First Impressions

Exchange CEO Series – Asian Opportunity: CME Group’s Phupinder Gill says Asia is the place to be

Exchanges have never faced more challenges and opportunities than they do today.

John Lothian News sat down with six exchange CEOs at the 2014 FIA Boca Conference to talk about their views on four main topics: competition, regulation, growth and technology. Phupinder Gill, CEO of CME Group, said that regulation will continue to define the competition and industry framework for the foreseeable future and rising global demand for existing and new products, particularly from Asia will drive growth.

“The competitive landscape, as it stands now, is going to be largely dictated by where the regulatory landscape takes us,” Gill said. “As exchanges with a global footprint start to think about how the world might evolve, you have to take into account a few things – what the impact of Dodd-Frank is, the finalization of the SEF rules, how MIFID and EMIR work themselves out and implications for infrastructure providers such as ourselves. The trick for us is to make the experience for our client base as seamless as we possibly can.”

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Quote of the Day

“Had there been more transparency, either they could have avoided mistakes like this or the mistakes wouldn’t have been such a surprise. The exercise itself shouldn’t be a source of instability.”

Wayne Abernathy, executive vice president for regulatory affairs at the American Bankers Association in the story, “Fed Flunks Its Stress Test”.

Lead Stories

JLN/MarketsWiki 2014 Annual Survey – Please Give us 30 Seconds of Your Time
John Lothian News
You still have time to fill out our quick demographic survey and get in the running for your choice of an iPad Mini or a pair of Bose Quiet Comfort Noise-Canceling Headphones. The cost is a mere 30 seconds of your time. Answers will be kept confidential.

***** If you won the right to be guest editor for a day, would you fill out our survey? I am willing to add that if we can get to 1000 responses.

Fed Flunks Its Stress Test
Stephanie Armour – MoneyBeat – WSJ
The Federal Reserve takes its annual stress tests exercise seriously. So when it issued a correction to its numbers on Friday, it caught many market watchers by surprise.

**JK – Living up to the adage that those who set standards, should live by them.

Brave new world of electronic bond markets
Michael Chuang –
As bond markets continue the march towards greater electronic execution, there are increasing signs that bond trading venues owned by single dealers will not have much of a role in the new world.

**JK – This is true, and by regulatory design.

Nasdaq NLX says 10 percent market share in key contract shows momentum growing
Nasdaq OMX’s new London-based derivatives exchange has achieved 10 percent market share in one of its contracts, a level of liquidity that will draw more market participants to connect, its chief executive said.
**JK – If you like Euribor competition, this is the story for you.

Foreign Grip on Treasuries Loosens Buoyed by U.S. Demand
Daniel Kruger – Bloomberg
Overseas creditors such as China and Japan enabled the U.S. to spend its way out of the recession as they gobbled up 80 percent of the nation’s Treasuries. Now, their holdings are dropping toward the lowest level in a decade, while homegrown investors have picked up the slack.

**JK – Interesting look at the shift toward domestic buyers of US Treasuries.

China Money Rate Completes Longest Rising Streak in Eight Months
China’s benchmark money-market rate rose for an eighth day, the longest stretch since July, after a central bank official said the nation will make “substantial progress” in freeing up interest rates.

European regulators warn as risky loans rise above bubble peak
Anne-Sylvaine Chassany and Martin Arnold in London –
Debt investors are abandoning normal creditor protections on European leveraged buyout loans as they snap up riskier securities at a faster rate and in greater proportions than at the peak of the credit bubble.

**JK – The search for alpha goes on.

Goldman’s Un-Goldman-Like Fix for the Market’s Glitch Problems
Scott Patterson – MoneyBeat – WSJ
Goldman Sachs Group Inc. President Gary Cohn dived headfirst into the shark tank that is the current debate about computer-driven markets Friday with an op-ed in The Wall Street Journal. To which we say: Welcome, what took you so long?
**JK – A look at a potential cure for HFT ills. IEX Group is at the center of it.
Global banks race to issue debt in first quarter
Vivianne Rodrigues in New York and Christopher Thompson in London –
Global banks have been aggressive borrowers in the first quarter of 2014, taking advantage of low funding costs and demand for high-quality corporate debt to push bond sales in the US to record levels.

Fed’s expanding repo role risks backfiring
Michael Mackenzie and Tracy Alloway in New York –
The Federal Reserve is muscling into the shadowy realm of funding and leveraging once dominated by the shadow banking industry, seeking to reduce the possibility of tensions in the repo market.

Central Banks

Inside Fed Statement Lurks Hint on Rates
Federal Reserve Chairwoman Janet Yellen caused a stir last week when she suggested the central bank might start raising short-term interest rates a little sooner than investors were expecting. In focusing on that, Wall Street might have glossed over news of greater consequence.

ECB Stands Ready to Act if Needed, Says Council’s Liikanen
The European Central Bank will stick to its accommodative monetary policy stance to help the euro area economy recover properly, European Central Bank Governing Council member Erkki Liikanen said Monday.

Pari passu, plus ça change
Joseph Cotterill | FT Alphaville
Ah, spring: a season of renewal. The scent of flowers carried on a gentle breeze. And the international financial community can go back to arguing all over again about whether a promise which Argentina made in a bond issued twenty years ago – to treat creditors equally – will end up making sovereign debt restructuring harder to achieve.

China’s central bank to focus on deposit rate reform, ease grip on yuan
China’s central bank will focus on liberalizing bank deposit rates over the next two years, while loosening its grip on the yuan currency to give greater influence to market forces, a vice governor of the People’s Bank of China said on Saturday.

Statement on Dissenting Vote at March 19, 2014, Meeting of the Federal Open Market Committee

Kocherlakota won’t become Fed’s next habitual dissenter
Minneapolis Federal Reserve Bank President Narayana Kocherlakota, whose differences with Fed Chair Janet Yellen over rewriting the central bank’s pledge to keep interest rates low led him to cast the sole dissenting vote on Fed policy last week, has no plans to make a habit of saying “no,” people familiar with his thinking say.

HOW TO PLAY IT-Yellen surprise suggests investors should go on defense
Investors worried the Federal Reserve will start raising interest rates in a year’s time or even sooner should stick with shorter-maturity bonds, high-quality corporate debt and stocks with attractive dividends like utilities.

Reserve Bank has yet to decide on inflation targeting: Guv
Business Standard
Amid caution from various quarters on the Urjit Patel committee’s recommendation that monetary policy should move towards inflation targeting, Reserve Bank of India Governor Raghuram Rajan said on Friday the proposal was still being discussed.

Rajan thanks Chakrabarty, says search on for successor
Business Standard
Thanking Deputy Governor K C Chakrabarty for his services to the central bank, Reserve Bank Governor Raghuram Rajan today said an exercises has been initiated to find his successor.

Federal Reserve Governor Jeremy C. Stein At The International Research Forum On Monetary Policy, Washington, D.C. , March 21, 2014, Incorporating Financial Stability Considerations Into A Monetary Policy Framework


When does an FX spot become a forward?
Paul Murphy | FT Alphaville
Don’t ask a European regulator. Or, if you do, don’t expect an answer any time soon. We’ve written about the feud between the European Commission and the new-ish fangled ESMA before. Last time it was about the fact that no one seemed to be able to agree what constituted an “alternative investment.” This time it’s over a failure to agree a common definition of what constitutes a “derivative.”

Yuan’s Decline Raises Concerns Over Currency War
The recent sharp decline in the Chinese currency is threatening to exacerbate China’s trade tensions with the U.S. and raising concerns over a potential currency war in Asia.

WM owner State Street says no decision on FX fix changes
State Street said on Friday it had no formal plans to overhaul the WM/Reuters foreign exchange fixing, the benchmark rate which is at the centre of a global investigation by regulators into possible manipulation.

Venezuela Loosens Currency Regulations
Venezuela’s Socialist government, facing weeks of street protests, is loosening currency regulations as it tries to jump-start an economy plagued by shortages of food and consumer goods.

Time for a change in foreign exchange
Joel Clark – Financial News
It was the birthday party that never happened. In November 2013, the Bank of England had planned to host a cocktail party to celebrate the 40th anniversary of the establishment of its Foreign Exchange Joint Standing Committee.

Marc Andreessen, Web Pioneer, Keeps Faith—and Cash—in Bitcoin
Internet pioneer Marc Andreessen is doubling down on bitcoin amid turbulence in the virtual-currency world, in a bet that widespread adoption of the currency will fuel the growth of new businesses and technologies.

Indexes & Index Products

Euro Area Survey Indexes Stay Close to Three-Year High: Economy
John Fraher and Catherine Bosley – Bloomberg
Growth in euro-area manufacturing and services stayed close to the fastest since 2011 in March as France improved, providing further evidence that the region’s recovery is on track.

Bucharest Exchange Readies Index Expansion
Giulia Lasagni – WatersTechnology
The Bucharest Stock Exchange plans to launch two new indexes plus supporting data this year and to revise its existing Bucharest Stock Exchange Trading Index (BET) index family, in a move to turn its indicators into more accurate representations of the markets.


KRX Launches Gold Spot Market
As a joint initiative announced last year among related institutions to facilitate transparent, electronic trading of spot gold on a regulated exchange, Korea Exchange(KRX) has pushed forward to launch its first gold spot market(“KRX Gold Market”) on March 24, 2014.

Goldman Sachs: Gold’s Rally Won’t Last
MoneyBeat – WSJ
Gold has been one of the top performers across asset classes this year, up 11%, but Goldman says unsustainable catalysts have driven the rally. The firm doesn’t believe the recent gains are sustainable.

Hedge Funds Defy Goldman as Gold Bears Thank Yellen: Commodities
Debarati Roy and Megan Durisin – Bloomberg
Goldman Sachs Group Inc. and Societe General SA can thank Janet Yellen for helping to get their bearish forecasts for gold back on track.
After hedge funds piled into the precious metal this year with the most bullish bets in 16 months, defying the predictions of lower prices by Goldman and SocGen, gold tumbled last week by the most since November as Federal Reserve Chair Yellen said economic stimulus could end this year, with interest rates starting to rise in early 2015.

Is it time to give up on gold?
Jeff Reeves – MarketWatch
There are some Federal Reserve haters out there who think it’s wise to put over half of your portfolio in gold bullion to protect you against inflation and the inherent volatility of stocks.
On the other hand, there are others who think the gold standard is a “barbarous relic” or think Martians would be baffled by our affinity for the precious metal.


Citigroup’s View of How Bond Investors Are Positioned
Neelabh Chaturvedi – MoneyBeat – WSJ
Negative bets on French bonds have long been a widow-maker. Investors are now starting to pay heed.

**JK – Who to follow – British or Japanese investors?

Riskiest Bank Bonds Attract Aviva as European Defaults Slide
Rachel Evans – Bloomberg
Aviva Investors sees value in some of Europe’s riskiest bank debt as defaults in the region decline amid signs of economic stability.

Chinese Investors Call for More Transparency in Trust Products
Defaults in China’s $1.8 trillion trust industry are triggering protests and spurring calls from legal experts for clearer rules on sales of investment products.

Dark debt II: the undarkening
David Keohane | FT Alphaville
The rather less dramatic sequel is brought to you by Nomura: This is, once again, that dark debt which may not as yet have been factored in or priced into asset prices and which could cause trouble as carry trades unwind in the face of a tapering Fed.

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