CFTC Archives - The Industry Spread

NFA Bars Commodity Pool Operator

August 19, 2019 by Michael Volpe Leave a Comment Filed Under: Feature Articles Tagged: Beverstone, CFTC, futures, Kaehler, NFA

The NFA announced the action against Beverstone Fund Management.

“NFA has permanently barred Beverstone Fund Management (Beverstone), an NFA Member commodity pool operator and commodity trading advisor located in George Town, Cayman Islands, and its principal and sole associated person Roland Kaehler from membership and from acting as a principal of an NFA Member.”

“Specifically, the Committee finds that Beverstone and Kaehler made false and misleading statements to its participants,” a decision by the NFA found dated August 15, 2019.

The decision spelled out the specific transgressions.

After sustaining heavy losses in two feeder funds, Beverstone provided an indemnification agreement to clients, promising to pay investors for losses of nearly $6 million if they kept their funds in place until September 30, 2018.

Here is how NFA described what happened next.

“At the time (May 1, 2018), Kaehler and Beverstone sent ‘indemnification agreements’ to participants, the Feeder Funds had incurred about $5.85 million in net losses, which would have been the minimum amount Beverstone and Kaehler were agreeing to pay the participants. However, Kaehler admitted to NFA neither he nor Beverstone had sufficient liquid assets to satisfy the amounts due under the ‘indemnification agreement’. Kaehler told NFA that at the time he signed the ‘indemnification agreements’ he intended to satisfy them by achieving trading gains in the Feeder Funds- notwithstanding the fact that the cumulative ROR for the Master Fund was approximately negative 87%.”

The Feeder Fund lost another $408,000 from May 1- when the indemnification agreements were signed and September 1, according to the complaint.

“During the week of November 26, 2018, NFA asked Kaehler how he intended to satisfy the amounts due under the indemnification agreements. Kaehler said he planned to liquidate some of his assets including his ownership in a commercial building in Toronto, a second personal residence in Prague,” the NFA complaint noted further.

NFA soon discovered he had no such ownership interests.

“As a consequence, Beverstone and Kaehler failed to demonstrate that they had the financial wherewithal to fulfill, even in part, their financial obligations,” the complaint stated.

Beverstone is a repeat offender.

In 2018, Beverstone was charged with failing to file quarterly reports; they were fined $30,000, according to the NFA for that infraction.

NFA has barred Beverstone from any NFA activity.

The NFA is a self-regulatory organization which regulates the futures industry.

“In 1974, Congress established the Commodity Futures Trading Commission (CFTC). The same legislation that established the CFTC also authorized the creation of registered futures associations, giving the industry the opportunity to create a self-regulatory organization. NFA’s formal designation as a “registered futures association” was granted by the CFTC on September 22, 1981. NFA began its regulatory operations in 1982,” according to the NFA’s website.

Euro Extends Drop, ECB Stimulus Bets Rise, Dollar Steadies

August 19, 2019 by Michael Moran Leave a Comment Filed Under: Market News, Market News - Asia Open Tagged: AUD/USD, Brexit, CFTC, EUR-USD, FX trading, GBP-USD, USD/JPY

Summary: The Euro extended its drop for the 4^thstraight day to 1.1090 (1.1115) on rising bets of a bold stimulus package from the ECB in their next meet (September 12). On Thursday, ECB Governing Council Member Olli Rehn suggest that the Europe’s central bank could restart its QE program. Sterling rallied 0.4% to 1.2145 (1.2105) as growing opposition to PM Boris Johnson’s promise to take Britain out of the EU with or without a deal forced crowded shorts to cover. The Dollar Index (USD/DXY) steadied to 98.203 (98.096) after a jump in US Building Permits offset a fall in Housing Starts. On Sunday, White House Economic Adviser Larry Kudlow said that there is little risk of a recession despite a volatile week for bond markets. Treasury yields stabilised with the benchmark 10-year rate finishing up 2 basis points at 1.55%.
Wall Street stocks gained with risk appetite with the Dow finishing the week up 1.2% to 25,920. (25,600). The S&P 500 gained 1.4% to 2,892.
The Eurozone’s Trade Surplus narrowed to EUR 17.9 billion in July. US Building Permits rose to 1.34 million units from 1.23 million while Housing Starts dropped to 1.19 million from 1.25 million the previous month.

BLOOMBERG US TREASURY YIELD TABLE – 19 AUGUST 2019

– EUR/USD – slip-sliding away, the Euro extended its retreat to finish at 1.1090 from 1.1115. The shared currency fell for the fourth day in a row as market bets grow for an ECB stimulus move in their upcoming September policy meeting.

– GBP/USD – Sterling rallied as crowded shorts ran for cover on growing opposition from political parties to Boris Johnson’s pledge to take Britain out of the European Union with or without a deal. The British Pound climbed against both the US Dollar (1.2145 from 1.2105) and Euro (0.9130 from 0.9183).

– USD/JPY – The Dollar edged higher against the Japanese currency to 106.35 (106.05 Friday) as US treasury yields steadied. The 10-year US yield climbed 2 basis points to 1.55% while Japan’s 10-year yield was at -0.24% from -0.25% Friday.

– AUD/USD – The Aussie finished little changed at 0.6775 (0.6778) after the risk of a September rate cut was lessened by RBA speak last week.

On the Lookout: Trade tensions will still drive the markets as we look to the week in front of us. Latest media releases saw President Trump accuse Chines tech giant Huawei as a national security threat. Trump also warned China of negative trade impacts should they use force on Hongkong protesters.
Today’s economic report releases are mostly second tier, but they will pick up starting tomorrow. The week’s big event is Friday’s annual Kansas City Fed’s Jackson Hole, Wyoming global central bank symposium where Jerome Powell is scheduled to open the gathering. Markets will be looking to Powell to gauge if US policy makers will add to July’s rate reductions.
New Zealand PPI input and output start today’s reports. Japan’s Trade Balance follows. The Eurozone’s Current Account Balance, Final Headline and Core CPI reports round up today’s data releases.

Trading Perspective: The latest Commitment of Traders/CFTC report saw speculative US Dollar longs trimmed further. Which gives more room for a Dollar rally, particularly against the Euro. We look at the breakdown of currencies in tomorrow’s report. The Dollar Index (USD/DXY), a mirror of the Euro, gained for 4 out of 5 trading days closing at 98.20. On Friday, China fixed its Yuan weaker against the Greenback which saw Emerging Market currencies mostly weaker. This is also mildly Dollar supportive.

1. EUR/USD – The Euro traded to an overnight and eight-day low at 1.10663 before steadying to close at 1.1090. Immediate support can be found at 1.1060 and 1.1040. A break could see us down to 1.1025, July 31 lows. Immediate resistance can be found at 1.1110 and 1.1140. Tomorrow sees the release of Euro area Manufacturing and Services PMI data which could pile on more pressure on the single currency if they point to a Euro area recession. For today look for a likely trading range of 1.1070-1.1120. Can’t go wrong trading that range.

2. GBP/USD – The British Pound extended its gains as shorts scrambled to cover when the currency didn’t rall any further. We reported last week that speculative GBP shorts rose to multi-year highs which is a danger sign to any further shorts. GBP/USD closed at 1.2145. Immediate resistance lies at 1.2175, overnight highs. The next resistance level can be found at 1.2210 and 1.2250. Immediate support can be found at 1.2110 followed by 1.2075. Look for a likely trading range today of 1.2120-1.2180, prefer to buy dips.

CNBC USD DXY (Dollar Index) 1 Y Chart – 19 AUGUST 2019

3. USD/JPY – The Dollar has traded between 105 and 107 for the past three weeks and held both levels well. No reason to see any change in that for now. USD/JPY closed at 106.35 (106.05 Friday). Overnight high traded was 106.50, which is immediate resistance. The next resistance level can be found at 106.70 and then 107.00. Immediate support lies at 106.00 (1060.025 overnight low) and 105.85. Look to trade a likely range of 106.00-106.60 today. Just trade the range shag on this one today.

4. AUD/USD – The Australian Dollar ended little changed at 0.6775 (0.6778 Friday). Overnight low traded was 0.670 which is today’s immediate support. The next support level lies at 0.6740. Immediate resistance can be found at 0.6800 (overnight high was 0.67951). The next resistance level is at 0.6820. The RBA’s latest meeting minutes are released tomorrow. There has been less negative rate cut chatter since after two policymakers (Kent and Lowe) poured cold water on the possibility. We reported last week that with the Australian Dollar TWI so low, there was less likelihood of that possibility. Like Sterling, Aussie net short speculative bets continue to grow. This supports the downside. Look to trade a likely range today of 0.6770-0.6820. Prefer to buy dips.

Have a good week ahead, happy trading all.

Kraft and Mondelēz Global to Pay $16 Million in Wheat Manipulation Case

August 18, 2019 by industryspread Leave a Comment Filed Under: Regulatory Annoucements Tagged: CFTC, Mondelēz Global, Wheat Manipulation Case

Washington, DC — The U.S. Commodity Futures Trading Commission today announced that it obtained a $16 million penalty and injunction pursuant to a federal court’s entry of a consent order against defendants Kraft Foods Group, Inc. and Mondelēz Global LLC. The order, entered on August 14, 2019 by the Honorable Judge John Robert Blakey of the U.S. District Court for the Northern District of Illinois, resolves the CFTC’s complaint alleging, among other things, manipulation of the wheat market.

The $16 million penalty is approximately three times defendants’ alleged gain. The order also enjoins Kraft and Mondelēz from engaging in future violations of the manipulation, wash trade, and position limit provisions of the Commodity Exchange Act and CFTC regulations charged in the complaint.

“America is the breadbasket of the world; wheat markets are its heart. Market manipulation inflicts real pain on farmers by denying them the fair value of their hard work and crops,” said Chairman Heath P. Tarbert. “It also hurts American families by raising the costs of putting food on the table. Instances of market manipulation are precisely the kinds of cases the CFTC was founded to pursue.”

The CFTC complaint alleged that in response to high cash wheat prices in late summer 2011, Kraft and Mondelēz developed, approved, and executed a manipulative strategy to purchase and stand for delivery on more than 3,000 futures contracts (approximately $90 million) of Soft Red Winter (SRW) Wheat in the December 2011 expiration to send the market a false signal that the defendants had demand for — and would use — futures wheat to source the defendants’ wheat supply requirements in their Toledo mill. (Release No. 7150-15) The complaint alleged that, in fact, Kraft and Mondelēz had no intention of sourcing wheat from the futures market, and the $90 million of wheat futures at issue far exceeded their actual sourcing needs. As alleged, Kraft’s and Mondelēz’s true goal was to narrow the price spread between the December 2011 and deferred-month wheat futures contracts, thereby causing the market to sell cash wheat to Kraft and Mondelēz at lower prices, while earning Kraft and Mondelēz a profit on their speculative futures positions. The complaint further alleged that Kraft’s and Mondelēz’s actions caused an artificial price that ultimately earned them more than $5 million in profits.

Since fiscal year 2017, the Division of Enforcement’s prosecution of manipulation-related cases has increased by more than 40 percent relative to the total number of such cases brought during the preceding 6 fiscal years.

CFTC Division of Enforcement staff members primarily responsible for this case are Robert Howell, Joseph Patrick, Stephanie Reinhart, Neel Chopra, Susan Gradman, and Scott Williamson, as well as former staff members Michael Frisch, Jennifer Smiley, and Rosemary Hollinger. Division of Market Oversight staff members responsible for this case are David Amato, Gene Kunda, Christa Lachenmayr, and Jerry Lavin.

A statement from the Commission can be found here. A further concurring statement by Commissioners Berkovitz and Behnam can be found here.

CFTC Charges International Enterprise with Operating a $103 Million Fraudulent Binary Options Trading Scheme

August 17, 2019 by industryspread Leave a Comment Filed Under: Regulatory Annoucements Tagged: CFTC, Fraudulent Binary Options, International Enterprise

Washington, DC — The U.S. Commodity Futures Trading Commission today filed a civil enforcement action in the U.S. District Court for the Northern District of Illinois charging five entities and four individuals with Fraudulent binary options enterprise that targeted and victimized U.S. residents. As alleged in the complaint, the defendants executed their unlawful scheme through internet websites using fictitious trade names such as BigOption, BinaryBook, and BinaryOnline.

The following foreign entities and persons were sued in the CFTC complaint, which seeks to hold them liable for, and enjoin them from, fraud and other violations:

Yukom Communications Ltd., incorporated in Israel
Linkopia Mauritius Ltd., incorporated in Mauritius
Wirestech Limited d/b/a BigOption, incorporated in the Republic of the Marshall Islands
WSB Investments Ltd. d/b/a BinaryBook, incorporated in Anguilla, the United Kingdom, St. Vincent and the Grenadines, and Gibraltar
Zolarex Ltd. d/b/a BinaryOnline, incorporated in the Republic of the Marshall Islands
Yakov Cohen
Yossi Herzog
Lee Elbaz
Shalom Peretz

James McDonald, CFTC’s Head of Enforcement
“Our efforts to hold wrongdoers accountable do not stop at our shores,” said CFTC Director of Enforcement James McDonald. “Working with our partners here in the U.S. and internationally, this enforcement action represents the CFTC’s continued commitment to rooting out fraud from our markets in all forms, protecting U.S. customers, and holding participants at all levels accountable.”

The CFTC’s complaint charges that from March 2014 through the present, the defendants fraudulently solicited and accepted more than $103 million in connection with their binary options trading scheme. As alleged in the complaint, the defendants have solicited individuals located throughout the U.S. and elsewhere to trade binary options through internet trading websites. The complaint further charges that the defendants have falsely stated that the binary options offered by the five defendant entities are actual transactions subject to objective market conditions when, in fact, they are mere book entries whose outcomes can and have been manipulated to force customer losses. The complaint also alleges that the defendants falsely state that the interests of the defendant entities are aligned with the interests of customers, when in fact the entities are on the opposite side of each binary option trade and therefore profit from customer losses. The complaint further alleged that the defendants falsely represent that the binary options being offered are profitable, when in fact approximately 95 percent of their customers lose money.

The complaint also alleges that the defendants misrepresent the financial expertise, physical location, and identity of the individual “brokers” who solicit and sell binary options and that the brokers have routinely and consistently used high pressure sales techniques when soliciting customers to deposit funds with the foreign entities. The complaint quotes an email from Elbaz, one of the defendants, to certain brokers: “We are the money makers and no one can stop us! I want to hear the noise on the floor! This is not a cemetery here! It is a boiler room! . . . Either you sell the client or he sells you a reason he can’t deposit! . . . Don’t leave the money! Just Take It!”

The complaint further charges that the defendants have engaged in various activities to conceal the true nature of their binary options enterprise, including setting up various foreign nominee entities to enter into agreements and open off-shore bank accounts through which customer funds are transferred, concealed, and ultimately misappropriated. Additionally, the defendants have utilized various manipulative or deceptive devices, including so-called “bonuses” and “risk free” trades, and artificially manipulated the results of binary option trades to force customer losses and ultimately prevent customers from withdrawing funds. The complaint also charges the defendants with acting as futures commission merchants without registering as such, as required by CFTC regulations.

In its continuing litigation against the defendants, the CFTC seeks disgorgement of ill-gotten gains, civil monetary penalties, restitution for the benefit of customers, permanent registration and trading bans, and a permanent injunction from future violations of the Commodity Exchange Act.

Meanwhile, on August 7, 2019, Defendant Elbaz was convicted by a federal jury of wire fraud and conspiracy to commit wire fraud in violation of criminal statutes based upon substantially the same underlying facts as alleged in the CFTC Complaint. She is currently awaiting sentencing in the matter of United States v. Elbaz, Case No. 18-cr-00157 (D. Md.).

The CFTC cautions victims that restitution orders may not result in the recovery of money lost, because the wrongdoers may not have sufficient funds or assets. The CFTC will continue to fight vigorously for the protection of customers to ensure wrongdoers are held accountable.

The CFTC thanks the U.S. Securities and Exchange Commission for their assistance in this matter. The CFTC also thanks and acknowledges the assistance of the Australian Securities and Investments Commission, Financial Supervision Commission of Bulgaria, Central Bank of Hungary, and Israel Securities Authority.

CFTC Division of Enforcement staff members responsible for this case are Elizabeth N. Pendleton, Heather Dasso, Stacie Pan, Elizabeth Streit, and Scott Williamson.

CME Head Weighs in on SWAP Regulation Standoff

August 16, 2019 by Michael Volpe Leave a Comment Filed Under: Feature Articles Tagged: CCP, CFTC, CME, ESMA, FIA, G20, NASDAQ, swap

Terry Duffy is the Chief Executive Officer (CEO) of the CME Group and he was the latest guest on the Futures Industry Association (FIA) podcast entitled FIA Speaks.

Walt Lukken, FIA’s President and CEO hosts the podcast. On the podcast, Lukken asked Duffy about the EU’s plan to allow its regulators to examine certain systemically risky transactions outside their geographical jurisdiction and demand approval of said transaction.

The plan has caused an uproar in the US, which said global swaps regulation which has gone through a transformation which started at the G20 meeting in 2010 in Pittsburgh.

At that meeting, global powers agreed to a set of guiding principles in regulating swaps; among those principles was deference, meaning each regulator would stay out of other’s jurisdiction.

Primarily, the G20 agreed to move swaps from primarily trading over the counter to trading through a central clearinghouse (CCP).

Now, the EU is threatening to insist on having veto power over transactions which occur outside its jurisdiction, in order to examine the financial strength of the CCP in the transaction.

Here is part of a story in the Wall Street Journal from 2018, “In a draft law published in June last year, the European Commission, the bloc’s Brussels-based executive, proposed granting powers to an EU agency in Paris, the European Securities and Markets Authority, to vet overseas clearinghouses. Under the proposal, which needs to be ratified by the European Parliament and EU governments, ESMA would jointly supervise foreign clearinghouses with the local supervisor and the European Central Bank, including through on-site inspections.”

“There is legislation currently that his passed in Europe that would allow their regulators to potentially- the rules are still being written- but potentially to regulate foreign CCPs, including the CME’s clearinghouse,” Lukken said.

In his response, Duffy noted that he and Lukken recently both testified in front of Congress on this issue and there was bi-partisan opposition to Europe’s plan.

“The comments being made coming out of that hearing and that were being made by both sides of the aisle at that hearing were fairly powerful,” Duffy said, “In all the years I’ve been in this business, I don’t think I’ve ever seen a Congressional hearing with its members being so adamant and involved in reminding its European counterparts this cannot happen and you will not oversee the US financial industry.”

Duffy noted that the new Chair of the Commodities Futures Trading Commission Heath Tarbert recently wrote an oped which touched on this issue.

“He has a huge job today; he has to oversee what Congress implemented which is putting these products into a CCP. I think it’s going to be very difficult for anybody in the European Union or anyone else to try to pull that jurisdiction out of the United States into theirs,” Duffy said.

Duffy concluded by striking a hopeful term, “I feel very comfortable- as comfortable as you can feel Walt when you’re dealing with Washington, you’ve been there a lot longer than I- that we will ultimately come up with a resolution both for the United States and the European Union.”

On the previous podcast, Lukken had Steve Maijoor, the head of the European Securities and Markets Authority, and he offered the perspective on this issue for Europe, “Relying on foreign regulation and regulators will continue to be very important, but in some cases, as you identified when there are systemic risks, in those cases, you want better tools from a European perspective, and making sure that the risks from a European perspectives are- that we have the information on that and if there is a concern we can address that from a supervisory perspective.”

The CME Group formed when the Chicago Board of Trade and the Chicago Mercantile Exchange, merged; it is a publicly traded company itself which currently trades on the NASDAQ under the symbol CME.

The FIA is, “the leading global trade organization for the futures, options and centrally cleared derivatives markets, with offices in Brussels, London, Singapore and Washington, D.C. FIA’s membership includes clearing firms, exchanges, clearinghouses, trading firms and commodities specialists from more than 48 countries as well as technology vendors, lawyers and other professionals serving the industry,” according to its website.

RBNZ Chops Rates 0.5%, Bond Yields Dive Then Climb

August 8, 2019 by Michael Moran Leave a Comment Filed Under: Market News, Market News - Asia Open Tagged: AUD/USD, CFTC, EUR-USD, FOMC, FX, FX trading, GBP-USD, Sino-U.S. trade talks, trading, trading platform, USD/JPY

Summary: The RBNZ started the ball rolling and cut its Official Cash Rate by 0.5%, more than expected, to an all-time low of 1.0%. The Bank of Thailand and Bank of India cut rates, raising concerns about the weak global economy. US President Trump called on the Federal Reserve to cut interest rates more in a tweet. Global bond yields plunged then pulled back at the last hour in New York, reversing sharp falls as dealers squared up. Market volumes were lower amidst choppy trade due to the northern hemisphere summer holidays. The benchmark US 10-year bond yield made an impressive comeback to 1.73% (1.72% yesterday) after plummeting to 1.595%, late 2016 lows.

CNBC US 10-Year Bond Yield Chart – 08 AUG 19

New Zealand’s Dollar, known by traders as the Kiwi, nosedived to 0.6377 from 0.6525, 3.1/2-year lows before settling at 0.6445. While the Dollar Index (USD/DXY) was little changed at 97.630, it was mixed versus it’s Rivals. The Greenback was lower against the safe-haven Yen (106.22 vs 106.45) and Swiss Franc (0.9755 vs 0.9765). The Euro ended flat at 1.1204 despite weaker German Industrial Production data. The Australian Dollar rebounded to close at 0.6760 (0.6758) after slumping to 0.6677 on the back of the Kiwi’s fall. Yesterday the Dollar gained against the Offshore Chinese Yuan (CNH) to 7.0800 (7.0555).
Wall Street stocks reversed losses to close with modest gains after an initial tumble. The S&P 500 finished at 2,882 (2,878 yesterday) after slumping to 2,824.
The RBNZ cut its Official Cash Rate by 0.5% to 1.00% from 1.50%. Most analysts forecast a 0.25% trim. RBNZ Governor Graeme Orr kept a bearish stance, stating to Parliament that “negative rates are a possibility”. Australian Home Loans slipped -0.9% in July, lower than expected. Germany’s Industrial Production fell to -1.5% in June, much worse than the -0.5% forecast. Germany’s 10-year Bund yield plunged to an all-time low at -0.6% before settling at -0.59%.

EUR/USD – The Euro ended little changed at 1.1204 after a choppy session. The Single currency fell to an overnight low at 1.11793 on the dismal German Industrial Production report. EUR/USD jumped to a high at 1.1242 after the initial drop in US bond rates.
USD/JPY – The Dollar plunged to 105.494, fresh 2019 lows before settling at 106.24 on the bounce back in the US 10-year yield.
AUD/USD – The Australian Dollar had another volatile session, slumping to 0.66768, its lowest since early 2009 after the RBNZ’s move to chop rates. The Aussie then jumped in true Battler fashion on the rebound in risk assets. AUD/USD closed at 0.6760, touching an overnight high at 0.6783.

Daily FX – NZD USD Chart – 08 AUG 2019

NZD/USD – The RBNZ shot the already flightless Bird down after the interest rate chop to 0.63774, near-November 2015 lows. NZD/USD had been sitting at 0.6525 before the move. The Kiwi then rallied with risk to finish at 0.6445, down 1.3%.

On the Lookout: Traders and investors alike will keep their focus on today’s release of China’s Trade data (no scheduled time, normally in early Asian afternoon). Analysts expect China’s July Trade Surplus to narrow to a median CNY 300 billion from June’s CNY 345 billion. In US terms, a surplus of USD 41 billion from USD 50.98 billion. China’s Annual Imports are forecast to have dropped -8.3% from -7.3% in June. Exports are expected at -2.0% from -1.8%.
Japanese Bank Lending, Current Account and Trade Balance as well as Foreign Investment in Japanese stocks and Japanese investment in Foreign Bonds are release prior to the Chinese reports (9.50 am Sydney time).
Euro area sees the release of the ECB’s Economic Bulletin. US Weekly Unemployment Claims and Final Wholesale Inventories round up today’s economic reports.

Trading Perspective: The rebound in stocks and bond yields occurred in thin trading. Easing moves from the RBNZ, Bank of Thailand and Bank of India fed market concerns about the weak global economy. This saw equities and bond yields plummet before mounting a strong comeback. Currencies followed suit and the Dollar Index (USD/DXY) closed much unchanged at 97.63. Expect more volatility as the trade war between China and the US continues to escalate. Traders will also watch the PBOC and their actions today particularly at the CNY Fix. Ranges are being established, albeit wider due to the choppy trade. Which is ideal for FX traders.

EUR/USD – The Euro ended flat at 1.1204 after trading an overnight range between 1.11793 and 1.12419. Immediate resistance lies at 1.1220 followed by 1.1250. Immediate support can be found at 1.1180 and 1.1150. Euro traders await the release of the ECB’s Economic Bulletin, which will provide insight into the ECB Board’s latest thinking on the economy and interest rates. The Economic Bulletin (previously known as the ECB Monthly Bulletin) is published two weeks after the latest Governing Council meeting. Look to trade a likely range today of 1.1190-1.1260.
USD/JPY – The Dollar slumped to 105.494, lows not seen since the flash crash in January this year. The fall in the US 10-year yield to 1.595% weighed heavily on this currency pair. The subsequent bounce saw USD/JPY back up above 106, closing at 106.24. The Yen will continue to attract due to its haven status in the current environment. On the bid side of the Dollar, Japanese corporate (importers) buying on dips and a vigilant BOJ will provide support. Immediate support lies at 106.00 followed by 105.70. Immediate resistance can be found at 106.50 and 106.80. Look to trade in a 105.85-106.85 range. Prefer to buy dips

RBA AUD TWI CHART – 08 AUG 2019

AUD/USD – the Australian Dollar had a good bounce after plunging on the back of the Kiwi. The Australian Dollar remains oversold despite the heavy feel about it. In typical Aussie Battler fashion, the currency always feels heaviest when its at or near lows. The opposite applies when it’s bid. We highlighted two factors yesterday. That on a Trade Weighted Index, the Aussie is near decade lows as well. While the RBA has advocated a low currency, the Aussie has reached its lower limits. Speculative short Aussie bets are still at near 12-month highs (-AUD 53,442 contracts as at 30 July). Immediate support for the Aussie lies at 0.6730 and .6700. Strong support can be found at 0.6680. Immediate resistance can be found at 0.6780 followed by 0.6800. Look to buy dips in a 0.6740-0.6790 range.

Happy trading all.

“Let the Currency Wars Begin” – China Hits Back, Weakens Yuan

August 6, 2019 by Michael Moran Leave a Comment Filed Under: Market News, Market News - Asia Open Tagged: AUD/USD, CBOE, CFTC, EUR-USD, Fintech, FX, FX trading, GBP-USD, Sino-U.S. trade talks, trading, USD/JPY

Summary: China chose to use their currency as a weapon of choice to retaliate in their trade war with the US. Yesterday morning, the offshore Chinese Yuan (CNH) plummeted beyond the USD 7.00 level for the first time since 2008, trading up to 7.1083 before settling at 7.0980. The Chinese government also asked state-owned companies to suspend imports of US agricultural products. Currency volatility, dormant for some time, sprang to life while global asset markets plummeted.

Daily FX – USD CNH Chart – 06 August 2019

US President Trump accused China of “currency manipulation” in one of his tweets, adding that he would like the Federal Reserve to act as a counter. In breaking news this morning, the US Treasury designated China as a currency manipulator. Traditional havens, Yen and Swiss Franc soared against the US Dollar. The Dollar hit a 7-month low against the Yen trading to 105.53 in early Sydney trade. The Swiss Franc surged to 0.9715 (0.9825 yesterday) against the Greenback. The Euro rallied 1% to 1.1215 from 1.1105 as US bond yields extended their slump. The Dollar Index (USD/DXY) fell 0.75% to 97.380. The Australian Dollar slumped, going against the trend of the weaker Greenback, to 0.6760 (0.6800). Fears of an all-out trade war involving China, Australia’s largest customer has weighed on the Battler. Emerging Market currencies plunged. The Russian Rouble lost 3.6%%, trading to 65.80 from 65.10 yesterday.
US Treasury prices soared while yields slumped. The 10-year US bond yield closed at 1.72% from 1.85% yesterday. Stock markets plunged in response with the DOW losing 3.5%, the S&P down 3.7%.
Euro area Services PMI’s mostly matched forecast. The US ISM Non-Manufacturing PMI for July plunged to 53.7, missing forecasts of 55.5 and its lowest since October 2016.

USD/JPY – The traditional haven darling Yen did not disappoint soaring past the 106.00 USD level to 105.523 in early Sydney, the Greenback’s lowest since the flash crash in January this year. USD/JPY opened at 106.60 yesterday. Japan’s top currency diplomat, Yoshiki Takeuchi warned that Tokyo was ready to intervene if Yen gains threatened the export reliant economy.

RBA – Australian Dollar Trade Weighted Index Chart – 06 AUG 2019

AUD/USD – The Australian Dollar slumped to 0.67481, 7-month lows as the trade clash involving China, the country’s largest customer weighed on the currency. The RBA monetary policy meeting today will keep traders cautious. The Australian Dollar has also plummeted against other currencies with the Trade Weighted Index down to a low of 59. From 65.7 in January 2018. The RBA will keep rates unchanged at their meeting with the AUD TWI so low.
EUR/USD – The Euro rallied against the Dollar to 1.1226 highs in early Sydney this morning. The slump in the US 10-year bond yield to 1.72%, from 1.85% was not matched by Germany’s 10-year Bund yield, down 2 basis points to -0.52%. The narrowing rate differential has seen traders covering Euro shorts.

On the Lookout: Indeed, the currency wars have begun, get ready for some good old-fashioned currency volatility. THE CBOE VIX Volatility Index soared 39.6% to 24.6 from 18 yesterday and 12.16 on July 26.
Today sees first tier economic data and while they will have less of an impact in current markets, they should not be ignored. New Zealand’s Q2 Employment beat forecasts to 0.8% against a median forecast of 0.3% and Q1’s -0.2%. The Unemployment Rate improved to 3.9% from 4.2% while Labour Costs climbed to 0.8% from 0.3%. The New Zealand Dollar popped to 0.6565 from 0.6535 on the release. Japan releases its Household Spending and Averaged Cash Earnings report for July. Australian data released today are the July Trade Balance as well as ANZ Bank’s Job Ads.

YAHOO FINANCE CBOE VIX Volatility Chart – 06 Aug 2019

The RBA is expected to maintain its cash rate at 1.00% and keep policy unchanged at its meeting later today (2.30 pm Sydney time). With the AUD Twi so low, authorities will not want any further sustained weakness.
Other data released today are Germany’s July Factory Orders and US JOLTS Job Openings. FOMC member and St Louis Fed President James Bullard speaks at a function in Washington, DC.

Trading Perspective: The Dollar Index (USD/DXY), which basically mirrors the Euro lost ground as US bond yields extended their slump. Other global bond rates slipped but not to the extent of those in the US. This will continue to weigh on the US Dollar against the Majors. Net currency market positioning is still long of US Dollars, which will continue to correct itself in the current environment. The Emerging Market currencies will continue to trade in tandem with the Chinese Yuan. We can expect a reaction today from the Chinese monetary authorities. The People’s Bank of China could fix the currency higher (ie USD/CNH lower) in order to put some stability back into the markets.
Traders will watch for verbal intervention from other Asian and regional central banks led by the Bank of Japan.

DAILY FX USD JPY CHART – 06 AUG 2019

USD/JPY – The Dollar continued to stay under pressure against the haven darling Yen. In the Asian time zone, we can expect further Japanese verbal support for the Dollar given the speed and extent of the Yen appreciation. The Yen has also appreciated against the Australian Dollar and its Asian counterparts. All of which are to the detriment of Japanese exports. Japanese corporations, mainly importers will look for ideal levels to buy USD/JPY. The slump in the US 10-year bond yield will keep a top to USD/JPY. The Dollar has immediate support at 105.50 followed by 105.00. Immediate resistance lies at 106.00 and 106.50. A prominent US Investment Bank has issued a call for USD/JPY to hit 103.00. This is often a good reverse indicator in this writer’s trading experience. Look to buy dips in a likely 105.40-106.40 range today. Expect a volatile ride.
AUD/USD – The Australian Dollar has continued its slide since the Battler broke though 0.69 cents on July 31. Early this morning, the currency traded to a 7-month low at 0.67481 before settling at 0.6763 currently. The slide in the Yuan above the USD 7 mark and weaker EM currencies has weighed on the Aussie. The Aussie has also fallen against its Rivals and the Australian Dollar Trade Weighted Index is at its lowest since the GFC in 2008. While the RBA has desired a lower currency, the speed and extent of the TWI fall is not ideal. And the RBA will not ease interest rates in this environment. Immediate support can be found at 0.6750 and 0.6720. Immediate resistance lies at 0.6780 and 0.6820. Look to buy dips in a likely 0.7650-0.6850 range.
EUR/USD – The Euro grinded its way up against the US Dollar which weakened against all of its Major Rivals. EUR/USD closed up 1% at 1.1210 further climbing to 1.1245 high in early Sydney. The Single currency recorded its largest daily advance against the Greenback since January 2019. The slump in US bond yields has boosted the Single Currency which has seen a massive bout of short covering in the past 24 hours. EUR/USD has immediate resistance at 1.1250 and 1.1270. Immediate support can be found at 1.1200 and 1.1170. Markets have ignored the ECB for now. Look to sell rallies with a likely range today of 1.1190-1.1250 today.

Tin helmets on, we are in for a ride. Enjoy. Happy trading all.

Leverage Ratio Examined for Derivative Trading

August 6, 2019 by Michael Volpe Leave a Comment Filed Under: Feature Articles Tagged: Basel III, CFTC, CME, E-mini S&P 500

The Basel leverage ratio has caused banks to reduce their clearing activity for E S&P 500 E-mini futures.

In April 2019, the Commodities Futures Trading Commission’s (CFTC) Office of the Chief Economist (OCE) put out a white paper entitled, “When the Leverage Ratio Meets Derivatives: Running Out Of Options?”

In the paper they described the Basel rules and the effect, “In the wake of the global ﬁnancial crisis of 2008–2009, Basel III introduced a more comprehensive set of capital and liquidity requirements for banks in order to address shortcomings in the pre-crisis capital framework and improve the resilience of the ﬁnancial system. In addition to higher standards for the risk-based capital ratios and the credit quality of capital, the Basel committee also issued the Basel III leverage ratio framework as a simple, transparent, non-risk based approach to pair with the risk-based standards.” The paper stated, “Though US banks have long been subject to a less comprehensive leverage ratio that requires capital only against on-balance-sheet assets, Basel III expands it by including oﬀ-balance-sheet exposure for derivatives and a few other businesses in the leverage calculation. Therefore, the Basel III leverage ratio can signiﬁcantly increase the capital requirement for banks’ derivatives activities.”

Richard Haynes and Liphong McPhail, who headed the research for CFTC, were the latest featured guests on CFTC Talks where they discussed their findings.

In the show, McPhail and Haynes specifically talked about the E-mini product.

The E-mini is, “An electronically traded futures contract one fifth the size of standard S&P futures, E-mini S&P 500 futures and options are based on the underlying Standard & Poor’s 500 stock index. Made up of 500 individual stocks representing the market capitalizations of large companies, the S&P 500 Index is a leading indicator of large-cap U.S. equities,” according to its description on the CME, where it is traded.

“Our analysis shows that clearing E-mini futures options has shifted in the way we anticipated from institutions more constrained by capital rules to those less constrained.” Haynes said on the show.

He said US banks have seen their clearing business drop from 46% to 36% of the total business recently.

“For example, before January 2015, 46% of all E-mini futures option positions were held in customer accounts at US banks; after the date, this number declines to an average of 36.5%.” The paper stated. “By contrast, during that same period, customer positions in E-mini futures options cleared through EU banks, which are subject to a lower leverage ratio, increased from 38.6% to 47.9% of the total.”

The paper further noted, “Using daily positions of clearing members and their customers on S&P500 E-mini futures options, we test the following four hypotheses when the public disclosure of the leverage ratio became mandatory in January 2015: (1)banks lose market share to nonbanks; (2) US banks lose market share to European banks; (3) banks’ clearing activities shift away from customer accounts to house accounts; (4) low-delta options are affected most by the leverage ratio,”

CFTC’s Daniel Gorfine to Depart Agency

August 5, 2019 by industryspread Leave a Comment Filed Under: Regulatory Annoucements Tagged: CFTC, Daniel Gorfine, Fintech Innovation Hub

Washington, DC — The U.S. Commodity Futures Trading Commission announced today that Daniel Gorfine, the agency’s first Chief Innovation Officer and Director of LabCFTC, will depart in mid-August to return to the private sector. Mr. Gorfine also served as the Designated Federal Officer of the CFTC’s Technology Advisory Committee.

Mr. Gorfine joined the Commission in 2017 to develop and lead LabCFTC, which is focused on facilitating market-enhancing innovation, informing policy, and ensuring that the CFTC has the regulatory and technological tools and understanding to keep pace with modern, digital markets. The effort seeks to shape regulatory approaches and frameworks for the 21st century.

“We are sad to be losing Dan. He is a thought leader in the federal government on financial technology issues,” said CFTC Chairman Heath P. Tarbert. “With Dan’s vision and the support of the Commission, LabCFTC has established itself as a model for regulatory engagement with emerging technologies. I am fully committed to building on the firm foundation Dan has built to further elevate, advance, and modernize how we think about applying a sound, principles-based approach to promising new technologies.”
“Dan’s deep technological expertise and understanding of public policy have been critical to the success of the CFTC’s Technology Advisory Committee,” added CFTC Commissioner Brian Quintenz. “In addition, in his capacity as the Chief Innovation Officer for the Commission and Director of LabCFTC, Dan’s vision has positioned the CFTC at the forefront of the intersection between technological innovation and financial regulation. He will be greatly missed.”
“As a firm believer in the dynamism and benefits of innovation, markets, and well-calibrated regulation, I am incredibly grateful to Chairman Tarbert, former Chairman Giancarlo, and all of our Commissioners for the opportunity to serve the Agency and lead LabCFTC,” Gorfine said. “I am proud of the work we have done, inspired by the innovators we have met, and excited for the future of LabCFTC and regulatory innovation offices across the government. I am also very appreciative of having had the chance to work closely with Commissioner Quintenz, our General Counsel, Dan Davis, and the entire LabCFTC team.”

Under Mr. Gorfine’s leadership, LabCFTC broke new ground at the Commission by:

Holding innovator office hours across the U.S. and internationally and developed CFTC primers on virtual currencies and smart contracts;
Analyzing and seeking public feedback on crypto-asset markets and mechanics in order to help inform the Commission;
Announcing the creation of a LabCFTC Accelerator focused on public innovation competitions and internal technology pilots and trials;
Holding the first CFTC Fintech Forward conference; and
Leading the CFTC’s efforts to enter into Fintech cooperation arrangements with the UK Financial Conduct Authority, Australian Securities and Investments Commission, and the Monetary Authority of Singapore.

Chairman Tarbert Assumes Sponsorship of the CFTC’s Agricultural Advisory Committee

August 5, 2019 by industryspread Leave a Comment Filed Under: Regulatory Annoucements Tagged: Agricultural Advisory Committee, CFTC, trading firms

Washington, DC — The U.S. Commodity Futures Trading Commission today announced that Chairman Heath P. Tarbert will sponsor the CFTC’s Agricultural Advisory Committee (AAC). The AAC was created in 1985 to advise the Commission on issues involving the trading of agricultural commodity futures and options and facilitate communications between the CFTC, the agricultural community, and agriculture-related organizations.

“Ensuring that our agricultural sector is equipped with adequate tools to hedge risk and discover prices was—and always will be—the very cornerstone of the Commodity Exchange Act,” said Chairman Tarbert. “America’s farmers and ranchers are at the heart of the real economy and the markets we regulate, so the AAC is a vital sounding board for the Commission. I am honored to be the sponsor and look forward to working with the AAC to ensure our derivatives markets remain fair, innovative, and vibrant.”

The CFTC’s Advisory Committees were created to seek input and make recommendations to the CFTC on a variety of issues that affect the integrity and competitiveness of U.S. markets. The committees facilitate communication among the CFTC and U.S. markets, trading firms, market participants, advocates, and commercial end users.

Click here for more information on the CFTC’s Advisory Committees.