Thursday 31st July 2014
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THURSDAY TICKER: 31ST JULY 2014 - Standard & Poor's says Argentina is in selective default on foreign-currency-denominated debt, after the government failed to make a $539m payment on $13bn in restructured bonds. Argentina had transferred the money to the paying agent, but a US judge would not allow its release unless hedge funds holding bonds not included in a restructuring also were paid. The latest default is expected to exacerbate problems in Argentina's recession-hit economy, analysts say. This is the second time Argentina has defaulted on its debt in the last thirteen years, after last-minute talks in New York with a group of bond-holders ended in failure. Vulture fund" investors were demanding a full pay-out of $1.3bn (£766m) on bonds they hold. Argentina has said it cannot afford to do so, and has accused them of using its debt problems to make profits - In a regulatory filing made public earlier this week, and US press reports, BlackRock has begun the process of establishing a Wholly Foreign-Owned Enterprise (WFOE) in Shanghai. The firm is reportedly creating an investment advisory WFOE which will give it significantly greater flexibility and speed in executing its Greater China strategies – Shares in Chinese footwear manufacturer Feike AG have been listed on the General Standard of the Frankfurt Stock Exchange. Ten million shares have been listed at an initial price of €7.50. ACON Aktienbank AG is supporting the issue. Scheich & Partner Börsenmakler GmbH is the specialist. This is the third Chinese company to list on the exchange according to managing director Michael Krogmann. “With the IPO we have achieved an important strategic milestone. This helps us to expand our competitive position and our brand awareness in the booming Chinese market for children’s footwear as well as to realise future growth plans”, says Andy Hock Sim Liew, CFO of Feike AG - Funding pressures stemming from reduced central government capital grants and the persistence of tightened long-term bank lending are likely to fuel the English housing association sector's continued use of capital markets over the next two years, says Moody's Investors Service in a new report published today. The new report English Housing Associations: Financial Disintermediation- A One Way Trip, is the third in a series on European sub-sovereigns' financing needs and access to market funding.

New ICMA European Repo Council paper examines role of ‘haircuts’

Wednesday, 08 February 2012
New ICMA European Repo Council paper examines role of ‘haircuts’ ICMA’s European Repo Council (ERC) has published a paper entitled: Haircuts and initial margins in the repo market, which calls for more detailed understanding of the precise impact of collateral haircuts in the repo market to inform the regulatory debate.The paper, written by Richard Comotto of the ICMA Centre, questions the popular view of the role played by collateral haircuts in the recent crisis. http://www.ftseglobalmarkets.com/

ICMA’s European Repo Council (ERC) has published a paper entitled: Haircuts and initial margins in the repo market, which calls for more detailed understanding of the precise impact of collateral haircuts in the repo market to inform the regulatory debate.The paper, written by Richard Comotto of the ICMA Centre, questions the popular view of the role played by collateral haircuts in the recent crisis.

A haircut is a percentage discount deducted from the market value of a security that is being offered as collateral in a repo in order to calculate its purchase price. The adjustment is intended to take account of the unexpected losses that one party to the repo trade might face in buying (or selling) the security if the other party defaults.

Regulators are concerned that the application of haircuts could amplify negative market trends. They worry that, in a situation when asset prices are falling, increases in haircuts in response to a loss of confidence could reduce liquidity of market users who may then sell assets, so reducing the price and causing haircuts to be increased again. This theoretical scenario has been blamed by some for exacerbating the market crisis.

The paper refutes this view, citing evidence, much of it from official sources, that haircuts did not in fact change much during 2007-2009. Rather market issuers initially responded to the crisis by reducing or withdrawing credit lines, shortening the terms for which they were willing to lend and narrowing the range of collateral they were willing to accept.

The author examines the data on which academic studies of this phenomenon have been based and finds that these have been largely focused on the use of structured credit as collateral in the US market. This has been extrapolated to the wider global market without adequate consideration of the differences in market structure. The paper concludes that there is no empirical evidence to suggest that the imposition of haircuts in Europe was a major contributor to the market crisis.

 “Repo market participants want to work with the authorities to ensure the operation of the market in Europe is well understood, so that regulatory proposals assist its efficient functioning. Industry efforts have always and continue to be directed at improving market practice and education,” says Godfried De Vidts, chair of the ERC.

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