Global ETF News Older than One Year
US Institutional Equity Trading 2009/10: Dark Pools, Transparency, and Consequences
November 18, 2009--Executive Summary
The most important issue facing US equity markets today is the intense regulatory scrutiny coming from both legislators and regulators. There is a drive to restore investor confidence in a post-CDS, post-Lehman Brothers, post-Madoff world. Short sales, flash orders, high frequency trading, dark pools, indications of interest, and the role of electronic liquidity providers are all under review and subject to potential restrictions. While the regulators and legislators have the holistic market’s best
interests at heart, many of the actions being considered raise alarm amongst professional buy-side traders. There is concern that a severe regulatory or legislatively-mandated market structural shock will have major and long-term unintended consequences.
High frequency trading volume has captured the attention of the marketplace, the media and the regulators, and has continued to grow as a percentage of overall daily equity activity. The majority of traders are indifferent to the presence of high frequency flow, primarily because they do not have the necessary data or quantifiable metrics to determine whether this flow is hurting or helping their cause. The potential consequences of ill-informed market regulation on high frequency flow are of a far higher concern to traders than any concerns about the presence of the flow itself. Head traders we spoke to call for a period of reason and analysis, of education and clarification over hysteria and hype.
Lack of transparency is a growing issue for the buy-side trading desk, and the call for information is getting louder. Best execution obligations and TCA reports provide some level of comfort that their interests are upheld, but trust isn’t what it used to be and buy-side traders are a lot more sophisticated than they once were. Traders are starting to ask for concise information about their algorithms and smart order routing criteria. Many want a say in how these technologies are configured, while some are now demanding full control. The sell side is asked to provide specific information about the factors that go into their smart order router (SOR) logic, including preferencing of certain venues, along with any financial arrangements between the broker and various dark pools partners. Increasingly, clients are demanding the ability to customize these configurations according to the nature of an individual order.
There is a call for more transparency with reference to dark pools as well. They do not want regulatory changes that would impair their ability to trade anonymously and in large sizes, or that would allow information to be telegraphed to statistical arbitrage traders. Traders would be comfortable with relatively high-level information about total dark pool volumes and a standardization of volume reporting. They also want full disclosure about the use of Indications of Interest (IOIs) by certain dark pools, including how much information they contain, where and how often they are sent, and whether they result in a matched trade or information leakage and adverse selection.
Buy-side traders fight daily skirmishes to seek out liquidity in a market where volumes continue to grow as trade sizes continue to shrink. Armed with algorithms and smart order routing technologies, pre- and post-trade transaction cost analytics, and increasing control over where and how their orders are executed, equity traders say the complexities and challenges of execution decision-making just continue to advance.
Algorithms continue to be the stand-out winner amongst trading strategies, and they are continuing to grow in importance and volume as traders increasingly turn to low-touch execution methodologies. The rate of growth in the use of algos on the buy side has exceeded even their own expectations as recently as one year ago. Competition for market share amongst the top algorithm providers is intense, and buy-side firms now expect a lot more than technical support from their low-touch sales coverage. Meanwhile, the increase in allocation of order flow to the traditional sell-side sales trader, seen during the height of the credit crisis, has turned out to be a temporary phenomenon. Sales traders are once again losing market share, and electronic block crossing facilities have yet to return to their peak market share seen before volatility became a fact of daily trading life.
At the same time, the trend toward steeply lower commission rates has slowed dramatically. The year-over-year double-digit decline in commission rates has finally come to a halt. Traders express little inclination to press rates lower for fear of losing valuable services from the sell side. Indeed, buy-side desks struggle to pay for those services with a shrinking asset base and a smaller commission wallet. With less to spend, buy-side firms are finally unbundling commission rates. They are now formalizing the split between the “execution-only” and “execution-plus” components of their rates. With greater use of low-touch trading, head traders at buy-side desks are carefully negotiating the execution component to manage toward payment for research and services.
So there is yet much to be considered. Regulators need data. Market structure needs protection. Traders need choices. Brokers need to raise the bar on transparency. The one marketplace that has continued to operate without a glitch, in the face of the greatest disruption in financial structures ever to be witnessed, is the US equities market. It needs to be handled with care. May it continue to thrive.
US Institutional Equity Trading 2009/10: Dark Pools, Transparency and
Consequences For this year’s buy-side trading study, TABB Group spoke with 66 head traders of US institutional equity management firms. They manage an aggregate $12.1 trillion in AUM. The discussions covered post-crisis regulatory scrutiny from regulators and legislators, as well as the views of head traders with regard to short sales, flash orders, high frequency trading, and dark pool restrictions; dark pool selection criteria; the impact of electronic IOIs and IOCs on the use of dark pools; and changes in buy-side budgets and their impact on changing commission rate structures. They also examine the continued growth of low-touch trading; trends in order allocation across high- and low-touch trading venues; trends and selection criteria in algorithmic trading; and the growing demand for transparency into electronic trading infrastructure and its impact on broker relationships, leading broker algorithm providers, and new expectations of low-touch sales trading coverage.
Source: TABB Group
ETF Landscape: Global Handbook -Q3 2009
November 19, 2009-Highlights
At the end of Q3 2009, global ETF assets hit an all time high of US$933Bn, 4.8% above the previous all time high of US$891Bn set in August 2009. There were 1,819 ETFs with 3,247 listings from 96 providers on 40 exchanges around the world.
Additionally, there were 568 other Exchange Traded Products (ETPs), with assets of US$105.87 Bn from 39 providers on 19 exchanges. Combined, there were 2,387 products with 4,083 listings, assets of US$1,039.35 Bn from 122 providers on 43 exchanges around the world.
To request a copy of the report click here
Source:ETF Research and Implementation Strategy, BGI
NASDAQ OMX to Provide Customers With Independent Latency Measurement Service by Correlix
Selects Correlix RaceTeam Service for Real-Time Information on Trading and Data Speed
November 18, 2009--The NASDAQ OMX Group
(Nasdaq:NDAQ) announced today that it has selected Correlix Inc. to
provide real-time latency insight to its customers. The service will
allow NASDAQ OMX customers access to independent real-time latency
measurement information for intraday and post-day analytics.
NASDAQ OMX will initially provide latency measurements for The NASDAQ Stock Market. Through the Correlix RaceTeam(TM) service subscription, NASDAQ Stock Market trading customers will be able to monitor and analyze real-time latency information associated with their orders, executions and market data. Further plans include expanding the service to make latency information available for other NASDAQ OMX markets around the world.
Eric Noll, Executive Vice President, NASDAQ OMX said, "This new service addresses an important customer need, as latency has become a critical means to compete and craft trading strategies. Through the RaceTeam service we offer objective latency benchmarking that can help customers improve on trade execution."
Shawn Melamed, Founder and CEO, Correlix said, "We are excited to have NASDAQ OMX as the first global exchange group connecting into the RaceTeam service network, providing objective latency transparency to its customers. This service is designed to help market participants optimize trading strategies, and ultimately maximize operational efficiency."
Open RaceTeam trials for NASDAQ Stock Market members will begin in the first quarter of 2010. For participation information, please contact your NASDAQ OMX or Correlix representative.
Source: NASDAQ OMX
Businesses told of rising risk
November 18, 2009-Companies that operate abroad face increased risks to their investments in 2010 as the impact of the recession creates new challenges, a London-based consultancy has said.
Businesses typically face the greatest risks in the years following a recession, Control Risks Group, the risk consultancy, says in its annual Risk Map report.
Companies are liable to be caught out in the early stage of a recovery because management lowers its guard thinking the worst is over although social effects are still being felt.
Source: FT.com
BofA Merrill Lynch Fund Manager Survey Finds Investors Ruling Out U.S. Fed Rate Hike Before Second Half of 2010
Commodities Most Popular in Four Years as Demand for Inflation Protection Grows
November 18, 2009--A majority of investors expects the U.S. Federal Reserve to hold off from raising interest rates until the second half of 2010, according to the BofA Merrill Lynch Survey of Fund Managers for November
Asked when they think the Fed will first increase rates, more than three quarters of the panel predict the second half of 2010 or beyond. One in six respondents believes the Fed will not act before 2011.
While inflation has become a nagging worry for investors, they have expressed no conviction that they expect more than a minor increase from the current low level. A net 47 percent of respondents expect global core inflation to be higher in 12 months, up from a net 39 percent in October. At the same time two thirds of the panel believe that existing monetary policy is "about right."
Demand for assets that protect against inflation, such as gold, oil and emerging market equities, has increased. Commodities are at their most popular with the panel since the survey first asked about the asset class in 2005. A net 25 percent of the panel is overweight commodities, up from 11 percent in October. A net 53 percent of the panel is overweight emerging market equities, up from a net 46 percent in October. Assets that protect against deflation, such as fixed income and utilities, are less popular.
"Investors see inflation as a greater risk than deflation and are hedging that risk with overweight positions in emerging markets and commodities, and an underweight position in the U.S. dollar," said Michael Hartnett, chief global equity strategist at BofA Merrill Lynch Global Research.
Concern over corporate balance sheets eases as risk appetite ticks up
Just two months ago, investors were sending a clear message that corporates should put debt reduction first and investment, or capital expenditure, second. Now they're less sure. Indeed recent trends suggest that next month they could be willing CFOs to put capex first.
The number of respondents suggesting companies use cash for capital spending has risen to 32 percent this month from 25 percent in September. The proportion asking companies to put the balance sheet first has fallen to 36 percent this month from 50 percent in September. Demands for higher dividends are muted with 22 percent asking companies to prioritise returning cash to shareholders. This was down slightly from 23 percent in October. "The last time we saw a shift towards prioritising capex ahead of balance sheet repair was in 2003, and it served as a clear buy signal for equities. It could signal the transfer of risk from equity to credit," said Gary Baker, head of European equity strategy at BofA Merrill Lynch Global Research.
This shift reflects how risk appetite among investors is tip-toeing upward. The proportion of panelists taking lower than normal risk has shrunk to a net 1 percent, down from a net 16 percent in September.
Higher risk appetite is also evident in emerging markets. "We are seeing a vivid and extreme bent towards high-beta markets, such as Russia, and movement away from lower beta markets, such as Chile and Malaysia," said Michael Hartnett.
Europeans swing out of cyclicals back to defensive stocks
While a net 22 percent of global asset allocators view Europe as the most undervalued global market, investors within Europe are wary of their region's equities. European survey respondents made substantial moves out of cyclical stocks and into defensive sectors over the past month.
More than a quarter of Europeans surveyed increased their positions in Healthcare/Pharma. A net 16 percent are overweight the sector in November, compared to a net 10 percent underweight in October. Over the same period Europeans swung to a net 5 percent underweight Technology from a net 23 overweight in October. These changes came despite more panelists predicting stronger economic growth in Europe over the coming year.
One notable factor weighing against European equities, however, is currency. A net 49 percent of the global panel view the euro as overvalued and a net 36 percent view the dollar as undervalued.
Survey of Fund Managers
A total of 218 fund managers, managing a total of US$534 billion, participated in the global survey from 6 November to 12 November. A total of 177 managers, managing US$361 billion, participated in the regional surveys. The survey was conducted by BofA Merrill Lynch Global Research with the help of market research company TNS. Through its international network in more than 50 countries, TNS provides market information services in over 80 countries to national and multi-national organizations. It is ranked as the fourth-largest market information group in the world.
SOURCE BofA Merrill Lynch Global Research
Institutions and financial advisers optimistic about alternative investments
November 17, 2009--Institutions and financial advisers continue to view alternative investments optimistically, despite their questionable performance, correlation and liquidity during last year’s global downturn, according to a survey by Morningstar and Barron’s.
The majority of participants to the survey said they plan to increase allocations to alternatives, but with greater scrutiny and due diligence given to those investments.
Source: ETF Express
iShares sees growing demand for sector ETFs
November 17, 2009-A report from Barclays Global Investors, the parent company of iShares, has highlighted expanding investor interest in sector exchange-traded funds.
According to the report, 2009 net new flows into sector ETFs in Europe already total more than USD2.5bn.
Year-to-date, basic resources has been the most popular sector with USD410m in net new assets, followed by banks with USD350m.
Source: ETF Express
Asia To Play a Leading Role in Reshaping the Post-Crisis Global Economy, IMF Managing Director Dominique Strauss-Kahn Says
November 13, 2009--In a speech today at a conference organized by the Monetary Authority of Singapore, International Monetary Fund (IMF) Managing Director Dominique Strauss-Kahn called on Asia to play a leading role in guiding the global economy to a new, more sustainable path for global growth. “This is not only appropriate given Asia’s economic weight,” he remarked, “but also necessary, since Asia is such an important part of the solution.”
The strength of Asia’s economies has helped them weather the global financial crisis, and the region is leading the world into economic recovery, he said. The IMF expects Asia’s GDP growth to be 5 ¾ percent next year—almost double the 3 percent rate forecast for the global economy. “Thanks to strong fundamentals and quick and forceful policy responses to the crisis, Asia has performed considerably better than other regions of the world—and has thus played an important role in supporting global recovery,” he said.
To succeed over the long term, Asia will need to adapt to the new challenges presented by the post-crisis economy. “In particular,” he said that “because there are limits to the pace of export growth, domestic and regional demand will need to play an increasingly important role in underpinning Asia's growth.” Pointing to Asia's increasing role in international fora—including the G-20 and the IMF—Mr. Strauss-Kahn said that “now is the time for Asia to use its stronger voice to contribute to global efforts to reshape the economic and financial landscape.”
Source: International Monetary Fund (IMF)
Semi-Annual Changes to the NASDAQ Biotechnology Index
November 13, 2009--The NASDAQ OMX Group, Inc.
(Nasdaq:NDAQ) announced today the results of the semi-annual re-ranking
of the NASDAQ Biotechnology Index(R) (Nasdaq:NBI), which will become
effective with the market open on Monday, November 23, 2009.
The re-ranking will result in the following eight securities being added to the Index:
China Sky One Medical, Inc. (Nasdaq:CSKI), Hi-Tech Pharmacal Co., Inc. (Nasdaq:HITK), Poniard Pharmaceuticals, Inc. (Nasdaq:PARD), SIGA Technologies, Inc. (Nasdaq:SIGA), Spectrum Pharmaceuticals, Inc. (Nasdaq:SPPI), Targacept, Inc. (Nasdaq:TRGT), Vical Incorporated (Nasdaq:VICL), and Vanda Pharmaceuticals Inc. (Nasdaq:VNDA).
All securities are classified according to the Industry Classification Benchmark (ICB) as either biotechnology or pharmaceutical. The securities that meet the classification criteria then must meet other Index eligibility criteria including listing on the NASDAQ Global Market or the NASDAQ Global Select Market and meeting minimum requirements for market value, average daily share volume and seasoning as a public company. The Index is ranked on a semi-annual basis in May and November. For more information about the NASDAQ Biotechnology Index, including eligibility criteria, visit https://indexes.nasdaqomx.com/.
As a result of the re-ranking, Matrixx Initiavies, Inc (Nasdaq:MTXX) will be removed from the Index.
The NASDAQ Biotechnology Index is the basis for the iShares Nasdaq Biotechnology Index(SM) Fund (IBB), which seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the NASDAQ Biotechnology Index. In addition, options based on the NASDAQ Biotechnology Index and the iShares Nasdaq Biotechnology Index Fund trade on various exchanges.
Source: NASDAQ OMX
IASB completes first phase of financial instruments accounting reform
November 12, 2009--The International Accounting Standards Board (IASB) issued today a new International Financial Reporting Standard (IFRS) on the classification and measurement of financial assets. Publication of the IFRS represents the completion of the first part of a three-part project to replace IAS 39 Financial Instruments: Recognition and Measurement with a new standard - IFRS 9 Financial Instruments. Proposals addressing the second part, the impairment methodology for financial assets were published for public comment at the beginning of November, while proposals on the third part, on hedge accounting, continue to be developed.
The new standard enhances the ability of investors and other users of financial information to understand the accounting of financial assets and reduces complexity – an objective endorsed by the Group of 20 leaders (G20) and other stakeholders internationally. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortised cost or fair value, replacing the many different rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments (its business model) and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the many different impairment methods in IAS 39. Thus IFRS 9 improves comparability and makes financial statements easier to understand for investors and other users.
The IASB has received broad support for its approach. This became evident during the unprecedented global scale of consultation and outreach activity it undertook in order to refine proposals contained within the exposure draft published in July 2009. Round table discussions were held in Asia, Europe and the United States. Interactive webcasts, each attracting thousands of registered participants, have been held, often on a weekly basis. In addition, more than a hundred meetings have been held with interested parties around the world during the past four months.
Project Summary and Feedback Statement- IFRS 9 Financial Instruments
Source: International Accounting Standards Board (IASB)
