The European Commission has ruled EU traders can continue to do business on stock markets in the US, Australia and Hong Kong after the revised Markets in Financial Instruments Directive takes effect next month. The action includes equivalence recognition for more than 20 exchanges and more than 30 dark pools in the US.
The Federal Reserve has voted 7-2 to increase its benchmark interest rate by one-quarter of a percentage point to a range of 1.25% to 1.5%. The central bank stood by a forecast of three rate increases in 2018 but omitted from its post-meeting statement previous language of expectation the labor market will strengthen.
The European Securities and Markets Authority says firms outside the EU cannot offer direct electronic access to trading venues once the revised Markets in Financial Instruments Directive takes effect. The move could lock out futures commission merchants in the US unless they are affiliated with an EU firm that is prepared to apply for a MiFID II license.
Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch, said in a research note that "a sobering flash crash" is likely to occur "as central banks, the major sedative of volatility, start to withdraw liquidity." Such an event could happen after assets reach an expected high point early in 2018, he said.
Bearish predictions from late 2016 are coming back to haunt analysts as they try to predict the market's direction. Geopolitical uncertainty and the expected pullback of stimulus programs have not dampened returns in 2017.
Questions about which brokerages and exchanges are authorized to run organized trading facilities and which contracts can be listed have yet to be answered, despite OTF establishment being a key requirement of Europe's revised Markets in Financial Instruments Directive.
Cboe Global Markets Chairman and CEO Edward Tilly doesn't think major stock exchange mergers have ended. "The synergies that are inherent in a deal in the exchange space -- because at the end of the day these are huge technology companies -- still make sense," he said.
More commodity firms and traders, including BP, ABN AMRO, Mercuria Energy Group, Natixis and Trafigura, are adopting blockchain technology to increase efficiency, changing the way they do business. "Once you've established blockchain and it's working, you will see faster changes, because then the transformation of the value chain becomes an option," said Rabobank analyst Harry Smit.
Quantitative Investment Management and Teza Capital Management, up 68% and more than 50% this year, respectively, have leveraged machine learning to become top-performing hedge funds, but struggles faced by The Voleon Group, up about 4.5% this year through October, show the strategy's difficulty. Finding an approach to machine learning that works with complex data presented by financial markets is challenging, experts say.
Tools available to US regulators to deal with a failed derivatives central counterparty are far more limited than those available to unwind distressed banks, the Treasury Department's Office of Financial Research says in a report. Although clearinghouses are required to write wind-down plans, there aren't any sanctions if regulators deem those plans inadequate, the report says.
The revised Markets in Financial Instruments Directive will take effect in less than a month, and firms are scrambling to prepare and to determine what the regulatory changes mean for tasks such as market research, writes Howard Coates of KPMG Makinson Cowell. "[O]ne thing I am confident about is that companies can expect their investor relations teams to be much busier in 2018," Coates writes.
The Commodity Futures Trading Commission has said that firms, including futures commission merchants and swaps dealers, will not have to register as commodity trading advisers when they receive a separate payment for research. The CFTC said that registration as a CTA is required only if advice is not "solely incidental" to a firm's business.
Basel III has provided incentives for the use of contingent convertible capital securities as a way to mitigate the risk of future bank bailouts. Banks had issued some $521 billion in "CoCos" by the end of 2015.