Ticks Widening, Singapore Censure, Swaps: Compliance
Proposals to study changing the price increments at which some U.S. stocks change hands may be getting closer to implementation.
Executives from the biggest American exchanges are drafting a pilot program that would widen so-called tick sizes on about 100 smaller and less-liquid securities for a year, according to a document seen by Bloomberg News. Another would cover lower-priced, active stocks to see if smaller increments would benefit investors, the document showed.
Most American shares have been bought and sold at prices denominated in pennies for more than a decade after the spread was narrowed in an initiative known as decimalization, which some economists say hurt liquidity by lowering profits for market makers. Those professionals, who help facilitate orderly trading, earn money by collecting the difference between the highest price to buy a share and the lowest to sell.
Officials from the New York Stock Exchange and Nasdaq held discussions with the U.S. Securities and Exchange Commission this month on the pilots, according to a person with direct knowledge of the matter who asked not to be identified because the talks were private.
The SEC has asked exchange officials to help draw up the plans because they know the most about how securities trade, according to two people with direct knowledge of the discussions.
Sara Rich, a NYSE Euronext spokeswoman, and Robert Madden, a Nasdaq spokesman, declined to comment on the pilot programs. Randy Williams, a BATS Global Markets Inc. spokesman, also declined to comment. SEC spokesman John Nester declined to comment.
Danish Banks Welcome FSA Steps to Conform With EU on CoCos
Denmark’s financial industry has welcomed a decision by the Financial Supervisory Authority to recommend that trigger levels governing contingent convertible bonds be in line with European standards.
Banks will be able to choose between a threshold of 7 percent core equity Tier 1 and an individual solvency requirement, which includes Tier 2 capital, the regulator said June 12. That matches European standards and is well below the 10.125 percent a government-appointed committee in March recommended be applied to systemically important banks.
According to Anders Balling, head of bank oversight at the FSA in Copenhagen, lenders will probably favor the 7 percent trigger as a more reliable gauge of when conversion will occur.
The regulator said last month it will allow banks the option of using contingent capital, or debt that converts to equity at regulator-determined triggers, to help the industry fulfill stricter reserve requirements. For the country’s six biggest banks, led by Danske Bank and Nykredit, lawmakers are still debating where trigger levels should be set.
Banks have until June 19 to send their responses to the FSA’s proposal.
EU Postpones Decision on Robustness of U.S., Japan Swaps Rules
The European Union will take more time to assess U.S. and Japanese rules for swaps trading as it scrutinizes banks’ access to clearinghouses based outside the 27-nation bloc.
The European Commission gave regulators a Sept. 1 deadline to complete a review of the measures, allowing them to “take account of international ongoing developments,” according to a letter published on the website of the European Securities and Markets Authority. The previous deadline was June 15.
The EU and the U.S. have been locked in an escalating spat over swaps rules amid warnings from the bloc that planned U.S. requirements would leave EU banks saddled with extra costs and incompatible legal obligations.
The international reach of U.S. Commodity Futures Trading Commission rules has been one of the most controversial elements of the U.S. Dodd-Frank Act. Nations may discuss the measures at a June 20 meeting of derivatives regulators in Montreal.
The commission also extended ESMA’s deadline for other national swap-rule assessments to Oct. 1.
Currency Rates Said to Face Global Regulation After Libor Review
Global regulators may start overseeing currency rates in a widening response to benchmark-rate setting scandals that began with revelations on the manipulation of Libor, two people familiar with the matter said.
The International Organization of Securities Commissions, a Madrid-based group known as Iosco that harmonizes market rules, may propose final guidelines improving transparency and oversight of benchmarks, including the WM/Reuters rates, as soon as next month, said the people, who asked not to be named because the talks aren’t finalized.
The U.K. Financial Conduct Authority, which oversees markets and prosecutes financial crime, is looking into potential manipulation in the $4.7 trillion-a-day foreign-exchange market after being contacted by a whistle-blower in March. The regulator has sent requests for information to four banks, including Deutsche Bank AG and Citigroup Inc. (C), according to one of the people.
The FCA “will review” Iosco’s recommendations and decide which rates to oversee, spokesman Chris Hamilton said. Martin Wheatley, the regulator’s chief executive officer, has already taken on oversight of the London interbank offered rate after his review of how the rate is set.
Sebastian Howell, a spokesman for Deutsche Bank, and Jeffrey French, a spokesman for Citigroup, declined to comment on the FCA requests.
Iosco proposed in January that rates used in “currency markets, which can be represented by specific or aggregate benchmarks,” be subject to regular audits, stricter oversight from regulators and a code of conduct for submitters. The WM/Reuters rate would be included under this definition, one of the people said.
U.S. financial regulators, including the Office of the Comptroller of the Currency, which regulates national banks, may also have a role in examining the possible manipulation of currency benchmarks.
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EU Assembly Set to Delay Bank Supervisor Vote Until September
The European Parliament is poised to delay voting on plans to create a single euro area bank supervisor until September, Sven Giegold, one of the assembly’s lead lawmakers on the proposals, said.
A delay may be necessary owing to continuing scrutiny of the plans in Germany’s national parliament, Giegold said June 14 in an e-mailed statement. He criticized Germany’s actions causing the delay as “irresponsible.”
The draft law, which was agreed on by EU lawmakers earlier this year, would hand oversight of euro-area lenders to the European Central Bank.
Special Section: Singapore Censures
Singapore Censures 20 Banks for Bids to Rig Benchmark Rates
Singapore’s monetary authority censured banks for trying to rig benchmark interest rates and ordered them to set aside as much as S$12 billion ($9.6 billion) at zero interest pending steps to improve internal controls.
ING Groep NV (INGA), Royal Bank of Scotland Group Plc (RBS) and UBS AG (UBSN) were among 20 banks at which 133 traders tried to manipulate the Singapore interbank offered rate, swap offered rates and currency benchmarks in the city-state, the Monetary Authority of Singapore said in a statement June 14. The regulator said it will also make rigging key rates a criminal offense and bring supervision under its direct oversight.
The crackdown in Singapore comes amid a widening global review of benchmark rates following revelations last week of potential manipulation in the $4.7 trillion-a-day currency market.
Nineteen firms were asked to post reserves ranging from S$100 million to S$1.2 billion -- depending on the severity of the attempts by their traders to manipulate rates -- for a year and will earn zero interest on that money, MAS said. Commerzbank AG was exempted from setting aside any money.
The banks have taken disciplinary action against the 133 traders found to have tried to rig the rates, with about three-quarters of them having resigned or been asked to leave their firms, MAS said. The traders who are still employed will be subject to disciplinary action, the regulator said.
“While there was no conclusive finding the Sibor, SOR and FX benchmarks were successfully manipulated, the traders’ conduct reflected a lack of professional ethics,” according to the statement from the central bank.
Sibor, used to price debt ranging from commercial term-loans to homeowners’ mortgages, is calculated daily on behalf of the Association of Banks in Singapore.
Singapore will be among the first countries to start using trading data rather than the survey of estimates in calculating benchmark rates, ABS and the Singapore Foreign Exchange Market Committee said in a separate statement. The new method will apply to four of the current 11 rates in the nation, while another four will be discontinued and two will be replaced with benchmarks from other markets, it said.
Local-currency Sibor will continue to be based on the survey method to reflect interbank borrowing costs, according to the statement. The benchmark will be subject to regular reviews, it said. The U.S. dollar Sibor rate and Malaysian ringgit spot rates will be replaced with U.S. dollar-Libor and onshore ringgit spot rates.
Bank of America Corp., BNP Paribas SA (BNP), Oversea-Chinese Banking Corp. (OCBC), Barclays (BARC), Credit Agricole (ACA), Credit Suisse AG (CSGN), DBS Group Holdings Ltd. (DBS), Deutsche Bank AG (DBK), Standard Chartered Plc (STAN), United Overseas Bank Ltd. (UOB), Australia & New Zealand Banking Group Ltd. (ANZ), Citigroup Inc., JPMorgan Chase & Co. (JPM), Macquarie Group Ltd. (MIC), HSBC Holdings Plc (HSBA) and Mitsubishi UFJ Financial Group Inc. (8306)’s Bank of Tokyo-Mitsubishi UFJ unit were among the banks named by MAS in the statement June 14.
Singapore Adds to Bank Penalties Levied for Rate-Rigging: Table
The penalties levied by Singapore come in the wake of sanctions imposed by regulatory bodies in other nations.
In addition to penalties imposed by the Monetary Authority of Singapore, penalties were levied on banks for manipulating benchmark interest rates by regulators including the U.K.’s Financial Conduct Authority, the U.S. Commodity Futures Trading Commission and Department of Justice, and the Swiss Financial Markets Regulatory Authority.
For a table of the penalties, click here.
Singapore to Scrap Four Benchmarks, Four Others to Use Trades
Singapore plans to scrap four benchmarks and use trades in place of others. The changes follow Singapore’s central bank review into how benchmark rates are set.
Four benchmarks will be calculated using market trades instead of by survey, the Association of Banks in Singapore and Singapore Foreign Exchange Market Committee said in a statement.
The Singapore dollar spot FX, Thai baht spot FX, Indonesian rupiah spot FX and Singapore dollar swap offer rate (overnight, one-month, three-month and six-month) are to be calculated using trades.
The Malaysian ringgit spot FX and U.S. dollar Sibor are to be replaced with onshore Malaysian ringgit spot FX and U.S. dollar Libor.
Vietnam dong spot FX, Thai baht SOR, Indonesian rupiah SOR, and Singapore dollar interest rate swaps are to be discontinued, according to ABS.
Mitsubishi UFJ, UOB, ING, Credit Agricole React to MAS Measures
Mitsubishi UFJ Financial Group Inc. will boost control structure following the probe by the Monetary Authority of Singapore, spokesman Shinya Matsumoto said by phone June 14.
It’s “extremely regrettable” that the lender has been pointed out by Singapore’s MAS about lack of internal control, Matsumoto said.
United Overseas Bank Ltd. will implement measures prescribed by Singapore’s regulatory authority. It will strengthen policies and procedures, according to an e-mailed statement from the lender.
ING Groep NV has taken disciplinary actions against a small number of individuals involved after the Monetary Authority of Singapore’s review of rate-setting processes, the bank said in an e-mailed statement June 14.
Amsterdam-based ING Groep fully cooperated with reviews and said it’s “committed to conducting its business with highest levels of integrity.” The company will take further measures to enhance procedures for submitting rates, monitor those processes and train staff, it said.
Credit Agricole SA’s corporate and investment-banking division said it will follow recommendations set out by the Monetary Authority of Singapore.
Blankfein Met With SEC’s White Two Days After Money Funds Vote
Goldman Sachs Group Inc. (GS) Chief Executive Officer Lloyd C. Blankfein met this month with the top U.S. securities regulator to discuss issues including the Volcker rule and regulations for money-market mutual funds.
Blankfein’s meeting with Securities and Exchange Commission Chairman Mary Jo White on June 7, two days after the agency proposed new money-fund rules, was disclosed by the SEC June 14 in a memo posted on its website. The meeting, which included White’s Chief of Staff Lona Nallengara, also touched on proxy advisory firms, according to the memo.
SEC commissioners voted June 5 to propose a floating-share value for the riskiest money funds or allow them to suspend redemptions in times of stress. New York-based Goldman Sachs is the eighth-largest manager of money funds, according to Crane Data LLC.
The bank decided in January to begin disclosing the market-based net asset value of its money funds that invest in U.S. commercial paper. The SEC’s proposal, which is open for public comment, calls for all money funds to publish that information on a website.
On the Volcker rule, Blankfein said in November that its curbs on proprietary trading and private-equity investments would have a “modest impact” on the firm’s profitability. He said at an event hosted by Politico in Washington June 13 that he hopes that the regulations implementing the rule named for former Federal Reserve Chairman Paul Volcker are written in a way that won’t hurt markets.
Merkel Says EU Transaction Tax Must Be ‘Tailor Made’
German Chancellor Angela Merkel talked about stimulating economic growth, investor concerns over the proposed European financial-transaction tax and the prospects for a free-trade agreement between the European Union and the U.S.
She spoke in Berlin with Bloomberg’s Matthew Winkler.
For the video, click here.
Comings and Goings
SEC Names Cottrell to Senior Enforcement Post in New York Office
Amelia Cottrell, a U.S. Securities and Exchange Commission investigator who helped build an insider-trading case against a unit of billionaire Steven A. Cohen’s SAC Capital Advisors LP, was promoted to a top enforcement position in the agency’s New York office.
Cottrell, 39, will help supervise a staff of about 180 attorneys, investigators, accountants and paralegals as associate director of the office, the SEC said in a statement June 14. She has been part of an enforcement unit specializing in unearthing market abuse that was formed in 2010.
Before joining the SEC, Cottrell worked for five years at law firm Paul, Weiss, Rifkind, Wharton & Garrison LLP and two years at Jones Day, the SEC said.
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