| | | | | | | | March 31, 2016 | | | | | First Impressions | | | Squeezing Pennies: Clearing Houses Reach For Compression, Margin Relief and Netting
By Sarah Rudolph and Jim Kharouf, JLN
When it comes to clearing and settlement today, the name of the game is capital efficiency.
With a host of regulations hitting the market, particularly with bank capital requirements under Basel III, exchanges and clearing houses are moving quickly to find ways for banks and clearing FCMs to lower the amount of cash they need to hold onto in the name of lower systemic risk.
It is an interesting time to be in the clearing space, as clearing firms offer a number of new services and some oldies aimed at clearing FCMs. Portfolio margining, which has been done more or less in a fragmented way by individual clearing houses in recent years but with limited success, may be finally finding an audience in today's market environment. Clearing houses such as CME Clearing, LCH.Clearnet, Eurex Clearing, ICE Clear, OCC and others have all offered some form of portfolio margining services in recent months or years. LCH.Clearnet is attempting to push that concept further with its so-called "open access" on clearing, which essentially allows customers to choose where they would like to clear transactions with the markets it services. A London Stock Exchange-Deutsche Boerse merger could help, or depending on the German approach, alter the concept.
Sunil Cutinho, the president of CME Clearing, said the top priority for clearing house customers is finding that capital relief.
To read the rest of the story, click here
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2016 Exchange CEO Series: LSE's David Weisbrod Talks Clearing And Openness
JohnLothianNews.com
Weisbrod, who serves a dual role as US country head of the USA for LSEG and CEO of LCH.Clearnet US, has been focused on providing more access to customers to the London market and its clearing facility.
"We're a big believer in open access, which enables market participants to use whichever clearing house they want or whichever exchange they want as it meets their own needs," Weisbrod told John Lothian News at the FIA Boca Conference. "We don't have a vertical silo which binds the participants to use the clearing house, the exchange, or vice versa."
Watch the video »
| | | | | | Quote of the day: | | | | | | “ | "There is no counterfeit bill that I know of that will pass the scrutiny of the equipment used by banks worldwide. So in my opinion, it is not a threat to our banking system in that way. But the dollar stands for the integrity of the U.S. and people everywhere depend on that."
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| ” | Don Brewer, who spent 26 years with the U.S. Secret Service and became head of the agency's anti-counterfeiting division, in the story, "'Counterfeiting is an art': Peruvian gang of master fabricators churns out $100 bills"
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| | | | Lead Stories | | |
Just How Bad Will Wall Street's Trading Be This Year?
John Carney - WSJ
Many traders would prefer to forget the first quarter. Choppy markets, falling oil prices, a flattening yield curve and China worries in the first two months of the year made for a particularly tough quarter for traders. Weak trading revenue pushed Jeffries Group into a quarterly loss for the three months ended Feb. 28, the first for the December through February period for the firm since the bad old days of 2008. While things improved somewhat in March, the outlook is still grim. In early March, Citigroup Inc. finance chief John Gerspach warned trading revenues could be down 15%. Credit Suisse analyst Susan Roth Katzke projects first-quarter trading revenue at the big banks to fall 26% compared with a year ago.
goo.gl/3Xo3Ll
Basel Risk Model May Put a Lid on Lending, Japanese Banker Says
Atsuko Fukase - WSJ
The head of Japan's most prominent banking association says global regulators' proposal for a tougher, uniform method of assessing risk could limit banks' lending capacity, hindering the efforts of governments and central banks to spur growth. Last week, the Basel Committee on Banking Supervision proposed a plan to prohibit lenders from using internal models to calculate credit risk toward financial firms, equities and large corporations. The plan calls for banks to adopt a standardized method set by the committee. Other areas in which banks would still be allowed to use internal methods to calculate risk, such as on residential mortgages, would also require higher levels of capital.
goo.gl/ucwhqZ
Long-dated government bonds star amid market upturn
Robin Wigglesworth - Financial Times
Stock markets have staged an impressive comeback this quarter, clawing back their severe losses from January and February but the real stars of financial markets this year have been long-dated government debt. While the March rebound has helped the FTSE All World index recover almost all of its early-year losses, longer maturity government bonds have been on a tear since the start of the year, propelled by subdued inflation, negative interest rates and low yields on shorter-dated debt.
goo.gl/7j3UUz
****SD: Unless it's that 100-year Irish bond from this week.
Big Bond Investors Say Liquidity Has Declined in Past Year
Ben Eisen - WSJ
Bond market liquidity isn't getting any better. Three-quarters of institutional bond investors say that liquidity provided by bond dealers has declined in the past year, according to research by Greenwich Associates released Thursday. The survey of 51 money managers shows that 61% view the drop-off as a risk to their firms.
goo.gl/UGYj55
The Illiquidity Illusion
PIMCO Blog
Financial markets have gone through seismic changes since the global financial crisis, including the passage and continued implementation of both Dodd-Frank and European Market Infrastructure Regulation. These new regulations, geared to increase financial stability and reduce systemic risk, have led to bank consolidation, lower leverage ratios and less use of derivatives and related financing.
goo.gl/JWUP0S
****SD: This and the above story are a yin/yang type thing.
Welcome to Iceland, Where Bad Bankers Go to Prison
Bloomberg
Kviabryggja Prison in western Iceland doesn't need walls, razor wire, or guard towers to keep the convicts inside. Alone on a wind-swept cape, the old farmhouse is bound by the frigid North Atlantic on one side and fields of snow-covered lava rock on another. To the east looms Snaefellsjokull, a dormant volcano blanketed by a glacier. There's only one road back to civilization. This is where the world's only bank chiefs imprisoned in connection with the 2008 financial crisis are serving their sentences, Bloomberg Markets magazine reports in its forthcoming issue.
bloom.bg/1UEAgaW
****SD: Not so bad if you love a scenic tundra view.
Look, No Fees! Banks Do Bonds for Free to Win Emerging Deals
Lyubov Pronina and Rajesh Kumar Singh - Bloomberg
When Indian state-owned power company NTPC Ltd. sold $500 million of Eurobonds in February, a deal that could have incurred banking fees of more than $1 million cost a couple of cents. NTPC executives even sent the bill for meeting investors in London and Singapore to Citigroup Inc. and the four other underwriting banks, according to a person with knowledge of the transaction.
bloom.bg/1ooX5kj
Bear Stearns and the Bodyguard of Lies
Southern Investigative Reporting Foundation
More than seven years after Bear Stearns' collapse, its former senior leadership has pushed a narrative centering on the once-proud firm's collapse having been unforeseeable. In the telling, the metastasizing subprime crisis suddenly slipped free from fixed-income portfolios, and the only response the globe's biggest financial institutions could muster was to cease lending, birthing a maelstrom wholly apart from any other market cycle. Cut off from vital short-term credit markets, and buffeted on all sides by self-serving rumor and the raw panic of their counter-parties and clients, Bear Stearns was forced into a fire sale.
goo.gl/kzpv6V
China considers CDS market as defaults rise-sources
Reuters
China has circulated plans to introduce credit-default swaps (CDS) and other derivatives so investors can hedge risk in its $7.5 trillion bond market, sources said, a sign regulators want to allow more defaults without destabilising the market.
reut.rs/1ooZjAi
Danger to risk appetite is weak job data
Jamie Chisholm - Financial Times
The new quarter starts with a bang as investors face on Friday not just the US non-farm payrolls report but a swath of national manufacturing surveys. According to Reuters, analysts expect a net 205,000 jobs were created in the States during March.
goo.gl/ikrgYL
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| | | | John Lothian News (JLN) is the news division of John J. Lothian & Company, Inc. (JJLCO). The online media and financial services firm is staffed by derivatives industry, journalism and technology professionals. | | | | | | | John Lothian News Editorial Staff: | | | John Lothian
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Editor
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Editor
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| Central Banks | Do You Believe In Central Bank Magic?
Russ Koesterich - Financial Advisor Magazine
As a mental exercise, try reconciling the following sets of facts: Since the February lows, global equities have rallied nearly 15 percent, emerging market stocks by 20 percent, WTI crude by approximately 35 percent and equity market volatility has fallen by over 50 percent. But during that same period, emerging market economic data has consistently disappointed, earnings have remained challenged and one of the best measures of U.S. growth is stuck in negative territory.
goo.gl/Gq2wSj
Fed Monetary Policy: Are Negative Interest Rates a Possibility?
The Ticker Tape
Can you say job stress and pressure? When Janet Yellen took the reins of the nation's central bank from former Chair Ben Bernanke, she inherited a monetary policy that will go down in the history books. We're talking a historically low, near-zero interest rate policy that had been around since the Great Recession began in 2008; a massive, never-before-seen $4.5 trillion balance sheet (compared to a pre-crisis figure of $800 billion in 2008); and an economy that churned out positive but stubbornly sluggish growth and inflation numbers.
bit.ly/235RrmS
The inflation enigma needs unorthodox answers
Gillian Tett - Financial Times
This week Janet Yellen experienced a classic New York ritual: she addressed the Economic Club of New York about monetary policy, speaking with a sense of solemn tradition. An audience of economists and investors hung on her every word about growth and interest rates, and concluded that the signals from the US Federal Reserve were growing more dovish about future rate rises. The most thought-provoking part of the speech, however, was when the Fed chair admitted to being "baffled" by current inflation expectations.
goo.gl/Nu76od
Goldman Still Sees Three Rate Hikes This Year
Min Zeng - WSJ
Goldman Sachs Group is sticking to its view that Fed officials will raise rates three times this year. It's in line with its earlier call, but the forecast comes after Federal Reserve Chair Janet Yellen sounded a cautious tone in remarks this week, which sent investors into risk-on mode as they dialed back their interest-rate expectations.
on.wsj.com/1pOyMgI
****SD: Goldman is joining basically no one in this prediction.
China central bank discloses derivatives holdings positions for first time
Reuters
The People's Bank of China (PBOC) reported data on its derivatives holdings positions in forwards and futures in foreign currencies versus the yuan for the first time on Thursday. The move should help address appeals from investors and the International Monetary Fund (IMF) that the central bank cast more light on its derivatives holdings, given allegations that it has been using currency swaps and other derivatives to intervene in offshore forex markets to support its currency.
goo.gl/cwIubq
Modelling banking sector shocks and unconventional policy: new wine in old bottles?
Bank Underground
The financial crisis has thrown up a huge number of empirical challenges for academic and professional economists. The search is on for a framework with a rich enough variety of financial and real variables to examine both the financial shocks that caused the Great Recession and the unconventional policies, such as Quantitative Easing (QE), that were designed to combat it. In a new paper we show how using an older structural econometric modelling approach can be used to provide insights into these questions in ways other models currently cannot. So what are the advantages of going back to an older tradition of modelling?
goo.gl/u24xaW
Bank of Japan's Kuroda says no limit to monetary easing
MarketWatch
Bank of Japan Governor Haruhiko Kuroda said Thursday his aggressive easing policy has no "quantitative limit," rejecting views that the central bank will run out of ammunition.
on.mktw.net/235P0AT
Swaps Show Whoever's Next Turkish Central Banker Will Cut Rates
Constantine Courcoulas - Bloomberg
Forget the Turkish government's pronouncements on the need for lower borrowing costs. The central bank will probably keep cutting them anyway, according to the swaps market.
bloom.bg/1ooXPG0
| | | | Currencies | Bucking the trend
The Economist
At the beginning of the year the dollar was on a tear. In trade-weighted terms, it had risen by almost 20% since the start of July 2014. With the Federal Reserve tightening interest rates for the first time since 2006, the greenback seemed destined to head higher. In fact, doubts were already emerging. In mid-December fund managers polled by Bank of America Merrill Lynch thought that being bullish about the dollar was the most overcrowded trade in the financial markets and that the currency was overvalued.
goo.gl/v4xBGI
Yellen hangover: The strong dollar rally is dying
CNN
The strong dollar's rally could be on its final breath after a remarkable run last year. The value of the dollar has fallen this this year against the euro, Russian ruble, Brazilian real and even the Mexican peso. "We have a view that the dollar has likely already peaked," says Paul Eitelman, investment strategist at Russell Investments.
cnnmon.ie/1pOz9Ih
Craig Wright's upcoming big reveal
Izabella Kaminska - Financial Times
Bitcoinland is abuzz with speculation Craig Steven Wright will out himself as Satoshi Nakamoto, the cryptocurrency's pseudonymous creator, within the next two weeks and that he is looking for backing in his verification from some of the industry's biggest players.
goo.gl/cwCg3u
'Counterfeiting is an art': Peruvian gang of master fabricators churns out $100 bills
The Guardian
Joel Quispe sells his art for pennies on the dollar. Each masterpiece is roughly three feet long and two feet wide. Every print requires various types of ink and is meticulously designed and beautifully drawn. It is estimated that he has sold millions of dollars worth of his creations over the past five years - all while locked in a Peruvian prison while his family on the outside runs the show. Quispe is a perfectionist who uses bonded paper, watermarks and gloriously intricate typography. He has proven a master at mass marketing, producing thousands of copies. He is also a criminal mastermind who distributes sheet after sheet of his specialty: fake US $100 bills. Quispe is a master counterfeiter.
goo.gl/m9GqIw
Clock Ticks on U.S. Case Against Currency Traders
Bloomberg
The word came down in late 2014 from the head of the Justice Department: The U.S. wouldn't stop at extracting billion-dollar settlements from banks accused of rigging markets. Within months, the nation's top cop said, individual wrongdoers at big banks could also expect to be brought to justice.
bloom.bg/1ooYU0O
Euro floats to five-month high against dollar
Financial Times
Deeply sub-zero deposit rates and a super-charged stimulus programme from the European Central Bank are not working their usual magic on the euro, which has swept up to a five-month high against the dollar at $1.1383, marking a rise of some 5.2 per cent since the day the ECB last opened up its bag of tricks.
goo.gl/NBdvMF
EM vs US Dollar is the biggest story of the spring
The Reformed Broker
In the middle of February, I said "Tell me when the dollar rally ends, I'll tell you when EM starts working again." I showed the below chart, in which you can see emerging markets underperformance vs the S&P 500 in the top pane, with the US dollar index in the bottom - a perfect inverse correlation
goo.gl/Z6XbT6
| | | | Indexes & Index Products | BlackRock's Golden Goose May Be Killing Jobs
Lisa Abramowicz - Bloomberg
BlackRock has been tremendously successful with its empire of exchange-traded funds. That may be great news for its business, but perhaps not so much for its workforce. Without a doubt, ETFs are going to play a huge role in the future of asset management, and any firm that has a leg up in this arena will probably accumulate a greater share of assets. BlackRock, which is credited with the first fixed-income ETF, has clearly been a leader in this realm, with almost $1.1 trillion under management in its iShares business, up from $914.4 billion in 2013. ETFs were BlackRock's top asset gatherer globally last year, according to the firm's annual financial statement filed last month.
bloom.bg/1ooX3sT
Best March For Commodities In 10 Years
Indexology: S&P Dow Jones Indices
In the first half of March, the S&P GSCI Total Return had added 9.6% and staged its biggest comeback ever, gaining 18.8% from its bottom on Jan. 20, 2016. Unfortunately, the index gave up 4.3% since March 17, 2016, losing about half its March gain. Despite the loss, the index posted its first positive monthly gain of 4.9% (data ending Mar. 30, 2016) since Oct. 2015. March's commodity return is historically big and is the biggest March since March 2006, when the index gained 5.1%.
goo.gl/589TK5
S&P 500 Just Did Something It Hasn't Done Since the Depression
Ben Eisen - WSJ
The S&P 500 Index finished the quarter up nearly 1% after falling as much as 10.5% at one point in February. That makes it the first quarter since the Great Depression where the benchmark fell more than 10% and then rebounded to end higher, according to LPL Financial.
on.wsj.com/1pOyCpC
MSCI restarts talks on including China A shares in EM index
Reuters
Index provider MSCI said on Thursday it would resume discussions with traders, funds and other financial market participants on including domestic China "A" shares in its benchmark emerging markets index.
goo.gl/8OmH6F
New China ETF in Europe to Focus on Onshore-Offshore Price Gap
Bloomberg
The provider of the largest U.S.-listed exchange-traded fund investing in China's mainland shares is starting an ETF in Europe that intends to profit from the price difference between stocks that sell both onshore and in Hong Kong. The Deutsche Asset Management fund launched Wednesday tracks the FTSE China A-H 50 Index, which is comprised of the 50 largest Chinese companies that trade on both the mainland and in Hong Kong but only includes those that sell for the lowest price. On average, the so-called A-shares of dual-listed companies are trading at a 34 percent premium to their counterparts in the former British colony, data compiled by Bloomberg show.
bloom.bg/21UsDf4
S&P Dow Jones Indices Market Attributes: Index Dashboard Europe
Press Release
S&P Dow Jones Indices Market Attributes
goo.gl/3wwzWg
World's largest asset manager launches funds in SA
Moneyweb
With offshore investing currently a major theme in South Africa, the availability of international products has become a key interest for local investors and financial advisers. The news that BlackRock has received approval from the FSB to make a range of exchange-traded funds (ETFs) and index-tracking mutual funds available in the country is therefore significant.
goo.gl/NE5KU9
| | | | Gold | Even Bulls Get Stampeded by Gold's Best Quarter in Three Decades
Eddie Van Der Walt - Bloomberg
Gold's been on such a tear, even the bulls got left behind. "Absolutely no one saw this coming," said Ross Norman, chief executive officer of bullion dealer Sharps Pixley, who began his gold career at refiner Johnson Matthey Plc more than 30 years ago. "Forecasts made at the start of the year were out of date within weeks."
bloom.bg/1ooXxir
Gold demand from central banks marches higher in turbulent 2015
Financial Times
Heightened geopolitical tension and a push for diversification in reserve assets led to central banks' net purchases of gold reaching 483 tonnes in 2015, the second highest annual total since the end of the gold standard. Russia was the top buyer of gold for the fourth consecutive year, raising its ownership by 206 tonnes as it looks to diversify away from the US dollar due to tensions with the West, according to the latest report from Thomson Reuters GFMS, the gold consultancy.
goo.gl/A4tsgP
Gold scores biggest quarterly gain in nearly 30 years
MarketWatch
Gold futures settled higher Thursday, scoring their best quarterly performance since 1986Âa year when "Top Gun" was the most popular movie. Bullion has benefited as the Federal Reserve's dovish stance on policy has softened the highflying U.S. dollar.
on.mktw.net/1pOyfLV
Negative rates could 'structurally increase' gold demand
MarketWatch
Gold futures are set to end March with a big quarterly gain, but the precious metal may soon find added support via a spike in demand from investors and central banks alike, according to an industry organization.
on.mktw.net/1pOyiXW
| | | | Miscellaneous | In Landmark Ruling, Judge Says Mortgage Bankers Have Right To Engage In "Profanity-Laced" Rants About Clients In The Bathroom
Dealbreaker
Having a rough day at the office and need to blow off a little steam vis-Ã -vis all the clients you wish would use their brains before calling you to talk about problems that, frankly, you don't give a damn about? Ask a colleague to meet you in the nearest restroom for a little sounding off and it's all good.
goo.gl/C47okb
****SD: The bathroom must be sacred.
You don't know who the world's largest fintech startup is
Quartz
The world's largest fintech startup is AliPay, the digital bank company that split from e-commerce giant Alibaba in 2011. A new research note on the fintech industry from Citi pointed out two things: 1) AliPay has a valuation on par with some of the larger private tech companies, like Uber and Airbnb; 2) AliPay is still technically a private company.
goo.gl/iB2UQZ
Goldman Sachs, OppenheimerFunds, Nuveen buy CPS bonds
Crain's Chicago Business
Chicago's public schools are poised to shut down tomorrow as the teachers' union stages a one-day strike, the latest sign of escalating financial pressure on a junk-rated district that's veering toward insolvency. The distress hasn't deterred Nuveen Asset Management, Goldman Sachs Asset Management and OppenheimerFunds. According to data compiled by Bloomberg, the three were some of the biggest buyers of the $725 million of bonds the school system sold last month, when it was forced to pay yields as high as 8.5 percentÂthree times more than benchmark debt, even though it doesn't have the power to go bankrupt.
goo.gl/bK4Ozz
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