The election of Donald Trump as the 45th president of the United States has caught many on Wall Street as flat-footed as their City colleagues over June’s Brexit vote.
After numerous high-profile members of the financial community backed his Democratic challenger Hillary Clinton, Wall Street remains uncertain over how the Trump administration will address outstanding regulatory and market structure issues facing the US capital markets.
“We have no reason to believe President-elect Trump is in favor of anything but the cost-effective, efficient markets we have in America today,” said Bill Harts, CEO of Modern Markets Initiative, the organization dedicated to education and advocacy on the benefits of high-frequency trading. “We don’t need to make our markets great again. They’re already great. We just need to thoughtfully make them even better.”
After a long, largely personality-driven campaign, the capital markets know few specifics of Trump’s pro-business and deregulatory plans.
Kevin McPartland,
Greenwich Associates
“In theory, a Republican-led Washington should bring with it a certain level of deregulation,” said Kevin McPartland, principal, market structure and technology at Greenwich Associates. “But Trump isn’t your typical GOP president-elect, so his exact focus and its impact on markets is still a big unknown. That said, a change from the current course is all but inevitable.”
In term of market regulators, Javier Paz, a senior analyst, wealth management at Aite Group expects that Securities and Exchange Commission Chair Mary Jo White likely will finish out her term, which would have been doubtful under a Clinton administration as Senator Elizabeth Warren had expressed displeasure with the SEC Chair.
Paz also predicts that the SEC and the Commodities Futures Trading Commission likely will not receive their requested budget increases for 2017 under the new administration.
“The CFTC, for example, has asked for a 32% budget increase in the fiscal year 2017,” he said. “New commissioners and new chairs to be appointed under President Trump will likely set a much more market-friendly tone than that seen during President Obama’s terms.”
The complete repeal of the Dodd-Frank Act, which was one of the major planks of Trump’s economic platform during the election likely will stall between the White House and Capitol Hill, predicts Virginie O’Shea, research director, institutional securities & investments at Aite Group.
“It is obvious that it is an extremely complex task, considering the need for the views of both the House of Representatives and the Senate to align,” she said. “He might, however, loosen certain regulations in the longer term, such as capital requirements for financial institutions, or maybe eliminate a few specific lines from Dodd-Frank. Although Dodd-Frank is almost implemented, a few areas are still in progress. In the short term, expect the brakes to be put on requirements that are yet to come into force.”
One potential Dodd-Frank target might be the act’s mandate stress test, which the administration could disband by defunding it, according to David O’Connell, senior analyst, wholesale banking and payments at Aite.
“But interestingly, the banks I have talked to actually like their stress tests deep down inside,” he said. “This is because these tests are a form of risk analytics that banks know they should have begun doing long before these tests became mandated under their various regulatory labels: DFAST, CCAR, stress tests, etc. In other words, expect the stress-test mandate to go away, but expect banks to keep performing them nonetheless.”
No matter what comes, the US financial markets are preparing for life under a Trump presidency.
“ICI congratulates President-elect Trump on his victory, and looks forward to working with his administration and Congress to advance policies that strengthen capital markets, promote economic growth, and advance the interests of funds and their shareholders,” said Paul Schott Stevens, president and CEO of the Investment Company Institute. “We encourage the incoming administration to join with Congress to advance needed reforms to financial regulation, including changes to provide greater accountability and transparency to the Financial Stability Oversight Council and its processes.”
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