This is an audio transcript of the FT News Briefing podcast episode : "Wall Street Gives Crypto a Chance"
Mark is Filipino
Hello from the Financial Times. Today, Wednesday May 31st, is your FT News Brief.
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Wall Street is taking over the crypto industry. And Elon Musk is in China to strengthen relations with the government. In addition, insider trading has become a new risk for mutual fund regulators in the United States. I'm Mark Philippines and here's some news to start the day.
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Elon Musk met China's foreign minister yesterday as political tensions between Washington and Beijing hit economic ties. Beijing is very important to Tesla, Musk's automaker. China is the largest market outside the US and the country is very important to Tesla's supply chain. This is Ed White from FT.
Edward White
Currently, we have only received statements from the Chinese Ministry of Foreign Affairs. They say Elon Musk is adamant that he disagrees with the split between the world's two largest economies and that supply chains must not be disrupted. So China is very happy about such reports.
Mark is Filipino
This is Musk's first visit since the start of the Covid-19 pandemic more than three years ago.
Edward White
It has a lot of risks. That's why he wants China to develop, and he doesn't want to be bogged down by geopolitical tensions -- export controls, controls on sensitive technologies that prevent other companies in other sectors from doing business. So he didn't want to apply it to Tesla.
Mark is Filipino
But Ed said China has mixed feelings about Elon Musk and his company.
Edward White
They are very worried about Elon Musk and his relationship with SpaceX and the US military. Concerns about data security in general are growing in Beijing, but it's a particular concern for Tesla. If Tesla starts implementing smart driving features in its electric cars, if it collects important geographic details and sensitive consumer information from China, and then sends that data back to the United States or elsewhere, that is a real and concerning matter in Beijing. Crossing borders So, sure, he's seen as someone potentially useful from China's point of view, but not necessarily someone completely sane from Beijing's point of view.
Mark is Filipino
Ed White reports on China for FT.
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Some of the biggest names in investment banking have joined Coinbase and other cryptocurrency companies. Standard Chartered, Nomura and Charles Schwab are some of the brokers that are building their own crypto platforms. FT's Nico Asgari says traditional financial institutions are making progress in crypto-native businesses after a year of bankruptcies and scandals.
Nikov Asgari
Think FTX, the lenders Genesis and Celsius and Voyager over the last year or any other company that hasn't gone bankrupt but has some pretty bad regulatory issues, especially in the US. So the Wall Street executives and the people who work in the banks and brokerage houses you mentioned are looking at this, and they think we're interested in crypto. The money managers we work for, the hedge funds and pension funds we work for want to trade crypto or find out more. But they are very suspicious of existing companies. For example, no one wants to be in a title next to FTX. And that's why they believe the best way to break into the industry is to start their own business and apply the best they already know in traditional Wall Street finance to the crypto industry and use it. implies
Mark is Filipino
Nicu said that if big and well-known financial companies enter the crypto space, it could shake up many companies in the industry.
Nikov Asgari
When you have all the big corporations that have famous people who are now crypto, asset managers, and lots of traditional trusts, you know there are hedge funds and retirement funds. You are comfortable with these names. So what about Coinbase and Binance and the other crypto exchanges currently dominating the industry? Almost all trading takes place there on this major crypto platform. Will these new players take market share from them as money managers trading there feel more comfortable?
Mark is Filipino
But Wall Street hasn't fully embraced crypto yet.
Nikov Asgari
Well, you know, all these companies made the leap, but they still do it, trading volumes are low. They haven't really hurt Binance and Coinbase's global market share. And when it comes to money managers, many of them are very careful about whether they can trade crypto and how they can trade crypto. There are regulations in Europe, there are stagnant US regulators, and there is still no full implementation because until there are clear regulations on what and how to trade, money managers are not ready to step into your soul.
Mark is Filipino
This is Nico Asgari, FT Digital Markets Correspondent.
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For nearly half a century, US legislators and their private investments were subject to strict reporting requirements. Members of Congress who buy or sell stock must report the transaction within 45 days. But there is a big gap. There are fewer reporting requirements for investments in stock funds, mutual funds, and exchange traded funds (ETFs). I'm now joined by Nick Megaw from FT writing about this loophole. So, Nick, what are the underlying issues surrounding legislators and their investments?
Nikolai Megau
Yes, there has always been a fear that legislators will use information from their work for their own benefit. But at the same time you feel that you don't have to give up all financial opportunities just to work in public service. You don't just want to attract people who are already rich. When they introduced financial reporting rules after the Watergate crisis, there was a big exception for mutual funds. The idea behind it: If a portfolio manager makes all the decisions and, for example, invests in a diversified mix of stocks and other assets, he minimizes the risk of a conflict of interest.
Mark is Filipino
That's obvious. Why are people flying the flag on ETFs now? What is the problem
Nikolai Megau
The problem is that the industry has changed a lot since these regulations were introduced. For example, in 1978 there were about 500 mutual funds in the United States. ETFs have not yet been found. And today, 50 years later, there are more than 7,500 mutual funds and more than 2,500 ETFs. And many of them are not a mix of diverse stocks and other assets. You get highly specialized, highly targeted funds that ethicists say are just as effective for insider trading as stocks, or in some cases even more effective. I mean, in general, the rules that you make as a congressman don't focus on individual agencies. They will affect all industrial sectors. So if you're working on an infrastructure bill, you can buy an infrastructure-focused fund with much lower reporting requirements than buying common stock.
Mark is Filipino
Can you think of a specific example of someone?
Nikolai Megau
Yes, I mean there are some examples that are very ironic because they come from people who support the prohibition of trading with private companies. For example, Democratic Senator John Hickenlooper of Colorado invested more than $100,000 in oil giant Chevron and sold the stock after joining the Senate Energy Committee. That same day, he invested more than $100,000 in an ETF he said was designed for oil companies. About half of his wealth is in just two companies, including Chevron. Therefore he can always benefit directly from the decisions of this body.
Mark is Filipino
Was there an attempt to change the rules?
Nikolai Megau
There are some, although to be honest, they haven't really focused on funding. Congress is controlling in this regard, making it difficult and slow to force change. In recent years, much attention has been paid to updating the trading rules for individual stocks. More than a dozen different proposals have been submitted, but none have been decided and most will not affect commercial funds and mutual funds. Therefore, this problem is likely to persist for some time.
Mark is Filipino
Nick Mega is a US stock market correspondent FT. Thank you Nick
Nikolai Megau
THANK YOU
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Mark is Filipino
You can read more about all of these stories at FT.com. That is your daily press conference at FT. Check back tomorrow for the latest trading news.
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