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Mr. Charlie McCreevy European Commissioner for Internal Market and Services Derivatives and Risk Allocation Derivatives Conference Speakers' Dinner Brussels
September 24, 2009--Ladies and Gentlemen,
I'm very pleased to welcome you here today, one year and 9 days after the collapse of Lehman sent its shockwaves through the economy. Even though AIG was bailed out the day after, it could not prevent the collapse of the interbank market. More bad news followed by the day. Our economies went deep into recession. Government interventions followed building up enormous liabilities for taxpayers.
Now, thanks to these interventions, the economic forecasts show that there's some light on the horizon. So we have not come here for our last meal. This is not going to be a light meal either, because we're here to talk about "weapons of mass destruction", as derivatives have come to be known.
The idea of a derivative – writing a contract for a simple transfer of risk – is centuries old. But since the last (and much smaller) financial crisis, the burst of the IT-dotcom bubble almost 10 years ago, their use has exploded – ironically because information technology has allowed for ever-more complex risk modelling. So in a way derivatives are the ultimate financial innovation. Designing proper regulation is far more intricate than one would expect for a centuries-old idea.
Some like it simple though: Just "freeze the OTC derivatives market" (I'm quoting George Soros here). Behind this is perhaps the conjecture that, instead of transferring risk, OTC derivatives have become the tool for the financial world to just conceal risks. But on the other hand, many companies have come to love and need derivatives. And they are expressing their worries that a rigorous approach would make their hedging more expensive and thus expose them to more risk.
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When the crisis started, neither the market nor supervisors knew who was bearing what risk in the economy. But now, it has become obvious: It's the taxpayer.
Source: EUROPA
LSE eyes partners and acquisitions
September 24, 2009--Xavier Rolet, chief executive of the London Stock Exchange, said that the exchange would use “partnerships and acquisitions” to expand its business. The company also revealed that cost cutting had resulted in the loss of 12 per cent of its staff over the summer.
Mr Rolet, who took over from Dame Clara Furse in May, on Thursday also said he wanted to find ways of cutting the overall costs of using the exchange for dealing in FTSE shares by reducing clearing costs.
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Source: FT.com
S&P launches S&P GSCI capped index family
September 24, 2009--Standard & Poor’s has launched the S&P GSCI capped family of indices, three new commodity indices which limit constituent weights and provide greater diversification for investors and structured product providers seeking to comply with EU Ucits III directives.
The S&P GSCI Capped Commodity 35/20 Index, S&P GSCI Capped Component 35/20 Index and S&P GSCI Enhanced Capped Component 35/20 Index offer exposure to the 24 individual commodities that make up the S&P GSCI, but with two distinct capping procedures.
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Source: ETF Express
ETF Securities: Natural Gas Volumes Surge to break $1bn AUM
September 23, 2009--ETF Securities, the global pioneers of Exchange Traded Commodities (ETCs) and third generation Exchange Traded Funds (ETFs) with Assets Under Management of $15bn (21 September 2009), have seen increased flows into Natural Gas throughout 2009 with trading volumes surging past the $1bn mark. This has been largely due to switching out of similar products listed in the US into the European products.
Nicholas Brooks, Head of Research and Investment Strategy, at ETF Securities, commented:
“Oil and natural gas prices have historically tended to trade in a similar manner. However, since early this year oil prices have nearly doubled while natural gas prices have declined - until very recently. The ratio of the oil spot price to the natural gas spot price has recently traded at an all-time high. Many investors’ believe the price divergence has gone too far and are buying natural gas on anticipation of some closing of the gap.”
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Source: ETF Securities
Mergers: Commission approves acquisition of Barclays Global Investors by BlackRock
September 23, 2009--The European Commission has cleared under the EU Merger Regulation the proposed acquisition of Barclays Global Investors UK Holdings Limited, a business division of the UK-based Barclays group, by BlackRock, Inc., based in the US. Both companies are global asset managers. After examining the operation, the Commission concluded that the transaction would not significantly impede effective competition in the European Economic Area (EEA) or any substantial part of it.
Barclays Global Investors is active in structured investment strategies such as indexing, global allocation and risk-controlled active products as well as related investment services such as securities lending, cash management and transition management services, primarily to institutional clients. BlackRock manages assets on behalf of institutional and individual investors worldwide through a variety of fixed income, cash management, equity and balanced and alternative investment separate accounts and funds. It also offers risk management and advisory services.
The proposed merger would bring together two leading global asset managers with differentiated asset management products and strategies.
The Commission’s examination of the proposed transaction showed that there were overlaps between the activities of Barclays Global Investors and BlackRock in institutional and retail asset management, active and passive asset management, and in transition management services However, the Commission's market investigation confirmed that although the combined firm would be a significant player in a number of the sectors mentioned, its market shares would remain relatively limited. In addition, the overlaps between the parties' activities would be very limited on a split between active and passive management, with BlackRock primarily an active manager and BGI specialised in passive funds. The combined firm would continue to face several effective competitors in all of the markets where it is present. The Commission therefore concluded that the proposed transaction would not raise competition concerns.
More information on the case will be available at:
http://ec.europa.eu/competition/mergers/cases/index/m111.html#m_5580
Source: European Commission
The Level 3 Committees – CESR, CEBS and CEIOPS - welcome the legislative proposals published today by the European Commission on establishing a new institutional framework for financial supervision in the EU
September 23, 2009--The Level 3 Committees – CESR, CEBS and CEIOPS - welcome the legislative proposals published today by the European Commission on establishing a new institutional framework for financial supervision in the EU.
We share the Commission’s objectives to enhance financial architecture in the EU in an ambitious way, upgrading the quality and consistency of supervision, reinforcing the oversight of cross-border groups, and establishing a European single rule book applicable to all financial institutions in the Single Market.
The Level 3 Committees would like to underline the importance of having the new European System of Financial Supervisors and the European Systemic Risk Board (ESRB) as two key and interdependent pillars of the new institutional structure and fully support the active participation of the Supervisory Authorities in the ESRB.
The Commission’s proposals provide that three Supervisory Authorities (ESMA, EBA and EIOPA) will be set up, building upon the existing Level 3 Committees.
We view an evolutionary approach as the most efficient way to ensure a smooth transition towards the Supervisory Authorities, benefiting from the expertise available in the current three Level 3 Committees from the start.
We also stress the importance of preserving the independence of the new Authorities, currently afforded by the existing governance arrangements. We are ready to actively contribute to further refinements of the legislative proposals and to provide our input into building effective new Supervisory Authorities with appropriate powers.
Source: The Committe of European Securities Regulators
Speech of Chairman Gary Gensler, Commodity Futures Trading Commission, International Energy Agency
September 23, 2009--Good morning. It is a pleasure to be in Paris today with you. Thank you for inviting me to speak at the International Energy Agency on energy futures markets.
Before I turn to regulation of the energy markets, let me explain a little about the Commodity Futures Trading Commission (CFTC), and how we are organized to regulate financial markets in the United States. I also will briefly touch on our efforts to bring regulation to the over-the-counter derivatives marketplace
The CFTC was established in 1974 as an independent financial regulatory agency. The CFTC’s predecessor was set up in the 1930s to oversee markets for risk management contracts. The need to regulate the American financial markets arose out of a time of earlier financial crisis. Our nation then responded to the clear need for reform by establishing two market regulators – the CFTC to regulate the markets for risk management contracts, called derivatives contracts, and the Securities and Exchange Commission (SEC) to oversee the securities markets.
The CFTC was initially established to regulate the trading of mostly agricultural futures on commodities such as corn and wheat. Over time, the agency began regulating the trading of energy futures, and ultimately financial products.
The CFTC is charged with a significant responsibility to ensure the fair, open and efficient functioning of futures markets. Our duty is to protect both the market participants and the public from fraud, manipulation and other abuses.
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Source: CFTC.gov
New db x-trackers Strategy ETF Launched on Xetra
September 23, 2009--An additional db x-trackers index fund from Deutsche Bank‘s ETF offering has been admitted to trading on Xetra®.
ETF name: db x-trackers HSI Short Daily Index ETF
Asset class: Strategy ETF
ISIN: LU0429790313
Management fee: 0.75%
Distribution policy: non-distributing
Benchmark: HSI Short Index
The new db x-trackers ETF tracks the performance of the HSI Short Index, which enables investors to participate in the inverse performance of the Hang Seng Index for the first time. The Hang Seng Index comprises 42 companies which represent approximately 70 percent of total market capitalization on the Hong Kong stock exchange. The stocks are weighted on the basis of market capitalization and freefloat.
The product offering in Xetra’s XTF segment currently comprises 496 exchange-traded index funds, making it the largest offering of all European stock exchanges. With this offering and an average monthly trading volume of around €10 billion, Deutsche Börse’s XTF segment is the leading trading venue for ETFs in Europe.
Source: Deutsche Börse
Commission adopts legislative proposals to strengthen financial supervision in Europe
September 23, 2009--The European Commission has adopted an important package of draft legislation today to significantly strengthen the supervision of the financial sector in Europe. The aim of these enhanced cooperative arrangements is to sustainably reinforce financial stability throughout the EU; to ensure that the same basic technical rules are applied and enforced consistently; to identify risks in the system at an early stage; and to be able to act together far more effectively in emergency situations and in resolving disagreements among supervisors. The legislation will create a new European Systemic Risk Board (ESRB) to detect risks to the financial system as a whole with a critical function to issue early risk warnings to be rapidly acted on. It will also set up a European System of Financial Supervisors (ESFS), composed of national supervisors and three new European Supervisory Authorities for the banking, securities and insurance and occupational pensions sectors.
European Commission President José Manuel Barroso said: "Financial markets are European and global, not only national. Their supervision must also be European and global. Today we are proposing a new European supervisory system, with the political backing of the Member States and based on the de Larosière report. Our aim is to protect European taxpayers from a repeat of the dark days of autumn 2008, when governments had to pour billions of euros into the banks. This European system can also inspire a global one and we will argue for that in Pittsburgh".
Internal Market and Services Comm issioner Charlie McCreevy said: " This package represents rapid and robust action by the Commission to remedy shortcomings in European financial supervision and will help prevent future financial crises. I commend this package to the Council and Parliament for rapid adoption, so that the new structures can begin functioning in 2010. "
" The creation of a European Systemic Risk Board to detect and prevent risks to financial stability in the EU and new arrangements to improve supervision at institution level will go a long way towards tackling the imbalances in our financial systems and solving the weaknesses in our financial supervision system that are at least partly to blame for the financial crisis ." added Economic and Monetary Affairs Commissioner Joaquín Almunia.
The current financial crisis has highlighted weaknesses in the EU's supervisory framework, which remains fragmented along national lines despite the creation of a European single market more than a decade ago and the importance of pan-European institutions.
Today's legislative proposals address those weaknesses both at the macro- and micro-prudential supervision levels by creating:
a European Systemic Risk Board (ESRB) to monitor and assess risks to the stability of the financial system as a whole ("macro-prudential supervision"). The ESRB will provide early warning of systemic risks that may be building up and, where necessary, recommendations for action to deal with these risks.
a European System of Financial Supervisors (ESFS) for the supervision of individual financial institutions ("micro-prudential supervision"), consisting of a network of national financial supervisors working in tandem with new European Supervisory Authorities, created by the transformation of existing Committees for the banking securities and insurance and occupational pensions sectors. There will be a European Banking Authority (EBA), a European Insurance and Occupational Pensions Authority (EIOPA), and a European Securities and Markets Authority (ESMA).
The ESRB will have the power to issue recommendations and warnings to Member States (including the national supervisors) and to the European Supervisory Authorities, which will have to comply or else explain why they have not done so. The heads of the ECB, national central banks, the European Supervisory Authorities, and national supervisors, will participate in the ESRB . The creation of the ESRB is in line with several initiatives at multilateral level or outside the EU, including the creation of a Financial Stability Board by the G20.
Regarding micro-prudential supervision, currently there are three financial services committees for micro-financial supervision (supervision of individual financial institutions) at EU level, with advisory powers only: the Committee of European Banking Supervisors (CEBS), Committee of European Insurance and Occupational Pensions Committee (CEIOPS) and the Committee of European Securities Regulators (CESR).
The new Authorities will take over all of the functions of those committees, and in addition have certain extra competences, including the following:
Developing proposals for technical standards , respecting better regulation principles;
Resolving cases of disagreement between national supervisor s, where legislation requires them to co-operate or to agree ;
Contributing to ensuring consistent application of technical Community rules (including through peer reviews);
The European Securities and Markets Authority will e xercise direct supervisory powers for Credit Rating Agencies;
A coordination role in emergency situations.
The proposals have been the subject of extensive consultation both after the publication of the recommendations by a group of experts mandated by President Barroso and chaired by former IMF Managing Director Jacques de Larosière and between the end of May and mid July, after the Commission outlined its proposals to the European Council. The June EU Summit endorsed the new supervisory framework and called for the rapid adoption of the necessary legislative texts.
More information is available at:
http://ec.europa.eu/internal_market/finances/committees/index_en.htm
http://ec.europa.eu/economy_finance/thematic_articles/article15861_en.htm
Source: European Commission
ETF Landscape: European DJ STOXX 600 Sector ETF Net Flows, week ending 18-Sep-09
September 23, 2009--Last week saw US$270.6 Mn net inflows to DJ STOXX 600 sector ETFs.
The largest sector ETF inflows last week were in Banks with US$73.8 Mn and Health Care with US$44.0 Mn while Chemicals experienced net outflows of US$7.5 Mn.
Year-to-date, Banks has been the most popular sector with US$207.5 Mn net new assets, followed by Utilities with US$205.6 Mn net inflows. Retail sector ETFs have been the least popular with US$62.7 Mn net outflows YTD.
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Source: ETF Research and Implementation Strategy, BGI
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