News
Treasury Department’s Singh Addresses the Future of Treasury Markets
On May 24, 3016 at the SIFMA Fixed Income Market Structure Seminar, Daleep Singh, the Department of the Treasury’s Acting Assistant Secretary for Financial Markets, provided an overview of the findings from the Treasury’s January 2016 request for information from industry on the future of the Treasury markets (RFI). The RFI sought input on changes in the treasury market structure, implications for changes in market fiction, and risk management policies and practices. Mr. Singh used his keynote address at the SIFMA event to summarize some of the comments received and findings from the RFI.
Surprise! Market Theories Fail in Real-World Tests!!
“There is nothing less practical than a bad theory,” wrote CEO Paul Shott Stevens of the Investment Company Institute (ICI) in a July 2016 blog. Mr. Stevens introduced a series of recent findings that the ICI suggests may present a rebuttal to their members of the “first-mover” hypothesis. What is that, one may ask, and why should I care?
Just How do Mutual Funds Use Derivatives Anyway?
As a companion to the SEC’s recent proposed rules on the use of derivatives by registered investment companies, the SEC’s Office of Risk Analysis has published a white paper studying just how funds use derivatives. Based on data from Forms N-CSR and N-SAR supplemented with information from Morningstar, the study’s authors assembled data on derivatives positions held by 10 percent of funds registered in 2014. Because section 18 of the Investment Company Act restricts the ability of a fund to issue “senior securities,” the study focuses on those derivatives (and certain financial commitment transactions) that implicate section 18.[1] These kinds of derivative positions can potentially present “senior security” issues because a fund that enters into these transactions is or may be required to make a payment or deliver cash or other assets during the life of the instrument or at maturity or early termination.
April Fed Statistics Reveal Decrease in Collateral in the U.S. Tri-Party Repo Market
The Federal Reserve Bank of New York’s (Fed) recently released its April 2016 statistics for the U.S. Tri-Party Repo Market reveal that between March 9, 2016 and April 11, 2016, total tri-party repo collateral decreased by approximately $82 billion to $1.517 trillion. The bulk of the decrease in collateral was attributed to US Treasuries, excluding Strips. The collateral value for US Treasuries Strips actually increased slightly from approximately $32 billion to $35 billion. Reversing an increase in March, April figures show that equities collateral decreased by $5 billion to total collateral of $113.5 billion, a 12-month low. The data showed very little change in the collateral value for agency MBS which saw a slight decrease of $820 million to a total value of $419.54 billion.
FSB’s Americas Group Concerned about Decline in Correspondent Banking Services
On May 26 and 27, 2016, the Financial Stability Board (FSB) Regional Consultative Group (RCG) for the Americas convened in Montréal for a series of round tables covering the decline in correspondent banking services and issues relating to asset management activities. The RCG for the Americas is one of six Regional Consultative Groups established under the FSB Charter to provide a forum for FSB outreach to a wider range of countries in the region beyond the FSB membership on potential vulnerabilities affecting the region, on FSB initiatives, and on other measures that could be taken to promote financial stability.
Treasury Department Assesses Liquidity in Fixed Income Markets
On May 5, 2016, the Department of the Treasury kicked off a series of blog posts on the fixed income market intended to “share our perspective on the available data, discuss key structural and cyclical trends, and reiterate our policy priorities.” The posts are authored by a team of seasoned Treasury officials: James Clark, Deputy Assistant Secretary for Federal Finance; Chris Cameron, financial mathematician; and Gabriel Mann, policy advisor in the Office of Debt Management at the U.S. Treasury Department.
FSB Review Concludes that Taming of Shadow Banking is Far From Complete
According to a peer review published the by Financial Stability Board (FSB) on May 25, 2016, regulation of shadow banking remains at an early stage, and much progress remains to be made. According to the report, notwithstanding the progress made, “more work is needed to ensure that jurisdictions can comprehensively assess and respond to potential shadow banking risks posed by non-bank financial entities, and support FSB risk assessments and policy discussion.”
Transfer Agent Regulation Poised to Step Into the 21st Century
On December 22, 2015, the Securities and Exchange Commission left a present in all our stockings with its publication of a 208-page advanced notice of proposed rule making and concept release on the regulation of transfer agents. Modernizing the aging rules for transfer agents has been rumored for awhile, but no doubt fell behind other priorities related to the financial crisis and Dodd-Frank mandates. Commissioner Luis Aguilar and now former Commissioner Daniel Gallagher have both been fairly vocal about the need for new transfer agency rules. Both would have preferred an actual rule proposal, but apparently will have to settle for an advanced notice/concept release at this stage.
Basel Chair Calls for More Research into Bank Risk Models
In his December 2, 2016 keynote speech at the second Conference on Banking Development, Stability and Sustainability, Basel Committee Chairman Stefan Ingves invited the financial industry and academics to help better calibrate capital and liquidity standards. As the Committee finalizes Basel III, Ingves said that he welcomes research and rigorous analysis of how the Committee should think about the capital benefits of allowing banks to use internally modeled approaches to calibrate appropriate capital floors.
BIS Publishes Survey on Integration of Regulatory Capital and Liquidity Instruments
In March 2016, the Bank for International Settlements (BIS) published a paper reviewing the current knowledge and empirical data on the effects of new bank capital and liquidity requirements. This literature review is comprised of three essays surveying the current body of research and empirical studies on liquidity and its interaction with capital and on other supervisory requirements.