First Impressions

MarketsWiki Education Series Videos, First Installment

Beginning today, John Lothian News is rolling out the videos from our recent summer intern education series. We begin with a talk from IIT professor Ben Van Vliet, who has written several books on high frequency trading systems and market structure. He has tremendous insight into what makes HFT firms tick, and how the organizational structure of these firms has migrated as the markets mature.

Please check out the 13 minute mini-lecture, and feel free to pass it along to anyone who may be interested.

Then scroll down for today’s top news from the world of fixed income, currencies, metals and indexes.

Ben Van Vliet, IIT – HFT: The Need for More Than Speed

“Change is a proxy for opportunity in the financial markets.”

Technology has significantly changed the state of the financial industry. Several years ago, the financial industry was more about groups of individual traders – it thrived on whether or not those traders had a competitive edge in the markets. In today’s world, the financial industry centers around organizations creating better trading systems to gain a competitive edge.

Watch the video »

Quote of the Day

Six years after 2008, what looked like a recovery, isn’t a recovery. Compared with the US and China, the euro area has underperformed. That’s not just because there has been a lack of structural reform; there’s been a lack of monetary and fiscal stimulus too.

Lucrezia Reichlin, head of economics at the London Business School and a former director of research at the ECB, quoted in the FT story “ECB would, for now, prefer to do nothing”

Lead Stories

Russia Swaps London Banks for Hong Kong
Gregor Stuart Hunter – MoneyBeat – WSJ
Might it be bond, yuan bond? Expect Hong Kong’s financial sector to find increased demand for capital from Russian companies as funding is yanked from London in the wake of European sanctions, UK investment bank Barclays said in a note released Thursday.

***DA: Sanctions work both ways.

Delinquent-Mortgage Bonds Attracting Investors
Rises in housing prices have been profitable to private equity firms and institutional investors that bought foreclosed homes to flip them or to rent them out. Now the recovery in housing is fueling a niche market for newly minted bonds that are backed by the most troubled mortgages of them all: those on homes on the verge of foreclosure.

***DA: Purchasers of these bonds are making a big bet on government support.

Argentina’s Financial Troubles Pile Up
Nicole Hong and Ken Parks – WSJ
Argentina’s financial turmoil intensified Wednesday as a hedge fund seeking to collect on defaulted bonds played down settlement hopes, and the peso tumbled to a record low following a surprise interest-rate cut.

Argentina slams U.S. judge, holdouts see no private debt deal
Hugh Bronstein and Daniel Bases – Reuters
Prospects for a private sector solution to Argentina’s sovereign debt dispute deteriorated on Wednesday after holdout investors said they entertained no realistic offers from bankers while the government dashed hopes it might soon agree to restart talks.

***DA: It’s no fun to negotiate from a position of weakness.

Priciest Asia Bonds Suffer in Hunt for High Yield: Korea Markets
Kyungji Cho and Christopher Langner – Bloomberg
Emerging Asia’s most-expensive dollar bonds are underperforming as South Korean issuers refinance maturing debt and investors seek higher yields.

Trade of the Year Seen in Long-Dated Gilts as Britons Age
Eshe Nelson and Lucy Meakin – Bloomberg
Long-maturity U.K. government bonds are on course for their best quarter since 2012 as investors bet appetite for the securities will be preserved amid a shakeup of the pensions industry.

Central Banks

BOK Cuts Rate for 1st Time Since May 2013 to Boost Growth
Eunkyung Seo and Cynthia Kim – Bloomberg
South Korea’s central bank cut its interest rate for the first time in more than a year, risking inflaming record household debt as it backs government efforts to spur Asia’s fourth-biggest economy.

Tougher broker-dealer rules needed, Fed’s Rosengren says
A serious re-evaluation of how broker-dealers are supervised is overdue and should bring about higher capital requirements given the threat broker-dealers still pose to the U.S. financial system, a top Federal Reserve official said on Wednesday.

ECB would, for now, prefer to do nothing
Claire Jones in Frankfurt – Financial Times
Spring was meant to be the season when the climate of the eurozone’s recovery became sunnier. Instead, as the days lengthened, the outlook darkened.

***DA: TLTRO, coming soon to a central bank near you.


Banks Said to Get Enforcement Letters in FX-Rigging Probe
Jesse Hamilton, Dakin Campbell, Suzi Ring and Gavin Finch – Bloomberg
Banks including JPMorgan Chase & Co., Citigroup Inc. and Morgan Stanley have been notified regulators are preparing enforcement actions on currency rigging, people familiar with the investigation said.

SuperDerivatives goes live with exotic options trading venue
Farah Khalique – Euromoney Magazine
SuperDerivatives has gone live with a new trading platform to trade exotic foreign-exchange options electronically, and plans to expand the number of tradable asset classes from metals and FX to include oil, equity derivatives, credit and interest rates.

Indexes & Index Products

Barclays Index Unit Said to Draw Offers From Nasdaq, CME Group
Matthew Monks and Sam Mamudi – Bloomberg
Barclays Plc’s index business drew offers from Nasdaq OMX Group Inc., Bloomberg LP, and CME Group Inc., people with knowledge of the matter said. The Index Portfolio and Risk Solutions, or IPRS, unit, which manages indexes including the U.S. Aggregate Bond Index, could fetch about $1 billion, one of the people said, asking not to be identified because the matter isn’t public.

***DA: Could be a nice feather into the cap of some exchange.

Shanghai-Hong Kong Convergence Spurs Record ETF Inflows
Belinda Cao, Fion Li and Weiyi Lim – Bloomberg
The Shanghai-to-Hong Kong stock price convergence trade is spurring record inflows into exchange-traded funds that invest in mainland China.

CEO discusses ETF landscape, value of advice
Bill McNabb – Vanguard
Are we reaching a tipping point in terms of ETF product introductions?
ETFs are one of the most important investment innovations of the past quarter century. They have provided advisors with low-cost, diversified tools for building long-term portfolios for their clients. However, the dark side of innovation is proliferation. We now see some ETF providers thinly slicing market and country exposures. Others are basing products on back-tested data, bringing to market only those that “promise to outperform” broad markets. Our research shows that after these ETFs are launched, most actually underperform the market.


LME’s new COT report; a beginner’s guide
Andy Home – Reuters
When the London Metal Exchange (LME) consulted with its industrial users on what it should do about long load-out queues at some of its warehouses, the only point of general agreement in a polarized response was that it should improve transparency. Well, the LME has now delivered. Indeed, it has sprung something of a surprise by going beyond the weekly reporting format used in the U.S. to provide daily reports, albeit released weekly and with the customary two-day time-lag that characterizes its existing dominant position reports.

Silver Price Going Electronic in Quest for Transparency
Nicholas Larkin – Bloomberg
The silver-pricing method begun during the reign of Queen Victoria ends today in London as the $5 trillion market shifts to a more transparent process and regulators expand scrutiny of how commodity benchmarks are set.

Gold loses its shine as Chinese curb jewellery purchases
Neil Hume, Commodities Editor – Financial Times
Global gold demand declined in the second quarter from the same period a year ago as Chinese consumers curbed jewellery purchases.

U.S. Mint to use new silver benchmark for coin sales, purchases
The U.S. Mint said on Wednesday it will adopt the new electronic silver benchmark to be unveiled this week for its coin sales, silver purchases and price management programs following the end of the original ‘silver fixing’ mechanism.

London gold fix lawsuits to be consolidated in New York
Andrew Longstreth – Reuters
A federal judicial panel on Wednesday ordered that 18 lawsuits alleging a conspiracy to manipulate gold prices be consolidated into one proceeding in New York.

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