Six possibilities for 2007

Basel II - Sarbanes-Oxley - MiFID... What will be the highs and the lows of financial regulation in 2007? Global warming and world poverty... Will there ever be agreement? Here are some, perhaps optimistic, forecasts for the year ahead.

1. US regulators implement the new principles-based interpretations of Sarbanes-Oxley which take off some of the Section 404 overload. This, plus the new ability to exit a US listing, starts to encourage foreign companies to launch IPOs in the US again. NY, London and HK remain market leaders but with more balanced capital levels. In return London and HK tighten up their approach to market malpractice and the Serious Fraud Office actually catches some high-profile fraudsters and gives them US-style punishments.
   
   
2. The London Stock Exchange exhausts itself both fighting off NASDAQ and developing MiFID-based products, and NYSE/Euronext make a bid that is accepted by the LSE shareholders. The EU then calls an anti-monopoly investigation, supported by the Dutch, and break up the Euronext part of the NYSE – this gets acquired by NASDAQ leaving a NYSE/LSE organisation competing with NASDAQ/Euronext. Germany remains independent but sweeps up a number of other European unaffiliated exchanges and Project Turquoise becomes a major force.
   
   
3. MiFID compliance breaks into two groups – the lead countries (UK, France, Holland and Germany) plus the top 10-15 global investment banks are all ready to go live in November. The rest of the countries and the second tier banks all ask for an extension of a year. This extension is granted subject to the new client classifications being implemented.
   
   
4. The European Union go ahead with Basel II (the Capital Requirements Directive) as planned. The US back off the idea of a leverage ratio and the 20 top US banks go ahead a year later as expected, but, and a big but, without the compulsion to only go for the top-level approaches to capital calculations. Also a further 20 mid-range US banks, many of whom already have an investment banking presence in Europe, petition to join the top 20 – and the end of the year the US regulators are still deliberating.
   
   
5. The various risk management associations come together and agree a common risk management set of educational qualifications with full accreditation between the associations. Operational risk management becomes an established qualification with a high level qualification supported by modules for individual industries.
   
   
6. China and India join the G-8 making in the G-10. There is a general consensus from all on global warming and world poverty – and all members that proceed to act on this rather than simply applying lip service – or even denying that they ever agreed to it. And we all live happily ever after.

Next year, when asked, I will deny all knowledge of these!

A Happy Christmas and a successful New Year to all of you from the Editor. See you in January.