Muni-Debt Indexes, ICE’s Swaps, CFPB: Compliance
U.S. financial regulators are examining the indexes used in the $3.7 trillion municipal bond market, after an investigation in the U.K. found that bankers rigged a widely used benchmark for worldwide interest rates.
The Municipal Securities Rulemaking Board, or MSRB, which crafts regulations for banks that deal state and local government bonds, said yesterday it plans to study how municipal-debt indexes are put together. The regulator said it had no indication of manipulation, and that the review seeks to educate investors about indexes used to gauge yields on municipal bonds.
The MSRB is concerned about transparency, Alan Polsky, the group’s chairman, said in a statement. The group will develop educational materials to ensure fairness and transparency, he said.
Officials in the U.S. and the U.K. are investigating how bankers set the London interbank offered rate, or Libor, an index used to determine interest rates on trillions of dollars of debt and derivatives, including contracts purchased by states and cities. At least a dozen banks are being investigated by regulators. Barclays Plc (BARC) was fined in connection with the probe.
The MSRB review is in response to concerns about the integrity of financial market indexes such as Libor, according to the statement.
The MSRB develops regulations and relies on the U.S. Securities and Exchange Commission to bring action against those who run afoul of its rules.
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Fed Approves Final Risk Standards for Financial Market Utilities
The Federal Reserve approved a final rule setting risk management standards for transaction processing systems including central counterparties, payments systems and central securities depositories.
The final rule, focused on firms that clear and settle trades, is “substantively similar” to the proposed version except for a provision that lets the Fed waive standards for some financial market utilities, the central bank said yesterday in a statement.
The regulations for financial market utilities, mandated under the Dodd-Frank Act regulatory overhaul, set risk-management standards for payment, clearing, and settlement activities, except clearing firms designated by the Securities and Exchange Commission or Commodity Futures Trading Commission.
Libor Rigging Can Be Prosecuted Under U.K. Law, SFO Says
U.K. fraud prosecutors will investigate the manipulation of Libor and other interest rates after deciding that existing British criminal law covers the conduct involved.
U.K. law provides the basis to bring charges, David Green, director of the Serious Fraud Office, said yesterday in a statement. The U.K. joins the U.S. in investigating how derivatives traders and rate submitters colluded to rig the London Interbank Offered Rate, or Libor.
The SFO probe began after Barclays Plc was fined a record 290 million pounds ($455 million) by U.K. and U.S. authorities, and British politicians called for a criminal investigation. The U.K. Financial Services Authority, which levied the fine along with the U.S. agencies, didn’t have the power to file criminal interest-rate manipulation charges. The agencies levying the fines have been briefing the SFO on the progress of the case.
At least a dozen banks are being probed by regulators worldwide. In the U.S., the Justice Department is preparing to file charges this fall against traders from several banks in its investigation.
Green said July 2 that the agency was considering whether it was possible to bring a prosecution after U.K. Chancellor of the Exchequer George Osborne and Ed Miliband, leader of the opposition Labour Party, called for a criminal probe.
SEC Office of Credit Ratings Website Operational, Agency Says
The website of the U.S. Securities and Exchange Commission’s Office of Credit Ratings provides access to public reports, examination resources, public exhibits of nine registered nationally recognized statistical rating organizations, and related registration forms.
Creditors May Take Loss in Clearinghouse Failure, Regulators Say
Creditors of derivatives clearinghouses should take losses in the event of a collapse, rather than exhausting the institution’s default funds and plunge it into liquidation, global regulators said.
It may be “preferable to haircut the creditor’s claims” even while there are reserves to fulfill them so that the payments infrastructure can continue to function, limiting the chance of a systemic collapse, the Committee on Payment and Settlement Systems and the International Organization of Securities Commissions said in a report published today.
The proposals are part of a global overhaul of rules governing derivatives contracts, encouraging banks and hedge funds to use central counterparties and spread the risk of default. Global regulators have sought tougher rules for over-the-counter derivatives since the collapse in 2008 of Lehman Brothers Holdings Inc. and the rescue of American International Group Inc., two of the largest traders of credit-default swaps.
Visa Europe Gets EU Antitrust Complaint on Credit-Card Fees
Visa Europe Ltd., operator of the European Union’s largest payment-card network, was sent an antitrust complaint from EU regulators over the fees it charges to process cross-border credit-card payments.
Visa Europe’s so-called multilateral interchange fees “harm competition between acquiring banks, inflate the cost of payment card acceptance for merchants and ultimately increase consumer prices,” the European Commission said in an e-mailed statement today.
Regulators last year settled a probe into Visa Europe’s fees for debit-card payments made outside a user’s home country.
Visa Europe issues about 41 percent of all payment cards in Europe, the Brussels-based antitrust agency said.
“We are very disappointed that the commission has taken such a confrontational approach and was not willing to find a solution to support investment and innovation in European payment,” Peter Ayliffe, chief executive officer of Visa Europe, said in an e-mailed statement.
Visa Europe can defend itself in writing or seek an oral hearing before EU regulators take a decision on fines that can amount to 10 percent of yearly sales.
Intercontinental to Convert Swaps to Futures as New Rules Loom
Intercontinental Exchange Inc. (ICE), owner of Europe’s largest energy market, said it will convert cleared swaps trades into futures or options starting next year.
The change in structure will allow users of the company’s energy, power and metal swaps to avoid having to report the trades to swap data repositories, according to an explanatory page on the Atlanta-based company’s website. The trades also won’t count as positions that can cause the firm to be labeled a major swap participant under the U.S. Dodd-Frank Act, a designation that brings additional capital, clearing and trade execution requirements.
Futures contracts that are economically equivalent to a swap trade won’t face the same regulatory changes under Dodd-Frank. The contracts affected are North American natural gas and power swaps, natural gas liquids, environmental swaps, global crude oil and refined products, freight and iron ore, the company said.
CFPB Enforcement Plans Span ‘Full Breadth’ of Agency’s Authority
The U.S. Consumer Financial Protection Bureau is conducting probes of companies that cover the entire range of the agency’s authority, which includes banks and non-bank financial firms.
The consumer bureau is placing its emphasis on violations that so the greatest harm consumers, it wrote in its semi-annual report, published yesterday.
The inquiries involve actions initiated by the bureau as well as those inherited from other regulators or resulting from consumer complaints, according to the report. So far, it has concluded one public enforcement action, resulting in a $210 million settlement with McLean, Virginia-based Capital One Financial Corp. (COF)
Servier, Teva Get EU Complaints Over Pay-to-Delay Drug Deal
Les Laboratoires Servier and Teva Pharmaceutical Industries Ltd. (TEVA), the world’s largest maker of generic drugs, were sent European Union antitrust complaints over agreements that delayed cheaper versions of a Servier blood-pressure medicine.
Patent settlement deals that Servier had with the companies “were aimed at delaying or preventing the market entry of cheap generic versions of perindopril, in violation of EU antitrust rules,” the Brussels-based regulator said in an e-mailed statement yesterday.
Servier “is convinced it didn’t commit any offense under the competition rules,” the company, based in Neuilly-sur-Seine, France, said in an e-mailed statement. It’s waiting to receive the commission’s complaint and will respond, it said.
“We do not believe that Teva entered into any anti-competitive behavior and we will cooperate fully with the authorities with their enquiries,” the Petach Tikva, Israel-based company said in an e-mailed statement.
Teva said it “will take some time to read and consider the document” once the company receives it.
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Liberia Court Shuts LiberCell for Failure to Pay License Fees
Atlantic Wireless Inc.’s LiberCell, a Liberian mobile-phone company owned Hits Telecom Holding Company of Kuwait, was ordered shut by a tax court in the West African nation for failing to pay license fees.
LiberCell owes about $1.5 million in fees to the government and will be closed until it settles its debt, according to a court document posted yesterday on the door of the company’s office in Monrovia, the capital.
LiberCell Chief Financial Officer Abdallah Sbeiti said funds are being transferred to make pay the fees.
Killer of Basileus Capital’s CEO Was Being Probed by Regulator
South Africa’s Financial Services Board was investigating Herman Pretorius, who shot the chief executive officer of Cape Town’s Basileus Capital Ltd. dead on July 26 before killing himself.
The FSB, based in Pretoria, started the investigation this month, after receiving allegations “he was conducting business that required that it be regulated, and it was not,” Financial Services Providers Deputy Registrar German Anderson said yesterday in reply to e-mailed questions. The regulator had received complaints Pretorius was soliciting clients for investment purposes, he said.
Pretorius, 40, shot Julian Williams, 37, in the neck and chest before shooting himself in the head, Police Captain Frederick van Wyk said July 27 in an e-mailed statement. Pretorius died on the way to hospital, he said. The two had been partners in Abante Capital, a Cape Town hedge fund.
Rongsheng Faces Order Slump as SEC Probe May Deter Buyers
China Rongsheng Heavy Industries Group Holdings Ltd. (1101), which hasn’t announced any 2012 ship orders, may find winning deals even harder as a company owned by its billionaire chairman faces an insider-trading probe.
China’s biggest shipbuilder outside state control tumbled 16 percent yesterday in Hong Kong after the U.S. Securities and Exchange Commission said traders including Chairman Zhang Zhi Rong’s Well Advantage Ltd. made more than $13 million of illegal profits buying shares of Nexen Inc. ahead of a takeover announcement by Cnooc Ltd. (883) The SEC also won a court order freezing about $38 million of the traders’ assets.
Rongsheng, based in Shanghai, has tumbled 87 percent since a November 2010 initial public offering because of concerns about delivery delays and a global slump in ship orders caused by a glut of vessels. The demand slump has pushed new-ship prices to an eight-year low.
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Ex-Innospec CEO Pleads Guilty to Bribery Charge, SFO Says
Former Innospec Ltd. (IOSP) Chief Executive Officer Paul Jennings pleaded guilty to conspiracy to bribe Iraqi government officials in an attempt to win supply contracts, U.K. prosecutors said in a statement.
Jennings, 55, who pleaded guilty in June to other charges related to the bribery of Indonesian and Iraqi officials, yesterday admitted his role in paying Iraqi government representatives to falsify tests on a rival company’s product. Innospec, a producer of fuel additives and specialty chemicals, agreed to pay more than $40 million in fines after pleading guilty in the U.K. and U.S. in 2010 to paying bribes overseas to secure sales contracts.
Yesterday’s plea relates to allegations of payments to Iraqi officials to ensure negative reviews of a product provided by Ethyl Corp.
Jennings’s lawyer Angus McBride didn’t immediately respond to an e-mail requesting comment.
Innospec settled all charges in the U.K. and U.S. in 2010, CEO Patrick Williams said in an e-mailed statement.
“We have built a strong culture within the company, in which compliance is simply non-negotiable,” Williams said. The company declined to comment on the Jennings case.
Siris, Guerrilla Capital Settle SEC Suit Tied to China Firm
Fund manager Peter Siris and his Guerrilla Capital Management agreed to pay more than $1.1 million to settle allegations by the U.S. Securities and Exchange Commission of “wide-ranging misconduct” in connection with a Chinese reverse-merger firm.
The SEC yesterday announced the settlement with Siris, a former writer for the New York Daily News and author of “Guerrilla Investing: Winning Strategies for Beating the Wall Street Professionals,” Guerrilla Capital and a related firm, Hua Mei 21st Century LLC.
From 2007 to 2010, Siris and the firms sold unregistered securities and engaged in unregistered broker-dealer activity and illegal insider trading tied to China Yingxia International Inc., the SEC said in a complaint filed yesterday in federal court in Manhattan.
Siris, who manages two New York-based funds that invest in Chinese companies listed in the U.S., had about $160 million under management in 2010, according to the SEC’s complaint.
William Munno, a lawyer for Siris and his two firms, didn’t immediately reply to a message seeking comment on the SEC allegations and the settlement.
The case is Securities and Exchange Commission v. Siris, 12-cv-5810, U.S. District Court, Southern District of New York (Manhattan).
Ex-UBS Executives Go to Trial in Muni Bond Bid-Rigging Case
Peter Ghavami, former co-head of UBS AG (UBSN)’s municipal-derivatives group, went on trial with two ex-colleagues in a bond bid-rigging probe in which banks have paid more than $700 million to settle U.S. claims.
Ghavami, Gary Heinz and Michael Welty are charged in a six-count indictment with “long-running conspiracies and schemes to defraud” municipal-bond issuers and U.S. tax authorities by fixing the prices on agreements for investing proceeds of municipal-bond sales.
The trial stems from a nationwide probe of bid-rigging involving banks and brokers.
Prosecutors expect to prove “the knowing and active participation” of UBS, JPMorgan Chase & Co. (JPM), Bank of America Corp. and General Electric Co. (GE) in the fraud alleged against the three former UBS executives, according to a July 6 court filing.
The defendants deny any wrongdoing. They have argued that the rigged bids charged by the government were “isolated in a sea of hundreds of other transactions” and were innocent.
Christiaan Brakman, a UBS spokesman, Russell Wilkerson, a spokesman for GE Capital, and Bank of America spokesman William Halldin declined to comment on the trial. JPMorgan Chase spokesman Joseph Evangelisti didn’t return a call seeking comment July 29.
Both sides estimate the trial may last about four weeks. The case is U.S. v. Ghavami, 10-cr-1217, U.S. District Court, Southern District of New York (Manhattan).
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