First Read

Connecting: HKEx’s Li Said It Will Help Connect To China’s Trillions

Hong Kong Exchanges and Clearing is all about connecting. HKEx’s CEO Charles Li says his exchange is the linchpin that connects mainland China’s markets with the rest of the world.

Li, who spoke with John Lothian News editor-in-chief Jim Kharouf at the FIA Boca conference, said his exchange is about strategic positioning with China and taking advantage of the explosive growth it sees, especially with the London Metal Exchange firmly integrated into its business.

“Our job is to find a way to make that connection,” Li said, of China, “the largest pool of capital that is yet to be globally deployed.”
Watch the video »

Comment: Mifid II needs to uphold spirit of reform
Michael Spencer, Xavier Rolet and Hans-Ole Jochumsen, FT
The clock is ticking on the implementation of Mifid II and reforms set to transform the European financial landscape.

***** I like it when leaders lead.


Europe urged to safeguard spirit of derivatives regulation
Philip Stafford, FT
Three of Europe’s most senior markets executives have written a joint letter to regulators urging them not to undermine derivatives market reforms, arguing that the current drafting of the laws also threatens Europe’s economic growth. Xavier Rolet, chief executive of the London Stock Exchange Group; Michael Spencer, chief executive of interdealer broker ICAP; and Hans-Ole Jochumsen, president of Nasdaq, have called on authorities to “safeguard the guiding spirit and vision of Mifid II”, the region’s flagship markets legislation currently in the final stages of a review in Brussels.

***** Nice lead on the leaders leading.


Integral Launches First FX Application for Apple’s Smart Watch
Trading from the wrist up
Gives new meaning to the phrase ‘doing time’
Integral Development Corp., a leading FX technology company, announced today the launch of FX Wrist Manager™, the first FX trading application for the recently announced Apple Watch. To make the best use of this new form factor, hand gestures have been incorporated into the app design. In order to trade with a particular counterparty, make sure their short name appears on the watch face first; then vigorously shake your left hand with your right hand to establish a connection. As soon as buy and sell prices for a currency pair are being displayed, pushing your open hand forcefully away from you (“yours”), or pulling it towards your body (“mine”), are being translated into orders. To also accommodate the next generation of FX traders, the “Facebook like” (thumbs-up) or “un-like” (thumbs down) work as well. Making intelligent use of Apple’s Taptic Engine, a linear actuator inside Apple Watch that produces haptic feedback, ensures that your intent is translated into trade execution as quickly as a nerve twitches. Another example of the tight integration of the two technologies is how FX order expiry options that rely on time and date parameters are taking full advantage of the built-in watch movement. In order to distinguish trades executed on your wrist from other orders entered through the system, trades from trading on your wrist will be identified in the trade blotter with a small dt for doing time.

***** Check your watch for today’s date.


Gary Dahl, Inventor of the Pet Rock, Dies at 78
It was a craze to rival the Hula-Hoop, and even less explicable. For a mere three dollars and 95 cents, a consumer could buy … a rock — a plain, ordinary, egg-shaped rock of the kind one could dig up in almost any backyard.

***** Tragically, his pet rock outlived him and is now orphaned.


Betting the Farm
Every five years or so, Congress passes a massive farm bill to fund the federal government’s agricultural programs. For decades, it included guaranteed subsidies to farmers—-payouts worth $4.5 billion a year under the 2008 bill. But no more. With U.S. farm profits at a record $129 billion, in 2014 lawmakers eliminated the subsidies. Instead, the nation’s 1.7 million farmers must choose between two new programs intended to protect them against unexpected losses. One would insure their income in bad harvest years. The other would compensate them if crop prices fell. It’s a high-stakes decision that requires them to predict whether they’re at greater risk from acts of God or acts of man. Illinois farmer J. Gordon Bidner says he needed “two crystal balls” to figure it out.

***** Farmers are the ultimate speculators.


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Lead Stories

Allston Said to Face CFTC Probe Into Alleged Manipulation
by Matthew Leising, Silla Brush, Bloomberg
High-frequency trading firm Allston Trading LLC is under investigation by the U.S. Commodity Futures Trading Commission for alleged market manipulation, according to a person familiar with the matter.

***** Oh, this just gets uglier.

China Enters Stock Frenzy as Rookie Traders Open Record Accounts
by Ye Xie, Stephen E Stapczynski, Belinda Cao, Bloomberg
To get a sense of the frenzy in China’s world-beating equity market, consider this: In a two-week span last month, the rally lured 2.8 million rookie stock pickers, almost the equivalent of Chicago’s entire population.

China’s Big Stock Market Rally Is Being Fueled by High-School Dropouts; Everyone is a trader now
by Tom Orlik, Bloomberg
There’s a story that Joseph Kennedy sold his stocks on the cusp of the Great Crash of 1929 after a shoe shine boy shared trading tips with him. If even the shoe polisher is buying stocks, he reasoned, the market must be riding for a fall.

***** My long China short Indiana spread has been working really well.

Renegades of Junk: The Rise and Fall of the Drexel Empire;The people who lived through Michael Milken’s Wall Street saga tell it in their own words, 25 years later
By Max Abelson, Jason Kelly, and David Carey, Bloomberg
The tale of Drexel Burnham Lambert’s unlikely rise, gargantuan heights, and calamitous fall is the story of Wall Street. A quarter of a century after Michael Milken wept in court as he apologized for securities fraud, Drexel’s cast of characters, ideas, and attitude may be as influential as ever. The people who turned a second-rate investment bank into a money machine, the trillion-dollar market for junk bonds they spawned, and their swagger during the investigation that brought them down helped make global finance what it is now.

FINRA Issues Guidance on Effective Supervision for Firms Engaging in Algorithmic Trading Strategies
by Janet M. Angstadt, James Van De Graaff – Katten Muchin Rosenman LLP
The Financial Industry Regulatory Authority released Regulatory Notice 15-09 to provide guidance to member firms and market participants on effective supervision and control practices with respect to algorithmic trading strategies. This notice is one of seven FINRA initiatives related to equity market structure and automated trading activities. These initiatives are designed to increase the Is

Exclusive – EU presidency wants to ditch ban on proprietary trading at banks
European Union plans to ban banks taking market bets with their own money should be scrapped to avoid crimping the flow of funds needed for economic recovery, an EU document showed on Tuesday.

Ex-Goldman programmer faces second U.S. trial on code theft charges
A former Goldman Sachs Group Inc (GS.N) computer programmer charged with stealing code from the investment bank is scheduled to go on trial on Wednesday, the second time in five years he will be in front of a jury for essentially the same accusations.

No Joke, U.S. Treasuries Tend to Rally in the Month of April
by Wes Goodman, Bloomberg
Treasuries tend to rally in the month of April.
U.S. government securities have advanced in the period every year from 2010 to 2014, according to data compiled by Bloomberg.

What happens when jobs report is released on Good Friday
With the exception of those trading index futures, U.S. stock investors will have to remain patient through a long weekend before making any moves in reaction to the March nonfarm payrolls report.

It is financial crashes we should fear, not those in aeroplanes
John Kay, FT
Air travel is safe and its investigation process transparent — the contrast with finance could hardly be greater
Having just booked a flight to Berlin in June with Germanwings, I thought it might be useful to explain why.

Forex reserves in emerging markets begin to shrink
James Kynge and Jonathan Wheatley, FT
Foreign currency reserves in emerging markets fell last year for the first time in two decades, as developing economies found themselves beset by waning competitiveness, capital outflows and concerns over US monetary policy.

Former pastor, partner used PFGBest failure to hide scam: CFTC lawsuit
A former pastor at a Florida church and a partner tried to use the 2012 bankruptcy of brokerage Peregrine Financial Group to hide their theft of $2 million from investors in a commodity trading scam, according to a lawsuit filed by U.S. regulators.

Pay pops for CME’s CEO and chairman
By LYNNE MAREK, Crain’s Chicago Business
The top two executives at CME Group, which operates the biggest futures exchange in the world, got 25 percent-plus raises last year as the company’s trading volumes and stock price climbed.


CFTC to Hold First SmartCheck Week: April 6-12
Agency’s Easy-to-Use Online Tools are Aimed at Helping Consumers Protect Themselves from Financial Fraud
As part of Financial Literacy Month, the U.S. Commodity Futures Trading Commission (CFTC) announced today the first-ever SmartCheckSM Week. During the week of April 6-12, 2015, CFTC staff will highlight efforts to encourage investors to check the background of financial professionals before investing their money. Through advertising, social media, and targeted outreach, the CFTC will urge investors to visit during SmartCheckSM Week and to make this part of a routine step when considering a new financial professional and with established advisors.

Regulators Intensify Scrutiny of Bank Boards; Fed and others hold more frequent meetings with directors
U.S. regulators are zeroing in on Wall Street boardrooms as part of the government’s intensified scrutiny of the banking system, shifting from light-touch oversight of bank directors to regular questioning.

ICAP determines need for European technical standards to be clear and objective
British multinational markets operator and provider of post trade risk mitigation ICAP plc (LON:IAP) has written to Steven Maijoor, Chair of the European Securities and Markets Authority, regarding open access provisions within the MiFID II Regulatory Technical Standards, co-signed by Michael Spencer, chief executive of ICAP, Xavier Rolet, chief executive of the London Stock Exchange Group, and Hans-Ole Jochumsen, president of NASDAQ.

Exemptive Orders
Order Granting an Extension to Limited Exemption From Rule 612(c) of Regulation NMS In Connection With the Exchanges Retail Liquidity Program Until September 30, 2015 (Release No. 34-74609; File No. SR-NYSEArca-2013-107; March 30, 2015); see also Incoming Letter

Self-Regulatory Organization (SRO) Rulemaking and National Market System (NMS) Plans
NYSE Arca: Notice of Filing and Immediate Effectiveness of Proposed Rule Change

  • Amending the NYSE Arca Equities Schedule of Fees and Charges for Exchange Services to change the ETP Fee (Release No. 34-74605; File No. SR-NYSEArca-2015-21; March 30, 2015); see also Exhibit 5


  • NYSE Arca: Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Its Schedule of Fees and Charges for Exchange Services to Specify that Affiliated Exchange ETP Holders May Request that the Exchange Aggregate Its Eligible Activity with Activity of the ETP Holder’s Affiliates for Purposes of Charges or Credits Based on Volume (Release No. 34-74604; File No. SR-NYSEArca-2015-20; March 30, 2015); see also Exhibit 5

Exchanges & Trading Facilities

EquiLend and BondLend Launch Trade Match Service
EquiLend and BondLend, the securities finance industry trading and post-trade service providers, have launched Trade Match, which provides an automated way to compare pre-settlement, cross-product securities finance transactions.

Euronext to launch dairy derivatives on April 13
Euronext will launch its new dairy derivatives on April 13 and will offer a full waiver for its trading fees until June 30, the exchange said on Monday.

Oslo Børs to discontinue trading in Swedish, Danish and Finnish securities as of
Oslo Børs
Oslo Børs has decided to close down the trading in Swedish, Danish and Finnish securities via the Burgundy market. The background for the decision is a desire for more focus on the primary market and securities listed on Oslo Børs. Oslo Børs is also considering other opportunities for trading simultaneously, making use of the MTF license currently in use for Burgundy.

CME Group Clearing Notices
CME Group
Review of Collateral Haircuts Advisory 31 Mar 2015
UPDATED – HOLIDAY SCHEDULE – Good Friday, April 3, 2015

Another Politician Wants to Ban Insider Trading
By Matt Levine, Bloomberg
Why is insider trading illegal? I think there are two main theories:
It is unfair: You shouldn’t trade if you have information that everybody else doesn’t have.
It is theft of information: Companies own their inside information, and you shouldn’t take their information and use it for your own profit.The first theory is far more popular but obviously wrong. Honestly you should only trade if you have information that everybody else doesn’t have. The (social) point of trading is to get information incorporated into market prices. If you have no information to incorporate into the price, you’re not doing anyone any favors by trading. Least of all yourself: If you only have the same information as everyone else, how are you going to make any money? Just index.

Stephan Meier New Head Media Relations Of SIX
MondoVisione Stephan Meier will assume responsibility for Media Relations at SIX as of 1 April 2015.
Stephan Meier brings with him a broad range of experience in the area of communications. Following his studies at the University of Zurich, he worked at the Research Institute for the Public Sphere and Society (Forschungsinstitut Öffentlichkeit und Gesellschaft) of the University of Zurich and at UBS, where he headed the Corporate Reputation Analysis unit. He has been a media spokesperson for

Hedge Funds & Managed Futures

Apax Said to Return $4.5 Billion to Investors in Three Months
by Kiel Porter, Bloomberg
Apax Partners has returned 4.2 billion euros ($4.5 billion) to investors in the past three months from one of Europe’s largest buyout funds raised before the financial crisis, said people with knowledge of the matter.

Hedge Fund Traders Return to Fray With $1 Billion Launches; Proven managers starting new ventures are catching the eye of investors
By LAURENCE FLETCHER, The Wall Street Journal
Several big-name traders are launching hedge funds in the U.K.’s capital as a surge in startups gathers momentum.

Banks & Brokers

BGC Partners
GFI Provides Preliminary March, 2015 Results
GFI’s Results will be Consolidated with Those of BGC
BGC’s 8.75% Convertible Senior Notes to be Converted Into Units and/or Common Shares
BGC Partners, Inc. (NASDAQ: BGCP) (“BGC Partners,” “BGC,” or the “Company”), a leading global brokerage company servicing the financial and real estate markets, today announced that it has updated its consolidated outlook for the quarter ending March 31, 2015. In addition, BGC’s majority-owned division, GFI Group Inc. (NYSE: GFIG) (“GFI Group” or “GFI”), a leading intermediary and provider of trading technologies and support services to the global OTC and listed markets, provided its outlook for March, 2015.

Q&A with OTC Global Holdings: Get to Know the New Energy Market That’s Coming to TT
TT Trade Talk
Recently at the FIA Boca conference, in addition to announcing the broad availability of TT, we announced that the new platform will provide customers access to OTC Global Holdings’ (OTCGH’s) EOXLive Active Markets.
To summarize, customers will be able to access EOXLive’s unique commodities market information and liquidity on the next-generation TT platform.

Bob Diamond’s African Banking Venture Runs Into Problems;Former Barclays CEO’s Atlas Mara vehicle questioned over pay, conflict of interest
ust over a year after Bob Diamond founded Atlas Mara Ltd to build an African banking empire, problems are cropping up.

GAIN Capital Completes Acquisition Of City Index
GAIN Capital Holdings, Inc. (NYSE: GCAP) (the “Company” or “GAIN Capital”) today announced it has completed the acquisition of City Index (Holdings) Limited (“City Index”), a leading online trading firm specializing in contracts for difference (CFDs), forex and UK spread betting.

UBS Shareholders to Vote for First Time on Executive and Board Pay
UBS said on Wednesday that its shareholders would, for the first time, vote on the compensation of its directors and its top executives at its annual meeting in May.

StanChart’s V Shankar leaves to set up private equity fund
Simeon Kerr and Martin Arnold, FT
V Shankar, one of Standard Chartered Bank’s five most senior executives, has resigned to set up a private equity fund.

Clearing & Settlement

ISDA Outlines Path Forward for Centralized Execution of Swaps
The International Swaps and Derivatives Association, Inc. (ISDA) today published a set of principles aimed at promoting regulatory consistency in the development and application of centralized trading rules for derivatives.

Korea Exchange seeks nod from Europe
Korea Times
The Korea Exchange (KRX) said Wednesday that it is seeking to be recognized as a qualified central counterparty clearinghouse (CCP) from the European Commission (EC) to draw more investment from international financial firms.
Korea’s bourse operator said recognition from the executive body of the European Union is crucial because European banks would pull their funds out of the derivatives market here, should the KRX fail to get it.

Early clearing means savings for pension funds
Futures & Options World – Let’s Talk Derivatives
Since the financial crisis, almost every facet of the derivatives world has been scrutinised and subjected to new rules by global regulatory authorities. This has pushed many financial institutions to overhaul their internal processes, creating ways to efficiently and cost-effectively accommodate this new environment.
This has been particularly evident for the European Market Infrastructure Regulation (Emir), which introduced mandatory derivatives clearing through central counterparties (CCPs). However, the new regulation has touched on market participants for whom it has not been so straightforward to adapt systems and processes.

Indexes & Products

Investors Across the Globe Join the Party
Stocks in the U.S. and big global markets ended March on a down note, but investors had plenty to celebrate during a quarter marked by records broken around the world.
At least 17 stock indexes set fresh highs as easy-money policies from major central banks and signs of stability in some troubled economies helped lift prices to new highs, including in the U.S., the U.K, Germany and India. Some 29 more hit their highest levels going back a year or more. These winners included markets in Japan, France and Spain.

Nasdaq Quarterly Streak Sets Record Even as High Proves Elusive
While the Nasdaq Composite Index has hit a wall trying to reach its all-time high from 15 years ago, it just ran off a streak of success it never managed even during the Internet bubble.
Even with Tuesday’s 0.9 percent drop, the 44-year-old equity gauge ended the January-to-March period with a 3.5 percent gain — extending the number of quarterly advances to nine. Increases of 13 percent or more in Apple Inc. and Biogen Idec Inc. helped lift the Nasdaq within 1 percent of its record three times in the quarter.

NYSE Arca exchange glitch hampers trading in popular ETFs
Intercontinental Exchange Inc’s NYSE Arca had a technical glitch on Tuesday that resulted in some of the most popular exchange-traded funds being temporarily unavailable for trading and some investors paying more for stocks than they otherwise may have.

Smart Beta Safe? Regulators Set Sights on New Indices
Chief Investment Officer
The popularity of “alternative beta” strategies has begun to attract the attention of financial watchdogs on both sides of the Atlantic.
US and European regulators are beginning to scrutinize smart beta products, as the sector continues to gain popularity.

HKEx Prepares Its First Mainland Chinese Equity-Index Futures
by Eduard Gismatullin, Bloomberg
Hong Kong Exchanges & Clearing Ltd. plans to offer its first mainland Chinese equity-index futures later this year as the bourse expands its derivatives business.


Why Data Breaches Don’t Hurt Stock Prices
Harvard Business Review
Recent high-profile data breaches like those at Target and Home Depot have exposed the private sensitive information of millions of employees and consumers. While consumers are rightfully worried that their personal information may be compromised, shareholders and companies’ management have a wider set of concerns, including loss of intellectual property, operational disruption, decreased customer trust, tarnished brand, and loss of investor commitment. Companies are spending millions in litigation costs, efforts to restore brand loyalty, and refunds.

ITG Launches ITG Smart Limit Retail Algorithm; New Tool Helps Retail Brokers Manage Passive Limit Order Placement
Investment Technology Group Inc.
ITG (ITG), a leading execution and research broker, today announced the launch of ITG Smart Limit Retail Algorithm (SLimit) a retail order-specific version of the innovative ITG Smart Limit Algorithm designed to improve passive trading performance in a highly competitive, fragmented market. ITG SLimit Retail routes passively priced orders, using real-time and historical indicators, to maximize the exposure of the order and increase its fill chances at various NMS-protected venues.

Are mortgages the new ‘fin tech’ frontier?
Amy Swinderman – Inman
With global investment in financial technology — or “fin tech,” as it has come to be known — more than tripling in the last five years, are financial startups eyeing potential investment in the mortgage and real estate financial services industries?
The answer depends on how you ask, but most people familiar with the trend at least recognize the possibility.

Finextra: Finextra PR: London-based Prophis dives into FinTech Sandbox
FinTech Sandbox is a Boston-based nonprofit that helps FinTech startups around the world build great products and applications. FinTech Sandbox was founded by entrepreneurs and investors who understood the high cost of data and its inaccessibility to early stage companies was holding back innovation. So, FinTech Sandbox has brought together some of the world’s leading data providers to solve these problems.


Swiss Asset Manager Admits He Helped Americans Evade Taxes
by Patricia Hurtado, Bloomberg
A former Swiss asset manager pleaded guilty to helping U.S. clients hide millions of dollars in offshore accounts and avoid paying federal income taxes.

Subscription Service Accused of Fraud; States allege sham outfit inflated prices for publications it wasn’t authorized to sell
Authorities in five states filed a lawsuit on Tuesday against a magazine and newspaper subscription service they accuse of charging highly inflated prices for publications they weren’t authorized to sell. The nationwide scam targeted mostly elderly readers, allegedly charging them as much as double the actual price for new subscriptions and renewal offers to publications such as The Wall Street Journal, the New York Times, Old Cars…

SEC: Polycom ex-CEO hid perks from investors
Kevin McCoy, USA TODAY
Former Polycom (PLCM) CEO Andrew Miller used nearly $200,000 in corporate funds for personal perks he hid from investors, a federal regulator charged Tuesday.

Environmental & Energy

US makes historic climate pledge, targets emissions cuts of up to 28%
By Ed King – RTCC (Responding to Climate Change)
The US government has confirmed it will target a 26-28% drop in greenhouse gas emissions by 2025, in its contribution to a global climate change pact.

***LB: Also in this story “Announced last November as part of a US-China climate agreement, the offer has now been formally submitted to the UN ahead of this December’s Paris climate summit.”

Does Obama’s carbon emissions pledge go far enough?
The White House has pledged to cut carbon emissions by up to 28 per cent but some commentators warn that the plan does not go far enough.

White House: GOP criticism of climate pact ‘hard to take seriously’
By Timothy Cama – The Hill
The White House on Tuesday rebuked Republican critics of its contribution to the United Nations climate pact, saying the criticisms are “hard to take seriously.”


SGX steps up investor education with StockWhiz and e-tutorials
Following the previous success of SGX’s StockWhiz trading competition, SGX is once again launching StockWhiz this year. StockWhiz 2015 will take place from 1 April to 30 June 2015, and is open to residents aged 18 years and above from Singapore and regional countries. To compete, participants have to download the TradeHero app available on iOS and Android.

SGX Board Committee of Inquiry submits report to SGX Board and Monetary Authority of Singapore
The SGX Board Committee of Inquiry (“BCOI”) has completed its investigations into the 5 November 2014 breakdown in the securities and derivatives markets. The BCOI has submitted its report to the SGX Board and the Monetary Authority of Singapore.

HKFE Announces Revised Margins for HKEx Futures
Hong Kong Futures Exchange Limited (HKFE), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEx), has announced that with effect from the commencement of trading on Thursday, 2 April 2015, the minimum margins to be collected by an Exchange Participant from its clients in respect of their dealings in the following futures contract will be as outlined in the table below. The adjustments are based on the clearing company’s normal procedures and standard margining methodology.

China bank deposit insurance could tilt competitive landscape
China’s newly announced deposit insurance scheme could pressure margins at struggling state-owned banking giants, but the country’s small lenders still have their work cut out to take market share from the big players.

China equities rally leaves foreign investors conflicted
Josh Noble in Hong Kong, FT
One thing sure to make a dull party even worse is the sound of revelry from the shindig next door. While Chinese stocks have rallied to a seven-year high on the mainland, most international investors have been left off the guest list.

Frontier Markets

Economic Offences Wing may soon begin assets valuation in the Rs 6000 crore NSEL scam
By Ram Sahgal, ET Bureau
The Economic Offences Wing (EOW) of Mumbai police, probing the NSEL scam, has requested the Maharashtra home department to appoint expert valuation and auction houses for auctioning the Rs 6,000-crore worth of assets it has secured from 24 defaulters and directors of the scam-hit bourse, a senior police official told ET.

Brokers, investors reject FTIL settlement plan
Plan involved brokers, FTIL bringing in Rs500 cr each to clear the dues, either partly or fully, of majority of investors

Saudi bourse’s rules for opening to foreigners expected by end-April
Saudi Arabia’s market regulator will publish the final rules governing the opening of the kingdom’s stock exchange to direct foreign investors by the end of April, a senior Saudi banker told Reuters.

World Bank sees protracted recession in Russia
Russia faces a protracted recession as the impact of Western sanctions lingers and oil prices stay low, the World Bank said in a report published on Wednesday.

Indian’s Private Banks Push Into Derivatives
By Shuli Ren, Barron’s Asia
Due to various banking restrictions, foreign banks barely have any presence in retail banking in India. But they are big in the derivatives market for foreign exchanges and interest rate products, dominating the sector with more than half of the market share. The big three, Standard Chartered (STAN.London/SCBFF), Citibank (C) and HSBC (HSBC), have 11%, 9%, and 8% of the market share respectively, data provided by CLSA show.

Securities and Exchange Board of India
PR – Order in the matter of M/s Tresty Securities Ltd
Adjudication order against Mahadev Industries Ltd
Navkar Corporation Limited
Tata Motors Limited
The Catholic Syrian Bank limited


An Elegant Answer to the Wrong Question (or an Incomplete One)
Streetwise Professor
Rodney Garrett and Peter Zimmerman of the NY Fed have produced a paper studying the effect of clearing on derivatives counterparty risk exposures. It is basically an extension of the Duffle-Zhu paper from a few years ago. It studies more realistic networks and a more diverse set of scenarios than D-Z. It demonstrates that with a variety of network structures, clearing actually reduces netting efficiency and increases counterpart risk exposures. This is especially true with “scale free” or “core-periphery” networks, which are more realistic representations of actual derivatives markets than the all-to-all structure in D-Z. They show that when the system relies on relatively few crucial nodes, as is the case in most dealer structures, clearing reduces netting efficiency. This, as Garrett and Zimmerman note, could explain why clearing has not been adopted voluntarily. It also raises doubts about the advisability of clearing mandates, inasmuch as the alleged benefit of clearing is a reduction in counterparty credit exposures.

World’s oldest person Misao Okawa dies aged 117 in Japan
Robin Harding in Tokyo, FT
Misao Okawa, whose secret to a long life was to ‘eat tasty food and sleep well’
The number of living people who witnessed the 19th century has dwindled to four, after Misao Okawa, the world’s oldest person, died in Japan at the age of 117.

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