Deutsche Boerse Plans Revenue-Share Deal to Lure Brexit Clearing

Oct 9, 2017

First Read

Hits & Takes

EEX staff rode 2,505 km on their bikes at the competition in Leipzig, saving 356 kg in CO2.~JK

ICE has a message for you if you are a user of AOL Instant Messenger, which is be decommissioned on December 15.~JJL

Kevin Gaskell writing on the London School of Economics and Political Science LSE Business Review has a good piece on leadership, “Leadership: The measurable impact of inspiring a sense of purpose.”~JJL

It took almost seven years, but the job growth streak came to an end Friday (though it’s attributable to hurricanes).~SD

FIA now provides online training. Click HERE for details. The first two courses are Market Conduct Fundamentals and Rules & Regulatory Guidance for CME Group Markets.~JJL

Former CBOT bond trader Harold Lavender’s son Jay was married in Charlottesville, Va. on September 30th and was written up in the New York Times.~JJL

I finally have my hearing back after the ALTSO Rocktoberfest event in Chicago. What an event!~JJL


A Japanese lesson for Wall Street; The humbling tale of the bankers who felt ashamed of the system’s failure
Gillian Tett – FT
During a trip to Tokyo last week, I made a little pilgrimage to the city’s Tama cemetery to pay my respects to an old acquaintance who died recently. Outside Japanese financial circles, the name Katsunobu Onogi is barely known. Among the Tokyo elite, however, “Onogi” evokes considerable emotion; he was the last president of Long-Term Credit Bank (LTCB), an institution which, until it collapsed ignominiously in 1998, symbolised the postwar might of Japan.

***** Gillian Tett is a world-class journalist for the FT and a genuine human being. She tells an important and heartfelt story about the life and death of Katsunobu Onogi.~JJL


Thaler, Famed for ‘Nudge’ Theory, Wins Nobel Economics Prize
Jonas O Bergman – Bloomberg
University of Chicago’s Richard H. Thaler, one of the founders of behavioral economics and finance, was awarded the 2017 Nobel Prize in Economics for shedding light on how human weaknesses such as a lack of rationality and self-control can ultimately affect markets.



Britain Has Until Sunday to Spend its Old Pound Coins
Anooja Debnath – Bloomberg
1.2 billion old coins returned before Oct. 15 deadline; Redesigned 12-sided pound coin aimed to battle counterfeiters
Britain’s round pound coin has one week to live. After more than three decades jingling in pockets and purses, the coin is being abandoned for a snazzier 12-sided model that has features aimed at defeating sophisticated counterfeiters.

**The coin is dead. Long live the coin!~JK


A Surprising Legacy of the 1987 Crash: the ETF; A former Wall Street Journal markets editor reflects on Black Monday, 30 years ago, and how it spawned the exchange-traded fund
John A. Prestbo – WSJ
It was one of those beautiful autumn days in New York, where a bright, warm sun melted away the morning chill well before lunchtime. The stock market, however, was melting down.

**One interesting note in this piece: “The stock market didn’t have a single security representing the broad market, like the futures market did in futures contracts on the S&P 500 index.”~JK


SEC/CFTC – Coordinate and Harmonize, Don’t Merge; Source Code Proposal: Dead; Wishes May Come True
Gary DeWaal – Bridging the Week
The US Department of Treasury offered over 90 distinct recommendations for making US capital markets more efficient and fostering economic growth. Although Treasury recognized overlaps between the regulation of the Commodity Futures Trading Commission and the Securities and Exchange Commission, it did not call for the merger of the two agencies; rather, it recommended there be better coordination and harmonization of rules. Separately, a new CFTC commissioner roundly criticized proposed Regulation Automated Trading and warned non-CFTC-licensed Bitcoin trading platforms servicing retail clients to be mindful of CFTC registration requirements if transactions are margined, leveraged or financed and actual delivery does not occur within 28 days.


Friday’s Top Three
Our top story on Friday was Business Insider’s RISING STARS: Meet the rockstar Wall Streeters age 35 and under in trading. Second went to Bloomberg’s HSBC Traders Used Code Word to Trigger Front-Running, U.S. Says. Third was the press release from Eurex, noting Strong demand for Eurex’ factor index futures


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Lead Stories

Deutsche Boerse Plans Revenue-Share Deal to Lure Brexit Clearing
Will Hadfield – Bloomberg
Deutsche Boerse AG’s clearinghouse plans to start a revenue-sharing plan with its biggest members in a bid to lure business from London after Brexit.

Head of ETF provider warns on concentration of holdings in bigger stocks; Invesco boss says investors building up risk by blindly pouring money into indices
Joe Rennison and John Authers in New York – FT
The head of the fourth-largest exchange traded fund provider has warned that investors are blindly pouring money into highly concentrated stock indices, putting them at risk of outsized losses if markets tumble.

EU raids Polish and Dutch banking groups over fintech access; Brussels fears lenders are blocking challengers’ access to data on customers
Mehreen Khan and James Shotter – FT
Brussels regulators have raided the offices of European banking associations in Poland and the Netherlands as part of an antitrust crackdown on lenders that block fintech rivals from gaining legitimate access to customer information.

PanXchange Q4: Live Launch U.S. Proppant Market, Matt Jansen Joins Board
PanXchange (PX) has opened the country’s first ever exchange for physical proppant (frac sand). It is the only platform available to producers, E&P companies and service companies that aggregates spot and forward physical procurement and sales. Thus, it is the only source for real-time prices where true supply meets demand. On the PX system, members can also manage counterpart exposure and post bids and offers anonymously in real time.

A2X, SA’s new stock exchange, opens with three secondary listings and four leading brokers
Andrea Ayemoba –
A2X Markets (A2X), South Africa’s newest stock exchange, has made its debut with three listings and four of the industry’s leading brokers on board.

Treasury Report Calls for Sweeping Changes to Financial Rules
Tiffany Hsu – NY Times
The Trump administration is again taking aim at the Dodd-Frank Act, releasing a Treasury Department report on Friday that recommended a vast reworking of Wall Street rules adopted in response to the financial crisis.

Voice brokers fighting to survive Europe’s big shake-up; Mifid II’s sweeping new rules may imperil traditional deal negotiated over the phone
Philip Stafford – FT
Will the phone survive Mifid II? That is the question facing the world’s fixed income and over-the-counter derivatives markets — where brokers, banks and asset managers have historically relied on the spoken word to negotiate contracts that hedge against interest rate and currency risk.

Wolfgang Schäuble warns of debt-driven global financial crisis; Central bank policies raise threat of bubbles, says outgoing German finance minister
Guy Chazan in Berlin – FT
Wolfgang Schäuble has warned that spiralling levels of global debt and liquidity present a big risk to the world economy, in his parting shot as Germany’s finance minister.

Europe’s New Mistake on Failing Banks; Banks in trouble should be resolved, not frozen.
The Editors – Bloomberg
Three years since their banking union began to take shape, European Union regulators are seeking fresh powers to deal with lenders in trouble. Their plan would let them stop withdrawals from a failing bank for a few days while they address the problem, with the aim of preventing a run. But this approach could easily have the opposite effect, spreading panic to the whole financial system. There’s a better way.

Deutsche Börse intensifies efforts to pull euro clearing from UK; German exchange draws up plan to share profits from the business with its members
Philip Stafford – FT
Deutsche Börse is intensifying its efforts to wrestle the prized euro derivatives clearing market away from London ahead of Brexit by drawing up a plan to share profits from the business with its members.

Treasury outlines sweeping reform of capital markets
Michelle Price and Pete Schroeder – Reuters
The U.S. Treasury on Friday unveiled a blueprint for sweeping reforms of the U.S. capital markets as it looks to implement Republican President Donald Trump’s agenda to promote economic growth by slashing red tape.

UK-based banks still active in proprietary trading; Data show 26 managers are responsible for such activity despite regulatory crackdown
Laura Noonan – FT
UK-based banks still employ 26 people to oversee their proprietary trading businesses, despite an extended regulatory crackdown that has made it progressively more expensive for banks to trade on their own behalf

US brokers should fear Massachusetts AG’s probe; Lucrative order routing revenues rely too much on clueless customers, says John Dizard
John Dizard – Financial Times
For all their complaints about the Trump administration, Wall Streeters have done quite well in getting a deregulatory agenda pushed through executive actions and appointments. With the (temporary) exception of the Consumer Financial Protection Bureau, the Treasury, Fed and other supervisory agencies are imposing fewer new rules and being more generous in their interpretation of old ones.

Exchanges, OTC and Clearing

Announcement of Eurex Clearing partnership program
The Executive Board of Eurex Clearing took the decision to introduce a partnership program designed to further accelerate the development of a liquid, EU based alternative for the clearing of interest rate swaps. This market-led program is open to all Clearing Members and Registered Clients of Eurex Clearing for registration as of 9 October 2017.

Eurex announces clearing profit share scheme; Biggest IRS clearing clients can benefit from profit share and enhanced role at Eurex Clearing.
John Bakie – The Trade
Eurex Clearing has announced a profit sharing scheme for its swaps clearing business.

SGX reports market statistics for September 2017
Securities – Total Securities market turnover value was S$21.8 billion, down 16% month-on-month (m-o-m) and up 5% year-on-year (y-o-y), over 20 trading days. There were 22 trading days in August 2017 and 21 in September 2016.
Derivatives – Total Derivatives volume was 16.0 million, up 1% month-on-month (m-o-m) and up 19% year-on-year (y-o-y)

SGX Index Edge and FactSet launch a series of thematic indices
Singapore Exchange (SGX) and FactSet today announced the launch of a series of co-branded thematic indices designed to provide investors with exposure to promising regional and global themes.


Amazon Could Be Your Lender, Too
Lisa Abramowicz – Bloomberg Inc. has profoundly changed the way clothes and books are sold and is now targeting food shopping. Its next project may very well be taking on the heart of Wall Street.

Why Bitcoin’s Bubble Matters; If there’s a price crash in the cryptocurrency, it could hit the tech sector—and more
Rob Curran – WSJ
Ask most people about the bitcoin bubble, and they’ll probably have the same reaction: It’s interesting, but it won’t affect me. After all, they’ll figure, they aren’t investing in bitcoin, so if there is a bubble, and it does burst, they’ll be just fine.

Adapt, or be crushed by the fourth industrial revolution
Daniel Gilbert – City AM
No business has ever had the luxury of standing still. In the 1920s, American Express was founded as delivery service (hence the name), and Marriott originally specialised in root beer rather than hotels. Any company that has survived this long has had to adapt to the immense changes of the twentieth and early twenty-first century, which is no mean feat.

Thomson Reuters Launches Fixed Income Trading Application For African Bond Markets
Thomson Reuters has launched Fixed Income Callouts, a ?exible and transparent App on the Eikon platform that facilitates the negotiations and agreements of fixed income bond trading terms within banks in country and across African markets, improving price discovery, market monitoring, execution and market transparency.

Lloyd’s of London Signs First Ever AI Deal with Expert System
PR Newswire
It’s the first Artificial Intelligence rollout for the world’s specialist insurance market, Lloyd’s of London. Expert System has signed a worldwide agreement that enables cognitive automation powered by Cogito, transforming business processes to support the needs of market participants.

AI has become so popular in picking stocks that it’s become ineffective
Ryan Vlastelica – MarketWatch
So many baseball teams have adopted the kind of statistical analysis made famous by “Moneyball” that the game has become “plodding” and “never more beset by inaction,” according to a recent report in The Wall Street Journal,


America’s tax plan is not worth its name; The international community should give officials a very uncomfortable week
Lawrence Summers – FT
The US administration’s tax plan is not a plan. It is a mélange of ideas put forth without precision or arithmetic.

New Wall Street candidates emerge to test Trump-era appeal
Olivia Oran, Lawrence Delevingne – Reuters
With a businessman turned politician now in the Oval Office, a small but growing number of bankers and Wall Street financiers across the United States have set their sights on politics.

What political stress? Eurozone investor confidence hits new 10-year high
Katie Martin – FT
No looking back. Investor confidence in the eurozone keeps on pushing higher, with the Sentix index reaching a new 10-year high 29.7 in September, above economists’ forecasts and above the 28.2 recorded in August.

It’s Denmark Versus Singapore for the Growth Crown; There’s no guarantee that democracy produces better results.
Noah Smith – Bloomberg
Communism is officially dead. North Korea, the last holdout of the 20th-century Soviet-style central planning, is moving toward a hybrid economy. David Volodzko in a Bloomberg View op-ed reports:

Donald Trump Can’t Make Being Public Great Again
By Gillian Tan – Bloomberg
Part of President Donald Trump’s financial deregulation agenda appears to be an effort to increase the number of public companies in the U.S. We’ll see about that.


Robert Evans III Named Chief of the Office of International Corporate Finance in SEC’s Division of Corporation Finance
The Securities and Exchange Commission today announced that Robert Evans III has been named Chief of the Office of International Corporate Finance in the agency’s Division of Corporation Finance. The office spearheads the division’s outreach to non-U.S. issuers that access the U.S. capital markets. Mr. Evans recently joined the Division of Corporation Finance after many years of advising public and private companies on a broad range of matters.

Basel offers wriggle room to keep banks’ funding rule on track
National banking regulators will get leeway in applying a new rule aimed at ensuring that lenders hold enough long-term funding, the global Basel Committee said on Friday.

Eurozone regulators to push for tougher rules on bad loan stockpiles; Plan would raise costs for lenders and intensify clash with Italy
Olaf Storbeck and Claire Jones in Frankfurt – FT
Eurozone bank supervisors are set to escalate a clash with Italy by pushing for tougher rules to tackle a stockpile of almost EUR1tn-worth of non-performing loans left from the region’s financial crisis.

ECB: Banks’ Capital Buffers Are Big Enough to Cope With Higher Interest Rates;L Finding is part of the latest round of eurozone ‘stress tests’
Margot Patrick and Tom Fairless – WSJ
Eurozone banks can withstand sharp interest-rate rises or other interest-rate shocks, the European Central Bank said Monday after testing 111 banks against scenarios including a repeat of the financial crisis.

ESMA highlights importance of LEI for MiFIDII/MiFIR compliance
The European Securities and Markets Authority (ESMA) has published a Briefing on the Legal Entity Identifier (LEI) as part of its efforts to raise industry awareness and facilitate compliance with the LEI requirements under MiFID II ahead of its 3 January 2018 launch.

Brexit and Contractual Certainty
There’s been a lot of recent focus on the impact of Brexit on the derivatives market. That’s no surprise. Derivatives are widely used by companies across Europe to create certainty and stability in their business, and to manage their risk.

FCA chairman candidate Kerevan vows to work without a salary
Marion Dakers – City AM
The first man in the running to become the next chairman of the Financial Conduct Authority has claimed his lack of financial experience is an asset for the role.

U.S. Treasury investigates illegal surveillance allegations: watchdog
Reuters Staff
An internal watchdog at the U.S. Treasury said on Friday it is investigating allegations the department illegally looked at financial records of U.S. citizens.

Investing and Trading

Nobel Prize in Economics Awarded to American Richard Thaler; Mr. Thaler said a takeaway from his research is ‘economic agents are humans and that economic models have to incorporate that’
David Gauthier-Villars – WSJ
U.S. economist Richard Thaler won the Nobel Prize in economics Monday for his research on how human traits affect individual decisions as well as financial markets.

The analysts were wrong — about sports and business
Jonathon Trugman – NY POST
The Mets are out, the Yankees are in. While historically this has been the most common scenario in NY’s autumn baseball, this year it’s a huge surprise.

Visible Alpha adds email filter to research platform; Tool will allow firms to flag up emails that could count as inducements.
John Bakie – The Trade
Research platform provider Visible Alpha has added the ability to filter out non-solicited research from inboxes, which could fall foul of incoming rules in MiFID II.

October’s Not as Bleak as Its Reputation for Stock Markets; The month is often associated with dark days on Wall Street but on average it’s not so bad
WSJ Graphics – WSJ
Some of the stock market’s most memorable downturns have occurred in October, including historic crashes in 1929, 1987 and 2008. But in most other years, the month has been surprisingly calm.

Kyle Bass Says ICO Investors Will Get Wiped Out in Crypto ‘Mania’
Lily Katz – Bloomberg
Hedge fund manager Kyle Bass just took sides in the raging battle over the viability of the cryptocurrency market.


Deutsche Bank Has a Plan to Ease Fund Managers’ MiFID II Start
Silla Brush and Will Hadfield – Bloomberg
Bank plans systematic internalizer for fixed-income trading; Platform will be ready for Jan. 3 start to MiFID II regulation
Deutsche Bank AG has a plan to win trading business by trying to ease clients’ transition to the European Union’s sweeping new MiFID II law.

Staley scrutinised as Barclays faces historic dilemma; UK bank’s chief bets on investment bank growth while keeping costs in check
Martin Arnold, Banking Editor – FT
When Antony Jenkins met one of Barclays’ leading investors a few weeks ago, the bank’s former chief executive was quick to point out how dire its share price performance had been since he was ousted in mid-2015. “Not that he’s bitter,” joked the investor.

Agency broker takes unusual step to comply with Mifid II rules; Japanese-owned Instinet plans to move servers across London to better supply customers
Philip Stafford – FT
Instinet, the agency broker owned by Japan’s Nomura, can precisely measure how far it is going to comply with incoming Mifid II trading rules that give customers fair access to its trading venue.

Deutsche Bank’s Top Ranks Split Over Chinese Investor; CEO John Cryan’s resistance to engage with HNA has irked Chairman Paul Achleitner, who helped woo the big shareholder
Jenny Strasburg – WSJ
Most CEOs are zealous about meeting and courting their largest shareholder.

Wall Street Firms Gambled on Puerto Rico. They’re Losing.
Matthew Goldstein – NY TIMES
A few days after Hurricane Maria leveled Puerto Rico, John A. Paulson, the billionaire hedge fund manager, boarded his company’s 23-seat Bombardier jet and flew to San Juan.

Detusche Bank first to register as fixed income, derivatives SI; Latest systematic internaliser registered will serve bond and derivatives traders.
Joe Parsons – The Trade
Deutsche Bank has set up as a systematic internaliser (SI) for bonds and derivatives trading under MiFID II.

JPMorgan Has a Nuclear Option, Just Not on Pay
By Stephen Gandel – NY Times
JPMorgan Chase & Co.’s board now has a clear plan for what to do in a nuclear war. Fraud, which happens far too often on Wall Street, not so much.


Fed’s Dudley Sent Puerto Rico a Cash-Filled Jet
Jonathan Levin – Bloomberg
The island’s biggest bankers reflect on days after Maria; Storm’s wrath ‘something we haven’t experienced,’ Carrion says

Oil Traders Hoard Less on Ships Near Singapore as Market Flips
Serene Cheong – Bloomberg
One of the biggest stores of oil at sea is showing signs of emptying out.

China Forex Reserves Climb to Highest Level in Nearly a Year; Country’s foreign-currency stockpile notch eighth straight month of gains
China’s foreign-exchange reserves rose last month to their highest level in nearly a year, giving Beijing a breather in its campaign to constrain capital outflows.

How Long Will the Emerging-Markets Rally Last? Fund managers in the sector see room for an extended gain as markets bounce back from a long losing streak
Bailey McCann – WSJ
After a lost decade, emerging markets are having a banner year. The MSCI Emerging Markets Index is up more than 26% year-to-date, and most emerging-markets mutual funds are posting returns in the high teens or better.Emerging markets have sold off abruptly at times in the past, leaving some investors to wonder if this rally can last.

Indian PM Modi targets more energy reforms after meeting oil chiefs
Reuters Staff
India’s prime minister sees scope for further reform of the country’s energy sector and has received “focused suggestions” from some of the world’s leading energy companies, the office of the premier said on Monday.

Back to the Onion Futures, India
By David Fickling – Bloomberg
Are speculators the villains of Indian farming, or its saviors?


Brexit Poses Risk to U.K.’s Existing Economic Order; At last week’s Conservative Party conference, there was growing concern at where the process is heading
Simon Nixon – WSJ
The British people didn’t vote for a revolution. They simply voted to leave the European Union. But senior figures across the political spectrum believe that a revolution is what Britain is getting.

Theresa May seizes Brexit initiative with customs and trade white papers
Gordon Rayner – Telegraph
Theresa May will attempt to seize the initiative on Brexit today by publishing outline legislation on Britain’s post-withdrawal customs and trading relationships with the EU.

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Past JLN Newsletters

CME to permanently close most trading pits

CME to permanently close most trading pits

First Read $40,626/$300,000 (13.5%) Anonymous ++++ Hits & Takes John Lothian & JLN Staff Without fanfare or amplification from its executives, the CME Group shut the books on most -- but not all -- of its floor trading history Tuesday afternoon with the...

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