Swiss FX Probe, Mizuho Apology, FCA Fines,: Compliance

Swiss authorities said they’re investigating several banks for allegedly colluding to manipulate the $5.3 trillion-a-day foreign exchange market.

The Swiss Financial Market Supervisory Authority “is coordinating closely with authorities in other countries as multiple banks around the world are potentially implicated,” it said in a statement Oct. 4. Separately, the competition commission said it opened a preliminary probe on Sept. 30 after receiving allegations of collusion among banks to manipulate some foreign-exchange rates.

The probes come after Bloomberg News reported in June that dealers at banks pooled information through instant messages and used client orders to move benchmark currency rates. Britain’s Financial Conduct Authority said that month it was reviewing the allegations. The U.S. Commodity Futures Trading Commission has also been reviewing potential violations of the law with regards to foreign currency markets, according to a person familiar with the matter who asked not to be identified.

European regulators are reviewing allegations of collusion in crude oil and biofuels markets, while the CFTC and FCA are also probing the potential manipulation of ISDAfix, a benchmark for interest-rate swaps.

In the Oct. 4 statement, Finma didn’t identify which firms it’s investigating or give details of the scope of its probe, saying it would decide at a later date on what further action to take. Vinzenz Mathys, a spokesman for Bern-based Finma, declined to comment further.

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Compliance Action

Mizuho Takes Steps to Improve Compliance After Crime-Group Loans

Mizuho Financial Group Inc.’s banking unit set up an internal committee and will assemble a panel of outside experts to improve compliance after it failed to act on loans made to crime groups.

Deputy President Toshitsugu Okabe told reporters of the measures after bowing in apology at a news conference in Tokyo Oct. 4. It was the first briefing by Japan’s third-biggest bank by market value since the Financial Services Agency ordered the lending unit to improve business a week ago.

Mizuho Bank Ltd. failed to take steps to end loans to “anti-social” groups for more than two years after becoming aware of them, the FSA said Sept. 27. Okabe said Oct. 4 that at least four senior executives responsible for compliance at the time knew of the transactions and didn’t inform superiors.

Okabe replaced Masakane Koike as head of compliance at the holding company on Sept. 30, the Tokyo-based bank said this week.

The company must submit a report to the FSA by Oct. 28.

London Whale Lifts U.K. Regulator to Highest Fines in a Decade

The U.K. finance regulator recorded its largest month of fines in more than a decade in September, buoyed by a 137.6 million-pound ($221.2 million) penalty against JPMorgan Chase & Co. over the London Whale debacle.

Industry fines totaled 169.5 million pounds last month and brought total penalties from the Financial Conduct Authority in 2013 to 339.5 million pounds, according to statistics published Oct. 4 by Wolters Kluwer NV. The year-to-date total is larger than any other full year since 2002.

The regulator fined JPMorgan as part of a probe into losses exceeding $6.2 billion on a derivatives position built by a trader who came to be known as the London Whale because his bets were so large. The past year has also seen the regulator punish banks embroiled in the scandal over rigging of the London Interbank Offered Rate, or Libor.

Indonesian Tin Exports Tumble to Six-Year Low on Trade Rule

Tin exports from Indonesia, the world’s largest, plunged to the lowest level in at least six years as a new rule requiring that the metal be traded on a local exchange before shipment restricted cargoes.

Shipments of the metal used in smartphones and packaging fell 88 percent to 786 metric tons last month from August, data from the Trade Ministry showed today. That’s the lowest since at least February 2007, when the government began monitoring sales. Exports in September were lower than the 3,000 tons seen by PT Timah last month, and the 9,874 tons shipped in September 2012.

Tin rallied to a six-month high in London last week after the policy took effect and smelters curbed exports, with only one exchange in Jakarta authorized to trade ingots before export. The rule is aimed at helping Indonesia displace the London Metal Exchange as the venue for setting the benchmark price, according to the Commodity Futures Trading Regulatory Agency. Tin has the best outlook among the six main industrial metals because of global shortages, said Standard Bank Group Ltd.

At present, only the Indonesia Commodity and Derivatives Exchange in Jakarta, or ICDX, is allowed to trade tin ingots before export from Southeast Asia’s largest economy. The commodity-trading regulator hasn’t approved a proposal from the Jakarta Futures Exchange to trade another tin contract, said Deputy Trade Minister Bayu Krisnamurthi today.

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Abengoa Is Investigated in EU Oil-Price Manipulation Probe

Abengoa SA, a bioethanol producer with plants in the U.S. and Europe, said it was probed as part of the European Union’s antitrust investigation into possible manipulation of oil and biofuel prices.

The company and its Abengoa Bioenergy Trading Europe unit were inspected by the European Commission over possible collusion to manipulate the Platts market-on-close process and exclude companies from the way the prices are assessed, Abengoa said in an Oct. 4 filing with the U.S. Securities and Exchange Commission.

“The suspected anticompetitive conduct, agreements and/or mutually coordinated concrete actions have allegedly existed since 2002 and would likely involve various markets for which the Platts MOC process is used to report prices, including markets for biofuels,” the Seville, Spain-based company said in the filing. “We are actively cooperating with the European Commission in its investigation” and all units “have at all times complied with the applicable competition laws,” Abengoa said.

Abengoa, whose Rotterdam bioethanol plant is the largest in continental Europe, raised about 400 million euros ($543 million) from a share sale, it said in an e-mailed statement today. It aims to repay about 323 million euros due this year and next year, it said.

EU regulators said in May that even small distortions of prices used as benchmarks for commodities and derivatives may have a huge impact on the prices of crude oil, refined oil products and biofuels purchases and sales that may have been passed on to final customers. It said there is no deadline for its investigation.

Platts, a unit of New York-based McGraw Hill Financial Inc., and the oil companies raided have all said they’re cooperating with the EU probe.

Antoine Colombani, a spokesman for the Brussels-based antitrust watchdog, declined to comment on the involvement of Abengoa.

Bloomberg LP, the parent of Bloomberg News, competes with Platts and other companies in providing energy markets news and reports.


Jefferies Ordered to Pay Ex-Employee’s Costs in Fraud Case

Jefferies & Co. was ordered to pay expenses including legal fees of Jesse C. Litvak, a former managing director accused of defrauding customers on trades of mortgage-backed securities.

Litvak, who has pleaded not guilty, was indicted in January on charges of securities fraud, fraud connected to the Troubled Asset Relief Program and making false statements to the federal government. Alleged victims include investment funds, among them six established by the U.S. Treasury Department in 2009 in response to the financial crisis.

Litvak filed a petition in New York State Supreme Court in Manhattan Oct. 3 seeking to confirm an award made by Financial Industry Regulatory Authority arbitrators last month. Richard Khaleel, a spokesman for New York-based Jefferies LLC, declined to comment on the arbitration award. Leucadia National Corp. acquired the investment bank earlier this year.

Litvak says he is legally entitled to have Jefferies pay his legal costs for the case. He has accused the government of pressuring the company to cut off funding, denying him rights to counsel and due process, according to court filings.

Assistant U.S. Attorney Jonathan Francis at a hearing last month said the dispute is between Litvak and his former employer and that the government did nothing to pressure Jefferies.

Litvak was hired by Jefferies in April 2008 and was fired on Dec. 21, 2011, according to the indictment. He has moved for dismissal of the charges and is currently free on a $1 million bond. A trial is scheduled for February.

The case is U.S. v. Litvak, 13-cr-00019, U.S. District Court, District of Connecticut (New Haven).


Bissinger on Mark Cuban’s Insider-Trading Trial

Securities attorney David Bissinger, a partner at Siegmyer, Oshman & Bissinger LLP, discussed the issues in the U.S. Securities and Exchange Commission’s insider-trading case against Mark Cuban, the billionaire owner of the Dallas Mavericks. He talked with June Grasso on Bloomberg Radio’s “Bloomberg Law.”

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Rule That Fragmented Trading Worth Reviewing, SEC Official Says

U.S. regulators should reconsider the 2007 rule change that helped disperse stock trading among more than 50 different platforms and caused complexity that critics say increased malfunctions, Securities and Exchange Commissioner Daniel Gallagher said.

The SEC’s Regulation NMS, named for National Market System, mandates that U.S. stocks must trade on the venue that has the best price at any time, helping private trading platforms and upstart exchanges take business from the incumbent public markets, NYSE Euronext and Nasdaq OMX Group Inc.

“It’s a prime candidate for a retrospective review,” Gallagher told the Security Traders Association market structure conference Oct. 3.

The commissioner, one of five members of the SEC, also said the agency should re-examine other market-structure rules, including the move to quoting all stocks in 1-cent increments and the self-regulatory role played by exchanges, Gallagher said.

While NYSE Euronext and Nasdaq OMX Group still run the exchanges serving as the home markets for all U.S. stocks, the importance of listing venues has dwindled since Reg NMS took effect in 2007.

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Stein Sees Market Risk in Securities Financing Transactions

Federal Reserve Governor Jeremy Stein said the market for securities financing transactions poses a risk to the financial system that may require further regulatory steps to contain.

“This market is one where a large number of borrowers finance the same securities on a short-term collateralized basis, with very high leverage -- often in the range of twenty-to-one, fifty-to-one, or even higher,” Stein said Oct. 4 at a speech at the Federal Reserve Bank of New York. “Hence, there is a strong potential for any one borrower’s distress -- and the associated downward pressure on prices -- to cause a tightening of collateral or regulatory constraints on other borrowers.”

Stein didn’t discuss the outlook for monetary policy or the economy in his prepared remarks. His speech focused on securities financing transactions, which include repurchase agreements, reverse repos, securities lending and borrowing, and securities margin lending.

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Kocherlakota Says FOMC ‘Falling Short’ on Dual Mandate

Federal Reserve Bank of Minneapolis President Narayana Kocherlakota spoke about Fed policy and the U.S. economy.

Kocherlakota, who spoke in Minneapolis, also commented on the U.S. government shutdown and the debt ceiling.

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