Financial Regulatory Forum

COLUMN-Is the argument from liquidity a fallacy? John Kemp

– John Kemp is a Reuters market analyst. The views expressed are his own –

By John Kemp

LONDON, June 29 (Reuters) – What is the “right” level of speculative activity in commodity markets? Different people reach different conclusions, explaining the fierce debate over position limits and other attempts to impose stricter regulation that has broken out since the price spike in 2008.

Economists and market practitioners are divided about the impact of increased participation by investors and speculators over the last decade. Some claim it has improved price discovery and facilitated more hedging. Others blame it for raising volatility, swamping fundamentals and inflating bubbles.

How people answer that first question shapes their response to a second one about how regulators and policymakers should react. Should regulators encourage more participation to improve the market functioning, or should they be trying to restrict it or at least slow it down to safeguard price discovery?

Some economists and practitioners believe more speculation must always be a good thing. If liquidity is good, more liquidity must be better. But that may not be true if the extra speculation is uninformed and simply add “noise” and volatility rather than sharpening price discovery, as leading options expert Paul Wilmott recently argued in his blog (http://link.reuters.com/kup74m).

U.S. SEC bolsters money market fund rules on risk, liquidity

By Rachelle Younglai

WASHINGTON, Jan 27 (Reuters) – U.S. securities regulators adopted rules aimed at making money market funds a safer investment after the collapse of the Reserve Primary Fund triggered a run on the $3.24 trillion market in 2008.

The Securities and Exchange Commission voted 4-1 on Wednesday to bolster the funds’ liquidity, limit their riskier investments and to show investors the funds may not always maintain a stable $1 share value.

The fund industry was pleased the new rules were less restrictive than the agency initially proposed last year, but the new rules were likely to come at the expense of some yield.

HK central bank warns of asset price risk, fund inflows

Hong Kong Monetary Authority Chief Executive Norman Chan, replacing the outgoing Joseph Yam, speaks to reporters in Hong Kong July 17, 2009.   REUTERS/Bobby Yip   (CHINA POLITICS BUSINESS   By Susan Fenton
HONG KONG, Nov 20 (Reuters) – Hong Kong’s central bank chief Norman Chan warned that asset prices in the city could climb sharply next year and disconnect from fundamentals, raising the risk of a bubble, and said surging capital inflows posed a dilemma for policymakers across Asia.

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S.Korea considering steps to boost bank liquidity

SEOUL, Nov 11 (Reuters) – South Korea is looking at measures to enhance foreign currency liquidity at banks, a top regulator said on Wednesday, which reportedly may require them to hold U.S. Treasuries as a portion of their foreign assets.
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EXCLUSIVE – Fast traders push alternative US risk oversight plan

By Jonathan Spicer and Herbert Lash
NEW YORK, Oct 9 (Reuters) – A handful of companies, including high-frequency traders, have asked the U.S. stock clearinghouse to act as a market-wide monitor, to guard against the risk of a malfunctioning computer program spreading chaos.
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COLUMN – FSA timing on liquidity rules critical: Peter Thal Larsen

– Peter Thal Larsen is a Reuters columnist. The views expressed are his own –

By Peter Thal Larsen
LONDON, Oct 6 (Reuters) – The UK’s Financial Services Authority has come up with a sensible set of rules to shore up banks’ liquidity buffers. But the real test will be managing the transition. Banks know they will have to buy tens of billions of pounds of government bonds, but the regulator is being deliberately vague about when. There are substantial risks if the FSA gets its timing wrong.

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U.S. Fed staffer urges permanent crisis liquidity program

JACKSON HOLE, Wyo., Aug 21 (Reuters) – Central banks should consider making some of their existing emergency liquidity programs permanent to minimize the stigma of accessing central bank credit, a top Federal Reserve board staffer said on Friday.
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FTC issues rule to fight oil manipulation

NEW YORK, Aug 6 (Reuters) – The U.S. Federal Trade
Commission said on Thursday it would impose $1 million per day fines on energy traders engaged in price manipulation, a strong signal of the Obama administration’s desire to crack down on fraud in the oil markets.

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INTERVIEW – LCH.Clearnet wary of clearing some CDSs – chief executive

By Karen Brettell and Jonathan Spicer
NEW YORK, July 29 (Reuters) – LCH.Clearnet plans to offer clearing services for credit default swaps based on European indexes, but is wary about clearing contracts written on the debt of single issuers, Chief Executive Roger Liddell said in an interview on Wednesday.

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CIT survival ensnared in regulatory battle

By Elinor Comlay and Karey Wutkowski
NEW YORK/WASHINGTON, July 13 (Reuters) – The survival of CIT Group Inc <CIT.N>, a key source of financing for thousands of small and medium-sized companies, became ensnared in disagreements between regulators in Washington on Monday. (more…)

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