John Lothian Newsletter: SEC Proposes New Exchange Tests to Curb Computer Breakdowns; Swaps Trade Group Hires Consultant Amid Probe; New clearing rules have already been broken, FCMs say

Apr 10, 2013

The SEC proposes a new testing regime to evaluate the ability of exchanges and brokerages to recover from natural and terrorism-related disasters. As regulatory scrutiny of the ISDAfix swap rate increases, the ISDA brings in a consultant to evaluate whether there’s a better way to set that rate. FCMs clearing OTC derivatives say that new time-limit rules for clearing trades are already being overrun.

First Read

New clearing rules have already been broken, FCMs say
Joe Rennison –
Some banks broke new US rules on the clearing of over-the-counter derivatives as soon as they were implemented on March 11. Four futures commission merchants (FCMs) – which clear trades on behalf of clients – say they have not always cleared trades within 60 seconds as required, or have heard that other FCMs were in breach of the rule.

***GK: We have a long road ahead of us with rules still to be written and clarified; the industry will continue to see firms challenged with compliance.


CBOE 40: A Celebration
Welcome to the CBOE 40th anniversary webpage. As CBOE celebrates this milestone, we’ll be using this space to reminisce about our history, share stories and photos, and salute CBOE’s “40 years of innovation.” Here, you will be able to find the “CBOE Memories” blogs, video vignettes, historical photos, an innovation timeline, growth in trading volume through the years, and a preview of “CBOE 40,” a video documentary to be released later this month.

***GK: Congratulations to the CBOE on their 40th anniversary and achieving this very impressive milestone. What a wonderful way to recognize the individuals who have contributed to the over 40 years of success in this fantastic industry.

**JK – More next week on this from JLN Productions.


Trader Talk: Jack Kennedy Interview
April marks the 40th anniversary of CBOE and the options industry. As part of our month-long anniversary celebration, we revisit WGN’s Orion Samuelson’s interviews with several long-time CBOE traders who share their colorful stories about life in the pits and trading “The Chicago Way.”


OptionsCity Announces Investment from Edison Ventures
OptionsCity Software, a leading provider of electronic trading solutions, today announced a Series A investment in its business by growth equity firm Edison Ventures. This marks the first institutional capital investment in OptionsCity and will give Edison a minority ownership stake in the company. Edison’s investment will accelerate OptionsCity’s sales and marketing efforts, product innovation, and international expansion.

***GK: I sense a lightbulb moment coming.


Orc selected by BRED Banque Populaire for market making on Eurex
Orc, a leading provider of technology and services for the global financial industry, today announced that BRED Banque Populaire, a leading regional bank in France, has selected Orc Market Maker, Orc’s high-performance turnkey solution for derivatives market making.

***GK: Now this brings back memories for me… ORC was the provider of ISE’s first market maker workstation.


optionMONSTER Holdings Named 2013 ITA CityLIGHTS Awards Finalist For tradeMONSTER Technology
tradeMONSTER, the online brokerage industry’s leader in user experience, has been selected as a finalist for a 2013 Illinois Technology Association (ITA) CityLIGHTS Award, for the “Outstanding Technology Development Award.” Furthermore, CTO Sanjib Sahoo, has been named an ITA Finalist for “Technologist of the Year”.

**JK – Dr. J is very bullish on his firm’s technology.


The Options Industry Council Congratulates the Quinnipiac Global Asset Management Education Forum on a Successful Third Year
The Options Industry Council (OIC) today congratulated everyone involved in this year’s Quinnipiac Global Asset Management Education (G.A.M.E.) Forum for producing a very successful program.


Options Appoints Former NYSE Euronext Executive Tim Yockel as New SVP of Global Sales
Options, the market leader in infrastructure as a service (IaaS) products for the global capital markets industry, has today announced that the former NYSE Euronext executive, Tim Yockel, has been appointed as the firm’s new SVP of Global Sales.


MF Global’s lesson: Superman doesn’t exist
Joe Cahill Business Blog – Crain’s Chicago Business
With the liquidation of MF Global Holdings Ltd. under way, I thought this would be a good time to consider what we can learn from a scandal that shook the futures industry to its core. MF Global’s collapse holds lessons for that business and others. Many have been hashed out in the media since the futures brokerage failed in October 2011: the need for tighter controls over trading accounts, the industrywide ripple effects of such a serious breach of customer trust. But the most fundamental, broadly applicable lesson is this: There is no superman.

***GK: Perhaps the lesson is that even Superman had a weakness.


To Find Insider Trading, Follow The Kids’ Money
Shankar Vedentam – NPR
In a new study accepted for publication in the Journal of Finance, Henk Berkman at the University of Auckland, Paul Koch at the University of Kansas and Joakim Westerholm at the University of Sydney have to spot insider trading. The researchers tracked half a million stock market accounts over a 15-year period between 1995 and 2010. The accounts were in Finland on the Nasdaq OMX Helsinki Exchange. To their surprise, when the researchers analyzed the data according to investor age, the accounts belonging to the youngest children blew all the others out of the water in terms of performance.

***GK: My youngest one always claimed that adults were “Stupider than Jupiter…”


Interactive Brokers To Pay $225,000 CFTC Fine
The nation’ s commodity regulator on Tuesday ordered online brokerage firm Interactive Brokers of Connecticut to pay a $225,000 fine for failing to maintain enough U.S. dollars in its customer accounts, the second time in a year the firm was fined by the agency.


Biscuit break makes quiet debut in shorter CBOT grain cycle
Tom Polansek | Reuters
A revived pause in the Chicago Board of Trade’s grain trading schedule did little to invigorate volume on Monday as the historic exchange launched a shorter cycle for its agricultural markets.

***GK: On a side note, “Biscuit Break” would be a fantastic name for a race horse.


Considerations for Becoming an
Independent Introducing Broker (IIB) – Interview with William Gallwas of Striker Securities

Ron Grossman, President RG Broker Services – Gate 39 Media
For many start up Introducing Brokers the simplest way to get up and running is to establish a relationship with an FCM as a Guaranteed Introducing Broker (GIB). The major advantages are obvious. Other than the possible security deposit that the FCM’s may require, the GIB has no direct financial obligation from the regulators other than the cost of registration. The question is then, why consider the Independent Introducing Broker or IIB route?

***GK: As long as the “youngest child” stays out of this…


India ‘facing threat of regulatory arbitrage’
James Crabtree –
India needs to streamline regulations to attract greater foreign capital and fend off a growing threat of financial activity moving to other countries, the outgoing head of the country’s largest stock exchange has said.

***GK: Who better to know the limitations of the Indian regulatory system than the well respected head of the NSE?


Looking for KPMG’s Mystery Man
The identity of the auditor of a public company shouldn’t be a secret. Unfortunately, in the U.S., it is—to the detriment of investors and financial markets. The absurdity of this state of affairs was highlighted Tuesday when news broke that a KPMG partner had allegedly been caught in an insider-trading scandal, forcing the firm to resign as auditor for Herbalife and Skechers USA . The name of the auditor wasn’t released by KPMG or the companies, heightening uncertainty and leaving investors to wonder if there would be wider fallout.

***GK: Would love to hear from the readers whether anonymity contributes or detracts from the public’s right to a proper audit.



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Lead Stories

SEC Proposes New Exchange Tests to Curb Computer Breakdowns
U.S. exchanges and some brokers will be required for the first time to conduct coordinated trading tests to show they can recover from natural disasters or terrorist acts, according to a rule proposed by regulators.

Swaps Trade Group Hires Consultant Amid Probe
A global derivatives trade group said it had hired a consultant to recommend possible changes to the way benchmark rates are set for the $379 trillion interest-rate swap market, amid a regulatory probe. The International Swaps and Derivatives Association said it hired consultant Oliver Wyman Group in recent weeks to conduct an “analysis of current practices versus best practices” in the rate-setting process, known as the ISDAFIX.

Exchange CEOs meet regulators on dark pools, internalizers
By John McCrank and Sarah N. Lynch – Reuters
The chief executives of three of the top exchanges met with regulators in Washington DC on Tuesday to express concerns about the negative effects associated with the increase in trading taking place away from public exchanges.

New “CBOE Options Hub” Designed For Active Market Participants
The Chicago Board Options Exchange (CBOE) today launched its new “CBOE Options Hub” ( — a comprehensive platform designed to be the “hub” of CBOE’s industry-leading social media program and the definitive online source for up-to-the-minute news and views from the options community.

Vienna-Warsaw exchange tie-up would boost CEE appeal
Anish Puaar – Financial News
A potential merger of the Vienna and Warsaw stock exchanges would increase the attractiveness of the central and eastern European region as an investment destination, while also offering a counter to the emergence of Moscow as a financial hub, analysts say.

Slovenia rules out bailout
Peter Spiegel in Brussels and Neil Buckley in London –
Slovenia insisted on Tuesday that it could avoid an international bailout as the Organisation for Economic Co-operation and Development warned Ljubljana to tackle more rapidly a “severe banking crisis” whose costs it might have underestimated.

Fitch downgrades China’s credit rating
Josh Noble in Hong Kong and Simon Rabinovitch in Beijing –
China’s sovereign credit rating has been cut by a major international agency for the first time since 1999 with Fitch raising concerns on Tuesday that the country’s rising debt problems will require a government bailout.

BOE’s Haldane: Simplify Bank Rules to Strengthen Them
Wall Street Journal Blogs
International financial regulators need to simplify rules governing banks instead of pushing ahead with an ever-dizzying array of rules attempting to guard against every potential risk or variable, a top Bank of England official said.

EU Said to Push to Fine Banks Over Yen Libor and Euribor Rates
European Union regulators are pushing to fine banks before the end of the year for attempting to fix benchmark interest rates tied to the euro and yen currencies, two people familiar with the investigation said.

How the ISDAfix benchmark is calculated
Lina Saigol –
ISDAfix, the leading benchmark for fixed rates on interest rate swaps, was established in 1998 by the International Swaps and Derivatives Association. The ISDAfix benchmark rate allows traders to agree the pricing for interest rate swaps before they expire, without the need to call active dealers for quotes. ISDAfix is also used to help dealers mark their swaps portfolios to market.

Forex in Delivery Room Shows Asian Women Wealth Managers Top Men
Tan Su Shan felt her first pangs of labor while trading yen for a wealth-management client. What to do? She took her laptop and mobile phone to a Singapore delivery room and set up a foreign-exchange operation lying flat on her back as doctors administered nitrous oxide to ease the pain of giving birth.


SEC Money-Market Fund Proposal Two Months Away, Gallagher Says
New rules to reduce risk in money- market mutual funds will be proposed in the next two months by the U.S. Securities and Exchange Commission, which won’t be slowed by a leadership change, a commissioner said today.

CFTC’s Division of Market Oversight Provides No-Action Relief from Swap Data Reporting Requirements to Swap Counterparties that are not Swap Dealers or Major Swap Participants
The Division of Market Oversight (DMO) of the Commodity Futures Trading Commission (CFTC) today announced the issuance of a no-action letter providing swap counterparties that are not swap dealers or major swap participants (“non-SD/MSP counterparties”), with certain relief from the reporting requirements of the CFTC’s swap data reporting rules, which are set forth at Parts 43, 45 and 46 of the CFTC’s regulations.

CFTC Announces Jonathan L. Marcus as General Counsel
Commodity Futures Trading Commission Chairman Gary Gensler today announced that Jonathan L. Marcus has been named the agency’s General Counsel

SEC Announces Panelists for Roundtable on Fixed Income Markets
The Securities and Exchange Commission today announced the panelists who will participate in its April 16 roundtable on ways to improve the transparency and efficiency of the fixed income markets.

Statement By CFTC Commissioner Scott O’Malia – Staff No-Action Letters Regarding Data Reporting Rules (Parts 43, 45 & 46)

Irish financial regulator Elderfield to step down
Reuters via Yahoo! Finance
DUBLIN – Ireland’s financial regulator and deputy central bank governor Matthew Elderfield will step down later this year to return home to the United Kingdom, the central bank said on Monday.

Supervisory shake-up bumps up costs for banks
Reuters via Yahoo! News
By Huw Jones LONDON – British banks could pay up to a quarter more to be supervised as two new watchdogs adopt more intrusive regulation and impose higher fines which will be paid into the coffers of cash-strapped government.

UK’s Financial Conduct Authority Publishes Its Annual Funding Requirement For 2013/14
The Financial Conduct Authority (FCA) has announced its Annual Funding Requirement (AFR) for 2013/14. On 1 April 2013 the FCA and the Prudential Regulation Authority (PRA) replaced the Financial Services Authority (FSA). The Bank of England has separately published the AFR for the PRA.

Remarks by Richard Ketchum From the National Compliance Outreach Program for Broker-Dealers

[ASIC] Self-managed superannuation funds regulatory update

Press Conference by the Minister for Financial Services (April 9, 2012)

Exchanges & Trading Facilities

SIX Financial Information Provides Real-Time Exchange Data For FlexiTech Solutions’ New Market Product
SIX Financial Information has been chosen by FlexiTech Solutions, a software development company specializing in creating applications for the financial services industry, to deliver real- time exchange data via its apiD interface to FlexiTech’s newly launched market product, FlexiShareTrade.

ASX releases draft Code of Practice

[CBOE] Restrictions on Transactions in Saba Software, Inc. (SABA)

NYSE Liffe to launch equity options on NSI N.V.

NYSE Group Inc. Issues Short Interest Report

NYSE MKT Issues Short Interest Report

NASDAQ Announces End-Of-Month Open Short Interest Positions In NASDAQ Stocks As Of Settlement Date March 28, 2013

MIAX Options Exchange: MIAX Top Of Market (“ToM”) Data Product Amendment To MIAX Options Fee Schedule

Changes To Warsaw Stock Exchange Management Board Approved

ADEX Monthly Statistical Bulletin – March 2013

Hedge Funds & Managed Futures

Pensions buyout market awaits new players
Mark Cobley – Financial News
A new wave of banks and insurers are weighing up entering the UK market for buying up closed company pension funds, which would add significant competition to a field that has thinned out in the past few years, according to consultants.

BlueCrest Said to Hire DW Investment’s Heelan to Build ABS Group
BlueCrest Capital Management LLP, the $35 billion hedge-fund firm run by former JPMorgan Chase & Co. trader Michael Platt, hired DW Investment Management LP’s Shaun Heelan to boost its securitized-debt team.

K.K.R. Hires New Chief of Japanese Unit
Kohlberg Kravis Roberts on Wednesday appointed a new chief executive at its Japanese unit, part of a series of recent hirings at the private equity giant as it gets set to close a new $6 billion Asia fund.

Pimco’s Bill Gross turns bullish on 10-year treasury notes
The Wall Street Journal
Bond market heavyweight Bill Gross has warmed up to longer-dated Treasury bonds again after snubbing the securities for months, the latest sign of how the Bank of Japan’s bold monetary stimulus is causing global investors to change course.

Japanese Rush to Sell Gold as Price in Yen Jumps
The weak yen has triggered a gold rush, literally, among Japanese households, reflecting how bold new economic policies are shaking up long-entrenched deflationary attitudes, freeing up dormant assets, and sparking new economic activity.

My Cohort Believes QE Only Benefited the Nation’s Wealthiest
Robert Lenzner – Forbes
There was plenty of lively controversy– consternation and even angry shouting at a midtown New York restaurant last night as two hedge fund mavens, two immensely successful internet investment services, a closely-followed fixed income adviser and two journalists met to hash over the economic and market controversies of our day.

Bass Says Japan Bondholders’ Reaction to Stimulus Telling
Kyle Bass, whose Dallas-based hedge- fund firm Hayman Advisors LP made $500 million in 2007 betting against U.S. subprime mortgages, said Japanese government bondholders’ recent reaction to the central bank’s unprecedented stimulus is an early sign of a market collapse.

ISDA’s 28th Annual General Meeting: Singapore
Business Wire via Yahoo! Finance
The International Swaps and Derivatives Association, Inc. is holding its 28th Annual General Meeting in Singapore on April 23–25, 2013.

Banks & Brokers

U.K. Probes RBS Computer Failure
The U.K.’s two newly minted financial regulators have opened an investigation into last year’s computer systems failures at Royal Bank of Scotland Group PLC, a move that could result in a sizable fine for the 81%-government-owned bank.

Tapping the pools on either side of the pond
Matthew Attwood – Financial News
In the global race for investment banking wallet share, US banks enjoy a permanent head start.

Goldman Sachs Loses Bid to End Prudential Fraud Lawsuit
U.S. District Judge Susan Wigenton in Newark, New Jersey , ruled today that Prudential, the second-largest U.S. life insurer, sufficiently pleaded its claims that Goldman misrepresented its underwriting standards and practices. Goldman will have other opportunities to seek dismissal of the lawsuit.

Capmark’s $147 million lawsuit against Goldman thrown out
Reuters via Yahoo! News
By Nick Brown NEW YORK – A federal judge halted a bid by real estate lender Capmark Financial Group to recover $147 million from Goldman Sachs in connection with alleged conflicts of interest stemming from Capmark’s debt restructuring.

Macquarie Hires Goldman Sachs ECM Managing Director Falcon-Source
Dow Jones
Macquarie Hires Goldman Sachs ECM Managing Director Falcon-Source

UBS Plans to Expand Corporate Advisory Headcount in Asia by 10%
UBS AG , Switzerland’s biggest bank, plans to expands its Asia corporate advisory and capital markets team by 10 percent over three years to tap growth in the world’s fastest-growing region.

Ex-HBOS chief Crosby asks to be stripped of knighthood
Reuters via Yahoo! News
James Crosby, former boss of failed British bank HBOS, offered on Tuesday to give up his knighthood and nearly a third of his pension after being denounced by lawmakers for the “colossal failure” that led to his bank’s collapse.

Clearing & Settlement

CME Group Clearing Advisory: OIS DISCOUNTING FOR GBP

CME Group Clearing Advisory: NYMEX Options Expiration Operational Procedures for the Trading Floor and Clearing Members (OS) Effective Wednesday, April 10, 2013

Indexes & Products

Composition Of Tel Aviv Stock Exchange Corporate Bond Indices As Of April 17th, 2013


RiskAdvisory is Ready to Support SDR Reporting for Commodity End Users’ Dodd-Frank Compliance
With the April 10 deadline looming for commodity swap market counterparties to obtain their Commodity Futures Trading Commission legal entity identifiers for Dodd-Frank compliance reporting, RiskAdvisory is announcing its preparation of SAS BookRunner v12 commodity trading and risk management (CTRM) connections to the swap data repositories (SDRs).

Victory Networks Acquires Trading Tech Company SailFish Systems – Trading Technology Firms Combine To Offer Efficient, Transparent, Cost Conscious Solutions
Victory Networks, Chicago-based network solutions provider for boutique trading firms announced the acquisition of New York based SailFish Systems today. The strategic integration is timely as algorithmic traders migrate out of bigger firms and demand the most cost-effective efficient technology models.

The Power Is On At Volta’s New Great Sutton Street Data Centre


CFTC Orders Florida-based Forex Global Solutions Inc., Forex Global Solutions Ltd., Barry Sendach, and Joshua Kershner to Pay $750,000 for Foreign Currency (Forex) Fraud and Violating CFTC Registration Requirements
The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and settling charges against Barry Sendach of Boca Raton, Fla., Joshua Kershner of Boynton Beach, Fla., and their Boca Raton-based companies, Forex Global Solutions Inc. and Forex Global Solutions Ltd. (together, Forex Global), for fraudulently soliciting customers to trade foreign currency (forex) and violating CFTC registration requirements.

CFTC Orders Connecticut-based Interactive Brokers LLC, A Registered Futures Commission Merchant, To Pay A $225,000 Civil Monetary Penalty
The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order requiring Interactive Brokers LLC (IB) of Greenwich, Conn., to pay a $225,000 civil monetary penalty for failing to calculate the amount of customer funds on deposit, the amount of funds required to be on deposit in customer segregated accounts, failing to maintain sufficient U.S. dollars (USD) in customer segregated accounts in the United States to meet all USD-denominated obligations, and supervision failures.

ASIC appeal sees former CFO jailed

ASIC review prompts City Index Australia into enforceable undertaking

Environmental & Energy

EEX to present Excellence Award for the Second Time at its Brussels Spring Reception – Connie Hedegaard and Matthias Groote as guests of honour
At its spring reception, the European Energy Exchange (EEX) presented the “EEX Excellence Award” for the second time on 9 April 2013. In addition to the presentation of the Excellence Award, the current developments on the market for emission allowances formed the focus of attention at the spring reception.

EU Parliament’s Largest Bloc Prepares CO2-Fix Backup Plan
The European Parliament’s largest political party is preparing a backup plan in case it fails to block a European Commission proposal to fix the carbon market, according to two party officials.

Crunch vote nears that could kill EU carbon fix
Months of bitter argument culminate next Tuesday in a make-or-break vote on an attempt to prop up the European Union carbon prices, which plunged to record lows earlier this year.


SGX Explains Delay In Derivatives Market Trading
Singapore Exchange has investigated today’s delayed opening of the derivatives market and confirmed that it was not related either to market volumes or changes to the system. The delay was caused by a system monitoring process which did not function as expected. As a result, a routine maintenance activity which must be carried out before the derivatives market opens, did not complete on time.

First Korea Dollar Debt Sale in Four Years Seen Delayed on North
Plans by South Korea to sell its first dollar bonds in four years probably will wait until borrowing costs at their highest in six months retreat, say Mizuho Financial Group Inc. and Western Asset Management Co.

HKMEx Adds Essence Futures and CSC Futures as Broking Members
The Hong Kong Mercantile Exchange (HKMEx), China’s global marketplace, announces today the additions of China-backed Essence Futures (Hong Kong) Limited and Taiwan backed-CSC Futures (HK) Limited as broking members, bringing total Exchange membership to 40 firms.

China trade data raise accuracy worries
Jamil Anderlini in Beijing –
China’s latest trade figures showed a sharp decline in export growth combined with a strong rebound in imports in March, but volatility and discrepancies in the data have raised concerns about their accuracy.

Monetary Authority Of Singapore Releases Survey Findings On Module 9A Of The Capital Markets And Financial Advisory Services Examination

Tokyo Commodity Exchange: Good Delivery Material Price Differential For April 2013 Rubber Contract

Press Conference By Taro Aso, Japan’s Deputy Prime Minister, Minister Of Finance, And Minister For Financial Services

Frontier Markets

QInvest names investment team leader
Camilla Hall –
Michael Katounas has been appointed by QInvest, the Qatari government-backed investment bank, from Credit Suisse to head its investment banking team as the bank beefs up on staff to take on international lenders.

A Chaotic Market That’s One of World’s Top Performers
Pakistan’s chaotic financial heart is home to 18 million people, Taliban bombers, contract killers – and one of the world’s most successful stock markets.

NASDAQ Dubai Visits India To Discuss Capital-Raising Options For Indian Companies

John Lothian Newsletter

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How Ken Griffin rebuilt Citadel’s ramparts

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