John Lothian Newsletter: Bloomberg Sues CFTC Over Swap Collateral Rules; Money Funds Are Likely to Face Rule Changes; Brokers lose index CDS volumes to new Tradeweb platform

Apr 17, 2013

Bloomberg LP takes on the CFTC over collateral requirements for swaps, saying the decision to make rates higher for swaps than for comparable futures is arbitrary and unfair. The SEC moves closer to issuing new controls for the money market fund industry. The vast majority of volume in index credit-default swaps has drained out of the broker market and into Tradeweb’s new electronic platform set up for that purpose.

First Read

CBOE’s VIX Options Establish New Single-Day Volume Record
Chicago Board Options Exchange (CBOE) today reported that options on the CBOE Volatility Index (VIX index) established an all-time, single-day volume record yesterday, April 15. Options volume totaled 1,399,863 contracts, beating the previous record of 1,388,634 contracts traded on February 26, 2013.
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***ET: Again, we never get tired of these.

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CME Group Announces Multiple Trading Volume Records Across Metals Complex
CME Group, the world’s leading and most diverse derivatives marketplace, today announced that yesterday it reached multiple daily trading volume records across its metals complex, including a combined futures and options volume increase of 78 percent for its Metals Products asset class.
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***ET: That’s interesting, Terry never struck me as a heavy metal guy.

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SGX earnings boosted by trading surge
Jeremy Grant in Singapore – FT.com
SGX, the Singapore exchange, turned in its best quarterly earnings performance for five years as monetary easing in Japan helped drive trading volumes and spurred activity at Asian exchanges as their western counterparts were left behind.
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***ET: Thanks, Magnus, for introducing us to “Abenomics.”

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Are Trading Houses Too Big To Fail?
Katie Micik – DTN
Are trading houses too big to fail? It seems to be a central question coming out of the Financial Times Global Commodities Summit. The natural follow-up questions is how much, or what kind, of regulation does the futures need?
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TABB Group: No Silver Bullet for Looming Liquidity Crisis in Secondary Corporate Bond Market
With the Securities and Exchange Commission conducting a roundtable today, April 16, in Washington, D.C. addressing ways to improve the transparency and efficiency of the fixed income markets, TABB Group in new research, “Real-Time Corporate Bond Prices: Panacea, or Pipedream?”, says the old way of principal-based dealer liquidity cannot economically support the needs of a diverse marketplace.
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***ET: A day without a Tabb report is like a day without sunshine.

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FX options: front and centre
Rob Gray – FOW
The Dodd-Frank Act is a prime example of regulation that has caused as much confusion as clarity. The weightiest, lengthiest piece of financial legislation in U.S. history has also produced some of the weightiest, lengthiest post-legislative discussions on its impact. The most recent of these discussion points was the announcement in December 2012 that the FX market would be exempt from its reporting and clearing requirements.
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***ET: Transparency is a running theme in today’s First Reads.

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Icap: Sefs could lead to ‘sub-optimal hedging’
Risk.net
Mandating non-deliverable forwards (NDFs) to be traded on swap execution facilities (Sefs) will result in a less liquid NDF market and make it harder for end-users to hedge, says Dean Berry, chief executive of global e-commerce at interdealer broker Icap
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***ET: Voice execution combined with electronic execution: Hybrid. Great idea!

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Regulators call to tie benchmarks to data
Brooke Masters, Chief Regulation Correspondent – FT.com
Interbank lending rates and other benchmarks should be tied to real transactions with codes of conduct used to make these ­indices as free of conflicts of interest as possible, ­global securities watchdogs have said.
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***ET: VIX: benchmark: What a concept!

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Fair value is not the same as market price
John Kay – FT.com
The belief that the only measure of value is what someone is willing to pay is wrong
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DealBook: Judge Approves SAC Settlement in Insider Trading Case, With Reservation
New York Times
A judge conditionally approved a settlement between the hedge fund and securities regulators that allows the firm to pay a $602 million fine without admitting guilt.
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***JM: From the judge: “The damage the victims suffer cannot always be blamed on acts of God or the mischief of leprechauns.” Neatly done.

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How Not to Be the Office Tech Dinosaur
SUE SHELLENBARGER – WSJ.com
For many people, being on the far side of 40 in the workplace brings the confidence of experience, of having hit a certain professional stride. It can also bring a nagging insecure feeling that younger colleagues—the ones with 5,000 Twitter followers, who designed their first website in middle school—are fast becoming the new office stars.
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***ET: For the record. Friend request – Kharouf “confirm.” Lothian “not now.”

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MarketsWiki

MarketsWiki Page of the Day
Pedro Parente
jlne.ws/15du6Er

MarketsWiki Recent Updates

People

Pedro Parente; Jim Swartwout; Don Pratl; David Gompert; Jeff Mezger

Companies, Organizations and Groups

TradeMONSTER; Oanda

Miscellaneous

Swap Execution Facility

Statistics

38,076,375 pages viewed, 7,453 articles, 156,864 edits
MarketsWiki Statistics

Lead Stories

Bloomberg LP Sues U.S. CFTC Over Swap Collateral Rules
Andrew Zajac – Bloomberg
Bloomberg LP sued the top U.S. derivatives regulator over rules setting higher collateral standards for swaps than comparable futures, arguing the requirements are arbitrary. The Commodity Futures Trading Commission, which by law is required to evaluate the costs and benefits of proposed regulations “offered only a fleeting, bare-bones discussion of economic effects that contained no financial or quantitative estimates,” Bloomberg LP, the parent company of Bloomberg News, said in a complaint filed today in federal court in Washington.
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Money Funds Are Likely to Face Rule Changes
NATHANIEL POPPER and BEN PROTESS – NYTimes.com
After fierce industry lobbying and internal bickering, the Securities and Exchange Commission is moving closer to overhauling the money market fund industry. Just days after Mary Jo White became its chairwoman, the agency’s spokesman, John Nester, said on Tuesday that “the staff expects to have something for the commission’s consideration in the near future.”
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Brokers lose index CDS volumes to new Tradeweb platform
Risk.net
As much as 80% of the interdealer volume in index credit default swaps (CDSs) has abandoned the broker market in favour of a new electronic platform run by Tradeweb, according to credit traders. The company launched dealer-to-dealer trading for the CDX high-yield and investment-grade indexes in October 2012 and added the iTraxx Europe, senior financials and crossover indexes to its Dealerweb platform on February 7.
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Stock Surge Linked to Lobbyist
BRODY MULLINS, JENNY STRASBURG AND TOM MCGINTY – WSJ.com
A key source for a private report that sent health-care stocks on a tear earlier this month is a former top congressional aide who is now a health-industry lobbyist, according to emails reviewed by The Wall Street Journal.
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U.S. Bond Market Needs Improved Fairness, SEC’s Walter Says
Matthew Leising – Bloomberg
The $38 trillion U.S. bond market needs to be improved to allow better access for all investors, said Securities and Exchange Commission member Elisse Walter. “The more I look at it the more concerns about fairness I have,” she said today at the start of a series of roundtable discussions the agency is holding in Washington on fixed-income markets.
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U.S. Exchanges Call for New Dark Pool Curbs
Jacob Bunge – Dow Jones
The three largest U.S. stock exchanges have called on market regulators to craft tougher rules for private share- trading venues, as a larger portion of the stock market has shifted toward “dark” venues.
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European lawmakers vote to cap bankers’ bonuses
The Washington Times
The European Parliament, the elected legislative body of the European Union, voted on Tuesday in favor of a new law that caps bankers’ bonuses and implements other financial-sector reforms. Going forward, the new rule says, bankers won’t be able to collect bonuses above one year’s salary.
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Goldman Sachs Bank wins UK licence
Tim Cave – Financial News
Goldman Sachs has won regulatory approval to operate a private bank in the UK, underlining the US firm’s attempts to diversify into less volatile business lines.
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How central banks beat deflation
Martin Wolf – FT.com
Why are the high-income countries not mired in deflation? This is the puzzle today, not the absence of the hyperinflation that hysterics have wrongly expected. It is weird that inflation has remained so stable, despite huge shortfalls in output, relative to pre-crisis trends, and prolonged high unemployment. Understanding why this is the case is important because the answer determines the correct policy action. Fortunately, the news is good.
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Regulatory

IOSCO proposes Principles for Financial Benchmarks
The International Organization of Securities Commissions (IOSCO) Task Force on Financial Market Benchmarks (the Task Force), which the Financial Conduct Authority (FCA) chief executive Martin Wheatley co-chairs, has published its proposed Principles for Financial Benchmarks (the Principles) for consultation.
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CFTC: Report To The G-20 Meeting Of Finance Ministers And Central Bank Governors Of 18-19 April 2013
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Keeping A Retail Investor Focus In Overseeing The Fixed Income Market By SEC Commissioner Luis A. Aguilar – Remarks At The Roundtable On Fixed Income Markets, Washington, D.C.
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Outmanned And Outgunned: Fighting On Behalf Of Investors Despite Efforts To Weaken Investor Protections By SEC Commissioner Luis A. Aguilar – North American Securities Administrators Association, Annual NASAA/SEC 19(D) Conference, Washington, D.C.
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Remarks At The SEC 2013 Spring International Institute For Securities Market Development By SEC Commissioner Daniel M. Gallagher
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Making The CFTC’s Surveillance Work: Efficient Data Management And Clear Rule Implementation – Keynote Address By CFTC’s Commissioner Scott D. O’Malia Before Financial Times Global Commodities Summit, Consolidating The Industry-Challenges Ahead
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“KISS” – Speech Of CFTC Commissioner Bart Chilton At The Federal Reserve Bank Of St. Louis, St. Louis, MO
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Statement By CFTC Chairman Gary Gensler On IOSCO Benchmark Principles
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Improving The Global Consistency Of Financial Regulation – A Speech By Greg Medcraft, Chairman, ASIC And Chairman, International Organization Of Securities Commissions, Delivered At The EuroFi High Level Seminar, Dublin, 11 April 2013
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Exchanges & Trading Facilities

NYSE Deal Could Cool ICE’s Rapid Rise
By Jacob Bunge – Dow Jones
Investors are pondering whether IntercontinentalExchange Inc.’s (ICE) bold play for the New York Stock Exchange could dull ICE’s gleam. The commodity market operator’s rapid trajectory, fueled by a decade-long boom in energy trade, may be altered as it takes on the 200-year-old Big Board and its less-profitable stock-trading franchise, a business that ICE has avoided up until now. “You may see a lot of the growth investors going away because [ICE] doesn’t look like a growth stock anymore,” said Sameer Murukutla, analyst with Macquarie Securities Group.
(via email)

22nd Anniversary Of Warsaw Stock Exchange
The founding deed of the Warsaw Stock Exchange was signed on 12 April 1991. Four days later, in the former headquarters of the Polish United Workers’ Party, the first trading session took place with the participation of seven brokerage houses, listing shares of five companies. During the day, 112 buy and sell orders were placed and the total turnover on the exchange was PLN 1,990 or around US$ 2,000.
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International Integrated Reporting Framework For Companies Launched At BM&FBOVESPA
Document Is Available For Assessment And Suggestions To July 15 On The International Integrated Reporting Council (IIRC) Web Portal
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Direct Edge Trading Notice #13-16: Retail Order Designation To Include Riskless Principal
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Annual Meeting Of Shareholders Of NZX
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Athens Stock Exchange: Continuation Of Suspension Of Trading Of The Shares Of The Companies
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Hedge Funds & Managed Futures

BlackRock Boss Sees Changes on the Way for Money Funds
KIRSTEN GRIND – WSJ.com
BlackRock Inc. Chief Executive Laurence Fink said stricter regulation could be on the way for the $2.6 trillion money-market-fund industry, in which BlackRock is a major player.
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BlackRock profit rises 10 percent
Bloomberg
BlackRock Inc., the world’s biggest money manager, said first-quarter earnings rose 10 percent as its exchange-traded stock funds drew client cash and assets increased.
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Bond Hedge Fund 5:15 Capital to Close Down, Return Money
Bloomberg
Bond hedge-fund manager 5:15 Capital Management LLC, named after a song by The Who, will wind down and return client money after redemptions, according to a letter obtained by Bloomberg.
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HgCapital raises £2bn for mid-market fund
Anne-Sylvaine Chassany, Private Equity Correspondent – FT.com
HgCapital, the UK private equity group that owns clothing designer Bench, has raised £2bn, beating its target and reaching the maximum it had set for the new fund in about six months, benefiting from an appetite from investors for smaller buyouts.
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Citigroup Asia Raised $50 Billion for Clients in First Quarter
Bloomberg
Citigroup Inc. ’s Asian operations raised more than $50 billion for clients from capital markets last quarter, according to a memo obtained by Bloomberg News.
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Hedge Fund Manager Ueda Sues Ex-Partner Yashwant Bajaj
Bloomberg
Toru Ueda, co-founder of hedge-fund firm Hachiman Capital Management, sued his former partner Yashwant Bajaj, claiming he was shortchanged after the two decided to shut the company.
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Flunk you, Loeb! Hedgie asks for teacher $ but battles pensions
New York Post
It’s time to teach hedge-fund mogul Dan Loeb a lesson, pension activists say. Several trustees for teacher pension plans are planning to confront Loeb, who runs $12 billion New York hedge fund Third Point, when he speaks at an institutional investor conference in Washington tomorrow, The Post has learned…
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Silver Slump Splits Hedge Funds From Ingot Hoarders: Commodities
Bloomberg
Speculators were the most bullish in two years as recently as October and now have a net-short position of 560 futures and options, U.S. Commodity Futures Trading Commission data show.
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John Paulson’s Gold Fever Dream Has Lost Him $1 Billion in Two Days
New York Magazine
I always thought it was somewhat bizarre that John Paulson, the hedge-fund billionaire and imaginary IM pal of Jessica Pressler , was heavily invested in gold. Gold, unlike the credit default swaps on mortgage-backed securities that made Paulson his billions, isn’t a thinking man’s investment.
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Why gold is falling even as global economic fears intensify
CNN Money
Gold is usually a safe haven for investors during times of economic turmoil. Not this time around.
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If Gold Was “Just A Commodity” What Would Be Its Support Price
Zero Hedge
Today’s bounce back in gold prices is fading into the close and as Barclays’ Suki Cooper notes, despite some physical demand response to lower prices, it has not been sufficient to combat the overall decline. In the absence of support from physical buying, where does fundamental support materialize? Should gold just put on its commodity hat, instead of its increasingly more popular currency one, its cost of production should provide some guidance.
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Tengram Capital Partners Raises $173 Million for Its First Fund, Exceeding Targeted Amount
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Banks & Brokers

The great transatlantic investment banking divide
William Wright – Financial News
A decade is a long time in investment banking. Ten years ago, the Iraq War had just got under way, a respiratory disease called Sars was sweeping across Asia, and markets around the world were bottoming out in the wake of the dotcom crash.
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Goldman profit up but revenue from client trading drops
Reuters via Yahoo! News
By Lauren Tara LaCapra and Tanya Agrawal – Goldman Sachs Group Inc said revenue from bond trading with clients fell 7 percent in the first quarter, raising questions about the health of the bank’s biggest money maker and the prospects for fixed-income trading profits on Wall Street.
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Goldman’s Dirty Word ‘Trading’ Sneaks Into Report
CNBC
Although traders at the firm make billions trading bonds, derivatives, currencies and stocks, the word “trading” was banished from the vocabulary of Goldman’s earnings. This quarter it made a quiet return.
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What’s eating Goldman Sachs?
MarketWatch
Profits are up. Revenue is up. Compensation costs are down. Core businesses, such as underwriting, are strong. Analysts are impressed. Warren Buffett has gone all-in. So why is it hard to get excited about the latest quarter at Goldman Sachs Group Inc.?
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TD Ameritrade’s Strong Asset Gathering Momentum Continues
TD Ameritrade Holding Corporation (AMTD) has released results for the second quarter of fiscal 2013. The Company ended the quarter with a record $517 billion in total client assets, driven by its continued double-digit organic client asset growth rate and market appreciation.
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Citigroup Rehires Gozdanker as Head of European Cash Trading
Bloomberg
Citigroup Inc. , the third-biggest U.S. bank, rehired Yonatan Gozdanker as head of European cash trading almost three years after he departed to join Russia ’s Renaissance Capital.
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Morgan Stanley Said to End Ban on Junior Banker Job Hunts
Bloomberg
Morgan Stanley abandoned an attempt to block first-year bankers from talking with recruiters for outside companies after employees complained, according to two people with knowledge of the matter.
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Morgan Stanley Says China Banking Venture CEO Yang Kai Leaves
Bloomberg
Yang Kai has left as the chief executive officer of Morgan Stanley Huaxin Securities Co., according to Xu Li, Morgan Stanley’s China spokeswoman.
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Itau’s Marangon Said to Depart With 4 Directors in Restructuring
Bloomberg
Marcelo Marangon, an executive director of Banco Itau BBA SA, and at least four directors have left the bank amid a restructuring with management changes, three people with direct knowledge of the matter said.
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Goldman Traders Cede Tokyo Party Bar to Google-Apple Invasion
Bloomberg
The champagne used to flow at Heartland, the bar in Tokyo’s Roppongi Hills complex that drew bankers from the Japan headquarters of Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. upstairs.
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BNY Mellon to Provide OTC Derivatives and Collateral Management Services to British Airways Pension Fund
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Clearing & Settlement

ISDA-BBA Preliminary Response To UK’s HMT Re. Indirect Clearing
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Indexes & Products

Lurching Gold ETF Veers From Metal by Most in Year Amid Selloff
Bloomberg
Ten days of pessimism flared into gold’s worst rout since 1980 this week, with selling so strong it knocked the world’s third-biggest exchange-traded fund further below its asset value than any time in a year.
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Nine Vanguard Index Funds to Transition Benchmarks to CRSP and FTSE Indexes
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BM&FBOVESPA Announces The 2nd Preview For Ibovespa And Other Indices, Valid For May-August 2013
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Change In The Composition Of The ATHEX Indices
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Technology

tradeMONSTER and Collective2 Announce Strategic Partnership
Business Wire via Yahoo! Finance
tradeMONSTER and Collective2 announced today their strategic partnership that matches one of the top-rated brokers with a premier supplier of automated trading programs. Effective immediately, Collective2’s customers have the ability to use 20,000+ algorithmic trading systems to trade at tradeMONSTER.
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New BPO Rules And Tools To Help Banks Transform Their Supply Chain Finance Services – SWIFT And ICC Release New Legal And Technology Standards For Open Account Trade
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BAE Systems Detica Wins Fraud And Financial Crime Software Award 2013 From Operational Risk & Regulation Magazine
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Enforcement

FINRA Fines Merrill Lynch $1 Million and Orders Restitution of More Than $320,000 for Failing to Provide Customers Best Execution in Non-Convertible Preferred Securities Transactions
jlne.ws/13iM5FC

SEC Charges Two Arizona-Based Brokers with Defrauding Investors in Tankless Water Heater Venture
The Securities and Exchange Commission today charged two former brokers in Arizona with stealing investments in a project to develop tankless water heaters.
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SEC Charges Canada-Based Investment Banker With Insider Trading
The Securities and Exchange Commission today charged an investment banker in Toronto with insider trading by using information that he obtained through his job of pitching investment ideas to the Canada Pension Plan Investment Board (CPPIB).
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Ex-MF Global Broker Sentenced to 5 Years for Rogue Trades
Andrew Harris – Bloomberg
Former MF Global Inc. broker Evan Brent Dooley was sentenced to five years in prison for making unlawful unauthorized trades that caused the now-defunct futures firm to lose more than $141 million in 2008.
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Hedge fund manager pleads guilty to Ponzi scheme
Associated Press via Yahoo! News
A Portland hedge-fund manager pleaded guilty Tuesday to 17 counts of mail and wire fraud in a Ponzi scheme he orchestrated in Oregon, Washington and other states. Yusaf Jawed, 44, is scheduled to be sentenced June 21. As part of a plea agreement, prosecutors and the defense will recommend 6 1/2 years in prison, Assistant U.S. Attorney Allan Garten said.
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New Zealand’s Financial Markets Authority: Guilty Plea Sees Another Finance Company Director Held To Account
jlne.ws/13iM4Bu

Environmental & Energy

Australia Cutting Carbon-Revenue Forecast Amid EU Price Collapse
Bloomberg
Australia will lower its expected revenue from selling carbon allowances after the European Union, its partner in a cap-and-trade system set to start in 2015, failed to win support for a plan to lift record low prices.
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Asia-Pacific

Thai Bourse Lists BTSGIF, The First Thai Infrastructure Fund, On April 19
jlne.ws/13iM4Bx

Platts Expands Suite Of Thermal Coal Assessments For China And Greater Asia – Data Aids Price Discovery & Risk Management Of China’s Domestic And Imported Coal
jlne.ws/13iM4BA

Thailand Futures Exchange Announces Temporary Halt Of All Gold And Silver Futures Trading
jlne.ws/13iM4BB

Thai Bourse Recommends Investors Closely Monitor Commodity Prices Due To Global Price Fluctuations
jlne.ws/13iM5FM

Frontier Markets

Dubai Financial Market Company Shareholders Approve Financial Statements For The Fiscal Year 2012
jlne.ws/13iM4BC

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Past JLN Newsletters

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