John Lothian Newsletter: HFT slows down in US ahead of exchange action; Weighing SEC’s Crackdown on Fraud; Lenders Again Dealing Credit to Risky Clients

Apr 11, 2012

High frequency trading is on its way to being named “a little less frequency trading”, as activity slows down in the face of exchange rules against certain kinds of order activity. The SEC has passed the century mark in enforcement actions related to the financial crisis, but questions are still pending as to whether the agency has been effective enough. In the “This rock looks familiar” department, banks are once again urging high risk borrowers to take on more debt. And in today’s top box, Simon Rostron of Rostron Parry gets gussied up and bare-kneed in an appeal for kids.

Observations – Statistics – Commentary

Simon Rostron

Hunt The Sporran: Simon Rostron Dresses Up for Futures For Kids

Simon Rostron – Rostron Parry
On 27th June, I am to wear a kilt (with sporran) at the Futures for Kids gala dinner, London. This will be the first time my knees have been aired at a black tie event and I would like your support to ensure it won’t ever happen again!

Futures for Kids

FFK arose from the futures industry. It supports three UK and international children’s charities. These children need your help.

Take a look at and please make a contribution via

Thank you

**** Last year it was my turn to accept the Kilt Challenge from the FT’s Jeremy Grant. This year Simon Rostron has accepted the challenge from me. It is quite the accomplishment to get an Englishman into a Scottish Kilt. Please support Simon and Futures For Kids.

NYSE Liffe to launch new repo future market
By Telis Demos in New York – Financial Times
NYSE Liffe US will launch its new repo futures in July, bringing to market a product that the group believes can supplant the troubled existing benchmarks for short-term lending. It is the newest in a series of products that NYSE Liffe US, the New York based futures trading arm of NYSE Euronext, has launched with the hopes of attracting significant trading volumes and taking share from CME Group, where nearly all US interest rate-related futures are traded.

NYSE Liffe U.S.: April 24 Seminar, Futures on the DTCC GCF Repo Index
This seminar will cover an overview of the U.S. Repo market and provide details on the launch of futures on the DTCC GCF Repo Index. During the program, industry experts will discuss the rapidly growing market demand for a new benchmark for U.S. financing operations beyond Fed Funds and Overnight Index Swaps (OIS). Futures traders will have an opportunity to hear about trading opportunities and incentive programs across NYSE Liffe U.S. entire U.S. interest rate futures complex.

April 24, 2012 | 3:00 – 4:00 PM, followed by cocktail reception

JW Marriott Chicago (

Gary Chan, Vice President, Product Management, Fixed Income Clearing Corporation (DTCC)
Harvey Flax, Vice President & GCF Repo Business Manager, NYSE Liffe U.S.

Send mail to Daniel Pontes:

**** This is probably the most important product seminar of the year in Chicago. If you don’t know what the DTCC GCF Repo Index is, this is your chance to learn about it.


The Options Industry Council Announces Investor Education Day In New York City April 21


Bourses play nice cop to head off speed-trade rules
Luke Jeffs and Douwe Miedema | Reuters
The world’s stock exchanges are trying to rein in some of the most controversial activities of high-speed trading firms, among their most valued clients, to help head off tough sanctions from regulators. The London Stock Exchange Group, Deutsche Boerse and Nasdaq OMX have all recently announced fines to cut out speculative trading in high volumes that some of the speed traders engage in.


Exchange Fatigue Strikes Options Brokers
Peter Chapman – Traders Magazine
With Nasdaq’s recent announcement that it planned to launch a third options exchange, the number of options exchanges could climb from nine to 12 this year. That has some brokers grumbling. “Now we have nine exchanges,” Jon Werts, head of broker-dealer execution services at Bank of America Merrill Lynch, said at the annual conference of the New York chapter of the Security Traders Association. “Some would argue the industry doesn’t need that many. I would be one of them.”

**** Former CBOE Executive Ed Joyce said he always thought one was the right number of U.S. options exchanges.


Milton Friedman Proved Wrong by Aluminum Market
By Peter Orszag – Bloomberg
Commodity prices have fluctuated substantially over the past few years. The controversial question is, are financial speculators to blame?

Ban ‘Pure’ Speculators of Oil Futures
Cutting out the middlemen could drive down the price of oil by as much as 40 percent and the price of gasoline by as much as $1 a gallon.

***Jon Matte says…

It’s interesting to watch this blind-men-and-the-elephant argument continue unabated. That so little has changed in the discussion in the last four years says something, but what it says isn’t very nice so I’ll leave it out of this comment.

The old Indian fable describes various blind men feeling different parts of an elephant and declaring that the entire beast must be thus-and-so because they don’t realize their perception is so limited. They are all revealed to be ignorant, of course, but there is a critical understanding that is often missed in that parable: the men were not wrong about their individual perceptions. Their ignorance and misfortune is not in their limited ability to process what they observe, but rather in their inability to recognize that a larger and more complex reality exists that includes but is much greater than the part that they discovered.

So it is with the speculation argument. Sometimes, speculators create volatility; sometimes, they mitigate it. Sometimes, they help perpetuate a trend, and sometimes they oppose the trend. Arguing that these varied partial circumstances don’t exist is ridiculous, because they do. But ignoring all other perspectives and input in order to impose a single, narrow structure or course of action (e.g. sometimes speculators cause volatility, therefore speculators should be entirely removed)… THERE lies the evidence of futile ignorance.

But don’t let me get in the way; carry on. After all, in the parable of the elephant, the blind men quarreled and fought each other, but then the eventual winner transformed the elephant into what he believed it looked like. Right?


High-Speed Trading Is Progress, not Piracy
Bernard S. Donefer – Bloomberg
They steal from the rich and keep it! That sums up the criticism of E-pirates, aka high-frequency traders, the current bad boys of the financial markets. Many retail and institutional investors believe that as much as $2 billion annually in high-frequency trading profits are coming out of their own pockets.


Court Defends Misuse of Work PCs
Checking baseball scores or shopping on your work computer may be frowned upon, but they aren’t a federal crime, a federal appeals court said Tuesday. In a closely watched case, the San Francisco-based U.S. Court of Appeals for the Ninth Circuit rejected the government’s interpretation of a 1984 anti-hacking statute called the Computer Fraud and Abuse Act.

**** We have a saying at JJLCO that things that happen here would get you fired at other firms. I said that once when a former contractor was using company resources (our CIO) to have his personal computer repaired. We like happy and productive employees and contractors.


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Lead Stories

HFT slows down in US ahead of exchange action
By Telis Demos in New York – Financial Times
Fewer messages are being blasted at US stock exchanges by high-speed traders ahead of pending rule changes that penalise some automated trading activities. The practice of electronically sending thousands of quotes each second to the stock market has come under scrutiny over the past two years, following the May 2010 “flash crash” and regulators’ concerns about whether trading in milliseconds is detrimental to some investors.

Weighing SEC’s Crackdown on Fraud
More than 100 people and firms have now been charged with fraud tied to the financial crisis by the Securities and Exchange Commission, but that hasn’t quelled criticism that the agency hasn’t cracked down hard enough.

Lenders Again Dealing Credit to Risky Clients
Annette Alejandro just emerged from bankruptcy and doesn’t have a job, and her car was repossessed last year. Still, after spending her days job hunting, she returns to her apartment in Brooklyn where, in disbelief, she sorts through the piles of credit card and auto loan offers that have come in the mail.

Making Waves Against ‘Whale’
A J.P. Morgan Chase & Co. trader whose massive derivatives sales in recent months earned him the nickname the “London whale” has stopped making those trades, for now. But investors that were squeezed in his earlier action remain engaged in high-stakes strategies against the trader.

Why the Bundesbank is wrong
By Martin Wolf – Financial Times
How far has the eurozone come towards resolving its crisis? The optimistic answer would be that it has rescued itself from a heart attack, but must still manage a difficult convalescence, with a good chance of further attacks. It must also adopt a regime able to protect itself against future crises. This task, too, is incomplete. But the eurozone has secured time. The big question is how well it now uses it.

Spain and EU reject talk of bailout
By Victor Mallet in Madrid and Peter Spiegel in Brussels – Financial Times
Spanish ministers and European Union officials took turns on Tuesday to deny that the country needed an international bailout, in an effort to soothe the bond market.

Spain’s crisis exposes limits of ECB help
By John Plender – Financial Times
So much for the miracle cure. The magnitude of Spain’s debt crisis has now exposed the limits of the European Central Bank’s longer term refinancing operations. First we had the ill-fated auction of Spanish government bonds where a mere E2.6bn was raised compared with a maximum target of E3.5bn. Now we have bond yields on Spanish sovereign debt back up to unsustainable levels of 6 per cent. Contagion, too, is back. The pain is spreading to Italy, where the stock market yesterday tumbled 5 per cent, and beyond.

Environmental Trading News

BM&FBOVESPA and São Paulo Municipal Government give details for carbon credit auction

Barker backs tougher EU emissions targets ahead of Denmark talks
BBC/Business Green
The UK will again press home the “environmental and economic” case for tightening Europe’s emissions targets at informal talks in Denmark next week.

Brazil stresses need for world consensus at Rio+20 meet
The upcoming Rio conference on sustainable development must yield a commitment to manage the world economy in a way that respects the environment and fights poverty, a Brazilian official says.

For more environmental trading news, subscribe to the Environmental Markets version of the John Lothian Newsletter edited by Jim Kharouf.
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Exchange & ECN News

NYSE Euronext Announces Trading Volumes for March 2012 and Other Metrics
NYSE Euronext (NYX) today announced trading volumes for its global derivatives and cash equities exchanges for March 2012. Trading volumes declined year-over- year across most venues, but several venues showed some improvement from February 2012 levels. Global derivatives average daily volume (“ADV”) of 8.1 million contracts in March 2012 decreased 11.5% versus the prior year, but increased 15.4% from February 2012 levels, with European fixed income derivatives increasing 17.5%. European cash trading ADV decreased 12.7% year-over-year, but increased 0.5% from February 2012 levels. U.S. cash trading ADV decreased 23.6% from March 2011 levels and was down 0.6% from February 2012 levels.

Toronto Stock Exchange and TSX Venture Exchange Launch 2012 Canadian Financing Series
Toronto Stock Exchange and TSX Venture Exchange today launched their 2012 Canadian Financing Series, “A Growth Platform for Canadian Entrepreneurs”, in Ottawa.

Borsa Italiana Monthly Update – March 2012

BM&FBOVESPA announces March 2012 Market Performance

March 2012 FIF Market Share And Market Dynamics Reports – Executive Summary

[CBOE] Product Description, Margin and Net Capital Requirements – Options on the CBOE Crude Oil ETF Volatility Index (OVX)

CME Group Clearing Advisory
NYMEX Options Expiration Operational Procedures for the Trading Floor and Clearing Members (A) – Effective Wednesday, April 11, 2012

CME Group Clearing Advisory
Minimum Price Fluctuation Limit Reduction for Natural Gas Contracts

CME Group Clearing Advisory
CDS Margin Parameter Change in NR

CME Group Clearing Advisory
Minimum Price Fluctuation Limit Reduction for six Singapore Fuel Oil

NZX Receives Confirmation From IRD For Return Of Capital

NZX Dairy Futures break Through 20,000 Lots Traded

Banks, Brokers & Dark Pools

Banks’ recovery threatens to be fleeting
By Daniel Schäfer in London and Tracy Alloway in New York – Financial Times
Investment banks worldwide have seen earnings bounce back in the first quarter as the reprieve from the eurozone sovereign debt crisis buoyed credit markets, but the improvement is expected to be only temporary.

Banks juggle E100bn to reduce debt
By Mary Watkins in London – Financial Times
A race by Europe’s banks to beef up their balance sheets to meet new capital rules has led to a wave of offers to bondholders involving tens of billions of euros in debt that could shrink the region’s debt capital ­market.

Peter Ward Appointed Global Head of Marketing Communications at Newedge
Newedge, a global leader in multi-asset brokerage and clearing, announced today the appointment of Peter Ward as Global Head of Marketing Communications, based in the company’s New York office.

Analysis: Broker bonus bidding war comes at a cost
By Jed Horowitz – Reuters
Bonuses offered by the U.S.’s biggest securities companies to recruit top brokers are reaching their loftiest levels since the financial crisis, and none of the big firms are retreating from the bidding war.

Financing The Economy Of The Euro Area: The European Central Bank’s Role – Speech By Benoit Coeure, Member Of The Executive Board Of The ECB, Association Francaise Des Tresoriers D’Entreprises (AFTE), Paris, 11 April 2012
Press Release

Pierpont Derivatives, Llc Launches Swaps Trading Business Using The Calypso System
Independent Broker-Dealer To Use Calypso System As Core Engine For New Interest Rates Swaps Trading Subsidiary

Top Goldman Sachs dealmaker Zaoui to retire
Reuters via Yahoo! News
Veteran Goldman Sachs dealmaker Yoel Zaoui is set to retire, the latest in a series of high profile departures from investment banks shaking up top management in the wake of the financial crisis.

Hank Greenberg Laughs In Face Of Goldman Sachs Insurance
Wall Street Journal Blogs
Former AIG CEO Hank Greenberg, now running the insurers under the Starr Companies umbrella, isn’t quaking at the prospect of Goldman Sachs or other investment banks eyeing the insurance sector.

UBS Wins Dismissal of Billionaire Olenicoff’s Tax Lawsuit
UBS AG won dismissal of a lawsuit brought by billionaire Igor Olenicoff, who blamed the bank for events leading him to plead guilty to failing to disclose about $200 million in offshore accounts on U.S. tax forms.

Are Big Banks in Big Trouble?
With earnings reports and possible credit downgrades looming ahead, big bank stocks will need to weather short-term headwinds in order to recover and again lead the markets higher.

HSBC Hires JPMorgan’s Laidler to Head Research for Americas
Laidler, who was head of Latin America strategy at JPMorgan, will oversee HSBC’s research across all assets in the Americas, said the person, who asked not to be identified because he isn’t allowed to speak publicly on the matter.

Barclays Chief’s Bonus Under Scrutiny
Barclays PLC’s Chief Executive Bob Diamond’s multi-million pound bonus is under scrutiny after an influential investor advisory group flagged concerns over the size of his pay packet for last year.

Morgan Stanley Global Private Equity Acquires Access Cash
Business Wire via Yahoo! Finance
Morgan Stanley Global Private Equity has acquired Access Cash General Partnership , a leading Canadian independent service organization that manages the country’s second largest network of automated teller machines .

Lloyds Bank Appoints Andrew England as Head of Transaction Banking

Regulatory News

The SEC News Digest
The SEC News Digest provides daily information on recent Commission actions, including enforcement proceedings, rule filings, policy statements, and upcoming Commission meetings.

SEC Names CalPERS To Investor Advisory Committee

UK’s Financial Services Authority: Independent Research Recommends Projection Rates Are Revised Downwards
The Financial Services Authority (FSA) has published independent and peer reviewed research by PricewaterhouseCoopers (PwC), which supports a reduction in the rates of return firms are required to use when issuing projections of prospective future investment returns.

Deadline Looms for Comments on FINRA Advisor Complaints Proposal
FINRA is taking comments on its proposal to change the rules for its current procedures for removing complaints about advisors from a central database. But time is running out, as the comment period ends May 21.

Countdown amid disaster: FSA imposes 48-hr deadline on asset hunt
Sophie Baker – Financial News
Custodians, brokers and investment banks are considering a potentially “onerous” policy statement from the UK regulator, which will demand they supply information on the assets of a client 48 hours after a firm goes bust.

A Roadblock to Recovering Money for Madoff’s Victims
Most investors lose almost all of their money once a Ponzi scheme collapses, and the trustees appointed to clean up the mess try to find any deep pocket available to recover something. Unfortunately for the trustees, the legal doctrine of “in pari delicto,” Latin for “in equal fault,” may block any recovery.

Elders Insurance repays customers $5.3 million following underpayment error

Investments – Indexes – Managed Futures – Managed Funds

Hedge Funds Take in $6.8 Billion in February, but Returns Still Lag S&P 500. Funds of Funds See Inflow Amid Disappointing Returns
BarclayHedge and TrimTabs Investment Research reported today that hedge funds took in an estimated $6.8 billion in February, reversing a trend that saw more than $21.5 billion flow out of these funds in January 2012 and December 2011, the largest outflows since July 2009.

German Bonds Uncovered as Yields Hit Low
Germany’s auction of government bonds Wednesday was uncovered for the first time since November, as investors balked at accepting the lowest yields on record as the price for safety, despite renewed fears over Spanish and Italian funding costs.

Calpers Said to Sell $1.5 Billion Private-Equity Stakes
Bloomberg via Yahoo! Finance
The California Public Employees’ Retirement System , the largest U.S. public pension, is seeking to sell about $1.5 billion in private-equity fund stakes as it restructures investments in alternative assets, said three people with knowledge of the matter.

Wilmington Trust Family of Funds Debuts Multi-Strategy Hedge Mutual Fund
PR Newswire via Yahoo! Finance
Wilmington Trust launched a new mutual fund, Wilmington Rock Maple Alternatives Fund, which provides exposure to a diverse set of alternative strategies.

Ascendant Advisors Announces “Patriot Fund”
Ascendant Advisors LLC announced its launch of the Patriot Fund today. The Patriot Fund offers individual investors a large-cap equity fund that limits investment in terror-related securities.

Bain Capital prepares to raise new $8 billion fund
Boston Globe
Bain Capital is preparing to raise a new private equity fund that will be smaller than its last fund, at $6 billion to $8 billion, according to a person briefed on the plans.

Federal Reserve Governor Daniel K. Tarullo At The Federal Reserve Bank Of Chicago Annual Risk Conference, Chicago, Illinois – Developing Tools For Dynamic Capital Supervision

ISDA Credit Derivatives Determinations Committee: Sino-Forest Corporation Credit Event

Technology News

Orc Market Maker leveraged for advanced options trading by Brazilian market maker
Orc, a leading provider of technology and services for the global financial industry, announced that Marcelo Sacomori, a Sao Paulo-based market maker, is using Orc Market Maker for advanced options trading and market making strategies on the BM&FBOVESPA exchange.

SunGard Releases New Version of MarketMap Mobile Market Data Solution
SunGard has released a new version of its MarketMap Mobile market data solution, accessible from a range of mobile devices.

ITRS customers to benefit from support for 3rd party apps
The leading global provider of specialist Application Performance Monitoring (APM) technology to the world’s financial community, ITRS Group Ltd, has announced it is now providing full support for third party applications. A host of new interfaces will be available from and supported by ITRS alongside the more than 100 in-house interfaces to the most common financial markets applications ITRS already provides.

AdvisorVision from Fiserv Awarded Best-in-Class Recognition in Financial Planning Technology
Business Wire via Yahoo! Finance
Fiserv, Inc., a leading global provider of financial services technology solutions, announced today that CEB TowerGroup, a research and advisory services firm, has ranked AdvisorVision best-in-class in its recent Financial Planning Technology Vendor Landscape Report.

Reports Economic Calendar

USDA Today

CBOE Events Calendar

Economic Release Calendar
The Economic Release Calendar (PDF) is a schedule of government, academic and industry economic releases, provided as a service to CME customers.

Asia-Pacific News

China May Let Firms Borrow Yuan Offshore
China is considering increasing the ability of Chinese corporations to borrow yuan-denominated funds outside its borders for use on the mainland, according to people familiar with the matter, a potential move aimed at broadening cross-border capital flows as it pushes to make the yuan a global currency.

SGX and CIMB Securities to grow Trading Representatives profession
Singapore Exchange (SGX) and CIMB Securities today announced an initiative to grow the number of Trading Representatives (TRs) in Singapore and enhance their skills in providing value added services for investors.

Tokyo Stock Exchange: Distribution Of “Open-Access Terminal Service”
Currently, Tokyo Stock Exchange is considering a variety of initiatives aimed at revitalizing the Japanese securities market. As part of these efforts, we will be enhancing the “Open-Access Terminal Service” to include the dissemination of real-time price information.

Deutsche Bank Analyst: China Has ‘Landed Already’
Business Insider
In a research note today, Deutsche Bank Metals and Mining analyst Rob Clifford says everyone needs to stop arguing. “Those arguing about whether China will have a soft or hard landing are missing the point.

Tokyo Grain Exchange SPAN Parameters Effective From April 16, 2012 To April 27 2012

HKEx Monthly Market Highlights – March 2012

Hong Kong’s Securities And Futures Commission Suspends Thomas Chan Ping Keung

HKEx On-Floor & Off-Floor Trading Statistics

New HKEx Mobile Brings Market Information To Smartphones

Thai Bourse To Allow Gold Brokers To Trade All Derivatives Products, Accepts New Members

HKEx Welcomes Government Appointments To Its Board

Frontier Markets

Zambia Commodities Exchange Expected to Resume Trading in May
The Zambia Agricultural Commodities Exchange Ltd. plans to resume trading next month, ending a nine- month halt in which it sought to attract shareholders and asked lawmakers to pass a bill to regulate and boost trading.

Double Digits No More, China & India Govts Want To Grow Slow
Nothing goes up forever, and the decades long double digit growth of China, and now India, is over. India’s Planning Commission Chairman Montek Singh Ahluwalia said during the Boao Asia Forum in China last week that the world will have to grow accustomed to less demand from both nations.

With The Participation Of Qatar Exchange Muscat Hosts The Annual Meeting Of The Arab Federation Of Exchanges

Miscellaneous News

The Entitlement Trap
Clarke Camper – Inside the Beltway
$202,000. That’s how much excess Social Security and Medicare benefits a two-income couple with average wages retiring in 2010 will receive beyond the payroll taxes paid during their careers. The figure epitomizes the slow transformation of these twin landmark retirement programs.

John Lothian Newsletter

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