First Impressions

A Wrinkle in the OCC’s Capital Plan?
Doug Ashburn – JLN

Friday was the last day to file a comment letter to the Securities and Exchange Commission on a capital raising plan, and two of the 12 U.S. options exchanges have voiced an objection.

On January 26, 2016, the SEC published and sent out for comment a proposed rule change at the Options Clearing Corp. that would allow it to raise its target capital reserve from $25 million to $247 million. Under the proposal, the five legacy “equity holder” exchanges – CBOE, ISE, NASDAQ OMX PHLX, and the two NYSE exchanges (NYSE MKT and NYSE Arca) – would augment their capital contributions up to the new buffer, in exchange for a perpetual dividend from the OCC from its clearing fees. The remaining options exchanges – BATS Options, NASDAQ Options, NASDAQ BX, BOX, C2, Gemini, and MIAX, are non-equity holders.

The dual-class system dates back to 2002, when OCC amended its rules to remove the ownership requirement for firms for which it provides clearing services. It should be noted that, of the seven non-equity holders, four of them – C2, NASDAQ Options, NASDAQ BX and Gemini – are all subsidiaries of equity holder exchanges. From a corporate level, that leaves BOX, BATS and MIAX as the possible odd-men out, as non-subsidiaries.

In response to the proposed change, two of the non-equity exchanges – BOX and BATS – filed comment letters claiming the rule would put them at a competitive disadvantage, as clearing fees will be raised across the board, with the five equity-holder exchanges earning an annual dividend that could be used to pay down their respective contributions.

Read the BOX Letter
Read the BATS Letter
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Quote of the Day

“Banks have so much cash. Lending has loosened, but it is still just simpler for banks to own Treasuries.”

Peter Tchir, the New York-based head of macro strategy at Brean Capital in the story, ” U.S. Banks Hoard $2 Trillion of Ultra-Safe Bonds”.

Lead Stories

Uniting Europe’s Financial Markets
New York Times
The leaders who created the European Union hoped that binding together their economies would increase prosperity and reduce the chance of conflict. But the union is far from complete, especially in the financial sector.

Capital Rules Aren’t the Only Reason Banking Is Boring
By Matt Levine, Bloomberg
This morning I proposed a simple speculative model of how banking has been transformed. In this model, the business hasn’t changed much, but higher capital requirements have made it less profitable for shareholders: You might make the same amount of money doing the same stuff, but you have to share it among more shareholders. This obviously wasn’t the whole story — banks are also making less money and doing different stuff — but I suggested that it had some explanatory power.

The Performance of Many Hedge Funds Just Comes Down to Owning Apple
Joseph Ciolli – Bloomberg
In an equity environment where hedge funds are struggling to break even, Apple Inc. has played the role of savior, according to Goldman Sachs Group Inc.
A group of companies representing the most popular long positions for hedge funds is up just 0.2 percent in 2015, compared to a 2.3 percent gain for the Standard & Poor’s 500 Index, data compiled by Goldman Sachs show. A 19 percent year-to-date increase for Apple, which is owned by one in every five hedge funds and is a top-10 position for 12 percent of them, has provided a needed boost, the firm said.

U.K. Government Cuts Lloyds Stake in $769 Million Share Sale
by Ambereen Choudhury, Richard Partington, Bloomberg
The U.K. government sold a further 500 million pounds ($769 million) of Lloyds Banking Group Plc shares as part of a plan to reduce its stake in the country’s largest mortgage lender in the run-up to May’s general election.

U.S. Banks Hoard $2 Trillion of Ultra-Safe Bonds
by Liz McCormick, Daniel Kruger, Bloomberg
What do America’s banks know about the state of the U.S. economy that has them hoarding ultra-safe bonds?

Shanghai exchange to open doors to foreign short sellers
Tom Mitchell in Beijing, FT
Foreign investors will be able to short Chinese shares next month for the first time under the Shanghai-Hong Kong Stock Connect programme, in the latest move by China’s regulators to open up the country’s stock market.

CME options traders shout on alone
By Philip Stafford in London and Neil Munshi in Chicago, FT
CME Group is consigning its futures trading floors, once home to thousands of noisy traders, to history. But one section of the floor will shout on: the options pits.

As ‘Spoof’ Trading Persists, Regulators Clamp Down; Bluffing Tactic That Dodd-Frank Banned in 2010 Can Distort Markets
By Bradley Hope, WSJ
One June morning in 2012, a college dropout whom securities traders call “The Russian” logged on to his computer and began trading Brent-crude futures on a London exchange from his skyscraper office here.

The fall of the female fund manager
Chris Newlands, FT
Women are ‘dangerously outnumbered’ in asset management, says Chris Newlands
Endangered species. That is the term being used to describe female portfolio managers.

Virtu Celebrates Another Year Without a Single Day of Losses
Bloomberg Business
High-frequency trading firm Virtu Financial Inc. reported another year without a single day of losses, extending a near-perfect streak stretching back to 2009 that contrasts with dwindling profits at competitors.

Central Banks

Yellen Faces Congress Amid Direst Threat to Fed Since Dodd-Frank
by Jeff Kearns, Bloomberg
Chair Janet Yellen testifies before Congress this week with the Federal Reserve facing its gravest political threat since the drafters of the Dodd-Frank act tried to strip it of its supervisory powers.

EU’s top court to rule on ECB challenge to UK clearing on March 4
The EU’s top court rules next month on a battle between the European Central Bank and Britain whose outcome could reduce London’s role as the bloc’s top financial centre, lawyers said. The ECB says clearing houses – third parties standing between two sides of a trade to ensure its completion – that process more than 5 percent of any euro-denominated security should be based in the single currency area.

Sweden: The Mistake Yellen Wants to Avoid
Johan Carlstrom – Bloomberg
Women-friendly work laws. An inclusive social safety net. Beautiful bike lanes. While there’s a lot to love about what Sweden’s policy makers have done, here’s one blunder the U.S. will want to avoid: Underestimating the dangers of too-low inflation.
This month, after one year of too-slow price gains and another two years of falling prices, Sweden’s central bank was forced to take unprecedented action. The bank slashed interest rates into negative territory in addition to announcing its intention of buying government bonds.


Ukraine Tightens Currency Controls as IMF Deal Gives Little Help
Gavin Serkin, Marton Eder and Agnes Lovasz – Bloomberg
Less than two weeks after the International Monetary Fund announced a $17.5 billion bailout loan for Ukraine, the central bank tightened capital controls to prevent the country from running out of foreign currency.
In spite of what has been pledged, Ukraine hasn’t received a major injection of IMF cash since a $1.4 billion disbursement on Sept. 3, the lender’s website shows. With its foreign reserves dropping 61 percent to $6.4 billion in the four months through January, the country’s “cupboard is basically bare,” said Timothy Ash from Standard Bank Group Plc.

Indexes & Index Products

A New ETF for Combating Rising Rates
By Tom Lydon, ETF Trends
Although interest rates remain near historic lows and the Federal Reserve appears to be taking a patient approach to raising rates, but that has not stopped investors from scouring the universe of exchange traded funds for rising rates protection.

Growing Selection in Liquid-Alt ETFs
Liquid-alternative exchange traded funds (ETFs) comprise only a small part of the ETF universe. Estimated assets under management for the group are just about $2 billion, with roughly $1 billion of that total in the IQ Hedged Multi-Strategy Tracker ETF (QAI) from IndexIQ.

Russell sale by the numbers
Pensions & Investments
So far, the London Stock Exchange Group appears to be preparing for an auction process, shopping the deal to nearly 100 potential buyers in hopes of gaining the highest offer possible. Sources say that LSE hopes to get $1.2 billion to $1.5 billion for the portions of Russell Investments’ business it is selling.

Uncertainty, a Four Letter Word for the Municipal Bond Market
ETF Trends
The uncertainty of the future of Puerto Rico municipal bonds continues to weigh on the municipal bond market. Bonds in the S&P Municipal Bond Puerto Rico Index have settled into an average price of just over 50 cents on the dollar with the low point of 47.27 on July 8th 2014.

TA-25 Index Futures: quanto structure eliminates currency risk for U.S. dollar investors
Since June 2014 Eurex Exchange, in cooperation with the Tel-Aviv Stock Exchange, lists an index futures contract on the Israeli blue chip index TA-25. With the new contract, Eurex Exchange has expanded its equity-based regional coverage to the Middle East. It allows you to easily access the Israeli market during Israeli, European and U.S. trading hours. What’s more, our TA-25 Index Futures have been designed to eliminate currency risk.


AngloGold Vows to Only Sell Mines for ‘Full Value,’ CEO Says
by Kevin Crowley, Bloomberg
AngloGold Ashanti Ltd., the world’s third-largest gold miner, is under no pressure to sell assets and will only do so for “full value,” Chief Executive Officer Srinivasan Venkatakrishnan said.

Lower Gold Prices And Shipments Weigh On Barrick Gold’s Q4 Results
Barrick Gold Corporation, the world’s largest gold producer, released its fourth quarter results on February 18 and conducted a conference call with analysts on February 19. As expected, lower realized gold and copper prices, as well as lower gold shipments, negatively impacted the company’s Q4 results. The company’s adjusted net earnings, which exclude the impact of non-recurring items such as impairments, fell from $406 million in Q4 2013, to $174 million in Q4 2014. Revenues stood at $2.51 billion in Q4 2014, lower than the $2.94 billion in revenues reported in Q4 2013.

CFTC subpoenaed HSBC Bank USA for documents on metals trading
Jan Harvey – Reuters
The Commodity Futures Trading Commission issued a subpoena to HSBC Bank USA in January seeking documents related to the bank’s precious metals trading operations, HSBC said in its annual report and accounts statement on Monday.
The U.S. Department of Justice also issued a request to HSBC Holdings in November seeking documents related to a criminal antitrust investigation that the DoJ is conducting in relation to precious metals, it added.

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