A three-year effort to fine-tune curbs on volatility for individual stocks entered a new phase yesterday in the U.S.
Trying to reduce market disruptions, regulators are instituting a plan that creates price bands in which shares are allowed to trade on American equity exchanges, replacing the old system of immediate pauses when shares swing rapidly. New restraints to halt all U.S. stock, options and index futures when the Standard & Poor’s 500 Index (SPX) plunges will also take effect. Both will operate as one-year pilot programs.
Regulators and exchanges are altering the speed bumps adopted after the May 2010 flash crash to boost confidence in a market that has become faster and more complex over the last decade. The new system, known as limit-up/limit-down, replaces automatic halts.
Under limit-up/limit-down, trades won’t be permitted to occur more than a specified percentage above or below a stock’s rolling five-minute average price. If the lowest price at which investors are willing to sell shares reaches the stock’s lower band, or the highest purchase price reaches the higher band, the stock enters a so-called limit state for 15 seconds. Should no trades occur between the bands, trading will cease for five minutes, according to the U.S. Securities and Exchange Commission.
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Guinea Approves Mining Code With Lower Taxes, Minimum Investment
Guinea, the world’s largest exporter of bauxite, approved changes to its mining code that will make it cheaper for foreign investors to obtain concessions and operate mines.
The new code lowers taxes on mining and industrial and commercial profit, Djiby Diaby, a spokesman of the National Transition Council, the equivalent of parliament, told lawmakers yesterday in the capital, Conakry. The minimum investment a company must make to acquire a concession drops to $500 million from $1 billion under the previous code, he said.
Rio Tinto Group and Vale SA (VALE3) operate in the West African nation, which also has reserves of gold and iron ore. Guinea is recovering from a coup d’etat that severed ties with the World Bank and the International Monetary Fund until 2010 presidential elections.
Uganda Cabinet Approves Law to Boost Public-Private Partnerships
Uganda’s cabinet approved a law to promote public-private partnerships.
The policy is designed to attract private investments to infrastructure projects, Investment Minister Gabriel Ajedra Aridru told reporters in the capital, Kampala.
The draft law is being scrutinized by a parliamentary committee before bill it is introduced to the legislature, Aridru said.
The law will assure security of private partnerships with the government, according to Aridru.
EU Deposit Insurance Plan Limited by Political Goals, Rohde Says
Danish central bank Governor Lars Rohde said political hurdles are forcing the European Union to stop short of adopting a cross-border deposit insurance system and instead rely on national guarantees.
“It’s not ideal, but you have to remember that this is a political question,” Rohde said of the EU strategy, which calls on nations to adopt common standards for deposit insurance while maintaining their own funds. The EU already requires nations to guarantee deposits for account holders up to 100,000 euros ($130,000) per bank.
In an April 5 interview, Rohde supported the strategy to begin with common bank supervision, followed by a push toward a common approach for shutting down or restructuring failing banks. Common deposit insurance isn’t part of the plan because Germany and other like-minded nations fear they’d bear too many costs on behalf of other countries.
EU leaders last year decided to press for banking union to contain a debt crisis that’s now been raging for three years and has left five of the euro area’s 17 members relying on bailouts.
Cyprus last month became a test case for investor losses as euro-area authorities required that the nation’s two biggest banks be restructured as a condition of a 10 billion-euro rescue. The model unleashed anxiety across Europe that creditors elsewhere might be required to accept similar losses.
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CFTC Said to Subpoena ICAP Brokers, Dealers on Swap Prices
The Commodity Futures Trading Commission has issued subpoenas to ICAP Plc (IAP) brokers and as many as 15 Wall Street banks as part of an investigation into possible price manipulation of benchmark interest-rate swaps, according to people familiar with the matter.
The CFTC plans to interview about a dozen current and former brokers at ICAP’s Jersey City, New Jersey, office as well as dealers that contribute prices used to set the daily ISDAfix swap rates, said three of the people, who asked not to be named because the matter is private. The regulator is probing whether ICAP brokers are colluding with dealers who stand to profit from inaccurate quotes, including failing to update published market prices after trades occur, one of the people said.
The ISDAfix levels, which the Federal Reserve includes in a daily report on money-market rates, are used by everyone from corporate treasurers to money managers to determine borrowing costs and to value much of the $379 trillion of outstanding interest-rate swaps globally.
The CFTC is probing the swaps trading as it works with European regulators in the rate-rigging scandal surrounding the London interbank offered rate.
Stephanie Allen, a CFTC spokeswoman, said the commission doesn’t comment on enforcement issues. Brigitte Trafford, an ICAP spokeswoman, declined to comment.
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U.K. Finance Regulation Fees Rise 15 Percent on FCA, PRA Split
U.K. financial regulation fees will rise 15 percent to 646.3 million pounds ($990 million) this year after the Financial Services Authority was split into two agencies.
The annual funding cost for the Financial Conduct Authority, the new consumer watchdog, is 432.1 million pounds, the regulator said in an e-mailed statement today. The Prudential Regulation Authority, a unit of the Bank of England that is in charge of lender stability, will have a budget of 214.2 million pounds, including investments on a new office in London and technology.
The increase will be borne mostly by larger banks and institutions because they’ll fall under the watch of both regulators. Medium-sized firms will also see an increase depending on the type of business they conduct, and 42 percent of companies authorized by the FCA will only pay the minimum 1,000-pound fee, the regulator said.
The FSA was shut down this month after politicians criticized it for failing to do more to prevent the financial crisis that led to the bailouts of three U.K. banks five years ago.
Norway Seeks Nibor Overhaul as Probe Fails to Disprove Rigging
Norway’s financial watchdog recommended an overhaul of practices shaping its benchmark interbank rate, after the regulator said a probe couldn’t disprove claims of manipulation.
The Financial Supervisory Authority’s decision follows an investigation of the Norwegian interbank offered rate after bankers outside the country claimed Nibor was being rigged locally. Documents released by the central bank in January revealed e-mailed complaints from traders around the world going as far back as 2010, adding urgency to a probe that was started in December.
The financial regulator said yesterday on its website that the Nibor framework needs to be “more transparent to allow for subsequent testing and oversight.”
The Finance Ministry will review the FSA’s comments and respond before “the summer,” it said on its website yesterday.
In Scandinavia, Denmark has conducted a probe of the Copenhagen interbank offered rate amid speculation it was manipulated during the financial crisis, while Sweden is also reviewing its equivalent rate, Stibor.
Norway’s Finance Ministry asked the financial regulator in December to check whether Nibor accurately reflects unsecured loan rates between banks and whether fixings are sufficiently robust. Nibor was linked to as much as 5.8 trillion kroner ($1 trillion) in derivatives in April 2010, according to central bank documents.
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Sharjah-Linked Bank to Cut Costs by 3rd at Sale: Islamic Finance
Sharjah Islamic Bank (NBS) is set to pay about a third less to sell sukuk than it did two years ago as the United Arab Emirates lender benefits from government backing and the fastest profit growth in three years.
The bank set initial price guidance on the dollar- denominated Islamic bonds in the low 3 percent range, according to people familiar with the transaction, who asked not to be identified because the details are private. That’s in line with the 3.2 percent average estimate of four analysts surveyed by Bloomberg News. The lender paid 4.715 percent when it sold five- year sukuk in May 2011.
Sharjah, the third-biggest emirate in the U.A.E. after Abu Dhabi and Dubai, owns 31 percent of the bank, the data show.
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AIG Seeks to Toss Greenberg’s Challenge to U.S. Bailout
American International Group Inc. (AIG:US) and the U.S. asked a judge to dismiss claims in a lawsuit by former AIG Chief Executive Officer Maurice “Hank” Greenberg challenging the government’s bailout.
AIG “would face incalculable harm” to its brand, image and relationships with shareholders, customers, regulators and elected officials if the company joined a suit against the government brought by Greenberg’s Starr International Co. Inc., AIG said in asking the U.S. Court of Federal Claims in Washington to uphold its decision not to join the litigation.
Dawn Schneider, a spokeswoman for Starr’s law firm in the case, Boies, Schiller & Flexner LLP, didn’t immediately respond to a telephone request for comment.
The U.S. initially took a stake of 80 percent in AIG in September 2008, increasing that to 92 percent as the aid package swelled to $182.3 billion. The New York-based insurer repaid the assistance last year.
AIG’s board on Jan. 9 unanimously agreed not to join Starr’s suit, saying it was unlikely to succeed and risked harming the insurer’s reputation after the bailout.
Starr, a closely held investment company, initially sued the government in 2011 for $25 billion, calling the public assumption of the majority of AIG stock a seizure of property in violation of the U.S. Constitution’s Fifth Amendment right to fair compensation.
AIG’s motion, filed late in the day on April 5, seeks to dismiss only the derivative claims asserted by Starr in AIG’s name. The U.S. Justice Department has also asked the court to dismiss the suit, saying Starr lacks standing.
The case is Starr International Co. v. U.S., 1:11-cv-00779, U.S. Court of Federal Claims (Washington).
Nexans Takes Appeal Against Cable-Cartel Raids to Top EU Court
Nexans SA (NEX) asked the European Union’s top court to quash the EU competition regulator’s decision to order antitrust raids that seized swathes of the cable manufacturer’s documents.
The EU Court of Justice in Luxembourg should annul the European Commission’s raids order “in so far as its geographic scope was overly broad, insufficiently justified and insufficiently precise,” Nexans said in its appeal, according to a summary published in the EU’s Official Journal on April 6. Alternatively, the court should send the case back for review to the lower EU court, it said.
Rulings by the court in such cases take about 15 months from the time of the appeal.
The cases are T-140/09, Prysmian, Prysmian Cavi and Sistemi Energia v. Commission, T-135/09, Nexans France and Nexans v. Commission.
Banks’ Dividends to Decline on Basel Capital Rules, KPMG Says
The ability of European banks to pay dividends will weaken as they seek to comply with stricter capital requirements, accounting firm KPMG LLP said.
Klaus Ott, a partner at KPMG in Frankfurt, made the comments at a news conference in the city yesterday.
The European Union is introducing a wide-ranging plan on how to apply Basel III rules, including restricting bonuses to twice salaries and more than tripling the core reserves that banks must hold against losses. While Basel III was meant to be a single rule book, national regulators are set to apply the standards in various ways, Ott said.
“For big international lenders, the situation will get more complex than before the regulation as they have to look at all sorts of different capital buffers which might apply to them,” he said.
National regulators may levy an additional systemic risk buffer of as much as 5 percent from 2015 onwards for certain bank groups or assets classes, such as Spanish real estate or ship lending, he said.
Gulf Investors Eye U.K. Banks Amid Tighter Rules, Staveley Says
Investment firm PCP Capital Partners LLP and the Gulf investors it works with are interested in the U.K.’s banking industry despite stricter rules imposed since the financial crisis, said Chief Executive Officer Amanda Staveley.
“I’m always interested in the U.K. banking industry even as it becomes more regulated,” said Staveley, who helped Abu Dhabi invest 3 billion pounds ($4.6 billion ) in Barclays Plc (BARC) in 2008. “Once everything picks up, retail banking will start to become interesting again. You could see more investors looking at it.”
David Stockman, Clive Crook Debate Fed, Currency War
David Stockman, former director of the Office of Management and Budget under President Ronald Reagan, and Clive Crook, a Bloomberg View columnist, talked about the impact of Federal Reserve policy on financial markets and the outlook for the U.S. economy.
Stockman is the author of “The Great Deformation: The Corruption of Capitalism in America.” They spoke with Erik Schatzker and Stephanie Ruhle on Bloomberg Television’s “Market Makers.”
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Comings and Goings
SEC Gets New Chairman as Senate Approves Ex-Prosecutor White
The U.S. Senate confirmed Mary Jo White to lead the Securities and Exchange Commission, putting the former U.S. attorney in charge of an agency that has failed to satisfy critics with its response to the financial crisis.
The Senate approved White by unanimous consent, meaning no senators objected to her appointment, as the first former prosecutor to run the SEC. She succeeds Elisse B. Walter who has served as chairman since Mary Schapiro stepped down in December.
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Dimon Exit Seen Hastened If JPMorgan Names Separate Chairman
JPMorgan Chase & Co. (JPM:US) investors risk shortening Jamie Dimon’s tenure as chief executive officer if they appoint a separate chairman to help lead the bank, according to Charles Peabody, an analyst at Portales Partners.
Peabody wrote the comments in a note to clients yesterday.
Calls for Dimon, 57, to give up the chairmanship have been building since the bank disclosed risk-control lapses on derivatives bets last year that fueled more than $6.2 billion in losses. In March, the New York-based firm’s board urged investors to vote against naming a separate chairman at the next shareholder meeting, saying that Dimon’s dual role remains the “most effective leadership model.”
Dimon told investors in February that he wouldn’t have agreed to take a previous job, leading Bank One Corp., if the board hadn’t given him both roles, Peabody recalled. JPMorgan acquired Bank One in 2004 to create the company it is today.
Joe Evangelisti, a JPMorgan spokesman, declined to comment on Peabody’s note. A shareholder proposal to appoint an independent chairman failed with 40 percent of the vote last year.
The board cut Dimon’s pay in half for 2012 after concluding that he bore some responsibility for the debacle. It also credited his leadership for the lender’s performance. A coalition of retirement plans, including the AFSCME pension fund, is pressing to separate Dimon’s roles.
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