John Lothian Newsletter: At Least Three Banks Seen Central To Libor Rigging; Surge In Suspicious Trade Reports To FSA; France’s Hollande Lays Dodo Bird Egg With First Budget

Jul 30, 2012

More of Barclays’ partners in Libor crime come to light, and the head of RBS says he expects the bank to pay a hefty fine (given what happened to Barclays, that may be a statement of optimism and hope). Ever since Britain’s FSA declared its intention to spot-check internal corporate vigilance, the number of suspicious trade reports filed by companies with the FSA has doubled. France is set to start its new financial transaction tax on Wednesday, and reactions to the idea are decidedly not all favorable.

First Read

ISE Introduces Add Liquidity Only Order Type
The International Securities Exchange (ISE) today announced that it has introduced a new order type, the Add Liquidity Only Order (ALO). An ALO specifies that the order can only be executed if it adds liquidity to the order book as a “maker.” If the order cannot be added to the book, it will be cancelled, or may be re-priced to rest on the book at the discretion of the firm entering the order.

**JK – Add liquidity, then stir – and voila! Better markets.


John Eckstein, Pioneer of Treasury Futures Trading, Dies at 74
John F. Eckstein III, one of the first traders of Treasury bill futures contracts following their debut in 1976 and a pioneer of cash-futures arbitrage trading in the U.S. government bond market, has died. He was 74.

**JK – Nice obituary. Interesting fact: “He began his career as a Treasury trader at First National City Bank — a predecessor of Citibank NA.”


At least three banks seen central to Libor rigging
Reuters via Yahoo! News
New details from court documents and sources close to the Libor scandal investigation suggest that groups of traders working at three major European banks were heavily involved in rigging global benchmark interest rates. Some of those traders, including one who used to work at Barclays Plc in New York, still have senior positions on Wall Street trading desks.

**JK – More names, named.


Ten years after Sarbox, time for an audit of the auditors
By Francine McKenna – Financial Times
Today is the 10th anniversary of the Sarbanes-Oxley Act, which was enacted by Congress “to enhance corporate responsibility, enhance financial disclosures and combat corporate and accounting fraud”. It has failed. Most importantly, Sarbox has not restored investor confidence in audit companies after Arthur Andersen’s failure to mitigate fraud at Enron.
**JK – Who is shocked that this regulation does not deter crime?


Sarbanes-Oxley Law’s Big Weapon Sits Idle
As the Sarbanes-Oxley Act turns 10 years old, the law’s biggest hammer—the threat of jail time for corporate executives who knowingly certify inaccurate financial reports—is going largely unused.

**JK – The ongoing question of whether regulators are doing their job.


The Justice Department’s MF Global Scandal Dates to 1932
Jonathan Weil – Bloomberg
There’s an old saying in journalism that there are no new stories, only new reporters. The revelation that U.S. Attorney General Eric Holder’s old law firm used to represent the bankrupt brokerage firm MF Global Holdings is a great example.

**JK – No word yet on whether Eric Holder also has a P.O. Box.


JPMorgan Promotes Zames to Co-COO Amid Restructuring of Units
By Laura Marcinek and Bradley Keoun – Bloomberg
JPMorgan Chase & Co., grappling with
a $5.8 billion trading loss and a securities-industry slump,
promoted Matt Zames to co-chief operating officer in a
management shuffle that replaced the head of its investment


‘Wait’ Gives Procrastinators The Last Word
KPBS San Diego
Frank Partnoy has been in the news a lot lately. Partnoy, a University of San Diego law and finance professor and renowned expert on Ponzi-schemes, has been a go-to interview for “The New York Times” and others trying to uncover the breadth and depth of the scandals swirling around big banks here and in Britain.


The Bond Market Discovers a New Leading Man
RECESSIONS, crackups, bailouts — these are profitable times for Mohamed A. El-Erian. Mr. El-Erian is the crown prince of the multitrillion-dollar global bond market, the figurative heir of its long-reigning king, William H. Gross of the mighty Pacific Investment Management Company, known as Pimco.


Knack calls on Wasendorf to stop using ‘My Sharona’
Russell R. Wasendorf Sr., chief executive of Peregrine Financial Group, who was arrested this month after admitting that he bilked customers for 20 years, is accused of stealing something else: a rock and roll tune.

**JK – Song will be replaced by Steve Miller Band’s “Take the Money and Run.”

Korea Exchange’s Jae-Joon Lim Discusses OTC Clearing and Kospi Contracts
Jae-Joon Lim is director, business development at Korea Exchange, home of the most traded contract in the world, the Kospi futures and options. At the 2012 Emerging Manager Forum in London, Lim discussed the Kospi, as well as OTC clearing of Korean yun denominated interest rate swaps, due to launch this fall. Interview by John Lothian News editor-in-chief Jim Kharouf.


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Lead Stories

Surge in suspicious trade reports to FSA
By Brooke Masters in London – Financial Times
UK brokers and bankers are flagging twice as many suspicious trades to the Financial Services Authority following warnings that the watchdog plans to spot check industry compliance efforts. During each of the past few months, financial institutions in the City of London have filed an average of 100 “suspicious transaction reports”. The monthly average of such reports for last year was 50.

France’s Hollande Lays Dodo Bird Egg With First Budget
On Wednesday, France will become the first European country to impose a tax on financial transactions. This was a bad idea in the past; it’s a worse one now.

Changed by Wall Street, for Wall Street
Gretchen Morgenson – NY Times
Last week, two senior Washington officials — Timothy F. Geithner, the Treasury secretary, and Gary Gensler, the head of the Commodity Futures Trading Commission — testified before Congress about the scandal surrounding Libor, the benchmark for global interest rates. No great revelations were forthcoming.

Analysis: A decade on, is Sarbanes-Oxley working?
Reuters via Yahoo! News
When Peregrine Financial collapsed earlier this month, a nagging question resurfaced. As in the implosion of Lehman Brothers, the fall of Bernard Madoff and other cases in recent years, many asked: Where were the accountants? That this question still arises could be seen as an indictment of the 2002 Sarbanes-Oxley law, enacted 10 years ago on Monday.

Bernanke, Geithner response to Libor scandal rings hollow
Reuters via Yahoo! News
Ben Bernanke heads the most powerful central bank in the world. Yet the Federal Reserve chairman says he was largely powerless to stop what some are calling the biggest financial fraud in history: the systematic manipulation of a key global interest rate. It’s a line of argument that has fallen flat with some lawmakers and investors, who want to know why Bernanke and other key U.S. regulators did not do more to end a potentially criminal rigging of interest rates affecting trillions of dollars in financial contracts.

GOLDMAN: The Creators Of The Euro Knew It Was Doomed From Day One
Business Insider
Goldman Sachs Chief European Economist Huw Pill exposes a terrible irony about the eurozone in a video filmed this month : at the signing of the Maastricht Treaty, both those who loved and hated the prospect of a European Monetary Union actually thought that the euro would see a crisis that would test its structural basis eventually.

North-South Divide Marks Euro’s Struggle
PATRICIA KOWSMANN in Vilamoura, Portugal and DENISE WALL in Espoo, Finland – WSJ
Portuguese waiter Gonçalo Alexandre Costa Ribeiro has a personal take on Europe’s North-South divide. “The Northern Europeans tip more than the Southern Europeans,” says Mr. Ribeiro, 22 years old, who works at a sushi restaurant in Vilamoura, a beach resort in Portugal’s Algarve region. “I guess it’s cultural, but also has to do with the economic situation of the two.”

Battle over protection for investors
The European parliament is trying to scale back the sum asset managers will have to pay into an investor compensation pot by E8.7bn, but they want it accrued in half the previously allotted time.


Germany may ditch Fatca if reciprocity agreement not honoured, experts warn
Jessica Meek –
Germany will not meet its Foreign Account Tax Compliance Act (Fatca) obligations if the US reneges on an intergovernmental agreement with the country, an observer of the US legislation warns.

FSA publishes new rules on packaged accounts
The Financial Services Authority (FSA) has published new rules requiring banks and building societies to check whether customers are eligible to claim on insurance cover before selling them a packaged bank account.

ESMA Publishes Response To The European Commission Green Paper On Shadow Banking

EDHEC-Risk Institute Strongly Welcomes ESMA’s ETF Guidelines
EDHEC-Risk Institute has strongly welcomed the ETF guidelines released by the European Securities and Markets Authority (ESMA) on July 25, 2012, which are consistent with the conclusions of EDHEC-Risk Institute’s research on ETF risks and ESMA’s consultation paper, which were both published earlier this year (please find references to relevant press releases here and here).

General Regulation of the AMF – Book III – Service providers (Last amended on 14 June 2012)

Remarks Of U.S. Treasury Under Secretary Miller At An Event Hosted By The Bretton Woods Committee, Deloitte, University Of Maryland

Exchanges & Trading Facilities

SGX recorded revenue of $647.9 million ($660.7 million) and a net profit of $291.8 million ($294.9 million) in FY2012. The earnings per share (EPS) was 27.3 cents (27.6 cents) and the return on equity (ROE) was 35% (36%). SGX’s underlying profit was $303.9 million ($311.8 million[1]) excluding one-off items and EPS was 28.5 cents (29.2 cents1). The one-off items are an impairment loss of $11.0 million from our investment in the Bombay Stock Exchange mainly due to the depreciation of Indian Rupee against Singapore dollar and a $1.1 million impairment loss following the cessation of business of Chi-East, our joint venture with Chi-X Global.

TMX profit hit by takeover costs, market uncertainty
Reuters via Yahoo! News
TMX Group Inc , operator of the Toronto Stock Exchange, reported a drop in quarterly profit on Friday, hit by a substantial charge related to an imminent C$3.8 billion takeover by the Maple Group consortium of Canadian financial institutions.

TMX Group Inc. Reports Results for the Second Quarter 2012
* Revenue of $167.5 million in Q2/12, down 1% from Q2/11, and up 3% from Q1/12
* Adjusted diluted earnings per share of 81 cents in Q2/12, down 14% from Q2/11, and up 7% from Q1/12
* Revenue of $329.8 million in the first half of 2012, down 4% compared with the first half of 2011

MGEX Highlights USDA Sampling and Testing in New Apple Juice Concentrate Contract
MGEX, a Designated Contract Market (DCM) and Derivatives Clearing Organization (DCO), is pleased to report the involvement of the United States Department of Agriculture (USDA) in the sampling and testing of Apple Juice Concentrate (AJC) for the new MGEX AJC futures and options contract set to launch on Monday, August 13, 2012.

SIX Swiss Exchange and Liquidnet offer block liquidity in six more European markets

CME Group Management Discusses Q2 2012 Results – Earnings Call Transcript

NZX Update On 2012 1H Performance

WFE Focus July issue: half-year market highlights
It’s time to bring ‘dark pools’ into the daylight by Duncan L. Niederauer, CEO, NYSE Euronext
Dark pools: enhancing or impairing liquidity? by Alex Frino, CEO, CMCRC
WFE half year market highlights

President Of Mongolia Opens Trading On London Stock Exchange

[CBOE] Trader E-News

CBSX Trader News Update CBSX to Disable All-Or-None Orders

TOM MTF Statistics Week 30 2012

Hedge Funds & Managed Futures

Deutsche Bank Head Debt Trader Cornut Leaves for Hedge Fund
Antoine Cornut, Deutsche Bank AG (DBK)’s head of flow-credit trading in the Americas and Europe, has left the bank for a hedge fund as regulations designed to curb risk- taking transform the corporate-bond market.

Elliott’s Global Trading Chief Miller to Leave Hedge Fund
Brian Miller, who runs global trading at hedge fund Elliott Management Corp., is leaving after 21 years at one of the industry’s top performers and may eventually start his own fund, according to a letter to clients.

KKR defies market with sterling second-quarter earnings
Reuters via Yahoo! News
KKR & Co LP bucked a declining trend among alternative asset companies to report a sterling 73.4-percent jump in quarterly earnings on Friday, driven by successful exits from private equity investments and a rise in the value of its portfolio.

WisdomTree Announces Second Quarter 2012 Results
GlobeNewswire via Yahoo! Finance
WisdomTree Investments, Inc., an exchange-traded fund (“ETF”) sponsor and asset manager, today reported net income of $0.1 million for the second quarter of 2012, down from $0.7 million in the second quarter of 2011 and $1.1 million for the first quarter of 2012.

[Video] Performance Over Money? A Hedge Fund Managers Focus
Bloomberg’s Mia Saini on the shifting focus of Hedge Fund Managers.

Greenwich to Assess Economic Impact of Hedge Funds
New York Times
Officials in Greenwich, Conn., have called for a study of the impact that the financial industry has on the local economy, after the departure of a prominent hedge fund for Miami, The Stamford Advocate reports. “We’re not taking these people for granted,” said Peter Tesei, Greenwich’s top elected official. “It’s easy to vilify based upon an image.”

Investors expand lawsuit against failed hedge funds Grifphon and Sasquatch, accounting firm Perkins
The Oregonian
Investors allege Yusaf Jawed and Lyman Bruhn engaged in self-dealing, lavish spending and false statements, and accounting firm Perkins & Co. enabled it.

CalPERS CEO Issues Statement On Retirement Crisis Report And Plan
Says Defined Benefit Plans Are An Important Cornerstone Of Retirement Security

US Repo Fact Sheet 2012

Standard & Poor’s Ratings Services: United Kingdom ‘AAA/A-1+’ Ratings Affirmed – Outlook Remains Stable

Banks & Brokers

HSBC sets aside $2 billion for mis-selling, U.S. issues
Reuters via Yahoo! News
HSBC’s chief executive apologized on Monday for shameful and embarrassing mistakes made on anti-money laundering controls as the bank set aside $2 billion to cover the cost of U.S. investigations and compensate UK customers for mis-selling. Europe’s biggest bank reported a 3 percent dip in underlying profit and said it had made a provision of $700 million to cover “certain law enforcement and regulatory matters” after a U.S. Senate report this month criticized HSBC for letting clients shift funds from dangerous and secretive countries.

Insight: As scandal grew, Nomura chairman pushed for shake-up
Reuters via Yahoo! News
The biggest management shake-up at Nomura Holdings in a decade and a half was orchestrated by the bank’s chairman with the secrecy and precision of a military operation. The closely guarded timing of Thursday’s announcement that Chief Executive Kenichi Watanabe was quitting stunned senior managers at Japan’s top investment bank.

RBS Expects to Be Fined for Role in Libor Scandal
Dow Jones
Royal Bank of Scotland Group PLC Chief Executive Stephen Hester said Sunday the government-controlled bank expects to be fined for its role in the Libor rate-setting scandal.

Berkshire Bank Sues Barclays, Citigroup Over Alleged Libor Fraud
The Berkshire Bank, a New York lender with 11 branches, sued 21 banks including Bank of America Corp, Barclays Plc and Citigroup Inc. for damages over the alleged manipulation of the London Interbank Offered Rate.

JPMorgan’s Dimon shuffles managers just below him
Reuters via Yahoo! News
NEW YORK – JPMorgan Chase & Co Chief Executive Jamie Dimon reshuffled managers just below him, signaling that the biggest U.S. bank is preparing for life after its famed boss. The moves come two weeks after JPMorgan said it had lost nearly $6 billion from bad derivatives trades on corporate debt, representing a huge black eye for a chief executive long praised for his risk-management

Zames Elevated From JPMorgan Battlefield to Dimon’s War Council
Twice in the past 100 days, JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon has turned to a 41-year-old former hedge-fund trader to tackle challenges facing the largest U.S. bank.

JPMorgan’s Dimon wants to stay at bank “many, many more years”
Reuters via Yahoo! News
NEW YORK – JPMorgan Chase & Co Chairman and CEO Jamie Dimon said in an interview on Friday that he wants to stay at the bank for “many, many more years.” Dimon spoke to Reuters after announcing that he is rearranging responsibilities of many of his top lieutenants to prepare the bank for his eventual departure.

Morgan Stanley Fixed Income Investor Conference Call
Morgan Stanley will host a Fixed Income Investor conference call on Friday, August 3, 2012 at 8:00 a.m. (ET) with Ruth Porat – Executive Vice President and Chief Financial Officer, David Russo – Treasurer, and Tom Wipf – Head of Bank Resource Management.

Clearing & Settlement

CFTC Proposes Swaps Clearing Determinations Under Dodd-Frank Act
Silla Brush – Bloomberg
Interest-rate and credit-default swaps must be guaranteed by clearinghouses starting this fall under a proposal approved by the U.S. Commodity Futures Trading Commission to reduce risk in the $648 trillion global market.

LCH.Clearnet appoints Martin Ryan as Group Head of Operations & Client Services
LCH.Clearnet Group Limited (LCH.Clearnet) has appointed Martin Ryan as Group Head of Operations & Client Services, reporting to Christophe Hemon, Group COO. Martin joins LCH.Clearnet from RBS where he held the position of Managing Director, Head of Markets Operations for 3 years. RBS Markets Operations supports a number of sales and trading businesses globally including Fixed Income, Currencies & Commodities (FICC), Corporate Risk Solutions, Institutional Coverage Research & Strategy and Global Structuring.

CME Clearing – Performance Bonds / Margins
Performance Bond Requirements – Metals Intra-Commodity Spread Charges – Effective Tuesday, July 31, 2012

CME Group Clearing Advisory
REMINDER: FECPlus ITP Release (CPC and Platform Trades) Production Launch

Indexes & Products

db x-trackers CSI300 Index ETF launched on Xetra


SBI Securities of Japan Selects OneTick
OneMarketData, announced July 30 that SBI Securities of Japan has implemented OneTick with the help of system integrator Intelligent Wave Inc. (IWI).

Jeff Hoffman To Head ITRS Sales Across Americas
In the latest development, and as part of its global expansion strategy, ITRS Group Ltd, the leading global provider of specialist Application Performance Monitoring (APM) technology to the world’s financial community, has appointed Jeff Hoffman as Head of Sales for the Americas.

CMA – The Latin American Market Data And Trading Company Announces Direct BM&F BOVESPA Connectivity

TS-Associates Acquires Correlix


SEC Freezes Trader Assets in Probe of Cnooc’s Nexen Bid
The U.S. Securities and Exchange Commission obtained a court order to freeze assets of traders who allegedly reaped more than $13 million by trading illegally ahead of Cnooc Ltd. (883)’s announcement that it would buy Nexen Inc. (NXY)

Six sentenced for insider dealing
In a case brought by the Financial Services Authority (FSA) and heard at Southwark Crown Court, Ali Mustafa, Pardip Saini, Paresh Shah, Neten Shah, Bijal Shah and Truptesh Patel have today been sentenced for insider dealing contrary to section 52 of the Criminal Justice Act 1993 for offences committed between 2006 and 2008.

ASIC bans Sydney businessman from engaging in financial services

ASIC’s Bill Express investigation results in third guilty plea

ASIC cancels licences of national financial planning business

Environmental & Energy

Pipeline dispute derails bid to create Canada energy policy
A dispute over a proposed oil pipeline to Canada’s Pacific Coast derailed plans by premiers of the 10 Canadian provinces on Friday to devise a common policy on developing rich energy resources.

Keystone Pipeline Advances
The New York Times
TransCanada, the company seeking to build the 1,700-mile Keystone XL pipeline from oil sands formations in Alberta to Gulf Coast refineries, received the final go-ahead from the federal government on Friday for the southern leg of the project.

TransCanada gets OK for south part of oil pipeline
A Canadian company that wants to build an oil pipeline from Alberta’s tar sands region to Texas refineries has received a final permit for the Gulf Coast portion of the project and announced Friday that construction on the 485-mile section would start in the coming weeks.


China grants $1.2 bln in foreign investment quotas in July
Reuters via Yahoo! Finance
China’s foreign exchange regulator granted $1.2 billion in combined quotas to six overseas institutional investors so far in July as the country speeds up opening of its capital markets.

TSE Market Impact View Report, “Perspectives on Market Liquidity Using TSE Market Impact View” Now Available

HKFE Announces Revised Margins For Futures Contracts

Hong Kong’s Securities And Futures Commission Welcomes Appointment Of Non-Executive Director

HKEx Publishes Guide On Enhancing Regulation Of The Listed Structured Products Market

SGX Welcomes Ascendas Hospitality Trust To Mainboard

John Lothian Newsletter

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