Bloomberg News

EU Trading Curbs, Barclays Sued, Bair, SEC: Compliance

September 27, 2012

Lawmakers backed tougher European Union curbs on high-frequency trading and limits on commodity speculation as part of a push to toughen the bloc’s financial market rulebook.

European Parliament legislators, voting in Brussels yesterday, also called for the European Securities and Markets Authority to be equipped with powers to ban financial products that might pose a threat to confidence or stability.

High-frequency trading in stocks came under increased regulatory scrutiny after the so-called flash crash in May 2010, during which the Dow Jones Industrial Average briefly lost almost 1,000 points. Companies active in such trading have warned that interfering with their strategies would raise investor costs and harm financial stability.

Lawmakers backed a range of curbs on high-frequency trading in yesterday’s vote, including a rule that orders must be kept in the market for at least half a second before they are canceled, and a requirement for traders to face higher fees if they withdraw excessive numbers of orders.

The parliament was voting on a draft overhaul of the EU’s financial market rulebook, known as Mifid, proposed last year by Michel Barnier, the EU’s financial services chief.

The final version of the rules must be agreed on by the assembly and by national governments before they can take effect. Yesterday’s committee vote sets parliament’s negotiation position.

On commodity derivatives, lawmakers backed a dual system in which speculators would face position limits capping their activities, while companies that are hedging business risks would be subject to lighter rules. Still, Parliament gave only limited support to an attempt by Barnier to boost competition in clearing of derivatives.

For more, click here.

Compliance Policy

U.S. Banks’ Leverage Should Be Halved to Cut Risks, Bair Says

Banks should be required to reduce by half the amount they can borrow against equity to make the financial system safer, according to former Federal Deposit Insurance Corp. Chairman Sheila Bair.

Bair called for a “hard-and-fast” leverage ratio of 8 percent in “Bulls by the Horns,” her memoir of the financial crisis published this month. That’s double the 4 percent ratio U.S. banks must adhere to currently and more than twice the 3 percent called for by new global rules on bank capital.

Lenders could borrow about 13 times their equity, based on Bair’s suggestion, compared with 25 times under existing U.S. rules. Bair, 58, who stepped down from the FDIC last year, was a proponent of the Basel Committee on Banking Supervision introducing a simple leverage ratio, which ignores the riskiness of different loans in setting minimum capital requirements. The

Basel committee narrowed the definition of what counts as capital. It also devised a method of tallying assets for calculating leverage ratio that puts aside the different accounting standards used in the U.S. and Europe. The new method would increase the balance sheets of U.S. banks because of differences in how derivatives are treated.

Using Basel’s narrower capital definition, the two largest U.S. banks would have to raise about $100 billion of capital to comply with Bair’s leverage recommendation. The FDIC, the Federal Reserve and the Office of the Comptroller of the Currency are implementing the new Basel rules.

For more, click here and see Interviews, below.

French Regulator Says Markets Are Too ‘Opaque,’ Figaro Reports

Autorite des Marches Financieres, the French market regulator, said markets are “too opaque,” Figaro reported, citing an interview with Gerard Rameix, president of the AMF.

The massive development of high-frequency trading has made markets incomprehensible to individual shareholders, Rameix said, according to AMF.

Rameix, who called for European changes to make markets more transparent, also wants shareholders to have more say in corporate executive salaries, Figaro reported. Rameix also said companies are not getting enough benefits from listing.

ASIC Seeks Power to Tap Phones in Insider Trading Probes FR Says

The Australian markets regulator is seeking the power necessary to tap telephone calls and record Internet usage to improve its ability to fight insider trading and Ponzi schemes, the Financial Review reported.

Australian Securities and Investments Commissioner Greg Tanzer made the comments about the proposal today at a joint parliamentary hearing in Sydney, the paper reported.

Under the proposal, “stock brokers and fund managers’ phone calls and Internet use could be tracked for two years even if they are not guilty of any crime,” Financial Review reported.

Civil liberties groups and telecommunications companies oppose the move, the paper said.

Compliance Action

Complaints to Financial Services Firms Grew by 59%, FSA Says

Complaints to U.K. financial services firms increased by 59 percent, largely driven by payment protection insurance, or PPI, the Financial Services Authority said in a statement.

A Lloyds Banking Group Plc (LLOY) unit received the largest number of complaints on general insurance and pure protection in the first six months of 2012 with 81 percent of the complaints upheld by the firm, according to data published on the FSA’s website today. Santander UK Plc attracted the most complaints on banking and home finance for the same period.

British regulators said last year that consumers may receive as much as 9 billion pounds ($14.6 billion) in compensation as a result of improper sales of PPI. The FSA said in June that banks will also repay small and medium-sized businesses for improperly sold interest-rate derivatives.

Lloyds said complaints, excluding PPI and general insurance, fell by 18 percent and banking complaints were down 21 percent.

Banking complaints rose by 5 percent during the period.

Courts/Tribunals

SEC Seeks to Intervene in Lehman Unit’s Fight With Barclays

The U.S. Securities and Exchange Commission asked for permission to intervene in Lehman Brothers Inc.’s appeal of a $5.5 billion award to Barclays Plc (BARC) that stemmed from the purchase of the Lehman parent’s North American businesses in 2008.

The SEC has the legal right to participate in all cases involving a brokerage that’s being liquidated under the Securities Investor Protection Act, the regulator said in a letter to the U.S. Court of Appeals in New York.

The SEC previously sided with the Lehman brokerage in district court, saying that as long as there is a shortfall in what’s owed to clients, Barclays has only a conditional claim on as much as $1.3 billion reserved for customers.

The dueling between the second-biggest U.K. bank and Lehman brokerage trustee James Giddens followed a 2010 bankruptcy court trial. Both sides challenged the trial judge’s order on the disputed assets, as well as the district judge’s order that mostly favored Barclays.

Michael O’Looney, a Barclays spokesman, declined to comment on the SEC filing. John Nester, an SEC spokesman, didn’t immediately respond to an e-mail asking what the SEC might say when it files papers in the case or appears in court.

The Lehman brokerage went into liquidation in September 2008 separately from its parent, Lehman Brothers Holdings Inc.

The Lehman parent is now out of bankruptcy.

The appeal is In re Lehman Brothers Holdings Inc., 12-2328, U.S. Court of Appeals for the Second Circuit (Manhattan).

Ex-Credit Suisse CDO Boss Serageldin Is Arrested in U.K.

Kareem Serageldin, the ex-global head of Credit Suisse Group AG (CSGN)’s CDO business charged in a bonus-boosting fraud tied to a $5.35 billion trading book, was arrested by London police as he was negotiating his surrender to U.S. authorities, a person familiar with the matter said.

Serageldin, a U.S. citizen who lives in England, was charged in February with masterminding a scheme to fake collateralized debt obligations. He was taken into custody yesterday outside the U.S. consulate, another person with knowledge of the matter said. Both spoke on condition of anonymity because the arrest isn’t public.

Serageldin, who couldn’t be immediately reached to comment, will appear at Westminster Magistrates court today, a London police spokesman said. In February, when he was first charged in Manhattan federal court, Serageldin said through his lawyers that he was surprised since he had been cooperating with U.S. investigators for four years.

Jerika Richardson, a spokeswoman for U.S. Attorney Preet Bharara in Manhattan, whose office is prosecuting the case, declined to comment. A spokesman for Kobre & Kim LLP, the law firm representing Serageldin, also declined to comment.

Serageldin was named in an indictment unsealed in February accusing him of conspiracy, falsification of books and records and wire fraud. The conspiracy charge carries a maximum five- year prison term on conviction. The other counts are punishable by as many as 20 years. The case is being investigated by agents of the Federal Bureau of Investigation in New York.

The criminal cases are U.S. v. Higgs, 12-cr-00088, and U.S. v. Siddiqui, 12-cr-00089, U.S. District Court, Southern District of New York (Manhattan). The SEC case is U.S. Securities and Exchange Commission v. Serageldin, 12-cv-00796, U.S. District Court, Southern District of New York (Manhattan).

For more, click here.

Barclays Unit Sued Over Securities by Credit Union Regulator

Barclays Plc’s investment-banking unit was accused in a lawsuit by the U.S. agency that regulates credit unions of making misleading statements about mortgage-backed securities to two credit unions that failed.

The unit, known until March as Barclays Capital, violated state and federal laws by making misrepresentations in sales of the securities valued at more than $555 million to U.S. Central Federal Credit Union and Western Corporate Federal Credit Union, the National Credit Union Administration said in the complaint filed yesterday in federal court in Kansas City, Kansas.

Barclays failed to adhere to its underwriting guidelines, and the property values supporting the securities at issue were “routinely overvalued,” and the owner occupancy rates were lower than represented upon offering, according to the suit.

Yesterday’s complaint follows similar lawsuits, including one last month against UBS AG (UBS:US) and previously against JPMorgan Chase & Co. (JPM:US), Royal Bank of Scotland Group Plc (RBS:US), the Wachovia Corp. unit of Wells Fargo & Co. (WFC:US) and Goldman Sachs Group Inc. (GS:US)

Michael O’Looney, a spokesman for London-based Barclays, declined to comment about the complaint.

The case is National Credit Union Administration v. Barclays Capital, 12-cv-2631, U.S. District Court, District of Kansas (Kansas City).

Ex-Goldman Programmer Sues for $2.4 Million in Legal Fees

Former Goldman Sachs Group Inc. computer programmer Sergey Aleynikov, charged twice with stealing confidential trading code, sued the bank for payment of more than $2.4 million in legal fees.

Goldman Sachs should pay fees and expenses incurred during Aleynikov’s federal prosecution, which resulted in a conviction that was later overturned, his lawyers argued in court papers filed yesterday in federal court in Newark, New Jersey.

Aleynikov was freed from federal prison earlier this year after the U.S. Court of Appeals in New York reversed the 2010 conviction in Manhattan federal court. Aleynikov was subsequently charged by New York state prosecutors in Manhattan over the same matter.

Aleynikov was arrested last month on state charges of unlawful use of scientific material and duplication of computer- related material, both felonies, according to Manhattan District Attorney Cyrus R. Vance Jr. He is free on $35,000 bail.

Michael DuVally, a spokesman for New York-based Goldman Sachs, declined to comment on the filing.

The case is Aleynikov v. Goldman Sachs Group Inc., 12- cv-05994, U.S. District Court, District of New Jersey (Newark).

Blind Banker Claims RBS Discriminated, Cut Disability Pay

A former Royal Bank of Scotland Group Plc banker who had to quit after losing his sight told a London employment tribunal he’s owed disability benefits worth about 500,000 pounds ($808,000).

Paul Ryb, hired in 2009, joined RBS’s disability-insurance plan in case a degenerative eye condition he had got worse. The bank didn’t properly account for an increase in his pay, he said, meaning he’ll get about 25,000 pounds a year less than expected. He left the job a year ago.

Ryb, who is legally blind, was “shocked and angry” when RBS said he’d get 132,000 pounds a year, not 158,400 pounds, according to a witness statement made available yesterday.

Bankers who feel they were unfairly treated by employers are increasingly turning to British courts and employment tribunals for compensation.

Ryb, a telecommunications equity salesman hired by RBS from Nomura Holdings Inc. (8604), sued the Japanese bank in a separate employment matter not related to his blindness. He told the London tribunal that the Nomura claim was settled, without commenting on the amount.

Nomura spokeswoman Beth Brophy and RBS spokeswoman Sarah Small declined to comment. The bank’s lawyer James Laddie told tribunal judges yesterday Ryb was offered the same benefits as everyone else at the company.

Ex-Hedge Fund CEO Spak Pleads Guilty to $4 Million Fraud

The former chief executive officer of a New Jersey hedge fund pleaded guilty to a charge he conspired to defraud investors of more than $4 million, federal prosecutors said.

Michael J. Spak, 44, of Chesterfield, New Jersey, entered his plea yesterday before U.S. District Judge Joseph H. Rodriguez in Camden to one count of conspiracy to commit wire fraud, U.S. Attorney Paul Fishman said in a statement.

Spak and his co-conspirators were accused of soliciting investors for the Osiris Fund, which they pitched as a hedge fund for “little guys” and “mom and pops,” and then improperly diverted $4 million for their own use starting in January 2010, prosecutors said.

While he fund incurred trading losses of about $4.5 million, Spak and his co-conspirators never disclosed the losses, prosecutors said. Instead, they created false financial statements, prosecutors said.

Spak faces as much as 20 years in jail and a $250,000 fine at his sentencing, scheduled for Jan. 9, prosecutors said.

The case is U.S. v. Spak, U.S. District Court, District of New Jersey (Camden).

Interviews

Bair Says Bank Capital Levels Need Higher Priority

Former Federal Deposit Insurance Corp. Chairman Sheila Bair talked about capital requirements for banks and her memoir of the financial crisis “Bull by the Horns: Fighting to Save Main Street from Wall Street and Wall Street from Itself.”

Bair spoke with Betty Liu on Bloomberg Television’s “In the Loop.”

For the video, click here.

Comings and Goings

FDIC Names John Vogel as Regional Director in New York

John Vogel has been named Regional Director for New York by the Federal Deposit Insurance Corp., the independent federal agency said yesterday in e-mailed statement.

Until his new appointment, Vogel was serving in the New York region as deputy regional director for risk management.

In his new position, Vogel will direct supervision of about 890 depositary institutions with assets of more than $1.5 trillion, the FDIC said in the statement. The New York region covers 11 states, Washington, Puerto Rico and the U.S. Virgin Islands, the FDIC said.

EU Seeks to Remove Hurdle to Mersch’s Appointment to ECB Board

The European Union sought to clear the way for Luxembourg’s Yves Mersch to join the European Central Bank’s board, by pledging to work harder to find qualified women for future ECB posts.

Mersch’s appointment has been stalled by a European Parliament committee that protested against the absence of women on the central bank’s six-member Executive Board.

The ECB seat has been empty since June 1. Mersch was selected by European finance ministers in July and is awaiting a parliament vote before taking office. The parliament’s next opportunity is in the week of Oct. 22.

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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