Thursday, July 12, 2012

Morgan Stanley: Libor scandal leading to more transparent trading

As part of its analysis on the potential impact of the Libor scandal, a Morgan Stanley analyst notes that it manipulation of Libor "broadens support for more transparency" and that the "firms with the most transparent trading will win".

It does more than broaden support for more transparency, it sets requiring the banks to disclose their current actual trades as a minimum response by global policymakers and regulators.

The banks should not object (although they will) to transparency as the analyst notes that the market rewards the banks that provide the most transparency.

The Morgan Stanley analyst said (hat/tip Zero Hedge)

LIBOR setting changes, debate over industry structure and investor demands for more trade transparency all reduce certainty on forward estimates. 
Changing LIBOR could shift market share or drive one-off valuation adjustments. 
Renewed debate in the UK on Vickers/banking separation could resonate elsewhere. 
Think reintroduction of Glass-Steagall and complete separation of investment banking from the insured depository banks.
More trade transparency could thin margins and shift share further to efficient participants.
Wall Street will adjust to the loss of opacity like it always does.  Instead of high margins on few sales of opaque products, it will make lower margins on a significant volume of sales of transparent products.
Additionally, the LIBOR fixing broadens investor support for more transparency in fixed income trading in addition to fixed income clearing. 
The threat of thinner margins is another investor concern. 
Counterparties with the most transparent trading and clearing platforms ultimately win...

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