Wall Street banks setting up bond sales for U.S. states and cities would be required to tell public officials about potentially costly risks and conflicts of interest in the deals under proposed rules.
The Municipal Securities Rulemaking Board, which writes regulations for banks that work in the tax-exempt debt market, said yesterday that it asked the U.S. Securities and Exchange Commission to approve the proposed rules placing greater disclosure requirements on bond underwriters.
The move is part of an effort to reshape regulation of the $2.9 trillion municipal-securities market after the 2008 financial crisis. Since then, state and local taxpayers have been stuck with billions of dollars in unexpected costs because complex bond deals, pitched as money-savers, backfired.
The rules would require banks to disclose all “material risks” of bond financings, including the floating-rate securities coupled with interest-rate swaps that once flourished. Banks also would have to disclose potential conflicts of interest, including incentives they have to recommend such transactions, payments they may get from other parties in the deal and whether banks are betting on derivative contracts that only pay off if the borrower defaults.
The rulemaking board yesterday told financial advisers that they may face the regulations placed on broker-dealers if they arrange private placements of securities sometimes characterized as bank loans, a growing niche in the public-finance market.
In addition, the U.S. Commodity Futures Trading Commission is drafting rules that would force banks that pitch interest- rate derivative deals to also disclose details about the risks, act in the customers’ best interests, and ensure that they have the financial wherewithal to handle the potential impacts of wrong-way bets.
Compliance Policy
ICE Clear Credit Lowers Member Standard Before CFTC Rules
Intercontinental Exchange Inc., owner of the world’s largest credit-default swaps clearinghouse, lowered its membership standards before U.S. rules designed to expand access to the service.
ICE Clear Credit, the clearinghouse formerly known as ICE Trust that was re-named last month when it came under Commodity Futures Trading Commission and Securities and Exchange Commission oversight, now requires broker dealers and futures commission merchants to have $100 million in adjusted net capital and 5 percent of their customer funds as excess net capital, according to its rules. Previously, $5 billion in minimum net worth was required to be a clearing member.
The clearing member standards have pitted the largest banks such as JPMorgan Chase & Co. (JPM) and Morgan Stanley (MS) against smaller independent brokers Newedge USA LLC and MF Global Holdings Ltd. (MF) A trade group representing smaller firms has lobbied Congress and regulators since last year for access to derivatives clearing. The largest banks have contended that clearing members have to be large enough to absorb losses if one of them defaults and must have the market ability to take on swaps positions.
The CFTC has proposed that firms must have a minimum of $50 million in capital to become a member of swaps clearinghouses. The regulator hasn’t yet completed that rule and is expected to do so before the end of the year.
Salgado Rules Out Changes to Corporate Tax Rate by Cabinet
The Spanish government doesn’t plan changes to the rate of corporate taxes at cabinet meetings this month, Finance Minister Elena Salgado said at a news conference in Madrid yesterday.
The nation will press on with its announced fiscal program and will take steps to address its deficit at cabinet meetings this month, she told reporters.
China Considering Creating New Finance Regulator, Reuters Says
China is considering creating a ministerial-level department to manage its state-owned banks and non-bank financial institutions, Reuters reported yesterday, citing two unidentified people.
The move will strengthen central government’s supervision over the lenders, Reuters said.
Compliance Action
IBM European Antitrust Complaints Dropped by Three Companies
Three companies are dropping European Union antitrust complaints against International Business Machines Corp. (IBM) over its mainframe computers.
T3 Technologies Inc. and Neon Enterprise Software LLC have or will withdraw separate complaints filed with the European Commission, IBM said in a regulatory filing last month. TurboHercules SAS has also withdrawn its complaint, said Carina Oliveri, a spokeswoman for the company in Paris.
The Commission declined to comment on the status of its investigation into allegations IBM linked sales of its mainframe computers to its software and that it discriminated against competing sellers of services for the computers.
IBM, the biggest computer-services company, declined to comment beyond its regulatory filing.
Austin, Texas-based Neon said in May that it settled its legal dispute with IBM and would stop selling its zPrime software and request customers to remove and destroy their copies. Two calls and two e-mails to the company yesterday weren’t immediately answered.
T3 withdrew its EU complaint in May after dropping an appeal to a U.S. court ruling dismissing its claims against IBM, according to IBM’s filing. T3 didn’t respond to a telephone message and e-mail to its Tampa, Florida offices.
The Commission opened two separate investigations into Armonk, New York-based IBM last year over possible anti- competitive behavior that may have blocked competition for rival mainframe software and on maintenance contracts for the systems by “restricting or delaying access to spare parts.” EU antitrust regulators often end investigations into companies after complaints from rivals or customers are withdrawn.
Apple, Google Data Collection Violate S.Korea Law, Edaily Says
Apple Inc. (AAPL) and Google Inc. violated South Korean law by collecting location data in the Asian nation, Edaily reported, citing the Korea Communications Commission.
Apple was fined 3 million won, according to Edaily.
Courts
Playboy Founder’s Son-in-Law Settles SEC Inside-Trading Suit
The son-in-law of Playboy magazine founder Hugh Hefner settled allegations of insider trading in Playboy stock, agreeing to resolve a lawsuit by the U.S. Securities and Exchange Commission for $168,352.
William A. Marovitz, who is married to former Playboy Enterprises, Inc. Chief Executive Officer Christie Hefner, made $100,952 on the trades, according to the SEC complaint filed yesterday in federal court in Chicago.
An attorney and former Illinois state senator, Marovitz, 66, has been married to Hefner since 1995, according to the complaint. Hefner led Chicago-based Playboy from 1988 to 2009.
“Mr. Marovitz has no comment on the complaint or the settlement agreement,” his attorney, Jim Streicker of Chicago, said in a telephone interview. “He lost substantial sums of money on his investments in Playboy over the years,” he said.
While Hefner’s husband didn’t admit or deny the SEC’s allegations, he consented to a court order barring him from further violation of the SEC’s regulations, according to the commission’s statement. The settlement is still subject to court approval.
The case is Securities and Exchange Commission v. Marovitz, 11cv5259, U.S. District Court, Northern District of Illinois (Chicago).
Ex-UBS Client Greeley Pleads Guilty to Hiding $13 Million
A former UBS AG (UBSN) client pleaded guilty to filing a false U.S. tax return that concealed more than $13 million in two Swiss accounts, according to the Justice Department.
Robert E. Greeley admitted in federal court yesterday in San Francisco that he filed a tax return in 2008 that failed to disclose two UBS accounts set up in the names of Cayman Islands entities.
U.S. District Judge Charles Breyer set Greeley’s sentencing for Nov. 9. Greeley agreed to pay a civil penalty of $6.8 million for failing to file a Report of Foreign Bank and Financial Accounts form.
Greeley, a resident of San Francisco, was a client of former UBS banker Renzo Gadola, who pleaded guilty Dec. 22 in federal court in Miami. Greeley is one of more than two dozen former UBS clients accused of tax crimes since 2007.
The case is U.S. v. Greeley, 11-cr-374, U.S. District Court, Northern District of California (San Francisco).
Interviews/Speeches
Levitt Says Overhaul of SEC Would Cripple Investigations
Arthur Levitt, former U.S. Securities and Exchange Commission chairman, said a proposal to restructure the SEC would “emasculate” the commission. He said he believes the reorganization “is prompted by constituent pressure, mostly by the financial community to shut down the SEC’s efforts to inspect and examine broker-dealers.”
Levitt talked with Bloomberg’s Ken Prewitt and Tom Keene on Bloomberg Radio’s “Bloomberg Surveillance.”
Comings and Goings
Bank of America’s Krawcheck Elected to Finra Board of Governors
Bank of America’s Sallie Krawcheck and Tritaurian Capital Inc. Chief Executive Officer Ken Norensberg will serve as industry members of the Financial Industry Regulatory Authority board of governors, the brokerage regulator said in a statement.
Krawcheck, Bank of America’s president of global wealth management, was elected to represent large firms and Rosenberg was reelected for smaller brokerages, Finra said yesterday in a statement announcing results of voting at its annual meeting in Washington. Governors on the 22-member board serve three-year terms and may not serve more than two consecutive terms, Finra said.
Google Says It Hires FTC Intellectual Property Expert Michel
Google Inc. (GOOG), under investigation by the Federal Trade Commission for its dominance of Internet searches, said it hired Suzanne Michel, one of the commission’s top intellectual property officials.
Michel, 49, is leaving her post as deputy director of policy planning at the FTC, where she worked for more than 11 years on patent antitrust issues and patent policy. She will join the company’s legal team, Aaron Zamost, a Google spokesman, said, declining to elaborate on what her responsibilities will be.
Cecelia Prewett, an FTC spokeswoman, declined to comment on Michel’s move.
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