Friday 12th February 2016
NEWS TICKER: February 11th 2016: Gaming machine operators will be hit the hardest by the Italian government's plans to reform the gaming sector in 2016, says Moody's in a report published today. "Under the 2016 draft budget law the Italian government plans to overhaul the gaming and sports betting industries. We expect a moderate increase in taxes for gaming machine operators, which is credit negative," says Donatella Maso, a VP-Senior Analyst at Moody's. "In addition, licence renewals for betting shops and corners will result in high one-off costs, although it is unclear whether these will occur in 2016 or the following year." However, the measures under the draft budget law are not as severe as some companies and investors had expected based on the first draft of the law proposed last October - Fixed income manager BlueBay Asset Management has hired Jean-Yves Guibert and Marc Kemp into their Global Leveraged Finance team. Based in London, Guibert has joined as a senior credit analyst in High Yield from BNP Paribas, where he was head of European High Yield Sector Specialists and Marc Kemp has joined as institutional portfolio manager. Kemp was previously at JPMorgan, where he was most latterly a managing director and head of European High Yield Sales. Justin Jewell, co-head of Global Leveraged Finance Long Only says, “In normal credit cycles, the period of market stress is usually sharp but short lived and corresponds with worsening economic conditions. This cycle could be very different, as the distortions created by zero interest rate policies and quantitative easing (and their reversal) will likely result in economic and credit cycles that are less closely aligned. We would further argue that this cycle will likely show a lengthier period of spread widening, as defaults are likely to occur over a longer period.” - Marsh, a global leader in insurance broking and risk management, has appointed Sir Iain Lobban KCMG CB, former Director of the UK security and intelligence organisation GCHQ, as senior adviser on Cyber Risk. In the newly-created role, Sir Iain will provide strategic advice as Marsh works with governments, regulators and clients on how best to address the growing threat of cyber risk. He will report to Mark Weil, CEO, Marsh UK & Ireland and join Marsh’s global Cyber Centre of Excellence. Sir Iain was Director of GCHQ – the UK government’s communications headquarters– between 2008 and 2014 having previously served as director general of operations from 2004 - BNP Paribas Securities Services has won a mandate to provide Nationwide Building Society with clearing and custody services for the UK market. Nationwide Building Society is the world’s largest building society with assets of £200b, and 15 million customers across the UK. BNP Paribas Securities Services has been appointed as the settlement and gilt custody provider, safekeeping Nationwide Building Society’s £12.7bn worth of gilt assets in the UK. - The UK Debt Management Office says an additional £149.975m nominal of 3½% Treasury Gilt 2045 will be created for settlement on 12 February 2016 inrespect of the amount purchased by the Gilt-edged Market Makers and investors during the Post-Auction Option Facility, which closed at 2pm today. This additional stock will be sold at the average accepted price of £127.524 and will take the total amount outstanding of3½% Treasury Gilt 2045 to £25,315,238,000.00 nominal - The Lyxor Hedge Fund Index was down -0.9% in January. 5 out of 11 Lyxor Indices ended the month in positive territory. The Lyxor CTA Long Term Index (+2.2%), the Lyxor Global Macro Index (+0.7%), and the Lyxor Fixed Income Arbitrage Index (+0.7%) were the best performers, says the ETF major. Hedge Funds displayed esilience in January. Both markets and analysts started the year with reasonable growth expectations. These were aggressively revised down, triggered by the release of the disappointing Chinese PMI and the CNY depreciation. Strikingly, investors started to price in more serious odds for a Chinese hard landing, the growing central banks’ impotence, the risk of a US recession, and the return of global deflation. Lyxor says, in that context, CTAs thrived on their short commodities and long bond exposures. FI Arbitrage and Global Macro funds exploited monetary relative and tactical opportunities. To the exception of the L/S Equity Long Bias and Special Situations funds – hit on their beta - the other strategies managed to deliver flat to modestly negative returns - Why did investors think that the US Fed would raise rates in this jittery global market? Investors shed stocks in Asia today, on the back of what was a reasonable statement to the House of Representatives Finance Committee, that the US central bank would remain cautious on future rate hikes. According to Swissquote analysts, “Recent market turmoil and uncertainties surrounding China’s growth prospect could weigh on US growth if proven persistent. A few days ago, Stanley Fisher, Fed Vice Chairman, also delivered a cautious speech reminding us that Fed policy will remain data dependent and that it was too soon to tell whether the current market conditions will prevent the Fed from moving on with its rate cycle”. The global mood among central banks is towards an accommodative rather than tightening monetary policy: this was a theme that investors applauded last year and only last month as the ECB signalled a continuation of its policy, but it wasn’t what Wall Street wanted to hear and early gains lost out to negative sentiment and the US markets ended lower for four days in a row. The real worry of course is that ultra-loose monetary policy signals the fears of central bankers that the global economy continues to wind downwards and that consideration is fueling investor fears. Asia’s trading story has been writ in stone for the last few weeks with havens such as gold, the yen and government bonds the main beneficiaries of continued investor jitters. In commodities, Brent crude oil was down 1.3% at $30.43, while WTI crude futures fell 2.7% to $26.70, despite a drawdown in US stockpiles. Hong Kong's Hang Seng Index fell 3.9%, catching up with the week's selloff as the market reopened from a holiday. South Korea’s Kospi ended the day down 2.93%, while in Singapore the STI fell 0.77%. Japan's market and China's Shanghai Composite Index were both closed. The dollar was down 1.8% against the yen at ¥ 111.28, a sixteen-month low for the dollar against the Japanese currency. In other currencies, the euro was up 0.4% against the dollar at $1.1325, its highest since October. Spot gold in London gained 1.1% to $1218.18 a troy ounce, its highest level since May. In focus today, will likely be the Swedish Riskbank policy decision, with expectations for already negative rates to go even lower. “Markets may like cheap money for longer but they definitely don’t like the idea of a major market turn-down and another recession, hence discussion about need for US negative rates sapping risk appetite overnight. Note Janet Yellen testifying again today, although yesterday likely saw the most important information already discussed,” says Accendo Markets analysts.

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Traders Beware, Focus Could Shift Quickly in Your Direction

Monday, 16 July 2012 Written by 
Traders Beware, Focus Could Shift Quickly in Your Direction Some unsettling stories continue to unfold. One is Peregrine Financial Group, which managed to combine some of the most memorable red flags of the Madoff and MF Global scandals without attracting a regulatory response from the CFTC. (PFG represented that it held more than $220 million of customer funds when in reality it held approximately $5.1 million.) http://www.ftseglobalmarkets.com/

Some unsettling stories continue to unfold.

One is Peregrine Financial Group, which managed to combine some of the most memorable red flags of the Madoff and MF Global scandals without attracting a regulatory response from the CFTC. (PFG represented that it held more than $220 million of customer funds when in reality it held approximately $5.1 million.)

The second involved information stemming from the Barclay’s Libor scandal—in particular, exactly how much was known, when, and by what regulators.  The NY Fed, confirming that it received reports about Libor issues in 2007 and 2008, on Friday released documents showing it took “prompt action four years ago to highlight problems.”  The actions of Treasury Secretary Timothy Geithner, who headed the New York Fed from 2003 until 2009, may be heavily scrutinized.  So will those of the U.K. authorities.

And then there is the recent announcement by JPMorgan of possible valuation discrepancies by its traders. According to JPMorgan’s chief financial officer, a restatement may be necessary based upon facts uncovered “regarding the CIO traders’ intent as they were marking the book. And as a result, we questioned the integrity of those trader marks.”



What impact will this have on the regulatory climate?  Clearly, the regulators will be under tremendous pressure.  Richard Shelby, the top Republican on the U.S. Senate Banking Committee, noted Peregrine “raises serious questions about our current regulators and whether they are capable of doing their jobs.”  Others are also voicing concerns.  In turn, the regulators are likely to respond by increasing their oversight.

And as they do so, traders in particular may be in the line of fire.  Reflecting on LIBOR, Warren Buffett is quoted as saying, “the idea that a bunch of traders can start e-mailing each other . . . and play around with . . . [the Libor] rate . . . is not good for the system.”  This is the type of concern that prompted the CFTC this past April to pass rules for swap participants, which basically wall off traders from the rest of the firm.  Traders cannot supervise or influence the compensation of research analysts or clearing unit employees.  In some cases, communications with traders are prohibited unless the communication is made through the firm’s compliance department.  Both the Libor scandal and the J.P. Morgan trading loss, coupled perhaps with a few new situations brewing in the background, might give this type of thinking a major boost.

Deborah Prutzman

Deborah Prutzman is the founder and CEO of The Regulatory Fundamentals Group (RFG), a New York-based firm that designs and implements business and risk solutions for alternative asset managers and institutional investors. RFG's senior-led team employs a robust suite of tools, including practical alerts on new and potential industry developments and its powerful RFG Pathfinder® knowledge management platform which simplifies the challenges of operating in a regulated environment.  To learn more about The Regulatory Fundamentals Group call (212) 537-4058, email a representative at Information@RegFG.com or visit RegFG.com

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