Pakistan Pricing, Russia Mega Reform, CME: Compliance
The Securities Exchange Commission of Pakistan will establish a bond-pricing agency within six months to value corporate notes and sukuk as the South Asian nation seeks to attract global investors to its capital markets.
The plan is to improve transparency and increase trading volume, Imtiaz Haider, commissioner of the securities market division, said Oct. 12. Prices of bonds issued by companies are currently quoted by the Mutual Funds Association of Pakistan, which has an “inherent conflict of interest,” he said.
Pakistan is looking to boost foreign investment after the International Monetary Fund suspended financial assistance in May 2010 because the country failed to meet conditions on a $11.3 billion loan, which expired in September 2011. The rupee trading near a record low is making it more expensive for corporate entities to buy dollars, while the second quarter current-account deficit was the largest since 2008.
The regulator has also drafted rules to allow companies to sell sukuk, a financial instrument that complies with Shariah law, so long as they have no overdue loans, the Securities Commission said in a statement on Oct. 4. The issuer and the underlying assets also shouldn’t be rated lower than BBB-, it said.
Russia Mega-Regulator Seen Slowing Market Reform, Investors Say
The Russian government’s plan to merge the Federal Financial Markets Service and the central bank may hamper the development of the country’s financial markets, according to investors at Alor Invest, NP RTS and Finam Management.
President Vladimir Putin’s government is seeking to modernize the economy and remake Moscow into a global financial hub to reduce dependence on energy exports. Russia is committed to creating a so-called mega-regulator because global experience shows it’s better to have oversight and regulation concentrated in one entity, Russian Finance Minister Anton Siluanov said Sept. 12 in Moscow.
The mega-regulator must combine oversight with steps to develop the markets, Victor Remsha, the founder and owner of Moscow-based investment company Finam Management, said.
Merging market oversight and regulation may lead to a conflict of interest in the central bank, Economy Minister Andrei Belousov said in Sochi on Sept. 21. The unified entity may start work by the end of 2013 or in early 2014, according to Siluanov.
The government is keeping investors in the dark about the details of the merger, Anatoly Gavrilenko, board chairman of Alor Invest brokerage, said in an interview Oct. 11.
EU’s Bowles Says Bonus Rule Deal Needs to Include Binding Limit
Bowles, who heads the assembly’s Economic and Monetary Affairs Committee, said a compromise deal would need to set a “multiple” of how many times a bonus can exceed fixed pay.
Bowles, who has applied to replace Mervyn King as governor of the Bank of England, said Oct. 12 in an interview on Bloomberg Television’s “The Pulse” with Guy Johnson, that she thinks the feeling is “very strong” in the parliament in favor of setting a maximum ratio.
Bankers are facing a backlash from European lawmakers determined to cut variable pay as part of a quest to reshape lenders as utilities rather than money-making machines. The regulatory push comes as public outrage and shareholder rebellions this year forced some banks, including Citigroup Inc. (C) and Barclays Plc (BARC), to retreat from their initial pay plans.
As part of this push, lawmakers in May put a ban on bonuses that exceed fixed salaries into their negotiating position on a draft bank capital law.
The move has been opposed by lenders and some governments over concern about stifling competition.
Wall Street Joins CME in Winning Delays of U.S. Swaps Rules
CME Group Inc. (CME), energy traders and Wall Street banks won delays and exemptions from the U.S. Commodity Futures Trading Commission as regulations intended to improve oversight of the swaps market took effect.
Among a flurry of short-term extensions, the CFTC announced that foreign entities including the overseas branches of U.S.- based banks wouldn’t have to begin tallying swaps right away and perhaps not until the end of the year.
The agency also said that swaps traded by companies transitioning to futures at CME, owner of the world’s largest futures exchange, won’t count toward new swap dealer registration requirements until Dec. 31.
The relief is intended “to enable any such transition to proceed in an orderly manner,” Gary Barnett, director of the CFTC’s division of swap dealer and intermediary oversight, said in a letter released in Washington.
The CFTC is among several agencies writing and implementing rules mandated by the 2010 Dodd-Frank Act, which overhauled U.S. financial regulation in the wake of the 2008 financial crisis. The act required U.S. regulators to oversee the over-the-counter swaps market for the first time.
Swaps trading has been a major source of revenue for large U.S. banks, and some have conducted roughly half of such trades overseas, often through branches or subsidiaries. JPMorgan Chase & Co. (JPM), for example, derives as much of its quarterly revenue from global operations.
The CFTC has yet to complete guidance for the reach of Dodd-Frank clearing, trading and capital regulations and the temporary relief is intended to ease transition. The agency released a no-action letter governing the international scope of the regulations, providing temporary relief until as late as the end of the year for certain foreign entities.
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U.K. Antitrust Office Seeks Comment on CME’s New London Exchange
The U.K. Office of Fair Trading has asked for comment from the public on CME Group Inc.’s plans to open a derivatives market in London next year, competing with Europe’s two largest futures exchanges.
The new U.K. platform, which will start with 30 currency products, is going through the regulatory process in order to open in mid-2013. The comment period closes Nov. 22, the OFT said Oct. 12, adding it will “pay particular attention to the applicant’s rules on participation criteria and the arrangements for clearing and settlement of trades.”
The consultation starts as Nasdaq OMX Group Inc. (NDAQ) -- also planning to start a derivatives trading system in London next year -- said it will seek more than 10 percent market share in its first year of operation.
CME Europe is focused on boosting volume in all of its products to 5,000 to 10,000 contracts a day, a level that will encourage traders to use the system, Robert Ray, chief executive officer of the new exchange, said in a September interview.
The new London exchanges will compete with Liffe and Deutsche Boerse AG (DB1)’s Eurex, the largest derivatives venues in Europe.
Oil Market Rules May Cut Liquidity and Spur Volatility, IEA Says
The introduction of stricter oil market regulations aimed at reducing speculation may drive down trading volumes and make prices more volatile, the International Energy Agency said.
“Recent regulatory measures, such as speculative position limits, aimed at limiting participation and reducing the risk bearing capacity of ‘speculators’ may have unintended consequences, such as decline in liquidity, higher hedging costs and increased volatility,” the Paris-based adviser to 28 nations said Oct. 12 in its medium-term oil market report.
New rules in the U.S. have already affected swap markets by pushing so-called over-the-counter derivatives to trade on futures exchanges, the IEA said.
A U.S. federal judge last month rejected a rule by the U.S. Commodity Futures Trading Commission that would impose futures position limits on energy commodities. The caps were set to take effect Oct. 12.
Google German Criminal Street View Probe Said to Be Dropped
German prosecutors will drop a criminal probe into whether Google Inc. (GOOG) illegally gathered wireless-network data for its Street View mapping service, two people familiar with the issue said.
Prosecutors in the city of Hamburg didn’t find criminal violations, according to the people, who declined to be identified because the matter hasn’t formally ended.
Hamburg prosecutors have finalized their investigation and are preparing to issue a decision, spokeswoman Nana Frombach said. They opened the inquiry in 2010 after receiving a complaint. No suspects were identified.
Al Verney, a spokesman for Google in Brussels, didn’t immediately respond to requests for comment.
Regulator Says It’s Concerned With TransCanada’s Non-Compliance
Canada’s pipeline regulator said it is concerned with regulatory “non-compliance” by TransCanada Corp. (TRP) and will audit the company’s safety measures.
An internal audit by TransCanada verified “many of the allegations of regulatory non-compliance” raised in May by a company employee, the National Energy Board said Oct. 12 in a letter posted on its website.
The board will conduct a “focused audit and inspections” to evaluate measures taken by TransCanada to address the issues.
Total Loses EU Court Appeal of 78.6 Million-Euro Cartel Fine
Total SA (FP), France’s largest oil company, and its Elf Aquitaine unit lost a final appeal at the European Union’s top court seeking to annul a 78.6 million-euro ($102 million) fine for fixing prices on bleaching chemicals.
The EU Court of Justice, the bloc’s highest court, rejected the appeal “in its entirety” in a decision dated Sept. 13 posted on its website this week. The court, which said none of the arguments “are likely to succeed,” also rejected a request to cut the fines.
Total, based in Paris, declined to comment.
The cartel lasted from 1994 until 2000, according to the EU regulator.
The case is: C-495/11 P, Total SA, Elf Aquitaine SA v. European Commission.
Senators Criticize Oil Industry Challenge of SEC Disclosure Rule
Two U.S. senators who wrote the provision in the Dodd-Frank law requiring oil and gas companies to report payments to foreign governments defended it against a lawsuit that said regulators went beyond what Congress intended.
The American Petroleum Institute, whose members include Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX), and other business groups sued in federal court Oct. 11, saying the regulation based on the law “grossly misinterpreted” the lawmakers’ directive by requiring each company to report publicly payments made to a foreign government.
Senator Ben Cardin, a Maryland Democrat, who wrote the provision with Senator Richard Lugar, an Indiana Republican, disputed the argument by API and the U.S. Chamber of Commerce that the rule, written by the Securities and Exchange Commission to implement the 2010 overhaul of financial markets, places U.S. companies at a competitive disadvantage. Cardin made the comment Oct. 12 in a statement.
“Congress and the SEC carefully crafted a reasonable and very manageable reporting requirement that will bring greater transparency to oil, gas and mineral sector,” Cardin said.
The SEC approved a rule in August requiring public companies to disclose payments of more than $100,000 to foreign governments relating to the development of oil, gas or minerals.
The business groups say companies should be able to report payments to the SEC confidentially. They also argue the SEC didn’t adequately consider the rule’s effects on competition.
The case is American Petroleum Institute v. U.S. Securities and Exchange Commission, 12-cv-01668, U.S. District Court, District of Columbia (Washington).
CFTC’s Gensler Says He’s Interested in Second Term
Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission, said he’d be willing to serve a second term as head of the agency bringing the first federal regulation to the $648 trillion swaps market.
Peter Cook reported on Gensler’s remarks in an interview on Bloomberg Government’s “Capitol Gains” program, which aired on Bloomberg Television last weekend.
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Bair Says Money Funds Are Systemic Risk SEC Must Act to Contain
Sheila Bair, former chairman of the Federal Deposit Insurance Corp., said the $2.5 trillion money-market mutual fund industry poses a potential risk to the financial system and the U.S. Securities and Exchange Commission should take responsibility for regulating it.
“It’s not stable” and the industry is “a systemic risk,” Bair told reporters yesterday at a conference in New York organized by the National Association for Business Economics. “The SEC is responsible, and they haven’t moved forward.”
SEC Chairman Mary Schapiro in August gave up on a plan to tighten regulation of the funds, an alternative to bank accounts for individuals and companies, after three of five commissioners told her they wouldn’t vote to issue it for public comment.
The FSOC “should step in to act” if the SEC doesn’t, she told reporters. Bair, 58, is now a senior adviser to the Washington-based Pew Charitable Trusts.
The regulatory overhaul process “shines as a very bad example” of the industry’s confrontations with regulators, who are “still are trying to deal with a very obvious problem” that destabilized the financial system in 2008, Bair said in response to an audience question after a speech.
Turner Says U.K Should Have Forced Banks to Raise More Capital
Financial Services Authority Chairman Adair Turner said he regrets not having pushed for banks to raise more capital during the financial crisis when it would have been more palatable with voters.
Turner, among the favorites to replace Mervyn King as governor of the Bank of England, said politicians, regulators and central bankers should have demanded banks increase capital cushions to protect against the highs and lows of the economic cycle. Banks could have drawn down additional buffers since then to help the economy through the subsequent recessions.
“If I could roll back to 2008 all over again, and if I had known then what I know now, I would have argued for us then doing more dramatic capitalization of our banks at the point where we had the opportunity to take them up to a higher level,” Turner said two days ago at a conference on the fringes of the International Monetary Fund’s annual meeting in Tokyo.
The comments suggest Turner may seek remedies that don’t require further taxpayer support for banks in the future. Regulators have suggested the use of contingent convertible bonds, known as CoCos, which convert into shares when the bank’s capital ratio falls below a predefined level.
Speculation on who will succeed King in June is centering on BOE Deputy Governor Paul Tucker and Turner.
Tucker, who was also in Tokyo, on Oct. 12 told bankers to strengthen themselves so that they never again have to rely on bailouts or face an “uncontainable” backlash from the public.
Comings and Goings
Lauvergeon May Head New French State-Controlled Bank, JDD Says
Anne Lauvergeon, former head of nuclear-equipment company Areva SA (AREVA), is the most likely candidate to become chief executive officer of Banque Publique d’Investissement, a new French state- controlled investment bank, Le Journal du Dimanche reported, citing an unidentified person close to Caisse des Depots et Consignations.
Caisse des Depots et Consignations’ CEO Jean-Pierre Jouyet is likely to add the role of Banque Publique’s chairman, according to Le Journal du Dimanche.
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