In the news this week

Author: John Crabb, Karry Lai, Olly Jackson | Published: 17 Aug 2018
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Americas: the usual suspects

As we go to press President Trump signed into law the National Defense Authorization Act, which contains the long-awaited Foreign Investment Risk Review Modernization Act (Firrma). Firrma strengthens and broadens the existing scope of Committee on Foreign Investment in the United States (CFIUS) by expanding its authority over critical infrastructure, technologies and real estate investments. Firrma gained bipartisan approval, and is very much seen as necessary additional safeguard to US national security.

The benchmark secured overnight financing rate (SOFR), touted as the most likely replacement for the London interbank offered rate (Libor), got another boost this week as the World Bank issued $1 billion two-year floating-rate notes that are attached to the rate. The news follows the inaugural issuance by Fannie Mae last month, an important follow up in the development of the rate.

The presiding judge of the District Court of Massachusetts has made the move to push back the case against Scottrade for its violation of the Department of Labor’s fiduciary standard rule, so that it is under the administration of the state, as per the request of state regulator William Galvin. This is rather than have the case contested in a federal proceeding.

President Trump announced economic moves against Turkey, a country whose US relations are not good at this time – he claimed, on Twitter. Another announcement on Twitter – mentioned last week – by Elon Musk has put Tesla in hot water, as the Securities and Exchange Commission followed through on its threat and issued the company a subpoena for actions against shareholders. 

Asia Pacific: falling into place

China’s Ministry of Finance on Tuesday ordered local governments to speed up the issuance and use of special bonds for infrastructure projects in a move to boost investment and domestic demand amidst a worsening trade war with the US. Provincial governments have been tasked with meeting at least 80% of their special bonds quota issued by end of September and the rest should be sold in October.

India is mulling a new data privacy law that will regulate how organisations can collect, process and store citizens’ data. Spurred by a Supreme Court of India decision in August 2017 which held that privacy is a fundamental right, the Indian government is creating a data protection regime that hasn’t existed before. Drawing from a number of aspects of Europe’s GDPR, the proposed law will give data subjects the right to confirm whether and how their data is used, the ability to correct misleading or false data, the right to be forgotten, and it aims to fine companies four percent of turnover if they are in breach of the law. Data localisation requirements being proposed will also cause headaches to businesses, especially foreign companies.

EMEA: instability the standard

Turkey has dominated news headlines this week after the Turkish Lira weakened 35% against the dollar. Economic sanctions enforced by the US has led to a currency crisis in Turkey, forcing national regulators to cut the limit for banks’ forex swaps to 25% which makes it harder for Turkish banks to short the currency. Since the rule change, the lira has stabilised somewhat, yet concerns remain about the short-term future of the Turkish economy. President Trump seems unwilling to back down unless US Pastor Brunson and other US citizens are released. Qatar has come to Turkey’s aid with a $15 billion investment, but more help may be needed soon if short-term improvements fail to arise.

Signs are that the collateralised loan market is about to enter into a downturn after last year’s high performance. Arbitrage is expected to be made more difficult as the margins go up on the debt notes, even if the underlying assets are paying more. Concerns are also emanating about the Securitisation Regulation, which creates the concept of a third party verification (TPV) agent to check whether a securitisation fulfils the simple, transparent and standardised criteria.

But only two firms so far have applied and insurance firms, credit institutions, investment firms and credit rating agencies cannot become one. Fears are that the responsibilities outlines are unclear and the notification template is going to be time-consuming to complete. The Securitisation Regulation and an amendment to the Capital Requirements Regulation came into effect on 18 January, but most provisions will come into effect on January 1 2019. Consultations are being held currently on the role of TPVs.

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