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Danger, Will Robinson: Advanced Analytics and Regulation of Markets
Keynote Address of Commissioner Bart Chilton to the Institutional Investor TraderForum, New York, NY
January 26, 2011--Introduction
Good afternoon, it is good to be with you. A special thanks to Lew Knox for the kind invitation to be here to talk with the members of TraderForum about a few things going on in markets and in Washington today.
“Lost in Space”
First, let us start with a little television trivia. This will date me and some of you. By a show of hands, who remembers the 1960s TV series “Lost in Space?” Young William Robinson and the Jupiter 2—does anyone remember that?
Of course, the line that caught on and we still hear once-in-a-while today is “Danger, Will Robinson, danger.” Well, as Cliff Clavin, the postman from Cheers would say, here’s a little known fact: despite the millions of times that phrase has been uttered all over the world in the decades since the show, the robot only used that phrase exactly once in the entirety of the series. There were 83 episodes of “Lost in Space,” which by the way ran three seasons. Only that once, in episode 11 of season three, was “Danger, Will Robinson, danger” used. A movie released in 1998 also used those words. It is remarkable in these days where repetition of a message is key in all of the media clutter to having folks remember something, yet “Danger, Will Robinson, danger” was only used that once on the tube.
Well, today we are going to discuss some potential dangers out there with regard to algorithmic, high frequency trading (HFT) and the advanced analytics that are being used in financial markets today. We will also talk about some of the dangers of regulation—too much and too little. As part of that discussion, I will let you in on a hush-hush strategy that some are in the middle of as a way to get out of regulation. What I can say is that if we are not cognizant of the dangers out there, on these topics and on others, we certainly have the great possibility of ourselves being lost in space.
Market Morphing
As we all know, our markets have changed dramatically in the last decade. Open outcry in trading pits is quickly becoming a thing of the past. Instead of traders screaming at each other in the pits, computers are screaming all day long, not once raising their voices or taking a coffee or smoke break. Algorithmic programs are cranking away like journeymen and HFT computers are trying to scoop up micro-dollars in nanoseconds. It is an amazing thing how quickly and vastly these markets morphed.
read more
Source: CFTC.gov
Free Guidebook Helps Financial Advisors Tackle Indexing Trend
January 25, 2011-- ETF Research Center, the online portal for financial advisors to access AltaVista's analysis of exchange traded funds, has published a free guide titled Research of ETFs. The report discusses challenges and opportunities for financial advisors who adopt ETFs for widespread use in clients' portfolios.
"Index funds have grown from 3% to 26% of all equity funds over the past 16 years, challenging the advisor's role in building and monitoring client portfolios. This report explains how advisors can utilize research to provide highly tailored, more effective financial planning services with ETFs and hopefully build better, more enduring relationships in the process," explains Michael Krause, President and founder of AltaVista Research.
After surveying the marketplace for ETF research, the guide argues why a fundamentally driven approach offers some significant benefits over other methodologies, and how investors and their advisors can use this information in selecting and monitoring a disciplined ETF portfolio.
John Heneghan, President of Servant Financial, a registered investment advisor firm in the Chicago area, adds, "AltaVista's fundamentally driven ETF research is an essential portfolio risk management tool for today's global, dynamic investment environment. The robust analysis and research provides a distinct, competitive advantage in ETF selection for broad strategic portfolio construction and to implement more active tactical selections in specific asset classes, sectors and macro themes."
The guidebook is available for download free to financial advisors who register on the website, http://www.etfresearchcenter.com. Users of the Bloomberg Professional service (type ALTA Guggenheim Funds Launches High Yield Fixed Income ETF Suite The four new ETFs below, which seek to replicate the performance of BulletShares® USD High Yield Corporate Bond Indices developed by Accretive Asset Management LLC, provide investors with a convenient way to invest in the high-yield corporate bond market. The Funds also enable advisors to build laddered portfolios in a cost-effective and diversified manner, fill gaps in existing bond portfolios, and address investors’ lifestyle needs by providing the potential for monthly income distributions and a final distribution at the ETF’s maturity that can be applied towards retirement, college or other expenses. Guggenheim BulletShares High Yield Corporate Bond ETFs-NYSE Arca Ticker Guggenheim BulletShares 2013 High Yield Corporate Bond ETF-BSJD Guggenheim BulletShares 2014 High Yield Corporate Bond ETF-BSJE Global X Funds Launches First Emerging Markets Growth and Value ETFs Although emerging markets are typically associated with growth style investments, research from Russell Investments indicates that the value index has outperformed the growth index over the past 3 years by 10.02%.* In contrast, the past year has seen the growth index outperform the value index by 4.54%.* “We are pleased to be pairing with Russell Indexes, a recognized leader in the development of style indices, to bring these products to market,” said Bruno del Ama, CEO of Global X Funds. “Both new funds seek to provide investors with well-diversified portfolios by granting exposure to emerging markets while still following the tenets of classic investment philosophies: growth and value.” The Global X Russell Emerging Markets Growth ETF and the Global X Russell Emerging Markets Value ETF track the Russell Emerging Market MegaCap Growth Index and the Russell Emerging Market MegaCap Value Index, respectively. The Russell Emerging Market MegaCap Growth Index measures the performance of the mega-cap growth segment of the emerging markets equity universe, screened for those companies with higher price-to-book ratios and higher expected growth values. The Russell Emerging Market MegaCap Value Index measures the performance of the mega-cap value segment of the emerging markets equity universe, screened for those companies with lower price-to-book ratios and lower expected growth values. SEC Proposes Net Worth Standard for Accredited Investors Under Dodd-Frank Act view SEC Proposed Rule SEC Proposes Private Fund Systemic Risk Reporting Rule "The data collection we propose will play an important role in supporting the framework created by the Dodd-Frank Act and is designed to ensure that regulators have a view into any financial market activity of potential systemic importance," said SEC Chairman Mary L. Schapiro. read more Financial crisis report to blame Wall Street
http://www.ft.com/cms/s/0/dd14e65e-28e6-11e0-aa18-00144feab49a.html#ixzz1C7o8KmkN
iShares files with the SEC Investors Moving Away From Mutual Funds and Towards ETFs Despite the decline in use over the past year, the proportion of assets current mutual fund owners allocate to these products remained steady. However, since 2006, the average allocation investors make to mutual funds has eroded significantly, down from 53% to a present level of 44%. During that time, the average ETF allocation increased 45%, from 11% to 16%. “These numbers reflect a dramatic shift in preference among investors for both mutual funds and ETFs,” said Cogent Research Principal John Meunier. “And while it’s impossible to know exactly how things will play out, it’s clear that a major realignment is underway.” According to Meunier, “Traditional mutual fund providers are fighting tooth and nail for a shrinking piece of real estate, while established ETF providers face a different challenge; fending off a rush of new providers in a rapidly expanding marketplace.” One key measure of which firms are best positioned to compete in the battles for market share that lie ahead is how favorable investors are toward the providers they know. This bodes especially well for Vanguard, which leads in investor favorability in both product categories. In fact, half of all investors that know Vanguard have strong positive impressions (top-3 favorability ratings on a 0-10 scale) of the firm as both an ETF (52%) and mutual fund (50%) provider. Vanguard’s strongest competition on this measure among mutual fund providers comes from Riversource (47%), Fidelity Investments (44%) and American Funds (40%). Among ETF providers, iShares (46%), PowerShares (43%), Claymore/Guggenheim (43%), PIMCO (42%), and Charles Schwab (40%) all resonate favorably with at least four in ten investors familiar with each brand. According to Meunier, “These investor favorability scores not only reflect the strong positive net flows earned last year by Vanguard in both the mutual fund and ETF categories. More importantly, they suggest the company’s momentum is very likely to continue in 2011.” Emerging Markets Week in Review- 1/17/2011 - 1/21/2011 read more
Source: AltaVista Research
Guggenheim BulletShares High Yield Corporate Bond ETFs Offer Investors Potentially Higher Current Income and Effective Annual Maturities from 2012 Through 2015
January 25, 2011--Guggenheim Funds Distributors, Inc. announced today the launch of the Guggenheim BulletShares® High Yield Corporate Bond ETFs, a suite of ETFs with designated years of maturity ranging from 2012 through 2015 that invest in high-yield corporate bonds with effective maturities in the years respective to each Fund.
“The introduction of these new funds extends our suite of BulletShares ETFs, the only ETFs available in the marketplace offering defined-maturity exposure to the corporate bond market,” said Steven A. Baffico, senior managing director, Head of U.S. Retail for Guggenheim Funds Distributors, Inc. “Now, investors can easily gain exposure with surgical precision to either the high-yield or investment-grade sector of the market through the construction of customized portfolios tailored to their specific risk preferences and maturity profiles. Guggenheim BulletShares ETFs have an investment and cash-flow profile similar to individual bonds with the diversification and cost benefits inherent in an ETF. We believe this makes them an attractive alternative to bonds and we are pleased to be able provide fixed-income investors with these new investment solutions.”
Guggenheim BulletShares 2012 High Yield Corporate Bond ETF-BSJC
Source: Guggenheim Funds Distributors, Inc.
ETF provider partners with Russell Indexes to bring products to market
January 25, 2011--Global X Funds, the New York based provider of exchange traded funds, today launched two new funds: the Global X Russell Emerging Markets Growth ETF (Ticker: EMGX) and the Global X Russell Emerging Markets Value ETF (Ticker: EMVX). The launch is the latest expansion in the ETF issuer’s emerging market funds and its first partnership with Russell Indexes.
Growth and value investment themes have long been intrinsic to domestic and developed market portfolios. The Global X Russell Emerging Markets Growth ETF and the Global X Russell Emerging Markets Value ETF are the first ETF products that offer a way to play the emerging markets through growth and value styles. These two investment philosophies have historically performed differently throughout market cycles, and the funds are designed to complement each other in a portfolio to capture these differences.
Source: Global X
January 25, 2011--— The Securities and Exchange Commission today voted to propose amendments to its rules to conform the definition of "accredited investor" to the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The proposed amendments would exclude the value of an individual's primary residence in calculating net worth when determining accredited investor status. The amendments also would clarify the treatment of any indebtedness secured by the residence in the net worth calculation.
Source: SEC.gov
January 25, 2011--The Securities and Exchange Commission today proposed a rule to require advisers to hedge funds and other private funds to report information for use by the Financial Stability Oversight Council (FSOC) in monitoring risk to the U.S. financial system.
The proposed rule would implement Sections 404 and 406 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The proposal creates a new reporting form (Form PF) to be filed periodically by SEC-registered investment advisers who manage one or more private funds. Information reported on Form PF would remain confidential.
Source: SEC,gov
January 25, 2011--The Financial Crisis Inquiry Commission will on Thursday blame unchecked Wall Street excess for much of the 2008 turmoil, highlighting lax risk management, distortive bonuses, predatory lending and insufficient regulation, say people who have read the final report.
But hopes for a definitive examination of the crisis, like the 1930s Pecora hearings into the Great Crash, were dashed when Republican commissioners refused to endorse the report and criticised the way the panel was run.
Source: FT.com
January 25, 2011--iShares has filed a post-effective amendment, registration statement with the SEC for the iShares FTSE China A50 Index Fund.
view filing
Source: SEC.gov
Vanguard Favored in Both Product Categories
January 25, 2011--Fewer affluent Americans are using mutual funds, and even among those investors who continue their use, allocations to mutual funds are down significantly. Meanwhile, ETFs continue to gain in both popularity and proportional share of retail investor assets. As this major industry shift unfolds, Vanguard leads other providers in investor impressions across both product categories. These and other findings are included in the 2011 Investor Brandscape™ report that was released by Cogent Research on January 7, 2011. The report is based on a nationally representative sample of 4,000 investors with at least $100,000 in investable assets.
According to Cogent, as of October 2010, 75% of investors own mutual funds, a figure that is down from 78% a year earlier and a full nineteen percentage points below the more than nine in ten (94%) of investors who owned at least one mutual fund in October of 2006. Meanwhile, within the same 4-year period, the proportion of investors who report owning ETFs has increased 57%, from 7% to 11%.
About Cogent Research
January 24, 2011--The Dow Jones Emerging Markets Sector Titans Composite Index fell 1.69% last week on concerns that rising food prices will drive tighter monetary policy.
Telecom and Energy, two of the worst performing sectors last year, declined the least last week, down 0.45% and 0.53% respectively. The Consumer and Financial stocks were down 3.08% and 2.92% respectively.
Source: Emerging Global Advisors
