The Logic Behind the Bonds That Eat Your Money

Jul 25, 2019

First Read

Hits & Takes
JLN Staff

Longtime CBOT member CC Odom died on Sunday. Odom was a member of the CBOT board when the company went public and continued until after it was sold to the CME. Condolences to his family and friends. Hat tip to Leonard Goldstein who shared the news of Odom’s passing on the TradeTalk chat group.~JJL

Losing people like CC Odom is one of the reasons we are conducting our Open Outcry Traders History Project. We want the experiences of the trading pits shared before this last generation of pit traders leave us.~JJL

CryptoMarketsWiki is starting its own podcast! Be on the lookout for our first episode, “Crypto 101” tomorrow, in which we discuss the origins of blockchain, the basics of how bitcoin works, and more.~MR

Here is a copy of the letter OCC sent to clearing members at the end of May regarding its capital management strategy. (Note: as it’s a mail attachment, you may receive a bitlink warning before proceeding to the linked letter.)~SD

Happy birthday to Tim Lothian, who came into this world 24 years ago butt first.~JJL


Failures are Often Opportunities + Thoughts on Digital Asset Regulation

MarketsWiki Education

It can be difficult to predict what will be the catalyst to propel someone down their eventual career path. For CMT Digital CEO Colleen Sullivan that early catalyst just so happened to be learning about ’80s junk bond czar Mike Milken. As for how that eventually led to Sullivan’s career in digital assets, you’ll just have to watch the video.

Watch the video »


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Isabelle Girolami appointed CEO, LCH Ltd
Isabelle Girolami to join LCH as CEO, LCH Ltd from 1 November, 2019; Responsible for driving continued growth, innovation and operational excellence across LCH Ltd
LCH, a leading global clearing house, today announced the appointment of Isabelle Girolami as CEO, LCH Ltd. Isabelle will join LCH on 1 November. Isabelle joins from Crédit Agricole, where she has most recently served as Deputy CEO of its Corporate and Investment Banking Business.


Bernie Madoff Asks Trump to Reduce His 150-Year Prison Sentence
Gerald Porter Jr. and Erik Larson – Bloomberg
Bernard Madoff asked President Donald Trump to shorten his 150-year prison sentence, effectively seeking to finish his life in freedom after running the biggest Ponzi scheme in U.S. history.


Wednesday’s Top Three
Our top story of the day on Wednesday was scientific, if that sort of thing is to be believed in certain political circles today. The Wall Street Journal’s story USDA Report Sees Dire Climate-Change Impact on U.S. Crops details the scientific warnings about climate change and its impact on US farming. Second was the FT piece BGC aims to boost European equity options trading with new platform. Third was Bloomberg’s How to Build Wealth, Prepare for Retirement When You’re Young


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Lead Stories

The Logic Behind the Bonds That Eat Your Money
John Ainger – Bloomberg
One of the basic assumptions of debt is that ­borrowers pay interest to lenders. That idea has been upended in the global bond market. There’s now about $13?trillion in negative-yielding bonds. Investors who hold them to maturity will end up getting less money than they paid for them, even including interest.

On Crypto Exchanges, the Trades Don’t Always Add Up; Outside the blockchain, transaction data is vulnerable to manipulation.
Olga Kharif – Bloomberg
When Bitcoin hit a 17-month high in late June, the milestone was met with some skepticism. Big jumps in a short period of time can signal that someone is trying to artificially move the market, says John Griffin, a finance professor at University of Texas at Austin. “The extreme volatility suggests that manipulation is rampant.”

Barclays eyes up to $20 billion chunk of Deutsche Bank prime finance book: sources
Barclays (BARC.L) is looking to take on a $20 billion portion of Deutsche Bank’s (DBKGn.DE) prime brokerage business, sources told Reuters, under plans to become Europe’s premier investment bank and compete more strongly with U.S. rivals.

What’s the impact of the one-year extension to the Uncleared Margin Requirements?
Jo Burnham – OpenGamma
So, the expected announcement was made and the Basel Committee and IOSCO announced a one year extension to UMR Phase V – except, of course, it isn’t as simple as that. What we now have, in effect, is a Phase Va and a Phase Vb – and even more confusion over when people are going to be caught by the rules and what they need to do about it.

Fund managers turn their focus to millennials; New funds aim to mimic millennial spending habits, while targeting them as clients
Richard Henderson – FT
When Jay Jacobs pitched the idea of an exchange traded fund focused on companies targeting millennials, older colleagues in the room groaned and rolled their eyes.

HSBC, RBC Join JPMorgan-Backed Platform Cutting Out Voice Broker
Viren Vaghela – Bloomberg
Wematch, a financial-technology startup, said HSBC Holdings Plc and Royal Bank of Canada have joined its platform for trading euro interest rate products without middlemen, bringing the number of lenders using it to 10.

Buffett Lunch Mystery Deepens as His Crypto Entrepreneur Date Apologizes
Olga Kharif – Bloomberg
Chinese entrepreneur Justin Sun cites excessive promotion; Sun’s Tron cryptocurrency has dropped about 16% this week
Chinese cryptocurrency entrepreneur Justin Sun, who cited health issues in postponing his charity lunch with Warren Buffett this week, issued a broad apology to just about everyone for touting the plan to dine with one of America’s richest people, noting it raised concerns among authorities.

Johnson Will `Turbo Charge’ No-Deal Preparations: Brexit Update
Kitty Donaldson, Tim Ross, and Alex Morales – Bloomberg
Boris Johnson stressed his “absolute commitment” to leaving the EU on Oct. 31 and said he would “turbo-charge” preparations for a no-deal divorce as he set out his priorities for government. He made the pledges in a speech to Parliament after the first meeting of his new cabinet on Thursday morning.

Exchanges, OTC and Clearing

Deutsche Boerse continues growth as planned in Q2/2019
Deutsche Boerse Group
Deutsche Boerse AG published its results for the second quarter of 2019 on Wednesday. The company generated net revenue in the amount of EUR724.8 million, an increase of around 6 per cent compared to the previous year. As part of this, Deutsche Boerse achieved structural net revenue growth of approximately 5 percent, in line with its expectations. Furthermore, higher net interest income from banking business had a slightly positive impact on cyclical net revenue, amid stable equity market volatility compared with the previous year.

World Economic Forum: Is blockchain overhyped?
The hype around blockchain has been tremendous but is now more and more settling into a test and project phase. Just the right time for the World Economic Forum to partner with Accenture Research to ask more than 500 individuals from 13 industries and to interview public and private sector leaders as well as analyzing 79 blockchain projects. In a recent article published on the WEF’s website you can find the top five findings and learn which challenges in security, speed and efficiency still remain.

Italy-based Media-Maker lists on Euronext Growth; Euronext welcomes a new Italian company to its markets.
Euronext today announces the successful completion of Media-Maker’s listing on Euronext Growth. Media-Maker is a leading company in the production and distribution of branded content and audiovisual productions. Today is the first trading day, following a EUR2.5 million private placement.

Nasdaq Announces Quarterly Dividend of $0.47 Per Share
The Board of Directors of Nasdaq, Inc. (Nasdaq:NDAQ) has declared a regular quarterly dividend of $0.47 per share on the company’s outstanding common stock. The dividend is payable on September 27, 2019 to shareholders of record at the close of business on September 13, 2019. Future declarations of quarterly dividends and the establishment of future record and payment dates are subject to approval by the Board of Directors.

Nasdaq Reports Second Quarter 2019 Results; Delivers Strong Growth in Revenues From Non-Trading Businesses
Nasdaq, Inc. (Nasdaq:NDAQ) today reported financial results for the second quarter of 2019.


FIX Trading Community Expands Its Presence Into Post-Trade Processing
FIX Trading Community, the non-profit, industry-driven standards body at the heart of global financial trading, today announced the launch of a new set of message types to further support periodic future payment management in the post-trade space.

AcadiaSoft and CloudMargin combine platforms for UMR compliance; Both vendors will combine services for a single collateral platform to help firms meet UMR requirements.
Hayley McDowell – The Trade
AcadiaSoft and CloudMargin have teamed up to combine their platforms to help clients meet requirements under the uncleared margin rules (UMR).

Tech platform SquareBook aims to entice more companies to list; UK start-up receives regulatory approval as it looks to sidestep investment banks
Richard Henderson – FT
A UK start-up is aiming to lure more companies to public markets by cutting the cost of listing their shares. SquareBook, a technology platform that aims to link listing companies directly with potential investors, will sidestep the investment banks that dominate the process.

DriveWealth Partners with Vested Finance to Launch Digital U.S. Equities Investment Product in India; DriveWealth Platform to Power Real-Time Fractional Share Capabilities for Indian Retail Investors
DriveWealth, LLC,
DriveWealth, LLC, a U.S. based leader in global digital trading technology, today announced a new partnership with Vested Finance, a U.S. registered investment adviser (RIA) serving the retail investor market in India. The DriveWealth platform is the engine for the new offering, which is launching broadly today, giving individual investors in India seamless digital access to the U.S. equity markets.


Ripple Sold $251 Million Worth of XRP in Q2, Increasing Total Nearly 50 Percent
Daniel Kuhn – Coindesk
Ripple’s second-quarter report released Wednesday came with a few surprises: a gain, a loss, and a new partner. The distributed ledger technology firm’s total sales of XRP increased by nearly 48 percent to $251 million in the quarter, outpacing the first quarter’s $169 million in sales. Direct institutional sales drove the uptick, increasing nearly 73 percent to $107.9 million from $61.9 million. Though programmatic sales still accounted for the majority of sales volumes with $144.6 million made in the second quarter up from $107 million in the first.

No Companies Have Officially Joined Libra Association Says Visa CEO
Max Boddy – Cointelegraph
Alfred F. Kelly Jr., the CEO of Visa, said that no companies have officially joined Libra. At this stage, the 20-some companies involved with the foundation have reportedly only declared interest via a nonbinding letter of intent.

Survey finds adults couldn’t care less about Facebook’s Libra ‘cryptocurrency’
Yessi Bello Perez – The New Wave
Facebook Libra’s potential to help cryptocurrency go mainstream has been touted in recent weeks, but recent survey results indicate otherwise. According to a poll conducted by CivicScience, which looked into general interest and public concerns surrounding Libra following the announcement of its launch, only five percent of 1,799 US adults surveyed expressed any level of interest in the proposed digital currency. In stark contrast, an overwhelming 86 percent said they were ‘not at all interested,’ while 10 percent seemed unsure.

Cryptocurrency loan site YouHodler exposed unencrypted user credit cards and transactions
Zack Whittaker – TechCrunch
A cryptocurrency loan startup exposed reams of customer credit cards and user transactions for almost a month — because it forgot to protect the server with a password. Security researchers Noam Rotem and Ran Locar found the database belonging to YouHodler, a lending platform designed for cryptocurrency, which claims to have processed $10 million in loans to more than 3,500 customers. The researchers shared their findings exclusively with TechCrunch, and to verify the authenticity of the data. The researchers also wrote up their findings.

US Senate to Hold Debate on Crypto, Blockchain Regulatory Frameworks
Marie Huillet – Cointelegraph
The United States Senate Banking Committee is set to hold a broader debate on crypto and blockchain regulatory frameworks next week. An official committee announcement indicates the hearing – entitled “Examining Regulatory Frameworks for Digital Currencies and Blockchain” – will take place on July 30.

Prominent Nigerian Politician Calls for Legal Framework for Cryptocurrencies
Aaron Wood – Cointelegraph
Femi Gbajabiamila, the speaker of the Nigerian House of Representatives, has called for a substantive legal framework for cryptocurrencies in the country. According to a report by Nigerian news daily Daily Post on July 23, Gbajabiamila wants the country to develop clear regulations for digital assets so that the country does not get left behind as cryptocurrencies become more widely adopted.

Panel’s cryptic stance foxes crypto investors
Ashwin Manikandan – Economic Times India
Mumbai: Indian cryptocurrency investors face the unsavoury prospect of seeing their crypto wealth erode to zero as the Subhash Garg committee report which has recommended the government to make the possession of cryptocurrency a criminal offence punishable by up to ten years has not given any clarity on how the divestment by the customers should be done.


Everyone Claims They’re Worried About Global Finance. But Only One Side Has a Plan; By “democratizing finance,” the left is pushing reforms that will allow workers to get their fair share of wealth.
Quinn Slobodian and Alexander Kentikelenis – NY Times
Global finance has become a popular target from both the left and, more recently, the right, particularly the nationalist right. As Senator Josh Hawley, Republican of Missouri, said at the recent National Conservatism Conference, what he called the “the cosmopolitan economy” has encouraged multinational corporations to move jobs and profits overseas and then “rewarded these same corporations” for “investing their profits not in American workers, not in American development, but in financial instruments that benefit the cosmopolitan elite.”

The day Trump impeachment died; The Mueller report has been buried by Pelosi, the former special counsel and the president
Edward Luce – FT
Nancy Pelosi, the Democratic House speaker, buried hopes of impeaching Donald Trump months ago. On Wednesday, Robert Mueller, the former special counsel, made sure the corpse would not come back to life. In a singularly parsimonious testimony, Mr Mueller repeatedly declined to render in plain language the substance of his 448-page report. His most common phrases were, “That’s outside my purview,” “I refer you to the report,” and “Could you repeat the question?”

Climate Change Turns Up Global Political Heat
Alan Crawford – Bloomberg
Much of Europe is bracing for the hottest day of the year, with record temperatures forecast for Germany, France and the U.K.


Football added to EU money-laundering risk list
Freeports among concerns as Brussels admits weaknesses in fight against illegal flows
Jim Brunsden – FT
Professional football has been added to the EU’s watchlist of money-laundering risks, as the bloc admitted it faced a “structural problem” in its fight against illegal financial flows.

ASIC sues ANZ for misrepresentations and unconscionable conduct over account fees
ASIC confirms that it has now commenced proceedings in the Federal Court against Australia and New Zealand Banking Group Limited (ANZ). In these proceedings, ASIC will allege ANZ was not entitled to charge certain periodic payment fees under the Bank’s contracts with its customers.

July 2019 Board Update
FINRA CEO Robert Cook, Chairman Bill Heyman, Board members and FINRA staff provide updates from the July 2019 FINRA Board of Governors meeting.

Facebook to Pay $100 Million for Misleading Investors About the Risks It Faced From Misuse of User Data
The Securities and Exchange Commission today announced charges against Facebook Inc. for making misleading disclosures regarding the risk of misuse of Facebook user data. For more than two years, Facebook’s public disclosures presented the risk of misuse of user data as merely hypothetical when Facebook knew that a third-party developer had actually misused Facebook user data. Public companies must identify and consider the material risks to their business and have procedures designed to make disclosures that are accurate in all material respects, including not continuing to describe a risk as hypothetical when it has in fact happened.

FCA warns of Fidelity clone
Rachel Addison – FT Adviser
The Financial Conduct Authority has warned fraudsters are using a clone firm under Fidelity’s name to target victims in the UK.

Investing and Trading

Thanks to our trillion dollar deficit, inflation will hit us hard
John Crudele – NY Post
The White House reported last week that the 2019 budget deficit will top $1 trillion. Remember when people used to care. Well, someday inflation will hit with a vengeance and they will care again.

Cargill pledges to cut methane emissions from its beef business ; Agribusiness joins effort to curb environmental impact of belching cows and other practices
Gregory Meyer – FT
Cargill plans to cut greenhouse gas emissions from its beef business by almost a third in the next decade as pressure builds on meat companies to address their climate impact.

Could cash end up inside a museum?; Bank of England marks its 325th anniversary with exhibition of objects reflecting changing world of payments
Claer Barrett – FT
For millions of people in the UK, cash is already ancient history. Londoners in particular have embraced contactless payments, and can happily tap their way around the city by paying on plastic or, increasingly, with the wave of a smartphone.

Central Bankers Are Playing a Dangerous Game With Asset Prices
Enda Curran and Rich Miller – Bloomberg
Benchmark interest rates have been lowered around the world; Policy makers need to balance slowing growth and systemic risk
The world’s central banks are in danger of storing up problems for later by taking action to ensure the economic expansion stays on track.


JO Hambro appoints UK, Europe and Asia CEO after 11-month search; Alexandra Altinger will take on leadership of the fund manager’s UK, Europe and Asia operations following departure of Ken Lambden in August last year.
Madeline Sherratt – the Trade
UK-based fund manager JO Hambro Capital Management has appointed Alexandra Altinger as its chief executive of UK, Europe and Asia.

Wells Fargo parts ways with shady broker who allegedly bilked family out of millions
Kevin Dugan – NY Post
Wells Fargo has parted ways with a shady Staten Island stockbroker who, The Post reported earlier this year, had allegedly bilked a New Jersey widow and mother of three out of her life savings.

BlackRock HR chief to leave after he ‘failed to adhere’ to policy; Larry Fink tells employees that they must ‘uphold the highest standards of conduct’
Richard Henderson – FT
BlackRock’s head of human resources has left the fund manager after he “failed to adhere to company policy”, the company announced on Wednesday.

Hedge fund Caxton moves headquarters from New York to London; Shift to UK reflects hiring increase amid benefits of weaker sterling
Laurence Fletcher – FT
Caxton Associates, one of the world’s oldest and most influential hedge funds, has told investors that its headquarters is now in London rather than New York, in a symbolic boost to the UK’s financial services industry as Brexit looms.


New Turkey Central Banker Pivots With Biggest Rate Cut on Record
Cagan Koc – Bloomberg
Central bank lowers key rate to 19.75%, more than forecast; Erdogan has demanded lower rates as economy sputters
Turkey’s new central bank governor surprised markets by delivering the biggest interest-rate cut since a shift to inflation targeting in 2002, putting his credibility with investors on the line by seeking to satisfy President Recep Tayyip Erdogan’s desire for lower borrowing costs.

German Business Outlook Tumbles as Manufacturing Slump Deepens
Kristie Pladson – Bloomberg
German companies’ business outlook tumbled to the lowest in a decade, adding to signs that Europe’s largest economy is getting dangerously close to a recession.

French Stocks Set For 12-Year High as LVMH Surges to New Record
Justina Lee – Bloomberg
Stellar earnings put French stocks on track to close at the highest level since 2007, capping a decade of outperformance over the euro zone.


UK watchdog extends financial sector’s no-deal Brexit reprieve; FCA gives companies extra six months to comply with new rules in case of crash out
Caroline Binham – FT
The UK’s markets regulator has extended by six months a grace period intended to allow the financial sector to comply with rules that would come into force in the event of a no-deal Brexit in 98 days’ time.

Jacob Rees-Mogg quits investment group role after cabinet appointment; New leader of the Commons resigns from post at emerging markets boutique he co-founded
Owen Walker – FT
Jacob Rees-Mogg is stepping down from the day-to-day running of his investment company after joining the cabinet under new UK prime minister Boris Johnson.

Brexit uncertainty blamed for fall in commercial property investment; Amount spent on deals drops to £9.1bn in second quarter
Oliver Ralph – FT
Investment in UK commercial property slumped by a third in the second quarter of the year as buyers held back because of Brexit uncertainty.

MSCI: ‘Still room for further losses’ under hard Brexit
MSCI: ‘Still room for further losses’ under hard Brexit
Despite the devaluation of sterling and underperformance of UK equities already witnessed as a consequence of Brexit, there is “still room for further losses” under a no-deal scenario – particularly for UK assets – according to MSCI research.

Rising high, Sajid Javid named UK finance minister to guide Brexit economy
Elizabeth Piper, Andrew MacAskill – Reuters
Sajid Javid became Britain’s first ethnic minority finance minister on Wednesday, capping off an unlikely rise from a humble start on a street dubbed the country’s worst to holding the purse strings for the world’s fifth-biggest economy.


Jeffrey Epstein found nearly unconscious in NYC jail cell after possible suicide attempt
Larry Celona and Kenneth Garger – NY Post
Convicted pedophile Jeffrey Epstein was found in his cell on Tuesday nearly unconscious with injuries to his neck after a possible suicide attempt, sources said.

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