First Read

Bits & Pieces
By John J. Lothian

Healing wishes are in order for Cinnober Executive Chairman Nils-Robert Persson, who joined the club by undergoing knee replacement surgery. No word on whether he used a Nasdaq listed company’s joint hardware for the surgery.

My presentation and panel for the Chicago Civic Federation at the Federal Reserve went well yesterday, though I could have been a lot sharper. The feedback was good, but my own grading was not high for my performance. I did learn a lot about government bankruptcy and the challenges faced by the City of Chicago and State of Illinois over their finances.

I also came away optimistic that the fiscal problems of both can be solved. Thank you to the Civic Federation for inviting me to participate and congratulations on a good program.

We are looking for sponsors for our MarketsWiki Education World of Opportunity series. Sponsors get branding pre and post event, including on and also free spots for their interns at the events. Contact me at for details.


Jim Oliff is Good to Go
By John J. Lothian

When James Oliff resigned from the CME Group board a couple of weeks ago several friends reached out to him to check on his health. They figured such a sudden exit from the CME board of directors after 31 years must be because of a health problem.

That is not the case. Jim Oliff is healthy, wealthy and wise. The wealthy and wise parts are a combination of being a CME member and having earned a wealth of experience and industry knowledge from his years as a key insider at the CME during its ascendency over the last 30+ years.

The mustachioed Oliff is looking for his next opportunity to contribute to the industry after leaving his beloved CME Group, which he still has a tendency to talk about as “us” and “we.” He still is a CME Group stockholder and stakeholder, so I guess the “we” and “us” still does work for the time being.

He is not looking for a job, but perhaps another board spot or consulting gig. He still has gas in the tank and a passion for this industry.

For the rest of the commentary, go here


A Difference Maker: Post-trade Clearing Tech Now a Differentiator For Firms
Jim Kharouf – JLN

If today’s markets are traded in milliseconds, why can’t post-trade clearing keep up?

ION is addressing that with its XTP clearing solution, a near real-time system it has quietly been rolling out since 2015. Last year the product was adopted by a handful of firms. And this year, ION is hoping to see a larger migration of customers to the new platform, which is considered a major upgrade to its Rolfe & Nolan system.

It took ION four years to build the system, creating it on top of ION’s core trading technology. The low-profile firm is stepping out a bit more with XTP now off the ground and fully integrated with its front- and middle-office technology. It’s been a steady rebuild under Keith Todd, who stepped down as executive chairman, agency trading and processing at ION last month. Now it is up to Silvio Oliviero, who now serves as CEO of agency trading and processing at ION, to carry the ball forward on XTP and its other products.

Read the rest here.


World Federation Of Exchanges Publishes Annual Ioma Derivatives Report
Press Release
The World Federation of Exchanges (“WFE”), which represents more than 200 market infrastructure providers including exchanges and CCPs, has today published its annual report into the global derivatives market. Derivatives volumes continued to grow in 2016 – increasing by 2.2% on 2015 – reaching a total number of 24.9 billion derivatives contracts.


College Kids Pitched on a Secret Stock Exchange to Help Pay Off Student Debt
by Annie Massa – Bloomberg
Ustocktrade touts $1 fee as clients trade with CEO ‘superuser’; Company promises youthful fun but experts caution on its risk
Wall Street pros have dived headlong into dark pools, exclusive private exchanges where they can trade stocks with each other in secret. Now comes an entrepreneur with a new twist: a dark pool for the masses, especially young investors.

***** My message to young investors: Seek the Light, not the darkness.


The Bond Market Prefers Dictators to Democracies
Ben Bartenstein – Bloomberg
El Salvador defaulted last week, while Venezuela paid bonds; Political gridlock poses risk to market-friendly governments
Dictatorships are on a hot streak in the bond market. In the past year, sovereign notes from emerging markets under autocratic rule have returned 15 percent on average, compared with just 8.6 percent for securities from developing countries considered democratic, according to data compiled by Bloomberg. They also have better returns over the past two years, though beyond that the advantage fades.

****** Democracy is riskier and worth it.


Wednesday’s Top Three
Folks really liked the look of Steve Ballmer’s new site detailing all sorts of government data as it was the most clicked link from yesterday’s newsletter. The story about the site and Ballmer’s mission, Steve Ballmer Serves Up a Fascinating Data Trove, was the third most clicked item from the newsletter. Wedged in between the news about the Clippers’ guru was Barry Ritholtz’ piece about vice investments, The Investing Parallels of Alcohol and Marijuana.


MarketsWiki Stats
98,410,329 pages viewed; 22,464 pages; 205,408 edits
MarketsWiki Statistics


Lead Stories

ETFs Create Stock Markets That Are Both Mindless and Too Expensive, Study Says
Dani Burger – Bloomberg
Exchange-traded funds are making stock markets dumber — and more expensive. That’s the finding of researchers at Stanford University, Emory University and the Interdisciplinary Center of Herzliya in Israel. They’ve uncovered evidence that higher ownership of individual stocks by ETFs widens the bid-ask spreads in those shares, making them more expensive to trade and therefore less attractive.

Equity derivatives no longer dominate derivatives trade; Volumes fell 11% year on year in 2016, eclipsed by surging commodity hedges demand
Philip Stafford – FT
Futures and options on equities no longer make up the majority of the global derivatives trade, eclipsed by a combination of record low market volatility and surging demand from Asia for commodity and currency hedges.

One Very Big Strike Against Active Management; Fifteen Years Now
John Rekenthaler – Morningstar
On April 13, The Wall Street Journal reported that “indexes beat stock-pickers even over 15 years.” That is, after paying their expenses, most actively run stock funds posted lower returns from January 2002 through December 2016 than did their no-cost benchmarks. That would be bad enough if the benchmarks were merely theoretical. Unfortunately for actively managed funds, however, index funds have turned stone into flesh, making the competitive threat all too real.

CEO CHAT: Bill Capuzzi, Apex Clearing
John D’Antona – MarketsMedia
Recently, the U.S. Securities and Exchange Commission voted to reduce the clearing duration for securities trades from trade date plus three days, to plus two. While Wall Street cheered what it viewed as a long overdue reduction, one chief executive said an even shorter clearance cycle would better serve the markets.

Virtu Financial set to seal takeover of KCG Holdings; Deal between high-frequency trading groups comes as low volatility hits industry
Joe Rennison – FT
Virtu Financial is set to emerge victorious in its effort to buy rival high-frequency trading group KCG Holdings, with a deal expected to be announced on Thursday, according to people briefed on the matter.

Bond Tape is a Matter of Time
Rob Daly – MarketsMedia
The discussion of whether there will be consolidated tape for fixed income products is no longer a matter of if, but when. The wheels already are in motion for public disclosure of US Treasury trades. They are not moving quickly, but they are moving.

Results Of The March 2017 Survey On Credit Terms And Conditions In Euro-Denominated Securities Financing And Over-The-Counter Derivatives Markets (SESFOD)
Less favourable non-price terms for secured funding and for non-cleared OTC derivatives; Worsened market liquidity for underlying collateral; Less favourable credit terms than one year ago for most counterparty types

Passive Investing Pushes Back-Office TCA
Rob Daly – MarketsMedia
The buy and sell side have been improving the efficiency of their back offices in preparation for the industry’s migration to the T+2 settlement cycle, which begins on September 5, but the growing adoption of passive investment strategies has increased the pressure to bleed out further back office inefficiencies.

Mechanics of Cross Currency Swaps
Chris Barnes – Clarus FT
Explaining a cross currency swap to non-market participants gets complicated very quickly if we try to draw parallels with either FX Forwards or Interest Rate Swaps. The best way to think of Cross Currency Swaps is to forget what you think you know and start from the basics.

Bats and Bloomberg partner for MiFID II reporting; Both firms will combine APA and reporting services to help firms comply with trade reporting obligations.
Hayley McDowell – The Trade
Bats Europe and Bloomberg have teamed up to combine their approved publication arrangement (APA) and reporting services ahead of MiFID II.

China Shakes Up Financial Regulators in Scramble for Stability; After encouraging liberalization to fuel a slowing economy, Beijing is becoming increasingly anxious about financial shock
James T. Areddy – WSJ
The Chinese government is trying to ensure financial-system stability in a pivotal political year by focusing on the officials who do the regulating.

BlackRock assets under management hit $5.4tn on record ETF inflows; One-off tax benefit helps asset manager beat Wall Street estimates for earnings
Stephen Foley – FT
A record amount of money flowed into BlackRock’s exchange traded funds business iShares in the first quarter, but revenues fell short of expectations, as the industry undergoes a price war.

Exchanges, OTC and Clearing

In 2016, we saw sustained strong volume in the U.S. listed equities options industry. OCC’s total cleared contract volume reached 4.17 billion, the fifth highest annual contract volume in our history. Securities lending reached a new high with more than 1.9 million cleared stock loan transactions, representing growth of 37 percent from the previous year. 2016 cleared futures volume was also OCC’s highest ever at 104 million contracts, up 56 percent from 2015.

Nasdaq establishes FinTech investment program
Hayley McDowell – The Trade
Nasdaq has launched a venture investment program dedicated to discovering, investing in and partnering with FinTech companies.

SGX reports 3Q FY2017 net profit of $83 million; 3Q FY2017 Financial Summary
Revenue: $203 million, down 2% from a year earlier; Operating profit: $103 million, unchanged; Net profit: $83 million, down 7%; Earnings per share: 7.8 cents, down 7%; Interim dividend per share: 5 cents, unchanged
All figures are for the year except for figures in brackets, which are for the year earlier, unless otherwise stated. Some figures may be subject to rounding.

Clearstream’s Monthly Report: Quantitative Easing continues to put pressure on the securities financing sector
Deutsche Bˆrse
The decision of the European Central Bank (ECB) to continue its bond purchase program despite strong EU-wide economic growth has dampened the hopes of the market for an early interest rate increase. The loose monetary policy affects the real economy and is also noticeable in the post trading area.

EQDerivatives: “Strategists Eye Dispersion As French Election Nears”
Article by Georgia Reynolds, EMEA Reporter – Eurex
This article first appeared in EQDerivatives’ subscription Commentary & News service.
Dispersion trades on the EuroSTOXX 50 Volatility Index and France’s CAC 40 are being touted thanks to the effect the upcoming French Election is having on index volatility.

8 new ETCs from the metal and energy sector of BNP Paribas launched on Xetra; ETCs provide access to the Rogers International Commodity Enhanced Index (RICI)
Deutsche Bˆrse
ENB’s new Exchange Traded Commodities (ETCs) issuance BNP Paribas Arbitrage Issuance BV have been tradable on Xetra and Bˆrse Frankfurt since yesterday.

Euronext Tech 40 Issuers Outperform; +25% performance of the Tech 40 label this year
Euronext is announcing today the new composition of its ´ Tech 40 ª label, which recognises 40 innovative European small and mid-cap companies listed on its markets. This year, 12 new companies are entering in the new label composition, selected by a group of independent European experts, based on capital markets, economic and financial performance criteria. The companies are also added to the eponymous index, composed exclusively of the labelled ´ Tech 40 ª stocks.


NEX Group Relocating Offices in London, New York
Jeff Patterson – Finance Magnates
NEX Group plc, a financial technology company helping integrate banks, asset managers, and global hedge funds, will be relocating its New York and London offices, per a transition for the group.

HSBC and 17 other financial firms heat up race for fintech talent in Hong Kong
Bien Perez – South China Morning Post
Eighteen major financial institutions are heating up the race in Hong Kong to find innovative start-ups that could disrupt their industry as the city hosts Asia-Pacific’s largest financial technology accelerator programme for the fourth consecutive year.

The Big Interview: Susie Benaim from TradeTech
Hayley McDowell – The Trade
Ahead of TradeTech, The TRADE speaks with content director, Susie Benaim, about how she keeps the agenda fresh and relevant and what the key themes will be at this year’s conference.


Exclusive: Putin-linked think tank drew up plan to sway 2016 U.S. election – documents
Ned Parker, Jonathan Landay and John Walcott – Reuters
A Russian government think tank controlled by Vladimir Putin developed a plan to swing the 2016 U.S. presidential election to Donald Trump and undermine voters’ faith in the American electoral system, three current and four former U.S. officials told Reuters.

Mnuchin’s New Hollywood Partner Made Billions in Russian Oil
Zachary Mider – Bloomberg
Treasury Secretary Steven Mnuchin just got a new Hollywood business partner: a man who made billions investing in Russia.

Welcome back to the Hillary Clinton stock market
Howard Gold – MarketWatch
Remember last summer, when the stock market rallied, then retreated a bit, as Wall Street counted on Hillary Clinton to win the presidency? Investors generally liked Clinton’s same old, same old approach ó especially compared with the “uncertainty” under which Donald Trump’s picture appeared in the dictionary. They had embraced low growth and even lower interest rates. Pundits had even given it a name: the “new normal.”

Trump to Revive 1962 Law to Explore New Barriers on Steel Imports; Trade Expansion Act allows emergency trade sanctions on ‘national security’ grounds
Jacob M. Schlesinger and William Mauldin – WSJ
President Donald Trump is ramping up his tougher “America First” trade policy with plans to revive a decades-old, rarely used law to explore imposing new barriers on steel imports, the White House said on Wednesday night.

Carbon Taxes Gain Conservative Followers; An aborted attempt to institute one in D.C. is a case study on how the politics have shifted.
Christopher Flavelle – Bloomberg
Last July, Tommy Wells, director of the District of Columbia’s Department of Energy and Environment, received the final copy of a report that had been in the works for more than a year. Its subject: how to make Washington the first major city in the U.S. to adopt a carbon tax. The 51-page document laid out a framework for instituting a levy that prices emissions of greenhouse gases roughly in line with the cost of their environmental damage, then giving the revenueóprojected at about $200 million a yearóback to taxpayers. The report was never released, however, not even to the city council. Bloomberg obtained a copy through a public records request. The department, Wells said in a statement, “does not have an interest in promoting or implementing a carbon tax.”

The pendulum swings between globalisation and nation state; This time it is the richest countries that are seeking the safety of their borders
Stephen King – FT
Globalisation and nation states have often made unhappy bedfellows. Borders get in the way of the free movement (and exchange) of goods, services, capital and people. Competing currencies lead to frictions associated with fear of a sudden change in the terms of trade. And national governments tend to focus on local regulation at the expense of what might be termed the “greater good” ó as congressman Patrick McHenry’s “America First” letter to Federal Reserve chair Janet Yellen demonstrates.


U.S. bank regulator admits lax oversight of Wells Fargo
James Rufus Koren – LA Times
The nation’s top bank regulator knew about problems with Wells Fargo & Co.’s sales practices in 2010 but did not do enough to put an end to the bank’s bad practices, an internal agency review has concluded. The Office of the Comptroller of the Currency said that its oversight of Wells Fargo was ineffective and that examiners missed numerous opportunities to have the bank address its problems, according to a report released Wednesday. Those problems led to the creation of as many as 2.1 million accounts that customers didn’t authorize.

ISDA Publishes Second Bail-in Article 55 BRRD Protocol
The International Swaps and Derivatives Association, Inc. (ISDA) has today announced the launch of a second protocol to help market participants to meet the requirements of Article 55 under the European Union (EU) Bank Recovery and Resolution Directive (BRRD).

Investing and Trading

Fund managers down but far from out in the copper market
Andy Home – Reuters
Copper’s bull momentum from the start of the year is fading as the disruption premium from supply hits at the world’s two largest mines unwinds and broader risk-off turbulence also joins the mix. Three-month copper on the London Metal Exchange (LME) slid through $5,600 on Tuesday to hit $5,568.50 a tonne, its lowest level since January. And though it staged a small bounce on Wednesday morning, at $5,630 copper’s year-to-date gain stands at a little more than 2 percent, having been up almost 11 percent in February.

Wall Street is changing how it trades the world’s hottest investment product; ETF block trading research Credit Suisse
Joe Ciolli – Business Insider
Bond exchange-traded funds have exploded in size in the last few years. The big ticket trades in them are getting bigger too. Exchange-traded funds were originally launched as a vehicle for stocks, and they’ve been attracting assets at a fast clip in recent years. The combined assets of US ETFs stood at $2.7 trillion in February, according to the Investment Company Institute, of which $457.4 billion was in bond ETFs.

TD Ameritrade: Tons of people set up trading accounts just to buy Snapchat
Akin Oyedele – Business Insider
Disclaimer Get real-time SNAP charts here ª
Although investors who bought Snap in its trading debut remain underwater, some companies are still counting their gains from the March IPO.

How to shake loose change from your brokerage account
Michael Brush – MarketWatch
U.S. stocks, already richly valued, might get stuck in a sideways pattern as hopes fade for business-friendly reforms from Washington, D.C. So this is an opportune time to try to wring extra cash out of your stock portfolio. One way is to sell “covered calls.” These give someone else the right to buy your stocks at a pre-arranged price. The risk is some big news drives up your stock a lot more than that price, leaving you without the upside.

Investors To Seek Political Spending Disclosure in U.S. Proxy Season
Mara Lemos Stein – WSJ
Proxy season will kick into high gear in the U.S. from next week, and shareholders’ quest for greater corporate political spending disclosure is alive and well at Fortune 250 companies.

54 Stocks Deep in the Weeds
Laurie Meisler – Bloomberg
Cannabis continues to light up Main Street in both the U.S. and Canada. Twenty-eight U.S. states and the District of Columbia now have approved medical marijuana programs; eightóAlaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon and Washington, plus the District of Columbiaóhave legalized marijuana for recreational use. Medical marijuana is already allowed throughout Canada, and in mid-April the Canadian government unveiled its framework for fully legalizing recreational use by July 1, 2018.

US financial sector ETF faces 9% ‘flash fall’ before recovering
Adam Samson – FT
The biggest exchange-traded fund tracking the shares of US financial stocks abruptly tumbled nearly 10 per cent on Wednesday morning before immediately recovering, in the biggest such move since the market turmoil in August 2015.


North American hedge fund industry AUM reached a US$1.53 trillion record high In March

Former Harvard Money Whiz Jack Meyer Tries to Regain His Edge; Convexity Capital Management has lost $1 billion of its clients’ money over the last few years as once reliable options trades backfired
Juliet Chung – WSJ
Jack Meyer trounced rivals when he ran Harvard University’s endowment in the 1990s. But as a hedge-fund manager, he is struggling.

What’s Wrong With AQR?
Jeff Malec – Seeking Alpha
We highlighted AQR’s rapid ascension into the big boy ranks of the managed futures space in our recent look at assets under management, showing they’re among the largest managed futures managers, now at about $16 Billion Assets as of the end of 2016. But how is that $16 Billion worth of assets feeling about their investment thus far?

Goldman Sachs crashes to bottom of the class as bets turn sour; Bank’s official explanation for big earnings miss leaves the market guessing
Ben McLannahan in London – FT
Was Goldman Sachs ó of all banks ó wrongfooted by the Trump trade? Since the election of Donald Trump in November, the Wall Street bank has seen several senior executives decamp to Washington: none of them more influential than Gary Cohn, the bank’s former president now serving as Mr Trump’s top economic adviser.

Morgan Stanley may be Wall Street’s new king
Paul R. La Monica – CNN
Goldman Sachs may have Treasury Secretary Steven Mnuchin, former COO Gary Cohn and several other alums in President Trump’s administration, but even though Goldman Sachs may be currying favor in Washington, the company not so affectionately known to some as the Vampire Squid of Wall Street may be losing ground to a key rival: Morgan Stanley.

Who is buying ETFs? Increasingly, mutual funds
Ryan Vlastelica – MarketWatch
If you can’t beat them, invest in them. Market participants have been shunning mutual funds, moving instead to exchange-traded funds. Like mutual funds, ETFs also offer baskets of securities tracking the most popular asset classes, regions, and strategies, but do so for generally lower fees and greater tax efficiency. Increasingly, mutual-fund managers have been turning to ETFs as well.

Wells Fargo CEO Says Ousting Majority of Board Would Be ‘Crazy’
Laura J Keller – Bloomberg
Board is steeped in bank’s problems, fixing them, Sloan says; Gutting panel would be “absolutely irresponsible,” he says
Wells Fargo & Co.’s new chief executive officer, Tim Sloan, just survived his biggest test yet, when a board investigation found he wasn’t to blame for the bank’s notorious account scandal. But his next is just days away: Persuading investors not to expel much of the board.


China’s share class mosaic
Mat Lystra – FTSE Russell
China is home to the world’s second largest economy after the United States, but for much of its history, foreign investment into Chinese companies has been heavily restricted. Over the last 35 years, China has been slowly opening its doors to offshore investments through a series of reforms. As we will explore below, beginning in 1980 China has offered seven main types of publicly traded share classes, most of which permit foreign investors to gain some level of exposure to the Chinese economy.

BlackRock backs mainland China shares for MSCI benchmarks; Support offers significant boost to index provider’s latest proposal
Jennifer Hughes – FT
BlackRock has for the first time backed the inclusion of mainland Chinese shares in MSCI’s global indices, bolstering the index provider’s fourth attempt to have A-shares included in its benchmarks.

‘Alt’ Data in Emerging Markets
Terry Flanagan – MarketsMedia
In increasingly volatile, global markets, news that is meaningful for investment portfolios doesn’t just come out of Washington, New York, London or Brussels. Real-time, breaking news can surface from an oilfield in Nigeria, a street protest in Jakarta, or a business conference in Brazil. Or any of the countless other places in emerging economies, which are home to more than 80% of the world’s population.

Integrity and Indian capital markets; Sebi’s junior staff should be appointed through a competitive exam and encouraged to reach the top
Jaimini Bhagwati – Business Standard
Jaimini Bhagwati In the last week of March 2017 the Securities and Exchange Board of India (Sebi) ordered Reliance Industries Limited (RIL) to disgorge about Rs 1,000 crore. Concurrently, RIL and 12 other companies were prohibited from trading in the stock futures and options (F&O) segment for one year. According to the Sebi order, “RIL was not genuinely hedging risk” and its actions were “well-planned, fraudulent and manipulative”.

Sebi clears own staff on MCX-SX licence; In wake of earlier CBI case, report by regulator’s vigilance head says no procedural lapse
N Sundaresha Subramanian – Business Standard
An internal probe commissioned by the markets regulator has cleared its staff of any wrongdoing in the grant of a licence to the MCX Stock Exchange (since renamed as Metropolitan Stock Exchange). The chief vigilance officer (CVO) of the Securities and Exchange Board of India (Sebi) studied the process followed in the grant of licence. “The CVO has concluded there were no procedural lapses or wrongdoing.


Brussels starts to freeze Britain out of EU contracts; Commission memo tells staff to prepare to ‘disconnect’ UK
Alex Barker in Brussels – FT
Brussels is starting systematically to shut out British groups from multibillion-euro contracts and urging companies to decamp to one of the 27 remaining EU members as it prepares for Brexit.

Hard Dose of Reality Hits Anti-Brexit Campaigners
Robert Hutton – Bloomberg
Liberal Democrats hope to regain seats by arguing for EU; But Tory gains from Labour are likely to swamp those losses
For those who believe Brexit is a terrible mistake that could be undone, Prime Minister Theresa May’s decision to call a snap election offered a moment of hope followed by a hard dose of reality.


Study Says New York City’s Richest People Benefited Most From the Recovery
Henry Goldman – Bloomberg
New York City’s richest residents gained most in the recovery from the 2007 financial crisis, while the bottom half lost ground.

Digging Miles Underground for Mere Specks of Gold; Every day thousands of miners descend deep into the Earth’s crust in the hunt for gold. It’s a dark and dangerous world.
Kevin Crowley – Bloomberg
Gold mining at South Deep, the world’s second-biggest deposit, would never be easy. Located an hour’s drive west of Johannesburg, the resource holds 63 million ounces that formed in an ancient lake, now crystallized in rock, three kilometers (1.9 miles) underground. Gold Fields Ltd. has spent 29 billion rand ($2.5 billion) on the mine and has repeatedly missed ramp-up targets due to fatal accidents, mistakes and changing mining methods. A complex geological formation, seismic activity as well as the difficulty of operating high-powered diggers in deep tunnels has slowed progress. Now, armed with a new mining plan and costs under control, it says South Deep will operate at full capacity within five years, and will churn out the precious metal for at least the next 70 years.

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