First Impressions

Dodd-Frank in Action: Swap Dealer Risk Management Reviews
Doug Ashburn – JLN
The first few years after the signing of the Dodd-Frank Act, the the narrative was all about the future – how an estimated 400 rulemakings would be implemented and how participants would be affected.

The future is here, as financial entities begin grappling with the new regulations. One such newly-implemented rule requires swap dealers, major swap participants (SD/MSPs) and futures commission merchants (FCMs) to undergo risk management program reviews. If you are keeping score at home, the SD/MSP reviews are required under CFTC Reg. 23.600 and for FCMs, it is CFTC Reg. 1.11.

Jim Falvey, veteran derivatives attorney, now a regulatory compliance manager at McGladrey, was part of a team that just completed such a review, for a U.S. swap dealer, and he shares a few of his insights from the front lines. He says that the clock starts ticking based on the end of an entity’s fiscal year, and the annual report must be completed no later than 60 days after the end of the fiscal year. Though the regulations do not require the use of a third party such as McGladrey to conduct the annual review and testing, if a third party is not used, it should be done by “qualified internal audit staff that are independent.”

Read the rest of the column, including the steps involved in a review, plus a few tips, tricks and lessons learned from the first round of reviews, on

Quote of the Day

“The Federal Reserve has long cooperated with Congress including by providing Congress with confidential information about the Federal Reserve’s activities, decisions, operations and responsibilities, both on the Federal Reserve’s own initiative and in response to requests from Congress.”

Janet Yellen in a letter to congress in the story, ” Just How Leaky Is the Fed? More Than You May Realize”.

Lead Stories

For short-sellers in U.S. stocks, the agony just piles on
In January 2014, veteran short-seller Bill Fleckenstein said he was readying a new fund to bet on falling stock prices. More than a year later, he’s still waiting to launch that fund. Despite lackluster U.S. economic data, a world grappling with slow growth, concern that Greece and Ukraine could default on their debts, the U.S. stock market has been more than resilient. Even after a selloff on Friday, major indices are less than two percent from all-time highs and volatility measurements have been close to their lowest levels for 2015.

Some banks tried to renege on deals after SNB’s policy U-turn-Bloomberg
After the Swiss National Bank abandoned its price cap on the franc in January, some dealers such as Bank of America Corp, Barclays Plc and Goldman Sachs Group Inc approached customers about changing some trades, Bloomberg reported, citing people familiar with the discussions.

Morgan Stanley Takes Different Path to Rival Goldman
Dealbook – NY Times
Morgan Stanley’s divergence from Goldman Sachs’ strategy is starting to pay off. James P. Gorman’s firm had its best quarter in years in the three months to March. Its Wall Street arch rival still has the edge on earnings performance. By one important metric, however, investors value Morgan Stanley more highly.

Goldman, Morgan Stanley Widen Equity-Trading Lead on U.S. Rivals
Goldman Sachs Group Inc. and Morgan Stanley stretched their equity-trading lead over rivals as they led U.S. banks in reporting the most revenue from that business in more than five years.
The five largest Wall Street firms reaped $8.24 billion from trading stocks, options and other derivatives and running prime-brokerage operations in the first quarter. That was 24 percent higher than a year earlier and the most since at least the final quarter of 2009, the earliest period Goldman Sachs reported under its current structure.

Look Inward to Determine Your Financial Values
NY Times
I’ve been surprised by a lot of things as a financial adviser. One of the biggest surprises has ended up playing a critical role in my development: the process of self-examination.
It has mattered both professionally and personally, and it should to you too. Yet hardly anyone openly talks about the need to get really clear with ourselves in an attempt to understand why do we do what we do with our money. And this avoidance is an enormous mistake.

World’s Biggest Wealth Fund Seeks One Dark Pool to Cut Costs
by Jonas O Bergman, Saleha Mohsin, Bloomberg
Norway’s $890 billion wealth fund is taking the rare step of publicly criticizing the proliferation of dark pools, arguing the world’s biggest investors only need one such platform.

Jon Corzine Considers Launching Hedge Fund; Plan would mark return to finance for embattled former MF Global CEO
Jon S. Corzine, the embattled former MF Global Holdings Ltd. chief executive and ex-chairman of Goldman Sachs Group Inc., has discussed plans to start his own hedge fund in recent months, according to people familiar with the matter.

Morgan Stanley, NY attorney general in $500-million talks to settle probe:
Morgan Stanley is in discussions to pay $500 million to settle an investigation by New York’s attorney general into whether the Wall Street bank misled investors in taking mortgage bonds that lost value during the financial crisis, the Wall Street Journal reported Sunday in its online edition, citing people familiar with the matter.

Deutsche Bank prepares to spin off Postbank
James Shotter in Frankfurt, FT
Deutsche Bank is preparing to divest its Postbank retail operation in the latest strategy overhaul by a big global bank in response to sluggish markets and a welter of tough new regulations since the financial crisis.

HSBC to look at best place for HQ when ‘mist lifts’ on regulation
HSBC Holdings Plc (HSBA.L) will look at whether to move its headquarters from London once the regulatory environment becomes clearer, the chairman of Europe’s biggest bank said on Monday.

Clearing houses hit back at European plans
Philip Stafford,
A group of seven European derivatives exchanges operators have hit back at regulators’ plans to give investors greater choice to trading futures and options, saying law drafts underplay risks to financial stability.

EU prepares rules for tackling failed financial firms outside banking
The European Union is looking at creating rules on how to deal with financial firms outside the banking industry that run into trouble, including clearing houses, insurers and asset managers, the EU’s financial services chief said on Friday.

Regulatory Relief for Banks That Rarely Fail
Rolling back regulations created after the 2008 crisis has been Job 1 for leaders of many of the nation’s large and powerful banking institutions. So it’s no surprise that recent proposals for regulatory reform in the financial industry have overwhelmingly been the work of big banks or their supporters. The bankers want to return to the days when they could roll the dice, pocket their winnings and rely on the taxpayer if something went wrong.

Financial Crisis Cases Sputter to an End
Dealbook – NY Times
Yogi Berra once said that “it ain’t over ’til it’s over.” Unlike the final out or winning run in a baseball game, determining when cases arising from the 2008 financial crisis will end is a bit harder to discern. But the resolution of two cases last week clearly indicates that enforcement actions for conduct leading up to the crisis are pretty much done, with no real finding of liability for violations.

Central Banks

Just How Leaky Is the Fed? More Than You May Realize
by Alan Katz, Bloomberg
The leak came from the inner sanctum of Federal Reserve Bank of New York.

World Braces for Taper Tantrum II Even as Yellen Soothes Nerves
by Simon Kennedy, Andrew Mayeda, Bloomberg
The world economy is about to discover if to be forewarned by the Federal Reserve is to be forearmed.

Ranking vulnerability to US Federal Reserve action
Financial Times
How vulnerable are emerging markets to capital outflows? With the US Federal Reserve on a long-term course of balance sheet shrinkage even as the European Central Bank embarks on expansion, it is a question that EM investors are struggling to answer.

Fed’s Dudley hopeful on rate hike this year
Economic performance will determine when the Federal Reserve finally raises U.S. interest rates from near zero, an influential Fed official said on Monday, adding he hopes to tighten policy later this year.
“We have to see what unfolds,” New York Fed President William Dudley said in a speech that repeated cautious optimism that the U.S. economy will continue to expand and that inflation will begin to firm later this year.

Wall Street’s B.S. About Bernanke’s New Job
Former Federal Reserve Board Chairman Ben Bernanke announced last week that he had accepted an offer to become a senior advisor to a hedge fund.
Wall Street howled that Bernanke had done something so wrong that it was close to criminal. For example, take a look at this piece from CNBC where one trader was quoted as saying that taking this job would make the former Fed chairman “one of the most vilified people of the 21st century.”

Fed’s had leaks but nobody caught since ’80s
The Salt Lake Tribune
The leak came from the inner sanctum of Federal Reserve Bank of New York.
Inside the regal board room of the New York Fed in lower Manhattan, a director quietly telephoned a brokerage with inside information on interest-rate policy.
It was 1984, and the director, Robert Rough, had been tipping off the New Jersey brokerage for more than a year.

Fed Weighs Steps to Prevent ‘Regulatory Capture’ by Banks
The Federal Reserve, criticized by lawmakers for being too cozy with Wall Street, is considering tougher measures to restrict bank examiners from leaving to take jobs at firms they have overseen.
Currently, the two most senior employees assigned to a bank are barred from joining a firm they examined for one year after leaving the central bank system. Fed officials are discussing whether to expand the prohibition beyond those top positions, according to a person with knowledge of the matter.


Swiss Franc Antics Threaten Banks’ Grip on Currency Trading
by John Detrixhe, Gavin Finch, Stephen Morris, Bloomberg
The grip of the world’s biggest banks on the $5.3-trillion-a-day currency market is under attack.

IMF Declares Currency Speculators Losers in Denmark’s Peg Battle
Three months after Denmark became the target of a speculative attack against its currency regime, the International Monetary Fund says the country’s central bank has gained credibility after forcefully fighting back the onslaught.
Policy makers “did a good job of making it clear that the peg would stand and making it clear that it would be unprofitable to speculate against it,” Thomas Dorsey, the IMF’s mission chief to Denmark, said in an interview. “Having for a generation-plus maintained the peg against pressure in both directions, they gain credibility each time and they did it again this time around.”

Could Greece End Up With Two Currencies?
MoneyBeat – WSJ
Some think Greece should stick with the euro, no matter what. To abandon it would cause a firestorm of economic destruction. Others argue that Greece would be better off with its own currency, which it could devalue at will and thus find a much less painful route to recovering competitiveness than the existing austerity/deflation path.
Then again, there might be a third way: for Greece to keep the euro and have another currency besides. Indeed, the country might well be forced into just such a solution.

An Introduction To Trading Forex Futures
The global foreign exchange market accounts for over $5 trillion U.S. dollars worth of average daily trading volume, making it the largest market in the world. Within this market, there is a growing class of derivative securities: forex futures. This article will define and describe these futures contracts and their popular applications, as well as present some analytical tools necessary to successfully negotiate a contract in the $112 billion dollar a day forex futures space.

Indexes & Index Products

Does Your Mutual Fund Own Too Much Apple?
Apple constitutes 3.9% of the Standard & Poor’s 500 index, which means money managers who track their performance against the S&P take a big risk if they don’t own a similar weighting. Apple looms even larger for technology fund managers who compete against the Powershares QQQ ETF (QQQ), in which the stock has a 14% weighting. Even investors looking for broad diversification have to account for Apple; it constitutes 3.3% of the Russell 3000.

Finding the 84% of Stock Market Value That Most Investors Ignore Global Financial Community
For the S&P500 equity index, 84% of the market value is “intangible” – from assets not captured on the balance sheet, like human capital – while only 16% is “tangible” – cash, receivables, plant, property, equipment, inventory, which we all learned in Accounting 101.

Biotech Has More Room to Run
Indexology – S&P Dow Jones Indices
S&P Capital IQ equity analyst Jeff Loo expects approximately a dozen drugs to be approved and launched in 2015 with the potential to achieve blockbuster sales levels of more than $1 billion annually by their fifth year after launch (2020). Total sales for the seven biotech companies in the S&P 500 rose 41.5 % in 2014, driven by new drug approvals, and sales growth of 122%. In 2015, our forecasted rate of increase moderates to 13.2%, nonetheless, an impressive rate, in our view. Loo projects gross margin for those seven S&P 500 constituents, to widen to 89.8% in 2015, from 88.6% in 2014.


The Mystery of China’s Gold Stash May Soon Be Solved
China’s push to challenge U.S. dominance in global trade and finance may involve gold — a lot of gold.
While the metal is no longer used to back paper money, it remains a big chunk of central bank reserves in the U.S. and Europe. China became the world’s second-largest economy in 2010 and has stepped up efforts to make the yuan a viable competitor to the dollar. That’s led to speculation the government has stockpiled gold as part of a plan to diversify $3.7 trillion in foreign-exchange reserves.

Slow start to year for gold miners
Financial Post
The first-quarter earnings season, which kicks off for the senior gold miners later this week, is traditionally the sector’s weakest quarter of the year, and 2015 should be no different.
Analysts at TD Securities expect the seniors to report an overall 10-per-cent drop in gold production compared to the fourth quarter. That will lead to a small increase in cash costs, which will offset the benefit from a slightly higher gold price (which rose 1.5 per cent in the quarter). Margins are expected to be flat, though producers outside the U.S. will benefit from the recent strength of the greenback.

Russia Returning to Gold With Biggest Purchases in Six Months
After a two-month hiatus, Russia’s appetite for buying gold is back.
The nation increased foreign reserves of bullion to 39.8 million ounces, or about 1,238 metric tons, as of April 1, compared with 38.8 million ounces a month earlier, the central bank said on its website Monday. The 30-ton purchase was the most since September.

Gold no longer holds glitter for investors
Business Line
Just two years ago, investors were in a frenzy to purchase gold and mutual fund houses were aggressively selling gold funds. But today, neither fund houses nor investors seem to be interested in gold.
Domestic gold ETFs have seen their assets halve in the last two years as investors rushed out of these funds. These ETFs managed assets worth 6,655 crore as of March 2015, down from 11,648 crore in March 2013.

Barrick taps Michael Klein as advisor on Zaldivar mine options-sources
Barrick Gold Corp is being advised on options for its Zaldivar copper mine in Chile by the boutique firm of mining rainmaker Michael Klein, in a deal potentially worth around $2 billion, three sources familiar with the matter said on Monday.


Here’s Who’s Hiring and Firing on Wall Street
Wall Street keeps shrinking. Overall, the six biggest U.S. banks, squeezed by regulation and constrained by the sluggish global economy, cut more than 4,000 jobs in the first quarter.
Three firms, Wells Fargo & Co., Goldman Sachs Group Inc. and Morgan Stanley, added positions over the first three months of 2015.

Praise and Skepticism as One Executive Sets Minimum Wage to $70,000 a Year
NY Times
When Dan Price announced last week that he would cut his own pay and profits to make it possible to raise the minimum wage at Gravity Payments, his credit card processing company in Seattle, to a hefty $70,000 a year, he had little idea of the whirlwind it would stir.
While the overwhelming majority of the responses on social media and elsewhere were positive — punctuated with labels like “hero” and hand-clapping emojis — there were also a number of skeptics and naysayers.

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