Brokers shun oil ETF providers over regulatory risks

May 22, 2020

First Read

Cboe’s Tilly Outlines Exchange Growth Amid Market Disruption
Suzanne Cosgrove – John Lothian News

In a webinar interview Thursday, Cboe Global Markets’ CEO Ed Tilly said the exchange is contemplating reopening the trading floor next month but will not pull the trigger until all the safety protocols have been signed off on. “We’re taking extra precautions before we reopen,” he said.

He also emphasized the value of the trading floor for Cboe customers.

The exchange temporarily pushed to all-electronic trading in the span of just two days in March, abruptly closing its Chicago trading floor in response to the coronavirus pandemic.

“It was such a short time frame — two days — with so much change,” Cboe Chief Executive Officer Ed Tilly recalled in the interview with Kevin McPartland, managing director at Greenwich Associates.

The Cboe floor closed effective Monday, March 16, and exchange staff switched to remote operations. The Securities and Exchange Commission had announced March 14 that it would facilitate a Cboe rule filing to allow the change.

To read the rest of this article, go HERE.


Hits & Takes
By John Lothian & JLN Staff

Trading Technologies decided to upset the apple cart of data sales at the exchanges. They decided to pull on Superman’s cape and offer their own solution for high data costs. Their ECHO Chamber product is an indication of a potential market top in exchange data fees and my use of bad cliches, which is good news. Here is a link to the blog post in the special report JLN issued yesterday from Trading Technologies.

In the JLN Bachelier Options Model virtual panel held a week ago, Don Wilson suggested that clearing firms that clear commodity ETFs have an implicit short put risk at the strike price of zero. The ETF holders’ risk ends at zero for the ETF, but the commodity futures can go below zero and that is the risk of the FCM. That may explain why RBC decided to pull back from clearing the business of leading oil ETF USO. See Thom Thompson’s comment below, the FT story below and the lead story for more details.

Congratulations to Alli Brennan for being promoted to managing director, head of the America’s at CQG, Inc.

Starting June 1, Vermiculus will be a sponsor of John Lothian News. Vermiculus is the new enterprise of Nils-Robert Persson. Look for more information on Vermiculus coming soon.

Have a nice weekend. Monday is Memorial Day in the U.S. and JLN will not be published on Monday. We will return on Tuesday.

Stay Safe!~JJL


USO, the largest and most prominent ETF giving exposure to crude oil prices, disclosed in a filing with the SEC that its futures clearing firm, RBC, is no longer willing to clear for it. Maybe it is just pro forma language or maybe it is prescient, but USO now warns that it may not be able to find an FCM to replace RBC. Since according to its prospectus USO gets its exposure to oil prices ONLY by buying futures contracts, this could mean trouble for the ETF. ~Thom Thompson


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It Plays Better with Reverb: Thoughts on a New Model of Data Sharing
Craig Mohan, Chief Growth Officer – Trading Technologies
Of the many advantages to being on the TT® platform, several are obvious and have been covered in other blog posts, and many are still emerging. This post sheds some new light on the advantages to our customers from a market data perspective, both commercially and technically. When we set out years ago to rethink how technology could solve the industry’s toughest challenges, one prevailing theme we focused on was the idea of empowering a community. By running a platform on a single network to bring the world’s trading community together across the most liquid exchanges, we not only wanted TT to be able to more effectively deliver compelling solutions, but more significantly to provide our clients the tangible benefits of being on our network, i.e., the network effect. And now with our platform migration in its final stages and the potential of the TT platform unlocked, we asked ourselves which of our clients’ most challenging problems did we want to tackle first.

****** Data sharing sounds so daring.~JJL


USO: Uncleared and present danger
Izabella Kaminska – FT
The United States Oil Fund, currently the world’s most controversial exchange-traded product, has just filed a staggering update to the SEC. (h/t to the FT’s Phil Stafford.)

It notes (our emphasis):

RBC and other market participants , including other FCMs, have taken risk mitigation measures that constrain USO’s ability to invest in the Benchmark Futures Contract and other Oil Futures Contracts. RBC, currently USO’s only FCM, has expressly informed USO that, until further notice, USO may not hold positions in the Benchmark Futures Oil Futures Contract and that it may not purchase any other Oil Futures Contracts for USO’s portfolio through RBC whether or not such purchases would be within the limits permitted by the exchanges. RBC has indicated that such limitation on USO is a result of RBC’s own internal risk management requirements and directions it has received from other regulators in the United States, Canada and the United Kingdom. USO cannot predict with any certainty when and whether RBC will remove these limitations. USO has been engaging in efforts to enter into additional FCM agreements for the purpose of the purchase and sale of Benchmark Oil Futures Contracts as well as other Oil Futures Contracts. To date, USO has not entered into an agreement with any FCM other than RBC and it cannot predict with any certainty when it will do so.

RBC Capital was the USO’s only clearer. RBC is no longer prepared to clear USO’s portfolio. It is specifically not prepared to clear USO holdings in the benchmark front month but also, rather staggeringly, in any other months either.

***** Why they did not have two clearing firms is beyond me. But then, their other firm may have come to the same conclusion as RBC.~JJL


Plagued by stock trades, Loeffler vows she won’t drop out; “This is the liberal media attacking someone who supports free enterprise,” the Republican senator said in an interview.
Marianne Levine, Burgess Everett- Politico
Kelly Loeffler is behind in the polls and best known for her fortuitously timed stock trades. But the Georgia Republican insisted during a 25-minute interview that she’s not going anywhere.

*****Kelly Loeffler is fighting for her political life and showing a lot of partisan spirit.~JJL



CryptoMarketsWiki Coin of the Week: Kin
Kin, a digital asset created by the messaging platform Kik in 2017, published a transparency report Thursday that describes the structure of the company that manages it – the Kin Foundation – including a list of its executives and board members, business partnerships, an explanation of its annual budget, and technical details about Kin and its ecosystem. Kik, whose CEO is a board member for the Kin Foundation, is currently in a legal battle with the SEC, which alleged that Kik ran an unregistered securities sale of Kin.


Thursday’s Top Three
Our top story Thursday was The Streetwise Professor’s column, Whoops! WTI Didn’t Do It Again, or, Lightning Strikes Once. Second was CNBC’s Nasdaq explains how new SEC proposals could profoundly transform US equity markets. Third was How COVID-19 Redefined Priorities in the Derivatives Industry, from John Omahen of FIS, on LinkedIn.


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Lead Stories

Brokers shun oil ETF providers over regulatory risks; Retail investors have been caught out by abrupt swings in oil prices
David Sheppard and Chris Flood and Gregory Meyer – FT
Brokers and dealers are freezing out the operators of the world’s largest oil-linked exchange-traded products, reflecting concerns over the risks to retail traders dabbling in increasingly volatile assets. The United States Oil Fund, the biggest oil exchange-traded fund in the world, said on Thursday that RBC Capital Markets had stopped it from buying any more oil futures, in a step that could force USO to scale back or adjust its operations.

Hong Kong Stocks Crash on New Concern Over City’s Future
Richard Frost – Bloomberg
Hang Seng posts worst loss since 2015, local dollar weakens; Volatility index surges 40% as traders rush to hedge swings
Beijing finally pulled the trigger on national security legislation for Hong Kong, sowing panic in the city’s $5 trillion stock market. The Hang Seng Index plunged 5.6% by the close on Friday, its biggest loss since July 2015 when a bubble was bursting in Chinese equities. Real estate companies suffered the brunt of the selling, with an industry gauge sinking the most since the global financial crisis, amid concern the city’s uncertain future will spur investors and residents to shift assets overseas.

Fed Chair Warns This Is a ‘Downturn Without Modern Precedent’; It’s impossible to guess what the trajectory for the economy will look like, a series of central bankers warned. That makes nimbleness key.
Jeanna Smialek and Alan Rappeport – NY Times
Jerome H. Powell, the chair of the Federal Reserve, and other top central bank officials warned on Thursday that the United States was experiencing an exceptional shock in the coronavirus pandemic, and that it was wildly unclear when and how low unemployment and widespread prosperity would return.

U.S. LNG Cancellations Swell With Storage Space Vanishing
Stephen Stapczynski and Anna Shiryaevskaya – Bloomberg
As many as 45 July cargoes from U.S. may have been rejected; Cheniere could have as many as 30 cargoes scrapped in July
U.S. liquefied natural gas producers face a wave of order cancellations as global buyers struggle with growing stockpiles of the fuel along with demand weakened by the coronavirus crisis. All U.S. projects could get requests to cancel a total of 35-45 cargoes for July loading, which is higher than the number of shipments scrapped for June, traders surveyed by Bloomberg News estimated. That means more than half of the average monthly shipments from the fastest-growing LNG producing country could be scrapped in July.

Protesters Organize Against China Security Law: Hong Kong Update
Bloomberg News
Hong Kong braced for fresh demonstrations Friday and into the weekend after China announced it would impose sweeping national security rules onto the city, reigniting tensions that gripped the financial hub for months until the coronavirus ground everything to a halt.

US Fed’s Libor-transition panel would back any active benchmark that’s robust, Iosco-compliant
Neil Roland – Mlex
The US Federal Reserve panel overseeing the transition from tarnished Libor said it would support any active benchmark — not just the Secured Overnight Financing Rate — as an alternative if the rate is robust and complies with international principles. The Alternative Reference Rate Committee’s written statement didn’t respond specifically to MLex’s question about the desirability of Ameribor, a transaction-based interest rate benchmark aimed at regional and mid-sized banks.

Wall Street’s New Watchdog Is Ex-Fannie Lawyer With Mnuchin Ties
Jesse Hamilton – Bloomberg
Brian Brooks poised to take reins at OCC after Otting’s exit; Like Otting, Brooks served on OneWest Bank board with Mnuchin
A former Fannie Mae lawyer and business associate of Treasury Secretary Steven Mnuchin is ascending to the top of one of Wall Street banks’ main regulators. Brian Brooks is set to become acting head of the Office of the Comptroller of the Currency, following OCC chief Joseph Otting’s Thursday announcement that he plans to step down. Brooks, a former Fannie general counsel and ex-vice chairman at Mnuchin’s OneWest Bank, will be thrust into a job that is grappling with the financial carnage of the coronavirus pandemic and a rift with other regulators over a key banking rule.

Ronin expanded rapidly before flaming out, accounts show; Chicago prop firm tapped $450m financing line with broker-dealer as assets grew to $34bn
Costas Mourselas –
Newly released regulatory filings show Ronin Capital’s balance sheet ballooned by almost two thirds to $34 billion at the end of 2019. Less than three months later, CME Group auctioned off the prop firm’s derivatives portfolios after determining it could no longer meet the bourse’s minimum capital requirements.

Argentina Default Could Be Cured Quickly, Investors Say
Scott Squires – Bloomberg
Creditors may not immediately litigate if Argentina defaults; Acceleration by creditors solves nothing: Guggenheim’s Walker
Even if Argentina defaults for the ninth time in its history, creditors say the issue could be cured quickly as the two sides work to restructure $65 billion in overseas bonds.

Harold Hamm, Fracking Pioneer, Faces a Career Reckoning; Founder of oil giant Continental Resources revolutionized the industry and helped usher in the U.S. energy boom. Now he’s slashing production and ripping up delivery contracts to try to survive the price collapse from coronavirus shutdowns.
Christopher M. Matthews and Collin Eaton – WSJ
Harold Hamm, the wildcatter who helped usher in the American fracking boom, has weathered his share of oil busts. None of them matched this one. The 13th child of Oklahoma sharecroppers, Mr. Hamm rose from the bottom of the oil business to become a self-made billionaire. He is one of the pioneering prospectors who turned the U.S. into the world’s leading oil producer by using hydraulic fracturing and horizontal drilling techniques to unlock huge volumes from rock formations.

IG faces customer ire after tech crash; Trading and spread betting platform’s app and website go down to leave users frustrated
Antonia Cundy – FT
Online trading platform IG Group faced a backlash from hundreds of customers on Thursday afternoon after its mobile app and website crashed, leaving many users stranded and unable to close their trades for more than an hour.

Post-crisis infrastructure must be built with low carbon materials; Poor procurement could undermine the mission for a green economic recovery
Lord Barker – FT
Amid the global tragedy of Covid-19, one of the few positive developments has been the enthusiasm to “Build Back Better”. Originally a technical term describing the use of post-disaster reconstruction to increase a country’s resilience, this hashtag friendly concept is being rapidly embraced by business and activist circles alike to represent their determination to create a more resilient and, crucially, more sustainable post-pandemic world.

Why BlackRock Has a Role in the Fed Bond-Buying Spree: QuickTake
Annie Massa – Bloomberg
As part of its whatever-it-takes effort to reduce the economic pain from the coronavirus pandemic, the U.S. Federal Reserve enlisted BlackRock Inc. to direct three of its bond-buying programs. It’s not the first time the government has partnered with the asset-management behemoth, which under the arrangement could buy some of its own funds on behalf of the central bank.

America’s Small Businesses Are Sputtering. Here’s Why That Matters for the Economy—and Investors.
Lisa Beilfuss – Barron’s
The owner of Diamond Dental Lab in Des Plaines, Ill., furloughed his staff of nine in late March after the state ordered dental practices to close for all but emergency visits and his customers stopped putting in orders for the crowns, bridges, and implants that his small business has made for the past 20 years.

Why AI-driven financial advice is getting regulators’ attention
Patricia Chisholm – The Globe and Mail
The emerging use of artificial intelligence (AI) to support or even replace human financial advisors is attracting the attention of regulators – mainly in Britain but also in Canada. While they’re broadly supportive of AI as a cost-efficient tool to broaden the reach of financial advice, they’re also monitoring the potential risks and challenges, trying to ensure that this advice remains both suitable and transparent for clients.

U.S. shale bust slams rural economies as oil checks shrivel
Jennifer Hiller – Reuters
Royalties from oil pumped on Paul Ruckman’s land allowed the South Texas retiree to build a six-bedroom, seven-bathroom vacation home. He had plenty left over, and donated some of it to Helena, Texas, an 1800s ghost town that draws hundreds to historic buildings and gunfight re-enactments.


Coronavirus Infections Jump by More Than a Million in Less Than Two Weeks; Globally, there are more than 5.1 million recorded cases and more than 333,000 deaths
Lucy Craymer – WSJ
As U.S. states and countries around the world look to boost their economies by loosening restrictions, coronavirus infections continue to spread, with more than a million new infections world-wide in less than two weeks. Globally there are more than 5.1 million recorded cases of the coronavirus, up from 3.85 million two weeks ago, according to data compiled by Johns Hopkins University, and more than 333,000 deaths. In the U.S., there have been nearly 1.58 million confirmed infections. The death toll reached 94,702, including 1,222 deaths recorded between 8 p.m. Wednesday and the same time Thursday, a Wall Street Journal analysis of Johns Hopkins data showed.

America Has Opted for a Bad Recession; The coronavirus dilemma isn’t about lives versus the economy.
Narayana Kocherlakota – Bloomberg
People keep saying that the coronavirus crisis has presented America with a difficult choice: the lives of our parents and grandparents versus the economic well-being of our children. I beg to differ. The real choice is, and has always been, between a sane national strategy for containing the pandemic and economic disaster.

Vaccine Progress Spurs Optimism in Emerging Markets
Bloomberg News
U.S. pledges funds to AstraZeneca; Moderna study shows promise; China announces plans for new Hong Kong national security law
Emerging-market stocks and currencies headed for a weekly gain amid optimism progress is being made toward developing coronavirus vaccines, and as more nations roll back lockdowns.

This Recovery Is Doomed Before It Even Begins; As swiftly as lockdowns were imposed across Asia, the process of lifting them will be slow and uneven.
Daniel Moss – Bloomberg
The coronavirus recovery is in trouble before it even begins. As swiftly as the lockdowns across Asia were imposed, the process of lifting them will be slow and uneven. That means the region is months, if not years, away from any semblance of normal.

Some Industries Won’t Have a Reopening Comeback; Lifting lockdowns will revive many businesses. The same can’t be said of traditional retailers, colleges and cinemas.
Noah Smith – Bloomberg
There will still be a U.S. economy after Covid-19. People are going to need food, shelter, entertainment, health care, transportation and so on. But the shape of that economy — what people buy and what they do without — will change. Some businesses that make it through the acute stage of the crisis will shrink or vanish afterward, while some that shuttered will spring up again, reborn. It’s very difficult to anticipate these long-term shifts while the pandemic is still raging. But investment and hiring decisions have to be made, and an educated guess is better than nothing.

More evidence emerges on why covid-19 is so much worse than the flu
Lenny Bernstein – Washington Post
Researchers who examined the lungs of patients killed by covid-19 found evidence that it attacks the lining of blood vessels there, a critical difference from the lungs of people who died of the flu, according to a report published Thursday in the New England Journal of Medicine.

How the pandemic reinvigorated religion; From drive-through confessions to solitary funerals, faith leaders are finding new ways to connect
Henry Mance – FT
In normal times, Matt Williams would await repentant sinners inside his churches in Quincy, Massachusetts. These days he has devised a virus-proof alternative: drive-through confession.

The Healing Power of Proper Breathing; How we inhale and exhale has profound effects on our health—and not just during a crisis like the pandemic
James Nestor – WSJ
Breathing is not an activity that anyone is feeling confident about right now. We spend our days covering our mouths and noses with masks, struggling to inhale and exhale. We toss and turn at night, worried that we might be feeling a cough coming on or some tightness in our chests. Covid-19 has turned us into a planet of breath-obsessed people.

How to Know Which Risks Are Right for You When Reopening Your Life; A psychologist offers a way to make the tough decisions everybody is facing
Maryanne Vandervelde – WSJ
As government controls on our behavior diminish, we all have a giant jumble of decisions before us: Should I get my hair cut? Can I hug my mother or best friend? Do I go to a restaurant? Is it time to get on a plane?

The Crucial Reopening Question; Organizations need a plan for how to react when a customer or employee tests positive for Covid-19.
Joseph A. Ladapo – WSJ
If reopening—and staying open—is the goal, the most important question that workplaces, schools, restaurants and retailers should be asking isn’t how to maintain social distancing on their premises. Nor is it how to disinfect workspaces or whether to mandate face masks. The most important question is what they will do when an employee, customer, teacher or student tests positive for Covid-19, and what they will do if that person dies.

Revamp Your Coronavirus Routine to Avoid Burnout; It’s OK to work longer hours as long as you’re breaking off chunks of time for exercise, errands, and family.
Arianne Cohen – Bloomberg
Up until now, we’ve been living a simulacrum of our pre-Covid-19 lives. But two months into the marathon pandemic, our previous frameworks are crumbling under the stresses of adapting to a world in which unprecedented numbers of people are losing their livelihoods and lives. We have to figure out how to get through the day and absorb that stress without letting it overwhelm us. Some pointers on rejiggering your routine to do that:

Morgan Stanley CEO Sees Only Half His Employees Back by Year-End
Sridhar Natarajan – Bloomberg
Morgan Stanley Chief Executive Officer James Gorman joined other finance-industry leaders in warning that operations won’t be fully back to normal this year.

Exchanges, OTC and Clearing

Announcement of Passing of Governor of Japan Exchange Regulation
JPX hereby solemnly announces the passing of Ishiguro Toru, Governor (Outside), Japan Exchange Regulation, part of JPX Group. We wish to express our deep appreciation for his contributions during his term of office at JPX Group and convey our sincere condolences to his family

Simplifile Adds E-recording in 55 Eastern and Southern U.S. Jurisdictions
Intercontinental Exchange, Inc.
Intercontinental Exchange, Inc. (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, today announced that 55 recording jurisdictions in the eastern and southern U.S. have joined Simplifile’s e-recording network. Simplifile is part of ICE Mortgage Services, which applies technology and high-capacity infrastructure to make the mortgage process electronic and more efficient.

Chinese search giant Baidu reconsiders US listing; Chief executive says company is discussing response to possible tighter rules
Ryan McMorrow – FT
Baidu is considering its options over its Nasdaq listing as US lawmakers come closer to imposing tighter rules on Chinese companies trading in New York.

HKEX Head of Market Development Is Leaving By the End of Year
Kiuyan Wong – Bloomberg
Hong Kong Exchanges & Clearing Ltd.’s head of market development will leave by the end of this year, the latest senior executive to announce a departure from the bourse. Li Gang, who had been with the exchange since 2013, will depart “to pursue other career interests,” according to an internal memo from Chief Executive Officer Charles Li obtained by Bloomberg News. An HKEX spokesman said the bourse doesn’t comment on individual employees.

Amman Stock Exchange Working Hours
The Amman Stock Exchange (ASE) will return to business as normal, starting on Tuesday morning, 26 May 2020 from 8:00 am till 4:00 pm. Taking into consideration that the allowed daily increase and decrease limits for trading securities and block trades will remain at 2.5% of the reference price. Trading hours will stay as follows:

EGX Eid El Fitr Al Mubarak Holiday
EGX decided that Eid El Fitr holiday will start from Sunday 24th of May 2020 till Thursday 28th of May 2020. Trading will be resumed effective Sunday 31st of May 2020.


Don’t Cut Alt Data Spend, HSBC Data Manager Warns; Slashing budgets will lead to inaccuracies as banks turn to alt data for fraud detection and to monitor customer behavior during the coronavirus crisis.
Josephine Gallagher – Waters Technology
Banks should not think of cutting spending on data during the current financial downturn, despite financial pressures, Damaris Barrera, a senior data manager in HSBC’s global banking and markets group, has said.

Trading Technologies Unveils New Futures Market Data Feed; As the fight over market data fees in the futures market heats up, the Chicago-based trading platform provider is rolling out a new platform that provides a free view of market order flow for TT platform users.
Anthony Malakian – Waters Technology
Trading Technologies (TT) is rolling out a new platform called Echo Chamber, which allows individual firms and groups of firms to see aggregated and anonymized order data in real time from more than 55 exchanges. At its core, Echo Chamber combines futures contracts traded on different exchanges to provide a single view of each, no matter where the contract is traded.


Colombia, Deloitte, ConsenSys Sign On to WEF’s ‘Blockchain Bill of Rights’
Leigh Cuen – Coindesk
The token economy just gained an organized structure for collaborating with world leaders. The World Economic Forum revealed its Presidio Principles on Friday, a “blockchain bill of rights,” according to the nonprofit focused on fostering diplomacy and international business partnerships. The document includes signatories from the Government of Colombia, Deloitte Consulting LLP, ConsenSys, Electronic Coin Company, CoinShares and the United Nations’ World Food Program, just to name a few.

Iranian President Calls for National Crypto Mining Strategy
Paddy Baker – Coindesk
Iranian President Hassan Rouhani has ordered the government to draw up a renewed national approach for the emerging crypto industry. Chairing Iran’s economic coordination headquarters – a seminar for the national economic strategy – earlier this week, Rouhani told officials from the Central Bank of Iran (CBI), energy department and information and communication technology ministries that they needed to devise a new national strategy for crypto mining, including regulation and mining revenue, Iranian news site ArzDigital reported Wednesday.

Interest-Bearing Crypto Accounts: A ‘Gateway’ for New Crypto Users?
Rachel McIntosh – Finance Magnates
The economic uncertainty brought about by the spread of the coronavirus has been the source of much stress and much systemic reorganization over the past several months. As a result – and perhaps somewhat ironically – this seems to have caused an uptick in public interest in cryptocurrency.

FTX.US goes live, CEO says the crypto exchange has ‘tons of liquidity’ to offer
Yogita Khatri – The Block
Crypto exchange FTX has launched a new trading platform for U.S. users, almost a month after first revealing the news. FTX.US offers spot trading in six coins – bitcoin (BTC), ether (ETH), bitcoin cash (BCH), litecoin (LTC), Paxos gold (PAXG) token and Tether (USDT) stablecoin.

Kin Foundation Publishes First Transparency Report Amid SEC Court Fight
Nikhilesh De – Coindesk
The kin Foundation is offering a peek under the hood. The group published a transparency report Thursday, laying out its structure and operations, in a partnership with Messari and its disclosure database. According to the report, the kin Foundation plans its budget a year in advance, with funds going to app developers, node incentives, user grants and marketing and operations. There are 1.45 trillion kin tokens currently circulating, out of 10 trillion created in all.

Local Chinese government seeks to ‘ban’ crypto mining activities, sources say it doesn’t mean much
Yogita Khatri – The Block
Local government authorities in China’s Sichuan province have issued a notice, seeking to “ban” crypto mining activities in the region. The notice, issued by the financial administrator of Sichuan to its subordinate offices, reads that “hydroelectric power generation enterprises in our county shall immediately stop the investment of virtual currency ‘mining’ activities and shall not add new virtual currency ‘mining’ projects.”

Is Stablecoin the Next Big Thing in E-Commerce?
Marco Di Maggio and Nicholas Platias – Harvard Business Review
A few years ago, if you had heard that the U.S. government might mint its own digital currency, you might have dismissed the idea as starry-eyed futurism — or, less charitably, a joke. Digital currencies, such as Bitcoin, were the purview of speculators and coders, not stodgy central bankers. But this winter, the Federal Reserve announced that it’s investigating the possibility of issuing its own digital coin. Speaking at Stanford, Federal Reserve Governor Lael Brainard noted that the “potential for digitalization to deliver greater value and convenience at lower cost” has piqued the interest of the traditionally risk-averse institution.

Crypto trade group taps hedge fund legal chief as first CEO
Frank Chaparro – The Block
ADAM, a cryptocurrency trade group, has brought on its first chief executive as it aims to evangelize its code of conduct to participants in the market. The group — made of trading firms, brokers, and investors — announced Thursday that it hired Jeffrey Blockinger, a former legal chief from the hedge fund world, to strengthen ADAM’s position in the market. Blockinger previously served as the chief legal officer of Och-Ziff Capital Management, a multi-state hedge fund that manages more than $30 billion in assets. He left the company in 2014.

Canaan Reports $5.6M Loss in Q1 Despite Bitcoin Miner Price Cut
Wolfie Zhao – Coindesk
China-based bitcoin miner manufacturer Canaan has reported a net loss of $5.6 million for Q1 2020, even though it had cut down the prices for its hardware by more than half in an effort to sell more machines. In an earnings report released on Friday, the firm said it made $9.4 million in revenue for the first three months this year with a growth of 44.6% compared to the same period last year. But it also incurred R&D and sales expenses worth $5.9 million and $0.6 million, respectively – both larger than those in Q1 2019.

Albanian Parliament Signs New Crypto Law: A Bid to Become Blockchain Hub?
Rachel McIntosh – Finance Magnates
On May 21st, the Albanian parliament signed a new bill into law to implement a legal framework for cryptocurrencies, which CoinTelegraph described as “Europe’s most comprehensive crypto law yet.” The legislation seeks to regulate conditions for licensing all cryptocurrency-related activities that take place on an infrastructural level in the country, and was passed with a heavy majority: 88 votes in favor, 16 votes against, and 3 abstentions.

Congressman pushes blockchain bill that seeks to provide more regulatory clarity
Aislinn Keely – The Block
U.S. Congressman Brett Guthrie (R-KY) introduced a set of bills with a focus on the use of blockchain in the American economy and artificial intelligence (AI) to combat nefarious online activity. The Advancing Blockchain Act is one of several bills related to emerging technology introduced through the Energy and Commerce Committee and Consumer Protection and Commerce subcommittee. The Republican committee said it hopes to create policies fostering innovation, securing supply chains and consumer protections “that ensure America beats China.”


Chinese Stocks Become Bait Again in Rising U.S.-China Tensions
Jenny Leonard, Benjamin Bain, and Sridhar Natarajan – Bloomberg
U.S. exchanges under pressure to take action on Chinese firms; Goldman Sachs sends clients report to outline potential impact
Political momentum intensified this week to curtail investments in Chinese companies, in the latest sign that tensions between the world’s two largest economies have reignited.

How Germany changed its mind about Europe; Threats to EU economy and ECB triggered historic Macron-Merkel deal on EUR500bn recovery fund
Victor Mallet, Guy Chazan and Sam Fleming – FT
Angela Merkel announced one of the biggest U-turns of her career this week, the declaration was both emphatic and unexpected.

JPMorgan Says U.S. Power at Risk From Central Bank Digital FX
Joanna Ossinger – Bloomberg
As the idea of central bank digital currencies starts to gain traction, the U.S. in particular needs to pay attention or risk losing a major aspect of its geopolitical power, according to JPMorgan Chase & Co.

China Dares Trump to Hit Back With Hong Kong Power Grab
Bloomberg News
‘Xi feels threatened, the leadership feels threatened’; Xi’s government abandons growth target, vows stimulus
On the first day of China’s biggest political event of the year, Xi Jinping sent a clear message to Donald Trump: We’re going to do what we want in Hong Kong, and we’re not scared of the consequences.

Coronavirus Is a Stress Test Many World Leaders Are Failing
Marc Champion – Bloomberg
Late responses of Johnson, Trump, Xi, others carrying costs; In ‘does leadership matter’ debate, Covid-19 says it does
If a leader has a political weakness, novel coronavirus is finding it. It’s too early to score countries on their overall responses to a pandemic whose life cycle is likely to be measured in years. Yet it’s clear already that some used the time they had to prepare and act in the critical, early stage of the outbreak far less well than others.


FCA announces support for customers who are struggling to pay their mortgage due to coronavirus
The Financial Conduct Authority (FCA) has today announced proposals which will continue support for customers who are struggling to pay their mortgage due to coronavirus (Covid-19).

FCA acts to strengthen protections for customers using payment firms
The FCA has today launched a consultation on additional guidance for payments firms to strengthen the way in which they look after customers’ money.

CFTC to Hold an Open Commission Meeting on May 28
Commodity Futures Trading Commission Chairman Heath P. Tarbert today announced the CFTC will hold an open meeting on Thursday, May 28, 2020 at 10:00 a.m. (EDT). The meeting will be held via conference call in accordance with the agency’s implementation of social distancing due to the COVID-19 (ve coronavirus) pandemic.

SEC Adopts Amendments to Improve Financial Disclosures about Acquisitions and Dispositions of Businesses
The Securities and Exchange Commission today announced that it has voted to adopt amendments to its rules and forms to improve for investors the financial information about acquired or disposed businesses, facilitate more timely access to capital, and reduce the complexity and costs to prepare the disclosure. The amendments will update our rules which have not been comprehensively addressed since their adoption, some over 30 years ago.

SEC Issues Agenda for May 27 Meeting of the Asset Management Advisory Committee
The Securities and Exchange Commission today released the agenda for the May 27 meeting of the Asset Management Advisory Committee (AMAC). AMAC was formed to provide the Commission with diverse perspectives on asset management and related advice and recommendations.

FINRA Amends Rules Governing its Membership Application Program to Incentivize Payment of Arbitration Awards
FINRA amended its Membership Application Program (MAP) rules to create further incentives for the timely payment of arbitration awards by preventing an individual from switching firms, or a firm from using asset transfers or similar transactions, to avoid payment of arbitration awards. The amendments will address situations where: (1) a FINRA member firm hires individuals with pending arbitration claims, where there are concerns about the payment of those claims should they go to award or result in a settlement, and the supervision of those individuals; and (2) a member firm with substantial arbitration claims seeks to avoid payment of the claims should they go to award or result in a settlement by shifting its assets, which are typically customer accounts, or its managers and owners, to another firm and closing down.1

Views and Information on Activity Related to Security-Based Swaps
FINRA invites member firms that participate, or plan to participate, in the security-based swap (SBS) market to provide views and information with regard to broker-dealer SBS activities, including the application of FINRA rules to those activities. Any other interested party is also invited to submit views and information. FINRA welcomes views and information on all aspects of SBS activity, including, without limitation, the following topics:

SEC Urged To Take Global Lead In Requiring ESG Disclosures
Ted Knutson – Forbes
The Securities and Exchange Commission should take the global lead in mandating material ESG (Environmental, Social and Governance) disclosures, the SEC’s Investor Advisory Committee (IAC) urged today.

Hong Kong Securities And Futures Commission Seeks Court Order To Wind Up Combest Holdings Limited
The Securities and Futures Commission (SFC) has presented a petition to the Court of First Instance to wind up Combest Holdings Limited (Combest) and to disqualify the company’s executive directors, Mr Liu Tin Lap and Mr Lee Man To, and a suspected shadow director, Mr Ng Kwok Fai under the Securities and Future Ordinance to protect the interest of Combest’s shareholders, creditors and the investing public (Notes 1 to 3).

Investing and Trading

S&P Fired Employee Who Discussed Ratings With Senate Staff; Wrongful-termination complaint claims retaliation for discussing a taboo topic; firm says employee violated policy
Cezary Podkul – WSJ
In November, an S&P Global SPGI -1.03% Inc. employee briefed Senate Banking Committee staff members on the growing risks in the $1.2 trillion market for loans that finance private-equity buyouts.

Gilt yields sink below zero as investors brace for more rate cuts; Yields on 2- year and 5-year UK debt drop to record lows
Eva Szalay – FT
Growing expectations for further rate cuts in the UK sent yields on government bonds below zero on Thursday, with debt prices fired up after Bank of England governor Andrew Bailey indicated that negative rates were “under active review”.

Federal Reserve’s swaps intervention will preserve dollar’s reach; Japanese lenders especially likely to benefit from the new Covid-19 safety net
Gillian Tett – FT
When Jay Powell, US Federal Reserve chair, was grilled in Congress this week, the focus was on how the central bank has helped American companies and consumers during the pandemic. Senators should have also asked — but did not — what the Fed has done recently to help dollar markets outside US shores.

Fears of Japanification spreading are misplaced; The country’s quirks make similar deflation for the US and Europe a stretch
John Plender – FT
Japan’s coronavirus-induced decline into recession that was revealed this week is a sorry outcome given Prime Minister Shinzo Abe’s protracted efforts to arrest years of economic stagnation. The annualised economic shrinkage of 3.4 per cent in the first quarter follows a 7.3 per cent contraction in the last quarter of 2019.

Debt investors lay claim to islands, cruise ships and theme parks; Companies pledge all manner of assets as collateral for Covid-19 rescue deals
Robert Smith, Joe Rennison and Nikou Asgari – FT
Great Stirrup Cay is an island in the Bahamas that offers tourists the chance to relax on white sandy beaches, snorkel with sea turtles or even swim with wild pigs on a neighbouring islet.

Metals Can Leap Over the Oil Slick; Infrastructure plans to be outlined by the NPC and the prospect of green stimulus are creating a rosier outlook.
Clara Ferreira Marques – Bloomberg
After 2008, metals and oil rebounded together from the depths of the financial crisis, as China’s consumption of raw materials took off. This time, their recoveries may look quite different.

Real Estate’s Demise Creates a Graveyard for Fools; The coronavirus has turned property upside down. Only the true experts will profit.
John Authers – Bloomberg
Post-Viral Property
Real estate, like education, is one of those dangerous subjects in which everyone thinks they’re an expert. We have all been to school, so we think we know about education, and we all live somewhere, so we think we know about property. As the purchase of our living quarters is the biggest transaction most of us ever make, we tend to have strong views about the market.

Financial Stocks’ $1 Trillion Wipeout Brings Echoes of 2008
Lu Wang and Felice Maranz – Bloomberg
Yet profit decline expected to be shorter and shallower; Risk of negative rates and dividend cuts weighing on banks
After years of stress testing, financial companies might have been better positioned to withstand a market shock such as that triggered by the coronavirus. Instead, they’re standing out as persistent losers.

Too Much Money Can Be Bad for Banks; Also bond-trading robots, prediction-market fraud and 3 a.m. emails.
Matt Levine – Bloomberg
Banks are so strange. You might think that the way a bank would work would be that, the more money it has, the more money it can use to make loans and trade securities. If people flock to a bank to give it deposits, then it will have more money to lend. Or if a bank makes savvy interest-rate derivatives bets, and those bets pay off, then it will have more money that it can use to buy stocks and bonds. That is how businesses tend to work: If they do stuff that brings in money then they can use the money to do more stuff.


Brokers step up in COVID-19 crisis as traders rate execution coverage; Jefferies, Morgan Stanley, Goldman Sachs, JP Morgan, Citi and Bank of America were considered ‘standout dealers’ by US buy-side traders.
Hayley McDowell – The Trade
Buy-side traders in the US have named the brokers they were most satisfied with as the global coronavirus pandemic gripped equity markets in March. A survey of US buy-side traders conducted by Greenwich Associates several weeks later in April found that despite the widespread shift to remote working, a significant 80% of respondents were satisfied with brokers’ performance.

Societe Generale joins FXSpotStream’s price streaming Service; FXSpotStream names second liquidity provider this year Societe Generale bringing its total conglomerate of liquidity providing banks to 15.
Kiays Khalil – The Trade
French investment bank Societe Generale is the latest firm to join FXSpotStream’s growing consortium of liquidity providers.

Neil Woodford, Mark Barnett and the case for active management; The average UK active fund has outperformed over the long term
Merryn Somerset Webb – FT
No one can say Neil Woodford hasn’t touched a lot of lives. Just ask anyone who invested with him. Or his one-time protégé Mark Barnett. Mr Barnett spent 24 years at fund manager Invesco. He became Mr Woodford’s right-hand man, even taking over the firm’s High Income and Income funds when Mr Woodford moved on to set up his now famous wealth-destroying machine Woodford Investment Management in 2014.

Credit Suisse Targets Luckin Ex-Billionaire’s Family Assets
Cathy Chan – Bloomberg
Lenders seek to liquidate Luckin founder’s investment vehicle; Credit Suisse is among banks that extended margin loans
Lenders led by Credit Suisse Group AG are targeting the family assets of Luckin Coffee Inc. Chairman Lu Zhengyao as they try to recoup losses on more than $500 million in margin loans that soured after the company became embroiled in an accounting scandal.

When big-name hedge-fund managers like Cliff Asness feud with the Twitter masses, major investors notice. Here are the behaviors that could cost them billions.
Bradley Saacks – Business Insider
On Wednesday night, Cliff Asness did what many people do every day: He fought with an adversary online. The difference between Asness and your overactive aunt though is one of them is the billionaire founder of AQR, the Greenwich, Connecticut-based asset manager.

Bankers to the Ultra-Rich Deprived of Glamour Turn to Zoom
Patrick Winters, Tom Metcalf, and Marion Halftermeyer – Bloomberg
Private banking’s biggest weekend is upended by pandemic; Coronavirus has altered the playbook of catering to the 0.01%
When the Casino de Monte-Carlo, the Belle Epoque jewel of Monaco and its royal family, reopens next month, baccarat will be dealt with hand sanitizer. Down the hill, the famous Cote d’Azur harbor lies quiet. Bars and restaurants are closed. In this Mediterranean playground of millionaires and billionaires, the ultra-wealthy — and those who discreetly mind their fortunes — have been self-isolating, too.

Dalio Plots China Rise as U.S. Power Begins Relative Decline
Nathan Crooks – Bloomberg
“The United States is now the most powerful empire by not much, it is in relative decline, Chinese power is rapidly rising, and no other powers come close,” billionaire investor Ray Dalio wrote Thursday in the latest installment of his series on the changing world order.


Bank of Japan Shows ‘Whatever It Takes’ Attitude With $700 Billion Coronavirus Plan; New measures are aimed at helping banks make loans to cash-strapped smaller companies
Megumi Fujikawa – WSJ
The Bank of Japan bolstered its support for business financing to about $700 billion, paralleling the Federal Reserve in expanding the central banking tool kit during the coronavirus pandemic.

Disease Is Ravaging the $25 Billion Banana Industry; The world’s most popular fruit is under siege. How it adapts now could be crucial to understanding the post-pandemic era.
Alan Crawford, Stephan Kueffner – Bloomberg
In the banana plantations of the tropical lowlands of Ecuador, workers are being issued with protective clothing and disinfectant is provided for their tools.

Pound Risks 35-Year Low With BOE Fueling Sub-Zero Rate Bets
John Ainger – Bloombrg
Deputy Governor Ramsden becomes latest to signal possibility; Sterling is the worst Group-of-10 performer this quarter
Speculation that the U.K. could be the next major nation with negative interest rates is hurting the pound and driving a record rally in the country’s haven bonds.

Gunvor tests bid for commodity loans
Chien Mi Wong and Mirzaan Jamwal – Reuters
Gunvor Group is offering a 20bp higher margin on its latest Asia-targeted syndicated loan, in the first test of new pricing levels for the commodities sector since the coronavirus outbreak.

U.K. Fast-Tracks New Road Laws to Get Scooters on London Streets
Nate Lanxon – Bloomberg
Pure Electric planning to open in former Cycle Republic sites; Domestic firms concerned over lobbying power of larger rivals
With commuters looking to get back to the office and still adhere to social distancing rules, the U.K. government is fast-tracking changes to transport laws to allow scooters in one of Europe’s most congested cities.

Mexico ready to negotiate over power market shake-up
Dave Graham – Reuters
Mexico’s president on Thursday said he was ready to negotiate over changes to the electricity market that angered firms and foreign allies, opening the door to a potential compromise that could ease tensions over energy policy.


A no-deal Brexit amid the pandemic would be disgraceful; The wisest thing to do would be to reach a comprehensive free trade agreement with the EU
Martin Wolf – FT
The UK government is, it seems, set on ending its post-Brexit transition without a deal at the end of this year.

UK and EU clash over crime-fighting database in Brexit talks
Jennifer Rankin – The Guardian
EU officials have accused the British government of threatening to weaken security cooperation with the bloc unless the UK gets an equivalent to a major crime-fighting database. The UK is set to lose access to the Schengen Information System (SIS II), a massive EU database, where police across the continent share millions of pieces of information on criminal suspects, at the end of the year.

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