Instruments and Investments
Hedging Strategies for Grain Farmers
Technical Analysis
Evaluating Risk

High Frequency Trading

Unprecedented Monetary Easing: no free lunch
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By Christo Lüus

he policy and regulatory responses to the financial crisis are once again explored in this edition. Surprise losses at J.P. Morgan through injudicious trading strategies and inadequate and ineffective risk management, have again strengthened the hand of authorities to insist on regulatory reform. The probable scenario of what went wrong is explored together with a brief overview of the specific points of debate that ensued.

Closely aligned with this issue is an article on stress testing and why it could, concomitant with other risk management measures, serve to strengthen bank corporate governance by alerting banks well in advance of serious impending instability problems.

We also include an article on high frequency trading and the consequences if the algorithmic trading system malfunctions, as has happened with Knight Capital, a global investment services firm. In this instance the system executed erroneous orders in 148 trades on the NSE, leaving the firm facing losses of USD 7 billion.

The unprecedented levels of monetary easing applied in global economies, especially in the U.S., are investigated to determine the efficacy thereof to stave off a worldwide depression. The question is asked whether there are short-term benefits that will have to be weighed against long-term unintended consequences.

The economic implication of the political developments in South Africa is assessed and the challenges for the elected leadership highlighted. More specifically, the article focuses on the impact of deteriorating political and economic institutions on two conduits through which economic growth takes place: financial development and efficient allocation of resources.

The recently launched Code for Responsible Investing in South Africa (CRISA) is briefly outlined. This is an important document for South African investment professionals and is intended to give guidance on how institutional investors should execute investment analysis and investment activities. The amendments to King III that were necessitated by the new Companies Act, are also touched upon.

We trust that this edition will give you useful and interesting information.

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