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R&D Economic Research & Business Development

Date: June 25, 2009

Highlights

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Prime Minister Madhav Kumar Nepal said on Friday that the government would reintroduce "Nau Sa" (Nine S) which was a popular programme during the nine-month-long minority government of the CPN (UML) in 1995. A meeting of the Nepali Congress (NC) Parliamentary Party (PP) on Thursday appointed senior leader Prakash Man Singh as deputy leader. The UCPN (Maoist) said on Thursday that each language, which is spoken by over one percent of the country’s population, should be recognized as the country’s official language. Prime Minister Madhav Kumar Nepal on Thursday urged Maoists to end disruption of the House to enable timely drafting of the constitution. Prime Minister Madhav Kumar Nepal on Thursday said that only 5,000 former combatants who fulfill criteria for enrollment in the national army. Dina Nath Sharma, spokesperson for Unified CPN (Maoist), termed the PM´s statement unfortunate. The Foreign Employment Promotion Board (FEPB) has decided to provide Rs. 100,000 each to the families of 20 Nepalese migrant workers who died in foreign countries during the past year. A board meeting of Nepal Rastra Bank (NRB) on Thursday decided to immediately make public the “due diligence report” (a detailed report of a bank) on the status of Bank of Kathmandu (BoK). As part of its initiative to extend modern banking facilities to the people living in remote villages, Everest Bank Limited (EBL) has launched Ghar Dailo Banking Sewa, a mobile banking service in Bhaktapur. The Inland Revenue Office (IRO) on Thursday raided Saleways Department Stores in Lalitpur and Pokhara as well as Smarter ways in Lalitpur The import of motorcycles through the Birgunj customs point has gone up in the 11 months of the current fiscal year.

POLITICS: Govt to reintroduce old UML agenda Prime Minister Madhav Kumar Nepal said on Friday that the government would reintroduce "Nau Sa" (Nine S) which was a popular programme during the ninemonth-long minority government of the CPN (UML) in 1995. The "Nine S Development Campaign" had incorporated nine sectors of development simultaneously which included local roads, small irrigation, drinking water, education and literacy, accessible health, skill training and employment generation, community tree plantation, rural electrification through small hydroelectric plants and cottage industry development. 1


R&D Economic Research & Business Development

"We will resume the economic campaign envisioned in the Nine S," he told an interaction organised by Asta Ja Abhyan Nepal campaigning for incorporation of the "Eight J" scheme for economic development of the country. "Eight J" includes water resources, land, forest, medicinal and aromatic plants, plants, human resources, animals and climate which the campaigners are saying should be focused on for economic development. The prime minister said that the country could achieve productivity and economic growth if the issues incorporated by "Nine S" were addressed well. He also praised the recommendations of "Eight J" saying that they were useful for the government. He asked the advocates of "Eight J" to consult with the bureaucracy too when the government is making the budget. Acknowledging that the country lacked an investment-friendly environment, he stressed the need for ending bandhs and strikes on small pretexts. Presenting a paper, Dr. Deergha Raj Adhikari, assistant professor at the University of Louisiana, U.S.A., highlighted the importance of "Eight J" and recommended ways to utilise them. "Export of hydropower can compensate for the huge trade deficit with India and the rest of the world," he said. "There is a market for bottled spring water as well in the tens of billions of dollars in the world," he added. Regarding land, he was of the view that the fragmented land structure of the country which stands at 0.79 hectare per holding was mainly responsible for the dismal performance of agriculture in Nepal. "Such a situation of land holding can be addressed through cooperative farming." According to his paper, Nepal has a comparative advantage in the production of a number of medicinal plants due to the country's diverse climatic conditions within a small area. He also finds strength in Nepal's human resources as 54 percent of the country's population is aged between 15 to 59 years. There is potential for educated IT professionals to be employed in the business process outsourcing (BPO) market if the country could tap it. He also highlighted the potential of medical tourism given the pleasant climate in Nepal's mid-hills. "There should be an encouraging policy for investors so that they can invest in the development of theme parks, resorts, hospitals and retiree homes." Highways, railways, resettlement of people in accessible places, poly-technique institutions for production of human resources, high standard medical and engineering colleges, banking and insurance services and proper security for businesses are basic prerequisites for implementing "Eight J", said Adhikari. Source: www.kantipuronline.com Date: 2009/06/25

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Singh NC deputy PP leader A meeting of the Nepali Congress (NC) Parliamentary Party (PP) on Thursday appointed senior leader Prakash Man Singh as deputy leader. Newly-elected PP leader Ram Chandra Poudel had proposed Singh for the post during Thursday’s meeting. As per the NC statute, the PP leader holds discretionary power to recommend a deputy leader. Support from Singh and some of his political allies within the party had played a crucial role in Poudel’s victory in the PP election held last Saturday. Poudel defeated his immediate rival Sher Bahadur Deuba by 13 votes, with support from leaders like Singh and Narayan Khadka who were considered Deuba supporters since long. NC leaders see Singh’s election as the PP leader’s reward. According to party Chief Whip Laxman Ghimire, the meeting also nominated two additional experts, namely senior economist Prithvi Raj Legal and former Vice Chairman of National Planning Commission Jagadish Chandra Pokharel in the party’s special committee to advise the government on budget preparation. Ram Sharan Mahat, Narayan Khadka and Deep Kumar Upadhyaya were already appointed as members of the committee. The government is planning to table the new annual budget by the first week of July. Source: www.nepalnews.com Date: 2009/06/25

Maoists for recognition of 12 official languages The UCPN (Maoist) said on Thursday that each language, which is spoken by over one percent of the country’s population, should be recognized as the country’s official language. The Maoist viewpoint came at deliberations on the concept paper and the preliminary draft tabled by the Committee to Determine the Basis of Cultural and Social Solidarity. Maoist lawmaker Barsha Man Pun said the new constitution should recognize 12 languages spoken by over one percent of the population as official languages. Pun said there should be no restriction on the use of these languages in government offices and courts. Pun said the constitution should not recognize a particular language as official language. Languages spoken in the country should figure in the annex of the new statute, he said.

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Pun said the constitution should incorporate the term “people’s war” because it was the people’s war that paved the way for social transformation and constitutiondrafting. The Maoist lawmaker demanded that the concept paper ensure special rights for indigenous and backward communities. CPN (UML) lawmaker Agni Kharel noted that the committee’s concept paper has proposed Nepali as the official language and suggested the formation of a language commission to recommend other official languages. He said the use of different communities’ mother tongue as official language will create confusion in administrative works. Nepali Congress lawmaker Jiwan Prem Shrestha said the new constitution should recognize Nepali as the official language and incorporate provisions to promote other languages. He said the term “people’s war” should not figure in the statute because it was an armed conflict fought by the supporters of a party Source: www.kantipuronline.com Date: 2009/06/25 PM wants end to House distuption Prime Minister Madhav Kumar Nepal on Thursday urged Maoists to end disruption of the House to enable timely drafting of the constitution. “Due to regular disruption of House proceedings, discussions on various constitutional committees have not been able to take place, which will ultimately affect the schedule for constitution drafting,” said Nepal at a meeting with delegates of the Federation of Nepalese Journalists at his office in Singhadurbar. “The public will blame Maoists if these disruptions lead to a major crisis in the country.” Maoists have been obstructing the House since May 4, demanding correction of the president's move reinstating sacked Army Chief Rookmangad Katawal, as well as to protest CA Chairman Subash Chandra Nembang's rejection of their 'resolution motion' against the president's move. Nepal also said he is seriously concerned about increasing corruption and worsening security situation in the country. FNJ president Dharmendra Jha said the new constitution should guarantee freedom of speech. “In the past few years, impunity has increased and the government should express commitment to take action against those involved in threatening and attacking journalists.” According to journalists’ umbrella organisation, a total of 36 journalists have been murdered till date.

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Last year alone, 342 incidents related to threats, attack on journalists and killing were reported. Journalists put forth various demands including compensation for the families of murdered journalists, implementation of working journalist's law, relief for families of conflict victims and others. Source: www.kantipuronline.com Date: 2009/06/25

POLICY: Only 5,000 Maoist combatants can be absorbed in the army: PM Prime Minister Madhav Kumar Nepal on Thursday said that only 5,000 former combatants who fulfill criteria for enrollment in the national army can be absorbed in the Nepal Army. In an interview with Reuters, the premier said the remainder must be given alternative jobs. He claimed that Maoist chairman Pushpa Kamal Dahal had told him that up to 5,000 Maoist fighters should be absorbed in the army. "So, if their leader confirms that thinking then there is no question of integrating the total number of Maoist combatants in the army," Nepal said. He also said the peace process with the Maoists has been stalled after Pushpa Kamal Dahal resigned from the post of prime minister last month. “The peace process is stalled and not moving forward smoothly,” the premier said. “The Maoists want to show they are honest about peace, but their behavior is not so. They need to transform and change their behavior. Otherwise, they will be isolated.” The premier added that the future of Maoist fighters must be settled before the new constitution is written or work in the Constituent Assembly would be hampered. He also said rehabilitation of combatants would be complete by the end of the year. Unfortunate statement: Maoists Dina Nath Sharma, spokesperson for Unified CPN (Maoist), termed the PM´s statement unfortunate. "This is not an issue to be decided by Madhav Kumar Nepal as an individual. Not even a prime minister can independently give his judgment over it. It is a serious matter to be resolved by the special committee [formed to supervise, integrate and rehabilitate the Maoist army combatants]. Giving such an irresponsible public statement by the prime minister is unfortunate," Sharma told myrepublica.com. He accused the government of deliberately pushing the peace process to the brink of breakdown. "Instead of taking the peace process to a logical end, both the Nepali

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Congress and CPN-UML are intentionally trying to breakdown the peace process," he said.

Source: www.myrepublica.com Date: 2009/06/25

Kins of dead migrant workers to get Rs 100k The Foreign Employment Promotion Board (FEPB) has decided to provide Rs. 100,000 each to the families of 20 Nepalese migrant workers who died in foreign countries during the past year. The government had stopped providing such financial support for the last one and a half months after the resignation of Minister for Labour and Transport Management Lekh Raj Bhatta. The decision to resume providing financial aid was taken following the FEPB's recommendation which was approved recently by the newly-appointed Labour Minister Mohammad Aftab Alam. According to the FEPB, five of the 20 families have already received their money while 15 families have not applied for it yet. The board has been providing financial assistance to the families of deceased migrant workers and migrant workers who have had to return home without completing their contract due to the recession. The compensation is also provided to individuals who become handicapped while at work in foreign countries. However, no money is paid to persons who have left to work in foreign countries illegally, been overstaying their work permit or violated their contract. This is an effort to discourage illegal departures, said Mukunda Adhikari, under-secretary of the FEPB. Earlier, the government had provided financial assistance to 48 families who lost a member abroad. Meanwhile, the FEPB on Thursday decided to provide compensation to six migrant workers who lost their jobs because of the global recession. Earlier, the government had provided such relief to 130 returnees. "All the six individuals had returned from Malaysia," said Thaneshwor Devkota, chief of the FEPB, "They got to work for less than a year." According to the FEPB, returnees wanting to claim the relief amount have to bring a letter from their employer or the Nepal Embassy certifying that they were laid off because of the recession. 6


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Source: www.kantipuronline.com Date: 2009/06/25 BANKING: NRB to make public "due diligence report" on BoK A board meeting of Nepal Rastra Bank (NRB) on Thursday decided to immediately make public the “due diligence report” (a detailed report of a bank) on the status of Bank of Kathmandu (BoK). The BoK management had recently withdrawn a case filed against NRB--the central bank--against an NRB decision, taken a month ago, to take over the management of BoK. The BoK management had withdrawn the case expressing firm commitment to not repeating past mistakes as indicated by the central bank. A source at NRB said the central bank is giving priority to call the bank’s general assembly and handover management to its previous management as soon as possible. The NRB meeting also decided to speed up the process of filing a case against troubled Nepal Development Bank (NDB) to send it into liquidation. A couple of days ago, the NRB board meeting had decided to file the case citing that an NDB clarification had failed to convince the bank not to send it into liquidation. Source: www.myrepublica.com Date: 2009/06/25

EBL begins Ghar Dailo Banking in Bhaktapur As part of its initiative to extend modern banking facilities to the people living in remote villages, Everest Bank Limited (EBL) has launched Ghar Dailo Banking Sewa -- a mobile banking service -- in Bhaktapur. The service launched on Wednesday is being offered in five VDCs including Nagarkot, Gundu (Ward No 3 and 6), Dadhikot, Duwakot and Tathali for now, says a press release. Under the service, EBL customers can avail banking facilities through a biometric enabled smart card and machine. The bank is providing the smart card to the customers on opening an account. Mobile banking service is a new breakthrough in terms of banking technology in Nepal. The unique feature of the technology is that even illiterate people can operate their accounts through thumb impression. The machine reads accounts through biometric data stored during account opening. “Thus the operation of the account is safe and secure,” says the release. The bank has already launched the product in eight villages in Baglung. The bank also plans to launch the service in Nepalgunj soon.

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Source: www.myrepublica.com Date: 2009/06/25

MARKET: IRD raids Saleways stores KATHMANDU, June 25 - The Inland Revenue Office (IRO) on Thursday raided Saleways Department Stores in Lalitpur and Pokhara as well as Smarter ways in Lalitpur, the importer from which Saleways bought goods. "Two teams of IRD officials raided Saleways and Smarter ways. Our officials also raided Saleways in Pokhara at the same time," said Shanta Bahadur Shrestha, director general of the IRD. He said that the raid was carried out after complaints about the Saleways. Following the raid from the IRD, Saleways Departmental Store, Lalitpur has been shut down by its management. IRD on Wednesday had raided in NAME Consultancy on suspicion of dodging taxes. Similarly, on Tuesday, it had raided Commodities and Metal Exchange Nepal, which is suspected of not depositing VAT collected from its transactions.

BUSINESS & ECONOMY: Motorbikes import up in 11 months PARSA, June 25 - The import of motorcycles through the Birgunj customs point has gone up in the 11 months of the current fiscal year, whereas fewer jeeps, cars and vans are coming in. According to Ram Prasad Regmi, information officer at Birgunj customs, 70,619 motorcycles worth Rs. 4.36 billion were imported over the period through Birgunj with the government earning Rs. 3.09 billion in customs duty. Last year's import of motorbikes numbered 51,516 units worth Rs. 2.95 billion. The importers paid Rs. 1.75 billion as duty. On the other hand, the import of jeeps, cars and vans declined to 4,833 units this year compared to 4,985 last year. The vehicles were worth Rs. 2.64 billion. Likewise, the import of truck chassis went up to 2,790 during the 11 months of the current fiscal year compared to 2,039 during the corresponding period last year. The number of trucks and mini-trucks imported this year reached 1,674 units against 1,178 last year. However, the number double-cab pickup vans imported

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Now you can buy int'l air tickets in rupees Nepal Rastra Bank (NRB), the country´s central bank, has introduced a new provision which, among others, allows domestic travel agencies to make use of Nepali currency while settling payments related to purchase of international air tickets from foreign airline companies. The new provision will come into effect from July 1. In a circular issued on Tuesday, NRB has clearly mentioned that from July 1, international airlines and their agents providing service in Nepal should quote air fares in local currency and payments made in Nepali currency should also be accepted. This condition also applies for online ticketing, meaning people who use the Internet to purchase air tickets for Nepal, will see the air ticket prices mentioned in Nepali currency. Until now, US dollar was the standard currency to make payments related with purchase of international air tickets. This used to put a dent in the earning of domestic travel agencies whenever Nepali currency weakened. In this fiscal year alone, the value of Nepali currency went down from Rs 69.10 per dollar to Rs 77.84. Whenever, Nepali currency weakens travels agencies have to invest more Nepali rupees to buy dollars. “We are happy that our one and half years of efforts yielded positive results,” Ram Kaji Koney, president of Nepal Association of Tour and Travel Agents, told journalists at a press meet organized in Kathmandu on Thursday. The new provision introduced by NRB is also expected to aid cargo and courier companies based in Nepal, as it has also directed international cargo and courier companies and their agents in Nepal to accept payments made in local currency. NRB has also directed Civil Aviation Authority of Nepal (CAAN), Nepal Oil Corporation and ground handling agents, catering companies and other service providers at Tribhuwan International Airport to issue bills in the foreign currency and Nepali currency based on the exchange rate of that day. This means CAAN can accept landing and parking fees in either Nepali or foreign currency, while fuel payments can also be settled with NOC in either Nepali or foreign currency. Source: www.myrepublica.com Date: 2009/06/25

International Financial and Economical NewsBrief: Top Stories §

ECB pours €442 billion into money markets The European Central Bank injected €442 billion in one-year funds into money markets to spur lending and stabilize the economy. The move drove some borrowing costs between banks to new lows. "Maybe now money will finally move

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into longer-term maturities," one trader said. Reuters (25 Jun.) , Financial Times (tiered subscription model) (24 Jun.) §

Fed leaves rescue policies, interest rate unchanged At its meeting, the Federal Reserve kept its benchmark overnight interest rate unchanged, as expected. Noting that the "pace of economic contraction is slowing" in the U.S., the central bank also maintained its rescue policies. Existing policies "will contribute to a gradual resumption of sustainable economic growth in a context of price stability," according to the Fed's statement. However, the central bank warned of persistent economic weakness. The New York Times (24 Jun.)

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ECB, Fed differ on approach to resolving crisis: U.S. Federal Reserve Chairman Ben Bernanke said central banks should make a highly visible money drop from helicopters to sidestep depression. The European Central Bank prefers a less visible strategy of quietly distributing funds to banks. The Fed and the ECB are both fighting recession and deflation, using decidedly different tactics. Telegraph (London) (24 Jun.)

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Japanese banks Aozora, Shinsei confirm merger negotiations Aozora and Shinsei banks both advanced in Tokyo trading after confirming that they are discussing a merger. The move would create the sixth-biggest bank in Japan. "A merger between Shinsei and Aozora is a sensible solution for both of them," said Kristine Li, an analyst at KBC Securities. "Aozora has a relatively strong capital base, whereas Shinsei has a good retail franchise." Bloomberg (25 Jun.)

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Republican Bernanke to have Democrats on his side The U.S. House Oversight and Government Reform Committee will question Federal Reserve Chairman Ben Bernanke about his role in Bank of America's acquisition of Merrill Lynch. While Republican lawmakers are launching an attack on Bernanke, who is Republican, Democrats are defending him. The New York Times (24 Jun.)

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California close to paying bills with IOUs Within a week, California will have to start issuing IOUs to pay its bills, the state's controller said. "Next Wednesday, we start a fiscal year with a massively unbalanced spending plan and a cash shortfall not seen since the Great Depression," Controller John Chiang said. State Treasurer Bill Lockyer said he will draw funds from a reserve account to meet the state's debt-service obligations. Reuters (24 Jun.)

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Giant iron ore deposit discovered in northern China Iron deposits discovered in northern China's Liaoning province have more than 3 billion metric tons in reserves, making them the largest iron deposits in Asia, local 10


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government officials said. Results from test drilling show "a very high-grade discovery for China," said Mark Pervan, a senior commodity strategist for Australia and New Zealand Banking Group. Bloomberg (24 Jun.) ยง

Private-equity giant KKR postpones IPO, revisits merger Private-equity manager Kohlberg Kravis Roberts is putting on the back burner its initial public offering on the New York Stock Exchange in favor of a merger that would give it a listing on the Euronext Amsterdam exchange. KKR wants to combine with an affiliate, KKR Private Equity Investors, which already has a listing in Amsterdam. The New York Times (24 Jun.) Market Activity

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Asian-Pacific markets record solid gains Share markets across the Asian-Pacific region bounced back to advance Thursday. Japan's Nikkei 225 jumped 2.2%, Australia's S&P/ASX 200 rose 1.3% and New Zealand's NZX 50 climbed 1.1%. South Korea's Kospi Composite and Hong Kong's Hang Seng Index both gained 2.1%, Taiwan's Taiex added 1.2%, and Singapore's Straits Times was up 1.4%. The Wall Street Journal (25 Jun.)

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Government-guaranteed bonds near end, European bankers say Because financial markets are starting to heal and banks are deciding to enter debt markets without state backing, government-guaranteed bond issues are coming to an end, European bankers said. "As the tone of credit markets has improved, banks have moved to issuing unsecured bonds," said analysts at Morgan Stanley. "It is important to remember that the [government-guaranteed bond] market is a market with a finite life." The Wall Street Journal/Dow Jones Newswires (24 Jun.)

Economics ยง

Durable-goods orders post surprise 1.8% uptick in U.S. In a surprise for many economists, orders for durable goods in the U.S. increased 1.8% last month, the Commerce Department reported. The median forecast of economists polled by Bloomberg News called for a 0.9% drop. At the same time, orders for nondefense capital goods excluding aircraft jumped 4.8%. The figure is often seen as a leading indicator of future business investment. Bloomberg (24 Jun.)

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U.K. retailers continue seeing dismal sales Of Britain's retailers, 48% said sales volume was down in the first two weeks of June, while 31% said the volume was up, according to the Confederation of British Industry. "June's weak sales figures show that business on the high street isn't

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getting any easier," said Andy Clarke, chairman of the CBI's distributive trades panel. "The one consolation for retailers is it isn't getting any worse, and the dark days of winter are behind us." Financial Times (tiered subscription model) (24 Jun.) ยง

Economic downturn almost at bottom, OECD says Marking the first time since 2007 that it has revised its forecast to be more optimistic, the Organization for Economic Cooperation and Development said the economic downturn in its 30 member countries has nearly reached bottom. It predicted a weak growth of 0.7% next year, a modest improvement from its previous estimation of 0.1% contraction. CNBC/Reuters (24 Jun.)

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IMF cites Australia's quick response to economic crisis The International Monetary Fund's endorsement of Australia's management of the economic crisis got a big welcome from the nation's policymakers. The government has been criticized domestically for debt it piled up to help the economy during the downturn. The IMF credited Australia's mild recession to swift action from the government. Forbes/The Associated Press (25 Jun.)

Geopolitical/Regulatory ยง

Survey: Hedge fund managers fear "onerous government regulation" The greatest worry of hedge funds managers is "onerous government regulation," according to a survey commissioned by consulting firm RSM McGladrey. At the same time, while 38% of respondents said they are worried about too much regulation, 37% said they favor some additional regulation of the industry. "Do I think there should be more regulation than there was a year ago? Yes. Do I fear it's going to be too much? Yes," said one fund manager. The Washington Post (25 Jun.)

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U.S. powerless to fight China's rising trade barriers China recently stepped up measures to block foreign companies from selling there and also rolled out policies to boost exports -- and there is little the U.S. can do about it. Many of the protectionist measures criticized by the U.S. are perfectly legal under the rules of the World Trade Organization. BusinessWeek (24 Jun.)

Financial Products

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ETF from ProShares would offer 300% leverage on S&P 500 ProShares filed for approval from the U.S. Securities and Exchange Commission for an exchange-traded fund that would give investors 300% of the S&P 500's returns, through the use of leverage. The fund manager is also seeking to market a companion ETF that would deliver 300% short exposure to the S&P 500. Both would be listed on the New York Stock Exchange and have 0.95% expense ratios. IndexUniverse.com (24 Jun.) Ethics

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Lehman allowed to investigate sale of brokerage to Barclays A U.S. bankruptcy judge gave Lehman Brothers permission to investigate the sale of its broker-dealer business to Barclays. Lehman said the U.K. firm benefited from the hasty sale. "It's conceivable mistakes were made. The notion that there may have been a misunderstanding or even an innocent misrepresentation, as opposed to a willful one, is entirely possible," the judge said. The Wall Street Journal (25 Jun.)

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Fed hid details of Merrill's problems, GOP staffers say As Federal Reserve Chairman Ben Bernanke prepares to testify before a U.S. House committee about Bank of America's acquisition of Merrill Lynch, Republicans said the central bank "engaged in a cover-up and deliberately hid concerns and pertinent details regarding the merger from other federal regulatory agencies." Republican staffers said the Fed tried to control when to disclose Merrill's losses before Bank of America took over the company. Bloomberg (24 Jun.)

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R&D_NewsBrief_26thJun