Posts tagged 'market makers'

US banks push ETF exemption under Volcker

US banks are pushing for their activities around exchange-traded funds to be exempt under the so-called Volcker rule, highlighting the importance of the funds as a tool for the big financial institutions that create and sell them, the FT reports. Banks often act as “authorised participants” for exchange-traded funds, setting up and managing shares in the more than $1tn worth of ETFs in existence in the US. But those activities could fall foul of the proposed Volcker rule, which aims to ban speculative trading at US banks. According to some interpretations, ETFs are not included in the special Volcker carve-out that allows banks to “make markets” on behalf of their clients. “Market makers in exchange-traded funds enter into a number of transactions, such as creating and redeeming ETF shares,” the Securities Industry and Financial Markets Association, which represents big banks and investors, said in its submission to US regulators on the Volcker rule.

Of bonds and automobiles

It’s universally accepted that the moment you drive a car out of a showroom, it will be worth less than what you bought it for.

It’s one reason why ‘car finance’ makes dealers so much money. They offer you the cash to buy the new car outright, but when it’s time to change cars, the customer discovers they owe the dealer more than what the car is actually worth in the secondary market. Read more

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, like exchange traded funds.

FT Alphaville spoke this week about the matter with Susanne Trimbath of STP Advisory services, an expert in the field who routinely appears as expert witness in cases involving settlement issues. Read more

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 about his Tuesday blog post entitled ‘ETFs – worse than I thought’ is this enlightening snippet he’s come across — thanks largely to who he is — about how the funds are really utilised and traded by the ‘smart side’ of the financial industry. Read more

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, analyst at UBS: Read more

It wasn’t the ‘froth’ that caused the commodities rout

Contrary to popular belief, analysis of the latest CFTC position data is beginning to show that it wasn’t so much the ‘froth‘ in the market that was responsible for this month’s run-up and subsequent commodity price collapse, but the professional fund community.

John Kemp at Reuters has pored over the latest data set and concluded, amongst other things that: Read more

Do banks see ETFs as inexpensive funding for illiquid securities? – Part I

Recent trends in Exchange Traded Funds (ETFs) could create “potential financial stability issues” says the Financial Stability Board.

We say: about time someone stated the obvious. Read more

ETFs are proving not so tradeable during crises

FT Alphaville has been keeping tabs on the odd goings-on in Japan-related ETFs recently. And we’ve got another issue to add to our bundle of concerns…

… It’s just how difficult trading in some ETFs has proven to be during the crisis. Read more

Kauffman: ETFs are the problem, not HFT

Finally, a report that dares to outline the previously-taboo: Exchange-Traded Funds may pose a greater systemic threat to markets than high-frequency, or algorithmic, trading.

Writing for the Kauffman Foundation, a Kansas City-based private and nonpartisan foundation, authors Harold Bradley and Robert E. Litan lay the case out in a 86-page report on Monday. Both these guys have testified to the US Congress on things like market structure and financial crises, so they’re well worth listening to. Read more

The little match problem

As most European investors would have noticed, Euronext markets suffered a 45-minute outage just ahead of the close on Wednesday.

According to the FT’s Jeremy Grant, the halt was due to a “human error”. Read more

Chuck Schumer attacks market-makers

Senator Charles Schumer has written to the Securities and Exchange Commission pressing for high-frequency traders to be legally bound to supply liquidity to the market in order to prevent a repeat of the ‘flash crash’, the WSJ reports. The New York senator also called for the role of market-making firms to be clarified. The chief financial officer of Accenture has meanwhile warned that ‘there is every reason to expect that this can happen again’ at a SEC-CFTC conference on the crash, the FT reports.

All eyes on broker-dealer internalisation

While the issue of dark pools and electronic communication networks (ECNs) has fetched a fair share of attention in the media, a little less scrutiny has befallen the SEC’s other area of concern — the practice of broker-dealer internalisation. Public comment on the topic, however, has been increasingly focusing on the issue of internalisation and sub-pennying, reports FT Alphaville. Read more

Who exactly are authorised participants, anyway?

Paul Justice, an ETF strategist with Morningstar, pondered the causes of the May 6 ‘flash crash’ in a recent article for the investment research firm. According to Justice’s analysis, as reported by FT Alphaville, the reason why ETFs were disproportionately affected had more to do with the market makers and authorised participants charged with providing liquidity to the funds — as part of the ETF tracking mechanism — than the funds themselves. Read more