Investors Ask Who’s Safe in Russia After Fund Manager Arrest

Feb 19, 2019

First Read

Hits & Takes
JLN Staff

I will be in New York next week for DerivCon on Wednesday, and I arrive on Tuesday. My schedule is open for Tuesday afternoon.~JJL

Our calendar for Boca for our industry leader video series is starting to fill up. We are also shooting some video for our series on the history of financial futures there. Did you play a key part in that history? Contact me with your story.~JJL

The UK House of Commons Digital, Culture, Media and Sport Committee issued this report:
Disinformation and ‘fake news’: Final Report.” John Detrixhe of Quartz reported that the top visitors to the report were from Russia.~JJL

SEC Chairman Jay Clayton will speak at Fordham University in New York City on March 8 on U.S. Equity Markets: Looking Back and Moving Forward. The program is scheduled for 9:00 am -11:00 am at the McNally Amphitheatre, 140 West 62nd Street, Gabelli School of Business, Fordham University. You can go here for more information and to register.~SR

Cinnober’s monthly report is out, highlighting its joining Nasdaq Tech to work on the OCC project.~JJL

Matt Raebel and Thom Thompson continue to work hard on, which now has 339 content pages and 8499 edits since the project began. If you ever wonder what some of these crypto terms are that are included in JLN, is a good place to learn.~JJL


Eurex Clearing establishes direct connection to Bloomberg’s regulated swap trading venues; Eurex Clearing and Bloomberg have extended their cooperation for interest rate swaps clearing, improving efficiency via straight-through processing.
Bloomberg’s U.S.-based Swap Execution Facility (SEF) and UK Multilateral Trading Facility (MTF) are now connected to Eurex Clearing as Approved Trade Sources (ATS). This allows market participants who are Eurex Clearing clients to submit their executed swap transactions directly through Bloomberg’s SEF or UK MTF to Eurex Clearing as the central counterparty.


Companies Roll Out Gunshot Detectors at the Office; Fearing attacks, firms install sensors to track, help neutralize active shooters; systems’ true purpose often masked for fear of sparking a panic
Chip Cutter – WSJ
Corporate executives worried about workplace shootings are quietly installing gunfire-detection systems in U.S. offices and factories. Most don’t tell employees what the sensors are, for fear of alarming them.

***** Unfortunately the most common sensor is a pool of blood.~JJL


Farmworker vs Robot
Danielle Paquette – The Washington Post
Agricultural workers of the future may soon be made of tech and steel. Can a robot pick a strawberry better, faster, and cheaper than a seasonal farmworker? Both human and machine have 10 seconds per plant. They must find the ripe strawberries in the leaves, gently twist them off the stems and tuck them into a plastic clamshell. Repeat, repeat, repeat, before the fruit spoils. One February afternoon, they work about an acre apart on a farm the size of 454 football fields: dozens of pickers collecting produce the way people have for centuries — and a robot that engineers say could replace most of them as soon as next year.

***** Alexa, pick strawberries.~JJL


Brexit III: Last Week Tonight with John Oliver (VIDEO)
John Oliver – HBO (via YouTube…Note: Strong language)

****Yesterday we posted a link to a John Oliver video on Brexit. Unfortunately, that link only took you to YouTube’s homepage. The link above works (I triple-checked). Sorry for the mixup. ~JB


Monday’s Top Three
Our top read story yesterday was Coindesk’s Craig Wright Claims to Be Satoshi in Critical Response to CFTC on Ethereum. Second was The Trade’s Europe to recognise LCH, ICE & LME as CCPs in ‘no-deal’ Brexit. Third was the top story from last Friday, the Chicago Sun-Times’ Ex-CBOT chief [[Patrick Arbor released from jail after reaching divorce settlement with ex-wife]]. And so it ends for the man whose “behavior replicates the devil” according to her, and the woman who is “The Malfattore,” according to him


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Lead Stories

Investors Ask Who’s Safe in Russia After Fund Manager Arrest
Natasha Doff and Irina Reznik – Bloomberg
Baring Vostok founder prospered by playing by the rules; Case ‘illegal,’ has ‘rocked’ business world, ombudsman says
For most of the past three decades, American private equity investor Michael Calvey has made billions for his funds by knowing how to play by the rules — both written and unwritten — in Russia. Now he’s sitting in a Moscow jail facing fraud charges over a deal that went bad.

Swedish Krona, Worst Major Currency This Year, Can’t Get a Break
Love Liman – Bloomberg
Inflation slows more than forecast in Scandinavian economy; Krona drop may be overdone in the short term, analysts say
The world’s worst-performing major currency has no respite in sight.= Sweden’s krona slumped the most in eight months after weaker-than-forecast inflation data stoked concern about the central bank’s ability to raise borrowing costs.

Once hailed as unhackable, blockchains are now getting hacked; More and more security holes are appearing in cryptocurrency and smart contract platforms, and some are fundamental to the way they were built.
Mike Orcutt – Technology Review
Early last month, the security team at Coinbase noticed something strange going on in Ethereum Classic, one of the cryptocurrencies people can buy and sell using Coinbase’s popular exchange platform. Its blockchain, the history of all its transactions, was under attack.

‘Phantom volcanoes’ may hide more oil and gas in the North Sea: study
Lefteris Karagiannopoulos – Reuters
An unexplored 7,000 square kilometer (2,700 square mile) swathe of the British North Sea, previously thought to contain empty chambers left by three extinct volcanoes, may hide oil and gas instead, the University of Aberdeen said on Tuesday.

Swiss bank turns tables on German lawyer in tax evasion case; A German attorney faces an unusual trial in Switzerland for exposing a financial scandal involving J. Safra Sarasin, the Basel-based lender.
Volker Votsmeier, Sönke Iwersen – Handelsblatt
Eckart Seith helped to uncover one of Germany’s biggest tax avoidance scandals but now faces prosecution in Switzerland, home to the bank he identified as an alleged culprit, on a charge of industrial espionage.

What’s Really in Your Index Fund?; Investors love index funds, but they may not be as transparent as they seem.
Robert J. Jackson Jr. and Steven Davidoff Solomon – NY Times
John Bogle, the father of low-cost investing, once said that the index fund was the “most successful innovation — especially for investors — in modern financial history.”

R.J. O’Brien Wins 2019 CTA Intelligence U.S. Services Award for Best Independent FCM; Award Marks Seventh CTA Intelligence Award for RJO and its UK Affiliate
Chicago-based R.J. O’Brien & Associates (RJO), the oldest and largest independent futures brokerage and clearing firm in the United States, announced that the firm won the award for “Best Independent FCM” at the CTA Intelligence U.S. Services Awards 2019. The award marks the seventh CTA Intelligence award win for RJO and its UK affiliate in the U.S. and European editions of the magazine’s Services Awards.

City relief as EU gives no-deal green light for clearing houses
Michael Bow, Russell Lynch – Evening Standard
Europe stepped up preparations for a no-deal Brexit on Monday after giving key parts of the City of London temporary access to EU customers in the event of a cliff-edge departure.

Breakingviews – HSBC pushes investor goodwill to its limits
Christopher Thompson – Reuters
A charmed life is one unaffected by the vicissitudes of modern existence. Take HSBC for example. Almost alone among battered European lenders, the London-listed bank’s shares trade at a chunky 20 percent premium to its tangible book value despite delivering returns below its likely 10 percent cost of capital. Annual results delivered on Tuesday offered only a little comfort.

Estonia shuts Danske Bank branch at heart of money laundering saga
Tarmo Virki, Huw Jones – Reuters
Estonia ordered Danske Bank to close its local branch within months on Tuesday, as Estonian and Danish regulators faced an EU inquiry into their efforts to prevent one of the largest-ever money laundering scandals.

Exchanges, OTC and Clearing

Publication of JPX Working Paper, Vol.26 “Initiatives in Utilizing Blockchain and Facilitating Open Innovation in Capital Market” and a supplemental material to JPX Working Paper, Vol.22 “Study on Applicability of Distributed Ledger Technology in Trade Matching Processes”
Japan Exchange Group, Inc. (JPX) today published JPX Working Paper, Vol.26 “Initiatives in Utilizing Blockchain and Facilitating Open Innovation in Capital Market” and a supplemental material to JPX Working Paper, Vol.22 “Study on Applicability of Distributed Ledger Technology in Trade Matching Processes”.

Intercontinental Exchange Launches Marine Fuel Contracts in advance of IMO 2020
Intercontinental Exchange, Inc. (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, today launched new Marine Fuel 0.5% futures contracts in advance of the implementation of the 0.5% sulphur cap by the International Maritime Organization (IMO) in 2020.

ETF settlement: Change of settlement structure for ETFs of Invesco Markets II plc
Effective 25 February 2019, Invesco Markets II plc will convert their Exchange Traded Funds (ETFs) traded on Xetra (MIC: XETR) and Börse Frankfurt (MIC: XFRA) to the International Central Securities Depository (ICSD) model.

MSCI index derivatives: Adjustment of minimum block trade sizes and non-disclosure limits
The Management Board of Eurex Deutschland took the following decisions with respect to MSCI futures with effect from 25 February 2019:

Shortening of post-trading phase for products traded until 22:00 CET
In order to optimise the overnight processing, Eurex Exchange has decided to shorten the post-trading period and the off-book post-trading period for all products, which are traded until 22:00 CET, to ten minutes with effect from 25 February 2019.

Partnership Program boosts Repo trading at Eurex
Eurex’s Repo Partnership Program, which aims to increase repo transactions in the interbank market for European government bonds, is already showing initial effects.


Baillie Gifford automates global trade processing; Baillie Gifford has chosen software specialist corfinancial to help automate its post-trade processing and settlement.
Hayley McDowell – The Trade
Investment management firm Baillie Gifford has turned to technology to overhaul and automate its global post-trade operating model.

Fintech firms cannot be allowed to play unsupervised; ‘Sandboxes’ that offer regulation-free zones put consumers at risk
Karen Petrou – FT
Companies that promise to use technology to deliver better consumer finance have been welcomed with open arms. Regulators from Singapore to the US have opened “sandboxes” that allowed these fintech companies to develop new products without having to provide the safeguards long considered essential to protect customers from discrimination or deceit and to maintain financial stability.

FIX Trading Community announces keynote speaker for London EMEA Trading Conference
Institutional Asset Manager
FIX Trading Community, a non-profit, industry-driven standards body for global financial trading, has announced Verena Ross, Executive Director of the European Securities and Markets Authority (ESMA) as the Keynote Speaker for the EMEA Trading Conference on 14 March 2019.

‘Digital gangsters’: UK wants tougher rules for Facebook
Mae Anderson, Jill Lawless – AP
British lawmakers issued a scathing report Monday that calls for tougher rules to keep Facebook and other tech firms from acting like “digital gangsters” and intentionally violating data privacy and competition laws.

Low Touch in Derivatives: Following the parallel path
Chris Monnery, Fidessa
Derivatives’ parallel path
In Equities Electronic Trading, the service expectations between the buy and sell sides have seen significant changes over the past couple of years. The buy side has become increasingly involved in how their orders are executed and as a result of automation and increased capabilities on the sell side, electronic trading volumes are trending upward after years of non-existent growth. The sell side is welcoming this growth but is having to provide a more comprehensive service to their buy side clients as a result. Services take many forms, such as customization and searching for liquidity, both of which rely heavily on efficient and highly flexible technology. However, the key change is that low-touch is becoming a higher-volume version of a high-touch service, rather than simply offering a competitive suite of algos. While this is a bit of a chicken and egg situation, the question of which came first isn’t actually that important. The point is that the buy side now expects more from their sell side providers.

The Biggest Threat To Banks Isn’t Fintech Or Big Tech–It’s The Government
Ron Shevlin – Forbes
It wasn’t that long ago that the banking pundits were predicting that fintech startups would put existing banks out of business. The Wall Street Journal headline Biggest Three Banks Gobble Up $2.4 Trillion in New Deposits Since Crisis squashed that delusion.


Coinbase Acquires Blockchain-Tracking Startup Neutrino for Undisclosed Price
Leigh Cuen – Coindesk
Coinbase has acquired blockchain analytics startup Neutrino as part of a wider push to offer more diverse crypto assets across borders. “This is particularly important as we work with regulators and agencies in different countries to bring new assets there,” Coinbase’s director of engineering and product, Varun Srinivasan, told CoinDesk. He added that Neutrino would help Coinbase identify “which new tokens are gaining value and gaining traction in the space.”

You Can Now Send Bitcoin Tips Over Lightning on Twitter
Alyssa Hertig – Coindesk
When “liking” your favorite tweet isn’t enough, you can now send small bitcoin transactions. Announced Saturday, the beta app Tippin has released a new Chrome Extension available to Google browser users. Over Twitter, app users can send bitcoin payments via the Lightning Network, considered a way to make bitcoin transactions feasible at a large scale for the first time.

Mining Giant Bitmain Posts $500 Million Loss in IPO Financial Filing
Wolfie Zhao – Coindesk
Mining hardware giant Bitmain lost about $500 million in the third quarter of 2018 amid an overall bearish market for cryptocurrency, CoinDesk has learned.

Blockstream Releases Test Code for Proposed Bitcoin Tech Upgrade Schnorr
Alyssa Hertig – Coindesk
Schnorr signatures, a code change likely to be one of the biggest coming upgrades to bitcoin, have now gone from a theoretical idea to real code courtesy of technology startup Blockstream.

Noted Hedge Fund Says Crypto Hasn’t Bottomed Yet
Jeff Kauflin – Forbes
Alex Sunnarborg is a founding partner of New York City-based Tetras Capital, a cryptocurrency hedge fund Forbes estimates to have $30 million in assets under management. Tetras is well known for a recent bearish bet it made: It shorted ether in May 2018, a month when the digital currency’s average price was nearly $700. Today, ether hovers around $100. Before Tetras, Sunnarborg did a stint in investment banking and founded crypto exchange and research app Lawnmower, which was acquired by CoinDesk in 2017.


States File Suit Against Trump Administration Over Wall Emergency; California takes lead to fight president’s order funding the barrier, setting up 2020 election issue
Rebecca Davis O’Brien and Sadie Gurman – WSJ
Sixteen states on Monday filed a federal lawsuit challenging President Trump’s national-emergency declaration to pay for a wall along the U.S.-Mexico border, setting up a showdown with the administration that could go to the Supreme Court and last through the 2020 election.

Twitter Unveils New Political Ads Policies Ahead of EU Vote
Natalia Drozdiak – Bloomberg
Follows similar measures on election ads by Google, Facebook; EU has warned platforms to do more ahead of elections in May
Twitter Inc. plans to introduce extra checks and publish more information around political ads in Europe, stepping up efforts to combat disinformation online amid worries Russia or other actors could try to meddle with European Union elections in May.

Elizabeth Warren Wants a Wealth Tax. How Would That Even Work?; There are other tools that don’t involve quite the risks and challenges of targeting the richest families.
Neil Irwin – NY Times
When the United States government wants to raise money from individuals, its mode of choice, for more than a century, has been to tax what people earn — the income they receive from work or investments.

Elizabeth Warren To Unveil Sweeping Plan For Universal Child Care; The proposal could put the issue on top of the 2020 campaign agenda.
Jonathan Cohn – Bloomberg
Sen. Elizabeth Warren (D-Mass.) will unveil a major new initiative on Tuesday designed to make sure every family can afford high-quality child care, according to several people who have heard about the proposal or seen material describing it in the past week.

Seven MPs quit the Labour Party in protest at Jeremy Corbyn’s leadership
But more has to happen before this can count as a restructuring of British politics
The Economist (Opinion)
AFTER MONTHS of rumours and false starts, the Labour split has finally come. Seven MPs—Luciana Berger, Chuka Umunna, Gavin Shuker, Anne Coffey, Chris Leslie, Mike Gapes and Angela Smith—quit the party this morning.

Theresa May’s Time Is Almost Up on Brexit Deal
By Stuart Biggs – Bloomberg
Prime Minister Theresa May is running out of options to secure an acceptable agreement for the U.K’s departure from the European Union – now less than six weeks away.


FCA warns against Frontier Markets clone firm
Valentina Kirilova – Leaprate
The UK Financial Conduct Authority (FCA) has put out details of the cloned firm Frontier Markets. Fraudsters are using the details of firms, authorised by the FCA, to try to convince people that they work for a genuine, authorised firm.

FCA announces appointment of new Chair of the Financial Services Consumer Panel
The Financial Conduct Authority (FCA) has today announced the appointment of Wanda Goldwag as the new Chair of the independent Financial Services Consumer Panel. The appointment, effective from 1 March 2019 for an initial three-year term, has been confirmed by HM Treasury.

ESMA supervision to focus on data, Brexit and cybersecurity in 2019
The European Securities and Markets Authority (ESMA) has published today its 2019 Supervision Work Programme, which details the main areas of focus for the upcoming year for ESMA’s supervision of Trade Repositories (TRs), Credit Rating Agencies (CRAs), and the monitoring of third-country market infrastructures such as third-country central clearing counterparties (TC-CCPs) and third-country Central Securities Depositories (TC-CSDs).

ASIC update on implementation of Royal Commission recommendations
ASIC today provided an update on its planned actions responding to the Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (the Royal Commission).

Investing and Trading

Bad News Is Good News for Stocks Again; Stocks are up around the world, even as economic data has disappointed and earnings forecasts have been cut
Mike Bird – WSJ
The mantra that gained popularity in the years after the financial crisis—bad news is good news—is back. That should remind investors that finding themselves on the wrong side of major central banks can be perilous.

Key Investors Are Unhappy With SoftBank Tech-Investment Fund; High valuations of Vision Fund investments—and the decision-making role of SoftBank chief Masayoshi Son—have led to concerns
Julie Steinberg, Rory Jones, Phred Dvorak and Mayumi Negishi – WSJ
The two biggest outside investors in the $100 billion Vision Fund are complaining about the high prices the fund’s manager, SoftBank Group Corp. 9984 -3.28% , has paid for tech companies and the control wielded by SoftBank Chief Executive Masayoshi Son over investment decisions.

Calm currency markets at odds with conventional wisdom; Volatility nears historic low as investors assume liquidity will remain plentiful
Eva Szalay – FT
Things are calm in currency markets. But it is not the reassuring kind of calm. Conventional wisdom suggests that macroeconomic uncertainty should be generating swings in prices.

CME Group CEO Duffy on Volatility, Data Expansion and Bitcoin
Bloomberg Markets: The Close
Terry Duffy, CME Group Inc. chairman and chief executive officer, discusses the market volatility, the company’s data expansion and Bitcoin with Bloomberg’s Scarlet Fu and Caroline Hyde on “Bloomberg Markets: The Close.”

Momentum Investing’s Bad Luck May Be About to Turn
Mark Hulbert, MarketWatch
There’s a one-in-seven chance that stock market momentum will fail over any given 10-year period. That’s important to bear in mind since momentum is coming off one of those 10-year periods. Its failure has led to no end of soul-searching among advisers and researchers alike, wondering whether the venerable momentum effect may have stopped working permanently.


DealBook Briefing: Meet McKinsey’s Secretive Investment Fund; The drug maker Valeant Pharmaceuticals was one of several companies where McKinsey both advised and invested.
Dealbook – NY Times
Did McKinsey sell advice with a stake in the outcome? As McKinsey & Company advised some of the biggest companies in the world, the NYT reports, it may have had a vested interest in the outcome, through a little-known in-house hedge fund that holds stakes in some of the firm’s clients.

HSBC’s Profit Misses Analysts’ Expectations; Shares dip after lender says cost growth outstripped revenue at the end of 2018
Margot Patrick – WSJ
HSBC Holdings HSBC 1.01% PLC reported lower-than-expected fourth-quarter profit Tuesday as choppy financial markets, U.S.-China trade tensions and Brexit uncertainty weighed on the global bank.

HSBC revenues ‘collapse’ after December markets turmoil; Europe’s biggest bank warns on US-China tension in first results under chief John Flint
David Crow and Don Weinland – FT
HSBC’s revenues “collapsed” in the final weeks of last year amid panicked sell-offs in global financial markets, pulling full-year results for Europe’s biggest bank below expectations just as its new chief executive is pushing to expand in Asia.


How Japan’s farmers and fishermen backed the leveraged loan boom; Agricultural lender Norinchukin, burnt a decade ago by debt products, piles back in
Robert Smith and Leo Lewis – FT
After a tough start to the year for the corporate debt market, many managers of specialist investment vehicles backed by risky loans believe that March will be make or break.

Calvey’s arrest sends chill through Russia’s foreign investors; US founder of Moscow-based Baring Vostok was seen as savvy operator
Max Seddon – FT
Kremlin officials were touting Russia’s investment opportunities at a conference in the Black sea resort of Sochi on Friday when news trickled out that one of the country’s last remaining American investors had been thrown behind bars.

UBS’s $6 Billion Gamble in France Tax Case: Deal or No Deal?
Gaspard Sebag – Bloomberg
Other multinationals facing probes await Wednesday’s ruling; A huge fine will make others more keen to settle, lawyers say
It’s UBS Group AG’s $6 billion gamble, but the risk extends far. The Swiss lender eschewed a settlement in a French tax investigation after failing to agree on an amount, exposing it to in-court demands from the state and prosecutors that Paris judges impose as much as 5.3 billion euros ($6 billion) in fines and damages for lost revenue.


Brexit Negotiators Work on New Text as Time Runs Out
Tim Ross and Ian Wishart – Bloomberg
Telegraph: Tories weighing up quitting party to join new group; Cabinet ministers tell May she must stop threatening ‘no-deal’
U.K. and European officials are working on a new legal text for the most contentious part of the Brexit deal, but time is running out for Prime Minister Theresa May to persuade a fracturing Parliament to unite behind her plan.

‘We are in God’s hands’ Juncker says of Brexit; EU would not ‘oppose’ a UK request for a negotiating extension beyond March deadline
Mehreen Khan – FT
Jean-Claude Juncker has thrown Brexit into the hands of higher forces as the UK hurtles towards its planned exit date without a divorce deal.

Barclays launches more than 100 Brexit ‘clinics’ for small businesses
Barclays will host more than 100 clinics for small business customers in March to help them to prepare for Britain’s exit from the European Union at the end of that month, the bank said on Tuesday.

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