Capital

Volckers Volley or Folly

Paul Volcker is an American economist who was the chairman of the Federal Reserve, under Presidents Jimmy Carter and Ronald Reagan. He is still working though, and is still making recommendations that could forever change the American banking scene.

The P4Capital team investigates.

Stay tuned.

Transcript


Amanda: Change is never easy – but sometimes it is necessary. In this week’s round table discussion the P4Capital executive team talks about former chairman of the Federal Reserve, Paul Volcker, and changes he is recommending be made to US banking.

Jim: Today’s topic, or this week’s topic, is about Paul Volcker’s recommendation to put US banking and financial industry under one roof.

Shaheerah: Yes, he has outlined a new plan for revamping the way that the US government is going to oversee their financial plans. And he’s going to be publishing a paper soon which is going to talk about consolidating and reorganizing the US financial regulators, so what they’re going to do is create one single agency to supervise the financial institutions, while the Federal Reserve will be responsible for writing these regulations.

Archana: Paul Volcker is not new to devising strategies. When he was the Chairman of the Federal Reserve he actually was the person who in fact tamed inflation at that time. More recently, he also came up with the Dodd Frank initiative itself, where we wanted banks to engage less and less in risky, Wall Street style trading, and I guess this Volcker Alliance, which terms itself as a think tank, was basically set up to improve the way government essentially works at the local state and the federal level in terms of policy making and the financial decision-making.

Jim: With that said is, the current system in the US has a heavy regulation feel to it. The institutions that play in the US are now pushing back at a fairly aggressive rate, of saying “My business is my business. My business is not supporting your regulation.” In fact, the US has leaned heavily on the regulators side over the last seven years since 2008. Some of the legislation is badly needed, but some is over the top and more importantly, in Volcker’s words, is “why is the futures exchange being regulated by the Ministry of Agriculture?”

Shaheerah: This new plan is that the Fed would write the regulations, and then another agency would make sure that these rules and regulations were actually being followed. So this would be a combination of the Federal Deposit Insurance Corporation, the office of the controller of the currency, the Fed and then the other regulators such as the SEC and the CTFC. Paul Volcker was also responsible for proposing the Volcker rule, and the role prohibits short-term proprietary trading that Archana was talking about, of the securities of the securities, derivatives, commodity futures and options on these instruments on their banks’ own accounts. Basically this rule is to prohibit activities that don’t benefit the banks’ customers.

Jim: But in fact benefit the banks themselves, as long as they introduce the element of low to very high risk. Correct Shaheerah?

Shaheerah: Yup. And it was estimated that the banks would have to hire 3000 new employees in order to implement these rules, and another study had already mentioned that it would actually cost 350 million dollars for the banks and the investors in order to implement this rule.

Jim: So a billion dollar overhead put onto the banks by and large by the representatives that may or may not have their voters’ best interests at heart. It’s an interesting conundrum. We are hoping Paul Volcker wins this one.

Archana: So by the way, while we’re on this topic of regulations and compliance, we at P4Capital – we specialize in these kinds of jobs. So if you’re a person, or a capital markets professional with specialization in this area, or any other capital markets area, please do not hesitate to either give us a call or to send us your resume. We absolutely look forward to hearing from you. And that number by the way that we can be reached at is (416)363-9888. And you can either ask for Shaheerah Kayani or Archana Ravinder.

Jim: And the interesting part of what Archana just mentioned there, is not only are we at P4Capital dedicated to this space, we also understand the heavy impact that new legislation, new rules, new governing bodies have on the overall industry, and the complexity of big data coming onto the market from a global sense. So when we look at Chairman Volcker’s think tank recommendation, we understand the very many sides that he is speaking from. Not only from a centralized regulatory body, but the impact on big data, the impact on being able to do very fast high frequency trading, and be extremely competitive in the world.


 

That was the P4Capital team discussing the Volcker Recommendations, and the impact they could potentially have on banks. What to know more? Check out our website  and previous posts at www.planet4it.com or follow us @p4capital. Thanks and see you next time.

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Do Canadian trading platforms need to be modernized for global purposes?

Is Canada falling behind on global trade?

In a world in the throws of the Digital Revolution, the only constant is change.

There are several major trade regulation changes coming in 2014, unprecedented in both number and magnitude.  These changes affect every company that imports into, or exports from, Canada or the U.S.  Some of these regulations require new licensing, and others mandate significant software updates.

Getting trade right is important not just for the economic growth it can create in Canada, but for the signal it sends to North America’s partners.  If North America fails to show leadership and surrenders the chance to be leading the way in the worlds most significant trade partnerships, others will step forward to fill the void. Now-a-days, thanks to the growing powers of Russia, India, Africa and Asia, that void would be filled within moments and be almost impossible to reclaim

Can Canada keep up in that face of all this competition?

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Jim:  Over the last few years our trading software has grown stagnant. Oh sure,  the interface has gotten more colourful and interactive, but the core application hasn’t changed at all since it was bought. It’s like you bought a box with a pink ribbon on it. Eventually, the pink ribbon got tattered, so you but a shiny new yellow ribbon on it – but the repair was strictly cosmetic.  The box is still the same. The software that the Canadian banks bought is that box. It was purchased from the late 1980’s to the year 2000. They were able to do whatever they needed to do in those time-frames, but they’ve been lacking for anything new for the last 15 years. In other words, any changes have been strictly cosmetic.

Now you have “giants on the marketplace that were never there before, and those original trading platforms were never made to handle these new behemoths. So the question Canadian traders have to ask is am I happy making the money I’m making, or will these new competitors push me to the sidelines?”

Jeremy: The Canadian trade foundation was based on the 7.5 hour trading day. That model was based on the New York model. In Shanghai today however,  those building never go dark.

When 7.5 hours was the norm, when the ‘bell ends’ traders would take all the results of that day, sum them up, then batch send them to the accounting department. Everyday they would do the same thing and be told by the start of the next trade day how they were doing. Now there is no break in the day for batch updates;  you have to do it in real time. You don’t have an off hour to calculate – so your risk models are lacking.

Archana: The crash of 2010 is a constant reminder of the need and importance to bolster fall-back mechanisms – where the modern systems can apply a hard stop to free-falling stocks. Business is much more complex now than the antiquated systems that were built several years ago. As Jeremy said, stocks are trading 24/7. There is a race to gain supremacy, be it in terms of the overall market reach, or its impact. Not only that, but we are in the midst of a global economy where exchange is happening in multiple currencies. We need a sophisticated system that can counter faulty trades. For us to stay afloat in all of these emerging markets and to be counted as a viable player, our technology needs to be modernized.

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What do you think?

Join the conversation! Tweet your responses to @planet4it or comment below in the comment section! The best answers will be featured on our Website!

Where is the Centre of the Financial Universe?

In June 2012, London was the commerce centre of the world.
It rose to the top of a list of 50 cities created by MasterCard Inc. It beat out New York, Tokyo and Chicago. Banks in cities around the world tried to imitate London’s success, and looked to it for guidance and instruction.
According to a Mastercard report from 2012, London surpassed New York, one of its main competitors,  in four of six areas:
  • economic stability
  • the ease of doing business
  • volumes of financial flows
  • attributes as a business centre.
In 2012 the total amount of money raised in Europe was  78 % greater than the value of US offerings, according to data compiled by Bloomberg.
The Global Financial Centre’s Index gave London a score of 785, with New York trailing behind by 20 points at 765.
Fast forward to 2014, and London has lost its place in the top spot. New York has beat out London by two points with a rating of 786 in the Global Financial Centre’s Index. London follows behind with a rating of 784, and Hong Kong comes in a distant third with 761.
What happened? Is New York really the centre of the financial world? If it is, who is its greatest challenger.
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Jeremy: I think London still holds the real power. It was New York for a while, but I think it’s crossed over within the last 10 years back to London. Ask yourself,  do the banks in Toronto emulate New York or London? Who do they have stronger ties with? London is historically more significant than the United States, I think they’re in a better Time Zone, and that’s a huge thing. When Toronto is still waking up, London has been working for six hours.
Devon:  Do Ontarians put their head traders in London or New York?
The sun never sets on the British Empire or its financial prowess it seems. Like Jeremy said, their time zone is ideal for interacting with major city centres around the world.
But when we speak of how fast other financial sectors of the world are gaining traction, we see things in a different light. Sure, London may be in the forefront – 3000 years of an economic society will tend to have these results-but the speed at which all other countries are gaining traction in the financial world is astonishing.
So when we see a sub-economy of the UK, namely Scotland,  looking to separate their currency ties, they had better have their technology in line to keep up countries who are looking to make their currency the basis of trade for commerce.  The strength of one’s currency can now be influenced by the technology which serves it; this is the kind of technological age that we are now dealing with, one that is on a more globalized scale than ever before.
Jim:  I’d argue that since 1990 the wealth has reached the hands of the multitude in London. Thatcher and Thatcherism is long gone, there is no aristocracy and no unions, so everything had balanced out.
It has reached an equilibrium, and from that point where equilibrium was reached,  London has been on fire. Carnary Warf is booming out there right now. With all that, regardless of two points on a scale, London is the centre of commerce.

Think back to the story of Jardines, and you can see the growth of Hong Kong and Shanghai. Their head traders are maybe in New York or London, but they are reporting back to a superintendent of head traders.
The east is just miles ahead.
I think in that the question of New York versus London, technology is lagging in  both by a gazillion compared to the east.
We’re entering this world where the commerce centre of the Universe is going to be the east. Compared to that, if you’re technology is laggard, you will never be in the centre of the game. New York needs to up their technology to even enter the B leagues.
Archana: In my opinion, to be reckoned as a financial hub, you have to be first and foremost a successful and an attractive city. London definitely leads the popularity index! Coupled with that fact is what my colleagues alluded to..the time difference is a huge plus when deciding on the competitive advantage that both cities have to offer.  Also, being a successful city means that London, is able to attract some of the brightest minds in the business, which becomes hugely relevant considering the amount of money that gets exchanged every single trading day! Having said that, whether London continue to be attractive in the years to come depends heavily on how much they invest in their technology, which is definitely lagging behind. This is especially relevant, in the trading circuit where there is a constant need to shave off valuable milliseconds.
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