First Impressions

Focused: What The Industry Knows About Transparency (Part 3)
JohnLothianNews.com

Back in November, the industry gathered for the annual FIA Expo event in Chicago. There, John Lothian News used an exhibitor booth (Thanks Cinnober!) as its studio to ask industry participants key questions about transparency issues in today’s markets.

Part 3: How will futures and options markets look in the future, in terms of transparency?
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Quote of the Day

“We are in a new era, when central banks have largely lost their power to ease. There is a lot of potential to make Europe more efficient.”

Ray Dalio, chairman and chief investment officer of Bridgewater Associates in the story, “The Powers, and Limits, of E.C.B. Stimulus, as Viewed From Davos”.

Lead Stories

European Central Bank’s Bond-Buying Will Help U.S. Tourists and Investors
Nelson D. Schwartz – NY Times
For American investors and tourists especially, the long-awaited move by the European Central Bank on Thursday to help stimulate growth on the Continent is welcome news. For the rest of the American economy, it will not matter so much.
Wall Street quickly weighed in, with broad market averages in the United States rising by more than 1.5 percent in late afternoon trading after policy makers announced plans to purchase the equivalent of $70 billion a month in European government bonds.
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Global Bonds Rise as ECB Purchase Pledge Backs Low-Yield World
Susanne Walker – Bloomberg
Global sovereign bonds rallied after the European Central Bank expanded its debt-buying program, shrinking the supply of securities and reinforcing policy rates at virtually zero.
Yields declined from Germany to Spain after ECB President Mario Draghi committed to buying up to $1.3 trillion of bonds, including government debt, to revive economic growth and ward off deflation. The Bank of America Merrill Lynch Global Broad Market Sovereign Plus Index had an effective yield of 1.16 percent as of yesterday, close to the record 1.14 percent reached Jan. 19, the lowest based on data starting in 1996.
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‘Too Big to Fail’ on Financial Regulators’ Agenda Again
By Mary Williams Walsh, NY Times
Top financial regulators on Wednesday discussed ways to improve how so-called too-big-to-fail institutions are singled out for closer supervision, but they stopped well short of reversing any designations made so far.
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Opinion: Obama tells investors there’s never been a better time to take risks
By David Weidner, MarketWatch
If you want to know how far Wall Street has come in pushing back the government and taxpayers who bailed it out, look no further than the State of the Union speech delivered Tuesday night by President Obama. The president addressed multiple topics that would have a direct effect on investors, Wall Street and the banking and brokerage sectors. For the industry, the biggest of these was a tax on “highly leveraged” financial institutions to “discourage excessive borrowing.”
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Flight to Volatility Is What You Get in Flight-to-Safety Trades
Lisa Abramowicz – Bloomberg
Investors are piling into U.S. government bonds looking for safety. What they’re getting are securities whose values are fluctuating more than those on junk bonds.
Yields on Treasuries (USGG10YR) have swung twice as much as those on the lowest-rated debt this month as the Swiss National Bank (SNBN) and Bank of Canada surprised markets. Last week, a measure of volatility in the government notes surged to the highest since Oct. 15, even as yields on speculative-grade bonds barely budged, remaining within a 0.04 percentage point range.
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Traders Once Starved for Volatility Now See Too Much
Ari Altstedter – Bloomberg
As the value of the Canadian dollar plunged the most in more than three years in just two minutes, Brad Schruder remembered a lesson he’d learned in the chaos of the financial crisis. “Prices on a screen can no longer be trusted,” Schruder, a director of foreign-exchange sales at Bank of Montreal said Wednesday from Toronto. “No one knows what a price is.”
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MarketAxess outlines targets for BlackRock partnership
The Trade
On Monday, BlackRock and MarketAxess extended their Open Trading partnership to the European credit markets.
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New York Prosecutor Expands ‘Dark Pool’ Complaint Against Barclays
By Keri Geiger, Christie Smythe and Sam Mamudi, Bloomberg
Several Barclays Plc (BARC) executives were aware that the bank was falsely representing how algorithms in its dark pool worked and how client orders were routed, according to an amended complaint prepared by New York’s attorney general.
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Investors urged to block GFI sale to CME
Philip Stafford, FT
An influential US proxy voting advisory service has recommended shareholders of GFI Group, the interdealer broker, vote against a deal to be purchased by CME Group, the US futures exchange operator.
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More Job Cuts at Banks Seen in 2015 in Poll of Investors
By Yalman Onaran, Bloomberg
The bloodletting at banks that started during the 2008 financial crisis isn’t letting up.
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JPMorgan CEO Dimon’s pay package rose above $20 mln in 2014 -WSJ
Reuters
JPMorgan Chase & Co Chief Executive Officer Jamie Dimon received a bigger pay package in 2014 than the $20 million he was given the year before, the Wall Street Journal reported, citing people familiar with the matter.
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JP Morgan forms credit index group to tap into new demand
Reuters
JP Morgan has created a global credit index group within its credit trading department, as the US bank seeks to tap into growing demand from real money for alternative ways of making bets amid decreased liquidity in fixed income, commodity and currency cash markets.
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Royal Bank Buys City National for $5.4 Billion
By Steve Dickson and Doug Alexander, Bloomberg
Royal Bank of Canada (RY) agreed to buy City National Corp. (CYN) for about $5.4 billion in cash and stock in its biggest takeover ever to expand sales to wealthy U.S. residents.
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BlackRock and MarketAxess target Europe
Philip Stafford in London, FT
BlackRock, the world’s largest asset manager, has brought its corporate bond trading venture with MarketAxess to Europe to try to offset the retreat of large investment banks from the market.
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Central Banks

The Powers, and Limits, of E.C.B. Stimulus, as Viewed From Davos
Dealbook – NY Times
As investors on Thursday awaited a decision by the European Central Bank on whether to begin buying up loads of eurozone government bonds — so-called quantitative easing — policy makers and bankers in Davos warned that the move would not be enough to jump-start Europe’s anemic growth.
“It is a mistake to suppose that Q.E. is a panacea in Europe, or that it will be sufficient,” said Lawrence H. Summers, who was Treasury secretary under President Bill Clinton.
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Bond Managers Caught in Liquidity Trap, Loomis’s Fuss Says
Daniel Kruger – Bloomberg
Central banks are creating a liquidity trap where money managers avoiding low-yielding bonds end up adding to reserves returning next to nothing, according to Daniel Fuss, vice chairman at Loomis Sayles & Co.
The collapse of inflationary pressures in the U.S. and abroad, combined with decisions by the European Central Bank and the Bank of Japan to buy government bonds, has fueled a rally in fixed-income that has limited the choices available to investors who want to earn higher yields than available in sovereign debt, said Fuss, one of the Boston-based managers of the $24.5 billion Loomis Sayles Bond Fund.
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Larry Summers: The ECB’s QE won’t work
Stephen Gandel – Fortune
Leave it to Larry Summers to ruin a party.
On Thursday, the European Central Bank is widely expected to announce that it will begin a bond-buying program similar to the what the U.S. Federal Reserve has done with quantitative easing. Many expect QE will generate a huge boost for the European economy, much like it appears to have done in the U.S.. One person not in the group: one of Obama’s former top economic advisors and Harvard professor, Larry Summers.
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Treasury Bond Market Shows Renewal of Inflation-Uptick Concern
Daniel Kruger and Liz Capo McCormick – Bloomberg
The Treasury market is starting to show renewed inflation expectations, giving the Federal Reserve more latitude to raise interest rates while most of the world’s other major central banks add to monetary stimulus.
The debt markets’ outlook for the pace of inflation during next five years has risen on more than half of the trading days this year. A $15 billion sale Thursday in Washington of 10-year Treasury Inflation Protected Securities, known as TIPS, drew a lower-than-forecast yield as investors sought protection against price increases.
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The What and Why of ECB Bond Buying; For How, Watch This Space
David Goodman, Lucy Meakin and Eshe Nelson – Bloomberg
Mario Draghi has told bondholders the what and the why of the European Central Bank’s quantitative-easing plan. He stopped short of telling them the how.
Investors do know that the bond-buying plan will begin in March and amount to 60 billion euros ($68 billion) a month, based on what the ECB president said at a news conference in Frankfurt on Thursday. It’s intended to run until the end of September 2016 and purchases will be made until the ECB is satisfied inflation is back in line with its target.
What’s still unclear is how it plans to do this.
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Europe Debt Risk Falls to Lowest Since 2008 as QE Unveiled
Katie Linsell – Bloomberg
A gauge of corporate credit risk fell to the lowest in seven years after the European Central Bank said it will buy 60 billion euros ($69 billion) of assets a month as part of a quantitative-easing program.
The Markit iTraxx Europe Index of credit-default swaps on investment-grade companies fell as much as 2.2 basis points to 54 basis points. The Markit iTraxx Crossover Index of contracts on high-yield companies dropped as much as 11.5 basis points to 302.5 basis points, the lowest in more than three months.
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Currencies

Goldman’s Cohn: “We are in currency wars”
Reuters
Countries around the world are already engaged in a currency war in a bid to boost growth, Gary Cohn, the president and chief operating officer of Goldman Sachs, said on Thursday
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Euro Falls to 11-Year Low as ECB Expands Bond-Buying; Real Gains
Rachel Evans – Bloomberg
The euro dropped to an 11-year low as the European Central Bank expanded its bond-buying program to include government bonds, a policy that tends to debase the currency.
The 19-nation shared currency slid against all but one of 31 major peers, touching the weakest in almost seven years against the pound, after ECB President Mario Draghi told reporters in Frankfurt the central bank will buy 60 billion euros ($69 billion) a month of public and private debt until September 2016. Only Denmark’s krone fell more as its central bank cut rates a second time this week. Australia’s dollar fell below 80 U.S. cents for the first time since 2009. Brazil’s real gained with Russia’s ruble.
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BOE Lawyer Clashes With U.K. Politicians on FX-Rigging Probe
Gavin Finch and Liam Vaughan – Bloomberg
U.K. politicians questioned the thoroughness of an investigation that cleared Bank of England staff of condoning manipulation in the foreign-exchange market.
In increasingly testy exchanges at a parliamentary hearing Wednesday, Treasury Select Committee members quizzed Anthony Grabiner, the lawyer who led the probe, on whether he too readily accepted a former central bank employee’s version of key events. They also questioned the depth of his knowledge of the currency market and how long he spent on the report.
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CFTC member calls for tougher retail forex broker oversight
Reuters
Forex brokers selling products to retail clients should be subject to the same tough rules as operators in derivative markets, a member of the U.S. Commodity Futures Trading Commission said on Wednesday, as the industry faces closer scrutiny from regulators. Sharon Bowen, a Democratic member of the agency that oversees swaps and futures, expressed the view after a sudden jump in the Swiss franc caused heavy losses at retail broker FXCM and the emergency bailout of the firm by a rival.
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Indexes & Index Products

Eurozone’s periphery stock indices shine
Michael Hunter – Financial Times
Equities indices on the periphery of the eurozone outperformed their peers on Thursday, after the currency area’s central bank adopted a bigger-than-expected quantitative easing (QE) stimulus programme.
Financial stocks rose after the European Central Bank announced monthly QE operations worth EUR60bn to run until the end of September 2016. The market had been expecting EUR50bn worth of measures.
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Two new iShares bond index ETFs launched on Xetra; ETFs provide exposure to long-term euro-zone and US government bonds
Xetra/Börse Frankfurt
Two new iShares bond index ETFs from BlackRock’s product offering have been tradable in Deutsche Börse’s XTF segment on Xetra since Thursday.
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SGX Plans China Equity-Index Options on Futures Demand
By Jonathan Burgos and Adam Haigh, Bloomberg
Singapore Exchange Ltd. (SGX), Southeast Asia’s biggest bourse, plans to start trading Chinese equity-index options as investors seek ways to hedge risks in the world’s most volatile stock market.
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Integrated Latam bourses to offer debt in 2016, sector indexes
Reuters
The Latin American Integrated Market, or MILA, which comprises the bourses of Chile, Colombia, Peru and Mexico, plans to include debt instruments in 2016 and indexes for sectors such as mining and energy, top bourse officials said on Wednesday.
Marking the inclusion of Mexico into the combined market, the officials warned, however, that they expect a slow pick-up in cross-market trading. So far, just one trade has been made by a Mexican brokerage using the platform since early December.
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Gold

PRECIOUS-Gold rebounds to 5-month high after ECB launches QE program
Marcy Nicholson and Clara Denina – Reuters
Gold turned higher and touched a five-month high above $1,300 per ounce on Thursday, after the European Central Bank (ECB) launched a multi-billion euro bond-buying program aimed at reviving a sagging euro zone economy.
President Mario Draghi said the ECB would print money to buy up 60 billion euros ($69 billion) worth of sovereign bonds a month in the euro zone, where inflation at minus 0.2 percent is far below the central bank’s target of just under 2 percent.
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Caution Emerges on Gold Stocks
Rhiannon Hoyle – WSJ
As gold trades near a five-month high, some big investors who have turned to miners of the safe-haven metal to place their bullish bets are turning cautious.
Stocks of companies that dig up gold have been among the world’s top performers. As of the close of trading on Wednesday, the NYSE Arca Gold Miners Index was up about 25% so far this year, compared with a roughly 1% drop in the S&P 500. Spot gold was up nearly 9% year to date here on Thursday.
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Gold gold gold – why we love it, and why it’s driven us mad
Matthew Hart – The Telegraph
So the Royal Mint has started selling gold directly to the public. Welcome to the casino!
Many of you interested in the small-size wafers and ingots that the Mint is flogging will buy the metal because of its safe-haven reputation. Gold, you say to yourselves, is the sturdy craft that will withstand the gales of contemporary financial life, sailing through the sea of storm-tossed currencies and landing on the far shore with precious capital intact. Don’t bet on it. If you like a flutter for nostalgia’s sake, fine. But if you think you’re buying real money, forget it. That was yesterday.
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Speculators Looking for Havens from Slowing Growth are Piling Into Silver
By Debarati Roy, Bloomberg
Silver headed for a bull market in its best start to a year in more than three decades, supported by speculation that slowing global economic growth will spur demand for havens.
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