"The cause is the U.S. Securities and Exchange Commission’s new rules for the $2.7 trillion money-fund market, which will become effective Oct. 14. From that day on, money funds that invest on private-sector debt, such as commercial paper or certificates of deposit, will be forced to let their share prices float to reflect the value of the assets they hold. Currently, many of these funds fix their share prices at $1 to give them the appearance of actual cash."
"We argue that the appropriate discount rate for pension liabilities depends on the objective. In particular, if the objective is to measure pension under- or over- funding, a default-free discount rate should always be used, even if the liabilities are themselves not default-free. If, instead, the objective is to determine the market value of pension benefits, then it is appropriate that discount rates incorporate default risk. We also discuss the choice of a default-free discount rate. Finally, we show how cost-of-living adjustments (COLAs) that are common in public pensions can be accounted for and valued in this framework."
"Illinois Teachers' Retirement System, Springfield, lowered its assumed rate of return to 7% from 7.5% starting with the fiscal year beginning July 1, 2017, at a board meeting Friday."
"Unlike corporate pensions, US public pensions discount their liabilities using the rate of return they expect to generate on their investments. Some experts complain that these rates have been set unrealistically high. Lower return expectations would push up the cost of liabilities on their balance sheet, and force Illinois to make higher contributions. If costs to the pension were to increase by $250m it would nearly equal an entire year’s appropriation for six universities."
Unlike corporate pensions, US public pensions discount their liabilities using the rate of return they expect to generate on their investments. Some experts complain that these rates have been set unrealistically high. Lower return expectations would push up the cost of liabilities on their balance sheet, and force Illinois to make higher contributions. If costs to the pension were to increase by $250m it would nearly equal an entire year’s appropriation for six universities.
In today’s daily blockchain bulletin we bring you news that next big thing in financial back-office technology isn’t actually the blockchain. Apparently it’s something called a “distributed concurrence ledger”.
"This process has been made all the more difficult by the fact there’s now a cross-border element to this. The splintering of the timetable adds to the compliance complexity and could disrupt cross-border trading – margin requirements may or may not apply depending on the status and location of the counterparty, whether it has a guarantee from its parent, and whether it is consolidated with the parent entity for accounting purposes, among other things."
"The one thing that might actually improve your metabolism is periodic fasting—that's right, the very same eating pattern that the early European settlers deemed uncivilized. Mark Mattson, a neuroscientist at the National Institute on Aging, has observed in a series of mice experiments over the past two decades that mice who skip feedings are leaner and live longer than their nonskipping counterparts. The fasting mice also have more robust brain cells than those who consume regular meals. Mattson, who skips breakfast and lunch most days, theorizes that caloric deprivation acts as a mild stress that helps cells build up their defenses—warding off damage from aging, environmental toxins, and other threats. Other research has shown that periodic fasting may also prevent heart disease."
"Now, after years of back-and-forth between large financial institutions and the CFTC, the agency issued a one-year delay on overseas application of swaps rules, stating that if trades are held by foreign affiliates, certain derivatives transactions are exempt from U.S. rules until September 30, 2017."
"The SEC’s proposal would limit the derivatives exposures of mutual funds and exchange-traded funds to 150 percent of their total net assets. Funds would also have the option of a 300 percent ratio if they meet the criteria of a risk test. The rule “could have unintended consequences and provide incentives for funds to move away from exchange-traded, safe derivatives to other types of derivatives that may carry more risk,” said Jim Overdahl, a former SEC chief economist who represents asset managers organized as the Coalition for Responsible Portfolio Management, in an interview."
"Ten years ago, after bipartisan negotiations and amid high expectations, President George W. Bush signed the Pension Protection Act into law. Today, even PPA supporters acknowledge it failed to protect pensions, which are now on the actuaries’ endangered species list."
"Current monetary policies by central banks are perhaps causing more harm than help. Negative interest rates, coupled with heightened capital requirements from Basel III, are putting enormous pressure on the FCM model. With the number of FCMs in the space continuing decline and increased costs being passed down the chain, at the end of the day there will be one sucker to bear the brunt of it all: the end-user."
"Credit Suisse scored an industry first in May by securitising its operational risk exposures, but risk managers and industry experts say the transaction is unlikely to be replicated by other firms. While other banks are intrigued by the deal and its funding structure, the transaction took years to come to fruition, and the level of investor interest was lower than initially anticipated. Moreover, likely changes to capital rules from the Basel Committee on Banking Supervision will stop banks from using insurance to obtain capital relief."
"The day may be forever seared on the minds of investors in exchange-traded products: Aug. 24, 2015 saw such carnage for ETPs and exchange-traded funds that many in the industry just call it “that day.” But even after many U.S. exchanges have agreed to implement fixes, it remains unclear whether the response will be enough to prevent a similar episode."
"The Financial Stability Board (FSB) today published two reports on the implementation of key aspects of reforms to the over-the-counter (OTC) derivatives market. They show that although progress continues to be made, further action is required, particularly on implementing margin requirements and platform trading commitments, and on removing legal barriers to trade reporting and authorities’ access to data held by trade repositories."
"New U.S. money market fund rules have been both an albatross for money market investors and a beacon for ultrashort bond funds since they were announced by the SEC two years ago. With less than 90 days until the new rules go into effect on 14 October, the landscape at the front end of the yield curve is finally changing, creating potential opportunities for short-term investors."
"“There are substantial systemic risks from an extended period of low rates,” he argued. “The stimulative effect has now run its course”, while the environment was “enormously challenging” to institutional investors such as pension funds and insurers that depended on bond yields to match their long-term liabilities."