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

Apple Sauce or Orange Juice?

by Ed Blount | Friday, June 11, 2021 | All, Commentary, Cross-Post

Databases designed for specific purposes often fail when asked to solve a different problem. As an example, the securities finance databases of leading data providers such as FIS Astec, Datalend, and IHS Markit, designed more than 20 years ago for performance benchmarking, are inadequate when queried for the purpose of the loans themselves. Even regulatory databases enriched with new SFTR filings can only help supervisors monitor leverage based on end-of-day positions, and are unable to determine the propriety of the loans without mapped flow data.

Get Your ESG House in Order

by David Schwartz J.D. CPA | Friday, May 21, 2021 | All, Commentary, Cross-Post, Formal Regulatory Remedies

Environmental, social, and governance (ESG) investing has taken global financial markets by storm over the last few years. Post-pandemic, the demand for ESG investments has only intensified and has proven to be much more durable than a fad. However, lack of consistency and transparency threatens the trustworthiness of ESG as a category, and has led to accusations of ‘greenwashing.’

Live by the Sword. Die by the Sword. Part 1

by David Schwartz J.D. CPA | Tuesday, May 11, 2021 | All, Commentary, Cross-Post

January’s GameStop frenzy, where amateur online retail traders took what they hoped would be a rollicking joyride through the world of high finance, has left regulators scratching their heads about what to do next and the retail buccaneers themselves with quite a hangover.

Fund Advisers Brace for ESG Scrutiny

by David Schwartz J.D. CPA | Thursday, April 22, 2021 | All, Commentary, Cross-Post

After nearly twenty years of study, the Securities and Exchange Commission seems poised to rewrite the rules on proxy disclosure for mutual funds. Two SEC commissioners predicted within days of each other that there will be radical revisions to how regulated investment companies will report their proxy voting behavior. Both Acting Chair Allison Herren Lee and Commissioner Caroline Crenshaw said in separate speeches last month that the SEC’s current proxy reporting form is not meeting the needs of investors.

SEC’s ESG Momentum Turns to Proxy Voting

by David Schwartz J.D. CPA | Monday, April 12, 2021 | All, Cross-Post

Allison Herren Lee, the Securities and Exchange Commission’s acting chair, called for more disclosure and transparency about proxy voting by mutual funds and institutional investors to ensure they line up with shareholder sentiment, particularly environmental, social, and governance (ESG) issues.

Reddit Trading and Resilience in U.S. Equity Finance Part 3

by Ed Blount | Monday, March 29, 2021 | All, Cross-Post

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.

The SEC Puts ESG Mutual Funds to the Test

by David Schwartz J.D. CPA | Friday, March 19, 2021 | All, Cross-Post

Interest in ESG investing and the broader area of sustainable finance has exploded over the past few years. Both institutional and retail investors are clamoring for ESG investment options. According to one recent Morgan Stanley survey, 95% of millennials and 85% of all investors are now interested in sustainable investing strategies. Consequently, the highly competitive mutual fund industry has gone into overdrive, creating ESG mutual funds to attract these investors. Given the high demand and the growth of new mutual funds aimed at these ESG-conscious investors, it was only a matter of time before the regulators noticed. Over the past year, the SEC has been unfolding a larger plan to police and regulate sustainable and ESG finance.

EU Tips the Scales toward ESG-Friendly Financial Firms

by David Schwartz J.D. CPA | Friday, March 19, 2021 | All, Cross-Post

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.

Reddit Trading and Resilience in U.S. Equity Finance Part 2

by Ed Blount | Wednesday, March 17, 2021 | All, Cross-Post, Formal Regulatory Remedies

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.

A large class-action lawsuit has cited, as evidence of an anti-trust conspiracy, the alleged wave of selling by hedge funds and institutions in the overnight markets of January 27th, 2021. Plaintiffs allege that the hedge funds, their brokers and the institutional investors conspired to prevent further increases in the prices for the contested issues, which would have deepened their already-substantial losses.

Reddit Trading and Resilience in U.S. Equity Finance Part 1

by Ed Blount | Thursday, March 11, 2021 | All, Cross-Post, Formal Regulatory Remedies

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.

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