Photo: Michael Willson/AFL Media/Getty Images

Submitted by Tyler Durden on 09/14/2015 13:17 -0400

ASIC is aware of ongoing order activity issues in the ASX 24 quarterly roll markets leading up to the expiry of the following contracts:

• ASX 24 Three Year Commonwealth Treasury Futures
• ASX 24 Ten Year Commonwealth Treasury Futures, and
• ASX 24 SPI 200 Index Futures.

It appears that a small number of participants and clients may be using multiple gateways and trading accounts to ‘crowd out’ other participants and clients through order proliferation at the opening of each trading session in the week before the expiry for the relevant contracts. This conduct floods the quarterly roll markets with multiple quotes and cumulative volumes that are substantially higher than the levels actually traded.

The pattern of order activity suggests that some participants and clients are submitting orders to gain higher price/time priority in the bid/ask spread, and cancelling orders with unfavourable priority before an opportunity to trade on them arises. As a result, other participants and clients seeking to trade in the roll have to cross the spread at an expense.

ASIC has been monitoring this behaviour for some time and is concerned that it is becoming more prevalent. We estimate that more than 20,000 orders per quarter are affected by this behaviour. We are investigating a number of instances of this conduct and will take action where we identify breaches of the ASIC Market Integrity Rules (ASX 24).

Participants must ensure they comply with Rule 3.1.2 (ASX 24) (false or misleading appearance) and Rule 3.1.3 (ASX 24) (entering orders without an intent to trade). Participants must ensure that each order is entered with the intention of trading the volume entered.

Order behaviour that ASIC examines in determining whether there is an intent to trade an entered order includes but is not limited to, one or more of the following; order entry patterns, cancellation patterns, position accumulation, wash trading, financial capacity to fund orders placed and intra-day positions accumulated

©AFP

China’s government has decided to abandon attempts to boost the stock market through large-scale share purchases, and will instead intensify efforts to find and punish those suspected of “destabilising the market”, according to senior officials.

For two months, a “national team” of state-owned investment funds and institutions has collectively spent about $200bn trying to prop up a market that is still down 37 per cent since its mid-June peak.

Be briefed before breakfast in Asia – our new early-morning round-up of the global stories you need to know

China’s leaders feel they mishandled the stock market rescue efforts by allowing too much information to become public, according to senior regulatory officials speaking at a meeting late on Thursday — an account of which has been seen by the Financial Times.

Last week’s equities collapse, which prompted a rout in global markets, was partly blamed on authorities’ apparent decision to refrain from the share purchases they had been making since early July.

After standing on the sidelines for more than a week, the government resumed large-scale stock-buying in the last hour of trade on Thursday. This helped to lift the Shanghai benchmark index from a small loss to end the day up more than 5 per cent. The market rose by almost 5 per cent again on Friday.

Traders and officials said the latest intervention was aimed at providing a “positive market environment” in preparation for a big military parade this week to celebrate the 70th anniversary of the “victory of the Chinese people’s war of resistance against Japanese aggression”.

Senior financial regulatory officials insist that this was an anomaly, and that the government will refrain from further large-scale buying of equities.

Instead, authorities are planning to sharpen their focus on investigating and punishing individuals and institutions they believe have taken advantage of the state bailout to make profits or have obstructed the government’s attempts to shore up the market.

Late last week, the country’s securities regulator summoned senior officials from 19 brokerages, equity exchanges, futures exchanges and government-controlled industry associations, and ordered them to step up oversight of the markets.

The regulator said 22 cases of insider trading, market manipulation and “spreading market rumours” had been handed over to the police.

Last Tuesday, following a 22 per cent fall in China’s stock market over four trading days — the worst drop for almost 20 years — police detained 11 people suspected of “illegal market activities”.

They included eight managers from Citic Securities, one of China’s largest investment banks; two officials from the China Securities Regulatory Commission; and a journalist from the respected financial magazine Caijing.

Four other large Chinese brokerages have said they are being probed by regulators.

Global investors are listening to the language of retribution and watching this witch-hunt going on, and they are trying to understand what this means for them

– Hong Kong-based hedge fund manager

In a worrying signal for global investors with a presence in China, some officials have argued strongly for a crackdown on “foreign forces”, which they say have intentionally unsettled the market.

“If our own people have collaborated with foreign forces to attack the soft underbelly of the market and bet against the government’s stabilisation measures then they should be suspected of harming national financial security and we must take resolute measures to subdue them,” said an editorial in the state-controlled Securities Daily newspaper last week.

One Hong Kong-based hedge fund manager, who asked not to be named, said: “Global investors are listening to the language of retribution and watching this witch-hunt going on, and they are trying to understand what this means for them

Published: Aug 25, 2015 3:12 p.m. ET

By
MARK
DECAMBRE

SUE
CHANG
MARKETS REPORTER

Bloomberg News/Landov
Ray Dalio, chairman and co-chief investment officer of Bridgewater Associates.
Never mind raising interest rates — Ray Dalio, founder of the world’s largest hedge fund, is predicting that the Federal Reserve will launch a fresh round of quantitative easing rather than tightening at its coming policy meeting in September.

The Bridgewater Associates boss argues in a post on his LinkedIn account that the growing risk of deflation — not inflation — is pressuring the U.S. central bank’s decision on raising interest rates, something it has not done since 2006. The looming deflation factor is perhaps best seen in commodity prices. Crude-oil futures CLV5, -0.15% for example, have plunged 17% this month alone, much of it blamed on sluggish energy demand in China.

China’s slowing economy, underscored by Beijing’s decision Tuesday to cut its benchmark interest rate after a fresh 7.6% slide in the Shanghai Composite SHCOMP, -7.63% has been a deep source of worry for global markets.
Over the past week, the selloff in China had led to a global rout in stocks and sent investors running to havens like 10-year Treasury notes TMUBMUSD10Y, -0.51% until markets stabilized Tuesday. Yields have ticked back above 2% as stocks rallied early in Tuesday’s session. Bond yields move inversely to prices. That is the backdrop against which the Fed is expected to hike rates at its two-day policy meeting starting Sept. 16.

Already, futures markets are pricing in a 21% chance of a rate hike in September, according to CME Group’s FedWatch tool, down from 50% a few weeks ago.

Read: September Fed-hike bets dropping like a stone

To be sure, the Fed’s ability to provide any more easing, with rates already at ultra-low levels, seems limited. But that is part of Dalio’s argument, that the Fed will have very little wiggle room to act to alleviate problems if deflationary pressures truly take hold of the markets.

Dalio points out that since 1981, every cyclical peak and cyclical low in interest rates were lower than previous points until short-term interest rates eventually fell to 0%, which prevented a further rate cut. In response, central banks had to print more money and buy bonds.

“That’s where we find ourselves now,” he said. “Interest rates around the world are at or near 0%, spreads are relatively narrow (because asset prices have been pushed up) and debt levels are high. As a result, the ability of central banks to ease is limited, at a time when the risks are more on the downside than the upside and most people have a dangerous long bias. Said differently, the risks of the world being at or near the end of its long-term debt cycle are significant.”

Fed officials have said they would need to see inflation—the Fed views 2% as a healthy level—to be on solid footing before lifting rates, in addition to an improving employment picture.

On Tuesday, Larry Summers, former U.S. Treasury Secretary reiterated comments on CNBC that he made Monday, calling for the Fed to hold off on raising rates. Summers, like Dalio, is worried about the impact a rate increase might have on inflation. Summers believes that the Fed risks missing its 2% inflation target by increasing rates too rapidly.

One question for Dalio, who manages some $169 billion, is whether he’s actually putting his money where his mouth is.

Quantitative easing seems like an unlikely proposition given that Fed Chairwoman Janet Yellen (and other Fed members) has been very vocal about her desire to normalize monetary policy.

With volatility stepping higher, the most likely move by the U.S. central bank might be a delay in a rate increase to later this year or next, as Barclays has recently predicted.

• After a 4 year run without a correction the market looked exactly like it did in 2007.
• In 2007 after a superb 4 year run without a correction there was an initial large correction of 10-12%
• There was then a  10% correction in Oct 2014 which caught everyone by surprise as it did in 2007.  What then?
• Alternate camps made the argument for a crash or simply new highs as the trend continued
• What actually happened?
• The market in 2007 after the initial 10% selloff then made a 15% rally off the correction lows to new highs
• The market then formed a distributive top (ie a topping formation which was a diamond formation) over the next 7 months
• Once the consolidation pattern was completed and we broke under the 1^st 10% corrective lows the real bear market commenced
• Markets tend to move in 7 year cycles ie 2000 -2007, 2008-2015……
• Once the market breaks its 100 week moving average and the monthly RSI goes overbought this is a big warning signal

Where are we now

• After the initial 10% correction in Oct 2014 we made a new high of 16% off the lows
• It is 10 months after that initial selloff
• It is 7 years after the 2008 selloff
• Weekly 100 week moving average has just been broken
• Monthly RSIs have gone overbought, topped out and rolled lower

What happens now

• Last years selloff was a prelude to what is happening now.
• Given the aggressive bounce out of 1800 last year I think they will try and defend this 1800-1850 zone very well short term
• Markets tend to top on large distributive patterns. They do not just go up then straight down
• A distribution pattern may continue to build in this zone which may look slightly different than 2007
• The risk is a break of 1800 in due course
• In which case there increases the probability of a 20% correction or back to 1600 or so (lets not forget ASx200, Dax emerging markets etc have already fallen 20%)

Point being: I think this is all incredibly interesting

Raising rates this year will threaten all of the central bank’s major objectives

Will the Federal Reserve’s September meeting see US interest rates go up for the first time since 2006? Officials have held out the prospect that it might, and have suggested that — barring major unforeseen developments — rates will probably be increased by the end of the year. Conditions could change, and the Fed has been careful to avoid outright commitments. But a reasonable assessment of current conditions suggest that raising rates in the near future would be a serious error that would threaten all three of the Fed’s major objectives — price stability, full employment and financial stability.

Like most major central banks, the Fed has put its price stability objective into practice by adopting a 2 per cent inflation target. The biggest risk is that inflation will be lower than this — a risk that would be exacerbated by tightening policy. More than half the components of the consumer price index have declined in the past six months — the first time this has happened in more than a decade. CPI inflation, which excludes volatile energy and food prices and difficult-to-measure housing, is less than 1 per cent. Market-based measures of expectations suggest that, over the next 10 years, inflation will be well under 2 per cent. If the currencies of China and other emerging markets depreciate further, US inflation will be even more subdued.

Tightening policy will adversely affect employment levels because higher interest rates make holding on to cash more attractive than investing it. Higher interest rates will also increase the value of the dollar, making US producers less competitive and pressuring the economies of our trading partners.

This is especially troubling at a time of rising inequality. Studies of periods of tight labour markets like the late 1990s and 1960s make it clear that the best social programme for disadvantaged workers is an economy where employers are struggling to fill vacancies.

There may have been a financial stability case for raising rates six or nine months ago, as low interest rates were encouraging investors to take more risks and businesses to borrow money and engage in financial engineering. At the time, I believed that the economic costs of a rate increase exceeded the financial stability benefits, but there were grounds for concern. That debate is now moot. With credit becoming more expensive, the outlook for the Chinese economy clouded at best, emerging markets submerging, the US stock market in a correction, widespread concerns about liquidity, and expected volatility having increased at a near-record rate, markets are themselves dampening any euphoria or overconfidence. The Fed does not have to do the job. At this moment of fragility, raising rates risks tipping some part of the financial system into crisis, with unpredictable and dangerous results.

Why, then, do so many believe that a rate increase is necessary? I doubt that, if rates were now 4 per cent, there would be much pressure to raise them. That pressure comes from a sense that the economy has substantially normalised during six years of recovery, and so the extraordinary stimulus of zero interest rates should be withdrawn. There has been much talk of “headwinds” that require low interest rates now but this will abate before long, allowing for normal growth and normal interest rates.

Whatever merit this view had a few years ago, it is much less plausible as we approach the seventh anniversary of the collapse of Lehman Brothers. It is no longer easy to think of economic conditions that can plausibly be seen as temporary headwinds. Fiscal drag is over. Banks are well capitalised. Corporations are flush with cash. Household balance sheets are substantially repaired.

Much more plausible is the view that, for reasons rooted in technological and demographic change and reinforced by greater regulation of the financial sector, the global economy has difficulty generating demand for all that can be produced. This is the “secular stagnation” diagnosis, or the very similar idea that Ben Bernanke, former Fed chairman, has urged of a “savings glut”. Satisfactory growth, if it can be achieved, requires very low interest rates that historically we have only seen during economic crises. This is why long term bond markets are telling us that real interest rates are expected to be close to zero in the industrialised world over the next decade.

New conditions require new policies. There is much that should be done, such as steps to promote public and private investment so as to raise the level of real interest rates consistent with full employment. Unless these new policies are implemented, inflation sharply accelerates, or euphoria in markets breaks out, there is no case for the Fed to adjust policy interest rates.

The writer is the Charles W Eliot university professor at Harvard and a former US Treasury secretary

“The 20 Year Treasury Bond Futures contract has received regulatory clearance and will be available for offshore customers to trade.

Key contract features:

* Notional face value of AUD $50,000

* Quarterly contracts listed up to 6 months ahead

* Cash settled using live executable prices from bond market platforms and inter dealer brokers to determine the expiry settlement prices.

* Minimum price increments of 0.0025 per cent during the period 5.10pm on the 8th of the expiry month, to 4.30pm on the day of expiry.

At all other times the minimum price increment will be 0.005 per cent.

* Expiry is at 12.00pm on the Fifteenth day of the expiry month, or next best Business day

* Spread market functionality against 10 Year Treasury Bond Futures available on ASX Trade24 (14:10 ratio)

*Margin offsets offered against existing ASX Bond Futures.”

source Macquarie Group Ltd