Lessons From the “Not Guilty” Verdict in This Week’s Criminal Spoofing Trial
Mariotti is a former federal prosecutor who spent almost 10 years investigating and prosecuting hundreds of cases in a wide variety of areas and is now a defense attorney. He is a former candidate for the Democratic nomination for Attorney General in Illinois.
Wednesday’s stunning “not guilty” verdict in United States v. Andre Flotron, only the second spoofing case ever taken to trial, is a reminder that it is extremely difficult for prosecutors to prove a defendant’s intent beyond a reasonable doubt in the absence of direct evidence. We should expect the DOJ and CFTC to reevaluate their charging practices in the wake of this significant defense victory.
The seeds of the “not guilty” verdict were sown when the DOJ drafted an initial indictment charging Flotron in the District of Connecticut with a single count of conspiring with others to “drive prices” up and down by causing the price to “change” using spoof orders that were “designed and intended to deceive” other traders to purchase contracts “at prices and at times that they otherwise would not.” This is a higher burden than the Justice Department needed to take on – spoofing is merely entering orders with the intent to cancel them before execution, yet the DOJ took on the burden of proving that the defendant moved prices.
By charging only conspiracy in the one-count indictment, the government also took on a difficult burden because there was no evidence of an explicit agreement – either verbal or oral – between Flotron and his co-workers. Perhaps for that reason, the DOJ later obtained a superseding indictment that added several additional counts, including spoofing counts that did not involve a conspiracy. In a highly unusual move, however, the venue for those additional counts was the Northern District of Illinois, even though the indictment was returned by a Connecticut grand jury.
For the rest of the commentary go here.
Hits & Takes
Barchart’s Fintech Exchange featured several more innovative companies at its lightning round yesterday with a strong focus again on data. What is interesting is how firms are using data. Gate39 Media introduced a new service called FinVox, which uses futures pricing data for Amazon’s Alexa and other devices. Data Robot is deploying data scientists to work with companies on AI programs in a faster and more efficient way. Sterling Technologies took on the world with its cloud-based risk analytics tool that includes all equities, equity options and futures data – 20 billion elements.~JK
Adam Honoré, executive director, head of product management for data services at CME Group, broke news at the Fintech Exchange with the announced launch of CME Virtual Hub, an exchange-based distribution of market data through a network that allows customers to access the data in a variety of ways around the world “in a much more cost effective manner.”~JK
A Finnish NGO wants to make a 115 foot tall ice sculpture of Donald Trump in the Arctic. Project Trumpmore is intended to demonstrate climate warming is real rather than an attempt to immortalize President Trump. I know it is not financial news, but some things just have to be shared. As political stunts go this is more original than most.~JB
Euronext published its first Commitments of Traders (CoT) reports for #Commodities this week, a new feature required by #MiFID II that gives an overview of positions held by traders at the end of each week. Via LinkedIn.~JJL
A Decade After the Financial Crisis, These Lessons Can’t Be Forgotten
John Davidson, OCC President and Chief Operating Officer
During the 2008 financial crisis, everyone in the business world, and many observers outside of it, were riveted to the news of the chaos unfolding daily in the markets. I viewed the crisis from a much different seat from the one I occupy now, having been effectively on the front row as the turmoil spread around the globe.
***** More thought leadership from the OCC and John Davidson.~JJL
Thursday’s Top Three
Spoofing? Yesterday’s top stories were led by two articles on the former UBS trader, Andre Flotron, who was found not guilty on charges of spoofing in Former UBS Trader Is Cleared in ‘Spoofing’ Case by the New York Times and Ex-UBS Metals Trader Beats Spoofing Conspiracy Charge. Third went to the Wall Street Journal’s story Swaps Rules Due for Overhaul in Bid to Boost Liquidity
Wall Street’s Latest Trend in Networking: Board Game Nights
Mark Ellwood – Bloomberg
The rattle of dice is syncopated but constant.
A dozen or so men sit at different tables, each littered with an elaborate assortment of board game pieces—plastic figures, cards, and tokens. A bowl filled with candy-colored dice sits on one table like a giant assortment of the worst-ever M&M’s.
****JB: As long as they don’t play Diplomacy. Never was there a game better at making friends hate each other.
124,413,335 pages viewed; 23,085 pages; 212,870 edits
Why Amazon and Google Haven’t Attacked Banks; Banks’ move to cloud computing makes them attractive clients to tech giants
Telis Demos – WSJ
Technology giants and big banks have been warily circling each other, especially in the payments arena. So far, they are more frenemies than rivals.
Short-Sellers May Not Make Money When Markets Know Their Trades
Ruben Munsterman, Gavin Finch – Bloomberg
Academic study shows Dutch data leak drove up shorted stocks; Nasdaq, NYSE have demanded more disclosure of short selling
When Dutch regulators accidentally revealed who was betting against local stocks last year, they didn’t just just expose George Soros and other short sellers’ secret trades. The stocks stopped underperforming, providing a case study for U.S. exchanges that argue shorts shouldn’t be allowed to operate in secret.
North and South Korea Set Bold Goals: A Final Peace and No Nuclear Arms
Choe Sang-hun – NY Times
SEOUL, South Korea — The leaders of North and South Korea agreed on Friday to work to remove all nuclear weapons from the Korean Peninsula and, within the year, pursue talks with the United States to declare an official end to the Korean War, which ravaged the peninsula from 1950 to 1953.
ASX blockchain post-trade system to go live by 2021; Testing of ASX’s new blockchain-based post-trade system to begin in Q2 next year, with industry-wide testing in Q1 2020.
Joe Parsons – The Trade
The Australian Securities Exchange (ASX) plans to go live with a new equity post-trade system based on blockchain technology by the first quarter of 2021.
Junk Bond King Milken on Drexel’s Legacy and Negotiating With Carl Icahn; The 71-year-old financier and philanthropist talks to Bloomberg News.
Tom Metcalf – Bloomberg
It’s been about three decades since the heyday of Michael Milken’s Drexel Burnham Lambert. It all came crashing down, but his legacy lives on in the high-yield market, in such firms as Moelis & Co. and at the Milken Institute, a think tank whose global conference starts Sunday in Los Angeles. A reunion dinner for Drexel alumni and clients is also planned.
Former HSBC exec gets 2 years in prison for currency scam
Kevin Dugan – NY Post
A British trader accused of bragging that ripping off a client was like “f—ing Christmas” was sentenced to two years in prison on Thursday amid a global crackdown on currency rigging.
Disruptive trade technologies will usher in the ‘internet of rules’; Trade policy 3.0, with algorithmic law and automation friendly legislation, will help more firms trade, writes Craig Atkinson
London School of Economics and Political Science
Businesses, especially micro, small and medium-sized enterprises (MSMEs), face many challenges in understanding and complying with international commercial rules and regulations. Research also indicates low utilisation of eligible tariff preferences, or favourable tax rules, by traders. In other words, many businesses do not always effectively benefit from their negotiated market advantages. Unfortunately, the current “version history” (or stage in the functional evolution) of trade policy creates costs for governments, firms and consumers and constrains achievement of the benefits associated with free trade.
FCA’s Bailey slams EU’s post-Brexit plans for asset managers
Caroline Binham – FT
The UK’s top financial watchdog has slammed plans by European regulators to shake up the rules governing asset managers after Brexit.
Glass still 5% full for women CEOs in 2017
Catherine Yoshimoto – FTSE Russell
A year has passed since I first took a closer look at how women CEOs are represented in our US index constituent companies. As the global women’s rights movement has continued to gain momentum over the past year, I thought I’d revisit these numbers to gauge whether we were any closer to gender parity in the corporate boardroom. Unfortunately, the glass still remains just 5% full for female CEOs for companies in the Russell 3000® Index.
To Spot the Next Financial Crisis, Look Who Was Spared by the Last One; Australia, Canada and other countries benefited from the lowest global interest rates in history, without first suffering the economic meltdown that led the U.S. and Europe to take emergency action
James Mackintosh – WSJ
Countries hard-hit by the financial crisis have spent much of the decade since trying to fix their banks. Countries that escaped unscathed have done the exact opposite, going on a borrowing binge that makes them prime candidates to be victims of any credit squeeze resulting from rising U.S. interest rates.
Wells Fargo’s 401(k) Practices Probed by Labor Department; Department is examining if bank pushed participants in low-cost 401(k) plans into more expensive IRAs
Gretchen Morgenson and Emily Glazer – WSJ
The Labor Department is examining whether Wells Fargo WFC -1.26% & Co. has been pushing participants in low-cost corporate 401(k) plans to roll their holdings into more expensive individual retirement accounts at the bank, according to a person familiar with the inquiry.
Virtu boss slams ‘stupid’ French regulator for 2015 fine
Samuel Agini – Financial News
The chief executive of one of the world’s most prominent trading firms has lashed out at the “stupidity” of the French financial regulator over a fine his company received in 2015.
Exchanges, OTC and Clearing
CME Group Inc. Reports Record First-Quarter 2018 Financial Results
CME Group Inc. (NASDAQ: CME) today reported record revenue of $1.1 billion and operating income of $741 million for the first quarter of 2018. Net income was $599 million and diluted earnings per share were $1.76. On an adjusted basis, net income was $634 million and diluted earnings per share were $1.86. Financial results presented on an adjusted basis for the first quarters of 2018 and 2017 exclude certain items, which are detailed in the reconciliation of non-GAAP results.1
Exchange operator CME Group’s revenue misses, shares fall
World’s largest futures exchange operator CME Group Inc (CME.O) narrowly missed analysts’ estimates for first-quarter revenue on Thursday as a rise in lower rate contracts outweighed the benefits from a surge in overall trading volumes.
ASX CHESS Replacement Scope and Implementation Plan
ASX has today released a consultation paper outlining the planned new features and timetable for replacing CHESS with a distributed ledger technology (DLT) solution as the post-trade infrastructure for Australia’s equity market.
MarketAxess Reports First Quarter 2018 Record Revenues of $114.7 Million, Record Operating Income of $60.2 Million and Record Diluted EPS of $1.27
MarketAxess Holdings Inc. (Nasdaq:MKTX), the operator of a leading electronic trading platform for fixed-income securities, and the provider of market data and post-trade services for the global fixed-income markets, today announced results for the quarter ended March 31, 2018.
ICE Clear Europe CDS sales director joins LCH; Michael Amakye joins LCH as head of CDS sales following a six year stint at ICE Clear Europe.
Hayley McDowell – The Trade
LCH Group has appointed a new head of credit default swaps (CDS) sales from ICE Clear Europe.
Moscow Exchange Announces AGM Results
Moscow Exchange (MOEX) held its Annual General Meeting of Shareholders (AGM) on 26 April 2018.
Japan Exchange Group: Introduction Of New Stock Compensation Plan For Executives
Japan Exchange Group, Inc. (hereinafter “JPX”) decided today at the meeting of its Compensation Committee that it will introduce a new trust-type stock compensation plan for executives (meaning executive officers and those equivalent thereto, excluding persons such as outside directors, directors who are members of the Audit Committee, and auditors; hereinafter the same) of JPX and its subsidiaries that provide core businesses of JPX (hereinafter the “core subsidiaries”; JPX and the core subsidiaries are hereinafter collectively referred to as the “implementing companies”) (This plan shall hereinafter be referred to as the “Plan”.).
Candidates for Directors, etc
Luminex Wins “Best Dark Pool” At 2018 Markets Choice Awards
Societe Generale bolsters FX algo service with TCA; BestX adds another major investment banking client as Societe Generale signs up for its FX TCA.
Hayley McDowell – The Trade
Societe Generale Corporate and Investment Banking has implemented transaction cost analysis (TCA) from BestX to its algorithmic execution service for foreign exchange (FX).
M&G Investments upgrades FX EMS with Deutsche Börse’s 360T; 360T was chosen by M&G to implement workflow technology following extensive selection process.
Hayley McDowell – The Trade
Deutsche Börse Group’s foreign exchange (FX) technology company 360T has been chosen by M&G Investments to upgrade its workflow technology for order handling and execution.
Tradewind Closes $10.6M Strategic Placement; New Investors Include Agnico Eagle, IAMGOLD and Wheaton Precious Metals
Tradewind, a financial technology company, announced the closing of a $10.6 million strategic placement today. Led by investments from Agnico Eagle, IAMGOLD and Wheaton Precious Metals, the fundraising round also included existing investors Goldcorp and Sprott, and new investor Sapphire Ventures.
Show ‘Basic Respect’: Kraken CEO Double Downs on ‘Insulting’ New York Crypto Exchange Inquiry
Kraken CEO and co-founder Jesse made headlines recently for his strongly-worded response to the New York Attorney General’s request for information on the Kraken exchange, the largest bitcoin exchange based on euro volume in the world.
Bitcoin frenzy settles down as big players muscle into market
Tommy Wilkes, Vidya Ranganathan – Reuters
After bouncing up, falling down and keeping investors on the edges of their seats, bitcoin may be maturing into a period of relatively boring stability, experts say.
Shenzhen, China Backs $79 Million Fund To Support City’s Blockchain Startups
Molly Jane Zuckerman – Cointelegraph
The launch of a 500 mln yuan (about $79 ml) Blockchain venture capital fund for Chinese city Shenzhen was announced at a Blockchain Expo held in the city, local news outlet Sohu reported yesterday, April 22.
Ethereum Founder Is Boycotting One of the Biggest Crypto Summits
Camila Russo – Bloomberg
One of the biggest names in cryptocurrencies is boycotting one of the highest-profile conferences in the space.
IBM is using blockchain to confirm the origins of jewelry
Swapna Krishna – Engadget
IBM is using blockchain to confirm the origins of jewelry
While blockchain is the system that supports cryptocurrency, the decentralized ledger can have wide applications outside of crypto
Trump airs grievances in revealing Fox interview
Jeremy Diamond and Maegan Vazquez – CNN
President Donald Trump acknowledged for the first time Thursday that his personal attorney, Michael Cohen, is representing him with regards to legal matters involving Stormy Daniels, the porn star who says she had an affair with Trump.
Wall Street seeks rule changes to encourage IPOs, staying public
Sinead Carew and Michelle Price – Reuters
Wall Street lobby groups urged U.S. policy makers and regulators to revamp rules to encourage more initial public offerings and to reduce the regulatory cost of staying public, in a white paper issued on Thursday.
We Are All Doomed — CBO
Joachim Klement – CFA Institute Enterprising Investor Blog
The bipartisan US Congressional Budget Office (CBO) recently published its annual Budget and Economic Outlook and it is a must-read for anyone interested in a comprehensive overview of where the US economy is heading in the next 10 years.
Of course, some readers do have lives, so I will try to summarize some key findings.
House is Expected to Act on Bank-Deregulatory Bill; Bill had been on hold while senior House lawmaker pressed for changes to Senate-passed bill
Andrew Ackerman – WSJ
A month-long standoff between House and Senate lawmakers over bipartisan legislation to ease red tape for small- and medium-size banks may soon draw to a close, allowing the bill to clear Congress and become law.
Trump administration picks the wrong time to ease up on banks; Loosening the rules on leveraged loans right now looks peculiar
Gillian Tett – FT
Back in 2013, when memories of the financial crisis were still fresh(ish), US banking watchdogs made a joint, solemn pact.
SEC advice rule: Jay Clayton says brokers must adhere to ‘fiduciary principles’; However, he believes they also deserve a different standard of care from investment advisers
Greg Iacurci – Investmentnews
The head of the Securities and Exchange Commission said Thursday that brokers would be governed by “fiduciary principles” under the agency’s newly proposed investment-advice rule, but argued they also deserve a different standard of care from investment advisers.
Ex-HSBC foreign exchange trader gets 2-year US prison term; Judge denies request to let Mark Johnson serve his sentence in the UK
Alistair Gray in New York – FT
A British banker found guilty of defrauding a client in a $3.5bn currency deal has received two years of prison time in the US after a judge denied his request to serve the sentence in the UK.
Giancarlo expects to resolve EU-US CCP spat
Helen Bartholomew – Risk.net
The US Commodity Futures Trading Commission (CFTC) will seek to avoid a drawn-out transatlantic scrap over European Union plans to toughen oversight of foreign central counterparties (CCPs), according to Christopher Giancarlo, chairman of the US agency.
Hong Kong’s Securities And Futures Commission Proposes Enhancements To The Investor Compensation Regime
The Securities and Futures Commission (SFC) today launched a two-month consultation on proposed enhancements to the Investor Compensation Regime (Note 1).
Yale professor appointed chief economist at World Bank; Pinelopi Goldberg is a specialist on effects of globalisation on emerging economies
Delphine Strauss – FT
The World Bank has appointed Pinelopi Goldberg, a Yale professor specialising in the effects of trade liberalisation on developing countries, as its new chief economist.
Podcast: CFTC Talks EP040: Derek Scissors, AEI resident scholar on Chinese and Indian Economy
This week on CFTC Talks, we discuss China and US Trade.
Market Cap, Explained
Kaitlyn Kiernan – FINRA
If you are researching stocks or stock funds, you’ll often see companies categorized by market capitalization. But what is it and why does it matter? Read on to learn more.
The ESAs conclude a multilateral Memorandum of Understanding with the EFTA Surveillance Authority
The European Supervisory Authorities (EBA, EIOPA, and ESMA – the ESAs) have concluded a multilateral Memorandum of Understanding (MoU) on cooperation, information exchange and consultation with the EFTA Surveillance Authority.
Investing and Trading
Old rules, algorithmic traders add costs to U.S. share buybacks
John McCrank – Reuters
U.S. companies are on track to buy back a record amount of their own stock this year, but a decades-old markets rule aimed at preventing manipulation makes these trades easy to game and has probably cost companies billions in recent years.
Opinion: Time to worry? Trading volume is rising when stocks are falling
Mark Hulbert – MarketWatch
Does stock-exchange volume follow the market’s trend, or does the trend follow volume?
The Risk Contribution of Stocks: Part 3
Ajay Dravid – Equinox Funds
In the previous two Insights in this series, we focused on the risk of various stock-bond- managed futures portfolios, and examined how much of this risk comes from each of their three component asset classes. Based on what we believe are some reasonable assumptions about volatilities and correlations, we first showed that most of the risk of traditional stock-bond portfolios comes from stocks.
****Parts 1 and 2 can be found here.
Oil: How the Market Dynamics Have Changed
Bluford Putnam – CME Group
Oil prices are rising, driven by strong global growth and the reemergence of a Mideast risk premium. The market dynamics of this round of oil price increases, however, are strikingly different from recent episodes, such as in 2008 or 2012-2013. There are two key differences this time around that deserve our focus: (1) shale oil supply may respond more rapidly to price incentives than older technologies, and (2) the U.S. is now an oil exporter (as well as importer). As we explore these two topics, we will see some special nuances and caveats, too.
Investing: Past, Present, and Future
CFA Institute Enterprising Investor
Memes are simple ideas that sometimes take hold and change the world. A successful meme creates a viral pattern that is replicated over and over again. Each person in the cycle embraces and applies the meme as though it was their own.
Memes are more than ideas, they can become mandates for living.
Finance has undergone two major cycles of transformation under this principle over the last 100 years and a third more recently.
Libor death threatens to blow hole in hedges
Duncan Wood – Risk.net
Swaps users are worried gaps will open up in their hedging portfolios in the event of Libor’s death, unless the industry is able to line up so-called fallback language across different rates products – from mortgages and bonds to interest rate swaps.
Steve Cohen’s hedge fund sued over use of another fund’s name
Billionaire Steven Cohen’s hedge fund was sued on Wednesday by a San Francisco money manager seeking to stop it from using its name on a new investing project.
RBS more than triples profits while threat of US fines lingers; State-backed bank comfortably beat forecasts
Nicholas Megaw – FT
Royal Bank of Scotland more than tripled its profits in the first quarter of 2018, as both revenue and costs came in better than analysts had expected, but the lingering threat of a major fine from the US Department of Justice continued to cast a shadow over its efforts to achieve a second consecutive year of profitability.
Citi Says U.S. May Become World’s Top Oil Exporter Next Year
Sharon Cho – Bloomberg
U.S. crude, product exports rise to record 8.3m b/d last week; Higher prices encourage the nation to pump more: Citigroup
The U.S. looks likely to overtake Saudi Arabia to become the world’s biggest oil exporter next year, according to Citigroup Inc.
RBS Gains Profit Traction as It Works to Settle U.S. Probe
Stefania Spezzati, Stephen Morris – Bloomberg
Pretax profit jumps 70%, beating estimates, as costs plunge; State-owned bank cannot pay dividends until DOJ settlement
Royal Bank of Scotland Group Plc forged ahead in the first quarter, cutting costs to the lowest in at least five years, indicating the lender is well-positioned to restore dividends once it settles a U.S. misconduct probe.
A Closer Look at Indices Country Classifications
Alka Banerjee – S&P Dow Jones Indices Indexology Blog
As large sums of global money flows now follow global indices, it is important to understand how global index providers decide on country classifications and country weightages. A global equity index typically has two components, a developed market index and an emerging market index. Until the nineties, emerging market investments were not necessarily mandatory for all large institutional investors but that changed more than a decade ago and global investment portfolios are the norm now. What has also changed is that earlier markets were classified on the basis of their GDP per capita, size of the stock market and accessibility criteria, since most of these parameters were in sync with each other.
EU carbon allowance market to shake its over-supply problem; Changes to Europe’s emissions-trading scheme from next year should be a turning point
Mark Lewis – FT
Check which energy commodity has performed best over the past 12 months and you might be surprised. Oil? No. Gas? Try again. Coal? Bad luck, you only get three guesses.
Market volatility saddled Norway’s massive sovereign fund with its biggest loss in years
Eshe Nelson – Quartz
Norway’s massive sovereign wealth fund isn’t immune from the market volatility that has roiled investors around the world this year. The fund reported today that it lost 1.5% in the first three months of the year, its worst quarterly decline since the third quarter of 2015. It also broke a seven-quarter streak of positive returns.
Norway’s $1 Trillion Wealth Fund Posts First Loss in Two Years
Sveinung Sleire, Mikael Holter – Bloomberg
Stocks declined 2.2% in the first quarter, bonds lost 0.4%; Fund analyzing growing size of tech companies and risks posed
Whipped by a global stock selloff, Norway’s $1 trillion wealth fund reported its first loss in two years in the first quarter.
Iran’s Standoff With the U.S. Has Paralyzed Money Markets and Businesses
Golnar Motevalli, Ladane Nasseri – Bloomberg
Standoff with U.S. administration has closed currency markets; European leaders are offering alternatives in Washington
For half a century, Payam’s family hardware firm near Ferdowsi Square has supplied Tehran’s builders with tools — through revolution, war and more recently sanctions. But it has rarely seen times as bad as these.
Venezuela’s Inflation Is So Extreme It’s Broken the Stock Market
Brendan Walsh – Bloomberg
Venezuela’s currency devaluation is so out of control the stock market is about to bust.
A Brexit Choice Between Bad and Worse; A customs union won’t solve Britain’s problems — but it’s better than the looming alternative.
Michael R. Bloomberg
Theresa May’s government is still promising to quit Europe’s customs union when Brexit happens next year. The prime minister’s position is politically understandable, yet entirely indefensible. And it perfectly captures the bind Britain has gotten itself into.
Mind the GAAP- 19 creative schemes for money-losing startups
Oliver Staley, Jason Karaian and Adam Pasick – Quartz
WeWork, the shared-office startup, isn’t just pioneering new ways of working, but new ways of accounting.
Bahamas billionaires’ $50M brouhaha is back on
Richard Morgan – NY Post
The 10-year battle of billionaires Louis Bacon and Peter Nygard isn’t over yet. A New York appellate court gave hedge funder Bacon’s $50 million defamation suit against his Bahamian next-door neighbor, Canadian fashion-mogul Nygard, a new life this week.
Mets Shares Are for Sale Six Years After Madoff Fraud
Scott Shoshnick – Bloomberg
Investors paid $20 million six years ago for 4% stakes in club; Mets owners have right to buy back shares at current valuation
Wealthy Mets fans who have ever dreamed of owning a piece of New York’s National League baseball team are about to get their chance.