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Rules of the Road: Europe Buckles Down

BY Jaret Seiberg and Shanon D. Murray
by Jaret Seiberg and Shanon D. Murray on 2/27/01.

EC tightens merger reviews Europe's top antitrust official, Mario Monti, announced plans Tuesday to set up a special unit within the European Commission for regulating concessions in merger reviews. Monti, the European Commissioner for Competition, said the unit will operate under the EC's merger task force, the team of antitrust officials responsible for reviewing mergers. "What we want is this special unit to look at remedies and to make sure they're actually being implemented," he said in a speech at the European Parliament in Brussels.

The proposed unit is intended to avert problems like the one that followed the Commission's 1998 approval of the merger of MCI and WorldCom Inc. As a condition for approval, the companies agreed to divest MCI's Internet backbone, which was then sold to the United Kingdom's Cable & Wireless plc.

However, C&W alleged that WorldCom was withholding important customer information and technological know-how that formed part of the divestiture package, and it made sure the Commission was aware of these claims.

MCI WorldCom's initial lack of cooperation would later influence the EC's review of the company's proposed merger with Sprint Corp. last year. That deal was ultimately blocked on concerns the deal would give MCI WorldCom and Sprint monopoly control over global Internet networking services and that any remedy couldn't be monitored.

Monti offered no details on the launch date or composition of the merger review unit.

Leveling the e-trading playing fieldEven after approving Nasdaq's controversial computer-based trading system, SuperMontage, last month after more than a year of deliberation, the U.S. Securities and Exchange Commission's effort to appease electronic communication networks continues.

In fact, senior SEC counsel Joseph C. Lombard said last week he expects the issue will be on the "front burner" of the next SEC chairperson.

ECNs, alternative trading providers that demanded major changes to SuperMontage to alleviate competition concerns, is now urging the SEC to help them compete with traditional stock markets, including the New York Stock Exchange. ECNs now handle about one-third of Nasdaq's trades, but they haven't made a significant dent in NYSE trading because of system incompatibilities, said Matt Andresen, president of New York-based Island ECN Inc., last week at a panel sponsored by the Citizens for a Sound Economy
Foundation, a Washington, D.C., think tank.

If Island must use the same trading system as NYSE, it will take as long as two minutes to execute trades, rather than seconds, Andresen said.

The SEC maintains it is committed to aiding ECNs without their having to overhaul their trading platforms, "but it's not easy," senior SEC counsel Joseph C. Lombard said during the same discussion.

Banks seeking new businessThe National Associationof Realtors got an early victory in their campaign to bar banks from buying real estate agencies and property management companies.

The Federal Reserve Board and U.S. Department of Treasury agreed last week to extend to May 1 the comment period on its proposal to allows banking companies to acquire real estate management and brokerage firms. The comment period was set to expire March 2.

The NAR charges that the proposal would illegally mix banking and commerce. Banking groups counter that the Gramm Leach Bliley Act anticipated bank entry into the business.

Extending the deadline is common practice for proposals that generate significant public comment. Yet the Fed rarely retreats from these proposals, which likely makes this extension a hollow - and short-lived - victory for realtors.

Big Oil collusion investigatedThe Federal Trade Commission has until today to brief House Commerce Committee staffers on the status of its investigation into the high gas prices that hit the Midwest last summer.

Commerce Committee Chairman Billy Tauzin, R-La., sent a letter to FTC Chairman Robert Pitofsky last week asking why the agency has yet to complete its final version of its study. A preliminary report was released July 28.

Tauzin wants to know if the oil companies illegally conspired to inflate gas prices. Proving such collusion, however, is difficult. The government needs evidence that the companies made a joint decision to raise prices, rather than deciding unilaterally to match each other's prices.

The Securities IndustryAssociation is urging regulators to let financial services holding companies invest in e-businesses.

The Gramm Leach Bliley Act created financial services holding companies in 1999, authorizing them to own banks, insurers and securities firms. Yet such entities are barred from engaging in commerce, a loosely defined term that generally applies to any business that is neither financial in nature nor incidental to a financial business.

In a comment, the SIA asks the Federal Reserve Board to stretch the definition of "financial" to include unlimited investment in data processing companies, provided the businesses process at least some financial data.

The comment comes in response to a Fed proposal to permit financial services companies to engage in data storage, processing and transmission to handle financial data. Investment in these businesses cannot exceed 5% of the entity's risk-based capital, and the data processing unit may not earn more than 49% of its revenue from non-financial data activities.

The SIA said these restrictions are unwarranted, noting there is little difference between the processing of financial and nonfinancial data and arguing that the 5% capital cap on these investments serves no purpose. The group also is pressing for unlimited rights for financial holding companies to own Web and portal hosting services.

The full Houseof Representatives will debate proposed bankruptcy reform legislation Thursday. The Judiciary Committee passed the legislation right before Congress' President's Day break.

During the committee markup session on Feb. 15, more than a dozen amendments offered by Democrats were considered and defeated. Democratic critics of the bill say it is too creditor-friendly. Former President Clinton pocket-vetoed a nearly identical bill last year.

The committee vote was mainly along party lines, with 19 Republicans and one Democrat, Rep. Rick Boucher of Virginia, voting for and eight Democrats voting against.

Hawked primarily as a consumer bankruptcy bill, the legislation does address several corporate bankruptcy issues. One provision would cap a debtor's exclusive filing period at 18 months. Also, it would set a 120-day time limit for a retailer to decide whether to maintain or turn over its leases to the landlord. A time limit does not exist in either circumstance under current law.

The Senate BankingCommittee will vote Thursday on proposed legislation to lower the U.S. Securities and Exchange Commission's transactions and registration fees.

Acting SEC Chairwoman Laura S. Unger told the banking committee during a recent hearing that she supports the legislation. Under the measure, the SEC would reduce collections by $1 billion in the first year, $8 billion in five years and $14 billion in 10 years.

Federal securities laws allow the SEC to collect three types of fees from
corporations: registration fees, transaction fees, and fees on mergers and tender offers. In fiscal year 2000 the SEC collected $2.3 billion in such charges, which help fund the agency. That's more than six times the federal regulator's annual budget.

The bill also would raise salaries at the agency. If approved by the committee, the legislation will move to the full Senate for consideration.

The Surface Transportation Board, the federal railroad regulator, last week said it will hold oral arguments on April 5 regarding its proposed railroad merger regulations.

The proposed rules would increase the burden on railroad companies to show that a proposed deal is in the public interest. Such benefits would include improved service, enhanced competition and greater economic efficiency. The rules would only apply to the merger of two or more "Class I" railroads, meaning railroads with annual revenue of at least $250 million.

The board said it will issue final merger rules on June 11.