ISDA PRESS REPORT - MARCH 23, 2001

* EU's single financial market in the balance - The Financial
Times
* BIS Survey Sparks Speculation - The Wall Street Journal
Europe
* The inevitability of consolidation - Euromoney
* Long after LTCM, hedge funds still pose concerns - Reuters


EU's single financial market in the balance
Financial Times - March 23, 2001
By Christopher Brown-Humes & Peter Norman

Rapid development of the European Union's planned single market for
financial services last night hung on just a few words of text in a draft
resolution to be put to EU leaders at their summit in Stockholm, which
starts today.

The resolution, which would give a big political boost to the recent
proposals of Baron Alexandre Lamfalussy to speed secondary legislation on
financial services through the EU's decision making machinery, met
continuing German opposition as finance ministers gathered in a special
session of the EU's "Ecofin" council to try to resolve the issue.

Before the talks, Bosse Ringholm, Swedish finance minister and chairman of
last night's meeting, told the Swedish newspaper Finanstidningen: "We agree
on 99 per cent." But Goran Persson, the Swedish leader and summit host, was
more cautious. "I'm not confident at all. I will try and try hard," he told
the press.

The dispute yesterday provided an inauspicious backdrop to the two-day
summit which has been called to inject new life into the EU's ambitious
year-old project to turn Europe into the world's most competitive and
dynamic knowledge based economy by 2010.

EU member states, the European Commission and the European parliament all
acknowledge that rapid development of an integrated EU market for financial
services would spur economic growth and employment in the EU.

Amid widespread concern that national political priorities are causing the
EU to fall behind with other important reforms such as the creation of an
EU-wide patent and the liberalisation of its energy and postal markets, Mr.
Persson yesterday stressed the responsibility of the 15 leaders to make the
summit a success. "We are meeting at a time when the economic business cycle
is slowing down and that might have an impact on Europe. Our talks on
structural reform are more important than ever," he said.

Germany's objections to the draft resolution on the Lamfalussy report
surfaced late on Wednesday after EU ambassadors in Brussels came close to
agreement on unblocking a dispute in which the Commission and member states
were deadlocked over how to share powers with a new EU securities committee.


The immediate problems concerned differences over the ability of the
Commission to adopt technical securities market legislation, to be put
forward by the securities committee proposed by Mr. Lamfalussy, against the
wishes of some member states.

As the other states found they could accept compromise proposals to settle
the dispute, it emerged that Germany's more pressing concern was to protect
the interests of Frankfurt as a financial centre against a perceived
"Anglo-Saxon" bias in the Commission department responsible for financial
services.

Last night's special meeting of the Ecofin council was confirmed after Hans
Eichel, the German finance minister, said the issues needed further
deliberation.


BIS Survey Sparks Speculation
The Wall Street Journal Europe - March 23, 2001
By John Hardy

NEW YORK -- No one doubts the foreign-exchange market is the world's biggest
financial market, but whether daily turnover remains at $1.5 trillion (1.675
trillion euros) is the subject of much debate among the market's
professionals.

After a long stretch of steady increases, daily turnover may register a
decline when the Bank For International Settlements releases results of its
latest survey in a few months.

Every three years the Switzerland-based BIS carries out a comprehensive
survey of world-wide activity in foreign-exchange and derivatives markets.
Data collected this year probably won't be fully available until May 2002.

However, industry participants are debating what the latest results will
show. Many expect them to be very different from those in the last report in
1998-1999.

That survey indicated that the foreign-exchange market generated daily
turnover of about $1.5 trillion. This represented (in dollar terms) growth
of 26% in the three years after the previous survey in April 1995. Growth
was slowing compared with the 45% increase in the 1992-1995 period but was
still very robust.

Now the picture is expected to be far less vigorous. Some experts believe
the next set of results will show a sharp decline in daily volumes.
Economists at Merrill Lynch and Goldman Sachs predict the data will show
trading has fallen by as much as 33% to around $1 trillion a day. Others see
a more muted decline.

"It's not anything that you predict with any certainty, but I think it'll be
down a little bit," said David Gilmore, a partner at Foreign Exchange
Analytics in Essex, Connecticut.


The inevitability of consolidation
Euromoney - March 2000
By Jonathan Brown

It took a while for the internet to have any significant impact on wholesale
financial markets. While the rest of the global economy was busy diving into
the dot corn pool, the largest financial institutions, especially their
fixed-income departments, were cooling their heels, not wanting to commit
themselves too early to the so-called new economy.

But last year the leading bond market firms finally dived in. All the big
players have stakes in a wide variety of platforms, seeking to ensure a
presence as the winners and losers sort themselves Out. In the fixed-income
markets dozens of platforms have been launched in the past year, all
promising to provide buy-side institutions and issuers with the benefits
that electronic trading can bring. It's becoming clear that not all will be
able to survive in what is a highly competitive arena.

Broadly, the main platforms can be split into two groups: multiple-dealer
sites aimed at providing buyers with a range of prices, usually in a limited
array of products; and single-dealer, multi-product sites where one dealer
offers access to many categories of instruments but with no price
comparison. An example of the latter is Credit Suisse First Boston's
platform, Prime Trade. Ben Cohen, head of fixed-income e-commerce at CSFB,
feels that the single-dealer model has a future, but must offer an even
greater variety of products in order to have any chance of survival.

As for the multi-dealer sites, Cohen believes that there is room for several
platforms with a maximum of two or three in each category. CSFB has taken a
position in most of the main ventures in the multi-dealer field to ensure
that the bank will have a say in shaping the market. Carry Jones, director
of sales and marketing at BrokerTec, believes that the market will
eventually be able to sustain only a few platforms in each area. "The likely
winners will need market sponsorship, low costs, excellent technology and a
broad product range, he says. "BrokerTec meets all of these criteria - we
started by dealing in governments as these are the most liquid products,
quickly added basis and repo trading and will soon be expanding into such
areas as agencies, Pfandbrief and corporates. We want to be seen as a system
that covers all fixed-income products, not just government bonds."

As these systems multiply and develop, traders will want to minimize the
number of platforms they have to deal with, so the multi-dealer,
multi-product model would appear to be the likely winner. Lee Olesky,
President and CEO of BrokerTec, says: "Traders don't want to have to go to
five or six different places to access liquidity."

Multi-dealer sites must merge
The market is poised to enter a new stage of development, when multi-dealer
single-product sites will come together. For the moment, the array of online
platforms is bewildering. Confusion is apparent among the large banks that
have backed many of them, as to which they are likely to support. Some fixed
income heads seem unsure about what investments their firms have made.

They got involved in the first place because online trading offers great
savings in time and costs. Whereas previously, a trader or investor wishing
to buy a particular type of bond would have to spend valuable time on the
phone to various dealers searching for the best price, now the most advanced
platforms offer the facility to compare prices from a group of dealers in a
matter of seconds. Although individual savings may not seem that much, as
volumes increase still further the cumulative effect could become
substantial.

To offer the best possible system to users, a platform must also have the
best technology. Cohen says: "To be successful, a platform must offer quick
updates of prices, reliability and security. The platform must always be
evolving."

In order to achieve this, a provider must have an efficient technology team.
Bank-backed platforms generally fit into two categories: those that
outsource their technology requirements and those, such as CSFB, that
develop in-house teams to coordinate technological management of the site.
But there is another class, typified by Prescient Markets' short-term debt
new-issue platform, cpmarket.com. Prescient's management comes from a
software background and the team was set up independently of the financial
institutions, building its system from scratch and retaining complete
control over its development. Prescient claims that this enables it to
respond much more quickly to clients' needs, resulting in greater efficiency
and lower costs for the end user.

The marketplace would already seem to be at capacity and consolidation is
inevitable. The recent takeover by Market Axess of Trading Edge is likely to
be just the first of many such deals. Olesky says: "There is no more room
for any new platforms. The ideal number would be two or three in each area."
He also believes that any potential newcomers today would not even make it
to start-up. All the major banks have stakes in a variety of platforms
already, making it virtually impossible for any newcomer to find the
necessary market support to join the fray. "We are going to see a move
towards consolidation, not more systems," says Olesky. But who will be the
winners? Euromoney reports the latest news from some of the more prominent
contenders.


Long after LTCM, hedge funds still pose concerns.
Reuters - March 23, 2001

BASEL, Switzerland, March 23 (Reuters) - Top international regulators said
this week that more work is needed on reducing risks posed by
"highly-leveraged institutions" like hedge funds.

A working group of top regulators warned in a study released on Thursday
against backsliding on efforts aimed at preventing another near-failure like
the one involving U.S. hedge fund Long-Term Capital Management in 1998.

The LTCM rescue involved over 30 banks, which injected about $3.5 billion to
keep the Connecticut firm from going under.

Fears that problems could spread through the system prompted the New York
Federal Reserve to oversee the private sector rescue.

New York Fed President William McDonough welcomed the latest report by the
Basel Committee on Banking Supervision and the International Organisation of
Securities Commissions, which looks at progress made since these bodies
published earlier reports on the same topic in 1999.

"Rather than leaving issues in the air, (they thought) it would be a good
thing to have an assessment" of the progress made, said one source familiar
with the report.

The latest report said banks and securities firms have improved due
diligence and monitoring of highly-leveraged institutions (HLIs). Meanwhile
leverage overall has decreased, and with the unwinding and restructuring of
some big highly-leveraged firms, concentration risk has also gone down.

The latest report cites a need for more work on getting information from
leveraged firms. These are not always forthcoming partly for fear of
competition.

LTCM for example was regarded by investors as an organisation giving out
sparse information on its activities.

"An important aspect of the relationship between HLIs and authorised firms
is the timely flow of relevant information between counterparties and the
appropriate management of the exposure in light of this information," a
report summary said.

"This is the area where you need a clear dialogue," the source added, saying
it would be especially useful to glean more information on measures like
Value-at-Risk (VaR) which estimates the maximum theoretical potential loss
to a trading book over a given time span.

Another area for work is seen in collecting margins on derivatives
positions. While margins are common on exchange-traded instruments, they are
less so in the over-the-counter markets.

Here the report said competition was also a problem. While firms "have
generally been able to strengthen contractual provisions with respect to the
HLI sector, competitive pressures continue to affect firms' ability to
insist on the full range of risk mitigants, including initial margin," the
summary said.


**End of ISDA Press Report for March 23, 2001.**

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