First Impressions

A few tidbits from London IDX
Jim Kharouf and Doug Ashburn – John Lothian Newsletter

This year’s IDX, like most conferences, began on a serious note, slowly lightened up and, by the end of the final day, was rather lighthearted. IDX began this year with a panel of exchange leaders worried about regulatory complexity and ended with the CEO of the FIA donning a kilt. A selection of the day’s finer moments follows.

Steve Grob of Fidessa offered up perhaps the best tech joke of the conference, repeating a friend’s comment:

“Switching front end trading vendors is like getting divorced and remarried. Switching back office vendors is like getting a sex change. You better be committed to the idea.”

A prominent industry participant (who wished to remain anonymous for obvious reasons) said to me upon hearing the CFTC had named Aitan Goelman its new director of enforcement, “It is a very telling sign from the commission that, despite all of the lingering regulatory issues crippling the industry, Chairman Massad’s first order of business was to make sure the enforcement division is squared away.” Hmm.

The most talked-about panel of the day was a spirited look at the post-G20 interest rate swap market, subtitled “A Tennis Debate.” Under the watchful eye of an umpire, contestants volleyed the big issues facing the swaps market, while the audience judged and kept score. Hopefully the conference planners took note that, regardless of the content, the more interactive panels always generate more buzz.

In the day’s final panel, “The Changing Nature of Vendor Relationships,” Bill Templer, managing director of Faventus Consulting, expressed worry that there is a lack of interest in the fin-tech space at the college level. He followed with a plug for our MarketsWiki Education Summer Intern speaker series (headed to London July 1st and 2nd), saying it is the type of thing needed to attract the next generation of users and participants in our markets. Here is a link to sign up or sign up your summer interns:

Speaking of interns, often times they get the short end of the stick in terms of assignments – data entry, file organization and the occasional latte run. Other times they get the plum assignment. Our summer intern, Alison Fay, who happened to be in London during IDX week with her father, Russell Investments’ Pat Fay, was given such an assignment. While dad was attending the conference, she was asked to tour the city, from Threadneedle Street to Canary Wharf, filming video clips to be used as b-roll for John Lothian News and John Lothian Productions. Some life.

At Wednesday’s gala, FIA CEO Walt Lukken put on the kilt for Futures for Kids, and helped the organization reach a milestone – £2 million raised for the charity since its inception. He passed the kilt-wearing duty to FIA Europe head Simon Puleston-Jones, who will take the magic sporran to IDX 2015, joining such illustrious Kilt Challenge alumni as Clive Furness, Simon Rostron, Jeremy Grant and, of course, our own John Lothian, who did the honor in 2011. Carl Gilmore of KCG stepped up and bid £365 for our JLN marketing/advertising space in the newsletter for a week.

Good show, chaps, great cause and truly one of the brightest and best organizations in our industry.

Among our final visits of the week is a trip to DTCC, the clearing, data collection and trade repository organization, which is interestingly located on Snowden Street in London. They will no doubt be checking Doug Ashburn’s credentials twice from now on.

Quote of the Day

“Key decision makers exhibited neither political leadership nor political courage. Rather than work towards containing total losses, politics led governments to focus on shifting losses to others. The result was massive destruction in some member states and a considerably higher total cost for Europe as a whole.”

Athanasios Orphanides; MIT’s Sloan School of Management, 20 years as a Federal Reserve Board staff economist and adviser to then-Chairman Alan Greenspan, five years on the governing council of the European Central Bank as head of the central bank of Cyprus in the story, “Former ECB Official Orphanides Points Finger for Euro Woes at Politicians, Mainly German”.

Lead Stories

UK plans to make currency-rigging a crime but rejects EU rules
David Milliken – Reuters
British finance minister George Osborne will reject European Union plans to outlaw currency market manipulation on Thursday and instead set out his own proposals to make rigging exchange rates a criminal offence.

IMF sounds global housing alarm
Robin Harding in Washington – Financial Times
The world must act to contain the risk of another devastating housing crash, the International Monetary Fund warned on Wednesday, as it published new data showing house prices are well above their historical average in many countries.

Forget Europe, Emerging Markets to Gain Most from ECB Easing
Michael J. Casey – MoneyBeat – WSJ
The European Central Bank has given investors an excuse to keep buying in emerging markets into the second half of the year, as a worldwide “hunt for yield” runs out of assets to buy in advanced economies.

Greek Former Finance Minister Stournaras Named Central Bank Governor
Nektaria Stamouli – WSJ
Former Greek Finance Minister Yannis Stournaras was named the country’s new central bank governor, a move that ensures continuity in Greece’s overhaul drive.

Is ‘smart beta’ smart enough to last?
John Authers – Financial Times
How smart is Smart Beta really? Does it depend on Dumb Beta staying dumb and never wising up? Those lucky enough not to speak fluent financial jargon could be excused for not understanding these sentences. But they cut to the heart of the debate over how to attempt to beat the stock market.

Regulators should be wary of disrupting debt capital markets
Euromoney Magazine
After US supervisors launched enquiries into allocations on some of the big corporate bonds last year, such as Verizon and Apple, Euromoney learns that regulators in Europe and the UK have been asking banks to walk through the processes behind allocations to investors in selected bond deals.

Former ECB Official Orphanides Points Finger for Euro Woes at Politicians, Mainly German
David Wessel – MoneyBeat – WSJ
Athanasios Orphanides has a theory on what went wrong in Europe: The governance of the euro-zone was incompatible with prudent management of a major crisis. Some big countries – notably Germany – exploited the flaws in the system to its advantage at the expense of others. The 2009 recession was triggered by the U.S., but the 2011 recession was made in Europe and was avoidable.

Behold the Burrito Bond
Josie Cox – MoneyBeat – WSJ
London high street fast food outlet Chilango, favored by City types with elastic waistbands, is offering an 8% coupon on a four-year corporate bond that gives some buyers a free burrito* every week for the lifetime of the debt.

Central Banks

Brazil’s DNDFs – a new form of FX intervention?
Márcio Garcia of PUC-Rio and Tony Volpon of Nomura – Financial Times
Since the “taper tantrum” of May 2013, emerging markets have been under pressure. While not configuring a 1990’s style “sudden stop”, with most EM FX markets doing better since the beginning of this year, the prospects for eventual monetary normalization by the US Federal Reserve nevertheless pose challenges for EM economies. Brazil’s central bank (BCB) has adopted a unique intervention strategy to face these pressures, which we analyse in a recent working paper.

Carney Addresses London Bankers as Housing Call Looms
Jennifer Ryan – Bloomberg
Mark Carney is about to show if he can make good on George Osborne’s Mansion House promises.

Will Complacency Cost The Bank of England?
Alen Mattich – MoneyBeat – WSJ
The Bank of England’s policymakers are being pulled in two directions. The evidence increasingly suggests that the economy’s excess capacity–how much of the economy’s potential isn’t being used– is rapidly draining away. Yet there are few, if any, signs of inflationary pressure. If anything, on a two-year time horizon, consumer prices are expected to undershoot the BoE’s 2% target.

China ramps up spending to spur economy, central bank sees stable policy
China’s central bank said on Wednesday it will keep monetary policy steady in 2014, even as the finance ministry said fiscal spending had surged nearly 25 percent in May from a year earlier, highlighting government efforts to energize the slowing economy.


Renminbi boost for London’s forex trade
Sam Fleming, Patrick Jenkins and Delphine Strauss – Financial Times
Britain’s bid to become the leading centre for offshore trading in the renminbi is set to receive a boost with the designation of China Construction Bank , the country’s second-largest lender, as a clearing bank in London for the Chinese currency.

As Traders Vanish, Here’s One Way to Fix FX
Katie Martin and Chiara Albanese – MoneyBeat – WSJ
While George Osborne wants to make manipulating currencies benchmarks a criminal offense, the industry’s already working on other possible solutions to the problem of potential market rigging, especially around the so-called fix. One aim: take fallible human traders at banks out of the equation.

BitBeat: Adult Site Rides Bitcoin’s Rollercoaster
MoneyBeat – WSJ
For better or worse, a significant chunk of bitcoin’s early adoption has come from people using it for activities that are, shall we say, difficult to discuss with your mother.

Fall of self-regulated spot FX
Farah Khalique – Euromoney Magazine
Government plans to crack down on the UK’s foreign-exchange market amid reports of mass manipulation could see the demise of the London FX fix. Suggested reforms range from a transparent auction-based pricing system to banning the practice of last look.

Indexes & Index Products

BlackRock’s Wiedman Sees ETF Disruption as Banks Retreat
Christopher Condon – Bloomberg
Mark Wiedman, who oversees the world’s largest lineup of exchange-traded funds at BlackRock Inc. (BLK), cut fees and forged a partnership with Fidelity Investments to attract more individuals to his iShares ETFs.

Asia-specific Vix indexes fail to ignite market interest
Justin Lee –
The Asian volatility index market is at a nascent stage with a number of Asian exchanges launching volatility-based indexes and futures products on the back of them. However, uptake has been slow, with liquidity and low volatility hampering widespread trading

Why China’s A-Shares Must Wait
Chao Deng – MoneyBeat – WSJ
Are Chinese shares ready for prime time? The answer from one of the world’s biggest index providers this week was not yet, as regulators haven’t yet moved fast enough to open up the country’s capital markets.

Institutional investors bond over fixed-income ETFs
Yakob Peterseil –
European institutional investors are using exchange-traded funds to position themselves in high-yield and emerging markets bonds ahead of expected interest rate hikes

Mimicking the S.&P. With an Index for Ad Prices at 500 Publishers
NY Times
A LEADING advertising trade publisher, MediaPost Communications, is seeking to be a kind of Dow Jones or Standard & Poor’s for Madison Avenue, introducing an index that intends to track in real time the movements in price for ads bought and sold on the websites of 500 publishers.


China metal financing fears spread to Singapore
Lucy Hornby in Beijing and Jeremy Grant in Singapore – Financial Times
An investigation into metals financing in a northeastern Chinese port city has cast a chill in Singapore, where a surge of business financing imports into China has bankers increasingly worried.

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