Exclusive: T. Rowe bans some American Air employees from fund trading

By Jed Horowitz

NEW YORK | Mon Aug 26, 2013 11:34am EDT

NEW YORK (Reuters) - T. Rowe Price Group Inc has permanently banned about 1,300 American Airlines employees from trading among its funds in their 401(k) retirement plans, a rare move to curb "collective" trading by subscribers to an investment newsletter.

About 800 additional employees have received warning letters about their trading patterns, according to sources at the airline and at JPMorgan Chase & Co, administrator of the retirement plan.

The ban, confirmed by the airline and the fund company in response to a Reuters inquiry, follows a period of several years in which T. Rowe Price imposed a series of temporary trading restrictions on some subscribers to the EZTracker LLC newsletter for American Airlines employees.

The newsletter suggests monthly mutual fund trades to more than 2,000 subscribers who invest in the company's defined contribution plan known as $uper $aver 401(k). The plan has more than 80,000 participants.

When large numbers of investors trade mutual funds in lockstep, it can force fund managers to buy and sell securities at inopportune times. They may have to find securities to buy in a hurry if the pack invests all at once, and may have to sell quickly to pay off sellers who cash out together.

T. Rowe Price spokesman Bill Benintende said collective trading can disrupt portfolio managers' strategies and raise costs for long-term investors.

"In limited situations" the company's funds restrict investors who significantly alter their holdings on the advice of a newsletter, he wrote in an emailed statement confirming the ban. He declined to name the newsletter or discuss other specifics.

Investment newsletter veterans said a permanent ban is highly unusual, and raises questions about why a giant like T. Rowe Price, which manages $614 billion, would single out activities of a small group of people. The controversy comes as workers' anxiety about managing their own retirement investments grows, while employers close company-paid and professionally managed pension plans.

"It's like taking a chainsaw to an ingrown toenail," said Dan Wiener, publisher of "Independent Advisor," a newsletter for investors in Vanguard Group funds. Wiener said he knew of no similar cases.

PILOT COMPLAINTS

The publishers of EZTracker's newsletter for American Airlines employees said many of its subscribers were banned. They did not know if other airline employees were also affected.

An American Airlines spokesman said the company in its role as plan sponsor has acted appropriately. Despite the ban, all plan participants still can put new payroll deductions into T. Rowe Price's funds or cash out of them, he emphasized. They cannot trade among the four T. Rowe Price funds in the plan, which has about 26 other investment choices.

Still, the restriction is rankling employees at a sensitive time.

Two weeks ago, the U.S. Justice Department sued to block the merger of American Airlines' bankrupt parent AMR Corp with U.S. Airways Group.

Last month, American distributed about $3.5 billion to pilots from a company-funded, professionally managed pension plan it had shuttered.

To avoid tax penalties, most pilots are reinvesting the money in 401(k) plans and other retirement vehicles.

"They have kept me from some of the better performing funds," William Simons, an American Airlines pilot wrote to Reuters in an e-mail. "We thought we were doing everything legally, yet we were punished."

HIGH-YIELD TRIGGER?

T. Rowe Price covered itself by amending the prospectuses of its funds in the American plan in 2010, according to some lawyers who declined to be named because they work with the firm. The new language permits each fund at its discretion to reject trades that "could dilute the value of the fund's shares, including trading by shareholders acting collectively (e.g., following the advice of a newsletter)."

EZTracker's co-publishers Paul Burger and former American Airlines captain Michael DiBerardino call the restrictions anti-competitive and vague. "We are being held to a standard that's not being applied to other newsletters, publications or investment advisers," Burger said.

The permanent ban was probably triggered by EZTracker's April 1 suggestion that employees sell T. Rowe's High Yield Fund, which it had suggested buying five months earlier, he said in an interview.

EZTracker has recommended exiting T. Rowe Price funds in American's 401(k) plan six times since mid-2010 after a holding period of less than a year, Burger said.

The recommendations trigger a rush of buys and sells in the days following the end-of-month release of the newsletter, Burger acknowledges. He voiced doubts that those would be significant enough to affect the performance of such large funds. The other funds in the plan are T. Rowe's Science & Technology, MidCap Growth and New Horizons funds.

Since 2010, T. Rowe Price has sent a series of warning letters and outright one-year trading bans to several subscribers, some of whom complained to EZTracker.

SEC COMPLAINT

In May 2012, EZTracker filed a complaint with the U.S. Securities and Exchange Commission, saying that the then-temporary restrictions were "discriminatory and anti- competitive." It said it had received complaints from hundreds of subscribers, claiming they were injured by the bans.

SEC spokesman John Nester declined to comment on the status of the complaint.

The T. Rowe Price letters were sent through JPMorgan, which also markets a managed account service called JPMorgan Personal Asset Manager to participants in many of the plans it administers.

EZTracker charges $84.95 a year for its newsletter while JPMorgan charges an asset management fee that can result in charges of $945 for a $250,000 account. Unlike the newsletter, which simply advises subscribers who make their own trades, the JPMorgan program makes trades on behalf of participants.

Burger said he suspected JPMorgan helped orchestrate the trading bans to further its own advisory services among highly compensated airline employees. The complaint to the SEC said the bank's willingness to enforce the bans is "self-serving."

"I'm sure they would like to manage the 401(k) plans of all our subscribers," Burger wrote in an email.

The bank dismissed the claims.

"JPMorgan in its role as a plan service provider and financial intermediary for the funds has acted appropriately and as directed by the plan sponsor and the fund provider," bank spokeswoman Kristen Chambers wrote in an email.

"All communication to participants is plan-sanctioned, including any mention of the managed account feature."

(Reporting by Jed Horowitz; Editing by Paritosh Bansal, Andrew Hay and Jeffrey Benkoe)

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Exclusive: United Tech, Pentagon in $1 billion-plus deal for F-35 engines

Third Marine Aircraft Wing's first F-35B arrives on the Marine Corps Air Station Yuma flightline, in Yuma, Arizona, in this U.S. Marine Corps handout photo taken November 16, 2012.

Credit: Reuters/U.S. Marine Corps/DVIDS/Lance Cpl. William Waterstreet/Handout

By Andrea Shalal-Esa

WASHINGTON | Mon Aug 26, 2013 1:42pm EDT

WASHINGTON (Reuters) - Pratt & Whitney, a unit of United Technologies Corp, has reached an agreement in principle with the Pentagon on a contract to build 39 engines for a sixth batch of F-35 Joint Strike Fighters, three sources familiar with the deal said on Monday.

The agreement - which Pratt had expected to reach over a month ago - is valued at more than $1 billion, said the sources, who were not authorized to speak publicly.

The Pentagon agreed on the terms of a contract for the sixth and seventh orders of F-35s with Lockheed Martin Corp, which builds the jets, in late July. The government buys the engines separately from Pratt & Whitney, which is the sole producer of engines for the radar-evading warplane.

The negotiations between Pratt and the Pentagon's F-35 program office had focused only on engines for the sixth batch, with separate discussions planned for a seventh batch of F135 engines.

Pratt President Dave Hess had told Reuters in June that he expected to reach a deal with the Pentagon within 30 days on the next engine contract, reflecting a cost reduction of less than 10 percent.

No further details were immediately available about the new agreement in principle, which the sources said was reached by Pratt and government officials last week but which has yet to be announced.

Officials at Pratt and the Pentagon's F-35 program office had no immediate comment on the deal, whose terms will now be finalized in coming weeks and months.

Pratt has said the cost of the F135 engine it builds for the F-35 fighters is down about 40 percent from 2001, when the program began. The company finalized a $1 billion deal for a fifth batch of 35 engines with the Pentagon in May.

The sixth engine contract includes 39 engines - 36 for F-35 planes and three spares, according to Pratt & Whitney.

Hess told Reuters in June that F-35 engine sales would account for more than 50 percent of the company's military engine revenue in coming years, when production ramps up, reaching $2 billion by around 2018.

Hess said that last year, military engine revenue accounted for about $4 billion of Pratt's total revenue of $14 billion.

Shares of United Technologies were up 0.6 percent at $103.41 on Monday morning on the New York Stock Exchange.

(Editing by Gerald E. McCormick and Matthew Lewis)

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Exclusive: 2016 Ford Edge will be sold in Europe, China - sources

The Ford logo is pictured on the rooftop of Austria's Ford head branch in Vienna March 19, 2013.

Credit: Reuters/Heinz-Peter Bader

By Paul Lienert

DETROIT | Wed Aug 28, 2013 6:19pm BST

DETROIT (Reuters) - Ford Motor Co (F.N) expects to sell its Edge midsize crossover utility vehicle in global markets when the car is redesigned in early 2015, two sources familiar with the automaker's plans said on Wednesday.

Ford will build versions of the new Edge in North America and China for local customers, according to U.S. automotive suppliers familiar with the program. For the European market, the Edge would be imported from North America and sold in Ford's European showrooms alongside the redesigned S-Max and Galaxy.

The Edge, the S-Max and the Galaxy will all share a common architecture, known inside Ford as CD4.2, according to suppliers, and all three are slated to go into production about the same time.

In the United States, the new Edge is expected to go on sale in spring 2015 as a 2016 model, supplier said.

Neither the new S-Max nor the new Galaxy will be sold in the United States, a Ford spokesman confirmed.

Regarding the convergence of the three vehicles on a shared platform, Ford said, "We don't comment on rumour and speculation regarding future products."

On Tuesday, Ford previewed a concept version of the new S-Max that will be displayed next month at the Frankfurt Auto Show.

The new Edge and the new S-Max have been developed simultaneously, according to U.S. supplier sources, and share the same engineering program code, CD391, used by automakers and suppliers.

While their underpinnings are similar, the two vehicles will look different both inside and outside, sources said.

The new Edge and the new S-Max "will not be mirror images" of one another, as Ford's Escape and Kuga utility vehicles are, one source said.

The 2016 Edge will be wider and taller than the S-Max, but will be fitted with just two rows of seats. The Edge will have more rugged styling cues and be aimed at utility-vehicle buyers in both Europe and the United States.

The new S-Max will get three rows of seats and be targeted in Europe toward a different audience, including young families shopping for a multipurpose vehicle.

(Reporting by Paul Lienert in Detroit; Editing by Jeffrey Benkoe)

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Exclusive - Former Air Force secretary to lead Pentagon efficiency review

U.S. Air Force Secretary Michael Donley answers questions during the Reuters Aerospace and Defense Summit in Washington, in this December 14, 2009 file photo.

Credit: Reuters/Stelios Varias/Files

WASHINGTON | Tue Aug 27, 2013 6:41pm BST

WASHINGTON (Reuters) - Former Air Force Secretary Michael Donley will lead a major review of the Pentagon's organizational structure aimed at cutting headquarters costs by almost $40 billion (25 billion pounds) through fiscal year 2023, according to a document signed by Deputy Defense Secretary Ashton Carter.

Carter told key Pentagon officials in a memo dated Monday that he had asked Donley to submit his findings and recommendations for Defense Secretary Chuck Hagel's consideration by the end of September, said the official, who was not authorized to speak publicly.

Carter announced plans to bring in an outside expert last month when he unveiled the results of a four-month strategic review and announced plans to cut Pentagon headquarters costs by 20 percent.

At the time, he said implementing such cuts could be very challenging and the Pentagon needed an outside expert who was "deeply knowledgeable about the defense enterprise and eminently qualified to direct implementation of the ... reductions."

The U.S. military is grappling with massive mandatory spending cuts that could reduce the Pentagon's overall budget by $500 billion in the next decade, on top of $487 billion in cuts already planned.

Donley retired as the top civilian leading the Air Force at the end of June. He worked closely with Carter, who served as the Pentagon's acquisition chief before moving into his current job, when they managed a controversial competition to buy new refuelling planes for the Air Force.

(Reporting by Andrea Shalal-Esa; Editing by Bill Trott)

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Exclusive: T. Rowe bans some American Air employees from fund trading

By Jed Horowitz

NEW YORK | Mon Aug 26, 2013 11:34am EDT

NEW YORK (Reuters) - T. Rowe Price Group Inc has permanently banned about 1,300 American Airlines employees from trading among its funds in their 401(k) retirement plans, a rare move to curb "collective" trading by subscribers to an investment newsletter.

About 800 additional employees have received warning letters about their trading patterns, according to sources at the airline and at JPMorgan Chase & Co, administrator of the retirement plan.

The ban, confirmed by the airline and the fund company in response to a Reuters inquiry, follows a period of several years in which T. Rowe Price imposed a series of temporary trading restrictions on some subscribers to the EZTracker LLC newsletter for American Airlines employees.

The newsletter suggests monthly mutual fund trades to more than 2,000 subscribers who invest in the company's defined contribution plan known as $uper $aver 401(k). The plan has more than 80,000 participants.

When large numbers of investors trade mutual funds in lockstep, it can force fund managers to buy and sell securities at inopportune times. They may have to find securities to buy in a hurry if the pack invests all at once, and may have to sell quickly to pay off sellers who cash out together.

T. Rowe Price spokesman Bill Benintende said collective trading can disrupt portfolio managers' strategies and raise costs for long-term investors.

"In limited situations" the company's funds restrict investors who significantly alter their holdings on the advice of a newsletter, he wrote in an emailed statement confirming the ban. He declined to name the newsletter or discuss other specifics.

Investment newsletter veterans said a permanent ban is highly unusual, and raises questions about why a giant like T. Rowe Price, which manages $614 billion, would single out activities of a small group of people. The controversy comes as workers' anxiety about managing their own retirement investments grows, while employers close company-paid and professionally managed pension plans.

"It's like taking a chainsaw to an ingrown toenail," said Dan Wiener, publisher of "Independent Advisor," a newsletter for investors in Vanguard Group funds. Wiener said he knew of no similar cases.

PILOT COMPLAINTS

The publishers of EZTracker's newsletter for American Airlines employees said many of its subscribers were banned. They did not know if other airline employees were also affected.

An American Airlines spokesman said the company in its role as plan sponsor has acted appropriately. Despite the ban, all plan participants still can put new payroll deductions into T. Rowe Price's funds or cash out of them, he emphasized. They cannot trade among the four T. Rowe Price funds in the plan, which has about 26 other investment choices.

Still, the restriction is rankling employees at a sensitive time.

Two weeks ago, the U.S. Justice Department sued to block the merger of American Airlines' bankrupt parent AMR Corp with U.S. Airways Group.

Last month, American distributed about $3.5 billion to pilots from a company-funded, professionally managed pension plan it had shuttered.

To avoid tax penalties, most pilots are reinvesting the money in 401(k) plans and other retirement vehicles.

"They have kept me from some of the better performing funds," William Simons, an American Airlines pilot wrote to Reuters in an e-mail. "We thought we were doing everything legally, yet we were punished."

HIGH-YIELD TRIGGER?

T. Rowe Price covered itself by amending the prospectuses of its funds in the American plan in 2010, according to some lawyers who declined to be named because they work with the firm. The new language permits each fund at its discretion to reject trades that "could dilute the value of the fund's shares, including trading by shareholders acting collectively (e.g., following the advice of a newsletter)."

EZTracker's co-publishers Paul Burger and former American Airlines captain Michael DiBerardino call the restrictions anti-competitive and vague. "We are being held to a standard that's not being applied to other newsletters, publications or investment advisers," Burger said.

The permanent ban was probably triggered by EZTracker's April 1 suggestion that employees sell T. Rowe's High Yield Fund, which it had suggested buying five months earlier, he said in an interview.

EZTracker has recommended exiting T. Rowe Price funds in American's 401(k) plan six times since mid-2010 after a holding period of less than a year, Burger said.

The recommendations trigger a rush of buys and sells in the days following the end-of-month release of the newsletter, Burger acknowledges. He voiced doubts that those would be significant enough to affect the performance of such large funds. The other funds in the plan are T. Rowe's Science & Technology, MidCap Growth and New Horizons funds.

Since 2010, T. Rowe Price has sent a series of warning letters and outright one-year trading bans to several subscribers, some of whom complained to EZTracker.

SEC COMPLAINT

In May 2012, EZTracker filed a complaint with the U.S. Securities and Exchange Commission, saying that the then-temporary restrictions were "discriminatory and anti- competitive." It said it had received complaints from hundreds of subscribers, claiming they were injured by the bans.

SEC spokesman John Nester declined to comment on the status of the complaint.

The T. Rowe Price letters were sent through JPMorgan, which also markets a managed account service called JPMorgan Personal Asset Manager to participants in many of the plans it administers.

EZTracker charges $84.95 a year for its newsletter while JPMorgan charges an asset management fee that can result in charges of $945 for a $250,000 account. Unlike the newsletter, which simply advises subscribers who make their own trades, the JPMorgan program makes trades on behalf of participants.

Burger said he suspected JPMorgan helped orchestrate the trading bans to further its own advisory services among highly compensated airline employees. The complaint to the SEC said the bank's willingness to enforce the bans is "self-serving."

"I'm sure they would like to manage the 401(k) plans of all our subscribers," Burger wrote in an email.

The bank dismissed the claims.

"JPMorgan in its role as a plan service provider and financial intermediary for the funds has acted appropriately and as directed by the plan sponsor and the fund provider," bank spokeswoman Kristen Chambers wrote in an email.

"All communication to participants is plan-sanctioned, including any mention of the managed account feature."

(Reporting by Jed Horowitz; Editing by Paritosh Bansal, Andrew Hay and Jeffrey Benkoe)

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Exclusive: United Tech, Pentagon in $1 billion-plus deal for F-35 engines

Third Marine Aircraft Wing's first F-35B arrives on the Marine Corps Air Station Yuma flightline, in Yuma, Arizona, in this U.S. Marine Corps handout photo taken November 16, 2012.

Credit: Reuters/U.S. Marine Corps/DVIDS/Lance Cpl. William Waterstreet/Handout

By Andrea Shalal-Esa

WASHINGTON | Mon Aug 26, 2013 1:42pm EDT

WASHINGTON (Reuters) - Pratt & Whitney, a unit of United Technologies Corp, has reached an agreement in principle with the Pentagon on a contract to build 39 engines for a sixth batch of F-35 Joint Strike Fighters, three sources familiar with the deal said on Monday.

The agreement - which Pratt had expected to reach over a month ago - is valued at more than $1 billion, said the sources, who were not authorized to speak publicly.

The Pentagon agreed on the terms of a contract for the sixth and seventh orders of F-35s with Lockheed Martin Corp, which builds the jets, in late July. The government buys the engines separately from Pratt & Whitney, which is the sole producer of engines for the radar-evading warplane.

The negotiations between Pratt and the Pentagon's F-35 program office had focused only on engines for the sixth batch, with separate discussions planned for a seventh batch of F135 engines.

Pratt President Dave Hess had told Reuters in June that he expected to reach a deal with the Pentagon within 30 days on the next engine contract, reflecting a cost reduction of less than 10 percent.

No further details were immediately available about the new agreement in principle, which the sources said was reached by Pratt and government officials last week but which has yet to be announced.

Officials at Pratt and the Pentagon's F-35 program office had no immediate comment on the deal, whose terms will now be finalized in coming weeks and months.

Pratt has said the cost of the F135 engine it builds for the F-35 fighters is down about 40 percent from 2001, when the program began. The company finalized a $1 billion deal for a fifth batch of 35 engines with the Pentagon in May.

The sixth engine contract includes 39 engines - 36 for F-35 planes and three spares, according to Pratt & Whitney.

Hess told Reuters in June that F-35 engine sales would account for more than 50 percent of the company's military engine revenue in coming years, when production ramps up, reaching $2 billion by around 2018.

Hess said that last year, military engine revenue accounted for about $4 billion of Pratt's total revenue of $14 billion.

Shares of United Technologies were up 0.6 percent at $103.41 on Monday morning on the New York Stock Exchange.

(Editing by Gerald E. McCormick and Matthew Lewis)

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Exclusive: EBS take new step to rein in high-frequency traders

By Wanfeng Zhou and Nick Olivari

NEW YORK | Fri Aug 23, 2013 5:10pm EDT

NEW YORK (Reuters) - One of the largest currency dealing platforms, ICAP's EBS, this week took a step to curb high-frequency trading on its network, the latest in a series of measures in the $5 trillion-a-day foreign exchange market to limit the perceived advantage of super-fast traders.

On Monday, EBS introduced a so-called "latency floor" - the industry term for trading speed - on trades in the Australian dollar/U.S. dollar currency pair, the fourth most actively traded cross.

Under the move, messages transmitting orders in the Aussie cross will be bundled into batches and then run through a process that randomizes their place in the queue. That could help level the playing field because the first message to hit the system will not necessarily the first order processed. The speed of the randomization process is between one and three milliseconds, EBS said. One millisecond equals one thousandth of a second.

High-frequency traders use powerful computer models to pump a large number of often small orders at a super-fast pace. For second-tier banks, asset managers and corporates who come to the FX market to do cross-border trade or hedge risks, this activity is making it harder to get the best prices before HFT firms.

Reuters first learned of the development from market participants, who declined to be identified, and an EBS spokesman later confirmed the move. Thomson Reuters Corp., the parent of Reuters, competes with EBS in foreign exchange trading through its Thomson Reuters Dealing platform.

EBS has informed market participants that it intended to extend the latency floor to the dollar/Swiss franc crosses, the fifth-busiest pair, as well after a period of assessment and analysis.

The growing prevalence of high-frequency trading has raised concerns about the fairness of markets and whether those with the fastest technology are putting others at a disadvantage or creating dislocations as a result of their speed. Currency platforms, which have players including banks and corporations, have recently shown resistance to allowing high-frequency trading to proliferate, and the head of EBS recently voiced his own concerns.

"We're not in the business of providing race tracks. We're providing a market for everyone," EBS Chief Executive Gil Mandelzis said in an interview with Reuters in late June. "We're not anti-HFT. We're against speed-only strategies."

HFT accounts for about 40 percent of spot trading in currencies, up from 3 percent a decade ago, according to an estimate from Boston-based Research firm Aite Group. By contrast, in U.S. equities, up to 70 percent of trading comes from HFT players and 45 percent in stocks globally, the firm estimates.

It is not the first strike against HFT by EBS. In September, under pressure from the banks that account for an estimated 70 percent of spot volume in the market, it reversed a decision to trade currencies in five-decimal increments, pushing it back to the traditional four seen in many exchange rates and scrubbing a system that had attracted HFT players.

One market participant who declined to be identified said it is difficult to measure the effect of the EBS move because its platform handles relatively little Australian dollar/U.S. dollar volume. The pair mainly trades on Reuters.

Among non-bank platforms, EBS is a leading liquidity provider for the Swiss franc, while Reuters dominates Australian dollar trading.

GREEN ROOM

Another effort to limit HFT is underway from ParFX, launched by Switzerland-interdealer broker Tradition in April.

It uses a so-called "Green Room" to assign a randomized pause to all order elements before matching, a process it says takes 20 to 80 milliseconds. ParFX is backed by 11 major banks, including the Bank of Tokyo Mitsubishi UFJ, Nomura Securities, Barclays, BNP Paribas, Deutsche Bank and Morgan Stanley.

Roger Rutherford, ParFX's chief operating officer, said this is the industry's response to "rising concerns that technology advantage should not automatically equate to trading, or economic, advantage."

"The market's telling us very clearly that the playing field should be genuinely level - regardless of location, technological sophistication or financial strength," he said.

Much of HFT volume takes place on major trading venues, including EBS, Thomson Reuters, Currenex, Hotspot FX and FXall, now also owned by Thomson Reuters. Some of the new FX platforms have also attracted sizeable HFT flows.

Critics say HFT uses their speed advantage to get between buyers and sellers, effectively scalping a spread that would have been available to other participants. HFT has also been criticized for creating the illusion of liquidity: HFT firms enter and withdraw large numbers of orders within milliseconds.

However, HFT firms argue that the competition is healthy in a market "that has for many years been the preserve of banks," said Remco Lenterman, chairman of the FIA European Principal Traders Association and a managing director of IMC, one of the world's largest HFT firms.

"In any industry new entrants will encounter resistance and the incumbent players will go through great efforts to limit the competitive advantage that these new entrants have," he said.

TRADER FRUSTRATION

Trader frustration at being outpaced by HFTs has contributed to the volume drop at EBS and Reuters in recent years.

Average spot FX trading volume on EBS fell 16 percent from a year ago to $89.3 billion in July, the lowest level since at least the beginning of 2006. At its peak in September 2008, EBS handled more than $270 billion in daily volume.

Thomson Reuters said daily spot FX volume declined to $114 billion in July on its dealing platforms, 12 percent lower from a year ago and down from a high of more than $180 billion recorded in 2010.

Phil Weisberg, global head of FX at Thomson Reuters, said the firm regularly monitors its venue rule books and "has always respected that various market participants have unique needs and as a result provides multiple venues."

Thomson Reuters recently changed the displayed price in the Mexican peso, South African rand and Russian ruble. Prices in these currencies are now quoted with the last decimal being either a zero or 5, rather than any digit between zero and 9. This means the market moves in slightly larger price increments and the firm said it has led to a reduction in disruptive behavior.

(Reporting By Wanfeng Zhou and Nick Olivari; additional reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Burns, Frank McGurty and Leslie Gevirtz)

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Exclusive: Monte Paschi accused of misleading Italy regulator in 2012

The main entrance to Monte Dei Paschi bank headquarters is pictured in Siena January 25, 2013.

Credit: Reuters/Stefano Rellandini

By Silvia Aloisi and Stefano Bernabei

MILAN/ROME | Fri Aug 23, 2013 2:22pm EDT

MILAN/ROME (Reuters) - Banca Monte dei Paschi di Siena sparked fresh controversy on Friday when it was accused of misleading Italy's market regulator as recently as October 2012, shortly before it received a 4.1-billion euro ($5.47 billion) state bailout.

Monte dei Paschi is already at the center of a judicial investigation into its acquisition of smaller rival Antonveneta in 2008 and a series of derivatives trades the bank allegedly used to conceal losses.

The bank, currently led by Chairman Alessandro Profumo and CEO Fabrizio Viola, was told by the European Commission in July to beef up an already tough restructuring plan to secure EU approval for the state aid.

Former Chairman Giuseppe Mussari and former director general Antonio Vigni, who left in early 2012, are both under investigation for market manipulation, false statements to the market and regulatory obstruction in relation to the Antonveneta deal and the derivatives trades. Both deny any wrongdoing.

A document from market watchdog Consob sent to prosecutors in Siena and seen by Reuters alleges that between April and October 2012 Monte Paschi was still submitting incomplete or inaccurate information to the regulator when asked to clarify details of certain transactions.

The document does not name any Monte dei Paschi executive, but refers to a period when the bank's new management led by Viola and Profumo was in place. Viola joined Monte dei Paschi in January 2012, while Profumo was appointed in April 2012.

In a statement, the Tuscan bank said the allegations by Consob had not been considered legally relevant by prosecutors in Siena and that its new management was not the target of a judicial investigation.

"The bank is not aware of any investigation into its new management," it said. Consob declined to comment.

MISLEADING

In the document, submitted to prosecutors on February 19, 2013, Consob said that in 2012 the bank provided "not truthful or misleading" information about a hybrid financial instrument, known as Fresh 2008, that Monte dei Paschi used to partly fund its purchase of Antonveneta.

The "omitted or incorrect" information given by the bank between April and July 2012 "undoubtedly delayed the supervisory activity of the regulator" and the adoption of measures that Consob said would have allowed it to give the market a correct and transparent picture of the bank's financial situation.

Consob also alleged that the Tuscan bank hid the true nature of a 2009 derivative contract with Japanese bank Nomura known as Alexandria in a series of written answers it gave to Consob between November 2011 and October 2012.

"The real nature of the operation was also concealed in the answers from the bank dated July 6, 2012 and October 1, 2012 in response to specific requests for information" meant to assess whether the transaction was properly accounted for by the bank, Consob said in the document.

"The concealing of such information has effectively obstructed the supervisory activity," Consob said, adding this had prevented the watchdog from taking measures to protect the interests of shareholders and the market.

Monte dei Paschi's new management has said it only found out about the true nature of the Alexandria trade after finding a secret document hidden in a safe on October 10, 2012, and promptly informed regulators about its discovery.

The restatement of Alexandria and two other derivative trades negotiated by the bank's former management caused a 730 million euros loss in Monte dei Paschi's 2012 accounts and forced it to increase its request for state aid.

The Consob allegations, first revealed by consumer group Codaocns, could lead to the market watchdog imposing sanctions on Monte dei Paschi.

They could also complicate the approval by the European Commission of the state bailout Monte dei Paschi received in February.

Codacons, which has filed a series of legal claims against Monte dei Paschi and says the bank should not have been granted the state aid, wrote a letter to EU Commissioner Joaquin Almunia on Thursday.

Codacons urged the EU not to approve Monte dei Paschi's restructuring plan and its bailout in view of the Consob allegations. Codacons also asked Economy Minister Fabrizio Saccomanni to replace the bank's current managers.

In its statement, Monte dei Paschi said Codacons was conducting a continuous and unjustified attack against the bank, and called its allegations groundless. ($1 = 0.7493 euros)

(Reporting by Silvia Aloisi and Stefano Bernabei; Editing by Lisa Jucca, David Cowell and David Evans)

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Exclusive: SocGen plans $300 million sukuk program in Malaysia - sources

A logo is seen is seen in front of French bank Societe Generale headquarters in La Defense near Paris, February 13, 2013.

Credit: Reuters/Christian Hartmann

By Al-Zaquan Amer Hamzah

KUALA LUMPUR | Sat Aug 24, 2013 3:42am EDT

KUALA LUMPUR (Reuters) - Societe Generale (SOGN.PA) will launch a 1 billion ringgit ($300 million) Islamic bond program in Malaysia, two sources familiar with the deal told Reuters, becoming the second major European bank to issue sukuk and the first to do so in Asia.

SocGen, France's second-largest listed bank, is planning to issue the first tranche of the sukuk by the year-end, said one of the sources, who declined to be identified as he was not authorized to speak on the matter.

Western banks looking to raise capital are increasingly drawn to the Islamic bond market as the cost of credit is lower than in conventional markets. The Middle East unit of HSBC Holdings (HSBA.L) tapped the market in 2011 with a five-year $500 million issuance.

The growing popularity of Islamic debt as a choice of investment among Muslim banks and funds is also buoying the outlook for sukuk, as Islamic bonds are known.

Issuers of sukuk do not pay interest, a practice forbidden in Islam. Instead, buyers of sukuk become co-owners of the debt and receive annual profits from the issuer.

Global sukuk issuance grew 54 percent to $131.2 billion last year, with Malaysia accounting for 74 percent of primary market issuances.

Saudi Arabia followed with a 8 percent market share, and the United Arab Emirates with 4.7 percent and Indonesia with 4.6 percent, according to KFH Research, an Islamic investment research firm.

Malaysia has emerged as the world's No.1 market for primary sukuk issuances, with its strong regulatory framework, low taxes and geographical proximity to expanding Asian wealth.

The Malaysian central bank last month implemented new laws to stress compliance with Islamic laws, introducing higher penalties and making sharia advisors legally liable for the first time.

Hong Leong Islamic Bank (HLCB.KL) is advising the SocGen deal, according to the source.

SocGen will soon seek approval for its issuance plans from Malaysia's Securities Commission, having already received the green light to become a bond issuer from the central bank, the source said.

The central bank did not immediately respond to a request for comment, while a Hong Kong-based spokesperson for SocGen declined to comment.

The funds raised will go towards buying assets in Dubai, where SocGen's Middle East private banking operations are headquartered, said the source.

"Everything is in place," the source said.

EYE ON MALAYSIA

The issuance will help SocGen diversify its funding sources while benefiting from attractive premiums.

In the past year, three-year AAA-rated sukuk have offered yields of 3.65 to 3.72 percent, while conventional bonds with a comparable tenor and rating have yielded 3.69 to 3.76 percent. The lower yield range for sukuk translates into higher savings for issuers.

SocGen's sukuk in Malaysia will carry tenors of up to 15 years, according to the second source.

"For European countries that have yet to develop a regulatory framework for Islamic finance, Malaysia is an attractive destination," said Baljeet Kaur Grewal, managing director and vice chairman of KFH Research.

The large number of industry players in Malaysia, including foreign institutions mandated to invest in Islamic instruments, creates a ready market with significant demand for sukuk, said Kaur.

"There are a number of corporations planning to raise funds in the Malaysian Islamic capital market, from Australia to the Middle East, and this trend looks set to continue."

Other foreign companies such as the National Bank of Abu Dhabi NBAD.AD and Singapore-based palm oil producer Golden Agri-Resources Ltd (GAGR.SI) have in the past year tapped Malaysia's sukuk market.

In the first seven months of this year, issuers in Malaysia raised 19.8 billion ringgit through 47 sukuk, according to Thomson Reuters data.

That was a decline of nearly a third from a year earlier due to uncertainties surrounding a May election in Malaysia and a dip in external demand.

However, demand from Malaysia's public institutional funds such as the Employees Provident Fund and Lembaga Tabung Haji has remained resilient.

($1 = 3.3 ringgit)

(Additional reporting by Bernardo Vizcaino in SYDNEY and Umesh Desai in HONG KONG; Editing By Stuart Grudgings and Ryan Woo)

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Exclusive: EBS take new step to rein in high-frequency traders

By Wanfeng Zhou and Nick Olivari

NEW YORK | Fri Aug 23, 2013 5:10pm EDT

NEW YORK (Reuters) - One of the largest currency dealing platforms, ICAP's EBS, this week took a step to curb high-frequency trading on its network, the latest in a series of measures in the $5 trillion-a-day foreign exchange market to limit the perceived advantage of super-fast traders.

On Monday, EBS introduced a so-called "latency floor" - the industry term for trading speed - on trades in the Australian dollar/U.S. dollar currency pair, the fourth most actively traded cross.

Under the move, messages transmitting orders in the Aussie cross will be bundled into batches and then run through a process that randomizes their place in the queue. That could help level the playing field because the first message to hit the system will not necessarily the first order processed. The speed of the randomization process is between one and three milliseconds, EBS said. One millisecond equals one thousandth of a second.

High-frequency traders use powerful computer models to pump a large number of often small orders at a super-fast pace. For second-tier banks, asset managers and corporates who come to the FX market to do cross-border trade or hedge risks, this activity is making it harder to get the best prices before HFT firms.

Reuters first learned of the development from market participants, who declined to be identified, and an EBS spokesman later confirmed the move. Thomson Reuters Corp., the parent of Reuters, competes with EBS in foreign exchange trading through its Thomson Reuters Dealing platform.

EBS has informed market participants that it intended to extend the latency floor to the dollar/Swiss franc crosses, the fifth-busiest pair, as well after a period of assessment and analysis.

The growing prevalence of high-frequency trading has raised concerns about the fairness of markets and whether those with the fastest technology are putting others at a disadvantage or creating dislocations as a result of their speed. Currency platforms, which have players including banks and corporations, have recently shown resistance to allowing high-frequency trading to proliferate, and the head of EBS recently voiced his own concerns.

"We're not in the business of providing race tracks. We're providing a market for everyone," EBS Chief Executive Gil Mandelzis said in an interview with Reuters in late June. "We're not anti-HFT. We're against speed-only strategies."

HFT accounts for about 40 percent of spot trading in currencies, up from 3 percent a decade ago, according to an estimate from Boston-based Research firm Aite Group. By contrast, in U.S. equities, up to 70 percent of trading comes from HFT players and 45 percent in stocks globally, the firm estimates.

It is not the first strike against HFT by EBS. In September, under pressure from the banks that account for an estimated 70 percent of spot volume in the market, it reversed a decision to trade currencies in five-decimal increments, pushing it back to the traditional four seen in many exchange rates and scrubbing a system that had attracted HFT players.

One market participant who declined to be identified said it is difficult to measure the effect of the EBS move because its platform handles relatively little Australian dollar/U.S. dollar volume. The pair mainly trades on Reuters.

Among non-bank platforms, EBS is a leading liquidity provider for the Swiss franc, while Reuters dominates Australian dollar trading.

GREEN ROOM

Another effort to limit HFT is underway from ParFX, launched by Switzerland-interdealer broker Tradition in April.

It uses a so-called "Green Room" to assign a randomized pause to all order elements before matching, a process it says takes 20 to 80 milliseconds. ParFX is backed by 11 major banks, including the Bank of Tokyo Mitsubishi UFJ, Nomura Securities, Barclays, BNP Paribas, Deutsche Bank and Morgan Stanley.

Roger Rutherford, ParFX's chief operating officer, said this is the industry's response to "rising concerns that technology advantage should not automatically equate to trading, or economic, advantage."

"The market's telling us very clearly that the playing field should be genuinely level - regardless of location, technological sophistication or financial strength," he said.

Much of HFT volume takes place on major trading venues, including EBS, Thomson Reuters, Currenex, Hotspot FX and FXall, now also owned by Thomson Reuters. Some of the new FX platforms have also attracted sizeable HFT flows.

Critics say HFT uses their speed advantage to get between buyers and sellers, effectively scalping a spread that would have been available to other participants. HFT has also been criticized for creating the illusion of liquidity: HFT firms enter and withdraw large numbers of orders within milliseconds.

However, HFT firms argue that the competition is healthy in a market "that has for many years been the preserve of banks," said Remco Lenterman, chairman of the FIA European Principal Traders Association and a managing director of IMC, one of the world's largest HFT firms.

"In any industry new entrants will encounter resistance and the incumbent players will go through great efforts to limit the competitive advantage that these new entrants have," he said.

TRADER FRUSTRATION

Trader frustration at being outpaced by HFTs has contributed to the volume drop at EBS and Reuters in recent years.

Average spot FX trading volume on EBS fell 16 percent from a year ago to $89.3 billion in July, the lowest level since at least the beginning of 2006. At its peak in September 2008, EBS handled more than $270 billion in daily volume.

Thomson Reuters said daily spot FX volume declined to $114 billion in July on its dealing platforms, 12 percent lower from a year ago and down from a high of more than $180 billion recorded in 2010.

Phil Weisberg, global head of FX at Thomson Reuters, said the firm regularly monitors its venue rule books and "has always respected that various market participants have unique needs and as a result provides multiple venues."

Thomson Reuters recently changed the displayed price in the Mexican peso, South African rand and Russian ruble. Prices in these currencies are now quoted with the last decimal being either a zero or 5, rather than any digit between zero and 9. This means the market moves in slightly larger price increments and the firm said it has led to a reduction in disruptive behavior.

(Reporting By Wanfeng Zhou and Nick Olivari; additional reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Burns, Frank McGurty and Leslie Gevirtz)

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Exclusive: Monte Paschi accused of misleading Italy regulator in 2012

The main entrance to Monte Dei Paschi bank headquarters is pictured in Siena January 25, 2013.

Credit: Reuters/Stefano Rellandini

By Silvia Aloisi and Stefano Bernabei

MILAN/ROME | Fri Aug 23, 2013 2:22pm EDT

MILAN/ROME (Reuters) - Banca Monte dei Paschi di Siena sparked fresh controversy on Friday when it was accused of misleading Italy's market regulator as recently as October 2012, shortly before it received a 4.1-billion euro ($5.47 billion) state bailout.

Monte dei Paschi is already at the center of a judicial investigation into its acquisition of smaller rival Antonveneta in 2008 and a series of derivatives trades the bank allegedly used to conceal losses.

The bank, currently led by Chairman Alessandro Profumo and CEO Fabrizio Viola, was told by the European Commission in July to beef up an already tough restructuring plan to secure EU approval for the state aid.

Former Chairman Giuseppe Mussari and former director general Antonio Vigni, who left in early 2012, are both under investigation for market manipulation, false statements to the market and regulatory obstruction in relation to the Antonveneta deal and the derivatives trades. Both deny any wrongdoing.

A document from market watchdog Consob sent to prosecutors in Siena and seen by Reuters alleges that between April and October 2012 Monte Paschi was still submitting incomplete or inaccurate information to the regulator when asked to clarify details of certain transactions.

The document does not name any Monte dei Paschi executive, but refers to a period when the bank's new management led by Viola and Profumo was in place. Viola joined Monte dei Paschi in January 2012, while Profumo was appointed in April 2012.

In a statement, the Tuscan bank said the allegations by Consob had not been considered legally relevant by prosecutors in Siena and that its new management was not the target of a judicial investigation.

"The bank is not aware of any investigation into its new management," it said. Consob declined to comment.

MISLEADING

In the document, submitted to prosecutors on February 19, 2013, Consob said that in 2012 the bank provided "not truthful or misleading" information about a hybrid financial instrument, known as Fresh 2008, that Monte dei Paschi used to partly fund its purchase of Antonveneta.

The "omitted or incorrect" information given by the bank between April and July 2012 "undoubtedly delayed the supervisory activity of the regulator" and the adoption of measures that Consob said would have allowed it to give the market a correct and transparent picture of the bank's financial situation.

Consob also alleged that the Tuscan bank hid the true nature of a 2009 derivative contract with Japanese bank Nomura known as Alexandria in a series of written answers it gave to Consob between November 2011 and October 2012.

"The real nature of the operation was also concealed in the answers from the bank dated July 6, 2012 and October 1, 2012 in response to specific requests for information" meant to assess whether the transaction was properly accounted for by the bank, Consob said in the document.

"The concealing of such information has effectively obstructed the supervisory activity," Consob said, adding this had prevented the watchdog from taking measures to protect the interests of shareholders and the market.

Monte dei Paschi's new management has said it only found out about the true nature of the Alexandria trade after finding a secret document hidden in a safe on October 10, 2012, and promptly informed regulators about its discovery.

The restatement of Alexandria and two other derivative trades negotiated by the bank's former management caused a 730 million euros loss in Monte dei Paschi's 2012 accounts and forced it to increase its request for state aid.

The Consob allegations, first revealed by consumer group Codaocns, could lead to the market watchdog imposing sanctions on Monte dei Paschi.

They could also complicate the approval by the European Commission of the state bailout Monte dei Paschi received in February.

Codacons, which has filed a series of legal claims against Monte dei Paschi and says the bank should not have been granted the state aid, wrote a letter to EU Commissioner Joaquin Almunia on Thursday.

Codacons urged the EU not to approve Monte dei Paschi's restructuring plan and its bailout in view of the Consob allegations. Codacons also asked Economy Minister Fabrizio Saccomanni to replace the bank's current managers.

In its statement, Monte dei Paschi said Codacons was conducting a continuous and unjustified attack against the bank, and called its allegations groundless. ($1 = 0.7493 euros)

(Reporting by Silvia Aloisi and Stefano Bernabei; Editing by Lisa Jucca, David Cowell and David Evans)

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Exclusive: SocGen plans $300 million sukuk program in Malaysia - sources

A logo is seen is seen in front of French bank Societe Generale headquarters in La Defense near Paris, February 13, 2013.

Credit: Reuters/Christian Hartmann

By Al-Zaquan Amer Hamzah

KUALA LUMPUR | Sat Aug 24, 2013 3:42am EDT

KUALA LUMPUR (Reuters) - Societe Generale (SOGN.PA) will launch a 1 billion ringgit ($300 million) Islamic bond program in Malaysia, two sources familiar with the deal told Reuters, becoming the second major European bank to issue sukuk and the first to do so in Asia.

SocGen, France's second-largest listed bank, is planning to issue the first tranche of the sukuk by the year-end, said one of the sources, who declined to be identified as he was not authorized to speak on the matter.

Western banks looking to raise capital are increasingly drawn to the Islamic bond market as the cost of credit is lower than in conventional markets. The Middle East unit of HSBC Holdings (HSBA.L) tapped the market in 2011 with a five-year $500 million issuance.

The growing popularity of Islamic debt as a choice of investment among Muslim banks and funds is also buoying the outlook for sukuk, as Islamic bonds are known.

Issuers of sukuk do not pay interest, a practice forbidden in Islam. Instead, buyers of sukuk become co-owners of the debt and receive annual profits from the issuer.

Global sukuk issuance grew 54 percent to $131.2 billion last year, with Malaysia accounting for 74 percent of primary market issuances.

Saudi Arabia followed with a 8 percent market share, and the United Arab Emirates with 4.7 percent and Indonesia with 4.6 percent, according to KFH Research, an Islamic investment research firm.

Malaysia has emerged as the world's No.1 market for primary sukuk issuances, with its strong regulatory framework, low taxes and geographical proximity to expanding Asian wealth.

The Malaysian central bank last month implemented new laws to stress compliance with Islamic laws, introducing higher penalties and making sharia advisors legally liable for the first time.

Hong Leong Islamic Bank (HLCB.KL) is advising the SocGen deal, according to the source.

SocGen will soon seek approval for its issuance plans from Malaysia's Securities Commission, having already received the green light to become a bond issuer from the central bank, the source said.

The central bank did not immediately respond to a request for comment, while a Hong Kong-based spokesperson for SocGen declined to comment.

The funds raised will go towards buying assets in Dubai, where SocGen's Middle East private banking operations are headquartered, said the source.

"Everything is in place," the source said.

EYE ON MALAYSIA

The issuance will help SocGen diversify its funding sources while benefiting from attractive premiums.

In the past year, three-year AAA-rated sukuk have offered yields of 3.65 to 3.72 percent, while conventional bonds with a comparable tenor and rating have yielded 3.69 to 3.76 percent. The lower yield range for sukuk translates into higher savings for issuers.

SocGen's sukuk in Malaysia will carry tenors of up to 15 years, according to the second source.

"For European countries that have yet to develop a regulatory framework for Islamic finance, Malaysia is an attractive destination," said Baljeet Kaur Grewal, managing director and vice chairman of KFH Research.

The large number of industry players in Malaysia, including foreign institutions mandated to invest in Islamic instruments, creates a ready market with significant demand for sukuk, said Kaur.

"There are a number of corporations planning to raise funds in the Malaysian Islamic capital market, from Australia to the Middle East, and this trend looks set to continue."

Other foreign companies such as the National Bank of Abu Dhabi NBAD.AD and Singapore-based palm oil producer Golden Agri-Resources Ltd (GAGR.SI) have in the past year tapped Malaysia's sukuk market.

In the first seven months of this year, issuers in Malaysia raised 19.8 billion ringgit through 47 sukuk, according to Thomson Reuters data.

That was a decline of nearly a third from a year earlier due to uncertainties surrounding a May election in Malaysia and a dip in external demand.

However, demand from Malaysia's public institutional funds such as the Employees Provident Fund and Lembaga Tabung Haji has remained resilient.

($1 = 3.3 ringgit)

(Additional reporting by Bernardo Vizcaino in SYDNEY and Umesh Desai in HONG KONG; Editing By Stuart Grudgings and Ryan Woo)

View the original article here

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Exclusive: EBS take new step to rein in high-frequency traders

By Wanfeng Zhou and Nick Olivari

NEW YORK | Fri Aug 23, 2013 5:10pm EDT

NEW YORK (Reuters) - One of the largest currency dealing platforms, ICAP's EBS, this week took a step to curb high-frequency trading on its network, the latest in a series of measures in the $5 trillion-a-day foreign exchange market to limit the perceived advantage of super-fast traders.

On Monday, EBS introduced a so-called "latency floor" - the industry term for trading speed - on trades in the Australian dollar/U.S. dollar currency pair, the fourth most actively traded cross.

Under the move, messages transmitting orders in the Aussie cross will be bundled into batches and then run through a process that randomizes their place in the queue. That could help level the playing field because the first message to hit the system will not necessarily the first order processed. The speed of the randomization process is between one and three milliseconds, EBS said. One millisecond equals one thousandth of a second.

High-frequency traders use powerful computer models to pump a large number of often small orders at a super-fast pace. For second-tier banks, asset managers and corporates who come to the FX market to do cross-border trade or hedge risks, this activity is making it harder to get the best prices before HFT firms.

Reuters first learned of the development from market participants, who declined to be identified, and an EBS spokesman later confirmed the move. Thomson Reuters Corp., the parent of Reuters, competes with EBS in foreign exchange trading through its Thomson Reuters Dealing platform.

EBS has informed market participants that it intended to extend the latency floor to the dollar/Swiss franc crosses, the fifth-busiest pair, as well after a period of assessment and analysis.

The growing prevalence of high-frequency trading has raised concerns about the fairness of markets and whether those with the fastest technology are putting others at a disadvantage or creating dislocations as a result of their speed. Currency platforms, which have players including banks and corporations, have recently shown resistance to allowing high-frequency trading to proliferate, and the head of EBS recently voiced his own concerns.

"We're not in the business of providing race tracks. We're providing a market for everyone," EBS Chief Executive Gil Mandelzis said in an interview with Reuters in late June. "We're not anti-HFT. We're against speed-only strategies."

HFT accounts for about 40 percent of spot trading in currencies, up from 3 percent a decade ago, according to an estimate from Boston-based Research firm Aite Group. By contrast, in U.S. equities, up to 70 percent of trading comes from HFT players and 45 percent in stocks globally, the firm estimates.

It is not the first strike against HFT by EBS. In September, under pressure from the banks that account for an estimated 70 percent of spot volume in the market, it reversed a decision to trade currencies in five-decimal increments, pushing it back to the traditional four seen in many exchange rates and scrubbing a system that had attracted HFT players.

One market participant who declined to be identified said it is difficult to measure the effect of the EBS move because its platform handles relatively little Australian dollar/U.S. dollar volume. The pair mainly trades on Reuters.

Among non-bank platforms, EBS is a leading liquidity provider for the Swiss franc, while Reuters dominates Australian dollar trading.

GREEN ROOM

Another effort to limit HFT is underway from ParFX, launched by Switzerland-interdealer broker Tradition in April.

It uses a so-called "Green Room" to assign a randomized pause to all order elements before matching, a process it says takes 20 to 80 milliseconds. ParFX is backed by 11 major banks, including the Bank of Tokyo Mitsubishi UFJ, Nomura Securities, Barclays, BNP Paribas, Deutsche Bank and Morgan Stanley.

Roger Rutherford, ParFX's chief operating officer, said this is the industry's response to "rising concerns that technology advantage should not automatically equate to trading, or economic, advantage."

"The market's telling us very clearly that the playing field should be genuinely level - regardless of location, technological sophistication or financial strength," he said.

Much of HFT volume takes place on major trading venues, including EBS, Thomson Reuters, Currenex, Hotspot FX and FXall, now also owned by Thomson Reuters. Some of the new FX platforms have also attracted sizeable HFT flows.

Critics say HFT uses their speed advantage to get between buyers and sellers, effectively scalping a spread that would have been available to other participants. HFT has also been criticized for creating the illusion of liquidity: HFT firms enter and withdraw large numbers of orders within milliseconds.

However, HFT firms argue that the competition is healthy in a market "that has for many years been the preserve of banks," said Remco Lenterman, chairman of the FIA European Principal Traders Association and a managing director of IMC, one of the world's largest HFT firms.

"In any industry new entrants will encounter resistance and the incumbent players will go through great efforts to limit the competitive advantage that these new entrants have," he said.

TRADER FRUSTRATION

Trader frustration at being outpaced by HFTs has contributed to the volume drop at EBS and Reuters in recent years.

Average spot FX trading volume on EBS fell 16 percent from a year ago to $89.3 billion in July, the lowest level since at least the beginning of 2006. At its peak in September 2008, EBS handled more than $270 billion in daily volume.

Thomson Reuters said daily spot FX volume declined to $114 billion in July on its dealing platforms, 12 percent lower from a year ago and down from a high of more than $180 billion recorded in 2010.

Phil Weisberg, global head of FX at Thomson Reuters, said the firm regularly monitors its venue rule books and "has always respected that various market participants have unique needs and as a result provides multiple venues."

Thomson Reuters recently changed the displayed price in the Mexican peso, South African rand and Russian ruble. Prices in these currencies are now quoted with the last decimal being either a zero or 5, rather than any digit between zero and 9. This means the market moves in slightly larger price increments and the firm said it has led to a reduction in disruptive behavior.

(Reporting By Wanfeng Zhou and Nick Olivari; additional reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Burns, Frank McGurty and Leslie Gevirtz)

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Exclusive: Monte Paschi accused of misleading Italy regulator in 2012

The main entrance to Monte Dei Paschi bank headquarters is pictured in Siena January 25, 2013.

Credit: Reuters/Stefano Rellandini

By Silvia Aloisi and Stefano Bernabei

MILAN/ROME | Fri Aug 23, 2013 2:22pm EDT

MILAN/ROME (Reuters) - Banca Monte dei Paschi di Siena sparked fresh controversy on Friday when it was accused of misleading Italy's market regulator as recently as October 2012, shortly before it received a 4.1-billion euro ($5.47 billion) state bailout.

Monte dei Paschi is already at the center of a judicial investigation into its acquisition of smaller rival Antonveneta in 2008 and a series of derivatives trades the bank allegedly used to conceal losses.

The bank, currently led by Chairman Alessandro Profumo and CEO Fabrizio Viola, was told by the European Commission in July to beef up an already tough restructuring plan to secure EU approval for the state aid.

Former Chairman Giuseppe Mussari and former director general Antonio Vigni, who left in early 2012, are both under investigation for market manipulation, false statements to the market and regulatory obstruction in relation to the Antonveneta deal and the derivatives trades. Both deny any wrongdoing.

A document from market watchdog Consob sent to prosecutors in Siena and seen by Reuters alleges that between April and October 2012 Monte Paschi was still submitting incomplete or inaccurate information to the regulator when asked to clarify details of certain transactions.

The document does not name any Monte dei Paschi executive, but refers to a period when the bank's new management led by Viola and Profumo was in place. Viola joined Monte dei Paschi in January 2012, while Profumo was appointed in April 2012.

In a statement, the Tuscan bank said the allegations by Consob had not been considered legally relevant by prosecutors in Siena and that its new management was not the target of a judicial investigation.

"The bank is not aware of any investigation into its new management," it said. Consob declined to comment.

MISLEADING

In the document, submitted to prosecutors on February 19, 2013, Consob said that in 2012 the bank provided "not truthful or misleading" information about a hybrid financial instrument, known as Fresh 2008, that Monte dei Paschi used to partly fund its purchase of Antonveneta.

The "omitted or incorrect" information given by the bank between April and July 2012 "undoubtedly delayed the supervisory activity of the regulator" and the adoption of measures that Consob said would have allowed it to give the market a correct and transparent picture of the bank's financial situation.

Consob also alleged that the Tuscan bank hid the true nature of a 2009 derivative contract with Japanese bank Nomura known as Alexandria in a series of written answers it gave to Consob between November 2011 and October 2012.

"The real nature of the operation was also concealed in the answers from the bank dated July 6, 2012 and October 1, 2012 in response to specific requests for information" meant to assess whether the transaction was properly accounted for by the bank, Consob said in the document.

"The concealing of such information has effectively obstructed the supervisory activity," Consob said, adding this had prevented the watchdog from taking measures to protect the interests of shareholders and the market.

Monte dei Paschi's new management has said it only found out about the true nature of the Alexandria trade after finding a secret document hidden in a safe on October 10, 2012, and promptly informed regulators about its discovery.

The restatement of Alexandria and two other derivative trades negotiated by the bank's former management caused a 730 million euros loss in Monte dei Paschi's 2012 accounts and forced it to increase its request for state aid.

The Consob allegations, first revealed by consumer group Codaocns, could lead to the market watchdog imposing sanctions on Monte dei Paschi.

They could also complicate the approval by the European Commission of the state bailout Monte dei Paschi received in February.

Codacons, which has filed a series of legal claims against Monte dei Paschi and says the bank should not have been granted the state aid, wrote a letter to EU Commissioner Joaquin Almunia on Thursday.

Codacons urged the EU not to approve Monte dei Paschi's restructuring plan and its bailout in view of the Consob allegations. Codacons also asked Economy Minister Fabrizio Saccomanni to replace the bank's current managers.

In its statement, Monte dei Paschi said Codacons was conducting a continuous and unjustified attack against the bank, and called its allegations groundless. ($1 = 0.7493 euros)

(Reporting by Silvia Aloisi and Stefano Bernabei; Editing by Lisa Jucca, David Cowell and David Evans)

View the original article here

This post was made using the Auto Blogging Software from WebMagnates.org This line will not appear when posts are made after activating the software to full version.

Exclusive: SocGen plans $300 million sukuk program in Malaysia - sources

A logo is seen is seen in front of French bank Societe Generale headquarters in La Defense near Paris, February 13, 2013.

Credit: Reuters/Christian Hartmann

By Al-Zaquan Amer Hamzah

KUALA LUMPUR | Sat Aug 24, 2013 3:42am EDT

KUALA LUMPUR (Reuters) - Societe Generale (SOGN.PA) will launch a 1 billion ringgit ($300 million) Islamic bond program in Malaysia, two sources familiar with the deal told Reuters, becoming the second major European bank to issue sukuk and the first to do so in Asia.

SocGen, France's second-largest listed bank, is planning to issue the first tranche of the sukuk by the year-end, said one of the sources, who declined to be identified as he was not authorized to speak on the matter.

Western banks looking to raise capital are increasingly drawn to the Islamic bond market as the cost of credit is lower than in conventional markets. The Middle East unit of HSBC Holdings (HSBA.L) tapped the market in 2011 with a five-year $500 million issuance.

The growing popularity of Islamic debt as a choice of investment among Muslim banks and funds is also buoying the outlook for sukuk, as Islamic bonds are known.

Issuers of sukuk do not pay interest, a practice forbidden in Islam. Instead, buyers of sukuk become co-owners of the debt and receive annual profits from the issuer.

Global sukuk issuance grew 54 percent to $131.2 billion last year, with Malaysia accounting for 74 percent of primary market issuances.

Saudi Arabia followed with a 8 percent market share, and the United Arab Emirates with 4.7 percent and Indonesia with 4.6 percent, according to KFH Research, an Islamic investment research firm.

Malaysia has emerged as the world's No.1 market for primary sukuk issuances, with its strong regulatory framework, low taxes and geographical proximity to expanding Asian wealth.

The Malaysian central bank last month implemented new laws to stress compliance with Islamic laws, introducing higher penalties and making sharia advisors legally liable for the first time.

Hong Leong Islamic Bank (HLCB.KL) is advising the SocGen deal, according to the source.

SocGen will soon seek approval for its issuance plans from Malaysia's Securities Commission, having already received the green light to become a bond issuer from the central bank, the source said.

The central bank did not immediately respond to a request for comment, while a Hong Kong-based spokesperson for SocGen declined to comment.

The funds raised will go towards buying assets in Dubai, where SocGen's Middle East private banking operations are headquartered, said the source.

"Everything is in place," the source said.

EYE ON MALAYSIA

The issuance will help SocGen diversify its funding sources while benefiting from attractive premiums.

In the past year, three-year AAA-rated sukuk have offered yields of 3.65 to 3.72 percent, while conventional bonds with a comparable tenor and rating have yielded 3.69 to 3.76 percent. The lower yield range for sukuk translates into higher savings for issuers.

SocGen's sukuk in Malaysia will carry tenors of up to 15 years, according to the second source.

"For European countries that have yet to develop a regulatory framework for Islamic finance, Malaysia is an attractive destination," said Baljeet Kaur Grewal, managing director and vice chairman of KFH Research.

The large number of industry players in Malaysia, including foreign institutions mandated to invest in Islamic instruments, creates a ready market with significant demand for sukuk, said Kaur.

"There are a number of corporations planning to raise funds in the Malaysian Islamic capital market, from Australia to the Middle East, and this trend looks set to continue."

Other foreign companies such as the National Bank of Abu Dhabi NBAD.AD and Singapore-based palm oil producer Golden Agri-Resources Ltd (GAGR.SI) have in the past year tapped Malaysia's sukuk market.

In the first seven months of this year, issuers in Malaysia raised 19.8 billion ringgit through 47 sukuk, according to Thomson Reuters data.

That was a decline of nearly a third from a year earlier due to uncertainties surrounding a May election in Malaysia and a dip in external demand.

However, demand from Malaysia's public institutional funds such as the Employees Provident Fund and Lembaga Tabung Haji has remained resilient.

($1 = 3.3 ringgit)

(Additional reporting by Bernardo Vizcaino in SYDNEY and Umesh Desai in HONG KONG; Editing By Stuart Grudgings and Ryan Woo)

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Exclusive: SocGen plans $300 million sukuk programme in Malaysia - sources

A logo is seen is seen in front of French bank Societe Generale headquarters in La Defense near Paris, February 13, 2013.

Credit: Reuters/Christian Hartmann

By Al-Zaquan Amer Hamzah

KUALA LUMPUR | Sat Aug 24, 2013 8:43am BST

KUALA LUMPUR (Reuters) - Societe Generale (SOGN.PA) will launch a 1 billion ringgit ($300 million) Islamic bond programme in Malaysia, two sources familiar with the deal told Reuters, becoming the second major European bank to issue sukuk and the first to do so in Asia.

SocGen, France's second-largest listed bank, is planning to issue the first tranche of the sukuk by the year-end, said one of the sources, who declined to be identified as he was not authorised to speak on the matter.

Western banks looking to raise capital are increasingly drawn to the Islamic bond market as the cost of credit is lower than in conventional markets. The Middle East unit of HSBC Holdings (HSBA.L) tapped the market in 2011 with a five-year $500 million issuance.

The growing popularity of Islamic debt as a choice of investment among Muslim banks and funds is also buoying the outlook for sukuk, as Islamic bonds are known.

Issuers of sukuk do not pay interest, a practice forbidden in Islam. Instead, buyers of sukuk become co-owners of the debt and receive annual profits from the issuer.

Global sukuk issuance grew 54 percent to $131.2 billion last year, with Malaysia accounting for 74 percent of primary market issuances.

Saudi Arabia followed with a 8 percent market share, and the United Arab Emirates with 4.7 percent and Indonesia with 4.6 percent, according to KFH Research, an Islamic investment research firm.

Malaysia has emerged as the world's No.1 market for primary sukuk issuances, with its strong regulatory framework, low taxes and geographical proximity to expanding Asian wealth.

The Malaysian central bank last month implemented new laws to stress compliance with Islamic laws, introducing higher penalties and making sharia advisors legally liable for the first time.

Hong Leong Islamic Bank (HLCB.KL) is advising the SocGen deal, according to the source.

SocGen will soon seek approval for its issuance plans from Malaysia's Securities Commission, having already received the green light to become a bond issuer from the central bank, the source said.

The central bank did not immediately respond to a request for comment, while a Hong Kong-based spokesperson for SocGen declined to comment.

The funds raised will go towards buying assets in Dubai, where SocGen's Middle East private banking operations are headquartered, said the source.

"Everything is in place," the source said.

EYE ON MALAYSIA

The issuance will help SocGen diversify its funding sources while benefiting from attractive premiums.

In the past year, three-year AAA-rated sukuk have offered yields of 3.65 to 3.72 percent, while conventional bonds with a comparable tenor and rating have yielded 3.69 to 3.76 percent. The lower yield range for sukuk translates into higher savings for issuers.

SocGen's sukuk in Malaysia will carry tenors of up to 15 years, according to the second source.

"For European countries that have yet to develop a regulatory framework for Islamic finance, Malaysia is an attractive destination," said Baljeet Kaur Grewal, managing director and vice chairman of KFH Research.

The large number of industry players in Malaysia, including foreign institutions mandated to invest in Islamic instruments, creates a ready market with significant demand for sukuk, said Kaur.

"There are a number of corporations planning to raise funds in the Malaysian Islamic capital market, from Australia to the Middle East, and this trend looks set to continue."

Other foreign companies such as the National Bank of Abu Dhabi NBAD.AD and Singapore-based palm oil producer Golden Agri-Resources Ltd (GAGR.SI) have in the past year tapped Malaysia's sukuk market.

In the first seven months of this year, issuers in Malaysia raised 19.8 billion ringgit through 47 sukuk, according to Thomson Reuters data.

That was a decline of nearly a third from a year earlier due to uncertainties surrounding a May election in Malaysia and a dip in external demand.

However, demand from Malaysia's public institutional funds such as the Employees Provident Fund and Lembaga Tabung Haji has remained resilient.

(Additional reporting by Bernardo Vizcaino in SYDNEY and Umesh Desai in HONG KONG; Editing By Stuart Grudgings and Ryan Woo)

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Exclusive: Monte Paschi accused of misleading Italy regulator

The main entrance to Monte Dei Paschi bank headquarters is pictured in Siena January 25, 2013.

Credit: Reuters/Stefano Rellandini

By Silvia Aloisi and Stefano Bernabei

MILAN/ROME | Fri Aug 23, 2013 10:51am EDT

MILAN/ROME (Reuters) - Banca Monte dei Paschi di Siena sparked fresh controversy on Friday when it was accused of misleading Italy's market regulator in the run-up to a state bailout earlier this year.

Monte dei Paschi is already at the center of a judicial probe into its acquisition of smaller rival Antonveneta in 2008 and a series of derivatives trades the bank allegedly used to conceal losses.

The bank, currently led by Chairman Alessandro Profumo and CEO Fabrizio Viola, was told by the European Commission in July to beef up an already tough restructuring plan to secure EU approval for 4.1 billion euros ($5.47 billion) of state aid.

Former Chairman Giuseppe Mussari and former director general Antonio Vigni, who left in early 2012, are both under investigation for market manipulation, false statements to the market and regulatory obstruction in relation to the Antonveneta deal and the derivatives trades. Both deny any wrongdoing.

A document from market watchdog Consob sent to prosecutors in Siena and seen by Reuters alleges that between April and October 2012 Monte Paschi was still submitting incomplete or inaccurate information to the regulator when asked to clarify details of certain transactions.

The document does not name any Monte dei Paschi executive, but refers to a period when the bank's new management led by Viola and Profumo was in place. Viola joined Monte dei Paschi in January 2012, while Profumo was appointed in April 2012.

Consob declined to comment. Monte dei Paschi had no immediate comment.

MISLEADING

In the document, submitted to prosecutors on February 19, 2013, Consob said that in 2012 the bank provided "not truthful or misleading" information about a hybrid financial instrument, known as Fresh 2008, that Monte dei Paschi used to partly fund its purchase of Antonveneta.

The "omitted or incorrect" information given by the bank between April and July 2012 "undoubtedly delayed the supervisory activity of the regulator" and the adoption of measures that Consob said would have allowed it to give the market a correct and transparent picture of the bank's financial situation.

Consob also alleged that the Tuscan bank hid the true nature of a 2009 derivative contract with Japanese bank Nomura known as Alexandria in a series of written answers it gave to Consob between November 2011 and October 2012.

"The real nature of the operation was also concealed in the answers from the bank dated July 6, 2012 and October 1, 2012 in response to specific requests for information," Consob said in the document.

"The concealing of such information has effectively obstructed the supervisory activity," Consob said, adding this had prevented the watchdog from taking measures to protect the interests of shareholders and the market.

Monte dei Paschi's new management has said it only found out about the true nature of the Alexandria trade after finding a secret document hidden in a safe on October 10, 2012, and promptly informed regulators about its discovery.

Alexandria and two other derivative trades negotiated by the bank's former management caused a 730 million euros loss in Monte dei Paschi's 2012 accounts.

The Consob allegations could lead to the market watchdog imposing sanctions on Monte dei Paschi and potentially also to the Siena prosecutors extending their investigation.

They also risk complicating the approval by the European Commission of Monte dei Paschi's state bailout.

Consumer group Codacons, which has filed a series of legal claims against Monte dei Paschi and says the bank should not have been granted the state aid, wrote a letter to EU Commissioner Joaquin Almunia on Thursday.

Codacons urged the EU not to approve Monte dei Paschi's restructuring plan and its bailout in view of the Consob allegations. Codacons also asked Economy Minister Fabrizio Saccomanni to replace the bank's current managers. ($1 = 0.7493 euros)

(Reporting by Silvia Aloisi and Stefano Bernabei; Editing by Lisa Jucca and David Cowell)

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Exclusive: Tough-talking China pricing regulator sought confessions from foreign firms

The national flag of China flutters behind a fence of the headquarters of the National Development and Reform Commission (NDRC) in Beijing, in this picture taken July 12, 2013.

Credit: Reuters/Kim Kyung-Hoon

By Michael Martina

BEIJING | Wed Aug 21, 2013 8:40am EDT

BEIJING (Reuters) - A senior Chinese official put pressure on around 30 foreign firms including General Electric and Siemens at a recent meeting to confess to any antitrust violations and warned them against using external lawyers to fight accusations from regulators, sources said.

The meeting is evidence of what many antitrust lawyers in China see as increasingly aggressive tactics to enforce a 2008 anti-monopoly law and highlight a worsening relationship between foreign companies and China's array of regulators.

Two sources who were at the July 24-25 closed-door meeting said the senior official showed in-house lawyers how to write what they called "self-criticisms" and displayed copies of letters from companies admitting guilt in past antitrust cases. Lawyers employed by some of those firms were in the room.

The two sources, and another source with direct knowledge of the meeting at a small hotel in Beijing, said the official who delivered the blunt remarks was Xu Xinyu, a division chief at the National Development and Reform Commission (NDRC).

One of the sources at the meeting said Xu noted, without being specific, that half of the companies in the room were either being investigated or had been probed by the NDRC. "The message was: if you put up a fight, I could double or triple your fines. This speech went way over the line," the second source who attended the meeting told Reuters.

The NDRC did not respond to questions from Reuters. Xu could not be reached for comment.

The agency has been at the forefront of a wave of investigations into how companies do business in China, especially into whether they effectively force retailers to sell their products at a minimum price.

On August 7 it announced fines totaling a record $110 million against five foreign milk powder firms and one Chinese producer for price fixing and anti-competitive behavior. Three other milk powder makers were investigated but not fined because, among other things, they carried out "self-rectification", the NDRC said at the time.

In-house lawyers from some 30 firms attended the July meeting, which was conducted in Chinese. It had been billed as a training session for multinationals to mark the fifth anniversary of the anti-monopoly law. Officials from the Ministry of Commerce as well as the State Administration for Industry and Commerce (SAIC), a regulator in charge of market supervision, were also at the meeting, but their presentations were overshadowed by Xu's speech.

His comments were perceived as threatening, and while other NDRC officials at the meeting may not have supported the way it was conveyed, Xu's message was consistent with the approach taken by other officials in private conversations with companies in recent months, the two sources at the meeting said.

They declined to be identified because they were not authorized to speak to the media, but word of the meeting has circulated widely in the antitrust community.

GLOBAL COMPANIES

The two sources said the following companies were at the hotel: GE, Siemens, Samsung Electronics, Microsoft, Volvo, IBM Corp, Michelin; Swedish packaging giant Tetra Pak; Intel Corp; Qualcomm; Dumex, a subsidiary of France's Danone and U.S. cable equipment maker Arris Group Inc.

Tetra Pak confirmed it was there but declined to comment further. Siemens said it was unaware of any meeting, as did Samsung and Volvo. IBM, Intel, GE and Microsoft declined to comment. Arris, Michelin and Dumex did not respond to questions while Reuters was unable to immediately reach Qualcomm. Reuters does not have a full list of firms at the meeting.

The government agencies held a separate training session for Chinese state-owned enterprises around the same time, one of the sources said, though it was unclear what was discussed.

The two sources said Xu did not explain why he didn't want foreign firms to hire external lawyers if they were probed.

Getting an admission of guilt from companies makes it easier for the NDRC because lawyers who have dealt with it said its capacity for legal analysis was weak and that few within its antitrust bureau had a background in law.

"They don't do analysis. They just do an interview and ask for an admission," said one lawyer from a leading antitrust firm in China who also had direct knowledge of the July meeting.

When one lawyer asked a question about the anti-monopoly law, Xu asked the executive to elaborate on his company's practices so he could determine on the spot if it was in violation or not, the two sources said. The lawyer clammed up, they said.

While Chinese regulators have said little to explain the motivations behind the various pricing investigations, state media have accused the foreign media of exaggerating the issue.

In a commentary on Monday, the official Xinhua news agency said such probes were routine in a market-oriented economy.

"The battle is not targeted at foreign companies. It is aimed at creating a fairer, cleaner and better-regulated environment for economic competition," the English language commentary said. "Probing and punishing ill-behaved companies will increase the confidence of international firms in the Chinese market, not the other way round."

WARY OF NDRC

Lawyers and sources familiar with the NDRC said Xu was elevated to the role of a division chief in its antitrust bureau after the agency, keen to keep pace with China's two other antitrust enforcers - the Ministry of Commerce and SAIC - added dozens of personnel in 2011.

At the same time, the NDRC is offering leniency for some companies in return for cooperation.

In the case against the milk powder makers, Swiss giant Nestle was among the three firms spared fines because it "provided important evidence and carried out active self-rectification", the NDRC said.

"I am happy that the NDRC is actively investigating, but they can't prohibit a company from hiring a lawyer," said the lawyer from the antitrust firm. "The NDRC is very powerful and some companies are afraid and willing to give up counsel."

A second China-based antitrust lawyer said foreign firms were frightened of challenging the NDRC by filing a judicial review in court, which could overrule an NDRC finding. While China's judiciary is not considered independent, experts regard it as more capable of detailed legal analysis.

"So far, no companies have challenged the NDRC for a judicial review because they are afraid of retaliation. (This) is the same reason why they would sign a confession letter," said the lawyer.

Daniel Sokol, a law professor and antitrust expert at the University of Florida, said that while Chinese firms had been targeted by the NDRC over antitrust issues, the uncertainty was making foreign investors especially jittery.

"The problem is that because it has so much power and because in various forums they have been focusing on foreign enforcement, this is definitely impacting business decision-making about further FDI into China," Sokol said.

(Additional reporting by Kazunori Takada in SHANGHAI, Norihiko Shirouzu, Matt Miller, Paul Carsten in BEIJING and Anna Ringstrom in Stockholm; Editing by Dean Yates)

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