Bloomberg News

Topaz Exchange, EU Pension Trades, Borg: Compliance

March 05, 2013

International Securities Exchange Holdings Inc. plans to start an options market called Topaz Exchange. If approved it will be the 12th U.S. exchange for equity derivatives.

The operator of the third-largest individual exchange for U.S. options will own the Topaz venue, according to a filing with the Securities and Exchange Commission published on March 1. Gary Katz, president and chief executive officer of the International Securities Exchange, said it would start a second market to compete with rivals CBOE Holdings Inc. (CBOE:US), Nasdaq OMX Group Inc. (NDAQ:US) and NYSE Euronext (NYX:US) a year ago.

Compliance Policy

Irish Seek EU Approval of Banker Bonus Deal Opposed by U.K.

Ireland seeks backing from other European Union nations for draft rules on bank capital requirements that include bonus curbs opposed by the U.K. and criticized by lenders as a threat to competitiveness.

Finance ministers from the EU’s 27 nations are discussing the pay curbs in Brussels today along with other parts of a compromise deal brokered by Ireland, which holds the EU’s rotating presidency, and the European Parliament. The U.K. signaled the discussion would be more than a formality.

Bonus rules were a late addition to EU legislation on how it will apply global rules drawn up by the Basel Committee on Banking Supervision. Talks between national governments and the EU Parliament had dragged on for 18 months before the Irish presidency negotiated the pay agreement in order to move the broader effort forward.

If finance ministers give their formal endorsement today, the Irish presidency will move forward in collaboration with EU lawmakers to finish drafting the legislation. The bill must then be approved by a weighted majority of EU states and the Parliament.

The U.K. appeared isolated this morning as an array of ministers told reporters that they could accept the draft compromise.

France, Austria, Denmark, and Luxembourg, in addition to Ireland, publicly backed the deal.

For more, click here and see Interviews, below.

FDIC to Seek Comment on Policy for Unwinding Failed Banks

The Federal Deposit Insurance Corporation will seek comment this year on a plan for taking apart failed financial firms, Chairman Martin Gruenberg said at the Institute of International Bankers Annual Washington Conference.

Gruenberg supports changing bankruptcy law to allow unwinding of complex financial companies through the courts.

The FDIC currently is capable of resolving large banks, though it is still working with other countries on cross-border protocols.

The FDIC was assigned responsibility under Dodd-Frank for creating method for unwinding failed financial firms.

Pension Funds Clash With EU’s Semeta About Transaction-Tax Harm

Opponents of a European Union financial-transactions tax say pension funds will be hurt even if their home governments don’t sign up.

Households across Europe will see retirement-planning costs rise if the EU imposes the transaction tax, according to APG, the largest Dutch pension fund. Brussels-based industry group PensionsEurope said the proposed tax, which aims to raise revenue for national governments, would have a heavy effect on taxpayers already reeling from bailout costs.

The proposed levy would tax trades on stocks, bonds and derivatives with any connection to the nations that sign up to participate. Pension funds aren’t exempt from the effort, which has the backing of 11 nations.

EU Tax Commissioner Algirdas Semeta, in a Feb. 25 interview in Washington, said the levy would encourage pension funds to shun secondary markets and stick to long-term investments.

APG disagrees. Pension plans trade frequently, in large volumes, to hedge risk and comply with investor-protection regulations, said spokesman Harmen Geers.

Even if pension funds were exempted from the proposed levy, they’d still be affected by its effects on their trading partners, Geers said.

The EU on Feb. 14 unveiled its proposal for a 0.1 percent tax for stock and bond trades and 0.01 percent on derivatives trades with ties to participating countries. To prevent traders from escaping the levy by operating outside the tax’s zone, the EU plan invokes “residence” and “issuance” ties to firms in participating nations. That means, for example, that a French bond traded in London would still be affected.

For more, click here.

Turkish State Banks May Begin Islamic Banking, Zaman Says

The global economic crisis has made banking without the payment of interest “attractive” and two state banks may start carrying out banking activities in a manner compliant with Islamic law, Zaman reported, citing Turkish Deputy Prime Minister Ali Babacan.

Vakifbank and Halkbank may offer Islamic banking services, Zaman said, without citing sources.

Compliance Action

FSA Mostly Clears Itself Over Missed Libor Manipulation Warnings

The U.K. Financial Services Authority said a review of its handling of the investigation of Libor manipulation found no failures on the scale of previous scandals involving its oversight of Northern Rock Plc or Royal Bank of Scotland Group Plc.

The regulator, facing lawmaker criticism that it missed warning signs on the rigging of benchmark interest rates for years, said today that an internal report on how it handled “dislocation” in the London Interbank Offered Rate from 2007 to May 2009 found that there were areas the regulator could have performed better.

At the time, “the FSA’s bank supervisors were primarily focused on ensuring they understood the prudential implications of severe market dislocation,” FSA Chairman Adair Turner said in a statement. “The FSA had no formal regulatory responsibility for the Libor submission process. As a result, the FSA did not respond rapidly to clues that lowballing might be occurring.”

After Barclays was fined 290 million pounds ($439 million) by the U.S. and U.K. in June last year, it said it had alerted regulators to problems with the London interbank offered rate before the investigation. The London-based lender said it spoke to the FSA, Bank of England, Federal Reserve Bank of New York and the British Bankers’ Association 33 times in 2007 and 2008.

The FSA opened its investigation into rate manipulation in early 2010, a year-and-a-half after the U.S. Commodity Futures Trading Commission’s probe began. Barclays, UBS AG (UBSN) and RBS (RBS) have been fined than $2.5 billion by U.S. and U.K. regulators for rate-rigging, and more than a dozen other firms are still being investigated.

Separately, the Bank of England said it will be “alert” to potential issues of financial misconduct as it adds banking regulation to its powers.

In response to a report today by the Financial Services Authority into the handling of Libor manipulation, the BOE said its accepts the recommendations in the review to the Prudential Regulation Authority.

HSBC CEO Gulliver Receives $2.9 Million Bonus Amid Record Fine

HSBC Holdings Plc (HSBA) Chief Executive Officer Stuart Gulliver received a 1.95 million-pound ($2.9 million) bonus for 2012 even after the British lender paid a record fine for breaking anti- money laundering rules.

The award, down from 2.2 million pounds in 2011, reduced Gulliver’s total compensation to 7.4 million pounds, from 8 million pounds a year earlier, HSBC said in its annual report published yesterday. The London-based bank paid staff 3.7 billion pounds in bonuses for last year, a 7 percent drop from 2011.

Europe’s largest bank by market value yesterday reported a decline in annual profit and said costs rose for a third year, missing its target. The bank’s reputation was “crushed” after it agreed to pay $1.92 billion to settle U.S. probes of money laundering in places such as Mexico, Gulliver said on Feb. 6.

Some 60 percent of Gulliver’s award is deferred for five years and is subject to the “successful completion” of the prosecution agreement with U.S. regulators, according to HSBC. The bank said it had clawed back an undisclosed amount from bonuses paid in previous years.

HSBC paid 204 employees more than 1 million pounds last year, up from 192 employees in 2011.

Shepherd Energy Says It Breached Nasdaq Power Rules by Mistake

Shepherd Energy AB, the Stockholm-based investment firm, said it accidentally breached Nordic power market-manipulation rules that led to its 150,000 Norwegian kroner ($26,200) fine from Nasdaq OMX Group Inc.

“The fact that we bought and sold a contract at the same price within a short time interval was unintentional, and we did not intend to manipulate prices,” Arne Oesterlind, manager of the firm’s Shepherd Energy Fund, said yesterday by e-mail. “We have not made any money from the transaction, nor have we caused additional costs for other counter-parties.”

In April, Shepherd bought 1 megawatt-hour of Nasdaq OMX’s July 2012 power contract while selling 7 megawatt-hours of the same product at the same price in the over-the-counter market, the exchange said in an e-mailed statement yesterday.

The suspected manipulation is a “very serious violation, as it can undermine the trust and integrity” of the market, according to the statement. “Shepherd should have been aware of what signals these actions gave or could give to other market participants.” The exchange said it couldn’t rule out that Shepherd’s actions were non-deliberate.

Nasdaq OMX’s Nordic energy exchange is the world’s largest power derivatives market, with more than 330 trading and clearing members in 15 countries.

Treasury’s Miller Sees Systemic-Risk Votes in Next Few Months

Mary Miller, the U.S Treasury undersecretary for domestic finance, said the Financial Stability Oversight Council may vote “in the next few months” on whether to designate some companies systemically important, a move that could bring them under Federal Reserve oversight.

Miller, who spoke at an Institute of International Bankers conference in Washington yesterday, said the authority to apply the designation to companies, “is not a power the council wields cavalierly.” She added that careful assessments of the firms “take time.”

American International Group Inc. (AIG:US), Prudential Financial Inc. (PRU:US) and General Electric Co. (GE:US)’s finance unit are in the final stage of review by the council, a group of regulators created by the Dodd-Frank law to prevent another financial crisis.

Sheila Bair, former chairman of the Federal Deposit Insurance Corp., said last week that U.S. regulators lack the will and courage to designate non-bank financial companies systemically important.

The oversight council also is reviewing and analyzing public comments received on its recommendations for tightening rules for money-market mutual funds, Miller said.

SNS Reaal Investors Won’t Get Compensation, Dijsselbloem Says

SNS Reaal NV shareholders whose securities were seized as the Netherlands took control of the Dutch bank and insurer last month won’t get any compensation, according to Finance Minister Jeroen Dijsselbloem.

“It’s my opinion that without expropriation, SNS Reaal and SNS Bank would have gone bankrupt,” Dijsselbloem said in a letter published on the ministry’s website yesterday. Dismantling the lender would “have been insufficient to pay all unsecured creditors, and nothing would have remained for subordinated debt holders, let alone shareholders,” he wrote.

Dijsselbloem took control of SNS Reaal NV (SR) on Feb. 1 after losses on real estate loans brought the lender to the brink of a collapse. The nationalization, which became irrevocable after a ruling from the highest Dutch administrative court on Feb. 25, included issued shares, subordinated bonds and loans.

According to Dutch legislation, the government has to compensate parties it expropriated, taking into account the company’s future prospect without a nationalization. On that basis, the compensation offer is zero, Dijsselbloem said.

Investors who suffered losses can submit their objections to the Enterprise Chamber of the Amsterdam Court of Appeal, which will rule on whether Dijsselbloem’s offer is adequate.

Trading in Marcel Thirylaan Certificates Suspended in Brussels

Trading in Marcel Thirylaan real estate certificates was suspended pending a statement, Belgium’s Financial Services and Market Authority said in an e-mail.

KBC Real Estate, a unit of KBC Group (KBC), offers the Marcel Thirylaan certificates among its “real estate securitisation” products and services, according to its website.

“Real estate certificates are debt claims, which may or may not be listed on an exchange, that offer a variable rate of interest,” KBC Real Estate said in a statement on its website. The certificates “entitle holders to beneficial ownership of real estate,” the company said in the statement.

Interviews

EU Bonus Cap Will Erode Confidence in Rules, FSA’s Bailey Says

A cap on bonuses in the European Union will erode banks’ faith in the judgment of regulators, Andrew Bailey, the U.K.’s chief banking supervisor, said in a speech in London today.

“The thing that concerns me is whether a tight system with many rules will encourage people to do the right thing,” Bailey said. “I don’t think it will.”

“It’s a good illustration of the tension between judgment and rules,” he said.

Volcker Sees Challenge Unwinding Fed Stimulus ‘Liquor’

Former Federal Reserve Chairman Paul Volcker discussed U.S. monetary policy, the challenge of timing the unwinding of the Fed’s stimulus measures and banking regulation.

Volcker spoke before the National Association for Business Economics in Washington after receiving the organization’s first lifetime achievement award for economic policy.

For the video, click here.

Borg Defends Swedish Riksbank’s Right to Set Currency Policy

Sweden’s government distanced itself further from moves elsewhere across the globe to manipulate currencies by pledging not to interfere with the central bank’s exchange rate policy.

The stance is in contrast with efforts from France to Japan, where governments have pushed for monetary policy steps targeting exchange rates. In Japan, the government’s preferred candidate to take over as central bank governor has spoken in favor of additional stimulus measures. French Industry Minister Arnaud Montebourg said last month his government wants the European Central Bank to “confront a new currency war” after the euro became “too strong.”

“I would never dream of commenting on monetary policy,” Swedish Finance Minister Anders Borg said in an interview in Stockholm yesterday. “The entire responsibility for monetary policy and currency interventions is with the Riksbank.”

Sweden’s central bank Governor Stefan Ingves said in an interview last month the krona’s ascent is justified and has brought the exchange rate to a level he’s “happy” with. Sweden has distinguished itself as a nation that won’t be dragged into so-called currency wars as governments elsewhere try to boost trade competitiveness through exchange-rate devaluations.

Sweden’s central bank refrained last month from a rate cut that had been predicted by nine of the 22 economists surveyed by Bloomberg. The bank’s six-member board agreed to leave the main repo rate at 1 percent after cutting it four times since December 2011.

“In some other countries, governments and central banks share duties with respect to the exchange rate,” Borg said. Sweden’s decision to leave all monetary policy and currency decisions to an independent central bank is “very wise,” he said.

Comments by Ingves and other policy makers in the largest Nordic economy show that “Sweden will stay side-lined on any global currency war, being a lone rider among central banks in not viewing its currency as overvalued,” Danske Bank A/S (DANSKE) senior analyst Christin Tuxen said in a note yesterday.

For more, click here.

Comings and Goings

Securitization Lobby in Disarray After Most Directors Quit

The American Securitization Forum, the leading trade association for the securitization industry, fell into turmoil last week when most of the board resigned in a dispute with the group’s executive director over governance and bonuses, according to six people familiar with the matter.

The exodus puts the future of the trade group in question, said the people, who spoke on condition of anonymity because the dispute isn’t public. Members that quit include Bank of America Corp. (BAC:US), JPMorgan Chase & Co. (JPM:US), Deutsche Bank AG, Citigroup Inc. (C:US) and law firm Cadwalader, Wickersham & Taft LLP, the people said.

The resignations came after the board attempted to remove the forum’s executive director Tom Deutsch, but was unable to fire him because of the way the association’s governing documents are written, said the people. Part of the dispute concerns bonuses that Deutsch was paid, the people added.

Deutsch didn’t return telephone and e-mail messages seeking comment. Jon Teall, a spokesman for the group at Teall & Associates, declined to comment.

Zia Ahmed, a spokesman for Bank of America, confirmed that the bank quit, declining to comment further. Spokesmen for other board members either declined to comment or couldn’t immediately be reached.

ASF, based in New York, lobbies and holds conferences for the industry, which packages loans and leases into securities.

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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