First Read

The Free-Market Case for Climate Science
Paul J. Ferraro – BloombergView
Are you someone who has faith in the power of free markets? Then you should naturally accept the evidence that human activity is bringing about climate change. Free and competitive markets work efficiently in large part because they are phenomenal information aggregators, gathering and sorting facts about consumer preferences and business production costs, and guiding market participants to engage in actions that provide benefits to both sides. Markets can easily help figure out the most efficient way to deliver coffee to people’s homes, for example, or to reduce air pollution in cities. Markets also determine which ideas succeed (the iPhone, for instance) and which ones fail (Kool Kardashian Kard).
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***** Paul Ferraro, the Bloomberg Distinguished Professor of Business and Engineering at Johns Hopkins University, makes a compelling case for free markets and climate science.

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Why Did Regulator Have Computer Trading Code On Personal PC?
By Mark Melin – Value Walk
Tucked into a 2016 Securities and Exchange Commission Office of Inspector General (OIG) report is little noticed reprimand regarding the security of computer trading code that is currently sending chills up the spine of professional algorithmic firms.
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***** Kudos to Mr. Melin on his story.

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I’ll Miss the Trading Floor; I stood elbow-to-elbow in the pits with a Harvard grad and a high-school dropout.
By BRAD SCHAEFFER – WSJ
American capitalism has no more potent symbol than a raucous exchange floor packed with traders shouting and signaling buy and sell orders. But with the rise of electronic and high-frequency trading, the clamorous “trading pit” is rapidly becoming a thing of the past. On the last trading day of the year, Dec. 30, the world’s largest futures-market operator, CME Group, will close its final trading pit in New York City. CME closed most of its trading pits in Chicago in the summer of 2015. Some options pits remain, but it’s expected they too will eventually pass into history.
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***** A fitting tribute to the trading floor as an economic melting pot.

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Hans Tietmeyer, Banker Who Led German Transition to Euro, Dies at 85
By JACK EWING – NY Times
Hans Tietmeyer, the central banker who led Germany’s transition from the deutsche mark to the euro despite reservations about a single European currency, died on Tuesday. He was 85.
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***** He is moving on to a heavenly currency.

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These Are the 7 Biggest Hedge Fund Disasters of 2016
Jen Wieczner – Fortune
As far as financial returns go, 2016 was actually pretty good for hedge funds—at least compared to the last couple of years. But several of the industry’s bigwigs still took it on the chin this year.
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***** Just wait for the disasters of 2017 with the black swan as the bird of the U.S.

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Wednesday’s Top Three
The Wall Street Journal’s Multiple Buyers, Not One, Influenced Most Active E-Mini Move of 2016, which showed that even market data firm analysts can misunderstand how markets work, took the top spot yesterday. Second was another WSJ story,
NYSE Arca Losing ETFs to Rivals. And in third was a Chicago-oriented piece, Crain’s Here are the Chicago area’s best- and worst-performing stocks of 2016

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MarketsWiki Stats
91,502,795 pages viewed; 22,283 pages; 202,913 edits
MarketsWiki Statistics

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Lead Stories

SEC’s Use of In-House Courts Unconstitutional, Appeals Court Rules; Three-judge panel’s decision diverges from earlier ruling by District of Columbia Circuit
By DAVE MICHAELS – WSJ
A federal appeals court dealt a strong blow to Wall Street’s top cop this week, deciding that the Securities and Exchange Commission’s in-house courts don’t meet constitutional requirements.
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The Golden Era of Hedge Funds Draws to a Close With Clients in Revolt
by Katherine Burton – Bloomberg
The million-dollar question: Who will keep earning 2 and 20?; Clients revolt as traders get rich on management fees
Drinks flowed as hedge fund titan Robert Mercer, dressed as Mandrake the Magician, partied with Donald Trump, dressed as, well, Donald Trump.
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Could Trump nix Chicago Stock Exchange’s China deal?
Lynne Marek – Crain’s Chicago Business
The Chicago Stock Exchange moved closer this month to approval for its sale to a Chinese buyer, but a decision by the Securities & Exchange Commission remains, and that could trip up the deal in President-elect Donald Trump’s administration.
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U.S. appeals court rejects SEC’s use of administrative law judges
Nate Raymond – Reuters
A divided federal appeals court has ruled that the U.S. Securities and Exchange Commission’s in-house administrative judges are not constitutionally appointed, raising the prospect that the U.S. Supreme Court may need to address the issue.
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US mutual fund launches hit by changing landscape; Industry shrinks in 2016 as investors begin to shift into exchange traded funds
by: Stephen Foley in New York – FT
The number of new mutual funds launched in the US fell sharply in 2016, reflecting the crisis of confidence in active management and the shift by investors into exchange traded funds.
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LSE Said to Agree on Sale of Clearing Unit as Soon as This Week
by John Detrixhe – Bloomberg
French clearinghouse could be valued at 500 million euros; Divestment is an attempt to assuage European merger watchdogs
London Stock Exchange Group Plc may announce an agreement to sell its French clearing unit to Euronext NV as soon as this week, according to people familiar with the discussions, as part of the exchange operator’s plan to win over competition watchdogs.
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China Fault Lines: Where Economic Turbulence Could Erupt in 2017
Bloomberg News
Vicious cycle of capital outflows is the real nightmare: Loong; Saber rattling over trade may unsettle investors: Loevinger
China’s balancing act isn’t getting any easier.
Policy makers are grappling with how to attack excessive borrowing and rein in soaring property prices while maintaining rapid growth. They’re also battling yuan depreciation and capital outflow pressures as U.S. interest rates rise, while on the horizon looms the risk of confrontation with America’s President-elect Donald Trump on trade and Taiwan.
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No Happy New Year in China as Currency, Liquidity Fears Loom
by Justina Lee – Bloomberg
Currency conversion quota resets Jan. 1, stoking outflow fears; Cash demand seen rising before Lunar New Year at end-January
The first day of 2017 is when an annual $50,000 quota to convert the yuan into foreign exchange resets, stoking concern there will be a rush to sell the local currency. With tax payments and a regulatory assessment also tightening liquidity in the money market toward year-end, January may bring scant relief as lenders prepare for stronger cash demand before Lunar New Year holidays, which are only a month away.
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Cash May Never Be King Again
Aaron Back – WSJ
During times of market exuberance, cash is often said to be “trash.” But at least during previous bull runs in the 1980s and 1990s, cash was widely used to pay for things. Not so today. Market research firm Euromonitor estimates that 2016 was the first year that non-cash payments exceeded cash payments globally, thanks largely to increased card adoption in China. Cards surpassed cash as the largest single payment method, accounting for 44.1% of global consumer payments, compared to 43% for cash.
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US law firms rush to improve defences after China hack
Ben McLannahan in New York – Financial Times
Some of the biggest law firms on Wall Street are scrambling to shore up their defences against cyber attacks, in the wake of a raid by Chinese hackers which led to millions of dollars of profits from insider trading. Preet Bharara, US attorney for the southern district of New York, this week charged three individuals who he said infiltrated law firms over a period of about 18 months by hacking in to networks and servers.
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China Would Outlast U.S. in Trade War, Billion-Dollar Fund Says
by Bei Hu – Bloomberg
Trade war a ‘distinct possibility’ in 2017, James Wang writes; China better placed to use state resources to aid exporters
China would outlast the U.S. in a trade war, which is a “distinct possibility” next year after President-elect Donald Trump takes office, a commentator wrote in the $1 billion Pine River China Fund’s investor letter.
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Brexit

Britain faces ’10-year economic shock’ after Brexit vote
FIONA SIMPSON – Standard
Britons face a “decade of disruption” following Brexit, experts have warned. The UK suffered a “profound shock” following the country’s vote to leave the EU which looks set to result in a slowing economy, ageing population and technological transformation, a think-tank said.
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UK in 2030: older, more unequal and blighted by Brexit, report predicts; IPPR says leaving EU will require painful trade-offs, adding to challenges of ageing population and automation of jobs
Patrick Collinson – The Guardian
Britain faces a decade of disruption after Brexit with low growth, stagnating incomes for the poor and the public finances at breaking point, according to a bleak analysis by a leading thinktank.
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Brexit to fire starting gun on decade of economic disruption, says major report; It comes as the civil service union says Theresa May does not have courage to admit Brexit difficulties
Joe Watts, Political Editor – Independent
Brexit will fire the starting gun on a “decade of disruption” with the UK being hit by a perfect storm of economic uncertainty, an ageing population and volatile jobs market, a major report has concluded.
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Exchanges, OTC and Clearing

NSE Files Draft Prospectus For Rs 10,000 Crore IPO; To Sell 25% Stake
Bloomberg
The National Stock Exchange on Wednesday filed its draft prospectus with market regulator Securities Exchange Board of India for its much-awaited initial public offering, which is expected to be one of the biggest in recent times, with an estimated size of over Rs 10,000 crore. The initial public offer will see existing shareholders offloading 20-25 percent shares to the public through the offer for sale route.
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NSE IPO papers: Audit found unfair access for brokers; NSE IPO papers show its algorithmic trading platform was ‘prone to manipulation’, allowed ‘potential preferential access’ to some stockbrokers
Jayshree P. Upadhyay – Live Mint
A forensic audit of the National Stock Exchange of India’s (NSE) trading systems showed that its algorithmic trading platform and co-location facility were “prone to manipulation” and allowed “potential preferential access” to some brokers, NSE said in its share sale document.
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Commodity exchanges see sharp fall in volume in December; Absence of cross hedging from Dubba traders, thin trade in agri mandi, demonetisation creates haul
Rajesh Bhayani – Business Standard
Two leading commodity exchanges, one known for agri trading and another for metals and energy products, have seen a sharp drop in volumes. According to market participants, the absence of cross hedging from Dubba traders, thin trade in agri mandis and many traders busy managing demonetisation blues created big haul on volumes.
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More ETFs Defecting from NYSE in Coming Days
Asjylyn Loder – WSJ
Seven more exchange-traded funds will leave the New York Stock Exchange Thursday for rival Bats Global Markets as exchange competition for ETF listings heats up. Leaving NYSE Arca tomorrow are four Cambria ETFs and three ProShares funds. Among them is the $2.6 billion S&P 500 Dividend Aristocrats, a coup for Bats, whose ETF listings have about $17.4 billion in assets.
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Agriculture and Energy Margins – Effective December 29, 2016
CME Group
As per the normal review of market volatility to ensure adequate collateral coverage, the Chicago Mercantile Exchange Inc., Clearing House Risk Management staff approved the performance bond requirements for the following products listed in the advisory at the link below.
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Product Modification Summary: Listing of the April 2018 Contract Month of the Live Cattle Futures and Options Contracts
CME Group
Listing of the April 2018 Contract Month of the Live Cattle Futures and Options Contracts.
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Politics

‘The Wealthy Would Never Steal’ — A Credo for Trump’s Party
By Jonathan Chait – NY Magazine
Donald Trump’s government has not yet taken power, but its epitaph may have already been written. The author, Lawrence Kudlow, is a noted voodoo economist and the reported leading candidate to head the administration’s Council of Economic Advisors. In a column touting the brilliance of Trump’s appointments — “Trump’s transition continues to go smoothly. Better than smoothly. Confidently. More than confidently. Transcendently” — and naturally omitting any mention of his own prospective candidacy, Kudlow dismisses any concerns of the conflicts of interest that are already rife. In a National Review column, Kudlow makes the case not only that Trump and his administration are not corrupt, but also that they cannot be corrupt, by virtue of their wealth. “Why shouldn’t the president surround himself with successful people?” reasons Kudlow, “Wealthy folks have no need to steal or engage in corruption.”
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Trade war is Wall Street’s top Trump fear
Matt Egan – CNN
Wall Street loves Donald Trump’s pledge to slash taxes, roll back regulation and unleash infrastructure spending. But investors fear that his anti-trade campaign talk could translate into damaging protectionist policies.
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Trump’s Trade Chief Makes a Rookie Mistake
Noah Smith – Bloomberg View
Donald Trump has chosen Peter Navarro, one of the most ardent critics of trade with China, to head his newly created National Trade Council — a move many consider to be the opening shot in a trade war. Though I think the China trade boom of the 2000s did have some harmful effects, especially on certain U.S. workers, I worry that Navarro’s overall approach to trade doesn’t make economic sense.
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Republicans seek to put estate tax out to pasture; Donald Trump’s party says levy has forced children of deceased farmers to sell land
by: Barney Jopson in Washington – FT
Republican plans to abolish the estate tax are reviving an argument that Democrats say is fiction. Donald Trump’s party says that the tax, levied on transfers of wealth when a person dies, forces the children of recently deceased farmers to sell cherished land to raise money to pay it. But Democrats — and some tax experts — say the claim does not stand up.
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Fox News host with close ties to Trump discusses his dynamic role at the network
Maxwell Tani,Business Insider
President-elect Donald Trump prizes loyalty, and he hasn’t forgotten many of his top boosters at Fox News. While Trump continues to tap network personalities for top administration posts, one Fox News star who will remain at the network stands poised to also personally benefit from Trump’s ascension to the presidency: Eric Bolling.
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Investing and Trading

Money Market Reform Creates Arbitrage for Short-Term Investors
by Sally Bakewell – Bloomberg
Bond managers can earn extra half percentage point interest; Eurodollar futures trim risk in commercial paper trade
Money market reform has a silver lining for some investors. Bond managers can earn more than half a percentage point of extra interest annualized by buying securities that money market funds are shunning now and by using derivatives to trim the risk, said Dan Dektar, chief investment officer at Amundi Smith Breeden LLC in Durham, North Carolina.
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Bitcoin price at record high against pound and euro
James Titcomb – The Telegraph
Bitcoin has hit a new all-time high against the pound, with the virtual currency now well above the previous record levels of late 2013.
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The Bond Bear That’s Staying in the Cold
By Marcus Ashworth – Bloomberg
The great bond selloff is no match for Albert Edwards. Societe Generale’s top-rated global strategist and perennial doom monger is hanging on to his long-held view for yields to turn substantially negative. Never mind all the chatter about the end of the 35-year bull market in bonds and the Great Rotation back into stocks, and that President Trump’s spending means inflation is back for good.
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Institutions

OCC submits rule to curb U.S. banks dealing in industrial metals
Reuters
The Office of the Comptroller of the Currency (OCC) said on Wednesday it had submitted a rule to the Federal Register to prohibit U.S. national banks and federal savings associations from dealing or investing in industrial or commercial metals.
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BGC Partners Updates Its Outlook for the Fourth Quarter of 2016
BGC Partners
BGC Partners, Inc. (NASDAQ: BGCP) (“BGC Partners,” “BGC,” or the “Company”), a leading global brokerage company servicing the financial and real estate markets, today updated its outlook with respect to its consolidated financial results for the quarter ending December 31, 2016.
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Former Bundesbank president Hans Tietmeyer dies aged 85
BBC
A key architect of the euro and a former Bundesbank president, Hans Tietmeyer, has died aged 85. He was a driving force behind creating the European Central Bank and the single currency. Mr Tietmeyer ran Germany’s central bank from 1993 until his retirement in 1999.
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TD Leads Canadian Stock Sales as Energy Deals Fuel Record Year
by Doug Alexander – Bloomberg
TransCanada’s two share sales accounted for 16% of total; IPOs seen picking up after slowest year on record in 2016
Toronto-Dominion Bank took top spot for managing Canadian stock sales in 2016 as large energy deals led by pipeline operator TransCanada Corp. helped set a record for equity financings.
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Banks Must Confront Technological Competitors Large and Small
Jeremy Josse – TheStreet
The once stable world of banking faces serious competitive threats from technology companies large and small. This is happening as the very notion of what consumers expect from a bank is changing. In order to overcome these challenges, traditional banks need to undergo a period of radical change. They’ll have to adapt to a complex environment in which financial service providers have different backgrounds, strengths and operating models.
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Fintech

Cyber Hack Exposes Law Firms’ Weak Spots; Firms have made strides but still need to do more to shore up cybersecurity, experts say
By SARA RANDAZZO – WSJ
Major U.S. law firms have become more vigilant in recent years about the risks of cyberattacks, but revelations this week of a major hack on two New York firms are a reminder that the industry remains vulnerable.
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Bitcoin bounces back despite negative publicity; Even many of the currency’s backers warn that another sharp correction is likely to follow
by: Richard Waters in San Francisco
Bitcoin, the digital currency whose anonymity attracted drug dealers and tax evaders, is on a roll again. But after a renewed price spike that echoes its first speculative bubble three years ago, even many of the currency’s backers warn that another sharp correction is likely to follow.
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Regulation

CFTC Charges Brett G. Hartshorn of Sarasota, Florida with Soliciting at Least $906,000 in an Off-Exchange Foreign Currency Fraud Scheme
CFTC
The U.S. Commodity Futures Trading Commission (CFTC) filed a civil enforcement action in the U.S. District Court for the Southern District of New York, charging Brett G. Hartshorn of Sarasota, Florida, with fraudulently soliciting and/or managing at least $906,000 from retail clients to invest in off-exchange foreign currency (forex), misappropriating at least $57,414 of client funds for his own personal benefit, failing to register with the CFTC as a Commodity Trading Advisor (CTA), and failing to produce books and records to the CFTC.
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Regions

Bloomberg Venezuela Café Con Leche Inflation Index
Bloomberg
Inflation is soaring in Venezuela. Everyone knows that.
But how high is it really? 250 percent a year? 500 percent? 1,000 percent? None of the above? In the absence of official data — the government long ago stopped publishing figures on a regular basis — economists are left to dial up what are, essentially, wild guesses.
Enter the Bloomberg Cafe Con Leche Inflation Index.
bloom.bg/2iu5n9a

Egypt Haggling Back in Full Force as World Awash With Wheat
by Manisha Jha and Isis Almeida – Bloomberg
World’s largest wheat buyer seeking wheat in tender Thursday; Egypt got its biggest discount last week since tender boycotts
In a world overloaded with wheat, Egypt is bolstering its haggling power. As the largest buyer prepares to tap international markets Thursday, traders will be watching how much of a discount it can get. On Dec. 20, the country’s state-run buyer paid an average of $1.73 a metric ton less than the offers it received, the biggest discount since traders boycotted tenders in September after officials went back and forth with regulations on how much of the common ergot fungus was allowed in imports.
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Government Approves Ordinance Limiting Holding Of Old Notes
BloombergQuint
Two days before the deadline to deposit old Rs 500 and Rs 1,000 currency notes expires, the Cabinet on Wednesday approved the promulgation of an ordinance to make possession of a large number of scrapped bank notes a penal offence that will attract a monetary fine, according to a report by wire agency PTI.
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Securities Commission Malaysia: Call For Nomination: SC-OCIS Scholar In Residence Programme In Islamic Finance At The Oxford Centre For Islamic Studies For Academic Year 2017/18
MondoVisione
Securities Commission Malaysia (SC) and the Oxford Centre for Islamic Studies (OCIS) have opened nominations for the sixth Visiting Fellowship at OCIS under the Scholar in Residence (SIR) Programme in Islamic Finance, for the academic year commencing October 2017.
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Russia’s rouble outperforms major currencies; Rising oil price and hopes of warmer relations with west boost currency against dollar
by: Elaine Moore – FT
Russia is set to round off a year of rejuvenated global standing with the distinction of watching its currency stand apart from other major economies and resist US dollar strength.
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