House-Senate Conference Committee

The conference committee is working on a compromise bill of financial regulatory reform, consolidating the two very different bills that have passed the two chambers of our Congress recently.

The weekend edition of the Wall Street Journal portrrays the deliberations as tiring and tiresome. "After just four days, House Democrats and Republicans appear exhausted. Some have abandoned their jackets. When their Senate colleagues filter in, they sit across the table and stare at their House counterparts like children visiting the zoo."

One of the many issues that it is their duty to discuss is whether brokers are to have a fiduciary obligation toward their customers -- and, oif so, toward which customers. The House negotiators want to order the Securities and Exchange Commission to impose the standard, in the limited set of cases in which brokers offer “personalized investment advice about securities to a retail customer.” They would give the SEC the choiuce whether to extend that obligation to other customers.

Bloomberg's account portrays this as a make-or-break issue from the POV of the House negotiators, quoting Rep. Barney Frank (D-Mass.) “I cannot foresee us giving in on fiduciary responsibility for individual investors.”

Bloomberg also said, in a story on June 16, that Dodd was about to propose a counter-offer some day soon, to the latest House conferees' language on this point. I'm not aware that he has done so yet.

Rich Blake is predicting, with tongue in cheek (I think), that: "Financial reform will pass on Friday July 2, the last news day prior to the long Fourth of July weekend, with Obama, flanked by Senator Chris Dodd and a Republican, possibly Richard Shelby of Alabama, announcing 'America’s independence from Wall Street.'"

Rusal

UC Rusal plans to raise up to US$2.6 billion through an IPO in Hong Kong later this month. Rusal would thereby become the first Russian company to list in Hong Kong, a coup of sorts for the controlling figure, Oleg Deripaska.

The HK regulator, the SFC, was rendered unhappy last month by this news, and it took under consideration two possible measures:

1. Permitting only an institutional placing, i.e. no public offer tranche, and
2. Requiring that minimum transaction size for automated trading be set at a very high level to deter smaller retail investor involvement.

It opted for the latter. Rusal can only sell the IPO to investors who subscribe for at least HK$1m worth of shares. Following the listing, shares will be traded in board lots of at least 200,000 shares each.

If we entertain for a moment the theory that retail investors need to be protected, then wouldn't they have to be "protected" from the secondary market, too? Anyone who can make a bad decision to buy in an IPO context could also make a bad decision to buy the next day! With a minimum lot size defined by share rather than dollar amount, it isn't at all clear how that will shake out.

My own view of course is that investors have to be allowed to make their own decisions, and [even!] retail investors are generally better at knowing what to do with their own money than regulators are at knowing how to 'protect' them.

Indeed, from more than one perspective, the proposed limits would make things trickier for retail investors , not safer at all.

I'm told the prospectus makes a fascinating document, though I have myself yet to dig into its 1,141 pages. If any of my readers wants to study that material, here it is. Go wild.