News
FSB Issues its Final Policy Framework on Sec Lending and Repo
On August 29, 2013, the Financial Stability Board (FSB) issued its finalized policy framework for its securities lending and repo workstream. As part of a larger examination of shadow banking, the FSB focused on five specific areas in which policies are needed to mitigate the potential systemic risks associated with shadow banking, with one of these five areas being securities lending and repo. Following up on their November 2012 consultation paper, the FSB has issued its final Policy Framework for Addressing Shadow Banking Risks in Securities Lending and Repos. This document sets out recommendations for addressing financial stability risks in this area, including enhanced transparency, regulation of securities financing, and improvements to market structure. It also includes consultative proposals on minimum standards for methodologies to calculate haircuts on noncentrally cleared securities financing transactions and a framework of numerical haircut floors.
A New Perspective on Financial Innovation and Risk
While the traditional view of financial innovation emphasizes the risk sharing role of new financial assets, belief disagreements about these assets naturally lead to speculation, which represents a powerful economic force in the opposite direction. Theoretically,...
European Parliament Skeptical of FSB Approach to Minimum Haircuts
In an effort to combat the pro-cyclicality caused by changes in repo and securities lending haircuts during a crisis, the Financial Stability Board has proposed to introduce minimum standards for the calculation of haircuts. In the belief that higher haircuts would curb the procyclical effect of risky assets and curtail the build-up of excessive leverage, they are also considering putting a floor under haircut calculations.
EU Regulators Sign Cross-Border Hedge Fund Regulation Pact with US and Others
The European Securities and Markets Authority (ESMA) has approve cooperation agreements with seven global counterparts in five jurisdictions. These agreements with regulators in the Bahamas, Japan, Malaysia, Mexico and the United States formalize details of cooperations in the supervision of alternative investment funds, including hedge funds, private equity and real estate funds.
Mutual Funds Get Guidance and Relief for Commodity Investments
Given their strict regulatory regime, the use of commodities has long been a sticky subject for mutual funds. At the same time, however, the competitive environment for returns amongst mutual funds has made use of derivatives and commodity interests by registered investment companies much more common, with even funds that previously eschewed these instruments finding them useful and necessary.
Tri-Party Repo Update: NY Fed Looks at Data and Best Practices.
The financial crisis revealed weaknesses in the design of the U.S. tri-party repo market that could potentially amplify and propagate systemic risk. Since that time, the New York Federal Reserve Bank has monitored closely the tri-party repo market, and its Treasury Markets Practice Group has explored practical ways to address the risks inherent in the U.S. tri-party repo system. In April, the New York Fed updated its statistics on the U.S. tri-party repo market, and the Treasury Markets Practice Group proposed an update to its best practices to support more timely trade confirmations.
Fed Sheds Some Light on “Systematically Important” Non-Banks
The Federal Reserve Board has approved rules making it clearer which non-banks can be swept into the Board’s regulatory ambit and under what circumstances they may be “systematically important.” The March 29, 2013 release lays out the Fed’s requirements for determining when a company is “predominantly engaged in financial activities,” and defines the terms, “significant nonbank financial company” and “significant bank holding company.”
Is it Time for Global Financial Regulation With Teeth?
In a globally interconnected marketplace, just how effective can country-by-country regulation really be? According to David Wright, Secretary General of IOSCO, this fragmented regulation from jurisdiction to jurisdiction may be doing more harm than good. The tools currently being used to coordinate financial regulation internationally are too soft, Wright says.
A Mixed Mid-Year Scorecard for Securities Class Action Lawsuits
Jonathan C. Dickey, partner and Co-Chair of the National Securities Litigation Practice Group at Gibson, Dunn & Crutcher LLP, has published his mid-year review of securities class action lawsuits on Harvard’s corporate governance and Financial Regulation blog. Twice a year Dickey surveys the class action lawsuit landscape looking for filing and settlement trends.
August 2013 Financial Services Legislative Update
As they depart for the August recess, Congress has left some financial regulatory issues open to occupy their time upon their return next month. Bills addressing high frequency trading, exempting banks as municipal advisers, and relief for brokers engaging in private mergers and acquisition transactions remain open items for the new session. In addition, Congress is still waiting for answers from the SEC and CFTC regarding new cross-border derivatives regulations.