U.S. Agencies Hacked, ISDA, SGX High-Speed: Compliance

A U.K. hacker stole “massive amounts” of confidential data from the U.S. Army and the U.S. Missile Defense Agency, including service members’ personal information, the U.S. said.

Lauri Love, 28, and others also breached computer systems at the Environmental Protection Agency and the National Aeronautics and Space Administration, according to Paul Fishman, the U.S. attorney in New Jersey. Love was arrested Oct. 25 at home in Stradishall, England, said Fishman yesterday.

The conduct “endangers the security of our country,” Fishman said.

Love stole identifying information of workers at NASA, the Missile Defense Agency and the Army Network Enterprise Technology Command, according an indictment unsealed yesterday in federal court in Newark, New Jersey. Criminal complaints also were unsealed in Newark and Alexandria, Virginia.

The hackers also stole data on the demolition and disposal of military facilities, natural-resource management, defense program budgeting data and nonpublic competitive acquisition bid data, according to Fishman.

Love also hacked into computers at the U.S. Department of Health and Human Services, Energy Department, Sentencing Commission and Regional Computer Forensics Laboratory, according to a complaint unsealed in Alexandria. He stole personal information about employees of the computer forensics laboratory and the Federal Bureau of Investigation, according to an arrest complaint filed by the FBI.

Love’s arrest came in connection with an investigation by the U.K.’s National Crime Agency, according to Fishman. He faces as long as five years in prison on the New Jersey charges.

Love conspired with two people in Australia and a resident of Sweden from October 2012 to this month, prosecutors said. They communicated using secure Internet chat rooms, where they frequently changed online monikers, prosecutors said.

The indictment is U.S. v. Love, U.S. District Court, District of New Jersey (Newark). The FBI complaint is U.S. v. Love, 13-mj-00657, U.S. District Court, Eastern District of Virginia (Alexandria).

Compliance Policy

G-30 Pushes for Tight Cooperation Between Banks, Watchdogs

Finance regulators and boards of directors at banks need closer relations to help limit potential crises, the Group of Thirty, a financial policy group, said in a report.

Boards of large banks and their supervisors should agree to “adopt the principle of no avoidable surprises” when interacting, the G-30, led by former European Central Bank President Jean-Claude Trichet, said in the report, published yesterday.

“Since the financial crisis, much attention has been on new regulations in areas such as risk-based capital, liquidity, resolution, and risk management,” the group said. “Not enough attention has been placed on ‘softer’ issues that rules alone cannot address.”

Global bank regulators are trying to improve the culture of financial firms to prevent a repeat of scandals such as manipulation of the London interbank offered rate, or Libor.

Singapore Exchange Seeks High-Frequency Traders for More Volume

Singapore Exchange Ltd., Southeast Asia’s biggest bourse operator, wants to lure more high-speed traders on to its stock market as it grapples with lower volume.

Computerized trading firms, which execute transactions in fractions of a second, account for a negligible share of volume on Singapore Exchange’s cash equities market, according to bourse spokeswoman Loh Wei Ling, while they contribute 30 percent of revenue from derivatives. Singapore Exchange will seek to change that once it introduces safeguards, Chief Executive Officer Magnus Bocker said at a briefing this month.

High-frequency traders facilitate the majority of U.S. equity transactions, where computerized firms have ample opportunity to profit from fleeting price discrepancies because transactions take place on more than 50 venues. Singapore isn’t as fragmented, which keeps computer traders away. Credit Suisse Group AG and Tabb Group LLC said the city’s relatively high trading and clearing fees also deter those firms.

Bocker’s been building the infrastructure and regulatory framework to attract high-speed traders. The bourse rolled out a S$250 million trading platform in August 2011 that can execute transactions in 90 microseconds.

Australia, Hong Kong and Singapore have considered the extent to which trading strategies that rely on speedy placement of bids and offers should be regulated amid concern that they can be used to manipulate prices. Germany was the first developed market to legislate the practice, and the European Parliament is pushing for tougher rules.

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Separately, Singapore’s second minister for trade and industry, S. Iswaran, spoke at Singapore Energy Summit yesterday, saying the Singapore Exchange expects to run a trial of electricity futures in the second half of 2014. Singapore doesn’t want the market to be an object of speculative activity, and intends to ensure futures complement its existing spot market. It will “carefully structure” participation to help avoid speculation, Iswaran said.

Six generation companies indicated interest in collaborating with SGX to develop an electricity futures market: Keppel Merlimau Cogen, Sembcorp Cogen, Senoko Energy, Tuas Power Generation, Tuaspring and YTL PowerSeraya.

Singapore also is seeing “some evolution in gas contracts,” Iswaran said at the press briefing.

Bank-Structure Overhaul Dealt Blow as EU Lawmaker Says No Time

The European Parliament’s top financial lawmaker said time has run out for the assembly to deal with proposals to regulate the structure of banks in a bid to prevent lenders from becoming too big to fail.

Michel Barnier, the European Union’s internal market commissioner, has left it too late ahead of parliamentary elections to submit promised proposals to prevent banks being too internally complex, Sharon Bowles, chairwoman of the parliament’s economic and monetary affairs committee, told reporters in London yesterday.

Delays in unveiling the blueprint mean there is “no chance” of his plans becoming law before the assembly adjourns in preparation for elections next year, Bowles said. “Whatever he does is likely to be controversial, and secondly we’ve got other issues in the pipeline that we would really have to finish and would take priority.”

Regulators are seeking ways to overhaul banks’ operations so that riskier activities are separated from core lending and backed by capital reserves. The U.K., France and Germany are already putting national plans in place for internal firewalls at their lenders.

Deutsche Bank AG and Credit Agricole SA are among EU banks to have lobbied publicly against proposals by a high-level group to force lenders to separate their trading activities.

The Parliament is set to adjourn in mid-April for May elections. A new team of EU commissioners is set to take office in November. The fate of existing legislative proposals after that is uncertain, as the parliament and commission are free to redefine their priorities.

Compliance Action

Japanese Regulator to Inspect Offices of Three Largest Lenders

Japan’s financial regulator plans to inspect the offices of banking units belonging to Mitsubishi UFJ Financial Group Inc., Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc., the nation’s largest lenders.

No further details were given by the Financial Services Agency in a statement posted on its website. The inspections are being made to determine whether banks are complying with rules related to cutting ties with crime groups, Kyodo News reported today. The reviews will begin Nov. 5, the Asahi newspaper said.

Spokesmen for Mizuho and Sumitomo Mitsui Financial declined to comment on the regulator’s notice and the reports. Mitsubishi UFJ was unable to comment immediately.

Today’s FSA announcement came after Mizuho submitted a business-improvement plan to the regulator after the firm was found to have made about 200 million yen ($2 million) in loans to members of criminal organizations.

Mizuho’s President Yasuhiro Sato will give up six months’ pay for failing to stop the loans, the lender said yesterday. Takashi Tsukamoto will take a similar pay cut and resign as chairman of Mizuho Bank Ltd., while keeping the post at the parent company. A total of 52 other current and former executives will also be penalized, the lender said.

The bank’s business improvement report outlined measures such as database sharing and the addition of an outside director to prevent further transactions with yakuza crime syndicates. Lawyers commissioned by Mizuho to investigate the loans said the bank’s shortcomings stemmed from lax internal controls rather than attempts to mislead regulators.

Citigroup Currency Staff Work Into Night in London on Dodd-Frank

The foreign-exchange sales team in Citigroup Inc.’s London office has been putting in long hours to help clients comply with the Dodd-Frank law.

At least two members of staff have been staying until after 9 p.m. because some clients are no longer allowed to deal with Citigroup colleagues in New York, Alex Jackson, head of European investor sales, foreign exchange and local markets, said in a phone interview on Oct. 25. That’s because the Dodd-Frank Act prevents people in the U.S. from trading with counterparts who haven’t agreed to International Swaps & Derivatives Association rules, Jackson said. European money managers and Brazilian hedge funds are among customers relying on the arrangements, he said.

Non-compliant investors or clients are not able to trade with U.S.-based salepeople or traders physically located in the U.S., according to Jackson, who cited a footnote to the regulations on swaps trading. Clients who have “not signed the ISDA protocol” fall under this, he said.

Citigroup is among banks around the world that are adapting to regulatory initiatives introduced to curb financial-market risks following the 2008 credit crisis and subsequent recession. Of the dozens of derivatives rules being completed, the most contentious have involved how to oversee swaps traded across borders.

To provide customers with round-the-clock trading, foreign-exchange dealers typically cooperate among staff in Asia, London and the U.S., sharing online instant-message chats and redirecting phone lines.

Citigroup will probably review in the future whether to continue offering the service as more clients sign up to the ISDA rules, Jackson said.


Ex-Slaughter, Linklaters Lawyers Fail to Toss Trading Suit

A former Slaughter and May lawyer and her boyfriend who worked for Linklaters LLP lost a bid to dismiss a Hong Kong Securities and Futures Commission lawsuit alleging they used inside information to trade shares.

Young Bik Fung, Lee Kwok Wa and his two sisters made HK$2.9 million ($374,000) trading shares of Hsinchu International Bank ahead of a takeover offer by Standard Chartered Plc and of Asia Satellite Telecommunications Ltd. before a privatization offer, the SFC says.

Hong Kong High Court Judge Anthony Chan yesterday dismissed their application to strike out the SFC’s lawsuit on grounds including that the regulator lacked jurisdiction as the trading of Hsinchu shares took place in Taiwan. The four said they bought the shares of the two companies in 2006 and 2007 without any inside information.

Maurice Lee, a lawyer for the four, didn’t immediately respond to an e-mail requesting comment. Neil Hyman, a partner at Slaughter and May in Hong Kong, declined to comment on the case.

Lee Kwok Wa “left this firm in 2007,” Amanda Clarke, a spokeswoman for Linklaters in Hong Kong, said by e-mail. “We have no comment to make on his personal legal proceedings.”

The case is Securities & Futures Commission v. Young Bik Fung, HCMP2575/2010, Hong Kong’s Court of First Instance.

Ex-SAC Manager Seeks to Bar Compliance Training Trial Evidence

A lawyer for SAC Capital Advisors LP money manager Michael Steinberg said prosecutors should be barred from showing jurors some of the hedge fund’s training presentations warning against insider trading, arguing that they are prejudicial and there isn’t any evidence he saw them.

The presentations were given from 2006 to 2009 at Stamford, Connecticut-based SAC Capital as part of its compliance efforts. The firm was indicted in July, accused of fostering a culture of illegal trading that reaped hundreds of millions of dollars in profit that was “pervasive and on a scale without known precedent in the hedge fund industry.”

Steinberg, one of eight current or former SAC employees to be charged with insider trading, has pleaded not guilty to conspiracy and securities fraud. He also argues the U.S. should be barred from showing evidence about the Galleon Group LLC insider-trading probe, arguing there is no “material” link between the two cases. Galleon’s co-founder Raj Rajaratnam, convicted of masterminding one of the biggest insider-trading schemes in a generation, is serving an 11-year prison term.

Jim Margolin, a spokesman for U.S. Attorney Preet Bharara, declined to comment on Steinberg’s request. Jonathan Gasthalter, a spokesman for SAC at Sard Verbinnen & Co., also declined to comment on it.

Steinberg is accused of trading on inside tips on Dell Inc. and Nvidia Corp. The scheme generated $1.4 million in profits, prosecutors say.

The case is U.S. v. Steinberg, 12-cr-00121, U.S. District Court, Southern District of New York (Manhattan).

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UBS Says Will Work Hard to Remove Extra Capital Demand

Sergio Ermotti, chief executive officer of UBS AG, discussed capital requirements, and the outlook for the Federal Reserve to begin reducing its bond purchases.

He spoke in Zurich with Bloomberg Television’s Manus Cranny.

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Trichet Says Banks ‘Dedicated’ to Improving Governance

Former European Central Bank President Jean-Claude Trichet discusses bank governance, risk culture and the role of central banks.

He spoke yesterday in London with Bloomberg Television’s Francine Lacqua.

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