Category archive: Week 14 2012
Credit Suisse Opened Volatility Bets To Small Investors
(NEW YORK CITY / ZURICH) A recent Bloomberg artilce highlights the risks associated volatility ETFs:Michael Gamble, a 67-year-old retiree, doubled down on a volatility exchange-traded note backed by Credit Suisse Group AG (CSGN) last week as it declined to a record low price. “When it started to fall, I bought more because I couldn’t believe how low it was going,” he said in a telephone interview. “I didn’t realize I was playing with a hand grenade.”
Gamble, who lives in Frisco, Texas, didn’t know the product was trading at a premium to its targeted value, a rare event for ETNs, or that institutional investors were selling the notes short on a bet they would fall. The note tumbled by more than 50 percent on March 22 and March 23, costing Gamble about $20,000.
The crash calls attention to the way many ETNs, which are more complex and risky than exchange-traded funds, open the door to markets where individual investors normally can’t venture without brokerage approval. It also may sour small investors on exchange-traded products, an industry that has grown to almost $1.2 trillion in U.S. assets because of the popularity of low- cost ETFs.
“ETPs are one of the great success stories of marketing by creating a new name and new brand,” said Mercer Bullard, an associate professor of law at the University of Mississippi and founder of the advocacy group Fund Democracy Inc. “Now the non- fund ETPs are undermining the ETF brand.”
SEC Probe
Credit Suisse stopped issuing new notes on Feb. 21 after the market value more than quadrupled from the end of 2011, unhinging the share price from the index it tracked, the S&P 500 VIX Short-Term Futures Index. The price quickly developed a premium over the notes’ targeted value that peaked at 89 percent on March 21.
Hours before the bank said it would resume issuing new shares, the ETN’s price began falling on March 22 even as the index was rising. By the end of March 23, the premium had collapsed to 6.9 percent as the notes tumbled.
The U.S. Securities and Exchange Commission is reviewing the price gyrations involving the Credit Suisse VelocityShares Daily 2x VIX Short-Term ETN (TVIX), a person familiar with the matter said yesterday. John Nester, a spokesman for the SEC in Washington, declined to comment. Credit Suisse is cooperating with regulatory authorities, said Katherine Herring, a spokeswoman for the Zurich-based bank.
Training Session
The investigation comes as the SEC is beefing up its ability to regulate exchange-traded products. Agency investigators will hold an intensive training session on ETFs next week, Bruce Karpati, co-head of the asset-management unit of the SEC’s enforcement division, said at a securities law event today in New York.
The SEC also hired Barry Pershkow, former counsel at ETF provider Proshares Advisors LLC, in January to advise the staff on ETF-related matters.
ETNs, with about $17.3 billion, have benefited from an association with ETFs, a product that offers a different set of promises. While some ETFs also offer access to markets that are impossible for most retail investors to reach directly, they are more tightly regulated.
‘Regulatory Problem’
“It’s likely that anything called ‘exchange-traded’ will be viewed as operating under the same set of rules,” Bullard said. “If they’re not, we have a regulatory problem.”
The Credit Suisse note, which trades under the ticker symbol TVIX, is an unsecured debt instrument designed to provide about twice the daily return of an index that gauges expectations for volatility in U.S. stocks. It is one of at least 25 U.S. ETNs linked in some way to stock market volatility, according to data compiled by Bloomberg.
Had Gamble sought to invest in options on volatility futures himself, he would have faced hurdles, said Brian Lenart, chief executive officer of BDL Compliance Consulting and former head of compliance at Marsh & McLennan Securities. He’d have been required to fill out an options agreement and be approved by a registered options principal, a brokerage employee with a Series 4 securities license.
The complexity of the strategies an investor is able to employ is up to the discretion of the options principal, generally the firm’s head of compliance. Granting permission for more complex strategies tends to be difficult, Lenart said.
Complex Strategies
“I try to imagine, ‘How is this going to sound in a hearing?’” Lenart said in a telephone interview from his Chicago office. “If an investor comes in and has a blown-up option-futures strategy, almost any panel is going to rule for that customer.”
With TVIX available via a mouse click at an online brokerage, Gamble faced none of those obstacles.
“I guess there’s a little bit of blame on both sides,” Gamble said. “But if something is trading that way, there should be a way to tell people about it.”
David Nadig, director of research at San Francisco-based ETF research firm Index Universe LLC, said his company advocates “gates in front of exchange-traded products that mirror the rules regarding access to the underlying markets.”
“That could have solved the majority of problems if TVIX investors had to sign all the disclosures necessary for investing in volatility futures,” Nadig said in a telephone interview.
‘Reputational Hazard’
“This thing is going to create a reputational hazard for issuers of ETNs,” he said, referring to the price gyrations. He said he didn’t think problems in the ETN field would hurt providers of traditional ETFs.
Brokers are required to make sure a product is suitable for customers. The Financial Industry Regulatory Authority, the brokerage industry’s self-regulator, issued a notice in January warning brokers about complex products, including those linked to stock market volatility.
“We have been closely looking at the events and trading around TVIX,” George Smaragdis, a spokesman for Washington- based Finra, said in an e-mailed statement.
Self-directed investors like Gamble won’t get the benefit of a broker’s warnings.
“Working with a discount firm with no broker is the risk customers take,” Mark Astarita, a founder of law firm Beam & Astarita LLC in New York, said in a telephone interview. “They’re on their own.”
ETF Growth
Astarita is a securities attorney who represents brokerage firms in arbitration proceedings conducted by Finra.
Restricting eligibility to the most complicated products may save some investors from missteps, and annoy others.
Exchange-traded products have grown popular, in part, for giving individuals easy, cheap access to areas of the market once restricted to institutions.
ETNs, while comparatively small, can attract significant interest from investors. The iPath S&P 500 VIX Short-Term Futures ETN was among the 10 fastest growing exchange-traded products in the world in the first two months of 2012, gathering $1.1 billion in new assets, according to New York-based BlackRock Inc., the industry’s largest provider. The largest ETN is the JPMorgan Alerian MLP Index ETN at $4 billion.
For investors in the Credit Suisse ETN who didn’t pay enough attention, the freedom to access a complex market backfired after the Zurich bank ran into size limits on the derivative positions it took to ensure it could match TVIX’s targeted return.
Natural Gas Note
Issuers typically stop adding shares when they reach a limit on their derivative positions that is either imposed internally or by an exchange or regulator, according to Samuel Lee, an analyst at Chicago-based Morningstar Inc.
The price of the iPath Dow Jones-UBS Natural Gas Total Return Sub-Index ETN, a note issued by London-based Barclays Plc, followed a similar trajectory over the past eight weeks, rising to a premium as high as 134 percent over its indicative value before falling to a premium of 56 percent over six trading days.
ETFs also have whipsawed investors. The Market Vectors Egypt Index ETF traded at a premium as high as 28 percent in March 2011 when the Cairo Stock Exchange was forced to close during the country’s uprising. The shutdown prevented the fund from buying or selling its underlying stocks.
U.S. Natural Gas Fund (UNG), another ETF, suspended the creation of new shares in August 2009 when it reached limits set by the Commodity Futures Trading Commission on futures positions. Its premium reached 19 percent.
Lacking Protections
Exchange-traded funds, which first appeared in 1989, offer investors a convenient way to invest in all or part of a market by tracking an index. Unlike index mutual funds, they trade on an exchange throughout the day, like stocks.
ETNs, introduced by Barclays in 2006, can offer advantages over ETFs, including lower taxes. They also lack protections built in to ETFs.
In the U.S., ETFs are governed by the Investment Company Act of 1940 that also covers mutual funds. They are stand-alone companies that own the underlying securities, and they elect fund boards whose members are legally bound to look after the interests of shareholders.
ETNs, by contrast, are unsecured debt securities registered under the Securities Act of 1933 and typically issued by a bank. The issuer promises to redeem the notes at the value of the index investors seek to track. If the issuer goes bankrupt, ETN investors are put in line with other creditors and may lose all or part of their money.
‘Embraced by Retail’
The 1940 Act also standardizes prospectus disclosures, making total costs easier to see, Nadig said. ETN issuers can write pricing supplements to the documents “in any way they like,” which can make expected returns difficult to calculate, he said.
“These products weren’t necessarily intended for retail,” said Rudy Aguilera, chief investment officer at Orlando, Florida-based Ironclad Investments LLC, “but were certainly embraced by retail.”
Senator Jack Reed, a Democrat of Rhode Island, said yesterday he was monitoring the issue surrounding ETNs. Reed held a hearing in October that examined whether exchange-traded products posed risks to financial markets and investors.
“I think this market deserves more attention from both domestic and foreign regulators and I plan to hold another hearing on ETFs and related issues in the near future,” Reed said in an e-mailed statement.
Massachusetts’ chief securities regulator is also conducting an investigation into the Credit Suisse ETN.
In a letter to the bank on March 23, William F. Galvin, secretary of the commonwealth, demanded information about investors and the firm’s decision to resume issuing shares. The price of the ETN began falling hours before Credit Suisse announced that decision.
DetailsBlackRock Rebrands Claymore ETFs Into iShares
(NEW YORK CITY) BlackRock’s Canadian investment arm, BlackRock Investments Canada, Inc., is now rebranding to iShares the names of most of the exchange-traded and closed end funds previously marketed under the Claymore Investments brand.
Nearly all the Claymore ETFs were rebranded Thursday to the iShares name. Ticker symbols for these funds listed on the Toronto Stock Exchange remain unchanged.
Canadian ETF giant BlackRock snapped up the No. 2 ETF provider just after U.S. fund powerhouse Vanguard Group Inc. began its assault on Canada in January with its first suite of low-fee ETFs. BlackRock now has more than 80 per cent of the market share in this country. The quick disappearance of the Claymore brand has raised some eyebrows. “It did happen pretty quickly,” Morningstar ETF strategist John Gabriel acknowledged in an interview: “iShares, at least, globally is definitely the stronger brand, and BlackRock as a firm spends a lot of money on marketing…Trying to be some two-headed beast would be more challenging and definitely more expensive.”
Read the full article here.
DetailsETF Rush Muddies The Waters On Volatility
Investors buy Vix-related products, such as futures, to protect themselves against market pullbacks, because volatility tends to rise when the wider stock market falls.
With the S&P rising to its highest level in nearly four years, trading volumes for Vix futures on the CBOE have jumped 85 per cent this month, compared to a year ago. March has also seen nine new records for open interest in futures contracts at the end of a trading day.
But that increase in trading appears in large part due to the growing popularity of ETFs and notes, which are structured to generate returns as equity volatility rises. Such funds have attracted $3bn in new money since the start of January, more than doubling assets under management, according to data from XTF, an ETF data provider.
The increased popularity of Vix ETFs and ETNs has raised concern that this gauge of implied volatility may be sending distorted messages about future expectations of market behaviour. “The Vix futures market is shallow, and so it can be easily distorted by one or two big funds,” says Steve Davenport, director of equity risk at Wilmington Trust.
Not helping matters is that some ETFs use leverage – or borrowing – to generate additional returns, and must rebalance their holdings of Vix futures contracts at the end of each day. Such regular buying or selling, often anticipated by other traders ahead of time, can affect market prices.
“It is possible that the these funds have created a class of investors that are long-only Vix futures, impacting the market,” says Lawrence Schulman, chief executive at Cheiron Trading, a market maker in Vix futures.
Mr Davenport has stopped using Vix futures to hedge his clients’ equity positions, preferring to use the much more widely traded S&P 500 options markets. While traders have become increasingly wary of the Vix futures market, investors’ faith in the Vix-linked fund and notes that have transformed it has also been shaken, after Credit Suisse closed one of the most popular products to new investors.
Credit Suisse declined to talk publicly about its decision last month to close the TVIX note, which was designed to give a leveraged return on changes in short-term Vix futures levels. But people familiar with the situation said that as the fund accumulated assets rapidly this year, the bank was forced into buying more Vix futures to cover its obligation to investors.
Knowing Credit Suisse had to buy futures contracts at the end of each day, market makers and hedge funds pushed the price of futures contracts even higher, further distorting prices and increasing the bank’s costs. Credit Suisse reopened the fund last week with a new hedging strategy that reduces its need to buy Vix futures directly and at a loss.
The Securities and Exchange Commission is reviewing the matter, looking at Credit Suisse’s practices and disclosures to investors.
For volatility traders, the greater worry is that imbalances in Vix futures are seeping into the underlying S&P options market, which is used by many retail and institutional investors to hedge their risk.
“There’s a working assumption that the [issuers of Vix-linked funds] are buying a bunch of these other volatility products to cover their exposures,” says a volatility specialist at a derivatives trading house. “All these things have relationships that have to stay true. They are all expressions of very similar things, so if there’s a distortion in Vix futures it’s likely flowing through to other things as well.”
BlackRock Asks European Regulators To Delay New ETF Rules
(LONDON / BRUSSELS) BlackRock, the world’s largest provider of exchange traded funds, is asking Europe’s main financial regulator to delay the implementation of any rule changes for ETFs until next year, arguing it is not practical to bring in new guidelines in 2012, the FT reports recently.
The European Securities and Markets Authority has said new rules for ETFs should be in place this year but BlackRock said it would require more time to update documentation and educate investors about the implications of any rule changes.
It is also resisting pressure from regulators to return all income generated by securities lending activities to its funds. BlackRock currently retains 40 per cent of the net income (after fees) generated by securities lending, with 60 per cent returned to the fund to reduce overall costs to investors. Esma has said fees from securities lending should “as a general rule” be returned to the fund, while any fee-sharing arrangements with the fund manager or a lending agent should be clearly disclosed. However, BlackRock said requiring all securities lending revenues to be returned to the fund would “further exacerbate the unlevel playing field that exists with derivative-replicating ETF providers”.
Synthetic ETF providers do not disclose how they benefit from securities lending activities as this is usually done by an affiliate bank and not by the ETF manager. BlackRock, in contrast, has provided quarterly updates of revenues earned from securities lending since 2011 and it also publishes details of the collateral (assets received as security) that it holds on its website on a daily basis. Esma wants the criteria governing collateral to go further than the existing guidelines. It suggests the reinvestment into risky assets of any cash received as collateral in securities lending should no longer be possible. BlackRock, however, said requiring “risk-free” reinvestment of cash collateral was not necessary.
Read the full article here.
DetailsUK Regulator Declares ETF Concerns
(LONDON) The Financial Services Authority detailed its concerns about exchange-traded funds at an investment conference in London last week, with the UK regulator emphasising there were important differences between physical and synthetic ETFs that investors should be made aware of, the FT reported on Sunday. Tony Hanlon, manager of the FSA’s asset management sector team, said the regulator had three main areas of concern: the taxonomy of ETFs, potential conflicts of interest and operational risks.
Mr Hanlon said taxonomy – the naming of an ETF – was important as it was often all that an investor could use to judge the risks of the product. “The problem is that ‘ETF’ is a very broad badge that covers a wide variety of products and we think it is important to highlight the distinction between ETFs that are Ucits funds and ETFs that are non-Ucits.”
Mr Hanlon said the FSA was concerned that a number of instruments were being sold under the Ucits badge that were not compliant with Ucits regulations. These instruments – usually bond or debt securities – did not contain many of the safeguards required by Ucits. “Investors could be confused or even misled if they do not fully appreciate or understand that the protections offered by the Ucits framework do not apply to these other types of exchange-traded instruments.”
The FSA, said Mr Hanlon, also thought it was “extremely important” for providers to properly highlight the difference between a straightforward ETF that was tracking an index and more complex investment strategies that involved leveraged or inverse ETFs or an ETF that was tracking a customised index. Mr Hanlon said the FSA’s view was that the distinction between physical and synthetic ETFs “does matter and is one that is worth highlighting”. Noting that stock lending was tied very closely to the development of the ETF market, Mr Hanlon said that when a physical ETF conducted any stock lending activities, the risks and fees were mostly taken by the fund.
In the case of a synthetic ETF, it was normally the swap counterparty that conducted stock lending activities, carried any risks and took most of the fees. Mr Hanlon said the FSA did acknowledge that the swap counterparty would pass some of the income earned from stock lending back to the fund “from time to time and at their own discretion”. Mr Hanlon also highlighted differences in investors’ exposure to collateral (assets offered as security) between physical and synthetic ETFs as an important issue.
Read the full article here.
DetailsSpain Unveils Toughest Budget Since 70s
(MADRID / LONDON) Many Spaniards disagree on many matters with Cristóbal Montoro, the uncharismatic cabinet minister who unveiled his 2012 budget on Friday. But few could dispute his claim that his was “the most austere budget” since the restoration of Spain’s democracy in the 1970s, the FT reports.
With tax rises for companies and individuals and drastic cuts in government spending, Mr Montoro said he would cut the central government deficit this year by €27.3bn from 2011, thereby helping Spain reduce its total public sector deficit from 8.5 to 5.3 per cent of gross domestic product in accordance with European Union demands.
José Manuel García Margallo, minister of foreign affairs and cooperation, called it “a war budget in absolutely extraordinary circumstances”, after his own ministry’s budget was cut by more than half. His was the hardest hit, but three others – responsible for public works, industry, energy, tourism, agriculture and the environment – had their spending cut by around a third.The budget underlines the determination of Mariano Rajoy, the centre-right prime minister who defeated the Socialists in a general election last November, to bring Spain’s public finances under control and avert a bailout by the EU and the International Monetary Fund. Several questions, however, remain unanswered.
First, will the Popular party government be able to force the 17 autonomous regions to meet their deficit targets as well – the cuts announced on Friday concern only the central government – to satisfy skittish investors in sovereign bond markets? The axe is falling on the central government, where it was easier to cut than in the regions that are responsible for schools and hospitals, notes Nicholas Spiro of London-based Spiro Sovereign Strategy.
Second, are the numbers given by Mr Montoro realistic, and will he be able to achieve them? Economists say that nominal cuts in government spending and higher tax rates can have perverse effects in a shrinking economy such as Spain’s, in some cases increasing eventual expenditure – on unemployment benefits, for example – and failing to increase tax revenue.
One of Mr Montoro’s controversial assumptions is that the social security system will move into equilibrium from a slight deficit last year, even though the number of unemployed is rising, pensions have been increased, and the number of contributors is in decline. Spain is already on the brink of its second recession since the collapse of Lehman Brothers in 2008, and the economy is expected to shrink by between 1.5 and 3 per cent this year.
Surprisingly, the central government’s personnel costs are budgeted to rise by 1.3 per cent this year, in spite of a continued pay freeze. Overall, current costs will fall only slightly, although capital spending is set to drop by more than a third.
Third, is the fiscal clean-up sustainable beyond the end of this year, and can Spain’s deficit be cut yet again in 2013 to the EU-mandated target of 3 per cent of GDP? Luis Garicano, professor of economics and strategy at the London School of Economics, said some of Mr Montoro’s 2012 deficit cutting measures were one-offs – for example the €2.5bn to be raised through a 10 per cent tax on “black money” repatriated from overseas under a new tax evasion amnesty.
“They are doing a large deficit reduction, larger than I expected – they do seem to be willing to bite the bullet,” prof Garicano concluded. “But it remains to be seen what the regions can do. And there’s a lot of things that are hard to repeat in this budget.”
Mr Rajoy and Mr Montoro have inevitably failed to convince all Spaniards of the necessity for reforms and austerity. On Friday, the Union General de Trabajadores, one of the trade unions behind the disruptive general strike the previous day, said government policies were leading to “generalised impoverishment”.
But in the coming months, Spanish demonstrators will not be the only participants in the debate. Mr Montoro will also need to convince Spain’s increasingly vigilant European partners, and the bond markets, that he has the budget under tight control.
Nasdaq OMX Postpones Competitive Clearing in Scandinavia
(STOCKHOLM) The Nordic exchange arm of Nasdaq OMX Group Inc. said that it will delay the introduction of competitive clearing in Nordic cash equity market beyond the April 2012 target date, according to a recent Securities Technology Monitor article.
Nasdaq OMX Nordic has worked to develop a competitive cash clearing model since 2009, but company executives said that ongoing regulatory concerns could not be addressed by the deadline. “We are convinced that it will act to drive liquidity and lower investor costs, thus benefiting our clients and the European capital market as a whole,” said Hans-Ole Jochumsen, President of Nasdaq OMX Nordic in a statement. “However, there is still uncertainty regarding the detailed requirements for interoperability even though there is a political agreement.” “There needs to be clarity and a level playing field in this area, before we can introduce interoperability,” hesaid.
Central counterparty clearing and interoperability involves the legal transfer of obligations to a central counterparty. Interoperability occurs when different clearinghouses are able to work together via a common set of formats and use the same protocols, among other things. In the case of interoperability for counterparties, this allows market participants to choose the CCP they prefer to use, thus increasing competition. CCP interoperability also enables cross netting of trades for firms that use the same CCP for transactions executed on different trading venues, which enables cost savings for example from fewer settlements and simpler operations. However, getting the right regulatory framework together hasn’t been easy. For example, the European Markets Infrastructure Regulation (EMIR) outlines the principles to guide interoperability for cash equities, and it has political support. However, there are still technical issues that need to be ironed out. The European Securities and Markets Authority will draft technical standards, along with European System of Central Banks, by December 2012.
Meanwhile, another technical authority, Committee on Payment and Settlement Systems and the Technical Committee of the International Organization of Securities Commissions, is hashing out its own recommendations for standards governing this issue, titled “CPSS-IOSCO principles for financial market infrastructures.” When these new principles are finalized, they will replace three already existing sets of standards promulgated by the CPSS. The goal is that relevant European financial agencies will incorporate these principles in their legal and regulatory framework by the end of 2012. However, regulators will still need to figure out how these principles will interact with other existing regulations, such EMIR, the regulations of ESMA as well as MiFIR, the Markets in Financial Instruments Regulation.
Interoperable clearing has been a long-time coming in Europe. In January, BATS Chi-X Europe launched a service that allows its customers to choose to clear trades at any of four European clearinghouses: European Multilateral Clearing Facility , EuroCCP, LCH.Clearnet and SIX x-clear to clear trades. EuroCCP, the European clearinghouse subsidiary of Depository Trust & Clearing Corp., won approval from the U.K.’s Financial Services Authority to provide clearing services for multilateral trading facilities under what are called “interoperable” arrangements. It now clears equity trades in 19 markets, including Turquoise, SmartPool, NYSE Arca Europe, Pipeline Financial Group Limited and Sigma-X MTF.
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NYSE Euronext Bringing Derivatives Clearing In-House in Europe
(NEW YORK/PARIS) NYSE Euronext said it will bring the clearing of all futures, options and other derivatives contracts in Europe in-house, by 2014, Securities Technology Monitor recently reported.
All clearing of contracts on its NYSE Liffe derivatives market, at the end of the transition, will be conducted by a central counterparty called NYSE Liffe Clearing. LCH.Clearnet will be given 12-months notice of the intended change, when the clearinghouse is completed. The London clearinghouse provides banking, guarantee and default management services to NYSE Liffe, currently. LCH.Clearnet will continue to clear stock trades for NYSE Euronext.
“Our clients have long asked for a consolidation of clearing arrangements and the strength of our European derivatives business allows us to deliver meaningful benefits for them in the form of capital efficiencies and savings,” said Duncan Niederauer NYSE Euronext CEO. “Formalizing these steps now and communicating them clearly to our customers will allow them to more effectively plan their capital allocation needs and will enhance their operational stability in a highly competitive and fluid environment.” NYSE Euronext said it expects to invest $85 million over the next two years, of which nearly $60 million will be capital spending. Bringing derivatives clearing in-house will result in about $30 million a year in savings, NYSE Euronext said.
The company last year planned to bring clearing in-house by merging with Deutsche Boerse, which has a European clearing operation known as Clearstream. That merger was not completed. NYSE Euronext said it also expected “new revenue streams will accrue from 2014” onward in post-trade businesses, as a result of having its own clearing operation for derivatives. It cited the clearing of what are currently over-the-counter contracts in interest-rate, credit-default and other swaps. NYSE Euronext said it expects its clearinghouse in London to be completed, licensed and operational by the summer of 2013.
The company intends to give 12 months termination notice to LCH.Clearnet Ltd. in mid- 2012, as a result. Clearing for NYSE Euronext’s derivatives business in Amsterdam, Brussels, Lisbon and Paris, currently cleared with LCH.Clearnet SA in Paris, will be transferred to the new facility in London early in the first quarter of 2014. NYSE Euronext intends to negotiate a new long term arrangement with LCH.Clearnet SA, for the clearing of European equities trades. The new agreement would replace the current agreeemtn, which ends in December 2013. “LCH.Clearnet will work collaboratively with NYSE Euronext, clients, market participants and regulators to ensure a smooth transition and continuation of clearing services,’’ Ian Axe, CEO of LCH.Clearnet said.
DetailsSingapore’s SGX Merges Technology and Operations Units
(SINGAPORE / LONDON) The Singapore Exchange is merging its operations and technology units. They will be aligned under the newly-created role of chief operations and technology officer.
The move comes as the exchange reorganized its operations into five business units: derivatives; listings; market data & access; post-trade and securities, according to Securities Technology Monitor. Fixed income business will be incorporated within the exchange’s enlarged securities unit, while commodities will be placed within derivatives operations. The changes take place May 1.
In a statement, exchange officials said that these business units, with support from the sales and clients operation, will “collectively drive the expansion of the products and services suite, the attraction of more and larger listings, the growth of retail and professional participation and the building of the post-trade business.” Meanwhile, SGX chief executive Magnus Bocker will assume direct responsibility for the listings and sales & client operations. President Muthukrishnan Ramaswami will assume responsibility for the other four business units.
Dovetailing with the reorganization is the resignation of co-president Gan Seow Ann, who will stay on as an advisor. The reorganization is only SGX’s latest move in its fight to assert its competitiveness. Stagnant Asian markets and increasingly aggressive rivals led to a 14% decrease in second quarter revenue (reported in January) compared to the previous year. Daily average securities trading volume for the quarter was down nearly 40% to S$1.1 billion. In response, the exchange has launched a number of initiatives, including the establishment of hubs in Chicago and London, starting an access point in Frankfurt and tying NYSE Euronext’s worldwide trading network into its home market center. It also launched dual-currency trading. It also connected its data center to the Secure Financial Transaction Infrastructure network of NYSE Technologies.
DetailsHong Kong Exchange Launches $380M Upgrade
(HONG KONG) Hong Kong Exchanges and Clearing Limited Wednesday launched a $380 million technology program, called Orion, according to Securities Technology Monitor.
The upgrade will bring in higher-speed network connections, build out a modern data center and new systems for order matching, market data dissemination and market access services. The new infrastructure and platforms will be implemented in stages over the next three years, the Chinese exchange operator said. Hosting services and the “next-generation” data center project have already begun. ““HKEx is investing in technology initiatives to ensure Hong Kong retains and strengthens its position as a leading financial centre. This investment will enable us to face increasing competition from other exchanges in Asia and around the world, and will be a platform to drive our future growth,’’ said chief executive Charles Li.
Initiatives scheduled for deployment in 2012 are an upgraded network, SDNet/2, which will provide high speed access to HKEx’s core platforms, as well as hosting services from the new data center. Upgraded market data services will be rolled out in 2013. The Hosting Services allow participants to co-locate their systems next to HKEx’s core platforms to provide access with the lowest possible latency. The data center can support up to 1,200 racks of serviers with a total power load of 8 megawatts, making it the highest capacity service offered by any exchange in Asia-Pacific, the organization said.
To enable Exchange Participants (EPs) with fewer technical and footprint requirements than others to benefit from its Hosting Services, HKEx will offer an entry level package and waive service fees for seven months over a 24-month contract period.
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