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IMF Working paper-CDS Spreads in European Periphery--Some Technical Issues to Consider
March 19, 2012--Summary: This paper looks at some technical issues when using CDS data, and if these are incorporated, the analysis or regression results are likely to benefit. The paper endorses the use of stochastic recovery in CDS models when estimating probability of default (PD) and suggests that stochastic recovery may be a better harbinger of distress signals than fixed recovery.
Similarly, PDs derived from CDS data are risk-neutral and may need to be adjusted when extrapolating to real world balance sheet and empirical data (e.g. estimating banks losses, etc). Another technical issue pertains to regressions trying to explain CDS spreads of sovereigns in peripheral Europe - the model specification should be cognizant of the under-collateralization aspects in the overall OTC derivatives market. One of the biggest drivers of CDS spreads in the region has been the CVA teams of the large banks that hedge their exposure stemming from derivative receivables due to non-posting of collateral by many sovereigns (and related entities).
view the IMF Working paper-CDS Spreads in European Periphery--Some Technical Issues to Consider
Source: IMF
Taking action on shadow banking: avoiding new sources of risk in the financial sector
March 19, 2012--So that the EU learns all the lessons from the crisis, it is implementing ambitious regulatory reforms in the financial sector in general and in the banking sector in particular.
This will contribute to creating a stronger and sounder financial sector at the service of the real economy. As part of these reforms, it is now time to deal with the growing area of non-bank credit activity, or so-called "shadow banking", which has so far not been a prime focus of prudential regulation and supervision. To a certain extent, shadow banking performs important functions in the financial system. For example it creates additional sources of funding and offers investors alternatives to bank deposits. But it can also pose potential threats to long-term financial stability because unknown sources of risk accumulate in the financial sector and there are potential spill-over effects from the shadow banking sector to the regular banking sector.
In response to invitations by the G20 in Seoul in 2010 and in Cannes in 2011, the Financial Stability Board (FSB) is in the process of developing recommendations on the oversight and regulation of these entities and activities. With today's consultation in the form of a Green Paper, the Commission is participating actively in the ongoing FSB work.
Internal Market and Services Commissioner Michel Barnier said: "The European Union has shown global leadership in implementing ambitious reforms in the area of financial regulation, in particular for banks. What we do not want is for financial activities and entities to circumvent existing and foreseen rules, allowing new sources of risk to accumulate in the financial sector. That is why we need to better understand what shadow banking actually is and does, and what regulation and supervision may be appropriate, and at what level. We must shed light on all parts of the financial sector."
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Source: Europa
Deutsche to open gold vault in London
March 19, 2012--Deutsche Bank is to open a new precious metals vault in London next year, joining a growing number of banks and logistics companies seeking to cash in on booming investor demand for physical gold and silver.
The growth of exchange-traded funds backed by physical precious metals has been a boon for operators of precious metals vaults.
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Source: FT.com
EU plans to regulate 'shadow banking' sector
March 19, 2012--EU markets commissioner Michel Barnier launched on Monday proposals to "shed light" on new risks to financial services with plans to regulate Europe's so-called shadow banking market.
"What we do not want is for financial activities and entities to circumvent existing and foreseen rules, allowing new sources of risk to accumulate in the financial sector," Barnier said of plans drawn up to meet European Union commitments to the G20.
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Source: EUbusiness
Eu Commission-Green Paper on Shadow Banking
March 19, 2012--1. INTRODUCTION
The 2008 crisis was global and financial services were at its heart, revealing inadequacies
including regulatory gaps, ineffective supervision, opaque markets and overly-complex products.
The response has been international and coordinated through the G20 and the
Financial Stability Board (FSB).
The European Union has shown global leadership in implementing its G20 commitments. In line with EU's Roadmap for Financial Reform, the Union is very advanced in implementing
the reforms linked to the G20 commitments. Most of the reforms are now going through the
legislative process. In particular, a major achievement has been the recent adoption by the Council and the Parliament of landmark legislation on over-the-counter derivatives.
Negotiations are also well developed on measures to revamp capital requirements for the banking sector. Overall, the reforms will equip the EU with the tools designed to ensure that
the financial system, its institutions and markets are properly supervised. More stable and responsible financial markets are a pre-condition for growth and for the creation of a business
environment that allows companies to thrive, innovate and expand their activities. This in turn
enhances the confidence and trust of citizens.
However, there is an increasing area of non-bank credit activity, or shadow banking, which has not been the prime focus of prudential regulation and supervision. Shadow banking performs important functions in the financial system. For example, it creates additional sources of funding and offers investors alternatives to bank deposits. But it can also pose potential threats to long-term financial stability.
view paper-European Commission-Green Paper Shadow Banking
Source: European Commission
Deutsche Boerse challenges EU on merger veto
March 19, 2012--German stock market operator Deutsche Boerse said on Monday it would challenge a European Union veto against a merger with NYSE Euronext that would have created the world's largest exchange operator.
"Deutsche Boerse will file charges at the European Union court in Luxembourg," the company said in a statement, referring to the European Court of Justice, while adding that "several aspects of the decision" by the European Commission were "incorrect".
Last month the companies cancelled their mega-merger after European regulators vetoed their plan to create the world's largest exchange operator over concerns it would potentially dominate the global derivatives trade.
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Source:EUbusiness
Grappling with systemic concerns
March 19, 2012--In Europe, as well as globally, retail and institutional investors have been steadily embracing the use of exchange-traded funds. Last year, ETFs in Europe saw net inflows of $22bn, according to ETF Global Insight,
while Ucits funds suffered net outflows of $119bn according to the European Fund and Asset Management Association.
Regulators and investors are still discussing how they should treat ETFs in the future. Synthetic and physical ETFs are seen as being significantly different in their structure and potential risks.
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Source: efinancial news
Two new Ossiam equity index ETFs launched on Xetra
March 19, 2012--Two new index funds issued by Ossiam Lux have been tradable on Xetra® since Monday.
The two Ossiam Emerging Markets Minimum Variance Index NR ETFs track the performance of the most liquid companies in the S&P/IFCI Index, which comprises the leading companies from emerging market countries.
One is denominated in the trading and fund currency euro, the other in US dollar.
ETF name: Ossiam ETF Emerging Markets Minimum Variance NR (EUR share class)
Asset class: equity index ETF
ISIN: LU0705291903
Total expense ratio: 0.75 percent
Distribution policy: non-distributing
Benchmark: Ossiam Emerging Markets Minimum Variance Index Net Return USD
Trading currency: euro
ETF name: Ossiam ETF Emerging Markets Minimum Variance NR (USD share class)
Asset class: equity index ETF
ISIN: LU0705291812
Total expense ratio: 0.75 percent
Distribution policy: non-distributing
Benchmark: Ossiam Emerging Markets Minimum Variance Index Net Return USD
Trading currency: US dollar
The two ETFs on the indices of the Ossiam Minimum Variance series enable the investor to participate in the performance of strongly diversified portfolios which are composed in a dynamic process. The weighting of the selected shares is set in accordance with an optimisation process, which creates high risk diversification and accordingly low variance.
The product offering in Deutsche Börse’s XTF segment currently comprises a total of 941 exchange-listed index funds, making it the largest offering of all European stock exchanges.
Source: Xetra
New launch: PIMCO Short Term High Yield Source ETF
March 19, 2012--PIMCO, a leading global investment management firm and Source, a
specialist provider of exchange traded products, are pleased to announce the launch of the PIMCO Short‐Term High Yield Corporate Bond Index Source ETF (“STHY“).
The Exchange Traded Fund (ETF) is
listed on the London Stock Exchange and aims to track the BofA Merrill Lynch 0‐5 Year US High Yield Constrained Indexi.
STHY is the first ETF available in Europe to provide investors with physical access to the short maturity sector of the high yield universe. High yield exposure has been used by many as an alternative to equities. Historically, returns of the short‐term segment of the high yield market have been in line with equities, but with approximately half the volatility.
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Source: Source ETF
Exchange-Traded Funds Targeted in EU Shadow-Bank Clampdown
March 19, 2012--Exchange-traded funds may face tougher regulation of derivatives trades as part of a European Union clampdown on so-called shadow banks that could pose a threat to the region’s financial system.
The European Commission said today that it is examining potential “conflicts of interest” affecting ETFs, a type of fund that tracks an index and whose shares are publicly traded. The regulator is also reviewing whether banks and other financial firms are using so-called repurchase agreements, or repos, to build up excessive levels of debt.
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Source: Bloomberg BusinessWeek
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