>>> Asian Update

Asian Market Update: China manufacturing PMIs still in contraction with weakness in SOEs; Oil slides as Saudis deny report of coordinated output cut

***Economic Data***
- (CN) CHINA JAN MANUFACTURING PMI: 49.4 (6th month of contraction, lowest since Aug 2012) V 49.6E; NON-MANUFACTURING PMI: 53.5 (3-month low) V 54.4 PRIOR
- (CN) CHINA JAN CAIXIN PMI MANUFACTURING: 48.4 V 48.1E (11th month of contraction)
- (JP) JAPAN JAN FINAL PMI MANUFACTURING: 52.3 V 52.4 PRELIM
- (JP) JAPAN JAN VEHICLE SALES Y/Y: 0.2% V 3.1% PRIOR
- (AU) AUSTRALIA JAN TD SECURITIES INFLATION M/M: 0.4% (10-month high) V 0.2% PRIOR; Y/Y: 2.3% (15-month high) V 2.0% PRIOR
- (AU) AUSTRALIA JAN CORELOGIC RPDATA HOUSE PRICES M/M: 0.9% V 0.0% PRIOR
- (AU) AUSTRALIA JAN AIG MANUFACTURING INDEX: 51.5 V 51.9 PRIOR; 7th month of expansion
- (IN) INDIA JAN PMI MANUFACTURING: 51.1 V 49.1 PRIOR (moves back into expansion)
- (KR) SOUTH KOREA JAN PMI MANUFACTURING: 49.5 V 50.7 PRIOR
- (KR) SOUTH KOREA JAN TRADE BALANCE: $5.3B V $6.7BE
- (KR) SOUTH KOREA DEC CURRENT ACCOUNT BALANCE: $7.5B V $9.9B PRIOR
- (ID) INDONESIA JAN CPI M/M: 0.5% V 0.7%E; Y/Y: 4.1% V 4.3%E; CORE Y/Y: 3.6% V 3.8%E
- (ID) Indonesia Jan PMI Manufacturing: 48.9 v 47.8 prior
- (TH) THAILAND JAN CPI M/M: -0.3% V -0.2%E; Y/Y -0.5% V -0.5%E; CORE CPI Y/Y: +0.6% V +0.6%E
- (HK) Macau Jan Casino Rev -21.4% v -22.0%e; 20th consecutive decline
- (NZ) RBNZ bulletin: Auckland housing prices rose 52% in the last 4 years vs 11% elsewhere - update
- (NZ) New Zealand Dec Net Migration: 5.5K v 6.3K prior; 2015 net migration 64.9K, record high

***Index Snapshot (as of 04:30 GMT)***
- Nikkei225 +1.7%, S&P/ASX +0.8%, Kospi +0.2%, Shanghai Composite -1.8%, Hang Seng -0.9%, Mar S&P500 -0.3 at 1,924

***Commodities/Fixed Income***
- Apr gold +0.5% at $1,121/oz, Mar crude oil -1.8% at $33.05/brl, Mar copper -1.2% at $2.04/lb
- (CN) PBoC to inject CNY10B in 28-day reverse repos
- (CN) PBOC SETS YUAN MID POINT AT 6.5539 V 6.5516 PRIOR; weakest setting since Jan 26th; 16th straight firmer setting relative to Close
- (JP) BOJ offers to buy ¥70B in JGBs with maturity less than 1-yr, ¥400B in 1-3yr JGBs, ¥420B in 3-5yr JGBs

***Market Focal Points/FX***
- Asian equity markets are mixed as investors continue to digest the latest bold decision by the BOJ to join the NIRP club last week with an eye on more soft PMI figures out of China. Nikkei225 is leading the charge among the main indices with a near-2% gain even as USD/JPY gains remain capped by 121.50. Shanghai Composite opened slightly softer and added to losses after PMI figures. Oil and copper were both volatile on the release, with the former also weighed down by Saudi response to rumors of an output cut. In other USD majors, AUD/USD hit a low of 0.7340 after China official PMI and then recovered above 0.7080 following more benign Caixin release.

- China official manufacturing PMI survey focusing on large state-owned firms contracted for the 6th straight month and also hit its worst level in 3 1/2 years at 49.4. New orders component contracted to 49.5 v 50.2 m/m, export orders slowed to 46.9 v 47.5 m/m, while input prices saw a modest recovery to 45.1 v 42.4 m/m. Caixin private PMI survey of smaller firms topped estimates at 48.4 V 48.1E but also remained in contraction for 11th straight month. Resident economist noted faster declines in employment and output, while total new business was at its worst level in 7 months. Backlog increased slightly, potentially due to nonreplacement of "voluntary leavers" as workloads were insufficient. Finished goods also experienced accumulation for 2nd straight month, signalling softer end-demand. Caixin added that the govt needs to "proactively make fine adjustments to prevent a hard landing" and also press on with "existing reform measures to strengthen market confidence."

- Outside of PMI's, China NDRC economist took note of the BOJ action but said Beijing would not join a global currency war, preferring to maintain a stable currency. China Index Academy reported a slightly lower sequential increase in property prices across the nation's 100 major cities of +0.42% v +0.84% prior. Lastly, China's FX fix was slightly softer relative to prior but firmer relative to close for the 16th straight session. PBoC also injected a modest CNY100B in liquidity via 28-day repos, announcing the action slightly later than it typically does.

- In Japan, PM Abe's advisor Hamada said he was surprised at the BOJ decision on negative rates since this is a departure from the bank's methods but not about the timing of more action to prevent "dismal expectations" in the market. Hamada added some time is needed before the impact of negative rates are felt, while a broker note from JPMorgan forecast BOJ going as low as -0.5% in rates before year-end. Japan manufacturing PMI saw some continued improvement, with "production and new orders increased at robust rates, helping to boost employment numbers." Relative strength in Japan PMI compared to China underscores the BOJ case that it is primarily safeguarding Japan from external weakness impact.

- Crude oil prices were down nearly 2% around $33/brl in electronic trade, weighed down both by China PMIs and earlier rhetoric from the Middle East. A Saudi oil official refuted Russian Energy Min claim that the two oil giants are in talks to cut output by 5%. Other reports dismissed the speculation as a bluff from the Russian side, especially given that Russia's alliance with Iran puts it on an adversarial path with the Saudis. Separately, an Iranian oil official also stated Tehran is aiming to increase Iran's oil capacity by 160K bpd after completing expansion at North Azadegan and Yadavaran oilfields, which should be operational by parliamentary elections in late Feb.

***Equities***
US equities / ADRs:
- PBR: To cut investment plans for 2016-20 period by about 5% to $93B - Brazil press
- CMG: CDC said to be expected to declare the end of E. Coli outbreak - financial press
- TM: To halt all domestic production from Feb 8-13th due to steel shortage - financial press
- HSBC: Said to impose a hiring and pay freeze across the bank globally this year as part of overall plans to reduce costs - financial press
- CS: Company has flagged about CHF4B writedown for Q4 - Swiss press

Notable movers by sector:
- Consumer discretionary: Bega Cheese BGA.AU -10.3% (sees significant fall in inventory); Japan Airlines Corp 9201.JP -5.6% (9-month result); Panasonic Corporation 6752.JP +2.5 % (9-month result speculation)
- Financials: Mizuho Financial Group 8411.JP -6.3% (9-month result)
- Industrials: Zoomlion Heavy Industry Science and Technology Co 000157.CN -2.3% (FY15 guidance); Dongfang Electric Corp 1072.HK -3.0% (guidance); CIMIC Group CIM.AU +2.6% (picked as preferred bidder for Canberra Metro); JFE Holdings 5411.JP +3.5% (9-month result); Honda Motor 7267.JP +1.0% (9-month result)
- Technology: Sharp Corp 6753.JP +0.7% (in talks about restructuring); Fujitsu 6702.JP -4.5% (9-month result); Sony 6758.JP +13.4% (Q3 result)
- Materials: Angang Steel 000898.CN -7.3% (FY15 guidance); Chongqing Iron & Steel Co. 1053.HK -3.1% (guidance); Asia Cement China Holdings Corp 743.HK -3.7% (guidance); Maanshan Iron & Steel 323.HK -1.4% (guidance)
- Energy: PetroChina Co 601857.CN -2.8% (FY15 guidance); China Oilfield Services 2883.HK -4.1% (guidance); China Shenhua Energy Co 601088.CN -3.1% (FY15 result)
- Telecom: LG Uplus Corp 032640.KR -1.0% (Q4 result); NTT DoCoMo 9437.JP +11.7% (9-month result)
- Utilities: Tokyo Electric Power Co Inc 9501.JP +2.7% (9-month result)

WSJ : Oil-Price Poker: Why the Saudis Won’t Fold ‘Em

Oil-Price Poker: Why the Saudis Won’t Fold ‘Em

Don’t underestimate the impact of Middle East politics

The game being played in the global oil market today bears more than a passing resemblance to poker. Nobody wants to quit while they’re losing.

That is important for investors to keep in mind as they ponder what have become almost daily spikes and drops in the price of crude. So, too, is the role of Saudi Arabia in the game.

It remains within Saudi Arabia’s ability to foster at least a partial recovery in crude prices on its own. A sharp rally in prices last Thursday morning was based on comments from Russia’s energy minister that the Saudis might get the ball rolling on 5% output cuts. That was quickly refuted and oil gave up much of the gains.

All major producers are suffering financially at today’s low prices—while oil has bounced from its sub-$30 nadir of January, it is still down nearly 7% in 2016 and nearly 70% from its 2014 peak. And Saudi Arabia hasn’t forfeited only a couple of hundred billion dollars and counting in forgone revenue, but also market share.


That has mainly been to a relative newcomer, U.S. shale producers. But going forward it may be to an old adversary: Iran.

The Shiite powerhouse is ramping up production following the lifting of nuclear sanctions. And its export surge is occurring against the backdrop of ongoing proxy wars in Syria and Yemen. Those make it difficult for Sunni champion Saudi Arabia to take the lead with output cuts.

Russia, meanwhile, is pumping the most crude ever, hitting a post-Soviet Union peak. But it may have difficulty maintaining today’s pace given a lack of investment in its aging Siberian fields. The chief executive of Russian oil giant Lukoil predicted that Russian output would drop in 2016 for the first time in several years.

And then there is the additional wrinkle that Russia is actively on Iran’s side in Syria. For those reasons, not only have occasional statements from Russia about nonexistent agreements been something of a bluff, so too might be the country’s willingness to voluntarily curb its own output.

In other words, Russia is holding weak cards and the Saudis know it.

That doesn’t necessarily leave the game at a permanent impasse, though.

The newest players at the table are U.S. shale producers. They helped the U.S. to increase output by 80% between 2008 and 2014 and have the shortest stack of chips at the table.

Unlike governments, there is no OPEC of shale to coordinate output or absorb losses. Instead, there are loans to service and shareholders to placate.

Shale output will keep shriveling at today’s prices as companies slash spending and many go bust. On top of that, tens of billions of dollars in deferred capital expenditure from private companies on conventional oil projects soon will begin to affect output.

Private oil companies’ pain can help balance the market, but that will take time. Russian overtures that include political and military concessions might break the logjam and persuade the Saudis to take the lead on production cuts.

For now, politics, if not economics, suggests the Saudis will remain all-in. That alone could keep a lid on an immediate oil-price recovery.

FT : UK regulator calls for blocking of O2 and Three

UK regulator calls for blocking of O2 and Three

The British telecoms regulator has urged Brussels to block the proposed merger of telecoms operators O2 and Three, which it fears will send mobile phone bills for users in the UK sharply higher.
Writing in the FT ahead of Europe’s first formal statement on the deal, Ofcom chief executive Sharon White said the merger of two of Britain’s four operators could also hit rival high-street retailers and upset existing network arrangements.

The arguments opposing the deal mark the strongest position taken on the £10.5bn merger to date by Ms White, the former Treasury enforcer who became head of Ofcom last year.
Ofcom’s intervention will raise further doubts about the attempt by Hong Kong’s CK Hutchison to acquire O2 from Telefónica to merge with Three, the smallest mobile operator in the UK.
The £10.5bn acquisition of O2 to create the UK’s largest mobile operator will this week come under scrutiny by the European Commission, which is due to send out a lengthy statement of objections listing why the merger will damage competition in the British mobile market.
Ofcom has put its arguments to the commission, according to Ms White, and outlined several particular concerns. She says the creation of another, fourth network to replace O2 "might be one answer" for some of her concerns, but would take "time and considerable investment".
“This is not a broken market,” said Ms White. “Last year, UK mobile firms generated £15bn of revenue. Competition, not consolidation, has driven investment.”
While the decision to approve the merger lies with Europe’s steely antitrust chief Margrethe Vestager, Ofcom is working with the commission and has considerable influence with its decision makers.
The proposed merger is seen as a test case for similar deals across Europe, including in Italy where CK Hutchison is trying to combine its mobile business with the operator owned by VimpelCom. Ms Vestager has raised concerns about the effects of reducing the number of operators from four to three.

Ms White said the “deal could mean higher prices for consumers and businesses” after removing one of the competitors in the market. The merged group would have four in 10 mobile connections in the UK.
Ofcom has carried out research analysing mobile prices over recent years in 25 countries that found that average prices were up to a fifth lower in markets with four operators compared with those with only three established networks.
Ms White is worried the impact of the merger “may be felt on the high street” given it could tip the balance of power “between mobile networks and the independent retailers who help constrain the price of mobile handsets and bills”.

Her worries are expected to be reflected in a forthcoming statement of objections that will be sent to the companies involved in the deal, which will then need to find “remedies” to resolve the concerns.
Hutchison is expected to argue that the best solution to bolster competition would be by agreeing a fixed slice of its network that could be used by rivals groups such as Sky, TalkTalk and Virgin Media to create a more fully fledged mobile business. The FT revealed last week that French billionaire Xavier Niel would also be interested in entering the UK market.
However, Ms White is sceptical about the benefits of this as a solution given “many of our concerns relate to competition between operators who own the networks on which mobile phones rely”.
Hutchison is seen by analysts as unlikely to agree with her views given the benefit of the merger would be negated should it be forced to sell part of its business to create a new network operator.

>>> What to look at thid Week End - 29th & 30th of January 2016

Weekly Performance
Dow +2.32% S&P+1.75% Nasdaq +0.50% Russell +3.20% Brazil +7.13% EuroStoxx+0.72% Cac+1.85% Dax+0.34% MIB -1.95% Ibex +1.07% FTSE +3.11% SMI +0.59% Nikkei +3.30% Hang Seng +3.16% Shanghai Comp. +3.09%
Steadying crude prices and another bout of central bank cajoling helped global equity markets stabilize this week. The Bank of Japan surprised markets by putting interest rates into negative territory for the first time ever, joining the ECB and various other European central banks. Voting 5-4 in favor of the measure, the BOJ announced that it will charge a rate of -0.1% for excess reserves parked at the bank by financial institutions, and implied that lower oil prices made its decision necessary. At the scheduled meeting on Wednesday, the US Federal Reserve left the door open to a March rate increase despite acknowledging that "economic growth slowed" since its last meeting in December. Meanwhile, the PBoC pumped cash into the Chinese economy and continued its streak of very gradually strengthening the yuan exchange rate. Stocks continued to be to be very volatile, and by Friday the DJIA posted its eighth straight day with a triple digit move. For the week, the DJIA gained 2.3%, the S&P rose 1.7%, and the Nasdaq added 0.5%.

Macro :
- Case Sheds Light on Goldman’s Role as Lender in Short Sales - http://nyti.ms/1PqyKp0
- Italy Treasury Spokesman Denies Paschi-Poste Press Report
- Italian Banks : Veneto Banca Wants to Participate in M&A as Listed Company: CEO
- Belgium Mulls Cutting Corporate Tax Rate to 20 Percent: Tijd
- U.K. Said to Ask EU to Ease Curbs on Bermuda Tax Haven: Observer
- Six Multinationals Reveal No U.K. Corp Tax Paid in ’14: S. Times (Shell, SAB Miller, BTAS, Vodafone, AstraZeneca, Lloyds)
- Brazil Credit Package Limited by Banks’ Capital Restraint:Estado
- FT : Pension stress tests show €773bn shortfall in funding - http://on.ft.com/1TuZqXm

Keep an eye on :
- ABY US : Abengoa Yield Says Some Units in Brazil Initiated Insolvency
- MT NA : ArcelorMittal Eyes Sale of Some U.S. Long Steel Mills: Platts
- POP IM : Banco Popolare CEO Confident to Reach Deal With Pop. Milano Soon
- POP SM : Banco Popular says no chance it will be taken over; sees itself as a consolidator - Expansion
- BKIA SM : Bankia Board to Propose 2,625 Euro Cents/Shr Cash Dividend
- BMPS IM : Paschi Plans to Use State Guarantee Scheme for Bad Loans: CEO
- BMPS IM : Poste Italiane May Be Interested in Monte Paschi: la Repubblica & Italy Treasury Spokesman Denies Paschi-Poste Press Report
- COLRB BB : Colruyt CEO Says Still Room For Expansion in Belgium: Tijd
- DLG GY : Dialog Sees More Potential Takeover Candidates: Euro am Sonntag
- EDP PL : EDP Sells EU94m of 2014 Tariff Deficit in Portugal
- ENI IM : Sk Capital Interested in Eni’s Versalis Unit: Il Sole
- GET FP : Eurostar Services Delayed After Power Supply Issue Near Paris
- FLS DC : FLSmidth Gets O&M Contract From Egyptian Cement Producer
- FRA GY : Fraport Sees Drop Russian Travel Impacting Result: Sueddeutsche
- GAM SM : Gamesa confirms talks with Siemens are about merger of wind assets
- G IM : Minali, Donnet Seen as Favorites for Generali CEO Job: Il Sole
- HOME LN : J Sainsbury’s takeover talks with Home Retail Group at impasse over price - FT
- LUX IM : Luxottica 4Q Group Net Sales Miss Ests.; Khan to Leave as Co-CEO
- LUX IM : Luxottica Needs Simpler Mgmt Structure: Del Vecchio to Corriere
- NHY NO : Norsk Hydro Says Aardal Aluminum Plant Was Briefly Down
- RGU LN : Regus shares gain on renewed takeover speculation - FT
- SFL IM : Safilo 2015 Prelim. Sales Rise 8.5% to EU1.28b
- UHR VX : Swatch Sees CHF10b Sales From Super Battery in 5 Years: NZZ
- TEC FP : Technip France Head Giadrossi Has Left Co.: L’Expansion
- TWC US : Trian May Take Activist Stake in Time Warner: NY Post http://nyp.st/1QNy1Pz
- TOD IM : Tod’s Seeks to Boost Accesories, Leather Goods Business: Sole
- FP FP : Total, Other Cos. Talking to Iran About Azadegan Field: PressTV
- UBI IM : UBI CEO Says ‘No Dossier Open’ for M&A With Monte Paschi
- UCG IM : UniCredit to Use Guarantee Scheme for NPLs If Needed: Ghizzoni
- UCG IM : Unicredit receives non-binding offers from Apollo and Highbridge for its leasing division

NYT : Activist Investors May Have Met Their Match: A Down Market

The stock market slump has hit activist hedge funds particularly hard, raising the question of whether shareholder activism can survive a down market.

Activist hedge funds specialize in taking aim at troubled companies. The core idea is for the fund to push for a new strategy that will turn the company around or, more commonly, to instigate some event that crystallizes value, like a spinoff or a sale. In the rising stock market of the last five years, this was a wonderful strategy.

Acquisitions were hot and the exits were easy. Mistakes in picking targets were covered up by gains in the market. Activist hedge funds tend to invest in stocks that are more volatile than the overall market, so these stocks tended to rise more than the market itself. Activism seemed to be a surefire way to mint millions in stock profits.

In a down market, this exuberance has come tumbling back to earth. What was volatile on the upside is now shooting downward. And although the downturn is recent, takeover activity — if it follows past patterns — will certainly slow.

And those troubled companies will become more troubled and harder to turn around, while the activists beat a hasty retreat.

This is what happened in the financial crisis of 2008. The wave of bad news almost overwhelmed the activists, and the number of activist campaigns fell by 35 percent, according to FactSet SharkRepellent.

So far this year, history is repeating itself as activist hedge funds have been buffeted by the downturn. Take William A. Ackman’s Pershing Square Capital Management, which has a publicly traded investment vehicle in the Netherlands, Pershing Square Holdings, that allows individual investors to put their money directly in Pershing Square’s activist funds. The vehicle’s stock price is therefore a good proxy for the performance of Pershing Square, arguably the most prominent activist fund in the world.

It isn’t pretty.

So far this year, Pershing Square Holdings’ stock is down 12.8 percent as of Friday. Compare that with the Standard & Poor’s 500-stock index, which was down only 6.7 percent. Pershing Square’s main holdings have on average fallen more than twice as much as the stock market index. Among its holdings are Valeant Pharmaceuticals, which has fallen 12.84 percent; Air Products, down 8.56 percent; and Platform Specialty Holdings, down 39.28 percent. The only up stock in Pershing Square’s portfolio is probably Mr. Ackman’s huge short bet on Herbalife, which these days is simply functioning as a hedge.

Mr. Ackman’s Pershing Square is known for having a particularly volatile portfolio, so not all funds are doing as poorly. Still, Carl C. Icahn’s publicly traded vehicle, Icahn Enterprises, is down 11.5 percent for the year so far.

The destructive effect of a down market is intensified for activist hedge funds because they tend to herd. Witness the decline of Valeant stock, in which Pershing Square, ValueAct and John Paulson’s Paulson & Company, among other hedge funds, all invested.

This degree of concentration is one reason 2015 was an annus horribilis for many big hedge funds. Last year, Pershing Square lost 20.5 percent, Jana was down 5.4 percent, and Greenlight Capital fell 20 percent. Even Mr. Icahn, who does not announce results, most likely lost a fair amount of money. This was even before the market downturn in January.

All this has come as a shock to investors who have poured billions of dollars into this strategy. In 2014, $14.2 billion was invested in activist funds, and Barrons reported that these funds had more than $130 billion in 2015.

This sector was due for a shake-up anyway. New entrants were emerging, and funds were searching ever wider for targets and were willing to take riskier bets. Witness the apex of this with the combination of DuPont and Dow Chemical with a plan for the combined behemoth to then split into three companies in the next year and a half. The transaction may have been driven by the hedge funds invested in both companies and the need to cater to their desires.

Stocks could bounce back, of course. Even if that does happen, however, the recent slump is likely to make activist hedge funds more conservative.

And if the downturn persists, we’re likely to see a sharp drop in activism. Many activist hedge funds have only one-year lockups. This means that investors can pull their money out after a year.

This short lockup period has been a central complaint of hedge fund critics, which they say supports a claim that hedge funds look only at the short term, aiming to meet their yearly return and keep their investors.

If these lockups expire when the stock market remains sharply down, the strong flow of money into this strategy will reverse. And this, of course, will not just reduce the number of activist attacks; it may do more.

One or two of these highflying funds may collapse as money heads out the door. After all, that is what happens with hot investment strategies on Wall Street. In good times, people herd into bubbling strategies without heed to what the downside may bring. But in this case, we know what is happening — losses far in excess of declines in the market indexes. The upside may support this risk, but in down times, people tend to head for the exits.

Some of the stronger funds may survive and buy opportunistically in the wreckage. There is no doubt that is going on now. But not all funds will stay strong or be able to keep enough cash on hand to invest.

In the interim, companies may get the breather they have been desperate for after rising activism, which reached a record last year, according to FactSet SharkRepellent.

It will also most likely pause the spinoff trend, which has been accelerated by the activist hedge funds, as companies focus on core operations and not financial engineering. And it may also separate the activists who have real skill from the rest of the herd.

That’s what downturns do; they purge, something the targets of activist hedge funds over the years can now tell their once-and-future hunters. Wall Street is funny that way.

NYT : Case Sheds Light on Goldman’s Role as Lender in Short Sales

Case Sheds Light on Goldman’s Role as Lender in Short Sales - http://nyti.ms/1PqyKp0

It would be easy to overlook the case against Goldman Sachs filed by the Securities and Exchange Commission on Jan. 14. It involved a complex piece of Wall Street plumbing, led to a minuscule $15 million fine and came on the same day that Goldman agreed to pay up to $5 billion to settle prosecutors’ claims that it sold faulty mortgage securities to investors.

But the smaller settlement merits close study because it sheds light on one of Wall Street’s most secretive and profitable arenas: securities lending and short-selling.

Although the firm settled the matter without admitting to or denying the S.E.C.’s allegations, some of Goldman’s customers may now be able to recover damages from the firm, securities lawyers say.

Essentially the regulator said Goldman advised its clients that it had performed crucial services for them when it often had not. Customers who paid handsomely for those services may want their money back.

The $15 million punishment is just petty cash for Goldman, but this case tells us a lot about one of the most important duties that Wall Street firms perform for their clients — executing trades for hedge funds and other large investors. When these clients want to bet against a company’s stock, known as selling it short, they rely on brokerage firms to locate the shares they must borrow and deliver to a buyer.

Selling stock short without first locating the shares for delivery is known as naked shorting. It is a violation of Regulation SHO, a 2005 S.E.C. rule. Goldman’s failure meant that some of its clients were unknowingly breaching this important rule.

The S.E.C. has said that naked shorting can be abusive and may drive down a company’s shares. Therefore, brokerage firms are barred from accepting orders for short sales unless they have borrowed the stock or have “reasonable grounds” to believe it can be secured. This is known as the “locate” requirement.

Goldman violated the rule from November 2008 through mid-2013, the S.E.C. said. Through that period, which included the market decline of early 2009, the firm was “improperly providing locates to customers where it had not performed an adequate review of the securities to be located.”

Nor was the firm helpful when the S.E.C. staff questioned its practices. For example, Goldman “created the incorrect impression” with the regulator that it had in fact conducted an individualized review for all locate requests, the order noted. Goldman’s “incomplete and unclear responses” hampered and prolonged the inquiry, the S.E.C. said.

How might Goldman be liable beyond the $15 million fine? While the firm was improperly advising customers that it had located shares for their transactions, some of those customers were very likely paying for a service the firm wasn’t providing.

Costs to borrow shares can be considerable under normal circumstances, but they rocket when there is more demand by investors to short a company’s stock than there is stock to borrow. Clients may have to pay 25 percent or more of the trade’s value to secure the shares.

If Goldman charged borrowing fees when it had not actually located the shares, its customers might well try to recover those costs, said Lewis D. Lowenfels, an expert in securities law in New York and an adjunct professor at Seton Hall University Law School.

“Goldman Sachs employees performed inadequate reviews in response to customer requests to locate stocks for short sales, according to the S.E.C.’s order,” Mr. Lowenfels said. “Depending upon the specific factual circumstances, Goldman could incur private damage liabilities to its customers for these actions.”

It’s unclear how many customers may have been affected by Goldman’s failures. The S.E.C. order is silent on that; it noted that the firm was “generally able to meet its settlement obligations” during the five-and-a-half-year period.

“The S.E.C. settlement concerns the provision of locates,” said Michael DuVally, a Goldman spokesman, “and Goldman does not charge its clients for locates. As is common industry practice, clients are only charged if they establish a short position. The S.E.C. order noted that Goldman’s rate of fails to deliver remained low.”

This case is not the only one related to securities lending that the S.E.C. has brought against Goldman. In 2010, the regulator sued the firm, saying it had violated Regulation SHO in December 2008 and January 2009 “by failing to deliver certain securities or immediately purchase or borrow securities” to close out positions properly. The firm paid $225,000 to settle, again neither admitting nor denying the allegations.

Some market participants have long suspected that big brokerage firms were charging high fees to short-selling customers while not actually locating the shares these investors needed under the rules.

A 2006 antitrust lawsuit against 11 leading Wall Street firms, including Goldman, filed in federal court in New York made such an allegation. In addition to accusing the firms of illegal price-fixing in their conduct surrounding short sales, the plaintiffs contended that the firms charged “improper fees for purportedly locating securities, when in many instances, defendants failed to locate and/or borrow the securities.” But the court dismissed that case in 2007, citing a “clear incompatibility between the securities laws and antitrust laws.”

The most famous litigation alleging violations of short-sale regulations was brought in 2007 by Overstock.com, a closeout retailer based in Salt Lake City, and a group of its shareholders. Overstock and its chief executive, Patrick M. Byrne, contended that abusive naked short-selling had driven down the company’s share price and harmed its capital-raising efforts. A slightly different group of 11 Wall Street firms, Overstock said, essentially created stock out of thin air that could be sold by investors.

Overstock shares were exceedingly hard to borrow; fees ran as high as 35 percent.

Some of the firms settled with Overstock in 2010, paying $4.4 million in total. Others were removed from the case, leaving Goldman and Merrill Lynch as defendants. The court subsequently dismissed Goldman from the suit, but the firm settled with Overstock on a refiled case last June, paying an undisclosed amount. On Thursday, Overstock announced that Merrill was settling the case with a $20 million payment.

The Overstock suit generated a trove of emails and other documents that shed light on questionable Wall Street practices in the securities lending arena.

For example, in a deposition in the case, which Goldman had sought to seal, Marc Cohodes, the former head of Copper River Partners, said that he had paid Goldman more than $100 million to handle its short sales over many years.

But in the deposition, he said he soon began to doubt that Goldman had actually borrowed some of those shares. Mr. Cohodes also said he suspected that Goldman’s failure to borrow the shares was behind his firm’s collapse in the financial crisis.

Goldman has disputed this contention.

I asked Mr. Cohodes, who no longer manages money, what he thought of the S.E.C.’s recent findings on Goldman. He forwarded my request to his lawyer, David W. Shapiro, in San Francisco.

In an interview, Mr. Shapiro, a former federal prosecutor and United States attorney, questioned the recent S.E.C. settlement. “I’m very curious to understand what Goldman Sachs admitted to the S.E.C.,” he said, “and why $15 million was considered to be an adequate punishment.”

>>> Regus shares gain on renewed takeover speculation

Regus shares gain on renewed takeover speculation 

Regus [LON:RGU] shares gained 2.32% yesterday, 29 January on renewed talk that the UK-based serviced offices company might have attracted interest from a potential bidder, the Financial Times reported. The newspaper’s market report section did not cite a source for the rumour.

Regus founder and CEO Mark Dixon holds a 31% stake in the company, the item noted.

Regus’ share price closed 6.7p up at 295.7p in London on Friday, valuing the company at GBP 2.75bn (EUR 3.61bn).