First Impressions

Markit on your calendar
Jim Kharouf, John Lothian News
Whenever the trading and exchange space wades into the IPO arena, people take notice. Markit’s information services, well ingrained into the derivative and bond markets, is now looking to raise over $1 billion on its IPO.

Markit, launched in 2003, is looking to raise capital for its backers, a group of large banks and institutions, but not take proceeds from the offering for itself. It’s an unusual set up, but not that uncommon. Even with this backdrop, the question for any investor and participant in Markit’s space, is what are the firm’s prospects going forward?

In Markit’s SEC filing, the firm says it plans to capitalize on the regulatory and compliance environment by offering services there along with risk management, disclosure and analytics services. It also believes there is much growth geographically.

Markit’s finances have shown consistent growth, with revenues rising from $762.5 million in 2011, $860.6 million in 2012 and $947.9 million last year. Operating profits have risen as well, from $156 million 2011, to $224.7 million in 2012 and $230.1 million last year. So can Markit keep it going?

That is a key question and depends on where the derivatives industry is heading. The Bank for International Settlements (BIS) reported in its March 2014 report that the overall size of the derivatives industry, including OTC and exchange traded products, is rising. OTC markets totaled $710.1 trillion notionally in December 2013, up from $692.9 trillion in June 2013, and $632.6 trillion in December 2012, while the total global exchange notional value totaled $25.9 trillion in December 2013, up from $24 trillion in December 2012 and $22.9 trillion in 2011. The notional value of options also has grown to $38.6 trillion in December 2013, from $30 trillion in December 2012 and $35.4 trillion in December 2011.

If the OTC and exchange space continues to grow, and the regulatory environment continues to evolve around it, Markit may be well positioned to expand with it.

Markit’s F-1 Filing can be found here:


MarketsWiki World of Opportunity Summer Intern Series Goes to London
John Lothian & Co. is pleased to announce the MarketsWiki World of Opportunity Summer Intern Education Series is coming to London on July 1st and 2nd, 2014 with the generous support of the CME Group.


Quote of the Day

“You can get your information about the economy from admittedly fallible statistical relationships, or you can ask your uncle. I fear there may be altogether too much uncle-asking in government circles in general, and in central banking circles in particular.”

Princeton University economist Alan Blinder, in a February 1996 speech, shortly after stepping down as the Fed’s vice chairman, in the New York Times’ piece “No Need to Read the Fed’s Beige Book if You Read This Instead.”

Lead Stories

Markit Seeks to Raise $1.14 Billion in U.S. Initial Offering
Leslie Picker and Matthew Leising – Bloomberg
Markit Ltd., the financial information company whose price data forms the basis for much of the global derivatives and bond markets, is seeking to raise as much as $1.14 billion in its U.S. initial public offering.

No Need to Read the Fed’s Beige Book if You Read This Instead
Binyamin Appelbaum – NY Times
The Federal Reserve will not be providing much of a public service when it releases its Beige Book economic survey Wednesday afternoon, as it does eight times each year.
**JK – Here’s an interesting history of the “Beige Book,” sometimes called the “Tan Book,” which was once the “Red Book.”

Krugman Condemnation of Sweden Triggers Riksbank Review Talk
Johan Carlstrom – Bloomberg
Sweden is considering a more rigorous oversight of its monetary policy two months after Nobel Laureate Paul Krugman lambasted the nation’s central bank for failing to stave off the threat of deflation.

Investors Flag Risk of ECB Disappointing After Europe Bond Rally
Lucy Meakin and David Goodman – Bloomberg
Firms from Pioneer Investment Management Ltd. to AllianceBernstein Holding LP say the odds are high that measures the European Central Bank will announce to stimulate the region’s economy will fall short of the bond market’s lofty expectations.
Yields on bonds from Belgium, France, Italy and Spain have fallen to records in the past month amid speculation policy makers meeting tomorrow may add unconventional measures, such as quantitative easing, in addition to lowering interest rates.

Calm or Complacency, in Three Charts
Steven Russolillo – MoneyBeat – WSJ
It is really quiet on Wall Street. So quiet, in fact, that some officials at the Federal Reserve are wondering whether tranquil financial markets are actually something to worry about.

Stephen Colbert on Thomas Piketty
NY Times
What happens when you cross a parody of a blowhard right-wing talk-show host with an influential French economist who seeks a fight against global inequality? Now we know, after the Thomas Piketty World Tour continued Monday night with a stop at “The Colbert Report.”

Fed may shun global risk rules banks spent billions to meet
The Federal Reserve may scrap international measures aimed at assessing bank health in favor of imposing its own rules, frustrating bankers who have spent billions of dollars retooling their books to meet global standards.

Foreign banks face disappointment over Volcker rule clarification
Gina Chon in Washington – Financial Times
Foreign banks are set to be disappointed by long-awaited US guidance on the implementation of the controversial Volcker rule, people with direct knowledge of the matter said.

SGX Attracts Diverse Bond Listings In May
SGX continued to attract a strong flow of new bond listings in May, supported by a geographically diverse suite of transactions. A total 41 new bond issues were listed on SGX in the month, down from the 56 listed in April.

ICAP’s i-Swap Platform Sets US Dollar Interest Rate Swap Volume Record In May
Press Release
i-Swap, ICAP’s award-winning electronic interest rate swaps platform, which allows trading on the ICAP SEF, announces today that it has set a monthly US Dollar interest rate swaps (USD IRS) volume record in May of 428 trades worth a notional value of $17 billion, representing 23% of all USD IRS trades at ICAP.

Basel Defeat on Rules Is Guaranteed in Danish Banking Bet
Peter Levring and Jim Brunsden – Bloomberg
Denmark’s government said its proposals from May to ease Basel III liquidity rules will probably prevail when the European Commission reveals its final decision on the matter this month.
Economy Minister Margrethe Vestager said she sees “no reason to believe there are any changes to the proposal” published by her ministry last month, in an interview yesterday in Copenhagen.

Central Banks

Fed Officials Growing Wary of Market Complacency
Federal Reserve officials are starting to wonder whether a tranquillity that has descended on financial markets is a sign that investors have become unafraid of the type of risk that could lead to bubbles and volatility.

Ahead of the Tape: ECB Takes Shot at a Weaker Euro
The European Central Bank is poised to join the currency wars. But investors shouldn’t expect a shock-and-awe campaign. The central bank is widely expected to further loosen monetary policy Thursday. This is likely to take the form of charging banks to hold money with the ECB and emphasizing that the central bank expects to keep borrowing rates near zero for a long time yet.

As ECB Frets Over Deflation, Real Culprit Is Japan – MoneyBeat
Michael J. Casey – The Wall Street Journal
But although Japan’s data now suggest the enviable return of inflation after 25 years of absence, it needs to be said that this was largely achieved by exporting Japanese deflation to Europe–via a weaker yen.
In fact, the Federal Reserve and other central banks should thank the European Central Bank for not re-exporting Japanese deflation into their economies.

Draghi Poised to Keep Rate-Cut Option Even After June Move
Jana Randow and Stefan Riecher – Bloomberg
Mario Draghi is likely to signal that any interest-rate cut this week won’t necessarily be the final one, according to two euro-area central bank officials.
The European Central Bank president will probably reiterate his commitment to keep borrowing costs at present or lower levels, the people said, asking not to be identified because the talks aren’t public. While a final decision won’t be made until tomorrow, policy makers are debating a cut of 10 or 15 basis points in both the benchmark and deposit rates, the people said.

Peru’s central bank ‘not optimistic’ about April economic growth
The president of Peru’s central bank said on Tuesday he is not optimistic about economic expansion in April, as weaker-than-expected mining activity continues to drag on overall growth.

Bank of England reshuffle may help Carney on rates at first
A shake-up of Britain’s top monetary policymakers, which started this week, caps a year of change at the Bank of England under Governor Mark Carney and might help him withstand growing pressure to raise interest rates.

Breather for banks’ unhedged foreign currency exposures
Business Standard
The Reserve Bank of India (RBI) has given banks a breather for additional provisioning for the unhedged foreign currency exposure of their clients in the quarter ending June. Now, banks can spread provisioning for the June quarter equally through this financial year.

Rajan holds rate, waits for govt to push growth
Business Standard
The Reserve Bank of India (RBI) on Tuesday left the key policy repo rate unchanged at eight per cent as inflation concerns were showing signs of abating and said a pro-growth stance could be adopted if prices rose at a slower rate than expected. This will be welcomed by a pro-growth National Democratic Alliance (NDA) government that took office last week after a landslide victory.

Federal Reserve Announces New Schedule Of Margins Applicable For Collateral Pledged By Depository Institutions


Euro Gets Carry Vote as Easing Bets Boost Profits: Currencies
Kevin Buckland and Kristine Aquino – Bloomberg
Mario Draghi’s willingness to lower interest rates is turning the euro into the darling of investors seeking to exploit differences in global borrowing costs, aiding his efforts to weaken the currency.
Of 44 potential carry trades funded in euros tracked by Bloomberg, 36 made money in the past month, up from 21 in the first quarter and compared with 26 using the yen.

Lithuania on course to adopt euro
Peter Spiegel in Brussels – Financial Times
Lithuania cleared its most important hurdle to becoming the 19th member of the EU’s common currency on Wednesday when the European Commission reported Vilnius had fulfilled all requirements needed to join the euro and recommended its adoption in January.

UK Government Mulls FX Oversight
James Rundle – WatersTechnology
The UK Chancellor of the Exchequer, George Osborne, is reportedly preparing to announce plans that would see formal regulation enter the foreign-exchange (FX) markets for the first time.

PNG kina spikes, traders say new trading band introduced
The Papua New Guinea kina jumped 18 percent on Wednesday after traders said the South Pacific country had introduced new trading band restrictions following a steep and prolonged fall in the thinly traded currency.

***JM: Seriously, though, you didn’t know what the PNG currency was called either, did you?

Illegal Bitcoin IPO Actually Worked Out Pretty Well for Investors
Matt Levine – Bloomberg
Today the Securities and Exchange Commission shut down a bitcoin investing scam that, as bitcoin investing scams go, is disappointingly un-scammy. A very bitcoiny guy named Erik Voorhees1 started some very bitcoiny companies called SatoshiDICE and FeedZeBirds,2 and he sold shares in those companies, for bitcoins, over the internet. He called these sales initial public offerings, and published homemade prospectuses for them on the Internet,3 but he forgot to register them with the SEC. The SEC does not like it when you do that.

Indexes & Index Products

Sallie Krawcheck Opens an Index Fund Focused on Women
WILLIAM ALDEN – Dealbook – NY Times
When Sallie L. Krawcheck, a former big bank executive, bought a women’s network last year, she said she wanted to “move from advocacy of women to the smart business of real investment in women.” Now those plans are starting to take shape.

Index ETFs may not track benchmarks as expected
Ari I. Weinberg – Financial News
The party line on index exchange-traded funds is that they offer easy exposure to a benchmark, less the fund’s expense ratio. If a stock index were to gain 10% this year, for instance, and an index ETF charges 0.1% of fund assets a year in expenses, an investor in that ETF might expect to earn 9.9%.

Judge Rules in Favor of States in Suits Against S&P
Standard & Poor’s Ratings Services lost a bid to combine more than a dozen state lawsuits filed in the aftermath of the financial crisis, with a U.S. federal judge ruling that the cases be dealt with separately in the state courts.

Boost ETP: The Positives Of Leveraged ETFs And ETPs In Response To Blackrock’s Laurence Fink’s Comments


Trading to influence gold price fix was ‘routine’
Xan Rice – Financial Times
When the UK’s financial regulator slapped a £26m fine on Barclays for lax controls related to the gold fix, it offered more ammunition to critics of the near-century-old benchmark. But it also gave precious metal traders in the City of London plenty to think about.

Gold is in a ‘death cross’
Lawrence Lewitinn – Yahoo Finance
Gold has just made a “death cross.” Is it something bullion investors should worry about?
The “death cross” was formed when gold’s 50-day moving average crossed below its 200-day moving average. Ari Wald, head of technical analysis at Oppenheimer & Co., says it’s all much ado about nothing, but that doesn’t mean he’s bullish on gold.
“It does sound terrible,” Wald said. “The thing with the ‘death cross’ is that it’s a very late signal, for one. Two, it doesn’t work very well in these sideways ranges.”

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