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Federal Reserve officials are signaling that they are on track to start slowly raising interest rates next year, a shift that means a delicate balancing act for investors, The Wall Street Journal reported yesterday. Many portfolio managers expect stocks to continue to perform well for the next few months, due to an improving economy and low rates. The Dow Jones Industrial Average is up 2.6 percent for the year, following last year's 26.5 percent advance. Stocks have largely shaken off concerns about how the market will do without the Fed's monthly stimulus, which is due to end in October and has been seen as supporting asset prices. However, money managers are increasingly on guard should the Fed suddenly decide to accelerate its timetable for boosting short-term interest rates, which have been near zero since December 2008. Most investors expect the Fed to take a deliberate approach to raising rates.

Exide Technologies has been hit with a grand jury subpoena in connection with a criminal investigation involving its Vernon, Calif., lead-recycling plant, Dow Jones Daily Bankruptcy Review reported today. In a filing with the Securities and Exchange Commission, the battery maker revealed that the Aug. 8 subpoena seeks "documents relating to materials transportation and air emissions." Exide itself and "certain unidentified individuals" are targets of the investigation" being conducted by the Justice Department in the Central District of California, the SEC filing says.

The Securities and Exchange Commission has launched a broad examination of alternative mutual funds, kicking off regulatory scrutiny of one of the hottest and most controversial investment products to be offered to small investors, the Wall Street Journal reported today. The so-called funds "sweep" includes examinations of large investment firms such as BlackRock Inc. and AQR Capital Management LLC but also smaller firms that previously didn't offer mutual funds. The agency's goal appears to be to gather information about the industry, not necessarily to deliver enforcement actions. Still, advisers to fund companies fear the examination could put a chill on the industry's aggressive growth plans for these popular new products.

The U.S. Securities and Exchange Commission charged Kansas with failing to disclose a “multibillion-dollar” pension liability to bond investors, Bloomberg News reported yesterday. Documents for eight bond offerings in 2009 and 2010 by the state’s Development Finance Authority didn’t tell investors that a study had pegged Kansas’s public-employee pension as the second-most underfunded in the nation. Kansas, which didn’t admit or deny the findings, put in place new disclosure policies and agreed to settle the case. “Kansas failed to adequately disclose its multibillion-dollar pension liability in bond offering documents, leaving investors with an incomplete picture of the state’s finances and its ability to repay the bonds amid competing strains on the state budget,” said LeeAnn Ghazil Gaunt, chief of the SEC Enforcement Division’s Securities and Public Pension Unit. The SEC has been cracking down on faulty disclosure by states and localities that borrow in the $3.7 trillion municipal-bond market.

While private equity firms often operate like such broker-dealer firms as Morgan Stanley or Goldman Sachs, they are not uniformly subject to the same Securities and Exchange Commission regulations aimed at reining in excesses and requiring that the advice they provide is appropriate, according to a New York Times analysis today. Nor has the SEC clamped down on buyout firms for marketing private equity funds to endowments, pension funds and wealthy investors. These activities, too, are usually the purview of broker-dealers. “There appears to be growing confusion among private equity firms, the legal community and perhaps even among SEC staff as to conduct by private equity firms and their consultants and employees that subjects them to broker-dealer registration requirements,” said Marlon Q. Paz, a partner at the Locke Lord law firm and a former senior SEC official, who has advised his private equity clients to become broker-dealers. How the agency resolves this issue could have costly implications for private equity firms that have collected billions of dollars in fees without registering as broker-dealers. Clearer rules, too, would cast a spotlight on potential conflicts of interest inherent in private equity deal-making. And documents show that investors in many private equity firms’ funds may not be receiving a complete picture of the risks posed by the firms’ financial advice.

The Securities and Exchange Commission told Standard & Poor's Ratings Services that it could face an enforcement action for alleged securities fraud regarding six commercial real-estate deals in 2011, according to a Wednesday filing by S&P parent McGraw Hill Financial Inc., The Wall Street Journal reported yesterday. The so-called Wells Notice sent to McGraw Hill on Tuesday states that the SEC has made a preliminary determination that an enforcement action should be taken. The notice is neither a formal allegation nor a finding of wrongdoing, McGraw Hill said. The notice is yet another legal headache for S&P, which also faces a $5 billion fraud lawsuit with the federal government over mortgage-bond grades that turned out to be inaccurate. While the two sides aren't in active talks, S&P is willing to reopen discussions with the Justice Department to settle the case. If found liable in the more-recent matter, S&P could face civil monetary penalties or a cease-and-desist order, among other potential actions.

Given a choice between a regulator whose mission is to promote growth through investment, or an unfamiliar committee dominated by the Federal Reserve, the mutual fund industry opted for the devil it knows, Bloomberg News reported today. The threat of regulation by the Financial Stability Oversight Council encouraged fund companies to negotiate with the Securities and Exchange Commission on new rules for money market mutual funds, which were approved yesterday. The strongest provisions affect funds that hold about one-third of the industry’s assets, while those catering to retail investors and holding U.S. government securities were exempted. The Investment Company Institute saluted the SEC for striking “the proper balance” and “preserving the utility and value of these funds for investors.” Money fund sponsors such as BlackRock Inc. and Charles Schwab Corp.’s asset-management arm also embraced the rules, which exempted a large swath of the industry from the biggest changes. The council should get credit for prompting the SEC to take action, said Treasury Secretary Jacob J. Lew, who leads the oversight group.

Regulators yesterday imposed new restrictions on a vast market that played a significant role in the 2008 financial crisis, The New York Times Dealbook reported yesterday. The Securities and Exchange Commission voted 3-2 to adopt a new set of rules for money market funds, a $2.6 trillion industry where ordinary individuals and sophisticated institutions alike park their money. The rules come after years of debate among regulators and lobbying from Wall Street, and “will reduce the risk of runs in money market funds and provide important new tools that will help further protect investors and the financial system,” said SEC Chairwoman Mary Jo White. The split on the commission reflected the lingering frustrations still felt by many in the debate about money market funds. The approved rules aim to prevent any future runs through a combination of measures. In one important change, certain money market funds will have to report a floating net asset value instead of a fixed value of $1 a share. This change is meant to remind investors that the funds are not without risk and that their value can decline periodically, but not all funds will be covered by that rule. In addition, the SEC adopted rules that give funds the ability to stem investor redemptions during times of stress.

As the Federal Reserve Bank of Kansas City prepares to host next month’s annual gathering of central bankers in Jackson Hole, Wyo., seasoned Fed watchers from the financial markets, including the chief U.S. economists of the biggest American banks, aren’t being invited, according to past participants, Bloomberg reported today. Among those who didn’t make the guest list: Vincent Reinhart of Morgan Stanley, Jan Hatzius of Goldman Sachs Group Inc. and Bank of America Corp.’s Ethan Harris. They’ll miss a conference that has foreshadowed some of the Fed’s biggest monetary-policy shifts since the financial crisis, as well as a keynote by Chair Janet Yellen. This year’s three-day conference begins on Aug. 21 with the topic of “Re-evaluating Labor Market Dynamics.” The exclusion of Wall Street may reflect a dispute between some regional Fed bank presidents who are more worried by loose monetary policy than Fed governors in Washington, including Yellen.

Four years after the Dodd-Frank financial law became reality, Washington's regulatory machine is altering Wall Street in fundamental ways, The Wall Street Journal reported yesterday. Banks are selling off profitable business lines, pulling back from the short-term funding market, cutting ties with businesses that could attract extra regulatory scrutiny and building up defenses to help weather future crises. While profits are up as firms slash costs and reduce funds, their traditional profit engine — trading — is showing signs of weakening as banks step away from some activity amid regulatory pressure. The new regulatory regime is also prompting banks to add thousands of staffers to help ensure compliance. Bank regulators point to the changes on Wall Street as evidence of their efforts to suck risk out of the financial system, but the banks' efforts are not enough to dampen worries among some policymakers and lawmakers that the broader economy remains vulnerable to the potential collapse of a large, interconnected financial firm. Banks are getting hungrier for risk as they try to compensate for sluggish economic growth, ultra-low interest rates and higher regulatory costs, although appetites remain subdued compared to pre-crisis levels.