Initial Steps Towards a Regulation of Exchange Traded Funds

Since their creation in Canada in 1990, ETFs have grown from a fairly niche product into a full-fledged asset class with assets under management (AuM) amounting (excluding ETPs) to some USD1.6tn worldwide at the end of September 2012, i.e. about 6.4% of the global AuM of mutual funds. As a matter of fact, the few incentives of fund distribution channels to promote them was an initial impediment to their marketing, but those specialized players who have promoted them have grown into global firms as ETFs have met significant demand, particularly since the advent of the financial crisis due to their specific features (low fees, transparency and liquidity). Throughout this period, ETFs were actually one of the few fund classes that kept recording positive net fund inflows. ETFs thereby reached out to an increasingly wider client base, extending from their traditional, institutional remit into the high-net worth and retail investor space.

WFE Urges International Regulatory Bodies to Modify Capital Standards for ETDs

In a letter to the FSB and other policy organizations, WFE encouraged global standard setting bodies to demonstrate continued support for the G20  commitments to bring greater transparency and central clearing to derivative markets by ensuring that the costs of ETD markets are not unnecessarily increased. 

WFE Unveils New Statutes at 52nd General Assembly

(15 October 2012, Taipei) Today the General Assembly of the World Federation of Exchanges (WFE) approved new statutes that alter the structure of the organization from a secretariat to a corporate body. Chairmen and Chief Executives from more than 50 of the world’s leading exchanges gathered in Taipei this week for the 52nd WFE General Assembly and Annual Meeting and officially ratified a new structure for the organization. This assembly represents the largest and most widely attended gathering of global exchange leaders.

WFE Reaffirms Support of Regulatory Action in Global Derivatives Market Following Publication of New Study

Leaders from the WFE have re-emphasized their support of regulatory action in the global derivatives market on the occasion of the publication of a new study commissioned by the WFE to examine the state of over-the-counter (OTC) and exchange-traded derivatives. The report describes how regulatory reform is resulting in significant shifts in product selection across the global risk transfer market.

Message from the Secretary General

I have the honor to serve as the new Secretary General of the World Federation of Exchanges since my appointment on June 18, 2012.

I am honored that the WFE Board of Directors has appointed me to this position recognizing my commitment to the principals put forward by the Federation. I have now become a producer of WFE services after many years of being a consumer of WFE services. The WFE is a very familiar environment for me, as I served on the Board of WFE, first as the Chairman of the Working Committee and then as a Director for four years.  My goal is to expand and enhance the WFE’s services and advocacy for well-regulated exchanges, particularly during this period of rapid global economic transformation, and to lead the WFE in articulating the unified global exchanges’ viewpoint on issues relating to regulation in the industry. In order to maintain a high level of visibility for WFE initiatives, I will continue to facilitate coordination between the WFE members and the policymakers, regulators as well as the members of academia. 

Excerpts from "Economic Impact Assessment on Mifid II Policy Measures Related to Computer Trading in Financial Markets"

This working paper presents important interim findings of the international Foresight project: The Future of Computer Trading in Financial Markets. In particular, it considers the costs, risks and benefits of six possible regulatory measures which are currently being considered within the European Union’s Markets in Financial Instruments Directive 2 (MiFID II). It precedes the final project report which will be published later in 2012, and which will consider a broader set of issues surrounding computerbased trading (CBT) over the next ten years.


Foreign Listings on Taiwan Stock Exchange

As companies increasingly travel across borders for listings and fundraising, stock exchanges too are looking beyond their own markets. What can exchanges do to enhance their positions to attract these companies? In some cases, change must come from within.

Today the stock ticker at the Taiwan Stock Exchange shows over 20 stock securities with abbreviated names beginning with the letter “F”, some of which are represented entirely by English letters; this phenomenal growth has occurred in just the last two years.

Exchange Competition, Fragmentation and the Destruction of Liquidity in Markets that Operate Centralised Electronic Limit Order Books

In the early 1980s and 1990s US regulators commenced promoting competition that fragmented trading on US exchanges in an effort to put competitive pressure on participants on those exchanges: specifically specialists and dealers.  The main rationale of US regulators was that these exchange participants enjoyed various forms of market power and they used this market power to extract economic rents from investors by quoting excessively wide bid-ask spreads.  The regulators reasoned that any upward pressure on bid-ask spreads resulting from fragmentation would be more than offset from the downward pressure on bid ask spreads through competition foisted on specialists and dealers, thereby reducing bid ask spreads and the cost of trading.  The measures advocated by the regulators included the promotion of competition between exchanges and regional exchanges as well as upstairs or off-market trading.  More recently, the opportunity to trade upstairs and technological innovation has spawned dark pools, which continue to fragment US markets.  The initial effects of the competition and fragmentation in US markets on bid-ask spreads (decades ago) has been documented in numerous academic studies.  These studies have confirmed that competing exchanges and upstairs trading historically reduced on-exchange bid-ask spreads and therefore reduced transaction costs thereby enhancing liquidity.

ETFs and ETPs Why Are They One of the Fastest Growing Investment Products

Exchange Traded Fund “ETF” and Exchange Traded Products “ETPs” assets reach a new high of US$ 1.7 billion

Global assets invested in Exchange Traded Funds (ETFs) and Exchange Traded Products (ETPs) hit an all-time high of over US$1.7 trillion (US$1,762 billion) at the end of August 2012. Year-to-date through end of August 2012 ETF and ETP assets have increased by 15.5% from US$1,526 Bn to US$1,762 Bn.

Market volatility may be making investors wary about the stock market, but they continue to find exchange-traded funds and other exchange traded products useful tools. 

Over the past 10 years the compounded annual growth rate (CAGR) of these products globally has been 26.5%. There are currently 4,713 ETFs and ETPs, with 9,620 listings, assets of US$1,762 Bn, from 204 providers on 56 exchanges.

Some Thoughts on Libor: A Market based Solution

Libor is giving derivatives a bad name.

The London Interbank Borrowing Rate (Libor) and its calculation are subject to worldwide investigation.  In fact, one bank has already paid over $450 million to settle rate manipulation allegations. Others are being investigated and may be implicated.  Currently, estimates of damages resulting from the scandal range from $8 billion to $176 billion.

Libor is an interest rate at which banks will lend money to each other for different time periods (i.e. Overnight, 1-month, 3-months, in different currencies (e.g. the U.S. dollar, Euro etc.).  The most popular is the dollar-based Libor. Libor is important benchmark for interest rates on mortgages, credit cards, swaps and the multi-trillion dollar financial derivatives industry including corporates and state and local governments.  An accurate Libor has  huge implications on our everyday lives.   But there is a big problem with how we determine this rate.