First Read

Bits & Pieces & Roller Coaster Rides
Doug Ashburn – JLN

Ladies and Gentlemen, we have a decision. In a contentious battle for two board seats at the NFA, Ernest Jaffarian and Doug Bry were re-elected, defeating James Koutoulas and John Roe. The run-up to the election featured a lot of commentary from this newsletter, even some threats against us. In the end, it elevated the importance of the NFA elections. While many may consider it rather insignificant, it is far from it. The NFA’s board, and having the best from the industry on it, is critical. Ultimately, that’s what is important here.

Meanwhile, we are only 12 trading days into the new year and I am already running low on Dramamine from all the volatility – both overnight and intraday. Strap yourselves in; this ride is not likely to stop anytime soon.

As the equity and commodity markets were hitting intra-session and multi-year lows Wednesday, I was in a room full of money managers and asset allocators at a luncheon/panel hosted by the Chartered Alternative Investment Association (CAIA) Chicago chapter. We were there to discuss the 2016 outlook for hedge funds and the various sectors therein. Since I was there as a member of CAIA, not a member of the press, I will keep my comments general and not name names.

This is important because, on more than one occasion, the panelists lamented the fact that hedge funds too often get skewered by the press, and they hoped for a day when the alternative space would be more accepted by the media. Not wearing my media hat, it was not my place to remind them that some of the “bad press” can be thought of in the same vein as a due diligence review; i.e., net of fees, which can be substantial, what am I getting for my money? Net of fees, can you beat the index? That being said, yes, some journalists do not understand the rationale behind alternatives and do not take the time to learn before writing that scathing story.

As the panel talked, the market melted down, found a bottom and recouped some losses, a few points hit home. First, 2016 looks to be the make-or-break year for a couple of hedge strategy sectors, namely global macro and, the one nearest and dearest to our hearts, managed futures. For these two classes last had their day in the sun during the crisis years, 2008-09, and have seen tepid returns at best ever since. Many investors, especially those who poured in billions of dollars at the top, will not stick around if they do not reap the rewards during this volatile period. Hedge funds in general need to outperform this year, or at minimum, demonstrate superior risk-adjusted return. The institutional world, including all those underfunded pensions, need to justify the allocations.

Another topic of concern is crowded trades and pockets of illiquidity. As the saying goes, when everyone is in the same side of the boat, prepare for a capsizing.

Nice segue. Bond market illiquidity is a grave concern in 2016. From the fickle Fed and Draghi derring-do to the on again-off again corporate bond market, as well as the tightening screws of regulation, 2016 could also be a pivotal year for bonds. Reports of liquidity scares have been all over the news these past few months.

When LSE Group scooped up Bonds.com for a paltry $15 million in 2014, we wondered how it would fit into the grand plan. Yesterday they announced an expansion of the platform (integrated into its MTS offering and now goes by the name MTS BondsPro), is adding non-US denominated corporate bond trading for US, UK and Swiss participants, to offer one liquidity pool for dollar and non-dollar denominated bonds. See the press release in the “exchanges” section. Is this another step toward cross-border harmony, in the name of non-bifurcated liquidity?

Let us all hope so. That is a rollercoaster ride that I am truly sick of.

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Notice of newly elected members to NFA’s Board of Directors
NFA
This year there were contested elections in the CPO/CTA category of NFA’s Board of Directors. The results of those elections are as follows.
Board of Directors – CPO/CTA Representatives:
Douglas L. Bry, Senior Strategist, Welton Investment Partners LLC
Ernest L. Jaffarian, CEO/CIO, Efficient Capital Management LLC
goo.gl/9RI14E

***** Congratulations to Doug Bry and Ernest Jaffarian.

++++

OptionsHouse Institutes Dime Buyback Program for All Customers
OptionsHouse announced today that it has instituted a “dime buyback” program and in doing so has waived trading fees and commissions on customer trades which close short options contracts with premiums 10 cents or less. OptionsHouse is the only brokerage built for active traders to provide customers with a dime buyback program.
The program allows customers to buy-to-close low-priced short options, thus allowing them to pivot to new trading opportunities and remove risk from their portfolios, leaving only the principal cost plus any exchange or regulatory fees. OptionsHouse will not charge commission for these trades.
bit.ly/1nykBvs

***DA: Great for the premium seller wishing to roll at the end of the cycle, but what about those of us who lead with the buy order? I guess, this week anyway, we made it back on the gamma scalp.

++++

Dan Day-Robinson, Chairman, Swiss Futures and Options Association – Embracing Change
MarketsWikiEducation.com

“…While some may see them as the crazy ones, we see genius. Because the people who are crazy enough to think they can change the world, are the ones who do. – Rob Siltanen, the creative genius behind Apple’s “Think Different” campaign”

Dan Day-Robinson will be the first to tell you he has a flair for the dramatic. As a former market maker, investment banker and now head of a trade association, he has hundreds of stories, and he knows how to tell them. He takes us on a rollicking tour through his years in the financial world, including his most recent charge as head of the Swiss Futures and Options Association. He lays out the history of the SFOA, a group that was once much more prominent than it is today, and explains his vision for its future.

Will you see him as one of the crazy ones, or will you see genius?

Watch the video »
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Davos Boss Warns Refugee Crisis Could Be Precursor to Something Much Bigger
Joe Weisenthal – Bloomberg
Growing economic woe could set millions on the road to Europe; We must “reestablish a sense that we all are in the same boat”
As the crash in commodities prices spreads economic woe across the developing world, Europe could face a wave of migration that will eclipse today’s refugee crisis, says Klaus Schwab, executive chairman of the World Economic Forum.
goo.gl/imC2Jt

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Blockchain hype storms Davos
FT Alphaville
On the streets of Davos this year there are only three discussions being had. One: robots are going to take over our jobs. Two: blockchain is amazeballs and three: fintech is like blockchain amazeballs, but with even more possibilities to control and mould the behaviours of the common man.
on.ft.com/1QgtLGl

***DA: The best news of all? Now that it has the blessing of the FT, the word “amazeballs” is fair game for inclusion in the John Lothian Newsletter.

++++

Yesterday’s Top Stories
Yesterday we saw perhaps the largest click count on a CFTC story since the early days of Dodd-Frank. The top story was KPMG withdraws audit opinions on CFTC over accounting error. Second place involves the CFTC as well – the Bitcoin Magazine story CFTC Appoints Bitcoin Expert, First 2016 Meeting Will Have Blockchain Focus. Number three goes to the Bloomberg story KCG Is Said to Plan Exit From Retail Options Market Making

Lead Stories

NFA vote ousts renegade board members
By LYNNE MAREK – Crain’s Chicago Business
Two reform-minded futures industry asset managers have been knocked off the National Futures Association board in a contentious election. The NFA, which is a member-governed regulator for the futures industry, announced this evening that Douglas Bry and Ernest Jaffarian had been re-elected to the board, with James Koutoulas and John Roe failing to win re-election. A spokeswoman for the organization, which has 29 board members now that some seats were eliminated, declined to disclose the vote tally. Bry and Jaffarian didn’t return calls seeking comment…
goo.gl/W611iE

Fears of global liquidity crunch haunt Davos elites
Ambrose Evans-Pritchard – Telegraph
The International Monetary Fund is increasingly alarmed by signs that market liquidity is drying up and may trigger an even more violent global sell-off if investors rush for the exits at the same time.
bit.ly/1QgndHA

Fintech: Search for a super-algo
Robin Wigglesworth – FT
Investment groups race to create a thinking, trading computer. But will AI machines become the Warren Buffetts of the future?
Nearly three decades ago, Warren Buffett penned an annual letter to his adoring investors mocking an insidious new trend beginning to make its mark in the money management industry: the computer.
on.ft.com/1RV6Eof

Senate committee chairman asks CFTC to explain major accounting error
BY LISA LAMBERT AND SUZANNE BARLYN – Reuters
Senate Agriculture Committee Chairman Pat Roberts has asked for a full explanation from the U.S. Commodity Futures Trading Commission for an accounting error that led auditor KPMG to withdraw nearly a decade of financial opinions about the agency’s accounts.
goo.gl/iAqeFe

China Mulls Answer to Bitcoin With Digital Currency Study
Lulu Yilun Chen, Justina Lee – Bloomberg
People’s Bank of China says digital currency reduces cost
PBOC set up team in 2014 to research digital currencies
China’s central bank said it is studying the prospects of issuing its own digital currency and aiming to roll out a product as soon as possible, contending that alternative payment systems can improve the efficiency of global transactions.
goo.gl/sDF7s8

IEX CEO Vows to Fight Efforts to Water Down Exchange Request; Brad Katsuyama says opponents are ‘mischaracterizing’ IEX’s features
By ANDREW ACKERMAN – WSJ
IEX Group Inc., the upstart trading venue that says it wants to level the playing field between investors and high-frequency traders, is planning to fight efforts to change how it operates as it tries to become a full-fledged stock exchange, its chief executive said.
on.wsj.com/1JZCRIf

Trans-Atlantic Derivatives Fight Nears End as Capital Rules Loom
Silla Brush, Julia-Ambra Verlaine – Bloomberg
EU’s Hill says uncertainty isn’t good for market participants; `Parameters’ of solution `clearer than they were,’ Hill says
European Union and U.S. regulators are nearing a deal on oversight of the $553 trillion global derivatives markets that would prevent an increase in EU capital requirements from hitting banks this year.
goo.gl/mqfC1p

Exchanges Clash With Regulators Over Market-Manipulation Case; Chicago trading firm DRW pushes back
By BRADLEY HOPE – WSJ
In a rare confrontation, the two biggest futures exchanges are clashing with the industry regulator over its pursuit of a Chicago trading firm for market manipulation.
goo.gl/7YC273

Toss a Derivatives Grenade Into Portugal’s Bond Mess
By Mark Gilbert – Bloomberg
Just as last year was ending, the Portuguese central bank sent its bond market into a tizzy. It chose five bonds worth about 2 billion euros ($2.2 billion) and assigned them to the bad bank it had just created, destroying about 80 percent of the value of the securities. The body that helps oversee the derivatives market has an opportunity to help right this wrong. But to do so, it will first have to make the situation even worse.
goo.gl/lWGcen

World’s Biggest Tea Auction Seen as a `House of Collusion’
Sarah McGregor – Bloomberg
Kenyan president urges Mombasa auction to automate trade; Incentives needed to encourage farmers to keep growing tea
The Mombasa tea auction, the world’s largest sale of the leaves, must switch to electronic trading to dispel perceptions that it’s a “house of collusion,” Kenyan President Uhuru Kenyatta said.
goo.gl/jWVA8o

Cyberhacking as the next systemic banking risk
Izabella Kaminska – FT
We all know how subprime lending triggered the Global Financial Crisis of 2008. We also know how faced with only two options — financial meltdown or the transfer of state wealth to the banking sector — governments felt they had no choice but to save the system at a cost to the taxpayer.
on.ft.com/1P7Oqxp

Computer-driven trend hedge funds thrive despite falling markets
Robin Wigglesworth, US markets editor – FT
This year’s market carnage has hammered many investors and reawakened concerns over the health of the global economy, but some computer-driven hedge funds have enjoyed a buoyant start to 2016.
on.ft.com/1PGOlgg

How to Make Sense of Plummeting Global Markets
Neil Irwin – NY Times
If you look only at the global economy, and what leading forecasters think it will do in 2016, things look to be in a reasonably solid state. The world economy will grow 3.4 percent this year, economists at the International Monetary Fund projected this week, up from 3.1 percent in 2015. Private sector forecasters mostly have similar expectations.
nyti.ms/23gHB2q

Europe’s Safety Nets Are Too Small To Deal With Another Crisis
By REBECCA BYRNE – WSJ
Europe’s safety nets are too small to cope with another large crisis, analysts say, as financial markets continue to endure turmoil around the world.
on.wsj.com/1OyWDZI

FX volatility wreaks havoc on UK corporate treasurers
By: Farah Khalique – Euromoney
Businesses will need to closely manage their exposures to currencies this year to avert losses, as notable exchange-rate moves this month are already threatening to eat into profits, warn foreign-exchange experts.
bit.ly/1RBft6q

Regulatory

Susan Nash, Associate Director in Division of Investment Management, to Leave SEC After 26 Years of Service
SEC.gov
Ms. Nash has been a key architect of disclosure policy for mutual funds and other investment companies, and has led the division’s oversight of variable annuity and variable life insurance products.
1.usa.gov/1Qn9rFe

Arbitrator Profile: Ernest (Ernie) Badway
NFA
With NFA Arbitrator Ernie Badway’s experience, he is a veritable encyclopedia of knowledge.
goo.gl/4lKAl9

Paul Tucker: The regulator who now prods the regulators
By James Rundle – Financial News
He is not quite poacher-turned-gamekeeper – but it’s not far off. Since the start of the year, Tucker has been chairman of the Systemic Risk Council, a body supported by the CFA Institute which boasts an A-list of former regulators and politicians on its council, formed because of concerns that regulation was being made too slowly – especially regulation protecting consumers from systemic risks.
bit.ly/1Qguk2L

Osborne backs Lagarde for second term as IMF chief; Nomination process begins today
NATALIE KENWAY – InvestmentWeek
Christine Lagarde is set to serve a second five-year term as managing director of the International Monetary Fund after UK chancellor George Osborne put in an early vote to support her within seconds of the nomination process opening.
bit.ly/23gIg48

Emerging market regulators reinforce commitment to strengthen resilience while ensuring fair and orderly markets
IOSCO
Global emerging capital market regulators met this week in Bali, Indonesia, at the IOSCO
Growth and Emerging Markets (GEM) Committee annual meeting hosted by the Indonesian Financial Services Authority to further work on strengthening systemic resilience while remaining alert to market risks.
bit.ly/1lyHtcF

Exchanges & Trading Facilities

HKEX rolls out its Strategic Plan 2016-2018
HKEx
Hong Kong Exchanges and Clearing Limited (HKEX) today (Thursday) announced its Strategic Plan 2016-2018, outlining the development roadmap for HKEX and Hong Kong’s financial markets.
bit.ly/1Jkc09F

HKEX: Strategic Plan
HKEx
2016 – 2018 The new Strategic Plan outlines the development roadmap for HKEX and Hong Kong’s financial markets in the next three years. We are connecting China with the world and reshaping the global financial landscape.
jlne.ws/1nMsKqI

Presentation by HKEx Chief Executive Charles Li on the Strategic Plan 2016-2018 at Annual Media Luncheon
HKEx
bit.ly/1nzXLDz

MTS BondsPro launches European denominated corporate bond trading
London Stock Exchange Group
The BondsPro platform now offers liquidity on over 9,000 non-USD CUSIPS and gives participants access to one liquidity pool for both USD and non-USD corporate bonds, including GBP, EUR, AUD, CAD, HKD, NOK, NZD and SEK denominations. In addition, EuroTLX – the electronic European retail-size fixed income MTF of LSEG – and MTS will jointly evaluate the feasibility of EuroTLX satisfying the growing customer demand in the US. These moves are part of a wider LSEG strategy to address shortfalls in the credit markets by promoting cross-border trading and firm liquidity.
bit.ly/23g0YZw

CME Group Announces Record Eurodollar Options Volume
CME Group
CME Group, the world’s leading and most diverse derivatives marketplace, today announced it reached a trading volume record for Eurodollar options yesterday, January 19, of 4,279,584 contracts, surpassing the previous record of 3,493,675 set on June 24, 2013. Open interest in Eurodollar options also increased by 1.6 million to 30.76 million, up from 26.05 million at 2015 year end.
goo.gl/qrnd6J

MGEX Open Interest Climbs to 10th-Best Ever
MGEX
MGEX, a Designated Contract Market (DCM) and Derivatives
Clearing Organization (DCO), reports its second-consecutive open interest record day
following Tuesday’s activity, now seeing the number climb to 10th-best all-time at
80,748.
goo.gl/jFv35v

Hong Kong stock exchange operator eyes more trading links with China
South China Morning Post
Hong Kong Exchanges and Clearing (HKEx) is weighing a third board, introducing cross-border initial public offering (IPO) and launch a new commodities platform in Shenzhen in the next three years, said chief executive Charles Li Xiaojia.
bit.ly/1QgsO0F

Euronext tipped for future acquisitions; Pan-European exchange operator Euronext could venture into the M&A space following the removal of capital requirements by the Dutch government, according to research from JP Morgan.
By Joe Parsons- The Trade News
Euronext could be set for a number of M&A deals after the Dutch Finance Ministry lifted certain capital requirements, according to analysts at JP Morgan.
goo.gl/XZMyop

EEX acquires majority stake in PXE
Hedgeweek
The European Energy Exchange (EEX) and Power Exchange Central Europe (PXE) have signed an agreement in Prague whereby they will enter into a closer cooperation. In doing so, EEX will become the new majority shareholder, acquiring 66.67 per cent of PXE shares.
bit.ly/1QgsSh5

Nasdaq Commodities moves Market Making to Futures Contracts in German Power
Globe Newswire
In order to address customer interest, Nasdaq will focus on Futures Contracts as the primary product for German Power. Effective Monday February 1, 2016, Market Makers on Nasdaq Commodities will move all quotations for German Electricity DS Future Contracts to Futures Contracts.
bit.ly/1Qgudo6

Securities lending: “Collateral horizons” – article in Funds Europe
Eurex
The magazine Funds Europe published an article about the reshape of securities lending due to stricter regulation rules and the advent of central clearing of derivatives
goo.gl/q9BL5V

 

Hedge Funds & Managed Futures

Britain’s Bonds Seen Pushing the Limits With World-Beating Climb
Anooja Debnath – Bloomberg
U.K. sovereign returns exceed most developed-market peers’; Market pricing of BOE liftoff in 2017 overdone: UBS Group
It’ll be tough for U.K. government bonds to sustain their stellar start to 2016.
goo.gl/1kta6q

The ‘New Normal’ for Fund Firms: Declining Assets, Smaller Margins
By SARAH KROUSE – WSJ
For asset management, 2015 marked an unpleasant milestone. Assets under management, operating margins and revenues for fund managers globally fell for the first time since 2009, according to consulting firm Casey Quirk & Associates.
goo.gl/7ejaPq

U.S. mutual fund investors put most cash in foreign equity in nearly five months: ICI
BY SAM FORGIONE – Reuters
Investors in U.S.-based mutual funds poured $3.2 billion into funds that specialize in foreign shares, their biggest inflows since August, in the latest weekly period potentially on views that overseas shares offer greater upside than U.S. stocks.
goo.gl/w0oFzI

Pearson gives investors advanced lessons in coping with adversity
Jonathan Guthrie – FT
John Fallon gives a textbook example of decimation in a last ditch bid to reverse decline
The motto of Pearson is “always learning”. Investors in the struggling education group are always learning too. Bad news, mostly. What was impressive was the skill with which chief executive and ex-PR guy John Fallon dressed up yet another profits warning.
on.ft.com/1lyKZna

UK accounting watchdog to look at KPMG audit of HBOS
Reuters
Britain’s accounting watchdog said it will start “preliminary enquiries” into how KPMG audited the books of HBOS before the UK bank collapsed during the financial crisis in 2008.
reut.rs/1RV9Hgq

Banks & Brokers

Deutsche Bank reinstates Frankfurt employee fired over Libor
BY ANJULI DAVIES AND ARNO SCHUETZE – Reuters
Deutsche Bank has been forced by a German court to reinstate a Frankfurt employee whom New York regulators had ordered the bank to fire as part of a settlement over alleged interest rate rigging.
goo.gl/qWwueW

TD Ameritrade Earnings Edge Higher; But brokerage’s revenue slipped as investors remained cautious about trading in a volatile market
By CHELSEY DULANEY – WSJ
TD Ameritrade Holding Corp. on Wednesday reported better-than-expected profit in its first quarter, but revenue dipped slightly and investors remained cautious about trading in a volatile market.
on.wsj.com/1PqEsmv

Plunging commodities prices take toll on Goldman Sachs, others
BY CHRIS PRENTICE – Reuters
Goldman Sachs Group Inc on Wednesday became the latest company to report a quarterly revenue decline as oil prices extended their slump and unseasonably warm weather reduced the demand for natural gas and power.
goo.gl/5gX4IX

Deutsche Bank Announces $7 Billion Yearly Loss as Legal Issues Weigh on Results
By JACK EWING – NY Times
In a surprise earnings announcement, Deutsche Bank on Wednesday evening reported a huge yearly loss of 6.7 billion euros ($7.3 billion) as the cost of past wrongdoing continued to weigh on its earnings.
goo.gl/GLLhGt

Barclays to slash about 1,000 investment bank jobs worldwide
BY ANSHUMAN DAGA AND LAWRENCE WHITE – Reuters
Barclays will cut about 1,000 jobs in investment banking worldwide and close its cash equities business in Asia as new Chief Executive Jes Staley wields the axe in a bid to reduce costs and boost returns.
reut.rs/1PGPh49

Barclays to Chop 1,000 Investment-Bank Jobs; The U.K. bank will shut regional cash equities operations, fully exit from Brazil, Russia, Taiwan and South Korea
By MAX COLCHESTER and JULIE STEINBERG – WSJ
Barclays PLC Thursday said it would refocus its investment bank in the U.K. and the U.S., cutting around 1,000 jobs, mainly across Asia.
on.wsj.com/1lyJR31

Clearing & Settlement

LME Clear eyes clients beyond metals
Futures & Options World
The London Metal Exchange’s clearing house is in talks with a number of new members from outside the metals industry, as it looks to extend beyond its traditional market. LME Clear is working on extending clearing services beyond the metals market with the firm already in talks with a number of potential ‘non-metals’ clients.
bit.ly/1QgsWgC

Major Banks Complete ‘Modest’ Blockchain Test
WSJ
The test, conducted Jan. 11 to Jan. 15, allowed the banks to connect to a private distributed ledger built on open-source blockchain technology from Ethereum and hosted on a Microsoft Corp.’s Azure cloud. The tokens, or software code representing a theoretical asset, passed between nodes set up by the banks and R3 with no problems, a spokesman for the consortium said in an email. The data about the tokens was intact and the validity of each transaction verified “instantaneously” by all nodes, he said.
on.wsj.com/1QgtwLn

Looming EU-US deal on clearing gets cool welcome from banks
Risk.net
Proposed European rule change will raise risks and costs of clearing, critics fear The cost of transatlantic harmony on clearing house regulation might be a riskier – and potentially less viable – clearing business, European dealers are warning. It’s a deal banks are reluctantly willing to accept. “What we have is not a great compromise, but maybe the only one possible,” says Ulrich Karl, co-head of financial market infrastructures risk in the financial institutions group at HSBC.
bit.ly/1QgufMJ

Indexes & Products

BlackRock’s iShares Launches World First For Investing In Israel
Mondovisione
BlackRock has launched an exchange traded fund for European investors to invest directly in the national Israeli index. It is the first fund to offer direct exposure to the underlying constituents of this index.
bit.ly/1KsB4X0

Hang Seng Index Sinks Below Net Assets for First Time Since 1998
Bloomberg Business
Hong Kong stocks fell below the value of their net assets for the first time since 1998 as concerns over capital outflows and China’s economic slowdown sent the Hang Seng Index deeper into a bear market.
bloom.bg/1QgsKhx

MSCI global stock market index hits bear market
CNBC
The MSCI All-Country World Index, which measures major developed and emerging markets, fell into a bear market Wednesday, with its decline from early last year now totaling more than 20 percent.
cnb.cx/1QguPda

S&P launches index of companies with long-term focus
Reuters
Dow Jones Indices launched on Thursday a new index of companies it said had the potential to create value for investors by focusing on long-term strategy. The S&P Long-Term Value Creation (LTVC), developed with the Canada Pension Plan Investment Board (CPPIB) and asset manager Robeco SAM, comprises about 250 companies that take a long-term view and have a sustained history of financial quality.
reut.rs/1Qgv4Ff

S&P Dow Jones Indices Market Attributes: Risk & Volatility Index Dashboard
Mondovisione
2016 has not being going well for the world’s markets. The New Year has seen the S&P 500® retrace and then plunge through the lows established last August; the rest of the world’s equity markets have largely performed even worse. Accordingly, nearly every volatility measure in our report is up.
bit.ly/1Qgv9bX

Technology

OptionsCity announces CityTrader Platform now available with DAW Trading
AutomatedTrader
OptionsCity Software, a provider of futures and options trading and analytics solutions, has announced that its cloud-based futures and options trading platform, CityTrader, is now available to DAW Trading clients. With CityTrader, DAW Trading clients will find futures and options trading functionality, with the ability to request live quotes from the exchange and build custom spreads.
bit.ly/1S6R3Ai

Neonet Joins Merkur Market At Its Launch – Access To Oslo Børs’ New Marketplace For Small And Medium Sized Companies
Mondovisione
Neonet, the independent agency broker and execution specialist, announces that on 13 January it joined, Merkur Market, a multilateral trading facility operated by Oslo Børs.
bit.ly/1T8aaLe

Cyberhacking as the next systemic banking risk
FT Alphaville
We all know how subprime lending triggered the Global Financial Crisis of 2008. We also know how faced with only two options — financial meltdown or the transfer of state wealth to the banking sector — governments felt they had no choice but to save the system at a cost to the taxpayer. But could something as innocuous as shoddy password management or a data breach lead to a very similar set of circumstances in the not too distant future?
on.ft.com/1P7Oqxp

Enforcement

CFTC Charges Oklahoma Resident Kevin J. Davis with Acting as an Unregistered Commodity Pool Operator and Engaging in Prohibited Pool Operator Activities
CFTC
The CFTC’s Complaint alleges that, beginning no later than February 2012 and continuing through the present, Davis has solicited, accepted, and received approximately $2.7 million from multiple individuals for the purpose of trading off-exchange foreign currency contracts. The Complaint further alleges that Davis has pooled the solicited funds in a personal bank account and traded the funds through accounts held in his own name, where he has incurred more than $1.2 million in losses trading forex.
1.usa.gov/1Qn7qZD

Ocwen Paying Penalty for Misstated Financial Results
SEC.gov
Ocwen agreed to pay a $2 million penalty after an SEC investigation found that the company inaccurately disclosed to investors that it independently valued these assets at fair value under U.S. Generally Accepted Accounting Principles (GAAP). In fact, Ocwen merely used the valuation performed by a related party to which it sold the rights to service certain mortgages that remained a financing liability in Ocwen’s accounting. Ocwen’s audit committee failed to review the methodology with company management or its outside auditor, and the related party’s valuation deviated from fair value measures. Ocwen consequently misstated its net income for the last three quarters of 2013 and the first quarter of 2014.
1.usa.gov/1Nl75QG

Ocwen to pay U.S. SEC $2 million for misstating financial results
Reuters
Ocwen Financial Corp will pay $2 million to settle allegations that it misstated its financial results by using a “flawed, undisclosed methodology to value complex mortgage assets,” the U.S. Securities and Exchange Commission said on Wednesday.
goo.gl/khNO08

Environmental & Energy

2015 Was the Hottest Year on Record, by a Stunning Margin; We actually broke the record for breaking records.
Tom Randall, Blacki Migliozzi – Bloomberg
To say that 2015 was hot is an understatement. The average recorded temperature across the surface of the planet was so far above normal that it set a record for setting records.
goo.gl/pSFMNw

Oil Market Dynamics and 2016 Outlook
By Bluford Putnam- CME Group
In the second half of 2014, the oil market experienced a powerful downward price adjustment which was sustained throughout 2015. There are several long-term supply and demand forces in play, as well as some shorter-term response factors, that make for a very difficult mix to analyze going forward. On the supply side, there are the technology-driven improvements in extraction techniques that ignited a production boom in the United States back in 2006. On the demand side, there is the huge shift in the global growth environment from an emerging market boom period in the early 2000s to a sluggish growth period after the 2008-2009 Great Recession. Also, technology has been steadily making transportation considerably more fuel efficient. Shorter-term factors include the time-lagged feedback loops and behavioral responses to producers adjusting to a lower oil price environment, as well as policy responses such as the lifting of the U.S. ban on crude oil exports.
/goo.gl/D7gy70

Regulators scrap plan to burn off leaking methane in California
BY STEVE GORMAN – Reuters
Air quality regulators agreed on Wednesday to scrap a proposal to capture and burn off some of the methane spewing into the air from a subterranean pipeline rupture that has forced thousands of Los Angeles residents from their homes since October.
reut.rs/1ZOsCxu

Asia-Pacific

Why China Can’t Keep a Stock Rally Going; The slowdown in economic growth is raising hopes of further government stimulus. But will it work?
Peter Coy – Bloomberg
China’s latest stock market rally lasted precisely two days. Prices tumbled again on Wednesday, with the Shanghai Shenzhen CSI 300 Index giving back half the gains it made in an impressive rally the previous day. In Hong Kong, China stocks fell to their lowest since the financial crisis.
goo.gl/V13Nol

China admits communication failings on renminbi
Chris Giles in Davos and Gabriel Wildau in Shanghai – FT
A top advisor to Chinese president Xi Jinping has conceded that poor communication contributed to global market anxiety over China’s falling currency, as he tried to reassure investors that Beijing is not pursuing competitive devaluation.
goo.gl/QgXdDj

China’s financial markets: Central bank may have misfired with latest move
Nikkei Asian Review
The announcement by China’s central bank that it had pumped more funds into the financial markets may have backfired by disappointing investors expecting more expansive easing measures, some observers say.
s.nikkei.com/1QgvoDX

Relax, the Hong Kong dollar peg is not in any danger
Hong Kong Free Press
It is true that by local standards, the recent move has been a big one. The Hong Kong dollar has spent much of its time since the 2008-2009 financial crisis pinned to the ceiling of its permitted HK$7.75-7.85 trading band against the US dollar by hefty capital inflows. But in the last few weeks, as sentiment in the financial markets towards China has taken a beating, hammered by Beijing’s non-existent policy communication skills, the Hong Kong dollar has fallen back from the strong side of its band.
bit.ly/1QgvkUL

Frontier Markets

Saudi Arabia intervenes to prevent currency speculation
Simeon Kerr in Dubai – FT
Saudi Arabia has moved to damp speculation on its currency by barring domestic banks from dealing in forward contracts on the riyal as the kingdom seeks to shield its economy from the impact of the oil price plunge.
goo.gl/DkbmOe

Bank of Russia Holds Fire on Interventions as Ruble Plummets
Andrey Biryukov, Ott Ummelas – Bloomberg
Ruble is close to `fundamental levels,’ central bank head says; Finance minister says Bank of Russia `executing smart policy’
The Russian central bank won’t intervene in the currency market unless the ruble’s swings threaten financial stability, Governor Elvira Nabiullina said after the currency slumped to a record.
goo.gl/dG4WbP

Rouble tumbles more than 5% to fresh low
Max Seddon in Moscow – FT
Russia’s rouble fell more than 5 per cent in the first two hours of trading on Thursday, to hit a new record low of Rbs85.97 to the dollar amid a global slump in oil prices.
goo.gl/ze99A2

Miscellaneous

Cargill celebrates new boxed beef distribution center at Kansas facility; Governor Brownback performs ceremonial ribbon cutting for the nearly $50 million investment
Cargill
Governor Sam Brownback, as well as community, state and federal officials, joined Cargill’s beef business leaders as they celebrated the opening of a nearly $50 million distribution center at Cargill’s Dodge City beef processing facility earlier today. Around them, more than 9,000 feet of conveyor belts weave throughout the building, connecting to a row of towering shelves that stretch the entire height of the building. The shelving holds approximately 133,000, 60-pound, boxes of beef—the equivalent of 17,000 head of cattle. Crane-like devices can be seen in the background, moving boxes in and out of the shelves. Each day, the system stores an average of 40,000 boxes, while simultaneously shipping another 40,000 to Cargill’s customers worldwide.
goo.gl/PxVxvc

The sky is falling on print newspapers faster than you think
Medium.com
Last October, a McKinsey report declared, “We believe that many of the people likely to abandon print newspapers and print consumer magazines have already done so…. We believe most of this core audience?—?households that have retained their print subscriptions despite having access to broadband?—?will continue to do so for now, effectively putting a floor on the print markets.”
bit.ly/1PqCq5L

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