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The fiscal compact ready to be signed-European Council
January 31, 2012--At the informal summit on 30 January a new Treaty on Stability, Coordination and Governance in the Economic and Monetary Union was finalised by all EU member states with the exception of the United Kingdom and the Czech Republic. The Treaty aims to strengthen fiscal discipline through the introduction of more automatic sanctions and stricter surveillance, and in particular through the "balanced budget rule".
Main rules of the fiscal compact
The new Treaty requires national budgets to be in balance or in surplus. This will be achieved if the annual structural government deficit does not exceed 0.5% of nominal GDP. If a member state deviates from this rule, an automatic correction mechanism will be triggered. The mechanism will fully respect the prerogatives of national parliaments.
Furthermore, the member states will have to incorporate this "balanced budget rule" into their national legal systems, preferably at constitutional level. The deadline for doing so is one year at the latest after the entry into force of the treaty.
Should a member state fail to transpose the "balanced budget rule" rule on time, the EU Court of Justice will have jurisdiction to take a decision on the matter. The Court's decision will be binding, and, if not implemented, can be followed up with a penalty of up to 0.1% of GDP. This amount will be payable to the European Stability Mechanism if the country's currency is the euro, otherwise to the general budget of the EU.
view the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union
Source: European Council
Swap-based ETF issuers breathe sigh of relief at new rules
January 31, 2012--Swap-based exchange traded fund (ETFs) providers have welcomed the new draft rules from the European regulator which have not singled out synthetic ETFs as many feared.
The guidelines published by the European Securities and Markets Authority (ESMA) did not target ETFs which use a swap to deliver the return, but instead addressed some of the main risks relating to all ETFs as well as other Ucits products, such as index trackers.
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Source: Citywire
S&P warns cuts loom for G20 nations
January 31, 2012--Ratings agency Standard & Poor’s warned it may downgrade “a number of highly rated” Group of 20 countries from 2015 if their governments fail to enact reforms to curb rising healthcare spending and other costs related to ageing populations.
Developed nations in Europe, as well as Japan and the United States, are likely to suffer the largest deterioration in their public finances in the next four decades as more elderly strain social safety nets, S&P said in a report.
“Steadily rising healthcare spending will pull heavily on public purse strings in the coming decades,” S&P analyst Marko Mrsnik wrote in the report.
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Source: FIN24
New SPDR equity index ETF launched on Xetra
ETF focuses on US mid-caps
January 31, 2012--A further exchange-listed equity index fund issued by SPDR (State Street Global Advisors) has been tradable on Xetra® since Tuesday.
ETF name: SPDR S&P 400 US Mid Cap ETF
Asset class: equity index ETF
ISIN: IE00B4YBJ215
Total expense ratio: 0.30 percent
Distribution policy: non-distributing
Benchmark: S&P MidCap 400 Index
The SPDR S&P 400 US Mid Cap ETF enables investors to participate in the performance of the S&P MidCap 400 Index for the first time. The index comprises 400 medium-sized US companies weighted by market capitalisation and represents seven percent of the US market.
The product offering in Deutsche Börse’s XTF segment currently comprises a total of 921 exchange-listed index funds, while the average monthly trading volume stands at €16 billion.
Source: Xetra
European regulator clamps down on ETF practices
January 30, 2012--The European Securities and Markets Authority (ESMA) has revealed the future of regulation for ETFs in Europe, calling for products to be labelled and more stringent collateral practices.
In its consultation paper, ESMA said that ETFs will need labelling, and will require more transparency overall, while collateral, used by both swap-based ETFs and those physical ETFs which do securities lending, will have to meet tougher standards.
ESMA is proposing that the collateral posted to mitigate counterparty risk should comply with guidelines established by CESR, while recommending that diversification and haircut criteria be strengthened.
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Source: Citywire
UK backtracks on EU plan for new trading platform
January 30, 2012---Britain signalled a retreat on Monday over a new breed of trading platform in the European Union, reversing its earlier opposition though still urging tweaks to avoid damaging markets.
The EU, following pledges by world leaders, is reforming its market rules so that chunks of the $700 trillion off-exchange or over-the-counter (OTC) derivatives market are funnelled onto transparent trading plaforms to end the opacity that worried regulators during the 2008 financial crisis.
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Source: Reuters
EDHEC-Risk Institute Welcomes Conclusions Of ESMA Consultation Paper On ETFs And UCITS Issues
January 30, 2012--Following the publication on January 30, 2012, of the European Securities and Markets Authority’s (ESMA) consultation paper on ETFs and other UCITS issues (ESMA/2012/44), EDHEC-Risk welcomes the broadened focus of the new ESMA consultation, which approaches important issues in a horizontal way across all UCITS rather than in a vertical way limited to UCITS ETFs;
as underlined in its recent contribution*, EDHEC-Risk believes that continued adherence to a silo approach would have increased the risks of adverse selection by investors and regulatory arbitrage by issuers.
Among the points addressed by the consultation paper which EDHEC-Risk feels are particularly important:
Tracking error
EDHEC-Risk welcomes the amended definition of tracking error for index-tracking UCITS compared to the previous discussion paper of July 2011. The definition of tracking error as the volatility of the difference between the return of the index-tracking UCITS’ portfolio and the return of the benchmark or index corresponds more closely to academic standards and will better enable investors to compare different funds.
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Source: EDHEC
European Council-The fiscal compact ready to be signed
January 30, 2012--At the informal summit on 30 January a new Treaty on Stability, Coordination and Governance in the Economic and Monetary Union was finalised by all EU member states with the exception of the United Kingdom and the Czech Republic. The Treaty aims to strengthen fiscal discipline through the introduction of more automatic sanctions and stricter surveillance, and in particular through the "balanced budget rule".
Main rules of the fiscal compact
The new Treaty requires national budgets to be in balance or in surplus. This will be achieved if the annual structural government deficit does not exceed 0.5% of nominal GDP. If a member state deviates from this rule, an automatic correction mechanism will be triggered. The mechanism will fully respect the prerogatives of national parliaments.
Furthermore, the member states will have to incorporate this "balanced budget rule" into their national legal systems, preferably at constitutional level. The deadline for doing so is one year at the latest after the entry into force of the treaty.
view the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union
Source: European Council
Euro area economic and financial developments by institutional sector
January 30, 2012--In the third quarter of 2011, the annual growth rate1 of net disposable income in the euro area
decreased to 3.2%, compared with 3.5% in the second quarter of 2011 (see Annex, Table 1). The annual
growth rate of final consumption in the euro area decreased to 2.1% in the third quarter from 2.7% in the
second quarter. The annual growth rate of gross fixed capital formation decreased to 3.1% in the third
quarter of 2011, (2011Q2: 3.4%).
The annual growth rate of households’ gross disposable income decreased to 2.2% in the third quarter
of 2011, down from 3.0% in the previous quarter (see Table 2). The annual growth rate of households’
consumption expenditure was 2.6% in the third quarter compared with 3.4% in the previous quarter.
The annual growth rate of households’ gross saving decreased to 0.1% in the third quarter compared with
1.6% previously. The households’ gross saving rate2 decreased to 13.6%, as compared with 14.1% in the
third quarter of 2010. The annual growth rate of household financing was broadly unchanged at 1.8%
(2011Q2: 1.7%) and that of financial investment decreased slightly to 2.0% in the third quarter of
2011(2011Q2: 2.3%). The annual growth rate of Households’ net worth3 decreased to 0.9% in the third
quarter, compared with 2.4% in the previous quarter (see Chart 6).
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Source: ECB
ESMA outlines future regulatory framework for ETFs and other UCITS issues
January 30, 2012--ESMA publishes today a consultation paper (ESMA/2012/44) setting out future guidelines on UCITS Exchange-Traded Funds (UCITS ETFs) and other UCITS-related issues. The proposals cover both synthetic and physical UCITS ETFs and detail the obligations to come for UCITS ETFs, index-tracking UCITS, efficient portfolio management techniques, total return swaps and strategy indices for UCITS.
ESMA’s proposals therefore go wider than ETFs and cover such areas as the use of total return swaps by any UCITS, for which ESMA envisages additional obligations with respect to the collateral to be provided, or UCITS investing in strategy indices, where the requirements on eligibility of such indices have been tightened. The proposals also include placing an obligation on UCITS ETFs to use an identifier and facili-tating the ability of investors to redeem their shares, whether in the secondary market or directly with the ETF provider.
Comments to this consultation paper should be posted online, by 30 March 2012.
view consultation paper (ESMA/2012/44)
Source: ESMA
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