Sweet 16: The Tops For 2016 – Exchanges
Exchange leaders will be dealing with big changes at their respective companies in 2016, from launching new competing markets and dealing with new regulation to integrating new data acquisitions to expanding across different time zones. In JLN’s Sweet 16, we spoke with Michael Davie, Terry Duffy, Jeff Sprecher and Rama Pillai about the top exchange priorities for 2016.
Watch the video »
Quote of the Day
“It’s creating a very dog-eat-dog environment. People collect evidence on their bosses, because if they get rid of their boss, it means that they can get promoted faster.”
A partner at a Chinese mutual fund in the story, “Foreigners drawn in as fear and loathing grip China’s finance industry”
Draghi sends clear message to markets
John Authers – Financial Times
Mario Draghi got his message across this time. Maybe this was “As Much As It Takes II”. Or maybe his insistence on “monetary dominance” will find its way into the lexicon. But the bottom line for a central banker who has been adept at mastering and guiding markets’ expectations until now was clear — he is in charge, and he will get what he wants, which is higher inflation.
EU scraps derivatives case vs 13 banks, continues Markit, ISDA probe
Foo Yun Chee – Reuters
EU antitrust regulators have dropped charges against 13 banks including Citigroup and Deutsche Bank for blocking exchanges from derivatives markets, but will continue their case against data company Markit and trade body ISDA.
The European Commission said on Friday it had closed the case against the 13 banks due to insufficient evidence.
The $49 Billion Debt Hangover
Lisa Abramowicz and Shira Ovide – Bloomberg
Leveraged-finance bankers are facing a bad hangover after a record year for U.S. mergers and acquisitions.
They must find buyers for about $49 billion of acquisition-related leveraged loans, which is the biggest backlog for a December in Standard & Poor’s Capital IQ LCD data going back to 2010. That doesn’t even include the billions of dollars of M&A-related junk bonds that are also in the pipeline. There’s about $200 billion of M&A-related investment-grade debt that needs to be issued based on announced deals, according to Barclays estimates. That’s also well above average for this time of year.
How this blockchain reaction could lead to fairer transactions
Brooke Masters – Financial Times
Goldman Sachs is betting on blockchain. This week the US investment bank filed a patent application last year for “SETLcoin”, a virtual currency that it plans to use to offer “nearly instantaneous execution and settlement”.
China Creates an Asian Bank, as the U.S. Stands Aloof
Jane Perlez – NY Times
As top leaders met at a lush Bali resort in October 2013, President Xi Jinping of China described his vision for a new multinational, multibillion-dollar bank to finance roads, rails and power grids across Asia. Under Chinese stewardship, the bank would tackle the slow development in poor countries that was holding the region back from becoming the wealth center of the world.
Red chips, red faces – The creditworthiness of China’s big state firms is worsening
There was a time when China’s biggest state-owned enterprises were seen as the country’s crown jewels. The government cleaned up the balance-sheets of the best of the firms, and listed their shares on stockmarkets at home and abroad. The firms were dubbed “red chips”, the supposed blue chips of state capitalism, by fawning analysts.
In fact, China’s big state firms were largely a bloated, inefficient and cosseted lot. The real dynamism in the Chinese economy has long come from its entrepreneurial private firms, which now account for perhaps two-thirds of the country’s entire economic output.
Bonds Tumble by $270 Billion as Draghi, Yellen Batter Markets
Candice Zachariahs and Kevin Buckland – Bloomberg
December has been a bruising month for bond traders and we’re only four days in.
The value of the U.S. fixed-income market slid by $162.5 billion on Thursday while the euro area’s shrank by the equivalent of $107.5 billion as a smaller-than-expected stimulus boost by the European Central Bank and hawkish comments from Janet Yellen pushed up yields around the world. A global index of bonds compiled Bank of America Merrill Lynch slumped the most since June 2013.
J.P. Morgan to Fire Market Maker for Poor Performance During Aug. 24 Mayhem
Bradley Hope – WSJ
J.P. Morgan Chase & Co. is planning to fire its market maker on the floor of the New York Stock Exchange for poor performance during the Aug. 24 market mayhem, among other issues, according to people familiar with the matter.
Banking and fintech: Love and war
Startups in the world of financial technology, or “fintech”, think of banks as hulking mediocrities ripe for disruption. Banks in turn look down on fintech outfits as little more than gadflies swarming over chicken feed. As any fan of romantic comedies would know, such apparent incompatibility is often the precursor to a close relationship. On December 1st JPMorgan Chase (JPM), America’s biggest bank, announced it would make small-business loans through OnDeck Capital, a “marketplace lender” of the sort that usually claims to be on the verge of putting financial-services behemoths out of business.
BTG Adds to Crowded Sales Market for Commodity Trader Stakes
Andy Hoffman – Bloomberg
There’s a glut in the market for stakes in commodity trading firms.
Grupo BTG Pactual, reeling from the arrest of its former chief executive officer, is considering options for its commodities business that include selling a stake, according to people with knowledge of the plan. The Brazilian bank joins at least five other large trading houses — Glencore Plc, Louis Dreyfus Commodities BV, Noble Group Ltd., Mercuria Energy Group Ltd. and Gunvor Group Ltd. — that are weighing sales of parts of their operations to outside investors.
BTG’s $1.6 Billion Lifeline: Is It a Silver Bullet or Band-Aid?
Jonathan Levin and Francisco Marcelino – Bloomberg
Grupo BTG Pactual SA, the Brazilian bank whose CEO was arrested as part of a sweeping corruption scandal, got a lifeline Friday after the country’s privately backed deposit-guarantee fund gave it a 6 billion-real ($1.6 billion) credit line. Investors are left wondering if it’s a silver bullet or a band-aid.
Wall Street competition to intensify
Matt Turner – Business Insider
The good news: You get to keep your job. The bad news: It’s about to get a lot more cutthroat.
A number of Wall Street investment banks have moved toward cutting swathes of traders in recent months, with Morgan Stanley and Barclays set to be the latest to take the leap.
Barclays macro division changes
Matt Turner – Business Insider
Barclays is shaking up its macro trading division, which focuses on the trading of foreign exchange and rates products.
The UK bank, which on Friday was reported to be considering cutting 20% of its investment bank staff, has promoted a couple of executives to new roles in macro distribution, or sales.
Why Tech-Savvy Banks Are Gung Ho About ‘Container’ Software
Penny Crosman – American Banker
Container software, a technology that only a year ago was still considered edgy and risky, is getting a warm reception from financial institutions, with good reason.
At a conference this week in New York devoted to containers, bankers and others raved about the technology. Goldman Sachs, Bank of America, the International Securities Exchange and others are increasingly using containers in-house and Goldman recently made a breakthrough by taking a few applications into production within containers in the public cloud.
`Important Blind Spots’ Remain in Shadow Banking, Fischer Says
Ian Katz – Bloomberg
Federal Reserve Vice Chairman Stanley Fischer said regulators should remain wary of risks remaining in the financial system because of a lack of data.
“When it comes to financial stability, what you do not know really can hurt you — and there remains a good bit we do not know,” Fischer said in remarks prepared for a conference in Washington on Thursday. The financial system still has “important blind spots” in part because of data gaps, he said.
Asset price inflation: EZ Winners and losers
Klaus Adam, Panagiota Tzamourani – VOX, CEPR’s Policy Portal
Central banks’ unconventional monetary policy measures tend to be accompanied by considerable asset price increases. Such asset price increases have potentially large distributional effects and therefore are receiving increasing attention amongst policymakers (Draghi 2015, Haldane 2014). With further unconventional monetary policy measures for the Eurozone being all but announced for the ECB’s December 2015 policy meeting, understanding and quantifying the distributional implications of asset price inflation for the Eurozone is important.
How the eurozone missed its shot at a recovery
Peter Spence – The Telegraph
The practicality of Europe’s single currency project has been called into question many times in its short lifespan.
Above all others, it has one man to thank for its resilience. It was the declaration from Mario Draghi, president of the European Central Bank (ECB), that he would do “whatever it takes” to save the euro in 2012 that economists say kept the currency bloc intact.
Foreigners drawn in as fear and loathing grip China’s finance industry
Engen Tham and Michelle Price – Reuters
A widening regulatory probe into some of China’s biggest brokerages has set nerves jangling in a financial industry still recovering from a summer of turmoil, with fear of becoming entangled in investigations spreading among foreign investors.
People working at domestic securities firms report an ugly mood after news in the past week of increased scrutiny of the sector by authorities. A nervous inertia is slowing new business as staff are encouraged to report their bosses or colleagues for corruption.
Raymond James to Buy Deutsche Bank’s U.S. Private Client Services Unit
Michael Wursthorn – WSJ
Raymond James Financial Inc. agreed to buy Deutsche Bank AG ‘s U.S. private client services unit, boosting the regional brokerage’s expansion plans.
Nice Jobs Report. But What About the Economy Ms. Yellen?
Justin Lahart – WSJ
You know the job market’s continued strength makes a Federal Reserve rate increase a go. But what does it mean for the economy?
The Labor Department on Friday reported the U.S. gained 211,000 jobs last month, with jobs figures for October and September nudged higher as well. The unemployment rate remained at 5%, but for the good reason that more people entered the labor force. Average hourly earnings edged higher, but at 2.3% above year-earlier levels, wage growth is still more than a full percentage point away from where it probably needs to be for the Fed to achieve its inflation target.
Yellen Plan for Gradual Rate Rises Questioned Amid Jobs Surge
Rich Miller – Bloomberg
Maybe raising interest rates gradually won’t prove to be such a good idea.
Another strong jobs report on Friday led to muttering in the financial markets that the Federal Reserve was in danger of being too slow to lift borrowing costs — and could drop even further back if it goes ahead with a plan to increase rates gradually after a widely expected liftoff later this month.
Neil Staines – TradingFloor
At the news conference for the October ECB meeting, Mario Draghi said the ECB would not “wait and see” in the run-up to the December meeting, but “work and assess”. He made it clear that the bank was “open to a whole menu of policy instruments” amid continued “downside risks to growth and inflation outlooks”.
Furthermore, since his now infamous “whatever it takes” commitment in the face of the Eurozone sovereign debt crisis, Draghi has built a reputation for over-delivering relative to market expectations. Yesterday that ended.
ECB vice-president: The markets got it wrong
Julia Chatterley and Matt Clinch – CNBC
A “very large majority” of the governing council at the European Central Bank (ECB) voted in favor of the stimulus measures announced Thursday, according to the central bank’s vice president, who has told CNBC that investor expectations had been wrong in the run up to the policy meeting.
Don’t Assume a Fed Action Will Move the Market
Robert J. Shiller – NY Times
Humans don’t behave like computers. That makes life interesting, but it has a serious downside for economists: It is exceedingly difficult to predict the short-term directions of major markets, even when events seem to be entirely predictable.
Stress tests: Bank of England flags up buy-to-let concerns
Jill Treanor – The Guardian
The Bank of England is scrutinising the terms under which mortgages are being granted to buy-to-let landlords as it decides whether to take action to cool the fast-growing market.
The Bank’s latest warning to landlords came in a list of risks to the financial system, as Threadneedle Street put banks on notice thatthey could be forced to hold a special capital cushion of up to £10bn to guard against any economic downturn.
Fed considering minimum margins for securities financing – Fischer
The Federal Reserve is developing regulations that would set minimum margins for securities financing transactions as it looks to contain risk and increase understanding of nonbank financial institutions, its vice chairman, Stanley Fischer, said on Thursday.
Bill Gross on Central Banks: They’re ‘Casinos’
Paul Vigna – WSJ
While European Central Bank President Mario Draghi expounds on the latest tweaks and twists to ECB policy, Bill Gross has a far less wordy explanation for what the banks are doing.
“Central banks are casinos.” That is the curt definition the Janus Capital money manager gives them in his monthly outlook letter. “They print money as if they were manufacturing endless numbers of chips that they’ll never have to redeem.”
Institutional: FX Volumes Slide Further in November
Profit & Loss
The recent slide in FX activity following the spike in August continued in November with most multi-dealer venues reporting month-on-month and year-on-year declines. CME Group, HotSpot, ICE, EBS BrokerTec, and FastMatch all saw declines both m-o-m and y-o-y, with Moscow Exchange (MOEX) being the only platform to report an increase in volumes from 2014.
FX Trading Undergoes Transformation
The foreign exchange market is moving towards regional centers of liquidity and the birth of mega-platforms that are buying trading technology and access to a variety of execution methods and analysis tools according to consultancy Celent.
UK call for ‘multicurrency’ EU triggers ECB alarm
George Parker and Alex Barker – Financial Times
David Cameron’s push to rebrand the EU as a “multicurrency union” has triggered high-level concerns at the European Central Bank which fears it could give countries like Poland an excuse to stay out of the euro.
Currency Speculation, John Maynard Keynes & The Interwar Years
Olivier Accominotti and David Chambers – ValueWalk
This paper explores the risks and returns to currency speculation during the 1920s and 1930s. We study the performance of two well-known technical trading strategies (carry and momentum) and compare them with that of a fundamentals-based trader: John Maynard Keynes. Technical strategies were highly profitable during the 1920s and even outperformed Keynes. In the 1930s however, both technical strategies and Keynes performed relatively poorly. Whilst our results reveal the existence of profitable opportunities for currency traders in the interwar years, they suggest that such profits were necessary compensation for enduring the substantial risks which all strategies entailed.
Exclusive: Morgan Stanley Parts Ways with Senior FX EM Personnel
Jeff Patterson – Finance Magnates
Morgan Stanley has seen a couple of key departures to its Foreign Exchange (FX) unit, specifically in the Emerging Markets (EM) space, with both Kay Haigh and Oliver Jerome parting ways with the lender, Finance Magnates has learned.
Indexes & Index Products
Unraveling the Ramifications of the ETF Bubble
Tim Quast – Traders News
Exchange-traded funds are this era’s mortgage-backed securities, fostering value-distension in global bonds and equities.
In Michael Lewis’s book “The Big Short,” a small group of people come to believe mortgages are a bubble because they’ve been extended into derivatives that duplicate demand without expanding the assets underpinning them.
Regulator discusses MSCI index inclusion
Yonhap News Agency
South Korea’s financial regulator said Friday that it has talked with the operator of the Morgan Stanley Capital International (MSCI) global index to promote the local stock market to a constituent of the top index group. The Financial Services Commission (FSC) formed a working group earlier this year to help the local bourse be included on the MSCI’s developed market (DM) index.
IMF move on RMB won’t impact MSCI A-share decision
Toby Yiu – AsianInvestor
The International Monetary Fund’s designation of the renminbi as a reserve currency will not affect MSCI’s decision on including China A-shares in its global emerging markets index.
International Corporate Bond Exposure
Lucas Chiang – Indexology: S&P Dow Jones Indices
Consistency and balance are often essential qualities for a strong portfolio. In the fixed income space, investors can look to the S&P International Corporate Bond Index to bolster the stability and diversity of their investments through exposure to investment grade corporate debt outside the United States.
S&P posts biggest drop since September as ECB disappoints
Caroline Valetkevitch – Reuters
The S&P 500 suffered its biggest daily drop since late September on Thursday as the European Central Bank disappointed market hopes for greater stimulus.
****SD: An extensive recap of recent action.
Polish Stocks Drop on Report of Possible Management Shakeups
Marta Waldoch – Bloomberg
WIG20 at six-year low and is worst-performing index globally
Shares in some of Poland’s biggest state-controlled utilities and the top insurer fell, pushing Warsaw’s main index to the lowest in more than six years, after newspapers reported a slew of management shakeups by the new government.
Gold continues to fall – so why do these investors still own so much of it?
Kyle Caldwell – The Telegraph
Gold investors have racked up huge losses over the past couple of years.
In August 2011, at the height of the European debt crisis, the gold price was about $1,900. It has now slumped to about $1,050.
Gold at 5-year low but cash buying from China seen restoring shine to yellow metal in 2016
Benjamin Robertson – South China Morning Post
A firmer dollar and strong hints from the US Federal Reserve chair that an interest rate rise is on the cards for this month has helped push gold prices to their lowest level in 5 years on Thursday as investors fled from the precious metal.
The price of spot gold fell to US$1,045.85 an ounce, the lowest since February 2010, before recovering to US$1,053.31 an ounce in late afternoon Asian trading.
Amid Gold Rush, Jaguars Clash With Miners
Christine Dell’Amore – National Geographic
As gold fever grips Guyana, a small country in South America, people are coming more and more into contact with one of the most secretive of the big cats: The jaguar.
ISIS is obsessed with gold currency
Jose Pagliery – CNN
The Islamic State is hellbent on world domination — and a return to real gold coins.
When ISIS took over Iraq’s second largest city last year, it stole nearly $450 million from Mosul’s central bank. That included unknown, vast quantities of gold bullion, according the International Business Times and several military experts keeping track of ISIS.
FT to review digital publishing process after inaccurate ECB story
Mark Sweney – The Guardian
The Financial Times is to review its digital publishing practices after publishing an inaccurate article about the European Central Bank’s decision on whether to change interest rates.
This Gingerbread Bank Draws Our High Interest
Samantha Guff – Huffington Post
Bet you never thought you’d actually want to spend time at the bank this holiday season.
PNC constructed the world’s first life-size bank made out of real gingerbread in Philadelphia. You read that right: A real bank, made out of real gingerbread.
Bernie Madoff looks like a small-time crook compared with this master con man
Jonathan Burton – MarketWatch
Before Bernie Madoff, before Charles Ponzi, there was George Graham Rice.
For more than two decades, from the turn of the 20th Century to the Roaring 20’s, Rice’s illicit, sophisticated scams and hustles earned him a huge fortune and national notoriety. By 1925, Rice’s net worth was estimated at around $100 million — equivalent to almost $1.4 billion today.