Risk Management In the Wake of the Great Financial Crisis www.lawrencegmcdonald.com THE FINANCIAL CRISIS EXPOSED SIGNIFICANT “MY 17 LEHMAN RISK INDICATORS… IT’S NOT ONE THING, IT’S EVERYTHING!” SHORTFALLS IN RISK MANAGEMENT ACROSS THE GLOBAL FINANCIAL MARKETS. WHAT HAVE BEEN THE MOST IMPORTANT LESSONS LEARNED? WHAT ARE THE MOST IMPORTANT MACRO AND MICROECONOMIC INDICATORS THAT MARKET PARTICIPANTS SHOULD MONITOR? Lawrence McDonald New York Times Bestselling Author www.lawrencegmcdonald.com © 2006-2011 LGM Group, LLC All Rights Reserved Lehman Brothers’ Stock Chart Lehman Brothers’ Chairman & CEO Richard S. Fuld, Jr. Lehman Brothers’ Board Members Corporate Governless They had an average age of 70 overseeing $750 billion of systemic risk Corporate Governance: What’s Needed? •Term Limits for CEOs and Board Members (2 Board Max) •Risk Committee Members on Board •More Woman on Boards, 15% is Unacceptable •Former CEOs as Board Members •Smaller Boards: 2008 S&P 500 11.8 members vs. 6 or 7 needed •More 21st Century Expertise: 1 of 16 Citigroup Board Members was in Finance in 2007 •Annual Time Commitment Needs to be Longer •More Meetings: No More “Once a Month Finger Sandwiches Luncheons” •Board Meetings Without Management •Higher Compensation for More Time and Experience Risk Indicators Macro •H i g h Y i e l d C r e d i t S p r e a d s •E q u i t i e s v s . H i g h Y i e l d •3 M o n t h L i b o r / R e a l i z e d V o l a t i l i t y o f 3 M o n t h L i b o r •T e d S p r e a d / T e d S p r e a d R e a l i z e d V o l a t i l i t y •3 M o n t h E u r i b o r / 3 M o n t h E u r i b o r R e a l i z e d V o l a t i l i t y •I n t e r b a n k O v e r n i g h t 1 0 , 3 0 , 6 0 , 9 0 , 3 6 0 d a y C D M a r k e t •2 Y e a r S w a p S p r e a d / R e a l i z e d V o l a t i l i t y o f t h e 2 Y e a r Swap Spread •A s s e t Q u a l i t y i n R e p o s a n d M o n e y M a r k e t F u n d s •I n v e s t o r s I n t e l l i g e n c e B u l l i s h n e s s / B e a r i s h n e s s S u r v e y •N Y S E S h o r t I n t e r e s t •C a l l P u t V o l u m e R a t i o •H i g h Y i e l d M u t u a l F u n d I n f l o w s •E q u i t y M u t u a l F u n d I n f l o w s •C a p i t a l M a r k e t s I s s u e r P o w e r & W e a k n e s s •C o r p o r a t e D e f a u l t R a t e •S t o c k s a t n e w 5 2 W e e k H i g h s a n d L o w s •B r e a k o u t i n C o r r e l a t i o n Risk Indicators Micro •Y e s M e n ? S t r a n g e m a n a g e m e n t c h a n g e s : b o t h L e h m a n B r o t h e r s a n d M F G l o b a l h a d t h e i r respective risk management heads replaced within 24 months of filing bankruptcy. Insecure CEO's often cannot deal with any intellectual challenges. Dick Fuld's entire top tier of lieutenants, were the ultimate yes men. If you were lucky enough and courageous enough to make his team it was the equivalent of hitting the lottery, $15-$30 million a year was your reward. •T o o m u c h p o w e r ? A C E O b e y o n d r e p r o a c h : D i c k F u l d ( L e h m a n ) , J o h n C o r z i n e ( M F Global), Jimmy Cain (Bear Stearns), Jeff Skilling (Enron), Gary Wendt (Conseco), Al Dunlap (Sunbeam) all share so many personality traits. Yet above all, 12 months before their companies filed bankruptcy (or had to be saved), these leaders seemed invincible to the outside world. Sun Tsu in the Art of War said, "If an emperor lives in fear of his own men it's a sign of supreme incompetence.” •F u n d i n g M i s M a t c h : A h i g h p e r c e n t a g e o f l i a b i l i t y f i n a n c i n g i n t h e s h o r t t e r m d e b t markets has brought so many companies to their knees. It's the time tested banking principle, never fund long term illiquid investments in the short term debt markets. Lehman, MF Global, Bear Stearns and almost Jefferies. •B o a r d o f D i r e c t o r s o u t o f t h e i r o w n D e p t h : a b o a r d w i t h a h i g h p e r c e n t a g e o f m e m b e r s who know little to nothing about the business as hand. indicator, Dina Merrill? •W h a t ' s a C L O ? Seems obvious but it's a deadly Strange corporate positions of power. •I m a g i n a t i v e U s a g e o f t h e R e p o M a r k e t : w h a t d o R e p o 1 0 5 a n d R e p o t o M a t u r i t y h a v e i n Risk Indicators Micro •D i f f i c u l t t o B o r r o w L i s t •A g g r e s s i v e e x p a n s i o n i n t o n e w b u s i n e s s l i n e s : L e h m a n i n 2 0 0 7 h a d b e c o m e a r e a l estate investment trust with an investment bank on the side. In 2010, MF Global went from a riskless agency broker model to an investment banking model with a large focus on proprietary trading. •C a n y o u p l a y P o k e r ? C o r p o r a t e a c t i o n s d e s i g n e d t o s h o w s t r e n g t h a n d h i d e weakness. Late Q4 2007, 9 months before filing bankruptcy, Lehman Brothers was raising its dividend and buying back stock > $80 a share. Merrill Lynch and others were selling stock to raise equity capital. Didn't fool David Einhorn. •L e v e r a g e : L e h m a n , A I G , F a n n i e M a e a n d M F G l o b a l w e r e a l l l e v e r e d 4 0 + t i m e s . •C h a r l i e M u n g e r . A l i t t l e t o o C o z y w i t h y o u r A u d i t o r ? Lehman had 4 CFO's from 2004- 2008, two of them used to work for their auditor. •A g g r e s s i v e u s e o f t h e C o n v e r t i b l e D e b t C a p i t a l M a r k e t s : S i n o F o r r e s t , A m e r i c a n Airlines, Delta Airlines, Northwest Airlines, Lehman Brothers, MF Global, Enron, Adelphia, Calpine, Worldcom, Fannie and Freddie, Six Flags, Tower Automotive, Six Flags and Sunbeam all issued convertible debt securities just prior to bankruptcy. •" F o l l o w t h e I n c e n t i v e s " C h a r l i e M u n g e r . F u l d w a t c h e d P e t e P e t e r s o n a n d S t e v e Schwarzman become billionaires. become Treasury Secretary. Corzine watched Bob Rubin and Hank Paulson •T h e D e a d l i e s t T r a d e : L o n g t h e I l l i q u i d a n d S h o r t t h e L i q u i d , Lehman, Bear Stearns & University of Chicago Political Uncertainty Index VIX Slayed by Fed and ECB Policy Blows High Correlation Amongst Stocks in the S&P 500 •T h e 5 0 - D a y c o r r e l a t i o n o f S & P 5 0 0 s t o c k s t o g a i n s o r l o s s e s i n the full index increased to a record 0.86 in October, according to Birinyi Associates Inc. It was 0.83 in the days around Lehman’s failure. •A l e v e l o f 1 w o u l d m e a n a l l 5 0 0 s t o c k s m o v e d t o g e t h e r . •A u g u s t - S e p t e m b e r 2 0 0 8 a n d S u m m e r 2 0 1 1 , h i g h c o r r e l a t i o n existed across all asset classes. A breakout in the ICJ, the CBOE S&P 500 Implied Correlation Index, which occurred on J u l y 1 1 th, 2 0 1 1 & S e p t e m b e r 2 n d , 2 0 0 8 , i s v e r y b e a r i s h . •I n t h e 1 9 9 0 s a n d 2 0 0 4 - 2 0 0 7 t h e r e w a s v e r y l i t t l e c o r r e l a t i o n amongst all asset classes. Correlation Near Multi Year Lows CBOE S&P 500 Implied Correlation Index… When near all time lows, beware of coming Risk Off train Correlation in uptrend, is a solid Risk Off indicator Systemic Risk and US Treasury Yields are inversely correlated, commodities as well On July 24th Spain’s 2 year note yield topped out at 6.6%, after Draghi hinted he had a Bazooka in the OMT, yield came in to 2.7%. Over the last 3 years as this curve flattens, it makes sense to take down risk in equities. July 24th 90bps Spread – Sept 5th 346bps Spread European banks pledged to de-lever by $1.3 trillion last year but assets grew by 7% to $45 trillion, 3x GDP of $15 trillion. Draghi’s new OMT & LTROs are looking more and more like the Bear Stearns bailout, Spanish and Italian banks should be de-levering but their not. MORAL HAZARD anyone? The Epicenter of Global Systemic Risk.. Spain 2s / 10s Has Been a Spot On Indicator Lehman Like Risk in Spain? All Year, Spain’s 10 Year yield has been inversely correlated to US Treasuries. Systemic Risk and US Treasury yields are at opposite ends of the see saw. The US faces a 200 bps rise in long term rates when deflationary, depression like systemic risk is reduced in Europe. Euribor Early Indicator Euribor broke out on July 12th 2011. From July 25th through September 2nd the S&P 500 lost 19%. Just as in 2008, Euribor was screaming sell. In 2012, she was saying buy. From its July breakout do the downside, stocks are up 9% Equities vs. High Yield +17.97% +9.13% Extended period of equity out performance relative to HY. The more illiquid the asset class the better the indicator. July 15, 2008-September 18, 2008 +1.27% July 15, 2008-September 1, 2008 From July 14, 2008January 27, 2009, HY CDX was +1.27% S&P 500 Summer 2008 Equities Outperforming High Yield: S&P 500+7.25%, JNK -0.91%, July 16, 2008-September 3, 2008 +7.25% JNK SPDR Barclays Capital High Yield Bond ETF -0.91% Realized Volatility of 3 Month Libor •3 Month Libor has always been a solid indicator of bank trust in one another, but looking at realized volatility of 3 month Libor gives you even more lead time to take down risk. There were significant spikes just before the 2008 Lehman & 2011 MF Global / Eurozone) crashes. •Significant spike just before the 2008 & 2011 crashes. 2008 July 1, 2008-May 31, 2009 2011 April 1-October 31, 2011 Breakout Breakout Ted Spread Excellent indicator, significant spike just before the 2008 & 2011 crashes. When institutions would rather but there money in Treasuries vs. a financial institution look out. Early volatility is the key. Realized Vol on Euribor Today Even with all the ugly headlines out of Europe, so far the LTRO love is paying off for Interbank Trust Interbank Overnight 10, 30, 60, 90, 360 Day CD Market •B o t h i n 2 0 0 8 & 2 0 1 1 b a n k s w e n t f r o m l e n d i n g f o r a year to each other to just overnight in some cases •I n t h e S u m m e r o f 2 0 1 1 , s e v e r a l m a j o r E u r o p e a n banks could not fund themselves for more than 10 days, yield spreads in secondary market trading of these short term loans went from 45 bps to 190 bps in just a few weeks. 2008 ELEPHANTS FOOTPRINTS IN RISK REDUCTION MODE Realized Volatility in 2 Year Swaps was breaking out 7 days prior to Lehman Brothers’ bankruptcy 2 Year Swap Spread 30 Day Realized Volatility on 2 Year Swap Spread 2 Year Swap Spread •Demand for dollars especially from European Banks was a significant risk indicator in the Spring & Summer of 2011, as well as 2008. •Demand for US dollars to buy US Treasuries. •In June 2011, the 2 Year Swap Spread spiked 44% in a two day period before equities rolled over hard in July. January 1-October 31, 2011 +44% EONIA in the Spring of 2011 & 12 Euro Overnight Index Average, effective rate of all overnight unsecured lending transactions in the interbank market EONIA EONIA (Euro Overnight Index Average) is an effective overnight unsecured lending rate, transactions in the interbank market Uptrends in 2008 and 2011 were reliable Risk Off indicators… Downtrend in 2012 was a bullish risk on preview NYSE Short Interest A breakout in short interest is bearish, the shorts should be listened to. A breakout in short interest of one or more systemically important financial institutions is even more telling. This took place in the summer of 2008 & 2011. According to the recent NYSE biweekly update, the short interest as of the end of 2011 was a modest 12.8 billion shares, a sharp drop from the 13.4 billion and 14.2 billion 2 and 4 weeks prior, and certainly a very far cry from the over 16 billion shares short which market the market bottom in late September. Call/Put Volume Ratio Contrarian-sentiment measure known as the put/call options volume ratio. By tracking the daily and weekly volume of puts and calls in the U.S. stock market, we can gauge the feelings of traders. While a volume of too many put buyers usually signals that a market bottom is nearby, too many call buyers typically indicates a market top is in the making. When speculation in calls gets too excessive, the put/call ratio will be low. When investors are bearish and speculation in puts gets excessive, the put/call ratio will be high. A breakout in the skew is even more telling. Asset Quality in Repos and Money Market Funds In late 2006 / early 2007 the asset backed commercial paper market was the first warning sign, major money market funds started to shun abcp, this market was screaming "Iceberg Ahead." Its all about convexity, the market with the most convexity (downside vs. upside) is always the first to de-risk. "Are you long because you like it, or do you like it because you're long?” -Mike Gelband to Dick Fuld November 2006 Investors Intelligence Bullishness / Bearishness Survey When everyone is bullish it's time to take off some risk. Sour Financials… In 2008, the XLF was severely underperforming, 27%, while SPX was down -13%. •In 2011, the XLF was again severely underperforming, -5%, while SPX was +6%. •The same applies if Financials are underperforming in Equities and Credit. •Flashing Yellow… High Yield Mutual Fund Inflows As retail investors with a thirst for yield start piling into high yield bonds in a big way, this is a great contra indicator. In looking a this data in a basket with others and not alone, it helps solve another piece to the puzzle as to when de-risk. Equity Mutual Fund Inflows By themselves this contra indicator is not all that helpful. Equity inflows in size can go on for a long time. Extreme high levels of outflows are a good indication of a market bottom. 2012 Elections and “Fiscal Cliff” 2012 Presidential Election AK NH(4) WA MT VT ND MN OR MI WY NV (6) IA (6) NE UT CA AZ CO (9) IL OK NM Safe R (21 States, 170 Electoral Votes) Leans R (3 States, 36 Electoral Votes) Tossup (8 States, 95 Electoral Votes) Leans D (5 States, 58 Electoral Votes) Safe D (13 States, 179 Electoral Votes) NJ OH (18) DE KY MO TN TX LA AL VA (13) NC MD SC AR MS HI IN RI CT PA WV KS MA NY WI (10) SD ID ME GA Obam a Romney 237 206 FL (29) 270 Votes Needed to Win Electoral math is an uphill battle for Romney 32 © 2012 2011 ACG-Analytics All rights reserved. 2012 Senate Races NH AK WA MT VT ND MN OR MI WY IA NV NE UT CO CA IL IN NJ OH DE VA KY MO RI CT PA WV KS MA NY WI SD ID ME MD NC AZ OK NM TN MS HI Safe R (5) Leans R (3) Tossup (8) Leans D (9) Safe D (8) TX SC AR AL GA LA FL For control of the Senate, Republicans need to pick up 3-4 seats depending on whether President Obama is reelected. Republicans are likely to lose Maine, and must hold Massachusetts, Nevada, & Arizona. The margin for control is razor-thin. 33 © 2012 2011 ACG-Analytics All rights reserved. 2012 House Races NH WA MT VT ND MN OR MI WY 190 NV IA UT CO CA IL KS IN 151 NJ OH DE WV VA KY MO RI CT PA 44 13 37 NE MA NY WI SD ID ME MD NC AZ OK NM TN MS HI TX SC AR AL GA LA FL Democrats need to pick up 25 seats in order to gain control, but a gain of more than 10 seats currently looks difficult. 34 © 2012 2011 ACG-Analytics All rights reserved. Fiscal Cliff – What’s on the Table? Bush Tax Cuts & AMT Fix $320 Billion (including taxes on dividends) Sequestration $95 Billion Tax Extenders Payroll Tax Holiday $115 Billion Unemployment Insurance $50 Billion Investment Tax Incentives $40 Billion Doc Fix $25 Billion New Taxes from Affordable Care Act $25 Billion Debt Ceiling is NOT expected to play into lame duck negotiations Lower Taxes and Higher Taxes = $665 Billion 35 © 2012 2011 ACG-Analytics All rights reserved. Key Variables that Feed into Fiscal Cliff Outcome Election Results Economic Growth Trend Personalities and Post-Election Political Posturing 36 © 2012 2011 ACG-Analytics All rights reserved. Baseline Predictions Sequestration impact will begin to be felt at the start of the 2013 fiscal year, October 1st Debt ceiling resolution in 1Q 2013 will likely mitigate the full impact of spending cuts Bush Tax Cuts may expire due to Congressional gridlock Obama will shift focus if he wins a second term from short-term election objectives to long-term legacy objectives Under current law, the federal government is scheduled to implement a fiscal tightening of unprecedented severity at the start of 2013. Over $400 billion of tax cuts roll off and more than $200 billion of spending declines, near 5% of GDP. Expiration creates incentives for comprehensive tax reform in 2013 Expiration helps Democrats by allowing them to start negotiations with high revenues AND by building in a stimulus in 2014 if tax reform succeeds U.S. sovereign credit rating is at risk of further downgrade without evidence of long-term fiscal sustainability Withholdings from paychecks will go into effect immediately, unless a deal is reached by year end Increased dividend taxes could increase volatility in income-yielding equities and may drive investors to fixed income 37 © 2012 2011 ACG-Analytics All rights reserved. Other Fiscal Cliff Issues Tax extenders – some provisions may be passed, others are allowed to lapse Uncertainty over 2012 retroactivity AMT (Alternative Minimum Tax) is patched Payroll tax holiday expires Unemployment Insurance – expires or continues to be reduced Doc Fix – a short-term (3-6 months) deal 38 © 2012 2011 ACG-Analytics All rights reserved. Capital Markets Issuer Power & Weakness Issuers of debt & equity gaining more power over investors is a classic risk indicator. In the spring of 2008, Lehman Brothers was able to issue $6 billion in convertible preferred stock and equity. On the convertible preferred, Lehman was able to get 7% up 35% terms in the public capital markets. Warren Buffett wanted 10% up 10%, he didn't get it as talks broke off. Covenant light deals were extremely popular in late 2007 at the top of the market as well. Corporate Default Rate Moody’s global speculative-grade default rate ended 2007 at 0.91% approximately 48% lower than 2006’s year-end level of 1.74%. The speculative-grade default rate finished the year at its lowest level since 1981 when it came in at 0.70%. The default rate for all Moody’s-rated corporate issuers fell to 0.31% in 2007 from 0.61% in 2006, also over a two-decade low going back to 1981. Danger Will Robinson! “VIX Under 18!” February 4-December 2, 2008 February 2-December 2, 2012 Stocks at New 52 Week Highs and Lows Peaks in NYSE New 52 week lows are a classic buy signal. The near 2000 all time record after Lehman, hopefully will never be broken. More telling is the MACD on New Highs / New Lows, when the 50, 100, and 200 day turn negative, it’s a solid sell signal. High Yield vs. Equities From March 31-May 1, 2009, Equities were only +13.93%, compared with HY at +21.49% Extended periods of High Yield outperformance relative to Equities is very bullish for stocks. +13.93% +21.49% The Infamous Last Words… •“ S m a r t r i s k m a n a g e m e n t i s n e v e r p u t t i n g y o u r s e l f i n a p o s i t i o n w h e r e y o u c a n ’ t l i v e t o fight another day.” –Dick Fuld, Former CEO, Lehman Brothers, April 2008 •“ W e f i n i s h e d t h e y e a r , a n d w e r e p o r t e d t h a t w e h a d $ 1 7 b i l l i o n o f c a s h s i t t i n g a t t h e bank’s parent company as a liquidity cushion. As the year has gone on, that liquidity cushion has been virtually unchanged.” –Alan Schwartz, Former CEO, Bear Stearns, March 2008 •J u s t o n e w e e k b e f o r e f u t u r e s b r o k e r a g e , M F G l o b a l , f i l e d f o r b a n k r u p t c y , t h e f i r m ’ s Chief Financial Officer told analysts at Standard & Poor’s that its capital position had “never been stronger.” –Henri Steenkamp, Former CFO, MF Global, October 2011 •“ T o d a y I w a n t t o s e n d a m e s s a g e o f o p t i m i s m t o a l l G r e e k s . Our road, our path, will be more stabilized. Our country will be in a better situation. We will be stronger.” – George Papandreou, Former Prime Minister of Greece, July 2009 •“ W e ’ r e v e r y p r o u d t o b e p a r t o f t h e E u r o z o n e . But this comes with obligations and it is crucial we show the world we can live up to those obligations. – George Papandreou, Former Prime Minister of Greece, November 2, 2011 •P o r t u g a l P r i m e M i n i s t e r s a i d t h a t P o r t u g u e s e b o n d h o l d e r s w i l l n e v e r f a c e a h a i r c u t o n their investment as it is happening in Greece, adding the country is doing everything in its power to fulfill all the requirements under its €78 billion bailout program. “Portugal’s debt is perfectly sustainable.” –Pedro Passos Coelho, Prime Minister of Legal Disclaimer This slide presentation is a product of LGM Group, LLC and is not affiliated with Newedge in any way. Newedge does not have anything to do with the production and content of these slides. Newedge does and seeks to do business with companies that may be covered in its research reports. As a result, investors should be aware that Newedge might have a conflict of interest. For the avoidance of doubt, investors should note that this research report is not objective and is a marketing communication as defined by the Markets in Financial Instruments Directive (“MiFID”). For more details, see MiFID policies on our website at www.newedge.com. This report is for information purposes only, subject to change without notice and not to be constructed as a solicitation or offer to buy or sell any financial instruments or securities. Newedge makes no representation or warranty that the information contained herein is accurate, complete, fair or correct or that any transaction is appropriate for any person and it should not be relied on as such. Subject to the nature and contents of this report, the investments described are subject to fluctuations in price and/or value and investors may get back less than originally invested. Certain high volatility investments can be subject to sudden and large declines in value that could equal or exceed the amount invested. Futures and options, as well as certain other financial instruments, are speculative products and the risk of loss can be substantial. Consequently only risk capital should be used to trade futures and options and other speculative products. Investors should, before acting on any information herein, fully understand the risks and potential losses and seek their own independent investment and trading advice having regard to their objectives, financial situation and needs. This report and the information included are not intended to be construed as investment advice. Any forecasts are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation. Newedge accepts no liability for any direct, indirect, incidental or consequential damages or losses arising from the use of this report or its content. This report is not to be construed as providing investment services in any jurisdiction where the provision of such services would be illegal. The opinions and views expressed in this report reflect the personal views of the author(s), are subject to change without notice and do not necessarily reflect the views of Newedge. Newedge, its officers, directors and employees may from time to time have positions, make markets or effect transactions in any investment or related investment covered by this report. All information as well as references to prices and yields are subject to change without notice. Past results are not necessarily an indication of future performance. This communication is intended only for use by the individual or entity to which it is addressed and may not be used in any way by or provided in whole or in part to any other person or entity. Please note that this analysis or report is not meant for distribution to retail clients domiciled in Singapore (i.e. a person who is not an accredited investor, expert investor or institutional investor as defined under the Financial Advisers Act). For matters relating to these analyses or reports, Singapore recipients should contact the Singapore office by email to disclaimer-singapore-contact@newedge.com. If these reports are prepared by a Newedge entity outside of the United States these reports are issued solely to major US institutional investors pursuant to SEC Rule 15a-6. Any US person wishing to discuss this report or effect transactions in any security discussed herein may do so with or through Newedge USA, LLC, 630 Fifth Avenue, Suite 500, New York, New York 10111 (646) 557-9000. Only Newedge USA, LLC is a member of FINRA and SIPC (although SIPC only pertains to securities-related transactions and positions). Newedge USA, LLC is a US Broker-Dealer and Futures Commission Merchant. Newedge USA, LLC does not guarantee the settlement of any trade executed pursuant to SEC Rule 15a-6. THE DISTRIBUTION OF THIS REPORT IN CERTAIN JURISDICTIONS MAY BE PROHIBITED OR RESTRICTED BY LAW AND PERSONS WITH ACCESS TO THIS REPORT MUST OBSERVE ANY SUCH PROHIBITIONS AND RESTRICTIONS. BY ACCEPTING THIS REPORT YOU AGREE TO BE BOUND BY THE FOREGOING. “Newedge” refers to Newedge Group SA and all of its worldwide branches and subsidiaries. Newedge Group in France and its foreign branches are authorized by the Autorité de Contrôle Prudentiel and Autorité des Marchés Financiers in France. Newedge Group (UK Branch) is also subject to limited regulation by the Financial Services Authority for the conduct of its UK business. Newedge Group (UK, Frankfurt and Dubai branches) does not deal with, or for, Retail Clients (as defined under MiFID and Dubai Financial Services Authority). Only Newedge USA, LLC is a member of FINRA and SIPC (SIPC only pertains to securities-related transactions and positions). Only Newedge Canada Inc. is a member of the CIPF. Not all products or services are available from all Newedge organizations or personnel.