October262011
By Stuart Gittleman
NEW YORK, Sept. 22 (Thomson Reuters Accelus) â In its first such action involving exchange-traded funds, the Securities and Exchange Commission charged a former Goldman Sachs employee with trading on confidential information about the firmâs trading strategies and plans he learned while working on its ETF desk.
An SEC official said the facts of the case may be unique. But the element of arbitrage in underlying components of the ETF echoes mutual fund trading probes in 2003 that rocked the industry.
ETFs are baskets of securities similar to mutual funds, except an ETFâs price changes throughout the trading day and a mutual fund is re-priced after the end of the day.
The SEC Enforcement Division alleged that the trader, Spencer D. Mindlin, obtained nonpublic details on Goldmanâs plans to buy and sell large blocks of the securities comprising the SPDR S&P Retail ETF. He tipped his father Alfred C. Mindlin, a certified public accountant, and both men then illegally traded in four of the component securities knowing that Goldman would later execute massive, market-moving trades in them.
The alleged trading occurred in December 2007 and March 2008, when Goldman was the largest institutional holder of the ETF in order to allow its customers to short it. To hedge its long position, Goldman shorted the individual securities in the ETF.
The order instituting proceedings said Spencer Mindlin knew of Goldmanâs nonpublic position in the ETF and its nonpublic plans to trade large amounts of the component securities in order to hedge its position by way of his job on the firmâs ETF desk. The Mindlins began buying and selling the targeted securities within months after the son joined the desk, placing almost all of their trades in a brokerage account in the name of another family member.
The order also said Spencer Mindlin, who previously worked as an analyst at Goldman Sachs Execution & Clearing and its predecessor, Spear Leeds & Kellogg, failed to disclose the trading to Goldman.
âSHARINGâ INFORMATION
According to the order, Spencer Mindlin learned of Goldmanâs trading intentions from emails he received shortly before he and his father placed their trades, and his calls regarding the family memberâs brokerage account were captured on recorded lines.
The order said the Mindlins obtained at least $57,000 in illicit profits through their insider trading before the son was allowed to resign in August 2009, after working for Goldman and Spear Leeds since June 2001.
The Mindlins have the right to respond to the SECâs charges and to request an evidentiary hearing before an administrative law judge.
Sanjay Wadhwa, deputy chief of the divisionâs market abuse unit, said the SEC is âaggressively working to identify and prosecute illegal insider trading across multiple markets and derivatives products regardless of the complexity of the trading pattern that we have to unravel in our investigations.â
Wadhwa and George Canellos, director of the SECâs New York regional office where Wadhwa is associate director, did not predict a focus on insider trading using ETFs and derivatives, like the Mindlins allegedly did, and the facts may be unique to the case.
But arbitraging the components of an ETF is similar to applying the same strategy to the underlying securities in a mutual fund. The 2003 mutual fund trading probes found that some funds let select investors arbitrage their funds by waiting until after the fund was repriced before deciding whether to buy or sell the underlying securities, depending on the fundâs new price.
Investigating the use of ETFs to conduct market manipulation may take a different path, but the 2003 scandal brought in billions of dollars in fines and restitution and was a public relations coup for the regulators vis-Ã -vis fund investors, especially retail holders.
The author Mark Twain reportedly said history does not repeat itself but it often rhymes. Regulators nursing a black eye or facing tough fights may soon be testing Twainâs aphorism.
October142011
Greenpeace UK Executive Director John Sauven was blocked
from entering the country on Thursday, despite having a business
visa, Greenpeace said.”Over the past few months, there have been a number of
attempts to undermine our work in Indonesia to halt the
country’s spiralling deforestation rates,” it said in a
statement on its website.”It has been challenging for Greenpeace staff and volunteers
there to say the least.”Sauven had planned to discuss plans with the campaign team
in Jakarta, visit deforested areas in Sumatra province and take
part in discussions with officials and Indonesian companies.The Indonesian immigration office was unavailable for
comment.Indonesia is seen as a key player in the fight against
climate change and is under intense international pressure to
curb its rapid deforestation rate and destruction of carbon-rich
peatlands.A year ago, Greenpeace accused palm oil giant Sinar Mas Agro
Resources and Technology (SMART) of clearing peat land
and forests that sheltered endangered species.The palm oil producer said in February it would work with
the government and a non-profit body to improve its forest
conservation policies.In June this year, Greenpeace attacked toy manufacturers
which it accused of using packaging produced by Indonesian paper
firm Asia Pulp and Paper, which it accused of destroying
rainforests.
1AM
Sinopec International Petroleum Exploration and Production
Corp (SIPC), a wholly-owned unit of state-owned Sinopec Group,
signed a C$2.2 billion ($2.1 billion) deal to buy Canadian oil
and gas explorer Daylight Energy Ltd earlier this week.The group, parent of Hong Kong- and Shanghai-listed China
Petroleum & Chemical Corp (Sinopec) , had
also bought an 18 percent stake in Chevron Corp’s
Indonesian deep-water project for $680 million, an official told
Reuters on Tuesday.China’s oil majors have moved aggressively to buy overseas
assets in a state-driven push to secure resources to satisfy
growing demand in the world’s largest energy consumer. Analysts
expect more deals in coming months because of the buying
ammunition of China’s energy giants coupled with shriveling
stock prices of foreign oil and gas companies.
October132011
Growth forecasts for Germany were slashed on Thursday amid
fears that Europe’s largest economy will grind to a near
standstill as a deepening banking crisis threatens to plunge the
continent into recession.UK DATA EXPOSES SHIFT IN THE PAY GAPWages for public sector staff in the UK have risen by 13
percent more than their private sector peers in the past ten
years, but only for those on lower pay grades, according to data
released on Friday.BP PLANS UK OIL DEVELOPMENTBP has announced plans for a 4.5 billion pound
development of the Clair field, a seven billion barrel
superfield off the Shetland Islands.The TelegraphJOE LEWIS BID FOR PUB GROUP SAILS AWAYBillionaire Joe Lewis has withdrawn his 941 million pound
takeover attempt for pubs group Mitchells & Butlers ,
leaving shares down 6.9 percent at 235.3 percentUK REVENUE PURSUES 6,000 SWISS HSBC ACCOUNTSThe British government’s taxation arm, HM Revenue & Customs
(HMRC), is withdrawing its amnesty on 6,000 wealthy HSBC
customers and demanded they declare taxes due on Swiss
accounts or face criminal charges.WSJ MAY UNDO NEWS CORPRupert Murdoch’s News Corporation is facing severe
new legal pressure as The Wall Street Journal becomes a
lightning rod for widespread anger in the U.S. at the way the
company has behaved.The GuardianCARREFOUR SOUNDS ALARM OVER ECONOMYDeepening economic gloom has forced Europe’s biggest
retailer, Carrefour , to issue its fifth profit warning
this year.The IndependentUK BANKS DOWNGRADED AS STRESS TEST FEARS GROWSigns that the Government has become less likely to support
lenders led to another credit rating downgrade for Lloyds
and Royal Bank of Scotland on Thursday against
the backdrop of concerns that new European stress tests could
leave the sector in need of billions of pounds of extra capital.
12AM
Speaking to a U.S. business group in Shanghai, Locke
reiterated that a top priority of the administration of
President Barack Obama was job creation.”Over the next year I’m committed to leading five trade and
investment missions to China’s emerging cities,” Locke said.”We simply cannot wait for the Commerce Department or the
Energy Department and other governors and mayors to lead trade
missions here to China. There’s no reason why the Embassy and
the consulates here can’t initiate these trade missions on our
own.”Locke said the missions would recruit delegations with a
focus on high-growth sectors such as clean and renewable energy,
transportation, health care, aviation, and information and
communication technologies.Locke’s comments come amid growing pressure from Washington
for China to increase the value of its currency, the yuan, which
critics say remains undervalued despite having risen by nearly a
third against the dollar since mid-2005.The Democratic-controlled Senate passed a bill on Tuesday
that would pave the way for tariffs on some Chinese goods to
compensate for Beijing keeping the yuan low to subsidise its
exports at the cost of U.S. jobs.The bill now faces the Republican-controlled House of
Representatives, whose leaders oppose the measure and warn that
it could start a trade war.China on Thursday reported that its overall trade surplus
narrowed for a second month in September, which some analysts
said might help Beijing resist U.S. pressure on the yuan, making
the case that it was dealing gradually with its economic
imbalances.Locke did not mention the issue of the yuan in his speech to
the American Chamber of Commerce in Shanghai, and none in the
audience asked about the issue of the yuan during a
question-and-answer session, although some complained in private
about the bill, saying it could hurt U.S. business interests.Other U.S. business groups have been more vocal about the
bill.The American Chamber of Commerce in China, a separate entity
to AmCham-Shanghai, said on Wednesday that it regretted the
passage of the bill in the Senate.”The Senate bill would damage the bilateral trade and
investment relationship, weaken our standing in the World Trade
Organization, and damage our national interests,” AmCham-China
Chairman Ted Dean said in a statement. “We oppose it. It should
not become law.”The US-China Business Council also said in a statement on
Wednesday that it thought the Senate bill would do more harm
than good.
October122011
* Trims full year dollar revenue growth to 17.1-19.1 percent* Shares rise nearly 6 percent* Infosys warns about global macroeconomic uncertaintyBy Sayantani GhoshBANGALORE, Oct 12 (Reuters) - Infosys Ltd , India’s
No.2 software services exporter, reported a 9.7-percent rise in
quarterly profit and cut its full-year revenue outlook by
less-than-expected, cheering investors who shrugged off its
warning about global economic uncertainty.Kicking off results for India’s nearly $76 billion IT
sector, shares in Infosys rose 6 percent on Wednesday to their
highest level in more than two months, outperforming the broader
market .The company, which counts Goldman Sachs , BT Group
and BP among its main clients, trimmed its dollar
revenue growth forecast to 17.1 percent to 19.1 percent for the
fiscal year, from 18 percent to 20 percent projected earlier.”The dollar revenue guidance cut is due to a cut in
discretionary spending by clients. But it was modest compared
with what people had expected,” said Jagannadham Thunuguntla,
research head at SMC Global Securities.He said analysts had expected Infosys to slash its dollar
revenue outlook by 4 to 5 percentage points.By 0500 GMT, Infosys shares were trading at 2,646 rupees a
share, up 5.7 percent.Infosys Chief Financial Officer V. Balakrishnan said the
reduction in the forecast was mainly due to currency volatility.India’s IT sector, which feeds off increased outsourcing by
companies looking to cut costs, is expected to face pricing
pressure and a decline in new orders as Europe struggles with a
debt crisis and the United States sees an economic slowdown.Infosys and domestic rivals Tata Consultancy Services
and Wipro also face stiff competition
from global players including IBM and Accenture
for large outsourcing deals.More than half of Bangalore-based Infosys’ revenue is
generated in the United States. Europe is its second largest
market, accounting for 20.5 percent of its revenue in the second
quarter, down from 21.8 percent a year ago.UNCERTAINTY”The global macroeconomic environment is still uncertain. It
is and should be a concern for the IT industry,” S.D. Shibulal,
chief executive officer of Infosys, said in a statement.Nasdaq-listed Infosys said consolidated net profit
rose to 19.06 billion rupees ($387 million) for the fiscal
second quarter ended Sept. 30, from 17.37 billion rupees
reported a year ago, as a weaker rupee boosted results.Revenue rose 16.6 percent to 81 billion rupees as the
company added 45 clients in the quarter.A Reuters poll of brokerages had forecast a profit of 18.9
billion rupees on revenue of 81.2 billion rupees for the
company.”The results have been helped partly by the depreciation in
the rupee. The main thing to watch out for will be how the U.S.
and Europe will move in the coming months,” said R.K. Gupta,
Managing Director at Taurus Asset Management.”But Indian IT companies and Infosys in particular have a
cost advantage over their global peers. I am not very
pessimistic on these companies,” he said.Infosys, worth about $29 billion, has lost more than a
quarter of its market value this year, roughly in line with a 25
percent fall in the sector index , but outperforming a
19 percent decline in the Mumbai market index.The company expects its dollar revenue to rise to $7.08
billion to $7.2 billion in the fiscal year ending March 2012.
October112011
Those are the big questions on the art world’s lips as hundreds of galleries and collectors descend on London for the annual post-war and contemporary frenzy centered around the October 13-16 Frieze Art Fair in Regent’s Park.The annual event held in a giant marquee has quickly become a key date for anyone wanting to acquire top works by modern and living painters.It has spawned a merry-go-round of auctions, rival fairs like the Pavilion of Art & Design (PAD), major exhibitions, gallery openings including a new White Cube space and, of course, endless glitzy, champagne-fueled parties.But after two years of strong growth in prices, particularly for top artists, global financial turmoil once again threatens to bring the chill of uncertainty to the week as it did in the wake of the 2008 Lehman Brothers collapse.Matthew Slotover, co-founder of Frieze who is considered one of the art world’s most powerful figures, conceded that concerns over slow economic growth and Europe’s debt crisis could weigh on the fair.But he, like many others, argued that investors may prefer to put their money into a painting than a paper asset.”It is something tangible and real,” he told Reuters in a recent interview, stressing that personally he would not treat art as a financial investment alone.”In an age where people are losing faith in paper money, in currencies and in equities, it’s one of those assets that people feel, well, at least I’ve got this actual thing.”More and more frequently experts draw a distinction between the top end of the market — works by household names that rarely come to market — and mid-range art priced, say, between $100,000 and $500,000.Anders Petterson, head of ArtTactic which tracks investor confidence in different sectors of the art market, saw his mid-range indicator slump from nearly 90 percent in June to less than 30 percent in October.Over the same period the indicator for works valued at $1 million or above slipped slightly but remained over 90 percent.CHINESE THE NEW MEDICIS?Anthony McNerney, head of contemporary art at Bonhams, summed up the mood among the auction houses.”It seems that rich people quite often will always stay rich,” he told Reuters.”Obviously there is a lot of nervousness that it (market contraction) will happen again as it did three years ago. I think we’ve got to carry on as best we can, and if you’ve got great quality fresh to the market, it really doesn’t matter.”The focus on the very best art with strong provenance has seen a narrowing in the art that owners are prepared to sell, with the likes of Andy Warhol, Roy Lichtenstein and Francis Bacon taking up a larger share of auctions.One “wild card” this week could be demand from Asia’s growing number of ultra-wealthy collectors.A few years ago it was Russian oligarchs who were snapping up much of the world’s most expensive art. Now the focus is firmly on China as the land of the “modern-day Medicis.”Recent sales at Sotheby’s in Hong Kong gave a mixed picture of Chinese demand for art and luxury goods.The auctions raised $411 million in spite of difficult conditions on financial markets, yet the total was down from April and of the works on sale, contemporary art struggled most with more than a fifth of lots unsold.Petterson wrote recently that the kind of “fashionable, cutting-edge contemporary art” typically on show at Frieze could be vulnerable to another downturn.”Even the top end of the art market might not be quite as safe as investors would like to think if the economic crisis escalates further,” he said.”As research from the last crisis shows, when investor confidence evaporates, all assets start to correlate, something many art market insiders like to forget.”Auction houses will offer works valued at over 100 million pounds ($160 million) this week, and the art displayed at Frieze is estimated by insurer Hiscox to be worth $350 million compared with $375 million last year.The top lot could be Gerhard Richter’s “Candle,” estimated by Christie’s at 6-9 million pounds, a figure the German artist said last week was “impossible to understand” and “daft.”In fact, talking about art in the same breath as its commercial value is often frowned upon in a world where polite conversation focuses on a painting’s aesthetic appeal and meaning and not its price.But as one video installation featured in this year’s Frieze Art Fair catalog states bluntly: “The ART WORLD is dependant (sic) on commerce for its existence.”
12PM
A fresh twist in Hungary’s Swiss franc debt saga. The ruling party, Fidesz, is proposing to offer mortgage holders the opportunity to repay their franc-denominated loans in one fell swoop at an exchange rate to be fixed well below the market rate. This is a deviation from the existing plan, agreed in June, which allows households to repay mortgage installments at a fixed rate of 180 forints per Swiss franc (well below the current 230 rate). Households would repay the difference, with interest, after 2015.
If this step is implemented and many loan holders take up the offer, it would be terrible news for Hungary’s banks. The biggest local lender OTP could face a loss of $2 billion forints, analysts at Budapest-based brokerage Equilor calculate. Not surprisingly, OTP shares plunged 10 percent on Friday after the news, forcing regulators to suspend trade in the stock. Shares in another bank FHB are down 8 percent.
But Fidesz’ message is unequivocal. ”The financial consequences should be borne by the banks,” Janos Lazar, the Fidesz official behind the plan says. The government is to debate the proposal on Sunday.
OTP and its peers could be forgiven for feeling aggrieved. They are already saddled with the highest financial sector taxes in Europe and will almost certainly see a rise in bad loans as the economy stagnates and more Hungarians lose their jobs. They are also picking up the cost of the three-year exchange rate cap for mortgage holders.
The proposed plan may also have implications for the forint — ING Bank chief EMEA economist Simon Quijano-Evans notes that if 200,000 to 300,00 people to take up the new offer — as the government apparently expects – the forint will weaken as these people buy Swiss francs to repay their debts. Based on average loan size, over 2 billion euros worth of forints could be sold, he estimates.
Banks’ main hope now must be the central bank. The latter has responded to today’s proposal with a warning that solutions to the debt crisis must not threaten the financial system’s stability.
But the Fidesz government’s capacity to spring nasty surprises on the banking sector will make investors even more defensive about Hungary. Quijano-Evans for one advises staying away from Hungarian equities and unhedged forint positions, noting that “the risk of the government going ahead with some sort of plan to the detriment of banks has increased strongly.”
