Products July 1, 2009

New Securities Track Movement of U.S. Home Prices

Investors now have a chance to gain whether or not there is a recovery in the residential real estate market.
Reported by

MarketWatch reported that investment manager MacroMarkets on Tuesday launched exchange-traded products on the NYSE Arca designed to track housing values. MacroShares Major Metro Housing Up (ticker: UMM) and MacroShares Major Metro Housing Down (DMM) are benchmarked to the S&P/Case-Shiller Composite-10 Home Price Index, which is a weighted measure of home price changes in the following metropolitan areas: Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco, and Washington, D.C.

A MacroMarkets press release said WisdomTree Asset Management will provide educational and product support for the offerings.

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The MacroShares Major Metro Housing Up is designed to rise when U.S. housing prices climb. Its counterpart, MacroShares Major Metro Housing Down, profits when real estate values fall. The paired securities will feature a 300% leverage factor, MarketWatch reported.

Unlike most exchange-traded funds, the MacroShares do not invest directly in an underlying asset such as stocks, bonds or commodities futures. Instead, MacroShares are issued in pairs, and an equal number of shares for each fund are created. The funds invest in short-term Treasury securities and overnight repurchase agreements.

The paired trusts have a binding agreement to pledge assets to one another over time, based on the movement of housing prices. This transfer of Treasury securities back and forth between the funds changes their values and gives investors exposure to the direction of U.S. home prices, the news report said.

The structure resembles a see-saw as the assets are shuffled between the paired trusts, and has also been compared to total-return swaps, according to MarketWatch.

More information is available at

More information is available at www.macroshares.com.

 

Compliance July 1, 2009

High Court Accepts Xerox ERISA Case for Review

U.S. Supreme Court justices have agreed to consider an appeal of a case involving the method used by the Xerox Corp. pension plan to figure out how much to offset a participant’s benefits to properly reflect distributions already taken.
Reported by

The case involved possible violations of the Employee Retirement Income Security Act (ERISA). The high court accepted the case of Frommert vs. Conkright for oral arguments during its fall term, which begins in October, according to Supreme Court documents.

The documents indicated that justices agreed to consider two issues arising from a July 2008 Frommert ruling by the 2nd U.S. Circuit Court of Appeals including:

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Whether the 2nd Circuit erred in ruling that a district court has no obligation to defer to an ERISA plan administrator’s reasonable interpretation of the terms of the plan if the administrator arrived at its interpretation outside the context of an administrative benefits claim. Justices said the appellate court’s decision was at odds with prior Supreme Court and federal appellate court decisions.

Whether the 2nd Circuit mistakenly ruled that a district court has “allowable discretion” to adopt any “reasonable” interpretation of the terms of an ERISA plan when the plan interpretation issue arises in the course of calculating additional benefits due under the plan as a result of an ERISA violation. The justices said this holding also conflicted with prior case law—a circumstance often used as a requirement for the high court to accept a case for its docket.

Participants claimed the employer violated ERISA provisions dealing with summary plan descriptions, participant notice, and anti-cutback rules for the Xerox Corporation Retirement Income Guarantee Plan.

The decision by the nation’s high court relates to the second of two 2nd Circuit holdings in Frommert, one in which the 2nd Circuit found Xerox had violated ERISA in several respects and a second in which the appellate court considered a remedy for the ERISA violations without first sending it to the plan administrator for input (see “Method of Offset for Prior Distributions Violates Anti-Cutback Rule“). The 2nd Circuit asserted the lower court judge was not required to get the administrator’s ideas about a remedy.

The 2nd Circuit ruling is here.

 

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