First Impressions

AFX Bell Ringing

American Financial Exchange (AFX) Goes Live

The American Financial Exchange went live at 8:30 am on Friday at a special bell ringing ceremony at the Chicago Board Options Exchange

The market, created by Dr. Richard Sandor and operated by the CBOE, is designed to allow small and midsized banks to lend and borrow short-term funds. Six banks have already signed up to participate.

JLN interviewed Dr. Sandor back in September and he spoke about the AFX in a video, which you can see here.

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New Captain: SGX’s Boon Chye Navigates Tough Asian Markets
Jim Kharouf – JLN

Loh Boon Chye took the reins as CEO of Singapore Exchanges (SGX) in July. A former SGX board member and Bank of America Merrill Lynch’s deputy president and head of global markets in Asia Pacific, he said there is much opportunity for the exchange to grow, and perhaps even benefit from the competition that has moved in around him from ICE and others. Boon Chye spoke at SGX’s headquarters with JLN Editor-in-Chief Jim Kharouf about his management style, the game plan for the exchange going forward and just where SGX fits in the global market landscape.

Q: You took the CEO position in July at SGX. How did you go about setting your priorities as a CEO and for SGX?

A: My philosophy is, you have to listen first, then you have to engage, observe, take feedback. I know some CEOs like to come out with a grand plan after 90 days, but frankly with any new CEO in any organization, how much can you know in 90 days? No doubt I had the benefit of being on the board, but that is different than being in management. So I took the time to listen, engage and interact, not just internally but externally with stakeholders.

Read the rest of Kharouf’s interview with Loh Boon Chye at JohnLothianNews.com

Quote of the Day

“I don’t think that we are going to have that warm and fuzzy feeling” after the Fed hikes rates for the first time.

Michael Temple, portfolio manager at Pioneer Investments in the story, “Big investors going short on the short end to play Fed hike”

Lead Stories

A History of Money: Why Very Low Interest Rates May Stick Around
NY Times
The Federal Reserve will most likely raise interest rates this week for the first time in nearly a decade. To understand what it means — and doesn’t mean — consider a previous year in which interest rates were on the rise.
nyti.ms/1P3dMwz

Regulators to Wall Street Banks: Rescue Yourselves Next Time
Jesse Hamilton – Bloomberg
OCC wants recovery maps from firms above $50 billion in assets
Agency head says proposal to lay out enforceable guidelines
After Wall Street has spent years trying to convincing regulators how they could collapse without disrupting the financial system, the largest U.S. banks will soon have to take the additional step of showing how they can keep from failing in the first place.
bloom.bg/1SWPrb1

How to Stop Turning U.S. Corporations Into Tax Exiles
NY Times
THE Pfizer-Allergan deal is a travesty. Pfizer, which is based in New York, will move overseas by merging with Allergan, based in Ireland, in a maneuver known as a corporate inversion. The point isn’t to find corporate synergy. It is to leave behind our uncompetitive international tax system.
Not only is this the largest inversion in history, but it will also open the floodgates for other companies to leave the United States, further eroding our tax base, damaging our economy and costing many thousands of jobs.
nyti.ms/1P3eM3O

Big investors going short on the short end to play Fed hike
Reuters
Top bond investors favor long-dated U.S. Treasury bonds over short-dated notes, using short positions in Eurodollar futures and short-dated Treasuries in anticipation that anxiety over the Fed’s path will dominate market action in the coming year.
reut.rs/1P3gcv0

Junk-Bond Fund’s Demise Highlights SEC Mutual-Fund Worries
Andrew Ackerman – WSJ
The demise of a Third Avenue Management LLC junk-bond fund last week underscores financial regulators’ concerns about risks in mutual funds and highlights Washington’s urgency in trying to address those worries.
on.wsj.com/1P0Dv6Y

Junk Bonds Resume Sharp Selloff
WSJ
The U.S. junk-bond rout deepened Monday, with the bonds of dozens of low-rated companies falling anew and the shares of some large fund-management firms tumbling as well.
on.wsj.com/1P3giD3

Giving Bondholders a Vote in Debt Restructuring
Dealbook – NY Times
Congress is poised to retroactively validate hardball restructuring tactics in the bond market that courts have struck down in major reorganization cases like that of Caesars Entertainment.
nyti.ms/1P3ewBP

Bond Rout Stokes Debate Over Regulation-Driven Liquidity Drought
Ryan Tracy – WSJ
The volatility in junk bond markets spreading across the financial system intensifies a debate already raging between Wall Street and Washington: have post-financial crisis restrictions actually made markets less safe, by curbing the ability of banks to help absorb shocks?
on.wsj.com/1I1CfRy

As interest rates dip in Europe and rise in America, what next for the pound?
The Economist
ON DECEMBER 3rd the European Central Bank (ECB), which looks after the euro zone, pushed one of its interest rates deeper into negative territory. On December 16th America’s Federal Reserve is expected to go the other way, raising interest rates for the first time since 2006 (see article). The diverging policies in Britain’s two main markets mean that the pound now finds itself being tugged in opposite directions.
econ.st/1OlXrOE

Wall Street veterans say rate-hike past is not prologue for markets
Reuters
It has only been six years since the U.S. stock market rout brought on by the financial crisis, but as far as Deena Katz’s clients are concerned, that might as well be ancient history.
“People have a thirty-second memory,” said Katz, 65, co-chairman at Evensky & Katz/Foldes Financial Wealth Management. “We’re used to an instant turnaround.”
reut.rs/1P3fNsy

Citic Short-Selling Offer to Funds Led Police to Its Door
Bloomberg News
Investigation First Focused on Shorting Method for Foreigners
“Looks from the outside like an unfair and arbitrary search”
The fall from grace for China’s biggest brokerage and investment bank, Citic Securities Co., has been fast and steep. The firm — sometimes referred to as the Goldman Sachs of China — began the year on its way to eclipsing UBS Group AG in the ranks of the top four securities firms in the world.
bloom.bg/1jY67CM

Thousands more bank jobs under threat
Laura Noonan and Martin Arnold – Financial Times
Big banks in Europe and the US announced almost 100,000 new job cuts this year, and thousands more are expected from BNP Paribas and Barclays early next year, as the wave of lay-offs that began in 2007 shows no sign of abating. The 2015 cuts — which exclude the impact of major asset sales — amount to more than 10 per cent of the total workforce across the 11 large European and US banks that announced fresh lay-offs, according to analysis by the Financial Times.
on.ft.com/1Uo1mQ7

Scaled-Back Bank Safety Rule Sets Up Regulator Clash With Sen. Warren; Banks lobbied to water down requirement of cash cushion against risk of some trades
By ANDREW ACKERMAN – WSJ
U.S. regulators are set to hand large banks a significant victory next week, following the industry’s request to water down a rule requiring firms to set aside cash as a cushion against the risk of certain trades going bad, according to people familiar with the matter.
on.wsj.com/1P0DnnU

Assured Guaranty says disappointed in Treasury remarks on Puerto Rico
Reuters
Bond insurer Assured Guaranty said in a letter to U.S. Treasury Counselor Antonio Weiss that it is disappointed with the Treasury’s view that Puerto Rico requires a federal restructuring regime, as it ignores the impact on bondholders.
reut.rs/1P3fU7y

Massachusetts probes whether failed junk fund treated investors equally
Reuters
Massachusetts’ top securities regulator, William Galvin, said on Monday he is investigating whether some investors in Third Avenue Focused Credit Fund knew before others about the decision to close the junk bond fund.
reut.rs/1P3g1zW

Citibank and HSBS are struggling to meet new regulations on banks based outside of the European Economic Area
by Billy Bambrough – City AM
High street banks in the UK that are based outside of the European Economic Area are rushing to comply with new regulations that could leave senior bankers based abroad to be held accountable for failings in branches.
bit.ly/1McJpgB

Junk Bond Fund’s Chief Departs After Blocking Withdrawals
Dealbook – NY Times
Third Avenue Management, which rattled markets last week after blocking investor withdrawals from a junk bond fund, announced a management shake up on Monday.
nyti.ms/1P3f8aG

Central Banks

Proposed Move on Fed Dividend Is Troubling
Dealbook – NY Times
The Federal Reserve Board has not had to worry much in the past about invasive legislation from Congress. The current highway bill, however, represents the culmination of a change in the political risk the agency faces.
The bill exemplifies a new trend of legislative hostility toward the agency, which has expressed itself in Republican-sponsored bills calling for audits of the central bank, efforts to limit the Fed’s discretion in setting monetary policy and even calls for its dissolution.
nyti.ms/1P3dVQD

In praise of post-financial crisis paranoia
Rupert Harrison – Financial Times
It is tempting to declare that the crisis is over. The Bank of England reckons “the financial system has moved out of the post-crisis period” — and for some commentators the Autumn Statement delivered last month by George Osborne, chancellor, marked the end of austerity. Real wages are, finally, rising at a healthy clip. On a list of voters’ main concerns, the economy has dropped almost out of sight.
on.ft.com/1UnZZRr

Fed weighs merits of jumbo portfolio in post-crisis era
Reuters
Once the Federal Reserve lifts interest rates from near zero, likely this week, the focus will turn to the other legacy of the crisis-era policies: the Fed’s swollen balance sheet.
The prevailing view is that the U.S. central bank’s $4.5 trillion portfolio, vastly expanded by bond purchases aimed at stimulating the economy, will have to shrink once rates are on their way up, and the Fed will just need to decide how quickly.
reut.rs/1P3fwGa

Misbehaving Markets Seen No Barrier This Time to Unstoppable Fed
Jonathan Burgos – Bloomberg
Once again, the Federal Reserve is about to make a historic interest-rate decision against a backdrop of rising equity volatility, tumbling commodity prices and jitters in credit markets. This time, investors expect policy makers to pull the trigger.
bloom.bg/1O4Hxy5

No Limit to Tools ECB Can Use to Bring Inflation Back to Target, Draghi Says
WSJ
There is no limit to the tools the European Central Bank can use to bring inflation back to target, its president said Monday, in a further effort to assure markets that the central bank would be prepared to pull out all the stops to push up price pressures in the currency bloc.
on.wsj.com/1P3gTEG

Currencies

South Africa: 3 Finance Ministers in 1 Week Hits Currency
ABC News
In less than a week, South Africa has had three finance ministers.
Last Wednesday, Nhlanhla Nene was fired. On Thursday, David van Rooyen was sworn in. By Sunday, van Rooyen was out and Pravin Gordhan returned to the post he held previously. The rapid succession of finance minister caused the South Africa’s currency to plummet.
abcn.ws/1P3hiHf

How China Can Prevent a Currency War
WSJ
The Chinese yuan hit a four-year low last week against the U.S. dollar, stoking concerns that a devaluation could add to global deflationary pressures. With emerging-market growth rates and commodity price levels falling precipitously, China’s exchange-rate plans are quickly becoming a main source of uncertainty.
on.wsj.com/1P3hFS3

Dollar eases as market volatility seen limiting U.S. rate hikes
Reuters
The dollar edged lower against major currencies on Monday on worries that heightened market volatility caused by an oil price slump and turmoil in credit markets could limit the number of U.S. interest rate hikes and dampen the greenback’s allure.
The dollar index has been down 2.5 percent so far this month, much of it due to profit-taking as investors have fully priced in the first U.S. interest rate increase in nine years.
reut.rs/1P3hK8x

Broken Bond Markets Drive Aussie Fund Manager to Currency Trades
Bloomberg
One of Australia’s largest fund managers says broken bond markets have driven it to try active currency trading as it seeks assets that better reflect economic and policy shifts.
QIC Ltd. began seeking to profit from exchange-rate strategies for the first time this month in its fixed-income funds, where it oversees about $23 billion. The money manager, which will trade seven major currencies, expects the Australian dollar to drop at least 2.8 percent to below 70 U.S. cents over the next three months while the yen will climb to about 118 per dollar.
bloom.bg/1P3hLsV

RBI denies rumours of currency notes with scribbles being refused from January 1
Economic Times
The Reserve Bank of India has refuted speculations floating on social media that banks will not accept currency notes with scribbling on them from January 1, next year.
bit.ly/1P3hS80

Canada’s Morneau says currency to face further pressure
Reuters
Canada’s weakening currency will probably face further pressure from persistently low commodity prices that also complicate the country’s fiscal situation, the country’s finance minister said on Monday.
reut.rs/1P3hVk2

Bitcoin’s central banker is yesterday’s man
Stephen Foley – FT
Cryptocurrencies have moved on — whether or not Satoshi has been found, writes Stephen Foley
on.ft.com/1O4KgaN

GOLDMAN SACHS: ‘The Blockchain can change… well everything’
Business Insider
Goldman Sachs is a big bull on blockchain, the distributed ledger software that underpins digital currency bitcoin.
In an “Emerging Theme Radar” note sent to clients on Wednesday, the bank says: “While the Bitcoin hype cycle has gone quiet, Silicon Valley and Wall Street are betting that the underlying technology behind it, the Blockchain, can change… well everything.”
read.bi/1P3dB4l

Indexes & Index Products

Korean Won Drops to Two-Month Low After China Unveils Yuan Index
Bloomberg
South Korea’s won fell to the lowest in more than two months on speculation China will allow the yuan to weaken after policy makers unveiled a measure that valued it against a broad range of currencies.
bloom.bg/1P3iaeR

Leveraged ETFs Face SEC Squeeze in Plan to Rein in Derivatives
David Michaels – Bloomberg
Regulator’s proposal would cap fund leverage at 150% of assets
Chair White says she’s concerned current rules now outdated
U.S. regulators have declared war on the $32 billion leveraged ETF industry.
bloom.bg/1YeNMPn

Asia Index launches four new S&P BSE India indexes
Reuters
Asia Index Pvt Ltd, a joint venture between S&P Dow Jones and BSE Ltd, launched four new indexes, including a low volatility one, just days ahead of the U.S. Federal Reserve’s policy meeting later in the week.
reut.rs/1P3i7Qf

Gold

Billions in gold tax evaded in Chinese invoice scam: CCTV
South China Morning Post
A Shenzhen company used loopholes in bullion trading to help it and downstream companies evade billions of yuan in taxes, state television reported yesterday.
bit.ly/1OsyL7h

Out of Rand Crisis, Opportunity for World’s Costliest Gold Mines
Bloomberg
Zuma’s decision to fire respected Finance Minister Nhlanhla Nene drove the rand to a record low, instantly reducing labor and other costs in the local currency for mining companies, relative to the U.S. dollars they earn by selling gold.
bloom.bg/1Osz1TO

World’s First Gold-Dispensing ATM
Atlas Obscura
Based on the notion that flowers are “more expensive[…] They wilt and you (as a man) don’t get as many points at home as if you bring gold,” the German company TG Gold-Super-Markt began providing the public a service for which it clamored: ATMs dispensing funds in cold, hard bullion in place of cash.
bit.ly/1OszdCA

Miscellaneous

Bitcoin just became the national currency of Atlantis (really)
City A.M.
No seriously, bear with us here…
Bitcoin just became the national currency of the tiny island Pontinha, a self-proclaimed country off the coast of Portugal.
The micronation, which is in the process of being renamed Atlantis after the mythical lost civilisation, has officially adopted bitcoin as its currency – making it “the first country in the world” to make bitcoin its official currency, as its prime minister Joby Weeks announced.
bit.ly/1P3i2vV

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