First Read

November 7 to 11 and November 14, 2016 (Spoofer Pleads; Pre-Hedging Futures Blocks; Form 40 and Reg AT Again; President Trump)
Gary DeWaal – Bridging The Week
Last week, Navinder Singh Sarao – accused by both the Department of Justice and the Commodity Futures Trading Commission of engaging in spoofing-type conduct that contributed to the May 6, 2010, “Flash Crash” – pleaded guilty to his DOJ criminal charges and proposed to settle his CFTC civil action, following his extradition to the United States from the United Kingdom. In addition, ICE Futures U.S. once again proposed revisions to its Frequently Asked Questions related to the possible pre-execution hedging by principals to a futures block trade. And of course, Donald J. Trump won the election to be the next United States president.

***** Apologies to Gary DeWaal for us missing his column yesterday. Mondays can be like that.


Cathy Lyall, Minnamurra Consulting – 30 Years of Change

Cathy Lyall’s first day in the markets was 1987’s Black Monday. She had planned on going into foreign affairs but snagged a job as a futures broker the Thursday before the crash from her boyfriend, a cash bond broker. She also signed her first mortgage in London the Friday before Lehman Brothers collapsed. Life events when synced with world events yield perspective.

In the period between her first day on the job and her first mortgage, Lyall, currently director of Minnamurra Consulting, noticed a shift in the industry’s mentality.

“The ethics and ethos had changed in the markets — it was flipped completely on its head,” Lyall said. “It was me first, company second, and I’d like to say the client was third, but I think the client was out of the equation altogether. They were the patsies that people were trying to make money from. That meant our markets were broken.”

The good thing about mindset and industry culture is that it can change and Lyall believes that the “my word is my bond” mentality will return to markets — the next generation of market participants will play a key role in swinging the pendulum the other direction.

Watch the video »


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Google and Facebook Take Aim at Fake News Sites
Nick Wingfield, Mike Isaac and Katie Benner – NY Times
Google said it would ban purveyors of fake news on the web from using its online advertising service, AdSense. Over the last week, two of the world’s biggest internet companies have faced mounting criticism over how fake news on their sites may have influenced the presidential election’s outcome.

****SD: We’re 28 years on from the founding of The Onion. I just find that a good reference point.


The Spy Who Added Me on LinkedIn
Russia had operatives in New York for years, from Wall Street to the UN. Now one is headed to prison.

****JB: James Bond movies would be very different if he offered to “friend” someone on the internet instead of ordering a martini.


A Basel netting issue: Pushing for less burdensome capital requirements in the options market
Spencer Doar – JLN
The unintended consequences of financial regulation have been seeping into the markets since the first rule was made in the wake of the financial crisis. One prime example is the leverage ratio, which determines the required capital of general clearing members. The actual calculation of the capital requirement within the Basel III leverage ratio framework is a particular sticking point for the OCC. Right now, the Current Exposure Method (CEM) is used in the calculation, whereas the OCC and a wide swath of industry participants believe that the Standardised Approach for Counterparty Credit Risk (SA-CCR) would better encapsulate the nature of listed options markets.

****SD: In case you missed my piece yesterday, check out the importance of these two acronyms.


Unicef & Ellen Macarthur Cancer Trust Open Lseg’s Sixth Annual Charity Trading Day
London Stock Exchange Group
Today’s share trading fees from LSE plc, Borsa Italiana and Turquoise to be donated to charity
Goal is to raise over £400,000
UNICEF and the Ellen MacArthur Cancer Trust open London market
London Stock Exchange Group (LSEG) will today donate a day’s worth of share trading fees from across our markets – London Stock Exchange, Borsa Italiana and Turquoise – to charity. Distributed through the LSEG Foundation, the money raised will help support a wide range of charities in the communities in which the Group operates around the world.


Monday’s Top Three
For markets that prize predictability it is unsurprising that our top story on Monday was Politico’s The Black Swan President. In second is a closely followed story in this newsletter. When 90% of all trades are cancelled, when can you tell someone has gone too far and is “spoofing? ‘Spoofing’ case highlights perils of automated trading. In keeping with wondering what President-elect Trump will do is our third most read story from The New York Times, With Trump in Power, the Fed Gets Ready for a Reckoning


Lead Stories

Adena Friedman to take the helm at Nasdaq; Appointment will see first female lead a big US exchange operator
Nicole Bullock and Philip Stafford – Financial Times
Bob Greifeld is stepping down as the chief executive of Nasdaq, bringing to an end a 14-year tenure in which he had transformed the high-profile US exchange.

SEC Chairman White to Leave Agency, Opening Door to Conservative Shift
Dave Michaels, Aruna Viswanatha and Andrew Ackerman – WSJ
Securities and Exchange Commission Chairman Mary Jo White plans to step down in January, opening the door to a new Republican-appointed leader who could move to loosen rules on Wall Street and curb the aggressive enforcement approach Ms. White prosecuted.

Deciphering Cybersecurity, the CAT and a New Presidency
Joanna Fields, Aplomb Strategies Inc, TABB Forum
Deciphering the cybersecurity requirements across regulatory bodies almost presents a Herculean task for the various corporate entities that are interwoven to form the US financial market system. Given the increased complexity in cybersecurity requirements, combined with the fast-approaching Consolidated Audit Trail deadline, is it time for a single regulatory body with technological expertise to be responsible for harmonizing and consolidating all financial entities cybersecurity governance requirements?

2016 will be the hottest year on record, UN says
Damian Carrington – The Guardian
2016 will very likely be the hottest year on record and a new high for the third year in a row, according to the UN. It means 16 of the 17 hottest years on record will have been this century. The scorching temperatures around the world, and the extreme weather they drive, mean the impacts of climate change on people are coming sooner and with more ferocity than expected, according to scientists.

Exclusive: Audit of U.S. stress test ready, may aid Dodd Frank overhaul fight
Patrick Rucker – Reuters
A independent study of the financial costs and benefits of Wall Street ‘stress tests’ could be released as soon as Tuesday and may strengthen calls to reform U.S. banking rules, said sources familiar with the report. The Federal Reserve conducts a review each year of how the largest U.S. banks could fare during a financial crisis and the Government Accountability Office has been studying that work for two years.

Dollar Is New Fear Index as Easing Renders VIX Useless, BIS Says
Anchalee Worrachate – Bloomberg
The world’s most-traded currency is becoming a fear gauge.That’s the opinion of Hyun Song Shin, head of research at the Bank for International Settlements. A stronger dollar can depress demand for credit while reflecting reduced investor appetite for the riskiest assets, Shin wrote in a report released Tuesday by the BIS.

RJO to target global mid-market – CEO Corcoran
Luke Jeffs – Futures & Options World
Gerry Corcoran told FOW there is a growing opportunity for mid-tier brokers
The chief executive of Chicago-based broker RJ O’Brien has said he plans to tap increasing demand for a mid-market brokerage firm that offers global access as banks have pulled back from derivatives. Speaking to FOW, Gerry Corcoran, the chairman and chief executive of RJ O’Brien, said: “I am convinced there is a vast middle market that is currently being underserved by global firms and we see this as a crucial opportunity for RJO.”

The World’s Bond Vigilantes Are Back in the Saddle
Mark Gilbert – Bloomberg
Pity the poor pension fund manager. Toward the end of October, there was finally a chance to add some yield to a European fixed-income portfolio by lending money to Austria for 70 years at a yield of 1.53 percent. The sale raised 2 billion euros ($2.2 billion); it could have fetched more than six times as much, given the investor demand at the time of the sale. The securities were sold at a mild discount of 98.7 euros for every 100 euros of bonds. But if you sold your 70-year Austria bonds today, you’d immediately book a capital loss of almost 10 percent; less than two weeks after you took delivery, the bonds are now worth about 89 euros.

Remembering Jack Rivkin, Wall Street Research Giant
Barry Ritholtz – Barry Ritholtz
Jack Rivkin, who introduced many of the innovative research practices that eventually became commonplace at Wall Street’s biggest firms, passed away last week. He was 76. He was a warm and witty observer of the investment business, and was best-known for his work running Shearson Lehman Brothers’ research department. He also served as chief investment officer of Neuberger Berman, headed research for Smith Barney, was a partner at Idealabs, and most recently, chief investment officer at Altegris.


Europe’s Financial Hubs on Frankfurt ‘Catwalk’ for Brexit Spoils
Nicholas Comfort and Piotr Skolimowski – Bloomberg
European financial centers made competing pitches on Monday for financial jobs that flow out of London in the aftermath of the U.K.’s vote to leave the European Union. Thomas Schaefer, finance minister for Frankfurt’s home state of Hesse, said at a conference in the German financial capital that state Premier Volker Bouffier is in New York to discuss with major U.S. banks how they can retain access to the EU market. Luxembourg Finance Minister Pierre Gramegna told the same conference that while London will remain an important financial center for a while, his country could become a “second pillar” for institutions.

Brexit: FX hedging headache on the horizon
Farah Khalique – Euromoney Magazine
UK businesses face a post-Brexit hedging headache, as FX protection purchased before the referendum is now running out for many companies. The cost of renewing it has subsequently sky rocketed.

U.K. Denies Report That Brexit Workload Is Swamping Officials
Thomas Penny – Bloomberg
Memo dated Nov. 7 said companies will make demands like Nissan; Rebuffed report said trigger won’t be pulled until September
The U.K. denied a report that it may have to hire an extra 30,000 civil servants to deal with the growing workload leading up to Brexit negotiations in March.

Exchanges, OTC and Clearing

Nasdaq names Friedman CEO; Greifeld to be chairman
John McCrank – Reuters
Nasdaq Inc (NDAQ.O) said on Monday that its long-time chief executive Robert Greifeld would retire and that Adena Friedman, president and chief operating officer, would become CEO as of Jan. 1.

Nasdaq Names Adena Friedman Chief Executive Officer
Nasdaq is today announcing its Board of Directors has named Adena Friedman President
and Chief Executive Officer, and she will also join the Board of Directors, effective January 1, 2017. After nearly 14 years leading the company as CEO, Bob Greifeld will become Chairman of the Board. Nasdaq Chairman Borje Ekholm will step down as Nasdaq’s Chairman on December 31, 2016, and will remain on the Board of Directors. On October 26, 2016, Ekholm was named President and CEO of Ericsson, a position he will start on January 16, 2017.

IEX hires ex-banking executive to take on NYSE, Nasdaq for listings
IEX Group, operator of the newest U.S. stock exchange, on Monday said it hired former Morgan Stanley executive Sara Furber to help it challenge Nasdaq Inc (NDAQ.O) and Intercontinental Exchange Inc’s New York Stock Exchange for corporate listings. The New York-based company, which was featured in Michael Lewis’ book “Flash Boys: A Wall Street Revolt,” has been courting potential “founding issuers,” offering them significant incentives to list their shares on IEX, Reuters reported in September.

UBS chooses T2S solution from Clearstream and Citi
Deutsche Boerse
Clearstream and Citi have worked together with UBS to develop an innovative solution that will help clients and banks and broker dealers optimize their operating models and maximize the value of the TARGET2-Securities (T2S) platform run by the Eurosystem. The model offers market participants a central interface to T2S, access to an integrated and optimized security pool as well as a comprehensive range of post-trading services.

Nasdaq MarketSite To Become Broadcast Home To CNBC’s Flagship Morning Show “Squawk Box”
Nasdaq (Nasdaq:NDAQ) announced that CNBC’s “Squawk Box” will broadcast from the Nasdaq MarketSite studio in Times Square, starting January 3, 2017, Monday – Friday at 6:00am EST.

New Smart Beta ETF from db X-trackers can be traded on Eurozone companies on Xetra
Deutsche Boerse
ETF tracks the performance of companies with low volatility
Since Tuesday, investors have been offered a new db X-trackers ETF from the ETF product family of Deutsche Asset Management on Xetra and Börse Frankfurt.

PowerShares US High Yield FallenAngels UCITS ETF launched on Xetra
Deutsche Boerse
ETF tracks high-yield corporate bonds from North America
Since Tuesday, a new bond index fund from the ETF offering of the issuer PowerShares Global Funds has been tradable via Xetra and Börse Frankfurt.

SIX Receives AA- Credit Rating From Standard & Poor’s For The Seventh Time In A Row
Press Release
The rating agency Standard & Poor’s (S&P) has once again affirmed an AA- credit rating for SIX Group Ltd, thereby reflecting its broad diversification and excellent risk management. The securities services providers SIX SIS Ltd and SIX x-clear Ltd each received an AA- rating (after AA in the previous year). The rating of SIX Payment Services (Austria) GmbH declined slightly from AA- to A+. S&P views the outlook for SIX Group Ltd as stable.

Securities And Exchange Board Of India Visit To Tehran Stock Exchange
Press Release
On Monday 14 November 2016, the Chairman of the Securities and Exchange Board of India paid a visit to the Tehran Stock Exchange.

Updated Arrangements for Adjustment of SMIC Structured Products and Futures
Hong Kong Exchanges and Clearing Limited (HKEX) has announced updated arrangements for the capital adjustment of Semiconductor Manufacturing International Corporation (SMIC) stock futures contracts. For details please refer to the circular.


Mnuchin Said to Be Top Treasury Pick Among Trump’s Advisers
Saleha Mohsin, Kevin Cirilli and Jennifer Jacobs – Bloomberg
Former Goldman Sachs Group Inc. partner Steven Mnuchin has been recommended by Donald Trump’s transition team to serve as Treasury secretary, according to two people familiar with the process, and the choice is awaiting the president-elect’s final decision.

Trump’s Presidency Raises Questions on the Future of Wall St. Regulation
Stephen J. Lubben – NY Times
Last week, I posed a provocative question on a financial services discussion board: If the expected overhaul of financial regulations proceeds, do we still need to worry about planning for the failure of big financial institutions, including derivatives clearinghouses?

U.S. internet firms ask Trump to support encryption, ease regulations
Dustin Volz – Reuters
U.S. internet companies including Facebook Inc and Amazon Inc have sent President-elect Donald Trump a detailed list of their policy priorities, which includes promoting strong encryption, immigration reform and maintaining liability protections from content that users share on their platforms.

Silicon Valley prepares for the Trump transition
Sameepa Shetty – CNBC
Silicon Valley shows every sign of fearing a Trump presidency, and if the president-elect’s campaign rhetoric matches his governing policies, America’s tech capital may have good reason to be afraid. Meanwhile the White House is readying for a transition of power, from the most tech-friendly administration to one whose tech leanings are largely unknown.

Investing and Trading

Water and Financial Returns—Don’t Be Hung Out to Dry
Neil McIndoe – S&P Dow Jones Indices
Recently, investment professionals have paid increasing attention to the impact of carbon-intensive businesses on financial returns. Stricter regulation and increased certainty of higher carbon pricing have made this a mainstream concern. S&P Global Ratings’ announcement of a green assessment of debt finance in September 2016 is one notable example of this trend. Water scarcity, as a risk to business, may be less well understood, but it is arguably the nearer-term threat.

Trump carnage in bonds spells trouble for stocks
Mark DeCambre – MarketWatch
Stocks have stormed to record levels on the back of hope that President-elect Donald Trump can make not just America great again, but the stock market as well. But a jarring selloff in bonds is a bad sign for Wall Street and could mean problems for equities, at least in the short term, strategists warn.

Political risk drives prospects for the euro
Roger Blitz – Financial Times
Politics looks set to become the key driver of the euro, just as it is shaping sterling and the dollar, as investors turn their attention to several forthcoming European elections that herald another wave of Brexit and Trump-style anti-establishment sentiment.

Junk Bonds Sound Stock-Market Alarm
Ben Eisen – WSJ
A rapid realignment of markets after the U.S. presidential election has sent stocks in one direction and corporate bonds in another, a particularly acute divergence that’s leading some investors to suggest the current market action may not last. The movements are most evident in smaller companies, some of which have have junk credit ratings.


Perella Weinberg, Seeking Growth, Acquires a Rival Bank
Michael J. de la Merced – NY Times
The boutique investment bank Perella Weinberg Partners is taking an ambitious step for growth by buying a fellow bank known for its expertise in the oil patch. The firm said on Monday that it was acquiring Tudor Pickering Holt & Company to greatly expand its expertise in energy transactions, at a time when independent advisory firms are battling to differentiate themselves.

Trump is ‘the end’ of central banking as we know it: Fund manager
Silvia Amaro – CNBC
The surprising election win for Donald Trump is raising questions across a range of policy areas, with the future role of monetary stimulus and central banking being one of them. Trump’s policies are “about spending money and then printing money, so it’s the end of central banking as we know it since the beginning of the (1980s),” Beat Wittmann, partner and chairman at Porta Advisors, told CNBC on Monday.

Is Donald Trump Right That Banks Can’t Lend?
David Reilly and Telis Demos – WSJ
Donald Trump wants to spur bank lending by dismantling the 2010 Dodd-Frank regulatory overhaul. That again raises the question of whether banks in the wake of the financial crisis are unable or unwilling to lend, holding back economic recovery, or if the problem is that borrowers haven’t wanted to borrow more. The president-elect said Friday in an interview with The Wall Street Journal that banks are “unable to lend” because of regulation. Lending data show the issue isn’t cut and dried. And there may be factors other than Dodd-Frank, such as bank capital requirements, at work.


Instinet finalises integration of US equity research onto platform
Hayley McDowell – The Trade
US broker-dealer Instinet has completed the integration of its US equity research onto its cash equities agency execution platform. Its US equity research was previously provided to Instinet’s clients via Nomura Securities, but the integration now provides users with content and execution from both parties.

Hong Kong Government Advises Caution with Distributed-Ledger Technologies
The Hong Kong Monetary Authority (HKMA), which is responsible for maintaining monetary and banking stability in Hong Kong, said using distributed-ledger technology (DLT) brings about many issues that have not yet been addressed.

Where Finance and Technology Come Together
Nathaniel Popper – NY Times
The hub of the technology industry is Silicon Valley. In finance, the world capitals have long been London and New York. But in the emerging industry that combines finance and technology, often called fintech, the center of activity is less obvious. The traditional centers, London, New York and San Francisco, are attracting substantial investment, but so are less-established capitals like Berlin, Singapore and Sydney, Australia.

Financial technology: Blockchain landmarks point to transformation of trade finance
Chris Wright – Euromoney
There will be many steps in the process of making blockchain technologies widespread in trade finance, but a crucial one was taken in October by Commonwealth Bank of Australia, Wells Fargo and a shipment of fine Texan cotton. The transaction – delivering the cotton from Texas to Qingdao using Skuchain’s Brackets distributed ledger system – was important for three reasons.


Trump May Tap Republican Commissioner to Lead Swaps Regulator
Benjamin Bain and Robert Schmidt – Bloomberg
J. Christopher Giancarlo, a Republican member of the Commodity Futures Trading Commission who has close ties to the derivatives industry, is a leading candidate to head the regulator in the Trump administration, according to people familiar with the matter.

SEC’s White Says She Will Step Aside When Obama Leaves Office
Benjamin Bain and Matt Robinson – Bloomberg
Mary Jo White has stepped to the front of the line of financial regulators moving aside for Donald Trump’s administration. White, a political independent appointed by President Barack Obama, said Monday that she will step down as Securities and Exchange Commission chair in January. Her nearly four-year tenure has been highlighted by high-profile enforcement cases and plagued by internal battles that stalled controversial policies.

U.S. congressional panel, SEC reach deal in insider trading probe
Nate Raymond – Reuters
A U.S. House of Representatives panel and an ex-staff member have agreed to end a fight over subpoenas the U.S. Securities and Exchange Commission issued during a probe into possible insider trading on leaked information about Medicare reimbursement rates.

Ex-Rabobank trader turned U.S. cooperating witness spared prison
Nate Raymond – Reuters
A former Rabobank trader from Britain on Monday avoided prison after cooperating with U.S. authorities investigating how traders manipulated Libor, the leading benchmark for pricing financial transactions, to the bank’s advantage.

SEC Issues $20 Million Whistleblower Award
Samuel Rubenfeld – WSJ
The U.S. Securities and Exchange Commission on Monday said it issued a $20 million award in a case involving a tipster who came to the agency early on, enabling it to secure a “near-total recovery” of investor funds in a matter.

ESMA Defines Common Supervisory Approach for CCPs’ Service Extensions and Change of Risk Models
The European Securities and Markets Authority (ESMA) has issued today an opinion defining a common supervisory approach for supervisors dealing with central counterparties (CCPs) wishing to extend their existing authorisation or change their risk models under the European Market Infrastructure Regulation (EMIR).

Remarks of Chairman Timothy Massad before the CME Global Financial Leadership Conference
Thank you very much. It is an honor to be here. It’s also a challenge to speak at this point in the program. First, you have the fact that preceding me were former Speaker John Boehner, Chuck Todd, David Axelrod, and Karen Hughes. They all gave very insightful commentary on what lies ahead for our country after one of the greatest political upheavals of our lifetime. And following my remarks is the cocktail hour. That’s always appealing and perhaps even more so as we all try to digest what has happened. So yes, I am the only thing between you and the bar. On top of that, my topic is derivatives regulation. It’s not exactly a “barn burner” of an issue—even in normal times.

Reminder: FINRA MPP Client Connections to Nasdaq Data Center
FINRA client connections to its Multi Product Platform (MPP) services, such as TRACE, the Over the Counter Reporting Facility (ORF), the OTC Bulletin Board (OTCBB) and the Alternative Display Facility (ADF) are routed through Nasdaq, which acts as FINRA’s service provider. Nasdaq is currently making changes to its connectivity offering, that will impact FINRA member firms.

Regulators Warn Investors of Binary Options Risks
Trading binary options can be an extremely risky proposition. Unlike other types of options contracts, binary options are all-or-nothing propositions. When a binary option expires, it either makes a pre-specified amount of money, or nothing at all, in which case the investor losses his or her entire investment. Trading binary options is made even riskier by fraudulent schemes, many of which originate outside the United States.


ICAP appoints new head of PTRI in Asia
Hayley McDowell – The Trade News
ICAP has appointed a head of its post-trade risk and information services (PTRI) business in Asia, in a newly created position. Guy Rowcliffe, formerly chief executive officer at RESET – a business formerly known as Switchfix which ICAP acquired and integrated into its PTRI unit in 2008 – will head up PTRI for ICAP in the Asia region.

Western battles with Beijing over steel put Hanoi centre stage
Michael Peel and Lucy Hornby – Financial Times
Growing US and European political pressure over Chinese steel exports has put Vietnam at the centre of a dispute that could widen tensions over international trade as well as regional security. Both Washington and Brussels have launched high-profile probes into alleged shipments of Chinese metals through Vietnam to avoid tariffs in western countries.

Japanese 10-Year Bond Yield Climbs Above Zero; A global selloff in government bonds following Donald Trump’s election has boosted yields
Hiroyuki Kachi – WSJ
The yield on the 10-year Japanese government bond rose above zero on Tuesday for the first time since Sept. 21, with Japan joining the global trend toward higher yields in the wake of Donald Trump’s victory in the U.S. presidential election.

India: Anger rising over bungled rupee exchange
Rishi Iyengar – CNN
Five days ago India suddenly banned more than 80% of its rupee notes, launching a currency exchange program that has been dogged by logistics snafus, poor banking infrastructure and intense demand for the new money. Prime Minister Narendra Modi said last week the ban on old 500 and 1,000 rupee notes would strike a blow against corruption and tax evasion. The shock move has been hailed by supporters as a “masterstroke.”

The Only Bank in a Company Town (When the Company Was Al Qaeda)
Saeed Al-Batati and Ben Hubbard – NY Times
When fighters from Al Qaeda seized control of a stretch of southern Yemen in 2015, they looted millions of dollars from the central bank, spreading such fear that other banks shut down. But during the year Al Qaeda reigned, Al Omgy Brothers Money Exchange kept running its business here in the coastal town of Al Shihr. It held accounts for the national oil company, disbursed salaries for the Yemeni government and earned the praise of local officials for providing needed services during a tough time. And if members of Al Qaeda wanted to open accounts, too, well, the company could not really say no, according to Muhammad al-Omgy, who runs the money exchange with his brother, Said.


Study Finds 1 in 3 Student Loan Holders With Payments Due Are Late With Payments and More Than Half Regret Their Borrowing
Angelita Williams and Nancy Condon –
Nearly half of young Americans start their working lives with student debt, and 43 million Americans carry student loans. A new study by the Global Financial Literacy Excellence Center (GFLEC) at the George Washington University School of Business found that many borrowers are struggling to make student loan payments and regret their borrowing.

Morgan Stanley: Airbnb’s Threat to Hotels Is Only Getting Sharper
Julie Verhage – Bloomberg
Not even President-elect Donald Trump can make the hotel industry great again. The industry is already experiencing trouble with lower occupancy rates and smaller profits per room, and a new survey from Morgan Stanley points to more problems in the future. The bank’s survey found that peer-to-peer travel startup Airbnb Inc. is presenting an even greater threat to hotels than expected.

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