John Lothian Newsletter: S Korea Plans Tax On Options And Futures; U.S. Banks Told To Make Plans For Preventing Collapse; Another Day, Another Trading Glitch: RBS Owns EUR/CHF Spike

Aug 10, 2012

South Korea is planning a transaction tax for futures and options activity, and not surprisingly some say that the move could harm exchange volume in that country.  Formerly-secret plans regarding the banking industry come to light, showing that the U.S. government wants strategies in place for how banks might manage their own demise, and that government help should not be assumed in a future crisis.  RBS shuffles to the front of the class and owns up to a fat-finger currency trade that created excessive algo activity and a big price spike.

First Read

CME Group Announces Trading Volume Record in Brent Crude Oil Futures
CME Group, the world’s leading and most diverse derivatives marketplace, today announced a record in daily trading volume for its Brent crude oil futures contract. These contracts are listed by and subject to the rules of NYMEX.

**** In honor of the Olympics, no doubt.


CFTC urges quick action on futures account insurance
U.S. regulators and futures industry players said Thursday that there is no perfect solution to safeguard customer money in the wake of two major brokerage scandals but added that policymakers should move quickly on important fixes.

The Plan, Stan—Moving Forward On A Futures Insurance Fund – Statement Of Commissioner Bart Chilton On The Futures Investor And Customer Protection Act (FICPA) Proposal

**** While I support the idea of insurance, the FCM business model is broken and a half a percent tax on revenues would only make things worse.  MF Global was losing money, despite their revenues. SIPIC insurance in the securities industry comes from the “profitability” of broker-dealers, not “revenues” of broker-dealers.


After Knight Capital, New Code for Trades
AS a former software engineer, I laughed when I read what the Securities and Exchange Commission might be considering in response to the debacle of Knight Capital’s runaway computerized stock trades: forcing companies to fully test their computer systems before deploying coding changes. That policy may sound sensible, but if you know anything about computers, it is funny on several accounts.

***JM: As another former software person, I give this assessment a big thumbs-up. Regulators and structural participants – read this.  Error-free software is a fool’s errand in EVERY industry, not just financial. Focus on mitigating damage, not eliminating all defects.


Analysis: New Eurex platform heralds new age of competition
William Mitting – FOW
News that Eurex is considering launching a London-based exchange platform to trade its interest rate product suite, which broke on this morning, sets the cats among the pigeons in the European exchange traded derivatives markets. The planned launch, on which Eurex has declined to comment but is understood to be at an early stage of development, comes as competition in the European exchange traded interest rates markets, which has been in something of a slumber since the late 1990s, is set increase with the launch of NLX from Nasdaq.


‘Father of carbon trading’ predicts growth in clean-tech startups
By Judith Nemes – Crain’s Chicago Business
Richard L. Sandor was ahead of the curve in identifying the next big trend in finance, so many entrepreneurs are taking note of his enthusiasm for growth in green technology startups, particularly in the Midwest.

**** Yesterday a concerned capital markets professional sent me this about green:

The point is, ladies and gentleman, that green, for lack of a better word, is good. Green is right, green works. Green clarifies, cuts through, and captures the essence of the evolutionary spirit. Green, in all of its forms; green for life, for money, for love, knowledge will mark the upward surge of mankind. And green, you mark my words, will not only save humanity, but that other malfunctioning corporation called the world.


Alan Greenspan on His Fed Legacy and the Economy
The former Fed chairman talks about Fed-speak, Ayn Rand, why he gave up his music career, and his legacy


In France, high-frequency traders now get taxed for fictitious orders
The Christian Science Monitor
One technique for high-frequency traders is to enter multiple fictitious trades for a stock and then cancel them. France now taxes those ‘non-transactions.’

**** I also hear they have a tax on bottles of wine you don’t drink.


Griffin’s Overtures to Knight Were Hampered by Distrust
As time was running out, Knight Capital Group Inc. Chairman and Chief Executive Officer Thomas Joyce had three choices left — accept a $500 million bailout from his biggest competitor, take an offer from a group of clients and others that would dilute owners, or go bankrupt.


Regulator Shines Spotlight on a Bank, and on Himself
On the evening before Benjamin M. Lawsky, New York’s top banking regulator, issued highly charged money laundering claims against a British bank, he spoke with the Manhattan district attorney. A former prosecutor himself, Mr. Lawsky wanted to give the district attorney, Cyrus R. Vance Jr., a warning: his actions could be explosive.

**** He was right.


Regulators Seek Unity in U.K. Bank Talks
U.S. authorities are forming a group with New York’s top financial regulator to negotiate a settlement with Standard Chartered PLC over allegations it illegally hid financial dealings with Iran. The U.S. Treasury Department, Federal Reserve, U.S. Department of Justice and Manhattan district attorney’s office are scrambling to reach an understanding with the New York State Department of Financial Services over the ground rules for negotiations with the U.K.’s fifth-largest bank by assets, according to people familiar with the talks.

***JM: Hurry! That “neither admit nor deny” big-money payoff is slipping away!


StanChart is a reminder of banking’s insatiable greed
John Plender –
Is Standard Chartered a rogue institution that conspired with the government of Iran and hid from regulators $250bn-worth of transactions for reasons of pure greed, as the New York State Department of Financial Services asserts? Is the DFS’s interpretation of the law in relation to alleged breaches of the US sanctions regime wrong? And is Benjamin Lawsky, superintendent of this new US financial watchdog, motivated by a desire to undermine London’s competitive edge in international finance relative to New York?


The moral to Knight Capital’s story
Chuck Jaffe, MarketWatch
As legendary boxer Muhammad Ali once noted, “Your hands can’t hit what your eyes can’t see.” Investors watching the fallout from the Knight Capital Group trading fiasco now worry about computer trading, but they should be more concerned with dynamics happening virtually unnoticed or out of sight.

Eirvin Knox of Ambata Capital Partners Discusses Renewable Energy in the Middle East and Africa
Eirvin Knox has been the in the international banking business for more than 30 years, spending the past decade in the Middle East, as CEO of Abu Dhabi Commercial Bank. Knox currently serves as CEO of Ambata Capital Middle East, a division of the global investment and advisory firm, Ambata Capital Partners. Knox focuses on clean energy and sustainability projects in the Middle East and Africa. He spoke with JLN Environmental/Energy editor Jim Kharouf at the 2012 Emerging Managers Forum in London about renewable and sustainable energy projects and the prominent role they are taking in the region.

JLN Interest Rates

30-year-mortgage rate increases to 3.59%
The 30-year fixed-rate mortgage average rose to 3.59% in the week ending Aug. 9 from 3.55% in the prior week, Freddie Mac said Thursday in its weekly report. The rate was 4.32% a year earlier, according to Freddie, a buyer of residential mortgages.

Mortgage Delinquencies Rose in Second Quarter
The number of American households behind on mortgage payments or in foreclosure rose slightly in the second quarter from the first but was still lower than a year ago, offering the latest sign of the economy’s uneven recovery from the housing bust.

Housing regulator warns about ‘eminent domain’ use
The regulator for government-seized mortgage giants Fannie Mae and Freddie Mac on Wednesday warned against the use of so-called eminent domain to restructure home loans.


MarketsWiki Page of the Day
Hong Kong Mercantile Exchange


MarketsWiki Recent Updates


Benjamin M. Lawsky; Jane Wang; William Barkshire

Companies, Organizations and Groups

Continuum; CQG


Job Postings; Five Minutes With Jean Lucas


27,099,639 pages viewed, 7,030 articles, 146,072 edits
MarketsWiki Statistics

Lead Stories

S Korea plans tax on options and futures
Simon Mundy and Song Jung-a in Seoul –
Analysts and bankers are warning that South Korea could weaken volumes in its equity derivatives market, one of the world’s largest, with a planned transaction tax on options and futures.

Exclusive: U.S. banks told to make plans for preventing collapse
Reuters via Yahoo! News
U.S. regulators directed five of the country’s biggest banks, including Bank of America Corp and Goldman Sachs Group Inc, to develop plans for staving off collapse if they faced serious problems, emphasizing that the banks could not count on government help. The two-year-old program, which has been largely secret until now, is in addition to the “living wills” the banks crafted to help regulators dismantle them if they actually do fail.

Another Day, Another Trading Glitch: RBS Admits Responsibility in EUR/CHF Spike
A trader at RBS has admitted to making a fat finger trade in the EUR/CHF pair Monday, a spokesperson for the bank told Reuters . The error caused a series of algorithmic trades from other traders to flood the market, sending the pair spiking for a short period of time.

Libor rate overhaul launched by UK regulator
Reuters via Yahoo! News
Libor benchmark interest rates are no longer “fit for purpose” and must be changed or replaced, Britain’s regulator said on Friday as he set out proposals to restore their credibility.

Banks Seek ‘Scientific’ Libor Rate Process, FSA’s Wheatley Says
The U.K.’s chief markets regulator said banks that set the Libor interest rate are seeking a “scientific” process that will limit future liability from the scandal-ridden benchmark.

Ex-JPMorgan Banker Wright Tells of UBS Dinner to Ease Rivalry
A former JPMorgan Chase & Co. banker told jurors at a bid-rigging trial about a dinner meeting at a Manhattan restaurant where municipal derivatives executives from his firm and UBS AG agreed not to compete with one another.

Standard Chartered’s Fitenss Is Key Grounds for Shutdown
New York ’s financial-services regulator has grounds to shut Standard Chartered Plc in the state even if he accepts the firm’s argument that it illegally laundered only a fraction of the $250 billion he claims.

Commentary: Much-despised bailout of AIG is working
The Palm Beach Post
Of all the Wall Street bailouts, none was more despised than the $182 billion lifeline for American International Group.

School bonds could trigger fiscal shock
Gillian Tett –
A decade ago, San Diego county in California was at the cutting edge of some dangerous financial games. As the housing boom got under way, bankers and mortgage brokers became adept at flogging subprime loans to households across the area using “innovative” structures. That episode, of course, ended in tears, not just in San Diego but elsewhere in America. Now, some new financial games have come to light involving a dangerous cocktail of innovation and debt.


FSA should beware Libor mission creep
Jonathan Guthrie –
And they’re off! Martin Wheatley of the Financial Services Authority is waving the starter’s flag on his consultation on London Interbank Offered Rates. This will resemble the Wacky Races rather than the Grand Prix, with all manner of hybrid contraptions competing to replace the compromised lending benchmark. A still, small voice should meanwhile warn against mission creep. Mr Wheatley promises “to look beyond Libor … to other price-setting mechanisms”.

CFTC Said to Consider Swap Exemption for Company Units
Silla Brush – Businessweek
The U.S. Commodity Futures Trading Commission may propose allowing swaps between a financial company’s affiliates to be exempt from rules designed to reduce risk in the market, three people briefed on the matter said.

Trade groups criticise Esma proposals
Philip Stafford –
Two influential trade bodies have criticised proposed rules to reform derivatives trading in Europe, putting more pressure on European regulators as they face a two-month deadline to finalise the rules.

Gérard Rameix appointed Chairman of the Autorité des Marchés Financiers
Gérard Rameix was appointed Chairman of the Autorité des Marchés Financiers by Decree of the French President on 1st August 2012.

CISI And FINRA Announce Cooperation On Exams And Membership
The Chartered Institute for Securities & Investment (CISI) and the Financial Industry Regulatory Authority of the USA (FINRA) have announced the signing of a Memorandum of Understanding (MoU) which will provide FINRA member UK-based retail investment advisers a program to meet the new UK exam standards to continue to be able to advise on securities and derivatives in the UK market and be entitled to CISI membership.

ESMA Publishes Responses To Consultation On The Draft Technical Standards For The Regulation On OTC Derivatives, CCPs And Trade Repositories

Wheatley Review – The Future Of Libor – Speech By Martin Wheatley – Managing Director, UK Financial Services Authority – At Bloomberg

Exchanges & Trading Facilities

MGEX to Present at U.S. Apple Conference in Chicago
MGEX, a Designated Contract Market (DCM) and Derivatives Clearing Organization (DCO), will attend and participate as a panelist at the U.S. Apple Crop Outlook & Marketing Conference on August 16 and 17 at the Ritz-Carlton in Chicago, Illinois.

TMX Group to Offer Equity Pre-Trade Risk Management Solution
TMX Group today announced that it will be providing its equity trading clients with a comprehensive pre-trade risk solution. The TMX Pre-trade Risk Management Solution will provide clients with the seamless connectivity and technology needed for high performance pre-trade risk-filtered access to all Canadian equity marketplaces.

July 2012 On The Warsaw Stock Exchange

Program Trading Averaged 28.9 Percent of NYSE Volume during July 30-Aug. 3

NYSE MKT Issues Short Interest Report

NYSE Group Inc. Issues Short Interest Report

NASDAQ Announces End-Of-Month Open Short Interest Positions In NASDAQ Stocks As Of Settlement Date July 31, 2012

Warsaw Stock Exchange: Another Ukrainian Company Chooses The Trading Floor In Warsaw

BM&F BOVESPA S.A. Notice To Shareholders – Dividends Payment On 10.31.2012

Hedge Funds & Managed Futures

One Year Later, All Is Quiet in the Fear Gauge
Kaitlyn Kiernan – MarketBeat – WSJ
One year after the market’s so-called fear gauge surged to the highest levels since the financial crisis, the Volatility Index is suggesting a far calmer outlook for U.S. stocks, despite continued global economic uncertainty.

Cargill reports fourth-quarter and fiscal 2012 earnings
Cargill today reported $1.17 billion in earnings from continuing operations in the 2012 fiscal year ended May 31, 2012, a 56 percent decrease from a record $2.69 billion in the prior year. Fourth-quarter earnings were $73 million, down 82 percent from $404 million in the same period a year ago.

Livestock farmers seek pause in ethanol production
Livestock farmers and ranchers seeing their feed costs rise because of the worst drought in a quarter-century are demanding that the Environmental Protection Agency waive production requirements for corn-based ethanol.

AVOX Launches Legal Entity Portal
Avox Limited, a wholly owned subsidiary of The Depository Trust & Clearing Corporation (DTCC), has launched an enhanced legal entity data portal at The site enables free, unrestricted access to core data fields and standard industry identifiers for a global set of legal entities that are of interest to financial institutions throughout the world. Registered clients are able to subscribe to more detailed content and services.

Pimco Cuts Holdings of Treasuries in Total Return Fund
Gross cut the proportion of U.S. government and Treasury debt in his $263 billion Total Return Fund to 33 percent of assets last month from 35 percent in July, according to a report on the Newport Beach , California-based company’s website . Mortgages were at 51 percent, from 52 percent the previous month.

Morgan Stanley’s Brilliant Presentation On The Fiscal Cliff, And What Happens If We Fly Off Of It
Business Insider
Morgan Stanley’s Michael Zezas has put together a fantastic presentation called Fiscal Cliff Notes , analyzing what the fiscal cliff is all about, and what its possible impact will be on varous markets, including municipal bonds and corporate credit.

Banks & Brokers

A Bipartisan Proposal for More Equity in Big Banks
New York Times
A bipartisan proposal that would require banks to keep more capital on hand would force them to assume a bigger share of the risks they take, an economist writes.

Barclays hires City grandee David Walker as chairman
Reuters via Yahoo! News
Barclays has named David Walker, a former Bank of England and Treasury official, as its new chairman in an effort to patch up its top management team and rebuild its reputation after it became embroiled in a rate rigging scandal.

Banks could be obliged to set Libor rates
Reuters via Yahoo! News
Banks could be obliged to contribute to setting Libor benchmark interest rates after a rigging scandal prompted demands for an overhaul, the British financial regulator in charge of the review said on Thursday.

E-Trade ousting its CEO; naming chairman to post
Associated Press via Yahoo! News
E-Trade Financial has ousted its CEO, Citigroup veteran Steven Freiberg, just two years into a four-year contract as the online broker deals with declining trading by customers.

Bank of Ireland Loss Grows
Bank of Ireland PLC, which is striving to emerge from the country’s deep banking debt crisis, Friday posted a wider first-half loss and higher loan-loss charges, showing that the lender still has some way to go before returning to profitability.

DealBook: Goldman Says S.E.C. Has Ended Mortgage Investigation
New York Times
Goldman Sachs disclosed in a securities filing that an investigation into a $1.3 billion subprime mortgage deal in 2006 has ended without any enforcement action by the Securities and Exchange Commission.

JPMorgan revises 1Q profit down amid trading probe
Channel 8 San Diego
JPMorgan Chase on Thursday formally revised its first-quarter financial results to show a lower profit, after deciding that traders at its main investment arm had overstated the value of certain derivatives.

DealBook: JPMorgan’s Mystery Number in Derivatives
New York Times
JPMorgan Chase has talked about the losses from derivatives bets made by its London office, which cost the company $6 billion. But executives have been loath to put dollar amounts on the positions.

JPMorgan stymied in push to get beyond “Whale” trades
Reuters via Yahoo! News
Jamie Dimon’s whale is turning into an albatross. Dimon, CEO of JPMorgan Chase & Co , has had to postpone new repurchases of the bank’s stock, and on Wednesday regulators forced his company to reduce its calculation of its capital cushion against losses, all because of derivatives losses related to a trader known as the “London Whale.

Goldman Sachs Reports 6 Days of Trading Losses
Wall Street Journal Blogs
Goldman Sachs Group reported six days of trading losses in the second quarter, up from one loss day in the first quarter, according to its quarterly regulatory filing submitted Thursday.

Citigroup Offers to Buy Back Bonds in Plan to Use ‘Excess Cash’
Citigroup Inc. is offering to buy back outstanding bonds as the third-largest U.S. bank by assets seeks to use surplus cash to reduce its debt load.

Morgan Stanley Is Replacing Some Of Its High Paid Traders With Computers
Business Insider
According to the report, some of the high-paid bond traders are being replaced with computers in an effort to revitalize its bond trading business. For the first half of this year, the bank’s fixed income trading has been particularly weak posting revenue of $2.04 billion, down 60% from 2010.

BNY Mellon names Paul Schulte as Head of Investment Strategy, Asia-Pacific
BNY Mellon, the world leader in investment management and investment services, has today named Paul Schulte to the newly created position of Head of Investment Strategy, Asia-Pacific (APAC), where he will be responsible for researching investment trends, market activity and economics in APAC.

Clearing & Settlement

Banks Face Derivatives Margin Losses as Too-Big-to-Fail Ends
Ben Moshinsky and Jim Brunsden – Bloomberg
Derivatives traders may take losses on the margins they post at clearinghouses during a crisis, as global plans to eradicate the dangers of too-big-to-fail financial institutions gather pace.

NYPC Announces Expansion of Cross-Margining to Market Professionals
New York Portfolio Clearing, LLC (NYPC), a unique clearing platform for fixed income derivatives, announced today the expansion of its “one-pot” cross-margining platform to a larger pool of market professionals, following approval from the Commodity Futures Trading Commission and the Securities and Exchange Commission.

CME Clearing – Performance Bonds / Margins
Performance Bond Requirements – Crude Oil Outrights; Coal, Crude Oil, Metals, and Refined Products Intra-Commodity Spread Charges – Effective Monday, August 13, 2012

Indexes & Products

ETF Spotlight: Multi-Strategy Hedge Fund Replicator


Polish Broker Alior Bank Selects SunGard’s Valdi Solution
Biuro Maklerskie Alior Banku (Alior Bank), the brokerage house of Polish Alior Bank, part of Italy’s Carlo Tassara Group, has selected SunGard’s Valdi trading solution for connectivity to the Warsaw Stock Exchange (WSE).

New charges for ex-Goldman programmer in code theft case
Reuters via Yahoo! News
A former Goldman Sachs Group Inc computer programmer who was cleared of federal charges in February faces new charges of illegally using and copying the firm’s high-frequency trading code, according to an arrest warrant filed in Manhattan criminal court.


State officials say Jersey City hedge fund, execs bilked investors out of millions
The Star-Ledger
The state attorney general’s office yesterday announced it has sued ex-con Peter Zuck, his collapsed hedge fund and nine other people tied to the alleged multiyear fraud that bilked some 76 investors out of millions of dollars.

Witness: Insider trading crimes destroyed my life
Associated Press via Yahoo! News
A key government witness in the insider trading trial of a San Francisco hedge fund operator testified Thursday that her crimes destroyed her life, ruining her reputation and her finances.

NFA Enforcement and Registration Actions
Capital Venture Holdings LLC

Former Alice Springs builder charged with managing a company while disqualified

Former AWB Chief Financial Officer found to have breached duties

BCSC Executive Director’s Bulletin: Securities regulator issues notice of hearing against two B.C. companies and their directors alleging illegal distribution

Industry Regulatory Organization of Canada Enforcement Notice Decision 12-0245 In The Matter Of CIBC World Markets Inc. – Settlement Accepted

Environmental & Energy

Climate change not a presidential election issue yet
Barack Obama promised to tackle climate change when he first ran for the White House four years ago, but – battling this summer for a second term – he speaks little of the issue even as the United States suffers through a drought of historic proportions, wild storms and punishing heat that topples temperature records almost daily. As late as April, Obama told Rolling Stone magazine climate change would be a central campaign issue.

India’s Green-Energy Providers May Struggle After Power Blackout
If there’s any country where solar power should be an easy sell, it’s India.Two-thirds of the country’s power supply comes from fossil fuels, and power producers can’t get enough coal to fire their plants or enough pipeline space to distribute natural gas, Bloomberg Businessweek reports in its Aug. 13 edition.

Ottawa bows to Alberta on emission rules
The Globe and Mail
Ottawa will allow Alberta to use its own greenhouse-gas rules – rather than federal regulations being drafted – to corral the soaring carbon emissions of the oil sands, as the Conservative government moves to assure the energy industry that it will not take steps to slow the sector’s growth.


China, the People’s Republic of Discounting
China’s economic slowdown has retailers wielding their markdown pens to woo shoppers

Tokyo Grain Exchange: SPAN Parameters Effective From August 16, 2012 To August 31, 2012

Press Conference By Tadahiro Matsushita, Japan’s Minister For Financial Services

HKFE Announces Revised Margins For Esprit Holdings Futures

Shanghai Stock Exchange: Q&A On SSE’s Reform Of Delisting System

Shanghai Stock Exchange: Possible Ways For Relisting Of B-Share Companies

Frontier Markets

War-torn Somalia to launch stock exchange
AFP via Yahoo! News
War-torn Somalia is setting up a stock market to raise cash for fledging businesses, as the Horn of Africa nation seeks to rebuild from over two decades of conflict, officials said Thursday.

Sneaking into emerging market
David Marcus – MarketWatch
The chaos in Europe is offering investors value-priced access to some of the world’s most dynamic emerging markets. But you have to be willing to look beyond the headlines.

Illegal Futures Trading: Securities Commission Malaysia Recovers RM2.3 Million From Seven Individuals
The Securities Commission Malaysia (SC) has successfully obtained a judgement in the High Court here on Wednesday that saw seven individuals involved in illegal futures trading activities agreeing to settle a sum of more than RM2.3 million, the amount that they had solicited from members of the public and which was claimed by the SC against them.

MCX-COMDEX Weekly Market Report – August 03, 2012 To August 09, 2012

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