John Lothian Newsletter: London Stock Exchange Revises Offer for Clearinghouse; Knight gets a key nod; A Banner Year for Riskiest Debt

Dec 27, 2012

As expected, the London Stock Exchange has downshifted its offer for clearing house LCH.Clearnet. TD Ameritrade, a major shareholder in Knight Capital, gives a key thumbs-up to the takeover deal by GETCO. Risk was alive, well, and in some cases handing out big rewards in 2012, as the junk bond market paid off well for many playing in that sandbox.

First Read

SEC going high-tech with real-time trade data
Dina ElBoghdady – The Washington Post
As computing power and big data have revolutionized stock trading in recent years, one market player has lagged far behind: the Securities and Exchange Commission, whose job policing the markets has been hampered by a serious technology gap.
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**** It is nice to have Jon Matte back from his Christmas break. We all appreciate the fine work he does even more when he is taking time off.

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Analysis: Little to stop the creation of Icey Liffe
Galen Stops – FOW
The announcement on December 20, 2012, that IntercontinentalExchange (ICE) had agreed a deal to buy NYSE Euronext came as a surprise to many market participants, not least to journalists who were winding down for Christmas. The deal itself values NYSE shares at $33.12, a 37.7% premium to their closing price on December 19 and meaning that the overall cost of the deal will be $8.2bn for ICE. This is a deal that suits both parties well.
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***** They should consider going back to the New York Board of Trade name.

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Looming Fiscal Cliff Won’t Affect U.S. Traders’ Vacation Plans
IRA IOSEBASHVILI AND JERRY A. DICOLO – WSJ.com
KeyBank’s James Oster has a simple plan for next week as a deal to avert the fiscal cliff and save the U.S. economy from a big automatic hit on Jan. 1. comes down to the wire: relaxing in a hot tub at a British Columbia ski resort with a glass of Drambuie in his hand.
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***** Yes, I will be sitting somewhere doing something too.

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Proposed exchange merger brings renewed calls to consolidate SEC and CFTC
Washington Post
The proposed merger of a leading commodities exchange and the world’s most famous stock market raises a burning question for Washington: Does it make sense to have two U.S. regulators watching one gigantic exchange company?
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***** I have always said it would take the merger of a major US stock exchange with a large US futures exchange in order to make this happen. So, it is time for the subject to rise again.

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Hot Commodities: CFTC Staffers
JAMILA TRINDLE – WSJ.com
After working long hours over many months crafting new rules for Wall Street, a number of government regulators are switching sides to work for the firms that will have to follow and interpret them.
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***** Lots of mid-level staffers have avoided the fiscal cliff layoffs by getting new jobs.

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Former Chi-X finance chief joins ISDX board
Tom Osborn – Financial News
The former chief financial officer of Chi-X Global has joined the board of Icap‘s new securities exchange, as the interdealer broker continues its revamp of the bourse it bought from Plus Markets this summer for £500,000.
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***** I am going to bank the use of Xs in names.

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FOW’s Person of the Year 2012: Charles Li, chief executive, HKEx
Charles Xioajia Li has reshaped the global derivatives map this year with the £1.388bn acquisition of the London Metal Exchange. As the global financial market rebalances from the dominance the West has enjoyed for over a century, the acquisition of one of the crown jewels of the London derivatives market is symbolic of the fundamental shift in influence.
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***** Good choice.

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Steven Cohen of SAC Is Fascinating to Investigators, Too
JENNY ANDERSON, PETER LATTMAN and JULIE CRESWELL – NYTimes.com
YOU want the headquarters of Steven A. Cohen, one of the most successful financial speculators of our time, to look like Dr. Evil’s secret lair. But it is just another office-park building, a low-slung affair of tinted glass and red brick, on the southern fringes of Stamford, Conn. From the outside, there’s nothing particularly special about this address, 72 Cummings Point Road. But inside — well, everyone on Wall Street has heard the stories.
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***** Any good story is fascinating to explore.

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2012 Was Good for Stocks, Bad for Stock Pundits
DAVID WEIDNER – WSJ.com
As investors consider the wave of market predictions for 2013, they may want to go to the tape and review how well the “experts” did this year. The Dow Jones Industrial Average is up more than 7%. The S&P 500 Index has gained more than 13%. The technology-heavy Nasdaq has added more than 15%. Making money in 2012 seems almost as easy as Bernard Madoff made it look for years and years. But things didn’t turn out so well if you followed the advice of some leading market prognosticators.
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***** Jim Rogers is right, even when he is wrong? There is no edge to listening to pundits and following their trades.

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2012’s Financial Crime Coups Raise Stakes, Anxiety
WatersTechnology
Global regulation was the year’s obsession, but criminal probes – from rate rigging to rogue trading; sanctions violations to insider bets – won the headlines in 2012. Not every financial crime has a ready tech fix, but with buy-side cornerstones like SAC Capital in the cross-hairs, many will end the year mulling their options far more closely.
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A Budget for Regulation
By CASEY B. MULLIGAN – NY Times
As Democrats and Republicans haggle over federal taxes and spending, another important policy tool gets less attention: regulation.
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MarketsWiki

MarketsWiki Recent Updates

People

Daren Robson; Peter Barrowcliff; James H. Gellert; Jeffrey C. Sprecher

Companies, Organizations and Groups

Hong Kong Mercantile Exchange; Rapid Ratings International

Miscellaneous

Santa Claus Rally

Statistics

32,876,248 pages viewed, 7,300 articles, 151,456 edits
MarketsWiki Statistics

Lead Stories

London Stock Exchange Revises Offer for Clearinghouse
New York Times
Citing the changing regulatory environment, the London Stock Exchange Group said on Monday that it had revised the terms of its takeover proposal for LCH.Clearnet, cutting its offer to 15 euros a share.
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Knight gets a key nod
The Wall Street Journal
TD Ameritrade one of the biggest investors in Knight Capital, pledged its support for the brokerage firm’s acquisition by rival Getco, in the latest sign that the deal is likely to win shareholder approval.
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A Banner Year for Riskiest Debt
PATRICK MCGEE – WSJ.com
Bond investors willing to take on more risk in 2012 got their reward. Among major fixed-income picks, high-yield, or “junk,” bonds were the best performing this year, notching total returns of 16% through Monday, according to Barclays. Total return includes interest payments as well as capital appreciation.
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Why Hong Kong isn’t likely to reclaim the global IPO crown
Quartz via Yahoo! Finance
After enduring one of the worst IPO years in a decade, Hong Kong bankers were likely looking fondly on the twilight of 2012. Until last week, that is. With its announcement that bankers will now be subject to criminal and civil penalties for false information in offering prospectuses, Hong Kong’s securities regulator cast the prospect of a 2013 IPO market rebound into doubt.
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Lawsuits Add to Deja Vu in NYSE-ICE Deal
Wall Street Journal Blogs
Two shareholder lawsuits filed against NYSE Euronext in the days following its announced acquisition by ICE are pursued by familiar names–New Jersey Carpenters Pension Fund and Samuel Cohen.
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Stop the high-frequency trader arms race
Larry Harris – FT.com
High-frequency traders (HFTs) are engaged in an arms race. To beat their competitors, each is spending increasingly large sums on expensive technologies to speed their trading. If actions are not taken to stop this arms race, investors will be worse off and economic welfare will decline.
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High-Frequency Trading Prospers at Expense of Everyone
Bloomberg
Finally, a bit of evidence, rather than anecdote, about the costs of high-frequency trading. In a new study, Andrei Kirilenko, the chief economist at the U.S. Commodity Futures Trading Commission, along with researchers at Princeton University and the University of Washington, examined high-frequency trading in a futures contract called the e-mini S&P 500, between August 2010 and August 2012.
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The Triumphs and Failures of Deal Makers in 2012
New York Times
It was a busy year for Wall Street, and the Deal Professor offers his choices for the best and worst deals of 2012.
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Regulatory

What SEC chief needs to OK hedge fund ad rule
Market Watch
Observers say the new chairman of the Securities and Exchange Commission can succeed at brokering a deal to relax decades-old rules that have kept hedge funds, buyout shops and small businesses from publicly advertising, even with a deadlocked agency.
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SEC Issues Investor Bulletin to Help Investors Assess Municipal Bond Credit Risk
The Securities and Exchange Commission today issued an Investor Bulletin to help purchasers of municipal bonds better assess the bonds’ credit risks.
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CFTC’s Division of Swap Dealer and Intermediary Oversight Issues No-Action Letter for Certain Persons Required to Register Pursuant to Recent Changes to Commission Regulations
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CFTC’s Division of Swap Dealer and Intermediary Oversight Issues No-Action Letter for Operators of Investment Pools that Invest in Legacy Securitization Vehicles
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[NFA] EasyFile AP Statutory Disqualification Form Submission for Swap Dealers and Major Swap Participants
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Statement Of CFTC Commissioner Bart Chilton On MF Global Claims
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SIFMA Statement On CFTC Delay Of Cross-Border Rules
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Exchanges & Trading Facilities

ICE, NYSE Breakup Fees Set at Up to $750 Million
Dow Jones
IntercontinentalExchange Inc. has agreed to pay its takeover target NYSE Euronext $750 million if the exchange giants’ merger deal falters on antitrust grounds.
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LCH.Clearnet And NYSE Euronext Agree On The Main Terms Of A Long-Term Agreement For Cash Equity Clearing – Clearing Fees Will Be Reduced By 20% For Market Participants
LCH.Clearnet SA, the Paris-based clearing house of LCH.Clearnet Group, and NYSE Euronext today jointly announced they have reached an agreement on the main terms and conditions of a six year clearing contract with respect to NYSE Euronext’s continental cash equities markets. The Parties are currently reviewing the technical elements and are in the process of finalising the agreement.
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New Jersey Carpenters Pension Fund Sues NYSE Euronext Over Its Proposed USD8.2 Billion Sale To IntercontinentalExchange
The New Jersey Carpenters Pension Fund has sued NYSE Euronext over its proposed USD8.2 billion sale to IntercontinentalExchange, saying that NYSE Euronext breached its duty to maximize returns for shareholders. It is the second lawsuit filed against NYSE Euronext since the deal was announced last week. An individual shareholder, Samuel Cohen, filed a proposed class action on Friday.
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Suspension Of The President Of The Exchange Management Board And Changes In The Organisation Of Functions Of The Exchange Management Board – Ludwik Sobolewski Suspended As CEO Warsaw Stock Exchange
The Management Board of the Warsaw Stock Exchange informs that the Supervisory Board at a meeting on 21 December 2012 adopted a resolution suspending Mr Ludwik Sobolewski as President of the Exchange Management Board for compelling reasons as of 21 December 2012.
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New Trading Record On The Moscow Exchange FX Market
New trading record was set on the Moscow Exchange FX Market on December 24, 2012. Trading volume of all instruments reached USD23.34 billion (RUB718.36 billion), including spot transactions of RUB235.93 billion and swap transactions of RUB482.43 billion. This is the largest FX Market trading volume for 2012.
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CBOE Representative Director Nominees
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Changes in CBSX Regulatory Fees Effective January 2, 2013
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[CBOE] Penny Pilot Program – Replacement Classes to be Added on January 3, 2013
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NYSE Group Inc. Issues Short Interest Report
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NYSE MKT Issues Short Interest Report
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NASDAQ Announces Mid-Month Open Short Interest Positions In NASDAQ Stocks As Of Settlement Date December 14, 2012
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Direct Edge Trading Notice #12-62: Fee Schedule Changes for EDGX Effective January 1, 2013
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Hedge Funds & Managed Futures

Odey profits dip
Harriet Agnew – Financial News
Profits at Crispin Odey’s $7bn Odey Asset Management dipped slightly last year on the back of reduced performance fees. Its flagship hedge fund posted double-digit losses in 2011.
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Flagship RAB fund plummets
Harriet Agnew – Financial News
RAB Capital, the beleaguered hedge fund manager that delisted from AIM around 18 months ago, saw its flagship fund lose 20.69% in November after a big position in an oil exploration company lost nearly half its value, Financial News has learnt.
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Billionaire John Paulson’s Hedge Fund: Too Big To Manage
Forbes
During the credit crisis John Paulson made a huge hedge fund fortune betting against mortgage-backed securities in what has become known as the greatest trade ever. After posting huge returns in 2007, investors flooded Paulson’s hedge funds with massive amounts of new money, which he gladly accepted.
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Hedge fund Sloane Robinson hit by emerging market slowdown
Reuters via Yahoo! Finance
The slowdown in emerging markets is hitting hedge fund Sloane Robinson hard, highlighting how, even as the industry attracts investors, managers can quickly fall from grace if they fail to perform.
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Tales from the mutual-fund crypt
Chuck Jaffe, MarketWatch
No one cries when a mutual fund dies. There is no wake. If there is an obituary — in the form of a small announcement that the investment has passed — it seldom contains information on the cause of death.
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Faith in Bailouts Spurs China
DINNY MCMAHON – WSJ.com
Chinese companies are raising money in the domestic bond market at a record pace as the country’s banks scale back lending.
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Hedge fund manager John Paulson blames Europe for poor performance, gives British holiday gifts
New York Post
John Paulson, the hedge fund manager who made a fortune during the downturn but more recently blamed a bad 2012 performance on Europe, didn’t let that stop him giving friends holiday gifts from Thomas Pink of Jermyn Street, London.

Banks & Brokers

Court tosses $203M Wells Fargo payment to customers
Reuters
A U.S. appeals court vacated an injunction and a $203 million restitution order against Wells Fargo & Co in consumer litigation over the bank’s overdraft policies, according to a ruling issued on Wednesday. But the 9th U.S. Circuit Court of Appeals in San Francisco also found Wells had violated part of California’s unfair competition law, and sent the case back to trial court in San Francisco to determine what relief is appropriate.
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Knight CEO Joyce Gets $7.5 Million Retention Bonus in Getco Deal
Bloomberg
Thomas Joyce, the chief executive officer of Knight Capital Group Inc. , is poised to collect a $7.5 million retention payment tied to Getco LLC’s acquisition of the market-making firm, according to a government filing.
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MF Global $500 Million Pact Heralds Customer Payments
Linda Sandler & Dan Hart – Bloomberg
MF Global Inc. (MFGLQ) settled a legal dispute with a U.K. affiliate in a deal that will bring the failed brokerage $500 million to $600 million, allowing it to pay customers more money after a judge approves the settlement, a trustee said.
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MF Global Trustees And Administrators Announce Agreements – MF Global Inc., MF Global UK Ltd. And MF Global Holdings Ltd. Reach Agreements To Resolve All Claims Among The Estates
Press Release
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Deutsche Bank Co-CEOs Vow Improvement in Future – Newspaper
Dow Jones
Deutsche Bank AG’s co-Chief Executive Officers have vowed improvement after German authorities searched the bank’s headquarters in mid-December, German daily Frankfurter Allgemeine Zeitung reports, quoting a letter addressed to the bank’s employees from the co-CEOs.
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Barclays To Overhaul Pay And Bonus Under Sants – Report
Dow Jones
Incoming Barclays PLC compliance chief Hector Sants has been tasked with rewriting rules on salary and bonuses to drive down costs and stop criticism of executive pay policies, the Sunday Telegraph reported without citing sources.
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Clearing & Settlement

CME Group Clearing Advisory: Holiday Clearing Schedule-New Year’s Day-Tuesday, January 1, 2013
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Technology

Robert Litzenberger Selected as the Recipient of the 2012 IAFE/SunGard Financial Engineer of the Year Award
The International Association of Financial Engineers and SunGard today announced Robert Litzenberger, Professor Emeritus at the Wharton School of the University of Pennsylvania, a Director at RGM Advisors, and a retired Goldman Sachs partner, has been named the 2012 IAFE/SunGard Financial Engineer of the Year (FEOY). The award will be presented to Dr. Litzenberger on February 7, 2013, at the newly opened Museum of Mathematics in New York City during the IAFE/SunGard FEOY Award Gala Dinner.
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Enforcement

Judge Takes Aim at Another S.E.C. Settlement
PETER J. HENNING – NYTimes.com
An obscure settlement announced in March 2011 has triggered questions from a federal judge about how much accountability the Securities and Exchange Commission should demand when it resolves a case.
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SEC Charges Research Analyst with Trading and Tipping Ahead of IBM-SPSS Merger
The Securities and Exchange Commission today announced additional charges in an insider trading case against two brokers who traded on nonpublic information ahead of IBM Corporation’s acquisition of SPSS Inc.
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SEC Charges Four Penny Stock Purchasers with Fraud
The Securities and Exchange Commission today charged four securities industry professionals with conducting a fraudulent penny stock scheme in which they illegally acquired more than one billion unregistered shares in microcap companies at deep discounts and then dumped them on the market for approximately $17 million in illicit profits while claiming bogus exemptions from the federal securities laws.
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FINRA Orders Pruco Securities to Pay $10.7 Million in Restitution for Improper Pricing of Mutual Fund Orders; Firm Fined $550,000
The Financial Industry Regulatory Authority (FINRA) announced today that it has ordered Pruco Securities, LLC of Newark, New Jersey, to pay more than $10.7 million in restitution, plus interest, to customers who placed mutual fund orders with Pruco via facsimile or mail (paper orders) from late 2003 to June 2011 and received an inferior price for their shares.
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[ASIC] Former Port Pirie financial planner jailed
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[Japan] Press Conference by the Minister for Financial Services
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Asia-Pacific

China investment products draw complaints
Simon Rabinovitch in Beijing – FT.com
China’s second-largest bank is investigating customer complaints about an investment product that has suffered steep losses, the latest in a string of scandals to hit a fast-expanding segment of the country’s financial sector.
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Looking for Opportunity Where Few Others Invest
RON GLUCKMAN – NYTimes.com
Investors started poking around for deals here five years ago, as the war-torn country began to move past its legacy of genocide and coups. When the global financial crisis struck, Cambodia’s fast-growing economy crashed and the dollars flowing from abroad evaporated.
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HKEx: Change in Senior Executive – Stephen Jeffrey Marzo Tenders His Resignation As Chief Financial Officer Of HKEx
Hong Kong Exchanges and Clearing Limited (“HKEx”) announces that Mr Stephen Jeffrey Marzo (“Mr Marzo”) has tendered his resignation, effective 13 January 2013, as the Chief Financial Officer of HKEx.
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Zhengzhou Commodity Exchange Will Launch Rapeseed Futures And Rapeseed Meal Futures
On December 28, 2012, Zhengzhou Commodity Exchange will launch rapeseed futures and rapeseed meal futures.
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Philippines Imposes Currency-Forward Caps to Restrain Peso Surge
Bloomberg
The Philippines imposed limits on currency forward positions at banks as it steps up efforts to restrain a surge in the peso that threatens exports.
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Thai Bourse, Lao Exchange Extend MOU On Long-Term Cooperation
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HKEx Announces Temporary Holiday Risk Management Arrangements
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Tokyo Financial Exchange: Termination of Distribution Of CDS Reference Rate
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Osaka Securities Exchange: Authorization Obtained For Providing Automated Trading Services From Hong Kong Securities and Futures Commission – Relating To Remote Transaction Participant System
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Authorization Obtained for Providing Automated Trading Services from Hong Kong Securities and Futures Commission (Relating to Remote Transaction Participant System)
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Korea Exchange Revises Fee Schedule – Effective From January 1, 2013
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Dalian Commodity Exchange: Circular On The Adjustment To The Minimum Trading Margin Standard And The Trading Limit Rate Of Each Variety During The New Year’s Day Period Of 2013
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Osaka Securities Exchange: Approval Of Application To Withdraw Trading And Clearing Qualifications: Mizuho Investors Securities Co., Ltd.
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Tokyo Stock Exchange Has Published The Index Value Of TSE Home Price Index For October
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Osaka Securities Exchange SPAN Parameter Updated – January 04, 2013 – January 11, 2013
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Shenzhen Stock Exchange Organized Sponsors’ Continuous Supervision Training Courses
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SGX Welcomes Top Global To Mainboard
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Dalian Commodity Exchange (DCE) Amends And Improves No.1 Soybeans Contract
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Frontier Markets

BRICs Need to Change Their Tune
LIAM DENNING – WSJ.com
Brazil, Russia, India and China are the John, Paul, George and Ringo of the emerging markets—a neatly packaged group of disparate individuals that sometimes inspires hysteria.
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In Another Achievement For The UAE – Securities And Commodities Authority, IOSCO Sign Multilateral Memorandum Of Understanding
In another achievement for the UAE and as part of its relentless efforts to boost the local markets’ attraction to investors, the Securities and Commodities Authority (SCA) has signed a multilateral memorandum of understanding (MMoU) with the International Organization for Securities Commission (IOSCO) after meeting all the MMoU’s prerequisites.
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Novus Aviation Capital Announces Opening In DIFC
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Abu Dhabi Securities Exchange Official Holiday For The New Year 2013
Tuesday 1st January 2013 will be an official holiday at the Abu Dhabi Securities Exchange. Normal working at the ADX resumes on Wednesday 2nd January 2013.
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