About 1 in 3 hedge fund managers say in an AIMA survey they have yet to determine how to fund research once transparency requirements of Europe's revised Markets in Financial Instruments Directive take effect Jan. 3. Among respondents who have decided, 80% say they intend to pass the additional expense to investors.
The Bank of England and the European Central Bank have issued conflicting comments on where the hub for clearing euro-dominated interest-rate swaps should be after Brexit. BoE Governor Mark Carney says moving the business out of London could cause fragmentation and would be expensive for all users, but an ECB statement appears to veto the possibility of clearing outside the EU.
Data from Hedge Fund Research suggest the industry might return to growth after a challenging 2016, as the number of fund launches increased in the first quarter. "The growth in launches comes at a time when the market could be entering an environment where fund managers have higher odds of beating the overall market," Ryan Vlastelica writes.
A panel of financial-technology experts and venture capital executives discussed emerging-technology trends, Europe's revised Markets in Financial Instruments Directive, cloud computing and funding for startups. Nasdaq CEO Adena Friedman said that over the next decade, "you've got yourself an entirely new environment in which investors and traders are interacting with the capital markets."
The European Commission is proposing a change in the revised Markets in Financial Instruments Directive to close an off-exchange trading loophole. "It is necessary to further specify the definition of systematic internalizer to address those market developments and circumscribe the risk of circumvention of MiFID II," the proposal says.
The European Securities and Markets Authority says the deadline for the trading obligation, which will make certain counterparties move over-the-counter derivatives trading on to exchanges, will not be postponed.
Banks may cut their spending on research by as much as $1.2 billion due to Europe's upcoming revised Markets in Financial Instruments Directive, which require asset managers to clearly state their fees for this service, according to a McKinsey report. The report's authors say clients will inevitably become more selective about what they pay for and several firms are considering how they will structure and present their research fees.
Sen. Thom Tillis, R-N.C., has written Securities and Exchange Commission Chairman Jay Clayton requesting information on the agency's preparation for Europe's revised Markets in Financial Instruments Directive. "Absent some regulatory relief from the EU or US, conflicts between the two regulatory regimes will arise," Tillis wrote.
Frustrated by the regulatory standstill created by a short-handed Commodity Futures Trading Commission, the agency's sole Democrat, Sharon Bowen, said she will step down in coming months. "Without a full complement of commissioners to consider the far-reaching implications of our decisions, we are frozen in place while the markets we regulate are moving faster every day," she says.
President Donald Trump will nominate James Clinger, a former aide to Rep. Jeb Hensarling, R-Texas, as chairman of the Federal Deposit Insurance Corp. "Under Clinger, we believe the agency would be more sympathetic than at any time since the financial crisis," Capital Alpha Partners analyst Ian Katz wrote to clients.
Six months ahead of the implementation deadline for the revised Markets in Financial Instruments Directive, alternative asset managers still face uncertainty, with 34% of firms undecided, for example, on how to pay for research, according to a survey by AIMA. Fund managers globally cited as their biggest MiFID challenges uncertainty around what the MiFID II rules mean -- both in scope and substance -- as well as what they perceived to be a lack of clarity relating to the cost and nature of services provided by brokers. The AIMA survey showed that, among the two-thirds of alternative asset managers that have made decisions around how to pay for research, 80% plan to charge investors and the remaining 20% intend to absorb the costs themselves. Access the full survey, which is available to AIMA members. Separately, earlier this year, AIMA published a MiFID Guide for Investment Managers. The full guide is for AIMA members; read the executive summary.
Fund managers in Japan now typically allocate up to 10% of their total expenses on regulatory compliance, according to one of the largest surveys of Japanese fund managers and institutional investors in the alternatives sector by Eurekahedge, the data provider and alternative research firm, and AIMA Japan. The survey of close to 90 firms with around $375 billion in assets found around half of fund managers allocate between 5% and 9.9% of their total expenditure on meeting regulatory requirements, with a further 16% spending more than 10% of total costs. The survey also found that almost three-quarters of investors plan to maintain their allocations to hedge funds and other alternative investments. Read the survey.