Naked Shorts, ECB Lending, Deutsche Post: Compliance
Naked short sales of shares and government bonds may be limited by European Union proposals that say the practices cause a “disorderly market and possible systemic risks.”
Under the proposed rules, traders would be required to submit proof they can access the underlying security to settle a trade designed to profit from falling prices, according to a European Commission document obtained by Bloomberg News. The rules would need approval of the full commission before being submitted to the Parliament and national governments.
The rules would bring the EU closer to the stance taken by Germany, where Chancellor Angela Merkel banned some naked short selling in May. Merkel and French President Nicolas Sarkozy argued that some bets against stocks and government bonds should be banned as the Greek debt crisis made markets more volatile.
The U.K. Treasury said yesterday that it opposed an EU-wide ban or curbs on naked short selling and that sovereign bonds should be excluded from efforts to limit short selling.
The draft rules would also force traders to notify EU regulators about “significant exposures in credit-default swaps that relate to EU sovereign debt issuers,” according to the document. The rules wouldn’t apply to company shares that principally trade on an exchange outside the EU.
The rules also won’t apply to market makers because they play a “crucial role in providing liquidity to European markets” according to the draft. “Moreover, market makers do generally not take significant short positions except for during very brief periods,” the document said.
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Trichet Says ECB to Extend Emergency Bank Lending Measures
European Central Bank President Jean-Claude Trichet extended emergency lending measures for banks into 2011, remaining in crisis mode as the risk of a renewed U.S. recession puts the euro-area’s rebound in jeopardy.
The ECB will keep offering banks unlimited one-week and one-month loans until at least Jan. 18, Trichet told reporters yesterday in Frankfurt. Trichet spoke after the ECB Governing Council set the benchmark lending rate at 1 percent for a 17th month, as predicted by all 57 economists in a Bloomberg News survey.
The ECB is trying to cement a euro-region recovery threatened by the possibility of a renewed U.S. recession and concerns about the fiscal health of some euro-region nations. Policy makers had previously committed to lend banks unlimited cash at the benchmark rate until at least Oct. 12.
While most of the euro region’s 16-nation economy is now recovering, investors are still concerned about the finances of some member countries. The premiums investors charge to hold Greek, Spanish and Irish debt over German bunds are wider than they were before a European Union-led rescue package was announced on May. 10. The yields were little changed during the Trichet press conference.
“We have to remain cautious and prudent -- we don’t declare victory,” Trichet said yesterday. “Monetary policy will do all that is needed to maintain price stability in the euro area over the medium term.”
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FDIC’s Bair Says Dodd-Frank May Prevent Financial Crisis
U.S. regulators can prevent a repeat of the financial crisis that toppled Lehman Brothers Holdings Inc. if they fully apply new authority granted by lawmakers, Federal Deposit Insurance Corp. Chairman Sheila Bair said.
The Dodd-Frank law, which empowers regulators to guard against systemic risk and dismantle failing firms, could have prevented the tumult that followed Lehman’s September 2008 bankruptcy, Bair said yesterday in remarks prepared for a Financial Crisis Inquiry Commission hearing in Washington.
“The new resolution powers, the enhanced regulatory and supervisory cooperation mandated in the law, and the resolution planning authority provide an infrastructure to end ‘Too Big to Fail,’” Bair said. “Applying high standards for transparency and simplification of overly complex financial firms must be pursued aggressively to make this a reality.”
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China Plans Blacklist of Makers of Shoddy Goods, Xinhua Says
China will create a blacklist of manufacturers producing poorly made products as part of an effort to enhance the value of the “Made in China” label, Xinhua News Agency said, citing Minister Li Yizhong.
The Ministry of Industry and Information Technology will seek to reward companies that have good records for producing quality goods and punish the makers of shoddy products, Xinhua said, citing Li’s comments to a forum in Beijing.
Banks Face Costs, Lawsuits in EU Asset-Freeze Law, Lawyers Say
European Union banks may face new costs and liabilities next year under a law allowing claimants to freeze debtors’ assets in the bloc with court orders from any EU jurisdiction, lawyers say.
The European Commission wants the proposal in place as soon as March, allowing judges to grant cross-border account freezes in secret and apply them to banks in other EU nations before a debtor is aware of the claim.
The legislative arm of the 27-nation EU says 63 percent of cross-border debt can’t be recovered, and it blames a network of diverging national laws and the high cost of winning separate freezes in each country where assets are located.
Without protection for the industry, the law may trigger lawsuits against banks by claimants and debtors alleging a freeze was implemented too slowly or without enough evidence, said Brian Capon, a spokesman for the British Bankers’ Association, a London-based trade group.
The law was proposed in 2006 and revived in March in response to the financial crisis.
Bank of Korea Governor Urges Global Cooperation on Regulation
Bank of Korea Governor Kim Choong Soo said more international cooperation is needed on crafting rules aimed at averting another global financial crisis.
“International policy cooperation will have to be stepped up to prevent any emergence of regulatory arbitrage,” Kim said at a conference in Seoul today, referring to the way firms look to take advantage of regions with less onerous rulebooks.
Programs should be introduced to address structural weaknesses in emerging markets, such as reducing the volatility of their foreign capital flows and better managing external debts, Kim said.
The governor has called for the Group of 20 economies, which holds its summit in Seoul in November, to discuss creating a global financial safety net. Earlier this week South Korea said it will explore solutions through the International Monetary Fund for the type of funding shortages created by the crisis.
SEC Said to Probe Possible Role of Canceled Trades in Crash
The U.S. Securities and Exchange Commission is examining whether high-speed traders helped trigger a 700-point drop in the Dow Jones Industrial Average on May 6 by repeatedly placing and immediately canceling orders in an attempt to manipulate share prices, a person with direct knowledge of the inquiry said.
The strategy, known as quote stuffing, is among several market practices being investigated by regulators, said the person, who declined to be identified because the probe isn’t public. The SEC is also looking into whether traders may have used so-called sub-penny quotations to artificially generate price movements, the person said.
The inquiry was first reported Sept. 1 in the Wall Street Journal.
The SEC and the Commodity Futures Trading Commission are under pressure from lawmakers to show they have a grip on markets increasingly dominated by electronic trading. The SEC, which has since mandated circuit breakers to curb volatility in certain stocks, is undertaking a “comprehensive review” of the May 6 stock drop, Chairman Mary Schapiro said in May.
NYSE, Nasdaq Boost Price-Quote Rules to Help Ensure Liquidity
Regulators and exchanges are working to enhance the trading obligations of market makers following the May 6 rout that erased $862 billion in equity value in about 20 minutes as some firms reined in the liquidity they were providing. The changes by NYSE and Nasdaq specify the minimum time each day that firms must be at the national best bid or offer -- known as the NBBO - - the highest price at which mutual funds and investors can sell and the lowest at which they can buy shares on any market.
The Nasdaq Stock Market now requires brokers that want to qualify for its select market-maker, or SMM, program to quote at a security’s best price at least 10 percent or 15 percent of the day, based on a stock’s average volume.
NYSE’s supplemental liquidity provider, or SLP, program doubles the portion of the day the exchange’s nine participating firms must quote at the NBBO to 10 percent. The new requirements go into effect Oct. 1.
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SEC Requires Municipal Finance Advisers to Register by Oct. 1
The Securities and Exchange Commission is requiring local- government financial advisers to register with the agency by October, a step toward regulating firms that guide borrowers in the $2.8 trillion municipal bond market.
The SEC said yesterday that it adopted a temporary rule regarding the registration so that it can be met by Oct. 1, a deadline required under the financial regulatory overhaul signed by President Barack Obama in July.
The changes to the U.S. financial-regulatory rules, the broadest since the Great Depression, will expose firms that advise state and local officials to greater oversight. Previously unregulated, the advisers helped steer governments toward interest-rate swap deals that backfired after the credit market crisis began more than three years ago, exposing municipalities to billions of dollars in unexpected costs.
“We have acted expeditiously to create a temporary registration system to gather key data and provide transparency about municipal advisers,” SEC Chairman Mary Schapiro said in a statement. “As a result, regulators, investors and state and local governments will have a much better understanding of those who provide services in the municipal market.”
New Mexico Approves PNM’s 22-Megawatt First Solar Projects
PNM Resources Inc., owner of New Mexico’s largest electric utility, said it received regulatory approval for plans to own and operate 22 megawatts of solar-energy facilities being installed by First Solar Inc.
The utility company was seeking permission to add 45 megawatts of solar arrays. The New Mexico Public Regulation Commission authorized the 22 megawatts of projects called for under a January contract with First Solar, said Cathy Garber, a spokeswoman for Albuquerque-based PNM.
The cost of the initiative will be capped at $101.7 million, PNM said in a Sept. 1 statement. The utility plans to request recovery of the costs through a charge on customer’s bills that would go into effect one year after implementation of new PNM rates, which regulators are evaluating.
Electric utilities in New Mexico are required by law to provide 10 percent of their energy from renewable resources by 2011 and 20 percent by 2020.
Toshiba Recalls About 41,000 Worldwide T Series Notebooks
The U.S. Consumer Product Safety Commission and Health Canada said they recalled about 41,000 Satellite T135, Satellite T135D and Satellite ProT130 Toshiba notebook computers worldwide because they can overheat at the notebook’s plug-in to the AC adapter, posing a burn hazard.
The information was on the U.S. agency’s website.
Polar Air to Plead Guilty in U.S. Price-Fixing Probe
Polar Air Cargo LLC, a unit of Atlas Air Worldwide Holdings Inc., agreed to plead guilty and pay a $17.4 million criminal fine for price fixing, the U.S. Justice Department said.
Polar Air Cargo engaged in a conspiracy to fix rates charged to customers for international air cargo shipments between Australia and the U.S. from 2000 to 2003, prosecutors said in papers filed yesterday in federal court in Washington. Polar Air Cargo’s role in the conspiracy began before Atlas acquired the company, Atlas said.
“We have cooperated fully with the DOJ throughout the investigation,” Atlas Chief Executive Officer William Flynn said in a statement. “Our board of directors and management take our obligation to abide by all applicable laws, including laws regarding competitive conduct, very seriously.”
The airline is one of 17 that have been charged in a Justice Department probe of the air transportation industry, resulting in $1.6 billion in criminal fines, the U.S. said.
Deutsche Post Wins $1.5 Billion Fight at Top EU Court
Deutsche Post AG won’t have to repay German state aid and interest totaling more than 1.15 billion euros ($1.5 billion) after it defeated a regulator’s challenge to the subsidy at the European Union’s highest court.
Deutsche Post can keep the money which the EU’s executive agency said was granted unlawfully, the European Court of Justice ruled yesterday. The court in Luxembourg dismissed the European Commission’s appeal and confirmed a lower court’s decision that the regulator had used a “defective” method in its 2002 finding that Deutsche Post had misused the subsidy.
The dispute dates back to 1994, when United Parcel Service Inc. complained that Bonn, Germany-based Deutsche Post offered anti-competitive rebates to customers in its door-to-door package service, undercutting private businesses such as UPS.
Deutsche Post lawyer Alexander Kirschall said in an interview after the ruling that the original amount of 572 million euros in state aid had increased to 1.15 billion euros by 2008 with the addition of interest.
A win for the EU regulator, which checks that grants don’t distort competition in the 27-nation EU, could have forced Deutsche Post to repay the aid and interest.
Basis Swap Deal Is Australian, Can’t Sue in U.S., Goldman Says
Basis Capital, an Australian hedge fund suing Goldman Sachs Group Inc. for $1 billion over losses related to credit default swaps, can’t sue in the U.S. because the deal was made in Australia, Goldman Sachs said.
Basis never contends it “did anything within the United States in relation to the transaction,” Goldman Sachs said in a Sept. 1 filing in Manhattan federal court, urging the judge to throw out the lawsuit. “The purchase and sale occurred only when both parties agreed to the terms of the transaction” and Basis executed those documents in Australia, Goldman Sachs said.
The lawsuit by Basis Capital’s Basis Yield Alpha Fund focuses on Goldman Sachs’s sale of the “Timberwolf” collateralized debt obligation. The complaint, filed June 9, says the fund was forced into insolvency after buying mortgage- linked securities created by Goldman Sachs, which one of its own executives described internally as a “shi**y deal.”
The case is Basis Yield v. Goldman Sachs, 1:10-cv-04537, U.S. District Court, Southern District of New York (Manhattan).
Bernanke Says ‘Too-Big-to-Fail Problem’ Must Be Solved
Federal Reserve Chairman Ben S. Bernanke spoke about the Fed’s objective to tighten regulation of financial institutions and the need to solve the “too-big-to-fail problem.”
Bernanke, testifying before the Financial Crisis Inquiry Commission in Washington, also discussed the collapse of the subprime mortgage market and the “vulnerabilities” that drove the financial crisis.
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Elliott Sees Fed Gaining ‘Significantly More’ Power
Douglas Elliott, a fellow at the Brookings Institution, talks about the financial crisis, the Federal Reserve and the performance of Fed Chairman Ben S. Bernanke.
Elliott spoke with Pimm Fox on Bloomberg Television’s “InBusiness.”
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Grano Says Align Rules by Product, Not Institution
Joseph Grano, chief executive officer of Centurion Holdings LLC, talks about former Lehman Brothers Inc. Chief Executive Dick Fuld’s testimony before the Financial Crisis Inquiry Commission, financial regulation the outlook for the stock and bond markets.
Grano spoke with Betty Liu on Bloomberg Television’s “In the Loop.”
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