John Lothian Newsletter: Man Group Debt Downgraded by Moody’s After Assets Decline; CME to begin clearing silver forwards; SEC Pays $50,000 in First Dodd-Frank Whistleblower Reward; GFI may buy an exchange

Aug 22, 2012

Man Group Plc’s (EMG) credit rating was cut by Moody’s Investors Service.  CME Group has new plans to begin clearing silver contracts, adding that alongside its gold-clearing operation. The SEC rings the bell and hands out its first Dodd-Frank whistleblower payout.  GFI Group, looking at new regulations requiring many transactions to take place on an exchange or trading platform, says that maybe the best answer is to just go buy an exchange in order to keep business going in the right direction.

First Read

Restoring Trust in the Futures Market
The recent failures of MF Global and Peregrine Financial, and the reported manipulation of the Libor benchmark for interest rates, could not have come at a worse time for the risk management industry. Severe weather problems in our major agricultural areas, uncertainty in the European and United States financial systems, a stubborn low-growth economic environment, instability in the Middle East that threatens energy supplies, and slower growth in China and Asia all spell the pressing need for a reliable and trustworthy risk management industry.

*** Two veteran industry executives whom I respect weigh in on restoring customer confidence.


Knight glitches hit confidence in US market
Philip Stafford –
Confidence in US equity market structure is at an all-time low following the glitches that hit Knight Capital’s trading algorithms, according to a survey by Tabb Group, the US capital markets consultancy.

**** Darn confidence short sellers!


R.J. O’Brien Establishes Institutional Soft Commodity Team
R.J. O’Brien & Associates (RJO), the nation’s oldest and largest independent futures brokerage and clearing firm, today announced that the firm has established an experienced team of soft commodity brokers to serve institutional clients globally from the firm’s New York office. The team includes Ron Epstein, Anthony Croce and Anthony Rizzo, who have all just joined RJO as Senior Vice President, Institutional Softs Desk.

**** Who hires softies anyway?


CBOE to Launch S&P 500 Index Range Options
Chicago Board Options Exchange, Incorporated announced today that it will launch trading in a new type of S&P 500 Index options contract, known as CBOE S&P 500 Range options (ticker: SRO), beginning on Tuesday, August 28. CBOE Range options were designed to provide individual investors with a lower-risk, lower-cost way to trade S&P 500 Index options.


NYSE Euronext Marks Second Year as Only Carbon-Neutral Global Exchange Operator
NYSE Euronext announced today that it has achieved carbon-neutral status for the second year in a row, again making it the only global exchange operator to do so. NYSE Euronext earned the distinction through company-wide energy efficiency measures as well as the purchase of renewable energy credits (RECs) and carbon offsets (COs).


On CME in London: Whatever you do, don’t mention the Merc
It’s probably a good thing for the CME Group that their plans unveiled on Monday to set up a new European exchange bear almost no resemblance to a costly, failed effort by its New York unit to cross the Atlantic eight years ago.

**** What, no open outcry.  No excessive spending?


The Winning Record of Prosecutors on Insider Trading
The conviction of the hedge fund manager Douglas F. Whitman brings the record of the United States attorney’s office for the Southern District of New York to 8-0 in insider trading cases that have gone to trial since the wide-ranging investigation came to light in October 2009. By any measure, that is quite an accomplishment, as prosecutors, led by Preet Bharara, have squared off against some very talented white-collar defense lawyers.


Beanz meanz Mifid
Steve Grob – FOW
Imagine I ask you to go to the shops and buy me something simple – let’s say 5 tins of beans. You go to the local shops, return with the goods and I pay you for them, together with a tip to compensate you for your efforts. If you do a good job in terms of price and getting all 5 tins quickly, then I might well ask you to do my shopping on a regular basis. But if I discover that you did a poor job and paid over the odds, I won’t ask you again and I’ll suggest to my friends that they don’t either.


Is insurance the answer?
Philip McBride Johnson – FOW
On August 9, CFTC Commissioner Bart Chilton formally proposed a plan to insure futures customers’ accounts up to $250,000. The industry trade association has estimated that, for MF Global customers, about 78% of them would have been made whole if the Chilton insurance fund had been in place last October. And I suspect a similar (or greater) coverage for PFGBest futures clients as well since its customer base appears to have included fewer large institutions than MF Global. This idea is undeniably a good one.


Time to Treat High-Speed Trading Like Another Risk to Manage
Recent failures in electronic trading have pummeled investor confidence, costing investors—big and small—upwards of a billion dollars. The Aug. 1 Knight Capital software glitch that flooded the market with erroneous trading orders is merely the latest in a string of mistakes. Serious errors have plagued BATS Global’s handling of its own IPO, Nasdaq’s handling of Facebook’s IPO, and regular operation of Spain’s BME national exchange. Clearly, the industry has reached a tipping point.

***JM: It’s also reasonable to look at WHERE and HOW a tool is being used as part of risk management. High-speed, algorithmic trading analysis should include not just mitigating damage from the activity, but also making sensible decisions about how to perform the activity so damage is less common or affective.


Mike Oxley on Sarbox: His one big regret
CNN Money
With the benefit of hindsight, the co-author of post-Enron’s definitive financial reform has a change he wishes he could make.


For Growth, Better Coordination Is Needed on Bank Regulation
It is happening once more. For the third time in less than a decade, inadequate coordination – among government entities, as well as across national borders – means that the United States may again strike the wrong balance between financial soundness and economic growth.


Jeremy Siegel isn’t right about stocks, either
Larry Swedroe – CBS News
We recently discussed the issues with Bill Gross’s article lamenting the death of stocks. I wasn’t alone in rebutting Gross’s thoughts. Wharton finance professor Jeremy Siegel, whom Gross named specifically in his piece, also offered a rebuttal to Gross. The problem is that Siegel’s ideas on the lack of risk in stocks over the long term are also flawed.


NYIF Webinar: Futures Trading and the Protection (and Preservation) of Customer Funds
Tuesday, August 28th from 12 PM – 1 PM Central Time

A look at what is happening in the regulation (or failures) of commodity futures brokerage firms and customer funds. First MF Global, then PFG. Why has the long established principle of customer segregated funds failed and how well do customers understand the limited protection offered by futures exchanges’ clearinghouses? These topics will be discussed along with an overview of the regulation and legal descriptions of the brokerage firms that are regulated by the Commodity Futures Trading Commission. In addition, a practical solution for traders will be suggested without having to wait for new regulation.

For details and to register, visit


MarketsWiki Recent Updates


Thomas Cunningham; Megan McKeever Costello; Mike Wilkins; Bruce Blythe

Companies, Organizations and Groups

Interactive Brokers Group, Inc.; Fidessa group plc; Chi-X Canada


27,504,616 pages viewed, 7,074 articles, 146,643 edits
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Lead Stories

Man Group Debt Downgraded by Moody’s After Assets Decline
By Jesse Westbrook
Man Group Plc’s (EMG) credit rating was cut by Moody’s Investors Service after assets of the world’s biggest publicly traded hedge fund firm fell by almost a third.  Man Group’s senior debt was lowered one step to Baa3, the lowest investment grade, Moody’s said in a statement today. The ratings company cited the decline in assets, investment performance that lagged the firm’s historical returns and a decrease in management fees in its decision.

CME to begin clearing silver forwards
CME Group Inc., the biggest U.S. futures market operator, will begin clearing London silver forwards from Aug. 28, it said in a statement on Wednesday. The product will be physically settled, it added.

SEC Pays $50,000 in First Dodd-Frank Whistleblower Reward
The whistleblower helped the SEC bring an enforcement action that resulted in more than $1 million in sanctions, the agency said today in a statement. The award represents 30 percent — the maximum allowed under the Dodd-Frank Act — of the approximately $150,000 collected so far.

GFI may buy an exchange, says Gooch
Joe Rennison – Risk magazine
GFI Group may acquire an exchange in response to regulatory changes that will require a large portion of the derivatives markets to be executed on exchanges and electronic trading platforms.

Fed probes RBS over dealings with Iran
Daniel Schafer in London and Shahien Nasiripour in Washington –
Federal authorities in the US are investigating Royal Bank of Scotland for possible breaches of Iran sanctions in a probe that has already led to the departure of a senior risk manager.

Japan urges CFTC to defer extraterritorial OTC rules
Japan’s financial watchdog and central bank have implored the Commodity Futures Trading Commission (CFTC) to hold off for at least a year on applying cross-border OTC derivatives regulations for fears of international overlap and conflict.

Danish Central Bank Says Cibor Banks May Have Breached Rules
Danish lenders providing quotes for the Copenhagen interbank offered rate may have breached competition rules, pushing the rate higher, the central bank said in a review of its role since the rate’s creation in 1988.

El-Erian: Central Bank Bailouts Won’t Be Unlimited
CNBC via Yahoo! Finance
The minute they target a yield level they are saying basically it’s an unlimited intervention. And we don’t think the ECB is there, the Pimco CEO said in a CNBC interview.

Europe should choose whether it wants Greece in or out
Jean Pisani-Ferry –
For the third time in three years the Europeans’ stance on Greece is economically inconsistent.


German Fin Min: Cannot Afford Any Delay On Basel III
Dow Jones
German Finance Minister Wolfgang Schaeuble Wednesday turned up the pressure on the European Union to quickly conclude talks over new banking regulation rules known as Basel III and stick to the agreed timeline.

CFTC Issues Proposed Order to Exempt Certain Specified Transactions of Regional Transmission Organizations and Independent System Operators
The Commodity Futures Trading Commission (CFTC) today approved a proposed order that would exempt certain specified transactions of Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs) from certain provisions of the Commodity Exchange Act (CEA) and Commission regulations.

CFTC Announces Website for Market Participants to Register for CFTC Interim Compliant Identifiers (CICI)
The Commodity Futures Trading Commission (CFTC) today announced the launch of a website for market participants to register for CFTC Interim Compliant Identifiers (CICI).

SEC Issues First Whistleblower Program Award
A whistleblower who helped the Securities and Exchange Commission stop a multi-million dollar fraud will receive nearly $50,000 — the first payout from a new SEC program to reward people who provide evidence of securities fraud.

Statement Of Support On Proposed Relief For certain RTO And ISO Electricity Transactions – CFTC Chairman Gary Gensler

ISDA and Markit Begin Buy-Side Onboarding for Dodd-Frank Compliance Solution
The International Swaps and Derivatives Association, Inc. (ISDA) and Markit announced today that they are now onboarding buy-side market participants to ISDA Amend, their joint technology-based solution that facilitates compliance with certain Dodd-Frank regulatory requirements.

UK’s Financial Services Authority Proposes To Ban The Promotion Of UCIS And Similar Products To Ordinary Retail Investors
The Financial Services Authority (FSA) has published proposals to ban the promotion of Unregulated Collective Investment Schemes (UCIS) and similar products to the vast majority of retail investors in the UK. The proposed rules mean that, in the retail market, promotions will generally be restricted to sophisticated investors and high net worth individuals for whom the products are more likely to be suitable.

Exchanges & Trading Facilities

TMX Atrium offers ultra-low latency access to Moscow
TMX Atrium, provider of smarter infrastructure solutions for the financial community, today announced new low latency connectivity into Moscow from Stockholm. The new connectivity path provides access to key data centres in Moscow to enable participants to trade the rapidly growing Russian market.

Cyprus Stock Exchange Monthly Bulletin – July 2012

EEX Successfully Implements Diversification – Positive Development In New Business Fields

Industry Supports Risk Management Function Of New Apple Juice Concentrate Contract

Positive First Half-Year For SIX

SIFMA Market Close Recommendations For The UK Summer Bank And US Labor Day Holidays In The US, The UK And The Japanese Markets

TMX Group Top 20 Largest – Consolidated Short Position Report – Highlights – August 15, 2012

Direct Edge Trading Notice #12-34: Route Peg Order Update

Hedge Funds & Managed Futures

Split in Private-Equity Funding
The private-equity industry is dividing between haves and have-nots. As investors become pickier and more closely scrutinize recent performance, some big names are finding it hard to raise as much money as they would like. But other buyout specialists are seeing a surprising surge of interest, helping them raise big, new buyout funds.

Hedge Funds, Grimacing, Open the Kimono
A new rule requires investment managers to tell the government more than they ever have before

Keynes, the hedge fund pioneer
Gavyn Davies –
The macroeconomics of John Maynard Keynes continue to dominate the global economic policy debate to this very day. But many have forgotten that the great intellectual was also one of the most active investors of his era.

[Video] Panic in Hedge Fund Land
According to a new study just 11 percent of hedge funds are beating the S&P 500 this year. We can’t help but think that there must be panic in hedge fund land!

UBS’s Rosen Said to Be Departing to Start Credit Hedge Fund
Lisa Abramowicz and Matthew Leising – Bloomberg
Eric Rosen, the co-head of UBS AG’s fixed-income, currencies and commodities business for the Americas, is leaving the bank next month, about a year after he joined, to start a hedge fund.

The World’s Biggest Hedge Fund Hotel Just Became The Biggest Ever – 230 Hedge Funds Own Apple As Of June 30
Zero Hedge
Three months ago when we looked at the latest quarterly hedge fund position tracker from GS, we were not surprised to learn that a record 226 hedge funds were long AAPL stock. And as the chart below proves, a major driver of the increasing price of Apple stock is that increasingly more hedge funds continue to simply pile into the name

Hedge Funds: Hayman: Safe-haven status of United States intact
Market Watch
With the euro zone in shambles and Japan hurtling toward a fiscal cliff of its own, the United States’ allure as a safe haven can only grow in the coming months.

BlackRock(R) Announces Final August Distributions on Certain Exchange-Traded Funds

Banks & Brokers

Effective CVA a necessity for banks
James Babicz – FOW
Since the start of the financial crisis, extreme market turbulence and increased regulatory scrutiny have brought counterparty credit risk management to the top of the banking agenda. The collapse of Lehman Brothers has led to a deterioration in confidence that financial institutions are capable of fulfilling their obligations to their counterparties. The continuing troubles in the Eurozone, combined with the widespread downgrading of Sovereign debt, have resulted in a loss of faith in the ability of nation states to fulfil their obligations.

India Scrutinizing Anti-Money-Laundering Systems of HSBC, StanChart
FOX Business
The Reserve Bank of India is examining the anti-money-laundering systems of the local operations of HSBC Holdings PLC and Standard Chartered PLC, the government said Wednesday.

Santander Defies Spain Woes to Sell First Bank Bonds Since March
Banco Santander SA is raising 2 billion euros from the first sale of senior unsecured bonds by a Spanish bank in more than five months.

Nomura Rethinks Its Strategy, With an Eye on Regulators
The insider-trading scandal that has rocked Nomura Holdings Inc. 8604.TO -1.38% this year was the last straw for Japanese regulators, who had already lost confidence in the leadership of the bank’s executives over a money-losing push into investment banking overseas, say people with knowledge of regulators’ thinking.

UBS Hires Grafstein as Co-Head of M.&A. in the Americas
UBS has hired Laurence Grafstein, a veteran deal maker, as a co-head of mergers and acquisitions in the Americas, the Swiss bank announced Tuesday in an internal memorandum reviewed by DealBook.

JPMorgan risk officer in ‘Whale’ trade retains lawyer
Crain’s New York Business
Another JPMorgan Chase & Co. risk manager, who worked for a division that lost at least $5.8 billion on a series of complex derivatives trades, has hired a lawyer in connection with probes into the so-called “London Whale” trading debacle, according to sources familiar with the investigations.

UBS Recruits Rothschild’s Grafstein as Co-Head of Americas M&A
UBS AG, Switzerland’s biggest bank, hired Laurence Grafstein from Rothschild to be co-head of mergers and acquisitions for the Americas.

Where are Nomura’s Former Lehmanites?
Wall Street Journal Blogs
When Nomura Holdings Inc. acquired the European and Asian arms of Lehman Brothers in 2008, a major objective was to secure the Wall Street bank’s talented bankers and their connections around the world to hedge funds and decision-makers at blue chip companies.

Clearing & Settlement

Cantor Fitzgerald to Launch Cantor Clearing
Cantor Fitzgerald & Co., a leading global financial services firm, plans to launch Cantor Clearing, a service providing clearing, settlement and technology solutions for financial services firms.

LCH.Clearnet to accept gold as margin collateral
Alex MacDonald – MarketWatch
U.K.-based clearing house LCH.Clearnet Group Ltd. said Tuesday that it will accept gold as collateral for margin cover purposes starting Aug. 28.

Indexes & Products

ETF Watch: Russell To Shutter All But 1 Of Its ETFs via Yahoo! Finance
Russell Investments , the money management firm that began launching its own ETFs in May 2011 with a distilled focus on indexed smart-beta strategies, will close all but one of its funds because they haven’t gathered the assets to justify their continued existence.

1,000 ETFs tradable on Xetra; Deutsche Börse has largest product offering and highest turnover in Europe
The five new equity index ETFs from db X-trackers mean that more than 1,000 ETFs have been tradable on Xetra since Wednesday. The product offering in the Deutsche Börse XTF segment thus remains the largest of all the European stock exchanges. This selection, together with an average monthly trading volume of E12 billion, makes Xetra Europe’s leading trading venue for ETFs. Its market share in European ETF trading is around 38 percent, with funds of more than E170 billion invested in ETFs.

S&P Dow Jones Indices Announces Changes To The S&P/TSX Canadian Indices – A Deletion From The S&P/TSX SmallCap And Global Mining Indices

STOXX Launches Broad, Size And Blue-Chip Indices For Emerging And Developed Markets – Further Indices Covering East Asia And Africa Are Added To STOXX Universe


Exponential-e To Provide Low Latency Connectivity Into London Metal Exchange – Direct Connectivity Of Up To 100Gig To The World’s Oldest And Largest Non-Ferrous Metals Market Offers Trading Institutions Ultra-Fast Deal Execution Speeds

KVH Announces Appointment Of New Sales Division Leaders – Sales Organization Realignment To Deliver Industry-Specific Solutions

Kurtosys Signs Data Redistribution Agreement With Morningstar UK


Finally, the FSA goes after the bucket shops
Posted by Paul Murphy – FT Alphaville
This is long over due. The British regulator is going after all those scumbags who have been peddling investments in things like bamboo, biofuels, land schemes and unlisted shares to the unwary.

SEC Brings Charges in Puerto Rico-Based Ponzi Scheme Targeting Evangelical Christians and Factory Workers
The Securities and Exchange Commission today charged a Puerto Rico resident and his company with conducting a Ponzi scheme that targeted evangelical Christians and factory workers in Puerto Rico.

Environmental & Energy

U.S. court strikes down EPA rule on coal pollution
A U.S. appeals court on Tuesday overturned a key Obama administration rule to reduce harmful emissions from coal-burning power plants, sparking a rally in coal company shares and relief among utility firms.

Obama Curbs on Coal Pollution Rejected by U.S. Court
A federal court threw out a U.S. Environmental Protection Agency rule aimed at cutting pollution from coal-fired power plants, dealing a blow to the Obama administration’s efforts to curb harmful emissions.

The 21st Century Corporation: The Ceres Roadmap for Sustainability
It analyzes the drivers, risks and opportunities involved in making the shift to sustainability, and details strategies and results from companies who are taking on these challenges. The Ceres Roadmap is designed to provide a comprehensive platform for sustainable business strategy and for accelerating best practices and performance.


HKEx To Introduce RMB Currency Futures On 17 September
Hong Kong Exchanges and Clearing Limited (HKEx) will introduce renminbi (RMB) currency futures on 17 September. The US Dollar vs Renminbi (Hong Kong) or USD/CNH* Futures contract will be the world’s first deliverable RMB Currency Futures.

Vietnam bank mogul’s arrest spooks investors
AFP via Yahoo! News
Vietnam said Tuesday it had arrested a top banking tycoon for illegal business activities, sending ripples through financial markets as the central bank urged the public not to panic.

Thai Bourse To Showcase Strong Fundamentals Of Thailand In Thailand Focus 2012
The Stock Exchange of Thailand (SET), together with Phatra Securities pcl and Bank of America Merrill Lynch, will hold “Thailand Focus 2012” during August 29-31 at the Four Seasons Hotel, Bangkok, under the theme, “Positioning Thailand for the Next Growth Phase,” to present Thailand’s growth opportunities and strengths of Thai listed companies to investors around the globe.

HKFE Announces Revised Margins For China Mobile Futures

Thai Alternative Bourse To List TV Direct On Aug 23

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