The Federal Reserve Bank of Chicago entered the debate over whether financial markets are fair, proposing limits on high-frequency trading firms and incentives to bring more buying and selling into public view.
Recommendations in a working paper published yesterday include breaking up the trading session into a series of half-second periods, a snail’s pace in an era of microsecond trading. The Fed’s John McPartland also suggested curbing hidden orders on public markets by mandating that they stay at the back of the queue, executed only after fully public trades at the same price are filled.
While some of the Fed’s suggestions have been made elsewhere, they may give further credence to the argument that computerized financial markets are rife with problems that need to be solved. The proposals from the Fed’s office in Chicago, a city that’s home to many high-frequency trading firms, follow a barrage of criticism and allegations that speed traders, exchanges and brokers have rigged markets.
The paper “makes nine recommendations that, if implemented, would likely restore the perception of fairness and balance to market participants that would be willing to expose their resting orders to market risk for more than fleeting milliseconds,” wrote McPartland, a senior professional in the central bank’s economic research department.
His recommendations came after the U.S. Congress this week held the latest in a series of hearings on high-speed trading. The U.S. Securities and Exchange Commission recently revealed its own set of plans to improve trading, and New York’s attorney general accused Barclays Plc of misleading customers in its private trading network, secretly exposing them to predatory high-speed traders.
EU to Study Impact of Banks’ Country-by-Country Tax Disclosure
The European Commission said it’s seeking views on the “potential economic consequences” of forcing banks to disclose country-by-country data on profits, taxes and subsidies.
The disclosure rule is part of an overhaul of bank capital rules agreed on in 2013 and set to take effect next year, the commission said.
The commission said it’s required by law to carry out an impact study of the disclosure rule.
The European Union study will examine “potential negative economic consequences of the public disclosure of such information, including the impact on competitiveness, investment and credit availability and the stability of the financial system,” according to the commission.
“In the event that significant negative consequences are identified, the commission will consider making an appropriate legislative proposal for an amendment and may decide to defer the obligations,” the commission said.
The EU is seeking views until Sept. 12.
U.K. FCA Backs Splitting Research Costs From Broker Commissions
The U.K. Financial Conduct Authority backed European plans to make investment managers pay directly and separately for equity research, rather than having the cost wrapped into broker commissions to execute trades.
The FCA, which examined 17 investment managers and 13 brokers, found fund-management companies lacked knowledge of the value of the research paid for in dealing commissions, a 3 billion-pound ($5.1 billion) annual cost that’s usually passed on to clients, according to a review published yesterday. The regulator supported the proposed legislative changes contained in Europe’s Markets in Financial Instruments Directive, known as MiFID II.
The FCA told asset managers in October that they were failing to control costs and needed to review whether services were eligible to be paid for using dealing commissions. The regulator published guidance in May that said firms should only pay for services directly related to a trade or substantive research out of a dealing commission.
DLF Leads Surge in Property Shares as Jaitley Plans REIT Rules
DLF Ltd. (DLFU), India’s largest real estate developer, led gains among property stocks after Finance Minister Arun Jaitley proposed revamping tax rules to enable the introduction of real estate investment trusts.
Jaitley’s proposal to amend rules to end double taxation for REITs will boost transparency in the real estate sector and help developers raise funds, said Neeraj Bansal, partner and head of real estate and construction at KPMG LLP.
The government also plans to introduce a REIT-type structure for infrastructure projects which will help reduce pressure on the banking system, and such instruments will attract long-term financing from foreign and domestic investors, Jaitley said.
Listed developers with rent-yielding properties that will probably introduce REITs include DLF, Prestige Estates Projects Ltd. (PEPL), Brigade Enterprises Ltd. (BRGD), Phoenix Mills Ltd. (PHNX) and Oberoi Realty Ltd., Kotak Securities said in a note to clients yesterday.
Bailey Says BOE May Ban Lenders Using Own Risk Models
Andrew Bailey, chief executive officer of the Bank of England’s Prudential Regulatory Authority, spoke at Bloomberg’s European headquarters in London about rules for banks using their own risk models to calculate capital requirements.
For the video, click here.
To contact the reporter on this story: Carla Main in New York at firstname.lastname@example.org