 | | | | | | | | April 01, 2016 | | | | | First Impressions | | | One Step Ahead: Can Silicon Valley Help, Compliance?
By Jim Kharouf, JLN
If you are chief compliance officer at a firm - brokerage or fund - what if you could tell if the customer or one of your traders was about to do something bad, wrong or illegal? The operative words are "about to."
Chicago-based start-up Neurensic says its can do this now using artificial intelligence technology to identify behaviors that could threaten a firm's well-being and prevent that firm, bank or broker from incurring regulatory actions that trigger hefty fines. Last fiscal year, the Commodity Futures Trading Commission reported a record $3.14 billion in civil monetary penalties with a focus on spoofing, market manipulation and supervision lapses. It fined Deutsche Bank $800 million last year, its largest penalty ever, for LIBOR manipulation.
Listening to Neurensic CEO David Widerhorn talk about how artificial intelligence and machine learning can take all the data a firm produces, identify behaviors of users of those systems and then notify compliance officers that one of those traders is likely to do something stupid, wrong or criminal, you get the feeling that this is the way this industry is going. Some would say, it needs to go here.
Read the rest 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: | | | | | | “ | "Cryan's doing all he can, but what he needs is a market in which he can execute. The most levered banks, which include Deutsche, will struggle in this environment."
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| ” | James Chappell, European banking analyst with Berenberg, a German bank, in the story, "Deutsche Bank's CEO Struggles With Overhaul"
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Basel Said to Weigh Change That Could Ease Derivatives Capital
Bloomberg
Global regulators are moving toward a new way of calculating leverage ratios that could ease capital requirements for some banks, especially in the U.S. The Basel Committee on Banking Supervision, which brings together regulators from 27 countries, will probably replace its current method of calculating derivatives exposure with a new one that allows more netting, according to two people familiar with the group's discussions. That could result in a lower amount of assets and a higher leverage ratio, a measurement of a bank's financial health that looks at Tier 1 capital as a percentage of total assets.
goo.gl/nq8R8k
Bankers May Have Been Underpricing Corporate Bonds by as Much as $18 Billion
Bloomberg
The process of pricing and selling new corporate bonds has often been described as more art than science. But a new paper from London-based research firm Fideres Partners LLP suggests it may just be inaccurate. "Corporate bonds' price in the days after their issuance may hint to a systemic underpricing by major dealers," Fideres, which has previously researched the rigging of the Libor benchmark interest rate, wrote in new research published this week.
goo.gl/YdBtqD
****SD: Bloomberg's Matt Levine has a story today, It Costs Money to Sell a Lot of Bonds, that talks about widgets and John Lefevre (of @GSElevator fame). So, if you want amusement from your bond stories, go with Matt.
Deutsche Bank's CEO Struggles With Overhaul; Pressured by regulators and jittery investors, European lending giant tries to slash costs
Jenny Strasburg and Madeleine Nissen - WSJ
On his first day as co-chief executive of Deutsche Bank AG, John Cryan sent a letter to employees outlining what he said were the "tough challenges" the company was facing. "I am not going to tell you that all will be sweetness and light in the coming months," he wrote. "There will be ups and downs."
goo.gl/KV6QHp
Nasdaq readies 'Ocean' dark pool for banks and brokerages
Reuterrs
Nasdaq Inc is in negotiations with several brokers to host and run their private stock trading venues, or dark pools, within its data center, two of the exchange operator's executives said on Thursday. There are nearly 40 of the broker-run alternative trading systems (ATS) in the United States that compete with 12 public exchanges, including Nasdaq and Intercontinental Exchange Inc's New York Stock Exchange.
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****SD: Ocean. I get it.
The Usual
The Reformed Broker
The US economy added another 215,000 in the month of March, many of which were in the construction, retail and health care industries. This is a beat of 10k jobs versus the consensus estimate. Unemployment rate ticks up slightly to 5%. Participation in the labor force just hit a two-year high. Most importantly, wages rise at a respectable 2.3% year-over-year pace. The usual slow but steady improvement when you average the last three months' worth of reports.
goo.gl/yLNVS1
****SD: This story, The Cities on the Sunny Side of the American Economy, adds some color to the larger jobs storyline.
Market recalibrates asset return expectations in line with lower growth reality
FTSE Global Markets
The pendulum of investor sentiment has swung from overstated recession scare in January to more tempered acceptance of the reality that returns will be constrained by slower growth. Yet even if market turmoil has made rather too much of the economic risks we face, it has served to highlight that nominal growth is simply too low and valuations are too high to expect significant upside in most asset classes. John Bilton, global head of multi-asset strategy, JP Morgan Asset Management explains the firm's decision to make two significant shifts in its asset allocation; downgrading its relative preference for stocks over bonds to neutral and increasing its overweight to credit.
goo.gl/xmu6Jp
California sues Morgan Stanley over mortgage losses
Reuters
The state of California sued Morgan Stanley on Friday, accusing the bank of hiding the risks of complex mortgage debt and other securities it sold, causing big losses for the state's public pension funds, CalPERS and CalSTRS.
goo.gl/XOw2GO
HSBC comes up short in money laundering vigilance, U.S. says
Reuters
HSBC Holdings Plc has not done enough to thwart money laundering, despite making significant progress since reaching a landmark 2012 anti-money-laundering settlement with U.S. prosecutors, a federal monitor has found. The monitor "remains unable to certify that the bank's compliance program is reasonably designed and implemented to detect and prevent violations of AML and sanctions laws," U.S. Attorney Robert Capers in Brooklyn, New York said in a letter filed on Friday with the federal court there.
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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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| Central Banks | Investors to sift for clues in Fed tug-of-war
Reuters
After enduring several weeks of conflicting comments by Federal Reserve officials that whip-lashed the U.S. stock market, befuddled investors could get a dose of clarity next week on where the Fed stands on its path toward rate hikes. Minutes of the Fed's March meeting will be released on Wednesday, giving investors a chance to comb through the summary for tips on when rate increases will hit.
goo.gl/tQ3Vtw
SNB banker: Swiss economy helped by negative rates
MarketWatch
The Swiss National Bank's negative interest rate policy has helped prevent the Swiss franc from appreciating further and damaging Switzerland's economy, SNB governing board member Andréa Maechler said Thursday. "The negative interest on sight deposits held at the SNB is an important monetary policy measure, without which the Swiss franc would be even stronger, with correspondingly negative consequences for economic growth and inflation in Switzerland," Ms. Maechler said in remarks to a conference in Zurich.
goo.gl/mu3v6i
New Board Member Says BOJ Shouldn't Bolster Stimulus Too Often
Bloomberg
The Bank of Japan's newest board member, Makoto Sakurai, said policy makers should avoid making frequent small changes to monetary stimulus and instead should make sizable moves when action is needed. "Monetary policy shouldn't be implemented too often," Sakurai said in his inaugural media briefing in Tokyo as his five-year term began Friday. "Rather, when taking an action it should be something sizable because, of course, it has to have impact."
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Surprise: A Single Indicator Explains the Federal Reserve's Reaction Function
Bloomberg
The Federal Reserve's decision to hike interest rates in December but abstain from further policy tightening in March has raised questions about the central bank's reaction functionÂthat is, what prompts members of the Federal Open Market Committee to change their policy rate. After all, both employment and inflation figures were running ahead of monetary policymakers' estimates at the time, yet not only did the Fed keep rates unchanged, but the median monetary policymaker also cut in half the estimate for how many rate hikes would be appropriate this year.
goo.gl/I7AIIG
Fed caution due to fears of Japan-style malaise, Evans says
Greg Robb - MarketWatch
The Federal Reserve is being cautious about further interest rate hikes because inflation remains low and any stumble could put the economy in a Japan-like malaise, said Chicago Fed President Charles Evans on Thursday.
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Fed's Mester: More rate hikes appropriate
CNBC
Getty Images Cleveland Federal Reserve President Loretta Mester A strengthening economy will allow for more tightening of monetary policy as the year goes on, Cleveland Fed President Loretta Mester said Friday. Even as other prominent Fed officials, including Chair Janet Yellen, recently have issued more cautionary tones, Mester said during a speech in New York that the economy is growing enough for the central bank to continue down the path of normalization.
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The Australian Central Bank Has A Problem It Can't Ignore Anymore
Wall Street Journal
Officials at the Australian central bank who were hoping for a business-as-usual policy meeting next week may find it increasingly hard to ignore the massive elephant in the room: An ever stronger currency.
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| | | | Currencies | This Benchmark Chinese Interest Rate Shows That Finance Is Still the World's Most Dangerous Game
Bloomberg
There's a reason the axiom 'don't fight the Fed'Âor any central bank, for that matterÂis a tried-and-true one for investors. Traders betting against the Chinese offshore yuan learned this lesson the hard way back on Jan. 10. On that day, the overnight Hong Kong Interbank Offered Rate (Hibor), which is used as a benchmark for loans denominated in the offshore currency, surged to its highest level ever amid suspected intervention by the People's Bank of China aimed at draining liquidity to inflict pain on short-selling speculators and deter others from following in their footsteps.
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The World Still Loves the Dollar
Wall Street Journal
The U.S. dollar continued to be the world's favorite reserve currency in 2015, while the euro's share of reserves fell to its lowest level since 2002. The data, known as Cofer for Currency Composition of Official Foreign Exchange Reserves, is released on the last business day of every quarter with a three-month lag. The dollar's status as the most-held reserve currency has been the subject of much debate. When the euro was introduced, some predicted it could someday challenge the greenback's status as the world's top reserve currency. After its share of reserves peaked at almost 28% in 2009, the euro's use as a reserve currency has dropped off in recent years.
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China to let firms offset fx swap positions directly on trial basis
Reuters
Companies in China will be allowed to offset their currency swap positions directly with other counterparties on a trial basis, the country's foreign exchange market operator announced on Friday, in a minor reform to currency trading. Only designated market markers for swaps and forwards can conduct the offset trades, the China Foreign Exchange Trading System (CFETS) said in a statement. CFETS is a unit of the Chinese central bank.
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The Syrian Pound's Black Market Moves are a Futures Contract on Bashar Al Assad
Wall Street Journal
It's difficult to tell how tight Syrian President Bashar al-Assad's grip on power really is. Want a clue? Check the market. Syria's pound has an official exchange rate against the dollar, but a wide variety of websites and apps track a black-market rate. They show that the Syrian pound has deteriorated dramatically over the course of the country's brutal civil war. Today a U.S. dollar will fetch ten times as many Syrian pounds as it did before the Arab Spring began.
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Brexit Eclipsing Fed-ECB Split as Top Risk for Euro: Analysis
Bloomberg
A potential U.K. exit from the European Union is now emerging as the biggest risk for the euro, if option prices are anything to go by, Bloomberg strategist Vassilis Karamanis writes. The odds of a so-called "Brexit" shaking confidence in the Union are being perceived as more negative for the single currency than even the theme of U.S.-Europe monetary-policy divergence. Option risk reversals, a gauge of market positioning and sentiment, that capture the U.K.'s June 23 EU-membership referendum show a surge in pessimism toward the euro, even as shorter-, longer-dated contracts don't.
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Brexit risks taking multi-trillion euro trading from London
Reuters
If Britons vote to leave the EU, London's financial center faces losing one of its top money spinners - the trade in trillions of euros in derivatives - and the European Central Bank will be pushing hard for the business to move onto its patch. According to euro zone central bank officials, the ECB is determined to tackle an anomaly dating from 1999 when Britain opted out of the euro's launch: a dominant share of trading in the currency it issues goes on outside its jurisdiction in London.
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Kanye West Resurrects Coinye as Bitcoin/Ethereum Merge to Beat $53m Debt
Finance Magnates
An amazing new era in the world of finance starts today. The greatest artist in human history, Kanye West, has just revealed that he is officially backing a cryptocurrency. So move over US dollar, there is a new king of currencies and its name is Coinye. As you may remember, Coinye was a project that Kanye got effectively killed by launching a trademark infringement lawsuit against its developers back in 2014. Now he is relaunching the cryptocurrency as a merge between Bitcoin and Ethereum, based on a 'Proof-of-Awesomeness' and backed by Kanye's singles.
goo.gl/Dat2Vq
****SD: Please keep in mind today's date.
Brazilian Real Volatility Rises Amid Impeachment Speculation
Bloomberg
The cost of buying options to protect against swings in Brazil's real rose to the highest in two weeks as investors gauge whether lawmakers will vote to impeach President Dilma Rousseff. The increase in volatility reflects the guesswork traders are undertaking as they try to divine the chances Rousseff will be ousted, potentially clearing the way for a new government that would be better positioned to pull the country out of its worst recession in a century. The real has gained the most among almost 150 currencies worldwide this year, bolstered by speculation that Rousseff will lose her battle to stay in office.
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Overstock invests $4 million in Caribbean firm working on digital currencies
Reuters
U.S. online retailer Overstock.com Inc (OSTK.O) said on Friday it has invested $4 million in a financial technology company that is working to move countries in the Caribbean region to adopt digital currencies. The investment was announced at a media conference in Barbados attended by principals from the financial firm, Barbados-based Bitt, and Overstock, according to a statement from the U.S. retailer.
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| | | | Indexes & Index Products | Does ETF 'Bottleneck Risk' exist?
The Trade
In recent months exchange-traded funds (ETFs) have been in the firing line of regulators amid ongoing liquidity concerns around the world. ETF issuers have responded, saying that their funds have important advantages over traditional savings vehicles. Having imposed stringent new regulations on banks and hedge funds after the 2008 financial crisis, regulators have turned their attention to a sector of the savings industry traditionally seen as unexciting.
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NYSE exec who managed relationships with ETF issuers exits
Reuters
A New York Stock Exchange executive who managed relationships with exchange-traded fund issuers, traders and regulators has left the company just days after a top colleague overseeing that business also departed. Phil Bak, a managing director at NYSE, told Reuters he has left the company after six years, the second departure in days from the company's ETF operation. Steve Crutchfield, the NYSE's head of options, exchange-traded products and bonds, announced his intentions to leave the company a few days ago.
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Why the New Video Game ETF Isn't a Gimmick
Bloomberg
As soon as it came out, the PureFunds Video Game Tech ETF was understandably labeled a gimmick. But is it? In the ETF world, the line between fads and worthwhile products comes down to whether investors are being sold something they already have in their portfolio. If a "niche" ETF is made up of the same blue-chip stocks in your broad equity ETF, it might not make a lot of sense to double up.
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FTSE Russell Goes for Ghosh in Canada
Waters Technology
Index provider FTSE Russell has hired Sudip Ghosh as senior sales manager for Canada, based in Toronto, to help build the vendor's brand and cross-sell products across the Canadian market.
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Global House Prices
The Economist
An Englishman's home is his castle. Those castles, however, are among the smallest in the rich world: the average house size in Britain is just 86 square metres (925 square feet), around 40% smaller than the average American home. This fact has not dampened Britain's appetite for housing. As our interactive chart above demonstrates, between 2000 and 2006, British and American house prices were on a similar trajectory, rising by around 80%. While the roof subsequently fell in on the American housing market, British house prices continued to accelerate upwards, after a brief blip in 2008-09.
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****SD: Fun interactive chart to play with.
China Factory Gauge Unexpectedly Jumps as Stimulus Kicks In
Bloomberg
China's official factory gauge showed improving conditions for the first time in eight months, suggesting the government's fiscal and monetary stimulus is kicking in. The manufacturing purchasing managers index rose to 50.2 in March, compared with a median estimate of 49.4 in a Bloomberg News survey of economists. The measure matches its highest level since November 2014. The non-manufacturing PMI rose to 53.8 from 52.7 in February. Metals rose after the report.
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S&P Dow Jones Indices Market Attributes: Correlation & Dispersion Index Dashboard
Press Release
This month's dashboard
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| | | | Gold | Gold Mint at Europe's Heart Says Sub-Zero Rates Buoy Sales
Bloomberg
Europeans grappling with a refugee crisis and negative interest rates are buying gold as a haven investment, according to the Austrian Mint's Andrea Lang, who expects demand in the region to stay strong in 2016. "Interest rates are negative at the moment and people don't see any benefit of keeping their money anywhere, but at the same time they feel a little bit concerned about the future," Lang, director of marketing and sales, said in an interview in Singapore. "They want to invest, they want to have a safe haven for their money," she said Friday.
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Central Banks Follow Warren Buffett's Advice When it Comes To Gold; Buying When Others Are Fearful
Forbes
If you really want to know which way the gold price is likely to move over the next few years look no further than the recent activity of the world's central banks; they're buying. Using a dry-as-dust banker as an investment guide might not seem like a bright idea but there is plenty of evidence to support a "follow the central bankers" theory when it comes to gold.
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India allows gold repayments to make scheme attractive for temples
Reuters
India on Friday tweaked its gold monetisation scheme to allow repayments in gold for medium- and long-term deposits, making the plan more attractive for temples that are sitting on thousands of tonnes of the metal.
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| | | | Miscellaneous | Hey, Economist! What Did You Make of "The Big Short"?
LIberty Street Economics, New York Fed
The Big Short has been making a big splash this year, racking up five Academy Award nominations and taking home the Oscar for best adapted screenplay. The movie provides a very entertaining way to gain an understanding about some of the underpinnings of the financial crisis, particularly through a few memorable cutaway scenesÂsuch as when actress Margot Robbie explains mortgage-backed securities (MBS) from a bubble bath, chef Anthony Bourdain compares collateralized debt obligations (CDOs) to seafood stew, and singer Selena Gomez explains synthetic CDOs using the analogy of "side bets" made by people watching a casino blackjack game.
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The Secret Money Behind 'The Wolf of Wall Street'
Wall Street Journal
Investigators believe much of the cash used to make the Leonardo DiCaprio film about a stock swindler originated with embattled Malaysian state development fund 1MDB
Despite the star power of Leonardo DiCaprio and director Martin Scorsese, the 2013 hit movie "The Wolf of Wall Street" took more than six years to get made because studios weren't willing to invest in a risky R-rated project. Help arrived from a virtually unknown production company called Red Granite Pictures. Though it had made just one movie, Red Granite came up with the more than $100 million needed to film the sex- and drug-fueled story of a penny-stock swindler.
goo.gl/b55WBZ
****SD: This sounds like it should be a movie. A really meta movie.
Claim game: the FT dissects pro and anti Brexit 'facts'
Financial Times
In Britain's noisy EU referendum debate, people regularly cry, "we want facts". Tackling the big questions about Brexit generally requires judgments rather than facts, but public desire has created a fact-producing industry on both sides, along with some dubious claims from both camps.
goo.gl/qVxcPc
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