed under the strategy known as backloading is at the higher side of a range floated by the commission in July, when it presented an outline of the short-term plan to improve the world’s biggest cap-and-trade market. The options drafted at the time were postponing 400 million, 900 million and 1.2 billion allowances.

The draft measure needs qualified-majority support from national governments to become law. Its formal adoption will take place only after the parliament votes on a separate law relating to the timing of auctions, Climate Commissioner Connie Hedegaard said Nov. 13 in Brussels. The parliament is tentatively scheduled to vote on the legislative amendment in April.

Goldman’s Risk-Weighted Assets Seen Jumping 67% Under New Rules

Goldman Sachs Group Inc., the fifth-biggest U.S. bank, would have $728 billion in risk-weighted assets under new capital rules, a 67 percent jump from the amount it had under earlier regulations.

Goldman Sachs plans to cut the figure to $700 billion by the end of next year, Chief Executive Officer Lloyd C. Blankfein, 58, said yesterday at an investor conference in New York hosted by Bank of America Corp.’s Merrill Lynch unit. About $18 billion of the reduction will come from cutting credit risk, and $11 billion will come from market risk, said Blankfein in his seventh straight appearance at the annual event.

The comments mark Goldman Sachs’s first public estimate of risk-weighted assets under new Basel III rules, a figure that serves as the denominator for determining regulatory capital ratios. The firm said last month its capital ratio was about 8.5 percent, the exact amount it will be required to maintain based on surcharges for the world’s largest banks released this month by the Financial Stability Board.

Blankfein said the New York-based bank is likely to maintain a 1 percentage point buffer above that requirement. The need to boost the proportion of equity capital has pressured return on equity, a measure of profitability. Banks have been seeking to cut holdings of assets with high risk weightings to reduce capital needs for trading businesses and improve returns.

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Separately, Blankfein said Wall Street competitors with large retail businesses face increasing pressure from new global capital rules and “the size and complexity” of the rules will “come at a cost.”

The biggest banks will have to balance the “synergies” of having retail and institutional businesses with the burden of higher capital surcharges that are being imposed on systemically important firms, Blankfein said.


Olympus Sued by State Street, Other Investors for $241 Million

Olympus Corp., the camera and endoscope maker that admitted an accounting fraud, said it was sued by a group of 48 investors for 19.1 billion yen ($240 million) in damages.

The lawsuit by investors including State Street Bank and Trust Co. and Government of Singapore Investment Corporation Pte Ltd. was disclosed after markets in Tokyo closed Nov. 12. It was filed on June 28 to Tokyo District Court, Olympus spokesman Yasutoshi Fujiwara said.

Olympus shares Nov. 12 rose the most in three months after it raised its earnings forecast. Former Chairman Tsuyoshi Kikukawa and two other former executives in September pleaded guilty to covering up losses at the company for 13 years starting in the 1990s.

The lawsuit is in addition to 14 similar cases Olympus has in Japan where investors are suing over the accounting fraud, said another Olympus spokesman, Sam Kobayashi.

The company is studying the content of the notification received and hasn’t decided how it will respond, Kobayashi said. The impact on Olympus’s earnings is unclear, according to its statement.

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Bartender, Dog Walker to Judge Level Global Co-Founder at Trial

A bartender and a dog walker are among the federal court jurors hearing opening arguments in the insider-trading trial of Level Global Investors LP co-founder Anthony Chiasson and Todd Newman, a former portfolio manager for Diamondback Capital Management LLC.

The jury of seven women and five men also includes a computer animator on feature films, a retired postal worker and a medical assistant. The jurors won’t include a hedge fund manager and the mother-in-law of another who expressed harsh views of the industry and were excused by U.S. District Judge Richard Sullivan in Manhattan.

Chiasson and Newman worked at funds that were raided by the Federal Bureau of Investigation in November 2010, as part of a nationwide crackdown of illicit trading by portfolio managers, analysts and insiders at technology companies. Opening statements began yesterday.

Prosecutors in the office of Manhattan U.S. Attorney Preet Bharara allege that Chiasson and Newman were part of a group of portfolio managers, analysts and technology company employees who traded stock tips in a conspiracy that operated from 2007 to


The case is U.S. v. Newman, 12-00121, U.S. District Court, Southern District of New York (Manhattan).

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Bair Says U.S. Should Scrap Preferential Tax Treatment

Former Federal Deposit Insurance Corp. Chairman Sheila Bair discussed the U.S. tax system and the outlook for a successor to Treasury Secretary Timothy F. Geithner.

Bair, now a senior adviser at Pew Charitable Trusts, spoke from Brussels with Manus Cranny on Bloomberg Television’s “The Pulse.”

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Brown Says Bowles a ‘Favorite’ for Treasury Secretary

Thomas Brown, chief executive officer at Second Curve Capital LLC and a Bloomberg contributing editor, talked about the outlook for financial regulation and Treasury Secretary Timothy Geithner’s successor.

Brown spoke with Betty Liu on Bloomberg Television’s “In the Loop.” Michael Holland, chairman of Holland & Co., also spoke.

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CFTC International Rules Harming U.S. Firms, Swaps Brokers Say

The main U.S. swaps regulator risks harming American firms with how it’s telling international counterparts to interpret rules to oversee the $648 trillion swaps market, according to executives at brokers from ICAP Plc to Tradition North America Inc.

The Commodity Futures Trading Commission is weighing final guidance on the cross-border reach of trading, capital, collateral and other swaps rules under the Dodd-Frank Act. The commission held a meeting in Washington last week with the U.S. Securities and Exchange Commission, which shares oversight of some swaps markets, where European regulators said the U.S. approach wouldn’t work.

“It’s actually very evident that a lot of what the CFTC has done is harming the U.S.,” Mark Beeston, chief executive officer of portfolio risk services for ICAP, said on a panel discussion at the SefCon III conference in New York.

Group of 20 nations set an end-of-year goal to complete swaps regulations designed to reduce risk and increase transparency in a market faulted for helping to fuel the 2008 credit crisis. Lack of clarity and cross-border wrangling over the rules threaten to delay the deadline.

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Comings and Goings

Diamond Libor Taint Drives Colby Students Seeking His Ouster

Robert Diamond, the former Barclays Plc chief, gave $6 million to finance a Colby College building that has become a focal point for student dissent over his role at the 199-year-old school in Waterville, Maine.

Diamond, class of ’73, was forced out at Barclays after the London-based bank admitted to manipulating a key lending rate affecting $300 trillion in finance products worldwide. Since Colby trustees backed him as chairman in August, a group of students and local activists has rallied outside the Diamond Building to call for his removal.

The market crisis that led to the longest recession since World War II highlighted a cozy relationship between academia and Wall Street. As campus protests focused on financiers, academic leaders urged graduates to resist the lure of banking and investment jobs.

Yet executives who’ve been tarnished by scandal are rarely forced to cut ties with schools and nonprofit organizations they’ve supported, said Stanley Katz, a professor of public and international affairs at Princeton University. Usually a trustee caught up in such situations simply isn’t re-elected, rather than being forced off the board, Katz said.

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Tucker’s Odds on Becoming BOE Governor Narrow at Paddy Power

Bank of England Deputy Governor Paul Tucker’s odds of becoming the next governor narrowed at Paddy Power Plc.

The price on Tucker replacing Mervyn King in June shortened to 1-3 from 4-9, meaning a successful 3-pound bet would win a 1-pound profit, the Dublin-based bookmaker said on its website. The second favorite for the role is Terence Burns, former Permanent Secretary at the Treasury, at 13-2.

Tucker’s position as the favorite for getting the top central bank job wobbled earlier this year as he and his colleagues were embroiled in the Libor scandal, and he briefly lost his lead position to Gus O’Donnell, former head of the civil service.

The application deadline for the Bank of England job was Oct. 8.

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