August 28 2013: SEC Sets Sept. 12 Meeting with Exchanges on Nasdaq Outage; Man Shuts Vision Fund in Overhaul of Guaranteed Products; JPM Fines May Hit USD600 Million

Aug 28, 2013

The SEC plans a mid-September meeting date to sit down with NYSE Euronext and Nasdaq to talk about what went wrong in last week’s market outage. Hedge fund manager Man Group is proceeding with its fund cleanup, and closes (among other things) a fund seeking returns via algo trading. Estimation’s of JPMorgan Chase’s liability in the London Whale trade continue to rise, and are now in excess of half a billion dollars.

First Read

High-frequency trading does not raise futures volatility -study
Volatility in futures contracts has remained largely stable in the face of increased participation from high-speed and algorithmic traders often blamed for roiling markets, according to a study issued on Tuesday.

***** Fighting the innuendo with facts.


CBOE Reports Technology Hiccups
Kaitlyn Kiernan and Jacob Bunge – MoneyBeat – WSJ
CBOE Holdings Inc., operator of the largest U.S. options exchange by trading volume, alerted traders to problems with some market-data services early Tuesday, according to notices on the exchange operator’s website.

***** This is shark attack week. It is not that there are a lot of shark attacks this week, but we are reporting them all.


Quick View: Exchange technology needs fresh approach
Philip Stafford –
Another August and the market is again fiercely debating its plumbing after another bout of glitches. […] However, the question rarely asked is whether the quality for engineering IT and technology in financial services is better, or at least equivalent to, that of other industries.

***JM: …specifically, “mission critical” industries in which failure causes loss of life or extreme hardship. Nail. Hammer. Bam. Hat tip also to Cinnober’s Veronica Augustsson, who pointed that out earlier this week (interview with Bloomberg here, if you missed the link in Monday’s JLN:


ISE Gemini Is The Fastest New Exchange To Surpass Two Percent Market Share In Equity Options
The International Securities Exchange announced that ISE Gemini surpassed two percent market share yesterday in equity options, the fastest exchange to reach that milestone since ISE introduced electronic trading to the options market in 2000. ISE Gemini also successfully concluded its product listing plan on an accelerated basis, less than a month after launching on August 5.

***** When the moon is in the seventh star, and Jupiter aligns with Mars, Gemini kicks butt.


Reinventing The Exchanges
Sang Lee – Wall Street & Technology
The global capital markets have seen significant changes over the last 15 years. The advent of the Internet and adoption of other innovative technologies has made exchange-traded markets more transparent than ever before and has substantially lowered the barrier to market entry. One of the most fascinating changes over the last decade has been the transformation of the exchange competitive landscape.

***** I think we have covered this over the last 15 years.


Speed vs. Surety: Weighing the Markets’ Crash Protection
Larry Tabb – TABB Forum
It seems as if almost every other day our markets are failing us. In the past week alone Goldman Sachs’ equity options models went astray and the Tape C SIP run by NASDAQ went offline, forcing all exchanges and dark pools to shutter trading. That doesn’t include “historical” technology “glitches” involving BATS, NASDAQ and Knight and the notorious Flash Crash

***** Surety is not sure. Surety is an extrapolation based on statistically significant testing. But it is still a guess. Like the 3 one hundred year floods we have had in Illinois in the last few years, sometimes estimates are not so good.


The BATS-Direct Edge Merger Is Next Step in Rapid Evolution of Financial Marketplaces
Watching the way that the world of stock exchanges has changed in the last quarter of a century can make you feel like you’re peering into a kaleidoscope and slowly turning the tube, watching as, with each revolution, the little pieces fall into entirely new patterns. Yesterday’s announcement of a merger between BATS Global Markets and Direct Edge Holdings is just the first piece of yet another new mosaic taking shape, one that may set the stage for an entirely new kind of competition among financial marketplaces.

***** How about this merger is a result of the pie getting smaller?


Hedge Fund Association Forms New Academic Advisory Board
The Hedge Fund Association today announced that it has formed a new academic advisory board to empower and educate students and others about the hedge fund industry. The board will hold HFA symposiums on campuses nationwide featuring well-known hedge fund managers and investors as guest speakers, along with hosting online webinars to teach the next generation of professionals not only about the industry, but also finance and ethics.

***** You must have a minimum of a 4.0 GPA to be on the board.


Microwave arms race gathers pace
David Wigan – FOW
There have been a number of headlines in recent months about increased competition in exchange traded derivatives, as global operators look to extend footprints and grab market share. However, behind the scenes a quieter and more savage war is being waged, not by exchanges but by those that trade on them.

***** It is not an arms race. You should not use war terms in describing business. It is wrong.


XP Investimentos Provides Clients Global ULL Access to BM&F Bovespa with Perseus
Perseus Telecom, a leading provider of ultra-low latency, high capacity global networks today announced that XP Investimentos with offices in Sao Paulo and New York, has established an ON-NET presence on the Perseus Telecom global exchange network.

***DA: Brazilian regulators have finally committed to easing the restrictions on foreigners trading its markets. Good to see our friends at Perseus facilitating global connectivity.


Carl Icahn Scoops His Own Tweets on His Fund’s Returns
David Benoit – MoneyBeat – WSJ
Carl Icahn is taking tweeting disclosures to a new level. The activist investor has been tweeting and then putting the tweets in securities filings with the SEC since late June. But Tuesday, his firm, Icahn Enterprises, filed the securities document before the tweets were actually released.

***** There is the tweet, the re-tweet and now the pre-tweet.



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Lead Stories

SEC Sets Sept. 12 Meeting with Exchanges on Nasdaq Outage
Jacob Bunge – MoneyBeat – WSJ
Securities and Exchange Commission Chairman Mary Jo White plans to meet with stock-exchange executives Sept. 12 to review last week’s outage in Nasdaq-listed stocks, a spokesman for the agency said Tuesday.

***** Sept. 12 is the day of the CFTC’s Technology Advisory Committee meeting too. The SEC is playing political games with the timing of this meeting. Shame on them.

Man Shuts Vision Fund in Overhaul of Guaranteed Products
Man Group Plc , the world’s biggest publicly traded hedge-fund manager, is shutting a range of products that aimed to protect clients from losses after they failed to meet performance targets.

***** I just can’t watch this anymore.

JPM Fines May Hit $600 Million
Dan Fitzpatrick – MoneyBeat – WSJ
J.P. Morgan Chase & Co.’s penalties to resolve various probes of the “London whale” trading fiasco are expected to total $500 million to $600 million, according to people close to the situation.

***** This is just the weekly total for fines for JPM.

Notenstein Emerges From the Dark Shadow of Wegelin Bank
A successor is rising from the ashes of Wegelin & Co., Switzerland’s oldest bank and the target of a U.S. legal takedown for aiding tax evasion by Americans.

How Wide Is Your Wage Gap? New Rule Would Reveal CEO Pay vs. Employee Pay
Halah Touryalai – Forbes
Transparency is great unless maybe you’re a multi-million-earning CEO whose employees are making minimum wage. A new proposed SEC rule would require public companies to report how much their employees are earning compared with the CEO.

NSEL lost direct marketing licence from M’rashtra 9 months ago
Business Standard
Troubles started brewing at crisis-hit NSEL even nine months ago with Maharashtra Agriculture Department cancelling its direct marketing licence after finding irregularities at the bourse.

Govt appoints two groups to probe NSEL crisis
Business Standard
Two working groups have been constituted within a larger task force to probe developments in the crisis-ridden National Spot Exchange Ltd (NSEL) and suggest ways to thwart any systemic risks.

NSEL defaults but pays off small investors
Business Standard
After defaulting for a consecutive time in paying its investors, National Spot Exchange Ltd (NSEL) got a Rs 177-crore lifeline from its main promoter, Jignesh Shah-run Financial Technologies. This money, taken as bridge loan, will be used to clear payments to small investors.

Eurozone is heading for a relapse back into crisis
Satyajit Das –
Since mid-2012, the European financial crisis has been in remission, with the symptoms of the underlying disease temporarily suppressed. A combination of austerity programmes, debt writedowns, the European Central Bank’s commitment to “do whatever it takes” to preserve the euro, the proposed banking union and the finalisation of the European Stability Mechanism, the primary bailout fund, helped restore relative financial stability. Interest rates fell in peripheral countries and stock markets rallied, without any recovery in the real economy. As treatment is discontinued or loses efficacy, there is a high probability of a relapse.

Inside the Bitcoin advocates’ closed-door meeting with federal regulators
Brian Fung – Washington Post
The U.S. government took the latest step toward regulating virtual currencies on Monday as representatives from the Bitcoin Foundation met behind closed doors with federal officials in Washington. Attendees say the meeting was cordial, with regulators listening carefully as Bitcoin advocates warned that excessive regulation could drive innovation in virtual currencies overseas.

***** Bitcoin gives the overseas competition defense. The problem is there is no national interest in keeping Bitcoin in the U.S.


A Simple Solution That Made a Hard Problem More Difficult
Congressional leaders, in their rage against ever-rising executive compensation and income inequality, have created more murkiness. The irony is that it all came out of such a simple-sounding idea: requiring that the pay of a company’s chief executive be compared to the median salary of its employees. Carrying out the law may well result in costs that are just as obscene as the pay it is disclosing.

SEC Issues Risk Alert on Investment Advisers’ Business Continuity and Disaster Recovery Planning
The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE) today issued a Risk Alert on business continuity and disaster recovery planning for investment advisers.

Basel Committee Recommends Reporting Improvements
Nicholas Hamilton – WatersTechnology
The Basel Committee on Banking Supervision says enhanced disclosures by banks, including granular data on asset class mixes, may be needed to improve understanding of risk-weighted assets

Agency desks hopeful new protocol will solve Dodd-Frank issues
Robert Mackenzie Smith – FX Week
A preliminary protocol to enable four-way FX prime brokerage involving agency desks has been agreed ‘in principle’ and could allow agencies to scale up their activities, having been largely reduced to spot since May

Interpretive Notice: NFA Compliance Rule 2-9: FCM and IB Anti-Money Laundering Program
An explanation of the amendments to the Interpretive Notice can be found in the August 27, 2012 rule submission letter

[India] Commexes get a new set of rules on accountability
Business Standard
In the wake of the developments at National Spot Exchange Ltd (NSEL), the Forward Markets Commission (FMC), the commodity markets regulator, issued a circular on Tuesday making managing directors (MDs) and chief executive officers (CEOs) more accountable to their board of directors and to itself.

[FCA] Arrangements for the disclosure of regulated information

[FCA] Changes to the Listing Rules resulting from new regulations being implemented by BIS

Exchanges & Trading Facilities

Bats CEO Sees Stock Data Value Rising From Merger
Sam Mamudi – Bloomberg
Combining Bats Global Markets Inc. with Direct Edge Holdings LLC should help the company compete with larger exchange operators selling market data, Chief Executive Officer Joe Ratterman said.

TMX Group Launches Canadian Implied Volatility And Greeks Analytics Feed
TMX Group today announced the launch of a new analytics feed for options traded on Montréal Exchange Inc. (MX), a wholly-owned subsidiary of TMX Group Limited and Canada’s derivatives exchange. TMX Datalinx, the information services division of TMX Group, will make the new feed available to the options trading community through the TMX Atrium global network and other content distributors.

SIX Achieves Strong Operating Profit In The First Half Of 2013
Operating income rises 4.3% in the first half of 2013. All business areas contributed to this growth, particularly the international business of Payment Services
Earnings before interest and tax (EBIT) amount to CHF 116.6 million (-67.5%). Adjusted by the gain on disposal of the Eurex investment in 2012, EBIT increases 25.2% or CHF 23.5 million compared to the previous year. All business areas have improved their results

MIAX Options Holiday Schedule – Labor Day

Hedge Funds & Managed Futures

Mixed picture emerges on hedge fund fee structures
Margie Lindsay –
Hedge fund management fees on average are rising while incentive fees fall. However, FoHF performance fees are rising as management fees drop, according to a fee structure study by eVestment

Newedge research shows CTA capacity concerns overblown
Kris Devasabai –
Research from Newedge suggests growth in assets will have muted impact on CTA performance

Argentine roulette
Joseph Cotterill | FT Alphaville
They did it! They finally did it, post-Second Circuit fiasco. We first looked at the why and how of using a local-law swap to get round the pari passu problem which Argentina has made for itself — back in November. That’s how interminable this pari passu saga has been.

Commodity Trading Advisor Database and Managed Futures Resource Center Now Available at
aiSource, an industry leader in providing Managed Futures data to assist investors with their investment decisions, announces the launch of an expanded Commodity Trading Advisor database and Managed Futures Resource Center

Banks & Brokers

Barclays Names Lindley as Sole Investment Banking Head in Australia, NZ
Enda Curran – MoneyBeat – WSJ
Barclays has appointed Tim Lindley as sole head of investment banking in Australia and New Zealand, according to a person familiar with the matter.

U.S. seeking $6 billion from JPMorgan to settle mortgage claims: source
U.S. government housing finance authorities are pressing JPMorgan Chase & Co for at least $6 billion to settle lawsuits over bonds backed by subprime mortgages, according to a person familiar with the matter.

Obama source predicts Summers will be named Fed chief soon
A source from Team Obama told CNBC that Larry Summers will likely be named chairman of the Federal Reserve in a few weeks though he is “still being vetted” so it might take a little longer.

N.Y. appeals court revives claims against Charles Schwab
Reuters via Yahoo! News
By Daniel Wiessner NEW YORK – A New York state appeals court has revived a lawsuit brought by the state attorney general’s office against Charles Schwab & Co Inc over claims that the brokerage firm fraudulently marketed auction-rate securities.

Clearing & Settlement

BRIEF-CME ups initial margins for corn, soybean, soybean meal futures

Indexes & Products

Three New SPDR-ETFs Launched On Xetra – ETFs Track Government And Corporate Bonds

STOXX Changes Composition Of Benchmark Indices – Results Of The Third Regular Quarterly Review To Be Effective On September 23, 2013


Strike Technologies Microwave Network Enables 4.17 Millisecond Latencies Between CME And NASDAQ Datacenters
Strike Technologies Services LLC today announced the completion of a major upgrade to StrikeNET, its ultra-low-latency microwave network connecting the CME and NASDAQ datacenters at Carteret, NJ, and Aurora, IL.

***JM: Reposted, with corrections from yesterday’s release.

ConvergEx Taps Ardell for CIO
Anthony Malakian – WatersTechnology
ConvergEx Group has named Gary Ardell as its chief information officer, and he will also be part of the company’s executive committee.

AlgoSpan Adds Low-Latency Access to Swiss Exchange Co-Location


SEC Sanctions Colorado-Based Portfolio Manager for Forging Documents and Misleading Chief Compliance Officer
The Securities and Exchange Commission today sanctioned a former portfolio manager at a Boulder, Colo.-based investment adviser for forging documents and misleading the firm’s chief compliance officer to conceal his failure to report personal trades.

Merrill Lynch in Big Payout for Bias Case
Merrill Lynch, one of the biggest brokerage firms on Wall Street, has agreed to pay $160 million to settle a racial bias lawsuit that wound through the federal courts for eight years, including two appeals to the United States Supreme Court.

Bank Executive Admits to Using Bailout Money to Buy Condo
In November 2008, during the depths of the financial crisis, Darryl Layne Woods, a bank executive in Missouri, applied to the United States Treasury for bailout money. His bank received $1 million.

Queensland man convicted of fraud following ASIC investigation

ASIC takes action against rental company’s franchisees

ASIC review prompts car financiers to refund more than $15 million

Environmental & Energy

China Power Seen Doubling With Renewables as Coal Holds Sway
China’s generation capacity will more than double to 2030, with half of all new plants powered by renewable energy and coal remaining the most important fuel, analysts said.

China’s emissions could peak by 2023 with introduction of ETS
Responding to Climate Change blog
Emissions in China could peak as soon as 2023 if a carbon pricing mechanism is introduced, according to new research by Bloomberg New Energy Finance. Assuming a best case scenario, where barriers to the adoption of clean technologies are eliminated by policy makers and an emissions trading scheme is adopted in 2017, economists have concluded that China’s carbon emissions could start to decline as early as 2023.

Linking Carbon Supply to Growth Is Complicated, PwC’s Grant Says
Jonathan Grant, director of sustainability and climate change at PricewaterhouseCoopers LLP in London, comments on rule changes being considered to the European Union emissions trading program, in an e-mailed response to questions on Aug. 23.


Entrepreneurs in China Find Money Easier, But Challenges Remain
Sonja Cheung – MoneyBeat – WSJ
Setting up a business is never easy, but entrepreneurs in China say they have greater access to funding than those in more developed markets like Canada, Australia and Japan, while the cost of starting up a mainland enterprise falls way below the average seen across other Group-20 economies, a new survey shows.

Rule Change Brings IPOs in Thailand
P.R. Venkat And Nopparat Chaichalearmmongkol – MoneyBeat – WSJ
Investors may be fleeing from emerging markets, but Thailand’s tycoons are gearing up for more than $4 billion in initial public offerings before the year is out, capitalizing on ample domestic liquidity and racing against time in the face of imminent regulatory changes.

Why $3.4tn in foreign reserves is not China’s escape hatch
Paul J. Davies | FT Alphaville
After trying to work out how big China’s bad debt problem might be, many people still turn round and point to the country’s mammoth foreign exchange reserves as its great get-out clause. The idea is seductive.

Thailand Focus 2013 Gains Unprecedented Foreign Investment Interest
Thailand Focus 2013, organized by The Stock Exchange of Thailand (SET), Phatra Securities pcl and Bank of America Merrill Lynch, welcomed 186 institutional investors worldwide joining in the event, under the theme “Connecting to New Investment Frontiers,” and to meet with 112 listed companies during August 28-30 in Bangkok.

President Of Kenya Visits Shenzhen Stock Exchange

Frontier Markets

Bursa Malaysia Derivatives’ Volume Hits Daily Historical All Time High
Bursa Malaysia hits a daily historical all time high of 91,449 contracts traded including negotiated large trades at the close of market on 27 August 2013. The previous record volume was achieved on 25 June 2013 when the total volume traded was 87,123 contracts.

The rupee is where? Currency collapse confounds India Inc
Indian companies such as Whirlpool of India Ltd say they can’t plan more than a couple of months out as a fast-falling rupee currency drives up the cost of imports, forcing them to raise prices even as consumer spending crumbles.

Dubai court dismisses Kuwaiti Sheikh’s $21 million claim against UBS
A Dubai court has dismissed a Kuwaiti sheikh’s $21.4 million claim against UBS AG in which he alleged the Swiss bank failed to pay him for helping it become lead arranger on a $9 billion asset sale by Kuwaiti telecom operator Zain.

Fed Shouldn’t Ignore Emerging Market Crisis
Alen Mattich – MoneyBeat – WSJ
Leading central bankers seem to be viewing the crisis currently gripping emerging markets with a touch of Schadenfreude. Maybe they shouldn’t be.

RBI suggests banking sector overhaul
Business Standard
The Reserve Bank of India (RBI) has proposed a comprehensive overhaul of the country’s banking structure, to increase competition and growth, and for further financial inclusion.

Two More Auditors Reprimanded By Malaysia’s Audit Oversight Board

Emirates Mulls Sukuk for $4.5 Billion in Planes: Islamic Finance
Emirates, the world’s biggest airline by international passenger traffic, is considering the sale of Islamic bonds as it seeks to raise $4.5 billion in the financial year starting April 2014 to pay for planes.

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Past JLN Newsletters

CME to permanently close most trading pits

CME to permanently close most trading pits

First Read $40,626/$300,000 (13.5%) Anonymous ++++ Hits & Takes John Lothian & JLN Staff Without fanfare or amplification from its executives, the CME Group shut the books on most -- but not all -- of its floor trading history Tuesday afternoon with the...

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