Bloomberg News

Bats Options, CBI, Note-Printing Bribery, OCC: Compliance

July 05, 2011

(Updates with Deutsche Boerse, Basel III in Compliance Policy; French bank networks in Compliance Action; and ex-ICBC (Asia) executive guilty plea in Courts.)

July 5 (Bloomberg) -- Regulators approved a program proposed by Bats Global Markets over the objections of CBOE Holdings Inc. and other exchanges that allows market-makers operating on Bats to give certain brokers better options prices.

The U.S. Securities and Exchange Commission said it will allow Bats Exchange Options Market to introduce a so-called directed-order program. The plan was criticized by the Chicago Board Options Exchange, Nasdaq OMX Group Inc., NYSE Euronext, International Securities Exchange and BOX Options Exchange. The SEC’s approval order was published July 1.

Bats first proposed a directed-order program in December. The Lenexa, Kansas-based company withdrew that after exchanges objected and suggested a different version of the plan in March. The program will be run on a six-month pilot basis that ends on Jan. 30, 2012, the SEC said.

Bats will provide data so people can evaluate the program, said Randy Williams, a Bats spokesman. The exchange will also submit monthly reports about the program to the SEC.

The Bats exchange had 4.1 percent of options volume last month, according to data compiled by Chicago-based OCC, which clears all equity derivatives contracts in the U.S. The largest individual market is the CBOE, with 25.4 percent. The Bats program allows market makers to send the exchange two prices on options contracts. One would be displayed publicly while the other, assuming the first price is quoting at the national best bid or offer, would improve that price and be hidden.

Nasdaq OMX and NYSE Euronext complained in letters to the SEC in June that the Bats programs is “discriminatory” and will have “a significant and damaging impact on the options industry as a whole.”

For more, click here.

Compliance Policy

CBI Says U.K. Proposals for Bank Firewalls May Hurt Competition

The Confederation of British Industry said plans to erect firebreaks around the consumer-banking units of lenders to protect taxpayers and depositors during financial crises may hurt competition and damage economic growth.

The CBI, Britain’s biggest business lobby, said recommendations drawn up by the Independent Commission on Banking must take into account each bank’s funding models and that a “one-size-fits-all solution” would force banks to follow the same business model, stifling innovation, reducing competition and increasing costs.

John Vickers, a former Bank of England chief economist, was asked by the government last year to recommend ways to boost stability and competition in the British banking industry. The Treasury spent 65.8 billion pounds ($108 billion) rescuing Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc during the financial crisis.

House Democrats Urge OCC to Seek More Comment on Preemption Rule

U.S. House Democrats are asking the regulator overseeing national banks to seek additional comment on rules governing when state consumer-protection laws can be trumped by federal powers amid criticism of an initial proposal.

Five members of the House Financial Services Committee, led by Representative Barney Frank of Massachusetts, made the request in a letter to Acting Comptroller of the Currency John Walsh after the U.S. Treasury Department said the OCC’s plan ignored the will of Congress expressed in the Dodd-Frank Act.

The letter said the original 30 day comment period was “insufficient to foster a meaningful and balanced exchange of views between the OCC and other interested parties.” The lawmakers urged Walsh to extend the comment period by at least 60 days. The OCC had no immediate comment on the letter.

Congress directed the OCC to propose new rules after state officials said federal regulators used preemption to let banks escape tougher oversight before the 2008 credit crisis.

The Conference of State Bank Supervisors, which sought a 60-day extension of the comment period in a letter this week, has said that Dodd-Frank granted them new power over national banks for consumer protection laws.

The OCC said in its proposal that preemption remains largely intact, and that the agency would make decisions in consultation with the new Consumer Financial Protection Bureau

EU’s Deutsche Boerse Questionnaire Focuses on Derivatives

Deutsche Boerse AG rivals and customers were asked by European Union regulators whether its $9.57 billion bid for NYSE Euronext would reduce competition for derivatives and equity trading and clearing.

The European Commission, in a survey with more than 165 questions obtained by Bloomberg News, asked what effect the deal to create the largest owner of equities and derivatives markets would have on access to market data. They also asked whether CME Group Inc., the world’s largest future exchange, may become “a significant player” in trading or clearing European derivatives.

Deutsche Boerse’s offer for NYSE Euronext would put more than 90 percent of the region’s exchange-traded derivatives market and about 30 percent of European stock trading in the hands of one organization.

Amelia Torres, a spokeswoman for the European Commission in Brussels, said the questionnaire was “part of the usual procedure for investigating mergers.” Frank Herkenhoff, a spokesman for Deutsche Boerse in Frankfurt, and James Dunseath, a spokesman for NYSE Euronext in London, both declined to comment.

The EU’s antitrust agency last week set an initial deadline of Aug. 4 to rule on the deal. Joaquin Almunia, the EU’s competition chief, said in March that he expects to open an in- depth review of the “complex deal” after the initial monthlong probe.

The questionnaire was sent out last week with a deadline to reply by July 7, a “pretty difficult” limit that may see companies seek more time, said Matthew Hall, a Brussels-based partner at McGuire Woods LLP.

For more, click here.

Basel Group Publishes Clarification on Capital, Liquidity Rules

The Basel Committee on Banking Supervision said it published guidance for banks and regulators on the implementation of international rules on capital and liquidity, known as Basel III.

The guidance published today concerns “the definition of capital and the liquidity sections of the Basel III framework,” it said in a statement on its website.

Compliance Action

Australian Central Bank Currency Firms Charged With Bribery

The Australian central bank’s note-printing units and six people including former managers have been charged with bribing officials in Malaysia, Indonesia and Vietnam to win currency contracts.

Securency International Pty and Note Printing Australia Ltd. were charged over alleged payments to foreign public officials between 1999 and 2005, the Australian Federal Police said in a statement on its website. The Reserve Bank of Australia, which owns NPA and 50 percent of Securency, said in a statement it condemns corrupt behavior of any kind and no one at the bank has been accused of wrongdoing.

The July 1 arrests are the first under Australia’s decade- old foreign bribery laws and coincided with related bribery charges against two individuals in Malaysia by that nation’s Attorney-General’s Chambers following an investigation by the country’s anti-corruption commission, the AFP said. The RBA said in November last year that it will sell its stake in Securency.

Australian Assistant Treasurer Bill Shorten and Reserve Bank Governor Glenn Stevens, who spoke after the announcement, expressed confidence in the bank and condemned corrupt or questionable behavior related to it.

The six men appeared in a Melbourne magistrate’s court July 1. The charges carry a maximum penalty of 10 years in jail and/or a fine of A$1.1 million ($1.2 million), AFP’s statement said.

For more, click here.

U.K. Fraud Office Says It’s Not Probing Banks in U.S. Fund Case

The U.K. Serious Fraud Office said it isn’t looking into specific banks on behalf of a U.S. investigation into sovereign wealth funds.

SFO Director Richard Alderman issued a statement July 1 saying that he “indicated that should the SFO be asked we would assist our U.S. colleagues in any way we could.” The comments contradict earlier reports that the SFO was already assisting the U.S. authorities.

The U.S. Securities and Exchange Commission is examining whether transactions with Libya’s sovereign fund may have violated bribery laws, the Wall Street Journal reported last month, citing people it didn’t identify. SEC officials are reviewing documents including those related to a $50 million fee Goldman Sachs Group Inc. agreed to pay the Libyan fund to help recoup losses, the newspaper said. The payment was never made, it said. HSBC Holdings Plc and Goldman Sachs are among banks that held funds for the Muammar Qaddafi-controlled Libyan sovereign wealth fund, London-based advocacy group Global Witness said earlier this year.

In an interview on June 28, Alderman said that the agency was “talking to the Americans about various issues.”

When asked about whether HSBC would be a focus for the SFO, Alderman replied, “Yes, that’s the thought.”

Reports that the SFO are looking at specific banks is “incorrect,” the agency said in the statement July 1. “We work closely with a range of U.S. authorities, the Department of Justice and the Securities and Exchange Commission in particular and with whom we regularly discuss matters of mutual interest. The director did not confirm any investigation into specific companies.”

HSBC spokesman Jezz Farr declined to comment. French Bank Networks Settle Pay-Systems Probe, Agency Says

French bank networks are concluding a settlement of a probe into commissions on alternative payment systems such as bank cards, according to the country’s competition regulator, which said it would provide more details of the deal later this week.

The investigation into fees charged for processing the payments was split from an inquiry into electronic check- processing fees concluded in September 2010, which resulted in a 384.9 million euros ($559 million) fine against 11 banks. That fine encouraged the targets of the second probe to negotiate a settlement, Bruno Lasserre, the President of the Competition Authority, said yesterday in Paris.

Lasserre declined to give details on the targets of the inquiry or the terms of the settlement.

The agreement is still pending, according to an agency spokesman who declined to be named citing official policy.

The check-processing fine was the year’s highest, the antitrust regulator said July 3 in its annual report.

The regulator also announced two sector inquiries yesterday focused on electronic commerce and automobile repair and parts.

Courts

Discover Says FDIC Reviews Marketing of Fee-Based Products

Discover Financial Services, the credit-card issuer and payments network, said the Federal Deposit Insurance Corp. is reviewing its marketing of fee-based products in connection with a Minnesota lawsuit.

The FDIC examination includes the company’s “payment- protection fee product, which could lead to an enforcement action,” the Riverwoods, Illinois-based firm said in a U.S. Securities and Exchange Commission filing July 1. Discover, the fourth-biggest U.S. payments network, didn’t specify what aspect of its fee-based products the FDIC is reviewing.

“We are engaged in constructive dialogue with the FDIC,” Leslie Sutton, a spokeswoman for the company, said in an e- mailed statement. She added that the company is committed to providing quality services and marketing them “transparently.”

In June, Discover agreed to a preliminary settlement of eight class-action cases challenging its marketing practices of fee-based products, according to the filing. The settlement requires judicial approval, the filing said.

Minnesota Attorney General Lori Swanson filed a lawsuit in December 2010 against Discover Bank and Discover Financial, claiming that Discover Bank telemarketers failed to tell consumers when they were agreeing to purchase optional, fee- based services, including payment protection. The FDIC review is related to the lawsuit, Sutton said in her e-mail without elaborating.

Discover will “vigorously defend all claims asserted against it,” according to the July 1 filing. The company made more than $105 million on its fee-based services in the three months ended May 31, the filing said.

The Minnesota attorney general’s office didn’t immediately return requests for comment.

Former ICBC (Asia) Executive Chan Pleads Guilty in Bribery Case

Industrial & Commercial Bank of China (Asia) Ltd.’s former head of corporate banking Derick Chan Po-fui pleaded guilty to accepting bribes, according to Hong Kong’s Independent Commission Against Corruption.

Chan pleaded guilty to accepting HK$1 million ($128,000) and HK$2.3 million from Zeng Wei, a shareholder and director of property developer United Win Holdings Ltd., the ICAC said in a statement posted on its website July 3.

Chan, who will be sentenced July 20, took the money in exchange for delaying the due dates for repayment of loans, the ICAC said. ICBC (Asia) is a unit of Industrial & Commercial Bank of China Ltd., the world’s largest lender by market value.

Hilda Chow, a Hong Kong-based spokeswoman for ICBC (Asia), declined to comment July 4. No phone number was available for United Win.

Zeng, 48, had an arrest warrant issued against him after he failed to appear in court for the trial July 3, according to the ICAC statement. Zeng has been charged with giving a bribe, the ICAC said.

Interviews/Speeches

FDIC’s Bair Urges ‘Long-Term Perspective’ on Regulation

Federal Deposit Insurance Corp. Chairman Sheila Bair spoke about the need for regulators to be given the money and power to implement the Dodd-Frank Act.

Bair, who testified before the Senate Banking Committee, also discussed the state of the U.S. banking industry, the so- called Basel III rules and negotiations between lawmakers over raising the federal debt ceiling.

For the video, click here.

--With assistance from Lindsey Rupp and Nina Mehta in New York; Michael Heath and Jacob Greber in Sydney; Nandini Sukumar, Lindsay Fortado and Gonzalo Vina in London; Andrea Tan in Sigapore; Aoife White and Jim Brunsden in Brussels; Heather Smith in Paris; and Cheyenne Hopkins in Washington. 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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