First Read

Newest Criminal Spoofing Case Features Coordinated Spoofing and Front Running
Renato Mariotti, Thompson Coburn LLP

On last Thursday, June 1st, the Justice Department entered into a plea agreement with a trader named David Liew, publicly revealing the existence of the third-ever criminal spoofing case, which had been filed under seal on January 3rd.

In the plea agreement, Liew admitted that from December 2009 to February 2012 he conspired with other precious metal traders to engage in spoofing on hundreds of occasions and to commit fraud by misleading other market participants via his spoof trades. Liew’s former bank is not identified in the plea agreement, although Bloomberg recently reported that Liew committed the offenses while he worked at Deutsche Bank. Liew’s co-conspirators are also unidentified and have not yet been charged.

Read the rest here.


Sponsored Content
BOX’s Focus in 2017: Improved Tech and a Trading Floor

Ed Boyle
Click here to watch

Much of 2017 for BOX depends on whether the exchange will get approval for its proposed trading floor. In this video from the Options Industry Conference in Scottsdale, Ariz., BOX CEO Ed Boyle spoke about BOX’s motivation to open a floor, revamping the exchange’s matching engine and helping market makers do business.

content from:

****SD: This is the fifth and final exchange leader video from the Options Industry Conference. If you missed them last week, here are links to the other four videos: NYSE Options’ Brown Discusses the Road Ahead, Nasdaq’s Kennedy Sees Plenty of Room for Options Industry Growth, Insight into the Bats Integration from CBOE’s Lowenthal and MIAX’s Brown on Number 15 and Complex Order Books


We May Be Closer to Full Employment Than It Seemed. That’s Bad News.
Neil Irwin, NY Times Dealbook
The May job numbers raise a depressing possibility: that this is as good as it will get for the United States labor market.
At first glance, the new numbers seem like a bit of a mystery. The unemployment rate fell to a 16-year low, yet job creation slowed and the number of people who are neither working nor looking for work rose. But the data aren’t really inconsistent. Rather, they point to a job market that is pretty close to full employment — where workers who want a job can find one fairly easily, but low unemployment isn’t pulling workers into the labor force en masse.

***JB: As so often happens in government it all hinges on how you want to tally up the totals.


Why Wall Streeters making $873K feel underpaid
Kevin Dugan – New York Post
Wall Street workers weren’t satisfied with their pay last year.
Traders and bankers were more likely to believe that they weren’t compensated fairly for their work in 2016 — even though average compensation at banks and hedge funds neared the $1 million mark, according to a new survey.

***JB: Looking for my sympathy. Think I dropped it around here somewhere.


World Bank Forecasts Global Economic Growth to Hit Seven-Year High Next Year
Ian Talley – WSJ
A rebound in trade growth from postcrisis lows should help perk up the global economy next year to its fastest pace in nearly seven years, the World Bank said Sunday.
But a host of risks threaten a recovery in major emerging markets and an accelerating expansion in rich economies, the bank said in its flagship report.


Automated trading of commodity futures accelerating; Use of algorithms is controversial as study finds rise in volumes of traffic
Gregory Meyer – The Financial Times
The machines are taking over markets for energy, metals and food.
Automated trading systems now account for half the volume in many commodity futures after proliferating over the past two years, a government study has found.
The rise of trading run without human intervention has sparked controversy among the farmers, ranchers, industrial companies and hedge funds that trade futures. Some contend prices have become disconnected from forces of supply and demand because of algorithms, while others welcome added volumes. “This is a charged debate,” said Rick Lane, chief executive of Trading Technologies, a software vendor.

***JB: I doubt these worries will do much to slow the pace of growth of automated trading.


Spoofing Again; Principles-Based Rules Rule; Insider Trading; Source Code Theft; Whistle-Blowing While You Work
Gary DeWaal – Bridging the Weeks
Criminal actions naming individuals dominated news regarding the US financial services industry the past two weeks. Last Friday, a former junior bank trader pleaded guilty to criminal charges for spoofing, manipulation and attempted manipulation of gold and silver futures from December 2009 through February 2012, while earlier last week a former proprietary trader who admitted stealing his former employer’s trading system’s source code was sentenced to one year and one day imprisonment. Two weeks ago, a health care consultant, a former colleague at a federal agency, and three partners of an investment adviser were criminally charged with engaging in a scheme to obtain confidential proprietary information from the federal agency and trade on it for profit.


Friday’s Top Three
The top story from Friday’s newsletter was Banks shed bond indices as regulation tightens. Second was Robert Shiller’s piece from the Chicago Booth Review Economics and the human instinct for storytelling. Third was a piece from earlier in the week, Chicago should be a fintech hub. So why isn’t it?


MarketsWiki Stats
101,965,773 pages viewed; 22,533 pages; 206,364 edits
MarketsWiki Statistics


You’re Invited to FOW-John Lothian News Trading Chicago on June 28th!

Register here

This one-day event at the Swissotel on June 28th is aimed largely at the end-users of the markets: commodity trading advisors, asset managers, hedge funds and proprietary traders.

The conference will cover the issues that impact those firms directly – regulation, technology and market structure, with an underlying thread of trading in an age of uncertainty. All of this will be delivered in a variety of formats, from an Oxford-style debate on the Dodd-Frank Act’s repeal to TED-style talks to panel discussions.

The event is free to attend for CTAs, asset managers, props and hedge funds. For full conference information, click HERE.

Watch the preview »


Lead Stories

Ex-Trader Linked to Deutsche Bank Is Aiding U.S. Spoof Probe
Tom Schoenberg – Bloomberg
A trader who conspired to manipulate futures contracts in precious metals committed those actions while working at Deutsche Bank AG, according to a person familiar with the matter, and he is now cooperating with prosecutors.

The Bloody Fight for ETF Scraps Is About to Get Even Worse
Rachel Evans, Dani Burger and Sabrina Willmer – Bloomberg
BlackRock, Vanguard, and State Street control more than 80 percent of the ETF landscape. For the other players, the fight for survival is about to get more aggressive

Quant Manager of $6 Billion Backs Stocks Hidden From Front Pages
Jonas Cho Walsgard – Bloomberg
No news is good news.
At least for investors seeking stable returns, it’s better to buy companies that aren’t in the spotlight. To exploit a so-called low-volatility anomaly, the head of quantitative equity management at BNP Paribas SA invests in stocks that seldom get any attention in the media.

Stock market will rise 50 percent, esteemed economist says
Jonathon Trugman – New York Post
It’s not very often that a Nobel Prize-winning economist who is known for his bearish calls turns extremely bullish.
Last week, professor Robert Shiller of Yale, who called the housing collapse 10 years ago, proclaimed that stocks could rise another 50 percent in the next few years based upon his latest research. Meaning Dow 30,000!

John Paulson Is Struggling to Hold On to Client Money
Miles Weiss and Katherine Burton – Bloomberg
The walls keep closing in on John Paulson.
A decade after Paulson shot to fame betting on the collapse of the U.S. housing market, the hedge-fund mogul is struggling to persuade investors to stick with him after a string of missteps on everything from gold to European bonds to drug stocks.

The Fed Has Another Bond Market Conundrum
Scott Dorf – Bloomberg
Friday’s lackluster U.S. jobs report fit in well with the narrative that has developed in the bond markets this year, which is lower yields for longer. The surprising rally in fixed-income assets has primarily been a function of rapidly diminishing expectations for inflation as the prospects for a boost from the Trump administration’s fiscal agenda fade, oil prices sag and wages fail to respond to the tightest labor markets in a decade.

Bunge hires JPMorgan and Shearman & Sterling in Glencore defence
Neil Hume, Arash Massoudi and James Fontanella-Khan – Financial Times
Bunge, the US grain trader that is fending off takeover interest from Switzerland’s Glencore, has bolstered its defences with the appointment of advisers.
The New York-listed company is working with JPMorgan Chase and law firm Shearman & Sterling as it seeks to remain independent. Bunge, which signalled earlier this year that it was willing to be part of tie-ups in the sector, has said it is not in “business combinations” discussions with Glencore and has refused to comment further.

Citadel Securities appoints Mecane as head of execution services
Nicole Bullock – Financial Times
Joe Mecane, a former executive at the New York Stock Exchange and well-known figure in the US equity market, is joining Citadel Securities as head of execution services from September.

China’s Debt Crackdown Is Driving Borrowers Into Riskier Territory
Chao Deng and Lingling Wei – WSJ
China’s crackdown on debt is driving some companies to a murkier form of financing as it gets harder to secure bank loans or tap the bond market.

Once ‘titans’ of Wall Street, hedge fund managers are in trouble
Renae Merle – Dawn
Long considered the titans of Wall Street, hedge fund managers have long thrived under a simple premise: They are smarter than the average investor and can produce bigger profits.
That image of the slick, well-connected trader, making bold bets with hundreds of millions of dollars, has attracted trillions from wealthy investors, pension funds and endowments who were willing to pay high fees and hand over 20pc of any profits to the elite class of traders.

Exchanges, OTC and Clearing

NSE (National Stock Exchange) To Launch International Bourse On June 5
The National Stock Exchange (NSE) will launch its international exchange in the Gujarat International Finance Tec-City (GIFT City) on Monday. NSE IFSC Ltd, the global exchange promoted by bourse National Stock Exchange, will remain operational for a longer period than NSE during a trading day.

Ex-LME chief launches electronic metals trading platform
by: Henry Sanderson, Financial Times
The former head of the London Metals Exchange has launched an electronic trading platform for metals to compete with the 140-year-old bourse.
The platform, called NFEx Markets, will run on a system designed by London-based startup Autilla and start in the first quarter of 2018. It will be headed by a five-member team including Martin Abbott, who left the LME in 2013 after it was sold for £1.4bn.

China Exchanges Resume Allowing Bitcoin Withdrawals
Chao Deng – WSJ
Bitcoin exchanges in China are again allowing withdrawals of the virtual currency, having upgraded their systems in response to heightened government scrutiny.


Quant on Quant: Picking Winners in the Era of Machine Investing
Klaus Wille – Bloomberg
The burgeoning field of computer-driven investing has grown so large and complex that a Singapore family office has decided you need a quant to find the right quants.
Multi-family office Gao Capital plans to open Asia’s first independent research service for investors that’s focused exclusively on funds employing quantitative models. Gao Capital’s research has involved scrutinizing the funds’ correlations to market moves and to one another, as well as risk and volatility measures.

These Digital Tokens Are Making Bitcoin’s Huge Rally Look Tame
Camila Russo – Bloomberg
Forget U.S. stocks and emerging-market assets, even ignore bitcoin. Those brave enough to invest in the Wild West of tech are the ones making a killing.
While the record-breaking rally in bitcoin has captivated markets, demand for other digital coins is surging as companies raise millions in minutes, or even seconds, from investors wanting in on the next big tech startup. Last week it took 30 seconds for Mozilla co-founder Brendan Eich to issue about $35 million of basic attention token, the unit of exchange in a blockchain-based advertising platform built on top of the company’s Brave browser.

BondCliq Chris White’s new venture
Matt Turner – Business Insider
Don Devine, a bond trading luminary who started his career at Goldman Sachs in the early 1980s, was in need of a gut check. He was weighing up an investment in a new bond market startup, but he’d left his last senior role on Wall Street almost a decade ago.

Speculators Are Driving a Cryptocoin Bubble
Robert Hackett – Fortune
I barely made it past the turnstiles at last week’s NYU Token Summit, a day devoted to those weird new digital assets that are all the rage in financial tech right now. (I know; I’ve been covering a number of similarly themed events lately.)

Why the Blockchain Needs More Failures to Succeed
William Mougayar – CoinDesk
In the world of startups, learning from failures is an inescapable reality, and part of the prevalent conventional wisdom. That is how the ecosystem and entrepreneurs move forward to greater heights, and with more successes.
But in the burgeoning blockchain segment, we haven’t seen that many failures yet. At least, not of the scale and variety required to extract long-lasting lessons for the entire industry. And certainly, not enough to warrant a call for an imminent crash or correction.

Cinnober launches risk management system tailored uniquely to CCP needs
Press Release – Cinnober
Cinnober announces the launch of a stand-alone risk management solution dedicated to the needs of central clearing counterparties (CCPs).
The post-financial crisis regulations, including Basel III, EMIR and Dodd Frank, have transformed the landscape for clearinghouses. A wider range of contracts are traded on electronic platforms and cleared centrally, and the importance of CCPs as safeguards of financial stability has increased.

BP, Eni deepen blockchain trading in European gas
Oil majors BP and Eni are deepening their foray into blockchain technology, starting to run blockchain trades in parallel with their live trading systems, according to developer BTL Group.
The energy traders, together with Austria’s Wien Energie, had previously tested BTL’s Interbit blockchain platform over 12 weeks, carrying out trades in European natural gas.
For example, the blockchain system found a discrepancy in the volume allocation of a trade of French gas sold by Eni to BP, eradicating a mistake that would have cost time at a later stage, a spokesman for BTL said.


White House’s Cohn Says He Isn’t Interested in Fed Chair Job
Christopher Condon – Bloomberg
U.S. National Economic Council Director Gary Cohn said the White House had not decided on whether to keep or replace Federal Reserve Chair Janet Yellen when her term expires in February, while signaling he didn’t want the job. “We’re not at a time when we’re going to be even thinking about that,” President Donald Trump’s top economic adviser told Bloomberg Television Friday.

Stress test relief tops bank wish list ahead of Trump’s rule review
Pete Schroeder and David Henry – Reuters
As Wall Street awaits President Donald Trump’s vision for financial regulation, big U.S. banks are pushing for a lucrative change his appointees can execute without a legislative fight: easing annual stress tests. First conducted by the Federal Reserve in 2009 to increase confidence in the system, bankers say the tests have morphed into a mysterious, laborious and time-consuming process from what was once a straightforward exam of financial strength.


Commodities trader pleads guilty to ‘spoofing,’ is cooperating with authorities
Becky Yerak – Chicago Tribune
Asia-Pacific precious metals trader David Liew has agreed to plead guilty in federal court to “spoofing” trades of futures contracts on the Chicago Mercantile Exchange. From around December 2009 to February 2012, Liew conspired with other gold, silver, platinum and palladium traders to place hundreds of orders to buy or sell precious metals futures contracts that he intended to cancel and not to execute at the time he placed the orders, a practice known as spoofing, according to a plea agreement filed Thursday in U.S. District Court in Chicago.

U.K. FCA Raids at Lowest Since 2008 Crisis Despite More Probes
Suzi Ring – Bloomberg
The number of dawn raids carried out by the U.K. Financial Conduct Authority last year was the fewest since the 2008 financial crisis, according to data from a London law firm, despite the agency increasing its case load.

The need to educate investors on ponzi and pyramid scheme – Business News
Anthony Dass – The Star Online
The notorious ponzi scheme named after Charles Ponzi was applied by him in the 1920s. At that time, this business started as a legitimate one, by focusing on arbitrage. Along the way, the business used investors’ money to make payments to earlier investors and himself.

Investing and Trading

It’s Smart to Worry About ETFs
Noah Smith – Bloomberg
In the comic strip Calvin and Hobbes, Calvin asks his dad how engineers determine the weight limit on bridges. The dad answers that they do this by driving heavier and heavier trucks over the bridge until it breaks, then rebuild the bridge after discovering what it took to break it.

Morgan Stanley slashes sterling forecast, no longer sees $1.45 next year
Morgan Stanley has slashed its long-term sterling forecast, ditching its out-of-consensus call made in March that the UK currency would reach $1.45 by the end of next year.

It’s Alive! Sterling Bond Market Bounces Back
Christopher Whittall – WSJ
Investment-grade companies are on track to issue the largest amount of sterling debt since 2012, as the sterling corporate bond market bounces back following years of steady declines.

Rieger Report: Infrastructure Bonds
J.R. Rieger, Head of Fixed Income Indices S&P Dow Jones Indices
With the President’s focus on the U.S. infrastructure this coming week it is a good time to look at the existing infrastructure bond markets. Municipal bonds have long played a critical funding role in the U.S. infrastructure sector.

As large cap gets larger, can the tech rally continue?
Rodrigo Campos – Reuters
Technology shares have led U.S. stocks to record highs and are expected to continue to rise, but as market value becomes concentrated in the largest companies, some are beginning to look for the next rally leader.


A Disciplined Hand Defies the Urge to Cut Losses; Wesley Gray’s Alpha Architect is an upstart active investment manager that tripled its assets last year
Chris Dieterich – WSJ
Wesley Gray’s value-focused fund of overseas stocks is beating all its rivals over the past year. For him, it’s almost beside the point. Mr. Gray, chief executive of asset manager Alpha Architect LLC outside Philadelphia, says watching short-term market moves doesn’t pay off.

Deutsche Bank asks for more time for U.S. query on Trump, Russia: source
Tom Sims, Reuters
Germany’s largest bank has asked for more time to respond to a request from Democrats on a U.S. House of Representatives panel for details about U.S. President Donald Trump’s possible ties to Russia, a person familiar with the matter said on Monday.
Deutsche Bank’s (DBKGn.DE) external counsel sent a letter dated Friday June 2 to the Democrats saying it needed additional time, the source told Reuters. The person spoke on condition of anonymity and declined to specify how much more time the bank’s counsel needed.


Wealth funds question UK’s future as EU investment hub
Javier Espinoza – Financial Times
Sovereign wealth funds see the UK as a less attractive location for investment following Britain’s vote last year to leave the European Union, while Germany’s desirability has increased, according to a new survey.

For OPEC, Saudi-Qatar Crisis Is Just the Latest Family Squabble
Grant Smith and Wael Mahdi – Bloomberg
The diplomatic clash between Qatar and three Arab allies flared regional tensions and caused oil prices to jump. For OPEC, it’s likely to remain business as usual.
Saudi Arabia and three other Arab countries severed most diplomatic and economic ties to Qatar to punish the nation for its links with Iran and Islamist groups. Although most of the countries involved are members of the Organization of Petroleum Exporting Countries, the stand-off is seen posing little threat to the group’s initiative to re-balance world oil markets by cutting production.

Some Egyptian banks halt dealings with Qatari banks after rupture – bankers
Some Egyptian banks have halted dealings with Qatari banks, four Cairo-based bankers said, hours after Cairo announced on Monday that it had cut ties with Qatar.


Sovereign Funds May Sell off U.K. Assets on Brexit Deal
Sarah Jones – Bloomberg
Sovereign wealth funds and central banks may look to cut their U.K. assets in 2017 after sentiment toward the country slumped in the aftermath of Britain’s vote to leave the European Union, an Invesco Ltd. report showed.

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