EU finance ministers meet on bank levy

A press conference of the Informal EU Finance Ministers' Meeting is held in Madrid, Spain, April 17, 2010.

MADRID, April 17 -- European Union (EU) finance ministers met on Saturday for their second-day informal talks, mulling over a plan to impose a levy on the financial sector to pay for future failure of banks.

On the eve of the meeting, powerful EU Commissioner for Internal market and Services Michel Barnier indicated the proposed bank levy would not be trivial.

"If a contribution (bank levy) is made it should not be symbolic because the crisis has not been symbolic," he said. "The taxpayers' contribution has certainly not been symbolic and neither have been the job losses."

It was estimated that a bank levy could generate as much as 50 billion euros (67.7 billion U.S. dollars) a year for EU governments,


Barnier gave a rough idea about how the financial sector would be held to share the burden. He said riskier investment banks should pay a higher tax than less-risky retail banks.

French Finance Minister Christine Lagarde echoed Barnier, saying the new levy on individual financial institution should decide "on the basis of the riskiest activities that they conduct."


"The riskier the activity, the more tax there would be," she said. "You could call it a tax on risk."

Portugal's central banker Vitor Manuel Ribeiro Constancio, the new European Central Bank's vice-president in waiting, said any levy should be used only to pay for future bailouts of failed banks.

In the financial crisis, EU governments spent billions of euros to save big banks, which aroused strong discontentment among taxpayers.

"If governments want to go ahead with this, it should be linked with deposit guarantee schemes and possibly used only for restructuring and resolution problems in the banking sector itself and not for any other purpose," Constancio said.

The bank levy would be discussed by finance ministers from G20 countries at a meeting in Washington at the end of April, which is in preparation for a G20 summit of world leaders in Canada's Toronto in June.



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About 84% of U.S. flights to Europe canceled

Passengers wait at John F Kennedy International Airport in the United States on April 17. Up to 84 percent of U.S. flights to Europe remain canceled Saturday as ash cloud from an Icelandic volcano continues to blow across the continent, authorities said.

WASHINGTON, April 17 (Xinhua) -- Up to 84 percent of U.S. flights to Europe remain canceled Saturday as ash cloud from an Icelandic volcano continues to blow across the continent, authorities said.

U.S.-based carriers operate about 337 passenger and cargo flights between the United States and Europe each day. On Saturday, 282 of those flights were canceled, officials of the Air Transport Association of America (ATA) said.

Most airlines had stopped flights for a third consecutive day on Saturday, as the ash cloud from the volcanic eruption under Iceland's Eyjafjallajokull glacier continues to cause one of the worst travel disruptions in world history.

Commercial flights were not the only ones affected by the hazardous conditions. U.S. President Barack Obama canceled plans to fly to Poland for Sunday's funeral of late Polish president Lech Kaczynski.

"This is significant. It's disruptive to the carriers' ability to operate their flights," ATA vice president of communications David Castelveter said.

It is expected that many of the U.S. flights would remain canceled through Sunday.

The International Air Transport Association, which represents 230 airlines operating 93 percent of global air trade traffic, said Friday the shutdown costs the industry about 200 million dollars each day.

Passengers wait at John F Kennedy International Airport in the United States on April 17. Up to 84 percent of U.S. flights to Europe remain canceled Saturday as ash cloud from an Icelandic volcano continues to blow across the continent, authorities said.

China's index futures milestone step to develop capital market

BEIJING, April 17 -- China launched its decade-long awaited index futures Friday, a milestone in the country's efforts to push the reform of capital market.

The new index saw a strong debut Friday, in contrast with a dip in the country's broader stock market, as investors swarmed toward the new trading tool which allows trades based on their expectations.

Four contracts all rose at the close. The contract for May was bid at 3,450 points at its opening, up 51 points from its benchmark 3,399 points, the base price the China Financial Futures Exchange (CFFEX) set for all four contracts. It declined to end at 3,415.6 points, up 0.49 percent.


Meanwhile, the broader stock market fell with the benchmark Shanghai Composite Index down 1.1 percent, after the government extended further efforts to cool the overheating property market, which dragged down financial and real estate heavyweights.

Index futures tracks the Shanghai-based Hushen 300, an index of 300 Shanghai- and Shenzhen listed class A-shares which fell 1.13 percent to close at 3,356.33 points.

"The introduction of index futures is an important step in deepening the financial market," Tu Guangshao, vice mayor of Shanghai Municipality, said at the launch ceremony, adding "it arrives in line with the market desire and expectation."

The stock index futures, agreement to buy or sell an index at a given value on a future date, would help ease market fluctuations and hedge risks, which is the "market's pressing need", said Cheng Wenwei, director with the research institute of the Bohai Securities.

"China's stock market is the most dynamic developing market, and also the most volatile one," he said.

The country's stock market has been riding on a "roller coaster" in the past years. It advanced about 97 percent in 2007, then plunged more than 65 percent in 2008 and jumped about 80 percent in 2009.

Chinese government has been keen to forge ahead reform of its financial market, but steps were cautious against risks.

"The almost decade-long preparation showed China is moving actively but cautiously toward its direction," Tu Guangshao said.

On Jan. 8 this year, the State Council approved the launch of stock index futures and a margin-trading pilot program, in a move to embark upon further liberalization of its financial market.

Threshold for trade was set high as investors are required to put down cash deposits equal to 15 percent of the contract value for the May and June contracts as a maintenance margin. For the September and December contracts, the margin is 18 percent. They are also required to have a minimum of 500,000 yuan to open a trading account.

The index futures would also help curb speculation in China's fluctuating mainland stock market, in which investors could only turn to short-term speculations for profits instead of long-term value investment, according to analysts.

"The launch of index futures will fundamentally change such phenomenon by easing the fluctuation and let investors focus on blue chips," Yong said.

The market would change "structurally", as more capital would flow to heavyweights or blue chips, said Hu Yuyue, professor with the Beijing Technology and Business University.

History has already proven that in both the United States and Japan, market heavyweights had better performances after the index futures launched in the two markets, a report from Shenyin and Wanguo Securities indicated.

"Investors, especially institutional ones, would feel assured to invest in blue chips with such a risk reducer," Yong added.

According to Zhu Yuchen, general manager of CFFEX, institutional investors are the major target traders of the index futures, as they have already held more than 50 percent of the stocks listed in China's A-share market.

Currently, institutional investors are largely staying on the sidelines to start with as they await specific rules unveiled, although the futures meant more investment options in the capital market with less risk.

Of total 9,137 accounts opened to trade futures on the Hushen 300 as of April 15, 8,944 were made up of individuals ones, data from the CFFEX showed.

Yong said he believed that when the notional trading value of index futures exceeds 50 percent of turnovers at the cash market, the index futures would start to play its function.

"The index futures trading would gradually attract more institutional investors, which would help China's A-share market make a shift and turn to a market led by the blue chips," said Qiu Yanying, chief analyst with Shanghai-based TX Investment Consulting Company.