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Deutsche Börse AG publishes preliminary Q3/2011 figures
October 19, 2011-- On Wednesday, Deutsche Börse AG published its preliminary figures for the third quarter of 2011. Compared to the same period in the previous year sales revenue increased by some 20 percent to around €605 million (Q3/2010: €504.3 million).
In addition to sales revenue, the Group generated net interest income from banking business of approximately €20 million (Q3/2010: €15.8 million) and other operating income of also around €20 million (Q3/2010: €11.7 million). The other operating income includes a book gain from the sale of an equity investment in the amount of some €5 million.
At around €250 million, operating costs in the third quarter 2011 were up year-over-year (Q3/2010: 235.4 million). The increase is mainly attributable to around €25 million costs relating to the planned business combination with NYSE Euronext. Adjusted for merger related costs and restructuring expenses, operating costs amounted to approximately €225 million (Q3/2010 adjusted: €222.5 million).
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Source: Deutsche Börse
Regulation on Short Selling and Credit Default Swaps - Frequently asked questions
October 19, 2011--What is short selling?
Short selling is the sale of a security that the seller does not own, with the intention of buying back an identical security at a later point in time in order to be able to deliver the security. Short selling can be divided into two types:
1."Covered" short selling is where the seller has borrowed the securities, or made arrangements to ensure they can be borrowed, before the short sale.
2."Naked" or "uncovered" short selling is where the seller has not borrowed the securities at the time of the short sale, or ensured they can be borrowed.
Who engages in short selling and why?
Short selling is used by a variety of market participants including hedge funds, traditional fund managers such as pension funds and insurance companies, investment banks, market makers and individual investors. Short selling can be used for the following reasons:
for speculative purposes (e.g. to profit from the expected decline of a share price);
to hedge a long position (e.g. to limit losses in comparable shares in which a long position is held);
for arbitrage (e.g. to profit from the difference in price between two different but inter-related shares); and
for market making (e.g. to meet customer demand for shares which are not immediately available).
What is a Credit Default Swap?
A Credit Default Swap (CDS) is a derivative which is sometimes regarded as a form of insurance against the risk of credit default of a corporate or government (or sovereign) bond. In return for an annual premium, the buyer of a CDS is protected against the risk of default of the reference entity (stated in the contract) by the seller. If the reference entity defaults, the protection seller compensates the buyer for the cost of default.
In addition to short selling on cash markets, a net short position can also be achieved by the use of derivatives, including Credit Default Swaps (CDS). For example, if an investor buys a CDS without being exposed to the credit risk of the underlying bond issuer (a so-called "naked CDS"), he is expecting, and potentially gaining from, rising credit risk. This is equivalent to short selling the underlying bond.
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Source: EUROPA
EU to ban controversial 'naked' credit default swaps
October 19, 2011--The European Union decided late Tuesday to ban "naked" credit default swaps, a controversial financial instrument that traders use to bet on a country's failure to pay off debt.
EU states and the European parliament reached a deal after long negotiations to prohibit the highly speculative instrument partly blamed for exacerbating Europe's debt crisis.
A CDS serves as an insurance against the risk of default by a company or a government. In a "naked" CDS, the investors do not own the debt, betting they can purchase it later at a cheaper price if a default occurs.
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Source: EUbusiness
Lyxor embarks on ETF transparency drive
October 18, 2011-Lyxor, one of the largest provides of exchange traded funds in Europe, has moved to shed more light on the products it offers clients amid intensifying calls for transparency in the burgeoning ETF sector.
Lyxor, a wholly-owned subsidiary of Societe Generale and the second-largest provider of ETFs in Europe, has launched an online and paper document for its clients that sets out it commitment to" transparency, efficiency and liquidity", according to the group.
The ETF charter, commits the provider to, among other things, the daily publication of all directly owned securities, a list of counterparties to all derivatives entered into by Lyxor ETFs and disclosure of counterparty risk on each of them.
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Source: Financial News
European Parliament: Crack Down On Short Selling And Sovereign Debt Speculation
October 18, 2011--Lead MEPs and the Polish Presidency on Tuesday clinched a deal on the regulation beefing up standards and requirements for the practices of short selling and trading in credit default swaps (CDS), a financial product insuring against default. The rules will impose much more transparency, increase the powers of the EU's financial watchdog and virtually ban certain CDS trades, thereby making speculation on a country's default more difficult.
This is one of the key regulations pushed through by the Commission to tackle the financial crisis. It will strengthen rules on short selling and CDS trading, two practices accused of fuelling market volatility. CDS trades have been widely blamed for potentially aggravating Greece's troubles.
Limiting speculation on a country's default - a key win for Parliament
Parliament's negotiators obtained a ban on naked CDS trading (purchasing default insurance contracts without owning the related bonds), with the sole exception of an option for a national authority to lift the ban temporarily in cases where its sovereign debt market is no longer functioning properly. Even this possibility would be closely circumscribed, because the text specifies a limited number of indicators which could justify the regulator's action. Moreover, within 24 hours, the European Securities and Markets Authority (ESMA) would publish an opinion on its web site as to the utility of suspending the ban. A negative opinion from ESMA would have a political weight.
Welcoming the ban, rapporteur Pascal Canfin (Greens, FR) said: "The majority in Parliament composed of Greens, Socialists and the EPP fought hard to put an end to sovereign debt speculation in Europe. These rules also prove that the EU can act against speculation when the political will is there. Today's compromise will make it impossible for a hedge fund to buy Greek or Italian CDS without already owning the bonds of those countries, for the sole purpose of speculating on the country's default."
ESMA in the driving seat
MEPs from groups sponsoring the deal also managed to preserve the powers of the EU's financial markets watchdog, ESMA, in particular to restrict short selling, as an arbiter of a national authority's wish to introduce measures to address exceptional situations, and also to require other authorities to introduce exceptional measures to deal with difficult situations.
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Source: EUROPA
Debt warning unnerves France
October 18, 2011--Just as President Nicolas Sarkozy was locked in a nail-biting struggle with Germany and his other partners to come up with a decisive plan this weekend to end the eurozone crisis, Moody’s, the US rating agency, has raised the spectre of France’s own sovereign debt vulnerability.
The agency’s warning on Monday night that it might change its outlook on France’s critical triple A rating from stable to negative in the next three months fell well short of an actual downgrade. But in the current febrile atmosphere, it was enough to trigger a new bout of market nerves.
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Source: FT.com
DB- Equity Research - Europe-ETF Instrument Functionality : ETFs & unlisted funds:How different are they?
October 18, 2011--Exchange-traded funds (ETFs) are mutual funds that trade on an exchange. Currently, about 3% of funds (in terms of assets under management) in Europe and 8% in the US are exchange traded.
ETFs have to adhere to the same stringent requirements (as unlisted funds) in order to qualify for public distribution. Just like unlisted funds, they are not assets per se, they are asset wrappers. ETFs represent an evolution of the fund management industry, and while they are often much talked about, they are often equally misunderstood. In this brief note, we compare listed an unlisted funds, highlighting basic similarities and differences.
An ETF combines the asset diversification and safety characteristics of an unlisted fund, together with the pricing and liquidity characteristics of futures and single stocks. It combines diversified market access and improved execution with continuous pricing. The biggest difference between listed and an unlisted funds is not in the way they are constructed, but in how frequently and in what manner they can be traded.
In terms of similarities, both listed an unlisted funds share common investment strategies, construction techniques/structures, service provider framework, benchmark exposures and governing legislation characteristics. However, ETFs can be traded both in the secondary (floating shares) as well as the primary market (newly created shares), while unlisted mutual funds may only be traded in the primary market (unit creation). In addition, ETFs can be traded throughout the day, while unlisted mutual funds can only be bought and sold periodically (ussualy at the end of each day). ETFs are tradable throughout the day at a price which will reflect the pricing characteristics of each ETF's underlying benchmark market. Unlisted mutual funds are bought and sold at Net Asset Value (NAV) when a fund is open for trading.
The primary area of differentiation therefore, between listed and unlisted mutual funds, is how they can each be traded. Understanding five key pointers that relate primary to trading and execution can make the ETF success riddle a lot easier to solve.
To request a copy of the report
Source: Christos Costandinides, European Head of ETF Research & Strategy, Deutsche Bank
EU to ban controversial 'naked' credit default swaps
October 18, 2011-- The European Union decided late Tuesday to ban "naked" credit default swaps, a controversial financial instrument that traders use to bet on a country's failure to pay off debt.
EU states and the European parliament reached a deal after long negotiations to prohibit the highly speculative instrument partly blamed for exacerbating Europe's debt crisis.
A CDS serves as an insurance against the risk of default by a company or a government. In a "naked" CDS, the investors do not own the debt, betting they can purchase it later at a cheaper price if a default occurs.
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Source: EUbusiness
In spite of their shortcomings and the development of alternative indices, cap-weighted and debt-weighted indices remain the reference for European institutional investors and asset managers
October 17, 2011--In a new survey which elicited responses from 104 European institutional investment professionals, EDHEC-Risk Institute analyses the current uses of and opinions on equity and fixed-income indices. Among the most prominent results of the survey are that liquidity, objectivity and transparency are the most important quality criteria investors have for indices.
However, respondents suggest that a buy-and-hold character is not a requirement for an index–only slightly more than 50% of respondents find it important or very important. This finding is interesting as the dominance of cap-weighted indices in various asset classes is often attributed to their buy-and-hold nature. This new attitude from investors opens the door to new approaches based on dynamic rebalancing rules, as long as these are transparent and systematic.
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Source: EDHEC
Two new SPDR equity index ETFs launched on Xetra
Both ETFs focus on high dividend yields
October 17, 2011--: Two further exchange-listed equity index funds issued by SPDR (State Street Global Advisors) have been tradable on Xetra® since Monday. The new ETFs have a focus on companies with high dividend yields, one concentrating on the USA and the other on emerging markets.
ETF name: SPDR S&P US Dividend Aristocrats ETF
Asset class: equity index ETF
ISIN: IE0B6YX5D40
Total expense ratio: 0.35 percent
Distribution policy: distributing
Benchmark: S&P High Yield Dividend Aristocrats Index
ETF name: SPDR S&P Emerging Markets Dividend ETF
Asset class: equity index ETF
ISIN: IE00B6YX5B26
Total expense ratio: 0.65 percent
Distribution policy: distributing
Benchmark: S&P Emerging Markets Dividend Opportunities Index
The S&P High Yield Dividend Aristocrats Index tracks the performance of 60 companies in the S&P 1500 which show the highest dividend yields and have increased their dividends continuously over the last 25 years.
The S&P Emerging Markets Dividend Opportunities Index tracks the performance of 20 emerging market companies with a high dividend yield.
The product offering in Deutsche Börse’s XTF segment currently comprises a total of 876 exchange-listed index funds, while average monthly trading volume stands at €14 billion.
Source: Deutsche Börse
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