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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
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 the consulation paper-ESMA’s guidelines on ETFs and other UCITS issues
Source: ESMA
IPO indicator signals slight recovery on the primary market
Price gains of German equities and decline in volatility favour new issues
January 30, 3012--2012--Deutsche Börse published the IPO sentiment indicator forecasting issue activity for the 1st quarter of 2012 on Monday. The primary market indicator rose from 27.97 to 29.23 points over the past three months.
This is the first increase after a downturn of three consecutive quarters. As the survey by Deutsche Börse shows, market participants anticipate a slight recovery in the primary market for the coming quarter.
Uncertainty on the capital markets continues to be reflected on the primary markets. At the same time however, the first encouraging signs indicating a potential turnaround are appearing. The stock markets are experiencing noticeably less volatility. The VDAX-New almost doubled from 18 to around 34 between the end of June and October 2011. Expected volatility for DAX shares currently stands at 24 percent on the VDAX-New. This decline in volatility normally has a positive effect on issue activity.
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Source: Deutsche Börse
ESM, Europe's future financial firewall now
January 29, 2012--The European Stability Mechanism (ESM), due for adoption at Monday's EU summit, is to be the bloc's permanent safety net as of July -- its financial "firewall."
A key barrier in the European Union's defences against any repeat of the sovereign debt crisis, there are still issues that need to be resolved -- not least how big it needs to be.
Its mission
The ESM will eventually take over from the prototype European Financial Stability Facility (EFSF), the vehicle for eurozone funding of bailouts for Ireland and Portugal. The idea is basically the same: using a mix of stakeholder governments' capital and guarantees, these funds borrow on money markets then lend to stressed eurozone governments. They do this at a profit, but not one considered prohibitive for under-pressure administrations. By undercutting, they theoretically moderate commercial lending rates.
The ESM is a more sophisticated version. Unlike the EFSF, over and above buying sovereign bonds in sell-on markets, it will be used to finance aid programmes for countries before they enter dire straits -- the idea being that earlier intervention to normalise a state's risk premium costs less.
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Source: EUbusiness
Fitch takes rating actions on 6 euro zone sovereigns
January 28, 2012--(The following statement was released by the rating agency)
Fitch Ratings has today concluded its review of the six eurozone sovereigns it placed on Rating Watch Negative (RWN) on 16 December 2011.
The rating actions on the long-term (LT) and short-term (ST) Issuer Default Ratings (IDRs) are as follows:
Belgium LT IDR downgraded to 'AA' from 'AA+'; Negative Outlook; ST IDR affirmed at 'F1+' -Cyprus LT IDR downgraded to 'BBB-' from 'BBB'; Negative Outlook; ST IDR affirmed at 'F3' -Ireland LT IDR affirmed at 'BBB+'; Negative Outlook; ST IDR affirmed at 'F2' -Italy LT IDR downgraded to 'A-' from 'A+'; Negative Outlook; ST IDR downgraded to 'F2' from 'F1' -Slovenia LT IDR downgraded to 'A' from 'AA-'; Negative Outlook; ST IDR downgraded to 'F1' from 'F1+' - Spain LT IDR downgraded 'A' from 'AA-'; Negative Outlook; ST IDR downgraded to 'F1' from 'F1+'
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Source: Reuters
Vanguard overcomes delays to launch first ETPs in Europe
January 27, 2012--Vanguard is set to list its first exchange-traded products in Europe following delays with regulators and concerns about market conditions for launch, Portfolio Adviser understands.
Aimed for March, the first European-listed ETPs will offer one product designed around the gilt market, one based on the equity all world index, an S&P 500 ETF and an emerging markets equity product.
Vanguard, which has over 60 ETPs listed in the US market, and is ranked third in terms of ETP AUM – behind only iShares and State Street Global Advisers (SSGA) – increased its market share by 1.2% in the year to December 2011. This compared to a drop in iShares' market share by 1% and a 0.9% increase in market share by SSGA.
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Source: International Adviser
Government publishes Financial Services Bill
January 27, 2012--The Government has today published legislation which will fundamentally transform and strengthen financial regulation in the United Kingdom, Financial Secretary to the Treasury, Mark Hoban, has announced. The new regime sets out a clear, coherent and comprehensive regulatory framework, replacing the uncertainty and inadequacy of the previous structure, and helping to mitigate against future risks to stability.
The Bill:
Gives the Bank of England responsibility for protecting and enhancing financial stability, bringing together macro and micro prudential regulation;
Abolishes the Financial Services Authority (FSA) and creates a strengthened regulatory architecture consisting of the Financial Policy Committee, the Prudential Regulation Authority and the Financial Conduct Authority, also providing them each with clarity of responsibility and the necessary powers to ensure the stability of the financial sector and the protection of consumers; and
Empowers authorities to look beyond ‘tick-box’ compliance and fosters a regulatory culture of judgment, expertise and proactive supervision.
Today’s Bill has been shaped by extensive consultation with both stakeholders and Parliament and, while the fundamental elements of the new framework are in line with the model put forward by the Chancellor in 2010, contains a number of refined policy proposals, including measures to:
Legislate for a new crisis management regime, providing greater clarity and accountability to protect the taxpayer during times of crisis by providing the Chancellor with new powers over the Bank of England where public money is at risk; and
Enables the transfer of responsibility for regulating consumer credit to the Financial Conduct Authority to better protect consumers.
<view the Financial Services Bill 2010-11
Source: HM Treasury
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