• 16 August 2019
    The rise of digital finance and the need to invest to respond to climate change are likely to be the major, cross-sectoral themes of the next European Commission, whose top officials are due to take office in November.

    Freed from the need to firefight a crisis, financial regulators may seek to latch on to wider political trends; and it already seems clear what they will be.

    One is the need to limit, or at least adapt to, global warming, where finance must play its part: the commission reckons 180 billion euros ($202 billion) a year will be needed to cut the bloc’s dependence on fossil fuels. Another is the rise of information and communications technology, which is bringing its mix of disruptive threats and opportunities to banking, insurance and investment.

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  • 15 August 2019
    A US Commodity Futures Trading Commission proposal should allow for broader input from industry in its process for ending US customer access to a particular foreign futures and options market, industry players said.

    The CFTC has proposed clarifying how it can terminate relief that permits US clients to buy derivatives overseas. The commission might act in response to a foreign regulator’s change in policy on customer funds, for example.

    Under the proposal, only the overseas authority or self-regulatory organization that filed the original relief petition would be given an opportunity to respond to CFTC plans — not dealers and US customers.

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  • 14 August 2019
    Mutual funds that invest in less-liquid securities such as small-cap equities and high-yield corporate bonds undergo further liquidity declines following negative economic and market news, a US Federal Reserve study found.

    “The effect is more pronounced during stress periods, suggesting that a deterioration in the funds’ liquidity could amplify vulnerabilities in situations of already weak macroeconomic conditions,” the recent study said.

    The 27-page report added: “If investors perceive that the liquidity of the fund they are invested in is at risk, they might run on the fund, in a process similar to a bank run”.

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  • 13 August 2019
    The Volcker Rule hasn’t reduced banks’ risk-taking in corporate bond trading, has squeezed liquidity in this activity, and has resulted in higher trading markups charged to corporate bond clients, the US Office of Financial Research said in its first study under Trump appointee Dino Falaschetti.

    “This paper suggests that the rule in its current form is not reducing dealer risk-taking in corporate bonds and may be increasing the spreads charged by covered dealers,” the working paper said.

    The report is likely to lend support to the US Federal Reserve’s plan to revamp and simplify the 2014 Dodd-Frank Act rule reviled by Wall Street. The rule prohibits federally insured banks from making bets with their own money and from owning or controlling hedge funds or private equity funds.

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  • 07 August 2019
    Regulators and market participants are considering how to align Libor transition practices internationally in part to boost development of the cross-currency market in new interest-rate benchmarks, the International Organization of Securities Commissions said.

    “Many loans are multi-currency, and inconsistency in conventions can cause potential complications,” said Iosco’s statement last week urging industry substitution of risk-free rates, or RFRs, for the fading Libor benchmark.

    It added: “This issue is important in part to help the cross-currency market develop in RFRs.”

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