The U.S. Commodity Futures Trading Commission says it will shift enforcement staff to meet Dodd- Frank Act demands in 2012, after failing last year to adequately oversee CME Group Inc. (CME), the world’s largest futures exchange.
The CFTC didn’t meet its own goals to review CME, the Chicago Board of Trade, and ICE Futures U.S. in the year ending Sept. 30, 2011 for compliance with the agency’s core principles for exchange-traded markets, according to an agency report on its own performance. In a separate spending plan for fiscal 2013, the agency said it would reassign staff this year from enforcement to oversee new applications for registration with the agency that stem from the Dodd-Frank regulatory overhaul.
The Securities and Exchange Commission and CFTC are leading U.S. efforts to write new regulations required under the 2010 Dodd-Frank financial-overhaul. The agencies aim this year to complete rules designed to have most swaps guaranteed by central clearinghouses and traded on exchanges or other venues.
The CFTC received authority to oversee the bulk of the swaps market, which was largely unregulated prior to Dodd-Frank and blamed by congressional lawmakers for fueling the 2008 credit crisis.
Changes to oversight of the futures market have been considered by the CFTC since MF Global Holdings Ltd (MFGLQ). collapsed last year.
For more, click here.
Special Section: Volcker Rule
Ralph Schlosstein Says Volcker Rule Will Boost Costs
Ralph Schlosstein, president and chief executive officer of Evercore Partners Inc. (EVR), talked about action by the world’s largest banks to escalate the lobbying effort against the Volcker rule five months before it takes effect.
The rule will limit banks from trading on their own behalf and from investing in private-equity and hedge funds.
Schlosstein spoke with Betty Liu on Bloomberg Television’s “In the Loop.”
For the video, click here.
Moody’s Zandi Says He’s ‘Not a Fan’ of Volcker Rule
Mark Zandi, chief economist at Moody’s Analytics Inc., talks about action by the world’s largest banks to escalate the lobbying effort against the Volcker rule which is to take effect July 21.
Zandi spoke with Tom Keene on Bloomberg Television’s “Surveillance Midday.”
For the video, click here.
Reed, Kelleher, Rosenthal Comment ‘Pro and Con’ on Volcker Rule
John S. Reed, who helped engineer the merger that created Citigroup Inc. (C), said the U.S. should make the proposed Volcker rule stronger by targeting bank traders’ pay and using “severe penalties” to enforce it.
Regulators should ensure traders are paid “based on the results of their market-making and hedging activities after those positions are fully unwound,” Reed wrote in a letter to regulators Feb. 13. There should be “specific and vigorous penalties for individual traders, management and firms” who don’t comply with the new regulations, Reed wrote.
The letter from Reed, 73, was among comments filed Feb. 13 with regulators who are finalizing the Volcker rule, which bans banks that accept deposits from trading that could put their firms at risk and create another financial crisis. Lenders including New York-based Citigroup, Goldman Sachs Group Inc. (GS) and JPMorgan Chase & Co. have called for revisions amid concern that the rule could harm profits.
“A strong Volcker rule is one of the most important provisions to prevent ‘‘too big to fail’’ financial institutions, stop conflicts of interest and support credit in our economy,” Reed wrote. “Failure to comply should be severely punished.”
Reed said the proposed Volcker rule should be strengthened by requiring chief executive officers to sign a statement each quarter affirming that they are complying.
Molly Millerwise Meiners, a spokeswoman for the bank, declined to comment on Reed’s letter. Citigroup filed its own comment letter saying the proposal should be made simpler and less burdensome.
For more, click here.
Separately, Morgan Stanley (MS), owner of the world’s largest brokerage, said the Volcker rule suffers from a misunderstanding of how banks earn returns from market making and threatens to curb profitable services.
“There appears to be a real misconception about how principal market makers generate revenues,” Colm Kelleher, who runs the bank’s trading business, and Chief Operating Officer Jim Rosenthal, wrote in a comment letter posted to the Commodity Futures Trading Commission’s website yesterday. “The proposal should be revised to reflect the realities.”
“Some of the criteria for market making in the proposal are more characteristic of agency trading and principal market making in certain highly liquid, exchange-traded markets, rather than the more common situation of principal market making in less liquid markets,” the executives wrote.
For more, click here, and click here.
Separately, Bond Dealers of America said the Volcker rule, as proposed, “would have construed the municipal bond exception very narrowly and effectively only exempted general obligation bonds.” BDA made the comments in a Feb. 13 letter to U.S. regulators, according to a statement on BDA’s website.
BDA is a Washington-based trade organization representing securities dealers and banks focused on fixed income markets.
Separately, a group known as Occupy Wall Street submitted a 325-page letter containing a detailed critique of the Volcker Rule. Occupy Wall Street is a working group affiliated with the protest at Manhattan’s Zuccotti Park last fall.
The group held a conference call on Jan. 12 with staff members from the Securities and Exchange Commission and subsequently responded to 244 of the 395 questions regulators asked concerning the Volcker rule.
For more, click here.
Compliance Policy
Brazil Creates Group to Assess the Derivative Markets
Brazil’s Finance Ministry created a group to assess and propose measures to the derivatives market, according to a statement published today in the official gazette.
The group, which will have participation of central bank and Brazil’s securities regulator members, aims to promote a balanced growth of the derivatives markets and monitor the companies’ exposures in this market, according to the statement.
China Shows Concrete Interest on EFSF, Sovereign Bond Investment
China has shown concrete interest in investing in European sovereign bonds and the European Financial Stability Facility, European Union President Herman Van Rompuy said at a briefing yesterday.
Europe welcomes Premier Wen Jiabao’s remarks that China wants to be more involved in helping solve the European debt crisis, Van Rompuy said. At the same briefing, Wen said the sides will enhance consultation on helping solve the European crisis.
Europe and China will hold talks on a substantive investment agreement, European Commission President Jose Barroso said at the briefing.
For more, click here.
Compliance Action
Ex-Citigroup Executive Denies Wrongdoing in Tibor-Fixing Case
A former Citigroup Inc. executive accused by Japanese regulators in a probe of suspected interest-rate manipulation denied wrongdoing and said authorities never questioned him before they issued findings.
Christopher Cecere, who worked for Citigroup in Tokyo as head of G10 trading and sales for Asia until 2010, was identified as “Director A” in a Dec. 16 administrative case by Japan’s Financial Services Agency, according to two people with knowledge of the inquiry. The agency said Director A and another Citigroup trader engaged in “seriously unjust and malicious” conduct by asking bankers to alter data they submitted in the process of setting a benchmark Japanese lending rate. Japan’s FSA penalized the firm and took no action against the employees.
During Citigroup’s internal investigation, the New York- based bank didn’t question Cecere about his conduct or indicate to him that it suspected he had acted improperly, he said in a Feb. 10 phone interview. Regulators also didn’t seek his version of events, he said. When he left the firm, he received the deferred pay he was entitled to as an employee in good standing, he said. He later joined Brevan Howard Asset Management LLP, a London-based hedge fund that manages about $33 billion.
Japan’s regulators were the first to announce findings as authorities in Asia, Europe and the U.S. conduct widening inquiries into whether employees at some of the world’s biggest banks sought to manipulate the London, Tokyo and euro interbank offered rates, known as Libor, Tibor and Euribor, respectively.
Mika Nemoto, a Tokyo-based spokeswoman for Citigroup, declined to comment on Cecere’s remarks.
For more, click here.
JPMorgan, HSBC Implicated by Informant Bank in Canada Libor Case
JPMorgan Chase & Co., Deutsche Bank AG and HSBC Holdings Plc are among at least seven firms accused by another bank of participating in a conspiracy to manipulate the price of derivatives worldwide for more than three years.
The unnamed bank, seeking immunity, told Canada’s Competition Bureau that traders and cash brokers conspired to influence the Yen London interbank offered rate from 2007 to 2010 to profit on interest-rate derivative positions linked to the benchmark. The bureau spelled out the probe in documents it filed with the Ontario Superior Court in May.
“There is no conclusion of wrongdoing at this time and no charges have been laid,” Alexa Keating, a spokeswoman for the Competition Bureau, said in an e-mailed statement.
Libor rates are generated through a daily survey of firms conducted on behalf of the British Bankers’ Association in London.
Canadian officials, who were seeking records from the companies, said the cooperator claimed that the banks’ employees agreed to make artificially high or low submissions for Yen Libor to improve the outcomes of trades tied to the rate. According to the documents, banks communicated with one another and with cash brokers to form agreements. In some cases, derivatives traders allegedly asked cash brokers to help influence submissions for Yen Libor.
Spokesmen for New York-based JPMorgan (JPM) and Citigroup Inc., Frankfurt-based Deutsche Bank (DBK), Edinburgh-based Royal Bank of Scotland Group Plc and London-based ICAP Plc declined to comment.
Diane Soucy Bergan, a spokeswoman for London-based HSBC in Chicago, didn’t respond to requests for comment. A call after normal business hours to a U.K. phone number listed on RP Martin Holdings Ltd.’s website for media inquiries wasn’t answered, nor was a call to a number listed for the broker’s New York office.
For more, click here.
Vietnam Exchange May Miss Trading Hours Deadline, Bang Says
Vietnam may miss a planned Feb. 20 deadline to begin extended trading hours on the Ho Chi Minh City Stock Exchange as it’s still waiting for ministerial approval, State Securities Commission Chairman Vu Bang said today.
Final approval may be delayed for a few weeks as the exchange waits for final approval, Bang said.
Southeast Asia’s second-smallest exchange by market capitalization after Laos wants to add an afternoon session from 1 p.m. to 2:30 p.m. to the existing 8:30 a.m. to 11 a.m. trading day, Nguyen Duy Phong, an analyst from ACB Securities, said on Aug. 11, citing a document sent to the company by the bourse.
Bang said all technical issues related to the extension had been addressed and the only concern is that “liquidity in the market is low” and the extension may not increase trading volumes as much as expected.
Courts
Raymond James U.K. Unit Wins Court Battle Over Client Poaching
Raymond James Financial Inc. (RJF)’s U.K. unit won a lawsuit in which financial advisory firm Towry Holdings Ltd. accused the company and seven employees of taking its clients.
A U.K. judge dismissed Towry’s claim, which sought as much as 6 million pounds ($9.4 million), Faegre Baker Daniels LLP, a law firm representing Raymond James, said in an e-mailed statement.
Towry sued for breach of contract after seven of its financial advisers joined Raymond James’ U.K. unit and were followed by some of their clients, the firm said.
The seven employees had worked for a company taken over by Towry in 2009 and were employed under different contracts to its other staff, Andrew Fisher, Towry’s chief executive officer, said in an e-mailed statement.
Dell Insider-Trading Suspects Plead Not Guilty in New York
Four men arrested last month for allegedly participating in a “criminal club” that made almost $62 million from using illegal tips to trade in Dell Inc. (DELL) stock pleaded not guilty.
Level Global Investors LP co-founder Anthony Chiasson; Todd Newman, a portfolio manager formerly at Diamondback Capital Management LLC; Jon Horvath, an analyst at hedge fund Sigma Capital Management LLC; and Danny Kuo, a fund manager for Whittier Trust Co. entered not guilty pleas to conspiracy and securities fraud charges yesterday in Manhattan federal court.
Prosecutors from the office of Manhattan U.S. Attorney Preet Bharara said the ring, which allegedly involved five hedge funds and investment firms, is the largest identified by the U.S. to date tied to a single stock.
All four men, who were arrested Jan. 18, are charged with one count of conspiracy to commit securities fraud. They are individually charged with additional counts of securities fraud.
The case is U.S. v. Newman, 12-cr-121, U.S. District Court, Southern District of New York (Manhattan).
Interviews
King Says U.K. Banks Have Made Progress in Building Up Capital
Bank of England Governor Mervyn King said U.K. banks have made progress in repairing their finances in comparison to many euro-zone financial institutions.
“Relative to many continental banks, we have moved a long way in the process of putting our banking system back into a healthy position in terms of capital,” King said at a press conference in London today.
While U.K. banks are exposed to the real economy, they have made “much more progress than many others,” he said.
To contact the reporter on this story: Carla Main in New Jersey at cmain2@bloomberg.net.
To contact the editor responsible for this report: Michael Hytha at mhytha@bloomberg.net.
