Change Overview and Rationale
High frequency trading is once again in the sights of Congress. The use of sophisticated computer algorithms to trade securities on a rapid basis at speeds far beyond the capabilities of human beings garnered much attention in the wake of the 2010 Flash Crash, as well as the more recent BATS IPO and Knight Capital fiascos.
Repo is very much in the news lately, even coming up on the radar screen of the New York Times’ Gretchen Morgenson. Morgenson penned an article in the Times’ September 14, 2013 issue, After a Financial Flood, Pipes Are Still Broken, in which she worries that despite new rules on derivatives, the repo market remains largely unregulated.
The Bank of England and the US FDIC have issued a joint white paper, “Resolving Globally Active, Systemically Important, Financial Institutions,” focusing on “top-down” resolution strategies that involve a single resolution authority applying its powers to the top of a globally active and systematically important financial group, that is, at the parent company level. The December 10, 2012 paper discusses how such a top-down strategy could be implemented for a U.S. or a U.K. financial group in a cross-border context.
On December 19, 2012, the European Commission adopted technical standards on the European Markets Infrastructure Regulation (EMIR) as well as a Delegated Regulation supplementing the Directive on Alternative Investment Fund Managers (AIFMD) (called “Level 2 measures”). These two measures have been under formulation and consideration since 2010, and the technical standards adopted on December 19 meet important preconditions to implementing EMIR and AIFMD throughout all EU member countries.
“Securities lending is a potentially pro-cyclical source of funding, raising the possibility that participants will have to dump securities during times of financial stress. It can lead to unexpected connections among disparate market players, such as insurance companies and hedge funds. As a result, securities lending may contribute to the opacity of the financial system and erode the willingness of participants to take on counterparty risk. In addition, it is a source of contagion, with the distress of one firm ramifying throughout the financial system in unpredictable ways.”
In response to interpretive questions received from banking officials, finance ministers, regulators, bankers and other industry players, the Bank for International Settlements (BIS) has issued further clarifications to their regulatory frameworks for capital and liquidity as well as the interim framework for determining capital requirements for bank exposures to central counterparties. The December 2012 publication … Continue reading “Basel Provides More Clarity on Capital and Liquidity Frameworks, CCP ExposuresNotice”
“The outflow of money fund assets to an unregulated market is a significant systemic risk concern, and can result in harm to our market and investors.”
Paul Volcker, former Federal Reserve Chairman and architect of the Volcker Rule, testified On October 17, 2012 before a joint British Parliamentary Commission on banking standards. He answered questions on the differences between the US and UK banking systems along with questions that focused specifically on America’s recent experiences with regulatory reform.
“We have consistently questioned the necessity and efficacy of the Volcker Rule and believe that its full repeal is the only way to avoid the harm that it would do to the economy, bank customers, and the banking industry.”
What does the exodus of senior officials at the SEC mean for the future of securities regulation? This month, the SEC announced that the agency’s chair, two division heads, and the general counsel and chief of staff will leave their posts. Though it is not unusual for political appointees, like the SEC chair and commissioners to end their tenures after a Presidential election, it is not typical that the senior staff does so.