John Lothian Newsletter: State Street plans OTC derivatives platform; NYSE, Deutsche Boerse Set To Vie For Technology Business; CBOE to List Futures on Brazil, Oil Volatility Indexes

Feb 15, 2012

State Street announces that they plan to start up an OTC swaps trading platform, to go along with a previously-announced swap clearing facility.  NYSE-E and DB, no longer trying to live under the same roof, re-engage as competitors with a focus on trading technology and services.  CBOE announces plans to list volatility index products for Brazilian stocks and oil.  In ongoing stories, the dig into LIBOR-fixing continues to produce results; Volcker is still a household word; and MF Global’s bankruptcy trustee agrees to share nicely with others. In the top box, John Lothian unveils his latest plans for world travel, if not domination; and you’ll find an interview with Brad Mallon of Cole-Friedman & Mallon, who discusses legal services for managed futures and mutual funds.

Observations – Statistics – Commentary

Onward to Budapest

The Association of Futures Markets has asked me to deliver a keynote address at their 15th annual conference in Budapest, Hungary.  The subject of my speech will be lessons learned from the MF Global bankruptcy.  The conference runs from March 7 to 9.  Here is a link for the program:

I will be in Budapest until March 11, return home that night, then get on a plane for FIA‘s Boca Raton International Conference on March 13.  I will return from Boca Raton late the night of the 16th and get up the next morning to take the Boy Scout Troop on a campout to near Rockford, IL.  If I survive that schedule, I will be back in the office on March 19.  Whew!

Thank you to the great John Lothian News team for their work while I am traveling.  Contact Jon Matte at with any news for JLN while I am away.

About AFM

The Association of Futures Markets (AFM) is a not-for-profit association formally established in 1998 in Buenos Aires, Argentina founded by 10 members: Budapest Commodity Exchange, the Central Clearing House and Depository Ltd. of Budapest, the Romanian Commodities Exchange, the Buenos Aires Futures Exchange, the Amsterdam Commodity Exchange, South African Futures Exchange, the Warsaw Commodity Exchange and the Malaysian Derivatives Exchange).

The prime objective of the Association is to promote and encourage the establishment of new derivative and related markets and to organize international conferences in order to promote communication among members, to strengthen their relationship and to transfer information and experience among them.


New Study Compares 25-Year Performance of Options Strategy Benchmarks to Traditional Indexes
CHICAGO, Feb. 14, 2012 /PRNewswire/ — The merits of using options-based strategy benchmark indexes to construct a diversified portfolio is the subject of a new study — “An Analysis of Index Option Writing for Liquid Enhanced Risk-Adjusted Returns” — released today by investment-advisory firm Asset Consulting Group.


US Cash Equities Lose the Battle Of Order Flow for Third Straight Year – TABB Group’s State Of The Institutional Equities Industry Research Points To A Single-Stock Volume Rebound By Fourth Quarter 2012
Press Release
The US cash equities market has been losing the battle for order flow for three years in a row, forcing institutional equity brokers in 2011 to see their third annual decline in commission. According to new research from TABB Group, execution-only commissions will fall more precipitously in 2012 as the buy side continues to squeeze every dollar out of their constrained wallets.


Nymex oil traders go back to the floor
By Gregory Meyer in New York – Financial Times
It was like old times. For a few minutes this week, the capacious floor of the New York Mercantile Exchange was again the beating heart of the US oil market.


Making a Theoretical Case About Volcker
Show, don’t tell. That approach is often the best way to explain a complex subject — and persuade people of your case. But it seems to have been underdeployed in the letters submitted to regulators on the Volcker Rule, which attempts to stop proprietary trading at financial firms that enjoy a government backstop.


Quick View: Singapore’s stance
By Jeremy Grant – Financial Times
Land grab or an outburst of pragmatic regulation? This week, the Monetary Authority of Singapore published long-awaited proposals for how Singapore will meet its G20 commitments to clean up the financial system by overhauling the over-the-counter derivatives markets.


MarketAxess Appoints Robert Hammond as Head of Sales and Dealer Relationship Management for Europe and Middle East
Business Wire via Yahoo! Finance
MarketAxess Holdings Inc., the operator of a leading electronic trading platform for U.S. and European high-grade corporate bonds, emerging markets bonds and other types of fixed-income securities, today announced it has appointed Robert Hammond as Head of Sales and Dealer Relationship Management for Europe and the Middle East.


Coal Miner Turns Dealmaker at London Metal Exchange: Commodities
By Agnieszka Troszkiewicz – Bloomberg
Feb. 15 (Bloomberg) — Martin Abbott has been a fashion journalist, advertising salesman, pub manager, security guard and coal miner. The chief executive officer of the London Metal Exchange, the biggest metals market, may soon be a dealmaker.


Financial Regulation Of Derivatives Could Be Handled Like Drug Approvals, Experts Say
The Huffington Post
Are exotic financial derivatives as risky as untested prescription drugs? Two University of Chicago economists say possibly.


Bart Mallon

Bart Mallon – Cole-Frieman & Mallon [INTERVIEW]
Bart Mallon is a partner and co-founder of Cole-Frieman & Mallon, a San-Francisco-based law firm specializing in hedge fund and alternative investment legal services. His areas of specialization include setting up offshore hedge funds and separately managed structured accounts, compliance and registration issues. Mallon is also the author of the Hedge Fund Law blogJohn Lothian News Editor-in-Chief Jim Kharouf spoke with Mallon about managed futures mutual funds, CFTC Regulation 4.5, the Volcker Rule and other compliance issues related to managed futures.

Watch the video >


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Lead Stories

State Street plans OTC derivatives platform
By Jeremy Grant – Financial Times
State Street, the investment management and custody company, plans to challenge Wall Street banks in the business of derivatives trading with the launch of an electronic trading platform for over-the-counter (OTC) swaps.

NYSE, Deutsche Boerse Set To Vie For Technology Business
NYSE Euronext (NYX) and Deutsche Boerse AG are squaring up to compete again after burying their merger plan, and both see selling technology and market services to other exchanges and traders as key to their independent futures.

CBOE to List Futures on Brazil, Oil Volatility Indexes
By Nina Mehta and Jeff Kearns – Bloomberg
CBOE Holdings Inc. (CBOE), owner of the largest U.S. venue for equity derivatives, will list futures and options tracking volatility indexes on Brazilian stocks and crude oil, according to a statement on the exchange’s website.

MF Global trustee to share info with investigators
Reuters via Yahoo! News
(Reuters) – The trustee for bankrupt MF Global Holdings Ltd agreed to share internal documents with officials investigating a massive shortfall in the firm’s customer accounts, resolving weeks of negotiations over access to the information.

Libor Probe Said to Expose Collusion, Lack of Internal Controls
Global regulators have exposed flaws in banks’ internal controls that may have allowed traders to manipulate interest rates around the world, two people with knowledge of the probe said.

JPMorgan, HSBC Implicated by Informant Bank in Canada Libor Case
JPMorgan Chase & Co., Deutsche Bank AG and HSBC Holdings Plc are among at least seven firms accused by another bank of participating in a conspiracy to manipulate the price of derivatives worldwide for more than three years.

Eurozone divisions threaten Greece aid
By Joshua Chaffin and Peter Spiegel in Brussels and Gerrit Weisman in Berlin – Financial Times
Eurozone officials have called off an emergency meeting of finance ministers to approve a vital E130bn bail-out for Athens amid a growing fight among the country’s European creditors about the merits of allowing Greece to go bankrupt.

Pressure rises on private equity bosses’ tax
By Daniel Schäfer in London and Richard McGregor in Washington – Financial Times
Pressure is rising across the globe to raise taxes for private equity bosses, with German and Swedish authorities pushing for legislative changes and a leading US pension fund investor calling the 15 per cent rate in America “indefensible”.

Equities trading costs under pressure
By Philip Stafford – Financial Times
Costs for finalising equities trades are coming under renewed pressure after one of the region’s at-cost clearing houses said its market share had grown due to brokers keen to cut overall trading costs.

Portugal’s Debt Efforts May Be Warning for Greece
LISBON — As debt-plagued Greece struggles to meet Europe’s strict terms for receiving its next round of bailout money, the lesson of Portugal might bear watching.

EU to Ban Iran Banks From Financial Network
WASHINGTON—The European Union is moving to ban blacklisted Iranian entities from using a Belgium-based financial communications and clearing system in a move that will drastically cut Tehran’s ability to conduct global financial transactions, according to senior U.S. and European officials.

Environmental Trading News

EEX: Third Auction for Lithuania to take place on 15 March
The European Energy Exchange (EEX) will carry out the third primary market auction for Lithuania on Thursday 15 March 2012. In the framework of the extension agreement between the Lithuanian Ministry of the Environment and EEX of 16 December 2011, a further 850,000 EU emission allowances (EUA) will be auctioned off on the EEX Spot Market.

Green Exchange Holiday Hours for Presidents’ Day Holiday
GreenX Contracts listed for trading on CME Globex and for submission for clearing through CME ClearPort will have revised trading hours for the upcoming Presidents’ Day holiday. Please see the information below for further details.

Emissions trading: Cheap and dirty
Financial Times
When the European Union decided last month to press ahead with a plan to force foreign airlines to pay for the carbon pollution generated by each flight landing at its airports, Brussels policymakers justified their action as the only way to forge a global solution to one of the fastest-growing sources of greenhouse gas emissions.

For more environmental trading news, subscribe to the Environmental Markets version of the John Lothian Newsletter edited by Jim Kharouf. 
Visit to subscribe.

Exchange & ECN News

Deutsche Boerse to Return Capital After NYSE Deal Fails
By Nandini Sukumar – Bloomberg
Deutsche Boerse AG, blocked from buying NYSE Euronext by European competition regulators this month, pledged to return capital to shareholders after posting a fourth-quarter profit.

Deutsche Boerse CEO: No Reason To Step Down; Plans To Stay Full Term
Ulrike Dauer, Dow Jones Newswires
FRANKFURT -(Dow Jones)- Deutsche Boerse AG Chief Executive Reto Francioni said Tuesday he sees no reason to step down after the company’s planned merger with NYSE Euronext (NYX) failed, having been blocked by the European Union.

Deutsche Börse chief upbeat on new strategy
By James Wilson in Frankfurt – Financial Times
The chief executive of Deutsche Börse has claimed total supervisory board backing to lead a new strategy for growth after EU competition watchdogs blocked plans for a transatlantic merger with NYSE Euronext.

Spanish MTF PAVE Temporarily Postponed
Press Release

Bulgarian Stock Exchange To Synchronize Trading Hours With The International Markets
Press Release
The Bulgarian Stock Exchange has announced today a change in its trading timetable. The purpose is to synchronize the exchange’s trading session hours with the European markets and thus fulfilling one of the objectives set in the “BSE Development Strategy until 2012”. Under the plan, the time interval for executing trades on the exchange will be extended.

CME Group Clearing Advisory
NYMEX Options Expiration Operational Procedures for the Trading Floor and Clearing Members (LO, PAO, PO) – Effective Wednesday, February 15, 2012

[CBOT] Registration and Qualification Requirements

[CBOT] EEM Opening Settings on VXEEM Futures Settlement Days

Direct Edge Trading Notice #12-09: New Date – Direct Edge Updates FIX Short Sale Order Marking Requirements Effective March 15, 2012
Press Release

CBOE, C2, CFE, And CBSX Trading Schedule For Presidents’ Day Holiday

OneChicago Holiday Notice – Presidents Day 2012

Banks, Brokers & Dark Pools

ANZ CFO Marriott Resigns, Sparks Management Reshuffle
Dow Jones Newswires
SYDNEY – Australia & New Zealand Banking Group Ltd. (ANZ.AU) Wednesday announced a senior management reshuffle sparked by the resignation of veteran Chief Financial Officer Peter Marriott.

Goldman Sachs Seeks Exemption for Bank Stakes in ‘Credit Funds’
Goldman Sachs Group Inc., which says it owns the world’s largest family of so-called mezzanine loan funds, is asking regulators to loosen proposed limits on bank investments in such pools.

Goldman Sachs Banking Partner Jeffrey Moslow to Retire From Firm at Age 47
Goldman Sachs Group Inc. (GS) ‘s Jeffrey Moslow, an investment banker to companies such as Tyco International Ltd., plans to leave the firm. Moslow, 47, a partner based in New York, is a former head of the investment-banking services group and joined the firm in 1994, Goldman Sachs said today in an internal memorandum disclosing the move.

Goldman analyst probed for leaking inside info: report
Reuters via Yahoo! News
(Reuters) – A Goldman Sachs technology analyst is under investigation by federal authorities for leaking inside information to hedge funds, the Wall Street Journal said, citing people close to the situation.

DealBook: Fed Approves Capital One’s Deal for ING Direct
New York Times
But the move came with an order that the bank’s risk-management and compliance structure take account of the growth and complexity of the firm.

UBS Tests Demand For Hybrid Capital Bond
Dow Jones Newswires
Swiss bank UBS AG (UBS) Tuesday was providing the most recent test of investor appetite for a type of debt regulators hope will help eliminate taxpayer-led bailouts for struggling banks.

ABN Amro May Reduce 15% of Clearing Division Jobs in Reorganization
ABN Amro Group NV, the Dutch lender nationalized in 2008, said it may cut about 15 percent of jobs at the firm’s clearing unit amid an overhaul.

BNP Paribas’s CEO Bonnafe Says 2011 Bonus Pool Reduced by Half
BNP Paribas SA, France’s largest bank, joined Credit Suisse Group AG and Deutsche Bank AG in cutting 2011 bonuses after quarterly profit plunged at its corporate- and investment-banking unit.

Handelsbanken shines among Nordic banks
By Michael Stothard in Stockholm – Financial Times
Strong results from Handelsbanken were a bright spot in an otherwise uncertain fourth-quarter earnings season for the Nordic banking sector, with the Swedish bank reporting a rise in earnings and dividends.

European banks look to wealthy Asians
By Paul J Davies in Hong Kong – Financial Times
European banks are joining their governments in calling on Asian investors to help them shore up their balance sheets which have been damaged by the financial crisis, according to bankers.

Regulatory News

The SEC News Digest
The SEC News Digest provides daily information on recent Commission actions, including enforcement proceedings, rule filings, policy statements, and upcoming Commission meetings.

CME warns of Volcker rule impact on Treasuries
By Telis Demos in New York – Financial Times
The CME Group has warned that the proposed Volcker rule could impede the primary dealer system used by the US Treasury to sell government debt.

Ex-Citigroup CEO Says Volcker Rule Needs ‘Severe Penalties’
John S. Reed, who helped engineer the merger that created Citigroup Inc., said the U.S. should make the proposed Volcker rule stronger by targeting bank traders’ pay and using “severe penalties” to enforce it.

Tri-party repo fears unresolved
By Tracy Alloway and Michael Mackenzie in New York – Financial Times
The financial industry task force assigned to reform part of the shadow banking system in the US is set to deliver final recommendations without fully resolving a key issue of concern for regulators.

Pension funds back SEC over reforms
By Dan McCrum in New York – Financial Times
Several of the world’s largest pension funds have urged the US’s Securities and Exchange Commission to finish the job of implementing financial reform in the face of resistance from industry, the Republican party and corporate legal challenges to the introduction of new rules.

Remarks Before The PLI Investment Management Institute 2012 By Eileen P. Rominger, Director, Division Of Investment Management, U.S. Securities And Exchange Commission
Press Release

Statement Of Dissent By CFTC Commissioner Jill E. Sommers And CFTC Commissioner Scott D. O’Malia – Fiscal Year 2011 Annual Performance Report
Press Release

Bank Tax Continues To Be Wrong Policy, SIFMA Says
Press Release

ESMA: Publication Of The Responses Received To The Consultation On Short Selling And CDS
Press Release

[AMF] CPPS-IOSCO release final report on OTC derivatives data reporting and aggregation requirements

[AMF] End of the short selling ban regarding French securities of the financial sector

ASIC suspends AFS licence of ‘Aussie Rob’s’ Lifestyle Investor Services

Investor Alert: BCSC investigating Rashida Samji and Arvindbhai B. Patel
Vancouver – The British Columbia Securities Commission is investigating Rashida Samji and Arvindbhai B. Patel (also known as Arvin Patel) in regards to their involvement in an investment scheme.

Investments – Indexes – Managed Futures – Managed Funds

AlphaMetrix Survey: Majority of Investors in Hedge Funds, CTAs and Private Equity Plan to Increase Allocations in 2012
Business Wire
CHICAGO–(BUSINESS WIRE)–AlphaMetrix LLC, founder and operator of the AlphaMetrix Global Marketplace (AGM), the leading secure online marketplace for private investments, today released results of a survey that found a majority of investors in hedge funds, commodity trading advisors and private equity funds expect to increase their allocations to those private investments in 2012.

BofA Merrill Lynch Fund Manager Survey Finds Renewed Confidence in Global Equities
Business Wire
NEW YORK & LONDON–(BUSINESS WIRE)–Investors are showing renewed confidence in global equities amid radically improved market conditions and growing hopes of economic growth, according to the BofA Merrill Lynch Survey of Fund Managers for February.

Palmer Square Signs Investment Deal with LNG Capital
PR Newswire via Yahoo! Finance
Palmer Square Capital Management, along with Montage Investments and Atlantic Asset Management, today announced a partnership with LNG Capital, a long/short European credit firm based in London that focuses on European corporate credit investments.

Barclays, BlackRock Chase $9 Billion in Mexican Pension Assets
Carlos Manuel Rodriguez | Bloomberg
Barclays Plc, BlackRock Inc. and Deutsche Bank AG are vying to tap as much as $9.3 billion in Mexican regulated pension assets that are poised to invest in commodities following regulatory changes.

BlackRock Announces Board Approval of Prospective Registered Closed-End Fund Liquidations
Business Wire

Och-Ziff Capital Management Group LLC Reports 2011 Fourth Quarter and Full Year Results
PR Newswire via Yahoo! Finance

Yale University Bought China Exchange-Traded Fund Last Quarter
Yale University, whose endowment strategy has been a model for U.S. schools, bought new shares of a China exchange-traded fund last quarter.

Hedge Fund Managers Ramping up Mock Due Diligence Audits in Preparation for First Post Dodd-Frank SEC Examinations
Business Wire
NEW YORK–(BUSINESS WIRE)–Chelsea Technologies has seen a recent increase in hedge fund managers commissioning third-party due diligence audits ahead of the March 30th hedge fund registration deadline with the SEC

[NYSE Euronext] 6 ETF Launches: iShares

Technology News

NYSE Technologies Introduces Trade Exception Radar for Post-Trade Monitoring
New York, NY – Feb. 14, 2012 – NYSE Technologies, the commercial technology unit of NYSE Euronext (NYX), today announced the U.S. launch of its new post-trade monitoring tool, Trade Exception Radar. The product, hosted in the NYSE Technologies U.S. Liquidity Center in Mahwah, is designed to offer fully automated surveillance and compliance capabilities across asset classes. Trade Exception Radar provides real-time performance with a complete audit trail. It helps firms collect and analyze trading patterns, detect and identify potential trading issues, and monitor trading patterns in real-time.

Flaw Found in an Online Encryption Method
SAN FRANCISCO — A team of European and American mathematicians and cryptographers have discovered an unexpected weakness in the encryption system widely used worldwide for online shopping, banking, e-mail and other Internet services intended to remain private and secure.

US exchange websites attacked
By Telis Demos in New York – Financial Times
The public web sites of some US securities exchanges experienced outages after cyber-attacks on Monday and Tuesday, but their trading systems were unaffected.

Nasdaq OMX: Signs Of Attempts To Block Access To Websites 
Nasdaq OMX Group Inc. (NDAQ) on Tuesday confirmed attempts by unknown parties to block access to the exchange company’s websites, though there were no signs that security was breached.

Reports Economic Calendar

USDA Today

CBOE Events Calendar

Economic Release Calendar
The Economic Release Calendar (PDF) is a schedule of government, academic and industry economic releases, provided as a service to CME customers.

Asia-Pacific News

Ex-Citigroup Executive Denies Wrongdoing in Tibor-Fixing Probe
An ex-Citigroup Inc. executive accused in a probe by Japanese regulators of suspected interest- rate manipulation denied wrongdoing and said authorities never questioned him before they issued findings.

Shanghai Futures Exchange Lowers Gold Margins to Boost Trading
By Bloomberg News
The Shanghai Futures Exchange, China’s biggest metals bourse, lowered the margins on gold for trading the contract in the final month before its expiry to boost volumes and attract more investors.

Bird-Watching CEO Gupta Seeks Returns as DBS Expands in Asia
Piyush Gupta, chief executive officer of DBS Group Holdings Ltd., Southeast Asia’s largest bank, picked banking over a passion for bird-watching three decades ago. Now his plans for regional expansion are taking flight.

Shanghai Stock Exchange Holds Talkfest For Small, Medium-Sized Investors
Press Release

Frontier Markets

Popularity of Rupee futures rises among NRIs in Middle East
Economic Times of India
DUBAI: A surge in investors’ interest in Indian rupee futures is contributing majorly to the growth at the Dubai Gold & Commodities Exchange, the only exchange outside India where rupee futures can be traded.

Notification 2: Bursa Malaysia’s Website Access Restored To Normal
Press Release

John Lothian Newsletter

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Rick Lane

CEO, Trading Technologies

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