First Impressions

Innovation Incubation: TriOptima’s Mireille Dyrberg Looks at the Latest FinTech Trends

For the past several years, derivatives conferences have been all about regulation. But as Dodd-Frank, MiFID II and other global regulations move through the rulemaking phase to implementation and beyond, the focus has shifted from regulation to innovation.

The 2015 FIA Europe International Derivatives Expo was all about fintech, and the top-to-bottom technology overhaul of the world’s financial markets. Mireille Dyrberg, chief operating officer of post-trade services giant TriOptima, spoke with John Lothian News’ Doug Ashburn at IDX 2015 about the innovation cycle, which technologies to keep an eye on, and the role of fintech incubators such as ICAP’s Euclid Opportunities program.
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Quote of the Day

“The firm’s emphasis on pro bono work and being engaged in the civic life of this country is consistent with my worldview that lawyers need to be socially active.”

Eric Holder in the story, “Eric Holder, Wall Street Double Agent, Comes in From the Cold”

Lead Stories

China ETF Posts Record Drop After Latest Move to Stem Stock Rout
Belinda Cao – Bloomberg
The early market reaction to China’s latest efforts to stem the nation’s $3.6 trillion stock rout is in.
The largest U.S.-listed exchange-traded fund tracking yuan-denominated equities plunged more than 11 percent Wednesday, the most since it started trading in 2013, after Chinese regulators banned major stockholders from selling stakes in listed companies. The iShares China Large-Cap ETF that tracks the nation’s companies trading in Hong Kong tumbled the most in six years.

Greek Contagion and Why It Is Different This Time – At A Glance
Tommy Stubbington – WSJ
Greece is teetering on the brink of an exit from the eurozone, a prospect that terrified investors a few years ago because they worried it could trigger a domino effect across the eurozone. So why are investors playing down those fears this time?

Bond Traders Worry Central Banks Are Firing Guns Without Bullets
Lisa Abramowicz – Bloomberg
What happens when central bankers do everything they can to spur economic growth and prop up markets — and still fail?
That’s a question that’s come to the fore in the past few days as China unsuccessfully tries to support its plunging stock market and the European Central Bank pledges to use its monetary tools to prevent fallout from a Greek default. Even after trillions of dollars of central-bank stimulus globally, bond traders are showing they’re still worried about stagnant global growth.

China’s stockmarket crash: A red flag
The Economist
CHINA is certainly not the first country to try to prop up a falling stockmarket. The central banks of America, Europe and Japan have all shown form in buying shares after crashes and cutting interest rates to cheer up bloodied investors. But the circumstances and the manner of China’s intervention of the past ten days make it an outlier, worryingly so.

5 Things Peculiar About China’s Market Meltdown
Wei Gu – WSJ
China’s stock market is unusual thanks to government’s heavy-handed approach and the high participation of retail investors. Now as markets plunge and the government scrambles for ways to arrest the fall, things are getting more peculiar.

N.Y.S.E. Resumes Trading After Outage, but Market Remains Down
NY Times
Stocks closed with sizable losses after a technical outage forced the New York Exchange to halt trading for half the day.
The exchange’s troubles didn’t extend to the dozens of other platforms that also trade U.S. stocks, such as the Nasdaq, so investors were still able to buy and sell stocks easily Wednesday.

Greek banks face closures, bailout or not – sources
John O’Donnell – Reuters
Some large Greek banks may have to be shut and taken over by stronger rivals as part of a restructuring of the sector that would follow any bailout of the country, European officials have told Reuters.
European leaders will gather on Sunday in a last-ditch attempt to salvage agreement with Greece after months of acrimonious negotiations that have taken the country to the brink of leaving the euro.

Fund managers make record-equalling profit despite fee pressure -study
Simon Jessop – Reuters
Assets managed by fund firms globally hit a new high last year, helping the industry to record-equalling profits in spite of margins that were squeezed by investor pressure on fees, a study showed on Tuesday.

The Single, Simple, Greek Debt Problem: There’s No Bankers Or Capitalists To Expropriate
Tim Worstall – Forbes
There’s one really rather simple reason why this Greek debt problem is so intractable. It’s one that is obvious, but isn’t generally pointed to. It’s that there’s no capitalists or bankers who hold that Greek debt. Therefore the problem cannot be solved by just nicking the money off the capitalists and or bankers. Which, given that that is the way that most debt problems are solved, is something of a problem. Near all of the money is owed by one set of taxpayers to some other set of taxpayers. And so we can’t really say that democracy is winning or losing in a solution: it would be whose democracy is winning or losing at best.

A performance-linked model for fund fees
John Authers – FT
How should we pay fund managers? At present, we pay them too much, to do the wrong things. But even the least charitable observers must accept that it is difficult to move them to a more rational system.

This Chart Shows How Complex the U.S. Stock Market Has Become
Tracy Alloway – Bloomberg
In recent years, the U.S. stock market has changed dramatically, thanks to an influx of regulatory, technological, and competitive pressures. The increasing complexity of the market has often been blamed for the technological glitches that appear to be occurring with some frequency on the country’s stock exchanges.

Sealed HSBC Report Shows U.S. Managers Battling Cleanup Squad
Greg Farrell – Bloomberg
HSBC Holdings Plc, smarting from a $1.9 billion fine for providing banking to money launderers and sanctions-dodgers, promised U.S. officials it would clean up its act.

JPMorgan to pay over $125 million to settle U.S. credit card debt probes
Karen Freifeld- Reuters
JPMorgan Chase & Co has agreed to pay at least $125 million to settle probes by U.S. state and federal authorities that the bank sought to improperly collect and sell consumer credit card debt, according to people familiar with the matter.

UBS trader nicknamed Rainman tells court bosses knew of rigging
Lindsay Fortado – FT
Tom Hayes admitted he asked colleagues at UBS as well as traders and brokers at other firms to help him rig Libor rates, but insisted that his managers were fully aware of what he was doing.

Manhattan judge opens door for more insider trading convictions
Kevin Dugan – NY Post
A Manhattan federal court trial judge has totally dissed a powerful appeals court — and by so doing could make it easier to prosecute Wall Streeters accused of insider trading.

Better Finance: European Parliament Once Again Ignores Individual Shareholders Rights
The new EU Shareholders Rights’ Directive is to be voted tomorrow 8 July. As it stands the proposal grossly ignores all the modest amendments called for by European individual shareholder representatives.

Barclays fires Antony Jenkins as chief executive
Martin Arnold and Naomi Rovnick – FT
Barclays has fired Antony Jenkins as chief executive after he lost the confidence of its non-executive directors, replacing him with chairman John McFarlane on an interim basis.

Central Banks

Fed Is Still Looking at Raising Rates Later This Year, Minutes Show
Binyamin Appelbaum – NY Times
Federal Reserve officials spent their most recent policy meeting, in June, preparing to raise interest rates later this year.
Officials liked the look of recent economic data, including early signs that wages are starting to rise more quickly, according to an official account the Fed released on Wednesday after a standard delay.

TREASURIES-Prices turn up after Fed minutes
U.S. Treasury debt prices rallied on Wednesday, extending gains as investors grew more risk averse on new signs that Federal Reserve policymakers may be hesitant to start raising U.S. interest rates.
Prices rose when the Fed released minutes from its June 16-17 policymaking meeting. Before that, key Treasury maturities were mostly flat, trading near five-week yield lows on worries over China’s stock-market plunge and the Greek debt crisis.

Fed Officials Tempered Economy Optimism With Greece Concern
Craig Torres – Bloomberg
Federal Reserve officials in June saw the economy moving toward conditions that would support an interest-rate increase, while also expressing concern about weak consumer spending and risks from China and Greece.
Members of the Federal Open Market Committee “saw economic conditions as continuing to approach those consistent with warranting a start” to interest-rate increases at some point, according to minutes of June 16-17 meeting released Wednesday in Washington. All members but one “indicated that they would need to see more evidence that economic growth was sufficiently strong.”

Higher Rates Wouldn’t Tame Bubbles Even if Central Banks Tried, IMF Paper Says
Pedro Nicolaci da Costa – WSJ
Economists at the International Monetary Fund have found a new reason for central bank officials to avoid using interest rates to dampen asset bubbles and market risk: it probably wouldn’t work.
That’s the finding of a new working paper that identifies different patterns in lending between banks and nonbanks. The gap means raising borrowing costs to curb market excesses might simply push risks into less regulated financial firms sometimes referred to as the “shadow” banking system.

Fed Increase Little More Than Coin Flip for Derivative Traders
Liz McCormick – Bloomberg
Unrest in China and Greece looms large with money-market derivative traders who now see little more than a coin flip’s chance that the Federal Reserve will lift interest rates this year.
Fed funds futures give a 54 percent probability that the central bank will lift rates in December, down from 59 percent before the Fed on Wednesday released the minutes of its June policy gathering. At the start of the month, the likelihood of the central bank lifting its near-zero benchmark rate this year was nearly 70 percent. The chance of a September hike is now 21 percent.

Here Are Central Banks That Have Been Getting It Right — and Wrong
Jennifer Ryan, Josh Robinson and Andre Tartar – Bloomberg
The Federal Reserve is the most optimistic. The Bank of Japan made the biggest mistake. The Bank of Canada is the most accurate, but it’s got the easiest job.
These are just a few of the findings of Bloomberg’s first-ever ranking of Group of Seven central banks according to their ability to forecast their own economies. Turns out the financial crisis really did ruin everyone’s estimates, just like the Greek crisis might this year, and complicated economies are harder to deal with.


Greek Debt Dispute Highlights Prospect of a Euro Exit
Peter Eavis- NY Times
As the Greek crisis escalated in recent days, Europe’s common currency crossed a line that could taint it forever.
The crucial moment occurred when Greece’s debt dispute with other European countries became a fight to stay in the euro. The prospect of a country leaving the currency was once unthinkable. Europe’s goal is to form an “ever closer union” — and the euro’s creators expected the currency to play a driving role in that process.

Emerging market currencies in line of fire
Roger Blitz – Financial Times
Emerging market currencies were left with no hiding place in the global economy on Wednesday as China’s equities turmoil put concerns about the Greek crisis in the shade.
China’s equities rout has left its mark on G10 currencies, such as the Australian dollar and New Zealand dollar.

Centre wants to break forex reserves
Puja Mehra – The Hindu
The Modi government is examining if India’s foreign exchange reserves held by the Reserve Bank can be deployed for funding infrastructure projects or recapitalising public sector banks.
These bad loans-ridden banks, according to rough estimates of the Finance Ministry, would require capital infusion of about Rs. 40,000 crore over two years. India’s forex reserves touched a record $355.46 billion on June 19.

Indexes & Index Products

S&P Dow Jones Indices Launches First of Its Kind Index Tracking the Debt of the S&P 500 Companies
Press Release
S&P Dow Jones Indices (“S&P DJI”), one of the world’s leading index providers, launched today the market’s first ever index that tracks the debt of the S&P 500 companies. S&P 500 Bond Index is priced in real-time throughout the day and directly corresponds to movement in the U.S. bond market. The Index offers previously unavailable intraday transparency to the pricing of debt on America’s most influential companies.
S&P DJI has contracted with Thomson Reuters to provide end-of-day prices, as well as terms and conditions data.

Big ETF shifts in China
Ari I. Weinberg – Financial News
Emerging markets are, well, continually emerging, and so too is Vanguard Emerging Markets Stock Index fund.

Your Dirt-Cheap ETF Threatens Asset Managers’ Record Profits; Their fee revenue is getting pinched by low-cost exchange-traded funds, while in the U.S. new fund flows are meager
Suzanne Woolley – Bloomberg
Many of the world’s asset managers may need to work harder for their money.

Index providers MSCI, FTSE seek feedback on Greek bourse closure, capital curbs
The Economic Times
Index provider MSCI on Tuesday asked for client feedback on whether it should follow its usual practice of waiting 40 days before taking action on Greece’s stock market closure or if different treatment is justified.

Compass EMP Lists Three New Exchange-Traded Funds on The Nasdaq Stock Market
Press Release via NASDAQ
Nasdaq (Nasdaq:NDAQ) announced today that Compass EMP, a Victory Capital investment franchise, will list three new exchange-traded funds (ETFs), Compass EMP US Small Cap 500 Volatility Weighted Index ETF (Symbol: CSA), Compass EMP US Large Cap High Dividend 100 Volatility Weighted Index ETF (Symbol: CDL) and Compass EMP US Small Cap High Dividend 100 Volatility Weighted Index ETF (Symbol: CSB) on The Nasdaq Stock Market®. The funds will begin trading today, July 8, 2015.
“We are excited to introduce these additions to our family of broad market, strategic beta funds that help enhance market efficiency through fundamental criteria and security volatility weighting,” said Stephen Hammers, Chief Investment Officer at Compass EMP.


Gold and Silver Spot Prices Increasingly Detached from Reality
Clint Siegner – The Market Oracle
Clint Siegner writes: An insolvent Greece has defaulted. On June 30th, officials missed repayment of billions in lMF loans and declared a banking holiday. Predictably, many Greek citizens responded to the crisis and bought gold coins. So did a lot of people here in the U.S. and around the world. You just wouldn’t know it by looking at spot prices.
The regular disconnect between the futures markets, where spot prices are set, and the physical markets reveals a growing problem. The link between the spot price and physical demand is thin at best. That is why the base price for gold coins in an Athens coin shop can get cheaper, but the all-in cost of buying the coins goes up as the line of buyers grows.

Commodity bourse MCX set to launch an international gold contract denominated in rupees
Ram Sahgal – Economic Times
Punters who run illegal, leveraged gold trades on overseas bourses will now be disincentivised to do so with the country’s largest commodity bourse MCX set to launch an international gold contract denominated in rupees, obviating the need to hedge even rupee risk, said a person aware of the development.


Eric Holder, Wall Street Double Agent, Comes in From the Cold
Matt Taibbi – Rolling Stone
Eric Holder has gone back to work for his old firm, the white-collar defense heavyweight Covington & Burling. The former attorney general decided against going for a judgeship, saying he’s not ready for the ivory tower yet. “I want to be a player,” he told the National Law Journal, one would have to say ominously.
Holder will reassume his lucrative partnership (he made $2.5 million the last year he worked there) and take his seat in an office that reportedly – this is no joke – was kept empty for him in his absence.

‘My Handheld’s Down!’: How the Big Board Went Dark
Sam Mamudi, Leslie Picker and Ryan Hoerger – Bloomberg
The first sign of trouble on the New York Stock Exchange was a color — a sickly yellow.
On the hand-held computers on the cavernous trading floor, that color meant one thing: the Big Board was down.
What began Wednesday morning with a seemingly workaday software glitch soon escalated into one of the most startling computer outages in Wall Street history — and, for the Big Board, a race against the clock.

Why the Greece crisis could be the beginning of the end of Europe as we know it
It started with coal and steel.
After the horrors of 1914 gave way to the even greater ones of 1939, France and West Germany tried to tie their economies so close together in 1951 that the continent could never turn into a slaughterhouse again. So along with Italy, Belgium, Luxembourg, and the Netherlands, they set up the European Coal and Steel Community to create a common market for those strategically-vital resources and head off any renewed rivalry. Six years later, that was expanded into a common market for everything else with the European Economic Community, and that in turn was expanded to include more and more countries before it became a part of the then-new European Union in 1993. The common currency came next in 1999, which has, yes, been expanded since, with Lithuania becoming its latest member just this year.

Five years after Dodd-Frank, here come the reviews
Lucy Ren – MarketWatch
In light of the approaching fifth anniversary of the Dodd-Frank Wall Street Reform and Consumer Protection Act, experts including Treasury Secretary Jacob Lew are evaluating the impact of the most far reaching and controversial reform in the U.S. financial system since the Great Depression.

The Brics Are Harming Each Other’s Trade, and India Is Largely to Blame
Raymond Zhong – WSJ
Like most families, the Brics bloc isn’t as happy as it looks from the outside.
Brazil, Russia, India, China and South Africa, whose leaders begin a two-day summit today in Russia, are responsible for a growing share of the world’s trade-distorting policies but an even larger portion of trade-liberalizing ones, a new report finds.

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