India Banks, Dark Pools Testimony, BOE Checks: Compliance

The Indian parliament’s lower house approved changes to banking laws, raising a cap on voting rights and giving more regulatory power to the Reserve Bank of India in a move that may attract investment to the industry.

The limit on voting rights of shareholders in state-controlled lenders was increased to 10 percent from 1 percent, and in other lenders to 26 percent from 10 percent. The new law allows state-run banks to raise capital through rights offerings and free shares.

The additional powers for the banking regulator take it a step closer to issuing new bank licenses, part of a process that has been under way for more than two years. The higher limit on voting rights will boost investor interest in banks, Nitin Kumar, a Mumbai-based analyst at Quant Broking Pvt., said by telephone before the bill was passed.

The amended law will allow the Reserve Bank of India to take control of a bank and inspect the books of lenders’ associate enterprises. The final rules for new banking permits will be issued after the central bank has received the new regulatory powers, governor Duvvuri Subbarao said last month.

New entrants would compete with State Bank of India, the nation’s largest, and ICICI Bank Ltd., the biggest private lender.

India’s 26 state-run banks accounted for 76 percent of the nation’s outstanding loans as of March 31, according to the Reserve Bank of India. The 20 private domestic lenders had a 19 percent market share and 40 foreign lenders accounted for the remaining 5 percent.

Compliance Policy

Dark Pool Expansion Hurts Investors, NYSE, Nasdaq to Tell Senate

NYSE Euronext and Nasdaq OMX Group Inc., their share of American equity markets squeezed by venues that sprang up in the mid-2000s, were expected to tell legislators yesterday that too much trading occurs in dark pools, hurting investors.

Exchanges and private, broker-run dark pools are subject to separate regulations that impair the price-setting process and make it harder for public markets to compete, executives from the largest stock market operators were expected to say, according to prepared testimony. Trading occurring away from U.S. exchanges, excluding the biggest markets known as electronic communication networks, or ECNs, has doubled since early 2008, according to data compiled by Rosenblatt Securities Inc.

Members of a Senate subcommittee were set to hear both sides yesterday in the debate over off-exchange venues, which have risen to prominence since the 1990s, when new rules enabled automated systems to compete with the main markets.

While proponents say dark pools spur competition and help investors trade more easily and without affecting prices, exchanges say regulators have let the venues grow too freely without rules for fair access and equal treatment of participants.

Complexity and fragmentation have increased in U.S. equity markets, with trading now spread across 13 stock exchanges and about 50 dark pools. A third of U.S. volume occurs away from exchanges. Regulators in Canada, Australia and Europe have instituted or are weighing rules to limit the amount of trading away from exchanges.

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Australia Fund Managers Back Tax on High-Frequency Trading Firms

Australian fund managers want levies to be charged on high-frequency trading firms that send an excessive number of trade orders to equity markets.

The Financial Services Council, which represents Australian money managers, pension funds and life insurers that invest more than A$1.9 trillion ($2 trillion) on behalf of 11 million Australians, also is considering whether a minimum time limit should be set before an order can be withdrawn from the market, according to a statement yesterday on its website.

Australia, Hong Kong and Singapore are looking at tightening regulation of high-frequency trading amid concern trades that can be executed in under 10 microseconds may destabilize equity markets. The Australian Securities and Investments Commission, the national regulator, has cited Knight Capital Group Inc.’s $457 million loss in August and the American flash crash of May 2010 as examples of the need to examine whether tougher rules are needed.

ASIC Chairman Greg Medcraft has expressed concern that high-frequency trading provides “phantom liquidity” that can be quickly removed from stock markets. A taskforce at the regulator is studying the trading and is expected to report on its findings next year.

Central Bank Chiefs Said to Seek Basel Liquidity Rule Deal

Global central bank chiefs and regulators will next month seek to resolve clashes on a liquidity rule after the Basel Committee on Banking Supervision failed to clinch a full deal on the controversial measure, according to two people familiar with the situation.

The top officials may meet as soon as Jan. 6 in the Swiss city to thrash out a compromise on the so-called liquidity-coverage ratio, which central bankers including European Central Bank President Mario Draghi have warned may choke interbank lending and stifle economic recovery.

The Basel committee declined to comment.

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Governments Allowed to Fund Broadband in Cities Under EU Rules

European governments will be able to fund faster Internet networks in cities under rules approved by the European Commission today.

Regulators said new guidelines for funding networks with speeds of more than 100 megabits per second would allow public funding in urban areas “subject to very strict conditions.”

The overhaul would limit public funding for broadband unless it provides a substantial improvement over existing infrastructure.

Compliance Action

UBS Fined $1.5 Billion by Regulators for Manipulating Libor

UBS AG, Switzerland’s biggest bank, must pay about 1.4 billion Swiss francs ($1.5 billion) to U.S., U.K. and Swiss regulators for trying to rig global interest rates, triple the penalties levied against Barclays Plc.

Fines from the U.S. Commodity Futures Trading Commission and the U.S. Department of Justice total $1.2 billion, UBS said in a statement today. It will pay 160 million pounds ($260 million) to the U.K. Financial Services Authority, the largest-ever fine imposed by the regulator, and disgorge 59 million francs in estimated profits to the Swiss Financial Market Supervisory Authority.

“Clearly, this chapter isn’t positive,” UBS Chief Executive Officer Sergio Ermotti told reporters on a conference call. “We want to move forward and I think we’re showing our determination in the bank to move forward and to change the bank for good.”

About 30 to 40 people have left UBS as a result of the probes, Ermotti said, adding that the behavior of certain employees was “unacceptable.” He said he doesn’t expect any more departures.

The U.K. finance regulator found more than 2,000 documented requests by UBS traders to manipulate rates in chat messages and group e-mails, and that at least 45 people at the bank knew of the practice between over a six-year period until the end of 2010.

Global authorities are investigating claims that more than a dozen banks altered submissions used to set benchmarks such as the London interbank offered rate to profit from bets on interest-rate derivatives or make the lenders’ finances appear healthier.

UBS’s penalty brings total fines for Europe’s largest banks to at least $6.1 billion, or about a quarter of their estimated profit this year.

For more, click here, and see Interviews, below.

Clearinghouses Face BOE Spot Checks on Risk-Management Practices

Clearinghouses face unannounced reviews into how they manage risks when the Bank of England takes over as financial supervisor next year.

Clearinghouses, which act as central counterparties in derivatives transactions, will also have to show that bonuses for senior management don’t prioritize “revenues, market share and profit over systemic risk-management objectives,” the central bank said in a report on its website.

The paper preceded a meeting at the central bank yesterday where officials including Paul Tucker, deputy governor for financial stability, and Andrew Haldane, executive director for financial stability, were set to inform the industry about supervision. It said central counterparties will need to show that risk-management functions are “adequately resourced, sufficiently independent from commercial pressures and have a key role in the decision-making process.”

The Bank of England will take responsibility for supervising central counterparties and securities settlement systems once the U.K. Financial Services Bill takes effect, expected on April 1. European Union and U.S. regulators are trying to align rules for the $648 trillion market for over-the-counter derivatives.

SEC Revokes Toronto Brokerage’s Registration Over Manipulation

U.S. regulators revoked the registration of Toronto-based brokerage Biremis Corp. and barred its founders from the securities industry for failing to supervise traders who engaged in a manipulative practice.

Peter Beck and Charles Kim, who founded the firm, from at least 2007 to 2010 ignored repeated red flags that affiliated traders outside of the U.S. were engaging in so-called layering, or placing non-bona-fide trades to trick others into buying and selling stocks at artificial prices, the Securities and Exchange Commission said. The two men agreed to pay a combined $500,000 to resolve the SEC’s claims.

Biremis and Beck were already expelled about five months ago by the Financial Industry Regulatory Authority, the U.S. brokerage industry’s self-regulator, which cited similar claims. Biremis, Beck and Kim didn’t admit or deny wrongdoing in settling the claims.

A phone call to Michael Wolk, an attorney for the firm and the executives, wasn’t immediately returned.


TheStreet, Ex-Executives Settle SEC Accounting Investigation

TheStreet Inc., operator of the financial website, and three former executives settled a U.S. Securities and Exchange Commission investigation of accounting fraud at the company in 2008.

The SEC filed three complaints in federal court in Manhattan yesterday against TheStreet, ex-Chief Financial Officer Eric Ashman and two former co-presidents of a onetime unit of the company, Gregg Alwine and David Barnett. The defendants agreed to settle without admitting or denying the claims, the SEC said in a statement.

TheStreet, co-founded in 1996 by CNBC host Jim Cramer, reported in 2010 that the SEC was investigating the accounting at its former unit. TheStreet acquired the online promotional agency for $20.7 million in August 2007 and sold it to a company owned by managers for $3.1 million in December 2009, according to a company filing.

“Alwine and Barnett used crooked tactics, Ashman ignored basic accounting rules, and TheStreet failed to put controls in place to spot the wrongdoing,” Andrew Calamari, director of the SEC’s New York regional office, said yesterday in a statement.

Cramer, who is on TheStreet’s board, is the fourth-largest holder of the company’s shares, according to data compiled by Bloomberg.

“TheStreet cooperated with the SEC over the course of its investigation, and we conducted our own comprehensive review in conjunction with the investigation,” Elisabeth DeMarse, TheStreet’s chief executive officer, said in an e-mailed statement. “Upon learning of the irregularities, we promptly reported the matter to the SEC.”

The settlement doesn’t require TheStreet to pay any monetary penalty, DeMarse said.

“We are pleased to put this matter behind us,” she said.

The SEC allegations were connected to improper revenue recognition at the online promotion unit, which the SEC identified as “Subsidiary A.” Before it was acquired by TheStreet, the closely held company wasn’t required by U.S. securities law to maintain accurate financial records, the SEC said.

After the 2007 acquisition, the promotions unit improperly reported revenue from phony transactions, used a “percentage of completion” method of recognizing revenue without meeting the requirements for doing so and prematurely booked sales before completing any work, the SEC said.

When the financial reports of were consolidated with TheStreet’s, the improper revenue caused misstatements in the parent’s regulatory filings, the SEC said. In 2010, TheStreet restated its 2008 financial results and disclosed improper revenue recognition at its subsidiary, the agency said.

Ashman agreed to pay a $125,000 penalty and to reimburse TheStreet $34,240, the SEC said. He will be barred from acting as an officer or director of a public company for three years. Barnett agreed to pay $130,000 and Alwine $120,000. Both will be barred from serving as officers or directors for 10 years, the SEC said.

The three former executives and TheStreet agreed to an order barring them from violating the securities laws in the future, according to the SEC.

Bloomberg LP, the parent company of Bloomberg News, competes with in providing financial news.

The cases are SEC v. TheStreet Inc., 12-cv-9187; SEC v. Ashman, 12-cv-9189; and SEC v. Alwine, 12-cv-9191, U.S. District Court, Southern District of New York (Manhattan).

Amgen Pleads Guilty to Misbranding Anemia Drug Aranesp

Amgen Inc., the world’s largest biotechnology company, pleaded guilty to misbranding its anemia medication Aranesp and agreed to pay $762 million in criminal penalties and civil settlements.

The company, based in Thousand Oaks, California, entered a guilty plea yesterday to one misdemeanor charge before U.S. District Judge Sterling Johnson in Brooklyn, New York. Johnson said yesterday that he will decide today whether to accept the firm’s deal with the government.

Amgen promoted Aranesp for uses not approved by the U.S. Food and Drug Administration from 2001 through March 2007 in an effort to gain market share from Johnson & Johnson’s anemia treatment Procrit, according to a criminal information filed yesterday in court.

The FDA declined to approve changes for dosing indications requested by Amgen in 2005, 2007 and 2008, according to the information. In 2007, the agency issued a statement that Aranesp “increased the risk of death” in cancer patients not receiving chemotherapy or radiation treatment, and required a warning against that use on the label, according to the filing.

Amgen stopped promoting the drug for that use when the warning was issued, according to prosecutors.

The company agreed to pay $150 million in criminal fines and penalties. It will also pay $612 million in civil settlements, prosecutors said during yesterday’s hearing.

The company also faces whistle-blower lawsuits that haven’t been made public over its marketing practices.

“If the court accepts the plea and enters an agreed sentence, Amgen expects immediately thereafter to complete the comprehensive resolution of related civil and criminal matters for which a $780 million charge was recorded in the third quarter of 2011 and to enter into a corporate integrity agreement,” Ashleigh Koss, an Amgen spokeswoman, said in a statement.

The case is U.S. v. Amgen Inc., 1:12-cr-00760, U.S. District Court, Eastern District of New York (Brooklyn).


Silva Expects U.S. Banks’ Libor Fines to Exceed UBS’s

Ralph Silva, a strategist at Silva Research Network, discusses the $1.5 billion fine UBS AG will have to pay for rigging global interest rates.

He speaks with Mark Barton and Ryan Chilcote on Bloomberg Television’s “Countdown.”

For the video, click here.

Comings and Goings

AmEx’s Chenault Said to Be Discussed at White House for Treasury

White House officials have approached American Express Co. Chief Executive Officer Kenneth Chenault about joining President Barack Obama’s second-term administration, possibly as Treasury secretary, according to two people familiar with the matter.

White House Chief of Staff Jack Lew remains the leading contender for the Treasury job, the people said. Still, consideration of Chenault among Obama’s staff may indicate the president hasn’t made a final decision on a replacement for Treasury Secretary Timothy F. Geithner, who has said he plans to leave the post.

Other potential roles for Chenault, a longtime Obama supporter, may be as Commerce secretary or as a senior adviser to the president, according to the people, who asked for anonymity to discuss internal administration deliberations.

For more, click here.

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