Dec 19, 2019

Axios Markets

By Dion Rabouin
Dion Rabouin

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  • Today's edition is 1,317 words — a 5-minute read.

"You have to challenge what’s worked." - See who said it and why it matters below.

1 big thing: Companies take aim at their regulators

Illustration: Eniola Odetunde/Axios

It's normal for regulators to take on the companies it oversees. What's rarer is the opposite: entities taking their regulators to court — but that might be changing.

Why it matters: The legal showdowns between companies and regulators show just how far big business is willing to go to fight regulations that could dent profits.

What’s happening: In an unprecedented move, the New York Stock Exchange, Nasdaq and Cboe sued the Securities Exchange Commission over the regulatory agency’s “transaction fee pilot" — which would undermine how much money the three largest U.S. stock exchange operators could pay and charge to draw trading onto their platforms.

  • “We don’t look forward to suing our regulator ... [w]ith so much at stake, we have no choice but to ask for judicial relief,” Stacey Cunningham, president of the New York Stock Exchange, wrote in an op-ed earlier this year.

And last month, Institutional Shareholder Services (ISS), the largest proxy adviser whose recommendations can sway how shareholders vote on crucial corporate governance issues, said it would also take the SEC to court.

  • The firm is suing over stricter regulations that would force the proxy adviser to be more transparent about how it makes shareholder recommendations. In the suit, ISS called the agency’s actions “arbitrary and capricious.”
  • “The decision to sue our regulator was not taken lightly, but the stakes are too high,” Gary Retelny, ISS CEO, wrote in an op-ed titled “Why we are suing the SEC.”

The SEC isn’t the only target: Last week, PayPal sued the Consumer Financial Protection Bureau over the regulatory agency’s “Prepaid rule,” which requires prepaid card issuers to disclose fees upfront.

  • In the suit, PayPal says the forced disclosures “misrepresent the fees that most customers pay,” as the Silicon Valley Business Journal reports.

Between the lines: The actions are a sign that “suing a company’s regulator—an uncommon and aggressive tactic—is becoming less taboo,” as the WSJ’s Cezary Podkul notes.

The SEC, for one, has commonly been sued by states or trade groups over the rules that peeve corporations.

  • What they’re saying: “Regulated entities that sue the SEC risk that the SEC might retaliate through more stringent inspections,” Larry Harris, a professor at the University of Southern California Marshall School of Business and former economist at the SEC, tells Axios.
  • “Such retaliation would be wrong, and I have no knowledge that it has ever occurred, but the possibility normally would sober entities thinking about suing the SEC.”

The bottom line: Typically companies push back against regulators behind closed doors. The fights are more commonly starting to play out in public.

Bonus: SEC plays defendant
Expand chart
Data: Docket Alarm; Shows all cases where SEC is listed as a defendant; Chart: Andrew Witherspoon/Axios

The SEC is facing more suits this year than last, but way fewer than it did in prior years, according to data compiled for Axios by Docket Alarm.

  • Among the suits it’s facing this year: Several states are pushing back against the SEC's broker rule that they say doesn’t go far enough in protecting Main Street investors.
2. Mark Carney's climate legacy

Photo: Kirsty Wigglesworth/WPA Pool via Getty Images

With just a month left before he steps down as head of the Bank of England (BoE), Mark Carney is putting the finishing touches on his legacy at the British central bank.

Driving the news: The BoE laid out how it planned to test the resilience of the U.K.'s largest banks and insurers in increasingly threatening environmental scenarios. It’s a notable step for Carney who's "played a key role in highlighting financial risks from global warming," as Bloomberg notes.

  • The "climate stress tests" will be in addition to the typical stress tests banks face, which examine whether they can withstand severe shocks to the global economy.

Why it matters: Central banks across the globe are paying more attention to the risks of climate change to financial institutions and the economy.

  • Carney, who's replacing Michael Bloomberg as UN special envoy for climate action and finance, has been one of the most outspoken central bankers on the topic of climate change. His time at the helm of the BoE will be remembered for that, just as much as it will for monetary policy.
  • What he's saying: "Climate change will affect the value of virtually every financial asset; the [test] will help ensure the core of our financial system is resilient to those changes," Carney said in a press release.

Yes, but: Banks can't pass or fail the test — and there are no guaranteed consequences if the central bank deems institutions' plans inadequate.

  • Results will be "published in aggregate without naming individual institutions," though the "BoE is not ruling out naming and shaming individual companies in the future if it feels not enough action is being taken," according to the FT.

The big picture: The European Central Bank said last month it's considering a climate change component to its existing stress tests. Meantime, the central bank's new leader Christine Lagarde has vowed that the ECB will "step up" action on climate change.

  • The Federal Reserve held its first-ever climate conference this year, though chairman Jerome Powell has been skeptical about the role monetary policy has when it comes to climate change.
  • In a sign of growing interest, senators recently proposed legislation that would require the Fed to develop bank stress tests for climate risks, much like the BoE is doing.

The bottom line: Per Reuters, the BoE "will publish detailed scenarios for the test next April, which will be closely watched by central banks in other countries."

P.S. U.K. Prime Minister Boris Johnson and Chancellor Sajid Javid are reportedly close to choosing Carney's successor. (Bloomberg)

3. Catch up quick

Boeing's 737 MAX production halt could shave off as much as 0.6 percentage points from Q1 GDP, Wall Street firms estimate. (Axios)

Sweden’s central bank ended its era of negative interest rates by raising its key rate from minus 0.25% to 0%. (WSJ)

4. An unsettling future for millions of American jobs

Illustration: Aïda Amer/Axios

The U.S. economy is besting expectations for job growth, and the unemployment rate is at its lowest in several decades — but the other side of the story is that millions of jobs out there just aren't good enough, Axios' Erica Pandey writes.

Why it matters: Almost half of all American workers are stuck in low-wage jobs that often don't pay enough to support their lives, lack benefits and sit squarely inside the automation bull's-eye.

By the numbers: There are 53 million U.S. workers — around 44% of the total workforce — who work in jobs with a median hourly wage of $10.22 and median yearly earnings of $18,000, according to a November Brookings study that examines low-wage work.

  • Around a quarter of low-wage workers are the only earners in their households.

The big picture: For decades, the job market has seen steady polarization, Jed Kolko, chief economist at Indeed, says. There's been growth in high-wage jobs in tech and finance in big cities, and there's been a similar surge in jobs at the lower end — but the middle has hollowed out, primarily due to the collapse of manufacturing.

  • The labor market is tightening, which ought to push wages up, but that's not necessarily happening, says Kolko. While pay for low-wage jobs has been increasing in the last couple of years, that growth is not keeping up with inflation or the rise in housing costs.
  • On top of that, millions of low-wage jobs — such as in retail, food service, home health care or the gig economy — don't have robust benefits packages (if any) and don't have predictable schedules.
  • "All of this is part of what makes a job a good job," Kolko says. "The wage growth for lower-wage industries is encouraging, but there’s lots to worry about."

Go deeper and sign up for Axios Future by Erica and Kaveh Waddell.

5. 1 Antartica thing

Image: Scott Polar Research Institute, University of Cambridge/Getty Contributor

Axios' Managing Business Editor Jennifer A. Kingson writes: It was 100 years ago that Ernest Shackleton — polar explorer and CEO extraordinaire — published "South," the gripping memoir of his against-all-odds trudge to safety with his crew after his three-masted barquentine, the "Endurance," was crushed in ice in Antarctica's relentless Weddell Sea.

Why it matters: There's a reason that Shackleton, as a leader and manager, is widely studied at management programs like Harvard Business School, where various studies have been written about him.

Between the lines: Behind the PowerPoint presentations about "corporate leadership lessons" for CEOs and others, the real tale is the human element, as fused with managerial punctilio.

  • The crew's exhaustive journey is a page-turner: of men who broke down emotionally and were comforted and inspired by Shackleton; of "Shacks" pulling each man aside for a private walk to seek his "advice" and take his emotional temperature.
  • "Shacks" turned despair into hope by inspiring the sailors to tell their favorite yarns and describe the meals they planned to relish once they got back to England.  
Dion Rabouin

The answer: Mark Parker, Nike's long-time chief executive said that in an interview with Fast Company in 2012.