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UK regulators call for action on hidden leverage threat to pension funds
November 20, 2022--Policymakers say more must be done to address blind spot revealed by September's gilt crisis
Regulators and policymakers are calling for action to address the risks associated with pension funds' use of derivatives, after key watchdogs admitted last week that they were unprepared for the crisis that hit the industry in September.
The meltdown, now the focus of four separate parliamentary probes, revealed regulators did not have a reliable picture of the scale of hidden leverage in liability-driven investment (LDI) strategies, which cover about £1.4tn of the future promises made by UK defined benefit pension schemes.
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Source: ft.com
New Equity ETF from Amundi on Xetra: sustainable exposure to the Japanese market
November 18, 2022--A new exchange-traded fund issued by Amundi Asset Management has been tradable on Xetra and via Börse Frankfurt since Friday.
The Amundi Index MSCI Japan SRI PAB -UCITS ETF offers investors broadly diversified exposure to the Japanese equity market. The ETF offers access to companies with an outstanding ESG profile that have a large and medium market capitalisation.
Companies that have a negative impact on the environment and social structures are excluded.
The underlying index pursues a strategy that considers both the opportunities and risks of climate change and the minimum requirements of the Paris Climate Agreement. The trading currency is CHF.
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Source: Xetra
ESMA launches a consultation on guidelines for the use of ESG or sustainability-related terms in funds' names
November 18, 2022--The European Securities and Markets Authority (ESMA), the EU's financial markets regulator and supervisor, is seeking input on draft guidelines on the use in funds' names of ESG or sustainability-related terms.
Funds' names are a powerful marketing tool.
In order not to mislead investors, ESMA believes that ESG-and sustainability-related terms in funds' names should be supported in a material way by evidence of sustainability characteristics or objectives that are reflected fairly and consistently in the fund's investment objectives and policy.
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Source: ESMA
IMF Working Paper-The Carrot and the Stock: In Search of Stock-Market Incentives for Decarbonization
November 18, 2022--Financial markets can support the transition to a low-carbon economy by redirecting funds from highly emissive to clean investments. We study whether European stock markets incorporate carbon prices in company valuations and to what degree they discriminate between firms with different carbon intensities. Using a novel dataset of stock prices and carbon intensities of 338 European publicly traded companies between 2013 and 2021, we find a strongly statistically significant relationship between weekly carbon price changes and stock returns.
Crucially, this relationship depends on firms' carbon intensity: the higher the carbon costs a firm faces, the poorer its stock performance during the periods of carbon price increases. Emissions covered with free allowances however do not affect this relationship, illustrating how both carbon pricing and disclosures are needed for financial markets to foster climate change mitigation. The relationship we identify can provide an incentive for firms to decarbonize. We argue in favor of more ambitious carbon pricing policies, as this would strengthen the stock-market incentive channel while causing only limited financial stability risk for stocks.
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Source: IMF.org
ECB-Euro area investment fund statistics: third quarter of 2022
November 18, 2022--In third quarter of 2022, outstanding amount of shares/units issued by investment funds other than money market funds fell to €14,513 billion, down €342 billion on previous quarter
Net redemptions in quarter amounted to €94 billion, with €1,002 billion in gross issues and €1,096 billion in gross redemptions
Outstanding amount of shares/units issued by money market funds rose to €1,368 billion, up €5 billion on previous quarter
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Source: ECB
LDI crisis to hit L&G's DB revenue and profit by £10mn
November 18, 2022--Legal & General has disclosed that its defined benefit business-linked revenues and profits will be hit by around £10mn in its full-year 2022 results, following an autumn liquidity crisis among pension schemes that saw its higher-fee products sold to meet collateral calls.
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Source: pensions-expert.com
ESMA consults on rules for passporting for investment firms
November 17, 2022--The European Securities and Markets Authority (ESMA), the EU's financial markets regulator and supervisor, is seeking input on the review of the technical standards under Article 34 of the Markets in Financial Instruments Directive (MiFID II), covering the provision of investment services across the EU.
The main amendments proposed add the following items to the information that investment firms are required to provide at the passporting stage:
the marketing means the firm will use in host Member States;
the language(s) for which the investment firm has the necessary arrangements to deal with complaints from clients from each of the host Member States in which it provides services;
in which Member States the firm will actively use its passport as well as the categories of clients targeted; and
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Source: ESMA
New bond ETFs from Vanguard on Xetra: access to corporate bonds with consideration of ESG criteria
November 17, 2022--Five new exchange-traded funds issued by Vanguard have been tradable on Xetra and via Börse Frankfurt since Thursday.
The Vanguard ESG USD Corporate Bond UCITS ETF gives investors access to a broadly diversified portfolio of corporate bonds worldwide.
The corporate bonds are denominated in US dollars, have a fixed interest rate and a residual term of at least one year. Investors can choose between an accumulating, distributing and currency-hedged share class.
The Vanguard ESG EUR Corporate Bond UCITS ETF provides access to a broadly diversified portfolio of corporate bonds worldwide. Corporate bonds are considered that are denominated in euros, have a fixed coupon and a residual term of at least one year.
Investors can choose between an accumulating and a distributing share class.
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Source: Xetra
HSBC AM downgrades seven Article 9 Paris-aligned ETFs
November 17, 2022--Downgraded to Article 8
HSBC Asset Management has dropped the Article 9 label from seven of its regional Paris-aligned ETFs, instead categorising them as the 'lighter green' Article 8 under the EU’s SFDR.
In a notice to shareholders, the firm said that it was "n the best interests of investors' for the label to be dropped,"pending further regulatory clarification" on the categorisation of funds that track Paris-aligned benchmarks.
The ETFs changed include the firm's Paris-Aligned ETFs with regional focuses on Europe, Japan, USA, Asia and emerging markets, as well as its global one.
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Source: investmentweek.co.uk
ECB Financial Stability Review shows risks increasing as economic and financial conditions worsen
November 16, 2022--Households and firms face multiple challenges, including weakening economic outlook, higher inflation and tighter financial conditions
Diminished market liquidity raises risk of disorderly asset price adjustments, which could test investment fund resilience
Governments should ensure support to vulnerable sectors is targeted and does not interfere with monetary policy normalisation
Risks to financial stability in the euro area have increased amid soaring energy prices, elevated inflation and low economic growth, the November 2022 Financial Stability Review published today by the European Central Bank (ECB) shows. At the same time, financial conditions have tightened as central banks act to rein in inflation.
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Source: ECB