Everything Is Private Equity Now

Oct 3, 2019

First Read

Statement on Justice for Jitesh Thakkar
By John J. Lothian

(Note: This is a statement I intended to make at the CFTC’s Technology Advisory Committee meeting in Washington, DC today. However, I have been asked not to by a staff member, as to not disrupt the discussion on automated trading. I share it with you here.)

There is a cloud hanging over the CFTC’s Technology Advisory Committee that does not involve Bitcoin. That cloud has darkened recently. The cloud is the civil case against Jitesh Thakkar, a one-time contributor to the TAC’s high frequency trading subcommittee.

Two of the three original charges brought by the Justice Department were dismissed by a federal judge after the government’s long list of witnesses failed to provide any evidence that Thakkar knew about his software client’s spoofing. The jury was hung 10 not-guilty to 2 on the remaining count and the Justice Department decided to drop the case. That a criminal case was brought against Mr. Thakkar without evidence of intent is troubling. There are many troubling issues for the industry with the prosecution, and some say persecution, of Jitesh Thakkar.

Edge Financial, Thakkar’s business, has been destroyed. The CFTC’s continuing civil case against Mr. Thakkar, after the criminal case was dismissed, comes with a lower barrier for proof. This continued pursuit of civil charges seems more about the CFTC not losing face than it does about seeking justice.

Mr. Thakkar is now defending his good name by declining CFTC offers to settle the case and refusing to plead guilty. He has shown that his good name is worth everything he has and more. The CFTC and DOJ cases against him implied he would sell his soul for about $24,000, the price of some software development work.

I can tell you that the vast difference in these two prices, the price Mr. Thakkar has put on his reputation and honor and the price of some hard-earned software development dollars, could not be more indicative of the wrongness of the CFTC’s continued case.

Why does this matter to me? Or to the industry? Because this unjust criminalization of software trading tools raises the risk and cost for everyone in the industry. And those raised costs have potential negative impact on market participation and market quality. For example, last month the CFTC’s attorneys told the court in Chicago that they need to take testimony from the members of the HFT subcommittee from 2012 to determine how much Thakkar knew about spoofing back then! This hyper-adversarial approach will certainly make it hard to attract participation on the TAC subcommittees from software developers as well as everyone else. Much of our hard work on the Technology Advisory Committee could be for naught due to this misguided continued prosecution.

Justice demands that the charges be dropped. Justice should include an apology, but that may be hoping for too much.


Anchorage running Libra test nodes and other highlights from the Digital Asset Summit
Matt Raebel – John Lothian News

After the close of the first day of the Voice of Blockchain conference in Chicago on Monday, dozens gathered on the tenth floor of the venue for a Digital Asset Summit hosted by FinTank, a fintech development hub based in Chicago, as well as Fidelity Digital Assets, Galaxy Digital, and Token Daily. It was a closed event unaffiliated with the Voice of Blockchain conference, though many attendees from VoB were there.

Well-known figures from the blockchain/digital assets industry such as Colleen Sullivan (CMT Digital), Rumi Morales (Outlier Ventures), Sunayna Tuteja (TD Ameritrade), David Carman (FinTank), and Bob Zagota (Kraken) gave presentations for the attendees. Even Zooko Wilcox, creator of the cryptocurrency Zcash, showed up.

To read the rest of this commentary, go here.


Hits & Takes
By JLN Staff

The American Financial Exchange (AFX) hit another record volume trading day on September 30 in the AMERIBOR futures with 585 contracts traded across the three-month and 7-day futures contracts, which is equal to $5.77 billion in notional value. Monday’s volume topped the September 12 record of 325 contracts traded.~JK

Tyler Gallagher of Authority Magazine interviewed Donna (Grotegut) Heidkamp, executive director of RJO Futures, in an article about the female leaders of finance. Donna graced us with a presentation this summer for MarketsWiki Education, which we recently published.~JJL

According to the CME’s October Rates Recap, SOFR futures are a $1.5 trillion market. The five-day ADV jumped to 108K contracts, including a record 153K contracts ($670B notional) on Sept. 17, and open interest grew 51% during the month to 418K contracts ($1.5T notional).~SR

Steve Grob, the CEO at Vision 57 and a well-known market commentator, will be working with the strategy team at big xyt, which today launched XYT View (see the story below in Leads).~SR

Libra’s “pre-mainnet,” a test network of nodes run by Libra Association members, is now live, according to a developer update published on Libra’s website yesterday. David Marcus, the head of Libra and Calibra who testified before Congress in July, said that Libra will not launch until it has “fully addressed regulatory concerns.”~MR

U.S. Representatives French Hill and Bill Foster sent a letter to Federal Reserve Board Chairman Jerome Powell saying, “Internationally, the Bank for International Settlements conducted a study that found that over 40 countries around the world have currently developed or are looking into developing a digital currency.” The letter expressed concern that privately-developed digital currencies might be a threat to the U.S. dollar, and that the creation of a U.S. national digital currency might be necessary.~MR

SGX trading volume for SGX FX futures in Q3-2019 hit a quarterly record with nearly 7 million contracts traded and a notional value of US$383 billion. FX futures volumes are up 44% year-over-year.~JK


Tom Gould – Open Outcry Traders History Project

Tom Gould is a former option trader at the Chicago Board Options Exchange. He went on to a brokerage and compliance career. He tells his story about his days trading on the floor of the CBOE to John Lothian News as part of the MarketsWiki Education Open Outcry Traders History Project.

Watch the video »


Cboe to Launch Order Book Priority for Retail Investors on EDGX Exchange
Cboe Global Markets, Inc. (Cboe: CBOE), one of the world’s largest exchange holding companies, today announced it has received approval from the U.S. Securities and Exchange Commission (SEC) to launch its new Retail Priority program on the Cboe EDGX Exchange. Designed to enhance execution quality for individual investors who trade U.S. equities, the mechanism will introduce enhanced order book priority for orders submitted on behalf of retail investors, thereby increasing the probability of execution for their orders. Cboe expects to launch Retail Priority in November.

*****I have been espousing this approach for years. Go for it, Cboe!~JJL


Rice Dairy, LLC and Commodity Risk Management Group Combine Forces to Form Vault
Hoard’s Dairyman
Rice Dairy, LLC (Chicago) and Commodity Risk Management Group (Platteville, Wis.) have announced the partnership between the two businesses to create a single brokerage company that will service the agriculture and dairy industries under the banner of Vault Ag Holding Company, LLC (Vault).

****Congrats to Rice Dairy on this deal. It is good to see a vibrant introducing broker company do well.~JJL


AI-driven stock-trading venue eyes U.S. exchange status, adds new pricing
John McCrank – Reuters
Imperative Execution, an upstart, artificial intelligence-driven U.S. stock trading venue operator, is going after the business of the New York Stock Exchange and other bourses by adopting their pricing models and may soon register as an exchange, the head of the company said on Wednesday.

*****Some very smart people who are not curing cancer, but curing execution issues in equities trading. For now. There will be bigger fish to fry soon enough.~JJL



Wednesday’s Top Three
Our top story of the day on Tuesday was Bloomberg’s coverage of the brokerage fee wars, in Thomas Peterffy, Joe Ricketts Net Worths Fall as Schwab Cuts Fees. Second was a repeat of our top read piece from Monday from the New York Post about Barclays banker David Pomphret, in https://jlne.ws/2ntFqhlBarclays bank exec beat wife to death for insulting daughter. Third was about “status” in Forbes’ How Traders Get Enormous Tax Deductions, And Investors Do Not. Answer: Some have TTS and some of us do not.


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Lead Stories

Everything Is Private Equity Now; Spurred by cheap loans and investors desperate to boost returns, buyout firms roam every corner of the corporate world.
Private equity managers won the financial crisis. A decade since the world economy almost came apart, big banks are more heavily regulated and scrutinized. Hedge funds, which live on the volatility central banks have worked so hard to quash, have mostly lost their flair. But the firms once known as leveraged buyout shops are thriving. Almost everything that’s happened since 2008 has tilted in their favor.

CFTC Says Enforcing Risk-Management Rules Is a Priority; In a first, swaps regulator charges bank with violating risk-management regulations put in place after financial crisis
Kristin Broughton – WSJ
The Commodity Futures Trading Commission for the first time charged a bank with violating risk-management rules adopted after the financial crisis, a signal to the industry to bolster internal controls in their swaps businesses.

Jump Capital raises $200 million venture fund; The venture firm backed by high-speed trading pioneers has become one of Chicago’s largest.
John Pletz – Crain’s Chicago Business
Jump Capital has raised a new $200 million fund, one of the largest venture capital pools in Chicago.

Brokers BGC and GFI hit with $25m regulatory fine; Interdealer firms settle charges over fake forex trades
Philip Stafford and Eva Szalay- FT
Two interdealer broking groups have paid $25m in penalties to US regulators to settle charges of fraud in the foreign exchange options market as global authorities continue to crackdown on errant trading practices in the world’s biggest market.

****Here is the Reuters version of this story.~JJL

XYT View launched in response to market demand for independent overview of fragmented European equity market
big xyt press release
New collaboration with Steve Grob brings additional market structure expertise to the team
London, Frankfurt, 3rd October 2019 – big xyt, the independent provider of market data analytics, today launched XYT View, a specialist aggregated view of fragmented market information that participants need to ensure that they are achieving the best possible outcomes for themselves and their clients.

Obscure Hedge Fund Leaves Sleepy Swiss Town and Trounces Rivals
Justina Lee – Bloomberg
In 2017, Patrick J. Aregger took over an obscure hedge fund based in a sleepy Swiss town. He moved its base to Zurich, shook up operations — and trounced the trend-following competition. Quantica Capital AG’s flagship fund is up 26% in 2019, compared with a 9% gain for an index of commodity trading advisors, a breed of quant that uses futures contracts and typically surfs market momentum. In September the firm attracted about $100 million of new money, taking assets under management to $550 million.

ETrade joins rivals in eliminating trading commissions
Richard Henderson – FT
Online brokerage ETrade has eliminated trading commissions, escalating a pricing war sparked this week by similar moves from rivals Charles Schwab and TD Ameritrade.

*****Here is the WSJ version of this story.~JJL

Have Investors (Permanently) Given Up on Managed Futures?
Beyond recent performance flops, investors are questioning whether the strategies work at all anymore.
Julie Segal – Institutional Investor
Investors have a track record of giving up on strategies at the very worst time. Managed futures — designed to protect investors when equity markets are at their worst — are performing better than they have since 2014. Yet investors have been pulling their money at a record pace. Recent underperformance is not the only issue. Many have started to believe the strategies simply don’t work anymore.

London forex trader sues Citigroup over ‘malicious’ forex prosecution
Kirstin Ridley – Reuter
sA London-based former Citigroup (C.N) trader is suing the U.S. bank for more than $112 million, alleging it made materially false and malicious statements to U.S. prosecutors that led to his trial in New York on foreign exchange-rigging charges.

HSBC, Societe Generale, BNY Mellon and others fined $6 million for swaps violations; The US CFTC also fined NatWest Markets, PNC Bank and Northern Trust for reporting and risk management regulation failures.
Hayley McDowell – The Trade
Six major financial institutions will pay a total of $6 million to settle charges with the US derivatives watchdog for various violations related to swaps trading and reporting.

How the Federal Reserve could fix the repo market; Central bank urged to restart asset purchases to soothe short-term funding glitches
Colby Smith and Joe Rennison and Brendan Greeley – FT
The Federal Reserve is facing urgent calls to find a permanent fix to short-term funding strains that unsettled markets last month, and avoid another bout of volatility at the end of the year when the demand for cash is expected to rise again.

How Commission-Free Trading May Ultimately Hurt ETFs
Simon Moore – Forbes
In recent days several online brokerages have announced commission-free trades. That’s great for investors, though there may be a few hidden drawbacks. However, more interesting is how the industry will continue to evolve in light of this. It seems that widespread commission-free trades could lead to broader adoption of direct indexing. This may hurt ETFs over the long-term as direct indexing services develop.

What meeting Bernie Madoff taught me about our inability to read others; We tend to presume — erroneously — that our radar will tell us who to trust
Gillian Tett – FT
Eight years ago, I visited Bernie Madoff in prison for an interview. It was one of the most disconcerting encounters of my career. Getting into the vast federal complex in North Carolina required an adrenaline-fuelled ­journey, with hours of bureaucratic form-filling, searches and nervous interaction with the prison guards. But when we finally came face to face in a visitors’ room, my heart pounding, what was most shocking was how utterly normal Madoff seemed.

SIP Operating Committees Seek Comment on Proposal to Add Odd Lot Quotes to SIP Data Feeds
SIP Operating Committee
The Operating Committees of the Securities Information Processors (“SIPs”) today announced that they have issued a proposal for adding Odd Lot quotes to the UTP and CTA/CQ data feeds. The Operating Committees are actively seeking input from the industry and the public for the next forty-five days. The proposal is posted on the Consolidated Trade Association (“CTA”) www.ctaplan.com/oddlots and Unlisted Trading Privileges (“UTP”) www.utpplan.com/oddlots websites and comments received will be posted there as well.

GAO offers recommendations on FinCEN efficacy of financial crime reporting
Douglas Clark – Financial News Regulation
The Government Accountability Office (GAO) has issued four recommendations to the Financial Crimes Enforcement Network (FinCEN) within the Treasury Department as a means of enhancing reports focusing on finance industry related crimes.

Credit Suisse CEO Seeks to Stem Defections After Khan Exit
Archana Narayanan, Patrick Winters, and Marion Halftermeyer – Bloomberg
Bank has recently been losing private banking teams to rivals; Thiam is discussing pay and career with top client advisers
Credit Suisse Group AG Chief Executive Officer Tidjane Thiam is devoting more face time to top private bankers and holding talks on boosting pay as he seeks to prevent defections after Iqbal Khan’s exit.

Trading veteran Hodgkinson to chair data firm BMLL; Lee Hodgkinson takes non-executive role at engineering outfit with roots at the University of Cambridge
Samuel Agini – Financial News
Lee Hodgkinson, chief executive of trading company OSTC, has become the chair of a data-engineering outfit with roots at the University of Cambridge.

SEC calls for more transparency in NMS core data fees
Hazel Bradford – Pionline.com
Investors and other market participants could soon see more transparency into the fees plans charge for core data, following the SEC’s vote Tuesday to make future fee changes first subject to a public comment period.

Exchanges, OTC and Clearing

ASX Monthly Activity Report – September 2019

Eurex expands sustainable investing derivatives with launch of ESG options; After introducing ESG futures in February, Eurex has said it will launch ESG options to support firms seeking sustainable investing capabilities.
Hayley McDowell – The Trade
Eurex Group has said it will launch the first exchange-traded environmental, social and governance (ESG)-based options, as it continues to build out its sustainable investing offering.

SGX FX futures achieved best quarter with quarterly record volume of US$383 billion as at end-September; September FX futures volumes at US$122 billion
The ongoing US-China trade talks continued to sway the movement of currencies. After additional round of tariffs announced by both sides in August, both US and China announced the deferment of some tariffs in September, renewing hopes of some progress in the trade talks. The trade war between the world’s top two largest economies continues to contribute to a volatile geopolitical and macro environment.

Total Return Futures: An Academic & Practitioner’s View on Current Use in Trading Strategies
Join us Oct 8 for an educational webinar on Total Return Futures to learn more about the current use, trading opportunities and the ongoing evolution of this product from both a leading academic research professional and derivatives market participants.

Moscow Exchange Trading Volumes In September 2019
Total trading volume across Moscow Exchange’s markets was RUB 67.7 trln in September 2019.

Chi-X launches new funds market
Samantha Bailey – The Australian
Stock exchange Chi-X Australia is set to “significantly” grow its capability as a listing and trading platform with the launch of its new Chi-X funds market, which will list both standard EFTs as well as quoted managed funds, or active EFTs that don’t track an index.

White Joins Euronext FX
Galen Stops – Profit-Loss.com
Ben White has joined Euronext FX as a sales director for EMEA. Based in London, White joins from State Street, where he had worked as an assistant vice president for EMEA sales for Currenex for over a year.


Apex Clearing Teams up with Trillium to Offer Trade Surveillance Tech for Apex Customers
Apex Clearing
Apex Clearing, the custody and clearing engine powering the future of wealth management, today announced it is entering into a strategic partnership with Trillium, a pioneering financial and technology service provider, which serves to introduce Apex customers to Trillium Surveyor Inbox.

DriveWealth Holdings Names Julie Coin President
DriveWealth Holdings, Inc., a leader in global digital trading technology, today announced the appointment this week of Julie Coin to the new position of President. Coin brings more than 20 years of experience in the financial services industry, where she has held various leadership roles in strategy, transformation management and operations at companies including Galaxy Digital, E*Trade Financial Corporation, Deutsche Bank and Merrill Lynch.

Cybersecurity Alert: Cloud-Based Email Account Takeovers
Several member firms recently notified FINRA that they have experienced email account takeovers (ATOs) while using cloud-based email platforms, including Microsoft Office 365 (O365). Attackers used compromised email accounts to defraud member firms by requesting fraudulent wire requests or stealing confidential firm information or non-public personally identifiable information (PII).

Google Cloud Worth Double IBM’s Market Cap, Deutsche Bank Says
Joe Easton – Bloomberg
Division worth $225 billion as 55% compound growth forecast; Deutsche Bank analysts give stock new Street-high price target
Alphabet Inc.’s cloud business alone is now worth almost twice the market value of IBM Corp., a leader in the space for decades, according to analysts at Deutsche Bank AG.

Hudson Fintech Launches Repo and Securities Finance Front Office Technology Platform
Hudson Fintech
Hudson Fintech, the London-based technology firm, today announced the launch of its new front office technology platform for sell-side and buy-side institutions trading in the Repo markets. The platform supports all aspects of Repo trading and has been developed to offer clients maximum flexibility, increased customisation and faster release cycles.

How Virtu trained its intelligent algos; Firm has sought to meld traders’ instincts with insights from ‘massive scale’ data
Faye Kilburn – Risk.net
All we’ve done is coded everything a human trader would ever do.” This is how Stephen Cavoli, head of execution services at market-marker and execution services provider Virtu Financial, describes the firm’s machine learning-powered agency execution algorithms. By Cavoli’s estimates, there are only a handful of firms that have the technical skills and depth of pocket to do it. Buy-siders say he is probably right.

Algorithmic Trading Market Will Grow Demand in Near Future By Top Key Players Lime Brokerage LLC, Hudson River Trading LLC
The global Algorithmic Trading Market is estimated to be valued over USD xx million by 2026. It also accounts for variables such as price, time, and volume in order to send small slices of the order out to the market over time. From the past several years, algorithm trading has been gaining traction in both institution and retail traders. Popular platforms for algorithmic trading include Quantopian, IQBroker, NinjaTrader and MetaTrader.


CME has no plans to launch physically-settled bitcoin futures, says executive
The Block Crypto
Derivatives exchange giant CME Group has no current plans to offer physically-settled bitcoin futures contracts. Tim McCourt, global head of equity index and alternative investment products at CME, told that to Markets Media in an interview published Tuesday.

BitPay to add support for XRP later this year
The Block Crypto
Blockchain payments provider BitPay will add support for XRP, the world’s third-largest cryptocurrency by market capitalization, by the end of this year. Revealing the news exclusively to The Block on Wednesday, BitPay said it has partnered with Ripple’s Xpring unit to integrate XRP on its platform so that businesses and merchants can accept the cryptocurrency. “XRP can offer a payment option that is fast, cost-effective and scalable,” said Sean Rolland, director of product at BitPay.

BitGo Acquires Startup Hedge, Launches Staking for Cryptocurrencies
Tomio Geron – The Wall Street Journal
Crypto company BitGo Inc. has acquired another startup, Hedge, as it moves into the increasingly popular area of providing a form of interest payments to holders of cryptocurrencies. Terms of the deal weren’t disclosed. All of Hedge’s employees have joined BitGo. BitGo Inc., which is based in Palo Alto, Calif., provides custodial and other crypto-related financial services to large institutional clients such as cryptocurrency venture and hedge fund Autonomous Capital and crypto-focused venture firm Blockchain Capital.

Ohio businesses can no longer pay taxes in bitcoin as the method gets suspended
The Block Crypto
Ohio, which became the first U.S. state to allow taxes to be paid in bitcoin last November, is no longer accepting cryptocurrency tax payments. Ohio Treasurer Robert Sprague announced Wednesday the immediate suspension of the OhioCrypto.com website, which allowed businesses in the state to pay taxes in bitcoin, which was later converted into U.S. dollars, by blockchain payments provider BitPay.

Confessions of a Reformed Crypto Doubter
Jared Dillian – Bloomberg
The cryptocurrency world was the subject of much derision in early 2018. It had all the signs of a bubble, complete with shady promoters, a speculative frenzy and investors with precious little knowledge piling into the market. I was a vocal bear at the time, but no longer. There has never been a greater need for a stateless currency and store of value held outside the financial system.

TalkTalk hacker’s parents sentenced for moving son’s stolen cryptocurrency
Matthew Beedham – TNW
The parents of Elliot Gunton, the 20-year old that hacked TalkTalk and EtherDelta, traded cryptocurrency, and sold stolen data on the dark web have landed themselves in hot water after trying to help their son. Gunton’s mother and father have each been served suspended prison sentences for transferring their son’s ill-gotten cryptocurrency during the authorities’ investigation, Eastern Daily Press reports.

Cryptocurrencies: Let’s Not Gamble On Their Future
Enrique Dans – Forbes
Tether, the cryptocurrency I researched a couple of months ago, has overtaken bitcoin in monthly transactions by more than 18%, making it the most widely used cryptocurrency in the world despite a market capitalization that’s 30 times smaller.

***Privatizing money: not even once.~MR

Facebook’s Worst Nightmare Is Coming True
Billy Bambrough – Forbes
It all seems to be going wrong for social media giant Facebook. On the one side, politicians are lining up to trash the company, with Democratic presidential hopeful Elizabeth Warren’s March threat to break Facebook up back in the spotlight. Meanwhile, Facebook’s hotly-anticipated bitcoin rival libra, which was scheduled for launch some time next year, is beset by troubles – even when a new survey has suggested it could be Facebook’s saving grace.

NYDFS is hiring a deputy superintendent with ‘special’ focus on crypto
The Block Crypto
The New York State Department of Financial Services (NYDFS), the financial regulator for the state, is seeking to hire a deputy superintendent with a “special” focus on blockchain and cryptocurrencies. According to a job posting by the regulator, the position is for its recently created Research and Innovation Division, which oversees the licensing of cryptocurrency firms.

Swiss SIX exchange lists bitcoin and ether exchange-traded product
The Block Crypto
An exchange-traded product (ETP) with a combination of bitcoin (BTC) and ether (ETH) is going live tomorrow on Switzerland’s primary stock exchange SIX. Fintech firm Amun AG and cryptocurrency custodian Bitcoin Suisse AG have partnered to launch the ETP, which will allow Swiss investors to add a basket of BTC and ETH to their portfolios, according to a press release shared with The Block on Thursday. Currently, the basket composition of the product is 90% of BTC and 10% of ETH.

Crypto wallet provider Blockchain is experiencing an executive exodus – Report
The Block Crypto
Blockchain, the cryptocurrency wallet and services provider, has experienced a wave of executive departures according to a report by The Information. Chief Operating Officer Liana Douillet Guzmán and executive vice president of finance Chris Lavery are reportedly expected to leave the firm. Guzmán and Lavery were two of the longest-serving executives at Blockchain. According to their LinkedIn profiles, Guzmán joined Blockchain in 2016 and Lavery joined in 2015. The firm also laid off approximately 15% of its staff earlier this year.

Gold, Not Bitcoin, Is Drawing Haven Demand on US Recession Fears
Omkar Godbole – Coindesk
Fears of a U.S. recession have resurfaced over the last two days and the resulting risk aversion is bringing a boost to gold. For bitcoin, though, it’s a different story. The U.S. Institute of Supply Management said Tuesday its manufacturing index fell to a 10-year low of 47.8 percent last month from 49.1 percent in August. A below-50 reading indicates contraction in manufacturing activity. The gloomy data suggests a boosted risk of a recession in 2020, as seen in the chart below tweeted by popular analyst Holger Zschaepitz.

Coinbase’s Chief Legal Counsel Tackles Crypto Ratings Concerns
Marie Huillet – Cointelegraph
Brian Brooks, the chief legal counsel at major United States digital wallet and exchange Coinbase, has responded to concerns that conflicts of interest could compromise the company’s newly-created Crypto Ratings Council. In an interview with crypto media outlet The Block on Oct. 3, Brooks addressed concerns that the Council’s compliance guidance might be affected by the private stakes of those involved.


Scotch Whisky Association says tariffs will hurt Scotland, urges restraint
A move by the United States to slap a 25% tariff on single malt Scotch whisky will damage the industry and hurt jobs and investment in Scotland, the sector’s trade association said on Thursday, as it urged restraint on all sides.

Private Equity Flexes Muscle in Washington as Warren Picks Fight
Heather Perlberg and Benjamin Bain – Bloomberg
Industry wielding $4 trillion in assets has powerful lobby; It’s what Democrat candidates face while advocating reforms
It was “Barbarians at the Gate,” Washington-style. As Republicans set out to overhaul the federal tax code in 2017, the private equity world leveraged its influence. The mission: protect the wildly lucrative tax break that’s helped mint more billionaires than almost any other industry.

China’s Soy Buying Spree May Signal Prudence Before U.S. Talks
Alfred Cang- Bloomberg
Chinese firms have been snapping up U.S. soybeans this week, but don’t mistake this as a sign of buyer confidence in upcoming trade talks.

Actually, the Stock Market Has Barely Moved the Last Two Years Under Trump
Sarah Ponczek, Vildana Hajric, and Molly Smith – Bloomberg
Its return remains solid but all the gains came before 2018; This week’s decline leaves it near where the last panic began
It’s like a gravitational field the S&P 500 can’t get free from, the place to which all rallies must return. And it was back in force Wednesday, eliciting angry notice from President Donald Trump as waves of selling dragged the benchmark within points of where it stood 21 months ago.

Trump’s Impeachment Saga Stems From a Political Hit Job Gone Bad
Joshua Green – Bloomberg
The irony of President Trump’s sudden impeachment peril is that it’s the unintended result of an effort to help him: a political hit job aimed at a likely opponent (Joe Biden) and funded by a major right-wing donor (Rebekah Mercer) that Trump and his lawyer (Rudy Giuliani) impatiently hijacked, with consequences that could turn out to be disastrous for them.


Big fund manager fined R100m after one of its unit trusts lost 66% in three days
The Financial Sector Conduct Authority (FSCA) has fined Metropolitan Collective Investments (METCI) R100 million after one its unit trust lost two-thirds of its value in half a week. The Third Circle MET Target Return Fund lost 66% of its value from December 8 to 11 in 2015. The losses came amid a period of massive volatility in South Africa, ahead of the shock replacement of finance minister Nhlanhla Nene with the ANC unknown Des van Rooyen.

Chicago trading firm fined $2.5 million by CFTC; The agency said Hard Eight Futures and its founder, Igor Chernomzav, engaged in manipulative and deceptive trading schemes as well as spoofing.
Lynne Marek – Crain’s Chicago Business
The Commodity Futures and Trading Commission charged the Chicago trading firm Hard Eight Futures and its founder Igor Chernomzav with manipulative trading, requiring them to pay a $2.5 million penalty.

CFTC Orders Interdealer Brokers to Pay $25 Million for Fraud in FX Options Markets
The U.S. Commodity Futures Trading Commission announced today that it issued orders filing and settling charges against two interdealer brokers: BGC Financial, LP and GFI Securities, LLC. The orders find that brokers employed by BGC and GFI on their respective emerging markets foreign exchange options (EFX options) desks made false representations that certain bids and offers were executable and that certain trades had occurred. The orders were entered on Monday, September 30, 2019.

CFTC’s Technology Advisory Committee Releases Agenda for Upcoming Public Meeting
The U.S. Commodity Futures Trading Commission today released the agenda for the upcoming Technology Advisory Committee (TAC) public meeting to be held October 3 at the CFTC’s Washington, DC headquarters.

2019 Industry Snapshot
FINRA regulates a critical part of the securities industry – brokerage firms doing business with the public in the United States. In an effort to increase public awareness and understanding about the broad range of FINRA-registered firms and individuals, FINRA shares an annual snapshot of some of the data collected in the course of its work.

FINRA Fines UBS Financial Services Inc. $2 Million for Continued Failures Relating to Short Positions in Municipal Securities; Firm Inaccurately Represented the Tax Status of Thousands of Interest Payments to Customers; Restitution Ordered
FINRA today announced it has censured and fined UBS Financial Services Inc. (UBS) $2 million for the firm’s repeated failures in timely addressing municipal short positions and in inaccurately representing the tax status of thousands of interest payments to customers. FINRA also required UBS to pay restitution to customers who may have incurred any increased state tax liabilities, to pay the IRS to relieve customers of any additional federal income tax owed, and to certify within 90 days that the firm has taken appropriate corrective measures. FINRA previously sanctioned UBS for its failures in this area in 2015 (AWC No. 2014041645601, August 12, 2015).

ESMA consults on MAR review
The European Securities and Markets Authority (ESMA) has published today a consultation paper on the provisions of the Market Abuse Regulation (MAR) as requested by the European Commission.

ESMA publishes updates its Q&As on investor protection issues
The European Securities and Markets Authority (ESMA) has today updated its Questions and Answers on the implementation of investor protection topics under the Market in Financial Instruments Directive and Regulation (MiFID II/ MiFIR).

South African regulator fines financial advice firm ZAR100m
Cristian Angeloni – International Adviser
After it blames ‘black swan’ event for one of its funds dropping 66% in less than a week
South Africa’s Financial Sector Conduct Authority (FSCA) has imposed a ZAR100m (£5.3m, $6.5m, EUR5.9m) penalty on MET Collective Investments (METCI) for breaching the country’s financial laws.

SEC Obtains Final Judgments Against Lek Securities and CEO in Layering, Manipulation Case; Litigation Continues Against Ukraine-Based Firm, Individuals
On October 1, 2019, a federal court judge entered final judgments against New York-based brokerage firm Lek Securities Corp. and Chief Executive Officer Sam Lek, who were charged by the Securities and Exchange Commission with facilitating manipulative U.S. trading by a Ukraine-based firm over a three-year period.

SEC Obtains Partial Summary Judgment Against Investment Adviser and Principal On Undisclosed Compensation Claims; Securities and Exchange Commission v. Westport Capital Markets, LLC and Christopher E. McClure, Civil Action No. 3:17-cv-02064 (D. Conn., filed December 11, 2017)
On September 30, 2019, a federal district court in Connecticut granted partial summary judgment in the Securities and Exchange Commission’s favor in the SEC’s pending action against Westport Capital Markets, LLC, a Connecticut-based investment advisory firm, and its principal, Christopher E. McClure. The SEC’s complaint alleges that the defendants breached their fiduciary duties and defrauded their advisory clients by repeatedly purchasing securities that generated significant amounts of undisclosed compensation, enriching themselves at their clients’ expense. The complaint seeks injunctive relief, disgorgement of ill-gotten monetary gains plus interest, and penalties.

Defendants Charged in Fraudulent ICO to Pay Nearly $7 Million; Securities and Exchange Commission v. PlexCorps, Dominic Lacroix, and Sabrina Paradis-Royer, No. 1:17-cv-07007-CBA-RML (E.D.N.Y.)
The Securities and Exchange Commission announced that it has obtained a final judgment against the proprietors of the PlexCoin Initial Coin Offering (ICO), who consented to a judgment enjoining them from future violations of the antifraud provisions of the federal securities laws and ordering them to pay nearly $7 million.

SEC Obtains Final Judgment Against Investment Banker Charged in Insider Trading Scheme; Securities and Exchange Commission v. Woojae (“Steve”) Jung, et al., Civil Action No. 1:18-cv-04811-JGK (U.S. District Court for the Southern District of New York)
On September 30, 2019, a federal court judge entered a final judgment in the SEC’s action against Woojae (“Steve”) Jung, a former employee of a prominent investment bank charged with repeatedly using his access to highly confidential information in order to place illicit and profitable trades in advance of deals on which the bank was providing investment banking services.

Investing and Trading

FanDuel Owner Buys PokerStars in $6 Billion Deal; Deal connects FanDuel with Fox Corp., which owns a minority stake in Stars and recently launched its own betting app
Katherine Sayre and Ian Walker – WSJ
FanDuel owner Flutter Entertainment FLTR -0.44% PLC agreed to buy PokerStars owner Stars Group Inc. TSG 30.05% for about $6 billion, creating an online gambling giant as internet and app-based betting is taking hold in the U.S.

This Time It’s Different as Stock Traders Were Prepared for Rout
Michael Msika – Bloomberg
Traders had built protection during the September rally; Decent hedging is a big change from previous peaks: strategist
The sharp sell-off in European stocks over the past two days may seem to echo those in May and August, but there’s one significant difference. This time, traders were ready. Options contracts show market operators built protection against losses during the September rally.

Stock Markets Have Long Tails and Tiny Brains; Bonds bit this brontosaurus at its extremity months ago. The message has only just penetrated.
John Authers – Bloomberg
This is a time when only a dinosaur analogy will do. Equity markets around the world are suddenly moving to price in the alarm about slowing global growth that has been evident in bond markets for many months. Why? Jeremy Grantham, the founder of Boston-based GMO, likened the stock market to a dinosaur with a tiny brain:

Forget Why, It’s How Stocks Are Falling That’s Troubling; Deepening worries about the U.S. economy lead market commentary. Plus, Brexit blahs, oozing oil and more.
Robert Burgess – Bloomberg
The global stock market fell for a second straight day Wednesday, posting its biggest back-to-back loss since early August. Why this is happening is well known: The outlook for the worldwide economy is getting worse. But what’s really worrisome is that suddenly the declines are being led by U.S. equities.

Investors retreat from U.S. stock funds amid impeachment inquiry
David Randall – Reuters
Investors pulled nearly $14 billion out of mutual fund and exchange-traded funds that hold U.S. stocks last week, ending what had been the largest surge into domestic stock funds since December 2016, according to data released Wednesday by the Investment Company Institute.


Credit Suisse Chief Faces Spy Scandal Aftermath Without Trusted Adviser; Tidjane Thiam leans heavily on a close inner circle to enforce and execute strategy at Switzerland’s second-biggest bank
Jenny Strasburg and Margot Patrick – WSJ
Tidjane Thiam arrived at Credit Suisse Group AG in 2015 and quickly established a tight inner circle of trusted lieutenants as he set about trying to revive the ailing Swiss lender.

With $0 Fees, Schwab Risks Blowing Up Brokerage Model It Built
By Annie Massa and John Gittelsohn – Bloomberg
Trend toward zero fees was ‘inevitable,’ Schwab CFO says; Shares of online brokers plunge; TD Ameritrade quickly matches
Not too long ago, Charles Schwab Corp. helped to usher in the golden age of low-cost, online stock trading. Now, the brokerage may help to kill off the fee-based business model altogether.

Basel III capital shortfall estimate drops by EUR9 billion
Alessandro Aimone – Risk.net
Global banks are currently EUR27.3 billion ($30 billion ) short of the capital they need to comply with Basel III on a fully-loaded basis from 2027 onwards, data from the Basel Committee shows.

BNP Paribas and Bunzl extends CO2 Emissions Reduction-Linked Loan
The market for green loans has taken another step forward this month, after banking giant BNP Paribas announced it has agreed a new EUR105m sustainability linked loan with packaging an consumable products

Merrill Lynch Hid Profits From Cum-Ex Deals, Ex-Trader Tells Court
Karin Matussek – Bloomberg
Banks acting as prime brokers got fixed share, Darren T. says; Money was hidden as service fees, former trader tells judges
Bank of America Corp.’s Merrill Lynch unit was among lenders getting a share of the profit of clients’ so-called Cum-Ex trades, and tried to hide payments linked to the controversial tax-driven practice by masking them via unrelated future transactions, a former trader said in a German court.


Saudi Arabia says it has fully restored oil output after attacks
Saudi Arabia has fully restored oil output after attacks on its facilities last month and is now focusing on the listing of its energy giant Saudi Aramco, energy minister Prince Abdulaziz bin Salman said.

How to solve a problem like European banking
Thomas Hale – FT
Earlier this week, we looked at how the impact of negative rates varies by country after the ECB’s introduction of a new policy to relieve their effects.

Record Gold Prices Keep India’s Imports at Lowest in Three Years
Shruti Srivastava and Swansy Afonso – Bloomberg
Imports slide 86% on year in Sept., falling for a third month; Benchmark futures in India have jumped 22% this year
Gold imports by India plunged in September to the lowest monthly inflow in at least three years, weighed down by all-time high prices amid poor demand.

Polish Banks Risk Setback on FX Loan Terms After EU Court Ruling
Stephanie Bodoni – Bloomberg
EU court gives binding ruling over abusive terms in FX loans; Abusive terms in loans can’t be replaced, courts can annul
Polish banks suffered a potential setback in a ruling by European Union judges weighing unfair terms in foreign-currency mortgages that left people across the nation struggling with spiraling repayments on their homes.

De Beers Diamond Sales Fall 39% in a Year
Thomas Biesheuvel – Bloomberg
De Beers reported a 39% drop in its latest diamond sale; The diamond miner has offered unusual flexibility to buyers
The latest sales data from De Beers reinforces why this is one of the worst years for the diamond industry in a long time.

Africa’s Biggest Fund Manager Seeks to Salvage Soiled Reputation
Antony Sguazzin – Bloomberg
Over half of executive committee hold roles in acting capacity; PIC’s listed equity returned 4.75% annually over three years
The image of Africa’s biggest fund manager has been damaged by allegations of misconduct and breaches of corporate governance and the institution must now strive to preserve what’s left of its reputation, its interim chairman Reuel Khoza said.


UK fund outflows accelerate as no-deal Brexit looms; Investors pull £3.5bn from active equity and £667m from property vehicles in last quarter
Chris Flood – FT
Mounting fears that the UK is heading for a no-deal Brexit have prompted investors to accelerate their withdrawals from UK active equity and property funds.

Johnson’s Brexit plan leaves big ‘gap to bridge’; EU leaders ready to listen to Northern Ireland proposals but guarded on scale of challenge
Sam Fleming and Mehreen Khan – FT
EU leaders were anxious not to dismiss Boris Johnson’s new Brexit proposals on Wednesday but, as it stands, the scheme is viewed in Brussels as economically damaging to Ireland and enormously difficult to turn into practical reality in under two years.

What Boris Johnson really wants out of Brexit; The UK prime minister is looking for an excuse to blame the EU for the breakdown of talks
Philip Stephens – FT
It is hard to identify precisely the point at which cynical opportunism meets whimsical nostalgia. There are large measures of both in Boris Johnson’s drive for Britain’s departure from the EU. Let’s get Brexit done, the prime minister never tires of saying as he bangs the drum of English nationalism. This is nonsense. Britain will be getting Brexit “done” for years, perhaps for a decade, beyond the day of leaving.

New UK Brexit plan will not get EU support – Labour’s Corbyn
The leader of Britain’s opposition Labour Party, Jeremy Corybn, said he could not see how new proposals for a Brexit deal announced earlier on Wednesday by Prime Minister Boris Johnson would get support from other European Union governments.


‘Flash Drought’ Hits South as Record Heat Continues Into Fall; Thermometers climbed above 100 Tuesday; Tallahassee had only trace amounts of rainfall in September
Talal Ansari – WSJ
Across the South, residents and farmers are facing a double punch of hot temperatures and drought even as the calendar has flipped to fall. The thermometer hit 101 degrees in Montgomery, Ala., on Tuesday, breaking the record by 6 degrees. Twice last month, the city saw a high of 103.

River Flows All Across the Globe Are Dropping; Groundwater pumping in some of the world’s critical watersheds exceeds safe levels. It’s causing surface waters to fall at an alarming rate.
Eric Roston – Bloomberg
Another slow-motion, man-made environmental disaster has been discovered, and it’s underneath your feet. About 70% of the water pumped out of underground aquifers worldwide is used for agriculture while much of the remainder quenches the thirst of cities. As industrial development spreads at a speedy clip, the rate at which those critical reservoirs are emptied is far outpacing the rate at which they are naturally replenished.

IRS: Sorry, but It’s Just Easier and Cheaper to Audit the Poor
Paul Kiel – ProPublica
Congress asked the IRS to report on why it audits the poor more than the affluent. Its response is that it doesn’t have enough money and people to audit the wealthy properly. So it’s not going to.

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