Week InReview

Alpha capture (investors directly pay for trade ideas they use and which perform well, rather than pay for them indirectly with trading commissions) will soon be outlawed by MiFID II rules:

One winner from [the 'alpha capture'] system: Smaller brokerages that lack the established relationships of investment firm Goliaths can now win clients by showing that their advice is superior. That worked for Conway, a quantitative analyst who says he has received payments for his trading ideas posted on TIM Group. 'Nobody had considered the performance angle before, it used to be only about price' of trading execution, said Conway. 'Now, there's an audited record of ideas. It's a very clinical system, but it's proven to work.'

Fri May 19, 2017
Let's recap
In case you missed it . . .
Treasury secretary tells senators payments should continue;  FHFA chief said last week the companies should build capital (May 18)

McConnell waves the white flag
Financial regulation legislation, R.I.P. - probably, after Senate GOP leader Mitch McConnell basically surrendered Tuesday on a bill that would overhaul the Dodd-Frank Act (May 17)

Derivatives with crisis echo seen lifting new mortgage bonds
Investors divided on whether timing is right for new product; d erivatives could reference an index similar to pre-crisis ABX (May 17)

Fannie-Freddie won't be freed without Congress, regulator says
FHFA deputy says Watt fervently believes legislation is needed; o fficial also affirms view GSEs may suspend Treasury payments (May 16)

Trump official says Fannie Freddie should let in private market
Treasury counselor Craig Phillips backs credit-risk transfer; a dministration is reviewing crisis mortgage rules, he says (May 15)
The Cyber Cafe
Cybersecurity news every Friday
SEC alerts advisers on 'WannaCry' ransomware cyberattacks
Regulator stresses vulnerability testing and timely system upgrades

'WannaCry' ransomware attack shows why Apple refused to hack terrorist's iPhone
"It goes back to the mafia expression," said Fidelis Cybersecurity's threat research manager. "The only way to keep a secret is for three people to know it and two of them to be dead."

Microsoft faulted over ransomware while shifting blame to NSA
Security patches for some popular older versions of Windows were only available if companies paid
Fiduciary rule is industry's future
FINRA chairman
(May 16)  Whether or not the Department of Labor's controversial fiduciary rule survives, brokerage firms should act in their clients' best interest, FINRA chairman Jack Brennan said.  "It's going to be the way business is done," he told participants at the Financial Industry Regulatory Authority's annual conference in Washington. "Whether it happens June 10, [2017] or June 10, 2022," it's only a matter of time before it happens.  The date to implement the regulation - originally slated for Apr. 10 - was delayed until Jun. 9 while the rule is under review by the self-regulator.  Brennan also said he hopes the Securities and Exchange Commission will adopt its own rule holding broker-dealers to a fiduciary standard as authorized by the Dodd-Frank Act. However, that isn't likely to happen anytime soon.
What Mnuchin said
Testimony before Senate banking committee
(May 18)  Treasury Secretary Steven  Mnuchin appeared before the Senate Committee on Banking, Housing and Urban Affairs. The high points:
Report on banking coming 'shortly'
Treasury will release a series of reports on various aspects of the financial sector as part of a searching review of laws and regulations, Mnuchin said; the first will focus on banking and come out "shortly."
Middle-income tax cuts
The goal is to implement middle-income tax cuts and simplify the filing process so that 90 percent of Americans won't need to use itemized deductions: Mnuchin.
The mortgage-finance giants should honor the terms of their bailout agreements and keep turning over their profits,  Mnuchin said he told FHFA Director Mel Watt. " We need to fix Fannie and Freddie. We are committed to seeing there's proper liquidity in the housing market. He said it's "a bit early" to draw a conclusion on whether a guarantee for Fannie, Freddie is necessary. "If there is a guarantee, we want to make sure there's ample credit and real risk" so taxpayers aren't at risk.
Key banking regulator
Responding to criticism over the appointment of a banking-industry lawyer as acting comptroller of the currency, Mnuchin said an unnamed candidate is going through what may be a lengthy vetting process, and the naming of an interim chief wasn't done to evade scrutiny.
Return of Glass-Steagall?
"We do not support a separation of banks and investment banks," Mnuchin said, and breaking up the biggest banks would be a "huge mistake."
$50 billion SIFI threshold
"I think that generally there are people who believe that we should raise the $50 billion limit considerably and there's people who believe that we should raise the $10 billion limit," Mnuchin said. "So we're looking at both of those, but we believe that there should be a greater differentiation; banks that have $50 billion don't play the same risk as a bank that has $750 billion or $2 trillion."
Binge reading disorder
Hand-curated, chosen with love
The WannaCry global hack could have been much, much worse
The WannaCry ransomware, the code in question, was fairly shoddy work. It achieves the basics: spreading through the computers on a network, encrypting everything on the machines, and demanding payment to return the contents to their original form. But it can't evade investigators the way sophisticated malware can - which is designed to avoid systems used to test for dangerous code.

Five skills you'll need to lead to company of the future
What  worked in the past doesn't work now.