Skip to main content
MENU
Subscribe
  • Login
  • My Account
  • Logout
  • Register For Free
  • Subscribe
  • Topics
    • Alternatives
    • Artificial Intelligence
    • CIOs
    • Consultants
    • Defined Contribution
    • ESG
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Partner Content
    • Private Credit
    • Pension Funds
    • Private Equity
    • Real Estate
    • Regulation
    • Special Reports
    • Washington
    • White Papers
  • International
    • U.K.
    • Canada
    • Europe
    • Asia
    • Australia - New Zealand
    • Middle East
    • Latin America
    • Africa
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Influential Women in Institutional Investing 2024
    • Eddy Awards
  • Resource Guides
    • Active Thematic Global Equities
    • Retirement Income
    • Fixed Income
    • Pension Risk Transfer
    • Pooled Employer Plans (PEPs)
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • ESG Investing | Industry Brief
    • Innovation in ESG Investing
    • ESG Rated ETFs
    • Divestment Database
  • Defined Contribution
    • Latest DC News
    • The Plan Sponsor's Guide to Retirement Income
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • DC Plan Design: Improving Participant Outcomes
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Research Center
    • The P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
  • Print
Breadcrumb
  1. Home
  2. MARKETS
December 19, 2018 12:00 AM

Mnuchin rounds up some usual suspects to blame for market stress

Bloomberg
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Bloomberg
    Treasury Secretary Steven Mnuchin

    When Treasury Secretary Steven Mnuchin fingered high-frequency trading and the Volcker rule as factors behind recent misery in the stock market, he left out some other possibilities that might be contributing.

    Namely, the White House's ongoing trade conflict with China and President Donald Trump's threat last week to shut down the government.

    "In my opinion, market structure has led to a lot more volatility," Mr. Mnuchin said Tuesday during an interview with Bloomberg, remarking that a 500-point move for equities now seems to constitute a normal trading day. "Part of this is a combination of the market presence of high-frequency traders combined with the Volcker rule."

    Mr. Mnuchin declined to say whether he thought other factors could be to blame, saying he didn't want to address broader global economic questions with the Federal Reserve in the middle of a two-day policy meeting. But he intends to ask the Financial Stability Oversight Council, which he chairs, to study volatility and whether problems with the inner workings of the stock market and regulations are adding to sharp moves.

    Yet there's nothing new about lightning-fast trading or the Volcker rule. Criticism of high-speed trading hit its apex in 2014 when Michael Lewis published "Flash Boys." And banks for five years have had to adhere to Volcker, which restricted lenders from investing with their own capital. On both topics, research is mixed about how much they affect markets.

    "The notion that high-frequency trading and the Volcker rule are causing the current volatility is absurd," said James Angel, an associate professor at Georgetown University who has done work for stock exchanges and high-frequency traders. "We've had them around for years and they've coincided with some of the quietest times in market history."

    High-speed traders may not be blameless in moments of extreme market stress, such as the infamous Flash Crash of 2010 and a similar event for treasuries in 2014. But volatility has been below its historical average in most of the years since the 2008 financial crisis, according to the CBOE Volatility Index. Last year marked the calmest period since at least 1990.

    The Securities and Exchange Commission has been the front-line regulator scrutinizing high-frequency trading. It's been mostly hesitant to rein in the practice due to concerns that any rule changes could harm modern, electronic markets as much as they help them.

    But when the SEC has sought to bolster oversight it has faced intense pushback from industry. After years of study, the agency has declined to pass any significant regulations curbing high-frequency trading.

    As for the Volcker rule — one of Washington's most significant, and controversial, post-crisis reforms — those who hate it have a laundry list of grievances. It's too complicated. It's nearly impossible to comply with. And it has sucked up liquidity by preventing banks from making markets — the practice of serving customers by buying and selling certain securities.

    In a 2016 paper, the Fed conceded that Volcker did hurt bond market liquidity during times of stress. Still, Mr. Mnuchin's remarks Tuesday were about the stock market.

    The regulation isn't a new target for Mr. Mnuchin. The Treasury Department issued a report last year that urged an overhaul, and the FSOC spent months examining Volcker.

    At the end of that process, the Fed, SEC and other FSOC regulators proposed a number of changes. Their revamp hasn't been finalized, and Wall Street has complained that it falls short of providing sufficient relief. Mr. Mnuchin now seems to be indicating he wants the FSOC to review Volcker further, raising questions about when regulators might finish their work.

    Mr. Trump cheered the stock market during 2017, as his historic tax cuts, deregulation and low unemployment propelled equities higher. As the gains evaporated this year, Mr. Trump repeatedly blamed the Fed for raising interest rates.

    Steve Rattner, who oversaw former President Barack Obama's bailout of auto companies, criticized Mr. Mnuchin's comments on volatility.

    "First, Mr. Secretary, volatility is still within normal range," Mr. Rattner wrote in a Tuesday tweet. "Second, market's biggest fear is global slowdown, caused in part by Trump's erratic policies, particularly trade war."

    Related Articles
    Investors warned to prepare for 'volatility event' in LaSalle report
    Passive equity gets a jolt in Q4, still a falling knife
    Fund managers' confidence in global economic growth lowest since 2008 – BofA
    Fed raises rates for fourth time in 2018, reduces projected 2019 hikes
    Cybersecurity, rising corporate debt pose risks to U.S. economy – FSOC
    Treasury secretary halts payments to 2 retirement funds as debt ceiling is rest…
    Recommended for You
    Ray Dalio
    Ray Dalio urges Trump to reconsider China tariffs, cut deal to strengthen yuan vs. dollar
    Bills of euro, dollar and pound currencies, among others
    Trump's tariffs fail to derail rotation out of U.S. equities to European stocks
    Skyline of Riyadh, Saudi Arabia.
    Middle East's ambitious growth plans, sovereign wealth funds put capital markets on the map
    Sponsored
    White Papers
    The State of Lifetime Income Report
    The Next Wave of LDI Evolution
    Retirement security to future income wins, TIAA brings you the latest financial…
    U.S. Public Funds Top Performers: Q2 2024
    Generative AI Investing: Opportunities at a Key Tech Inflection Point
    Research for Institutional Money Management: Advancing Physical Risk Modelling,…
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    October 23, 2023 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Custom Content
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2025. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Artificial Intelligence
      • CIOs
      • Consultants
      • Defined Contribution
      • ESG
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Partner Content
      • Private Credit
      • Pension Funds
      • Private Equity
      • Real Estate
      • Regulation
      • Special Reports
      • Washington
      • White Papers
    • International
      • U.K.
      • Canada
      • Europe
      • Asia
      • Australia - New Zealand
      • Middle East
      • Latin America
      • Africa
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Influential Women in Institutional Investing 2024
      • Eddy Awards
    • Resource Guides
      • Active Thematic Global Equities
      • Retirement Income
      • Fixed Income
      • Pension Risk Transfer
      • Pooled Employer Plans (PEPs)
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • ESG Investing | Industry Brief
      • Innovation in ESG Investing
      • ESG Rated ETFs
      • Divestment Database
    • Defined Contribution
      • Latest DC News
      • The Plan Sponsor's Guide to Retirement Income
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • DC Plan Design: Improving Participant Outcomes
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Research Center
      • The P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
    • Print