Bubble warning: even college kids are touting Spacs; LSE confirms €4.3bn sale of Borsa Italiana to Euronext

Oct 9, 2020

First Read

STA 2020: New Exchanges Taking Seats at the SIPs Table
By Suzanne Cosgrove – JLN

Given that there are currently more than a dozen U.S. equity exchanges, why launch new ones?

One reason is to lower costs, but another is to have a voice in governance and market structure, according to Jonathan Kellner, CEO of MEMX and Tom Gallagher, chairman and CEO of the MIAX Exchange Group, both of whom launched new equity exchanges in September.

MEMX was built as a start-up with the help of member investors with more than $135 million from firms including Charles Schwab Corp., Citadel Securities, Goldman Sachs Group Inc. and Virtu Financial Inc. MIAX added an equity exchange to its three options exchanges.

Kellner noted MEMX is focused on the trading side of the business and not on listings. MEMX will initially give away data and connectivity. “But the plan is not to lose money,” Kellner said. When we reach a higher volume of trading, we will begin to charge, he said. The questions will be what are the right margins and costs.

To read the rest of this story, go here.


Hits & Takes
JLN Staff

The late Tom Gira was named the Security Traders Association’s 2020 Dictum Meum Pactum Award recipient. The Dictum Meum Pactum Award recognizes individuals who have demonstrated an unwavering commitment to the betterment of the financial services industry and have exhibited acts of integrity at the highest level consistent with the ideal STA has supported since its inception: Dictum Meum Pactum (“My Word Is My Bond”).
After early-career stops at Nasdaq and the SEC’s Division of Market Regulation, Gira joined FINRA in 1992 and eventually rose to the title of executive vice president of market regulation and transparency services. Under his leadership, FINRA’s Market Regulation Department expanded to conduct cross-market surveillance of all U.S. equities markets and nearly half of U.S. options markets. Gira passed away in June 2020.

JLN’s GoFundMe campaign to raise funds to support MarketsWiki Education program and general operating expenses is off to a good start with a total raised of $2150. The first donation was for $250 from an anonymous donor and the second was a donation of $100 from FIA CEO and President Walt Lukken. Other donors were Neil Lustyk, Nicholas Solinger, Chuck Mackie, Leslie Sutphen, Dawn Combs, Kevin Brennan and a couple of other anonymous donations.

Neil Lustyk is with the CME in operations at the Globex Control Center and was my boss when I was a runner back in 1981 for Shearson. He donated $100, which, if he had given $5 more, would have matched my weekly salary back then.

Thank you to all who have donated and all who will donate yet. Join these industry leaders to support our work on MarketsWiki Education and everything else we do by donating HERE.

YCharts has been acquired by middle market private equity firm LLR Partners.

My wife and daughter (Katherine) and I are off camping in Missouri this weekend to see sons (and brother) Robby and Tim. This is how we are coping with the pandemic and getting our family together. The dogs are headed for their first campout.

Have a great day and stay safe and treat people the same way you want to be treated: with respect, equality and justice.~JJL


In yesterday’s “Cryptocurrencies” section, we posted an article published by the Financial Times entitled, “The strange IPO of Jonathan Rowland’s ‘bitcoin bank’.” It described FT’s interactions with the Founder and Executive Chairman of the bitcoin firm Mode, Jonathan Rowland. Rowland apparently didn’t like an article they published about Mode in September very much – so much so that he singled it out on Twitter and accused FT of publishing an article that was “like an unhappy girlfriend writing a text message late at night.” Unfortunately, I’ve encountered a lot of this kind of toxicity in the cryptocurrency space. This issue has been going on for a while and has been covered by other news outlets as well.~MR


Mini VIX Futures – Trading Views with Cboe’s Arianne Criqui

Arianne Criqui, Head of Options and Global Client Services at Cboe, talks shop about the 47-year-old exchange’s popular new mini VIX futures and how its customers can benefit from their use.

Listen to this podcast »



How Citadel CEO Ken Griffin Built a $1 Billion Private Property Portfolio; The billionaire hedge-funder has paid more than $1 billion on a cache of ultraluxury homes from London to New York. What’s behind the ‘unprecedented’ spending?
Katherine Clarke – WSJ
In the early 1900s, the country’s wealthiest businessmen including William Randolph Hearst and John D. Rockefeller built sprawling, gilded estates. Living at that kind of boundless scale fell out of favor with subsequent generations, however, and these kinds of estates were either subdivided or turned over to the state or to preservationists.

***** Mr. Griffin likes to buy real estate, but he often breaks the first rule: don’t own the most expensive house on the block. But then if you are a billionaire, maybe that rule does not apply.~JJL


Crypto Poses a Growing Threat to National Security, U.S. Says
Elaine Chen – Bloomberg
Justice Department sees ‘oncoming storm’ of criminal activity; Investigators slowed by patchwork of regulations, report finds
The emergence of cryptocurrencies presents opportunities for terrorists, rogue nations and other criminals who present a threat to U.S. national security, the Department of Justice said Thursday in a report. Law enforcement is hampered by the worldwide reach of digital coins and the lack of consistent regulation across regions, which is “detrimental to the safety and stability of the international financial system,” the report found. Newer entities using crypto, such as peer-to-peer exchanges, kiosk operators and online casinos, don’t comply with record-keeping and reporting requirements, undermining investigators.

*****Stop me if you’ve heard this one.~MR


CryptoMarketsWiki Coin of the Week: XRP
Federal regulation of XRP, the digital asset of Ripple, may cause the company to relocate overseas, according to the company’s Executive chairman Chris Larsen during an interview with Fortune. According to Larsen, Ripple has become increasingly frustrated with what it perceives to be a “hostile” attitude towards digital assets by the Federal government, especially the SEC. Ripple has had its share of legal battles, including accusations of legal fraud in the sale of XRP – this week, Ripple’s lawyers were partially successful in having a class-action lawsuit thrown out, though the judge presiding over the case refused to dismiss all of the case’s claims.


Thursday’s Top Three
Our top story Thursday was Help John Lothian News Capture Industry History With GoFundMe Campaign, from John Lothian, about our campaign asked for your support to help keep JLN’s MarketsWiki Education video series and our daily operations afloat. Second was the New York Times’ A Columnist Makes Sense of Wall Street Like None Other, about the Bloomberg columnist Matt Levine and his “Money Stuff” newsletter. Third was When You Have Enough, It’s Time to Help Others, also from The New York Times.


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Lead Stories

Bubble warning: even college kids are touting Spacs; Wall Street’s latest financing craze is showing serious signs of froth
Gillian Tett – FT
When the shoeshine boy starts sharing stock tips, it is time to get out of equities; or so Joseph Kennedy Sr is said to have remarked as he exited the market ahead of the 1929 crash.
So what should investors do when college students start promoting special purpose acquisition companies, or Spacs? This week it emerged that University of Pennsylvania students have created a so-called “Penn Spac” club to celebrate these new equity vehicles. Known as blank-cheque companies, Spacs raise money from investors, via a public listing, and then merge with a private company, in effect taking it public while avoiding a traditional initial public offering.

LSE confirms EUR4.3bn sale of Borsa Italiana to Euronext; Deal could pave way for regulatory approval of London group’s takeover of Refinitiv
Philip Stafford and Harry Dempsey – FT
The London Stock Exchange Group has agreed to sell the owner of Milan stock exchange to rival Euronext for EUR4.3bn, in a gambit to secure the EU’s regulatory approval of its $27bn acquisition of data and trading group Refinitiv. The sale of Borsa Italiana to Euronext would also transform the owner of six stock exchanges around Europe into the biggest venue in the EU for listings and share trading.

Investors Dust Off Trump Trade, This Time Betting He’ll Lose
Aine Quinn – Bloomberg
Russian currency’s drop mirrors odds of Biden election win; Mexico’s peso has beaten emerging peers in past three months
Traders are reviving a currency pair from four years ago to bet on Donald Trump losing next month’s presidential election. The trade involves the currencies of Mexico and Russia, the two emerging markets thought to be most affected by Trump’s foreign policy. In 2016 investors were buying the ruble and selling the peso in expectation the Republican candidate would mend relations with Russian President Vladimir Putin and cut trade ties with Mexico after winning the election. This time around, the trade has reversed as Joe Biden gains in the polls.

BoE and FCA tell City to prepare for Brexit disruption
London South East
The Bank of England and the Financial Conduct Authority have told the City to prepare for potential market disruption when the UK leaves the EU at the end of 2020. The BoE’s Prudential Regulatory Authority and the FCA said measures were in place to safeguard financial stability if there is a no-deal Brexit on 31 December. UK households and businesses will be able to use services from EU financial institutions after 2020, they said.

Bankers and Hedge Funds Will Always Love London; By fixating on control of the euro markets, Europe will miss the bigger prize.
Marcus Ashworth – Bloomberg
The power of 27 countries against one is often cited as the reason why the European Union will prevail in Brexit negotiations with the U.K. But the logic reverses when you think about what might happen to the City of London after Britain’s departure, and whether Europe’s other cities can challenge its primacy in finance. For financial services, having a single, centralized one-stop shop like London makes more sense than having a gaggle of disparate mini-centers such as Paris, Frankfurt and Amsterdam. In this instance, being alone is a strength.

Tom Gira Named STA’s 2020 Dictum Meum Pactum Award Recipient
Security Traders Association
New York, Oct. 08, 2020 (GLOBE NEWSWIRE) — The Security Traders Association (STA) today announced the late Tom Gira as the 2020 Dictum Meum Pactum (DMP) award recipient. Over the course of his nearly three decades at FINRA, Gira built an extensive legacy based on investor protection and market integrity.

TP ICAP to buy trading venue Liquidnet for up to $700m; Deal thrusts UK interdealer broker firmly into market for buying and selling shares
Philip Stafford – FT
TP ICAP has agreed to buy US equities trading venue Liquidnet for an initial $575m, in a deal that thrusts the interdealer broker firmly into the market for buying and selling shares. The London-based broker will launch a rights issue to raise about $425m and will only pay half the £94m dividend it expects to pay for the rest of the year. The purchase price could rise up to $700m, depending on other payouts and performance targets, it said on Friday.

TP ICAP agrees to Liquidnet purchase for up to $700 million; The deal for Liquidnet will boost TP ICAP’s electronic trading capabilities and buy-side client base upon closure early next year.
Annabel Smith – The Trade
TP ICAP has agreed definitive terms to acquire institutional trading network and dark pool operator Liquidnet for up to $700 million, shortly after confirming discussions for the takeover. In a statement, the interdealer broker said it will pay a cash consideration of $525 million, $50 million three years after completion, and up to a further $125 million depending on Liquidnet’s performance over that period.

YCharts Completes Growth Recapitalization With LLR Partners; Capital to support continued growth of investment analytics and communications platform for financial advisors and wealth managers
YCharts, a cloud-based investment analytics and communications platform for RIAs, broker-dealers and asset managers, today announced LLR Partners completed a growth recapitalization in partnership with the management team. The transaction will support YCharts’ continued organic growth through increased investment in product and sales and marketing, and to pursue complementary acquisitions.

Euronext seals EUR4.3 billion deal with LSEG for Borsa Italiana; The acquisition of Borsa Italiana by Euronext is dependent on the LSEG gaining approval from European authorities for its blockbuster takeover of Refinitiv.
Annabel Smith – The Trade
European exchange group Euronext has entered into a binding agreement with the London Stock Exchange Group (LSEG) to acquire Borsa Italiana for EUR4.3 billion. The transaction is conditional upon the European Commission’s clearance decision for LSEG’s proposed acquisition of Refinitiv, the exchange operator said.

The Oil Market Has an Aviation Problem; Passenger-flight activity is mired at around half of pre-pandemic levels, leaving a hole in global oil demand that is hampering crude prices
Joe Wallace – WSJ
The downturn buffeting the global aviation industry has slashed demand for jet fuel, posing yet another obstacle to the oil market’s recovery. Cars and trucks quickly returned to the road when officials lifted restrictions on movement this spring, sparking a revival in gasoline and diesel consumption. Planes have been slower to take back to the sky, hobbling sales of kerosene, or jet fuel.

Bank of Japan to Start Digital Currency Experiments Next Year
Toru Fujioka – Bloomberg
Still have no immediate plan to issue a digital unit, BOJ says; Study needed in case demand for one rises quickly, bank says
The Bank of Japan said it aims to start early phase experiments next year on issuing a digital currency in order to be ready should demand for one rise quickly. “From the viewpoint of ensuring the stability and efficiency of the overall payment and settlement systems, the bank considers it important to prepare thoroughly to respond to changes in circumstances in an appropriate manner,” the BOJ said in a report released Friday.


Covid Is Crushing Small Businesses. That’s Bad News for American Innovation; Small firms have been getting squeezed by big businesses for years. The pandemic has made it much worse.
Justin Lahart – WSJ
Small businesses have been at the losing end of the U.S. economy for decades, but nothing has diminished their stature like the Covid-19 crisis. Thousands of small firms have been driven out of business while their larger counterparts have largely survived and, in some cases, even flourished.

China joins WHO vaccine initiative in diplomatic push; Beijing says it will support programme that aims to provide 2bn coronavirus vaccinations
Tom Mitchell – FT
China will join a World Health Organization initiative aimed at ensuring fair distribution of Covid-19 vaccines around the world as part of Beijing’s latest effort to steal a public relations march on the US in the global battle against the pandemic.

Regeneron: the company that Trump claims cured his Covid; President’s championing of novel therapy thrusts biotech group into uncomfortable spotlight
Kiran Stacey, David Crow and Donato Paolo Mancini – FT
When Donald Trump hosted senior executives from 10 pharmaceutical companies at the White House in March to discuss the coronavirus, he was particularly keen to hear the views of a man he affectionately called “Lenny”.

Who Will Lead the WTO and Help It Avoid Collapse?
Bryce Baschuk -Bloomberg
The campaign to lead the World Trade Organization during the most turbulent period of its 25-year existence has entered its final stage. Playing out against the backdrop of a pandemic, a worldwide recession, the U.S.-China battle for trade supremacy and the American presidential election, there couldn’t be more at stake. But the decision by Brazilian Roberto Azevedo to step down as director-general at the end of August, a year before his term ends, also offers an opportunity for the U.S., the European Union and other nations to reshape the organization.

Russian Covid-19 Cases Hit Record as Moscow Resists Lockdown
Jake Rudnitsky – Bloomberg
12,126 cases in last day exceeds previous high reached in May; Putin instituted a sweeping shutdown during the initial spike
Russia posted a record number of new Covid-19 cases Friday as the government has resisted returning to a lockdown to battle the second wave of infections. There were 12,126 new cases in the past day, breaking the previous record of 11,656 on May 11, according to data from the government’s National Virus Response Center.

Spain to Declare Emergency; Russia at Record Cases: Virus Update
Bloomberg News
The Spanish government is reportedly set to declare a state of emergency for the Madrid region. Russia and Romania posted record numbers of new cases, while German infections topped 4,000 for a second day. The U.K. will announce a new job support plan, which is likely to include paying two-thirds of the wages of workers in companies affected by lockdown measures.

Covid Pandemic: How Mumbai’s Largest Slum Dharavi Stopped Coronavirus; Dharavi contained Covid-19 against all the odds. Now its people need to survive an economic catastrophe.
Ari Altstedter and Dhwani Pandya – Bloomberg
Normally, Khwaja Qureshi’s recycling facility in Dharavi, the slum in Mumbai, would be no place for three newborn tabby kittens. Before efforts to contain the novel coronavirus idled much of the Indian economy, the 350-square-foot concrete room was a hive of nonstop industry. Five workers were there 12 hours a day, seven days a week, dumping crushed water bottles, broken television casings, and discarded lunchboxes into a roaring iron shredder, then loading the resulting mix of plastic into jute sacks for sale to manufacturers. But during a recent visit, the shredder was silent and the workers gone, decamped to their villages in India’s north. That left the kittens plenty of space to gambol across the bare floor, nap on a comfortable cardboard box, or be amused by the neighborhood kids who came to visit.

Pandemic Exposes Europe’s Creaking Internet for All to See
Chiara Albanese, Thomas Seal, and Rodrigo Orihuela – Bloomberg
Pandemic reveals weaknesses in region’s broadband networks; Governments start to engage with industry to spur investment
Shortly after coronavirus forced Italian Prime Minister Giuseppe Conte to lock down the country, lawmaker Massimiliano Capitanio took an unusual call at his office in Rome. It was an appeal for help from a hospital at the epicenter of the outbreak in northern Italy. Its administrators direly needed faster internet connections and computers to deal with the flood of patients. Capitanio — who sits on parliament’s telecommunications committee — called the country’s phone companies to help out.

U.K. Virus Cases Surge as Dissent Mounts Over Boris Johnson’s Strategy
Alex Morales and Emily Ashton – Bloomberg
Medical chief warns of ‘very concerning’ coronavirus trend; Whitty briefs lawmakers about uptick in northern England
The U.K’s coronavirus caseload surged amid growing anger over Prime Minister Boris Johnson’s strategy for dealing with the pandemic. Some 17,540 new cases were logged Thursday — a rise of more than 3,000 from Wednesday. Public Health England Medical Director Yvonne Doyle warned of a “definite and sustained” increase in cases and hospitalizations. “The trend is clear, and it is very concerning,” she said in a statement.

‘If No Tourists Come, I Have No Business’: New York’s Tourism Crisis; International arrivals to New York are down as much as 93 percent, and the people and businesses of the city’s tourism industry are on the brink.
Ceylan Yeginsu and Derek M. Norman – NY Times
Outside Kennedy International Airport’s Terminal 4, the long line of New York City yellow cabs that in years past rotated like a conveyor belt to meet the demand of passenger arrivals has disappeared.

Colleges Are Fueling the Pandemic in a Classic Market Failure; Financial pressures explain why many campuses have brought students back. But there is a textbook solution, two economists say: government intervention.
Sarah Cohodes and Susan Dynarski – NY Times
A perfectly functioning market is a beautiful thing. It’s also vanishingly rare. The main work of economists is figuring out how to make markets function well when the messy, real world intrudes on our textbooks’ elegant models.

Exchanges, OTC and Clearing

Euronext to acquire the Borsa Italiana Group and create the leading pan-european market infrastructure; Acquisition of 100% of London Stock Exchange Group Holdings Italia S.p.A., the holding company of the Borsa Italiana Group[2] for a cash consideration of EUR4,325 million[3]
Euronext announces that it has entered into a binding agreement with London Stock Exchange Group plc (“LSEG”) and London Stock Exchange Group Holdings (Italy) Limited to acquire 100% the entire issued share capital of London Stock Exchange Group Holdings Italia SPA, the holding company of the Borsa Italiana Group (the “Proposed Combination”), for a cash consideration of EUR4,325 million3. This announcement follows the previous announcement made on 18 September 2020 by Euronext and CDP Equity that they had entered into exclusive discussions with LSEG regarding the potential acquisition of the Borsa Italiana Group.

Citadel Securities expands trading floor unit at NYSE with IMC takeover; The IMC market making business at NYSE is being acquired by Citadel Securities as it looks to boost its presence on the stock exchange trading floor.
Hayley McDowell – The Trade
Global market maker Citadel Securities is set to acquire the market making unit on the New York Stock Exchange (NYSE) trading floor from rival IMC. In a statement, Citadel Securities confirmed it had reached a preliminary agreement with IMC on the deal, which upon closure will expand its position as one of the largest floor brokers on the NYSE floor in terms of market cap and number of securities.

LSE Seals $5 Billion Borsa Sale to Euronext, Italian Banks
Viren Vaghela – Bloomberg
Euronext bidding with state-backed CDP and Intesa Sanpaolo; LSE selling asset to win clearance for its Refinitiv deal
London Stock Exchange Group Plc agreed to sell Borsa Italiana to Euronext NV and two Italian lenders for more than 4.33 billion euros ($5.1 billion), in a deal that will create the largest listing venue in Europe. LSE, which is selling Borsa Italiana to get approval from the European Union for its $27 billion Refinitiv deal, announced the transaction in a statement Friday after exclusive talks between the parties started last month.

TMX Group Limited announces release date for Q3 2020 financial results and analyst conference call
TMX Group Limited will announce its financial results for the third quarter ended September 30, 2020 in the evening of Wednesday, November 4, 2020. An analyst conference call to review the results will be held on Thursday, November 5, 2020 at 8:00 a.m. ET.

TMX Group Equity Financing Statistics – September 2020
TMX Group today announced its financing activity on Toronto Stock Exchange (TSX) and TSX Venture Exchange (TSXV) for September 2020. TSX welcomed 21 new issuers in September 2020, compared with 14 in both the previous month and in September 2019. The new listings were 18 exchange traded funds, two technology companies and one life sciences company. Total financings raised in September 2020 increased 209% compared to the previous month, and were up 72% compared to September 2019. The total number of financings in September 2020 was 50, compared with 49 the previous month and 37 in September 2019.

Nasdaq September 2020 Volumes, 3Q20 Estimated Revenue Capture, Listings and Index Statistics
Nasdaq (Nasdaq: NDAQ) today reported monthly volumes for September 2020, as well as quarterly volumes, estimated revenue capture, number of listings and index statistics for the quarter ending September 30, 2020 on its investor relations website.

Notice of Disciplinary Action
CME Group
EXCHANGE RULES: NYMEX Rule 575 D. Disruptive Practices Prohibited
D. No person shall enter or cause to be entered an actionable or non-actionable message with intent to disrupt, or with reckless disregard for the adverse impact on, the orderly conduct of trading or the fair execution of transactions. PENALTY: In accordance with the settlement offer, the BCC Panel ordered Robbins Futures to pay a fine of $30,000.

Notice of Disciplinary Action
CME Group
No person shall prearrange or pre-negotiate any purchase or sale or noncompetitively execute any transaction, except in accordance with Sections B. and C. below. PENALTY: In accordance with the settlement offer, the Panel ordered Zuccarelli to pay a fine to the Exchange in the amount of $50,000 and serve a fifteen (15) business day suspension to access to any trading floor owned or controlled by CME Group and from direct and indirect access to any designated contract market, derivatives clearing organization or swap execution facility owned or controlled by CME Group. The suspension shall run from October 8, 2020 through October 28, 2020, inclusive.

Notice of Disciplinary Action
CME Group
No person shall prearrange or pre-negotiate any purchase or sale or noncompetitively execute any transaction, except in accordance with Sections B. and C. below. PENALTY: In accordance with the settlement offer, the Panel ordered Coles to pay a fine to the Exchange in the amount of $35,000 and serve a fifteen (15) business day suspension to access to any trading floor owned or controlled by CME Group and from direct and indirect access to any designated contract market, derivatives clearing organization or swap execution facility owned or controlled by CME Group. The suspension shall run from October 8, 2020 through October 28, 2020, inclusive.

CME STP Notices: October 8, 2020
CME Group
BrokerTec Stream on CME STP – December 7
CME STP Support of BrokerTec Markets – Q4 2020

CME Globex Notices: October 5, 2020
CME Group
Critical System Updates
iLink 2 on MSGW Decommission – February 26, 2021
Update on Order Routing and Front-End Audit Trail Requirements for iLink 3
Update – iLink Enhancements for Location ID and Displayed Quantity – November 15 UPDATE
iLink 3 SBE Schema Update – January 24, 2021
Phase 1 CME FX Link Enhancements – February 21, 2021
Phase 1 CME FX Link Enhancements: Drop Copy Impact – February 21, 2021

Handling of Tick Sizes from October 30 onward
As previously announced, TSE have applied a separate set of narrower tick sizes to TOPIX100 constituents from January 14, 2014 onward (as prescribed in Rule 14, Paragraph 3, Item 1-b of the Business Regulations; hereinafter referred to as “narrow tick sizes”). The handling of the application from October 30 onward shall be as follows.

Montréal Exchange Interest Rate Derivative Trading Ceases At 1:30 P.M. Today – Exchange’s Markets Closed October 12, 2020
Interest rate derivative trading will cease at 1:30 p.m. today, October 9, 2020. Furthermore, the Exchange’s markets will be closed on October 12, 2020.

Tokyo Financial Exchange: Rollover Of Leading Contract Month For Three-Month Euroyen Futures http://
Tokyo Financial Exchange has decided to shift the leading contract month for Euroyen futures from the current December 2020 contracts to the March 2021 contracts, effective from 7 October 2020.

MGEX Enters the Top-20 Record Book
MGEX, a Designated Contract Market (DCM) and Derivatives Clearing Organization (DCO), reports that yesterday, October 7th was the 17th best day in the history of the exchange with a total volume of 24,994 contracts. This record ties the current record holder, June 27th 2017.


Citi to automate treasury processes for cleared derivatives with Baton Systems; Baton Systems will deploy its platform across treasury processes at Citi to automate rules for the movement of collateral.
Annabel Smith – The Trade
US investment bank Citi is to overhaul its treasury function for cleared derivatives through a new partnership with post-trade and blockchain technology provider Baton Systems. Citi will automate rules for the movements of cash and securities collateral to and from clearing houses in a bid to reduce risk by removing manual entries in systems.

IBM spins out infrastructure business in major shift towards cloud; Shares jump 8% as restructuring heralds new era for computing giant
Richard Waters and Miles Kruppa – FT
IBM has revealed plans to shed a core part of its giant services business, signalling the unwinding of a strategy that saved the company from financial disaster in the early 1990s and became a model for the rest of the IT industry.

Affirm’s IPO Announcement Signals Fintech Strength
Eliza Haverstock – Forbes
As its business booms, pay-later fintech upstart Affirm confidentially filed to go public on Thursday—less than a month after it lined its pockets with $500 million in fresh venture capital.

Rule to boost fintech companies could topple consumer protections, critics say
Yamil Berard – The Atlanta Journal-Constitution
In 2018, Imo S. Okwu needed a quick infusion of cash in his company, Quantum-Mac, to meet conditions of a contract with the city of Atlanta.
The Cobb County engineer couldn’t secure a conventional loan, so he contacted a broker who put him in touch with a financial services company. It agreed to provide his company with $50,000.
Today, although Okwu has repaid about $27,000, the lender claims his debt is about three times the amount his company borrowed. He fell victim, he claims in a lawsuit filed in federal court in Atlanta, to a rent-a-bank scheme with a disguised annual interest rate of 88% — well above Georgia’s usury cap.


Crypto fans mauled by watchdog baring its teeth; Move to save retail investors from themselves will not please digital coin supporters
Matthew Vincent – FT
FCA: crypto fascists? Saying no to things is the primary task of any decent regulator. But the Financial Conduct Authority took it to a new art form this week when it in effect said “no, no way, absolutely no chance, forget it” to the nation’s cryptocurrency fans. The watchdog had started a consultation process on cryptocurrency derivatives back in July 2019, seeking views on whether it should allow retail punters to trade financial products pinned to the price of bitcoin and the like. The response was lively, and emphatic. Some 97 per cent of 527 respondents called for it to be permitted. How could the FCA say no to such an overwhelming outpouring of public opinion?

Square Puts 1% of Total Assets in Bitcoin in Surprise $50M Investment
Danny Nelson – Coindesk
Square, the payments company helmed by Twitter CEO Jack Dorsey, announced Thursday it has purchased 4,709 bitcoins, a $50 million investment representing 1% of the firm’s total assets. “Square believes that cryptocurrency is an instrument of economic empowerment and provides a way for the world to participate in a global monetary system, which aligns with the company’s purpose,” the company said in a statement.

Coinbase to Lose Dozens of Staffers Over Ban on Politicking
Olga Kharif – Bloomberg
CEO on blog puts tally at 60 and says it’s still growing; Brian Armstrong says activism on crypto-matters is still OK
Coinbase Inc., the cryptocurrency exchange, is losing about 60 employees who balked at a management mandate barring political activism at work. Chief Executive Officer Brian Armstrong said Thursday in a blog post that about 5% of Coinbase employees had accepted an exit package offered to staffers bothered by the policy, and that the number will probably grow.

Central Banks Want Digital Currencies That Don’t Nudge Out Cash
Carolynn Look – Bloomberg
Central banks have identified key criteria for issuing their own digital currencies in a report from the Bank of International Settlements. Digital money will have to co-exist with cash and other forms of tender, do no harm to monetary and financial stability, and be very cheap or free to use. There should also be “an appropriate role for the private sector,” according to a report by the BIS, the European Central Bank, the Federal Reserve and other institutions published on Friday.

BitMEX CTO Samuel Reed released on $5 million bond
Yogita Khatri – The Block
BitMEX CTO Samuel Reed, who was charged and arrested by the U.S. Department of Justice on October 1, has been released on a $5 million appearance bond. According to a court document reviewed by The Block, Reed’s bond was approved on October 3, on conditions that he would appear for court proceedings and if convicted, would surrender to serve a sentence.

Seven central banks and BIS publish report on digital currency, detailing how it should be designed
Yogita Khatri – Coindesk
A group of seven central banks and the Bank for International Settlements (BIS) have published a comprehensive report on digital currency, detailing how it should be designed. The 26-page report, published Friday, outlines “foundational principles and core features” of central bank digital currencies (CBDCs). The report has been compiled by seven central banks — by the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, Sveriges Riksbank, and the Swiss National Bank — and the BIS.

Lightning Vulnerability Discovered; LND Node Operators Urged to Upgrade ASAP
William Foxley – Coindesk
A vulnerability in LND versions 0.10.x and below has been disclosed to the Lightning Labs team, according to engineer Conner Fromknecht in the Lightning Network developer channel Thursday. In light of the disclosure, the firm is urging node operators to upgrade to versions 0.11.0 or higher as soon as possible.

China’s Central Bank, Major City to Hand Out $1.5M in Digital Yuan
Daniel Palmer – Coindesk
The People’s Bank of China and a district of Shenzhen are to hand out 10 million digital yuan (worth around $1.5 million) as “red envelope” gifts to citizens. The initiative comes as another pilot of the in-development digital currency, which has been in trials with commercial entities and state-owned banks. Red envelopes are a traditional way of gifting cash in China on holidays or for special occasions such as weddings. According to a report from Sina.com.cn, the pilot will see 50,000 successful applicants each receive 200 of the digital yuan.

JPMorgan’s Blockchain Lead Is Now in Charge of Ethereum-Based Interbank Information Network
Nathan DiCamillo – Coindesk
JPMorgan Blockchain Lead Christine Moy has been promoted to lead the bank’s Ethereum-based Interbank Information Network (IIN), according to a memo sent to employees on Thursday. The network was developed to solve some of the challenges in interbank information sharing, and rivals upstarts including Ripple and Transferwise. It’s powered by Quorum, the permissioned-variant of the Ethereum blockchain acquired by ConsenSys in August. According to JPMorgan, more than 400 banks have joined the network, including more than half of the top 50 banks.

Ripple launches ‘Line of Credit’ — to provide loans in XRP
Yogita Khatri – The Block
Ripple has finally launched its loan product, five months after the company first confirmed its plans to The Block in May. Announcing the news on Thursday, Ripple said its new product “Line of Credit,” which is currently in beta, would provide select customers working capital loans in XRP. Specifically, Ripple customers who utilize its On-Demand Liquidity (ODL) solution would be eligible for the offering. “Those using ODL on RippleNet can purchase XRP from Ripple on credit,” said the company, adding that it would charge “one fee” on the amount borrowed.

60 Employees Leave Coinbase Over CEO’s Pledge To Be Apolitical
Rachel Sandler – Forbes
More than 60 Coinbase employees have taken an exit package after CEO Brian Armstrong said in a controversial blog post last month that the company would not participate in social activism.

New Ethereum Fee Model Has Some Miners Crying Foul: Survey
William Foxley – Coindesk
Ethereum miners are signaling their disapproval of a technical proposal advocated by top Ethereum developers, a new survey shows.

CryptoCompare: Binance Takes The Top Spot For Derivatives Trading Volume In September
CryptoCompare has just released its September Exchange Review which covers monthly trends in exchange volumes and this month also features survey data from 26 exchanges. September has been an eventful month despite Bitcoin’s lower volatility: Binance took the top spot for derivatives trading volume, CME options volumes rose 79%, Kraken won Bank Charter approval and Uniswap saw more trading volume than Coinbase last month. Below are the key highlights from our September Exchange Review.


Trump Is Killing the Economy Out of Spite; So what will he do if he loses the election?
Paul Krugman – NY Times
Last year Donald Trump called Nancy Pelosi, the House speaker, a “nasty, vindictive, horrible person.” Actually, she isn’t — but he is. Trump’s vindictiveness has become a major worry as the election approaches. He has already signaled that he won’t accept the result if he loses, which seems increasingly likely though not certain. Nobody knows what chaos, possibly including violence, he may unleash if the election doesn’t go his way.

American-Made Disinformation Strains Social Media’s Safeguards; The Russian troll farms of 2016 are no longer the primary concern
Eric Newcomer – Bloomberg
Facebook Inc.’s announcement Thursday that it had shut down a network of phony accounts attempting to influence the November elections reinforced fears that people are working to use social media to undermine U.S. democracy. But unlike 2016, when most attention focused on campaigns associated with the Russian government, this year’s wave of disinformation is coming largely from President Donald Trump and his American supporters, a growing body of research shows, raising new challenges for social media companies.

Elliott Broidy, a Top Trump Fund-Raiser, Charged in Foreign Influence Case; Federal authorities accused him of conspiring to violate lobbying laws in his unsuccessful efforts to resolve an investigation into the embezzlement of the Malaysian investment fund 1MDB.
Kenneth P. Vogel – NY Times
Elliott Broidy already had a record when he became a major fund-raiser for the Trump campaign in 2016. Now he has become the latest Trump ally to face criminal charges, this time accused of evading foreign lobbying laws while trying to make money off his access to the administration.


SEC Committee Tackles Disorderly Electronic Bond Trade Reporting; New definition could affect shares of electronic bond trading platforms
Matt Wirz – WSJ
Liquidity is key in bond markets, but measuring it has grown more complex as trades move onto competing electronic trading venues. A Securities and Exchange Commission committee this week moved to help. The Fixed Income Market Structure Advisory Committee proposed the SEC adopt new reporting standards aimed at improving transparency and helping traders decide which electronic marketplaces to frequent.

UK regulator calls on companies to make reports more accessible; FRC sets out radical plan for businesses to provide extra information tailored to non-experts
Matthew Vincent – FT
UK companies will be made to split up their annual reports and provide extra information tailored to non-expert readers, under radical proposals set out by the UK accounting watchdog.

FCA writes joint letter with the Bank to CEOs of UK and international banks
Jointly with the Bank of England, we have written a letter to CEOs of UK and international banks on the importance of being prepared for the end of the transition period, in order to minimise disruption and ensure market stability.

Verena Ross Delivers Keynote Speech at AFME Conference
Today, ESMA Executive Director, Verena Ross, addressed AFME’s 4th Annual European Compliance and Legal Conference raising several topics such as the impact of COVID-19 on the financial markets, the review of MiFID, MiFIR and the Market Abuse Regulation, and ESMA’s priorities laid down in its 2021 Work Programme. Speech here.

A Proposed Rule Change to Extend the Pilot Period Related to FINRA Rule 6121.02 (Market-wide Circuit Breakers in NMS Stocks).
Financial Industry Regulatory Authority, Inc. (“FINRA”) is filing with the Securities and Exchange Commission (“SEC” or “Commission”) a proposed rule change to extend the pilot period related to FINRA Rule 6121.02 (Market-wide Circuit Breakers in NMS Stocks).

SEC Charges Seismic Data Company, Former Executives With $100 Million Accounting Fraud
The Securities and Exchange Commission today charged Houston-based seismic data company, SAExploration Holdings Inc. (SAE), and four former executives for a multi-year accounting fraud that falsely inflated the company’s revenue by approximately $100 million and concealed the theft of millions of dollars by the executives. SAE issued restated financial statements in February and declared bankruptcy in August.

CFTC to Hold an Open Commission Meeting on October 15
Commodity Futures Trading Commission Chairman Heath P. Tarbert today announced the CFTC will hold an open meeting on Thursday, October 15, 2020 at 9:30 a.m. (EDT). The meeting will be held virtually in accordance with the agency’s implementation of social distancing due to the COVID-19 (coronavirus) pandemic.

LabCFTC Opens Registration for October 21 “Empower Innovation 2020” Event; Agenda Features In-Depth Discussions with Regulators on the Role of Technology and Innovation in the Financial Markets
The Commodity Futures Trading Commission today opened registration and released the agenda for LabCFTC’s Empower Innovation 2020 session, “Regulation and Innovation Re-imagined.” The October 21st session is the second of three interactive virtual events hosted by LabCFTC to facilitate a dialogue on cutting-edge fintech innovation among innovators, regulators, market participants, and the public. [See CFTC Press Release No. 8198-20] Participants will engage with leaders from some of the nation’s key regulators to discuss their views on the role technology plays in fostering innovation and best practices for collaboration among policymakers and innovators.

FCA urges unauthorised land banking scheme victims to get in touch to return funds
The Financial Conduct Authority (FCA) is urging members of the public who invested in an unauthorised land banking scheme, and who may be eligible to receive some of their money back, to get in contact with the FCA.

Investing and Trading

The US election and your investment portfolio; How will the result and the fallout from the fractious 2020 campaign affect your money?
Madison Darbyshire – FT
It’s called the “October surprise”. In the lead-up to the US presidential elections, candidates strategically hold back big, campaign-altering news until the month before Americans go to the polls in the hope of pushing themselves over the electoral line.

The US debt is now projected to be larger than the US economy
Jeanne Sahadi – CNN
As the United States continues its struggle with the pandemic-induced economic recession and a sputtering recovery, the country’s burgeoning debt is not anyone’s top concern these days.
Even deficit hawks are urging a dysfunctional Washington and a chaotic White House to approve another round of badly needed stimulus to the tune of trillions.

Shaq, MLK’s Son, Former Disney Executives Team Up to Create SPAC; Forest Road Acquisition plans to make deals in media and tech sectors
Joe Flint – WSJ
Three former high-ranking Walt Disney Co. executives are teaming up with basketball legend Shaquille O’Neal and one of Martin Luther King Jr.’s sons to make acquisitions in the media and technology industries.

WSJ Survey: 43% of Economists Don’t See U.S. Gaining Back Lost Jobs Until 2023; They cite continued spread of coronavirus, and uncertainty surrounding stimulus package, election outcome
Harriet Torry and Anthony DeBarros – WSJ
The U.S. labor market faces a protracted recovery amid the continued spread of the coronavirus and uncertainty over prospects for another stimulus package and the outcome of the presidential election, according to a new Wall Street Journal survey of economists.

Environmental, Social and Corporate Governance

Sustainable Debt Is Piling Up—and for Good Reason; Green bonds have outperformed the market this year, but that’s just the start.
Nathaniel Bullard – Bloomberg
We’ve passed a major milestone in sustainable finance: one trillion dollars in issuance of green bonds. As of last quarter, companies, financial institutions, governments and municipalities raised more than $215 billion dollars in green bonds. That’s not far off the more than $270 billion raised in all of 2019, and it’s 15 times more than raised in all of 2013.

HSBC targets net zero carbon emissions by 2050; Bank criticised for lack of detail in its pledges and setting distant deadlines
Stephen Morris and Attracta Mooney – FT
HSBC has become the latest global lender to commit to a target of net zero carbon emissions by 2050 and pledged as much as $1tn of support in the next decade to help its clients become more environmentally friendly.

ESG Investing Will Not Grow Successfully Without Global Data Standards And Regulations, Says OECD
Lawrence Wintermeyer – Forbes
The interest and growth in sustainable investing is an area that appears to have gained greater momentum since the COVID-19 crisis. The buzz in political and business circles is all about making our society more resilient and better equipped to deal with global crises.

ESG Investing Focus: Big Banks’ Money Laundering Problem
John Divine – US News
Environmental, social and governance investing, or ESG investing, has been a growing movement over the last decade. Investor demand for stocks and funds that consider more than just the bottom line is booming.
ESG investing is often associated with excluding energy stocks and sin stocks, but new reporting suggests that perhaps big banks might be larger ESG offenders than the investing public tends to believe.

London’s Square Mile Vows to Eliminate Carbon Pollution by 2040
Jess Shankleman – Bloomberg
London’s financial district is planning to eliminate its carbon dioxide emissions by 2040, investing 68 million pounds ($88 million) to tackle climate change and create 800 jobs over the next six years.


Morgan Stanley Finds Money in the Cushion; Developments in Washington left Morgan Stanley with a sizable capital cushion. Using that capacity to buy Eaton Vance, even fully priced, is better than many alternatives.
Telis Demos – WSJ
Morgan Stanley’s MS 0.60% deal to acquire Eaton Vance EV 48.14% isn’t a steal. It still might prove to be a very good business decision. The timing of the transaction is interesting: Morgan Stanley said it has been looking at this deal for several years, and Eaton Vance wasn’t trading at a huge discount to where it has been over that period of time—only 5% below its five-year average share price as of Wednesday.

Morgan Stanley to Buy Eaton Vance for $7 Billion; Deal continues bank’s shift away from trading toward steadier, simpler businesses like money management
Liz Hoffman – WSJ
Morgan Stanley MS 0.60% said it is buying fund manager Eaton Vance Corp. EV 48.14% for $7 billion, continuing the Wall Street firm’s shift toward safer businesses like money management. The deal comes just days after Morgan Stanley completed its $11 billion takeover of E*Trade Financial Corp., and is another leg in a decadelong turnaround project for Chief Executive James Gorman, who has closed risky trading operations and doubled down on wealth and asset management.

Citadel Securities to Buy NYSE Market-Making Unit of Smaller Rival IMC; Deal would solidify Citadel Securities’ status as exchange’s top designated market maker, potentially raising concentration concerns
Alexander Osipovich – WSJ
Electronic trading giant Citadel Securities will bolster its already huge presence at the New York Stock Exchange by buying the NYSE market-making business of smaller rival IMC Financial Markets, the companies said.

Banks rebuff Boris Johnson’s call for low-deposit mortgages; Lenders wary of risky loans owing to bleak economic outlook and rising unemployment
Nicholas Megaw and Stephen Morris – FT
Banks are resisting government pressure to rush back into riskier areas of the UK mortgage market, in spite of Boris Johnson’s call for a “revolution” in home ownership.

Bill Ackman Gives Further Clues on Potential Targets for His SPAC
Joanna Ossinger – Bloomberg
Billionaire investor Bill Ackman has provided further hints on the potential targets of his blank-check company. Pershing Square Tontine Holdings Ltd., which had the largest initial public offering ever of a special-purpose acquisition company when it debuted in July, is not only looking at mature “unicorns” and private-equity-sponsored companies but also family-controlled and employee-owned businesses, Ackman said in an interview with Whitney Tilson.

Everyone Wants to Buy a Boutique Asset Manager. If They All Do It, There Goes the Alpha; Facing anemic future growth, asset managers are going after specialist firms — and raising the prospect of killing the golden goose along the way.
Julie Segal – Institutional Investor
Bankers, consultants, and other advisers say asset managers who are looking to differentiate themselves with actively managed strategies that can’t be easily replicated are increasingly on the hunt for independent boutiques. But if everyone makes the same move, these investment styles could soon be filled to overflowing — reducing what made them special in the first place, people in the business say.


India’s Central Banker Makes Unusual Request to Financial Markets
Subhadip Sircar and Kartik Goyal – Bloomberg
India’s central bank chief has a message for bond traders — behave and help control the yield curve. In a five-minute discourse during a 30-minute policy address, Governor Shaktikanta Das urged traders to be patient, heed price signals given by the Reserve Bank of India, and do their part in maintaining market stability.

Vanguard Returns $21 Billion in Assets to China’s State Funds
Bloomberg News
BlackRock, Amundi may manage a portion of the returned funds; Move is part of strategy shift to focus on individual clients
Vanguard Group Inc. returned about $21 billion in managed assets to government clients in China as part of a global shift to focus on low-cost funds for individual investors, according to people familiar with the matter. BlackRock Inc. and Amundi SA are being considered to manage a portion of the funds returned by Vanguard.

Chevron’s Purchase Could Unlock Israel’s Natural Gas Bonanza; The oil giant’s takeover of Noble Energy gives it a foothold in an emerging energy hot spot: the eastern Mediterranean Sea.
Stanley Reed – NY Times
Chevron, the American oil giant, wrapped up the acquisition on Monday of a relatively small Houston-based company called Noble Energy, paying about $4 billion. Until recently, the deal would have been unlikely, if not unthinkable — because what distinguishes Noble is the large natural gas business it has built in the eastern Mediterranean Sea, especially in Israel, an area that major oil companies had until now avoided.


Brussels looks to divvy up old UK fishing rights in Brexit deal; Effort to win round sceptical EU maritime nations on compromise over access to British waters
Jim Brunsden and Sam Fleming – FT
Brussels is looking at how to compensate European fishermen that lose out from Brexit by handing them part of Britain’s old fishing rights in EU waters, as it seeks to unblock one of the toughest remaining issues in the EU-UK future relationship talks.

EU does not believe UK will walk out on Brexit talks, diplomat says
Daniel Boffey – The Guardian
Brussels does not believe Boris Johnson will walk out on the Brexit talks next week despite repeated threats from London, with negotiations set to continue deep into the month.
The prime minister has publicly suggested that an EU summit next Thursday is his deadline for a deal. He said in September that without agreement it would be time to “accept and move on”.

Sterling shrugs off GDP hit as Brexit and dollar weakness dominate
Elizabeth Howcroft – Reuters
The pound was steady against the U.S. dollar on Friday, brushing off worse than expected UK growth data as investors became more optimistic about a Brexit deal being reached ahead of a key European Council summit next week.

Brexit: Government publishes guidance for Northern Ireland exports
John Campbell – BBC News
The government has published legal guidance for what NI goods will have “unfettered access” to GB at the end of the Brexit transition period on 1 January. Goods must be defined as having “qualifying Northern Ireland status”. The legislation gives a very broad definition of what goods will qualify. However, the government says it will bring forward further legislation aimed at preventing non-qualifying goods using NI as a backdoor into GB. A qualifying good is defined as a product which is present in Northern Ireland and is not subject to any customs supervision, restriction or control.

Bankers and Hedge Funds Will Always Love London
Marcus Ashworth – Bloomberg
The power of 27 countries against one is often cited as the reason why the European Union will prevail in Brexit negotiations with the U.K. But the logic reverses when you think about what might happen to the City of London after Britain’s departure, and whether Europe’s other cities can challenge its primacy in finance. For financial services, having a single, centralized one-stop shop like London makes more sense than having a gaggle of disparate mini-centers such as Paris, Frankfurt and Amsterdam. In this instance, being alone is a strength.

In a No-Deal Brexit, Where Do You Report Your Trades/Transactions to?
Quinn Perrott – Finance Magnates
The countdown to New Year’s Eve is on and Brexit is imminent. If the United Kingdom (UK) leaves the European Union (EU) without an agreement (no-deal Brexit), it is important to ensure transaction reports are submitted to the correct Trade Repository (TR) and/or Approved Reporting Mechanism (ARM). There has been no sign of a Brexit deal yet so at this stage, we are helping you prepare for a ‘worst-case scenario’. Regardless of what happens, your NCA will expect you to manage your EMIR, MiFIR and SFTR requirements.

Take Five: Banks, bottom lines, Brexit
After U.S. Q2 results beat expectations, Q3 will show whether dire forecasts for companies’ bottom lines were justified. Most sectors will again show steep drops in earnings but it should be less dramatic than the previous quarter; expectations are for an average 21% decline, versus the 31% contraction of Q2, when coronavirus-linked lockdowns decimated economic activity. Energy companies are seen faring worst, with earnings down 115% from a year ago, according to Refinitiv. Tech earnings are predicted to fall just 0.5% percent.

John Lothian Newsletter

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Past JLN Newsletters

The Spread – July 30, 2021

The Spread – July 30, 2021

Earnings season in full bloom; Options lead year-to-date derivatives volume; Robinhood’s IPO; John gets real with Get Real VR: Conflicting factors underpin volatility; Cboe cleared for fall European competition; and the Cboe Options Institute’s Kevin Davitt talks about vega in this week’s “Term of the Week.”

The Four Biggest Ways That Robinhood Changed Investing

The Four Biggest Ways That Robinhood Changed Investing

First Read $51,906/$300,000 (17.3%) ++++ Options Continue to Lead Derivatives Volume Uptrend, but Q2 Lags, FIA Data Show Suzanne Cosgrove - John Lothian News Global futures and options volumes continued to trend higher in the first half of 2021 compared to both 2020...

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