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FINRA Fines Deutsche Bank Securities, National Financial Services a Total of $925,000 for Systemic Short Sale Violations
Both Firms Facilitated Customer Execution of Short Sales Through Direct Market Access Order Systems That Violated the 'Locate' Requirement of Regulation SHO
May 13, 2010--The Financial Industry Regulatory Authority (FINRA) announced today that it has fined two broker-dealers a total of $925,000 for executing numerous short sale orders in violation of Regulation SHO and for related supervisory violations. FINRA fined New York's Deutsche Bank Securities $575,000 and Boston's National Financial Services (NFS) $350,000.
Regulation SHO requires that a broker or dealer may not accept or effect a short sale order in an equity security without reasonable grounds to believe that the security can be borrowed, so that it can be delivered on the date delivery is due. Identifying a source from which to borrow such security is generally referred to as obtaining a "locate." Locates must be obtained and documented prior to effecting a short sale.
Both Deutsche Bank and NFS implemented Direct Market Access trading systems for their customers that were designed to block the execution of short sale orders unless a "locate" had been obtained and documented. But FINRA found that Deutsche Bank disabled its system in certain instances and NFS created a separate system for certain customers – so that in both instances, the systems no longer blocked some short sale orders that did not have valid, associated locates.
"The locate requirement is an essential component of ensuring that short sales are executed properly," said James S. Shorris, FINRA Executive Vice President and Acting Chief of Enforcement. "The failure to design, implement and supervise systems that reasonably ensure that shares of a security are available to be borrowed before a short sale is executed significantly undermines the effectiveness of Regulation SHO."
FINRA's review of a sample of short sale orders at both firms revealed that some short sale orders entered through the Direct Market Access trading systems were released for execution without any evidence that a locate had actually been obtained.
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Source: FINRA
CFTC’s Division of Clearing and Intermediary Oversight Publishes Guidance on the Application Procedure for a Regulation 30.10 Exemption
May 13, 2010--The U.S. Commodity Futures Trading Commission (CFTC) today announced the publication of an informational and guidance document regarding the application procedure pursuant to CFTC Regulation 30.10.
Regulation 30.10 generally provides that persons located and doing business outside the U.S. and who are subject to a comparable regulatory framework in the country in which they are located may qualify for an exemption from the application of certain Commission regulations, including relief from registration as a futures commission merchant. Appendix A to Part 30 of the CFTC’s Regulations generally outlines the procedure for a foreign regulator or self-regulatory organization seeking to obtain relief on behalf of a foreign broker subject to its oversight. As the operating division responsible for evaluating applications pursuant to Regulation 30.10, the Division of Clearing and Intermediary Oversight prepared and published a more detailed description of the information set forth in Appendix A. In particular, the guidance is intended to streamline the application process by informing prospective Regulation 30.10 applicants of the information generally requested by DCIO when evaluating applications for Regulation 30.10 relief.
For more information, please refer to the Guidance on the Foreign Markets, Products & Intermediaries subheading under the International tab of www.cftc.gov.
DCIO Information and Guidance on Materials Required and Questions to be Answered by Regulation 30.10 Petitioners
Source: CFTC.gov
FTSE and Renaissance Capital launch indices to capture Asia’s IPO growth
May 13, 2010--FTSE Group, the award-winning global index provider, and initial public offering (IPO) expert Renaissance Capital LLC, today announce the launch of the new FTSE Renaissance Asia Pacific IPO Index Series.
The series consists of the broad FTSE Renaissance Asia Pacific ex Japan IPO Index and the tradable FTSE Renaissance Hong Kong/China Top IPO Index (including Hong Kong Stocks, Red Chips and H shares), which are suitable for the creation of exchange traded and index tracking funds as well as derivatives.
Because many IPOs can wait longer for inclusion in most major benchmarks, their early returns are missed. The FTSE Renaissance Asia Pacific IPO Index Series includes a rolling two-year population of IPOs, starting from the first day of trading and exiting the index after a 500 day trading horizon when they become seasoned equities.
Jamie Perrett, Head of Quantitative Research for FTSE Asia Pacific, comments “In designing the new FTSE Renaissance Asia Pacific IPO indices, our aim was to provide an easy to understand, transparent approach to the index methodology. The design ensures the new indices capture the Asia Pacific IPO market in an easily to replicate and investable index. As investment in the Asia region continues, being able to gain access to a steady pipeline of Hong Kong/China themed IPOs listed on the Hong Kong exchange can be an attractive strategy for both domestic and international investors.”
“The FTSE Renaissance Asia Pacific IPO Index Series is a way for investors to capitalize on the innovative businesses arising from the fastest growing economies in the world,” said Kathleen Smith, Chairman of Renaissance Capital LLC.
Source: FTSE
CBOE To Launch S&P 500 Annual Dividend Index Options On May 25: Aimed At Customers Accustomed To Viewing Dividend Movement Over Entire Year
May 13, 2010--The Chicago Board Options Exchange (CBOE) today announced plans to begin trading options on the S&P 500® Annual Dividend Index (ticker symbol - DIVD) on Tuesday, May 25, 2010. Initially, two annual expirations - December 2010 and December 2011 - will be listed.
Introduction of S&P 500 Annual Dividend Index options will mark the second CBOE-exclusive dividend index options contract launched by the Exchange this year. On March 5, CBOE began trading in S&P 500 Quarterly Dividend Index options (ticker symbol - DVS) with a quarterly "accrual period," for market users with quarterly dividend exposures. DVS was the first contract of its kind in the U.S.
The S&P 500 Annual Dividend Index options contract was designed for customers who are accustomed to looking at dividend movements over an entire year, versus on a quarter-by-quarter basis. Further, dividend index contracts created in Europe in recent years are also based on an annual accrual period.
Both of CBOE's S&P 500 Dividend Index options contracts provide direct exposure to the dividend risk of the S&P 500 index. The options allow investors to capture the difference between forward implied dividends, the market's best estimate of future dividend payments, and realized dividends - the dividends that are actually paid over those periods.
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Source: CBOE
Standard & Poor's Announces Changes In The S&P/TSX Venture Composite Index
May 13, 2010-Standard & Poor's will make the following changes in the S&P/TSX Venture Composite Index after the close of trading on Thursday, May 13, 2010:
* Medicago Inc. (TSXVN:MDG) will be removed from the index.
* The company will graduate to TSX where it will trade under the same ticker symbol.
Company additions to and deletions from an S&P equity index do not in any way reflect an opinion on the investment merits of the company.
Source: Standard & Poors
ETF Weekly Update-Morgan Stanley
May 11, 2010--Weekly Flows: $2.2 billion net inflows
- Launches: 3 New ETFs
- NYSE Cancels Erroneous ETF Trades
- Vanguard Offers Commission-Free Trades
Despite weak equity markets ETFs had net cash inflows of $2.2 bln last week
- Commodity and US Large-Caps post largest net inflows
Over 13-week period, Fixed Income ETFs grab most new money
$38.4 bln net inflows into ETFs over past 13 weeks; only currency ETFs exhibit net outflows
Second straight week, SPY has the largest net inflows for US ETFs at $2.2 bln
- On a 13-week basis, VWO has the strongest net inflows for all US-listed ETFs at $3.1 bln
- Over 13-week period, only 29% ETFs have posted net outflows
NYSE Cancels Clearly Erroneous ETF Trades
- NYSE Market Management, in conjunction with other UTP Exchanges, cancelled all trades executed
between 14:40:00 and 15:00:00 greater than 60% away from the consolidated last print in that security
at 14:40:00 or immediately prior on 5/6/10.
- According to the NYSE, this decision cannot be appealed.
Vanguard Offers Commission-Free ETF Trades For Its Brokerage Clients
In a 5/4/10 press release, Vanguard announced that its brokerage clients will be entitled to commission-free ETF transactions on Vanguard’s 46 ETFs.
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Source: Morgan Stanley
Valuation-Indifferent Weighting for Bonds
May 12, 2010--Research Affiliates is pleased to share with you some of our latest research—"Valuation-Indifferent Weighting for Bonds," a paper co-authored by Rob Arnott, Jason Hsu, Feifei Li, and Shane Shepherd and recently published in the Journal of Portfolio Management.
The paper shows that the Fundamental Index® methodology applied to high-yield corporate bonds outperformed a market-cap-weighted benchmark by 260 bps per year; applied to investment-grade corporate bonds surpassed the relevant Merrill Lynch benchmark by 42 bps per year; and applied to emerging market bonds beat a market-cap-weighted index by 143 bps per year. As with equity portfolios, the amount of outperformance increases in noisier bond markets, generating hefty alphas for high-yield bonds and emerging market sovereign debt using the Fundamental Index methodology. The time period measured was January 1997 through December 2009.
The outperformance of the valuation-indifferent weighting schemes cannot be explained by Fama–French size and value effects or by duration and credit risk, the two primary risk factors in the fixed-income markets. The paper supports the idea that much of the added value comes from noise, or mispricing, in bond prices, suggesting that valuation-indifferent investing can offer new opportunities to fixed-income investors. In short, the Fundamental Index methodology works for bonds too.
Connection Report: Anticipating a Sideways Market? Consider a BuyWrite ETF
May 12, 2010--Invesco PowerShares presents Connection, our monthly ETF report. Each month, the report:
* takes an in-depth look at the ETF industry,
* evaluates the financial markets, and * provides comprehensive analysis.
BuyWrite Strategies
U.S. equity markets have rallied nearly 80% since bottoming out in March 2009. The rally has been fueled by stabilizing economic data and surging corporate profits. Markets have moved upward consistently with the S&P 500 in positive territory nine out of the 11 weeks since Feb. 8, 2010.(1)
Despite the positive performance within the stock markets, however, there still remain significant economic roadblocks including sovereign debt concerns, high unemployment and potential interest rate increases. Additionally, inventory buildup and many of the government stimulus programs are expected to end in the coming months.2
During the rally, trading volume has also remained light. While there is certainly potential for further upside due to high expected corporate profits, there are significant risks of a market pullback as well.
Investors who are uncertain of the outlook for U.S. equities may want to consider an allocation to a BuyWrite strategy to provide some return potential in a sideways market or protection in a down market.
Historical analysis shows that in the second year of a bull market earnings growth levels off and moves into a sustainable trend. Additionally, earnings multiples typically expand rapidly during the first year following a market trough before leveling off as well. Consequently, any subsequent returns will come from earnings increases rather than multiple expansions. As a result of these factors, market performance tends to follow a typical pattern after bear market bottoms. In the first year of a recovery, equities rally significantly followed by more muted returns in the second year.
Ned Davis studied the performance of the S&P 500 in the first and second years of a bull market. In the first year following a trough the S&P 500 had a median gain of 29.2% and was positive in 92% of the cases. Over the one year following the market bottom on March 9, 2009, the S&P 500 returned 68.6%. In the second year following a market bottom, the S&P 500 had a median return of 9% and is up 69% of the time. We are nearing two months into the second year following a bear market bottom and the market has continued up another 4.3% during that time.1 If the market follows its historical pattern in the second year following a bear market we believe one would expect to see flat to slightly positive returns.
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Source: Invesco PowerShares
April 2010 ETF Snapshot Now Available-State Street Global Advisors
May 13, 2010--As of April 30, 888 ETFs in the US—with assets totaling approximately $830BN—were managed by 31 ETF managers.
ETF industry assets rose $23.3BN for the month, or 2.9%.
ETF assets continued to rise in April as all but two asset categories gained; Commodities led, while Dividend had the largest percent increase.
ETF Industry Detail
Asset Classes — Overall
* The S&P 500® Index rose 1.5% in April. The MSCI EAFE® Index fell 1.7% for the month in USD terms. Bonds fell with the Barclays Capital U.S. Treasury Index and the Barclays Capital U.S. Aggregate Index, rising 1.0% and 1.1%, respectively. Gold rose to $1,179.25 an ounce, a gain of 5.7% from last month’s close.
* Gains were evenly distributed across categories with six garnering more than $2BN.
Sector
* Materials and REITs each had over $1.2BN in asset gains for the month. Health Care fell $640MM.
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Source: State Street Global Advisors
State Street Files with SEC
May 12, 2010--State Street has filed a post effective amendment, registration statement with the SEC for
SPDR Nuveen Barclays Capital Build America Bond ETF
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Source: SEC,gov
