Deliberations among the nations of the European Union about a new level of regulations for hedge funds there have reached an impasse.
I wrote here 11 months ago that the draft directive circulating at that time was dead as written. There have been lots of developments since.
The U.K., where most of the Europe-headquartered funds actually are, has been working to water down the more draconian aspects of these proposals from within the EU system, and the U.S. has been exerting some pressure from without.
The Brits are worried that this will hurt London's status as one of the world's great financial hubs, while the U.S., and in particular Treasury Secretary Geithner, worries that the EU is going protectionist -- that it will put barriers in the path of any institutions and high net worth investors there who want to entrust their money to operations in New York.
Meanwhile, the French and the Germans are pulling in the other direction, to make the regulations tougher on the nasty hedge funds, whether of New York or London, than the drafts of the directive would have it.
There is an idea circulating in some quarters that hedge funds were at fault in the 2007-08 credit crunch. That is utter nonsense. Quite old-fashioned, supposedly conservative and stodgy, institutions like banks were the real trouble makers. The hedgers generally did a good job of keeping their head while bankers all around them were losing theirs.
At any rate: the news this week is that EU diplomats tried to push the process forward at a meeting Monday, the 27th, but they failed.
A big possible winner is Switzerland. A map will tell you that the Swiss are in Europe, but they don't act like it. They've stayed away from the EU, and if EU rules do become too onerous for HFs, we might see a lot of them developing a taste for Alpine air.
Showing posts with label Europe. Show all posts
Showing posts with label Europe. Show all posts
Tuesday, September 28, 2010
Wednesday, June 16, 2010
Today is Bloom's Day
In recognition of the day, let us talk about a work of fiction. But not Joyce's immortal re-write of Homer. That would be rather outside our remit. Let us talk, rather, about Jerome Kerviel's imaginary friend.
You remember Kerviel, surely. Back in January 2008, when subprime contagion was already a worry but before all the craziness for which 2008 will be remembered, Kerviel lost 4.9 billion euros belonging to his employer, Société Générale, placing allegedly unauthorized bets on European stock index futures. His superiors there apparently discovered his losses -- overcoming his best efforts to hide them -- on Saturday, January 19. On the following three trading days (Mon. through Wednesday), the bank closed out Kerviel's positions.
Now Kerviel is on trial, breach of trust, computer abuse, and forgery, and his defense is that his trading was not unauthorized after all, that he was no Leeson-style "rogue." Here's a discussion of the issue phrased in the language of the quants.
But now we get to the almost Joycean twist. Kerviel now says he invented an imaginary friend called "Matt," supposedly a rugby loving hedge fund guy. Kerviel would answer questions from a broker, Moussa Bakir, about his trading strategy by saying that the questioned trades were in response to pressure from client "Matt."
Which Matt did he have in mind when he made up that name, one wonders? Damon? Lauer? "Mon ami, Matt, du Spectacle d'Aujourd'hui ...." Anyway, this admission would seem to sink the defense that "my bosses knew it all along."
The Reuters' take is here.
What is left of the defense, I imagine, is the idea that they should have known, and implicitly authorized Kerviel's shenanigans by looking the other way, perhaps pretending to believe transparent lies in the process. Doesn't sound like much of a defense, but it may well continue to delight and instruct, the two great goals of art.
Monday, October 26, 2009
Europe's Draft Directive: Dead as Written
Most of Europe now seems to understand that the Draft Directive on Alternative Investment Fund managers issued back in April needs more work.
I'll just do some quick link farming on the subject today. I covered the basics in July.
Paul Myners, the UK Financial Services Secretary to the Treasury, discussed some of the troubles with the plan here.
More recently, the International Swaps and Derivatives Association (ISDA) explained some of these problems in a Comment dated October 21, and available through its website.
And perhaps a bit less predictably, the European Central Bank has joined the chorus.
And here, finally, is a summary of Sweden's position in an issues note set out in September.
I'll just do some quick link farming on the subject today. I covered the basics in July.
Paul Myners, the UK Financial Services Secretary to the Treasury, discussed some of the troubles with the plan here.
More recently, the International Swaps and Derivatives Association (ISDA) explained some of these problems in a Comment dated October 21, and available through its website.
And perhaps a bit less predictably, the European Central Bank has joined the chorus.
And here, finally, is a summary of Sweden's position in an issues note set out in September.
Tuesday, July 7, 2009
Europe's Draft Directive
On April 29, 2009, the European Commission issued its "Directive on Alternative Investment Fund Managers," in essence a set of rules for the regulation of a broad range of alternative asset managers, the firms that manage hedge funds and similar vehicles.
At the time, the general expectation was that the rules would be enacted in some form similar to that of the draft, though with some tinkering. Pursuant to my employment, at that time I contacted some HF managers and some of the attorneys who work for them in Europe, They explained how the process works -- the draft rules would have to move through two parallel tracks toward implementation. This has the amusing name of the Lamfalussy Process, never mind now why.
One track is an executive one, so to speak -- the Council of the European Union. The other track of Lamfalussy is legislative -- approval of the Parliament.
Everyone I spoke to on this subject told me that tightening hedge fund regulations, through this draft or something more severe than this draft, would be a pretty straightforward matter in on the legislative track, because they all expected socialist victories in these elections. (These conversations were taking place in middle of May.) These were people involved in the hedge fund industry, so they weren't happy about that expectation, but it WAS their settled expectation. But they also thought the regulatory draft might run into trouble in the executive Council.
They were wrong about the legislative end. There might be any number of reasons why. Personally, I suspect they were probably right about sentiment when we spoke, but there was likely a quick shift in sentiment in late May.
The election took place over four days in early June, and they resulted in a rightward-shift of the balance of power in the EU. The situation, in terms of which parties are associated with which, is very confused and confusing, so I'll say very little about it, seeking the safety of this simplicity: the "right" may be roughly defined as consisting of those parties that are suspicious about the role of the Parliament they are joining: the "left" as those that see a need for a more activist EU, as against both separate national agendas on the one hand and global business interests on the other.
In the Czech Republic, the election saw the victory of the Civic Democrats, a group zealous of Czech sovereignty vis-a-vis the EU.
In Austria, where five years ago the EU election was a virtual dead heat, this time the People's Party -- the more rightward of the two major parties there -- won the clear victory though against a background of low turnout, and voter dissatisfaction with both major parties. The People's Party had gotten 33% of the vote in 2004, but were down to 30% this year. That wasn't as far a distance to fall though as the Socialists, who had gotten just over 33% in 2004, but just 23.5% this time.
In Portugal, the Social Democrats (PSD) defeated the Socialists. That country's Socialists, who had polled 44.5% in the 2004 EU elections, polled only 26.58% this time around. The PSD ended up first past the post with 31.68%.
And so it went. The bottom line? Anyone in Brussels looking forward to reguatory authority over hedge funds may have to settle for something less than only quite recently seemed inevitable.
At the time, the general expectation was that the rules would be enacted in some form similar to that of the draft, though with some tinkering. Pursuant to my employment, at that time I contacted some HF managers and some of the attorneys who work for them in Europe, They explained how the process works -- the draft rules would have to move through two parallel tracks toward implementation. This has the amusing name of the Lamfalussy Process, never mind now why.
One track is an executive one, so to speak -- the Council of the European Union. The other track of Lamfalussy is legislative -- approval of the Parliament.
Everyone I spoke to on this subject told me that tightening hedge fund regulations, through this draft or something more severe than this draft, would be a pretty straightforward matter in on the legislative track, because they all expected socialist victories in these elections. (These conversations were taking place in middle of May.) These were people involved in the hedge fund industry, so they weren't happy about that expectation, but it WAS their settled expectation. But they also thought the regulatory draft might run into trouble in the executive Council.
They were wrong about the legislative end. There might be any number of reasons why. Personally, I suspect they were probably right about sentiment when we spoke, but there was likely a quick shift in sentiment in late May.
The election took place over four days in early June, and they resulted in a rightward-shift of the balance of power in the EU. The situation, in terms of which parties are associated with which, is very confused and confusing, so I'll say very little about it, seeking the safety of this simplicity: the "right" may be roughly defined as consisting of those parties that are suspicious about the role of the Parliament they are joining: the "left" as those that see a need for a more activist EU, as against both separate national agendas on the one hand and global business interests on the other.
In the Czech Republic, the election saw the victory of the Civic Democrats, a group zealous of Czech sovereignty vis-a-vis the EU.
In Austria, where five years ago the EU election was a virtual dead heat, this time the People's Party -- the more rightward of the two major parties there -- won the clear victory though against a background of low turnout, and voter dissatisfaction with both major parties. The People's Party had gotten 33% of the vote in 2004, but were down to 30% this year. That wasn't as far a distance to fall though as the Socialists, who had gotten just over 33% in 2004, but just 23.5% this time.
In Portugal, the Social Democrats (PSD) defeated the Socialists. That country's Socialists, who had polled 44.5% in the 2004 EU elections, polled only 26.58% this time around. The PSD ended up first past the post with 31.68%.
And so it went. The bottom line? Anyone in Brussels looking forward to reguatory authority over hedge funds may have to settle for something less than only quite recently seemed inevitable.
Sunday, June 14, 2009
An Industry that Dodges Bullets
Entering the year of our Lord 2009, many participants in the hedge fund and alternative-investment industry in were of the opinion that the industry was on the eve of a radical transformation, at worst, effective elimination, due to government actions in a variety of jurisdictions that might result from the ongoing credit/financial crisis.
Yet it now appears that the industry may survive that impulse. I’m impressed by what hasn’t happened – by how any bullets it has dodged of late. Six come to mind at once.
1. The Insurance Department in New York appears to have lost interest in a plan, mooted last year, to regulate CDS’ as insurance.
2. The Governor of New York backed away early this year away from a plan to tax carried interest as ordinary income in that state's income tax
3.. The composition of the EU Parliament has changed in a way that will create difficulties for the implementation of new regulations of hedge fund managers there
4. Three efforts to regulate hedge funds failed in the General Assembly of Connecticut this year: although one of them had passed the state senate, they’ve all died with the end of session
5. In the US federal government, the new administration has dropped plans to radically rework the chart of its financial regulatory agencies
6. And the ban on short selling of a range of finance industry firms announce last fall was allowed to expire, and there seems no impetus to renew it.
Yet it now appears that the industry may survive that impulse. I’m impressed by what hasn’t happened – by how any bullets it has dodged of late. Six come to mind at once.
1. The Insurance Department in New York appears to have lost interest in a plan, mooted last year, to regulate CDS’ as insurance.
2. The Governor of New York backed away early this year away from a plan to tax carried interest as ordinary income in that state's income tax
3.. The composition of the EU Parliament has changed in a way that will create difficulties for the implementation of new regulations of hedge fund managers there
4. Three efforts to regulate hedge funds failed in the General Assembly of Connecticut this year: although one of them had passed the state senate, they’ve all died with the end of session
5. In the US federal government, the new administration has dropped plans to radically rework the chart of its financial regulatory agencies
6. And the ban on short selling of a range of finance industry firms announce last fall was allowed to expire, and there seems no impetus to renew it.
Tuesday, October 21, 2008
Shake-up at Deutsche Borse
Kurt Viermetz has resigned as chairman of the board of Deutsche Boerse AG, effective December 8.
Deutsche Borse owns the Frankfurt stock exchange, Clearstream (a settlement operation), Eurex (the dominant force in European equity derivatives), and Eurex Clearing.
Viermetz has been its chairman for just three years, and although it isn't clear just what happened behind the scenes leading to his departure, the folks who put him there seem to have lost faith in him.
The hedge funds Atticus Capital and TCI were instrumental in Viermetz' rise to the chairmanship three years ago. The best guess at this point is that they expected him to initiate a buyback of the company's equity by this point. He has resisted doing so, and now he's out.
Atticus reacted quickly to the news: "Atticus is pleased by Mr. Viermetz's decision to resign from the supervisory board of Deutsche Boerse AG, which we believe is in the best interests of the company and its shareholders," it said in a statement this weekend. "We wish to recognize and thank Mr. Viermetz for his years of service on the supervisory board."
To those of us who don't happen to own DB stock, the issue of whether the company is to initiate a buyback may seem a rather trivial one. An operational issue is also under discussion there, though: whether the company should spin off some of its units.
From the point of view of the stock or derivatives investing publics, is it better to deal through an exchange that is separate from the clearing/settlement operation, or with a single integrated company that performs both functions? Should we be hoping that whatever shake-up underway at DB results in a break-up?
Deutsche Borse owns the Frankfurt stock exchange, Clearstream (a settlement operation), Eurex (the dominant force in European equity derivatives), and Eurex Clearing.
Viermetz has been its chairman for just three years, and although it isn't clear just what happened behind the scenes leading to his departure, the folks who put him there seem to have lost faith in him.
The hedge funds Atticus Capital and TCI were instrumental in Viermetz' rise to the chairmanship three years ago. The best guess at this point is that they expected him to initiate a buyback of the company's equity by this point. He has resisted doing so, and now he's out.
Atticus reacted quickly to the news: "Atticus is pleased by Mr. Viermetz's decision to resign from the supervisory board of Deutsche Boerse AG, which we believe is in the best interests of the company and its shareholders," it said in a statement this weekend. "We wish to recognize and thank Mr. Viermetz for his years of service on the supervisory board."
To those of us who don't happen to own DB stock, the issue of whether the company is to initiate a buyback may seem a rather trivial one. An operational issue is also under discussion there, though: whether the company should spin off some of its units.
From the point of view of the stock or derivatives investing publics, is it better to deal through an exchange that is separate from the clearing/settlement operation, or with a single integrated company that performs both functions? Should we be hoping that whatever shake-up underway at DB results in a break-up?
Sunday, March 16, 2008
German corporate law.
It appears that German corporate law requires that, unless a corporation's by-laws provide otherwise, certain decisions can only be made if they are opposed by fewer than 25% of the proxy shares voted. This makes the figure 25% the "blocking minority."
Volkswagen has written into its own bylaws a still more generous provision for dissenters. It has a blocking minority of only 20%.
Twenty percent is also the share of the equity of VW owned by the government of Lower Saxony, VW's home state.
That not only gives Lower Saxony blocking power, but it makes that state the second largest of the company's shareholders. The largest shareholder is thw sports car maker, Porsche.
A ruling last year by the European Court of Justice has pressured VW toward making some corporate governance changes, fitting in more coherently with the rest of the EU. Porsche understands the ECJ to mean that VW should increase the blocking percentage. This wouldn't mean a shift to simple majority rule. It would probably be an increase to the German default option of 25% block. But even so, it would mean that in order to prevent some change that it didn't like, Lower Saxony would have to find shareholder allies.
This would be, if you will, a sort of deregulation.
Unsurprisingly, Lower Saxony doesn't see the ECJ ruling the same way Porsche does.
My sympathies are always against the government. Go, Porsche!
The punchline of an old joke says it best. "It's not a porch, it's a Mercedes."
Volkswagen has written into its own bylaws a still more generous provision for dissenters. It has a blocking minority of only 20%.
Twenty percent is also the share of the equity of VW owned by the government of Lower Saxony, VW's home state.
That not only gives Lower Saxony blocking power, but it makes that state the second largest of the company's shareholders. The largest shareholder is thw sports car maker, Porsche.
A ruling last year by the European Court of Justice has pressured VW toward making some corporate governance changes, fitting in more coherently with the rest of the EU. Porsche understands the ECJ to mean that VW should increase the blocking percentage. This wouldn't mean a shift to simple majority rule. It would probably be an increase to the German default option of 25% block. But even so, it would mean that in order to prevent some change that it didn't like, Lower Saxony would have to find shareholder allies.
This would be, if you will, a sort of deregulation.
Unsurprisingly, Lower Saxony doesn't see the ECJ ruling the same way Porsche does.
My sympathies are always against the government. Go, Porsche!
The punchline of an old joke says it best. "It's not a porch, it's a Mercedes."
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