Chancellor Angela Merkel’s party and the Social Democrats, or SPD, reached an initial accord to push for a broad-based European financial-transaction tax as part of coalition talks aimed at a new German government.
A working group negotiating European policy in Berlin agreed to give the levy new impetus as part of any coalition agreement. The two factions are trying to hammer out terms for a “grand coalition” in negotiations that may stretch through November.
Merkel’s previous government championed a transaction tax among 11 nations in the euro area that would charge a 0.1 percent rate for stock and bond trades and 0.01 percent for derivatives transactions, with some exemptions. The SPD campaigned on the issue and has made the introduction of such a tax a condition for joining a government with Merkel.
Axel Schaefer, who sits on the European working group and is a deputy leader of the SPD parliamentary caucus, said the tax proposals consider how to handle any impact on pension funds. Agreements in the German coalition working group will be passed to the main group of 75 negotiators, which will meet today in Berlin.
Any plan to levy an financial transaction tax in the European Union will confront legal hurdles. EU lawyers have clashed over whether an 11-state levy, as proposed, is legal under the 28-nation bloc’s governing treaties.
CFTC to Adopt Client-Funds Rule After MF Global, Peregrine Cases
The top U.S. derivatives regulator will vote today to adopt rules to improve protections for customer funds two years after MF Global Holdings Ltd. collapsed amid claims the brokerage illegally financed investments by borrowing from client accounts.
The Commodity Futures Trading Commission was criticized for poor oversight of MF Global and Peregrine Financial Group Inc., whose founder last year admitted stealing more than $100 million from customers. Regulatory exams failed to detect the embezzlement at Peregrine, which happened over almost 20 years.
The CFTC’s rule, proposed in October 2012, would give regulators electronic oversight of futures brokers’ bank accounts to more closely monitor customer funds. It also would require heightened disclosure of how client collateral is held and tougher auditing standards.
Futures brokers have objected to a measure in the CFTC’s proposal requiring them to set aside additional funds to cover customers’ collateral deficits. The CFTC said the change is meant to prevent brokerages from using end-of-day balancing to “obscure a shortfall.”
Brokerages say the change would tie up additional capital and would probably lead to higher costs for clients. Some say it would be especially detrimental to small and mid-sized brokers that serve farmers and ranchers.
U.S. House Votes to Delay Rules on Retirement Investment Advice
The U.S House voted to delay a Labor Department effort to expand investor protections for more than $13 trillion worth of private retirement accounts, including 401(k)s and IRAs.
The legislation, which passed 254-166 yesterday, would stop the department from issuing a proposal to prevent conflicts of interest in retirement-investment advice until 60 days after the Securities and Exchange Commission finalizes a similar rule. The bill also would make the SEC rule-writing task harder by requiring the agency to show that investors have been harmed by existing rules governing brokers’ advice.
The agencies have been working on regulations to require more investment professionals to give advice that is in their clients’ best interests, meeting a standard known as fiduciary duty. The Labor Department proposal would expand that standard to more providers of retirement accounts while the SEC rule would apply to sales of securities. The White House opposed the bill, which now goes to the Democrat-controlled Senate.
The Securities Industry and Financial Markets Association, a lobbying group for banks and brokerages, said in 2011 that Labor Department efforts might increase costs and limit products for investors, especially those with small balances.
The Labor Department’s proposal would change the agency’s definition of investment advice so that providers may be held to the fiduciary duty standard even if they don’t regularly make recommendations to workers. The agency has said it would provide exemptions to allow for some commission-based transactions.
Mike Trupo, a spokesman for the Labor Department, declined in an e-mail to comment on the vote.
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EU Nations Clash Over Who Should Make Bank Resolution Decisions
European Union countries are fighting over who should decide how to handle failing banks, adding a dispute over process to questions of cost-sharing, according to EU documents obtained by Bloomberg News.
Germany and Finland want to give more authority in the euro area’s future Single Resolution Mechanism to the EU’s council of nations, while France, Italy and the Netherlands are among those who support keeping more powers at the European Commission to expedite decisionmaking, said a person familiar with discussions.
EU leaders called last week for nations to agree by year-end on a common resolution mechanism so talks for a final deal with the European Parliament can conclude in the first half of 2014. The bank-failure system is the next stage in a banking union due to start next year when the European Central Bank takes on financial oversight in the 17-nation euro zone.
At stake is whether the EU can move past five years of financial turmoil.
EU financial-services chief Michel Barnier has proposed the Single Resolution Mechanism, which would create a central fund and hand decisionmaking powers to the European Commission. Germany has led opposition to expanding commission powers.
France has submitted a separate proposal that would limit decisionmaking to countries with direct links to banks whose cases would be decided by the board, according to EU documents.
Deutsche Boerse’s Iran Fine From U.S. Is Half Its Estimate
Deutsche Boerse AG said the fine its Clearstream unit faces from U.S. government allegations that it violated sanctions against Iran may be half the previously disclosed amount.
The penalty totals $169 million, or only $152 million if the Frankfurt-based company settles with the U.S. Treasury Department’s Office of Foreign Assets Control, Deutsche Boerse said in a statement yesterday. In January, Deutsche Boerse said it might have to pay $340 million.
The Treasury investigation, which Deutsche Boerse said has concluded, centered on securities transfers within the Clearstream system in 2008, following the company’s decision in 2007 to close Iranian customers’ accounts. The company started talks on a deal with the U.S. Treasury in 2008, the Frankfurt-based exchange said earlier this year.
Treasury spokesman John Sullivan declined to comment.
Standard Chartered Plc agreed to pay $327 million in fines in December, including $132 million to OFAC, after regulators said it violated U.S. sanctions with Iran. The British bank was accused of helping Iran launder about $250 billion in violation of federal laws, keeping false records and handling wire transfers for Iranian clients.
Rabobank Fined $1.1 Billion Over Libor, Euribor Manipulation
Rabobank Groep, the co-operative formed in 1898 to lend to Dutch farmers, was fined 774 million euros ($1.1 billion) for its involvement in rigging benchmark interest rates, the second-largest in the global investigation. The bank’s chairman, Piet Moerland, said he would resign.
The lender, based in Utrecht, Netherlands, was fined by the U.S. Commodity Futures Trading Commission, the Justice Department, the U.K. Financial Conduct Authority and the Dutch public prosecutor’s office, the regulators said in statements yesterday. The fine brings the total settlements in the rate-rigging probe to $3.7 billion.
Rabobank entered into an agreement with the Justice Department to accept responsibility for manipulation of Libor and Euribor to avoid prosecution, the DOJ said. The FCA called the misconduct “serious, prolonged and widespread.”
Internal Rabobank Groep e-mails cited in the U.S. Justice Department’s case against the bank show a culture where fixing benchmark interest rates had become an easy-going routine, one in which employees joked about rate rigging while telling each other they weren’t really that bad.
The fines make Rabobank the fifth firm penalized over manipulation of the London interbank offered rate.
Rabobank derivatives and money market traders influenced the lender’s submissions to benefit their positions linked to Libor and conspired with employees of other banks to rig rates from May 2005 to January 2011, the FCA said. More than 500 attempts were made by Rabobank to manipulate Libor, according to the regulator.
Thirty current and former employees of the Dutch lender were involved, Rabobank executive board member Sipko Schat said yesterday. Five of them were fired, he said.
Rabobank’s Tokyo branch was also penalized by the Japanese Financial Services Agency. Yesterday’s settlements don’t mean the investigations are over, Schat said, as several regulators haven’t completed their probes yet.
UBS Taking Measures Against Employees Amid Currency Probes
UBS AG said it’s taking measures against employees as investigators probe the possible manipulation of foreign-exchange rates, while Deutsche Bank AG said regulators have asked it for information.
Switzerland’s biggest bank started an internal review of its currencies operation in June and is co-operating with regulators, UBS said in a statement yesterday. The Zurich-based firm didn’t identify or quantify the number of employees involved, or say what actions it took. Separately, Deutsche Bank, continental Europe’s largest lender, said in a statement that it’s cooperating with regulators’ requests.
Bloomberg News reported in June that traders at some banks said they shared information about their positions through instant messages, executed their own trades before client orders and sought to manipulate the benchmark WM/Reuters rates. Regulators including the U.S. Justice Department, Britain’s Financial Conduct Authority and the Swiss Financial Market Supervisory Authority are probing the $5.3 trillion-a-day market.
Regulators are scrutinizing an instant-message group involving senior traders at a group of banks including UBS, four people with knowledge of the probe said earlier this month. The watchdogs are weighing whether those messages amounted to attempts to manipulate the market, two people said.
About four banks account for more than half of all trading in the foreign-exchange market, according to a May survey by Euromoney Institutional Investor Plc. Deutsche Bank is No. 1 with a 15 percent share, followed by Citigroup Inc., Barclays Plc and UBS.
Hana Dunn, a spokeswoman for UBS, and Sebastian Howell, a spokesman for Deutsche Bank, declined to comment.
CFTC Sees Dropping Appeal Amid Likely Rewrite on Position Limits
The U.S. Commodity Futures Trading Commission expects to issue a notice on a new proposal regarding speculative limits for commodity derivatives, the agency said in a court filing.
The commission is set to consider a proposal at a Nov. 5 public meeting. If the agency votes to issue a notice of proposed rulemaking, it will file a motion to voluntarily dismiss its appeal of the court’s ruling that struck down the agency’s 2011 rule.
Last year, a federal judge rejected the commission rule restraining speculation, saying the Dodd-Frank Act isn’t clear as to whether the agency was ordered by Congress to cap the number of contracts a trader can have in oil, natural gas and other commodities without first assessing whether the rule was necessary and appropriate.
The court’s decision, a victory for Wall Street firms that challenged the regulation, blocked agency rules that had been set to go into effect in October 2012.
Swiss Prosecutor Opens Criminal Probe Into F1 Bribery Case
Swiss prosecutors opened a criminal investigation into allegations that Formula One Chief Executive Officer Bernie Ecclestone paid a bribe to facilitate a sale of F1 shares.
Authorities in Geneva are examining the details of a $44 million payment made by Ecclestone and his family trust, called Bambino, to German banker Gerhard Gribkowsky, a spokesman for the Geneva prosecutor’s office said yesterday. Ecclestone was charged in May by German prosecutors over his alleged role.
Gribkowsky helped facilitate the sale of Bayerische Landesbank’s 47 percent stake in F1 to CVC Capital Partners Ltd. in 2005. The banker was arrested in Germany in 2011 and later convicted of taking bribes in that matter.
The Swiss investigation began after a complaint by Constantin Medien AG. The German media company is also suing Ecclestone for more than $100 million in a U.K. court case.
Ecclestone’s lawyer in Germany, Sven Thomas, said he had no knowledge of the Swiss probe when reached by phone today. Ecclestone has repeatedly said the payments were made because Gribkowsky threatened to tell U.K. tax authorities about the family trust.
Bambino has an office in Geneva, Della Casa said. The Swiss criminal investigation was reported earlier by the Financial Times.
The civil trial in London began yesterday. Ecclestone, 83, may testify in the trial as soon as next week. The German court is deciding whether prosecutors have enough evidence to try Ecclestone for bribery and breach of trust.
Comings and Goings
Stricken Banks’ CEOs Risk Ouster in EU Deal on Crisis Plans
European Union lawmakers and national officials reached a tentative agreement on plans to give regulators the power to fire executives of ailing banks.
Regulators would be handed sweeping powers to parachute in “temporary administrators” in a last-ditch bid to bring a bank back from the brink of collapse, according to a document obtained by Bloomberg News.
Authorities would have discretion to fire individuals or the “management body of the institution, in its entirety” when there is “a significant deterioration” in the bank’s financial situation and other steps have failed to turn the situation around, according to the document. Such action could also be taken when the bank has been guilty of “serious violations of law, regulations or bylaws, or serious administrative irregularities.”
The measures are a component of the EU’s blueprint for tackling failing banks and taking taxpayers off the hook for bailouts. The draft law, proposed last year by EU financial services chief Michel Barnier, would also empower regulators to impose losses on senior creditors and require nations to create so-called resolution funds that could stabilize crisis-hit lenders.
A tentative deal on the bank-management replacement plan was struck by European Parliament lawmakers and Lithuania, which holds the rotating presidency of the EU, at a meeting this month. The provisional accord on manager replacement requires confirmation at a subsequent negotiation meeting.
A spokesman for Lithuania’s EU presidency declined to comment on the tentative agreement. Gunnar Hoekmark, the EU parliament legislator leading work on the plans, also declined to comment.
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