GLOBAL REGULATORY BRIEFINGstatic.reuters.com/resources/media/editorial/20110512... · 2011-05-12 · GLOBAL REGULATORY BRIEFING, MAY 12, 2011 1 GLOBAL REGULATORY BRIEFING MAY 12,

GLOBAL REGULATORY BRIEFING, MAY 12, 2011 1

GLOBAL REGULATORY BRIEFING MAY 12, 2011

WEEK IN BRIEF A U.S. jury convicted hedge-fund founder Raj Rajaratnam in one of the biggest ever Wall Street insider-trading cases. EU finance ministers prepared to back a ban on uncovered short selling of sovereign debt and shares. President Obama’s pick for a seat on the U.S. futures regulator could bring a crucial vote for position limits. Indonesia slapped lengthy bans on Citibank's credit card and wealth-management businesses.


IN THIS ISSUE Rajaratnam convicted on all insider trading charges EU ministers set to back short-selling curb -diplomats Obama tips CFTC scales with nomination Indonesia bars Citi from new credit cards, premium clients

REGULATORY REFORM Top banks give nod to junior debt writeoffs EU promises banks regulatory pause in 2013 U.S. risk council seeks more comment on systemic firms Senate Republians draw line on consumer watchdog Republicans seek changes to SEC whistleblower rule U.S. Senate banking panel chief defends Dodd-Frank US covered bonds gain approval, but FDIC concerns remain UAE government sees approval of public debt law soon Monopoly fears for EU-backed data warehouse Securitisation market not holding out for quick-fix competition reforms Italy watchdog calls for greater takeover defences

INSIDER-TRADING VERDICT After Rajaratnam, U.S. not done in insider probe Rajaratnam appeal may be long shot U.S. gets guilty plea in 'expert network' insider probe

ENFORCEMENT Trio of British banks take $3 billion mis-selling hit UK's FSA says seeking to ban two execs Oil firms most at risk from UK Bribery Act -study US wins corporate conviction in bribery-act trial US targets bankers in HSBC laundering probe -source U.S. banks and states meeting on foreclosure probe Credit Suisse subpoenaed by SEC -court document State Street says U.S. SEC probes its forex pricing Indonesia SBI penalty rules coming soon -central bank Hong Kong fines Merrill $386,000 for index-linked note sales Regulators probe Goldman analyst communications JPMorgan in talks with SEC to resolve probe Swiss open money-laundering case for Ivory Coast government Senator Grassley raises questions about SAC Capital Raymond James sees up to $50 million auction-rate loss Madoff trustee in $1 billion pact with Fairfield funds Allen Stanford criminal trial set for September

SUPERVISION UK watchdog’s head vows to step in earlier over bank mis-selling China banks must restrict "shadowing" activities -regulator FDIC warns on moral hazard for money market funds Hong Kong regulator says studying business trust listings


Onus on local heads to ensure foreign banks' compliance -central bank US Treasury to form insurance advisory body

ACCOUNTING & FINANCIAL STANDARDS U.S. rating agencies win dismissal of lawsuits FDIC's Bair seeks higher short-term capital buffer U.S. auditor watchdog hopeful of access to China Swedish FSA says sceptical about CoCo capital

DERIVATIVES CFTC proposals would increase end-user cost –O'Malia

EXCHANGES & TRADING PRACTICES SEC chief keeps options open on private securities What really triggered oil's greatest rout US SEC head eyes fast traders on crash anniversary Australian flashback: The 'flash crash' one year on - breaking the circuit LSE sees mergers driving regulatory reform TMX to file LSE bid with provinces within weeks -CEO

FUNDS MANAGEMENT Same-sex couples equal for pensions, EU court says Pension industry to fund Irish jobs plan

FINANCIAL CRISIS & ECONOMY AIG, U.S. Treasury set $9 billion offering, but it could be pulled Judge criticises speed of Anglo Irish probe

TAX US lawmakers unveil bill to lure offshore profits home German government expects bank levy to pass upper house Finland for global or European financial tax Schaueble aims for Swiss tax deal this year-paper

CURRENCY U.S. FDIC proposes retail foreign exchange rule China should consider ways to reduce FX reserves -banker

TRADE & CROSS BORDER China eases trade rules, allows U.S. fund sales China to allow QFIIs to trade stock index futures Shanghai reviews second batch of foreign PEs for China investment India to allow foreign investment in limited-liability partnerships New EU trade plan attracts broad internal criticism Gulf states plan to complete customs union by 2015 Foreign miners submit Zimbabwe ownership plan

STATE ENTERPRISE AND INVESTMENT U.S. infrastructure bank idea gets Congressional boost


India official expects infrastructure debt fund guidelines by June

COMMODITIES & ENERGY Volatility in oil and commodity prices of great importance -Trichet UK consults on mandatory CO2 reporting Mali aims to lure investors with mining review China says says EU airline CO2 cap should protect poor countries

TELECOMS

INTERNET & MASS COMMUNICATIONS FCC chief: antitrust law can't adequately defend Internet Senators skeptical of Google, Apple mobile privacy Indian web rules risk curbing info flow -Google

INTELLECTUAL PROPERTY China's Baidu fined for copyright infringement-report

PEOPLE Germany backs Draghi, deciding ECB presidency race New U.S. CFTC enforcement chief vows to be aggressive Bair to step down as U.S. FDIC chairman in July Senate panel OKs Diamond for U.S. Fed, prospects cloudy U.S. Senate panel OKs anti-terrorism finance nominees China replaces president of China Life Insurance South Korea's Lee names new finance chief in policy shift FCC's Baker leaving to lobby for NBC Universal Ex-SEC top lawyer Becker to rejoin Cleary Gottlieb


QUOTES "It's an historic verdict. It will likely set the stage for a dramatic change not only in the way that the Wall Street insider-trader activities are investigated and prosecuted, but most likely this will have a chilling effect on individuals and companies that trade."

Bill Singer, securities lawyer with Gusrae, Kaplan, Bruno & Nusbaum, on Galleon hedge fund founder Raj Rajaratnam’s conviction on indisder trading charges

"If you look at the existing exchange mergers, including the transatlantic mergers, there's not a unified regulatory environment. This is the greatest opportunity the financial crisis has presented - to unify regulation,"

London Stock Exchange Chief Executive Xavier Rolet

"The expectation is that firms designing (financial) products are given clearer guidance on the sort of features that are acceptable and unacceptable. It's impossible to intervene in every product, but the desire is that the regulator is much quicker and earlier to step in where there are problems."

Martin Wheatley, designated chief executive of the new UK Financial Conduct Authority

"Indonesia is just developing an enforcement culture, but it really is at a very early stage of that. A country has to get an enforcement culture on the everyday stuff before it can get into enforcement culture on the more complex type of dealings such as derivatives."

Joel Hogarth, a partner at O'Melveny & Myers in Singapore who co-ordinates the firm's Indonesia practice, after the Indonesian Central Bank sharply penalized Citibank over a case of suspected embezzlement of client funds.

"The acquisitions of Italian companies by foreign investors can bring significant benefits to the country's economy. However, these acquisitions are not always guided by the desire to boost a company's value. It is therefore crucial to define takeover rules that can counter the risk of value destruction."

Chairman Giuseppe Vegas, of Italian securities regulator Consob

"The government is hoping that foreign capital and expertise can boost China's nascent private equity industry and aid economic restructuring. But to the disappointment of many, QFLP investors will still be treated as foreign investors, who are subject to numerous restrictions when it comes to investing in Chinese companies."

Poddy Feng, analyst at consultancy ChinaVenture in Beijing


TOP STORIES

US | REUTERS, MAY 11

Rajaratnam convicted on all insider trading charges

U.S. hedge-fund founder Raj Rajaratnam was found guilty on all 14 counts of insider trading in a sweeping victory for the government and a vindication of its aggressive use of phone taps to pursue Wall Street crimes. Rajaratnam, the Galleon Group founder at the center of the biggest insider trading investigation in decades, could face at least 15 years in prison when he is sentenced on July 29. The prosecution based its case on evidence that Rajaratnam ran a web of highly-placed insiders to leak valuable corporate secrets and earned an illicit $63.8 million from trading on the information. The government's unprecedented use of extensive phone tapping in an insider trading case may have marked a turning point in the prosecution of white collar crimes and how Wall Street traders work. Chief defense lawyer John Dowd said Rajaratnam, 53, will appeal the case. In particular, he is expected to challenge the use of secret recordings. Rajaratnam's lawyers had stuck consistently to their main theme that his trades were guided by a trove of research and public information. Litigation experts said the phone taps strengthened insider trading charges, which historically have been difficult to prove because they rely on circumstantial evidence. Rajaratnam is the only one out of 26 people charged in the broad Galleon case to go on trial so far. Twenty-one pleaded guilty and one defendant is at large. Learn more

EU | REUTERS, MAY 6-11

EU ministers set to back short-selling curb -diplomats

European Union finance ministers look set to back a ban on naked or uncovered selling of sovereign debt and shares when they meet next week, diplomats said. The draft measure will also need approval from the European Parliament to become law, and joint talks are expected to be tough as the assembly wants more stringent curbs. Ambassadors from the bloc's 27 states were unable to reach a formal consensus but diplomats said there was enough of a majority for ministers to vote through a compromise put forward by EU president Hungary. The compromise backs a ban on naked government-debt selling which could only be lifted temporarily if trading volume fell below a threshold to be agreed at a later date. A naked sale is where the asset is not owned or borrowing arrangements not made at the time of sale. A second diplomat said there is more than a qualified majority for ministers to vote through the measure, as only Britain, Sweden and Germany raised reservations. Parliament voted overwhelmingly in committee in March to go further and introduce a ban on naked selling of sovereign credit default swaps (CDS) as well as sovereign debt and shares. The Hungarian compromise is seen by diplomats as staying within parliament's "red lines", and therefore a final first reading deal is seen likely in June or July 2011 at the latest.

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Obama tips CFTC scales with nomination

The Obama administration is poised to secure an all-important vote at its U.S. futures regulator to drive through its plan to clamp down on speculation in the hard-charging oil, metals and grain markets with a nomination of a fresh-faced commissioner. The White House chose Mark Wetjen, 37, a top aide to the Senate majority leader, for a spot on the Commodity Futures Trading Commission, replacing fellow Democrat Michael Dunn, who has given CFTC Chairman Gary Gensler a few headaches in his drive to rein in commodity markets. The fifth seat on the commission is important for ensuring swift passage of the dozens of rules the agency is making to implement derivatives reforms in the Dodd-Frank law. But the vote may be most critical to advance new limits on commodity markets. Dunn has been openly skeptical about the CFTC's plan to limit trades that big investors can make in commodity markets. Wetjen's opinions on position limits and other derivatives reforms are unknown. But as a newly appointed Democratic commissioner, he may be more likely to vote with Gensler than someone with more experience with complex derivatives regulations. He has worked for the past seven years for Majority Leader Harry Reid. Dunn has kept his own counsel on other rules, generally expressing concerns about overreaching or writing rules that would be too expensive to enforce. His term expires June 19, and he has said he is willing to stay until his successor is in place. Wetjen’s nomination faces a potentially lengthy confirmation process in the Senate. Learn more

INDONESIA | REUTERS, MAY 6-10

Indonesia bars Citi from new credit cards, premium clients

Indonesia slapped lengthy bans on Citibank's credit card and wealth management businesses over a case of alleged embezzlement and the death of a client following questioning by debt collectors. Indonesia's central bank barred Citigroup from adding new credit card clients for two years and new customers for its premium wealth service for a year. If any crimes were found, it would revoke the U.S. bank's operating license in Southeast Asia's biggest economy. S. Budi Rochadi, a deputy governor of Bank Indonesia, said it had found violations on international banking regulations as well as weakness in risk management at Citibank. He said the central bank was taking the measures as an effort to protect customers and the credibility of the banking industry, adding it had told Citibank to suspend executives involved in both cases. Harry Azhar Azis, a senior member of the Indonesian parliament's Financial Commission, said the move was aimed at sending a message to the wider financial system that banks needed to step up their risk controls. Bank Indonesia's tough move on Citi could mean it manages to win its long-running battle to retain bank supervision, which the government had been planning to move to a new regulator, the OJK, modelled on the UK's Financial Services Authority. Legal experts said that while strong progress had been made in the past two to three years of properly enforcing bread and butter financial agreements such as mortgages, the country's fast-growing corporate sector and influx of foreign money means banks have been trying to bring in complex financing tools and derivatives before the regulatory system was ready to deal with them. Learn more

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FINANCIAL SERVICES

REGULATORY REFORM

GLOBAL | REUTERS, MAY 9

Top banks give nod to junior debt writeoffs

Junior debt holders should take a loss on their holdings to help rescue an ailing bank, a global bank lobby group said. The Institute of International Finance (IIF) backs so-called bank "bail ins" -- whereby losses would be forced on shareholders and bondholders to recapitalise an ailing bank before taxpayers are called upon. Urs Rohner, chairman of Credit Suisse and chair of the IIF working group on cross border resolution said this was "a giant leap forward." But the sector is largely bowing to the inevitable on bond "haircuts" for bank bail-ins. Regulators have been working on such plans for over a year. The Financial Stability Board (FSB) of global regulators is finalising bail-in plans so that bondholders as well as shareholders bear the cost of rescuing banks in the next crisis and not the taxpayer. Key issues for supervisors include whether senior bondholders should also be in the firing line and how to calibrate the bail-in trigger. The IIF said calling on senior bondholders to fund a bank rescue should be the "last resort alternative to winding down the firm." The lobby group urged Group of 20 leaders to make a cross-border bank-crisis resolution system a top priority despite the legal challenges it presents. Learn more

EU | REUTERS, MAY 10

EU promises banks regulatory pause in 2013

European banks already groaning under new laws face another two years of heavy rulemaking before regulators call it a day. Martin Merlin, head of financial services policy at the European Union's executive European Commission, said it expects a regulatory pause in 2013, as hopefully all the rules that needed to address the financial crisis will have been put in place in EU states. EU Internal Market Commissioner Michel Barnier is due to present draft laws on tougher bank capital, bank crisis resolution and securities trading before the summer ends. The EU executive also expects another health check of European banks in 2012 as the current one is due to be completed in June 2011. Gerald Corrigan, a managing director at Goldman Sachs bank, said markets were already checking how banks can meet new bank capital rules that don't start until 2013.


U.S. risk council seeks more comment on systemic firms

The U.S. Financial Stability Oversight Council will give the public more time to comment on the criteria for picking so-called "systemic" financial firms, after lawmakers scolded the new overseer for being opaque on the process.

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U.S. bank regulator John Walsh said members of the council of major supervisors, which includes the chairman of the Federal Reserve, agreed they need more comment on the process. The council has already sought comment on its proposed criteria to designate non-bank "systemically important financial institutions," called SIFIs, whose failure could pose a risk to the broader financial system. The criteria include size and how connected the firm is to the financial system. The designation, which firms such as insurers and hedge funds are trying to avoid, comes with special oversight by the Fed, and higher capital and liquidity requirements. Republicans, and some Democratic lawmakers, have told regulators they need to be more specific to get appropriate public comment. Securities and Exchange Commission Chairman Mary Schapiro said the council plans to give additional guidance on its approach to designations. Learn more

US | REUTERS, MAY 5-11

Senate Republians draw line on consumer watchdog

Forty-four U.S. Republican senators vowed to vote against any White House nominee to head a new consumer watchdog agency without fundamental changes to how it is structured. The Consumer Financial Protection Bureau, set to open its doors in July 2011, was created by 2010's Dodd-Frank legislation as part of that law's response to the 2007-2009 financial crisis. President Barack Obama has not yet nominated a director for it, though the front-runner has long been seen as Elizabeth Warren, an outspoken champion of financial consumer rights who is reviled in the banking industry. The bureau is meant to protect consumers from abusive and misleading mortgages and credit cards, among other financial products and services. Its creation has been opposed since 2009 by Republicans and financial industry interests. The Republicans' demands set up a potentially fierce debate in the Senate over the CFPB. The Obama administration was likely to try to sidestep a fight by appointing a director while the Senate is in recess, Democratic Representative Barney Frank said. A House of Representatives panel on May 4 backed a bill to weaken the CFPB by having it run by a five-member board, not a single director, and making it easier for other financial regulators to block its rules.


Republicans seek changes to SEC whistleblower rule

U.S. House Republicans are mounting a last-ditch effort to influence a corporate whistleblower rule that companies fear will drive cash-hungry tipsters directly to the government, undermining internal compliance programs. Experts from the U.S. Chamber of Commerce were among the witnesses at a hearing this week into the Securities and Exchange Commission rule that responds to the whistleblower provisions in last year's Dodd-Frank financial oversight law. The SEC's proposal would reward people who provide original substantive tips leading to enforcement actions that result in sanctions exceeding $1 million. Major companies have asked the SEC to change the proposal by requiring whistleblowers to report company problems internally before going to regulators. Failing to do so, they say, will undermine internal compliance programs because employees will be enticed by the prospect of a reward of between 10 to 30 percent of the total monetary sanctions. SEC officials have told Reuters that the agency is not likely to agree to the demands for mandatory internal reporting, and that a vote on the plan could come as early as May 25. House Republicans are exploring ways to force legislative changes to the whistleblower compensation program. Representative Michael Grimm has drafted a bill that would amend

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Dodd-Frank by making internal reporting a requirement before a whistleblower can get a financial reward. But the future of the draft bill is highly uncertain, especially because at least one Senate Republican has warned against emphasizing internal reporting. Learn more


U.S. Senate banking panel chief defends Dodd-Frank

Rolling back the Dodd-Frank Wall Street law of 2010 "would be dangerous and irresponsible," according to the Democratic chairman of the U.S. Senate Banking Committee. As Republicans in the U.S. House of Representatives moved to weaken and delay key parts of Dodd-Frank, banking panel chairman Tim Johnson made clear that the efforts would face an uphill climb in the Democratic-controlled Senate. Johnson told Senate hearing on the report of an independent commission that investigated the financial crisis of 2007-2009 that efforts to dismantle Dodd-Frank must be thwarted. Republican attacks on Dodd-Frank are focused on trying to cut funding for the federal agencies that must implement it and, more directly, on specific provisions. Senator Richard Shelby, the banking panel's top Republican, called Dodd-Frank "a wish-list of reforms long sought by liberal activists, special interests and federal bureaucrats."

US | INTERNATIONAL FINANCING REVIEW, MAY 6

US covered bonds gain approval, but FDIC concerns remain

Efforts to create a covered bond market in the United States pressed forward after the House capital markets subcommittee approved the legislation on a voice vote, but major issues still need to be ironed out. The Federal Deposit Insurance Corp. has raised concerns that the legislation could put its bank deposit insurance fund at increased risk as investors of covered bonds would have priority in the event of a bank's failure. The bill, introduced by Republicans Scott Garrett and Carolyn Maloney, now has to be approved by the full committee, the full house and the Senate before coming into law. At the mark-up, Republican Maxine Waters reportedly suggested five amendments that address the FDIC's concerns, including one to cap the amount of covered bonds one bank can issue and one that would limit the over-collateralisation. Waters withdrew these amendments after Garrett agreed to address these concerns prior to any full mark-up - which will likely take place within the next month or two. Unlike the bill submitted by Garrett in 2010, the new covered bond legislation will provide a better resolution of the cover pool following issuer default and be credit positive for investors, according to Moody's. Learn more

ABU DHABI | REUTERS, MAY 10

UAE government sees approval of public debt law soon

The United Arab Emirates is likely soon to approve a law allowing the oil producer to issue its first ever federal sovereign bonds and create a local debt market, a finance ministry official said. The long-awaited law, regulating issuance and the amount of debt the world's No.3 crude

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exporter may accumulate, awaits a presidential nod after the UAE's top advisory council passed the bill in December 2010. Nadia Sultan, an officer in charge of establishing the federal public debt management office, said the law was in final stages for approval and that the ministry of finance had already started taking measures after the cabinet's resolution to establish a public debt bureau. Sultan also said an issuance plan has been under consideration but neither she nor other finance ministry officials attending the event gave more details, saying the process was still at an early stage.

UK | INTERNATIONAL FINANCING REVIEW, MAY 9

Monopoly fears for EU-backed data warehouse

More than 40 organisations have expressed an interest in building the European Central Bank-endorsed, market-led ABS loan level data warehouse, according to officials at The Market Group consortium that oversees the project. While the general consensus among market participants is that the creation of a centralised ABS data warehouse will restore confidence in the European structured finance markets by ensuring investor access to comprehensive, standardised and timely information, there are growing concerns that the endorsement from the ECB will create an uneven playing field. Other sources, meanwhile, have said that the process is "hopelessly complicated" and that the Market Group could have made the plan more straightforward. Following the construction of the data warehouse, a private placement of shares in the warehouse is expected to take place, anticipated to be similar to the formation of Euroclear, with the constructor of the warehouse limited to 15 percent of the shares. Royal Bank of Scotland analyst Ganesh Rajendra expressed concern that a central bank-endorsed initiative, under which the cost of available collateral data would be passed through to end-users, was creating a market monopoly through a "utility-like" pricing service. However, supporters of the initiative argue that third-party data providers will still be able to analyse and model the raw data available in the warehouse for the investors that require it. In addition, originators will maintain the ability to circulate their data to anyone that requests it. Learn more

AUSTRALIA | REUTERS, THOMSON REUTERS ACCELUS, MAY 6-10

Securitisation market not holding out for quick-fix competition reforms

A Senate inquiry into competition within the Australian banking sector has revived the industry debate about the appropriate level of government support for the domestic securitisation market. The long-awaited report from the Senate Economics Committee identified securitisation - or the lack thereof - as a key factor that has reduced competition in the banking market. While securitisation has traditionally been an important funding source for banks, it has been critical for the survival of non-bank mortgage lenders. When the global financial crisis caused investor demand for securitised assets to plummet, the business models of some Australian lenders were no longer viable and they either ceased lending or were bought by larger institutions. While the four major Australian banks have remained highly profitable throughout the downturn, the impact on non-bank lenders and broader competition in the market has been disastrous. The report from the Senate committee said there was an urgent need to look at regulatory reforms to bolster the securitisation market in Australia. In order to broaden investor appetite for securitised assets, the committee has recommended that APRA reviews its prudential framework to ensure there are no impediments to the issuance and trading of bullet bonds. The report also recommended that the government reconsider a ban announced last year on mortgage exit fees and that it set a standard fee for wholesale funding guarantee for banks.

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Learn more

ITALY | REUTERS, MAY 9

Italy watchdog calls for greater takeover defences

Italy's top financial regulator called on lawmakers to grant companies greater defenses against foreign takeovers, weeks after the government failed to block a bid for dairy group Parmalat by French group Lactalis. Giuseppe Vegas, the head of securities regulator Consob, said it was crucial to define takeover rules that could counter the risk of value destruction and he urged Italian lawmakers to act. Vegas said broadening defences for listed companies was "a path that can be immediately pursued," potentially re-opening a debate on foreign takeovers that seemed a closed issue after Prime Minister Silvio Berlusconi blessed the Lactalis bid after a meeting with French President Nicolas Sarkozy. Vegas also called for a reduction of red tape through simpler market prospectuses and raised the prospect of blocking the sale of complex financial products to small investors. He proposed the creation of a trading platform modelled on Britain's AIM to overcome the aversion of mid-sized Italian companies to stock market listings, at a time when banking credit is drying up in view of stricter bank capital rules. Takeovers in Italy are regulated by the so-called "passivity rule," a norm preventing management raising barriers to an announced bid unless approved by the majority of shareholders. The Italian parliament has recently started to loosen this rule by allowing companies to waive it in their by-laws, thus giving boards more flexibility in responding to hostile bids. This approach, Vegas said, needed to be enhanced, and he said foreign companies could protect themselves through poison pills or shares with different voting rights.

INSIDER-TRADING VERDICT


After Rajaratnam, U.S. not done in insider probe

The conviction of hedge fund founder Raj Rajaratnam is by far the government's biggest victory in its wide-ranging hedge fund insider-trading probe. It is unlikely to be the last. In addition to the conviction of Rajaratnam, the probe has resulted in 21 guilty pleas by Wall Street professionals, corporate insiders and lawyers. Related insider trading probes since late 2009 have resulted in 13 additional guilty pleas, prosecutors said. On Monday, May 16, the trial of three former traders, two of them brothers, begins in the Manhattan courtroom of a different federal judge, Richard Sullivan. Prosecutors allege that Zvi Goffer, Emanuel Goffer and Michael Kimelman made profitable trades based on inside information about mergers and acquisitions obtained from two lawyers who worked at law firm Ropes & Gray LLP. As in its case against Rajaratnam, the government will rely on cooperating witnesses and evidence obtained from wiretaps. A lawyer for Kimelman said his client had rejected a plea deal offered by prosecutors that would have resulted in a sentence of probation only. Wiretaps have also been used in the government's investigation into expert-network firms, which bring together consultants who work at public corporations with hedge funds seeking an investing edge. In several cases, prosecutors allege that certain expert-network consultants and employees peddled inside information to their hedge-fund clients.

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The investigation has yielded charges against more than a dozen individuals and several guilty pleas. Among them: two former portfolio managers who once worked at SAC Capital Advisors LP, the $12 billion hedge fund firm founded by Steven A. Cohen. One of those portfolio managers, Donald Longueuil, pleaded guilty on April 28 to trading on inside information leaked by a consultant at an expert-networking firm. That expert, Winifred Jiau, an ex-consultant for Primary Global, is to go to trial in June, which would be the first expert-network case to go to trial.


Rajaratnam appeal may be long shot

After a jury convicted Raj Rajaratnam of insider trading, his lawyer said he will appeal. But the Galleon Group hedge fund founder faces steep odds in getting his conviction on 14 criminal counts overturned, according to defense lawyers and former prosecutors not involved in the case. Rajaratnam's best shot at getting the verdict thrown out may be attacking the admissibility of the secretly recorded phone calls that formed the novel backbone of the government's case. But it has proven “virtually impossible” for defendants to suppress federal wiretap evidence, said Robert Weisberg, a professor at Stanford Law School. The use of wiretaps, believed to be the first time they had been used in a major Wall Street insider trading case, was considered a watershed event. So far, the tactic has withstood judicial scrutiny, even though Rajaratnam's lawyers argued that the government had not been completely truthful about the need for telephone surveillance in an application to a federal judge. No appellate courts have ruled on whether wiretaps can be issued for insider trading, making it an attractive issue for the appeals court, said Gail Shifman, a criminal defense attorney with Shifman Group in San Francisco. In allowing the wiretaps, the judge in the Rajaratnam case rejected another argument by the defense: that securities fraud is not one of the offenses Congress included in the federal law permitting the government to request court authorization of wiretaps. The case is USA v. Raj Rajaratnam et al, U.S. District Court for the Southern District of New York, No. 09-01184.


U.S. gets guilty plea in 'expert network' insider probe

On the same day that a jury convicted hedge fund manager Raj Rajaratnam, federal prosecutors notched another victory when a former account manager at a semiconductor company, Manosha Karunatilaka, pleaded guilty to charges of insider trading. Karunatilaka admitted in Manhattan federal court that he fed confidential tips about Taiwan Semiconductor Manufacturing Co to Primary Global Research, a so-called "expert network" that provides information to investors. Karunatilaka admitted to receiving more than $35,000 from Primary Global for providing inside information between January 2008 and June 2010, prosecutors said. Under his plea agreement, Karunatilaka faces three to four years in prison for conspiracy to commit securities fraud and wire fraud. He is scheduled to be sentenced in September. Karunatilaka is one of dozens of people swept up in a federal investigation of insider trading that has shaken Wall Street and led to arrests of hedge fund managers, analysts and others. Several people tied to California-based Primary Global have also been indicted in recent months, including other part-time consultants and a hedge fund manager who allegedly traded on insider information obtained from the firm. The case is: USA v. Shimoon et al, U.S. District Court for the Southern District of New York, No. 1:10-mj-02823.


ENFORCEMENT

UK | REUTERS, MAY 9

Trio of British banks take $3 billion mis-selling hit

British banks gave up their fight to avoid compensating customers wrongly sold loan insurance, forcing a trio of top banks to take a combined hit of more than $3 billion in the latest blow to the industry. Barclays and Royal Bank of Scotland each took near 1 billion pound ($1.6 billion) provisions for the second quarter of 2011 to cover costs related to mis-selling payment protection insurance (PPI). HSBC said it had set aside $440 million. British banks, already under pressure from regulators to clean up their act following the financial crisis, said they would not appeal against a ruling they should pay compensation. The total bill is in line to top 6 billion pounds and may end up near 8 billion, with several million Britons potentially in line for a payout -- Britain's financial ombudsman said it had, so far, received more than 200,000 complaints over PPI and average compensation payout was 2,750 pounds. Events have moved fast since Lloyds Banking Group was first to capitulate over the issue, unveiling a shock 3.2 billion pound charge to cover compensation, after years of legal wrangling. Barclays said it had agreed with the FSA to contact customers and assess the situation. It took a charge of 200 million pounds in 2010, so its bill is set to be 1.2 billion. RBS said it would take an 850 million pound charge this quarter, taking its total hit for the policies to 1.05 billion. Bank of America has also raised its provision for mis-selling to $650 million from an original $592 million.

UK | REUTERS, MAY 12

UK's FSA says seeking to ban two execs

Britain's financial regulator said it was seeking to ban two company executives from top financial roles under new rules that allow it to alert the public to planned enforcement proceedings. The Financial Services Authority (FSA), which has been criticised for confidential investigations that do little to protect the public, said both men were fighting the cases. Stuart Unwin, whose firm offered occupational pension transfer advice, and Derek Wright, who ran a small insurance broker, plan to challenge the FSA's decisions at a tribunal in a move that might drag the dispute into next year. The tribunal might uphold, vary or cancel the FSA's move. The publication of the so-called “decision notices” is a sign of a new “extreme transparency” push by regulators to publicized their activities as much as possible, said Simon Morris of law firm CMS Cameron McKenna. The FSA was first given the power to publish so-called "decision notices" last year, despite industry concerns that early publication of planned proceedings risked individuals and firms appearing guilty before any case against them was proven. However, the FSA has said it makes sense to be more transparent about its concerns to protect the consumer. Learn more

UK | REUTERS, MAY 9

Oil firms most at risk from UK Bribery Act -study

Britain's Bribery Act, potentially the world's strictest such law when it comes into force, will hit British-listed oil and gas companies the hardest, research by accountants Ernst & Young showed. Life-science and consumer-product sectors took the second and third spots in a top-10 list of industries most at risk of investigation under the act, due to take effect from July 2011.

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David Lister, a fraud specialist at Ernst & Young, said it was the nature and locations of their businesses that exposed them to additional risk, rather than a suggestion that individuals and companies within the oil and gas sector were intrinsically more corrupt than their counterparts in other sectors. The findings were based on an analysis of bribery convictions under the U.S. Foreign Corrupt Practices Act (FCPA) since its inception in 1977. It found that oil and gas companies accounted for 18 percent of all prosecutions, life sciences for 13 percent and consumer products for 12 percent. Criminal fines were the most common outcome of an FCPA investigation in all three sectors. Those found guilty under the British act could face jail or unlimited fines. The lack of clarity on facilitation payments did not help oil and gas companies, which tended to work in sectors where these business practices remained "part and parcel of everyday business," Lister added.

US | THOMSON REUTERS ACCELUS, MAY 11

US wins corporate conviction in bribery-act trial

The U.S. Justice Department has won a conviction in what it says is the first jury trial involving a company accused of violating the anti-bribery Foreign Corrupt Practices Act. The conviction follows guilty pleas secured by the department in several other cases under the 34-year-old act, which bars bribery of foreign officials. The federal jury convicted privately-held Lindsey Manufacturing Co of Azusa, California and two of its top executives, Keith Lindsey, 66, and Steve Lee, 60, on multiple FCPA charges for bribing officials of a Mexican state-owned utility company to win $19 million in contracts. U.S. Assistant Attorney General Lanny Breuer said the guilty verdicts were an important milestone in the government's FCPA enforcement efforts. Lindsey's lawyer, Jan Handzlik of Greenberg Traurig LLP, said the firm would appeal, and said it had moved to throw out the case on grounds that include government misconduct. Learn more

US | THOMSON REUTERS ACCELUS, MAY 5

US targets bankers in HSBC laundering probe -source

The U.S. Justice Department's money-laundering probe against banking giant HSBC Holdings Plc is looking at possible prosecution of individual bankers, a source close to the investigation said. The source, who has direct knowledge of the probe which was disclosed last year, said it is moving slowly in part because of the close examination for potential individual prosecutions. He did not name any targeted individuals. The source said investigators were meticulously conducting interviews, with the primary objective being to identify and prosecute any individuals within the bank for which the evidence would support such an action. The Justice Department probe is linked to bulk cash the bank received from money-changing firms in Mexico, the source said. The concern is that the bank may have handled money belonging to the Mexican drug cartels. HSBC spokesman Rob Sherman declined to comment on the status of the investigations.

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U.S. banks and states meeting on foreclosure probe

U.S. state attorneys general are pressing five large banks to reduce loan balances for troubled borrowers as part of a settlement over mortgage servicers' foreclosure practices. The two sides -- which include Bank of America Corp, JP Morgan Chase & Co, Citigroup Inc, Wells Fargo & Co and Ally Financial -- began meeting on Tuesday and the talks are expected to last most of the week. The sides remain “far apart on some issues," Connecticut Attorney General George Jepsen said. The negotiations have been going on for months and to kick off this round the states and their partner federal agencies, which include the departments of Justice and Housing and Urban Development, revised an earlier 27-page settlement proposal sent to banks in March. The revised termsheet includes a proposal for how states and the federal government would use whatever penalty banks agree to pay, as well as earlier proposals for overhauling how servicers deal with troubled homeowners. A spokesman for Iowa Attorney General Tom Miller, leader of the states' investigation, said the proposal includes using the funds for reducing the balance of troubled homeowners' loans, but the funds would also be used for other programs. How much banks should pay to settle with the states and federal agencies remains the key issue. The agencies involved in the talks earlier this year had discussed making the banks pay in the range of $20 billion as part of the settlement. The banks floated the idea this week of settling for $5 billion, according to a source familiar with the negotiations.

US | REUTERS, MAY 5

Credit Suisse subpoenaed by SEC -court document

Credit Suisse was subpoenaed by the U.S. Securities and Exchange Commission for documents related to securitized home loans, according to court documents filed by a bond insurer suing Credit Suisse. The bond insurer, MBIA Inc, said in a court filing that Credit Suisse was the subject of an investigation by the SEC, which had issued a subpoena seeking the same types of documents as MBIA sought. MBIA included the information in a motion seeking to force Credit Suisse to turn over documents related to loans that it securitized into bonds that were insured by MBIA. A spokesman for Credit Suisse did not comment directly on the subpoena, but said that MBIA was entitled to what its contract with Credit Suisse provided, and not more. MBIA spokesman Kevin Brown said his company's counsel, Patterson Belknap Webb & Tyler LLP, was also served a subpoena by the SEC. The SEC did not immediately return a call for comment. MBIA is suing Credit Suisse and several other Wall Street banks for fraudulently inducing it to ensure bonds backed home loans that did not conform to state guidelines.


State Street says U.S. SEC probes its forex pricing

State Street Corp, the world's third largest institutional investor, said it was under investigation by the Securities and Exchange Commission (SEC) for its foreign exchange pricing methods for pension plans. The SEC's investigation comes a week after two top Massachusetts officials began reviewing foreign exchange trading operations involving State Street and rival Bank of New York Mellon. State Street, which provides services such as record-keeping for mutual and hedge funds, disclosed the regulatory inquiry in a quarterly filing on May 9.


Traditionally a very profitable area for the banks, forex has come under scrutiny following whistleblower complaints. In various lawsuits, banks are accused of inflating profits by charging customers more than foreign exchange trades actually cost. Learn more

INDONESIA | REUTERS, MAY 10

Indonesia SBI penalty rules coming soon -central bank

Indonesia's central bank will penalise investors who fail to comply with a new six-month holding period for its short-term (SBI) debt, applicable to all such debt held after May 13, a central banker said. The central bank in April 2011 announced it would lengthen the SBI holding period to six months from one month as it seeks to drive volatile "hot money" flows to longer-term instruments and finance the real economy. Investors will have to pay 0.01 percent per day on any SBIs sold within six months after purchase, or a minimum 10 million rupiah ($1,169) and a maximum of 100 million rupiah each day. Bank Indonesia (BI) spokesman Difi A. Johansyah said the central bank aimed to minimise the negative impact from short-term capital inflows on financial and monetary stability and monetary management.

HONG KONG | REUTERS, MAY 12

Hong Kong fines Merrill $386,000 for index-linked note sales

Hong Kong's securities regulator has reprimanded Merrill Lynch and fined it HK$3 million ($385,986) for failing to have adequate systems in place in relation to the sale of two index-linked notes in 2007. The Securities and Futures Commission (SFC) said an investigation prompted concerns Merrill Lynch had failed to properly assess the financial situations and investment objectives of more than 40 of the 72 customers who invested in the index-linked notes. Under the SFC's Code of Conduct, financial advisers must assess whether their clients are experienced investors and fully aware of the risks before they sell them certain products. Both of the products were five-year callable notes linked to Japanese stock indices. The SFC said Merrill Lynch has now agreed to offer to repurchase the notes from customers for the same amount as the original investment. This is the second action taken against Merrill Lynch in Hong Kong for inadequate control procedures in just over a year.


Regulators probe Goldman analyst communications

State and federal securities regulators are examining Goldman Sachs Group Inc's communications among its analysts, sales and trading staff and clients, the New York investment bank said. The Massachusetts Securities Division is weighing administrative proceedings against the bank over the communications, according to Goldman's quarterly filing with U.S. regulators. The U.S. Securities and Exchange Commission, Financial Industry Regulatory Authority and others are investigating similar matters, Goldman said. The investment bank said it is cooperating with the probes. Separately, Commodity Futures Trading Commission staff told Goldman's execution and clearing unit that they will recommend the CFTC bring charges against the unit. The charges would be linked to Goldman's clearing trades for a broker-dealer. The CFTC alleges that the bank

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should have known a broker-dealer's sub-accounts belonged to the dealer's customers, and not the dealer itself.

US | REUTERS, MAY 6

JPMorgan in talks with SEC to resolve probe

JPMorgan Chase & Co said it is in advanced talks with the U.S. Securities and Exchange Commission to resolve a probe into its role in selling collateralized debt obligations. The disclosure, in a regulatory filing, came a day after court documents revealed the SEC had subpoenaed Credit Suisse for documents related to home loan securitizations. The SEC also subpoenaed JPMorgan for records related to mortgage securitizations, according to Bloomberg. The settlement talks concern an SEC probe involving JPMorgan's dealings with hedge fund Magnetar over the creation of CDOs, according to a source familiar with the situation. The latest subpoenas could indicate a further expansion of the SEC probe into U.S. lenders' mortgage-related dealings. JPMorgan previously said it had received "a number of subpoenas and informal requests" from federal and state authorities over CDOs and mortgage-backed securities.

SWITZERLAND | REUTERS, MAY 5-9

Swiss open money-laundering case for Ivory Coast government

Switzerland has opened a money-laundering investigation following a criminal complaint lodged by the Ivory Coast government of President Alassane Ouattara, Swiss officials said. Jeannette Balmer, a spokeswoman for the Swiss attorney general, said the investigation was at an initial stage. She declined to specify what individuals were targeted. However, the Swiss news agency ATS reported that Geneva lawyer Bruno de Preux had lodged the money laundering complaint on behalf of Ouattara's government against former Ivorian President Laurent Gbagbo, his wife and close associates. Earlier Switzerland froze 70 million Swiss francs ($81 million) linked to Gbagbo and his associates, the Swiss Foreign Ministry said. Switzerland had ordered his assets seized in January to prevent them being before Ivory Coast could launch domestic criminal proceedings, the ministry's statement said. The funds are blocked for up to three years under the Swiss cabinet's order.

US | REUTERS, MAY 6

Senator Grassley raises questions about SAC Capital

A key U.S. senator is seeking more information from market regulators about the corporate culture at hedge fund giant SAC Capital Advisers after two of its employees were charged by the Justice Department with insider trading. Senator Charles Grassley, the ranking member of the judiciary committee, sent a letter in late April to the Financial Industry Regulatory Authority seeking copies of referrals from self-regulating organizations that cited SAC Capital or its funds. Former SAC Capital employees, Donald Longueuil and Noah Freeman, have pleaded guilty to insider trading in part of a broader federal probe into insider trading linked to hedge funds. Court filings also show that prosecutors are investigating trade accounts at the hedge fund, including one tied to SAC Capital's founder Steven Cohen. Grassley said the allegations against two former SAC Capital employees "raise serious questions about the corporate culture" at the hedge fund.



Raymond James sees up to $50 million auction-rate loss

Raymond James Financial Inc said it may incur losses of $25 million to $50 million if state and federal regulators force the brokerage to repurchase auction-rate securities it sold to clients. The securities, touted as offering investors cash-like liquidity, have been illiquid since early 2008. Raymond James disclosed it has been in talks with regulators "to resolve the investigations," according to the company's fiscal second-quarter financial report filed with regulators. The company previously said it was under investigation by the U.S. Securities and Exchange Commission, the New York state attorney general and Florida's financial regulation office. As a secondary broker of ARS, Raymond James argues it should not be forced to repurchase the securities, and said it would vigorously contest any action by a regulatory authority to compel it to repurchase the outstanding ARS held by its clients. It estimated that its potential losses, if it were forced to repurchase ARS still held by clients at par value, would come to $370 million as of March 31, 2011. Because the market value of the securities was likely to be less, Raymond James estimated its losses would be $25 million to $50 million.

US | REUTERS, MAY 9

Madoff trustee in $1 billion pact with Fairfield funds

The trustee seeking money for Bernard Madoff's victims announced a $1 billion settlement with liquidators for three "feeder" funds tied to Fairfield Greenwich Group, allowing higher payouts to the swindler's former customers. The trustee, Irving Picard, also agreed not to pursue $3.8 billion he said the Fairfield funds withdrew in the last six years of Madoff's fraud, Picard and the funds' liquidators said in separate statements. Picard cited the funds' "limited ability to pay cash toward any judgment" for that decision. The settlement reduces claims that the liquidators have against a fund that Picard administers for former Madoff customers. Picard has been trying to stop other parties from pursuing lawsuits to recover money for Madoff victims, saying these efforts are at cross-purposes with his own.


Allen Stanford criminal trial set for September

Allen Stanford, the Texas financier accused of running a $7 billion Ponzi scheme, has been scheduled to go to trial on September 12, 2011, according to court records. Prosecutors accuse Stanford of defrauding investors who bought bogus certificates of deposit issued by his Antigua-based Stanford International Bank Ltd. They have said the one-time billionaire used proceeds in part to fund other ventures and a lavish lifestyle that included several yachts and private jets and homes around the world. In January 2011, U.S. District Judge David Hittner ruled Stanford incompetent to stand trial. Stanford has been treated at a hospital in the Butner Federal Correctional Complex in North Carolina to treat an addiction to an anti-anxiety medication he developed while in jail. However, on Tuesday, May 10, Hittner scheduled jury selection for September 12, court records show.


SUPERVISION


UK watchdog’s head vows to step in earlier over bank mis-selling

Britain's incoming financial regulator pledged to step in more quickly to stop mis-selling after banks this week set aside billions of pounds to compensate customers following years of legal wrangling. Lloyds, HSBC, Barclays and Royal Bank of Scotland have announced provisions totalling 6-8 billion pounds in the past week for wrongly selling payment protection insurance (PPI). Martin Wheatley, who takes up his position as chief executive of the new Financial Conduct Authority (FCA) in September, expressed hope that in the future products such as payment protection insurance could be stopped much earlier and before they are widely distributed. Product regulation was now inevitable to some extent, Wheatley told Reuters, in a break with a UK regulatory tradition whereby supervisors keep an eye on sellers rather than the products. He said the market expected that firms designing products were to be given clearer guidance on what sort of features that were unacceptable. However, he acknowledged that it was impossible to intervene in every product.

CHINA | REUTERS, MAY 9

China banks must restrict "shadowing" activities -regulator

Chinese banks must restrict "shadowing" activities and bring off-balance-sheet trust loans back onto their books to help ward off possible risk, the country's top banking regulator said. China Banking Regulatory Commission Chairman Liu Mingkang said in a speech posted on the agency's website that the risk control situation remained "grim" and that the regulator must improve its research and assessments of the market and strengthen the supervision of property trusts. Banks should restrict "shadowing" -- a reference to off-balance-sheet activities and "strictly" follow the official schedule on rectifying such loans, Liu added. Learn more


FDIC warns on moral hazard for money market funds

U.S. banking regulator Sheila Bair warned her fellow financial supervisors that a federal backstop for money market funds could induce careless corporate behavior because of a belief the government would always come to the rescue. Bair, outgoing chairman of the Federal Deposit Insurance Corp, said regulators needed to be mindful of so-called moral hazard in creating a backstop for the $2.7 trillion industry. During the financial crisis, the federal government was forced to backstop the market after the collapse of Lehman Brothers pushed the value of the Reserve Fund money market fund below $1 a share, wreaking havoc on the industry. The Securities and Exchange Commission has already taken steps to tighten oversight of the money market funds. It now requires the funds to publicly disclose the net asset value, or value of each share of a money fund, on a 60-day lag basis. The new Financial Stability Oversight Council, which was set up under the Dodd-Frank law to monitor risks to the financial system, has been tasked with considering more dramatic reforms.

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Those include emergency liquidity facilities and changing the funds' net asset value (NAV), which is currently fixed at about $1 per share, to a floating value.

HONG KONG | REUTERS, MAY 10

Hong Kong regulator says studying business trust listings

Hong Kong regulators have no ideological objections to business trusts as long as they protect investors properly, the city's financial supervisor said. Martin Wheatley, chief executive of the Securities and Futures Commission of Hong Kong, said there was nothing wrong with trust structures in general. Wheatley told Reuters that the SFC had been looking at which structures it would "be comfortable with". In April 2011, the Hong Kong stock exchange rejected PCCW's plan to spin off its telecommunications business and list it as the city's first business trust. The news could force PCCW, chaired by media tycoon Richard Li, to consider listing the telecoms unit as a business trust in Singapore, where such structures are allowed. Wheatley said a business trust would have to have a level of investor protection commensurate to a listed structure. He said the Hong Kong stock exchange's decision was based on a technical issue of whether a company's remaining assets that are not transferred to a business trust would remain eligible for a listing. Wheatley said the regulator would launch a consultation in the summer on whether sponsors of initial public offerings (IPOs) should be legally liable for what investors are told in a listing prospectus.

INDIA | REUTERS, MAY 11

Onus on local heads to ensure foreign banks' compliance -central bank

Chief executive officers of foreign banks operating in India will now be responsible for the local regulatory, statutory and audit compliance, the central bank said in a notification on its website. The notice said that Indian operations of foreign banks did not generally have their own audit committees to ensure compliance, and that there have been concerns about the adequacy of regulatory compliance by foreign banks in India.

US | REUTERS, MAY 9

US Treasury to form insurance advisory body

An advisory panel on insurance will be set up by the U.S. Treasury Department as it implements its new surveillance duties over the insurance business under last year's financial regulation reforms. The Treasury said in a statement that one half of the panel will be state and tribal insurance regulators and the other half will be from the insurance industry, public advocates and academia. The Federal Advisory Committee on Insurance will advise the FIO and the Treasury, the statement said. Learn more

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ACCOUNTING & FINANCIAL STANDARDS


U.S. rating agencies win dismissal of lawsuits

The three major U.S. credit rating agencies won the dismissal of lawsuits seeking to hold them liable as "underwriters" for helping banks structure securities transactions to achieve desired ratings. The 2nd U.S. Circuit Court of Appeals in New York upheld the dismissal of three lawsuits against McGraw-Hill Co's Standard & Poor's, Moody's Corp's Moody's Investors Service and Fimalac SA's Fitch Ratings. The plaintiffs, including a group of unions, said they bought $155 billion in mortgage-backed securities. Many of the securities were given top-notch ratings by the agencies but declined in value when the agencies downgraded them during the 2008 mortgage crisis. The plaintiffs claimed the agencies exceeded their traditional roles by "actively aiding in the structuring and securitization process" to achieve higher ratings. The agencies should be considered "underwriters" under the Securities Act of 1933, the plaintiffs argued. The court held that the rating agencies did not qualify as underwriters because they did not directly participate in the distribution of the securities, but simply enabled others to do so through their ratings.


FDIC's Bair seeks higher short-term capital buffer

U.S. regulators should impose even higher capital requirements on large financial firms until they prove they can be wound down if they became insolvent, Federal Deposit Insurance Corp Chairman Sheila Bair said. Bair, in prepared testimony for a Senate Banking Committee hearing, said higher capital requirements would have a "relatively modest" effect on the cost of credit and economic activity. Bair, who is leaving the FDIC on July 8, at the end of her term, also said regulators need to collect detailed information from a limited number of potentially "systemic" financial firms. But she said the request will not automatically mean regulators would designate such a company a "systemically important financial institution," or SIFI. The SIFI designation comes with strict supervision by the Federal Reserve, higher capital and liquidity requirements and the potential to be dismantled by the FDIC in a crisis. Under last year's Dodd-Frank Wall Street law, bank holding companies with assets of $50 billion or more automatically fall under "systemic" supervision. That means firms such as Goldman Sachs Group Inc and JPMorgan would likely be among the SIFIs. Bair last week rejected criticisms that firms labeled as “systemic” would be assumed to carry a government guarantee against failure. Bair told a Federal Reserve Bank of Chicago conference that there was a misconception that policymakers do not have the means or the will to close down the SIFIs in a crisis. Big financial firms that fall outside the banking world have been making their case to the Fed on why they should not be considered for heightened supervision. Fed Chairman Ben Bernanke said in testimony for the same hearing this week that the U.S. central bank was aiming to keep international standards as consistent as possible to ensure that no big firms fall through the cracks and to guarantee a level playing field. Learn more

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US | REUTERS, MAY 5

U.S. auditor watchdog hopeful of access to China

U.S. audit watchdogs are hopeful of ending a stalemate that has blocked inspections of auditors in China, the head of the audit oversight agency said. With more Chinese companies raising capital in the U.S. markets, James Doty, chairman of the Public Company Accounting Oversight Board, said he expected Chinese authorities to understand their interest in solving the impasse. The IPO of Chinese social networking giant Renren, which raised more than $743 million, shows how important the U.S. market is for Chinese companies, Doty said at a financial reporting conference at Baruch College. China has resisted allowing PCAOB inspectors into its markets, saying its own regulatory system is adequate. However, the PCAOB hopes that "significant progress" will be made in the coming months in talks with Chinese authorities, Doty said.

SWEDEN | REUTERS, MAY 11

Swedish FSA says sceptical about CoCo capital

Sweden's financial watchdog is sceptical about including CoCo bonds as part of bank capital and prefers equity, its chief economist said. Swedish Financial Supervisory Authority chief economist Lars Frisell told a conference there had been "much lobbying" in Europe to let banks include contingent convertible bonds (CoCos) as capital, but that he was not convinced of their use and the regulator prefers equity.. Swedish banks have complained that the country's tough proposals on capital, which go higher than Basel III requirements, will put them at a disadvantage. Frisell said creating a level playing field for Sweden's banks had to be a secondary goal as regulators set new rules on bank capital and liquidity to help avoid a repeat of the global financial crisis.

DERIVATIVES

US | REUTERS, MAY 5

CFTC proposals would increase end-user cost –O'Malia

The U.S. futures regulator has proposed rules that would increase costs for power companies, airlines and major manufacturers, a consequence Congress told the agency to avoid when it crafted new financial reform measures, a top official said. Scott O'Malia, a commissioner at the U.S. Commodity Futures Trading Commission, renewed his concern that the agency's proposal defining a swap dealer is too broad and could end up including businesses that use swaps primarily to hedge their risks, pushing costs higher. The Republican commissioner also criticized as too narrow in scope the CFTC's plan for exempting end-users -- those who rely on derivatives to guarantee the price and supply of raw materials. A Republican-controlled committee in the U.S. House of Representatives voted on May 4 for an 18-month delay in implementation of regulations intended to reduce risk in the vast over-the-counter derivatives market.


EXCHANGES & TRADING PRACTICES


SEC chief keeps options open on private securities

The top U.S. securities regulator pledged a rigorous review of potentially outdated private securities trading rules, but stopped short of endorsing changes being advocated by Republican lawmakers. At a congressional hearing, Securities and Exchange Commission Chairman Mary Schapiro was pressed to make regulatory changes to help small and medium-sized companies more easily raise capital without going public. In January 2011, Goldman Sachs decided to limit Facebook offerings to foreign investors after intense media coverage spooked the bank into fears it could be accused of violating rules on soliciting investors. Also at issue was the use of a special purpose vehicle by Goldman to circumvent a 500-shareholders-of-record rule which requires a private company to begin public financial reporting. The rule counts all shareholders individually, but the vehicle used by Goldman aggregated shareholders into one. Schapiro told the House Oversight Committee hearing that the SEC was committed to looking at "whether this threshold makes any sense." Republicans want the SEC to raise the 500-shareholder threshold, or else change the rule so that more sophisticated investors who understand the markets will not count toward the total. Critics of the current threshold say the cap is too low and forces companies to raise capital only with large sophisticated investors and harms the ability of smaller investors to get a piece of the action. They also fear it creates costly logistical challenges for companies as they seek to manage the shareholder total so they do not hit the 500 mark. Schapiro said sophisticated investors were “no less deserving of the protections of the securities laws." Learn more

US | REUTERS, MAY 9

What really triggered oil's greatest rout

The plummet in the oil price on May 5, which sent crude below $110 a barrel for the first time since March 2011, was triggered by a flurry of negative factors that individually could be absorbed but cumulatively triggered a maelstrom, according to a Reuters special report. Based on interviews with more than two dozen fund managers, the report found no clear cause for the plunge in price. Market players were unable to identify any single bank or fund orchestrating a massive sale to liquidate positions, not even an errant trade that triggered panic selling, as seen in the equities flash crash on May 6, 2010. Computerized trading kicked in when key price levels were reached, accelerating the fall. The negative factors -- prominent cheerleaders turning bearish, some weak economic data, a looming end to cheap money from the U.S. Federal Reserve, a lessening of political risk -- merely provided a backdrop for the waves of selling. What stood out was the way computers turned readjustment of positions in a huge and deep market into a rout. Large jolts from so-called stop-loss trading amazed market traders. The automated sell orders were generated as oil crashed through price points that traders had programmed in advance into

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their supercomputers. In many cases, computer algorithms sold for technical reasons, as oil dropped through levels that, once breached, could trigger ever larger waves of selling yet to come. Machine-led trading is one plausible thesis for another apparent market anomaly that occurred on May 5. Exchange data showed that the total number of open positions in the oil market -- a number that would typically fall in a selloff -- instead rose. Normally, panicky funds selling oil en masse would cause total "open interest" numbers to shrink, as exiting investors closed out contracts. But some machines, following the market trend, may have gone further, by dumping long positions and quickly amassing sizable short positions instead.

US | REUTERS, MAY 6

US SEC head eyes fast traders on crash anniversary

The top U.S. securities regulator called for a broad reassessment of high-frequency trading on the one-year anniversary of the so-called "flash crash." U.S. Securities and Exchange Commission Chairman Mary Schapiro said it was necessary to assess "the entire regulatory structure" surrounding high-frequency trading firms and their algorithms, in view of their activity on that day. The SEC has taken steps to try to prevent future flash crashes, but Schapiro raised fundamental questions about high-frequency traders in the market. In a speech to a mutual funds group, she questioned whether high-frequency traders, who often derive significant benefit from their role as de facto market makers, should also have the obligations of market makers, given the impact of their technology and trading strategies on the markets. Schapiro said regulators were mindful that any curbs on high-frequency traders would have to be carefully crafted to avoid unintended consequences. Learn more

AUSTRALIA | THOMSON REUTERS ACCELUS, MAY 6

Australian flashback: The 'flash crash' one year on - breaking the circuit

One year after the U.S. "flash crash" sent shocks through global share markets, regulators are still divided on the merits of using "circuit breakers" as a tool to prevent trading abnormalities from escalating into large-scale pro-cyclical share sell-offs. In the Asia-Pacific region, where high-frequency trading has not quite reached the levels seen in Northern Hemisphere markets, these circuit-breakers are considered somewhat less critical to the safety of the market - but regulators are investigating their potential. In Australia, the securities regulator recently ran a consultation on its proposals to require order algorithms to have an in-built circuit breaker, which would activate if a security moved too far from pre-set limits. The Australian Securities and Investments Commission said that it was open to the possibility of introducing circuit breakers similar to the US single stock circuit-breaker (SSCB) rules. The regulator plans to consult more deeply on the issue in the second half of 2011. Learn more


LSE sees mergers driving regulatory reform

London Stock Exchange Chief Executive Xavier Rolet, who wants to merge with Canadian market TMX Group, hopes the current spate of international exchange mergers will help streamline global trading rules. He told a conference in London that the existing exchange

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mergers, including the transatlantic mergers, presented a great opportunity to unify the global regulatory environment. The LSE chief executive said he hoped to set a precedent for cross-border regulatory harmonisation with the TMX deal, which the partners hope will complete in the third quarter of 2011. Exchanges and listed firms have complained that different national authorities impose different regulatory requirements, which can complicate listings in multiple jurisdictions and restrict cross-border investment.

CANADA | REUTERS, MAY 10

TMX to file LSE bid with provinces within weeks -CEO

TMX Group Inc will file applications within the next few weeks with Canadian provincial securities regulators seeking approval of a takeover bid from London Stock Exchange, TMX Chief Executive Tom Kloet said. As well as from securities regulators, the head of Canada's largest exchange operator is optimistic about getting the green light from the federal government and still sees the deal wrapping up in the fourth quarter, he told Reuters on the sidelines of the Bloomberg Canada Economic Summit. Kloet said TMX would be obliged to take a look if it were to receive a competing bid, but declined to comment on whether TMX has been approached with another offer.

FUNDS MANAGEMENT

EU | REUTERS, MAY 10

Same-sex couples equal for pensions, EU court says

Same-sex couples in civil union should receive the same pension benefits as other married couples, Europe's highest court said, in a ruling that may cause ripples in the pensions industry across Europe. In a case referred by a German labour court, the European Court of Justice ruled that the city of Hamburg was wrong to deny one of its administrative employees, a man living in a legal civil partnership for more than 10 years, the higher benefits of a married person's retirement benefits. The city had refused to apply the more favourable tax category to the man's supplementary retirement payments on the grounds that only married pensioners were entitled to the advantage. The ECJ's decision may have repercussions for pension funds and other retirement benefit providers across the EU's 27 member states, which may now be obliged to provide larger or back-dated payments to same-sex civil union partners. The court said the claimant had paid pension contributions equal to that of his married colleagues and would have received higher pension payments had he been married to a woman. The ECJ's decision sets a precedent and must be applied in all member states.

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IRELAND | REUTERS, MAY 10

Pension industry to fund Irish jobs plan

Ireland's government will put a 0.6 percent levy on pension schemes for four years to fund its jobs initiative, Finance Minister Michael Noonan said. Noonan said the levy would raise 470 million euros annually. The levy will not apply to pensions funds based in Ireland that provide services to non-resident employers and members.

FINANCIAL CRISIS & ECONOMY


AIG, U.S. Treasury set $9 billion offering, but it could be pulled

American International Group and the U.S. Treasury said they will sell around $9 billion in AIG stock, but sources familiar with the situation said the Treasury would pull the sale if it cannot be done profitably. AIG shares have fallen by more than a third this year, bringing the stock close to the government's $28.72-a-share break-even point. There has been speculation in recent days that the offering would have to be priced well below that in order to succeed. But the sources, speaking on condition of anonymity, said the Treasury was committed to making a profit on this and future offerings and would pull the deal off the table if it could not do so. AIG was rescued by the government in September 2008, and few expected it would even exist today. The company received $182 billion in bailouts and managed to restructure while preserving two core insurance businesses. Taking a loss on AIG would be a black eye for the Treasury, but the government is under pressure to exit its crisis-era investments in private companies. Learn more

RELAND | REUTERS, MAY 10

Judge criticises speed of Anglo Irish probe

The Irish High Court refused a request to extend a probe into Anglo Irish Bank by six months, amid concern about the lack of progress in an investigation that has been running for over two years. Justice Peter Kelly has given the Office of the Director of Corporate Enforcement (ODCE) and the police until July 28, 2011, to continue their probe and if a further extension is sought they will have to give him a detailed update. He said he expected more accurate estimates of time after the completion of the investigations than have been furnished to date.

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TAX


US lawmakers unveil bill to lure offshore profits home

Several lawmakers in the U.S. House of Representatives introduced legislation to let corporations to bring profits held overseas back to the United States at a sharply reduced tax rate, though the measure faces an uphill climb to passage. Backed by a handful of Republicans and conservative Democrats, the legislation would let companies to bring back profits held outside the United States at a reduced tax rate of up to 5.25 percent for either 2011 or 2012. Technology companies in particular have been lobbying hard for this type of tax repatriation holiday. U.S. corporations are sitting on an estimated $1 trillion in profits overseas, in part to avoid being slapped with the current 35 percent corporate tax rate. A similar effort was adopted in 2004, intended to jumpstart the economy and create jobs. Several independent reports found the money brought back then was used for stock buybacks and other rewards for Wall Street - not job creation. Although there is some bipartisan backing in the Democratic-led Senate, such a tax repatriation holiday is seen facing criticism there as a giveaway to corporations. Learn more

GERMANY | REUTERS, MAY 6

German government expects bank levy to pass upper house

Germany's finance ministry said it expected a proposed law on bank levies to pass the final hurdle in parliament's upper house despite criticism from the oppositon. The centre-left opposition criticised the planned bank levy, expected to come into effect this year, after it emerged that banks will pay far less than the 1 billion euros expected into a fund meant to avoid taxpayers bearing the cost of future bailouts.

FINLAND | REUTERS, MAY 11

Finland for global or European financial tax

Finland will push for a European Union-wide financial transaction tax if it cannot secure a global agreement, prime minister-designate Jyrki Katainen told a news conference. France and Germany have pushed for a global tax to be levied on transactions like stock market and foreign exchange trades but have met opposition from the United States and Canada. Katainen said his National Coalition and the country's No. 2 party, the Social Democrats, agreed to promote the tax. Finland will also work for a bank levy at the EU-level, Katainen said, and added if the countries cannot reach an agreement on that, Finland would follow Sweden in going it alone with a domestic version.

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SWITZERLAND | REUTERS, MAY 11

Schaueble aims for Swiss tax deal this year-paper

Germany aims to finalize a deal in 2011 with Switzerland for regularizing untaxed funds held by Germans in secret Swiss accounts, Germany's finance minister was quoted as saying. Wolfgang Schaeuble told the Handelszeitung that the two governments talked about the matter in Washington at the time of the spring meeting of the International Monetary Fund. In 2010 Switzerland and Germany agreed the outlines of a deal to impose a withholding tax on an estimated 200 billion euros ($296 billion) hidden in secret Swiss accounts. In the interview Schaeuble declined to comment on media reports that the withholding tax would be set at 25 percent. Swiss Finance Minister Eveline Widmer-Schlumpf said earlier in May she hoped to conclude negotiations this summer. ISRAEL | Reuters, May 11 Foreigners to pay tax on Israeli bills investments Israel's parliamentary finance committee approved a plan to tax some capital gains by foreigners investing in short-term Israeli bills. The lifting on July 7 of an existing exemption will mean foreigners have to pay a tax of 15 to 24 percent on gains from indirect investments in bills up to 365 days, Israel's Tax Authority said. The move was part of a broader proposal from the Finance Ministry to stem so-called speculative flows into Israel. The full parliament is scheduled to vote on a plan to lift the exemption on direct investments into short-term bills in the next few months.

CURRENCY


U.S. FDIC proposes retail foreign exchange rule

U.S. bank regulators would more strictly supervise banks' relationships with retail customers who speculate in the foreign exchange market, under a new proposal. The Federal Deposit Insurance Corp plan would require retail customers who engage in foreign exchange transactions with a bank that are not cleared through an exchange, to post a margin amount of 2 percent in the case of major currencies, such as the dollar and euro. The amount would rise to 5 percent of the notional value of the transaction for some other currencies. Banks also would have to keep more transaction records and give customers more information on things such as the fees they are being charged. The rule does not affect large companies involved in the derivatives and swaps markets and is instead aimed at protecting less-sophisticated individual investors. The proposal is similar to a final rule published in September by the Commodity Futures Trade Commission in response what it said was retail fraud in the currency trading area. It is also similar to a proposal released last month by the Office of the Comptroller of the Currency. The board of the FDIC voted to put the proposal out for 30 days of public comment. Learn more

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China should consider ways to reduce FX reserves -banker

China needs only between $800 billion and $1.3 trillion in foreign exchange reserves and it should consider channelling some of its huge stockpile into domestic companies and strategic resources, a top Chinese banker said. The rapid build-up in reserves, which hit a record of $3.05 trillion by the end of March, has been "a big problem" for the economy, Tang Shuangning, Chairman of China Everbright Bank, said in an article published in the official Financial News. The reserves, already the world's largest, have become excessive, Tang said, saying it only needed enough to service foreign debt, pay for imports and accommodate earnings repatriated by foreign firms operating in China. Separately, Guo Tianyong, an economist at Central University of Finance and Economics, told the Financial News that the government should use part of the rapidly accumulating reserves to buy gold and help build the country's strategic oil reserves. China could suffer large losses if its abruptly shifted its reserves held in dollar assets into other currencies, Guo said.

TRADE & CROSS BORDER


China eases trade rules, allows U.S. fund sales

China pledged easier access for U.S. companies to key sectors of its economy by removing barriers to its huge market in government contracts and offering a foothold to U.S. mutual funds. The pledges were made in two days of talks which ended with both sides hailing progress in their often tense relationship. U.S. Treasury Secretary Timothy Geithner said he had seen "very promising shifts in the direction of Chinese economic policy." The annual Strategic and Economic Dialogue yielded more results on economic issues than some analysts had expected, although many remained skeptical China's market-opening vows would translate into concrete benefits for U.S. business. Surprisingly, according to a U.S. official, China -- the United States' biggest creditor -- raised no concerns about U.S. budget deficits, which could top out at $1.4 trillion in 2011. In a potentially big step forward for U.S. firms seeking more access to China's financial services market, China agreed to let U.S. and other foreign banks sell mutual funds in China and provide custodial services. Learn more


China to allow QFIIs to trade stock index futures

China's securities watchdog has published draft rules that will allow approved foreign investors to trade stock index futures, the first step in opening up its local securities market. But the Qualified Foreign Institutional Investors (QFII) will only be allowed to trade stock index futures for hedging purposes, and it will be counted as part of their existing investment quotas, according to the proposed rules published by the China Securities Regulatory Commission (CSRC).

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Shanghai reviews second batch of foreign PEs for China investment

Shanghai is reviewing a second batch of applicants for its pilot scheme to let foreign investors invest in yuan-denominated private equity funds in China for the first time, after approving Blackstone, Carlyle Group and DT Capital Partners, sources said. Under the new Qualified Foreign Limited Partners (QFLP) programme, foreign private equity firms will be allowed to launch yuan funds in China using overseas capital. In addition to major buyout funds, the Shanghai government hopes to award QFLP status to other types of foreign investors, such as venture capital funds, with a preference to those co-invested by Chinese companies, said the two sources with direct knowledge of the matter. The first batch of QFLP investors was granted approval in March 2011 and the city government is now working out the procedures so the companies can start raising money overseas. More than 50 foreign private equity firms have set up subsidiaries in Shanghai, where the government is encouraging them to launch yuan-denominated funds to help channel money into the private sector and improve corporate governance of local firms.


India to allow foreign investment in limited-liability partnerships

India's cabinet approved a proposal to allow foreign direct investment (FDI) in limited liability partnership (LLP) firms, a government statement said. The move would benefit the Indian economy by attracting more investment, creating employment and bringing in international best practices and the latest technologies, the statement said. Separately, the cabinet approved a proposal by GMR Airports Holding Ltd to receive foreign direct investment of $200 million from Standard Chartered. In March, GMR Infrastructure Ltd said Macquarie SBI Infrastructure Investments Ltd had invested 8.93 billion rupees, or $200 million, in its unit GMR Airports, which runs the Delhi and Hyderabad airports.

EU | REUTERS, MAY 6

New EU trade plan attracts broad internal criticism

The European Union's trade chief has proposed opening the EU to more imports from developing countries, fuelling a debate about protectionism and the bloc's ties with trade partners such as Pakistan. Trade Commissioner Karel De Gucht's office has proposed that the threshold for imports under the EU's Generalised System of Preferences (GSP) be increased, leading several EU commissioners to raise strong objections, citing potential harm to Europe's textile and biofuels industries, among other issues. De Gucht's proposals would grant preferential trade terms to poorer countries whose exports to the EU make up 2 percent of total EU imports, raising the limit from 1 percent currently. That would allow both Pakistan and Ukraine, whose exports are more than 1 percent of total EU imports, to take advantage of the EU's most preferential trade status. Learn more

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ABU DHABI | REUTERS, MAY 7

Gulf states plan to complete customs union by 2015

Gulf Arab countries plan to resolve all outstanding issues about their customs union over the next three years in order to have it fully operational by 2015, a top United Arab Emirates official said. UAE Minister of State for Financial Affairs Obaid Humaid al-Tayer told a news conference that the countries hoped to have it in place by January 1, 2015. Differences have delayed an agreement on how to introduce a permanent system to distribute customs receipts among six members of the Gulf Cooperation Council, which besides the UAE also includes Saudi Arabia, Kuwait, Qatar, Oman and Bahrain. In March 2011, a top GCC official said the pending issues need to be resolved to reach a final deal on the customs union in line with an agreed timetable this year.

ZIMBABWE | REUTERS, MAY 9

Foreign miners submit Zimbabwe ownership plan

Angloplat and Implats, the world's top platinum miners, are cooperating with Zimbabwe on proposals to sell majority shares in their local operations to locals, a government minister said. A government notice issued on March 25 by Indigenisation and Economic Empowerment Minister Saviour Kasukuwere gave miners 45 days to provide plans on how they would comply with a law that seeks to give stakes of at least 51 percent to locals. Although 45 days have passed, the closing date was not until June 2 as the 45 days excluded public holidays and weekends, Kasukuwere said. Foreign mining companies then have until Sept. 30 to comply with the law and surrender 51 percent. Kasukuwere told Reuters Zimbabwe's cash-strapped government would not pay any money for the mining stakes but would base any payment negotiations on the state's ownership of the southern African country's untapped mineral wealth.

STATE ENTERPRISE AND INVESTMENT


U.S. infrastructure bank idea gets Congressional boost

President Barack Obama's vision for an infrastructure bank that attracts private investment got a legislative boost from two Democratic allies in the U.S. Senate. Commerce Committee Chairman Jay Rockefeller and Sen. Frank Lautenberg, both transportation leaders, unveiled a bill to create a fund to finance projects outside of typical government-run mechanisms for distributing infrastructure money. The fund's structure, down to the annual appropriation of $5 billion, is nearly identical to one proposed by Obama in February in the budget he sent to Congress. The proposal in the Senate would allow states and others to leverage federal money to attract private capital. Potential private investors, including pension funds and corporations, are eager to participate in U.S. infrastructure development, but first want to see a long-term commitment from policymakers and Congress. House of Representatives Transportation Committee Chairman John Mica, a Republican, has said he would introduce a comprehensive transportation bill this year. It is unclear if an infrastructure bank will be part of that measure.


The fund would also provide loan guarantees and finance energy, water, and telecoms projects. Obama had suggested a more limited scope of just transportation work. Learn more


India official expects infrastructure debt fund guidelines by June

India hopes to finalise guidelines for an infrastructure debt fund by June 2011, Economic Affairs Secretary R. Gopalan said. Asia's third-largest economy plans to spend $1.5 trillion on its creaking infrastructure in the 10 years to 2017 to expand its choked road network, build power plants and lay rail tracks to foster higher growth.

COMMODITIES & ENERGY

SWITZERLAND | REUTERS, MAY 9

Volatility in oil and commodity prices of great importance -Trichet

Global central bankers voiced concern about recent volatility in commodity markets, saying they needed to better understand its impact on inflation at a time when some emerging economies may be overheating. Jean-Claude Trichet, speaking as chair of talks at a Bank for International Settlements meeting, told a news conference after the meeting that the issue of volatility in commodity prices and oil and energy prices was of great importance and had "great impact on CPI inflation all over the world."


UK consults on mandatory CO2 reporting

Britain launched a consultation on whether companies above a certain size should have to report their carbon emissions. The UK government suggested four options in its eight-week consultation, which included stricter voluntary reporting for example including targets, or mandatory options for companies above a certain size. The regulations wold need to set out what is expected of companies in terms of measurement, calculation and reporting of emissions, said the consultation document by the Department for Environment Food and Rural Affairs. The proposals are likely to draw some opposition as an additional reporting burden, but some groups supported them. Learn more

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MALI | REUTERS, MAY 11

Mali aims to lure investors with mining review

Mali plans to overhaul its mining code to lure investors into resources such as oil and uranium before an expected fall in output of its main export-earner gold, officials said. Soaring world market prices lifted revenues from gold in Africa's third biggest producer to a record 191 billion CFA ($405.8 million) in 2010, over half of all export earnings. But Mali in March slashed its 2011 production forecast from 60.5 tonnes to just under 50 tonnes and a cabinet meeting held in early May detailed plans to diversify into other sectors, predicting that output could fall from 2014. Diakaridia Fomba, spokesman for Mali's ministry of mines told Reuters that the measures would include a review of the mining code "with the principal objective of promoting other minerals", which would seek to ease the procedures for acquiring permits for exploration or exploitation. A report of the cabinet meeting seen by Reuters said the government would promote investment in exploration of other minerals including bauxite, nickel, phosphate and manganese. Fomba did not give a timeframe for the review nor when the process will begin but said research by the government and some companies had already identified potential mineral resources.


China says says EU airline CO2 cap should protect poor countries

Plans by the European Union to impose a carbon emissions cap on airlines should reflect the differences between developed and developing nations, said the head of China's aviation regulator. Li Jiaxiang, the head of the Civial Aviation Administration of China, said on the sidelines of a forum in Beijing that the EU needed to take into account the different situations of developing and developed countries. He said China was already in talks with the European Union to try to resolve the situation. The EU Emissions Trading Scheme plans to cap the emissions of all airlines flying in and out of Europe beginning on January 1, 2012. CAAC has estimated that it could cost China's airlines as much as 800 million yuan ($123 million) in the first year and 3 billion yuan by 2020.


TELECOMS & MEDIA

TELECOMS

INTERNET & MASS COMMUNICATIONS

US | REUTERS, MAY 5

FCC chief: antitrust law can't adequately defend Internet

Antitrust law was inadequate to preserve the openness of the Internet and to allow innovation to flourish, the top U.S. communications regulator said, defending Internet road rules adopted last year. Federal Communications Commission Chairman Julius Genachowski told a congressional hearing that antitrust enforcement was expensive, took a long time and kicked in only "after damage is done." The FCC adopted the contentious Internet order in December 2010, banning service providers like Comcast Corp, AT&T Inc and Verizon Communications Inc from blocking traffic on their networks. The so-called net-neutrality rules, which have not yet gone into effect, would still allow companies to "reasonably" manage their networks. Republican legislators have challenged the agency's authority in regulating Internet traffic, and pushed a measure through the House in April 2011 that would overturn the order and prevent the FCC from adopting any rules related to it. But the chances of successful congressional action against the Internet order look slim with no similar measure pending in the Senate. President Barack Obama's advisers have also recommended he veto any such resolution. Genachowski told lawmakers that antitrust enforcement was not a practical alternative solution given the fast-paced, ever changing nature of technology. To support his argument, the FCC chairman quoted conservative Supreme Court Justice Antonin Scalia in a case that favored the FCC regulating communications issues over applying antitrust laws to this technical area.


Senators skeptical of Google, Apple mobile privacy

U.S. lawmakers considering new privacy laws scolded Google and Apple for not doing enough to guard mobile device users' location data, despite executives' assertions that they do not abuse the information. Democratic Senator Al Franken said at a hearing of a new subcommittee on privacy, technology and the law that he had doubts whether "those rights are being respected in law or in practice." Senators accused the tech industry of exploiting location data for marketing purposes -- a potentially multibillion-dollar industry -- without getting proper consent from millions of Americans. Lawmakers did, however, say they would be cautious about drafting privacy rules that could stifle innovation in the space. Google said at the hearing that location-sharing on its Android mobile platform was strictly opt-in. Apple executive Guy Tribble said that Apple "does not track users' locations."


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Indian web rules risk curbing info flow -Google

Holding internet platforms liable for third-party content would lead to self-censorship and reduce the free flow of information, Google Inc said in reaction to India's new rules, which require search engines and websites to get rid of objectionable content. Such content includes information that is "grossly harmful, harassing ... defamatory ... hateful ... and disparaging," according to the regulations introduced last month. Google said in a statement that an open Internet was essential to the growth of a digital economy and that a regulatory framework “should ideally help protect Internet platforms and people's abilities to access information." Seeking to allay concerns the new rules enabled the Indian government to regulate content in a highly subjective manner, India's Department of Information Technology, in a separate statement, said the government had no intention of acquiring regulatory jurisdiction over content under these rules. The Department said its terms were in accordance with those used by most internet platforms as part of their existing policies.

INTELLECTUAL PROPERTY


China's Baidu fined for copyright infringement-report

Baidu Inc, China's top search engine, has been found guilty of copyright infringement and ordered to pay compensation to a popular literary website, the Shanghai Daily reported. The Luwan District People's Court has ordered Baidu to pay Qidian.com about 550,000 yuan ($84,722) for infringing its copyright for five novels, the paper said. In March 2010, Qidian sued Baidu, saying its users could use Baidu to find links to pirated versions of five novels for which it owned the Internet copyrights. A Baidu spokesman said the company had already filed an appeal. Over the past few months, Baidu has been involved in a dispute over its Baidu Library product with a group of authors who said Baidu reproduced their works without permission. Baidu apologised to the authors and took down the infringing material.

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PEOPLE

GERMANY | REUTERS, MAY 11

Germany backs Draghi, deciding ECB presidency race

German Chancellor Angela Merkel backed Mario Draghi to be the next European Central Bank president, clearing the way for the Italian to succeed France's Jean-Claude Trichet from November. Merkel's spokesman said she would support Draghi, whose candidacy Italian Economy Minister Giulio Tremonti said had been put forward in a document to the Eurogroup of finance ministers, which meets on Monday. No other candidate has been formally proposed. Winning Merkel's support was all that stood between 63-year-old Draghi and the coveted ECB post after French President Nicolas Sarkozy threw his weight behind the Bank of Italy chief late last month.

US | REUTERS, MAY 5

New U.S. CFTC enforcement chief vows to be aggressive

The new enforcement chief at the U.S. futures regulator said he would aggressively use his "bigger arsenal of weapons" to crack down on fraud and manipulation in the marketplace. David Meister, the Commodity Futures Trading Commission's director of enforcement, said he had adopted an "aggressive, quick, and efficient" stance toward illegal activity in the futures and swaps markets. The division will keep cracking down on schemes that prey on retail investors -- until recently the hallmark of the agency's enforcement division -- but now will also focus the spotlight on investigating broader industry and over-the-counter fraud and manipulative schemes. Meister said at a Futures Industry Association conference that the Dodd-Frank Act had substantially broadened the CFTC's enforcement options. The CFTC has already filed 57 enforcement cases in the fiscal year that began in October 2010, after filing the same number in the entire fiscal 2010 timeframe. Meister was appointed in November 2010.

US | REUTERS, MAY 9

Bair to step down as U.S. FDIC chairman in July

Sheila Bair, a free market advocate who helped oversee the most dramatic bailout of the financial system since the Great Depression, will leave the Federal Deposit Insurance Corp on July 8, 2011, the agency announced. Bair is finishing her five-year term, and passing off the chairmanship of a reinvigorated FDIC with vast new powers to take down failing financial giants. Bair, a 57-year-old from Kansas, did not announce what she would do next. She previously said she plans to go back to academia or work at a nonprofit, but not enter the lobbying world or Wall Street. Prior to joining the FDIC, Bair was a professor at the University of Massachusetts-Amherst. She has held a variety of jobs in government, including being a top aide to former Senate Republican leader Robert Dole. The Obama administration has yet to announce who the president will nominate to replace Bair, but a leading candidate is FDIC Vice Chairman Martin Gruenberg, according to industry and congressional sources.



Senate panel OKs Diamond for U.S. Fed, prospects cloudy

A Senate panel approved for the third time the nomination of Nobel laureate Peter Diamond to a seat on the Federal Reserve Board over the opposition of Republicans, setting up a tough fight to win approval in the full Senate. The Senate Banking Committee backed Diamond twice last year, but the nomination was blocked by the panel's top Republican, Richard Shelby. The committee vote on Thursday was 12-10, with all the support coming from Democrats. Shelby's continued opposition, and the lack of support from other Republicans, means it will take a willful exercise of political muscle from the White House and Senate Democratic leadership to push Diamond's nomination through. In the Senate, a single member can hold up a nomination. Shelby said Diamond, an MIT professor who has written about pensions and behavioral economics, lacked the needed expertise and would come at the job from the wrong ideological perspective.


U.S. Senate panel OKs anti-terrorism finance nominees

A U.S. Senate panel approved two top Treasury officials to lead the department's anti-terrorism unit that aims to deprive insurgents of funds through financial sanctions. The panel voted 18-4 in favor of David Cohen to serve as the Treasury's undersecretary for terrorism and financial crimes and voted overwhelmingly in favor of Daniel Glaser as assistant secretary for terrorist financing. But two senators, Democrat Robert Menendez and Republican Mark Kirk, expressed concerns that the department was not properly enforcing an Iran sanctions law. The law, passed last year, aims to cut off funds that could support Iran's nuclear program by effectively requiring banks to choose between dealing with the U.S. financial system or doing business with Iran. The full Senate must now vote on the White House nominations.


China replaces president of China Life Insurance

China named a new president of China Life Insurance, the world's largest insurer by market value. The China Insurance Regulatory Commission said on its website that Yuan Li had been appointed to replace Yang Chao as China Life's chairman. Yuan was previously an assistant chairman at the insurance regulator.

SOUTH KOREA | REUTERS, MAY 6-9

South Korea's Lee names new finance chief in policy shift

South Korean President Lee Myung-bak named his labour minister as finance minister in a cabinet reshuffle that signals a shift from pro-big business to a more populist government policy. The reshuffle comes after the ruling Grand National Party (GNP) suffered defeats in by-elections seen as a vote against the government's economic policies favouring big exporting businesses over smaller firms. A newly appointed party leader, Hwang Woo-yea said the body will block further tax cuts for companies and individuals and instead boost financial support for the poor.


The incoming finance chief Bahk Jae-wan, who holds a Harvard PhD in public policy, is one of President Lee's closest aides, having helped him formulate policy since his 2002 election. Bahk has led the Ministry of Employment and Labour since last August.


FCC's Baker leaving to lobby for NBC Universal

Federal Communications Commission Commissioner Meredith Attwell Baker will leave the agency for a new post at Comcast Corp's NBC Universal, a company created by a merger Baker voted at the FCC to approve. Comcast said that Baker will join the company as senior vice president of government affairs for NBC Universal. Baker joined the FCC in July 2009 and will June 3. She will be lobbying for a unit that she, along with three of the four other FCC members, voted to allow Comcast to acquire four months ago.

US | REUTERS, MAY 9

Ex-SEC top lawyer Becker to rejoin Cleary Gottlieb

The former top lawyer at the U.S. Securities and Exchange Commission, who is at the center of an ethics probe about his work on the Bernard Madoff fraud, is returning to his prior job as a partner at Cleary Gottlieb Steen & Hamilton. David Becker, 63, recently served a two-year stint as general counsel under SEC Chairman Mary Schapiro., but Becker's tenure at the SEC has come under scrutiny by lawmakers and the agency's internal watchdog, after Madoff trustee Irving Picard sued Becker and his brothers to claw back $1.5 million that they had inherited from their mother's investments with Madoff. At the law firm, Becker will focus on securities enforcement and regulation, corporate governance and internal investigations, as well as new regulations in the financial sector, according to an announcement Monday by Cleary Gottlieb. He previously was a partner in the firm's Washington, D.C. office from 2002 until early 2009, and he will reclaim his position starting May 16, 2011.


COMING UP *Denotes new entry May 13 – Comments due to U.S. Financial Industry Regulatory Authority on firms’ supervision responsibilities for outsourcing arrangements May 16 – Deadline for responses to Financial Stability Board on task force views toward regulating shadow banking sector *May 16 – Hong Kong Exchange host event explaining new RMB trading facility and regulations. *May 17 – UK House of Lords Economic Affairs Committee kicks off probe into credit rating agencies with hearings *May 17 - EU finance ministers meet to endorse new shortselling rules, leading to talks with European Parliament on a final deal. *May 18 – U.S. Securities and Exchange Commission meets on credit ratings for the ABS market *May 18 – Fitch Ratings conference in Sydney. Officials expected to give more details on benefit of covered bonds. May 19 – Comments to due SEC on removal of references to credit rating agencies under Exchange Act May 23 – Comments due to FDIC on definition of “financial company” in orderly liquidation rule May 23 – Comments due to U.S. Office of Comptroller of Currency on proposed rule authorizing national banks, federal branches or agencies of foreign banks, and their operating subsidiaries to engage in off-exchange transactions in foreign currency with retail customers. May 24 - European Parliament economic committee to vote on regulation of OTC derivatives, central counterparties and trade repositories May 27 – Comments due to U.S. Financial Stability Oversight Council on criteria for designiating systematically important financial institutions May 30 - Deadline for responses to International Organization of Securities Commissions consultation paper on suspension of redemptions for collective investment schemes JUNE June 2 - Comments due to CFTC on proposed margin requirements for uncleared swaps June 3 – Comments due to CFTC on extended rulemakings under Dodd-Frank and order for final rulemakings under Dodd-Frank June 9 – Comments due to CFTC on swap data recordkeeping and reporting requirements June 10 – Comments due on credit-risk retention rule proposed by U.S. Federal Reserve and other agencies. June 22 - European Commission to publish amendments to capital requirements directives


June 24 – Comments due on swaps-market margin and capital requirements as proposed by U.S. Federal Deposit Insurance Corp and other bank regulators *June 24 – European Parliament set to vote on derivatives regulations JULY July - Financial Stability Board to consider initial draft recommendations on regulation of shadow banking system *July 5 – Deadline for comments on SEC proposal to remove references to credit ratings under the Exchange Act July 7 – SEC roundtable on incorporating International Financial Reporting Standards July 22 – Comments due on U.S. Federal Reserve proposal on minimum mortgage underwriting standards, including ability-to-pay requirements. (Coming Up calendar includes contributions from CMS Cameron McKenna LLP, via www.complinet.com, a Thomson Reuters company and leading provider of compliance information to the regulated financial services

GLOBAL REGULATORY BRIEFING is produced by Thomson Reuters Accelus (accelus.thomsonreuters.com), using news from Reuters and other Thomson Reuters publications. Editor: Randall Mikkelsen 22 Thomson Place,Boston, MA 02210USA For questions or comments about this report, or to subscribe, email us at: [email protected] Contact: +1 617-856-4402 Follow us on Twitter at: http://twitter.com/reutersregbrief Thomson Reuters: http://thomsonreuters.com For more information about our products: http://thomsonreuters.com/products_services Send us a sales enquiry at: http://reuters.com/salesenquiry © 2011 Thomson Reuters. All rights reserved. This content is the intellectual property of Thomson Reuters. Any copying, distribution or redistribution of this content is expressly prohibited without the prior written consent of Thomson Reuters. Thomson Reuters shall not be liable for any errors or delays in content, or for any actions taken in reliance thereon.

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