Bloomberg News

Trading Halts, Position Limits, India Retailers: Compliance

September 28, 2011

(Updates with Basel surcharge and EU transactions tax in Compliance Policy, U.K. banking complaints in Compliance Action and Brockmeyer in Comings and Goings.)

Sept. 28 (Bloomberg) -- The U.S. Securities and Exchange Commission began an overhaul of rules adopted after the Crash of 1987 designed to shut down the stock market during periods of volatility, proposing that curbs be triggered when the Standard & Poor’s 500 Index falls 7 percent.

The changes would switch the index used for the circuit breakers to the S&P 500 from the Dow Jones Industrial Average, according to proposals submitted by U.S. equities exchanges and the Financial Industry Regulatory Authority. The duration of the halts, which also pause trading in stock futures, would be shortened, according to a summary of the proposals from the SEC.

S&P 500 declines of 7 percent, 13 percent and 20 percent from the prior day’s close would set off halts across all markets, narrowing the current thresholds of 10 percent, 20 percent and 30 percent, according to the SEC.

The agency will review comments on how the suggested changes to the marketwide curbs will work with another proposal by the exchanges and Finra to alter circuit breakers for individual securities instituted after the May 6, 2010, plunge that briefly erased $862 billion in equity value, she said.

Comments may be submitted to the SEC for 21 days once the rule proposals are published in the Federal Register. The SEC must approve the rules for them to go into effect.

For more, click here.

Compliance Policy

CFTC Delays Speculative Trading Curb Vote to Oct. 18 Meeting

The U.S. Commodity Futures Trading Commission delayed consideration of Dodd-Frank Act rules seeking to limit speculation in oil, natural gas and other commodities until an Oct. 18 Washington meeting, said Steve Adamske, CFTC spokesman.

The so-called position-limits rule, which already was delayed once, had been on the schedule for consideration at a meeting Oct. 4. The rule has been among the most contentious aspects of Dodd-Frank, the financial-overhaul enacted in July 2010, and has spurred more than 13,000 letters to the CFTC.

The commodities agency has canceled the Oct. 4 meeting and also delayed consideration of rules governing clearinghouses that stand between buyers and sellers of derivatives, Adamske said.

The CFTC and Securities and Exchange Commission are leading U.S. efforts to write new derivatives regulations after largely unregulated trades helped fuel the 2008 credit crisis. The agency has proposed more than 40 rules and has begun to hold final votes on regulations. The agency has missed Dodd-Frank’s mid-July deadline to complete most rules, and Gary Gensler, CFTC chairman, said some rules will be finished in the first quarter of 2012.

Reliance Sees India Open to Foreign Retailers Within 12 Months

Reliance Retail Ltd., a unit of India’s most valuable company, expects foreign multibrand retailers such as Wal-Mart Stores Inc. may be allowed to enter the country in as soon as six months from now, Chief Executive Officer Bijou Kurien said.

India’s current laws, aimed at protecting owners of smaller shops, have restricted foreign companies to operating single- brand outlets or wholesale stores. The CEO said the retail market will grow to $800 billion in five to 10 years and is big enough for the unit of Reliance Industries Ltd. to compete against possible rivals such as Wal-Mart, Tesco Plc and Carrefour SA.

A state panel made recommendations for opening the market in August, including that foreign retailers should invest at least $100 million to start stores.

Reliance Retail, with 22 formats including a new wholesale store, has about 20 percent of the “organized retail” space, placing it behind India’s Future Group, Kurien said.

Juncker Rules Out Increasing Resources Available to EFSF Fund

Luxembourg’s Jean-Claude Juncker ruled out an increase in the 440 billion-euro ($600 billion) European Financial Stability Facility as a way to help stem the debt crisis, saying attention is focused on using the rescue fund as effectively as possible.

Euro-region leaders agreed in July to expand the EFSF’s role by allowing the fund to buy sovereign bonds on the secondary market, grant aid to banks and offer credit lines to distressed euro-area governments. The EFSF currently sells bonds to finance rescue loans.

“We will use the new instruments of the financial backstop as efficiently as possible,” Juncker said. He declined to answer a question about the prospects for leveraging the EFSF.

Transaction Tax Plans May Hurt Euro Area Economically, FT Says

Plans for a transaction tax on all types of financial instruments used by European investors, to be unveiled today by European Commission President Jose Manuel Barroso, could wipe out or displace as many as 90 percent of derivatives transactions and reduce the bloc’s long-term economic output by almost 1.8 percent, the Financial Times reported.

The paper cited the commission’s draft impact assessment of the planned tax.

Basel Committee Said to Keep Capital-Surcharge Plans for Banks

Global regulators may largely stick to planned capital surcharges of as much as 2.5 percent for the world’s biggest banks while adjusting how the levies are calculated, according to three people familiar with the talks.

The Basel Committee on Banking Supervision discussed yesterday how to respond to criticisms from banks including BNP Paribas SA and Citigroup Inc. that the measures are flawed and may stymie the financial system’s recovery, according to the people, who spoke on condition of anonymity because the talks are private.

Regulators at the meetings in Basel, Switzerland, said that some complaints made by lenders on the method for calculating the surcharges may be partly valid and require more study, two of the people said. Surcharges would be applied to as many as 28 banks if the current proposals were in place, the Basel committee has said.

The committee didn’t respond to calls seeking comment on yesterday’s meetings.

For more, click here.

Compliance Action

SEC Notice to S&P May Signal Enforcement Cases Against Raters

Four years after defaults on U.S. home loans began to soar, regulators may be crafting their first case against a credit- rating firm for deeming mortgage-backed securities safe investments for pension funds and endowments.

Standard & Poor’s, the world’s largest provider of credit ratings, could face claims by the Securities and Exchange Commission related to the top grade it gave in 2007 to a $1.6 billion collateralized debt obligation that was downgraded six months later, McGraw-Hill Cos., S&P’s parent company, said in a regulatory filing Sept. 26.

Credit-rating firms including S&P, Moody’s Corp. and Fitch Ratings Ltd. have come under fire from lawmakers and investors for failing to identify risks in the run-up to the financial crisis. While regulators have increased oversight of the firms and their processes for rating securities, they have yet to mete out sanctions.

For more, click here.

Gazprom, RWE Raided by EU Officials in Gas Antitrust Probe

OAO Gazprom, RWE AG and OMV AG are among natural-gas companies raided by European Union regulators checking on possible antitrust violations in central and eastern Europe.

Companies inspected may have broken antitrust rules or have information about behavior that excluded rivals by dividing markets, hindering access to networks, harming efforts to widen sources of supplies and overcharging, the European Commission said in an e-mailed statement yesterday.

Gazprom units in Germany and the Czech Republic were raided by European Union antitrust officials, the company said in an e- mailed statement yesterday. RWE, Germany’s second-biggest utility, is cooperating with the probe after its offices in Essen, Germany, and the Czech Republic were searched, spokesman Peter Hoscheidt said in a phone interview. OMV is also “cooperating fully” with EU officials in the probe after its Austrian offices were raided, spokesman Sven Pusswald said by e- mail.

Regulators are trying to make it easier for European gas and power companies without their own transmission networks to compete in the EU’s energy market. Yesterday’s investigation “focuses on the upstream supply level, where, unilaterally or through agreements, competition may be hampered or delayed,” the Brussels-based commission said. It didn’t name the companies it visited or the countries in which they are based.

Barclays Tops FSA Complaints List for U.K. Banking Customers

Barclays Plc, the U.K.’s second-largest bank by assets, received more consumer banking complaints than any other lender in the first half of 2011, according to data compiled by the U.K. Financial Services Authority.

Barclays received 162,611 banking complaints, resolving 95 percent of them within eight weeks, the FSA said. Santander U.K. Plc was second with 139,386 complaints, and Lloyds Banking Group Plc, Britain’s biggest mortgage lender, racked up the most insurance complaints with 111,897. The total number of consumer protests rose 3 percent.

London-based Barclays said that customer service is a priority for the bank and that it apologizes for mistakes, corrects them quickly and identifies how to prevent them from reoccurring.

The British Bankers’ Association, an industry group, lost a court challenge in April to the FSA’s payment protection insurance guidelines.

Eesti Gaas Confirms Visit From EU Officials in Gas Probe

AS Eesti Gaas, an Estonian gas company, was raided by European Union antitrust officials investigating the natural-gas market, Marge Randmaa, the company’s marketing manager said in a phone interview from Tallinn today.

Eesti Gaas fully cooperated with the investigation, Randmaa said, declining to give any further details.

Courts

RBC Agrees to Pay $30 Million for School District CDO Losses

RBC Capital Markets LLC agreed to pay $30 million to resolve U.S. regulators’ claims that it marketed and sold unsuitable securities to five Wisconsin school districts that wiped out $200 million.

RBC Capital, the investment-banking unit of Canada’s biggest lender, failed to explain the risks of notes tied to synthetic collateralized debt obligations, even though there were “significant concerns” within the bank about whether the investments were suitable for the school districts, the Securities and Exchange Commission said yesterday in a statement.

The RBC unit, which arranged the CDOs, is the second firm to face SEC sanctions over the sale of $200 million in derivative-linked debt to the school districts, which borrowed money to buy the investments and planned to use returns to cover health-care benefits for retiring employees.

The SEC sued brokerage Stifel, Nicolaus & Co. and one of its former bankers last month for selling the CDOs to the school districts. The government claimed school boards and managers lacked the experience and sophistication to invest in CDOs and appreciate their risk, the SEC said in its statement.

While RBC arranged the CDOs, it was Stifel that persuaded the school districts to invest in it, said Kevin Foster, a spokesman for RBC in New York. RBC had no “significant access” to the districts, met with them only once before being hired and didn’t know of the misrepresentations, he said.

When Stifel was sued in August, the St. Louis-based brokerage faulted RBC for the loss and said it would fight the SEC allegations.

Interviews/Speeches

SEC’s Walter Expects No Plan to Repeal Tower Disclosure Rule

U.S. Securities and Exchange Commissioner Elisse Walter said she doesn’t anticipate the agency will recommend repealing the Tower Amendment governing disclosure in municipal securities sales.

Walter, who spoke at a Securities Industry and Financial Markets Association conference in New York, said the SEC is in the process of drafting a report that will recommend ways to improve disclosure in the $2.9 trillion municipal bond market.

The 1975 Tower Amendment to federal securities regulation prohibits the SEC from requiring state and local issuers to file disclosure documents with the agency when they sell debt. The responsibility lies with underwriters.

Jefferies’s Owen Says Greece Default Is ‘Very Likely’

David Owen, chief European economist at Jefferies International Ltd., talked about the Greek debt crisis and commented on the likelihood of default and how to stem “contagion.”

He spoke with Andrea Catherwood on Bloomberg Television’s “Last Word.”

For the video, click here.

Comings and Goings

SEC Names Brockmeyer Head of Anti-Bribery Enforcement Unit

The U.S. Securities and Exchange Commission named Kara Brockmeyer, an 11-year veteran of the agency, to lead a unit responsible for enforcing anti-bribery laws.

Brockmeyer, 44, spearheaded probes of Halliburton Co., KBR Inc. and Technip SA as part of a decades-long bribery scheme in Nigeria that resulted in a $1.2 billion settlement of civil and criminal claims, the SEC said yesterday in a statement.

Her unit, which looks for violations of the Foreign Corrupt Practices Act, was set up in 2010 as part of an overhaul of the enforcement division. She will replace Cheryl Scarboro, who left the SEC in June to join law firm Simpson Thacher & Bartlett LLP.

Brockmeyer, who joined the agency in 2000, has served as co-head of a group focused on U.S. companies that have a substantial amount of their operations overseas.

--With assistance from Jonathan Stearns in Strasbourg, France; Joshua Gallu, William Selway and Silla Brush in Washington; James Sterngold, Nina Mehta, Zeke Faux and Martin Z. Braun in New York; Aoife White in Brussels; Ott Ummelas in Tallinn; Jim Brunsden in Basel and Ben Moshinsky, Sarah Shannon and Blanche Gatt in London. Editor: Andrew Dunn

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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