Compliance July 11, 2012

CFTC Approves OTC Derivatives Rules

The Commodity Futures Trading Commission (CFTC) voted to finalize definitions and exemptions as part of the new regulatory regime for over-the-counter (OTC) derivatives.
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Rules and interpretations issued by the Securities and Exchange Commission (SEC) earlier this week further define the terms “swap” and “security-based swap,” and whether a particular instrument is a “swap” regulated by the CFTC or a “security-based swap” regulated by the SEC. The SEC action also addresses “mixed swaps,” which are regulated by both agencies, and “security-based swap agreements,” which are regulated by the CFTC but over which the SEC has antifraud and other authority. (See “SEC Takes Another Step in Regulating OTC Derivatives.”)  

According to The Wall Street Journal, the CFTC also passed an exemption for commercial companies that use derivatives to hedge risk, such as fluctuating commodity prices or interest rates. (See “Derivatives Users Fear Higher Hedging Costs.”) Commissioners also included an exemption for small banks with assets of $10 billion or less, which Congress told the commission to consider in the law.   

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The commission expects 30,000 banks and companies to qualify for the exemption, the Journal learned in a staff briefing for reporters on the rule.  

The new regulatory regime would require most derivatives to be traded on open platforms and routed through a clearinghouse that secures the deal and collects margin from both sides.

 

The Markets July 11, 2012

ETF Assets Rebound in June

Exchange-traded fund (ETF) assets increased $43.2 billion, or 3.8%, in June, according to State Street Global Advisors’ (SSgA) ETF Snapshot report.
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As of June 30, 1,261 ETFs with assets totaling $1.2 trillion were managed by 39 ETF managers.  

Returns were good for the month, as the S&P 500 index gained 4.1% and the MSCI EAFE index increased 7%. Commodities were positive, with the S&P GSCI index up 1.2% and gold rising 2.6%. Bonds were relatively flat.  

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ETF flows hit nearly $12 billion in June. The size-large cap category led with $4.9 billion of inflows. The fixed-income category had $4.7 billion in inflows.  

The top three managers in the U.S. ETF marketplace were BlackRock, State Street and Vanguard. Collectively, they account for approximately 83% of the U.S.-listed ETF market. The top three ETFs in terms of dollar volume traded for the month were the SPDR S&P 500 [SPY], iShares Russell 2000 [IWM] and PowerShares QQQ [QQQ].   

The ETF Snapshot report can be accessed here.  

 

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