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Statement on the Joint CFTC/SEC Staff Report on the May 6 Flash Crash
“Crash Cart”-Statement of Commissioner Bart Chilton of the Commodity Futures Trading Commission
On the Joint CFTC/SEC Staff Report on the May 6 Flash Crash
October 7, 2010--This report details what went wrong on May 6 and, as many have guessed, there was no one culprit. The markets were skittish all day in large part due to the worsening economic news coming out of Europe. Volume and volatility were very high. By mid-afternoon, liquidity was drying up and sellers were having difficulty finding buyers. Then, when one institutional firm utilized an algorithmic trading program to sell 75,000 contracts valued at over $4 billion, the markets went into shock.
When that happened in one market, arbitragers moved to other venues and within minutes there was widespread disruption. The interrelatedness of markets exacerbated the problem and was a major lesson of May 6.
Now that we know what happened, we need to find ways to assure investors that it won’t happen again. Circuit breakers, limit-up and limit-down mechanisms and other “time-outs” need to be looked at so the markets can get back on track when things start to get out of hand. Liquidity restoration procedures need to be considered, too.
A handful of unhealthy things drove the markets into cardiac arrest that day. The structural changes we’ll make as a result of Dodd Frank will greatly help restore that health. At best, we need healthy regulation to keep that from happening again and, at worst, a defibrillator to get them started again when things start to go bad.
Source: CFTC.gov
Commodity Futures Trading Commission’s Technology Advisory Committee to Meet October 12, 2010
Committee to continue discussion of high frequency and algorithmic trading practices and the role of technology in pre- and post-trade transparency in implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) and in the Flash Crash.
October 7, 2010----The second meeting of the CFTC’s Technology Advisory Committee (TAC), titled “Technology: Achieving the Statutory Goals and Regulatory Objectives of the Dodd-Frank Act,” will be held on October 12, 2010 at 1:00 p.m., at the CFTC’s Washington, DC headquarters’ Hearing Room.
The TAC will continue its discussion of computerized trade strategies and their role in the events of May 6, 2010 as they inform and guide regulatory reforms under Dodd-Frank. Andrei Kirilenko, a Senior Financial Economist in the CFTC’s Office of the Chief Economist, will summarize the May 6, 2010 joint CFTC and SEC staff report on which he worked and present his joint paper, The Flash Crash: The Impact of High Frequency Trading on an Electronic Market.
As the Commission focuses on new manipulation and antidisruptive trading practices in the Dodd-Frank rulemakings, the events of May 6, 2010 are equally informative as to the role of technology in the futures and swaps markets.
“While I do not believe that the Flash Crash was the direct result of reckless misconduct in the futures market, I question what the CFTC could have done if the opposite were true. When does high frequency or algorithmic trading cross the line into being disruptive to our markets? And, along those same lines, who is responsible when technology goes awry? Do we treat rogue algorithms like rogue traders? These are the issues I hope to explore at our October 12th meeting,” stated Commissioner O’Malia.
Additional panels will focus on the role technology plays in pre- and post-trade transparency and how swap execution facilities (SEFs) and swap data repositories (SDRs) achieve these objectives. Commission staff will present on current rulemakings and the technological implications for interim data collection. Panelists will highlight the technological hurdles and their impact on trading behavior.
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Source: CFTC.gov
Goldman Says Blackrock Is No Buy
October 5, 2010--This morning, Goldman Sachs downgraded shares of Blackrock from buy to neutral citing valuation. The firm noted that the stock has approached the firm's price target of $180 per share.
Shares of Blackrock were down 0.47% in early afternoon trading.
Barclays downgraded shares of Colgate-Palmolive from equal weight to underweight as competition in the sector heats up and margins shrink. With the downgrade, Barclays slashed its price target from $80 per share down to $68.
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Source: Forbes
SEC Seeks Public Comment on Asset-Backed Securities Rule Proposal Under Dodd-Frank Act
October 6, 2010--The Securities and Exchange Commission is seeking public comment on proposed regulations to require issuers of asset-backed securities (ABS) — and credit rating agencies that rate ABS — to provide investors with new disclosures about representations, warranties, and enforcement mechanisms.
Section 943 of the Dodd-Frank Wall Street Reform and Consumer Protection Act requires the Commission to prescribe regulations on the use of representations and warranties in the ABS market by Jan. 14, 2011 (180 days after enactment). A complete list of regulatory actions taken to date as required by the Dodd-Frank Act is available on the SEC’s website.
ABS are created by buying and bundling loans — such as residential mortgage loans, commercial loans or student loans — and creating securities backed by those assets that are then sold to investors. In the transaction agreements that govern a securitization, ABS issuers or originators of those loans typically make “representations and warranties” about the characteristics and the quality of those loans. If a loan does not comply with the representation or warranty, an ABS issuer or lender can be required to repurchase the loan from the pool or replace it with a substitute asset.
Since the financial crisis, many investors and other transaction parties have questioned whether the loans in the bundle meet the characteristics specified by the representations and warranties in transaction agreements, and have been seeking to enforce repurchase provisions. The Dodd-Frank Act imposes new disclosure obligations so that investors receive information about the representations and warranties and repurchase history so they may identify originators with clear underwriting deficiencies.
SEC Proposal on ABS Representations and Warranties
Submit comments on this proposal
Source: SEC.gov
ISE Extends Fee Waiver Offer for New PrecISE Trade® Users
Proprietary Front-End Trading System Provides Industry-Leading Risk Management Tools and Fast, Efficient Access to the U.S. Options Market
October 6, 2010 – The International Securities Exchange (ISE) announced today that it is
offering a two month fee waiver for new users of its proprietary front-end trading terminal, PrecISE Trade.
The customizable interface provides members with user-friendly, direct access to the exchange as well as
valuable risk management tools and market data. PrecISE also offers extensive safeguards for members
participating in ISE’s sponsored customer program.
“ISE’s PrecISE Trade front-end trading system leads the options industry in terms of trading functionality
and risk management capabilities,” said Boris Ilyevsky, Managing Director of ISE’s options exchange.
“PrecISE allows for consolidated access to order and trade activity for multiple desks or business units
within a member firm. In anticipation of pending regulation on sponsored access, ISE is proactively
providing sponsoring firms with important risk management features, including the ability to set risk
parameters and monitor orders in real time. We encourage new users to sign up and familiarize
themselves with the PrecISE terminal and its powerful functionality.”
PrecISE Trade supports all exchange order types and functionality, including complex orders, tied-tostock options orders, crossing orders, and sweep functionality to access other exchanges. PrecISE Trade users have access to real time market data as well as ISE’s Depth of Market Feed, the ISE Spread Book Feed and real time options Greeks. In addition, PrecISE offers order management tools and flexible posttrade clearing and allocation functions.
The fee waiver was first introduced in May 2010 and is being extended due to the success of the program. All new users, including traders, back office users and sponsored customers, are eligible for the fee waiver.
To request a new PrecISE user or for more information, please contact ISE Business Development at
precise@ise.com or visit www.ise.com/precise. PrecISE fees are available on ISE’s fee schedule at
www.ise.com/fees.
Source: International Securities Exchange (ISE)
Through Dynamic Growth Latin America and the Caribbean Absorbed the Crisis’ Social Impact
Some Countries at Same Level as Asian Tigers
October 6, 2010--Latin America and the Caribbean (LAC) cushioned the social impact of the 2008 global crisis thanks to its ability to inter-connect firmly with emerging markets in Asia which in turn boosted growth to 5-6 percent for 2010 -and at least 4 percent for 2011- while keeping in place the region’s social protection networks.
According to “Globalized, Resilient, Dynamic: The New Face of Latin America and the Caribbean” a report authored by the World Bank’s Chief Economist for LAC, Augusto de la Torre, the region showed a remarkable capacity to withstand the crisis’ impact which –the report argues- did not last very long in comparison with other regions, including developed countries, “due to the region’s sound macroeconomic, fiscal and financial policies.”
Between 2002 and 2008, LAC managed to lift 60 million Latin Americans out of poverty, even as preliminary estimates showed the crisis adding 10 million people to the ranks of its poor. But according to new World Bank data, in 2009 the number of people living in moderate poverty ($4 per day) grew by 2.1 million with respect to 2008, totaling 168.3 million, while the number of Latin Americans living in extreme poverty ($2.5 per day) grew by 2.5 million, and now it reaches 85.9 million.
In 2010 LAC was able to reverse the temporary increase in poverty levels. New estimates indicate that 7 million people will leave poverty behind and 6 million more will be pulled out of extreme poverty allowing the region to return to pre-crisis levels as a result of governments’ capacity and speed to react and apply measures to mitigate the crisis’ social impact.
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Source: World Bank
Market Vectors(R) Brazil Small-Cap ETF Reaches $1 Billion in Assets
October 6, 2010--Market Vectors Brazil Small-Cap ETF, distributed by Van Eck Global, has reached $1 billion in assets as of October 5, 2010, the company announced today. BRF was the first ETF listed in the U.S. to focus on Brazilian small-cap stocks.
BRF seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Market Vectors Brazil Small-Cap Index (MVRIOTR), a basket of 61* securities of small-capitalization companies that are domiciled and primarily listed on an exchange in Brazil, or that generate at least 50% of revenues in Brazil. BRF seeks to provide investors with exposure to Brazil's domestic investment themes and opportunities, such as the growth potential in the country's homebuilding and consumer goods sectors.
"BRF has appealed to investors looking for a different type of exposure to Brazil's local economy," said Jan van Eck, Principal of Van Eck Global. "In our view, small-cap stocks represent excellent direct exposure to the Brazilian economy since small-caps are typically driven by local trends. We are pleased to see that the interest in BRF continues to grow among financial advisors and their clients."
Source: Van Eck Global
International Issues in the Implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act
October 5, 2010--International Issues in the Implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act
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Source: CFTC.gov
Derivatives Reform: Comparison of Title VII of theDodd-Frank Act to International Legislation
October 6, 2010--Derivatives Reform: Comparison of Title VII of the Dodd-Frank Act to International Legislation
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Source: CFTC.gov
Credit Suisse Announces Launch of New ETN that Provides Liquid Exposure to the Merger Arbitrage Strategy
New Product is Linked to the Credit Suisse Merger Arbitrage Liquid Index (Net)
October 5, 2010-Credit Suisse today announced the launch of the new Credit Suisse Merger Arbitrage Liquid Index (Net) ETN (the "ETN"), one of the first vehicles to offer investors access to the merger arbitrage strategy in a liquid, exchange traded format. Credit Suisse's Investment Banking division is launching the ETN on one of the Asset Management Liquid Alternative Beta Indices.
The Credit Suisse Merger Arbitrage Liquid Index (Net) ETN (NYSE Arca: CSMA) is designed to correlate, subject to fees, to the performance of the Credit Suisse Merger Arbitrage Liquid Index (Net) which aims to gain broad exposure to the merger arbitrage strategy by using a quantitative methodology.
The exchange traded approach offers a variety of advantages to investors, including real-time pricing, intraday liquidity and full portfolio transparency – advantages previously not associated with alternative investments. In addition, the ETN mitigates many of the risks usually associated with alternative investments such as illiquidity, fraud risk or individual manager risk.
The ETN joins the existing Credit Suisse Long/Short Liquid Index (Net) ETN (NYSE Arca: CSLS) to become the second in a suite of alternative ETN products. Together, the ETNs offer access to two of the most popular alternative investment strategies.
Michael G. Clark, head of the Structured Equity Derivatives desk in the Investment Bank, which is launching the ETN, added, "Historically, Merger Arbitrage strategies have provided attractive risk-adjusted returns, effectively allowing investors to diversify their equity exposure; however, complex structures and infrequent liquidity have made this sector difficult to access. We are excited to offer a product which provides liquid access to this strategy, especially in the current volatile market environment."
"Investors today are seeking more liquid, transparent and cost effective solutions. By launching this ETN, we are expanding our liquid alternative investment offerings and demonstrating our commitment to providing innovative alternative solutions to our clients," said Oliver Schupp, Head of the Beta Strategies Group which manages Credit Suisse's Liquid Alternative Beta strategies.
This new ETN seeks to provide exposure to the Merger Arbitrage strategy as represented by the Credit Suisse Merger Arbitrage Liquid Index (Net), an index which benefits from daily valuations and a transparent rules-based construction process. Equity positions are selected and weighted in accordance with a predefined quantitative methodology to gain exposure to a liquid and diversified set of announced merger deals. More information on the Credit Suisse Merger Arbitrage Liquid Index (Net) ETN can be found on: www.credit-suisse.com/notes.
Source: Credit Suisse AG
