A bit of fear is good for markets; FIA seeks talks with Indian exchanges; Nasdaq/OPCOM New Tech

Feb 14, 2018

First Read

Hits & Takes
JLN Staff

See the Spencer Doar commentary below about the VIX manipulation letter. Spencer methodically and politely shreds the letter writer’s argument and credibility.~JJL

Here is a list of those countries who have won medals at the winter Olympics so far, and also a complete list of the countries competing.~JJL

Tomorrow is the Fintank CryptoCon 2018 event in Chicago. I will be on a panel late in the day, moderated by the one and only Chuck Mackie.~JJL

Simon Barnby, formerly of Fidessa, has written a commentary on LinkedIn titled “CMOaaS – proven marketing skills, as and when you need them.”~JJL

Correction in Call the Guinness Book – Trading Records at CME Continue – Rate options open interest is roughly a third of CME’s total OI, not CME’s total options OI.~SD

Yesterday the Joseph L. Searles III page on MarketsWiki was the most popular page on the site. Searles was the first African American member of the New York Stock Exchange and it was on February 30, 1970 that he became a member of the exchange.~JJL

The MarketsWiki NYSE American page was updated yesterday. Do you know what it was called when it began in the 1840s?~JK


What’s the Deal With the VIX Manipulation Letter? Inaccuracy and Misunderstanding
Spencer Doar – JLN

The big options news pertains to a letter alleging VIX manipulation. The letter, written on behalf of an anonymous whistleblower by a Washington D.C. law firm, alleges market makers manipulate the VIX by quoting far out of the money SPX put options so they are included in the VIX calculation at junctures that benefit their trading activities.

It’s understandable financial instruments are subject to concerns about manipulation when their inner workings are complicated and not fully understood by the general public. VIX manipulation has come up before and it will probably come up again unless regulators step in and levy an unbiased verdict, thus quashing this occasional debate. Until that point though, the letter needs a grain of salt.

Cboe said in a statement, “This letter is replete with inaccurate statements, misconceptions and factual errors, including a fundamental misunderstanding of the relationship between the VIX Index, VIX futures and volatility exchange traded products, among other things.”

So, what are these inaccuracies and misconceptions?

Read the rest HERE.


Highlights from the International Blockchain Conference
By Chuck Mackie

(In his first column as our new contributing editor, Chuck Mackie of Maven Wave Partners shares highlights of the Innovation and Development Foundation’s International Blockchain Conference at mHub in Chicago, where it was all blockchain, all day.)

The Innovation and Development Foundation (IDF) presented the International Blockchain Congress at mHub on February 9 and it was a bit like taking a train trip on Amtrak; it started late, got a little bit later at each stop along the way, and somehow still managed to be rewarding at the same time. The event highlighted how many exciting projects and developments are taking place with blockchain, the dynamic international community that is propelling progress, and just how hard it still is to separate the gold from pyrite at this point.
Highlights from the conference included:

  • Still struggling with blockchain 1.0 (otherwise known as Bitcoin or other cryptocurrencies)? Yannick LaPlante and Bo Zhang represented Achain and ABitcoin, respectively, Achain being an example of blockchain 3.0 and ABitcoin being the first coin launched on Achain. A “simple” blockchain like Bitcoin is blockchain 1.0 while a blockchain 2.0 such as Ethereum supports smart contracts and blockchain 3.0 is a public platform to support the development of a global blockchain network. Progress marches swiftly onward and the implications are massive: will it be possible for national entities to contain and control blockchains or will a rapidly expanding network on top of networks spell the inevitability of blockchain ubiquity? It looks like it will be the latter.
  • Ken Huang of TheKey discussed eight security controls for blockchain which ultimately revealed how very un-user friendly things currently are and how that is likely to change very quickly. For the time being, caveat emptor couldn’t be any more applicable.
    Lamont Black of DePaul University led an excellent panel on “Blockchain 2030” with Colleen Sullivan from CMT Capital Markets Trading, Pavel Kravchenko of Distributed Lab, Almora’s Ivan Luthra, Maxim Prasolov from Neuromation, and Rachel Cook of Seeds Inc. On the face of it, talking about blockchain in 12 years time might seem absurd – very few people have figured out blockchain 2018 yet – but there was solid insight and opinion from the panel.

Read the rest of the column HERE.


FFK 10th anniversary 10K Run

Futures For Kids, the UK-based futures industry charity, has launched FFK10k, a 10km run in aid of the projects that the charity supports across the globe.

The run, which will be combined with a 5km fun run, will be held at the Queen Elizabeth Olympic Park in Stratford, London on 23 May.

“Over the last 10 years we have arranged a wide range of events including the popular Walk to Work,” said Patrick Thornton-Smith, a trustee of the charity. “This has been running for the last seven years and is perhaps the most ‘active’ of our events, but for our 10th anniversary we have decided to do something different for a far wider audience – the FFK10k!”

FFK has raised almost £3m since its launch in 2008.

The charity is currently seeking sponsors for the run and offers several options to organisations interested in supporting the run. Individual runners will be asked to pay a £30 entry fee to take part.

Current sponsors of the race include ION, Cinnober, RJ O’Brien, OSTC, FIA, Cult Wines, Kyte Consulting, GHF, John Lothian News and FOW

For more information on the run and how you can support it or take part go HERE


High-frequency traders are gift for stock pickers; The value of Virtu’s shares surged as equity markets swooned
Miles Johnson – FT
High-frequency trading firms have never been particularly popular among conventional investors, some of whom have argued the use of ultra-fast computers to gain an edge in the markets puts slower humans at a disadvantage. But after shares in HFT groups such as Virtu Financial and Flow Traders surged last week, traditional fund managers might want to look at these companies in a different and more positive light.

**The virtue of Virtu?~JK


Here’s How the Stock Market Affects the Price of Wine
Narae Kim – Bloomberg
A surge in Burgundy prices may be partly due to wealth generated in the stock market trickling down to the fine wine trade. The Burgundy 150 Index, which tracks the prices of the most actively traded wines from the French region, climbed 19 percent last year. This is in line with the S&P 500’s 19 percent advance in the same period.

**Give me a bottle of the December 1999 S&P 500.~JK


Tuesday’s Top Three
Our top story of the day yesterday by a long shot was Bloomberg’s piece VIX Manipulation Costs Investors Billions, Whistle-Blower Says. But it is not without scrutiny today. Second was a Wall Street Journal piece High-Speed Traders Profit From Return of Loophole at CME. Third was Bloomberg’s ’50 Cent’ VIX Trade Just Paid Off to the Tune of $200 Million. Gotta love it when the ship finally comes in.



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Lead Stories

A bit of fear is good for markets; The jump in volatility may be disturbing but it should help puncture some of the previous complacency
Martin Wolf – FT
The only thing to fear is the lack of fear itself. Benjamin Graham, the guru on investment often cited by Warren Buffett, referred to Mr Market, a personage characterised by wild mood swings. His moments of euphoria may be more enjoyable than those of despair. But they are dangerous. Over-optimism is the natural precursor of excessive risk-taking, asset price bubbles and then financial and economic crises. The turbulence seen last week was exactly what was needed. It is a pity it did not happen far earlier. But fear has returned. Hurrah.

FIA seeks talks with Indian exchanges; SGX shares down 7%; Futures Industry Association (FIA) says it will seek discussion with BSE, NSE and MSEI about their decision to stop trading of indices on Singapore and other foreign exchanges
Gurdip Singh – Livemint
Washington-based Futures Industry Association (FIA) said it will seek discussion with Indian exchanges about their decision to stop trading of indices on Singapore and other foreign exchanges.

Nasdaq and OPCOM Sign New Market Technology Agreement
The Romanian market operator’s new trading engine and clearing technology will be running on the Nasdaq Financial Framework; marks 14-year anniversary of technology partnership
Nasdaq Inc. and Operatorul Pietei de Energie Electrica si Gaze Naturale (OPCOM) have signed a new market technology agreement for Nasdaq to deliver new matching engine and clearing technology via the Nasdaq Financial Framework architecture to Romania’s market operator for gas and electricity.

Trump Administration Proposes Fees for Futures Industry
Gabriel T. Rubin – WSJ
The White House on Monday proposed levying fees on derivatives users to bolster the Commodity Futures Trading Commission’s 2019 budget, an idea that may be dead on arrival because of industry opposition.
Moreover, leaders at the CFTC also are opposed to the funding idea.

Exclusive: London Metal Exchange aims to ban metal sourced with child labor
Pratima Desai, Tom Daly – Reuters
The London Metal Exchange could remove companies from its list of approved metal suppliers if they fall short of industry standards following an outcry about cobalt mined by children in Africa, three sources said.

Credit Suisse Plays a Dangerous Game With Market Hurricane
Banks should be careful what they wish for on volatility.
Edward Evans – Bloomberg
Be careful what you wish for. Banks had long been begging for volatility to return. This month, they got it in spades as the rout in global stock markets sent a jolt through trading floors from London to New York.

Turmoil Could Help Restore More Normal Markets; Investors shouldn’t yearn for a return to the comforting calm of 2017.
Mohamed A. El-Erian – Bloomberg
After enduring something of a sudden trauma last week, many market participants now wish for a rapid return to calm. That’s understandable, but it may not be in their longer-term interest to simply revert to the highly unusual market conditions that prevailed before. Instead, they should hope for a new, less abnormal market paradigm with respect to asset-price volatility, correlations and certain asset class valuations, together with less extreme investor-base conditioning.

Eurekahedge: Hedge Fund Index Gains 2.26% in January
Hedge funds were off to a good start in the first month of 2018, according to an update of Eurekahedge’s Hedge Fund Index.

Taming the CAT: Even With Missing Tech Specs, Broker-Dealers See Opportunity
Monica Summerville – TABB Group
The implementation of the Consolidated Audit Trail may kick off one of the largest and most expensive IT rebuilds in the history of capital markets, and the clock is ticking. TABB Group recently conducted industry outreach to understand broker-dealers’ CAT readiness. At this early stage, some strong technology trends already are emerging and, encouragingly, many firms see opportunities to leverage the data set, reports TABB’s Monica Summerville.

Mark Cuban bet on a Wall Street firm that thrives on volatile markets (VIRT)
Frank Chaparro – Business Insider
Billionaire investor Mark Cuban of “Shark Tank” fame told CNBC on Tuesday that he recently invested in high-frequency trading firm Virtu Financial.

Flash Boys Aren’t Exploiting Every MiFID Advantage
Will Hadfield, Viren Vaghela – Bloomberg
‘Small tick’ advantage has little demand, so-called SIs say; Virtu, Citadel Securities are among firms bypassing exchanges
Here’s another quirk from the early days of MiFID II: algorithmic traders like Virtu Financial Inc. are deliberately opting not to use a pricing advantage.

Bunge Q4 miss fuels questions over trading house’s future
Gregory Meyer in New York – FT
Bunge has revealed an exceptionally weak finish to 2017, results that will intensify questions over the future of the 200-year-old global agricultural trading house as an independent company.

Global regulators propose crackdown on financial spreadbetters
Huw Jones – Reuters
Financial spreadbetters targeting retail customers should be licensed to stop them exploiting gaps in cross-border rules and preying on inexperienced investors, global regulators proposed on Tuesday.

Exchanges, OTC and Clearing

LCH’s EquityClear welcomes Cecabank as first Spanish clearing member
LCH Limited, a leading global clearing house, today announced that Cecabank has gone live as EquityClear’s first Spanish clearing member. Already a member of LCH Limited’s Repoclear service, by extending its membership, Cecabank will also benefit from EquityClear’s access to 13 European equities trading venues, offering risk management across Spain and Europe.

First Scale IPO 2018: Subscription of STEMMER IMAGING AG launched on the Frankfurt Stock Exchange; Trading start planned for February 27; Subscription function DirectPlace supports the placement of shares
Deutsche Börse Group
The share subscription for the IPO of STEMMER IMAGING AG (ISIN: DE000A2G9MZ9) on the Frankfurt Stock Exchange has started today and is expected to continue until 22nd February. The first trading day of STEMMER is scheduled for February 27th. Following the launch of the 2018 IPO season last Friday, this marks the first IPO in the Scale segment for small and medium-sized companies .

MSCI offering expanded to include exposure to Korea
January saw Eurex MSCI products get off to a great start in 2018. Due to the advancing roll period, open interest in many established products and several new ones have gained traction, most notably in the MSCI U.S. products.

Thomson Reuters hits FX record following MTF MiFID II upgrade; Thomson Reuters upgraded its FX platforms to ensure MiFID II compliance last year.
By Hayley McDowell – The Trade
Foreign exchange (FX) trading at Thomson Reuters saw record volumes in January following several enhancements to its multilateral trading facility (MTF) last year.

HKEX Announces Incentive Scheme for its Stock Futures
Hong Kong Exchanges and Clearing Limited (HKEX) today (Wednesday) announced an incentive programme for its stock futures that will take effect on Thursday, 1 March 2018.

Cboe Global Markets’ Exchanges Trading Schedule for Presidents’ Day Holiday
Cboe Global Markets, Inc. (Cboe: CBOE | Nasdaq: CBOE), one of the world’s largest exchange holding companies, today announced the following trading schedule for the company’s options, futures, equities and FX trading venues in observance of the Presidents’ Day holiday.

Presidents’ Day Holiday Trading Hours
OneChicago, LLC (“OneChicago”) will be closed on Monday, February 19, 2018 in observance of the upcoming Presidents’ Day Holiday, which is consistent with U.S. equity markets. OneChicago will be open on Tuesday, February 20, 2018.

Nadex takes action against two members over “spread squeeze”
Finance Feeds
Effective February 12, 2018, Allen Epstein and Matthew Harford are suspended from engaging in trading activity for 5 and 12 days, respectively.

NSEL case: Sebi to probe regulatory aspects relating to 5 brokers; Sebi whole-time member named in-charge of the NSEL probe against the five brokers, another to look into admin aspects such as whether the brokers should continue to hold commodity broking licence
Jayshree P. Upadhyay – Livemint
The Securities and Exchange Board of India (Sebi) has decided that two of its whole-time members would look into the regulatory aspects relating to five brokers being probed for allegedly misselling products of the National Spot Exchange Ltd (NSEL), two people aware of the matter said.

Agriculture and Energy Margins – Effective February 14, 2018
CME Group

KC Wheat and Mini-Sized KC Wheat Shipping Certificate Conversion: Effective: February 13, 2018
CME Group


GreenKey “Voice-Enables” Wall Street Via OpenFin; Creates First Industry Standard for Voice Applications
GreenKey Technologies
GreenKey Technologies, creator of patented voice software with integrated speech recognition designed for the financial markets, today announced that the firm will release its voice API through OpenFin’s plugin architecture. OpenFin is the secure desktop operating system used by 45 of the world’s largest banks, buy-side and trading platforms. The move brings the voice software to potentially thousands of new users at hundreds of firms and creates the first industry standard for adding voice to a firm’s applications.

The Forbes Fintech 50 For 2018
Janet Novack – Forbes
While crypto hogs the headlines, technology is disrupting the $8.5 trillion (market cap) U.S. financial services industry in less flashy ways, changing how we invest, borrow and save; how big banks control risk; and how hedge funds analyze data and place their bets. Worldwide, $27.4 billion poured into fintech startups in 2017, Accenture reports, up 18% from 2016. With so much in play, it’s not surprising that 22 companies are new on this, the third edition of our list.

Artificial Intelligence, Machine Learning, and Deep Learning: A Primer
Larry Cao – CFA Institute Enterprising Investor
We are witnessing the beginning of the artificial intelligence (AI) era.
The computer program AlphaGo defeated the world’s top player in the complex Chinese board game of Go for the last time in May 2017. The program had run out of human competition. So its developers designed AlphaGo Zero to simply play against itself without the aid of any historical game data. AlphaGo Zero taught itself how to beat all versions of AlphaGo in 40 days.

Maybe it’s time we ditched fintech and Open Banking for something that makes sense to consumers
Lynsey Barber – City AM
No one orders their weekly food shop on Amazon Prime with cries of “oh, I’m just going to do some e-commerce now”. It’s just shopping.

Meet cryptocurrency guru George Weiksner—he’s 11; From an old-money enclave in Connecticut, this sixth-grader is making his way in a new-money realm
Aaron Hankin and Tom Teodorczuk – MarketWatch
George Weiksner lives in Old Greenwich, Conn. He attends Greenwich Country Day School. And, from there, his story—more than likely—diverges from those of his classmates.

The Pulse of Fintech – Q4 2017; Quarterly analysis of global investment trends in the fintech sector.
Given the significant interest in fintech globally, and its ongoing evolution in terms of market drivers, technologies and potential use-cases, KPMG brings you the pulse of fintech investment globally. In this publication, we highlight key fintech deals, issues and challenges seen around the world, in addition to key trends and insights related to fintech in key regions, including the Americas, the US, Asia and Europe.

Litecoin creator says the upcoming fork is scam
Chris Smith – BGR News via Yahoo Finance
Most people have absolutely no idea what Litecoin is, or that the sixth cryptocurrency of the world by market cap is about to get a fork of its own much like Bitcoin did last year. Some of those who are aware of Litecoin probably know that Litecoin Cash is coming soon, “sold” as a faster version of Litecoin when it comes to transaction times.

Microsoft Just Hinted at Support for Bitcoin Over Crypto-Forks
Mike Brown- Inverse via Yahoo News
Microsoft has waded into the cryptocurrency debate. The tech giant, which supports Bitcoin for its online store, released a blog post on Monday detailing its plans to develop decentralized identity systems using the blockchain. Perhaps most telling, though, is the team’s implication that sticking with the original Bitcoin may prove a better solution than splitting away — or “forking” — to create new cryptocurrencies.

Opinion: MIT-led team is aiming to build a better cryptocurrency; Digital Tradecoin would pick up where bitcoin, ethereum and others fall short
Sandy Pentland – MarketWatch
New technologies that make it possible to reinvent our financial system have exploded over the past decade.


Commentary: Trump’s Infrastructure Plan Is a Scam
Lindsay Koshgarian – Fortune
President Donald Trump claims that a $200 billion investment by the federal government will lead to nearly $1.5 trillion in new infrastructure spending—when it’s leveraged in the private sector over 10 years. That’s the gist of the long-promised “plan” he released on Feb. 12. But as we’ve seen before, when the president makes big plans and claims that someone else will pay, he’s scamming us.

Trump’s Biggest Potential Conflict Of Interest Is Hiding In Plain Sight
Dan Alexander – FORBES
The largest American office of China’s largest bank sits on the 20th floor of Trump Tower, six levels below the desk where Donald Trump built an empire and wrested a presidency. It’s hard to get a glimpse inside. There do not appear to be any public photos of the office, the bank doesn’t welcome visitors, and a man guards the elevators downstairs–one of the perks of forking over an estimated $2 million a year for the space.

White House Considering Cleveland Fed President Mester for Fed’s No. 2 Job; Richard Clarida, John Williams and Mohamed El-Erian also have been interviewed for the Fed vice chairman post
Nick Timiraos – WSJ
The White House is considering nominating Loretta Mester, the president of the Federal Reserve Bank of Cleveland, as vice chairwoman of the Federal Reserve Board in Washington, according to people familiar with the matter.


The Spanish Connection – Consequences of a macroprudential regulation in Spain on Mexico
Jagdish Tripathy – Bank Underground
Does macroprudential regulation spillover to foreign financial systems through inter-bank linkages? This question has received a lot of attention in recent years given the discord between the international nature of the global financial system and its regulation and supervision by national jurisdictions (e.g. this article). For example, subsidiaries of Spanish banks issue almost half of all credit issued by commercial banks in Mexico. These subsidiaries are also fully owned by their parent banks headquartered in Spain. Therefore, it is quite natural to ask whether macroprudential regulations in Spain can have unintended consequences on the Mexican financial system and the Mexican economy in general. While Mexican subsidiaries of Spanish banks are de-jure ring-fenced from regulations in Spain, does this hold de-facto?

US watchdog probes possible manipulation of volatility index; Finra to look into whether traders have tried to influence derivatives prices
Robin Wigglesworth and Nicole Bullock in New York – FT
A Wall Street watchdog is exploring whether the Vix index has been manipulated, intensifying the concerns over the US volatility benchmark that was blamed for exacerbating last week’s stock market turmoil.

Stock Market ‘Fear Index’ Faces Probe; Financial Industry Regulatory Authority looking into whether bets were placed on S&P 500 options to influence VIX futures
Gunjan Banerji – WSJ
A U.S. regulator is looking into whether prices linked to the stock market’s widely watched “fear index” have been manipulated, according to people with knowledge of the matter.

ASIC welcomes establishment of the Australian Financial Complaints Authority
ASIC welcomes the passage through Parliament of the Bill to establish the Australian Financial Complaints Authority (AFCA).

Warning over shadow shop scam impersonating ASIC
ASIC warns the public to be wary of a scam where cold callers are claiming to be undertaking a ‘shadow shop’ on behalf of ASIC. A shadow shop is where real consumers are recruited to purchase services such as financial advice to help assess the standards in the market.

2018 West Region Networking Seminar
The FINRA West Region Networking Seminar is a half-day event designed to provide financial professionals associated with FINRA member firms in the West Region the opportunity to engage in key discussions with FINRA staff, and connect with industry leaders and peers. The seminar also includes thoughtful discussions around the future landscape of the financial services industry, and the opportunity to meet one-on-one with FINRA Regulatory Coordinators, and Surveillance and District Directors to discuss firm-specific questions.

West Region Networking Seminar Agenda
The West Region Networking Seminar is a half-day event designed to provide financial professionals associated with FINRA member firms in the West Region the opportunity to engage in key discussions with FINRA staff, and connect with industry leaders and peers. The seminar also includes thoughtful discussions around the future landscape of the financial services industry, and the opportunity to meet one-on-one with FINRA l Regulatory Coordinators, Surveillance and District Directors to discuss firm-specific issues.

Holiday Reminder Regarding TRACE Market Data
In observance of President’s Day, the TRACE system will be closed on Monday, February 19, 2018. As stated in the data feed interface specifications, FINRA may send out unmarked test data via its data feeds on market holidays. Direct data feed subscribers, including recipients of TRACE data via the Bond Trading Dissemination Service (BTDS), Agency Trading Dissemination Service (ATDS), Structured Products Dissemination Services (SPDS) and/or 144A Trade Dissemination Services (144A) feed(s) should take the necessary precautions to prevent data corruption.

SEC to Hold National Compliance Outreach Seminar for Investment Companies and Investment Advisers
The Securities and Exchange Commission today announced the opening of registration for its compliance outreach program’s national seminar for investment companies and investment advisers. The event is intended to help Chief Compliance Officers (CCOs) and other senior personnel at investment companies and investment advisory firms to enhance their compliance programs for the protection of investors.

FCA has ‘ambitious’ plan to fight insider dealing; The Financial Conduct Authority’s enforcement boss Mark Steward pushes back against outsized estimates of market abuse
Lucy McNulty – Financial News
Dump the burner phone: the UK’s enforcer-in-chief has set insider traders in his sights this year.

FCA and PRA appoint new Chair of the FSCS
The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) today announce the appointment of Marshall Bailey as Chair of the Financial Services Compensation Scheme Ltd (FSCS) with effect from 1 April 2018. The appointment was made by the FCA Board and the Prudential Regulation Committee (PRC) with the approval of HM Treasury. Marshall Bailey succeeds Lawrence Churchill who is stepping down after two successful terms as Chair.

U.S. regulators probe Credit Suisse hiring in Asia
Reuters Staff
U.S. authorities are investigating whether Credit Suisse hired referrals from government agencies and state entities in Asia in exchange for investment banking business and regulatory approvals, the Swiss bank said on Wednesday.

Investing and Trading

Precious Metals Markets Are Bouncing Back
Peter Shadbolt – CME Group OpenMarkets
As one of the oldest transferable stores of value, gold, silver and other precious metals have always had their place as alternative assets, rising largely when other asset classes have exhausted their potential.
This year, however, everything is different.

Credit Suisse CEO Says Note That Crashed Meant for Hedge Funds
Patrick Winters – Bloomberg
Credit Suisse Group AG Chief Executive Officer Tidjane Thiam said an exchange-traded note tied to volatility that lost most of its value last week is a tool created for hedge funds and professionals.

Bitcoin Industry Grapples With Age-Old Problem of Inheritance; A U.S. man has spent years trying to untangle the legal mess he found himself in after his 26-year-old son, an early miner of Bitcoins, died in a plane crash
Nate Lanxon – Bloomberg
Five years ago, Matthew Moody was killed during an observational flight when the two-seater plane he was in crashed flying over a canyon in Chico, California.

Does More “Skin in the Game” Mitigate Bank Risk-Taking?
Haelim Anderson, Daniel Barth, and Dong Beom Choi – NY Federal Reserve
It is widely said that a lack of “skin in the game” would distort lenders’ incentives and cause a moral hazard problem, that is, excessive risk-taking. If so, does more skin in the game—in the form of extended liability—reduce bankers’ risk-taking? In order to examine this question, we investigate historical data prior to the Great Depression, when bank owners’ liability for losses in the event of bank failure differed by state and primary regulator. This post describes our preliminary findings.

Short Sellers’ Favorite Stock Bets Backfire
Lu Wang – Bloomberg
Goldman Sachs’ basket of most-shorted stocks rallies 0.9%; Under Armour and Fossil jump as results beat expectations
Under Armour Sales Surge 47% Outside North America
Short sellers just got burned, badly. Under Armour Inc., the second-most targeted by short sellers among S&P 500 stocks, surged 17 percent Tuesday for the best performance in the benchmark index.

Tensions over junk bond covenants start to boil over; Asset managers worry safeguards are being eroded, leaving them more exposed to losses
Robert Smith – FT
When European bond investors tired of private equity firms and the law firms they employ watering down key protections in junk-rated debt, they turned to the Association for Financial Markets in Europe.


Credit Suisse Posts Third-Straight Loss but Says Strategy Is Working; Chief Executive Tidjane Thiam says ‘our strategy is working’ as it enters the final year of a three-year restructuring plan
Brian Blackstone – WSJ
Credit Suisse Group AG posted its third-straight annual loss Wednesday as the U.S. corporate tax overhaul forced the Swiss banking giant to write down over $2 billion in deferred-tax assets.

Market volatility boosts revenue at Credit Suisse; Swiss bank says it is already enjoying better trading after tough fourth quarter
Laura Noonan, Investment Banking Correspondent – FT
Credit Suisse’s revenue from markets rebounded by more than 10 per cent in the first six weeks of the year, offering the strongest evidence yet that the recent resurgence in volatility could lift investment banks out of a trading slump.

New Hedge-Fund Tax Dodge Triggers Wild Rush Back Into Delaware
Miles Weiss – Bloomberg
Firms set up LLCs in plan to avoid carried-interest change; Congress may have stumbled in narrowing loophole for managers
Wall Street’s fast-money crowd is returning to well-trodden ground to elude Trump-era tax laws: Delaware.

Credit Suisse Says Bonus-Pool Increase to Be Smaller for 2017
Jan-Henrik Foerster, Patrick Winters – Bloomberg
A pedestrian walks by a Credit Suisse Group AG bank branch in Geneva, Switzerland, on Monday, Jan. 15, 2018. Photographer: Stefan Wermuth/Bloomberg
Credit Suisse AG’s bonus pool increased at a slower pace in 2017 than a year before, showing that the bank remains cautious about spending as its restructuring continues.

Goldman’s Buyback Desk Was Deluged With Orders as Stocks Plunged
Sarah Ponczek, Lu Wang – Bloomberg
Repurchases surged to 4.5 times last year’s average amid rout, Demand is poised to pick up as earnings-related blackout ends
The Goldman Sachs Group Inc. unit that executes share buybacks for clients just had its busiest week ever, but even that couldn’t keep stocks from flopping into a correction.

HSBC becomes first international bank allowed to remit yuan to China; The move is one of several indications that internationalisation of the Chinese currency is picking up pace again
Alun John – South China Morning Post
HSBC said on Wednesday that it had helped a Chinese national remit yuan from Australia back to mainland China, the first international bank to do so since a rule change in January.

Mirae Asset snaps up $10bn ETF provider Global X
Robin Wigglesworth – FT
Mirae Asset Global Investments has snapped up Global X, a $10bn exchange-traded fund provider that is partly owned by JPMorgan, in another example of how asset management companies are moving into and consolidating the fast-expanding industry.


Pea Boom Goes Bust as Canada Farmers Ditch Pulses for Canola
Jen Skerritt – Bloomberg
Pea sowings forecast at seven-year low as lentil acres drop; Farmers plan to seed more canola amid better price performance
Just a few years ago it seemed like Canada’s farmers couldn’t get peas into the ground fast enough, but they’re now falling out of favor.

$1.8 Billion Fraud May Spread From One of India’s Biggest Banks
Anto Antony – Bloomberg
Punjab National Bank detects fraud at single Mumbai branch; PNB shares plummet in Mumbai by most since August 2015
India’s second-biggest state-run bank said it has detected a $1.8 billion fraud at a single branch in the nation’s financial hub, the impact of which could extend to other lenders as well. Its shares plunged.

Crypto Trading Ban Downplayed by South Korea After Backlash
Sam Kim, Kanga Kong – Bloomberg
Government responds after petition on president’s website; Regulators the world over are grappling with cryptocurrencies
South Korea’s government gave the strongest signal yet that it will allow cryptocurrency exchanges to keep operating in the country, a welcome development for traders who had feared an outright ban in one of the world’s biggest markets for digital assets.

Authorities crack down on ‘Goldfinger’ tax evasion; A tax loophole involving gold sales may have cost Germany billions. Now the law is cracking down hard, with tax lawyers and investors facing prosecution following spectacular police raids.
Sönke Iwersen, Volker Votsmeier, Jan Hildebrand – Handelsblatt
No, this is not an article about the James Bond movie, but the details would sure make a good Hollywood script. A notorious tax trick that’s become known as “Goldfinger” may have been far bigger than first assumed. The tax dodge, which used fake gold-trading companies to avoid tax, has prompted massive police raids in recent weeks. Prosecution documents seen by Handelsblatt suggest it involved many tax lawyers and hundreds of clients, and ultimately cost German taxpayers billions of euros.

Punjab National Bank hit by $1.8bn in fraudulent transactions
Simon Mundy in Mumbai – Ft
Shares in Punjab National Bank, one of India’s largest lenders, have fallen more than 4 per cent after it announced the detection of fraudulent transactions worth $1.77bn.


Boris Johnson to Warn U.K. Against Reversing Brexit
Stephen Castle – NY Times
Britain’s Foreign Secretary, Boris Johnson, was expected to argue on Wednesday that Britain’s looming departure from the European Union provides grounds not for “fear but hope,” and to warn critics that efforts to reverse the process would be a “disastrous mistake.”

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