All - Center for the Study of Financial Market Evolution (CSFME)

Jumping into Dark Pools and Heading off Disruptive Trading

by David Schwartz J.D. CPA | Monday, January 19, 2015 | All, Change Overview and Rationale, Disclosure Regimes, Formal Regulatory Remedies

Wednesday, November 18, 2015, was a busy day for the Securities and Exchange Commission. That morning the Commission convened to propose new rules to enhance the transparency of alternative trading systems, including “dark pools.” Later that day, Chairman Mary Jo White testified before Congress about the Commission’s plans to combat disruptive trading, to require registration “of certain active proprietary traders and improvements of firms’ risk management of trading algorithms,” as well as plans for rules addressing pre-trade pricing transparency in fixed income markets. The very next Wednesday, in what appears to be a coordinated approach to the SEC’s, the CFTC proposed its own set of rules designed to take on automated trading and disruptions that can be caused by rapid algorithmic trading.

Swap Dealers Sued as Monopolists

by David Schwartz J.D. CPA | Monday, January 19, 2015 | All

On November 25, 2015, the Chicago Public School Teachers’ Pension and Retirement Fund and other institutional investors filed a class action lawsuit in federal court alleging that ten of the world’s largest investment banks conspired to rig the lucrative interest rate swaps market.

A Cloud of Doubts About the Net Stable Funding Ratio

by David Schwartz J.D. CPA | Monday, December 29, 2014 | All, Change Overview and Rationale, Formal Regulatory Remedies

In October 2014, the Bank for International Settlements (BIS) adopted final standards for the “net stable funding ratio” (NSFR), the last plank in the Basel III banking reforms. The NSFR was first proposed in 2009, and elicited much concern from the industry regarding its potential effects on financial market functioning and the economy; so much so that BIS reproposed a new version in January 2014. The final NSFR retains the structure of the January 2014 consultative proposal, but with changes giving national regulators more scope to exempt particular assets from the general funding requirement if that asset is linked to a particular funding source, and including rules for funding short-term interbank loans, derivatives trades, and assets posted as initial margin on derivatives contracts.

Will Securities Lending Indemnification Be Regulated Into Oblivion?

by David Schwartz J.D. CPA | Saturday, December 20, 2014 | All, Change Overview and Rationale, Cross-Post, Formal Regulatory Remedies

Borrower default indemnification, sometimes referred to as a “securities replacement guarantee,” is fairly common in the securities lending industry. Under the typical arrangement, should a borrower of a security fail to return it at the end of the loan, the lending agent agrees to purchase a replacement security for the lender using the proceeds of the collateral posted by the borrower for the loan. The indemnity is applicable if the price of the replacement security exceeds the value of the collateral. In such a case, the lending agent agrees to make up the difference.

For many years, banks have provided borrower default indemnification as part of their securities lending services, which has given beneficial owners additional assurance as to the safety of their lending programs, and has allowed pension funds and others for whom such indemnity is legally required to participate in the securities lending market as well.

Dodd-Frank Implementation: Are We At the End of the Beginning, or the Beginning of the End?

by David Schwartz J.D. CPA | Friday, December 19, 2014 | All, Change Overview and Rationale, Formal Regulatory Remedies

With the Dodd-Frank Wall Street Reform and Consumer Protection Act having just celebrated its fourth birthday, where exactly are we in the the reform of our seemingly ever-evolving regulatory framework? In a recent paper, Dan Ryan, Chairman of the Financial Services Regulatory Practice at PricewaterhouseCoopers LLP takes a look at this very question to help us determine what is imminent, what is delayed, and what remains in limbo with regard to Dodd-Frank implementation.

Benchmarking data called into question

by Ed Blount | Friday, December 19, 2014 | All, Disclosure Regimes

Convenience and low cost have always been the prime motives for customers to use bank-provided benchmarks in their portfolio analytics. That user model, shaken by the Libor scandal, now seems upside down after US, UK and Swiss regulators fined 5 major banks more than US$3 billion for rigging FX rates in London.

OFR Annual Report Warns of Lingering Threats to Financial Stability

by David Schwartz J.D. CPA | Tuesday, December 16, 2014 | All, Change Overview and Rationale, Formal Regulatory Remedies

In its most recent Annual Report, the Office of Financial Research (OFR) warns that despite the strengthening global financial system, threats to financial stability still remain, and it is no time for complacency. Formed in 2010 as a part of the Treasury Department under a mandate in the Dodd-Frank Act, the OFR is charged with improving the quality of financial data available to policymakers and to facilitate more robust and sophisticated analysis of the financial system. As part of its mission, in an annual report to Congress, the OFR analyzes potential threats to U.S. financial stability, documents significant progress in meeting the mission of the Office, and reports on key research findings.

G20 Brisbane Meeting Promises Focus on Resilient Financial System

by David Schwartz J.D. CPA | Tuesday, November 25, 2014 | All, Change Overview and Rationale, Procedural Changes

With the conclusion of their November 15 and 16 meeting in Brisbane, the G20 has published their official communiqué outlining the group’s progress, plans, and areas of focus. Financial regulatory reform remains the central focus of G20 activities. However, with the slow global recovery and disappointing job growth, the G20 announced that they expect to emphasize expanding the financial sector’s role in building a stronger and more sustainable global economy. The overall thrust of the G20’s Brisbane communiqué is that critical work remains to build a stronger, more resilient financial system. Over the next year, the group intends to continue to finalize the various elements of its policy framework that remain open, fully implement financial regulatory reforms already agreed upon, and be vigilant for new risks and unexpected consequences.

Global OTC Working Group Updates the G20

by David Schwartz J.D. CPA | Wednesday, November 19, 2014 | All, Change Overview and Rationale, Formal Regulatory Remedies

The G20’s meeting in Brisbane begins tomorrow, and international working groups have been burning the midnight oil to have their progress reports ready in time. One such group, the OTC Derivatives Regulator Group (ODRG)*, issued a report on November 7 that provides an update to the G20 Leaders regarding the ODRG’s continuing effort to identify and resolve cross-border issues associated with the implementation of the G20 OTC derivatives reform agenda. The report reflects how the ODRG has addressed, or intends to address, cross-border issues identified since the publication of the report published in advance of the St. Petersburg Summit in September 2013.

Tarullo: Liquidity Regulation Today and Tomorrow

by David Schwartz J.D. CPA | Wednesday, November 19, 2014 | All, Change Overview and Rationale, Formal Regulatory Remedies

The financial crisis of 2007-08 was a crisis of liquidity. Facing deep uncertainty about the condition of counterparties and the value of collateral assets, investors refused to offer new short-term lending or even to roll over existing repos and similar extensions of credit. As a result, many funding markets ground to a halt.

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