Facebook Inc. (FB:US)’s initial public offering will be the biggest test of a rule introduced in 2011 to protect investors and curb volatility on the first day a company trades.
The Financial Industry Regulatory Authority reminded more than 4,400 member firms on May 15 that they shouldn’t accept buy requests known as market orders until trading begins. Such transactions are authorizations to purchase at the best available price, as opposed to limit orders that require investors to specify a minimum or maximum.
Facebook sold shares yesterday in an initial sale that valued the company at $104.2 billion, the most ever for an IPO. Finra’s notice about market orders follows malfunctions that disrupted the debuts of Bats Global Markets Inc. in March and Splunk Inc. (SPLK:US) in April, and came as Facebook’s listing venue, Nasdaq Stock Market, conducted tests of its computers and customers’ systems before the IPO auction.
The Finra rule follows curbs and new trading requirements implemented by exchanges and regulators after the so-called flash crash on May 6, 2010, when the Dow Jones Industrial Average plunged 9.2 percent before recovering. In addition to introducing circuit breakers, which pause trading in stocks and exchanged-traded funds when prices move 10 percent in five minutes, market makers must quote within a certain price range. New rules were also implemented to guide exchanges’ decisions about when to void errant transactions.
Facebook, which offered 421.2 million shares, may see trading volume of about 1 billion today, based on first-day activity at companies such as Google Inc. (GOOG:US), LinkedIn Corp. (LNKD:US), Zynga Inc. (ZNGA:US) and Yelp Inc. (YELP:US), Larry Tabb, chief executive officer of Tabb Group LLC, said in an e-mail. U.S. equities traded a daily average of 6.77 billion shares this year through May 16, according to data compiled by Bloomberg.
The Finra ban on market orders before trading begins was instituted because shares are more volatile when there’s no “established public trading history,” the organization said.
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Safer Banks to Add $19 Billion to U.K. Economy, Economists Say
A banking system strengthened by tougher capital rules will benefit the U.K. economy by 11.9 billion pounds ($18.9 billion) a year, according to a paper published by the U.K. Financial Services Authority.
Regulators could raise minimum capital requirements for the biggest banks by “an additional 22 percentage points” and “still produce overall positive net benefits in the long run,” five academics said in their report to the financial regulator published yesterday.
Banks May Need $566 Billion to Plug Capital Gap, Fitch Says
The world’s biggest banks may have to raise about $566 billion of common equity to meet rules on capital to be implemented by 2019, curtailing shareholder returns, according to analysts at Fitch Ratings.
The sum needed by the 29 global banks that regulators deem too big to fail is equivalent to about 23 percent of the lenders’ current $2.5 trillion of aggregate common equity, according to a report by analysts led by Martin Hansen in New York. The median lender could meet the requirements with three years of retained earnings, according to Fitch.
International banking regulators meeting under the aegis of the Bank for International Settlements in Basel are seeking to implement rules to prevent taxpayers from being forced to rescue failing banks. As well as boosting capital requirements, they are instituting rules on leverage ratios and funding to ensure lenders can withstand future crises.
The banks named as global systemically important financial institutions, which have to hold a special capital surcharge of between 1 percent and 2.5 percent of assets weighted by risk, include Deutsche Bank AG (DBK), the four largest U.K. banks, Bank of America Corp. (BAC:US) and Goldman Sachs Group Inc. (GS:US)
They are likely to reduce their holdings of more volatile, lower-rated assets, potentially increasing borrowing costs of weaker companies and reducing availability of credit to them, according to the report. Securities of such borrowers would become harder to trade and companies may be forced to borrow from less regulated lenders such as private equity firms and hedge funds, according to the Fitch report, called “Basel III: Return and Deleveraging Pressures.”
Intercontinental Says SEC Failing to Act on Swap Clearing
Intercontinental Exchange Inc. (ICE:US), owner of the world’s largest credit-default swap clearinghouse, will petition the U.S. Securities and Exchange Commission to allow asset managers to clear trades in the $26.5 trillion market.
Peter Barsoom, chief operating officer of ICE Clear Credit, Intercontinental’s U.S.-based credit swap clearinghouse said the SEC’s “failure to act” has disadvantaged the buy-side and investors relative to the dealers. He anticipates a petition in the next few days “with the buy-side” to submit to the SEC to approve rules needed for so-called client clearing.
Barsoom made the remarks yesterday at a Futures Industry Association conference in New York.
Under the Dodd-Frank Act, the SEC has authority over credit swaps on individual companies, while the Commodity Futures Trading Commission will oversee credit-swap indexes. Intercontinental Exchange asked the regulators last year to work together to allow investors who use both types of swaps to combine their trades to reduce margin requirements, known as portfolio margining, Barsoom said.
Asset managers and hedge funds aren’t yet required to clear trades under Dodd-Frank, with the mandate expected to be in place by next year.
Judith Burns, a spokeswoman for the SEC, declined to comment.
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Treasury Weighs Selling TARP Bank Shares in Pools to Draw Buyers
The U.S. Treasury may pool stakes in small banks bailed out during the financial crisis to entice potential investors as the Obama administration winds down the Troubled Asset Relief Program.
The Treasury’s plan reflects the challenge of unwinding holdings in lenders that are still trying to recover from the six-year residential real estate slump. By combining stakes of small banks, the department may be able to attract investors who wouldn’t want to buy shares of those banks individually.
Most of the 343 bailed-out banks still in TARP will be unable to repay $12 billion in taxpayer funds they hold, according to the Treasury. The administration will first try to sell its stakes in the remaining lenders through auctions, and if it can’t, will then pool together shares of different institutions, Tim Massad, the Treasury Department’s assistant secretary for financial stability, said in an interview.
As of April 30, the Treasury’s biggest remaining bank investments were $968 million in Columbus, Georgia-based Synovus Financial Corp. (SNV:US); $935 million in Popular Inc. (BPOP:US), Puerto Rico’s largest lender; and a $700 million stake in Salt Lake City-based Zions Bancorporation. (ZION:US)
Under TARP, originally approved by Congress in 2008 as a $700 billion dollar program to rescue financial institutions, the Treasury put cash into banks in exchange for equity stakes.
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SMBC Nikko to Cut President Watanabe’s Pay 15% After Rule Breach
SMBC Nikko Securities Inc. President Eiji Watanabe’s pay will be cut for three months after he breached securities rules, according to an e-mailed statement.
The statement was issued by the brokerage unit of Sumitomo Mitsui Financial Group Inc. (8316)
Four other executives at the brokerage will receive pay reductions ranging from 5 percent to 50 percent for three months, according to the statement. The pay cuts follow the business improvement order from Japan’s Financial Services Agency after SMBC Nikko’s rule breach.
Lloyds Still Seeking Assurances From NBNK of Regulatory Approval
Lloyds Banking Group Plc (LLOY) Chairman Win Bischoff said that the bank has yet to receive assurances from NBNK Investments Plc (NBNK) that it would be approved by the Financial Services Authority if it were chosen as the bidder for the 632 branches the lender is selling.
Separately, Bischoff said that if JPMorgan Chase & Co. (JPM:US), which has such a good risk culture, could suffer such large trading losses, then it could happen to any other bank.
SEC Said to Hold Closed Meetings to Review JPMorgan Losses
The U.S. Securities and Exchange Commission held at least two special meetings in the past week to review the circumstances surrounding JPMorgan Chase & Co.’s $2 billion loss, according to people familiar with the matter.
The SEC held a closed meeting on Saturday, May 12, and another three days later to discuss “an examination of a financial institution,” according to a news release e-mailed May 15. The agency’s five commissioners held the meetings to find out what staff knew about the losses and to discuss how the agency should respond, said two people who declined to be identified because the discussions weren’t public.
JPMorgan Chief Executive Officer Jamie Dimon said May 10 that the bank made “egregious” mistakes and that the losses of about $2 billion tied to synthetic credit securities were “self-inflicted.” The announcement has spurred reviews by several financial regulators, including the SEC, Commodity Futures Trading Commission, the Office of the Comptroller of the Currency and criminal authorities in New York.
Citigroup Sued by Woori Bank of South Korea Over CDO Losses
Citigroup Inc. (C:US) was sued for fraud by Woori Bank of South Korea to recover losses from the Seoul-based lender’s investment in collateralized debt obligations.
Woori claims Citigroup led it to invest $95 million during 2006 and 2007 in a series of fraudulent CDOs and related products. The complaint was filed May 15 in federal court in New York.
“Citigroup believes the allegations made in the suit are entirely without merit,” James Griffiths, a Hong Kong-based spokesman for New York-based Citigroup, said by phone. The bank will fight the complaint, he said.
Woori Bank is a unit of Woori Finance Holdings Co. (053000), South Korea’s largest financial company by assets.
The case is Woori Bank v Citigroup Inc., 12-CV-3868, U.S. District Court, Southern District of New York (Manhattan).
Gulf Keystone Gets Injunction on Web Posts That Moved Shares
Gulf Keystone Petroleum Ltd. (GKP) got an injunction blocking a man from writing about the company after his comments on Internet message boards and Twitter caused its shares to fall.
Spencer Freeman’s posts about a deal with Exxon Mobil Corp. (XOM:US) and a potential share sale were “fantasy,” according to court documents. The result was that Gulf Keystone’s “share price collapsed” and it had to spend time “dealing with disgruntled investors and press inquiries,” the company’s lawyers said.
Freeman agreed to a court order not to write false or derogatory posts and, as a result, Gulf Keystone will drop its May 11 lawsuit against him for defamation and malicious falsehood, the company’s lawyer Matthew Nicklin said at a hearing in London yesterday.
The company, which has wells in northern Iraq, said in a May 10 statement it would take legal action to prevent “unfounded speculation” on websites and social-media sites about the possibility it would raise money by selling equity at 160 pence a share.
An account on Twitter Inc.’s micro-blogging service in the name of Spencer Freeman has been deactivated.
Christopher Hamilton, a spokesman for the U.K. Financial Services Authority, said the regulator was aware of Spencer Freeman’s comments. He declined to comment further.
The case is: Gulf Keystone Petroleum Limited v. Freeman, High Court of Justice, Queen’s Bench Division, HQ12D01817.
Facebook Sued for $15 Billion in Suit Over User Tracking
Facebook Inc., which is scheduled to begin trading today, was sued by users of its social network in an amended class- action case claiming the company invaded their privacy by tracking Internet usage and seeking $15 billion.
The lawsuit, filed in federal court in San Jose, California, combines 21 cases filed across the U.S., according to a statement by Stewarts Law US LLP, one of the firms leading the claim. It accuses Facebook of improperly tracking users even after they logged out of their accounts.
Facebook, which sold stock in an initial public offering valuing the company at about $104 billion, has been scrutinized by regulators in the U.S. and Europe over how it protects users’ private data. Last year, a German data-protection agency said it may fine the company over facial-recognition software used for tagging photos.
Iain Mackenzie, a London-based spokesman for Facebook, declined to comment.
Lawsuits accusing the Menlo Park, California-based company of tracking user data even when they were logged out have been filed across the U.S. A California judicial panel ordered in February they be consolidated and heard in the company’s home state.
The case is In re Facebook Internet Tracking Litigation, 12-md-02314, U.S. District Court for the Northern District of California (San Jose).
JPMorgan’s Dimon Agrees to Testify in Senate After Trading Loss
Jamie Dimon, JPMorgan Chase & Co. ‘s chief executive officer, agreed to testify in front of a Senate committee on the bank’s $2 billion trading loss.
“As always, we will continue to be open and transparent with our regulators and Congress,” said Jennifer Zuccarelli , a spokeswoman for the New York-based lender.
Dimon was asked to testify after the Senate Banking Committee concludes hearings on banking industry reform in June, according to a statement from committee Chairman Tim Johnson.
Bullard Says Largest U.S. Banks Should Be Broken Up
Federal Reserve Bank of St. Louis President James Bullard spoke in Louisville, Kentucky, about regulation of the U.S. financial industry.
Bullard, asked about JPMorgan Chase & Co.’s $2 billion trading loss, said large banks should be broken up into smaller businesses that can be more easily managed. Bullard also discussed the U.S. economy and central bank monetary policy.
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Comings and Goings
SEC Names James Burns Deputy Director of Trading and Markets
James Burns will become deputy director of U.S. Securities and Exchange Commission’s office that oversees markets, trading practices and derivatives policy, the agency said in a statement on its website.
Burns has been a member of SEC Chairman Mary Schapiro’s staff since March 2010. Most recently, he served as deputy chief of staff for Schapiro. Burns will be replaced by Erica Williams, who has worked on enforcement and regulatory issues at the SEC.
SEC Said to Ask FDIC’s Rymer to Take Over Troubled Watchdog Unit
Federal Deposit Insurance Corp. inspector general Jon Rymer is in final discussions to temporarily take over the Securities and Exchange Commission’s internal watchdog office as it grapples with allegations of possible misconduct by its own employees, according to people with knowledge of the talks.
Rymer would take over the post on an interim basis as the SEC looks to fill the inspector general job that was left vacant when H. David Kotz stepped down in January, said the people, who declined to be identified because the decision hasn’t been made public. The move isn’t yet final, the people said.
The office has been in turmoil since David Weber, an employee of the internal watchdog unit, complained to the SEC that possible conflicts of interest related to Kotz’s past conduct could have tainted the integrity of his reports on the agency’s failure to catch the Bernard Madoff and R. Allen Stanford frauds. The agency said it is hiring an independent investigator to review the claims.
Weber was later placed on administrative leave after some of his co-workers made complaints.
Noelle Maloney, the deputy inspector general, has been the acting head of the unit since Kotz’s departure.
Fred Gibson, the FDIC’s deputy inspector general, said Rymer wasn’t immediately available for comment. SEC spokesman John Nester declined to comment.
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