 | | | | | | | | March 10, 2016 | | | | | First Impressions | | | | | ISE Getting A New Parent
JLN Staff
Amid all the talk about mega-deals in the exchange space, Nasdaq has grabbed the latest headlines with a deal to buy the International Securities Exchange, (ISE) for $1.1 billion. The deal is expected to close in the second half of 2016.
The deal bolsters Deutsche Boerse's pocketbook in its push to merge with the London Stock Exchange. From Nasdaq's perspective, they get a relative deal in the ISE, which was bought by Deutsche Boerse's Eurex for $2.8 billion cash in December 2007.
At the time, the ISE held 28.1 percent of the US equity options marketshare, second only to CBOE Holdings. There were just six equity options markets then. Last month, with the ISE now among a field of 14 options exchanges including three of its own, it collectively held 15 percent of the options volume, according to OCC data. ISE operates three electronic options exchanges: ISE, ISE Gemini and ISE Mercury.
Nasdaq meanwhile, has been trying to grow its options business through a combination of acquisitions, such as buying the Philadelphia Stock Exchange, (PHLX) in 2009 and then adding additional new options markets on the Nasdaq platform such as Nasdaq Options Market and Nasdaq BX Options. Collectively, they hold about 22 percent marketshare in the US equity options space, according to OCC data. This deal pushes Nasdaq to the forefront of equity options, from a marketshare perspective.
(To read the rest of the commentary click here
| | | Quote of the day: | | | | | | “ | "This is no doubt a credit bazooka. This is a big surprise. The market expected a broad expansion of bond buying to include further quasi-sovereign or agency bonds, so buying of non-financial corporates is significant."
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| ” | Lyndon Man, a fund manager at Invesco Ltd., in the story, "Next Stop on ECB QE Adventure: $980 Billion Corporate Debt"
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| | | | Lead Stories | | |
The European Central Bank fires another salvo
The Economist
A year ago the European Central Bank (ECB) started its big programme of quantitative easing, or QE, buying EUR60 billion ($65 billion) of assets a month, in an attempt to stimulate the euro area's sagging economy and prevent deflation setting in. In December it extended the programme by six months, until March 2017. Now it has raised the tempo, to EUR80 billion a month, starting in April. This was the most eye-catching of the ECB's latest set of measures to ease monetary policy, announced on March 10th. In December, it had also reduced its deposit rate, on most funds parked by banks at the ECB, further into negative territory, from -0.2% to -0.3%. Now it has lowered the rate again, to -0.4%, while also cutting its main lending rate from an already nugatory 0.05% to zero. Up till now, the asset purchases have been mainly government bonds, together with covered bonds issued by banks (typically backed by mortgages) and a small amount of asset-backed securities. Now corporate bonds are on the menu, too. The ECB will also conduct four new funding-for-lending operations between June and March 2017, each with a maturity of four years, aimed at boosting credit to the private sector by providing funding on extremely favourable terms.
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US Treasury market shows signs of stress
Financial Times
Dislocation in the world's biggest government bond market is sending warning signs of stress in the system, with dealers and hedge funds blaming tougher bank capital rules as they choose not to exploit the arbitrage opportunity. Investors are increasingly choosing to hold derivatives contracts rooted in US sovereign debt rather than cash Treasuries, resulting in a big price difference between the two closely-related products. As recently as July, it remained slightly cheaper to buy cash Treasury paper rather than the futures. But banks and hedge funds say they are unable to close the gap, blaming a tougher regulatory regime that has increased the cost of trading in the US sovereign debt market.
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China to ease commercial banks' bad debt burden via equity swaps
Reuters
China's central bank is preparing regulations that would allow commercial lenders to swap non-performing loans of companies for stakes in those firms, two people with direct knowledge of the new policy told Reuters. The new rules would reduce commercial banks' non-performing loan (NPL) ratios, and free up cash for fresh lending for investment in a new wave of infrastructure products and factory upgrades that the government hopes will rejuvenate the world's second-largest economy.
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Fixed income platform market reaches saturation
The Trade
The growth in fixed income platforms will grind to a halt leaving behind only a few in the market, according to industry experts. As the market is now over-crowded with fixed income initiatives and platforms, industry experts believe any new entrants are unlikely to succeed and many existing platforms will disappear in the coming years. Stu Taylor, chief executive at Algomi, the fixed income information network provider, highlighted that any new platforms will now face stiff competition.
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Europe Rates Markets Radiate ECB Heat as FX Stays Cool: Analysis
Bloomberg
It's a study in contrast. Europe's rates volatility mirrors the elevated levels that prevailed before European Central Bank's December meeting when investors expected President Mario Draghi to aggressively ease the policy. But the euro is showing no such nerves, Bloomberg strategist Tanvir Sandhu writes. This divergence potentially exposes currency markets to greater swings if Draghi manages to surprise. On the obverse side, a lukewarm ECB outcome could affect rates market more.
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For a Peek Into Greek Banking Mess Look at Eurobank-Nikas Ties
Bloomberg
As Greek banks struggle with more than 100 billion euros ($111 billion) in soured loans, the case of meat seller P.G. Nikas S.A. provides an example of how things went so wrong. The seller of Fuego brand of sausages and hams was a profitable company in 2004, when an offshore fund created by an investment firm partly owned by Eurobank Ergasias SA took control of it in a leveraged buyout. Greece's third-biggest bank backed the purchase with a loan it arranged.
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Investors: Deutsche Must Cut Deeper
Handelsblatt Global Edition
John Cryan, chief executive of Deutsche Bank, was trying to comfort investors in Frankfurt a few days ago when he said: "We are better than we are currently perceived from the outside." But there are still difficult times ahead for Germany's largest financial institution. After several U.S. competitors recently warned of shrinking profits in investment banking, analysts at UBS and Barclays are expecting Deutsche Bank on Friday to report that net profit fell by 10 percent to 20 percent during the first quarter from a year earlier.
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Why the 401(k) system is a blight on the face of the American republic
The Week
Defined benefit pensions still more or less work, but they're vanishing fast. But the 401(k) system is a blight on the face of the American republic. This set of tax subsidies (together with a few other similar programs) is suppose to enable people to invest for retirement, but as a new report from the Economic Policy Institute shows in crushing detail, it's failing in every conceivable way.
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John Gutfreund, Salomon's Leader in 1980s, Dies at 86
Bloomberg
John Gutfreund, who was proclaimed the "King of Wall Street" in 1985 for harnessing the egos and fiefdoms of Salomon Brothers into one of the most profitable investment-banking firms, only to be deposed after a 1991 trading scandal, has died. He was 86. He died Wednesday at New York Presbyterian/Weill Cornell Medical Center in New York, his son, John Gutfreund, said in a telephone interview. The cause was pneumonia.
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| Central Banks | Markets lose faith in the ECB as mass stimulus measures falter - Live
The Telegraph
Euro unexpectedly surges and markets fall into the red despite mega stimulus. ECB launches three interest rate cuts and increase to QE to EUR80bn a month. ECB will buy corporate bonds for the first time under programme Interest rates will stay low and may be cut even after 2017 says Draghi.
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****SD: Also see How the ECB is trying to revive the eurozone
Next Stop on ECB QE Adventure: $980 Billion Corporate Debt
Bloomberg
The next target for the European Central Bank's expanding asset-purchase program: the region's 900 billion-euro ($980 billion) corporate-bond market. The ECB will buy investment-grade euro-denominated bonds issued by non-bank corporations established in the euro area, according to a press release on Thursday. Corporate bonds are the latest assets to be added to a growing list of securities, from government debt to mortgage-backed notes, the central bank is snapping up to combat weak growth and inflation. Buying company securities may also demonstrate a greater tolerance for risk at the central bank as the notes are typically unsecured.
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Mario Draghi's Wearing the Same Tie From One of His Biggest Days Ever
Bloomberg
Anyone who saw Mario Draghi's attire this morning would've had a reason to guess that the European Central Bank's stimulus would exceed expectations. #DraghiTieGuesses, first used by the Financial Times' Katie Martin nearly three years ago, has become somewhat of a whimsical prelude to ECB statements that will be followed by a press conference.
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Central banks' steroids aren't working
CNN
The European Central Bank on Thursday announced a steroid-filled stimulus program in an effort to boost the European economy. European stock markets rallied sharply in response. But within an hour, almost all European markets turned south and soon were in the red. It's almost as if investors have stopped believing that central banks have what it takes to turn around economies.
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Spelling mistake prevented hackers taking $1bn in bank heist
The Guardian
A spelling mistake in an online bank transfer instruction helped prevent a nearly $1bn heist last month involving the Bangladesh central bank and the New York Fed, banking officials said. Unknown hackers still managed to get away with about $80m, one of the largest known bank thefts in history. The hackers breached Bangladesh Bank's systems and stole its credentials for payment transfers, two senior officials at the bank said. They then bombarded the Federal Reserve Bank of New York with nearly three dozen requests to move money from the Bangladesh Bank's account there to entities in the Philippines and Sri Lanka, the officials said.
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****SD: From Reuters, Criminals in Bangladesh heist likely studied bank's inner workings, and from Bloomberg, $1 Billion Plot to Rob Fed Accounts Leads to Manila Casinos
How Central Banks Have Made Wealth Inequality Worse
Bloomberg
Central banks' attempts to kick-start advanced economies following the financial crisis have made the gap between the rich and poor wider, suggests the Bank for International Settlements. In the BIS' Quarterly Review, Analysts Dietrich Domanski, Michela Scatigna, and Anna Zabai studied the evolution of wealth inequality in France, Germany, Italy, Spain, the U.K. and the U.S. was influenced by monetary policy since the recession.
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Ghana Central Bank to End Collection of Gold, Cocoa Revenues
Bloomberg
The Bank of Ghana will this year end its policy of forcing cocoa and gold-producers to surrender export proceeds to the central bank. The institution, based in the capital, Accra, will phase out the policy in four steps to avoid disruptions to the foreign-exchange market, it said Thursday in an e-mailed response to questions. Those will include establishing a strong monitoring system to ensure export revenues are released into the market via commercial banks, and sold on a "need basis," it said.
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| | | | Currencies | Traders Vent Central Bank Spleen as Surprises Buffet Currencies
Bloomberg
Foreign-exchange traders are growing increasingly exasperated with central banks. Incessant shifts in monetary policy around the world are frustrating participants in the $5.3-trillion-a-day market because they have the side-effect of whipping up exchange-rate volatility. Worse, the attempts to rekindle inflation with lower interest rates -- which typically weaken currencies -- are also growing more futile, they contend.
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The Unexpected Stock And Currency Reaction To ECB's March Announcement
Seeking Alpha
When a central bank floods the financial system with liquidity, stocks should soar and its currency should plummet. Exactly the opposite happened on Wednesday, March 10th when the European Central Bank (ECB) announced a comprehensive new wave of liquidity measures in an attempt to pump up the moribund Eurozone economy (and some say European stocks as well).
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NZ's surprise rate cut sends kiwi tumbling, stokes talk of global currency war
Reuters
New Zealand's central bank unexpectedly cut interest rates to a record-low 2.25 percent on Thursday, triggering a slide in the local dollar and sparking talk of a global currency war as countries seek to revitalize their economies in a world of slow growth.
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A Bitcoin-Style Currency for Central Banks
MIT Technology Review
The digital currency Bitcoin was designed to be independent of any governmentÂa feature that also limits its mainstream appeal. Now researchers have invented a Bitcoin-like system that could make digital cash more practical by allowing a central bank such as the Federal Reserve to control it.
/goo.gl/jHJyld
China stock, yuan volatility threatens economy, reform: former central bank adviser
Reuters
Increased volatility in China's stock and currency markets is posing a threat to the country's economic stability and structural reforms, a former adviser to the central bank said on Thursday. The stern warning from Li Daokui, an influential economist at Tsinghua University, came as top officials discuss economic reform plans for 2016 during the annual parliament meeting.
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Nigeria GDP Confirms What Central Bank Denies: Naira Hurts
Bloomberg
Nigeria's economic growth data confirmed what central bank Governor Godwin Emefiele has been loath to admit: that currency controls are hurting the economy. Growth in Africa's biggest economy and oil exporter slowed to 2.8 percent last year, the weakest level since 1999 and down from 6.2 percent recorded in 2014. Industrial output contracted 2.2 percent last year, compared with expansion of 6.8 percent in 2014.
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A Dollar Crisis Threatens Egypt's Economy
Stratfor
Egypt's economy is once again in crisis. Cairo, unwilling to move more quickly on the painful economic reforms that would ease its heavy deficit burden, has all but drained its foreign exchange reserves. But its people have grown accustomed to the government's wide-reaching subsidy programs, which are being kept afloat largely by foreign aid. If the Egyptian government cannot find a way to sustain them, the country's fragile stability may not hold. Western and regional powers have considered Egypt a crucial Middle Eastern ally for most of its modern history. Cairo's backers will make sure that the Egyptian economy continues to limp onward, even as it deteriorates. But even if Egypt accepts their help in an effort to keep funds flowing, the concerns of the Egyptian people will not be alleviated. The economy will still be scraping by, and, as criticism of the government's handling of the crisis grows, so will the risk of unrest.
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What the FX Market Should Expect From Central Bank Meetings: BoJ, Fed, BoE
Nasdaq
With the ECB meeting out of the way, the FX market will now turn its attention to next week's meetings of the Bank of Japan (15th), Fed (16th) and Bank of England (17th).
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The Bank of Japan and Abenomics: The struggle has just begun
Brookings
On February 16, the Bank of Japan (BOJ), the country's central bank, implemented a negative interest rate policy for the first time in its history, in accordance with a decision made during its monetary policy meeting on January 29. This monetary easing, which imposes a minus 0.1 percent interest rate on a portion of the new reserve accounts held by private financial institutions at the central bank, is the third major action conducted by the governor of the bank, Haruhiko Kuroda, who took the position in 2013. Kuroda's first two major actions as governor were significant increases in government bond purchases.
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Over 500 abandoned containers in Tobruk port - part of foreign currency corruption scam
Libya Herald
There are more than 500 abandoned containers in Tobruk port, Tobruk Deputy Port Manager, Omar Jilghaf told Libya News 24 yesterday as a result of the financial corruption that the country is experiencing. He said that some have been in the port for more than 5 months and that most of the goods in them had perished and began to let off a foul smell. The containers had passed the legal time limit permitted by Libyan customs and that the port authority is in the process of disposing of or selling by auction their contents, he added. ''Financial corruption is (the reason) behind these abandoned containers as some traders scramble for letters of credit (LCs) from banks at the official exchange rate. They buy cheap or useless products and leave them inside the port after they receive their hard currency which they use as they wish'.'
/goo.gl/70gD9J
Strong currency propels Hong Kong to second in latest ranking of world's most expensive cities
South China Morning Post
Stronger Hong Kong and US dollars have driven up cost of living in the city by 12 per cent, according to the latest Economist Intelligence Unit survey on the subject. Their exchange rate moves in recent months were not the only factor pushing up Hong Kong's global cost of living index to joint second, as food prices contributed to the showing.
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| | | | Indexes & Index Products | The Bull Market Is Seven Years Old; Why Aren't People More Excited?
WSJ
The post-crisis bull market turned seven today. But it wasn't a day for fancy presents or fireworks, or even an ice-cream cake in the office. It wasn't really that kind of birthday party. The S&P 500 is up nearly 200% since March 9. 2009, when it bottomed in the wake of the financial crisis. The index has gained 194% since closing at 676.53 on that day, through Tuesday's closing level. Every major index, in fact, is up at 100% since then. The Dow Jones Industrial Average is up 160%. The Dow transports are up 251%. The Nasdaq biotech index is up 342%. The Nasdaq 100 is up 311%. The Russell 2000 is up 213%.
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ETF Industry Warns SEC That Volatile Trading Could Happen Again
WSJ
A volatile trading session like the one that occurred in August could happen again if stock-exchange procedures aren't changed, members of the exchange-traded-fund industry said.
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What If Chinese Government Bonds Enter Major Benchmarks?
Bloomberg
A question, posed innocently enough, by Citigroup Inc. analysts earlier this month. It is difficult to overstate the importance of benchmark indexes within markets. They are the "bogeys" against which large pension funds, asset managers and insurers measure their returns. In an age of passive investing they also exert an outsized influence on the fortunes of billions of dollars worth of assets, able to send vast amounts of money into or out of a particular bond or stock by dint of its inclusion or expulsion.
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Is Passive Investment Actively Hurting the Economy?
The New Yorker
If you have so much as tiptoed into the arena of personal finance over the past few decades, you will have heard about the virtues of passive investing. The argument goes like this: the stock market will outperform other investments over the long term, yet no individual is in a position to outsmart the market as a whole. So the best way to reap the rewards of investing in stocks with minimal risk is to put your money in a fund that tracks the performance of some broad, indexed measure of the market, such as the S. & P. 500. If you have an I.R.A. or a 401(k), there is a reasonably good chance that some of your money is invested this way; low management fees make index funds an attractive option.
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MSCI analyzes 21,000 mutual funds, ETFs on sustainability factors
Pensions & Investments
The new MSCI ESG fund metrics, announced Tuesday, measure environmental, social and governance characteristics of portfolio holdings and rank funds based on a set of ESG factors, including carbon footprint, the news release said.
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How ETFs Work
Bloomberg
Exchange Traded Funds, or ETFs, are a financial instrument born out of a 1988 840-page SEC Black Monday postmortem. An ETF contains an assortment of securities; you can think of it like a basket tracking an index. For instance, SPY, the world's most traded security, tracks the S&P 500. Others follow indexes made up of everything from tech stocks to municipal bonds. New ETF shares are created and redeemed by trading the basket for the ETF and vice-versa.
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FTSE Russell Signs Collaboration Agreement With Trendrating
Press Release
FTSE Russell, the global index provider, has today announced that it has signed a collaboration agreement with momentum investing specialist and analytics firm, Trendrating. The agreement will see Trendrating work with FTSE Russell to develop new innovative momentum indexes. The range of products will incorporate Trendrating's unique momentum model and supporting data as a core component of the methodology.
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This BlackRock Volatility Haven ETF Is Luring Record Inflows
Bloomberg
The rockiest U.S. stock swings in more than four years are prompting traders to pour record sums into a BlackRock Inc. exchange-traded fund that tracks companies considered more stable. The iShares MSCI USA Minimum Volatility ETF, which includes benchmark-beating firms such as AT&T Inc. and Procter & Gamble Co., has topped every other stock ETF by pulling in $2.8 billion this year. High demand for the fund, dubbed USMV, is a signal some investors aren't convinced three straight weeks of U.S. equity gains will hold, says Macro Risk Advisors' Pravit Chintawongvanich.
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| | | | Gold | Why Poor Man's Gold May Be About to Get More Investor Love
Bloomberg
Silver hasn't been so cheap relative to gold for more than seven years and with mine supplies forecast to contract this year that may be a sign it's ready to come out of the yellow metal's shadow. Mine production of silver will probably drop in 2016 for the first time in over a decade and demand is set to outstrip supply for a fourth straight year, says Standard Chartered Plc. Much of the world's silver is extracted from the ground with other minerals, and output cuts announced by the biggest miners will hurt supplies of the metal as well as others such as copper and zinc.
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| | | | Miscellaneous | Hillary Clinton Stops Short of Ruling Out Wall Street Aides
WSJ
Democratic presidential front-runner Hillary Clinton on Wednesday said she would work to "end the revolving door" between Washington and Wall StreetÂbut stopped short of ruling out continuing her party's recent tradition of turning to the financial industry for Treasury secretaries. "I think it's important also to look at what we want to accomplish," said the former secretary of state, during her debate with her challenger, Vermont Sen. Bernie Sanders. She then went on to boast of what she considered the economic success during the administration of her husband, President Bill Clinton, during the 1990s, a time when Mr. Clinton relied heavily on Wall Street officials to staff his administration.
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Shanghai Authorities Said to Discuss Ways to Cool Property
Bloomberg
Shanghai authorities held a meeting on Tuesday to discuss measures to cool a surge in property prices after recent frenzied residential homebuying, according to people familiar with the matter. The municipal government's National Development and Reform Commission held discussions with regional authorities from the People's Bank of China and the China Banking Regulatory Commission, said the people, who asked not to be named because the matter isn't public. Possible measures weighed include tightening mortgage policies for second-home buyers who plan to purchase larger properties, the people said.
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