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European Parliament: Beefing Up Credit Rating Agency Rules
June 8, 2011--MEPs on Wednesday advocated making credit rating agencies liable in civil law for their ratings, and creating a European credit rating foundation. They also called for special attention to be paid to sovereign debt ratings. The new rules for credit rating agencies should also clarify their working methods, boost competition and reduce reliance on their ratings, says the resolution.
The non-legislative resolution, drafted by Wolf Klinz (ALDE, DE), and approved by a show of hands, comes some weeks before the Commission is to table legislative proposals to further regulate credit rating agencies (CRAs) and temporarily closes discussion on an issue that has split political groups.
Rating sovereign debt
The resolution refrains from significantly reducing the scope for private CRAs to rate sovereign debt, as was initially advocated by the Socialists and the GUE/NGL group. It nonetheless calls for more light to be shed on how CRAs arrive at their sovereign ratings, and says they should explain their methodologies and why their ratings deviate from the forecasts of the main international financial institutions. It also demands that the effects of ratings on increased spreads be analysed.
European Credit Rating Foundation
The other bone of contention was what structure to propose for a European counterweight to the three largest CRAs, which are felt to be too dominant on the European scene. The resolution calls on the Commission to carry out a detailed assessment for a fully-independent credit rating foundation, with start-up funding covering the first five years at most. Left-of-centre groups would have preferred a public CRA which could tap subsistence funding for a more open period.
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Source: European Parliment
Turkey to establish EU ministry
June 8, 2011-- Turkey is to establish a European Union ministry after June 12 parliamentary elections, Prime Minister Recep Tayyip Erdogan said on Wednesday.
"The ministry of the EU will coordinate the affairs for Turkey's EU bid," Erdogan said in his televised remarks at his party's headquarters in Ankara.
Currently, the EU affairs are coordinated by state minister Egemen Bagis.
Turkey opened accession talks with the EU in 2005. However, out of the 35 policy chapters that candidate countries must negotiate, Turkey has opened talks on only 13.
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Source: EUbusiness
Second estimates for the first quarter of 2011 Euro area GDP and EU27 GDP up by 0.8%
+2.5% in both zones compared with the first quarter of 2010
June 8, 2011--GDP increased by 0.8% in both the euro area1 (EA17) and the EU271 during the first quarter of 2011, compared
with the previous quarter, according to second estimates released by Eurostat, the statistical office of the
European Union. In the fourth quarter of 2010, growth rates were +0.3% in the euro area and +0.2% in the EU27.
Compared with the first quarter of 2010, seasonally adjusted GDP increased by 2.5 % in both the euro area and
the EU27, after +1.9% and +2.1% respectively in the previous quarter.
Variation in components of GDP During the first quarter of 2011, household2 final consumption expenditure increased by 0.3% in the euro area and by 0.2% in the EU27 (after +0.3% and +0.2% respectively in the previous quarter).
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Source: Eurostat
BlackRock ETF Landscape: European STOXX 600 Sector ETF Net Flows for Week Ending 03-Jun-2011
June 8, 2011--For the week ending 03 June 2011, there were US$69.2 Mn net outflows from STOXX Europe 600 sector ETFs. The largest sector ETF net outflows last week were in healthcare with US$37.3 Mn followed by insurance with US$22.4 Mn net outflows while automobiles and parts experienced net inflows of US$29.5 Mn.
Year to date, STOXX Europe 600 sector ETFs have seen US$378.7 Mn net inflows. Healthcare has seen the largest net inflows with US$318.9 Mn, followed by banks with US$256.2 Mn net inflows while basic resources experienced the largest net outflows with US$195.2 Mn.
As of 03 June 2011, there is US$10.8 Bn AUM invested in the STOXX sector ETFs which is greater than the US$7.4 Bn open interest in the sector futures. The ETF AUM is greater than the open interest in the corresponding futures contract in 16 out of 19 sectors.
to request report
Source: Global ETF Research & Implementation Strategy Team, BlackRock
NYSE Euronext European ETF activity highlights-May 2011
June 8, 2011--Listings
May 2011 saw 16 new ETF listings including:
6 from Amundi IS on Euronext Paris,
2 from iShares on Euronext Amsterdam,
4 from HSBC ETFs on Euronext Paris,
4 from Lyxor on Euronext Paris
At the end of May, NYSE Euronext had 653 listings of 562 ETFs from 17 issuers. So far this year, there were a total of 112 new listings on the NYSE Euronext European market including 86 new primary listings and 26 cross listings.
These ETFs cover more than 360 indices exposed to an extended range of assets and strategies (Equity, Fixed Income, Commodities, Short, Leverage, etc...).
Trading activity
In May 2011, both the average daily number of trades and the Average Daily Turnover (ADT) figures decreased compared to the exceptionnal month of May 2010:
On average, there were 8 009 trades on a daily basis, representing a decrease of 43% versus May 2010.
ADT of €405.8 million, representing a decrease of 39% from the €670.7 million in May 2010.
Assets Under Management (AUM)
At the end of May 2011, the combined AUM of all ETFs listed on the NYSE Euronext European markets totalled €144.2 billion, an increase of 23.9% from the €116.4 billion at the end of May 2010.
Market Quality
The combination of the flow of 22 first-class Liquidity Providers, competitive market makers, client orders and our high capacity, low latency technology contributed to a median spread of 27.7 bps of all listed ETFs.
view the MAy 2011 edition of the ETF Monthly Flash
Source: NYSE Euronext
New Lyxor ETF launched on Xetra
June 7, 2011--A new exchange-traded fund (ETF) issued by Lyxor has been tradable on Xetra since Tuesday.
ETF name: Lyxor ETF Daily Leveraged Bund
Asset class: bond index ETF
ISIN: FR0011023654
Total expense ratio: 0.20 percent
Distribution policy: reinvested
Benchmark: SGI Daily Leveraged Bund Index
The Lyxor ETF Daily Leveraged Bund enables investors to participate in the performance of the SGI Daily Leveraged Bund Index. The index represents twice the performance of German government bonds with an average maturity of 10 years. The Bund-Future works as an indicator with double leverage.
The product offering in Deutsche Börse’s XTF segment currently comprises a total of 811 exchange-listed ETFs, making it the largest offering of all European stock exchanges.
Source: Deutsche Börse
DB Global Equity Index & ETF Research :– Instrument Functionality : Fixed income ETF tracking effectiveness: Hitting the target?
June 7, 2011--Why is fixed income tracking effectiveness especially relevant?
Fixed income investing has come to occupy an important part in portfolio construction pursuant to the credit crisis and the resultant elevated volatility in equity markets over the past three years
.* There is usually a decision to be made between equity and fixed income, and in most of those cases it is the equity risk premium that drives the investment decision. On the other hand, in pure fixed income portfolios, investors are accustomed to much lower levels of volatility and risk and thus proportionately more predictable returns. * Therefore, the ‘precision bar’ is much higher for pure fixed income investors and as such, tracking effectiveness of fixed income beta instruments is a sensitive issue. * This ‘higher predictability principle’ - that governs - fixed income return streams has at best been strenuously challenged over the credit crisis. At worst, some argue it has in fact been permanently broken. * We have therefore put the tracking effectiveness of fixed income ETFs under the microscope and have sought to study how well they have performed since the beginning of the crisis. In addition, we sought to identify which factors most affect fixed income ETF tracking effectiveness. * What we found has been quite surprising and in fact the majority of the findings do not only relate to ETFs but traditional funds in general as well. It was much easier to analyze fixed income beta instrument tracking effectiveness in ETFs because they afford a much greater degree of transparency.
What did the study show?
Our study included 19 ETFs [with AUM approximately 40% of the European fixed income ETF market] benchmarked to four major segments: Euro sovereign, inflation linked, corporate and emerging markets. * The fixed income fund tracking effectiveness study demonstrated that ETFs have undoubtedly pushed the transparency lid open on the fund management industry. * Our study indicated that the vast majority of fixed income ETF trackers track their indices with surgical precision. Three quarters of the sample studied (14 out of the 19 ETFs analyzed) achieved a classification of ‘excellent’ tracking effectiveness, consistently exhibiting annualized tracking error lower than 50 bps and in the majority of cases lower than 10 bps. One ETF in the sample exhibited ‘moderate’ tracking effectiveness (tracking error between 50-100 bps) and 4 ETFs exhibited ‘poor’ tracking effectiveness (tracking error over 100 bps). * For a full list of classification criteria please refer to Figure 1 on page 5 of this report. * The average universe tracking error (TE) has declined from 90 bps in 2008 to 31 bps in 2010, indicating that the tracking effectiveness of ETFs improved 3-fold over the period. * On average, sovereign benchmarked ETFs tracked their indices better than emerging market and corporate benchmarked ETFs. While the result on emerging markets is somewhat expected, it was quite interesting to measure the impact on developed market corporate bond benchmarked funds. * ETFs which tracked USD and GBP corporate benchmarks had a bigger challenge on average to achieve higher tracking effectiveness, in some occasions generating tracking errors that were 15 times higher during 2008. Subsequently, corporate ETF benchmarked tracking effectiveness became a lot more uniform and in the past two years they achieved results comparable to those of sovereign benchmarked ETFs. The tracking error discrepancies are more likely due to sampling and fund pricing subjectivity.
To request a copy of the report
Source: Christos Costandinides, European Head of ETF Research & Strategy, Deutsche Bank
Eurex to launch Polish single stock futures segment
New country segment to be introduced on 27 June 2011
June 7, 2011--The international derivatives exchange Eurex today announced that it will launch 19 single stock futures (SSF) on leading Polish companies on 27 June 2011.
The new listings reflect customer demand for derivatives based on shares from one of the largest economies in Eastern Europe. The new SSF contracts will be based on 19 shares of the Polish blue chip index WIG 20 (except CEZ) and denominated in euro. The launch extends Eurex’s SSF offering with a new country, bringing the total number of covered countries to 21.
As Eastern European countries become more and more important for our customers and investors, demand for products based on companies listed in these markets also increases. Therefore, we have extended our offering and launched contracts covering companies from one of the biggest Eastern European markets”, said Peter Reitz, member of the Eurex Executive Board. “Our current SSF suite gives customers greater flexibility in executing trading strategies in more than 850 names in Europe and internationally.”
The new Polish SSFs will extend the number of covered Eastern European and emerging markets to four. Volumes in Russian SSFs, the largest emerging market segment at Eurex, have risen steadily since their launch in 2007: In 2010, contracts totaled more than 680,000, while year-to-date volume is almost 300,000 contracts.
The specifications of the new contracts are comparable to the other European listings. Each contract represents 100 shares and is cash settled. They will have expiry dates up to three years for the next 13 calendar months, plus the two following annual contract months out of the December cycle. The new Polish single stock futures also are eligible for Eurex’s Block Trade Facility.
Source: Eurex
Ireland will not need bond market funds until 2013
June 7, 2011--- Ireland will not need to return to the bond market to borrow funds until the second half of 2013, Finance Minister Michael Noonan told parliament on Tuesday.
"Based on the current projections and assuming no market access, the state has access to sufficient funds for its needs into the second half of 2013," Noonan said.
He had been asked by opposition lawmakers when Ireland would need to raise funds outside an 85 billion euro ($125 billion) EU/IMF bailout package the country received last November.
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Source: EUbusiness
Deutsche Börse and SIX Group sign definitive agreement to make Deutsche Börse sole owner of Eurex
Agreement is subject to the approval of the Supervisory Board of Deutsche Börse AG and the NYSE Euronext Board of Directors
June 7, 2011--On 7 June 2011, Deutsche Börse AG, SIX Group AG and SIX Swiss Exchange AG signed a definitive agreement for a transaction which would make Deutsche Börse the sole owner of the currently jointly owned Eurex Group and SIX Group a shareholder in the combined Deutsche Börse and NYSE Euronext entity.
The agreement is still subject to the formal approval of the Supervisory Board of Deutsche Boerse AG and also, based on the Business Combination Agreement, the Board of Directors of NYSE Euronext; both approvals are scheduled for June 16, 2011.
The Chairman of the Supervisory Board of Deutsche Boerse AG and the Chairman of the Board of Directors of NYSE Euronext, following discussions within their Boards, expressed their support for the transaction. The timing of the transaction is generally driven by the closing of the pending Deutsche Börse and NYSE Euronext combination. Under the agreement Deutsche Börse would receive 100% of all Eurex sales and profits instead of the 85% reflected in the consolidated accounts of Deutsche Börse Group today after closing of the transaction with economic effect as of 1 January 2012. In return, SIX Swiss Exchange AG would receive a consideration of €295 million in cash and €295 million in shares of the combined Deutsche Börse and NYSE Euronext entity. The shares of the combined entity will be shares held by Deutsche Börse as the result of the tender of Deutsche Börse treasury shares into shares of the combined entity. The financial terms reflect an agreement relating to the resolution of all rights and obligations of both parties under the current contractual framework of Eurex and its existing 2014 termination provisions.
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Source: Deutsche Börse
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