Asset owners will bear the brunt of the costs imposed by regulators for trading derivatives argues Dan Barnes.
Regulators have set out to restrict business that they
consider risky and creating instability in the system. Their
methods are relatively simplistic. Firstly, by increasing the
cost of 'risky’ business, the risk/reward balance
is skewed and the business becomes less appealing.
Secondly, by asking trading firms to keep capital with third
parties to cover trading positions, they intend to isolate the
risks posed to the rest of the system. Finally, in some cases
countries are imposing limits on certain types of trading that
are perceived to be problematic for other firms, such as
high-frequency trading. Fundamentally each method creates cost
within the financial system.
"I think it’s fair to say all of those costs,
if they were to happen, would get passed through to clients,"
says Jane Lowe, director of markets at trade body the
Investment Managers Association.
The European Commission’s statement that the
"financial sector played a role in the origins of the economic
crisis" and that "citizens at large have borne the cost of
massive taxpayer-funded bailouts to support the financial
sector," indicate legislators are not distinguishing between
banks, fund managers or insurers.
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