Bloomberg News

‘Resting’ HFT, Greek Ships Tax, Volcker Rule: Compliance

January 17, 2013

Restrictions on the minimum time orders must be held in German equity markets would do little to increase safety, the nation’s exchanges said as lawmakers debated proposed legislation.

Lawmakers were set to hold a public meeting at 2 p.m. yesterday in Berlin to discuss curbs on high-frequency trading, with remedies up for debate including one that orders must be kept in the market for at least half a second before they are canceled. HFT has come under increased regulatory scrutiny in Europe and the U.S. after the so-called flash crash in May 2010, when the Dow Jones Industrial Average briefly lost almost 1,000 points.

The proposed measures include the use of circuit breakers to halt trading in affected stocks during periods of high volatility. An excessive usage fee may be introduced to impose financial penalties on firms that bombard an exchange or trading platform with orders, which can move prices to the detriment of other market participants.

Deutsche Boerse, the operator of the Frankfurt exchange, is in favor of most of the proposals because “it brings more transparency to the markets,” according to Frank Herkenhoff, a spokesman for the company.

The German measures will be in addition to proposed EU regulation of the industry. Restrictions on HFT are needed to make markets safer, according to Dorothea Schaefer, research director financial markets at the German Institute for Economic Research in Berlin.

Incumbent exchanges in Europe, such as Deutsche Boerse and London Stock Exchange Group Plc (LSE), have come under increasing competitive pressure from alternative trading platforms which have sought to attract technologically advanced, high-speed trading firms.

Compliance Policy

Greece Taxes Foreign-Flagged Ships for First Time Amid Crisis

Greece will tax merchant ships managed by companies based in the country and sailing under foreign flags for the first time ever as the nation’s debt crisis spurs the government to raise revenue.

Amendments to a bill passed by lawmakers at the weekend imposed a so-called tonnage tax on the vessels, the Ministry of Finance in Athens said yesterday by e-mail. The government aims to raise 80 million euros ($106 million) this year and 60 million euros in 2014 from the levy, the state-run Athens News Agency reported Jan. 9.

Greek shipowners control the largest portion of the world merchant fleet. The state is targeting an estimated 762 owners, who pay no tax on international earnings brought into the country under rules incorporated in the constitution since 1967. Lobbying by owners barred the imposition of any further taxes, Theodore Veniamis, president of the Union of Greek Shipowners, said by e-mail Jan. 14.

The e-mail didn’t show when the tax would take effect. The measure “imposes the levy for the first time,” the ministry said. The tax applies only to tonnage of foreign-flagged vessels, rather than their earnings, Veniamis said.

Ships controlled by Greek companies and flagged elsewhere came to 3,848 totaling 153.1 million gross tons as of March 2011, according to figures on the Hellenic Chamber of Shipping website. That compared with 2,014 vessels totaling 43.4 million tons sailing under Greece’s flag as of the end of the year. The data were the latest available.

Greek shipowners remitted more than $175 billion in untaxed earnings in 10 years until 2011, according to Bank of Greece figures cited in the union’s annual report.

U.S. SEC to Offer Money-Market Overhaul Soon, Commissioner Says

A second effort to overhaul rules governing the $2.6 trillion money-fund industry will be offered by the U.S. Securities and Exchange Commission before the end of March, said SEC Commissioner Daniel M. Gallagher.

Regulators have been working to overhaul rules governing the money-fund industry since the September 2008 collapse of the $62.5 billion Reserve Primary Fund. A proposal supported by former SEC Chairman Mary Schapiro to force money funds to choose between a floating share value or a combination of capital buffers and withdrawal restrictions was dropped in August after failing to win support from a majority of commissioners.

No date has been set for a new proposal to reform money funds, SEC spokesman John Nester said yesterday. Under the direction of SEC Chairman Elisse Walter, the SEC staff is discussing reform options with commissioners, he said.

In November, the Financial Stability Oversight Council, a group formed by the Dodd-Frank Act to address systemic financial risks, urged the commission to try again.

The effort appeared to be advancing in December after Democratic Commissioner Luis Aguilar, who opposed the earlier proposal, said a study issued by SEC staff indicated that money- fund rules adopted in 2010 were insufficient. He said he’ll reconsider all the ideas presented before, including abandoning the industry’s traditional $1 share price.

Gallagher said in September that he would probably support a fluctuating share price. He said yesterday that the commission was studying the tax and accounting impacts of such a change, which could create gains and losses for investors.

He also said the commission would confer with the Treasury Department and Internal Revenue Service to address concerns about the impact on investors.

Courts

Citgo to Settle With New Hampshire in Gas Additive Lawsuit

Citgo Petroleum Corp. reached an agreement with New Hampshire to be dismissed from an $816 million trial over groundwater contamination while a settlement is completed, as a witness testified that 2 percent of the state’s private wells are polluted with hazardous levels of the chemical MTBE.

The agreement to sever was made public in a court filing dated Jan. 15 and signed by New Hampshire Assistant Attorney General Mary E. Maloney and Nate Eimer, a lawyer for Citgo.

Under the agreement, the parties have until Feb. 15 to complete an accord before Citgo is reinstated to the case, unless they agree to an extension. Earlier in the day yesterday, a person familiar with the matter said Citgo and New Hampshire reached a deal over claims the oil company polluted the state’s water with the gasoline additive MTBE. The person asked not to be identified because the matter is private. Citgo’s lawyers didn’t appear in court yesterday as the trial resumed.

A settlement would leave ExxonMobil Corp. (XOM:US) as the last defendant in the state’s lawsuit alleging oil companies knew the chemical would contaminate groundwater. A trial of the case began Jan. 14.

New Hampshire Superior Court Judge Peter Fauver approved the motion yesterday to sever Citgo from the case.

A settlement would leave ExxonMobil Corp. as the last defendant in the state’s lawsuit alleging oil companies knew the chemical would contaminate groundwater. New Hampshire’s suit is one of scores of cases involving MTBE, or methyl tertiary butyl ether, filed since 2000 against refiners, fuel distributors and chemical makers.

The New Hampshire attorney general’s office declined to comment on specific terms of any proposed settlement. Fernando Garay, a spokesman for Citgo, declined to comment on the matter.

Asked about a possible settlement of its case, ExxonMobil spokeswoman Claire Hassett said, “Nothing has happened that would change our approach to this litigation.”

The case is State of New Hampshire v. Hess Corp., 03- C-0550, New Hampshire Superior Court, Merrimack County (Concord).

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BofA Case Against MBIA Backed by Payment Denial, Bank Says

Bank of America Corp. (BAC:US)’s claims against MBIA Inc. (MBI:US) over the bond insurer’s 2009 restructuring are supported by an insurance regulator’s refusal to let MBIA make an interest payment, a lawyer for the bank said.

The decision by New York’s Department of Financial Services, disclosed Jan. 15 by MBIA, backs claims from Charlotte, North Carolina-based Bank of America and Paris-based Societe Generale SA (GLE) in litigation against the insurer, a lawyer for the banks said in a letter to state Justice Barbara Kapnick yesterday. The banks claim assets were improperly transferred out of MBIA Insurance, harming policyholders.

The regulator’s decision to reject an interest payment on notes “confirms that MBIA Insurance cannot meet its financial obligations without the $5 billion improperly siphoned from MBIA Insurance,” the lawyer, Robert Giuffra, wrote.

Kapnick last year presided over a trial at which the banks sought to reverse the state’s approval of MBIA’s restructuring. The judge in December said she was “getting there” on making a decision in the case. A separate lawsuit is also pending.

Kevin Brown, a spokesman for Armonk, New York-based MBIA, didn’t immediately respond to an e-mail seeking comment on the letter.

The cases are ABN Amro Bank v. Dinallo, 601846-2009, and ABN Amro Bank v. MBIA, 601475-2009, New York State Supreme Court, New York County (Manhattan).

Poker ‘Don’ Sentenced to 7 Years in $1.2 Billion U.K. Fraud Case

Greek businessman Achilleas Kallakis, known as “The Don” on the international poker circuit, was sentenced to seven years in jail by a U.K. judge after being found guilty of defrauding lenders to pay for trophy property, planes, a yacht in Monaco and luxury cars.

Kallakis, 44, and co-conspirator Alexander M. Williams, also 44, defrauded banks to borrow 740 million pounds ($1.18 billion) and acquire 16 properties, the U.K. Serious Fraud Office said yesterday in a statement. The purchases included an office building on London’s St. James’s Square that Kallakis planned to convert into a home until permission was denied by the local council.

The two men conspired from 2003 through 2008 to defraud lender Allied Irish Banks Plc (ALBK), the SFO said. They also borrowed from the Bank of Scotland, now part of Lloyds Banking Group Plc. (LLOY) The men had pleaded not guilty, the SFO said.

Lawyers for Kallakis at Corker Binning and for Williams at Lewis Nedas & Co. in London didn’t immediately return calls seeking comment on the conviction.

Ex-Legal & General Trader Pleads Guilty for Insider Trades

Paul Milsom, the former Legal & General equities trader, pleaded guilty to one count of passing inside information to an independent stockbroker, giving the U.K. finance regulator its first conviction in its highest-profile insider trading case.

Graeme Shelley, the independent broker who previously worked at Novum Securities Ltd., was charged with 28 counts of insider trading for share transactions from October 2008 to March 2010 in companies including broadcaster ITV Plc, according to the U.K. Financial Services Authority, which is prosecuting the case. The lone charge against Milsom includes 28 instances of leaking insider tips.

Shelley didn’t enter a plea and both men were released on unconditional bail at a London court hearing Jan. 15. The regulator charged five other individuals last year as part of the investigation into the front-running of block trades, known as Operation Tabernula, Latin for little tavern.

The FSA arrested seven people and raided 16 addresses in London and southeast England in March 2010 as part of the probe. Milsom was arrested in February last year. The first five defendants who have been charged haven’t entered pleas.

Legal & General “assisted the FSA” following Milsom’s arrest, the company said in an e-mailed statement. Milsom “had been suspended since his arrest, and now that he has pleaded guilty, will be subject to our disciplinary procedures.”

He wasn’t in control of any client funds, the firm said.

Milsom’s case was transferred to a higher criminal court. Shelley is scheduled for a second appearance at Westminster Magistrates Court on Feb. 27.

S&P Can Be Sued in Germany Over Ratings, Handelsblatt Says

Germany’s top civil court ruled that Standard & Poor’s can be sued by German investors in their home country over ratings claims related to Lehman Brothers Holdings Inc., Handelsblatt reported, citing a lawyer for the plaintiff.

The case was brought by a pensioner who lost 30,000 euros with Lehman certificates.

Doris Keicher, a spokeswoman for S&P in Frankfurt, didn’t immediately return a call from Bloomberg News seeking comment.

The pensioner sued S&P in Frankfurt.

Rating companies have come under fire for their alleged failure to foresee the financial crisis and for granting top rankings to mortgage bonds. In the wake of the euro crisis, governments are discussing new rules and alternatives for rating the creditworthiness of issuers.

Interviews

‘No End in Sight’ to Volcker Rule Process, SEC Commissioner Says

The effort to complete the Volcker rule has “no end in sight” because the U.S. Securities and Exchange Commission has taken a secondary role in the process, SEC Commissioner Daniel M. Gallagher said yesterday.

The SEC has played “second fiddle” to banking regulators trying to complete the rule despite the agency’s expertise in regulating trading and hedging practices, Gallagher said in a speech in Washington. The rule would ban banks from trading with their own funds.

The Republican commissioner’s comments show conflicts among regulators trying to implement the rule, mandated by the 2010 Dodd-Frank Act. The SEC is evenly divided with two Democrats and two Republicans. The Republican commissioners have called for the rule to be re-proposed.

Regulators “could be focusing on other matters rather than spinning their wheels with no end in sight,” Gallagher told the U.S. Chamber of Commerce’s Center for Capital Market Competitiveness.

Comings and Goings

Juncker, Dijsselbloem to Meet Tomorrow Before Eurogroup Decision

Luxembourg’s Jean-Claude Juncker will meet with Dutch Finance Minister Jeroen Dijsselbloem three days before euro-area finance ministers are due to designate a successor to Juncker as head of the so-called eurogroup.

Juncker, who is stepping down from the euro-area post by the end of January, said last month that he has “reasons to believe” the Dutchman could be his successor at the eurogroup. Juncker, 58, has led meetings of the euro finance ministers since 2005.

The new eurogroup chief is due to be named at the next meeting of euro finance ministers on Jan. 21 in Brussels.

Dijsselbloem, who has headed the Dutch Finance Ministry since November, will meet with Juncker and his finance minister, Luc Frieden, tomorrow in Luxembourg. Dijsselbloem met with other euro-area finance chiefs this month, including those of France, Italy and Belgium, and was scheduled to meet Spain’s Luis de Guindos today.

To contact the reporter on this story: Carla Main in New Jersey at cmain2@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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