First Read

Multiple Buyers, Not One, Influenced Most Active E-Mini Move of 2016
Alexander Osipovich – WSJ
A sharp move in stock-market futures that fueled the Dec. 7 buying in U.S. equities likely reflected trading by multiple buyers, said a market-data firm that shared its analysis with The Wall Street Journal, a shift from its prior conclusion—published by the Journal—that a single buyer was behind the move. The firm, MayStreet LLC, said its initial analysis, which characterized the event as a single $1.8 billion trade with one unknown buyer behind it, was based on a misunderstanding of how CME Group Inc. reports its raw data. Chicago-based CME is the exchange where the contracts involved in the Dec. 7 event are traded.

****** The Wall Street Journal originally reported that one entity was behind a 16,000 lot trade in the E-mini S&Ps on December 7, 2016, a date that shall live in E-mini infamy. However, upon further review with some help from the Major Market Initiative, it was discovered the analysis by MayStreet LLC was flawed and that a series of stop orders most likely caused the series of trades. A single contract trading at 2225.00 triggered the event.

****** I question why the original conclusion was made, other than it was based on a faulty understanding of the way the CME tags orders. Why would someone place a 16,000 lot order? Logic suggests someone who could trade that big would have a better execution strategy than just putting in a 16K contract order. Besides, the E-mini S&P maximum order size is 2000 contracts

***** I congratulate the WSJ for going back and correcting this story and for MayStreet for looking at the data again, with a new understanding. Someone had already entered this mistaken analysis into Wikipedia on the E-MInI S&P page, which I corrected yesterday.


Everybody Lies on Social Media—Just Ask Bankruptcy Asset Hunters; Debtors pose on boats that don’t belong to them and in flashy jewelry that isn’t valuable; 50 Cent and his stacks of fake cash
Katy Stech – WSJ
This October, when Ido Alexander saw photos a young man had posted on social media, he thought he had hit the bankruptcy jackpot. Mr. Alexander, a Florida lawyer working for a court-appointed trustee, dispatched an appraiser to the man’s home to inspect the expensive-looking gold chains and other jewelry he had been posing in, which he hadn’t declared as assets in court filings. The appraiser made another discovery that is becoming all too common in the age of social-media braggadocio. “At the end of the day, it was really costume jewelry,” Mr. Alexander says. “It was really disappointing.”

***** Everyone is a broad group of people. I prefer the term, “everyone else.”


‘Negligible’ link found between executive pay and performance; Top remuneration climbs 80% over 11 years against return on invested capital up 1%
Patrick Jenkins, Financial Editor – FT
The correlation between high executive pay and good performance is “negligible”, a new academic study has found, providing reformers with fresh evidence that a shake-up of Britain’s corporate remuneration systems is overdue.

***** Yo Jim, about that raise….


CEOs Should Focus on Long Term, Study Says; Authors contend that switching from short-term gains to a long view improves profits and sales
John Simons – WSJ
Should corporate leaders focus on short-term gains or take the long view? Adherents of long-term management will find potent ammunition in a new study from a pair of management researchers who conclude that myopic leaders are hampering businesses by failing to invest in innovation and risky projects.

***** All this good advice for my new CEO.


As Populists Won 2016 Ballots, World’s Richest Made $237 Billion
Tom Metcalf and Jack Witzig – Bloomberg
In a year when populist voters reshaped power and politics across Europe and the U.S., the world’s wealthiest people are ending 2016 with $237 billion more than they had at the start.
Triggered by disappointing economic data from China at the beginning, the U.K.’s vote to leave the European Union in the middle and the election of billionaire Donald Trump at the end, the biggest fortunes on the planet whipsawed through $4.8 trillion of daily net worth gains and losses during the year, rising 5.7 percent to $4.4 trillion by the close of trading Dec. 27, according to the Bloomberg Billionaires Index.

****** I wonder how the other 99% did?


How to Make Money Rebuilding Reputations: Have Them Destroyed First
Dune Lawrence – Bloomberg
The headline appeared in January of 2013 on “Dr. John Pitman III, MD Peninsula Plastic Surgery Center, Pitman Surgical Associates, Estranged Ex Husband Key Witness Arrested by 6 Armed Officers at Plastic Surgery Practice, U.S. Army Col.”
Wild allegations followed: Pitman, described as a drug user nearing bankruptcy, supposedly perjured himself for money in a murder case involving his ex-wife, a prosecution stemming from her failed effort to frame him. More inflammatory claims came in updates, as recounted in court filings, with titles like “Dr. John Pitman and Michael Roberts, Vegas orgies, she/he and he/he twister, doctor prescribing pain pills for sex fueled nights.”

***JB: Seems like another face of our post factual news world….


Tuesday’s Top Three
Our most read story yesterday, The New York Times’ Who Benefits From Market Speed Bumps? The Exchanges, discussed the effects for investors of a potentially disturbing new trend. Number two was the Daily Reckoning’s Good Evening, Mr. Bond, a conversation with an anonymous VIP about the lack of liquidity in the bond markets. Coming in third was FastCompany’s 5 Fintech Startups To Watch In 2017


Lead Stories

NYSE Arca Losing ETFs to Rivals; Nasdaq Inc. and Bats Global Markets scoop up defectors
Asjylyn Loder – WSJ
The New York Stock Exchange, the leading marketplace for exchange-traded funds, is losing ground to rivals in the fast-growing business. For the first time in at least five years, NYSE Arca’s ETF listings have declined from a year earlier, with more than 30 ETFs defecting this month for Nasdaq Inc. and Bats Global Markets Inc. While NYSE Arca is still the industry leader, with 1,543 listings and $2.3 trillion in assets, the competition is intensifying following high-profile market failures last year and the departure of some of NYSE’s top ETF talent.

***** I love the smell of statistics in the morning.

China’s Markets Are Tamed—but Not Tempting; The roller-coaster ride may be over, but global investors say that still hasn’t made China attractive for 2017
Anjie Zheng – WSJ
Chinese stock regulators seem to have achieved one big goal in 2016: Curbing the markets’ famous roller-coaster trading. But many global investors say that still hasn’t made China an attractive place to put their money in 2017.

Chinese hackers charged with theft from Wall Street law firms; Stolen data allegedly led to $4m of illicit profits from insider information trading
Ben McLannahan in New York – FT
Chinese hackers breached a string of Wall Street law firms and stole data that led to $4m of illicit profits from trading on insider information, according to the US government, which said the case should act as “a wake-up call” to advisers around the world.

LSE set to sell French clearing arm to Euronext; Cash deal worth about EUR510m could smooth UK group’s path to Deutsche Börse merger
Philip Stafford – Financial Times
The London Stock Exchange Group is expected to announce the sale of its French clearing arm to rival Euronext within days in a cash deal worth about EUR510m. The UK group hopes that the sale will smooth the path for its merger with rival Deutsche Börse. The LSE and Euronext had hoped to unveil a deal before Christmas but a late disagreement over terms meant the announcement was put on hold. That has now been resolved and a formal statement is expected to come this week, two people briefed on the talks said.

What Global Bank Regulators Are Fighting About: QuickTake Q&A
by Patrick Henry – Bloomberg
Rarely have the people who look after the global banking system argued so stridently or so publicly. The members of the Basel Committee on Banking Supervision are racing to complete an overhaul of capital standards intended to strengthen the world’s biggest lenders. Time’s running out before a Jan. 8 deadline, and a compromise deal remains elusive. The most vocal demands have come from Europe, where policy makers want to shield already struggling banks from even stricter regulations.

FCA hands out fines totalling just £6.3m in its first half; Penalties imposed by City watchdog fall to 2007-08 levels amid leadership handover
Caroline Binham, Financial Regulation Correspondent – FT
The amount and number of fines meted out by the City watchdog in the first half of the financial year plunged to pre-crisis levels, harking back to the era of light-touch regulation that drew intense criticism.

Banking standards: treacherous political waters lie ahead
Howard Davies – The Guardian
The system has been safer since the Basel III regulations, but tensions are high between the US and the eurozone – which both have their own preoccupations
The financial crisis of 2008 gave a big boost to the global standard-setters. Suddenly the Basel committee, which sets the standards for international banking supervision) was leading the financial news.

Depth, Not Breadth: Why Bigger Isn’t Always Better For Your Business
Danielle Sabrina – Huffington Post
Growth is at the forefront of any business owner’s mind. And this emphasis isn’t misplaced: after all, businesses have to grow to survive. That’s why companies often set goals based on growth — to reach some benchmark in terms of size, scope, or profit.


Brexiteers Go Over Heads of Government to Push EU-U.K Trade Deal
by Alex Morales – Bloomberg
Supporters of Britain’s exit from the European Union wrote to business groups in the 27 other nations in the bloc urging them to push their governments for a “sensible agreement” for trade after Brexit to avoid disrupting trade.

Lloyds to set up European arm if UK loses access to single market; Plans would ensure British bank can maintain its German and Dutch retail clients
by: Emma Dunkley and Martin Arnold – FT
Lloyds Banking Group is planning to establish a subsidiary in Germany or the Netherlands if the UK leaves the EU without retaining access to its single market, according to two people briefed on the matter.

Britons Hoard Cash as Economic Uncertainties Prompt Caution
by Lucy Meakin – Bloomberg
Personal deposits rose 32.4 billion pounds in first 11 months; Separate report signals minimal house-price growth in 2017
Britons are holding onto their cash in a sign that they may be hunkering down in the face of economic uncertainties, according to the British Bankers Association.

3 Men Made Millions by Hacking Merger Lawyers, U.S. Says
Leslie Picker – NY Times
Law firms that advise on mergers once had to worry about a rogue employee trading on deal tips. Now, they have to worry about hackers doing the same.

Mervyn King calls for UK to be ‘self-confident’ about Brexit; Former Bank of England governor sees ‘real opportunities’ outside EU
by: Kate Allen – FT
Brexit will bring “real opportunities” for Britain, former Bank of England governor Mervyn King has said, arguing that the country should be “self-confident” about its future.

Exchanges, OTC and Clearing

2017 could be the year of US domination of institutional FX and equities dark pools as MiFID rules take dislike to anonymity
Andrew Saks McLeod – FinanceFeeds
As if today’s liquidity market is not complicated enough, there now is a growing dichotomy between how the use of private forums for trading securities are used by large institutions on either side of the Atlantic. The bulk of dark pool trades represent large trades by financial institutions that are offered away from public exchanges like the New York Stock Exchange and the NASDAQ, so that such trades remain confidential and outside the purview of the general investing public.

HKEX Announces Launch Date for VCM in Derivatives Market
Hong Kong Exchanges and Clearing Limited (HKEX) announced it will implement the Volatility Control Mechanism (VCM) in its derivatives market on 16 January 2017.

Hong Kong Futures Exchange Mandatory Intra-Day Variation Adjustment Call In Respect Of The Day Following The New Year Holiday
All markets operated by the Hong Kong Futures Exchange will be closed for business on 2 January 2017. In order to assure that safeguards are in place against potential market risks that may arise during the aforesaid period when some of the major markets are open, the Clearing House has decided to make a mandatory intra-day variation adjustment call on Clearing Participants in the Hang Seng Index, Mini-Hang Seng Index, H-Shares Index, Mini H-Shares Index, HSCEI Dividend Point Index, USD/CNH Futures and CNH/USD Futures markets on Friday, 30 December 2016.


The Fed has given Trump cover to unwind a key Wall Street rule
Matt Turner – Business Insider
It’s the talk of Wall Street. The prospect of deregulation following the election of Donald Trump — and specifically some kind of softening of the Volcker rule — is being discussed far and wide. Now it seems the Federal Reserve has provided some cover for Trump’s nominees to go soft on the rule.

Investing and Trading

Here are the Chicago area’s best- and worst-performing stocks of 2016
Brigid Sweeney – Crain’s Chicago Business
Although “2016 was a bad year” has become a familiar refrain across social media, Chicago’s publicly traded companies enjoyed a rather delightful one. A Bloomberg index of 163 Illinois stocks was up more than 14 percent through mid-day trading yesterday, better than the S&P 500’s 11 percent gain.

Passive investing, a winner in 2016, shows no sign of stopping
Ryan Vlastelica – MarketWatch
2016 was the year of the passive investor—again. One of the biggest investment trends of the past decade continued unabated this past year, as investors rotated out of active investments—where the components are chosen by an individual or team rather than being pegged to a benchmark—to passive-based ones.

Robo-investing firms serve millennials – and their parents
Guy Dixon – The Globe and Mail
Stereotypes abound in the investment world. Read any story about automated online investing, for instance, and the assumption is that we’re talking about millennials, those who were babies in Joe Clark-to-Kim Campbell times. But that’s not the reality.

ETFs are expanding into organic farming and other new trends
Evelyn Cheng – CNBC
The ETF industry is betting that investors want to link more of their investing dollars to social trends, or business and technologies, not yet reflected in traditional sector funds. Called “innovative” or “socially responsible” trends in the industry, more than 10 percent of the 200-plus exchange-traded funds launched in 2016 were directed at emerging technologies such as mobile pay or the growing consumer interest in organic farming.

As Home Prices Rise, Flippers Make a Comeback
Kirsten Grind and Peter Rudegeair – WSJ
This is a great time to be in the house-flipping business. The number of investors who flipped a house in the first nine months of 2016 reached the highest level since 2007. About one-third of the deals were financed with debt, a percentage not seen in eight years.


Investment banking revenue falls 11% to $440 million in 2016
Investment banks in 2016 collectively earned $440 million in fees, 11% less than the $495 million they garnered the previous year, Dealogic data showed. Over the past six years, the peak was $868 million in 2011.

Halcyon days over for investment banks
Laura Noonan – Financial Times
The runaway profits of the past will not be repeated. That is the response of investment bankers when asked about the unfamiliar glow that surrounded their industry in the final months of 2016. The sector’s third-quarter results were impressive, with industry revenues up by 30 per cent in some business lines. Shares in investment banks rose more than 25 per cent after Donald Trump’s election as US president, as investors eyed a bright future of better growth, higher rates and less regulation.

Wells Fargo Is Trying to Fix Its Rogue Account Scandal, One Grueling Case At a Time; The bank said it will compensate thousands of customers with unwanted accounts and cards; how do you calculate cost of a damaged credit score?
Emily Glazer, Christina Rexrode and Annamaria Andriotis – WSJ
Aaron Brodie has been dogged by poor credit for five years, the result, he said, of a Wells Fargo & Co. banker giving him a credit card he didn’t ask for. Hearing about the bank’s civil settlement over alleged illegal sales practices, he called a Wells Fargo hotline, thinking help was at hand.

Deutsche Bank 2017 Capital Requirements Lowered in ECB Review
Jeffrey Voegeli – Bloomberg
Joins other European banks benefiting from lower requirements; ECB’s review results come days after bank settled DoJ probe
Deutsche Bank AG will have to clear a lower capital hurdle next year, joining other European lenders who are benefiting from a change in how the European Central Bank sets the requirements.

Price tag rises on Monte dei Paschi di Siena rescue
James Politi – Financial Times
Italy is planning to inject around EUR6.5bn into Monte dei Paschi di Siena, officials said on Tuesday, after the European Central Bank estimated that the country’s third-largest bank had a larger capital shortfall than was thought. The need for a government rescue of the world’s oldest bank by Italian taxpayers became apparent last week when an effort by MPS to raise funds from private investors collapsed following months of talks.

RBS considers reducing bonus awards for senior executives
Miles Johnson – Financial Times
Royal Bank of Scotland is considering plans to restructure the maximum amount its chief executive Ross McEwan and other senior executives can earn under their long-term pay awards as well as forcing them to hold more shares in the part-nationalised lender.


SEC Reveals Priorities in Inaugural Fintech Forum
Katharine Paisley, DTCC – TabbForum
The SEC does not want to create rules that hinder advances in technology. At the same time, the chief U.S. securities regulator wants to ensure that its rules keep pace with these advances, while investor protection remains paramount with any new technological developments.

Swiss Fintech Needs Young Stars To Grow Wealth And Currency Startups
Freddie Dawson – Forbes
The Swiss fintech sector does not expect to benefit from UK Brexit woes but does think it will soon be an international player due to its own particular qualities.

China Establishes Asia Fintech Fund of Funds to Focus on M&A
Crowdfund Insider
China’s Global Times has reported that the country established a foundation focused on financial and technology mergers and acquisitions throughout Asia. Asia Fintech Fund of Funds (FOF) is based in Beijing and has 10 billion yuan (approximately $1.44 billion) in funding.

West Africa now has its own blockchain-enabled digital currency; Senegal will begin circulating the eCFA, a digital currency back by West African regional bank
Lynsey Chutel – Quartz Africa
Senegal will soon begin using a digital currency, ushering in the use of blockchain technology by the central bank. It’s another opportunity for financial technology (fintech) to help emerging markets leapfrog traditional banking systems and bring financial inclusion to more people.


U.S. Charges Three Chinese Traders With Hacking Law Firms; Indictment says the traders bought shares of at least five publicly traded companies before announcements that the firms would be acquired
Sara Randazzo and Dave Michaels – WSJ
Three Chinese traders earned more than $4 million in illegal profits after they hacked into the computer systems of prominent U.S. law firms and stole nonpublic information on mergers and acquisitions, according to a federal indictment unsealed on Tuesday.

Sebi eases trading norms for equity derivatives contract
Business Standard
With an aim to ease trading requirements, markets regulator Sebi today relaxed the combined futures and options position limit of stock brokers, FPIs and mutual funds in equity derivatives to 20 per cent of the applicable Market Wide Position Limit.

Chinese Traders Charged With Trading on Hacked Nonpublic Information Stolen From Two Law Firms
The Securities and Exchange Commission today charged three Chinese traders with fraudulently trading on hacked nonpublic market-moving information stolen from two prominent New York-based law firms, racking up almost $3 million in illegal profits. The SEC also is seeking an asset freeze that prevents the traders from cashing in on their illicit gains. The enforcement action marks the first time the SEC has charged hacking into a law firm’s computer network.

SEC says it charges lawyer with stealing investor money in EB-5 offerings
The U.S. Securities and Exchange Commission charged a California lawyer on Tuesday with defrauding people who signed up for an immigrant investor program aimed at creating jobs for Americans.

SEC Charges Lawyer With Stealing Investor Money in EB-5 Offerings
The Securities and Exchange Commission today charged a California-based attorney with defrauding investors seeking to participate in the EB-5 immigrant investor program, stealing their money to buy a yacht and prop up his other businesses.

SEC Probes Banks’ Sale of Soured Mozambique Bonds; Mozambique again looks to restructure $850 million debt, which was meant for tuna fishing but used to buy military equipment instead
Matt Wirz and Julie Wernau – WSJ
The U.S. Securities and Exchange Commission is investigating the sale of $850 million in bonds issued by Mozambique, the latest development in a scandal that is exposing the links between the country, three international banks and a defense contractor.

Manhattan U.S. Attorney Announces Arrest Of Macau Resident And Unsealing Of Charges Against Three Individuals For Insider Trading Based On Information Hacked From Prominent U.S. Law Firms
US Department of Justice
Iat Hong Arrested On December 25 In Hong Kong On U.S. Insider Trading And Hacking Charges; In Addition To Successful Cyber Intrusions Into Two Law Firms, Defendants Charged With Attempting To Hack Into Total Of Seven Law Firms


China Banking Official Urges Cut to Required Reserve Ratio
China’s requirement for how much cash banks must hold as reserves is “very high” and should be reduced at an “appropriate time,” a senior banking regulator said, according to a media report. Other financing tools can be used to manage the money supply after easing the required reserve ratio, China Banking Regulatory Commission official Yu Xuejun said at an event in Beijing, Shanghai Securities News reported Wednesday.

No Happy New Year in China as Currency, Liquidity Fears Loom
Justina Lee – Bloomberg
China bulls could be facing a grim New Year’s eve. The first day of 2017 is when an annual $50,000 quota to convert the yuan into foreign exchange resets, stoking concern there will be a rush to sell the local currency. With tax payments and a regulatory assessment also tightening liquidity in the money market toward year-end, January may bring scant relief as lenders prepare for stronger cash demand before Lunar New Year holidays, which are only a month away.

Egypt Offers Exchange Rate Relief to Firms Hit by Pound Float
by Tamim Elyan and Ahmed Feteha – Bloomberg
Currency has lost more than half its value since Nov. 3; FX-rate decision welcomed by companies struggling with debt
Egyptian companies unable to repay U.S.-dollar denominated debts after the devaluation of the pound will be allowed to negotiate fixed exchange rates with banks.


‘Profitable’ Washington Post adding more than five dozen journalists
Ken Doctor – Politico
Twenty-sixteen was the year The Washington Post came of age — again. In its audience growth, in the ambitiousness of its journalism, in its impact on the American conversation, the Post became the U.S.’s fourth national newspaper company, joining The New York Times, The Wall Street Journal and USA Today.

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