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EU-Bank Network, Swiss Bank Capital, Mexico: Compliance

bloomberg.comJune 4, 2012

The Securities and Exchange Commission approved two proposals to alter trading curbs meant to curtail volatility in the U.S. stock market.

The regulator approved a system known as limit-up/limit- down that prevents trades at prices outside a specified band, according to a statement on the SEC website June. It also backed changes to broader circuit breakers instituted after the 1987 market crash that halt exchange-listed securities in U.S. markets during periods of volatility. Both programs will be implemented on Feb. 4 for a one-year pilot period.

U.S. stock exchanges and the Financial Industry Regulatory Authority, which oversees more than 4,400 brokers, introduced curbs for individual stocks after the May 2010 rout known as the flash crash to halt shares when they rise or fall at least 10 percent in five minutes. Exchanges asked for permission 13 months ago to test the limit-up/limit-down system and updated their proposal on May 24.

By the time the updated programs are in place, almost three years will have passed since the flash crash.

Under the limit-up/limit-down system, which will replace the current practice of immediate halts when prices for individual securities become volatile, trades won’t be allowed to take place more than a specified percentage above or below the average price over the preceding five-minute period. If trading isn’t able to occur within the price band for more than 15 seconds, a five-minute halt will ensue, the SEC said.

Each stock will be allowed to move a certain percentage from its five-minute average, with the amount varying based on its closing price the prior day.

The price band will be 5 percent above and below for stocks higher than $3 in the Standard & Poor’s 500 Index (SPX) and Russell 2500 Index and a group of about 430 exchange-traded products, the SEC said. It will be 10 percent for other securities higher than $3. Those between 75 cents and $3 can move up to 20 percent, while those less than 75 cents can move the lesser of 75 percent or 15 cents.

The limit-up/limit-down plan will also give the market that lists a security the discretion to declare a trading pause when a stock has “deviated from its normal trading characteristics” and the exchange decides that a halt would curtail excessive volatility, the SEC said. This will ensure a company’s shares don’t “remain impaired” indefinitely, it said.

The commission said it expects exchanges will eliminate the volatility curbs that apply only on their own venues.

An advisory committee to the SEC and Commodity Futures Trading Commission recommended changing the marketwide system. The advisers included Joseph Stiglitz, an economist who won the Nobel Prize; David Ruder, a former SEC chairman; Brooksley E. Born, who was chairman of the CFTC; and John J. Brennan, chairman emeritus and senior adviser at Vanguard Group Inc.

Compliance Policy

EU’s Barnier Seeks National Funds to Stabilize Failing Banks

A network of national funds to stabilize failing lenders will be proposed by European Union regulators this week in a bid to take taxpayers off the hook for bank rescues.

There should be “good coherence and cooperation between these national financing arrangements,” EU Financial Services Commissioner Michel Barnier told reporters in Amsterdam June 1. The so-called resolution funds “should be able to borrow from each other in case of difficulties,” he said.

The measures, to be presented in a draft law on June 6, may serve as a stepping stone for a longer-term project to create a single EU-level fund to deal with crisis-hit lenders, Barnier said.

European Central Bank President Mario Draghi May 31 called for a “further centralization” of banking supervision in the 17-nation euro area, citing the rescue of Spain’s Bankia group as an example of the perils of nations trying to regulate banks by themselves.

The euro area needs a so-called banking union combining a single “deposit guarantee scheme with a resolution fund and the centralization of banking supervision,” Draghi said.

The commission is also calling for national bank deposit guarantee programs to have the right to borrow from each other, Barnier said.

Separately, Andreas Treichl, the chief executive officer of Austria’s Erste Group Bank AG (EBS), said the European Union should consolidate bank regulation and deposit insurance as part of a unification of its fiscal policies.

“This is part of a good plan,” Treichl said in an interview broadcast by Austrian state radio ORF June 1, when asked about the “banking union” proposed by the European Commission May 30. “If we want to keep the common currency, we need a fiscal union in Europe,” he said. “And that must also mean that the states are prepared to subordinate their banking supervision to a European regulator.”
Swiss Government Adopts Stricter Bank Capital, Leverage Rules

The Swiss government June 1 adopted stricter capital and leverage rules for banks, including UBS AG and Credit Suisse Group AG (CSGN), the country’s biggest.

UBS and Credit Suisse will have to hold equity amounting to at least 4.56 percent of their total assets on the balance sheet and certain off-balance sheet items, the government said in a statement June 1. The banking regulator in 2008 gave the two banks until 2013 to boost their capital as proportion of assets excluding domestic lending to at least 3 percent at the group level and at least 4 percent for individual institutions.

The government June 1 also adopted rules that will allow it in the future to raise capital requirements for all banks by as much as 2.5 percent of their risk-weighted assets to counter excess credit growth.
Mexico’s Pension Funds to Disclose Benchmarks, Ordorica Says

Mexico’s pension funds will have to disclose more details about their investment strategies, including listing a benchmark, under rules taking effect in August, the industry’s top regulator said.

Pedro Ordorica, president of the pension fund regulatory agency known as Consar, said that agency is asking funds to “clearly define their investment policy in their prospectuses.”

Ordorica made the remarks in an interview June 1 at a conference in Cancun.

The changes go into effect on Aug. 24 and the new information will have to be published on the pension funds’ websites, according to Ordorica. It will also appear on the Consar website after Sept. 1, he said.
Swiss to Discuss Changes to Corporate Tax Regime With EU

The Swiss government will discuss the country’s corporate tax regime with the European Union as it wants to find a framework that is “internationally accepted and yet strengthens Switzerland as a business location.”

“The European Union considers that certain tax regimes in Swiss cantons are discriminatory, as the profits of domestic and foreign companies are sometimes taxed differently,” the government said in a statement from Bern June 1.


Compliance Action

U.S. Audit Cites OCC Lapses in Oversight of Foreclosure Process

The Office of the Comptroller of the Currency underestimated the risks in bank foreclosure practices from 2008 to 2010 and gave examiners a 13-year-old handbook that didn’t address how securitization affects loan documentation, a Treasury Department audit found.

Treasury’s inspector general’s office reviewed the OCC’s work in the years following the onset of the credit crisis. The period was later found to be rife with abusive foreclosure practices including use of fraudulent documentation by servicers. Five major banks, including JPMorgan Chase & Co. (JPM), Bank of America Corp. and Wells Fargo & Co., settled claims from 49 states and the federal government for $25 billion on Feb. 9.

“During this time OCC did not consider foreclosure documentation and processing to be an area of significant risk and, as a result, did not focus examination resources on this function,” Jeffrey Dye, the inspector general’s director of banking audits, wrote in the May 31 report.

The inspector general also faulted the OCC, the primary federal supervisor for national banks, for failing to update its handbook on mortgage banking examinations for 13 years.

OCC spokesman Robert Garsson declined to comment on the Treasury report.


SEC Said to Select Postal Inspector General for Watchdog Probe

The U.S. Postal Service’s inspector general has been asked by the Securities and Exchange Commission to oversee a probe of possible misconduct in the SEC’s watchdog office, according to two people briefed on the matter.

David Williams, who has been at the Postal Service since 2003, will use his investigators to review allegations against former SEC inspector general H. David Kotz, said the people, who spoke on condition of anonymity because the decision hasn’t been announced.

The SEC inspector’s office has been in flux since the end of March when the unit’s chief investigator, David Weber, alleged that Kotz may have had a personal relationship that tainted reports on the agency’s failure to catch the Bernard Madoff and R. Allen Stanford Ponzi schemes, according to a copy of a March 23 complaint from Weber to the Council of the Inspectors General on Integrity and Efficiency.

Williams, who was a special agent with the U.S. Secret Service, has been an inspector general at five agencies, including the Nuclear Regulatory Commission, the Treasury Department and the Social Security Administration, according to his official biography.


Swedish Banks Can Withstand Euro Crisis Fallout, Riksbank Says

Sweden’s central bank said lenders in the largest Nordic economy can withstand a deepening of the euro-zone’s debt crisis as speculation mounts the currency bloc may splinter.

Loan losses will remain limited and earnings increase, the Riksbank said in its twice-yearly financial stability report June 1. Banks are “well-capitalized” and have limited exposure to Europe’s most indebted countries, it said.

“According to the Riksbank’s stress tests, the major banks would be able to cope with much weaker economic development in the period ahead,” the Riksbank said

Sweden is imposing tougher capital standards for its four biggest lenders than the minimum set by the European Union and those recommended by the Basel Committee on Banking Supervision. Nordea Bank AB (NDA), Swedbank AB (SWEDA), Svenska Handelsbanken AB (SHBA) and SEB AB (SEBA) will need to meet common equity Tier 1 capital ratios of at least 10 percent from 2013, and 12 percent two years later.

The prospect of a euro-zone breakup has risen following inclusive May 6 elections in Greece in which bailout-hostile parties won the most votes. The risk of the currency bloc disintegrating is “significant” if further reforms aren’t carried out, Economic and Monetary Affairs Commissioner Olli Rehn said in Helsinki June 1.


Russian Regulator Limits More Banks on Deposits, Vedomosti Says

Russia’s central bank is more frequently preventing problem banks from raising deposits after First Deputy Chairman Alexei Simanovsky became the body’s top regulator, Vedomosti reported.

About 60 Russian banks are under orders from the central bank not to increase their deposits above a certain level, the Moscow-based newspaper reported, citing an unidentified person familiar with the central bank’s statistics.

The orders, which most often last for half a year, have been handed down more often in the past three months, the newspaper said, citing the unidentified person.



Hontex Seeks to Halt Hong Kong Regulator’s IPO Compensation Case

Hontex International Holdings Co. (946) sought to halt a lawsuit seeking compensation for investors who, Hong Kong’s securities regulator said, were misled by the Chinese fabric maker in its listing prospectus.

The Securities and Futures Commission’s fraud case against the company should be tried under a criminal and not civil burden of proof if it proceeds, Hontex’s lawyer Charles Manzoni told the city’s High Court yesterday.

The Securities and Futures Commission wants to use HK$997 million ($128 million) of Hontex’s frozen assets to compensate investors in its 2009 share sale, after saying the company is criminally liable for misstatements in its prospectus. In April the SFC revoked the license of an arranger of the sale and last year a KPMG accountant was cleared of taking a bribe for his work on the Fujian province-based company’s prospectus.

SFC Chief Executive Officer Ashley Alder said the case will be a test of whether Hong Kong investors have recourse when a listed company’s business, directors and legal incorporation all exist outside of Hong Kong’s legal jurisdiction.

Alder made the remarks on May 22, two weeks after the regulator proposed more stringent due diligence requirements for bankers as well as extending civil and criminal liability to them for prospectus information.

Hontex manufactures goods in mainland China. Its directors are in Taiwan and the company is incorporated in the Cayman Islands.

The case is Securities and Futures Commission and Hontex International Holdings Co., HCMP630/2010 in the Hong Kong Court of First Instance.
Westaway Says Spanish Banks Need EFSF Recapitalization

Peter Westaway, chief European economist at Vanguard Asset Management, discussed the outlook for Spain and Greece, the future of the euro and Bank of England monetary policy.

He spoke with Francine Lacqua and Guy Johnson on Bloomberg Television’s “City Central.”


Wal-Mart CEO Mike Duke Defends Retailer Amid Bribery Probe

Wal-Mart Stores Inc. (WMT) Chief Executive Officer Mike Duke told employees and shareholders at the company’s annual meeting June 1 that the retailer, whose executives are accused of bribing Mexican officials, is committed to ethical behavior.

Speaking before 14,000 people in Fayetteville, Arkansas, Duke addressed an ongoing bribery investigation by the U.S. Justice Department and U.S. Securities and Exchange Commission. He said the world’s largest retailer was built by founder Sam Walton on a foundation of ethics and trust and will continue to behave that way. His comments followed similar statements by Rob Walton, the company’s chairman and son of the founder.

For the first time since acknowledging an investigation into bribery allegations in April, Duke spoke about the accusations and demanded ethical behavior from his company. He said Wal-Mart is investigating the allegations and will get to the bottom of the matter.


Comings and Goings
Matsushita Named to Tackle Insider Trades as Japan FSA Chief

Tadahiro Matsushita, a Japanese Lower House lawmaker, was named to helm the country’s financial watchdog, replacing Shozaburo Jimi as the government intensifies probes into insider trading and accounting fraud.

Matsushita, 73, who like Jimi is a member of the People’s New Party, was appointed minister for the Financial Services Agency as part of changes to the Cabinet that were announced in a government statement in Tokyo today.

He will take responsibility for rebuilding confidence in Japanese financial markets following corporate scandals including insider trading, Olympus Corp.’s accounting fraud, and more than $1 billion in pension fund investment losses. Matsushita will take over investigations spearheaded by the FSA and its watchdog arm, the Securities and Exchange Surveillance Commission, into information leaks ahead of share sales including Nippon Sheet Glass Co., Inpex Corp. Tokyo Electric Power Co. and Mizuho Financial Group Inc. The SESC is also probing underwriters responsible for the stock offerings.


BOE Says Bailey to Replace Sants on Financial Policy Committee

The Bank of England said Andrew Bailey will replace Financial Services Authority Chief Executive Officer Hector Sants as a member of the interim Financial Policy Committee when he leaves in June.

Bailey, who had already been announced as Sants’ replacement as the Head of the Prudential Business Unit, will be a voting member of the interim FPC, the London-based central bank said in an e-mailed statement released June 1. The FSA announced the resignation of Sants in March.

Bailey’s appointment will be on an interim basis until a Chief Executive of the Prudential Regulation Authority and Deputy Governor of the Bank of England for Prudential Regulation has been named and taken up their position, the Bank of England said.


JPMorgan Names Bacon Deputy Risk Chief After $2 Billion Loss

JPMorgan Chase & Co. named Ashley Bacon deputy chief risk officer as the firm overhauls risk management following a $2 billion trading loss in its chief investment office.

Bacon will retain his role as head of firmwide market risk, according to a memo June 1 to employees from Chief Risk Officer John Hogan. Bacon has been helping the New York-based company unwind the money-losing positions.

Stephen Eichenberger was appointed wholesale chief credit officer, in addition to his role as chief credit officer for the investment bank, the memo shows. Sam Ramsey will take an expanded role overseeing risks for all consumer businesses. Marge Hannum will head consumer practices for cards.

Back to June 2012 Archive

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