Week InReview: April 21, 2017

"What does it tell you about the fiduciary rule that (1) big brokerages are shifting to fee-based accounts even before the rule goes into effect (and even though it may never go into effect), (2) investors seem happy about that, and (3) the brokerages are even happier about it?

'Besides positioning themselves to better compete with the rise of smaller, independent rivals and investors' growing preference for passive investments, brokerage executives found that fees for advice and services could be more lucrative over the longer term compared with commissions. Researcher Morningstar Inc. says fee-based accounts can yield as much as 50% more revenue than commission accounts.' On the one hand, it does suggest that some criticism of the rule - that it would make retirement advice more expensive - might be correct.

On the other hand, people seem happy to pay more for better, unconflicted advice. And perhaps it doesn't matter much one way or the other: If everyone switches to fee-based accounts without the fiduciary rule, then the debates about the fiduciary rule will seem a little pointless."
Matt Levine Fraud, Satisfaction and Bubbles

Week InReview: April 14, 2017

"Underneath the relative stability in headline measures of activity and pricing, there are signs of banks being less willing to undertake repo market intermediation, compared to the period before the crisis. The volatility in prices and volumes around balance sheet reporting dates can be associated with banks in some jurisdictions contracting their repo exposure in order to 'window dress' their regulatory ratios." The Bank for International Settlements in a report about repo market functioning

Week InReview: April 7, 2017

Those crowdsourced, DIY quant trading platforms - "The bet of quantitative-retail platforms is that, if extensive real-time data from financial marketplaces is available to anyone, anywhere, with the talent to write algorithms, might we be living in an era where a smart kid in Bangkok with a mathematical bent and a modest grasp of JavaScript can attract investors in the way that a Wall Street investment bank can?"
Trading places: the rise of the DIY hedge fund - Wired magazine

Week InReview: March 31, 2017

"I compare the timing of information acquisition among institutional investors and sell-side analysts, and I show that hedge fund trades predict the direction of subsequent analyst ratings change reports while other investors' trades do not. In addition, hedge funds reverse trades after analyst reports, while other investors follow the analysts. Finally, I show that hedge funds perform best among stocks with high analyst coverage. These results suggest that hedge funds have superior information acquisition skills, and that analysts assist hedge funds in exploiting information acquisition advantages."

From a working paper by Nathan Swem of the Federal Reserve about Information in Financial Markets: Who Gets it First?

Week InReview: March 24, 2017

Basel Deal 'Very Close' | Fannie & Freddie Need More Time on Single Security | G20 Communique Issued | R.I.P. David Rockefeller

Week InReview: March 17, 2017

The Smell of Fear | Global cybersecurity company Kaspersky Lab partnered with U.K. fashion/lifestyle blogger Scarlett London to create a perfume line they hope will serve as a symbolic reminder of the dangers that lurk in cyberspace. Threat de Toilette - with versions such as Social Enginoir, Mal-wear, and Phish - contains all the perfectly coded base notes of cybercrime, hints of spam, and drops of ransomware.

Week InReview: March 10, 2017

"There's a big fear that Mnuchin doesn't care, that he and the administration don't reform the market," said Jim Greco, a co-founder of Direct Match Holdings Inc., a Treasury-trading firm that's struggled to break the banks' death-grip on the market. At Finra's Rockville office, employees are creating a system to collect data on daily Treasury trading that at first will be shared only with regulators. The idea was that the next step could be that prices would be shared with the public, though Greco doubts that will happen.

Week InReview: March 3, 2017

The Cyber Cafe is now open. Every Friday in the INVESTORS Week InReview. Cybersecurity regulation, the latest standards, & news you can use. For more information on our Cyber Security Council, contact Matthew Jones, staff director at (202) 712-9050.

Week InReview: February 24, 2017

On bond market liquidity... "We present a model of market makers subject to recent banking regulations: liquidity and capital constraints in the style of Basel III and a position limit in the style of the Volcker Rule. Regulation causes market makers to reduce their intermediation by refusing principal positions. However, it can improve the bid-ask spread because it induces new market makers to enter. Since market makers intermediate less, asset prices exhibit a liquidity premium. Costs of regulation can be assessed by measuring principal positions and asset prices but not by measuring bid-ask spreads." Banking Regulation & Market Making, Bank of Canada - Staff Working Paper

Week InReview: February 17, 2017

As of January this year, 128 bond trading platforms were available to fixed income market participants as traders seek new technology to improve connectivity and electronic trading. | This boom in innovation has seen traders readily embrace electronic trading and a variety of alternative protocols offered to meet bond market needs. | However, IOSCO explained this has led to fragmentation and difficulties for those trading the bond market, highlighting the importance of connectivity.