John Lothian Newsletter: China moves to algorithmic trading; Tech-caused trading halts on Tokyo and Spanish exchanges; Warsaw Exchange targets derivatives growth

Aug 7, 2012

A Chinese brokerage company has decided to begin using an automated trading platform supplied by US companies, demonstrating the increasing interest in fast, automated trading systems in China.  Speaking of electronic trading, exchanges in Tokyo and Spain were both offline yesterday for several hours as their systems experienced malfunctions.  Warsaw Exchange takes stock and weighs its options for the future, and looks for growth in derivative products.  In First Read today, you’ll find interviews with Ben Van Vliet of IIT talking about high-speed trading; Jim Downs of Connamara Systems talking about CFTC Rule 1.73 and its impact on the industry; and we’ll give you one more chance to take a look at the interview with Robert Fitzsimmons of Optionshop.

First Read

Earnhardt Moment: Five Minutes with Ben Van Vliet, Illinois Institute of Technlogy

Ben Van Vliet is an assistant professor of finance at Illinois Institute of Technology Stuart School of Business, specializing in high frequency trading (HFT) systems. He is an industry consultant and frequent guest lecturer at industry events, including the MarketsWiki Questions: Exploring Financial Technology series.

Van Vliet has co-authored several books on trading systems, including 2008’s “Quality Money Management” in which he and co-author Andrew Kumiega laid out a set of best practices for systematic trading and investment. He sat down with John Lothian News Editor-at-Large Doug Ashburn to introduce his latest work, a framework for the development of a quality management system for HFT based on ISO 9000 engineering standards, which they are calling “HFT 9000.” Though the paper was scheduled to be released this fall, with last week’s algorithmic debacle at Knight Capital, Van Vliet and co-authors Andrew Kumiega, Rick Cooper and Jim Northey have opted for an earlier release. To view the paper, click HERE.

Q: In the MarketsWiki Questions Series, you referred to the May 6, 2010 “Flash Crash” as the industry’s “Earnhardt Moment,” where the industry first accepted the need for change, just as NASCAR did after the death of Dale Earnhardt in 2001. Is this still the case?

A: In a way, I was stretching a bit with the analogy then, suggesting that tragedy leads to soul-searching but, with the flash-crash, it did not quite do that. But certainly the Knight collapse of last week is, without a doubt, a “Dale Earnhardt Moment.” Interestingly, it did not have a systemic effect, in that the company only hurt itself (by giving away nearly half a billion dollars to other participants in the market). With Knight being a larger and more well-established firm, and with the collapse being so significant, I think it has led to more soul-searching this time around.

Even though the death of Earnhardt was not “systemic” in that he was the sole victim in the crash, it was the perception of safety that was tremendously damaging. To the fans, to the other racers on the track, this was a very bad thing. It led to a lot of soul-searching in terms of how we run our races, what are our ethical obligations to each other and to the fans. In this sense I think it is similar to Knight. And nobody wants to see things like this happen, as it will only lead to more scrutiny and potentially unwanted regulation.

Q: Right. An industry lobbyist recently suggested to me that HFT firms are thanking their lucky stars that Dodd-Frank has been keeping the legislators and regulators busy, otherwise HFT would have been “squarely in the crosshairs.” What do you think?

A: They are in the crosshairs now, for sure. The industry is now waking up to the fact that this is not going to be allowed to continue. They will not get away with saying “Well, this is the free market; let us do whatever we want.” It is what I have been saying for quite some time – we have an ethical obligation to external market participants, and to society, to create confidence in the sustainability and fairness of the market.

Q: I was a market maker for 20 years, and I always looked at my ethical responsibilities as this: like all market participants, I enter each trade with a profit motive, and so long as I stay within the rules laid out by regulators and the exchange, I am an ethical trader. Are you saying there is more to it?

A:  Absolutely. And it all changed because of the age of automation. As a floor trader, if you wanted to trade yourself into oblivion – by averaging down, or whatever – nobody cared because you did not have a systemic effect. Furthermore, if you made a mistake, you were able to amend your ways and make it right in real time. Or, in the worst case scenario, the risk manager would come down and physically remove you from the pit. Here, we do not have that possibility. Things happen in microseconds, before a human can intervene. In this system, where an individual can actually “poison the waters” beyond the market’s ability to soak up the liquidity, there is an ethical responsibility to ensure that your system is in control. Plus, because automated systems are part of the global network, people are trading in other markets based upon your trades. So, now, if one market is poisoned, the effects can ripple throughout the world in real time.

Q: So that is why you have come up with the concept of applying engineering standards to HFT systems?

A: Quality standards really came out of World War II, under the Department of Defense guidelines, and subsequently became international standards, and now have spread to other disciplines beyond mechanical engineering, such as health care and chemical industries. We are applying quality management systems, from design and development, to operation and control, of high frequency systems. The argument we are making is that it is your ethical responsibility as an HFT operator that your system run in control, or to specifications, which presupposes that you have some knowledge of the behavior of your system that, when you turn it on, it will work properly.

This is done by testing your software, proving your exchange connection, vetting your strategy, trading your system in a simulated environment, and trading with what we call a “probationary trading,” period, in which orders scale up from smaller lot sizes. This will give you an expectation of what trading should be. And there are many kinds of performance measures, such as profit per trade, trades per second, messages per second, or technological latency. All of these things are distributions, whereas you will not get the same value each time, but rather an average, or an expected distribution of values. We then prove that the distribution is stable, and we have statistical methods that prove the stability of systems. So your ethical obligation is that your output distribution is stable, and you are justified in believing that, because you have gone through the tests.

Once you turn the system on, then, your performance in real live trading can be assessed against that expected distribution in real time. Let’s say, for example, you are running an index arbitrage system. Some seconds, you are sending out 600 order messages, some seconds it is 300; sometimes it is 700; sometimes it is 450. It is a distribution. But if you suddenly get 17,000 messages in one second, your system has to recognize that that does not fit within the expected distribution, and will immediately shut down. So, you are monitoring your system in real time relative to your expected distribution, and the system responds in real time. The response could be a shut-down, or a widening of bid-ask spreads, or some risk “fail-safe” mode that it can slip into.

When you see a company like Knight say that it let the system run for 45 minutes –  the second that it sensed that it was running outside its expected distribution, it should have shut itself off.

Q: So, each firm has what it would call its own “best practices” that it learned through trial and error, or through experience, but there is no industry standard?

A: Exactly. To be sure, Knight has a software quality department, and I am sure there are very ethical people there, but there are no industry standards for what qualifies as fulfilling your ethical obligation. In other words, there is no industry-wide set of tests that a firm must go through. Each firm is left to make up its own mind, and there are ethical conflicts that may come into play. such as someone being under a time constraint.

Q: Why is the economic argument not sufficient, meaning that the disincentives are there to keep firms from cutting corners? So, when a firm like Knight cuts a corner or makes a mistake, it is punished to the tune of $440 million.

A: You can certainly make the argument that there will be a natural evolution, that high quality firms will survive and bad ones will lose a ton of money and go out of business. But the ones that survive are the ones who adopt what become industry standards.

The same can be said of the aerospace industry, where there used to be a lot more manufacturers. Some could not build planes safely, cheaply enough. Eventually, firms that could not fly planes safely could not fly planes. But this evolution took between 50 and 100 years to get to where we are today, which is that airplanes don’t crash, or that they experience mechanical problems with such infrequent probability that virtually nobody worries about it. Because of industry standards, mechanical problems show up in diagnostics long before they lead to engine failure.

What I am saying is that now is the time to develop those standards for HFT. We do not have 100 years to get this right.

Q: How long would it take to develop and implement these standards?

A: There are a few thorny issues. First, we need to establish who would be required to adopt such standards. Certainly those with direct market access, but what about firms who hide behind the technology of their clearing member? Certainly the clearing member would need to be ISO 9000 certified, but what about the firm? What are the tests that we will need to abide by? And, will the regulators give in to HFT 9000 certification as a proxy for oversight? Neither we nor the regulators want them to come in and monitor our backtesting. So what we need to do is grab the ethical high ground and say that we are all going to abide by the same standard. The we ask the regulators if this would satisfy our ethical obligation.

The precedent is there. Other industries abide by ISO 9000 standards. So, we can tell the regulators, “We expect you to treat us the same way you treat aerospace, which is that ISO is an implicitly approved method of self-regulation.” The Department of Defense used to require aerospace firms to adhere to its standards. Then ISO 9000 came along and the DoD said, “OK; you have your own standards now. That’s good enough for us. As long as you are ISO 9000 certified, you can be a defense contractor.” We can and should do that for HFT.


ETFs Poised to Exceed Trade in S&P 500 as Spiders Beat Apple
Alexis Xydias – Bloomberg
For the first time, the value of transactions in exchange-traded funds tracking the Standard & Poor’s 500 Index (SPX) is poised to exceed the turnover for all the stocks in the benchmark gauge of American equity.


Knight Capital Mess Aside, High Frequency Trading Is Here To Stay
The idea of a computer glitch running rogue and losing nearly half a billion dollars in under an hour is exactly the kind of freak occurrence that keeps investors up at night (and leads others to stash their cash under the mattress rather than putting it to work). But is it an unlikely accident or a simple eventuality?


Brilliant Animated GIF Shows The Rise Of High-Frequency Trading
Business Insider
Here’s a great chart from Nanex, documenting the rise of high frequency trading as fed in by main feeds from more than a dozen major exchanges. Nanex has color-coordinated the trades as they come in from the different exchanges.


Knight Capital Implosion: The Latest Wall Street Alarm Bell That Everyone Will Ignore
Henry Blodget – Daily Ticker
Wall Street’s latest disaster is the trading firm Knight Capital (KCG), which somehow managed to lose hundreds of millions of dollars in a half hour last week from a “software glitch”–a capital loss that almost destroyed it.


Glimpses of Financial Crisis Deals in E-Mails
New York Times
E-mails that have emerged from litigation against the hedge fund Magnetar “appear to shed new light” on how Wall Street banks and the hedge fund put together mortgage-backed securities that Magnetar then bet against, report Jesse Eisinger and Jake Bernstein of ProPublica.


In the Financial World, a Less Scrupulous Class of Lawbreaker
Michael Powell – New York Times
The banking world in 2012 New York City offers itself as almost a Medellín cartel of shady dealings.


Wall Street gets small to handle big processing projects
Steve Graves – FOW
Technologies derived from the cellular and embedded markets are trickling into trading systems as quants in pursuit of ever-greater performance eschew brute force and embrace crossover tools whose lightweight profiles and high efficiency are major selling points.


Why Are Investors Fleeing Equities? Hint: It’s Not the Computers
Let’s stop with the excuses. You’ve no doubt been reading a lot about a “crisis of confidence” on Wall Street in recent days after software problems at a big trading firm sent the stock market, briefly, into a tizzy. Let me offer a more straightforward explanation of why investors have left the stock market: it has been a losing proposition. An entire generation of investors hasn’t made a buck.


2012 China – U. S. Futures Industry Summit
While international interest in the Chinese market has been growing, the development of the financial derivatives market has been described as imperative for the continued construction of China’s market economy. The China Futures Association and the Chinese Derivatives Association will jointly host the 2012 China – U. S. Futures Industry Summit, an event that brings together over 50 senior executives from leading FCMs and exchanges from China and their counterparts in the U. S. This is a unique opportunity, the first in the world outside China, for industry leaders from China and the U.S. to meet and discuss the latest development and potential for cooperation.

Date: Saturday, August 11, 2012. 16:00 – 20:00
Venue: Mid-America Club, 200 East Randolph Drive, 80th FL. Chicago, IL

This event is by invitation only. For more information please visit the CDA website at


Latest updates on the Chicago Hedge Fund Rocktoberfest Benefit for A Leg To Stand On on Oct 25th at Chicago City Winery
The first ever Chicago Hedge Fund Rocktoberfest to benefit A Leg To Stand On ( is taking shape nicely.
Since 2002, ALTSO has transformed the lives of over 8,000 children by providing prosthetic limbs, corrective surgeries and rehabilitation to children with limb disabilities in the developing world. Once a year ALTSO holds its Hedge Fund Rocktoberfest to raise funds to continue this important work. The entertainment at Rocktoberfest is provided by musicians from the hedge fund and financial services community.
Last year in New York ALTSO raised over $350,000 and helped over 1,600 children.This year in addition to the 9th annual New York event on Oct 11th, ALTSO is holding the first ever Chicago Hedge Fund Rocktoberfest on Oct 25th at the Chicago City Winery.
Bands confirmed so far this year for Chicago include, the Wrong Boys (with Steve Staszak from CME Group), the Jen Justice Band (with Ray McKenzie and Jen Justice from ICE and CME) and Flyte, a classic rock band. There will be additional artists and special celebrity guest appearances as well as a silent auction, open bar, food and lots more.
Confirmed sponsors so far are CME Group, ICE, Seamless and the George Hanley Trust.
We are looking for additional sponsors from Chicago based Hedge Funds, Prop Trading Groups, ISVs, FCMs and any other firms interested in supporting this great cause.
For a list of sponsorship packages and to purchase tickets contact or visit:
We are also looking for a few more performers so if you are interested please contact Ray McKenzie at
Ray McKenzie, VP, Head of ICE US Marketing and Sales
Desk: 212-748-4053
Mobile: 646-465-1799
One North End Avenue
13th Floor
New York, New York 10282

CFTC Rule 1.73: Jim Downs of Connamara Systems Talks About New Options Rule
A little known CFTC rule (Rule 1.73), part of the Dodd-Frank Act, is gaining attention of futures brokers. Jim Downs, founder and CEO of Connamara Systems, explains the basics of Rule 1.73, which will force FCMs and swaps participants to create new market-based limits on options positions, as well as monitor liquidation costs, options stress tests and other compliance elements. Downs talks about the key components of the new rule, which goes into effect on October 1, and what impact it may have on the industry.  Interview by John Lothian News editor-in-chief Jim Kharouf.

Robert Fitzsimmons Discusses His New Startup Optionshop
Robert Fitzsimmons is the CEO of Optionshop, an online futures broker specializing in the execution of options on futures, which is expected to launch in September of 2012. Fitzsimmons spoke with John Lothian News senior editor Sarah Rudolph about the interest in commodities as an asset class, the dislocation in the markets and the need for retail traders to use options to minimize their commodities risk.


MarketsWiki Page of the Day
John J. Phelan, Jr.


MarketsWiki Recent Updates


Ben Van Vliet; Chris Schellhorn; Ian Telfer; Maury Kravitz; John J. Phelan, Jr.; James Downs; David Mitchell

Companies, Organizations and Groups

Goldcorp Inc.; Interactive Brokers; Chicago Board Options Exchange; World Gold Council; Knight Capital Group Inc.; Connamara Systems, LLC; African Securities Exchanges Association


27,015,286 pages viewed, 7,024 articles, 145,810 edits
MarketsWiki Statistics

Lead Stories

China moves to algorithmic trading
Jeremy Grant in Singapore –
The adoption of algorithmic trading in China has taken another step forward after Guangfa Securities (GF Securities), a Chinese broker, has agreed to use a platform to develop algorithms provided by StreamBase, a US technology company, in partnership with Thomson Reuters.

Glitch halts Tokyo derivatives trading
Ben McLannahan in Tokyo –
The Tokyo Stock Exchange stopped trading of derivatives on Tuesday morning, in the latest in a series of technological glitches that have embarrassed Japan’s largest exchange group.

5-hour blackout for Spanish stock exchange
Trading on Madrid’s stock exchange resumed Monday after a five-hour blackout that was blamed on a technical problem.

Warsaw Exchange targets derivatives growth
Wyn Jenkins – Financial News
The derivatives market in Central and Eastern Europe is at a crossroads. The European Markets and Infrastructure Regulation and other regulatory changes, represent a double-edged sword: transparency and certainty on one hand but additional costs and change on the other.

Derivatives, Blamed for Crippling Banks, Are Now Making Them Nimble
By Katy Burne – Dow Jones
The alphabet soup of trades with embedded derivatives, once blamed for threatening to topple major banks during the credit crisis of 2008, now are being used to shore up European banks amid the unresolved sovereign debt crisis in the region. The latest example came Monday, when a large unidentified German bank obtained protection from alternative asset manager Christofferson, Robb & Co. in a deal using credit-linked notes, or CLNs, fixed-income securities with credit derivatives tucked inside.

Regulator Says British Bank Helped Iran Hide Deals
Using its New York-based operations, a major British bank schemed with the Iranian government for nearly a decade to launder $250 billion, leaving the United States financial system vulnerable to terrorists and corrupt regimes, New York’s top banking regulator charged on Monday.

Peregrine Financial regulator saw plenty of red flags
The Des Moines Register
Peregrine Financial Group’s chief compliance officer and primary regulator were told that about $200 million was missing from a customer bank account 14 months before the Iowa futures brokerage collapsed, but they apparently failed to press the matter.

JPMorgan seeks to limit subpoena power
Chicago Tribune
JPMorgan Chase & Co. sought to limit the power the bankruptcy trustee for Peregrine Financial Group has to subpoena information from financial institutions that did business with the failed brokerage.

Is Spain Stumbling Towards a Full Bailout?
CNBC via Yahoo! Finance
The will-they won’t-they saga of Spain and the troika which has bailed out other struggling euro zone economies tipped the scales in favor of “they will” at the weekend.

Italian’s Job: Premier Talks Tough in Bid to Save Euro
During an all-night European summit in June, Mario Monti, the Italian prime minister, gave German Chancellor Angela Merkel an unexpected ultimatum: He would block all deals until she agreed to take action against Italy’s and Spain’s rising borrowing costs. Ms. Merkel, who has held most of the euro’s cards for the past two years, wasn’t used to being put on the defensive.

Don’t Overreact to This Knightmare
Our trading activities expose us to the risk of significant losses. This formulaic line in Knight Capital Group’s annual regulatory filing is filled with foreboding. The securities broker, like many firms before it, didn’t expect that a ritual warning in its yearly paperwork would turn into a real-life drama—a crazy half-hour during which erroneous trades from Knight’s balky computers flooded the stock market and caused a $440 million loss.

The backlash against the rich has gone global
Gideon Rachman – Financial Times
It is never a great sign when politicians start appealing to taxpayers’ patriotism. Defending the French government’s recent decision to raise the top rate of income tax to 75 per cent, Pierre Moscovici, the country’s finance minister, told Le Monde: “This is not a punitive measure, but a patriotic measure.” The rich, he explained, are being given an opportunity to make “an exceptional contribution” to solving France’s financial problems. I am sure they are very grateful.


S.E.C. Gets Encouragement, but Needs Something More
New York Times
John W. Keker, lawyer for the former Citigroup employee accused of misleading investors, offered what will forever be known in the securities field as the “Where’s Waldo?” defense by arguing that his client should not be the only one held responsible because he was a minor player in a much larger process.

SEC to tighten rules following Knight bailout
Kara Scannell and Michael Mackenzie in New York –
The Securities and Exchange Commission would require trading firms and other market participants to disclose system failures and test computer-code changes before they go live under rules being developed in light of the software glitch that forced the $400m bailout of Knight Capital, people familiar with the matter said.

How to Regulate High-Frequency Trading
New York Times Room for Debate
Has the dominance of high-frequency trading made stock markets so risky that the average American investor should be wary?

NYSE, SEC in talks to settle data probe
The New York Stock Exchange said on Monday it is in talks with U.S. securities regulators to settle allegations that the exchange violated rules intended to promote fair competition. The Securities and Exchange Commission’s investigation centers on a regulation that prohibits an exchange from sending out data on a private feed to certain clients faster than on public data feeds.

Pragma Research Recommends Market Structure Changes To Reduce Trading Costs For Investors
Pragma Securities, an independent algorithmic trading boutique, announced recommendations for market structure changes, which would reduce the amount investors lose in trading costs. The recommendations are based on recent Pragma research showing that when High Frequency Trading (HFT) market makers compete with directional traders, i.e., investors, to earn spreads and rebates by providing liquidity, investors are forced to cross the spread more often, which results in higher costs.

Esma bowls ETF market a googly
Rebecca Hampson – Financial News
The fund management industry was knocked for six on July 25 when the European Securities and Markets Authority, one of the region’s main financial regulators, launched the final version of its guidelines on exchange-traded funds and Ucits.

***JM: It’s… uh, a cricket thing. “Googly”, I mean. Has something to do with putting spin on the ball when you throw it, so the ball breaks in an unexpected direction.

Remarks Before The 2012 American Accounting Association Annual Meeting – Policy Choices Informed By Root Cause Analysis And The Audit Performance Feedback Loop – Investors Are Counting On All Of Us, By Brian T. Croteau, Deputy Chief Accountant, Office Of The Chief Accountant, U.S. Securities And Exchange Commission

[NFA] Updated Forex Transactions: A Regulatory Guide

Final ISDA-AFME-BBA-Assosim Submission To ESMA Re. EMIR Draft Technical Standards For The Regulation On OTC Derivatives, CCPs And Trade Repositories

The Autorité des Marchés Financiers launches a public consultation on certain provisions regarding the auctioning of greenhouse gas emission allowances

[Japan] FSA publishes Weekly Review No.6

Exchanges & Trading Facilities

BOX Price Improvement Activity Increases in July
Boston, August 1, 2012: In the month of July, price improved contracts on BOX Options Exchange (“BOX”) averaged 280,308 per day. Price improvement versus the prevailing NBBO for contracts submitted via BOX’s price improvement auction (“PIP”) averaged $179,218 per day, while total savings to investors this month were $3.8 MM. With this, BOX has saved investors over $395 MM since its inception in 2004. Overall average daily trading volume on BOX in the month of July was 593,901 contracts, which represented a 1% increase over the same period last year.

EPEX SPOT & EEX Power Derivatives: Power Trading Results In July 2012
In July 2012, a total volume of 27.8 TWh was traded on EPEX SPOT’s Day-Ahead and Intraday markets (July 2011: 25.8 TWh).

EEX Trading Results In July

Borsa Italiana Monthly Update – July 2012

BM&FBOVESPA Announces July Market Performance

NYSE Euronext Statement on the Passing of John J. Phelan, Jr. on Saturday, August 4, 2012

Warsaw Stock Exchange Reduces Fees For Single-Stock Futures
As Of The Beginning Of August 2012, The WSE Reduces Operating Fees For Block Trades In Single-Stock Futures Contracts

Direct Edge Trading Notice #12-31: Introducing Edge Ticker Plant

Citigroup Global Markets Limited – New Member On Oslo Børs
Oslo Børs is pleased to announce Citigroup Global Markets Limited as new member on Oslo Børs. Citigroup will be trading in the equities segment on Oslo Børs and Oslo Axess.

BM&FBOVESPA: Institutional Investors Lead Participation In Volume Of Index funds (ETFs) Traded On The Exchange In July

CBOE Customized Option Valuation Service

[CBOE] Expansion of Automation for Stock-Option Strategy Orders

[CBOE] Changes to Market-Makers’ Continuous Quoting Obligations in Hybrid Classes

NYSE to Immediately Suspend Trading in Securities of K-V Pharmaceutical Company

NYSE Euronext Temporarily Re-assigns Knight Capital DMM Responsibilities to GETCO DMM for Certain Securities

Knight Capital Group Notice Regarding Capital Infusion Transaction And Reliance On Exemption To NYSE’s Shareholder Approval Policy

TOM Insight July 2012

Hedge Funds & Managed Futures

Hedge Funds Trailed Stocks Last Month With 0.2% Advance
Hedge funds including MKP Capital Management LLC posted gains last month as global stocks rallied after European Central Bank President Mario Draghi pledged to defend the euro.

Some smaller hedge funds outshine their bigger rivals
Reuters via Yahoo! News
A number of hedge fund industry spin-outs are showing up their bigger and better-known brethren by delivering eye-popping returns in a year marked mainly by lackluster performance. After a horrible 2011, this year is not shaping up to be much better in the $2 trillion hedge fund industry, with the average fund up only 2.10 percent through June.

Paulson Advantage Plus Hedge Fund Declines 2% Last Month
John Paulson, the billionaire hedge- fund manager coming off record losses in 2011, posted a 2 percent loss last month in his Advantage Plus Fund, according to a monthly update to investors obtained by Bloomberg News.

Zaoui Brothers Establish New Firm
The brothers Michael and Yoël Zaoui, two of the most prominent London-based investment bankers of the last two decades, have created a new company called Zaoui Capital, according to British regulatory documents.

Investors Seek Out Safer Shores
With the world in financial turmoil, and Treasury bond yields at record lows, American investors are turning to places like Norway, Sweden, Canada and Australia as safe havens.

GoldenTree Hires Goldman Sachs Trader Salem in Mortgage Push
GoldenTree Asset Management LP, the $15.7 billion hedge fund specializing in corporate credit, hired Goldman Sachs Group Inc. trader Deeb Salem as the firm expands its mortgage-bond team.

U.S. Department Of The Treasury Announces $750 Million In Additional Expected Proceeds From AIG Common Stock Sale

Banks & Brokers

N.Y. Regulator Accuses Standard Chartered Unit of Illegal Transfers
Liz Rappaport | The Wall Street Journal
New York’s top financial regulator accused a Standard Chartered PLC unit of running a “rogue institution” that “schemed” with Iran’s government to hide more than $250 billion in illegal transactions for nearly a decade.

New York State Department Of Financial Services: In the Matter Of Standard Chartered Bank, Order Pursuant To Banking Law 39

Standard Chartered PLC Strongly Rejects The Position And Portrayal Of Facts Made By The New York State Department Of Financial Services

Standard Chartered may lose NY license over Iran ties
Reuters via Yahoo! News
In a rare move, New York’s top bank regulator threatened to strip the state banking license of Standard Chartered Plc, saying it was a “rogue institution” that hid $250 billion in transactions tied to Iran, in violation of U.S. law.

Knight Capital Group Completes $400 Million Equity Financing Agreement
Infusion Of New Capital And Resulting Liquidity Will Allow Knight To Resume Normal Operations Immediately

Citigroup Seen Booking $6 Billion Charge on Smith Barney Venture
Citigroup Inc. , the third-biggest U.S. bank by assets, may take a charge of almost $6 billion this quarter as it writes down the value of the Morgan Stanley Smith Barney venture, said Jason Goldberg , a Barclays Plc analyst.

Three axed over JP Morgan trading losses
Risk magazine
The fallout from the losses in JP Morgan’s chief investment office (CIO) continues, with three of the unit’s traders – Bruno Iksil, Achilles Macris and Javier Martin-Artajo – leaving the bank.

Morgan Stanley trading-loss frequency rose in second quarter
Reuters via Yahoo! News
Morgan Stanley lost money more frequently in trading during the second quarter than it did in the previous or year-ago periods. The investment bank lost money in 15 of the 64 trading days for the quarter ended June 30, or 23 percent of the time, according to a 10-Q filing with the U.S. Securities and Exchange Commission.

Bank Failures: 40 So Far in 2012
Zacks via Yahoo! Finance
The Illinois Department of Financial and Professional Regulation shuttered Waukegan, Illinois-based Waukegan Savings Bank, taking the number of failed U.S. banks thus far in 2012 to 40.

Vanguard begins routing some orders to Knight Capital
Reuters via Yahoo! News
NEW YORK – The Vanguard Group has begun rerouting “a portion of their orders” to Knight Capital Group Inc after the announcement of a deal to rescue Knight, a Vanguard spokesman said on Monday. Knight announced earlier on Monday that a group of investors rescued the firm in a $400 million deal that keeps the company in business.

Barclays CEO job may be tough sell
CNN Money
It has now been more than a month since Bob Diamond stepped down at Barclays. His downfall was swfit but the bank may be forced to take some time to find his replacement.

Morgan Stanley Sued by Singapore Firm Over Pinnacle Notes
Morgan Stanley & Co. was sued by Hong Leong Finance Ltd. of Singapore in federal court in Manhattan over claims it deceptively sold investments that were designed to fail.

Lieborgate’s Next Casualty: Bob Diamond’s Daughter
Zero Hedge
Instead of having to fire 1900 people , Deutsche Bank will now have to only let go 1899. The reason: the second most prominent casualty of the Lieborgate scandal is now none other than Bob Diamond’s daughter Nell, who made quite a splash in the aftermath of the Barclays Libor manipulation revelations when the social circuit butterfly tweeted that ” George Osborne and Ed Miliband can go ahead and #hmd.”

JonesTrading Names Martin To Build Global Franchise
JonesTrading Institutional Services LLC, a leading agency brokerage, which provides institutions and hedge funds with unconflicted block trading in securities, announced today that it has recruited industry veteran Marcus Martin to expand and head its global business

J.P. Morgan Adds Form PF Capabilities to Alternatives Product Suite
Business Wire via Yahoo! Finance
J.P. Morgan Worldwide Securities Services announced today that it has added reporting capabilities for Form PF, the Securities and Exchange Commission’s new regulatory filing for registered investment advisers, to its suite of services.

PRESS RELEASE: Instinet Named “Preferred Broker” by FactSet
NEW YORK – August 7, 2012 – Instinet Incorporated, a global leader in electronic trading and agency-only brokerage services, today announced that its Instinet, LLC subsidiary has been named a “Preferred Broker” by FactSet (NYSE: FDS | NASDAQ: FDS), a leading provider of integrated financial information and analytical applications to the global investment community.

tastytrade Announces Partnership With ShadowTrader to Expand Live, Financial Programming
CHICAGO and PHILADELPHIA, Aug. 7, 2012 (GLOBE NEWSWIRE) — tastytrade,
the fasting growing online financial network, today announced an exclusive partnership with financial media and advisory service ShadowTrader, LLC. tastytrade will expand to eight hours of live, daily programming with the launch of a one-hour show devoted to ShadowTrader in September, 2012.

Indexes & Products

Dow Jones Islamic Market Titans 100 Index Finished Up 2.50% In July
Index Measures Performance Of 100 Of World’s Leading Shariah-Compliant Stocks – Dow Jones Islamic Market Asia/Pacific Titans 25 Index, Dow Jones Islamic Market Europe Titans 25 Index End July In Positive Territory – Dow Jones Islamic Market U.S. Titans 50 Index Gains 2.44%

ETFGI Global ETF And ETP Industry Insights, July 2012

Two Thematic Indices: SZSE Consumer 50 And SZSE Health Care 50 Are Issued By Shenzhen Stock Exchange Today


Risk Checking in Under 500 Nanoseconds
By Peter Chapman, James Armstrong – Traders Magazine
With the Securities and Exchange Commission’s new rule banning naked access in place, an arms race has developed among trading systems vendors. Each claims their platform is the fastest when it comes to risk-checking orders. Now New York-based Matrix Trading Technologies is claiming it can run an order through 41 risk checks in less than 500 nanoseconds. The trick, according to Matrix founder and chief executive Louis Liu, is his system’s usage of field programmable gate array technology.

Broadway Technology Launches Campaign for Flat-Fee Hosted Liquidity Aggregation and E-commerce for Foreign Exchange Trading
Broadway Technology, LLC, a leader in high-performance trading solutions for top-tier global banks and hedge funds, announced today that it has launched a campaign to deliver flat-fee hosted liquidity aggregation and E-commerce for foreign exchange (FX) trading.


Key U.S. informant Khan testifies at insider trial
Reuters via Yahoo! News
Roomy Khan, a onetime technology stocks trader known as “Tipper A” and an FBI informant in a U.S. government crackdown on insider trading, testified on Monday to giving confidential information to a California hedge fund manager on trial for securities fraud.

Ex-UBS Executive Told Colleague to Forget Rigged Deal
A former UBS AG municipal-bond executive told an ex-colleague to forget about one transaction during a discussion about how to handle an expanding government probe of bond big rigging, the second man testified.

Environmental & Energy

US signals desire to axe global two degree climate goal
Business Green
International negotiations to agree a new global climate change treaty should ditch previous commitments to limit warming to two degrees centigrade in favour of a more “flexible” legal agreement, according to the US’ top climate change official.

Analysis – Green growth not targets needed for 2015 climate deal
Green economic growth rather than strict targets for cutting greenhouse gases needs higher priority if the world is to reach a deal to fight climate change by a 2015 deadline.

Fracking Debate Racks South Africa
The Wall Street Journal
Africa’s biggest economy is running dangerously short of energy, even as the country sits atop what geologists say could be substantial gas reserves.


SGX enters electricity market with 49 percent stake in Singapores Energy Market Company
Singapore Exchange (SGX) today said it has acquired 49% of Singapore-based Energy Market Company (EMC). EMC is the operator of the National Electricity Market of Singapore (NEMS), the local market for wholesale electricity trading and the first such liberalised market in Asia. Wholesale electricity in Singapore is bought and sold through the NEMS.

Tokyo Stock Exchange Imposes Disciplinary Action On SMBC Nikko Securities Inc.
Tokyo Stock Exchange, Inc. (hereinafter, “TSE”) has taken disciplinary action (imposition of a JPY 80 million fine) against SMBC Nikko Securities Inc. (hereinafter, the “Company”) pursuant to the provisions of Rule 34, Paragraph 1, Item 8 of the Trading Participant Regulations.

Press Conference By Tadahiro Matsushita, Japan’s Minister For Financial Services – Resignation Of Nomura Senior Executives

Monetary Authority Of Singapore Implements Enhanced Regulatory Regime For Fund Management Companies

Dalian Commodity Exchange Adjusts Margin Requirement And Price Limit Of Soybean Meal

Osaka Securities Exchange SPAN Parameter Updated – Aug. 13, 2012 – Aug. 17, 2012

People’s Bank of China Governor Zhou Xiaochuan Visits Dalian Commodity Exchange

Tokyo Stock Exchange Monthly Short Selling Value

Tokyo Stock Exchange Resumption Of Derivatives Trading

Tokyo Stock Exchange Temporary Halt Of Derivatives Trading

Six Thai Listed Firms Make Forbes’ Top 200 Asian Companies List

Frontier Markets

Gold And Rupee Futures Drive Fifth Successive Monthly Volumes Record For Dubai Gold And Commodities Exchange

Palestine Exchange Investor Monthly Newsletter Issue #28, July 2012

John Lothian Newsletter

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Past JLN Newsletters

When Americans Took to the Streets Over Inflation

When Americans Took to the Streets Over Inflation

First Read $42,376/$300,000 (14.1%) ++++ Hits & Takes John Lothian & JLN Staff CME Group and FTSE Russell are putting on a webinar TODAY at 11 a.m. ET titled, "Russell U.S. recon: Mitigating risk with derivatives." If you are invested in small cap stocks, you...

Gensler says SEC to review payment for order flow

Gensler says SEC to review payment for order flow

First Read $42,376/$300,000 (14.1%) ++++ Hits & Takes John Lothian & JLN Staff The new CME Group micro Treasury futures contracts are not the basis point futures I have suggested, but they are very close and maybe better. Certainly the micro name will enhance...

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