Large brokerages look to starting futures exchanges as a way to cope with new financial regulations and at-risk volume. The CBOE Futures Exchange moves closer to 24-hour trading of their VIX futures products by nearly doubling trading hours. Singapore Exchange gears up to start its new iron ore futures trading next week.
Cross-country or downhill skiing?
Veronica Augustsson – Cinnober
This is an important question for us Swedes. In that same way, it’s important for a market to decide its structure: vertical or horizontal?
New regulations require exchange trading and central counterparty clearing of OTC-traded derivatives. Clearing houses will require a lot more collateral compared to what participants are requiring bilaterally today. This will create a need to use other assets such as financial futures.
A number of clearing houses have launched, or are planning to launch, cross-asset risk management and collateral management services. In the US, for example, some are offering margin offsets of OTC IRS against treasury and eurodollar futures. However, these asset classes are currently locked in vertical silos in separate CCPs with different life cycles, risk models and default handling. Perhaps most problematic of all, they are supported by separate systems, each developed for a single asset class.
When it comes to skiing, we don’t have to choose. Most people can enjoy the thrills of downhill and the exercise from cross-country.
I am sure that in the future we will all be able to fully enjoy the benefits of full-scale cross-asset trading, clearing and settlement.
Thanks, John, for this opportunity to be your guest editor. It’s been a true pleasure!
I’m looking forward to reading your comments next week, Gary.
Thank You to Veronica and the Cinnober Team
Check another week off the calendar! Many thanks to Veronica Augustsson and the fine folks at Cinnober for providing this week’s newsletter insight and commentary. It was fun to work with you, and you deserve a round of applause. Next week: Gary Katz, president and chief executive officer of the International Securities Exchange. See you Monday!
In Memory of Mel Falis
Commodity Floor Brokers and Traders Association
Melvyn J. Falis passed away on Sunday, March 17. As the former General Counsel of NYMEX and the CFBTA’s Public Director, Mel was well known to many in the exchange community. He will be deeply missed.
After working for a law firm and a Wall Street securities firm, Mel joined NYMEX as General Counsel. He also served on the NYMEX Board of Directors from 2001-2008.
Mel was most recently practicing commodities law at Gusrae Kaplan Nusbaum LLC, where he served high net-worth individuals, partnerships, and corporations in the financial industry. He served as a guest lecturer at New York Law School, Chicago-Kent Law School, and the New York Stock Exchange. He was also an editor of the Commodities Law Letter.
*** John Lothian: Mel Falis was a persistent and cheerful giver. He supported nearly every personal fund raising effort I or others engaged in through the newsletter. He was particularly supportive of cancer fund raising efforts. He was always encouraging of people making a charitable effort. Though I only met Mel once, in NYC for dinner, he was someone who left his mark on me.
GFI seeks to mitigate derivatives regulation
Philip Stafford – FT.com
GFI Group, the US interdealer broker, has applied to regulators to become a futures exchange amid concern that incoming regulation overhauling derivatives markets could damage its business.
***VA: An interdealer broker starting an exchange, would you believe it? We’ll have the bookies starting exchanges next! Oh, they already have.
CBOE Nominates Former Regulator, Motorola Executive as Directors
By Jacob Bunge – Dow Jones
The parent of the Chicago Board Options Exchange nominated three new directors, including a former market regulator, as the leading U.S. stock-options market revamps its board.
Standing for election at CBOE Holdings Inc.’s (CBOE) planned annual meeting May 23 are Douglas Shulman, who previously worked for the Financial Industry Regulatory Authority and the Internal Revenue Service, and Edward Fitzpatrick, chief financial officer of Motorola Solutions Inc. (MSI), according to documents filed Thursday with the Securities and Exchange Commission.
IntercontinentalExchange Sets New Daily Record for ICE NYH RBOB Futures
IntercontinentalExchange, a leading operator of global markets and clearing houses, reported record daily volume in the ICE NYH RBOB Gasoline futures contract. ICE NYH RBOB Gasoline futures traded 41,175 on April 3, 2013. The previous daily record was 37,744 on March 11, 2013.
**JK – Everytime you hear RBOB and record, you have to drink a shot.
CME Group reaches new open interest record in benchmark copper contract
Open interest in COMEX Copper futures was 185,531 yesterday, compared to the previous 184,257 record on February 6, 2013
Osaka Securities Exchange: Trading Volume of Night Session Exceeded 1 Million Units as for the First Time
Osaka Securities Exchange Co., Ltd. is pleased to announce that the trading volume of Night Session (trading day of April 5, 2013) recorded 1,138,662 units (preliminary estimates). It was the first time to exceed 1 million units since the launch of the nighttime trading in September 2007.
SEC Delays Action on FINRA s 10-Second Reporting Proposal
Peter Chapman – Traders Magazine
The Securities and Exchange Commission put off a decision on whether to approve a request by the Financial Industry Regulatory Authority to cut the time in which broker-dealers must report trades done away from the exchanges to 10 seconds. The SEC has delayed its decision from March 29 to May 13, after encountering objections from broker-dealers and their advocates to cutting the time allowed for reporting off-exchange trades down from 30 seconds.
***VA: 10 seconds sounds like an eternity to me. Heard of real time?
Citadel Asks Supreme Court to Hear Derivatives Case
JACOB BUNGE – WSJ.com
One of the biggest U.S. derivatives traders has joined a long-running legal battle over a lucrative slice of the market and asked the Supreme Court to decide the matter. Citadel LLC, which trades one in five stock-options contracts dealt daily on U.S. markets, has called on the nation’s highest court to loosen the hold of the Chicago Board Options Exchange over heavily-traded contracts linked to major stock indexes.
***VA: So if I create my own indexes, can’t that be my own? Will I be forced to share it?
DealBook: Twitter Arrives on Wall Street, Via Bloomberg
New York Times
Bloomberg L.P. announced that it was incorporating tw
eets into its data service, allowing traders and other professionals to monitor social media buzz and important news about companies they follow.
***VA: Good job Bloomberg!
Reuters accused of favouring clients
Arash Massoudi and Andrew Edgecliffe-Johnson in New York – FT.com
A former Thomson Reuters employee has claimed he was wrongfully dismissed after telling a US federal agent that the financial news and data provider had given certain clients sensitive information ahead of its wider release.
***VA: If you are willing to pay a premium I think it is fair to get a better service. Just like co-location.
**JK – Yes, but don’t tell the cops that!
***JM: Helpful suggestion to the SEC: Why not start your own premium service where you help companies disclose material information early to high-paying market participants? Think of the money you’d make!
Who’s Afraid of Private Equity?
Even before private equity became a regular feature of partisan political debate in last year’s Presidential election, the industry has been steadily gaining prominence in recent years.
***VA: I am afraid of Private Equity Funds as long as it is all about the exit.
Treasury Needs a Tough No. 2
By SIMON JOHNSON – NY Times
The Obama administration is actively seeking a new deputy secretary for the Treasury Department. Its leading candidate, Ruth Porat of Morgan Stanley, just withdrew, and a new short list is now being floated. But one name is conspicuously absent: Gary Gensler
**JK – This looks like lobbying to me.
Can a Judge Really Block the SEC’s Settlement With Steven Cohen?
Theodoric Meyer – ProPublica
Judge Victor Marrero last week became the latest federal judge to question a time-honored tactic of federal regulators: negotiating settlements in which companies pay millions of dollars in penalties without admitting or denying that they’ve actually done anything wrong.
***JM: If the judge finds a settlement to be incongruous, counterintuitive and not serving to protect the public (which is one of the fundamental purposes of financial regulation), and that is not “substantial reason” to block it, then yes they are indeed being told to rubber-stamp whatever piece of garbage the SEC brings them that carries the “settlement” title.
Markets Insight: Asia’s SWFs must shed political shackles
Henny Sender – FT.com
The Chinese sovereign wealth fund is about to have a new chairman, according to the Beijing rumour mill, to be Hu Huaibang, currently the chairman of Bank of Communications, China’s fifth-largest bank. Whispers in the Chinese capital suggest several other senior figures in financial circles turned down the job after the previous incumbent, Lou Jiwei, departed to become the finance minister.
***VA: Why is no one applying? Afraid of criticism? I enjoyed my job as the guest editor for JLN!
MarketsWiki Page of the Day
MarketsWiki Recent Updates
Companies, Organizations and Groups
Trading Technologies International; Price Holdings, Inc.; The Price Futures Group, Inc.; The PRICE Futures Group; Uhlmann Price Securities, LLC; ICE Clear Credit; IntercontinentalExchange Inc.; Bionic Trader Systems; Chicago Board Options Exchange
37,643,433 pages viewed, 7,445 articles, 156,536 edits
Brokers Move to Set Up Futures Markets
KATY BURNE And JACOB BUNGE – WSJ.com
Some of the largest brokerages in the derivatives market are looking to start their own futures exchanges in response to new financial laws that could see business drain to established rival markets.
**JK – FIA Expo’s Exchange Leader Panel will feature 47 futures exchange executives.
Nasdaq sets stage for HFT in Treasuries
Philip Stafford, Arash Massoudi and Michael Mackenzie- FT.com
High frequency traders, the gunslingers of the trading world, could be about to make their presence more keenly felt in the world’s biggest government bond market.
***VA: It looks like Nasdaq has put up a large bet on that the market behaviour will change.
VIX Futures Trading Hours Will Almost Double by June, CFE Says
Nikolaj Gammeltoft – Bloomberg
The CBOE Futures Exchange LLC will almost double trading hours for futures linked to the benchmark gauge for U.S. options prices as part of a move toward around- the-clock market access.
***VA: It is good to see that there is liquidity enough to trade 24×5 in the volatility index.
SGX to Introduce Iron Ore Futures as Investors Wager on China
SGX AsiaClear, the world’s largest clearer of iron ore swaps, is scheduled to start a futures contract for the steel-making commodity next week as investors seek to bet on the pace of Chinese growth and swings in prices.
***VA: As a sports fan I think it is a small step for humans but a large step for Iron Man triathlons.
Dan Barnes – FOW
The buy-side could see the cost of derivatives trading rocket under a new European transaction tax. Funds will be paying the tax every time they convert assets to cash or bonds to cover their derivatives trades. With margin calls taking place on a daily basis, the tax could prove to be a strong earner for national governments but it may leech out capital from the investment fund sector.
***VA: Should be more interest from clearers to take collateral in a range of non-cash assets
MF Global trustee criticizes Corzine, execs
MARCY GORDON – AP
A trustee overseeing MF Global says a risky trading strategy and “negligent conduct” by former CEO Jon Corzine and his top managers contributed to the brokerage firm’s collapse in late 2011.
Fed’s Fisher: “Too-Big-To-Fail Regulation Should Be Written By A Sixth-Grader”
QE “is not a Buzz Lightyear policy,” Dallas Fed’s Fisher explains to Bloomberg TV’s Stephanie Ruhle, “this will not go on forever.” He admits there are limits to their policies – “we just have to figure out what they are.” The always outspoken fed head goes on to explain why he believes the Fed’s policy should be “dialed back… Not go from wild turkey, the liquor by the way, to cold turkey; but certainly slowing it down now.”
***VA: Wouldn’t it be great if all regulations were written by a sixth-grader? We might understand them then!
Brooksley Born Says Too-Big-To-Fail Banks Are Still Economy Risk
Ian Katz – Bloomberg
Brooksley Born, whose effort to regulate over-the-counter derivatives was thwarted when she served as a regulator in the 1990s, said a large U.S. bank failure would require a bailout to avoid disrupting the economy.
**JK – A sparse story, without anything to back it up.
Steering a Better Course Past the Fiction of Libor
New York Times
A rate based on secured loans makes more sense than the London interbank offered rate.
MF Global bankruptcy exit plan primed for court hearing
Reuters via Yahoo! News
By Nick Brown NEW YORK – MF Global Holdings on Friday will seek court approval of a plan to liquidate its assets and repay creditors, signaling the final stages of its large and politically-charged bankruptcy.
Blame Abounds Over a Flawed Foreclosure Review
BEN PROTESS and JESSICA SILVER-GREENBERG – NYTimes.com
Private consultants and federal regulators are facing a fresh round of scrutiny in Washington after botching a broad review of foreclosures and failing to thwart financial misdeeds. A new report by the Government Accountability Office will take aim at the Federal Reserve and the Office of the Comptroller of the Currency for creating a bureaucratic maze that delayed relief to homeowners in foreclosure, according to a draft of the 74-page document provided to The New York Times.
Why SEC Twitter rules won’t work
Chuck Jaffe, MarketWatch
To see why the Securities and Exchange Commission had no choice but to allow companies to release news via social media, one need only look at what happened when the agency itself announced what it was doing. First, on Tuesday afternoon, came the release of the information via the traditional channels. Then, some 19 minutes and 30 seconds later, the agency’s official Twitter feed carried the news.
Investors to SEC on social: ‘Dislike’
The SEC showed up late to the social media party with its new guidance, and investors now have more questions than answers about how companies can share material information.
End-User Bill of Rights
DTN / The Progressive Farmer
CFTC Commissioner Bart Chilton outlined an End-User Bill of Rights to guide CFTC on implementation of Dodd-Frank rules that includes tighter regulations on speculative traders, better customer protections and improved transparency about the rules.
GAO: ‘Intelligence firm’ disclosure could help SEC
More transparency by political intelligence firms could help the Securities and Exchange Commission identify insider trading firms, according to a government watchdog report released Thursday.
The SEC Let Steven Cohen Off Easy
The U.S. Securities and Exchange Commission gets a lot of well-deserved brickbats for settling cases with crooks and cheats without making them admit to breaking the law. The deals often show the agency to be gutless and weak. Other times they look plain stupid.
SEC Eyes Order Type Development
Tom Steinert-Threlkeld – Traders Magazine
The Securities and Exchange Commission has begun inspecting how the nation’s stock exchanges develop, refine and approve new types of buy and sell orders, in the face of a great proliferation in order types.
Brisk Pace of Rule Making Slows at CFTC
The Wall Street Journal
The Commodity Futures Trading Commission, under the leadership of Gary Gensler, has long been seen as the most aggressive regulator in terms of passing rules mandated by the 2010 Dodd-Frank financial overhaul.
ESMA Submits Its Technical Advice To The Commission On Fees For Trade Repositories
ESMA Publishes The 13th Extract Of The EECS Database
ASIC releases information sheets on Stronger Super provisions
Exchanges & Trading Facilities
NYSE Euronext Announces Trading Volumes For March 2013 And Other Metrics
NYSE Euronext (NYX) today announced trading volumes for its global derivatives and cash equities exchanges for March 20131. Global derivatives average daily volume (“ADV”) of 8.1 million contracts in March 2013 was in-line with March 2012, but decreased 7.8% from February 2013. European derivatives products ADV in March 2013 of 4.3 million contracts increased 8.9% compared to March 2012, but decreased 2.8% from February 2013 levels. NYSE Liffe U.S. rebounded 62.7% versus the prior month. Trading volumes in European and U.S. cash equities declined both year-over-year and month-over-month.
ASX Group Monthly Activity Report – March 2013
In March 2013 the average daily number of trades was 17% higher than the pcp. The average daily value traded was 4% higher than the pcp. In March 2013 average daily derivatives traded on ASX decreased 6% on the pcp with single stock options volumes down 16% and index option volumes up 3%. In March 2013 average daily futures and options on futures volume on ASX 24 increased 40% on the pcp with both futures and options volumes higher. The ASX 24 market experienced a record trading month in futures and options contracts of 13.7 million contracts, up from the previous record of 13.6 million contracts in June 2011.
ASX Compliance Monthly Activity Report – March 2013
DGCX First Quarter Volumes Up 112%
March volumes on the Dubai Gold and Commodities Exchange (DGCX) almost doubled from last year, pushing first quarter volumes past the three million contract mark. Q1 2013 volumes rose 112% from Q1 2012 to reach 3,281,234 contracts while volumes in March 2013 surged 95% from the same month last year to total 1,072,052 contracts.
The NASDAQ Stock Market Tops U.S. Exchanges In IPOs And Transfers In Q1 2013
The NASDAQ OMX Group, Inc. (Nasdaq:NDAQ) today announced that in the first quarter it welcomed 33 new listings, including 18 initial public offerings (IPO), more than any other U.S. exchange. Combined proceeds totaled more than $2.18 billion.
CBOE Futures Exchange Plans Extended Trading Hours – Two-Phase Rollout Begins In May
Ljubljana Stock Exchange: Monthly Statistical Report March 2013
[CBOE] Limit Up-Limit Down Order Handling
Program Trading Averaged 30.9 Percent of NYSE Volume during Mar. 25-29
TMX Group Equity Financing Statistics – March 2013
Moscow Exchange Weekly Market Report: March 25-29, 2013
NGM Welcomes Merril Lynch As Issuer
Nordic Growth Market informs that both Merrill Lynch International & Co. C.V. and Merrill Lynch B.V. are now issuers at NDX.
NZX March 2013 Shareholder Metrics
MIAX Options Exchange: Revisions To Continuous Quoting Obligations For Market Makers
MIAX Options Exchange MIAX Rule 530 Limit Up / Limit Down
Hedge Funds & Managed Futures
Finally Some Good News For John Paulson
Closely-followed hedge fund manager John Paulson’s Paulson & Co. posted gains so far this year after getting crushed in 2012 and 2011. Mr. Paulson’s long-troubled Advantage funds have positive returns for the year through March.
Why Mexico’s Become a Hotter Investment Than Brazil
Mexico, overshadowed by Brazil for years, has secured its place as the new favorite among investors looking to put cash into Latin America. Investors have been encouraged by the new Mexican president pushing economic change while Brazil remains in low growth environment.
BlueCrest Said to Hire Deutsche Bank Derivatives Trader Yearick
Yearick left Deutsche Bank last month with plans to start at BlueCrest, according to three people familiar with the move.
Philadelphia Can’t Explain Its Swaps Yet Fights Ban: Muni Credit
Philadelphia may see costs from interest-rate swap contracts climb to as much as $186 million. Yet it’s lobbying to exempt itself from a proposed Pennsylvania ban on the derivatives that would be the first in the U.S.
Argentine Bonds Living in a Parallel Universe; Call it the ‘Cram-Up’
Wall Street Journal Blogs
As Argentina fights a high-stakes battles with holdout bondholders, the country’s bonds and the credit derivatives that insure against default dwell in a parallel universe.
NYU-Poly Team Trades with the Best of Them
Four financial engineering students of the Polytechnic Institute of New York University (NYU-Poly) traded simulated crude oil, gold and corn futures 23 hours a day for four weeks and increased their holdings by nearly 28 percent in the final round to capture second place in the prestigious CME Group Commodity Trading Challenge.
Bloomberg Integrates Live Twitter Feeds With Financial Platform
Bloomberg announced today that it is the first financial information platform to integrate real-time Twitter feeds directly into the investment workflows of market professionals. The announcement follows this week’s decision by the U.S. Securities and Exchange Commission to allow companies to use social media for corporate disclosures.
Banks & Brokers
ICAP US Combines Link Brokerage Group and Equity Operations
ICAP, the world’s leading interdealer broker and provider of post trade risk and information services, today announces that it has combined the US arm of its Link brokerage group, the leading global specialist equity derivatives broker, with the operations of ICAP Corporates LLC, its US Equities brokerage.
Judge to consider $2.4B Bank of America/Merrill Lynch settlement
The Charlotte Observer
A proposed $2.42 billion cash deal to settle shareholder claims that Bank of America misled investors about its purchase of Merrill Lynch is scheduled to go before a federal judge Friday in New York.
Parliamentarians urge executive bans for “colossal” HBOS failure
Reuters via Yahoo! News
By Matt Scuffham LONDON – Bailed-out British lender HBOS was so badly run it would have failed even without the 2008 financial crisis and the regulator should consider banning its former bosses from the industry, a panel of parliamentarians said in a damning report.
Goldman Sachs Says Stephen Friedman to Retire From Bank’s Board
Goldman Sachs Group Inc. said Stephen Friedman will retire from its board of directors on May 22.
Barclays Investment Banker Taussig Departs for Guggenheim
Barclays Plc ’s Andrew Taussig, head of investment banking for retail companies, left the London- based bank and joined Guggenheim Partners LLC, according to a regulatory filing and people familiar with the move.
Barclays Oil-Research Head Paul Horsnell Said to Leave
Paul Horsnell , the head of commodities research at Barclays Plc , has left the company, according to a person with direct knowledge of the matter.
The Man And Citigroup Loan Behind New York’s Corruption Scandal
In 2007, a 34-year-old Argentinian-born man living in Monsey, N.Y., with a sketchy business background and little experience in commercial real estate, managed to get Citigroup to lend his company $126 million to purchase 11 shopping malls in the southeast. The shopping mall venture quickly blew up and federal prosecutors working for the U.S. Attorney in Manhattan started investigating the man behind the deal
UBS saved Ping An deal with $5.5bn loan
Simon Rabinovitch in Beijing – FT.com
UBS provided a secret loan of about $5.5bn to enable a Thai company to purchase HSBC’s stake in a Chinese insurer earlier this year, according to people familiar with the deal.
E*TRADE Financial Corporation Announces First Quarter 2013 Earnings Conference Call
E*TRADE Financial Corporation today announced that it will report its first quarter 2013 financial results after the close of the U.S. financial markets on Thursday, April 18, 2013.
Noted Trader Larry Williams to Co-Host TradeStation’s Weekly “Futures Market Outlook” Series
Indexes & Products
State Street and Blackstone partner up on new loan ETF
Dow Jones Newswires
State Street Global Advisors and Blackstone Group unit GSO Capital Partners are launching an exchange-traded fund dedicated to high-yield corporate loans.
[TSE] ETF/ETN Monthly Report for Mar 2013
Ex-Omega Advisors Official Gets Time Served for Scheme
A former executive at Omega Advisors Inc., Leon Cooperman’s $6 billion hedge fund, was sentenced to time he already served in prison for joining in an international bribery scheme 15 years ago.
U.S. charges N.Y. mortgage lender with defrauding government
Reuters via Yahoo! News
By Jonathan Stempel – The United States on Thursday sued a New York mortgage company it said defrauded the federal government into insuring poor quality home loans, costing taxpayers millions of dollars.
LM Investment Management Limited
Environmental & Energy
CFTC Issues Final Order To Exempt Certain Non-Financial Energy Derivative Transactions between Government And/Or Cooperatively-Owned Electric Utilities
The Commodity Futures Trading Commission (CFTC) approved by a seriatim vote of 5 – 0 a Final Order that exempts certain non-financial energy derivative transactions between and amongst government-owned electric utilities and cooperatively-owned electric utilities from most of the requirements of the Commodity Exchange Act (CEA).
Alberta faces high hurdles with ambitious carbon reduction plan
The Globe and Mail
The proposed ratcheting up of Alberta’s carbon levy stands to win few plaudits from oil-sands opponents who have targeted TransCanada Corp.’s Keystone XL pipeline, and would set emission reduction targets that many companies may find impossible to meet.
Alberta’s bold plan to cut emissions stuns Ottawa and oil industry
The Globe and Mail
The Alberta government has quietly presented a proposal to sharply increase levies on carbon production and force large oil-industry producers to slash greenhouse gas emissions by as much as 40 per cent on each barrel of production, a long-term plan that has surprised Ottawa and industry executives with its ambition.
Tokyo Stock Exchange halts JGB futures trade twice after drop
The Tokyo Stock Exchange halted trade in Japanese government bond futures twice on Friday after a sharp plunge in the wake of the Bank of Japan’s massive policy overhaul in the previous session.
Australia’s Gillard to strike yuan deal
Deal would be step towards full convertibility of Chinese yuan on international markets.
J.P. Morgan’s Kester Ng Bows Out of Banking
Wall Street Journal Blogs
Kester Ng, one of J.P. Morgan Chase & Co.’s most senior bankers in Asia Pacific, is leaving investment banking after more than 20 years in the industry, according to a person with knowledge of the matter.
RBS Japan Faces Penalty on Libor, Japan Securities Watchdog Says
The Securities and Exchange Surveillance Commission asked the Financial Services Agency to take “administrative action” against RBS Securities Japan Ltd., the watchdog said in a statement in Tokyo today.
President Of UN General Assembly Visits HKEx
Malawi Stock Exchange Weekly Trading Report