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Hedge funds now regularly trading in European sector ETFs
June 3, 2010--Source says the use of sector exchange-traded funds by hedge funds now represents a meaningful slice of overall sector investing in Europe.
The London based ETF provider says total turnover on its European sector ETFs reached EUR5.9bn in April, according to Cascade, Clearstream’s German settlement system.
This represented 76 per cent of Cascade’s reported European sector activity, dwarfing the turnover on competing products.
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Source: ETF Express
UK official holdings of International Reserves
June 3, 2010--UK OFFICIAL HOLDINGS OF INTERNATIONAL RESERVES
Part I: UK Government Foreign Currency Assets and Liabilities – May 2010
1. The UK Government’s net reserves rose by $731 million in May 2010, bringing the end-May total to $34,361 million (£23,766 million1) compared with $33,629 million (£21,961 million2) at end-April 2010.
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Source: HM Treasury
Approval of new Regulation will raise standards for the issuance of credit ratings used in the Community
June 3, 2010-The European Commission has welcomed the respective approvals from the European Parliament and from the Council on the proposed Regulation on credit rating agencies (CRAs). The Regulation will have a major impact on the activity of credit rating agencies, which issue opinions on creditworthiness of companies, governments and sophisticated financial structures. Credit rating agencies will be expected to comply with strict standards of integrity, quality and transparency and will be subject to ongoing supervision of public authorities. Users of credit ratings in the EU will be in a better position to decide if the opinions of a specific credit rating agency are trustworthy and to what extent those opinions should impact their investment choices.
Commission President José Manuel Barroso said: "Today's approvals of the Commission's proposals on credit rating agencies are the latest example of the EU leading the world in responding to the economic and financial crisis, restoring confidence and preventing a repeat. Our G20 partners agreed in London to move in the same direction the EU has taken today. The Regulation will help give investors the information, integrity and impartiality they need from credit rating agencies if they are to make prudent investment decisions that create growth and jobs instead of bubbles of excessive risk."
Internal Market and Services Commissioner Charlie McCreevy said: “The Commission has long insisted that profound changes were necessary to the framework in which the credit rating industry operates. With this Regulation, the EU is setting an example to be followed and matched. Today we are satisfied that as a result of intense cooperation between the European Parliament, the Council and the Commission this state-of-the-art regulatory regime has been adopted swiftly. We expect the conduct of the credit rating agencies to be significantly improved as a result of this Regulation, with clear benefits to the integrity and stability of the financial markets.”
This directly applicable Regulation puts in place a common regulatory regime for the issuance of credit ratings thus responding to the need for restoring market confidence and increasing investor protection.
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Source: Europa
Volume of retail trade down by 1.2% in both euro area and EU27
June 3, 2010--In April 2010, compared with March 2010, the volume of retail trade1 decreased by 1.2% in both the euro area2 (EA16) and the EU272. In March3 retail trade rose by 0.5% in both zones.
In April 20104, compared with April 2009, the retail sales index declined by 1.5% in the euro area and by 1.6% in the EU27.
Monthly changes
In April 2010, compared with March 2010, “Food, drinks and tobacco” fell by 1.1% in the euro area and by 1.4% in the EU27. The non food sector decreased by 1.1% and 1.2% respectively.
Among the Member States for which data are available, total retail trade fell in fourteen and rose in five. The highest decreases were observed in Poland (-8.7%), Denmark (-8.6%), Slovakia (-3.6%) and Spain (-2.1%), and the largest increases in Belgium (+1.8%) and Germany (+1.0%). Annual changes
In April 2010, compared with April 2009, “Food, drinks and tobacco” fell by 1.8% in the euro area and by 2.6% in the EU27. The non food sector declined by 1.1% in the euro area, but rose by 0.1% in the EU27.
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Source: Eurostat
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.
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Source: Global ETF Research & Implementation Strategy Team, BlackRock
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.
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Source: European Parliment
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
Source: European Commission
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.
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Source: FT.com
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.
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Source: FT.com
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)
Source: European Commission
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