First Impressions

Today was the first official day of the IDX conference in London, where Jim Kharouf and Doug Ashburn are winding down a busy day of attending panels featuring the leaders of all the biggest derivatives exchanges, as well as the major regulators and clearing companies (it’s after 5:00pm there now – tea time?). As mentioned earlier, original content for Financials this week will be thinner than usual because the two of them will be swamped with meetings and networking etc, but we may hear from them in this space tomorrow.

In the meantime, please take note again of our second trip to London this summer for the MarketsWiki World of Opportunity (below). Companies, educators, etc. please let your interns know about this event, which gives them the chance to listen to CEOs and other financial services veterans about the many opportunities within the industry.

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MarketsWiki World of Opportunity Summer Intern Series Goes to London
John Lothian & Co. is pleased to announce the MarketsWiki World of Opportunity Summer Intern Education Series is coming to London on July 1st and 2nd, 2014 with the generous support of the CME Group.
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Quote of the Day

“The commission has concerns that ICAP may have been involved in cartels concerning yen interest rate derivatives as a facilitator.”

EU antitrust arm in the story, “ICAP Gets EU Antitrust Complaint Over Yen Libor Rigging”.

Lead Stories

Bond Shortfall of $460 Billion Seen Boosting Debt Markets
Susanne Walker – Bloomberg
The supply of bonds worldwide will fall $460 billion short of demand this year, underpinning support that confounded forecasters and sent the fixed-income market to its best start to a year since 2003.
Debt issued by sovereign, corporate and other borrowers will decline by $600 billion to a net $1.8 trillion in 2014, as demand reaches $2.26 trillion, according to New York-based JPMorgan Chase & Co., the world’s biggest corporate bond underwriter.
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ICMA AGM dominated by bond allocation and trading challenges
Louise Bowman – Euromoney Magazine
Secondary market illiquidity and a growing regulatory focus on primary allocation were among the most intensely discussed topics of conversation at ICMA’s AGM in Berlin last week.
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ICAP Gets EU Antitrust Complaint Over Yen Libor Rigging
Gaspard Sebag – Bloomberg
ICAP Plc (IAP), the world’s largest broker of transactions between banks, was accused today by the European Union’s antitrust arm of colluding to help rig interbank lending rates.
ICAP received an antitrust complaint alleging it facilitated a cartel to manipulate yen Libor. The so-called statement of objections is the next step in the EU enforcement process after the company refused to settle the antitrust case with the European Commission last year.
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KfW knowledge transfer ‘crucial’ to financing of peripheral SMEs
Louise Bowman – Euromoney Magazine
Not everyone was blown away by the targeted LTRO and ABS measures announced by Mario Draghi on Thursday to stimulate lending to Europe’s real economy.
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Fund managers fret about valuations in wake of ECB rate cut
Reuters
When the European Central Bank put its economy-boosting stimulus plan into high gear last week, it sent European stock prices to six-year highs. But mutual fund managers who might be expected to like that are instead voicing a new worry: The policy leaves them without enough reasonably priced stocks to buy.
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Last of Taiwan’s Yield Chasers Seeks Stability as Market Dies
Justina Lee – Bloomberg
Stone Chang holds a unique position in Taiwan’s bond world. He runs the only fund in the business.
As the island’s interest rates fell over the past decade, 89 of 90 domestic bond funds either shut or shifted their attention overseas. That’s left Chang, 36, the sole investment manager in Taiwan focused on local notes, struggling to boost returns for the NT$3.3 billion ($110 million) Prudential Financial Return Fund (AGROPTI) he oversees. The prospects of improving the yearly average of 0.6 percent it has handed investors since 2009 are so meager that the goal now is simply to ensure stability, he said.
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The VIX Is Not A Great Way to Measure Complacency
Matt Levine – Bloomberg
A basic story that is told over and over again about financial markets is: Things mean-revert; A thing is away from its mean; Therefore that thing will mean-revert; Soon and horribly. This is I think roughly the way to read the notion, which my Bloomberg View colleague Mohamed El-Erian examined today, that low readings on the VIX — an index of implied volatility in short-dated S&P 500 index options — mean that the market is “complacent.”
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Sound of silence sweeps across asset classes
Financial Times
“The Sound of Silence” is not just an old Simon & Garfunkel hit; it has become the theme tune of a global financial market devoid of volatility. Prices have become becalmed across asset classes – from currencies to bonds, equities and oil – a Financial Times analysis shows.
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As Bond Markets Twist, Investors Shout
WSJ
Some Spanish government bond yields dipped below U.S. Treasurys, adding another twist to a year of surprises for the world’s bond markets. Yields on the 10-year Spanish bond fell to 2.579% Monday, according to Tradeweb, lower than the 2.615% yield on the 10-year Treasury note for the first time since April 2010, before the euro zone tumbled into its debt crisis.
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Central Banks

China’s Central Bank Unveils Cuts in Reserve Ratios for Some Banks
WSJ
China’s central bank unveiled details of plans to let some banks lend more of their deposits, a move aimed at bolstering slowing economic growth.
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Fed’s Bullard says macroeconomy much closer to normal
Reuters
The U.S. macroeconomy is much closer to a normal state than it has been in five years, a Federal Reserve official said on Monday, adding that weak labor markets and low inflation are what is keeping accommodative monetary policy in place.
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Rosengren urges Fed to specify portfolio run-off
Reuters
The U.S. Federal Reserve, headed toward an eventual tighter policy stance, could help smooth the process by letting its massive portfolio of assets shrink in a predictable and transparent fashion, a top Fed official said on Monday.
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ECB Headaches From BNP to Dexia Multiply for Daniele Nouy
Jeff Black – Bloomberg
Daniele Nouy is coming face to face with the awkward side of Europe’s banking union.
More than halfway into her preparations to lead the European Central Bank’s management of financial oversight in the euro area, the former French regulator is facing down threats from the storm over BNP Paribas SA (BNP), a key lender she supervised, to confusion over moribund Dexia SA (DEXB) and stumbles in a health-check of other large banks. Nouy will chair a board meeting of the ECB’s Single Supervisory Mechanism this week.
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Draghi Confined by China $4 Trillion Reserves: Chart of the Day
Kyoungwha Kim – Bloomberg
European Central Bank President Mario Draghi’s plan to weaken the euro to aid exporters faces a $4 trillion challenge: how to cope with China’s efforts to diversify reserve assets, most of which are now in dollars.
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RBI introduces liquidity ratios for banks
Business Standard
In a move aimed at creating liquidity buffers in banks, the Reserve Bank of India (RBI) has mandated the lenders to maintain 60 per cent liquidity coverage ratio (LCR) from January 1, 2015.
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Bank Of England: Systemic Risk Survey Results – 2014 H1
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Currencies

Currency Carry Trades Rise in ECB’s Negative-Rate World
Andrea Wong and Ye Xie – Bloomberg
Mario Draghi is becoming one of currency traders’ only friends. With the $5.3 trillion-a-day foreign-exchange market poised to deliver its worst first-half returns on record, the carry trade is about the only way traders are making money by exploiting differences in global borrowing costs as volatility tumbles.
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Keep calm and carry on is the message from currencies
Michael Mackenzie – Financial Times
Keep calm and carry on is the broad message from the currency market thanks to the generous support of central banks. Borrowing a currency at low interest rates and buying a rival sporting much higher short term yields is a nice little earner for investors, so long as market volatility remains quiescent.
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PBOC’s New Normal Keeps Traders Guessing as Yuan Surges
Ye Xie – Bloomberg
Chinese policy makers have been saying since February that two-way swings in the yuan are the “new norm.” A surprise surge in the currency shows that they mean it.
Twelve-month non-deliverable forwards, which traders use to speculate or hedge, strengthened 0.9 percent against the dollar in the past three days, their biggest advance since January 2012. The rally follows five months of declines that investors attributed to an effort by the People’s Bank of China to weaken the yuan and fend off speculators who were anticipating a continuation of a five-year rally.
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FX Volume Edged Higher at EBS, CME in May
Profit & Loss
Average daily foreign exchange trading volume edged up to $73.5 billion on the EBS platform in May, recovering some ground after a year in which volume had fallen by almost a half
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Moscow Exchange takes global standards to Russian FX by joining FIX
LeapRate
Following last year’s rebranding of FIX Protocol to FIX Trading Community in order to keep pace with the requirements of institutional FX requirements as it expanded into the buy-side space, and assist in generating a standardized methodology for all aspects, a great many industry leaders in North America have committed their time to advisory positions within the organization. Today, however, Russian executing venue Moscow Exchange (MOEX) has joined the FIX Trading Community.
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Serious Fraud Office Joins Currency Market Probe
Profit & Loss
The UK’s Serious Fraud Office (SFO) is studying information from a global investigation into the possible manipulation of currency markets
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OK, Maybe the Yuan Is Undervalued by a Smidgeon
MoneyBeat – WSJ
This just in from the Peterson Institute for International Economics: the yuan is a smidgeon undervalued. Hey, let’s call it pretty much fairly valued.
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A Lift for One of London’s Financial Tech Start-Ups
Dealbook – NY Times
On Monday, TransferWise, one of the city’s most prominent financial technology companies, said it had raised $25 million from a range of investors, including Peter Thiel, a co-founder of PayPal, and the British billionaire Richard Branson.
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BitBeat: Like a Hurricane, CoinTerra’s Giant Bitcoin Mining Plant – MoneyBeat
MoneyBeat – WSJ
Bitcoin mining, the activity that brings bitcoins into existence and keeps the digital currency’s all-important blockchain ledger intact, has come a long way from the basement hobby it was for early enthusiasts.
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Indexes & Index Products

Bats Chi-X welcomes first single settlement ETF
Anish Puaar and Sarah Krouse – Financial News
Bats Chi-X Europe has listed its first ETF aimed at providing European investors with a simplified settlement process, at a time when the market for exchange-traded products in the region is hotting up.
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iShares offers shorter-duration ETFs as rate rise looms
Henry Brennan – Risk.net
Europe’s largest ETF provider, iShares, has seen a surge in demand for ETPs in the wake of the Retail Distribution Review. Demand in the opening months of 2014 outstripped sales for the entirety of 2013, but where are these burgeoning inflows going and what is driving them?
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BlackRock expands low-cost ‘Core’ series with 10 ETFs
Reuters
BlackRock Inc, the largest U.S. provider of exchange-traded funds, is expanding its lineup of low-cost ETFs with 10 equity and fixed-income funds that focus on areas such as dividend growth and value, and add exposures such as European and Pacific region stocks.
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EU Plans to Publish Energy Indexes From Trade Data
Rachel Morison and Isis Almeida – Bloomberg
Regulators plan to publish indexes based on power and gas market data to be collected under stricter European energy market transparency rules.
The Agency for the Cooperation of Energy Regulators will publish the information in aggregated form as indexes, ACER Director Alberto Pototschnig said yesterday in an interview in Ljubljana, Slovenia, at the group’s head office. He declined to provide further details.
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