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ETF Landscape: European STOXX 600 Sector ETF Net Flows, week ending 28-May-10
June 2, 2010--Last week saw US$25.7 Mn net inflows to STOXX 600 sector ETFs. The largest sector ETF inflows last week were in Media with US$44.1 Mn and Industrial Goods & Services with US$24.2 Mn while Food & Beverage experienced net outflows of US$38.7 Mn.
Year-to-date, Media has had the largest net inflows with US$314.2 Mn net new assets, followed by Oil & Gas with US$79.2 Mn YTD. Basic Resources sector ETFs have had the largest net outflows with US$239.9 Mn YTD. In total, STOXX 600 sector ETFs have seen US$519.0 Mn net outflows YTD.
The assets invested in the ETFs are greater than the open interest in the corresponding futures contract in 18 out of 19 sectors.
Daylight and rules for the derivatives market
June 2, 2010--Proposed EU rules on derivatives trading must be made clearer and tougher, so as to reduce speculative trading and ensure that as many derivatives as possible are traded through open channels that are subject to standards, said the Economic and Monetary Affairs Committee in a resolution approved on Wednesday. The committee also suggested ways to regulate who may trade in credit default swaps and to reduce the regulatory burden on corporate end-users of derivatives.
Caught in the eye of the storm of the Greek debt crisis and widely criticised for the opaque way in which they are traded, derivative products are currently being scrutinised at national level, EU level and also by the G20. This resolution comes a few weeks before the European Commission publishes its legislative proposals to regulate derivative trading.
Strict rules, not just " transparency"
The committee resolution advocates "abandoning the misjudgement that derivatives need no further regulation because they are only used by expert financial professions". Instead, it calls for strict rules to prevent inexperienced users and speculators from building up dangerous levels of risk.
The resolution calls on the Commission to study ways to significantly reduce the overall volume of derivatives traded. It also backs proposed rules that would impose higher capital requirements on financial institutions involved in bilateral derivative contracts which are not cleared centrally, but suggests that such requirements may be waived if the clearing system used is deemed strong. It also proposes granting regulators the power to impose trading position limits, so as to counter unsustainable levels of speculation.
The proposed legislation should include rules banning purely speculative trading in commodities and agricultural products. Upper risk limits should be considered for trade in agricultural products and in each specific commodity, including greenhouse gas emission allowances, so as to reduce speculation and help these markets to function transparently, adds the resolution.
European Commission Green Paper on corporate governance in financial institutions and report on remunerations - frequently asked questions
June 2, 2010--Why has the European Commission decided to launch a public consultation on corporate governance in financial institutions?
The crisis highlighted that effective checks and balances within financial institutions did not work. Corporate governance rules were de facto stress-tested by the run-up to the crisis and the crisis itself and found wanting. Many financial institutions took risks that were not in their best long-term interests, and which society as a whole is now paying for.
The crisis highlighted that there was insufficient oversight by boards of senior management. This was often due to lack of time commitment and expertise in boards. Too often, risk management functions in financial companies lacked authority and independence. In many cases shareholders failed to exercise their control over companies' management and sometimes were themselves pushing financial institutions to take excessive risk to provide higher short-term returns.
In response to these numerous failings, the European Commission committed itself in its Communication to the Spring European Council "Driving European Recovery" of March 2009 to examine and report on current corporate governance practices in financial institutions, making recommendations including for legislative initiatives, where appropriate. Today's public consultation is the first step to the reform of the corporate governance mechanisms in the financial services sector.
The Green Paper is complemented by a staff working document which describes and analyses weaknesses in corporate governance revealed by the financial turmoil. The Green Paper is further accompanied by a report on the application by Member States of the Recommendation 2009/384/EC on remuneration policies in the financial services sector and a report on the application by Member States of the Recommendation 2009/385/EC on remuneration of directors of listed companies. These reports are completed with two staff working papers providing a detailed analysis of the measures taken by Member States.
What are the main suggestions covered in the Green Paper?
The Green Paper submits to public consultation the following suggested options to improve corporate governance in financial institutions:
limit the number of directors' memberships in boards, for instance to 3
require more expertise on boards;
widen the "fit and proper test" to include evaluation of expertise and individual qualities of candidates;
enhance the role of supervisors in the review of corporate governance structures;
view the GREEN PAPER-Corporate governance in financial institutions and remuneration policies
Sharp rise in use of ECB deposit facility
June 2, 2010--Eurozone banks are parking record sums overnight at the European Central Bank in the latest sign of heightened nervousness across the 16-country region’s financial sector.
Use of the ECB’s “deposit facility” rose to €316.4bn on Tuesday – exceeding even levels seen after the collapse of Lehman Brothers in September 2008, the ECB reported on Wednesday.
The high use of the facility, which pays an interest rate of just 0.25 per cent, highlights the excess liquidity demanded by banks in recent weeks, but which they have nowhere else to place. Libor – the interest rate at which banks lend to each other – has also been rising in recent weeks, on concerns about banks’ exposure to the debt of certain eurozone sovereigns.
Berlin backs naked short-selling ban
June 2, 2010--The German government made good on Wednesday on a pledge to crack down on financial speculators by agreeing to block the speculative “naked” short-selling of German stocks and eurozone sovereign bonds.
Berlin took a step back, however, from an immediate legal ban on speculative trading in euro currency derivatives, although the bill approved by the cabinet will allow the market regulator Bafin to impose one in case of market turbulence.
The government wants the German parliament to sign off on the regulations – Berlin’s reaction to recent speculative attacks on the euro and eurozone sovereign bonds – before the summer recess begins on July 9.
Financial sector: preventing the next crisis
June 2, 2010-New legislation for pan-European supervision of credit rating agencies and a public debate on how financial institutions are managed.
Draft rules on credit rating agencies were already planned as part of the EU’s new system for supervising the financial industry - endorsed by EU leaders last year. But they come amid fresh calls for tighter oversight of these private companies.
Investors rely on rating agencies to provide information on the risks of assets. The agencies are important to the stability of the financial markets and have a huge impact on the availability and cost of credit. They have drawn criticism for contributing to the financial crisis by underestimating the risks, and, more recently, for acting in a way that worsened the Greek debt crisis.
Until now, most financial supervision has been done at the national level. The new system calls for the creation of a European supervisory authority to oversee securities and markets. This new body would have direct and exclusive oversight of credit rating agencies registered in the EU, including European branches of agencies based outside the EU. Three of the most popular agencies - Fitch, Moody’s and Standard & Poor’s – have headquarters in New York.
Under the measures tabled today, the securities authority, expected to be up and running by 2011, would have the power to launch investigations, carry out inspections and propose penalties and fines. Credit institutions, banks and investment firms would have to make information available to agencies they do not use, so that those agencies could produce independent ratings.
It is believed that centralised supervision of the agencies will lead to more transparency in operations, more protection for investors and increased competition in the credit ratings industry.
The commission also launched a public consultation on corporate governance rules for the financial sector, including insurance companies. Among the issues up for debate: how to improve the functioning and composition of corporate boards for the purpose of supervising senior management and how to involve shareholders, financial supervisors and external auditors in corporate governance.
The EU is also seeking feedback on how to pay bankers without encouraging excessive risk-taking. The commission has issued recommendations on remuneration policies but two EU reports published today show many countries have yet to act on the advice.
Commission adopts proposal to amend Regulation (EC) No 1060/2009 of the European Parliament and of the Council on credit rating agencies
Commission’s proposal- (provisional version)
Starting from June 4th 2010, 16 new ETFs will be listed on the Borsa Italiana
June 1, 2010--Borsa Italiana welcomes on the ETFplus market 16 ETFs issued by the newcomer UBS ETF Sicav, the new offer is composed as follow:
- 16 ETFs on developed countries: EURO STOXX 50 A, EURO STOXX 50 I, MSCI EMU A, MSCI EMU I,
MSCI EMU VALUE A, MSCI EUROPE A, MSCI EUROPE I, MSCI JAPAN I, MSCI JAPAN A, MSCI PACIFIC (EX JAPAN) A, MSCI USA A, MSCI USA I, MSCI WORLD A, MSCI WORLD I, MSCI CANADA A, MSCI CANADA I.
European Commission to unveil credit rating supervisory plan
June 1, 2010--The European Commission will on Wednesday propose a new system for supervising credit rating agencies, an EU source said.
The European Securities and Markets Authority, alongside two more pan-EU bodies to oversee banks and insurers, is due to be up and running by the start of 2011, although its precise shape is still subject to negotiation.
The EU source said on Tuesday that monitoring of powerful rating agencies Moody's, Fitch and Standard & Poors will now fall into its remit under the latest plans for financial supervision to be outlined in Brussels.
That confirmed a report in the German business daily Handelsblatt, although EU member states and the European parliament are still at loggerheads over how much teeth the new bodies should have ahead of a December 7 target date to complete their design.
Average Daily Volume of 16.2 Million Contracts at Eurex and ISE in May
Combined total monthly trading volume rose by 42 percent y-o-y/ Eurex: new monthly turnover record with 256.5 million contracts
June 1, 2010--At the international derivatives markets of Eurex, an average daily volume of 16.2 million contracts was traded in May (May 2009: 11.8 million). Thereof, 12.2 million contracts (May 2009: 7.4 million) were traded at Eurex; another 4.0 million contracts (May 2009: 4.4 million) were traded at the International Securities Exchange (ISE). The strong increase of Eurex turnover of 65 percent y-o-y is due to the increasing use of exchange-traded and centrally cleared derivatives in the current market environment, which was driven by high volatility and uncertainty as well as the dividend season.
In total, 335.7 million contracts were traded on both exchanges compared with 237 million contracts in May 2009, which is an increase of 42 percent. Eurex saw a new monthly turnover peak of 256.5 million contracts; the previous record was from September 2008 with 229 million contracts. On 6 May a new daily turnover record was achieved with 25 million contracts.
At Eurex, the equity index derivatives segment totaled 101.4 million contracts (May 2009: 56.2 million). The future on the Euro STOXX 50 was once again the most successful product with 47.7 million contracts; the Euro STOXX 50 option achieved another 38.0 million contracts. Both the DAX future and DAX option reached turnover with 4.9 million contracts and 8.2 million contracts. Dividend derivatives traded more than 543,000 contracts, while the volatility derivatives recorded almost 218,000 contracts for both VSTOXX futures and options.
The Eurex segment of equity-based derivatives (equity options and single stock futures) was the most successful segment with 101.9 million contracts (May 2009: 57.7 million), setting a new monthly record. Thereof, equity options totaled at 29.75 million contracts (May 2009: 26.5 million). The dividend season led to a strong increase of incentivized block trades of single stock futures, which totaled 72.15 million contracts (May 2009: 31.1 million) – a new monthly record.
Eurex’s interest rate derivatives segment grew by 52 percent y-o-y with 52.4 million contracts (May 2009: 34.4 million). Approximately 21.5 million contracts were traded in the Euro-Bund-Future, 13.3 million contracts in the Euro-Schatz Future, 12.0 million contracts in the Euro-Bobl-Future and almost 128.000 contracts in the Euro-BTP-Future.
Eurex Repo, which operates CHF- and EUR repo markets, recorded for both repo markets an average outstanding volume of 184.6 billion euros (May 2009: 198.7 billion euros). The secured money market segment GC Pooling set a new monthly record with an average outstanding volume of 95.1 billion euros (May 2009: 75.9 billion euros). Thus, the EUR repo market totaled at the new peak of 119.6 billion euros (May 2009: 105.5 billion euros).
The electronic trading platform Eurex Bonds, which rounds out Eurex’s fixed-income product range, saw a volume of 8.8 billion euros (single counting) in May, or a y-o-y rise of 41 percent. In May 2009, the figure was 6.2 billion euros, and in April 2010 volume was 11.6 billion euros.
Xetra Turnover in May up 73 Percent
20.7 million trades executed on Xetra/ Total volume of 177 billion euros traded on all stock exchanges in Germany
June 1, 2010--In May, 163.4 billion euros were traded on Xetra and on the floor at Börse Frankfurt – an increase of 69 percent year-on-year (May 2009: 96.3 billion euros) and an increase of 29 percent compared to April 2010 (126.0 billion euros).
Of the 163.4 billion euros, 155.4 billion euros were traded on Xetra, an increase of 73 percent year-on-year (May 2009: 89.7 billion euros). 8 billion euros were traded on the floor, an increase by 23 percent (May 2009: 6.5 billion euros).
Turnover in German equities on Deutsche Börse’s cash markets amounted to 141 billion euros, while foreign equities turnover stood at 18.8 billion euros. Xetra and the floor at Börse Frankfurt accounted for 97 percent of the transaction volume in German equities on all stock exchanges in Germany. 89 percent of foreign equities traded on stock exchanges in Germany were traded on Xetra and on the floor in Frankfurt.
In May, 20.7 million transactions were executed on Xetra, an increase of 40 percent against the same period last year (May 2009: 14.7 million).
According to the Xetra liquidity measure (XLM), Deutsche Telekom AG was the most liquid DAX blue chip in May with 6.3 basis points (bp) for an order volume of 100,000 euros. EADS was the most liquid MDAX stock with 20.4 bp. The most liquid ETF was DB X-TR.II-EONIA T.R. 1C with 0.6 bp. The most liquid foreign stock was Royal Dutch Shell with 15.7 bp. XLM measures liquidity in electronic securities trading on the basis of the implicit transaction costs. It is expressed in basis points (1 bp = 0.01 percent); a low XLM denotes high liquidity in a security.
Deutsche Bank AG was the DAX stock with the highest turnover on Xetra in May at 10.7 billion euros. HeidelbergCement AG was the top MDAX stock at 1.5 billion euros, while A. Springer AG led the SDAX stocks at 28.2 million euros and Aixtron AG headed the TecDAX at 1.2 billion euros. At 2.9 billion euros, the iShares DAX was the exchange-traded fund with the highest turnover.
On all stock exchanges in Germany 177.8 billion euros were traded in May according to orderbook turnover statistics – an increase of 58 percent compared year-on-year (May 2009: 111.9 billion euros). This total includes 170.6 billion euros in equities, warrants and exchange-traded funds, as well as 7.2 billion euros in fixed-income securities.
