FSB Updates FX Benchmark Progress

The Financial Stability Board (FSB), created in 2009 by the G20 to reform international financial regulation, includes as part of its mandate a role in standard setting and in promoting members’ implementation of international standards. In September 2014 it issued a report highlighting recommended solutions to prevent a repeat of the FX benchmark scandal. Today it released an update to look at progress made since that report.

The update is fairly positive ("having moved the market in a favourable direction"), highlighting improvements, but also mentioning areas where it believes that more work needs to be done.

The points made include:
1) There have been useful reforms in the methodology used in the WM Reuters (WMR) fix but that more can do done, and mentions certain central banks adjusting their fix methodologies as well. The FSB reiterates that all fixes need to be reviewed, not just the WMR fix.

2) "Recommendations suggested to increase transparency in pricing for fix transactions have seen good implementation among the largest market participants and for the most used benchmarks, but that elsewhere there is scope for further improvement".

3) "Steps to separate dealers’ fixings business from other activities are being taken by the larger participants and in the most active markets, but again there is room for further implementation in other areas of the FX market. For the execution of benchmark transactions, industry-led initiatives to promote greater use of independent netting and execution facilities are seeing welcome progress".

4) "Work is underway to improve market conduct practices, both within individual firms and through market-wide initiatives, including the global effort underway to develop a single code of conduct for the foreign exchange market through the Bank for International Settlements (BIS) Markets Committee working group on FX markets".

5) "While many index providers and end-users have increased their focus on the due diligence around FX benchmark use, there is scope for greater follow-through on this on the part of some market participants".

All in all, it appears that while some additional fix changes may be seen, for the most part fix reform will primarily involve broadening the changes already made to cover additional fixes and additional market participants. The probable exception will be the new international code of conduct being created by the BIS. This will replace the many different codes currently in force in markets around the world and will impact bank behavior.

Money Managers Ask Congress To Increase Duties Of Trustees In Mortgage-Backed Financings

Saw this interesting blog post from the law firm of Perkins Coie regarding duties of trustees in mortgage-backed financings.  This debate about the duties of trustees pits the Association of Institutional Investors against the American Bankers Association and can be seen as one of the battle fronts in this war. The other battle front being in the courtroom where investors have taken on trustees of residential mortgage backed securities. For more info head to the blog post or check out this story on Bloomberg.

Who Run the World? Rating agencies?!?!

Gizmodo went beyond their usual comfort zone and published this post about rating agencies and one (of the many) proposed solutions on how to rid the evil that is ratings.  In my years working in the capital markets I have heard many complaints about the rating agencies, but at the end of the day, investors rely on ratings. Why? Because they value the opinion of the agencies.  If they truly thought that ratings were completely broken, why do they still rely upon them?  As for the conflicts issue, well, nationalizing agencies only create more problems than resolve them. And if issuers are not supposed to pay, then that only leaves the investors. But guess who often complains about the possibly investors paying for ratings?  Investors.