Trying To Stop The Next Flash Crash
In the run-up to the CFTC’s move to create new rules for automated trading next week, the Futures Industry Association and its members have engaged in a dialog with the CFTC and developed its own guide, which it published in March. John Lothian News spoke with two of the key contributors to that report to talk about guidelines and what we might see from the US agency next week.
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Quote of the Day
“We want to know why the Federal Reserve, funded and heavily run by the banks, is keeping interest rates so low that we receive virtually no income for our hard-earned savings while the Fed lets the big banks borrow money for virtually no interest.”
Ralph Nader in letter to Janet Yellen in the story, ” Yellen Defends Seven Years of Low Interest Rates in Letter to Nader”.
How the Pfizer-Allergan Deal Ranks
Dealbook – NY Times
The huge price tag accorded to the deal between Allergan and Pfizer — $160 billion in total enterprise value — is one of the largest in history and the biggest ever among pharmaceutical companies.
In terms of its equity value, the deal comes in at $152 billion. That puts it just behind two behemoth mergers hatched in the heady market of early 2000: Vodafone AirTouch’s $183 billion takeover of Mannesmann of Germany and AOL’s $165 billion purchase of Time Warner.
Pfizer Deal Stokes Washington Concerns Over Tax Policy
Dealbook – NY Times
Despite growing pressure in Washington to curb a tax-saving strategy used by American companies, recent proposals by the Treasury Department would not have affected the Pfizer-Allergan merger.
Carl Icahn to Solicit Shareholder Support for AIG Breakup
Carl Icahn said he intends to take his fight to break up American International Group Inc. directly to shareholders, a move that could ramp up the pressure on the insurance giant with a vote over its strategy.
Capping fees could be best way to control fund management costs
Pauline Skypala – FT
In the days before governments decided deregulation was a good idea, UK investment fund charges were restricted under the 1958 Prevention of Fraud Act. The limit, of 13¼ per cent over 20 years, which translated into initial charges of 3-5 per cent and annual fees of 0.375-0.5 per cent, was discarded in 1980, just about the time I started writing about the investment industry.
Navigating Bridges: Timely Updates in Financial Services
Gary DeWaal – Katten Muchin Rosenman LLP
Two senior federal law enforcement regulators indicated that seeking personal accountability will be emphasized in upcoming criminal and civil actions involving alleged corporate wrongdoing. Meanwhile, the Securities and Exchange Commission issued proposed new rules aimed to enhance transparency and its oversight of alternative trading systems, including so-called “dark pools,” that include stocks listed on national securities exchanges, while the Commodity Futures Trading Commission readies for release tomorrow proposed new rules dealing with automated trading systems, and possibly the registration of certain proprietary traders who directly access exchanges through ATSs. Moreover, it appears similar SEC rules for proprietary traders may be forthcoming too – as well as rules on disruptive trading.
Junk Bonds Join the Monetary-Policy Battle
By RICHARD BARLEY – WSJ
The anticipated divergence in monetary policy between the U.S. and the eurozone is moving many markets. Junk bonds could be a key battleground for 2016.
ICAP Brokers Ran Four-Year Libor Con on Tom Hayes, Read Says
Liam Vaughan – Bloomberg
Darrell Read tells jurors `we couldn’t’ influence Libor
Read testifies for fourth day at London criminal trial
Brokers at ICAP Plc ran an elaborate, four-year con on Tom Hayes, tricking the former UBS Group AG trader into believing they were helping him rig Libor, a former employee accused of conspiring with Hayes told London jurors.
Fairness of SEC Judges Is in Spotlight
By JEAN EAGLESHAM – WSJ
Comments from judges raise worries of defendants that they won’t be able to get a fair hearing
In a small, windowless courtroom in downtown Manhattan, the chief in-house judge for the Securities and Exchange Commission told eight stockbrokers to give up on the idea that she would toss the case against them without first holding a hearing.
Hong Kong Exchange Looking to Launch China Share Arbitrage Products
By GREGOR STUART HUNTER – WSJ
Chinese shares with dual listings in Hong Kong tend to be much more expensive on the mainland than their counterparts in the city—a gap tempting to investors seeking arbitrage opportunities.
Bond market blues sneak up on asset managers
Sophia Grene – FT
While screeds are being written about bond market liquidity, or rather the lack of it, and the risks this may entail for global markets, less attention is paid to the implications for investment managers, who are traditionally one step away from the actual trading.
What’s Worse Than the SEC’s Revolving Door?
By Barry Ritholtz – Bloomberg View
Arthur Levitt is incensed. That doesn’t happen all that often. It takes a lot to make the level-headed, even serene, former Securities and Exchange Commission chairman angry. http://bv.ms/1jemGd3
The trading firm that is eager for Mifid II
Financial firms across Europe breathed a sigh of relief when regulators said that Mifid II – which will rewrite the EU’s rules on trading from top to bottom – may be delayed by a year to 2018. One exception, however, was KCG.
Yellen Defends Seven Years of Low Interest Rates in Letter to Nader
Federal Reserve Chair Janet Yellen, responding to a letter calling for higher interest rates on behalf of savers, said Americans would have been worse off had the central bank not kept rates near zero since 2008, and repeated that she expects to tighten policy “gradually” after liftoff.
Economist: Major Portions of the Fed’s Case for Liftoff Are Way off Base
Since their latest statement and the blockbuster October jobs report, Federal Reserve policy makers have been conditioning market participants to expect a December rate hike.
But Michael Darda, chief economist and market strategist at MKM Partners, believes some of the arguments that members of the Federal Open Market Committee are making stretch the bounds of credulity.
Fed risks using wrong tool to tighten
Manmohan Singh – FT
The Federal Reserve has been sending strong signals that it is preparing to raise interest rates for the first time since 2006. As the Fed prepares for lift-off, its operational framework and large balance sheet may pose challenges to market functioning.
The Fed’s Inflation Expectations Game
By JUSTIN LAHART – WSJ
People have come to expect less inflation than they used to, making it harder for the Federal Reserve to reach its target
Federal Reserve policy makers expect inflation will eventually reach their target. But the expectations of other people could get in the way.
Fed’s Tarullo to Biggest Banks: Stress Tests Likely Will Get Harder
The Federal Reserve’s point man on bank regulation said the central bank’s annual stress tests are likely to get harder for the very largest banks.
The Fed’s New Worry: Do Bank and Market Safety Rules Conflict?
Federal Reserve officials are wrestling with a nettlesome question raised by their vast post-crisis regulatory powers: Are their strict new rules on bank safety undermining their mission to keep the plumbing of financial markets working smoothly?
NY probing alleged ‘ghosting’ of forex options
New York Attorney General Eric Schneiderman’s office is investigating the posting of false bids and offers in the foreign exchange options market for emerging market currencies, a person familiar with the matter said on Monday.
The person, who spoke on condition of anonymity, said subpoenas were issued last week to four brokerages: BGC Partners (BGCP.O), GFI Group, TFS-ICAP (IAP.L) and Tullett Prebon Financial Services (TLPR.L).
Bank of America: The ‘Great Divorce’ Between the World’s Two Largest Economies Will Drive Currency and Rates Markets in 2016
Don’t sleep on the prospect of more currency depreciation from the People’s Bank of China, warns Bank of America Merrill Lynch, calling for a “great divorce” between the U.S. and the world’s second-largest economy in the coming year.
David Woo, head of global rates and currencies research, laid out the case for the team’s favorite trade of 2016—buy USDCNH six-month forwards—in his preview for the year ahead:
Fed’s Tarullo says worried about too-low inflation
Federal Reserve Governor Daniel Tarullo said on Monday there is still a lot of uncertainty on inflation and that the path of interest rate hikes should be influenced by how much inflation moves towards the Fed’s 2 percent target rate.
Expensive Swiss franc tests central bank
Ralph Atkins – FT
For mountaineers high in the Swiss Alps, the path ahead sometimes looks perilous, whichever way they turn. As it tries to prevent a strong Swiss franc scaling fresh heights in the weeks ahead, Switzerland’s central bank could be forgiven a similarly queasy feeling.
Will the Euro Fall to $1? Interest Rates Aren’t Investors’ Only Guide
The euro has tumbled against the dollar in recent weeks, largely because investors anticipate that central banks on either side of the Atlantic are about to shift interest rates in opposite directions.
5 New Banks, Incl. BNP Paribas, ING and Wells Fargo, Partnering with R3 Blockchain Project
The New York City-based innovation company R3 has announced that five more banks have joined its project on exploring the use cases of the blockchain in the financial industry. ING, BNP Paribas, the Canadian Imperial Bank of Commerce, MacQuarie and Wells Fargo have signed up to the initiative, thus increasing the total number of supporters to 30 banks.
Indexes & Index Products
CFTC to Discontinue Collecting and Issuing Reports on Index Investment Data
The U.S. Commodity Futures Trading Commission today (CFTC or Commission) announced that it will discontinue the collection and release of the monthly Index Investment Data Report (IID Report) for select commodity index position data. This data collection predates the enhanced reporting regime implemented by the Dodd-Frank Act and the IID Reports are not being utilized when compared to larger Commission reporting initiatives.
3 Things You Never Knew About the S&P 500
The Motley Fool
Despite how popular the S&P 500 index is among investors, there are still a few things about the venerable index that may surprise you. Three of our Foolish contributors are ready to fill you in.
London Stock Exchange: FTSE TMX and State Bank of India to Launch FTSE SBI India Bond Index
FTSE Russell, the global index provider, today announced the signing of letter of intent between FTSE TMX Global Debt Capital Markets and State Bank of India to develop in partnership, a new index tracking Indian fixed income securities. State Bank of India, India’s largest bank, intends to use the new index as the basis for a new investment product.
Dollar’s Revival Adds New Life To These Commodities
Indexology – S&P Dow Jones Indices
It makes sense that a strong US dollar is generally bad for commodities since as the U.S dollar strengthens, goods priced in dollars become more expensive for other currencies. However, historically the U.S. dollar has a negative correlation of only about -0.30 with the S&P GSCI as shown in the chart below using data since 1970
Hedge Funds Are Back to Bearish on Gold as Price Slump Deepens
Hedge funds are betting gold’s decline is far from over, as the metal’s month-long slide deepened on expectations for higher U.S. interest rates.
Prices are trapped in their worst rout since July as Federal Reserve officials talk up improvements for the U.S. economy and reinforce signs that they’re ready to raise borrowing costs for the first time since 2006. That prospect has sent investors fleeing. Assets in exchange-traded products backed by gold have fallen to the lowest since 2009. Money managers are holding a net-short position in the metal for first time since August as their long wagers shrunk to the smallest in seven years.
Let’s Resolve The Gold Standard ‘Deflation’ Fallacy
Among the various things you hear about gold standard monetary systems — the monetary approach that the United States embraced for nearly two centuries — is the notion that it causes “inflation and deflation.” (The Cato Institute’s George Selgin had a recent discussion on this topic at Alt-M.org.)
‘Very Negative’ Gold Sentiment Could Turn Market Around Sooner Than Expected – Analyst
Gold prices ended the U.S. day session moderately lower Monday and is hovering close to last week’s 5.5-year low. Weighing on gold was the U.S. dollar index hitting a seven-month high.
Why the government’s gold scheme did not work
The Indian equity markets and gold prices have been sharing an inverse relationship for the past two years. The BSE benchmark Sensex has gained 25%, while the MCX gold prices and the international spot gold prices have dropped 15% and 17%, respectively, as you can see from the chart.
Preventing Terrorism Through Markets
By Stephen L. Carter – Bloomberg View
Maybe it’s time to bring back the Pentagon’s terror prediction market. Remember that much-maligned experiment? Toward the end of Bill Clinton’s administration and into the early days of George W. Bush’s, DARPA began studying the feasibility of establishing an electronic market where participants would risk money on geopolitical trends, mostly in and around the Middle East. Given the success of prediction markets in other realms, intelligence analysts at the Defense Advanced Research Projects Agency were interested in whether such a market might prove a useful tool in their work. The program was called the Policy Analysis Market, and it was a very good idea.
Wall St. Ties Linger as Image Issue for Hillary Clinton
By PATRICK HEALY – NY Times
John Wittneben simmered as he listened to Hillary Rodham Clinton defend her ties to Wall Street during last weekend’s Democratic debate. He lost 40 percent of his savings in individual retirement accounts during the Great Recession, while Mrs. Clinton has received millions of dollars from the kinds of executives he believes should be in jail.