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from Global Investing:

Three snapshots for Monday

Spanish 10-year bond yields hit 6%, around the levels seen in Ireland/Portugal and Italy/Spain at the start and resumption of ECB bond purchases.

U.S. retail sales rose more than expected in March as Americans shrugged off high gasoline prices.

Currency speculators boosted their bets against the euro in the latest week. Figures from the Commodity Futures Trading Commission released on Friday showed a jump in euro net shorts of 101,364 contracts this week from 79,480 previously.

from MacroScope:

MF Global hangs over futures conference

MF Global is front and center at the U.S. Futures Industry Association's annual conference – and hanging around attendees' necks.

A schedule of networking events tucked behind participants' name badges mistakenly advertises MF Global, the failed brokerage run by former Goldman Sachs CEO Jon Corzine, as the sponsor of a café on Wednesday and Thursday. The firm was a big player in the industry and sponsored the café, a centralized meeting point, last year.

Eurex took over as the sponsor after MF Global collapsed. It is correctly identified in other promotional material at the three-day conference in Boca Raton, Fla.

A Eurex representative referred questions about the mix-up to the futures association. The association declined comment.

The mistake keeps MF Global's bankruptcy in the face of industry members upset the collapse has hurt confidence in futures markets and reduced trading volumes. It also reinforces the large position MF Global held in the sector, where it specialized in commodities futures trading.

The firm failed on Oct. 31 after making bad bets on European sovereign debt. Some $1.6 billion is still missing from customer accounts.

Industry members are crafting proposals to rebuild trust in the markets, and reforms are a hot topic of conversation at the conference.

from MacroScope:

MF Global knows its former clients’ pain

Futures customers who smartly pulled their money out of failed MF Global Holdings Inc. in the weeks or months before the broker’s Oct. 31 collapse may not have escaped calamity after all.

As Reuters’ Jeanine Prezioso reports, some are worried the bankruptcy trustee could come after those funds to force them to share in any losses.

MF Global knows the feeling. It's been there, and done that.

After futures broker Sentinel Management Group Inc failed in 2007, the trustee in that case, Frederick Grede, sued 50 of its former customers to recoup $600 million in funds withdrawn prior to the bankruptcy.

Among them was MF Global, which had withdrawn $50 million from Sentinel shortly before Sentinel froze all accounts in a desperate effort to avert catastrophe.

MF Global, like Sentinel’s other customers, had deposited its own customers’ funds with Sentinel, which promised to deliver higher returns on those funds than MF Global could have generated on its own.

Instead, the broker collapsed, and four years later Sentinel’s trustee is still trying to get former customers, including MF Global, to share in Sentinel’s massive losses –nearly all of which, Grede says, stemmed from the broker’s failure to keep customer funds separate from its own.

from MacroScope:

MF Global: back to the futures

The implosion of MF Global Holdings Ltd, the largest independent U.S. futures broker until it filed for bankruptcy protection on Monday, calls to mind the collapse of Refco – which in its time was the largest independent U.S. futures broker – after revelations that Refco’s CEO had defrauded his investors. (London hedge fund company Man Group Plc bought Refco’s futures brokerage just about six years ago, and later spun off its brokerage and renamed it MF Global.)

But now that questions are arising on the whereabouts of assets that clients entrusted to Jon Corzine’s firm to back their futures trades,  it may also be worthwhile to bear in mind the bankruptcy of another futures brokerage – that of Sentinel Management, in 2007.

Sentinel was a different kind of futures brokerage than MF Global. The company largely managed money for other futures brokers, delivering outsized returns that, Sentinel's bankruptcy trustee says, were juiced up by improperly using customer money to secure bank loans that went to fund risky trades.  When the credit crisis hit in the summer of 2007, the scheme unraveled, and Sentinel quickly plunged into bankruptcy. Sentinel managed about $2 billion in customer assets; about $600 million of it was never recovered, and clients are still wrangling over how to divvy up what remains.

Futures brokers are required to keep their customers’ funds in dedicated accounts to protect them from being used for anything other than client business. At Sentinel, customer funds were allegedly moved from those protected accounts to other accounts so they could be used as collateral for loans to Sentinel’s  own trading operations. What happened at Sentinel “is one of the biggest regulatory violations you can commit,” explains Sentinel’s bankruptcy trustee Frederick Grede, because keeping customer accounts separate is a bedrock of the futures industry.  “It is so rare that when you first look at it, you can’t believe that it happened.” (Update: Sentinel's former owner and head trader both deny they mixed client accounts with the house account.)

Still, it does happen. In fact, Refco was slapped with a $1.25 million fine in 1994 and another $925,000 fine in 1996 for failing to segregate customer funds. But no customers lost money because of it. At Sentinel, it appears they did.

MF Global has not been accused of any wrongdoing, but on Tuesday its exchange regulator, CME Group Inc, said it was “not in compliance” with requirements to keep customer money separate from the firm’s other money, and the Federal Bureau of Investigation was showing preliminary interest. UBS analyst Alex Kramm says:

Money is supposed to be segregated at all times. If it’s not, clearly something was not right.

from The Great Debate:

Don’t bank on return of backwardation

Many energy analysts are predicting the crude market will move into backwardation before the end of the year.

Increasing demand and rising refinery runs will, in their view, reverse the unusual build up of inventories around the NYMEX delivery point at Cushing, and the market should revert to a more normal term structure.

The extreme contango visible at the front end of the NYMEX futures curve in the last seven weeks is certainly evidence of a "dislocation" caused by congestion around the delivery point. Front-month NYMEX futures have been trading at abnormally large discounts not only to second- and third-month NYMEX futures but also to Brent and other spot crudes such as Tapis.

Recent upticks in refinery runs, coupled with the forthcoming driving season, and continued economic recovery, have the potential to tighten the markets for crude oil and refined products over the summer. The question is whether this will simply narrow the contango from its current extreme level or push the market level or even into a backwardation. Recent experience suggests the contango is set to narrow, but will not disappear entirely. Contango, not backwardation, is the "new normal" in oil markets.

STRUCTURAL SHIFT Before 2005, WTI crude prices were more often in backwardation than contango. Backwardations were both larger and more frequent than contango (Charts 1-4). (1) http://graphics.thomsonreuters.com/ce/CL-STRUC-1.pdf

(2) http://graphics.thomsonreuters.com/ce/CL-STRUC-2.pdf

(3) http://graphics.thomsonreuters.com/ce/CL-STRUC-3.pdf

from Financial Regulatory Forum:

INTERVIEW-CME’s CEO is not anxious about reform delay

   By Ann Saphir and Jonathan Spicer    BOCA RATON, Florida, March 10 (Reuters) - Craig Donohue, head of the world's biggest futures exchange operator, said on Wednesday the growing number of months that regulators and politicians are devoting to revamping financial markets is a positive sign -- not something to grow anxious over.    "There's value if the additional time is resulting in the opportunity to more carefully think through what type of legislation is appropriate" to deal with gaps in regulation that may have contributed to the financial crisis, Donohue, CME Group Inc's <CME.O> chief executive, told Reuters.    "That's a positive thing," he said on the sidelines of the Futures Industry Association conference in Boca Raton.    Some 18 months after the mortgage-inspired financial meltdown that sparked a global recession, the United States, the European Union and others are still debating and crafting rules meant to avoid a repeat of the crisis.    Donohue said he welcomes some of the reform proposals being considered. CME Group could benefit as more over-the-counter products are forced through clearinghouses and exchanges, but could suffer if regulators restrict bank proprietary trading or impose steep position limits in commodities markets.    A revised bill on financial regulation is expected very soon from the U.S. Senate's Banking Committee. [ID:nN10137492]    The bill would tighten bank and capital market oversight and is expected to include measures for consumer protection, systemic risk, and an over-the-counter derivatives crackdown -- the issue central to CME Group, which recently launched a credit default swap clearinghouse and wants to clear more swaps.    "We're expecting the Senate bill reasonably shortly," Donohue said. "The process is definitely evolving, but I'm not unhappy with the fact that there's been time to actually meet with legislators."    The European Commission is expected to publish a draft law on derivatives clearing by July.    "It's hard to judge" whether the political will to reform financial markets is waning, the CEO added. "Certainly there is a clear focus on the legislation." (Reporting by Ann Saphir and Jonathan Spicer; Editing by Gary Hill) ((jonathan.spicer@thomsonreuters.com; +1-646-223-6253; Reuters Messaging: jonathan.spicer.reuters.com@reuters.net))    Keywords: CMEGROUP/     Thursday, 11 March 2010 01:08:40RTRS [nN10178974] {C}ENDS

from Financial Regulatory Forum:

US CFTC reopens comments on ICE electric contracts

WASHINGTON, Nov 16 (Reuters) - The U.S. futures regulator said on Monday it will allow an additional 15-day comment period on whether 11 electricity contracts on the IntercontinentalExchange should be regulated as significant price discovery contracts.

The Commodity Futures Trading Commission said there was substantial interest in the question and it had received informal requests for more time to submit comments. The original 15-day comment period ended on Oct. 21.

A 2008 law allows CFTC to determine if contracts on exempt commercial markets perform significant price discovery functions. If CFTC decides they do, a broader array of reporting and recordkeeping rules come into force. The contracts also would be subject to CFTC position limits.

"To ensure that an adequate opportunity is provided for submission of meaningful comments, the commission has determined to reopen the comment periods for an additional 15 days from the date of publication in the Federal Register of the notices of the reopening of the comment periods," said the CFTC in a statement.

Involved in the new comment period are ICE contracts:

--SP-15 Financial Day-Ahead LMP Peak Contract --SP-15 Financial Day-Ahead LMP Peak Daily Contract --SP-15 Financial Day-Ahead LMP Off-Peak Daily Contract --SP-15 Financial Swap Real Time LMP-Peak Daily Contract --SP-15 Financial Day-Ahead LMP Off-Peak Contract --NP-15 Financial Day-Ahead LMP Peak Daily Contract --NP-15 Financial Day-Ahead LMP Off-Peak Daily Contract --Mid-C Financial Peak Contract --Mid-C Financial Peak Daily Contract --Mid-C Financial Off-Peak Contract --Mid-C Financial Off-Peak Daily Contract

from Financial Regulatory Forum:

China tightens rules for futures trading

    SHANGHAI, Sept 1 (Reuters) - China will implement rules that require individuals starting futures trading accounts to provide their names and details, as it moves to regulate the country's futures market.    Futures companies have to give information from identification cards carried by Chinese citizens to the China Futures Margin Monitoring Center Co for checks with the data base of the Ministry of Public Security, the country's securities watchdog said on Monday.    The regulation, which takes effect on Tuesday, helps the China Securities Regulatory Commission (CSRC) monitor real time futures trading, the official Shanghai Securities News said on Tuesday, citing a CSRC executive.    It will also benefit the launch of the country's long-awaited stock index futures.     Currently, any number of futures trading accounts can be started using aliases or nicknames without a need for an individual to give their actual name or details.    Existing accounts and accounts of futures companies that have not upgraded their systems would be checked later in batches, the CSRC said. (Reporting by Alfred Cang; Editing by Valerie Lee) ((alfred.cang@thomsonreuters.com; +86 21 6104-1763; Reuters Messaging: alfred.cang.reuters.com@reuters.net)) ((If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com)) Keywords: CHINA/FUTURES    Tuesday, 01 September 2009 02:09:07RTRS [nSHA60674 ] {C}ENDS

from Commodity Corner:

Oil Market Contango Widening

The spread between front-month oil futures and contracts for later delivery on the New York Mercantile Exchange (see Fig. 1) has widened dramatically this month. (See Fig. 2)The widening contango frequently portends a rise in inventories. For example, in Fig. 3, it can be seen that when the discount for fronth-month crude to second-month crude widened to near $4 a barrel earlier this year, inventories jumped to 19-year highs. The relationship between inventories and the outright futures price can be seen in Fig. 4. 

from The Great Debate UK:

Hike in interest rates a step closer

- Edward Menashy is chief economist at Charles Stanley. The opinions expressed are his own. -

The Monetary Policy Committee of the Bank of England has kept its key lending rate at a record low of 0.5 percent, last reduced in March 2009 when it indicated that conventional policy had reached its limit and unorthodox measures such as quantitative easing were to be used.

Recent economic statistics however have been strong with the UK service sector staging a surprise return to growth in May 2009 thus raising the prospect that the country’s recession may be about to end. Also the Nationwide survey of consumer confidence hit a six month high in May 2009.

Recently the CBI indicated that the banks would tighten credit less aggressively in the next three months.  The survey indicated that only 7 percent of firms expected to be offered tougher conditions for new lending, down from 36 percent from the March 2009 survey.

So against this backdrop all these factors have raised the prospect that policy might soon change.

Hence, if recessionary forces are decelerating and credit is becoming more available the prospect for rising interest rates has moved a step nearer.  Could this explain the strength of the pound and the weakness of the gilt market?

Not surprisingly, the Bank of England is expected to stick to its target of £125bn for Quantitative Easing. Interestingly the futures market foresees interest rates taking the following shape: