First Impressions

Focused: What The Industry Knows About Transparency (Part 2)
JohnLothianNews.com

Back in November, the industry gathered for the annual FIA Expo event in Chicago. There, John Lothian News used an exhibitor booth (Thanks Cinnober!) as its studio to ask industry participants key questions about transparency issues in today’s markets.

Part 2: What solution would you suggest in order to improve transparency in the markets today?
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Quote of the Day

“People shouldn’t be surprised that central banks will make adjustments to normal, at a pace that may surprise them, because of the fear that if they don’t start moving to normal we’ll never get there.”

Brian Moynihan, CEO of Bank of America Corp. in the story, ” Top Concern for Davos Bankers: Credit Disruption After Fed Tightens”.

Lead Stories

Top Concern for Davos Bankers: Credit Disruption After Fed Tightens
Elena Logutenkova – Bloomberg
Deutsche Bank AG (DBK) co-Chief Executive Officer Anshu Jain’s biggest worry this year? Unexpected aftershocks when the Federal Reserve starts tightening, especially in the corporate bond market.
“A disruptive credit event following a Fed turn would be at the top of my worry list,” Jain said at a panel discussion at the World Economic Forum in Davos, Switzerland on Wednesday. “Sometime in the next six, max 12 months, we are going to get that Fed turn. That’s going to be very significant.”
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Swiss Franc ‘Nuclear Explosion’ Spreading, Credit Suisse, Saxo Hurt
By Elena Logutenkova and Jeffrey Vögeli – Bloomberg
Credit Suisse Group AG (CSGN) and Saxo Bank A/S joined an increasing number of European financial companies warning that the Swiss central bank’s surprise decision to abolish its currency ceiling may dent earnings.
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Bankruptcy Forecaster Sees Junk-Debt Bubble Bursting Next Year
Tiffany Kary and Laura J. Keller – Bloomberg
A bubble in the leveraged-finance market is growing and may burst in 12 to 18 months, said Edward Altman, a specialist in credit markets who developed a model for predicting corporate bankruptcies.
“We think it’s building,” Altman told a gathering of corporate restructuring experts Wednesday in New York. He said the current “benign credit cycle” encouraged by low interest rates has been going on for five years and led to a “frothy” market. “You’ll be busier at this time next year.”
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SEC Announces Charges Against Standard & Poor’s for Fraudulent Ratings Misconduct
SEC
The Securities and Exchange Commission today announced a series of federal securities law violations by Standard & Poor’s Ratings Services involving fraudulent misconduct in its ratings of certain commercial mortgage-backed securities (CMBS).
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U.S. Markets Favored by Investors, Bright Spot in Dim Global Economy: Bloomberg Poll
By Rich Miller, Bloomberg
International investors are the most bullish they’ve been on the U.S. markets in more than five years as America is seen as a bright spot in an otherwise worsening global economy, according to the latest Bloomberg poll.
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The time to start worrying about U.S. deflation may be now
By Anora Mahmudova, MarketWatch
The correlation between ‘feeling optimistic’ and ‘spending’ isn’t pitch perfect
The risk of deflation in the U.S. is becoming all too real. The last time the U.S. economy seriously faced deflation was in March 2009, when the core consumer-price index fell below zero. The Federal Reserve under chairman Ben Bernanke acted with a most unconventional tool: quantitative easing.
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Banks Must Bear the Risk of Derivatives Losses, CME Paper Says
Bloomberg
The debate over how clearinghouses are managed and the level of resources available has gone back and forth between the Chicago-based exchange owner and its largest bank members such as JPMorgan Chase & Co. (JPM) CME said in a white paper published today it has set aside the equivalent of 5.25 percent of the money its bank members have put into a collective default fund. In September, JPMorgan said CME’s contribution, referred to as skin in the game, should equal 10 percent.
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BGC Announces Increase Of All-Cash Tender Offer To Acquire GFI Group To $6.10 Per Share
BGC
Offers Additional Consideration of $0.10 per Share Contingent Upon Determination of Superiority by GFI Special Committee and Board
BGC Extends Tender Offer Deadline to February 3, 2015
BGC Urges GFI Shareholders to Vote AGAINST the Inferior CME/GFI Management Transaction and Tender Their Shares to BGC
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Incapital Names John DesPrez Bond Broker’s Next CEO
Ben Eisen – Bloomberg
Incapital LLC hired John DesPrez III, the former chief executive officer of John Hancock Financial Services Inc., to be the brokerage company’s next CEO as it seeks ways to further expand.
DesPrez, 58, replaces interim CEO Phil Johnson, who took over after John Radtke left the Chicago- and Boca Raton, Florida-based bond underwriter and distributor in March.
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Central Banks

ECB Seeks to Inject Up to 1.1 Trillion Euros Into Economy in Deflation Fight
Alessandro Speciale – Bloomberg
Mario Draghi called on the European Central Bank to make its biggest push yet to fend off deflation and revive the economy by unleashing a debt-buying spree of 1.1 trillion euros ($1.3 trillion).
The ECB president and his Executive Board proposed spending 50 billion euros a month through December 2016, two euro-area central-bank officials said. The plan still faces a tense debate in the Governing Council and may change before the final decision on Thursday, the people said, asking not to be identified as the talks are private. An ECB spokesman declined to comment.
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Canadian Central Bank Unexpectedly Lowers Interest Rates
Andrea Wong and Ari Altstedter – Bloomberg
Canada’s dollar sank the most in more than three years after the central bank unexpectedly cut interest rates, saying crude oil’s collapse will slow inflation and weigh on the economy.
The currency reached the weakest level in almost six years after the Bank of Canada reduced economic forecasts and lowered the benchmark rate target to 0.75 percent, from 1 percent, where it’s been since 2010. Government bonds climbed, pushing yields on two-, 10- and 30-year debt to record lows. Crude, Canada’s biggest export, has tumbled more than 50 percent since June amid a global glut.
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U.K. Zero Inflation Threat Quashes BOE Rate Dissent: Economy
Jennifer Ryan – Bloomberg
The two Bank of England policy makers pushing for an interest-rate increase dropped their call this month as inflation risks falling below zero. The pound declined.
In its first unanimous decision since July, the nine-member Monetary Policy Committee led by Governor Mark Carney forecast that U.K. inflation may drop to zero in the first quarter and there’s a “roughly equal chance” it could go below that level. Policy “could and would be adjusted” if needed to meet the 2 percent price target.
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Currencies

Regulator to Review Leverage Limits for Currency Trades; Move Follows Market Volatility Stemming From Surge in Swiss Franc
By Andrew Ackerman, WSJ
Regulators and currency-dealing firms are considering tougher requirements on borrowed money used by mom-and-pop investors after an unexpected surge in the Swiss franc left traders and brokers with steep losses.
The National Futures Association, a self-regulator responsible for policing the futures industry, said it is considering whether to alter a cap on borrowed money, or leverage, for currency bets in response to last week’s market tumult, according to spokeswoman Karen Wuertz.
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Brown Brothers Joins Growing Minority of Euro Parity Predictions
Andrea Wong – Bloomberg
Brown Brothers Harriman & Co. joined the growing minority of strategists calling for the euro to fall to parity with the dollar with the European Central Bank likely to increase monetary stimulus.
The ECB’s Executive Board has proposed quantitative easing of 50 billion euros ($58 billion) a month until the end of 2016, two euro-area central-bank officials said. The proposal will be discussed starting today by the ECB’s decision-making Governing Council, which could still change the design significantly, the people said, asking not to be identified as the proposal is confidential. The 19-nation shared currency has declined 14 percent to $1.1635 in the past six months as the euro area grapples with growing risks of deflation and a slowing economy.
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How Swiss Shock Humbled the King of Leveraged Currency Trading
By David Evans, Bloomberg
Drew Niv was looking for action. Then action came looking for him. While in his 30s, Niv built his young brokerage, FXCM Inc. (FXCM), into a money machine by turning the global foreign-exchange market into a playground for day-traders But by early 2014, his hot hand had gone cold. Niv’s customers — small-timers who usually lost money while FXCM was busy making it — were looking for thrills elsewhere. Currencies seemed boring. So from his 50th-floor office just south of Wall Street, Niv, now 41, held out a solution. FXCM could help customers capitalize on minuscule currency moves with a powerful financial tool: leverage.
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Is Dollar Next? Investors Reassess After Swiss Shock: Currencies
By Rachel Evans and Lananh Nguyen, Bloomberg
After Switzerland shocked markets by scrapping its currency cap, investors are beginning to ask whether a policy surprise may be lurking for the dollar, too.
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BlueCrest Said to Shut Trader’s Book on Losses Tied to Franc
By Will Wainewright, Bloomberg
BlueCrest Capital Management shut a portfolio run by Peter Von Maydell after the Swiss franc’s surge last week sparked losses, according to a person with knowledge of the decision. Von Maydell, a currency trader, remains at the hedge fund, said the person, who asked not to be identified because the matter is private. Von Maydell joined the $15 billion, Jersey-based firm two years ago from Credit Suisse Group AG, where he was global head of foreign-exchange strategy. He didn’t respond to phone calls and e-mails seeking comment.
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Russell offers buyside choice with new FX platform
By Andrew Pearce, Financial News
Russell Investments is launching a FX trading platform that will allow buyside firms to match trades directly with each other, at a time of intense scrutiny into the way currencies are traditionally traded.
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BitBeat: ‘The Street’ Buys a Window Into Bitcoin
By Paul Vigna and Michael J. Casey
Crossing Our Desk: – “They want a portal into what’s happening.” That was the reason, Coinbase CEO Brian Armstrong surmised, that a number of financial institutions, including the New York Stock Exchange, chose to invest in Coinbase as part of the startup’s $75 million Series C funding.
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Indexes & Index Products

Russell Investments and Integral launch comprehensive execution service for institutional investors ? designed to fix the Fix
Business Wire
Global asset manager Russell Investments and Integral Development Corp., a leading FX technology company, announced today the launch of Russell FX Network (RFX Network), a new end-to-end trading solution for the buy-side community for netting, execution and allocation of foreign exchange transactions. RFX Network is designed to help institutional investors including asset managers obtain currency exchange rates that seek to minimize tracking error with respect to the rates published by WM/Reuters.
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J.P. Morgan Creates Unit to Meet New Bond Trading Patterns
By Christopher Whittall – WSJ
J.P. Morgan Chase JPM -0.39% & Co., the world’s largest investment bank in fixed income trading by revenue, has set up a new 12-person unit focused solely on trading credit index products such as credit default swap benchmarks and exchange-traded funds.
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REIT Index Records Looming on ‘Lust for Yield’: Chart of the Day
David Wilson – Bloomberg
Real estate investment trust stock indexes may be headed for records as income-seeking investors turn to the shares, according to Michael Hartnett, chief investment strategist at Bank of America Corp.’s Merrill Lynch unit.
The CHART OF THE DAY displays the performance of the Bloomberg REIT Index in the past eight years. Last week, the 166-stock index closed 3.6 percent away from its record, set in February 2007.
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S&P faces rating suspension in SEC deal
Gina Chon in Washington and Stephen Foley in New York, FT
Standard & Poor’s will be suspended for a year from rating certain commercial mortgage bonds in an $80m settlement with the US Securities and Exchange Commission and the attorneys-general in New York and Massachusetts, according to people familiar with the matter.
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