First Impressions

T+2 in T-??
by Doug Ashburn, John Lothian News
With high-frequency trading issues commanding the headlines these last few weeks, the story line has been about slowing down that which may be too fast. There is another issue concerning securities markets, however, that is about speeding up that which is too slow – the securities settlement cycle.

Last week, the Depository Trust & Clearing Corporation (DTCC), published a white paper advocating the move from a three-day settlement cycle (T+3) to a two-day cycle (T+2) for U.S. equities, corporate and municipal bonds and unit investment trust (UIT) trades. The paper is the next step after a DTCC-commissioned study by the Boston Consulting Group, which looked at the costs and benefits of a move away from T+3. According to DTCC’s Neil Henderson, shortening to T+2 will “reduce both operational and systemic risk, as well as streamline operational flows.”

Read the rest of the commentary =>

Quote of the Day

Companies have been less aggressive about re-leveraging than we thought. Instead we’ve seen much more in terms of corporate M&A, which has some leveraging component, but there’s also big synergies and sometimes there’s equity financing as well.

Brad Rogoff, head of credit strategy at Barclays, quoted in the WSJ story “Corporate Bonds Poised for a Better-Than-Expected Year”

Lead Stories

Who’s Winning the Currency Wars? Who Do You Think?
Paul Vigna – MoneyBeat – WSJ
A new report from the Boston Consulting Group finds that the U.S. is a “rising star” of the global manufacturing sector. This is due to falling domestic natural gas prices, increasing worker productivity, and stagnant wages. Yes, China is still number one on this count, but rising costs and weak productivity growth have it under pressure.

**JK – Good catch here by Mr. Vignam, with a reference to China’s Yuan devaluation and its export of deflation strategy.

Corporate Bonds Poised for a Better-Than-Expected Year
Mike Cherney – MoneyBeat – WSJ
U.S. corporate bonds are doing better than even some Wall Street analysts predicted. Barclays on Friday said it is now forecasting that bonds from U.S. investment-grade firms will return 1.50 to 2.00 percentage points more than benchmark U.S. Treasury debt, up from the 1.25 to 1.75 forecast they made in December.

**JK – Climbing the corporate ladder.

Strip private banks of their power to create money
Martin Wolf –
Printing counterfeit banknotes is illegal, but creating private money is not. The interdependence between the state and the businesses that can do this is the source of much of the instability of our economies. It could – and should – be terminated.

**JK – Martin Wolf’s recipe for getting off leverage addiction.

Martin Wolf on funny money creation
Izabella Kaminska | FT Alphaville
With his latest column on the nature of money and credit in the modern monetary system, the FT’s Martin Wolf delves deeper into the murky depths of the “what is money” debate. Anyone who has speculated about the significance and effects of quantitative easing in the last five years should probably have a read.

**JK – The nature of money debate continues.

Bond funds worldwide attract $3.3 bln over week – BofA
Fund investors worldwide poured $3.3 billion into bond funds in the week ended April 23, outpacing inflows into stock funds on outperformance in bonds this year, data from a Bank of America Merrill Lynch Global Research report showed on Friday.

**JK – And the reach for alpha, reaches a little farther.

In wealthy Chinese city, debt guarantees spark default contagion
A network of loan guarantees set up to improve companies’ access to credit in one of China’s richest districts is creating new risks of default as some debts sour, another sign of how private firms are bearing the brunt of an economic slowdown.

Central Banks

Weaker inflation could prompt broad ECB asset-buying: Draghi
European Central Bank President Mario Draghi gave his clearest indication yet on Thursday that the ECB could print money to buy assets if inflation slows, and identified a rise in the euro as a potential trigger for action.

ECB’s Liikanen says regulation could be extended to shadow banks
Major organizations that carry out banking activities, but are not banks, may become so important to the financial system that they need to be regulated like traditional banks, a European Central Bank governing council member said on Saturday.

Bank of England overstates risk, claim asset managers
Andy Pearce – Financial News
A stern warning from the Bank of England that asset management has grown so big that it contributes to systemic risk has elicited some soothing noises from the industry. Yet the notion that firms pose a systemic risk has drawn a mixed response from asset managers.

Central banks duck issue of how mutual funds work
Richard Saunders – Financial News
When he was deputy governor of the Bank of England, Paul Tucker was fond of saying that if it looks like a duck, walks like a duck and quacks like a duck, then it probably is a duck. He was talking about money market funds and banks.


U.S. prosecutors cross Atlantic to question UK currency trades -source
Criminal prosecutors from the U.S. Department of Justice have gone to London to interview individuals in connection with an investigation into traders’ alleged rigging of foreign exchange rates, a person familiar with the matter said.

Taiwanese banks face funding hit on renminbi-linked Tarfs
Lukas Becker –
International dealers fear Taiwanese banks are facing potentially huge US dollar funding needs tied to the depreciating Chinese renminbi – a result of back-to-back target redemption forward (Tarf) trades with international dealers.

A Policy-Making Mystery in the Renminbi’s Decline
As President Obama visits Asia in a bid to shore up American alliances, he faces an emerging challenge from the region’s behemoth, China, whose currency has experienced a gradual but unrelenting decline over the last 10 days.

Speculators up bets against US dollar for 2nd week-CFTC, Reuters
Speculators bet against the U.S. dollar for a second straight week, according to data from the Commodity Futures Trading Commission released on Friday.

BitBeat: China Dings Bitcoin Again
MoneyBeat – WSJ
Beijing still seems to matter for the price of bitcoin. Given that Chinese trading in the digital currency has dried up considerably since the government first started cracking down on banks’ interactions with bitcoin businesses in December, you’d think the market’s capacity to be surprised might have similarly dried up.

Bitcoin Exchange Halts Customer Deposits Tied to China Merchants Bank
Chinese bitcoin exchange BTC China is no longer accepting customer deposits in yuan from one of the country’s largest banks, China Merchants Bank Co.

Alderney’s Bitcoin plans take pounding
Jane Wild –
The Channel island of Alderney has found that virtual cash is harder to turn to gold than it thought, after a double blow to its plans to issue a physical Bitcoin made of the precious metal.

Indexes & Index Products

[SIX] “Trade Sponsored Funds as easily as shares”
SIX has published its 2013 annual report. It includes a special chapter dedicated to Sponsored Funds, the new trading segment of SIX Swiss Exchange.

Wall Street Horizon Readies ETF Calendar Feed
Faye Kilburn – WatersTechnology
Woburn, Mass.-based corporate earnings and event data provider Wall Street Horizon has launched a new ETF Calendar Data Feed to provide institutional traders and market makers with access to announced, projected and historical exchange-traded fund distributions, to enable them to better manage ETF investments.


U.S. lawsuits hobble Deutsche Bank’s bid to sell gold fix seat
Deutsche Bank may end up resigning its seat on the London gold fix rather than selling it as U.S. lawsuits alleging price rigging against the five banks that set the benchmark deter potential buyers, industry sources said.

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