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Updated: 20 weeks 1 day ago

Hedge funds continue 12 month winning streak in October

Fri, 11/10/2017 - 04:03

Hedge Funds extended their winning streak to 12 months with a 0.96 per cent gain in October, according to the Barclay Hedge Fund Index. The index is up 8.31 per cent for the year and has gained 10.40 per cent since the current winning streak began in November 2016.

“Strong global equity markets continued to fuel broad based hedge fund gains,” says Sol Waksman (pictured), founder and president of BarclayHedge. Fourteen of Barclay’s 17 hedge fund indices registered positive returns for the month.
“Driven by positive earnings reports, the S&P 500 and NASDAQ both ended the month at new all-time highs. Shinzo Abe’s re–election as Japan’s Prime Minister propelled the Nikkei 225 to its highest level in 20 years.”
Technology has been the big gainer year to date with a rise of 21.09 per cent and led all indices last month with a gain of 2.83 per cent. Pacific Rim Equities (2.41 per cent), Equity Long Bias (1.76 per cent) and Global Macro (1.63 per cent) also were strong in October.
Healthcare and Biotechnology, which is the second best performing sector for the year at 15.23 per cent, registered the biggest slide (-1.69) in October. Event Driven (-0.92 per cent) and Distressed Securities (-1.14 per cent) also posted losses for the month.
“Healthcare and Biotechnology has been strong in 2017 but suffered last month as Congress failed in their efforts to ‘repeal and replace’ the Affordable Care Act (Obamacare),” says Waksman. “Pharmaceutical stocks were particularly affected and were a big contributor to the losses.”
In other year to date returns, Emerging Markets follows Technology and Healthcare & Biotechnology with a rise of 14.60 per cent so far in 2017. All of Barclay’s 17 hedge fund indices are profitable through month-end October. The sectors with the smallest gains for the year have been Convertible Arbitrage (3.06 per cent), Equity Market Neutral (2.89 per cent), and Distressed Securities (0.58 per cent).

offResults and performanceFunds

CTA performance improves in October

Thu, 11/09/2017 - 03:41

Following difficult conditions for CTAs for most of this year, October has seen significant improvement as all of Societe Generale’s CTA indices returned positive performance. Trend following strategies performed the best as the SG Trend Index was up 5.55 per cent for the month.

October was the strongest month since June 2016 for both the SG Trend and CTA Indices, and since February 2016 for the Short-Term Traders Index. As a result, year-to-date performance for the CTA, CTA Mutual, and the Trend Index moved back into positive territory. However, despite the uptick in performance for all strategies in October, the Short-Term Traders Index and Trend Indicator remain negative for the year.
The performance attribution data from the SG Trend Indicator shows the Trend-following performance was driven by Equities (+2.29 per cent) and Commodities (+1.34 per cent). Global equity indices continued to march upward across the board and strong performance in the Commodities sector was driven by the energy complex and some of the softs. Currencies had a more difficult month as it was the only asset class to return negative performance in October (-1.09 per cent).
Alex Hill, Director of Alternative Investments Consulting, at Societe Generale Prime Services, says: “After a challenging September, October was a very strong month for CTA performance, particularly trend-following strategies as many of the long-term trends in equities continued to extend, and the energy complex recovered. This performance takes the CTA Indices into positive territory as we head towards the end of the year having fully recovered from the challenges seen in the second quarter.”

offCommodities & ResourcesResults and performanceIndexes

Cargill to pay USD10m to settle CFTC charges over inaccurate mid-market marks on swaps

Tue, 11/07/2017 - 04:04

Cargill is to pay a USD10 million penalty to settle CFTC charges that it provided mid-market marks (marks) that concealed its full mark-up on certain swaps from counterparties and its swap data repository (SDR), in violation of the Commodity Exchange Act (CEA) and CFTC regulations. 

Specifically, the CFTC Order found that Cargill provided counterparties and the SDR inaccurate marks which had the effect of concealing up to ninety percent of Cargill’s mark-up. Cargill also failed to diligently supervise its employees in connection with these inaccurate marks, and in connection with inaccurate statements made to swap counterparties. In particular, the CFTC Order finds that Cargill provided marks that concealed its full mark-up because of a concern that providing accurate marks would reduce Cargill’s revenue.
The CFTC Order requires Cargill to pay a USD10 million civil monetary penalty, cease and desist from violating Section 4s(h)(1) of the CEA and Commission Regulations 23.431(a) and (d), 45.4(d)(2), and 166.3, as charged, and comply with certain remedial undertakings.
CFTC Director of Enforcement James McDonald (pictured), says: “The Commission will vigorously pursue those who undermine the fairness and integrity of our markets, as Cargill did by providing marks that concealed its full mark-up on the swaps at issue in this case. As the Order finds, Cargill provided its counterparties and SDR inaccurate information about its swaps, and did so because of a concern that disclosing its full markup – as it was required to do – could reduce its revenue. Participants in our markets are entitled to trust that information they receive from counterparties complies with governing laws and regulations. Thanks to the hard work of the team in this case, we uncovered the misconduct and brought this action to ensure the marks on the swaps will be accurate going forward.”
The CFTC Order finds that from 2013 to the present Cargill, a provisionally registered swap dealer, provided hundreds of counterparties and its SDR with mid-market marks on thousands of complex swaps that failed to comply with the CEA and Commission Regulations. Specifically, Cargill chose to provide counterparties a mid-market mark that failed to disclose Cargill’s full mark-up, as it was required to do. Instead, Cargill provided a mid-market mark that recognised only ten percent of its mark-up on the first day of the swap and amortised the remaining mark-up equally over the next sixty days. The result was that Cargill provided mid-market marks to counterparties that concealed up to ninety percent of Cargill’s mark-up.
The CFTC Order further finds that Cargill used this non-compliant mark methodology because of its concern that providing counterparties marks that disclosed Cargill’s full mark-up would reduce Cargill’s earnings. The CFTC Order also finds that Cargill undertook this course of conduct despite concerns within Cargill that this mark methodology did not comply with the requirements of the CEA and Commission Regulations. And the CFTC Order finds that Cargill deliberately avoided raising questions about the mid-market mark with the Commission to avoid “tip[ing Cargill’s] hand.” 
Additionally, the CFTC Order finds that for certain swaps executed based on prices derived by Cargill’s ProPricing grain marketing program, Cargill on occasion inaccurately reported certain information to swap counterparties. Specifically, Cargill would disclose to swap counterparties the percentage that accounts for particular enrolled commodities were hedged. On a number of occasions since Cargill provisionally registered as a swap dealer in 2013, the accounts for particular commodities were over 100% hedged (ie, short more than the amount of the particular enrolled commodity for that account) or less than zero percent hedged (ie, long the particular enrolled commodity). In those instances, rather than reporting to counterparties the actual percent the accounts were hedged, Cargill employees would inaccurately report to swap counterparties that the account was exactly 100% hedged or exactly zero percent hedged, respectively. Despite the occurrence of these inaccurate communications since 2013, Cargill failed to develop systems or procedures to prevent inaccurate communications with swap counterparties.
Finally, the CFTC Order also finds that Cargill failed to diligently supervise its officers, employees, and agents relating to its business as a swap dealer. Among other failures, Cargill had no systems or procedures in place that could have prevented or corrected its inaccurate communications about ProPricing-related swaps with counterparties. Moreover, although Cargill employees were aware that Cargill’s mid-market marks for complex swaps did not reveal Cargill’s full mark-up, Cargill took no steps to bring its marks into compliance before they were provided to counterparties or the SDR. 

offLegal & RegulationNorth America

Less than a quarter of North American buy-side firms well prepared for MiFID II

Wed, 11/01/2017 - 05:26

Well over half (58 per cent) of North American buy-side firms have confirmed that they will need to comply with MiFID II, and yet only 23 per cent feel extremely confident that they have a plan in place, while 77 per cent are either somewhat or not at all confident.

That’s one of the findings of a new poll by SimCorp which focused on the directive’s reach beyond the borders of the European Union. The poll, which canvassed the opinions of more than 150 buy-side participants from across 68 firms, was carried out in conjunction a SimCorp webinar in September – The Move Towards MiFID II: Ensuring Compliance for the North American Buy Side.
And with just 90 days to go before MiFID II comes into force, 28 per cent of poll respondents remain unsure if and how their firm will be affected. Fifty-six per cent meanwhile cited complying with transaction reporting requirements as their biggest MiFID II challenge, while other top concerns include: understanding the new market structure (50 per cent); and unbundling of research and execution (45 per cent).
“MiFID II is one of the biggest pieces of regulation to ever hit the buy-side industry, so I am not surprised by the extent of uncertainty and concern reflected in the research and poll results,” says Gernot Schmidt (pictured), Product Manager of MiFID II at SimCorp, and a speaker at  the webinar. “The ability to aggregate data across asset classes, geographies, business lines and underlying applications will be essential. One way to do this is by adopting an IBOR architecture, which provides a golden record for positions and transactions, allowing asset managers to address many of the data requirements for MiFID II in one central application. This holistic approach also benefits the Front Office with better data for trading decisions and taking advantage of new trading venues emerging in the wake of the regulation.
“It also makes sense that the new transaction reporting requirements rate high on the list of concerns. Daily detailed transaction reporting will be expanded to a much larger set of instrument types, which will call for data gathered from additional source systems to be aggregated. This aspect of MiFID II also provides a compelling case for systems and data integration and increased automation.”

inhouse contentLegal & RegulationMiFID IISurveys & research

CME Group to launch bitcoin futures

Tue, 10/31/2017 - 09:44

CME Group is planning to launch bitcoin futures in Q4 2017, pending regulatory approval. The new contract will be cash-settled, based on the CME CF Bitcoin Reference Rate (BRR) which serves as a once-a-day reference rate of the U.S. dollar price of bitcoin.  

Bitcoin futures will be listed on and subject to the rules of CME.

"Given increasing client interest in the evolving cryptocurrency markets, we have decided to introduce a bitcoin futures contract," says Terry Duffy (pictured), CME Group Chairman and Chief Executive Officer. "As the world's largest regulated FX marketplace, CME Group is the natural home for this new vehicle that will provide investors with transparency, price discovery and risk transfer capabilities."

Since November 2016, CME Group and Crypto Facilities Ltd. have calculated and published the BRR, which aggregates the trade flow of major bitcoin spot exchanges during a calculation window into the US Dollar price of one bitcoin as of 4:00 pm London time. The BRR is designed around the IOSCO Principles for Financial Benchmarks. Bitstamp, GDAX, itBit and Kraken are the constituent exchanges that currently contribute the pricing data for calculating the BRR.

"We are excited to work with CME Group on this product and see the BRR used as the settlement mechanism of this important product," says Dr Timo Schlaefer, CEO of Crypto Facilities. "The BRR has proven to reliably and transparently reflect global bitcoin-dollar trading and has become the price reference of choice for financial institutions, trading firms and data providers worldwide."

CME Group and Crypto Facilities Ltd also publish the CME CF Bitcoin Real Time Index (BRTI) to provide price transparency to the spot bitcoin market. The BRTI combines global demand to buy and sell bitcoin into a consolidated order book and reflects the fair, instantaneous US dollar price of bitcoin in a spot price. The BRTI is published in real time and is suitable for marking portfolios, executing intra-day bitcoin transactions and risk management.

Cryptocurrency market capitalisation has grown in recent years to USD172 billion, with bitcoin representing more than 54 per cent of that total, or USD94 billion. The bitcoin spot market has also grown to trade roughly USD1.5 billion in notional value each day.

offCrypto currencyBitcoinTrading & Execution