Dealing Rooms since the
Financial Crisis
The Asset Managers’ and Institutional Investors’ Perspective
Dr Yves Wagner
The Director’s Office
LIA
October 2009
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Introduction
The Asset Managers’ Expectations , especially for Institutional Investors, are linked to:
 Good Corporate Governance Practices
 The Legal Framework imposed on Investment Firms (MiFID)
The Financial Crisis 2007-2009 put pressure on Dealing rooms:
 Directors’ Responsibility Awareness increased (rubber stamping, oversight agenda,
crisis management)
 Counterparty Exposure, Trading Methodology, Valuation, Reporting
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Institutional Investors
Bank Trusts
Mutual Funds
Insurance Companies
Universities and Foundations
Pension Funds
Hedge Funds
CIS:
Collective Investment
Schemes
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Corporate Governance:
Directors’ Agendas before the crisis
STATUTORY “APPROVAL”
AGENDA
PROFESSIONAL “OVERSIGHT”
AGENDA
•Approval of the agenda
•Approval of the minutes
Statutory agenda plus
•Approval of the accounts
•Investment management report
•Approval of the dividend
[if any]
•Performance review
•Approval of major or statutory
corporate event.
•Product management
•Sales, distribution and marketing
•Operations including valuation
•Counterparty risks
•Risk management report: financial,
operational, counterparty, reputational,
…risks
•Legal and compliance report
•Internal control and audit
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Corporate Governance:
Directors’ Agendas after the crisis
PROFESSIONAL “OVERSIGHT”
AGENDA
CRISIS ISSUES MANAGEMENT AGENDA
Oversight agenda plus issues
Statutory agenda plus
•Counterparties failures
•Investment management report
•Redemptions
•Performance review
•Liquidity / Deleveraging / credit lines management
•Sales, distribution and marketing
•Valuation / Fair pricing / Gates / Discount / Fire
sales .
•Product management
•Operations including valuation
•Counterparty risks
•Risk management report: financial,
operational, counterparty, reputational,
…risks
•Transfers of assets
•Suspension / liquidation
•Investor communications
•Parent company assistance
•Central banks intervention.
•Legal and compliance report
•Internal control and audit
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Markets in Financial Instruments
Directive of the European Parliament
Conduct of Business Obligations
 Investment Firms must act:
 Honestly, fairly and professionally
 in the best interest of its clients
All information addressed by the investment firm to clients or potential clients:
 shall be fair, clear
 and not misleading
 Appropriate information shall be provided about:
 appropriate guidance on and warnings of risks associated with investments
 execution venues
To be defined
 costs and associate charges
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Markets in Financial Instruments
Directive of the European Parliament
Obligation to execute orders on terms most favorable to the client (1)
 Investment firms have to take all reasonable steps:
 to obtain, when executing orders, the best possible result for their clients
 taking into account:
 price
 costs
 speed
 likelihood of execution
likelihood of settlement
 size
 nature
 any other relevant execution
Selection Criteria
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Markets in Financial Instruments
Directive of the European Parliament
Obligation to execute orders on terms most favorable to the client (2)
 Investment firms have to establish and execute an Order Execution Policy (OEP)
 Investment firms have to monitor the effectiveness of their OEP
 Investment firms have to define their Client Order Handling Rules (COHR)
Selection Criteria
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Markets in Financial Instruments
Directive of the European Parliament
Other Possible Selection Criteria




Post-Trade Disclosure by Investment Firms (volume, price, time)
Pre-Trade Transparency (spreads, depths, market models, trading methods)
Access to Central Counterparty, Clearing and Settlement Facilities
Admission of Financial Instruments to trading (see hereunder)
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Markets in Financial Instruments
Directive of the European Parliament
Admission of Financial Instruments to Trading
 Any admitted FI is traded in a fair, orderly and efficient manner, is negotiable
 Also for Derivatives: orderly pricing and effective settlement conditions
 Issuing Companies have initial, ongoing and ad hoc disclosure obligations
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Conclusions
What Asset Managers expect from Dealing Rooms is a Valuation, Trading and Execution
Process allowing Managers to fulfill their legal, moral and fiduciary obligations to the
Client. Reporting in general is here a key issue.
Since the Financial crisis, those expectations increased, especially in the fields of:
 Analysis of Counterparty Risk,
 Analysis of Fair Valuation, especially for complex instruments,
 Analysis of Liquidity,
 Guaranty of Best Execution, Spreads, Timing, especially for complex and “illiquid assets”,
 Market Risk of “illiquid”, “complex”, and “leveraged” assets,
 Execution Policy, especially in case of “deleveraging”, accepted Credit Lines Facilities
 Reporting on Order Management, Execution Policies, Settlement Risks
 Reporting on Front, Middle and Back Office Efficiencies,
 Reporting on Operational Risks.
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