The European Union’s planned tax on financial transactions should have a “broad base” covering equities, bonds, currencies and derivatives to ensure it can’t be evaded, the finance ministers of France and Germany said.
The levy should be imposed when at least one party to a trade is located in the EU, with territorial coverage in the region to be “as broad as legally permissible,” Germany’s Wolfgang Schaeuble and France’s Francois Baroin said in a joint letter to the European Commission published Sept. 9.
The commission, the 27-nation EU’s executive arm, last month said it will draw up proposals for a transaction tax before a summit of world leaders in November, backing calls by French President Nicolas Sarkozy and German Chancellor Angela Merkel for the levy.
The region’s lenders have criticized the plans, warning that such a measure will harm economic recovery.
Discussions among nations on how the money raised by the tax should be spent shouldn’t delay progress in setting it up, the ministers said.
Compliance Policy
Swap Lobbyists Pushing SEC Version of Trading Rules Over CFTC
The Securities and Exchange Commission and Commodity Futures Trading Commission are expected, because of rules created by Congress, to work in tandem to oversee the $601 trillion swaps market. This may lead financial companies to stoke differences between the two in a quest for favorable treatment.
The 2010 Dodd-Frank Act gave the CFTC authority over most swaps, with the SEC overseeing those based on securities, to improve transparency and reduce risk in the market. Firms including BlackRock Inc. (BLK), the world’s largest asset manager, have praised the SEC’s approach to a rule meant to curb abuses by swap dealers selling to less sophisticated investors including pension funds, endowments and local governments. Lawmakers told regulators to write the rule after swaps pushed Jefferson County, Alabama, to the brink of bankruptcy.
U.S. Senator Carl Levin, a Michigan Democrat, said the SEC was proposing weaker controls than Congress wanted when it added the provision to the Dodd-Frank overhaul of rules for Wall Street.
Under the law, swap dealers must act in the best interests of towns, cities and other so-called special entities when serving as their adviser. The CFTC proposed regulations implementing those requirements on Dec. 9; the SEC proposed its rule on June 29.
Under the SEC proposal, an adviser would be considered independent if it didn’t receive more than 10 percent of gross revenue from the special entity in the previous year. The CFTC proposal would consider dealers to be independent if they don’t have “material business relationships” with special entities.
The comment period for the SEC’s proposal expired more than a week ago. John Nester, an SEC spokesman, declined to comment on the rule proposal, and Steve Adamske, a spokesman for the CFTC, didn’t immediately respond to a request for comment.
The agencies could decide to forge a common standard or they could stay on different paths, forcing dealers to follow two sets of rules.
India Said to Decide on Enabling Companies to Borrow in Yuan
Indian policy makers will hold a meeting on Sept. 15 to consider letting local companies borrow in yuan, according to a finance ministry official with direct knowledge of the matter.
Officials from the nation’s central bank, the finance ministry and the capital markets regulator, Securities and Exchange Board of India, will review overseas debt rules, said the person, asking not to be identified before any public announcement from the government.
The meeting may help address requests from Indian power producers purchasing equipment from Chinese vendors, the official said, without elaborating.
Compliance Action
FBI Raid on Solyndra May Herald Escalation of Watchdog Probe
An FBI raid on Solyndra Inc., a solar-panel maker that failed after receiving a $535 million loan guarantee from the U.S. Energy Department, may signal the escalation of a probe into President Barack Obama’s clean-energy program.
Agents for Energy Department Inspector General Gregory Friedman, who has called the department’s clean-energy loan program lacking in “transparency and accountability,” joined in the search Sept. 8 at the Fremont, California, headquarters of Solyndra, which filed for bankruptcy protection on Sept. 6.
Republicans critical of the program stepped up their attacks following the raid, and two House Democrats questioned the integrity of the company, indicating a potential political crisis for the president. A foundation headed by an Obama campaign contributor was a principal investor in Solyndra.
The Energy Department gave Solyndra the most federal backing awarded a solar manufacturer.
The Federal Bureau of Investigation executed a search warrant at Solyndra, bureau spokeswoman Julie Sohn said in an interview. Sohn said she couldn’t provide details about the investigation. Solyndra, which shut its factory and fired 1,100 people, said in its filing for bankruptcy protection that it had liabilities of $783.8 million.
Dave Miller, a Solyndra spokesman, and Debra Grassgreen, the company’s bankruptcy attorney with Pachulski Stang Ziehl & Jones LLP, didn’t immediately return calls seeking comment on the raid. White House spokesman Eric Schultz declined to comment on the raid, referring questions on law enforcement to the Justice Department and on loans to the Energy Department, which also declined to comment.
Deloitte Says Chinese Law Prevents Sending Documents to SEC
Deloitte Touche Tohmatsu Ltd.’s China affiliates said they have cooperated with the U.S. Securities and Exchange Commission as much as possible under Chinese law regarding its former auditing client Longtop Financial Technologies Ltd. (LFT)
The law precludes Deloitte from producing the requested documents to a foreign regulator without approval from China’s own regulatory authorities, spokesman Wilfred Lee said in an e- mailed statement Sept. 9.
The SEC said Sept. 8 that it filed an enforcement action against Shanghai-based Deloitte Touche Tohmatsu CPA Ltd. for failing to produce documents related to an investigation of Longtop after subpoenas issued in May. Longtop said that month that Deloitte quit because of errors in the company’s financial records. In July, the SEC and Public Company Accounting Oversight Board met with counterparts in China to discuss cross- border oversight.
“This is essentially a matter between regulators in China and the United States; Deloitte China is happy to comply with any outcome that is agreed between them,” the company’s statement said.
Spherix Is Latest U.S. Stock Halted by Circuit Breakers
Spherix Inc. (SPEX) is the latest U.S. stock halted by circuit breakers implemented in June 2010.
The curbs were created after the 20-minute rout on May 6, 2010, erased $862 billion from the value of U.S. equities before prices rebounded. New rules proposed by exchanges on April 5, 2011, would shift the market to a limit-up/limit-down system that prevents shares from moving more than a certain amount.
Bondholders Weigh Greek Debt Exchange Amid Budget Concerns
Questions over Greece’s ability to meet the terms of its first rescue package are dogging the indebted nation as bondholders weigh whether to participate in a debt exchange that’s crucial to a second bailout.
Greece sought preliminary responses Sept. 9 from bond investors to the proposed debt swap, part of a 159 billion-euro ($220 billion) European Union rescue plan agreed upon in July. Responses to the inquiry, which is not a formal offer, are nonbinding and will be aggregated by regulators country by country, according to the Greek government.
The Greek government is still trying to show it can reach budget-cutting targets required for the next 8 billion-euro payment from a bailout engineered in 2010.
Greece said last week that it will accelerate further austerity measures as pressure mounted from European partners before the payment of the sixth tranche of bailout loans under last year’s 110 billion-euro loan package. A scheduled quarterly review of Greece’s progress by the EU and the International Monetary Fund was unexpectedly suspended for 10 days and won’t resume until mid-month.
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Separately, Chancellor Angela Merkel’s government is preparing plans to shore up German banks in the event that Greece fails to meet the terms of its aid package and defaults, three coalition officials said.
The emergency plan involves measures to help banks and insurers that face a possible 50 percent loss on their Greek bonds if the next tranche of Greece’s bailout is withheld, said the people, who spoke on condition of anonymity because the deliberations are being held in private. The successor to the German government’s bank-rescue fund introduced in 2008 might be enrolled to help recapitalize the banks, one of the people said.
The existence of a “Plan B” underscores German concerns that Greece’s failure to stick to budget-cutting targets threatens European efforts to tame the debt crisis rattling the euro. German lawmakers stepped up their criticism of Greece this week, threatening to withhold aid unless it meets the terms of its austerity package, after an international mission to Athens suspended its report on the country’s progress.
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Interviews/Speeches
Llewellyn Says Recapitalizing Banks Is Europe Priority
John Llewellyn, senior economic policy adviser at Nomura International Plc, discussed European banks and the debt crisis.
He spoke with Maryam Nemazee on Bloomberg Television’s “The Pulse.”
For the video, click here.
Truglia Says Greece Is ‘Very Close’ to Debt Default
Vincent Truglia, managing director at Granite Springs Asset Management, talked about the likelihood of a possible default on Greek sovereign debt.
Finance Minister Evangelos Venizelos dismissed “rumors” of a Greek default, saying the nation is committed to “full implementation” of the terms of a July agreement for a second aid package. Truglia spoke with Lisa Murphy on Bloomberg Television’s “Fast Forward.”
For the video, click here.
Comings and Goings
Lacaille Says ‘Wavering’ ECB May Be Risky as Stark Quits
Richard Lacaille, chief investment officer at State Street Global Advisors, talked about Juergen Stark’s resignation from the European Central Bank’s executive board.
Lacaille also discussed the euro-area debt crisis. He talked with Andrea Catherwood on Bloomberg Television’s “Last Word.”
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