----- Original Message -----
From: Gold Anti-Trust Action Committee
To: [EMAIL PROTECTED]
Sent: Tuesday, June 19, 2007 5:50 PM
Subject: [GATA] U.S. regulators would rely on the 'principles' of sharks who
have none
U.S. regulators would rely on the 'principles' of sharks who have none
Submitted by cpowell on 03:50PM ET Tuesday, June 19, 2007. Section: Daily
Dispatches
US Repo Sector Could Face Crackdown
By Gillian Tett
Financial Times, London
Tuesday, June 19, 2007
http://www.ft.com/cms/s/7e58c29e-1e8a-11dc-bc22-000b5df10621.html
American regulators may be forced to clamp down on activity in the so-called
repurchase, or repo, market involving US government bonds if the industry does
not clean up its behaviour, a senior official has warned.
However, finance officials strongly hope that a heavy-handed response can be
avoided if banks and investment groups adopt a new set of "principles" to guide
their behaviour, William Dudley of the New York Federal Reserve Bank recently
told compliance officers in New York.
The comments will be closely watched by the market since it comes at a time of
widespread investor interest in the US government bond sector, which has seen
heavy trading volumes in recent days as a result of sharp price swings.
American finance officials attach a huge importance to maintaining the
reputation of the $4,000 billion-plus Treasury market and the related repo
market. In the repo market, traders do not buy or sell bonds but use them as
collateral for short-term financing. However, last year there was criticism
from the US Treasury and others that traders had been trading to make profits
by hoarding specific securities or manipulating the timing of trades.
"In my view a public-private partnership is the way to go" to address these
issues, Mr Dudley said. He added that, if it turned out that an approach based
on "flexible, best practices" did not work, there would then be a "regulatory
response."
The debate about the repo market has an added significance in regulatory
circles at present, since it is highlighting a wider debate that is currently
going on behind the scenes in America about the use of a "principles-based"
approach towards regulation, rather than relying on a heavy-handed enforcement
approach.
The New York Fed is currently seeking to improve standards by working with the
market to create new guidelines. Last month a formal list was published for the
first time, seeking to rein in trading practices such as "holding the box' --
jargon for a trader asking for the execution of a trade to be delayed.
This partnership approach has been used by the Fed before: a similar industry
initiative was launched 18 months ago to improve processing and settlement in
the credit derivatives world, for example.
However, its use in the repo market underlines the degree to which the New York
Fed is quietly placing more emphasis on "principles-based" techniques.
Mr Dudley himself emphasised this point in his recent meeting with compliance
officers, urging them to focus on the "underlying intention" of the new code of
conduct rather than "trying to parse the precise language" to discover
loopholes which could then be exploited by traders.
* * *
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Centennial Precious Metals
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178 West Service Road
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Toll Free:1-877-775-4826
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Swiss America Trading Corp.
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The Moneychanger
Box 178
Westpoint, Tennessee 38486
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Franklin Sanders
1-888-218-9226, 931-766-6066
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