dealing rooms since the financial crisis dr yves wagner the director’s office lia october 2009 the...

Dealing Rooms since the Financial Crisis

Dr Yves WagnerThe Director’s Office

LIAOctober 2009

The Asset Managers’ and Institutional Investors’ Perspective

LIALux Investment Advisors

Introduction

The Asset Managers’ Expectations , especially for Institutional Investors, are linked to:

Good Corporate Governance Practices The Legal Framework imposed on Investment Firms (MiFID)

The Financial Crisis 2007-2009 put pressure on Dealing rooms:

Directors’ Responsibility Awareness increased (rubber stamping, oversight agenda, crisis management) Counterparty Exposure, Trading Methodology, Valuation, Reporting


Institutional Investors

Bank TrustsMutual Funds

Insurance CompaniesUniversities and Foundations

Pension FundsHedge Funds

CIS:Collective Investment

Schemes


Corporate Governance:Directors’ Agendas before the crisis

STATUTORY “APPROVAL”AGENDA

•Approval of the agenda

•Approval of the minutes

•Approval of the accounts

•Approval of the dividend [if any]

•Approval of major or statutory corporate event.

STATUTORY “APPROVAL”AGENDA

•Approval of the agenda

•Approval of the minutes

•Approval of the accounts

•Approval of the dividend [if any]

•Approval of major or statutory corporate event.

PROFESSIONAL “OVERSIGHT” AGENDA

Statutory agenda plus

•Investment management report

•Performance review

•Sales, distribution and marketing

•Product management

•Operations including valuation

•Counterparty risks

•Risk management report: financial, operational, counterparty, reputational, …risks

•Legal and compliance report

•Internal control and audit













Corporate Governance:Directors’ Agendas after the crisis























CRISIS ISSUES MANAGEMENT AGENDA

Oversight agenda plus issues

•Counterparties failures

•Redemptions

•Liquidity / Deleveraging / credit lines management

•Valuation / Fair pricing / Gates / Discount / Fire sales .

•Transfers of assets

•Suspension / liquidation

•Investor communications

•Parent company assistance

•Central banks intervention.

CRISIS ISSUES MANAGEMENT AGENDA

Oversight agenda plus issues

•Counterparties failures

•Redemptions

•Liquidity / Deleveraging / credit lines management

•Valuation / Fair pricing / Gates / Discount / Fire sales .

•Transfers of assets

•Suspension / liquidation

•Investor communications

•Parent company assistance

•Central banks intervention.


Markets in Financial InstrumentsDirective of the European Parliament

Conduct of Business Obligations

Investment Firms must act: Honestly, fairly and professionally in the best interest of its clients

All information addressed by the investment firm to clients or potential clients: shall be fair, clear and not misleading

Appropriate information shall be provided about: appropriate guidance on and warnings of risks associated with investments execution venues costs and associate charges To be defined



Obligation to execute orders on terms most favorable to the client (1)

Investment firms have to take all reasonable steps: to obtain, when executing orders, the best possible result for their clients taking into account:

price costs speed likelihood of executionlikelihood of settlement size nature any other relevant execution

Selection Criteria



Obligation to execute orders on terms most favorable to the client (2)

Investment firms have to establish and execute an Order Execution Policy (OEP) Investment firms have to monitor the effectiveness of their OEP Investment firms have to define their Client Order Handling Rules (COHR)

Selection Criteria



Other Possible Selection Criteria

Post-Trade Disclosure by Investment Firms (volume, price, time) Pre-Trade Transparency (spreads, depths, market models, trading methods) Access to Central Counterparty, Clearing and Settlement Facilities Admission of Financial Instruments to trading (see hereunder)



Admission of Financial Instruments to Trading

Any admitted FI is traded in a fair, orderly and efficient manner, is negotiable Also for Derivatives: orderly pricing and effective settlement conditions Issuing Companies have initial, ongoing and ad hoc disclosure obligations


Conclusions

What Asset Managers expect from Dealing Rooms is a Valuation, Trading and ExecutionProcess allowing Managers to fulfill their legal, moral and fiduciary obligations to the Client. Reporting in general is here a key issue.

Since the Financial crisis, those expectations increased, especially in the fields of: Analysis of Counterparty Risk, Analysis of Fair Valuation, especially for complex instruments, Analysis of Liquidity, Guaranty of Best Execution, Spreads, Timing, especially for complex and “illiquid assets”, Market Risk of “illiquid”, “complex”, and “leveraged” assets, Execution Policy, especially in case of “deleveraging”, accepted Credit Lines Facilities Reporting on Order Management, Execution Policies, Settlement Risks Reporting on Front, Middle and Back Office Efficiencies, Reporting on Operational Risks.


dealing rooms since the financial crisis dr yves wagner the director’s office lia october 2009 the...

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