First Impressions

Jim Bennett

Connecting the Data Dots: Sapient’s Jim Bennett Talks Compliance Reporting
JohnLothianNews.com
New financial regulation has ushered in a host of reporting rules for over the counter and listed markets. Jim Bennett of Sapient Global Markets knows full well how critical it is to properly integrate compliance systems. “Standardized, automated messaging is the key” to reporting says Bennett, but platforms must also be flexible enough to interface with internal systems. Bennett sat down with John Lothian News editor-at-large Doug Ashburn to explain Sapient’s approach to Dodd-Frank and EMIR reporting, and how its Compliance Management and Reporting System (CMRS) is helping firms meet the regulatory challenge.

Watch the video »

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Baffled by a siphon
Jon Matte – John Lothian News

Watching US Senators grapple with Bitcoin’s existence is disturbing.  

There’s a legitimate discussion to be had, of course, with regard to regulation and how to find ways to keep watch over transactions that use it.  Since Bitcoin is a currency – a means of transferring things and wealth in a symbolic way – it’s absolutely natural to expect that both honorable and criminal enterprises should find it useful.  Regulation and oversight are reasonable to deploy as a way to hopefully slow the criminal side of things, or at the very least to catch criminals and make them pay a lot of fines.  And it’s far better to regulate it than to stick our collective heads in the sand, ban it and then pretend that proxy servers and international banking don’t exist.

This isn’t unique to Bitcoin, of course.  We’re supposed to watch over transactions that use the US dollar, too; otherwise, people might use dollars for the drug trade, or manipulate foreign exchange rates for their own benefit.  Er… well, I guess we shouldn’t expect a miracle from Bitcoin regulation then, either.  But if it is to be officially recognized as a currency, it’s going to need to shift over and wear Big Boy Pants and bow to regulation here and there.

It’s mildly disappointing to see so many people miss the reality that regulation doesn’t eliminate criminal activity, and that people will use EVERY currency, virtual or otherwise, for nefarious doings.  But that’s not disturbing to me.  What’s disturbing to me is how much trouble the Senate Banking Committee seems to be having with something they’re supposed to already know about.

For the rest of the commentary, visit the JLN Blog at http://jlne.ws/1hX26w5

Quote of the Day

“Given the current conditions, I won’t be surprised if it is $1.5 trillion.  It could be a little more than that.”

Federal Reserve Bank of Chicago President Charles Evans in a speech in Chicago from the story, “Evans Says Bond Buying May Total More Than $1.5 Trillion”.

Lead Stories

UK watchdog to consider forex rules after probes completed
Reuters
The first set of rules for the unregulated multi-trillion dollar foreign currency market will be considered after the completion of probes into possible manipulation, a British regulator said on Tuesday.
http://jlne.ws/1ehRHGq
***DA: I would not go so far as to call it “unregulated.” Lightly regulated maybe, with no clear internationally-coordinated regulations. This will change soon, it appears.

China central bank suggests faster tempo for freeing yuan
Reuters
With a shift in tone and language, China’s central bank governor has dangled the prospect of speeding up currency reform and giving markets more room to set the yuan’s exchange rate as he underlines broader plans for sweeping economic change.
http://jlne.ws/1ehRKlu
***DA; I have said all along that China will not freely float until it is in the country’s best interest to float. Perhaps this is a sign that the next market move in the yuan will be down, not up.

Beijing pledges to end normal FX intervention
Delphine Strauss – FT.com
China’s central bank has said it will “basically” end normal intervention in the currency markets, a more explicit commitment than it has previously made when outlining its plans to liberalise the renminbi.
http://jlne.ws/1ehRKlv
***DA: Ditto the above comment.

US funds place big bets on euro bank recovery
Michael Stothard in Paris and Stephen Foley in New York – FT.com
US fund managers have been making multibillion-dollar bets on the recovery of banks in the eurozone over the past four months in the belief that the region’s stuttering economic recovery will soon start to gather steam.
http://jlne.ws/1ehRIdc
***DA: A big bet, anyway, that the ECB has not exhausted its willingness to fight weakness with stimulus. Read the top story in the Central Banks section for proof.

Wall Street Keeps Swagger in CMBS as Sales Surge: Credit Markets
Sarah Mulholland – Bloomberg
With almost six weeks to go in 2013, sales of commercial-mortgage bonds are already surpassing Wall Street’s forecasts for the year, defying concern that rising interest rates would stymie new deals.
http://jlne.ws/1eicXvI

Abenomics Seen Cutting Japan Bad-Loan Costs to 2006 Low
Monami Yui & Shingo Kawamoto – Bloomberg
Japan’s biggest banks are projecting the lowest bad-loan charges in eight years as bankruptcies drop, reducing their bond risk by a third in the past year.
http://jlne.ws/18o1d9V
***DA: Today’s free lunch is tomorrow’s starvation diet.

Why the future looks sluggish
Martin Wolf – FT.com
Lawrence Summers has poured gallons of icy water on any remaining optimists. Speaking on a panel at the International Monetary Fund’s annual research conference, the former US Treasury secretary suggested that there could be no easy return to pre-crisis normality in high-income economies. Instead, he sketched out a disturbing future of chronically weak demand and slow economic growth. Mr Summers is not the first to identify the possibility of so-called “secular stagnation”: the fear of emulating Japan’s lost decade has been in the minds of thoughtful analysts since the crisis. But his was a bravura performance.
http://jlne.ws/1ehRMK7
***DA: Read Mr. Summers’ view of salvation. If you are a free-market capitalist or a Libertarian, you ain’t gonna like it.

Zhou seem a little flustered
FT Alphaville | FT Alphaville
We were going to be slightly snarky in the face of Zhou Xiaochuan, head of the People’s Bank of China, promising to “basically” end normal intervention in the currency markets and other such liberalising things — the lack of a timetable and the ambiguity of phrasing making this seem rather similar to what we’ve heard in the past — but then we saw this from Neil Mellor at BoNYM and felt bad:
http://jlne.ws/1ehRMKb

Central Banks

ECB Official Calls Asset Purchases an Option
WSJ.com
A top European Central Bank official said the ECB could make asset purchases if needed, as euro-zone policy makers increasingly float the prospect of deploying a tool that is commonly used by other major central banks but stirs deep divisions in Europe.
http://jlne.ws/1ehRKlx

ECB shouldn’t signal next move so soon after cut: Weidmann
Reuters
The European Central Bank should not signal any further easing of its monetary policy for now as it has only just cut interest rates, Bundesbank Chief Jens Weidmann said in a newspaper interview published on Wednesday.
http://jlne.ws/1ehRMKe

Yellen Defends QE as Economic Benefit in Letter to Senator
Joshua Zumbrun & Cheyenne Hopkins – Bloomberg
Janet Yellen, the nominee for Federal Reserve chairman, defended the central bank’s bond purchases in a letter to a U.S. senator, saying they boosted economic growth and provide benefits that exceed the risks.
http://jlne.ws/18o1v0u
***DA: The benefits to some exceed the risks to others.

Evans Says Bond Buying May Total More Than $1.5 Trillion
Steve Matthews – Bloomberg
Federal Reserve Bank of Chicago President Charles Evans, a voter on policy this year, said the Fed may buy a total of $1.5 trillion in bonds in a program that started in January 2013 to ensure steady employment gains.
http://jlne.ws/18o1CJp
***DA: Given the Fed’s history of moving the goal posts, I would expect this number to go up substantially. Unlike the Treasury, the Fed does not have a ceiling that must be periodically raised.

Turkey’s Central Bank Dips Deeper Into Tool Kit
MoneyBeat – WSJ
Turkey’s central bank is doing everything short of raising interest rates to keep a lid on rising inflation, and for the first time in many months it might just be hawkish enough to support the lira.
http://jlne.ws/1ehRMKf

PBOC Chief Says China Will Gradually Widen Yuan Trading Band
WSJ.com
China will gradually widen the yuan’s daily trading band and “basically” phase out routine intervention in the foreign-exchange market, the head of the central bank said in a newly published book.
http://jlne.ws/1ehRKlA

Currencies

Senators Grapple With ‘That Bitcoin’ In Second Hearing
Ryan Tracy – MoneyBeat – WSJ
U.S. Senators grappled with policy questions raised by virtual currencies like bitcoin Tuesday in a hearing that put lawmakers’ still-developing understanding of the new technology on display.
http://jlne.ws/1ehRN0u

Industry calls for changes to benchmark practices
Robert Mackenzie Smith – FX Week
As the high-profile regulatory probe into manipulation of foreign exchange benchmarks continues, some market participants have questioned why buy-side firms would still want to use benchmark rates in their current format, given the ongoing scandal and the development of more efficient pricing mechanisms.
http://jlne.ws/1ehRN0v

FX Dealers Said to Use Day Traders to Make Personal Bets
Ambereen Choudhury, Liam Vaughan & Gavin Finch – Bloomberg
Currency dealers in London gave information about client orders to day traders who then made bets on their behalf, sidestepping restrictions on personal trading, three people with knowledge of the practice said.
http://jlne.ws/1ehRFy3

Mapping Bitcoin
QUENTIN HARDY – NYTimes.com
Bitcoin, the popular Internet currency, is on the map in more ways than one. You can watch it trading across the globe, and possibly draw some intriguing conclusions about where this fast-moving digital money is going. For the last week, a site called fiatleak has offered a map that its creator says draws information from all the major online bitcoin exchanges, like Mt. Gox and BTC-e, and shows what country’s residents are buying bitcoins, in real time.
http://jlne.ws/1ehRKlB

Bitcoin drops from $900 to $502 as swings widen
Barbara Kollmeyer – MarketWatch
Volatile trading for bitcoin continued Tuesday, with prices swinging between $900.98 at their high-water mark and $502.62 at the lower end.
http://jlne.ws/1ehRN0w

Yes, Of Course Bitcoin Is Showing Bubble Behaviour
Tim Worstall – Forbes
Why do you even ask whether it is? A price gyrating like this is proof perfect of bubble behaviour. However, please do note that the existence of a bubble is not evidence that Bitcoin will either fail or succeed. There are often bubbles in things that succeed, just as much as the rubble of a bubble shows a failure.
http://jlne.ws/1ehRKBQ

Are Bitcoins the Criminal’s Best Friend?
Stephen Mihm – Bloomberg
The shift to a virtual currency signals a huge — and worrisome — shift in behavior for criminals, who for decades have favored cold, hard cash, with the dollar the preferred medium of exchange. Just how alarmed we should be is one of the topics of a hearing today in the Senate Committee on Homeland Security and Governmental Affairs.
http://jlne.ws/1ehRN0z
***JM: Duh.  Of course they shift to where there is less attention.  So pay more attention.  Why is this so hard to figure out?

Indexes and Index Products

Exclusive: Barclays weighs index unit sale after MSCI approach – sources
Reuters
Barclays Plc is exploring options for its index business after equity index provider MSCI Inc approached the British bank recently about buying the unit, according to several people familiar with the situation.
http://jlne.ws/1ehRKBV

Meteor offers dual index kickout based on RBC credit risk
Eve Berlinska – Risk.net
Royal Bank of Canada is the issuer of a six-year, dual index kickout product on offer in the UK through Meteor. Capital is at risk if the call is not triggered and either index has fallen by more than 40%
http://jlne.ws/1aRxgLm

Gold

Gold Benchmarks Said to Be Reviewed in U.K. Rates Probe
Suzi Ring – Bloomberg
The U.K. Financial Conduct Authority is reviewing gold benchmarks as part of its wider probe of how global rates are set, a person with knowledge of the matter said.
http://jlne.ws/1ehRN0C

Gold mine output set to reach record, disappoint bulls
Reuters
Output from the world’s gold mines is set to hit record highs this year, disappointing bulls who are impatiently waiting for production cuts following this year’s 24 percent plunge in prices.
http://jlne.ws/1ehRKBW

$1 Million In Gold Found In Jet Airways Toilet
Huffington Post
Cleaners working on a commercial plane in eastern India have found 24 gold bars worth more than $1 million stuffed into a toilet compartment, officials said Wednesday.
http://jlne.ws/1hXeYSY

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