Friday 28th November 2014
NEWS TICKER: FRIDAY NOVEMBER 27TH 2014: BofA Merrill Lynch Global Research’s latest report shows that investment flows this week starkly highlight the impact of negative interest rates in Europe. Money is moving up the value chain in search of substitute asset classes with suitable yield. Investment grade credit looks to be the greatest beneficiary of this at present, with inflows reaching $2-$3bn a week over the last month, a historic high. With around €450bn European govies trading at negative yields, investors have started shifting their attention to high-grade bond funds. The bank’s research team expects the recent strong trend of inflows to continue next year, with inflows to increase to $100bn into the asset class. So far this year high-grade credit has seen $63bn of inflows, while government bond funds have seen only $17bn. The low or negative yielding asset classes are all seeing outflows, reports Bank of America Merrill Lynch in the report. Government bond funds saw their fifth week of outflows, while money market funds saw their largest outflow ($19.5bn) since May this year. Flows into equities managed to bounce back to the positive territory, after three weeks of outflows - According to SwissQuote, in Switzerland, traders will be watching Swiss Kof leading indicator, which is expected to rise from 99.8 to 100.0 in November. However, the real focus will be referenda results this Sunday. The outcome should be released around 4pm CET on Sunday. The latest polls suggest that the “no” votes have the majority indicating that spillover into EURCHF and Gold should be limited. Elsewhere, Euro area flash HICP inflation is expected to drop from 0.4% y/y in October to 0.3% y/y in November. Swedish GDP growth is anticipated to weaken from 0.7% q/q in Q2 to 0.2% q/q in Q3. While OPEC decision not to cut will clearly be disappointing to Canadian policy makers, today GDP is expected to ease from 3.6% y/y to 2.1% y/y in Q3 - New research conducted by independent financial researcher Defaqto on behalf of NOW:Pensions reveals that advisers are gearing themselves up for the business opportunity that auto enrolment presents. Nine out of ten (88%) advisers who are currently advising small and medium sized companies on auto enrolment plan to continue doing so in 2015 when micro businesses will begin staging. Over half of the advisers surveyed (51%) think that auto enrolment represents a good opportunity for them to grow their business over the long term, with three quarters (76%) seeing it as a chance to both advise existing clients as well as grow a new client base. Over two in three (68%) advisers expect to be providing employers with advice on selecting a pension provider, while 72% expect to be advising them for the staging date, and 78% expect their services to be required on an ongoing basis after the staging date has passed. Seven out of ten (73%) believe they will need to advise on other corporate issues such as business protection insurance. Neil Liversidge, managing director, West Riding Personal Finance Solutions explains: "The need for help and advice around auto enrolment naturally brings together business owners, their employees, and advisers. As such it probably represents the single greatest opportunity most firms will have to generate new clients this decade." Not all advisers are in agreement, as nearly one in five (17%) of the 244 advisers questioned, do not intend to advise small and micro businesses on auto enrolment next year. Of these advisers, over half (55%) say they don’t think it will offer profitable business, while 28% believe there is too much admin involved, and 25% are deterred by how much time it will take. One in ten (10%) don’t believe they have the right knowledge to advise on it. Additionally, two in three (66%) advisers say that from their experience so far, employers are either not that engaged or not engaged at all with auto enrolment, while the same can be said for 83% of employees - Germany’s KfW IPEX-Bank and Africa Finance Corporation (AFC) have signed a Framework Financing Agreement (Basic Agreement) amounting to $300m. The facility will be accessible to infrastructure projects in Africa, developed by AFC, by providing long-term financing of European equipment and services imported for such projects. The basic agreement helps to address Africa’s infrastructure development needs while also supporting German and European exporters. Projects that will be financed under the agreement will be covered by guarantees from European Export Credit Agencies (ECAs) - A new active ETF issued by PIMCO Fixed Income Source ETFS plc has begun trading in the XTF segment on Xetra today. The ETF is the PIMCO Low Duration Euro Corporate Bond Source UCITS ETF Asset class, an active bond index ETF (ISIN: IE00BP9F2J32), with a total expense ratio of 0.3%. According to PIMCO, at least 90% of the investment portfolio underlying the active ETF consists of investment grade corporate bonds issued in euro. Up to 20% of the fund assets can be invested in the emerging markets region. The currency risk may amount to up to 10% due to corporate bonds not denominated in euro. The average duration ranges from zero to four years - Legal & General (L&G) has announced a restructure across its L&G Assurance Society (LGAS) division following the announcement of the impending departure of chief executive John Pollock next year. L&G’s savings business will be split into two businesses; mature and digital. Jackie Noakes, chief operating officer for LGAS and group IT director will become the managing director of the mature savings division (including insured savings and with-profit businesses). Mike Bury, managing director of retail savings at L&G will manage the digital savings arm, Cofunds, IPS, Suffolk Life and L&G’s upcoming direct-to-consumer platform –Orangefield Group has purchased Guernsey-based Legis Fund Services, expanding its fund services division and increasing its total assets under administration to more than $50bn. Legis will change its name to Orangefield Fund Services but will continue to be led by managing director Patricia White. The acquisition is part of a trend in mergers and acquisitions in the offshore fund administration sector, and was advised by Carey Olson. Carey Olson also recently advised Anson Group on the sale of its fund administration business to JTC Group and First Names Group on its acquisition of fund management business Mercator - The Straits Times Index (STI) ended +9.54 points higher or +0.29% to 3350.50, taking the year-to-date performance to +5.86%. The FTSE ST Mid Cap Index gained +0.14% while the FTSE ST Small Cap Index declined -0.52%. The top active stocks were Keppel Corp (-2.17%), DBS (+0.66%), OCBC Bank (-0.10%), UOB (+0.71%) and SingTel (unchanged). Outperforming sectors today were represented by the FTSE ST Technology Index (+1.03%). The two biggest stocks of the FTSE ST Technology Index are Silverlake Axis (+1.97%) and STATS ChipPAC (unchanged). The underperforming sector was the FTSE ST Oil & Gas Index, which declined -2.84% with Keppel Corp’s share price declining -2.17% and Sembcorp Industries’ share price declining-1.08%. The three most active Exchange Traded Funds (ETFs) by value today were the IS MSCI India (+0.38%), SPDR Gold Shares (-0.70%), STI ETF (unchanged). The three most active Real Estate Investment Trusts (REITs) by value were CapitaCom Trust (+0.30%), Suntec REIT (+1.29%), Ascendas REIT (+1.30%). The most active index warrants by value today were HSI24400MBeCW141230 (-6.67%), HSI23800MBeCW141230 (-5.13%), HSI23600MBePW141230 (+2.50%). The most active stock warrants by value today were DBS MB eCW150602 (+2.42%), KepCorp MBePW150330 (+13.85%), UOB MB eCW150415 (+1.24%).

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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