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Market Risk - What are the Risks of European ETFs?
Exchange-traded funds have traditionally been perceived as vehicles combining the diversified exposure of mutual funds with the low-cost, flexibility, ease and liquidity of trading enjoyed by publicly listed stocks, while also offering lower-expense ratios and better tax-efficiency relative to mutual funds. Most ETFs are passive, index-tracking investment vehicles, which as such, have transparent economic exposure and simple payoffs.
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Headline News, Friday, January 27, 2012
January 26: Energy Risk - US Energy Executives Believe Energy Independence is Achievable within 15 Years, Overwhelming Majority Support Fracking
An overwhelming majority (70%) of executives at middle market energy companies see the potential for U.S. energy independence within 15 years, yet they expressed concern that the regulatory environment, along with trouble in the financial world and opposition to fracking, could dash that promise. These are some of the findings detailed in the research study, “2012 U.S. Energy Sector Outlook” released by CIT Group Inc.
January 26: Industry Risk - Emerging Hedge Funds Generate More Statistically Significant Alpha and Less Significant Beta Than Traditional Assets
A initial screening of the Opalesque Emerging Managers Database revealed that compared to traditional long-only investments, hedge funds have return distributions that are not normal twice as often as those of traditional long-only funds. Urbani also found that the Cornish Fisher modification to Value at Risk, which a lot of funds now use, is potentially wrong almost half the time. Urbani found that emerging hedge funds generate more statistically significant Alpha and less significant Beta than traditional assets - but more Beta than indicated by linear methods.
January 26: Energy Risk - Competing Forces Clash over Coal Ash, Issue Tied to Presidential Outcome
Two competing forces with regard to how coal ash is regulated are headed for a collision. Environmentalist groups have just said that they would sue the U.S. Environmental Protection Agency to force prompt action while U.S. lawmakers from coal-producing states are working to head off those attempts. EPA, ironically, is sympathetic to the views of the green movement. Yet, it has not budged since its 2010 deadline to rewrite the rules that affect coal ash and how it will ultimately be disposed. Earth Justice and a multitude of other environmental organizations will therefore force the agency’s hand by filing suit in a move that would get coal ash reclassified as a hazardous waste to fall under the Resource Conservation and Recovery Act.
January 26: Energy Risk - Natural Gas Price Mixed for US Public Power
Fitch believes that the drop in natural gas prices will have a variety of impacts on different parts of the U.S. power and gas sector. Some combined cycle merchant power plants with long-term offtake contracts could benefit from the diminished price. However, merchant plants exposed to spot market power prices and plants with offtake contracts that roll off this year (and have to assume new output hedges) could fare worse. We expect the impact of low gas prices to be neutral on most municipal and cooperative power systems and regulated investor-owned electricity and natural gas utilities.
January 26: Industry Risk - Plan Fiduciaries Prepare and Prosper Through Upcoming 401(k) Fee Disclosure Regulations
A new report from Broadridge Financial Solutions (NYSE: BR) provides insights to help firms successfully navigate the new fee disclosure regulation being implemented by the Department of Labor. This new regulation introduces a new level of transparency, and disclosure of expenses associated with defined contribution plans. The report, A Look at the New Department of Labor Disclosure and Reporting Rules and Their Impact on Plan Fiduciaries, provides an overview of Rule 404(a)(5), what plan fiduciaries should be aware of when evaluating the information contained in the disclosures, and raises potentially surprising consequences when plan fiduciaries make disclosures this spring.
January 25: Operational Risk - Connectivity Challenges Peaking as Market Fragmentation Accelerates Globally
The need to manage connectivity efficiently across today’s rapidly fragmenting global marketplace is putting increased pressure on both sell-side and buy-side firms across asset classes trading in developed as well as emerging and frontier markets, says TABB Group in new research. “The complexities of trading today’s global markets demand communications resilience and redundancy,” says Alexander Tabb, a TABB Group partner and author of “Financial Services Extranets: Connecting a Fragmented Trading World,” adding,” an extranet service provider (ESP) can provide that connectivity on demand, eliminating the need to internally manage a costly network of point-to-point connections.”
January 25: Market Risk - Private Equity Fund Managers Brace for Limited Deal Flow in 2012
The majority of private equity fund managers (70 percent) – regardless of fund size – expect to close only two or three deals during the next 12 months, according to the third annual PErspective private equity study by BDO USA, LLP. However, that’s an increase from 2011 when nearly half (47 percent) of fund managers reported closing no new deals and another 19 percent reported closing only one new deal. Small funds – those with less than $250 million in assets under management (AUM) – were the hardest hit, with 66 percent reporting they closed no new deals in 2011.
January 25: Operational Risk - FIA Establishes Task Force to Respond to MF Global
The Futures Industry Association announced yesterday that it has established a special committee to address issues related to the bankruptcy of MF Global. The Futures Market Financial Integrity Task Force will develop and recommend specific measures that can be implemented in the near term through both industry best practice and regulatory change. In addition to these measures, the FIA intends to work with end-users and other market participants to examine the adequacy of current customer funds protection models in response to concerns raised by the MF Global bankruptcy.
January 25: Energy Risk - Hawaii is Baking Up a lot of Wind and Sun
If you wanted to create a laboratory for clean energy, you might pick these attributes: an isolated market; one that’s almost wholly dependent on fossil fuels; and it has abundant wind and sun. One such lab already exists. It’s called Hawaii. The archipelago is dependent on power generated by diesel fueled power plants supplied by the mainland, and now has embarked on an aggressive campaign to produce its own energy, using wind and solar, with a little geothermal and biomass kicked in. And it has the most ambitious renewable portfolio standard, long-term, that even tops California’s.
January 25: Energy Risk - Oil and Gas CFOs Cite Unconventional Energy Sources as Greatest Investment in 2012
As global oil production finds new life in the United States, U.S. energy companies are increasingly making non-conventional sources a part of their production strategies. Seventy-nine percent more CFOs cited the discovery of significant new resource plays as the most important factor driving overall industry growth in 2012 (25% versus 14% in 2011), according to a recent BDO USA, LLP survey of 100 chief financial officers at U.S. oil and gas companies. As oil and gas companies plan for 2012, CFOs are increasing their capital investments in the exploration of non-conventional areas, including shale plays (40%), followed by more environmentally friendly exploration and processing technologies (27%) and offshore exploration away from U.S. waters (7%).
January 25: Industry Risk - CIGS Solar Market to Nearly Double to $2.35 Billion and 2.3 Gigawatts in 2015
The market for solar installations based on copper indium gallium diselenide (CIGS) thin-film panels will nearly double in size to $2.35 billion in 2015, as manufacturers signaled a breakout year in 2011 by taking advantage of falling production costs, improving module conversion efficiencies and increasing adoption in commercial rooftops, according to a Lux Research report titled, “Sorting through the Maze of CIGS Technologies: Who Will Cash in on the Breakout Year?”.
January 24: Economic Risk - Global Trade Drying Up, Says Largest Ever Economic Survey of Finance Professionals
Finance professionals believe there will be a renewed global economic downturn in 2012, as the largest ever quarterly survey of professional accountants shows that international trade continued to dry up at the end of last year. The latest survey of 3,775 professional accountants, including 1,414 senior executives, from around the world, is the result of the collaboration between two major professional bodies. ACCA (the Association of Chartered Certified Accountants), is the global body for professional accountants and has run the Global Economic Conditions Survey since 2009. They have now joined forces with IMA® (Institute of Management Accountants), the association for accountants and financial professionals in business, which has offices in the U.S., China, Switzerland and the United Arab Emirates, to develop an even more robust and powerful record of the state of the global economy.
January 24: Operational Risk - NERA Releases 2011 Fiscal Year-End SEC Settlements Trends Report
While the total number of FY11 settlements remained relatively constant over the previous fiscal year, there has been a substantial shift in the composition of allegations. Since FY09, Trends authors have observed an increase in settlements with financial services firms for misrepresentations to customers or misappropriation of funds, and an offsetting decrease in settlements relating to public company misstatements. The three-year rise in the percentage of SEC settlements involving misrepresentations or misappropriation by financial services firms suggests a shift in the SEC’s enforcement focus since the financial crisis began and the Madoff fraud was revealed.
January 24: Industry Risk - Pharmaceutical Industry Could Use a Shot in the Arm
Fitch Ratings says 2012 will be a critical year for the pharmaceutical industry, as drug makers struggle with record patent expirations, disappointing results of expensive clinical trials, and ongoing regulatory challenges against an already challenging economic backdrop. Large pharmaceutical companies remain pressured and some are bracing themselves for a steep drop off the patent cliff. We believe the loss of patent exclusivity on blockbuster drugs will continue to spur increasing competitive pressure as generic versions of branded medications hit the market. We note that more than $70 billion of branded drug revenues (based on 2010 sales) will lose or have already lost patent protection from the second half 2011 to the end of 2015.
January 24: Industry Risk - Battery Modules for Hybrid and Electric Vehicles Will Be a $47 Billion Market in 2020
In 2011, the first plug-in hybrid electric vehicles (PHEVs) went into production to add the next level of electric-only drive to the steadily growing popularity of the hybrid assist vehicle. Large lithium-ion battery production facilities came online in a number of countries around the world to support the anticipated demand fueled in many countries by generous subsidies and tax benefits. The battery module market is expected to grow from about $5 billion in 2010 to $47 billion in 2020, representing a healthy CAGR of 25% over 10 years.
January 24: Energy Risk - Keystone Kicks off Fierce Presidential Debate, Pipeline Stirs Jobs, Environment Passions
After the 2010 mid-term elections, Americans heard the refrain “jobs, jobs, jobs” from both the public-at-large and their elected representatives. President Obama’s decision to immediately deny the Keystone XL Pipeline undermines that objective. But his choice is procedural and not philosophical, which means he will bend. On the surface, the president’s rejection of the 1,700-mile pipeline that would tread through multiple states appears to be politically motivated. But such a re-election strategy would backfire: Republicans are already hammering away at the perceived hypocrisy while the typically supportive labor movement is outraged.
January 24: Market Risk - Hybrid ARMs Dominate Product Offerings and Originations
Freddie Mac last week released the results of its 28th Annual Adjustable-Rate Mortgage (ARM) Survey of prime loan offerings, which was conducted January 3 to January 5 of this year. The results show ARM initial-period rates are at historically low levels and hybrid ARMs remain the most common adjustable-rate product in the market.
January 23: Market Risk - Swaps Dealers Will Spend $504 Million in 2012 to Create and Market Liquidity Aggregation Systems to Buy-Side Clients
Despite the fact that swaps execution facilities (SEFs) don’t technically exist yet and swaps market liquidity isn’t fragmented today, swaps dealers tell TABB Group in a new research report that they intend to spend millions to create, implement and market swaps liquidity aggregation systems to their buy-side client base. According to Kevin McPartland, a TABB principal, director of fixed income research and author of “Swaps Liquidity Aggregation: Best Execution to Product Selection,” liquidity in the most liquid parts of the swaps market is going to fragment. “Whether there will be three or as many as 10 SEFs per asset class remains unclear, but finding the size you need at the right price will become less about who you know and more about the quality of your aggregation technology.”
January 23: Commentary - Standardize This
As we enter 2012, the OTC derivatives industry will continue to be challenged by significant regulatory requirements on both sides of the Atlantic. One of the most important was set by the G-20 at their Pittsburgh Summit in September 2009: “All standardized OTC derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties by end-2012 at the latest.”
January 23: Market Risk - European Buy-Side Traders Call for Standards Supporting the Quality of Liquidity across Lit Venues
Although change and uncertainty will continue to hold sway across the lit and dark equities venues in Europe for the foreseeable future, according to new research published today by TABB Group, one certainty stands tall – transparent, actionable metrics supporting the quality of liquidity are lacking. While MiFID II and the implementation of a post-trade consolidated tape are coming, buy-side traders tell TABB they don’t have the time to wait to learn how these changes will impact their markets. In 2012, electronic trading across Europe will rise to 45% of average daily value traded by traditional asset managers, up from 38% in 2010 and up from 25% in 2008.
January 23: Market Risk - In Fast-Changing Fixed Income Market, Barclays Capital and Deutsche Bank Maintain Top-Tier Status
The results of Greenwich Associates 2011 research in fixed-income markets around the world reveal Barclays Capital and Deutsche Bank as the leaders in global fixed-income market share. However, the share of global fixed-income trading volume executed by the world’s top three dealers shrank from 2010 to 2011.
January 23: Market Risk - In Fast-Changing Fixed Income Market, Barclays Capital and Deutsche Bank Maintain Top-Tier Status
The results of Greenwich Associates 2011 research in fixed-income markets around the world reveal Barclays Capital and Deutsche Bank as the leaders in global fixed-income market share. However, the share of global fixed-income trading volume executed by the world’s top three dealers shrank from 2010 to 2011.
January 23: Energy Risk - Shale Squeezing LNG Overseas, Industrials Want the Gas to Stay at Home
Liquefied natural gas seems to be lost at sea. But does it have to be that way? LNG, a super-cooled fuel that is shipped to facilities around the world where it can be re-gasified before it consumed, was once a hot commodity. No more. The nation and potentially the world is shifting its focus to newly recoverable shale gas. But those entities with huge investments in existing LNG facilities say that they ought to be able to convert them to export terminals to take advantage of the shale boom.
January 23: Operational Risk - GE “Global Innovation Barometer” Examines State of Business Innovation in a Volatile Global Economy
GE last week released the results of its second annual “Global Innovation Barometer” that confirm business executives’ belief in innovation as the main driver of prosperity, competitiveness and job creation, and also reveal how challenging and uncertain economic and political environments may hinder companies’ ability to deliver meaningful innovation.
January 23: Report - Economic Forecast by Pepperdine University Shows 45% of Private Businesses Oppose US Government Increasing Debt Ceiling
Only 33% of privately-held businesses owners support raising the debt ceiling this year, while 45% say the government should never raise the limit, according to survey results released in the 2012 Economic Forecast conducted by Pepperdine University’s Private Capital Markets Project and Graziadio School of Business and Management in partnership with Dun & Bradstreet Credibility Corp.
January 19: Regulatory Risk - SIFMA Calls for Significant Changes to Current Volcker Rule Proposal at Congressional Hearing
SIFMA yesterday called for significant changes in the Volcker Rule before a joint hearing of the House Financial Services Subcommittees on Capital Markets and Government Sponsored Enterprises, Financial Institutions and Consumer Credit that was examining the impact of the Rule. In testimony on behalf of SIFMA’s Asset Managers Group (AMG), Douglas Peebles, chief investment officer and head of Fixed Income at AllianceBernstein noted that the rule, as proposed, could have a significant negative impact on market making.
January 19: Report - Market Making Under the Proposed Volcker Rule
A January 2012 study by Darrell Duffie of Stanford University exploring the impact the proposed Volcker Rule will have on market making. This submission discusses implications for the quality and safety of financial markets of proposed rules implementing the market-making provisions of section 13 of the Bank Holding Company Act, commonly known as the "Volcker Rule." The proposed rules have been described by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Securities and Exchange Commission.
January 19: Market Risk - Short-Term Options Drove US-Listed Options to Record Levels in 2011
Short-term options represent one of the most successful products launched by options exchanges in recent years, with demand from retail and institutional investors driving growth, says TABB Group in new research published yesterday, “Accelerated Expirations: The Growing Relevance of Short-term Options.” According to TABB, short-term options (STOs) were a significant factor behind record options volume in 2011 with STOs accounting for 8.3% of the total 4.6 billion contracts traded for the year.
January 19: Industry Risk - US Technology Sector's Higher Liquidity Examined In New Report
Standard & Poor's Ratings Services said yesterday that overall liquidity of U.S. technology companies has improved over the past four years, through the economic and industry downturns and the subsequent recovery, according to a new report titled, "U.S. Technology Companies' Liquidity Is Higher, For Now," published on RatingsDirect. Most of this liquidity, which we define as cash and short-term investments, is held by investment-grade (rated 'BBB-' or higher) companies who continued to engage in acquisitions and shareholder-friendly activities throughout the last economic cycle. Liquidity also increased for their speculative-grade (rated 'BB+' or lower) counterparts.
January 19: Regulatory Risk - Major Global Accounting Changes Hover as Standard-Setting Fatigue Sets In
Fitch Ratings expects the U.S. will still move forward with plans to incorporate International Financial Reporting Standards (IFRS) into U.S. GAAP, although in a prolonged, cautious and incremental way, according to a new report. Fitch believes a renewed emphasis on issuing converged, 'high quality' accounting standards and the need to re-expose updated proposals for comments has significantly slowed the completion of many accounting projects jointly initiated by FASB and the IASB. The major priority projects initially scheduled for a June 2011 completion are still at various stages of completion in 2012 and some will likely extend into 2013.
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Market Risk - Global Currency and Treasury Guide Risk Manager’s Toolkit - Sure-Fire Spreadsheet Tips and Tricks for the Practicing Risk Manager Enterprise Risk - Fighting Risk Measurement Myopia, Creating a Risk Inventory and Gap Analysis, and Dealing with Obstacles to Enterprise-Wide Risk Management Risk Reporting - Creating Incentives for Proper Data and Risk Reporting and Disclosure 
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Energy Risk - US Wind Industry Continues Growth, Despite Slow Economy and Unpredictable Policies Hands-on Finance Tutorial #7 – Balance Sheet Analysis Hands-on Finance Tutorial #6– Yield Curve Building 
Hands-on Finance Tutorial #5 - Historical Data Analysis, A Basic Trading Strategy Hands-on Finance Tutorial #4 - Fixed Income Fundamentals Hands-on Finance Tutorial #3 - Cash Flow and Equity Analysis Hands-on Finance Tutorial #2 - Foreign Exchange Fundamentals and Applications Hands-on Finance Tutorial # 1- Rates & Discount Factors |
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