Europe ETP News Older Than 1 year-If your looking for specific news, using the search function will narrow down the results
Financial Stability Review June 2010
May 31, 2010--Many euro area large and complex banking groups (LCBGs) returned to modest profitability in 2009, and their financial performances strengthened further in the first quarter of 2010. These developments, together with a bolstering of their capital buffers to well above pre-crisis levels, suggest that most of these institutions have made important progress on the road to financial recovery. The broad-based enhancement of shock-absorption capacities during 2009 meant that systemic risks for the financial system dissipated to some extent and risks within the financial sector became more institution-specific in character. Indeed, the dependence of the financial system, especially of large institutions, on government support and the enhanced credit support measures of the Eurosystem tended to wane. That said, the profitability performances of some large financial institutions in receipt of government support remained relatively weak.
Outside the financial system, the progressive intensification of market concerns about sovereign credit risk among the industrialised economies in the early months of 2010 opened up a number of hazardous contagion channels and adverse feed back loops between financial systems and public finances, in particular in the euro area. By early May, adverse market dynamics had taken hold across a range of asset markets in an environment of diminishing market liquidity. Ultimately, the functioning of some markets became so impaired that, for the euro area, it was hampering the monetary policy transmission mechanism and thereby the effective conduct of a monetary policy oriented towards price stability over the medium term.
To help restore a normal transmission of monetary policy, the Governing Council of the ECB decided on 9 May 2010 on several remedial measures. Taking into account that these decisions have not only a European but also a global outreach, the G7 and G20 welcomed the ECB’s action in their communiqués. In parallel, the EU Council adopted a regulation establishing a European Financial Stabilisation Mechanism. Subject to strong conditionality, this back-stop device will have funds of up to €500 billion at its disposal. Following the implementation of these measures, market volatility was significantly contained.
Considering the financial stability outlook, although the profile of ECB estimates of the potential write-downs on loans confronting the euro area banking system displays a peak in 2010, it is probable that loan losses will remain considerable in 2011 as well. This prospect, combined with continued market and supervisory authority pressure on banks to keep leverage under tight control, suggests that banking sector profitability is likely to remain moderate in the medium term.
Overall, although the main risks to euro area financial stability essentially remain the same as those to which attention was drawn in the last issue of the FSR, their relative importance has changed significantly over the past six months.
The main risks for the euro area financial system include the possibility of:
concerns about the sustainability of public finances persisting or even increasing with an associated crowding-out of private investment; and
adverse feedback between the financial sector and public finances continuing.
Other, albeit less material, risks identified outside the euro area financial system include the possibility of:
vulnerabilities being revealed in euro area non-financial corporations’ balance sheets, because of high leverage, low profitability and tight financing conditions; and
greater-than-expected euro area household sector credit losses if unemployment rises by more than expected.
Within the euro area financial system, important risks include the possibility of:
a setback to the recent recovery of the profitability of large and complex banking groups and of adverse feedback with the provision of credit to the economy;
vulnerabilities of financial institutions associated with concentrations of lending exposures to commercial property markets and to central and eastern European countries; and
heightened financial market volatility if macroeconomic outcomes fail to live up to expectations.
A key concern is that many of the vulnerabilities highlighted in this FSR could be unearthed by a scenario involving weaker-than-expected economic growth.
The measures taken by the ECB to stabilise markets and restore their functioning as well as the establishment of the European Financial Stabilisation Mechanism have considerably lowered tail and contagion risks. However, sizeable fiscal imbalances remain, and the responsibility rests on governments to frontload and accelerate fiscal consolidation so as to ensure the sustainability of public finances, not least to avoid the risk of a crowding-out of private investment while establishing conditions conducive to durable economic growth.
view complete publication-Financial Stability Review
Doubt rises over regular bond indices
May 31, 2010--Conventional bond indices are being found wanting by fund managers as worries grow about the credit-worthiness of developed countries, particularly in the eurozone.
There is a “rumbling in the market over indices weighted by market cap because they allocate the greatest weight to the most indebted countries”, said Ben Horsell, chief operating officer for fixed income at Lombard Odier Investment Managers.
Broad government bond indices typically weight country exposure by bond issuance. Indebted nations issue the most bonds, with the result that highly indebted countries make up the biggest proportion of these indices.
NASDAQ OMX Completes Nord Pool ASA Acquisition
May 31, 2010--The NASDAQ OMX Group, Inc. (Nasdaq:NDAQ) today announced that it has received the necessary regulatory approval for the completion of its acquisition of Nord Pool ASA.
Nord Pool ASA holds a Norwegian exchange license and operates the Nordic Power market and the European Carbon market on one trading platform.
Through this acquisition, the NASDAQ OMX Commodities offering now includes the world's largest power derivatives exchange and one of Europe's largest carbon exchanges.
"We are pleased to complete this acquisition as it forms one of the cornerstones in our strategy to become the global leader in the commodity exchange business," said Hans-Ole Jochumsen, Executive Vice President NASDAQ OMX. "The combination of NASDAQ OMX's world class exchange technology and Nord Pool ASA's extensive experience in the Nordic financial power market will put us in a prime position for continued growth in the commodities space."
"This transaction will allow us to further improve our services, offer more efficient solutions and swiftly meet changes and new requirements in the commodities markets. The Nord Pool team will be an important part of NASDAQ OMX Commodities' global ambitions managed from our premises at Lysaker outside Oslo," says Geir Reigstad, Senior Vice President of NASDAQ OMX Commodities.
NASDAQ OMX acquired Nord Pool Clearing ASA and Nord Pool Consulting AS from Nord Pool ASA in October 2008. The new acquisition means that NASDAQ OMX now owns all shares in the previous Nord Pool ASA group.
The acquisition does not comprise the Nordic physical electricity market operated by Nord Pool Spot AS.
Deutsche Bank Weekly Equity Index & ETF Research: Oldest story, thrown for a loop
May 28, 2010--This story is an old one.
In the dawn of human civilization, its subject’s incandescent qualities inspired its use to give shape to humanity’s biggest fears. It provided form with which man portrayed the divine. As societies grew out of theocracies and became more fundamentally driven by reason, science and democracy - all factors that arguably underpin modern capital markets – this brought about a change in the subject’s story. It became one of reflecting prosperity and the subject became one of providing a means to facilitate currency systems and trade, a hallmark of economic affluence.
Perhaps the story’s most astonishing quality is that of capturing humanity’s collective gravitational reaction to changes in the most basic levels of a society’s value system over time. This in itself became a chain of continuously (re)forming - sometimes ascending and sometimes descending - value loops that have come to reflect what we term progress through six millennia of recorded history.
While the story is a very old one, its meaning, as we read it this week, has formed a new loop, and its subject’s ascent has come to reflect a reaction that is neither divine nor prosperous.
It is the story of gold.
European exchange-traded commodities
In 2009, the European exchange-traded products (ETPs) space saw the establishment of a new asset class: commodities. The new asset class enjoyed €9.7 billion of net inflows over 2009, an uplift that contributed in establishing it as a viable alternative to equity and fixed income ETPs. As of the week that ended May 21 2010, commodities, with assets of €28.4 billion, made up 15.4% of the European ETP market.
Precious metals are by far the largest commodity ETP sector (73%). Gold is the largest commodity ETP sub-sector (63%) with €17.7 billion of assets as of May 21 2010, hosting close to 10% of all European ETP assets. Its popularity reflects both investors embracing of this relatively new distribution channel – first product was listed in 2004. However, its ascent has also been fuelled by a multi-year tough credit environment, where even the most traditional of safe heavens, highly rated short dated government debt, have been challenged.
Currently, there are 28 gold ETPs (excluding exchange-traded notes -ETNs) in the European ETP market, 23 of which offer long exposure, 3 offer leveraged exposure and 2 offer short exposure. These products are physically backed or secured by collateral and a number of structural variations exist. A more detailed discussion on structural and strategic issues relating to these products can be found in our research titled ‘The race for assets in the European Commodity Exchange-Traded Products that was published on March 11 2010. Exchange traded funds (ETFs) and exchange-traded commodities (ETCs) are fundamentally different from ETNs as they are either physically backed or secured by collateral, thus significantly reducing counterparty risk. There are currently 4 ETNs that track the price of gold in the European market, 3 offer long exposure and 1 offers short exposure. Some ETNs have also been collateralized (Lyxor).
Market Update
Overall, markets this week continued to follow negative trajectories, with both the Euro Stoxx 50 down by 2.3% and the price of gold (USD) down by 4.6%. The iBoxx Euro Sovereign 3-5
Index finished the week up 0.4%.
The week just passed saw net, albeit small, outflows from European ETPs (€45 million). This was primarily driven by outflows from money market funds (€637 million) and muted inflows to equity funds (€98 million driven by outflows from Euro-zone equity indices). These flows are on the back of a very turbulent week, where the VSTOXX index (an index based on Euro Stoxx 50 real time option prices reflecting the market expectations of near-term volatility) climbed to its highest level (49.87) this year on May 20 2010.
It is somewhat of an oxymoron that money market funds, an investment generally perceived to be one of the safest options during periods of high volatility, have experienced such strong outflows. In order to understand this trend, we need to recognize some of the major market concerns in the Euro-zone and how they relate to money market funds.
There is general consensus that volatility in Europe has largely been driven by sovereign solvency concerns (of certain European countries) as well as the Union’s inability to come to an agreement over a transparent mechanism dealing with the enforcement of cross-European sovereign fiscal discipline. The link between sovereign concerns and money market funds has two-facets. First, throughout the credit crisis, banks, whose paper comprises upwards of 90% of what a typical money market will hold, were heavily supported by governments. Therefore, sovereign concerns automatically translate to concerns over their future capacity to assist banks where needed. Second, there are serious implications on the stability of Euribor (benchmark rate of the Euro money market), in light of current sovereign concerns and given what happened in 2008, forces that have a major impact on the agility of the short term lending market and therefore severely hamper the liquidity of instruments that money market funds purchase. These two factors have largely contributed from pushing money market funds from the bottom of the risk continuum. Recent developments have thus diverted flows out of money market funds, and fuelled a return to gold, thus benefiting gold ETP flows, despite the falling gold price this week.
Cash Flow Review
Gold exchange-traded products have seen net inflows of €366 million this week, bringing the total commodity ETP inflows to €3.2 billion for 2010 YTD. Out of these €3.2 billion, €2.5 billion came from precious metals. Not only the €2.2 billion gold inflows represented 69%of all commodity ETP inflows for the current year, they also amount to 17% of all European ETP inflows for 2010. If we consider that gold ETP assets make up close to 10% of the European ETP market, these flow figures indicate that gold ETPs are growing at roughly twice the speed of other ETP sectors. Another interesting point to note is that gold ETP cash flow patterns have been very different between European regions, potentially signaling differences in how gold ETP products are used by different type of investors.
The two biggest gold regions in Europe are Switzerland (48%) and the UK & Ireland (45%). The rest of Europe accounts for 7%.
Cumulative gold cash flow patterns in Switzerland have exhibited a very positive upward sloping trajectory since the beginning of the year, as shown in Figure 2 (page 3). On the contrary, gold ETP flows in the UK & Ireland were largely negative, until the end of April 2010, a point at which sovereign debt concerns started souring equity market sentiment. The Swiss market is one that is more commonly populated by pension funds and high net-worth investors, while, the UK and Irish markets are more institutional driven. In addition, the UK and Irish markets tend to be more sensitive in adjusting asset class re-allocations following market corrections than their European continent counterparts. This leads us to conclude that gold flows we have seen in Switzerland are more impacted by re-allocations from other gold distribution channels/investment instruments to ETPs, while the UK and Irish markets represent crossasset class re-allocations.
While impressive, the current ascent of gold ETP assets does not only reflect the growing popularity of the ETP channel. It also personifies investors quest for safety. Towards that end, the rise of gold’s fortunes in the ETP market point to retreat from riskier, credit stricken, assets and the – oldest - story is once again, thrown for a – fear driven - loop.
Source announces that the total turnover on its leading European Sector ETFs reached €5.9Bn in April
May 28, 2010--Source announced today that the total turnover on its leading
European Sector ETFs reached €5.9Bn in April according to Cascade (Clearstream’s German
settlement system). This represented a staggering 75.8% of Cascade’s reported European
sector activity, dwarfing the turnover on competing products.
Source has dominated secondary trading volume in sectors for the last seven months.
Commenting on the newly published Cascade data, Michael John Lytle, Director of Marketing at Source said “The trend continues to show significant growth. Flows in sector ETFs now represent a meaningful slice of overall sector investing in Europe. The arrival of hedge funds as sector ETF investors brings a new dimension to the market.”
Flows in Source Optimised Supersector ETFs
Source’s dominant share of turnover coupled with its broadening investor base make flows in Source European sector products a good representation of market sector views. The Source Banks ETF recorded the highest net inflows during the month of April, with a net inflow of €34 MM followed by Autos with €20 MM. In fact Banks saw 45% of gross flows and Basic Resources 22% indicating significant two way trading. However, many sectors saw net outflows during April. The Industrials, Utilities and Insurance Source sectors accounted for more than 70% of net outflows with €34MM, €19MM and €17MM respectively.
European CCPs Publish Default Management Guideline
May 28, 2010--EACH, the European Association of Central Counterparty Clearing Houses, today publishes its Default Procedures Publication Guideline. This document is the result of work undertaken by EACH risk experts since the successful resolution of the failures of Lehman Brothers and other market participants during the financial turmoil.
The Guideline builds on the experiences of those CCPs most affected by those failures and is intended to assist EACH members in preparing their own internal procedures and Disclosure documents. It also serves as a response to calls by public authorities and market participants for greater transparency over the actions that CCPs may take in resolving participant failures.
EACH and its members will continue to work closely with the European Commission, ESCB-CESR, CPSS-IOSCO and supervisory authorities to further refine and develop international standards and contribute to legislative proposals.
The document will be available at EACH’s website The document will be available at EACH’s website http://www.eachorg.eu.
Spain to toughen short-selling rules
May 28, 2010--Spain’s stock market regulator is to toughen controls of equity short selling with plans to extend current reporting rules beyond financial sector stocks.
The National Stock Market Commission (CNMV) said late on Thursday that hedge funds and other short sellers would have to inform the regulator of positions of more than 0.2 per cent of total capital in all listed companies after June 10 this year.
Positions above 0.5 per cent will have to be communicated to the public via the CNMV website.
EU calls on trading partners to remove protectionist barriers
May 28, 2010--Almost 280 trade restrictive measures have been put in place by the European Union's major trade partners during the economic crisis over the last 18 months according to a new report published today by the European Commission. Contrary to the G20 commitment, hardly any measures have been removed despite signs of economic recovery in most countries. The European Commission calls on trading partners to remove these restrictions in order to give a much needed boost to the recovery.
EU Trade Commissioner Karel De Gucht said: "There is a risk that trade restrictive measures introduced by our partners during the crisis will become part of the trade regime even when the economy picks up speed. What we need now is an exit strategy from protectionism."
The European Commission has been issuing reports on the trade restrictive measures adopted by major trade partners since the beginning of the economic crisis. This monitoring mechanism has been important to prevent an escalation of trade protectionism during the downturn.
The recent report covers the EU's thirty main trading partners over the period from October 2008 to April 2010. The protectionist measures range from classical trade barriers such as import bans or tariff increases to "buy national" and other behind-the-border policies. The report finds that many of the new barriers are rapidly becoming permanent features of the world trading system.
Background
At the Washington Summit in November 2008, the G20 committed to a self-imposed standstill in terms of new barriers to investment or to trade in goods and services, new export restrictions or WTO inconsistent measures to stimulate exports. The London and Pittsburgh G20 summits in April 2009 and September 2009, reinforced this commitment and provided an explicit mandate to the WTO to monitor and to report publicly on the evolution of the situation on a quarterly basis.
The EU is firmly committed to this pledge. Its own monitoring report complements the monitoring exercise done by the WTO.
The main conclusions of the new report are as follows:
•Despite an overall gradual improvement of the world economy, growth remains uneven, marking a clear difference between the situation of industrialised and emerging economies. There still exists a risk that increasing unemployment could fuel a second wave of protectionist policies in the course of 2010.
•Between November 2009 and April 2010, 73 further trade restrictive measures have been introduced, thus bringing the total figure of measures in force to 278. The tendency towards new protectionist measures noted in past reports remains unabated.
•Fewer than 20 measures taken in the context of the crisis have been withdrawn or have expired between November 2009 and April 2010. This figure is clearly disappointing and contrary to the commitment made by G20 leaders to "rectify" such measures. Continuing to add to the stock of protectionist measures without rectifying them puts the economic recovery at risk.
•The creation of the Customs Union of Russia, Kazakhstan and Belarus, effective from 1 January 2010, saw the consolidation of most of Russia's duty increases introduced during the economic crisis. This remains by far the most striking example of entrenching the crisis-related measures in the permanent trade environment, with long-term implications for the resumption of trade flows with Russia.
view the Sixth Report on Potentially Trade Restrictive Measures
ETFplus new listing- LYXOR ETF S&P 500 (A) on May 31, 2010
May 27, 2010--Borsa Italiana welcomes on the ETFplus market 1 new ETF issued by Multi Units Luxembourg, the new offer is composed as follow:
- 1 ETF on developed countries: LYXOR ETF S&P 500 (A).
view the public notice
Swedish Financial Supervisory Authority, Finansinspektionen: Assessment Of NASDAQ OMX Derivatives Markets As A Central Counterparty, 2009
May 27, 2010--Finansinspektionen and Riksbanken have jointly assessed Nasdaq OMX Derivatives Markets. The assessment focuses on Nasdaq OMX Derivatives Markets' clearing of derivatives transactions.
Nasdaq OMX DM fulfils 13 of the 14 recommendations. One recommendation is assessed as broadly observed.
Assessment of NASDAQ OMX Derivatives Markets as a central counterparty, 2009
