Tuesday 22nd July 2014
MONDAY TICKER - JULY 21st - The value of assets managed by Islamic funds grew by 4.9% and reached $75.1bn in the first six months of 2014 (a record apparently). According to a report released by Kuwait Finance House (KFH) Islamic finance assets around the globe – including also those not managed by dedicated Islamic funds – reached $1.8trn by the end of 2013 and should surpass $2trn in the third quarter of this year. The number of Islamic funds grew from just over 800 in 2008 to 1.069 as of June 17th this year says KFH with Saudi Arabia and Malaysia holding more than 60%% of Islamic fund assets worldwide. The report says equities continue to dominate the portfolios of Islamic asset managers, accounting for 44% of the total; approximately 16% of the assets are invested in low-risk money market instruments. Investments in real estate, however, make up only a small portion of total and are made mostly by funds specialised in the Gulf Cooperation Council (GCC) and Malaysia real estate. The GCC is comprised of Saudi Arabia, Bahrain, Qatar, Emirates, Kuwait and Oman - Catella has secured the approval of the Swedish Financial Supervisory Authority (Finansinspektionen) and has taken up the shares in Informed Portfolio Management (IPM) in a deal originally agreed in January 2014 worth SEK25.7m and an additional consideration related to IPM’s performance. Catella’s ownership of IPM now amounts to approximately 51% (up from 25% previously) - Venture capital interest in payment industry start-ups appears to be on the wane. According to data from CrunchBase, the number of venture-backed payments companies has declined from a high of 59 start-ups in the third quarter of 2013 to just 41 in the second quarter of 2014. The reason? High start-up costs which make the going hard for new firms. Most of the big success stories in the sector come from companies that piggy-back off the existing firms and platforms, such as Square's mPOS dongle, or utilise new techniques in crowdfunding and P2P lending to gain an edge over established players. Even so, Square, with its multi-billion dollar valuation, has yet to make a profit - The Hong Kong Deposit Protection Board has published its Annual Report for 2013-2014. Total deposits covered by the DPS increased to HK$1,637bn, with 90% depositors fully covered by the DPS protection limit at HK$500,000. The agency says it has enhanced deposit information submission requirements for scheme members and strengthened contingency arrangements and early warning mechanisms for responding to different crisis scenarios – Oman’s non-oil exports (including re-exports) have grown to OMR3.81bn last year from OMR79m in 1991, according to the Export Credit Guarantee Agency of Oman (ECGA). The agency reports it has received approval from the Ministry of Finance to provide medium and long term cover, investment guarantee as well guarantee on bonds as such approved products are extended by many other ECAs in other countries.

Rules could curb collateral movement, ICMA warns

Thursday, 03 April 2014
Rules could curb collateral movement, ICMA warns Regulators need to consider the impact of financial regulation on the movement of collateral according to a new study by ICMA’s European Repo Council. http://www.ftseglobalmarkets.com/

Regulators need to consider the impact of financial regulation on the movement of collateral according to a new study by ICMA’s European Repo Council.

The trade body has highlighted potential systemic risks of inhibiting collateral fluidity and the negative impact this could have on the stability and efficiency of capital markets.

A number of regulatory and market driven initiatives are in place to meet the challenges that currently constrain the efficient movement of collateral, including Target2-Securities, EU Central Securities Depository Regulation (CSDR) and tri-party settlement interoperability between ICSDs/CSDs.

However, according to ICMA’s study entitled 'Collateral is the new cash: the systemic risks of inhibiting collateral fluidity’, regulations such as the Basel III Leverage Ratio and the proposed EU Financial Transaction Tax (FTT) could prohibit the effective functioning of collateral markets.

For the markets, these regulations could mean less liquid secondary markets for securities, greater asset price volatility. Hedging, and the pricing and management of risk, could become more difficult. There may also be greater execution risks for investors.

Meanwhile the economy could suffer from reduced investment in capital and businesses, higher borrowing costs for governments, increased costs for corporate capital raisers and place more onus on central banks to support markets.

“If banks find it economically inefficient, or are restricted by regulation from supporting the critical functions of sourcing, pricing, managing, and mobilising collateral, and the infrastructure is not in place for the efficient mobilisation of collateral, then the basic intermediation roles of banks and financial markets - that of maturity, risk, and credit transformation - would be undermined,” says the study.

The proposed EU 11 Financial Transaction Tax (FTT), were it to be applied to securities finance trades, would severely impair the effective functioning of collateral markets. Another ICMA study suggests that the size of the European repo market could be reduced by as much as 66%, with the market effectively closed for transactions under six months’ maturity.

In addition, new Basel III capital adequacy requirements are making the balance sheets of banks more expensive. As a result, banks are having to rethink their business models and priorities. Low-margin, capital-intensive businesses, such as repo, are becoming less attractive.

“Sound regulation is essential for the efficient and stable functioning of the global funding and capital markets that support our economies,” says the IMCA’s report. “So is collateral. In this respect, regulation should not only avoid inhibiting collateral fluidity, but, where possible, it should aim to enhance it.

Godfried De Vidts, chair of ICMA’s European Repo Council, adds: “As we build the framework of new financial regulation for safer markets we should steer clear of embedding systemic risks which could contribute to future financial crises.”

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