John Lothian Newsletter: Australia clamps down on ‘algo’ trading; Short-Selling Bans During Financial Crisis Did Little To Stabilize Stocks; Swiss banks accused over tax evasion

Aug 13, 2012

Australia reveals new, big plans to rein in the risk of algo trading systems, including requirements for periodic testing (in addition to the every-minute-of-every-day testing that happens when they trade) and controls against abnormal behavior. A new study by the New York Federal Reserve discovers that short-selling bans don’t stabilize stock prices, nor do they prevent prices from falling, suggesting that stock prices may actually be dependent on other things like discovered value and investor confidence.  A German politician accuses Swiss banks of helping Germans to avoid taxes, and calls for possible criminal charges against them. 

First Read

MarketsWiki Mobile Site Launched

John Lothian News is pleased to announce it has launched a mobile version of MarketsWiki.  This technology will allow users of smartphones and other mobile computing devices to view and use MarketsWiki in a manner adapted to those devices. The technology we used is a version of the same one that Wikipedia uses for its mobile site.

Most of the credit for getting the mobile site up and running goes to our summer intern Evan Fabry, who also happens to be the senior patrol leader of the Boy Scout Troop of which I am scoutmaster.  Credit also goes to our CIO Jeff Bergstrom and CMO Ryan Lothian.

We also hope to announce soon a mobile site for  

Let me give a public shout out to Evan for his good work this summer.  Evan is a senior at York High School and classmate and friend of my son Tim.  He is an excellent student and has been a part of the winning tradition in cross country during his years at York.  He is considering studying engineering or biomed.  If you are looking for a really smart intern for next summer you are welcome to inquire about him.

One last thing: MarketsWiki crossed the 27.1 million page view mark last week, which means in 2012 we have seen over 9.6 million page views, the same as we saw in all of 2011. And MarketsReformWiki is approaching 2 million page views since its launch in February 2011.


Google searches give central banks new tool
Israel’s central bank is at the forefront of the hunt for new economic indicators. It analyzes keyword counts on Google for everything from aerobics classes to refrigerators to gauge consumer demand before releasing government statistics. The bank is not alone. The Federal Reserve and the central banks of Britain, Italy, Spain, Turkey and Chile have followed Israel’s lead with their own studies to see if search volumes on Google correlate with broader economic trends.


The IRS Takes On Identity Thieves
More than $5.2 billion of U.S. taxpayer money may have been paid out in tax refunds to fraudsters who filed some 1.5 million fake returns in 2011, and scammers are likely to skim $21 billion more over the next five years, according to an estimate by a government watchdog.


Standard Chartered Nemesis Has History as Strict Enforcer
Little more than a year before he was criticized for breaking ranks with regulators for being the first to accuse Standard Chartered Plc of laundering Iranian money, Benjamin Lawsky , New York ’s top banking official, was insisting on his own brand of justice at a charity carnival game.


Is Modern Portfolio Theory Dead? Come On.
Paul Pfleiderer – TechCrunch
A few weeks ago, TechCrunch published a piece arguing software is better at investing than 99% of human investment advisors. That post, titled Thankfully, Software Is Eating The Personal Investing World, pointed out the advantages of engineering-driven software solutions versus emotionally driven human judgment. Perhaps not surprisingly, some commenters (including some financial advisors) seized the moment to call into question one of the foundations of software-based investing, Modern Portfolio Theory.


Retail investors have had their confidence battered
Tony Tassell –
One of the remarkable things about watching the US stock market used to be the displays of resilience by retail investors. You see much, much less of such bravado now. Retail investor interest in US equities has been eroded, sapped by years of crisis-induced turmoil.


Troubles Abroad Keep Cash Flowing to U.S.
Fears the U.S. will go over the “fiscal cliff” at the end of the year suggest not much has changed in Washington since the debt-ceiling battle hit the struggling economy a year ago. Also unchanged: Investors still appear convinced that the U.S. is the safest of borrowers, despite rising angst about government debt around the world.


Want Better Results? Hire a Diverse Team
Diversity in the workplace gets a lot of lip service. But for Dan Tennebaum, Managing Director of India Capital, the value of an eclectic team shows up clearly in his bottom line. The India Capital Fund is a hedge fund that invests exclusively in Indian equities and Tennebaum, an American who runs a research team out of Mumbai, has deliberately assembled an unusual crew.


U.K. Banks Must Correct Cultural Failures
In the eyes of the world, British banks now look more like Ben Johnson, the disgraced 1988 Olympic 100 metres champion disqualified for cheating, than this year’s hero, Usain Bolt. If the Olympics have reinforced the U.K.’s reputation for honest competition and fair play, the City of London has a long way to go to reclaim those virtues for itself.


MarketsWiki Page of the Day
Cleartrade Exchange


MarketsWiki Recent Updates


Benjamin M. Lawsky

Companies, Organizations and Groups

Hong Kong Mercantile Exchange; GL Trade


Futures Magazine


Commodity Trading Advisor; Five Minutes With Jean Lucas


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Lead Stories

Australia clamps down on ‘algo’ trading
Jeremy Grant in Singapore –
Australia has moved to clamp down on “aberrant” automated share trading, unveiling sweeping proposals that would require traders to have controls on their systems and test them annually to prevent market disruption.

Short-Selling Bans During Financial Crisis Did Little To Stabilize Stocks: NY Fed Study
Bans on short-selling imposed during the financial crisis in the belief that short sales were driving United States stock prices below fundamental values did little to stabilize those prices, according to a new study by New York Fed economists. In addition, the bans had the unwanted effects of lowering market liquidity and boosting trading costs.

Swiss banks accused over tax evasion
James Shotter in Frankfurt –
The head of Germany’s biggest opposition party has accused Swiss banks of “organised criminality” for helping rich Germans evade taxes, and suggested that Germany should threaten the banks with criminal proceedings.

What’s Fed to Do as 15 of 18 Banks Fixing Libor Aren’t American
Caroline Salas Gage – Bloomberg
Mark Calabria at the Cato Institute usually isn’t shy about criticizing Timothy F. Geithner. Yet he says it was ultimately up to the British to deal with the manipulation of Libor, as only three of the 18 banks that set the London interbank offered rate are based in the U.S.

SEC List Shows 155 Money Funds That Got Approval for Help
Christopher Condon – Bloomberg
Money-market fund companies obtained permission to support 155 of their funds during the financial turmoil of 2007 and 2008, and six more funds got the same go- ahead since the crisis, according to a list provided to Congress by the U.S. Securities and Exchange Commission.

Founder’s son to start grand jury testimony in Peregrine failure
An Iowa grand jury is expected to hear testimony from Peregrine Financial Group’s president next week as it begins considering alleged wrongdoing at the failed futures brokerage. Russell Wasendorf Jr., Peregrine’s president and the son of the brokerage’s accused chief executive, has been subpoenaed by the grand jury and will likely testify next week, his lawyer told Reuters.

Austerity, Debt-Deleveraging, And Why ‘Muddle-Through’ Fails
Zero Hedge
The debt levels of advanced economies remains unsustainably high – bringing with it the considerable risk of renewed crisis – and while strong growth is the best way to deleverage, this solution appears out of reach for most economies. Financial repression, austerity, inflation, or default are the remaining options – all of which come with considerable costs to economic growth and employment.

Japan lender caught up in Libor probe
Michiyo Nakamoto in Tokyo –
Bank of Tokyo Mitsubishi has become the latest lender to face questions in the widening interbank lending rate rigging scandal that has shaken the global banking industry.

EXCLUSIVE – Former Barclays trader ‘has cooperated’ with Libor probe
Reuters via Yahoo! Finance
A former Barclays Plc (BARC.L) trader who was fired by the bank for sending inappropriate emails about Libor “has cooperated” with the federal criminal probe into the alleged rigging of international benchmark interest rates, according to the New York hedge fund that currently employs the trader.

Standard Chartered pushes for settlement
Kara Scannell in New York and Sharlene Goff in London –
Standard Chartered is pushing for a settlement to resolve allegations it violated US sanctions prohibiting dealings with Iranian entities ahead of a preliminary hearing on Wednesday with New York state banking regulators.


DealBook: Libor Case Energizes Gensler and the C.F.T.C.
New York Times
The Barclays rate-manipulation case has thrust Gary Gensler — and his once-obscure agency, the Commodity Futures Trading Commission, into the spotlight.

S.E.C. Vote Is Near on Money Market Fund Plan — Fair Game
New York Times
Late this month, the Securities and Exchange Commission is expected to vote on a plan to make money market funds keep enough capital to endure a future run.

A New FDIC? How To Better Protect Commodity Fund Investors
The Commodity Futures Trading Commission (CFTC) is exploring ways to better protect investors. One proposal on the table is to provide $250,000 per account insurance coverage. That would be similar to what federally insured bank customers receive from the Federal Deposit Insurance Corporation (FDIC).

NFA Notice to Members: Pre-Dispute Arbitration Agreements Involving Disputes Related to CFTC Part 165 Whistleblower Rules

ISDA Response To The EC On Timing Of Own Funds Requirements For Exposures To A CCP In The Capital Requirements Directive (CRD IV)

ASIC consults on electronic trading and releases fourth market supervision report

[Japan] FSA publishes Weekly Review No.7

Exchanges & Trading Facilities

Court OKs $160M pact between CME, MF Global trustee
Chicago Tribune
$130 million of the pot will go to former MF Global customers The trustee liquidating bankrupt MF Global Holdings Ltd’s brokerage unit won court approval to recover nearly $160 million from exchange regulator CME Group Inc., much of which will help repay customers and creditors.

Court lets case against CBOE, Options Clearing Corp. proceed
Lynne Marek – Crain’s Chicago Business
The Illinois Appellate Court ruled today that a New York hedge fund case against CBOE Holdings Inc. and the Options Clearing Corp. can go forward.

Cayman Islands Stock Exchange (CSX) to use Xetra technology
The Cayman Islands Stock Exchange (CSX) is to use Deutsche Börse’s electronic trading system from spring 2013. Participants at the CSX will then have access to a high-performance trading infrastructure which facilitates highest possible market transparency. Moreover, they will benefit from all future improvements to the system and associated services.

New Apple Juice Concentrate Contract Launches Tomorrow at MGEX

MGEX Highlights Delegate Membership Incentives for AJC Futures and Options Contract

Industry Excited for Launch of New Apple Juice Concentrate Contract

MGEX Announces Maximum Regular Warehouse Fees for Deliveries on New Apple Juice Concentrate Futures Contract

Accion, NYSE Euronext, And Yelp Bring Big Startup Small Business Connections Tour To Boston

Manchester United Lists Initial Public Offering on the New York Stock Exchange

Maple and TMX Group Announce Completion of Offer
80% of outstanding TMX Group shares acquired under Maple offer

[CBOE] Market Data Sources

[CBOE] Trader E-News

NASDAQ OMX July 2012 Volumes

TOM MTF Statistics Week 32

Hedge Funds & Managed Futures

EU hedge funds face pay threat
Alex Barker in Brussels and Sam Jones in London –
Some fund managers in Europe could be caught by unexpectedly strict pay curbs when the first EU attempt to regulate the hedge fund and private equity industry becomes a reality next year.

Hedge Funds Reduce Wagers After Longest-Ever Rally: Commodities
Hedge funds trimmed bets on a commodity rally for the first time in nine weeks as signs of U.S. growth and speculation that central banks will do more to stimulate economies drove prices to a three-month high.

Hedge Funds Capitulate on European Shorts at Fastest Since 2009
Hedge funds that base investment decisions on economic trends are unwinding bets against European stocks at the fastest pace in three years, speculating policy makers will step up the fight against the debt crisis.

Man Utd. Got Most IPO Demand From U.S., Woodward Says
Tariq Panja – Bloomberg
Manchester United Plc (MANU), the English soccer club that raised $233.3 million yesterday in its U.S. initial public offering, received the most demand for its stock from American investors, Vice Chairman Edward Woodward said.

SNB Seen Targeting Bank Capital to Curb Property Boom: Mortgages
Thomas Jordan’s fight to protect the Swiss economy is set to widen beyond currency markets and too- big-too fail risks as the central bank chairman considers how to curb the biggest real-estate boom in two decades.

A High Frequency Attack on Gold
Sharp price drops in gold, for example $10 within a few minutes, can be observed frequently. Often they occur several times per week. The decline that happened on June 7, 2012 looks, at first glance, like such a drop as well, although some observers immediately noticed the extremely high speed.

John Bogle, Vanguard’s Founder, Is Too Worried to Rest
New York Times
At 83, John Bogle, the founder of Vanguard, says he’s never seen a market as treacherous as this one. But he still sees buying and holding index funds as the best option.

Chuck Jaffe: Barbarians at the gate want you to enter
Seattle Times
Private-equity giant KKR is starting two mutual funds — a huge departure from the buyout industry’s standard practice of allowing only institutions and the superwealthy to get in on its deals — with a target market of individual investors.

Chuck Jaffe: When to buy a new ETF
Market Watch
Smart questions deserve straight answers about fund investing. Chuck Jaffe considers when to buy a new ETF and what to do when a fund manager shifts strategies.

Banks & Brokers

Barclays Investors Back RBS Chief Hester for Top Job -Report
Dow Jones
Leading investors in Barclays Bank are backing Stephen Hester to succeed Robert Diamond as the new chief executive of Barclays PLC, the Sunday Telegraph reports, citing one of the bank’s top-10 shareholders.

Smith Barney to Retire Next Month
After a 75-year run, the Smith Barney name has earned some time off. Morgan Stanley, which owns 51% of the brokerage firm Morgan Stanley Smith Barney, plans to formally drop the last part of the brokerage joint venture’s name in about a month, according to a person involved with the planned change. The switch was previously disclosed, but the timing wasn’t.

Knight Holders Face Funding Options in Hotspot, Direct Edge
Nina Mehta, Inyoung Hwang and Julia Leite – Bloomberg
The investors who bailed out Knight Capital Group Inc. (KCG) may wring more value from the firm by selling its currency platform and stake in Direct Edge Holdings LLC.

Julius Baer to buy Merrill Lynch private bank outside U.S.
Reuters via Yahoo! News
Swiss private bank Julius Baer is to buy Bank of America’s Merrill Lynch private bank outside the United States, paying 860 million Swiss francs to boost its assets under management by 40 percent and backing the deal with plans to raise 1.19 billion francs in new capital.

Citizens Bank not up for sale, ailing British parent asserts
Boston Globe
The struggling Royal Bank of Scotland is trying to tamp down the latest rumors that it will sell its US subsidiary, Citizens Financial Group, to raise capital, insisting that it plans to hold on to the Providence-based bank.

Facebook Plunge Limits Goldman Sachs Gain as Lockup Ends: Tech
Facebook Inc. ’s stock plunge has robbed Goldman Sachs Group Inc. and Microsoft Corp. of much of the potential gain they could unlock as soon as this week, when a ban on sales of insiders’ shares begins to lift.

Barclays, UBS Charge Record Fees to Escape Unipol Stock Losses
Barclays Plc and UBS AG are charging two Italian insurers twice the average fee to manage 1.2 billion euros of stock sales as they seek to insulate themselves from potential losses on the offerings.

UBS Denies Report It Abets German Tax Evasion
Dow Jones
Swiss banking giant UBS AG Friday denied a newspaper report which alleges that the bank is moving German funds to Singapore ahead of the implementation of a German-Swiss tax treaty, which will take effect in 2013 if it is passed by the two parliaments.

JPMorgan aims for $1bn profit boost
Tom Braithwaite in New York –
JPMorgan Chase aims to boost annual pre-tax profit by $1bn within five years by merging its investment and corporate banks – the first target set by the new division’s co-chief executives, Michael Cavanagh and Daniel Pinto.

Investors Go Cuckoo for $2 Billion of ‘Co-Co’ Bonds From UBS
Dow Jones
Investors are diving into a $2 billion sale of “contingent capital” bonds from Swiss bank UBS AG, drawn by the high yields even though they could lose their investment if the bank’s financial health significantly deteriorates.

Nomura Hires Kin Lee for Commercial-Mortgage Debt as Bonds Surge
Nomura Holdings Inc. hired Kin Lee as an executive director to trade commercial-mortgage backed securities as the debt rallies the most in more than four years.

Clearing & Settlement

CME Group Clearing Advisory
NYMEX Options Expiration Operational Procedures for the Trading Floor and Clearing Members (OS) Effective Monday, August 13, 2012

CME Clearing – New Product Advisory
LNG Japan/Korea Marker (Platts) Swap Future

CME Clearing – New Product Advisory
REVISED – Daily Brent Crude Oil Option

CME Clearing – Performance Bonds / Margins
Performance Bond Requirements – Nymex New Products – Effective Friday, August 10, 2012

Indexes & Products

S&P Dow Jones Indices Announces Changes To The S&P/TSX Canadian Indices – The Semi-Annual Review Of The S&P/TSX Venture 30 Index

S&P Dow Jones Indices Announces Changes To The S&P/TSX Canadian Indices – A Deletion From The S&P/TSX Venture Composite Index


Judge keeps bail for convicted hedge fund adviser
Associated Press via Yahoo! News
A judge declined to revoke bail for a former Connecticut hedge fund adviser awaiting sentencing for a major fraud scheme after prosecutors said he failed to disclose a tax refund despite an asset freeze.

SEC Charges Mutual Fund Adviser With Failing To Turn Over Records To SEC Examiners

Environmental & Energy

‘Father of carbon trading’ predicts growth in clean-tech startups
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.

**RKB – A Chicago- and Midwest-focused interview, but another great opportunity to listen in on a sit-down with Dr. Sandor.

Paul Ryan’s energy record elates right, deflates greens
The environmental community fumed this weekend when Mitt Romney chose Paul Ryan as his running mate, condemning the House Budget Committee chairman’s crusade to slash clean energy funding while painting him as a bedfellow of Big Oil.

Australia Discussing Possible Changes in Carbon-Price System
Australia’s government is holding talks with businesses about possible changes in pricing for emission permits in a program started July 1.


Bundesbank in final stage to launch trading hub in Tokyo – Nikkei
Reuters via Yahoo! Finance
Germany’s Bundesbank is in the final stage of talks with Japan to establish a trading hub in Tokyo, as the central bank wants to manage some foreign currency reserves in Asian financial markets, the Nikkei business daily reported on Sunday, citing financial sources of both nations.

China grants four foreign investment licences in July-mid Aug
Reuters via Yahoo! Finance
China’s securities regulator granted investment licences to four overseas institutional investors during July-mid-August, allowing them to invest in mainland capital markets.

Sovereign wealth funds hunt for bonds on Chinese mainland
Reuters via Yahoo! Finance
Sovereign wealth funds are increasingly interested in buying China’s domestic bonds to get a bigger foot in the world’s second largest economy, benefit from good yields and diversify their exposure to more currencies.

ISDA Asia-Pacific Monthly Update – July 2012

Tokyo Commodity Exchange: Good Delivery Material Price Differential For August 2012 Rubber Contract

Frontier Markets

India Could Lose Investment Grade Status
India on cusp of being first big emerging market to lose investment grade status, Fitch warns.

Egypt expects Qatar deposit within a week: minister
Reuters via Yahoo! News
Qatar should deposit $500 million in Egypt’s central bank within a week, the Egyptian finance minister said, as the country battles to pull its economy out of a tailspin after 18 months of political turmoil.

Updated Statement From The Securities Commission Malaysia – GO Requirement In The Sime Darby-E&O Share Acquisition

Malawi Stock Exchange Weekly Report – Week Ending 10 August 2012

John Lothian Newsletter

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Past JLN Newsletters

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How Ken Griffin rebuilt Citadel’s ramparts

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