Banks passed the Federal Reserve's stress test without problem this year, but capital required to survive the severely adverse scenario continues to hamper operations. "If you have to set this much capital aside for stress-testing purposes, you need to ask: Do you really want this business?" said Gordon Liu, head of global risk analytics at HSBC.
This paper released by the Federal Reserve explores the current wave of fintech innovations and why technology appears poised to bring about massive changes in the financial sector. Research points to a number of factors, including the "depth" of innovation currently at play.
The National Institute of Standards and Technology on Tuesday published a draft revision of its Security and Privacy Controls for Federal Information Systems and Organizations, integrating privacy and cybercontrols and tying them to the agency's cybersecurity framework. The draft will be open for public comment until Sept. 12.
The transparency that will come with the updated Markets in Financial Instruments Directive next year will provide a new level of comfort for investors in Europe's exchange-traded funds, possibly pushing the asset class past $1 trillion in coming years. "In the future, each trade must be reported, which will lead to more visibility of liquidity and attract more money," said Juergen Blumberg of Source, an ETF provider.
Researchers are finding warning signs in the latest drop in volatility, citing past incidents of a "lull before the storm" preceding market crashes. "Our main finding is that volatility is neither a reliable indicator of the maturation of a bubble nor of its impeding ending in a crash," the Swiss Finance Institute's Didier Sornette said, citing research of past crashes that did not encompass current market conditions.
Low volatility and a sharp market reversal in June allowed human stock-pickers to outperform computer-driven hedge funds this year through July, according to Hedge Fund Research data. Hedge funds betting on macroeconomic trends saw returns 1.4% below average.
A requirement that dealers post initial margin for noncleared swaps has increased costs, but few are seeing capital benefits as updated models go unapproved, executives say. "My understanding is that no one has been able to model it properly and get the model approved by the regulators -- and no one is getting capital relief yet from the initial margin," said derivatives expert Jon Gregory.
Tudor Investment and Brevan Howard Asset Management, two of the largest hedge fund companies in the world, have decided to forgo Markets in Financial Instruments Directive licenses. The move lets the firms avoid Europe's MiFID II, which takes effect in January.
Goldman Sachs and JPMorgan Chase are at the head of a trend among big banks to fund the financial-technology industry, having invested in 15 and nine firms, respectively, according to consultancy Opimas. While venture capital firms seem the more logical match for fintech funding, many "VCs have shied away from these markets, since they frequently require highly specialized knowledge of markets, their micro-structure, and competitive dynamics," Opimas CEO Octavio Marenzi wrote in a report.
Steve Hirsch, chief data officer at the Intercontinental Exchange and New York Stock Exchange, says in a podcast that dealing with the massive amount of financial-market data means embracing technology such as artificial intelligence rather than fearing it.
Republicans' drive to reverse post-crisis financial regulation, particularly capital and liquidity requirements for large institutions, is "dangerous and extremely shortsighted," said Federal Reserve Vice Chairman Stanley Fischer.
European regulators reportedly are divided on when derivatives should be considered traded on a trading venue, a criterion for determining whether the derivative is subject to transparency requirements. "There isn't enough clarity in the [Markets in Financial Instruments Directive] II text as to whether this is determined at real time or not," said Sassan Danesh of the Association of National Numbering Agencies Derivatives Service Bureau.
Germany's constitutional court has formally asked the European Court of Justice, the EU's highest-ranking court, to rule on whether the European Central Bank's €2.3 trillion asset purchasing scheme conflicts with European law. The German court said "significant reasons indicate" the purchases might have exceeded the ECB's mandate but the decision on that issue should be made by the European Court of Justice.
Researchers at the Federal Reserve Bank of New York find that the US Federal Reserve is more limited than other central banks when it comes to making discount window loans. The Bank of Japan, Bank of England and European Central Bank all have access to a broader set of counterparties.