Monday 31st August 2015
NEWS: Friday, August 28TH: The Hong Kong Monetary Authority says it has granted a restricted banking licence to Goldman Sachs Asia Pacific Company Limited (GSAPCL) under the Banking Ordinance. GSAPCL, incorporated in Hong Kong, is a wholly-owned banking subsidiary of the Goldman Sachs Group, Inc. The number of restricted licence banks in Hong Kong is now 24 - Apple launched its first Australian dollar corporate bond issue, raising $1.2bn within two hours this morning. Strong demand for the US tech giant’s fixed and floating, four and seven year Kangaroo bonds saw the firm outstrip predictions it would raise between $500m and $1bn. Apple bonds are popular because the AA+ rated company is considered an ultra-safe investment, although yields are correspondingly low — about 3% on four-year bonds and about 3.8% on seven-year bonds - The European Securities and Markets Authority (ESMA) has published the responses received to the Joint Committee Discussion Paper on Key Information Document for PRIIPS. The responses can be downloaded from the regulator's website - Romania’s MV Petrom reportedly is planning a secondary listing on the London Stock Exchange. According to Romanian press reports, the local investment fund Fondul Proprietatea may sell a significant stake in the company via public offering on the Bucharest Stock Exchange and London Stock Exchange. OMV Petrom, with a current market capitalisation of €4.85bn has announced that it will ask its shareholders’ approval for a secondary listing in London. The general shareholders meeting is scheduled for September 22nd. Austrian group OMV, holds 51% of the company’s shares; other shareholders include the Romanian state, via the Energy Ministry, with a 20.6% stake, and investment fund Fondul Proprietatea, which holds 19%. The remaining 9.4% is free-float - Morgan Stanley (NYSE/MS) today announced the launch of a new fund, the IPM Systematic Macro UCITS Fund, under its FundLogic Alternatives plc umbrella. The fund provides exposure to IPM’s Systematic Macro strategy, which is based on IPM’s proprietary investment models that provide unique insights into how fundamental drivers interact with the dynamics of asset price returns. The FundLogic Alternatives Platform currently has more than $2.6bn in assets under management (as of 31 July 2015) and this latest addition expands Morgan Stanley’s offering of global macro strategies - Equities sold off hard this morning as continued pressure on Chinese stocks rippled throughout world markets. Chinese government intervention brought the Shanghai Composite back a positive close; but the question is now, has confidence eroded so much that the market will continue to depend on the government to prop it up? The other key element to consider today is the outcome of the debate in the German parliament on the Greek bailout. Last month, a record 65 lawmakers from the conservative camp broke ranks and refused to back negotiations on the bailout. The daily Bild estimated that up to 120 CDU and CSU members out of 311 might refuse to back the now-agreed deal. However, Chancellor Merkel is looking to secure support from the Social Democrats (SPD), Merkel's junior coalition partner, and the opposition Greens which will likely swing the final decision Greece’s way. However, a rebellion by a large number of her allies would be a blow to the highly popular Chancellor.

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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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