Barclays, Credit Suisse pay US$154.3 million in dark pools probe

[LONDON] Barclays Plc and Credit Suisse Group AG agreed to settle allegations by New York's top cop and the US Securities and Exchange Commission that they misled investors on how they managed their private trading platforms. 

PHOTO: BLOOMBERG

FEB 1, 20167:19 AM

[LONDON] Barclays Plc and Credit Suisse Group AG agreed to settle allegations by New York's top cop and the US Securities and Exchange Commission that they misled investors on how they managed their private trading platforms.

Barclays will pay US$70 million, split evenly between the two enforcers, the largest fine levied on a dark pool operator, the SEC said Sunday in a statement. Credit Suisse will pay US$84.3 million, according to the statement. That payment includes US$24.3 million to the SEC for disgorgement and interest, with the remainder shared evenly between the two authorities.

The dispute centered on whether the banks disclosed enough to their clients about trading in their dark pools. Barclays misrepresented to clients how it monitored its dark pools for high-frequency trading, according to the statement. Credit Suisse systematically routed orders to its own dark pool, but told clients that it didn't prioritize one trading venue over another, according to New York Attorney General Eric Schneiderman.

"These cases mark the first major victory in the fight against fraud in dark pool trading that began when we first sued Barclays: coordinated and aggressive government action, admissions of wrongdoing, and meaningful reforms to protect investors from predatory, high-frequency traders," Mr Schneiderman said.

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"We will continue to take the fight to those who aim to rig the system and those who look the other way."

Independent Monitor Barclays agreed to settle the charges by admitting that it misled investors and violated securities laws, according to the SEC statement. The London-based bank also agreed to install an independent monitor. Mark Lane, a Barclays spokesman, declined to comment.

Zurich-based Credit Suisse didn't admit or deny wrongdoing in the settlement, which involved two of its trading platforms, Crossfinder and Light Pool.

"We are pleased to have resolved these matters with the SEC and the New York attorney general," Nicole Sharp, a bank spokeswoman, said in a statement.

"These largest-ever penalties imposed in SEC cases involving two of the largest ATSs show that firms pay a steep price when they mislead subscribers," Andrew Ceresney, the director of SEC's enforcement division, said in the statement.

The private trading venues are the first to be sanctioned by Schneiderman, who almost two years ago began investigating whether U.S. stock exchanges and Wall Street dark pools provide improper advantages to high-frequency traders. He sued Barclays in June 2014, alleging it lied to customers about what high- frequency trading firms were doing inside its platform in an effort to expand the venue's business.

Dark pools sprung up in the 1980s to give market participants the ability to trade big blocks of stock without tipping off other traders. Over the years, they have garnered a greater portion of US equity volume, accounting for almost 20 per cent of the US$21 trillion that changes hands daily. Hosted by some of the world's biggest banks, dark pools allow traders to keep their offers to buy and sell stocks largely private.

The settlements will effectively establish the New York attorney general as an enforcer in the business of private trading venues, though he had been criticized for wading into the markets arena. 

Under the settlement, Barclays is acknowledging that the attorney general had jurisdiction under the Martin Act, a New York law that gives him broad powers to pursue white-collar crime. 

For the SEC, the record dark-pool penalties serve as a counterpoint to critics who've said it has been lax in overseeing the US equities market. In 2014, an SEC official publicly rebutted criticism that the agency wasn't doing enough in the era of light-speed trading after the Schneiderman investigation began.

"The SEC will continue to shed light on dark pools to better protect investors," SEC Chairman Mary Jo White said in the statement detailing the settlement.

The attorney general's probe of Barclays was sparked by former bank employees who brought the allegations to him, people familiar with the matter said at the time. The SEC opened a parallel investigation.

The SEC and the Department of Justice also promised a broad inquiry into the fairness of rapid-fire trading after a flurry of attention to Michael Lewis's "Flash Boys," which alleged Wall Street firms were gaining an unfair edge by using computers that run hundreds of trades in the blink of an eye.

As part of that effort, White announced plans for greater oversight of stock trading in a June 2014 speech. The high- profile cases to date have focused not on the trading itself, but on disclosures and practices by those who cater to the firms.

In August, Investment Technology Group Inc agreed to pay US$20.3 million for operating a proprietary trading desk that used knowledge of customers' requests to trade for its own benefit, among other infractions. Last January, UBS Group AG paid US$14.4 million for lack of disclosures about how its dark pool operated.

Bloomberg News parent Bloomberg LP owns a stake in Bids Trading LP, which operates a dark pool.

BLOOMBERG

    
 

Hedge funds bet against Chinese currency: WSJ

FEB 1, 20167:53 AM

[BEIJING] Several major hedge funds are piling into bets that China's currency will decline against the dollar, according to the Wall Street Journal.

Hayman Capital Management has invested about 85 per cent of its portfolio in bets against the yuan and the Hong Kong dollar, and Greenlight Capital holds options that pay off if the yuan falls. Hedge fund managers Stanley Druckenmiller and David Tepper have also taken positions against the Chinese currency, the Journal said, citing people familiar with the matter.

The bets reflect the multitude of pressures on China's currency, including a slowing economy, unsteady financial markets and persistent capital outflows that have diminished the country's formidable foreign reserves.

At the same time, the US dollar has risen steadily against other currencies as the relative strength of its economy has compelled the Federal Reserve to raise interest rates for the first time since the 2009 recession.

REUTER
S

Researchers say Zika case found in Indonesia

An Indonesian research institute said Sunday it had found one positive Zika case on Sumatra island, adding that the virus has been circulating in the country "for a while". 

PHOTO: REUTERS

JAN 31, 20168:55 PM

[JAKARTA] An Indonesian research institute said Sunday it had found one positive Zika case on Sumatra island, adding that the virus has been circulating in the country "for a while".

Indonesia's health ministry could not immediately comment on the report by the Eijkman Institute for Molecular Biology.

The mosquito-borne virus has sparked widespread alarm in parts of the Americas. It is suspected of causing grave brain damage in newborns and has similar symptoms to dengue fever.

The institute said a 27-year-old man living in Jambi province on Sumatra island who had never travelled overseas had been found to be infected.

It said it stumbled on the case while studying a dengue outbreak in the province.

Researchers set aside specimens which produced dengue symptoms such as rashes and fever but which tested negative for dengue, and researched them further.

"Out of the 103 (dengue-negative) specimens that we checked, we found one positive for Zika," the institute's deputy director, Herawati Sudoyo, told AFP.

Zika is transmitted by the Aedes aegypti mosquito, which also spreads dengue fever and the chikungunya virus. It produces flu-like symptoms including a low-grade fever, headaches, joint pain and rashes.

Sudoyo said the specimens were taken during a dengue outbreak in Jambi between December 2014 and April 2015. It was not known how and when the man, who never travelled overseas, contracted the virus.

"We concluded that the virus has been circulating in Indonesia for a while," Sudoyo said.

The World Health Organization warned in the past week the virus is "spreading explosively" in the Americas, with three million to four million cases expected this year.

Hardest-hit so far has been Brazil, with more than 1.5 million cases since April.

Health authorities there are investigating the possible linkage between Zika and more than 3,400 suspected cases of microcephaly - abnormally small skulls and brains - in babies born to infected mothers.

AFP

    
 

Hon Hai CEO says Sharp to decide on investment within week

JAN 31, 20161:58 PM

[TAIPEI] Taiwan's Hon Hai Precision Industry Co is confident of its offer for Sharp Corp and expects the Japanese tech firm to come to a decision on the issue within the week, Hon Hai Chief Executive Terry Gou said on Sunday.

Gou, speaking to reporters at a company event, said he presented Hon Hai's offer to Sharp's board on Saturday.

He said Hon Hai was not out to destroy Sharp.

REUTERS

S.Korea to allow foreign investors to use omnibus accounts

JAN 31, 20162:05 PM

[SEOUL] South Korea said on Sunday it plans to introduce next year the omnibus account system that it hopes will help save the cost while enhancing convenience for foreign investors in the local stock markets.

The government also hopes the move will help the country's stocks be reclassified into the developed market category by index compiler MSCI from the current emerging market status, a goal the country has been pursuing for a long time.

An asset management company will be able to conduct transactions of South Korean stocks through one omnibus account on behalf of multiple foreign investors, compared to the current system requiring each investor to open an account. "Index-tracking passive funds are taking an increasing share of the local stock market and they are sensitive to transaction costs," Kim Hak-soo, head of the capital markets bureau at the Financial Services Commission, told an embargoed briefing.

South Korean officials have said reclassification of South Korea into the developed market group by the MSCI would help the country's financial markets avoid unnecessary turmoil at times of increased volatility mainly involving emerging markets.

The country's economy is estimated to be the world's 11th largest in 2015 with annual gross domestic product of $1.4 trillion, and is already classified as an advanced economy by many organisations including the International Monetary Fund.

The commission said it would conduct a test run for the omnibus account system from May before formally introducing it from the beginning of 2017.

Along with the omnibus account system, South Korean officials have said foreign investors also demanded a higher convertibility of the country's won currency, which currently trades within the country.

Kim at the commission said South Korean authorities were looking into various options aimed at making the currency more freely convertible, while declining to elaborate.

REUTERS

      

'No deal yet' in Brexit talks with Cameron: EU's Tusk

[LONDON] No deal was reached between British Prime Minister David Cameron and European Union president Donald Tusk Sunday in talks to agree changes to Britain's membership of the bloc ahead of an in-or-out referendum. 

PHOTO: REUTERS

FEB 1, 20166:36 AM

[LONDON] No deal was reached between British Prime Minister David Cameron and European Union president Donald Tusk Sunday in talks to agree changes to Britain's membership of the bloc ahead of an in-or-out referendum.

"No deal yet. Intensive work in next 24 (hours) crucial," Mr Tusk wrote on Twitter following a working dinner in Mr Cameron's Downing Street office in London.

The EU president has "agreed to another 24 hours of talks" before publishing a draft of an agreement, Mr Cameron wrote on the site.

A senior government source had said that Mr Cameron would press for an immediate post-referendum ban on European Union migrants from claiming benefits such as income top-ups for low-paid workers until they have paid into the British system.

Mr Cameron has vowed to secure reform in four key areas to address the concerns of British people who doubt the benefits of EU membership, before campaigning to remain within the 28-member bloc in a referendum due by 2017.

An EU source said that "some progress" had been made during the meeting but that there were "still outstanding issues".

AFP

    
 

China grapples with contradictions over currency

JAN 31, 20161:46 PM

[BEIJING] China is struggling to reconcile its push for economic reforms and a freely traded currency with curbing massive outflows of capital sparked by worries over its slowing economy - and a lack of communication is fuelling fear.

The thorny problem represents the so-called "impossible trinity", as China's ruling Communist Party seeks to control the exchange rate and monetary policy, while at the same time moving to freer capital flows, analysts said.

Around $1.0 trillion left China last year, according to Bloomberg Intelligence. In December alone capital outflow from the country was nearly $160 billion, it said.

The cash haemorrhage reflects growing concern about the economy against a backdrop of volatility in the stock and currency markets, which has led both investors and savers to shed their yuan, also known as the renminbi (RMB).

"The recent flood of capital leaving China has been driven primarily by increased scepticism that the People's Bank (the central bank) will hold to its pledge to keep the renminbi stable," said Mark Williams, chief Asia economist at Capital Economics.

At the recent World Economic Forum in Davos, billionaire investor George Soros told Bloomberg TV that the world's second largest economy, where growth has already slowed to a 25-year low, was heading for more trouble.

"A hard landing is practically unavoidable," he said, pointing to deflation and excessive debt as a reason for China's slowdown.

His remarks angered the Chinese media, which accused him of "declaring war" on the currency.

Soros - whose enormous trades are still blamed in some countries for contributing to the Asian financial crisis of 1997 - in the 1990s led speculators in bets against the Bank of England, which unsuccessfully sought to defend the pound's exchange rate peg.

The yuan has retreated against the dollar by 1.3 percent since the start of January, having already slid more than 4.5 percent against the greenback in 2015.

Beijing keeps a grip on currency flows and the yuan can only move up or down against the dollar by two percent daily from a mid-rate set by the People's Bank of China (PBoC), the central bank.

But after a surprise devaluation last August - a move intended to bring it closer to its market value according to Beijing - the yuan is being dragged down by the vast outflows of capital.

Chinese citizens are allowed to convert the equivalent of $50,000 from the domestic currency under an annual quota, though many seek ways to evade the barrier. A popular method is borrowing the quota of other people, such as family members.

When the PBoC in mid-December signalled a change in the way it manages the yuan's value by measuring the unit against a basket of currencies instead of pegging it to the dollar, the move increased the level of anxiety.

Bank of America Merrill Lynch said the lack of "clear and transparent" rules for the basket led to confusion in the market. At the same time, the decision by the US Federal Reserve to raise interest rates has put downward pressure on the yuan.

Chinese officials deny plans to devalue the currency, amid fears Beijing is seeking a currency war to help boost its flagging exports.

"The fluctuations in the currency market are a result of market forces and the Chinese government has no intention and no policy to devalue its currency," Vice President Li Yuanchao told Bloomberg.

But Beijing faces a dilemma, he said. On the one hand, China wants to expand use of the yuan internationally. At the same time, the government needs to ensure the unit remains stable.

To keep its currency steady, China has been diving into its foreign exchange reserves - already the world's largest - to buy massive amounts of yuan.

But it is a bitter pill to swallow. China's foreign exchange reserves fell $108 billion in December - the biggest monthly decline on record - to $3.3 trillion.

"The PBoC has enough reserves to keep selling at December's rate until mid-2018 but it would presumably throw in the towel before they were all exhausted," said Williams of Capital Economics.

The central bank has also refrained from loosening monetary policy by cutting reserve requirements - the amount of funds that banks must put aside - on fears of exacerbating the yuan's depreciation, analysts said.

Some say China will need to devalue the yuan, and have even called on Beijing to move rapidly towards a free float of the currency.

But others believe such a move would reflect poorly on China, which in November received approval from the International Monetary Fund for the yuan to be included in its basket of elite currencies.

"The potential disruption to financial stability outside China, and with the risk of an Asian currency war, would ultimately feedback negatively to China," said Michala Marcussen, global head of economics at Societe Generale.

AFP

    
 

US warship sails near island claimed by China in South China Sea

JAN 31, 20161:39 PM

[WASHINGTON] A US Navy destroyer sailed within 12 nautical miles of an island claimed by China and two other states in the South China Sea on Saturday to counter efforts to limit freedom of navigation, the Pentagon said.

China claims most of the South China Sea, through which more than US$5 trillion of world trade is shipped every year. Vietnam, Malaysia, Brunei, the Philippines and Taiwan have rival claims.

Pentagon spokesman Captain Jeff Davis said no ships from China's military were in the vicinity of the guided-missile destroyer USS Curtis Wilbur when it passed near Triton Island in the Paracel Islands.

"This operation challenged attempts by the three claimants - China, Taiwan and Vietnam - to restrict navigation rights and freedoms," Davis said, reflecting the U.S. position that the crucial sea lane should be treated as international waters.

The Navy conducted a similar exercise in October in which the guided-missile destroyer Lassen sailed close to one of China's manmade islands, drawing a rebuke from Beijing.

Davis said the latest operation sought to challenge policies that require prior permission or notification of transit within territorial seas. He said the United States took no position on competing sovereignty claims to naturally-formed land features in the South China Sea.

"No claimants were notified prior to the transit, which is consistent with our normal process and international law," Davis said.

The Chinese foreign ministry responded Saturday evening with a statement on its website condemning the action.

"The American warship has violated relevant Chinese laws by entering Chinese territorial waters without prior permission, and the Chinese side has taken relevant measures including monitoring and admonishments," China's foreign ministry said in a statement.

China's defence ministry followed up later Saturday night with a far more forceful statement on its website, calling the American action "intentionally provocative and "irresponsible and extremely dangerous."

The ministry also said that Chinese navy vessels had immediately taken responsive action, conducted identification checks and promptly gave warnings for the ship to keep its distance.

"Regardless of whatever provocative steps the American side takes, China's military will take all necessary measures to firmly safeguard national sovereignty and security," the ministry statement concluded.

The operation followed calls in Congress for the Obama administration to follow up on the October operation.

This month, the chairman of the U.S. Senate Armed Services Committee criticized Obama for delaying further freedom of navigation patrols.

He said that allowed China to continue to pursue its territorial ambitions in the region, including by landing a plane on a manmade island in the Spratly Islands archipelago.

REUTERS

    
 

The Tyranny of Big Oil (Video)

The Tyranny of Big Oil

2016 

Another hard-hitting segment of the acclaimed documentary series The Empire Files, The Tyranny of Big Oil paints a sharp critique against the oil industry, and its stranglehold upon the highest levels of the United States government.

The filmmakers rely heavily on the insights of Antonia Juhasz, the author of the film's namesake, as well as freelance investigative journalist Greg Palast. Collectively, they speak of the industry's influence in dictating domestic and international policies, avoiding meager environmental regulations, and using every weapon in their arsenal to protect and expand their interests.

The all-encompassing power of the oil industry is nothing new. It began with the world's first billionaire - John D. Rockefeller - who used strong-arm bribery tactics to monopolize 90% of the globe's refineries. The U.S. government attempted to enact legislation to break up this monopoly, but these efforts were in vain. The oil industry, and the elite class who controlled it, became too big to adhere to government regulation.

This dynamic has only become more inflamed over time. Today, oil reserves are sparse and harder to reach. As the world's largest consumer of oil, the United States military considers oil procurement a matter of national security. According to the testimonies offered in the film, they are even willing to wage wars in an attempt to lay claim to these reserves.

The environmental impact of dirty energy dependency is even more catastrophic and immoral. The British Petroleum oil spill of April 2010 killed eleven citizens, nearly a million birds, untold quantities of marine life, and has set the stage for decades of life-threatening health repercussions. Even in the face of the biggest environmental disaster in recorded history, the industry has reframed the narrative by offering generous payouts to climate scientists and ecologists and negotiating to speak on their behalf. Meanwhile, they've been ordered to pay less than 10% of the fines required of them by law.

Sobering and infuriating, The Tyranny of Big Oil examines a nation where laws and principles are determined entirely by greed, and whose immoral practices in defense of the oil industries likely endanger the future of our planet.