First Impressions

Neverending Regulation
Jeff Bergstrom – John Lothian News

If there is one thing everyone in the financial industry can agree upon it is that they are buried under a mountain of regulation that makes their jobs much more difficult. It may come as a surprise to them that this is partly of their own doing.

It is not that the financial industry thinks there should be no regulation. They fully understand that there need to be rules to the game and referees. Nevertheless it seems each year brings more regulations and more belly aching about it.

Reading the article (below) “A Trading Tactic Is Foiled, and Banks Cry Foul” gives us at least part of the answer to why the government feels a need to pile on with the regulations: the financial industry keeps finding ways to avoid them. It is the spirit of the law versus the letter of the law, and the financial industry will adhere scrupulously (usually) to the letter of the law while flouting the spirit. So, the government goes back and issues new rules to plug the hole and achieve their original aims. Rinse and repeat.

Continued here.

Quote of the Day

“If a foreign-based swap dealer has personnel in New York and they regularly arrange, negotiate or execute swaps in the United States, then the transactions come under Dodd-Frank requirements. In other words, a U.S. swap dealer on the 32nd floor of a New York building and a foreign-based swap dealer on the 31st floor of the same building have to follow the same rules when arranging, negotiating or executing a swap. One elevator bank, one set of rules.”

– CFTC Chairman Gary Gensler at the Nov. 18 SEFCON IV conference, as quoted in the NYTimes story “A Trading Tactic Is Foiled, and Banks Cry Foul.”

Lead Stories

US banks warn Fed interest cut could force them to charge depositors
Tom Braithwaite and Stephen Foley in New York and Robin Harding in Washington –
Leading US banks have warned that they could start charging companies and consumers for deposits if the US Federal Reserve cuts the interest it pays on bank reserves.
***DA: That is what we refer to as “negative interest rates.”

Hoping, as usual, that next year will be better
Like winemakers consoling themselves after a poor vintage, economists are putting a disappointing 12 months behind them and hoping that 2014 will be a better year for global growth.
***DA: If one is a member of the investor class, 2013 was a superior vintage, as was 2011 and 2010.

A Trading Tactic Is Foiled, and Banks Cry Foul
What country are you in? Where is your business located? In what country did your trade take place? Those were once questions whose answers were so obvious that no one asked them. Now they are questions that can drive financial regulators and tax collectors to distraction.
***DA: Those questions were obvious when trades were not booked electronically on a server that could be placed anywhere on (or above) planet Earth. Dodd-Frank will be an expensive, and some argue intrusive, compliance burden. It is hard to find fault with anyone wishing to avoid Dodd-Frank and its associated costs. That being said, other firms are spending millions of dollars of their own money to comply with these rules, and it would be wrong to force these firms into a competitive disadvantage because of a loophole.

Wall Street May Take Derivatives Regulator to Court
Silla Brush & Robert Schmidt – Bloomberg
Wall Street banks reeling from a flurry of activity by departing U.S. Commodity Futures Trading Commission Chairman Gary Gensler are considering taking the agency to court.
***DA: I am sensing a pattern here, which is that, in the regulatory battles, the lawyers always win.

Yellen faces a logistical nightmare
David Rowe –
The impending transition from Ben Bernanke to Janet Yellen at the US Federal Reserve is taking place at a particularly sensitive time, argues David Rowe – the new chair faces the logistical nightmare of unwinding a massive increase in the central bank’s balance sheet
***DA: “Logistical nightmare” – that’s putting it mildly.

Cheap Loans Proposed for Euro-Zone Governments
Euro-zone countries could get cheap loans from their partners in return for signing binding contracts on policy overhauls, under new proposals that are already facing headwinds from rich and poor states.
***DA: The politicians are bribing the people? Isn’t it supposed to work the other way ‘round?

Europe’s Easy-Money Policy Snubs German Savers
Brian Blackstone and Anton Troianovski –
German savers angry over low interest rates are complicating the European Central Bank’s efforts to keep Europe from sliding into a downward spiral of falling prices and economic stagnation.
***DA: It is amazing the extent to which savers and non-conspicuous consumers are vilified in the era of reflation.

Europe Twin Woes Fester in ECB’s Job-to-Inflation Fight
Craig Stirling & Kristian Siedenburg – Bloomberg
Europe’s twin woes of too little inflation and too many unemployed will dominate data due this week just as officials prepare forecasts backing the rationale for Mario Draghi’s surprise interest-rate cut.
***DA: Blame it on those pesky savers, who refuse to take insane amounts of risk with their hard-earned money.

Finland Priming Junk-Bond Market to Sate Demand: Nordic Credit
Kasper Viita – Bloomberg
Investors seeking higher yields in Finland, the euro area’s best-rated nation, are lining up to join a new market place that will offer junk bonds from smaller companies for trading.
***DA: Ah, that’s better. Junk bonds. Anything for a few more basis points.

Central Banks

Federal Reserve’s Ben Bernanke sets off on a mission to explain
Robin Harding – Financial Times
Ben Bernanke sounded a touch exasperated last week when asked how the US Federal Reserve could use communication policy as an alternative form of economic stimulus to its $85bn a month of asset purchases.

Fed’s Tarullo wants more tools to counter shadow bank risks
Global financial watchdogs should have more policy tools and powers over firms such as hedge funds to counter the risk of a devastating run on investment banks, the U.S. Federal Reserve’s top regulator said on Friday.

Federal Reserve Governor Daniel K. Tarullo, At The Americans For Financial Reform And Economic Policy Institute Conference, Washington, D.C. November 22, 2013, Shadow Banking And Systemic Risk Regulation

ECB can take further action if necessary: board member Asmussen
European Central Bank Executive Board member Joerg Asmussen said on Saturday the ECB, which cut interest rates to a record low earlier this month, was ready to take further action if necessary and instruments at its disposal included negative deposit rates.

Central Bank Aussie Hunger Adds to RBA Dilemma: Australia Credit
Benjamin Purvis – Bloomberg
Global monetary authorities’ enduring interest in the Aussie dollar is hindering efforts by Australia’s central bank to curb the currency’s strength.


Dollar rises to 6-month high against yen
The Economic Times
The dollar rose to a six-month high against the yen on Monday in Asian trading as market participants tested the greenback’s upside after speculators had bet on further dollar gains.

Goldman’s not-so-great currency caper
Tracy Alloway | FT Alphaville
Alternate title – Did Goldman Sachs lose $1.3bn in currency trades in the third quarter, or not? It might seem like there’s a simple answer here, but as is so often the case in finance, there isn’t.

Australian dollar’s vigour begins to fade
Josh Noble in Hong Kong –
They seem unlikely allies, but England cricket fans and Australian central bankers have something in common: both want cheaper beer at Test matches.

Indexes and Index Products

Hedged ETPs looking to move beyond currency niche
Ari I. Weinberg – Pensions & Investments
Monetary policy, volatility and interest rate regimes, among other factors, have caught the attention of money managers offering exchange-traded products. With institutional investors now willing to expand their ETP holdings beyond market-weighted index funds to fundamental and factor-based strategies, fund sponsors have introduced more products with embedded, programmatic hedges.

Catherine Clay Named CEO of Livevol
Catherine Clay is the new CEO of Livevol, Inc., the leader in equity and index-options technology and services. Clay, who was previously the company’s chief strategy officer, will lead the company’s strategic initiatives for its options-analytics, market-data and brokerage businesses.

Negative Sentiment Rising for Mining ETFs
ETF Trends
The Market Vectors Gold Miners ETF lost 7.4% last week and the Global X Silvers Miners ETF was barely better with a 6.4% weekly tumble. Over the past month, those two ETFs have lost an average of 15.8% as gold and silver prices have continued to slide.


Hedge Fund Gold Bets Less Bullish as Paulson Holds: Commodities
Elizabeth Campbell – Bloomberg
Hedge funds got less bullish on gold, cutting their net-long position to a four-month low, before prices capped the biggest weekly retreat since September.

Gold traders plan benchmark code of conduct
Jack Farchy –
The group of banks and traders that runs the London gold market is planning to tighten procedures to protect against manipulation in the wake of the Libor scandal.

Where are Treasurys going? Just watch gold
Matt Clinch – CNBC
The spot gold price may have baffled investors since its move south last December, but analysts at Citi now see the precious metal being a leading indicator of U.S. Treasurys.


Ex-Credit Suisse CDO Chief Sentenced to 2 1/2 Years
Patricia Hurtado – Bloomberg
Kareem Serageldin, the ex-global head of Credit Suisse Group AG (CSGN)’s structured credit trading business, was sentenced to 2 1/2 years in prison for his part in a scheme to falsify the value of mortgage-backed bonds in 2007.

Swiss Voters Reject Strict CEO Pay Limits in Referendum
Catherine Bosley – Bloomberg
Swiss voters rejected a proposal to limit executives’ pay to 12 times that of junior employees yesterday, a measure that would have gone further than any other developed nation.

MarkitSERV to Process OTC Derivatives for OTC Clearing Hong Kong
Waters Technology
MarkitSERV, Markit’s electronic trade processing service for OTC derivatives, now connects customers to OTC Clear, the clearing service established by Hong Kong Exchanges and Clearing (HKEx). OTC Clear started clearing interest rates and foreign exchange FX derivatives on November 25th 2013.

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