Who Needs Daily Dealing?
Do major asset owners need to get prices for their assets every day?
Two UK pensions have put this question to the country’s regulator—and were left wanting for an answer.
Leandros Kalisperas, head of credit at the Universities Superannuation Scheme, challenged the Financial Conduct Authority’s (FCA) Interim Chief Executive Tracey McDermott over the need for daily liquidity regulations during a panel debate at the Pension and Lifetime Savings Association’s conference in Edinburgh.
“How conscious are you that some of the regulation around liquidity and daily dealing potentially fuels a lack of competition, and is not in end users’ best interests?” Kalisperas asked. “The ability to switch managers is often not really that important when saved over 30 or 40 years, but it does seem to have counterproductive consequences.”
Railpen CEO Chris Hitchen supported Kalisperas over what he called an “irrational desire for liquidity,” adding that “it doesn’t really matter if the price of a security is right this minute or this second.”
“It seems [daily liquidity] suits a part of the investment chain—market makers, dealers, high-frequency traders—to persuade me that they’re doing me a favor when they’re effectively charging my members for price discovery,” Hitchen said. “We don’t need price discovery.”
The FCA, along with other regulators in Europe, is in the process of reviewing regulation to ensure that it is not unnecessarily stifling innovation or causing detriment to end users. However, McDermott declined to respond directly to Kalisperas’ question.
“We are very conscious that we need to look at regulations so we are sure they are having the desired effect,” McDermott said. “In some cases there may be negative effects for some parts of the process and we may decide that’s a price we have to pay. There may be areas we believe we need to make tweaks or make changes.”
She emphasized the FCA’s specific mandate to promote and facilitate effective competition, and promised that “if there are things regulators have created that get in the way of delivering value to end investors without a commensurate benefit, then we have to look at them.”