John Lothian Newsletter: Report Says Fed Broke Its Own Secrecy Rules; U.S. Overseas Hiring Probe Has Wide Net; Swiss Agree on Penalties for Banks That Aided Tax Cheats

Aug 30, 2013

The Fed’s inspector-general says that the central bank broke its own rules for secrecy when it inadvertently released its minutes a day early, earlier this year. US regulators continue to widen their probe of overseas hiring practices, and are asking questions of many banks and hedge funds. After a very long negotiation process, Switzerland and the USA have reached an agreement on how to punish Swiss banks for helping people hide income from taxation.

First Read

No Newsletter on Monday
John Lothian
Have a safe and happy Labor Day weekend in the US. To our foreign readers, enjoy your work Monday, and we’ll be back on Tuesday with the next edition of the newsletter.


Futures Industry Needs to Make its Case
Dan Collins | Dan Collins Report
The John Lothian Newsletter commented on a post I wrote on the Futures Industry Association’s recently released study on volatility in Futures. It stated, “Dan Collins is an anti-academic skeptic — who knew? “ Here is my response:
Dear John,

No I am not an anti-academic skeptic –though I do have to admit becoming somewhat cynical regarding academic studies because so many are commissioned by an industry with an agenda and whose profit potential is affected by its outcome or from a group that already has an opinion on what is to be studied and are looking for a way to validate that opinion.

For the rest of Dan’s response, visit his site, The Dan Collins Report

***** Legitimate criticism of academic studies comes from peer review and further research, not from blog review and commentary. However, Mr. Collins’ criticism is noted, and next time there’s a study about the benefits of chocolate in Hershey, PA, I will be more circumspect.


U.S. futures industry regulator NFA comes under fire from within
A U.S. futures industry regulator is falling short in its attempt to keep tabs on brokers and asset managers, more than a year after the collapse of one brokerage under its oversight that cost clients hundreds of millions of dollars, according to one of the regulator’s directors.

***** That is a fairly common view throughout the industry and thus not surprising. The NFA needs to do a better job of communication, but what organization has no room for improvement?

***DA: The story references a study on NFA practices in the wake of the PFG debacle. View that document along with a summary and links on MarketsReformWiki:


Mark Ibbotson departs as co-chief of NYSE Liffe after 20 years
Philip Stafford –
Mark Ibbotson has departed as co-chief executive of NYSE Liffe, ending a career of more than 20 years at the London derivatives exchange. Mr Ibbotson, who joined Liffe in 1990, was made joint chief executive of NYSE Liffe alongside Finbarr Hutcheson just over a year ago. He was given responsibility for exchange trading, clearing and regulation to add to his title as global head of clearing at NYSE Euronext.

***** Never bet against somebody named Finbarr.


Shutdown at Nasdaq Is Traced to Software
Though the Nasdaq market calls itself home for the stocks of the world’s biggest technology companies, the exchange acknowledged on Thursday that a three-hour halt in trading arose from a problem with its software.

***JM: Kind of a funny (“funny-weird”, not “funny-ha-ha”) analysis. The release seems to imply that when a server gets hit with a data tsunami, of course it’ll just roll over and fail. I’m hoping it’s just the way it was explained, because that kind of thinking from a fault-tolerance team would be pretty lame. Buuut… then I read about how they’re sad because the backup systems didn’t take over properly. “If Arca had still been flooding you, how would starting a backup SIP have helped?” I ask myself, and no one here in my head has a good answer for that.

***JM: The text of Nasdaq’s preliminary explanation can be found here:

***** We’re not sure how many people live in Jon Matte’s head.


Hedge funds should invest in smoother handovers
Gillian Tett –
This summer Glenn Dubin, the co-founder of the hedge fund Highbridge Capital Management, has been kicking back – a bit. The reason? Twenty-one years after the 56-year-old created the fund, Mr Dubin recently handed control of his $32bn “baby”, as he calls it, to a former Goldman Sachs banker, Scott Kapnick. But Mr Dubin has not stormed off in a tantrum. He is still working in Highbridge’s Manhattan office to support Mr Kapnick, his handpicked successor.

***** Look out for the baby/hedge fund that wets its bed…


New broom sweeps the changes at the WSE
William Mitting – FOW
The situation that faced Adam Maciejewski as he assumed the role chief executive of the Warsaw Stock Exchange in January 2013 was critical. Volumes in the derivatives market had slumped from over 15m in 2011 to 10m in 2012, the installation of the new UTP trading system on which many plans for growth lay had been delayed and the former chief executive and president had been fired after a scandal surrounding the funding of a film appropriately entitled the Curse of the Pharaoh.

***** At least it wasn’t Ishtar or Waterworld.


‘Fixing’ Technology Complexity on Wall Street: No More Whack-a-Mole
Dave Lauer – TABB Forum
Technology and deregulation have wiped out the floor-based monopolies of the past and replaced them with an incredible new system for transacting securities. While this transformation has been unbelievably beneficial in many ways, it also has resulted in a complex system operating at often frightening speeds.


Buy-siders struggling with derivatives processing, poll shows
Automated Trader
More than four out of five North American-based buy side firms are forced to come up with work-arounds to support derivatives trading and a large share of them said the ad-hoc solutions compromised the accuracy of client reports, according to a survey by investment services company SimCorp.

***** No Whack-a-mole here.


By Popular Demand: Clearing Mandates and Systemic Risk
Streetwise Professor
A couple of people have expressed interest in my paper on clearing mandates and systemic risk. So here it is. In a nutshell: the arguments that clearing (and non-cleared derivatives) collateral mandates will reduce systemic risk are fundamentally flawed. Ironically, this is because the analyses do not take a truly systemic approach.

***** I wonder what Dan Collins’ opinion is of this research.


Wall Street’s Minority Report Isn’t Good
David Weidner – MoneyBeat – WSJ
The hallowed halls of finance are still mostly white. Sure, Stanley O’Neal ascended to the top of Merrill Lynch & Co., and Ken Chenault still reigns at American Express Co. But to say the financial industry reflects the diversity of the nation it serves is wishful thinking.

***** A thoughtful subject on the 50th anniversary of Dr. King’s “I have a dream” speech.


Laos Bourse to Open Bond Trading, Triple New Stocks to Halt Loss
Lao Securities Exchange will start trading bonds and triple the number of listed companies next year to raise revenue after posting a loss every year since it opened in 2011.

***** I’d start by changing my name.



MarketsWiki Page of the Day
BondDesk Group LLC

MarketsWiki Recent Updates


Steve Pherson; Jignesh Shah; P. Howard Edelstein; Donna Heidkamp; Robert J. O’Brien, Sr.

Companies, Organizations and Groups

TradeMonster; BondDesk Group LLC; MarketAxess Holdings Inc.; Rosenthal Collins Group LLC; Knight Futures


Asset-backed securities


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Lead Stories

Report Says Fed Broke Its Own Secrecy Rules
The Federal Reserve’s inspector general said the Fed violated its own rules for handling confidential material when it inadvertently issued the minutes of a policy meeting a day before the scheduled release in April.

U.S. Overseas Hiring Probe Has Wide Net
U.S. authorities are questioning numerous banks and hedge funds on their international hiring practices for interns and other employees, according to people with knowledge of the situation.

Swiss Agree on Penalties for Banks That Aided Tax Cheats
Switzerland and the United States reached a watershed deal on Thursday to punish Swiss banks that helped wealthy Americans stash money in hidden offshore accounts, closing the door on an era of bank secrecy and tax evasion.

‘Shadow’ banks face 2015 deadline to comply with first global rules
The $60 trillion “shadow banking” sector has been given until 2015 to fully comply with its first set of global rules, after an international regulatory task force unveiled plans to curb risk without strangling economic recovery.

Banks on course for record private equity fee income
Dan Dunkley – Financial News
Investment bank revenue generated from global private equity deals is on course to hit one of the highest levels on record this year, according to data provider Dealogic.

Oil fund on troubled waters in Norway
Richard Milne –
Three-quarters of a trillion dollars is enough to burn a hole in anybody’s pocket. And so it is proving in Norway, where ahead of parliamentary elections on September 9, proposals are stacking up to reform the country’s $750bn oil fund, the largest sovereign wealth fund in the world.

Victory For Customer Protection in Sentinel Case
Dan Collins | Dan Collins Report
Long before there was an MF Global debacle or Peregrine Financial Group fraud (or at least before it was revealed) there was Sentinel Management Group. Sentinel was unique in that it was a futures commission merchant (FCM) in name only. Its core business was custodial cash management and in August of 2007 it declared bankruptcy after first freezing customer redemptions before it was revealed/alleged that they misappropriated customer funds and could not meet their obligation.

NSEL investors urge Sebi not to renew MCX-SX licence
Business Standard
NSEL Investors Forum has urged the Securities and Exchange Board of India not to renew MCX-SX’s licence, which is due in September, because National Spot Exchange Limited’s promoter — Financial Technologies — is also the promoter of MCX-SX.


Banks win another reprieve from post-crisis regs
Stephen Gandel, Fortune
Regulators have, once again, backed down on a piece of financial regulation put in place in the wake of the financial crisis. And that’s too bad.

‘No hope for level playing field’ on banking rules
Matthew Attwood – Financial News
Sweden has indicated that its banks may have to set aside even more capital – far outstripping the prescriptions of the Basel III accord, leading bankers to conclude that global harmony on capital was never a realistic prospect.

Financial Stability Board: Progress Report And Interim Peer Review Report On Credit Rating Agency Ratings
The Financial Stability Board (FSB) published today a progress report on reducing reliance on, and strengthening the oversight of, credit rating agencies (CRAs). The progress report is accompanied by the interim peer review report on national implementation of the FSB Principles for Reducing Reliance on Credit Rating Agency (CRA) Ratings.

ASIC publishes approach to demutualisation approval procedure rule requests

[ASIC]Self-managed superannuation funds regulatory update – Greg Tanzer

Exchanges & Trading Facilities

Moscow Exchange cashes in on overseas push
Suzi Ring – Financial News
The Moscow Exchange has seen net profit grow 57% in the second quarter, its first full quarter since going public, as the Russian bourse reaps the benefits of its international expansion plan.

FESE European Exchange Report 2012
The European Exchange Report represents a valuable source of integrated information on Europe’s exchange industry. It includes key figures of each operator of Regulated Markets which are summarised on a one page statement allowing for easy and transparent comparison of their key financial figures.

NYSE Euronext announces changes to its London management team
Press Release

Montréal Exchange Interest rate Derivative Trading Ceases At 13:30 Today, August 30, 2013

BSX Closed For Labour Day

Program Trading Averaged 24.1 Percent Of NYSE Volume During Aug. 19-23

[CBOE] Standard Monthly Option Expiration Date Move from Saturday to Friday

[CBOE] Systematizing Orders and COATS

Hedge Funds & Managed Futures

Morningstar Taps Tillman to Lead Ratings Unit
Max Bowie – WatersTechnology
Chicago-based investment research and data provider Morningstar has appointed Vickie Tillman president of its Morningstar Credit Ratings business, with responsibility for day-to-day operations of its structured credit research and ratings business.

Kinetix Expands Data-Driven Compliance Tool
Max Bowie – WatersTechnology
Princeton, NJ-based trading technology vendor Kinetix Trading Solutions has rolled out a new version of its pre-trade compliance tool that integrates market data with firms’ databases of counterparty data and compliance rules to perform risk checks in real time and alert traders to potential breaches.

Harbinger to Take an Insurance Business Public
Harbinger Capital Partners filed to take one of its insurance businesses public on Thursday, just more than a week after the hedge fund agreed to a tougher compromise with the Securities and Exchange Commission over accusations of market manipulation.

U.S. Scrutinizes Private Equity Hiring of Ex-Army Officer
Government lawyers have asked the private equity firm headed by the prominent financier Lynn Tilton for information related to its recent hiring of a former Army official, according to people briefed on the matter.

Oppenheimer Europe hires tech team and targets family offices
Giles Turner – Financial News
The European arm of US financial services group Oppenheimer & Co has hired a technology and telecoms investment banking team, and begun building out a family office group, as it continues to expand in the region.

Tikehau-backed firm appoints Rothschild banker as chief
Dan Dunkley – Financial News
Salvepar, the Paris-listed investment firm 52% owned by Groupe Tikehau, the new backer of UK private equity firm Duke Street, has unveiled a former Rothschild and Lazard banker as its new chairman and chief executive.

Not Crying for Argentina but Fearful of a Ruling
In the world of sovereign debt defaults, it is hard to imagine a less sympathetic debtor than Argentina. It has defaulted again and again for nearly two centuries, with few apologies. After the country’s most recent default, in 2001, it refused to negotiate for four years and then offered creditors a deal worth about 30 cents on the dollar — and vowed that those who refused would receive nothing.

Investors pull less cash from U.S.-based stock funds-Lipper
Investors in U.S.-based funds pulled $863.1 million out of stock funds in the latest week, down from massive outflows in the prior week, data from Lipper showed on Thursday.

Calamos Investments Announces Planned Departure of Chief Operating Officer
PR Newswire
NAPERVILLE, Ill., Aug. 29, 2013 /PRNewswire/ — Calamos Investments, a global investment management firm, announced the planned departure of James Boyne, President and Chief Operating Officer, effective September 30, 2013.

Investors Favored More Dynamic, Value-Oriented Stocks In An Emerging European Market According To Russell Indexes
As Europe appears to turn a corner economically, experts at Russell Investments believe European equities may provide better value versus other non-U.S. developed markets. In addition, dynamic and deep value-oriented investors may have found more investment opportunity in Europe in recent months, according to the Russell Indexes.

Banks & Brokers

Introducing the XVA desk – a treasurer’s nightmare
Laurie Carver –
Disparate – but intimately related – adjustments to derivatives prices are being put under one umbrella by some dealers, uniting counterparty risk, funding, collateral and capital management in one super-desk. That frightens some treasurers, who see it as a power grab.

Zurich Exit Marks Significant Moment for Powerful Ackermann
Ulrike Dauer – MoneyBeat – WSJ
The departure Thursday of former Deutsche Bank CEO Josef Ackermann as chairman of Zurich Insurance Group after the Swiss insurer’s finance chief’s apparent suicide marks the latest embarrassment in the career of the 65-year-old Mr Ackermann, one of the most prominent but also controversial figures in the global financial industry.

BoE’s Carney says uncertainty about RBS’ future must end
Britain should end uncertainty over long-term plans for state-controlled Royal Bank of Scotland (RBS.L), Bank of England Governor Mark Carney said in a newspaper interview.

JP Morgan merges Europe funds ahead of US and Asia review
Joe McGrath – Financial News
JP Morgan Asset Management has earmarked another batch of European-domiciled funds for merger and said that it will begin a similar strategic review of mutual funds in the US and Asia.

Changing times: Antony Jenkins’ first year as Barclays chief
Vivek Ahuja and Richard Partington – Financial News
It hardly seems a year ago that Antony Jenkins stepped up to become Barclays chief executive, at a time when the UK bank was reeling from the Libor-rigging scandal which drew hefty fines and claimed the scalps of its leaders during a tumultuous summer.

New York Regulator Steps Up Probe of Lloyd’s
New York’s top financial regulator is intensifying its probe of Lloyd’s of London over insurance policies that might have broken U.S. laws against dealings with Iran, according to people familiar with the matter.

Indexes & Products

S&P Dow Jones Indices Announces Changes To The S&P/TSX Canadian Indices – A Refinement Of The Definition Of Domicile Of A Company

Prices Of T+ Order Book To Be Employed To Calculate Moscow Exchange Indices

NYSE Euronext: AEX-Index Selection To Be Based On Free Float Market Capitalization – Changes In Index Methodology Effective 24 March 2014

NYSE Euronext: Portuguese PSI 20 Index With New Rules In 2014 – Changes Will Increase Efficiency And Attractiveness Of The Benchmark


Two U.S. traders plead guilty in Venezuelan bank bribery case
Two former employees of a New York broker-dealer pleaded guilty on Thursday to conspiring to pay kickbacks to Venezuelan state banking officials, as U.S. prosecutors moved to broaden their case.

Blackstone Settles I.P.O. Class Action Suit
The Blackstone Group has agreed to pay $85 million to settle a lawsuit brought by a group of investors that accused it of misrepresenting some investments ahead of its 2007 initial public offering.

Federal Court indicates Melbourne liquidator should be banned for 5 years

ASIC warns consumers about Mike Morgan Loans

Environmental & Energy

Sacramento judge tentatively says state can auction air quality credits in California
The Sacramento Bee
California’s cap-and-trade carbon auctions are within the authority of the state Air Resources Board under a 7-year-old law aimed at addressing global warming, a Sacramento judge has tentatively ruled.

Energy Dept. unveils new efficiency regs
The Hill’s E2 Wire
The Obama administration proposed a pair of energy efficiency regulations Thursday for certain appliances it says will slash energy bills and carbon emissions.

Report: Keystone XL will drive oil sands growth, boost emissions
The Hill’s E2 Wire
The Keystone XL pipeline will expand oil sands production in Canada by 36 percent, and therefore, ramp up carbon emissions, according to a report released Thursday by environmental groups.

**RKB — THE REPORT: Fail: How the Keystone XL Tar Sands Pipeline Flunks the Climate Test, Here.


More signs Abenomics is working as Japan prices, output rise
Japan is escaping deflation, the government said on Friday as data showing rising prices, falling unemployment, higher incomes and factory activity gathering momentum pointed to an ongoing recovery in the world’s third-largest economy.

Chinese find M&A deals hard to clinch
Henny Sender –
The sale of AIG’s aviation leasing business to a Chinese group is now close to collapse, signalling the implosion of yet another Chinese bid to control such assets — the third in just a few years. When Chinese groups show up at auctions these days, the response is more scepticism than celebration.

Japan’s Investment Banking Revival
Kana Inagaki – MoneyBeat – WSJ
In a reversal of fortunes, Japan has beaten out China to be the top contributor to investment bank’s revenue in Asia as companies rush to sell shares and benefit from an explosive rally in Tokyo’s stock market as the economy emerges from a two-decade slumber.

Frontier Markets

Emerging market outflows nearly double in past week-banks, citing EPFR data
The exodus from emerging markets accelerated over the past week, with bond and equity funds suffering net outflows of almost $6 billion, nearly double the previous week’s losses.

India’s Singh highlights bright side of crashing rupee
Prime Minister Manmohan Singh sought to soothe worries about the Indian economy on Friday, telling parliament that the crashing value of the rupee was part of a needed adjustment that would make Asia’s third-largest economy more competitive.

Fresh accusations rock Africa’s Ecobank
William Wallis in London –
Africa’s most geographically diverse bank has been rocked by fresh allegations about attempts by the chairman and chief executive to write off debt, sell off assets on the cheap and inflate a bonus award, potentially reigniting divisions on its board.

DGCX Statement Regarding Recent INR Reports
“In reference to recent inaccurate reports, DGCX does not offer any product or service whereby an individual can send more than 200,000 INR to India with payment of a commission. In addition, DGCX does not provide loan facilities to NRIs to remit money.

MCX Weekly Market Report: August 23, 2013 – August 29, 2013

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