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CFTC to Hold Open Meeting on a Proposed Position Limits Rule
January 7, 2010--The United States Commodity Futures Trading Commission (CFTC) will hold a public meeting on Thursday, January 14, 2010, to consider issuance of a proposed rule on energy position limits and hedge exemptions on regulated futures exchanges, derivatives transaction execution facilities and electronic trading facilities.
The meeting will be open to the public and will be webcast via the Internet. In addition, audio of the meeting will be available via a listen-only conference call.
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Source: CFTC.gov
Federal Reserve Board Advises Institutions Of Supervisory Expectations For Sound Practices In Managing Interest Rate Risk
January 7, 2010--The Federal Reserve Thursday released an advisory reminding depository institutions of supervisory expectations for sound practices in managing interest rate risk. This advisory, adopted along with the other financial regulators, reiterates the importance of effective corporate governance, policies and procedures, risk measuring and monitoring systems, stress testing, and internal controls related to the interest rate risk exposures of depository institutions. It also clarifies elements of existing guidance and describes interest rate risk-management techniques used by effective risk managers.
The financial regulators recognize that some interest rate risk is inherent in the business of banking. At the same time, institutions are expected to have sound risk-management practices to measure, monitor, and control interest rate risk exposures. The financial regulators expect each depository institution to manage its interest rate risk exposures using processes and systems commensurate with its complexity, business model, risk profile, and scope of operations.
The financial regulators remind depository institutions that an effective interest rate risk-management system does not involve only the identification and measurement of interest rate risk, but also addresses appropriate actions to control this risk. If an institution determines that its core earnings and capital are insufficient to support its level of interest rate risk, it should take steps to mitigate its exposure, increase its capital, or both.
In an accompanying Supervision and Regulation letter to Reserve Bank heads of supervision, the Federal Reserve noted that although the advisory is targeted at depository institutions, the advice provided is also directly pertinent to bank holding companies. Bank holding companies are reminded of supervisory expectations that they should manage and control aggregate risk exposures, including interest rate risk, on a consolidated basis, while recognizing legal distinctions and possible obstacles to cash movements among subsidiaries.
In addition to the Fed, the financial regulators include the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Financial Institutions Examination Council State Liaison Committee.
view ADVISORY ON INTEREST RATE RISK MANAGEMENT
Source: Federal Reserve
November defaults help boost the total to over $600 billion in bad loans
January 7, 2010--November Credit Loss Trends: A Big LBO Runs Into Trouble
Highlights
November saw the credit loss listings dominated by distressed debt exchanges, as swaps for new and cheaper loans—counted as defaults under our methodology—accounted for 86% of the $61.7 billion in defaults that were toted up by 17 companies this month. November’s tally brought the year to date total to $617.7 billion in bad loans, with one month to go before 2010.
Unfortunately, 2009, has already surpassed 2008 in the total of bad debts.
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Source: Standard & Poors
U.S. International Reserve Position
January 7, 2010--The Treasury Department today released U.S. reserve assets data for the latest week. As indicated in this table, U.S. reserve assets totaled $131,174 million as of the end of that week, compared to $133,166 million as of the end of the prior week.
I. Official reserve assets and other foreign currency assets (approximate market value, in US millions)
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December 31, 2009 |
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A. Official reserve assets (in US millions unless otherwise specified) 1 |
Euro |
Yen |
Total |
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(1) Foreign currency reserves (in convertible foreign currencies) |
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131,174 |
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(a) Securities |
10,199 |
13,979 |
24,178 |
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of which: issuer headquartered in reporting country but located abroad |
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0 |
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(b) total currency and deposits with: |
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(i) other national central banks, BIS and IMF |
14,767 |
6,807 |
21,575 |
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ii) banks headquartered in the reporting country |
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0 |
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of which: located abroad |
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0 |
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(iii) banks headquartered outside the reporting country |
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0 |
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of which: located in the reporting country |
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0 |
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(2) IMF reserve position 2 |
11,385 |
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(3) SDRs 2 |
57,814 |
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(4) gold (including gold deposits and, if appropriate, gold swapped) 3 |
11,041 |
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--volume in millions of fine troy ounces |
261.499 |
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(5) other reserve assets (specify) |
5,182 |
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--financial derivatives |
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--loans to nonbank nonresidents |
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--other (foreign currency assets invested through reverse repurchase agreements) |
5,182 |
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B. Other foreign currency assets (specify) |
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--securities not included in official reserve assets |
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--deposits not included in official reserve assets |
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--loans not included in official reserve assets |
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--financial derivatives not included in official reserve assets |
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--gold not included in official reserve assets |
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--other |
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Source: U.S. Department of the Treasury.
Bob Doll's 2010 Forecast: Stocks Rise But Unemployment Stays "Stubbornly High
January 7, 2010--"A return to normalcy." That may be the best way to describe the outlook of BlackRock’s chief investment officer, Bob Doll. After two years of extreme volatility, Doll predicts market and economic conditions will continue to improve in 2010.
Doll forecasts improved economic growth of more than 3% next year. However, that growth maybe tempered for many by "stubbornly high" unemployment.
As for that massive stock market correction the bears are waiting for? Not going to happen, says Doll. He predicts the bull run will keep charging ahead -- albeit at a slower pace -- as the S&P 500 hits 1250 in 2010.
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Source: Yahoo
Invesco PowerShares Announces Zero Capital Gains Distributions for 2009 on 116 of 117 Funds
January 7, 2010--Invesco PowerShares Capital Management LLC, a leading provider of exchange-traded funds (ETFs), today announced that 116 out of 117 of its ETFs paid zero capital gains distributions for 2009.
Only one PowerShares ETF — the PowerShares NASDAQ-100 BuyWrite Portfolio (PQBW) — realized a small capital gains distribution (see table below), due largely to the unique underlying index methodology, which writes covered calls on the NASDAQ-100 Index. This is the first distribution for any PowerShares equity or fixed-income ETF since the firm’s 2003 inception.
“Our team manages ETF holdings in a manner which minimizes the amount of capital gains incurred by the funds. For the seventh consecutive year, we are very pleased that the process has prevented capital gains distributions for the vast majority of PowerShares ETFs,” said Ben Fulton, Invesco PowerShares managing director of ETFs. “This achievement highlights one of the many advantages ETFs can provide shareholders seeking to maximize real returns. Reducing the impact of taxes can meaningfully improve an investor’s prospects for creating and preserving real wealth.”
“ETFs generally allow investors greater tax planning flexibility compared to other product structures by providing control over the timing of capital gains,” said Fulton. “Similar to shares of common stock, the shareholders of an ETF typically realize taxable consequences only when shares are sold, thereby potentially minimizing or eliminating tax liability. Additionally, the in-kind method utilized by ETF asset managers during the creation and redemption process generally allows portfolios to avoid year-end capital gain payouts.”
The only PowerShares ETF that paid a capital gain distribution for 2009 — PQBW — is unique in the fact that it accounts for its gain or loss on its investments for federal income tax purposes on a daily mark-to-market basis.
Source: Invesco PowerShares
Emerging markets lead hedge fund replication indexes
January 6, 2010--The IQ Hedge Emerging Markets Beta Index was IndexIQ’s strongest performing hedge fund replication index in 2009, finishing the year up 42.96 per cent.
The next best performing index was the IQ Hedge Composite Beta Index, which was up 19.25 per cent at the end of 2009.
IndexIQ’s Hedge Event-Driven Beta Index was up 17.93 per cent, the Hedge Fixed Income Arbitrage Beta Index was up 17.00 per cent and the Hedge Long/Short Beta Index was up 15.80 per cent.
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Source: ETF Express
Remarks of Chairman Gary Gensler, “OTC Derivatives Reform”, Council on Foreign Relations
January 6, 2010--Good morning. I thank Professor Merit Janow for that kind introduction and the Council on Foreign Relations for inviting me to speak. I also want to wish you a happy new year. I hope that the new year will bring all that you wish it to bring. For me, that is financial regulatory reform. And of course that my daughter get into the college of her choice.
The 2008 financial crisis left us with many lessons and many challenges to tackle. From addressing institutions that are too big to fail to reforming mortgage underwriting and sales practices, it is essential that the Federal Government take significant steps to prevent the next crisis. This morning, I will focus on the need for comprehensive reform of over-the-counter (OTC) derivative markets.
In the year since the crisis, some have asked: why is it important to bring greater regulation to derivatives now?
The financial crisis certainly highlighted the need for regulatory reform of the derivatives marketplace. Had the crisis not occurred, however, the evolution of these markets would still warrant broad reform.
Derivatives are contracts used by corporations, municipalities, nonprofit organizations and others to protect themselves from the risk of a future change in markets. Every consumer is touched by corporations that use derivatives. Some of these corporations hedge interest rate risks; some purchase products from a supplier who hedged a currency rate. If you flew to visit your family over the holidays, the airline most likely hedged its risk that the price of jet fuel would increase. Local fuel companies use derivatives to lock in the price of winter heating oil for their customers. Many derivatives, called futures, are currently regulated by the Commodity Futures Trading Commission. Futures are standardized, liquid derivative contracts that have traded on exchanges since the 1860s. They are used to hedge many different types of risks. Initially futures products covered agricultural commodities, such as corn and CFTC PAGE 2 OF 4 wheat. They allowed farmers to both hedge a future price risk and get the benefit of the price established through a national market rather than just with a local dealer. After much debate, these markets were regulated in the 1920s – more than sixty years after the first contracts were traded. Over the next sixty years, though futures trading expanded to cover energy products and financial products, Congress responded to ensure that all of these products were traded on central markets and covered by regulation.
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Source: CFTC.gov
Federal Reserve: Minutes Of Federal Open Market Committee, December 15-16, 2009
January 6, 2010--Developments in Financial Markets and the Federal Reserve's Balance Sheet
The Manager of the System Open Market Account reported on developments in domestic and foreign financial markets since the Committee's November 3-4 meeting. Financial conditions generally had become somewhat more supportive of economic growth. There was little evidence of year-end funding pressures, although demand for Treasury bills with maturities extending just beyond year-end remained elevated.
The Manager also reported on System open market operations in agency debt and agency mortgage-backed securities (MBS) during the intermeeting period. The Desk continued to gradually slow the pace of purchases of these securities in accordance with the program for asset purchases that the Committee announced at the end of its November meeting. By unanimous vote, the Committee ratified those transactions. There were no open market operations in foreign currencies for the System's account during the intermeeting period. Since the Committee met in November, the Federal Reserve's total assets were about unchanged, at nearly $2.2 trillion, as the increase in the System's holdings of securities roughly matched a further decline in usage of the System's credit and liquidity facilities. The Manager noted that the System's holdings of securities will tend to decline gradually after the completion of the asset purchase programs, reflecting maturing issues and prepayments on holdings of MBS. The Manager noted that the Committee would likely wish to discuss in detail its policy for reinvesting the proceeds of maturing issues and prepayments; he proposed, as an interim approach, continuing the practice of not reinvesting the proceeds of maturing agency securities or MBS prepayments. Meeting participants supported that interim approach pending further discussion at future meetings.
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Source: Board of Directors of the Federal Reserve System
ELX Futures Announces 2009 Results
January 6, 2010--ELX Futures, L.P. (ELX Futures) announced today its 2009 year-end results with total volume exceeding 5 million contracts; average daily volume surpassing 41 thousand contracts; open interest topping 20 thousand contracts and ELX becoming the best performing new financial futures exchange launched this past decade.
Since its launch on July 10th, with four U.S. Treasury futures products, the new fully electronic futures exchange has been gaining volume and market share. ELX also announced in 2009 that it will launch the Ultra Long-Term U.S. Treasury Bond Futures contract and a STIR (Short-Term Interest Rate) Eurodollar futures contract in 2010.
2009 Highlights:
• ELX Futures launched as a fully electronic Designated Contract Market to trade U.S. Treasury Futures contracts on July 10th
• Total volume in 2009 exceeded 5mm contracts
• ADV in 2009 exceeded 41K contracts; ADV exceeded 50K contracts in the month of October
• ELX market share in 2 Year Note futures was 3.6% for 2009 and 6.1% in the month of December
• ELX market share in 5 Year Note futures was 3.7% for 2009; 3.3% in the month of December and hitting a high of 4.9% in the month of October
• ELX had 15 straight days of open interest exceeding 20K contracts to end 2009
• CFTC approved ELX’s Exchange of Futures for Futures “EFF” rule
• ELX announced it will launch the Ultra Long-Term U.S. Treasury Bond Futures contract and a STIR Eurodollar futures contracts in 2010 with an options contract under evaluation
• Goldman Sachs and Morgan Stanley joined ELX as founding partners
• Interactive Brokers, MF Global and Newedge registered with ELX to offer FCM services for futures contracts traded on ELX Futures
• ELX was the best performing new financial futures exchange launched this past decade
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Source: ELX Futures