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Recommendations for Equitable Allocation of Trades in High Frequency Trading Environments
May 21, 2013--Most industry observers and much of the academic research in this area have concluded that High Frequency Trading (HFT) is generally beneficial. Many institutional investors, however, believe that HFT places them at a competitive disadvantage.
Digital computers will always have some structural (speed) advantages over human traders. This is inevitable.
This paper (1) acknowledges and summarizes much of the relevant published research (2) discusses some of the HFT strategies that likely run counter to good public policy and (3) makes six recommendations that, if implemented, would not preclude any current HFT strategies, but would likely restore some competitive advantage to market participants that would be willing to expose their resting orders to market risk for more than fleeting milliseconds.
view the Recommendations for Equitable Allocation of Trades in High Frequency Trading Environments1 paper
Source: John McPartland, Federal Reserve Bank of Chicago
Deutsche Bank-Synthetic Equity & Index Strategy-North America- Markets and $5.2bn inflows push US ETP assets to $1.519 trillion
May 21, 2013--Market and Net Cash Flows Review
Equity markets were mostly higher during last week with the exception of EM markets which ended slightly lower. The US (S&P 500) edged higher by 2.07%; while, outside the US, the MSCI EAFE (in USD) rose by 0.44% and the MSCI EM (USD) dropped by 0.36%.
Moving on to other asset classes, the 10Y US Treasury Yield rose by 5bps last week; In the meantime the DB Liquid Commodity Index was down by 0.34%. Similarly, the Agriculture sector (DB Diversified Agriculture Index), Gold and Silver prices retreated by 1.60%, 6.12% and 6.81%, respectively, while the WTI Crude Oil end flat for the week. Last but not least, Volatility (VIX) dropped by 1.11% during the same period.
The total US ETP flows from all products registered $5.24bn (+0.30% of AUM) of inflows during last week vs. $13.79bn (+0.90%) of inflows the previous week, setting the YTD weekly flows average at +$4.2bn (+$84.46bn YTD in total cash flows).
Equity, Fixed Income, and Commodity ETPs experienced flows of +$6.57bn (0.58%), -$0.76bn (-0.27%), -$0.75bn (-0.89%) last week vs. +$11.76bn (1.06%), +$2.59bn (0.93%), -$0.69bn (-0.79%) in the previous week, respectively.
Among US sectors, Information Technology (+$0.32bn, +1.57%) and Financials (+$0.32bn, + 1%) received the top inflows, while Energy (-$0.51bn, -2.05%) and Industrials (-$0.15bn, -1.87%) experienced the largest outflows.
Top 3 ETPs & ETNs by inflows: SPY (+$1.5bn), DXJ (+$1.4bn), EWJ (+$0.6bn)
Top 3 ETPs & ETNs by outflows: IWM (-$1bn), GLD (-$0.6bn), HYG (-$0.4bn)
New Launch Calendar: Income
Turnover Review: Floor activity rose by 14%
Total weekly turnover increased by 13.9% to $275.16bn vs. $241.62bn from the previous week. Last week's turnover level was 2.0% over last year's weekly average. Equity, Fixed Income and Commodity ETPs turnover increased by $27.7bn (13.3%), $3.4bn (19.1%) and $2.5bn (20.3%), respectively.
Assets under Management (AUM) Review: assets rose by $16bn
US ETP assets rose by $15.7bn (+1.0%) totaling $1.519 trillion at the end of the week. As of last Friday, US ETPs had accumulated an asset growth of 13.9% YTD. Assets for Equity, Fixed Income and Commodity ETPs moved +$20.6bn, -$1.6bn, -$3.5bn during last week, respectively.
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Source: Deutsche Bank-Synthetic Equity & Index Strategy-North America
The Too Big To Fail: Federal Reserve Bank At 100 Years Of Age
May 20, 2013--As the markets reach new highs, and scandal dominates the nation's capitol, I am compelled to examine the still unresolved challenges about whether our 100 year old central bank-the Federal Reserve-will be capable of warding off another potential systemic financial crisis like the one that almost toppled the economy in 2008.
And secondarily, whether the continuation of QE2 in lesser or greater degree will continue to foster a bull market in stocks– which have gained value in 16 of the last 20 weeks.
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Source: Forbes
Morgan Stanley-ETF Weekly Update
May 20, 2013--Weekly Flows: $4.9 Billion Net Inflows
ETF Assets Stand at $1.5 Trillion, up 14% YTD
One ETF Launch Last Week
Guggenheim to Close Chinese Yuan Bond ETF
US-Listed ETFs: Estimated Flows by Market Segment
ETFs posted net inflows of $4.9 bln last week; 4th consecutive week of net inflows
- ETFs have posted net inflows in 17 out of 20 weeks YTD, including $28.2 bln in net inflows over the last four weeks
- Last week’s net inflows were led by International-Developed Equity ETFs ($2.4 bln); conversely, US Small- & Micro-Cap ETFs
had net outflows of $847 mln, the most of any category we measured
ETF assets stand at $1.5 tln, up 14% YTD; $82.9 bln net inflows YTD
13-week flows were mostly positive among asset classes; combined $46.5 bln in net inflows
Despite exhibiting net outflows last week, Fixed Income ETFs have generated $15.1 bln in net inflows over the last 13 weeks, the
most of any category we measured
Commodity ETFs have posted net outflows of $16.1 bln over the last 13 weeks; in particular, one ETF, the SPDR Gold Trust
(GLD), has exhibited net outflows of $13.8 bln over this period (GLD accounts for 58% of Commodity market cap)
US-Listed ETFs: Estimated Largest Flows by Individual ETF
The SPDR S&P 500 ETF (SPY) posted net inflows of $1.5 bln last week, the most of any ETF
SPY’s net inflows over the last 4- ($4.9 bln) and 13-week ($6.8 bln) periods were also the most of any ETF
The WisdomTree Japan Hedged Equity Fund (DXJ) and iShares MSCI Japan Index Fund (EWJ) generated a combined $2.0 bln in
net inflows last week; over the last 13 weeks, the two funds have posted a combined $9.9 bln in net inflows
Three of the largest pure corporate bond ETFs (HYG, LQD, JNK) posted aggregate net outflows of $1.0 bln last week
US-Listed ETFs: Short Interest Data Unchanged: Based on data as of 4/30/13
Energy Select Sector SPDR (XLE) had the largest increases in USD short interest at $972 mln
XLE’s 46.6 mln shares short are at their highest level since 5/31/12
GLD’s shares short increased for the second consecutive period and are at their highest level since 8/31/11
Aggregate ETF USD short interest increased by $1.2 bln over the period ended 4/30/13
The average shares short/shares outstanding for ETFs is currently 4.3%
The SPDR Retail ETF (XRT) had the most shares short as a % of shares outstanding at 355% for the period ended 4/30/13; despite
consistently being one of the most heavily shorted ETFs since we began tracking the data, XRT has outpaced the S&P 500 Index
from a total return standpoint YTD and over the past 1-, 3-, and 5-year periods
Based on multiple borrowings and the ability to continuously create new shares, shares short as a % of shares outstanding can
exceed 100% (only seven ETFs exhibited shares short as a % of shares outstanding greater than 100%)
US-Listed ETFs: Most Successful Recent Launches by Assets
Source: Bloomberg, Morgan Stanley Wealth Management ETF Research. Data estimated as of 5/17/13 based on daily change in share counts and daily NAVs.
$6.5 bln in total market cap of ETFs less than 1-year old
Newly launched International - Emerging Equity ETFs accounted for 24% of the market cap of ETFs launched over the past
year, the most of any category; iShares Core MSCI Emerging Markets ETF (IEMG) is the largest recently launched ETF with a
market cap of $1.3 bln
Issuance has been light in 2013 relative to the past three years; 44 new ETF listings and 27 closures/delistings YTD
Out of the 101 ETFs launched over the past year, 66 had no net flows last week; many newer listing are simply not gaining
traction and 41 have market caps less than $10 mln
The top 10 most successful launches make up 67% of the market cap of ETFs launched over the past year
Eight different ETF sponsors and two asset classes represented in top 10 most successful launches
Seven out of the 10 most successful launches over the past year have an income orientation
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Morgan Stanley
CFTC.gov Financial Data for Futures Commission Merchants Update
May 20, 2013--Selected FCM financial data as of March 31, 2013 (from reports filed by April 30, 2013) is now available.
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Source: CFTC.gov
H.R. 992, Swaps Regulatory Improvement Act
May 20, 2013--As ordered reported by the House Committee on Financial Services on May 7, 2013
H.R. 992 would allow certain financial firms to retain financial portfolios containing swaps while remaining eligible for assistance from the Federal Reserve and Federal Deposit Insurance Corporation (FDIC).
A swap is a contract between two parties to exchange payments based on the price of an underlying asset or change in interest, exchange, or other reference rate. Swaps can be used to hedge or mitigate certain risks associated with a firm’s traditional activities, such as interest rate risk, or to speculate based on expected changes in prices and rates.
Enacting this legislation could affect direct spending and revenues; therefore, pay-as-you-go procedures apply. However, CBO estimates that any impact on the net cash flows of the Federal Reserve or the FDIC over the next 10 years would not be significant.
view the H.R. 992
Swaps Regulatory Improvement Act
Source: Congressional Budget Office (CBO)
VTL Associates Closes Growth Capital Investment
Suzhou Industrial Park Kaida Venture Capital Investment will fuel expansion of RevenueShares Family of ETFs
May 20, 2013--VTL Associates, LLC, an independent investment advisory and consulting firm, has received an investment from Suzhou Industrial Park Kaida Venture Capital, an international venture capital firm based in Dalian, China.
The growth capital will be used to support the expansion of RevenueShares, a division of VTL that provides revenue-weighted exchanged-traded funds (ETFs).
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Source: VTL Associates
SEC issues warning on ETF compliance
May 19, 2013--Has the Securities and Exchange Commission granted your firm exemptive relief in recent years? If so, it would be wise for compliance personnel to check to ensure compliance with the conditions that are part of that relief
That’s because the SEC is paying close attention to this area of late.
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Source: FT.com
Deutsche Asset & Wealth Management Introduces the First Hedged Equity German Exchange Traded Fund to the U.S. Marketplace
May 17, 2013--Deutsche Asset & Wealth Management today announced the addition of the db X-trackers MSCI Germany Hedged Equity Fund (NYSE Ticker: DBGR) to the db X-trackers platform, effective May 31, 2013.
DBGR is the first ETF designed to provide investors direct exposure to the German equity markets while mitigating exposure to fluctuations between the value of the U.S. dollar and the euro.
DBGR will provide access to Germany, the fourth largest economy in the world by gross domestic product according to UN data1, while simultaneously decoupling German equity investment from currency exposure. Before the introduction of DBGR, investors could only access the German stock market through unhedged ETFs that subjected the funds to the fluctuations in the currency market, possibly eroding gains in equity investments.
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Source: Deutsche Asset & Wealth Management
CFTC.gov Commitments of Traders Reports Update
May 17, 2013--The current reports for the week of May 14, 2013 are now available.
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Source: CFTC.gov
