Dow Jones Launches Economic Stimulus Index
Dow Jones Indexes has launched the Dow Jones U.S. Economic Stimulus Index, which will list 50 companies that are expected to receive stimulus money from the American Recovery and Reinvestment Act of 2009. The six key areas the index will focus on are: alternative energy, construction and materials, the energy grid, the environment, technology and telecommunications, and the Internet.
The index will select companies that have already been screened for inclusion in the Dow Jones U.S. Total Stock Market Index and that have an average daily trading volume of at least $5 million. The biggest sector that the index will include is construction and materials (20 companies), followed by alternative energy (10 companies) and the energy grid, the environment, technology and telecom/Internet (five companies each).
"The American Recovery and Reinvestment Act represents a significant strategic investment in the U.S. economy, and as such, is anticipated to have a positive impact on the stock market," said Michael A. Petronella, president of Dow Jones Indexes.
Ahead of the index's announced launch last week, Dow Jones actually created it on Dec. 31, 2008. Between that date and May 26, it rose 1.62%.
IRS Proposes Safe Harbor For Employers That Suspend 401(k) Match
The Internal Revenue Service has proposed new rules that would grant safe harbor for employers experiencing substantial business hardship that want to suspend or reduce their 401(k) matches.
The rules would relieve employers from having to run an IRS nondiscrimination test to assure that higher paid employees are not contributing more to their 401(k) plan than the rank and file, by a legally set amount. That would permit higher-paid employees age 49 or younger to continue to contribute up to $16,500 a year and those 50 or older $22,000.
Consultants say having to change the rules for higher-paid employees would cause sponsors to return money, is administratively difficult and, basically, is bad employee communications.
The IRS said the goal is to discourage employers from eliminating their 401(k) plan altogether.
Lower Earnings Could Be Future of S&P 500
In November, analyst consensus was that the S&P 500 would decline 17% for 2008 but rebound by 30% this year. But the fact of the matter is that 2008 profits fell 40%. Analysts then tamped down their expectations for the S&P 500 for 2009 to 24%, then 20%. Now the projections are for 9%.
"Recency bias" and "anchoring bias" based on tried-and-true benchmarks that have traditionally shaped the views of Wall Street may be a thing of the past, experts now say. In fact, the "golden age of profitability" may be permanently replaced by lower profits.
In 2006, profits reached historical highs, driven by consumer credit and home equity loans. With profits as a percentage of gross domestic product now at long-term averages, some people on Wall Street believe they must reset their models to account for permanently lower profits.
EU Moves to Tighten UCIT Depository Rules
European Union Internal Market Commissioner Charlie McCreevy is expected to propose uniform new rules regarding depositories for undertakings in collective investments in transferable securities (UCITs), the European Commission's version of mutual funds.
Besides leveling the playing field for requirements among all European nations, the new rules would disallow investment firms from permitting a sub-custodian bank to hold assets, rather than a depository, since sub-custodians' obligation to return assets is not as stringent.
McCreevy's action is in line with previous calls to action by French Economy Minister Christine Lagarde, to avoid another Madoff scandal.
SEC Suffers From 'Deregulatory Capture'
In its zeal to apply a free market philosophy to the Securities and Exchange Commission, the Bush administration created an environment where the agency's enforcement staff was unable to take definitive policy positions or bring enforcement actions, according to Mercer Bullard, associate professor of law at the University of Mississippi School of Law and founder of Fund Democracy.
Testifying on May 7 at a Senate Banking subcommittee hearing, Mercer said that the problems at the SEC reflect a state of "deregulatory capture," where the Commission was unaware of and unable to respond to many enforcement matters before they surfaced.
The enforcement division's effectiveness has been compromised by "a lack of resources and poor leadership by the Commission itself," said Bullard, adding that the SEC has abdicated its policymaking responsibilities to state regulators and private litigants in a number of areas.
"The result has been a decline in public confidence in the markets, a reduction in investor protection, and an increase in uncertainty regarding applicable legal standards," Bullard said.
Examples where the SEC failed to act include excessive mutual fund fees, the failure of the auction rate securities market and the options backdating scandal, he said. "Indeed, the current liquidity crisis in fixed-income instruments is partly the result of the SEC's failure to push more aggressively for the development of liquid debt markets," Bullard told the subcommittee.
While the problem of lack of resources at the SEC remains unsolved, Bullard said that SEC Chairman Mary Schapiro "has demonstrated a solid commitment to a vigorous and effective enforcement program" and has already taken some steps to end practices that have hindered the enforcement division.
Money Fund Liquidity Facility Has Helped Stabilize ABCP: Fitch
Government actions to stabilize asset-backed commercial paper, including the Asset-Backed Commercial Paper Money Market Mutual Mutual Fund Liquidity Facility (AMLF) and the Money Market Investor Funding Facility (MMIFF), are helping to stabilize ABCP and other short-term instruments, Fitch reports. However, ABCP credit ratings are not improving.
Fitch released its findings in the "2009 Outlook for Global ABCP," in which the ratings agency looked at the effects of the two facilities aimed at money funds, as well as the Commercial Paper Funding Facility (CPFF) and the Straight-A Funding programs.
Without these programs, Fitch said, many institutions would not have been able to continue normal short-term funding operations. As such, Fitch expects the government to continue these programs for as long as needed.
Broadridge Financial Acquires Access Data
Broadridge Financial Solutions has acquired Access Data Corp. to expand its offerings to the mutual fund industry, specifically Access Data's unique data aggregation and data management solutions. Terms of the deal were not disclosed.
Broadridge officials said they believe Access Data's data aggregation will provide significant value to mutual funds and financial intermediaries. The only offering of its kind, Access Data's SalesVision platform analyzes distribution, and manages wholesaler compensation and shareholder compliance.
"Access Data's unique technology adds a new dimension to our servicing capabilities and is the foundation of our strategy of offering innovative and comprehensive data solutions to the global financial services industry," said Gerard Scavelli, president of mutual fund solutions at Broadridge. "Efficiently increasing assets under management and diminishing risk are paramount for firms to remain competitive and integral to their ongoing growth strategies."
Richard J. Daly, CEO of Broadridge, added: "The highly skilled Access Data associates pioneered mission-critical solutions that provide transparency of comprehensive mutual fund sales and asset data. Together under the Broadridge umbrella, we can grow to achieve the same pinnacle of industry leadership as we have with our core communications solutions."
DTCC Creates Web Portal For Managed Accounts
The Depository Trust & Clearing Corp. has created a web portal for its Managed Accounts Service, to make connectivity to the platform convenient and immediately accessible. The portal will be available in the third quarter.
"This is a breakthrough solution that gives investment managers a secure, automated portal from which they can directly access MAS to exchange account information with their sponsor partners and begin to benefit from the efficiencies inherent in the service," said Ann Bergin, managing director and general manager of wealth management services at DTCC.
The portal supports an unlimited number of business partners on their side of a transaction and, thus, addresses the open architecture issue that has plagued the separately managed accounts industry. It also allows users to handle higher account volumes at lower cost, invest customers' funds quickly, decrease manual processing and lower operational risk.
Stuart Field, managing director of wealth management at UBS, commented: "DTCC's goal all along has been to make the Managed Accounts Service all inclusive. Their user interface is the last piece of the puzzle, as it will benefit investment managers that don't have large IT resources to build a direct link. It also eliminates reliance on myriad sponsor-centric proprietary applications to process the operational portion of their business."
Gina Scavetta, vice president and director of operations at Franklin Templeton, added: "The launch of this new DTCC platform is an important step towards the adoption of communication standards and should help alleviate a lot of the operational complexities and redundancies that the industry faces today."
Fidelity Scraps Plans to Sell India Back-Office Unit
After shopping its back-office support division in India since last year, which is based in Bangalore and Chennai and employs 5,000, Fidelity Investments has decided to scrap the sale. "After an intense review and thorough evaluation, it was decided that we will maintain the FMR India IT organization at this time," said Garima Varma, head of corporate communications for the unit.
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