COVID-19 Updates 5/13
SEC Chairman Jay Clayton and Chief Economist and Director of the Division of Economic and Risk Analysis S.P. Kothari, in response to public inquiries, reported that the SEC’s COVID-19 market monitoring group has been coordinating with U.S. and foreign regulators generally, and has focused on two specific market analysis initiatives:
- Interconnectedness Initiative– reviewing and analyzing significant channels of risk exposure and risk transfer in the US and global financial system with respect to areas of vulnerability and stability. The SEC’s review includes interconnections between credit origination, risk transmission, and investment and risk exposure, to identify circumstances where shifts in risk assessment in one area may amplify risk-based price movements and capital flows in other areas.
- Initiative on the Effects of Mechanistic Portfolio Management Guidelines/Restrictions—reviewing whether mechanistic provisions, such as required portfolio rebalancings, asset sales and/or capital charges triggered by ratings downgrades, should be reexamined in the current environment.The SEC is exploring whether the hypothetical risks associated with mechanistic provisions are present, and if so, should be addressed. For example, the SEC has been asked and is analyzing whether there is a potential for “pro-cyclical” activity in the credit markets resulting from widespread mechanistic responses to credit downgrades.
European Short Sale Bans
Over the last week, MFA has reached out to several EU securities regulators and finance ministries, including the French AMF, to share our most recent analysis on the impact of short selling bans on market conditions. AMF Chair Robert Ophèle, in contrast to previous comments, said in an interview that market conditions are much less exceptional than they were when the French short sale ban was implemented. MFA anticipates that, before the weekend, France, Spain, Belgium, Austria and Greece will announce whether they will allow their bans to expire on May 18 or will extend them by a month. In advance of these decisions, MFA joined a coalition of trade associations to send a letter to the five jurisdictions urging them to allow their short sale bans to expire.