First Impressions

Options Industry Perspectives: Exchange Leaders Trade Viewpoints at OIC 2015
Sarah Rudolph – John Lothian News

At the Options Industry Conference this year, the exchange leaders panel directly followed a presentation by Andy Nybo, the head of derivatives at The Tabb Group, which offered a rather bleak look at the options industry. Total volume year-to-date was down 8.7 percent compared to a year earlier, bid-ask spreads have been getting wider, and options exchanges are finding it difficult to compete in a field of 12-going on-14 players.

Given that “dark cloud” the industry appears to be under, moderator John Lothian asked the panel what the industry could do to turn it around.

Exchange leaders agreed that the lack of liquidity was a big problem and that, as the ISE’s Boris Ilyevsky said, a major cause was that the current market structure does not incentivize active, liquid quoting.

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Quote of the Day

“The days of CDX indices being the only beta game in town are gone. There is real competition for the time, energy, and resources of the buy-side, and while the CDS side was to some extent living off of its legacy, hard work and effort has been put into creating viable alternatives.”

Peter Tchir, head of macro strategy at Brean Capital in the story, “Why Would Anyone Want to Restart the Credit Default Swaps Market?”

Lead Stories

Banks Prep Defense for Anti-Wall Street Campaigns; Senior executives from seven banks met on March 31 to discuss options
Top executives from the biggest U.S. banks, concerned about anti-Wall Street rhetoric already bubbling up on the 2016 campaign trail, are working to push back against the prevailing narrative that banks are bad.

China’s stock index futures unseat S&P to become world’s most traded
By Saikat Chatterjee. Reuters
Chinese stock index futures have surpassed S&P 500 futures in turnover to become the world’s most traded equity futures as global investors expanded their exposure to one of Asia’s top-performing markets.

Unpacking the Trans-Pacific Partnership Trade Deal
NY Times
Like a huge container ship pushing its way into port, the trade pact known as the Trans-Pacific Partnership is about to drop anchor in Washington. The document is weighty and secret, stretching to perhaps 30 chapters, and is still being negotiated after nearly 10 years of talks. It would set new terms for trade and business investment among the United States and 11 other Pacific Rim nations — a far-flung group with an annual gross domestic product of nearly $28 trillion that represents roughly 40 percent of global G.D.P. and one-third of world trade.

Banks plot to withdraw repo trading from London
Patrick Jenkins, Financial Editor, FT
Foreign banks operating from the City of London are plotting a managed retreat from operations that expose them to the UK bank levy, according to senior figures within the industry.

Treasury Demand No Longer Insatiable Going Into Refunding
The Treasury Department is finding that demand for U.S. government debt is no longer insatiable.
Bond prices are tumbling as the three-week selloff in global sovereign debt markets accelerates, pushing yields on 30-year U.S. bonds on Monday to the highest since November. That’s probably not a good omen as the Treasury prepares to sell $64 billion in notes and bonds the next three days.

Nangle: Everyone Is Looking in the Wrong Place for the Answer to Low Real Rates
Ben Bernanke and Larry Summers recently had a public discussion on global interest rates, which currently are exceptionally low, and whether or not secular stagnation—the idea that slow growth in the developed economies may be here to stay—is the culprit.
They proved unable to agree on either the cause of, or a solution to, current low real rates.

SEC’s Stein concerned evolving swaps-margin plan too lax
Neil Roland – MLex
Securities and Exchange Commissioner Kara Stein voiced apprehension that US and overseas regulators will require too few derivatives traders to post margin for uncleared transactions.

Choosing the Battlefield in S.E.C. Cases
Dealbook – NY Times
Lawyers are often accused of elevating procedure over substance, emphasizing the need to follow the rules over reaching the proper outcome in a case. In dealing with the Securities and Exchange Commission, the focus lately has been arguing about where an action is filed, on the theory that picking the forum can be half the battle.

China’s state firms cool on new derivatives power
Chastened by several high-profile calamities in the recent past, many of the state companies China has freed to trade overseas derivatives will be sitting on their hands, put off by the risks or a lack of expertise.
Last week China’s State-owned Assets Supervision and Administration Commission of the State Council (SASAC) said roughly 100 more companies could trade in overseas futures, swaps and options markets without prior approval, on top of the 31 state-owned firms previously authorised.

Why Would Anyone Want to Restart the Credit Default Swaps Market?
Last week, Bloomberg reported that BlackRock, the world’s biggest asset manager, is leading a push to revive a type of derivative known as the single-name credit default swap. Readers may remember that such CDSs were blamed for exacerbating the financial crisis of 2008. So why, one might ask, would anyone want to revive this particular corner of the credit market?
Here’s a rundown.

Bill Gross’s fund draws low cash inflow, returns lagging
The Janus Global Unconstrained Bond Fund, overseen by widely followed investor Bill Gross, attracted just $58.6 million in net new cash in April, and posted below-average returns, according to Morningstar data on Monday.
The fund, which had assets of $1.5 billion at the end of April, was down 0.39 percent year-to-date as of Friday, underperforming its peer category by 1.83 percentage points for that period, Morningstar said.

A Former Pessimist on Why the Bull Market Isn’t Dead Yet
Are fears about the stock market’s valuation justified or is the market climbing a wall of worry? If it was a burning question back in December 2012, when Richard Bernstein, a former chief investment strategist at Merrill Lynch and now strategist at his eponymous advisory business, issued his well-known report with his answer, it’s a raging conflagration today.

Wealth Adviser: Not Different This Time. Not the Same, Either.
by Kevin Noblet, WSJ
Yes, it is dangerous to presume after stocks have soared that some fundamental, historical shift has taken place and that the market won’t fall. But, even though it is wrong to assert “it’s different this time,” it is just as important to consider how some things have changed, columnist Morgan Housel says. Writing in The Wall Street Journal, he gives examples: How companies in recent decades have paid less out in dividends, preferring to use more of their profits for acquisitions and stock buybacks. And how growth in the thirty-something population may be a bullish sign for stocks. Acknowledging these changes can help save investors from making foolish moves, Mr. Housel notes, “such as selling all your stocks because prices might fall.”

Ex-Goldman trader Lim’s hedge fund assets hit $500 mln – sources
May 11 Guard Capital, a macro hedge fund led by two former top traders at Goldman Sachs and Noble Group will stop taking money from new investors from July 1 after a more than ten-fold increase in assets since its launch last August, sources said.

Central Banks

Fed said to have debt ceiling plan involving market interventions
The Federal Reserve could intervene in financial markets to smooth out volatility sparked by political wrangling over the federal government’s debt ceiling, according to a former congressional aide who cited central bank documents.

Bank of England Holds Rates Steady
NY Times
The British central bank said on Monday that it would maintain its benchmark interest rate at 0.5 percent, the level since March 2009, as the markets digest the implications of the Conservative Party’s election victory last week.

I.M.F. and Central Bank Loom Large Over Greece’s Debt Talks
Dealbook – NY Times
Greek leaders have fought fiercely in recent months with politicians from other European countries over relief on Greece’s vast debt load.
Yet the power to decide the fate of Greece lies not just in the hands of these national governments, but also with unelected officials at two powerful institutions: the European Central Bank and the International Monetary Fund. Each is a creditor to Greece, and each is expecting the country to repay it billions of dollars of debt in the coming weeks.

US Federal Reserve bars five ex-Credit Suisse bankers from sector
The U.S. Federal Reserve barred five former Credit Suisse staffers from the banking sector on Monday after they were previously indicted for their role in helping wealthy Americans dodge taxes.

House Financial Services Panel Subpoenas Treasury, Fed
Representative Jeb Hensarling, chairman of the House Financial Services Committee, subpoenaed three federal agencies for their alleged refusal to cooperate with continuing investigations.
The Republican from Texas said the subpoenas were issued Monday to the Justice Department, the Treasury and the Federal Reserve Bank of New York. He is seeking information related to the prosecution of large financial institutions, the Obama administration’s contingency planning surrounding the federal debt ceiling and whether the government had retaliated against a credit-rating company for having downgraded the rating of U.S. debt.


Fight Over China Currency Policies Threatens Vote on Trade Bill
NY Times
A heated dispute over how to challenge China on currency policies has imperiled a trade bill that has become President Obama’s top legislative priority, with even some of the president’s top Democratic supporters opposing a move to take up the bill in the Senate.
Senator Mitch McConnell, Republican of Kentucky and the majority leader, vowed Monday to press forward with a vote Tuesday afternoon to begin debating legislation granting the president “fast-track” negotiating authority to complete a major trade deal with 11 Pacific Rim nations. But Democrats say they will filibuster the measure unless it is combined with a separate customs enforcement bill that would crack down on currency manipulation.

Bank parents or main units seen pleading guilty over FX: sources
The parent companies or main banking units of as many as five major banks, rather than their smaller subsidiaries, are expected to plead guilty to U.S. criminal charges over manipulation of foreign exchange rates, people familiar with the matter said.
A handful of banks will likely resolve forex-rigging investigations by the U.S. Justice Department as soon as this week: JPMorgan Chase & Co (JPM.N) Citigroup (C.N), British banks Royal Bank of Scotland (RBS.L) and Barclays (BARC.L) and Swiss bank UBS (UBSG.VX).

Can India’s Rupee Rival Renminbi As ‘Great New’ Reserve Currency? – Emerging Markets Daily
India’s rupee “is destined to become one of the great new reserve currencies of the world.”
So says Ashmore research head Jan Dehn as he compares China’s latest central bank rate cut and India in research today. He thinks the Indian rupee has the potential – like the Renminbi – to become a global reserve currency sooner than expected. As China struggles with its debt burden and slowing economy, he says:

A Bitcoin Technology Gets Nasdaq Test; Pilot to take place in fledgling Nasdaq Private Market
Nasdaq OMX Group Inc. is testing a new use of the technology that underpins the digital currency bitcoin, in a bid to transform the trading of shares in private companies.

Indexes & Index Products

Assets in ETFs Linked to MSCI Indexes Reach Record High of $418 Billion
MSCI Inc. , a leading provider of research-based indexes and analytics, reports that assets in ETFs linked to MSCI indexes grew more than 12 percent in the first quarter of 2015, reaching an all-time high of $418 billion. ETF providers launched 56 products based on MSCI indexes during the period, three times more than the next index provider.

Built For Marketing: Why The S&P 500 And Dow Are Misleading Investors
Since the start of the year, the two major U.S. stock market indexes?the Dow Jones Industrial Average and the S&P 500?have (between them) closed at new highs nine times. But do those highs really mean the market is doing better than ever before? Not necessarily. Human beings pick which stocks to put in these indexes, and their decisions, I fear, are being influenced by marketing.

Still Watching the Russell
The Street
Nothing changes sentiment like price moves. I am not referring to the sentiment getting giddy on Friday from the short-term pessimism we saw at the end of the day on Tuesday and into Wednesday. I am referring to my old commentary about how the market teaches us a pattern over and over again and just when we learn it, the market changes the pattern.


China Goes After Dollar With Gold Fix
For the gold bugs out there, a quickie: China is launching a facility that allows the yuan’s value to be fixed against gold.
A gold fixing facility exists in London, but China wants its own – reflecting its ambitions as a global financial player. The establishment of a China-based gold fix for the yuan also marginally undermines the dollar as the global benchmark currency, says Jan Dehn, an economist with the Ashmore Group in London, a $70 billion asset management firm.

Gold Futures Fall Amid Signs of Easing Tensions on Greek Bailout
Gold declined for the third time in four sessions as signs of easing tensions between Greece and its creditors reduced demand for the metal as a haven.

Precious Metals – Gold Continues To Disappoint Everyone
Seeking Alpha
The price action in gold is like watching paint dry these days. Everything about gold is boring lately. June COMEX gold futures closed at $1187.30 on Friday, May 8 — just $3.20 above where it was at the end of December 2014. All I can really say about the gold market these days is — Zzzzzzzzzzzzzzzzzzz

Silver no longer the poor man’s gold as solar demand surges
Silver has been mined for thousands of years. But for most of the 20th century it was the poor man’s precious metal, its value eclipsed by the enduring lure of gold.
The first big revolution in silver came in 1492 with the discovery of the New World, which opened up mining of the metal on a scale not previously seen. In the centuries that followed Hernán Cortés and the conquistadors’ destruction of the Aztecs, Peru, Bolivia and Mexico accounted for three-quarters of all world production and trade in the metal.

5 ways to buy gold
No one is talking much about gold these days, since gold is typically viewed as a hedge against inflation and there’s very little inflation around. Even worse, if the Fed raises rates, gold becomes less attractive as an investment. The price of gold has been fluctuating wildly around $1,200 an ounce, not gaining a distinct direction.


Speaking the Language of Risk
NY Times
When I say “risk” and you say “risk,” chances are high we don’t mean the same thing.
The finance industry defines risk as something measurable. It is variability within a set of known limits. You may have heard it referred to as standard deviation or even volatility. Ultimately, it represents how much an investment wiggles over time.
I’m an adviser who talks to humans. I also happen to be human. From my experience, I know humans outside the financial world define risk differently. In everyday life, we tend to think of risk as uncertainty, or what is left over after we have thought of everything else.

America’s Future Got $7 Trillion Worse Since the Financial Crisis
Still feeling uncomfortable about that tax bill you owed last month? Think about it this way: If you didn’t pay it, America’s fiscal future would look even worse than it does now, six years out from the financial crisis.
Driven by higher interest costs, Social Security and Medicare for baby boomers, as well as tax cuts made permanent in 2012, the federal debt held by the public is expected to hit $40 trillion in 2035, according to calculations by the Committee for a Responsible Federal Budget based on Congressional Budget Office estimates. Back in 2009, soon after President Barack Obama took office, the forecast for the 2035 burden was at least $7 trillion lower.

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