First Read

Bits and Pieces
By JLN Staff

Tis the season for people moves. Kevin Wolf, formerly chief business and product development officer at Eris Exchange, has moved on to ViableMkts, a firm that focuses on market structure and fintech advisory services. As a principal at the firm, he will bring his interest rate market knowledge to the team. Interestingly, ViableMkts is led by Chris White, who provided one of the more entertaining and participatory talks at our MarketsWiki Education event last year. Wolf spoke at our MarketsWiki Education event in New York this year.

Meanwhile, another MarketsWiki Education speaker, Paul McCormick, has moved full-time into his own business, Opening City Doors, which helps students and professionals find work in financial markets. He has left Thomson Reuters, where he served as a fixed income specialist. His talk about finding a job has valuable tips for anyone, at any time.

Bob Keeley has left the futures industry and most recently RJO, and is now a relationship manager with Heartland Payment Systems, a direct payment processor.


SGX Titan


Euronext confirms departure of Maria João Carioca as CEO of Euronext Lisbon
Euronext today confirms that Maria João Carioca, CEO of Euronext Lisbon and member of the Managing Board of Euronext, has resigned after being asked by the Government of Portugal to join the Management Board of Caixa Geral de Depósitos. She has accepted the offer, pending all regulatory approvals by the relevant authorities.

**JK: Congrats to her on the new role. Might we see another woman succeed her at Euronext Lisbon?


Exchange-Traded ‘Zombies’ Stalk the Markets; As banks back away from exchange-traded notes, investors are left vulnerable
A popular corner of the index-investment business is falling out of favor with banks and traders, leaving investors in more than $4 billion in exchange-traded notes vulnerable to abnormal price swings.

***** One day you are alive, and the next you are a zombie and have a hit TV show.


Traders scheme to cash in on Trump tweets
On Wall Street, a person who can move a stock is called an ‘axe.’ Trump, with his itchy Twitter finger, is quickly emerging as the biggest axe there is.
President-elect Donald Trump issued a single tweet blasting defense contractor Lockheed Martin Corp. at 8:30 a.m. on Monday. By lunchtime, he had wiped $4 billion off the company’s market value.

***** This is called an old story with a new Trumpian twist to it.


Monday’s Top Three
There is only one thing more interesting to readers than Terry Duffy’s salary, and that’s who’s helping him run the CME Group. News of Kim Taylor and Julie Winkler‘s new posts at CME led yesterday’s top read pieces with CME Group Announces New Senior Management Positions, followed by Crain’s Chicago Business’ piece CME’s Terry Duffy will get big pay raise as CEO. A distant third was the NY Times piece on just how much private equity executives make (you have a long, long way to go, Mr. Duffy), in How the Twinkie Made the Superrich Even Richer


Lead Stories

How the Biggest E-Mini Futures Trade of 2016 Sent the Market Soaring
Alexander Osipovich – WSJ
A $1.8 billion futures trade that fueled buying in the U.S. stock market on Wednesday was the biggest transaction of its kind all year, according to new analysis, and comparable in size to the “fat finger” trade said to have set off the May 2010 “flash crash.” The analysis by MayStreet LLC, a market-data firm, shows that an unknown buyer on Dec. 7 purchased around 16,000 E-mini S&P 500 futures contracts at 1:21 p.m. New York time. “It was a massive trade and it happened quickly,” said Mehmet Kinak, head of electronic trading at T. Rowe Price Group Inc.

Calypso Technology to Hire Aggressively in 2017, Following a Record Year in 2016
Calypso Technology Inc., a leading provider of capital markets and investment management software, today announced that it booked 20 new clients in 2016 and is planning a rapid expansion of its workforce in 2017.

Good Lessons From One Bad Deal That Destroyed Four Bad Banks; Monte dei Paschi crisis can be traced to ill-fated deal for ABN Amro
The crisis engulfing the world’s oldest bank, Italy’s Banca Monte dei Paschi di Siena, has many causes, but its roots go back nine years to a lunch at a fancy Geneva hotel.

Even Before Brexit, London Lost Its Status as Derivatives Center
by Will Hadfield – Bloomberg
London share of interest-rate derivatives fell to 39% from 50%; Rate divergence between U.S. and Europe will drive trend: BIS
As London’s financial industry braces for Brexit, a new report shows the capital has already lost its leadership in at least one key market. New York has now eclipsed the city as the biggest center for off-exchange derivatives trading.

SEC Files Charges in $26 Million Stock Manipulation Scheme
The Securities and Exchange Commission today charged two New Jersey-based traders with manipulating more than 2,000 NYSE- and NASDAQ-traded stocks and reaping more than $26 million in profits from their successful trades.

Deciphering Cybersecurity, the CAT and a New Presidency
TabbFORUM – Joanna Fields, Aplomb Strategies Inc
Deciphering the cybersecurity requirements across regulatory bodies almost presents a Herculean task for the various corporate entities that are interwoven to form the US financial market system. Given the increased complexity in cybersecurity requirements, combined with the fast-approaching Consolidated Audit Trail deadline, is it time for a single regulatory body with technological expertise to be responsible for harmonizing and consolidating all financial entities cybersecurity governance requirements?

Exclusive: SWIFT confirms new cyber thefts, hacking tactics
Tom Bergin and Jim Finkle – Reuters
Cyber attacks on the global banking system have continued – and succeeded – since February’s heist of $81 million from the Bangladesh central bank, underscoring the continuing vulnerability of the SWIFT messaging network, a SWIFT official told Reuters. The network, which handles trillions of dollars in transfers daily, has warned banks of the escalating threat to their systems, according to a SWIFT letter obtained by Reuters.

7,500 Faceless Coders Paid In Bitcoin Built A Hedge Fund’s Brain
Cade Metz – Wired
Richard Craib is a 29-year-old South African who runs a hedge fund in San Francisco. Or rather, he doesn’t run it. He leaves that to an artificially intelligent system built by several thousand data scientists whose names he doesn’t know.

Raising Interest Rates in Uncharted Territory
By Chloe Whiteaker, Jeremy Scott Diamond and Jeanna Smialek – Bloomberg
The U.S. Federal Reserve is expected to vote Wednesday to lift interest rates for the first time this year and the second time since 2006. Economic conditions barely resemble the last time the Fed made the second hike in its cycle, leaving policy makers without comparable precedent to guide their way as they try to determine a path forward for stable economic growth.


Swaps traders fear further fragmentation post-Brexit
Joe Parsons – The Trade
Market participants are concerned the global swaps market could further fragment with the creation of a third liquidity pool in the case of a hard Brexit. Speaking at an industry conference in London, market participants warned that fragmentation of pricing and regulatory arbitrage could arise if agreements over equivalency are not made soon.

EU Calls for Brexit Talks ‘Swiftly’ After Article 50, Draft Says
by Ian Wishart – Bloomberg
Statement details process of negotiations with the U.K.; Leaders will discuss Brexit without Theresa May on Dec. 15
The European Union will set out for the first time on Dec. 15 how it will conduct its Brexit negotiations with the U.K. as preparations intensify before Prime Minister Theresa May officially fires the starting gun.

Christine Lagarde on Trial in France, Overshadowing I.M.F. Role
Christine Lagarde, the managing director of the International Monetary Fund, went on trial in Paris on Monday, facing criminal charges that when she was France’s finance minister, her negligence resulted in the misuse of hundreds of millions of euros in public money.

Exchanges, OTC and Clearing

IHS Markit Adds CME Clearing to Derivatives Netting Synchronization Service
IHS Markit (Nasdaq: INFO), a world leader in critical information, analytics and solutions, today announced it has added CME Clearing to its netting synchronization service from MarkitSERV, the trade processing platform for OTC derivatives. The service provides a single source of electronic messages from multiple clearinghouses to help banks and asset managers update risk management systems when trades are netted or compressed at the clearinghouse.

Nasdaq Nordic To Launch Auction On Demand – Alternative To Over The Counter Trading And Designed To Meet MiFID II Requirements.
Nasdaq (Nasdaq: NDAQ) announced today that it will launch an innovative new market feature, Auction on Demand, on June 7, 2017. This service is designed to fulfill MIFID II transparency requirements for the periodic auction trading model, while offering Nasdaq’s trading clients a regulated and highly advanced alternative to Over the Counter and darkpool trading.

USD and EUR Interest Rate Swap Futures – Delivery Process, December 2016
CME Group
USD and EUR Interest Rate Swap Futures – Delivery Process, December 2016.

NYSE Group Announces 2018 and 2019 Holiday and Early Closings Calendar
Intercontinental Exchange (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of data and listing services, announced today the 2018 and 2019 holiday calendar and early closing dates for its cash equity markets: New York Stock Exchange, NYSE MKT and NYSE Arca Equities. These dates also apply to the NYSE Amex Options, NYSE Arca Options and NYSE Bonds markets. The previously-announced 2017 holiday and early closing dates are included below:

SLI Swiss Leader Index® Futures: Extension of the Designated Market-Making scheme
The Management Board of Eurex Deutschland and the Executive Board of Eurex Zürich AG decided to extend the Designated Market-Making scheme in futures on the SLI Swiss Leader Index® in an unchanged way for the time period from 1 January 2017 until 31 December 2017.

Securities Lending Times: “Tred Talks: Central Counterparties in 2016” by Tred McIntire
Tred McIntire, formerly head of Goldman Sachs Agency Lending and a member of the RMA executive committee, gives his thoughts how central counterparties in the securities lending market have evolved so far.


Goldman President Named Trump Adviser, Opening Door for Younger Executives
The jockeying to be the next chief executive of Goldman Sachs is expected to intensify after President-elect Donald J. Trump officially asked the firm’s president, Gary D. Cohn, to become his top economic policy adviser on Monday.

Donald Trump’s Wealthy Cabinet Picks to Undergo Financial Scrutiny He Didn’t Face
For the billionaires, the multimillionaires and the plain well-off people whom President-elect Donald J. Trump is choosing for his cabinet, the first step to office will be the sort of grilling he didn’t face — on potential business conflicts of interest and, for some, tax returns — courtesy of the Senate sleuths who have taken their toll in the past.

Trump says China is not a market economy. That’s a big deal.
By Chad P. Bown – Washington Post
Way back in 2001, in China’s view, the United States promised it would treat the Asian country as a “market economy” starting in December 2016. President-elect Donald Trump indicated on Dec. 8 that “China is not a market economy,” and the issue could escalate already-tense trade relations between Beijing and Washington.

Investing and Trading

Investment Funds Worth Trillions Are Dropping Fossil Fuel Stocks
Investors controlling more than $5 trillion in assets have committed to dropping some or all fossil fuel stocks from their portfolios, according to a new report tracking the trend.

50 Twitter accounts for investors to follow in 2017
Barbara Kollmeyer – MarketWatch
It’s that time again. That is, time for you to clean out your Twitter closet as 2017 arrives. Toss the bots and Eggheads, and add a few names who might actually give good guidance in what is sure to be an interesting year for investors.

Quality: A Driving Factor of Small-Cap Returns
Aye Soe, Senior Director, Global Research & Design – S&P Dow Jones Indices
Much has been written about the performance differential between the two leading small-cap indices, the S&P SmallCap 600 and Russell 2000. Over a long-term investment horizon, the S&P SmallCap 600 has outperformed the Russell 2000 with less risk. Part of the performance differential can be attributed to the June Russell rebalancing effect. As winners from the Russell 2000 graduate to the Russell 1000 and losers from the Russell 1000 move down to the small-cap index, fund managers are forced to sell winners and buy losers, thereby creating a negative momentum portfolio (Furey 2001).

ETF group that Donald Trump could make great again; One asset manager has been a big winner since the Republican’s victory lifted the dollar
by: Stephen Foley – FT
The election of Donald Trump has made the American dollar great again, but while it has jumped almost 4 per cent since election night to 13-year highs, investors could have made 54 per cent by buying one stock whose fortunes are particularly tied to the US currency.

Commodities ETFs a short-term bet for investors; Big inflows mask flightiness of those pumping money into such funds
by: Gregory Meyer in New York – FT
When food and fuel prices soared several years ago, commodities exchange traded funds became a political target.


The rise and rise of interbank FX giants: Barclays ditches entire Euro retail business while BARX platform dominates Tier 1 liquidity sector
Andrew Saks-McLeod – FinanceFeeds
Barclays has completed its absolute divestment from European branch banking, selling its remaining 74 branches in France to AnaCap Financial Partners. This means a complete concentration – and domination – in the interbank FX markets for Barclays BARX platform, as last look execution lives on and becomes even more of a core business activity

JPMorgan Traders Back Risky Property Deals as Bank Shows Caution
Sarah Mulholland and Hugh Son – Bloomberg
Real estate developers who can’t get funding from JPMorgan Chase & Co.’s commercial bank may have another option: a JPMorgan trading desk. A group of traders in JPMorgan’s investment bank has expanded from selling commercial mortgage-backed securities to underwriting loans that are unsuitable for bonds, such as those for big construction projects, according to people with knowledge of the matter.

New Italian PM launches government with pledge to support banks
Gavin Jones – Reuters
New prime minister Paolo Gentiloni said in his maiden speech to parliament on Tuesday he was ready to support Italy’s ailing banks and wanted more help from the European Union in coping with migrants.


Bloomberg Tradebook Enhances Cross-Asset Trading Platform to Enable Relative Trading
Bloomberg Tradebook, Bloomberg’s global agency brokerage business, today announces the release of its Relative Benchmark Trading algorithm for its cross-asset trading platform, PAIR {PAIR}. This enhancement gives Bloomberg Tradebook clients the ability to dynamically trade one security relative to a set benchmark, helping traders generate alpha, reduce the costs of trading and better manage risk.


SEC Chair White defies Republican requests to stall rulemaking
Sarah N. Lynch – Reuters
U.S. Securities and Exchange Commission Chair Mary Jo White on Monday defied requests by Senate Republicans to delay adopting new rules on everything from derivatives to mutual funds until after President-elect Donald Trump takes office.

Big banks may get extra 5 years to comply with Volcker rule
Ryan Tracy – MarketWatch
Big banks can obtain more time to sell certain investment fund holdings banned by the so-called Volcker rule, the Federal Reserve said Monday. The Fed issued new guidelines for banks to request an additional five years beyond a July 2017 deadline to sell the funds. The guidelines apply to funds known as “illiquid funds” because they can be hard to sell but are required to be divested under the Volcker rule’s ban on banks making hedge fund-like speculative bets.

Margin Rules May Shift OTC Trading
Shanny Basar – MarketsMedia
The Bank for International Settlements warned that new margin requirements for uncleared derivatives could raise costs and encourage a shift of more interest rate trading onto exchanges and into central clearing.

Two traders arrested over alleged manipulation of more than 2,000 stocks
Francine McKenna – MarketWatch
Two New Jersey-based traders were arrested on Monday for allegedly manipulating prices of more than 2,000 New York Stock Exchange- and Nasdaq-listed shares resulting in more than $26 million in illegal profits over a two-year period.

Fall 2016 Firm Element Advisory Update Part 4
This podcast is the fourth episode in the Fall 2016 Firm Element Advisory four-part series. It covers transaction reporting and data dissemination.

SIFMA Market Close Recommendations in the U.S., the U.K. and Japan for New Year’s Day
SIFMA has confirmed its previous holiday recommendations for the U.S., the U.K., and Japan in observance of the New Year’s Day holiday.

SEC Awards Nearly $1 Million to Whistleblower
The Securities and Exchange Commission today announced an award of more than $900,000 to a whistleblower whose tip enabled the SEC to bring multiple enforcement actions against wrongdoers.


Trump-powered dollar to be the bogeyman of 2017 for emerging markets
Sue Chang – MarketWatch
Foretelling the future is a daunting task. But the one thing that strategists are agreed on for 2017 is that Donald Trump’s presidency will usher in a new era of dominance for the U.S. dollar that will have wide-ranging implications. Among the biggest casualties of the buck’s rise will be developing economies, which tend to be more sensitive to external shock.

Demonetisation raises Bitcoin exchanges’ hope
Business Standard
The central government’s demonetisation drive has come as a sign of encouragement for Bitcoin exchanges. The crypto currency-cum-payment system has been denied a legal or currency status till now by the Reserve Bank of India (RBI). The exchanges now believe this might change, with the government push for digitised transactions.

Indian Banks’ Poisoned Chalice
Bloomberg Gadfly
As if the distress caused by India’s cash ban wasn’t enough, somebody started a rumor on Monday that Axis Bank Ltd., the country’s third-largest private sector lender by assets, would have its license revoked.Axis had to issue a statement to quell the speculation. But while this may have been a brief panic, the message to investors and analysts is clear: Operational and reputational risk for India’s banking system has surged uncontrollably since the government’s Nov. 8 move to outlaw 86 percent of the country’s cash.

Wall Street Banks Should Sharpen Their Knives
By Nisha Gopalan – Bloomberg
In Asia, Western banks need to understand that small is beautiful. They need to be more nimble and focused, and accept that some things are best left to the locals. They should also focus on what pays: The multinational clients that were once their top customers and the private-equity firms that provide recurring fees are a lot more loyal than the average Chinese company.

Demonetisation worse than natural calamity, it’s the biggest scam of 2016: Chidambaram; ‘Even a natural calamity might not cause so much of trouble,’ Chidambaram remarked
Business Standard
Former finance minister and senior Congress leader P Chidambaram on Tuesday hit out at the government by terming demonetisation as a thoughtless, absurd move which failed to meet its objective.

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