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Testimony of Chairman Gary Gensler, Commodity Futures Trading Commission Before the House Committee on Financial Services
October 7, 2009 --Good morning Chairman Frank, Ranking Member Bachus and members of the Committee. Thank you for inviting me to testify today regarding the regulation of over-the-counter (OTC) derivatives and, specifically, this Committee’s OTC Derivatives Markets Act of 2009 Discussion Draft.
I would like to address much-needed regulatory reform of OTC derivatives in the context of two principal goals: lowering risk to the American public and promoting transparency of the markets.
We embark upon this reform effort as the financial industry has become ever more concentrated. Given the events of the last decade, there are fewer providers of financial services today. There may be 15 to 20 large complex financial institutions that are at the center of today’s global derivatives marketplace.
Five to ten years from now, it is quite possible that the financial system will become even more concentrated. With fewer actors on the stage, it is especially important that we lower the risk of these participants and bring sunshine to the activities in which they are involved. One year ago, the financial system failed the American public. The financial regulatory system failed the American public.
Exhibit A of these twin failures was the collapse of AIG. Every single taxpayer in this room – both the members of this Committee and the audience – put money into a company that most Americans had never even heard of. Approximately $180 billion of our tax dollars went into AIG – that is nearly $414 million per each of your Congressional districts. While a year has passed and the system appears to have stabilized, we cannot relent in our mission to vigorously address weaknesses and gaps in our regulatory structure.
Lowering Risk To lower risk to the American public, the Administration proposed four essential components of reform.
First, those financial institutions that deal in derivatives should be required to have sufficient capital. Capital requirements reduce the risk that losses incurred by one particular dealer or the insolvency of one of its customers will threaten the financial stability of other institutions in the system. While many of these dealers, being financial institutions, are currently regulated for capital, I believe that we should explicitly – both in statute and by rule – require capital for their derivatives exposure. This is particularly important for nonbank dealers who are not currently regulated or subject to capital requirements.
Second, swap dealers should be required to post and collect margin for individual transactions. Margin requirements reduce the risk that either counterparty to a trade will fail to perform its obligations under the contract. This would protect end-users of derivatives from a dealer’s failure as well as guard dealers from end-users’ failures.
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Source: CFTC.gov
Grail Advisors files prospectus with the SEC
October 7, 2009--Grail Advisors has filed a prelimenary prospectus for the RP SHORT DURATION ETF.
This ETF uses an actively managed investment strategy to meet its investment objective.
The ETF invests, under normal circumstances, at least 80% of its net assets (plus the amount of any borrowings for investment purposes) in debt securities.
view filing
Source: SEC.gov
U.S. ONE TRUST files registration statement with the SEC
October 6, 2009--U.S. ONE TRUST has filed a registration with the SEC for:
ONE FUND
NYSE Arca Ticker Symbol: ONEF
INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
Total Annual Fund Operating Fee:0.46%
View filing
Source: SEC.gov
NSX announced that assets in U.S. listed Exchange-Traded Funds (ETF) and Exchange-Traded Notes (ETN) surpassed $700 billion
October 6, 2009--National Stock Exchange, Inc. (NSX®) announced that assets in U.S. listed Exchange-Traded Funds (ETF) and Exchange-Traded Notes (ETN) surpassed $700 billion for the first time, totaling approximately $704.9 billion at September 2009 month-end, an increase of approximately 5% over August 2009 month-end when assets reached $672.3 billion.
September 2009 net cash inflows from all ETFs/ETNs totaled approximately $9.2 billion, bringing the year-to-date total net inflow to over $63 billion. At the end of September 2009, the number of listed products totaled 868, compared to 813 listed products one year ago.
This data is included in the full NSX September 2009 Month-End ETF/ETN Data Report released by the Exchange, which has become a key industry source for ETF/ETN data. These Data Reports are published following the end of each calendar month.
In addition, NSX recently enhanced its reports showing expanded and historical ETF data for Assets Under Management, Notional Volume, Share Volume and Net Cash Flows, broken out by various categories.
To view the full reports go to: http://www.nsx.com/content/market-data. NSX also publishes a product-by-product breakdown of the 868 products on which the data is based. The complete list can be accessed at: http://www.nsx.com/content/etf-product-list.
The NSX monthly statistics include shares of open-end exchange-traded products, encompassing U.S. listed shares of investment companies, grantor trusts, ETNs and commodity pools.
NSX is the cost-effective provider of exchange services, committed to aligning its interests with those of its customers. Founded in 1885, NSX has been a driving force for change in the world of securities exchanges and continues to lead the way in exchange innovation. For more information on NSX, visit www.nsx.com.
Source: NSX.com
SIFMA Suggests Revisions To SEC Proposed Placement Agent Rule
October 6, 2009--The Securities Industry and Financial Markets Association (SIFMA) today submitted a comment letter in response to the Securities and Exchange Commission’s (SEC) recent Proposed Rule to ban the use of third-party placement agents, and institute a new pay-to-play regulation regime for investment advisers.
SIFMA strongly supports the Proposed Rule’s stated goal of eliminating pay-to-play practices from the selection of investment advisers to public retirement funds, and applauds the SEC’s efforts to address this complicated issue,” wrote Ira Hammerman, general counsel and managing director at SIFMA. “We are concerned, however, that the Proposed Rule is not reasonably calculated to achieve these important regulatory objectives.”
Third-party placement agents are individuals or firms, or affiliates of firms, which primarily assist funds in placing their interests with investors, which include government investors.
SIFMA provided comments and suggested revisions to four areas with respect to the Proposed Rule. Those areas are as follows:
Placement Agent Ban
In lieu of a ban on the use of third-party intermediaries to place fund interests, the SEC should clearly reiterate the Exchange Act’s general prohibition on the use of unregistered finders. SIFMA said that broker-dealer regulation provides a better avenue for regulating pay-to-play activity—rather than under the Adviser’s Act—and consistent with the SEC’s objectives, reduces the potential for confusion and results in a more manageable compliance burden. This approach would have the added protection of enabling the SEC and FINRA to examine these placement agents’ activities.
Several public pension funds—including those from Massachusetts, Missouri, South Dakota, Connecticut, and Maryland—have previously commented on the rule to the SEC, indicating that a ban of the use of placement agents would be very detrimental to their ability to identify and employ the most effective investment managers.
Two-Year Ban on Compensation for Services If Inappropriate Contribution Made
In the Proposed Rule, the SEC seeks to ban advisers from receiving compensation for two years after it is determined that the adviser, or any of the adviser’s covered employees, made a political contribution to a public official who has some influence over the investment decisions of the funds. SIFMA suggested that the SEC replace the proposed prohibition based-regime with a disclosure based regime.
SIFMA suggested that such a regime should include periodic disclosure of:
Political contributions by covered associates; and Investment advisory business undertaken with government entities whose covered officials received political contribution from an adviser’s covered associates.
Disclosure of this activity, SIFMA said, would provide the SEC and government entities with sufficient information to determine whether advisers were attempting to distort the decision to select investment advisers.
SIFMA also noted that the Proposed Rule be narrowed to better address the SEC’s objectives in tackling pay-to-play in the investment advisory market. Specifically, SIFMA proposed that the terms “investment advisory services” and “executive officers” be defined to cover only individuals with respect to investment advisory services they provide to government entities. SIFMA also suggested that the type of contributions that trigger the two-year ban should be narrowed to only cover activity that may actually impact government entities’ decision-making. Should the SEC decide to adopt the two-year ban, SIFMA requested, among other things, that the SEC revise the look-back period along the lines of what is currently applicable to municipal financial professionals under Municipal Securities Rulemaking Board Rule G-37.
Third-Party Solicitor Ban
With respect to unaffiliated third parties who solicit advisory services from government entities, SIFMA suggested that the SEC should expand its regulation of payments to those parties to require that investment advisers make payment to third-party solicitors contingent on their disclosure of political contributions to covered officials. SIFMA said the SEC's Cash Solicitation Rule currently regulates the circumstances of payments to third-party solicitors, and a reasonably simple amendment to that rule would provide the best means to address this issue.
Covered Investment Pools
Lastly, SIFMA recommended revising the scope of the restrictions on covered investment pools as written in the Proposed Rule, to exclude investment advisers to investment companies and private funds in which the private fund is not a "alter ego" of the individual investment adviser. The Proposed Rule would extend to advisers to investment companies and funds simply because they have government entity investors, regardless of whether those advisers had any interactions with government officials.
SIFMA also requested that the SEC establish a longer period for implementing the any requirements in the Proposed Rule to ensure maximum compliance.
For the full text of the letter can be found at the following link: http://www.sifma.org/WorkArea/showcontent.aspx?id=13304.
Source: SIFMA
Index Data Monthly Report: U.S. Edition
October 5, 2009--Index Data Monthly Report: U.S. Edition is now available.
view report
Source: Dow Jones Indexes
Treasury Chief Economist, Congressman Rangel Tout Benefits of Build America Bonds
Recovery Act Program Providing $35.6 Billion in Financing for State, Local Governments Nationally; New York Using $750 Million for Transit Upgrades, Saving Taxpayers $46 Million
October 5, 2009--Recovery Act Program Providing $35.6 Billion in Financing for State, Local Governments Nationally; New York Using $750 Million for Transit Upgrades, Saving Taxpayers $46 Million
NEW YORK – As part of the Obama Administration's efforts to highlight the local impact of economic stimulus programs, Treasury's Chief Economist and Assistant Secretary for Economic Policy Alan Krueger and Congressman Charles Rangel (NY-15) visited a subway construction site in New York City supported by the Build America Bonds program. In conjunction with this event, Treasury also issued updated state by state data showing that the Build America Bonds program has provided $35.6 billion in low-cost borrowing to date for state and local governments around the country.
"Throughout the nation, Build America Bonds are funding projects that will put thousands of people to work and help rebuild our infrastructure," said Krueger. "There has been strong demand for Build America Bonds, and we're now seeing the tangible benefits of this innovative program in our communities. These bonds are allowing states and localities to access the capital market at significant savings, so they can finance important projects such as this impressive new subway station. In addition, by attracting new investors, Build America Bonds have helped reduce borrowing costs for traditional tax-exempt borrowers. This external benefit has made Build America Bonds an unsung hero of the economic and financial recovery."
Said Congressman Rangel: "These bonds give city and state governments a new, direct injection of capital to jumpstart infrastructure projects that will create jobs and improve neighborhoods and towns across our nation. Savings like these allow the MTA and other transportation systems nationwide to not only put more individuals to work, but also pursue more projects that enhance our public transportation system, moving us one step closer to the greener world we need to leave our children."
A complete list of issuances to date organized by state is available at http://www.treas.gov/press/releases/docs/BABStateDetails10-02-09.xls.
Source: U.S. Department of the Treasury
Morgan Stanley Report:Exchange-Traded Funds US Equity: Changes to DBC's and DBA's Underlying Indices Lead to Broader Exposure
October 5, 2009--On September 30, 2009, DB Commodity Services announced changes to DBC's and DBA's indices to reflect more diversified baskets of commodity futures. The changes are a result of the Commodity Futures Trading Commission (CFTC) withdrawing "no-action" letters, which previously granted relief from federal speculative position limits on certain agricultural commodities. While additional commodities have been added to DBC, its fees, focus, and roll-methodology remain unchanged. DBA's changes are more substantial.
The PowerShares DB Commodity Index Tracking Fund (DBC) will continue to employ an optimal yield (OY) formula. The OY formula seeks to maximize the benefits of rolling futures positions in backwardated markets (futures prices lower than spot prices) or minimize the losses of rolling positions in markets that are in contango (futures prices above spot prices).
PowerShares DB Agriculture Fund (DBA) will use a combination of OY and near-month rolls.50% of DBA futures positions will be based on OY rolls, while the other 50% will be based on near-month contracts. The decision by DB Commodity Services to begin including front-month contracts was based on the reduced liquidity in delivery months further out on the curve for the newer commodities included in the index.
DBC and DBA will transition to their new indices beginning on October 19, 2009 at a rate of approximately 10% per trading day.Both funds expect to be transitioned fully as of 10/31/09. The adjustments made to DBC's and DBA's benchmark exposure are highlighted in Exhibits 1 and 2.
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Source: Morgan Stanley
Exchange-Traded Funds US Equity: The Appeal of Accessing Commodities through Stock Based ETFs Has Increased
October 5, 2009--Highlights from Morgan Stanley Report:
Many commodity futures curves, particularly within the energy markets, are currently in contango, with futures prices above the "spot" or cash price. When combined with the potential for increased CFTC regulations on commodity futures position limits,some investors are now considering equity securities with high commodity exposure in lieu of direct commodity futures positions, or ETFs that track commodity futures indexes.
Morgan Stanley's energy analysts recently highlighted that they see more upside in integrated oil stocks than in a passive strategy tied to rolling front-month crude contracts. Much of their conviction stems from the current shape of the curve, but they also note that integrated oil stocks had lagged the S&P 500 and the price of crude oil by 21% and 60% respectively this year as of 9/14/09.
ETFs based on US, international and/or global equity indices are available for major commodity sectors including energy and materials. Several ETFs provide exposure across sectors, while others offer more targeted exposure to industries such as agriculture or gold miners.
43 ETFs are currently available that provide exposure to commodity-related stocks and have annual expense ratios ranging from 0.21% to 0.95%. ETFs are among the lowest cost and most tax efficient ways for investors to gain diversified exposure to particular sectors and industries, in our opinion.
As with any investment, index-linked ETFs have risks. These include the general risks associated with investing in securities, potential tracking error and the possibility that particular indices may lag other market segments or active managers. In addition, ETFs investing in foreign equities also entail currency and geopolitical risks.
Grail Advisors ETF Trust files with SEC
Grail McDonnell Core Taxable Bond ETF
GRAIL McDONNELL CORE TAXABLE BOND ETF
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Source: Morgan Stanley
October 5, 2009--Grail Advisors has filed a prsopectus with the SEC for the :
Grail McDonnell Intermediate Municipal Bond ETF
GRAIL McDONNELL INTERMEDIATE MUNICIPAL BOND ETF
INVESTMENT OBJECTIVE
High level of current tax-exempt income and higher risk-adjusted returns relative to its benchmark.
INVESTMENT OBJECTIVE
High level of current income and higher risk-adjusted returns relative to its benchmark.
Source: SEC.gov
