Dodd-Frank Rollback, Pandit's Return, as JPM Turns

Receiving Wide Coverage ...

Deriving Pleasure: Too many price quotes will increase trading costs and reduce liquidity. That is the curious (if not spurious) story megabanks successfully stuck to in lobbying financial regulators to water down a key provision of the Dodd-Frank Act aimed at governing derivatives trading. The result was a 4-to-1 vote by the Commodity Futures Trading Commission on Thursday in favor of reducing the number of price quotes buyers must seek before conducting swaps trades from the originally proposed five down to two. "A paradigm shift" is how CFTC Chairman Gary Gensler (formerly of Goldman Sachs) characterized the result. "The bare minimum," quipped CFTC Commissioner Bart Chilton, a Democrat. Republicans had pushed for even fewer restrictions. Bloomberg quoted Sandler O'Neill & Partners' analyst Richard Repetto splitting the difference: The rules represent "the start of a process that could eventually lead to a seismic change in trading of over-the-counter derivatives ... It is a switch from an opaque, bilateral market to something where there is some price transparency and a more open and automated market." Any way you size them up, the trading regulations are the bid by the CFTC and Securities and Exchange Commission to curb risk and increase transparency in the $633 trillion (notional value) swaps market, which has previously operated in an unregulated, over-the-counter fashion. Critics charge that market and its Wild West structure were major contributors to the 2008 financial crisis. The new rules require at least two quotes before trades are conducted and establish trading platforms that will require all prices to be made public after a deal is done. As too many quotes and too much liquidity have commoditized the trading of stocks and bonds, Wall Street has turned to murkier markets to fuel profits. The new rules may erode bank profits by reducing banks' ability to carry out bilateral trades directly with other banks and clients. The trading, clearing and other rules may cost JPMorgan Chase $1 billion to $2 billion in revenue, Bloomberg said, referencing a Feb. 26 bank presentation. Five banks dominate the U.S. swaps business. JPMorgan Chase (JPM), Goldman Sachs (GS), Bank of America (BAC) , Citigroup (NYSE:C) and Morgan Stanley (MS) controlled 95% of cash and derivatives trading for U.S. bank holding companies at the end of last year, Bloomberg reports, citing the Office of the Comptroller of the Currency. Wall Street Journal, New York Times, Bloomberg

He's Baaack: Hedge fund centi-millionaire Vikram Pandit just can't seem to resist a chance to be a commercial banker. The former Citigroup chief, who was fired by the firm's independent chairman last year (and you were wondering why JPMorgan Chase's Jamie Dimon doesn't want to give up the role?), is investing in Indian financial services group JM Financial. The company said it's applying for a banking license and will nominate Pandit as non-executive chairman. He'll also help JM Financial create a fund to buy distressed assets and expand its lending and financing businesses, Bloomberg reported. "I continue to believe in the long term growth prospects of India," Pandit said in a statement. "JM Financial can provide the banking and financial services that the country needs." For Pandit, the JM Financial investment represents a reunion with Hari Aiyar and other former colleagues from his days at Morgan Stanley and Old Lane Partners, the investment firm he founded and sold to Citigroup. It also represents an opportunity to make a statement; Pandit had placed heavy strategic bets on emerging markets at Citi prior to his ouster. Financial Times, Bloomberg

Wall Street Journal

Another day, another chapter in the Jamie Dimon saga. After yesterday's news that the bank had stopped providing vote tallies to JPMorgan Chase shareholders who support splitting the roles of chairman and CEO comes word that it has written to shareholders urging them to reject the proposal. The letter, directed at shareholders who have yet to vote on the non-binding proposal to split the leadership roles, also reiterated the bank's support of members of the board's risk policy and audit committees. Activists and shareholder advisory firms have urged a split of the two top roles as well as "no" votes against some of the directors. Results of the balloting are scheduled to be released at JPMorgan Chase's shareholder meeting in Tampa next Tuesday.

Years, if not decades, after critics labeled the structure a farce, the Securities and Exchange Commission is taking a jaundiced look at securities exchanges' roles as self-policing entities, the Journal reports. In a sign of the more aggressive regulatory approach, the SEC is putting the finishing touches on a settlement with Nasdaq OMX Group (NDAQ) over the handling of Facebook's (FB) star-crossed initial public offering, according to "people involved in the private negotiations." The $10 million that Nasdaq is expected to pay would represent the biggest fine levied by the SEC against an exchange, and just its second such fine ever.

Commercial-mortgage-backed securities are back, but so too are losses on them. In a dubious milestone, a housing-boom era security dubbed "AJ" is on the verge of saddling its investors with their first losses, the Journal reports. The original bonds were issued by Morgan Stanley in 2007 to finance an Atlantic City, N.J., shopping mall that suffered serious damage from Hurricane Sandy and has gone into bankruptcy. The AJ CMOs were originally rated triple-A, and stood first in line for repayment, but have since been downgraded to junk. The bonds had formerly found favor with investors, thanks to their too-good-to-be-true-sounding combination of high yields and high ratings. CMBS issuance is off to its fastest start since the financial crisis, with $34 billion in sales through last week—triple that of the same period last year, according to newsletter Commercial Mortgage Alert.

Tom Hayes, the former UBS and Citigroup trader has made all of one statement since the Justice Department charged him last December with fraud in the Libor rate-rigging scandal: "This goes much much higher than me." Now the figure known informally as the "Rain Man," is receiving a modicum of public support from his wife, Sarah Tighe Hayes. A few days ago, Ms. Hayes started issuing a series of Tweets under the handle @SarahTigheHayes that mix thoughts on soccer and child-care with posts in which she vents about Libor and what she sees as the U.S. justice system's propensity for overkill. Among the targets of her vitriol: U.S. prosecutors' "utterly ridiculous" requests for prison sentences for former UBS bankers convicted of municipal bond bid-rigging; the DOJ's propensity to go after European, rather than U.S., banks; and the view that "Libor is a dud, as far as prosecutorial glory goes."

Elsewhere ...

Bloomberg: The U.K's Financial Conduct Authority is hoping its arrest of a former BlackRock (BLK) fund manager will upgrade it from pursuing small-fry insider-trading cases to its first big fish. The overseer has faced years of criticism for targeting dentists and print-room workers. In the BlackRock case, the FCA arrested Mark Lyttleton, who once ran a BlackRock fund with $3 billion in assets. The move follows the arrests of managers at hedge funds in two unrelated probes earlier this year. "I think it's been a big success," said Jamie Symington, the head of the FCA's wholesale group enforcement division.