First Impressions

It’s Time
Jim Kharouf, Editor-in-Chief, John Lothian News
It’s time for the derivatives industry to innovate again. The last several years have been focused on redefining, resizing and revising the industry’s structure and rules.

Now with much of that set, it’s time for some real product innovation. There are many areas in which innovation can be extended and explored but for the purposes of this column, it’s in the contract space. An argument could be made that the last great product innovation in the derivatives industry was the CBOE Volatility Index futures, an index that was launched 10 years ago.

There have been a few other hits along the way but I’m talking about something new, interesting and potentially world changing. If the derivatives industry is truly about enabling companies, institutions and individuals to offset risk, then its time to address some truly global issues such as healthcare or more directly, cancer.

Andrew Lo, the director of the Massachusetts Institute of Technology Sloan School of Management’s Laboratory for Financial Engineering, believes he has part of the answer to curing cancer – better financial engineering using derivatives.

There’s more! Read the whole article on the JLN Blog at

Quote of the Day

We haven’t expected exciting growth for a while, but it does look like seasonally adjusted home prices are still growing

Economist Robert Shiller, after the release of the S&P/Case-Shiller Housing Index, quoted in the CNBC piece “Home prices up more than expected”

Lead Stories

Home prices up more than expected: S&P/Case-Shiller
U.S. single-family home prices showed a stronger-than-expected rise in September on a yearly basis, but the rate of the increase decelerated from August, a closely watched survey showed on Tuesday.

***DA: Spin zone: “continued deceleration” or “better than expected” depends on one’s macro view.

CME to launch repo futures through BNY Mellon agreement
CME has teamed up with BNY Mellon to launch futures contracts based on US Tri-Party Repo indices, set to go live in 2015.

EU bond yields smash records on QE hopes
Elaine Moore – Financial Times
Another hint of government bond buying by the European Central Bank, another set of records smashed for low government bond yields.

***DA: Race to the bottom.

Protocol plan to boost bond liquidity
Tracy Alloway in New York and Philip Stafford in London – Financial Times
An ambitious bank and asset management-backed plan to boost falling liquidity in the bond market has reached a key milestone after the 26 institutions behind “Project Neptune” finalised the technical building blocks that underpin it.

***DA: An electronic solution to an unintended consequence.

Return of Russian Short-Term Bonds to Boost Banks: Deutsche Bank
Jason Corcoran – Bloomberg
The reintroduction of Russian short-term treasury bills known as GKOs could help balance the budget and support the banking system, according to analysts at Deutsche Bank AG. (DBK)

Lies, damned lies, and liquidity expectations
Izabella Kaminska – Financial Times
Last Friday we warned about the “liquidity illusion” in the market, and the degree to which it becomes part and parcel of regulatory efforts to bring the concept of caveat emptor back to the marketplace. Which leads us on Monday to flag a paper the Committee on the Global Financial System (CGFS) published on the same day, focusing on similar themes, rubber-stamped by William Dudley of the New York Fed.

Central Banks

Bank of Japan policymakers divided on shock stimulus
Julia Rampen – Investment Week
Bank of Japan board members were divided on the central bank’s decision to unleash surprise stimulus measures at the end of October, minutes of their meeting have revealed.

BOE Governor Carney Plays Down Deflation Fears
Jason Douglas – MoneyBeat – WSJ
Bank of England officials on Tuesday played down the risk of deflation in the U.K. and said they still expect their next move will be to raise interest rates, underscoring an increasing divergence on policy between the world’s major central banks.

***DA: Nothing to see here, folks.

African Bond Sales Poised for Buoyant Year-End
Ben Edwards – WSJ
African bond sales are poised for a buoyant end to the year.

In Battle of Sexes at Central Banks, Thai Women Have Already Won
Suttinee Yuvejwattana – Bloomberg
Janet Yellen’s appointment as Federal Reserve chair this year was hailed as another step toward gender equality. How about a central bank where women outnumber men? This is the Bank of Thailand, which runs monetary policy in Southeast Asia’s second-largest economy and has 31 women among its 60 top executives.


Exchange trading on the march in EMFX
On-exchange trading has been targeted as a potential growth area for emerging markets (EM) foreign exchange as firms clamour for more liquidity in this rapidly expanding sector.

No point betting against a strong dollar
John Plender – Financial Times
The ability to take a contrarian view is, according to market lore, the essence of successful investment. If that is right, then it ought to be time to question the near-unanimity that prevails on the likelihood that the dollar will continue to appreciate against other leading currencies. The trouble is, I find it hard to make a bearish case on anything other than a short-term view.

Exclusive: U.S. prosecutors to interview London FX traders – sources
Jamie McGeever and Aruna Viswanatha – Reuters
U.S. prosecutors will travel to London in the coming weeks to interview traders about currency market manipulation, the latest sign that authorities are closer to filing criminal charges stemming from the long-running probe, sources told Reuters.

Indexes & Index Products

Change the Holy Grail of the Mutual Fund Industry
US News
In previous blog posts, I’ve discussed the dismal performance of actively managed mutual funds. I also noted this underperformance has not gone unnoticed by investors. Actively managed funds have experienced massive outflows through September, while index funds have seen net inflows for the past eight months.

Some ETFs Show Investors Conservatively Playing Rally
ETF Trends
U.S. stocks continue to hover around record highs. The S&P 500 and NASDAQ Composite are up 5.5% and 6%, respectively, over the past month, but those factoids do not mean all investors are taking on significant risk with exchange traded funds.


Global metal trading becomes more difficult to regulate
Henry Sanderson – Financial Times
Global metals markets are becoming more difficult to regulate as manipulation takes more subtle forms and new trading platforms spring up, according to a new study.

ECB in a quandary on asset purchase programmes
James Mackintosh – Financial Times
Switzerland votes on Sunday on whether to force its central bank to more than double its gold holding to a fifth of reserves, and ban it from selling the bullion. The policy is barmy and would kill the Swiss National Bank’s efforts to offset demand for the safety of its currency by printing money on a Zimbabwean scale. But 200 miles north, the idea of buying gold might usefully be deployed by the European Central Bank, as the most politically acceptable, if least effective, form of large-scale quantitative easing.

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