ICMA Executive Education newsletter, Issue No.2, January 2013 by ICMA

Welcome to the second ICMA Executive Education newsletter

Credit and liquidity components of CDS spread changes

Medieval exchange rate manipulation

ICMA Executive Education newsletter Issue No.2, January 2013

contents JANUARY 2013

OPENINGS

Recent news

What’s been happening recently at ICMA EE

Meet two of our Diploma holders

ICMA Executive Education is a joint venture between ICMA and the ICMA Centre at Henley Business School, University of Reading. Covering technical securities/derivatives and operations, the professional qualifications and training programmes are aimed at market practitioners in the financial markets and delivered in the major financial centres.

2 We welcome feedback and comments on the articles which appear in this newsletter. Please e-mail David Senior, Business Development Director, ICMA Executive Education: david.senior@icmagroup.org © ICMA Executive Education, 2013. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission from ICMA Executive Education.

introduction

Executive education

an essential investment in a changing market Welcome to this, the second ICMA Executive Education newsletter. It’s designed to highlight our new courses and locations and to give you some in-depth insights into our existing programmes and the people who are responsible for delivering them. We are also profiling our successful certificate holders, who are now using the skills they have learnt with us in their everyday working lives in the financial markets. We would like to hear what you think about this edition and encourage you to contribute to the next one, due for publication in July 2013. Contact us on education@icmagroup.org.

Foreword by Martin Scheck, Chief Executive, ICMA

guidelines for the primary and secondary markets and in the repo sector. This,

In the six months since the last ICMA EE

to maintaining robust and well functioning capital markets. The framework we set

newsletter, it is evident that the reputation of the financial industry, far from improving,

along with the work on our committees, councils and working groups, is directed out complements statutory regulation and provides essential clarity for market participants in their day to day operations in the securities markets.

has been further damaged by the revelations

As the new regulatory and supervisory architecture of Europe is progressively put

over the setting of LIBOR which emerged

in place, we make authoritative and well-researched input to the authorities to

during the summer. As a consequence,

ensure that markets can continue to function to the benefit of issuers and investors.

public opinion and the political environment remain as hostile as ever to bankers

Increasingly however, it is our commitment to education which is becoming

and to the industry as a whole. It is quite difficult to see at this point in time how

a major focus for us. Our investment in high quality professional education

ordinary citizens can have their confidence in financial markets and financial

programmes is making an essential contribution to creating the pool of skilled

market participants restored.

and principled individuals who are so crucial to the future development of sound

ICMA, as a long established trade association, with a 40 year track record in

financial markets. In 2012 we have seen record numbers of young professionals

promoting best practice in cross border securities markets, has a role to play,

progress successfully through the extended range of courses which we offer in

along with other market participants, in creating the conditions for restoring trust

locations across Europe. Building on this, we are planning further investment to

over the longer term. We continue to support the use of best market practice in

make sure that we continue to meet the changing market needs. The introduction

international debt capital markets through our globally recognised standards and

of an ethics element into our courses will be high on the agenda.

Foreword by John Board, Director of the ICMA Centre and Dean of Henley Business School

The ICMA Centre itself continues to perform well. It was ranked in the top 25

ICMA Executive Education has made

again finding jobs within three months of graduation, which is encouraging news

significant progress in its mission to provide training and education for ICMA members. Our portfolio reaches from basic “Level I” courses, introducing markets and

in the world in the recent Financial Times listing (which includes all major global Business Schools). The Centre performed particularly well with high scores related to careers, continuing its high employment rate with 94% of graduates

during a recession. We were also ranked in the top 10 worldwide (3rd in the UK) for career progress of students when judged three years after graduation. This year, the ICMA Centre has recruited some 330 Masters participants and

operations functions, to “Level II” programmes offering formal market recognised

50 new Bachelors students. By the end of the year, the Centre will have over

qualifications, to “Level III” sessions that provide advanced, market relevant

4,000 alumni from 117 countries. The Centre now has one of the largest doctoral

CPD for experienced market participants. We all know that education is one

programmes in the UK, and this provides the basis for academic and policy

of ICMA’s core objectives and is, of course, at the heart of what any good

oriented research – both of which are of benefit to the Investment Banking

Business School “does”.

and Financial Services industries.

introduction

A review of 2012 and looking ahead to 2013 by David Senior David Senior is Director of Business Development and the Acting Head of ICMA Executive Education. In this role David oversees the marketing and organisation of ICMAâ&#x20AC;&#x2122;s suite of financial training programmes.

2012 has been another challenging year for the financial markets industry. Against this backdrop, ICMA Executive Education has continued to see record numbers of delegates attend our courses. We have also been holding our programmes in different locations for the first time and have welcomed participants from a total of 47 countries on our courses. The main objective of ICMA Executive Education is to provide high quality executive education courses to ICMA members and non members alike, in line with the associationâ&#x20AC;&#x2122;s mission of improving standards and making markets more efficient. Access to subsidised education is seen as a key benefit of membership for our members and is one of the services ICMA offers that is of most interest to potential members. I am often asked what differentiates ICMA Executive Education from that of other organisations that offer financial training programmes and the most obvious difference is that ICMA Executive Education is a unique partnership between ICMA and the ICMA Centre, Henley Business School, University of Reading. This gives us the advantage of being able to combine practitioner experience with the academic theory that underpins what we teach. We also place an equal weighting on both front office and operations courses, viewing both functions of the business as important as each other, whereas there can be a tendency to favour the former over the latter. This year we expanded our course offering to add three new specialist two day courses to our portfolio: Trading the Yield Curve with Interest Rate Derivatives, Trading and Hedging Short Term Interest

Rate Risk and Fixed Income Portfolio Management. We also extended the global reach of our programmes by holding our Primary Market Certificate (PMC) for the first time in Dubai. This focussed on conventional bond and sukuk markets to take account of the needs of practitioners within the Gulf. Next year we will be holding the PMC in Hong Kong for the first time, looking at both conventional bond and offshore Renminbi issuance. The University of Reading will be opening a new campus in Malaysia and we were delighted to be able to hold a week of Operations courses there, which commenced with our Securities Operations Foundation Course (SOFC) and concluded with a two day specialist Derivatives Operations course. We have also seen many delegates successfully complete their Diplomas, either in Securities and Derivatives or in Financial Market Operations by following a pathway of courses in either the front office or operations areas of the business. Even with the current uncertainty in the financial markets, organisations realise that people are their most important asset and it is imperative that employees are adequately equipped to carry out their roles. This means ensuring that staff have the necessary training and exposure to specialist subject areas. Our courses provide not just many practical examples and case studies to delegates, but are also a great opportunity to network and discuss common challenges the industry is facing. Although I am sure that 2013 will present its own unique set of challenges, I am confident that the financial programmes offered by ICMA Executive Education will continue to meet the needs of the industry.

courses

What is

ICMA Executive Education? ICMA Executive Education is a joint partnership between the International Capital Market Association (ICMA) and the ICMA Centre, Henley Business School, University of Reading. The main objective of ICMA Executive Education is to provide high quality executive education courses to ICMA members and non members alike in line with the association’s mission of improving standards and making markets more efficient. We offer three levels of programmes: introductory, intermediate and specialist in both the front office and operations areas. These programmes are:

I N T RO D U C T O RY P RO G R A M M E S • Financial Markets Foundation Course (FMFC) •

• • • •

Securities Operations Foundation Course (SOFC)

Luxembourg: 11 - 13 March 2013 London: 8 - 10 May 2013 Luxembourg: 23 - 25 September 2013 London: 6 - 8 November 2013

• • • •

London: 18 - 20 February 2013 Brussels: 25 - 27 March 2013 London: 11 - 13 September 2013 Brussels: 13 - 15 November 2013

INTERMEDIATE PROGRAMMES

• International Fixed Income and Derivatives (IFID) Certificate Programme

• Operations Certificate Programme (OCP)

• Sitges, Barcelona: 21 - 27 April 2013 • Sitges, Barcelona: 27 October - 2 November 2013 • Brussels: 17 - 23 March 2013

• Primary Market Certificate (PMC)

• London: 13 - 17 May 2013 • London: 18 - 22 November 2013

SPECIALIST PROGRAMMES We have a number of courses, held in different European locations, which are 1-2 days in length, which focus on single specialist topic areas. These are:

Collateral Management Management Commodities – An Introduction Commodities – Trading and Investment Strategies Corporate Actions – An Introduction Corporate Actions – Operational Challenges Credit Default Swaps (CDS) – Features, Pricing and Applications Credit Default Swaps (CDS) – Operations Derivative Credit Risk – Analysis and Management Derivatives Operations

Fixed Income Portfolio Management Global Custody Inflation-linked Bonds and Structures Securities Lending & Borrowing Securitisation – Structuring and Valuation Technical Analysis & Inter-Market Trading Trading and Hedging Short-Term Interest Rate Risk Trading the Yield Curve with Interest Rate Derivatives

ICMA SKILLS

• Successful Sales • Mastering Mandates

C O R P O R AT E F I N A N C E C O N S U LTA N T ( C F C ) C E R T I F I C AT E

• Corporate Finance Consultant (CFC) Certificate

For further information on our programmes, please contact: David Senior, Business Development Director – ICMA Executive Education E-mail: david.senior@icmagroup.org Tel.: +44 20 7213 0329 For details on any of our courses, please see our website: www.icmagroup.org.

courses

A “Dim Sum” Primary Market Certificate (PMC) December 1979 marked the start of Deng Xiaoping’s Open Door policy of socialism with a Chinese touch. This paved the way for China’s explosive economic growth throughout the decades that followed and for its gradual integration within the global economy. As China moves towards challenging the US as the world’s largest economy, so the Chinese currency, the Renminbi (RMB), moves towards convertibility. The process began in 2004, when banks in Hong Kong were allowed to take RMB deposits for the first time and to offer some personal financial services in RMB. In the summer of 2007, the Chinese government authorised mainland banks to issue RMB bonds in Hong Kong in order to mop up some of the RMB liquidity in the Hong Kong market. Amongst a series of liberalising measures in July 2010, the authorities dictated that there would be no restrictions on issuers, investors or issuance volumes in the offshore RMB bond market, or the “Dim Sum” market, as it had now come to be known. In the year following these measures, issues in the offshore RMB (CNH) grew by RMB 70bn ($11bn) or a five-fold increase in bonds outstanding.

Hong Kong cityscape

ICMA Executive Education has taken a keen interest in the development of China’s securities markets, as evidenced by our initiative establishing a unique Corporate Finance Consultant (CFC) qualification on the mainland with the NDRCTC. ICMA has established Memoranda of Understanding with key trade associations in the bond markets in China and Hong Kong. As a further natural step in supporting the development of the CNH bond market, we will present our first Primary Market Certificate (PMC) programme in Hong Kong next year targeting the Dim Sum market. ICMA’s Primary Market Certificate has now been running for 10 years in London and is normally held twice a year, taking place over four and a half days, with a 90 minute multiple-choice exam on the final afternoon. The PMC is a second level qualification intended for those working in the origination, syndication and transaction management areas of investment banks or securities houses. It is also a valuable qualification for capital markets lawyers looking to expand their understanding of the workings of the primary markets and for those

employed in institutions that may be looking to raise funds in the international, and in this case, Dim Sum capital markets. This certificate programme examines the entire life cycle of bond issuance, from considering the financing choices through to the closing of transactions in the marketplace. While the course examines the theoretical principles underpinning the markets and the instruments and financing techniques that are available, emphasis is placed on interpreting and using that knowledge in practical case studies. In addition, due to the dynamic nature of the primary markets, the programme emphasises current market practice and use is made of local market practitioners to discuss key areas. For the programme in Hong Kong, attention will be paid to the development of the mainland and CNH bond markets and the types of borrowers who can best benefit from the growing market. Documentation and regulatory modules will also emphasise Dim Sum issuance.

Chris O’Malley

people

Chris O’Malley We feature one of our course directors in each of our newsletters. In this edition ICMA Executive Education (ICMA EE) speaks to Chris O’Malley ICMA EE: How would you summarise your career in the financial markets? Chris O’Malley: When starting my courses, I often like to say “I have been in debt all my life” and of course that is true – I joined a London Stock brokers after graduating in Economics in 1974. After learning my bond market fundamentals in the UK Gilt-Edged market, I moved to establish a business in the international bond market, or Eurobond market, in 1977. I have been intimately involved with this market over much of its life. ICMA EE: Have you spent time in any particular area of the business?

Chris O’Malley is the Course Director for the Primary Market Certificate (PMC) and a Senior Advisor to ICMA. Based in the Market Practice and Regulatory Policy Department of ICMA, he focuses on primary market practices and, particularly, capital markets and skills-based training.

Chris O’Malley: A large part of my career has been focussed on investor sales and then managing sales teams in the major financial centres. ICMA EE: How important is the sales function and what makes a good salesperson? Chris O’Malley: Sales is very much the ‘coal-face’ of a successful capital markets business, but good sales techniques take time to develop. I began my training career in 1999 in this sales area and am delighted that I am still working with young capital market salespeople through the ICMA Skills programmes. ICMA EE: What did you do after working in sales? Chris O’Malley: The latter half of my investment banking career was in the primary or new issue markets. I transferred to the origination desk of the bank, establishing a new issue business for the Middle East, India and Africa, successfully bringing many new issues to the loan and bond markets. ICMA EE: When did your association with ICMA begin? Chris O’Malley: I was approached in 1999 to join the International Primary Market Association (IPMA) to assist with the association’s work in promoting best practice in the markets. As part of that remit, the idea arose of establishing a training programme for young people in the primary markets. ICMA EE: How did that role evolve? Chris O’Malley: I set about developing a one week examined training programme, which would cover the whole life-cycle of debt issuance, from corporate finance principles through to completing a transaction in the market. The course was called the IPMA Diploma.

ICMA EE: How was the course received by the markets? Chris O’Malley: Fortunately it was well received by the industry and with the merger of IPMA and the International Securities Markets Association (ISMA) in 2005, it became the ICMA Primary Market Certificate (PMC). It is now one of the three core intermediate programmes in the ICMA Executive Education portfolio. ICMA EE: What make the PMC unique? Chris O’Malley: The PMC has a number of distinguishing features. It is fundamentally a ‘market practice’ course. Whilst we review corporate finance theory, the emphasis is on bringing transactions in today’s markets, therefore it is not a static body of knowledge, but a dynamic ever-changing one. ICMA EE: How do you ensure the course is kept up to date? Chris O’Malley: It would be impossible to run such a course if the trainer was not involved on a regular basis in the markets. Whilst no longer doing transactions myself, I am closely involved with the primary markets through my senior advisor role at ICMA and my involvement with the Primary Market Practices Committee. In addition, we take advantage of our role as the trade association of the international cross border bond markets to invite senior practitioners from our member banks to present on the course. On a typical programme as a result, there are at least eight expert presenters. ICMA EE: How do you view the importance of the bond markets? Chris O’Malley: The bond markets have grown in importance for international financing as banks have had to preserve and build their capital, and so reduce lending. But as new issue sizes have increased, so have risks. ICMA EE: How have banks sought to reduce their exposure? Chris O’Malley: They do this in the way they organise new issues, so that the method of launching new offerings has changed dramatically from 10 or 15 years ago. In addition, the regulators are taking an increasing interest in the whole new issuance process. The PMC keeps up to date with all developments. ICMA EE: There must be a great deal of interest then in a course which addresses theses issues? Chris O’Malley: Certainly – interest in the PMC has grown internationally. In addition to being held twice a year in London, the programme is now held annually in Dubai, where both the conventional and sukuk primary markets are covered. In addition, in 2013, we will hold the inaugural PMC in Hong Kong with a focus on the “Dim Sum” market.

people

ICMA Executive Education’s trainers

CLIVE CORCORAN

GAIL ROLLAND

Clive advises private clients on how to practise long/short market neutral strategies. He has written Long/Short Market Dynamics: Trading Strategies for Today’s Markets and his articles have appeared in Traders’ Magazine and Active Trader.

Gail has ten years of Fixed Income experience in London and New York in the areas of sales and trading and new product structuring. Since the mid-1990s, she has worked with ICMA Executive Education in addition to running her own financial markets training firm.

He has been a frequent contributor to CNBC’s European Closing Bell and a speaker at international trading expos and workshops. Clive is Programme Director for the Technical Analysis and Inter-Market Trading course.

KEITH DICKINSON

NEIL SCHOFIELD

Keith is a Visiting Fellow at the ICMA Centre, University of Reading and Programme Director for the Diploma in Financial Markets Operations.

Neil is a Visiting Fellow at the ICMA Centre and a freelance training consultant. Previously he was global head of financial markets training at Barclays Capital in London. He was responsible for the design and delivery of a large number of seminars in a variety of different asset classes.

Keith spent twenty years in the operations areas of the equities, fixed income and derivatives markets for securities houses and financial institutions in London, followed by twenty years preparing and delivering operational courses.

LINDSEY MATTHEWS Lindsey is Managing Director, UBS Delta, in Securities Distribution at UBS London and was until 2012 Group Head of Risk Education at UBS. He is a Visiting Fellow at the ICMA Centre. Previously, Lindsey built up the financial products and markets education team for Swiss Bank Corporation in London, expanding the remit to cover the education of clients across all asset classes. Lindsey is Programme Director for the Fixed Income Portfolio Management course.

DAVID OAKES David trained as an economist at the London School of Economics and was Lecturer in Finance at the University of Exeter and Warwick Business School before joining the ICMA Centre as Director of Academic and Professional Education.

Gail has particular expertise in advising the insurance industry on capital markets investment strategies and is the online tutor for the IFID certificate programme.

David now delivers advanced financial markets training to investment banking clients in New York and around the world and is a speaker on the IFID Certificate Programme. David is also Course Director for two of our specialist programmes on Trading the Yield Curve.

Neil has over twenty years of experience in the financial markets. He has published two books: ‘Commodity Derivatives’ and ‘Trading the fixed income, credit and inflation markets’. Neil teaches a number of our specialist courses.

MIKE SIMMONS Mike has been involved with the capital markets and operations throughout his career, focusing originally upon securities settlement and more recently on the broader aspects of operations (e.g. derivatives, trade finance, payments, corporate finance and corporate lending). Mike is the author of two books on Operations “Corporate Actions: A Guide to Securities Event Management” and “Securities Operations: A Guide to Trade & Position Management”. Mike is also a regular instructor on the ICMA Operations Certificate Programme and teaches some of our specialist operational courses.

MIKE SMITH Mike Smith is a lecturer in finance and dealing room director at the ICMA Centre, University of Reading, where he has been teaching the derivative securities module since 1994. He was formerly a city trader for 8 years where he made markets in cash equities before moving on to a variety of derivatives desks. Mike specialises in teaching applied finance, in particular options trading, where his main area of interest is the use of trading simulations in the teaching process. He recently developed an advanced trading simulation, ICTrader.

news

Latest

news

IFID course in Hong Kong

The Corporate Finance Consultant (CFC) certificate

Based on the success of the Primary Market Certificate (PMC)

of the Training Centre of the National Development and

course which was held outside of London in Dubai for the first

Reform Commission (NDRCTC) has passed the first stage

time this year, we will be holding the programme in Hong Kong

of formal certification by the Ministry of Human Resources

in 2013. As with the Dubai programme, which looked at both

and Social Security

conventional bond and sukuk markets, the Hong Kong PMC

(MOHRSS). When this

will be tailored to the needs of local practitioners and will focus

process of certification is

on both conventional bond and offshore Renminbi issuance.

complete, the certificates will be awarded uniformly by the MOHRSS, giving it a much higher level of government accreditation. NDRCTC and ICMA Executive Education have

Alumni reception in Hong Kong

collaborated together in the running of the CFC

Thomson Reuters and ICMA Executive Education held a foreign exchange conference in Beijing on 26 June at the InterContinental Hotel in Beijing. Over 125 bankers from all the major banks attended. Keynote speeches on the FX market were provided by dealers at the Bank of China, Bank of Communications and the Agricultural Bank of China and were followed by a presentation on the cross-currency swaps market by ICMA Executive Education.

certificate, and since it started two years ago, over 1,000 bankers in China have completed the programme, with many more registered for the coming months.

The IFID Certificate Programme was held for the first time in Hong Kong, from 26 August to 1 September. The IFID Certificate is accredited by the Treasury Markets Association (TMA) in Hong Kong. There were 24 candidates on the course from Korea, Hong Kong, the Philippines, Singapore, Turkey and Luxembourg. This is the third consecutive year that the IFID has been run in Asia.

The University of Reading Malaysia hosted the first ever running of financial markets operations courses in Asia from 11-15 June this year at its campus in Johor Bahru. ICMA Executive Education ran its three day Securities Operations Foundation Course, followed by its two day Derivative Operations course. Over 20

candidates attended from Singapore, Hong Kong, Beijing and Guangzhou. The training facilities are state-of-the-art and ICMA Executive Education is looking to run courses there on a regular basis, starting in 2013.

Thomson Reuters / ICMA FX conference, Beijing

features

To start, press any key by Neil Schofield Neil is a visiting fellow at the University of Reading and a freelance training consultant. From 2001 to 2008, he was global head of financial markets training at Barclays Capital in London. Previous to that he was a director at Chisholm Roth training in London and has also held positions at Chase Manhattan Bank as well as Security Pacific Hoare Govett (now trading as Bank of America). Neil has over 20 years of experience in financial markets.

“Hey! Where’s the ANY key?” – Homer Simpson. When designing a course for ICMA Executive Education, I am always mindful of three principles: • What courses are topical and interesting? • What courses are not available elsewhere? • How can I create a meaningful classroom experience? I have had a long association with ICMA education that dates back to 1997 and the General Certificate Programme (GCP). For the last 2-3 years, I have been running a series of Level III specialist courses, which have been aimed at the experienced market professional. Arguably my best attended Level III course is Credit Default Swaps. Since its inception, the course has regularly attracted about 15 attendees and in 2012 we expanded its length to 2 days. The original one day course contained much challenging material and very often meant that some of the interesting content scheduled for the end of the day was rarely covered. ICMA Executive Education offers two Level III Commodities courses. Commodities – An Introduction highlights how the market differs from traditional financial assets. Commodities - Trading and Investment Strategies, looks at some popular ways of investing in commodities, as well as a variety of different trading strategies. The courses are usually scheduled back-toback, allowing participants to attend what is most relevant to them. “More money has been lost because of four words than at the point of a gun. Those words are ‘this time is different’. Much has been documented about recent

central bank monetary policy and the possible consequences. Will it eventually lead to inflation? One of the benefits of the last couple of decades is that many people have never experienced inflation. Ask yourself a simple question: try defining inflation without using the words ‘basket’ or ‘index’. Better still, we expect to be offering our popular 2-day Inflationlinked Bonds and Structures course next year. This course is evolving and I will be updating the materials for 2013 to reflect new ideas I am developing for a new co-authored textbook on the subject. Many of our training competitors suggest in their marketing literature that their courses are “practical” and “interactive”. However, these phrases are often overused and in the end the participant is faced with a dull lecture whose only purpose is to show how much the trainer knows. My training philosophy, is that what the participant learns is more important than what is taught by the trainer. Although lecturing has its role, the Level III courses are designed with good educational principles in mind. For example, I suspect most readers will have struggled with a technical concept at some time during their career. After ruminating on this for several days, a quick chat with a colleague leads to that “aha!” moment. All of our courses will give participants the chance to learn new subjects, make their own sense of the concept, make connections with prior knowledge and apply the principles through case studies. It’s not about me – it’s about you. It wouldn’t be right to finish a piece on education without some further learning points from Homer (but not he of the Iliad fame): “I want to share something with you; the three little sentences that will get you through life. Number 1: Cover for me. Number 2: Oh, good idea boss! Number 3: It was like that when I got here.”

features

Technical Analysis & inter-market trading Clive Corcoran Clive is an FSA Registered Investment Adviser and currently advises private clients on how to practise long/short market neutral strategies. As an author he has written Long/Short Market Dynamics: Trading Strategies for Today’s Markets which was published by Wiley in 2007 and his articles have appeared in Traders’ Magazine and Active Trader. In recent years he has been a frequent contributor to CNBC’s European Closing Bell and has also been a speaker at international trading expos and workshops.

aving presented a course on inter-market technical analysis and trading strategies for four years as one of the ICMA Executive Education programmes, there are several pertinent observations regarding the value of the course that can be made from the feedback received from the delegates. By way of clarification, the reason for describing the approach to Technical Analysis taken in the course as “inter-market”, is to place emphasis on the interconnected nature of contemporary financial markets. In keeping with the further focus in the course on supplementing traditional Technical Analysis indicators with methods arising from statistics, correlation analysis for example, and other “quant” based techniques, the course adopts a cross-sectional view of markets and alignments, as well as divergences in the performance of all major asset classes. Rather than taking individual securities and considering their price patterns, valuations and expected returns in isolation, there is, in my estimation, a need for a more holistic emphasis which frames the analysis in terms of the interplay and co-movements of the full range of financial instruments. This is very much in accordance with contemporary markets, where questions about the appropriate valuation of, for example, the US equity market, is as much affected by developments in the European sovereign debt market or by the performance of the Euro in the Forex market, as it is by domestic US indicators regarding GDP growth, employment data and so on. Many delegates with backgrounds in macro economics and what might be called a fundamental approach to securities valuation and investment decision making, have found that the tools provided by technical / statistical analysis provide novel and quite striking insights into the price behaviour of financial assets. My ICMA Executive Education course outlines a view of price development, which, somewhat surprisingly, has echoes with notions

from the efficient markets hypothesis (EMH) which holds that current prices have already discounted most of the fundamental macro and micro economic information available. Where Technical Analysis practitioners differ from EMH is in their view that there is a crucial further ingredient that can be deciphered from patterns of price development, as expressed in charts, and which relates to market psychology. In putting the spotlight on the behavioural and psychological dimension to asset price development, and the interpretation of chart patterns, many delegates have commented that one of the most enduring lessons they have taken away from Technical Analysis is that it enabled them to have a more “intuitive” grasp of markets. What might previously have been considered as uncoordinated and haphazard market behaviour, will become far more meaningful when placed in a Technical Analysis informed framework which considers cross-sectional correlations, areas of price support and resistance and key retracement levels. With regard to the value of ICMA’s course within professional career development, I believe, and delegates attending the course have attested to this, that in today’s financial markets it is vital to have a good working knowledge of many of the tools from technical / quantitative analysis. Such tools and methods will undoubtedly provide a better understanding of the consequences of the proliferation of high frequency trading (HFT) and other algorithmic activity, the changing micro-structure of markets and other qualitative changes in the financial landscape since the 2008 financial crisis. In the aftermath of the 2008 crisis, financial markets have become more tightly coupled as correlations in returns across multiple asset classes have been at historically elevated levels. Making sense of the “new normal” in financial markets and enabling improved trading performance and enhanced asset allocation are very much the focus of ICMA’s course on intermarket Technical Analysis.

features

Credit and liquidity components of CDS spread changes by Filippo Coro’, Alfonso Dufour and Simone Varotto Simone is a Lecturer in Finance at the ICMA Centre and teaches undergraduate and postgraduate courses in risk management, credit risk and mergers and acquisitions. He has an active research interest in credit risk, liquidity risk and financial regulation. The article that appears opposite is from an SSRN working paper “The Time Varying Properties of Credit and Liquidity Components of CDS Spreads” (2012), by Filippo Coro’, Alfonso Dufour and Simone Varotto.

From the start of the on-going financial crisis, credit spreads have become a key indicator of market conditions. Obtained primarily from corporate and sovereign bonds and credit default swaps (but also implied from stock and options prices), credit spreads are commonly deemed to capture default risk. However, in addition to a heightened risk of default, which has led to increased bankruptcies in the corporate world and bailouts at the sovereign level, the crisis was also characterised by severe illiquidity across several market sectors. In this study, we aim to determine to what extent credit spread changes are driven by default risk or liquidity risk. This is important, because if liquidity risk plays a key role in credit spread movements, their interpretation as default risk measures may be impaired and, as a result, misleading. This could have serious implications, not only because credit spread variations are taken as signals of changes in the financial strength of corporations and governments, but because they are also often used for pricing financial assets. In our analysis, we use a sample of intraday corporate CDS trading prices and quotes from GFI, a prominent inter-dealer broker, for the period from January 2006 to July 2009. The sample period enables us to investigate the default and liquidity determinants of CDS price changes before and during the so called “Great Recession”. Our results are striking. We observe that CDS price movements are mainly driven by liquidity risk both before and during the crisis. As expected, the explanatory power of liquidity factors increases in the crisis period. Interestingly, when firm-specific liquidity risk and industry-wide liquidity risk are investigated separately, we observe that the latter only becomes statistically significant during the crisis. This suggests that illiquidity becomes systematic, i.e. not diversifiable, when the market is under stress. The implication is that liquidity risk may be very difficult to manage precisely when it hurts the most. Among the causes

of liquidity risk, we specifically investigate informed trading. Market makers tend to reduce potential losses from trading with better informed investors by adjusting their prices more aggressively and by increasing bid-ask spreads when the likelihood of informed trading is higher. We observe that the price impact of trades was noticeably higher during the crisis, a clear indication of stronger protective measures being taken by market makers against investors with superior information. This indirectly supports concerns of insider trading in the CDS market, often reported in the financial press and occasionally voiced by leading fund managers. Finally, we find evidence that the additional information provided by large companies through their higher disclosure standards, helps reduce the informational advantage of informed traders, but only in the pre-crisis period. During the crisis, on the other hand, that greater transparency vanishes, probably because in a fast moving market, official sources of information, such as financial statements, are too backward looking to present a meaningful picture of the future prospects of a firm. To summarise, our main conclusion is that CDS spread changes are driven mostly by liquidity factors, regardless of market conditions. This means that price revisions in the CDS market are probably more of an indicator of broad market sentiment, rather than specific default risk. For this reason, CDS price movements should be used with caution in early warning systems and for valuation purposes. Clearly, international measures to achieve greater transparency in the CDS market, central clearing arrangements and standardisation of CDS contracts are likely to reduce liquidity risk in the CDS market which would improve their quality as a default risk barometer. However, the degree to which these measures will be effective liquidity boosters, especially in periods of pronounced turmoil, remains an open question.

features

Medieval Financial Engineering Adrian R. Bell, Chris Brooks and Tony Moore – ICMA Centre, University of Reading he financial news has recently been dominated by the LIBOR scandal, with allegations that leading banks have manipulated a key financial standard, determining the interest rates charged to millions of borrowers and used in derivatives contracts worth hundreds of trillions of dollars. We have documented a medieval system of exchange rate manipulation similar to today’s events.

in FX, which would also have reduced the ability of merchants to fund their trading ventures, or to transfer money internationally. Although such techniques may have been essential for the functioning of medieval finance, and perhaps came to be viewed as normal business practice to those involved, the wider public was less understanding.

A major driver of financial innovation throughout history has been the desire to circumvent regulations and restrictions placed on financial activities. In the Middle Ages, a major obstacle was the religious disapproval of usury - the charging of interest or ‘making money from money’. Dante, indeed, condemned the usurer to the lowest level of the seventh circle of Hell. The usury doctrine posed a number of practical problems for the medieval financial sector that, with typical ingenuity, merchants and bankers soon found ways around.

Prof. Adrian Bell is Head of the ICMA Centre.

In fact, it can be argued that there is an important element of cognitive dissonance in attitudes towards financial practices, both in the Middle Ages and today. Although certain forms of financial engineering play a vital role within the financial system, when viewed from the outside, they may seem amoral or even illegal. In this way, revelations about the hiding of usury in the Middle Ages or the fixing of LIBOR today both reflect and contribute to a wider public suspicion of finance. The research underpinning this article has been conducted as part of the ‘Medieval Foreign Exchange’ project. We are grateful to the Leverhulme Trust for funding this research under grant number RPG-193. For further details of the project, see www.icmacentre.ac.uk/medievalcredit/. Prof. Chris Brooks is Professor of Finance and Director of Research at the ICMA Centre. Dr. Tony Moore is Research Associate on the ESRC-funded project “Credit Finance in the Middle Ages: Loans to the English Crown c.1272-1340 based at the ICMA centre.

The most sophisticated method of disguising interest, which dominated the international trade and financial markets for centuries, used bills of exchange. These were foreign exchange (FX) instruments, originally developed to transfer money for trade, but which also involved a credit element. The bill of exchange simply stated that the seller of the bill had received a sum of money in the local currency from the buyer in place A, to be repaid at a later date in place B, in another currency, at a set exchange rate. The seller of a bill of exchange was effectively a borrower, and the buyer the lender. In order for the bill of exchange to function as a credit instrument however, there needed to be some way of compensating the lender for the time value of their money, i.e., of paying interest, but without appearing to violate the usury prohibition. This was achieved by manipulating the exchange rates at places A and B, with the rate of interest being determined by the difference, or spread, between the two exchange rates. The use of bills of exchange as credit instruments in this way thus required the systematic manipulation of exchange rates in all major financial centres in order to produce and maintain this differential or spread. The obvious modern comparison is with the recent allegations over the fixing of LIBOR.

But was the use of bills of exchange necessarily wrong? If there was no way of circumventing the usury prohibition by charging interest, then why would investors have lent to borrowers, including medieval governments, at all? Equally, without these exchange rate adjustments, it would have been much more difficult to profit from FX transactions. There would have been no incentive for the medieval bankers to engage

Pictured from l-r: Chris Brooks, Tony Moore and Adrian Bell

features

The development of a global Legal Entity Identifier (LEI) Dan Kuhnel is a senior executive in the Primary Market Relationship Management group within Euroclear’s Commercial Division.

Introduction

Mr. Kuhnel is also the Chairman of the Board of the Association of National Numbering Agencies (ANNA) and has held this role since 2005. He served as Chairman of the ANNA Service Bureau between 2001 and 2004.

One of the key regulatory changes identified is the introduction of a Legal Entity Identifier “LEI”. The logic behind it is quite straight-forward, namely that in order to assess the overall systemic weight of any legal entity, you need to be able to aggregate all the information relevant to that legal entity.

Mr. Kuhnel is a guest speaker on ICMA’s Primary Market Certificate (PMC) course

This past month marks four years since the collapse of Lehman Brothers, an event with impacts far beyond the offices of Wall Street as its impact could be felt by institutions and individuals worldwide. The events of 17 September 2008 are widely viewed as a trigger for the global economic downturn we have seen, and a key catalyst for the wide-scale regulatory change we see evolving across the financial services sector.

What are the key attributes of the LEI?

What has happened so far?

ISO 17442 defines a 20 character alphanumeric code that:

The idea might sound simple enough, but implementation is far from straightforward. It has been attempted before, but this time it has the political backing of the G20 and, as a consequence, the regulatory community. For the time-being, the LEI is required for reporting under the Dodd-Frank Act and an interim identifier, known as a CICI (CFTC Interim Compliant Identifier) has been mandated as a reporting requirement by the Commodities and Futures Trading Commission (CFTC).

- Will be a globally unique identification of entities that require an LEI - Defines an LEI code that contains no embedded intelligence - Defines an LEI code that is interoperable with other standards and existing reference data and can be applied globally to support the financial service industry - Leverages ISO expertise in defining and maintaining standards - Defines an LEI scheme that is reliable and a code that is persistent, and - Defines an LEI scheme that is extensible and free from limitation on use and redistribution

ISO (the International Organisation for Standardisation) and its members, e.g. the Association of National Numbering Agencies (ANNA), also recognised the need for standardisation to play a key role in assisting with solving this requirement. ISO and ANNA sought to advance past efforts to create a similar type of entity identifier and leverage the expertise of its members, resulting in the development of a new ISO standard, ISO 17442 – the Legal Entity Identifier.

- All financial intermediaries - Banks and financial companies - Any entity that issues financial instruments - Any entity listed on a stock exchange - All entities that trade stock or debt - Investment vehicles (including mutual funds, pension funds) and alternative investment vehicles constituted as corporate entities or collective investment agreements - Any entity under the purview of a financial regulator and their affiliates, subsidiaries and holding companies - Counterparties to financial transactions - Parent companies of any of the above

The G20 appointed the FSB (Financial Stability Board) to define a framework of implementation. The FSB has been set a very tight timeline, to define a detailed process by the end of 2012 and be operationally functional by March 2013.

Who will need an LEI? The scope has been largely agreed – any legal entity that enters into a financial transaction will need to have an LEI to identify themselves. For example:

The structure of the code will consist of 18 alphanumeric characters and 2 check digits (making a total of 20 characters for the code).

What are the next steps? The FSB has set up three high-level workstreams, focusing on:

- Governance and Legal aspects - Operations (including LEI system adoption) - Ownership and Hierarchy reference data

Active and regular industry discussions continue within the sub-working groups that have been set up under each of the above umbrella categories, with initial recommendations made available to the G20 Ministers for their November 2012 meeting.

publications

RECENT Publications CMA Executive Education has always prided itself on the quality of its instructors, with the best from both academia and the industry. In this regard, several of our instructors have published leading books in their area of expertise through their respective publishers.

T W O R E C E N T PU B L I C AT I O N S BY OUR INSTRUCTORS ARE:

Market Players: A Guide to the Institutions in Today’s Financial Markets

Gail Rolland

Gail is involved with our FMFC, IFID and OCP courses.

Recent financial crises and instances of corporate malpractice have prompted many questions about how companies are run – and whether this tallies with how they should be run. This book systematically explores the factors that shape corporate governance, and discusses both those governance practices implemented by companies and those imposed by regulators. It also tries to determine how good corporate governance can help companies to create value for their shareholders.

Securities Operations: A Guide to Trade and Position Management

Michael Simmons

Mike teaches on several of our Operations courses.

Securities Operations focuses on the settlement aspects of a securities transaction. As financial analysts make a greater effort toward quantifying and managing operational risk, they are paying more attention to securities transactions in general and to the settlement phase in particular. While describing the practical issues, this book enumerates the different “back office” related risks potentially encountered throughout the settlement. Simmons also covers more advanced topics such as derivatives, trade compensation, internal allocation of funding costs, and operational performance measurement. These books are available to ICMA Members at greatly reduced prices, compared to normal retail prices. Please see our website for further details, as well as a list of our instructors’ publications.

List of recent Ce

ICMA Executive Education is pleased to anno

FMFC

PMC

SOFC

Tareq Al Musharaf

Fawaz Amin Abusneineh

Rosila Ahmed

Hanan Aazri

Josef Achmann

Shamma Almazrouei

Zhiger Atchabarov

Shaikh Alawi Ahmed

Banu Apers

Philippe Belche

Wael ALashqar

Ji Myung Bae

Anna Berdinner

Mansoor Khalid Al Redha

Valentino Baglioni

Jenniffer Elizabeth Bonilla Lozano

Abdulla Hisham Al Shirawi

Siobhan Benrejdal

Stefano Bottai

Martin Appiah

François Bertrand

Christophe Bouvy

Mimoun Abdelkader Assraoui

James Cameron

Mark Cobley

Linus Asu

Kin Keung Alex Chan

Baptiste Dragon

Omar Bin Shan

Sheau Ing Chan

Dunia Duarte

Russell Brandenburger

Shiyun Esther Chen

Harry English

Kristina Dalgaard

Jing Chen

Catherine Federspiel

Ilya Davydov

Martin Chong Yong Chuen

Chris Feinen

Maarten Delhez

Niamh Crilly

Claudie Flamand

Peter De Swart

Raija Grondahl

Sanne Fournier-Wendes

Pierre-Yves Druenne

Ouidad Hachemi

Mennatallah Gabal

Marie Duflos

Patrick Hess

Ljupcho Gjavochanov

Sedef Gunsur

Jiajia Lang

Miguel Alfonso Gomez Cordero

Marcos Gonzales

Chermaine Lee

Viviane Haas

Roderick Gordon

Maggie Lee

Christian Huberty

Hitesh Shah

Adelyn Leong

Rauni Johtonen

Peter Holmvall

Michelle Leow Ee Wen

Ilia Kekelidze

Dirk Husnik

Kevin Leung Kwok Chu

Jan Kuchta

Jens Ismunden

Maria Litao

Sophie Leissing

Olga Kirichenko

Abi Kanutin

Reham Montaser

Sebastian Klein

Michelle Ng Pei Ching

Laurent Nilles

Sini Lansilahti

Wicki Nielsen

Vincent Pellizzari

Mudzaffa Reza Mahmud

Katarzyna Polubinska

Karise Robinson

Oliver Mazur

Jaikrishnan Ramalingam

Oliver Robinson

Adnan Mirza

Blanka Regeny

Céline Salerno

Tim Mohn

Merlin Ryser

Daniel Schaack

Pieter Noordzij

Patrick Schoeni

Tsend-Ayush Shagdar

Tanja Oehmke

Renata Sušicová ´

Vanessa Tavan

Andreas Raimchen

Salvatore Talarico

Christen Thomson

Ana Maria Vasquez Røsjø

Chin-Hao Tan

Binderiya Tuvsanaa

Carol Sawaya

Sylvestre Tape

Robert van Geffen

Leonie Schueller

Grace Katrine Tarigan

Serena Vecchiato

Johannes von Selle

Sze Ling Selina Tong

Lana Vukasinovic

Shrishail Shetty

Shing Chi Steven Tse

Joe Welter

Marina Slutskaya

Katarina Urdová

Alexandra Zakharova

Fiona Watson

Anne Vaudois

Thomas Westerhoff

Vsevolod Vinogradov Jason Wang Andrew Weeks Jingqiu Yang Katja Zehnder Benjamin Zinnen

ertificate Holders

ounce the following certificate holders in 2012.

Diploma in Financial Market Operations

Hakki Akdas

Hee Chan Park

Stephanie Berg

Darius Petrauskas

Alexey Bezrukavnikov

Arnaud Poelmans

Francisca Ariza Sanz

Claudio Biagini

Tjerk Ronner

Marwan Abi Chaker

Jong Ho Ryu

Sooyeon Cho

Je Ki Seong

Byungdoo Choi

Ralf Bergemann

Dain Sherborne

Jin Seok Choi

Peter Brouwer

Oliver Sinnott

Moonsun Choi

Colin Groombridge

Jan-Joost Snijder

Andrew Daly

Helene Starklint Henriksen

Sun Bum Song

Matthew Debrabant

Reimar Hillers

Carmen Sturdy

Nils Denies

Wendy Hoffmann

Siok Shin Tan

Claudio Domingues

Mughees Husain

Marcel Timmers

Arnaud Dirassen

Nicola Losito

Virgil van Burken

Adrian Dragan

Irene Katsalirou

Ural Ünsur

Julius Enqvist

Serena Vecchiato

Yvonne Kugelmeier

Amr El Margoushy

Ellen Vereycken

Daniel Stubbs

Yole Frejacques

Sebastian Vogel

Andrew Tapsfield

Alvise Gini

Jorgen de Vries

Elliott Goldstein

Leonard Wagner

Poul Gundersen

Adriaan Wessels

Morten Hansen

Sander Wever

Mohamed Hamza

Yuxing Zhang

Sung Hoon Hwang

Sebastiaan Zitman

Christoffer Larsen

Romualdas Zove

Annemieke Bax Susann Becker

Diploma in Securities & Derivatives Ioana Alexopolou Annette Decker Mohamed El Aroussi Andrew Brierley Vincent Guerin

IFID

IFID (Continued)

Stella SuHee Kim Michal Klestinec Sandeep Jain Thomas Krabbe Jensen Shin Young Kang

Christine Haralambous

Leena Kassinen

Liza Jensen

Roland Kremer

Irene Katsalirou

Jeong Ho Kwon

Isabel Lopes Soares

Vytenis Lapinskas

Pascal Nicoloso

Bibi Larsen

José Ramón Lasuen

Cedric Lauener

Magnus Olsson

Hyun Young Lee

Hanne Schilling-Spurtzem

Shane Sangbum Lee

Alexander Schindler

Thies Lehmann

Marc-André Schliewe

Jean-Remi Lopez

Holger Schroeder

Andrew MacLeod

Imma Segura Prat

Erik Maletzky

Beatriz Sotomayor

Huub Messagie

Zoë Sprokel

Hyundoo Min

Nabay Tekie

Gerard Moerman

Serena Vecchiato

Guido Müller

OCP Lynn Mitchell

At the beginning of 2011, ICMA Execu the Diploma in Securities and Derivatives and Each Diploma can be attained by completing o and two specialist programmes in

Diploma holder – Securities and Derivatives Marco Da Silva Oliveira Name:

Marco Da Silva Oliveira

Organisation:

Banque de Luxembourg

Job title:

Senior Trader (Structured Products & Fixed Income)

Name and date of courses completed:

• Financial Markets Foundation Course (FMFC)

2008

• International Fixed Income and Derivatives (IFID) Certificate Programme

2010

• Commodities – An Introduction

2012

• Commodities – Trading and Investment Strategies

2012

Describe what you do on a day to day basis in your job: I’m active on both the Fixed Income and the Structured Products Desks. My daily business consists in trading all kinds of papers regarding these two activities. Our desk is also in charge of launching new structured products linked to equities and commodities.

Reasons for taking the courses you attended: The desk is active in launching new products linked to commodities, hence my interest in attending these courses.

Benefits of taking these courses: 18

I think the most important benefit for me was all the features I learned about the physical delivery part of commodities, which are completely different compared to other underlyings, like equities.

utive Education introduced two Diplomas: the Diploma in Financial Market Operations. one introductory course, one intermediate course n the relevant Diploma pathway.

Diploma holder – Financial Market Operations Reimar Hillers Name:

Reimar Hillers

Organisation:

Portigon

Job title:

Head of Trade Support Equities and Derivatives

Name and date of courses completed:

• Securities Operations Foundation Course (SOFC)

2012

• Operations Certificate Programme (OCP)

2011

• Corporate Actions – Operational Challenges

2012

• Credit Default Swaps (CDS) – Operations

2012

Describe what you do on a day to day basis in your job: I am in charge of a team which supports our trading department in equities and derivatives. We assist our trading department in any operational part of the business in order to make trading more efficient for them.

Reasons for taking the courses you attended: In the role of a middle office it is essential to always have an up-to-date knowledge of the relevant markets and operations, as well as developing financial instruments.

Benefits of taking these courses: The courses are very helpful to get a better understanding of how the different processes fit together in the global securities operations world. It is a great opportunity to benefit from the experience of the tutors.

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