Is it possible that U.S. fixed income markets could learn from MiFID II and other reforms underway in Europe just as the Trump Team is moving to slow the pace of regulation in U.S. markets?
Jeff Brown, senior vice president, head of legislative and regulatory affairs at Charles Schwab, says that there are lessons to be learned for global markets.
“There’s no question that there is a divergence between U.S. regulatory policy and what’s going on in Europe — and clearly the result of Donald Trump’s election,” Brown says. “Now, if you had asked me the question a year ago, I would have told you, ‘Oh, we’re going to be very much aligned [with Europe]. Hillary Clinton would continue the regulatory policies of the Obama administration.’ But that’s not the case with this president.”
Brown quickly recited a “perfect example: There’s a law called the Congressional Review Act, which allows Congress to overturn recently passed piece of regulation. In its 25-year history, it’s been used once. In this year, it’s been used 14 times and there’s another one sitting on the Senate docket this month [September].”
Many participants in U.S. markets say that some provisions of Dodd Frank and other reforms have gone too far. “[But] that’s not the case in Europe. MiFID II,” he says.
“You have to look at what is going to happen to U.S. policy after we watch the European example,” Brown says. “I think what we’re going to do is look at Europe and see how it goes. There are good things that they’re doing. The pre- and post-trade transparency of MiFID II for fixed income products is potentially a real benefit to retail clients like Schwab’s clients. So, we’re going to be watching it very carefully.”
The fixed income is also going to be keeping an eye out for the risks that market volatility may bring after a long stretch of benign conditions.
“What does it mean when you put in policies that could reduce liquidity, increase the spreads between bid and ask, increasing transaction costs? Could you cause a cascading effect of increasing volatility that you don’t necessarily want in the corporate or, for that matter, the sovereign debt market?” Brown asks.
Brown spoke to FTF News during the “Navigating the Maze of MiFID II” conference in New York City this past September. He was also a participant in the panel discussion, “New Rules for Fixed Income,” which focused on how MiFID II will impact fixed income transaction processing.
CREDITS:
Video Production: Janene Knox and William J. Poznanski, Jr.
Interview conducted by: Eugene Grygo, chief content officer, FTF News
Co-Producers: Sarah Hathaway, vice president, Financial Technologies Forum (FTF) and Eugene Grygo
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