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AIMA/S3 study on Basel III impact

AIMA has published a member survey on how the cost and availability of financing is being impacted by Basel III. The survey is short and straightforward and will take you no more than 20 minutes to complete. You will be able to view the results later this year when AIMA and S3 Partners publish a research paper on the findings. Access the survey here.

The survey looks at:

o    How prime brokerage and financing relationships have changed over the last two years and the reasons for this, covering both cost and nature of service

o    How hedge fund managers expect these relationships to evolve further in the coming years as Basel III rules bite

o    How the hedge fund industry understands some of the key concepts that underpin banks’ response to Basel III, from “optimization” to “collateral management”

All questions in this survey are fully optional and it is open to any hedge fund manager to complete regardless of whether you are an AIMA member or S3 Partners client. The survey should be completed by an individual within the firm who is familiar with your prime brokerage and financing relationships. For further information, contact Adam Jacobs.


EU – AIMA response and ESMA reports on the EMIR Review

Last week AIMA submitted a response to the European Commission consultation on the EMIR Review. The response set out AIMA’s central positions on possible changes to the EMIR framework as part of the formal review of EMIR currently being undertaken by the European Commission. Among other things, the response called for: (i) the availability of third-country equivalence under Article 13 of EMIR for transactions involving at least one counterparty ‘subject to the rules of’ an equivalent third-country jurisdiction; (ii) the replacement of dual-sided reporting with a robust single sided mechanism; (iii) the abolition of the frontloading requirement currently contained within Article 4(1)(b)(ii) of EMIR; (iv) the development of a fast-track process for the suspension of the EMIR mandatory clearing obligation; (v) an alternative mechanism for direct access to CCPs rather than as a formal ‘clearing member’; and (vi) the swift removal of issues currently experienced around the definition of an ‘OTC Derivative’ under Article 2(7) of EMIR.  In addition to industry feedback relating to its consultation, the European Commission last week received four reports published by ESMA on the functioning of the EMIR framework. Three of the reports, required under Article 85(3) of EMIR, cover: non-financial counterparties; pro-cyclicality; and the segregation and portability for central counterparties (CCPs), respectively. The fourth report responds directly to the European Commission’s EMIR Review and includes recommendations on amending EMIR in relation to: the clearing obligation; the recognition of third country CCPs; and the supervision and enforcement procedures for trade repositories. Of particular interest to AIMA are ESMA’s calls for the Commission to provide for the suspension of the clearing obligation upon particular market conditions, as well as the abolition of frontloading and an entire rethink of the EMIR equivalence and recognition process for CCPs.


The European Commission will now use the consultation responses and the ESMA reports to assist in the compilation of a final report that the Commission will submit to the European Parliament and European Council. If members have any questions or comments, please contact Oliver Robinson or Adam Jacobs

Other news


US -  SEC Division of Corporate Finance Interprets “General Solicitation”

The Securities and Exchange Commission’s Division of Corporation Finance has recently updated its interpretations related to the scope of the term “general solicitation” as used in SEC Rule 506 of Regulation D under the Securities Act of 1933.  These interpretations confirm and reiterate many previously existing views and include some new flexibility around the communications and activities that could be undertaken without being deemed a general solicitation.  The interpretations also provide further guidance on the concept of “pre-existing substantive relationships”.  If you have any questions in relation to this, please contact Jennifer Wood.


EU – European Commission responds on Article 13 equivalence

The European Commission has responded to the Joint Trade Associations letter AIMA sent alongside a number of other trade associations on 22 June 2015 positing questions on a number of issues around equivalence under Article 13 of EMIR and Article 33 of MiFID. Jonathan Faull of the European Commission, responding on behalf of Commissioner Hill, has confirmed that the wording of Article 13 of EMIR does require at least one counterparty to a trade to be established in an equivalent third-county in order for the transaction to benefit from equivalence of third country clearing, reporting and risk mitigation rules. The response letter also confirms that the European Commission may move ahead with an equivalence determination under Article 13 on a rule-by-rule basis, rather than requiring a single holistic determination of the equivalence of numerous third-country requirements. If members have any questions, please contact Oliver Robinson or Adam Jacobs.


Luxembourg - FATCA deadline postponed to 31 August 2015

On 31 July the Luxembourg tax authority (‘Administration des contributions directes’) issued a circular granting the exceptional extension of the deadline from 30 June to 31 August 2015 for FATCA reporting in Luxembourg. According to the Intergovernmental Agreement (“IGA”) on FATCA signed between the USA and Luxembourg as well as the Luxembourg regulations implementing the relevant provisions this Agreement, each Luxembourg Reporting Financial Institution will have to file a report to the Luxembourg tax authorities prior to 30 June of each year. This report will have to include each US reportable account and must be done in a specific format defined by the circulars issued by the Luxembourg tax authorities. If you require further details please contact Paul Hale or Enrique Clemente.

Global – IBA seeks stakeholder views on proposed changes on LIBOR administration

ICE Benchmark Administration (IBA) has been in touch with AIMA in relation to its work on the evolution of ICE LIBOR to a transaction-based rate, in line with the recommendations of the FSB. IBA recently released a Second Position Paper for which it is seeking feedback from all stakeholders who may be impacted by changes in calculation methodology for LIBOR. A questionnaire is available on the IBA website, to which the latter will be accepting responses until Friday 16 October 2016. If you have any questions, please contact Andrew Hill.


Global – OECD takes further steps for implementing automatic exchange of information

On 7 August, the OECD released three reports to help jurisdictions and financial institutions implement the global standard for automatic exchange of financial account information. The first publication is a Common Reporting Standard Implementation Handbook (here), which will provide practical guidance to assist government officials and financial institutions in the implementation of CRS, and to help promote the consistent use of optional provisions or identify areas of alignment with FATCA. The Handbook is intended to be updated on a regular basis. The other OECD publications are an updated edition of the report on Offshore Voluntary Disclosure programmes (here) and a Model Protocol to Tax Information Exchange Agreements that provides the basis for jurisdictions wishing to extend the scope of their existing TIEAs to also cover the automatic and/or spontaneous exchange of tax information. If you require further details please contact Paul Hale or Enrique Clemente.


India - Minimum Alternative Tax (MAT) – Shah Committee Report and Castleton appeal

On 24 July, the Shah Committee submitted its report on the MAT, which has not been made public by the Indian Government. AIMA submitted a written representation (here) to the Committee on 22 June, arguing that the MAT provisions should not apply to Foreign Portfolio Investors (FPIs) for years prior to 1 April 2015 (the position from that date has been clarified by legislation). We understand that the report concludes that foreign investors are not liable to MAT for that period. However, the report seems to be silent on the position of foreign companies that are not FPIs or Foreign Institutional Investors (FIIs) because its terms of reference as framed by the Finance Ministry did not mandate the Committee to review this aspect, even though many of the MAT dispute cases concern such foreign companies. Given its relevance, the Indian Supreme Court has decided to adjourn to 29 September 2015 the Castleton case appeal hearing so that the court may consider the Shah Committee report. If you require further details, please contact Paul Hale or Enrique Clemente in London, Heide Blunt in Hong Kong or Merima Arleback in Singapore.


EU - ICMA study on evolution of European repo market

ICMA has approached AIMA regarding a study that it is conducting into the current state and future evolution of the European Repo Market. The study will be largely qualitative and based on interviews with a broad range of market participants, including repo trading desks, buy-side users of the product, voice and electronic intermediaries, infrastructure providers, as well as central banks and DMOs. The resulting report is envisaged to be similar in format to the 2014 ICMA study into the European Corporate Bond markets.

If you would be happy to be interviewed for this project, please contact Andy Hill at ICMA. Interviews can be by phone, and should take between 30 and 45 minutes. Ideally ICMA would like to interview the main person(s) responsible for the firm’s European repo/funding activity. All responses are anonymized and will only be presented in aggregate. All participants will also have the opportunity to review the draft report before it is published.

The impact of macroeconomic information announcements in Australia on interest rate future prices

Alex Frino and Grant Wearin

School of Business, University of Sydney

Q2 2006


In Australia, macroeconomic information announcements occur on approximately 45% of trading days. Consequently, they may be one of the most important contributors to price adjustment in futures markets. This paper reports the results of research which examines 27 different classes of macroeconomic announcements that are made at 11.30 am, and seeks answers to two questions.

1. What types of macroeconomic information have the largest impact on futures prices on announcement?
2. How long does it take the market to digest such information?

This information is relevant to funds that are considering implementing a global macro strategy based on Australia, and to high frequency traders who focus on trading around macroeconomic announcements.

The following are the key findings:
First, announcements of (1) employment numbers and (2) CPI systematically have the largest impact on futures prices.
Second, announcements of (3) Gross Domestic Product, (4) retail sales, (5) dwelling starts, (6) building approvals, and (7) housing finance also have a smaller, but nevertheless systematic impact on futures prices.

Finally, the largest impact on futures prices associated with macroeconomic announcements occur in the first minute after announcement, although there is price adjustment for up to 45 minutes following the announcement.

Australian macroeconomic information announcements

There are 32 different types of macroeconomic announcements identified in this study1. A list of the announcements, together with information on the issuing body and frequency (eg. quarterly or monthly) appears in Appendix 1. Most of the announcements examined are made by the Australian Bureau of Statistics, although some are made by the ANZ, Melbourne Institute, National Australia Bank and Westpac.

In this study we examine announcements that occurred over the period January 1 2002 to December 31 2004. The bulk of announcements occur at 11.30 am, and we therefore focus on these in this study. There were 472 such announcements made over 762 trading days over the sample period examined in this study. Table 1 below describes the announcements examined by day of the week. A little over one-quarter of the announcements occurs on Thursdays. Wednesday is also a ‘busy’ day of the week in terms of announcements, with Wednesday and Thursday together accounting for almost half the announcements.

Figure 1: Announcements by day of the week



Which announcements cause price adjustment?

The three most actively traded interest rate futures in Australia are Bank Accepted Bills, 3 Year Bond and 10 Year Bond Futures. In this paper, we report the results of analysis of 10 Year Bond Futures prices, although results are similar across all interest rate products2.

Figure 2 below reports the price volatility in the minute after each of the macroeconomic announcements, together with a statistic (t-statistic) which indicates how significant the relationship is in a statistical sense. The methodology used to produce the results in Figure 2 is described in Appendix 2.

There are seven macroeconomic announcements that have a clear and significant impact on futures prices. The two most important both in terms of their impact on futures prices and the statistical significance of their impact are (1) employment numbers3 and (2) the Consumer Price Index. They are associated with a price change of between 2 and 2.5 basis points in the minute in which the announcements are made.

The next most important announcements are (3) Gross Domestic Product and (4) retail sales, although their impact on price volatility is approximately half that of employment and inflation numbers (approximately 1 to 1.5 basis points in the minute immediately following announcements). Other announcements that are less important in terms of the magnitude of the price adjustment they propagate, but which nevertheless have a significant impact on the prices are (5) dwelling starts, (6) building approvals, and (7) housing finance.

Figure 2: Price adjustment and statistical significance of adjustment in the minute following macroeconomic announcements (ranked by size of adjustment)*
Impact of Macroeconomic Information - Figure 2 

Speed of adjustment to announcements

Figure 2 below reports the price volatility and trading volume for 10 Year Bond futures, in one minute intervals, on days of 11.30 am macroeconomic information announcements. Price volatility is defined as the absolute value of the price change across days for a specific time interval (see Appendix 2). For comparison, days on which there are no announcements are also plotted. While the previous section identified which announcements result in price adjustment, this section provides an indication of the amount of time taken to adjust to macroeconomic announcements. This provides insights into how long opportunities for profit associated with macroeconomic information announcements last.

Panel A of Figure 2 illustrates the intraday pattern in volatility on days of macroeconomic announcements in comparison to other days. The largest price movement occurs in the minute of macroeconomic announcements, and the average size of this movement is almost as large as that occurring at the open of trading. There is also evidence of abnormal price movement (relative to other days) for up to 45 minutes following announcements. This suggests that there are opportunities for profiting from price movements associated with macroeconomic announcements for 45 minutes following such releases.

Panel B of Figure 2 illustrates the intraday pattern in trading volume on days of macroeconomic announcements in comparison to other days. The patterns in trading volume on announcement days are virtually identical to those of price volatility. Hence, the spikes in price volatility are accompanied by elevations in trading volume.

Figure 3: Price Volatility and Trading Volume for 10 Year Bond Futures around Macroeconomic Information Announcements
Impact of Macroeconomic Information - Figure 3 

Appendix 1: Australian Macroeconomic Announcements

Panel A: 11.30am Announcements
ANZ Job Advertisements
Australia House Price
Average Weekly Wages
Building Approvals
Company Operating Profit
Consumer Price Index
Current Account Deficit
Dwelling Starts
Employment Change
Export price index
Gross Domestic Product
Housing Finance
Import Price Index
International Trade on Goods & Services
Job vacancies
National Australia Bank Business Survey
Monthly & Quarterly
New Motor Vehicle Sales MoM
Participation Rate
Private Capital Expenditure
Producer Price Index
Retail Sales
Trade Balance
Unemployment Rate
Wage Cost Index
Westpac Melbourne Institute Leading Economic Index
Westpac / Melbourne Institute
Westpac Consumer Confidence
Westpac / Melbourne Institute
Panel B: 10.00am Announcements
TD Securities-Melbourne Institute Inflation Index
TD Securities / Melbourne Institute
Panel C: 11.00am Announcements
Melbourne Institute Consumer Sentiment and Inflation Expectations
Melbourne Institute
Panel D: 9.30am Announcements
RBA Cash Rate Target
AIG Performance of Manufacturing Index
Australian Industry Group
AIG Performance of Services Index
Australian Industry Group

Appendix 2: Method used to examine the sensitivity of futures prices to different macroeconomic announcements

Data is sourced from Reuters and covers the period January 1 2002 to December 31 2004 for 10 Year Bond futures contracts. The data consists of minute by minute snapshots of the market on the SFE’s trading platform (SYCOM) for the nearest-to-deliver futures contract at the end of each minute across the trading day. These snapshots capture the last traded price, bid and ask prices and volumes at the best quotes, traded volume and the number of trades across each minute.

The sample is filtered as follows: Any day on which an announcement occurs at a time other than 11.30am is deleted from the sample5. The sample is then divided into 11.30am announcement days and ‘non-announcement’ days. There are 566 announcements made across a total of 762 trading days. After combining certain announcements which are released simultaneously (e.g. employment change, participation rate and unemployment releases) there are 472 announcements made over 345 days. There are 417 non-announcement days.

Volatility is defined as the absolute value of the price change from one minute to the next6. In order to identify which macroeconomic announcements have a significant impact on market volatility a dummy variable approach is used. A dummy variable regression equation is estimated as follows:
Impact of Macroeconomic Information - Equation 1
where Volatilityt is volatility in the first minute following macroeconomic announcements and Dk,t = 1 if announcement of type k made on day t, otherwise it is 0.

The coefficient βk,t is positive and significant if announcement type k has a significant impact on volatility7. A 0.05 level (95% confidence interval) is used to determine which coefficients are statistically significant.



1 - The macroeconomic information announcements examined in this paper were identified using the Bloomberg Macroeconomic Announcement tool.

2 - For an analysis of the impact of macroeconomic information releases on other interest rate products see Frino, A. and A. Hill (2001), “Intraday futures market behaviour around major scheduled macroeconomic announcements: Australian evidence”, Journal of Banking and Finance and Frino, A. and G. Wearin, (2006), “Macroeconomic information announcements in Australia: Opportunities for Global Macros and High Frequency Traders?”, Market Insights, Edition 8.

3 - Employment numbers include Employment Change, Participation Rate and Unemployment Rate announcements which are separate announcements which are released simultaneously. Similarly, Inventories and Company Operating Profit announcements are made simultaneously, as are Export Price Index and Import Price Index announcements.

4 - Unemployment and Westpac Indices previously released at 10.30am.

5 - These announcements include the RBA cash rate decision at 9.30am, The Melbourne Institute Consumer Sentiment and Inflationary Expectations announcements and TD Securities-Melbourne Institute Inflation Index.

6 - Volatility = |Pricet - Pricet-1|

7 - We also examine the range as a metric of volatility and the results are similar. Ranget = Hight – Lowt

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