CFTC won't require source code access, Giancarlo says | Hype over AI nothing new | Banks challenge loan-loss rule
October 18, 2018
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CFTC won't require source code access, Giancarlo says
US Commodity Futures Trading Commission Chairman J. Christopher Giancarlo says he does not plan to pursue a current proposal that would require source code used in trading algorithms be accessible to regulators without a subpoena. "[W]hile there were some good things in the proposal, there were other things that were unacceptable and perhaps unconstitutional," Giancarlo said during FIA's 34th Annual Futures & Options Expo in Chicago.
Reuters (10/17) 
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Hype over AI nothing new
Predictions that artificial intelligence and automation will change the world are not new. While processor speed has increased, a fundamental breakthrough in replicating human intelligence remains elusive.
Financial Times (subscription required) (10/17) 
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Banks challenge loan-loss rule
Banks are challenging a rule that requires reporting of current expected credit losses, saying it hinders their ability to loan and cuts into earnings. Representatives of BB&T, Citizens Financial Group, KeyCorp, M&T Bank and Regions Financial have met with lawmakers to ask that the rule be changed.
The Wall Street Journal (tiered subscription model) (10/17) 
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Bloomberg Insights
Pure factor ETFs may shine in market correction
Value exchange-traded funds have attracted inflows by matching returns of the current bull market, though these returns will be threatened should the market turn. Pure factor ETFs have an edge in the face of a market correction.
Bloomberg Professional Services (10/17) 
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SOFR making progress as replacement to Libor
The Secured Overnight Financing Rate is gaining traction as a replacement to Libor amid a growth in futures volumes using SOFR. The World Bank, Fannie Mae and Credit Suisse have led the way in offering floating-rate notes pegged to SOFR.
Bloomberg Professional Services (10/15) 
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Personal touch a must at banking's highest echelons
Bankers for high net worth individuals and families are typically asked to blur the line between business and friendship. "Banking, like a lot of high-dollar sales professions, demands a certain level of personal commitment; the best bankers create the impression that their interest in their clients is personal and genuine rather than transactional," writes Matt Levine.
Bloomberg (tiered subscription model) (10/17) 
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Survey: Confidence in emerging markets returning
A recent Bloomberg survey finds optimism among investors about Latin America's bonds and currencies and Asia as the region of choice for equity investments. "Some confidence in EM has been restored following strong policy responses in both Argentina and Turkey, and a lighter political calendar ahead," said Marcelo Assalin, head of emerging markets debt at NN Investment Partners BV.
Bloomberg Professional Services (10/15) 
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Trading Trends
Major banks buying up credit protection
Since 2014, major US banks have shifted from being buyers to sellers of credit risk exposure. This reduction in credit risk exposure is directly linked to a pullback in use of credit default swap markets.
Liberty Street Economics (Federal Reserve Bank of New York) (10/17) 
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CME Group bitcoin futures trading volumes jump during Q3
CME Group's bitcoin futures average daily volumes rose 41% during Q3 over the second quarter and were up 170% over Q1. The third quarter saw 5,053 contracts traded, compared to 3,577 contracts in Q2 and 1,854 contracts in Q1.
CoinDesk (UK) (10/17) 
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Operational Efficiencies
Survey: Social media, text messages continue to present compliance challenges
A survey by Smarsh finds financial firms struggling when it comes to retention and management of text messages and exchanges via social media. Half of respondents cited compliance as a primary worry when it comes to non-email communication.
SmartBrief/Finance (10/17) 
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Task force on ISIN adoption established
The Benchmarks Task Force has been formed to provide clarity and to help with administrative challenges in adoption of International Securities Identification Numbers. The task force, formed by the Association of National Numbering Agencies, plans to work with benchmark administrators to "address some of the practical applications of the ISIN standard," association Managing Director Emma Kalliomaki says.
Futures & Options World (subscription required) (10/17) 
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OnDeck's Spradley: More fintechs partner with banks
Financial-technology firms have shifted from disrupting the banking industry to partnering with banks, OnDeck's Christin Spradley said at the Banking Policy Institute's Fintech Ideas Festival in Washington, D.C. The Consumer Financial Protection Bureau is changing a trial disclosure program and might join a network of international fintech regulators, said Paul Watkins, head of the CFPB Office of Innovation and a keynote speaker at the event.
SmartBrief/Finance (10/17) 
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Regulatory Review
Fed researches impact of liquidity coverage ratio
Liquidity creation has fallen in recent years among banks with more than $50 billion in assets that are covered by the US liquidity coverage ratio, researchers at the Federal Reserve say. The discovery raises the question of whether the standard, adopted after the financial crisis, is "socially harmful," the researchers say.
MLex (subscription required) (10/19) 
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CFTC's Giancarlo: US may retaliate if EU regulators overreach
Commodity Futures Trading Commission Chairman J. Christopher Giancarlo said the US is ready to retaliate if EU regulators force US counterparties to violate US rules in order to comply with EU regulations. If that situation arises, the US will respond with "a range of readily available steps to protect US markets and market participants," he said.
Pensions & Investments (free access for SmartBrief readers) (10/17) 
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FSOC lifts Prudential's systemically important status
Members of the Financial Stability Oversight Council voted unanimously to withdraw its designation of Prudential Financial as a systemically important financial institution, which had subjected the insurer to more intense oversight than some other financial firms. Treasury Secretary Steven Mnuchin said a detailed analysis showed that "there is not a significant risk that the company could pose a threat to financial stability."
Pensions & Investments (free access for SmartBrief readers) (10/17),  The Wall Street Journal (tiered subscription model) (10/17) 
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Research & Analysis
Energy-efficient homes offer lower default risk
This analysis by the Bank of England finds that loans on energy-efficient homes may be less risky that other types of homes, with markedly lower arrears rates.
Bank Underground (Bank of England) (10/16) 
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