Monday 29th May 2017
NEWS TICKER, May 26th: A flat opening call comes after more record highs on Wall St and despite a negative session to close the weak in Asia. The FTSE outperforms peers thanks to overnight GBP weakness that helps offset oil prices -6% as traders are left underwhelmed by the OPEC decision reports Accendo Markets. The negative oil reaction to a 9-month OPEC production cut extension is a prime example of ‘buy the rumour, sell the fact’. With nine months having become the baseline - prices +17% in the run-up, hoping for longer and maybe even deeper cuts - potential for an upside surprise was already limited. -- Even so, elsewhere Alastair George, chief strategist at Edison Investment Research told clients in a note this morning that “The global rally rumbles on. Beneath the headlines lie two core beliefs supporting equity markets. First, declining inflation fears are leading to falling long-term bond yields and expectations of looser-for-longer global monetary policies. Second, consensus forecasts for 10% earnings growth in each of the US, UK and continental Europe at the start of the year have remained intact into Q2 17 and are proving an irresistible draw for global equity investors.” -- Investor optimism has increased but it is far from euphoric despite extremely low levels of market volatility, NN Investment Partners says. The NN IP Uncertainty Index, which is based on an analysis of news and social media content has improved since December 2016 from -0.64 to -0.5 but it is still below the levels that were seen last year (-0.39). The Index has ranged between 0 and -0.66 since end-2008.NN IP also notes that cash levels in investors’ portfolios are still above average and the ratio between optimist and pessimistic investors in the US is close to neutral. However, in the US equity market, realized volatility is far below its 30-year average – 6.1% versus an average of 13.2% - while the VIX has fallen below 10 earlier this month, which is a rare event, and the VSTOXX is below 15. Patrick Moonen, principal strategist multi asset, NN IP, says, “So what could be the next source of volatility? There are several candidates. There is geopolitics, including the soured relations between Russia and the West, over the North Korean nuclear threat, to the situation in the Middle East. A cyber security incident undermining confidence is another potential source. This is difficult to assess properly or to time accurately and account for, but it is something that investors should not lose sight of. Also, the shift in central bank policies whereby the unconventional measures are gradually scaled back could be a source of volatility although we think that central bankers will tread carefully preventing turmoil. And of course, there is the possibility that this calm will indeed morph into complacency which will eventually result in unwarranted risk-taking and higher volatility. Stability creates instability.” -- STOXX Ltd., the operator of Deutsche Boerse Group’s index business, and a leading global provider of innovative and tradable index concepts, today announced the expansion of its presence in Asia Pacific with the opening of a new office in Hong Kong -- Following yesterday’s publication of the Global Code of Conduct for foreign exchange (FX) markets, David Newns, global head of Currenex and SwapEx, as well as EMEA head of GlobalLink at State Street Global Markets, says, “We welcome the final version of the Global Code of Conduct and the increased transparency that it will bring to market practices in our industry. The Code provides a way for FX professionals to actively demonstrate that they adhere to the highest ethical standards; but it’s only the beginning of an ongoing process as the industry must continue to strive to rebuild trust. We will evaluate the Code’s implications for our clients and our electronic trading platforms, as we move toward enhancing performance for all participants in the FX market.” -- NN IP Uncertainty Index shows investors are far from euphoric despite low volatility -

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Issue 82 - May/June 2015

There’s a new paradigm in investor services. FTSE Global Markets spoke to Daron Pearce, Global Head, Investment Managers segment for Asset Servicing at BNY Mellon, about the evolution of the investment services business set and what is means, long term, for the bank’s clients. Backed by innovations in technology the company now mines a rich seam in ground-breaking client services based on sophisticated analytics that help its clients better understand the world in which they operate, and allows BNY Mellon to develop new tools and models that leverage their expertise to better service their own customers.

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High valuations and the prospect of a gradual rise in US interest rates look to be the main concern of investors right now. Given the oversubscription of even measly priced UK gilts and other sovereign bonds, it is clear that sovereign debt will remain the asset class of choice for pension funds. Given that understanding and failing a grand rotation back into equities, the issue is then whether rate rises reinforce the drift into developed market sovereign bonds at the expense of emerging markets.  Relative to equities flows government bonds remain at historic highs. Just how soon the US Federal Reserve will begin to raise rates now the question du jour. We look at some of the fallout once it happens

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Wednesday, 24 June 2015

A fix for fixed income?

With the corporate bond market still dealing with a pronounced demand-supply imbalance, newer protocols capable of connecting multiple sources of liquidity continue to grow in popularity—among them open or all-to-all trading solutions, designed to provide investors, dealers and other market participants with greater efficiency around fixed-income trades. Dave Simons reports from Boston.

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According to the latest survey from data provider Preqin, some 51 investors have increased their allocation to the hedge funds to over the $1bn benchmark, while 27 investors have seen their allocation fall below that level. There are now a total of 227 investors around the globe that have $1bn or more in assets invested in hedge funds, and collectively these investors have $735bn invested in the asset class, representing almost a quarter of the total capital invested in the industry (up 13%) on a year ago. Most of these were in America. What’s going on?

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Wednesday, 24 June 2015

Find me a prime

Will the current climate continue to favor the various small-time prime models that have emerged in the wake of the recent PB purge? Are these specialty firms capable of handling the ever-expanding field of small funds in need of a home? Dave Simons reports.

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As with any business decision, financial analysis is a critical input to deciding whether to upgrade/build a trade reporting solution or outsource to a third-party provider. In building or upgrading a solution, firms typically incur costs involved in interpreting regulations and defining business requirements, design/engineering and project implementation, physical infrastructures, operations and support staff and trade repository fees. Finally, there is the consideration of opportunity costs—the consumption of resources that could support other business initiatives—should be factored into the total cost of ownership. The following two scenarios demonstrate the total cost of ownership of building an in-house reporting system versus using a managed solution. Costs and calculations reflect Sapient’s first-hand experience working with banks and buy-side firms worldwide.

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When financial regulations were coming into effect in 2012, there were no managed solutions available to help market participants handle trade reporting. Today, robust, third-party managed services are available, offering organizations a number of benefits:

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Now that most G20 member states have mandated trade reporting of derivatives, market participants have an opportunity to evaluate the agility and sustainability of their current approach. In this article, Randall Orbon, Arun Karur and Cian Ó Braonáin of Sapient Global Markets discuss the state of trade reporting and show how growing costs, complexity and regulatory scrutiny are fuelling a compelling business case for third-party managed solutions.

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THE EVOLUTION OF CUSTODY IN A POST T-2S WORLD

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