Category archive: Week 9 2012
Regulators organization poised to publish principles for ETFs
The AMF, the French regulator, which chairs Iosco’s asset management committee, says it has submitted its draft proposals to the organisation’s technical committee, which will publish a consultation paper “soon”. The Iosco draft proposals are expected to arrive at around the same time the Financial Stability Board will publish its own views on how ETFs should be regulated. The FSB and Iosco proposals come on top of regulatory work from the European Commission and the European Securities and Markets Authority (Esma). At the end of January, Esma published draft guidelines for ETFs, including rules on better disclosure and on standards such as securities lending.
Meanwhile, the Commission recently told Ignites Europe that ETFs would also be covered by an upcoming consultation paper on “shadow banking”. ETFs have been under intense scrutiny from regulators since April 2011, when the FSB warned of “disquieting developments” in the sector. The global taskforce, which represents central banks and regulators, expressed concerns about the level of opacity and complexity brought into some segments of the market. According to the AMF, one of the key sets of principles that Iosco will cover is the classification and naming of ETFs “to distinguish them from similar products”. Natasha Cazenave, deputy head of asset management policy and regulation at the AMF, says: “One outstanding issue is taxonomy [i.e. division into ordered groups] because there are so many products that resemble ETFs and are sometimes called ETFs, but are not ETFs.”
The AMF says the problem is that regulators do not have the power to “necessarily” prevent other products from calling themselves ETFs. It is also an important concern for Esma, which proposes the use of an identifier for Ucits ETFs. The authority says there is a risk of confusion with other types of exchange-traded products, such as exchange-traded notes and exchange-traded commodities. Feargal Dempsey, head of product strategy for iShares, agrees: “Labels tend to be used interchangeably, and there is general confusion about what is a note and a fund.” He adds: “All products could do with a bit more classification. We need to move away from using ETFs as a generic label for all exchange-traded products.
“When you buy a fund, you know it is a highly regulated vehicle. When you buy a non-fund, it’s got to be clear for investors.” Another set of Iosco proposals will cover investor protection. The organisation will make recommendations with regard to transparency on charges, strategy, index replication and quality, and on risks, including counterparty risks. Iosco’s regulatory principles are also expected to set a “framework for ETFs sold to retail investors”. Iosco additionally wants to prevent the creation of systemic risks that arise as a result of the way ETFs are structured. This will involve proposals on replication methodology and counterparty risks for physical and synthetic ETFs. The prevention of conflicts of interest between different market participants will also be covered.
A final set of proposals will cover systemic risks that are broader than the ETF universe, such as market efficiency and integrity, liquidity transformation and securities lending. The AMF says the FSB is also expected to pursue its work on ETFs in the next few weeks.
The French regulator highlights several areas where the FSB could make proposals, including: improving transparency, notably on securities lending; implementing better monitoring collateral; analysing the risk created by the growing interconnection between asset managers and banks; and identifying ETF operations on secondary markets. The Iosco and FSB proposals are eventually expected to be carried out by the group of 20 leading economies.
DetailsBullish Buffett Adds Wells Fargo and Bank of America
(OMAHA) Anyone looking for more evidence of a strengthening U.S. economic recovery need only consider conglomerate Berkshire Hathaway, where businesses ranging from railroads and electric utilities to furniture and candy stores are racking up record profits. Even though Berkshire’s Warren Buffett says with emphasis that the housing market is still in a depression, he was as upbeat as ever this weekend on the rest of the dozens of businesses he owns.
“Though housing-related businesses remain in the emergency room, most other businesses have left the hospital with their health fully restored,” Buffett said on Saturday in his closely watched annual letter to shareholders. Buffett’s optimism is not confined to industry. He said that “the banking industry is back on its feet” and singled out two of his favorite investments, Wells Fargo and Bank of America.
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DetailsDirect Edge Considering IPO
(NEW YORK CITY) Exchange operator Direct Edge is looking at joining its rival, BATS Global Markets, in offering shares to the public. The operator of the EDGA and EDGX exchanges said Friday that an initial public offering of stock is under consideration as part of the “evolution” of its business, which it plans to expand outside the United States this year.
“It is natural for a business in our stage of maturity to look to the capital markets for its next evolution and we are considering those options, including an IPO,’’ said chief executive William O’Brien, in response to an inquiry from Securities Technology Monitor. The statement came one day after BATS Global Markets, operators of two competing electronic exchanges, known as BZX and BYX, filed an S-1 registration statement with Securities and Exchange Commission. An S-1 is an SEC filing used by companies to register their securities when they intend to issue shares to the public.
The exchanges launched by Direct Edge account for between 10 percent and 12 percent of average daily trading in U.S. stocks. So do the BATS exchanges. In turn, Direct Edge and BATS each are trying to take market share away from the long-term incumbents, NYSE Euronext, owner of the New York Stock Exchange, and Nasdaq OMX Group, operator of the Nasdaq Stock Market.
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DetailsSGX Expands The ASEAN ETF Marketplace
(SINGAPORE) Last week, SGX was listing two Lyxor Exchange Traded Funds that track indices in Indonesia and Thailand. Like Singapore, Indonesia and Thailand are members of ASEAN, which as a region is pursing policies to promote ASEAN as a highly investable asset class. SGX now provides 13 ETFs for trading that track equity indices relevant to the ASEAN region. Also, it is expected that the SGX will increase its ETF range within the next time.
Over the last five years, investor precision has narrowed with growing participation in the ETFs of that are specific to the individual ASEAN members. This has been evident in 2011 turnover rankings. Within the SGX top ten turnover ETFs of 2011 were ETFs that track the equity indices of Indonesia, Vietnam and Thailand. The top ten also included two ETFs that track the indices of Singapore.
The list of 13 ETFs that specifically cover the equity indices relevant to ASEAN now include:
- DB X-TRACKERS MSCI INDONESIA TRN INDEX
- LYXOR ETF MSCI INDONESIA
- DBXT MSCI MALAYSIA TRN INDEX
- LYXOR ETF MSCI MALAYSIA
- DB X-TRACKERS MSCI PHILIPPINES IM TRN INDEX
- DB X-TRACKERS MSCI SINGAPORE IM TRN INDEX
- NIKKO AM SINGAPORE STI
- ISHARES MSCI SINGAPORE (FREE) INDEX FUND
- SPDR® STRAITS TIMES INDEX
- DB X-TRACKERS MSCI THAILAND TRN INDEX
- LYXOR ETF THAILAND (SET50 NET TR)
- DB X-TRACKERS FTSE VIETNAM
- CIMB FTSE ASEAN 40 ETF
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10 Former Sports Stars To Move Into Wealth Management
(LONDON) The investment world has attracted an array of sports professionals, lured in by the chance to use the team spirit and relationship skills honed on the pitch. Here we look at some of the big hitters who made the jump to wealth management. CityWire summarized the 10 most interesting former sports stars which eventually will became city boys.
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DetailsCredit Suisse Suspends Issuance of Vola ETNs
(NEW YORK CITY) Due to internal company limits on the number of exchange traded notes it can have circulating in securities market, Credit Suisse said Wednesday it has temporarily suspended issuance of the high volatility product VelocityShares Daily 2x VIX Short-Term ETNs.
According to one expert on exchange-traded funds, Morningstar analyst Timothy Strauts, the decision is tied to Credit Suisse’s concerns over hedging tied to such an extremely volatile, highly leveraged product. “This is, on a daily basis, one of the most volatile products available in the market today—with sometimes 10-20% movement in a single day,” he said. “You make a mistake in hedging all of this risk things can go very bad very quickly.” The funds are designed to be volatile. An exchange-traded note is based on senior, unsecured, unsubordinated debt and is designed to provide access to the returns of various market benchmarks.
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DetailsGoogle Provides Real-Time European Quotes
(LONDON) The London Stock Exchange Group said last week it struck a deal with Google to provide real-time quotes for trades on the London Stock Exchange and Borsa Italiana, information that traders currently pay a premium for. LSE said the move would make data that was previously available to Google users on a 15-minute delay as accessible as possible for retail investors.
“For the first time Google users will have access to free, real-time last-trade prices, allowing them to make more informed investment decisions,” Jarod Hillman, Head of Real-Time Data at the LSE ,said. Current providers of real-time share trade data from the London Stock Exchange include Thomson Reuters and Bloomberg LP.
DetailsPowerShares Launched Two New Beta Portfolios
(WHEATON) Invesco PowerShares was the first ETF sponsor to launch a product that sought to track a High Beta Index. The PowerShares S&P 500® High Beta Portfolio (SPHB) is the first beta-weighted ETF and seeks investment results that correspond to the price and yield of the S&P 500 High Beta Index. With the addition of two new high beta portfolios, the PowerShares S&P International Developed High Beta Portfolio (IDHB) and PowerShares S&P Emerging Markets High Beta Portfolio (EEHB), investors are now able to access high beta ETFs on a global level.
DetailsU.S. Bancorp Partnered With Exchange Traded Concepts
(MILWAUKEE) U.S. Bancorp Fund Services (USBFS) today announced the launch of its first ETF multiple series trust (MST) and a partnership with Exchange Trade Concepts. This newest trust, called ETF Series Solutions (ESS), extends the benefits of a shared trust model to one of the industry’s fastest growing segments.
AlphaClone, LLC and Zacks Investment Management will be the first two funds for the trust. AlphaClone will be offering one fund and Zacks Investment Research will be offering two funds, all with unique strategies. “This new MST and partnership with Exchange Traded Concepts help make entering the ETF market incredibly easy for investment managers,” said Joe Redwine, president of USBFS. “We continuously strive to find new ways to help our clients focus on investing while capitalizing on developments in the market. Our new MST continues that tradition.” ETC, a private-label ETF advisor, serves as the investment manager.
As an advantage to funds in the shared trust, existing investment advisers and trust-level exemptive relief eliminates the cost and time to file separately, and significantly decreases time to market. Although each fund will be responsible for fund-specific expenses, certain expenses are shared by all funds in the Trust, including general legal services, Board of Trustee costs, insurance, and the trust’s Chief Compliance Officer. “Given their long-standing history in the mutual fund market and strong financial background, we are excited and fortunate to partner with U.S. Bancorp Fund Services to help launch this MST,” said Garrett Stevens, chief executive officer of ETC.
“Both of our companies are committed to growing the Trust and, given the increase in awareness in the ETF market, this is an ideal product to launch now.” ESS marks the fifth MST for U.S. Bancorp Fund Services. In December, USBFS introduced its ETF servicing solution called ETF-Fusion, offering consultative support including product development and implementation, along with proprietary technology. ESS combines the benefits of ETF-Fusion with the additional benefits of a shared trust model. Currently, USBFS shared trusts have $12.5 billion in mutual fund assets, 113 participating funds, 166 classes, and 58 different advisers.
“The ETF MST is a new concept in the industry that enables investment advisers to build awareness and recognition for their brand as a private-label ETF and launch an ETF in approximately 75 days for a minimal initial investment,” said Eric Falkeis, officer of ESS and chief financial officer of USBFS. “Our ETF professionals have the operational and regulatory experience, plus the industry contacts needed to navigate the complexities of launching and managing an ETF.”
DetailsTop 9 Most Disliked U.S. Companies
(NEW YORK CITY) Financial companies have been in bad odor since the onset of the 2008 crisis, and thus crowded the low rungs in Harris Interactive’s 13th annual reputation poll, which ranked consumers’ opinion of the reputation of the 60 most visible companies in the United States. Four of the five biggest losses of reputation hit financial companies. The poll found that positive perceptions of the industry declined by five points after rising by six points in the 2011 study.
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