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Bank of America-Merrill Lynch Combo Decides On DMA

The newly merged Bank of America Merrill Lynch is scrapping the direct market access platform developed by Merrill and using one owned by Bank of America. As part of the integration of the firms’ electronic trading departments, the combined entity will mothball Merrill’s X-Trade in favor of BofA’s Instaquote.

Merrill’s X-Trade, developed internally, never gained sway among clients and could not compete with platforms like Goldman Sachs’ REDIPlus or Townsend’s RealTick (owned by Barclays). “The underlying technology and infrastructure for InstaQuote was better and more scalable,” said Roger Anerella, head of global execution services in the bank’s equities global markets division.

InstaQuote, which BofA acquired in 2004 from Direct Access Financial Corp., was a proven third-party trading platform. Several years ago, according to BofA, the platform had grown to more than 6,000 users, mostly from small and midsize hedge funds. “It’s a good solid prime brokerage product with a top-notch tech group,” said William Harts, former head of electronic trading services and equity strategy for Banc of America Securities, who now consults for financial services companies and exchanges.  Several dozen people from the original Texas-based technology group that BofA gained as part of the InstaQuote acquisition five years ago still develop, run and support the trading platform.

BofA-Merrill is continuing to offer clients a version of the Portware EMS, which is geared to portfolios, as part of a deal put in place two years ago. The broker-dealer’s algos and trading analytics are also integrated into all major buyside order management systems, proprietary OMSs and broker-neutral EMSs.

Source: TradersMagazine, 20.05.2009 by Nina Mehta

Filed under: News, Trading Technology, , , , , , ,

VaR: Should we abandon it?

In the on-going financial crisis, it seems that the value-at-risk (VaR) approach to risk management has failed miserably. For example, Merrill Lynch reported 2007 year-end daily trading VaR of $157 million, including US sub-prime and other residential mortgage products. But the reported VaR had no relationship at all to the bank’s subprime loss in 2007, and which, by January 2008 had reached a stunning $24.5 billion. There has been no shortage of critics of VaR ever since the concept was introduced and the voices against it are getting louder.   Click here to read the full story

The concept of VaR arose as a result of searching for an aggregate measure of risk. In 1980s, facing increasing market volatilities, financial firms started setting up risk management groups and tried to find ways to aggregate the firm-wide risk. In 1985, JPMorgan developed the first system of VaR, which measures a portfolio’s maximum potential loss over a horizon with a given confidence level. In the 1990s, VaR became very popular among financial institutions, as well as investors.

The following article is contributed by Yu Zhu, professor of finance, China Europe International Business School and former director, modeling and analytics group, Merrill Lynch

Source: The Asian Banker, 06.05.2009

Filed under: Asia, Banking, China, News, Risk Management, , , , ,

Mexico pension news fuels gains for peso, stocks

March 16 (LatinFinance) – Mexico’s pension fund were preparing late last week an agreement to buy only local securities for a 12’month period, a decision seen as a sign of confidence that could stimulate markets and cut financing costs. A formal agreemt is expected in coming weeks and would only apply to new funds invested by Afores. The potential inflow to Mexican equities could be $3.3 bn by year end.

Merrill Lynch says in a report, using a conservative estimate where Siefores invest in domestic equity half  the maximum allowable limits, or as much as $9.6 bn.

Source: LatinFinance, 16.03.2009

March 13 (Reuters) – Mexico’s peso firmed sharply and stocks jumped on Friday, helped by news that Mexican pension funds will soon sign an agreement to limit purchases to local assets.

The peso <MXN=>  firmed 1.57 percent to 14.512 per U.S. dollar, marking its fourth straight day of gains, even as the greenback gained against other emerging market currencies.

The BMV Bolsa Mexicana de Valores IPC stock index .MXX closed up 3.03 percent to 19,337.01 points, also rising for the fourth straight session and marking a 14 percent gain during the week.

Mexico’s private pension funds, known as Afores, will sign an accord to buy only local investments in a bid to help boost the shrinking economy, industry regulator Consar said on Thursday.

“It works out best for everyone, we all want Mexican companies to do well. It is a very good strategy and it is working,” said Alfredo Puig, a currency trader at Vector brokerage in Monterrey.

Mexico’s peso has lost nearly a third of its value against the dollar since August due to the impact of the global financial crisis and worries that Mexico is slipping into a recession due to the U.S. downturn.

The peso was also helped by the central bank’s daily sale of $100 million under a new dollar auction system introduced this week to support the battered local currency, said Jaime Ascencio, an analyst at Actinver brokerage in Mexico City.

The central bank previously sold dollars in auctions most often when the peso lost more than 2 percent.

Despite the peso’s gains during the week, where it added nearly 5.0 percent, some traders and analysts doubted that the currency would continue to firm much more and could weaken in the coming weeks.

Next Wednesday, Mexico will report industrial production data for January and analysts expect to see a nearly 10 percent drop, according to a Reuters survey.

“Mexico’s industrial production is going to come out terribly bad, an this could knock down the market,” said Cesar Castro, head of analysis at CAPEM consultancy in Mexico City.

In debt trading, bonds gained following the peso’s appreciation and expectations that the central bank could cut interest rates next week to boost the flagging economy.

The government’s benchmark 10-year peso bond <MX10YT=RR> rose 0.467 of a point in price, pushing its yield down to 8.31 percent.

In the equities market, shares in appliance dealer Elektra (ELEKTRA.MX) climbed 8.52 percent to 395.32 pesos.

Miner Penoles (PENOLES.MX) rose 9.8 percent to 154.24 pesos. The company declared force majeure on Friday saying it would not be able to meet precious metals orders due to a five-week strike that has paralyzed some operations at its MetMex processing plant, the largest in Latin America. For details, see [ID:nN13458606]

Breadmaker Bimbo (BIMBOA.MX) jumped 5.79 percent to 51.33 pesos.

Source: Reuters, 13,03.2009

March 13 (Bloomberg) — Mexico’s stocks had the biggest gain in the Americas and the peso and bonds jumped after the pension fund association said it will have an accord ready within weeks that will obligate managers to invest all new money locally.

The benchmark Bolsa IPC index rose 3 percent to 19,437.01, extending its four-day gain to 15 percent. The peso advanced 1.4 percent to 14.5221 per U.S. dollar. It has gained 6.7 percent in the past four days, trimming its plunge since the global financial crisis deepened in September to 27 percent.

The pension plan “is an act of solidarity at a difficult time for the local markets,” said Luis Garcia Pena, chief executive of Investra Consultores SA, which manages about $750 million in Monterrey, Mexico. “We could see synergies between pension fund money and the flows needed by corporations.”

The pension fund association will have an agreement ready in “coming weeks,” Oscar Franco, president of the association, known as Amafore, said in a telephone interview late yesterday. The agreement won’t affect money already in the funds, Franco said. The pension funds had 968.5 billion pesos ($66.8 billion) in assets as of February, making them Mexico’s biggest institutional investors.

The peso also advanced after the central bank bought $100 million worth of the currency in a daily auction. Banco de Mexico, known as Banxico, has purchased $500 million worth of pesos this week under this mechanism and has spent $20 billion from its foreign reserves since October to shore up the peso.

The currency’s four-day rally has pushed it up from a record low of 15.5892 per dollar on March 9. Its 27 percent plunge over the past six months is the worst performance among the 16 major currencies as the recession in the U.S. curbs dollar flows to Mexico from exports, remittances and tourism.

Source: Bloomberg: 13.03.2009

Filed under: Banking, BMV - Mexico, Latin America, Mexico, News, , , , , , , , ,