It’s becoming clear that much of the concern about the omicron variant has to do with how much it will cut into the protection provided by the COVID-19 vaccines.
New details about omicron have emerged this week that indicate the variant may not cause more severe disease but is likely much more infectious than the delta variant. This means that even those who are fully vaccinated may be at higher risk for contracting this variant than other forms of the virus.
With little science to go on right now, there has been a wide range of responses to the few details we have so far about omicron.
Pfizer CEO Albert Bourla this week said a fourth dose of its COVID-19 vaccine could be needed, within a year of getting the third shot. A headline in The Atlantic says “The pandemic of the vaccinated is here.” And this is why health officials continue to push people who are fully vaccinated to get a booster shot of any COVID-19 vaccine. (Teens who are 16 and 17 years old can now get BioNTech
BNTX,
-9.33%
and Pfizer’s
PFE,
+1.34%
booster.)
“Although we don’t have all the answers on the omicron variant, initial data suggests that COVID-19 boosters help broaden and strengthen the protection against omicron and other variants,” Dr. Rochelle Walensky, director of the Centers for Disease Control and Prevention, said in a statement on Thursday.
Vaccines and natural infection can create immunity through different avenues, including T-cells and antibodies. The worry has been that omicron might be able to evade these protective antibodies.
However, new research says that people who have generated a T-cell response through COVID-19 vaccination or infection may still be protected against omicron, though it’s unclear to what degree, according to a new preprint, which is preliminary medical research that has not been peer-reviewed.
“SARS-CoV-2 has not evolved extensive T-cell escape mutations at this time,” concluded the study’s authors, who include scientists at the National Institute of Allergy and Infectious Diseases and Johns Hopkins Medicine.
(“Good news,” tweeted Dr. Isaac Bogoch, a University of Toronto infectious diseases physician.)
And if existing vaccines, including boosters, can hold up against omicron, that may mean we won’t need a variant-specific COVID-19 vaccine.
“If you look at protection against variants, it appears to relate to the level of immunity and the breadth of the immunity that any given vaccine can instill on you,” Dr. Anthony Fauci, the president’s chief medical advisor, said in an interview with STAT.
Here’s what else you should know about COVID-19
Ten percent of Americans believe that the COVID-19 vaccines conflict with their religious beliefs, according to a NPR story about a new survey from the Public Religion Research Institute and the Interfaith Youth Core.
About 50 million in the U.S. who have been sick with COVID-19 still have persistent symptoms, including severe fatigue, in cases that are known as long COVID, according to The Washington Post. Some have to quit their jobs, others are racking up debt, and experts estimate that between 750,000 to 1.3 million people can no longer work full time.
The latest COVID-19 numbers
The daily average case count in the U.S. was 119,788 on Thursday, down from 121,311 on Wednesday, but overall the case count was still up 30% from two weeks ago, according to the New York Times tracker. The daily average death toll was 1,281 on Thursday, compared with 1,275 on Wednesday, and is up 18% from two weeks ago. Hospitalizations increased to a two-month high of 62,971.
The number of fully vaccinated people in the U.S. rose to 200.7 million, or 60.5% of the population, according to data from the Centers for Disease Control and Prevention, while the number of people receiving booster shots rose to 49.9 million, or 24.9% of the population.
The number of new cases in South Africa continues to sharply rise, with 22,391 new cases on Thursday, according to the National Institute for Communicable Diseases there. Only 22 deaths were reported on Thursday.
WASHINGTON—Cryptocurrency industry executives appeared before Congress on Wednesday to argue that their technologies hold promise for the future, as lawmakers and regulators wrestle with how to bring the more than $2 trillion market under government oversight.
The House Financial Services Committee, led by
Rep. Maxine Waters
(D., Calif.), called the hearing in hopes of improving lawmakers’ understanding of crypto assets and how the sector fits into existing regulations. While millions of Americans have invested in crypto assets, many experts say the asset class needs clearer rules of the road, which Congress could provide.
Cryptocurrency is a name given to a broad group of digital assets such as bitcoin. While the assets are criticized by some as volatile, opaque and presenting risks to users and the broader financial system, the industry executives said cryptocurrency can make financial transactions faster, less expensive and more accessible to users around the world.
“The industry has the potential to improve a lot of people’s lives,” FTX Trading Ltd. Chief Executive Sam Bankman-Fried told lawmakers.
Senior executives from stablecoin issuer Circle Internet Financial Ltd., crypto exchange
Coinbase Global Inc.,
COIN 0.37%
bitcoin-mining firm Bitfury Group Ltd., cryptocurrency-payments system Stellar Development Foundation and blockchain firm Paxos Trust Co. also testified. They aim to tout what supporters believe to be the potential upsides of crypto and blockchain technology while playing down the dangers highlighted by many policy makers and consumer-protection advocates.
Ms. Waters raised concerns about the crypto industry’s lack of regulation. “Currently, cryptocurrency markets have no overarching or centralized regulatory framework, leaving investments in the digital-asset space vulnerable to fraud, manipulation and abuse,” she said Wednesday.
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As the crypto industry builds out its lobbying presence in Washington, it has found more allies in the GOP than among Democrats. The top Republican on the financial-services committee, Rep.
Patrick McHenry
of North Carolina, echoed industry lobbyists’ warning Wednesday that excessive regulation of cryptocurrency could push technological innovation to other countries, leaving the U.S. at a disadvantage.
“We don’t need knee-jerk reactions by lawmakers to regulate out of fear of the unknown rather than seeking to understand,” he said. “That fear of the unknown and the move to regulate before understanding will only stifle American ingenuity and put us at a competitive disadvantage”
The executives argued that cryptocurrencies don’t fit neatly within the existing structure of U.S. financial regulations and that lawmakers should consider tailor-made legislation for their industry. Critics say the industry wants to write its own rules to avoid the oversight that banks, brokers and stock exchanges face.
“Because of their nascent stage of development and unique underlying technology, digital assets trade in markets that are fundamentally different from traditional financial markets,” Coinbase Chief Financial Officer
Alesia Haas
said in her testimony. “As a result, existing regulatory regimes often do not accommodate this new technology.”
Crypto proponents believe that the technology can facilitate faster and cheaper transactions than traditional payment networks and that it has the potential to foster innovation and financial inclusion.
“When you look at the number of people who are underbanked or unbanked, both in the United States and globally, it’s indicative of a system that does not work for everyone,” Mr. Bankman-Fried said. “It’s a product of payments infrastructure that is difficult and clunky enough to use that it just does not work for most people.”
Five percent of American adults didn’t have a bank account in 2020, according to the Federal Reserve.
Lawmakers including Rep.
Ritchie Torres
(D., N.Y.) asked about the potential for crypto to help immigrants send remittances between countries, a process that can be slow and costly through banks or money-transfer companies. Supporters often tout that as a use.
But such transactions remain uncommon. Using cryptocurrency involves a learning curve, mistakes can be irreversible, and there aren’t enough outlets offering crypto remittances to give it a competitive presence.
Coinbase Chief Financial Officer Alesia Haas said ‘existing regulatory regimes often do not accommodate’ digital assets.
Photo:
Stefani Reynolds/Bloomberg News
Many policy makers worry that the rapid growth of the crypto market, which has more than quadrupled in value over the past year, poses a threat to financial stability. They say that the market is rife with fraud, that bitcoin mining wastes vast amounts of electricity and that criminals use cryptocurrencies to evade taxes and circumvent anti-money-laundering laws.
Oversight of crypto markets is spotty in the U.S., where financial regulation is split between federal and state agencies. Major gaps exist, according to regulators.
One of the few confrontational exchanges Wednesday took place between
Rep. Brad Sherman
(D., Calif.) and Ms. Haas over the amount of Coinbase’s transaction fees. Mr. Sherman asked if buying and selling $100 of bitcoin over two days could result in nearly $6 in fees. After initially saying she couldn’t answer the question, Ms. Haas eventually said depending on the product, he could be correct.
Mr. Sherman expressed deep skepticism of cryptocurrency’s potential uses and urged regulators to protect investors if Congress fails to pass meaningful legislation.
Most lawmakers displayed less-formed opinions of the crypto industry than they typically do of other sectors such as social media or banking. While testifying in Congress can often be uncomfortable for corporate bosses, some of the executives who participated in Wednesday’s hearing expected it to advance their cause.
“I think it went really, really well,” Circle Chief Executive
Jeremy Allaire
said after the hearing. “It was very comprehensive, not contentious.”
Shiba Inu Coin’s recent surge, and subsequent fall in value, is part of a growing trend of meme coins that are rivaling some of the largest digital tokens in the world. WSJ retail investing reporter Caitlin McCabe explains why investors are pouring money into this meme based cryptocurrency. Photo: Amber Bragdon/Getty Images
—Alexander Osipovich and Caitlin Ostroff contributed to this article.
Corrections & Amplifications Alesia Haas is Coinbase’s chief financial officer. An earlier version of this article incorrectly said she was CEO. (Corrected on Dec. 8)
is making the case on Tuesday that it still has a role to play in the Covid-19 treatment landscape.
The FDA is convening an advisory committee to consider the company’s antiviral pill, molnupiravir. But the discussion will highlight the drug’s limitations, including safety risks and limited efficacy, which could cut expectations for the drug’s long-term sales even more.
Analysts widely expect the agency to authorize molnupiravir, though authorization probably would be limited.
Shares of Merck (ticker: MRK) have fallen even as shares of Covid-19 vaccine makers soared Friday and Monday against the backdrop of the emergence of a worrying new Covid variant, Omicron.
Merck’s stock fell 3.8% Friday, and was down another 5.8% Monday, while the S&P 500 rose 1.5%. Merck was the S&P 500’s worst performer Monday.
The drop came as hopes dim for molnupiravir. Shares jumped 8.4% on Oct. 1, when Merck announced that early data showed the drug had cut the risk of hospitalization or death by around 50%; Covid-19 vaccine stocks had fallen. Since then, the shine has come off the antiviral pill.
First,
Pfizer
(PFE) announced what appears to be more positive data on its Covid-19 antiviral, known as Paxlovid. Then, on Friday, Merck said updated results on its Phase 3 study of molnupiravir are far less promising than the initial data had shown. The study, according to the company, showed that molnupiravir cut the risk of hospitalization or death by 30%—not the initial result of around 50%.
Early Monday, Citigroup analyst Andrew Baum downgraded his rating of Merck to Neutral from Buy, in part citing new risks to sales estimates for molnupiravir.
“The clinical profile of Lagevrio continues to deteriorate,” Baum wrote, referring to molnupiravir by the name under which it is being marketed in the U.K., where it already has regulatory approval.
A Merck spokesperson said the company doesn’t comment on analyst reports or recommendations.
In early October, Barron’s reported on concerns raised by some scientists that molnupiravir could increase the risk of cancer or birth defects. Those concerns persist, though Merck maintains that its preclinical studies show that the drug is safe.
The worries stem from the way molnupiravir inhibits the replication of the virus that causes Covid-19: First by incorporating itself into the virus’s genetic code, and then causing errors as the virus replicates. The worry is that it could also cause mutations if it inserts itself into the genetic code of a human who takes the pill. This mechanism of action is specific to molnupiravir; Pfizer’s Covid-19 pill works differently.
The FDA, for its part, dismissed those worries in documents posted Friday in advance of Tuesday’s advisory committee meeting on molnupiravir, writing that the “risk of genotoxicity following treatment” with molnupiravir “is low.”
The scientists who initially raised the concerns remain unconvinced. In public comments submitted to the advisory committee, Dr. Ronald Swanstrom, a professor of biochemistry and biophysics at the University of North Carolina at Chapel Hill, whose laboratory published a paper this past spring arguing that molnupiravir could cause mutations in mammalian cell cultures, wrote: “Molnupiravir is about to be sent around the world carrying a big genotoxic question mark with it, one that most people who are given the drug will not have the background to fully understand.”
Merck scientists have taken issue with the Swanstrom lab’s study, though Swanstrom stands by his lab’s methods.
The key questions for the advisory committee will be how broad an authorization for molnupiravir should be. The FDA will ask the advisors to discuss whether the drug should be allowed to be used during pregnancy. It will also ask advisors about the risk that the use of molnupiravir could effectively create new strains of the virus.
In its own briefing document, the agency wrote: “It remains unclear if the potential for [molnupiravir]-associated changes in the SARSCoV-2 spike protein presents a public health risk, considering anticipated widespread use of MOV.”
Finally, the agency will ask the committee members if the benefits of molnupiravir generally outweigh its risks for adult patients at high risk of severe Covid-19, and which risk factors should qualify a patient.
Importantly, the FDA’s briefing documents were written on the basis of the initial data from Merck, not the updated results announced Friday that cut its efficacy. In an addendum to its briefing document noting the new data, the FDA noted that the benefit/risk assessments that will be presented on Tuesday may differ from those in the original briefing documents.
Analysts widely expect the drug to receive an emergency use authorization, though possibly for a narrow population.
“After reading the briefing documents, and considering the macro-pandemic situation, we expect molnupiravir authorization for all patients with one or greater risk factor …and regardless of vaccination / previous infection status,” SVB Leerink analyst Daina Graybosch wrote in a note out Monday.
Graybosch wrote, however, that the discussion will highlight ways in which molnpuiravir appears to be inferior to Pfizer’s Covid-19 pill. “This includes risk of harm to fetuses and accelerated viral mutation rate that may drive emergence of new SARS-CoV-2 variants, in addition to relatively weaker efficacy,” Graybosch wrote.
The FDA’s advisers are scheduled to convene at 9 a.m. and adjourn at 5 p.m.
Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com
Now that the Food and Drug Administration has authorized the Pfizer -BioNTech vaccine for 5- to 11-year-olds, expect a wave of Covid-19 vaccine mandates for children. San Francisco announced last week that the city will require children in that age group to show proof of vaccination to enter restaurants, sporting events, swimming pools and more. New York’s School of American Ballet informed parents via email on Nov. 4 that all students—the school enrolls children as young as 6—must receive a Covid vaccine by January.
While parents may choose to vaccinate their own children, these mandates are unethical and unlawful. Advocates of mandating Covid vaccines equate them with standard childhood shots against polio, chickenpox, TDaP (tetanus, diphtheria and pertussis) and MMR (measles, mumps and rubella). But those decades-old vaccines have gone through the full FDA testing regime. The Covid vaccine has received only emergency-use authorization for this age group, meaning its safety and efficacy have not yet been established to the FDA’s satisfaction.
A whistleblower whose information helped U.S. and U.K. regulators investigate manipulation of global interest-rate benchmarks by
Deutsche Bank AG
was awarded nearly $200 million for assisting the probe, according to people familiar with the matter.
The payout is the largest ever by the Commodity Futures Trading Commission, which along with the Justice Department and U.K. Financial Conduct Authority settled enforcement actions against Deutsche Bank in 2015.
The CFTC’s announcement didn’t name the bank or the case, but the reward is related to the bank’s manipulation of the London interbank offered rate and similar widely used benchmarks, the people said.
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The whistleblower’s application for an award was initially denied by the CFTC, but the U.S. derivatives regulator ultimately decided that the individual’s information was helpful after the whistleblower submitted a request for reconsideration.
“We’re very happy that the CFTC was able to reverse an earlier decision and turn around their thinking,”
David Kovel,
a managing partner at law firm Kirby McInerney LLP who represents the whistleblower. “It says a lot about the people there that they don’t feel forced to stick with the wrong decision given the amount that’s at stake.”
The Wall Street Journal previously reported that the former executive had provided information that helped CFTC and Justice Department investigations that led to roughly $2.5 billion in settlements with Deutsche Bank in 2015, including $800 million with the CFTC. They alleged that the bank manipulated Libor, a benchmark interest rate used to set short-term loans for global banks which traders and other bank employees could manipulate because it was based on oral submissions and not on actual transactions.
“The kind of information he provided was of the sort that was very hard to get if you don’t know where to look in a big financial organization,” Mr. Kovel said.
Rigging Libor was profitable for banks and other market participants because billions of dollars worth of derivatives known as swaps were priced off movements in the benchmark.
A spokesman for Deutsche Bank declined to comment.
The prospect of such a large payout pushed the CFTC whistleblower program into turmoil this year, as agency leaders contended there was no mechanism to pay the former bank executive and other applicants and keep funding the program. The agency averted a crisis after President Biden signed a bill in July to fund the program.
The CFTC investigation had already started by the time the whistleblower approached a separate agency, officials wrote in an order making the award. But the information proved valuable in interviews that authorities conducted as they expanded their probe, according to the order.
Dawn Stump,
a Republican commissioner on the CFTC, said in a statement that she disagreed with basing the award partly on a fine levied by a foreign regulator. Like the CFTC’s announcement, Ms. Stump didn’t name the bank or the underlying case in her statement.
Ms. Stump wrote that the CFTC has never before given an award to a tipster based on an overseas regulator’s enforcement action.
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“I believe we need to take an especially close look at cases where a whistleblower asks the commission to tap its limited Customer Protection Fund for an award relating to an action by a foreign futures authority to address harm outside the United States,” Ms. Stump wrote.
Thursday’s award is the largest issued to a single person since the 2010 Dodd-Frank financial overhaul law created the programs to help avoid another massive fraud like Bernie Madoff’s Ponzi scheme.
The Securities and Exchange Commission last year issued its biggest whistleblower payment ever of about $114 million to a tipster.
“It’s showing that the CFTC program, like the SEC program, over the past 10 years, has really reached its maturity,” said
Mary Inman,
an attorney representing whistleblowers at law firm Constantine Cannon LLP.
Corrections & Amplifications The Securities and Exchange Commission last year issued its biggest whistleblower payment ever of about $114 million to a tipster. An earlier version of this article incorrectly said the payment was to two tipsters. (Corrected on Oct. 21)
Write to Mengqi Sun at mengqi.sun@wsj.com and Dave Michaels at dave.michaels@wsj.com
Ireland, a low-tax country that is the European headquarters to some of the largest U.S. technology companies, said it would join a global agreement to set a minimum rate of 15% for taxing corporate profits, easing the way to a final agreement on an overhaul of how multinationals are taxed around the world.
The change in Irish policy clears the last major hurdle needed for a broad consensus, and comes ahead of a Friday meeting among 140 governments and jurisdictions that have for years been negotiating a new way of taxing international companies to cut back on avoidance and divide tax revenues in what they say is a fairer way. The group seems likely to give its backing to a final agreement that would aim for implementation in 2023.
Ireland had been one of a small number of holdouts when the outlines of a global agreement were settled in July. That accord, driven by the U.S., aims to overhaul the way multinationals are taxed, the culmination of a yearslong effort to squeeze tax-avoidance arrangements.
If the needed changes to national law and international treaties are made, it would be the most sweeping change in international taxation in a century. In addition to setting a minimum rate that would likely see a number of the world’s largest companies pay more tax, existing tax revenues would be divided among governments so that countries where businesses have customers would get more revenue. That overturns a long-standing principle of international taxation, under which profits are taxed where value is generated, which traditionally was where businesses had a physical presence.
While small, Ireland plays an outsize role in strategies used by companies from the U.S. and elsewhere to lower their global tax bills. Most of the largest U.S. technology firms have their European headquarters in Ireland, and the country has also attracted the largest U.S. pharmaceutical companies.
Ireland’s decision to raise its corporate tax rate from 12.5% after the agreement is implemented is a concession to key allies, particularly the U.S.
Google’s European headquarters in Dublin. Irish officials expect multinational companies will continue to use the country as a base.
Photo:
Zuma Press
“I do believe that where we are now is balanced and represents a fair compromise, reflecting the interests of the many countries involved,” said
Paschal Donohoe,
Ireland’s finance minister.
The tax negotiations date back to 2013, when governments started to look for ways to limit tax avoidance in response to the new breed of digital giants that didn’t need to be close to consumers to sell to them, and can register their intellectual property—from which their profits derive—just about anywhere. The talks stalled towards the end of
Donald Trump’s
presidency, but were revived earlier this year when U.S. Treasury Secretary
Janet Yellen
made securing a global minimum tax rate a priority, and also offered a simpler way of sharing out existing tax revenues that quickly gained European support.
As recently as Wednesday, Ms. Yellen was urging her counterpart in Estonia, one of a few other holdouts, to back the agreement in a phone conversation.
The broad political agreement expected Friday is an important step forward, but not the final move. Implementation will be a challenging dance, as the U.S. watches to see whether European countries will remove digital taxes as promised and the rest of the world sees what the U.S. Congress can pass.
And crucial details remain to be decided. Among them: how to prevent countries from circumventing the strictures against low-tax regimes by offering non-tax subsidies to companies.
Big tech companies have supported the overhaul of tax rules even if it means paying more tax, in large part because a deal would help eliminate the threat of a patchwork of overlapping national taxes like those that already exist in France and the U.K, and which came close to triggering a new trade war between the U.S. and Europe.
Companies that rely on intellectual property can concentrate their profits in Ireland rather than in the higher-tax countries where their consumers live, and that has been a source of frustration for other governments. Those benefits have been shrinking, and U.S. policy makers are watching closely to see what, if any, advantages will remain for companies putting profits or headquarters outside the country.
Persuading Ireland to sign up to the global accord is a victory for Ms. Yellen, who has pushed for a global minimum tax rate as part of the Biden administration’s plans to raise corporate taxes. The more that other countries agree to raise their tax rates, the less of an impact that U.S. tax increases will have on where companies are located.
“We are on the way to a generational achievement of creating a global minimum tax, which would create a more level playing field so jobs and investment can flourish in the U.S.,” said
Alexandra LaManna,
a U.S. Treasury spokeswoman.
The Irish government won what it regards as a key concession. In the July outline agreement, the minimum tax was “at least 15%,” implying that it could rise further. The Irish government said “at least” has now been removed.
Apple’s European headquarters in Cork. Ireland’s company tax rate has remained at 12.5% since 2003.
Photo:
Niall Carson/PA/Getty Images
That marks a minor setback for the U.S., which had hoped to leave the way open for higher rates in the future and had argued for a minimum rate of 21% but resistance from Democrats in Congress was already making a 21% U.S. minimum rate less likely. The U.S. isn’t publicly discussing details as international talks continue.
The path for an expanded minimum tax in Congress remains uncertain. House Democrats proposed a 16.6% minimum rate on U.S. companies’ foreign income, but with several technical details that are easier on companies than the current rules. Business groups and some Democrats have argued that the U.S. should move cautiously on expanding its minimum tax before other countries have adopted their own.
Those international tax provisions are wrapped up in the broader legislative fight over President
Biden’s
agenda. Some Democrats proposed a $3.5 trillion, 10-year plan but are now shrinking their aims to accommodate their most conservative members.
Irish officials expect multinational companies will continue to use Ireland as a base for their operations because taxes will nonetheless remain low.
“I’m confident that Ireland will remain competitive in the future, we will remain an attractive location,” said Mr. Donohoe.
Ireland’s company tax rate has remained at 12.5% since 2003, evolving from an earlier system of tax breaks designed to attract foreign companies to what was then still a relatively poor country on Europe’s western edge.
It argued that low taxes were needed to compensate for the disadvantages of its small size. Those disadvantages have been eased by information technology, with many of the bigger U.S. businesses now able to sell their services across Europe and beyond from their Irish base.
Over the years, more multinationals have been drawn by a large pool of skilled workers and labor and a legal framework and language that is familiar to U.S. businesses.
The Irish government’s decision to join the global agreement isn’t popular with voters, who fear it will make the country less appealing to U.S. firms that have provided many well-paid jobs. Driven by exports from U.S. technology and pharmaceutical companies, the Irish economy grew by 5.9% last year, while other rich countries saw contractions. The U.S. economy shrank by 3.4%.
A recent Irish Times poll found 59% of those surveyed wanted to keep the tax rate at 12.5%, with just 26% favoring participation in the global accord.
Ireland and Tax
More on how low company taxes transformed the country, selected by the editors.
According to the American Chamber of Commerce Ireland, more than 800 U.S. businesses have operations in the country, directly employing 180,000 people, and helping to sustain a further 144,000 jobs. That presence has grown rapidly over the past decade, with direct employment up 44%.
Mark Redmond,
the Chamber’s chief executive, said Ireland is unlikely to suffer a loss of U.S. investment as a result of its move, and that U.S. businesses appreciated the Irish government’s role in ensuring that the minimum tax rate can’t be raised over coming years.
“The reaction from boardrooms across the U.S. is that Ireland has done a good job on this agreement,” he said. “Ireland’s influence on the process has been very positive.”
For
Kieran McQuinn,
a research professor at Ireland’s Economic and Social Research Institute, the potential impact of the tax change on the country’s economy could be significant.
But he noted that there has been little evidence of a fall off in U.S. investment in Ireland even as the likelihood of a global minimum tax rate increased this year, and American businesses will be reassured that it is not the government’s intention to collect more revenues.
“The Irish authorities are responding to international pressure,” he said. “It would be a different issue if this was a clear departure in domestic policy. I think that’s clearly not the case. The Irish authorities are being heavily cajoled.”
Similar worries about their ability to attract foreign investment are behind the reluctance of Estonia and Hungary to sign up to the agreement. They are also seeking changes in the July agreement to protect their economies. Kenya, Nigeria, and Sri Lanka also declined to sign up to the July agreement.
Write to Paul Hannon at paul.hannon@wsj.com and Richard Rubin at richard.rubin@wsj.com
It has been about five years since it emerged that Wells Fargo staff had been opening accounts for customers without their permission.
Justin Sullivan/Getty Images
Wells Fargo
‘s regulatory trouble aren’t yet in the rearview mirror. The stock is tumbling because of it.
On Tuesday, Bloomberg reported that the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau were disappointed in Wells Fargo’s (ticker: WFC) progress in remunerating victims from its fake- accounts scandal and beefing up its internal controls. The slower-than-hoped-for pace could mean that the bank will face additional sanctions, according to the report.
Wells Fargo shares fell 5.6% Tuesday and were down nearly 4% in Wednesday’s trading. Representatives from Wells Fargo declined to comment, as did the CFPB and the OCC.
Wells Fargo’s recent trading is a blip for a stock that had been soaring both on hopes of a recovering economy and expectations that the bank would soon get out of the regulatory penalty box. Just three weeks ago, Wells Fargo shares were up nearly 70% on the year, outpacing the
SPDR S&P Bank ETF
(KBE), which is up nearly 25%.
Wall Street had been giving credit to Chief Executive Charlie Scharf, who took the helm nearly two years ago. Under Scharf, the bank made changes to its leadership ranks and worked on cost-cutting and other measures to improve its operations. While Scharf has warned that the path to recovery may be uneven, Wall Street wasn’t anticipating Tuesday’s negative news.
“This marks an unfortunate and unexpected turn,” Scott Siefers, managing director at Piper Sandler, wrote in a note Tuesday, reiterating his Neutral rating on the shares. “We believe the market had hoped that any incremental news would be good, rather than akin to what we learned [on Tuesday].”
Other analysts were similarly cautious, calling the report a near-term negative for shares. John Pancari, analyst at Evercore ISI, noted that the Bloomberg report didn’t appear to reveal regulatory concerns about additional wrongdoing by the bank, but that the prolonged recovery could mean higher expenses.
“[The] risk of incremental regulatory action is a negative given implications for the timing of resolution, as well as impact to operating costs,” he wrote. “Additionally, we cannot rule out that these issues could impact investors’ perception of management’s ability to address the various concerns,”
Pancari maintained his Outperform rating on the shares.
The negative news comes almost exactly five years after it emerged that Wells Fargo employees—anxious to hit aggressive sales targets—were opening accounts for clients without their permission. The unauthorized accounts led to extra fees and dings to clients’ credit scores. Quantifying the impact and compensating victims accordingly has proven to be a challenge.
Write to Carleton English at carleton.english@dowjones.com
Gary Gensler, chairman of the U.S. Securities and Exchange Commission.
Melissa Lyttle/Bloomberg
Text size
A controversial practice that has brought in billions of dollars to brokers and high-frequency trading firms is in the crosshairs of the Securities and Exchange Commission, and could be eliminated entirely.
In an interview with Barron’s on Monday, SEC Chairman Gary Gensler said that a full ban of payment for order flow is “on the table.” Payment for order flow is a practice where brokers send trade orders to market makers that execute those trades in return for a portion of the profits.
Gensler says the practice has “an inherent conflict of interest.” Market makers make a small spread on each trade, but that’s not all they get, he said.
“They get the data, they get the first look, they get to match off buyers and sellers out of that order flow,” he said. “That may not be the most efficient markets for the 2020s.”
He didn’t say whether the agency has found instances where the conflicts of interests resulted in harm to investors. SEC staff is reviewing the practice and could come out with proposals in the coming months.
Gensler has mentioned several times that the U.K., Australia, and Canada forbid payment for order flow. Asked if he raises those examples because a ban could also happen in the U.S., he replied: “I’m raising this because it’s on the table. This is very clear.”
It’s not the only thing the SEC is considering.
“Also on the table is how do we move more of this market to transparency,” he said. “Transparency benefits competition, and efficiency of markets. Transparency benefits investors.”
Payment for order is part of a larger issue with market structure that Gensler is trying to solve. He notes that about half of trading is in dark pools or is internalized by companies that keep those trades off exchanges. Even some of the trading that takes place on exchanges is opaque — and exchanges are paid through rebates that are similar to payment for order flow. Opaque markets where different investors have their trade orders processed differently have the potential for abuse.
“It provides an opportunity for the market maker to make more, and for ultimately the investing public to get a little less when they sell, or have to pay more when they buy,” he said. “I think it also affects companies raising money,” he added, because it could be a barrier to “fair, orderly and efficient markets.”
The changes to payment for order flow may take place as part of a larger reshuffling of how trades are processed and tracked.
There has been a boom in retail trading in the past two years, with millions of new investors signing on to brokerage apps to trade stocks, options, and cryptocurrencies for the first time. The boom has been driven in part by a change in the way that brokers make money on customer trading. Most brokers no longer charge for trades up front. They make money off trades by sending orders to market makers like high-frequency trading firms. The market maker executes the trade, and profits off the difference between the bid and asking prices, sending part of that profit back to the broker.
For most brokers, the practice is a relatively small part of their business model — often less than 10% of revenue. But for
Robinhood Markets
(ticker: HOOD), which pioneered zero-commission trading, payment for order flow makes up about 80% of its revenue.
Shares of Robinhood were already trading lower on the day, but fell further after the Barron’s report. In late afternoon trading on Monday, the stock was down 8%, at $43.03.
The company has told investors in securities filings that the SEC’s focus on payment for order flow is a risk factor. But company executives have played down the possibility of it being banned. “Our view internally is that we don’t expect payment for order flow to be banned,” said CFO Jason Warnick on Robinhood’s latest earnings call. He added that “we do think because payment for order flow is such a small revenue stream — it’s about 2 to 2 and a half cents per $100 traded — that it’s not a terribly difficult revenue stream for us to replace.”
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But the SEC has found that all those fractions of pennies add up. In fact, the agency settled allegations with Robinhood last year over how it negotiated payment for order flow, and its disclosures to customers. The agency said that Robinhood made deals from 2015 to 2018 with market makers that gave the company a much higher percentage of the spread, whereas other brokers generally gave more of the spread back to customers.
The SEC order said Robinhood had negotiated an 80/20 split, with the company receiving the 80% and investors receiving 20%, whereas other brokers tended to have a split closer to 20/80. And the regulator said that Robinhood’s trade execution was so bad for consumers that it more than outweighed the benefit they got from not having to pay a commission. To settle the allegations, Robinhood agreed to pay $65 million but neither admitted nor denied the findings. The company has also said it has changed its payment for order flow practices.
Proponents of payment for order flow say that it is a way for brokers to make money that doesn’t really hurt consumers, and allow apps to charge zero commissions. It is a major reason that more people than ever have started investing, Robinhood’s Warnick said.
“Never before has investing in this country been cheaper,” he said.
He also noted that other brokers had historically accepted payment for order flow on top of commissions, whereas Robinhood has never charged commissions.
Any change to the practice would clearly be contentious.
“We’ll be definitely defending our customers and making sure that we don’t put up barriers that have been taken down and kept people out,” Warnick said.
SINGAPORE—China plans to propose new rules that would ban companies with large amounts of sensitive consumer data from going public in the U.S., people familiar with the matter said, a move that is likely to thwart the ambitions of the country’s tech firms to list abroad.
In recent weeks, officials from China’s stock regulator have told some companies and international investors that the new rules would prohibit internet firms holding a swath of user-related data from listing abroad, the people said. The regulators said that the rules target companies seeking foreign initial public offerings via units incorporated outside the country, according to the people.
China Securities Regulatory Commission officials said that companies with less sensitive data, such as those in the pharmaceutical industry, are still likely to receive Chinese regulatory approval for foreign listings, according to the people.
The new rules are likely to help Beijing exert more control over the complex corporate structure that China’s biggest tech companies use to sidestep restrictions on foreign investment. Chinese leaders consider sectors such as the internet, telecommunications and education sensitive because of political or national-security concerns.
Chinese technology giants including Alibaba Group Holding Ltd. , Didi Global Inc. and Tencent Holdings Ltd. have used such a corporate structure known as a Variable Interest Entity to attract foreign capital and list offshore.
SINGAPORE—China’s antitrust regulator is preparing to impose a roughly $1 billion fine on food-delivery giant Meituan for allegedly abusing its dominant market position to the detriment of merchants and rivals, according to people familiar with the matter.
The penalty could be announced in the coming weeks, and Meituan would be required to revamp its operations and end a practice that has been dubbed “er xuan yi”—literally, “choose one out of two,” the people said. Such exclusivity arrangements have forced many small businesses to pick sides in China’s competitive retail industry.
Meituan, with a market capitalization of about $170 billion, has raised billions of dollars from global investors and is China’s third-most valuable publicly listed internet company after Tencent Holdings Ltd. and Alibaba Group Holding Ltd. The Beijing-headquartered firm operates an online marketplace for millions of restaurants and other merchants, and is the biggest provider of food-delivery and related services in China. It also offers hotel bookings and sells groceries online.
China’s State Administration for Market Regulation, the country’s top commerce regulator that is overseeing Beijing’s antitrust push, in April imposed a record $2.8 billion fine on Alibaba for “er xuan yi” practices, in which the e-commerce giant punished merchants that sold goods on its platform and on rival marketplaces. That fine was equivalent to 4% of Alibaba’s domestic annual sales.
The antitrust watchdog believes Meituan has also prevented businesses from selling their goods on rivals’ platforms, the people familiar with the matter said. Its probe into Meituan’s suspected monopolistic behavior began in April. The company said it would fully cooperate with the investigation and has pledged to comply with China’s antimonopoly laws. Meituan reported the equivalent of $17.8 billion in revenue in 2020.
