Lloyds-RBS Chat, Managed Futures Fees, CBOE: Compliance

Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc joined larger competitors in banning traders from using multidealer chat rooms amid probes into currency manipulation.

Lloyds prohibited traders from using multibank chat rooms, while allowing one-on-one use of the forums, said a person with knowledge of the matter who asked not to be identified because the plan is not public. RBS banned chat rooms involving more than one client, securities house or broker, a person familiar with the matter said Dec. 18.

The world’s biggest banks are reining in use of chat rooms as regulators examine messages for evidence traders manipulated currencies or benchmark rates. JPMorgan Chase & Co. plans to ban traders from using multidealer chat rooms, while Deutsche Bank AG will widen a prohibition on such exchanges to include its entire investment bank and transaction-banking business.

“Recent policy updates include explicit rules governing the usage and controls for messaging systems in financial markets,” Lloyds said in a statement yesterday. Rebecca Nelson, a spokeswoman for RBS, declined to comment.

RBS, Lloyds, Deutsche Bank and Citigroup Inc. are among firms reviewing e-mails, instant messages and phone records of their foreign-exchange employees for evidence of potential manipulation, people with knowledge of those probes have said.

Compliance Policy

Japan Watchdog May Ease Regulations on Public Share Sales

Japan’s Financial Services Agency may allow big corporations to decide on an offering price when they announce public share sale plans, according to a report submitted by the regulator’s panel today.

Current regulations require companies to wait for a certain period of time before announcing a share sale price.

The FSA may also exclude a company’s holdings in treasury stocks from a disclosure rule.

The agency plans to submit proposals to parliament next year, according to the report.

Separately, the FSA is considering an additional penalty on Mizuho as early as this month for misinforming facts related to loans made to crime groups, Yomiuri newspaper reported, without attribution.

The FSA may order Mizuho to improve operations, Yomiuri reported.

Norway FSA Recommends Insurers Follow EIOPA on Solvency II

Norway’s Financial Supervisory Authority this week recommended that insurers follow EIOPA guidelines on preparations for Solvency II, according to an e-mailed statement by the agency.

The European Insurance and Occupational Pensions Authority, as one of three European supervisory authorities, has been active in developing the Solvency II project.

The FSA this week sent a letter to insurers on preparing for Solvency II, which is expected to be in force Jan. 1, 2016.

Compliance Action

CFTC Opens Probe Into Fees Charged by Managed Futures Funds

The Commodity Futures Trading Commission is investigating the high fees charged to investors in the $337 billion managed futures market.

CFTC Commissioner Bart Chilton said the agency initiated the inquiry after Bloomberg Markets magazine reported in its November issue that 89 percent of the $11.5 billion of profits of 63 managed futures funds was consumed by commissions, fees and expenses.

The CFTC probe comes as a U.S. Senate committee yesterday sent a letter urging the agency to work with the Securities and Exchange Commission to study ways to provide clearer disclosure of high fees charged to retirement accounts invested in managed futures funds.

Chilton, one of four CFTC commissioners, said regulators should require managed futures fund managers to be more transparent about the cumulative effect of fees on investors over time.

Fees, commissions and expenses in managed futures funds often cost customers a large majority -- or all -- of their gains, according to filings with the SEC. Some managed futures funds charge as much as 9 percent of assets annually.

Chilton, a Democrat who has planned to step down by the end of 2013, said he may stay longer. President Barack Obama hasn’t nominated Chilton’s replacement. The commission, which is supposed to have five members, could be down to just two, Democrat Mark Wetjen and Republican Scott O’Malia, if Chilton departs. Republican Jill Sommers left in July and Gensler’s term expires at the end of the year.

Once started, a probe continues, even if a commissioner steps down, Chilton said.

The CFTC has the authority to demand confidential information from the industry without subpoenas.

Steve Hinkson, a spokesman for the Managed Funds Association trade group in Washington, declined to comment on the probe, saying the group doesn’t comment on regulatory inquiries.

Managed futures funds buy and sell contracts to speculate on up and down price moves in stock indexes, interest rates, currencies, metals, oil, natural gas and more.

The Bloomberg Markets article, “Fleeced by Fees,” uncovered conflicts of interest between fund managers and investors.

For more, click here.


Microsoft Manager Accused of Leaks to Friend for Insider Trading

A former Microsoft Corp. executive and his friend made insider trades before company announcements, using disposable “burner phones” and stacks of cash to secretly reap more than $393,000, U.S. investigators said.

Brian Jorgenson, 32, a manager in Microsoft’s corporate finance and investments division, tipped off Sean Stokke, 28, a friend who allegedly traded on the information, the U.S. Attorney’s Office in Seattle said yesterday in a criminal complaint charging them with insider trading. The scheme ran from April 2012 through October of this year, prosecutors said.

Information on strategy and earnings at the world’s largest software maker allegedly was abused multiple times, in one case generating $185,000 in illicit gains tied to Microsoft’s plan last year to invest in Barnes & Noble Inc.’s e-reader business.

The Securities and Exchange Commission has brought a related civil suit.

The two admitted to the insider trading, according to the criminal complaint in federal court in Seattle.

Jorgenson wants to take responsibility and is ready to accept punishment, said his attorney, Angelo Calfo. Microsoft has fired Jorgenson.

“Our company has zero tolerance for insider trading,” Microsoft said in an e-mailed statement. “We helped the government with its investigation and terminated the employee.”

Stokke’s attorney, Jennifer Horwitz, didn’t respond to a phone call and e-mail seeking comment on the case.

The criminal case is U.S. v. Jorgenson, 13-cr-00613, and the SEC case is U.S. Securities and Exchange Commission v. Jorgenson, 13-cv-02275, U.S. District Court, Western District of Washington (Seattle).

ISE Bid for S&P, Dow Jones Indexes Rejected by U.S. Judge

International Securities Exchange Holdings Inc. lost a second lawsuit over the Chicago Board Options Exchange’s exclusive license to list options based on the Standard & Poor’s 500 and Dow Jones indexes.

U.S. District Judge Alvin K. Hellerstein in Manhattan on Dec. 19 threw out the case, citing ISE’s loss of what he called an identical lawsuit in Illinois state courts, where the company was a defendant.

After bringing a federal case in New York and leaving it dormant for almost seven years, ISE and its co-defendant in the Illinois suit were now trying to re-litigate the same issues in his court, which they are barred from doing, Hellerstein said.

S&P Dow Jones Indices LLC, the winning defendant in the Dec. 19 ruling, owns benchmarks such as the S&P 500 Index and Dow Jones Industrial Average, which track the value of trillions of dollars in assets. The New York-based firm licenses rights to companies that want to create financial instruments linked to those indexes.

CBOE Holdings Inc., owner of the Chicago Board Options Exchange, has exclusive rights through 2018 to offer options on the S&P 500 and S&P 100.

That means Deutsche Boerse AG’s International Securities Exchange, which runs one of the biggest U.S. options markets, is barred from expanding into a potentially lucrative business. S&P 500 options are CBOE’s biggest product by revenue, according to its last annual report.

“We are very disappointed by the judge’s decision and have no further comment at this time,” Molly McGregor, an ISE spokeswoman, said in an e-mailed statement.

CBOE Holdings sued ISE in Illinois in 2006 to block it from providing a forum for trading the index options.

Judge William O. Maki in Chicago barred ISE from featuring the listings in July 2010, ruling that the CBOE had an exclusive license to offer options based on the S&P 500.

His decision was upheld by an Illinois appellate court. The U.S. Supreme Court denied New York-based ISE’s bid for an appeal.

The New York case is International Securities Exchange LLC v. S&P Dow Jones Indices LLC, 06-cv-12878, U.S. District Court, Southern District of New York (Manhattan). The Illinois case is Chicago Board of Options Exchange v. International Securities Exchange LLC, 06CH24798, Cook County, Illinois Circuit Court, Chancery Division (Chicago); and Chicago Board of Options Exchange v. International Securities Exchange LLC, 1-10-2228, Illinois Appellate Court (Chicago).

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