In the news this week

Author: John Crabb, Karry Lai, Olly Jackson | Published: 11 Jan 2019
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Americas: Communication breakdown

Normally this weekly round-up is populated with decisions and enforcement rulings by US regulators like the Securities and Exchange Commission and the Commodity Futures Trading Commission. For some time now, however, the government shutdown has kept thousands of commissioners and staff members at home – and with it has gone the steady stream of regulatory tweaks, rulings and opinions that keep financial journalists busy on a day-to-day basis.

The effects of the shutdown are beginning to be felt across the entire country, with Uber drivers, restaurant owners and federal employees alike all struggling to stay afloat. The financial sector too is feeling the burden: the pipeline of initial public offerings in the US capital markets for instance looks likely to stutter as we progress through 2019. Blame for a downturn in equities can’t be placed squarely on the shoulders of the US government – but some will certainly try.

The shutdown has allowed the administration to take care of some external business – at least, in the times when the President isn’t frantically tweeting about a wall. Trade and tariff negotiations with China have been ongoing for some time now, but appear to have reached breaking point this week. Jeff Gerrish, deputy to US trade representative Robert Lighthizer, spent three days in Beijing negotiating, and Treasury Secretary Steven Mnuchin reported on Thursday that Chinese Vice Premier Liu will travel to Washington DC to continue negotiations later this month.

Next came more bad news, as Federal Reserve chairman Jerome Powell told listeners at the Economic Club of Washington DC that he is extremely concerned about the snowballing levels of US national debt, as the deficit pushed over a trillion dollars. Debt itself sits at $21.9 trillion. 

In Brazil, newly inaugurated President Jair Bolsonaro has given the go-ahead to a proposed tie-up between Embraer and Boeing Co, despite several weeks of uncertainty and hesitation, as the country’s mid-sized aviation industry looks set to consolidate.

Asia-Pacific: A slow start

Amid a slowing economy and ongoing trade war, China is increasing local debt issuances in 2019 to RMB 1.39 trillion ($202 billion), including local government bonds, to boost infrastructure investment. This year it plans to sell 810 billion yuan of special bonds, as well as 580 billion yuan of generals. The approval for the 2019 quota comes ahead of schedule, as quotas are usually announced in the late spring.

Meanwhile, China’s ride-hailing company Didi Chuxing has got its foot in the door of financial services. Its new app includes services in wealth management, auto-financing, and credit and lending. With massive amounts of user data at its disposal, the company is poised to join the ever-growing number of fintech platforms in China such as Ant Financial and WeBank.

And the Philippines’ Securities and Exchange Commission has launched a second round of public consultations on a regulatory framework for initial coin offerings (ICO). After the first round last summer, the ICO rules were expected by the end of 2018, but more input from stakeholders is needed. Under the draft rules, an initial assessment request must be made no later than 90 days after proposing an ICO, and those ruled as security tokens need to be registered with the SEC. The consultation closes on January 15, and the crypto community will be hoping for a different approach to that taken by US authorities.

EMEA: Shaky Ground

Following last month’s announcement that the Securities Financing Transactions Regulation (SFTR) is set to go live next year, this week industry sources have told IFLR a lot of work is still to be done. Val Wotton, managing director at DDTC, said as much as 40% of the data needed is not currently available. The number of data fields under SFTR far exceeds other notable regulation such as Mifid and Emir.

Along with the Central Securities Depositories Regulation and ongoing Brexit uncertainty, the fear is that smaller securities firms will struggle to cope. As of yet, the regulation has had a limited impact on the market, but at the very least, a fall in repo volumes is anticipated.

No Europe update is complete without a mention of Brexit. After Theresa May delayed the vote on her much-criticised Brexit plan before Christmas, a second run has been confirmed for next Tuesday. Yet the deal hasn’t changed – so looks certain to be defeated. If, as expected, it is defeated, then calls for a second referendum will become louder. On the other side, Brexiteers continue to vaunt the positives of a no-deal – but such a proposition looks less likely after an amendment by Labour MP Yvette Cooper was passed in parliament. Cooper’s amendment makes it harder for the government to agree to no-deal without Parliament’s approval.

Meanwhile further south, troubled Italian firm Banca Carige has entered into administration, and in response, the government is to set up a €1.3 billion fund. Five-Star Movement, elected last year, had fiercely criticised the Italian government’s response to the financial crisis in 2008, as well as subsequent bank failures in the years that followed. The party said that the money should have been used to support savers rather than the banks, yet more than a decade later, finds itself doing the same. The situation dents the credibility of the party, which had been rising since its election as part of a coalition with far-right League. 

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