First Impressions

Making A Call Around the Pits
by John J. Lothian

It seems like a lifetime ago, when I used to publish daily statistics in this newsletter about the percentage of open outcry trading versus electronic trading at the CBOT and CME. It was a fun daily exercise, especially when the CBOT was taking on the NYMEX/COMEX for the gold and silver contracts.

By that time, some 10 years ago, the statistics of electronic trading on the bonds or financial futures as a percentage the total volume were well over 90 percent electronic. So what took so long closing the pits?

The two key tests for the CME Group as a corporation were profitability and liquidity. Most of the futures pits, or the futures pits as a whole, failed both of these tests a long time ago.
Futures markets are about two things: price discovery and risk transfer. It has been clear to many the price discovery was no longer happening in the pits. And without price discovery, there can be no risk transfer.

Read the rest of the commentary at

Quote of the Day

“This stand-off between Greece and the eurozone is increasing the risk every day to the British economy. Greece has worked hard to stay in the eurozone, and frankly a Greek exit from the eurozone in my view would have very serious consequences.”

George Osborne, Chancellor of the Exchequer in the story, “Greece ‘will have to quit eurozone'”.

Lead Stories

Tempers flare as CME execs meet members over futures pit closure
Dozens of angry CME Group members abruptly left a meeting with CME Group Inc on Friday, saying executives were dismissive and largely failed to answer questions about the exchange’s plans to close most open-outcry futures markets. It was the first of two members-only sessions in Chicago and New York to address this week’s announcement by CME Group that most open-outcry futures markets will be closed by July 2 due to dwindling trading volumes.

Hedge Funds Keep Winning Despite Losing; How Do They Keep Winning Clients? Maybe It’s About Job Security.
By Gregory Zuckerman, WSJ
Hedge funds are in a six-year slump. Financial markets have been rising but these highly paid investors can’t seem to keep up. It’s getting so bad, hedge funds are starting to draw comparisons to mutual funds, long criticized for poor performance relative to their fees. It’s a bit like saying Ferraris are starting to resemble Fords.

Fund Pros Who Live Together, Buy Together; Study Suggests Managers Are Influenced by Investments of Peers Who Are ‘Neighbors’
By Chris Gay, WSJ
It is no surprise that fund managers make portfolio choices for reasons other than dispassionate financial analysis. Studies suggest they invest in companies with headquarters nearby and with ties to their old schools, and for reasons related to politics and religion.

BlackRock to ramp up impact investing
By Jessica Toonkel, Reuters
BlackRock Inc (BLK.N) is planning an array of new investment products that will allow clients to invest in addressing large societal issues, such as global hunger or poverty, an executive at the New York-based firm said.

Greece ‘will have to quit eurozone’ says Alan Greenspan
Peter Campbell – Daily Mail Online
Greece will be forced to leave the eurozone, the former head of the US central bank Alan Greenspan predicted yesterday.
Mr Greenspan warned that he could not see anyone willing to offer loans to the country.
Athens has until the end of the month to secure around £5billion of financing to keep the Greek economy running.

HSBC in Swiss tax avoidance storm
Martin Arnold and Claer Barrett, FT
HSBC has admitted that its Swiss private bank may have held accounts for tax-dodging clients, after secret files from Europe’s biggest bank were leaked to several news organisations exposing widespread tax-avoidance practices.

Six Countries Where Inflation Is Surging
Anna Andrianova and Catarina Saraiva – Bloomberg
Now is definitely not the time for a Russian shopping spree.
Thanks to an epic collapse in the ruble, price growth has hit crisis levels in Russia: Inflation reached 15 percent in January. Even worse, there’s little respite in sight. Inflation will average 13 percent in 2015, according to the median forecast of economists surveyed by Bloomberg.

John Whitehead, banker, 1922-2015
Tom Braithwaite in New York, FT
John Whitehead, who helped transform Goldman Sachs into an international investment bank, has died at the age of 92. Whitehead ran Goldman with John Weinberg between 1976 and 1984, the high point of a 37-year career during which the firm morphed from a small commercial paper specialist into the top underwriter of stocks and bonds and adviser on mergers and acquisitions.

In J.P. Morgan Emails, a Tale of China and Connections
Firm’s Hiring of Son of Chinese Government Official Has Drawn Scrutiny From U.S. Authorities Investigating Hiring Practices of Several Big Banks

SEFs face reckoning with unintended consequences warns report
Banking Technology
Like opening Pandora’s box, the emergence of swap execution facilities in US derivatives markets has brought unexpected consequences and problems as well as benefits. In some cases, asset managers are actively looking to avoid trading on the new platforms and even turning to other asset classes, according to a new report by OpenLink.

Spread betting comparison site aims to improve transparency
Harriet Agnew, City Correspondent, FT
A new price comparison website for UK financial spread-betting companies has launched, designed to shine a light on the wide variety of fees being charged by many of these operators which are popular with retail investors.

Sen. Feinstein working to reinstate U.S. swaps ‘push-out’ rule -aide
Senator Dianne Feinstein of California hopes to reinstate a hotly contested requirement for big banks’ swaps trading after U.S. lawmakers voted in late 2014 to loosen the rules for Wall Street.

Always double-check.
By The Editors, Bloomberg
U.S. lawmakers say they want regulators — notably, financial regulators — to weigh the economic impact of their actions more carefully. That’s actually not a bad idea, as long as it doesn’t end up neutering rules that the economy badly needs.

Central Banks

The Fed’s Republican Tries Talking Republicans Out of “Audit the Fed”
Real Time Economics – WSJ
The question at hand is whether the Fed’s lone Republican can talk a Republican Congress out of passing legislation that would subject the central bank to more scrutiny from Capitol Hill. Atop the Fed’s growing list of legislative concerns is an “Audit the Fed” bill that could open the central bank’s interest rate decisions to scrutiny from the Government Accountability Office, which is Congress’s watchdog.

Rand Paul’s Know-Nothing Fed Bashing
By Noah Smith, Bloomberg
See if you can spot the errors in Senator Rand Paul’s push to audit the Federal Reserve, which he laid out Friday in Des Moines:

Rand Paul Is Right, And Richard Fisher Wrong: The Federal Reserve Must Be Audited
John Tamny – Forbes
In response to Sen. Rand Paul’s efforts to pass “Audit the Fed” legislation, Richard Fisher, outgoing president of the Federal Reserve Bank of Dallas, lashed out at the Kentucky senator last week. In an interview with The Hill, Fisher asked “Who in their right mind would ask the Congress of the United States – who can’t cobble together a fiscal policy – to assume control of monetary policy?”
There’s much that should trouble readers about Fisher’s statement, but perhaps not for the reasons commonly assumed. To show why, it’s most useful to get the “shooting fish in a barrel” stuff out of the way first.

Bank of England’s Carney urges ‘big push’ on bank rules, worries over reform fatigue
By Randall Palmer, Reuters
Bank of England Governor Mark Carney has urged the G20 to mount a “big push” to implement global regulatory reforms, fearing that governments may be tiring of non-stop rulemaking since the financial crisis six years ago.

Volcker Is the New Central Banking Hero of Turkey and Russia
Onur Ant and Olga Tanas – Bloomberg
Paul Volcker’s legacy is living on in the central banks of Turkey and Russia.
The former U.S. Federal Reserve chairman’s 1980s attack on double-digit inflation is being seized upon by modern-day policy makers keen to fend off political criticism or earn credibility in financial markets.


America’s Dollar, the World’s Problem
Bloomberg View
When officials from the Group of 20 nations gather in Turkey next week, the worsening currency wars will likely be a source of friction. The biggest question is whether the United States will finally get sick of being a casualty in the ongoing skirmishes.

Apple plans debut of Swiss franc bond sale
By BenEdwards
Apple Inc. is seeking to add to its recent run of blockbuster bond deals with a debut sale in Swiss francs, according to a person familiar with the offering.

First Libor rate-fixing battle as Icap rejects EU’s EUR15m fine
by Tim Wallace, City A.M.
Brokerage?Icap has become the first City institution to challenge a fine for attempted Libor manipulation, yesterday vowing to battle the European Commission.

Indexes & Index Products

China’s ETF Options Are Latest Stock-Market Milestone: Timeline
Bloomberg Business
The Shanghai Stock Exchange starts trading options on the China 50 ETF on Monday, the first new equity derivatives allowed by Chinese regulators since CSI 300 Index futures were introduced in 2010. Since then, the nation’s equity market has expanded to become the second largest worldwide.

MSCI Barra Peer Analytics Gives Greater Transparency to Mutual Fund Performance
Herald Online
MSCI Inc. (NYSE: MSCI), a leading provider of investment decision support tools worldwide, today announced the launch of MSCI Barra Peer Analytics, a new tool to provide a factor-based analysis of mutual funds. This new offering will deliver holdings-based insight into investment strategies and performance of 6,500 of the largest US mutual funds over 5 years, offering an unprecedented factor-based analysis of individual funds.

MSCI Ambition Leads Romania Bourse to Push for State IPOs
Bloomberg Business
The Bucharest Stock Exchange expects the Romanian government to push ahead with state-asset sales this year, helping the bourse boost trading volumes needed to achieve an upgrade to emerging-market status.

LSEG to explore sale of Russell Investment Management
Automated Trader
London Stock Exchange Group has concluded the comprehensive review of the investment management business of Russell Investments, as previously announced on 26 June 2014. The comprehensive review focused principally on assessing the strategic fit of Russell Investment Management with the Group’s long term strategy. After careful consideration the conclusion of the comprehensive review is to explore a sale of this business in its entirety.


Tahoe to Buy Rio Alto for $1.09 Billion to Add Peru Gold
Simon Casey and Liezel Hill – Bloomberg
Tahoe Resources Inc. agreed to buy Rio Alto Mining Ltd. for about C$1.35 billion ($1.09 billion) to add the La Arena mine in Peru in the gold industry’s biggest takeover in almost 10 months.
The cash-and-stock offer is valued at C$4 a share, or 22 percent more than Vancouver-based Rio Alto’s Feb. 6 closing share price, both companies said Monday in a statement.

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