2011 Preview Part II – New Regulation
If you had to do an informal poll of our industry in order to ascertain people's expectations for the year ahead, there's one word that would crop up more often than any other: regulation.
Okay, so not everyone expects significant new regulations to be introduced across every facet of the financial services industry, but I think all would concede that certain regulatory changes are necessary and likely, and that the market is pretty much ripe for it.
But that's only half the story. The really interesting part of this discussion comes about when you ask people to articulate the specifics of the types of regulations likely to be introduced. Indeed, one of the most prominent themes at this year's Waters USA conference held in New York on December 6, was that relating to what the new regulations might look like and when they might be introduced. Members of our CIOs' panel discussion, most of whom have regular contact with the industry's regulators on both sides of the Atlantic, were undecided as to what the regulatory landscape might look like in a year's time. It seems, for the moment at least, that everyone is equally in the dark.
So, at the risk of being exposed for my inadequate anticipatory powers, below is what I think will happen on the regulatory front during 2011:
1. I think we're unlikely to see any regulation by the Securities and Exchange Commission in the US attempting to curtail high-frequency trading activities (and by association algorithmic trading) in the wake of the Flash Crash. The SEC might want to introduce new measures to ‘slow down' the markets, but I think even it would concede that talking about regulating such activities and actually implementing regulations around them are two different things. How, for example, would the SEC go about deciding how fast is too fast?
2. I think the main thrust of the 2011 regulatory drive will surround the business activities impacted by the Dodd Frank Act, which, when you scratch a little below its not-insubstantial surface, is pretty much everything. Most firms are still coming to terms with the extent of the Act and how it might impact their day-to-day lives.
3. We're likely to see a lot more written and discussed about the introduction of central clearing counterparties in the OTC derivatives markets as a way of increasing efficiencies and operational resilience, while also potentially reducing various risks associated with the trading of such instruments, especially when it comes to credit derivatives. This facet of the capital markets is simply too important for regulators to continue to ignore.
4. The European market is likely to see quite a bit of speculation about Mifid II and what the ‘review' might mean to market participants in the region. Whether any substantial regulation is likely to be spawned as a result of the review is unclear, although it's unlikely that anything resembling the original Mifid requirements will be forthcoming.
5. Finally, the way that regulations tend to be introduced - proposals, feedback periods, speculation, criticism of the regulators by market participants, frustration and only then the introduction of the final rules themselves - means that there will be a lot of time for firms to get used to the idea of having to comply with new mandates. Also, if the past is anything to go by, there tends to be a marked difference between what is initially proposed and what is finally introduced by the regulators.
New regulations are inevitable - they are a necessary evil and an integral part of the capital markets that all participants need to negotiate - and complying with such operational mandates can have a significant impact on firms' technology infrastructures. Those firms with the most operational and technological flexibility will find such moves the least disruptive.
Next time: Risk Management (please note that the publication of this piece depends on the snow conditions in Morzine, France).
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@waterstechnology.com or view our subscription options here: http://subscriptions.waterstechnology.com/subscribe
You are currently unable to print this content. Please contact info@waterstechnology.com to find out more.
You are currently unable to copy this content. Please contact info@waterstechnology.com to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@waterstechnology.com
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@waterstechnology.com
More on Regulation
Court case probes open-source licenses as movement stands at crossroads
The Software Freedom Conservancy’s lawsuit against TV-maker Vizio begins trial in California, raising questions about open-source licenses and the risks posed by adhering to them.
Waters Wavelength Podcast: Countdown to T+1
DTCC’s Val Wotton joins the podcast this week to discuss the impending move to T+1 in the US.
Consolidated tape hopefuls gear up for uncertain tender process
The bond tapes in the UK and EU are on track to be authorized in 2025. Prospective bidders for the role of provider must choose where to focus their efforts in anticipation of more regulatory clarity on the tender process.
Fighting FAIRR: Inside the bill aiming to keep AI and algos honest
The Financial Artificial Intelligence Risk Reduction Act seeks to fix a market abuse loophole by declaring that AI algorithms do not have brains.
Waters Wrap: The rise of AI washing… and regulation washing?
The SEC recently levied fines against two investment advisors over “AI washing”. Anthony takes issue with the announcement.
Prepare now for the inevitable: T+1 isn’t just a US challenge
The DTCC’s Val Wotton believes that firms around the globe should view North America’s move to T+1 as an opportunity—because it’s inevitable.
European firms prime for lopsided settlement in North America and at home
With T+1 imminent in North America and increasingly likely to traverse the Atlantic, operations and trading professionals in Europe are fighting on two fronts.
As crypto ETFs become reality, benchmark providers take center stage
The SEC’s approval of the first spot bitcoin ETFs will expose a growing number of traditional market participants to the maturing world of crypto data, a moment that some—such as CF Benchmarks, BlackRock’s benchmark provider—have been eagerly awaiting.
Most read
- Women in Technology & Data Awards 2024: All the winners and why they won
- Witad Awards 2024: Above and beyond award (vendor)—Susan Bennett, Tradeweb
- Fighting FAIRR: Inside the bill aiming to keep AI and algos honest