HFT Hearings, ICAP-Libor, Japan Sukuk: Compliance

High-frequency trading will face high-profile scrutiny next week when exchanges, brokerages and institutional investors come before a Senate panel looking for evidence of conflicts of interest in U.S. stock markets.

The Permanent Subcommittee on Investigation, led by Senator Carl Levin, is holding a June 17 hearing to examine the impact of conflicts on consumer confidence, he said in a statement June 9. The panel will focus on how brokers balance the obligation to give customers best execution against services they provide for other brokers and trading venues, according to the statement.

Lawmakers are increasing pressure on regulators and prosecutors to rein in computerized and algorithmic traders who account for about half of U.S. stock trades.

Levin, a Michigan Democrat, sent letters in April to the Securities and Exchange Commission and the Commodity Futures Trading Commission asking 13 questions on the effects, trends, concerns and regulatory reaction related to high-frequency trading. A witness list for the hearing will be provided later, the committee said.

Compliance Action

ICAP Accused of Aiding Yen Libor Rate-Rigging in EU Complaint

ICAP Plc, the world’s largest broker of transactions between banks, was accused yesterday by the European Union’s antitrust arm of colluding to manipulate yen Libor.

The complaint is the next step in the EU enforcement process after the company refused to settle the antitrust case with the European Commission last year.

While ICAP declined to join an EU Libor accord, five banks and another brokerage admitted liability and agreed to a combined penalty of 669.7 million euros ($906.6 million).

The December EU announcement came months after ICAP cut a deal with U.S. and U.K. regulators in which it owned up to colluding with UBS AG traders and was fined $88 million.

The EU’s antitrust complaint alleges “ICAP acted as a facilitator to breaches of EU competition law by certain banks in relation to yen Libor for isolated periods between 2007 and 2010,” the brokerage said in a statement. This relates to “the same underlying matters” ICAP settled with the U.S. Commodity Futures Trading Commission and the U.K. Financial Conduct Authority in September, it said.

“ICAP does not believe that it has breached any applicable EU competition law, and will defend itself against these allegations vigorously,” the London-based company said.

The brokerage will have an opportunity to respond to the EU’s antitrust complaint in writing and at a hearing.

Japan’s Lack of Sukuk Rules Spurs Malaysia Debuts

Bank of Tokyo-Mitsubishi UFJ is planning a debut sukuk in Malaysia as Japan’s lack of Islamic finance rules forces companies to go overseas to tap Muslim investors.

Bank of Tokyo-Mitsubishi UFJ (Malaysia) Bhd., a member of the financial group that’s part of Japan’s biggest lender by market value, has set up a $500 million multi-currency program to sell debt complying with Koranic principles, according to a June 5 statement.

The bank is also considering offering the world’s first yen-denominated sukuk, according to the statement. The issuance will help manage the bank’s increasing Islamic financing needs, it said.

While Japan has no Islamic banking rules of its own, the government amended legislation in 2008 to allow subsidiaries of the country’s lenders and insurers overseas to provide financial services in accordance with religious tenets.


Hedge Fund Manager Jarkesy Loses Bid to Toss SEC Case Over Fees

Houston hedge fund manager George Jarkesy Jr. must face a U.S. Securities and Exchange Commission case in which he was accused of steering bloated fees to the John Thomas Financial Inc. brokerage.

Jarkesy lost a bid to throw out the administrative proceeding in which he is accused of defrauding investors.

He and his investment fund management group Patriot28, formerly known as John Thomas Capital Management LLC, argued that they can’t get a fair hearing before the SEC. Jarkesy said the agency has prejudged him as a result of findings in a settlement with John Thomas Financial’s founder, Anastasios “Tommy” Belesis.

U.S. District Judge Beryl Howell in Washington ruled that Jarkesy has to pursue his claims through an established process that includes hearings before an administrative law judge, SEC commissioners and, finally, a court of appeals.

Mark Bierbower, an attorney for Jarkesy, didn’t immediately respond to a phone message yesterday seeking comment on the ruling.

The case is Jarkesy v. U.S. Securities and Exchange Commission, 14-cv-114, U.S. District Court, District of Columbia, (Washington).


Levitt Sees No Wrongdoing in High-Frequency Trading

Arthur Levitt, the former U.S. Securities and Exchange Commission chairman, said New York State Attorney General Eric Schneiderman “has said nothing that would support” a claim of securities fraud in high-frequency trading.

Levitt talked with Tom Keene and Michael McKee on Bloomberg Radio’s “Bloomberg Surveillance.”

To listen, click here.

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