G’day All,
Been a busy couple of weeks, anyway, a snippet of blogging.
I’ve not read a load of stories (if I don’t read it on the day, it’s archived – i.e. deleted).
If there is something I’ve missed, that you think of relevance, please feel free to forward me an email or make a comment at:
http://clearingandsettlement.blogspot.com/
Four comments this week.
1. Anzac Day:
They shall grow not old, as we that are left grow old;Age shall not weary them, nor the years condemn.At the going down of the sun and in the morningWe will remember them.
2. Tax the rich: be responsible.
3. CDS clearing
4. Tammy to Clovelly: Last swim of the ‘season’.
1. Anzac day.
Someone asked me why we do this at 4:30am. Another bit of trivia, mothers and wives were banned for a while from the ceremony…the wailing of the mouring…gives you an idea of how raw the impact was back in 1916.
Dawn Service
The Dawn Service observed on ANZAC Day has its origins in an operational routine which is still observed by the Australian Army today. During battle, the half-light of dawn was one of the most favoured times for an attack. Soldiers in defensive positions were, therefore, woken up in the dark, before dawn, so by the time first light crept across the battlefield they were awake, alert, and manning their weapons. This was, and still is, known as "stand-to". It was also repeated at sunset.
After the First World War, returned soldiers sought the comradeship they felt in those quiet, peaceful moments before dawn. With symbolic links to the dawn landing at Gallipoli, a dawn stand-to or ceremony became a common form of ANZAC Day remembrance during the 1920s; the first official dawn service was held at the Sydney Cenotaph in 1927. Dawn services were originally very simple and followed the operational ritual. In many cases they were restricted to veterans only and the daytime ceremony was for families and other well-wishers. Before dawn the gathered veterans would be ordered to "stand to" and two minutes' silence would follow. At the end of this time a lone bugler would play the Last Post and then concluded the service with Reveille.
http://www.awm.gov.au/commemoration/anzac/anzac_tradition.asp#dawn
2. Tax the Rich
I was going to rant about this, but what’s the point?
I’m in favour of consumption taxes. Those that are excessive, fuelled by sub prime or whatever can pay. Those that save, de-leverage and plan for a rainy day can pay later. I’d support an increase in GST for a decrease in personal income tax. But as if any government would be responsible and credit to…
Transcript: Radio 2UE, Sydney
TREASURER:
…What I can say is the Budget will be responsible. We'll focus on stimulating the economy to…
MIKE:
Treasurer, every Treasurer I've interviewed since Harold Holt has told us there'll be a responsible Budget. Could you get a new cliché? http://www.treasurer.gov.au/DisplayDocs.aspx?doc=transcripts/2009/058.htm&pageID=004&min=wms&Year=&DocType=2
3. CDS clearing
This was triggered by this paper:
22/04/2009 16:03:00
CDS CLEARING PLANS BADLY FLAWED SAY RESEARCHERS
Proposals to reduce risk in the trading of credit default swaps through the introduction of central counterparty clearing are badly flawed, according to research conducted at the Stanford Graduate School of Business.
More on this story: http://www.finextra.com/fullstory.asp?id=19949
Personally, I have grave reservations about CDS clearing, the risk management and the commercial viability of it for the CCP.
One drawback I feel is the very defined universe that suits or is ‘eligible’ for clearing.
As we know, CCPs are best at highly liquid blue chip stuff.
I think the markets can do the highly liquid stuff.
As for the balance, that is where the ratings agencies have such a crucial role to play.
As you move about in the CDS world I get the feeling there is stuff out there you just can’t value, hence it should not be eligible for clearing.
Look at the ‘cleared universe’ in SwapClear.
LCH SwapClear clears vanilla interest rate swaps in G-4 currencies, up to 10 years' maturity. SwapClear will increase its product scope to include the addition of currencies and indices, longer maturities, cross-currency swaps and options
http://www.otcderivnet.com/backgroundinformationonlchandlchswapclear/
That universe has grown:
http://www.lchclearnet.com/swaps/products.asp
but is still very much what I would call vanilla.
DTCC has a piece on of size of market. 35 trillion / 45 trillion
http://www.dtcc.com/news/press/releases/2008/tiw.php
but what concerns me (like you I guess), is the stuff that can’t make it into a warehouse, be it structure (terms, variations etc.) or product. All the good things the OTC market is there for (but at a higher margin).
Then today we see ISDA:
The notional amount outstanding of credit default swaps (CDS) dropped 38 percent in 2008, from $62.2 trillion to $38.6 trillion, according to ISDA’s year-end survey of the over-the-counter derivatives market, released April 22 at the trade group’s annual meeting in Beijing. For interest rate derivatives, the notional amount outstanding dipped 13 percent from midyear 2008--from $464.7 trillion to $403.1 trillion--though it rose 5 percent for the year, up from $382.3 trillion.
CDS price transparency needs improvement - NY Fed
BEIJING, April 23 (Reuters) - Price transparency in the $39 trillion credit default swap market remains inadequate, given the influence the derivatives have in credit and equity markets, a senior official at the Federal Reserve Bank of New York said on Thursday.
http://www.reuters.com/article/bondsNews/idUSN2321838620090423
http://www.bapcha.com/?p=186
Nice piece on what a CDS is.
FINRA proposed risk procedures are on page 30 of this link:
http://www.finra.org/web/groups/industry/@ip/@reg/@rulfil/documents/rulefilings/p118120.pdf
Ban Credit Default Swaps? These Corporate Bankruptcies Show We Should
By Martin Hutchinson
For frustrated investors looking to justify the ban of credit default swaps (CDS), look no further than last week’s corporate bankruptcies of Canadian newsprint producer AbitibiBowater Inc. (ABWTQ) and U.S. shopping center developer General Growth Properties Inc. (GGP). In both of these cases, credit default swaps became an actual bankruptcy catalyst - for the first time ever.
http://www.moneymorning.com/2009/04/23/ban-credit-default-swaps/
extract…
In the AIG case, CDS securities allowed an insurance company to write more than $200 billion worth of contracts, booking the premiums as income and reserving nothing against the potential losses, thus bankrupting itself at taxpayer expense.
Credit default swaps then allowed major banks - such as Goldman Sachs Group Inc. (GS) - to collect large sums through their holdings of AIG CDS contracts, while themselves having protection against an AIG bankruptcy, thus double-dipping at the expense of American taxpayers.
These big financial institutions have now facilitated the largest real estate bankruptcy in U.S. history - as well as the bankruptcy of the world’s largest supplier of newsprint - by preventing creditors from agreeing to restructuring plans.
Same old story, if you can measure it, you can manage it.
Right now, I don’t think we can accurately measure it (in entirety). Having said that, no-one to my knowledge has ever counted every grain of sand, and frankly I don’t think it’d make a difference. But there are certain places things that we can manage, and that is the challenge right now. Getting our head around what the inputs and controls should be. (at least in my view).
So, back to the paper I’ve not read yet. I’ll view it from the point that CCPs are good, but not good for everything. You’ll always have cities and regulated markets and frontiers and OTC markets. I think it makes no sense to regulate space travel, That would stifle innovation. I think it makes perfect sense to have some policies around where we leave space junk. We need to get the regulatory and risk contexts right. Also remember CCPs to not prevent default, they just prevent the contagion of losses. What do we want our CCPs to do? I’ll read the paper from the perspective that we should clear liquid stuff and so what if there is a drop of efficiency with the stuff the credit rating agencies have input on (illiquid). Gin and Tonic is a good mix, but only in the right circumstances.
The Tamarama to Clovely swim.
What a beauty. This was an ocean swimmers dream.
The course was great, straight over a marine national park.
Between registration and the start I could play in the sand with my son and after the race we got a free Easter egg (which my son gobbled).
The water was clear as a bell, you could almost reach down and touch the fishies.
I was peering about as we rounded the unfortunately named Shark Point, but not a biter in sight.
This race, they put us in heats based on form. I got heat 5 out of 17. I’d actually prefer to be further back in the pack.
As your bobbing about looking at the fishies, it’s kinda annoying to have people swimming across your line, still, it makes sure you don’t miss the bouys.
My results are up here:
http://www.t2cswim.com/tiki-index.php
and a good race report at:
http://www.oceanswims.com/nsw89/09041213.html
And for those travelling back from TradeTech in Paris this week. Something a little lighter:
We live in changing times…we started with the rule of thumb and now we end up under the thumb. Where will it all end?
The 'rule of thumb' has been said to derive from the belief that English law allowed a man to beat his wife with a stick so long as it is was no thicker than his thumb. In 1782, Judge Sir Francis Buller is reported as having made this legal ruling. It seems that Buller was hard done by. He was notoriously harsh in his punishments and had a reputation for arrogance, but there's no evidence that he ever made the ruling that he is infamous for. Edward Foss, in his authoritative work The Judges of England, 1870, wrote that, despite a searching investigation, "no substantial evidence has been found that he ever expressed so ungallant an opinion".
Have a great week-end all. I’m actually off to meet a guy from a rating agency and ask him why they got it all so wrong.
Cheers,
S
ISDA reveals 29% drop in outstanding CDS globally The volume of outstanding credit default swaps worldwide declined 29% to $38,600bn (€29,629bn) in the second half of last year as investors and issuers cancelled offsetting trades, the International Swaps and Derivatives Association said on Wednesday. (Financial Times)
And from TradeTech in Paris:
http://www.thetradenews.com/sites/thetradenews.com/files/1TTDparis09Iss1.pdf
Which MTF will be the first to fail? (p7)
http://www.thetradenews.com/sites/thetradenews.com/files/TTD_paris09_Issue_2.pdf
Clearing interoperability gets a slot (p12)...and Chi-X (p15)
Darling confirms huge borrowing
By Daniel Pimlott, Last updated: April 22 2009 16:41 - Alistair Darling on Wednesday unveiled plans to tax the rich and rein in public spending as he confirmed a huge increase in borrowing to restore the public finances, which are in their worst state since the second world war. In his Budget speech, the chancellor forecast the economy would contract by 3.5 per cent in 2009, but he expected growth to resume Òtowards the end of the yearÓ.
http://www.ft.com/cms/s/0/d719b0f4-2f2d-11de-b52f-00144feabdc0.html?nclick_check=1
Chi-X announces dark pool, enhances capacity
Chi-X Europe, the first multilateral trading facility (MTF) to enter the European market, has announced its intention to launch a dark liquidity book from Q2 this year, subject to regulatory approval.
http://www.thetradenews.com/trading-venues/mtfs-ecns/3081
Chi-X Europe Increases Message Capacity By 95 Percent - MTF’s Core Matching Engine Capacity Increased To 225,000 Messages Per Second
Chi-X Europe Limited, operator of the largest pan-European equity multilateral trading facility (MTF), today announced that the capacity of its core matching engine has been increased to handle 225,000 messages per second, with full redundancy. With an average internal latency of 350 microseconds and a co-location latency of 400 microseconds, the response times and capacity of Chi-X Europe’s technology are among the fastest in the industry.
http://www.exchange-handbook.co.uk/index.cfm?section=news&action=detail&id=82245
Asia's 'dark pools' lack depth due to downturn The downturn in stock markets and a thicket of regulations have hampered the development of "dark pools" and other alternative trading platforms in Asia and could pare growth for years to come, according to a recent survey.
Deutsche Börse to offer pan-European trading from Q4
MTFs gaining ground on primary exchanges – Cheuvreux
Liquidnet Survey: Global Dark Pool Use Set To Grow Despite Financial Crisis
The growth in the use of dark pools by the buy side is set to grow significantly during 2009 according to a global survey of investors undertaken by Liquidnet, the global institutional marketplace for equities trading.
http://www.exchange-handbook.co.uk/index.cfm?section=news&action=detail&id=82246
*** Approximately 35% of respondents state that short selling restrictions have hindered them as a trader, resulting in decreased liquidity and increased spreads.
CEBS report on custodian banks’ settlement internalisation and CCP-like activitiesCEBS concludes that there is little evidence for action at European level to address the issue of settlement internalisation. CEBS will investigate further risk management aspects relevant to banks that take on the role of general clearing member.
Hong Kong regulator finds allowing short selling helpful
SIFMA Global SmartBrief 04/20/2009
While many exchanges worldwide banned short selling after the collapse of Lehman Brothers, Hong Kong decided to keep allowing investors to short stocks. A survey by Hong Kong's Securities and Futures Commission found that trading volumes actually rose as short selling increased. "Some financial institutions and company executives claimed that shares were being driven down artificially by speculators who short-sold stocks, and that this in turn added to investor worries and drove stock prices even lower," according to the study. "However, studies have shown that restrictions on short selling provided little support for stock prices." AsianInvestor.net (20 Apr.)
21/04/2009 14:27:00
FIDESSA SCOOPS BAIKAL TECHNOLOGY CONTRACT
The London Stock Exchange has partnered with trading technology house Fidessa to build the order management and smart routing technology for Baikal, the LSE's forthcoming pan-European dark pool Multilateral Trading Facility (MTF) and liquidity aggregation service
More on this story: http://www.finextra.com/fullstory.asp?id=19940
NYSE Euronext hit by systems glitch Trading on the European markets of the world’s largest stock exchange group, NYSE Euronext, was delayed this morning, leaving investment banks and brokers unable to buy or sell French or Dutch stocks.
NASDAQ OMX Europe
New Pricing in NYSE Euronext Traded Securities - Effective 1st May 2009.
Price Promotion Summary
A rebate of 0.15 basis points (bps) for adding liquidity to the NASDAQ OMX Europe order book in NYSE Euronext securities.
A charge of 0.15 bps for taking liquidity from the NASDAQ OMX Europe order book in NYSE Euronext securities.
www.nasdaqomxeurope.com
What the IMF has to say about the credit crisis…
From Recession to Recovery: How Soon and How Strong?
http://www.imf.org/external/pubs/ft/weo/2009/01/pdf/c3.pdf
and the more recent GFSR (Global Financial Stability Report)
http://www.imf.org/external/pubs/ft/gfsr/2009/01/index.htm
Japanese clearers seek CDS slots
By in Tokyo, Last updated: April 22 2009 03:00 - Two Japanese clearing houses are following in the footsteps of peers in the US and Europe with plans to introduce clearing for interest rate swaps and credit default swaps next year. Japan Securities Clearing Corporation and the Tokyo Financial Exchange are working out details on infrastructure investment, fees and overseas co-operation, having spent six months conducting separate study groups with domestic and overseas financial institutions.
http://www.ft.com/cms/s/0/752c23ec-2ed6-11de-b7d3-00144feabdc0.html
Transcript: Radio 2UE, Sydney
TREASURER:
…What I can say is the Budget will be responsible. We'll focus on stimulating the economy to…
MIKE:
Treasurer, every Treasurer I've interviewed since Harold Holt has told us there'll be a responsible Budget. Could you get a new cliché? Please.
http://www.treasurer.gov.au/DisplayDocs.aspx?doc=transcripts/2009/058.htm&pageID=004&min=wms&Year=&DocType=2
How Room Designs Affect Your Work and Mood
Brain research can help us craft spaces that relax, inspire, awaken, comfort and heal
http://www.sciam.com/article.cfm?id=building-around-the-mind&sc=CAT_TECH_20090422
FINANCIAL TIMES: LSE Loses Top Markets ExecutiveBy Jeremy Grant 4/21/09The London Stock Exchange lost one of its key executives as Martin Graham, head of markets, resigned amid a reorganisation of the top structure of the group.The surprise move is an early sign of changes that are taking place as Xavier Rolet, its new chief executive, seeks to put his stamp on the more than 200 year-old bourse in the weeks before he succeeds Dame Clara Furse. Mr Graham, who joined the LSE six years ago, was responsible for overseeing the LSE’s main Sets market and was a key figure behind the LSE’s response to the competitive threats posed by a rash of new, smaller competitors such as Chi-X, Turquoise and Bats Europe.The LSE last year instigated deep fee cuts, launched rebates for high-frequency traders and started work on the launch of its first “dark pool” block trading facility, known as Baikal.Mr Graham will be replaced by Raffaele Jerusalmi, the LSE group head of derivatives, a former Borsa Italiana executive who was in charge of derivatives and fixed income at the LSE.The exchange said Mr Jerusalmi’s “enlarged role” was “part of a streamlining of the senior management structure, which will now be organised around three core business units”. These are capital markets, post trade, and technology and information services.By making a derivatives specialist head of markets, the LSE appears to be signalling a renewed emphasis on derivatives at a time when the exchange lags behind its global rivals in derivatives.NYSE Euronext and Nasdaq OMX have recently been expanding into derivatives, which are a higher margin business than cash equities. LSE rival Deutsche Börse has been cushioned from the worst effects of recent dismal equity markets by having a robust derivatives business in Eurex.Mr Graham also headed Aim, the LSE’s junior board, and helped expand the exchange’s appeal as a global listings venue.The LSE yesterday said: “Martin Graham has decided to leave . . . after six years leading the company’s equity markets division. We thank Martin for his important contribution to our business and wish him every success for the future.” While the LSE frequently has been criticised for poor customer relations, the emergence of competition has prompted a change of approach that is likely to accelerate under Mr Rolet.Tony Whalley, investment director at Scottish Widows and a director of Chi-X, said there was still an “old school-new school” divide within the LSE. He said of Mr Graham’s departure: “I think it’s a shame, Martin was certainly more customer-focused than a lot of previous incumbents.”Mr Rolet spent years dealing with exchanges, including the LSE, when he was a senior manager at Lehman Brothers and Goldman Sachs. Analysts saw the appointment of someone from the LSE’s biggest customers as a sign of the exchange’s determination to further improve relations with its customers. The shares fell 29p at 660p.
Summary
· Liquidity fragmentation in Europe last week was 16.3%, 0.6% down from the previous week driven by Germany.
· Ireland (72.1%), UK (26.7%), Netherlands (22.4%), Germany (19.1%) and France (22.3%) were the most fragmented markets in percentage terms.
· UK ($2.2bn), Germany ($1.1bn), France ($1.4bn), Netherlands ($0.4bn) and Switzerland ($0.3bn) were the most fragmented in terms of Displayed Liquidity traded away from the primary market.
· Chi-X achieved average daily turnover (ADT) of $4.3bn, equivalent to 11.7% of flow in Chi-X names. Total ($137m, 22.7%), HSBC (100m, 16.8%) BP ($99m, 25.6%) had the highest ADT.
· ADT on the Turquoise Displayed Order Book was $0.9bn. Market share in Turquoise names was 2.4%. HSBC ($30m, 5.0%), Nokia (28m, 4.4%) Total ($21m, 3.5%), had the highest ADT.
· BATS achieved ADT of $0.8bn. Market share in BATS names was 2.3%. Total ($25m, 4.1%), HSBC ($23m, 4.0%) and Sanofi-Aventis ($16m, 5.7%) had the highest ADT.
· Nasdaq OMX achieved ADT of $41.1m.
· 10 stocks traded more than 20% ADV on Dark venues.
Source: J.P. Morgan TicDB
