Tag: regulators

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Politics

As stablecoins explode in reputation, regulators put together a response.

Hong Kong Website Doxxing Police Gets Blocked, Raising Censorship Fears

Leading U.S. financial regulators met on Monday to discuss stablecoins, asset-backed digital currencies that are gaining popularity so quickly the government is struggling to keep up – and economic officials increasingly as a risk to financial stability look at.

Stablecoins are cryptocurrencies that derive their value from an underlying currency or basket of assets, and they have long been a matter of particular concern. When news broke in 2018 and 2019 that Facebook was looking to create a stablecoin, the Federal Reserve and other regulators took notice, fearing the project could quickly grow in scope. The pressure to develop a framework for their surveillance has increased recently as prominent stablecoins such as Tether and Binance have grown in popularity.

The Treasury Department announced Friday that Secretary of State Janet L. Yellen would convene a meeting of the President’s Working Group on Financial Markets to discuss the work of regulators on stablecoins. That group includes Jerome H. Powell, chairman of the Federal Reserve, as well as the leaders of the Securities and Exchange Commission and the Commodity Futures Trading Commission. Monday’s session was expanded to include the Heads of the Auditor’s Office and the Federal Deposit Insurance Corporation.

The meeting’s attendees “discussed the rapid growth of stablecoins, the potential use of stablecoins as a means of payment, and potential risks to end users, the financial system and national security,” said a Treasury Department statement released after the meeting on Monday. Ms. Yellen “underlined the need to act quickly to ensure that an adequate US regulatory framework was in place.”

Mr Powell has been particularly open about the need for better oversight of stablecoins, repeatedly saying at two appearances in Congress last week that they are inadequately regulated.

“If we want something that looks like a money market fund, or a bank deposit, a narrow bank and it’s growing really fast, we really need proper regulation – and today we don’t,” he said while giving evidence to the banking committee Senate.

Eric Rosengren, the president of the Federal Reserve Bank of Boston, has similarly warned about Tether, arguing that it relies on underlying financial assets that could see investor runs during troubled times. The New York attorney general said earlier this year that Tether misled investors by claiming it was fully backed by US dollars at all times.

The Treasury Department said the working group expects to issue recommendations on stablecoins in the coming months. The group previously warned stablecoin operators that they must hold adequate cash reserves to cover their offerings.

The Fed could also try to crowd out digital offerings by offering its own alternative.

The central bank is looking at a digital currency offering that would likely work similarly to the digital cash you spend when you swipe your debit card. But where that debit card money is tied to the commercial banking system, the central bank’s digital currency would be backed directly by the Fed, as would physical cash.

Mr Powell told lawmakers last week that going without stable coins could be one of the stronger arguments in favor of a digital dollar.

But Mr Powell remains undecided whether central bank digital currency makes sense, he told lawmakers. The Fed plans to release a comprehensive report on the possibility of a digital dollar, expected in September.

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Business

Credit score Suisse studies a loss as regulators open an investigation.

Credit Suisse reports a loss as regulators open an investigation.

Credit Suisse announced Thursday that it suffered a first-quarter loss on loans to the collapsed mutual fund Archegos Capital Management. This debacle has led the Swiss financial regulator to investigate whether the bank has done poorly in monitoring the risk of its investments.

The loss of 252 million Swiss francs, about $ 275 million, from January to March was due to Archegos’ CHF 4.4 billion loss wiping out a sharp rise in sales and forcing some top executives to leave. Credit Suisse announced on Thursday that it had sold bonds to investors to support its capital.

The Zurich-based bank has suffered a number of disasters this year that have seriously damaged its reputation and finances. Swiss regulators are also investigating a spy scandal and the $ 10 billion sale by Credit Suisse that was packaged by Greensill Capital. Funding was based on funding for companies, many of which had low credit ratings or were not rated at all. Greensill collapsed in March and his ties with former UK Prime Minister David Cameron sparked a political scandal.

The Swiss supervisory authority known as Finma said it would “particularly investigate possible deficiencies in risk management” at Credit Suisse. Finma also said it “will continue to exchange information with relevant authorities in the UK and US”.

Without the loss of Archegos, Credit Suisse would have achieved a pre-tax profit of 3.6 billion Swiss francs, according to the bank. Sales for the quarter rose 30 percent to 7.6 billion Swiss francs as Credit Suisse brought in fees from brisk trading in the equity and bond markets.

The quarterly loss, which was described as “unacceptable” in a statement by the bank’s CEO, Thomas Gottstein, compared to a profit of 1.3 billion Swiss francs in the first quarter of 2020.

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Business

Alibaba Faces $2.eight Billion High quality From Chinese language Regulators

Alibaba Faces $2.8 Billion Fine From Chinese Regulators

China announced on Saturday that it had fined e-commerce titan Alibaba a record $ 2.8 billion for monopoly business practices. This was the government’s toughest move to date in its campaign to tighten regulation of the country’s internet giants.

Beijing’s market watchdog began investigating Alibaba for possible antitrust violations in December, including preventing vendors from selling their goods on other shopping platforms. On Saturday, the regulator said its investigation found that Alibaba was hindering competition in online retail in China, affecting innovation in the internet economy and harming consumer interests.

The fine on Alibaba, one of China’s most valuable private companies and the foundation of the business empire of Jack Ma, the country’s most famous tycoon, exceeds the $ 975 million antitrust fine imposed by the Chinese government on American chip giant Qualcomm in 2015.

The Chinese authorities left little doubt on Saturday about the signal they wanted to send to other internet giants. In a comment posted online a minute after the fine was announced, People’s Daily, the Communist Party’s official newspaper, described regulation as “a kind of love and care.”

“Monopoly is the great enemy of the market economy,” the comment said. “There is no contradiction between legal regulation and support for development. Rather, they complement and reinforce each other. “

The fine is unlikely to materially affect Alibaba’s assets. The state market regulator, the Chinese agency that imposed the fine, said the amount represented 4 percent of Alibaba’s domestic sales in 2019. The group reported profits of more than $ 12 billion in the last three months of 2020 alone.

Overall, the fact that Beijing has not asked Alibaba to make any major additional concessions makes the decision “good news for the firm,” said Angela Zhang, associate professor and director of the Center for Chinese Law at Hong Kong University.

When Qualcomm was fined six years ago, it also agreed to offer Chinese customers significant discounts on patent fees. On Saturday, the market regulator said only that Alibaba would have to curb its anti-competitive behavior and submit reports of its compliance for three years.

“I would think the market should respond positively,” said Professor Zhang, although she warned the government could conduct additional research on other aspects of Alibaba’s business at any time.

In a statement, Alibaba said it would “sincerely” accept the punishment and strengthen internal systems “to better serve our responsibility to society”.

“The penalty imposed today was to alert and catalyze businesses like ours,” Alibaba said. “It reflects the thoughtful and normative expectations of regulators for the development of our industry.”

Over the past decade, Alibaba’s business has expanded beyond shopping to include logistics, grocery, entertainment, social media, travel booking, and more. Like its peers on the Internet, Alibaba has said that the breadth of its business helps make each of its services more useful. However, critics say the size of the company worsens the playing field for competitors and limits consumer choice.

China started taking a closer look at its tech giants last year. The market regulator proposed updating the country’s antimonopoly law with a new provision for large internet platforms like Alibaba’s. In November, officials put an end to plans by Alibaba’s sister company, finance-focused Ant Group, to go public and tighten control over internet finance.

In December, it opened the antimonopoly investigation against Alibaba – an astonishing twist for Mr. Ma, whom the people of China had long held up as an icon of entrepreneurial plucking.

In the USA and Europe too, skepticism about the power of large Internet companies has increased. Western regulators have repeatedly fined Goliaths like Google over the past few years for various antitrust violations. But such penalties have not changed the nature of businesses in general enough to allay concerns about their power.

China began tightening oversight of big tech later than the West. But his efforts are already beginning to affect the way Chinese internet giants operate. This reflects the extent to which all private companies in China must remain in the good grace of the government in order to survive.

For many years, Alibaba and its arch-rival, gaming and social media giant Tencent, have competed fiercely in a variety of companies, including by preventing their own users from spending time on the other company’s services. That could gradually change. In a first for the company, Alibaba recently applied for two of its trading platforms, Taobao Deals and Xianyu, to be present on WeChat, Tencent’s ubiquitous social app.

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Business

Chinese language regulators reprimand Tesla over rising complaints about its vehicles.

Chinese regulators reprimand Tesla over growing complaints about its cars.

Chinese regulators recently met with Tesla executives after several government agencies reported an “unusual acceleration” in complaints from consumers about battery fires and other quality issues with the company’s electric cars.

In a post on Chinese social media platform WeChat, the state administration for market regulation said officials from five government agencies interviewed Tesla executives and “asked them to strictly comply with Chinese laws and regulations, strengthen internal management and improve quality and implement company safety regulations. ”

Tesla recognized its “flaws in the business process” and agreed to improve the quality and safety of its vehicles, the regulator said in the release.

The electric car maker has struggled with quality issues as it increased its production from tens of thousands of cars a year to 500,000 in 2020. On social media, customers have documented numerous problems with the new Tesla, including large gaps between body panels, poor paintwork and broken glass. These complaints were confirmed in surveys and reviews of the company’s cars by JD Power and Consumer Reports.

Some of the issues cited by Chinese regulators aren’t unique to Tesla. The potential for fires in the large batteries that power electric cars has forced other automakers to recall cars. General Motors recalled Chevrolet Bolt electric cars from the 2017-2019 model years in the U.S. in November because they could catch fire under certain conditions. Tesla has previously said that its models are less likely to catch fire than other cars.

Tesla didn’t immediately respond to a request for comment on Monday, but the company’s executive director Elon Musk recently admitted quality issues with its popular Model 3 sedan in an interview with Sandy Munro, an auto industry consultant.

Last week, Tesla recalled 135,000 vehicles in the U.S. to address a touchscreen issue on its S and Y models. It was found that the screens had a high error rate. Tesla had initially refused to recall the cars but was pressured by the National Highway Transportation Safety Administration.

In a letter to the US security agency last month, a Tesla executive said the screens that drivers use to control many functions of their cars shouldn’t last more than five or six years.

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Business

Yellen and Regulators Met Amid GameStop Frenzy to Focus on Market Volatility

Yellen and Regulators Met Amid GameStop Frenzy to Discuss Market Volatility

Barbara Roper, director of investor protection for the Consumer Federation of America, said monitoring this type of behavior is becoming more difficult for the SEC

“We are better at regulating professional market participants than figuring out what to do when the investing population is doing it themselves,” said Ms. Roper.

The SEC is likely to focus on Robinhood and other technology platforms that enabled investing, including the ability for investors to trade options – a financial product that appears to have exacerbated some of the huge price volatility in GameStop. Options are essentially contracts that give the buyer the right to buy or sell a stock at a specific price at a later date. This type of trading can be both risky and disruptive, said market experts.

“The rules for options trading are overdue for review,” said Ms. Roper. “Safety precautions should be taken that limit options trading to more sophisticated traders or at least ensure that investors understand the risks.”

Instead, Robinhood and other platforms made it possible for any investor to buy options at the touch of a button.

“The SEC will need a hypothesis. Mine is that the problem is largely a leverage problem, and that leverage comes from trading options rather than individual stocks, ”said James Cox, professor of securities at Duke University School of Law. “We may really need to think about whether there needs to be a limit to the number of options a person can have and can perform.”

[Read more about how options trading might be fueling a stock market bubble.]

In addition to the risks of options trading, the SEC may also focus on whether the incentives and marketing that have lured investors to new financial technology platforms have been misleading. Many companies, including Robinhood, have been promoting “commission-free” investments that many investors may have misunderstood, said Dennis Kelleher, president of Better Markets.

“The reason a lot of these people are in the trading arena in the first place is because they were led to do so by the misleading claim that trading is ‘free’, and now many of them think that free money is falling everywhere,” said Mr Said Kelleher. “The SEC should take the position that anyone who claims, directly or indirectly, that trading is free, is bogus and is misleading to a reasonable investor.”

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Business

What professional merchants, the Reddit crowd and regulators could do subsequent

What pro traders, the Reddit crowd and regulators may do next

The WallStreetBets Reddit forum on a smartphone in Sydney, Australia on Thursday, January 28, 2021.

Brent Lewin | Bloomberg | Getty Images

What’s next for the Reddit crowd? Wall Street seems unsafe.

The “blow-out-the-short-seller game” is showing signs of exhaustion, but the effects are only just beginning to be felt.

What traders can’t agree on is what will happen next. There are four areas of discussion: How will traders / hedge funds react? How will trading platforms react? How will regulators react? And what’s the next step for the kill the hedge fund traders?

How will Wall Street react?

A big hedge fund losing money is getting Wall Street’s attention. Wall Street doesn’t want to put itself under pressure again in this short squeeze game. Many short sellers like Melvin Capital have already ended their short sales.

Another reaction from traders could be to increase option prices, especially on call options with no money.

But many are still trying to take advantage of the game. “Anyone who knows anything about options is trying to figure out how to sell GME options,” said Larry McMillan, options advisor at McMillan Advisory.

Why? “There haven’t been too many short bruises like this one in recent history,” he said. “As long as people think basics are important, they’re going to be selling short things like GameStop.”

He noted that with GameStop stock trading at $ 260 after close of trading on Thursday night, the $ 260 call expiring on February 19 will sell for $ 107, meaning it would have to be above $ 367 to cash to earn. The put at the same strike price sells for $ 150 so it would have to drop below $ 110 to make money.

“The question is, how do you do that without leading the way to ruin?” he said. “It’s very risky, but definitely possible.”

How will trading platforms react?

Online brokers like Interactive Brokers and Robinhood have slowed down single stock and option trading for many of the heavily shortened names. TD Ameritrade increases margin requirements and prevents short circuits on these names. Robinhood said the decision to restrict trading was a risk management decision to “meet financial requirements, including the SEC’s net capital commitments and clearinghouse deposits.”

While Robinhood has received significant criticism from many traders for its actions, Charles Dolan of the Global Markets Advisory Group said the online brokers are at significant reputational risk.

“When I’m the CCO [chief compliance officer]I will be very conservative and overreact rather than underreact because it is easier to hold off a disgruntled customer than fend off a disgruntled regulator, “said Dolan, whose company provides strategic advice on market structure and regulatory compliance.

Robinhood and Interactive Brokers resumed restricted trading in previously restricted securities on Friday.

How will regulators and Congress react?

You know that when ultra-liberal MP Alexandria Ocasio-Cortez and arch-conservative Senator Ted Cruz agree that there should be hearings about Robinhood’s decision to ban retail investors from trading, it is an odd situation.

Rep. Maxine Waters, D-Calif., Chair of the House Financial Services Committee, and Sen. Sherrod Brown, D-Ohio, new Chair of the Senate Banking Committee, announced that they intend to hold hearings.

UBS’s Art Cashin suggested that this could be a rich source of investigation: “The chatbook revolt against the hedge funds may not be filled with little people, but some bigshots anonymously posing as the little people. Only one investigation will to do.” say.”

For regulators like the SEC, FINRA, and the CFTC, this is a far more sensitive issue that cannot easily fall back on political grandeur.

“Regulators need to figure out how to remove the incentive.” said Amy Lynch, a former SEC compliance officer who now runs Frontline Compliance.

“Exchanges could get into options trading and restrict it by setting position limits or other restrictions, but they would need to investigate which market rules need to be changed,” she added. She noted that restrictions and even outright bans on short selling are not uncommon: Europe introduced a ban on short selling at the start of the pandemic.

Dolan stressed that a strong regulatory response is urgently needed: “Otherwise the idea of ​​a fair and orderly market is in trouble. If value is separated from price, what do you have left? The idea that people can stay insane longer than. ” Other people can stay liquid. This is a problem for the idea that a market is there to get accurate pricing information. “

What do you have left when value is separated from price? The idea that people can stay insane longer than other people can be a problem for the idea that a market is there to get accurate pricing information.

Charles Dolan

Global Markets Advisory Group

An obvious source for the review is whether to tighten the rules on borrowing stocks. “Does it make sense for someone to sell a stock with more shares than it has listed?” said Lou Pastina of the Global Markets Advisory Group. The SEC could also curb naked short selling, the illegal practice of selling short without first borrowing the security.

What’s this?

Is that a movement? If so, what is the goal? If the goal is to tie it to hedge funds, the idea of ​​targeting short sellers should not be kept faithful. It’s just a means to an end. This will eventually stop working and it will be necessary to move on.

But next to what? Some believe there will be attempts to address other vulnerabilities, others believe that the community will transform into something else.

Stephen Mathai-Davis, who runs the all-AI trading platform Q.ai, has interviewed thousands of online investors from various Facebook, Instagram, and Redditt communities, including WallStreetBets.

While he denies the idea that it is a real “movement,” he says there are many common characteristics.

“They are definitely countercultural,” he said. “There is a movement in the decentralized online communities where people learn from each other. There is a distrust of Wall Street. They are well aware that Wall Street thinks they are ‘stupid money’. In the community nobody talks about mutual funds, they talk about individual stocks and ETFs. Some are very involved in options trading. “

When interviewing this community, Mathai-Davis asked how much they trade, how they research, and what they need help with.

“We found that they need help with three things. First, they don’t know how to trade in a dynamic trading environment. Second, they don’t know how to reduce their losses. Third, they don’t know how to weight portfolios. “

Mathai-Davis is trying to get the “community” to move away from trading stocks and start trading investment themes. “We believe in investing and not speculating in individual stocks. If you don’t have time to research, we can provide this,” he admits that retail investors continue to focus on individual stocks.

Ultimately, he believes the community is changing: “Instead of using an old-fashioned mutual fund, everyone will end up having a separately managed account that is a bespoke solution. I think that’s where the ‘movement’ is going.”

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