重磅!前SEC理事Paul Atkins:兴业证券策略会发言纪要

股票知识新闻 / 来源:王涵论宏观 发布日期:2020-10-11 热度:25C
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#兴业证券# 重磅!前SEC理事Paul Atkins:兴业证券策略会发言纪要

在2019年11月12日举行的兴业证券2020年年度策略会上,原美国证券交易委员会理事、Patomak Global Partners的CEO及创始人Paul Atkins 先生就《全球金融监管与金融科技前沿》发表了主题演讲,以下为演讲的中文概要和英文全文,供各位投资者参考,谢谢。


Paul Atkins 简介
 
Paul Atkins是Patomak Global Partners 的CEO和创始人。Patomak GlobalPartners成立于2009年,是一家为政府、企业提供咨询服务的金融咨询公司。
 
Paul Atkins自1990年起就在美国各类政府机构任职,在经济政策制定和金融监管方面经验丰富:1990年至1994年任美国证券交易委员会(SEC)两任主席助理;2002年至2008年任美国证券交易委员会委员;2009年至2010年被任命为美国国会监督小组成员,并参与不良资产处置计划(TARP)


 
中文概要
 
感谢兴业证券的邀请,很高兴也很荣幸和各位一起探讨金融创新背景下资本市场建设及金融监管的机遇和挑战。
 
(一)全球化浪潮下的金融监管


技术进步促进了资本流动,也加强了全球金融服务体系内部的联系。面对与日俱增的企业跨国经营活动、跨境资本流动和技术创新,美国监管机构也为吸引外资做出了诸多努力,包括在会计准则的使用上允许外国公司使用IFRS来替代GAAP;更新Sarbanes-Oxley法案来适应董事会组成等。当然,我认为在跨境监管方面,美国还大有改进空间,例如我们可以加强中美监管机构在审计方面的监督合作,放松资本管制以使得更多中国投资者——尤其是长期资本能参与全球市场。
 
与此同时,中国也在进一步开放金融市场。考虑到中国经济的体量,我相信未来将有更多海外资本进入中国市场。一方面,这将给中国国内的金融公司带来更多竞争。但另一方面,这种竞争也将鼓励新产品和服务的开发,并敦促企业提升核心竞争力。从美国的经验来看,外资的进入是资本市场发展的重要助力。虽然一开始,市场参与者们可能会不太适应,但长远来看,这有助于中国经济进一步转型。
 
实际上,美国在法律和市场方面的很多改革,都是在资金紧张的时期完成的。比如,货币市场共同基金(money market mutual funds)就是资本市场在银行业监管过度背景下产生的创新。我很高兴地说,美国证监会促进了这一创新。虽然银行业监管者对此不满,但这促进了金融民主并优化了资本资源配置。此外,我们也推出了支持减税的系列政策工具,如401k、IRAs和529。美国当前很多资管巨头,如富达(Fidelity)、保诚(Prudential)及普信(T Rowe Price)等,都是在此背景下成长起来的。我认为中国完全有能力把握类似的金融创新机会,而这也将为在座各位带来进一步的增长空间。
 
(二)金融创新及数字经济对监管带来的挑战
除了“传统”的金融产品和服务增长机会,接下来我想探讨美国监管机构如何应对数字经济产品和服务的创新,尤其是区块链的发展。当前市场对数字经济的讨论,可能在和纸币最初诞生时同样适用。本质上而言,纸币是一种信用背书,其广泛应用依赖于法制对社会信任的维系。区块链及数字货币是否能取代纸币,成为价值储藏的下一个手段,对此人们尚有很大分歧,这也为监管带来了很多挑战。


美国金融协会上周发布的一项学术研究指出,比特币价格严重被操纵,并非一个公平可靠的市场。类似的学术报告已经引起了美国证监会主席及其他委员对数字货币领域欺诈行为的担忧,从而可能引发对数字货币交易更加严格的监管。
 
这无疑也将引发创新企业的担忧,过度监管可能阻碍有效创新。区块链对速度和透明度的创新性突破,可能对证券市场带来颠覆式革新。我们知道,上世纪60年代,交易量快速增长导致工作量剧增,很多券商一度因为无法适应而倒闭,正是技术进步拯救了华尔街。从这个角度而言,美国监管机构需要在保护投资者免受欺诈与避免技术创新脱轨之间取得平衡。
 
除了区块链之外,人工智能和机器学习是金融科技的另一重要进展。在投资组合、投资管理、算法交易、数据分析以及信息安全和欺诈检测方面,人工智能受到越来越广泛的应用。在美国,许多大型对冲基金都是主要由计算机模型驱动的。几乎所有的大型买方和卖方公司都非常重视量化团队。算法和数据在当前的时代变得越来越重要。此外,企业也开始考虑采用人工智能为客户服务,包括Charles Schwab、BlackRock、Deutsche Bank、美国银行等。我们需要思考是否应该为区块链、AI及其他尚未面世的金融工具立法。
 
实际上,在数字经济领域,美国不同监管机构的监管态度也是不同的。虽然美国证监会(SEC)对此较为谨慎,但商品期货交易委员会(CFTC)等其他机构则相对更积极地欢迎这些创新。
 
Libra的出现,无疑让世界各地的监管者们团结了起来:全球央行、金融监管机构和政府官员已经明确表示,无论Libra是什么,它都将受到监管。实际上,Libra只是加剧了——或者更清楚地揭示了——科技行业对传统金融服务业的冲击。
 
全球经济和金融技术的快速发展,加剧了金融监管变革的紧迫性和不确定性。根据全球以太网的发明者提出的梅特卡夫定律,网络的价值与网络的用户数是成正比的。当每一个新的连接点出现,网络都会呈指数级增长。因此,新兴的金融科技,将可能让更多的人参与金融市场,并创造更多的经济增长。政策决策者的关键职能在于,通过与国内外同行和市场参与者合作,确保平衡、运作良好、透明的市场,让更多人参与其中并获益。
 
包括中国在内的越来越多的国家已经认识到开放经济和资本市场的价值。在这种环境下,监管者需要意识到市场发出了重要的信号,即政府的主要职责并不是识别哪些创新将成功、或试图改变创新,而是为发展资本市场和创新金融部门提供良好环境。每个国家都可能采取不同的做法,但促进创新和获得高效益资本的最终目标是一致的——通过创造就业机会和增加公民财富来促进整个经济和社会发展。
 
 



英文全文
Ladies and Gentlemen, it is a great honor and privilege for me to bewith you here in Shanghai, in this impressive hall. Today I would like todiscuss with you some opportunities and challenges in capital markets and regulatorypolicy, as well as other efforts to strengthen markets and to promote financialinnovation.  I know that you join me inour appreciation for the hospitality and courtesy of our gracious conference hosts,Industrial Securities.


It’s also fitting that in talking about the emerging digitaleconomy, we do so in the country where paper money was first developed.  In our modern times, with instantaneous globaltelecommunications, credit cards, blockchain and now mobile payments – an area where China is again leading in several areas – it is easy for us to forget just how innovative paper money was forthe time.  It was a tremendous cultural,economic, and technological advance.   


Moneyitself is an abstract concept that represents purchasing power, as well astrust that someone will accept it for something near to how the holder valuesit, trust in its relative retention of value (short term and long term), andtrust (or hope) that one will not be defrauded by accepting the piece ofpaper.  It is a step beyond bartering forfunctional or edible goods and services or other abstract stores of value, suchas gold, silver, or jewels.   It growsout of a stable social structure where trust can be vindicated through fairrecognition and enforcement by the government and courts of duly executedcontracts.


Securities are the next step beyond paper moneyin the abstract conceptualization of value. The value of debt instruments, of course, depends on the perception ofthe ability of the debtor to repay the debt, and the value of equity securitiesdepends in large part on the perception of the future prospects of the issuer,which are constantly changing because of the work and creativity of theentity’s employees and events beyond its control – actions ofcompetitors, governments, the marketplace in general – even the weather.


And most recently, we have seen thedevelopment of distributed ledger technologies around blockchain. They areperhaps the ultimate in abstract value (at least so far in humandevelopment).  In that regard we still donot have complete social consensus as to their legitimacy and value.  Will they ultimately receive the sameacceptance as other abstract stores of value?  Both here and in the US there is a widedivergence of views on this question, which poses challenges for regulators.The boisterous reception to the Facebook announcement of Libra is just oneexample. I will share some of my thoughts on this later.


So, this is a unique? time for the financial services industry as wewitness its real-time evolution. While perhaps not as momentous, today’s advancesharken to the days of the opening of trade routes between the East and the West,because today’s technological advances are transforming and more closelyconnecting our global financial system. 


Goods and services are no longer bound by geographic limitations. Financialservices are increasingly mobile. Policy decisions in Washington or New York orFrankfurt or Shanghai that once took hours or even days to affect markets cannow ripple across the globe in minutes.  


The greater complexity, globalization, and lower latency of today’selectronically connected global markets have naturally given rise to professionaland institutional investors, such as the many firms represented in the audiencetoday. Your work is vital to correctly gauging risk and opportunity so as toeffectively price the securities which represent fundamental components of our globaleconomy.


Over the years I’ve had the opportunity to interact with businessesand policymakers in China during periods of evolution and harmonization. Backin the 1990s I was with Coopers & Lybrand as we opened offices here, alongwith other U.S. accounting firms, to meet the needs of China’s growingengagement with the broader global financial marketplace.  Later, as a member of the Securities andExchange Commission I worked with my colleagues to implement policies to accommodatenon-U.S. firms based in countries such as China, and to ameliorate extraterritorialeffects of legislation such as the Sarbanes-Oxley Act of 2002.  In fact, the last time that I was in Shanghaiwas a couple of years after the enactment of Sarbanes-Oxley, when Iparticipated in an official US government delegation to China to discusscorporate governance issues in light of the burgeoning interest in China forbest practices for firms that were becoming publicly traded companies.
   
Such efforts a decade and a half ago – as well as the work that many of us present here undertake daily ineither the private or government sectors – underscore the need for sound, collaborative policy-making thataccounts for the increasingly interconnected financial markets and the fast-evolvingdigital economy.  All of these experiencesalso reinforced that the relationship between government and the private sectoris crucial to shaping a marketplace, incentivising or deterring investment, andencouraging or discouraging competition and innovation.


It is a well-accepted rule that capital is attracted to where it ismost welcome and can be best utilized. Regulatory policy has a great deal to dowith creating such hospitable environments. But, over the past decade, policymakershave had to look beyond their own territorial concerns.  They also have had to accept that the policyapproaches they are familiar with, and which helped shape the global economyover the past 50 years, may not necessarily apply to today’s markets.


Just as markets adapt to new competitors and innovations, regulatorshave had to adapt. This has meant developing rules of the road that protectinvestors and businesses alike, while allowing for global operations,cross-border capital flow, and technological innovation.


The United States, of course, has long welcomed the cross-borderflow of capital and investment. It could not do otherwise, because it was afrontier country, with huge capital needs to develop its infrastructure – canals, roads, railroads, dams – not to mention the industries that supported all of this.  There was not enough domestic investmentcapacity, and capital from abroad was attracted for the potential returns.  In the early 20th century, the USwas the largest recipient of global investment flows. One estimate showed stockof foreign investment in the US in 1914 at $7.1 billion or over 20% of the GDP[1].


In fact, that is how the auditing profession developed, becauseEuropean investors were tired of losing money in investments laced with sketchymanagement, bad accounting and management practices, and fraud.  Of course, the government also eventuallyreacted with a heavier hand to market catastrophies and scandals.  Extensive legal and regulatory institutions wereinstituted to address marketplace fraud, policy matters, and disputes … theFederal Reserve, the U.S. Treasury Department, the SEC, the Commodity FuturesTrading Commission, the Federal Trade Commission, and regulators in all 50states.  The list, unfortunately in myview, is seemingly endless and can impose significant costs on those beingregulated. 


That said, the US by generally relying on market mechanisms andconsistent enforceable rules remains an attractive capital market forinternational firms.  More than 800foreign issuers have registered their securities with the SEC.  Interestingly, these 800 foreign issuersrepresent approximately one-fifth of the companies that have publiclyregistered shares in the United States.  Chinesecompanies have registered with the Commission and listed their shares on U.S.exchanges since 1994, when I was at the SEC working for then-Chairman ArthurLevitt.  That year, Chairman Levitt cameto China to sign in the Great Hall of the People a memorandum of understandingregarding co-operation between the China Securities Regulatory Commission andthe SEC. 


Our nation encourages overseas investors to place their assets with U.S.-listedcompanies, just as U.S. investors are invited to pursue investment opportunitiesin overseas markets. U.S.-based investment advisers, broker-dealers,clearinghouses, and trading houses serve clients around the world, just assimilar players abroad serve American clients. 


Over the years, U.S. regulatory bodies have worked to understand howour policies would or should affect companies or investors based in otherjurisdictions that seek to participate in our capital markets.  Many rules have been adjusted by the SEC toaccount for differences in foreign practices and laws. One example is thesetting of rules that give foreign-based firms flexibility in filing financialstatements using IFRS (“International Financial Reporting Standards”) in placeof the United States’ GAAP (“Generally Accepted Accounting Principles,”) orupdating Sarbanes-Oxley rules that apply to board committee composition. But, inmy opinion, there is still much more to be done to make the US more attractiveto foreign capital. 


An example of where such efforts are needed is the work on auditoversight cooperation between the SEC, the PublicCompany Accounting Oversight Board (PCAOB), the ChinaSecurities Regulatory Commission, and Chinas Ministry of Finance. Beyondharmonizing audit processes, this effort is about creating greater transparencyand stability in the global markets.  Transparencyand stability go hand in hand; a lack of transparency can create doubts amonginvestors, which affect stocks prices and may not accurately convey the truevaluation of a company.  There is nogreater example of this than the doubts that were raised during the 2007-2009financial crisis, where there was little trust in the statements of manyfinancial firms.  


As challenging as these cross-border regulatory discussions may be,they are benefitting all parties participating in global capital markets. Dialoguessuch as this may also create opportunities for additional adjustments inpolicies, such as the potential for the continued easing of capital controls,which would enable Chinese investors –particularly those with a long-term asset allocation mindset - to participatemore fully in global markets. 


The import of such engagement by Chinese investors wasunderscored recently in The Wall Street Journal[2],whichhighlighted the economic success story ofthis nation over the past decade.  One exampleis the remarkable savings rate.  In 2010, the average Chinese worker saved 39 percentof every renminbi of income. While that figure now stands at about 33 percent ofevery renminbi, it far surpasses other nations with savings rates of less than10 percent. 


This has led to household bank balances, as reported by the People’sBank of China, that have grown more than a thousand percent since 2000, fasterthan the nearly eight hundred percent expansion in GDP during that period.  As the Journal notes, this is, quote,“a wealth accumulation unmatched by any country in modern times,” end quote.


I believe all of this growth in wealth is an excellent backdrop tofurther China’s capital market reforms. Done prudently, such expansion of therole of capital markets in the economy would lessen what appears to be a desireby some Chinese investors for the adoption of nontraditional banking andinvestments. These reforms will help to diversify investment channels anddistribute different types of risks properly to investors most able to takethem on.


Such financial policy evolutions would certainly be in line with thisnation’s focus to reform its domestic capital markets and to more fully participatein global markets. This was evidenced by last month’s announcement that China, beginningin April 2020, will end limits on foreign ownership of fund managementcompanies. Another example occurred in August of this year, when JPMorgan’sasset management arm won an auction to purchase a majority stake in its Chinesejoint venture, making it the first foreign business to do so.


And of course, China has been continuing to increase access to itscapital markets through expansion of QDII (pronounced “cue-di”) and QFII (“cue-fee”)programs. And since 2017, it has established the regulatory environment toallow foreign asset managers to set up wholly foreign owned entities (WFOEs) andreceive local private fund manager (PFM) licenses. Currently I understand thereare somewhere around 50 WFOEs and over 20 PFMs established, with such marquee namessuch as Bridgewater, DE Shaw, Fidelity, Blackrock, and Man Group. I wouldexpect more to follow given the size of the domestic capital markets andinvestor base, both now the second largest in the world. One count shows 2trillion US dollars of investable retail assets alone.


On the one hand, for domestic asset managers, securities firms andother financial companies, such changes may create additional competition,including for our esteemed host and many here at this magnificent event.  But in an integrated, global market, such competitiontends to attract more participants, encourages the development of new productsand services, and increases opportunities for all. What all this greatercompetition means, however, is that firms will have to work harder tostreamline their operations and hone their core competency.


By many measures, China has much tremendous room for growth infinancial services and I believe the people in this room have the great fortuneto part of this growing market. The total market capitalization of China’s domesticequities was around 50% of GDP in 2018, compared to around 150% in the US[3].Foreign investors can be critical to this potential growth. Today in China, foreigninvestors account for only 3% of total onshore equity market ownership[4].


By comparison, a Treasury survey released in February 2018 showedforeign ownership of US equities was around 8 trillion dollars, which is alittle more than 25% of total stock market capitalization. Foreigners alsoowned over $10 trillion of US fixed income securities. If we look at theAmerican example, our capital markets have benefitted immensely from thepresence of foreign financial institutions. Foreign financial firms arecatalysts to bring in their home market investors, and in turn allow USinvestors and companies access to their home markets.


In the US, our ideal is to try to treat investors the same, foreignor domestic, large or small. It is through this approach that the US has beenable to attract very long-term sources of capital into our investment markets. Today,even though he might not be aware of it, a millennial (Chinese: “post-90s”)young professional paying rent on his or her apartment in San Francisco couldbe helping to fund a pension fund in Ohio, or the citizens of Norway, orperhaps even the National Social Security Fund of China. Like the US, Chinaneeds long-term sources of capital. With capital comes not only money, but veryimportantly the expertise and discipline of the markets.


This, too, may be unsettling for many market participants.Enterprises that are used to dealing with their familiar, long-standing bankersmay not initially like the glare of market-oriented investors. But in the longrun, I personally believe that better allocation of capital is critical to helpChina to realize the next stage of its growth, which will be less aboutquantity but more about quality.
It may also help to solve some of the current stresses in financialmarkets. According to BIS (Bank of International Settlements) statistics,China’s debt at the end of 2018 stood at just over 250% of GDP, about the sameas that of the US. In the US, we have learned that capital markets are key tofinancing, pricing and – if needbe – resolving debt. I understand China has beencontinuing the process of establishing a more well-defined set of bankruptcy practices.In the US, we have found that well-organized debt markets, professionalinvestors and reliable bankruptcy processes – while messy and painful for some parties - ultimately benefit investors,companies, and the economy as a whole. Many of our advances in law and marketscame during periods of market stress or need for capital.


For example, money market mutual funds were a capital marketsinnovation for an over-regulated banking sector.  In the 1970s, the era of a stagnant economyand inflation caused by rising oil prices, the US government controlledinterest rates that the banks could pay ordinary savers.  Institutions and high net-worth investorscould access the money markets by buying Treasury bills, but the minimumpurchase price was $10,000 (hardly accessible for ordinary investors).  Because interest rates were so low, comparedto inflation, banks had trouble attracting deposits and had to resort tooffering toasters or other non-monetary gifts as incentives. 


The securities industry reacted by securitising Treasury securitiesthrough mutual funds – sellingoff interests in the fund for a stable value of $1 per share.  The next innovation was to allow withdrawals bycheck at that stable value of $1, turning the capital markets investment intothe equivalent of a bank checking account. Suddenly, a withdrawal order on a capital markets investment would beaccepted as payment at a grocery store.  Ofcourse, at the same time, the investor was earning a money market interest rateon his invested savings. 


The SEC, I am happy to say, facilitated this innovation.  The banking regulators, of course, were notvery happy and the commercial bankers screamed because of this new-foundcompetition.  But, the result was thedemocratization of finance and  theopening of access to the money markets.    Ultimately, I believe that these developmentshave allowed for better allocation of resources and access to betterinvestments for investors.
In the US, we have also witnessed the growth of policies whichsupported tax efficient savings vehicles such as 401k, IRAs and 529s to name afew. Many of the largest asset managers in the US – household names such as Fidelity, Prudential or T Rowe Price – have grown because of these opportunities. China is well placed to adoptspolicies to capture similar or still emerging financial innovations and thatmay lead to a further growth for the men and women in this room.


While this discussion has thus far focused on opportunities forgrowth in what might now be considered “traditional” financial products andservices, allow me now to focus on how regulators across the U.S. governmentare attempting to better understand the innovations of the digital economy anddigital products and services, particularly blockchain. The goal for U.S.regulators and policymakers is to ensure a well-functioning and transparentmarket for investors, but also to stake jurisdictional claims. Naturally, theSecurities and Exchange Commission has been actively engaged in the digital-assetarena. 


I would also note that the American Finance Association last weekannounced a forthcoming, peer-reviewed study by a finance professor at theUniversity of Texas.  This research paperhighlights the actions of a single trader who by use of a stable coin manipulatedthe price of Bitcoin to help increase its price to a record $20,000. The study,according to The Wall Street Journal, calculates that the manipulationscheme was responsible for half of the increase in Bitcoins price in late 2017[5].


More analysis must be done, but studies such as this one have aneffect in Washington – and inthe broader regulatory arena around the world. SEC Chairman Jay Clayton andother commissioners and senior staff have raised concerns about fraud in the digitalcurrency space, and such reports only reinforce the cautious approachregulators are inclined to take with new innovations in the digital commerceworld. 


For those unaccustomed to the pace of bureaucracy, a year may seemlike an eternity – and for companies that are rapidlyinnovating, it is an eternity. It is a legitimate concern that such extended, deliberative processes mayhinder the speed at which useful, transformative innovations can enter a marketand compete.  


Blockchain is potentially an example where regulatory delays anduncertainty might influence the development of markets.  This innovative breakthrough couldrevolutionize the ownership of securities with its speed and transparency.  With a decentralized ownership register,trades that are currently sent through clearinghouses and brokers could beconducted as direct peer-to-peer transactions at very low costs and nearinstantaneous clearance and settlement.[6]


This is a far cry from pre-computer days. Many in the audience maynot be aware that in the 1960s, trading volume on the New York Stock Exchangegrew so quickly that Wall Street was faced with what came to be known as the“paperwork crisis.” The Exchange was forced to close one day per week so thatfirms could catch up with the transactions. Many broker-dealers could not adaptand went out of business.  Fortunately, thosedays are long gone, and it was new technology that came to the rescue. So thisis why the regulators in the US need to balance the need to protect investorsfrom fraud with avoiding derailing technological innovation.  


As I noted, there are many opinions on new technologies such as blockchain;I do not have a crystal ball. However, it may prove to be an innovativesolution for the financial industry to increase settlement efficiency andspeed, establish and link recordkeeping and title recording networks, andincrease market access.  Two weeks ago,for example, the SEC approved a pilot project for the blockchain startup Paxosto test its ability to settle stock trades. The Depository Trust & Clearing Corporation, a market utility ownedby a consortium of financial firms, has long been the sole outlet forsettlements, which even today seem stuck at T 2 (better than T 5 back in the1980s), or even T 14 in some countries. It was  T whenever in Italy.  Paxos’s pilot will involve only the 140 leastvolatile and most actively traded stocks, and the number of trades Paxos cansettle is capped at one percent of average daily trading volume.  This Paxos pilot is an interesting step to getto T 0, and DTCC is working on its own versions.  It will be interesting to see whatefficiencies come out of this pilot project, but just as interesting will beseeing what innovations or efficiencies grow out of this newly competitivemarket between the startup and the DTCC.    


As you know, blockchain is just one new financial technologydevelopment – there are new online banks, innovative lendingplatforms, mobile banking and payment systems. Perhaps the most formidabledevelopment is the potential use of artificial intelligence and machinelearning in financial markets.


The excitement in the media around artificial intelligence as asupposedly 21st century innovation is maybe myopic.  We have had increasing artificialintelligence for a long time, since the abacus in China, slide rules, addingmachines and the first computers in the 19th century and beyond.  But, it does seem that the pace of innovationand areas of application are growing. 


We see increasing use of artificial intelligence applications in portfolioand investment management, algorithmic trading, social data analysis, as wellas information security and fraud detection. Newer, more tech-focused firms andtraditional finance companies alike are using AI and machine learning to betterleverage data, whether it be to increase efficiency with process automation orprovide a more tailored experience on the front end. AI use in investmentanalysis and trading strategy and execution is in its early stages, but firmslike J.P. Morgan, for example, have an AI program for executing trades withmaximum speed and optimal pricing.


In the United States, several of our largest hedge funds are drivenby computer models. Many have an aura of secrecy about their operations andraise issues of transparency for their investors, but without a doubt they havebecome highly influential market players. And almost all large buyside andsell-side firms have large teams focused on this “quant” realm, including ourconference host and many firms represented in this room. Algorithms and dataare becoming ever more important in this era.


Down the road, people are envisioning AI adoption for customerservice and sales recommendations of financial products even to retail investors.Such “robo-advisers,” theoretically could take the place of human investmentadvisers. Examples already in existence include Charles Schwab’s SchwabIntelligent Portfolios, BlackRock’s Future Advisor, Deutsche Bank’srobo-advisor within its online platform, and Bank of America’s AI-enabled chat-botthat provides financial guidance.


Many of you will be happy to know that surveys of retail investorsin the U.S., in the U.K. (where regulatory changes priced small retailinvestors out of the possibility to talk to a human investment advisor), andother countries show that these investors prefer to deal with a realhuman.  Needless to say, so do high networth investors.  We shall see if youngerinvestors – the post-90s generation – will follow this preference.


Perhaps for some of you, all of this change is worrisome. For othersit is fascinating and exciting, just as the notion of high-speed, wirelessbroadband and the use of mobile applications was incredibly exciting.  It is fair to ponder whether securities lawsfrom the era of ticker tape machines should be informing rules for blockchain,AI, and financial tools we have not yet seen. 
 
Just as capital seeks welcoming environments where it can gain agood return, entrepreneurs seek jurisdictions where regulatory environmentscreate opportunities for their innovations. Policymakers must balance thoseconsiderations with the legitimate concerns around investor protection andfraud.  If the policy approach is overlyrestrictive or overly permissive – or if ajurisdiction simply moves too slowly to meet the needs of its market – investors and innovators will seek a better functioningmarketplace.  By not adapting to theneeds of all players in the market … or worse, developing policies that throwsand in the gears of innovation or create confusion … policymakers or jurisdictionalregulatory bodies risk losing the opportunity to shape their market for thebenefit of investors, in this case, the evolving financial technology industry,and the broader society.


Even within the U.S., we see this play out as different regulatorshave taken different approaches to overseeing the digital asset space. Whilethe SEC has been more cautious of activity in the digital asset space, otherssuch as the Commodies Futures Trading Commission have been more forward inwelcoming these innovations. For example, in 2017 the CFTC approved the firstBitcoin futures, listed by the Chicago Board Options Exchange and the ChicagoMercantile Exchange. The price run-up that I mentioned earlier, when in 2017Bitcoin skyrocketed in value to $20,000, came to an end when futures forBitcoin started trading. The price fell from close to $20,000 to just under$12,000 in one week, putting an end to the one-sided speculative demand, andhelping to create greater transparency in the market.  Why did that happen?  Because institutional investors and others,including probably some retail investors, finally had a means in an illiquidand rather non-transparent marketplace to bet against Bitcoin.  


While some might think that it is bad for the price of an instrumentto fall, that is not necessarily the case. A two-way market signal is vital for a vibrant market.  Prices need to be realistic – we need to have the naysayers for a balanced perspective and toeven out volatility, which can cause real investors (versus speculators) toflee the market. 


Sometimes, however, being forward thinking simply doesn’t pay.  There are few things that provided anopportunity for policymakers around the world to unite around their naturalskepticism for innovations than Facebook’s Libra project.  This was largely due to the fact that Libra didnot neatly fit into what many in the financial technology industry orregulators think of as “traditional”.  Somesaw Libra as a global stable coin.  Giventhat the plan is for it to be backed by a basket of international fiatcurrencies, central bankers around the world saw implications for monetarypolicy and had many questions. Regulators, including in the US and China, feltthat Libra was usurping their national currencies. Policymakers didn’t haveanswers, and to be fair, neither does it appear that Facebook and its partnershave answers.  


This is not that unusual for new innovations, but given theprominence and global reach of Facebook, with a billion customers, the issuestook on far greater import. Despite the lack of clarity, the global centralbanks, financial regulators, and elected officials have made it clear thatwhatever Libra is, it will be regulated.[7]  President Trump even released a verycarefully written “tweet,” saying that Facebook appears to be creating a bankand should be regulated as a bank holding company.  Perhaps Facebook did not expect that reaction,since an announcement of the modification of the organisational and governancestructure of Libra soon followed.


Libra only heightened – or moreclearly revealed – the tensions that have arisen as the technologyindustry enters the traditional financial services industry. There may well be resistanceamong traditional financial companies, such as recent reports that US bankinginterests worked hard to oppose the Japanese e-commerce company Rakuten from establishingits own U.S-based bank. Meanwhile, technology companies such as Google andAmazon have voiced support for a Federal Reserve plan to build a real-timepayments system that would compete against an RTP network already built by thelargest U.S. banks at a cost of a billion dollars.


This tension will only grow as technology companies, particularlythose already deeply involved in all forms of e-commerce and with the necessaryfinancial and global scale, seek new opportunities to offer financial servicesproducts.  For example, Amazon hasalready begun testing in the U.S. a pre-paid credit card, which if successfulmay lead to a type of small-dollar loan service one could envision being rolledout internationally. I understand such innovations are already being pursued inChina by leading technology players here. And whether it is Facebook or TencentHoldings or Google or Alibaba or a player we have yet to see, we know thatthere will be efforts to create digital financial products and services to meetthe needs of the billions of mobile-enabled people, including many in the worldwho may not have a traditional bank account.  


As you may know, from August 2016 through January 20 of this year, Ihelped the incoming Administration of President Trump review policies and plan regulatorystrategy for the various financial agencies of the US government.  Key to his regulatory reform agenda has been rigorouscost-benefit analysis and increased transparency among federal agencies.  The Trump Administration from the outsetestablished a goal of removing two existing regulations for every newregulatory proposal put forward, a goal which has had some success. 


While elections and those who are elected matter, and politicalappointees come and go, the US has a vast, professional bureaucracy inWashington and in the States underpinning what many consider to be a stable,albeit slow, regulatory environment. Such an environment is not uncommon in other parts of the world. 


But the global economy and the financial technology market is notslow.  It operates at the speed of newideas and innovations, which in turn drive investor needs and demands.  It is the speed of the markets and the speedof the markets’ evolution that is creating the churn and urgency – and to some degree a bit of uncertainty – in the financial regulatory space. So, it is important for regulators everywhere to focus on the importantrole the global marketplace for financial services plays in the lives ofconsumers everywhere … economic opportunity, wealth creation, entrepreneurship,and innovation.


I would not presume to judge whatother countries should do in this regard. I would note, however, that theUnited States has succeeded when its government recognized that its role wasnot to determine which companies or innovations succeeded or to attempt to shapethe innovations entirely themselves.    


The inventor of the global ethernet developed a theorem calledMetcalfe’s Law, which stated that the value of a network is proportional to thenumber of users on it…. That for every new connection or participant linking tothose already part of the network, the network grows exponentially. In the technologyspace we are seeing value growing exponentially across the globe.  We are at the beginning of seeing someemerging financial technologies with the potential to see more peopleparticipating in financial markets, investing, saving, spending, creatingeconomic growth, and benefiting from it. The key for policymakers is to ensure thatthis value grows in the future by establishing policies in a collaborativemanner with both foreign and domestic counterparts and market participants.  In that manner regulators can ensure a balanced,well-functioning, and transparent marketplace that is accessible to as many whodesire to participate – toconnect – to this  remarkable, global economy. 


This goal may sound fanciful or impossible.  But more and more countries, including China,have recognized the value of opening up their economy and capital markets. Inthis environment, regulators are understanding that the marketplace sends importantsignals and it is impossible for them to plan for every contingency orinnovation.  As Austrian economistFriedrich Hayek noted, there is simply too much information, too many inputs,too many random events, and too many interactions between billions of peoplefor that to be possible.  


Every country may adopt a different approach, but let us not losesight of the end goal of fostering innovation and accessibility tocost-efficient capital – strengtheningthe overall economy and society by creating jobs and increasing the wealth andwelfare of the citizens.  Providing agood environment for developing a capital market and an innovative financialsector is a daunting task that requires commitment from both the government andthe society at large to establish a strong commercial, legal, social, andpolitical infrastructure that encourages innovation and investment and protectsinvestor rights.  


Ladies and Gentlemen, I appreciate your time and interest in thesematters.  You have been a wonderful andgracious audience.  With financialmarkets effectively global, all of us, brokers, dealers, investment managersand advisers, investors, and policymakers are invested in what we have helpedto build. An important aspect of this effort is also to engage in dialogue withthe many players around the world who make up that infrastructure.  This forum is a wonderful example of that,and I thank you for the opportunity to share my views and listen to your views,as well. 


I wish you all much luck, continued success, and an enjoyableconference.


Thank you very much.


[1]https://www.piie.com/publications/chapters_preview/3918/01iie3918.pdf page 3
[2]https://www.wsj.com/articles/less-savings-more-debt-how-chinese-manage-money-american-style-in-17-charts-11572427805?mod=hp_lead_pos11
[3]https://knoema.com/atlas/topics/Economy/Financial-Sector-Capital-markets/Market-capitalization-percent-of-GDP
[4]http://emergingmarkets.blog.franklintempleton.com/2019/09/16/china-lifts-foreign-investor-caps-on-stock-and-bond-markets/ 
[6]http://www.kpmgtechgrowth.co.uk/blockchain-the-power-of-transparency/
[7]https://www.coindesk.com/eu-finance-commissioner-vows-new-rules-on-crypto-libra-stablecoin
 




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