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Esma group paper gives clue to rule changes
January 23, 2012--n 2011 regulators in many countries expressed concerns that exchange traded funds were becoming too complex, and raised issues relating to investor protection and systemic risk. The European Securities and Markets Authority (Esma) is expected to announce new rules soon.
One of the catalysts for these concerns among regulators and investors has been the finger pointing and bickering between physical ETF providers (mostly asset managers) and synthetic ETF providers (mostly banks and brokers) highlighting risks to investors making use of the rival products.
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Source: FT.com
iShares expands its commodity range with four new ETFs
Products set new standards of transparency and risk management for commodity swap ETFs
January 23, 2012--iShares, the Exchange Traded Funds (ETF) platform of BlackRock, Inc. (NYSE: BLK) today expanded its commodity range with the launch of
four ETFs that set new industry standards for commodity swap-based funds, by utilising iShares unique swap-based ETF platform, designed to provide unparalleled levels of transparency and investor protection in the ETF market.
The iShares S&P GSCI Dynamic Roll Agriculture Swap, iShares S&P GSCI Dynamic Roll Energy Swap, iShares S&P GSCI Dynamic Roll Industrial Metals Swap and iShares S&P GSCI Dynamic Roll Commodity Swap ETFs listed on the London Stock Exchange today. They track the latest generation of S&P GSCI indices and offer diversified
exposure to agriculture, energy, industrial metals and the broad commodity market.
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Source: BlackRock
Trade bodies unite to raise Esma fears
January 22, 2012--Seven of Europe's most influential trade associations have joined forces to voice their concerns over the extraordinary workload being handled by Europe's regulatory agencies – and have demanded that they get more time and resources to formulate new rules.
In an open letter to the European Commission, trade bodies including the Futures and Options Association, the Association for Financial Markets in Europe and the International Swaps and Derivatives Association, said the challenges facing European watchdogs were "acute", and could "jeopardise high quality regulation."
The letter read: "The reform programme is moving into a phase of drafting detailed implementing and technical rules.
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Source: Financial News
Deutsche Börse increases market quality with new Top of the Book Order
January 20, 2012--The new Top of the Book Order is Deutsche Börse's contribution to a higher market quality. The order type narrows the order book spread and is beneficial for the entire market.
Technically it was implemented with Xetra Release 12.0 and there already is huge interest from trading participants.
This is how the Top of the Book Order works: by entering a Top of the Book Order, a trader ensures that an order is either placed on top of the order book and thereby reduces the current order book spread, or rejected.
Prior to the new release, Deutsche Börse had conducted a series of market tests and the collected data showed clearly that this order type results in narrower spreads. It improves the market efficiency for all trading participants because liquidity goes up and transaction fees go down.
Deutsche Börse considers participants who use the Top of the Book Order as liquidity providers and grants them credit instead of charging a transaction fee.
Client feedback has been excellent, the first contracts with Top of the Book Liquidity Providers have been signed and there is high demand for this innovative order type.
Source: WFE
EU faces struggle to bridge divide with Britain
Regulation chief to meet UK finance minister in London
Two set to discuss reforms after recent EU summit split
Smooth relations important in drive for financial reform
January 20, 2012--Michel Barnier, the official in charge of regulating finance in the European Union, meets George Osborne on Monday in what are likely to be tough talks over rules the British finance minister believes will hurt the City of London.
Relations between Brussels, where the European Commission sets the direction of regulation for banking and finance, and London, which fears losing its autonomy in supervising its powerful financial centre, have reached a low ebb.
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Source: Reuters
ALFI annual review-In 2011, Luxembourg funds industry has continued to maintain jobs amid crisis
Stability and reputation of Grand Duchy helps employee numbers to rise and net sales to remain positive
January 19, 2012--ALFI continues to raise concerns over regulations which adversely impact the funds industry and its end users.
The Luxembourg funds industry continued to expand over the last 12 months despite the eurozone crisis and declines in major stock indices.
The number of funds in Luxembourg rose by 4.84%1 to 3,833 and net sales amounted to €16.998bn. While total AUM decreased over the period by €101.453bn, mainly as a result of market depreciation, total assets under management were still a steady €2,059.419bn, second globally only to the US.
The increase in net sales and funds enabled the Luxembourg fund industry to continue to maintain and even create employment in 2011. The Luxembourg financial centre, of which the fund industry is a key part, is a motor of the Luxembourg economy, with over 43,000 employees working directly for Luxembourg financial sector companies and many more working for non-financial companies that provide goods and services to the financial centre.
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Source: ALFI
European Buy-Side Traders Call For Standards Supporting The Quality Of Liquidity Across Lit Venues, TABB Says
Electronic Trading In Europe To Reach 45% Of Average Daily Value Traded By Traditional Asset Managers In 2012, Up From 38% In 2010
January 19, 2012--Although change and uncertainty will continue to hold sway across the lit and dark equities venues in Europe for the foreseeable future, according to new research published today by TABB Group, one certainty stands tall – transparent, actionable metrics supporting the quality of liquidity are lacking.
P>While MiFID II and the implementation of a post-trade consolidated tape are coming, buy-side traders tell TABB they don’t have the time to wait to learn how these changes will impact their markets. In 2012, electronic trading across Europe will rise to 45% of average daily value traded by traditional asset managers, up from 38% in 2010 and up from 25% in 2008.
What the buy-side trader needs, explains Laurie Berke, a TABB principal and author of “European Market Quality: A Metric in Need of a Standard,” is a framework to define and measure the relative quality of liquidity in any given market and determine how that quality metric can drive optimal decision-making.
Over 50% of the buy-side traders interviewed expect MiFID II regulations, when they do arrive, to make it harder for them to source liquidity. Presently, 51% use transaction cost analysis (TCA) to develop a view on dark venues – but they have no means of directly comparing quality of liquidity across lit markets where the majority of price discovery occurs.
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Source: TABB Group
........Fundsmith's Terry Smith fires fresh warnings on ETFs
ETFs appeal to hedge funds and high frequency traders
Popular (Berlin: PP4.BE - news) as shorting instruments
Mis-sold as index tracking funds
January 18, 2012--Exchange traded funds (ETFs) are being widely missold as a low cost form of index tracker when in fact they are highly complex vehicles best suited to hedge funds and proprietary trading desks, a leading investor said.
Speaking to journalists on Wednesday, Terry Smith, head of fund management company Fundsmith warned the unwary investor buying into an ETF could be exposed to highly complex opaque products more suited to high frequency traders and hedge funds.
"If you read the description of the product they use the words synthetic, derivative, swap and counterparty. If you can't figure out what the problem might be here you need to study the history of the last four years more carefully," said Smith, who is also Chief Executive of interdealer broker Tullett Prebon (Munich: A0LET0 - news) .
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Source: Reuters
DB - Equity Research-Weekly & Monthly European ETF Market Monitors : A positive start to the year with good flows and more targeted new launches
January 18, 2012--Following the publication of our 2011 ETF Market Review & 2012 Outlook on January 11 2012, we are attaching our European ETF Monthly report for December 2011 and our Weekly European Market Monitor for the week that ended January 13th 2012. We are including the December 2011 European ETF monthly review for those readers who are interested to have a closer look at December 2011numbers.
Reversing some of the December 2011 outflows
*ETF Investors came out of their shell and gave 2012 a good start, reversing some of the outflows that registered in December 2011. European domiciled ETFs gathered $2.2 billion of inflows in the first two weeks of 2012, as compared to $2.8 billion of outflows over December 2011.
*European equity benchmarked ETFs gathered $1.5 billion in the first two weeks of the year, while fixed income ETFs registered inflows of $108 million. The majority of the equity ETF inflows [$1.0 billion] occurred in the first week of the year, while the majority of the fixed income ETF inflows [$478 million] came over the second week of the year. Commodities also did well, attracting a total of $354 million for the first two weeks of the year.
*Allocations in the first two weeks of the year were across a wide spectrum of equity segments, especially developed markets [DM], emerging markets [EM] and European sectors. US focused ETFs and European sector ETFs collected cash inflows of €433 million and €219 million over the same period. ETFs tracking broad EM benchmarks such as the MSCI EM Index reversed direction by receiving net cash inflows of € 333 million over the first two weeks of 2012. Broad EM ETFs had registered net out flows of € 300 million in 2011.
*Within fixed income products, sovereigns lost over €155 million while ETFs tracking corporate debt issuances registered inflows of €192 million over the first two weeks of the year. YTD cash flows into fixed income ETFs totaled €88 million as compared to outflows of €412 million in 2011.
*Gold ETP products continued to attract new money and registered net cash inflows of €259 million over the first two weeks of the year. ETPs tracking broad commodity benchmarks also fared well pocketing €112 million over the same period. Overall, cash flows into commodity ETPs showed strength totaling a healthy €440 million YTD.
*The US ETF market followed a similar pattern registering inflows of $12.0 billion over the first two weeks of 2012. US equity ETFs continued to attract good flows in the first two weeks of 2012, totaling $8.7 billion, following the $12.2 billion of equity ETF inflows that came in over December 2011. US fixed income ETFs gathered flows of $3.2 billion over the first two weeks of 2012, following the $6.1 billion of inflows over December 2011.
*Both the European as well as the US ETF markets attracted inflows well above the 2011 weekly average cash flow levels, in the first two weeks that ended on January 13th 2012. Average weekly flows over 2011 for the US market came in at $2.1 billion, while the comparable number for Europe was $426 million.
New ETF launches: Focus on products that can capture returns
*There were eleven new ETFs launched in December 2011 and ten new ETFs launched over the first two weeks of January 2012. While some pure beta indexed ETFs were launched over this period, the over-arching theme for both December and January launches alludes to a more targeted focus towards capturing returns amid tougher market conditions. The European ETF industry has at the moment a robust blue-chip equity beta component, hence a lot of the new launches are aiming towards giving institutional and corporate investors a better handle to navigating choppy markets.
*From an asset allocation perspective, an interesting selection of both credit as well as commodity products were launched in January. From an investment strategy point of view, half of the January launches targeted non beta investment strategies. Given the turbulence that equity markets have experienced over the second half of 2011, demand for non beta, non blue-chip equity indexed ETFs has increased and ETF issuers have responded by adjusting launch calendars accordingly.
*Lyxor launched four ETFs targeting commodity indices, two of which offer short exposure to livestock/agriculture and industrial metals. The other two Lyxor launched ETFs offer long exposure to 3 month forward exposure to livestock/agriculture and industrial metals.
*The flavor for the db x-trackers ETF launches in the first two weeks of January was purely fixed income, with five new ETFs reaching the market. Four of the new ETFs target leveraged and short exposure to iTraxx credit indices. Credit is expected to play a more active role in deriving returns in 2012 and the launch by db x-trackers targets corporate and institutional investors that are trying to elevate fixed income’s return generating capacity closer to that of equity.
*Source launched one ETF targeting the return of the LGIM Commodity Composite index. The LGIM Commodity Composite Index is designed to represent the collective performance of a wide range of commodities by providing an investible benchmark consisting of selected indices from leading global index providers. It is based on the rationale of investing in a composite of selected commodity indices. The product targets pension funds and other institutional investors offering diversified and easily accessible exposure to commodity markets.
European ETF assets: Rise of 3.9% from 2011 year-end levels
*European ETF asset levels rose by 3.9% in the first two weeks of 2012 and reached €216.1 billion. This contributed somewhat towards putting the European domiciled ETF assets in positive territory, following the 4.9% drop of ETF assets over 2011.
*Commodity ETFs experienced the largest percentage asset increase, registering at 7.0% and bringing commodity ETF assets to €24.8 billion. This was consistent with the overall - including ETCs - commodity ETP asset rise, which registered at 6.7% and brought overall commodity ETP assets to €47.6 billion as of January 13th 2012.
*Equity ETF assets experienced a rise of 4.3%, reaching €145.4 billion. Fixed income ETF assets increased by 1.0%, reaching €43.8 billion.
To request a copy of the report
Source: Christos Costandinides, European Head of ETF Research & Strategy, Deutsche Bank
European repo market remains stable despite Eurozone difficulties, ICMA-ERC survey shows
January 18, 2012--The European Repo Council of the International Capital Market Association (ICMA) today released the results of its 22nd semi-annual survey of the European repo market, which took place in December 2011. The survey, which measures the amount of repo business outstanding on 7 December, sets the baseline figure for market size at EUR 6,204 billion.
Analysis of the figures for banks that participated in both the December 2010 and December 2011 surveys shows modest growth in the market of 2.6% year on year, although there was a contraction in market size of 3.3% from the June 2011 survey using a constant sample. The latest survey results reflect continued stability in the repo market despite underlying difficulties for Euro Sovereigns which furnish the majority of the collateral for repo activity.
Heightened risk-aversion among investors was evident in changes in the collateral composition of the market. Overall, the share of government bonds within the pool of EU originated collateral rebounded in this most recent survey to 79.1% of the market from 74.3% in the previous survey. The market share of German collateral continued to fall, touching 20.9% of the total (from 24.9% in December 2010), as risk averse investors became more cautious about lending these safe haven securities. The share of Italian collateral also fell to 7.0% (from 10.3% in the December 2010 survey) possibly reflecting credit concerns.
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Source: International Capital Market Association (ICMA)
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