FDIC Nonbank Power, Fannie-Freddie, Finra: Compliance

The Federal Deposit Insurance Corp. board approved a rule defining whether a non-bank company is engaged in financial activity to an extent that would subject it to liquidation by the agency if it fails.

The definition adopted yesterday echoes a Federal Reserve rule approved in April. The Dodd-Frank Act required the agencies to define the threshold for firms covered by the FDIC’s authority to take apart systemically risky non-bank firms when they fail and the Financial Stability Oversight Council’s authority to decide such a firm warrants additional oversight.

The FDIC’s rule -- set to go into effect next month -- details how regulators may determine the threshold for companies falling within the agency’s authority, which Dodd-Frank outlined as firms with more than 85 percent of their revenue linked to finance. The proposal was written to parallel the Fed definition -- effective last month -- of non-bank firms that could be evaluated for potential risks to the financial system.

The oversight council, established by Dodd-Frank, met June 3 to label some non-bank companies as systemically important, a move that puts them under heightened Fed supervision.

Compliance Policy

EU Parliament to Delay Vote on Fund Manager Bonus Rules

European Parliament lawmakers will delay voting on rules to curb fund manager bonuses as they continue to tussle over details of the plans.

Legislators are weighing changes to draft measures approved by the assembly’s economic and monetary affairs committee earlier this year that would ban managers of so-called UCITS funds from receiving bonuses worth more than their fixed pay and crack down on performance fees, Sven Giegold, the parliament’s lead lawmaker on the dossier, said yesterday in an e-mail.

The purpose of the delay on the vote is “to continue political negotiations,” Giegold said.

The draft rules for fund managers go beyond planned EU curbs on banker pay that would allow bonuses of twice fixed salary. European asset-management firms are concerned the proposal, which may affect two-thirds of senior fund managers, may cause a bidding war for their best-performing employees, increasing fixed costs and making the industry more vulnerable to market downturns.

The draft law needs approval by the parliament and by national governments before it can take effect.

Dark Pool Curbs Sought by U.S. Exchanges Fighting Trading Exodus

Three large U.S. stock exchanges are lobbying for new limits on dark pools and other competitors, arguing that too much trading has become hidden on private venues that create more cost and volatility in public markets.

Chief executive officers of NYSE Euronext Inc., Nasdaq OMX Group Inc. and Bats Global Markets Inc. met in Washington during the past two months with lawmakers and the Securities and Exchange Commission. They asked for a rule that could divert more orders to exchanges rather than trading in dark pools or within a broker’s inventory.

The exchanges say that more than a third of all stock transactions now occur without pre-trade prices being made public, up from 16 percent in January 2008. They are pressing the SEC to make market restructuring a priority as the agency resets under its new chairman, Mary Jo White.

The lobbying comes several years after the SEC began adding controls to grapple with technology that has made markets faster with lower trading costs while also more fragmented and prone to software errors.

Dark pools, which don’t publish bids or offers on shares, were set up to allow large investors to trade big blocks without having news of their orders move the price.

For more, click here.

Senators Draft Plan to Abolish Fannie Mae, Shrink Backstop

A bipartisan group of U.S. senators is putting the final touches on a bill that would liquidate Fannie Mae and Freddie Mac and replace them with a government reinsurer of mortgage securities behind private capital.

The legislation is likely to be the first detailed blueprint reflecting a growing consensus in Washington that the U.S. role in mortgage finance should be limited to assuming risk only in catastrophic circumstances. It also reflects the prevailing view among lawmakers that the two government-sponsored enterprises should cease to exist, according to a discussion draft obtained by Bloomberg News.

As a serious bipartisan effort written by members of the Senate Banking Committee, the measure could restart the long-stalled debate over the future of the mortgage-finance system. Still, it represents only a first step in what is likely to be a long legislative process, and it’s unclear how much support the authors will get from their colleagues.

Housing-industry participants who have seen the draft have been critical of the amount of risk that private capital would assume. Small lenders have expressed concern about the burden on banks of securitizing loans without adequate resources.

For more, click here.

Credit Traders Said to Win SEC Relief in Portfolio Margin Rules

Hedge funds and asset managers will win partial relief from Dodd-Frank Act collateral requirements for credit-default swaps under a policy shift to be announced this week, according to two people briefed on the matter.

The U.S. Securities and Exchange Commission is revising a policy released in March that required some clients to put up double the collateral dealers post at Atlanta-based IntercontinentalExchange Inc., according to the people, who requested anonymity because the decision isn’t public. The relief applies to portfolio accounts that hold credit swaps tied to single securities as well as indexes.

ICE, Citadel LLC and other firms have spent more than a year pushing regulators to support the portfolio-margining system for client trades. The SEC may require banks temporarily to collect from clients collateral equivalent to what’s required under clearinghouse rules plus the level required by their own models, according to an e-mail note the Managed Funds Association sent members on May 31.

The change from the March policy may help encourage clearing of trades under Dodd-Frank, the 2010 regulatory law that called for most swaps to be guaranteed at clearinghouses as a way to reduce risk in the financial system.

The Commodity Futures Trading Commission and SEC, which share oversight of the credit-swaps market, have taken steps to reduce the amount of collateral traders must have when they hold swaps in portfolio accounts.

Oil-Price Assessors Say Post-Libor Rules Will Harm Markets

Energy price-reporting companies including Platts said rules proposed by global regulators to safeguard against manipulation of financial benchmarks would make markets less transparent.

Oil traders will stop submitting their transactions to firms that establish benchmark energy prices if those deals are burdened by additional regulation, Platts, a unit of McGraw Hill Financial Inc., said in a response to proposals from the International Organization of Securities Commissions, or Iosco, on setting rules for global benchmarks.

Platts made the statements in a letter released by Iosco yesterday.

The comments come as European Competition Commissioner Joaquin Almunia, Europe’s top antitrust official, is investigating possible collusion to manipulate benchmark energy assessments. Last month, investigators searched the offices of Royal Dutch Shell Plc, Statoil ASA, BP Plc and Platts, and requested records from some of Europe’s biggest trading houses, including Vitol Group, Gunvor Group Ltd. and Glencore Xstrata Plc. Platts publishes the Dated Brent benchmark that helps determine the price of more than half the world’s oil.

Pricing mechanisms are under scrutiny around the world after U.S and U.K. investigators uncovered widespread attempts by banks to manipulate the London interbank offered rate, or Libor.

For more, click here.

Compliance Action

Bank of America, Wells Fargo Fined by Finra Over Loan Funds

Bank of America Corp. and Wells Fargo & Co. were ordered to pay about $5.2 million in fines and restitution by the Financial Industry Regulatory Authority over sales of loan funds.

Brokers at units of the two banks recommended funds that invested in floating-rate debt to customers who weren’t looking for risky deals, the industry-funded regulatory group said yesterday in a statement. Bank of America was fined $900,000 and ordered to reimburse $1.1 million in losses, while San Francisco-based Wells Fargo was ordered to pay a $1.25 million fine and about $2 million in restitution.

Salespeople at Banc of America Investment Services Inc. and Wells Fargo Investments LLC recommended the unsuitable mutual funds in 2007 and 2008, Finra said in regulatory filings. Customers lost money when they sold the funds after their value fell during the financial crisis, according to the regulator.

The banks neither admitted nor denied the charges, Finra said. Bill Halldin, a spokesman for Charlotte, North Carolina-based Bank of America, said the firm was pleased to resolve the issue, while Wells Fargo’s Erica Van Ross declined to comment on Finra’s allegations.

HSBC Is Sued by New York for Alleged Foreclosure Law Violations

HSBC Holdings Plc broke New York foreclosure law and put homeowners at greater risk of losing their homes, New York Attorney General Eric Schneiderman said as he sued the bank.

A state investigation found that HSBC has left homeowners languishing in foreclosure by failing to meet requirements for giving them an opportunity to negotiate loan modifications, according to Schneiderman’s office.

The lawsuit comes as state attorneys general nationwide have targeted banks over foreclosure practices, last year reaching a $25 billion settlement with five mortgage servicers. HSBC wasn’t part of that settlement.

The HSBC case, filed yesterday in state court in Buffalo, stems from a New York law pertaining to foreclosures and court-supervised settlement conferences in which homeowners can try to negotiate alternatives to foreclosure such as a loan modification that lowers their monthly payments.

Diane Soucy Bergan, a spokeswoman for London-based HSBC, didn’t immediately return e-mails and a telephone message seeking comment on the suit.

U.K. Regulator Fines Sesame $9 Million for Bad Investment Advice

The U.K. Financial Conduct Authority fined Sesame Ltd., an investment firm, 6 million pounds ($9 million) for failing to ensure customers got suitable advice.

Sesame advised 426 customers over four years to invest 6.1 million pounds with Keydata Investment Services Ltd., which later collapsed, the regulator said in a statement today. The sales were flawed because Sesame didn’t match customers’ risk appetite with appropriate investments, and gave incorrect advice on how safe the Keydata products were, the FCA said.

Sesame received the FCA’s standard 30 percent discount for cooperating.

“We regret these past issues and, in cooperation with the FCA, we have undertaken an immediate past business review to ensure that any customers who received unsuitable advice on Keydata products have been compensated,” George Higginson, chief executive officer of Sesame Bankhall Group, the firm’s parent company, said in a statement. He said they are working hard to “take corrective actions.”

EU Antitrust Regulator Seeks Views on ICE-NYSE Euronext Deal

The European Commission said it is inviting comments on IntercontinentalExchange Inc.’s plan to acquire NYSE Euronext, following the regulator’s announcement in April that it would be reviewing the deal.

The EU authority in Brussels said it “invites interested third parties to submit their possible observations on the proposed operation.” Interested parties have 10 days to give their views.


Simon Investors Can Proceed With CEO Pay Suit, Judge Rules

Simon Property Group Inc. investors can proceed with a lawsuit accusing the company’s directors of improperly increasing Chief Executive Officer David Simon’s compensation without shareholder approval, a judge ruled.

Simon investors unhappy with the CEO’s 2011 compensation package, which included a $120 million stock award for staying with the real-estate firm, raised legitimate questions about the failure to hold a shareholder vote on the plan, Delaware Chancery Court Judge Leo Strine ruled May 30.

Last month, a majority of Indianapolis-based Simon’s shareholders approved modifications to the CEO’s compensation plan, which reduced the amount of performance-based awards he can earn. The executive can still receive the $120 million if he stays with Simon, the largest U.S. shopping-mall owner, through July 2019.

Simon investors sued in Delaware last year over the CEO’s stock grant after 73 percent of the Simon shares voted at the company’s 2012 annual meeting opposed the retention award.

Simon officials said in an e-mailed statement the company will defend itself against the “meritless charges” that directors erred in failing to hold an investor vote on the executive-compensation plan’s changes.

“This litigation is still at a preliminary stage and we will continue to act in the best interests of all SPG’s stockholders,” Brooke Gordon, a Simon spokeswoman, said in the statement. Gordon is a managing director of Sard Verbinnen & Co., a New York-based communications firm.

The case is Louisiana Municipal Police Employees Retirement System v. Bergstein, CA No. 7764, Delaware Chancery Court (Wilmington).


Jain Says Fed Should Start Removing Stimulus Post-Rally

Anshu Jain, co-chief executive officer of Deutsche Bank AG, discussed financial regulation, bank revenue and global central bank monetary policy, including measures by the Federal Reserve to stimulate the economy.

He spoke in New York at the dbAccess 2013 Global Financial Services Investor Conference.

For the audio, click here.

Comings and Goings

ECB’s Draghi Appointed Head of Basel Regulator Group

European Central Bank President Mario Draghi has been appointed chairman of the Group of Governors and Heads of Supervision, or GHOS, an international board of regulators, the group announced in an e-mail.

Draghi, who replaces outgoing Bank of England Governor Mervyn King in the role, will take up the post on July 1. The GHOS is the oversight body of the Basel Committee on Banking Supervision.

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