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Dodd-Frank Ups Probability in Increased Swap Margin Requirements for SWFs

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The Dodd-Frank Wall Street Reform and Consumer Protection Act is now a U.S. federal statute and signed into law by U.S. President Barack Obama.  Now that the law is in place, U.S. agencies such as the Commodities Futures Trading Commission (CFTC) and the Federal Reserve Board are drafting proposals under newly minted regulatory powers, especially in the area of swap margin requirements and classifying swap participants.  Counterparty risk cannot be understated and it furthered the slogan “too big to fail”.  The agencies are proposing to include sovereign funds as “financial end users” or “financial entities”.  If this proposal passes, this will increase their margin requirements, essentially mandating sovereign wealth funds to pledge their assets to back American financial institutions.   This brings further issues to light, since some sovereign funds may need legislative or committee action to enlarge the amount of pledged assets to meet margin calls.  There is also political risk that foreign governments might counteract by providing similar legislation against the U.S. government.

Under the proposal, they state:

“The Commission notes that these types of sovereign counterparties do not fit easily into the proposed rule’s categories of financial and nonfinancial entities. In comparing the characteristics of sovereign counterparties with those of financial and nonfinancial entities, the Commission preliminarily believes that the financial condition of a sovereign will tend to be closely linked with the financial condition of its domestic banking system, through common effects of the business cycle on both government finances and bank losses, as well as through the safety net that many sovereigns provide to banks.

Such a tight link with the health of its domestic banking system, and by extension with the broader global financial system, makes a sovereign counterparty similar to a financial entity both in the nature of the systemic risk and the risk to the safety and soundness of the covered swap entity. As a result, the Commission preliminarily believes that sovereign counterparties should be treated as financial entities for purposes of the proposed rule’s margin requirements.”

Source: U.S. Commodities Futures Trading Commission

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Does the Hong Kong Dollar Have a Future?

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Despite the Hong Kong dollar straddling within the upper echelons of being a highly-traded currency, its existence could be in doubt in the future. The Hong Kong dollar is the official currency of Hong Kong and the governmental currency board is the Hong Kong Monetary Authority (HKMA). The HKMA is tasked to oversee the stability of the local currency with its massive pool of government reserves. Before the Hong Kong colonial government named the silver dollar as legal tender in 1863, the global trading post utilized the British sterling, Indian rupees, Spanish silver coins, and Chinese cash coins. There were decades of set exchange rates with the British pound. Fast forward years, eventually in 1983, the Hong Kong dollar was pegged to the U.S. dollar. In 1997, Hong Kong moved from English rule to Chinese control.

Could the Hong Kong Dollar End?

The Hong Kong dollar will soon go into the dustbin of history, according to local and international experts. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Mubadala Invests in Series B in Primer

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San Francisco-based Primer raised US$ 40 million in a Series B round that was led by Lux Capital. Other investors in the round include Mubadala Investment Company and Section 32. Return backers include Amplify Ventures, DCVC (Data Collective, and In-Q-Tel, an investment form supported by the Central Intelligence Agency (CIA). Primer is an artificial intelligence platform that analyzes large datasets, competing with firms like Peter Thiel’s Palantir Technologies Inc. Primer raised US4 14.7 million in its Series A round from In-Q-Tel, Lux Capital, Amplify Partners, and Data Collective.

Primer was founded by New Zealander Sean Gourley, the co-founder & CTO of Quid, an augmented-intelligence company.

Palantir

This is in the midst of the financial backers of Palantir who are trying to value their stake in the company. Morgan Stanley’s mutual funds owns shares in Palantir and have lowered their valuation in the company. Morgan Stanley believes Palantir is worth around US$ 4.4 billion as of September 30, 2018. Palantir attempted to buyback all of the stock held by Morgan Stanley’s mutual funds, which amounts to just around US$ 3 million as of the middle of 2018.

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HSBC and CIC Hold Talks on Bilateral Investment Fund

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Taking a page from the Goldman Sachs cooperative fund deal, banking giant HSBC and the China Investment Corporation (CIC) are in talks to form a £1 billion fund to invest in U.K. companies that have linkages to the Chinese economy. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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