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Digit shift
G20 decisions leave "wide scope for discussion"
The decisions of the G20 summit did not significantly change investor sentiment. Trading on the stock market yesterday followed fundamental and corporate news. Meanwhile, IMF Executive Director from Russia Alexei Mozhin (pictured) said that the G20 decision to redistribute quotas in the IMF leaves “a wide field for further discussion.”The G20 leaders for the first timeoutlined the size of the redistribution of quotas in the IMF and the World Bank in favor of developing countries. “We have agreed on a significant expansion of voting rights of at least 3% for developing countries and countries with economies in transition at the World Bank. We have committed to redistribute IMF quotas in favor of developing countries, transferring at least 5% from represented countries to underrepresented ones,” the communique notes.
According to Mr. Mozhin, the existing contradictions between the positions of developed and developing countries - members of the fund will be overcome by 2011. “The G20 has set a specific goal - January 2011,” he said, explaining that this is the deadline for making a final decision on the redistribution of quotas and increasing the IMF capital. Mr. Mozhin emphasized that the G20 decision clearly defines only the very figure for the distribution of quotas - no less than 5%. Further language includes "two different definitions of the shift: that the shift will be in favor of emerging markets, but it will be from overrepresented countries to underrepresented countries." This leaves "a very wide field for interpretation and a lot of conversations ahead."
At the same time, according to Mr. Mozhin, 5% is a serious shift. For example, this is the shift that has occurred over the past 30 years between developed and developing countries, he recalled. “In this case, we agreed to make another one just like it,” he explained. If these decisions are implemented, all BRIC countries will benefit: China and Brazil most of all, Russia and India to a lesser extent.
Meanwhile, another decision of the summit participants has already caused widespread discussion - the charter of the Financial Stability Board (FSB) was approved. As noted in the G20 communiqué, this body will develop rules for supranational financial regulation and supervision. However, according to experts, the functions of a supranational body are very ephemeral, since it has no means of influencing market participants.
Let us recall that the decision to create the FSB was made at the April G20 summit, which included representatives of central banks and national regulators. Mario Draghi was appointed chairman of the council.
According to summit documents, the main task of the council will be “to coordinate at the international level the work of national financial authorities and standard-setting international organizations to create effective supervisory and regulatory policies in the global financial sector.” In addition, the board will have the power to conduct stress tests of the financial system as necessary.
The FSB has already developed new rules for regulating bank bonuses, which even impressed French President Nicolas Sarkozy. As noted in the documents, the goal of the innovations is to make compensation dependent on the creation of long-term asset value, and not on excessive risk taking. The remuneration of top managers should be determined in large part by their personal results, as well as the results of their divisions and the entire company. A portion of the variable compensation must be deferred in the form of shares or similar instruments and can be reclaimed in the event of future losses.
More than 50% of bonuses must be paid in the form of shares, and about 40-60% of the total compensation - three years after it was accrued. For management and the highest paid employees, the percentage of deferred benefits should be higher, for example more than 60%, the FSB recommendations note.
The regulator should have the right to assess compensation risks from the point of view of the bank itself and the financial system as a whole: if it deems it necessary to adjust them, it may require an increase in capital. The variable component of remuneration may be limited to a certain percentage of net sales when appropriate to maintain capital. Regulators should also have the right to change the compensation policies of bankrupt companies or those institutions that have received state support.
French President Nicolas Sarkozy, who was more active than others in advocating for a solution to this pressing issue, said that a real revolution had occurred in bonus practice.
Experts are very cautious about the prospects for the new regulator. Promontory Financial Group director Jonathan McMahon warned that without careful allocation of liabilities, the innovation could cause unwanted rifts between national regulators. “The Board can make very valuable additions to the recommendations made by the International Monetary Fund, but on the other hand, this can also be a waste of time: the best financial observers will write excellent recommendations rather than carry out supervisory functions,” says Mr. n McMahon.
"It makes headlines, but in practice it doesn't cover the details," says David Berman, a partner at law firm Macfarlanes. The lawyer does not understand how the regulatory functions of the council will be carried out. "It will be interesting to see what kind of enforcement will be applied to countries that do not comply with the advice," Mr. Berman says. “The reform of the regulatory system is obvious, but there will be many different arguments regarding the specific details of its implementation,” said Leon Brittain, vice-president of UBS Investment Bank.
Meanwhile, the G20 decisions did not significantly change investor sentiment. “On Monday, trading on the Russian market opened with a downward gap, which was facilitated by a fall in American indices on Friday, a decline in oil futures and negative dynamics on Asian markets,” notes Sergei Sheikov, managing director for corporate clients at Olma Investment Fund.
However, the American stock market began Monday's trading with growth, pulling global markets with it. This was facilitated by merger and acquisition activity, indicating a recovery in the economy. At the beginning of the session, the Dow Jones index rose by 0.47%, the Standard & Poor's 500 by 0.55%, and the NASDAQ by 0.7%. As a result, by the end of the trading day, the Russian RTS index rose by 1.91%, to 1248.73 points, and the MICEX index by 1.71%, to 1208.19 points. Gazprom shares added 1.89%, LUKOIL - 2.5%, Sberbank - 3.2%.