SEC has charged GS for omitting key facts about product backed by subprime mortgages.
- Non-disclosure to investors about role of hedge fund (Paulson & Co.) in portfolio selection and short position taken by the said hedge fund against the CDO.
- Marketing material for ABACUS (the CDO) indicated that portfolio selected by a third party risk analyzer, ACA, but did not disclose role of hedge fund which would have benefitted from default on RMBS constituting the CDO.
- A VP at GS, Fabrice Tourre, indicated to ACA that the hedge fund had also invested in ABACUS, while it was exactly opposite position they had taken.
SEC Complaint
Monday 19 April 2010
Saturday 10 April 2010
Is the Unit Linked Insurance Plan a back door to running a mutual fund
SEBI issued show cause notices to ULIP issuing insurance companies as to why they did not take SEBI registration before issuance and why action not be taken against them under SEBI Act.
Order says that
- ULIPs different from traditional insurance products as they are combination of insurance and investment
- Like MFs as exit at NAV (unutilized fund value)
- Investors subject to investment risks of security markets entirely borne by investors
- By their own admission, issuers have stated that 2 components, insurance and investment
- "Trust" structure requirement for registering a MF with SEBI, but it does not mean SEBI can't regulate because there is no "trust" structure.
- Example of a scheme where just 2% of premium was going towards insurance costs.
- Pooling of investments, investor expectation of profit, management on behalf of investors and investor not having day to day control, render ULIPs as CIS and MFs
- ULIPs not purely "contract of insurance" as exempted under SEBI Act
- ULIPs also not exempted as not being CIS as per the SEBI Act
- Regarding non-transferability of ULIPs comparison made with Open ended MF schemes where issuance and redemption is with MF only. Physical issuance not there in many MF cases as they issue just statement of A/c
- Registration with IRDA does not mean that issuers are exempted from other laws and regulations
Link to SEBI order
MF- Mutual Fund
SEBI - Securities & Exchange Board of India
CIS - Collective Investment Scheme
ULIP - Unit Linked Insurance Plan
IRDA - Insurance Regulatory Development Authority (of India)
Order says that
- ULIPs different from traditional insurance products as they are combination of insurance and investment
- Like MFs as exit at NAV (unutilized fund value)
- Investors subject to investment risks of security markets entirely borne by investors
- By their own admission, issuers have stated that 2 components, insurance and investment
- "Trust" structure requirement for registering a MF with SEBI, but it does not mean SEBI can't regulate because there is no "trust" structure.
- Example of a scheme where just 2% of premium was going towards insurance costs.
- Pooling of investments, investor expectation of profit, management on behalf of investors and investor not having day to day control, render ULIPs as CIS and MFs
- ULIPs not purely "contract of insurance" as exempted under SEBI Act
- ULIPs also not exempted as not being CIS as per the SEBI Act
- Regarding non-transferability of ULIPs comparison made with Open ended MF schemes where issuance and redemption is with MF only. Physical issuance not there in many MF cases as they issue just statement of A/c
- Registration with IRDA does not mean that issuers are exempted from other laws and regulations
Link to SEBI order
MF- Mutual Fund
SEBI - Securities & Exchange Board of India
CIS - Collective Investment Scheme
ULIP - Unit Linked Insurance Plan
IRDA - Insurance Regulatory Development Authority (of India)
Wednesday 7 April 2010
SEBI secondary market circulars
SEBI (Securities and Exchange Board of India) has consolidated all secondary market circulars issued and come up with comprehensive compliance requirements. This is a potential compendium for secondary market participants in India. Below is the link to SEBI website where master circular is posted.
http://www.sebi.gov.in/circulars/2010/cirmrddp12.html
http://www.sebi.gov.in/circulars/2010/cirmrddp12.html
Monday 5 April 2010
SEBI makes changes to listing agreement
SEBI has made changes to listing agreement which will facilitate better and faster information about company financial health to the investors. Besides financial reporting by corporates has been attempted to be made more resposible with more auditor certifications, auditor peer reviews and audit committee signoff for CFO appointment. Here are the suggested changes.
Amendment to listing agreement
- Accounting treatment to M&A schemes to have auditor certificate
- Reducing time for publication of quarterly results to 45 days and annual results in lieu to 60 days
- Turnover PAT and PBT to be included as a part of these results
- Voluntary adoption of IFRS by corporates facilitated. Publication as per Indian GAAP to continue till April 1, 2011.
- Peer review certificate required by all statutory auditors.
- Balance sheet data to be available half-yearly.
- Modification to format of limited review reports.
- Appointment of CFO to be approved by audit committee which will evaluate qual., exp. and background.
Thursday 2 July 2009
SEC Proposals regarding Executive Compensation
SEC has called these as measures to improve corporate governance and enhance investor confidence. These measures are being implemented through changes in proxy statements and voting practices. Appears to be in keeping with SEC policy of disclosures rather than making governing regulations. Proposed changes which will be implemented post January 1, 2010 are as follows:
- Shareholder approval of executive compensation of TARP recepients - This is essentially driven by The Emergency Economic Stabilization Act of 2008 and is applicable till the time company avails of any TARP funds. Smaller Reporting companies have been provided some relief from the requirements suggested. With big banks lining up to return TARP funds, don't know how many would be under the ambit of this proposed rule by the time it is implemented.
- Proxy Disclosure and Solicitation Enhancements - In keeping with SEC policy of enhancing disclosures rather than regulating. Rule covers compensation disclosure in proxy statement, corporate governance with regard to conflict of interest and reporting of annual stock and option awards.
- NYSE Rule concerning discretionary proxy voting by broker dealers - NYSE proposale to amend NYSE Rule 452. Voting regarding election of directors cannot be done without explicit beneficial owner approval. Investment companies are however exempt from this rule change.
For details with regard to this proposal visit Proposal 34-60218
Monday 24 September 2007
Lender of Last Resort (LOLR)
LOLR is the term used for the government or the central bank of a country. It plays the role of a lender when no other source is open to a borrower. Who is this borrower so gracious that LOLR will always be available to it? This is a dilemma faced by many when they see LOLR stepping in to protect a run on deposits of large financial institutions. This question has come to haunt once again when the latest casualty of infamous sub-prime crisis, Northern Rock Plc., has been provided a lifeline by LOLR.
Northern Rock is the largest mortgage lender in UK. The model Northern Rock operated on was such that its mortgage lending was almost four times its customer deposits. Northern Rock largely depended on its ability to package its mortgage loans and sell to investors. Also it relied heavily on short term loans from the inter-bank markets. However, in August, BNP Paribas suspended withdrawal from its investment funds targeting such mortgage backed securities. The reason given by BNP was that there was no clarity on valuation of investments made by these funds. This caused banks across Europe to become wary of their counterparties in the inter-bank loan markets. At this time Northern Rock started to feel the pinch of credit squeeze. Finally, in September Northern Rock initiated talks with the Bank of England (UK Central Bank) when it realized that inter-bank loans market is not going to improve.
LOLR is supposed to keep the financial system of country in tact. At the same time it is responsible for maintaining the investor and depositor confidence in LOLR’s ability. Across the world, be it Federal Reserve or European Central Bank or Reserve Bank of India, LOLR indulge in open market operations (OMO) when they feel excess liquidity or credit crunch is hurting the economy. The prime target of these LOLR is the inter-bank market which is also called call money market. However, the Bank of England has shied away from indulging in any kind of measures to ease the liquidity in inter-bank market. The reason given by the Bank is that it is not there to protect investors but rather to protect the interest of depositors. Certainly Bank of England has succeeded in both its aims as the Northern Rock stock has fallen by almost 60% and all its depositors have been protected by the credit line provided by LOLR. But it remains to be seen how much Bank of England has done to maintain depositor and investor confidence in its abilities.
Northern Rock is the largest mortgage lender in UK. The model Northern Rock operated on was such that its mortgage lending was almost four times its customer deposits. Northern Rock largely depended on its ability to package its mortgage loans and sell to investors. Also it relied heavily on short term loans from the inter-bank markets. However, in August, BNP Paribas suspended withdrawal from its investment funds targeting such mortgage backed securities. The reason given by BNP was that there was no clarity on valuation of investments made by these funds. This caused banks across Europe to become wary of their counterparties in the inter-bank loan markets. At this time Northern Rock started to feel the pinch of credit squeeze. Finally, in September Northern Rock initiated talks with the Bank of England (UK Central Bank) when it realized that inter-bank loans market is not going to improve.
LOLR is supposed to keep the financial system of country in tact. At the same time it is responsible for maintaining the investor and depositor confidence in LOLR’s ability. Across the world, be it Federal Reserve or European Central Bank or Reserve Bank of India, LOLR indulge in open market operations (OMO) when they feel excess liquidity or credit crunch is hurting the economy. The prime target of these LOLR is the inter-bank market which is also called call money market. However, the Bank of England has shied away from indulging in any kind of measures to ease the liquidity in inter-bank market. The reason given by the Bank is that it is not there to protect investors but rather to protect the interest of depositors. Certainly Bank of England has succeeded in both its aims as the Northern Rock stock has fallen by almost 60% and all its depositors have been protected by the credit line provided by LOLR. But it remains to be seen how much Bank of England has done to maintain depositor and investor confidence in its abilities.
Wednesday 19 September 2007
A Layman’s Perspective to India-US Relations
I, like the present generation of professionals of India, is a career minded person who wants to see a strong India. Just a thought crossed my mind that why not pen down my ideas of recent happenings in India-US relations. So here I am with absolutely my version of history and resulting present developments.
1. Why India chose the option to go nuclear?
I have read many political and military ideologues and journalists on this aspect and the only conclusion that I could draw was that nuclear weapon was a deterrent to war. And really this has been proven correct as since testing a nuclear weapon, India has never been at war in open arena.
Then another thought comes to my mind that who was the enemy India was trying to deter? It was not Sri Lanka, Burma or Nepal, it was Pakistan and China. Now Pakistan was an enemy because it had US as an ally (for only this reason because otherwise it would have become another Afghanistan) and China was an enemy because of its regional aspirations. Why would China never look at expanding itself over Pakistan and only Indian territory would be its area of interest? That is again because US was an ally of Pakistan.
Befriending US and portraying that US is India ally would certainly deter these two enemies no. 1 of India. Certainly having US as ally is a cheaper option to deter these enemies than to go on developing more advanced nuclear weapons.
2. India influencing US policies
India was never seen so big on the political map as it is now. A US presidential candidate was made to eat his words when he said something negative about India. Although this is not the case if negative sounds about India are made in any other country. This leads me to two conclusions. First, India and more so Indians have grown so strong politically that they can influence the policies (even if to some extent only) of strongest nation on Earth. Second, India and Indians are still not so strong that they can influence policies of any other country. So why not befriend US and influence other countries via US? Success is for us to see in cases of Australia and Japan.
3. Democratic Setup or Communist Setup
In India a sizeable portion of population lives below poverty line. It is comparatively easier to push poor people towards communist thought process than the people who are relatively better off. And I believe this is the prime reason why communism has at all times been represented in the Parliament. At this point of time, communism is at its peak.
Why am I writing this point here? It is not because I believe democracy in India will not survive without US help. It is because allying with US will be a boost to the democracy. You see I am a believer in democracy because that is the reason why I am where I am. I am afraid of the happenings in USSR and other communist countries and negative stories about Chinese government atrocities on their citizens.
For the US, I believe they have always been afraid of communists since the cold war days. They will rather not allow another communist state to stick its head up against US. So why not all the democratic minded Indians befriend US?
I consider myself a layman who does not understand much about the political games but this is my assessment of political scenario unfolding in the world. I am a citizen of India and I respect my country.
1. Why India chose the option to go nuclear?
I have read many political and military ideologues and journalists on this aspect and the only conclusion that I could draw was that nuclear weapon was a deterrent to war. And really this has been proven correct as since testing a nuclear weapon, India has never been at war in open arena.
Then another thought comes to my mind that who was the enemy India was trying to deter? It was not Sri Lanka, Burma or Nepal, it was Pakistan and China. Now Pakistan was an enemy because it had US as an ally (for only this reason because otherwise it would have become another Afghanistan) and China was an enemy because of its regional aspirations. Why would China never look at expanding itself over Pakistan and only Indian territory would be its area of interest? That is again because US was an ally of Pakistan.
Befriending US and portraying that US is India ally would certainly deter these two enemies no. 1 of India. Certainly having US as ally is a cheaper option to deter these enemies than to go on developing more advanced nuclear weapons.
2. India influencing US policies
India was never seen so big on the political map as it is now. A US presidential candidate was made to eat his words when he said something negative about India. Although this is not the case if negative sounds about India are made in any other country. This leads me to two conclusions. First, India and more so Indians have grown so strong politically that they can influence the policies (even if to some extent only) of strongest nation on Earth. Second, India and Indians are still not so strong that they can influence policies of any other country. So why not befriend US and influence other countries via US? Success is for us to see in cases of Australia and Japan.
3. Democratic Setup or Communist Setup
In India a sizeable portion of population lives below poverty line. It is comparatively easier to push poor people towards communist thought process than the people who are relatively better off. And I believe this is the prime reason why communism has at all times been represented in the Parliament. At this point of time, communism is at its peak.
Why am I writing this point here? It is not because I believe democracy in India will not survive without US help. It is because allying with US will be a boost to the democracy. You see I am a believer in democracy because that is the reason why I am where I am. I am afraid of the happenings in USSR and other communist countries and negative stories about Chinese government atrocities on their citizens.
For the US, I believe they have always been afraid of communists since the cold war days. They will rather not allow another communist state to stick its head up against US. So why not all the democratic minded Indians befriend US?
I consider myself a layman who does not understand much about the political games but this is my assessment of political scenario unfolding in the world. I am a citizen of India and I respect my country.
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