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Public consultation on Short Selling and Credit Default Swaps-Frequently asked questions
June 14, 2010--What is the purpose and subject of the consultation?
The purpose of the document being published today is to consult market participants, regulators and other stakeholders on the options being considered by the Commission services for a forthcoming legislative proposal dealing with potential risks arising from short selling and Credit Default Swaps.
Short selling is the sale of a security that the seller does not own, with the intention of buying back an identical security at a later point in time in order to be able to deliver the security. Short selling can be divided into two types:
1."Covered" short selling is where the seller has borrowed the securities, or made arrangements to ensure they can be borrowed, before the short sale.
2."Naked" or "uncovered" short selling is where the seller has not borrowed the securities at the time of the short sale, or ensured they can be borrowed.
A Credit Default Swap (CDS) is a derivative which is sometimes regarded as a form of insurance against the risk of credit default of a corporate or government (or sovereign) bond. In return for an annual premium, the buyer of a CDS is protected against the risk of default of the reference entity (stated in the contract) by the seller. If the reference entity defaults, the protection seller compensates the buyer for the cost of default.
In addition to short selling on cash markets, a net short position can also be achieved by the use of derivatives, including Credit Default Swaps (CDS). For example, if an investor buys a CDS without being exposed to the credit risk of the underlying bond issuer (a so-called "naked CDS"), he is expecting, and potentially gaining from, rising credit risk. This is equivalent to short selling the underlying bond.
Why is the European Commission planning a legislative initiative in this area?
During the financial crisis and more recently in the context of market volatility in euro denominated sovereign bonds, Member States have reacted differently to short selling issues, with a variety of measures being put in place using different powers. A fragmented approach can limit the effectiveness of the measures imposed, lead to regulatory arbitrage (which basically means shopping around for the least onerous regime) and create additional costs and difficulties.
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Source: Europa
Turkey slowly but surely on its way to sustainable growth
June 14, 2010--Having already attracted the attention of many international institutions and credit rating agencies with its current strong economic performance, Turkey is taking firm steps forward to maintain a sustainable expansion of its economy, observers argue.
The country’s success in overcoming the adverse impacts of the 2009 global credit crunch has been largely attributed to certain austerity measures taken by the government along with a strong financial sector. Having rebounded sharply since the second quarter of last year -- when the economy grew by 6 percent over the same period of 2008 -- the coming months look good for the Turkish economy. A recently launched fiscal rule, which is accepted as an important anchor for the markets, has also been effective in this regard.
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Source: Todays Zaman
Economy : G20 keeps investment flows open, but continued vigilance needed, say OECD, UNCTAD
June 14, 2010-- The OECD and UNCTAD have commended G20 countries for avoiding new protectionist barriers to inward investment, while warning that continued vigilance is needed in the face of emergency measures to address the economic crisis that still pose a threat to competition and international investment.
In their third report to the G20 on this issue, the two organisations find that “by and large, G20 governments have continued to honour their commitment to refrain from raising new barriers to international investment.”
However, as governments wind down their emergency schemes and dispose of financial assets acquired in the crisis, they must ensure they do so at an appropriate pace and not use the crisis “as a pretext to discriminate directly or indirectly against certain investors, including foreign investors.”
“With the economic recovery still fragile and unemployment high, protectionist pressures will remain,” said OECD Secretary-General Angel Gurría. “Countries must hold firm and keep trade and international investment open to boost their economies.”
Most investment measures taken in the six months to May 2010 have continued to point towards liberalisation of international capital flows or increased regulatory clarity, according to the OECD.
read OECD Third Report G20 Investment measure
Companion report for the G20
Source: OECD
Consultation on Derivatives and Market Infrastructures - frequently asked questions
June 14, 2010--Why has the Internal Market and Services Directorate General of the European Commission launched another public consultation on Derivatives and Market Infrastructures?
The European Commission adopted a Communication on "Ensuring efficient, safe and sound derivatives markets – future policy actions", on 20th October 2009 after a full consultation on a previous Communication of July 2009 (COM(2009)332) and accompanying Staff Working Paper and Consultation Paper (see IP/09/1546).
In this Communication, the Commission outlined the policy actions it intended to take to address the problems of OTC (over-the-counter) derivatives markets.
Since then, the Internal Market and Services Directorate General of the European Commission has been developing more detailed measures in this respect. Following better regulation principles and considering the significant impact that the announced policy actions are likely to have on the markets, the Internal Market DG would now like to consult all interested stakeholders on these detailed measures. This consultation, which is open until 10 July 2010, is the final step before the Commission proposes legislative proposals in September.
What is the status of this consultation? Is this a legislative blue-print?
This document is a working document of the Internal Market DG for discussion and consultation purposes. It does not purport to represent or pre-judge the formal proposal of the Commission. However, it does give an overview of the Internal Market DG's current thinking on how to practically implement some of the actions outlined in October 2009.
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Source: Europa
Business leaders attack bank capital plans
June 14, 2010--Business leaders in France and Germany are sounding the alarm over plans to force banks to hold more capital to cover risk-taking, saying the proposed new rules would be “catastrophic” for the financing of European companies.
Laurence Parisot, head of France’s business confederation Medef, told the Financial Times the proposals being finalised by the Basel Committee on Banking Supervision later this year, known as Basel III, presented the risk of “a real contraction in credit. The schema being prepared by the Basel committee would be catastrophic”
Medef’s German counterpart, the BDI association of German industry, has also written to the European Commission to warn of the dangers of overzealous regulation.
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Source: FT.com
Europe-wide body to oversee OTC clearing
June 14, 2010--A new pan-European supervisory agency is set to be given a crucial role to decide which over-the-counter derivatives contracts must be cleared centrally, by European Union proposals to regulate the swaps market.
The decision is likely to be controversial in London, home to the bulk of OTC business and to most of Europe’s central counterparties (CCPs), or clearing houses. They are currently overseen by the UK markets regulator.
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Source: FT.com
Investors bypass rating agencies on securitisation
june 14, 2010--European investors are increasingly relying on their own analysis of securitisation deals rather than the rating agencies, according to a survey that also shows how interest in the sector is still scarred by the havoc wrought during the financial crisis.
Bishopsfield Partners, a structured finance consultancy, said that almost two-thirds of investors that it had surveyed believed that the industry had been "truly damaged" by the crisis - even though European deals have seen far less impairment of the underlying loans (and have held on to their high ratings) than their US counterparts.
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Source: FT.com
MiFID Monthly Market Share Reports-May 2010-Thomson Reuters
June 14, 2010--The Thomson Reuters MiFID Market Share reports for 2010 have been updated and are now available.
View report by Index
view report by Region & Country
Source: Thomson Reuters
EU sizes up 'temporary, emergency' naked short selling ban
June 14, 2010-- European regulators could ban naked short selling and CDS swaps but only short-term and in crisis situations, an EU consultation document circulated on Monday shows.
According to the consultation, which is open until July 10, market authorities could be given "powers to impose temporary restrictions on short selling and Credit Default Swap transactions in an emergency."
CDS trade and naked short selling -- when a dealer does not actually have the securities being traded -- are often highly speculative activities which the authorities have blamed in the past for market volatility and the taking on of too much risk.
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Source: EUbusiness
European Equity Market Report -May 2010-FESE
June 14, 2010--The May 2010 FESE European Equity Market Report is now available
view report
Source: FESE
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