After a year and a bit of listening to the public wailing and gnashing its teeth over the financial crisis, regulators and governments are finally responding. The UK acted first with its 50% tax on bonuses, and now the FSA's not-so-gentle hints to banks that liquidity risk had better be under control. The Obama Administration dug deep into the pockets of both US and foreign banks with a US presence and said it will tax them to claw back 'every penny' that the taxpayers spent on TARP. A surreptitious move to tax bonuses over $100,000 by 50% is also underway by some Congressmen. The SEC banned brokers from providing naked direct market access to exchanges and ECNs (they were very lucky to have ever gotten away with this to be honest, so brokers should just suck it up and put the required risk controls in place. And keep an eye on their customers.) And on the same day, the CFTC finally came out with its proposed position limits on energy markets. Pundits and traders are calling the limits 'fair' and 'sensible', which means they won't suffer unduly from them. The limits, which are linked to the prevailing size of the market, are a little loose for my liking, but at least they are - finally - there. The CFTC never took another stand on oil market speculation - whether it happened or not - probably because it is happening again. Best not to rock the cradle. Reuters says that the CFTC made a mistake in allowing high single-month limits, that this could possibly lead to too-high of an all-month concentration. But the fact that the CFTC is looking at and monitoring these limits at all is encouraging. (The FSA should take notice.) Swaps dealers will now be limited from exemptions, which is good. This may impact large swaps/physical/hedging outfits such as Glencore, Vitol and Trafigura, but they can figure out a way around it. Separating speculative activity into a different entity is one way.
All in all, a good week for those who are pro-regulation. Everyone so far has employed a light touch, a thoughtful approach and pleased the general public. As outrage over the bonus culture grows louder, they will need to keep cool heads.