There is a small storm brewing over recent rules put out by the FED on TLAC instruments - the market assumes some $120bio of new issuance by 2019 but a critical feature is being debated on these securities. Under the current FED proposed rules, such instruments as a trading book asset may require a deduction from capital, even if it is there own issue, as reported by last week's IFR. If the asset would have a punitive capital charge as a trading assets, secondary market liquidity and market support, crucial to investor who may wish to re-balance their portfolios, may suffer.
An unfortunate consequence of new regulations is that dealer holding of securities and their ability to make and keep a price for end investors has become impaired which impact the ability to investors to exit from positions, arguably resulting in lower investor interest/higher yields for new issues and choppy price action.
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