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Danske Bank Reprimand, Ex-JPMorgan Trader, China: Compliance

August 28, 2013

Denmark’s bank regulator reprimanded Danske Bank A/S (DANSKE) for inadequate management of market risks two months after ordering Denmark’s biggest lender to add $18 billion in risk weighted assets.

The Financial Supervisory Authority said yesterday the Copenhagen bank must ensure control of market risks across the company, weigh risks against returns, and safeguard against alterations to risk models driving changes in assessments. The agency also called for greater transparency in decision making.

The Copenhagen-based agency ordered the improvements after reviewing a study on the bank’s risk management systems that Danske paid for and that was requested by Denmark’s 14-member Financial Council, which advises the FSA on key cases. The FSA said it received the analysis, conducted by the consulting firm Oliver Wyman, on June 18. The review was ordered to determine whether Danske had taken on more risk than it budgeted for and whether its assessments mirrored reality.

Danske agreed to increase capital allocated to meet its solvency requirements, the FSA said.

The bank has taken steps to improve risk management, the FSA said. It is hiring an external consultant to assess its models, and the market risk committee hired four people earlier this year, bringing total employees in the unit to about 46. Management has agreed to hire more people as needed, the FSA said.

Danske was identified by a government panel as one of Denmark’s too-big-to-fail banks earlier this year.

Compliance Policy

India Regulator Sets Rules for Commodity Exchange Board Members

New rules in India provide that not less than 50 percent of the board strength of a commodity futures exchange shall be independent directors and they should be appointed for a period of three years, the Forward Markets Commission said on its website.

The Forward Markets Commission shall appoint four independent directors, the regulator said in the rules.

In addition, directors should satisfy criteria of “fit and proper person,” and the appointment of the chief executive officer shall be subject to prior approval of the commission, the regulator said.

Exchanges have to furnish information related to the board and corporate governance to the commission by Sept. 2.

Compliance Action

EU Investigation Finds China Solar-Panel Makers Got Aid

Chinese solar-panel makers received subsidies, a European Union investigation showed, increasing the likelihood of EU tariffs on imports of the renewable-energy technology from China to counter trade-distorting state aid.

The European Commission has concluded in the probe opened last November that Chinese manufacturers of crystalline silicon photovoltaic modules or panels, and cells and wafers used in them, benefited from preferential lending, tax programs and other aid, an EU official said yesterday in Brussels. The inquiry is one of two that the commission is conducting into alleged unfair Chinese trade in solar goods.

The commission on Aug. 2 approved an agreement with China to curb Chinese shipments of solar panels as part of a parallel probe into below-cost sales, a practice known as dumping. Chinese manufacturers that take part in the pact are being spared provisional EU anti-dumping duties as high as 67.9 percent.

The commission is engaged in a political balancing act as it seeks to limit Chinese competition against European manufacturers. On Aug. 7, the commission decided against imposing preliminary anti-subsidy tariffs on Chinese solar panels.

SEC’s White to Meet With Exchanges on Nasdaq Trading Halt

U.S. Securities and Exchange Commission Chairman Mary Jo White will meet Sept. 12 with the heads of exchanges and other self-regulatory organizations to discuss last week’s trading halt in Nasdaq-listed stocks.

“The meeting at the SEC will address the market data dissemination system involved in last week’s halt as well as other critical market systems and infrastructure issues,” John Nester, an SEC spokesman, said in a statement yesterday.

Nasdaq’s Aug. 22 shutdown stopped trading in more than 2,000 U.S. stocks for three hours. The outage stemmed from a communication error between another exchange and a network that Nasdaq OMX Group Inc. (NDAQ:US) operates to disseminate data on quotes and prices.

White also said after the outage that the SEC should advance a proposal that would require exchanges and other entities that facilitate trading to test the reliability of their technology.

Ex-JPMorgan Trader Released, Saying He Opposes Extradition

Former JPMorgan Chase & Co. (JPM:US) trader Javier Martin-Artajo was released from police custody after telling a Madrid court he opposed attempts by U.S. prosecutors to extradite him on charges he hid trading losses that cost the bank $6.2 billion.

The former trader turned himself in yesterday morning after being contacted by investigators, a Spanish police official said. He was released after a hearing in Madrid yesterday in which he said he was unwilling to be extradited, according to a spokeswoman for the National Court.

The U.S. this month charged Martin-Artajo, a Spanish citizen, and Julien Grout, a French citizen, with trying to hide the losses stemming from trades by Bruno Iksil, the Frenchman at the center of the case who became known as the “London Whale.” Grout and Martin-Artajo face as many as 20 years in jail if convicted of the most serious counts, including conspiracy and wire fraud.

Martin-Artajo, 49, oversaw trading strategy for Iksil’s synthetic portfolio at JPMorgan’s chief investment office in London, while Grout was a trader who worked for him.

Martin-Artajo’s lawyer, Lista Cannon, didn’t immediately respond to a call seeking comment yesterday. He “is confident that when a complete and fair reconstruction of these complex events is completed, he will be cleared of any wrongdoing,” a spokeswoman for his law firm said earlier this month. Jennifer Zuccarelli, a spokeswoman for JPMorgan, declined to comment.

At a hearing yesterday, Martin-Artajo’s lawyer filed documents in which his client denied the allegations, according to a court official who asked not to be identified because they weren’t authorized to speak publicly. The U.S. now has 40 days to file sworn statements in support of its extradition request.

The extradition process “can take up to several months,” said Ivan Mercado, managing partner at Mercado & Rengel, a law firm in Spain that works on U.S. extradition cases. Mercado is not involved in the case.

The spokeswoman for the court said Martin-Artajo’s passport has been confiscated. Another court official said that wasn’t the case, but that he can’t leave Spain without court approval.

Grout is living in France and isn’t a fugitive, his lawyer, Edward Little, a partner at Hughes Hubbard & Reed LLP in New York, said in an Aug. 12 interview, two days before his client was charged.

“He visited the U.S. last month with confidence he was not being indicted and moved to France to save money and look for a job,” Little said at the time. France has no obligation under its extradition treaty with the U.S. to send Grout to New York. Little declined to comment yesterday.

Amazon Drops Price Parity Clause for German Retailers

Amazon (AMZN:US) told Germany’s antitrust regulator it will drop the company policy, known as the price parity clause, that forced retailers to offer their lowest price at Amazon marketplace as well as elsewhere.

The Federal Cartel Office said it is reviewing whether it can now drop the probe of Amazon’s policy. The company’s price parity clause prevented retailers that offer goods on Amazon’s platform from selling them cheaper elsewhere on Internet.

Earlier this year, Germany’s Cartel Office said it was surveying 2,400 retailers as it examined the impact of Amazon’s price parity clause on Amazon marketplace online retailers. At that time, the Cartel Office said Amazon may need to remove the clause if the survey shows it leads to higher prices without benefit to consumers.


BofA FDIC Suit for $1.7 Billion in Investor Losses Thrown Out

Bank of America Corp (BAC:US).’s lawsuit against the Federal Deposit Insurance Corp. over $1.7 billion in investor losses was dismissed by a federal judge.

The suit was based on the bank’s role as trustee for Ocala Funding LLC.

U.S. District Judge Barbara Rothstein in Washington threw out the case, saying there weren’t enough assets to make any payments on general creditor claims, according to her decision yesterday.

The case stems from a mortgage-fraud scheme at failed lender Taylor, Bean & Whitaker Mortgage Corp. From 2002 through August 2009, Lee Farkas, while he was chairman of Taylor Bean, sold more than $1.5 billion in fake mortgage loans to Colonial Bank with the collusion of its employees and diverted more than $1.5 billion from Ocala Funding, a financing vehicle Taylor Bean controlled.

Farkas is serving a 30-year sentence, following conviction for 14 counts of conspiracy and bank, wire and securities fraud relating to the scheme.

The case is Bank of America v. FDIC, 10-cv-01681, U.S. District Court, District of Columbia (Washington).


Hong Kong Has ‘Last Mover Advantage’ on Dark Pools, Adler Says

Having a single market without much fragmentation, stamp duty and regulations around dark pools, which keep their market share low, have helped to keep issues associated with high frequency trading out of Hong Kong, Ashley Alder, CEO of H.K. Securities and Futures Commission, said at a conference in the city Aug. 26.

Dark pool consultation “hopefully” will be out this year, Alder said in his remarks.

Dark pool rules will create a market-wide code to replace current license conditions, according to Alder.

The Hong Kong SFC is in discussions with exchanges on issues including circuit breakers, Alder said.

To contact the reporter on this story: Carla Main in New Jersey at

To contact the editor responsible for this report: Michael Hytha at

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