A revival in the securitisation markets would help the broader economy as it would provide banks with more money to lend

TO BE NOTED: From the FT:

"Disclosure move aims to revive ABS market

By Ralph Atkins in Frankfurt and David Oakley in London

Published: May 17 2009 20:48 | Last updated: May 17 2009 20:48

The European Central Bank is pushing for an increase in the amount of information that has to be disclosed about asset-backed securities as part of efforts to revive a market that has collapsed since the start of the credit crisis in August 2007.

The ECB wants more details on these securities to be passed to ratings agencies, including data on the individual loans that back them. These are mainly mortgages, but also include credit card, corporate and car loans.

It hopes this will rejuvenate the European market by boosting confidence in the ratings, which in turn should encourage investors to buy the securities because a lack of transparency has been deterring them.

There have only been 11 asset-backed deals in Europe this year, worth €5bn ($7bn), including one by Porsche. In the first seven months of 2007, there were 241 deals in Europe, worth €199bn, according to Dealogic, the data provider.

A revival in the securitisation markets would help the broader economy as it would provide banks with more money to lend.

However, analysts say the ECB should also push for full public disclosure of the loans that back these securities – as in the US – and not just to the ratings agencies. The US market has been hit too, but has seen more signs of recovery. This year there have been 130 deals, worth $80.6bn.

Hans Vrensen, head of European securitisation research at Barclays Capital, said: “Without better public disclosure, including loan-by-loan data, the European asset-backed securities markets will remain at a competitive disadvantage to the US markets.

“Improved transparency in the European markets is key to retaining existing as well as attracting new investors. Investors are more likely to buy asset-backed securities if they are able to fully analyse the risks they are taking on.”

The move by the ECB also reflects concerns about the risks it is bearing by accepting asset-backed securities as collateral when providing liquidity to eurozone banks.

Since the credit crisis started, eurozone banks have increasingly used asset backed securities as collateral to raise cash from the ECB as they could no longer sell on the assets in the market.

Last month the ECB revealed that asset-backed securities accounted for 28 per cent of the collateral put forward by banks in 2008 – up from 16 per cent in 2007.

On asset-backed securities used in its operations, the ECB says it is “working with rating agencies on the enhancement of the surveillance performed by rating agencies with a view to introducing loan-by-loan information”.

It adds in its monthly bulletin: “It is hoped by improving transparency in the surveillance process, market participants can regain confidence in the work performed by ratings agencies in the securitisation markets, thereby allowing their reactivation.”

an unprecedented transformation exemplified by increased regulation and a heightened risk aversion

TO BE NOTED: From AllAboutAlpha:

"The Ascendancy of Risk Management

Posted By Alpha Male On April 30, 2009 @ 8:36 pm In Today's Post | No Comments

We conclude a week covering hedge fund operations issues with a guest contribution from Abdul Sheikh, CAIA, a Vice President at State Street’s fund administration group. Sheikh makes the case that many attendees of GAIM Ops also made: that independent fund administration may be the only way to fully address investor concerns in the post-Madoff world.

Alternative Viewpoints: The Ascendancy of Risk Management

Special to AllAboutAlpha.com by: Abdul Sheikh, State Street Fund Administration

In the past years, investors used to select fund managers based on three criteria: performance, philosophy and pedigree. But in Deutsche Bank’s annual Alternative Investment Survey released last month (see [1] related post) , “risk management” entered the ranks of the top three selection criteria for the first time, and “pedigree” fell to fifth.

[2]

It’s clear that we are witnessing a paradigm shift in manager selection and asset allocation criteria. Gone are the days of just looking at attributes like track records, top down vs. bottom up approaches, low correlations to markets, and manager size. Recent events have shown that investors need transparency, independent risk analysis, and independent asset servicing.

A State Street study conducted late last year in conjunction with the 2008 Global Absolute Return Congress (see [3] related post) reinforces this - indicating that five out of six institutions (84 percent) expect more disclosure of hedge fund positions and nearly half (49 percent) anticipate more frequent reporting from hedge fund managers. Meanwhile, only a few (19 percent) currently receive some level of consistent transparency across hedge fund holdings. (See chart below from report)

[4]

Institutional investors may believe their portfolios are well diversified. However, do they really know what their concentrations are and what these concentrations mean to them? Depending on the strategy, the managers may be allowed to take on leverage, but only a thorough analysis can determine whether that leverage is accidental or deliberate (and thus beneficial to the overall portfolio). However, this kind of thorough analysis usually requires position-level transparency.

Heightened concerns over transparency and risk management are increasing demand for independent asset servicing. Functions such as securities processing, fund accounting, reconciliations, security settlement and safekeeping are no longer viewed as value-added but necessary. Many industry experts think that the Darwinian processes occurring for the past year will separate the “premier league” of funds from the others. Based on the result of the surveys above, these premier league funds will likely be distinguished by their ability to employ independent asset servicing, provide transparency and use better risk management systems.

Some of these basic asset-servicing functions have traditionally been provided by investment banks and prime brokers. But some are now calling for third party custodians who hold customer assets “off the books” in custodial accounts. Since prime brokers have much more extensive rights in client’s assets - including their ability to rehypothecate their client’s assets - some argue that they expose investors to additional risks.

Without a doubt, we are witnessing an unprecedented transformation exemplified by increased regulation and a heightened risk aversion. As cases like Madoff and Stanford have proven, regulatory oversight sometimes provides a false sense of protection. And that is why investors seem to be saying that fund-level risk management has become more important than ever.

- A. Sheikh, April 2009

The opinions expressed in this guest posting are those of the author and not necessarily those of AllAboutAlpha.com or State Street Corporation.

Editor’s Addendum: Sheikh’s State Street colleagues seem to agree with his assessment as evidenced by [5] this FT piece earlier in the week:

“‘The old system seemed to work pretty well as long as assets grew,’ says Jack Klinck, head of global investment product services at State Street. ‘But now investors are really nervous. There’s a tremendous focus on ‘who’s your counterparty?’”

“Mr Klinck expects to see a number of large US hedge funds, which have until now done all their administration in-house, outsource this function in order to reassure their clients. ‘Self-administered hedge funds are looking like outliers now. They’re having to break their operating model.’”

Finally, before the AllAboutAlpha.com corporate jet departs the Cayman Islands, we thought you might find [6] this recent Hedge Funds Review Cayman supplement to be kind of interesting:

“There is no doubt the global financial crisis and the push for tighter and more onshore regulation of hedge funds will change the industry forever. Cayman’s role in this is unclear but the government, regulator and industry are confident they have the skills and will to keep the jurisdiction as the number one domicile.”

---

Article printed from AllAboutAlpha.com: http://allaboutalpha.com/blog

lend support to government measures aimed at taking troubled assets off banks’ balance sheets—such as the US Troubled Asset Relief Program (TARP)

TO BE NOTED: From Shopyield:

"The pricing of subprime mortgage risk in good times and bad: evidence from the ABX.HE indices

The pricing of subprime mortgage risk

Ingo Fender (BIS)* and Martin Scheicher (ECB)**

Abstract

This paper investigates the market pricing of subprime mortgage risk on the basis of data for the ABX.HE family of indices, which have become a key barometer of mortgage market conditions during the recent financial crisis. After an introduction into ABX index mechanics and a discussion of historical pricing patterns, we use regression analysis to establish the relationship between observed index returns and macroeconomic news as well as market-based proxies of default risk, interest rates, liquidity and risk appetite. The results imply that declining risk appetite and heightened concerns about market illiquidity—likely due in part to significant short positioning activity—have provided a sizeable contribution to the observed collapse in ABX prices since the summer of 2007. In particular, while fundamental factors, such as indicators of housing market activity, have continued to exert an important influence on the subordinated ABX indices, those backed by AA and AAA exposures have tended to react more to the general deterioration of the financial market environment. This provides further support for the inappropriateness of pricing models that do not sufficiently account for factors such as risk appetite and liquidity risk, particularly in periods of heightened market pressure. In addition, as related risk premia can be captured by unconstrained investors, ABX pricing patterns appear to lend support to government measures aimed at taking troubled assets off banks’ balance sheets—such as the US Troubled Asset Relief Program (TARP). ( NB DON )

Keywords: ABX index, mortgage-backed securities, pricing, risk premia.
JEL classification numbers: E43, G12, G13, G14.
*

BIS Working Papers are written by members of the Monetary and Economic Department of the Bank for International Settlements, and from time to time by other economists, and are published by the Bank. The views expressed in them are those of their authors and not necessarily the views of the BIS.

Copies of publications are available from:

Bank for International Settlements

Press & Communications

CH-4002 Basel, Switzerland

E-mail: publications@bis.org

Fax: +41 61 280 9100 and +41 61 280 8100

This publication is available on the BIS website (www.bis.org).

This was written by cate. Posted on Saturday, April 4, 2009, at 2:14 pm. Filed under Open engines, Pricing, Trading, Transparency. Tagged Liquidity, risk, subprime. Bookmark the permalink. Follow comments here with the RSS feed. Post a comment or leave a trackback."

For occasional investors, Travis Larson recommends investinginbonds.com.

TO BE NOTED: From Shopyield:

Retail transparency

Online help for novice bond investors

A Financial Q&A with Steve Dinnen.

from the April 2, 2009 edition, Christian Science Monitor

Q : I have had trouble finding a user-friendly bond site. I seem to keep getting sites where there are runs of transactions bought and sold in the past 12 hours. But I can’t find a site where I could peruse bonds, check out maturities, yield, etc. I would really appreciate it if you can direct a novice user

M.C., Center Sandwich, N.H.

A: The bond market, vastly larger than the stock market, can indeed be a daunting place in which to navigate. There are several for-pay sites, which can be quite expensive and are aimed mainly at professional traders. Your brokerage house also should have web-based information on bonds that’s available to clients.

For occasional investors, Travis Larson recommends investinginbonds.com. This is an educational web site designed by the industry and sponsored by the organization for which he is a spokesman, the Securities Industry and Financial Markets Association (formed after a merger that included the Bond Market Association).

Mr. Larson says the site is appropriate for individuals with all levels of financial education, from beginners to experienced investors. It offers bond price information and includes a wide variety of market data, news, commentary, and education about bonds.

You can dive fairly deep into information on corporate, municipal, and government bonds.
This has been ranked as a top investor site for bonds by a number of media outlets, and he says it’s “continually enhanced and updated with new data, information, and features.”

Bonds are a fast-moving target. Here’s an area where it pays to check with your financial adviser, who typically will have access to proprietary research and trading programs.

Submit your question to Steve Dinnen.

This was written by cate. Posted on Friday, April 3, 2009, at 8:03 am. Filed under Pricing, Trading, Transparency. Tagged BondDesk, bonds, fixed income, MuniCenter, securities, SIFMA. Bookmark the permalink. Follow comments here with the RSS feed. Post a comment or leave a trackback."

Note to Treasury Secretary Geithner and his team… you could encourage the TARP banks to use this platform to list mortgage securities…

TO BE NOTED: From Shopyield:

"Trading platform transparency

There are many alternative trading systems (ATS) in the fixed income markets… they have slightly different price discovery, quotation and trade reporting structures… think of them as “liquidity pools”…

I’ve always thought the important thing for market transparency and fairness is that all investors have access to all bids and offers on an ATS (think of eBay’s structure)… this is also how exchanges work… (instead of this structure most fixed income platforms are “request for quote” (RFQ) where a buyside firm puts out a request for bids or offers from dealers… generally other investors don’t see the RFQs… so the ATS are most often dealer controlled markets… I wonder what academic studies are available on this topic?)

Broadridge, which spun off from ADP, announced a new alliance to create access to less liquid mortgage and other bonds… the platform allows equel access to all users (sellside and buyside)…

Note to Treasury Secretary Geithner and his team… you could encourage the TARP banks to use this platform to list mortgage securities… here is what the platform can handle (article follows from Wall Street and Tech):

Trade Discovery ™

• Agency Pools
• Agency CMOs
• Trust IOs / POs

~~~~ Broadridge, Beacon To Help Clients Find Fixed-Income Liquidity

Trading clients allowed to pore over daily fixed-income securities transaction records.
By Penny Crosman
March 31, 2009

Broadridge, a provider of technology-based outsourcing solutions to the financial services industry, and Beacon Capital Strategies, which operates a marketplace dedicated to providing liquidity and electronic trading in the less-liquid fixed-income market, today announced a multi-year strategic alliance. The alliance is meant to help the firms serve their clients who actively trade less-liquid fixed-income securities including agency mortgage-backed securities, asset-backed securities, and collateralized mortgage obligations.

Broadridge is a fixed-income securities processing provider that currently handles on average more than $3 trillion in notional value of U.S. fixed-income securities transactions daily. Beacon established the first trading platform tailored to he less-liquid fixed-income market, which is open to all participants on an anonymous and equal basis. This alliance will help the firms’ clients locate difficult-to-find securities in the less-liquid fixed-income segment, thereby enhancing liquidity and efficiency to the overall marketplace.

By using Broadridge’s impact and MBS Expert products and Beacon’s Trade Discovery platform, clients will be able to search through less-liquid fixed-income securities, find the other side of the trade for instruments that meet specific investment criteria, and transact on liquidity that otherwise would not be publicly advertised in current trading channels.”~~~~

This was written by cate. Posted on Tuesday, March 31, 2009, at 2:19 pm. Filed under Launching..., Liquidity, Open engines, Pricing, Trading, Transparency. Tagged ATS, dealers, MBS, OTC, Treasury, Wall Street. Bookmark the permalink. Follow comments here with the RSS feed. Post a comment or leave a trackback."

Here is a simple way to create public price reporting of OTC CDS

TO BE NOTED: From Shopyield:

Derivative trade reporting

Here is a simple way to create public price reporting of OTC CDS… it would be very simple to turn the DTCC Warehouse into a public trade reporting system like TRACE is for corporate bonds… the winds seem to be blowing towards keeping this a dark market though… too bad… from Wall Street and Tech …

~~~~ New Automated Data Feed Between Omgeo’s Crosscheck and DTCC

The link is designed to reduce operational risks in the over-the-counter (OTC) credit derivatives market by enabling market participants to align their portfolios with contract records maintained by the DTCC Warehouse.
By Melanie Rodier
March 30, 2009
Omgeo announced the availability of an automated data feed between Omgeo CrossCheck and DTCC’s Trade Information Warehouse.The link is designed to reduce operational risks in the over-the-counter (OTC) credit derivatives market by enabling market participants to align their portfolios with contract records maintained by the Warehouse, a service offering of DTCC’s Deriv/SERV unit.

According to a release, Warehouse is the market’s first trade database and centralized electronic infrastructure for post-trade processing of OTC derivatives contracts over their lifecycles, from confirmation through to final settlement.

Omgeo CrossCheck is a centrally hosted, exception management solution that automates the comparison of portfolios of derivatives between counterparties.

It helps minimize the risks and consequences of unaligned portfolios in advance of payments, collateral calls, credit events and other situations, according to Omgeo.

As such, firms are better able to scale their business as volumes expand, while effectively managing risk in times of market stress, allowing for high levels of transparency and efficiency, the company said in the release.

The new link enables Omgeo clients that are also customers of DTCC’s Deriv/SERV and the Trade Information Warehouse to receive an automatic feed of relevant credit derivative trade data from the Warehouse to CrossCheck. With this feed in place, clients can compare their portfolio records against the Warehouse to ensure agreement with the “golden copy” of trade details for positions with all counterparties who use Deriv/SERV.

“Since the debut of Omgeo’s counterparty risk management offerings, and specifically our portfolio reconciliation service Omgeo CrossCheck, we’ve been dedicated to ensuring that the data involved is of the utmost quality,” said Steve Matthews, managing director, product at Omgeo. “By linking CrossCheck to the global standard for centralized and secure data for OTC derivatives at DTCC’s Trade Information Warehouse, our clients can be assured that their risks are further mitigated throughout the length of their derivatives contracts.” ~~~~

This was written by cate. Posted on Monday, March 30, 2009, at 3:24 pm. Filed under Creativity, Launching..., Liquidity, Transparency. Tagged CDS, DTCC, OTC, Wall Street. Bookmark the permalink. Follow comments here with the RSS feed. Post a comment or leave a trackback.