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End "bankers' bonus" culture, says Economic Affairs Committee
June 15, 2010--New rules to end the bankers' risk-taking culture that led to the global economic crisis were backed by Economic and Monetary Affairs Committee MEPs on Monday evening. Bailed-out bank directors must get no bonuses until banks have repaid public support, bankers' bonuses must be capped at 50% of total remuneration, and bankers' bonus payments should be deferred until profits are actually earned, not just forecast, added the committee. The rules will be put to a plenary vote in July.
The new rules are designed "to deliver a robust and fair remuneration system that encourages long-term stability, not excessive risk taking. The new rules on bank capital will ensure that banks put aside enough money to cover losses on high-risk trading, such as complicated mortgage-backed securities, which they are still holding on their books from before the crisis. It is too much of a risk to leave taxpayers exposed to these potentially toxic assets”, said Arlene McCarthy (S&D, UK), who is steering them through Parliament, before the vote.
Welcoming the result of the vote, committee chair Sharon Bowles (ALDE, UK) said "I want banking to return to the idea that existed in private banks when partners had their own money on the line and had a vested interest in the long-term health of the bank. If bankers and traders want to leave and go to other jurisdictions, it just shows that they do not have confidence in their own performance. To those that would leave I say good riddance.”
Dubbed the "Capital Requirements Directive III" (CRD3), upon which Parliament has equal decision-making rights with the Council, the new rules give legal shape to the recommendations of the Basel Committee, a body of banking supervisors from around the world. Reviewed at regular intervals, this directive updates laws on some of the fundamentals of banking. CRD3 aims to end unsound bonus policies and step up disclosure and capital requirements in areas where speculative activity is common.
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Source: European Parliment
Private equity ‘barbarians at the gate’ of ESG: conference report
June 14, 2010--Some of the world’s largest private equity companies, battling an image problem and a shift in market dynamics, had very warm words about incorporating environmental, social and governance (ESG) factors into their operations at a conference in London last week.
The likes of Carlyle Group and Kohlberg Kravis Roberts (KKR), with some $140bn in assets under management between them, are not perhaps best known for their responsible investing credentials. Indeed, the industry still suffers from its ‘Barbarians at the Gate’ image, a reference to the book about the huge, controversial buyout of RJR Nabisco in the 1980s. But their appearance at the PEI Responsible Investment Forum, co-hosted by the United Nations Principles for Responsible Investment, showed which way the sector wants to head.
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Source: Responsible Investor
ETF Securities to expand Currency ETC platform with 22 new Currency ETCs including Europe’s first listing of emerging market currencies
June 14, 2010--Four new emerging market Currency ETCs with long or short exposure to the Chinese Renminbi and Indian Rupee
18 new GBP-based Currency ETCs with long or short exposure to G10 currencies
28 existing Currency ETCs accumulate $200m on London Stock Exchange and Deutsche Börse
Exposure to world’s most liquid asset class through a total of 50 Currency ETCs
ETF Securities (ETFS), the global pioneer in Exchange Traded Commodities (Commodity ETCs) and 3rd generation Exchange Traded Funds (ETFs) is planning to expand the world’s largest and Europe’s first Exchange Traded Currency (Currency ETCs) platform with the launch of four emerging market and 18 GBP-based Currency ETCs on London Stock Exchange (LSE) in the coming weeks. The Currency ETCs are based on the MSFXSM Index Family, which are designed by Morgan Stanley as a tradable benchmark for foreign exchange rate performance.
For the first time in Europe, investors will have access to emerging market Currency ETCs which enable investors to go long or short the Chinese Renminbi (CNY) or the Indian Rupee (INR). Since launching its Currency ETC platform, ETF Securities has received significant interest for emerging market currencies such as the Chinese Renminbi and the Indian Rupee, which are traditionally difficult to access for non-domestic investors.
With booming local economies, investment demand for emerging market equities, bonds and currencies continues to grow. Many emerging market currencies are not accessible to foreign investors due to restrictions or capital controls however foreign investors are able to access these markets through Non Deliverable Forward (NDF) contracts and now Currency ETCs.
Currency ETCs and NDFs provide access to otherwise inaccessible markets. NDF markets are impacted by many factors including expectations of the relevant exchange rates and central bank policies. Therefore even though a currency such as the Chinese Renminbi is pegged to the US Dollar (USD), it is possible for emerging market Currency ETCs to change in price. For example, if there is a change in investor's expectations regarding the Chinese Renminbi such that CNY is expected to appreciate versus USD at some point in the near future, then the price of ETFS Long CNY Short USD would likely rise, and the value of ETFS Short CNY Long USD would likely fall.
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Source: ETF Securities
Public consultation on Short Selling and Credit Default Swaps-Frequently asked questions
June 14, 2010--What is the purpose and subject of the consultation?
The purpose of the document being published today is to consult market participants, regulators and other stakeholders on the options being considered by the Commission services for a forthcoming legislative proposal dealing with potential risks arising from short selling and Credit Default Swaps.
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.
A Credit Default Swap (CDS) is a derivative which is sometimes regarded as a form of insurance against the risk of credit default of a corporate or government (or sovereign) bond. In return for an annual premium, the buyer of a CDS is protected against the risk of default of the reference entity (stated in the contract) by the seller. If the reference entity defaults, the protection seller compensates the buyer for the cost of default.
In addition to short selling on cash markets, a net short position can also be achieved by the use of derivatives, including Credit Default Swaps (CDS). For example, if an investor buys a CDS without being exposed to the credit risk of the underlying bond issuer (a so-called "naked CDS"), he is expecting, and potentially gaining from, rising credit risk. This is equivalent to short selling the underlying bond.
Why is the European Commission planning a legislative initiative in this area?
During the financial crisis and more recently in the context of market volatility in euro denominated sovereign bonds, Member States have reacted differently to short selling issues, with a variety of measures being put in place using different powers. A fragmented approach can limit the effectiveness of the measures imposed, lead to regulatory arbitrage (which basically means shopping around for the least onerous regime) and create additional costs and difficulties.
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Source: Europa
Turkey slowly but surely on its way to sustainable growth
June 14, 2010--Having already attracted the attention of many international institutions and credit rating agencies with its current strong economic performance, Turkey is taking firm steps forward to maintain a sustainable expansion of its economy, observers argue.
The country’s success in overcoming the adverse impacts of the 2009 global credit crunch has been largely attributed to certain austerity measures taken by the government along with a strong financial sector. Having rebounded sharply since the second quarter of last year -- when the economy grew by 6 percent over the same period of 2008 -- the coming months look good for the Turkish economy. A recently launched fiscal rule, which is accepted as an important anchor for the markets, has also been effective in this regard.
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Source: Todays Zaman
Economy : G20 keeps investment flows open, but continued vigilance needed, say OECD, UNCTAD
June 14, 2010-- The OECD and UNCTAD have commended G20 countries for avoiding new protectionist barriers to inward investment, while warning that continued vigilance is needed in the face of emergency measures to address the economic crisis that still pose a threat to competition and international investment.
In their third report to the G20 on this issue, the two organisations find that “by and large, G20 governments have continued to honour their commitment to refrain from raising new barriers to international investment.”
However, as governments wind down their emergency schemes and dispose of financial assets acquired in the crisis, they must ensure they do so at an appropriate pace and not use the crisis “as a pretext to discriminate directly or indirectly against certain investors, including foreign investors.”
“With the economic recovery still fragile and unemployment high, protectionist pressures will remain,” said OECD Secretary-General Angel Gurría. “Countries must hold firm and keep trade and international investment open to boost their economies.”
Most investment measures taken in the six months to May 2010 have continued to point towards liberalisation of international capital flows or increased regulatory clarity, according to the OECD.
read OECD Third Report G20 Investment measure
Companion report for the G20
Source: OECD
Consultation on Derivatives and Market Infrastructures - frequently asked questions
June 14, 2010--Why has the Internal Market and Services Directorate General of the European Commission launched another public consultation on Derivatives and Market Infrastructures?
The European Commission adopted a Communication on "Ensuring efficient, safe and sound derivatives markets – future policy actions", on 20th October 2009 after a full consultation on a previous Communication of July 2009 (COM(2009)332) and accompanying Staff Working Paper and Consultation Paper (see IP/09/1546).
In this Communication, the Commission outlined the policy actions it intended to take to address the problems of OTC (over-the-counter) derivatives markets.
Since then, the Internal Market and Services Directorate General of the European Commission has been developing more detailed measures in this respect. Following better regulation principles and considering the significant impact that the announced policy actions are likely to have on the markets, the Internal Market DG would now like to consult all interested stakeholders on these detailed measures. This consultation, which is open until 10 July 2010, is the final step before the Commission proposes legislative proposals in September.
What is the status of this consultation? Is this a legislative blue-print?
This document is a working document of the Internal Market DG for discussion and consultation purposes. It does not purport to represent or pre-judge the formal proposal of the Commission. However, it does give an overview of the Internal Market DG's current thinking on how to practically implement some of the actions outlined in October 2009.
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Source: Europa
Business leaders attack bank capital plans
June 14, 2010--Business leaders in France and Germany are sounding the alarm over plans to force banks to hold more capital to cover risk-taking, saying the proposed new rules would be “catastrophic” for the financing of European companies.
Laurence Parisot, head of France’s business confederation Medef, told the Financial Times the proposals being finalised by the Basel Committee on Banking Supervision later this year, known as Basel III, presented the risk of “a real contraction in credit. The schema being prepared by the Basel committee would be catastrophic”
Medef’s German counterpart, the BDI association of German industry, has also written to the European Commission to warn of the dangers of overzealous regulation.
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Source: FT.com
Europe-wide body to oversee OTC clearing
June 14, 2010--A new pan-European supervisory agency is set to be given a crucial role to decide which over-the-counter derivatives contracts must be cleared centrally, by European Union proposals to regulate the swaps market.
The decision is likely to be controversial in London, home to the bulk of OTC business and to most of Europe’s central counterparties (CCPs), or clearing houses. They are currently overseen by the UK markets regulator.
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Source: FT.com
Investors bypass rating agencies on securitisation
june 14, 2010--European investors are increasingly relying on their own analysis of securitisation deals rather than the rating agencies, according to a survey that also shows how interest in the sector is still scarred by the havoc wrought during the financial crisis.
Bishopsfield Partners, a structured finance consultancy, said that almost two-thirds of investors that it had surveyed believed that the industry had been "truly damaged" by the crisis - even though European deals have seen far less impairment of the underlying loans (and have held on to their high ratings) than their US counterparts.
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Source: FT.com
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