The Financial Times reports that for the City banks and brokers who have been under sustained pressure from the Financial Services Authority to bolster their defences against insider dealing, Tuesday’s arrests of eight workers at UBSand JPMorgan Cazenove may serve as a salutary reminder of the risks of ignoring the regulator’s message.

At the behest of the FSA, banks have been reducing the number of people with access to market-moving information by limiting attendance at deal meetings, cutting IT access and creating separate server access for each confidential deal.

From March 2009, City firms will also have to record and retain telephone conversations related to client orders and market transactions.

But the FSA wants them to do more. Just last month Alexander Justham, FSA director of markets, told the City: “I would like to see more efforts to crack down on the length of insider lists and to see firms giving greater focus to the importance of leak inquiries.”

A recent FSA newsletter also encouraged banks to take a hard look at their subcontractors and temporary employees. The Cazenove worker arrested this week was a subcontractor, the firm confirmed.

The raids are part of the FSA’s new emphasis on using enforcement cases to establish “credible deterrence” but they come at an inopportune time. Ramping up security will cost money most City firms can ill afford in a downturn and may require them to revamp how they handle confidential documents.

The current FSA investigation is thought to centre on one or more employees with access to the banks’ copy rooms, where deal announcements and other price-sensitive documents would be compiled.

The FSA has good reason to be concerned about in­sider dealing. Its most recent survey of market cleanliness found that 28.7 per cent of all takeover deals were preceded by suspect trading, up from 23.7 per cent in 2005.

A review of firms’ information security policies last year also found that insider lists on particular deals included as many as 200 people and that many firms placed few controls on the third-party firms they hired.

The controls the FSA is seeking are not unprecedented. UK authorities have been consulting with their US counterparts on best practice and many of the new security measures are standard on Wall Street.

US firms, for example, have to record and retain phone calls and e-mails. Finra, the US industry regulator, also requires brokers and banks to ensure subcontractors do not abuse market-sensitive information.

In any case, UK firms may not have a choice about making the improvements. The FSA could choose to crack down on them for failing to control confidential information even in the absence of insider dealing. The regulator has previously taken that approach in its efforts to combat money-laundering and identity theft.

“I’m firmly of the view we’ll see a market-abuse systems and controls case in the next 12 months,”said Jonathan Marsh, a partner at Berwin Leighton Paisner.

Even if banks do everything the FSA is asking, insider dealing is unlikely to stop. The US Securities and Exchange Commission has brought insider trading cases against 90-110 people each year since 2004. Several past cases have involved information stolen from print shops and copy machines.

“The sad truth is that this type of activity will still go on,” said Elisabeth Bremner, a partner at DLA Piper.“The institutions need . . . to protect themselves as an institution and not just rely on confidentiality letters.”

FSA should be netting bigger fish

The FSA’s high-profile crackdown on insider trading has met with a surprisingly muted reaction in the Square Mile – although that probably says more about the state of the FTSE100 than it does about the seriousness of the cases, writes Neil Hume.

Brokers said they had more pressing matters to deal with – namely trying to navigate through a period of extreme market volatility without losing too much money.

“There are a lot more serious problems out there right now, but this has certainly provided a distraction and got people talking,”one deals broker said.

Others said the FSA would need to land a “big fish” if it wanted the market to sit up and take notice of its efforts to get tough on insider dealing.

“When they start sending extradition warrants to Monaco, that’s when things will get really interesting,”one senior equity salesman said.“At the moment all they have is a retired Cazenove trader [Malcolm Calvert] and some back office staff from a couple of the big banks.”

Other were angry that the FSA had diverted so much energy to insider dealing cases.

One trader said: “It is good to see the regulator is doing its job and they certainly have made some headlines but the bigger problem right now is not so much insider trading and a few guys making a couple of hundred thousand but misleading information from major financial institutions which have cost shareholders billions.”

The FT also reports that Morgan Stanley plans to use up to $1bn saved from cutting 4,800 jobs this year to hire top-level executives and bolster its presence in areas such as derivatives, risk management and proprietary trading.

The aggressive hiring campaign is driven by Morgan Stanley’s desire to take advantage of the lay-offs among firms hit by the credit crunch to add expertise in fast-growing businesses and regions such as the Middle East and Asia.

John Mack, chairman and chief executive, has told associates that the turbulence, which has caused 75,000 job losses in the US financial sector, is a historic opportunity to recruit bankers, traders and risk managers.

Morgan Stanley estimates it saved $1bn from this year’s compensation bill by cutting about 10 per cent of its workforce, particularly in areas such as investment banking, fixed income and research, in two waves of lay-offs in January and April.

People close to the company said it had already reinvested $400m of the savings in the salaries and bonuses of new staff.

They added that Morgan Stanley could use the remaining $600m before the end of the year to lure other recruits but only if it found enough good candidates.

The investment bank is expected to underline its recruitment strategy as early as Thursday with the announcement of several key hires, including Luc Francois, former head of equities at Société Générale, who will become head of European equities and global head of equity derivatives.

Mr Francois left SocGen this year in the wake of the losses caused by the rogue trader Jérôme Kerviel.

He has not been named or involved in either the company’s or the regulators’ probes into the affair.

The moves by Morgan Stanley, which has suffered big trading losses and lapses in risk management, highlight the efforts by financial services groups to position themselves for the end of the credit crunch.

In spite of the stream of writedowns, credit losses and lay-offs, many Wall Street firms say that they are looking to make strategic hires to strengthen their expertise for when the capital markets and economy finally rebound.

Morgan Stanley executives stress that the recruitment drive will not affect the compensation of employees because the funds come from cost savings.

The hires expected to be announced on Thursday point to some of the areas Morgan Stanley wants to improve.

Thomas Wong, a former senior executive at the now defunct Bear Stearns, will take up a new role as head of proprietary trading. Last year, Morgan Stanley had to take a $9.4bn writedown on a disastrous proprietary bet on mortgage securities.

Another former Bear executive, Eric Cole, who was the firm’s head of distressed bond trading, will become co-head of distressed sales, trading and research.

James Brown, a former head of commodities risk management at Merrill Lynch, will become global head of commodities risk, a newly-created post, while Blake O’Dowd will join as head of the restructuring group. He had held a similar position at Lazard.

Morgan Stanley has also been recruiting financial advisors as part of a revamp of its wealth management unit. People close to the bank say it has hired 519 new advisors so far this year, compared with 622 for the whole of last year.

The New York Times reports that the number of Americans who have seen their full-time jobs chopped to part time because of weak business has swelled to more than 3.7 million — the largest figure since the government began tracking such data more than half a century ago.

The loss of pay has become a primary source of pain for millions of American families, reinforcing the downturn gripping the economy. Paychecks are shrinking just as home prices plunge and gas prices soar, furthering the austerity across the nation.

“I either stop eating, or stop using anything I can,” said Marvin L. Zinn, a clerk at a Walgreens drugstore in St. Joseph, Mich., who has seen his take-home pay drop to about $550 every two weeks from about $650, as his weekly hours have dropped to 37.5 from 44 in recent months.

Mr. Zinn has run up nearly $2,000 in credit card debt to buy food. He has put off dental work. He no longer attends church, he said, “because I can’t afford to drive.”

On the surface, the job market is weak but hardly desperate. Layoffs remain less frequent than in many economic downturns, and the unemployment rate is a relatively modest 5.5 percent. But that figure masks the strains of those who are losing hours or working part time because they cannot find full-time work — a stealth force that is eroding American spending power.

All told, people the government classifies as working part time involuntarily — predominantly those who have lost hours or cannot find full-time work — swelled to 5.3 million last month, a jump of greater than 1 million over the last year.

These workers now amount to 3.7 percent of all those employed, up from 3 percent a year ago, and the highest level since 1995.

“This increase is startling,” said Steve Hipple, an economist at the Labor Department.

The loss of hours has been affecting men in particular — and Hispanic men more so. Among those who were forced into part-time work from the spring of 2007 to the spring of 2008, 73 percent were men and 35 percent were Hispanic.

Some 28 percent of the jobs affected were in construction, 14 percent in retail and 13 percent in professional and business services, according an analysis by Mr. Hipple.

“The unemployment rate is giving you a misleading impression of some of the adjustments that are taking place,” said John E. Silvia, chief economist of Wachovia in Charlotte. “Hours cut is a big deal. People still have a job, but they are losing income.”

Many experts see the swift cutback in hours as a precursor of a more painful chapter to come: broader layoffs. Some struggling companies are holding on to workers and cutting shifts while hoping to ride out hard times. If business does not improve, more extreme measures could follow.

“The change in working hours is the canary in the coal mine,”said Susan J. Lambert of the University of Chicago, a professor of social service administration and an expert in low-wage employment. “First you see hours get short, and eventually more people will get laid off.”

For the last decade, Ron Temple has loaded and unloaded bags for United Airlines in Denver, earning more than $20 an hour, plus generous health and flight benefits. On July 6, as management grappled with the rising cost of fuel, Mr. Temple and 150 other people in Denver were offered an unpalatable set of options: they could transfer to another city, go on furlough without pay and hope to be rehired, or stay on at reduced hours.

Mr. Temple and his wife say they cannot envision living outside Colorado, and they probably could not sell their house. Similar homes are now selling for about $180,000, while they owe the bank $203,000.

So Mr. Temple took the third option. He reluctantly traded in his old shift — 3 p.m. to midnight — for a shorter stint from 5:30 p.m. to 10 p.m. He gave up benefits like paid lunches and overtime. His take-home pay shrunk to $570 every two weeks from about $1,350, he said.

Mr. Temple’s wife, Ali, works as an aide at a cancer clinic, bringing home nearly $1,000 every two weeks, he said. But collectively, they earn less than half of what they did.

Suddenly, they are having trouble making their $1,753 monthly mortgage payment, he said. They are relying on credit cards to pay the bills, running up balances of $2,700 so far. Gone are their dinners at the Outback Steakhouse. Mr. Temple recently bought cheap, generic groceries from a church that sells them to people in need.

“That’s the first time in my life I’ve had to do that,” he said.“We are cutting back in every way.”

Mr. Temple has been searching for another job, applying for a cashier’s position at Safeway and a clerk’s job at Home Depot, among others. But the market is lean.

“I’ve applied more than 20 times, and I haven’t had a single call back,”he said.

His search is constrained by the high price of gas. “I can’t afford to go drive my truck around and look for a job,” he said.

So Mr. Temple has done his search online — until he fell behind on the bills, and the local telephone company cut off Internet service. On a recent day, he bicycled to a Starbucks coffee shop with his laptop for the free connection.

The growing ranks of involuntary part-timers reflect the sophisticated fashion through which many American employers have come to manage their payrolls, say experts.

In decades past, when business soured, companies tended to resort to mass layoffs, hiring people back when better times returned. But as high technology came to permeate American business, companies have grown reluctant to shed workers. Even the lowest-wage positions in retail, fast food, banking or manufacturing require computer skills and a grasp of a company’s systems. Several months of training may be needed to get a new employee up to speed.

“Companies today would rather not go through the process of dumping someone and hiring them back,”said Dean Baker, co-director of the Center for Economic and Policy Research in Washington.“Firms are going to short shifts rather than just laying people off.”

More part-time and fewer full-time workers also allows companies to save on health care costs. Only 16 percent of retail workers receive health insurance through their employer, while more than half of full-time workers are covered, according to an analysis by Ms. Lambert, the University of Chicago employment expert.

The trend toward cutting hours in a downturn lessens the pain for workers in one regard: it moderates layoffs. Many companies now strive to keep payrolls large enough to allow them to easily adjust to swings in demand, adding working hours without having to hire when business grows.

But that also sows vulnerability, heightening the possibility that hours are cut when the economy slows and demand for goods and services dries up.

“There’s a lot of people at risk in the economy when they keep the headcount high and they only have so many hours to distribute,” Ms. Lambert said. “It really is a trade-off for society.”

Goodyear Tire has in recent months idled work for a few days at a time at many of it factories, as the company adjusts to weakening demand. At one plant in Gadsden, Ala., workers expect they will soon lose a week’s wages to another slowdown — something Goodyear would neither confirm nor deny.

“People are scared,”said Dennis Battles, president of the local branch of the United Steelworkers union, which represents about 1,350 workers there. “The cost of gas, the cost of food and everything else is extremely high. It takes every penny you make. And once it starts, when’s it going to quit? What’s going to happen next month?”

The NYT also reports in relation to the collapse of the world trade talks,  that some blamed soybeans. Others blamed cotton. And many pointed a finger at America’s election-year politics.

But the collapse of negotiations to open world markets gave way Wednesday to resignation that a shift in the global economic hierarchy had darkened the prospect any time soon of a new accord to further open markets.

“This is simply too complex,”the director general of the World Trade Organization, Pascal Lamy, said of the multidimensional game of chess that finally ended in stalemate.

The negotiations foundered on the right of India and other developing countries to protect critical agricultural products from competition in exchange for cutting tariffs on imported industrial goods.

China and India have seldom shared the same views on free trade in recent years, but they were on the same side when the talks collapsed here on Tuesday because China made an abrupt about-face, signaling it may have leavened its interest in free trade with concerns about food security.

At the same time, the United States, which often made concessions to lubricate previous deals, refused to make one now.

The issue was whether China and other countries can impose tariffs on some foodstuffs. Of particular interest was soybeans, of which the United States is a major exporter. The United States trade representative, Susan C. Schwab, argued that with certain measures in place, China could have increased tariffs on soybeans in 8 out of every 10 years.

Critics argued that the United States had forced the issue because other problems remained unresolved, including the level of United States cotton subsidies.

According to several American officials, Washington saw the talks as a place to resolve the issue, because it had earlier lost a W.T.O. dispute with Brazil over cotton. Other negotiators said that in an election year, the United States probably never wanted to confront its farm lobby, including cotton farmers.

The recriminations grew increasingly bitter Wednesday, as Peter Mandelson, the European negotiator, accused Ms. Schwab of refusing to budge even when her demands were met, and then going public with her grievances too quickly.

Ms. Schwab hit back by criticizing Mr. Mandelson’s negotiating tactics, and argued that the United States farm lobby had been largely supportive of the Doha agenda, which aimed to give smaller and poorer developing countries greater access to consumers in the United States, Europe and Japan.

During the marathon talks, Mr. Lamy sought to accommodate an array of competing interests among developed and emerging nations. His innovation was to include China, India and Brazil in a seven-member group of countries that brokered a draft text. But the breakdown in those discussions highlighted the limits of even that flexible approach.

For Celso Amorim, the Brazilian foreign minister and trade negotiator, the collapse was a sign that that the nature of W.T.O. negotiations had changed for good.

“In the past, it was an E.U.-U.S. business, or, maximum, the Quad,”Mr. Amorim said, referring to a group comprising the United States, the European Union, Canada and Japan that once shaped the direction of trade talks.“Now it is a more complex trading system. You have to look at developing countries as a force.”

Even as the United States dug in against making fresh concessions, China’s efforts to protect its own interests has tilted the playing field in a profound new way. Growing concerns in China about food security appear to have overridden the country’s previous commitment to free trade, which has given it the world’s second-largest trade surplus after Germany’s in recent years.

Since joining the W.T.O. in November 2001, China has been an outspoken defender of free-trade principles. It has been especially critical of the United States, for example, for invoking so-called safeguard rules to prevent an increase of Chinese textile imports that threatened to put American manufacturers out of business.

But this week, China allied itself with Indian negotiators in insisting on safeguard rules for agriculture, and sought to require that developing countries be allowed to impose prohibitively high tariffs on food imports from affluent countries to halt increases in imports that might put farmers in poor countries out of business.

When the United States and other food exporters refused to accept the Chinese and Indian positions, the talks broke down.

As food prices have soared worldwide in recent months, many countries with a food surplus have imposed limits on exports to retain supplies for their own populations. China has become increasingly focused on making sure that its farmers can continue to produce most of the food needed for the 1.3 billion people in that country, and leery of having to rely on imports.

China and India had long had divergent vested interests in international trade negotiations, because they joined the W.T.O. under different circumstances and are covered by remarkably different trade rules.

The world’s major trading powers forced China to lower or eliminate most of its trade barriers in exchange for letting it into the trade group in November 2001. China accepted this deal because its membership forced other countries to eliminate quotas and cut tariffs on Chinese exports — and these exports have been soaring ever since.

Since China has relatively few trade barriers to defend, and since its exports are highly competitive in many industries, it has tended until now to favor open markets.

By contrast, India still has some of the world’s highest barriers to imports, because it was a charter member of the W.T.O.’s predecessor in 1947 and has been able to resist lowering many protections for its industries ever since.

Kamal Nath, the Indian minister of commerce and industry, and the top Indian trade negotiator, said in a recent interview that developing countries needed to be able to protect their own food supplies. “Every country must first ensure its own food security,” he said.

Mr. Nath also contended that developing countries’ farmers have too often faced unfair competition from industrialized countries — a point that China repeated this week. The United States and the European Union agreed to accept some limits on their farm subsidies in negotiations this week, but their reductions were much more limited than developing countries wanted.

There is a long history of countries’ endorsing free trade in manufactured goods while opposing free trade in farm products. The United States and Western European nations created the current international trading system after World War II and dismantled many trade barriers for industrial products. But they did relatively little for farm trade until the completion of the Uruguay Round talks in 1993.