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Stock exchanges dealt blow as SEC moves forward with fee study
A Securities and Exchange Commission pilot will examine how the fees and rebates exchanges use to attract volume impact the market, and if they lead to conflicts of interest. While focused on technical issues of market plumbing, the SEC's study has become a lightning rod because it could portend regulatory changes that impact the exchanges' bottom lines. (Bloomberg Markets | Dec 19)
Mnuchin rounds up some usual suspects to blame for market stress
When Treasury Secretary Steven Mnuchin fingered high-frequency trading and the Volcker Rule as factors behind recent misery in the stock market he left out some other possibilities that might be contributing. H
e intends to ask the Financial Stability Oversight Council
, which he chairs, to study volatility and whether problems with the inner workings of the stock market and regulations are adding to sharp moves. (Bloomberg Politics | Dec 19)
SEC OKs waiver rule for swap dealers to work with bad actors
Security-based swap dealers will be able to get trading help from people involved in prior wrongdoing if they receive permission from the SEC or certain regulatory bodies under a new rule a divided SEC approved Wednesday. (Bloomberg Law | Dec 19)
Stock markets are wild, but bond markets can be dangerous
The sell-off in stocks isn't the only ominous economic sign emanating from financial markets. Rapidly increasing credit spreads, higher borrowing costs and a fall in the number of companies turning to the corporate bond market for finance are also flashing a warning. (The New York Times | Dec 18)
Companies must disclose executive hedging strategies
The Securities and Exchange Commission completed a long-delayed post-crisis rule that is aimed at giving investors more information about whether executives are skirting company requirements that they hold stock for the long-term. Executives will now have to disclose hedging contracts that would protect their compensation from their own firms' poor performance. (The Wall Street Journal | Dec 18)
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FSOC identifies U.S. market vulnerabilities
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Hacks, crypto, corporate debt-to-GDP ratio, no-deal Brexit
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(Dec 20) -- The day after U.S. Treasury Secretary Steven Mnuchin downplayed the risks of the $1.3 trillion leveraged loan market, the Financial Stability Oversight Council that he chairs issued a report citing a number of dangers posed by corporate borrowing.
In its annual report released Wednesday, the council flagged weakening loan standards and said that highly-leveraged deals have "surpassed pre-crisis highs." The group, whose members include the Treasury, Federal Reserve and Securities and Exchange Commission, said leveraged loans could be vulnerable to big losses in a crisis.
Other potential threats to the financial system that were listed in the report include cyber attacks, the stability of derivative clearinghouses and the transition away from the London Interbank Offered Rate.
Some key details:
- "Nonfinancial business leverage is at the upper end of historical ranges, increasing the risk of default," the 146-page report concluded. So far, businesses have kept delinquency rates low because of factors such as positive economic conditions. But there could be a "a wave of defaults in the event of a recession or a similarly large shock to business earnings," FSOC said.
- Mnuchin said in a Bloomberg interview Tuesday that he'd seen corporate-borrowing concerns expressed by other members of FSOC - a panel of regulators established after the 2008 financial crisis - but he doesn't "have the same concern at the moment."
- Mnuchin's comments ran counter to recent warnings from the Fed and the Office of the Comptroller of the Currency - an independent bureau within the Treasury Department.
- FSOC's other concerns include the threat of hackers attacking the financial system. "Such incidents have the potential to impact tens of millions of Americans and result in financial losses of billions of dollars," the report said.
- While FSOC didn't label digital currencies as a threat to financial stability, it said they do facilitate "cybercrime, fraud, extortion, drug trafficking, money laundering, and tax evasion."
- Another threat could be the collapse of a central clearinghouse, an outcome that would have a massive impact across firms and markets "due to the extent to which they are interconnected with other large and interconnected financial institutions."
- The report also highlighted the stresses of switching reference rates from Libor. FSOC also said the repo transactions, which played a key role in the 2008 crisis, remain risky.
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Key document explains 2017 tax law
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Congress's JCT releases "Bluebook"
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(Dec 20) -- Congress's official scorekeeper, the Joint Committee on Taxation, released official descriptions of the 2017 tax law changes on Thursday.
- The 457-page document, known as the JCT's "Bluebook," is Congress's official list and explanation of all the tax changes that became law last year.
- The document is used by the Treasury Department, Internal Revenue Service, corporate America and tax professionals to determine what Congress wanted when it passed the law.
- Non-partisan lawyers, accountants and economists at the JCT prepare the document and then consult with the tax-writing House Ways and Means Committee and the Senate Finance Committee.
- Businesses and tax experts are hoping the document can clear up some of the ambiguities in the law, which was quickly ushered through Congress.
- Clarifications in the document include that real estate investment trust dividends paid to a mutual fund will qualify for a 20% deduction. The trade group representing REITs estimates the change will affect 15 million shareholders who own stock in mutual funds.
If you would like a PDF copy of this document, please contact
Matthew Jones, executive director
mjones@association.institutionalINVESTORS.org
(202) 712-9050
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Cybersecurity news every Friday
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SplashData
is out with its eighth annual compilation of the worst passwords of the year
Despite years of warnings about creating secure passwords to protect personal data, in 2018 the two worst passwords of all time - "123456" and "password" - are still being used.
FINRA updates cybersecurity best practices report
The "Report on Selected Cybersecurity Practices - 2018" covers five topics addressing the evolving threat of cybercrime and the most frequent findings from its examination program.
Why satellites need cybersecurity, just like you
"Satellites aren't just military tools. What we do every day in our lives [relies] on satellites," Fanning said, pointing to GPS, phone, and power networks that all rely on satellite infrastructure. And the more we use satellites, the more potentially harmful any loss of capability is, no matter what the cause.
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Hand-curated, chosen with love
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Fine wine outperformed global equities in 2018
Liv-ex 100 - a benchmark for the fine wine market - has eluded the roller coasters experienced by global equities, trading within a 2% range throughout 2018, according to a report by London-based Liv-ex.
Disruption in the bond market
"I like to say a bad year in the bond market is like a bad pre-market futures session in stocks."
The best doesn't exist. A psychologist explains why we can't stop searching.
The world is, very roughly, divided into two types of people: satisficers, who can be content with a good-enough thing - they're perfectly fine pants, let's move on with our brief lives - and maximizers, who can't call off the search until they're certain they're getting not just a good thing but the best.
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