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Blackrock-ETF Landscape: European DJ STOXX 600 Sector ETF Net Flows, week ending 19-Feb-10

February 24, 2010--Last week saw US$102.6 Mn net inflows to DJ STOXX 600 sector ETFs. The largest sector ETF inflows last week were in Basic Resources with US$153.8 Mn and Industrial Goods & Services with US$46.8 Mn while Telecoms experienced net outflows of US$87.6 Mn.

Year-to-date, Utilities has been the most popular sector with US$176.6 Mn net new assets, followed by Media with US$148.9 Mn net inflows. Telecommunications ETFs have been the least popular with US$256.9 Mn net outflows YTD.

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Coup plans, political tension lead to significant losses in markets

February 24, 2010--Turkey's capital markets are reacting wildly to recent internal developments regarding coup plans, the Ergenekon indictment and talk of another closure case against the Justice and Development Party (AK Party), while the lira lost value against the dollar due to this political tension.

The Ýstanbul Stock Exchange's (ÝMKB) ÝMKB-100 index was down nearly 1,000 points by the end of the first session of trading on Wednesday to 50,443.16, continuing this week's trend of continuing losses. The index closed last Friday at 53,318.97, a slight recovery from a two-week dip. This recovery was short-lived, however, as the index had dropped a staggering 5.4 percent, or nearly 2,900 points, from that figure by the end of the first session of trading on Wednesday.

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More powerful EU financial supervisory bodies and less national interest, demand MEPs

February 24, 2010--The need for more ambition and more Europe was the main message to emerge from debates on the EU financial supervisory package at Parliament's Economic Affairs Committee on Tuesday. Calls for tougher legislation and a bigger transfer of powers to the EU supervisory level were among the chief demands made by the four MEPs presenting their draft reports.

All four EP rapporteurs questioned the Council compromise that emerged from December's Ecofin meeting. The safeguard clause protecting Member States' fiscal powers, which the rapporteurs consider over-restrictive, was the major bone of contention. Another concern was the possibility of geographical fragmentation, as the Commission is currently proposing different cities for each authority.

One supervisory system in one city

The watchdog system being proposed by the Commission is made up of three separate micro-supervisory bodies for the monitoring of banking, insurance and market institutions respectively and another macro-supervisory body for the monitoring of systemic risk. Although willing to preserve these four bodies, the rapporteurs suggest grouping them together under the European System of Financial Supervision proposed in the de Larosière report on financial supervision in the EU. Consequently they also argue - unlike the initial proposal - that a common location should be chosen, with the European Systemic Risk Board report proposing that this be Frankfurt. This would not only reduce operating costs but could also be very useful in the event of a crisis necessitating emergency action.

Safeguard or wildcard?

As it currently stands the safeguard clause found in the proposed texts establishing the three micro-supervisory authorities offers a quasi-veto for Member States regarding the decisions of these authorities.

The rapporteurs therefore propose that the opportunity to invoke such a safeguard be limited and that the Member State concerned be required to provide an impact assessment detailing the extent to which the decision impinges on its fiscal sovereignty.

Stronger micro-supervisory authorities

Apart from the very important question of the safeguard clause, the three rapporteurs for the micro-supervisory authorities proposed a number of other improvements to the Commission's proposals, mostly to increase the role of supervision at EU level.

The reports propose that these authorities also be tasked with preventing regulatory arbitrage and that they should have a power of initiative to undertake stress tests. They should also represent the EU during international dialogues of supervisors. To varying degrees the rapporteurs would confer mediating powers on the authorities with regard to conflicts between national supervisors, with the report on the banking authority going furthest by suggesting a binding mediating role.

All reports give a more important role to the European Parliament, particularly by entrusting it with the task of overseeing the activities of the authorities.

Specifically for the banking authority, the rapporteur proposes that the authority takes over from national supervisors the direct supervision of cross-border 'too big to fail' financial institutions and puts forward the idea of setting up a European guarantee fund which could be used to bail out banks in difficulty.

As for the markets authority, the draft report proposes that the authority be granted the right to prohibit the trading of certain products to protect investors and ensure stability.

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New Issuer Amundi ETF Launched on Xetra-Offering in Deutsche Börse XTF segment expanded by 17 ETFs

February 23, 2010--Since Tuesday, 16 equity index funds and one money market index fund from the new issuer Amundi ETF have been tradable on Xetra®.

New Issuer Amundi ETF Launched on Xetra Offering in Deutsche Börse XTF segment expanded by 17 ETFs 23. February 2010

Deutsche Börse: Since Tuesday, 16 equity index funds and one money market index fund from the new issuer Amundi ETF have been tradable on Xetra®.

“We welcome new issuer Amundi ETF to Xetra and are pleased that this provider has chosen to be listed on Europe’s leading platform for exchange-traded index funds. Investors across Europe are now able to benefit from the offering via our Xetra network, which was today expanded to include 17 cost-effective and innovative products from Amundi ETF,” said Rainer Riess, Managing Director of Xetra Market Development at Deutsche Börse.

Valérie Baudson, Managing Director of Amundi ETF, said: “The listing on the pan-European trading platform Xetra is part of our European growth strategy. We offer investors in Germany and across Europe a comprehensive range of products that is mainly characterized by the following three features: very competitive prices, high product quality and continuous innovation.”

Six of these indices are tradable on Xetra for the first time. The MSCI China H Index tracks the performance of 30 Chinese companies listed in Hong Kong. The MSCI Germany Index tracks the performance of the 60 largest German stock corporations. The MSCI World ex EMU Index contains 1,400 international companies outside the euro area. The MSCI World ex Europe comprises 1,200 international companies outside Europe. The Leveraged MSCI Europe and Leveraged MSCI USA indices track the performance of European and US companies respectively with a leverage factor of two.

An additional ETF measures the price of the Short DAX® 30 Index calculated by Deutsche Börse. This enables investors to participate in the inverse performance of the 30 (by market capitalization) largest and best-performing German companies listed on the FWB® Frankfurt Stock Exchange’s Prime Standard.

Three ETFs are based on the Dow Jones EURO STOXX 50®, Leveraged Dow Jones EURO STOXX 50® and Short Dow Jones EURO STOXX 50® indices. Investors can participate in the performance of the 50 largest companies in 12 euro area countries with a single or double leverage factor or track their inverse performance.

A further six ETFs mirror the performance of the MSCI index family, offering investors the opportunity to participate in the development of the MSCI Europe, EMU, Pacific ex Japan, USA, Japan and India indices.

The money market index fund tracks the performance of the EuroMTS EONIA Index, which reflects the performance of the euro area's unsecured interbank loans denominated in euros.

The product offering in Deutsche Börse’s XTF segment currently contains a total of 573 exchange-listed index funds, making it the largest offering of all European stock exchanges. This selection, together with an average monthly trading volume of €11 billion, makes Xetra Europe’s leading trading venue for ETFs.

Hedge funds directive: MEPs start scrutiny of draft legislation

February 23, 2010--The size, location and leverage of funds to be covered by the proposed EU directive on alternative investment fund managers, which would subject them to a mandatory authorisation and supervisory system, were debated by the Economic and Monetary Affairs Committee on Tuesday.
In discussion of the 1,669 proposed amendments to the report, a number of issues were raised by rapporteur Jean-Paul Gauzès (EPP, FR) and also by the shadow-rapporteurs of the political groups and other MEPs.

Scope

The draft report removes the €100 million threshold exemption from the directive’s application and suggests replacing it with a proportionality rule. At the meeting, Mr Gauzès added that this rule would need to be "very well defined, so as to avoid catching funds which need not be over regulated". Peter Skinner (S&D, UK), agreed: "we will lose the battle with the Council if we go back to the thresholds approach", he said.

The report also broadens the scope to cover EU-located offshore fund managers and limits the exemption possibility for pension funds, insurance firms and credit institutions. In his intervention however, Mr Gauzès emphasised that he would be working to clearly define what is not to be considered a fund and hence will not fall under this directive. Robert Goebbels (S&D, AT), agreed that exemptions should be kept to a strict minimum.

Marta Andreassen (EFD, UK), said that investment trusts like those in the UK must be excluded. Sharon Bowles (ALDE, UK), warned that if only private equity companies had to comply with this directive, it would place them at a disadvantage vis-à-vis other private companies.

Marketing rules and non-EU domiciled AIFs

The rapporteur's draft proposes granting a "European passport" to allow any EU-domiciled fund to be marketed throughout the EU. It agrees with the European Commission that the marketing of non-EU funds within the EU should be subject to authorisation by individual Member States, but removes the initially proposed three-year wait before this takes effect.

Mr Gauzès said he would work on the idea of a dual period whereby permission to market would be granted after a transition period in which equivalence of supervisory standards in third countries would be ascertained, possibly by the Commission. If after such a period it were found that equivalence did not exist then the marketing of the non-EU funds concerned would be prohibited.

Robert Goebbels (S&D, AT), warned against the risk of putting funds outside the EU in a more favourable position than those within it. By contrast, Syed Kamall (ECR, UK), observed that "we must avoid discrimination against third country funds. The new position proposed by Mr Gauzès is good provided it is clear to third country jurisdictions what the equivalence rules are".

Leverage

AIF managers should define in advance the leverage limit which they will use for each AIF, according to Mr Gauzès' draft, which also provides that the Commission may set leverage limits on advice from the European Systemic Risk Board (ESRB), if the EU Securities and Markets Authority (ESMA) considers that the leverage being used is excessively risky.

"Defining leverage is more difficult than it may at first appear", said Wolf Klinz (ALDE, DE), who felt that Member States should nonetheless have the option of laying down certain conditions.

Sven Giegold (Greens/EFA, DE), felt that the report's leverage provisions were too weak. "This issue will need to be cleared up quickly", he said. Ms Andreassen replied that hedge funds' use of leverage has declined considerably and that therefore "leverage caps today are outdated. The industry has moved on."

Short-selling

Mr Gauzès would subject short selling to a harmonised regulatory framework, so as to reduce its potential destabilising effect, and proposes that the ESMA be empowered to restrict it.

"It is immoral to influence markets through the practice of naked short-selling and such scandalous practices needed to be eliminated", said Mr Goebbels. The directive needs to be strict, so as to protect companies from such practices, agreed Mr Giegold. By contrast, Mr Kamall, called for a distinction to be made between naked and covered short-selling with the latter being a valid activity which increases liquidity.

Remuneration of managers

The rapporteur proposes applying the principles of the G20's Pittsburgh Declaration on the remuneration of executives of banks and other financial institutions to AIF managers. Pay should be commensurate to risk and would need to be disclosed. Mr Kamall, observed that it would be unwise to follow the remuneration philosophy applied to the banking sector because fund managers are rewarded on their performance and their priorities are often the same as those of investors.

Next steps

Mr Gauzes presented his draft report to the Economic and Monetary Affairs Committee members in December 2009. A further discussion of the amendments will take place on 17 March. It is expected that this report together with the amendments will be put to a committee vote in mid-April and a plenary vote in July.

A financial transaction tax to dampen speculation and pay for the crisis

February 23, 2010--A globally implemented tax to discourage excessive risk-taking by financial institutions and to ensure the industry pays for the damage caused by the financial crisis should be considered, believes Parliament's Economic Affairs Committee. If a worldwide tax proves unachievable, the EU could consider going it alone, say MEPs.

In an oral question and resolution adopted on Tuesday on a financial transaction tax, members of the committee also urge the Commission and Council to look at how the tax could be used to help developing countries fund the fight against climate change as well as to finance development cooperation. They should also consider how the tax could contribute to the EU budget, say MEPs.

The Commission is asked to carry out an impact assessment of such a tax, to see how far it could contribute to stabilising financial markets and prevent a similar crisis by targeting "undesirable" transactions.

While preferring a global approach through the G20, MEPs believe the pros and cons of introducing a purely EU-wide tax should be weighed up, even if the EU's main partners do not introduce such a tax.

Any such tax must not harm the banking system's ability to perform its vital role of financing real economy investments, stresses the Economic Affairs Committee.

These issues will be put to the Council and the Commission during the March plenary session in Strasbourg.

CESR Updates The List Of Measures Recently Taken By Members Regarding Short-Selling

February 23, 2010--CESR published on 22 September 2008 a statement that facilitates an overview of actions taken by CESR Members in relation to short-selling. The statement paper includes either the statements or links to the statements published by CESR Members explaining the measures taken. This paper is not a comparison of the measures taken.

CESR updates the list of measures recently taken by Members regarding short-selling. The documents will be updated on a continuous basis; the latest update has been provided by the Austrian regulator FMA that extended their ban on naked short selling in certain shares.

Further information can be found in the statement published today.

Turkish banks still have long way for Basel II

February 23, 2010--As of December 2009, banks holding 68.7 percent of the total assets of the banking sector had presented their strategies and policies to adopt the Basel II criteria, a set of banking laws and regulations, to their boards for approval or had already started to implement the norms, a recent survey has shown, indicating that the system will require a lengthy period of time to become fully functional.

The Banking Regulation and Supervision Agency (BDDK) yesterday released its latest Banking Sector Basel II Progress Report, based on answers given to surveys conducted with a view to monitoring bank preparations relating to Basel II implementations.

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Banking Sector Basel II Progress Report is Published-BRSA-Turkey

February 23, 2010--“Banking Sector Basel II Progress Report” is prepared based on the answers given to surveys arranged with a view to monitor the preparations of the banks relating to Basel II implementations.

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BUSINESSEUROPE Priorities for External Competitiveness 2010-2014: Building on Global Europe

February 23, 2010--EXECUTIVE SUMMARY
The paper presents BUSINESSEUROPE’s views on the external dimension of the EU’s competitiveness strategy from 2010, and expands on Go for Growth, BUSINESSEUROPE’s agenda for 2010-2014. The EU’s external competitiveness policy should generate long-term growth and employment in the European economy through expanded trade and investment.

This is accurately reflected in the link between commercial policy and EU competitiveness that is at the heart of the EU’s current Global Europe strategy.

The EU 2020 strategy should, therefore, maintain Global Europe while making improvements in some key areas.

The EU should:

1 Deliver new market access through trade negotiations and ensure that these are better enforced:
• An ambitious and balanced conclusion of the WTO’s Doha Round aiming for substantial market access for EU companies to major markets should be the top priority for 2010. If this is not possible in the short term new approaches should be considered, including broad sectoral negotiations and moving ahead with such topics as trade facilitation, within the single undertaking.
• The EU’s agenda for bilateral free trade agreements must be continued and intensified. Agreements must comprehensively address the barriers faced by companies.
• Agreements and other trade rules must be enforced through all effective means including dispute settlement and a revised Trade Barriers Regulation.

The Market Access Partnership should be further strengthened.

2 Take a more strategic approach to its relationships with important partner countries:
• The EU needs comprehensive strategies for its economic relations with major partners – both traditional and emerging. These should include improved analyses of priorities and better coordination within and between EU institutions and with Member States.
• Priority countries for BUSINESSEUROPE are the United States, China, Russia, India, Japan and Brazil.

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