Formal Regulatory Remedies - Center for the Study of Financial Market Evolution (CSFME)

Dodd-Frank Developments Affecting Swaps

by David Schwartz J.D. CPA | Wednesday, October 12, 2011 | All, Change Overview and Rationale, Formal Regulatory Remedies, Procedural Changes

For the most part, provisions of the Dodd–Frank Wall Street Reform and Consumer Protection Act (Pub. L. No. 111-203, H.R. 4173 (the Act) relating to derivatives are aimed at increasing transparency, altering clearing and exchange trading requirements, regulation of swap dealers and other swap market participants, restrictions on swaps trading by banks and associated increases in capital and margin requirements. The Act leaves many of the details of implementation to regulators. With over a year behind us, we can now reflect on what regulators have proposed, adopted, and left unfinished with regard to swaps.

Proposed UK Financial Services Bill Would Radically Change UK Regulatory Structure

by David Schwartz J.D. CPA | Monday, September 19, 2011 | All, Change Overview and Rationale, Formal Regulatory Remedies

The Chancellor of the Exchequer has proposed a radical reformulation of financial services regulation in the UK unifying for the first time macro-prudential regulation, day-to-day oversight, and conduct of business regulation of all financial services firms. Under the UK’s current tripartite system, HM Treasury, the Bank of England, and the Financial Services Authority (FSA) share responsibilities. All three entities have come under fire for failing to anticipate the financial crisis, and the tripartite system has been blamed on many fronts for failing to deal with the crisis in a timely and effective manner. This legislation seeks to address some of the division and miscoordination alleged to have occurred amongst the tripartite entities. The proposed three new structure would do away with the FSA, and unify regulation and supervision under new structures housed in the Bank of England.

Senate Finance Committee Asks for Volcker Rule Delays and Revisions

by David Schwartz J.D. CPA | Monday, September 19, 2011 | All, Formal Regulatory Remedies

In a December 7 letter to the Fed, SEC, CFTC, OCC, and FDIC, House Financial Services Committee Chair Spencer Bachus (R-ALA) requested that the comment period for the proposed regulations implementing the Dodd-Frank Volcker Rule be extended for at least 30 days to accommodate a January 18, 2012 Financial Services Committee hearing. At present, the comment period for the regulations expires on January 13, 2012.

European Central Bank Introduces New Data Sets

by David Schwartz J.D. CPA | Wednesday, September 14, 2011 | All, Disclosure Regimes, Formal Regulatory Remedies, Procedural Changes

“Not least the frequently cited deficiencies of the Greek statistical system (with respect to both methodological and institutional aspects) have reminded us of the importance of reliable, accurate and timely statistics for the functioning and credibility of our whole system.” Market events over the past several years have made it quite clear that meaningful and transparent financial data are vital to effective monitoring of market participants as well as understanding the scale of the shadow banking activities and their interconnectedness with the traditional banking system. In a June address in Frankfort, Jürgen Stark, a member of the Executive Board of the European Central Bank (ECB), announced new statistical data sets intended to improve the existing balance sheet and interest rate reporting by “monetary financial institutions.” The ECB has introduced these new data sets as part of their effort develop relevant and real-time policies to assess systematic risks and keep apace of innovations and movements in the financial landscape.

US Banking Regulators Seek Additional Comment on Market Risk Capital Rules

by David Schwartz J.D. CPA | Friday, August 19, 2011 | All, Formal Regulatory Remedies

The Fed, the FDIC and the OCC have issued a release seeking additional comment on proposed modifications to the agencies’ market risk capital rules for banks with significant trading activities. This release amends a December 2010 proposal, and includes alternative standards of creditworthiness to be used in place of credit ratings to determine the capital requirements for certain debt and securitization positions covered by the market risk capital rules.

House Subcommittee Approves Legislation Allowing Pension Plans to Use Swaps to Hedge Risks

by David Schwartz J.D. CPA | Sunday, June 19, 2011 | All, Formal Regulatory Remedies

On November 15, the House Capital Markets Subcommittee approved legislation that would amend the Employee Retirement Income Security Act, the Commodity Exchange Act, and the Securities Exchange Act to ensure that pension plans can use swaps to hedge risks. The Retirement Income Protection Act, HR 3045, sponsored by Rep. Francisco Canseco (R-TX), and co-sponsored by Chairman Scott Garrett (R-NJ), was approved on a partisan vote of 19-14. The purpose of the bill is to address regulatory interpretations of Dodd-Frank Title VII that could potentially prohibit pension plans from using swaps to hedge against market volatility and manage the obligations owed to retirees.

FSB Identifies Five Areas for Detailed Study

by David Schwartz J.D. CPA | Thursday, May 19, 2011 | All, Change Overview and Rationale, Formal Regulatory Remedies, Procedural Changes

The Financial Stability Board announced on September 1 the formation of dedicated work streams to help gauge the case for further regulatory action in five areas associated with shadow banking, notably including securities lending and repos.

FSB Task Force Frames the Regulation of Shadow Banking

by David Schwartz J.D. CPA | Wednesday, April 27, 2011 | All, Change Overview and Rationale, Formal Regulatory Remedies

The “shadow” banking system played a major role in the financial crisis, but was not a central focus of many countries’ reform legislation and potentially remains largely unregulated. At the November 2010 Seoul Summit, the G20 Leaders heralded the development of new bank capital and liquidity requirements under Basel III. But concerned by the growing importance of the “shadow banking system,” which grew out of the securitization of assets and the integration of banking with capital market developments, the G20 Leaders called on the Financial Stability Board (FSB), in collaboration with other international standard setting bodies, to develop recommendations to strengthen the oversight and regulation of the “shadow banking system” by mid-2011.

FSB Red-flags Securities Lending by ETFs

by David Schwartz J.D. CPA | Tuesday, April 19, 2011 | All, Formal Regulatory Remedies, Procedural Changes

In a report issued April 12, 2011, the Financial Stability Board (FSB) highlighted a number of practices engaged in by exchange-traded funds that may be sources of risk to financial stability. Calling for greater disclosure and transparency, securities lending was among the practices red-flagged by the FSB.

The FSB warns that in the low margin environment of ETFs, pressures to boost returns may provide undue incentives to aggressively, and potentially unwisely, lend the underlying securities of the ETF.

Taiwan Moves to Discourage Short Selling and Securities Lending

by David Schwartz J.D. CPA | Saturday, February 19, 2011 | All, Formal Regulatory Remedies, Procedural Changes

Taiwan has recently taken steps to curb short selling and securities lending to address extreme share price volatility. In an effort to stabilize equity markets, Taiwan’s Financial Supervisory Commission on November 21 set a new daily limit on short selling of stocks. According to the new daily cap, only 20 percent of average trading volume in the last 30 sessions could be used for short-selling. The previous rules permitted short-selling of up to 3 percent of the company’s total outstanding shares.

In addition, regulators called Taiwanese insurance companies and state pension funds directly to urge them to stop lending securities to short sellers and asked securities borrowers to return their loaned shares in a bid to reduce the volume of short selling and prevent further volatility in share prices.

Category:
Formal Regulatory Remedies