Investor Poll Results Indicate Proprietary Trading Reform is Needed

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What do CFA Institute members, who are all individual investment professionals, think about the pace and proposals to reform financial industry regulation?

Our members are acutely aware of the potential dangers and conflicts of interest that come with commercial banks engaging in proprietary trading

While the gridlock in Washington, DC, last week was the result of a snow storm, the unprecedented shutdown of the federal government may have given Senators the break they needed to end the impasse on financial regulation reform.

What do CFA Institute members, who are all individual investment professionals, think about the pace and proposals to reform financial industry regulation? In a recent, week-long poll, 68 percent out of 1,471 respondents said they strongly support/support proposals to separate proprietary trading and insured commercial banks.

Members were then asked whether they support efforts to rein in U.S. banks that are considered too big to fail. Another majority – 58 percent – replied that they strongly support/support these efforts.

“Our members are acutely aware of the potential dangers and conflicts of interest that come with commercial banks engaging in proprietary trading,” said Jim Allen, CFA, head of capital markets policy at CFA Institute. “They want banks to focus on their specialty—taking deposits and making loans.”

CFA Institute members were also asked if the U.S. government has made adequate progress on regulatory reforms aimed at preventing another crisis…

  • 67 percent said the government had made “little progress.”
  • Only 24 percent indicated “some progress” had been made.

In July 2009 the Investors Working Group (IWG), co-sponsored by CFA Institute and the Council of Institutional Investors, brought together prominent investors, former regulators and investor advocates who recommended that proprietary trading at commercial banks be restricted and that financial institutions not be permitted to become “too big to fail.” The IWG recommended imposing careful constraints on proprietary trading at depository institutions and their holding companies.

“It took the IWG four months to compile several investor-friendly reform recommendations,” said Allen. “In four months, this bipartisan group made sound proposals on issues such as regulating OTC derivatives, the oversight of systemic risk, limiting proprietary trading, and uniform fiduciary duties for investment advisers. Investors would be thrilled to see the same action and deliberate speed occur in the halls of Congress.”

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Kathy Valentine
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