Latest / Bloomberg Intelligence / Russian Tech Is Leaking Into North Korea, Atlantic Council's Cohen Says

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Russian Tech Is Leaking Into North Korea, Atlantic Council's Cohen Says · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
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  Speaker 1: you and your money, whether you're at the grocery store
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  Speaker 1: or the trading floor. Find the Bloomberg P M L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud and Bloomberg dot Com. Well,
• 0:32
  Speaker 1: our Russian President Vladimir Putin has been condemning North Korea's
• 0:36
  Speaker 1: ongoing nuclear and missile program. He describes the tests as
• 0:39
  Speaker 1: a flagrant violation of u N rules, but he does
• 0:43
  Speaker 1: say that resolving the crisis is impossible without fresh talks.
• 0:47
  Speaker 1: Here to tell us more is Ariel Cohen. He is
• 0:50
  Speaker 1: a Senior Fellow at the Atlantic Council and director of
• 0:53
  Speaker 1: the Center for Energy and Natural Resources and Geopolitics at
• 0:57
  Speaker 1: the I A g. S. And he joined us on
• 1:00
  Speaker 1: the phone. Ariel, thank you very much for being with us.
• 1:03
  Speaker 1: What do you make of President Vadomir Putin's comments and
• 1:06
  Speaker 1: also his conference with the joint news conference with the
• 1:11
  Speaker 1: South Korean leader mun Ja In the best case scenario,
• 1:17
  Speaker 1: puting is trying to elbow himself into a negotiating position
• 1:23
  Speaker 1: and be a mediator. But I'm looking at the worst
• 1:25
  Speaker 1: case scenario in which Russia is trying to replace China
• 1:30
  Speaker 1: as the great power sponsor of North Korea. Uh. The
• 1:35
  Speaker 1: remarks were unprecedented because Kim Jong un is breaking decades
• 1:41
  Speaker 1: long policy of non proliferation that the Soviet Union and
• 1:45
  Speaker 1: then Russia, China and the five permanent members of the
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  Speaker 1: United Nations, including the United States, we're always supporting. We
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  Speaker 1: were always against proliferating nuclear weapons to new actors, be
• 2:00
  Speaker 1: at Pakistan or Iran or North Korea. And what we
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  Speaker 1: see now is the sea change in which Russia is
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  Speaker 1: effectively supporting Kim Jong saying, no sanctions, no military action.
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  Speaker 1: So what are we supposed to do? Uh to kiss him?
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  Speaker 1: So uh, this is bad news. And also I'm looking
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  Speaker 1: how the North Korean missile nuclear weapons um and UH
• 2:29
  Speaker 1: miniaturization of warheads capacities are going up. And I suspect
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  Speaker 1: I don't have a proof. I don't have access to
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  Speaker 1: classified materials or intercepts of the emails or phone calls,
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  Speaker 1: but I suspect maybe, just maybe Russian technology is leaking
• 2:44
  Speaker 1: into North Korea as we speak. Well, maybe you could
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  Speaker 1: give us the context for us because this would not
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  Speaker 1: be the first time that Russia or in previous guys
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  Speaker 1: is the Soviet Union was a supporter of North Korea. Absolutely,
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  Speaker 1: the grandfather other Um of the current leader Kim Uh
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  Speaker 1: Kim ill songs Uh he said, I believe he even
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  Speaker 1: saw himself maybe as a as a competitor or as
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  Speaker 1: a challenger to the mantle of of leader to Maltzi tongue.
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  Speaker 1: At the time, well, he was of course a much
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  Speaker 1: smaller player, but he was indeed an asset of the
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  Speaker 1: Russian of the Soviet military. He served in the Soviet
• 3:29
  Speaker 1: military as they rolled Uh into Korea during the war
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  Speaker 1: with Japan. Uh and Uh he indeed was very He
• 3:38
  Speaker 1: was a Stalinist. He he was the product of that era,
• 3:43
  Speaker 1: a totalitary and leader. What's fascinating with North Korea. North
• 3:46
  Speaker 1: Korea is probably the only Uh Stalinist dictatorship left on
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  Speaker 1: the planet. With his parades and with absolute political reporting,
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  Speaker 1: when people are ratting each other out to the authorities,
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  Speaker 1: Uh so Um. With time, they started to push away
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  Speaker 1: his son Uh pushed away both the Russian faction and
• 4:13
  Speaker 1: the Chinese faction eventually, and now the grandson Um Uh
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  Speaker 1: is of course cracking down on the pro Chinese and
• 4:22
  Speaker 1: even killing some of the members of his family who
• 4:25
  Speaker 1: are pro China. So the relationship with China is complicated.
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  Speaker 1: But nevertheless, both China and Russia are using North Korea
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  Speaker 1: as a battering ramp against the United States and our
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  Speaker 1: interests in the Pacific, as well as against our allies, uh,
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  Speaker 1: the Japanese and the South Koreas. So can you lay
• 4:44
  Speaker 1: out a scenario in which there is some resolution that
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  Speaker 1: is peaceful. Well in the ideal world, uh and uh
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  Speaker 1: this this looks less and less realistic in the ideal world.
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  Speaker 1: The great hours, the US, China, and Russia. We'll say,
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  Speaker 1: we don't need a malignant proliferator. We know about the
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  Speaker 1: ties between North Korea and Iran. UM. Most probably Iranians
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  Speaker 1: have more money from oil sales. They give the money
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  Speaker 1: to Kim. Kim also proliferated nuclear uh weapons technology to Syria.
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  Speaker 1: You remember in two thousand and uh seven, I believe
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  Speaker 1: we're two thousand and six, the Israelis in a night
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  Speaker 1: strike destroyed uh a plutonium reactor in Syria, a reactor
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  Speaker 1: that was based on North Korean technology. Uh. So Uh,
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  Speaker 1: they are a malignant proliferator and great powers if they
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  Speaker 1: were responsible, if they behaved as adults would get together
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  Speaker 1: and squelch uh. That's regime's ability to produce nuclear weapons
• 5:54
  Speaker 1: and the means to deliver ballistic missiles. Now we are,
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  Speaker 1: I think on the cost of the whole new ball
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  Speaker 1: game in which we may be hit with a nuclear
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  Speaker 1: weapon from North Korea realistic possibility. I hope as we
• 6:10
  Speaker 1: as we all do, we hope this doesn't does not happen.
• 6:13
  Speaker 1: I want to thank you Ariel Cohen. He is a
• 6:15
  Speaker 1: Senior Fellow at the Atlantic Council, Director of the Center
• 6:18
  Speaker 1: for Energy, Natural Resources in Geopolitics. Hurricane Irma has damaged
• 6:36
  Speaker 1: buildings and infrastructure in the Eastern Caribbean, packing winds of
• 6:40
  Speaker 1: a hundred and eighty five miles per hour. The storm
• 6:44
  Speaker 1: made landfall in bar Buddha around who a m. This morning.
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  Speaker 1: And here to help us understand what's next is Shenando Bassu,
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  Speaker 1: meteorologist and guess analyst for Bloomberg New Energy Finance. Shenando
• 6:59
  Speaker 1: always al asure. Thanks for joining me. Tell us the
• 7:02
  Speaker 1: latest on the Hurricane Irma, Hey him, Yeah, great to
• 7:06
  Speaker 1: be here. So IRMA very powerful storm right now today.
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  Speaker 1: As of the advisory put out by the National Hurricane
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  Speaker 1: Center this morning. The track has actually shifted just a
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  Speaker 1: little far east, so as it heads up right now, um,
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  Speaker 1: it's actually heading about you know, northwest, and then once
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  Speaker 1: it reaches just north of Hispaniola, it's going to be
• 7:26
  Speaker 1: making the right turn as we can see on the
• 7:30
  Speaker 1: you know, the projected track here, and it'll be grazing
• 7:32
  Speaker 1: you know, the east coast of Florida, but of course
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  Speaker 1: impacting the entire state. The warnings that have gone out
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  Speaker 1: for this Category five storm are in Puerto Rico, as
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  Speaker 1: well as the islands of St. Kitts, Nevas, the Virgin Islands,
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  Speaker 1: and as you said, Hispaniola, Dominican Republican Haiti, Cuba also
• 7:53
  Speaker 1: being threatened. Has has there been any update on whether
• 7:58
  Speaker 1: this storm is still going to cause widespread destruction in
• 8:02
  Speaker 1: those places? It certainly is, you know, very very high winds.
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  Speaker 1: We have winds in excess of a hundred and seventy
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  Speaker 1: miles per hour with an incredible storm surge. We expect
• 8:12
  Speaker 1: the hurricane itself to strengthen for at least another forty
• 8:17
  Speaker 1: eight hours, or strengthen or rather keep its current um
• 8:21
  Speaker 1: its current energy going, and then by the time we
• 8:24
  Speaker 1: get to a Friday or Saturday. That's when we'll maybe
• 8:27
  Speaker 1: start to see a slight decline in its in its power,
• 8:31
  Speaker 1: and then it'll probably get downgraded to a Category three
• 8:34
  Speaker 1: or four just before making landfall. Well, there's a report that,
• 8:38
  Speaker 1: for example, roofs roofs were ripped off buildings and homes
• 8:41
  Speaker 1: were flooded on the islands of Saint Bartholomy and Saint
• 8:44
  Speaker 1: Martin the eye of the storm passed overhead. Is there
• 8:49
  Speaker 1: going to be any lingering effects in terms, let's start
• 8:52
  Speaker 1: with transport, and I'm thinking of oil that needs to
• 8:56
  Speaker 1: come out of Venezuela and be refined. Yes, So there
• 9:00
  Speaker 1: are a few numbers of the number of refineries that
• 9:03
  Speaker 1: are in the way. Certainly those are on the islands
• 9:07
  Speaker 1: um that you mentioned previously, and also a couple in
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  Speaker 1: the d R and Haiti, and so any ships that
• 9:14
  Speaker 1: are trying to make their way over there certainly not
• 9:16
  Speaker 1: going to be able to UM in the coming days. Now,
• 9:20
  Speaker 1: as far as the actual assets are conversed concern the refineries,
• 9:24
  Speaker 1: those may definitely be out of service until further recovery
• 9:29
  Speaker 1: efforts can be put into place. And in many places,
• 9:32
  Speaker 1: of course, electricity is out and the infrastructure has been destroyed.
• 9:36
  Speaker 1: That's going to take time to rebuild it certainly is. Yes,
• 9:40
  Speaker 1: the effects perhaps in the United States because of this
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  Speaker 1: eastward turn, what will it mean just large amounts of
• 9:48
  Speaker 1: rain and wind? Or will it I mean, are we
• 9:51
  Speaker 1: still bracing for a hurricane to hit the Florida coast. Yes,
• 9:55
  Speaker 1: it's going to you know, it's a major hurricane at
• 9:57
  Speaker 1: the end of the day. And yes, that does mean
• 9:59
  Speaker 1: a lot of rain, certainly, you know, twenty in parts
• 10:03
  Speaker 1: at least, if not more, with very very high winds
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  Speaker 1: along there along the coast. Because of the trajectory of
• 10:10
  Speaker 1: Irma right now, Hurricane Irma, we could see effects as
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  Speaker 1: far north as the Carolinas into next week, and that's
• 10:17
  Speaker 1: something of course that will have to keep an eye
• 10:21
  Speaker 1: on as the storm progresses. Will there be any effects
• 10:24
  Speaker 1: you think in the Gulf of Mexico as a result
• 10:27
  Speaker 1: of Irma? Well, currently, any ship traffic and tanker traffic
• 10:33
  Speaker 1: that's out there may very well be affected. Of course,
• 10:37
  Speaker 1: this is a very large storm. It covers a very
• 10:40
  Speaker 1: large area, and so as a result, we can definitely
• 10:44
  Speaker 1: expect some maritime effects in the eastern half of the
• 10:46
  Speaker 1: Gulf of Mexico. For sure. Is that unusual that the
• 10:50
  Speaker 1: size of the storm, not necessarily the ferocity, but but
• 10:53
  Speaker 1: the actual size. The size is not so unusual. I mean,
• 10:57
  Speaker 1: we've certainly seen hurricanes that are very large in the
• 11:01
  Speaker 1: recent past. UM. But the intensity, of course, as we know,
• 11:05
  Speaker 1: this is the most powerful Atlantic hurricane in history, which
• 11:09
  Speaker 1: is incredible in of itself. Well, I know also that
• 11:13
  Speaker 1: there have been efforts already underway. I mean the President
• 11:16
  Speaker 1: has UH already declared a disaster area in order to
• 11:21
  Speaker 1: facilitate the emergency evacuation. And Governor Rick Scott said that
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  Speaker 1: the storm surge could cover your house. We can rebuild buildings,
• 11:29
  Speaker 1: but can't rebuild your family. Uh. And he has put
• 11:33
  Speaker 1: out an evacuation order. Yes, and I'm glad he has. UH.
• 11:38
  Speaker 1: This is going to cause a lot of damage along
• 11:41
  Speaker 1: the coast. The storm surge, especially UM puts human lives
• 11:46
  Speaker 1: at risk, and so I think this is the right
• 11:48
  Speaker 1: thing to do. Well. Uh. Indeed, for example, the season
• 11:52
  Speaker 1: opener of the NFL Miami Dolphins Tampa Bay Buccaneers that's
• 11:56
  Speaker 1: been postponed because of IRMA, it will be played in
• 12:00
  Speaker 1: Miami on November. Then there are we were speaking earlier
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  Speaker 1: and there are many insurance claims that are going to
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  Speaker 1: be filed as part of this. What about the industrial
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  Speaker 1: insurance aspect, you know, the refineries, the ships, all of
• 12:15
  Speaker 1: that infrastructure that's got to have commercial insurance. Now, yeah,
• 12:19
  Speaker 1: there's definitely going to be commercial impacts. I can't speak
• 12:23
  Speaker 1: too much to the insurance side of UM and you
• 12:28
  Speaker 1: know that's side of this whole lot, but something we
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  Speaker 1: should look out well. And in fact, the governor of
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  Speaker 1: Puerto Rico, Ricardo Rosello, he declared a state of emergency
• 12:39
  Speaker 1: and has also activated the National Guard. What about getting
• 12:43
  Speaker 1: supplies to people that need them? Is that going to
• 12:47
  Speaker 1: be affected by I mean it must be affected by
• 12:49
  Speaker 1: the lack of transport. I mean you're not going to
• 12:51
  Speaker 1: be able to get water, plywood, batteries and generators, uh,
• 12:55
  Speaker 1: if you can't actually physically get it there, right, So,
• 12:59
  Speaker 1: as far as proper sans go, they will have to
• 13:01
  Speaker 1: be UM. I think, you know, at this point, we're
• 13:05
  Speaker 1: we're kind of beyond the time UM that we can
• 13:08
  Speaker 1: get things in or out of those areas. So most
• 13:11
  Speaker 1: likely we'll have to wait till after the storm passes
• 13:14
  Speaker 1: to you know, fly planes in or even UM barges
• 13:17
  Speaker 1: or ships that can carry those kinds of goods. Now,
• 13:20
  Speaker 1: know what, what have you? Just maybe just give us
• 13:22
  Speaker 1: an update of what you've heard, for example, of the
• 13:25
  Speaker 1: rebuilding or vamping efforts as a result the Hurricane Harvey
• 13:29
  Speaker 1: in the in the Gulf, because I know that was
• 13:31
  Speaker 1: that was just the last hurricane. Yeah, yeah, and uh,
• 13:35
  Speaker 1: this is the second major hurricane in a row that
• 13:38
  Speaker 1: will be making landfall here in the US. Harvey's impacts,
• 13:41
  Speaker 1: of course, are still ongoing. I mean, the rebuilding is
• 13:44
  Speaker 1: just barely getting started, you know along the coast of Texas. UM,
• 13:49
  Speaker 1: the commercial side of things still still feeling those impacts
• 13:53
  Speaker 1: as well. I mentioned previously that we had you know,
• 13:57
  Speaker 1: gasolene tankers, UM that we're not able to get to
• 14:01
  Speaker 1: Florida and you know delivery gatholene. And now as people
• 14:05
  Speaker 1: are evacuating, UM, there's definitely some tightness in the supply
• 14:09
  Speaker 1: market over there as a result of that. Right, all right, Well,
• 14:13
  Speaker 1: thank you very much. Shnandobasu is our meteorologist guess analyst
• 14:17
  Speaker 1: for Bloomberg New Energy Finance talking about the hurricane Irma. Well,
• 14:34
  Speaker 1: Hurricane Harvey's cost to the victims in the path and
• 14:37
  Speaker 1: two taxpayers is still being calculated. Indeed, the governor of
• 14:42
  Speaker 1: the state of Texas, Greg Abbott, he said that Texas
• 14:45
  Speaker 1: could need more than a hundred and twenty five billion
• 14:47
  Speaker 1: dollars from the US government. Well, what role will the
• 14:50
  Speaker 1: insurance industry play in this? Jonathan Adams is our senior
• 14:54
  Speaker 1: industry executive analyst for insurance. He's for Bloomberg Intelligence and
• 14:59
  Speaker 1: he joins US. Now, you know, Jonathan, I'm trying to understand.
• 15:02
  Speaker 1: There are so many different types of insurance, and one
• 15:04
  Speaker 1: of the things I read recently is that the Consumer
• 15:08
  Speaker 1: Federation of America said that only twenty of the people
• 15:11
  Speaker 1: in Texas who are affected by Hurricane Harvey have insurance.
• 15:16
  Speaker 1: And then when I look at the details, it says
• 15:20
  Speaker 1: private property insurance policies normally do not cover flooding. So
• 15:25
  Speaker 1: I'm wondering, tell us the sort of disposition of who
• 15:28
  Speaker 1: has insurance and who's on the hook for it. Sure,
• 15:32
  Speaker 1: I'd be happy to do that. So, UM, in terms
• 15:35
  Speaker 1: of consumers, You're exactly right. The number that UM purchase
• 15:40
  Speaker 1: insurance independent of their normal homeowners policy is a relatively
• 15:45
  Speaker 1: small percentage. UM having said that most of those that
• 15:48
  Speaker 1: do are the ones that are located in floodplains, and
• 15:51
  Speaker 1: they will UM receive some support from the National Flood
• 15:56
  Speaker 1: Insurance Program. So UM that federally run program will UH
• 16:03
  Speaker 1: step in and be paying a large portion of the
• 16:06
  Speaker 1: total in short loss for UH individual homeowners, for UM
• 16:11
  Speaker 1: commercial enterprises, and for other types of losses. For example,
• 16:15
  Speaker 1: there were half a million vehicles at least that have
• 16:19
  Speaker 1: been estimated to have been damaged in this storm. UM
• 16:24
  Speaker 1: ordinary auto policies will pick up that cost. So for
• 16:28
  Speaker 1: the private insurance industry, UM, a cost like that will
• 16:33
  Speaker 1: in fact be picked up and those individuals will be
• 16:37
  Speaker 1: made whole for their loss. Okay, so let's move on
• 16:40
  Speaker 1: then to what happens to let's say, these commercial lines
• 16:43
  Speaker 1: for things such as property, inland, marine, UH and related lines. Right,
• 16:48
  Speaker 1: I mean that that is something that travelers as well
• 16:51
  Speaker 1: as CHUB. Well that's the group is responsible for. Is
• 16:55
  Speaker 1: that correct? That's exactly right. And UM certainly those companies
• 16:59
  Speaker 1: do you have some personal lines coverage, but predominantly they're
• 17:04
  Speaker 1: commercial writers, and they will be paying UH some flood
• 17:09
  Speaker 1: losses because UH that type of commercial policy, UM does
• 17:15
  Speaker 1: have an opportunity to bring in flood coverage UH, and
• 17:18
  Speaker 1: some individual companies will be taking that coverage and also
• 17:24
  Speaker 1: important business interruption. So if your factory or store is
• 17:30
  Speaker 1: closed because of a covered peril, you will receive some
• 17:35
  Speaker 1: reimbursement for that closure. UM and companies like Travelers, Chubb,
• 17:40
  Speaker 1: and a G all have fairly significant market share relative
• 17:44
  Speaker 1: to the industry as a whole, and UM they will
• 17:48
  Speaker 1: certainly be UM writing some checks to support UM business
• 17:53
  Speaker 1: owners in Houston. Is there is there something that we
• 17:57
  Speaker 1: should know about the National Flood Insurance Program and how
• 18:00
  Speaker 1: that works alongside private insurance, Well, I think UM. The
• 18:07
  Speaker 1: important part of that program is unfortunately that it's not
• 18:12
  Speaker 1: priced UM very carefully in terms of the actual exposure
• 18:17
  Speaker 1: that it takes. As a result, it's operating at a
• 18:20
  Speaker 1: loss today. UM. This particular storm will make that worse.
• 18:24
  Speaker 1: And really what Congress needs to do is to adjust
• 18:28
  Speaker 1: those prices that the n f I P charges in
• 18:32
  Speaker 1: order for it to be a sustainable program in terms
• 18:35
  Speaker 1: of what it offers the individuals. Today. UM, it's it's
• 18:39
  Speaker 1: pretty good coverage. It's up to town and fifty dollars
• 18:43
  Speaker 1: for an existing residents plus a hundred thousand dollars for content. So, uh,
• 18:48
  Speaker 1: the coverage is good. It just needs to be priced
• 18:52
  Speaker 1: in a fashion that it can really be sustainable for UM.
• 18:56
  Speaker 1: All the people that to kind upon it and are
• 18:58
  Speaker 1: there private insurance company needs that actually participate in reinsurance
• 19:03
  Speaker 1: that's then provided to the National Flood Insurance Program UM.
• 19:08
  Speaker 1: There are the the the program has just recently begun
• 19:12
  Speaker 1: to reinsure some of its exposure, and there were UM
• 19:17
  Speaker 1: quite a few in fact, reinsurers that participated in UM
• 19:23
  Speaker 1: a contract where a billion dollars was put into the
• 19:26
  Speaker 1: private sector. UM their various limits with regard to that,
• 19:30
  Speaker 1: but my estimate is that probably the n f i
• 19:33
  Speaker 1: P will collect UM a full billion dollars to deal
• 19:37
  Speaker 1: with its losses, and those reinsurers would really run the
• 19:42
  Speaker 1: gamut UM they're they're typically smaller companies like a Renaissance
• 19:46
  Speaker 1: Rey or Validis, but UM, as I said, participated, so
• 19:51
  Speaker 1: it would also likely include the likes of the Munich
• 19:54
  Speaker 1: reason the larger entities as well. But generally speaking, that
• 19:59
  Speaker 1: risk has been spread broadly and it will affect the
• 20:03
  Speaker 1: reinsurance companies, but more importantly UM. It's providing participation by
• 20:09
  Speaker 1: the private sector to support this program that, as I said,
• 20:13
  Speaker 1: we really need to have continue in the future. Well
• 20:16
  Speaker 1: We're going to send that note to Congress. They got
• 20:18
  Speaker 1: a lot on their docket that they need to do. Jonathan,
• 20:21
  Speaker 1: last point to you, what about specialty insurance for things
• 20:23
  Speaker 1: like refineries and oil platforms. UM, those certainly are at
• 20:29
  Speaker 1: risk as well, and there are a number of entities
• 20:32
  Speaker 1: that are specialty companies. UM. Much of that coverage isn't
• 20:37
  Speaker 1: what's called the excess of surplus lines market and UM
• 20:44
  Speaker 1: it's highly technical because of the UH the difficulties of
• 20:50
  Speaker 1: assessing the risk for those types of plant equipment. But
• 20:54
  Speaker 1: they will certainly UM be in the number of did
• 21:00
  Speaker 1: ease that will see some reimbursement. Jonathan Adams, thank you
• 21:04
  Speaker 1: so much, senior insurance industry analyst for Bloomberg Intelligence. I
• 21:21
  Speaker 1: want to turn our attention now to an effort by
• 21:23
  Speaker 1: the European Union to put together a regulatory framework that
• 21:27
  Speaker 1: they say will protect investors. And this has to do
• 21:30
  Speaker 1: with the research that investment professionals receive, how much they
• 21:34
  Speaker 1: pay for it, and how much it is actually worth.
• 21:37
  Speaker 1: Here to help us understand this issue is Larry tab
• 21:40
  Speaker 1: He is the chief executive and the founder of the
• 21:42
  Speaker 1: Tab Group. They're based in New York, and he joins
• 21:44
  Speaker 1: me here in our eleven three oh studios. Larry, thank
• 21:47
  Speaker 1: you very much for being great. I want maybe you
• 21:51
  Speaker 1: can just start us off by explaining how these regulations, uh,
• 21:55
  Speaker 1: and I'll give the full name of it right it's
• 21:58
  Speaker 1: markets in Finance show instruments directive method is the way
• 22:03
  Speaker 1: that acronym now explain what it is and how does
• 22:07
  Speaker 1: that fit into the world of investing? What is so
• 22:10
  Speaker 1: people can understand it. So so this is actually method
• 22:13
  Speaker 1: to the first method was somewhere on two thousand four
• 22:17
  Speaker 1: there and they're they're updating the rules as we speak,
• 22:20
  Speaker 1: or they just finished them. We're looking to go live
• 22:22
  Speaker 1: January three. UM. There are a couple of parts to it,
• 22:26
  Speaker 1: but what they're trying to do is reduce conflicts of
• 22:28
  Speaker 1: interest in the investment process. And one of the biggest
• 22:32
  Speaker 1: things that they're trying to do is is focus on
• 22:34
  Speaker 1: how research has paid for. Traditionally, research has been kind
• 22:38
  Speaker 1: of included, um, you know and being paid for as
• 22:42
  Speaker 1: part of the trading commissions. When you send me in
• 22:44
  Speaker 1: order I send your research, or I send you more
• 22:46
  Speaker 1: likely I send your research on on in the desire
• 22:49
  Speaker 1: for you to trade with me. UM, I know this company,
• 22:52
  Speaker 1: so you should give your order to me. What what
• 22:56
  Speaker 1: Europe is trying to do basically is say that now
• 22:59
  Speaker 1: that's kind of inducement to trade. I'm giving you something
• 23:02
  Speaker 1: of value on the hopes of you sending me um
• 23:06
  Speaker 1: orders um and into certain ecenter. An inducement is almost
• 23:10
  Speaker 1: like a bribe. So I'm giving your research for the
• 23:13
  Speaker 1: bribe for getting your your order to me. So it's
• 23:15
  Speaker 1: not just so, it's not just so. What they're trying
• 23:18
  Speaker 1: to do is split the payment for research um away
• 23:22
  Speaker 1: from trading commissions and trying to get the by side
• 23:26
  Speaker 1: traders to focus only on best execution, not have to
• 23:29
  Speaker 1: worry about research. Then have the research valued. So I
• 23:33
  Speaker 1: have to make an agreement to value every piece of
• 23:35
  Speaker 1: research or every research agreement that I have, and pay
• 23:38
  Speaker 1: for it either out of of hard dollars, basically write
• 23:42
  Speaker 1: a check for it out of my own P and L,
• 23:45
  Speaker 1: or really tightly align that with the customer, uh, the
• 23:50
  Speaker 1: actual investor. So basically charge that research back to the
• 23:54
  Speaker 1: individual customer. How does that work in a world where
• 23:59
  Speaker 1: the research can't be linked? Well, maybe it can, but
• 24:02
  Speaker 1: where I would think it'd be difficult to link to
• 24:03
  Speaker 1: something that is revenue generating In other words, it's great
• 24:06
  Speaker 1: if you're making money, you're generating revenue, but if this
• 24:09
  Speaker 1: is all the cost side of the business, how do
• 24:12
  Speaker 1: you justify it and price it. Well, it's a little
• 24:15
  Speaker 1: easier on the equity side because they're commissions. This is
• 24:17
  Speaker 1: really difficult on the fixed income side. And the fixed
• 24:20
  Speaker 1: income side is included in the fit as well. So
• 24:22
  Speaker 1: now you know, on the fixed income side where you're
• 24:24
  Speaker 1: not actually paying you know, basis points and commission or
• 24:28
  Speaker 1: in the US, you know, since per share, you actually
• 24:31
  Speaker 1: have to figure out a way to value this thing.
• 24:33
  Speaker 1: And they're still having problems with that. But um yeah,
• 24:38
  Speaker 1: you know people the by side firms. The firms have
• 24:41
  Speaker 1: to decide how much is this research worth, whether it's
• 24:44
  Speaker 1: could be a sector, a sector that's completely you know,
• 24:48
  Speaker 1: we're not really interested, but I but I like these guys.
• 24:50
  Speaker 1: They put out great insight. The sector is cool. Right now,
• 24:53
  Speaker 1: I'm not investing in it, but I still want the research.
• 24:55
  Speaker 1: You still have to come up with a value for
• 24:56
  Speaker 1: it and pay for it and then assign that payment
• 24:59
  Speaker 1: to your clas in or pay for it out of
• 25:01
  Speaker 1: your own pano. So what is the conflict or what
• 25:04
  Speaker 1: is the challenge of implementing this and where are we
• 25:07
  Speaker 1: in that process because these Securities and Exchange Commission has
• 25:10
  Speaker 1: got to have a voice in this. Well, initially this
• 25:13
  Speaker 1: was thought to be just a European problem, and the
• 25:16
  Speaker 1: sec has basically said, you know what, we're not going
• 25:18
  Speaker 1: to deal with this as a European problem and we're
• 25:20
  Speaker 1: not going to worry about it. As we talked to
• 25:22
  Speaker 1: institutional investors and traders, what we're finding out is that
• 25:25
  Speaker 1: the the institutions want one way of handling conflicts of
• 25:29
  Speaker 1: interest and payment for research around the globe. As well
• 25:32
  Speaker 1: as when you look at investment mandates, you know you
• 25:34
  Speaker 1: may not necessarily you know, your investment mandate maybe why
• 25:37
  Speaker 1: it might be technology, so it might be Apple. It
• 25:40
  Speaker 1: might also be vot a phone, so so you know
• 25:43
  Speaker 1: a lot. You know, it may not necessarily be geographically focused.
• 25:46
  Speaker 1: So you wind up in these issues where okay, well
• 25:48
  Speaker 1: this one, I can you know, charge through commissions as
• 25:51
  Speaker 1: in the US it's Apple, but you know this one's
• 25:54
  Speaker 1: voting phone. It needs to be paid for directly. So
• 25:55
  Speaker 1: the by side firms, the institutional investors kind of want
• 25:58
  Speaker 1: one way of doing it. Where we are is that
• 26:02
  Speaker 1: in the US, most firms of now are a lot
• 26:05
  Speaker 1: of firms, especially the larger ones, are starting to make
• 26:09
  Speaker 1: agreements for their research. They've kind of said, you know what,
• 26:12
  Speaker 1: here's our research budget budget, here's our execution budget. I'm
• 26:15
  Speaker 1: a trader. I only worry about best execution. I might
• 26:18
  Speaker 1: tack on a couple more cents per share to pay
• 26:21
  Speaker 1: for the research, but the research has very little, if
• 26:24
  Speaker 1: any discretion into where I trade. UM that that's a
• 26:28
  Speaker 1: that's a significant portion of it. But does it does
• 26:31
  Speaker 1: It's not really in fully unbundling in in terms of
• 26:35
  Speaker 1: you know what Europe is saying, because there those payments
• 26:38
  Speaker 1: need to be then defined to me as an investor, um,
• 26:41
  Speaker 1: and how do I charge the client? And what is
• 26:44
  Speaker 1: the contract between me, the institutional investor and the pension
• 26:48
  Speaker 1: fund And many of the firms have not really developed that.
• 26:51
  Speaker 1: And then there are a number of other issues where
• 26:53
  Speaker 1: I just said fixed income, best execution, analytics, and a
• 26:57
  Speaker 1: couple of other things as well. Market structure issue is
• 27:00
  Speaker 1: in terms of dark pools and where things trade. It's
• 27:02
  Speaker 1: a pretty encompassing set of regulations. Sounds like this is
• 27:06
  Speaker 1: not something that is set in stone by any means
• 27:08
  Speaker 1: right now, and that's currently undergoing, you know, a response
• 27:10
  Speaker 1: from the industry, Well, the regulations are right, but I
• 27:13
  Speaker 1: mean the response from the industry what they're gonna do.
• 27:16
  Speaker 1: But there are there are a number of folks, you know,
• 27:18
  Speaker 1: we're talking with some of the largestness swial investors and
• 27:21
  Speaker 1: they're trying to get ready for China with her. But
• 27:23
  Speaker 1: I'm not sure they're going to be there. Thank you
• 27:25
  Speaker 1: very much, Larry tab always a pleasure, Chief executive founder
• 27:28
  Speaker 1: of the Tab Group based in New York. Thanks for
• 27:33
  Speaker 1: listening to the Bloomberg P and L podcast. You can
• 27:35
  Speaker 1: subscribe and listen to interviews at Apple Podcasts, SoundCloud, or
• 27:39
  Speaker 1: whatever podcast platform you prefer. I'm pim Fox. I'm on
• 27:43
  Speaker 1: Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
• 27:47
  Speaker 1: It's one before the podcast. You can always catch us
• 27:49
  Speaker 1: worldwide on Bloomberg Radio.