Here comes change: derivatives trading dominated by big banks may radically shift market composition as new electronic platforms enter the game as major players. Curious at-the-close trading patterns in currencies provide evidence that currency traders may have been using those markets to rig benchmarks. JPMorgan’s hiring practices in China look increasingly suspicious as a spreadsheet surfaces tying deals to hires.
FIA Volatility Study is Preaching to the Choir
Dan Collins | Dan Collins Report
Not to throw a wet towel around the Futures Industry Association’s (FIA) recently released study on volatility in futures markets or the academics — Robert E. Whaley and Nicolas P.B. Bollen from the Vanderbilt University’s Owen Graduate School of Management — responsible but it appears self-serving and I doubt its ability to change minds on high frequency trading.
***** Dan Collins is an anti-academic skeptic? Who knew? One study does not make a open and shut case, but this one is a good start. Academic work is the foundation for serious discussion about issues. Mr. Collins mistakes superfluous quotes in the press as serious thinking. While there is a serious public relations issue here, which Mr. Collins notes, academic research should be the foundation of the response. It should not be the only response, but it should be independent, rigorous and compelling.
***DA: MarketsReformWiki has summaries, links and embedded documents on a nice selection of HFT studies; take a look at that page here: jlne.ws/1flodpl
Bats-Direct Edge a `Competitive Play’: Ratterman: Video
Joe Ratterman, chief executive officer of Bats Global Markets Inc., talks about the electronic stock market’s planned merger with Direct Edge Holdings LLC and the growth prospects for the combined company. Ratterman, speaking with Erik Schatzker on Bloomberg Television’s “Market Makers,” also discusses last week’s trading outage at the Nasdaq Stock Market.
***** I am skeptical about the growth prospects for the merged company. I am more optimistic about the cost-cutting prospects for making the combine company more efficient. Of course, we are approaching a potential paradigm shift in the equities markets, with NYSE Euronext being acquired by ICE and NASDAQ OMX’s continued technology problems. This could lead to more market share opportunities, but can the new company make any money from this. Jeff Sprecher may want to get rid of some equities volume he does not make money on, but this is hardly a profit bonanza for BATS-Direct Edge.
Tradeweb and MarketAxess are bidders for BondDesk -sources
Institutional fixed-income trading platform providers Tradeweb and MarketAxess are among three bidders for BondDesk Group LLC in a deal that is expected to be valued up to $200 million, two sources familiar with the situation told Reuters this week.
***** I am surprised NASDAQ OMX is not a player for Bond Desk. This would fit with their acquisition of Espeed.
ISE and Moscow Exchange Sign Memorandum of Understanding to Facilitate Information Sharing
The International Securities Exchange (ISE) and Moscow Exchange announced today that they have signed a Memorandum of Understanding (MOU), in which the two exchanges agreed to share information relating to various financial instruments traded through their respective facilities.
***** If I were going to invest in the Russian market, I would use options. Smart thinking from my friends at the ISE as they are the first US options market to sign an MOU with the Moscow Exchange.
New Incentive Scheme From Eurex To Mark Three Years Of Eurex KOSPI Product
On the third anniversary of the Eurex/KRX Link, the international derivatives market Eurex Exchange drew a positive balance on the product cooperation. To celebrate this milestone and in recognition of its success, Eurex Exchange is waiving trading fees for the Eurex KOSPI Product for the month of September.
***** Waiving fees is a way of building liquidity, which is a way of building profitable new contracts.
Andy Kessler: Hedge Funders Are All a Little Nuts
ANDY KESSLER – WSJ.com
Hedge funders are in the news. Carl Icahn tweets about his dinner with Apple’s Tim Cook. Dan Loeb tussles with George Clooney. Bill Ackman says Herbalife is a pyramid and shorts the stock; George Soros goes long. If you want to understand the guys who run hedge funds, you first have to realize that they—we—are a little nuts.
***** The new normal is nuts. The old normal was nuts too.
Shake-up looms in Singapore banking, wealth managers warn
Jeremy Grant in Singapore – FT.com
Intense competition, a tendency for wealthy Asians to use multiple private bankers and high staff costs are likely to force consolidation in the wealth management business in Singapore and could push operators out of business, top private bankers have warned.
***** Who is this Jeremy Grant guy?
Newedge Hosts Second Annual Seminar for China Futures Association in Chicago
Newedge, a global leader in multi-asset brokerage and clearing, hosted its second annual China Futures Association seminar in Chicago earlier this week for a delegation of senior executives from nearly 40 of China’s top futures commission merchants (FCMs). The day-long event was developed to foster strategic cooperation, provide insight into opportunities in the international futures market, as well as create a forum to discuss global challenges and shared solutions.
***** Lots of FCMs met with the CFA. Newedge put out a press release about it.
The need for speed: Value at Risk goes real-time
Georges Bory – FOW
The speed and pace of the world’s capital markets has increased exponentially over the last decades, with the decline of the open outcry system and the automation of trading and execution. This acceleration of market activity and trading has generated increased volatility, creating new opportunities for traders, but also heightening risks.
***** The value at risk was always real-time. The ability to calculate Value at Risk was not.
Highest-paid U.S. CEOs are often fired or fined: study
About 40 percent of the highest-paid CEOs in the United States over the past 20 years eventually ended up being fired, paying fraud-related fines or settlements, or accepting government bailout money, according to a study released on Wednesday.
****** This sounds like a high frequency of greed and stupidity. But the stupidity goes both ways, them and us.
MarketsWiki Recent Updates
Companies, Organizations and Groups
43,258,622 pages viewed, 7,633 articles, 163,869 edits
Girding for battle as electronic derivatives trading revived
The $300 trillion privately traded U.S. derivatives markets could be on the verge of the biggest change in their 30-year history if investors embrace new electronic trading platforms that would reduce the market dominance of large banks.
Currency Spikes at 4 P.M. in London Provide Rigging Clues
Liam Vaughan & Gavin Finch – Bloomberg
In the space of 20 minutes on the last Friday in June, the value of the U.S. dollar jumped 0.57 percent against its Canadian counterpart, the biggest move in a month. Within an hour, two-thirds of that gain had melted away.
JPMorgan Bribe Probe Said to Expand in Asia as Spreadsheet Is Found
Dawn Kopecki – Bloomberg
A probe of JPMorgan Chase & Co.’s hiring practices in China has uncovered red flags across Asia, including an internal spreadsheet that linked appointments to specific deals pursued by the bank, people with knowledge of the matter said.
Merrill Lynch to pay $160 mn for racial bias: lawyers
AFP via Yahoo! News
Brokerage Merrill Lynch and its parent Bank of America will pay $160 million to settle charges it discriminated against African-American employees, lawyers for the employees said Wednesday.
U.S. and Switzerland Are Close to Deal on Penalizing Banks in Tax Case
Switzerland and the United States are close to announcing an agreement to end their long dispute over how to punish banks that helped Americans evade taxes, banking and government officials said on Wednesday.
Federal Reserve Employees Afraid To Speak Put Financial System At Risk
Regulators overseeing the nation’s largest financial institutions are distrustful of their bosses, afraid to speak out, and feeling isolated, according to a confidential survey this year of Federal Reserve employees.
Critics assail industry-sponsored study on HFT
Alexander Osipovich – Risk.net
An industry-sponsored study that concluded high-frequency trading (HFT) does not increase volatility in futures markets has been attacked by critics, who say it does not provide the right evidence to support its findings.
NSEL declares 10 more members as defaulters; takes tally to 19
Crisis-ridden NSEL today declared ten more entities as defaulters after they failed to pay their dues on the second-pay out, taking the number of members who are to pay dues at 19. The exchange also declared the name of clients who traded through defaulting members.
Will honour all promises; ready for scrutiny: NSEL’s Shah
NSEL founder Jignesh Shah today responded to the allegations of unethical practices at the exchange. Addressing the media today, Shah denied all such charges, and added that he was willing to face any probe.
Agencies Request Comment on Proposed Risk Retention Rule
Six federal agencies today issued a notice revising a proposed rule requiring sponsors of securitization transactions to retain risk in those transactions. The new proposal revises a proposed rule the agencies issued in 2011 to implement the risk retention requirement in the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Regulators Ease Mortgage Rules
Federal regulators retreated from a proposal that would have toughened rules for the mortgage securities market, a defeat for advocates of tighter standards and a victory for the housing lobby.
Rumblings from the Regulators
DTN / The Progressive Farmer
CFTC appears poised to move on its controversial customer protections rule as well as take the first baby steps towards reining in high frequency traders.
National Futures Association: Consolidation of Arbitration Claims Involving Customer Segregated Funds Losses – Proposed Amendments to NFA’s Code of Arbitration
The Need For Effective Regulation Of The Asset-Backed Securities Market, Commissioner Luis A. Aguilar, U.S. Securities And Exchange Commission
Statement On The Re-Proposal Of Rules Related To Risk Retention, Commissioner Kara M. Stein, U.S. Securities and Exchange Commission
Statement Regarding Joint Rule Reproposal Concerning Credit Risk Retention, Commissioner Michael S. Piwowar, Securities And Exchange Commission
Exchanges & Trading Facilities
Argentine Technology Firms Plans I.P.O. on N.Y.S.E.
Globant, an Argentine software and information technology services company, has filed to go public on the New York Stock Exchange, in a move to broaden its reach.
Six Group on track for M&A
Suzi Ring – Financial News
Six Group, the operator of Switzerland’s national stock exchange, has reported a 32% increase in net profit for the first half of 2013, as the group gears up to make acquisitions across the business.
Moscow Exchange Announces Results For The Second Quarter Of 2013
OneChicago Holiday Notice – Labor Day 2013
Direct Edge Trading Notice #13-37: Market Holiday Reminder – Labor Day
Hedge Funds & Managed Futures
Hedge Funds Emerge From The Bunker
Abheek Bhattacharya – MoneyBeat – WSJ
While many investors have been running away from emerging markets, one set of money managers is seeing opportunity: hedge funds.
Hedge fund Karsch Capital to shut down after 13 years: letter
Hedge fund manager Michael Karsch is shutting down his 13-year-old firm, Karsch Capital Management, in order to “think about the next chapter” of his career.
U.S. judge tosses BlackRock iShares compensation case
BlackRock Inc has won the dismissal of a lawsuit claiming it looted securities-lending revenues from iShares exchange-traded funds investors, with a U.S. judge ruling the plaintiffs did not have a right to bring the case against the money manager.
Blackstone to pay $85 million to settle lawsuit over IPO | Reuters
Blackstone Group LP has agreed to pay $85 million to settle an investor class action lawsuit accusing the private equity giant of not disclosing bad investments before its $4.7 billion initial public offering in 2007.
Pimco, the Bond-Fund Heavyweight, Plans to Push ‘Alternative Funds’
KIRSTEN GRIND – WSJ.com
Pacific Investment Management Co., the world’s largest bond-fund manager by assets, wants to hang more with the hedge-fund crowd. The firm, based in Newport Beach, Calif., is planning an expansion of its alternative-investments business in the coming months aimed at both individual and institutional clients, including potentially launching new funds invested in assets such as distressed debt in Europe.
Can another code of conduct improve buyside standards?
Joe McGrath – Financial News
Being told to “put your money where your mouth is” by an organisation co-founded by former Big Brother contestant Derek Laud, may not sound like the most enlightening guiding principle for fund managers, but apparently it is one worth repeating.
Investcorp makes strategic hire with Elena Ranguelova joining hedge fund group
Investcorp’s U.S.-based Hedge Fund business announced today that Elena Ranguelova has joined the firm as Head of Credit and Equity Strategies.
Banks & Brokers
Zurich chairman Ackermann resigns over suicide of CFO
Josef Ackermann, the chairman of Zurich Insurance and former Deutsche Bank boss, resigned on Thursday over the apparent suicide of the insurer’s chief financial officer, further roiling the top ranks of the firm.
Meet Libor’s New Characters: One Sings, One’s a Bit of Wall Street Legend
David Enrich – MoneyBeat – WSJ
Two senior executives at Citigroup have joined the growing cast of characters in the Libor saga, as we reported this morning. Both men have colorful backgrounds.
Mark Carney: From Forward Guidance to Hidden Guidance
Simon Nixon – MoneyBeat – WSJ
The markets were hoping that Mark Carney might use his first major speech as Governor of the Bank of England to say something new. Having bet over the past month that the BOE would be forced to raise rates sooner than 2016, the timeframe Mr. Carney had indicated, they were at least hoping he might say something to convince them they had been wrong. But Mr. Carney said almost nothing that was new. Even the thing that he said was new turned out not to be so new.
Barclays hires investment bankers to lead metals and mining team
Barclays hired two investment bankers to lead its global metals and mining team, luring them away from rival UBS and boutique investment bank Liberum Capital.
Citadel among bidders for ETrade unit: sources
Citadel LLC, Virtu Financial, Two Sigma and RGM Advisors are among the companies bidding for E*Trade Financial Corp’s market-making unit in a deal expected to be worth $100 million to $200 million, several sources with direct knowledge of the situation said on Wednesday.
The 7 Most Galling Allegations In The Huge Merrill Lynch Racial Bias Suit
Business Insider via Yahoo! Finance
The news Wednesday that brokerage giant Merrill Lynch is paying $160 million to settle a lawsuit claiming it discriminates against black brokers is a huge deal.
Bank of America Veteran Banker Michael Tan Moves to Credit Suisse
Cynthia Koons – MoneyBeat – WSJ
Longtime Bank of America Merrill Lynch financial institutions banker Michael Tan has left the bank, but will remain in Hong Kong to take up a similar role at Credit Suisse, according to people familiar with the matter.
Barclays Hires Deutsche Bank’s Zhou for China Investment Banking
Barclays Plc, the U.K.’s second- largest lender by assets, hired Deutsche Bank AG Vice President Zhou Bo for its investment banking team to help cover natural- resources clients in China.
Mark Carney’s full speech: “Crossing the threshold to recovery”
Clearing & Settlement
Tradency Goes Institutional: Partners With CFH Clearing For Mirror Trader Availability
The social trading phenomenon has become extremely widespread among retail FX brokers over recent times, with advantages for brokers that volumes generated by new traders can be boosted significantly. On the institutional side however, there has been less requirement for such a facility, due to the more corporate nature of this particular sector. Today, however, social trading provider Tradency has entered into an alliance with CFH Clearing in order to integrate the company’s interbank clearing technology with Tradency’s Mirror Trader platform to provide brokers with an effective combination of front end and back end technology.
Indexes & Products
Portuguese PSI 20 index with new rules in 2014
AEX-Index selection to be based on free float market capitalization
Algo-Logic Systems Launches Full Order-Book Running On Single-FPGA Platform
Algo-Logic Systems, a recognized leader in providing hardware-accelerated, deterministic, ultra-low-latency products, systems and solutions for accelerated finance, packet processing and embedded system industries, yesterday announced availability of their new Full Order-Book solution.
KDD Central Securities Clearing Corporation Chooses Swift To Connect To T2S
Regulators Prepare Penalties for JPMorgan
JESSICA SILVER-GREENBERG and BEN PROTESS – NYTimes.com
wo federal regulators are preparing a series of enforcement actions and fines against JPMorgan Chase stemming from its dealings with consumers during the recession, presenting the latest legal threat to the nation’s biggest bank.
Options regulatory entity asked to look at unusual Leap call trades
Options market maker Timber Hill said it has asked the Options Regulatory Surveillance Authority to look into unusual bullish option trades in wireless carrier Leap Wireless International Inc ahead of a takeover deal announced on July 12.
New Zealand’s Financial Markets Authority: David Ross Pleads Guilty
Wellington financial adviser David Robert Gilmour Ross (63) today pleaded guilty in the Wellington District Court to charges laid by the Serious Fraud Office (SFO) and the Financial Markets Authority (FMA).
Environmental & Energy
EU Narrows Down Carbon-Market Overhaul Options, Hedegaard Says
The European Union’s regulatory arm is winnowing down the options for a long-term overhaul of the world’s biggest carbon market and aims to reach a decision in the coming months, EU Climate Commissioner Connie Hedegaard said. ‘
Ballooning costs threaten Merkel’s bold energy overhaul
Angela Merkel’s “green revolution” risks becoming a victim of its own success.
PEGAS: Successful migration of EEX Spot Market
As from today, the natural gas products listed on the Spot Market of the European Energy Exchange (EEX) are tradable on PEGAS, the joint platform of EEX and Powernext.
Thai Bourse Firms Up Cooperation With Cambodia, Laos And Vietnam Exchanges
The Stock Exchange of Thailand (SET), together with other stock exchanges in Greater Mekong Subregion (GMS) – Cambodia, Hanoi, Hochiminh and Laos –, announced that they will collaborate to strengthen the region’s competitiveness and raise its global profile during the first GMS exchanges CEOs meeting ‘GMS Focus’, hosted by SET, as a platform for closer collaboration among GMS exchanges.
Can BOJ Be Model for Public Pensions?
Eleanor Warnock – Japan Real Time – WSJ
What can the world’s largest institutional investor learn from the Bank of Japan? A lot, say pension experts, and officials at Japan’s national pension, the world’s biggest asset owner and manager of retirement money.
Japan Commodity Clearing House SPAN Parameter file, applicable from September 2, 2013
[TSE] New Listing Guidebook
Thai Bourse Lowers Minimum Volume For Block Trade, Effective September 2, 2013
HKFE Announces Margin Rates For Adjusted CMB Futures Contracts
BRICS agree capital structure for development bank: WSJ
The BRICS bloc of large emerging economies have agreed on the capital structure for a proposed development bank that aims to reduce their reliance on Western financial institutions, the Wall Street Journal reported.
Mongolia Is Feeling Friendlier Toward Foreign Investors
CHUIN-WEI YAP – WSJ.com
BEIJING—Mongolia is moving toward scrapping a year-old law restricting foreign ownership of what the country deems strategic assets, including mines, as it struggles to reverse the effects of resource nationalism and a global commodity slump.
Overseas Indians look other way as growth fades
The patriotism of wealthy overseas Indians has helped the country avert economic crises in the past and it is little surprise that embattled policymakers are turning to them again to plug a record trade gap that is battering the rupee. This time, though, big investors among the more than 25-million overseas Indian community – the world’s second-largest diaspora – are staying away as the economic outlook darkens and political instability looms ahead of national elections.