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IMF Working Paper-From Stress to CoStress: Stress Testing Interconnected Banking Systems
February 16, 2012--Summary: This paper presents an integrated framework for assessing systemic risk. The framework models banks' capital asset ratios as a function of future losses and credit growth using a generalized method of moments to calibrate shocks to credit quality and credit growth.
The analysis is complemented by a simple measure of systemic risk, which captures tail risk comovement among banks in the system. The main contribution of this paper is to advance a simple framework to integrate systemic risk scenarios that assess the impact of aggregate and idiosyncratic factors. The analysis is based on CreditRisk+, which uses analytical techniques—similar to those applied in the insurance industry - to estimate banks’ credit portfolio loss distributions, making no assumptions about the cause of default.
view IMF Working paper-From Stress to CoStress: Stress Testing Interconnected Banking Systems
Record investment demand boosts global gold demand to an all time high in 2011
February 16, 2012--Global demand for gold in 2011 rose to 4,067.1 tonnes (t) worth an estimated US$205.5 billion-the first time that global demand has exceeded US$200billion and the highest tonnage level since 1997, according to the World Gold Council's Gold Demand Trends.
The main driver for this increase was the investment sector where annual demand was 1,640.7t up 5% on the previous record set in 2010 and with a value of US$82.9 billion. The pre-eminent markets for investment demand in 2011 were India, China and Europe.
view the Gold Demand Trends Q4 and full year 2011 report
ISDA paper: MiFID/MiFIR and Transparency for OTC Derivatives
February 15, 2012--This paper has been produced by the International Swaps and Derivatives Association to describe the nature of trading structure and liquidity formation in OTC derivatives markets and the implications for framing pre-trade transparency obligations under MIFID2/MIFIR.
The paper makes the following points:
Different trading models exist for different instruments.
Pre-trade transparency differs according to the nature of a given trading model.
Pre-trade transparency should be calibrated by trading model and should adequately accommodate Request for Quote trading systems.
And regarding systematic internalisation:
The systematic internalisation regime is inconsistent in respect of different asset classes.
The systematic internalisation regime could undermine liquidity provision.
Effective price formation can be supported through better targeted measures, specifically a requirement that firms establish quoting policies.
EDHEC-Risk Institute research provides insights into optimal hedge fund allocation
February 15, 2012--In a research paper published in the Winter 2012 issue of the Journal of Alternative Investments, entitled "Optimal Hedge Fund Allocation with Improved Estimates for Coskewness and Cokurtosis Parameters," EDHEC-Risk Institute has provided insights into optimal portfolio decisions involving hedge funds.
Drawn from research conducted as part of the “Advanced Modelling for Alternative Investments” research chair at EDHEC-Risk Institute, supported by the Prime Brokerage Group at Newedge, the paper presents an application of the improved estimators for higher-order co-moment parameters, in the context of hedge fund portfolio optimisation.
The authors find that the use of these enhanced estimates generates a significant improvement for investors in hedge funds. It is only when improved estimators are used and the sample size is sufficiently large that portfolio selection with higher-order moments consistently dominates mean–variance analysis from an out-of-sample perspective. The results have important potential implications for hedge fund investors and hedge fund of funds managers who routinely use portfolio optimisation procedures incorporating higher moments.
visit edhec-risk.com for more info
Markets Optimistic for Greek Bailout Plan-BRICs Weekly Report
February 15, 2012--PBOC drains liquidity from banks.
The Chinese market went up despite experiencing some volatility. The European sovereign debt crisis was the main focus, with negotiations continuing on the bailout plan for Greece. There is considerable optimism that a positive result will be reached.
Internal and External Factors Spur Market Rally.
The Indian markets have been one of the best performing markets. The rally has been a culmination of macro factors like the interest rates peaking and currency tailwinds. The other big factor has been global liquidity and global investors have pumped in almost $3.7 billion year to date.
Forwarding from the White House: Joint Fact Sheet on Strengthening U.S.-China Economic Relations
February 14, 2012--Building on the consensus reached by President Hu Jintao and President Barack Obama during President Hu's January 2011 state visit to the United States, the United States and China affirm that our two countries are promoting the healthy and steady development of the U.S-China cooperative partnership based on mutual respect and mutual benefit.
Under the framework of the Economic Track of the U.S.-China Strategic and Economic Dialogue (S&ED), the United States and China recognize the following outcomes.
Promoting Strong, Sustainable, and Balanced Growth
1. To address challenges to the global economic outlook, the United States and China pledge to enhance macroeconomic cooperation to work to ensure that the global recovery is durable and promotes steady job growth, and to establish strong, sustainable, and balanced future global growth. The United States and China commit to take comprehensive policy measures to achieve more balanced trade and expanded investment in each other’s economies. China wishes to increase imports from the United States, including in commercial high technology products.
2.The United States and China are committed to continuing to exchange views on developments in European financial markets and discuss approaches that can support Europe’s own efforts to respond to its sovereign debt crisis.
3. The U.S. economy is rebalancing toward sustainable growth, with higher domestic saving, a commitment to long-term fiscal sustainability, and productivity-enhancing investments. In line with the President’s FY2013 Budget, the United States commits to achieving more than $4 trillion in deficit reduction over the next ten years, including the $1 trillion in discretionary spending reductions enacted last year, and to gradually reducing debt as a share of the economy from the middle of this decade.
San Miguel Corp. Of The Philippines Added To Dow Jones Emerging Markets Consumer Goods Ttans 30 Index
February 14, 2012--San Miguel Corp. of the Philippines will be added to the Dow Jones Emerging Markets Consumer Goods Titans 30 Index, Dow Jones Indexes announced today.
The addition of San Miguel follows the removal of China’s Shanda Interactive Entertainment Ltd. ADS due to its acquisition by Premium Lead Co. Ltd. of the British Virgin Islands.
Established in 1890 as a single-product brewery, San Miguel is the Philippines’ largest beverage, food and packaging company.
The changes in the Dow Jones Emerging Markets Consumer Goods Titans 30 Index will be effective as of the opening of trade on Friday, February 17, 2012.
State Street Global Markets Intends to Join LCH.Clearnet's SwapClear Service
January 13, 2012--LCH.Clearnet Ltd. (LCH.Clearnet) today announced that State Street Global Markets, LLC (SSGM), intends to join SwapClear, LCH.Clearnet's global over-the-counter (OTC) IRS clearing service, by June, 2012 subject to regulatory approval. SwapClear's total clearing membership is currently 61.
"Our membership will provide our institutional investor clients with a key venue for clearing the multiple swap products now being brought into a cleared environment under the emerging regulatory changes in Europe and the United States," said Clifford Lewis, executive vice president and head of State Street's Exchange business. "State Street's diverse, global client base demands a wide range of clearing choices across regions, exchanges and products. We look forward to joining SwapClear as a member and to making the benefits of its services available to our clients."
"As we continue to grow our global footprint, State Street, a highly respected financial institution, will be a welcome addition to our membership roster," said Michael Davie, SwapClear CEO. "Expanding our membership reinforces our position as the clearing service with the deepest pool of liquidity, and further demonstrates our commitment to providing superior risk management to the global IRS market."
Institutional Investors Call on U.S. Securities and Exchange Commission to Implement Financial Market Reforms
February 13, 2012--A coalition of institutional investors from around the globe today released a list of financial market reform priorities that they believe are necessary to protect shareowner rights and bolster investor confidence.
The 14 pension funds and plan sponsors representing $1.6 trillion in assets called on the U.S. Securities and Exchange Commission to complete what they called “unfinished business” in the wake of the financial crisis.
“We encourage the Commission to continue work on a proactive agenda advancing your mission to protect investors, maintain fair, orderly, and efficient markets, and to facilitate sustainable capital markets,” wrote the investor group in a letter to Mary Schapiro, Chair of the SEC. “Despite the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, we believe there is unfinished business that is critical to protecting and strengthening shareowner rights and investor confidence in the financial markets.”
ETFS US Precious Metals Weekly:Investors On Edge Over Greece Despite CME Cutting Precious Metals Futures Margins
February 13, 2012--CME Group lowers the margin requirements for gold, silver and
platinum for first time since June 2011 as volatility drops. 21-day volatility has plunged from highs over 25%p.a. to currently be under 15%p.a., prompting the CME to reduce margins on precious metals by 12%, 14% and 22% for gold, silver and platinum, respectively.
Ongoing uncertainty about the global economic outlook, however, contained price action in the precious metals space last week.
Gold trades narrow range, as uncertainty over Greece debt talks balanced by central bank stimulus. Gold eased off 10-week highs last week but offsetting influences have confined gold price to a narrow range between US$1700-$1760 over the past two weeks. Although gold’s positive correlation to other cyclical has risen recently, it has lagged the price gains of other precious metals over the past month. Investors remain cautious as the ongoing deliberations over the next tranche of Greek bailout funds threaten to break down, at the same time as central banks ramp up stimulus efforts. Ongoing liquidity support from the European Central Bank and the additional $50bn QE stimulus pumped into the UK economy by the Bank of England at last week’s MPC meeting should help keep the gold price supported. Recent currency volatility has also stymied physical buying, particularly in emerging markets as financial market sentiment remains unpredictable.
visit www.etfsecurities.com for more info.