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EDHEC-Risk Institute calls for greater attention to non-financial risks in the European fund management industry
January 24, 2011--A new study conducted by EDHEC-Risk Institute as part of the “Risk and Regulation in the European Fund Management Industry” research chair in partnership with CACEIS, entitled “The European Fund Management Industry Needs a Better Grasp of Non-Financial Risks,” looks at how non-financial risks and failures have impacted the regulatory agenda in Europe and traces the management of liquidity, counterparty, compliance, misinformation, and other non-financial risks in the fund industry.
By identifying the distribution of risks and responsibilities in the industry, the authors, Noël Amenc, Director, EDHEC-Risk Institute, and Samuel Sender, Applied Research Manager, EDHEC-Risk Institute, examine how convergence between country regulations could be achieved. They also assess how fund unit-holders can best be protected with appropriate regulations, improved risk management practices, and greater transparency.
The study includes a series of observations and recommendations:
The fund management industry as a whole has paid insufficient attention to non-financial risks and has failed to measure the operational consequences of financial innovation.
The UCITS directive itself fails to make adequate allowances for the operational consequences of financial innovation. Although investment funds have diversified internationally, made growing use of derivatives and other sophisticated strategies, and evolved in other ways, and although EU regulations and recommendations have recognised or even favoured these changes, they have failed to do studies on their impact and have failed to modify regulation accordingly.
The determination to harmonise the depositary liability regime that has not yet been fully transposed into regulation should not mask the need to manage non-financial risks throughout the fund management industry.
Strengthening of capital requirements and improvement of information should be linked to the evaluation of non-financial risks.
Improved governance and greater involvement of unit-holders would make it possible for fund management firms to improve the ways they take non-financial risks into account.
Better regulation should lead to improved methods of managing such non-financial risks as counterparty risk, liquidity risk, or sub-custody risk.
Homogenisation of country regulations and of supervisory cultures is necessary to prevent regulatory arbitrage.
UCITS not exposed to non-financial risks should be distinguished from more modern UCITS that have potentially greater exposure to these risks.
view report-EDHEC-Risk Publication European Fund Management Industry Non-Financial Risks
Source: EDHEC
FSA chief seeks new consumer safeguards
January 24, 2011--The head of the Financial Services Authority has called for a “radical rethink” of consumer protection in the UK, including the possible imposition of fee caps and bans on some retail financial products.
The regulator has historically adopted a “light touch” approach for the regulation of financial products, emphasising full disclosure, but the financial crisis and a series of mis-selling scandals have forced politicians and regulators to reconsider.
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Source: FT.com
First EFSF bond issue on Tuesday
January 24, 2011-- The first EU bond auction to raise funds for Ireland will be launched Tuesday, the German Finance Agency said Monday, and is expected to attract up to five billion euros ($6.8 billion dollars).
The five-year issue "will be closed Tuesday before 16:00 (1500 GMT)," when the agency has organised a press conference in Frankfurt with Klaus Regling, head of the European Financial Stability Facility (EFSF), a spokesman told AFP.
Regling will announce the results of a bond auction estimated at between three and five billion euros, with the proceeds used to help finance the 85-billion-euro rescue package agreed last year for heavily-indebted Ireland.
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Source: EUbusiness
France says e-bonds putting cart before the horse
Jabuary 24, 2011-- Fiscal and economic consolidation of eurozone members is needed before considering bonds backed jointly by the entire single currency area, French Finance Minister Christine Lagarde said Monday.
Allowing eurozone members to issue bonds jointly backed by 17-nation monetary union, variously referred to as e-bonds or eurobonds, is one of the ideas that have been floated to help ease the debt crisis some countries face.
"If you do that, you put once again the cart before the horse," Lagarde said in an interview on the financial news channel CNBC.
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Source: EUbusiness
Breaking Down the UK Equity Market: Executable Liquidity, Dark Trading, High Frequency and Swaps
January 24, 2011--Executive Summary
The purpose of this study is to shed light on the composition of the UK equity market and thus demonstrate how much of the daily traded turnover is made up of meaningful, executable liquidity versus what is just ‘noise’ created by the re-reporting of already conducted trades.
We also show the levels of activity in the electronic dark market as well as amongst different market participants from hedge funds to asset managers to high frequency market makers. In addition we estimate how much UK equity trading is conducted using Contracts-for-Difference (CFDs), primarily to bypass stamp duty.
With turnover of €3,898 billion in 2010, the UK market is the largest market in Europe and represents approximately 21% of all European turnover. However only 65% of turnover represents meaningful and executable liquidity since 35% of reported turnover is made up of reprints of already-conducted trades. Although views of the market are most commonly discussed in terms of total turnover, it is the executable liquidity that is most relevant and points to the true size of the market. As such it should form the basis for sizing a market opportunity or considering regulatory change.
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Source: TABB Group
New db x-trackers ETF launched on Xetra
New ETF tracks S&P 500 Index with currency hedging for first time
January 21, 2011--An additional db x-trackers index fund from Deutsche Bank’s ETF offering has been tradable on Xetra since Thursday.
ETF name: db x-trackers S&P 500 (EUR) ETF
Asset class: equity index ETF
ISIN: LU0490619193
Total expense ratio: 0.30 percent
Distribution policy: non-distributing
Benchmark: S&P 500 Total Return Net-Index
Currency hedging: yes
The db x-trackers S&P 500 (EUR) ETF enables investors, for the first time, to invest in the performance of the S&P 500 Total Return Net Index while being hedged against exchange rate fluctuations between the euro and the US dollar. The S&P 500 Total Return Net Index is weighted according to free float market capitalisation and tracks the performance of the 500 largest US stock corporations. The index calculation takes all dividends and distributions into account after any tax deductions.
The product offering in Deutsche Börse’s XTF segment currently contains a total of 764 exchange-listed index funds, making it the largest offering of all European stock exchanges. This selection, together with an average monthly trading volume of around 13 billion euros, makes Xetra Europe’s leading trading venue for ETFs.
Source: Deutsche Börse
Emissions Trading: Q & As following the suspension of transactions in national ETS registries for at least one week from 19:00 CET on Wednesday 19 January 2011
January 21, 2011--Why has the Commission shut down the European carbon market?
The Commission has not shut down the European carbon market. The Commission has temporarily removed the possibility for account holders in national EU ETS registries to initiate certain transactions, notably external and internal transfers of allowances and Kyoto Protocol units.1
This implies that delivery of allowances cannot be executed. Since the European carbon market consists mainly of futures, where delivery does not take place immediately, this suspension of certain transactions will have a minimal effect on the overall market. It affects only the spot market, which accounted for less than a fifth of overall market activity in 2010.
Why did the Commission decide to suspend transactions in national EU ETS registries?
The Commission decided to suspend transactions in national registries following a series of cyber attacks. Three attacks have taken place since the beginning of the year and other registries are known to be vulnerable to similar attacks.
EU ETS legislation allows the Commission to suspend access to national registries if there is a security breach that threatens the integrity of the overall registries system.
In actual fact, the Commission has not suspended access completely; the normal cycle of allowance allocation, submission of verified emissions and surrender of allowances and Kyoto Protocol units for compliance purposes can continue.
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Source: Europa
EU to ban controversial China, India carbon credits trade
January 21, 2011-- Europe is to ban a highly lucrative trade in polluting rights obtained by European-based companies under a UN scheme to favour environmentally-friendly industrial investment in the likes of China or India.
The Kyoto Protocol's Clean Development Mechanism, an international tool in the fight to tame global warming, gives firms from industrialised countries incentives to invest in greenhouse gas reduction projects in developing countries, traditionally huge polluters.
In return, these investments generate rights to emit gases which are said to trade at 78 times the cost of destroying by-product gases, but the European Union will remove them from its Emissions Trading System registries as of May 1, 2013, the European Commission said Friday.
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Source: EUbusiness
Emissions trading: Commission welcomes vote to ban certain industrial gas credits
January 21, 2011--The European Commission welcomes today's vote by Member States to ban from use in the EU Emissions Trading System (EU ETS) emission offset credits from certain projects which destroy industrial gases. Essentially, the ban means that companies will be able to use these credits for 2012 compliance under the EU ETS until 30 April 2013, but not thereafter.
Connie Hedegaard, Commissioner for Climate Action, said: "I very much welcome the Committee's decision to back this Regulation, less than 5 months after I first proposed the idea. These projects raise concerns relating to their environmental integrity, value-for-money and geographical distribution. Not only are some of these credits of doubtful value, continuing to use them is also not in the EU's interest as doing so could discourage host countries from supporting cheaper and more direct action to cut these emissions. Our aim is not to reduce the number of credits available but to ensure the international carbon market is based on a better quality and distribution of credits."
The EU Climate Change Committee, which brings together representatives of the 27 Member States, voted for the ban today on the basis of a proposal tabled by the Commission last November (see MEMO/10/614).
The ban will apply to projects which destroy two industrial gases: trifluoromethane (HFC-23) produced as a by-product of chlorodifluoromethane (HCFC-22) production, and nitrous oxide (N2O) from adipic acid production. HFC-23 and N2O are both powerful greenhouse gases which contribute to climate change.
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Source: Europa
FSA confirms professional standards for investment advisers from 2013
January 20, 2011--The Financial Services Authority (FSA) has today confirmed that, after extensive consultation, retail investment advisers will need to hold a Statement of Professional Standing (SPS) if they want to give independent or restricted advice after January 2013.
The statement will provide customers with evidence that the adviser subscribes to a code of ethics, is qualified, and has kept their knowledge up to date.
The SPS will be issued by FSA accredited bodies which satisfy the following criteria:
they act in the public interest and further the development of the profession;
they carry out effective verification services;
they have appropriate systems and controls in place and provide evidence to us of continuing effectiveness; and
they cooperate with the FSA on an ongoing basis.
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Source: FSA.gov.uk
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