The Swiss National Bank Shocks Brokerdealers

Posted on January 16, 2015 by admin

Brokerdealer.com blog update courtesy of William Watts from MarketWatch.

Brokerdealers around the world were shocked after the Swiss National Bank unexpectedly announced on Thursday that they would be scrapping a three-year-old cap on the franc. As a result, it sent the currency soaring against the euro while stocks plunged out of fear. Although the market has seemed to bounce back caution should still be taken.

Don’t be too quick to look past the turmoil that swept global financial markets after Switzerland’s central bank unexpectedly scrapped a cap on the value of its currency versus the euro.

While European and U.S. equities largely regained their footing after a panicky round of selling in the wake of the decision, dangers may still lurk in some corners of the market. Here are the potential shock waves to look out for:

Needless to say, the Swiss franc, which had long been held down by the Swiss National Bank’s controversial cap, exploded to the upside. The euro EURCHF, +0.66% is down 15% and the U.S. dollar USDCHF, +1.69% remains down nearly 14% versus the so-called Swissie after having plunged even further in the immediate aftermath of the move.

Since the Swiss National Bank had given no indication it was set to move — indeed, it had previously said it would defend the euro/Swiss franc currency floor with the “utmost determination” — investors were holding large dollar/Swiss franc and euro/Swiss franc long positions, noted George Saravelos, currency strategist at Deutsche Bank, in a note.

As a result, the moves Thursday likely resulted in some big losses on investor portfolios holding those positions, he said.

“This effectively serves as a large VaR [value-at-risk] shock to the market, at a time when investors were already sensitive to poor [profit-and-loss] performance for the year,” Saravelos wrote.

The Wall Street Journal reported that Goldman Sachs on Thursday closed what had previously been one of its top trade recommendations for 2015: shorting the Swiss franc versus the Swedish krona SEKCHF, +1.26% after the franc jumped as much as 14% on the day versus its Swedish counterpart..

Douglas Borthwick, managing director at Chapdelaine Foreign Exchange, said forex participants are bracing for aftershocks.

“We expect that few risk-management algorithms in G-20 currencies were prepared for greater than 20% moves in a currency pair, for this reason the chance of a binary outcome is significant,” he said, in a note. “Either participants gained or lost considerable amounts.”

Volatility

The Swiss National Bank’s move serves to underline the theme that volatility is back and here to stay.

For U.S. companies, trade exposure to Switzerland is small. And that means the direct impact is likely to be more of a ripple than a wave, said Wouter Sturkenboom, senior investment strategist at Russell Investments in London.

But the turmoil that followed the decision shows that markets are vulnerable to shifts by central banks which have largely been on hold since implementing a range of extraordinary measures in the aftermath of the financial crisis, he said.

“It is adding to this general disquiet in markets that things are volatile and things are changing and central banks are changing,” Sturkenboom said in a phone interview.

“I think that’s maybe the underlying cause [for the volatility in U.S. stocks], especially when you’ve had such a good run; valuations in the U.S. are stretched and expensive,” he said.

Emerging markets

Investors will also likely keep an eye on European banks exposed to central and Eastern Europe. Before 2008, households in several countries in the region, particularly Hungary and Poland, took out mortgages denominated in Swiss francs, attracted by low rates, noted William Jackson, senior emerging markets economist at Capital Economics.

Those households got a shock in 2008-09 and in 2011 when the franc rose, boosting debt servicing costs. Another 15% jump in the franc against most Central and Eastern European currencies Thursday morning could lead to further worries, Jackson said, though he argued that the situation appears much more manageable than in the past.

In Hungary, a law allows households to convert foreign-currency mortgages into forint-denominated mortgages at the exchange rate that prevailed in 2014, Jackson notes, while in Poland, the Swiss franc lending was restricted to higher quality borrowers.

Regulators Call For More Disclosure When It Comes to BrokerDealers’ Fees

Posted on January 15, 2015January 15, 2015 by admin

Brokerdealer.com update courtesy of JD Supra Business Advisor from 9 January.

In September, state securities regulators formed a working group aiming to make brokerdealers’ disclosures about their fees more clear, accessible, and useful to investors in comparing different firms’ charges. The group plans to finish its work by next fall, and will consider, for example, developing

a model fee disclosure form;
guidelines on accessibility, transparency, and uniform use of terminology; and
recommendations on how to notify customers of fee changes.

In addition to representatives of the North American Securities Administrators Association (NASAA), the working group includes representatives of FINRA, the Securities Industry and Financial Markets Association, the Financial Services Institute, and several brokerdealer firms. NASAA President Andrea Seidt said “the working group will take into consideration … wirehouse firms, independent brokerdealers, clearing firms, and introducing firms, among others.”

Earlier this year, a NASAA report on its survey of 34 brokerdealer firms recommended the working group’s formation. The survey found a wide disparity of brokerdealer fee disclosure practices. However, that survey, and certain enforcement actions that preceded and partially motivated it, focused particularly on certain problematic fee disclosure practices. For example, some firms allegedly hid the true amount of their compensation for securities transactions by charging unreasonable markups for what they disclosed as “handling,” “postage,” “delivery of securities in certificated form,” or “miscellaneous.” The survey also focused particularly on fees firms charge for closing accounts or transferring account securities to another firm.

Against this background, the working group may focus primarily on disclosure issues regarding a limited number of specific fee types. Alternatively, the working group may seek a more comprehensive approach.

In any case, some of the practices addressed by NASAA’s survey and the working group may involve legal violations. Brokerdealers would be well advised to review their own practices with that in mind.

BrokerDealer Bonus Season a Bust?

Posted on January 14, 2015January 14, 2015 by admin

Brokerdealer.com blog update courtesy of Kevin Dugan’s article from 9 January in the New York Post.

With record fines this year, brokerdealers are preparing to receive lower than average bonuses from their bosses.

Wall Street might have to settle for the second-best caviar this year.

After a year of record fines, sluggish trading and low interest rates, bankers hoping for richer payouts should prepare to be disappointed when bonus season gets underway next week.

By most estimates, the pool of money set aside for Wall Street workers is expected to be flat with the previous year, when the industry took home $16.7 billion, or an average of $164,530 per person.

Last year, big banks were slammed by billions in fines and penalties — Bank of America paid the largest fine ever for a single company, $16.7 billion — for offenses ranging from toxic mortgage securities to money laundering to tax evasion.

“The fines have come to roost,” said Michael Karp, CEO and co-founder of headhunting firm Options Group. “The bonus pool and compensation are the most vulnerable for banks to make up the shortfall.”

While the overall bonus pool is expected to be flat, there will be gains in some better-performing business areas. Investment bankers, private wealth managers and securitized product traders could see bonuses rise by more than 10 percent, according to a research report from Johnson Associates.

That will be offset by declines for credit and stock traders, the report said.

Layoffs across Wall Street should keep individual bonuses from sliding too much for those who still have a job, even for those working in areas with smaller bonus pools, Karp said.

Wall Street had shed 2,600 jobs through October of last year, according to New York State Comptroller Thomas DiNapoli.

Morgan Stanley is set to be the first bank to announce bonuses, on Jan. 15, sources said. The bank is expected to have some of the biggest payouts because of its focus on wealth management, which has exploded as wealthier clients give banks more money to manage.

Citigroup and Goldman Sachs are expected to announce bonuses the following day. Citi’s traders will see their bonuses slashed by 5 percent to 10 percent after a weak year, said a person familiar with the company’s plans. That’s worse than earlier estimates that had the bonus pool level with the previous year.

Goldman’s investment bankers could see some of the fattest payouts this year, as the firm pulled in the most business during the busiest M&A year since the financial crisis, according to Bloomberg data.

JPMorgan Chase is expected to announce bonuses during the last week of January, while European-based banks typically tell their employees in February and March.

Morgan Stanley, Citi, and JPMorgan declined to comment. Goldman didn’t return a call seeking comment.

Broker Firm Takes Former Employee to Court Over Client Information

Posted on January 13, 2015 by admin

Brokerdealer.com blog update courtesy of InvestmentNews.

Former employee, Tom Chandler

It’s a classic dispute over what client information brokers can take with them when they move among brokerages, but this time a registered investment adviser is the one picking a fight with a big firm.

Hanson McClain Inc., a registered investment adviser with about $1.6 billion in assets under management, has sued a former adviser, Thomas Chandler, and Ameriprise Financial Services Inc. The Sacramento, Calif.-based RIA claims they took confidential client information and solicited Hanson McClain customers in violation of their contracts and California law.

“Defendant’s egregious and despicable conduct is the 21st-century version of highway robbery,” Hanson McClain said in the complaint. “Defendants seek to profit by free-riding on [Hanson McClain's] valuable information that they stole.”

Hanson McClain initially filed a complaint Sept. 3, less than a week after Mr. Chandler left the firm. It filed an amended complaint Dec. 17. The firm seeks a permanent injunction blocking Mr. Chandler from soliciting clients, the return of client information and compensatory damages.

Hanson McClain, founded in 1993 by Scott Hanson and Pat McClain, has about 35 advisers. It said Mr. Chandler downloaded client information from the firm’s server, then transferred the data to a personal email account before departing Labor Day weekend. The information, which allegedly included names, account numbers, net worth, birthdays and phone numbers, involved clients with total net worth of about $540 million, according to the complaint.

Hanson McClain founders, Pat McClain, left, and Scott Hanson

Hanson McClain also accused Mr. Chandler of requesting a list of emails for “platinum” list clients, with whom he worked for about a month before he left, then connecting with them on LinkedIn so he could access information through the social media network once had exited.

The complaint said Ameriprise and a branch manager, Kable Doria, had “conspired” with Mr. Chandler to remove the data in order to compete unfairly with Hanson McClain.

Advisers frequently take some client contact information when they switch firms, under the Broker Protocol. It allows them to take client names, home and email addresses, phone numbers and account titles without threat of litigation or accusations they violated their firms’ nonsolicitation agreements.

Hanson McClain is not a signee of the protocol, however, but Ameriprise is.

Still, Mr. Chandler has opposed the request for the injunction. He says he had a right to notify clients of his new employment and that the information he took did not qualify as a “trade secret” under California law.

“Mr. Chandler used this basic client information for the permissible purpose of making this announcement when he began working at Ameriprise,” states a motion on his behalf opposing the injunction. “Mr. Chandler did not solicit the business of these clients or ask them to transfer their accounts.”

For the complete article from InvestmentNews, click here.

Egypt’s BrokerDealers Rejoice: ETF Trading is Finally Allowed

Posted on January 12, 2015 by admin

Brokerdealer.com update courtesy of Reuters and profiled on MarketMuse.

Brokerdealer.com provides members with the ability to have access to international databases, one the international options is Egypt. Until this week, the Egypt Stock Exchange has not permitted for ETFs to be traded on the exchange. This will on change on Wednesday, January 14, when for the first time, ETFs will be traded. The exchange hopes that this will lead to more foreign investors and boost the economy.

Egypt’s stock exchange will allow trading in Exchange Traded Funds (ETFs) for the first time on Wednesday, as part of efforts to encourage foreign investment and boost liquidity.

ETFs are typically funds that track equity indexes, though they can also track commodities and other assets, with component stocks usually represented in proportion to the size of their market capitalization.

ETFs are traded like a stock and can allow investors to diversify their risks and reduce transaction costs.

The introduction of ETFs in Egypt comes amid a flurry of takeovers and share issues on Egypt’s stock exchange, signalling resurgent interest from international investors in a market looking to restore confidence after the turmoil unleashed by a 2011 uprising which ousted leader Hosni Mubarak.

The main stock index rose about 30 percent in 2014 and trading volumes have rebounded above levels seen in 2010.

“We are working on offering new investment vehicles to investors and in the long run, these funds will help to create liquidity in the market,” Mohamed Omran, chairman of the Egyptian Exchange, told Reuters.

“The funds will help investors reduce risk by investing in the market as a whole.”

The introduction of ETFs will also allow for the emergence of market-makers in Egypt for the first time, potentially boosting liquidity.

Egypt’s Beltone Financial Holding, which specialises in brokerage, investment banking and private equity, won Egypt’s first licence to operate an ETF on the Egyptian Exchange in April.

Its ETF is being launched with an initial value of 10 million Egyptian pounds ($1.4 million), according to Alia Jumaa, head of investment for the new fund.

For the original article from Reuters, click here