In a position paper prepared for the November 20 meeting of the Shadow Open Market Committee, available at
http://irelandp.com/papers/somc201211.pdf
Peter Ireland brings together Milton Friedman’s quantity-theoretic framework and William Barnett’s theory of monetary aggregation to interpret and evaluate recent Federal Reserve strategies for conducting monetary policy with interest rates at their zero lower bound.
CFTC Commissioner Bart Chilton delivered a speech before the 5th Annual Risk Management in Energy Trading Conference in Houston, Texas on the current progress of implementing Dodd-Frank. Chilton discussed the following topics:
View speech in full here (links externally to CFTC website).
See also: Chilton Estimated Timeline on Dodd-Frank Implementation (“Red Zone”).
In a speech before the Global Markets Advisory Committee (“GMAC”), CFTC Commissioner Jill Sommers stated that the CFTC was seeking comments to apply a “sensible approach to… cross-border matters,” and announced that Ron Filler (current Director of the Center for Financial Services Law at New York Law School) would be serving in a newly created role as an outside GMAC Chairman.
Lofchie Comment: Mr. Filler is a very well known and respected figure within the derivatives industry. Given the very significant criticism that the CFTC has absorbed as to its existing extra-territorial assertions, it would seem likely that this initiative by Commissioner Sommers through the GMAC will create a fresh opportunity for the agency to re-think its approach to international issues.
Click here to view speech in full (links externally to CFTC website).
Link here to information on the CFTC Global Markets Advisory Committee.
Link here to information on Ron Filler.
“Bretton Woods set the standard for all future international economic conferences. These transcripts are a precious contribution to historical study and more importantly an inspiration for those charged with shaping the future.”
Lawrence H. Summers, Former Secretary, US Treasury; Charles W. Eliot University Professor of Harvard University, Harvard Kennedy School, Mossavar-Rahmani Center for Business and Government
Trillions of dollars of stock certificates are feared to be ruined after the hurricane flooded a vault at the DTCC which houses 1.3m paper certificates for shares, bonds and other financial instruments, including foreign securities, at the organization’s headquarters in the financial district.
All Securities processing functions, including Custody Service, are suspended until further notice. DTCC will not be accepting or releasing any physical certificates during this period. Deadlines for DTCC participants’ fund, settlement and other processes will be as usual.
View notice in full here (links externally to DTCC website).
The Financial Stability Board has published its fourth bi-yearly progress report on the implementation of OTC derivatives markets reforms. The key points of the report are that:
The FSB invites the public to provide feedback on its report by November 30, 2012.
Once you open the progress report, you may link from the foreword to the prior progress reports and to the initial October 2010 report that made a series of recoommendations.
Lofchie Comment: Page 13, Table 2, provides a “Summary of National Progress of OTC derivatives markets reforms.” I can only comment as to the United States, but I would say that looking at the chart with its simple grid in which proposals are eithier “Adopted” or “Proposed” would give one an overly optimistic view of “progress” made by the United States (or it may just be that I am skeptical as to how much of this is progress). The more significant questions are whether what is Adopted or Proposed actually makes sense and is working; these are more qualitative questions that the report does not take up.
As I mentioned in a previous post, Harry Dexter White, while not formally a Soviet spy, illegally passed classified information to the Soviets and used his position to protect persons suspected of espionage for the Soviets. White died in 1948. The case against him, though strong, continued to seem largely circumstantial until the release of the Venona files — Soviet code messages decrypted by the U.S. government that, among other things, provided evidence of White’s activities. As was standard practice, Soviet code messages did not use White’s name, but the messages concerned can hardly apply to anybody else. Well before the release of the Venona files, though, there were those who saw in White’s other behavior the pattern that the Venona files confirmed.
In the U.S. Treasury Library’s copy of the book Harry Dexter White — Loyal American, written by White’s brother Nathan I. White and published by his sister Bessie (White) Bloom (Boston, 1956), taped to the inside back cover is a note signed by Francis J. Gafford, a Treasury personnel security officer, dated May 13, 1958. It says, “Ernest R. Feidler, Administrator of the National Gallery of Art, formerly Assistant to the Under Secretary of the Treasury, has read Harry D. White — Loyal American by Nathan I. White, and commented to the effect that the inaccuracies in the book are extensive and his conviction that Harry D. White gave assistance knowingly to the Communist Party has not changed since reading the book.”
Also in the Treasury Library’s copy is what looks like a carbon copy of a cover note and two-page letter dated October 17, 1956 from “M.L. [Malachi Lawrence] Harney, Consultant” to Francis J. Gafford, The letter characterizes the book as a “Whitewashing,” and says that, contrary to White’s denial that he knew Whittaker Chambers, “Chambers certainly characterized White as only a man who knew him would.” The letter also says, “Unnoted and undoubtedly unknown to the author are such disservices as his [Harry Dexter White’s] overriding the plain warning of the Treasury investigative agencies against [Nathan Gregory] Silvermaster, and his clearing him for attendance at the Bretton Woods conference.” Harney was a former Assistant Chief Coordinator of Treasury Enforcement Agencies and Assistant to the Commissioner of Narcotics. Francis J. Gafford was an assistant to the Secretary of the Treasury. Silvermaster was the leader of a spy ring that passed secrets to the Soviet Union.
More about Harry Dexter White, the Soviet Union, and Bretton Woods is available in the dissertation that Prof. Peter Acsay has kindly allowed the CFS to post, and in the most recent biography of White, Treasonable Doubt by R. Bruce Craig (2004).
(I have added a new first paragraph on November 10, to provide more background.)
CFTC Commissioner Scott D. O’Malia opened public review and discussion on three significant issues in his speech before the Technology Advisory Committee (“TAC”) in Chicago, Illinois. These issues are: (i) High-Frequency Trading (“HFT”) , (ii) technology used to protect customer funds, and (iii) technology used for FCM and CCP risk management. Commissioner O’Malia said that he intends to put an end to confusion as to the CFTC’s requirements by opening public discussion of technology issues.
As to HFT, O’Malia asked TAC members to carefully review the work previously done on the subject and then to prepare policy recommendations to the Commission. As to prior work on the topic of HFT, O’Malia recommended the report by the U.K. Government Office for Science (“The Future of Computer Trading in Financial Markets: An International Perspective”). (The link to the related news item and report are below.)
Commissioner O’Malia further discussed the necessity of having an automated system to verify customer account balances held by FCMs on a daily basis. The Commission’s proposed rule only provides the minimum level of oversight which, according to O’Malia, doesn’t go far enough in protecting customers.
Finally, O’Malia goes on to discuss Sections 1.73 and 1.74 of the Commission’s Regulations in order to provide clarity as to what these rules require from a technology perspective, and what must be done in order to establish compliance.
Lofchie Comment: This speech seems significant not only for its content, but also for the speaker. Previously, O’Malia’s colleague on the Commission, CFTC Commissioner Chilton had spoken frequently, and generally critically, on high-frequency trading. However, Commissioner Chilton’s remarks arguably have reflected his instincts on the subject rather than the results of CFTC studies or academic studies. In citing to the U.K. report, which is both heavy on the academic and takes a gnerally favorable view of the market benefits provided by high-frequency trading, Commissioner O’Malia is clearly opening up the debate. As to his other remarks, they are consistent in direction with his prior statements criticizing the CFTC’s Dodd-Frank rulemaking; Commissioner O’Malia has consistently asserted critic that the adopted rule makings are badly prioritized and badly implemented. Focusing on the technology required to implement the CFTC’s rules changes the subject matter of the debate from the purely theoretical to the practical; i.e., can the CFTC’s rules actually be implemented and at what cost?
See: Commissioner Scott D. O’Malia’s Opening Statement before CFTC Technology Advisory Committee – Chicago, Illinois.
See also: Link to News Story that Links to the U.K. Government Report on Computer Trading
The staff of the Division of Clearing and Risk issued an interpretation regarding CFTC Rules Part 22, under which Futures Commission Merchants and Derivatives Clearing Organizations must legally segregate each Cleared Swaps Customer’s collateral, but are permitted operationally to commingle the collateral of their Cleared Swaps Customers. The interpretation provides clarification regarding operational issues arising during preparation for the implementation of Part 22. Topics include:
Lofchie Comment: This is an important set of interpretations to help people understand their credit risk of clearing either swaps through FCMs. Some of the risks outlined in the interpretation are not obvious; e.g., that even in the case of cleared swaps in which “LSOC” applies, there is fellow-customer risk as to variation margin held at a clearing corporation for a defaulting FCM.
See: CFTC Letter No. 12-31.
See also: Press Release.
“A fascinating and useful new e-book, The Bretton Woods Transcripts, has just been published by the Center for Financial Stability (CFS). While an 822 page ‘transcript’ might turn off all but the most serious monetary scholars, Kurt Schuler, who discovered the transcripts in the Treasury, and his coeditor Andrew Rosenberg have done a remarkable job of making the book user friendly. Their commentary is fascinating in its own right. Moreover, standard search engines allow one to easily scan through the document looking for topics or participants.
In reading through various passages, I was most impressed by the
foresight of the participants at the conference and their spirit of
international cooperation, as they hammered out the agreements.”
For the full blog post by John B. Taylor, former Under Secretary, US Treasury; Mary and Robert Raymond Professor of Economics, Stanford University; and George P. Shultz Senior Fellow and Chair of Working Group on Economic Policy, Hoover Institution, click here.