First Impressions

World Of Opportunity Chicago 2014: Tony McCormick (Promo)

Our MarketsWiki World of Opportunity Summer Intern Education Series in Chicago is quickly approaching. Tony McCormick, CEO of BOX, will be discussing the importance of internships. McCormick looks back on his years as an intern and how they helped shape his professional life. For more information on the event and how to register, click here.

Watch the video »

Quote of the Day

“This industry is in search of a new model that is sustainable, serves clients and earns a cost of capital. The shift we are advocating is part of that journey.”

Roger Rudisuli, co-leader of McKinsey’s corporate and investment-banking practice in North America in the story, “McKinsey Says Bond Dealer Shift Could Boost Profit 30%”.

Lead Stories

EDITOR’S NOTE: Tomorrow the hard working John Lothian News team will be having an off-site day that we call our “Disaster Recovery Test and Summer Party.” Besides working from a remote location, we will be reviewing the previous year and our various products and initiatives and discussing ways to improve them.

As part of this, we will not be publishing JLN Financials and JLN Options tomorrow. JLN will go out, as will JLN Environmental/Energy.

Have a nice weekend!

Bloomberg buys RTS Realtime Systems
Bloomberg has acquired market connectivity and trading technology firm RTS Realtime Systems. Financial terms of the deal were not disclosed.

**** This is a big deal for both parties. Pressure is on the ISV community with all the new regulatory functionality required. Expect to see more of this.

Banks Racing to Pare Swaps Holdings Ahead of Rules, Goldman Says
By Matthew Leising, Bloomberg
Wall Street banks are racing to simplify their swaps holdings before new rules make it more costly to own the derivatives starting in 2017, according to a Goldman Sachs Group Inc. executive.

***** Can you say hot potato?

McKinsey Says Bond Dealer Shift Could Boost Profit 30%
Dakin Campbell – Bloomberg
The world’s largest bond dealers could boost profit as much as 30 percent at their securities units by demanding clients pay for services they’re now getting for free, McKinsey & Co. said.
Banks’ trading desks should do a better job of calculating the cost of holding bonds they don’t think will rise in value when giving clients bids for securities, New York-based McKinsey said in a report today on the investment-banking and trading industry. Other examples of the strategy shift the consultant proposed include cutting off clients who aren’t profitable for the bank.

***** It will only get more expensive to trade for smaller clients.

Did this trigger Goldman’s MBS ‘big short’?: Frankel
By Alison Frankel, Reuters
It is an axiom of the financial crisis that Goldman Sachs realized before any of the other big banks that the mortgage-backed securities market was going to implode in 2007. Goldman dumped MBS and shorted the market, turning a profit in its mortgage department when every other major financial institution suffered record losses. So what tipped Goldman to start off-loading its MBS exposure at the end of 2006? In a new brief in its securities fraud case against the bank, the Federal Housing Finance Agency has an intriguing theory.

***** The smoking gun, or is someone smoking something?

McKinsey Says Bond Dealer Shift Could Boost Profit 30%
By Dakin Campbell, Bloomberg
The world’s largest bond dealers could boost profit as much as 30 percent at their securities units by demanding clients pay for services they’re now getting for free, McKinsey & Co. said.

FCA to crackdown on payment for order flow
by: William Mitting, FOW
British regulator to rule following two-year probe into payment for orders. Britain’s Financial Conduct Authority is set to crackdown on the practice of Payment for Order Flow in a damning ruling this month that will significantly cut a lucrative revenue source for many brokers.

***** I said at the CFTC TAC Committee meeting, you can never get rid of payment for order flow. It is like prostitution, you can outlaw it, but that does not make it go away. It only goes underground. Super Bowl tickets anyone?

Barclays Offers ETN Wagering on Corporates With Female Leaders
By Margaret Collins, Bloomberg
Barclays Plc (BARC), the U.K.’s second-largest bank by assets, is selling an exchange-traded note tied to public companies with female executives, betting on demand for products that promote women in leadership.

****** A WILD idea.

US banks will pay dearly for their failure to modernise
by John Gapper, FT
A country that often leads in consumer technology lags far behind in payments systems

***** I love being able to move money on my phone.

Deutsche Bulks Up in Asset/Wealth Management
by Saabira Chaudhuri, WSJ MoneyBeat
Deutsche Bank AG on Wednesday said it has made a slew of hires in the Americas arm of its asset management and wealth management business, pulling new executives from J.P. Morgan Chase & Co., Comerica Inc., Aon PLC and Lord Abbett & Co.

***** I used to be a Scudder client.

The Capital Adequacy Of Banks: Today’s Issues And What We Have Learned From The Past – Speech By Andrew Bailey, Deputy Governor, Prudential Regulation, CEO Of The PRA

Swap execution facilities hit new high in June
by: Joe Parsons, FOW
Sef volumes are starting to pick up after relatively slow start for the new venues
Trading on the new breed of US swap platforms hit a record last month after months of slow trading in the aftermath of the execution reforms that took effect in February.

Throwing Sharks out of the Dark Pool Tank
Dr. John Bates, WallStreet & Technology
Barclays is the most recent brokerage to be fined for letting predators into its dark pool. But will investors be happy with dark pools without sharks? Barclays received a harsh lesson in ichthyology last week, learning that sharks should not be allowed to swim with smaller fishes in a dark pool tank.

Central Banks

Fed, Confident in Economy, Details End of Bond-Buying Program
Binyamin Appelbaum – NY Times
The Federal Reserve said on Wednesday that it planned to stop adding to its bond holdings in October, in a sign of its confidence that the economy is gaining strength even as the central bank gradually withdraws its support.
The decision, described in an account of the Fed’s most recent policy-making meeting in June, signals the end of one of the central bank’s most aggressive efforts to stimulate the economy. The Fed, which started reducing its monthly purchases in January, said it planned to add a final $100 billion to its holdings of Treasuries and mortgage-backed securities over the next four months, for a total of $1.5 trillion.

Divide on Inflation Views Growing at the Federal Reserve, Minutes Show
Pedro Nicolaci da Costa – WSJ
Minutes from the Federal Reserve’s June meeting suggest there is a growing gap between officials who believe U.S. inflation could remain too low for the Fed’s comfort and those who believe a spike in consumer prices could be closer than forecasters think.
Some policy makers “expressed concern about the persistence of below-trend inflation,” the minutes said. Indeed, a couple even suggested the central bank might have to let unemployment fall below its long-term normal rate in order to ensure inflation moves back toward the 2% target.

Fed Officials See Role for Interest on Reserves
Michael S. Derby – WSJ
At their June policy meeting, Federal Reserve officials discussed strategies for eventually raising interest rates, suggesting a starring role for a tool that pays banks interest for parking reserves at the central bank.
Most Fed officials “agreed that adjustments in the rate of interest on excess reserves…should play a central role” when it begins raising borrowing costs, according to minutes of the meeting released Wednesday.

Central Banks, In a Corner
The Federal Reserve is concerned investors are too complacent and may be taking on too much risk, echoing recent comments from the European Central Bank and the Bank of England. The thing is, not only are central banks the perpetrators of the death of volatility, they are the knowing architects of the accompanying surge in asset prices.
Andrew Haldane, the chief economist at the Bank of England and one of the most eloquent policy makers around, described the environment in comments he made on quantitative easing at a Financial Times conference in London last week:

Carney Faces Breakdown of BOE Consensus on Interest Rates
Emma Charlton and Jennifer Ryan – Bloomberg
For Bank of England Governor Mark Carney, a year of harmony on interest rates may be about to end.
The consensus since he took over last July might soon splinter as Britain notches up the fastest growth within the Group of Seven. After 35 straight meetings without dissent — 12 of them under Carney — the nine-person Monetary Policy Committee kept the benchmark rate at a record low today in what economists from Deutsche Bank AG to Goldman Sachs Group Inc. say was probably its final unanimous decision.

China’s state TV accuses central bank of money laundering | World news
Tania Branigan – The Guardian
China’s state broadcaster, CCTV, has accused the Bank of China of money laundering, in a rare attack on one of the country’s biggest state-owned enterprises. It prompted an immediate denial.
The bank said the scheme was a legitimate pilot project and described the television report as “inaccurate and potentially misleading”.


Eurex Enters FX Trading Business, Could Force CME To Reduce Prices
In its recent monthly volumes breakdown, CME Group reported a decline in trading volumes in the last several months over the year-ago period across almost all derivative classes, other than interest rate derivatives, after a solid start to 2014. Competing exchange operator NASDAQ OMX also witnessed a similar decline in trading volumes of derivatives during the current quarter. Among the various derivatives traded on CME’s platform, trading activity for foreign exchange traded products have been very low over the last year or so.

U.K. Would Prioritize Pound in Crises, ECB Tells Court
The Bank of England and other U.K. supervisors may prioritize sterling over the stability of the euro area during a crisis, a lawyer for the European Central Bank told a court today to justify its policy on clearinghouses.

Currency trading volumes more than $5 trillion in June-CLS
Average daily volumes in the global foreign exchange market surged by over $500 billion in June, data from FX settlement system CLS showed, suggesting a bounce-back for the world’s largest and most liquid market.

Why 2014’s hottest currency won’t lose its shine
Katie Holliday – CNBC
As the New Zealand dollar trades within striking distance of its post-float high, the trade that’s been on fire since mid-2013 looks unstoppable, analysts told CNBC.
The kiwi was trading around $0.8820 early Thursday, just short of its post float all-time high of $0.8842 hit on August 1 2011, boosted by the move by credit rating agency Fitch to reaffirm the country’s AA rating and upgrade its outlook to positive from stable on Tuesday.

Five of the Most Traded Currencies and the Reasons for their Popularity » Fx Empire Network
FX Empire
There are 180 currencies that are currently in active circulation around the globe. Majority of the transactions done in the foreign exchange market are only done with the use of around half a dozen of these currencies. If you are familiar with the Pareto principle, this would make a very good real-world application. In this article, you will be given an overview of the currencies that currently dominate the foreign exchange market.
There following are the five most traded currencies in forex backed up with the reasons for their popularity:

Indexes & Index Products

New BlackRock Indexes Help to Measure Americans’ “Retirement Readiness:”
Press Release (via MarketWatch)
The estimated cost of generating future retirement income is more expensive than a year ago. However, the good news is that American pre-retirees – those ages 55, 60 and 64 with median income and retirement savings1 – are on track to replace as much as two-thirds of their on-the-job earnings each year in retirement from savings and Social Security payments, according to new data from BlackRock that examines Americans’ retirement readiness.

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