House bill would provide framework to calculate risk in the options markets

Legislation recently introduced in the U.S. House of Representatives seeks to require regulatory agencies to develop a framework to better calculate risk in the options markets.© Shutterstock The bill – the Options Market Stability Act of 2019 (H.R. 4233) – is designed to reduce the impacts of market volatility on everyday investors. “Recent options volatility […]

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Legislation recently introduced in the U.S. House of Representatives seeks to require regulatory agencies to develop a framework to better calculate risk in the options markets.

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The bill – the Options Market Stability Act of 2019 (H.R. 4233) – is designed to reduce the impacts of market volatility on everyday investors.

“Recent options volatility has indicated the immediate need for adjustments to existing regulations over these markets. We cannot ask investors to stand by as government bureaucrats drag their feet to modernize outdated rules,” U.S. Rep. Lance Gooden (R-TX), who introduced the bill, said. “My legislation, the Options Market Stability Act of 2019, will require federal regulators to issue a final rule establishing a system to better calculate and account for risk in the options markets. The rules over our financial system must be accurate in their targeting and agile when change is needed.”

Rep. Patrick McHenry (R-N.C.), ranking member on the House Financial Services Committee, supports the legislation.

“Committee Republicans are committed to supporting everyday investors as they save for retirement, their child’s education, or a home for their family,” McHenry said. “I am glad to see Congressman Gooden take action to modernize the regulatory framework for calculating risk in the options markets, which will provide stability and protection for these folks. I appreciate his leadership on the Financial Services Committee and his work in Congress to build on the gains Republicans have achieved for the American people.”

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Mutual fund boards maintain strong governance, survey says

Mutual fund boards maintain strong governance practices to safeguard shareholders’ interests, according to a new report by the Independent Directors Council (IDC) and Investment Company Institute (ICI).© Shutterstock The report – called the Overview of Fund Governance Practices, 1994–2018 – revealed several key findings. For example, it found that independent directors make up three-quarters of […]

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Mutual fund boards maintain strong governance practices to safeguard shareholders’ interests, according to a new report by the Independent Directors Council (IDC) and Investment Company Institute (ICI).

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The report – called the Overview of Fund Governance Practices, 1994–2018 – revealed several key findings. For example, it found that independent directors make up three-quarters of boards in 84 percent of fund complexes – that’s up from 46 percent in 1996. Further, 66 percent of fund complexes have an independent board chair even though there is no legal requirement to have one. Also, 91 percent of participating complexes have an independent director in board leadership.

Also, most fund complexes have mandatory retirement policies for board members with the average age of compulsory retirement set at 75. For complexes that put term limits on directors, the average limit is 16 years. Finally, the survey said that 54 percent of independent directors are represented by dedicated legal counsel, while 41 percent are represented by legal counsel that is different from the adviser’s counsel.

“Boards set a high standard for fund oversight by continuing to adopt strong governance practices even when they aren’t required by regulation,” Amy Lancellotta, managing director of IDC, said. “Our report details these practices and how they have evolved to continue to serve investors’ best interests.”

The report, conducted every two years, is based on research from fund complexes representing nearly 9,000 funds.

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Bill seeks to lower the cost of higher education

The House Committee on Education and Labor has introduced a measure designed to overhaul the higher education system by lowering the cost of college for students and families.© Shutterstock Lawmakers said the College Affordability Act would improve the quality of higher education through stronger accountability while expanding opportunities by providing students the support and flexibility […]

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The House Committee on Education and Labor has introduced a measure designed to overhaul the higher education system by lowering the cost of college for students and families.

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Lawmakers said the College Affordability Act would improve the quality of higher education through stronger accountability while expanding opportunities by providing students the support and flexibility needed for success.

“The College Affordability Act immediately cuts the cost of college for students and families and provides relief for existing borrowers,” Rep. Bobby Scott (D-VA), committee chairman, said. “At the same time, it improves the quality of education by holding schools accountable for their students’ success and it meets students’ individual needs by expanding access to more flexible college options and stronger support – helping students graduate on time and move into the workforce.”

Provisions of the bill include the restoration of state and federal investments in public colleges and universities; making college affordable for low- and middle-income students by increasing Pell Grants value; and easing the burden of student loans by making existing student loans cheaper and easier to pay off.

“This bill takes a positive step on one of the most common-sense student loan reforms by recognizing the need for better federal loan disclosures,” Consumer Bankers Association President and CEO Richard Hunt said. “Borrowers deserve to know the true cost of federal student loans, and the Department of Education should bring federal loan disclosures, which currently mask the cost, in line with the pro-consumer standards required of private lenders.”

Hunt also noted, “the overall bill falls short when it comes to dealing with the cost of college, which has to begin with fundamental reforms to federal student loan programs. These virtually unlimited programs have fueled both skyrocketing tuitions and student debt burdens – and the bill remains silent on this fact.”

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CME Group to offer market data on Google Cloud Platform

CME Group will become the first derivatives marketplace to offer real-time futures and options market data on Google Cloud Platform (GCP).© Shutterstock Through this agreement, CME Group customers will be able to access all real-time CME Group data currently available, including all CME Globex market data and third-party data sources, on the Google Cloud platform […]

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CME Group will become the first derivatives marketplace to offer real-time futures and options market data on Google Cloud Platform (GCP).

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Through this agreement, CME Group customers will be able to access all real-time CME Group data currently available, including all CME Globex market data and third-party data sources, on the Google Cloud platform starting Nov. 17.

“Our clients around the world increasingly are looking for quality real-time data within the cloud,” Trey Berre, global head of data services at CME Group, said. “This innovative collaboration with Google Cloud will not only make it easier for our clients to access the data they need from anywhere with an internet connection but will also make it easier than ever to integrate our market data into new cloud-based technologies.”

Chicago-based CME Group is one of the world’s leading derivatives trading platforms. It enables clients to trade futures, options, cash and OTC markets, optimize portfolios, and analyze data.

“This initiative with CME Group is the latest example of how Google Cloud is committed to working with the financial sector to offer creative, new ways to leverage real-time market data,” Tais O’Dwyer, global director of financial services strategy and solutions, Google Cloud, said. “Pulling from our expertise in data management and our global network, we will continue to engage with key financial services companies like exchanges to help them transform business and meet their customers’ needs.”

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Study probes investor literacy, education needs

Recently released Financial Industry Regulatory Authority (FINRA) study findings determined investors with low levels of financial knowledge lack confidence in their ability to meet their financial goals.© Shutterstock The analysis, New Evidence on the Financial Knowledge and Characteristics of Investors, was conducted by the FINRA Investor Education Foundation (FINRA Foundation) and the Global Financial Literacy […]

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Recently released Financial Industry Regulatory Authority (FINRA) study findings determined investors with low levels of financial knowledge lack confidence in their ability to meet their financial goals.

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The analysis, New Evidence on the Financial Knowledge and Characteristics of Investors, was conducted by the FINRA Investor Education Foundation (FINRA Foundation) and the Global Financial Literacy Excellence Center (GFLEC) at the George Washington University School of Business.

The scope of work examined nearly 15,000 Americans, aged 25 to 65, who were not retired or in school. Investors were categorized into two segments, workplace-only investors and active investors. It also included non-investors for comparison purposes.

“Investors are seeing a rapid evolution of the financial landscape, from the introduction of more complex financial products and instruments to a fundamental shift in the retirement system that places responsibility for saving and investing squarely on the shoulders of individual Americans,” Gerri Walsh, president of the FINRA Foundation, said. “Fewer workers today have defined benefit pension plans and the rise of defined contribution plans, like 401Ks, require an understanding of financial markets and basic personal finance that many investors lack.”

The results showed, among other determinations, that workplace-only investors were more likely to include individuals who were divorced or separated, had lower incomes and less education and were less likely to be self-employed. When presented with financial literacy questions measuring understanding of interest rates, inflation, and risk diversification, only 32 percent of workplace-only investors could answer the questions correctly, compared to 44 percent of active investors. Higher levels of financial knowledge were associated with participation in private retirement savings accounts and financial markets, even when controlled for risk preferences or confidence in one’s ability to reach financial goals.

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Fed finalizes rules to reduce compliance for less risky banks

The Federal Reserve Board finalized rules last week that reduce compliance requirements for banks with less risk while maintaining more stringent requirements for the largest and most complex banks.© Shutterstock Banks with $100 billion or more in total assets would be separated into four different categories based on asset size, cross-jurisdictional activity, reliance on short-term […]

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The Federal Reserve Board finalized rules last week that reduce compliance requirements for banks with less risk while maintaining more stringent requirements for the largest and most complex banks.

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Banks with $100 billion or more in total assets would be separated into four different categories based on asset size, cross-jurisdictional activity, reliance on short-term wholesale funding, nonbank assets, and off-balance sheet exposure. Firms in the lowest risk category will have reduced compliance requirements, owing to their smaller risk profile. As the risk of a firm increases and it moves into a new risk category, its requirements will increase.

The rules are consistent with changes made by the Economic Growth, Regulatory Relief, and Consumer Protection Act.

“Our rules keep the toughest requirements on the largest and most complex firms,” Fed Board Chair Jerome Powell said. “In this way, the rules maintain the fundamental strength and resiliency that has been built into our financial system over the past decade.”

The Fed Board says the changes will result in a 0.6 percent decrease in required capital and a reduction of 2 percent of required liquid assets for all banks with assets of $100 billion or more.

The rules do not reduce capital or liquidity requirements for firms in the highest risk categories, including U.S. global systemically important banks.

“The final rules maintain our objective from the proposals: develop a regulatory framework that more closely ties regulatory requirements to underlying risk,” Vice Chair for Supervision Randal K. Quarles said.

The rules were jointly developed with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. They will be effective 60 days after publication in the Federal Register.

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SEC appoints new Asset Management Advisory Committee

The Securities and Exchange Commission (SEC) has formed a new Asset Management Advisory Committee.© Shutterstock The committee was established to provide the commission with diverse perspectives on asset management. They will offer advice and recommendations on trends and developments affecting investors and market participants, the effects of globalization, and changes in the role of technology […]

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The Securities and Exchange Commission (SEC) has formed a new Asset Management Advisory Committee.

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The committee was established to provide the commission with diverse perspectives on asset management. They will offer advice and recommendations on trends and developments affecting investors and market participants, the effects of globalization, and changes in the role of technology and service providers.

The committee consists of outside experts, including retail and institutional investors, small and large funds, intermediaries, and other market participants.

“Asset management is a critical component of our markets and is especially important to Main Street investors,” SEC Chairman Jay Clayton said. “This committee will help the Commission ensure that our regulatory approach to asset management meets the needs of retail investors and market participants at a time when the industry is evolving rapidly. I would like to thank each of the committee members for agreeing to participate on this important committee.”

The committee will begin a two-year term on Nov. 1.

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CUNA supports President’s executive order regarding regulatory agencies

The Credit Union National Association (CUNA) is supporting President Donald Trump’s recent issuance of an executive order requiring regulatory agencies to seek comment on federal guidance and enhance its public communication.© Shutterstock “Americans deserve an open and fair regulatory process that imposes new obligations on the public only when consistent with applicable law and after […]

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The Credit Union National Association (CUNA) is supporting President Donald Trump’s recent issuance of an executive order requiring regulatory agencies to seek comment on federal guidance and enhance its public communication.

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“Americans deserve an open and fair regulatory process that imposes new obligations on the public only when consistent with applicable law and after an agency follows appropriate procedures,” Trump wrote. “Therefore, it is the policy of the executive branch, to the extent consistent with applicable law, to require that agencies treat guidance documents as non-binding both in law and in practice, except as incorporated into a contract, take public input into account when appropriate in formulating guidance documents, and make guidance documents readily available to the public.”

CUNA President/CEO Jim Nussle said the executive order is a step toward addressing what he called regulatory overreach.

“In recent years, we have seen federal agencies try to exceed their statutory authority and skirt their obligations under the Administrative Procedures Act by issuing guidance in lieu of new regulation,” Nussle said. “This practice runs counter to our nation’s democratic principles, and we appreciate the President’s line in the sand on the matter. As America’s trusted partner for member-driven financial services, we look forward to this moment serving as a springboard toward ensuring the rulemaking process is a more democratic, input-driven process, leading to thoughtful, informed regulations that protect consumers and advance our country.”

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IRS issues recommendations on how to recognize abusive schemes

The Government Accountability Office (GAO) has issued the Internal Revenue Service (IRS) a series of recommendations to address identifying tax-exempt entity abusive schemes.© Shutterstock The GAO’s analysis determined the IRS does not consistently analyze data from its offices to help identify the schemes, although information may be available in existing databases. The GAO learned IRS […]

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The Government Accountability Office (GAO) has issued the Internal Revenue Service (IRS) a series of recommendations to address identifying tax-exempt entity abusive schemes.

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The GAO’s analysis determined the IRS does not consistently analyze data from its offices to help identify the schemes, although information may be available in existing databases.

The GAO learned IRS database project codes to identify data on abusive tax schemes are not linked across IRS’s audit divisions, the agency has not leveraged a database with cross-divisional information to facilitate its analysis and monitoring of audit data across divisions, and has not used existing analytic tools to mine the narrative fields of tax forms.

The GAO maintains each of those elements could provide audit leads on abusive schemes involving tax-exempt entities.

To alleviate the issues, the GAO has recommended the Commissioner of Internal Revenue should undertake a risk assessment of tax-exempt entity Form 8886-T filings; link audit data on abusive tax schemes involving tax-exempt entities across operating divisions and use the linked data to assess emerging issues and develop policy responses; test the ability of the Return Inventory Classification System to facilitate analysis and monitoring of audit data across the operating divisions and to support the IRS’s enforcement objectives; use existing data analytic tools to further mine Form 8886 and Form 8918 data; and develop guidance to help managers ensure referrals about abusive schemes involving tax-exempt entities are made across operating divisions.

The GAO said the IRS agreed with each of the recommendations.

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Cybersecurity is the top concern among community banks

A survey of community banks revealed that cybersecurity is their top concern.© Shutterstock The sixth annual community bank survey, conducted by the Conference of State Bank Supervisors (CSBS), revealed that 70 percent of respondents ranked cybersecurity as their most significant risk. Further, 36 percent of banks said funding costs were the most likely factor to […]

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A survey of community banks revealed that cybersecurity is their top concern.

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The sixth annual community bank survey, conducted by the Conference of State Bank Supervisors (CSBS), revealed that 70 percent of respondents ranked cybersecurity as their most significant risk.

Further, 36 percent of banks said funding costs were the most likely factor to influence future profitability. This is up sharply from 11 percent in 2016. Also, there has been a considerable shift in how banks view regulation. Just 4 percent said that regulation was most likely to influence profitability, compared to the 60 percent who called it a concern two years ago.

Also, concerns about compliance costs increased 4 percent in the most recent survey, while 30 percent considered depopulation an important limitation to retaining core deposits. Additionally, the number of banks offering digital and online services remains largely unchanged due to the costs.

CSBS polled representatives from 571 community banks in 37 states to compile the data.

The survey was accompanied by a feature called “Five Questions for Five Bankers.” State bank commissioners asked five questions to five community bankers in 30 states, addressing the effectiveness of the Economic Growth, Regulatory Relief and Consumer Protection Act, S. 2155, and the community bank business model. They also asked about funding and liquidity concerns, technology, and cybersecurity.

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