We are again at a similar junction. A wide array of economic indicators now suggest that growth in the U.S. has picked up and is widely expected to be around 3 percent during the second half of 2014 and in 2015. These forecasts seem quite reasonable to me and are consistent with views I have expressed in the past. Various “headwinds” have been impeding economic activity, but some of these forces have gradually subsided, allowing the substantially improved underlying fundamentals to exert themselves more forcefully. For example, fiscal restraint, which was a big factor last year, has subsided and is likely to disappear altogether next year. Credit availability has also improved, reflecting healthier bank balance sheets and improving job and income prospects for prospective borrowers. In addition, the excess supply of housing built up over the boom of the previous decade has been worked off, and both home prices and rents suggest that the supply of housing is not keeping pace with demand. This has allowed supportive financial market conditions, spurred, in part, by a very accommodative monetary policy, to shine through. As a result, aggregate household net worth has climbed relative to income and consumer balance sheets are healthier. On the business side, financial markets conditions suggest that risk aversion has subsided, leading to some firming in business investment spending. All of these developments help boost the confidence of consumers and businesses that this consensus forecast will in fact unfold.
As you might suspect, Principle 17 on last look likely consumed the most time and energy of any of the principles in the Code. In many areas within the last look principle there was broad consensus as to what constitutes good practice. What was clear from this process was that market participants seemed to define last look in different ways and apply it in different ways as well. Last look is described in the Code as a practice in which a market participant receives a trade request and has the opportunity to accept or reject that trade request against its quoted price. The Code notes that if utilized, last look should be used as a risk mechanism to verify validity and/or price. The principle focuses on the importance of transparency and fairness. Market participants should be clear about whether and, if so, how last look might apply to their client trade requests to allow clients to make an informed choice regarding their execution. In one particular area—that of trading during the last look “window”—there was a definite diversity of views. On the one hand, some market participants argued that such trading activity would always be detrimental to the client as it could move the market in a direction that is not to the client’s advantage. On the other hand, some market participants felt that such trading activity could increase their ability and willingness to conduct client trades presented by clients without necessarily placing the clients at a disadvantage.