In the news this week

Author: John Crabb, Karry Lai, Olly Jackson | Published: 5 Oct 2018
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Americas: seeking closure?

The world continued to watch as the Senate hearing of President Donald Trump’s Supreme Court nominee Brett Kavanaugh continued this week in bizarre fashion. What tends to normally be a fairly straightforward, if time consuming, process, turned out to be anything but.

Elsewhere in the merry go round that is the US legal system, Tesla chief executive Elon Musk settled with the Securities and Exchange Commission for September’s ill-fated tweet that landed him a subpoena; Musk has agreed to pay a hefty fine and been forced to step down as company chairman.

One saga that looks like it is nearing its conclusion is the renegotiations between the US, Canada and Mexico of the North America Free Trade Agreement. Unexpectedly, minutes before the deadline, the trio announced that a new deal had been brokered with an ego-boosting new name – the United States–Mexico–Canada Agreement (USMCA). The USMCA has catered to some of the demands of all three countries, but largely favours the US and brings down trade deficits in an apparent victory for President Trump.

Commodity Futures Trading Commission (CFTC) chairman Christopher Giancarlo admitted this week that it is important to recognise that swaps regulation frameworks don’t have to be identical but at least comparable. Speaking at the Securities Industry and Financial Markets Association Annual Meeting in Washington, DC, he discussed a white paper the regulator released on Monday that outlines a number of proposals to amend the rules that dictate cross-border swaps reform. The document is an attempt to remedy certain issues and inconsistencies with the current framework, including removing certain stipulations that impose US regulations abroad.

Asia Pacific: tying up loose ends

The Reserve Bank of India is consulting on draft guidelines on market abuse prevention. The proposed guidelines provide definitions on what is market manipulation, benchmark manipulation and misuse of information. It aims to ban price manipulation in any financial instrument and require market participants to put in place internal policies to monitor for market abuse. The consultation ends October 31.

China’s Ministry of Finance has announced that China will widen income tax exemptions on re-invested profits for foreign firms to encourage more foreign investment. The scope of tax exemptions has been widened from investment in sectors encouraged by the Chinese government to all sectors which are not prohibited. The tax exemption will apply retroactively from January 1 2018.

Vietnam has created a government agency to improve the performance of the nation’s state-owned enterprises. The Commission for the Management of State Capital began to manage 19 state-owned enterprises with a combined book value of $42.9 billion on October 1 2018.

EMEA: things are a-changin’

Loan issuers need to step up and improve their data quality, with the European Commission and the European Central Bank increasing demands through AnaCredit, which began at the end of last month, and the upcoming Securities Financing Transactions Regulation expected to be enforced late 2019. According to Richard Young, industry regulatory affairs and global data expert at Bloomberg, the EU institutions are already concerned about data quality and there won’t be immunity granted for the loans market.

Capital relief transactions are growing in popularity as the demand for banks to improve their balance sheets becomes even greater. "We are seeing growth in the type of reference assets, with recent deals on infrastructure loans and commercial real estate loans," said Mark Moloney, senior research analyst at Absolute Return Partners. These transactions reduce capital requirements and release capital and the number of issuers has grown each year, particularly for those with high risk weighted assets.

According to reports, EU Brexit negotiators believe a deal with the UK is very close. Upon the news, markets have reacted overwhelmingly positive, with sterling rising to a 10-week high against the euro and rose against the dollar. The Irish border issue has been a persistent roadblock in negotiations from the start, with the UK reluctant to accept a hard border which would break the Good Friday Agreement and leave Northern Ireland in a different regulatory position to the rest of the UK, and the EU wanting a special deal for Northern Ireland. It is said that negotiators are engaging in new proposals which would go a long way to breaking the impasse. 

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