Futures Hearing, EU Bank Capital, Japan Audits: Compliance
The futures industry is recommending more rigorous reporting and internal controls for brokerages as $1.6 billion of customer money is still unaccounted for after the bankruptcy of MF Global Holdings Ltd.
Brokerages should be required to submit daily reports of how much customer money must be held separate from the firm’s own money to their self-designated regulator, often a clearinghouse the firm uses, the Futures Industry Association said in a statement yesterday. The group also recommended that firms file twice-monthly accounts of how customer money is being invested.
The Commodity Futures Trading Commission and bankruptcy trustees are among investigators probing the events surrounding the Oct. 31 collapse of MF Global. The loss of customer money at a bankrupt brokerage is a first in the futures industry, according to CME Group Inc. (CME), the world’s largest derivatives exchange and self-regulatory auditor of MF Global.
The CFTC is holding two days of meetings in Washington, which started yesterday, to discuss additional ways to protect customer accounts. The hearings are an early step toward more rules and regulations that would require an official CFTC proposal and vote by the agency’s five commissioners.
Banks May Face National Capital Levy Under EU’s Basel Compromise
Bank regulators in European Union nations may retain powers to set capital levels on lenders they deem too big to fail, in a possible compromise to implement Basel rules in the region.
Under the plans, regulators would be free to force some or all lenders in their jurisdiction to hold a “systemic risk buffer” of as high as 3 percentage points, according to a document obtained by Bloomberg News. The measures drawn up by Denmark, which holds the EU’s rotating presidency, may also relax a planned liquidity rule forcing banks to hold enough easy-to-sell assets to survive a 30-day credit squeeze.
The compromise plan follows a clash over proposals by Michel Barnier, the bloc’s financial services chief, to fix banks’ core capital requirements at 7 percent of their risk-weighted assets, with limited exceptions for national regulators to set higher thresholds during credit booms. The U.K. and Sweden have said that Barnier’s plans would be an unacceptable limit on national powers.
The European Commission, the 27-nation EU’s executive arm, would have veto power over decisions to raise the buffer higher than three percentage points of core capital, according to the Danish document, dated Feb. 28.
The Danish proposals would give extra “flexibility” to national regulators to go beyond the 7 percent threshold and may “constitute a viable approach for reaching a compromise,” according to the document.
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Debt Issuers Should Rotate Credit-Rating Companies, ESMA Says
Issuers of bonds should rotate the companies that evaluate their debt to encourage competition from smaller rating firms, one of Europe’s top markets regulators said.
Verena Ross, executive director of the European Securities and Markets Authority, told lawmakers in London yesterday that rotation could be a “good and valuable tool” to encourage different players to enter the credit-rating market.
Moody’s Investors Service, Standard & Poor’s and Fitch Ratings registered with ESMA at the end of October, becoming directly supervised by a single European Union regulator for the first time.
Separately, EU lawmakers said they oppose calls from a fellow member of the European Parliament to ban credit-ratings companies from giving unsolicited ratings on sovereign debt.
The ban was sought by Leonardo Domenici, the lawmaker tasked with drafting the Parliament’s opinion on credit-ratings rules. He has called for the unsolicited ratings ban to be added to a draft law that was presented last year by Michel Barnier, the EU’s financial services chief.
CFTC Said to Delay March 9 Vote on Swap-Dealer Definitions Rule
The U.S Commodity Futures Trading Commission delayed a vote on a rule defining swap dealers under the Dodd-Frank Act and may take up the measure on March 20, according to a person briefed on the schedule.
The CFTC’s five commissioners planned to vote March 9 on the rule that will determine which banks, hedge funds and energy companies face the highest capital and collateral requirements, said the person, who spoke on condition of anonymity because the schedule isn’t public. The agency already delayed a Feb. 23 vote on the regulation.
The regulation is among the most contentious measures required by Dodd-Frank and has led to hundreds of meetings and comment letters.
IOSCO Publishes Guidelines for OTC Derivatives Clearing
The International Organization of Securities Commissions published guidelines for regulators to limit risks stemming from trading in over-the-counter derivatives by requiring central clearing.
Regulators should “narrowly define exemptions” to central clearing and “promote international consistency,” IOSCO said.
IOSCO, based in Madrid, brings together national market regulators from more than 100 countries to coordinate rules and share information.
Japan Ruling Party Seeks More Asset-Manager Oversight After AIJ
Japan’s ruling party is seeking to amend laws to require external audits for privately owned asset-management firms in a bid to avoid a recurrence of the AIJ Investment Advisors Co. case.
The Democratic Party of Japan expected to form a working team under its financial committee as soon as yesterday to discuss changes to rules governing investment managers for pension money, Tsutomu Okubo, a lawmaker who leads the panel, said in an interview in Tokyo on Feb. 29. Okubo, 50, expects a bill to amend the Financial Instruments and Exchange Law will win Cabinet approval as early as mid-March and then be sent to the Diet.
Japan’s financial regulator yesterday began its biggest investigation of asset managers following the Feb. 24 suspension of AIJ, which has failed to account for the more than $2 billion it oversaw for clients, including pension funds. The case has raised concern over the safety of retirement assets in Japan, where more than a fifth of the population is over 65.
AIJ had 122 contracts with domestic corporate pensions and one with a foreign investor as of March 2011, according to filings with the Japan Securities Investment Advisers Association. The Tokyo-based firm managed 185.3 billion yen ($2.3 billion) of clients’ assets as of that date, labor ministry figures show.
Under the Financial Instruments and Exchange Law, closely held asset management firms don’t need to hire external auditors to review their business reports.
The panel will discuss whether the Financial Services Agency should hire inspectors with backgrounds in the hedge fund industry, Okubo said. It will also consider whether trust banks and life insurers should expand their oversight of funds as custodians, he said.
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JPMorgan Joins Goldman in Disclosing Threat of SEC Enforcement
JPMorgan Chase & Co. (JPM) said in a filing yesterday that the Securities and Exchange Commission warned in January it may bring complaints stemming from two investigations into mortgage securitizations.
Goldman Sachs Group Inc. and Wells Fargo & Co. (WFC) also said Feb. 28 they received so-called Wells notices from the SEC, warning that agency staff may recommend enforcement.
The SEC has issued such notices to multiple banks in probes focusing on mortgage securities, said people with knowledge of the matter who asked not to be identified because the communications weren’t public.
John Nester, a spokesman for the agency, declined to comment on the investigations.
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Expeditors Says EU to Hold Meetings on Freight-Forwarding Probe
Expeditors International of Washington Inc. said European Union regulators will hold meetings this month regarding an antitrust probe of freight-forwarding companies.
“On February 24, 2012, the company received notice from the EC that it plans to hold additional meetings, known as state of play meetings, related to its ongoing investigation of freight forwarders on or about March 15, 2012,” Expeditors said in a regulatory filing Feb. 28.
Goldman Sachs Executive Said to Be Focus of U.S. Insider Probe
A U.S. investigation of possible insider-trading by Goldman Sachs Group Inc. (GS) employees expanded to include a managing director whose name emerged at the trial of convicted hedge fund manager Raj Rajaratnam, a person with knowledge of the probe said.
David Loeb, who works on Asia equity sales in New York and focuses on Taiwan, is a subject in the criminal investigation, said the person, who declined to be identified because the matter isn’t public. Loeb is the second Goldman Sachs employee said to be under federal scrutiny. Last month, Henry King, an analyst covering Taiwan, was identified as under investigation by the FBI, a person familiar with the case said.
Goldman Sachs said in a Feb. 28 regulatory filing that “from time to time, the firm and its employees are the subject of or otherwise involved in regulatory investigations relating to insider trading, the potential misuse of material nonpublic information and the effectiveness of the firm’s insider trading controls and information barriers.”
The bank said in the filing that it was “fully cooperating” with any such investigations.
The law enforcement effort is being conducted by the FBI in New York and the office of U.S. Attorney Preet Bharara in Manhattan. Loeb didn’t return calls or e-mails seeking comment yesterday. Michael DuVally, a spokesman for New York-based Goldman Sachs, declined to comment. Peter Donald, a spokesman for the Federal Bureau of Investigation in New York, declined to comment.
Jerika Richardson, a spokeswoman for Bharara, said it is the office’s policy to neither confirm nor deny if Loeb is the subject of any inquiry.
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Munich Prosecutors Conducts Raid in Insider-Trading Case
Munich prosecutors conducted 86 raids in Germany and other countries yesterday in a probe of stock fraud, market manipulation and insider trading.
Fifty-three raids took place in Germany, 29 in other European countries and four outside Europe, Munich prosecutor spokesman Thomas Steinkraus-Koch said in an e-mail. Several people are being investigated, he said, declining to identify them or the stock involved. The operation was handled by 11 prosecutors, 10 employees at financial regulator Bafin and 200 police officers.
The allegations relate to possible manipulation of share prices “using publications,” Steinkraus-Koch said. The case is “just beginning.”
Munich prosecutors have previously investigated fraud where suspects used publications to inflate the price of penny stocks.
PNC Says It Expects to Unwind $1.3 Billion Because of Volcker
PNC Financial Services Group Inc. (PNC), the sixth-largest U.S. bank by deposits, may need to eliminate as much as $1.32 billion in invested capital under the Volcker rule.
PNC held $880 million in private equity and hedge funds and sponsored three such funds with total invested capital of $441 million as of Dec. 31, the Pittsburgh-based bank said yesterday in its annual filing with regulators. PNC said it’s likely some of the amounts will fall over time “in the ordinary course of business before compliance is required.”
“A forced sale of some of these investments due to the Volcker rule could result in PNC receiving less value than it would otherwise have received,” the bank said in the filing.
PNC and other U.S. regional lenders are grappling with how the Volcker rule, a proposal made under the 2010 Dodd-Frank Act that seeks to limit risky trading, will affect their companies. Executives at lenders such as Buffalo-based M&T Bank Corp. (MTB) have said the rule would place a burden on smaller banks just to prove they’re not in the business of proprietary trading.
Mexico Regulator to Fine Financial Firms for Misleading Clients
Mexico plans “very heavy” fines this year for at least three financial companies that improperly advised clients on corporate bond investments, said Guillermo Babatz, president of the National Banking and Securities Commission.
The companies either sold bonds that didn’t match their clients’ risk profile or provided misleading information to customers about the securities, Babatz said in a Feb. 25 interview. A fourth firm is also under investigation, Babatz said, while declining to identify the companies before any fines have officially been levied.
Customers’ portfolios are often concentrated in one security, increasing risk, Babatz said. One in five individual investors in private debt has more than half of their investments in one asset, Babatz said.
BSkyB, RTL Group Face EU Antitrust Complaint on TV Rights
British Sky Broadcasting Group Plc (BSY), ProSiebenSat.1 Media AG (PSM) and Bertelsmann AG’s RTL Group SA are among broadcasters named in an antitrust complaint to the European Commission over music publishing rights.
The European Composer and Songwriter Alliance accused broadcasters of coercing composers to cede publishing rights as a precondition for contracts to write music for television, the group told reporters in Brussels yesterday.
Composers can lose as much as 80 percent of potential royalties for music used in television programs when they are told to assign copyright to a publishing company owned by or selected by a television company, said Dutch composer Johan van der Voet. Broadcasters and production companies collude on the practice which “has been exploding” over the past decade, he said.
Julian Geist, a spokesman for Unterfoerhring, Germany-based ProSiebenSat.1, said the complaint is “not justified” because the company pays to use a large number of compositions in its television programs that it doesn’t hold the rights to.
Antoine Colombani, a spokesman for the Brussels-based commission, declined to comment beyond confirming receipt of the complaint.
Arthur Schuitemaker, NTR’s head of marketing and communications, declined to comment on the details of the complaint. Mediaset and the BBC also declined to comment.
BSkyB, RTL, ITV and RAI didn’t immediately respond to e-mails on the matter. TF1, ZDF and ARD didn’t respond to calls and e-mails seeking comment.
ING Rescue Terms Are Reviewed in First EU Court Case on Bailouts
The terms of ING Groep NV (INGA)’s bailout by the Dutch government may be questioned by a European Union court tomorrow in the first case challenging EU conditions on more than 1 trillion euros ($1.3 trillion) of bank rescues throughout the region.
ING was ordered by the European Commission to sell units to shrink its balance sheet by 45 percent by the end of 2013 and avoid undercutting rivals on prices for some banking products for three years or until it repaid the aid. The EU must approve large state subsidies and can impose conditions on the aid.
The EU’s general court will rule tomorrow on challenges by ING and the Dutch government to the terms of the EU’s approval, which the bank says punished it too harshly for state help in 2008 and 2009. ING said the regulator miscalculated the amount of aid and imposed excessive restructuring demands.
Tomorrow’s ruling may clarify how far banks can challenge EU decisions on commitments made in return for state aid approval, said Christoph Arhold, a lawyer at White & Case LLP in Berlin.
The cases are T-33/10, ING Groep v. Commission and T-29/10, Netherlands v. Commission.
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