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’Settlement failure financing, ETF edition
FT Alphaville has referred in previous posts to the emerging global settlement failure issue. We’d now like to address the curious case of settlement fail patterns across the repo universe.
As we have already noted,
ETF arbitrage, Chinese trust edition
For those who still question the notion that ETFs “manufacture arbitrage” for anyone smart enough or well positioned enough to exploit the opportunity, we bring you the latest example of ETF arbitrage in action,
If you pay peanuts for ETFs, you get…
We had always heard stories about how profitable ETFs were for banks.
For example, people had told us that official management fees were clearly a red herring. By and large, the money was being made in the background,
European money market funds are hemorrhaging
Here’s an interesting chart from Société Générale compiled using data from EPFR Global.
It shows recent flows in and out of European money-market funds.
As can be seen, they’re seemingly hemorrhaging once again:
The high-yield exodus, charted
From Data Explorers – a chart to show how shares on loan in iShares’ iBoxx high-yield corporate bond ETF have basically trebled since June 10:
More coverage over here…
The BoE outs Europe’s synthetic ETF exposure
There was a sprinkling of ETF talk in the Bank of England’s latest Financial Stability Report out on Friday — much of it warning about synthetic products, echoing concerns flagged by other regulators this year and by the Bank itself in 2010.
Behold, the high-yield exodus
Uh oh. This is worrying.
From Standard Chartered’s latest credit research report on Friday:
Investors continue to desert HY bond funds in droves as outflows accelerate.
Meanwhile, the WSJ reports:
Phantom indices
Themis Trading — ever-alert for structural weaknesses in markets — have a new paper.
It’s about ‘phantom indices’ — or the idea that widely-followed indices such as the S&P 500, the Dow Jones Industrial Average or the Nasdaq 100 don’t actually track all of the shares traded intraday.
Crouching Vix, hidden volatility
As FT Alphaville has written before, the volatility is out there.
You just have to look for it — and not by glancing at industry-standard, the CBOE Vix index.
A point aptly made by ConvergEx recently:
The Bank of Japan doesn’t seem to like 1 per cent Topix drops
Not price-keeping, but signalling at the Bank of Japan .
Nikkei reports on Monday that “Japan’s stock investment community is buzzing with rumors about the Bank of Japan’s ’1% rule’.” Readers will recall that the BoJ started buying ETFs and JReits late last year,
Equity shorts in disguise
Synthetic prime – a.k.a — the art of transforming client exposures.
But, we wonder, could there be more to it than meets the eye?
Let’s start with what ‘synthetic prime brokerage’, shorting, internalisation,
Who’s been trading natgas futures on the curve?
The natgas mystery continues!
Let’s start first with the following flashes from the CME via Reuters on Friday:
NYMEX PRELIMINARY DATA SHOWS NATGAS FUTURES OPEN INTEREST HIT RECORD HIGH ON JUNE 9–CME WEBSITE
PRELIMINARY DATA ALSO SHOWS NYMEX NATGAS FUTURES VOLUME SET NEW RECORD HIGH THURSDAY–CME WEBSITE
Which means the day after the mysterious mini-flash someone or some people,
The future is all about cross-asset arbitrage
What happens when computer-driven trading reaches a high-speed saturation point?
That is, when high frequency trading reaches its natural limit — it simply cannot get any faster?
The answer is multi-dimensional arbitrage.
Manufacturing arbitrage with ETFs
To the average investor, exchange traded (funds/products/commodities/notes), or ETFs for short, are simply shares which track indices. Copper, the FTSE 100, the retail sector, whatever.
Their defenders insist they have revolutionised the industry,
The holy grail of ETFs
We’ve never really touched upon the issue of active ETFs at FT Alphaville, because quite honestly the subject makes our heads hurt.
But we’ve decided we’ve possibly dodged the issue for long enough.
To (settlement) fail, or not to fail
Settlement fails are on the rise and many are beginning to worry about the systemic implications associated with a market culture that routinely shuffles the problem under the carpet. Particularly, they worry that fails are beginning to migrate to new asset classes,
An insight into the real business of ETF trading
We’ve already written about how city veteran Terry Smith of the Fundsmith Equity Fund doesn’t like ETFs and why he’s worried about the extent to which they are shorted.
But what’s really interesting
Terry Smith doesn’t like ETFs
Uh oh.
Terry Smith, City veteran, pugnacious former director of Collins Stewart and manager of the Fundsmith Equity Fund, has turned a critical eye onto one of our favourite subjects — exchange traded funds.
Beware the ‘Splash Crash’
Introducing ‘the splash crash’.
Like the flash crash but worse because it involves the “flash” spreading cross-asset class to everything from forex to commodities.
The idea springs from John Bates,
Silver and short covering – a theory
John Kemp at Reuters has already written about how it wasn’t necessarily the froth in the market that caused the parabolic rise in silver over April:
Now, on Friday, Pragmatic Capitalism has a post explaining why the CFTC’s committment of traders report possibly proves it was indeed short covering which was responsible for the rise,
The ‘Asia connection’ to the commodity rout
Our colleagues on the paper-side drew attention last week to the fact that silver trading in Asian hours experienced a clear pickup into the lead up to the commodity rout.
Jack Farchy wrote, citing Edel Tully,
ETF investors mistimed the commodity correction (again)
Here’s an interesting observation regarding this month’s commodity sell-off.
It comes from short-selling data firm, Data Explorers, and it concerns commodities ETFs:
The other theme running through this week has been further drama in some of the commodity markets,
Further further reading
For the commute home,
- Can you predict who will get a Nobel in economics?
- The amazing story of JP Morgan’s hunt for Afghan gold.
- In defence of ETFs.
- What was that Goldman said about demand destruction?
- Peter Diamond is targeted.
Further further reading
For the commute home,
- Cisco beats expectations after the bell.
- What is the Gulf Cooperation Council?
- Oil prices and trading mechanics.
- More on those new CDOs, ETFs.
- Microsoft caused the dot-com bubble.
If we build it, they will come
FT Alphaville has explored the financing and bespoke servicing role of ETFs before.
The FT’s Gillian Tett has now openly likened the products to CDOs.
Given that, we thought we would provide some further context to the nature of such things in the commodity world.
Fall-out from the imploding commodities complex
It was inevitable that Thursday’s commodites rout would claim some victims … just as Friday’s further slide in commodities prices will inevitably cause more casualties.
The FT’s Lex column, describing the sell-off as an “epic rout”
Guest post: ETFs – what’s the fuss about?
Paul Amery, editor of IndexUniverse.eu, a specialist publication devoted to index-based investing and exchange-traded funds, considers the recent assault on the market.
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Last week’s three-pronged attack from the super-regulators of the world’s financial system — the G20 Financial Stability Board (FSB),
Blackrock’s prudent collateral approach, no periphery debt please
When it comes to physically-replicated Exchange-Traded Funds (ETFs), the key criticism — if any — usually pertains to providers’ tendency to top-up management fees with stock lending revenue.
The theory is that the practice exposes investors to unnecessary counterparty risk,