64 Finance & economics

~had $13tm-worth of dollar liabilities, ac-

conling to calculations by l:iiaki Aldasoro

and Torsten Ehlers of the Bank for Interna-

tional settlements. only 22% of this total

was booked with branches or subsidiarles

in America. The rest was out of the Fed's

immediate reach.

The Fed can, however, reach out to its

fellow central banks. And they, in tum, can

help commercial banks within their own

bailiwicks. on March 15th the Fed eased the

terms of its swap lines with central banks

in the euro area. Japan. Britain, Swiaer-

land and Canada. Two days later, the Bank

of Japan offered over $3obn in 12-week

loans, the largest amount since the

2007-og global financial crisis. The Euro-

pean central Bank followed up with $112bn.

That narrowed the "basisft that must be

paid to obtain dollars through foreign-ex-

change swaps.

Fed-watchers immediately began won-

dering if it would spand its swap lines to

include prominent eme11ing markets.

There is precedent. The Fed's first swap line

to Mexico dates back to 1967. And in octo-

ber (^2008) it also offered lines to Singapore
(wbich even then was overqualified for the
role of emerging market), south Korea and
Brazil (the Mdodgiest of the lot", acconting
to Richard Pi.sher, then president of the
Dallas Fed). But Fed officials back then
were, and still are today. reluctant to serve
as central bank to the world. Transcripts of
the October 20o8 meeting indicate that
several other emerging markets (their
identities remain redacted,) had already in-
quired about joining the Fed's magic circle.
"We have done everything we possibly can
to discourage• such approaches, said one
Fed economist. "We're not advertising.· •

- Exchenp-tnded fundemenbll•

Closing stock exchanges

The pits

Trading will adapt to new

conditions-if politicians I.et it

I

NSOFAR AS srocxexcbangesused to wor-

ry aboutvimses, it was of the typethat in-

fect the computers through which virtually

all bading is done. But on March dth the

New York Stock Exchange (NYSE) became

the latest venue to announce that its tJad-

ing floors would close in response to the

covid-19 disease, and that trading would

become fully electronic from March 23nt.

Such closures, amid extreme market vola-

tility, may add to calls that all securities

dealings should be suspended in response

to the pandemic. But StaceyCUnniugham,

president of the NYSB, was not alone when

she insisted that markets should stay open.

With the world scrambling for cash, it

would be the height of foolishness to shut

off access to the capital markets.

some markets have come perilously

close to a prolonged shut down. on March

17th the Manila stock exchange was sus-

pended as part of a lockdown on the main

Luzon island. But amid fears of a backlash

from investors, stock trading bas resumed.

In America Steven Mnuchin, the trea-

sury secretary, has mulled over the pos-

sibility of shortening trading hours,

though he insists markets should stay

open so savets can access their stodanark-

et holdings. Teny Duffy, the boss of CMB

group, a derivatives exchange, said cutting

United Statet. exche•traded funds, premiumAtiaunt

to net asset value at March 17'11 2020, % of funds

• Equities Commodities


• Bonds • Mimi
  0 5 10 15 20 25 30 35 40

2.5'111 to 09b

1716to-~ ----'•~-·

-------•

<-S'lb

Scum: Bloomberz

Two versions of reality

Jeremiads have Iona argued that if some of the $6trn-odd of assets underpinnin1

exchange-traded funds (inFS) are tlltquld, then the funds mlllt be too, poalng a bfg risk to

their investors. But so far there are signs of strain but not panic. During the current

tunnoiL some ETn are trading at a discount to their net asset value, often those that

have Invested In debt. But that may be because they are easy to trade. makln1 them a

better pup of reality than the last recorded price of the underlyfng11ea1ritles.

The Economist March 21st 2020

At the close

back trading time Mmaltes no sense ... espe-

cially during this unprecedented crisis

when news, information and events are

changing at such a rapid pace:

When markets have closed in the past, it

has usually been because of some physical

limitation on their ability to operate-for

example after tenorist attacks in Septem-

ber 2om, or in the wake of storms. Big ex-

changes stayed open during the financial

crisis of 2007-09. When Greece closed its

stock exchange in 2015 for five weeks dur-

ing capital controls, bank shares fell by

30% on the fiBt day that trading resumed

and the overall market dropped 16%.

Closing venues for health reasons is less

serious than it used to be because so much

trading is done electronically. Banks have

been rushing out business continuity

plans to ensure markets can continue de-

spite potential lockdowns. Tiaders are in

theory able to work from home. Yet having

lots of them operating remotely will pose

challenges of its own, says one banker. The

biggest is the pletholil of rules to prevent

market abuse by people on bank trading

floors. Regulators are being informally

asked to relax some restrlctions temporar-

ily, such as the need for all conversations

by traders to be .recorded.

The most tangible trading restrictions

so far are on ushort-selli~. which allows

investors to profit if prlces drop. several

European countries including France, Italy

and Spain have limited the practice. Hedge

funds wony that credit-default swaps, a

sort of insurance policy which pays out if a

company goes bust, may become difficult

to collect because of political pressure. But

the end result of such meddling is that in-

vestors who might have hedged their exist-

ing positioos--so protecting themselves

against further losses-are likelier to sim-

ply sell what they own and stay away. •