Global ETF News Older than One Year
Woodbine Associates Produces OTC Derivatives Study for the Institute for Financial Markets
Report Details New Hedging and Transaction Costs that Derivative Traders and End Users Will Face from the Dodd-Frank Act and Basel III
September 26, 2011--In the wake of new regulation of the over-the-counter derivative markets in both the US and Europe, traders face new capital requirements and transaction costs relative to the size and the particulars of their transactions.
Woodbine Associates has produced a focused study on the potential impact of margin, capital, execution and market structure under the new regulatory framework on End User derivative transactions to help educate financial professionals. The research compares the direct and indirect costs of centrally-cleared transactions with those of transactions directly between counterparties and proposes cost-minimizing End User hedging strategies.
Notwithstanding this practical focus, this research also is intended to help financial media, policy makers, regulators, academics and others understand cost implications of the new regulations.
The report is underwritten by a grant from The Institute for Financial Markets, which earlier this year selected Woodbine Associates as part of its annual initiative to examine high priority issues whose understanding are of critical importance to the trading and clearing of listed and OTC derivatives worldwide. The report will be published in a special edition of the Review of Futures Markets in early 2012.
“Under the new regulatory framework created by Dodd-Frank and Basel III, bilateral hedging will become much more expensive, forcing firms to separate risk transfer from customization to minimize their costs,” said Sean Owens, author of the research. “Firms should realize substantial savings through replicating or delta-hedging customized transactions with a combination of centrally-cleared „vanilla‟ transactions to hedge market risk and bilateral basis transactions to address firm-specific needs.”
Woodbine Associates is an independent capital markets research and consulting firm focused on strategic, regulatory, market structure, business and technology issues facing firms active in the financial markets. Sean Owens, Director of Fixed Income Research and Consulting, had more than a decade of OTC derivatives trading experience and the chief author of the report.
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Source: Woodbine Associates
ETFS Precious Metals Weekly: Precious metal prices plunge as USD surge and CME gold margin hikes take hold
September 26, 2011--Gold sees profit taking as investors demand liquidity. Gold prices were hit by a sharply appreciating USD and the announcement of a further 21% increase in gold
futures margin requirements by the CME on Friday.
Gold:silver ratio at 54 times is the highest in nearly a year. While gold prices dipped below $1600 per ounce, representing an 10 per cent drop over the past week, silver prices plunged by around 25 per cent over the same period.
Investors reduce gold positioning by 30%from 2011 highs. Net long noncommercial positions indicates that speculative gold holdings were at the lowest levels since July 2011.
Investor deleveraging hits precious metal prices. Rising concern over when, not if, Greece will default has prompted investors to liquidate investment positions. Gold has recorded positive returns in 2011, and it is often the better performing parts of a portfolio that are liquidiated to fund margin calls or a move into cash and bonds. The USD has benefited and gold’s historical inverse correlation has seen sharp price declines in gold and silver. The increase in the CME gold margins by over 20% added to the lacklustre sentiment for gold.
Memories of gold price drop in 2008 as gold silver ratio hits highest level in a year. The moves in the gold price mirror those seen in September 2008 when gold acted as an important source of liquidity in the earliest stages of the post-Lehman credit crisis. Prices subsequently bounced back rapidly vs. other assets in late 2008 with gold positions being quickly rebuilt as investors built diversified positions in perceived store of value assets. Silver’s closer ties to the global industrial cycle have potentially fuelled the stronger market reaction as risk appetite has evaporated in recent weeks.
Gold holdings were at the lowest in just over two months according to CFTC futures data. Speculative net long gold positions last week dropped by around 30% from the 2011 highs as investors liquidated long positions, whereas silver net long speculative positions have dropped by around 20% from 2011 highs seen in August.
visit www.etfsecurities.com for more info
Source: ETF Securities
Copper drops to 14-mo low on recession fears
September 26, 2011--Industrial metals pressured, copper hits 14-mo low
COMEX copper sees 200-day MA support on weekly chart
Copper dropped under $7,000 a tonne in the London market for the first time in 14
months on Monday as the threat of a global recession had investors worried demand for the metal will continue to
deteriorate.
Copper was down for the seventh-straight day and moving deeper into bear-market territory for the year. It is down nearly 30 percent from its mid-February record above $10,000.
Source: Reuters
Economic Freedom of the World: 2011 Annual Report
September 23, 2011--This year's report notes that economic freedom fell for the second consecutive year. The average economic freedom score rose from 5.53 (out of 10) in 1980 to 6.74 in 2007, but fell back to 6.64 in 2009, the most recent year for which data are available. In this year's index, Hong Kong retains the highest rating for economic freedom, 9.01 out of 10, followed by Singapore, New Zealand, Switzerland, Australia, Canada, Chile, the United Kingdom, and Mauritius. The world's largest economy, the United States, has suffered one of the largest declines in economic freedom over the last 10 years, pushing it into tenth place. Much of this decline is a result of higher government spending and borrowing and lower scores for the legal structure and property rights components.
This year's report also contains new research comparing policies that promote "freedom" compared to "entitlement" in relation to economic development. The findings suggest that fundamental freedoms are paramount in explaining long-term economic growth. Countries that favor free choice — economic freedom and civil and political liberties — over entitlement rights are likely to achieve higher sustainable economic growth and to achieve many of the distinctive proximate characteristics of success identified by the Commission on Growth and Development (World Bank, 2008). In contrast, pursuing entitlement rights through greater coercion by the state is likely to be self-defeating in the long run. The report also includes findings on the positive relationship between increases in economic freedom and improvements in women's well-being.
The first Economic Freedom of the World Report, published in 1996, was the result of a decade of research by a team which included several Nobel Laureates and over 60 other leading scholars in a broad range of fields, from economics to political science, and from law to philosophy. This is the 15th edition of Economic Freedom of the World and this year's publication ranks 141 nations for 2009, the most recent year for which data are available.
view the Economic Freedom of the World: 2011 Annual Report
Source: Cato Institute
Innovation: Hive of creativity cools a little
September 23, 2011--Actively managed funds, which employ a manager to actively select securities, account for only 1 per cent of assets invested in ETFs. But with the market increasingly saturated by passive ETFs that track all manner of indices, active funds are considered central to future rapid growth in the industry.
Regardless of the apparently small demand for active funds, ETF issuers are scrambling to create offerings. In the US, the Securities and Exchange Commission is currently reviewing more than 800 applications, many sponsored by new entrants, who would be offering their first ETF
Source: FT.com
Market share: Battling for assets alongside the Big Three
September 23, 2011--To those standing on the sidelines of the exchange traded fund industry, attempts to make inroads into the market share of the world’s largest three players must seem like an insurmountable challenge.
iShares, State Street Global Advisors (SSgA) and Vanguard currently dwarf their closest competitors, commanding around 69 per cent of the global ETF business between them, leaving those further down the pecking order with the daunting task of playing catch-up.
Source: FT.com
Some challenges in using and creating ETFs
September 23, 2011--With developed world equity markets in the doldrums, investors are using ETFs to gain exposure to ever more diverse and potentially less liquid assets, such as emerging market equities and US municipal bonds.
A sell-off in illiquid underlying assets creates two problems for the market makers (often investment banks) that create and retire shares in the ETF as investors put money in or take it out.
Source: FT.com
Crude Oil May Fall Next Week on U.S., China Outlook, Survey Says
September 23, 2011--Oil may fall next week on concern that economic growth will slow in the U.S. and China, the fuel’s top two consumers, according to a Bloomberg News survey.
Twenty-two of 40 analysts, or 55 percent, forecast oil will decline through Sept. 30, while nine respondents, or 23 percent, predicted prices will increase. Nine estimated there will be little change. Last week, 45 percent of the surveyed analysts projected a drop.
Source: Bloomberg
World Bank: Eurozone Crisis Clouds Recovery In Emerging Europe And Central Asia
September 23, 2011--Economic recovery is underway in the Emerging Europe and Central Asia (ECA) region, but at a slow pace and is at risk from the troubled Eurozone, according to the World Bank at a press briefing during the World Bank/IMF Annual Meetings 2011.
“Most countries in Emerging Europe and Central Asia have recovered from the global economic crisis, but growth has returned at lower rates than pre-crisis trends in most of the region. The region is expected to record a real growth rate of 4.3 percent in 2011, which is one of the lowest of any developing region,” said Philippe Le Houérou, World Bank Vice President for the Europe and Central Asia Region. “The slow recovery in the region may be establishing a ‘new normal’ of lower economic growth rates in many of the region’s countries.”
Le Houérou cautioned, “The sovereign debt problems in Western Europe pose challenges to the sustainability of this relatively tepid recovery. The Eastern Europe and Central Asia region is especially dependent on Western Europe as an export market and a source of finance and migrant remittances, so slower growth in the West will hurt. The region’s strong financial linkages to Western Europe, which were a source of growth during the boom years in Central and Eastern Europe, are now a source of vulnerability for some countries.”
Source: World Bank
Spatial Spillovers in Emerging Market Spreads-IMF Working paper
September 23, 2011--Summary: We use novel spatial econometrics techniques to explore spillovers in the sovereign bond market for 24 emerging economies during 1995-2010. The paper extends the previous literature focusing on spillover effects from advanced to emerging economies by analyzing transmission of shocks across emerging markets.
After controlling for the impact of global factors, we find strong evidence of spillovers from both sovereign spreads and macroeconomic fundamentals in neighboring emerging economies. In addition to the geographical proximity, the channels of spatial transmission include trade and financial linkages. The results of the paper highlight the importance of accounting not only for spillovers from advanced economies to emerging markets, but also across emerging markets when analyzing sovereign spreads.
view IMF working paper-Spatial Spillovers in Emerging Market Spreads
Source: IMF
