The U.S. Securities and Exchange
Commission proposed barring bets against asset-backed securities
by underwriters and securitization participants to root out
conflicts of interest that might harm investors.
SEC commissioners voted 4-0 yesterday to seek comment on a
rule, required by the Dodd-Frank Act, that would restrict those
who package or sponsor asset-backed securities from engaging in
deals that put their interests in conflict with buyers for a
year after the first closing of a sale.
Goldman Sachs Group Inc. (GS) paid $550 million last year to
settle SEC claims related to its marketing of collateralized
debt obligations linked to subprime mortgages. The Wall Street
investment firm acknowledged making a mistake in marketing
materials and providing “incomplete information” after being
accused of creating and selling the securities without
disclosing that hedge fund Paulson & Co. helped pick the
underlying securities and bet against them.
Dodd-Frank specifies the restriction should be in place for
a year from the security’s sale date, and it would also apply to
third parties working with the securities’ underwriters.
The rule, now open for a 90-day comment period, was
supposed to be completed in April, according to the law. The
SEC’s Dodd-Frank schedule currently lists it for final adoption
between January and June next year.
For video of the SEC hearing, click here.
Compliance Policy
Labor Department Will Delay Its Fiduciary Rule, Borzi Says
The U.S. Labor Department is delaying a rule designed to
make investment advisers more accountable for the advice they
give to employers and individuals in retirement plans, Assistant
Secretary of Labor Phyllis Borzi said in a conference call
yesterday.
Borzi said the rule could have been more clear and the
Labor Department is “trying to fix that,” and is “working
closely with the White House,” which has approved its decision
to move forward in this way.
Concerns from private companies such as Morgan Stanley (MS) that
manage 401(k) plans or investments in IRAs and legislators
caused the Labor Department to rethink the rule. The extra time
will enable the department to strengthen and clarify this
“important consumer protection,” she said.
The Labor Department wants to expand the scope of fiduciary
responsibility to protect those saving for retirement from
conflicts of interest, such as recommending investments with
higher fees. The rule would require investment professionals who
advise employers and workers in 401(k) plans or IRAs to act in
the best interest of their clients.
The original proposal may have caused financial firms to
offer fewer investment options in retirement accounts and shift
to a fee-based model used by investment advisers, which will
raise costs, Kenneth Bentsen, executive vice president of public
policy and advocacy said in July at a Washington hearing before
the House Subcommittee on Health, Employment, Labor and
Pensions.
The SEC has been working on rules required by the Dodd-
Frank Act that may overlap with the Labor proposal.
The revised rule will cover both 401(k) plans and IRAs,
said Borzi. She anticipates the reproposal of the rule will be
early next year.
Compliance Action
UBS Trading Loss Was $2.3 Billion; Parliament Makes Proposals
UBS AG (UBSN), Switzerland’s biggest bank, announced that its loss
from unauthorized trading amounted to $2.3 billion, more than
initially reported, while Chief Executive Officer Oswald Gruebel
said he will stay on.
The loss, first estimated on Sept. 15 at $2 billion, came
from trading in Standard & Poor’s 500, DAX and EuroStoxx index
futures over the past three months, the Zurich-based bank said
in a statement Sept. 18. UBS made the latest disclosures two
days after London police charged a 31-year-old trader with fraud
and false accounting.
“The positions taken were within the normal business flow
of a large global equity trading house as part of a properly
hedged portfolio,” UBS said in the statement. The magnitude of
the risk was masked by “fictitious positions,” it said.
Gruebel, 67, told Swiss newspaper Der Sonntag that he
doesn’t plan to resign because of the loss. His comments were
confirmed by spokesman Serge Steiner. In a separate interview,
he told Swiss TV that he is ultimately responsible and will have
to “take the consequences.” Questions remain over whether
investment-banking chief Carsten Kengeter or other senior
executives will be pushed out following the loss.
While the bank said the trading losses occurred over the
past three months, London police charged UBS trader Kweku
Adoboli with false accounting offenses dating to October 2008,
and fraud dating back to January 2009, according to the court
charge sheet.
Adoboli didn’t enter a plea, and his law firm, London-based
Kingsley Napley, declined to comment.
For more, click here.
Separately, Swiss lawmakers in the lower house of
Parliament approved proposals to curb risk-taking at UBS AG and
Credit Suisse Group AG (CS), the country’s biggest banks.
Swiss rule-makers are running ahead of counterparts in the
U.S. and Europe to make sure UBS and rival Credit Suisse cut
risks and hoard capital to avert the type of banking collapse
that hobbled Iceland’s economy. Yesterday’s decision paves the
way for final approval by both houses of Parliament next week.
The Swiss Parliament is voting on proposals to limit risk-
taking after UBS last week said it may be unprofitable in the
third quarter after the loss from “unauthorized trading” at
its investment bank. The loss, less than two months after Chief
Executive Officer Oswald Gruebel said the bank had “one of the
best” risk-management units in the industry, exposed flaws in
its controls.
UBS and smaller rival Credit Suisse will have to hold
capital equal to at least 19 percent of assets, weighted
according to risk, by 2019, according to the bill. That’s almost
double the percentage proposed by the Basel Committee on Banking
Supervision for banks deemed too big to fail.
For more, click here.
For commentary by Arthur Levitt, see Interviews, below.
Courts
Jefferies Sues Nasdaq Unit Over Rate Swap Futures Contracts
Jefferies Group Inc. (JEF) sued International Derivatives
Clearing Group LLC, accusing the Nasdaq OMX Group Inc. unit of
fraud and breach of contract in connection with interest-rate
swap futures contracts.
Jefferies & Co., the investment bank that has been
expanding since the financial crisis, claimed in the suit that
IDGC and its International Derivatives Clearinghouse unit
induced it to enter into interest-rate swap futures contracts by
saying the investment would be “economically equivalent” to
engaging in transactions in similar instruments on the over-the-
counter market. The suit was filed in New York state court on
Sept. 16.
“The suit is without merit,” said Frank DeMaria, a
spokesman for the company, who added that Nasdaq will fight the
litigation.
The case is Jefferies & Co. vs. Nasdaq OMX Group Inc. (NDAQ),
652560/2011, New York State Supreme Court (Manhattan).
Michigan Agency Loses Bid to Move Court Fight With Lehman
The Michigan State Housing Development Authority failed to
persuade a federal district court to review a bankruptcy judge’s
interpretation of swap contracts in its lawsuit against Lehman
Brothers Holdings Inc. (LEHMQ) over derivatives transactions.
U.S. District Judge John Koeltl in Manhattan declined to
take the case, according to a court filing yesterday.
The Michigan agency said in May that it is “one of many”
derivatives trading partners of Lehman disputing who gets paid
first on a swap agreement as a result of a previous ruling by
U.S. Bankruptcy Judge James Peck. The Lehman bankruptcy judge’s
interpretation of swap contracts is “surpassingly broad” and
requires U.S. District Court review because it has ramifications
for international securities markets, the authority said.
The global over-the-counter derivatives market is valued at
around $600 trillion by the Bank for International Settlements.
The authority sells bonds to raise money to help fund home
mortgages and rental housing developments. Peck put on hold the
housing agency’s lawsuit -- and a Lehman countersuit -- making
it impossible for the agency to defend itself, it said.
The lawsuit is Michigan State Housing Development Authority
v. Lehman Brothers Derivative Products, 09-01728, U.S.
Bankruptcy Court, Southern District of New York (Manhattan). The
bankruptcy case is In re Lehman Brothers Holdings Inc.,
08-13555, U.S. Bankruptcy Court, Southern District of New York
(Manhattan).
Interviews/Speeches
Levitt Says UBS Leaders Will Lose Jobs Over Trade
Arthur Levitt, a former chairman of the U.S. Securities and
Exchange Commission, said leaders of UBS “are going to pay the
price” for an unauthorized trade that cost the company $2.3
billion. Levitt talked with Bloomberg’s Ken Prewitt and Tom
Keene on Bloomberg Radio’s “Bloomberg Surveillance.”
For the audio, click here.
Comings and Goings
Two SEC Veterans Leaving Agency to Counsel Law Clients on Rules
Two veteran U.S. Securities and Exchange Commission
officials who played key roles overseeing financial companies
are stepping down to join law firms helping clients cope with
rules spawned by the 2008 credit crisis.
James Brigagliano, who served as deputy director of the
SEC’s trading and markets division, is leaving after 25 years to
join the Washington office of Chicago-based firm Sidley Austin
LLP, the law firm said yesterday in a statement.
John H. Walsh, associate director and chief counsel in the
office of compliance inspections and examinations, is quitting
after 23 years, to join Sutherland, Asbill & Brennan LLP in
Washington on Oct. 1, that firm said last week.
The two men are leaving with the agency in the midst of
implementing rules imposed by the Dodd-Frank Act, the sweeping
regulatory overhaul enacted last year, and may play key roles in
helping respond to the new oversight.
No comments:
Post a Comment