Bloomberg News

‘Naked’ Access, PCAOB, JPMorgan, Electric Cars: Compliance

June 22, 2011

(Updates with European Energy Exchange, U.S. swaps- database rules in Compliance Policy; and Swartz and Bryson in Interviews/Speeches/Testimony.)

June 22 (Bloomberg) -- The four largest U.S. stock market operators asked the Securities and Exchange Commission to delay implementation of rules governing how brokers send orders to venues, including a ban on unsupervised, or “naked” market access given to some high-frequency traders.

In a letter to the SEC dated June 20, NYSE Euronext, Nasdaq OMX Group Inc., Bats Global Markets and Direct Edge Holdings Inc. asked the regulator to extend to Nov. 30 the date by which broker-dealers routing orders for other securities firms must comply with the rules. The current deadline is July 14.

The SEC in November proposed banning unfiltered or “naked” access to markets. The rule applies to all forms of securities trading, including the routing of orders to markets.

Richard Adamonis, a spokesman for NYSE Euronext, declined to confirm or comment on the letter. Stacie Fleming of Lenexa, Kansas-based Bats, declined to comment. Robert Madden of Nasdaq OMX in New York couldn’t immediately be reached for comment. Michael Boccio of Sloane & Co., which represents Direct Edge, said the market operator co-signed the letter from the exchanges. Direct Edge is based in Jersey City, New Jersey.

John Nester, an SEC spokesman, declined to comment on whether implementation would be delayed.

Compliance Policy

EU Working With U.S. on Electric-Car Rules, De Gucht Says

The U.S. and the European Union are close to setting joint standards for electric vehicles in a move that would foster development of the low-polluting cars, the EU’s top trade official said.

EU Trade Commissioner Karel De Gucht made the remarks in a speech in Washington yesterday.

De Gucht, who is in Washington to meet with U.S. Trade Representative Ron Kirk, other administration officials and business executives, didn’t elaborate on what the standards would be. They may be announced when he returns to Washington for a meeting with White House officials late this year.

De Gucht also made a pitch to the U.S. Chamber of Commerce, the nation’s largest business lobbying group, for a long-stalled Doha Round of the World Trade Organization, saying the trade arbiter should come up with some smaller package to agree to before the end of the year. That agreement should include rules for facilitating trade in poor nations and a standstill guaranteeing that no nation raises tariffs while a full accord is still pending.

U.S. Watchdog Weighing Proposal to Make Auditors Explain Work

The Public Company Accounting Oversight Board is seeking comment on proposed changes that may require auditors of U.S.- registered firms to explain their findings rather than simply saying whether rules were followed.

The PCAOB, the Washington-based watchdog for firms that review companies’ books, issued a statement yesterday on “possible enhancements” of the model for the auditor’s report, which it called a primary means for communicating with investors.

PCAOB Chairman James Doty said the release is a significant move for investor protection in response to the 2008 financial crisis and the first step toward reforms designed to improve the relevance, transparency and reliability of the audit process.

The regulator, created by the Sarbanes-Oxley Act of 2002 and overseen by the Securities and Exchange Commission, will accept comment on the concept release through Sept. 30 and plans to hold a public meeting on the proposal later this year.

EEX Says it Accepts FSA Qualifications for New Energy Traders

The European Energy Exchange AG accepts trader qualifications from the U.K. Financial Services Authority for access to its energy contracts, Oliver Maibaum, managing director of the Leipzig, Germany-based exchange, said.

The European Energy Exchange provides a single market of exchange regarding energy trading.

U.S. Regulators May Ease Swaps-Database Legal Safeguard Rules

U.S. regulators looking to simplify sharing of derivatives information may release market databases from certain Dodd-Frank Act requirements if they register for business with both domestic and overseas watchdogs.

Foreign regulators wouldn’t need to indemnify the swap-data repositories or U.S. regulators for litigation costs if the databases have dual registration, the heads of the Securities and Exchange Commission and Commodity Futures Trading Commission said in a letter. Indemnification also wouldn’t be needed when overseas officials seek information from the two agencies.

CFTC Chairman Gary Gensler and SEC chief Mary Schapiro made the statements about indemnification and dual registration in the June 8 letter to Michel Barnier, the EU’s financial markets commissioner.

Dodd-Frank, the U.S. regulatory overhaul enacted last year, requires the databases as part of derivatives oversight aimed at reducing risk and boosting transparency in the $601 trillion swaps market. The law requires repositories to have protection against legal costs before sharing information with regulators.

European officials and repositories such as the Depository Trust & Clearing Corp. have questioned the provision, saying it may cause the global swaps market to become too fragmented.

Larry Thompson, DTCC’s general counsel, said in testimony for a May 25 House Agriculture Committee hearing that the measure may lead overseas jurisdictions to set up their own repositories to escape U.S. rules.

Compliance Action

JPMorgan to Settle SEC Probe of CDO Sale for $153.6 Million

JPMorgan Chase & Co. agreed to pay $153.6 million to settle U.S. regulatory claims it misled pension funds and a Lutheran group while selling a product linked to risky mortgages as the housing market unraveled.

The company, the only major Wall Street bank to remain profitable throughout the financial crisis, didn’t tell investors that hedge fund Magnetar Capital LLC helped pick assets linked to a synthetic collateralized debt obligation in 2007, the Securities and Exchange Commission wrote in a fraud case filed yesterday at Manhattan federal court. Magnetar, betting housing prices would fall, stood to profit if assets defaulted.

“JPMorgan marketed highly complex CDO investments to investors with promises that the mortgage assets underlying the CDO would be selected by an independent manager looking out for investor interests,” the SEC’s enforcement chief, Robert Khuzami, said in a statement. “With today’s settlement, harmed investors receive a full return of the losses they suffered,” he said in the statement yesterday.

“The SEC has not charged the firm with intentional or reckless misconduct,” JPMorgan said in a statement. The bank booked $900 million in losses on the CDO, known as Squared, and after an internal review voluntarily made $56 million in payments to investors of a separate CDO called Tahoma I.

The SEC won’t bring claims over that investment, Khuzami told reporters on a conference call yesterday. Asked why JPMorgan executives weren’t sued, he said, “we look hard and long at the conduct of individuals and make our decisions based on the evidence.” JPMorgan Chase’s deal to settle a U.S. regulator’s claims that the bank misled buyers of mortgage- linked securities before the housing market collapsed echoed a case brought last year against Goldman Sachs Group Inc.

The SEC is targeting firms in the mortgage industry. Like Goldman, JPMorgan’s brokerage unit, JPMorgan Securities LLC, didn’t admit or deny wrongdoing in settling. Unlike Goldman, the claims against the firm relied solely on a section of the Securities Act of 1933 that connotes a “lesser violation,” said Ed B. Horahan, a Washington-based securities lawyer.

Goldman Sachs settled under a section of the Securities Exchange Act of 1934 that says the accused firm knew what it was doing, while JPMorgan’s case is closer to negligence, Horahan said. Michael DuVally, a spokesman for Goldman Sachs, declined to comment yesterday.

For more on JPMorgan, click here.

For a video report, click here.

For audio of an interview with Robert Khuzami, click here.

For more on Goldman Sachs, click here.

EU Said to Consider Releasing Stress Tests When Markets Closed

The European Union’s top securities regulator is recommending the release of the bank stress-test results at night or on a weekend when global stock markets are closed, according to a person familiar with the situation.

The European Securities and Markets Authority wrote to the European Banking Authority, the London-based EU agency carrying out the tests, calling for publication of results while markets are shut, said the person, who declined to be identified because the talks are private. While a date for the results hasn’t been set, regulators expect them to be released in mid-July, the person said.

The stress-test results were published on July 23 last year while U.S. markets were still open. If it opts to release the data on a weeknight, the EBA has a two-hour window to coordinate publication. U.S. markets close at 9 p.m. U.K. time and the New Zealand exchange opens two hours later.

Officials at ESMA didn’t respond to requests for comment. Franca Rosa Congiu, an EBA spokeswoman, declined to comment.

Federal Reserve to Hold Meeting on Debit-Card Rules June 29

The Federal Reserve Board is scheduled to meet next week as it prepares to implement caps on debit-card swipe fees paid by retailers by July 21.

Notice of the June 29 Fed meeting was posted on the central bank’s website yesterday.

U.S. banks have challenged in court a provision of the Dodd-Frank financial overhaul law that limits the amount of debit-card swipe fees on the grounds that it is “confiscatory” and therefore unconstitutional. The case is pending before the U.S. Court of Appeals in St. Louis.

True Asks Thai Telecom Regulator to Revoke Total Access License

True Corp. Pcl, Thailand’s third-largest mobile-phone company, asked the industry’s regulator to revoke Total Access Communication Pcl’s operating license, claiming the company is in breach of foreign ownership rules.

The National Broadcasting and Telecommunications Commission’s board will discuss the issue and consult with the commerce ministry, because the agency isn’t authorized to revoke licenses, Takorn Tantasith, the regulator’s acting secretary- general, said yesterday in Bangkok.

True has filed complaints to the police and Thailand’s commerce ministry alleging that Total Access is majority-owned by foreign investors, said Supasorn Honchaiya, a legal representative for True’s mobile-phone unit True Move Co.

Total Access Chief Executive Officer Jon Eddy Abdullah said last week that the company, controlled by Norway’s Telenor ASA, complies with all Thai laws and regulations. Thai investors hold 51 percent of Total Access, the Bangkok Post reported last week, citing the government’s Department of Business Development.

Bair Says Resolutions Panel Has Wide Range of Expertise

Federal Deposit Insurance Corp. Chairman Sheila Bair and members of the agency’s Advisory Panel on Systemic Resolutions met in Washington yesterday to map strategy to deal with too- big-to-fail firms in the event of a collapse.

Former Federal Reserve Chairman Paul Volcker and former Citigroup Inc. co-Chairman John Reed are serving on the panel along with executives including BlackRock Inc. fixed-income chief Peter Fisher and Standard & Poor’s President Deven Sharma.

For the video, click here.

EPA Extends Comment Time on Mercury and Air Toxics Proposal

The Environmental Protection Agency said it will extend the public comment period for a proposed mercury and air toxics rule, responding to calls from lawmakers to give companies more time to weigh in on the standards.

The EPA will extend the comment timeline by 30 days, according to a statement yesterday. The November deadline for issuing final standards will remain the same.

The extension gives utilities, manufacturers, environmental groups and other interested parties 120 days to comment, double the current schedule.

Interviews/Speeches

Amar Bhide Says Bank Capital Cushions Are ‘Irrelevant’

Amar Bhide, a professor at Tufts University, talks about Basel III bank capital requirements and the Dodd-Frank financial regulation overhaul.

Bhide described the capital adequacy issue as a “fake debate” because “nobody knows what the risk-weighted assets are,” and capital cushions are therefore irrelevant. Amar, who concluded that the regulations didn’t go far enough, spoke with Erik Schatzker on Bloomberg Television’s “InsideTrack.”

For the video, click here.

Insurers Need Global Capital Standards, OSFI’s Dickson Says

Insurance regulators must settle on global capital and accounting standards to enhance risk management, said Julie Dickson, Canada’s financial services regulator.

Dickson, superintendent of the Office of the Superintendent of Financial Institutions, made the remarks during a speech yesterday at the International Insurance Society conference in Toronto.

In the aftermath of the financial crisis, the International Association of Insurance Supervisors hasn’t made as much progress as the Basel Committee on Banking Supervision on “international harmonization” in the banking industry, said Dickson, 53.

Swartz Says Groupon’s Pre-IPO Jokes Not a Good Idea

Matthew Swartz, partner at Pillsbury Winthrop Shaw Pittman LLP, talked about Groupon Inc.’s actions during its pre-initial public offering quiet period.

Swartz, who spoke with Emily Chang and Cory Johnson on Bloomberg Television’s “Bloomberg West,” discussed Groupon’s use of the “talking cat” and the law in general regarding the “quiet period” after announcement of a public offering.

For the video, click here.

Obama Nominee Bryson Sides With Republicans on Taxes, Rules

John Bryson, President Barack Obama’s nominee for Commerce secretary, sided with Republicans in Congress, saying companies need lower taxes and that a labor complaint against Boeing Co. was “not sound.”

Bryson, facing questions from lawmakers who said Obama has produced costly regulations and failed to spur job growth, said yesterday he would push as Commerce secretary to curb rules burdening companies, cut taxes and spur trade.

“I‘m committed to helping simplify regulations that are difficult to understand, eliminate regulations that are ineffective and speed up regulatory decisions so American businesses can have the certainty they need,’’ Bryson testified to the Senate Commerce, Science and Transportation Committee.

Bryson, 67, is a founder of the Natural Resources Defense Council, an environmental group, and former chief executive officer of Edison International, the owner of California’s largest utility. Senators read a letter of support for Bryson from the Business Roundtable, which represents CEOs of companies such as Boeing. While Republicans questioned Obama’s policies, none said they would oppose Bryson’s nomination because of concerns over his willingness to stand up to Obama’s ‘‘anti- business administration.”

For more, click here.

--With assistance from Suttinee Yuvejwattana in Bangkok; Silla Brush, Jesse Hamilton, Gregory Mott, Mark Drajem and Kim Chipman in Washington; Ben Moshinsky and Mathew Carr in London; Hugh Son, Donal Griffin, Michael J. Moore and Nina Mehta in New York; and Sean B. Pasternak in Toronto. Editor: Glenn Holdcraft

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.


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