HK Dark Pools, German Banks, Pay Transparency: Compliance

Hong Kong’s Securities and Futures Commission said it will consult the public on proposed legislation to restrict retail investors from having access to “dark pools” and enhance disclosure requirements.

Alternative liquidity pools, or dark pools, should be limited to institutional investors as the platform operators may not properly and sufficiently inform retail clients about risks, the SFC said yesterday on its website. Retail orders, which are typically smaller than those of institutional investors, also risk having their orders not being transacted fairly, the regulator said in a statement.

Dark pools account for about 2 percent of the city’s total market turnover, the SFC said.

The city’s securities regulator also proposed regular reporting by dark-pool operators on volume of trades by the largest users.

The consultation period will last until April 25.

Compliance Action

German Banks Face Rising Costs for Banking Union, DZ Bank Says

The annual cost to German banks from the banking union will peak at 9.7 billion euros ($13.3 billion) to 10.6 billion euros, depending on the period over which European Union obliges lenders to pay into the resolution fund, DZ Bank said yesterday in a report.

German banks’ total profit averaged 9.7 billion euros a year in 1998-2012, according to DZ Bank.

The main costs are deposit insurance, contributions to the resolution fund, and higher refinancing expenses from bail-in rules relating to debt, DZ Bank said in the report.

The rise in refinancing costs is expected to drive competition for deposits, and banks will close branches to help reduce administrative expenses, according to the report.

Japan FSA, BOJ to Start Probe on Currency Fixing, Nikkei Reports

Japan’s Financial Services Agency and the Bank of Japan will start investigating foreign-currency fixing rates, the Nikkei newspaper reported, without saying where it obtained the information.

The Japanese authorities will start a review of the currency rates that banks operating in Japan publish each day as the mid-rate for their commercial transactions, or “nakane” in Japanese. The move comes as the Financial Stability Board decided to review foreign-exchange benchmarks in the wake of rate allegations in the U.K., Nikkei reported.

Nikkei didn’t provide details of the probe planned by the FSA and BOJ.

In Japan, each bank individually sets the nakane rates, and there is no unified benchmark similar to ones used in the U.K., according to Nikkei.


Investor Class Actions Seen at Risk as Halliburton Presses Court

The U.S. Supreme Court will hear arguments March 5 on a Halliburton Co. appeal targeting the legal doctrine that underlies the vast majority of securities-fraud class actions.

The decision in the case might shut down a quarter-century of such litigation. Backed by business groups, Halliburton is seeking to overturn a landmark 1988 Supreme Court ruling that four of the nine justices have already called into question.

Securities-fraud cases have become an industry unto themselves even as Congress has tried to rein them in. Accords involving Enron Corp. and WorldCom Inc. alone totaled more than $13 billion.

The litigation explosion stems from the 1988 Basic v. Levinson ruling, which said judges considering misrepresentation claims should presume that investors will take any public misstatement into account before buying shares, a doctrine known as the “fraud-on-the-market presumption.”

Without the presumption, each shareholder would have to show individual reliance on an alleged misstatement, a requirement that could preclude class actions by requiring judges to conduct a case-by-base inquiry of shareholders.

Investor advocates and the Obama administration say the Basic presumption helps protect shareholders from company fraud.

The case is Halliburton v. Erica P. John Fund, 13-317.


Transparency Needed for Executive Compensation, Feinberg Says

Feinberg Rozen Founder Ken Feinberg discussed executive compensation on Bloomberg Television’s “Bloomberg Surveillance.”

“Pretty out of whack,” is how Feinberg described the current state of executive compensation. “But government’s role is limited. Market forces are the key,” he said.

For the video, click here.

Weidmann Says ECB Policy Alone Can’t Provide Stability

European Central Bank Governing Council member Jens Weidmann spoke at the Bundesbank Symposium in Frankfurt about safeguarding financial stability, macro-prudential policy measures and bank-capital requirements.

“Adopting financial stability as an additional monetary policy objective on a par with price stability would risk raising unrealistic expectations about the effectiveness of the monetary policy instrument,” Weidman said.

For the video, click here.

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