Friday 27th May 2016
NEWS TICKER, FRIDAY MAY 27TH: BGEO Group plc, the London listed holding company of JSC Bank of Georgia, has this morning announced that Bank of Georgia, Georgia’s leading bank, and the European Bank for Reconstruction and Development (EBRD) have signed a GEL220m (approximately £70m) loan agreement with a maturity of five years. EBRD obtained the local currency funds through a private placement of GEL-dominated bonds arranged by Galt &Taggart, a wholly owned subsidiary of BGEO. This is the largest and the longest maturity local currency loan granted to a Georgian bank, which will allow Bank of Georgia to issue longer-term local currency loans, providing essential support for micro, small and medium sized enterprises to converge to DCFTA requirements, as well as underserved women entrepreneurs. “We are keen to develop financial products and lending practices, to service specifically women-led SMEs, which will ultimately increase their involvement in developing Georgia’s private sector”, says Irakli Gilauri, CEO of BGEO Group - The UK’s CBI has responded to analysis from the Treasury showing that a vote to leave the European Union could negatively impact UK pensions. Rain Newton-Smith, CBI Economics Director, says that: “All pension schemes benefit when funds can be invested across a stable, growing economy, to best support people in their retirement years. Any financial market turmoil caused by a Brexit is likely to have a negative effect on household wealth, the value of funds and damage pensions here at home, especially for those looking to retire within the next few years. The sheer weight of credible evidence points towards a serious economic shock if the UK were to leave the EU, meaning a hit to the value of our private pensions, jobs and prosperity.” - EPFR Global reports that Nine weeks into the second quarter mutual fund investors remain underwhelmed by their choices as they seek to navigate a global economy characterized by political uncertainty in Europe, lacklustre corporate profits and the prospect of another interest rate hike in the US, economic stress in major emerging markets and Japan's experiment with negative interest rates. During the week ending May 25 all nine of the major EPFR Global-tracked Emerging and Developed Markets Equity Fund groups posted outflows, as did Global, High Yield, Asia-Pacific and Emerging Markets Bond Funds, seven of the 11 major Sector Fund groups and three out of every five Country Equity Fund groups. Alternative Funds look to have taken in over $1bn for the fifth time in the past 14 weeks. Overall, EPFR Global-tracked Bond Funds added $2.6 billion to their year-to-date tally while another $9.1bn flowed out of Equity Funds. Some $12bn was absorbed by Money Market Funds with US funds attracting the bulk of the fresh money. EPFR Global-tracked Emerging Markets Equity Funds remained under pressure from many directions. China's economic data and policy shifts continue to paint a mixed picture for growth in the world's second largest economy, the US Federal Reserve is talking up the prospects of a second rate hike this summer, Europe's recovery appears to be running out of stream and the recent recovery in commodities prices is being viewed with scepticism in many quarters. All four of the major groups recorded outflows during the week ending May 25, with the diversified Global Emerging Markets (GEM) Equity Funds seeing the biggest outflows in cash terms and EMEA Equity Funds in flows as a percentage of AUM terms. Latin America Equity Funds extended their longest outflow streak since late 3Q15 as investors who bought into the prospect of political and economic change in Brazil confront the messy reality. However, year to date Brazil has been the top emerging market for all EPFR Global-tracked Equity Funds as managers bet that the impeachment proceedings against President Dilma Rousseff will open the door to more centrist economic policymaking says the funds data maven. Among the EMEA markets, the firm reports that GEM managers are showing more optimism than investors. EMEA Equity Funds have now posted outflows for five straight weeks and investors have pulled over $300m out of Russia and South Africa Equity Funds so far this month, though GEM allocations for both South Africa and Russia climbed coming into this month. The latest allocations data indicates less optimism about China despite is still impressive official numbers - annual GDP was running at 6.7% in 1Q16 - and the edge the recent slide in the renminbi should give Chinese exporters. GDP growth in Emerging Asia's second largest market, India, is even higher. Elsewhere, India Equity Funds have struggled to attract fresh money as investors wait to for domestic business investment and the government's reform agenda to kick into higher gears says EPFR Global – According to New Zealand press reports, stock exchange operator, NZX, will initiate confidential enquiries into listed companies that experience large, unexplained share price movements, to determine whether they may be holding undisclosed "material" information even while remaining in compliance with the market's Listing Rules that require disclosure of material information at certain trigger points. In an announcement this morning, NZX also warned investors not to assume that a listed entity's Listing Rules compliance statements meant they did not have material information in their possession which would potentially require eventual disclosure - Asian stocks were modestly higher today, largely on the back of increasingly softening sentiment from the US Federal Reserve. Most people think there will be one rate hike this year, but likely it will be in July rather than June. Either way, it will be one and not two or three. Fed chair Janet Yellen is scheduled to talk about interest rates at an event at Harvard University today and the expectation is that a softer approach for the rest of this year will be writ large; a good signal of intent will follow today’s quarterly growth stats. The presidential election will encourage caution; continued market volatility will encourage caution and mixed manufacturing data will encourage caution. Japan’s benchmark Nikkei 225 index added 0.4% to touch 16,834.84 and Hong Kong’s Hang Seng rose 0.9% to 20,576.52. The Shanghai Composite Index gained 0.3% to 2,829.67. The Straits Times Index (STI) ended 6.65 points or 0.24% higher to 2773.31, taking the year-to-date performance to -3.80%. The top active stocks today were SingTel, which gained 1.05%, DBS, which gained 0.07%, UOB, which gained0.11%, Keppel Corp, which gained2.47% and Ascendas REIT, which closed unchanged. The FTSE ST Mid Cap Index gained 0.27%, while the FTSE ST Small Cap Index rose 0.30% - The European Bank for Reconstruction and Development (EBRD) says it is taking the first step towards developing a green financial system in Kazakhstan in partnership with the Astana International Financial Centre (AIFC) Authority. EBRD President Sir Suma Chakrabarti and AIFC Governor Kairat Kelimbetov signed an agreement today on the sidelines of the Foreign Investors Council’s plenary session to commission a scoping study for the development of a green financing system in Kazakhstan. The study, scheduled to be completed in 2017, will assess the demand for green investments, identify gaps in current regulations, and make recommendations for the introduction of green financing standards and for the development of the green bonds market and carbon market services. The development of a green financing system would be consistent with the COP21 Paris Agreement, aligning financing flows with a pathway towards low greenhouse gas emissions and climate resilient development. The AIFC Authority was put in place earlier this year and is tasked with developing an international financial centre in Astana. In March, the AIFC Authority, TheCityUK and the EBRD signed a Memorandum of Understanding to support the establishment of the financial centre and to encourage and improve opportunities for the financial and related professional services industries – Turkey’s Yuksel has issued notice to holders of $200m senior notes due 2015 (ISIN XS0558618384), and filed with the Luxembourg Stock Exchange, that the company has agreed a term sheet with the ad-hoc committee of noteholders and its advisors to implement a restructuring of the notes and is currently finalising the required scheme documentation with the Committee. Once agreed, the Company will apply to the English High Court for leave to convene a meeting of note creditors to vote on the scheme proposals as soon as reasonably practicable when the High Court reconvenes after vacation in June 2016 - Following the agreement in principle of the May 24th Eurogroup for the release of the next loan tranche to Greece, domestic authorities have intensified their efforts for the completion of all pending issues reports EFG Eurobank in Athens. According to Greece’s Minister of Finance Euclid Tsakalotos, on the fulfilment of all pending issues, €7.5bn will be disbursed in mid-June, of which €1.8bn will be channeled to clear state arrears – This weekend is the second UK May Bank Holiday. FTSE Global Markets will reopen on Tuesday, May 31st at 9.00 am. We wish our readers and clients a sunny, restful, safe and exceedingly happy holiday.

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Corporate credit embraces electronic trading

Wednesday, 25 July 2012
Corporate credit embraces electronic trading Recent years have witnessed unprecedented growth in the electronic trading of European credit instruments. Designed to improve transparency and minimise counterparty risk in the derivatives markets, the direction of new regulation is an important factor behind e-trading of European credit. The rules that will govern trade execution, clearing and reporting have yet to be finalised, but it is clear that reform is likely to push trading further towards electronic markets, where there is enhanced price transparency, workflow efficiency and regulatory oversight. Rupert Warmington, director of European credit markets at Tradeweb, discusses why he expects this trend will continue. http://www.ftseglobalmarkets.com/

Recent years have witnessed unprecedented growth in the electronic trading of European credit instruments. Designed to improve transparency and minimise counterparty risk in the derivatives markets, the direction of new regulation is an important factor behind e-trading of European credit. The rules that will govern trade execution, clearing and reporting have yet to be finalised, but it is clear that reform is likely to push trading further towards electronic markets, where there is enhanced price transparency, workflow efficiency and regulatory oversight. Rupert Warmington, director of European credit markets at Tradeweb, discusses why he expects this trend will continue.

To improve portfolio yields in a climate where other fixed income instruments are showing historically low yields, many investors have turned to European corporate bond markets in recent years. Meanwhile, corporate issuers in Europe are increasingly looking to access capital markets as a result of balance sheet constraints in the bank loan market, which they have traditionally relied upon for a large part of their financing needs. Upcoming regulatory changes and a desire for greater operational ­efficiencies within asset managers have combined to form an ongoing and significant increase in the electronic trading of European credit instruments.

The shift towards e-trading in European credit bonds corresponds with widespread change in the investment patterns and workflows of “real-money” institutions. European dealers are increasingly looking to electronic platforms to service clients’ flow business in vanilla products—precisely where there is greatest liquidity. Growth in electronic trading of investors’ flow business has boosted e-trading volumes overall—estimated now to represent well over 35% of the European credit market, up from less than 20% just a couple of years ago.



Access to liquidity lies at the heart of successful e-trading platforms. There has been a sizeable increase in the number of market makers providing prices in European credit over electronic marketplaces such as Tradeweb. Sell-side participants’ desire to win volume through e-platforms has led to significant improvements in the quality of electronic liquidity compared to that offered by phone. This is especially evident in recent months, and has not necessarily reflected conditions in the market overall. There is indeed an increasing buy-side perception that a growing proportion of overall sell-side liquidity is now being offered electronically as opposed to voice trading.

Yet, for institutional investors, operational efficiency is almost as important as liquidity. Throughout the entire trading cycle of price discovery, ­execution and post-trade processing, electronic trading platforms provide ready access to trade information, analytics, and price transparency. And both buy- and sell-side institutions can fully integrate electronic trading platforms into their existing workflow systems.

This automation must not come at the cost of flexibility. Buy-side traders can tailor tickets to their precise requirements on electronic platforms and request prices from specific dealers (the “request-for-quote” or RFQ model). This auction-like process gives buy-side traders fast and trans­parent price discovery, simultaneously putting dealers into competition. Increased competition optimises pricing efficiency and helps the buy-side demonstrate best execution.

More sophisticated electronic trading platforms are also flexible enough to allow buy-side investors to execute multiple trades concurrently from a single list of orders across multiple asset classes. The time saved allows asset managers to invest resources more efficiently to boost overall productivity and performance.

The need for flexibility in trading these instruments has become increasingly important as both regulatory and macroeconomic factors coalesce, reducing overall market liquidity. This has led various market participants recently to explore new price discovery and execution models which, if successful, could increasingly challenge the way business is done and even the current market structure.

However, the common thread running through the fundamental changes underway in the marketplace is the greater use of electronic trading. Whilst the main driver stimulating the willingness to look at new ways to execute trades may be regulatory and macroeconomic change, the need for more efficient and cost-effective trade execution is also at the core of these moves. In other words, the evolution happening today is underpinned by some of the same drivers that have been central toward the increased use of electronic trading across fixed income markets for more than ten years.

It is clear that the fixed income markets are becoming an increasingly dynamic and exciting place in which to operate, especially in the burgeoning electronic marketplace for European credit. This presents us with challenges, but also many opportunities to contri­bute to the accelerating evolution of the market. As electronic trading continues to meet the needs of financial institutions seeking better liquidity, increased efficiency and improved performance, marketplaces like Tradeweb will continue to partner with the buy- and sell-side to drive innovation in the new regulatory and economic environment.

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