 | | | | | | | | March 16, 2016 | | | | | First Impressions | | | Boca Bits & Pieces - Tuesday
If there are two trends that continue to re-emerge each FIA conference, they are that regulation is STILL the number one challenge for the industry, and technology solutions continue to address many of those challenges in, um, bits and pieces.
Yesterday's roundtable discussion from the FIA revealed as much in its recent survey of 800 members, who have collectively called for finality on the rulemaking - now in year number eight, depending on how you count it. Along with the regulatory fatigue, the FIA and member firms continue to worry about capital requirements and the ripple effect of those.
John Lothian News once again is putting together its annual exchange CEO video series with the top execs. In a sneak peak, Phupinder Gill, CEO of the CME Group, told JLN that one of the main focuses of CME now is to work with customers to find all kinds of capital efficiencies in clearing and new products. The London Stock Exchange Group is also working on those issues with its LCH.Clearnet, portfolio margining and netting. Our videos will be posted shortly.
Meanwhile, technology firm Duco announced yesterday it is working with the CME to address the confounding issue of fee structures for customers. Many firms are struggling with static data - basic counterparty names and reference data, and when firms are running a global business and have a mix of legacy systems, it can be very complicated, said Duco's CEO, Christian Nentwich. Duco hopes to expand the offering to other exchanges as well as to trade repositories.
Its offering will include the CME as well as its CBOT, NYMEX and COMEX divisions, each of which has a very different fee structure. The service will help non technologists within firms manage the data, although data fees, alas, do not appear to be coming down. Such is the life of a publicly traded exchange and the drive to keep shareholders happy.
Onto other pieces.
Oddly, people actually still trade futures and options and firms are fully focused on it. Trading Technologies, for one, is now a year into its new trading solution called TT, the replacement for its legacy system X_Trader. And as TT's CEO Rick Lane writes in a blog post today, TT has reduced latency on its so-called Autospreader by 70 percent over its legacy system down to 60 microseconds, showing that speed, indeed, still matters. This is on an internet-based platform, a baffling concept for many in the industry. This is only part of the story.
Another trend that has lingered in recent years is the shrinking pool of FCMs serving the derivatives markets. So it was refreshing to hear that online broker OptionsHouse is bucking the trend by opening a non-clearing FCM, scheduled for the 2nd quarter of this year. Their (not-so) secret? Focusing on retail, a segment that has seemingly gotten lost in the shuffle, even though it represents the fastest growing area of the market. According to Dan Ryba, vice president of the firm's futures division, says, to meet the needs of the modern retail customer, an FCM needs to lead with user-friendly tools, mobile apps, and a focus on education.
The FIA Boca Tennis Tournament drew almost 50 participants this year, a great turnout for a great cause. Trading Technologies sponsored the event and matched each $50 donation, for Futures For Kids. Clive Furness of Contango said he played more tennis yesterday than he had in his entire life. All for the kids. On Friday, FFK gets another boost from the Boca golf outing. Again, all for the kids.
We want to thank the FIA for putting the name tags for the press on bright orange paper; call it hunting orange. It makes it so much easier to walk up to someone to talk to when you are wearing a color that says "CAUTION!!!!!!"
Jorge AlegrÃa, formerly the chief executive officer of the Mexican Derivatives Exchange (MexDer) has joined CME Group and is working on a project covering Latin America. We learned this when we showed up at a CME Group cocktail party and he was present.
As we hit the "send" button on today's newsletter, our friends at CBOE continue the trend of releasing news and offering brief presentations on strategic initiatives over breakfast. At this year's breakfast, the exchange announced the listing of options on the FTSE 100 and FTSE China 50 indexes beginning March 29. See the press release below.
Additionally, we heard brief presentation by industry legend Richard Sandor and his newest innovation, the American Financial Exchange, the fledgling marketplace serving small and mid-sized banks, with which CBOE has teamed. AFX plans to launch its interest rate benchmark, Ameribor, later this year. In just over a year, the exchange has now signed on 12 member banks and have done $600 million in transactions. For more on AFX, see our recent interview with Sandor
Also featured at the CBOE breakfast was a presentation by Vest Financial, in which CBOE recently made a major investment. Vest, which advises on options-based investment, can be integrated within CBOE's platform. As with the exchange's previous investment in TradeLegs, the agreement punctuates CBOE's commitment to helping navigate the often-complex world of options trading. But whereas Tradelegs is aimed at institutional investors, Vest caters to the retail marketplace.
Another example of technology addressing a need in the marketplace.
| | | | | | Quote of the day: | | | | | | “ | "One must ask how far the SFO's appetite or even confidence for prosecution has been diminished by the recent acquittal of Libor traders.An exciting/revealing/interesting bit of something."
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| ” | Richard Burger, a London-based lawyer at the RPC firm, in the story "U.K. SFO's `Appetite' Questioned After Decision to Drop FX Probe"
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| | | | Lead Stories | | |
Fed Keeps Interest Rates Steady but Affirms Plan to Pursue Increase
Binyamin Appelbaum - NY Times
The Federal Reserve took its finger off the pause button on Wednesday, signaling that it plans to resume increasing its benchmark interest rate in the coming months. The Fed, in a statement after a two-day meeting of its policy-making committee, said the domestic economy seemed little harmed by the recent turmoil in financial markets. "Economic activity has been expanding at a moderate pace despite the global economic and financial developments in recent months," the Federal Open Market Committee of the central bank said.
nyti.ms/1Rljyw6
****SD: At what point do you ignore the dangling carrot?
Banks face slump in trading revenue as 'bad' volatility bites
Jamie McGeever and Anjuli Davies - Reuters
Banks are facing a slump of 15 percent in market trading revenue in the first quarter, spoiling what is normally the most lucrative period when investors put their money to work at the start of the year. Investment banks are suffering after a steep decline in oil prices and worries about China's economy triggered a wave of volatility that swept through financial markets in the first six weeks of the year.
reut.rs/1ROLZNf
Bankers fear loss of one-quarter of business to fintech firms
Finextra
Top banking executives fear that up to a quarter of their business could be at risk from emerging fintech firms, according to research conducted by PwC.
For the study, PwC interviewed 544 CEOs, heads of innovation, CIOs and top management involved in digital and technological transformation across the financial services industry in 46 countries.
/goo.gl/7I9uQp
China's P2P Property Lending Growth Six Times Faster Than Banks
Bloomberg
Peer-to-peer lending for property in China grew more than six times faster than loans extended through banks last year as borrowers took advantage of a less-regulated financing market to take part in the nation's real estate boom. Property-related loans handled by the online platforms climbed 163 percent to 115.5 billion yuan ($18 billion) in 2015, according to Shanghai-based researcher Yingcan Group. That's faster than the 21 percent increase in outstanding mortgages held by the country's banks during the same period, central bank data showed.
bloom.bg/1Rlh5Sk
****SD: I don't see a way this ends well.
Citigroup to Millennial Bankers: Take a Year Off
WSJ
Attitudes toward young bankers have shifted so strongly on Wall Street that Citigroup Inc. has a new plan to keep them happy: Give them a year off.? The bank on Wednesday plans to unveil new programs meant to appeal to younger workers, including faster paths to promotion and the chance to take a year off to do charitable work. Citigroup is also introducing a program that lets young employees work on a four-week microfinance project in Kenya. It's all meant to recruitÂand keepÂyoung talent increasingly skeptical of Wall Street and eager to land a job in the technology sector. ?
goo.gl/GfJTYo
****SD: So, as an industry, millennials are fine, but otherwise, cuts all around? (UBS is today's job cutter)
Deutsche's Cryan says CoCos are bad product
Reuters
Deutsche Bank boss John Cryan said he dislikes the hybrid bond instruments that caused trouble for his bank last month, saying they were a "bad product" that were "too prone to be mis-sold". Additional Tier 1 (AT1) bonds are debt that converts into shares or is wiped out, sometimes temporarily, if a bank's capital falls below a certain level. They are intended to provide an extra cushion of capital for banks. Deutsche Bank has sold 5bn-equivalent of AT1s, and said last year it could issue another 3bn to 4bn.
reut.rs/1ROXIM1
****SD: Also see Deutsche Bank Shares Fall After CEO Forecasts Unprofitable Year
Markit Makes Play for Fitch's CDS Pricing Service in Latest M&A Move
Finance Magnates
Markit (Nasdaq:MRKT), a global provider of financial information services, has acquired the credit default swap (CDS) pricing service of Fitch Solutions for an undisclosed sum in its latest merger and acquisition (M&A) move, according to a Markit statement.
goo.gl/pCv2j5
Volcker Violation: Felony or Misdemeanor Charges?
Kelvin To - TABB Forum
Since the Volcker Rule shifts the burden of proof to banks with the 'guilty until proven otherwise' clause, prosecutors do not need to consider if available evidence will lead to a conviction by the 'beyond-a-reasonable-doubt' standard. And while it will not be hard for examiners to uncover abusive acts after-the-fact, it remains extremely difficult to prevent such incidents unless banks have a robust system to analyze irregular trade patterns and detect possible market manipulations in real time.
goo.gl/G9gzMB
George Osborne conjures up a budget trick, a poor one at that
Larry Elliott - The Guardian
Budgets have a tendency to unravel. Sometimes it can take months for the problems to surface. More often they are exposed within 24 hours once the Institute for Fiscal Studies has sharpened its claws. But George Osborne's eighth package was a bit of a rarity. The holes in it were obvious even before he had finished speaking.
goo.gl/T8UxPJ
****SD: All of The Guardian's columnists weigh in here
Basel nears probe into leverage ratio
Futures & Options World
The Basel Committee on Banking Standards is to take a step towards its long-awaited probe into the impact of its controversial leverage ratio reforms, according to the world's top future trade body.
goo.gl/FMzFck
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| Central Banks | Central banks' 'forward guidance' proving a tricky policy tool
Reuters
Words don't always come easy for the world's central bankers, as Mario Draghi was reminded last week. After first wowing markets at his March 10 news conference with a bigger-than-expected easing package, the European Central Bank president then muddled the message with a seemingly offhand remark that rates may have bottomed out. Markets eventually calmed, but the reaction to his comment was the latest illustration of how central banks' communications, in particular "forward guidance", can go wrong, and explains why some are already backing away from this relatively new tool.
reut.rs/1Rljrkg
Fed announces interest rates will remain unchanged after talk of hike
The Guardian
The Federal Reserve (Fed) put any further increase in US interest rates on hold on Wednesday, announcing rates will remain unchanged for at least another month. The potential hike was postponed after fears of a slowdown in China and collapsing oil prices have rattled investors worldwide. In its statement, released at the end of its two-day March meeting, the Fed said that "global economic and financial developments continue to pose risks" and that "inflation is expected to remain low in the near term, in part because of earlier declines in energy prices".
goo.gl/50LKsv
Parsing the Fed: How the March Statement Changed from January
WSJ
The Federal Reserve releases a statement at the conclusion of each of its policy-setting meetings, outlining the central bank's economic outlook and the actions it plans to take. Much of the statement remains the same from meeting to meeting. Fed watchers closely parse changes between statements to see how the Fed's views are evolving.
goo.gl/2giwJP
BoE says regulators may lighten capital burden on derivatives
Huw Jones - Reuters
Global regulators will propose ways that could ease capital requirements for banks that clear large numbers of financial derivatives, a Bank of England official said on Tuesday. Banks have long campaigned for changes to a broad measure of capital to total assets, known as the leverage ratio, which becomes mandatory from 2018. The rule as currently written requires banks to tot up their gross exposures to derivatives such as credit default swaps and interest rate swaps when calculating compliance with the new ratio.
reut.rs/1Rli9pv
Kuroda Says Minus 0.5% Rate Is Theoretically Possible for Japan
Toru Fujioka and Masahiro Hidaka - Bloomberg
The Bank of Japan has quite a lot of room to cut its key interest rate further and theoretically it could go to minus 0.5 percent, Governor Haruhiko Kuroda said in parliament Wednesday. While the BOJ kept policy unchanged on Tuesday, Kuroda underscored in a press conference a readiness to move on any of three fronts: a reduction in the present minus 0.1 percent rate, an acceleration in boosting the monetary base or an expansion in purchases of riskier assets.
bloom.bg/1RONivG
A $101m bank heist unseats the governor of Bangladesh's central bank
The Economist
It was as audacious as any heist, and yet unlikely material for a Hollywood blockbuster. Hackers masquerading as officials from Bangladesh's central bank asked the New York branch of the Federal Reserve to transfer nearly $1 billion to private bank accounts in Sri Lanka and the Philippines. By the time authorities cottoned on, $101m had been nicked. On March 15th Atiur Rahman, the governor of Bangladesh's central bank, took the blame and resigned. That has not stopped the finger-pointing. In the manner of a bank customer complaining about fraudulent credit-card charges, Bangladeshi authorities say the Fed, which was acting as the central bank's bank, should not have paid out anything at all. The Fed says the instructions it received were legitimate. The Philippine authorities cannot say what happened to the $81m sent to their country. Much of the money disappeared in its opaque casinos, which they say are not covered by anti money-laundering rules (a worry in itself). The CCTV system at a bank branch where some of the money was withdrawn was not working.
econ.st/1RljjkM
Brazil cenbank chief may go if Lula shakes up policy- source
Reuters
Brazil's central bank chief Alexandre Tombini may step down if the return of former President Luiz Inacio Lula da Silva to the Cabinet brings major economic policy changes, a senior source within the government's economic team said on Wednesday.
reut.rs/1RljOey
| | | | Currencies | U.K. SFO's `Appetite' Questioned After Decision to Drop FX Probe
Gavin Finch, Patrick Gower and Suzi Ring - Bloomberg
The U.K. Serious Fraud Office dropped a nearly two-year-old investigation into currency rigging citing insufficient evidence, leading lawyers to question whether courtroom setbacks in its Libor-manipulation probe have curtailed the agency's appetite for high-profile financial cases. Despite concluding there were grounds to suspect fraud, the SFO said the prospect of convictions wasn't "realistic." The decision comes two months after the embattled prosecutor lost a case against brokers accused of helping ex-UBS Group AG trader Tom Hayes rig Libor, the interest-rate benchmark that caused a similar global storm among authorities to the currency case.
bloom.bg/1Rll1m6
Sub-zero rates mean more currency volatility
Sydney Morning Herald
The currency volatility that characterised markets in 2015 looks set to continue this year as central bankers exhaust their policy arsenal. Foreign exchange analysts and global economists say that with short-term rates already negative across large swathes of the northern hemisphere, policymakers are now counting on governments, banks and other intermediaries to do the heavy lifting and fire up slow-growing economies.
goo.gl/nxzgnB
Commodity and currency slump expose frailties of African economies
Ed Stoddard - Reuters
Slumping commodity prices have taken African currencies down with them, exposing the fundamental economic frailties of the world's poorest continent by driving up inflation in countries that import most of their manufactured goods. Regional economies are in no position to use their weakening currencies to their trade advantage because they have few exports beyond their natural resources.
reut.rs/1RP9XZ1
The Euro's Doves Cry
WSJ
The Federal Reserve just gave the European Central Bank another headache. The euro jumped more than 1% against the dollar Wednesday, reaching a one-month high, just after the U.S. Federal Reserve cut its expectations for interest rate rises this year. While few economists were expecting a hawkish statement from the Fed, the euro's reaction suggests investors thought it would be slightly more optimistic about the U.S. economy's outlook, given recent positive data.
on.wsj.com/1RPemuR
Danish central bank gets windfall in krone defense
MarketWatch
Denmark's central bank said Wednesday that its efforts to defend its currency peg to the euro in 2015 earned it a profit of just over 2 billion Danish kroner ($297 million). The windfall was a welcome benefit for the central bank, known as Nationalbanken, which had to deploy a range of radical policies to keep the Danish krone steady amid market turbulence in January and February of last year.
on.mktw.net/1RljvR9
Sweden Captivates Traders Treating Krona as Canary in Coalmine
Bloomberg
Sweden's krona underscores the challenges central banks across the developed world face when contemplating stepping off the treadmill of ever-looser monetary policy. The krona surged in the past month, reaching the highest on a trade-weighted basis in more than a year, after data from growth to inflation suggested the nation has turned a corner. Some policy makers have even said the economy is now buoyant enough for them to stop adding to the stimulus that's fueling the recovery.
bloom.bg/1RllhBJ
Montréal Exchange to Launch Eris-based Canadian Dollar Interest Rate Swap Futures
Press Release
Montréal Exchange (MX), Canada's leading derivatives exchange, today announced that it will expand its interest rate derivatives offering with the launch of Canadian Dollar Interest Rate Swap Futures based on the Eris MethodologyTM. These new swap futures contracts will be cleared at the Canadian Derivatives Clearing Corporation (CDCC) and will be available for trading on MX in September 2016.*
goo.gl/MoqRVM
| | | | Indexes & Index Products | ETFs reflect market conditions rather than dictate them
Joel Dickson - FT
As exchange traded funds have become more popular, the amount of controversy about them has grown. The current ETF debate centres around three key questions. Are there now too many ETFs? Do they contribute to market volatility? Is there something about the way that ETFs work that means they are uniquely challenged in times of market stress?
goo.gl/s6z6eJ
FTSE Russell plans move into momentum indexes
Fierce Finance
Global index provider FTSE Russell is planning to launch a new set of indexes based on momentum strategies. The new indexes, which will be developed in partnership with momentum specialist Trendrating, complement other moves that FTSE Russell has made over the past year to grow its presence in the smart beta and ETF space.
goo.gl/O5Jo8Z
Index provider MSCI reports record growth in ESG
ETF Strategy
MSCI, a leading provider of indices to the exchange-traded funds industry, has reported record revenue growth in its environmental, social and governance (ESG) research and indexing business. The record growth highlights the emerging importance and increasing adoption of values-based investing, an investment philosophy that considers factors such as ethics, society, faith and the environment alongside financial objectives.
goo.gl/zREqNr
CBOE to List Options on FTSE 100, FTSE China
Press Release
The Chicago Board Options Exchange (CBOE) today announced that it plans to list options on the FTSE 100 and FTSE China 50 indexes beginning March 29, 2016. The announcement was made by CBOE Holdings CEO Edward Tilly at a press briefing at the 41st annual Futures Industry Association Conference currently taking place in Boca Raton, Florida.
prn.to/1Vc3P2r
Smart-Beta ETFs Back by Financial Science
ETF Trends
Smart-beta exchange traded funds that track alternative indexing methodologies help tap into a different way of thinking when it comes to investing, enabling investors to diversify and add value to their portfolios.
/goo.gl/y8yrpY
Active fund managers find their voice
Financial Times
Now that active fund managers have lost the debate against their passive rivals, they are finally finding their voice. The US public continues to vote decisively against traditional fund management, which attempts to manage equities actively, and beat broad benchmarks, in return for a fee. In the 12 months to the end of January, according to Morningstar, some $245bn flowed out of active funds while $408bn flowed into passive funds, which merely seek to match the returns of a benchmark and to minimise their fees. Once a niche category, passive funds now account for 32.5 per cent of US assets managed in mutual and exchange traded funds.
goo.gl/qpftbl
| | | | Gold | Yellen-era Fed hasn't been great to gold investing
Eric Rosenbaum - CNBC
Gold, which has been on a remarkable run so far in 2016, pulled back this week before the Fed statement, and then did an about-face. Jitters ahead of the Wednesday statement from the Federal Reserve Open Market Committee likely sent some investors who have been lucky enough to be in on gold trade early this year to take some profits. Although no changes to rates were expected, many investors and traders were treating the Fed like a wildcard to which the market as a whole might overreact. And with a 16-percent plus run up in gold so far in 2016, why take short-term chances? In this instance, they could have. The market overreacted in a way opposite to what some gold traders were expecting.
cnb.cx/1RPd42X
Gold ETF buying continues to accelerate
Financial Post
When gold prices plunged in 2013, the main reason was a mass liquidation of the gold being held in exchange-traded funds, which shed a staggering 880 tonnes of the metal. ETF buying was very limited in 2014 and 2015 as investors had minimal interest in the gold sector. But it has come back in a big way so far in 2016, with ETF gold holdings rising by more than 270 tonnes. That works out to about nine per cent of annual gold mine production.
goo.gl/ldMtlt
Some Technical Warnings on Gold, Gold ETFs
ETF Trends
The SPDR Gold Shares (NYSEArca: GLD), the world's largest physically-backed gold exchange traded fund, is one of this year's best-performing ETFs regardless of asset class. GLD's stellar performance to start the year has lured plenty of supporters...and naysayers.
goo.gl/v7EkDz
| | | | Miscellaneous | The boardroom bust-up behind the worst day in Valeant's history
David Crow - Financial Times
When Michael Pearson made his first public appearance since returning as chief executive of Valeant on Tuesday morning, he told analysts on a conference call that he hoped to start afresh.
"It's a bit of a starting over point for me," he said, a fortnight after retaking the helm, having taken two months of sick leave following his hospitalisation with pneumonia at Christmas. But, as new beginnings go, it is hard to see how things could have been any worse for the besieged Canadian drugmaker and its chief executive. Shares in the group suffered their worst ever one-day drop on Tuesday, closing down more than 50 per cent to give the company a market capitalisation of less than $12bn  a far cry from the roughly $90bn valuation it had in August.
/goo.gl/VvA096
The Journalist and the Troll: Benjamin Wey Spent Two Years Trying to Destroy Me Online
Bloomberg
I saw the photo first, me in a bloody wash of red with "RACIST" pulsing over my face. A couple of clicks brought me to this: "In the darkest shadow of Bloomberg's glossy office building in Manhattan, you may find a woman by the name of Dune LawrenceÂa 'journalist' who has built a career on writing salacious articles about China."
bloom.bg/1ROSvnb
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