Compliancex

Zombie Funds Receiving A ‘Close Look’ From SEC [Reuters] U.S. regulators are looking at so-called zombie funds where money managers continue to get paid from investors even though the fund is essentially inactive, a top Securities and Exchange Commission official said on Sunday.
“We are going to take a close look at that and see whether or not there’s a problem,” Robert Khuzami, the SEC’s enforcement director, said on C-Span television. The funds become inactive when their managers sit on assets that cannot be sold or their valuations are so low that they do not want to sell them.

JPMorgan So-Called Hedge Is Awkward for Fed [Businessweek] Regulators are under pressure to respond to JPMorgan’s loss as they finish writing the so-called Volcker Rule, which restricts banks’ proprietary trading and is the most controversial provision in the Dodd-Frank Act. They’re scrutinizing the so-called hedging exemption in the proposed regulation and probably will narrow the exceptions for trades banks say are designed to mitigate risk, according to two people familiar with the matter. JPMorgan’s loss “will reinforce the position of those who want to be tough,” Representative Barney Frank, a Massachusetts Democrat and co-author of the financial-overhaul legislation, said in a telephone interview. “I do think it will mean Volcker will not allow” such trades.

Feds Eye MF’s False Promise [WSJ] Federal investigators are scrutinizing a series of conversations among MF Global Holdings Ltd. employees shortly before the securities firm erroneously told regulators that its customer funds were safe, said people with knowledge of the probe. Three days before MF Global filed for bankruptcy-court protection, CME Group Inc. CME +1.06% was assured by the New York company of a $200 million cushion in accounts that ensured customer funds were being kept separate from the firm’s own money.

Oversight of J.P. Morgan Probed [WSJ] A federal agency that oversees J.P. Morgan Chase JPM -1.94% & Co. is taking heat over how much it knew about risk-taking in the part of the bank that suffered more than $2 billion in trading losses. Sen. Sherrod Brown (D., Ohio) asked Comptroller of the Currency Thomas Curry in a letter Friday for details about the regulator’s supervision of trading operations at the largest U.S. bank by assets. Mr. Brown also wants more information about the Office of the Comptroller of the Currency’s “process for reviewing trading operations” at J.P. Morgan and other big banks.

SEC clears proposals to tackle securities, stock market volatility [BBR] The Securities and Exchange Commission has approved two proposals submitted by the national securities exchanges and the Financial Industry Regulatory Authority (FINRA), which have been drafted to deal with unexpected volatility in individual securities and the broader US stock market. The first proposal sets up a “limit up-limit down” mechanism, thwarting individual exchange-listed stocks from occurring outside of a specified price band and with changes to the existing single-stock circuit breakers that the Commission approved on a pilot basis after the market events of 6 May 2010. The second initiative provides update of existing market-wide circuit breakers, which when started, halts trading in all exchange-listed securities throughout the US markets.

Rogue French trader appeals fraud conviction [AP] A French trader sentenced for covering up tens of billions of dollars in bets and ordered to reimburse his bank for the resulting losses told a court Monday that his bosses were aware of but overlooked his enormous trades. Jerome Kerviel, sentenced in 2010 on charges of forgery, breach of trust and unauthorized computer use, claims that Societe Generale only cried foul when his trades lost money. The bank, France’s second largest, has said Kerviel acted on his own as he masked the fact that he had made bets worth nearly €50 billion — well beyond the amount authorized for one trader — between late 2007 and early 2008. The bank says it cost €4.9 billion — around $7 billion at the time — to unwind those trades.

End of an Era, CFTC Exemptions Rescinded [FXStreet] Earlier this year the Commodity Futures Trading Commission (CFTC) adopted final rules amending certain registration and compliance obligations of commodity pool operators (CPOs) and commodity trading advisors (CTAs). Among other changes, the CFTC’s final rules rescind various exclusions from CPO registration, increase disclosure requirements for CTAs and CPOs, and increase various reporting requirements by registrant firms. This article will summarize what we perceive to be the most important provisions contained in the CFTC’s final rules affecting CTAs and CPOs. Except where otherwise noted, compliance with the following rule amendments is required by December 31, 2012.

New Bank Rules, More Lending Worries [WSJ] Regulators trying to promote both sound financial institutions and economic growth are getting an earful from big banks about tougher capital rules. Citing their own studies and ones by independent economists, the banks say holding too much capital would force them to cut back on lending and raise the cost of loans, imperiling the fragile economic recovery. But some economists say regulations requiring plumper buffers for the largest banks are unlikely to crimp lending.

Want a daily digest of articles like this one, plus the latest compliance jobs at top-tier organizations? Join 40,000 other compliance, risk governance, and regulatory professionals and subscribe to our free afternoon newsletter.