First Impressions

MarketsReformWiki Reaches a Milestone
Doug Ashburn – JLN

While we were sleeping, some time between midnight and 3 a.m. this morning, the page counter on MarketsReformWiki, our regulatory database, topped the 10 million mark, four and a half years after going live.
The site was started in 2011, just as the CFTC, SEC and other regulators began proposing rules and hosting roundtables, and market participants responded with comment letters, white papers and other research. The goal of the site was simple – cut through the thousands of pages of legalese and present the information in a way that is (relatively) easy to understand, easy to find, and linked to other relevant topics – basically everything that a good wiki should do. We believe we have hit on the right mix.

The industry does, too. In fact, one of the things we noticed in those heady days of Dodd-Frank related rules was that one of the top domains feeding into the site was The joke around the office was that the regulator was coming to our site to search and comprehend the information they were putting out.

MarketsReformWiki continues to draw the eyeballs because, while the story has quieted a bit, the rules are not completed, not by a long shot. Our focus has shifted to Europe, where they continue progress on MiFID II/MiFIR. There are still cross-border issues that need to be hammered out. Our regulators are not finished, either. Within the past couple weeks the SEC published final rules on registration of security-based swap dealers and major swap participants while the CFTC proposed a number of amendments to rules on swap data reporting and recordkeeping. Even the new rules are changing, and MarketsReformWiki continues to track, summarize and connect.

We also continue to interact with the market through video and print interviews. Visit the front page of the site to see our recent interview with Lisa Dunsky, former counsel for CME Group, now an attorney at Sidley Austin. In the interview, Dunsky looks at recent high-profile criminal actions on disruptive trade practices, and puts together a checklist on what firms and traders need to consider.

If you have not visited the site in a while, check it out and be among the site’s next 10 million visitors.

Quote of the Day

“They seem to be harassing anybody that they thought was selling or was short. Hello, it’s a hedge fund — they are long and short — but China is only looking at the short side.”

A hedge fund manager in Hong Kong in the story, “In China, a Forceful Crackdown in Response to Stock Market Crisis”

Lead Stories

It’s Time to Start Paying Attention to Bank Deposits Again
Tracy Alloway – Bloomberg
A long time ago, in a regulatory regime not so far away, bank deposits were simple things.
Under new Basel III rules, things are a touch more complicated.
Banks now have two types of deposits to contend with: operating and non-operating. The former are considered relatively “sticky” forms of funding in that they are unlikely to be suddenly pulled from the bank. The latter are classified as a form of short-term wholesale funding that has the potential to rapidly evaporate. Under Basel III, banks need to hold a buffer of ostensibly high-quality liquid assets (HQLA), such as government bonds, to cover non-operating deposits and protect themselves from a funding run.

China leading world towards global economic recession, warns Citi
Peter Spence – The Telegraph
A “hard landing” for the Chinese economy will likely lead the world into a recession in the next year, Citi’s global economics team has warned.
Analysts at the Wall Street bank believe that a slowdown concentrated in emerging markets will drag down demand and see economic activity fall well below its potential across the world.

In China, a Forceful Crackdown in Response to Stock Market Crisis
Edward Wong, Neil Gough and Alexandra Stevenson – NY Times
The police have been dropping in on investment firms and downloading their transaction records. Senior executives at China’s biggest investment bank have been arrested on suspicion of illegal trading. A business journalist has been detained and shown apologizing on national television for writing an article that could have hurt the market.

The $3.4 Trillion Market Regulators Still Can’t See
Ryan Tracy – WSJ
Seven years ago this month, Wall Street titans like Lehman Brothers were brought to their knees in part because they lost access to a crucial type of short-term funding.
Today, the market for repurchase agreements or “repos” is much smaller than it was in the lead-up to that panic. But it still represents $3.4 trillion in daily financial-system liabilities, according to a new report released Wednesday by the Office of Financial Research. What’s more, regulators in charge of maintaining financial stability still have very little idea about what goes on in the market, the report says.

Jefferies May Be Canary in Wall Street’s Shuttered Mine
Antony Currie – NY Times
As markets whipsawed last month, a dubious meme made the rounds on Wall Street. If big banks like Goldman Sachs and JPMorgan Chase could put their own capital to work, investors would not have endured so much volatility, or so the thinking went. But thanks to new regulations in the Dodd-Frank Act, they had to sit idly by, unable to either profit much or lend a hand.
Though it’s impossible to prove such a counterfactual argument, the Jefferies Group may offer some insight into whether this logic has any merit. Jefferies, the investment bank of the $7.7 billion conglomerate Leucadia National, will report earnings next week, a month before its larger rivals. And though its numbers are not a perfect guide, it is among the only sizable financial firms still permitted to bet its own capital in the markets.

The euro’s ‘evil genie’ could actually be the key to its survival
Ben Wright – The Telegraph
It is often said that the measure of a good compromise is that it leaves everyone unhappy. Judged solely against this criterion, the Greek deal was a resounding success.
Alexis Tsipras, the Greek prime minister, quickly popped up on television to say he didn’t believe in the reforms being forced on him in return for the country’s third bail-out and Wolfgang Schauble, the German finance minister, made no secret of his belief that Greece would be better off taking a “timeout” from the eurozone.
This was a key moment – the first time that a prominent European politician has explicitly raised the possibility of a country dropping out of the euro club and reverting to a national currency. It threatened to undermine the famous commitment made by Mario Draghi, the president of the European Central Bank, in 2012 to do “whatever it takes” to keep the euro together.

Equity derivatives drive first-half bank growth
Luke Jeffs – Futures & Options World
Equity derivatives and prime services rose a quarter in the first-half of 2015, driving investment banks to a small increase in revenue, according to a new report.
The top ten investment banks saw revenue rise 2% to $83.8 billion, comprising an 18% jump in equity earnings and a 4% deficit from fixed income, currency and commodities (FICC), and a 3% loss from investment banking, said research company Coalition.

Assets Are At ‘Peak Valuation’ According To 200 Yrs Of Data
Rupert Hargreaves – ValueWalk
Assets around the world are at peak valuations, according to Deutsche Bank AG, which released its annual Long-Term Asset Return Study a few days ago.

Malaysia’s 1MDB Fund Scandal Spreads to U.A.E.
Bradley Hope and Tom Wright – WSJ
The corruption scandal around an economic-development fund in Malaysia is spilling beyond the country’s borders, as officials at a United Arab Emirates state investment vehicle raise questions about more than a billion dollars in money that they said is missing.

Withering Reserve Buffer Forces Russia to Waive Key Budget Rule
Olga Tanas – Bloomberg
Russia is overhauling its approach to crafting the budget next year to safeguard reserves, highlighting the challenges it faces in steering the recession-hit economy through a downturn in oil prices.
Russia used 900 billion rubles ($13 billion) in the first eight months from the Reserve Fund, one of its two sovereign wealth funds, to cover the deficit, Finance Minister Anton Siluanov said Wednesday at a government meeting in Moscow. The non-oil shortfall, the gap excluding revenue from the energy industry, was 11 percent of economic output in the first half, the widest in 10 years, according to Siluanov.

Office Of Financial Research Update: “Reference Guide To U.S. Repo And Securities Lending Markets”
Press Release – Mondovisione
The OFR released a working paper today entitled, “Reference Guide to U.S. Repo and Securities Lending Markets” and an accompanying blog by OFR Director Richard Berner. This paper is a reference guide on U.S. repo and securities lending markets. It discusses the main institutional features of these markets, their vulnerabilities, and data gaps that prevent market participants and regulators from addressing known vulnerabilities.

Puerto Rico Investors May Shun Debt-Exchange Offer, Moody’s Says
Michelle Kaske and Brian Chappatta – Bloomberg
Puerto Rico Governor Alejandro Garcia Padilla wants bondholders to accept less than they’re owed to help the island dig out from its fiscal crisis. Few may be willing to go along, according to Moody’s Investors Service.

Puerto Rico Lays Out 5-Year Plan for Restructuring Its Debts
Mary Williams Walsh – NY Times
Puerto Rico issued a five-year plan on Wednesday for broadly restructuring its mammoth debts, opening what is likely to be a turbulent new chapter in its efforts to rekindle economic growth and avoid an unprecedented collapse.

China’s Sale of Treasuries Signaled by Collapse of Swap Spread
Liz McCormick – Bloomberg
The latest signal that China has been dumping Treasuries to support its currency can be found in the $380 billion market for interest-rate swaps.

Exclusive – HK securities watchdog probes brokers, hedge funds over China investment products
Michelle Price and Saikat Chatterjee – Reuters
The Hong Kong securities watchdog is investigating whether brokers and hedge funds in the financial centre violated their operating licences in creating and trading China investment products, three people with direct knowledge of the matter said.

Watchdog in US Treasury market probe
Gina Chon and Martin Arnold – Financial Times
New York’s banking regulator is probing potential manipulation of the US Treasury markets, in a sign of how scrutiny of the $12tn industry is widening, people familiar with the case said.
The Department of Financial Services sent letters last month to Barclays, Deutsche Bank, Goldman Sachs, Société Générale and other banks seeking information about their operations related to Treasury auctions, the people said. The industry has already attracted the attention of the US Department of Justice.

U.S. Cuts Crude Output Forecast as Rout Weakens Shale Boom
Mark Shenk – Bloomberg
The collapse of oil prices will have a slightly bigger impact on U.S. crude production this year and the next than previously estimated, the Energy Information Administration said.

Central Banks

Here’s Your Cheat Sheet to the Fed’s Key Comments
Jeanna Smialek – Bloomberg
Federal Reserve officials are weighing whether to raise interest rates for the first time in almost a decade, and the change could come this month. Now that the Fed’s blackout period—the stretch before a policy-setting meeting during which officials don’t comment publicly—has begun, we’ve heard all that we’re going to get from policy makers before the potentially momentous Sept. 16-17 meeting.

Monetary policy operates with a time lag so US Fed must act soon
Richard Fisher – Financial Times
The art of economics,” the old master Charles Kindleberger said, “is to choose the right model for the given problem, and to abandon it when the problem changes shape.” At upcoming US Federal Reserve meetings, rate setters will pore over a model that was already 10 years old when they last voted to raise rates, almost a decade ago.

We Do Not Expect a Repeat of the Taper Tantrum
Michael A. Brown, Mark Vitner and John Silvia – FXStreet
We Do Not Expect a Repeat of the Taper Tantrum (Wells Fargo Interest Rate Weekly)

Emerging markets call on Fed to lift rates and end uncertainty
Simon Mundy and Avantika Chilkoti – Financial Times
Emerging market central bankers have urged the US Federal Reserve to raise rates sooner rather later in order to end the uncertainty over Fed policy that has pummeled stock markets and currencies in recent weeks

How the Fed Leaves Margin for Error Around Rate Hike
Greg Ip – WSJ
The Federal Reserve must decide next week whether to raise rates for the first time in nine years. Depending on whom you ask, an increase is either long overdue or an invitation to disaster.
The reality is more mundane. Whatever the Fed decides, it will matter less than the more than 50 Fed decisions since 2008 to keep interest rates near zero.

Switzerland prays for US rate rise to ease economic pressure
Ralph Atkins – Financial Times
If the US Federal Reserve raises interest rates, perhaps even later this month, the world might quake. In Switzerland, there will be sighs of relief.

Villeroy de Galhau poised to lead France’s central bank
Anne-Sylvaine Chassany – Financial Times
François Villeroy de Galhau, a former BNP Paribas banker, has been nominated to be the next governor of France’s central bank, prevailing over Benoit Coeuré, a top European Central Bank official.

Canada Keeps Rate at 0.5% With GDP ‘Intact’ After Oil Shock
Greg Quinn – Bloomberg
The Bank of Canada kept its key interest rate unchanged and said economic growth remains on pace as a weaker currency and household spending lead a recovery from the shock of lower oil prices.


Emerging market slump raises fears of capital controls
Steve Johnson – Financial Times
A defining moment of the 1997 Asian crisis came when Malaysia shocked financial markets by imposing draconian controls on capital outflows, banning overseas trading in the ringgit and prohibiting foreigners from taking funds out of the country for a year.
Perhaps then it is no surprise that with some commentators starting to refer to the current slump in emerging markets as a crisis, whispers of capital controls are starting to be heard once more.

Net closes on forex manipulators as banks ready code of conduct
Tim Wallace – The Telegraph
Global rules for foreign exchange traders will make it easier for the authorities to root out the bad apples in the market, central bankers have said, as they seek to clean up the industry in the wake of a series of scandals.

China’s Premier Li Keqiang plays down fears of global currency war, vows to keep yuan stable
Wendy Wu – South China Morning Post
Premier Li Keqiang sought to play down concerns about a global currency war and Beijing’s ability to maintain a stable yuan as he addressed business chiefs at the start of the World Economic Forum meeting on Wednesday.
Li gave assurances as he spoke to the international business community for the first time to try to restore confidence in China’s economic and financial markets in the aftermath of the July stock market rout and last month’s sudden devaluation of the yuan.

FX conduct code to be released in phases
Alice Attwood – Futures & Options World
The Foreign Exchange Working Group (FXWG) is planning to release its global FX code of conduct in phases, it said Wednesday, and committed to tackle some of the more contentious market issues in the first phase -set for release in May 2016 – a year before the full directive is launched.
At a media briefing at the Bank of England, a panel from the FXWG gathered to discuss the work undertaken so far, and the road ahead.

Fired Citigroup Trader Points Finger at His London Bosses
Patrick Gower – Bloomberg
A Citigroup Inc. trader fired amid a global probe into foreign-exchange rigging alleged that improper conduct was endemic in the bank’s currency-trading activities, ranging from front-running to disclosing client orders to competitors in a bid to boost the company’s own positions.

Sinking currencies reflect grim African prospects
Ed Cropley – Reuters
slump in commodity prices and flight by global investors from risky “frontier” markets has hammered currencies and state budgets across Africa, increasing dollar borrowing costs and raising the prospect of political instability.
From Nigeria and Ghana in the west to Kenya in the east and South Africa and Zambia in the south, currencies have all fallen against the dollar, and in many cases crashed through historic lows plumbed in the 2008-09 financial crisis.

Former Merrill banker Bob Wigley hails bitcoin potential
Kadhim Shubber – Financial Times
Former Merrill Lynch executive Bob Wigley has joined the growing ranks of financiers hailing the cost-cutting potential of bitcoin and the technology underpinning the controversial currency.
The group’s former head for Europe, the Middle East and Africa called bitcoin a potential “leading global payments system” and said he had invested in a UK-based bitcoin payments start-up.

Nigerian Dissenters Win JPMorgan Support to Ease Naira Rules
Paul Wallace – Bloomberg
The voices urging Central Bank of Nigeria Governor Godwin Emefiele to scrap restrictions on foreign-exchange trading and allow the local currency to devalue have just won support from JPMorgan Chase & Co.

Indexes & Index Products

All-powerful index transforms investing
John Authers – Financial Times
After some summer turmoil, the FT is concluding a long series on indices, and how they have risen far beyond their original place as handy benchmarks to become important drivers of world markets. It is time to summarise the conclusions.

Exchange-Traded Products Post First Investor Outflow Since January
Leslie Josephs – WSJ
Stock-linked exchange-traded products last month posted their first investor outflow since January and their largest in two years, as share prices tumbled during a global market swoon.
Investors pulled about $6.4 billion from U.S. exchange-traded products that hold stocks in August, according to data scheduled to be released later this week by ETFGI, a London-based consulting and research firm. It was the fourth monthly outflow for that category since at least August 2013.

Here’s What Could Make the FTSE Really Hurt, According to SocGen
Josie Cox – WSJ
U.K. stock markets have had a rocky ride in recent months but it could get even rockier.
Already battered by tumbling commodity prices, strategists at Société Générale wrote in a report this week that U.K. stock indexes could lose as much as a fifth of their value if Britons vote to leave the EU in a planned referendum on the U.K.’s membership.

Benchmark administrators slam EU rules
Cian Burke – Futures & Options World
Key benchmark administrators, Platts and Markit, have hit out at EU Benchmark regulations, stating that the rules – as currently drafted – would push smaller independent benchmark providers out of the market.
Speaking at FOW’s Regulation 2015 event on Tuesday, Pierre Davies, chief legal officer at Platts, said while larger index providers such as Platts and Standard & Poor’s could afford to absorb the additional costs, smaller administrators “would suffer because they don’t have the scale to be able to absorb the additional costs and burdens.”

The S&P 500 Hasn’t Seen This Many ‘All or Nothing Days’ Since 2011
Julie Verhage – Bloomberg
Here’s another sign of just how extreme recent stock market trading has been.
As Bespoke Investment Group points out, “all or nothing days,” or trading sessions when the number of advancing stocks minus the number of declining stocks in the S&P 500 reaches more than 400 or less than negative 400, has seen a huge pickup in recent months. August’s dramatic selloff was a case in point, while last Monday’s market dip saw 499 of the 502 stocks in the S&P 500 fall in tandem.

Investors Cool Off on REIT Sector
Liam Pleven – WSJ
Investors aren’t treating real-estate investment trusts like hot properties anymore.
An index of REIT stocks is on track for its worst year since 2008 after a six-year rally pushed it up 348%, including dividends, from its financial-crisis-era low, as of Friday’s close.

Can an Index Fund Deliver the ‘Value’?
Ari I. Weinberg – WSJ
The time for value might finally be here. After six years of a bull market that has been led largely by growth and momentum stocks, the current environment—flat to down, and often volatile—is the kind of market in which stock-picking value investors can thrive, buying discounted stocks from forced sellers.

Equity Bears Beware, Death Cross Can Have the Reverse Effect
Sejul Gokal – Bloomberg
The uncommon chart pattern is formed when the 50-day moving average crosses below the 200-day moving average and is considered bearish by most technical analysts. Still, the last two times the signal appeared, in 2010 and 2011, it preceded sizable rallies in U.S. stocks.

Peru bourse sees ‘good chance’ of keeping emerging market status
Ursula Scollo – Reuters
Peru’s bourse has a “good chance” of staying in MSCI Inc’s emerging market category and avoiding a downgrade to a riskier status, the bourse’s general manager said on Tuesday following preliminary talks with the index provider.


South African Gold on the Brink With Half of Mines Losing Money
Kevin Crowley – Bloomberg
South Africa’s gold mines, the deepest and among the oldest in the world, are in big trouble.
The four largest producers in the country are losing money on about 35 percent of production at current prices, according to company data compiled by Bloomberg. At the same time, higher costs are cutting into profits as electricity bills climb to a record. Workers are also pushing for wage increases, with some threatening to strike if salaries aren’t doubled.

India Adds to Gold Demand Woes as Prices Drop to Four-Week Low
Luzi-Ann Javier – Bloomberg
At a time when many investors have already given up on gold, the outlook for bulls is getting worse on signs that buying is set to slow in India.
Gold futures fell to a four-week low in New York after the country approved a plan to tap domestic supplies in a bid to cut imports. An estimated 20,000 metric tons or more of bullion — more than double holdings in the U.S. — is stashed in India’s homes and temples, according to the government. The nation rivals China as the world’s top consumer.


Glencore has a mogul in denial
John Gapper – Financial Times
Ivan Glasenberg, co-founder and chief executive of Glencore, delights in telling his rivals in the commodities industry that they are wrong, and in trying to prove it by running his business differently. So it takes quite an upheaval to persuade Mr Glasenberg that he, and not someone else, is mistaken.
He tacitly admitted it this week by reversing course as his share price fell, Standard & Poor’s warned about Glencore’s debt rating and hedge funds ganged up. Instead of defying others as usual, he did what he had been told by implementing a plan to cut $10bn in debt and shore up Glencore’s balance sheet. I wonder, though, whether the message has entirely sunk in.

Water: The New Screen for Investment Risk
Alex Davidson – WSJ
Investors make big decisions based on the outlook of such fundamentals as interest rates and energy costs.
What is more fundamental than water?

Beat the Federal Reserve: See how changes in prices of goods and services influence inflation
Can you beat the Fed? This game lets you see how changes in prices of different goods and services — from restaurant meals to medical care — can influence the overall U.S. inflation rate.

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