SEC adopts MMF reforms, ditches swing pricing proposal

The US Securities and Exchange Commission (SEC) has adopted amendments to specific rules governing money market funds (MMFs) under the Investment Company Act 1940. The amendments will increase minimum liquidity requirements for money market funds to provide a more substantial liquidity buffer in the event of rapid redemptions. The amendments will also remove provisions in the current rule that permit an MMF to suspend redemptions temporarily through a gate and allow MMFs to impose liquidity fees if their weekly liquid assets fall below a certain threshold. These changes are designed to reduce the risk of investor runs on money market funds during periods of market stress.

To address redemption costs and liquidity concerns, the amendments will require institutional prime and institutional tax-exempt MMFs to impose liquidity fees when a fund experiences daily net redemptions exceeding 5% of net assets unless the fund’s liquidity costs are de minimis. In addition, the amendments will require any non-government money market fund to impose a discretionary liquidity fee if the board determines that a fee is in the fund's best interest. These amendments are designed to protect remaining shareholders from dilution and to allocate costs more fairly so that redeeming shareholders bear the costs of redeeming from the fund when liquidity in underlying short-term funding markets is costly.

“Money market funds – nearly US$6 trillion in size today – provide millions of Americans with a deposit alternative to traditional bank accounts,” said SEC Chair Gary Gensler. “Money market funds, though, have a potential structural liquidity mismatch. As a result, when markets enter times of stress, some investors – fearing dilution or illiquidity – may try to escape the bear. This can lead to large amounts of rapid redemptions. Left unchecked, such stress can undermine these critical funds. I support this adoption because it will enhance these funds’ resiliency and ability to protect against dilution. Taken together, the rules will make money market funds more resilient, liquid, and transparent, including in times of stress. That benefits investors.”

One detail that eagle-eyed readers will have noticed is absent from the SEC statement is the imposition of swing pricing, a suggestion in the initial reform proposals that upset several sections of the financial community. SIFMA President and CEO Kenneth E. Bentsen, Jr., commented: “SIFMA is pleased that the SEC opted against imposing swing pricing on money market funds.  While we remain sceptical that anti-dilution measures are necessary, the path of liquidity fees for institutional money market funds is a more feasible alternative.”

 

Iberpay and Swift lead first international instant payment pilot 

Iberpay, Swift, BBVA and several international banks have completed the first pilot to process, in a real environment, instant payments between different currency areas. Their ultimate goal is to improve these international payments involving currency exchange in terms of speed, transparency, cost, availability and accessibility.

Iberpay and Spanish banks such as BBVA, Santander and CaixaBank have carried out the first test of this pioneering service in Europe in anticipation of the official entry into force, on November 28th, of the new One-Leg-Out Instant Credit Transfer (OCT Inst) scheme of the European Payment Council (EPC). The objective is to improve these international payments, in line with the guidelines of several global bodies such as the G7, G20, Financial Stability Board (FSB), Basel Bank for International Settlements (BIS), European Commission, World Bank and International Monetary Fund.

During this pilot phase of the service, dozens of actual payments originating from banks in other currency areas (National Australia Bank, Australia and New Zealand Banking Group, Itaú Unibanco in Brazil and Lloyds Banking Group in the UK) and sent through the Swift GPI Instant service have been processed, settled, and credited in a matter of seconds to the ultimate beneficiary customer's account, thanks to the final delivery of the payment through Iberpay's instant transfer service.

As a world first, this pilot initiative included integrating Iberpay's instant transfer platform, which operates 24/7 in real-time, with Swift's GPI tracker, providing end-to-end visibility of payment status and greater transaction transparency.

Some of the main advantages of this initiative include the possibility of processing international payments 24/7 within seconds and end-to-end payment traceability. All of this allows us to improve the customer's user experience, offer new use cases and develop innovative services that compete with new players in this payment sector.

 

FXall expands algo offering to include NDF currency pairs

Buy-side demand for liquidity provider algo execution continues to increase. As such, Refinitiv has announced that it has partnered with its liquidity providers to bring additional functionality for customers who wish to leverage FXall’s algo workflows on new products. 

FXall customers can now access over 200 proprietary algorithms from over 40 liquidity providers on FXall’s multi-bank electronic trading platform. Users can seamlessly enable this feature to submit non-deliverable forward (NDF) algo orders to NDF-supported providers’ strategies without additional admin approvals. FXall’s existing workflow functionality enables options such as pause and resume, amend while paused, and order splitting to increase control over the execution of NDF algos.

NDF algos are overlaid on providers’ existing algo strategies, so there are no new workflows and minor changes to metadata. FXall’s existing algo offering lets users route spot, forward, and NDF algorithmic orders to their choice of providers through the intuitive UI and customise parameters such as execution style, triggers, limits and time in force and save them as templates. It can also integrate with order management and treasury management systems for ease of execution and integrate with FXall’s industry-standard FIX (Financial Information eXchange) Trading API for simplified order management.

 

ESG controversies led to up to 5% stock underperformance after six months

ESG-related controversial incidents often receive significant attention from the media, but the link between these controversies and actual stock performance isn’t always straightforward. Analysis by Clarity AI, a global sustainability technology platform, tests the hypothesis that involvement in ESG controversies is a valid predictor of corporate medium-term value loss.

Investors can perceive controversial incidents as a potential sign of poor management or a lack of ethics, which can erode investor confidence and make them less willing to invest in the company's stock. Such incidents' legal and regulatory consequences can also be expensive and time-consuming to resolve, further damaging the company's reputation and market value. Finally, such incidents can disrupt a company's operations, leading to a decline in productivity and profitability, negatively impacting its market value.

The analysis indicates that controversial actions linked to ESG can significantly affect a company's value compared to peers, resulting in a delta in valuation ranging from -2% for less severe controversies to -5% for the most severe controversies after six months.

The analysis also tested whether the impact of controversies on market value can be greater if the controversy is related to a topic that is material to the industry the company operates in - for example, the environmental topic for the mining industry or corporate governance topics for the consumer finance industry.

Results confirm that the effects of a company’s involvement in such activities exceed the average of all similar incidents for all companies. The difference is significant, as large as twice as much for environmental cases and almost three times as much for bad corporate governance controversies.

 

UK FSB outlines next steps on climate roadmap 

The UK’s Financial Stability Board (FSB) has published its annual progress report on the FSB Roadmap for Addressing Climate-Related Financial Risks. The report finds steady progress has been made across all four blocks of the Roadmap: firm-level disclosures; data; vulnerabilities analysis; and regulatory and supervisory practices and tools.

The International Sustainability Standards Board (ISSB) publication of its final standards, IFRS S1 on general sustainability-related disclosures and IFRS S2 on climate-related disclosures is a substantial achievement. The final standards will serve as a global framework for sustainability disclosures and, when implemented, will enable disclosures by different companies worldwide to be made on a common basis. A key priority is now the swift consideration by the International Organization of Securities Commissions (IOSCO) of endorsement of the standards for authorities to adopt, apply or otherwise utilise in a robust and timely manner, reflecting each jurisdiction’s circumstances. The FSB has asked the ISSB to take over from the Task Force on Climate-related Financial Disclosures to monitor firms' adoption of climate-related disclosures. The next steps include promoting interoperability to avoid firms’ double reporting and the development of a global assurance framework for sustainability-related corporate reporting to drive the reliability of the disclosures.

Work has continued to focus on improving climate data availability, quality and cross-border comparability. An important goal is to develop global repositories that provide open access to data and would facilitate the use of metrics that reflect climate-related risks consistently and reliably across sectors and jurisdictions. Further work is also needed to develop metrics that measure climate-related risks in a forward-looking manner.

Progress is being made on developing conceptual frameworks and metrics for monitoring climate-related vulnerabilities. Further work is needed to embed climate scenarios in monitoring financial vulnerabilities and to develop an understanding of the cross-border and cross-sectoral transmission of climate shocks to obtain financial stability insights.

Initiatives on embedding climate-related risk into risk management and prudential frameworks are ongoing, and capacity building remains an important focus. There is growing interest in the role of transition plans of financial institutions and non-financial corporates not only in enabling an orderly transition but also as a source of information for financial authorities to assess micro- and macroprudential risks. The FSB is setting up a working group that will, as an initial task, develop a conceptual understanding of the relevance of transition plans and planning by financial and non-financial firms for financial stability. With many initiatives having started or being considered, it will be essential to ensure close coordination among the FSB, SSBs and other relevant bodies.

 

NZ regulator launches consultation to improve operational and cyber resilience

New Zealand’s Financial Markets Authority (FMA) has released a consultation document on its proposal to introduce a new standard condition for certain financial market licence holders.  The new licence condition will focus on business continuity and technology systems. The FMA says it wants to ensure market service providers are prepared to respond to business continuity and cyber risks when they emerge.  As well as supporting well-functioning financial markets, this helps consumers to have confidence that their information and investments are being properly looked after. 

The new standard condition proposes that licensees must have and maintain a business continuity plan that is appropriate for the scale and scope of its service to make sure that their critical technology systems are operationally resilient. If the licensee suffers an event that materially affects its service supply, it must notify the FMA as soon as possible and no later than 72 hours after the event. 

The 72-hour period reflects the reliance on technology by the relevant licence holders and the likelihood of harm to consumers and investors when disruptions occur. It also reflects the significance of technology in maintaining sound and efficient financial markets. The FMA introduced a BCP and technology resilience standard condition for Financial Advice Providers in 2020. This requirement is also included in the Conduct of Financial Institutions regime, which comes into force in 2025. 

“The financial services sector is facing increasing technological risks that make it necessary for licensees to meet minimum business continuity and technology standards,” said Paul Gregory, FMA Executive Director of Response and Enforcement. “This proposal continues the FMA’s roll-out of this standard condition across licence types, to reflect the importance of ensuring licence holders can continuously provide their market services. By doing so, consumers and investors can have confidence they can access their services and products, when and how they want or need to.” 

 

KPMG and Volante Technologies deliver ISO 20022 maturity model 

Volante Technologies has deepened its partnership with KPMG by developing an ISO 20022 maturity model to help payment service providers determine ISO adoption readiness. 

This jointly created maturity model delivers a survey determining bank readiness to process ISO 20022-based messages and meet the industry mandate. After completing the survey, participants receive a personalised report identifying where they sit in the ISO adoption journey. The report includes custom guidance on reaching the next level of maturity. It provides the option for individual consultation with Volante and KPMG to review the insights gathered from the survey.

“ISO 20022 is a watershed moment and represents the biggest overarching change that we have seen in payments,” commented Courtney Trimble, Principal and Global Head of Payments, KPMG. “Organisational-wide impact will be felt across a financial institution’s payments ecosystem which must be addressed to move to the new standard before the industry mandate.”