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ETF Landscape: European STOXX 600 Sector ETF Net Flows, week ending 10-Sep-10
September 15, 2010--Last week saw US$11.6 Mn net outflows from STOXX Europe 600 sector ETFs. The largest sector ETF net outflows last week were in Personal & Household Goods with US$21.6 Mn and Food & Beverage with US$20.5 Mn while Insurance experienced net inflows of US$24.9 Mn.
Year-to-date, STOXX Europe 600 sector ETFs have seen US$152.5 Mn net inflows. Media sector ETFs have seen the largest net inflows with US$202.6 Mn, followed by Banks with US$174.1 Mn while Telecommunications has experienced the largest net outflows of US$98.4 Mn YTD.
The US$9.0 Bn AUM invested in the ETFs is greater than the US$4.6 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.
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Source: Global ETF Research & Implementation Strategy Team, BlackRock
London Stock Exchange Group welcomes 45 Credit Suisse ETFs
New issuer for UK market
Product range expanded in Milan
Total number of London ETFs surpasses 300
September 15, 2010--45 Exchange Traded Funds (ETFs) issued by Credit Suisse have been admitted to trading across London Stock Exchange Group’s markets in the UK and Italy today. Credit Suisse has launched its London offering with 45 ETFs on the Main Market, 13 of which have also been listed on Borsa Italiana’s ETFPlus market today, expanding the firm’s existing range of products in Milan.
The products offer exposure to a wide range of benchmark indices from a variety of regions including Europe, North America, BRIC countries and other emerging markets.
Pietro Poletto, Head of Exchange Traded Products at London Stock Exchange Group, said:
“We are delighted to welcome Credit Suisse as a new issuer of ETFs on our London market today, and are pleased to accommodate the expansion of their existing product range in Milan. Europe’s exciting ETF growth story continues apace, and we are determined to continue leading it. Together, London Stock Exchange Group’s UK and Italian markets compose the largest ETF exchange in Europe by volume.”
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Source: London Stock Exchange
ETFs and ETPs Update August 2010 -London Stock Exchange
September 15, 2010--Year on year, value traded in the ETF & ETP market has been growing. This August we have seen a 38% increase from August 2009.
Credit Suisse, a new ETF issuer on the London Stock Exchange, has launched 45 ETFs on the Main Market, 13 of which have also been listed on Borsa Italiana.
HSBC and iShares have also expanded their ETF offering on the Main Market. HSBC launched its 'MSCI Pacific Ex Japan' ETF and iShares launched its 'Markit IBOXX EUR High Yield' ETF.
There are now 633 ETF & ETP offerings on the London Stock Exchange.
view ETFs and ETPs statistics for Aug 2010
Source: Lomdon Stock Exchange
Making derivatives markets in Europe safer and more transparent
September 15, 2010--As part of its ongoing work in creating a sounder financial system, the European Commission has tabled today a proposal for a regulation aimed at bringing more safety and more transparency to the over-the-counter (OTC) derivatives market. In its draft regulation, the Commission proposes that information on OTC derivative contracts should be reported to trade repositories and be accessible to supervisory authorities. More information will also be made available to all market participants. The Commission also proposes that standard OTC derivative contracts be cleared through central counterparties (CCPs). This will reduce counterparty credit risk, i.e. the risk that one party to the contract defaults. The Commission's proposal, fully in line with the EU's G20 commitments and the approach adopted by the United States, now passes to the European Parliament and the EU Member States for consideration. Once adopted, the regulation would apply from end 2012.
Michel Barnier, Commissioner for Internal Market and Services said: "No financial market can afford to remain a Wild West territory. OTC derivatives have a big impact on the real economy: from mortgages to food prices. The absence of any regulatory framework for OTC derivatives contributed to the financial crisis and the tremendous consequences we are all suffering from. Today, we are proposing rules which will bring more transparency and responsibility to derivatives markets. So we know who is doing what, and who owes what to whom. As well as taking action so that single failures do not destabilise the whole financial system, as was the case with Lehman's collapse.
Key elements of the proposal:
Greater transparency: Currently, reporting of OTC derivatives is not mandatory. As a result, policy makers, regulators but also market participants do not have a clear overview of what is going on in the market. Under the Commission's proposal, trades in OTC derivatives in the EU will have to be reported to central data centres, known as trade repositories. Regulators in the EU will have access to these repositories, enabling them to have a better overview of who owes what and to whom and to detect any potential problems, such as accumulation of risk, early on. Meanwhile, the new European Securities and Markets Authority (ESMA) will be responsible for the surveillance of trade repositories and for granting / withdrawing their registration. In addition, trade repositories will have to publish aggregate positions by class of derivatives to give all market participants a clearer view of the OTC derivatives market.
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Source: Europa
New framework to increase transparency and ensure coordination for short selling and Credit Default Swaps
September 15, 2010--The European Commission today adopted a proposal for a regulation on short selling and certain aspects of Credit Default Swaps (CDS). Its main objectives are to create a harmonised framework for coordinated action at European level, increase transparency and reduce risks. The new framework will mean regulators – national and European - have clear powers to act when necessary, whilst preventing market fragmentation and ensuring the smooth functioning of the internal market.
Internal Market and Services Commissioner Michel Barnier said: "In normal times, short selling enhances market liquidity and contributes to efficient pricing. But in distressed markets, short selling can amplify price falls, leading to disorderly markets and systemic risks. Today’s proposal will increase transparency for regulators and markets, and make it easier for regulators to detect risk in sovereign debt markets.
Regulators will also gain clear powers to restrict or ban short selling in exceptional situations, in coordination with the new European Securities and Markets Authority (ESMA). Today's proposals are a further step towards greater financial stability in Europe."
Short selling is the sale of a security the seller does not own with the intention of buying it back at a later point in time in order to deliver it. Naked short selling is where the seller has not borrowed the securities, or ensured they can be borrowed before settlement prior to the short sale. It can lead to specific risks of settlement failure (i.e. not completing the transaction). Since the onset of the financial crisis, many Member States have taken actions to suspend or ban short-selling. Uncoordinated actions can be less effective and lead to difficulties on the market, including impacting on investor confidence.
Greater transparency
At present, there is little reliable information available on short selling: it is difficult for market participants and regulators to know which securities are being traded "short" and their overall significance. Today’s proposal enhances transparency by requiring that all share orders on trading venues be marked as 'short' (so-called "flagging") if they involve a short sale, so that regulators know which transactions are short. In addition, investors will have to disclose significant net short positions in shares to regulators at one threshold (0.2% of issued share capital), and to the market at a higher threshold (0.5%). These measures will mean market participants are better informed whilst allowing regulators to monitor markets and detect developing risk. Concerning sovereign bonds, regulators will be better able to detect possible risks to the stability of sovereign debt markets by receiving data on short positions, including those obtained through sovereign Credit Default Swaps (a derivative sometimes regarded as a form of insurance against the risk of default).
view REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on Short Selling and certain aspects of Credit Default Swaps
Source: Europa
August 2010 Euro area annual inflation down to 1.6% EU down to 2.0% [Rapid]
September 15, 2010--Euro area1 annual inflation was 1.6% in August 20102, down from 1.7% in July. A year earlier the rate was -0.2%. Monthly inflation was 0.2% in August 2010.
EU3 annual inflation was 2.0% in August 2010, down from 2.1% in July. A year earlier the rate was 0.6%. Monthly inflation was 0.2% in August 2010.
These figures come from Eurostat, the statistical office of the European Union.
Inflation in the EU Member States
In August 2010, the lowest annual rates were observed in Ireland (-1.2%), Latvia (-0.4%) and Germany (1.0%), and the highest in Romania (7.6%), Greece (5.6%) and Hungary (3.6%). Compared with July 2010, annual inflation rose in ten, remained stable in nine and fell in eight Member States.
The lowest 12-month averages4 up to August 2010 were registered in Ireland (-2.3%), Latvia (-2.0%), Portugal and Slovakia (both 0.3%), and the highest in Hungary and Romania (both 5.0%) and Greece (3.5%).
Euro area
The main components with the highest annual rates in August 2010 were alcohol & tobacco and transport (both 3.3%) and housing (2.6%), while the lowest annual rates were observed for communications (-0.5%), recreation & culture (-0.1%) and clothing (0.2%). Concerning the detailed sub-indices, fuels for transport (+0.31 percentage points), heating oil (+0.13) and vegetables (+0.08) had the largest upward impacts on the headline rate, while garments (-0.08) and telecommunications (-0.07) had the biggest downward impacts.
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Source: Eurostat
Proposal for a Regulation on Short Selling and Credit Default Swaps - Frequently asked questions
September 15, 2010--What is short selling?
Short selling is the sale of a security that the seller does not own, with the intention of buying back an identical security at a later point in time in order to be able to deliver the security. Short selling can be divided into two types:
1."Covered" short selling is where the seller has borrowed the securities, or made arrangements to ensure they can be borrowed, before the short sale.
2."Naked" or "uncovered" short selling is where the seller has not borrowed the securities at the time of the short sale, or ensured they can be borrowed.
Who engages in short selling and why?
Short selling is used by a variety of market participants including hedge funds, traditional fund managers such as pension funds and insurance companies, investment banks, market makers and individual investors. Short selling can be used for the following reasons:
for speculative purposes (e.g. to profit from the expected decline of a share price);
to hedge a long position (e.g. to limit losses in comparable shares in which a long position is held);
for arbitrage (e.g. to profit from the difference in price between two different but inter-related shares); and
for market making (e.g. to meet customer demand for shares which are not immediately available).
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Source: Europa
Commission proposal on OTC Derivatives and Market infrastructures – Frequently Asked Questions
September 15, 2010--What are derivatives?
A derivative is a financial contract linked to the future value or status of the underlying to which it refers (e.g. the development of interest rates or of a currency value, or the possible bankruptcy of a debtor).
Over-the-Counter (OTC) derivative contracts are not traded on an exchange (for example the London Stock Exchange) but instead privately negotiated between two counterparts (for example a bank and a manufacturer).
OTC derivatives account for almost 90% of the derivatives markets. In December 2009, the notional value of outstanding OTC derivatives was around $615 trillion or €435 trillion. The OTC derivatives market comprises a wide variety of product types across several asset classes (interest rates, credit, equity, foreign exchange (FX) and commodities) with widely differing characteristics and levels of standardisation. OTC derivatives are used in a variety of ways, including for purposes of hedging, investing, and speculating. Contrary to derivatives traded on exchanges, OTC derivatives are not automatically cleared through CCPs (cf next question) or subject to reporting rules.
A hypothetical example of hedging: a plane manufacturer has a contract to build 6 planes in the next 6 months and will need 10 tonnes of steel per plane. He may want to guarantee that whatever the fluctuations in the market of the price of steel, he gets steel at a certain fixed price for the next 6 months so as to be able to deliver the planes on budget. To cover for the risk of steel rising, the plane manufacturer could enter into an OTC contract with a bank for example. They could agree on a set price for a set quantity of steel for 6 months. If, after 6 months, when the contract matures, the market price turned out to be lower, the bank would make a profit; but if the market price turned out to be higher, then the plane manufacturer would be able to purchase the steel a price lower than the market price and thus save money.
What are market infrastructures?
Central Counterparties (CCP)
A CCP is an entity that interposes itself between the two counterparties to a transaction, becoming the buyer to every seller and the seller to every buyer. A CCP's main purpose is to manage the risk that could arise if one counterparty is not able to make the required payments when they are due –i.e. defaults on the deal.
CCPs are commercial firms. There are currently about a dozen CCPs, all but one located in Europe or the USA, clearing interest rates, credit, equity and commodities OTC derivatives. There is currently no CCP clearing FX OTC derivatives.
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Source: Europa
Turkey: Recovery a chance to reinforce long-term economic growth, says OECD
September 15, 2010--Turkey’s economic growth is likely to be among the strongest of OECD countries in 2010, supported by financial stability, international investor confidence and a dynamic business sector, according to the OECD’s latest survey of the country.
After falling nearly 5% in 2009 in the wake of the global crisis, Turkey’s GDP is expected to expand by more than 6% this year. Unemployment is likely to fall markedly.
Presenting the survey in Ankara, OECD Secretary-General Angel Gurría said: “Turkey should build on the positive shock it produced by emerging from the crisis with a strengthened economy. It should now finish the job by completing the fiscal architecture to consolidate its credibility.”
He said the task also requires implementing a number of key reforms so that the entire business sector can benefit from the stronger economic environment.
But he added Turkey’s largest export markets, notably in Europe, remain fragile. Strong, sustained growth will depend on Turkey reducing further its economic vulnerabilities and stimulating labour productivity.
Addressing the weaknesses includes modernising how public finances are managed, says the survey. Plans for well thought out rules, transparency and comprehensive auditing must be pursued.
The survey also says the Turkish economy needs to move away from its dependence on undeclared and informal business. Although informality and semi-informality have helped Turkish firms maintain flexibility in a competitive international environment, they have become a trap as they slow down economic modernisation and productivity growth. Reducing informality is also crucial for improving public finances and distributing taxes more equitably.
The survey recommends reducing rigidities in the labour market to make the jobs market more flexible in areas such as severance pay, the minimum wage and temporary work.
view the Economic Survey of Turkey 2010
Source: OECD
REGIS-TR Fully Complies with New European Trade Repository Requirements
Sptember 15, 2010--BME and Clearstream welcome the details of the European Commission’s Market Infrastructure Regulation on trade repositories for OTC derivatives // Trade repository REGIS-TR fully complies with the new requirements // Flexible and transparent pricing scheme for financials and corporates // Efficiency gains through REGIS-TR expected to compensate customers for additional cost for regulatory compliance //Admission of third country applicants and details on timeline require further clarification
Bolsas y Mercados Espanoles (BME), the Spanish stock exchange operator, and Clearstream, the post trade arm of Deutsche Börse Group, welcome the published details on trade repositories for OTC derivatives that the European Commission has provided today in the context of the proposed European Market Infrastructure Regulation. There is need for clarification regarding the suggested design of the access for third country trade repository providers and the planned timeframe for implementation. BME and Clearstream will therefore continue their close dialogue with the Commission and other political stakeholders.
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Source: Clearstream
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