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European Systemic Risk Board Established
December 16, 2010--The legislation establishing the European Systemic Risk Board (ESRB) came into force today. The seat of the ESRB is in Frankfurt am Main and its Secretariat is ensured by the European Central Bank (ECB).
The ESRB is an independent EU body responsible for the macro-prudential oversight of the financial system within the Union. It shall contribute to the prevention or mitigation of systemic risks to financial stability in the Union that arise from developments within the financial system. The ESRB shall also contribute to the smooth functioning of the internal market and thereby ensure a sustainable contribution of the financial sector to economic growth.
As foreseen in the legislation, the Chair of the ESRB is the President of the European Central Bank, Mr Jean-Claude Trichet. Mr Mervyn King, Governor of the Bank of England, was elected today as first Vice-Chair of the ESRB by the members of the General Council of the ECB.
The General Board of the ESRB will have its inaugural meeting on 20 January 2011.
Source: ECB
Turkey to reduce withholding on bonds sold abroad to zero
December 16, 2010--Turkey’s finance minister said on Thursday that Turkey would cut the withholding rate on Turkish bonds sold abroad with maturities of five years or greater.
Finance Minister Mehmet ?im?ek told an Anatolia news agency correspondent on Thursday that Turkish companies and banks have plans -- which some have already implemented -- to issue bonds in Turkey and foreign countries to raise funds to finance their investments and other activities.
The finance minister said his ministry has prepared a draft regulation to reduce the withholding rate of five-year and longer bonds sold abroad from 10 percent down to zero percent. “The government is also planning to reduce the banking and insurance transactions tax [BSMV] on Turkish Lira denominated bonds issued in Turkey from 5 percent to 1 percent,” ?im?ek said.
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Source: Todays Zaman
New Markets and New Arrangements in the ISE Bonds and Bills Market and ISE Foreign Securities Market
December 16, 2010--Istanbul Stock Exchange (ISE) has announced the launch of new sub-markets and a series of new arrangements for the ISE Bonds and Bills Market and the ISE Foreign Securities Market, effective from today.
Within the framework of these new arrangements;
A new repo market called “Repo Market for Specified Securities” opens today, in addition to the Repo/Reverse Repo Market that has been in operation for seventeen years.
In addition to government debt securities, ISE-listed private sector borrowing instruments are subject to repo transactions on the Repo Market for Specified Securities. On the Market, repo transactions will be based on the specific securities agreed upon by the buying and selling parties, while such securities will not be blocked following the trade and therefore, will be available for use of the buying party during the maturity term of the repo. At maturity, the buying party will deliver the corresponding amount of the securities subject to trade to the ISE Settlement and Custody Bank (Takasbank), to be transferred to the selling party.
Radical changes are going into force in the ISE Bonds and Bills Market risk management system today. The risk management system that has so far been used in the ISE Bonds and Bills Market sub-markets based on fixed rate collateralization is converted into a dynamic risk management system based on daily evaluation. This new structure allows trading at lower cost for same value date transactions which are subject to a lower risk of price change, and therefore require less collateral, while permitting dynamic risk monitoring through daily evaluations for future date transactions which carry a higher risk of price change. Consequently, different amounts of collateral will be required for securities that are subject to different price change risks.
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Source: Istanbul Stock Exchange (ISE)
Europe battles to shield the euro for good
December 16, 2010-- European leaders moved Thursday to shield the euro over the long run despite divisions over the best course of action to bury market fears a debt crisis could engulf Portugal and Spain.
In a clear sign of a determination by authorities to anchor political solidarity in hard cash, the European Central Bank said shortly before the opening of the European Union's seventh and last summit of the year that it will almost double its reserves.
In Brussels from 1600 GMT, EU leaders will lay the foundation for a permanent financial rescue system to protect the eurozone -- a new milestone in the evolution of the 27-nation bloc.
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Source: EUbusiness
Eurozone growth indicator shows slowdown
December 16, 2010--Eurozone recovery slowed in December, according to first estimates on Thursday from the purchasing managers' leading index (PMI).
The indicator of industrial and services activity dropped to a two-month low level of 55 points against 55.5 in November following three sucessive months of slowdown -- 56.2 in August, 54.1 in September, 53.8 in October.
The indicator of industrial and services activity rose to 55.5 points in November after falling to 53.8 points in October, which was an eight-month low.
But the December indicator remained above 50 points, which signals growth.
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Source: EUbusiness
New EDHEC-Risk Institute survey reveals that European private wealth managers wish to offer their clients customised risk management but generally fail to do so
December 15, 2010--This European survey conducted by EDHEC-Risk Institute as part of the “Private ALM” research chair in partnership with Ortec Finance draws on responses from 159 private wealth managers (PWMs), whose clients include the mass affluent (financial assets of less than $1 million) as well as so-called ultra-high-net-worth individuals, or UHNWIs (financial assets of more than $30 million).
The 159 respondents are mainly senior European investment professionals working in private banks, asset management firms, and family offices; more than half represent organisations managing more than €1 billion of clients’ money.
The key findings of the survey can be summarised along three lines:
PWMs see the relationships with their clients as the principle source of value they add. But they fail to exploit this close relationship to customise the services they offer their clients: when portfolios are designed for clients, market factors are taken into account more frequently than are the individual characteristics of the clients. Wealth managers often assess their clients’ level of risk aversion, but other individual risk factors—longevity risk, individual income risk, and individual spending objectives—are accorded much less importance.
PWMs also generally fail to provide state-of-the art means of horizon-dependent asset allocation. Current practice is inconsistent in the sense that horizon effects are recognised as important but the factors that generate horizon effects—stochastic outside income and time-varying equity risk premia—are not. PWMs rarely work with explicit models of mean reversion of the equity risk premium. 77% of respondents do not model long-term equity returns at all.
Finally, PWMs see the potential of taking into account client-specific spending objectives, but only a small minority actually attempts to realise this potential. The methods PWMs are most familiar with are traditional investment analysis, which focuses on direct alpha generation (fundamental and macroeconomic analysis), or fund-selection concepts, which focus on accessing alpha indirectly (performance analysis and due diligence). These concepts, by aiming mainly at alpha, are unrelated to client-specific spending objectives, and PWMs acknowledge that they are of little value in achieving these objectives. Together, PWMs who are unfamiliar with ALM and those who are familiar with it but do not use it make up a majority of our respondents. The lack of adoption of ALM has more to do with unfamiliarity with the concept and with the perceived difficulty of using it than with sceptical views of its usefulness.
view the EDHEC-Risk Publication European Private Wealth Management Survey
Source: EDHEC
STOXX launches new Optimised Country Indices for Emerging Markets and Asia
December 15, 2010--STOXX Limited, a global index provider and creator of the leading European equity indices, today announced the launch of the STOXX Optimised Country Indices for select emerging markets, as well as that of the STOXX Optimised Asia Select Index. The country indices are available for Brazil, Chile, China, Colombia, Egypt, India, Indonesia, Israel, Malaysia, Mexico, the Philippines, Poland, Russia, South Africa, South Korea, Taiwan, Thailand, Turkey and Vietnam. All new indices are part of the STOXX Optimised Index family.
“With the launch of the STOXX Optimised Country and STOXX Optimised Asia Select indices we take another significant step towards the globalization of our index offering,” said Hartmut Graf, chief executive officer, STOXX Ltd. “STOXX offers an unparalleled access to emerging markets, ensuring a maximum of liquidity and constant tradability for these regions. The new indices are an addition to our existing Optimised Index family, which applies superior concepts to improve liquidity and diversification in the index.”
The STOXX Optimised Country Indices are available in two versions: the local indices represent a variable number of companies - with a maximum of 30 for each country – which are listed on the respective markets local stock exchanges. Furthermore, a depository receipt (DR) version which includes DRs that are listed on London Stock Exchange, New York Stock Exchange or NASDAQ, is calculated for the following countries: Brazil, India, Mexico, Russia and China.
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The STOXX Optimised Asia Select Index covers all companies which are based in Hong Kong, Singapore, South Korea and Taiwan, and are listed on a North American stock exchange.
The STOXX Optimised Country and STOXX Asia Select indices follow a similar methodology as the STOXX Optimised Indices. The most defining features of this index family is, that it does not only take into account the average daily trading value (ADTV) for stock selection but also for the derivation of the index constituents’ weights. In case of large discrepancies between a listing’s market capitalization and its liquidity, the initial weight derived from a constituent’s market capitalization will be decreased to ensure tradability of the index.
The STOXX Optimised Country and STOXX Asia Select indices are available in price, net and gross return versions, and are reviewed annually in September. The indices are calculated in euro and U.S. dollar. Single component weights are capped at 10%.
Further information on the STOXX Optimised Indices is available at www.stoxx.com.
Source: STOXX
ETF Landscape: European STOXX 600 Sector ETF Net Flows for week ending 10-Dec-10
December 15, 2010--For the week ending 10 December 2010, there were US$216.6 Mn net inflows to STOXX Europe 600 sector ETFs. The largest sector ETF net inflows last week were in banks with US$93.4 Mn and basic resources with US$71.3 Mn while insurance experienced net outflows of US$118.9 Mn.
Year-to-date, STOXX Europe 600 sector ETFs have seen US$335.4 Mn net inflows. Banks sector ETFs have seen the largest net inflows with US$197.3 Mn, followed by construction and materials with US$90.1 Mn while food and beverage has experienced the largest net outflows of US$167.6 Mn YTD.
As of 10 December 2010, there is US$9.9 Bn AUM invested in the STOXX sector ETFs which is almost double the US$5.1 Bn open interest in the sector futures. The ETF AUM is greater than the open interest in the corresponding futures contract in 18 out of 19 sectors.
to request report
Source: Global ETF Research & Implementation Strategy Team, BlackRock
Although Majority Remain Opposed, Significant Minority Of Fund Managers Support Final AIFM Directive
32% Believe Regulation Is Necessary With 31% Backing The Legislation
December 15, 2010--A Preqin survey of over 100 alternative assets fund managers and investors found that just under a third support the AIFM Directive to some extent, with firms in certain countries where the new legislation will replace more restrictive existing rules believing that it will serve to improve conditions. However, for the majority there exists significant
resentment towards the Directive.
Key Findings of the Survey Include:
89% believe the Directive should be amended to further take into account the differences between the
various asset classes.
59% foresee the AIFM Directive creating a European lock-in/lock-out.
45% think that it is likely or very likely that fund managers will relocate to outside of Europe as a result of the AIFM Directive; 26% felt that it was likely their firm specifically would relocate.
28% believe that the introduction of the EU Passport will have the biggest impact on the industry, while 22% feel the requirement that non-EU fund managers comply with the Directive will be the most significant measure.
Just 3% believe that increased regulations relating to retail investors will have the greatest impact.
The impact of the Directive on innovation, the additional costs firms will incur, and the effect of these costs on profitability are all major causes for concern.
A significant number feel that venture capital firms should be excluded from the jurisdiction.
view The AIFM Directive December 2010 A Preqin Special Report
Source: Preqin
EU watchdog placed at the heart of credit rating agency supervision
December 15, 2010--The latest amendments to the rules regulating credit rating agencies (CRAs) were approved by Parliament on Wednesday. These changes were needed to effectively entrust ESMA with the direct supervision of the agencies. MEPs, with Member State support, empowered ESMA, rather than the Commission, to impose fines on CRAs.
European Securities and Markets Authority (ESMA) to directly supervise agencies by July 2011
ESMA empowered to make dawn raids, impose fines, and ensure agencies evaluate the accuracy of their past ratings
All credit rating agencies to be checked by July 2014
The amendments were approved with 611 votes in favour, 15 against and 26 abstentions.
Fining power
The Commission's initial proposal argued that the Commission itself was best placed to impose fines, upon a recommendation from ESMA. However, the final text agreed in negotiations and approved by Parliament gives this role to ESMA. A range of fines, reflecting the type of infringement, the size of the CRA, and possible aggravating or attenuating conditions, is laid down in the rules. ESMA will be able to impose fines of up to 20% of a CRA's turnover for the previous year.
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Source: European Parliament
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