Top Headlines

Fed Digs Into Clearinghouse Risks After JP Morgan Raises Alarms – Bloomberg
Federal Reserve Governor Daniel Tarullo is quizzing Wall Street after big lenders and asset managers said clearinghouses pose their own threats, said three people with knowledge of the discussions. Among the concerns raised by financial firms: Relying on clearinghouses shifts risk to just a handful of entities, and the collapse of one could lead to uncapped losses for banks.

Should HFTs Be in the FX Spotlight? – Profit & Loss (subscription)
Minutes from the recent joint meeting of the world’s eight foreign exchange committees in Tokyo hint at participants’ concerns over the impact of regulation and electronic trading on FX market liquidity, and high frequency traders were highlighted for their potential role in events on 15 January. But is that fair?

Sterling Drops to 5-Year Low on Soft Data, Election Uncertainty – Reuters
Sterling fell to a five-year low against the dollar on Friday, hurt by weaker-than-expected industrial data and the rising risk of prolonged political uncertainty after a tight British election next month.

China Forex Market to Launch FX Borrowing/Lending Business Next Week – Business Times
China’s foreign exchange market will launch its first ever borrowing and lending business in a number of major global foreign currencies starting next week, in a move that traders said was aimed at bolstering trading activity in the market. The interbank China Foreign Exchange Trade System (CFETS) will allow financial institutions to borrow and lend in US dollars, the euro and Hong Kong dollars, it said in a statement published on its website,

South Africa Signs $4.8 Billion Currency Swap with China Reuters
The South African Reserve Bank said on Friday it has signed a three-year bilateral swap agreement with the People’s Bank of China for the exchange of local currencies of up to R57 billion ($4.75 billion) to support trade and investment between the two nations and to act as a mitigating resource for short term balance of payment pressures.

Poll: Asia Currencies Seen Pinned Down as Fed Readies to Hike Rates – Reuters
Emerging Asian currencies are seen likely to weaken against the dollar over the coming year on expectations the US Federal Reserve will start hiking interest rates, although any losses are likely to be limited, a Reuters poll found.

Ruble Hits New High as Locals Sell Foreign Currencies – Wall Street Journal (subscription)
The Russian ruble reached its highest level against the dollar since December in early trading Friday as local investors continued to unload foreign currencies. The ruble has gradually recovered in the past two months but accelerated this week as households began to sell foreign currencies they had bought in 2014 and as the need to repay debt in foreign currencies diminished.

US Chides Europe, Japan for Overreliance on Monetary Policy – Wall Street Journal (subscription)
The Obama administration chastised Europe and Japan for excessive reliance on monetary policy to revive stagnant growth, worried that a failure to deploy other policy tools could further undermine an already gloomy global economic outlook.

Yuan Market Needs Deal with Settlement System: HSBC – Reuters
The absence of China’s yuan from the CLS system used to settle deals in major currencies is a growing problem for banks and will hamper efforts to trade the currency more if it is not resolved, a senior China-focused banker said on Thursday.

Euro’s Reserve Status Jeopardized as Central Banks Dump Holdings – Bloomberg
Central banks cut their euro holdings by the most on record last year in anticipation of losses tied to unprecedented stimulus. The euro now accounts for just 22% of worldwide reserves, down from 28% before the region’s debt crisis five years ago, while dollar and yen holdings have both climbed, the latest data from the International Monetary Fund show.



Regulatory News

Deutsche Bank Nears Plea Deal Over Libor Manipulation – The New York Times
A long-running investigation into Wall Street’s manipulation of interest rates is heading into a stark final chapter as authorities around the globe push Deutsche Bank to pay a record penalty and accept a criminal guilty plea for the unit at the centre of the case.

How Wall Street Captured Washington’s Effort to Rein in Banks – Reuters
Intense lobbying of regulators, many of them veterans of the industry themselves, helped ensure that practices the Dodd-Frank law was meant to stop would remain in place.

UK Banks Hope Self-Discipline Will Ease Regulatory Onslaught – Operational Risk & Regulation
Self-regulation is an idea that is fast taking hold in the banking industry. Measures under discussion include greater use of sanctions for breaching codes of conduct and making whistleblowing easier – but questions remain over their implementation. For every action there is an equal and opposite reaction.



Company News

Jefferies Shifts FX Business Model With Faros Acquisition – Profit & Loss (free story)
Jefferies plans to shift its FX business model away from a being a principal one and towards an agency execution orientated model with its acquisition of Faros Trading.

JP Morgan Confirms Currency Hedging Losses – Alliance News
JP Morgan Senior Secured Loan Fund says that an error in the way its currency hedging policy was implemented resulted in losses amounting to £1.7 million, but shareholders were reassured that the company’s manager, JP Morgan Funds, will make up the loss.

Accenture Eyes Banks for Post-Trade Service – FOW Magazine
Accenture plans to start selling aggressively a post-­trade service to the world’s top investment banks after the platform won approval from Britain’s Financial Conduct Authority on Wednesday. The consultancy is looking to sign long-­term contracts with a number of banks across Europe, Asia, Australia and the Middle East for the service.

Goldman Sachs Makes Second Senior FX Hire From JP Morgan – Wall Street Journal (subscription)
JP Morgan Chase’s James Ellery, who left his position as global head of currencies options at the firm in March, is to join Goldman Sachs, according to two people familiar with the matter.



Market Savvy  

UK Election Risk Hovers on Horizon for Markets
Financial Times
When the UK last held a national election in May 2010, Stephanie Flanders, then a BBC journalist, was sent to report on market reaction to the indecisive result and frantic coalition talks in Westminster. Much to her editors’ disappointment, she failed to find much drama in the City of London. “I had to report to them that there was no panic at all,” she recalled this week.  Five years later, will the drama be any greater? Some signs are emerging that this year’s election could be more compelling for UK markets.



Press Releases

Securities Arbitration Law Firm Dimond Kaplan & Rothstein Investigates UBS’s Sales of Forex Currency Products
The securities arbitration law firm Dimond Kaplan & Rothstein is investigating UBS Financial Services relating to recommendations and sales of currency and foreign exchange products, including the UBS V10 Enhanced FX Carry Strategy.



Industry Events