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High cost credit protection: statement issued by the Basel Committee
December 16, 2011--Recent transactions have raised concerns among supervisors about potential regulatory capital arbitrage related to some credit protection transactions. Given the supervisory concerns related to such transactions, this statement is intended to alert banks that supervisors will closely scrutinise such transactions in both the specific context of the evaluation of credit risk transfer within the securitisation framework, as well as within the broader context of the Basel Pillar 2 supervisory review process and assessment of capital adequacy.
Background
The Basel capital framework recognises that credit risk mitigation techniques can significantly reduce credit risk and can serve as an effective risk management tool. In particular, paragraph 140 of the framework establishes that where guarantees or credit derivatives are direct, explicit, irrevocable and unconditional, and supervisors are satisfied that banks fulfil certain minimum operational conditions relating to risk management processes, banks may take account of such credit protection in calculating capital requirements.
Nevertheless, the Committee notes that there exists potential for capital arbitrage within the credit risk mitigation framework, including the use of credit risk mitigation for securitisation exposures, particularly when (i) there is a delay in recognising losses and the costs of protection in earnings while (ii) the bank receives an immediate regulatory capital benefit in the form of a lower risk weight on an exposure on which it is nominally transferring risk. In some instances, the premiums or fees and other direct or indirect costs paid for certain credit protection, combined with other terms and conditions, call into question the degree of credit risk mitigation or credit risk transfer of the transaction. Rather than contributing to a prudent risk management strategy, the primary effect of these high-cost credit protection transactions may be to structure the premiums and fees so to receive favourable risk-based capital treatment in the short term and defer recognition of losses over an extended period, without meaningful risk mitigation or transfer of risk.
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Source: BIS
Basel III FAQs answered by the Basel Committee
December 16, 2011--The Basel Committee on Banking Supervision today published answers to a third set of Basel III frequently asked questions. These aim to promote consistent global implementation of Basel III, through providing technical elaboration of the rules text and interpretative guidance.
The Basel Committee has received a number of interpretation questions related to the December 2010 publication of the Basel III regulatory frameworks for capital and liquidity and the 13 January 2011 press release on the loss absorbency of capital at the point of non-viability. Today's publication updates the second set of FAQs that relate to the definition of capital, which was published in October 2011.
view the Full publication-Basel III definition of capital - FAQs (update of FAQs published in October 2011)
Source: BIS
Switzerland’s Franc Depreciates as U.S. Data Optimism Boosts Risk Appetite
December 16, 2011--The Swiss franc weakened against higher-yielding currencies as optimism the U.S. recovery is gaining strength damped demand for haven assets.
Switzerland’s currency depreciated against 9 of its 16 major peers tracked by Bloomberg, falling most against the New Zealand dollar and the Swedish krona. The franc climbed to the strongest level in six weeks against the euro yesterday after the Swiss National Bank held the currency’s trading cap at 1.20 per euro. Swiss growth will almost stagnate next year, the KOF Institute said today.
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Source: Bloomberg BusinessWeek
Euro rescue funds 'exceed 1.0 trillion euros'
December 16, 2011--Rescue funds to bail out ailing eurozone countries exceed 1.0 trillion euros -- including those already spent -- Klaus Regling, head of the European Financial Stability Facility, said Friday.
"I never understand when market participants say authorities haven't put enough money up," Regling said at a conference in Rome, specifying that the 1.0 trillion included funds already committed in loans as well as unused funds.
As well as money earmarked for bailed out Greece, Portugal and Ireland, Regling flagged up the European Central Bank's estimated 200 billion euros of bond purchases, 400 billion euros in EFSF unused funds, and the IMF pledge to stump up one-third of the total of rescue packages.
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Source: EUbusiness
Fitch casts doubt on European plans to stop crisis
December 16, 2011-- Fitch Ratings cast doubt Friday on the budget discipline pact European states intend to adopt being able to solve the eurozone debt crisis, and warned it may soon downgrade six countries, including Spain and Italy.
Also Friday, Moody's ratings agency took action against a eurozone member, downgrading Belgium's credit rating by two notches.
Fitch also changed the outlook on France's top triple-A rating to negative.
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Source: EUbusiness
Raiffeisen launches first ETFs on physical gold
The range of unique physically backed gold ETFs at SIX Swiss Exchange is expanded with four products of the new issuer Raiffeisen.
December 15, 2011--Today, SIX Swiss Exchange is proud to welcome the second new ETF issuer in December 2011: Raiffeisen is launching four products on physical gold. The "Raiffeisen ETF - Solid Gold"
and "Raiffeisen ETF - Solid Gold Ounces" are each available in two tranches with or without currency hedging. The "Solid Gold Ounces" poses a novelty as it is the first ETF in Switzerland that allows investors to purchase physical gold starting from just one ounce.
With the four new ETFs the range of products at SIX Swiss Exchange is growing to 757. Overall, 30 of them are physically backed gold ETFs that are only available in Switzerland. Raiffeisen itself will provide the liquidity in the four new ETFs. SIX Swiss Exchange therefore now has 16 issuers and 21 market makers.
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Source: SIX Swiss Exchange
LSE opens regulatory talks on data service launch
December 15, 2011--The London Stock Exchange has started talks with British regulator the Financial Services Authority (FSA) about launching a trading data service for over-the-counter (OTC) derivatives.
The LSE already offers a trade data repository called UnaVista TRS, for share transactions, but is eyeing expansion into OTC products ahead of regulatory reforms to that market.
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Source: Reuters
WTO approves Russia's membership after marathon
December 15, 2011--Russia was admitted into the World Trade Organisation on Friday after 18 years of negotiation, finally binding it into the global economy two decades after the Soviet Union collapsed.
Russia's $1.9 trillion economy was the largest outside the WTO, and accession will help reduce its dependence on energy exports that left it cruelly exposed to the oil price collapse of 2008.
Accession by Russia, with the second-largest nuclear arsenal after that of the United States, into a rules-based club should also help limit dangers of a repeat of regional conflicts like its 2008 war with Georgia. ..
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Source: Todays Zaman
Controversy distracts from the virtues of ETFs, says Ebner
December 15, 2011--A roundtable debate sponsored by SPDR ETFs, the exchange traded funds (ETF) platform of State Street Global Advisors (SSgA), has concluded that the ETF controversy raised in Europe this year has distracted attention from their potential virtues.
Scott Ebner (pictured), global head of ETF product development at SPDR ETFs, told delegates at the event in London: “I’ve been shocked from a global perspective by the ETF-related discussions this year. A lot of questions have been asked about ETFs, which has in turn created a lot of misinformation and negative news.
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Source: Wealth Advisor
European Equity Trading 2011/2012: Looking for Allies in the Face of Adversity
December 15, 2011--Executive Summary
With shrinking liquidity in volatile markets and fewer commissions available to feed an ever demanding list of brokers, the buy side is about to face further upheaval from yet more regulation. Options within the lit market are limited, so they are turning to their brokers once more to find effective methods of trading and accessing services in challenging conditions.
Based on conversations with 60 European buy-side traders, this 5th version of an annual study covers the impact of an increasing lack ofliquidity, volatile trading, and looming regulation of MiFID II on European buy side and sell side equity trading. The buy side is wary of current European markets with fears of information leakage and mistrust in both venues and true market volumes. With less to share round, the buy-side now has to reassess their broker lists and manage relationships more effectively to maintain service levels.
The reign of incumbent algorithmic providers is under threat with participants choosing to switch who receives the majority of their order flow. No longer willing to settle for adequate performance, over half now use execution performance as a benchmark for selecting their provider. Whilst the majority will maintain the same number of providers, the readiness to review performance offers opportunity for brokers to win market share.
In comparison to developments in automated trading, one area that remains lacking is the role of the sales trader. Small and medium-sized firms say they are experiencing the greatest deterioration in service levels as their brokers concentrate their efforts on larger commission payers.
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Source: TABB Group
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