Reuters blog archive

from Financial Regulatory Forum:

Big banks’ risky trading should be curbed-Volcker

volcker 2 WASHINGTON, Feb 1 (Reuters) - White House adviser Paul Volcker will urge Congress to curb the risks taken by large banks to help prevent them from being treated as "too big to fail," according to testimony obtained by Reuters on Monday.
Detailing a recent proposal known as "the Volcker rule," the former Federal Reserve Chairman will tell lawmakers that commercial banks' proprietary and speculative activities should not be protected by the government.
He will also urge international consensus on "appropriate" actions to restrict commercial banks' activities.
Volcker -- an adviser to President Barack Obama whose star has risen in recent weeks -- will appear before the Senate Banking Committee on Tuesday to defend the administration's latest proposal to rein in the banks.
In January, Obama proposed limiting commercial banks' ability to engage in proprietary trading, to end their ties to hedge funds and private equity funds and to restrict the future growth of large banks beyond a new market share cap.
In his testimony, Volcker will say there are strong conflicts of interest inherent in participation by commercial banks in proprietary or private investment activity.
"I am not so naive as to think that all potential conflicts can or should be expunged from banking or other businesses," Volcker said in his prepared remarks.
"But neither am I so naive as to think that, even with the best efforts of boards and management, so-called Chinese walls can remain impermeable against the pressures to seek maximum profit and personal remuneration," he said.
Taken on board as an adviser early on by Obama, Volcker initially seemed to have not much of an impact in the administration. But that has changed since the Democrats lost a special Senate election in Massachusetts and Obama moved to a more populist stance, proposing new bank restrictions. (Reporting by Rachelle Younglai and Kevin Drawbaugh; Editing by Tomasz Janowski) ((; + 1 202 898 8411))

Tuesday, 02 February 2010 03:43:03RTRS [nN01217116] {C}ENDS

from Financial Regulatory Forum:

Companies to disclose iffy tax estimates – IRS

By Kim Dixon

WASHINGTON, Jan 26 (Reuters) - U.S. tax authorities will soon demand that corporations reveal much more detailed financial information about tax shelters and other complex structures when they file their income taxes, the top U.S. tax official said on Tuesday.

Under new draft guidance, the Internal Revenue Service would require companies to report which tax positions they take that could be "uncertain" or challenged by the IRS.

from Financial Regulatory Forum:

US stock exchanges push for sub-penny pricing

By Jonathan Spicer

NEW YORK, Jan 26 (Reuters) - The major U.S. exchanges are considering asking regulators to allow price quotes in increments as small as one-tenth of a cent for some stocks, a move that could revamp trading fees and the flow of orders in capital markets.

NYSE Euronext, Nasdaq OMX, privately held

BATS Global Markets and alternative venue Direct Edge, which plans to become a formal exchange operator this year, said the most heavily traded stocks could be priced more efficiently if they had narrower increments, or "tick sizes."

from Financial Regulatory Forum:

Dutch to support U.S. bank plan, seek EU support

    AMSTERDAM, Jan 26 (Reuters) - Dutch Finance Minister Wouter Bos has backed the plan from U.S. President Barack Obama to limit the scope and size of banks and reduce their risk taking and will push to win support of the plan among EU leaders.
   Obama last week threatened to fight Wall Street banks with new proposals that would be the most far-reaching overhaul of the U.S. banking industry since the 1930s. The proposals still need congressional approval.
   Bos said in a letter to U.S. Treasury Secretary Timothy Geithner he agrees further steps are necessary, stressing that some of the financial institutions that were on the brink of collapse 14 months ago are, worryingly, again growing in size.
   "This jeopardizes the thin layer of regained trust of the general public in the financial sector, and as a result many of our combined efforts so far. This is unacceptable," Bos wrote in the letter made public late on Monday.
   He added the Netherlands was keen to discuss these issues with the United States and others in the G20 and will try and win support for Obama's views in Europe in the coming months.
   The Dutch financial sector was also hard hit by the credit crisis and the government nationalised the Dutch operations of Fortis and ABN AMRO for 16.8 billion euros, while also providing capital and guarantees to ING <ING.AS> and insurer Aegon <AEGN.AS>.
   Obama's shake-up proposals would prevent banks from investing in, owning or sponsoring a hedge fund or private equity fund and bar banks from proprietary trading. They also would set a new limit on banks' size.
   Major European economies had offered support last week to Obama's plan, but indicated they had no plans to follow suit.
   A European Union source had also told Reuters the EU would not imitate Obama's plan, because it aimed to reduce risk in the sector through other means. [ID:nLDE60L0UV] (Reporting by Aaron Gray-Block: Editing by Neil Fullick)
 ((; +31 20 504 5001; Reuters Messaging:
Keywords: DUTCH BANKS/
Tuesday, 26 January 2010 07:31:53RTRS [nLDE60P04V] {C}ENDS

from Financial Regulatory Forum:

Obama’s bank plan could level high-frequency field

   By Jonathan Spicer
   NEW YORK, Jan 22 (Reuters) - President Barack Obama's plan to crack down on proprietary trading at big U.S. banks could spark a new rush of start ups, putting them on equal footing with the established independent trading firms that don't enjoy the backing of large financial institutions.
   The plan, unveiled Thursday, would fragment the so-called high-frequency trading that provides much of the buying and selling in U.S. markets. But that liquidity would likely remain at healthy levels, say traders, analysts, and investors.
   Besides the independent trading shops -- some of which have come to dominate equities and futures volumes in recent years -- hedge funds and private equity could also benefit if Obama successfully bars Wall Street banks from proprietary trading operations, unrelated to serving customers, for their own profit. [ID:nLDE60L1AS]
   "It shifts the profits from the banks to the prop trading independent firms, but I don't think it has a tremendous impact on liquidity," said Larry Tabb, chief executive of research and consultancy firm TABB Group. "In equity markets, if one player goes away there are twelve others to step up to the plate."
   Independent high-frequency trading firms emerged in force in recent years to take on banks in the world of proprietary trading, where bets on capital markets are made with the firms' own money, rather than executing trades on behalf of clients.
   Independent proprietary firms, including heavyweights Getco and Tradebot, represent about 46 percent of all high-frequency trading in U.S. equities, compared to 30 percent by broker-dealers, according to a December report by Boston consultancy Aite Group.
   The 15 largest independent firms alone account for 31 percent of overall high-frequency trading.
    In the months before and throughout the financial crisis, a flurry of independents launched to take advantage of the volatile markets, a lucrative rush that died down in the second half of 2009. The firms use rapid-fire trading programs to make markets and take advantage of tiny buy and sell imbalances.
   Obama's proposal would likely force banks to sell or spin off their high-frequency proprietary operations into stand-alone entities. [ID:nN21115923]
   That could spur traders to launch their own shops and help to level the playing field for today's independents.
   "It will definitely help the independent shops. It will create a more level playing field for everyone," said Louis Liu, founder and managing partner at Lotus Capital Management LP, a New York-based quantitative trading firm that uses high-frequency strategies.
   "Players will no longer have cheaper capital to make risky moves, some of which may not be warranted," said Liu, adding independent proprietary traders are more likely than those backed by banks to make less risky bets in the market.
   Obama's plan is intended to limit the risk posed by massive financial institutions, but faces an uncertain political fate and would take years to come into effect.
   It also raises questions over how to differentiate proprietary trading from exchange-based market making at the targeted banks, which include Goldman Sachs Group Inc <GS.N>, Morgan Stanley <MS.N>, and JPMorgan Chase & Co <JPM.N>.
   Still, it has the potential to reshape electronic trading in the United States -- where regulators last week launched a probe of equities markets to determine whether high-frequency traders, which account for more than half of all volumes, have undue advantages. [ID:nN13156728]
   "If the plan goes through, I think you'll actually see more shops being opened up," said a partner at an independent high-frequency trading shop who requested anonymity.
   "I don't think the competition at banks will go away, but the talent in (the banks) will go into different places, or start their own firms," he said.
   James Ellman, president at San Francisco-based hedge fund Seacliff Capital, said it was unlikely a profitable bank proprietary desk will simply shut down under Obama's plan.
   "Either someone will want to buy that unit, or just as likely the guys that run that unit -- who know they've got a machine they just turn on every day and money spits out of it -- are going to want to (buy out) the thing," he said. (For more coverage of the proposed bank rules click: [ID:nN21658127]) (Reporting by Jonathan Spicer; Editing by Tim Dobbyn) ((; +1-646-223-6253; Reuters Messaging:
Sunday, 24 January 2010 13:00:13RTRS [nN22227263] {C}ENDS

from Financial Regulatory Forum:

Obama plan could hurt U.S. banks-Swiss banker

   ZURICH, Jan 25 (Reuters) - U.S. President Barack Obama's proposals to split traditional banking activities from riskier areas will harm U.S. banks without international co-ordination, a prominent Swiss banker said in Monday's Financial Times.
   While financial sector stability is crucial to the U.S. recovery, targetting its banks unilaterally could hit their perceived competitiveness, Patrick Odier, chairman of the Swiss Bankers Association, was quoted as saying.
   "Rather than breaking up institutions it could be more appropriate to make use of risk-adjusted capital requirements," he was quoted as saying.
   Odier, a senior partner at Geneva-based Lombard Odier, was upbeat on the outlook for Swiss private banking, and said adequate regulation had underpinned the robustness of the country's financial system.
   "I think the outlook is positive," he said. "The Swiss financial centre has done well during the crisis and weathered the turbulence much better than some others." (Reporting by Martin de Sa'Pinto; Editing by Greg Mahlich) ((; +41 (0)58 306 7462; Reuters Messaging:
Monday, 25 January 2010 06:51:13RTRS [nLDE60O037] {C}ENDS

from Financial Regulatory Forum:

FACTBOX-5 financial reforms missing from US Congress bills

    Jan 6 (Reuters) - The U.S. Senate will resume debate this
month on financial regulatory reform, but a handful of changes
some see as crucial are not on the table.
    Below is a summary of five proposals excluded from a bill
approved last month by the House of Representatives, and from a
draft bill being debated in the Senate Banking Committee.
    In a proposal backed by homeowner activists and many
Democrats, bankruptcy law would be rewritten to allow judges to
change the terms of mortgages for distressed borrowers in
bankruptcy court. Known as mortgage "cramdown," the idea is
opposed by the banking industry, which won a victory last month
when an amendment that would have added "cramdown" to the
House's financial regulation reform bill was defeated.
    The House had approved a "cramdown" measure in March over
the objections of Republicans, but it died in the Senate.
    Under present law, bankruptcy courts may reduce many forms
of debt for struggling borrowers -- including for a boat, car,
vacation home or family farm -- but not a primary residence.
    Cramdown would help stem the home foreclosure wave
continuing across the United States, its advocates say. But
opponents say it would raise costs for everyone and divert
capital from the mortgage debt market.
    Tighter regulation of credit rating agencies -- such as
Moody's Corp <MCO.N>, Standard & Poor's <MHP.N> and Fitch
Ratings <LBCP.PA> -- is proposed by both the House bill
approved last month and the bill under debate in the Senate.
    But neither calls for basic change in the so-called "issuer
pays" business model that critics say presents credit rating
agencies with a glaring conflict of interest.
    Most of the agencies' revenue comes from the issuers of
bonds and other debt instruments that the agencies evaluate and
issue ratings on. Critics say that can mean that ratings are
colored by the agencies' need to win and keep business.
    Congressional aides said lawmakers could not find a way to
change that business model without destroying the industry.
    Rating agencies were widely blamed for failing to spot
problems in the subprime mortgage market and other areas ahead
of the 2008 global financial crisis.
    The Securities and Exchange Commission and the Commodity
Futures Trading Commission regulate financial markets so
inextricably linked that critics for decades have said the two
agencies should be one.
    A year ago, when the Obama administration took over and the
financial crisis was in full swing, a CFTC-SEC merger looked
like a possibility. But as the House of Representatives began
hammering out a politically realistic set of post-crisis
financial reforms, the merger slipped from view.
    Neither agency wanted it since it would threaten jobs and
turf. Financial services industry lobbyists were divided, with
some favoring a merger and others against it. Some policymakers
saw virtue in preserving competition between the agencies.
    In the end, legislators said, in a perfect world, the two
agencies would be combined, but that just isn't Washington.
    The two giants of U.S. mortgage finance -- Fannie Mae
<FNM.N> and Freddie Mac <FRE.N> -- need a major overhaul. That
much both political parties in Congress can agree on.
    But the consensus pretty much ends there.
    The Obama administration has said it will sketch out a
reform plan for the two agencies in February.
    So contentious is the struggle over fixing Fannie and
Freddie that Democrats opted to shelve it for now, excluding
the issue from financial regulation reform bills in the House
and Senate. They pledged to deal with it later.
    Fannie and Freddie together own or guarantee half of all
U.S. mortgages. Both were seized by the U.S. government and put
into conservatorship in September 2008 at the outset of a
financial crisis that rocked capital markets worldwide.
    Several congressional Democrats have introduced a bill to
cap credit card interest rates, but the measure is not included
in either of the main House or Senate packages.
    Another bill offered in the Senate last year would cap
rates at 36 percent for all consumer credit -- mortgages,
payday loans, car title loans -- not just credit cards. It is
not included in the two main legislative packages either.
    Some states have usury laws. Both the main House and Senate
reform packages have provisions saying how often and how far
federal regulators may preempt, or block, state consumer
protection laws, which can affect state usury statutes.
    * Global financial regulation overhaul seen in 2010,
double-click on [ID:nN0570162]
    * U.S. Senate panel nears agreement on role of Fed,
double-click on [ID:nN0536508]
    * US Senator Dodd wades into financial reform fight,
double-click on [ID:nN0547658]
    * FACTBOX-Major U.S. financial regulation reform proposals,
double-click on [ID:nN21200792]
    * FACTBOX-20 ways US House, Senate financial reforms
differ, double-click on [ID:nN29194836]
    * FACTBOX-Key players in reshaping U.S. financial
regulation, double-click on [ID:nN29198438]
 (Reporting by Kevin Drawbaugh; Editing by Andrew Hay)
 ((, +1 202 898 8390, +1 202
488 3459 (fax)))

Wednesday, 06 January 2010 05:00:15RTRS [nN30220023] {C}ENDS

from Financial Regulatory Forum:

ANALYSIS-US Senator Dodd wades into financial reform fight

Dodd shaping up for the fight

Dodd shaping up for the fight

    By Kevin Drawbaugh
   WASHINGTON, Jan 6 (Reuters) - As Round Two of the U.S. Congress' punishing fight over financial regulation gets under way this month, one big question is whether Senate Banking Committee Chairman Christopher Dodd will lead with his left.
   Down in the opinion polls ahead of November's elections,  Dodd has every reason to press a populist attack on big banks and financial interests as he seeks votes back home in Connecticut and support for reform on Capitol Hill.
   As chairman of the Senate Banking Committee, he will be the leading player in early 2010 for Democrats and President Barack Obama on sweeping regulatory reforms they want to push through to prevent a repeat of 2008's global financial crisis.
   Dug in deeply in opposition are Republicans and the "fat cat bankers on Wall Street," as Obama has labeled them. They suffered a defeat on Dec. 11, when the House of Representatives approved a bill loaded with reforms that the bankers opposed.
   Now they are throwing everything they've got into blocking reforms in the Senate, knowing it is an arena where millionaire lawmakers often look after their own, and where the slimmest of Democratic majorities means change comes very hard.
   Dodd is a centrist. He has long-standing ties to Wall Street, having raised millions of dollars over the years from employees of firms such as Goldman Sachs <GS.N> and Citigroup <C.N>, many of whom go home to Connecticut from New York City every night.
   How he handles the situation will go a long way toward determining the outcome, as well as Dodd's legacy, said policy analysts who expect the Senate debate to last well into 2010.
   Dodd introduced an 1,139-page reform bill in November that was in some ways more ambitious than the 1,279-page bill pushed through the House last month by Representative Barney Frank, who had to make some key compromises to win passage.
   The Dodd measure was slammed immediately by Senator Richard Shelby, the top Republican on the banking committee. Dodd responded by setting up four bipartisan teams of two committee members each to work on controversial issues.
   The Senate will not fully reconvene until Jan. 20. To get his legislation through, most analysts say, Dodd, too, will have to make compromises.
   "The legislation must get more moderate in order to clear the Senate in 2010," said Jaret Seiberg, financial services policy analyst at investment firm Concept Capital.
   * Global financial regulation overhaul seen in 2010, double-click on [ID:nN0570162]
   * U.S. Senate panel nears agreement on role of Fed, double-click on [ID:nN0536508]
   * FACTBOX-Major U.S. financial regulation reform proposals, double-click on [ID:nN21200792]
   * FACTBOX-20 ways US House, Senate financial reforms differ, double-click on [ID:nN29194836]
   * FACTBOX-5 financial reforms missing from US Congress bills, double-click on [ID:nN30220023]
   * FACTBOX-Key players in reshaping U.S. financial regulation, double-click on [ID:nN29198438]
   (Reporting by Kevin Drawbaugh; Editing by Jan Paschal) ((; Tel: +1 202 898 8390; Fax: +1 202 488 3459; Reuters Messaging: )) Keywords: FINANCIAL REGULATION/DODD 
Wednesday, 06 January 2010 05:01:19RTRS [nN0547658 ] {C}ENDS

from Financial Regulatory Forum:

Westlaw Business Analysis: SEC Cracks Down on Holdback of Material Schedules

WLB-logoWestlaw  business applies a legal lens to the SEC's latest moves
By J. G. Ballard
Perhaps influenced by the controversy over Bank of America’s forgotten bonus schedule from Merrill, the SEC seems to be cracking down in incomplete submission of agreements. Of over 50 such requests by the regulator since 2002, more than half have been from the past year.  As companies are now thinking through how to disclose their deals, including those with particularly sensitive commercial terms, they should keep the SEC’s newest disclosure mandate sharply in mind, in a quest to hold down comments and the time and costs they impose.
In one example of the SEC’s recent action, the Commission asked Abitibi to re-file multiple agreements, this time with all schedules, annexes and exhibits attached. The agreements ranged from restructuring agreements to purchase agreement to credit agreements.
Abitibi is not the only distressed issuer to receive this request from the SEC. XL Capital recently saw a request for a previously filed agreement in July. In XL’s case, the request was for a complete copy of the master commutation, release and restructuring agreement filed a year previously in relation to XL spinning off Syncora. While reviewing XL’s 10-K, the SEC noticed some irregularities in the accounting concerning the spin-off transaction; namely, where XL recorded the loss due to the completed transaction. This lead to additional staff comments and a request for the agreement in its entirety.
Unlike Abitibi and XL, some issuers, such as Cenveo, Inc. a paper manufacturer, try to reason their way out of the additional disclosure. Cenveo had filed an amended credit agreement with several exhibits omitted. The SEC noticed the omission and requested that the agreement be filed in its entirety. The issuer responded to the request by notating that the missing forms were not material in and of themselves as their use was contingent on events that might not even occur. The SEC stuck to its guns and again requested the complete agreement in their reply at the end of July.
While not unheard of, such requests by the SEC are also not common. This recent trend may have been triggered by the past year’s infamous Bank of America/Merrill Lynch bonus scandal. As was revealed in subsequent litigation, bonus payments were disclosed on a schedule to the merger agreement. While the merger agreement was filed, the bonus payment schedule was not.
The SEC staff appears to have a renewed interest in Item 601 of Regulation S-K, judging from the increase in requests for complete agreements. What remains to be seen is if this recent trend will continue into next year.

from Financial Regulatory Forum:

US House tackling historic financial reforms

By Kevin Drawbaugh

WASHINGTON, Dec 10 (Reuters) - As the U.S. House of Representatives moved closer on Thursday to debating the most sweeping changes to financial regulation proposed since the Great Depression, a raft of late amendments were headed to the floor as lawmakers wrangled over the legislation.

The core bill would give the government new powers over large banks, regulate over-the-counter derivatives for the first time, and set up a Consumer Financial Protection Agency.