U.S. Money Funds, Harmonizing Wakalah Rules: Compliance

June 6 (Bloomberg) -- The U.S. Securities and Exchange Commission will seek comment on a proposal that would impose a floating-share value on the riskiest money-market mutual funds or allow them to suspend redemptions in times of stress.

The SEC’s five commissioners voted unanimously at a meeting in Washington yesterday to apply the changes only to funds that invest in corporate debt or municipal securities and cater to institutional investors, which were abandoned during the 2008 financial crisis. Funds that serve retail clients or focus their holdings on U.S. government securities would be exempt.

The commissioners’ vote, which releases the proposal for 90 days of public comment, will kick off a months-long burst of lobbying from investors, fund companies and other stakeholders before SEC commissioners consider a final version.

Under the SEC’s proposal, prime funds would have a choice of adopting the floating-share value, putting gates on redemptions or doing both. A money fund would be able to suspend redemptions for as long as 30 days if its weekly liquid assets fell below 15 percent of total assets, or half of the required level. Investors would be charged a 2 percent fee if they still wanted to withdraw funds.

Retail funds, which the proposal defines as those limiting redemptions to $1 million per day, would be exempt from the rule to float their share value. Institutional funds that invest in corporate debt hold 37 percent of the assets in the $2.9 trillion money-fund industry, according to the SEC.

The proposal makes clear that investors in a floating-share fund probably would owe taxes once a year on any capital gains, according to SEC officials.

Compliance Policy

Indian Cabinet Approves Real-Estate Bill to Protect Home Buyers

Indian Prime Minister Manmohan Singh’s Cabinet approved a bill seeking to regulate the residential housing industry to protect home buyers and encourage access to capital.

The Cabinet endorsed the Real Estate (Regulation and Development) Bill June 4, Housing Minister Ajay Maken said in a briefing in New Delhi yesterday. The plan needs the approval of lawmakers and will be presented at the next session of parliament, he said.

India’s housing sector is largely unregulated and opaque and consumers are often unable to access sufficient information or hold builders accountable, according to the government. Regulations will enable the industry to access capital markets for growth, the administration said.

The bill proposes “stringent norms” against developers in case of non-compliance, according to Harvesp Mehta, director at Motilal Oswal Private Equity Advisors Pvt. Ltd., which manages a property fund.

The planned legislation is a step in the right direction, Mehta said.

Money-Market Boost as Rules Allow Global Shariah-Compliant Deals

Global standards for agency contracts will help the fragmented $1.6 trillion Islamic finance industry develop international money markets, according to Asian Finance Bank Bhd. and CIMB Group Holdings Bhd.

The International Islamic Financial Market, a Bahrain-based standards-setting body, issued the guidelines to broaden the range of tools for Shariah lenders to manage excess funds, Chief Executive Officer Ijlal Ahmed Alvi told a conference in Singapore on June 3. The rules govern wakalah contracts, where the bank acts as an agent for a client looking to invest funds and profits are shared to comply with the Koran’s interest ban.

Harmonization of standards will avoid different schools of thought blocking the expansion of banks across jurisdictions, said Mohamad Akram Laldin, a Shariah scholar with Malaysia’s central bank. Documentation will be positive for markets that lack their own regulations, according to Badlisyah Abdul Ghani, chief executive officer of CIMB Islamic Bank Bhd., who said 15 percent annual growth in Islamic financial assets is too slow.

International Islamic Liquidity Management Corp., set up in 2010 by 12 central banks and two multinational institutions to provide instruments for banks to manage funds, has yet to issue its first short-term bills. Standard & Poor’s said in an April 5 statement that IILM had appointed Standard Chartered Plc as a primary dealer for $500 million in planned issuance.

IIFM’s unrestricted wakalah would be a reference point for lenders in managing treasury operations, defining roles and obligations of principals and agents for matters including due diligence, profit warnings, insolvency and contract termination, according to a paper handed out at the presentation during the conference. Such an agreement gives the holder a broader mandate to manage an investor’s funds than a restricted wakalah contract.

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Big Companies’ Uninsured Deposits May Face Losses in Irish Plan

Large companies with uninsured bank deposits may face losses ahead of smaller businesses and individual account holders as part of draft European Union plans for handling bank failures.

Ireland, which holds the rotating presidency of the EU, proposed the measure in a bid to find common ground between nations over rules for creditor writedowns at crisis-hit lenders, according to a document obtained by Bloomberg News. Finance ministers will seek to reach a deal on the measures later this month.

Under the draft Irish plans, which would allow countries to grant some exemptions, uninsured bank deposits belonging to individuals as well as “micro, small and medium-sized enterprises” would be repaid ahead of “ordinary unsecured, non-preferred creditors,” according to the document.

EU nations are racing to meet a June deadline to agree on the plans, which leaders have said will be a first step toward more ambitious moves to centralize bank interventions in the 17-nation euro area. Finance ministers clashed over the draft law last month.

“It is very important that we reach a deal on this important piece of legislation very soon,” Chantal Hughes, a spokeswoman for Michel Barnier, the EU’s financial services chief, said in an interview. She declined to comment on the details of the Irish proposals.

Euribor Managers Mulling Parallel Data-Based Benchmark With ECB

The group that manages the Euro Interbank Offered Rate, or Euribor, is considering setting up a parallel benchmark based on real transactions rather than estimates.

Euribor-EBF is exploring the move as part of its response to revelations that some lenders tried to rig interbank lending rates, tarnishing credibility of the indexes. The European Central Bank is providing technical assistance for a feasibility study, according to Euribor-EBF’s response to a review by global regulators.

Any new benchmark would be set up in addition to Euribor, according to the letter, sent to the International Organization of Securities Commissions. It wouldn’t affect any contracts linked to Euribor rates, the group said.

The move echoes comments made last month by Martin Wheatley, the head of the U.K. markets regulator. He said the London interbank offered rate should eventually be replaced with a transaction-based benchmark using a dual-track system.

Global regulators are working on alternatives to Libor and Euribor after U.S. and U.K. officials uncovered attempts by banks to manipulate the benchmarks.

Euribor is derived from a daily survey of interbank lending rates for unsecured loans conducted for Euribor-EBF by Thomson Reuters Corp. It is based on estimates provided by participating banks of the rates they believe banks are charging each other, meaning rate-setting data isn’t necessarily based on actual transactions.

Separately, the European Union is considering whether to hand oversight of the scandal-ridden London interbank offered rate to the European Securities and Markets Authority.

The European Commission is proposing to move regulation of Libor and other benchmarks away from the U.K. to Paris-based ESMA because the rates may affect banks, administrators and consumers in multiple member countries, according to a draft of the proposed regulation obtained by Bloomberg News. ESMA is already reviewing benchmarks and issued guidance today calling on banks to ensure their pay policies don’t create conflicts of interest.

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Compliance Action

Cohen Said to Plan Keeping SAC Open Amid Client Redemptions

Steven A. Cohen’s SAC Capital Advisors LP told employees it plans to stay open for outside investors after significant client redemptions, according to two people with knowledge of the matter.

SAC President Tom Conheeney, in a June 4 e-mail to employees, said the firm doesn’t plan to release a number for the redemptions, said the people, who asked not to be identified because the communication is private. SAC doesn’t plan significant staff reductions, Conheeney wrote, according to the people.

SAC employees had expected that clients, who faced a June 3 deadline to put in withdrawal notices for the second quarter, would take back most of the $4 billion they haven’t already marked for redemptions by early next year, according to people familiar with the firm. Investors are exiting as the U.S. government intensifies its probe of insider trading at the Stamford, Connecticut-based firm, once one of the best in the industry, with returns averaging 25 percent since 1992.

SAC oversaw $6 billion for outsiders at the start of this year. Founder Cohen has about $7.5 billion in SAC’s funds and employees account for $1.5 billion of assets, according to data compiled by Bloomberg.

Despite the redemptions, SAC still has a stable capital base and has been performing well this year, Conheeney wrote, according to the people. Some key investors have told the firm they may reconsider their redemption requests once they have greater clarity of legal issues surrounding the firm, Conheeney told employees. If the firm were to end the year near the asset level of four years ago, it would still be a good-sized hedge fund, according to the letter.

A spokesman for SAC declined to comment on the e-mail.

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India Acts Against Founders for Missing Holdings Deadline

Adani Ports & Special Economic Zone Ltd. and Essar Ports Ltd. are among 105 Indian companies whose founders’ voting rights have been curtailed for not meeting a minimum public shareholding rule.

Owners voting rights of non-compliant companies have been capped at 75 percent and they won’t receive dividend on shares exceeding the limit, the regulator said in a statement late in the day on June 4. Founders were required to cut their holdings to 75 percent to ensure a public float of least 25 percent by June 3.

The rush to meet the ownership requirement announced in June 2010 led to share sales of at least $1 billion last month, data compiled by Bloomberg show. Owners and directors of the non-compliant firms have been barred from holding a new position as a director in any publicly traded company until they comply.

A spokesmen for Adani Ports declined to comment, while a spokesman for Essar Ports didn’t immediately respond to multiple attempts to obtain comment.

Adani Ports offered to sell 66.6 million shares at 148 rupees to 158 rupees apiece through an institutional placement on June 4, according to an exchange filing on June 3.

Alliance Bank Sees Deal on Capital Norms as Fitch Warns on Debt

Alliance Bank, the Kazakh lender that Fitch Ratings said faces a possibility of a new debt restructuring, is counting on a “special agreement” with the country’s regulator to avoid breaching new capital requirements.

The Kazakh central bank has ordered domestic lenders to use international financial reporting standards to calculate loan-loss reserves, Almaty-based Alliance said in its 2012 audited financial results published June 4. While the regulations haven’t come into force yet, the bank will need to increase reserves after switching to the new rules based on its results for last year, according to the statement.

Fitch, which downgraded Alliance’s credit rating one step to CCC on May 24, said that its “understanding” is the regulator may no longer accept the bank’s insufficient level of capitalization “beyond the near term,” indicating that a new debt overhaul is possible if parent company Samruk-Kazyna fails to sell the bank “in reasonably short order.”

After holding consultations with the central bank, Alliance’s management won reassurances that a “special agreement” will keep it in compliance with prudential norms, the bank said.

Alliance was the first Kazakh lender to default in 2009 after government-appointed managers found $1.1 billion of liabilities that weren’t reflected on its balance sheet. The bank is in talks with the regulator on the timing and conditions of its shift to the new requirements, the lender said by e-mail without elaborating.


Belgian Tax on Foreign Bank Interest Is Unlawful, EU Court Rules

Belgium violated European Union rules by granting a tax exemption to savers with money only in domestic bank accounts, the EU’s highest court said.

Belgium’s argument that the measure is needed “to prevent tax avoidance and evasion in the context of guaranteeing the effectiveness of fiscal supervision cannot be accepted,” the EU Court of Justice in Luxembourg ruled today.

The European Commission, the EU’s executive agency, sued Belgium in 2010, saying the tax measure could discourage Belgian residents from going to banks established outside the country “as the interest paid by such banks cannot benefit from a tax exemption applicable only to interest paid by Belgian banks.”

Belgian Finance minister Koen Geens “has taken note of” and “is examining the ruling,” said Davine Dujardin, his spokeswoman.

The case is: C-383/10, European Commission v. Kingdom of Belgium.

Ex-SAC Manager Martoma Faces Nov. 4 Insider-Trading Trial

Former SAC Capital Advisors LP portfolio manager Mathew Martoma will go on trial Nov. 4 on charges he helped the hedge fund founded by Steven A. Cohen make $276 million using illegal tips about an Alzheimer’s drug, a judge said.

U.S. District Judge Paul Gardephe in Manhattan set the jury trial date yesterday at a hearing, while leaving open the possibility that the trial could take place at a later date.

A lawyer for Martoma asked that the trial start in February.

Martoma’s lawyer Richard Strassberg said he has been told the government plans to file a superseding, or revised, indictment. Such filings often include additional charges or defendants.

Martoma, who worked as a fund manager for Cohen’s CR Intrinsic Investors unit, was charged in November with insider-trading. The U.S. says he helped SAC reap illicit profits by trading in shares of Elan Corp. and Wyeth LLC from tips he received from a physician who was in charge of monitoring tests on a clinical drug trial of bapineuzumab, or bapi, a drug to treat Alzheimer’s disease.

Cohen has denied any wrongdoing. Martoma has pleaded not guilty. At least nine former or current employees of Cohen’s $15 billion hedge fund have been linked by the U.S. to insider trading.

The case is U.S. v. Martoma, 12-cr-00973, U.S. District Court, Southern District of New York (Manhattan).


Abe Pledges Autumn Campaign to Loosen Japan Business Rules

Japanese Prime Minister Shinzo Abe pledged a legislative campaign to loosen rules on businesses ranging from non-prescription drugs to construction. Stocks slid as he said the effort won’t begin for months.

In a Tokyo speech previewing his government’s economic growth strategy, the “third arrow” of Abenomics, Abe said his revival plan will recoup 50 trillion yen ($501 billion) in national income that was lost during two decades of economic malaise. He said policy makers will remove barriers to private enterprise and legislation will be enacted as soon as autumn.

Stocks initially rose during the speech, before turning lower. The timing of the announcement means he’s putting off taking on vested interests until after next month’s election for the upper house of parliament, and leaves the onus on the central bank to boost growth for now.

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To contact the reporter on this story: Carla Main in New Jersey at cmain2@bloomberg.net.

To contact the editor responsible for this report: Michael Hytha at mhytha@bloomberg.net.