Bloomberg News

UBS Immunity, RBS Ad Ban, Pentagon Capital: Compliance

February 17, 2012

(Updates with Barnier-Volcker rule comments in Compliance Policy; NYSE Liffe delivery limits, China Sky Chemical, Spain short-selling ban in Compliance Action.)

Feb. 16 (Bloomberg) -- UBS AG, Switzerland’s biggest bank, sought immunity from prosecution by Canadian regulators probing a potential conspiracy to rig the price of derivatives worldwide, three people with knowledge of the inquiry said.

The lender is the cooperating party referred to by Canada’s Competition Bureau in court papers filed by the regulator with the Ontario Superior Court in May, said the people, who declined to be identified, because the identity of the firm hasn’t been made public.

The papers, shown yesterday to Bloomberg News by court clerks, show a bank told the regulator that traders and cash brokers conspired to influence the yen London interbank offered rate from 2007 to 2010 to profit on interest-rate derivatives linked to the benchmark. Regulators worldwide are investigating whether banks attempted to manipulate the London, Tokyo and euro interbank offered rates, known as Libor, Tibor and Euribor.

UBS has already been given conditional immunity by the Swiss Competition Commission as part of an investigation into suspected manipulation of the Yen Libor, Tibor and Swiss franc Libor rates. The Zurich-based lender was last year granted similar immunity by the U.S. Department of Justice as part of its probes of Yen Libor and Euroyen Tibor rates.

Dominik von Arx, a spokesman for UBS in London, declined to comment on the case. Alexa Keating, a spokeswoman for the Competition Bureau, declined to comment on the identity of the cooperating party.

Compliance Policy

Carbon Traders Group Urges Overhaul of EU Cap-and-Trade Plan

The European Union should change its carbon-trading plan by introducing a mechanism to allow changing the bloc’s pollution cap to reflect economic conditions, the International Emissions Trading Association said.

While the world’s biggest cap-and-trade program is working as intended, fragmented policies are undermining its price signal at the time when an economic slowdown weighs on the market, IETA said in a statement yesterday. The associations’ president Henry Derwent said in a phone interview that the group wants “a reexamination of a system which would essentially index the baseline and make this more like an indexed system.”

The Geneva-based group also called on the EU policy makers to provide a “credible” framework for long-term carbon targets.

Started in 2005, the EU cap-and-trade program is the cornerstone of the bloc’s carbon-reduction policy, imposing pollution limits on more than 11,000 manufacturers and utilities in the region. Those who discharge less carbon dioxide can sell their surplus allowances.

For more, click here.

Volcker Rule May Harm EU Banks, Barnier Warns Bernanke, Geithner

The European Union’s financial-services chief criticized parts of the U.S.’s proposed Volcker rule, warning that it would place a “disproportionate” burden on EU lenders and risk damaging markets.

Michel Barnier wrote to U.S. regulators including Federal Reserve Chairman Ben Bernanke and Treasury Secretary Timothy F. Geithner complaining that the measure as drafted would also hamper governments’ ability to sell sovereign debt, according to a copy of his letter obtained by Bloomberg News.

The measure may have “a number of unintended, non- justifiable consequences for non-U.S. banks, markets and institutions,” Barnier, the European commissioner responsible for drafting financial-services legislation, said in the letter dated Feb. 8.

The rule, named for former Fed Chairman Paul Volcker, would seek to ban banks from proprietary trading while allowing them to continue short-term trades for hedging or market-making. It also would limit banks’ investments in private-equity and hedge funds.

The U.S. proposal is one of the most contentious provisions of the Dodd-Frank Act. The draft has also been criticized by U.S. lenders. Barnier has said he will raise the Volcker rule when he travels to the U.S. for meetings with regulators on Feb. 23-24.

Compliance Action

RBS Ads Banned for ‘Misleading’ Claim on Being Last Bank in Town

Television advertising for Royal Bank of Scotland Group Plc saying the company and its NatWest brand would “continue to provide banking services wherever we’re the last bank in town” was banned by U.K. regulators.

A lawmaker and the Campaign for Community Banking Services complained that there was at least one place, Farsley in northern England, where NatWest closed the town’s last bank, the Advertising Standards Authority said in a statement on its website.

The “misleading” ad “would be interpreted by viewers to mean that NatWest would not close a branch where it was the last one in its immediate locality,” the regulator said.

RBS said that although the Farsley branch closed, bank services were still available at the NatWest in a nearby town, and that the company’s promise of keeping banking services available wasn’t a vow to keep branches open. Another closed branch in Bettyhill, northern Scotland, was later served by a mobile bank, RBS said in the statement.

RBS said in an e-mailed statement when asked about the ruling that it is proud to offer services in towns were other banks have closed and does so in 168 locations. “Our commitment is independently assessed by Deloitte. While we disagree with the ASA’s decision, we welcome their offer to work more closely with them in the future,” RBS said.

French Antitrust Agency Focuses on Credit Cards, Media in 2012

Payment methods, media concentration and online retailing are priorities for France’s competition regulator for 2012, with reports and decisions scheduled in each area this year.

The Competition Authority will continue efforts on payment methods, focusing now on fees associated with credit cards, automatic withdrawals and transfers, president Bruno Lasserre said yesterday in Paris. The regulator has not decided whether to pursue sanctions to achieve this, he said.

Banks challenged a 384.9 million euro-fine ($505 million) on check fees levied in 2010, and the Paris appeals court should rule soon on their bid to overturn the penalty, Lasserre said. Lenders cut interbank fees on bank cards by as much as 36 percent to settle a probe last year.

The Competition Authority will report in June on its review of the impact of online retailers on traditional store sales, and the role third parties like shipping companies and payment processors play in influencing Internet shoppers.

In March, the regulator will deliver interim findings in its investigation into the rising cost of automobile repair and maintenance.

Karachi Stock Exchange to Start Indexes for Regional Markets

Pakistan’s Karachi Stock Exchange, Asia’s cheapest equity market, will introduce local currency indexes for regional markets to help bolster trading volumes that have slumped after the introduction of a tax on shares.

Nadeem Naqvi, the exchange’s managing director, made the announcement at a news conference in Karachi yesterday.

The exchange, which reported an operating loss of 337 million rupees ($3.7 million) in the year ended June 30, needs to boost its income which comes through a levy on transactions. When Pakistan introduced a tax on capital gains on share purchases from July 1, 2010, the average daily volume slumped to 60 million shares last year from 108 million in 2010 and 169.14 million in 2009, data compiled by Bloomberg show.

Abdul Hafeez Shaikh, then finance minister, pledged last month to ease rules on the tax to make collection easier. Shaikh, who is currently is adviser to the prime minister on economic affairs, didn’t give details.

The exchange plans to double the investor base from 250,000 individuals in three years through awareness workshops and marketing to expatriate Pakistanis, Naqvi said.

NYSE Liffe Wants to Start Delivery Limits on London Commodities

NYSE Liffe, the derivatives arm of NYSE Euronext, wants to introduce delivery limits for its London commodity futures and options.

Buyers wouldn’t be able to take delivery of more than 7,500 contracts on cocoa and robusta coffee, 5,000 contracts on white sugar and 2,000 contracts on feed wheat, the exchange said in an “info flash” Feb. 15. The limit also applies to sellers. Comments on the proposals are requested by March 9 for changes to take effect for positions in November 2012 coffee, December 2012 sugar and cocoa and January 2013 for feed wheat, it said.

“The proposals are part of the continuing development of the exchange’s existing monitoring and position management arrangements which are designed to maintain market confidence,” the exchange said. “In the course of discussions with market participants it has been confirmed that many would welcome a more formalized and prescribed position management regime which would help them to understand more clearly the exchange’s approach to regulation and its expectations of members and other users.”

Singapore Probes Potential Breaches by China Sky, Directors

China Sky Chemical Fibre Co. and its directors face a criminal probe into regulatory breaches in Singapore, one month after the city’s stock exchange dropped a lawsuit against the company.

“The Monetary Authority of Singapore has received a report from the Singapore Exchange on potential breaches of the Securities and Futures Act” by China Sky, the regulator and the police said in a joint statement today. MAS referred the potential breaches to the Commercial Affairs Department, Singapore’s main white-collar crime investigation agency.

The Singapore Exchange sued the Chinese nylon-fiber maker on Jan. 6 to compel the appointment of a special auditor to investigate “interested-party transactions,” a failed land purchase and certain repair costs. Today’s statement didn’t specify the breaches or the directors that are being investigated.

China Sky’s lawyer Leonard Chia declined to comment on the probe. The Singapore Exchange said in an e-mailed statement it’s not in a position to comment on the ongoing investigation. Both the monetary authority and the police declined to comment beyond their statement.

All three independent directors at China Sky quit Jan. 5, citing non-compliance with the bourse’s order to name the auditor.

Spain Regulator Lifts Short-Selling Ban on Financial Stocks

Spain’s stock-market regulator lifted a six-month ban on short-selling of financial stocks, saying the “extreme volatility” that justified the ban had eased. Banking shares plunged, led by Bankia SA.

Steps taken by the European Union to tighten budget discipline have helped stabilize markets, as have the European Central Bank’s longer-term financing operations and the Spanish government’s overhaul of the banking industry announced on Feb. 2, the regulator said.

France, Belgium, Spain and Italy moved to ban short-selling in August in an effort to stabilize markets after European banks hit their lowest levels since the credit crisis of 2008. France and Belgium lifted their bans this week. Spain had left the ban open-ended since Sept. 28.

Naked short-selling remains banned, according to Spanish law, the CNMV said in the statement. France and Belgium also prohibit the practice.

For more, click here.

Courts

Pentagon Capital Must Pay SEC $76.8 Million for Abusive Trading

Pentagon Capital Management Plc, a closed U.K. hedge fund, was told by a judge to pay $76.8 million in a lawsuit filed in 2008 by the U.S. Securities and Exchange Commission over allegedly abusive mutual fund trading.

U.S. District Judge Robert Sweet in Manhattan ruled yesterday that the SEC proved its claim in a 17-day trial last year that the hedge fund and its chief executive officer, Lewis Chester, engaged in a fraudulent scheme by making mutual fund trades after the 4 p.m. close of markets in New York.

Sweet ruled that Pentagon Capital and Chester must disgorge $38.4 million in improper profits on the trades. He imposed the same amount as an additional civil penalty.

“We are extremely disappointed by the judgment and intend to appeal,” Frank Razzano, a lawyer for the defendants, said in a telephone interview.

Sweet ruled against the SEC’s claim that Pentagon Capital committed fraud by making deceptive, rapid-fire transactions known as market-timed trades.

Pentagon Capital said in 2008 that it was closing and returning investors’ money because of the SEC investigation and civil suit.

The case is Securities and Exchange Commission v. Pentagon Capital Management Plc, 08-cv-3324, U.S. District Court, Southern District of New York (Manhattan).

Citigroup Mortgage Unit to Pay $158.3 Million in Settlement

Citigroup Inc.’s CitiMortgage unit agreed to pay $158.3 million to settle claims tied to its actions in a federal home- loan insurance program, the Manhattan U.S. Attorney’s office said.

The U.S. settled a lawsuit against the Citigroup unit that alleged more than six years of misconduct in connection with the Federal Housing Administration Direct Endorsement Program, the U.S. Attorney’s office said yesterday in a statement. In the settlement, CitiMortgage admitted to falsely stating that some loans were eligible for mortgage insurance through the U.S. Department of Housing and Urban Development, according to the statement.

Five banks including Citigroup settled with 49 states on Feb. 9 to end a probe into abusive foreclosure practices, with Citigroup agreeing to pay as much as $2.2 billion.

Mark Rodgers, a spokesman for New York-based Citigroup, said in an e-mailed statement that Citigroup is pleased to resolve the matter and the bank has “fully provided for this settlement as of the fourth quarter of 2011.”

Interviews/Speeches

Bonnafe Says BNP Paribas Has No Plans to Boost Capital

Jean-Laurent Bonnafe, chief executive officer of BNP Paribas SA, discussed the company’s business performance, capital levels, bonus payments and exposure to Greece.

He spoke during the evening on Feb. 14 in Paris with Bloomberg Television’s Caroline Connan.

For more, click here.

Comings and Goings

FSA’s Cole to Leave Agency After Leading Insider-Trade Crackdown

Margaret Cole, a managing director at the U.K.’s finance regulator who led its clampdown on market abuse, is leaving the agency after seven years.

Cole will continue working at the Financial Services Authority until the end of March and then will be on so-called gardening leave until September, the agency said yesterday in a statement. Under Cole’s stewardship, the FSA fined banks including JPMorgan Chase & Co., UBS AG and Barclays Plc for financial rule breaches and levied its largest individual penalty ever.

The FSA, which was set up in 1997, prosecuted its first criminal case of insider trading in 2008. The agency is to be abolished in 2013 and replaced by at least two new authorities as part of an overhaul of financial supervision.

--With assistance from Bob Van Voris in New York; Farhan Sharif in Karachi, Pakistan; Ewa Krukowska and Jim Brunsden in Brussels; Heather Smith in Paris; Howard Mustoe, Lindsay Fortado, Isis Almeida and Gavin Finch in London; and Joshua Gallu in Washington; Andrea Tan in Singapore; and Emma Ross- Thomas and Charles Penty in Madrid. 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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