Did Chicago Exchanges Muscle a Rival Out of Town?

Apr 30, 2018

First Read

Hits & Takes
JLN Staff

Members of the JLN team are headed to Florida for the Options Industry Conference this week. Spencer Doar, Mike Forrester and John Lothian will be in attendance. Reach out to us if you want to set up a meeting there.~JJL

A big thank you to Renato Mariotti for the brilliant piece he wrote for JLN on the recent spoofing acquittal.~JJL

IFLR.com has an exclusive that the CFTC’s Chairman, Christopher Giancarlo, will retire at end of his term.~JJL

ICODA has a seminar planned in Geneva, Switzerland, “Blockchain is here, now what?” It is on June 28. This event is aimed at trade professionals interested in understanding what Blockchain means for their business and what is on the horizon. ~JJL

After so many fintech and crypto events in Chicago last week, I am sure you can find some more this week if you really need a fix.~JJL

April 29 was the 35th anniversary of the 1983 foul mouth rant in a press conference by Cubs manager Lee Elia in which he lashed out at Chicago Cubs fans and local media. One of the all-time great rants, but not appropriate for an open office playing.~JJL


Regulatory Issues Confronting the Options Industry


The OCC has a number of regulatory initiatives it’d like to see implemented in the coming years and in this video Craig Donohue, OCC executive chairman and CEO, talks about two key calculations that need changing. First, regulators need to adopt a risk weighted asset calculation that better reflects the true exposure of a clearing member firm. Second, the supplemental leverage ratio needs to include customer initial margin. The OCC is working on potential interpretive relief or narrowly tailored rulemaking in the interim to help ease the burden. These issues and more will be discussed at this year’s Options Industry Conference, which starts this Wednesday.

Watch the video »


Blockchain Will Be Theirs, Russian Spy Boasted at Conference
Nathaniel Popper – NY Times
Last year, representatives of 25 countries met in Tokyo to work on setting international standards for the blockchain, the technology that was introduced by the virtual currency Bitcoin and has ignited intense interest in corporate and government circles.

***** Russian spy says it all.~JJL


Why trusted journalism matters
Stephen J. Adler, President and Editor-in-Chief, Reuters
Beyond fostering transparency, we believe that careful, honest reporting facilitates savvier decision-making in all areas of life. When a trusted news organization delivers reliable news and insight, it gives its users tools they need to make decisions more effectively.

***** Free markets need a free press to work properly.~JJL


Swaps Clearing, Trading and Reporting; Wire Fraud; Spoofing
Gary DeWaal – Bridging the Week
J. Christopher Giancarlo, Chairman of the Commodity Futures Trading Commission, proposed reforms to enhance swaps trading and reporting, the central clearing of swaps, swaps dealers’ capital, and persons subject to mandatory clearing and margin requirements. He said that implementing his recommended trading reforms would justify expanding the number of swaps required to trade on swap execution facilities. Unrelatedly, Andre Flotron — a former trader for a worldwide investment bank — was acquitted of conspiracy to defraud in connection with allegations that he engaged in spoofing-type futures trading activity from 2008 to 2013. As a result, the following matters are covered in this week’s edition of Bridging the Week – which, belatedly, marks the fifth-year anniversary of this publication:


The Spread – Week of 4/23 to 4/27


Who likes TV show theme songs (especially older ones that still live on through syndication)? If you don’t, well, shame on you, but watch this week’s episode of The Spread anyway for some updates on happenings in the options world.

Watch the video and see the stories referenced here »


Friday’s Top Three
Our top read stories on Friday were led by Renato Mariotti’s piece [http://bit.ly/2HtEmTk|Lessons From the “Not Guilty” Verdict in This Week’s Criminal Spoofing Trial]]. Among the lessons learned is that it’s really, really, really difficult to prove intent to spoof, at least the way the Department of Justice went about it. Second went to the Wall Street Journal’s Why Amazon and Google Haven’t Attacked Banks. Third went to Financial News’ Virtu boss slams ‘stupid’ French regulator for 2015 fine


MarketsWiki Stats
124,678,131 pages viewed; 23,085 pages; 212,879 edits
MarketsWiki Statistics


Lead Stories

Did Chicago Exchanges Muscle a Rival Out of Town? A Jury May Soon Decide; Dispute Over Alleged Exchange Collusion Nears Day in Court, 14 Years Later
Alexander Osipovich – WSJ
Exchange giant CME Group Inc. is facing scrutiny over its political clout and hardball tactics as a 14-year-old lawsuit nears trial.

Stock Fever Grips India, as Millions of New Investors Pile In; Flood of domestic cash helped boost the country’s market capitalization by 50% last year, crowding out foreign investors for the first time in decades
Julie Wernau and Debiprasad Nayak – WSJ
Satyajit Sadangi decided to take the leap into Indian stocks this January after his colleagues told him about the 12%-15% returns they had earned while his real-estate investments trailed behind.

Why Banking Scandals Will Continue; The financial-advice business is inherently flawed and possibly unfixable.
Satyajit Das – Bloomberg
The best reality TV show in Australia right now is the televised hearings of the Royal Commission into Australian banks. The formal public inquiry, led by a retired judge with broad coercive powers, has uncovered a litany of wrongdoing including bribery and fraud rings, poor lending practices, and pervasive lying to regulators.

Mifid II regime shines light on trading relations; Drive to reveal which brokers asset managers use for majority of trades
Philip Stafford and Hannah Murphy – FT
Fund managers in Europe may face tough conversations with some brokers this week after a regulatory drive to publicly disclose more information on their trading relationships begins.

Financial regulators turn their sights on banks’ use of cloud; Big finance groups rely on internet storage services run by Google, Amazon and Microsoft
Caroline Binham in London – FT
Financial regulators on both sides of the Atlantic have turned their attention to the cloud, as concerns mount over how to supervise online storage services, which hold information from the world’s biggest banks.

Switzerland Wants to Be the World Capital of Cryptocurrency; Four of the 10 biggest initial coin offerings last year were in Switzerland, more than any other country
Brian Blackstone – WSJ
ZUG, Switzerland—When 24-year-old Ian Worrall launched his crypto-investment startup MyBit last year, he chose this Swiss lakeside city.

At Rothschild, Generation Macron Needs a Helping Hand; Young scion hires a blast from the past for a very French transition.
Lionel Laurent – Bloomberg
French magazine L’Express calls it “an epidemic of youth-ism.” Corporate France is ushering in a new generation of CEO to coincide with its new, 40-year-old head of state. Publicis Groupe SA, Carrefour SA, Vivendi SA and even Rothschild — Emmanuel Macron’s old shop — have in the past year named or lined up bosses whose ages range from 37 to 46. Not bad, considering the average French board member is 59.

In Chicago deal, NYSE buys a lab for innovation
Lynne Marek – Crain’s Chicago Business
The Chicago Stock Exchange is about to be swallowed by the New York Stock Exchange and become part of that company’s international trading complex.

ICE Benchmark Administration Becomes Authorised Benchmark Administrator under EU Benchmark Regulation
Intercontinental Exchange, Inc. (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, today announced that ICE Benchmark Administration Limited (IBA) has been authorised as a regulated benchmark administrator under the EU Benchmarks Regulation (BMR).

Citadel Securities names Nazarali global head of business development
John McCrank – Reuters
Citadel Securities said on Friday it named Jamil Nazarali global head of business development of the trading and market-making firm, effective immediately.

Investors’ Message for European Banks: Forget About Wall Street
Geoffrey Smithy – Bloomberg
Stock investors reward wealth managers after initial earnings; Investment bank units struggle to keep pace with U.S. peers
Investors have a message for Europe’s banks: you can’t win with investment banking — even when you do.

Deutsche Bank likely to axe 1,000 U.S. investment bank jobs: source
Deutsche Bank (DBKGn.DE) is expected to cut around 1,000 jobs or 10 percent of its workforce in the United States, a person familiar with the matter said on Friday, as the German lender scales back its global investment banking ambitions.

The Dangers of Undoing Dodd-Frank; Will the Trump Administration dismantle our best protection against another financial crisis?
Nicholas Lemann – The New Yorker
We are fast approaching the tenth anniversary of the worst financial crisis since the Great Depression. What passes for the official date is September 15th, the day that Lehman Brothers collapsed, but the crisis was under way months earlier, and the commemorative reëvaluations have already begun in the business press. The obvious question to ask is whether the financial markets, which have risen for most of the past decade but have been alarmingly shaky of late, could crash again. The answer largely depends on whether the Trump Administration undoes the best protection that we have against such an event: the Dodd-Frank law, which was passed in 2010, in response to the crash, after thirty years of financial deregulation.

Pimco Pushes Further Into the Lucrative but Risky World of Alternatives; A new commercial real-estate debt fund is among the firm’s moves into more lucrative, less liquid markets
Justin Baer – WSJ
Pacific Investment Management Co. is raising money for a new, multibillion-dollar commercial real-estate debt fund, the bond manager’s latest foray into more lucrative—and less liquid—markets, people familiar with the matter said.

SocGen deputy chief quit to limit US penalties over Libor
Didier Valet resigned to avoid extra damage for bank over rate-rigging allegations
Martin Arnold, David Keohane and Kadhim Shubber – FT
Société Générale would have faced much tougher penalties from the US Department of Justice if Didier Valet, the French bank’s deputy chief executive, had not resigned over the accusations of Libor rate-rigging.

Exchanges, OTC and Clearing

Canadian exchange operator TMX blames hardware failure for outage
Canada’s largest stock exchange operator said on Saturday that the failure of data storage equipment caused an outage that shut down the world’s sixth-largest stock market for several hours on Friday afternoon.

Canada stock markets, abruptly shut by technical issue, to resume on Monday
Fergal Smith – Reuters
Canada’s stock market, the world’s sixth-largest, abruptly shut down on Friday after an outage cut market participants off the main exchanges but will resume trading on Monday after resolving “internal technical issues,” the exchange operator said.

Hong Kong scrambles for talent in battle for Nasdaq’s biotech crown
Julie Zhu, Alun David John – Reuters
When Hong Kong unveiled plans last year to encourage biotech companies to list in the city by loosening listing rules, the financial industry and investors cheered.

Dawn of a new era
We have been on a remarkable journey in the Hong Kong financial market over the past several years, and a brand new era will begin tomorrow when new rules take effect that will open the door to innovative companies that use non-standard share structures and pre-revenue biotech companies.

Nasdaq asks regulators to let companies decide where they trade
John McCrank – Reuters
Nasdaq Inc has asked regulators to allow it to give small companies a choice of trading on a single U.S. stock exchange, rather than all 13 of them, in an effort to make it easier for buyers and sellers of the stocks to find each other.

Mayor Emanuel and CME Group Award Scholarship for Star Scholars to Continue at Four-Year CME Group
Mayor Rahm Emanuel and CME Group, the world’s leading and most diverse derivatives marketplace, today will present 25 Chicago Star Scholars with scholarships to go towards continued education at a four-year college or university. Once students graduate from City Colleges of Chicago (CCC) with an associate degree, they will receive a two-year, $5,000 scholarship.

Swiss exchange SIX sees many takeover targets, has been approached
Helen Reid – Reuters
In an industry undergoing consolidation, privately-owned Swiss exchange SIX sees potential takeover targets in Iberia and central Europe and has itself been approached by potential buyers, Chief Executive Officer Jos Dijsselhof told Reuters in an interview.

TMX Group Provides Update on Market Outage Incident and Confirms Readiness for Regular Market Opening Monday
MX Group today provided further details regarding the market interruption that affected trading on Toronto Stock Exchange (TSX), TSX Venture Exchange (TSXV), TSX Alpha Exchange (TSX Alpha) and Montreal Exchange (MX), on Friday, April 27.

FX Futures, FX Rolling Spot Futures and FX Options: Fee holiday for transaction fees from 1 May 2018 until 31 May 2018
As of 1 May 2018, Eurex Clearing decided to introduce a fee waiver for transaction fees for FX Futures, FX Rolling Spot Futures and FX Options from 1 May 2018 until 31 May 2018.


Hodjatzadeh exits TT in Asia-Pacific
Jack Ball – Global Investor Group
Su Hodjatzadeh has left her role as sales manager for Trading Technologies in Asia Pacific, FOW has learned, leaving two senior figures responsible for sales in the region.

FENICS Selected by Dah Sing Bank for FX Options Pricing & Distribution
BGC Partners
BGC Partners, Inc. announced today that FENICS, the award winning provider of FX options solutions, has been selected by Dah Sing Bank, a leading local Hong Kong-based bank, to power the institution’s FX options pricing and distribution.

Liquidnet’s Next Gen Algo Suite Leverages Virtual High Touch® Technology
Business Wire
Enhancements give buy-side traders greater ability to access and interact with hidden and block institutional liquidity
Liquidnet, the global institutional trading network, today announced two enhancements to its Next Gen Algo suite, Liquidnet’s premium offering of liquidity-seeking and benchmark strategies designed specifically for institutions.

Transparency concerns linger around artificial intelligence despite proposed industry benefits; Speakers at this year’s TradeTech conference were keen to extol the virtues of artificial intelligence and machine learning, but perceptions around transparency and trust must be addressed.
John Brazier – The Trade
Artificial intelligence (AI) has become one of the key watchwords in asset management technology in recent years, with institutional and boutique firms alike having made significant investments in this space.


Iran cryptocurrency project on track despite cenbank ban, minister says
Iran has developed an experimental local cryptocurrency, a government minister said on Saturday, days after the country’s central bank banned trading in digital currencies including bitcoin.

Exciting Q2 Start: BitcoinCash Up 137%, Ethereum Up 86% & Ripple Up 83%
Naeem Aslam – Forbes

Ethereum Founder Is Boycotting One of the Biggest Crypto Summits
Camila Russo – Bloomberg

Bitcoin frenzy settles down as big players muscle into market
Tommy Wilkes, Vidya Ranganathan – Reuters
After bouncing up, falling down and keeping investors on the edges of their seats, bitcoin may be maturing into a period of relatively boring stability, experts say.

Most Cryptocurrency Trading Is Moving to Malta, at Least Legally
Lily Katz – Bloomberg
Digital-coin exchanges have found a new haven in an archipelago in the Mediterranean Sea.

A hot crypto hedge fund keeps poaching talent from Goldman Sachs
Frank Chaparro – Business Insider
Cryptocurrency hedge fund BlockTower Capital keeps scooping up talent from Goldman Sachs, as Wall Streeters continue to flee big banks in favor of bitcoin firms.

Is the Tokyo bitcoin whale set to strike again?
Speculation is growing that the trustees for the defunct Mt. Gox cryptocurrency exchange are getting set for another significant bitcoin sale.

Litecoin founder Lee has some regrets about dumping his stake
Aaron Hankin – MarketWatch
The price of Litecoin has fallen 50% since founder Charlie Lee sold his stake in December 2017
Four months after the founder of Litecoin announced that he had sold his entire stake in the cryptocurrency he founded, Charlie Lee admitted that the move may have been a mistake, in a recent interview.

Warren Buffett on buying bitcoin: ‘That is not investing’
Daniel Roberts – Yahoo Finance
When Warren Buffett speaks, investors listen. And Buffett is still not sold on bitcoin. In an exclusive interview with Yahoo Finance in Omaha, Neb., leading up to Berkshire Hathaway’s May 5 annual shareholder meeting, Buffett laid out his latest thinking on cryptocurrency investing.


Al Gore: sustainability is history’s biggest investment opportunity; Strong returns prove asset manager’s mission, says former US vice-president
Owen Walker – FT
Flanked by his children and grandchild, Al Gore joined 200,000 protesters on the streets of Washington DC in the blazing sunshine exactly one year ago.

EU plans to cut funding to nations where rule of law is at risk; Contentious move likely to provoke flare-up with Poland and Hungary
Alex Barker in Brussels – FT
Brussels will this week propose tough powers to cut off funding to countries such as Poland and Hungary where judicial independence is under threat, but will leave them on the hook for billions of euros in EU budget commitments.

Kirsten Gillibrand Unveils A Public Option For Banking; The idea would provide a low-cost alternative to payday loans — and it might just save the Postal Service, too.
Daniel Marans – Huffington Post
Sen. Kirsten Gillibrand (D-N.Y.) is introducing legislation Wednesday that would require every U.S. post office to provide basic banking services, an ambitious step aimed at improving the lives of Americans with limited financial resources.


EXCLUSIVE: CFTC’s Giancarlo to retire at end of term
Christopher Giancarlo has confirmed that he does not intend to seek reappointment when his term ends on April 13, 2019.

T. Rowe Price’s trading head dubious on MiFID II and the emergence of new venues; Global head of systematic trading and market structure at US firm throws doubt on systematic internalisers and periodic auctions.
By John Brazier – The Trade
Mehmet Kinak, global head of systematic trading and market structure at US-based asset manager T. Rowe Price, has thrown significant doubt at the new European trading landscape under MiFID II.

Hong Kong Regulator Concerned on Nine-Fold Rise in Margin Loans
Benjamin Robertson – Bloomberg
Borrowing against pledged stock hit $26.3 billion at end-2017; Firms involved are illiquid, so risk to brokers ‘is not small’
Hong Kong’s Securities and Futures Commission is consulting brokers about risks stemming from a rapid run up in margin lending.

Investing and Trading

Canada stock market shutdown pushes investors to explore options
John Tilak, Fergal Smith – Reuters
A rare outage at Canada’s major stock exchanges could dent the credibility of operator TMX Group Ltd (X.TO) and encourage investors to explore alternative trading channels, fund managers and traders told Reuters.

Next liquidity crisis could be hiding in plain sight; Rules have reduced banks’ ability to ‘store’ risk that delivered instant liquidity
Amin Rajan – FT
“The paradox of liquidity is that it disappears as soon as one is in serious need of it,” says Pascal Blanqué in The Economic and Financial Order. He pulls no punches when reviewing the weakness of modern portfolio theory, the guiding star of investors.

Oil Hedge Fund Manager Says $300 Oil ‘Not Impossible’
Javier Blas – Bloomberg
Andurand says on Twitter lack of investment risks price spike; Higher prices aren’t a threat to the economy, Andurand says
Pierre Andurand, one of oil’s most prominent hedge fund managers, said the current reluctance of energy companies to invest in new production meant $300 a barrel was “not impossible” within a few years.

Fed Far From Ready to Declare Mission Accomplished on Inflation
Rich Miller – Bloomberg
Bank to hew to gradual rate rises even if inflation hits goal; Policy makers comfortable with above-target price rises
The Federal Reserve is closing in on its elusive 2 percent inflation target but that doesn’t mean policy makers are ready to pronounce mission accomplished.


Goldman Sachs is battling to contain an outbreak of mumps on the trading floor
Rachael Levy, Dakin Campbell and Olivia Oran – Business Insider
The Wall Street investment bank has been telling staff to get shots or visit the firm’s health center if they didn’t receive the vaccine during childhood.
Goldman Sachs is battling to contain a rare but contagious flare-up of mumps after a few employees contracted the disease.

A bunch of former KCG staffers have found a new home at Wall Street broker Instinct
Frank Chaparro – Business Insider
Instinet, the brokerage firm owned by Japanese investment bank Nomura, has hired William Wiley as an executive director and head of strategy.

Goldman, Hedge Funds Drawn Into Noble Group’s Legal Battles
Krystal Chia – Bloomberg
Goldilocks lists creditors as defendants in Singapore lawsuit; Chairman Paul Brough highlights risks facing trader at SGM
Noble Group Ltd.’s dissident shareholder Goldilocks Investment Co. listed a raft of hedge funds and banks, including Goldman Sachs Group Inc. and Deutsche Bank AG, as defendants in its legal battle against the commodity trader, as the fund presses on with a bid to stop its debt-for-equity swap.

JPMorgan’s Guide to the End of ‘Easy Money’
Joanna Ossinger – Bloomberg
Advice comes as Goldman sees upside risks to Fed rate forecast; JPM doesn’t share market ‘fixation’ on flattening, 3% 10-year
The moves in stocks lately are just strange — but there’s still a logical approach to investing for the expected end of “easy money,” according to JPMorgan Chase & Co.

Top 100 Hedge Funds: Smaller Funds Hit the Mark
Eric Uhlfelder – Barron’s
Boldface money-management giants like AQR, BlackRock, Citadel, D.E. Shaw, and Renaissance Technologies catch the eye on Barron’s 2018 Top 100 Hedge Fund survey. But a small foreign fund pushed its way past bigger, better-known rivals to grab the No. 1 spot.

An audience with ex-Citi CEO Vikram Pandit: ‘My five years were war’; Financial crash survivor returns to take part in banking’s next existential crisis: technology
Paul Clarke – Financial News
Back in his heyday, the rumour was that if you went into a meeting with Vikram Pandit unprepared, you were toast. A former academic who became known as a cerebral trader with an eye for detail, he was often the smartest guy in a room full of big-brained Wall Street types.

Workers claim Bain firings tied to age, medical conditions
Josh Kosman – NY Post
Bain Capital bagged a fortune as it fired workers at an Oregon-based software company. Now, federal authorities allegedly are probing whether it also broke the law.


China eases restrictions on foreign ownership of securities ventures
China’s securities regulator has released new guidelines for foreign investment in Chinese security joint ventures in which it eased some restrictions and launched an application process for more foreign ownership.

Australia banking scandal claims more AMP scalps, chairwoman quits
Paulina Duran – Reuters
Australia’s largest-listed wealth manager AMP announced the resignations of its chairwoman and legal counsel on Monday, and slashed its directors’ fees by a quarter as it races to stem the fallout from damaging revelations of misconduct at the firm.

Commodity trader Trafigura launches panda bond programme
Neil Hume – FT
Trafigura has become the first international commodity trader to issue bonds in China’s mainland debt market.

LinkedIn study shows UK losing workers to EU; EU has become a more attractive workplace than Britain, according to analysis
Gavin Jackson – FT
The UK became an exporter of workers during the first three months of this year, according to an analysis of users on the social network LinkedIn.

A Decade of Banks Behaving Badly Is Being Laid Bare in Australia
Emily Cadman – Bloomberg
Bribery, lies, and charging the dead among misconduct admitted; Inquiry may lead to slower earnings growth, higher costs
In a quiet courtroom in Melbourne, a decade of scandalous behavior at Australia’s biggest banks is being forensically laid bare.

Chinese and US bond yields converge; Investors puzzle over government policy and the economy in China
Gabriel Wildau and Yizhen Jia – FT
The US and China may be far apart on disputes over trade and investment, but when it comes to bond yields the two sides are moving closer.

Mexican Banks Targeted in Cyber Attack
Michelle Davis, Nacha Cattan – Bloomberg
Three banks experienced ‘incidents’ in recent days: Banxico; Banorte system back up; BanBajio using alternate SPEI system
Cyber attackers attempted to penetrate Mexico’s electronic payment systems Friday, forcing three banks to enact contingency plans, according to people familiar with the matter.


Banks Seem Oddly Unconcerned About Brexit; They keep doing more business from the U.K.
Mark Whitehouse – Bloomberg
Is the U.K. really going to leave the European Union? Judging from their lending activity, bankers might be having some doubts.

Brexit Failure Looks More Likely Every Day; Too many things are lining up against the U.K. leaving the EU.
Barry Ritholz – Bloomberg
Today, I will violate one of my favorite principles, and hereby make this prediction: No Brexit! In other words, the U.K. will not exit the European Union. By 2023, we will look back at the entire ridiculous affair as if it were a rediscovered lost episode of “Fawlty Towers.”

Eurosceptics fear ‘bonkers’ post-Brexit customs union plan; Tory MPs fret unworkable deal could result in UK remaining by default
George Parker, Political Editor – FT
Eurosceptics in Theresa May’s cabinet are braced for defeat in their attempt to block what they have called a “cretinous” and “bonkers” post-Brexit customs plan, which they fear is unworkable and could end up with the UK remaining in a customs union by default.

Gina Miller urges UK fund industry to speak out on Brexit; Campaigner warns of huge risks to the City of higher barriers to dealing with the EU
Attracta Mooney – FT
Gina Miller, the anti-Brexit campaigner and fund industry professional, has urged asset management executives to speak out publicly about the UK’s exit from the EU, warning that the City faces huge risks.


Is Stock Market Volatility Good for the Art Market?; We’re about to find out during May’s art fairs and auctions in New York.
James Tarmy – Bloomberg
Until January, the stock market was on an almost-unbroken bull run for nine years. Now that run appears to be ending and prominent members of the financial community are warning about the possibility of a significant correction, leaving people in the art world wrestling with whether this will affect their sales.

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