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Goldman Sachs ‘to monitor potential Asian real estate bubbles’

Fred Hu, Goldman Sachs’s chairman of Greater China, has said that the financial institution’s operations in Asia are keeping a close eye on the development of potential real estate bubbles.

Among the countries causing the most concern to Goldman Sachs are Hong Kong, Singapore and China, Mr Hu said.

China recorded its highest growth in property prices for 18 months in December, Singapore saw a record number of residential real estate sales in 2009 and Hong Kong house prices currently stand at their highest point in more than a decade, reports Bloomberg.

Mr Hu gave a particular warning about growth in Hong Kong and Singapore.  “I would be very skeptical about this kind of pace,” he said.

Last week, it was reported that Goldman Sachs is close to selling off a luxury real estate development in Shanghai. It is to sell the Shanghai Garden Plaza to Chinese property developer Shanghai Forte Land for $200 million, people close to the deal told Reuters.

Source: Bobsguide, 18.10.2010

Filed under: Asia, China, Hong Kong, News, Risk Management, Singapore, , , , , , , , , ,

SEC sets sights on sponsored access and exchange co-location

After taking on dark pools and flash orders, the Securities and Exchange Commission has now turned its attention to high frequency trading and the practice of sponsored access to exchanges.

In a speech at the Sifma annual conference, SEC chairman Mary Schapiro told delegates that the regulator is drafting a proposal on sponsored access, focussing on arrangements that enable unfiltered access by non-regulated entities – in many cases, high frequency traders – to exchange systems.

“I liken it to giving your car keys to a friend who doesn’t have a license and letting him drive unaccompanied,” says Schapiro.

She argues that broker-dealers act as gatekeepers, maintaining the integrity of markets and that this should not be sacrificed “to give a trader a millisecond advantage”.

Schapiro has also asked SEC staff to find ways to shed light on high frequency traders, who now account for more than 50% of volume.

“I believe we need a deeper understanding of the strategies and activities of high frequency traders and the potential impact on our markets and investors of so many transactions occurring so quickly. And we need to consider whether there are additional legislative authorities needed to address new types of market professionals whose activities may not be sufficiently regulated,” she says.

In addition, the watchdog expects to seek public comment on co-location – the process where exchanges allow some broker-dealers to place their servers close to the matching engine of the bourse. Shapiro is worried that this offers “significant advantages” for traders who rely on speed.

The SEC has already proposed a ban on flash trading – which gives some investors a sneak peak at open order before the wider market – and last week made three specific proposals aimed at strengthening the regulation of dark pools.

Meanwhile, with the use of dark pools and high frequency trading under intense scrutiny, Goldman Sachs – which runs the Sigma-X platform – has been defending the practices to the SEC.

In a recent memo to the watchdog, the investment bank says dark pools “are a technological evolution of classic market structure that have brought benefits to institutional and retail trading alike”.

Source: Finextra, 27.10.2009

Filed under: Exchanges, Market Data, Risk Management, Trading Technology, , , , , , , , , ,

London Stock Exchange to leave FESE. Dark Pool disputes?

The London Stock Exchange plans to withdraw from the Federation of European Exchanges (FESE), dealing a blow to the trade association for the region’s established bourses as its steps up its lobbying efforts on issues such as “dark pools”.

John Wallace, LSE spokesman, told FT Trading Room: “We are reviewing a number of our memberships across the organisation. We have decided to leave FESE and will seek to work more directly with regulators, legislators and the markets we serve across Europe.”

Mr Rolet sent a letter to FESE secretary general Judith Hardt with the LSE’s decision on Tuesday. Ms Hardt said: “It came as a surprise. There was no reason given and we would of course want to talk before taking any steps. We will definitely try and see what we can do to keep them on board.”

The LSE declined to say why it had decided to leave the organisation, which was founded in 1974 and has over 43 members, including Deutsche Börse, Euronext and the London Metal Exchange.

But the move is a sign that a recent criticism by some of the world’s largest exchanges of the large banks’ off-exchange activities is not shared by some exchanges, which see their interests increasingly aligned with those same banks.

It is also a sign that medium-sized exchanges like the LSE can not afford to antagonise their biggest customers – the banks – at a time when they need their co-operation on key new initiatives, such as clearing.

Xavier Rolet, a former Lehman Brothers and Goldman Sachs trading expert, has spent time since he took over in May repairing damaged relations with the LSE’s 15 biggest customers, mostly banks.

He has redesigned the LSE’s dark pool, Baikal, as a joint venture with the banks. Under his predecessor, Dame Clara Furse, the project was designed as a way of accessing directly the asset and investment manager clients of the banks, bypassing the banks.

Last week, FESE launched an attack  on the proliferation in Europe of dark pools run by banks. FESE did not name any banks but such facilities are operated by most big banks, including Goldman Sachs, Credit Suisse and JPMorgan.

It said such venues, also known as “crossing networks” are not properly registered under rules laid out by the Markets in Financial Instruments Directive (Mifid). Mifid launched competition in European share trading in 2007, leading to an explosion of new type of trading venues.

In a letter to Eddy Wymeersch, chairman of the Committee of European Securities Regulators, Ms Hardt said FESE believed the banks’ dark pools were “unregulated venues” operating with “full opacity”. The European equities market was “becoming a dealer market”.

The LSE is engaged in a cost-cutting drive. Annual membership of FESE costs €180,000. The UK exchange remains a member of the World Federation of Exchanges.

Source: FT, 30.09.2009

FT.com

Filed under: Exchanges, News, Services, , , , , , ,

Dark Pools:New ideas fail to lift mood over dark pools

This week, Liquidnet, a US operator of “dark pools”, unveiled the latest device to emerge in European share trading, which it called “Supernatural”.

The company claims it will help European fund managers increase their chances of finding matches for large blocks of shares in Liquidnet’s dark pool by linking it up with other exchanges, brokers and alternative trading platforms such as Chi-X Europe.

Yet even as dark pools continue to generate eye-catching ideas, controversy is raging over their very existence. In Europe, the issue is pitting exchanges against big banks in a new battle over control of billions of dollars in share trading orders.

Dark pools allow the matching of large blocks of shares without prices being revealed until after trades are completed. Regulators on both sides of the Atlantic are studying them amid questions over their transparency.

Dark pools are not only run by companies such as Liquidnet; they are also operated by banks’ trading arms and exchanges. They have grown rapidly since first appearing in the US in the late 1990s, with at least 15 in existence in Europe.

The exchanges have launched an attack on the proliferation in Europe of pools run by the banks – such as Goldman Sachs, Credit Suiss, and Morgan Stanly – arguing they are operating outside the view of European regulators. 

Mifid launched competition in European share trading in 2007, leading to an explosion of new type of trading venues.

The Federation of European Securities Exchanges, whose members include Deutsche Börse  and Euronext , wrote this week to the Committee of European Securities Regulators in Paris, claiming banks’ dark pools were “unregulated venues” operating with “full opacity”.

It said that under Mifid, crossing networks were supposed to register under certain formal categories that would subject them to the same market surveillance and price reporting requirements as exchanges.

Yet many were not, FESE claims. “Practically all of this trading is outside the realm of European rules and thus beyond the reach of supervisors,” wrote Judith Hardt, FESE secretary general, in the letter to CESR chairman Eddy Wymeersch, a copy of which was obtained by the Financial Times. “As a result, more trades are being executed away from the public view, without interacting with other orders, and at prices that may not be optimal for clients.”

She argued that European equity markets “are becoming a dealer market”.

The banks are furious. They see the FESE move as exchanges exploiting post-crisis concerns over off-exchange markets to persuade policymakers of the benefits of channelling trading of stocks through regulated exchanges.

Dark pool trading accounts for about 4 per cent of all trading in Europe, according to consultancy Tabb Group. But it is growing, and with the proliferation of the types of “dark” trading venue unleashed by Mifid, bankers say exchanges fear trading could shift further away from them. “The exchanges are opportunistic, fear-mongering. And it’s pretty clear why: commercial interest,” says one.

The banks reject the notion that their crossing networks are unregulated, pointing out that broker-dealers are already regulated, and the banks’ clients – such as money managers – are regulated.

They also argue that their dark pools perform a legitimate function at a time when large orders are increasingly hard to execute on exchanges as complex electronic trading strategies slice orders into smaller and smaller sizes.

They reject the FESE view that investors are at a disadvantage by the alleged “opacity” of bank dark pools. They say that many of the block trades being carried out in them are placed by the banks’ asset manager clients, which in turn are handling funds placed with them by millions of ordinary investors.

The problem, industry experts say, lies with Mifid itself. Exchanges say that bank dark pools are not required to report trades in a coherent way, or even at the same time as those trades reported to the market by exchanges. Mifid is unclear on the issue.

Steve Grob, director of strategy at Fidessa, a trading technology company, says: “The reporting environment in the US is much more transparent. There needs to be some clear regulation about how they report what they do.”

Niki Beattie, managing director of The Market Structure Practice, a consultancy, says: “The thing is that brokers are governed by a certain set of rules and exchanges are governed by another. Mifid failed to move with the times.”

She believes, however, that Mifid has given brokers an “unfair advantage” over exchanges. “They are both trying to be liquidity pools and [Mifid] has given the brokers an unfair advantage,” says Ms Beattie, a former trading strategist at Merrill Lynch.

CESR is studying the issue. Last week Charlie McCreevy, European Union internal markets commissioner, said dark pools would form part of the European Commission’s planned review of Mifid. That would focus on whether the growth of those operated by broker-dealers gives their backers “unfair commercial advantages” in the market.

With dark pools under attack more broadly, banks may have a tough job making their case. Ms Beattie says: “The exchanges probably have some right to be out there questioning this.”

Source: FT, 24.09.2009 by Jermy Grant

Filed under: Exchanges, News, Risk Management, Trading Technology, , , , , , , , , , , , ,

HSBC in China JV talks with Industrial Securities

HONG KONG -(Dow Jones)- HSBC Holdings PLC (HBC) is in advanced talks to set up an investment banking joint venture in China with Industrial Securities Co., a person familiar with the situation said Wednesday.

The UK-listed HSBC, which already has a wide-reaching presence in China, is seeking to join the handful of foreign firms with a presence in the mainland’s lucrative underwriting and advisory markets.

The person familiar with the situation said it is difficult to say when HSBC and Industrial Securities will agree on a deal, and declined to elaborate.

Industrial Securities is a Fujian-based brokerage with a registered capital of CNY1.93 billion, according to its website. It provides a full-range of services in China, including broking, advisory, and new listing underwriting.

The Apple Daily reported Wednesday, citing unnamed sources, that the two sides may strike a deal by the end of this year to set up the venture, subject to agreeing on the terms and regulatory approval.

HSBC wants management rights over the entity, a model that UBS AG (UBS) and Goldman Sachs Group Inc. (GS) used when setting up their Sino-foreign brokerage joint ventures, according to the report in the Chinese-language newspaper. China has capped the maximum stake foreign banks can have in a Chinese brokerage venture at 33%, though a few of the tie-ups have accorded management control to the foreign firm.

If its venture is approved, HSBC would be joining a list of just a handful of foreign brokers that have set up shop in the mainland through joint ventures in recent years.

In December, the Chinese government ended an almost two-year moratorium on approving new joint ventures, as it shielded its domestic brokerages from foreign competition. Since then, China has approved ventures by Credit Suisse Group and Deutsche Bank AG (DB), though those tie-ups are only allowed to underwrite and sponsor deals domestic securities and debt deals, and not the trading of Chinese-listed shares.

But the list of foreign firms seeking entry is long, especially with China’s stock market being one of the world’s best performers this year. Many Shanghai-listings also registered gains of more than 90% on their first-day of trade.

Australia’s Macquarie Group Ltd. (MQG.AU) has signed a memorandum of understanding with Inner Mongolia-based Hengtai Securities Co. on setting up an investment banking joint venture, while South Korea’s Samsung Securities Co. (016360.SE) said earlier it was finalizing which domestic partner it is going to team up with.

Citigroup Inc. (C) and Morgan Stanley (MS) are also awaiting regulatory approval for their China joint ventures. Morgan Stanley has a stake in China International Capital Corp, but it is a passive financial investor.

“I’m not surprised to hear of more joint-venture acquisitions by HSBC in local financial institutions rather than in banks,” said Dominic Chan, an analyst at BNP Paribas.

“I think HSBC has been focusing on mainland China and Asia, and this deal is part of its ongoing program to divert effort and capital from Europe and America back to Asia,” he said.

A brokerage in China would add another crucial leg to the bank’s already dominant presence in the country. In China, HSBC has an 18.6% stake in Bank of Communications Co., the nation’s fifth-largest lender by assets; a 16.7% holding in Ping An Insurance (Group) Co. of China Ltd.; 8% ownership of Bank of Shanghai Co., and a 49% stake in HSBC Jintrust Co, a Shanghai-based fund company. HSBC’s 50-50 life insurance joint venture with Beijing-based financial services provider National Trust Ltd. was approved by regulators recently and is set to be up and running in the third quarter.

The lender has also hired investment bankers to advise it on listing on the Shanghai bourse next year, in potentially the country’s first listing by a foreign company. Although based in the U.K., HSBC made a quarter or around US$2.98 billion of its first-half pre-tax earnings from China.

Source: Dow-Jones, 19.08.2009

Filed under: Asia, Banking, China, News, Services, , , , , , , , , , , , , , , ,