Forex volume surges to 5.3 Trillion per day

Foreign-exchange trading surged to an average $5.3 trillion a day in April 2013, boosted by greater yen volumes, the Bank for International Settlements said.

Trading increased 33 percent since the same period in 2010, the BIS said, citing a survey of currency traders it runs every three years. That’s an acceleration from a 20 percent increase in the three years through 2010. The yen had the biggest jump in trading activity among major currencies, while the euro’s role as the second-most traded currency was reduced. Emerging-market currencies increased their share, with the Mexican peso entering the top 10 most-actively traded currencies.

Volumes in the global foreign-exchange market are increasing as traders expand activities in developing nations and banks focus on the currency markets while stricter regulations after the financial crisis threaten earnings from other divisions. Transactions jumped this year as diverging economies stoked increasing swings in exchange rates.

“Post the financial crisis in 2008, foreign exchange has been a very interesting asset class for banks and investors to focus on because of the liquidity and diversity,” said Vincent Craignou, the London-based global head of foreign exchange and precious metals derivatives at HSBC Holdings Plc. “It has also become extremely competitive because a lot of banks have been keen to grow market share.”

http://www.bloomberg.com/news/2013-09-05/currency-trade-reaches-5-3-trillion-a-day-as-yen-turnover-jumps.html

McCain playing poker on his iPhone

As the hearing continues, our ace photographer Melina Mara reports she spotted Sen. John McCain (R-Ariz.) “passing the time by playing poker on his iPhone during the hearing.”

We eagerly await the photographic proof, but generally trust Melina’s sharp eye.

Update 5:55 p.m.: And here’s the proof:

Senator John McCain plays poker on his IPhone during a U.S. Senate Committee on Foreign Relations hearing where Secretary of State JohnKerry, Secretary of Defense Chuck Hagel, and Chairman of the Joint Chiefs of Staff General Martin Dempsey testify concerning the use of force in Syria, on Capitol Hill in Washington DC, Tuesday, September 3, 2013. (Photo by Melina Mara/The Washington Post)

http://www.washingtonpost.com/blogs/post-politics-live/the-senates-syria-hearing-live-updates/?id=ed01ca14-222b-4a23-b12c-c0b0d9d4fe0a

US government lawsuit is revenge for AAA downgrade, says S&P

S&P, America’s largest credit ratings agency, has also accused the government of curtailing its right to free speech, which is enshrined in the US constitution.

The Department of Justice (DoJ) is suing S&P for allegedly misleading banks about the risk of certain debt products in the run-up to the 2008 financial crisis, in order to boost the fees it could claim. The ratings agency also failed to downgrade the ratings it awarded the so-called collatoralised debt obligations (CDOs) even though it knew that the mortgage-backed securities they were based on were becoming increasingly shaky.

A number of major credit ratings agencies gave the CDOs high ratings at the time, but S&P is the only one being taken to court by the DoJ for allegedly misleading banks. It is also the only major ratings agency to have downgraded the US’s credit rating.

On Tuesday, the credit ratings agency accused the DoJ of pursuing an “impermissibly selective, punitive and meritless” lawsuit in “retaliation” for its decision to exercise “free speech rights with respect to the creditworthiness of the United States of America”. It made the claims in papers lodged in a California court – one of 16 parallel lawsuits S&P is fighting in different states to have the claims permanently dismissed on the grounds that the claimants are prejudiced.

S&P controversially downgraded America’s credit rating from the top-tier AAA status to AA-plus in 2011, to reflect fears that Washington’s failure to address the so-called fiscal cliff would jeopardise its ability to meet debt repayments. The downgrade outraged the US government and sparked sparked a sell-off of US shares.

http://www.telegraph.co.uk/finance/economics/10285005/US-government-lawsuit-is-revenge-for-AAA-downgrade-says-SandP.html

No Electricity Or Toilet Paper Is A Small Price To Pay For "All Time Highs"

Now that the All Time High (ATH) in the S&P is a distant memory (at least until the Syrian war becomes a widespread conflict involving all global powers and the US suddenly has to issue, and monetize, a few extra trillion) there are those momentum chasers who have an itch to BTFATH. To all of them we have a message: don't despair, and merely set your sights a little lower, on the globe that is, to Venezuela where the local stock market keeps crushing every upside resistance level and hitting new all time highs day after day after day, resulting in an annualized return of nearly 200% so far!

Now, some of the more pedantic readers may ask: is it worth having a "record high" stock market and not having toilet paper?

We don't know. Supposedly according to Keynesian logic record high stocks day after day should lead to consumers ignoring everything adverse about their lives: such as wiping with, well, nothing, and looking with hopeful eyes to a future made of maxed out credit cards.

However, while toilet paper may be a luxury in the country with the best performing stock market in 2013, electricity is still a staple. So we intent to follow closely what happens next in Venezuela, where as Reuters reports, a blackout just left most of the capital, and numerous states, out in the dark.

A large-scale blackout on Tuesday affected much of the capital Caracas and various states, members and witnesses reported Reuters.

For now, there was no official confirmation on the cause of the interruption of light, but users in the social network Twitter reported that states like Zulia, Anzoategui, Merida, Lara, Barinas Falcon and also lacked electricity.

Venezuela suffers constant electricity rationing due to problems with hydroelectric generation, from which 64 percent of the country's electricity is derived.

In 2010, the government blamed the drought for the electricity crisis and after the rainy season reservoirs recovered accusations pointed to sabotage, but continued rationing.

So: all time stock highs but no toiler paper or electricity... oh and a constantly devaluaing currency of course, which is the only reason for the stock market performance? At what point does the stock market surge no longer serve as a distraction to what is plain and simple social collapse (not only in Venezuela): is the breaking point civil war, cannibalism, the zombie apocalypse, or thermonuclear war? Luckily, if and when the US attacks Syria, we made find out soon.

citizens not employed chart

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US Banks on Swiss: RIP

The Buffets and the Gates of the US will be shedding a few tears this week as the United States and Switzerland have reached an agreement that brings the status of the latter as a tax haven for Americans (or will they?). No more hiding their cash away in Swiss banks. No more tax avoidance and money laundering. No more secret accounts and banking secrecy. At one time bankers could be trusted to keep secrets. These days they can’t. There’s always someone somewhere willing to pay more than the secret of what you have locked away in the vaults is actually worth.

The US and Switzerland have been talking over the possibility of putting a stop to the flow of money from the US into the Swiss banks for three years and have just found some common ground. Although it is hard to see just what advantage the Swiss state has got out of the whole affair. Swiss banks will end up being punished if they have aided and abetted wealthy US citizens in their attempts to hide money from the tax authorities. They will also be required to provide details to the US authorities regarding the account holders as well as details about people who are working on the accounts at the banks. Is this the end of Swiss banking?

US: Swiss Banking Secrecy

It seems that this will only marginally change things however, since for a number of years now already the Swiss bankers have been afraid of increased administration that has been imposed by US authorities and have ended up declining US-based clients from opening accounts with them. Although, it will have the added problem of making it very hard for a US citizen that is living or working in Switzerland to manage to actually open a bank account. The Swiss banks will refuse to do so after this agreement with the US. It’s all very well wishing to reduce tax havens, but what more does the US state actually want in terms of controlling US citizens that wish to open bank accounts in the place where they are living and working?

Delusions?

It also seems that the US authorities are under the greatest delusion believing that because the Swiss bankers refuse to open bank accounts that the US citizens that wish to place their wealth in other tax havens won’t be doing so. The Swiss banks are just a few amongst many world tax havens. The latter will naturally be opening the doors with welcome arms. Forbidding anything never stopped people doing it. Anyhow, perhaps we have all been deluded ourselves into believing that the National Security Agency was far more powerful than it actually was or is with its eavesdropping. Surely they could locate right down to the last dime the money that they are losing in tax avoidance?

But, that said, you would have to have been born just about yesterday at 4pm to still believe that Swiss banks would keep your secrets. Switzerland has been in the firing line for many years now with regard to their banking system.

The only thing that the Swiss will get out of it is that they will be able to write off all disputes with the US regarding taxation that has been voided due to money being placed in their banks. But, the future?

The Swiss Finance Minister Eveline Widmer-Schlumpf stated that the reputation of Switzerland’s banking sector and financial services depended on the agreement going through so that people might have confidence in the banking system. But, isn’t it just the opposite that made Swiss banks famous? Wasn’t it the secret and the fact that it was like a confessional box where anything that was said in the protected basement vaults stayed there? Whatever happens in a Swiss bank stays in a Swiss bank? No more, you had better get to Vegas; things apparently still stay there when they happen.

Swiss Banks

Intimidation?

The case of the Swiss banker that was arrested in April 2013 after having travelled to the USA showed the determination of the US authorities to come down upon tax evasion and tax havens with a mighty blow. The banker had entered the US on a vacation visa in New York. Although, once again the impunity of the US authorities to believe that it has the right to arrest anyone that enters the country for no apparent reason beggars belief. Just because you’re a banker doesn’t mean that the US can arrest you, does it? Intimidation? Bad for your image, at least. That’s not the way things are done in the world. Or, they shouldn’t be done like that. We don’t intimidate people that work for structures that are legal whether we like it or not. Change the laws, come to agreements. Stop using priggish, bullying force to get your own way. It’s not the bankers that are responsible for something that was set up long before they were out of diapers and into daiquiris.

People in senior positions in banks in Switzerland were advised to avoid travelling to the US at the start of this year. So, perhaps the only thing that occurred was for the US to lose out on visitors; visitors that were wealthy bankers to boot. It won’t change anything. While loopholes exist, the wealthy will find a way of exploiting the system and the administration is far too big and by the time the cog-wheels get moving for a change, the people have moved on to another place.

Secrecy Gone

In March 2013 Swiss banks such as Wegelin & Co. agreed to pay roughly $58 million in fines. They had admitted to helping hide $1.2 billion from the Internal Revenue Service. UBS also ended up paying a penalty of $780 million for having helped US citizens avoid taxes.

Now, the secrecy has gone in Swiss banks, who in their right mind would bank anywhere near Geneva? In 2012, there were 145 foreign-owned banks based in Switzerland. Today that number has fallen to just under 130. It’s not just the Swiss that were secretive. The foreign-based banks were also complacently happy with doing the same. Today, Switzerland has an offshore banking industry that is worth $2.2 trillion. That’s still the largest in the world. But, for how long?

It seems that Singapore is where the money flows are now going as the Swiss banks are seeing money being withdrawn from accounts in a capital flight. By 2020 Singapore is expected to be the number one destination for tax avoidance.

The solution? Perhaps like the other 670 US citizens did in the first half of this year: relinquish all rights to Americancitizenship and along with it avoid paying your taxation. The figure is the highest since data was first compiled in1998. Eduardo Saverin (Facebook founder) went last year. Isabel Getty (daughter Christopher Getty) threw in the towel this year along with Mahmood Karzai (brother of the President of Afghanistan).  So far, 39, 000 US citizens have come forward and owned up to having secret bank accounts outside of the US in the past few years. But, that’s just a minute sample of what is winging its way to the tax havens of the world.

But, it’s far from just the world’s wealthy. Secret files that were revealed by the International Consortium of Investigative Journalism in April 2013 showed that it was the dentists, the doctors that were at it too. There were even Greek villagers sitting alongside the Russian executives and the Wall Street fiddlers that were hiding their stash of cash in tax havens. It’s not just the mega-buck earners. It is estimated that there may be between $21 and $32 trillionthat is hidden somewhere in an off-shore bank account around the world. The 50 largest private banks in the world saw their assets grow from $5.4 trillion (2005) to $12 trillion (2010). Those private banks provide services to mainly high net worth people and they also happen to provide access to tax havens.

Whatever is happening with this world?

There was a time when the Swiss were known for being bankers, the Chinese were corrupt and the US was fair. Admittedly it was a long time ago, now. The Swiss just make chocolate and watches now.

The Chinese slap fines on companies that dabble with the Shanghai Composite and the US has become corrupt. Or were they just hiding that from everyone else?

http://www.zerohedge.com/contributed/2013-09-02/us-banks-swiss-rip

First Ever High Frequency Trading Transaction Tax Introduced In Italy

Nearly four years after Zero Hedge first suggested an HFT tax should punish algos that "churned" quotes and blasted empty bids and offers to stimulate "momentum ignition [12]" strategies, and generally corrupt market structure in a way that lead to both the flash crash, the BATS IPO farce, the FaceBook IPO debacle and the Nasdaq 3 hour crash, the first such tax is now a reality. And while it is not, and likely never will be implemented in a major (if declining) exchange such as the NYSE or Nasdaq, the first country to finally put an end to millions of parasitic empty quotes is Italy.

From the FT [13]:

Italy will on Monday become the first country to introduce a tax on high-frequency trading in a move that has become a test case for potential further crackdowns on the controversial practice.

The country will introduce levies against high-speed trading and equity derivatives in the final part of a two-stage process established this year to tax equity-related transactions.

The Italian version explicitly focuses on high-frequency trading and derivatives, which are often used by corporations and banks to hedge against risk. The tax will also apply regardless of where the transaction is executed, or the country of residence of the counterparty.

The conventional fallback excuse is already in play: liquidity will be damaged. Maybe, it remains to be seen. What will remain, however, is a far stronger orderbook, one which doesn't disappear on a dime, and one which doesn't lead to wholesale market shutdowns as the now infamous Nasdaq closure from two weeks ago.

Banks and brokers – many of whom were scrambling on Friday for clarification of key details – have warned the new taxes could further damage liquidity in the Italian market. Volumes have fallen sharply since the introduction of a tax on equities in March.

Specifically, the tax implementation will look as follows:

For high-frequency traders, order changes and cancellations will be taxed at 0.02 per cent when they occur within a timeframe shorter than half a second, once above a threshold. There will be fixed charges for equity derivatives, depending on the type of contract, and deals executed off-exchange will subject to a higher tax band.

There are of course those who have paid into the system handsomely enough to be exempt:

Intermediaries such as market makers are exempt from the tax.

And with this loophole, the scramble to reclassify all HFT traders as market makers begins.

So while the saying "better late than never" may be applicable, we are confident that when speaking in trivial cliches "too little too late" is far more appropriate.

 [14]

http://www.zerohedge.com/print/478343

Presenting The Numerous, Undisputed And Very Clear Signs That India's Currency Was Set For An Epic Crash

Citizens of India have been watching, in stunned amazement, as over the past month the local currency has lost an unprecedented 15% of its value, with a record plunge taking place just last night [5]. And, as so often happens, the population habituated to a government "acting in its best interests" is asking itself - how could we have possibly known this was coming. The answer, as usually happens, was staring everyone right in the face.

As Grant Williams shows in his latest "Things That Make You Go Hmm", the warnings came loud and clear, and were very explicit in the form of not one, not two, not ten, but many more sequentially imposed and escalating forms of capital controls by the Indian central bank that sought to prevent the conversion of paper into hard currency. Gold. (Which also overnight hit a record high in rupee terms [6]).

Following are the measures taken by the central bank and the government in 2013:

• Jan 21 - The government raises the gold import duty by 2% to 6%.
• Jan 22 - The government more than doubles the duty on raw gold to 5%.
• Jan 30 - Finance Minister P. Chidambaram says there are no plans for additional taxes or curbs on gold imports.
• Feb 1 - The Reserve Bank of India (RBI) plans to introduce three or four gold-linked products in the next few months.
• Feb 6 - The RBI says it would consider imposing value and quantity restrictions on gold imports by banks.
• Feb 14 - The central bank relaxes rules on gold deposit schemes offered by banks by allowing lenders to offer the products with shorter maturities.
• Feb 20 - The Trade Ministry recommends suspending cheaper gold jewellery imports from Thailand.
• Feb 28 - India keeps its gold import duty unchanged in its annual national budget, defying industry expectations.
• Feb 28 - India proposes a transaction tax of 0.01% on nonagricultural futures contracts, including for precious metals.
• March 1 - The Finance Minister appeals to people not to buy so much gold.
• March 18 - The Reserve Bank of India says it is examining banks that sell gold coins and wealth management products to identify "systemic issues", with a view to closing any legal loopholes.
• April 2 - The Finance Ministry suggests it is unlikely to raise the import tax on gold further to avoid smuggling and would instead introduce inflation-indexed instruments.
• May 3 - The RBI restricts the import of gold on a consignment basis by banks.
• June 3 - The Finance Minister says India cannot afford high levels of gold imports and may review its import policy.
• June 5 - India hikes the gold import duty by a third, to 8%.
• June 21 - Reliance Capital halts gold sales and investments in its gold-backed funds.
• June 24 - India's biggest jewellers' association asks members to stop selling gold bars and coins, about 35% of their business.
• July 10 - India's jewellers announce they might continue a voluntary ban on sales of gold coins and bars for six months.
• July 22 - The RBI moves to tighten gold imports again, making them dependent on export volumes, but offers relief to domestic sellers by lifting restrictions on credit deals.
• July 31 - India hopes to contain gold imports well below the 845 tonnes that were shipped last year, the Finance Minister says.
• Aug 13 - India hikes the import duty on gold for a third time in 2013, to 10%. Duties for silver and platinum are also increased to 10%. The customs duty on gold ore bars, ore, and concentrate are increased to 8% from 6%.
• Aug 14 - India turns the screws on gold buying again, banning imports of coins and medallions and making domestic buyers pay cash.

All of that culminated with the events from last night when the Rupee literally imploded.

Were the signs there for all to see? Why yes. If only people had opened their eyes.

http://www.zerohedge.com/print/478179

FX Dealers Banging the close

In the space of 20 minutes on the last Friday in June, the value of the U.S. dollar jumped 0.57 percent against its Canadian counterpart, the biggest move in a month. Within an hour, two-thirds of that gain had melted away.

The same pattern -- a sudden surge minutes before 4 p.m. in London on the last trading day of the month, followed by a quick reversal -- occurred 31 percent of the time across 14 currency pairs over two years, according to data compiled by Bloomberg. For the most frequently traded pairs, such as euro-dollar, it happened about half the time, the data show.

The recurring spikes take place at the same time financial benchmarks known as the WM/Reuters (TRI) rates are set based on those trades. Now fund managers and scholars say the patterns look like an attempt by currency dealers to manipulate the rates, distorting the value of trillions of dollars of investments in funds that track global indexes. Bloomberg News reported in June that dealers shared information and used client orders to move the rates to boost trading profit. The U.K. Financial Conduct Authority is reviewing the allegations, a spokesman said.

“We see enormous spikes,” said Michael DuCharme, head of foreign exchange at Seattle-based Russell Investments, which traded $420 billion of foreign currency last year for its own funds and institutional investors. “Then, shortly after 4 p.m., it just reverts back to what seems to have been the market rate. It adds to the suspicion that things aren’t right.”

Global Probes

Authorities around the world are investigating the abuse of financial benchmarks by large banks that play a central role in setting them.

Barclays Plc (BARC), Royal Bank of Scotland Group Plc and UBS AG (UBSN) were fined a combined $2.5 billion for rigging the London interbank offered rate, or Libor, used to price $300 trillion of securities from student loans to mortgages. More than a dozen banks have been subpoenaed by the U.S. Commodity Futures Trading Commission over allegations traders worked with brokers at ICAP Plc (IAP) to manipulate ISDAfix, a benchmark used in interest-rate derivatives. ICAP Chief Executive Officer Michael Spencer said in May that an internal probe found no evidence of wrongdoing.

Investors and consultants interviewed by Bloomberg News say dealers at banks, which dominate the $4.7 trillion-a-day currency market, may be executing a large number of trades over a short period to move the rate to their advantage, a practice known as banging the close. Because the 4 p.m. benchmark determines how much profit dealers make on the positions they’ve taken in the preceding hour, there’s an incentive to influence the rate, DuCharme said. Dealers say they have to trade during the window to meet client demand and minimize their own risk.

Currency Patterns

“There are some patterns in currencies that are very similar to what I have seen in other markets, such as the way the price-fixings’ effects disappear so often by the following day,” said Rosa Abrantes-Metz, a professor at New York University’s Stern School of Business, whoseAugust 2008 paper, “Libor Manipulation?,” helped trigger the probe into the rigging of benchmark interest rates. “You also see large price moves at a time of day when volume of trading is high and hence the market is very liquid. If I were a regulator, it’s certainly something I would consider taking a look at.”

WM/Reuters rates, which determine what many pension funds and money managers pay for their foreign exchange, are published hourly for 160 currencies and half-hourly for the 21 most-traded. The benchmarks are the median of all trades in a minute-long period starting 30 seconds before the beginning of each half-hour. Rates for less-widely traded currencies are based on quotes during a two-minute window.

London Close

Benchmark providers such as FTSE Group and MSCI Inc. base daily valuations of indexes spanning different currencies on the 4 p.m. WM/Reuters rates, known as the London close. Index funds, which track global indexes such as the MSCI World Index, also trade at the rates to reduce tracking error, or the drag on funds’ performance relative to the securities they follow caused by currency fluctuations.

The data are collected and distributed by World Markets Co., a unit of Boston-based State Street Corp. (STT), and Thomson Reuters Corp. Bloomberg LP, the parent company of Bloomberg News, competes with Thomson Reuters and ICAP in providing news and information as well as currency-trading systems.

Reuters and World Markets referred requests for comment to State Street. Noreen Shah, a spokeswoman for the custody bank in London, said in an e-mail that the rates are derived from actual trades and the benchmark is calculated anonymously, with multiple review processes to monitor the quality of the data.

“WM supports efforts by the industry to determine and address any alleged disruptive behavior by market participants and we welcome further discussions on these issues and what preventative measures can be adopted,” Shah said.

Opaque Market

The foreign-exchange market is one of the least regulated and most opaque in the financial system. It’s also concentrated, with four banks accounting for more than half of all trading, according to a May survey by Euromoney Institutional Investor Plc. Deutsche Bank AG (DBK) is No. 1 with a 15 percent share, followed by Citigroup Inc. (C) with almost 15 percent and London-based Barclays and Switzerland’s UBS, which both have 10 percent. All four banks declined to comment.

Because they receive clients’ orders in advance of the close, and some traders discuss orders with counterparts at other firms, banks have an insight into the future direction of rates, five dealers interviewed in June said. That allows them to maximize profits on their clients’ orders and sometimes make their own additional bets, according to the dealers, who asked not to be identified because the practice is controversial.

‘Incredibly Large’

Even small distortions in foreign-exchange rates can cost investors hundreds of millions of dollars a year, eating into returns for savers and retirees, said James Cochrane, director of analytics at New York-based Investment Technology Group Inc., which advises companies and investors on executing trades.

“What started out as a simple benchmarking tool has become something incredibly large, and there’s no regulatory body looking after it,” said Cochrane, a former foreign-exchange salesman at Deutsche Bank who has worked at Thomson Reuters. “Every basis point is worth a tremendous amount of money.”

An investor seeking to change 1 billion Canadian dollars ($950 million) into U.S. currency on June 28 would have received $5.4 million less had the trade been made at the WM/Reuters rate instead of the spot rate 20 minutes before the 4 p.m. window.

“Funds that consistently trade using the WM/Reuters fix are basically trading against themselves, and their portfolio is taking a hit,” Cochrane said.

FCA Complaint

One of Europe’s largest money managers, who invests on behalf of pension holders and savers, has complained to the FCA, alleging the rate is being manipulated, said a person with knowledge of the matter who asked that neither he nor the firm be identified because he wasn’t authorized to speak publicly.

The regulator sent requests for information to four banks, including Frankfurt-based Deutsche Bank and New York-based Citigroup, according to a person with knowledge of the matter. Chris Hamilton, a spokesman for the FCA, declined to comment, as did spokesmen for Deutsche Bank and Citigroup.

Bloomberg News counted how many times spikes of at least 0.2 percent occurred in the 30 minutes before 4 p.m. for 14 currency pairs on the last working day of each month from July 2011 through June 2013. To qualify, the move had to be one of the three biggest of the day and have reversed by at least half within four hours, to exclude any longer-lasting movements.

The sample was made up of currency pairs ranging from the most liquid, such as euro-dollar, to less-widely traded ones such as the euro to the Polish zloty.

Pounds, Kronor

End-of-month spikes of at least 0.2 percent were more prevalent for some pairs, the data show. They occurred about half the time in the exchange rates for U.S. dollars and British pounds and for euros and Swedish kronor. In other pairs, including dollar-Brazilian real and euro-Swiss franc, the moves occurred about twice a year on average.

Such spikes should be expected at the end of the month because of a correlation between equities and foreign exchange, said two foreign-exchange traders who asked not to be identified because they weren’t authorized to speak publicly on behalf of their firms. A large proportion of trading at that time is generated by index funds, which buy and sell stocks or bonds to match an underlying basket of securities, the traders said.

Banks that have agreed to make transactions for funds at the 4 p.m. WM/Reuters close need to push through the bulk of their trades during the window where possible to minimize losses from market movements, the traders said. That leads to a surge in trading volume, which can intensify any moves.

Index Funds

For 10 major currency pairs, the minutes surrounding the 4 p.m. London close are the busiest for trading at the end of the month, quarter and year, according to Michael Melvin and John Prins at BlackRock Inc. who examined trading data from the Reuters and Electronic Broking Services trading platforms from May 2, 2005, to March 12, 2010.

Reuters and ICAP, which owns EBS, declined to provide data on intraday trading volumes for this article.

Index funds, which manage $3.6 trillion according to Morningstar Inc., typically place the bulk of their orders with banks on the last day of the month as they adjust rolling currency hedges to reflect relative movements between equity indexes in different countries and invest inflows from customers over the previous 30 days. Most requests are placed in the hour preceding the 4 p.m. London window, and banks agree to trade at the benchmark rate, regardless of later price moves.

Opposite Effect

“Since the major fix-market-making banks know their fixing orders in advance of 4 p.m., they can ‘pre-position’ or take positions for themselves prior to the attempt to move prices in their favor,” Melvin and Prins wrote in “Equity Hedging and Exchange Rates at the London 4 P.M. Fix,” an update of a report for a 2011 Munich conference. “The large market-makers are adept at trading in advance of the fix to push prices in their favor so that the fixing trades are profitable on average.”

Recurring price spikes, particularly during busy times such as the end of the month, can indicate market manipulation and possibly collusion, according to Abrantes-Metz.

“If the volume of trading is high, each trade has less importance in the overall market and is less likely to impact the final price,” said Abrantes-Metz, who’s also a principal at Chicago-based Global Economics Group Inc. and a World Bank consultant. “That’s exactly the opposite of what we’re seeing here. That could be a signal of a problem in this market.”

‘Massive Trades’

U.S. regulators have sanctioned firms for banging the close in other markets. The CFTC fined hedge-fund firm Moore Capital Management LP $25 million in April 2010 for attempting to manipulate the settlement price of platinum and palladium futures. The regulator ordered Dutch trading firm Optiver BV to pay $14 million in April 2012 for trying to move oil prices by executing a large number of trades at the end of the day.

Melvin, head of currency and fixed-income research at BlackRock’s global markets strategies group in San Francisco, and Prins, a vice president in the group, said that because banks could lose money if the market moves against them, their profit may be viewed as compensation for the risk they assume. Both declined to comment beyond their report.

“Part of the problem is it’s all concentrated over a 60-second window, which gives such an opportunity to bang through massive trades,” said Mark Taylor, dean of the Warwick Business School in Coventry, England, and a former managing director at New York-based BlackRock.

World Markets, the administrator of the benchmark, could extend the periods during which the rates are set to 10 minutes or use randomly selected 60-second windows each day, said Taylor, who began his career as a currency trader in London.

‘Fiduciary Duty’

Trading at the highly volatile 4 p.m. close instead of at a daily weighted average could erase 5 percentage points of performance annually for a fund tracking the MSCI World Index, according to a May 2010 report by Paul Aston, then an analyst at Morgan Stanley. (MS) For an asset manager trading $10 billion of currencies, that equates to $500 million that would otherwise be in the hands of investors. Aston, now at TD Securities Inc. in New York, declined to comment.

Fund managers rarely complain about getting a bad deal because they’re assessed on their ability to track an index rather than minimize trading costs, according to consultants hired by companies and investors to help execute trades efficiently.

“Where possible, I would always advise clients not to trade at the fix -- but minimizing tracking error is so important to them,” said Russell’s DuCharme. “That doesn’t seem to be the right attitude to take when you have a fiduciary duty to seek the best execution for pension holders.”

To contact the reporters on this story: Liam Vaughan in London at lvaughan6@bloomberg.net; Gavin Finch in London atgfinch@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

http://www.bloomberg.com/news/print/2013-08-27/currency-spikes-at-4-p-m-in-london-provide-rigging-clues.html 

Silicon Valley can’t save America’s dying economy

Six fatal ‘headwinds’

In his NBER forecast of America’s future GDP growth, Gordon admits starting with a couple of biases favoring an optimistic outcome: First, he admits “pretending that the financial crisis did not happen” and, secondly, he allows that he is making a “heroic assumption that another invention with the same productivity impact of the Internet revolution is about to appear on the near-term horizon. Thus our starting point is quite optimistic.”

Gordon’s forecast begins with America’s average GDP growth rate of 1.8% from 1987-2007. From there, Gordon’s forecast is an “exercise in subtraction” with each of the following six headwinds reducing America’s future GDP growth by a percentage point, ultimately driving America’s future GDP down to 0.2%. Yes, that’s right back to where America’s economic growth rate was before 1750 and the Industrial Revolution.

Gordon’s NBER paper is a must-read, but here’s a summary of the six headwinds, as distilled by Bloomberg Markets:

1. Demographics: “As more and more U.S. baby boomers retire, the number of hours worked per person declines, and so does the growth in GDP per capita.” (Down goes GDP to 1.6%.)

2. Stagnant educational attainment: “The U.S lags behind other advanced industrial economies in reading, math and science.” (GDP growth drops to 1.4%.)

3. Rising income inequality: “From 1993 to 2008, the wealthiest 1% captured 52% of inflation-adjusted income gains.” (GDP falls to 0.9%.)

4. Globalization and information technology: “More and more skilled jobs in the U.S. are being automated or are shifting to low-wage countries. (Down further to 0.7% GDP.)

5. Energy and environment: “Possible U.S. efforts to combat global warming, such as a carbon tax, act as a drag on economic growth.” (GDP reduced to 0.5%.)

6. Massive household and government debt: “Spending money on debt repayments in the U.S. reduces funds available for productive economic activity. (GDP crashes at 0.2%.)

Gordon closes his NBER challenge on a lighter note: “There are more than enough provocative ideas in this article, but I conclude with another. My guess is that a Canadian or Swedish economist looking at the past and future of his or her country would not be nearly so alarmed. Why not? What are the differences in environment, resources, legacy history, policies, and culture that create their relative optimism? Experts [in other countries] are welcome to contribute their own reactions to this diagnosis of the successful ‘American century’ and the possibility that future economic growth may gradually sputter out.” 

http://www.marketwatch.com/Story/story/print?guid=61FA3E8A-0C30-11E3-A54E-002128040CF6

Typo supposedly causes 99% decline in Israeli stock

typing error caused the value of one of Israel’s largest companies to instantly drop over 99% in value Sunday, dragging the Tel Aviv stock exchange down several points before the mistake was discovered and fixed.

The catastrophic mistake was apparently caused during a transaction by a trader who wanted to sell shares in another company but accidentally entered Israel Corp. shares instead,Globes reported.

The transaction was canceled, but in the meantime trading ground down to just 84% of the daily average.

Israel Corp. is Israel’s largest holding company, primarily dealing in fertilizers and specialty chemicals.

As of 2:45 p.m. the TASE-25 had made an almost complete recovery.

A chart showing the TA-25 making a sharp drop. (Screenshot: Tase.co.il)

http://www.timesofisrael.com/typing-error-sends-tel-aviv-stock-exchange-plummeting/

A decade of flat wages

Middle Class by zerohedge

Best And Worst Performing Hedge Funds Of 2013

Here are the best and west performing hedge funds so far in 2013. We hardly find it surprising that the woefully named Keynesian Leveraged Quantitative Strategies, which has gotten every part of its name wrong, is among the worst alpha (and amusingly beta) generators so far in 2013.

MTD and YTD performance of select prominent hedge funds. Of note: two hedge funds are outperforming the S&P so far in 2013. The others aren't.

http://www.zerohedge.com/news/2013-08-23/best-and-worst-performing-hedge-funds-2013-update