First Impressions

All Smalls and Mediums: Richard Sandor Looks To Transform The Small and Mid-Tier Bank Sector (Part 2)

Over the past 40 years, Richard Sandor has created some of the most successful products in financial markets, from interest rate futures to greenhouse gas derivatives. Now he’s shifted his attention to small and mid-sized banks with a new exchange platform that could transform the way in which those Main Street institutions lend, borrow and set interest rates for themselves. Sandor spoke with John Lothian News about his new venture, the American Financial Exchange, and the future for his latest marketplace.
View the full report in Sway »

Quote of the Day

“The recent volatility in financial markets introduces a new wrinkle into the Fed’s calculus. The Fed does not want to send a firecracker into fragile capital markets nor do they want to give the impression that they are captive to markets either.”

Neil Dutta, head of U.S. economics at Renaissance Macro Research, in the story, “Why Everyone Is Suddenly Talking About Financial Conditions”

Lead Stories

World’s biggest banks in fine fettle seven years on from Lehman disaster
Tim Wallace – The Telegraph
Banks have at long last built up their balance sheets with enough surplus cash to survive a future downturn – seven years on from the calamitous collapse of Lehman Brothers and the onslaught of the financial crisis.
The 100 biggest international banks have poured hundreds of billions of euros into their coffers to create capital buffers strong enough to prevent a downfall in the event of another financial crisis.

How financial excess becomes geopolitical crisis
Dan Denning – MoneyWeek
The tide is going out on globalisation.
It’s that time of the night where everyone left at the great globalisation party of early 21st century is comprehensively drunk. But the lights have come on and revealed the rubbish on the floor and the dishevelled clothing of the revellers.

IPO pipeline builds ahead of Fed decision on interest rates
Nicole Bullock – Financial Times
A significant pipeline of US listings has built up awaiting the outcome of this week’s meeting of the Federal Reserve and a positive mood in the stock market.
A busy fourth quarter would help the market for initial public offerings recoup some ground in what has been a lacklustre year. Among the companies that could list this year are First Data — which could be 2015’s largest US listed IPO, Digicel, the mobile communications company, the grocer Albertsons and Ferrari.

Credit Suisse Reaches Tentative $85 Million Settlement on ‘Dark Pool’ Probe; Bank to pay $30 million to New York, $55 million to federal authorities
Christopher M. Matthews – WSJ
Credit Suisse Group AG, one of the biggest operators of a “dark pool,” reached a tentative agreement to pay around $85 million to New York and federal authorities to resolve allegations of wrongdoing in its private trading venue, according to a person familiar with the matter.

Trade body calls for one year Mifid II delay
Futures & Options World – Let’s Talk Derivatives
The Investment Association, a UK-based trade association, has hit out at the Mifid II pre-trade transparency provisions and called on European regulators to push back by a year the implementation of Mifid II.

China Investigates Citic Securities President for Insider Trading
James T. Areddy – WSJ
Chinese authorities on Tuesday stepped up pressure on the country’s largest and most globalized brokerage, Citic Securities Co., by announcing expansion of a probe into possible insider trading by senior executives at the firm, including its president.

Puerto Rico’s Own Deficit Forecast Seen High by Morgan Stanley
Laura J Keller – Bloomberg
Puerto Rico officials have overestimated the U.S. territory’s anticipated budget deficit over the next five years by about 60 percent, according to an analysis by Morgan Stanley’s debt-trading team.

Malcolm Turnbull Defeats Tony Abbott to Become Prime Minister of Australia
Michelle Innis – NY Times
Malcolm Turnbull, a former investment banker and lawyer, was sworn in as prime minister of Australia on Tuesday, after defeating Tony Abbott in a vote of Liberal Party lawmakers.

Oil Traders Hire Tanks on Tiny Island to Profit From Global Glut
Naomi Christie Javier Blas Lucia Kassai – Bloomberg
To see how oil traders are profiting from the longest-lasting glut in three decades, look at the tiny Caribbean island of St. Lucia.
Glencore Plc hired tanks at the island’s only oil terminal to stow crude, joining Vitol Group, people familiar with the matter said last week. They’re responding to the market’s deepening contango, a situation where prices today are lower than those in future months, allowing traders with access to storage to lock in a profit. From St. Lucia to South Africa to Rotterdam, they’re seizing the opportunity.

US open to more money for Ukraine
Shawn Donnan and Roman Olearchyk – Financial Times
The US has opened the door to increasing its financial assistance for Ukraine, on the eve of a vote in the Kiev parliament over an $18bn debt restructuring that has drawn criticism from some creditors and opposition politicians.

Mark Cuban argues that U.S. SEC in-house trials hurt defendants’ rights
Sarah N. Lynch – Reuters
Dallas Mavericks owner Mark Cuban took a swipe at the U.S. Securities and Exchange Commission on Tuesday after he filed a court brief which criticizes the agency’s in-house trials as being unconstitutional.

Central Banks

Yellen’s Former Aide Says a Rate Hike Would Be a Serious Error
Rich Miller – Bloomberg
The U.S. is probably about two years away from achieving full employment, no matter what the jobless rate suggests and Federal Reserve officials think.
That’s the view of Andrew Levin, who served as a special adviser to former Fed Chairman Ben S. Bernanke and then-Vice Chair Janet Yellen from 2010 to 2012. “We’re not even close to full employment,” he said in an interview.

PBOC opens onshore fx market to central banks
The People’s Bank of China said Monday it would allow foreign central banks to trade in the country’s foreign-exchange market, echoing a promise made by Chinese Premier Li Keqiang at the World Economic Forum last week.
The central bank said it would give global central banks access to conduct forward, option and spot operations in China’s interbank foreign-exchange market, according to a statement on its website.

Deutsche Bank: U.S. Treasuries Won’t Be the First Victims of Quantitative Tightening
Luke Kawa – Bloomberg
If central banks keep dumping their foreign reserves, the world’s preeminent safe haven won’t be the first asset to show signs of stress.
In a new note, Deutsche Bank, the original proponent of “quantitative tightening”, elaborated on its thesis that China’s foreign exchange policy is of paramount importance to financial markets, and the bank clarified some of the potential ripple effects stemming from a decline in the foreign reserve assets held by the world’s second-largest economy.

World Bank warns on US rate rise
The World Bank has warned developing countries to brace themselves for possible financial turbulence when the US Federal Reserve starts to raise interest rates.
It could come as early as Thursday when the Fed concludes a policy meeting.

Fed Forgoing September Risks Spoiling Bond Market’s Gradual Path
Liz McCormick – Bloomberg
As the Federal Reserve prepares to raise interest rates for the first time since 2006, almost all the talk of a potential policy misstep has centered on the peril of hiking too soon.
The bigger concern is if the Fed waits too long, say Thomas Lam at RHB Securities Singapore Pte. Ltd and David Glocke at Vanguard Group Inc. A decision to keep the overnight rate near zero on Sept. 17 may wind up jolting debt markets more than actually raising it, said Lam, who according to Bloomberg was the fourth-most accurate forecaster of the U.S. economy last quarter.


The U.S. Dollar Is Gaining Like It’s the 1980s — For Better or Worse
Chikako Mogi and Shigeki Nozawa – Bloomberg
The dollar is in the midst of its strongest rally since 1984 and — unlike then — there may be little anyone can do to stop it.
Thirty years ago this month, the U.S. was powerful enough to muscle its way out of a damaging trade imbalance when it took financial markets by surprise with the Plaza Accord. In that agreement, it persuaded Japan, Germany, France and the U.K. to join in coordinated action to help weaken the dollar.

Forex: Trading FOMC is Not a Simple Binary Bet
Kathy Lien – FXStreet
There’s a 28% chance of a Federal Reserve rate hike this week according to Fed fund futures but 50% of the 102 economists surveyed by Bloomberg are looking for liftoff to begin this month. For some, the disconnect makes for difficult positioning but we believe that the lack of agreement motivates investors to take profit and/or reduce positions ahead of the FOMC rate decision. We have already seen the dollar decline versus the Japanese Yen at the start of the week and believe that profit taking is one of the main reasons why the EUR/USD lost value on Monday for the first time in 7 trading day

Swiss Franc Eases Pressure on Jordan as Fed Overshadows SNB
Catherine Bosley and Josh Robinson – Bloomberg
If the pressure has eased on Thomas Jordan this week, it’s not just because the Federal Reserve is stealing the limelight.
The Swiss National Bank president can savor both an eight-month low in the franc and evidence of surprise growth in Switzerland’s economy as policy makers release their latest decision just hours before the Fed on Thursday. That sweet spot contrasts with the unwelcome attention the SNB drew in January when officials abandoned their currency cap against the euro.

The euro zone just rode its weak currency to another record trade surplus
Melvin Backman – Quartz
The euro zone is sending its products around the world at a rate never seen before.
Its trade surplus hit a record EUR22.4 billion ($25.3 billion) in July.

The end of cash? It might not be as soon as you think
Peter Spence – The Telegraph
While cash’s use is in continual decline, claims that it is set to disappear entirely may be premature, according to the Bank of England.
Demand for cash is likely to remain “substantial” for a number of years, said Bank staff Tom Fish and Roy Whymark, despite the proliferation of alternative ways to pay in recent years.

Indexes & Index Products

S&P Dow Jones Indices Announces Change in Treatment of Spin-Offs in U.S. Indices
After reviewing feedback from a client consultation conducted earlier this year, S&P DJI will standardize its spin-off policy to utilize a zero price spin-off treatment for all indices, including indices tracking markets where a market determined price is commonly available, such as the S&P 1500 and other headline U.S. indices. This zero price spin-off treatment is already the standard treatment used by S&P DJI in most other regions but has not typically been used in U.S. markets. The standard zero price spin-off treatment will be used for U.S. indices spin-offs that go ex distribution on or after October 1, 2015.

FTSE Reclassifies Greece As An Emerging Market
Nikolaos Giannoulis – Seeking Alpha
The Greek debt crisis, which has resulted in falling incomes, high unemployment rates and political instability, has been the reason for the Greek stock market’s decline in terms of size and liquidity. While many listed companies experience high growth rates and stable profitability and offer opportunities for further expansion, their stock prices have been falling.

Peruvian delegation exposes its position to MSCI
Today the meeting with MSCI Inc. was held in New York, in which representatives of both public and private sectors participated. They discuss about the current market consultation referred to the reclassification of Peru from emerging to frontier market.

Active Fund Aches: Are Passive ETFs More Profitable?
ETF Trends
The majority of actively managed large-cap managers are underperforming the benchmark S&P 500, adding fuel to the benefits of passively managed, index-based exchange traded funds.

Over 1,000 stock additions on S&P BSE indices from Sep 21
Asia Index Pvt Ltd, a S&P Dow Jones Indices and BSE joint venture, will reconstitute its stock indices with total 1,078 fresh additions, even as another 234 will be dropped, from September 21.


Gold Goes Quiet Before Fed With Thinnest Trading Volume of 2015
Eddie Van Der Walt and Luzi-Ann Javier – Bloomberg
The gold market has gone quiet before the Federal Reserve meeting.


Why Everyone Is Suddenly Talking About Financial Conditions
Luke Kawa – Bloomberg
Most economists who expect the Federal Reserve to hold off from raising interest rates on Thursday point to more restrictive financial conditions in the wake of August’s market turmoil as a key reason to refrain from liftoff.
“The recent volatility in financial markets introduces a new wrinkle into the Fed’s calculus,” wrote Neil Dutta, head of U.S. economics at Renaissance Macro Research, for example. “The Fed does not want to send a firecracker into fragile capital markets nor do they want to give the impression that they are captive to markets either.”

Goldman Sachs-backed “Bloomberg Terminal killer” Symphony is ready for launch
Ian Kar – Quartz
The Bloomberg Terminal has been a staple of the financial world for decades, growing into a multi-billion dollar operation with 325,000 users. But Symphony Communications, a messaging platform backed by some of the biggest financial institutions in the world, is planning to cut into core pieces of its business when it launches today (Sept. 15)

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