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Economy

Volcker Rule 2.0: First Major Rule Revisions Proposed

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The Volcker Rule, which has been guiding trading and the financial sector for a long time, is set to be revised according to the news. This rule and its changes are however not likely to affect trading activities as the revisions will focus on banking activity and not individual trading entities. There have been several proposed changes over the years even though there has never been a momentous time where the changes were taken seriously until recently. Among the changes proposed in the new revision exercise include:

  • Restructuring banks so that they can have more tiers dedicated to asset and liability compliance
  • Liberalizing what has come to be known as the TOTUS exemption and thereby pave way for trading personnel to have more control over transactions
  • Changing the structure of the risk capital prong to allow foreign banks to operate under similar regulations with local banks
  • Changing the manner in which banks are supposed to reveal the information on financial commitments

The above are just some of the issues that are covered by the long proposal rule. There have been other changes that were made recently but they will not be implemented together with the new proposals if they go through.

The Fundamental Tenets of the Volcker Rule

The Volcker Rule was made to regulate banking entities of all kinds. The details of the rules have been criticized lately for being extraneous and overly complicated. This is what has prompted some of the proposed changes to be made.

The rules were proposed in 2011 and adopted in 2013, but since that time, the opposition to the rules has been gradually increasing. First, national institutions like the Treasury made moves towards analyzing the rules. Afterward, the OCC wanted the public to have comments on the rules as they are. The entry of new officials in the top government institutions has however been the main reason why much more light has been cast on the rules. A recent Treasury Report has many proposed changes already and the Congress has recently passed laws that overlook the Volcker Rule.

Some of the Main Areas the Proposed Rule Will Affect

The proposed new rule will definitely have a significant effect on the current Volcker Rule. Of the many areas that the proposed changes will affect, the following are the most significant:

1.Proprietary trading

The first key area that will change is the proprietary trading regulatory realm. As of now, the rules prohibit this kind of trading for all banking entities. There are many provisions provided by the Volcker rule which all touch on banking entities and dealers. Issues of liquidity management, trading errors and market exemptions are some of those that will be affected by the proposed changes. If the changes go as planned, banking entities will have more control on the market. It will be possible to determine whats new on markets by just relying on financial entities.

2. Private equity funds and hedge funds

Hedging has been widely known as one of the activities that are prohibited by many financial laws in the country. Banking entities are specifically prohibited from having relationships with any clients that either deal with or have some form of hedging funds. The proposed rules will touch on many issues but the most vital will be on the likelihood of changing the prohibitions.

3. Compliance

The Volcker Rule outlines a series of compliance issues that banking entities must follow in case they want to change policy. There is a great detail of compliance categories as specified by the Volcker rules complete with accompanying requirements. The proposed rules seek to change such compliance obligations.

4. Reporting

Metric reporting requirements are also heavily underscored under the new proposed rules. There will be a strong focus on qualitative information schedules and also on how the reporting is done. There are currently discussions on whether a centralized approach will be adopted. In overall, several metrics will be discussed and the new rules will give details on what has been agreed upon.

5. Recent changes in laws

Finally, the recent changes that have been made especially by the Congress will also be looked at. This will be done in order to bring harmony to the proposed rules. Some of the recent changes in the law have been progressive and as such should be retained. There are also several other provisions that the new proposal will cover and the details of the final rule will emerge in due course.

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Economy

How to Trade Shares for Beginners

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Although expectations had been modest for 2019, the stock markets around the world had been active in 2019 and the positive returns seen so far have exceeded even the most optimistic expectations. Supported by easy monetary policies around the world, as well as by positive economic expectations for 2020, stocks continue to move, which makes a significant number of people deciding to start investing. Since stock trading is much harder than most of them think, let’s see some of the most important things beginners must consider in order to accelerate their learning curve.

Stick with the most liquid shares

Finding “the next big thing” is one of the illusions that seduces most of the beginners. They spend a significant amount of time looking for those companies that will have huge returns over the next months of years. Not even the most-skilled stock traders are able to do that, so why do you think you will?

Instead of looking for those shares, stick with the companies that already have a leading position in the industry. Google, Facebook, Microsoft, Apple, and Boeing are just some of the names that are popular at the time of writing, and looking at their performance in the long run, so far, they’ve managed to impress.

Study educational materials

Beginners fail to understand that share trading is a skill-based endeavor and study is one of the most important parts of the process. Study as many educational materials as you can and gain as much knowledge as possible because you’ll definitely need it. This guide and other similar ones will introduce you to share trading and help you understand the basic concepts. Remember this axiom: “Around 90% of the traders lose 90% of their capital in their first 90 days of trading”. Education is one of the main factors why beginners stumble into the same mistakes over and over again. You don’t want to be in the same position as most of the people who don’t learn and spend time to sharpen their skills.

Build a portfolio

Closely linked to our first tip, building a portfolio of uncorrelated assets is one of the most important things to consider, if you want to limit the damages of your mistakes. No matter how good you are, in trading, you won’t make money all the time. Diversification will help you minimize the effects of some losing trades. Don’t concentrate all the risk in a single stock and instead pick at least three or four names that might perform positively in the near-term.

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Economy

Saudi Arabia halves oil production: How long will it last, and will it affect oil prices?

Saudi Arabia announces it will halt 50% of its oil production. This Vestle news article will explore the possible financial impact.

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saudi halves oil production

Since recent drone airstrikes crippled Saudi Arabia’s Aramco oil processing facility in mid-September, the country – the world’s No. 1 exporter of oil* – has been forced to close half the plant while reconstruction takes place. While no casualties resulted from the attack, the real harm is finally coming to light, as the impact on Saudi Arabia’s oil industry is becoming clearer. This Vestle news article explores this important topic.

Aramco estimates that the closure will affect almost 5.7 million barrels of crude oil per day, which amounts to roughly 5% of the world’s daily oil production. To help you put that into perspective, consider that Saudi Arabia produced 9.85 million barrels a day in August 2019. And it’s not just oil production that will suffer. Saudi Energy Minister Abdulaziz bin Salman also indicated that the closure has forced a temporary halt in gas production, limiting the supply of ethane and natural gas by 50% as well.

One particular detail that those with an eye on the financial markets might find interesting is that the attacks took place at a time when Saudi Arabia continues to progress toward taking Saudi Aramco public – a first for the kingdom’s global-reach energy sector. How much money are we talking? As the world’s most profitable oil company, it’s estimated to be valued at around $1.5 trillion.**

Will this affect oil prices?

The short answer, according to some people, is probably yes. With Saudi oil output expected to dip below 50%, the outages present “an extreme risk situation for oil,” according to Paul Sankey, managing director for Mizuho Securities. However, measures have already been put into place. Depending on how long it takes for Saudi Arabia to recover the damaged facility, OPEC (the Organization of Petroleum Exporting Countries) is aiming to suspend production cuts to help temper the impact of the ongoing crisis. On the trading side, the International Energy Agency is expected to release strategic oil stocks, and US President Donald Trump has already authorized the release of oil from the US petroleum reserve.***

In the weeks just after the drone strikes, the price of WTI Oil on the Vestle platform showed a 13% increase, followed by a 12% decrease over the following two weeks. Also during that time, Bloomberg reported that the spread between WTI and Brent widened to 37%, which could be an indication that the oil spike might affect global prices more than other oil giants, such as the United States. Furthermore, a representative from Goldman Sachs estimates that the global benchmark for Brent Oil could rise above $75 a barrel if the plant shutdown lasts for more than six weeks.****

Will it get any worse?

Some people fear the Aramco incident represents the potential for a broader regional conflict that could escalate to the point that it affects Gulf oil production as a whole. CFRA Research oil analyst Steward Glickman said, “Oil prices are now likely to bake in a much higher geopolitical risk premium than had been absent in much of 2019.” With the recent bombing in June of oil tankers in the Gulf of Hormuz not so distant, it’s no wonder some analysts like Glickman like are raising their eyebrows. ***

Considering all the different factors that play into this situation—the global, financial and geopolitical—there’s no telling what kind of turns it will take. The only thing to do is keep an eye on the news for the political side of it, and financial sites like Vestle to see what kind of ripples such an event is making in the financial markets.

Oil prices and the financial markets

Volatility such as that recently experienced by both WTI Oil and Brent Oil can present both opportunities and risks for informed traders, such as those who invest in Contracts for Difference or CFDs, which essentially means trading on the price movement of a particular instrument without owning the underlying asset. At Vestle, you’ll find hundreds of tradable CFD instruments, from commodities like oil and natural gas to popular stocks, indices, ETFs and crypto. And thanks to a selection of trading signals, market indicators and our economic calendar, access to important financial info for global situations like this is right at your fingertips.

 Sources

*https://edition.cnn.com/2019/09/12/investing/us-oil-exports-saudi-arabia/index.html

**https://www.cnbc.com/2019/09/14/saudi-arabia-is-shutting-down-half-of-its-oil-production-after-drone-attack-wsj-says.html

***https://eu.usatoday.com/story/money/2019/09/16/saudi-arabia-oil-attack/2341141001/

****https://www.bloomberg.com/news/articles/2019-09-15/oil-prices-jump-19-after-attack-cuts-saudi-arabian-supplies

Vestle (formerly known as ‘iFOREX’) is the trading name of iCFD Limited, licensed and regulated by the Cyprus Securities and Exchange Commission (CySEC) under license # 143/11. The materials contained on this document have been created in cooperation with Vestle and should not in any way be construed, either explicitly or implicitly, directly or indirectly, as investment advice, recommendation or suggestion of an investment strategy with respect to a financial instrument, in any manner whatsoever. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 83.7% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Any indication of past performance or simulated past performance included in this document is not a reliable indicator of future results. Full disclaimer: https://www.vestle.com/legal/analysis-disclaimer.html

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Economy

Fears of a 2019 European Economic Slowdown Loom

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EU flag

Although the spotlight is on the trade war between the United States and China, one aspect that is currently ignored by the media is represented by signs of weakness in the European continent.

Germany slows down

After posting a -0.3% GDP contraction in the third quarter of 2018, the economic indicators released from Germany in 2019 cannot support a positive economic picture. The manufacturing sectors continue to show signs of weakening, with the Markit PMI Composite now at 51.6, down from 52.3.

Industrial Production had been contraction by 1.9% in November, and both imports and exports had been down by 1.6% and 0.4%, respectively. DAX trading had also suggested there is growing concerns among investors and the main German stock index peaked out in July 2018, being now down by 15%.

Germany relies mostly on exports, being the third exporter in the world, only surpassed by the United States and China. That is why the weakness we see in Germany is actually a symptom of what’s happening in other European countries as well.

Italy and France not too encouraging

The new populist government in Italy, formed by La Lega and The Five Star Movement faced a serious challenge to get the EU’s approval for the 2019 budget, as the already high debt-to-GDP ratio (currently at 131.8%) raises concerns on whether the country will be able to meet its debt obligations in the future.

There are also serious concerns about the banking sector, which despite mergers and acquisitions, and huge capital available from the ECB, were unable to solve their problems which emerged after the 2008 financial crisis. The future of Italy is very uncertain, and analysts predict that the new government will not be able to meet their economic promises, given that we are at the end of a business cycle.

Speaking of France, the problems are social at the present time. President Macron was unable to stop the “Yellow Vests” protests, despite promises to increase the minimum wage and the overall standard of living for the very poor. France’s debt-to-GDP ratio currently stands at 97%, but given the latest promises, there are concerns whether the country will manage to keep the budget deficit below 3% in 2019, as the European treaties demand.

Although there’s a single currency in Europe, in terms of fiscal policy things were very fragmented, which is why the economic recovery had been very slow and the reason why investors predict Europe will face the greatest challenges to solve its economic, political, and social problems.

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