Maybe because the Federal Reserve Bank took the day off from lowering interest rates an pumping liquidity into the market, Secretary Hank Paulson’s regulatory blueprint has gotten a ton of media attention today despite Paulson’s comments that a regulatory transformation wouldn’t begin until after the current market crisis are resolved. “Our first and most urgent priority is working through this capital market turmoil and housing downturn, and that will be our priority until this situation is resolved,” Paulson said. “With few exceptions, the recommendations in this Blueprint should not and will not be implemented until after the present market difficulties are past.”

Continue reading ‘CBOE’s Bill Brodsky reponds to the regulatory blueprint’ »

Wall Street is buzzing today about the U.S. Department of Treasury’s blueprint for reform on the financial regulatory structure. Major players in the futures industry, like the CME Group and the Commodity Futures Trading Commission (CFTC), are weighing in too, more specifically on Treasury’s intermediate-term recommendation to merge the Securities and Exchange Commission (SEC) and CFTC. While cheering Treasury’s decision to overhaul the financial services regulatory system, both the CME and CFTC’s messages were clear: fix what’s broken with the SEC (or, rather, harmonize the regulatory approaches of the two agencies) before considering any merger activity. CME said the merger proposal “should be addressed following further harmonization of the separate and very distinct regulatory frameworks applicable to futures and securities markets. We agree with Secretary [Henry] Paulson’s conclusion that the SEC and Congress need to act promptly to align more closely the SEC’s systems and procedures with the governing philosophy of the CFTC. We understand that this reform of the SEC needs to be completed before the process of considering a merger between the two agencies can begin.”

Continue reading ‘Blueprint buzz’ »

Several media outlets reported that the Federal Reserve Bank announced that on Wednesday March 26, major investment banks and broker dealers borrowed $37 billion through the discount window. The Fed opened the discount window to this new and wider group of participants 10 days earlier along with brokering the JP Morgan purchase of Bear Stearns.

Perhaps if they opened the window earlier, BS would have been able to climb through it.

That so many firms jumped at the cheep loans is not a good sign. Either the firms are near a financial calamity or they are lining up for free government cheese, as it were. And what is the Fed (we) getting as collateral for these low interest loans? Worthless subprime paper.

A remarkable thing has been going on in the midst of so much bad financial news of late.

Hope.

Somehow the collapse of one of the five largest investment banks, Bear Stearns, has been seen as a market bottom by many so called experts and the market itself apparently. Since the announcement of the Fed backed JP Morgan purchase of BS last week—which was amended yesterday— equity markets have experienced an impressive rally, nearly 800 points in the cash Dow since the lows of Monday March 17.

Why? Is it positive economic news? Not according to today’s numbers. The Conference Board announced today a 12 point drop in consumer confidence to 64.5 in March. The second consecutive double digit decline, keeping the index at a five-year low.

Continue reading ‘Bottom feeders’ »

Today JP Morgan upped its bid for Bear Stearns, not in the face of a competing bidder but over apparent rumblings from Bear Stearns shareholders unhappy with last week’s announced deal. If however, Bear Stearns is really worth five times what Morgan offered one week ago, you would think that it would make room for Morgan to assume the risk of the $30 billion of assets the Federal Reserve Bank promised to back in the original March 16th deal brokered by the Fed.

As we dig ourselves out of the economic crisis created by mispriced risk, it is probably not a good idea for the Fed to be taking risk off of the table.

Continue reading ‘Stranger by the day’ »

Panels on clearing have never been the most well attended panels during the annual Futures Industry Association (FIA) conference in Boca Raton FL. but clearing was the theme of much of the discussion during the recently concluded 2008 conference.

While the biggest news item may have been the announcement by the International Securities Exchange (ISE), Eurex and the Option Clearing Corporation (OCC) that they planned to create a transatlantic trading and clearing link that will allow Eurex customers to access ISE’s options market using their existing Eurex connections, more interesting though was the unanimity of support for the vertical clearing model during a panel of exchange leaders. What used to be a vigorous debate regarding the pros and cons of the vertical vs. horizontal clearing model became an acknowledgement of the ascendancy of the vertical model.

Richard Sandor, chairman of Climate Exchange Plc., which owns the European Climate Exchange (ECX) and Chicago Climate Exchange (CCX), is warming to the vertical model.

Continue reading ‘Boca beat’ »

Hot on the heels of the rogue trader incident that cost the firm $141 million a couple weeks ago, MF Global shares declined to $6 per share on Monday, March 17 from $17 on Friday, March 14. The loss prompted the company to issue a press release yesterday stating that its counterparty relationships are sound, that it is not experiencing any difficulty with its repo lines and has no exposure to subprime mortgage backed securities. And Joe Lewis, the Bermuda based football team owner who lost a billion dollars in the Bear Sterns debacle, he’s not a client. The CME Group, New York Mercantile Exchange and the Intercontinental Exchange issued releases stating that the company continues to meet its obligations to their clearing houses, and even the Commodity Futures Trading Commission stood up and said the firm continues to meet its regulatory requirements.

Continue reading ‘Suit filed against MF Global’ »

Last Friday after markets closed, CME Group got what could have been an obstacle to its definitive agreement to acquire Nymex Holdings, announced on Monday, off the table by selling the CBOT metals complex to NYSE Euronext. The deal looks shiny and bright for both exchanges. NYSE Euronext gets an entry point in the U.S. futures business, while CME unloads its metals complex to make way for the acquisition of the Nymex.

Pending regulatory approvals, full and e-mini gold and silver futures and options will begin trading later this year on NYSE Euronext trading system LiffeConnect. “This is our initial entry in the U.S. futures business, and is consistent with the goals set forth in NYSE Euronext merger,” says an NYSE Euronext spokesperson, adding that the benefits of the deal include “more growth opportunities and the continuing use of Liffe Connect technology.”

Continue reading ‘Shiny, happy metals deal’ »

Everyone is expecting the Federal Open Markets Committee (FOMC) to come in later today with a significant cut in the Fed Funds rate following its March meeting. Estimates in the general business media range from 50 basis points to 100 basis points, a full 1% pushing the rate from 3% to 2%. That would leave the Fed with very few bullets and continue to ignore disturbing inflation data.

Continue reading ‘Will Fed run out of ammo?’ »

Poor CME Group. On the day it announces one of its proudest achievements, that it entered into an agreement with the New York Mercantile Exchange to combine interests, basically buy the oil exchange, what happens? The markets goes into free fall due to the near failure of one of the street’s largest investment banks Bear Stearns, one of its largest clearing members, MF Global, loses 62% of its stock value in a day and the CME’s own stock share ended the day down by almost 8%; at its worst point was down 15%. CMEGroup Executive Chairman Terry Duffy, an Irishman who should have savoured this St. Patrick’s Day, no doubt felt as pounded on as his exchange’s stock.

The good news is at least as of today, most precincts have reported in for MF Global: the CME, Intercontinental Exchange and London.Clearnet all sent releases that MF Global was in good standing. Even the industry’s regulator, the Commodity Futures Trading Commission, sent a notice stating the same. Perhaps traders should take this St. Patty’s day to reflect on what Scarlett Ohara said, “Tomorrow’s another day.”