Tuesday, March 30, 2021

Reddit Trading and Resilience in U.S. Equity Finance

Part 3. Real-time in GameStop: Realistic, ask Operations Experts?

Author: Ed Blount

Pressure is growing on industry and government to respond to 2021’s extreme stock market volatility. Following on the controversy around the GameStop retail buy-side suspensions, one of the remedies being discussed is shortening of the settlement cycle and, perhaps, even a shift to real-time settlement in the US equity markets. Yet the practicality of the situation is that most of the banks and dealers in the securities financing sector just can’t operate real-time in today's environment. The timeline for financing activity, which underpins much of the trading by professionals in today's markets, as well as the lending of securities by institutional investors, cannot easily be compressed. For that reason, equity financing's capabilities are prime considerations for any change in the market infrastructure. Yes, trades can be executed in real-time, but trades are not the same as loans.

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Thursday, March 18, 2021

Reddit Trading and Resilience in U.S. Equity Finance

Part 2. Heated Debates Begin about Trading Suspensions

Author: Ed Blount

On February 4th, 2021, the Securities and Exchange Commission called for a “robust public discussion” about whether online brokers’ late January suspensions of retail trading should lead to changes in the market infrastructure. In the view of attorneys for the aggrieved retail traders, there will be a lot for the SEC to consider. More than 50 lawsuits have been filed as of today, creating another form of discussion. Our blog series on the potential infrastructure changes continues with a few of the likely discussion topics.

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Thursday, March 11, 2021

Reddit Trading and Resilience in U.S. Equity Finance

Part 1. Risk Mitigation Dynamics of the U.S. Clearing and Settlement Systems

Author: Ed Blount
The trading suspensions set by online brokers in late January 2021 reminded many industry veterans of the systemic circuit breakers that were first deployed during the Black Monday crash of October 1987. In both instances, a loose band of derivatives traders was prevented by the capital rules of the equity clearing and settlement system from continuing to crush exposed short sellers and risk a systemwide collapse. Then and now, changes to the infrastructure were front of mind for regulators when the chaos subsided. This blog series will discuss the issues and present ideas from experts as to possible solutions for improvements to risk management in the current market system.
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Wednesday, February 3, 2021

EU Tips the Scales toward ESG-Friendly Financial Firms

SFDR is About to Set off a Competitive Frenzy

Author: David Schwartz

The European Union has embarked on an aggressive legislative push to make environmental, social, and governance (ESG) considerations as a focus of financial services industry regulation. The first salvo in the EU push, the Regulation on Sustainability-Related Disclosures in the Financial Services Sector (SFDR), was finalized in December of 2019, with an implementation deadline for key provisions (Level 1) on March 10, 2021. The new regulation is broadly applicable to almost any type of asset manager, including investment firms, banks, pension funds, and insurance companies. The effect of SFDR is expected (and may even be intended) to be felt beyond the financial sector, shifting market appetites toward ESG-friendly companies, giving such companies a competitive advantage in the ability to raise capital in the corporate finance market.

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Monday, February 1, 2021

An Existential Moment for Securities Finance

Gamestop and the Debate about the Clearing System

Author: Ed Blount

Feb 1, 2021: The social controversy over Gamestop’s (GME) battle of wills — r/wallstreetbets v 'The Shorts' — may well harden the scrutiny of regulators and litigators toward the US$2.4 trillion global equity finance ecosystem that supports hedge fund strategies. This is a pivotal moment, not only for GME and The Shorts, but also for the clearing systems that their lenders and agents use to secure the funds' trade settlements and financings. 

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