TheChek News Flow

Saudi Arabia’s energy minister Khalid al Falih warned that weakening compliance with the Opec and non-Opec output cuts was hurting oil markets on Monday, urging producers to tackle “head on” any slippage in their 1.8m-barrels-a-day supply deal.

Arriving in St Petersburg for a monitoring committee meeting with Russia, the largest actor in the deal that is not a member of the cartel, Mr Falih said that the participants must stand ready to take additional measures if necessary.

The meeting on Wednesday is not expected to lead to immediate action in the form of deeper cuts but the group of oil producers is facing growing pressure as crude prices continue to languish below $50 a barrel.

Russia’s energy minister Alexander Novak told the Financial Times this weekend that Libya and Nigeria – two Opec members that were exempt from the cuts due to supply disruptions, but whose output has recovered markedly this year – must be capped once their production stabilises. His comments were seen pressuring Saudi Arabia, Opec’s largest producer, to do more.

Mr Falih said that rising demand growth was making oil markets look “healthier” and would offset a recovery in the US shale industry in 2018, but cautioned rising exports were becoming a concern for oil markets.

If the bankers abandon it, who will be left to support the ancient and august institution of the men’s suit? The lawyers? People at funerals? Moustache-waxing hipsters? Not constituencies the world’s designers and tailors will want to depend upon.

So this week’s news from JPMorgan, the world’s leading bank by many measures, constitutes a moment in the history of clothing. In a memo to its 237,000 staff this week, the banking institution announced a relaxation in its dress code. Staff are now urged to wear “business casual”, to reflect changes “in the way we work”.

Whoever makes these sort of decisions at the bank — likely some crank in HR — let it be known that a polo shirt and trousers is just fine, all week long. Casual Friday has engineered a hostile takeover and consolidated the other four days.

This seems the right moment, then, to consider why anyone should bother wearing a suit. The first and probably the most important reason is to look like one’s father.

My dad put on a suit every day and off to work he went. Therefore the fact that I put on a suit every day implies that I am an adult, capable of successfully doing grown up things, sometimes for hours at a stretch. There may be people who do not need props to convince themselves they are not, in fact, fumbling 12-year-olds committing a fraud against the legitimate world. If there are, I congratulate them. Formal clothes prop us up, and we need it.

The second reason to wear a suit can be summed up this way: it is a great excuse to put on a tie. A suit is a more or less complicated garment designed to be worn with a tie, and the tie is designed to go with the shirt. And so begins a game of self-expression played with multiple pieces.

A whole set of emotional and social and aesthetic messages can be sent, with brashness or subtlety. Move to a smaller set of pieces and you have gone from chess to checkers.

This is the point that Mark Zuckerberg (left) misses. He says he wears the same sort of grey T-shirt and jeans every day so he can focus on more important decisions.

Nonsense. If he had a sense of style, picking out his clothes would be a pleasure, not an additional chore. And all sorts of wardrobes can be set, as it were, on automatic pilot when needed. Zuckerberg is simply saying that clothes are not important. Yet they are.

Many people, especially but not exclusively men, roll their eyes at this notion. This is bigotry. Many of these same people read deep meaning and importance into, for example, a bunch of people kicking a ball around. And they are absolutely right to do so.

As the point is expressed in Cormac McCarthy’s Blood Meridian: “Men are born for games. Nothing else. Every child knows that play is nobler than work.”

Getting dressed is as noble a game as any, and as meaningful. If Zuckerberg made similar remarks about the food he ate, or the architecture of his office, or the pictures on his walls, he would be widely, and rightly, dismissed as a philistine.

This is why the increasingly ubiquitous suit-with-no-tie is a mistake. It reduces the number of available moves in the game. You cannot loosen a tie if you wear no tie; you cannot roll up your sleeves if you have no sleeves.

The last reason is related but not identical. We wear suits to work because the work we do is important. My main job, for example, is to oversee a daily column that says mostly nasty things about the way companies are run. If I am going to get paid to be rude about things that other people have sweated and bled over, burning the better part of their short lives, and maintain the pretence that my words matter, I think I can wear a suit while I do it. The people I write about deserve the gesture.

This last argument could be flipped on its head. What everyone wants, after the crisis, is for banking to be less important, less well paid, less risky, less glamorous. If bank-as-utility is the goal, then is not a banker dressed like a plant manager (and paid like one) just what we need? A compelling possibility but, to me, not as compelling as this message: put on a suit, hotshot, it’s other people’s money.

I like polo shirts. I wear one almost every Friday, and find it a nice change from the other days of the week. A work wardrobe consisting entirely of khakis and polos would have the important and egalitarian advantage of being cheap to buy and maintain, and would leave us with a bit more time to think about other things. The idea that nothing would be lost in the transition is, however, plainly wrong.

The news that disturbed my digital life came two years ago in a snail mail letter strewn with phrases like “malicious cyber intrusion” and “identity theft.” A relative’s company had been part of a massive hack, the note said, leaving my information exposed. Before the letter came, I was a cyber security neophyte: I didn’t use a VPN and encrypted websites were just for banking. I often shopped online, depositing my credit card number over coffee shop wifi.

Since then, I’ve gotten better. My Android is filled with WhatsApp and Signal—which use end-to-end encryption—and my finance apps encrypt my data with both hardware and software. With things outside of my control, like my now-compromised social security number, I reassure myself that big organizations use encryption to house sensitive data, so my social must be unreadable to hackers.

But it turns out that all this encryption might not matter. Internet users like me have long relied on encryption for security and peace of mind, but cryptography experts are becoming aware of its faults—namely, that encryption can only protect against the tools we have now, and better, smarter tools are on the horizon. Quantum computers, which are fundamentally different from traditional computers because they leverage quantum mechanics to do calculations, could easily decrypt the advanced encryption we use widely. So even if encrypted data is safe from today’s hackers, it’s potentially vulnerable to hackers of the future.

Experts are concerned that cybercriminals might exploit this vulnerability with a scheme called harvest and decrypt. It’s a long-game attack where hackers scrape encrypted data and hold it, sometimes for decades, while they wait for quantum computers to become widespread enough for them to buy one. As soon as they have access to the device, they’ll use it to decrypt the stored data, which could contain anything from social security numbers to health information to a slew of nuclear missile codes

Schanck even suspects that the NSA is using the technique. When Edward Snowden leaked secret information in 2013, it came to light that the NSA’s protocols allowed for storing encrypted communication because “they can’t judge at the time of interception if it’s going to be useful for law enforcement,” Schanck says.

Quantum computers have been on cryptographers’ radars as a security threat for years. In theory, they can already shred through public key cryptography, a system that exchanges passwords between a sender and receiver to decrypt. RSA and elliptic curve cryptography—algorithms that are widely used for all types of data encryption online, including making that “s” in “https” possible—have been broken in tests using Shor’s algorithm. That algorithm is run on a quantum computer, says Mike Brown, CTO of ISARA, a Canada-based post-quantum cryptography company.

Luckily, the quantum computers available today sell for millions of dollars, keeping them mostly in the hands of large companies, research labs, and government offices. You can’t exactly buy a quantum computer at Best Buy. The only way to even get access to one, outside of a major tech company or research lab, is to buy time on IBM’s quantum computing cloud-based services or buy a quantum annealer from D-Wave to the tune of about $15 million.

But that doesn’t mean quantum computers won’t ever be a household item. “It is possible it takes another 20 or 30 years from today for someone to have a quantum computer and be able to decrypt messages in real time,” Schanck says. And getting your hands on encrypted data isn’t nearly as hard. Anyone with a wifi connection and some technical knowledge about the process can do it, as long as they’re able to be proximate to their target. It’s not just nation states who could get their hands on encrypted data: Someone could copy your data over the Starbucks wifi network.

Quantum computers will open a whole new world of scientific advancement. But the “dark side” of that tool is quantum computers’ ability to take an impossible problem and make it “trivial,” Brown says. Defending against quantum computers will require techniques that don’t exist yet. Securing data will require protection against quantum algorithms, or a system of public and private keys that erase themselves over time. This means that hackers would scrape data that would become useless in the future—because the keys necessary to access that information would have already self-destructed.

Still, some experts believe that multi-decade encryption is overkill. While information is being stored, waiting to be decrypted, the information contained within it will become obsolete. “There are actually very few long-term secrets in our society,” says computer security expert and cryptographer Bruce Schneier. “We don’t have 30-year secrets. There are no military secrets from the 1970s that are secret today.” Others suggest that quantum computers are a far-off dream. No one is sure when they will become common fixtures in homes and businesses, let alone tools for blackhat hackers—so why panic? Especially considering the patience required for a perpetrator to pull off a decades-long con.

Maybe that’s comforting to some. While my social security number is probably being bought and sold somewhere on the dark web, I’m crossing my fingers that my encrypted hospital records and ID cards aren’t also being scraped.

I don’t know want to find out how my data could be leveraged against me in the age of the quantum internet—but something tells me that the culprits will have their eyes on a self-driving spacecraft, rather than a fancy car. For all I know, those hackers are probably infants right now, swiping mashed peas on their first iPhones.

Manufacturers tend to blame price increases on higher costs for raw materials, but the ONS points out that sugar prices are around the lowest since records began in 1991, while cocoa prices have also tanked.

It’s also hard to pin the blame on Brexit:

Our analysis doesn’t show a noticeable change following the referendum that would point towards a Brexit effect. Furthermore, others had been observing these shrinking pack sizes long before the EU referendum, and several manufacturers have denied that this is a major factor.

Whatever the reason, at least this is proof we’re not all making it up/growing.

Mifid II explained

From January, one of the EU’s most ambitious — yet controversial — packages of financial reforms will be rolled out.

The Markets in Financial Instruments Directive — or Mifid II — is designed to offer greater protection for investors and inject more transparency into all asset classes; from equities to fixed income, exchange traded funds and foreign exchange.

The extensive piece of legislation, seven years in the making, already has more than 1.4m paragraphs of rules, which will grow as regulators complete the final standards in coming months.

They reach across the financial services industry, from banks to institutional investors, exchanges, brokers, hedge funds and high-frequency traders.

One of the most high-profile aspects of the legislation involves how asset managers pay for the research they use to make investment decisions. For the first time, fund managers will have to budget separately for research and trading costs, a move known as unbundling. Regulators decided the current — more opaque — system was detrimental for fund managers’ clients: pension funds and retail investors who foot the bill for trading costs.

Another big change is the requirement for investment firms to report more information about most trades immediately, including price and volume. Banks will also have greater responsibilities around reporting their transactions: traders must be identifiable even if an order is not executed, for example.

Other areas targeted by Mifid II include surveillance and “best execution”. All voice and text communications relevant to a trade must be stored for a minimum of five years for example, while banks and brokers will be forced to show customers that they were offered the best available price for a deal.

Banks are locked in tense negotiations over how much to charge investors under Mifid II

The world’s largest banks are asking for more than $1m for annual access to research platforms under new European rules that will force asset managers to split the cost of research and trading for the first time.

From January, rules under the sprawling Mifid II directive will require fund managers to pay investment banks and brokers directly for analyst research instead of combining the cost with trading commission.

The deadline has sparked frantic rounds of negotiations over the price of research that fund managers tend to regard as free.

“Some figures are eye-raisingly high, and others are more realistic,” says Eoin Murray, head of investment at Hermes Investment Management, the UK fund house that oversees £30bn of assets and uses 60 research providers.

“Our sense is that over the next five months, those numbers will come down. We will be quite choosy.”

The largest investment banks with top-rated analysts have initially put forward offers of about $1m or more for an annual subscription to their research platforms, according to consultants and investors involved in the negotiations.

Smaller banks in Europe, or those focused on fixed income rather than equities, are asking for less, with several investors receiving quotes of between $100,000 and $500,000.

For example, Crédit Agricole is pricing towards the lower end of the range with a two-tiered model, according to a recent pricing document shown to investors. A basic research package, which gives users access to written analyst reports, will cost €60,000 a year, while its €120,000 “premium” service will provide “direct access to analysts”.

The French bank intends to limit the premium offer to 20 clients, however, in part because its “client franchise is too large to guarantee senior analyst/strategist access to everyone”, the document said.

Other banks are also considering different models, with additional payments for more in-depth access to star analysts via meetings, phone calls or conferences as part of tiered pricing. They must also decide whether to ask for fees upfront or offer a more “pay as you go” model.

An early pricing document by Nomura in April quoted $134,000 for its “premium” fixed income research package including access to top analysts — but that has since changed, a spokesperson told the FT, who declined to comment further.

Among the biggest banks, JPMorgan is expected to offer some of the lowest prices for its written research, according to four people with knowledge of its pricing model, who wished to remain anonymous. JPMorgan declined to comment.

Barclays said that it did not have a “uniform” pricing framework. “It’s bespoke, so each client will get a different price depending on their interaction with us,” said Rupert Jones, head of European equities research.

The forthcoming changes have in turn prompted soul-searching among research providers, who have been forced to evaluate how much their market analysis is really worth. Many fund managers are dismissive of the stack of analysts notes they are sent daily.

One brokerage, which wished to remain anonymous, said it had already turned away a fund manager which was not willing to pay a reasonable price for its service. Others plan to entice clients through exclusivity, effectively auctioning off their research to the highest bidders.

But there is concern that discounting too heavily could anger regulators if extremely low prices were considered an incentive to trade.

“[We are seeing] very high prices at one end and bargain basement pricing at the other,” says Brijesh Malkan, senior consultant at BCA Research, an independent research provider, and a former Legal & General fund manager.

“There is no such thing as a free lunch in this industry. Even if it’s not an inducement to trade, you’ve got to question whether the quality of that [research] will go down.”

Banks have historically tailored their expectations of research payments, according to the size of the fund company, says Neil Scarth, a principal at Frost Consulting, a research adviser to asset managers.

While the new rules will demand greater transparency, that relationship is unlikely to change dramatically, he adds.

Fund managers too have to assess who exactly they want to buy research from under the new regime, and how much they want to spend. Many say they will slash their list of providers, and budgets are beginning to emerge.

Aberdeen Asset Management, the Scottish fund house, spends around £10m annually on research, while its smaller UK rival Jupiter spends around £5m. London-based boutique Polar Capital spends around £1.5m, according to a regulatory filing released last week.

Benjamin Quinlan, chief executive of Quinlan & Associates, the consultancy, says the mid-ranking research providers will suffer the most. “These guys will get hit very hard. It will really wallop them. There will definitely be ramifications in terms of the operating models,” he says. “Brokers will have to rationalise, specialise, or just shut down.”

Still, many fund managers are waiting for clearer price tags to emerge before they move to finalise any agreements.

“We have not seen any consistent pricing from banks, brokers and other research providers so far and as such we continue to be in discussions with them,” says a spokesperson for Schroders, the UK’s largest listed asset manager.

“Things will crystallise around November or December — when fund managers have sorted out their annual budgets,” says Terence Sinclair, the global franchise director for Citigroup’s research division, who has spoken to more than 500 institutions while negotiating the bank’s pricing structure. “As an asset manager, you want to get all your brokers in a row before you agree a price.”

Two hours ago, Spiegel published a ~20 page article named "Das Auto-Syndikat” (http://www.spiegel.de/spiegel/) about ongoing collaboration among the German OEMs. The article claims that the Dieselgate scandal was a result of a long-term collusion of all three OEMs. Spiegel cites various emails that have been sent between competing carmakers. These are some of the accusations:

Most of the article claims that the Diesel-gate is not a conscience. It states that the German OEMs collaboratively push through the diesel technology rather than hybrid technology early on. They were aware that NOx emissions are significantly higher, but they didn’t have any expertise in hybrid powertrains. The three OEMs had numerous meetings about Euro 6 AdBlue liquid tanks. AdBlue is a urea-based chemical that is used to substantially decrease NOx emissions in the exhaust system. According to Spiegel, the salespeople pushed the engineers to use a small 8-litre tank for all applications in order to keep enough space in the car for high-margin optional extras. These tanks were to be produced by only two suppliers at most.

In March-2011, companies found out that in the real world, 8 litres of AdBlue liquid only lasts for 2000-3000 kilometres, not enough to last until the next service. This ultimately forced VW to use defeat device which used AdBlue liquid in necessary amounts only during lab-testing, but not during real-world driving. According to the article “there was an exchange of proprietary, competitively sensitive technical data, as Volkswagen reported in its appeal to the cartel guards. The five manufacturers had jointly defined "technical standards" and agreed to use "only certain technical solutions" in new vehicles.”

It is difficult to judge from our seat if any of these statements are true. For the sake of argument, if this is true, it seems that VW decided to “come clean” in the aftermath of the diesel scandal in order to avoid paying further fines. As we can see from the table below, whistle-blowers can cut their calculated fine by up to 100%.

We have spoken to all three OEMs when a short version of the Spiegel article came out this morning. None of the carmakers were able to comment. We have also spoken to the German Cartel Office who told us that they cannot comment on ongoing cartel cases but have confirmed that six offices were searched in June-2016 in relation to “Steel Purchasing cartel” which still has not been concluded. Given the OEMs will start reporting their 2Q numbers next week, it is likely that they will comment on this Spiegel article over the weekend.

VW seems to be the best position OEM here as in theory, their fine could end up being zero. Since Daimler followed (according to the article), their fine could be reduced by up to 50%. According to the legislation, the overall size of such fine can reach up to 10% of last year’s revenues.