Dark Trading Could Triple in Europe; SEC Defends CAT Plan After Hack; Regulatory ‘false choice;

Oct 4, 2017

First Read

Hits & Takes

A KISS Goodbye
In case, you missed it, (and we did), the deadline for Project KISS from the CFTC ended on September 30th. If you want to see who said what about whatever can be improved on Dodd-Frank, all comment letters can be found here.. Among the names included on the KISSing contest were CME Group, which had a number of proposed rules it found problematic, including the Reg AT and position limits rule, not to mention liquidity resources which somehow do not count US Treasuries. Good reading, and only 37 pages for Christopher Kirkpatrick, secretary of the commission. They had a few letters actually.
Citadel kept it short, just 10 pages, with a focus on simplifying regulatory reporting for fund managers, a rather duplicative exercise for firms under CFTC and SEC supervision. It also advocated for a level playing field for swap participants in terms of capital requirements and better swap date reporting procedures. LCH is looking for a little more cross-border regulatory harmonization. ICE Group, for its part, would also like to see more harmonization and oversight with the SEC under a single set of rules. Citadel would surely get behind that. My favorite was Rando Hütt of Justice Crew, who advocated simply to “Remove automatic trading from stock market by all means.” Floor traders everywhere, unite.~JK

And this from Christopher Giancarlo, chairman of the Commodity Futures Trading Commission, at the Reuters Summit in Washington D.C. “There seems to be this narrative that there’s only two choices about where we are today in markets – it’s either we keep everything the way it is, or we roll back … it’s a binary set of options.” ~JK

In case you were/are a Yahoo user, it was revealed that every single one of its accounts was compromised in the 2013 hack, not the billion accounts as first claimed. –SD

Yesterday’s Asia Pacific Financial News from John Lothian News is available HERE.~JJL

Opening Ceremony of IOSCO’s inaugural World Investor Week in Tokyo
Watch the video »


Tuna price rises hit all parts of Japan’s sushi sector; Conveyor-belt segment unable to raise prices because of tough competition
Emiko Terazono – FT
Bad weather and lower catches have pushed tuna prices up, hitting every part of Japan’s sushi sector, from luxury Michelin-starred bars to value-for-money chains as well as the conveyor-belt segment.

**Something is fishy here. Conveyer belts, private equity and overfishing. Tuna futures anyone?~JK


Born Technology’s CrossCheck tackles MiFID II: DEA Management & Algo Monitoring Solution
PR Newswire
Today Born Technology announced CrossCheck, a new product for managing MiFID II regulatory requirements. As a focal point for global risk management, CrossCheck provides firms peace of mind around regulatory compliance.

****Not to be confused with the ice hockey penalty. ~SD


Tuesday’s Top Three
Yesterday’s top read stories were led by Crain’s piece Are Chicago trading firms losing out in consolidation? Second went to the curious idea that history and perhaps markets do repeat themselves, in Marketwatch’s Six similarities between now and 1987, when the Dow plummeted 23% in one day. Third went to the video of HC Technologies’ Jessica Sohl, general counsel and chief compliance officer, who spoke about what the company is looking for and what students can expect interning at the proprietary trading firm. This is the first of several videos in connection with the Marketswiki Education event coming up on October 16 at CBOE. If you know a student who would like to attend and send in a resume, all the info is HERE


MarketsWiki Stats
108,669,125 pages viewed; 22,840 pages; 209,823 edits
MarketsWiki Statistics


Lead Stories

Dark Trading Could Triple in Europe Under New Market Rules
Will Hadfield – Bloomberg
Trading volumes will flow to bank-run systematic internalizers; XTX co-CEO sees dark trading rising to 30% from 10% of market
Trading of European stocks on dark markets will probably triple as a result of the MiFID II overhaul, the opposite of what the architects of the law intended, as the new rules give some venues flexibility in how they price shares.

After Hack, SEC Defends Plan to Amass Traders’ Sensitive Data
Benjamin Bain and Robert Schmidt – Bloomberg
U.S. Securities and Exchange Commission Chairman Jay Clayton will make a tough sales pitch Wednesday when he tries to convince lawmakers that his agency can protect reams of personal data shortly after it disclosed a hack that shook confidence in Wall Street’s top regulator.

U.S. financial regulations debate poses ‘false choice’: CFTC chairman
Political debate over how to reform post-crisis rules has created a “false choice” that is obscuring other big emerging challenges to the financial markets such as digitization and cyber risk, the chair of the top U.S. derivatives regulator warned on Tuesday.

Go Big or Go Home Is the Plan for ETF Providers Taking on Europe
Rachel Evans – Bloomberg
New MiFID II rules seen waking a sleepy market for the funds; U.S. issuers use takeovers to gain foothold before the boom
After working in London for more than a decade, the Virginia-born finance executive understood the local recipe for success in exchange-traded funds as implicitly as British sarcasm and the Gallic shrug. He’d helped build three multibillion-dollar businesses there. Now the 48-year-old’s gut told him it was time for another.

Brexit to Test Frankfurt’s Overstretched Housing Market
Stephan Kahl and Andrew Blackman – Bloomberg
Banks moving jobs to Frankfurt to increase pressure on rents; Homebuilders have struggled to keep up with growing population. Frankfurt is winning the battle to lure companies from London in the run-up to Brexit. That may come at a price for local residents who face rising rents as a result.

London’s financial district wants Brexit transition deal by year-end
Reuters Staff
The City of London needs a watertight Brexit transition deal by the year-end for banks to plan ahead and avoid a “cliff edge” hurting the economy, the financial district’s mayor will say.

ECB Closes in on Power Over Euro-Derivative Clearing Post-Brexit
Silla Brush – Bloomberg
European Commission backs ECB plan for oversight of industry; Brexit poses ‘significant challenge’ to oversight: commission
The European Central Bank moved closer to gaining power over the lucrative clearing industry, a crown jewel of London’s financial hub and a key flash point in Brexit negotiations.

Bankers Are Learning to Love MiFID
Lionel Laurent – Bloomberg
In an interview with Bloomberg Markets, UBS Group AG CEO Sergio Ermotti is asked whether MiFID II — a new round of European Union rules for the financial industry — will succeed. The regulations are already unnerving investors: implementing them is expected to cost $2.1 billion in 2017, and the subject is increasingly appearing in earnings calls and news reports.

SEC Weighs How to Protect Vast Trading Database From Hackers; At House hearing Wednesday, SEC Chairman Jay Clayton could face calls to limit data collected for repository
Dave Michaels – WSJ
U.S. regulators, already grappling with defending their systems against hackers, are taking a fresh look at how to protect a vast database of stock-market trades that promises to be an even bigger target of cyber thieves.

Bearing the load: Almost half of the UK’s top fund managers will absorb the cost of investment research post-Mifid
Lucy White – City AM
A large chunk of the UK’s top asset managers have agreed to bear the cost of investment research themselves, rather than passing it on to clients from next year, according to consultancy Alpha FMC.

EU proposes tax reform to crack down on EUR50bn VAT fraud; Measures align with global efforts on tax avoidance and aim to cut admin burden for companies
Rochelle Toplensky in Brussels – FT
Brussels has proposed an overhaul of EU value added tax to clamp down on fraud estimated to cost the bloc EUR50bn annually.

In China, Cryptocurrency Sales Persist in the Shadows; Seminars on digital-currency investing that once drew hundreds have been scaled back and now take place in smaller, more secretive settings
Chuin-Wei Yap – WSJ
Three days after Chinese regulators outlawed cryptocurrency fundraising in early September, a woman met with half a dozen individuals at a Beijing golf club to pitch a digital-currency investment opportunity.

Exchanges, OTC and Clearing

Intercontinental Exchange Reports September Statistics: ICE ADV up 21% y/y Driven by Interest Rates ADV up 61% y/y and Energy ADV up 12% y/y; 3Q17 ADV up 15% y/y, Open Interest up 14% y/y
Intercontinental Exchange, Inc. reported September 2017 trading volume and related revenue statistics, which can be viewed on the company’s investor relations website at http://ir.theice.com/ir-resources/supplemental-information in the Monthly Statistics Tracking spreadsheet.

Euronext announces volumes for September 2017; Euronext, the leading pan-European exchange in the Eurozone, today announced trading volumes for September 2017.
Cash Trading – In September 2017, the average daily transaction value on the Euronext cash order book stood at EUR7,295 million, up +14.6% compared to September 2016 and up +20.7% from the previous month.
Derivatives trading – In September 2017, the overall average daily volume on derivatives reached 501,591 contracts, up +13.6% compared to September 2016 and down -0.4% compared to the previous month.

Moscow Exchange trading schedule for 2018 public holidays
On 3, 4 and 5 January, 9 March, 30 April, 2 May and 11 June — public holidays in Russia — Moscow Exchange’s trading schedule will be as follows:

JPX opens IOSCO’s inaugural World Investor Week
The International Organization of Securities Commissions (IOSCO) is the international body that brings together the world’s securities regulators. IOSCO will be holding its inaugural World Investor Week(WIW) from October 2 to 8, 2017 to raise awareness of the importance of initiatives in investor education, investor protection, and financial literacy across the world.

SGX, CFA Society Singapore and MoneySENSE jointly launch the “Save and Invest Portfolio Series” with Lianhe Zaobao
Singapore Exchange (SGX) is partnering CFA Society Singapore and MoneySENSE to launch the year-long “Save and Invest Portfolio Series” with Chinese daily Lianhe Zaobao, in a move to encourage Chinese-language readers to save and invest for the future. This follows the success of The Sunday Times Invest section’s “Save and Invest Portfolio Series” that has been running for the past two years.

NSX boss recognised
Ndama Nakashole – Namibiam
The Namibia Stock Exchange’s boss, Tiaan Bazuin, is part of the 2017 “Choiseul 100 Africa – economic leaders for tomorrow” list, which was released on Monday afternoon.

TOCOM September 2017 Volume Averaged 110,735 Contracts, up 7.8% from August
The Tokyo Commodity Exchange announced today that September 2017 average daily volume was 110,735 contracts, up 7.8% from August. TOCOM’s largest contracts, such as Gold Standard, rose 9.3% to 32,108 contracts. Gold Rolling Spot volume rose 35.8% to 19,373 contracts. Platinum Standard volume was lower by 16.0% to 10,873 contracts. Overall, gain outpaced losses for an overall increase for the month.


Barchart.com Launches Dashboard, a New Real-Time Interactive Charting Experience
Barchart, a leading provider of financial market data and technology, announces the launch of Dashboard, a new real-time interactive charting platform available through Barchart’s financial data portal, www.barchart.com. Dashboard provides Barchart.com users with a full screen, interactive and real-time charting experience. While available through Barchart.com, Dashboard launches as its own platform providing users with a desktop-like experience all through their browser.

Broadridge Financial Solutions buys Summit
Claude Solnik – Iibn.com
Broadridge Financial Solutions has acquired Summit Financial Disclosure, a financial document management company with offices in Manhattan and Houston. Terms of the transaction were not disclosed.

Commerzbank, other banks join UBS and IBM trade finance blockchain
Anna Irrera – Reuters
Commerzbank AG, Bank of Montreal, Erste Group Bank AG and CaixaBank SA have joined an initiative launched by UBS Group AG and IBM Corp aimed at building blockchain-based technology to support trade finance transactions.

The CEO of ’email killer’ Symphony tells employees to ‘buckle up’ and apologizes for driving colleagues ‘crazy’
Frank Chaparro – Business Insider
Just before its third-year anniversary, the CEO of Symphony, the company heralded as the “Bloomberg killer,” is telling his employees to “buckle up” for a “thrilling” next two years.

Ellison uses Equifax woes as selling point for Oracle’s coming automated database system
Wallace Witkowski – MarketWatch
The massive data breach at Equifax Inc. could have been prevented with Oracle Corp.’s automated databases, Larry Ellison claimed Tuesday, using the credit-reporting company’s woes as a selling point for Oracle’s new product.


Absence of young people rattles Conservatives; Party obsesses over youth vote as average age of members rises to 72
Robert Wright and Jim Pickard – FT
Alasdhair McBride, 20, and Phoebe McCulloch, 21, belong to an endangered species: Young Conservatives.

Tories must conquer their fear of free market solutions, or wither on the vine of vested interest
Jeremy Warner – Telegraph
If you want to champion the virtues of free market capitalism – as the Tories agreed they must at this week’s party conference in Manchester – it might be a good idea first to stop constantly pandering to the language, ideas and prejudices of those you are trying to repudiate.

Jeffrey Gundlach Predicts Neel Kashkari Will Be Next Fed Chair
Vincent Bielski – Bloomberg
Jeffrey Gundlach, the money manager who predicted the presidential election of Donald Trump when few saw it coming, has a new surprise call: Neel Kashkari will be the next chairman of the Federal Reserve.

Trump Suggests Puerto Rico’s Debt May Need to Be ‘Wiped Out’
Justin Sink – Bloomberg
‘We are going to work something out,’ president says on Fox; Trump visited island earlier Tuesday to survey storm damage
President Donald Trump suggested that the government debt accumulated by bankrupt Puerto Rico would need to be wiped clean to help the island recover from the devastation caused by Hurricane Maria.


SEC Charges Penny-Stock Operators in Push to Crack Down on Repeat Offenders
The Securities and Exchange Commission today charged two individuals with defrauding investors in penny stock companies that claimed to have valuable patents. One of those charged had been barred from the penny stock business based on his role in another securities scheme and neither he nor his companies had ever been issued any patents by the U.S. Patent and Trademark Office, the SEC alleged.

Petal Walker, Chief Counsel to Former CFTC Commissioner Bowen, Leaving Agency
Petal Walker, Chief Counsel to former Commodity Futures Trading Commission (CFTC) Commissioner Sharon Bowen will leave the CFTC effective today.

Senate panel sets hearing for agriculture trade negotiator nominee
P.J. Huffstutter – Reuters
The Republican-led Senate Finance Committee on Thursday set an Oct. 5 confirmation hearing for Gregory Doud, President Donald Trump’s nominee for the top agricultural negotiator job at the U.S. Trade Representative.

Goldman Sachs former banker banned from U.S. securities industry
Reuters Staff
Wall Street’s self-regulator said on Tuesday it has barred a former Goldman Sachs Group Inc senior banker, Tim Leissner, from the U.S. securities industry because he failed to cooperate with the regulator’s investigation of alleged money-laundering connected with a Malaysian sovereign wealth fund.

CFTC Hires Director for Swap Dealer Oversight Division

Derivatives Service Bureau Launches Real-Time Isin Creation; This will allow users to meet regulatory reporting requirements under Mifid II.
Wei-Shen Wong – WatersTechnology
A global OTC Isin data archive will be created starting with the first users being onboarded for creation of Isins for OTC derivatives. This will also contain Classification of Financial Instruments (CFIs), Financial Instrument Short Name (FISNs) and associated reference data.

Our work on Defined Benefit Pension Transfers
We are looking at Defined Benefit (DB) Pension Transfers to assess the advice consumers are receiving from firms and whether they are at risk of harm.

September 2017 Monthly Recap Podcast
Revisit the latest FINRA notices, compliance resources, and news from September 2017.

ASIC remakes ‘sunsetting’ class order about mortgage schemes
ASIC has remade Class Order [CO 02/238] Mortgage schemes – Chapter 5C and disclosure relief, which was due to expire on 1 October 2017. The new instrument, ASIC Corporations (Mortgage Investment Schemes) Instrument 2017/857, continues to provide:

Traders warned not to become reliant on RFQs after MiFID II; Overuse of RFQs risks information leakage epidemic in 2018.
John Bakie – The Trade
Buy-side firms should be wary of overusing requests for quote (RFQs) to evidence their best execution once MiFID II comes into force on 3 January 2018, according to a panel of experts

Experts predict lenient enforcement of MiFID II reporting rules; Firms are likely to be given some time to get their reporting accuracy on track in early 2018.
Hayley McDowell- The Trade
European authorities will likely provide some leniency to firms providing trade and transaction reporting as part of MiFID II requirements, according to a panel of experts.

Buy-side traders look to become algo experts ahead of MiFID II; MiFID II has increased expectations for the buy-side to truly understand algorithms they use.
Hayley McDowell – The Trade
Traders on the buy-side have been increasing their efforts to gain knowledge and understanding of the algorithms they use in order to satisfy best execution requirements under MiFID II.

Greek court clears U.S. extradition of Russian bitcoin fraud suspect
Karolina Tagaris – Reuters
A Greek court cleared the way on Wednesday for the extradition to the United States of a Russian, also wanted by Moscow, suspected of laundering billions of dollars in digital currency bitcoin.

Investing and Trading

Investors Pile Into Emerging-Market Real Estate; Growth trends and the lure of outsize returns overshadow risks
Peter Grant – WSJ
Investors are showing more interest in commercial real estate in Asia, South America and other emerging markets, where growth trends and the lure of outsize returns overshadow the additional political and financial risks these regions can pose.

Active fund managers start to fight back; Fidelity leads a rethink on fees — but it’s far from a knockout blow
Merryn Somerset Webb – FT
Last week, I popped in to see the smartly attired men who run Weatherbys. It is one of the few genuinely private banks in the UK. The business from which it stems was established in the late 1700s (it is still a privately owned family affair) and it comes with a good story — the bank itself was founded from the family’s horseracing business. But in one aspect, it is strikingly modern.

Beware the cheery sellside analyst; Even as stocks set records, the undercurrent of nerves is becoming a fixture
Katie Martin – FT
Prophets of gloom in the investor community can point to a number of reasons to be miserable: sabre-rattling on either side of the Pacific, eerily quiet market conditions, successive record highs in stocks, Brexit talks wading through treacle and maybe even a more aggressive pace of US interest-rate rises than previously imagined.

Private credit booms as new hedge funds pile in; Funds use up their dry powder to pursue lending opportunities banks are not taking
Lindsay Fortado in New York – FT
Private equity and hedge fund firms are lending to companies at the highest rate ever, driving up competition in the sector and forcing funds to look outside the US for more opportunities.

Meet the Former Goldman Banker Behind Buffett’s Latest Deal
Noah Buhayar – Bloomberg
Pilot Flying J owner is the type of family business he likes; Deal arranged by billionaire’s favorite banker, Byron Trott
Warren Buffett is on familiar ground with his latest deal — down to the banker who brought it to him.

We Can Finally Identify One of the Largest Holders of Puerto Rican Debt
David Dayen – The Intercept
For years, the identity of the owner of one of the largest holdings of Puerto Rican debts has been a mystery. That mystery has finally been solved, with the help of the The Baupost Group, who unmasked themselves to The Intercept. The Baupost Group, a Boston-based hedge fund managed by billionaire Seth Klarman, owns nearly a billion dollars of Puerto Rican debt, purchased under a shell company subsidiary and hidden from public scrutiny. Baupost acquired the debt through an on-paper Delaware-based corporation named Decagon Holdings LLC, whose beneficial owner had been unknown until now.

Investor accepts Buffett’s second wager against hedge funds, believing the timing is right
Tae Kim – CNBC
Warren Buffett said Tuesday that he is willing to bet the S&P 500 will beat a basket of hedge funds again.


Deutsche Bank May Suffer Most in MiFID Trading Hit, UBS Says
Stefania Spezzati and William Canny – Bloomberg
Barclays also seen facing slowdown in trading-revenue growth; Technology to comply with rules to cost $2.5b-$3b: UBS
Deutsche Bank AG could take the biggest hit to trading revenues when Europe’s MiFID II rules come into force because of its exposure to the continent, according to a UBS Group AG report.

Goldman Sachs has made a big hire in electronic trading
Frank Chaparro – Business Insider
Goldman Sachs is bringing on a technology veteran to help drive its electronic trading business. Mike Blum, the former chief technology officer at KCG Holdings, the high-frequency trading firm recently acquired by Virtu Financial, is joining Goldman as CTO for its electronic trading unit, according to an internal memo seen by Business Insider. Bloomberg News first reported the hire.

RBI bats for retail users of forex trading
Saikat Das, ET
The Reserve Bank of India has allowed individuals and small businesses to use foreign exchange trading platform as they can use the inter-bank trading platform to cut forex deals, a move that will bring transparency in pricing.

Rajnish Kumar to succeed Arundhati Bhattacharya as SBI chairman; Govt names Kumar as the new SBI chairman for a three-year term
Business Standard
The Govt on Wednesday named Rajnish Kumar as the new chairman of State Bank of India, for a three-year term. Kumar will succeed Arundhati Bhattacharya, who will hang up her boots on Friday.

Fund Fees Whacked Again in Active-Passive Fight
Mark Gilbert – Bloomberg
In the battle between active and passive strategies, both sides have a case. Cheerleaders for the passive crowd point to the lower cost of index tracking; proponents of the active approach argue that a good fund manager can deliver superior performance.

This fund’s managers travel to 150 countries a year to double their benchmark’s return
Philip Van Doorn – MarketWatch
David Nadel and Mark Rayner, managers of the Royce International Premier Fund, rarely see their offices in New York and London, respectively.


Communist party asserts control over China Inc; Push for cells in joint ventures follows moves to tighten grip on state-owned firms
Lucy Hornby in Beijing – FT
China’s Communist party is making clear that it expects to dictate business decisions — not only at state-owned enterprises, but also at private companies and joint ventures with foreign partners.

Chinese stocks in Hong Kong touch 2-year high
Alice Woodhouse – FT
Hong Kong-listed mainland Chinese blue chips touched their highest level in more than two years on Wednesday building on gains seen in the previous session after China cut its reserve requirement ratio.

Saudi and Russia line up $3bn in investment deals
Henry Foy – FT
The bonhomie between the world’s two biggest energy players is about to get closer.

Saxo Bank Japan to Replace Legal Ledger with Torstone Technology’s Post-Trade Solution; The bank will use Torstone Technology’s Inferno to comply with regulatory reporting requirements in Japan.
Wei-Shen Wong – Waters Technology
Torstone, a post-trade securities and derivatives processing provider, says Saxo Bank Japan looks to add additional Inferno features in future phases.

Sorry, the Hong Kong Market Isn’t Really a Bargain; The cheap Hang Seng masks some pricey—and potentially dangerous—stocks
Nathaniel Taplin – WSJ
Want great exposure to the global reflation story at a much lower price than U.S. equities? Don’t buy Hong Kong.

India Seeks to Rework More LNG Contracts Amid Surplus, GAIL Says
Debjit Chakraborty and Saket Sundria – Bloomberg
GAIL India seeking better terms for 20-year supply agreements; India’s Petronet bargained successfully with RasGas and Exxon
India is pushing to renegotiate more liquefied natural gas deals after its success in reaching agreements with some of the world’s largest energy suppliers.


Brexit was “a cry of financial pain”, rather than general unhappiness with country, study claims
Catherine Neilan – City AM
The Brexit vote was “a cry of financial pain”, which had little to do with age, race or social class, a new study claims.

Brexit transition set to defy Boris Johnson’s ‘red line’; Conservative tensions re-emerge with idea of EU deal extended to end of 2021
George Parker in Manchester and Alex Barker in Brussels – FT
Conservative party tensions over Brexit resurfaced at the annual conference in Manchester, after senior ministers said a transition period could last until the end of 2021, exceeding Boris Johnson’s “red line” by nine months.

The U.K. Could Lose a $79 Billion Market After Brexit
Jeremy Kahn – Bloomberg
As much as 67 billion euros at stake without data access; Problem could arise if U.K. rules diverge from EU regulations
Brexit could cost the U.K. its position as the leading data market in Europe, a government-funded digital innovation group warns.


Shale Boom’s Dark Secret, Ruined Old Oil Wells in Oklahoma
Meenal Vamburkar – Bloomberg
Older wells gummed up as new horizontal wells spread out; Conventional drillers see falling output, rising clean-up cost
Not every oilman is gaining from the U.S. shale boom. Just ask Joe Warren.

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