First Impressions

Residual Interest Rule Cometh
Jim Kharouf and Doug Ashburn – John Lothian News

The Commodity Futures Trading Commission took up the issue of enhanced customer protections today, finalizing a rule that would require futures commission merchants (FCMs) to adopt new risk management programs that relate to operations, capital and customers fund segregation.

The new rule, passed this morning, will also require FCMs to keep so-called “residual interest in customer accounts.” The CFTC rule says FCMs must maintain residual interest “that is at least equal to its customers’ aggregate under margined amounts for the prior trade date by the point in time specified in the rule. Essentially, one year after the rule appears in the Federal Register, any margin deficit will be required to be topped up by 6pm Eastern time on the day after settlement (“T+1”). If the customer has not met such deficit, the FCM must take a capital charge on the amount of the deficit. After five years, the requirement moves to 6pm on the actual settlement date.

Within the next 30 months, the commission must conduct and release a study on the effects of this change on FCMs.

Chairman Gensler asked staffers, for the record, whether these customer protection regulations would prevent a Peregrine-type fraud, or an MF Global-type situation where the FCM can tap into into customer accounts, and the staffers said “yes.”

Commissioner Scott O’Malia introduced a proposed amendment that would not bind the Commission to the 5-year phase-in, but would rather allow future commissions to revisit the implementation timeline pending the results of the 30-month study. The amendment was defeated 3-1. The rule passed by the same 3-1 vote, with O’Malia voting against.

For cleared swaps customer accounts, the final rules do not alter the current residual interest requirement for cleared swaps, although, where applicable, they do amend certain language for consistency with other commission regulations.”

In short, the futures industry now has a residual interest rule.
More on this tomorrow.

Quote of the Day

“The primary reason for the ineffectiveness of an aggressive monetary response to induce economic recovery is that the large quantity of new money created by central banks has been channeled into a global banking system terminally infested with a fatal financial virus in the form of a gigantic debt bubble.”

– Henry C K Liu, from the two-part series “A new world order and China’s key role.”

Lead Stories

Tradeweb Applies With CFTC to Offer First Credit-Swap Trading
Matthew Leising – Bloomberg
Tradeweb Markets LLC asked U.S. regulators to make it mandatory to trade credit-default swaps on its new government-mandated platform.
http://jlne.ws/HpCB6g
***DA: Tradeweb fires first in making CDS available to trade. The next step in the SEF transition.

CFTC Approves Limited Purpose Swap Dealer Designations for Cargill and an Affiliate
CFTC
The Commodity Futures Trading Commission (CFTC) today approved an Order granting limited purpose swap dealer (SD) designations to Cargill, Incorporated and an affiliate, Cargill Financial Services International, Inc., marking the first time that limited purpose SD designations have been granted.
http://jlne.ws/Huz4Tm

EU Delays Bank Capital Rule Following Nordic Protest
Frances Schwartzkopff – Bloomberg
The European Commission will take an extra month to decide on rules affecting how banks calculate their capital ratios after Scandinavia criticized existing plans that the region argues would unduly penalize its banks.
http://jlne.ws/1aHuPiF
***DA: Hey, you want to make a lutefisk, you gotta crack some lye, or something to that effect.

A new world order and China’s key role
By Henry C K Liu – Asia Times Online
The unraveling of the global financial network and trading system since the onset of the global financial crisis that began in New York in mid-2007 has continued for more than five years with no end in sight, despite coordinated, extended monetary easing by many central banks to shore up a seriously impaired neoliberal global financial system that has been disintegrating at the core from its own internal contradictions.
http://jlne.ws/1aHuPiG

Bank of England’s Mark Carney places a bet on big finance
Martin Wolf – FT.com
Last week, Mark Carney, governor of the Bank of England, brought cheer to the City of London. His robust defence of finance and declaration that “we are open for business” mark an abrupt change from the regime of Lord King, his predecessor. The financial sector will certainly love him. His views are refreshingly clear. But they are also a gamble.
http://jlne.ws/1aHuPPE

Cities compete to be global centre of renminbi trading
Simon Rabinovitch in Shanghai and Josh Noble in Hong Kong – FT.com
For a currency that is still largely controlled by the state and grants its holders few investment options, the renminbi has attracted a remarkably large band of suitors around the world.
http://jlne.ws/HpCCam

Derivatives trade given a tech makeover
Michael Mackenzie and Tracy Alloway in New York – FT.com
In 2005, some of Wall Street’s largest banks faced a stark choice: embrace the electronic stock trading revolution which had already knocked a hefty portion off their commissions from equities trading, or risk losing out on more money as investors rush to embrace new technologies sweeping the market.
http://jlne.ws/HpCBmz

Central Banks

Bank of Japan stuns bond market into submission
Ben McLannahan in Tokyo – FT.com
There are few bigger bond bulls than Haruhiko Kuroda. The governor of the Bank of Japan told a New York forum this month that flat or falling yields in Japan’s Y936tn ($10tn) government bond market “can, and should continue” – even as inflation keeps edging toward the bank’s target of 2 per cent.
http://jlne.ws/1aHuPiJ
***DA: Go big or go home.

India’s ‘rock star’ banker: We do not need IMF money
BBC News
India’s new central bank governor, Raghuram Rajan, says that India has enough money to pay for all of its short-term debts tomorrow if it is needed and is not in danger of a crisis.
http://jlne.ws/1aHuPiK

Italian central bank says favors more bank mergers
Reuters
Italian banks have no strong need to increase their capital but must restructure and boost efficiency and would be helped by mergers, central bank chief Ignazio Visco said on Wednesday.
http://jlne.ws/1aHuPPL

Currencies

How a digital currency could transform Africa
Jonathan Ledgard and John Clippinger – FT.com
Here is a proposition: provide a secure and authentic digital identity for every person in Africa who wants one. India has shown it is possible to achieve something similar at scale.
http://jlne.ws/HpCEPs

U.S. confirms criminal probe of forex manipulation
Reuters
A top federal prosecutor said on Tuesday the U.S. Justice Department was investigating possible manipulation in foreign exchange rates, in the first public acknowledgement of such a probe.
http://jlne.ws/1aHuPz1

Barclays Reviews Foreign-Exchange Trading
Margot Patrick – WSJ.com
Barclays PLC on Wednesday said it is trawling through records in its foreign exchange trading business as part of a widening global probe into potential manipulation of currency rates.
http://jlne.ws/HpCyXY

Indexes and Index Products

Bloomberg Indexes Unveils Dynamic U.S. Dollar Benchmark 
BusinessWire, Via Yahoo! Finance
Bloomberg Indexes today unveiled the Bloomberg U.S. Dollar Index, providing investors a new way to assess, trade or invest in the value of the dollar against major global currencies. WisdomTree Investments, an exchange-traded fund (ETF) provider and asset manager, is the first to license the index as a benchmark for ETFs.
http://jlne.ws/16KhgzK

A better slew of commodity ETPs?
FTSE Global Markets
There is still a good investment case for commodity ETFs but in the current environment of declining prices careful selection of the right ETF is imperative, rather than opting for the simplest basket-only approach. Older generation ETFs have lost their shine of late; no wonder then that a new slew of sleeker, more sophisticated ETPs have been launched that claim to be an improvement on previous ETP structures. Are they right for the times?
http://jlne.ws/1aHuPz5

ETF Securities enters Belgian market, lists Gold Bullion Securities
ETF Strategy
ETF Securities, a leading provider of commodities-linked exchange-traded products (ETPs), has cross-listed the Gold Bullion Securities (GBS), the world’s first physically-backed gold ETP, on the Brussels market of the NYSE Euronext.
http://jlne.ws/1aHuQ62

Gold

China’s Demand for Gold Softens
Arpan Mukherjee – MoneyBeat – WSJ
Consistently higher prices, record import volumes and a desire for cash have softened China’s appetite for gold. Gold on the spot market is cheaper in Shanghai than in London for the first time in 2013, after trading at a premium for most of the year.
http://jlne.ws/1aHuPzb

SNL Metals Economics Group: Global Exploration Budgets for Nonferrous Metals Drop 29%
Global exploration budgets for nonferrous metals across the board is estimated to have fallen by 29% in 2013, according to preliminary results from a new Corporate Exploration Strategies study by SNL Metals Economics Group.
http://jlne.ws/1aHuQ63

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