First Impressions

Trading Multiple Currencies
By Doug Ashburn
SGX has become the latest exchange to jump into the currency futures market, with the announcement yesterday that it will list six currency pairs, with more possibly on the way. Its first offerings will consist of U.S. dollars vs. the Singapore dollar, Australian dollar, Korean won and Indian rupee, plus Aussie/yen and won/yen. The pairs are set to launch November 11, and appear to have already passed regulatory scrutiny.

This is in sharp contrast to Eurex and CME Europe, which both announced new FX platforms, only to be pushed into holding patterns. CME Europe is still awaiting regulatory approval by the U.K. Financial Conduct Authority, which had questioned the resiliency of CME’s clearing infrastructure. Eurex, meanwhile, has delayed its launch pending a review of its settlement agreement with the third-party bank linking its clearing to CLS.

To have Singapore go from announcement to launch in such a short time, considering the typical snails-pace approval process at the Monetary Authority of Singapore (MAS), would be quite a feat indeed.

By the way, in the latest BIS triennial survey, Singapore edged out Japan to become the number three FX center in the world, behind London and New York.

Quote of the Day

“The pendulum has swung; financial services firms are no longer evaluated under relatively light touch regulation, and there is strong alignment be­tween regulators, public opinion and politicians that things need to be tightened up to prevent repeating the failures of the past.”

Chris Broyden, managing director at Alvarez & Marsal in FOW’s piece: “Banks’ business models: adapting to the market.”

Lead Stories

Banks’ business models: adapting to the market
Dan Barnes – FOW
Restructuring can take place on the balance sheet or at an operational level; there are compelling drivers for banks to do both right now. A higher cost of capital, lower margins and in­creased leverage ratios are all weighing on banks. In addition, authorities are mandating the restriction of some trading activities, or their functional separation from retail operations.
***DA: I tried to coin the term “un-deregulation,” but that sounds like restrictions on the use of Jockey shorts.

SGX launches Asian foreign exchange futures
Singapore Exchange (SGX) is introducing Asian foreign exchange (FX) futures for deliverable and non-deliverable Asian currencies from 11 November 2013. Futures contracts for six currency pairs, AUD/USD, AUD/JPY, USD/SGD, INR/USD, KRW/USD and KRW/JPY, will be launched initially.
**JK – Six currency pairs. Just one is Singapore dollar related. So typically Singaporean.

Nasdaq Glitch Prompts Trading Halt in Some Markets
By Kaitlyn Kiernan – WSJ
Nasdaq OMX Group Inc. experienced problems broadcasting the values of key stock-market indexes, including the Nasdaq 100 and Nasdaq Composite Indexes, prompting the exchange operator to halt trading in some markets.

Opportunity Knocks for an ATS in the Corporate Bond Market
Larry Tabb, Will Rhode – TABB Forum
The current OTC market structure revolves around dealer balance sheets and leverage, which today are under siege from regulators and are being scaled back by bank management. This is pushing the traditional capital-intensive and voice-based market toward electronic channels. While the existing electronic players are active, well used, and supported, many of the current structures revolve around existing dealer business models. That leaves the corporate bond market with unmet needs and significant challenges. The market is crying out for new alternatives to trade credit.
***DA: How about something from the buy-side? They are doing it in the equity market:

New U.S. trading platform, IEX, aims to disrupt market structure
IEX Group is the latest U.S. trading platform alongside 44 other alternative trading system (ATS) and 13 stock exchanges, but rather than try to blend into the current market structure, IEX says its goal is to disrupt it.

Overly Easy Monetary Policy Abets Bubble Creation, Economists Contend
Michael S. Derby – MoneyBeat – WSJ
Inappropriately easy central bank policy often contributes to asset market bubbles that will eventually pop and cause broader economic trouble, a new paper contends. The research, written by Rutgers University economics professors Michael Bordo and John Landon-Lane, offers a potential warning to central bank leaders around the world—including those at the U.S. Federal Reserve, Bank of Japan and Bank of England–as they press forward with some of the most aggressive monetary policies their institutions have ever seen.
***DA: In other news, scientists discover that the sun generally rises in the east and sets in the west.

Abenomics helped counteract Asia capital outflows-IMF
An increase in Japanese foreign direct investment and bank lending to Asia has helped counteract capital outflows triggered by expectations that the U.S. Federal Reserve will soon taper its asset-buying programme, the International Monetary Fund’s top official for Asia said on Tuesday.

Speaking in Banking Tongues
David Reilly – MoneyBeat – WSJ
Bank regulators often speak a language all their own, replete with a host of acronyms and jargon describing the nuances of different capital buffers. Even bank stress tests, a seemingly simple term, get dressed up as CCAR, or comprehensive capital analysis and review.
***JM: Maybe now when people get laid off from banks, they can be “down-equivalenced”.

Central Banks

Forward Folly
Richard Barley – MoneyBeat – WSJ
Is the Bank of England’s guidance, with its 7% unemployment threshold and its three knockout clauses – two based on the path of future inflation and one on whether monetary policy poses a risk to financial stability – too complicated?
***DA: I’m thinking that’s the whole point. Too much clarity would lock the central bank into a decision it may not wish to make.

India expected to raise interest rates, roll back rupee support
India’s central bank is expected to raise policy interest rates for the second time in as many months on Tuesday to fight stubbornly high inflation, while rolling back further emergency measures put in place recently to support the slumping rupee.
***DA: No easy way out of this mess.

Australia Central Bank Wary of Rising Currency
Australia’s central bank attempted to talk down the nation’s currency, showing that it regards a rebounding Aussie dollar as among the biggest threats to an economic recovery as a mining slowdown deepens.
***DA: I repeat. No easy way out.


Why the US continental saga tells us little about fiat currency
Izabella Kaminska | FT Alphaville
One more working paper form the NBER database that’s worth your time. It’s by Farley Grubb, from the University of Delaware, and considers the bearer bond characteristics of the continental dollar, hitherto believed to be a form of fiat currency.

Curse of euro lands ECB in tricky dilemma
Ralph Atkins in London –
What will reverse the euro’s rise? The question is preoccupying investors and eurozone politicians increasingly as Europe’s single currency ends the year on a clear upward trajectory.
***DA: The cure for high prices is always high prices.

Beware the FX carry trade
Peter Garnham – Euromoney magazine
Since the start of October, currency markets have shifted quickly to a pro-carry, low-volatility risk-on phase, with FX volatility falling to near historically low levels. In addition, equities have outperformed other asset classes, with option market pricing of risk looking complacently low to some.

Federal Court Orders Louis J. Giddens, Jr., Anthony W. Dutton, and Michael Gomez to Pay Combined Restitution and Penalties of over $400,000 for Foreign Exchange Currency Scheme
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) obtained a consent Order from the U.S. District Court for the Northern District of Georgia against Defendants Louis J. Giddens, Jr. of Fayetteville, Georgia, Anthony W. Dutton of Peachtree City, Georgia, and Michael Gomez of Valrico, Florida, requiring them to pay restitution to investors, respectively, of $29,759.49, $56,604.35, and $68,000 and to pay a civil monetary penalty of $100,000, $100,000, and $75,000, respectively. The court’s Order also imposes permanent trading and registration bans against them, and prohibits them from violating the anti-fraud provisions of the Commodity Exchange Act, as charged.

New UK Bitcoin exchange to bar US clients
Stephen Foley in New York –
A new Bitcoin exchange launching in London on Tuesday will bar customers from the US, citing diverging regulatory approaches to the experimental digital currency. Coinfloor, which is being pitched by its founders as a forum for high-frequency trading in Bitcoin, will open initially only to customers in the UK and the rest of Europe.
***DA: HFT and bitcoin. Pop some popcorn, honey. This will be fun to watch.

Indexes and Index Products

Gold ETF Work Seminar Jointly Held By Shenzhen Stock Exchange And Shanghai Gold Exchange
Gold ETF Work Seminar has been jointly held by Shenzhen Stock Exchange (SZSE) and Shanghai Gold Exchange (SGE) on October 25, 2013. As innovative fund products that cross both markets of securities and gold, Gold ETF elevate the operation standard of ETF products in China, and offer a good type of investment products for numerous gold investors in China.

Shenzhen Stock Exchange: Cyclical Sector And Defensive Sector Series Indices Issued

Moscow Exchange To Launch Transportation Index
The key constituents are to be Aeroflot, Fesco, NCSP, Transcontainer, and UTair, which are already included in the exchange”s Broad Market Index.

FTSE Launches New Shariah Developed Minimum Variance Index
The index series aims to deliver reduced index volatility through ethical and financial screening. The methodology for the FTSE Shariah Developed World Index has been designed to target a balanced index risk profile by overweighting stocks that reduce index volatility and underweighting stocks that increase index volatility.


Gold Fades From Investment Picture
Matt Day and Francesca Freeman –
The investor gold rush that propelled the precious metal to a dozen years of annual price gains is on the verge of ending with a whimper. Gold’s rise was powered initially by the introduction of financial products in the mid-2000s that made the metal more accessible to investors of all stripes. After the financial crisis, gains accelerated as investors snapped up gold amid fears that central banks’ easy-money policies would stoke inflation and diminish the value of paper currencies. Five years later, inflation remains subdued, dimming gold’s allure.
Plenty of inflation out there, just not in gold.

Dubai’s DGCX Plans to Launch Spot Gold Contracts Next Year; To Continue Exponential Growth
Arpan Mukherjee  – MoneyBeat – WSJ
Dubai has been a gold-trading center in the Middle East for decades, but the market’s size has increased exponentially in recent years as the trade has expanded from traditional “souks” to the Dubai Gold & Commodity Exchange.
***DA: Dubai appears to be well-positioned geographically, as a bridge between western money centers and Asian end users.

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