Bond Disclosures, Faysal Bank, HFT Study: Compliance

After a 38-year debate on how to make trading costs for corporate and municipal debt transparent, regulators are making another attempt to force dealers to disclose how much they earn on the transactions.

The Municipal Securities Rulemaking Board will discuss a proposal at the end of the month, Executive Director Lynnette Kelly said July 16 after U.S. Securities and Exchange Commission Chair Mary Jo White asked the regulator to come up with a plan by year’s end. The new rules would apply to so-called riskless trades, where firms fill client orders rather than use their own money to buy.

Regulators are placing a greater emphasis on making sure smaller buyers are treated fairly in transactions in the corporate- and municipal-bond market that’s grown 36 percent since 2008. While stock brokers must tell investors how much they earn, bond dealers have profited from an opaque market where trades are still often completed over the telephone.

Individuals are especially in the dark about how much they’re paying brokers, said Marilyn Cohen, founder of Envision Capital Management Inc. Investors pay higher prices than securities firms when they trade U.S. state and local government bonds, according to a study of the $3.7 trillion municipal market released this week by the MSRB.

Concern is mounting that the bond market’s antiquated infrastructure will make losses worse when sentiment reverses after more than five years of easy-money policies that have kept down borrowing costs and spurred record demand for debt.

Compliance Action

U.K. Agency Steps Up Fight Against Escalating Payday Lender Fees

Britain’s Financial Conduct Authority proposed rules to prevent what it called “escalating fees” of consumer payday lenders, banning firms from charging more in interest than the amount borrowed.

The price cap will help protect “borrowers against excessive charges,” the FCA said in a statement on its website July 15.

Payday lenders, which charge high interest rates for small cash sums over short periods, have faced increasing scrutiny from the U.K.’s financial regulator since it took over supervision in April.

About 60 percent of complaints to the Office of Fair Trading were about debt collection, the FCA said earlier this year, sparking an investigation into how payday lenders treat customers.

Starting in January, default charges can’t exceed 15 pounds ($26) and interest and fees on new payday loans must stay within 0.8 percent a day of the amount borrowed, the FCA said.

The FCA will publish its final rules in November, giving firms time to prepare for the introduction of the cap in 2015. The price cap will be reviewed in the next two years, it said.


Firing Fat Staff May Be Discrimination, EU Court Aide Says

Obese workers may be able to sue for work-place discrimination, a legal adviser to the European Union’s top court said in a case that could pave the way for the extremely fat to be treated as disabled.

Advocate General Niilo Jaaskinen said the EU Court of Justice should rule that if obesity “has reached such a degree that it plainly hinders participation in professional life,” it should be treated as a disability. He said that should only apply to severe cases, such as people with a body mass index of more than 40 that face “problems of mobility, endurance and mood.”

Obesity has reached epidemic proportions globally, according to the World Health Organization, which says at least 2.8 million people die each year as a result of being overweight or obese. People with a BMI of more than 25 are classified as overweight and a BMI of more than 30 is obese. As many as 30 percent of adults in Europe are obese, the WHO says.

In a separate case, another legal adviser said EU governments should face limits on how they test asylum seekers’ sexual orientation. A Dutch court is asking the EU tribunal whether the Dutch government can demand evidence for whether asylum seekers are homosexual.

The cases are C-354/13 Kaltoft; C-148/13, C-149/13 and C-150/13.


European Central Bank Official Foresees Asset Review Failures

European Central Bank Vice President Vitor Constancio talked about the central bank’s asset quality review of the region’s lenders. He spoke with Bloomberg Television’s Jonathan Ferro in Frankfurt.

For the video, click here.

Speed Traders Should Operate in Good Times and Bad, Study Says

Computerized market makers should be required to trade futures contracts in good times and bad to ease turbulence during a crisis, according to a study sponsored by the U.S. industry’s regulator.

High-frequency traders, those capable of buying and selling in millionths of a second, are more likely than manual traders to leave markets in volatile times such as the 2008 financial crisis, according to the study.

About 61 percent of all trading in U.S. futures markets is now done by these firms, according to Tabb Group. The paper suggests their exit could leave markets without enough buyers and sellers to operate effectively.

Pradeep Yadav of the University of Oklahoma wrote the study, which was released May 29, with U.S. Commodity Futures Trading Commission economist Michel Robe and Vikas Raman of the Warwick Business School.

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