Week InReview | History's largest bubbles. Nonbank regulator vigilance. DOL and fiduciary rule exemptions. EU's potential clash with the CFTC. 'Huge disconnect" between firms' ads, arbitration arguments.
Friday, March 27, 2015
Money managers can't resist the urge to herd
A tale of manias, panics and crashes
(Apr. 1) 'It should perhaps serve as a shot across the bow that the rise of the institutional investment management industry - populated with what are presumably the most sophisticated, well resourced and rational speculators in the world - has coincided with three of history's largest bubbles in the last 25 years; the Japanese Heisei bubble of the late 1980s, the global equity bubble of the late 1990s, and the structured credit bubble of the mid 2000s.'

The International Monetary Fund's Bradley Jones
From a working paper, titled 'Asset Bubbles: Re-thinking Policy for the Age of Asset Management'
Fed's No. 2 advises vigilance over nonbanks
Offers ideas for shadow bank regulation
(Mar. 31) Fed vice-chairman Stanley Fischer recommends regulators keep an eye on nonbank sector; says two-thirds of nonfinancial credit market debt is held by nonbanks. 'The 2008-2009 financial crisis surfaced in the nonbank sector and was worse for those companies than for banks, Fisher pointed out. Nonbank distress can spread to banks through counterparty relationships, disruptions in funding markets and effects of asset fire sales, among other ways.
DOL's approach to fiduciary rule exemptions
Will protect investors from conflicted advice, official says
(Mar. 31) The Department of Labor plans a principles-based approach to exemptions associated with fiduciary rule reproposal, rather than try to anticipate every kind of transaction that people will engage it. and claims this approach will protect investors while tamping down on harmful effects of conflicted advice. The fiduciary rule proposal (RIN 1210-AB32) is under review at the Office of Management and Budget (55 DTR G-9, 3/23/15)
EU Parliament financial benchmark bill
Will it head off potential clash with CFTC?
(Mar. 31) Provisions in the European Parliament Committee for Economic and Financial Affairs financial benchmark regulatory framework would allow EU investors to use benchmarks in foreign countries that abide by IOSCO benchmark compilation principles. If approved, the amendment could head off a potential clash with the U.S. CFTC, which does not plan to regulate the benchmarks. The European Parliament General Assembly is due to vote on the legislation in either May or June on the final terms of the bill and negotiations with EU member state would follow.
PIABA report cites conflicted advice
'Huge disconnect' between firms' ads, arbitration arguments
(Mar. 27) The Public Investors Arbitration Bar Association called for action to prevent broker-dealer firms from misleading investors about their role as fiduciaries - a role they deny in non-public arbitration proceedings. According to a new PIABA report, nine major U.S. broker-dealer firms "advertise in public as though they are trusted fiduciaries acting in the best interest of investors and then deny in non-public arbitration cases that they have any such duty to avoid conflicted advice."
Transparency. Inclusiveness. Consensus.