Change Overview and Rationale - Center for the Study of Financial Market Evolution (CSFME)

SEC Proposes Derivatives Regime for Mutual Funds, ETFs, and BDCs

by David Schwartz J.D. CPA | Monday, December 14, 2015 | All, Change Overview and Rationale, Formal Regulatory Remedies

On Friday, December 11, as previously announced, the SEC voted to propose a new rule regarding the use of derivatives by mutual funds, closed-end funds, ETFs, and business development companies. Since as far back as the 1990s under Chairman Aurthur Levitt, the SEC has been concerned about the multitude of risks derivatives can raise for funds, including risks related to leverage and liquidity. But, with the dramatic growth in the volume and complexity of the derivatives markets over the past two decades and the increased use of derivatives by certain funds, the risks to funds and the associated investor protection concerns are now significantly greater.

More Changes to Come for Repo Markets

by David Schwartz J.D. CPA | Sunday, December 13, 2015 | All, Change Overview and Rationale, Formal Regulatory Remedies

Reforms following the financial crisis have made ti-party repo far safer, finds a report published by BNY Mellon and PWC, but even greater changes lie in store. Based on a survey of market participants, the report found that the repo markets remain in a period of dramatic transition. While concluding that regulation and ongoing reform will continue to have a major effect on wholesale funding, the report also predicts that market forces and changes in the structure and profitability of the business will have major effects on repo volumes and economics over the next few years.

Fed Remains Concerned About Firesale Risks

by David Schwartz J.D. CPA | Thursday, November 19, 2015 | All, Change Overview and Rationale, Formal Regulatory Remedies

In a January 30, 2015 address, Federal Reserve Board Governor Daniel K. Tarullo once again voiced the Fed’s concerns about the systemic risk posed by potential firesales in the asset management industry. Tarullo indicated that as regulators implement reforms under the Basel and FSB proposals and frameworks, they should take into account the “system-wide demands on liquidity during stress periods and correlated risks among asset managers that could exacerbate liquidity, redemption and fire-sale pressures.”

U.S. Leads the Way in Money Market Reform

by David Schwartz J.D. CPA | Thursday, November 19, 2015 | All, Change Overview and Rationale, Formal Regulatory Remedies

In a report published earlier this week, the Board of the International Organization of Securities Commissions (IOSCO) found that, among the major jurisdictions in the money market fund (MMF) industry, the United States has made the most progress in regulatory reforms. Using the most current data available, IOSCO determined that the global MMF market is dominated by five jurisdictions: the U.S., France, Luxembourg, Ireland and China. Together, these five jurisdictions account for just under 90% of global assets under management in MMFs.

FSOC Focused on Asset Management and Reaching a Broader Audience

by David Schwartz J.D. CPA | Monday, November 16, 2015 | All, Change Overview and Rationale, Formal Regulatory Remedies

During their most recent meeting, the Financial Stability Oversight Council revealed that the asset management sector remains an area of concern to the super-regulator. According to minutes of the November 2, 2015 meeting, the FSOC has identified six categories of potential risk arising from the asset management sector and is conducting ongoing analyses with an eye toward more regulation.

DTCC Studies the Risks of Interconnectedness

by David Schwartz J.D. CPA | Wednesday, October 28, 2015 | All, Change Overview and Rationale

The financial crisis made clear that interconnectedness and complexity have the potential to magnify localized shocks and amplify and transmit them to the greater financial system. Understanding the risks posed by our ever more interconnected global financial system is crucial to managing those risks.

FINRA Will Repeat Liquidity Stress Tests in 2016

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

In a preview of FINRA’s 2016 letter on regulatory priorities and emerging risks, FINRA’s CEO, Richard Ketchum said that FINRA’s exam focus in the upcoming year will be on three key issues: outsourcing, cyber risk and liquidity concerns. Ketcham also said that FINRA will repeat “some version” of its liquidity stress tests in 2016, further indicating that these stress tests will be an ongoing focus of FINRA.

Summer 2015 Financial Regulatory Update

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

The Fed, Financial Stability Board, and the Bank for International Settlements have beein quite busy this summer, and each issued rules or consultations in July furthering Basel III initiatives. On July 1, the Basel Committee issued a consultative document on its review of the credit valuation adjustment risk framework; on July 2, the FSB launched a peer review on the implementation of its policy framework for financial stability risks posed by non-bank financial entities other than money market funds (i.e., shadow banks”); and on July 20, the Fed finalized its capital surcharge rule for the eight US global systemically important banks (G-SIBs).

B of E Explores Accepting Equities as Collateral

by David Schwartz J.D. CPA | Wednesday, October 14, 2015 | All, Change Overview and Rationale, Formal Regulatory Remedies, Procedural Changes

In a speech in July before at the Money Markets Liaison Committee in London, Chris Salmon, Executive Director, Markets, Bank of England hinted that the Bank of England was exploring means by which it could accept equities as collateral for its market operations, should the need arise. Although short on details, Mr. Salmon said that removing roadblcoks to accepting equities as collateral would bolster the bank’s flexibility in times of stress as well as in normal market conditions.

“At present, the Bank accepts a very broad range of collateral, including government bonds, asset backed securities and pools of ‘raw’ loans. But the Bank can further bolster its flexibility by removing any technical obstacles to accepting equities as collateral, should the need arise.”

While short on details, Mr. Salmon did indicate that the regulatory and other work necessary to facilitate the Bank’s acceptance of equities as collateral would take place through the balance of 2015 and well into 2016.

Regulators Focus on Liquidity Risk Management

by David Schwartz J.D. CPA | Tuesday, September 22, 2015 | All, Change Overview and Rationale, Formal Regulatory Remedies

Since the liquidity freeze during the financial crisis, liquidity risk management has been a concern to regulators thorughout the financial industry. Last week, the the SEC proposed new rules addressing liquidity management in open end funds and the Financial Industry Regulatory Authority issued guidance regarding effective liquidity management at broker-dealers.

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Change Overview and Rationale