John Lothian Newsletter: CME Said Planning Europe Exchange to Compete With Eurex, Liffe; Deutsche Bank investigated in U.S. over Iran; Canada’s ATS Battle Heats Up With New Entrant

Aug 20, 2012

CME Group files for permission to create a new exchange in Europe.  Deutsche Bank becomes the latest bank investigated over US-illegal, Iran-related transactions.  Chi-X Canada plans to introduce a new alternative trading system, bringing the total in that country to five.

First Read

Social benefits of high frequency trading
John Lowrey –
The evolution of financial markets through technological development has been going on for centuries, with criticism about such developments going back to the invention of the telegraph in the mid-19th century. And so it goes with the comparatively recent arrival of high frequency trading and commodity investing, vociferously lambasted by a Finance Watch pamphlet which suggested that both HFT and speculation on commodity markets were “bad” developments which regulators or governments should seek to stamp out.


Maine Lobster Tastes Best With Dash of Supply Side
By Amity Shlaes – Bloomberg
History repeats itself, first as tragedy, then as lobster. Or so you might think from reading this summer’s news in Maine, which speaks volumes, or crates, about the farcical nature of North American trade policy.


When Wall Street Watchdogs Hunt Whistle-Blowers
William D. Cohan – Bloomberg
You’ve probably never heard of Peter Sivere, a former compliance officer at JPMorgan Chase & Co. Yet his distressing story shows — on a personal level — that for all the tough talk about better enforcement of financial wrongdoing, just how tightly government regulators are aligned with the big Wall Street banks they are supposed to keep an eye on.


Bad call: SEC throws out Eddie Murray
MarketWatch – David Weidner
The feds finally got their clean-up hitter. Thank you, Mary Schapiro and the Securities and Exchange Commission, for finally going after some of the biggest players of the financial crisis and purveyors of unbridled greed that ruled that economy-crushing era. Schapiro and the SEC announced charges Friday against Eddie Murray. Yes, Murray the baseball hall of famer


Why We Must Change the Way We Police Banks
Time Magazine
MF Global, JP Morgan’s Whale Fail, LIBOR rate-rigging: The financial services industry has been cranking out scandal like it’s going out of style.

***JM: It’s almost as if there isn’t much risk in getting caught…


Nassim Taleb: In the Investment Biz, Luck Trumps Skill, So Take Your Talent Elsewhere
Time Magazine
Mamas, don’t let your babies grow up to be investment professionals. That’s the argument Nassim Nicholas Taleb, the investment expert and math whiz who wrote the influential book The Black Swan, is making these days.

**** My father always said it was better to be lucky than good.  I always say that you make your own luck and that luck is where preparation meets opportunity.  So yes luck, but not without preparation and perspiration, which is something that equates to hard work.


Cold Eye Over ‘Whale’ Probe
J.P. Morgan Board Picked ‘Tough as Nails’ Director to Head Trading Inquiry
Lee Raymond, the brusque former chairman and chief executive of Exxon Mobil Corp., will have the last say on James Dimon’s role in the “London Whale” trading fiasco—an arrangement that presents risks for both men.


The bush rites of a tough trader
Javier Blas in Singapore –
Sunny Verghese learnt what he needed to succeed in the no-prisoners-taken world of global commodities trading as the 26-year-old boss of a cotton plantation in Ngurore, a small town in north-east Nigeria.

Author Bob Swarup Discusses the History of Financial Crises & His Outlook for Managed Futures
Author Bob Swarup has had financial crises on his mind for some time – about 2,500 years worth actually. Swarup, a partner at UK-based pension buyout firm Pension Corporation, discussed his new book on the history of financial crises and the outlook for managed funds while at the 2012 Emerging Managers Forum in London. Interview by JLN Managed Futures editor Jim Kharouf.


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Lead Stories

CME Said Planning Europe Exchange to Compete With Eurex, Liffe
Nandini Sukumar – Bloomberg
CME Group Inc. (CME), owner of the world’s biggest futures exchange, plans a derivatives market in London, setting up in direct competition with Eurex and Liffe, the largest venues, three people familiar with the situation said. The exchange will start with currency futures, the people said, declining to be identified as the information isn’t public.

Deutsche Bank investigated in U.S. over Iran: New York Times
Reuters via Yahoo! News
U.S. prosecutors are investigating Deutsche Bank and several other global banks over business linked to Iran, Sudan and other nations currently under international sanctions, the New York Times reported on Saturday.

Canada’s ATS Battle Heats Up With New Entrant
John D’Antona Jr. – Traders Magazine
The battle of alternative trading systems up in Canada is heating up. That’s because Chi-X Canada, feeling the heat of competition and hoping to increase is equity trading market share, will introduce a second alternative trading–ATS–in the Great White North.

Peregrine’s Wasendorf Pleads Not Guilty to Lying to CFTC
By Andrew Harris and Tom Witosky – Bloomberg
Russell Wasendorf Sr., the Peregrine Financial Group Inc. founder, pleaded not guilty to 31 counts of lying to U.S. regulators about the value of customer funds held by his now-bankrupt commodities firm.

BOE Was Naive on Libor and King Overstepped Power, Lawmakers Say
Scott Hamilton and Jennifer Ryan – Bloomberg
The Bank of England’s handling of questions about the rigging of the London interbank offered rate was naive and lacked urgency, a U.K. panel of lawmakers said. The House of Commons Treasury Committee also criticized Governor Mervyn King for his part in the effective ousting of Barclays Plc (BARC) Chief Executive Officer Robert Diamond last month, saying it was “difficult to justify” and that greater checks on his power were needed.

Greece close to sealing cuts package: finmin official
Reuters via Yahoo! News
Greece has inched closer to nailing down the cuts required by its foreign creditors in exchange for financial aid, agreeing 10.8 billion of the 11.5 billion euros worth of cuts demanded, a government official said on Friday.

U.K. Libor report: raise fines, fire management
Market Watch
SAN FRANCISCO — Britain’s Financial Services Authority and the Bank of England need to tighten regulation of banks, raise fines for wrongdoing, and possibly acquire the authority to fire senior executives, according to a report from Parliament’s Treasury Select Committee following to scandal of Barclays misreporting their interbank lending rates, known as Libor, during the financial crisis.

Cameron Main Threat to Britain In Europe
Here’s a strange thing. In Greece, support for membership of the single currency remains around 70% despite five years of economic contraction and 23% unemployment; in Spain, where youth unemployment is above 50%, support for euro membership remains an article of faith among both major parties; the same is true in Germany, which is on the hook for hundreds of billions of dollars in bailouts. Only in the U.K., which has benefitted from a 25% devaluation against the single currency and where unemployment has been falling, do opinion polls show significant support for leaving the E.U.


CFTC Issues Proposed Order to Exempt Certain Non-Financial Energy Derivative Transactions Between Government-Owned Electric Utilities and Cooperatively-Owned Electric Utilities
The Commodity Futures Trading Commission (CFTC) today approved a Proposed Order that would exempt 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).

CFTC Approves Conforming Rule on Registration of Intermediaries
The U.S. Commodity Futures Trading Commission (CFTC) today approved a final rule to conform the CFTC’s existing intermediary registration rules to changes made to the Commodity Exchange Act (CEA) by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).

Statement Of Dissent To The Registration Of Intermediaries Final Rule – CFTC Commissioner Scott D. O’Malia

NY regulator has friends, foes after bank deal
Associated Press via Yahoo! News
New York financial regulator Benjamin Lawsky, an Ivy League ex-prosecutor and top lieutenant to Gov. Andrew Cuomo, shook a record $340 million settlement this week from a major British bank accused of money-laundering for Iran, earning both praise for his aggressive approach and criticism from those who saw it as a publicity grab.

When U.S. Attorney Preet Bharara speaks, Wall Street and the world listens
The Star-Ledger
In just three years, the 43-year-old Bharara, who grew up in Monmouth County, has become one of the most recognized and applauded law enforcers in the country.

Crowdfunding websites not for novice investors says FSA
Reuters via Yahoo! News
Inexperienced investors should be aware of the risks in using crowdfunding websites that help small businesses raise money directly from members of the public, Britain’s financial services regulator has warned.

Securitization Lobby Seeks Exemption From CFTC Registration Rule
U.S. regulators should exempt securitization vehicles from Dodd-Frank Act rules slated to take effect this year to avoid hampering the market for asset-backed securities, according to an industry lobby group.

[ASIC] Corporate insolvencies: June quarter 2012

[Japan FSA] Comments on proposed CFTC cross-border releases on swap regulations

[Japan] FSA publishes Weekly Review No.8

Exchanges & Trading Facilities

CME confirms it is seeking to create a London-based derivatives exchange
Market Watch
Derivatives marketplace CME Group Inc confirmed Monday it is in the process of applying to the U.K.’s Financial Services Authority, or FSA, to create a London-based derivatives exchange.

FIA July US/June 2012 International Monthly Volume and Open Interest Reports

Liquidnet Continues to Facilitate Institutional Investor Access to Block Liquidity
Business Wire via Yahoo! Finance
Liquidnet, the global institutional trading network, today announced that it continued to maintain its dominance in market block volume. In July, 78% of the time Liquidnet Members traded a U.S.

NZX 1H 2012 Financial Results – Current Resilience, Well Positioned For Future Growth

[CBOE] CBSX Trader News Update Recommended Best Practices for CBSX CMi and FIX Interfaces

[CBOE] Trader E-News

Direct Edge Trading Notice #12-33: Discontinuation of the Message Efficiency Incentive Program

TOM MTF Statistics Week 33 2012

Hedge Funds & Managed Futures

New Hedge Funds Abound, Despite Tepid Industry Performance
New York Times
More new hedge funds started in the first quarter of this year than in any quarter since 2007, according to data from Hedge Fund Research. Some newcomers as well as industry veterans are branching out on their own.

Deutsche Bank’s Hoffman Said to Depart for Brigade Hedge Fund
Brigade Capital Management LLC, a hedge fund that invests in credit markets, hired distressed-debt analyst Scott Hoffman from Deutsche Bank AG as the biggest banks reduce pay and curb risk-taking in response to new regulations.

Norges fund plans to take on more risk
Richard Milne, Nordic Correspondent –
The world’s largest sovereign wealth fund is planning to take on more risk as it seeks to exploit its role as a strategic investor, in a move that could mark a new trend for conservative publicly-owned investment funds.

Investors baffled by subdued Vix level
Ajay Makan and Robin Wigglesworth –
Wall Street traders are confused. With memories of last summer’s whipsawing market still fresh, the talk a month or two ago was of cancelling leave to man trading desks.The fear was of a repeat of last August’s turmoil, when the S&P 500 slumped and daily moves of 4 per cent briefly became the norm. Instead, US stocks have pushed steadily higher over the summer to stand within reach of a four-year high.

Let’s Not Call John Paulson a Gold Bug — He’s a Hedge Fund Chief Who Invests Like a Gold Bug
Buying gold doesn’t make a whole lot of financial sense in Warren Buffet’s estimation, and he even did the math to prove it, see the story here. But some people just aren’t getting Uncle Warren’s message, and chief among them is hedge fund billionaire John Paulson. Investments tied to gold are now 44% of his $21 billion hedge fund portfolio, Bloomberg reports.

Silvercorp’s legal attack on hedge fund dismissed
Reuters via Yahoo! News
A New York state judge threw out a lawsuit filed by Vancouver-based Silvercorp Metals Inc against investors who raised questions of potential accounting fraud and misstatements of assets.

Chuck Jaffe: A fund by any other name is not as sweet
Market Watch
The history of mutual funds with oddball names suggests that investors seldom get what they pay for, writes Chuck Jaffe.

GAME OVER: Bank Of America Officially Buries Kyle Bass’s Famous Japan Doom Trade
Business Insider
Hedge fund manager Kyle Bass made a fortune shorting housing during the financial crisis, and over the last few years we’ve been watching him try to bag another huge score in the form of a bet that Japan would experience a financial crisis.

Latest Performance Update Of The EDHEC-Risk Alternative Indexes – Sunny Outlook For Hedge Funds In July

Banks & Brokers

JPMorgan picks panel for “whale” inquiry: WSJ
Reuters via Yahoo! News
JPMorgan Chase & Co has picked Lee Raymond, ex-chief executive of oil major Exxon Mobil Corp , to head an inquiry into losses in a credit derivative portfolio run by its London-based Chief Investment Office, the Wall Street Journal reported.

Goldman “conflicted” in Amerigroup/WellPoint deal: lawsuit
Reuters via Yahoo! News
Shareholders of Amerigroup Inc have sued the health insurer’s board, contending its advisers at Goldman Sachs Group Inc had a “hopelessly conflicted” role in the company’s nearly $4.5 billion pending sale to WellPoint Inc The lawsuit was filed in Delaware Chancery Court on Thursday. Goldman Sachs was also named as a defendant.

De Guindos Says Bailout Fund to Manage Spain Bank Restructuring
Spain will put its bank rescue fund in charge of the bad assets separated out from the nation’s struggling lenders that are receiving a European bailout.

Morgan Stanley Sends Facebook Profits to Underwriters – Sources
Dow Jones
Profits made by banks underwriting Facebook Inc.’s (FB) initial public offering as the stock fell were distributed this week from a pool of about $100 million, say people with knowledge of the deal.

No sign German bank data came from UBS: chairman Weber
Reuters via Yahoo! News
ZURICH – The German chairman of Swiss bank UBS said he has no evidence bank data on alleged German tax evaders purchased by the German state of North-Rhine Westphalia was leaked from his bank. “Up to now, we have not found any evidence,” the former Bundesbank chief said in an interview with Swiss newspaper SonntagsZeitung published on Sunday.

HSBC to Fight Regulators Over Dividend
FOX Business
U.K. banking group HSBC Holdings PLC is willing to “fight to the death” to prevent U.K. regulators from attempting to force it to stop paying its dividend in order to preserve capital, The Sunday Telegraph reports.

U.S. Treasury Department Announces Further Steps To Expedite Wind Down Of Fannie Mae And Freddie Mac

UK House Of Commons Treasury Committee Publishes LIBOR Report

Bob Diamond Responds To Criticism In UK Parliament Treasury Committee LIBOR Report

British Bankers’ Association Statement Regarding The Treasury Committee’s Preliminary Findings On Libor

Bank Of England Response To “Fixing LIBOR”, A Report By The Treasury Select Committee

Indexes & Products

BrokerTec and MTS to Develop Euro Repo Index Series
BrokerTec, ICAP’s global electronic fixed income trading platform and MTS, a leading fixed income trading venue in Europe, which is majority owned by London Stock Exchange Group, are launching a daily repo index series for the sovereign bond markets of the main eurozone countries

UBS ETFs on MSCI Brazil launched on Xetra

S&P Dow Jones Indices Announces Changes To The S&P/TSX Canadian Indices


Pfalzwerke AG Selects Trayport’s GlobalVision Trading GatewaySM, Automated Trading Enginesm And Implied Price Calculatorsm Solutions To Optimise Trading
Trayport, a leading provider of energy trading solutions to traders, brokers and exchanges worldwide today announced that Pfalzwerke AG are now using Trayport’s GlobalVison Trading Gateway, Automated Trading EngineSM (“AT”) and Implied Price CalculatorSM (“IPC”) solutions for energy trading.

Level 3 Announces New Data Centre Facility in London to Meet Customer Demand
Level 3 Communications, Inc. (LVLT) today announced that it has added new advanced data centre facility space in Hayes, West London.

Optimization Of FIX/FAST Protocol Tools By Moscow Exchange Allows Reduced Latency In Transaction Processing


SEC Shuts $600M Online Pyramid/Ponzi Scheme
Accounting Today
On Friday, the Securities and Exchange Commission leveled charges and an emergency asset freeze on the perpetrators of an alleged $600 million Ponzi scheme that was on the verge of collapse.

New Charges in Insider Trading Case Include Former CEO and Professional Baseball Player
The Securities and Exchange Commission today announced a second round of charges in an insider trading case involving former professional baseball players and the former top executive at a California-based medical eye products company that was the subject of the illegal trading.

Hall of Famer Murray settles insider-trading case
Hall of Fame baseball player Eddie Murray has agreed to pay $358,151 to settle federal civil charges of profiting in stock trades by using confidential information passed to him by a former teammate.

‘Moles’ Gave Hedge-Fund Manager Whitman Tips, U.S. Says
Whitman Capital LLC’s Doug Whitman used illegal tips from company “moles” to make trades on Polycom Inc. , Google Inc. and Marvell Technology Group Ltd. , a prosecutor told jurors at the end of the hedge-fund manager’s criminal trial.

Stockbroker Fined And Suspended For Equity Indexed Annuities Sales
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority, without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Mark B. Fricks submitted a Letter of Acceptance, Waiver and Consent, which FINRA accepted.

Environmental & Energy

CO2 emissions in US drop to 20-year low
In a surprising turnaround, the amount of carbon dioxide being released into the atmosphere in the U.S. has fallen dramatically to its lowest level in 20 years, and government officials say the biggest reason is that cheap and plentiful natural gas has led many power plant operators to switch from dirtier-burning coal.

How “Policy By Panic” Can Backfire for Environmentalists
Saying that droughts are caused by global warming leads to public distrust and disengagement when the rain starts to fall.

**RKB – I like Krugman and I like guys who challenge Krugman.

EU Shouldn’t Intervene in CO2 Market, German Minister Says
The European Union should avoid actions aimed at boosting carbon prices, Germany’s economy minister said, highlighting the political controversy over a plan by EU regulators to strengthen the bloc’s emissions market.

Australian Investment Surging Even With Carbon Tax, Swan Says
Australia’s carbon tax and a levy on mining company profits hasn’t stopped a surge in investment in the resources industry, Treasurer Wayne Swan said.


Be Optimistic (And Wrong) About The Chinese Economy
Zarathustra of Also Sprach Analyst via Zero Hedge
When China started tightening policy to fight inflation, almost no one thought that it would slow the economy to what China is in right now. When China started imposing ever more aggressive real estate prices curb, some people believed that that it would not make home prices drop (because there are many people in China, and urbanisation, etc), and even less believed that it would slow the economy to what China is in right now.

Bank of China to lead disappointing trend
Simon Rabinovitch in Beijing –
When Bank of China kicks off the first-half results season for the country’s biggest banks on Thursday, it is likely to be seen as a trend setter for the wrong kind of reason.

Barclays Hires New Taiwan Investment Banking Head
Wall Street Journal Blogs
Barclays PLC continues to beef up its Taiwan investment-banking franchise with a new senior hire.

Shanghai Stock Exchange Market Value 100 Index To Be Renamed

Notice On Issue And Implementation Of Amendments To The Trading Rules Of Dalian Commodity Exchange

Press Conference By Tadahiro Matsushita, Japan’s Minister For Financial Services – Insider Trading And Tokyo Stock Exchange Systems Glitch Of August 7

Thai Listed Firms Report THB 344 Bln Net Profits In H1

HKFE Announces Revised Margins For China Mobile Futures

HKEx: Stock Exchange Participants’ Market Share Report

Hong Kong’s Securities And Futures Commission: Insurance Agents Convicted Of Selling Investment Fund Without Licences

Shanghai Stock Exchange: Notice Of Publicly Soliciting Opinions On

Frontier Markets

SEBI to Take Up Further Market Reforms: Chidambaram
Bangalore: Finance Minister P Chidambaram said regulator SEBI is expected to announce fresh market reform measures in September, even as he favoured encouraging more people to invest in financial instruments rather than in gold.


Greedy Hedge Funder Revives Gekko in “Supercapitalist”
Frederik Balfour – Bloomberg
If movies were rated like debt, “Supercapitalist” would be a junk bond. Cluttered with cliches, unmemorable performances and a clunky script, this film is no “Wall Street” or “Margin Call.” Hyped as a financial thriller, it’s unlikely to fare better than Facebook’s botched IPO.

The least loved day is also the market’s worst
Channel 8 San Diego
It’s not just in your head. Mondays really are the worst.

John Lothian Newsletter

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