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Senate votes on new rules for credit rating agencies
May 14, 2010--Credit rating agencies faced a growing threat to their business model yesterday after the Senate voted to establish a government-appointed panel to decide who rates an individual asset-backed security.
The amendment to the financial regulation bill was offered by Al Franken, a Democratic senator from Minnesota, and approved 64-35 with some Republicans backing the move.
“There is a staggering conflict of interest affecting the credit-rating industry,” said Mr Franken. “Issuers of securities are paying for the credit ratings. They shop around for their ratings.”
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Source: FT.com
Market View-Why were ETFs so affected by the trading glitch of May 6, 2010?
Richard Keary, Principal/Founder at Global ETF Advisors, LLC shares his views of why the markets were affected by the events on May 6, 2010.
May 10, 2010--I am sure there are many different opinions out there and since we still do not have any definitive information from the exchanges and the SEC (they are meeting today) we can only speculate.
I believe this issue is nothing more than unintended consequences of regulation. High frequency trading and arbitraging in ETFs were not the issue nor was it excessive order flow because stocks shut down. ETFs are regulated from a trading perspective just like stocks, so if stocks shut down so can ETFs.
The main rule book for equity trading in the U.S. is called Reg NMS.
The main rule book for equity trading in the U.S. is called Reg NMS. Those rules state that all market centers (NYSE, NASDAQ, BATS, Direct Edge, etc.) must connect to each other and deliver a trade within one second (in reality it occurs in nano seconds). In addition, each market center in times of market stress can deem themselves to be "slow markets" and thus slow down their trading process. This is a voluntary action.
On Thursday, the NYSE was the only market center to deem itself "slow". Thus the Lead Market Makers on the NYSE listed ETFs could have been frozen out of the market for 90 second intervals based on the rules (I have not been able to confirm this with a lead market maker at the time of this writing). The NYSE’s CEO was on CNBC Thursday stating that the exchange did choose to become "slow" at various points (not sure if it was the whole exchange or determined on a stock to stock basis). This would cause major pricing issues in ETFs as the LMMs could not operate as the main pricing mechanism. ETF prices would no longer correlate to their indexes and since there was pricing issues in stocks as well, the arbitrage function in ETFs could not operate correctly either thus adding to the price discovery problems. The perfect storm scenario.
The NYSE did nothing wrong, it was a judgment call which according to the regulation, they have every right to make. The consequences of that judgment could not have been foreseen. Regulations can be changed so that all markets are either "fast markets or "slow markets" during times of stress. This would be my guess as one of the outcomes of today’s meeting between the SEC, NYSE and NASDAQ. Again, this is unintended consequences of Reg NMS.
As someone who came from an exchange environment, I know that ETFs are not on the top of mind of exchange officials when determining trading policy. Their concern is on their big listed companies and their market share of equity volumes.
As the facts begin to appear, I hope exchange and regulatory officials will take notice and get better acquainted with ETFs. ETFs now account for well over 25% of all trading in the U.S. equity markets and hopefully trading policy will not have such an adverse effect on a growing population of ETF investors.
Comment or Question?
Source: Richard Keary, Principal/Founder at Global ETF Advisors, LLC
U.S. Department of the Treasury TIC Annual and Benchmark Surveys Update
May 14, 2010--The U.S. Department of the Treasury TIC Annual and Benchmark Surveys have been updated.
Table 2 was revised on 5-13-2010, regarding agency securities. Percentage figures in associated text were also changed.
view Foreign Portfolio Holdings of
U.S. Securities-as of June 30, 2009
Source: U.S. Department of the Treasury.
CBOE to Launch S&P 500® Annual Dividend Index Options on Tuesday, May 25, 2010
May 14, 2010--CBOE to Launch S&P 500® Annual Dividend Index Options on Tuesday, May 25, 2010
Ticker symbol: DIVD
Settles to the S&P 500 Annual Dividend Index
Dec 2010 and Dec 2011 initial expirations
DIVD options can be traded up to 15 years out as FLEX® options
The S&P 500 Annual Dividend Index represents the ordinary cash dividends paid by corporations included in the S&P 500 Index, accumulated over an annual accrual period. Options on the index allow investors to hedge or gain exposures to the dividend risk of the S&P 500 Index and to implement trading strategies based on fundamental earnings forecasts.
For contract specifications, historical values and more, see www.cboe.com/DIVD
Source: CBOE
Hedge funds, private equity expect tax hike
May 14, 2010--Private equity, real estate and hedge fund managers are increasingly resigned to a tax increase on their profits as lawmakers get set to vote next week on a long-delayed measure.
At issue is a change in the tax treatment of profits earned by partnership fund managers, known as "carried interest." The measure would treat the profits as ordinary income subject to a 35 percent rate, more the double the 15 percent rate they are currently taxed at as capital gains.
The tax change, which lobbyists have managed to beat back for three years, has gained steam as lawmakers hunt for revenue to fund other popular tax breaks for business that have expired. Many lobbyists and former opponents now see passage of an increase as inevitable.
"Many people are resigned because it is round four," said Francois Hechinger, a partner at BDO Seidman advising private equity and venture capital clients.
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Source: Reuters
CFTC.gov Commitments of Traders Reports Update
May 14, 2010--The CFTC.gov Commitments of Traders Reports has been updated.
View the report for the week of May 10th, 2010.
Source: CFTC.gov
Northern Trust files with the SEC
May 14, 2010-- NT ETF Trust has filed an application for exemptive relief with the SEC.
view filing
Source: SEC.gov
AdvisorShares files with the SEC
May 14, 2010--AdvisorShares has filed an amended application for exemptive relief for
WCM/BNY Mellon Focused Growth ADR ETF.
view filing
Source: SEC.gov
Morningstar Reports U.S. Mutual Fund and ETF Asset Flows Through April 2010
May 13, 2010--Morningstar, Inc. a leading provider of independent investment research, today reported estimated U.S. mutual fund and exchange-traded fund asset flows through April 30, 2010. U.S. open-end mutual funds gathered nearly $41.0 billion in assets in April, bringing year-to-date inflows to $165.1 billion. Money market funds continued to bleed assets, with investors pulling $118.8 billion from these funds during the month. Total outflows for money markets have reached $443.0 billion in 2010, which already surpasses the outflows for all of calendar year 2009. Year-to-date net inflows for ETFs reached $19.9 billion after $12.2 billion in inflows in April. Flows were positive for all ETF asset classes during the month.
Additional highlights from the report on mutual funds:
•Domestic-stock funds had inflows of $6.3 billion in April, the largest inflow for the asset class since May 2009. April was also the first month of positive flows into actively managed U.S. stock funds since May 2009.
•While taxable-bond funds retained their dominant position with inflows of $22.1 billion in April, support waned for municipal-bond funds, which had a rather lackluster month with inflows of $989 million.
•Target-date funds have continued to steadily gather assets year to date, with inflows of $20.5 billion through April. These funds represent a significant percentage of total flows at many shops, accounting for more than half of Fidelity's total flows and almost 40% of T. Rowe Price's over the past 12 months.
•Real estate funds, bolstered by strong returns over the trailing 12 months, have gathered $1.5 billion in assets this year through April, which is the category's best start since 2007
•Vanguard gathered the most mutual fund assets in April of any fund family with $8.6 billion. Hotchkis and Wiley, Matthews Asia, and Osterweis also saw strong inflows during the month.
Additional highlights from the report on ETFs:
•Small- and mid-cap U.S. stock ETFs experienced solid inflows in April, gathering assets of $1.9 billion and $976 million, respectively. Large-cap ETFs as a whole suffered outflows of about $1.5 billion in April, led by steep outflows of roughly $4.6 billion from SPDR S&P 500 SPY.
•Taxable-bond ETFs continued to have strong inflows. Short-term bond ETFs took in $517 million in April, reflecting investors' preference for the short end of the yield curve.
•Although it still ranks third in terms of ETF assets, Vanguard continued to take market share from its biggest competitors, iShares and State Street. Vanguard has had about $11.8 billion in total net inflows year to date and has more than doubled its ETF assets over the past year.
•Investor demand for emerging-markets exposure partly fueled inflows of $5.6 billion to international-stock ETFs in April.
view report
Source: Morningstar
State Street Global Advisors and Nuveen Investments Launch Build America Bond ETF
May 13, 2010--State Street Global Advisors (SSgA), the investment management business of State Street Corporation, today announced that the SPDR(R) Nuveen Barclays Capital Build America Bond ETF (Symbol: BABS) began trading on the NYSE Arca on May 13, 2010. The municipal bond SPDR is the first new exchange traded fund developed under a sub-advisory agreement between State Street Global Advisors and Nuveen Investments subsidiary, Nuveen Asset Management. Its annual expense ratio is 0.35 percent.
Designed to provide investors with exposure to Build America Bonds, which can offer an attractive risk/reward potential when compared with equivalently rated corporate debt, the SPDR Nuveen Barclays Capital Build America Bond ETF seeks to track the performance of the Barclays Capital Build America Bond Index. As of April 30, 2010, the index provides exposure to 85 issues.
"Build America Bonds are a relatively new asset class; however, as investors and advisors have grown more familiar with these bonds, demand for diversified access to this segment of the municipal bond market has increased substantially," said Anthony Rochte, senior managing director at State Street Global Advisors. "The first municipal bond ETF developed under our agreement with Nuveen, the SPDR Nuveen Barclays Capital Build America Bond ETF underscores our commitment to offering cutting-edge products that provide investors with precise exposure to hard-to-reach corners of the market."
Created under the American Recovery and Reinvestment Act of 2009, Build America Bonds were designed to appeal to a broader set of investors than traditional tax-exempt municipal bonds and reduce the borrowing costs of state and local governments. The interest from Build America Bonds is subsidized by the US Treasury. Unlike most municipal bonds, Build America Bonds are taxable; however, yields presently are comparable to corporate bonds, which historically have had a higher default rate than municipal bonds. Between the launch of the program in April 2009 and March 31, 2010, there have been 1,066 separate Build America Bond issues, which have supported more than $90 billion of municipal financing.
"Build America Bonds continue to attract investors seeking to diversify their fixed income portfolios," said Bill Huffman, chief operating officer and co-head of Nuveen Asset Management. "With the launch of the SPDR Nuveen Barclays Capital Build America Bond ETF, we look forward to working with State Street to help these investors access this unique asset class which helps finance essential service infrastructure projects across the United States."
On March 30, 2010, State Street Global Advisors announced that it entered into an agreement with Nuveen Investments, a leading global provider of investment services to institutions and high-net-worth investors, under which Nuveen became sub-adviser of SSgA's municipal bond ETFs.
State Street Global Advisors is one of the largest ETF providers globally with assets under management for SPDR ETFs totaling more than $204 billion as of March 31, 2010.*
Source: State Street Global Advisors
