ellenaelchau-blog

[ellenaelchau-blog]

Watchdogs set sights on bank trading floors

Over-the-counter dealing of financial instruments -- out of sight from closely scrutinised trading platforms -- is under fire, as is computerised trading, a practice often blamed for causing wild swings in markets.The sprawling trading floors are vast money-spinners. In Fixed Income, Currencies and Commodities alone, banks such as Credit Suisse , Deutsche Bank , UBS , HSBC and Barclays generate between 40 and 60 percent of investment banking revenues.The priority for banks is to deal with the sheer volume of new European Union directives being discussed, bankers said this week. They cannot yet gauge the impact on profitability, which has already been hit by new capital rules."Everyone is in deep analysis, and is having to revisit that analysis with each iteration of the leaked documents ... we have to make a prioritised list, because we cannot fight all the battles," said one industry insider.European politicians are struggling to find a way out of the continent's ever-deeper debt crisis and are clamping down hard on banks. They are widely expected to force-feed the lenders new capital to stave off the chance of collapse.Banks' profitability will come down materially because of global new capital rules -- known as Basel III, drawn up after credit crisis -- which will force banks to hold more of their own capital for every dollar they lend.Basel III will reduce return on equity (ROE) -- a measure of profitability -- to 7 percent from 20 percent now, a study by consultancy firm McKinsey has found. Banks could bring that back up to 14 percent if they took the right measures.In Europe, investment banks will take a further hit from a whole host of new directives on financial markets that are not directly aimed at investment banking, but touch on many of the activities taking place in dealing rooms.MASSIVE IMPACTNext Thursday, the European Commission will unveil its draft law on a sweeping reform of securities trading rules known as MiFID II, and a separate draft EU measure to toughen sanctions against market abuses is also expected.The first law will clamp down on speed-trading, a practice widely used by banks, through which they aim to make a profit with ultra-fast computers, allowing them to dip in and out of markets in fractions of a second.Any tweak in the rules could have a massive impact, as high-frequency trading (HFT) makes up roughly a third of equities trading in Europe and more than half in the United States, according to data from research firm Tabb Group.Regulators also feel they lack insight in complex over-the-counter derivatives such as interest rate and credit default swaps and want them to be listed on trading platforms. That makes the business potentially much less lucrative.Products will be more standardised, so banks won't be able to charge for structuring them as easily as they are now. And they also lose fees they charge for the risk a counterparty defaults, which moves to the trading platform.In equity markets, banks are worrying that they will need to give more transparency about prices in so-called dark pools, which enable large clients to execute deals without being seen -- a practice critics say is open to abuse.Market abuse is the other hot topic. Supervisors will get new powers to probe trading systems in commodity markets to curb price manipulation. They plan to give incentives to whistleblowers, and ramp up fines.Wild swings in markets in August triggered European regulators to ban short-selling -- borrowing of shares to sell them and later scoop them up at a lower price -- in several countries, saying it could sometimes be "abusive".Bank shares have continued to lose ground after the rule was introduced, however and others have explained the torrid performance in August by looking at derivative trading desks being forced to unwind their positions.Brussels is now also thinking of introducing a tax on financial transactions, in yet another stab at HFT. A draft version of the law had been explicitly critical of HFT, though it is moot whether it will be adopted.HFT firms defend themselves by saying that it is their own money that is at stake -- not that of their customers -- making them ultra-sensitive to taking risk. They also say they provide liquidity, and make markets more efficient.

[ellenaelchau-blog]

Watchdogs set sights on bank trading floors

Over-the-counter dealing of financial instruments -- out of sight from closely scrutinised trading platforms -- is under fire, as is computerised trading, a practice often blamed for causing wild swings in markets.The sprawling trading floors are vast money-spinners. In Fixed Income, Currencies and Commodities alone, banks such as Credit Suisse , Deutsche Bank , UBS , HSBC and Barclays generate between 40 and 60 percent of investment banking revenues.The priority for banks is to deal with the sheer volume of new European Union directives being discussed, bankers said this week. They cannot yet gauge the impact on profitability, which has already been hit by new capital rules."Everyone is in deep analysis, and is having to revisit that analysis with each iteration of the leaked documents ... we have to make a prioritised list, because we cannot fight all the battles," said one industry insider.European politicians are struggling to find a way out of the continent's ever-deeper debt crisis and are clamping down hard on banks. They are widely expected to force-feed the lenders new capital to stave off the chance of collapse.Banks' profitability will come down materially because of global new capital rules -- known as Basel III, drawn up after credit crisis -- which will force banks to hold more of their own capital for every dollar they lend.Basel III will reduce return on equity (ROE) -- a measure of profitability -- to 7 percent from 20 percent now, a study by consultancy firm McKinsey has found. Banks could bring that back up to 14 percent if they took the right measures.In Europe, investment banks will take a further hit from a whole host of new directives on financial markets that are not directly aimed at investment banking, but touch on many of the activities taking place in dealing rooms.MASSIVE IMPACTNext Thursday, the European Commission will unveil its draft law on a sweeping reform of securities trading rules known as MiFID II, and a separate draft EU measure to toughen sanctions against market abuses is also expected.The first law will clamp down on speed-trading, a practice widely used by banks, through which they aim to make a profit with ultra-fast computers, allowing them to dip in and out of markets in fractions of a second.Any tweak in the rules could have a massive impact, as high-frequency trading (HFT) makes up roughly a third of equities trading in Europe and more than half in the United States, according to data from research firm Tabb Group.Regulators also feel they lack insight in complex over-the-counter derivatives such as interest rate and credit default swaps and want them to be listed on trading platforms. That makes the business potentially much less lucrative.Products will be more standardised, so banks won't be able to charge for structuring them as easily as they are now. And they also lose fees they charge for the risk a counterparty defaults, which moves to the trading platform.In equity markets, banks are worrying that they will need to give more transparency about prices in so-called dark pools, which enable large clients to execute deals without being seen -- a practice critics say is open to abuse.Market abuse is the other hot topic. Supervisors will get new powers to probe trading systems in commodity markets to curb price manipulation. They plan to give incentives to whistleblowers, and ramp up fines.Wild swings in markets in August triggered European regulators to ban short-selling -- borrowing of shares to sell them and later scoop them up at a lower price -- in several countries, saying it could sometimes be "abusive".Bank shares have continued to lose ground after the rule was introduced, however and others have explained the torrid performance in August by looking at derivative trading desks being forced to unwind their positions.Brussels is now also thinking of introducing a tax on financial transactions, in yet another stab at HFT. A draft version of the law had been explicitly critical of HFT, though it is moot whether it will be adopted.HFT firms defend themselves by saying that it is their own money that is at stake -- not that of their customers -- making them ultra-sensitive to taking risk. They also say they provide liquidity, and make markets more efficient.

[ellenaelchau-blog]

UPDATE 2-SSE to start auctioning electricity supply

LONDON Oct 12 (Reuters) - SSE , one of the six big British energy suppliers, will start auctioning its electricity supply in the day-ahead market by the end of the week in a landmark bid to boost liquidity and encourage the entry of independent suppliers.SSE will be the first of Britain's six dominant energy suppliers to enact the measure, aimed at boosting liquidity in a market that has come under increasing government scrutiny in recent years.The utility aims to start trading a proportion of its total electricity supply and demand by Friday, and expects to reach 25 percent during November.The volume of electricity traded will be increased gradually over the next few months, SSE said on Wednesday, and added that it expects all its electricity supply and demand to be traded in the day ahead market by the end of its current financial year.Wednesday's news comes after Energy regulator Ofgem said in March it would force Britain's 'big six' utilities to auction off up to a fifth of the electricity they generate, to make room for new companies and boost competition.Firms risk a referral to the Competition Commission if they fail to reform.Britain's big six utilities are SSE, Centrica , Iberdrola's Scottish Power, RWE's npower , EDF Energy and E.ON UK , which recently sold its UK power networks to U.S. power firm PPL .SSE, which has around 5.2 million electricity customers and 3.6 million gas customers, was among the suppliers that raised gas and electricity prices earlier this year, fuelling criticism from UK consumer groups. Ofgem had earlier said the 'big six' raised prices in response to rising costs more quickly than they cut them when costs fell."Customers have demanded greater transparency around how we operate in the wholesale market," SSE said on Wednesday. "As well as improving liquidity, this approach will also improve the transparency of SSE's activity in the wholesale market."LIQUIDITY OBSTACLE TO TRANSPARENCYUK energy watchdog Ofgem has warned utilities to boost traded volumes as liquidity in the UK's power market badly lags rival hubs.For example, Britain's day-ahead electricity market sees about 40 Gigawatt hours/day traded on exchanges with a further 200 GWh transacted privately via brokerages.In contrast, European spot power exchange Nordpool sees 750 GWh of daily trades, while Germany sees about 500 GWh.SSE said its move to auction all its supply will transform the UK power market by adding 165 GWh of its own daily average trades to the pot.The utility, which makes up nearly 15 percent of UK electricity demand, will continue trading in the forward power market, including entering long-term contracts with independent suppliers, it said."This commitment from SSE will...help to address one of the perceived barriers to entry into the electricity supply market. If other energy companies adopt a similar approach, this commitment could lead to a transformation in the wholesale electricity market in Great Britain," Alistair Phillips-Davies, SSE's generation and supply director, said.

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European elders call for solution to crisis

"The euro is far from perfect, as this crisis has revealed," they wrote in a letter to the Financial Times."But the answer is to fix its faults rather than allowing it to undermine and perhaps destroy the global financial system," it added.The 17 signatories included former Finnish President Martti Ahtisaari, ex-Belgian premiers Jean-Luc Dehaene and Guy Verhofstadt, former German foreign minister Joschka Fischer, recent French foreign minister Bernard Kouchner and former Spanish economy minister and European monetary affairs commissioner Pedro Solbes, as well as investor George Soros.Slovakia's parliament blocked the expansion of a bailout fund to rescue the euro zone on Tuesday but the delay is expected to be only temporary and a loan to stricken Greece should also buy further time."We call upon the legislatures of the euro zone countries to recognise that the euro needs a European solution," they added."The pursuit of national solutions can only lead to dissolution."