First Impressions

Focused: What The Industry Knows About Transparency

Back in November, the industry gathered for the annual FIA Expo event in Chicago. There, John Lothian News used an exhibitor booth (Thanks Cinnober!) as its studio to ask industry participants key questions about transparency issues in today’s markets.

  1. Where do we need to improve transparency in the markets today?
  2. What is the solution to achieve that?
  3. How will futures and options markets look in the future, in terms of transparency?

The final product is these three short videos featuring 15 participants from across the industry – trading platforms, FinTech firms, exchange executives, traders and more. Watch the video »

Quote of the Day

“It really doesn’t matter now if the Fed first lifts rates in June or not, the movement in the terminal rate is most important. Since the FOMC statement the market’s outlook for the terminal rate has collapsed.”

Stan Jonas, who has been trading money-market derivatives since Eurodollars futures trading began in 1981 in the story, “Derivatives Traders Drop Outlook for Rates After Fed Sees Risks”.

Lead Stories

KCG to sell forex trading platform Hotspot to BATS Global
Financial services provider KCG Holdings Inc said it will sell its foreign exchange trading platform, KCG Hotspot, to BATS Global Markets for $365 million in cash.

‘Wall Street Spy Ring’ Sought to Disrupt Financial Markets
Damien Sharkov – Newsweek
The Russian spy ring, which the U.S. Federal Bureau of Investigation (FBI) announced it had busted in New York earlier this week, had allegedly been tasked with looking into U.S. trading patterns, in a possible bid to destabilise the US stock market, according to a court document made public today.

SocGen Enters CMBS Market in U.S. by Hiring Team From RBS
Jody Shenn – Bloomberg
Societe Generale SA is entering the U.S. commercial-mortgage-backed securities market and has hired a team of more than 10 people from Royal Bank of Scotland Group Plc for the effort.
Wayne Potters, who most recently led RBS’s commercial real-estate group, will head the CMBS group for the French bank, according to an e-mailed statement. Societe Generale said it also hired Adam Ansaldi, who previously oversaw the CMBS distribution and securitization at RBS.

Jain’s Global Plans for Deutsche Bank Falter as Trading Lags
Nicholas Comfort – Bloomberg
The global investment bank Anshu Jain pledged to build has probably become Deutsche Bank AG’s weakest business — and investor pressure is mounting on him to cut it back.

GFI head makes last call for CME backing
Philip Stafford, FT
The executive chairman, founder and main shareholder of interdealer broker GFI Group has made a last-ditch effort to muster support for a takeover by CME Group by disclosing that he and his ex-wife will take a reduced price for their shares.

BGC Issues Letter To GFI Shareholders Dated January 28, 2015
Press Release via CNN Money
Dear Fellow GFI Shareholders:
We urge you to protect the value of your investment in GFI Group by voting AGAINST all of the proposals at the special meeting of GFI shareholders scheduled for January 30th.
In a final desperate attempt to protect their conflicted and self-interested transaction, GFI management is asking you to accept $5.85 per share in cash and stock, which is $0.25 less than BGC’s $6.10 all-cash offer. They want you to accept this obviously lower value for your shares in order for GFI management to purchase the brokerage business and realize the tax benefits that we believe accrue almost entirely to them.

S&P May Complete $1.38 Billion U.S. Deal as Early as Monday
Christian Dolmetsch and Edvard Pettersson – Bloomberg
Standard & Poor’s may complete as early as Monday a $1.38 billion accord with the U.S. and 19 states over claims it inflated subprime mortgage-bond ratings before the financial crisis, a person familiar with the talks said.
The ratings company deepened the 2008 economic collapse by giving top ratings to bad mortgage debt to win business from Wall Street banks, the government said. The U.S. said it might seek as much as $5 billion when it sued S&P in 2013. The states and the District of Columbia also sued the McGraw Hill Financial Inc. unit.

Oppenheimer to Pay SEC, EU Financial Tax: Compliance
by Carla Main, Bloomberg
Oppenheimer Holdings Inc. will pay $20 million to settle U.S. regulatory claims that it improperly sold billions of shares of penny stocks on behalf of customers.

BNY Mellon may face bribery charges over sovereign wealth funds -filing
By Nate Raymond and Aruna Viswanatha, Reuters
Bank of New York Mellon Corp has disclosed in a filing that U.S. regulators are considering charging it with violating U.S. foreign bribery laws after an investigation into internships it gave to relatives of sovereign wealth fund officials.

Israeli brokers seek regulatory changes to compete with banks
By Tova Cohen, Reuters
Israeli brokers, struggling to compete with the country’s powerful banks when it comes to trading in securities on the Tel Aviv market, are seeking regulatory changes that they hope will boost their falling share of trade.

Investors Turn On Tsipras’s Campaign to End Austerity in Greece
Investors gave their verdict on the new Greek government, selling the country’s stocks and bonds in a signal to Prime Minister Alexis Tsipras of the price he will pay for sticking to promises to end austerity.
Hardest hit were banks, falling as much as 30 percent on Wednesday because of concern about their supply of funds. In the run-up to Sunday’s election, Greek deposit outflows accelerated last week to levels not seen even at the peak of the debt crisis, totaling 11 billion euros ($12.5 billion), according to a person familiar with the matter.

Understanding Investment Risks In The Financial Markets
by Goal Investor, Value Walk
Do you go without health or homeowner’s insurance in order to save money? Do you go to casinos and play the slot machines? Ride a motorcycle without a helmet? Most of us understand that these are frivolous, high-risk practices that can cause grave harm. But do you know the risks involved in investing?

MarketAxess Reports Fourth Quarter 2014 Record Revenues of $70.2 Million
Press Release
MarketAxess Reports Fourth Quarter 2014 Record Revenues of $70.2 Million, Record Pre-Tax Income of $33.5 Million and Record Diluted EPS From Continuing Operations of $0.57
Company Announces 25% Increase in Regular Quarterly Dividend to $0.20 Per Share, Up From $0.16

ISDA Proposes CCP Recovery and Continuity Framework
Traders Magazine
In the paper, “CCP Default Management, Recovery and Continuity,” ISDA wrote clearing houses have become vital to derivatives market infrastructure following the implementation of new regulations that require standardized over-the-counter derivatives to be cleared. As a result of their systemic importance, CCPs are required to develop recovery plans to avert a threat to their viability and ensure they can maintain the continuity of critical services without requiring the intervention of resolution authorities or resorting to public money.

Outsource Clearing House: Banks Fear Clearing House Risks
Outsource Clearing House, a Beijing-based clearing facility for the China market, believes that clearing houses must be able to demonstrate that their systems can withstand issues on both sides of a trade and that the first step in addressing the concerns of their members is moving to ensure the availability of capital rather than relying on taxpayer-funded bailouts.

Central Banks

Federal Reserve leaves interest rates unchanged
Steven Mufson – The Washington Post
The Federal Reserve once again left interest rates unchanged at a range of zero to a quarter of a percentage point, postponing a return to what it calls normal rates and reiterating that “it can be patient” in deciding when to begin raising rates.
The Federal Reserve’s open market committee added that once it begins to raise rates, which most analysts expect will take place around the middle of the year, “economic conditions may, for some time” result in interest rates “below levels the Committee views as normal in the longer run.”

Derivatives Traders Drop Outlook for Rates After Fed Sees Risks
Elizabeth McCormick – Bloomberg
The gap between Federal Reserve projections for how high borrowing rates will rise and where traders of the world’s most active short-term interest-rate futures see policy makers stopping is getting bigger.
The market was pricing the peak fed funds rate, known as the neutral or terminal rate, at about 1.8 percent in December 2018 after the Federal Open Market Committee issued a policy statement following a meeting, citing global risks to the economy and saying it expected inflation to fall further. The outlook was down about 0.15 percentage point from earlier Wednesday. The median of Fed officials’ most recent quarterly forecasts was for a long-run rate of 3.75 percent.

Dr. Ben Carson Weighs In On Washington And The Federal Reserve
Mike Patton – Forbes
Once in a while you meet an individual whose values and ethics restores your faith in mankind. I have recently met such a person and I am pleased that he has allowed me to ask him a series of questions pertaining to some of the most important issues facing America today. In my next two articles we’ll get up close and personal with potential presidential candidate, Dr. Ben Carson. Be sure to share this with your friends, family members, and anyone else who would either appreciate or benefit from a dose of common sense.

In Singapore, Central Bank Eases Currency Policy
Alexandra Stevenson – NY Times
Singapore’s central bank eased its monetary policy on Wednesday, becoming the latest central bank using policy to help shore up growth against a backdrop of global economic turbulence.
In a surprise move, the bank said it would take measures to slow the appreciation of the Singapore dollar. The news from the Monetary Authority of Singapore comes as central banks around the world have taken action in recent weeks to ease policies amid steep falls in the price of oil and broader economic uncertainty.

The Federal Reserve Bitcoin Strategy
Alex Gorale – CryptoCoin News
This morning The Federal Reserve Bitcoin Strategy was released in a paper outlining multiple options for improving the U.S. payment system.
In the past, Digital currency had been deemed too immature. Now, after pressure from private sector interests, the Fed is seriously analyzing the benefit of incorporating Bitcoin code in the U.S. fiat system.


FXCM to Forgive Majority of Clients Who Incurred Negative Balances
FXCM Inc., the currency brokerage that almost failed due to trading losses, said it would seek repayment of about 60 percent of the money it lost as a result of the Swiss central bank’s decision to drop its currency controls.

Why did the Swiss franc spike? Blame the locals
Matthew C Klein, FT
There is a straightforward answer to the question in the headline: more money has been trying to get into Switzerland than get out, which didn’t affect the exchange rate as long as the Swiss National Bank bought foreign currency. As soon as they stopped, the exchange rate adjusted to balance the new set of flows. But a detailed look at the gross flows in and out of the country provides a more nuanced and interesting picture.

Indexes & Index Products

S&P Dow Jones unveils fixed income indices – InvestorDaily
US-based index provider S&P Dow Jones Indices has launched a new range of fixed income products covering over 20,000 individual securities. The S&P US Aggregate Bond Index is a market value-weighted index designed to measure the performance of the investment grade US fixed income market, according to a statement released yesterday.

CSOP Asset Management Licenses New MSCI China and USA Internet Index
MSCI Inc. (NYSE: MSCI), a leading provider of investment decision support tools worldwide, announced today that CSOP Asset Management, one of the largest Chinese asset management firms in Hong Kong with over USD 8 billion in assets under management, has licensed the MSCI China and USA Internet Top 50 Equal Weighted Index* for a new ETF to be launched shortly.

Smart Beta Diversification: Long-Term Performance of Russell 1000(R) Equal Weight Index Relative to Its Market Cap Weighted Counterpart the Russell 1000(R) Index Illustrates Potential Benefits of Utilizing a Non Market Cap-Weighted Index Approach
The U.S. large cap Russell 1000 Equal Weight Index outperformed its market capitalization weighted counterpart the U.S. large cap Russell 1000 Index for the five- and ten-year periods (annualized) ended January 20, 2015. And, while past performance is no guarantee of future performance, relative historical returns for these two indexes help illustrate the potential benefits to investors in blending an alternatively weighted and market capitalization weighted approach to market indexes when measuring market performance.

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