Former Fed chief Volcker defends namesake rule | Potential of distributed ledger vast but unknown | Research: Worker morale has role in financial-reporting risk
April 20, 2017
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Former Fed chief Volcker defends namesake rule
Former Fed Chair Volcker defends namesake rule
Volcker (Alex Wong/Getty Images)
Former Federal Reserve Chairman Paul Volcker is defending the proprietary-trading ban that was implemented under the Dodd-Frank Act, saying the "effort has not been futile." "I've heard from people within banks who have said this has really changed the environment within banks, especially around the trading desks, which were filled with conflicts of interest," he said. (subscription required) (4/19) 
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Potential of distributed ledger vast but unknown
Distributed-ledger technology could do for financial transactions "what the internet did for information," IBM CEO Ginni Rometty says, citing potential for hundreds of billions of dollars in savings. Full implications of the technology are still not understood.
Promontory Financial Group (4/12) 
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Research: Worker morale has role in financial-reporting risk
Employee satisfaction and management opinion affect estimates of financial performance, research shows, bolstering a view that misdeeds are more likely when morale is low and culture is toxic. Firms with weak boards also appear more susceptible to financial-reporting risk.
The Columbia Law School Blue Sky Blog (4/19) 
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Bloomberg Insights
JPMorgan working on major expansion of NYC tech facility
JPMorgan Chase is making preparations for an expansion to its New York City technology hub that could more than triple its size. The bank is in talks with Brookfield Property Partners about leasing an additional 300,000 square feet of space at 5 Manhattan West near Hudson Yards, a person with knowledge of the matter said.
Bloomberg (4/19) 
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Hedge funds, ETF buyers diverge on silver
Hedge funds are betting on silver, but investors of exchange-traded funds are taking money out of the iShares Silver Trust, which has seen outflow for seven months. Some investors think silver's high price is overly optimistic for the level of industrial demand.
Bloomberg Professional (4/19) 
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Regulators might inadvertently push banks out of London
A push by the Bank of England's Prudential Regulation Authority and the European Central Bank for banks to submit worst-case Brexit contingency plans might cause banks to leave London sooner than planned, sources say. "Regulators are all gently upping the pressure on the boards and branch managements to start to execute on some of their plans," said PwC's Andrew Gray.
Bloomberg (4/18) 
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Trading Trends
Goldman posts trading-revenue drop for Q1
Goldman Sachs has reported a 6% decline in equity-trading revenue for the first quarter compared with Q1 of 2016, reaching $1.67 billion, as volatility and client activity decreased. Revenue for fixed income, currencies and commodities stayed flat at $1.69 billion.
Reuters (4/18),  The Trade (UK) (4/18),  The Wall Street Journal (tiered subscription model) (4/18) 
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Brexit vote has lasting impact on equities, bonds
Researchers explore the global economic impact of the Brexit vote and its continuing effect on equity prices and bond yields. The shock of the decision is still being felt.
Bank Underground (Bank of England) (4/19) 
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US Treasury explores "ultra-long" bonds
US Treasury explores "ultra-long" bonds
Treasury Secretary Steven Mnuchin (Alex Wong/Getty Images)
The US Treasury is looking for feedback from primary dealers on potential demand and pricing of 40-, 50- or 100-year government bonds as it explores funding options.
Financial Times (tiered subscription model) (4/19) 
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Banks face challenges on dual netting sets
Some dealers are reportedly encouraging clients to move their entire portfolio to margin-compliant collateral documentation to avoid the operational burden of dealing with two netting sets: one for legacy trades and one for new trades under a margin-compliant credit support annex. "A certain number of our clients were told by banks that they can't accommodate dual netting sets and that the client must have its entire pre-existing portfolio under a margin-compliant netting set in order to continue trading," said Chatham Financial's Chris Bender. (subscription required) (4/18) 
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Operational Efficiencies
Deutsche Bank turns to AI to cope with regulatory demands
Deutsche Bank is embracing artificial intelligence tools to help ensure that it is complying with the wide range of financial regulations that govern the way it does business. The bank is trying to simultaneously improve the accuracy of its compliance efforts while bringing down the costs, said Elly Hardwick, head of innovation at the bank.
The Wall Street Journal (tiered subscription model) (4/18) 
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Higher cost expected for compliance, cyberrisk in banking
The banking industry is expected to continue expending resources on compliance, cybersecurity and data management. The industry spends 10% of operating costs on compliance.
Deloitte University Press (3/22) 
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Fed's workforce planning criticized
The Federal Reserve's plan to replace senior managers who are approaching retirement is narrowly focused and lacks a strategic perspective, the central bank's inspector general said. The internal watchdog said in its quarterly work plan that it will evaluate the Fed's succession planning "to ensure the sustainability of its workforce, including identifying any potential related barriers."
MLex (subscription required) (4/17) 
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Regulatory Review
Supreme Court may disagree with SEC on disgorgement
The Supreme Court is hearing a case that could end with the high court determining the Securities and Exchange Commission does not have the legal authority to force disgorgement of profits in cases that go back more than five years. The SEC argues that a statute of limitations does not apply to disgorgement -- its recovery remedy for illegal profits -- but questions by the justices suggest they do not agree.
Reuters (4/18) 
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FCA outlines plan for dealing with Brexit
The UK Financial Conduct Authority has released a mission statement and business plan for 2017 and 2018, outlining how it will give technical support to the government through Brexit negotiations and affirming its commitment to protecting the financially vulnerable and aging population. The FCA, stressing a need to ensure cross-border market access, says lack of clarity in negotiations could damage the economy.
Pensions & Investments (free access for SmartBrief readers) (4/18),  The Telegraph (London) (tiered subscription model) (4/18),  Financial News (UK) (tiered subscription model) (4/18) 
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Doubts grow over viability of FRTB P&L test
A report by bankers and an academic is questioning the practicality of the profit and loss attribution test, which will be required for implementation of the Fundamental Review of the Trading Book in Europe. The report argues that, according to its projections, the conditions set by the test are too severe and inflexible, and most bank desks would fail it and be forced to seek re-accreditation, a costly process that could take months. (subscription required) (4/18) 
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Research & Analysis
Settlement average tops $70M in securities class-action suits
Last year had the highest number of large settlements of securities class-action lawsuits in a decade, with two settlements worth more than $1 billion. Settlement amounts averaged $70.5 million, up sharply from $38.4 million in 2015.
Harvard Law School (4/18) 
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