First Impressions

The Road Ahead: Donohue Leads OCC In a New and Pricier Era
Sarah Rudolph – John Lothian News

After 40 years as a relatively quiet clearing utility, the OCC has recently been shaken up. In just the past couple of years, the organization has seen dramatic changes in its leadership, staff, board and structure as it responds to new, more demanding regulatory requirements and a changing environment.

Perhaps the biggest change has been the OCC’s new designation in the wake of massive regulatory changes since the financial crisis. In July 2012 the Financial Stability Oversight Council, established under the Dodd-Frank Wall Street Reform and Consumer Protection Act, designated the OCC as “a “systemically important financial market utility” (SIFMU). OCC was one of several clearinghouses and institutions to be marked as such, a major market structure reform that is designed to help prevent the “too big to fail” financial firms that led to the 2008 crisis.

That also means that the OCC is under increased regulatory scrutiny, overseen by three regulatory entities: Securities and Exchange Commission, Commodity Futures Trading Commission and Federal Reserve

In October 2013, the SEC sent the OCC what Bloomberg called a “hair raising” letter chastising the organization for systemic weaknesses in its risk management and operations and saying it had not done a good enough job managing conflicts of interest on its board. The letter didn’t charge the clearinghouse with any wrongdoing but said its organizational structure had led to a lapse in oversight, according to the Wall Street Journal. Organizational changes have followed.

The OCC was already preparing for its first leadership change since its inception in 1973. Wayne Luthringshausen, who served as both executive chairman and CEO, retired at the end of 2013 after running the OCC for its entire 40 years.

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Quote of the Day

“People thought: ‘he’s a strong leader who brought order and helped improve our living standards. And now it’s the same Putin, he’s still got all the power, but everything is collapsing.”

Dmitry Oreshkin, an independent political analyst in Moscow in the story, “The Collapse of Putin’s Economic System”.

Lead Stories

The Collapse of Putin’s Economic System
Henry Meyer and Ilya Arkhipov – Bloomberg
The foundations on which Vladimir Putin built his 15 years in charge of Russia are giving way.
The meltdown of the ruble, which weakened to a record low this week, is endangering the mantra of stability around which Putin has based his rule. While his approval rating is near an all-time high on the back of his stance over Ukraine, the currency crisis risks eroding it and undermining his authority, Moscow-based analysts said.

Federal Reserve Says It Will Be ‘Patient’ on Interest Rate Timing
Binyamin Appelbaum – NY Times
Janet L. Yellen, the Federal Reserve chairwoman, said Wednesday that the Fed still plans to start raising interest rates next year, but it will be patient and does not expect to begin the process any earlier than April.
Ms. Yellen’s remarks, and a statement issued by the Fed’s policy-making committee, both emphasized that the Fed’s intentions have not been shifted by recent economic events including stronger job growth and plummeting oil prices.

Junk-Bond Investors Facing First Global Loss in 6 Years
Luca Casiraghi and Cordell Eddings – Bloomberg
Junk-bond investors worldwide are forfeiting all the gains they’ve accumulated this year as a selloff triggered by plunging oil prices thrusts the debt toward its first loss since the financial crisis.
The worst monthly performance in more than three years has eroded returns on speculative-grade debt, shrinking the year’s gain to 0.15 percent after ending November at 4.34 percent, according to Bank of America Merrill Lynch index data. That puts the debt on pace to hand investors their first annual loss since it gave up 27 percent in 2008, the data show.

Speed Trader Study Shows Treasuries Hurt When Breaking News Hits
Matthew Leising – Bloomberg
High-frequency trading in the U.S. Treasury market makes it harder for investors to buy and sell bonds when news events cause prices to move, according to the Bank of Canada.
Researchers studied how liquidity changed as algorithmic-trading programs, which are much faster than human beings, reacted to economic indicators including the unemployment rate, home sales and inflation. They examined trades on ICAP Plc (IAP)’s BrokerTec trading system from January 2006 to December 2011, putting their findings in a paper released this month. The $12.3 trillion Treasury market is the world’s largest debt market.

Merrill Lynch Says Buy Main Street, Sell Wall Street
By David Wilson, Bloomberg
Favoring Main Street over Wall Street “has the potential to be the trade of 2015,” according to Michael Hartnett, chief investment strategist at Bank of America Corp.’s Merrill Lynch unit.

Market Turmoil Will Test the Post-Crisis Financial System
By Peter Eavis, New York Times
Washington has been trying to bolster the financial system for the last five years so it can deal with mayhem in the markets. The turmoil this week will test those rebuilding efforts.

Central Banks

Russian central bank says extra financial measures will aid rouble
The Russian central bank said on Wednesday it would take additional financial measures to speed stabilization of the rouble.
The bank said in a statement that, together with the government, it was preparing a set of measures to provide, if necessary, additional capital to Russian banks and financial companies.

Do panic moves by central banks ever work?
Matt Clinch – CNBC
A surprise interest rate hike by the Russian central bank late Monday night left analysts debating whether such “panicked” moves by officials have any genuine impact.
Russia delivered an emergency 650 basis point rise to its main base rate at an emergency midnight meeting, but traders had other ideas with the ruble crumbling to a new record low the following session, testing the bank’s credibility.

Central banks lift the veil on more of their secrets
Financial Times
Central banks used to hide their deliberations from public view more jealously than the papal conclave. Whereas the college of cardinals announced their decision to the crowds outside, traders once had to guess what decision the US Federal Reserve had made. In Britain interest rates were set on the whim of a chancellor with one ear to the Bank of England and the other directed towards Westminster. Monetary analysts needed as good a feel for party politics as the economic data.


Russia Tries Emergency Steps for Second Day to Stem Ruble Plunge
Olga Tanas, James Hertling and Jason Corcoran – Bloomberg
Russian authorities eased accounting rules to curb banks’ need for dollars, seeking to ease concern the ruble’s plunge will lead to a full-blown financial crisis.
The ruble and stocks rallied after the Bank of Russia announced the measures. They came a day after the central bank’s 1 a.m. interest-rate increase and a freefall of as much as 19 percent in the currency, prompting speculation of a potential meltdown in emerging markets.

Memories of Asian crisis: Central banks, including RBI, intervene to defend currencies
Economic Times
Asian central banks have ramped up their intervention in currency markets to stem the sell-off roiling emerging markets, testing the notion that the region is better placed to handle a market rout than during its 1997-1998 financial crisis.
This battle between central banks and investors selling emerging market assets will likely intensify as analysts warn the region’s currencies are set to slide further, pushed lower by falling commodity prices and the prospect of a US rate hike.

Trading Gets Expensive as Oil, Ruble Foster Stresses: Currencies
By Anchalee Worrachate and Andrea Wong, Bloomberg
The fallout from the plunge in oil and high-yield debt prices is seeping into the $5.3 trillion-a-day foreign-exchange market, where the cost of trading has soared to the highest in more than a year. The difference between the price at which traders are willing to buy and sell major currencies has widened in recent weeks to the most since 2013, rising above the six-year average of about 0.11 percent, according to JPMorgan Chase & Co. Bid-ask spreads are expanding even as the trading volumes climb amid increasing financial-market volatility.

Russia Currency Market Bends But Doesn’t Break: Chart of the Day
Natasha Doff – Bloomberg
Foreign-exchange desks were in better shape to deal with the ruble’s selloff earlier this week than the last time they faced such a test 16 years ago.
The CHART OF THE DAY shows the difference between bids and offers on ruble-dollar trades peaked two days ago at 0.7825 ruble. While that’s the highest since Russia’s 1998 bond default, it is less than a third of the almost 3 rubles peak is reached then. Thirty-day volatility climbed 45 percentage points since October, to 55 percent, compared with about 200 percent in 1998.

Indexes & Index Products

Stock Indexes Soared Wednesday With Help From Fed Chair Janet Yellen
Richard Gobel – The Street
With the help of the Federal Reserve Chair Janet Yellen, the stock market resumed its upward trajectory on Wednesday.
The stock indexes were counting on the Fed to provide the necessary boost for the markets to regain their footing after huge losses the past two weeks. And the Fed did not disappoint.

Despite Fed-induced Rally Key Stocks Send Red Flag
Michael Kahn – Barron’s
Every market era has several stocks that seem to lead the indexes both higher and lower. In any given decade, investors can realistically keep tabs on the market’s health by following just a handful of bellwether stocks.
Today’s bellwether stocks are different from those of the ’80s or ’90s, but they still offer insights into the mood of the market. Right now, bellwethers are throwing off warnings despite Wednesday’s rally following the Federal Reserve’s promise of patience before raising interest rates.

Eurepo index coming to an end
Securities Lending Times
The Eurepo index will be published for the last time on 31 December due to concerns over its usefulness. The index, which is run by the European Money Markets Institute (EMMI) and the International Capital Market Association’s European Repo Council (ERC), was created in March 2002 as the benchmark for secured money market transactions in the Eurozone.


Gold choppy after Fed signals on track for 2015 rate hikes
Marcy Nicholson and Jan Harvey – Reuters
Gold turned lower on Wednesday, after briefly climbing above $1,200 per ounce following the U.S. Federal Reserve’s signal that it remained on track to raise interest rates in 2015.
The Fed offered a strong message that it was on track to raise interest rates sometime next year, altering a pledge to keep them near zero for a “considerable time” in a show of confidence in the U.S. economy.

Traders Betting Russia’s Next Move Will Be to Sell Gold
Debarati Roy – Bloomberg
Russia’s surprise interest-rate increase failed to stop the plummeting ruble. Another tool available to repair economic havoc caused by sanctions and falling oil prices: selling gold.
Russia holds about 1,169.5 metric tons of the precious metal, the central bank said last month. That’s about 10 percent of its foreign reserves, according to the London-based World Gold Council. The country added 150 tons this year through Nov. 18, central bank Governor Elvira Nabiullina told lawmakers. The Bank of Russia declined to comment on its gold reserves.

How Much Would Hanukkah Gelt Be Worth If It Were Real Gold?
Jacob Davidson –
Ever wonder how much that Hanukkah gelt would be worth if it were actually 24-karat gold and not foil-wrapped chocolate? Well, we’ve got the answer.
For those who don’t know, chocolate “gelt,” or money, is a traditional Hanukkah treat for children and often used in the holiday game dreidel. The dreidel is a spinning top with four sides, and depending on which side the top lands on, players get either all of the gelt in the pot, half of the pot, nothing—or have to add another piece of gelt to the pot.

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