Bloomberg News

Facebook Privacy, Raymond James-Finra, Furukawa: Compliance

September 30, 2011

(Updates with SEC sub-account controls and Ecuador in Compliance Policy; Chaoda Modern, GDF Suez and Direct Edge in Compliance Action; and Maijoor in Interviews.)

Sept. 30 (Bloomberg) -- Ten public-interest groups asked the U.S. Federal Trade Commission to investigate Facebook Inc.’s tracking of Internet users after they log off the world’s most popular social-networking service.

The Electronic Privacy Information Center and nine other groups, in a letter filed with the FTC yesterday, also urged the agency to examine whether Facebook’s new Ticker and Timeline features boost privacy risks for users by combining biographical information in an easily accessible format.

“We would like the FTC to investigate the extent to which Facebook’s recent changes and its secret tracking of users after they have logged out constitute unfair or deceptive business practice,” said David Jacobs, consumer protection fellow for EPIC, in a telephone interview.

Facebook, based in Palo Alto, California, is adding features to entice users to spend more time on the site and avoid losing them to Apple Inc. and Google Inc., which also offer video and music services. Last week, Facebook Chief Executive Officer Mark Zuckerberg unveiled new ways for members to use the social network to share music, movies, television shows, news and activities such as cooking and exercising.

The letter to the FTC references a Sept. 25 blog posting by Australian blogger Nik Cubrilovic, who wrote that Facebook placed so-called “cookies” on users’ browsers that tracked their Internet activity even after they logged out of Facebook. Although Facebook moved to resolve the issue, “it’s unclear how complete the fix is,” Jacobs said.

“There was no security or privacy breach,” Andrew Noyes, a Facebook spokesman, said in an e-mail. “Facebook did not store or use any information it should not have.”

Claudia Bourne Farrell, a FTC spokeswoman, confirmed that the agency received the letter. She declined to comment further.

For more, click here.

SEC Urges Brokers to Bolster Controls Over Market Access

The U.S. Securities and Exchange Commission is urging brokers to tighten controls over accounts used to give clients direct access to markets, saying the so-called sub-accounts can be used to hide wrongdoing.

Carlo di Florio, director of the SEC’s Office of Compliance Inspections and Examinations, said yesterday in a Risk Alert issued by agency staff that while master/sub-account arrangements have legitimate business purposes, some customers may use them as vehicles for illegal activity or in an attempt to avoid or minimize regulatory obligations and oversight.

The alert offers suggestions for brokers on compliance with the market access rule approved by commissioners in November. The rule, which went into effect in July, directed firms to implement controls to limit risks associated with trading by their customers. It also ended unsupervised trading, or “naked access” to markets.

Because master accounts are often subdivided, brokers must take steps such as verifying user identities, monitoring trading patterns and tracking hacking attempts to protect against crimes including money laundering and insider trading, the SEC said in the alert.

For more, click here.

Ecuador’s Congress Approves Proposed Anti-Monopoly Law

Ecuador’s congress yesterday approved a new anti-monopoly law granting the president increased powers to regulate market concentration and fine companies for unfair business practices.

The law was approved with 67 votes, according to a statement published in the president’s official gazette.

Compliance Action

Raymond James to Pay $2 Million Over Finra Unfair Charge Claim

Raymond James Financial Inc. will pay more than $2 million to resolve Financial Industry Regulatory Authority claims that more than 15,500 brokerage clients were charged excessive commissions on securities trades.

Two units of St. Petersburg, Florida-based Raymond James used automated commission schedules from 2006 to 2010 that led to investors being overcharged by $1.69 million for trades of mostly low-priced securities, Finra said yesterday in a statement. The firm didn’t properly weigh security type and transaction size in evaluating whether charges were appropriate, Finra said.

Raymond James, which agreed to resolve the claims without admitting or denying wrongdoing, will return the $1.69 million in overcharges and pay $425,000 in fines, Finra said.

“We are pleased to have resolved this matter with Finra,” Steve Hollister, a spokesman for Raymond James, said in an e- mailed statement. The company revised the automated commission schedule on July 1 of this year after being notified of Finra’s findings, he said.

The affected trades represent less than 0.1 percent of total equity trades executed by Raymond James during that time, and the average impact per affected account was about $110, Hollister said.

CBOE to Buy National Stock Exchange, Getting Second Market

CBOE Stock Exchange, the equity market owned by the biggest U.S. options platform and a group of brokers, agreed to buy National Stock Exchange Inc. for an undisclosed price.

National Stock Exchange, or NSX, will remain a separate market from CBOE Stock Exchange, or CBSX, which is owned by Chicago-based CBOE Holdings Inc. and companies including Cowen Group Inc., Susquehanna International Group LLP and Interactive Brokers Group Inc., according to a statement.

U.S. exchange operators have acquired rivals in the past six years, maintaining them as separate markets to offer pricing plans and incentives to attract different kinds of traders.

The deal, which must be approved by the U.S. Securities and Exchange Commission, is expected to be completed this year.

Chaoda Says Chairman Kwok Disputes Tribunal Allegations

Chaoda Modern Agriculture (Holdings) Ltd., a Chinese vegetable supplier, said Chairman Kwok Ho and Chief Financial Officer Andy Chan dispute insider-trading allegations made by Hong Kong’s market misconduct tribunal.

The allegations aren’t made against the company, Chaoda Modern said in a statement to the Hong Kong stock exchange today. Kwok and Chan “do not accept” the allegations, it said.

Kwok, Chan and Fidelity Management’s George Stairs were accused by Hong Kong’s financial secretary of insider trading, according to a notice released by the tribunal on Sept. 28.

Chaoda Modern said it doesn’t expect the proceeding to have any material effect on the operations or financial position of the company or its units.

The financial secretary alleges the chairman and CFO told Stairs about a June 2009 share placement three days before it was publicly announced, and the fund manager traded profitably as a result, according to the tribunal’s Sept. 28 notice. A further tribunal hearing is scheduled for Jan. 30.

Chaoda’s shares were suspended from trading on Sept. 26 after the misconduct proceedings were first reported. They will remain suspended until the company issues a statement to address a report by Anonymous Analytics, it said. The report questions Chaoda’s accounts.

French Energy Regulator Rejects Government Gas Price Freeze

A French government freeze on natural-gas rates for households is “not compatible” with an open market and means GDF Suez SA won’t be able to cover its supply costs, according to the country’s energy regulator.

State-regulated prices for households from Oct. 1 are “insufficient” to meet the costs of natural gas, according to a ruling by the Commission de Regulation de l’Energie, published today in the official government journal.

The rates should have been raised by 8.8 percent and 10 percent depending on the type of consumer, the regulator said.

The government announced last week that regulated gas prices will be unchanged for households and rise 4.9 percent for businesses starting tomorrow.

A group of suppliers that compete with GDF Suez filed an appeal with France’s highest court, saying the decision will hinder competition. The government in April froze rates for a year.

Direct Edge to Allow Brokers to Register as Market Makers

Brokers will be able to register as market makers on two stock exchanges operated by Direct Edge Holdings LLC around mid- October, according to the company.

They can begin functioning as market makers on EDGA Exchange and EDGX Exchange in November or December, Direct Edge said in a notice. Direct Edge hasn’t offered a market-maker program in the past. The Securities and Exchange Commission must approve the request to institute a program for market makers before it goes into effect.

Courts

Furukawa Electric to Pay $200 Million Fine for Price-Fixing

Furukawa Electric Co. agreed to plead guilty and pay a $200 million fine for a price-fixing and bid-rigging conspiracy involving the sale of parts to carmakers.

Three executives, Junichi Funo, Hirotsugu Nagata and Tetsuya Ukai, also agreed to plead guilty and to serve prison time in the U.S. ranging from a year and a day to 18 months, the Justice Department said in a statement yesterday.

The charges are the first stemming from a continuing U.S. antitrust probe of the auto-parts industry, according to the Justice Department. Tokyo-based Furukawa and the three executives agreed to help the department in the investigation, the statement said.

David Noble, administration manager for Plymouth, Michigan- based American Furukawa Inc., the company’s U.S. unit, declined to comment yesterday and said the company will issue a statement today.

The company was part of the conspiracy from January 2000 through at least January of last year, according to the department. The three executives, who are Japanese citizens, participated in the scheme from April 2003 through July 2009, the U.S. said. The scheme partly involved the Detroit area.

The plea agreements require approval by a judge.

Total Wins, Arkema Loses Court Bid on Chemicals Cartel Fine

Total SA’s Elf Aquitaine unit won a bid at the European Union’s top court to overturn its share of antitrust fines levied against it together with former Total subsidiary Arkema SA for fixing prices of a chemical used in detergents.

The European Commission “had not given sufficiently reasoned answers to several of the arguments put forward by Elf Aquitaine in order to establish that Arkema determined its conduct on the market independently,” the EU Court of Justice ruled yesterday. The Luxembourg-based court rejected a separate appeal by Arkema against its part of the fine.

The companies had challenged the way in which the commission calculated part of the 216.9 million-euro ($296 million) penalty against manufacturers, including Akzo Nobel NV and Sanofi-Aventis SA’s Hoechst unit, for rigging prices of monochloroacetic acid. The case is the first in which a commission fine was challenged over the failure to show the parent company knew about antitrust violations.

The commission said in 2005 the companies conspired for 15 years to control more than 90 percent of the European market worth as much as 125 million euros annually. Monochloroacetic acid is also used to make adhesives and drugs and to thicken cosmetics.

The cases are: C-520/09 P, Arkema v. Commission; C-521/09 P, Elf Aquitaine v. Commission.

Interviews/Speeches

Gordon Says Clear Policy Needed to Raise U.S. Confidence

Author and economic historian John Steele Gordon talked about confidence among Americans and the U.S. political environment, and discussed the role of financial regulation.

Steele spoke with Tom Keene on Bloomberg Television’s “Surveillance Midday.”

For the video, click here.

Rosengren Backs More Rules for Banks Based Outside U.S.

Federal Reserve Bank of Boston President Eric Rosengren spoke about banking regulation and the need for banks based outside the U.S. to reduce their dependency on short-term funding.

He spoke in Stockholm at the Global Interdependence Center’s Conference on Capital Markets in the Post Crisis Environment. David Kotok, chief investment officer at Cumberland Advisors Inc., also spoke at the conference.

For the audio, click here.

European Watchdog Says Short-Selling Ban Exceptional, Will End

Short-selling bans in Europe will be lifted when markets “return to normal,” said Steven Maijoor, chairman of the European Securities and Markets Authority.

Italy and Spain yesterday extended temporary bans on short selling of financial shares that were introduced last month to stem market volatility. The Spanish ban will remain “until the market conditions allow it” to be lifted, according to the country’s financial regulator. Italy’s restriction, and another enacted by France in August, will both last until Nov. 11. Paris-based ESMA coordinates the work of national regulators in the 27-nation European Union.

“ESMA is together with these relevant countries reviewing the measure,” Maijoor told journalists in Vienna on Sept. 28. “It’s considered to be a measure which needs to apply in special cases,” he added. “I would expect that once the market returns to normal, they will lift the ban.”

The Bloomberg Europe Banks and Financial Services Index has fallen 10 percent since the ban took effect on Aug. 12.

Bank Regulators Should Be ‘More Radical,’ FSA’s Turner Says

Regulators may need to use unconventional policy tools to ensure banks don’t cause another credit boom and financial crisis, a top U.K banking regulator said yesterday.

Adair Turner, chairman of Britain’s Financial Services Authority, said in a speech to students that supervisors “may need to be still more radical” in regulating banks’ trading of complex financial products. He also called for minimum ratios for measuring risk, known as risk weights, to be applied globally as part of the Basel Committee on Banking Supervision’s rules on bank reserves.

“We need to challenge the idea that financial innovation is axiomatically beneficial in a social as well as private opportunity sense,” Turner said. “Much of it focuses on the zero-sum activity of tax avoidance.”

European policy makers have released a series of rules regulating banks’ trading of derivatives, short-selling and bonuses in the wake of the 2008 financial crisis.

European Watchdog’s Chairman Says Complex ETFs ‘a Concern’

European regulators are concerned retail investors are buying more complex exchange-traded funds in search of higher returns, said Steven Maijoor, chairman of the European Securities and Markets Authority.

There is demand by consumers looking for higher returns and “there are all kinds of structured products that are a response to this demand,” Maijoor told journalists in Vienna on Sept. 28. “We can see that more and more complex products end up in the hands of retail investors,” he added. “That’s a concern for us.”

ETFs are exchange-listed products that mirror indexes, commodities, bonds and currencies and allow investors to buy and sell them like stocks. They became more popular in the aftermath of the 2008 sell-off that wiped $37 trillion from global equity markets because they carry lower fees than other funds, require lower initial investment than futures, can be traded throughout the day and cover most indexes.

Maijoor said new ETF varieties were more complex than the straightforward traditional versions and the risks they entailed for investors and financial stability needed to be analyzed.

Comings and Goings

Prodi Backs Saccomanni to Be New Bank of Italy Governor

Fabrizio Saccomanni may be the best successor to Mario Draghi as Bank of Italy governor, former European Commission President Romano Prodi said.

Bank of Italy Director General “Saccomanni could be the best candidate,” Prodi, who twice served as Italian premier, said yesterday in an interview in Bologna, Italy.

Prime Minister Silvio Berlusconi’s allies publicly clashed Sept. 28 over the appointment, a month before governor Draghi leaves to become president of the European Central Bank. Prodi spoke to Bloomberg’s Flavia Rotondi in Bologna.

For the video, click here.

--With assistance from Stephanie Bodoni in Luxembourg; Boris Groendahl in Vienna; Jesse Hamilton, Jeff Bliss, Sara Forden and Joshua Gallu in Washington; Nina Mehta in New York; Boris Groendahl in Vienna; Michelle Yun in Hong Kong; Simon Kennedy in Winchester, England; Tara Patel in Paris; Nathan Gill in Quito; and Ben Moshinsky in London. Editor: Stephen Farr

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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