John Lothian Newsletter: Mexican Exchange to HFT: Bring Us Your Business; Gensler: Hedge Funds May Skirt Trade Rules With Banks’ Aid; U.S. Slams EU's Tax-on-Trades Plan

Feb 14, 2013

Bolsa Mexicana de Valores stands up and says, “Bring us your high frequency traders”. Gary Gensler fears that hedge funds and banks might work together to avoid stricter risk control rules. The EU proposes a financial transaction tax; US Treasury says it’s a stupid idea. In First Read today, take a close look at the JLN Special Report on a recent CFTC proposal to change margin requirements and rules; despite its low-key introduction, the proposal could have landscape-altering effects on the futures industry.

First Read

CFTC Proposal Poses “Monumental” Challenge to FCMs
By John Lothian

Changes to the way customer funds are held and accounted for by futures commission merchants (FCMs) were inevitable after the bankruptcies of MF Global and Peregrine Financial Group. But it is pressure from buy-side market participants and their allies in Congress who are pushing for regulatory changes that could change the face of the futures business.

At last week’s CFTC Roundtable, the fourth panel of the day titled “Enhancing Protections Afforded Customers and Customer Funds Held by Futures Commission Merchants and Derivatives Clearing Organization,” highlighted the challenges and potential consequences to the industry. CFTC plans call for FCMs to hold more “residual interest” capital to cover all customer margin calls to reduce customer-to-customer default risk.

Because the roundtable was under-reported by the big news services, we are bringing you this John Lothian News Special Report based on the CFTC’s video of the meeting. Watch the JLN video:

SCFTC Proposal Poses Monumental Challenge to FCMs

The deadline for public comment on the proposed rulemaking on Enhancing Protections Afforded Customers and Funds Deposited by Customersis February 15, 2013. Members of the public wishing to submit comments on the roundtable and proposed rulemaking may do so via:

  • Paper submission to Melissa Jurgens, Secretary, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW, Washington, DC 20581; or
  • Electronic submission by visiting http://comments.cftc.gov and following the instructions for submitting comments through the CFTC’s website.

All comments must be identified by RIN number: 3038-AD88. All submissions provided to the CFTC will be published on the Commission’s website, without review and without removal of personally identifying information.

***** Once again: the comment deadline is Feb 15; label comments with RIN number 3038-AD88.

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New Restoring Customer Confidence Video
The eleventh video in our Restoring Customer Confidence series deals with daily reporting of customer funds. Each week we will post a new idea answering the question – how do you restore customer confidence and bring traders back?

Restoring Customer Confidence More ideas»
Daily Reports: Tell Us Where The Money Is

Daily Reports: Tell Us Where The Money Is
MarketsWiki.tv

In the months and days since MF Global’s collapse and the Peregrine Financial Group’s fraud, some have argued simply for more transparency from futures commission merchants (FCMs). Scott Gordon, chairman and CEO of Rosenthal Collins Group, said his firm publicly discloses how customer funds are being invested and held by the firm. In Rosenthal Collins’ case, the firm reports its cash deposits held at US banks, funds held in US Treasury securities, as well as its how much is being held by clearing houses and clearing brokers and US banks. This type of transparency could be the difference in building customer trust or losing it.

Watch the video »

This video is sponsored by:
Fidessa

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About the Restoring Customer Confidence video series
In the aftermath of the MF Global collapse, fraud at Peregrine Financial Group and high profile high-frequency trading shocks, John Lothian News asks – how do you restore customer confidence and bring traders back? Previous videos:

Visit the video series page on MarketsWiki.tv over the next several weeks for new ideas and solutions.

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FIA Futures Hall of Famer John F. Gilmore, Jr. Has Passed Away
BY John Lothian | John Lothian Newsletter
John F. Gilmore Jr. passed away Monday evening after a heroic 20 year battle with cancer. John was a retired partner of Goldman Sachs, a founding partner of Liquidity Direct, in addition to being Chairman of the Chicago Board of Trade in 1986 and Vice Chairman in 1985. In 2006, he was inducted into the Futures Industry Association Futures Hall of Fame.
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***** Condolences to the family and friends of John Gilmore on his passing. The Gilmore family reached out to JLN with the news, and we share their loss.

***** Along with a notable career in the financial industry, Mr. Gilmore kept illustrious company; his Goldman Sachs partner class of 1998 also included Lloyd Blankfein, J. Christopher Flowers, Gary Gensler and John Thain.

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HKEx To Introduce After-Hours Futures Trading On 8 April
Hong Kong Exchanges and Clearing Limited (HKEx) announced today (Thursday) that it received regulatory approval for rule changes that will enable it to offer After-Hours Futures Trading (AHFT) and it plans to introduce AHFT on Monday, 8 April 2013.
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Exchanges Sector Sees Stellar Growth – January 2013 Index Closed Up 10.5 Per Cent – Highest Rise In The Past Year
The exchanges sector experienced exceptional performance growth across the board in January to kick off the New Year, according to the FTSE Mondo Visione Exchanges Index.
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Is FTT heading for Wall Street?
Mikhail Merone – Regulation Matters
Over the past few months, many in the US trading community have been quietly mobilizing against European Financial Transaction Taxes being collected within US borders. The voice of opposition grew louder yesterday with the Security Traders Organization (STA) calling on market participants to take action by communicating to their elected representatives their “strong opposition” to any foreign taxes being imposed for securities transactions on US soil.
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Thomson Reuters cutting 2,500 jobs
AP
News and financial information company Thomson Reuters on Wednesday said it is cutting 2,500 jobs, or about 4% of its workforce, this year as it tries to reduce costs and turn around its largest division. CEO Jim Smith told analysts on a conference call Wednesday that the company is eliminating the positions from its “Financial and Risk” division, which rents out trading terminals to the financial industry. It accounts for just over half of Thomson Reuters’ revenue.
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Getco Profit Slid Amid Slack Markets
JACOB BUNGE – WSJ.com
Getco LLC disclosed an 82% slide in profit during the first nine months of last year, providing a rare insight into how the closely held, high-speed trading firm has wrestled with slack financial markets.
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Orc Explores Enhanced Opportunities with Eurex’s New Trading Architecture
Orc invites you to listen to a webinar with Eurex on the opportunities stemming from the Exchange’s New Trading Architecture. Speakers include Andreas Pee, the market readiness leader and head of the New Trading Architecture project at Eurex; along with Thomas Winter, senior project manager at Eurex, and Lina Widmark, product manager at Orc. The conversation focuses on helping traders and IT support plan for the simulation and migration process; introducing the new instrument concept including definitions and drivers for the change; assisting members in handling complex instruments and finally, providing an overview of enhancements to Orc’s Eurex offering.
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MarketsWiki

MarketsWiki Page of the Day
Residual interest
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MarketsWiki Recent Updates

People

John F. Gilmore, Jr.; William Mallers, Sr.; David Brennan; Bernard P. Carey; Lamon Rutten; Ian D. McClure

Companies, Organizations and Groups

Istanbul Stock Exchange; CME Group, Inc.; CME Clearing; Futures Commission Merchant

Miscellaneous

Residual interest; LIBOR

Statistics

34,872,112 pages viewed, 7,393 articles, 154,111 edits
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Lead Stories

Mexican Exchange to HFT: Bring Us Your Business
Geoffrey Rogow – WSJ
Mexico’s main stock exchange wants more high-frequency trading on its market, seeing the activity as a way to drive growth and more listings, chairman of the Bolsa Mexicana de Valores said Wednesday.
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Hedge Funds May Skirt Trade Rules With Banks’ Aid, Gensler Says
Bloomberg
Banks may be helping hedge funds avoid rules meant to reduce market risks by routing trades through overseas offices, the top U.S. derivatives regulator said in testimony prepared for a hearing on the Dodd-Frank Act.
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U.S. Slams EU’s Tax-on-Trades Plan
GABRIELE STEINHAUSER IN BRUSSELS AND JENNY STRASBURG IN NEW YORK – WSJ.com
The U.S. Treasury said it opposes plans by 11 European Union countries to impose a small tax on trades in shares, bonds and derivatives. The European Commission, the EU’s executive arm, will propose a new financial-transaction tax it says could raise as much as E35 billion ($47 billion) a year for the 11 participating states, which include Germany, France, Italy and Spain, according to documents to be published Thursday and seen by The Wall Street Journal.
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Banks Warned Not to Leave Libor
DAVID ENRICH – WSJ.com
LONDON—Several banks planned to withdraw from the panel that sets a key benchmark interest rate but scrapped the idea after the U.K.’s financial regulator strongly warned them against doing so, according to people familiar with the matter.
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Lew confirmation hearing for Treasury features tough questions but few fireworks
Washington Post
The Senate Finance Committee pummeled Treasury secretary nominee Jacob “Jack” Lew with questions Wednesday, but the outgoing White House chief of staff kept his cool, and there was little reason to think his confirmation will be in jeopardy.
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Regulator Explains Decision to End Flawed Foreclosure Review
BEN PROTESS – NYTimes.com
A top regulator shed light Wednesday on his decision to scuttle an independent review of bank foreclosures, portraying the flawed process as a boon to outside consultants and a barren maze for homeowners.
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Madoff Trustee Seeks to Return Further $505 Million to Victims
DAN STRUMPF – WSJ
The court-appointed trustee handling the Bernard Madoff bankruptcy is seeking approval to return an additional $505 million to victims of the massive Ponzi scheme.
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Regulatory

SEC Approves PCAOB Annual Budget
The Securities and Exchange Commission today unanimously approved the 2013 budget of the Public Company Accounting Oversight Board (PCAOB) and the related annual accounting support fee as required by the Sarbanes-Oxley Act of 2002.
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Opening Statement At The SEC Open Meeting By SEC Chairman Elisse Walter
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Providing Needed Resources To The PCAOB By SEC Commissioner Luis A. Aguilar
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European Commission: Enhanced Cooperation On The Financial Transactions Tax
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ESMA Publishes The Feedback Statement To The Consultation On Considerations Of Materiality In Financial Reporting
Please click
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[ASIC] Stronger Super implementation
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[AMF France] Collecting information about investors: the ACP and the AMF strengthen their due diligence on the distribution of savings products
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Red – Speech Of CFTC Commissioner Bart Chilton To The 2013 Arkansas State University Agribusiness Conference, Jonesboro, AR
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Exchanges & Trading Facilities

NYSE Agrees To Rent Space On New York Trading Floor To ICE
Matt Jarzemsky – Dow Jones
NYSE Euronext ( NYX ) has agreed to rent space on its New York Stock Exchange trading floor to its planned buyer, IntercontinentalExchange Inc. ( ICE ), according to a filing with the Securities and Exchange Commission.
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EEX creates Pan-European OTC Clearing Service Offering – Three further products to be launched in February
The European Energy Exchange (EEX) is expanding its range of OTC clearing services step by step, to include additional products not traded on EEX or other European Commodity Clearing (ECC) partner exchanges. Together with the clearing house ECC, EEX will launch three further products for OTC clearing on 25 February 2013.
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Moscow Exchange Renewal Clouds IPO Appeal to Prosperity
Bloomberg
The modernization of the Moscow Exchange makes forecasting its revenue harder and may deter foreign investors from buying shares in the bourse, according to Prosperity Capital Management.
jlne.ws/ZcDoyd

TMX to buy Equity Financial’s transfer agent business
Reuters via Yahoo! News
TORONTO – TMX Group Ltd will acquire Equity Financial Holdings Inc’s transfer agent and corporate trust services business to broaden its portfolio of services, the Toronto Stock Exchange operator said on Wednesday.
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TSX Venture Exchange Announces The 2013 TSX Venture 50
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Reminder and Update – Re-Location of PM-Settled S&P 500 Index Options (SPXpm) From C2 to CBOE
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DEME launches successful first bond issue on NYSE Alternext
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Spineway lists on NYSE Alternext
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Hedge Funds & Managed Futures

Daunting Challenges at Legg Mason
KIRSTEN GRIND, JOANN S. LUBLIN AND MIA LAMAR – WSJ
Legg Mason Inc.’s search for a new chief executive spanned five months, involved about 15 external candidates and cost $1.5 million. In the end, the Baltimore asset manager settled on the person already in the job, Joseph Sullivan, the interim chief since October.
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Exclusive: Investors pull $1 billion from hedge fund giant Winton
Reuters via Yahoo! Finance
Winton Capital, one of the world’s most successful hedge fund firms, has seen clients pull $1 billion of cash out of its portfolios amid falling returns from computer-driven fund managers.
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Greek pension fund wins with bond bet
Kerin Hope – FT.com
The managers of a fund for Greek pension schemes have doubled its assets by following the example of aggressive investors who netted windfall gains buying junk-rated Greek government bonds last year.
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Firms Circle Back to Lower Borrowing Costs
KATY BURNE – Dow Jones
In the world of corporate borrowing, it rarely gets better than this. Amid soaring investor demand for high-yielding debt, companies have been able to borrow at some of the lowest rates in history and with some of the fewest restrictions.
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Retiring baby-boomers to stymie fund managers’ growth
Mark Cobley – Financial News
New client inflows entering the asset management industry will be a significantly smaller influence on the sector’s growth over the next five years as the retirement of the baby-boomer generation leads to a withdrawal of money, according to a report.
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Rising Sum Puts Investors In Picture
Brian Bollen
Investment specialist Rising Sum has just published the first performance review of its US Large Cap top 1% value portfolio (see risingsum.com). The portfolio comprises five companies, from amongst the 500 largest companies in the United States, that best match the Berkshire Hathaway acquisition criteria.
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SAC Capital’s day of reckoning
CNN Money
SAC Capital faces a day of reckoning Thursday, when the embattled hedge fund finds out how many investors want their money back.
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Hedge Fund Saba Capital Hires Gabriel Roberts, Paul Kazarian -Bloomberg
Dow Jones
Hedge fund Saba Capital Management LP has hired Gabriel Roberts and Paul Kazarian, Bloomberg News reported Wednesday, citing people with knowledge of the moves.
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Hedge Funds Made Billions Betting Against Yen
CNBC
Some of the giants of the hedge fund world have made billions betting against the yen in recent months, marking a return to form for blue-blood investors. The FT reports.
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HedgeServ Sweeps Institutional Investor’s 2013 Alpha Awards for Hedge Fund Service Providers
HedgeServ, a global fund administrator, today announced that it has been named the overall winner of the Institutional Investor Alpha Awards for hedge fund administrators.
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Deep Impact – The UK’s First National Crowdfunding Conference
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Morningstar, Inc. Reports Fourth-Quarter, Full-Year 2012 Financial Results
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Banks & Brokers

OANDA Offers CFD Trading to Clients in Canada
OANDA Canada clients now have the opportunity to invest in a variety of commodity, stock index, and fixed income contracts for difference (CFDs) using the company’s award-winning trading platform. With the addition of these products, OANDA Canada’s retail clients can invest in U.S. debt; commodities such as corn, wheat, and oil; and leading global stock indices.
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A changing landscape in commodity derivatives
Risk.net
Société Générale Corporate and Investment Banking (SG CIB) may not be the bank most commonly associated with commodity and energy markets, but the French bank notches up an impressive victory in this year’s Risk and Energy Risk Commodity Rankings.
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Deutsche Bank to dish out slimmer bonuses
Market Watch
German-based bank expected to cut 2012 bonuses by 20% to 30%. Employees are grumbling it’s a lousy way to celebrate Valentine’s Day.
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New Head of Vatican Bank Expected Within Week
ABC News
New head of Vatican bank expected within the week; Vatican’s ATM machines working
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BNP Paribas Fourth-Quarter Net Falls 33% on Italy Writedown
Bloomberg
BNP Paribas SA, France’s largest bank, posted a 33 percent decline in fourth-quarter profit, missing estimates, on a goodwill writedown at its Italian branch network and an accounting charge tied to its own debt.
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RBS’s Hester dissolves company worth £5.6m
Richard Partington – Financial News
As Stephen Hester, chief executive of Royal Bank of Scotland, prepares to collect £780,000 of shares next month from a 2010 bonus, it has emerged that he has dissolved a private investment company, receiving £5.6m in the process.
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Clearing & Settlement

Clearstream’s direct link to Russia to go live
Clearstream will launch its direct settlement link to the Russian market following the opening of a main account at the National Settlement Depository (NSD), the new Russian CSD, in February 2013. The move follows months of progress through technical, legal and regulatory steps in close cooperation with the NSD.
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Indexes & Products

China likely to launch gold ETF this year
Jack Farchy in London – FT.com
China is likely to launch its first exchange traded funds backed by physical gold this year, boosting demand for the metal, according to the World Gold Council.
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Emerging market ETPs surge in Q4
Suzi Ring – Financial News
Emerging market equity exchange-traded products reached one-fifth of equity ETPs globally in 2012, after a strong fourth quarter finish that saw net new inflows more than double from the previous quarter.
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Technology

SWIFT Appoints Broadridge As A Business Partner In Europe To Deliver Enhanced Customer Service Levels And Domain Expertise
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Enforcement

Indictments Allege ‘Pump & Dump’ Stock Fraud
JOHN R. EMSHWILLER – WSJ.com
Two indictments unsealed Wednesday in federal district court here charged an overlapping group of individuals with operating “pump and dump” stock-fraud schemes that took in more than $30 million by manipulating shares in several small, publicly traded companies.
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Hedge fund manager Fortuna of Westwood sentenced to probation in insider trading case
Boston Globe
Hedge fund manager Steven Fortuna of Westwood was sentenced Wednesday to two years probation for his participation in an insider trading scheme involving nonpublic information on Akamai Inc. and other companies.
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Federal Court in Nebraska Orders Omaha Resident Michael J. Welke to Pay $387,000 to Settle Commodity Pool Fraud Charges
The U.S. Commodity Futures Trading Commission (CFTC) today announced that it obtained a federal court order requiring Defendant Michael J. Welke, of Omaha, Neb., to pay $257,000 in disgorgement and a $130,000 civil monetary penalty to settle CFTC charges of fraud, failure to register with the CFTC, and failure to comply with disclosure and reporting requirements.
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FSA fines Nestor Healthcare Group £175,000 for clearance to deal failings
The Financial Services Authority (FSA) has fined Nestor Healthcare Group Limited (Nestor) £175,000 for failing to take adequate steps to ensure that its board members and senior executives complied with the share dealing provisions of the FSA’s Model Code.
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Environmental & Energy

Obama gives Congress a climate change ultimatum
Reuters
U.S. President Barack Obama on Tuesday gave Congress an ultimatum on climate change: craft a plan to slash greenhouse gas emissions and adapt to the dangers of a warming world, or the White House will go it alone.
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**RKB — Obama tells Congress China’s beating us on this one too.

Obama to Congress: Act on climate change or I will
AP
President Barack Obama is telling Congress that he will take action to combat climate change if lawmakers don’t do it themselves.
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From Obama’s speech, four ambitious climate and energy proposals Grist.org
Last night’s State of the Union was considerably better than I expected, in substance and in tone, mainly because my expectations for these things are extremely low. It was a policy laundry list, but not just a list — Obama had his dander up. By the end, after the chants of “they deserve a vote,” it was downright rousing.
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Asia-Pacific

BNP Paribas declares Asian intent
Vivek Ahuja and Sarah Krouse – Financial News
BNP Paribas has said it wants to hire 1,300 staff in Asia over the next three years in a bid to increase annual revenues from its corporate and investment banking and investment solutions businesses in the region from E2bn to more than E3bn by 2016.
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[FSA] Notice of International Conference on Strengthening the Asian Financial Sector toward Sustainable and Inclusive Growth
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Tokyo Stock Exchange: New ETF To Be Listed On Mar. 7, 2013 (Thu.) – Nomura Asset Management Co., Ltd.
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Licence Applicant Banned For Giving False Information To Hong Kong’s Securities and Futures Commission
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Frontier Markets

Nigerian Stock Exchange Signs MoU With Thomson Reuters On Value Added Services
The Nigerian Stock Exchange has signed a Memorandum of Understanding (MoU) with Thomson Reuters, the world’s leading source of intelligent information for businesses and professionals, to provide Investor Relations Services to its listed companies, as part of its Value Added Services (X-Value) bouquet.
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Dubai Financial Market Announces Its BOD Meeting To Be Held On 18 February 2013
The Board of Directors of Dubai Financial Market PJSC will hold a meeting on Monday 18th February 2013 at 2:00 PM at Borse Dubai to discuss the finacial performance of the company and approve the unaudited consolidated finanncial statements for the year ended 31 December 2012.
jlne.ws/ZcDndP

Pimco Says Debt Losing Allure in Emerging World: Poland Credit
Bloomberg
The lure of Polish zloty debt is receding for Pacific Investment Management Co., the world’s biggest bond-fund manager, which sees better opportunities in emerging markets such as Brazil and Mexico.
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Tehran Stock Exchange’s Bulletin – January 2013
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John Lothian Newsletter

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