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Wall Street's stock-market regulators slapped a New York brokerage firm with a record fine for failing to stop computer-driven trading clients who sought to manipulate U.S. markets for nearly four years, the Wall Street Journal reported today. The Financial Industry Regulatory Authority and several stock-exchange regulators fined Newedge USA LLC $9.5 million for lax oversight of the trading firms from early 2008 to late 2011, according to a regulatory filing. The sanctions come as regulators step up scrutiny of computer-driven trading amid worries that it is enabling market manipulation that could pose risks to the financial system and damage investor confidence. Regulators have fined several trading firms for manipulative activities over the past year, and expect to bring more such cases in the near future, according to people familiar with the matter.

The biggest U.S. banks, after years of building equity, may continue hoarding profits instead of boosting dividends as they face stricter capital rules than foreign competitors, Bloomberg News reported yesterday. The eight largest firms, including JPMorgan Chase & Co. and Morgan Stanley, would need to retain capital equal to at least 5 percent of assets, while their banking units would have to hold a minimum of 6 percent, U.S. regulators proposed yesterday. The international equivalent, ignoring the riskiness of assets, is 3 percent. The banks have until 2018 to fully comply. The U.S. plan goes beyond rules approved by the Basel Committee on Banking Supervision to prevent a repeat of the 2008 crisis, which almost destroyed the financial system. The changes would make lenders fund more assets with capital that can absorb losses instead of using borrowed money. Bankers say that this could trigger asset sales and hurt their ability to lend, hamstringing the nation’s economic recovery.

Hedge funds and other companies seeking private investments would be freed to advertise publicly for funding under a rule set for a vote tomorrow by the U.S. Securities and Exchange Commission, Bloomberg News reported yesterday. The rule is the first of those required by last year’s Jumpstart Our Business Startups Act to be approved by the SEC, the vote coming more than a year after a deadline set by Congress. The rule would lift an 80-year-old regulatory practice that has restricted advertising outside of a public offering in an effort to protect small investors from inappropriate risks. Under the new rule, startups and other small companies would also be able to use advertising to raise unlimited amounts of money.

Hedge fund firm Perry Capital LLC sued the U.S. Treasury Department claiming the government’s seizure of all profits from Fannie Mae and Freddie Mac is illegal and has destroyed shareholders’ holdings, Bloomberg News reported yesterday. Perry Capital, which seeks to represent investment funds in the litigation, said that it wants to stop the U.S. Treasury from enforcing a so-called third amendment to preferred stock purchase agreements, according to court papers. Perry Capital and hedge funds including Paulson & Co. have been lobbying Congress to consider allowing Fannie Mae and Freddie Mac to become independent again. Republican and Democratic lawmakers, along with President Barack Obama, have called for both mortgage finance companies to be liquidated, with the U.S. Treasury forecasting to collect more than $200 billion of profit from the agencies over the next decade.

U.S. prosecutors have concluded that they don't have enough evidence against hedge-fund billionaire Steven A. Cohen to file criminal insider-trading charges against him before a July deadline, the Wall Street Journal reported today. Investigators probing the biggest alleged insider-trading scheme in history have been eyeing the Cohen and his namesake SAC Capital Advisors LP hedge-fund firm for a decade, suspicious that some of its trading profits were too good to be legitimate. Prosecutors filed criminal charges last November against a portfolio manager at an SAC affiliate who was close to Cohen—and kept trying to work their way to the top. But this month's deadline is likely to come and go without any action against Cohen. The deadline is tied to a five-year statute of limitations to file criminal charges related to his trading activity with the portfolio manager, Mathew Martoma.

Fitch Ratings said that U.S. banks, spurred by a federal regulatory change, will be encouraged to buy the riskiest pieces of a type of structured credit product or exit the investments altogether, Bloomberg News reported on Wednesday. JPMorgan Chase & Co. and Wells Fargo & Co. are among the biggest investors in collateralized loan obligations (CLOs), which bundle speculative-grade loans into securities of varying risk. Since April 1, the Federal Deposit Insurance Corp.’s method for calculating premiums has assigned a higher cost to all CLO investments, from the safest to the riskiest. Banks are grappling with the change in how the FDIC calculates their deposit insurance premiums, funds that are used to repay account holders if a lender fails. Banks that choose to keep investing in CLOs may stick to the riskier slices instead of the AAA-rated portions because they offer greater returns, Fitch said in a statement.

Wall Street lobbyists, seeking to delay a July 12 deadline for rules that would rein in lucrative trading by banks overseas, pressed their case before the Commodity Futures Trading Commission (CFTC), the New York Times DealBook blog reported yesterday. While chairman CFTC Gary Gensler is looking to go forward with the deadline, a few of his colleagues are still fighting his plan to extend the agency’s reach beyond American borders, an issue that emerged during the 2008 financial crisis. Mark Wetjen, a Democratic CFTC commissioner recently called the deadline “arbitrary.” As the deadline nears, the plan to regulate trading by American banks in London and beyond has set off a dispute at the agency. During the financial crisis, trades by the American International Group in London nearly brought the insurance giant and its Wall Street clients to their knees. JPMorgan Chase’s $6 billion trading loss at a London unit last year further highlighted how risk-taking can come crashing back to American shores. The blowups spurred a federal crackdown on the $700 trillion marketplace for financial contracts known as derivatives—contracts that derive their value from an underlying asset like a bond or an interest rate. Even today, banks continue to book much of their derivatives trading overseas. Wall Street’s biggest banks, regulators say, have more than 2,000 legal entities spread internationally.

Bank of America Corp. said that it won’t renegotiate its $8.5 billion mortgage-bond settlement with investors after American International Group Inc., which opposes the deal, sought mediation, Bloomberg News reported yesterday. Bank of America won’t participate in mediation proposed by AIG and other opponents and “will not otherwise engage in any renegotiation,” Elaine Golin, an attorney for the lender, said in a June 25 letter filed yesterday in New York state court. A hearing to approve the settlement began earlier this month before Justice Barbara Kapnick in Manhattan. The agreement has the backing of a group that includes BlackRock Inc. The hearing is scheduled to resume July 8.

An increasingly vocal chorus of current and former U.S. regulators says that the biggest banks still have not provided adequate plans to safely wind down in bankruptcy and may need to be restructured to reduce the risk they pose to the financial system, Bloomberg News reported today. Jim Wigand, a Federal Deposit Insurance Corp. official responsible for planning for the potential failures of big banks such as JPMorgan Chase & Co., Goldman Sachs Group Inc. and Citigroup Inc., said that none have yet been able to draw up bankruptcy plans that wouldn’t threaten to detonate the financial system. The plans, known as “living wills,” were a core demand of the 2010 Dodd-Frank Act overhaul of financial oversight, and it gave regulators the authority to require systemically risky banks to restructure if their plans aren’t “credible.” Whether a global financial giant is able to go through an orderly bankruptcy using a living will is still “an open question,” Wigand said. The 11 largest banks filed the first draft of their living wills last year. The banks, which included Bank of America Corp., Barclays Plc and Deutsche Bank AG, are required to file new versions of their living wills on Oct. 1. Another tier of banks with smaller U.S. nonbank holdings, including Wells Fargo & Co. and HSBC Holdings Plc, must file their first plans by July 1.

Federal Reserve Bank of Dallas President Richard Fisher said an implicit government guarantee for the biggest U.S. banks is an “injustice” that prompts them to take excessive risks and that they should be allowed to fail, Bloomberg News reported yesterday. The largest financial firms should be restructured so each of their units “is subject to a speedy bankruptcy process,” and creditors should be notified their investments won’t be guaranteed by the government, Fisher said in testimony prepared for a House Financial Services Committee hearing today on the risk of taxpayer-funded bailouts for banks. Fisher reiterated his view that the government should break up the biggest institutions to safeguard the financial system. He is one of the central bank’s most vocal critics of the “too-big-to-fail” advantage he says large firms have over smaller rivals. In Fisher’s view, the 2010 Dodd-Frank Act hasn’t fixed a system in which the biggest banks are “seen as critical to the proper functioning of our economy” and deserve rescues.