FMX | Connect – www.fmxconnect.com - (Reported 12/31/2010)
Exchange Sector Review - Week ending December 30th, 2010
This week:
The sector was up 100 bps, outperforming global equities by 100 bps. Interdealer brokers were down 100 bps. YTD the sector is underperforming global equities by 310 bps.
A poll conducted by UMR Research found that the majority of Australians are against SGX’s takeover of ASX and would like politicians to vote against it. The Australian Parliament will have to modify the Corporations Act of 2001 which limits ownership to 15% of ASX shares to allow the merger to move forward. The Foreign Investment Review Board (FIRB) will also have to approve the merger as the Foreign Acquisitions and Takeovers Act of 1975 enables the treasurer to block the acquisition of shares in Australian companies by foreigners if this could be deemed contrary to Australia’s “national interest”. SGX plans to file an application with FIRB by late January 2011. FIRB will have a month to consider the proposal (and could request up to a three month extension) after which changes will take 15 days to be enacted. The market currently assigns a 43% probability to deal’s completion (see page 8).
ICE withdrew its application for its ICE Trust subsidiary to be registered as a derivatives clearinghouse with CFTC due to “significant changes proposed to the commission regulations”, which include a ruling requiring clearinghouses to abide by strong risk management standards and give potential members “fair and open access”.
Chi-X Europe and BATS are in exclusive talks to combine both businesses to create the biggest European equity trading venue. The discussion will be ongoing until February 11, and the deal is likely to be structured as a share swap between shareholders of both companies, according to sources interviewed by the Financial Times.
CFTC offered a revised proposal on swaps trading which will allow swaps users greater flexibility over how and where they trade, as well as create more competition among derivatives trading platforms. The original proposal, which was supposed to be voted on December 9, was set aside by Chairman Gensler because it lacked sufficient support from the five CFTC commissioners.
A report issued by a SEBI appointed committee led by former Reserve Bank of India Governor Bimal Jalan recommended barring exchanges from listing to safeguard their regulatory duties. After heated criticism from the financial sector SEBI said it would consider granting exchanges the option to list after putting in place Chinese walls between their corporate and regulatory functions, according to Business Standard.
Mercado Integrado Latinoamerican (MILA): Bolsa de Valores de Lima (BVL) won its tax case against the Congress to standardize capital gains tax at 5% for both foreigners and locals, and BVL can integrate with Bolsa de Comercio de Santiago and Bolsa de Valores de Colombia (BVC) to form MILA. According to the Chairman of the banking and finance committee, Rafael Yamishiro, the same tax treatment “will ensure symmetry to income of the same nature between the three exchanges”.
Flows to US equity mutual funds managed to capture $335 mn worth of inflows last week after 33 consecutive weeks of outflows according to ICI data. Municipal bond funds continue suffering large outflows ($3.5 bn last week) and are in their seventh week of outflows. Taxable bond funds also experienced outflows in December as retail investors began reallocating towards equity funds as well hybrid. Investors also added $24.63 bn to money market funds as they exited fixed income and muni funds, even with the record low yields (0.03%) (see page 9).
Provided By: Equity Research Desk, www.erdesk.com
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