First Read

Jim Kharouf Named New CEO of John J. Lothian & Company, Inc.
John Lothian Moves to Executive Chairman; Kharouf Gets Equity Stake In Firm
James Kharouf has been named CEO of John J. Lothian & Company, Inc., replacing company founder John Lothian. Lothian moves to the role of executive chairman of the financial markets- focused media company.

Kharouf, 50, has served as editor-in-chief of John Lothian News since 2007 and president of JLN since 2010. He will assume the role of CEO on January 9, 2017. A Milwaukee native, Kharouf is a graduate of Marquette University with a degree in journalism and has been a journalist and editor for more than 25 years in the US and Europe. He served as an editor at Futures Magazine and as U.S. correspondent for Futures & Options Week. He has also contributed to magazines and newspapers in the equities and derivatives space since 1996, with a stint in public relations.

“Jim is ready for this next step in his career,” said John Lothian. “I have seen firsthand his tremendous professional and personal growth since we first collaborated in 2006. He is one of the most talented journalists I know, and has the stuff to be a great CEO.”

For the rest of the story, go here


SGX Titan


Lothian hands CEO title to newsletter editor
By LYNNE MAREK – Crain’s Chicago Business
John Lothian, who leads an eponymous financial markets newsletter that aggregates nationwide industry coverage, will pass the CEO title to his top editor, James Kharouf.


DRW Judge Casts Doubt on CFTC Case Defense Calls ‘Absurd’
by Christian Berthelsen – Bloomberg
The federal judge presiding over a complex derivatives market manipulation trial cast doubt on both sides as lawyers for U.S. market regulators and trading firm DRW Holdings Inc. presented their closing arguments Wednesday.

***** The stakes are high for Don Wilson and for the CFTC. And even more so for the markets should the CFTC’s vision stand.


Singapore Exchange hit by second disruption this year; Derivatives trading delay is latest in series of technical faults on SGX – FT
Jeevan Vasagar in Singapore and Peter Wells in Hong Kong
The Singapore Exchange was hit by its second disruption this year with the start of trading in some derivatives contracts delayed by over two hours on Thursday morning.

**JK: Fireworks for FIA Asia.


Top Three
Yesterday’s top read stories were led by the Bloomberg story Goldman Sachs Alum Turns to Virtual Reality to Sell $57 Million Mansion. Second went to the new top post at Wedbush’s FCM, Wedbush Securities Appoints Bob Fitzsimmons Managing Director. Third went to the NY Times’ chronology of insider trading cases in Timeline: A History of Insider Trading. We all love a good crime story.


Lead Stories

Hedge funds closures set for worst year since 2008; Investors continue to pull money citing poor performance and fees
by: Mary Childs in New York – FT
The number of hedge fund closures is on track for the worst year since 2008, as investors withdraw their money citing poor performance and fees.

S&P 500 Rockets Higher During One-Minute Futures Volume Frenzy
Lu Wang and Joseph Ciolli – Bloomberg
Almost 50,000 E-mini contracts changed hands around 1:21 p.m.; That minute saw five out of the day’s seven biggest trades
The mid-afternoon surge in U.S. stocks came as futures on the S&P 500 Index notched their highest single-minute volume of the day, with almost five times as many contracts changing hands than any other point on Wednesday.

Deutsche Bank Records Said to Show Silver Rigging at Other Banks
David Glovin and Edvard Pettersson – Bloomberg
After German bank settled, it gave documents to plaintiffs; UBS, Barclays, Bank of America joined scheme, suit says
Eight months after Deutsche Bank AG settled a lawsuit claiming it manipulated gold and silver prices, documents it disclosed as part of the accord provide “smoking gun” proof that UBS Group AG, HSBC Holdings Plc, Bank of Nova Scotia and other firms rigged the silver market, plaintiffs claim.

The differences between US and European ETF markets; American counterpart far exceeds region in terms of assets held in funds and products
Philip Stafford – FT
ETFs are a global phenomena, but there are significant differences between the market in Europe and the US. This piece examines the most important.

Finance sector urged to ramp up cyber defences; Deputy Treasury secretary claims basic security would have thwarted recent attacks
Martin Arnold, Banking Editor – FT
Most of the recent cyber attacks on the financial system could have been avoided relatively easily if the private sector and government institutions had taken basic security precautions, a senior US Treasury official has claimed.

Nomura Has 10 ‘Gray Swan’ Risks That Could Roil Markets in 2017; Soaring U.S. productivity, a floating yuan, and the end of cash?
Isobel Finkel and Natasha Doff – Bloomberg
Markets’ black swans are rapidly turning gray. Brexit, the election of Donald Trump, and a faltering bull market in bonds have all helped elevate analysts’ 2017 tail risk predictions from the status of colorful festive reading to a cause for sleepless nights.

Trump Team Broadly Backs Efforts to Rein In Fed, Hensarling Says
Rich Miller – Bloomberg
The incoming Trump administration is broadly supportive of congressional-led efforts to restrict the Federal Reserve’s ability to conduct monetary policy, a key lawmaker said.

Blythe Masters Unveils Fix for Blockchain Privacy Concerns
Matthew Leising – Bloomberg
Firm details effort to keep trade data safe in white paper; Fingerprint data is only part of system shared among all users
Blockchain could finally drag Wall Street recordkeeping into the 21st century, but before they’ll use it financial firms want to know their data will be kept secret. The startup run by former JPMorgan Chase & Co. banker Blythe Masters says it’s found a solution.

Long Awaited US Federal Reserve Blockchain (DLT) Report Released
A long awaited paper taking a good, hard look at Blockchain technology from the US Federal Reserve has examined how Blockchain aka Distributed Ledger Technology (DLT) can be used in the area of payments, clearing and settlement and identifies both the opportunities and challenges facing its long-term implementation and adoption.

How Trump Has Increased Your Margin Requirements – aka: How Volatile Is Initial Margin?
Tod Skarecky, Clarus FT – TabbForum
Swap market participants have reported massive swings in margin requirements for their cleared swaps in the month since Donald Trump won the US presidential election. Just how significantly have margin requirements changed? And why? Or put another way: How volatile is initial margin?

The (No Longer) Almighty Soybean
Brad Setser – Council on Foreign Relations
The U.S. trade deficit rose in October. One reason (no surprise): Soybeans. Seasonally adjusted, monthly soybean exports are now $3 billion off their July and August peak. Actual soybean exports—in billions of dollars—rose in October. As they should. Soybeans have real seasonality: U.S. exports peak after the harvest. The seasonal adjustment seeks to smooth out this natural month-to-month volatility.

The Duo Who Dethroned Pimco to Become Kings of the Bond Market; TCW’s Laird Landmann and Tad Rivelle have long been driven by a desire to beat rival firm
Matt Wirz and Justin Baer – WSJ
Laird Landmann and Tad Rivelle left Pacific Investment Management Co. in 1994 to escape Bill Gross, the firm’s domineering investment head.

Exchanges, OTC and Clearing

ICE told to speed up investigations on U.S. futures exchange
Intercontinental Exchange Inc (ICE.N) generally takes too long to complete investigations into questionable trading practices on its U.S. futures exchange as required by the rules, the regulator said. Overall, ICE Futures U.S. has an adequate trade practice surveillance program, the U.S. Commodity Futures Trading Commission said in a report dated Dec. 2. The regulator also recommended ICE do a better job documenting its reviews.

Eurex awarded ‘Global Exchange of the Year’ by FOW
The winners of this year’ FOW Awards were unveiled at the annual gala dinner in London. Mehtap Dinc, member of the Eurex Executive Board, responsible for Global Derivatives Product Development accepted the awards. With the recent awards, Deutsche Börse, Eurex and Eurex Clearing have been recognized as leaders and innovators by key publications.

ISA Direct awarded ‘Best Technology Innovation’ by FOW
The winners of this year’ FOW Awards were unveiled at the annual gala dinner in London. Mehtap Dinc, member of the Eurex Executive Board, responsible for Global Derivatives Product Development accepted the awards. With the recent awards, Deutsche Börse, Eurex and Eurex Clearing have been recognized as leaders and innovators by key publications.

Japanese Commodity Markets Monthly Volume and Open Interest

LME Steel Scrap wins industry award on first anniversary
The London Metal Exchange’s (LME) steel scrap contract last night won a prestigious industry award one year after its launch. LME Steel Scrap won the Futures and Options World (FOW) award for the most innovative new contract in the commodities and energy sectors, reflecting a successful year with more than 450,000 tonnes traded to date in 2016.

SGX reports market statistics for November 2016
Total Securities market turnover value was at S$29.3 billion, up 49% month-on-month and up 51% year-on-year, over 22 trading days. There were 21 trading days in October 2016 and 20 in November 2015.

Db x-trackers II iBoxx $ Treasury UCITS ETF (DR) started on Xetra; ETF offers access to US government bonds with currency hedging
Deutsche Börse
A new db x-trackers bond index ETF from the product offer of Deutsche Asset Management has been tradable on Xetra and Börse Frankfurt since Thursday.

Single Stock Futures: Extension and adjustment of Designated Market-Making scheme
The Management Board of Eurex Deutschland and the Executive Board of Eurex Zürich AG took the following decisions effective 1 January 2017:

Weekly options on Euro-Bund Futures: Extension of Permanent Market-Making scheme
The Management Board of Eurex Deutschland and the Executive Board of Eurex Zürich AG decided to extend the Permanent Market-Making scheme (PMM) for Weekly Options on Euro-Bund Futures (OGB1-5) for the period between 1 January 2017 to 31 December 2017. This measure is aimed at guaranteeing and further improving liquidity in the order book.


Political Winds Swirl for Fintech in the West
Monica Summerville – TABB Group
Uncertainty following the presidential election in the US and the Brexit vote in the UK over the regulatory and business environments could threaten New York’s and London’s status as the leading global fintech hubs. Fintech investment in the Asia-Pacific region, in particular, has rocketed, and cities such as Singapore and Hong Kong are seizing the moment.

Trump’s Policies, Proposals and Promises: The Financial Community Votes
Larry Tabb – Fox Business
You can’t turn on the television, open a newspaper, or visit a news site these days without hearing about the election. It was so unexpected … It looks a lot like Brexit … Who will Trump pick? How will his election impact monetary policy, taxes, the wall, China, and financial regulation? We had those same questions too, so we turned to the TabbFORUM community, leaders in the capital markets, to get the pulse of our industry.

JPMorgan’s Jamie Dimon Named Business Roundtable Chairman
Jordyn Holman – Bloomberg
JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon was named to a two-year term as chairman of the Business Roundtable.

Investing and Trading

Trump Win Set Off $2 Trillion Shock Rotation to Stocks From Debt
by Garfield Clinton Reynolds and Adam Haigh – Bloomberg
Donald Trump’s election win sent a $2 trillion shock wave through global markets over the past month. That’s how much equities’ global market value has jumped. And that’s about the size of the loss in worth of the Bloomberg Barclays Global Aggregate Index of bonds, over the worst month for global bonds in dollar terms on record. Other assets were roiled, too: the yen plunged the most in 21 years against the dollar. It all amounted to a complete reversal of the playbooks mapped out by a bevy of analysts and investors who had anticipated a Brexit-style rush for havens in the event of a surprise Republican presidential victory.

Bank of Japan’s controversial masterclass in ETF investing; Central bank buying has helped the stock market but angered pension funds
by: Leo Lewis – FT
While the wider investment world has been grappling with the rise of exchange traded funds and their meaning for markets, the Bank of Japan has been conducting a six-year masterclass on the theme.

Active managers still hanging on to ETF coat-tails in Trump world
John Authers – FT
Have we reached Peak ETF? And are we therefore at last in a “stockpicker’s market” where active fund managers skilled in bottom-up stock selection can feast on the mispricings and anomalies that the herd of exchange traded funds have left in their wake?

Case study: One trader’s pain on the Swissie
Chloe Cornish and Naomi Rovnick – Financial Times
The Financial Conduct Authority’s planned crackdown has drawn a mixed reaction from the small army of retail investors that trade every day. For some it is not before time. “I didn’t take what I thought were risks,” says one trader, who requested anonymity. He suffered spiralling losses in January 2015 when the Swiss National Bank suddenly decided to unpeg the franc from the euro.

Don’t Fear The Reaper
The Irrelevant Investor
Anecdotally I can confirm that investors are indeed worried about how bonds and bond funds will behave if rates continue to rise. I would argue, however, that they’re worries are misguided. The sense I get is that they’re not just worried about their fixed-income returns falling short of expectations, they’re freaking out about a full blown meltdown.

Winners emerge in hedge fund industry despite rocky start to year; The total amount of money managed by global hedge funds rose to a record $2.97tn in the third quarter
by: Lindsay Fortado in London and Mary Childs in New York – FT
A handful of hedge funds are emerging as big winners this year, even as the industry has struggled to assuage investor ire over high fees and mediocre performance.


Scandal-Ridden Libor’s Substitute on Tap for 2017, Treasury Says
Sally Bakewell – Bloomberg
A group set up by the Federal Reserve to identify an alternative to Libor may make its selection next year, a sign of momentum behind efforts to move away from the borrowing gauge that became mired in an interest-rate-rigging scandal.

Brexit: French financial regulator wooing London banks
Adam Parsons – BBC
Some major banks are in advanced stages of planning to shift some operations from London to Paris, France’s leading financial regulator has told the BBC. Benoit de Juvigny said that “large international banks” have undertaken the due diligence needed to set up a subsidiary in the French capital.

Deutsche Bank suspends interest-rate trader for using WhatsApp
Ben Moshinsky – Business Insider
A WhatsApp logo seen behind a Samsung Galaxy S4 phone that is logged on to Facebook in the central Bosnian town of Zenica. Thomson Reuters
A Deutsche Bank rates trader has been suspended after asking a trading counterparty to join a WhatsApp group, according to a source familiar with the matter.

BlackRock adjusts leadership team for its largest mutual fund
Trevor Hunnicutt – Reuters
BlackRock Inc (BLK.N) is making leadership changes to its biggest mutual fund. The world’s largest asset manager is replacing one of the top leaders on its $42 billion BlackRock Global Allocation Fund (MALOX.O) (MCLOX.O) and adding three new portfolio managers, a move that comes as the fund’s performance has lagged its rivals.

Deutsche Bank suspends interest-rate trader for using WhatsApp
Ben Moshinsky – Business Insider
A Deutsche Bank rates trader has been suspended after asking a trading counterparty to join a WhatsApp group, according to a source familiar with the matter. The incident happened two weeks ago, and the bank’s internal investigation is yet to close, the source told Business Insider. The WhatsApp group was formed to discuss views on interest rates, the person said.

Deutsche Bank May Have Rigged Index in Paschi Deal, Audit Shows
Vernon Silver, Elisa Martinuzzi, and Donal Griffin – Bloomberg
Deutsche Bank AG employees may have manipulated internal indexes as part of an allegedly fraudulent scheme to help Banca Monte dei Paschi di Siena SpA conceal losses, according to an audit commissioned by German regulators.

Credit Suisse’s Ambitions Take Another Knock
Paul J. Davies – WSJ
Weak markets have hampered many plans this year, but perhaps none more publicly than at Credit Suisse. The Swiss lender cut back its ambitions for the second time in a strategy update Wednesday having done so once in March. But this time the big change was in Asia, which is at the heart of its future hopes. For investors, the new profit targets may look a bit more realistic, but for Credit Suisse as a whole there is still doubt it can deliver a decent return, especially if capital markets activity remains weak.

Top US bankers look to Trump administration to help big finance; Chief executives raise hopes at conference of lower taxes and lighter regulations
by: Alistair Gray in New York – FT
US banking chiefs on Tuesday flagged their enthusiasm for a Trump administration, hoping it will introduce an easier environment for big finance with lower taxes, lighter regulations and higher interest rates.

R.J. O’Brien Wins 2016 FOW International Award for Best Non-Bank FCM
R.J. O’Brien & Associates
Chicago-based R.J. O’Brien & Associates (RJO), the oldest and largest independent futures brokerage and clearing firm in the United States, last night won the FOW International Award for 2016 Best Non-Bank Futures Commission Merchant (FCM). FOW Magazine presented the award at a dinner ceremony following the FOW Derivatives World London conference.

***SR: We missed the link to an earlier announcement from RJO: R.J. O’Brien Limited Wins 2016 CTA Intelligence European Services Award for Best FCM – Technology

Citigroup fourth-quarter markets revenue trending up 20 percent vs year ago
Citigroup Inc fourth-quarter markets revenue is running about 20 percent higher than last year, chief financial officer John Gerspach said on Wednesday. Increased client demand for trades in fixed income and currencies that began with the Brexit vote in June has continued through the U.S. election, Gerspach said at an investor conference. The demand is coming from institutional investors and corporate clients, he said.

Tullett Prebon Information
Tullett Prebon Information (TPI), the leading provider of independent real-time price information from the global OTC financial and commodity markets, and Quaternion Risk Management, a leading risk analytics firm, have partnered to launch an innovative open source risk project in collaboration with Columbia University.

Hedge Funds’ Unlikely Savior
Christopher Langner – Bloomberg
The past two years have been tough on hedge funds, and active money managers in general. Sitting on an index fund provided better returns in almost every asset class.


Rival Systems Wins FOW International Award for Best New Technology Product – Risk Management
Rival Systems
Rival Systems (Rival), a leading provider of trading and risk management software, has just won the 2016 award for Best New Technology Product – Risk Management at the annual FOW International Awards. FOW Magazine officials presented the award last night to Rival CEO Robert D’Arco for the firm’s Rival Risk platform at a dinner and ceremony following the FOW Derivatives World London conference.

Euler Investments Selects OptionsCity for Market-Making Software and API Services
OptionsCity Software, a global provider of electronic trading solutions for professional futures and options traders, today announced that Euler Investments, a London-based hedge fund, has selected OptionsCity Metro to facilitate their market-making activities as well as CityTrader and City API for futures and options trading. Traders at Euler Investments will leverage Metro in the energy and commodity markets.

BNY Mellon Jumps on Blockchain Bandwagon
BNY Mellon, a global leader in investment management and investment services, announced today that Christopher Mager has been named to lead the newly created Global Innovation Group in the company’s Treasury Services business to explore Blockchain and Distributed Ledger Technology (DLT). The innovation group was launched to secure BNY Mellon’s position as a leader in incorporating new ideas and technologies that bring the best possible service to BNY Mellon’s clients.

What Happened to the Financial Blockchain Revolution
Bloomberg – Elaine Ou
Once upon a time, there was a lot of optimism that the blockchain — the technology underlying Bitcoin — would help the finance industry deal with a big headache: post-trade processing, the often long and arduous task of making sure money and securities change hands and everybody knows who owes what to whom.

Fidessa’s F&O platform wins FOW’s trading system of the year
Recognised for the fifth consecutive year at FOW International Awards
Fidessa group plc (LSE: FDSA) today announced that its futures & options trading platform has been named Sell-side Trading System of the Year at the FOW International Awards. This is the fifth consecutive win for Fidessa in this category and follows a win in the same category, for the fourth year running, at FOW’s Awards for Asia, announced in September.

Ancoa wins ‘Best Market Surveillance Technology’ at the 2016 FOW Awards
Ancoa, provider of contextual surveillance and insightful analytics for exchanges, regulators, buy- and sell-side firms, today announced it has won ‘Best Market Surveillance Technology’ at the 2016 Futures & Options World (FOW) International Awards. The award recognises the ongoing enhancements made to the Ancoa surveillance platform, which have enabled customers to meet the Market Abuse Regulation (MAR) deadline of July 2016.

South East Asia’s First Blockchain Incubator – Satoshi Studios – Opens Doors
South East Asia has got its first Blockchain incubator and it’s started by the team behind (South East Asia’s largest bitcoin mining pool), and backed/invested by Amit Bharadwaj. The incubator is very aptly named Satoshi Studios and is inviting applications from entrepreneurs working in the South East Asia region. The incubator has a 3-month intensive residence program in New Delhi, India, where the founders will spend time with the GBMiners team and other Blockchain startups and receive 50K USD in funding for 8%-15% equity in the company.


Energy Firms in Secretive Alliance With Attorneys General
Eric Lipton – NY Times
The letter to the Environmental Protection Agency from Attorney General Scott Pruitt of Oklahoma carried a blunt accusation: Federal regulators were grossly overestimating the amount of air pollution caused by energy companies drilling new natural gas wells in his state.

EU lawmakers move to revive asset and mortgage backed market
Francesco Guarascio | BRUSSELS – Reuters
European lawmakers are set to give their first backing to a plan to revive the market for asset and mortgage backed securities on Thursday, the EU lawmaker responsible for the initiative said. Last year the European Union’s executive arm proposed loosening rules on securitization, the process through which banks pool and sell loans, in a bid to revive a 200 billion euro market that has fallen to about a quarter of its 2008 peak.

SEC and Non-GAAP Accounting: What’s? Next??
Michael Rapoport – WSJ
One phase of the Securities and Exchange Commission’s crackdown on companies’ use of tailored “non-GAAP” financial measures is winding down a bit at this point, but the broader effort might not be over.

CFTC Releases Rule Enforcement Review of ICE Futures U.S.
Washington, DC — The U.S. Commodity Futures Trading Commission’s (CFTC) Division of Market Oversight (Division) announced today that it has issued the results of a rule enforcement review of ICE Futures U.S. (ICE or Exchange). The review, which covered a one-year target period, evaluated the Exchange’s compliance with elements of Designated Contract Market Core Principles 2 (Compliance With Rules) and 12 (Protection of Markets and Market Participants). The Division found that ICE has an adequate trade practice surveillance program, subject to three recommendations and one deficiency, as summarized below.

CFTC Orders Paris-Based Société Générale SA to Pay a $450,000 Penalty for Failing to Timely Report Swap Transactions
The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and simultaneously settling charges against Société Générale SA (Société Générale) for failing to properly report certain non-deliverable forward transactions to a swap data repository (SDR), and failing to timely report to an SDR a large number of FX swap, FX forward, and non-deliverable forward transactions, in violation of the Commodity Exchange Act (CEA) and CFTC Regulations.

Construction company Hochtief AG fined for insider trading and agrees to give up notional profits
The Federal Court has found that German construction group holding company Hochtief Aktiengesellschaft (Hochtief AG) engaged in insider trading in contravention of section 1043A(1)(d) of the Corporations Act 2001 on 29 January 2014, and has ordered Hochtief AG to pay a financial penalty of $400,000, as well as ASIC’s legal costs.

ASIC calls on preparers to focus on useful and meaningful financial reports
ASIC has called on companies to provide information for users of financial reports that is useful and meaningful ahead of the preparation of reports for the period ended 31 December 2016.

ASIC releases new instrument for non-monetary consideration managed investment schemes
Following public consultation, ASIC has released a new legislative instrument on interests not for money schemes, replacing three class orders on show schemes, interests not for money schemes and film investment schemes that were due to expire (‘sunset’).


China pledges to increase openness with foreign investment rules
Michael Martina – Reuters
China moved towards opening up markets such as railway equipment and vehicle batteries on Wednesday with the publication of draft foreign investment guidelines which it said would “increase openness to the outside world”.

China to help 1MDB settle multibillion-dollar legal dispute
Jeevan Vasagar, Caroline Binham and Simeon Kerr – Financial Times
Malaysia’s troubled state investment fund 1MDB is preparing to make a repayment, with Chinese assistance, to Abu Dhabi’s state-owned International Petroleum Investment Company, as it seeks to settle a dispute in which the Emirati fund is claiming about $6.5bn.

New rules for gold investing may open the market to 1.6 billion Muslims
By Myra P. Saefong – MarketWatch
The gold market saw the establishment this week of a new set of rules that has the ability to shake up the industry. The launch of the Shariah Standard on Gold, which offers guidance on the use of modern gold financial products that meet the requirements of the religious law governing members of Islam, opens the market for the yellow metal to potentially significant demand from the Muslim world.

China’s Banks Are Hiding More Than $2 Trillion in Loans; Accounting sleight of hand means banks don’t have to set aside capital for potential losses, sowing fears of a crisis; new apartments with no residents
Lingling Wei – WSJ
In 2014, the Chinese city of Haimen on the mouth of the Yangtze River set out to build a large apartment complex and turned to Bank of Nanjing Co. for about $29 million in financing.

Surge in Dollar Provokes Jitters in Emerging Markets Around World
Landon Thomas Jr. – NY Times
The election of Donald J. Trump has set off a monthlong run of investor ebullience, whose highlight has been a sustained increase in the value of the dollar against the world’s currencies.

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