First Impressions

Exchange CEO Series – Asian Opportunity: CME Group’s Phupinder Gill says Asia is the place to be
JohnLothianNews.com

Exchanges have never faced more challenges and opportunities than they do today.

John Lothian News sat down with six exchange CEOs at the 2014 FIA Boca Conference to talk about their views on four main topics: competition, regulation, growth and technology. Phupinder Gill, CEO of CME Group, said that regulation will continue to define the competition and industry framework for the foreseeable future and rising global demand for existing and new products, particularly from Asia will drive growth.

“The competitive landscape, as it stands now, is going to be largely dictated by where the regulatory landscape takes us,” Gill said. “As exchanges with a global footprint start to think about how the world might evolve, you have to take into account a few things – what the impact of Dodd-Frank is, the finalization of the SEF rules, how MIFID and EMIR work themselves out and implications for infrastructure providers such as ourselves. The trick for us is to make the experience for our client base as seamless as we possibly can.”

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Quote of the Day

“Most of these loans are not hedged completely on a currency basis even if they are collateralised and the currency volatility means some of these banks may be sitting on large currency losses.”

Trade banker at a large European Bank in the story, “Hong Kong’s soaring bank exposure to China sparks credit concerns”.

Lead Stories

Thomson Reuters tightens forex trading platform rules
Daniel Schäfer and Philip Stafford – FT.com
Thomson Reuters is set to tighten the rules of engagement for its foreign exchange trading platform in a bid to discourage attempts at market manipulation.
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**JK – Examples of a market correcting itself.

Europe’s Picking Up. But Inflation’s Falling
Alen Mattich – MoneyBeat – WSJ
The latest preliminary purchasing managers’ indexes from the euro zone were positive. Even the struggling French economy is looking more hopeful. But in among the bullish activity reports, price measures continue to warn of deflation risk. Can the single currency region really be facing deflation amid growth?
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ECB’s Liikanen: Open to Negative Deposit Rate
Brian Blackstone – The Wall Street Journal
Setting a negative deposit rate to guard against excessively low inflation is an option for the European Central Bank, said Finland’s central bank governor Erkki Liikanen, the latest indication that officials are willing to provide fresh stimulus to protect a fragile economic recovery.
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Hong Kong’s soaring bank exposure to China sparks credit concerns
Reuters
In just a few years, Hong Kong banks have ramped up lending to China from near zero to $430 billion, fuelling concerns about their credit exposure to the mainland at a time when sliding economic growth and defaults are making investors nervous.
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**JK – Interesting fact from this story: “Foreign bank claims on China hit $1 trillion last year, up from nearly zero 10 years ago.”

SOE you think you can reform
David Keohane | FT Alphaville
As we wrote before, the one thing we can say with certainty after the default of Chaori, China’s first onshore corporate bond default, is that China has become far less tolerant of Chaori.
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**JK – Too small to have clout.

Japanese debt: Still climbing
Ben McLannahan – FT.com
Last summer Takeshi Fujimaki ran for parliament on a platform of economic Armageddon. Japan’s debt was out of control, he told voters, and it was only a matter of time before everyone dumped government bonds, sending yields soaring and the yen skittering all the way to 1,000 against the dollar.
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**JK – Can Japan grow its way out?

Bearish signals remain distant for risk
Jamie Chisholm – FT.com
US government two-year yields at the start of the week are trading above 45 basis points for the first time since September last year. Another several bps and they will be at their highest since the middle of 2011.
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Treasury Notes Cheapest Versus Peers Since 2010 Before Auctions
Susanne Walker and Anchalee Worrachate – Bloomberg
Treasury short-term notes were the cheapest in almost four years versus their global peers as the U.S. prepared to sell $32 billion of two-year debt today.
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BitBeat: Bitcoin Less Risky? Currency Hedges Arrive
MoneyBeat – WSJ
Bitcoin is getting derivative. Literally. Tera Group, which runs one of the new derivative exchanges called TeraExchange, announced on Monday morning that it will starting handling bitcoin derivatives swap agreements, in what it’s saying is the first swap for the digital currency. This would give investors one way to hedge against the manic price swings that have been a staple of bitcoin in the last 15 months.
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Central Banks

What Happens When QE Ends?
Alen Mattich – MoneyBeat – WSJ
What happens after central banks stop their asset purchase programs? Now that markets are pulling forward expectations of interest rate rises in both the U.K. and the U.S., it’s worth looking back at a stylized chart a group of Bank of England economists produced for a paper published in Q3 of the bank’s 2011 Quarterly Bulletin.
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Even George Osborne Misunderstands His Own Bank Levy
Tim Worstall – Forbes
It’s intensely frustrating to see a politician bring in a measure that is absolutely correct, just the spot on right thing to do, and then watch him mess it all up with subsequent little changes. This is the case, I fear, with George Osborne and the bank levy over in the UK.
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Bond investors brace for H1 borrowing calendar
The Economic Times
For bond investors, the question is not whether India will have to raise its gross borrowing target of Rs 5.97 lakh crore ($97.8 billion) for the year starting in April, but by how much.
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Currencies

Too Much Volatility or Not Enough Derails Strategies: Currencies
Liz Capo McCormick and Ye Xie – Bloomberg
Too much volatility for emerging-markets currencies — and not enough in the developed world — is stinging traders.
Increasing swings in exchange rates from Turkey to Hungary are wiping out profits in the carry trade, where investors buy higher-yielding assets funded by currencies with lower borrowing costs.
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FX industry body ACI to appoint first full-time president
Reuters
The ACI, the global foreign exchange market’s main industry umbrella group, will officially appoint former State Street executive Marshall Bailey as its first full-time president later this week.
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Citi shakes up FX, creates position of global head of spot trading
Reuters
Citi, the world’s second-largest foreign exchange trader, is restructuring its FX trading desk, appointing a global head of trading and bringing its electronic and voice trading businesses closer together, according to an internal memo seen by Reuters.
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Fed’s unexpected rates talk leaves markets eyeing non-ZIRP FX future at last
Simon Watkins – Euromoney magazine
This week’s comments from US Fed chair Janet Yellen bring the prospect of earlier-than-expected US rate hikes, and with it a potentially broader relief for FX markets characterized by a sideways-moving USD, falling volatilities and marginal carry plays.
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FX fixing controversy is so 2006: what they said back then
Sid Verma – Euromoney magazine
Dismayed by the media coverage of the FX fixing controversy as the new Li[e]bor, which suggests the fixing practice of FX dealers, exposed to principal risk for large orders, constitutes an open-and-shut case of outright manipulation and is a new controversy? Well, continue reading.
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Venezuela forex system sells dollars at 8 times official price
Reuters
Venezuela launched a new free-floating foreign exchange system on Monday that offered dollars for eight times the official price in a move the government says will tame the black market but which critics see as a massive devaluation.
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Latin America FX: a tale of two currencies
Simon Watkins – Euromoney magazine
Latin American commodity-linked exchange rates are showing greater divergence with FX direction, driven by individual domestic macro issues, especially inflation/deflation, than any particular external factor, say analysts.
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Bitcoin exchange Vircurex freezes withdrawals, hoping for fresh influx of customers
David Meyer – GigaOM
Vircurex, a Beijing-based altcoin exchange, has frozen withdrawals after, you guessed it, thieving hackers made off with its bitcoins, litecoins, terracoins and feathercoins. The exchange is pretty small, but its strategy for dealing with insolvency is hilarious enough to share nonetheless.
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Indexes & Index Products

US investors offered enhanced returns on Euro Stoxx 50
Gurdeep Ubhi – Risk.net
Credit Suisse has released a five-year leveraged return note in the US based on the Euro Stoxx 50. It offers a potential return of 90% and would suit investors expecting a gradual rise in equities who can forgo downside protection
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ETF roundup: low rates lead to fixed-income ETP record
Vita Millers – Risk.net
ETFs and ETPs reach global high in February; Euronext trades ETFs on the Nav Trading Facility; Amundi taps FTSE Epra/Nareit index
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Deutsche Boerse: SPDR EURO STOXX Low Volatility ETF Launched On Xetra – ETFs Based On Euro-Zone Stock Corporations With Low Volatility
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Euro STOXX Low Risk Weighted 100 Index Licensed To State Street Global Advisors
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Gold

Gold Investor, Volume 5
This fifth edition of Gold Investor provides a selection from the World Gold Council’s latest body of research on the increasing relevance of gold as an investment asset. Download full report
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Iraq Buys $1.56 Bln of Gold, Biggest Purchase in 3 Years
Khalid Al-Ansary and Nicholas Larkin – Bloomberg
Iraq bought 36 metric tons of gold this month valued at about $1.56 billion in the largest purchase by a nation in three years.
The Central Bank of Iraq acquired the metal to help stabilize the Iraqi dinar against foreign currencies, it said in an e-mailed statement.
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China’s Gold Imports From Hong Kong Increase on Import Quotas
Bloomberg
China’s gold imports from Hong Kong rose in February amid increasing demand and as the country allowed more banks to import the precious metal.
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Miscellaneous

Loneliness of Kiev Bond Trader Shows Market Was Wiped Out
Jake Rudnitsky – Bloomberg
For 29-year-old Fyodor Bagnenko, a fixed-income trader at Dragon Capital in Ukraine, selling bonds has become a lonely business.
From his seven-story office in central Kiev, about 20 minutes from the barricades on Independence Square that were the epicenter of protests that triggered the worst crisis between Russia and NATO countries since the Cold War, he would trade more than $20 million of bonds a day last year. Since the revolution, there have been days where he couldn’t close a single deal as trading in Ukrainian financial assets dried up.
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