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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
Review into HM Treasury’s Management of the Financial Crisis
Octobetr 17, 2011--HM Treasury is reviewing its response to the financial crisis.
The review is being led by Sharon White, formerly a Director General at the Ministry of Justice and the Department for International Development, and has begun work today. The Review will examine:
the Treasury’s capability on financial services ahead of the crisis;
the pace at which the Treasury built its capability when the crisis hit; and
whether the capability and senior management arrangements put in place to handle the crisis and the aftermath have been adequate.
The review will inform decisions on organisational arrangements of HM Treasury as part of its Spending Review settlement. It will make recommendations with the aim of:
ensuring that the Treasury has the capability it needs going forward; improving the retention of people with the necessary skills, expertise and experience, having consideration to issues of Treasury culture and values, as well as remuneration; and ensuring that the Treasury has robust arrangements for risk management, contingency planning and knowledge management.
This review follows recommendations from the Public Accounts Committee and the National Audit Office.
The final report will be publicly presented to the Treasury’s executive management board no later than Easter 2012.
Source: SEC.gov
EU dangles EUR 50bn infrastructure investment carrot
October 16, 2011--The EU will next week dangle a 50-billion-euro ($70-billion) carrot of investment funds in a bid to "plug" cross-border holes in Europe's transport, telecommunications and energy infrastructure.
Plans seen by AFP on Friday describe new inducements for European inter-connectivity, intended to re-route European Union funding towards projects that have fallen into abeyance among governments facing tough economic conditions.
Transport accounts for the lion's share, with nearly 32 billion earmarked for development in this sector between 2014 and 2020.
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Source: EUbusiness
September 2011 Euro area inflation up to 3.0% Eu up to 3.3%
October 14, 2011--Euro area1 annual inflation was 3.0% in September 20112, up from 2.5% in August. A year earlier the rate was 1.9%. Monthly inflation was 0.8% in September 2011.
EU3 annual inflation was 3.3% in September 2011, up from 2.9% in August. A year earlier the rate was 2.3%. Monthly inflation was 0.6% in September 2011.
These figures come from Eurostat, the statistical office of the European Union.
Inflation in the EU Member States
In September 2011, the lowest annual rates were observed in Ireland (1.3%), Sweden (1.5%) and the Czech Republic (2.1%), and the highest in Estonia (5.4%) and Lithuania (4.7%). Compared with August 2011, annual inflation fell in seven Member States, remained stable in five and rose in fourteen.
The lowest 12-month averages4 up to September 2011 were registered in Ireland (0.6%), Sweden (1.6%), the Czech Republic and Slovenia (both 1.9%), and the highest in Romania (6.9%) and Estonia (5.2%).
Euro area
The main components with the highest annual rates in September 2011 were transport (5.9%), housing (5.0%) and alcohol & tobacco (3.7%), while the lowest annual rates were observed for communications (-1.9%), recreation & culture (0.5%) and household equipment (1.3%). Concerning the detailed sub-indices, fuels for transport (+0.55 percentage points), heating oil (+0.19) and electricity (+0.12) had the largest upward impacts on the headline rate, while telecommunications (-0.16), vegetables (-0.11) and rents (-0.10) had the biggest downward impacts.
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Source: EUROPA
S&P cuts rating on Spanish debt
Standard & Poor's has downgraded Spainish debt by one notch. Here is the text of the report from the credit rating agency.
October 14, 2011--Despite signs of resilience in economic performance during 2011, we see heightened risks to Spain's growth prospects due to high unemployment, tighter financial conditions, the still high level of private sector debt, and the likely economic slowdown in Spain's main trading partners.
The financial profile of the Spanish banking system will, in our opinion, weaken further, with the stock of problematic assets rising further, as highlighted by the recent revision in our Banking Industry Country Risk Assessment on Spain to Group 4 from Group 3.
As a consequence, we are lowering our long-term sovereign credit ratings on Spain to 'AA-' from 'AA'.
The outlook on the long-term rating is negative.
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Source: The Telegraph
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