Weekly Roundup | 17th August 2014
Regulations prompt banks to pull back from repo market
Some of the largest banks have reduced their participation in the “repo” market, citing capital constraints imposed by current regulations. The partial retreat from the market for repurchase agreements or repos is raising alarms because of possible spillover problems it can cause to the wider market. The repo market, through which financial firms engage in short-term borrowing and lending of cash and securities, is considered part of the “plumbing” of Wall Street as it helps finance much of the market’s longer-term financing. So far this year, Goldman Sachs has cut its repo lending by $42 billion, Barclays has cut lending through repos and similar instruments by $25 billion, and Bank of America and Citigroup have cut repo lending by $11.4 billion and $8 billion respectively.
Pershing Square hedge fund sues government over handling of Fannie Mae and Freddie Mac
Pershing Square, the hedge fund run by William Ackman, has sued the government, claiming that it is shortchanging investors in Fannie Mae and Freddie Mac by “illegally” stripping the mortgage funding giants of their profits. Since 2012 the government has been keeping the profits of the two firms as it looks to wind them down. Ackman argues that the government has collected more than the $187.5 billion used to bail out Fannie and Freddie, and the current “sweep” of funds makes common shareholders “investors in name only.” Other investors have sued the U.S. over the handling of Fannie and Freddie, but those suits were related to preferred shares. Ackman is also involved in several other high-profile battles including a two-year battle with nutritional supplement company, Herbalife, which he calls a pyramid scheme.
Event on strategically building China’s NEEQ stock exchange draws large crowds in Beijing
With the date for the exchange link between the Hong Kong stock exchange and China’s NEEQ exchange fast approaching, an event on strategically developing the NEEQ drew large crowds in Beijing. The August 11 event, coordinated by OTC Partners, involved experts in risk management and market structure and covered issues such as best practices in market making, valuation, workflow, clearing and selecting trading technology. The link to the Hong Kong exchange, which is scheduled to go live in October, will vastly expand participation in China’s stock market from offshore investors. Market participants and members of the Chinese finance community are focused on studying best practices to ensure that the expected surge in activity is woven into the market as efficiently and seamlessly as possible. Forty sell-side market makers are planning to link to the NEEQ when the exchange link goes live and an addition 1000 companies are expected to list on the exchange in the next two years. In addition to coordinating the event, OTC Partners is advising market participants and members of the financial community in China on planning and preparing for the expected changes.
http://translate.google.com/translate?depth=1&ei=VkuFTZzODc6PceW4oJwD&hl=en&prev=/search%3Fq%3Dbaidu%26hl%3Den%26prmd%3Divns&rurl=translate.google.com.au&sl=zh-CN&u=http://ucwap.ifeng.com/finance/stock/news%3Faid%3D86499224%26rt%3D1%26p%3D2 (worth reading for the unusual translation in places)
ICE amends EFRP rules
ICE has finalized important amendments to its rules for exchange-of-futures-for-related-position (EFRP) transactions. Among the amendments, for example, is a rule prohibiting immediately offsetting EFRP transactions in any product other than foreign currency. In addition, commodity trading advisors and other account controllers can continue to transact in the foreign currency market as principals, but they must furnish to the exchange, upon request, documents acknowledging that the risk of loss on the cash or over-the-counter component of the transaction would be borne by their customer if the transaction is voided as a result of the futures leg not clearing. This documentation rule takes effect Oct. 1 and all other EFRP amendments take effect Sept. 5.
Five Hong Kong brokers sign with Fidessa for Shanghai-Hong Kong stock connection
ICBC International Securities Limited, Standard Chartered Securities (HK) Limited and three other Hong Kong brokers have signed on to use Fidessa for the Shanghai-Hong Kong Stock Connect link when it goes live in mid-October. The stock connect link between the two exchanges will open up the Shanghai exchange to trading from offshore investors who will access it through the Hong Kong market. At the same time, the link will allow mainland China-based investors to trade Hong Kong listed shares via the Shanghai exchange. Currently, international access to the Chinese market is limited to a small number of large institutional investment firms under China’s QFII program. The five firms will all be ready to go live with the stock connect link at its launch.
Markit posts 11 percent rise in revenue in first results as a public company
Financial information provider Markit posted an 11 percent rise in revenue for the second quarter 2014, in its first quarterly results as a public company. Revenue increased by $26.3 million to $264.6 million. The company saw growth in all three business segments, with a 5.7 percent rise in information, a 1.7 percent rise in processing, and a 35.7 percent rise in solutions. The company completed its initial public offering on June 24. Organic revenue growth accounted for $10.3 million or 4.3 percent of the 11 percent increase, driven by new business wins in the solutions and information business segments.
CME targets OTC with “Bundle” futures and options
Next month CME group will offer a new way to trade Eurodollar interest rate futures and options. Beginning Sept. 22, the exchange will begin trading Eurodollar Bundles, which provide the same Eurodollar exposure but “bundled” into a single longer-dated contract. Contracts are available in 2-year, 3-year and 5-year trading increments which would be the same as buying or selling 8, 12, or 20 consecutive Eurodollar contracts wrapped into a single futures or options contract. The Bundles will provide operational simplicity and more efficient margin treatment, according to the CME. In addition, they can serve as standardized, cost-effective alternatives to bilateral OTC products.