Bank Conflicts, HFT Scrutiny, EU Bankruptcy: Compliance

The U.K. markets regulator plans to scrutinize the conflicts of interest banks face when they use derivatives after fining Barclays Plc for manipulating the price of gold to avoid a payout to a client.

The Financial Conduct Authority will examine how investment banks manage such conflicts in coming months, with so-called barrier options “one of the most obvious examples of a conflict,” Chief Executive Officer Martin Wheatley, 55, said in a June 4 interview in New York.

The FCA last month fined Barclays 26 million pounds ($44 million) after finding a former trader had suppressed the London gold fixing on June 28, 2012, to avoid paying out $3.9 million to a client who had taken out a barrier option with the London-based bank. Such contracts are a winner-takes-all bet on whether an asset will reach a certain price or not.

British regulators are trying to revive confidence in benchmarks that have been tainted by manipulation scandals in recent years. The London gold fixing is a ritual dating back to 1919. Today, it’s led by representatives from four banks who, on a daily conference call, agree on a price at which the metal is bought and sold. The rate has come under criticism in the past year for being vulnerable to manipulation.

Compliance Policy

High-Speed Traders Face Scrutiny by Levin’s Senate Investigators

Senate Permanent Subcommittee on Investigations Chairman Carl Levin requested information from regulators on risks posed by high-frequency trading, according to an April 11 letter obtained by Bloomberg News.

The letter was sent to the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission.

Levin, a Democrat from Michigan, is seeking information ahead of hearing later this month, according to three people familiar with the matter.

Elise Bean, staff director for the subcommittee, declined to comment on the letter.

EU Ministers Back Proposal on Cross-Border Bankruptcies

Proposals on how to handle cross-border bankruptcies were approved by European Union justice ministers, the EU said.

The EU proposals aim to make it easier for companies to declare insolvency across borders without facing immediate liquidation. The rules are expected to make restructurings easier and give creditors a better chance to recoup their investments in troubled companies, the European Commission said.

Compliance Action

Ex-Deutsche Bank Trader Said to Face Record Fine on Rate Rigging

The Financial Conduct Authority, the U.K.’s markets regulator, is seeking to fine former Deutsche Bank AG trader Christian Bittar about 10 million pounds ($17 million) for trying to rig benchmark interest rates, said a person with knowledge of the situation.

The fine would be the FCA’s largest ever penalty against an individual.

The regulator notified Bittar in recent weeks that it intends to penalize him for attempting to manipulate the euro interbank offered rate, said the person, who asked not to be identified because the notice is confidential.

The FCA has said it’s preparing to fine at least seven other traders it didn’t identify for their roles in attempting to rig the London interbank offered rate or similar benchmarks.

The planned penalty can be appealed, a process that can take years to conclude.

Bittar, who is based in Singapore and works for hedge fund Bluecrest Capital Management LLP, declined to comment on the penalty.

Deutsche Bank “is cooperating in the various regulatory investigations” in relation to Libor, Kathryn Hanes, a spokeswoman for the bank in London, said. She declined to comment on the fine.

Chris Hamilton, an FCA spokesman, and a representative for Bluecrest in London, declined to comment.


RBA Says Failing-Bank Capital Rules Plan to Be Tabled at G-20

Global regulators are working on a proposal for “gone-concern loss absorbing capacity” or GLAC, which seeks to protect taxpayers from having to bail out failing banks, Reserve Bank of Australia Governor Glenn Stevens said.

The remarks came in the text of a speech on financial regulation to be delivered today to a symposium on Asian banking and finance at the Federal Reserve Bank of San Francisco.

“Overall it is appropriate, in my judgment, to allow equity capital in excess of regulatory minima to be counted towards GLAC requirements,” Stevens said in the speech.

The loss-absorbing capacity is to “come from a ‘bail-in’ of certain classes of private creditors, so as to avoid calling on the public purse for a ‘bail-out’,” Stevens said.

He expects the GLAC issue to be debated in the coming months with “the intent to put a proposal to the G-20 leaders summit in Brisbane in November.”

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