First Impressions

Julie Winkler, Senior Managing Director of Research and Product Development at CME Group – Innovation in the Futures Industry

“You can’t keep doing the same thing. You need to figure out different ways to innovate, different ways to collaborate…and by doing so, that’s how you come up with some breakthrough innovations.”

Einstein’s definition of insanity was repeating the same task over and over and expecting a different result each time. Julie Winkler of CME Group explains how innovation in the financial industry must also avoid repeating the same process over and over again in order to create change. Winkler defines innovation and gives examples of how companies like CME Group have been pioneers in their field. She also discusses designing successful new products and how innovation can start at the internship level.

Watch the video »

Quote of the Day

“The FX market works very well. It is cheap, efficient, competitive and liquid. The commercial impact of malpractice in FX fixing was frankly immaterial, but it did break the trust covenant so a regulatory response was inevitable.”

Fred Ponzo, managing partner at GreySpark Partners, in the story, “Regulators seek to restore FX’s broken trust covenant”.

Lead Stories

US regulator probes PIMCO ETF pricing
Investment Week
The US regulator is investigating how bond giant PIMCO prices its exchange-traded funds after it became concerned the group may have artificially inflated returns on one of Bill Gross’ ETFs.

Regulators seek to restore FX’s broken trust covenant
Solomon Teague – Euromoney Magazine
The debate around whether and how to strengthen the regulation of FX markets continues to rage. Advocates highlight examples of regulations that have benefited the markets in the long run, while detractors warn of unintended consequences and cite their own examples of risk-mitigating measures evolving naturally within the industry. Authorities must decide which comparison best fits today’s FX markets.

Credit Agricole Sparks Probe of EU Bias on Rate-Rigging
Gaspard Sebag – Bloomberg
Credit Agricole SA’s complaint that European Union regulators showed bias in their rate-rigging probe is under investigation by the EU’s ombudsman.
The internal EU watchdog’s office opened a case on July 31 following a complaint by France’s third biggest bank, said Gundi Gadesmann, a spokeswoman for the ombudsman.

Treasury-Bill Yield Tips Into Negative Territory
Min Zeng And Katy Burne – WSJ
A scramble for safe, short-term debt left some investors on Tuesday paying for the privilege of lending to the U.S. government. The demand, which intensified following the Federal Reserve’s decision this month to curb a popular overnight-lending program, pushed up bond prices and drove down yields.

Putin Freeze Eases After Nine Bond Auction Cancellations
Vladimir Kuznetsov and Ksenia Galouchko – Bloomberg
The freeze in Russian bond markets is starting to thaw, with the government selling out its first auction after nine cancellations amid the cease-fire in Ukraine.
The Finance Ministry sold all 10 billion rubles ($261 million) of securities due in August 2023 today at an average yield of 9.37 percent in the first sale since U.S. and European Union sanctions in July drove up the nation’s borrowing costs by the most in emerging markets. Russian corporates are also returning, with OAO Alfa Bank and OAO Gazprombank among companies issuing bonds in September at the fastest pace in three months.

Europe’s 20.3 Trillion-Euro Bond Market Shrinks as Banks Retreat
John Glover – Bloomberg
Europe’s 20.3 trillion-euro ($26.1 trillion) bond market is shrinking as financial institutions repay debt, according to Citigroup Inc. analysts in London.
Banks and other financial institutions reduced issuance by 560 billion euros to 4.7 trillion euros in the five quarters to March 31 this year, strategists Hans Lorenzen and Alessandro Tentori wrote in a report today. In absolute terms, the market declined by 30 billion euros in the year through March, a signal it’s stagnant, according to Lorenzen, based on data compiled by the European Central Bank.

Central Banks

Fed Said to Warn Banks on Capital Charges on Leveraged Loans
Craig Torres and Christine Idzelis – Bloomberg
Federal Reserve officials are warning banks that rising levels of high-risk, high-yield loans on their balance sheets may require more capital held against them, according to a person familiar with the conversations.
Regulators have beefed up scrutiny of the market after guidance issued in 2013 by the Fed, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. didn’t slow deal volume or declining credit standards.

ECB to keep loose policy ‘for long time’: Draghi
The European Central Bank will keep monetary policy loose for as long as it takes to push ultra-low inflation in the euro zone back up closer to the two percent level, its president Mario Draghi said on Wednesday.

ECB’s Draghi takes up new weapon in war on deflation
Ralph Atkins in London and Claire Jones in Frankfurt – Financial Times
Runners have target times, golfers judge themselves by their swing, while Mario Draghi watches a technical measure of inflation expectations used by financial markets. Just one problem: it suggests the European Central Bank president is not achieving his objective – and that markets’ fears of eurozone deflation are mounting.

A New Federal Reserve Report Exposes A ‘Low’ U.S. Savings Rate As Mythical
John Tamny – Forbes
Although any governmental report that presumes to put a number on total American wealth is bound to be riddled with inaccuracies, a Federal Reserve study last week revealed that American household wealth had risen to a record high of $81.5 trillion. Assuming the figures within are even passably accurate, they expose as false a lot of popular myths promoted by politicians, economists and the pundits who enable them.


Goldman Sachs head of European FX trading to leave -source
Goldman Sachs is set to lose London-based European head of spot foreign exchange trading Mitesh Parikh, its second high-profile forex operative to leave this year, a source familiar with the matter said on Tuesday.

Rouble traders play the waiting game
Solomon Teague – Euromoney Magazine
It has been another torrid month for the rouble, but the possibility of tensions with Ukraine abating in the near term and a package of monetary reforms next year offer hope for more trading opportunities.

‘Rampant Mountie,’ ‘Euro Pah!’ and Other Ways to Make Money
Josie Cox – MoneyBeat – WSJ
If puns and rhyming trade ideas make you groan, you may want to look away now. Deutsche Bank DOD -0.33%’s currency strategy team has released its latest list of trade ideas and if you thought the puns were bad last quarter, then, well, find out for yourself.

FTC Shuts Down Bitcoin-Mining Company Butterfly Labs
Paul Vigna – MoneyBeat – WSJ
BF Labs, a bitcoin-related company that makes mining equipment and has been the target of customer lawsuits, has been shut down by a U.S. federal court at the request of the Federal Trade Commission, according to a release from the FTC.

Bitcoin business model too good to be true…proves to be too good to be true
Izabella Kaminska – Financial Times
After days of speculation, Ars Technica has finally provided confirmation that the business model everyone in the finance world (not suffering from the Dunning Kruger effect) knew to be fantastical was in fact…fantastical.

Indexes & Index Products

Daily ETF Watch: Goldman’s Big ETF Plans
Olly Ludwig –
A series of filings the company has made suggest the company plans to market: 1) plain-vanilla index ETFs; 2) index ETFs using homemade indexes that will likely be “smart beta” funds designed to beat some of the market’s well-known benchmarks; and 3) transparent actively managed funds that must disclose portfolio holdings daily. The only area Goldman Sachs hasn’t gestured toward is the still-unapproved-by-regulators realm of nontransparent active ETFs.

Indexing and the End of Capitalism
Jonathan Russo – Huffington Post
It’s now official. The tipping point for investing in stocks by using index funds is here. It is impossible to pick up any business publication without reading about Indexing, passive investing, Warren Buffet’s will (in which he advised his heirs to put his estate in Vanguard index funds), and the massive money-flows into index funds themselves. There is a monthly scorecard recapping the amount of money put into index funds vs. actively managed ones. The revenge of the economic professors who first pointed out that it was “mathematically impossible” to beat the indexes over time or consistently find managers who could do so is complete. The belief has trickled down to the mom-and-pop investor, who now believes indexing is the way to go. Smart money managed by pension funds does too.

Norway SWF to move away from global indices, World Premium News & Headlines
Business Times
Norway’s US$880 billion sovereign wealth fund, the world’s largest, said that traditional global indices are no longer an appropriate model on which to base its investments.


Venezuela Opens Gold Vault for BofA Analyst to Count Bars
Isabella Cota – Bloomberg
Francisco Rodriguez, an economist with Bank of America Corp., was at a routine meeting with Venezuelan central bank officials last week when he sprung an unusual question on them: Can you show me your gold?
He’d been itching to take a peek for years and now was the time to ask. With the government’s bonds sinking toward prices that indicate investors are bracing for the possibility of default, the country’s $15 billion of gold bars are crucial to ensuring debt payments are met. His first impression once inside the vaults? Those bars don’t take up a lot of room.

Gold may rebound as extreme bearishness sets in
Mark Hulbert – MarketWatch
What does contrarian analysis have to say about gold now?It was two weeks ago when I reported that sentiment analysis, at long last, was on the side of the bulls — at least for a tradeable rally. Yet, far from rallying, bullion today is $18 per ounce lower — a nine-month low — than it was then.

“Asia’s first” gold-dispensing ATMs installed in Singapore
Mok Fei Fei -The Straits Times
Singapore now has its first automated teller machines (ATMs) that dispense gold.
Two such ATMs were launched on Wednesday morning at Resorts World Sentosa and Marina Bay Sands.
The custom-built machines will dispense a variety of pure gold items that produced by top Swiss refiner, PAMP.

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