First Impressions

FinTech Chicago Gets Democratic

Today’s financial technology dialog is often about a word you don’t usually associate with it – democracy – bringing software, data, reporting, testing and trading to the masses. And it’s not just one size for everyone – its customizable too. At the FinTech Exchange 2015 Chicago event, 13 firm executives spoke during its lightning round. So John Lothian News took the best of two hours of presentations and condensed into 3 minutes. Here’s how some of those firms are democratizing and customizing technology for all of us.
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Quote of the Day

“Liquidity risk is a big challenge and it’s now affecting an asset that was once considered most liquid — government bonds.”

Cosimo Marasciulo, the Dublin-based head of government bonds at Pioneer in the story, “Bond Dealers Enfeebled as Liquidity Woes Boost Derivatives”.

Lead Stories

Everyone’s Been Worried About Liquidity in the Wrong Bond Market
While liquidity is a notoriously difficult concept to define, a simple interpretation is investors’ ability to buy and sell a security without significantly impacting its price. For years now, the $7.5 trillion U.S. corporate bond market has been the center of liquidity concerns as investors, traders and regulators all fret about the ability of investors to exit their large positions in such securities. With interest rates hovering around zero, U.S. companies have rushed to issue debt and investors have been all too eager to snap it up. At the same time, post-financial crisis regulation has made it more expensive and more difficult for big dealer-banks to hold such bonds on their balance sheets and facilitate trades for investors.

Goldman Sachs Asked Two of the World’s Best-Known Economists If U.S. Stocks Are in a Bubble
Even if the S&P 500 is only up about 2 percent year-to-date, it’s still sitting at record levels. This means economists, analysts, and investors are inevitably asking one big question: Are stocks overvalued?

HSBC set to cut thousands of jobs globally: Sky News
HSBC Holdings Plc (HSBA.L) is planning to cut thousands of jobs globally and is set to make an announcement next week, Sky News reported on Monday, citing unidentified sources.
Chief Executive Stuart Gulliver will lay out these plans next week on June 9 at an investor presentation, the broadcaster said.

Unclear rules, market volatility take toll on bank capital
The rate at which European banks raised subordinated capital plummeted in the first five months of the year as they struggle to navigate a treacherous regulatory framework and market. It is a blow to those who expected banks to quickly build up an additional layer of loss-absorbing capacity (TLAC) to meet new global proposed requirements.

Dimon has a point about proxy advisers
Financial Times
One of the lessons of the financial crisis is that investors should beware of subcontracting key financial decisions to third parties. History might have been different had they been less willing to trust the word of credit rating agencies in the run up to the 2007 crash. However wise intermediaries may seem, they are as prone to conflicts of interest as anyone else.

Bond Dealers Enfeebled as Liquidity Woes Boost Derivatives
by Susanne Walker Barton and Anchalee Worrachate, Bloomberg
As Wall Street retreats from its traditional role as the bond market’s middle man, investors frustrated by sudden gyrations and a lack of liquidity are turning to derivatives — in a big way.
In the world’s biggest debt markets, including the U.S., Europe and Japan, the number of futures contracts on government debt reached a post-crisis high in May after doubling since 2009. Trading of German bund options and Italian futures also hit records.

Executive pay has become totally dysfunctional’
Attracta Mooney, FT
The ability of the UK’s fund industry to tackle rising boardroom salaries and complicated pay structures has been called into question amid suggestions that asset managers also benefit from a high-pay culture.

Merrill Lynch pays $11 million to settle short sale violations
Two units of Bank of America’s brokerage arm Merrill Lynch agreed to pay $11 million and admitted they violated certain federal rules by using inaccurate data for short sale orders, U.S. regulators said on Monday.
A Bank of American spokesman said in a statement the brokerage has since “taken steps to improve our internal controls related to execution of short sales.”

Thomson Reuters Expands Financial Markets Psychological Analysis Service
Press Release
Behavioral economists have long recognized that investor perceptions affect financial markets in predictable ways. News and social media are increasingly driving investor activity, with many trading decisions based on emotional responses to the stories circulating around particular companies or sectors. The ability to measure the psychological state of the market as represented by these emotional expressions offers significant advantages in defining effective trading strategies. This is especially the case when applied at the level of individual companies.

Britain to Extend Trading Plan to Reduce Its Stake in Lloyds Banking Group
Dealbook – NY Times
The British government said on Monday it would extend a trading plan to sell down its stake in the Lloyds Banking Group and said it would offer some of its holdings to retail investors in the next year.
The government also said it had reduced its stake in Lloyds to just below 19 percent through additional share sales as part of the trading plan that will now run through December. The trading plan, which is being managed by Morgan Stanley, had been set to expire this month.

Will Greece Join These Deadbeats That Missed Debt Payments to the IMF?
If cash-poor Greece fails to make any of its $1.7 billion in loan repayments to the International Monetary Fund this month, starting with $334 million due Friday, the country will be enshrined in history with a group of current and former deadbeats that includes Cuba, Zimbabwe, and Sudan.

Argentina Is Racking Up Debt Even Faster Than During Its 2001-2002 Crisis
One gets a strange sense of deja vu looking at Argentina accumulate debt even faster than in 2001, the year of its infamous default.
The government announced last week that the primary deficit, which excludes debt payments, jumped to 17.4 billion pesos ($1.93 billion) in March, compared with a 3.6 billion peso surplus just one year earlier. The last time Argentina posted a shortfall for March was in 2002, three months after reneging on a record $95 billion of debt.

Central Banks

EU watchdog warns of QE pressure on insurers
The European Central Bank’s money printing programme known as quantitative easing (QE) is putting additional pressure on the bloc’s insurance companies and pension funds already beset by low interest rates, the EU’s insurance watchdog said on Monday.

For Fed, Dollar’s Strength Complicates Rate-Hike Calculus
Many Federal Reserve officials entered 2015 thinking they likely would start raising short-term interest rates by midyear. That idea got put on ice after a winter economic slowdown, partly attributed to the dollar’s rapid rise in previous months.

Fed’s Rosengren: economy growing too slowly to justify rate hike
With little evidence the U.S. economy is rebounding after a very weak first quarter, the Federal Reserve is in no position to start raising interest rates for the first time since 2006, a top Fed official said on Monday.
“I would like to normalize (rates) as soon as possible … but the conditions haven’t been right,” Boston Fed President Eric Rosengren said, adding that there are side effects to keeping rates low for a long time. “In some sense when we start raising rates that’s good news.”

Now we know what the Federal Reserve did to inequality
One of the most common criticisms of the Federal Reserve’s easy-money policies is that they primarily benefit the rich.
It’s easy to see why. The central bank steers the economy by setting a key interest rate that influences financial markets. Eight years of that rate at zero and $3 trillion in stimulus money have helped the major U.S. stock indexes notch new record highs month after month — even as wages for most of the nation remain stagnant.

American Inflation Soon To Be Every Central Banker’s Worst Nightmare
In the closed door offices of central bankers from Brazil to Moscow, there is a growing concern that the currency wars of QE I, II and III will eventually take a turn for the worst. And there is not much they can do about it.
While it might not be a surprising turn, the problem is no one really knows what to do when inflation hits the U.S. and elsewhere.


Thomson Reuters Proposes FXall Upgrade to Raise Industry Standards
Thomson Reuters is bidding to improve industry standards and transparency through upgrades across its FXall trading platforms through operational procedures including a Provisory Liquidity protocol, which will “outline clear and consistent eligibility and qualification rules” for price makers.

Cyber criminals cashing in on digital currencies
In the digital age, money is rapidly evolving into lines of computer code which can easily be hacked, ransomed or stolen by organised criminal gangs (OCGs).
While computerised digital transactions have been instrumental in promoting international commerce and the creation of what is becoming a global economy, they come with a price. The fact that much of the world’s wealth is now stored on computer servers means that this wealth can be stolen or ransomed by cyber criminals. There are also fears that cyber terrorists, possibly state activists in the pay of a foreign power, might simply wipe all records of a significant proportion of the West’s wealth in order to create economic chaos and a financial meltdown.

Indexes & Index Products

Euronext launches country indices for Germany, Italy and Spain
Euronext, the primary exchange in the Eurozone, today announced the launch of three country indices: the Euronext Germany Index GR (ENDEG); the Euronext Italy Index (ENITI); and the Euronext Spain Index (ENESI). The indices will serve as the underlying for new index futures and index options, which will be available for trading in the third quarter of 2015.

MSCI says not bound to annual review cycle on China A share inclusion
Stock index provider MSCI is flexible on the timing of when it holds reviews on whether to include Chinese A shares in its indices and is not bound to an annual schedule, an official told reporters on Monday.

FTSE Russell and Research Affiliates Launch New Smart Beta Index Series | Business Wire
London Stock Exchange
New index series focuses on high dividend-paying, high quality stocks
Builds on 10 years of smart beta leadership and innovation from FTSE Russell and Research Affiliates
Source ETFs to track the index series in Europe
FTSE Russell, the global index provider, and Research Affiliates LLC, a pioneer in smart beta strategies, today announce the launch of new smart beta indexes: the FTSE RAFI Equity Income Index Series. The benchmarks will track high dividend-paying stocks which are screened to target sustainable income. The indexes are weighted according to fundamental measures, as opposed to market capitalisation.


DGCX introduces data enriched website
The Dubai Gold and Commodities Exchange (DGCX) announced the launch of Market Watch, a content rich micro-website that provides in-depth analysis of trading data and price movements of DGCX products along with charts and market depth features. Market Watch can be accessed from the main DGCX website

Gold Gains Allure as U.S. Economy Stumbles
Some investors who aren’t sold on the strength of the U.S. economic recovery are taking a shine to gold.

Texas set to create a gold depository
Eva-Marie Ayala – Dallas News
All that glittering gold doesn’t have to go to Fort Knox or the Federal Reserve in New York.
Instead Texas will soon be able to keep their precious metals in a new bullion depository lawmakers approved today. The bill goes to to governor.
Now, this isn’t a place to store Great Aunt Margaret’s earrings.
Public agencies, corporations or even individuals could store gold or precious metal there if it is in certain form — such as bullion or specie, which are generally gold or silver stamped.

Spinning gold into dollars: how BitGold intends to become a new standard
One of the financial world’s newest innovations – digital currency – has run full tilt into one of its oldest concepts, gold as a medium of exchange
Suzanne McGee, The Guardian
When Josh Crumb and his colleague started out, they just wanted to figure out a way to allow people to pay for a cup of coffee with gold. Yes, you read that correctly. With gold.


U.K. Banks Reviewing Payments Linked to FIFA Probe
U.K. banks Barclays PLC and HSBC Holdings PLC are reviewing payments that were allegedly used to bribe FIFA officials, according to people familiar with the matter.

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