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EDHEC-Risk Institute Considers that Germany’s Restrictive Measures on the Sovereign Debt Markets are Counterproductive, Inconsistent and Liable to Hinder European Growth
May 20, 2010--On the basis of numerous academic studies, along with its own research, including the position paper published in March 2010 by Professor Abraham Lioui entitled “Spillover Effects of Counter-cyclical Market Regulation: Evidence from the 2008 Ban on Short Sales,” EDHEC-Risk Institute considers that the unilateral measures taken by Chancellor Merkel on the sovereign debt markets, both on the short selling of sovereign bonds and credit default swaps (CDS), are counterproductive, inconsistent and liable to hinder European growth.
Counterproductive
Besides the fact that the lack of convergence on these issues with the US authorities leaves little hope of the measures being effective, EDHEC-Risk Institute thinks that this ban poses numerous problems and runs up against legal and practical obstacles that make it inapplicable or even counterproductive:
It will be impossible for intermediaries and ultimately for regulators to verify investors’ holdings of the securities representative of the risk the credit
A strict obligation to use credit default swaps to hedge the risk of sovereign debt would prevent sovereign nations from issuing long-term debt, as the CDS market for hedges of more than ten years is relatively illiquid.
This prohibition makes it harder for countries to manage the interest rate risk on their debt actively, as their counterparties are no longer able to hedge the country risk of the interest rate swaps they may have entered into. This active management of the yield curve is a major component in the optimisation of the cost of public debt.
By making the market for hedging default risk more complex, the markets may be deprived of the debt of countries with low ratings, of investors, and thus of liquidity, which will inevitably increase the cost of this debt.
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Source: EDHECC
MiFID Monthly Market Share Reports-March 2010
May 20, 2010--Thomson Reuters Monthly Share report is now available.
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Source: Thomson Reuters
European Commission to unveil governance Green Paper on June 2
May 20, 2010--The European Commission is planning to present its plan for improving corporate governance in the financial sector on June 2, with enhanced shareholder involvement at the heart of the proposals.
In a speech in Berlin today Internal Markets Commissioner Michel Barnier said: “The Green Paper will address a number of questions – How to manage risk effectively in financial institutions? How to empower shareholders? This is important – because true crisis prevention starts from within the companies.”
His spokesperson told Responsible Investor that the Commission will consider both legislative or non-legislative proposals. Barnier is known admire Sir David Walker’s Stewardship Code in the UK.
The spokesperson said the proposals will aim at “enhancing the involvement of shareholders, financial supervisors and external auditors in corporate governance matters”. They would also seek to change remuneration policies in companies in order to discourage excessive risk taking.
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Source: Rseponsible Investor
CESR Sets Out Harmonised Definition Of European Money Market Funds
May 19, 2010--CESR publishes today its guidelines on a common definition of European money market funds (Ref.
CESR/10-049). The guidelines aim to improve investor protection by setting out criteria to be
applied by any fund that wishes to market itself as a money market fund. The criteria reflect the
fact that investors in money market funds expect the capital value of their investment to be
maintained while retaining the ability to withdraw their capital on a daily basis. A common
definition will also help provide a more detailed understanding of the distinction between funds
which operate in a very restricted fashion and those which follow a more ‘enhanced’ approach.
Lamberto Cardia, Chair of the Italian Commissione Nazionale per la Società e la Borsa (CONSOB)
and Chair of CESR’s Investment Management Standing Committee, which prepared the advice,
stated:
“The publication of these guidelines is a significant step in improving investor protection and will help stakeholders – competent authorities, management companies and investors – to draw a clearer distinction between funds according to their investment strategies.
It was clear from the difficulties that arose in the markets in 2007 and 2008, that the term ‘money market fund’ covered a very broad range of investment funds. This created risks for investors who may not have fully understood the types of asset in which these funds were able to invest. In particular, the strategies of some funds may not always have been consistent with the generally accepted concept of money market funds as being relatively liquid, short-term investments.
I am confident that CESR’s guidelines will provide greater clarity and in so doing, better equip investors to be able to make informed investment decisions.”
CESR’s guidelines create two categories of money market fund
CESR’s guidelines set out two categories of money market fund: Short-Term Money Market Funds and Money Market Funds. This approach recognises the distinction between short-term money market funds, which operate a very short weighted average maturity and weighted average life; and money market funds which operate with a longer weighted average maturity and weighted average life.
view CESR guidelines
Source: CESR
French SRI assets jump by 70% in one year
May 19, 2010--by Hugh Wheelan | May 19th, 2010
SRI assets in France rose by 70% during 2009 to pass the €50bn mark, a rise of €20.8bn from the end of 2008 to the end of 2009, despite the fallout of the market crisis, according to the latest market survey by Novethic, the French sustainable investment research group.
Within that overall rise, SRI retail asset growth was highest at 111% growth over the year to reach €15.6bn (€7.4 in 2008). Novethic said the retail rise reflected increasing sales of SRI funds by large bank and insurance groups as well as a development in product offering for France’s employee savings plans. Institutional assets, however, still dominate French SRI assets (69% of the total) and they rose by 56% in 2009 to reach €35.1bn in total.
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Source: Responsible Investor
ETF Landscape: European STOXX 600 Sector ETF Net Flows, week ending 14-May-10
May 19, 2010--Last week saw US$12.8 Mn net inflows to STOXX 600 sector ETFs. The largest sector ETF inflows last week were in Banks with US$50.6 Mn and Basic Resources with US$34.2 Mn while Utilities experienced net outflows of US$38.2 Mn.
Year-to-date, Media has had the largest net inflows with US$350.8 Mn net new assets, followed by Oil & Gas with US$71.0 Mn YTD. Banks sector ETFs have had the largest net outflows with US$252.7 Mn YTD. In total, STOXX 600 sector ETFs have seen US$327.9 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.
to request report
Source: Global ETF Research & Implementation Strategy Team, BlackRock
CESR updates the list of measures recently taken by Members regarding short-selling
May 18, 2010--EU securities regulators are closely monitoring the functioning of the markets under the current circumstances and are considering together possible actions which might be taken to contribute to orderly functioning markets. Any such actions will be taken with a view to strengthening confidence in financial markets and protecting investors.
Particularly, CESR, in its role as a network bringing together EU securities regulators, has been co-ordinating actions by its Members regarding the short selling practices, in particular in financial companies. Some EU securities regulators have adopted measures in their respective markets either to limit, or to introduce stringent requirements or further reporting obligations by firms to supervisory authorities on short-selling.
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Source: CESR
Bourses drop sharply after Berlin regulatory move
May 19, 2010--Bourses across Europe fell sharply on Wednesday as investors were unnerved by Germany’s decision to ban naked short selling. The move stoked concerns that further regulations would be adopted across Europe, drying up liquidity in equity markets.
BaFin, the German regulator, temporarily banned naked short selling of a number of German financial instruments in a move aimed at bolstering confidence in Europe’s financial system.
Analysts said the move failed to reassure investors and BaFin’s decision was greeted negatively by global financial markets.
Shares in Portugal Telecom lost 3.1 per cent to €7.32. .Copyright The Financial Times Limited 2010. You
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Source: FT.com
Turkey to urge purchase of European companies
May 19, 2010--The declining population in most European countries opens up new opportunities for Turkey.
The government is now working on an incentive program to encourage people to own or become partners in European companies, one-third of which will change hands within the next six years according to European Union predictions.
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Source: Todays Zaman
Turkish banks rake in profits as other sectors struggle
May 19, 2010--Despite the lingering impact of the global financial crisis, the Turkish banking industry was highly profitable in the three months of the year, with the combined profits of the 12 banks that have disclosed their first quarter figures amounting to an impressive TL 4.8 billion.
Private banks led the list of those with the highest profits in the first quarter. Garanti Bankas? had the highest first quarter earnings, posting TL 1.08 billion in consolidated net profits. Akbank followed Garanti with TL 1.03 billion, a 76 percent increase over the same quarter of last year. ?? Bankas? came third with TL 955 million, representing a 47 percent jump in consolidated net profits in first three months compared to first quarter of 2009. Yap? Kredi enjoyed a 20 percent rise and increased its first quarter net profits to TL 564 million while the state-owned Halkbank made TL 515 million in net profits, a 41.3 percent increase in the given period. Vak?fbank, another state-owned bank, followed Halk with TL 305 million.
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Source: Todays Zaman
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