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New EDHEC-Risk Institute research highlights the dangers of accounting and sponsor risk for corporate pension plans
June 20, 2011--A new study entitled “The Elephant in the Room: Accounting and Sponsor Risks in Corporate Pension Plans,” drawn from the AXA Investment Managers “Regulation and Institutional Investment” research chair at EDHEC-Risk Institute, surveys how pension funds and sponsors manage the main risks they face and how institutional constraints—accounting and prudential regulations, the organisation of the relationship between the pension fund and its sponsor, and social laws—influence the investment strategy of sponsors and pension funds.
The survey elicited 100 responses. The assets under management (AUM) of the pension funds with which the respondents are associated amount to more than €730 billion. Sponsoring companies have a total balance sheet size of more than €5.5 trillion.
Among the main results of the survey:
Sponsors of pension funds are concerned primarily about the economic risk of facing higher than expected pension costs—95% mention this risk. 93% of respondents mention accounting risk, the reported cost of pensions in the sponsors’ books as opposed to the true cost of providing pensions, and the balance sheet volatility it causes. Reputation risk comes third.
For pension funds (especially for traditional defined-benefit ones), the main risk is sponsor default and reduced pensions or curtailment. Respondents rank sponsor risk as the greatest risk in pension funds (77% mention this risk, usually with the greatest intensity).
However, 84% of pension funds do not manage sponsor risk. The primary reason in Europe for not managing sponsor risk is the presence of pension fund insurance (46% of respondents). In “other reasons”, 15% of respondents argue that the pension fund’s sponsor is a government or quasi-government entity, and 4% of respondents have purchased protection from sponsor insolvency.
view EDHEC-Risk Publication: The Elephant in the Room: Accounting and Sponsor Risks in Corporate Pension Plans
Source: EDHEC-Risk Institute
FESE European Equity Market Report - May 2011 Figures
June 20, 2011--FESE has published the ‘European Equity Market Report’ which gathers data from all the market segments operated by FESE members (including Regulated Markets and Multilateral Trading Facilities) as well as from the major MTFs operated by investment firms in the European market. The FESE Statistics Methodology used in the Report has been agreed by all the trading venues involved, both RM and MTFs.
view report
Source: FESE
Netherlands to ease rules on pension provider / financial product link
June 17, 2011--Dutch social affairs minister Henk Kamp has said he intends to allow pension providers to link their financial products to their affiliated, mandatory industry-wide pension funds.
In a letter to parliament, he announced a bill that would allow providers to indicate this connection to institutional players, but would maintain the ban on mentioning the link to consumers.
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Source: IP&E
Europe Factors-Shares Set to Fall Again on Debt Woes
June 17, 2011--European stock index futures pointed to losses on Friday, with the region's benchmark indexes set to record a seventh straight weekly loss, on mounting concerns that Greece might not be able to avoid a debt default.
By 0617 GMT, futures for Euro STOXX 50 STXEc1, for Germany's DAX FDXc1 and for France's CAC FCEc1 were down 0.4-0.6 percent. Greek Prime Minister George Papandreou, facing public unrest and a split in his party that could push the country closer to default, delayed announcement of a new cabinet late on Thursday in what looked like a signal he was struggling to find the right person for the key financial minister position.
Source: Reuters
Agricultural derivatives segment at Eurex hits important milestone
Threshold of 100,000 traded contracts passed in mid June
June 17, 2011--The international derivatives exchange Eurex today announced that the number of traded agricultural derivatives exceeded 100,000 contracts since their launch in July 2009. Volume has been increasing steadily, partly due to the volatile weather conditions in 2011 and 2010.
Year-to-date, the average daily volume (ADV) is above 300 contracts, or around 38,000 contracts in total. In June 2011, the ADV stands at almost 400 contracts. In 2010, the ADV was around 200 contracts.
Eurex offers six agricultural futures based on butter, European processing potatoes, hogs, London potatoes, piglets and skimmed milk powder. All futures are based on established reference prices from the respective spot markets and are settled in cash.
Eurex’s agricultural contracts are aimed at a broad group of users, including farmers and agricultural cooperatives, trading and slaughter companies and the processing industry. For them, on-exchange traded agricultural derivatives increase the price transparency while the central clearing of these contracts at Eurex Clearing mitigates the counterparty risks which are existent in OTC markets.
Source: Eurex
Decade of soaring food prices forecast
June 17, 2011--The world should prepare for a decade of high food prices, two leading organisations warned on Friday as they raised their expectations for prices on the back of sluggish production growth.
“Agricultural commodity prices in real terms are likely to remain on a higher plateau during the next decade compared to the previous decade,” the UN Food and Agriculture Organisation and the Organisation for Economic Co-operation and Development said in their annual agricultural outlook.
The agencies predicted that cereal prices, adjusted for inflation, would be as much as 20 per cent higher on average over the next 10 years compared with the previous decade, while meat prices would be up to 30 per cent higher
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Source: FT.com
Capital requirement fears ease for UK banks
June 17, 2011--London’s banks recovered their poise in afternoon trade on Friday as worries about new international capital requirements eased as risk appetite improved on hopes a Greek rescue deal was moving closer.
Reports in the Financial Times said international regulators would meet in Switzerland next week to discuss plans for a tiered regime of additional capital requirements for about 30 of the world’s biggest banks. The group was said to include HSBC, Royal Bank of Scotland and Barclays. All of them fell for much of the day, as sentiment suffered at the hands of the Greek debt crisis. But as sentiment improved, the sector picked up some support. Barclays rose 0.9 per cent to 256.2p having lost almost 1 per cent earlier in the day. RBS recovered from similar losses to tick 0.1 per cent higher overall to 40.3p. Lloyds Banking Group dallied under the flatline, down 0.1 per cent at 47.9p, as did HSBC, 0.4 per cent softer at 605.6p.
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Source: FT.com
Spanish public debt hits 13-year high
June 17, 2011--Spanish public debt hit a 13-year high in the first quarter of 2011 and shattered a key European Union ceiling designed to ensure strong state finances, Bank of Spain figures showed Friday.
Spain's accumulated public debt amounted to 679.78 billion euros ($970 billion) or 63.6 percent of annual gross domestic product, at the end of March, the central bank said.
Up from just 55 percent of GDP a year earlier, the public debt ratio is now the worst since 1998 and above the key EU limit of 60 percent -- although many other member states have far surpassed that level.
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Source: EUBusiness
European pension funds steering clear of equities
June 16, 2011--Europe remains under-owned by its own citizens, as pension funds in most of Europe steer clear of equities.
While companies are in good shape and global M&A trends are strong, European investor equity exposure remains at all-time lows, according to Allianz Global Investors (AllianzGI).
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Source: IP&E
SIX Swiss Exchange Extends Contract With NASDAQ OMX and Upgrades to New Trading Platform
X-stream INET Platform From NASDAQ OMX Delivers World-Class Latency and Throughput Capabilities
June 16, 2011--The NASDAQ OMX Group, Inc. (Nasdaq:NDAQ) announces that SIX Swiss Exchange has extended its contract with NASDAQ OMX and will upgrade its existing SWXess equities trading platform with NASDAQ OMX's X-stream INET technology. The system upgrade is scheduled to be in effect in Q1 2012, and will enable significant latency and throughput advantages for SIX Swiss Exchange and its trading members in all asset classes.
Christian Katz, CEO at SIX Swiss Exchange said: "Our upgrade to X-stream INET for the trading of all asset classes will be a global first. It allows us to leverage the most advanced trading technology in the world, provided by our technology partner NASDAQ OMX, into our unique market structure with minimal adjustments for our clients. We have always believed that a high-performance and multi-functional trading platform remains a key differentiator in order to attract new liquidity and through this upgrade to X-stream INET we are setting a new standard."
Lars Ottersgard, Senior Vice President NASDAQ OMX Market Technology commented: "SIX Swiss Exchange will be the first exchange to implement X-stream INET, a system that utilizes the advanced functionality of our proven X-stream platform in combination with INET, the world's fastest trading technology in production with sub-100 microsecond latency."
Source: NASDAQ OMX
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