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EDHEC-Risk Institute Warns the European Parliament of the Dangers of Banning Naked Sales of Credit Default Swaps
March 8, 2011--In an open letter of March 8, 2011 addressed to the Chair of the Economic and Monetary Affairs Committee of the European Parliament, Sharon Bowles, and Pascal Canfin, the Committee’s Rapporteur on the draft EU regulation on short selling and credit default swaps, EDHEC-Risk Institute has warned of the dangers of prohibiting "naked" sales of sovereign credit default swaps.
Besides the fact that the lack of convergence on these issues with the US authorities leaves little hope of the measures being effective, EDHEC-Risk Institute thinks that this ban would pose numerous problems and run up against legal and practical obstacles that would make it inapplicable or even counterproductive:
It will be impossible for intermediaries and ultimately for regulators to verify investors’ holdings of the securities representative of the risk the credit default swaps are assumed to cover.
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Source: EDHEC-Risk Institute
Euro-MPs back tax on financial transactions in vote
March 8, 2011-European lawmakers backed Tuesday the introduction of a tax on financial transactions they said could raise 200 billion euros per year to finance EU projects.
Euro MPs voted 360 for and 299 against a call for the European Union to encourage such a tax at a global level, after German Chancellor Angela Merkel said finance ministers from the 17-nation eurozone should examine ways to implement one.
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Source: EUbusiness
STOXX announces new composition of Sustainability, Select Dividend, Style and Grand Prix Indices
STOXX ANNOUNCES NEW COMPOSITION OF SUSTAINABILITY, SELECT DIVIDEND, STYLE AND GRAND PRIX INDICES
Results of the Review to be Effective on March 21, 2011
March 7, 2011--STOXX Limited, the market-moving provider of innovative, substantial and global index concepts, today announced the results of the annual review of the STOXX Select Dividend Index series and the STOXX Global Grand Prix Index; as well as the result of the semi-annual review of the STOXX TMI Growth and STOXX TMI Value indices, its respective large, mid- and small sub-indices and the respective indices for the euro zone.
Furthermore, the results of an extraordinary review of the STOXX Sustainability Indices are being announced as Bank Sarasin & Co. Ltd. took over the research and analysis for the indices earlier this year. All changes will be effective on March 21, 2011.
STOXX Sustainability Indices
The STOXX Sustainability Indices have been reviewed extraordinarily as Bank Sarasin took over the research and analysis of the index components earlier this year. While the methodology of the indices remains unchanged, components are now selected from the STOXX Europe 600 Index according to Bank Sarasin’s rating. In order to be included in the STOXX Sustainability Indices, a company must reach a “positive overall sustainability rating” according to Bank Sarasin’s Sustainability Matrix. The rating is composed of “industry rating” and “company rating.”
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Source: STOXX
Eurex KOSPI Product hits important milestone
More than 500,000 contracts traded since the launch of the Eurex/KRX Link
March 7, 2011--The Eurex KOSPI Product exceeded 500,000 traded contracts last Friday for the first time since its launch on 30 August 2010. Average daily volume has been increasing steadily, reaching more than 11,000 contracts in March 2011. On 18 January, Eurex achieved a new daily record of more than 64,000 traded contracts.
“Our Eurex KOSPI Product has been very successful since its introduction,” said Michael Peters, Eurex Executive Board member. “This is due to our close partnership with the Korea Exchange to offer our customers access to the most widely traded index derivative contract in the world. Our participants do not only trade via the order book but also use our block trading functionality, which allows members to place OTC transactions directly and efficiently into the Eurex clearing system.” Currently, block trades of this product can only be executed on Eurex.
“The Eurex KOSPI Product is a linked derivative product that provides more convenient access to KOSPI 200 Options for European customers,” said In-Soo Kim, KRX executive director. “This milestone reflects the high acceptance of the Eurex KOSPI Product as an investment tool for global investors. KRX and Eurex will continue to work closely together with market participants to develop ways to further increase liquidity in the Eurex KOSPI Product.”
Volumes are expected to rise as KRX and Eurex further develop the after-hours market for the world’s most widely traded derivatives contract. Bid-ask spreads for the Eurex KOSPI Product have narrowed considerably, and the number of active end-customers as well as Eurex and KRX members continues to expand rapidly. Currently, eleven KRX and Eurex members are active in the Eurex KOSPI Product, among them two market makers. There are 12 additional KRX and Eurex members who are preparing to participate in the Eurex/KRX Link.
The Eurex KOSPI Product is a daily futures contract based on the KOSPI 200 options available on the Korea Exchange (KRX). The futures contracts expire at the end of each trading day and any open positions are transferred to KRX to establish a position in the KOPSI 200 option. This product cooperation between Eurex and KRX enables market participants to trade KOSPI 200 options during European and North American trading hours.
Source: Eurex
Curbs on ‘naked’ short selling closer after EU vote
March 7, 2011--A ban on uncovered credit default swaps on sovereign debt and an effective prohibition of “naked” short selling of securities in Europe moved closer on Monday night after winning the backing of European Union lawmakers.
The vote, in the European Parliament on Monday evening, was greeted with dismay by sections of the financial services industry, with hedge funds warning that it would make sovereign debt markets less efficient, liquid and transparent, and push up the cost of borrowing.
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Source: FT.com
NASDAQ OMX introduces indexes for Swedish credit bond market
March 7, 2011--NASDAQ OMX (NASDAQ:NDAQ) today introduces a new index series for the Swedish credit bond market. The NASDAQ OMX Credit SEK Index series is uniquely designed to provide exposure to a portfolio of corporate and municipality investment-grade bonds denominated in Swedish Krona (SEK). Calculation of the indexes and index analytical values are based on daily end-of-day market mid valuations supplied to NASDAQ OMX by SEB.
Magdalena Hartman, Vice President NASDAQ OMX Global Index Group said: "Until today there has been a lack of means to measure the performance of the Swedish credit market. With this new index series investors, asset managers and analysts will for the first time gain access to a reliable benchmark for SEK denominated credit bonds to support research and development of new financial products."
Europe to toughen banks ' stress tests: report Recognising the shortcomings of last year's exercise, EBA chairman Andrea Enria told the FT he was determined to make the exercise more credible and to use it as a trigger for a thorough recapitalisation of Europe's weakest banks.
read more 07 Mar 2011 Inclusion of aviation in the EU ETS: Commission publishes historical emissions data on which allocations will be based read more EU proposals a welcome first step towards making too-big-to-fail a thing of the past Similar measures were introduced in the UK by the Banking Act 2009 and Financial Services Act 2010, which give the Bank of England powers to deal with a failing firm and require all banks to have in place recovery and resolution plans.
In its response to the European Commission’s consultation, the BBA stresses: no firm should be considered too big to be subject to an orderly resolution process in the event of its failure; read more European Parliament: MEPs Crack Down On Sovereign Debt Speculation And Naked Short Selling Insuring against risk The committee position would prohibit anyone from being involved in credit default swap (CDS) transactions if they do not already own sovereign debt linked to that CDS ("naked" CDS trading), or securities whose price depends heavily on the performance of the country, such as shares in a major company based there. This position therefore innovates, not only by banning CDS naked trading, but also by introducing a correlation that would allow investment firms some room for manoeuvre. One day to settle "naked" short sales Although the committee position does not entirely ban "naked" short selling, it sets a very tight deadline for converting a naked short sale into a short sale. By the end of the trading day, any naked short sales undertaken must have been converted, states the position. A seller failing to make the conversion on time would incur fines which, the amended text states, "must be sufficiently high to prohibit any profits being made". The position adopted in committee retains the Commission's tough "locate and reserve rule", whereby a seller must not only identify from where it plans to borrow the shares in question, but must also have a guarantee that it will indeed be able to borrow them when the time comes. Reporting more but less often
The committee position imposes further reporting requirements on investment firms, particularly in exceptional circumstances. It also allows national supervisory authorities to require lenders to notify them in exceptional situations. In emergencies, national authorities will be also required to provide more information within 24 hours to the European Securities and Markets Authority (ESMA), when requested. On the other hand, the committee position only requires investment firms to report on their short sale transactions at the end of the trading day, rather than reporting each short sale as it happens, as proposed by the Commission. Investors would also be required to publically disclose less information than would have been required by the Commission's original proposal. Next steps
MEPs primarily involved with steering the regulation through Parliament will now sit down with Member States to thrash out a deal which can be then be tabled for a plenary vote in the coming months. The regulation is expected to be in force by 2012. If you are looking for a particuliar article and can not find it, please feel free to contact us for assistace.
Source: NASDAQ OMX
March 7, 2011--European banking regulators are to toughen stress tests on banks after last year's results failed to uncover the extent of financial turmoil at some Irish lenders, the Financial Times reported Monday.
The European Banking Authority (EBA) is preparing to introduce a 'near fail' category as part of a mechanism to force recapitalisations on weaker banks, the FT said.
Source: EUbusiness
March 7, 2011--The European Commission has, today, taken an important step in preparing for the full inclusion of aviation in the EU's emissions trading system (EU ETS) from 1 January next year. The European Commission has decided on the historical aviation emissions which will be used to calculate the number of aviation allowances to be available from 2012.
Connie Hedegaard, European Commissioner for Climate Action, said: ''Emissions from aviation are growing faster than from any other sector, and all forecasts indicate they will continue to do so under business as usual conditions. Firm action is needed. By publishing the data on which allocations will be based, we prepare for the full inclusion of aviation in the emissions trading system.''
Source: European Commission
March 7, 2011--European proposals to reduce the probability of financial crises and to manage them if they occur should help level the regulatory playing field with the UK, the British Bankers’ Association said today.
The European Commission’s proposals for the recovery and resolution of financial firms set out measures to strengthen the supervision of financial institutions and mechanisms to ensure that, if problems do arise, firms can be allowed to fail without detriment to the customer and with minimal impact on the wider economy.
Source: British Bankers’ Association (BBA)
March 7, 2011--A ban on certain trades in sovereign bonds, and requirement that traders settle their uncovered positions by the end of each trading day, were two key outcomes of Monday's Economic Affairs Committee vote on a draft EU regulation on short selling and credit default swaps. MEPs also inserted a requirement that short sale transactions be reported less often, but beefed up the rules to ensure that fines are dissuasive
"Short selling", whereby speculators bet on a fall rather than a rise in the price of a security to make a profit, and "credit default swaps", essentially to insure against a state defaulting on its debt obligations, were both heavily implicated in Europe's recent sovereign debt crises. This regulation, being steered through Parliament by Pascal Canfin (Greens/EFA, FR), takes one more step towards curbing speculation and improving transparency in the financial services sector.
Source: European Parliament
