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EDHEC Risk Institute Survey Suggests that a Majority of European Pension Funds Have a “Blinkered View of their Risks”
September 27, 2010--In a new survey of 129 asset/liability management (ALM) specialists (pension funds, their advisers, regulators, and fund managers) representing assets under management of approximately €3 trillion, EDHEC Risk Institute finds, amongst other key conclusions, that the majority of respondents have a blinkered view of their risks: accounting risk (the volatility from the pension fund in the sponsor’s books) is managed by only 33% of respondents, and more than 50% ignore sponsor risk (the risk of a bankrupt sponsor leaving a pension fund with deficits).
In addition, pension funds generally do not assess the adequacy of their ALM, a failing that may lead to sub-optimal decisions’ being taken again and again.
According to Samuel Sender, Applied Research Manager at EDHEC Risk Institute and author of the “EDHEC Survey of the Asset and Liability Management Practices of European Pension Funds,” the first challenge for a pension fund involves meeting its liability by fully or partially hedging it away. The survey suggests that the liability-hedging portfolio (LHP) is modelled imprecisely at 45% of pension funds.
The second challenge for pension funds is to gain access to performance through optimal diversification within and between asset classes. Most respondents use market indices to define the investment benchmarks of investment funds, even though market indices are weighted by capitalisation and are known to be highly inefficient.
Additionally, even though they are the longest-term investors and are not subject to liquidity risk, pension funds invest relatively little in potentially illiquid assets and therefore do not benefit from the related risk premiums.
The last challenge for pension funds is to respect their minimum funding ratios by insuring risks away. To manage prudential constraints, 28% of respondents use risk-controlled investing (RCI) strategies, whereas 56% use economic/regulatory capital. Like RCI, economic capital relies on the measure of a risk budget and of a surplus. Economic capital, however, involves a discretionary, rather than rule-based, investment strategy, and possible delays.
view the EDHEC Survey of the Asset and Liability Management Practices of European Pension Funds
Source: EDHEC
FSA consults on improving auditors' reports on client assets
September 27, 2010--The Financial Services Authority (FSA) has today announced steps to improve the quality and consistency of auditors’ reports on client assets.
As part of its more intensive approach to supervision and enhanced focus on client assets, the FSA has reviewed the quality and consistency of auditors’ reports submitted in this regard.
A number of serious failings were identified – these were not localised to one or a limited number of auditors, but indicate a general deficiency by auditors in applying the FSA requirements on client assets, and a need to take steps to improve the quality of auditors’ reports.
The review identified the following material failings and weaknesses in a number of reports:
auditors providing ‘clean’ reports, despite the firm having committed significant breaches of the client asset rules;
auditors’ reports covering the wrong chapters of the Client Assets Sourcebook (CASS);
failure to provide the report on client assets because the auditor was not aware of, or did not understand, the reporting requirements;
auditors failing to provide adequate detail on the issues and exceptions identified in their report;
auditors submitting their reports several months late (in some instances, they were submitted years after the period they relate to); and
some auditors’ reports had ‘simple errors’, such as the auditor not signing or dating the report, quoting the wrong FSA firm reference number, or referring to another firm within the body of the report.
view CP10/20: Improving the auditor's report on client assets
Source: FSA.gov.uk
NASDAQ OMX Nordic Introduces Updated Volatility Guards To Protect Investors And Listed Companies
September 27, 2010--Stockholm, September 27, 2010 -NASDAQ OMX Group, Inc, announces that starting today it will introduce updated Volatility Guards on its Nordic and Baltic equity markets to protect investors and listed companies during times of volatile market conditions.
"Building on the previous common Nordic safeguard system, the updated Nordic Volatility Guards will meet the demands of modern high speed trading environments and advanced trading technologies. The introduction of Volatility Guards will further strengthen investor and listed company confidence in the price formation integrity of our Nordic and Baltic equities markets. One of the important lessons that we have learned from the recent market volatility and the financial crisis is the importance of a coordinated strategy to combat market instability, as well as the new complexity of modern, integrated and highly electronic markets", said Hans-Ole Jochumsen, President of NASDAQ OMX Nordic.
The NASDAQ OMX Nordic Volatility Guard is a trading pause and resumption process designed to restore an orderly market in a single security (shares and ETFs) listed on NASDAQ OMX Nordic and Baltic exchanges in Stockholm, Helsinki, Copenhagen, Iceland, Tallinn, Riga and Vilnius and the First North growth market.
read more
Source: NASDAQ OMX
Deutsche Börse: New ETF provider on Xetra
The new strategy ETF enables investors to participate for the first time in the performance of the C-QUADRAT European Equity Index, calculated by STOXX Ltd. The index tracks the daily price development of the futures contracts on the EURO STOXX 50 Index traded on Eurex multiplied by an exposure factor. The exposure factor is determined at 8 a.m. every day and can be -1, 0, 1, 1.5 or 2. It is determined using an indicator model with historical data. The product offering in Deutsche Börse’s XTF segment currently contains a total of 704 exchange-listed index funds, making it the largest offering of all European stock exchanges. This selection, together with an average monthly trading volume of €14 billion, makes Xetra Europe’s leading trading venue for ETFs. Independent Commission on Banking: publication of Issues Paper
Reform options related to the structure of banks
Separation of retail and investment banking
Narrow banking and limited purpose banking
Limits on proprietary trading and investing
Structural separability, including living wills and resolution schemes
Contingent capital
Structure-related surcharges
Reform options related to the structure of markets
Measures to reduce market concentration
Market infrastructure reform view the paper-Call for Evidence New Practices in the Istanbul Stock Exchange Stock Market Order cancellation shall be unconditionally allowed in the ISE Stock Market, effective from October 8, 2010. Henceforth, orders pending in the Stock Market Trading System may be cancelled one by one, on order basis, in full or in part. This new arrangement however, does not hold for the quotation orders entered for the securities traded with market making method on the Collective Products Market and the Warrants Market. The ISE will charge a fee equal to 0.025 basis points (2.5 millionths) of the TL amount of the cancelled orders.
Stock Market price ticks will start to be reduced gradually on November 1, 2010. Germany leads slowdown in eurozone The weak data added to evidence that gloomier global prospects, a strengthening euro, and the crises conditions facing the Greek and Irish economies are taking a toll on eurozone prospects. They did not point to a double-dip recession in continental Europe as a whole – but highlighted the vulnerability of countries still struggling to bring their public finances under control. “The turn in the world trade cycle has finally reached the eurozone,” said Nick Kounis, economist at ABN Amro in Amsterdam. read more Key euro economy indicator sets alarm bells ringing
Its combined manufacturing and services index for September crashed to 53.8 points from 56.2 in August.
Although any score above 50 indicates a trend towards growth, and this marked a 14th successive month in positive territory, concern was evident after the weakest rise since February and the fastest drop since November 2008.
read more Lyxor launches the first Asia ex Japan Equity Sector ETFs on the London Stock Exchange and Euronext Paris
The 5 new Lyxor ETFs are: Lyxor ETF MSCI AC Asia ex Japan Consumer Staples TR Lyxor ETF MSCI AC Asia ex Japan Financials TR Lyxor ETF MSCI AC Asia ex Japan Information Technology TR Lyxor ETF MSCI AC Asia ex Japan Infrastructure Capped TR Lyxor ETF MSCI AC Asia ex Japan Materials TR
They are listed in GBP and USD on the London Stock Exchange and in EUR on Euronext Paris. read more
DB Global Equity Index & ETF Research : European Weekly ETP Review: Gold price marches on, the ETF launch calendar follows Equity ETFs gathered net inflows of €19 million, fixed income registered €14 million of outflows, commodities saw €28 million of inflows and all other asset classes put together netted €29 million of outflows. New Listings
Five new products were launched by four providers. In addition, 38 products were cross listed by five providers. Newly launched products included a hedge fund ETF by Source, two commodity ETPs (Platinum and Oil) by UBS, a high yield fixed income ETF by Blackrock and an equity Asia (ex Japan) ETF by HSBC.
Turnover
On-exchange daily average ETP turnover for this week was up by 0.6%, to €1.70 billion. Average daily equity ETF turnover was up 0.6%, reaching €1.25 billion. Fixed Income ETF turnover was up by 3.2%, reaching €215 million. Commodity turnover was down by 1.2%, to €235 million. Assets Under Management (AUM) European ETP assets were down 0.7%, in line with the movement in major European equity markets, finishing the week at €204.4 billion. Year to date, European ETP AUM are up by 20.2%. Request a copy of the report If you are looking for a particuliar article and can not find it, please feel free to contact us for assistace.
September 24, 2010-- The first exchange-traded index fund issued by C- QUADRAT has been tradable in Deutsche Börse’s XTF segment since Friday.
Asset class: Strategy index ETF
ISIN: LU0531943461
Total expense ratio: 0.70 percent
Distribution policy: non-distributing
Benchmark: C-QUADRAT European Equity Index
Source: Deutsche Börse
September 24, 2010--The Independent Commission on Banking publishes an Issues Paper today. The Commission has been asked to consider structural and related non-structural reforms to the UK banking sector to promote financial stability and competition, and to make recommendations to the Government by the end of September 2011.
The Issues Paper describes the Commission's initial approach to considering financial stability, competition and the other issues to which it must have regard under its Terms of Reference. The Paper then outlines a number of options for reform in broad terms, but emphasises that the list is not intended to be exhaustive and that the Commission has not moved towards any particular options at this stage. The options set out in the paper are:
Source: Independent Commission on Banking (ICB)
September 24, 2010--Istanbul Stock Exchange (ISE) has announced a series of new practices that will come into force gradually in the Stock Market, starting from October 1, 2010.
Accordingly,
As a result of the extension of its trading hours, the Watchlist Companies Market session will be held between 14:00 – 17:30, starting from October 1, 2010.
Trading party member codes included in inquiries of transactions executed in the Stock Market shall not be displayed, whereas executed transactions shall be sent to the data vendors without buyer and seller information, starting from October 8, 2010. Trading books including member codes will be available for the ISE members at the end of day T+1.
Source: Istanbul Stock Exchange (ISE)
September 23, 2010--Eurozone growth is slowing markedly, with Germany leading the deceleration, according to a closely watched survey.
A larger-than-feared slump in purchasing managers’ indices for the 16-country region indicated that the pace of expansion had tumbled in September, presaging a significantly weaker final few months of the year.
Source: FT.com
September 23, 2010--- Growth across the 16-nation eurozone economy slumped to a seven-month low in September, with a leading indicator logging its steepest fall since the early days of the global financial crisis.
Alarm bells were raised especially as Germany recorded a "particularly steep slowing," according to the purchasing managers' index (PMI), a survey of 4,500 euro area companies compiled by London-based data and research group Markit.
Source: EUbusiness
September 23, 2010--Lyxor Asset Management (Lyxor), Société Générale's wholly-owned subsidiary and a European leader in Exchange Traded Funds (ETFs), announced today that it has listed the first ever Asia ex Japan Equity Sector ETFs on the London Stock Exchange and Euronext Paris.
This innovative range of Sector ETFs provides diversified exposure to key growth areas and market segments in the region: consumer staples, financials, infrastructure, information technology and materials.
Source: Telegraph.uk.com
September 23, 2010--Net Cash flows
The week that ended on September 17th went down in history as the most quiet week, in terms of European cash flows, for 2010. The entire European ETP industry netted €5 million of inflows across all asset classes. No single asset class showed strong directional bias. This is a sharply different picture from last week, when the industry saw new inflows of €690 million.
Most major European equity indices finished the week close to flat. The French CAC 40 declined by 0.1%, the German DAX was down by 0.01%, the British FTSE 100 was up by 0.12% while Euro Stoxx 50 finished the week down 0.83%. Gold defied the equity markets and saw its (USD/oz) price rise by 2.25%.
Source: DB Global Equity Index & ETF Research
