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

Collateral Analysis:

by David Schwartz J.D. CPA | Tuesday, October 15, 2013 | All, Traditions

Nineteenth century commercial banks earned their profits to a large extent by financing the inventories of shopkeepers and their supply chains. The expansion of manufacturing during the Industrial Revolution resulted in lower prices, broader distribution channels and an explosion in mercantile trade. As the first department stores were developed in the early 1850s, merchants increasingly asked for greater lines of credit to support their growing businesses. The standards used by bankers to evaluate their customers were described by J.S. Gibbons in The Banks of New York, Their Dealers, The Clearing House, and the Panic of 1857, which was published in 1858 by D. Appleton & Co. in New York.

Do Credit Derivatives Make the Concept of Insider Trading Meaningless?

by David Schwartz J.D. CPA | Monday, October 14, 2013 | All, Change Overview and Rationale, Procedural Changes

In his paper published August 28, 2013, Yesha Yadav of Vanderbilt Law School posits that the rise of derivatives like credit default swaps (CDS) has made the concept of insider trading inoperable in markets where these derivatives trade. Yadav’s paper, “Insider Trading in the Derivatives Market (and What it Means for Everyone Else),” asserts that the credit derivatives markets actually may be more efficient by factoring in insider knowledge and transmitting this information more freely.

According to Yadav, the operation of the CDS market changes the assumption that shareholders lose when insiders trade using non-public information.

Prior to Dodd-Frank, the CDS market lived outside the insider trading rules, and the credit derivative market has operated using insider knowledge almost freely. New rules, however, expand the reach of the insider trading prohibition explicitly including the credit derivatives market.

Fed Begins Testing of Full-Allotment Overnight Reverse Repo Facility

by David Schwartz J.D. CPA | Monday, September 23, 2013 | All, Change Overview and Rationale, Formal Regulatory Remedies

“The purpose of the [full-allotment overnight reverse repo] facility is to establish a floor on money market rates and to improve the implementation of monetary policy even when the balance sheet is large. Even if our balance sheet increases significantly further and stays very large for many years, it will be useful to have this facility available to improve monetary policy control.”

25 Fordham Students Get the Chance to Peer Behind the Regulatory Curtain

by David Schwartz J.D. CPA | Thursday, September 19, 2013 | All

On Wednesday, March 27, 2013, twenty-five lucky college students had the opportunity to travel to Washington, DC to visit some of the nation’s most important government agencies, and meet policy makers to discuss the nation’s economic governance.

CFTC Kicks Cross-Border Swaps Guidance Further Down the Road

by David Schwartz J.D. CPA | Thursday, September 19, 2013 | All, Formal Regulatory Remedies

On December 21, 2012, the CFTC issued a final exemptive order providing temporary relief from compliance with certain swap regulations and further proposed guidance relating to the application of certain swap-related provisions of the U.S. Commodity Exchange Act to swap activities outside the United States. The December 21 exemptive order adopts a number of provisions proposed by the CFTC in a July 2012 release, and addresses many of the topics covered in the CFTC’s proposed cross-border guidance (“Proposed Cross-Border Guidance”) also issued in July 2012.

FSB Issues its Final Policy Framework on Sec Lending and Repo

by David Schwartz J.D. CPA | Thursday, September 12, 2013 | All, Change Overview and Rationale, Disclosure Regimes, Formal Regulatory Remedies, Procedural Changes

On August 29, 2013, the Financial Stability Board (FSB) issued its finalized policy framework for its securities lending and repo workstream. As part of a larger examination of shadow banking, the FSB focused on five specific areas in which policies are needed to mitigate the potential systemic risks associated with shadow banking, with one of these five areas being securities lending and repo. Following up on their November 2012 consultation paper, the FSB has issued its final Policy Framework for Addressing Shadow Banking Risks in Securities Lending and Repos. This document sets out recommendations for addressing financial stability risks in this area, including enhanced transparency, regulation of securities financing, and improvements to market structure. It also includes consultative proposals on minimum standards for methodologies to calculate haircuts on noncentrally cleared securities financing transactions and a framework of numerical haircut floors.

A New Perspective on Financial Innovation and Risk

by David Schwartz J.D. CPA | Monday, August 26, 2013 | All

While the traditional view of financial innovation emphasizes the risk sharing role of new financial assets, belief disagreements about these assets naturally lead to speculation, which represents a powerful economic force in the opposite direction. Theoretically,...

European Parliament Skeptical of FSB Approach to Minimum Haircuts

by David Schwartz J.D. CPA | Wednesday, August 21, 2013 | All, Change Overview and Rationale, Formal Regulatory Remedies

In an effort to combat the pro-cyclicality caused by changes in repo and securities lending haircuts during a crisis, the Financial Stability Board has proposed to introduce minimum standards for the calculation of haircuts. In the belief that higher haircuts would curb the procyclical effect of risky assets and curtail the build-up of excessive leverage, they are also considering putting a floor under haircut calculations.

EU Regulators Sign Cross-Border Hedge Fund Regulation Pact with US and Others

by David Schwartz J.D. CPA | Monday, August 19, 2013 | All, Formal Regulatory Remedies, Procedural Changes

The European Securities and Markets Authority (ESMA) has approve cooperation agreements with seven global counterparts in five jurisdictions. These agreements with regulators in the Bahamas, Japan, Malaysia, Mexico and the United States formalize details of cooperations in the supervision of alternative investment funds, including hedge funds, private equity and real estate funds.

Mutual Funds Get Guidance and Relief for Commodity Investments

by David Schwartz J.D. CPA | Monday, August 19, 2013 | All, Disclosure Regimes, Formal Regulatory Remedies

Given their strict regulatory regime, the use of commodities has long been a sticky subject for mutual funds. At the same time, however, the competitive environment for returns amongst mutual funds has made use of derivatives and commodity interests by registered investment companies much more common, with even funds that previously eschewed these instruments finding them useful and necessary.

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