EU to extend temporary access to UK clearing houses; City fund managers call for rethink of capitalism

Nov 15, 2019

First Read

A Cost-Benefit Analysis of the CFTC Case Against Jitesh Thakkar, Part 2
John Lothian – Publisher, JLN

The Cost to the Markets

If there was a new prescriptive regulation from the CFTC that said every line of code written for any trading software must be documented as to its purpose and intent, there would be a hew and cry from the industry about the cost versus benefit of such a regulation.

If there was a new prescriptive regulation from the CFTC that said every person who touches a line of code for any trading software must have a liability insurance policy, there would be a hew and cry from the industry about the cost versus the benefit of such a regulation.

However, these are the new implicit regulations being written by enforcement precedent right now because of the CFTC’s persistence in bringing a “thin” civil litigation case against Jitesh Thakkar. Already industry code writers are documenting every line of code. And already, firms are considering whether to have liability insurance for their trading system coders.

For the rest of the commentary, click HERE


Hits & Takes
By JLN Staff

Yesterday we released the next video in the Open Outcry Traders History Project, this one of Bill Dudley, the former head of Kidder Peabody’s Chicago financial trading operations at the Chicago Board of Trade.~JJL

From a Forbes story titled “Wisdom from A Dozen Transformative Leaders in 2019,” OCC CEO John Davidson reported that 33% of the officers at OCC are women, far above the average in financial services. “I still want to increase that,” he said. “We need to make ways that women, and men for that matter, can leave the workforce for a point in time … and bring them seamlessly back into the workforce without making them start over again from a career perspective.”

The CME Group‘s market cap is at $73.2 billion, up from $64.7 billion in May.~JK

If the office looks familiar in this video shoot of Bob Fitzsimmons and Cheryl Hamilton-Hill of Covenant House, it should. It is the JLN office and we shot this video for Wedbush. It is a good story about how Covenant House helps homeless youth in Illinois. Listen in.~JJL

JLN has assigned Thom Thompson and Suzanne Cosgrove to the Cannabis/Hemp beat, among their other responsibilities. We are going to try to cover this emerging market from a capital market perspective.~JJL

The CME Group’s Global Financial Leadership Conference will be held November 18-20, 2019 in Naples, Florida. CFTC Chairman Heath Tarbert is the first outside speaker at the conference, following CME CEO Terry Duffy’s opening remarks. The first panel features Gen. John Kelly, former White House Chief of Staff (2017 – 2019), Andrew Card, former White House Chief of Staff (2001-2006) and Dennis McDonough, former White House Chief of Staff (2013-2017). Katie Couric is the panel’s moderator.~JJL

Lloyd Blankfein, the former chairman and chief executive officer of Goldman Sachs (2006-2018), is participating in a conversation there, too. Others appearing on stage during the conference include Dan Glickman, Ken Griffin, Nicole Kidman, Keith Urban and Oprah Winfrey.~JJL

We are over 1640 signatures on the petition for Justice for Jitesh.~JJL


A Swiss-Army API

How do you build a platform that provides all the data a trading firm could want, while keeping it as stable and accessible as possible? Rob D’Arco explains at FIA Expo 2019 how Rival Systems tries to keep up with the needs of clients trading in an increasingly complex global market.

Watch the video »


When the Dow Closed at 27691.4854488934—Just Like the Day Before
Akane Otani and Karen Langley – WSJ
Stocks go up. Stocks go down. On Tuesday, the Dow Jones Industrial Average went absolutely nowhere—a mystery that finance geeks, journalists and analysts have spent the ensuing time trying to unravel. The indicator ended the session at 27691.4854488934, exactly where it finished Monday.

****** It makes my VIX hurt just to think about it.~JJL


CME adds to its range of cheese futures
Move reflects a consumer shift away from the processed version
Philip Stafford – The Financial Times
Derivatives traders will soon be able to ask: “What’s the spread on cheese?” CME Group, the world’s largest futures exchange, said on Thursday it planned to launch futures and options on blocks of US cheddar from early next year. The move reflects shifting consumer tastes away from processed cheese and towards fresher and more healthy choices — and the growing popularity of foods that use large amounts of the dairy goods, such as Italian and Mexican dishes.
***This FT story adds some color (a carrot-like orange??) to the CME Group press release we had in yesterday’s newsletter.~SR


CryptoMarketsWiki Coin of the Week: Stellar Lumens (XLM)
On November 5, 2019, the Stellar Foundation destroyed about half of its supply of Lumens (XLM). The result was a 20 percent price spike. Unfortunately, the bull run following this was short-lived. The Stellar Foundation hoped that destroying half of the world’s supply of XLM tokens would solve the problem of diminishing returns for traders investing in the coin, which was caused by the Foundation’s several airdrops and giveaways of XLM in 2018 and 2019. The Foundation had hoped these giveaways would foster wider adoption.


Thursday’s Top Three
Our top read story of the day Thursday was Bloomberg’s France’s Wealth Tax Should be a Warning for Warren and Sanders. Second was If Women Don’t Apply to Your Company, This Is Probably Why from Harvard Business Review. Third was The Conversation’s The robbery of the century: the cum-ex trading scandal and why it matters


Sponsored Content
Trading Futures in a Retirement Account
As of mid-2017, 35% of US households owned IRAs with a mean asset value of more than $88,000 according to an Investment Company Institute study. IRA owners are looking to preserve their assets and improve their diversification in an unstable – and sometimes volatile – market.

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On the investor side, adding futures trading to a retirement plan can mean investing in something they have worked with for decades – allowing them to use their in-depth knowledge to benefit their retirement. Futures also adds a dimension of diversification and can help hedge against losses in other markets.

Traditional, Roth, SEP, SIMPLE and Solo 401(k) plans also allow individuals to save for retirement tax-free or tax deferred. Depending on eligibility and the type of IRA, the IRA owner may also receive a tax deduction for IRA contributions.

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Futures trading accounts can be held in any type of IRA as long as it is self-directed and clients can choose to use managed futures, a self-directed futures account or systems trading.

Watch this webinar to learn more about futures trading with IRAs.



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Lead Stories

EU to extend temporary access to UK clearing houses; Bloc is stepping up measures to avoid financial turmoil in case of no-deal Brexit
Philip Stafford – FT
Brussels is planning to extend temporary market access to UK clearing houses as it steps up preparations to prevent financial turmoil should Britain crash out of the EU.

City fund managers call for rethink of capitalism; FT City Network says government and business must address challenges of climate change
Patrick Jenkins – FT
Two of the world’s biggest fund management bosses have called for a rethink of capitalism and its obsession with constant economic growth, in a plaintive appeal for business and governments to deal more decisively with the challenges of climate change.

EU’s Banks Take ‘Quantum Leap’ to Save the Planet: Brussels Edition
Viktoria Dendrinou and Nikos Chrysoloras – Bloomberg
The biggest multilateral financial institution in the world will end funding for fossil fuel projects, including natural gas. Yes, you heard that right. This is a “quantum leap in its ambition,” European Investment Bank President Werner Hoyer said after the historic decision, which is expected to go a long way in supporting Europe’s plans to become the first climate-neutral continent. Meanwhile, the European Central Bank is considering adding climate-related risks to its stress-test scenarios, its Vice President Luis de Guindos said. As politicians across the world fight over transition to lower-carbon growth models, EU bankers are looking to lead the way.

China Regulator Approves Plan to Overhaul Share Ownership
Bloomberg News
China’s stock regulators say they will remove a limit on the public float of mainland companies listed in Hong Kong — a change that would shake up the ownership structures of some of the nation’s biggest firms.

UK’s big banks fail in bid to add ‘fraud levy’ to transactions; ‘No industry consensus’ for 3p fee to compensate fraud victims
Claer Barrett – FT
The UK’s biggest banks have failed in their bid to levy a “transaction fee” of nearly 3p to compensate victims of banking fraud after an industry consultation deemed the plan unworkable.

Liquidnet executive sues CEO Merrin over sexual harassment; Mary Corradino claims she is being forced out of the US broker after repeatedly complaining about Seth Merrin’s behaviour
Samuel Agini – Financial News
A senior human resources executive at Liquidnet is suing the US broker and its founder and chief executive, Seth Merrin, alleging she is being pushed out after complaining about years of sexual harassment.

City bosses failing to tackle sexual harassment, says Financial Conduct Authority
James Hurley – The Times
Concern about sexual harassment in the workplace is still regarded by some City firms as “political correctness gone mad” because of an “unhealthy culture” that persists in boardrooms, a senior regulator has warned.

Creating the right culture within capital market firms
Saeed Patel – KRM22
The transformation of culture in financial services continues to be an area of increased regulatory focus, with poor culture widely reported as a contributing factor to the significant misconduct issues that led to the financial crises a decade ago. As a result, we have seen a plethora of new regulations come into force since then, with the latest being the Senior Manager & Certification Regime.

Russia makes fresh effort to take control of its oil price; Country’s commodities exchange develops electronic platform to gather market data
Nastassia Astrasheuskaya – FT
Russia is hoping to stamp its authority on the oil market with a renewed effort to set the price of its crude exports. The country’s energy ministry has supported initiatives by St Petersburg International Mercantile Exchange, known as Spimex, to determine the price domestically. The exchange is preparing to experiment with online crude auctions, which are to be launched by the end of the year.

Schwab Boosts New Trading Accounts 31% After Fees Go to Zero
John Gittelsohn – Bloomberg
Charles Schwab Corp.’s free trading offer is turning out to be a hit, drawing in new customers at a fast clip. Clients opened 142,000 new trading accounts in October, a 31% jump over September’s pace , according to a report Thursday before markets opened. Total brokerage accounts climbed to 12.2 million and firmwide assets grew to a record $3.85 trillion.

Virtu Adds TCA Benchmarks to FX Costs Analysis Product; The service enables FX traders to understand the liquidity environment and manage volatility, which helps reduce trading costs
Aziz Abdel-Qader – Finance Magnates
US electronic market maker, Virtu Financial Inc., has enhanced the functionality of transaction costs analysis (TCA) tool dedicated to forex markets with the addition of low latency FX TCA benchmarks. The offering helps Virtu’s pre-trade and post-trade TCA clients better monitor their transaction costs when trading foreign exchange markets.

Climate change ‘an obvious risk issue’ for markets, CFTC commissioner says
Declan Harty – S&P Global
A key market regulator in Washington is moving ahead with plans to clear up how much of a threat climate change represents to the U.S. financial system. The Commodity Futures Trading Commission oversees everything from grain markets to bitcoin futures to interest-rate swaps. Now, Rostin Behnam, one of the agency’s two Democratic commissioners, wants to bring preparing for climate change under that umbrella as well.

Goldman Promotes 465 Managing Directors as It Looks to Regain Its Luster; Women make up a record 29% of newly minted managing directors at the Wall Street firm
Liz Hoffman – WSJ
Goldman Sachs Group Inc. promoted 465 employees to the role of managing director, a smaller class than previous ones as the bank looks to cut costs and restore the luster of its upper ranks.

Sweden’s SEB Falls Most in a Decade Amid Money Laundering Report
Hanna Hoikkala and Niklas Magnusson – Bloomberg
SEB shares and bonds drop on Swedish broadcaster’s questions; Scandal centered on Baltics led to probes of Danske, Swedbank
The prospect that another big Nordic bank will be dragged into the widening scandal over money laundering in the Baltics rattled investors Friday.

Goldman Stumbles on Path to Main Street With Apple Card Turmoil
Shahien Nasiripour and Sridhar Natarajan – Bloomberg
Bias charges bring probes and test for bank’s new venture; Wall Street giant working to diversify with consumer lending
Lending money to ordinary Americans, Goldman Sachs Group Inc. says, represents a major part of the future of a Wall Street titan more accustomed to dealing with the world’s biggest corporations. But a series of perceived missteps over its flagship Apple Card has introduced the first big test of whether the investment bank is ready for Main Street.

Bridgewater’s Ray Dalio Warns of Capital War Between U.S., China
Shelly Banjo – Bloomberg
Comments come as U.S. tries to slow money flow into China; Capital war could curtail American investment into China
Warnings of a capital war between China and the U.S. are growing louder. The conflict between the two countries could expand beyond trade and technology, Bridgewater Associates founder Ray Dalio said at the annual gala of the National Committee on U.S.-China Relations in New York on Thursday.

Exchanges, OTC and Clearing

OCC Congratulates Robert Litterman on Appointment as Chair of CFTC Climate-Related Market Risk Subcommittee
Business Wire
OCC, the world’s largest equity derivatives clearing organization, today issued the following statement from Craig Donohue, Executive Chairman, and John Davidson, Chief Executive Officer, on the appointment of Robert Litterman, a founding partner of Kepos Capital and a member of OCC’s Board of Directors, as Chairman of the Commodity Futures Trading Commission’s newly-established Climate-Related Market Risk Subcommittee.

The TRADE conducts London Stock Exchange closing auction; In honour of the Leaders in Trading 2019 awards ceremony, The TRADE was invited to the first London Stock Exchange closing auction ceremony.
Editors – The Trade
In recognition of the upcoming Leaders in Trading awards ceremony, The TRADE was invited to participate in the first closing auction ceremony at the London Stock Exchange on 14 November.

REGULATOR’S COLUMN: SGX’s expectations of REITs at IPO stage and when negative media reports surface
When REITs are at the IPO stage or are newly-listed, they are operating for the first time under the keen scrutiny of the market including the media and regulators. It is therefore important that we – as frontline market regulator – clarify certain key issues and spell out our expectations of such a REIT.

Sustainability indices by Moscow Exchange and the Russian Union of Industrialists and Entrepreneurs awarded ISAR Honours 2019
Two sustainability indices calculated by Moscow Exchange and the Russian Union of Industrialists and Entrepreneurs (RSPP) – the Responsibility and Transparency Index and the Sustainability Vector Index – have been awarded ISAR Honours 2019. The ISAR Honours were unveiled at the 36th meeting of the Standing Intergovernmental Working Group of Experts on International Standards of Accounting (ISAR) in Geneva, Switzerland.


Barchart Announces Day-One Participation in AWS Data Exchange
Barchart, a leading provider of data and technology services to the financial, media, and commodity industries, is pleased to announce its day-one participation in AWS Data Exchange, a new service that makes it easy for millions of Amazon Web Services (AWS) customers to securely find, subscribe to, and use third-party data in the cloud. Using AWS Data Exchange, Barchart is providing customers with access to 3,300+ global index products, a full suite of U.S. futures products, and consolidated U.S. equity prices in AWS Marketplace. Historical information for indexes and futures are available to 2010, and equities data is available back to 1980.

JP Morgan automates derivatives margin payments with DLT; JP Morgan has developed a DLT-based system to speed-up and automate post-trade margin payments.
Hayley McDowell – The Trade
US investment bank JP Morgan has developed a distributed ledger technology (DLT)-powered platform to redeploy cash and collateral balances to global clearinghouses more efficiently.

Report: Cyber Workforce Must Grow 145% to Meet Global Demand
Jack Corrigan – Nextgov
In the U.S., there are only enough cybersecurity pros to fill about 60% of the available jobs, according to industry researchers.

OSTC Correlates Biometrics With Trading P&L
Chief executive Lee Hodgkinson said OSTC is in the vanguard of the fourth industrial revolution as the futures prop trading and education firm uses technology to monitor traders’ physiological against their performance.

Huawei, ZTE ‘cannot be trusted’ and pose security threat: U.S. attorney general
David Shepardson – Reuters
Huawei Technologies Co and ZTE Corp (000063.SZ) “cannot be trusted,” U.S. Attorney General William Barr said, labeling the Chinese firms a security threat as he backed a proposal to bar U.S. rural wireless carriers from tapping an $8.5 billion government fund to purchase equipment or services from them.

Nvidia follows Intel to predict strong growth in data center business
Munsif Vengattil – Reuters
Nvidia Corp (NVDA.O) on Thursday joined rival Intel Corp (INTC.O) to predict strong demand for chips used in data centers after its third-quarter revenue and profit beat market expectations.

IHS Markit to launch ‘flash’ UK PMI survey on Nov. 22
Data provider IHS Markit said on Friday it will launch a preliminary “flash” version of its British purchasing managers indexes, which are a closely-watched gauge of economic activity.

BNY Mellon joins Singapore’s ethical AI alliance
BNY Mellon
BNY Mellon, a global leader in investment management and investment services, announced that it has joined with other financial industry market participants to create a framework for financial institutions to promote the responsible adoption of artificial intelligence and data analytics (AIDA).


Cryptosphere Courts Gold Bugs as Bitcoin Loses Some Luster
Olga Kharif – Bloomberg
Tether, Bitfinex plan to issue gold-backed token by Christmas; Pivot from Bitcoin ‘digital gold’ narrative as trading slows
The cryptocurrency world is seeing a surge in the issuance of gold-backed tokens, with some of the digital-asset industry’s biggest and most controversial participants joining in on the fresh gold rush.

Binance’s Weibo account has been blocked due to ‘violations of laws’
Yogita Khatri – The Block
Cryptocurrency exchange Binance’s official Weibo account (a Chinese microblogging website similar to Twitter) has been blocked.

BRICS member nations propose creating a cryptocurrency for payment settlements
Yogita Khatri – The Block Crypto
BRICS, a group of five major emerging nations – Brazil, Russia, India, China and South Africa, has proposed creating a cryptocurrency for settling payment transactions between the countries. Kirill Dmitriev, CEO of the Russian Direct Investment Fund (RDIF), a $10 billion sovereign wealth fund by the Russian government, informed about the plan at the BRICS forum on Thursday, as reported by Russian news outlet RBC Group. The member nations plan to create a single payment system and then settle transactions in a single cryptocurrency, said Dmitriev, adding that the BRICS Business Council has supported the idea.

US authorities arrest 2 in alleged SIM swap cryptocurrency theft scheme
Steven Zheng – The Block Crypto
Two men have been arrested and charged in U.S. District Court in Boston for their role in a nationwide SIM swap scheme in which the pair allegedly hijacked victims’ phones and social media accounts to steal cryptocurrency, representatives of the U.S. Department of Justice (DOJ), FBI and IRS announced Thursday.

What the CFTC Chairman Actually Said About Ether Futures and Ethereum 2.0
Christine Kim – CoinDesk
U.S. regulators are not yet sure about what to make of ethereumâ??s impending transition to a staking-based protocol.

Baton Systems and J.P. Morgan Develop Industry Solution to Automate Derivatives Margin Payments
PR Newsire
Baton Systems (“Baton”), a provider of distributed ledger-based post-trade solutions for capital markets, and J.P. Morgan have developed a solution that enables the near real-time orchestration of cash and collateral transfers to multiple clearing houses. The new service addresses the challenge of having to tie-up excess funds across the clearing workflow by integrating settlement instructions for custodians and other funding sources into existing optimization and treasury systems without any need to dismantle technology infrastructures.

Wyoming’s New Crypto Banking Law Could Defang New York’s BitLicense
Ian Allison – Coindesk
There’s a way cryptocurrency businesses can get around New York’s notoriously hard-to-get BitLicense, and it runs through Wyoming. At least, so say members of the team that drafted the 13 crypto-friendly laws enacted by the Western state this year. One of those laws allows Wyoming to charter Special Purpose Depository Institutions (SPDIs), a new type of fully-reserved fiat bank that can also custody crypto assets.

Northern Trust Testing Fractionlized Bonds on Blockchain
Nathan DiCamillo – Coindesk
Custody bank Northern Trust is testing the trading of fractionalized bonds on a blockchain. Working with Singapore-based debt markets company BondEvalue, the bank is providing asset servicing for large, high-grade bonds that will be tokenized and divided for retail investors on Hyperledger Sawtooth. These bonds are normally too large for individual investors, but the quality of the bonds is attractive. The move shows Northern Trust’s continued interest in the technology after it developed then sold its private equities blockchain, which shortens the time to market for new high-tech private equity funds. With $124.3 billion in assets, Northern Trust is the 24th largest bank in the U.S.

DeFi Startup Compound Finance Raises $25 Million Series A Led by A16z
Leigh Cuen – Coindesk
Lending protocol Compound Finance just raised $25 million in a round led by Andreessen Horowitz’s a16z crypto fund, marking one of the largest venture capital investments in a decentralized finance (DeFi) startup to date. According to DeFi Pulse, Compound has nearly $103 million worth of crypto locked up in its automated system, which can generate returns for users comparable to interest. Today’s announcement of the Series A follows Compound’s $8.2 million seed round in 2018.


Why a ‘Republican Economist’ Plans to Vote in the Democratic Primary; The Harvard economist N. Gregory Mankiw, once an adviser to Republican leaders, has been disappointed by Trump. Here’s what he’s seeking in economic policy.
N. Gregory Mankiw – NY Times
A few weeks ago, I drove to my local city hall and changed my voter registration from Republican to independent. That was a momentous change for me, a lifelong Republican.

Tell Congress to Support Working Families
United Church of Christ
Millions of people have benefitted from access to the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC). These two tax credits together helped lift 8.9 million people out of poverty last year and helped many millions more. However, there are still low-income workers being left behind. With improvements, EITC and CTC could make a real difference in the lives of low-income workers and their families.

Elizabeth Warren’s Tax Plan Would Bring Rates Over 100% for Some; Presidential hopeful proposes wealth tax and levy on unrealized gains, a combination that could alter investing
Richard Rubin – WSJ
Democratic presidential candidate Elizabeth Warren has unveiled sweeping tax proposals that would push federal tax rates on some billionaires and multimillionaires above 100%.

Donald Trump asks Supreme Court to block subpoena for tax returns; US president’s appeal sets up constitutional battle against New York prosecutors
Kadhim Shubber – FT
Donald Trump has asked the Supreme Court to block a subpoena from New York prosecutors that seeks to obtain his tax returns, setting up a constitutional battle that may be decided in the middle of his 2020 re-election campaign.

Lloyd Blankfein fires back at Elizabeth Warren over wealth tax video; Ex-Goldman chief says ‘maybe tribalism’ is in Democratic presidential candidate’s DNA
Robert Armstrong, Ortenca Aliaj and James Fontanella-Khan- FT
The war of words between Wall Street and Elizabeth Warren heated up on Thursday as former Goldman Sachs chief executive Lloyd Blankfein took aim at the Democratic presidential candidate, saying that “maybe tribalism is just in her DNA”.

It’s Not Just Farmers—U.S. Exports May Never Recover From the Trade War
Anita Sharpe – Bloomberg
The Trump administration’s trade war is ravaging exports to China across the U.S. and well beyond the farm belt, new data from the U.S. Commerce Department show.

The City of London Is Gambling on a Jeremy Corbyn Election Defeat
Tom Metcalf, Nishant Kumar, and Benjamin Robertson – Bloomberg
Finance chiefs see Labour victory as damaging, but unlikely; Many firms would scramble to adapt to surprise poll result
Eight centuries of financial firepower were on vivid display last weekend at the annual Lord Mayor’s Show in the City of London.

Lawmakers Push Banks to Fight Gun Crime
NY Times
A day after two students were killed at a school in Santa Clarita, Calif., Representative Jennifer Wexton, Democrat of Virginia, is planning to introduce a bill in Congress this morning that would require banks and other financial institutions to work with the government to help identify and report suspicious or illegal financial activity related to firearms.

House Speaker Pelosi Says Trump’s Withholding of Ukraine Aid Amounted to Bribery; Comments come a day after lawmakers held their first public hearing in the impeachment probe; GOP leader McCarthy dismisses testimony
Natalie Andrews – WSJ
House Speaker Nancy Pelosi said President Trump’s alleged decision to withhold military aid to Ukraine in exchange for investigations of Joe Biden and the 2016 U.S. election amounted to bribery, using a term specifically mentioned in the Constitution as an impeachable offense.


EU To Extend Clearing Rights as Brexit Negotiations Continue, Commissioner Says
Silla Brush – Bloomberg
EU commissioner says he’ll propose equivalence extension; Current clearinghouse arrangements due to expire in March
Europe’s banks will still be able to use clearinghouses in London if the Brexit negotiations run deep into next year, according to the commissioner for financial stability.

EU Commission confirms plans to extend temporary equivalence of UK CCPs; European Commission vice president, Valdis Dombrovskis, said in London today that the EU plans to extend the temporary equivalence for UK CCPs.
Hayley McDowell – The Trade
The European Commission has confirmed its intentions to renew the temporary equivalence and recognition of UK central counterparties (CCPs).

CFTC Commissioner Behnam Announces Members of the Market Risk Advisory Committee’s New Climate-Related Market Risk Subcommittee
U. S. Commodity Futures Trading Commission Commissioner Rostin Behnam today announced the members of the new Climate-Related Market Risk Subcommittee (Climate Subcommittee) of the CFTC’s Market Risk Advisory Committee (MRAC). Commissioner Behnam is the sponsor of the MRAC.

U.S. fines former Deutsche Bank subprime chief over alleged mortgage fraud
Jonathan Stempel – Reuters
A former head of subprime trading at Deutsche Bank AG (DBKGn.DE) will pay a $500,000 civil fine to resolve charges he misled investors about the quality of loans backing $1.42 billion of residential mortgage-backed securities (RMBS) issued before the 2008 financial crisis.

City firms must do more to tackle sexual harassment, says FCA executive; Jonathan Davidson says managers who allow such behaviour are ‘not fit and proper’
Kalyeena Makortoff – The Guardian
A top executive at the City watchdog has said there are still too many incidents of sexual harassment happening inside financial sector companies and criticised independent directors within some institutions for failing to act because they believe it is “political correctness gone mad”. Jonathan Davidson, a member of the Financial Conduct Authority’s executive committee, said that while there had been some improvements in culture at the banks and insurers it regulates, there was still “a lot more to do.”

FINSIA: The Regulators; Opening remarks by ASIC Deputy Chair Karen Chester at The Regulators 2019, Sydney, 15 November 2019
Being a FINSIA fan, I’m pleased to be here today. Joining Guy and John to form a troika for the panel discussion – three deputies, three regulators, and three economists. I’ll look to cover three things in my opening words:

ESMA updates its Q&As on the Securitisation Regulation
The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, has today updated its Questions and Answers (Q&As) on the Securitisation Regulation (Regulation 2017/2402).

The Buildathon: Creating New Technology in Service of Investors
Hackathons aren’t new. Silicon Valley has been using them for years and they’ve become commonplace among technologists. But what about a Buildathon?

Andrew Bailey: clearing up at the FCA; Dirty protests at the City regulator
Patrick Jenkins – FT
The chief operating officer of the Financial Conduct Authority has a CV rich in regulatory enforcement. She’s also spent time “specialising in investigations, particularly of unauthorised business”. Who better, then, to probe — and begin an enforcement action — over the state of the regulator’s toilets and the habit that some staff have bizarrely developed of defecating and urinating on the floor? The initial announcement read like an April fool’s. Right down to the investigating officer — Georgina Philippou, or Georgina Follow-poo as City wags quickly renamed her. Unhappily for the FCA it’s all deadly serious. Andrew Bailey, Ms Philippou’s boss at the FCA, will no doubt be hoping the dirty protest won’t undermine his candidacy to be promoted to be the next Bank of England governor.

Investing and Trading

Tower Research Capital: The Joy of Spoofing
Paul Rowady – Alphacution blog
On November 7, 2019, the U.S. CFTC (Commodity Futures Trading Commission) announced that it was ordering proprietary trading firm, Tower Research Capital, LLC (TRC), to pay $64.7 million in restitution, disgorgement and penalties for what amounts to the “largest total monetary relief ever ordered in a spoofing case.” Apparently, this is all due to activity in equity index futures (at least) between March 2012 and December 2013. Now, this is one of those slippery – and potentially toxic – topics where someone ends up getting pissed off by whatever I say next. But, hey, it’s Thanksgiving season, the Arctic blast has arrived 3 months early, and someone’s likely to get pissed off anyway…

Is Dalio Mad, Broken, Or Right?
RCM Alternatives blog
In case you missed it, everyone’s favorite Billionaire hedge fund manager, Ray Dalio (please note the heavy sarcasm – with one manager we work with calling his views d&*^-bag champagne socialism in a recent exchange) came out with his latest musings last week, saying that the ‘World has Gone Mad and the System is Broken.”

The importance of an inverted yield curve is overrated; Financial cycle measures like property prices are better predictors of recession
Gillian Tett – FT
Wall Street is obsessed with the game of inversion-watching right now. No wonder. Four months ago, the yield on long-term US Treasury bonds fell below that for short-term ones, creating what is known as an “inverted yield curve”.

In search of an investment to last a lifetime; Investment trusts pass the longevity test and could provide the answer
Merryn Somerset Webb – FT
You are in “critical denial” about your future, rejuvenation guru Aubrey de Grey told his audience at the Longevity Forum at the Royal Institution in London this week.

Princeton Draws Inquiry Over Efforts to Diversify Its Endowment Fund
Janet Lorin – Bloomberg
Princeton University was questioned by a congresswoman about the school’s efforts to include more diverse asset managers when investing its $26 billion endowment, the nation’s fifth-largest.

Fiscal rethink poses risk to market foundations; Calls for spending splurge could seriously disrupt equity valuations
Michael Mackenzie – FT
As investors chase equities and drive share prices higher, another important market development should not escape notice: Government bond yields have bounced from their lows of August and their role as a driver of broader market sentiment remains paramount.

Here’s What Investors Say Aramco’s Valuation Should Be
Filipe Pacheco, Swetha Gopinath, and Netty Idayu Ismail – Bloomberg
As Saudi Aramco prepares to unveil the price range for its long-awaited IPO on Sunday, an investor survey points to a maximum valuation for the oil giant of $1.5 trillion.

The Only Word You Need to Understand Emerging Markets; China. Its fear of a Minsky Moment is driving a tectonic shift in the availability of money.
John Authers – Bloomberg
Let’s Get Liquid
You might already have read a column of mine entitled “The Only Chart You Need to Understand 2019’s Global Markets.” For reference, this is the chart in question, drawn up by CrossBorder Capital of London. It shows a dramatic turning point in the liquidity produced by central banks this year — upward in the case of developed markets, and downward for emerging markets.


Goldman Sachs Announces Managing Director Class of 2019
Goldman Sachs
Today we announced the Managing Director Class of 2019, which comprises 465 members who have been invited to become managing directors as of January 1, 2020. We are very pleased that this year’s class is our most diverse to date, and that it reflects the global nature of our business, with our new managing directors representing 36 offices around the world.

Total losses for Woodford Equity Income to amount to £1bn – reports; Analysis from PJT Park Hill
Anna Fedorova – Investment Week
The total losses from the beleaguered Woodford Equity Income fund are expected to amount to as much as £1bn as the portfolio is liquidated, according to reports.

Founder of $1 Billion Hedge Fund Bets Pound Has Potential to Rally More
Nishant Kumar – Bloomberg
Fund favors options, sees room for currency to strengthen 5%; Sterling surged 5.3% in October, most since financial crisis
A prominent money manager who oversees $1 billion in assets is betting on a stronger pound.

Wells Fargo former interim CEO Parker steps down as general counsel
Bharath ManjeshR, Imani Moise – Reuters
Wells Fargo & Co (WFC.N) said on Thursday general counsel Allen Parker, who briefly served as interim chief executive of the scandal-hit U.S bank, will step down next year.


Greek law change viewed as backtracking on money laundering; Bulk of frozen assets set to be handed back under penal code amendment
Kerin Hope – FT
The centre-right government of prime minister Kyriakos Mitsotakis has pushed a measure through parliament that appears to overturn Greece’s commitment to international standards on combating corruption and money laundering.

Bank of China to buy stockbroker Goodbody
Will Goodbody – RTE
The owners of stockbroker Goodbody have agreed a deal to sell the company to Bank of China. It is understood the Chinese buyer will pay around EUR150 million for the firm, provided competition and regulatory approval is received.

SEB shares slide over money laundering concerns; Bank says it has received questions from Swedish broadcaster’s investigative unit
Richard Milne – FT
Shares in SEB fell by more than 10 per cent as investors worried the Swedish bank would become the latest lender to be sucked into a money-laundering scandal that has swept through the Nordic financial world.

China Regulator Revokes Licenses of Securities Firm After Investigation
Bloomberg News
Chinese regulators revoked all licenses of CEFC Shanghai Securities Co., marking a rare move in recent years.
The decision was announced late Friday by the China Securities Regulatory Commission, which cited the broker’s unlawful actions, including extending financing to parent company CEFC Shanghai International Group.

Alibaba Launches Mega Share Sale With $12 Billion Retail Tag
Lulu Yilun Chen and Alistair Barr – Bloomberg
The company caps its shares for retail investors at HK$188; Alibaba advances as protests throw Hong Kong into recession
Alibaba Group Holding Ltd. priced the retail portion of its Hong Kong share sale Friday, issuing an appeal to individual investors in a city in the throes of recession after months of violent pro-democracy protests.

Venice Suffers Second Record Tide as Italy Declares Emergency
Alessandro Speciale – Bloomberg
Venice suffered its second exceptionally high tide in a week, with waters rising 154 centimeters (61 inches) above their benchmark late morning Friday, the Ansa news agency reported.

Why Chinese investors are becoming Australian vignerons; Aussie wine’s most valuable export market is China, worth more than twice as much as the US
Jancis Robinson – FT
The Helen & Joey Estate winery in the Yarra Valley outside Melbourne could hardly sound more Australian. But, in fact, Helen and Joey are the adopted English names of a Chinese couple. They are among the hundreds of mainland China-born business people who have decided to invest in Australia’s wine regions.


Brussels suing UK in row over naming new commissioner; Boris Johnson has refused to nominate senior EU executive
Jim Brunsden and Sam Fleming – FT
Brussels is suing the United Kingdom over Boris Johnson’s refusal to appoint a member of the next European Commission, escalating a dispute with London over the obligations that arise from last month’s extension to Britain’s EU membership.

These Are the Brexit Battlegrounds That Will Decide the U.K. Election
Greg Ritchie, Hayley Warren, Jeremy Scott Diamond and Kitty Donaldson – Bloomberg
The U.K. is about to hold a once-in-a-lifetime election in one of the most charged political climates anyone can recall. Almost everything about this vote is unusual and unpredictable.


After Its Merger, Gannett Will Be the Largest Newspaper Publisher in the U.S.
Marc Tracy – NY Times
Roughly one in four newspapers in the United States has closed since 2004, and many that managed to survive have been cut to the bone. Now, more than 260 dailies will be controlled by the same company.

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Past JLN Newsletters

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