John Lothian Newsletter: SEC Shines Light on Derivatives-Backed Notes; China to tighten shadow banking rules; Search begins for new Libor administrator

Feb 26, 2013

Regulators put pressure on derivative-selling banks to disclose their internal valuation for the products. China steps up to provide greater regulatory control to its fast-growing shadow banking system. A new group in the UK sets out on a quest to find a new administrator for the heavily-wounded LIBOR benchmark.

First Read

Deutsche Börse AG not in merger negotiations
Deutsche Börse Group
Deutsche Börse AG is not in merger negotiations with CME Group. As repeatedly communicated, Deutsche Börse Group’s primary strategic focus is on organic growth, mainly by expanding its business into growth regions in Asia, extending its services for unsecured and unregulated markets, and expanding its combined market data and IT business.
jlne.ws/ZGacQy

**** Merger, no? How about takeover? See CBOT deal. Described as merger and maybe was not so much.

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Analysts see merit in Deutsche-CME deal
Chicago Tribune
Deutsche Boerse said on Monday that it is not in deal talks with CME Group Holdings Inc., but some analysts see a sale to CME as an attractive option for the German bourse at a time when profits are under pressure and scale is increasingly important.
jlne.ws/ZGaff7

**** What is important is innovation and marketing. That is what drives growth. CME and DB would be better having to compete against each other and other competitors than being one huge company. Scale can only get you so far.

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Libor Faces U.S. Critic Gensler at CFTC Rate Roundtable
Silla Brush – Bloomberg
The London interbank offered rate will face a prominent U.S. critic today as financial regulators look to improve oversight after three banks paid more than $2.5 billion in fines to settle interest-rate rigging charges.
jlne.ws/ZGacQE

***** Go get them Gary!

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SEC Missed Chance on Money Funds, Should Step Aside Now
Arthur Levitt – Bloomberg
A former member of the U.S. Securities and Exchange Commission recently asked me to co-sign a letter urging a federal oversight body to refrain from taking regulatory action normally left to the SEC. I believe deeply in the independence of the agency I once led, but in this case, I could not place my loyalty to the organization above the larger goal of protecting individual investors. So I refused to sign.
jlne.ws/ZGaffe

***** The jlne.ws shortner for the URL fo this story is randomly created, and truly was ZGaffe.

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CME Group Announces Daily Volume Record in Copper Futures
CME Group, the world’s leading and most diverse derivatives marketplace, announced it reached a new daily trading volume record for its COMEX Copper (HG) futures contract on February 21, 2013. This contract is listed by and subject to the rules of COMEX.
jlne.ws/ZGafff

***** Where is the story about China buying so much copper it could circle the earth 105 times?

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Copper Winding Earth 105 Times Shows Deficit: Commodities
Joe Richter – Bloomberg
China, primed by government spending to boost growth, will need enough copper every month to circle the globe more than 100 times.
jlne.ws/YxKR4k

***JM: Right here.

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OptionsCity Freeway Powers University of Chicago Trading Competition
OptionsCity Software, a leading provider of electronic trading solutions, today announced their contribution to the University of Chicago Midwest Trading Competition taking place April 12-13 at the Gleacher Center. The firm’s Freeway software will serve as the sole automated trading platform for students to develop algorithmic strategies and execute mock trades.
jlne.ws/ZGacQH

***** The University of Paris wants to test this software too, but the government made them change the name of it to “toll-way” over there.

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SGX delivers live share prices to Google Finance
Singapore Exchange (SGX) will deliver real-time stock market data to Google Finance starting today. This marks the first time live SGX data is available on an international public finance website.
jlne.ws/X81IPH

***** Yahoo!!!

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Memo to Europe: What About T-Bills?
FLOYD NORRIS – NY Times
In my column on Friday, I looked at the proposed European transaction tax from a stock market perspective, and found it to be reasonable. A friend who is a tax lawyer says — rightly — that I should have considered bonds, particularly short-term Treasury securities. He has a point.
jlne.ws/ZGafMa

***** So what, is it a negative interest rate after the tax? Big deal. Who does not want a -.01 return?

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Senators Said to Plan Hearing on SEC Nominee White for Mid-March
Cheyenne Hopkins – Bloomberg
The U.S. Senate Banking Committee is aiming to hold a hearing on the nomination of Mary Jo White to lead the Securities and Exchange Commission in mid-March.
jlne.ws/ZGafMb

***** The Ides of March? Really? Come on?

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TABB Says US Equity Options Market Makers Need Scalable Technology to Compete in Today’s Complex Market Structure
Business Wire via Yahoo! Finance
US equity options market makers tell TABB Group they are re-examining business models due to declining volumes, stagnating volatility and rising technology expenses that have created a business environment favoring larger firms with technology capable of scaling.
jlne.ws/ZGaffj

***** What is your nut?

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Gorkana reports: Futures Magazine
Michael McFarlin has been named Associate Editor at Futures Magazine. He has been with the Chicago publication since 2010 and most recently served as Assistant Editor. Michael can be reached at +1 (312) 846 4611 and mmcfarlin@futuresmag.com

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jlne.ws/X6Nw9q

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Lead Stories

SEC Shines Light on Derivatives-Backed Notes: Credit Markets
Kevin Dugan – Bloomberg
Lenders from JPMorgan Chase & Co. (JPM) to Bank of America Corp. (BAC) that sold $51 billion of securities backed by equity derivatives the past two years are being pushed by regulators to disclose that the banks valued the debt as much as 10 percent less than customers paid.
jlne.ws/ZGafMi

China to tighten shadow banking rules
Simon Rabinovitch in Beijing – FT.com
China is to rein in its fast-growing shadow banking system by requiring banks to provide extensive disclosures about the off-balance sheet investment products that they sell to customers, according to people briefed on the new rules.
jlne.ws/ZGafMl

Search begins for new Libor administrator
Brooke Masters and Philip Stafford – FT.com
The UK effort to restore confidence in Libor took another step forward on Monday as the search began for a new administrator for the scandal-plagued rate. A committee headed by Lady Hogg will select the new administrator, subject to approval by the Financial Conduct Authority, the UK’s new markets regulator.
jlne.ws/ZGafvz

Banks Face Key Hurdle in Libor Fight
JEAN EAGLESHAM – WSJ.com
Banks suspected by regulators around the world of manipulating interest rates are trying to escape another mire: more than 30 lawsuits filed by borrowers, lenders and other plaintiffs who claim they were cheated by the same financial institutions.
jlne.ws/ZGag2D

Gottex Brokers to open London office
Tom Osborn – Financial News
Gottex Brokers, the largest interdealer broker in the Swiss interest rate swap market, is to open a new office in London focused on the high-yield credit market, Financial News has learned.
jlne.ws/ZGafvC

Canada’s Carney says more work needed to rebuild trust in banks
Reuters via Yahoo! News
LONDON, Ontario – Banks and regulators must do much more to rebuild the trust in the financial system that was shattered in the recent crisis, Bank of Canada Governor Mark Carney, head of the G20’s Financial Stability Board, said on Monday.
jlne.ws/ZGafvF

Banks Fear Court Ruling in Argentina Bond Debt
PETER EAVIS – NYTimes.com
A fierce battle between the government of Argentina and hedge funds and other investors led by a group of hedge funds has already led to the seizure of a naval ship and dragged in the United States Treasury. Now a federal appeals court is hearing the dispute, and how it rules could have a major impact on world debt markets.
jlne.ws/ZGafvN

Regulatory

CFTC’s Division of Clearing and Risk Announces Revised Compliance Schedule for Required Clearing of iTraxx CDS Indices
The Division of Clearing and Risk (DCR) of the Commodity Futures Trading Commission today received notice from ICE Clear Credit LLC that it has begun offering customer clearing of the iTraxx CDS indices that are subject to the clearing requirement under Regulation 50.4(b) and section 2(h) of the Commodity Exchange Act (CEA).
jlne.ws/ZGafvQ

Regulators and issuers gear up for European RMBS register
Farah Khalique and Matthew Attwood – Financial News
A new data warehouse promising to bring transparency to the pools of loans underpinning asset-backed securities and restore confidence in the market is seeing a surge in interest.
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IOSCO Publishes Report On Investor Education Initiatives
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ASIC publishes fifth market supervision report
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Exchanges & Trading Facilities

Those betting on D Börse deal face a wait
Philip Stafford – FT.com
Will Deutsche Börse be the latest European exchange to fall to a larger US rival? The group quickly moved to shoot down the news, first reported by Bloomberg, that it was pursuing a merger with the CME by flatly stating it was “not in merger talks”
jlne.ws/ZGairk

MGEX Announces Single-Click Spread Functionality Between MGEX and KCBT Wheat Contracts
MGEX, a Designated Contract Market (DCM) and Derivatives Clearing Organization (DCO), today announced a new functionality involving its North American Hard Red Spring Wheat (HRSW) futures contract.
jlne.ws/ZGagjj

NYSE Euronext to Present at the Raymond James Institutional Investors Conference
jlne.ws/ZGairr

[CBOE] Announce Formation of CAT Development Advisory Group
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[CBOE] Bid-Ask Differentials
jlne.ws/ZGagjp

Discontinuation of CBOE iSpreads Facility
jlne.ws/ZGaiHK

CHX LEGAL NOTICE 2013-11: Open Nominating Meetings Scheduled for March 4, 2013 and March 5, 2013
jlne.ws/ZGagzH

Athens Exchange: National Bank Of Greece And Eurodrip
jlne.ws/ZGaiHR

Hedge Funds & Managed Futures

Palio disbands as founders join hedge fund
Richard Partington – Financial News
Palio Capital Partners, the UK debt investor that announced it was looking to raise £150m through an initial public offering last October, will cease to exist after its three founding principals opted to join a credit-focused hedge fund.
jlne.ws/ZGagzL

BlackRock tops search rankings
Sophie Baker – Financial News
BlackRock, the world’s largest asset manager, topped data provider Camradata’s list of fund manager searches last year.
jlne.ws/ZGaiHX

Gavea Scraps Asset-Backed Fund as JPMorgan Hires Away Berenguer
Bloomberg
Gavea Investimentos Ltda., the hedge fund founded by ex-central banker Arminio Fraga, will return to investors the 1 billion reais it raised last month for a high-yield credit fund.
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Head of Morgan Stanley’s fund-of-funds moving to Carlyle
Reuters via Yahoo! News
NEW YORK – The head of Morgan Stanley’s fund-of-hedge-funds business, Jacques Chappuis, will leave the firm in May and join Carlyle Group LP as a managing director, according to an internal memo from the bank and a statement from Carlyle.
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Leading Firms Merge to Form One of the Largest Texas-Based Alternative Investment Platforms
Marketwire via Yahoo! Finance
Meritage Capital, LLC, a hedge fund investment firm based in Austin, Texas, today announced that Centennial Partners, LLC of Memphis, Tennessee has combined with the firm.
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CalPERS Board Committee Chairs And Vice Chairs Chosen
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Banks & Brokers

Exclusive: Goldman to begin fresh round of job cuts
Lauren Tara LaCapra and Katya Wachtel – Reuters
Goldman Sachs Group Inc will begin a fresh round of job cuts as early as this week, sources familiar with the matter said on Monday, with its equities-trading business bracing for bigger cuts than fixed-income trading.
jlne.ws/ZGagQ8

Goldman managing director in insider trading probe leaves bank
Reuters via Yahoo! News
NEW YORK – A Goldman Sachs Group Inc salesman under investigation for possibly passing confidential information about technology companies to hedge funds has left the bank, a spokesman confirmed on Monday. David Loeb, 42, a managing director based in New York, has never been charged with wrongdoing.
jlne.ws/ZGajeN

Rabobank faces fine of over $440 million for rate rigging: report
Reuters via Yahoo! News
AMSTERDAM – Dutch group Rabobank is expected to get a fine of more than $440 million for manipulating Libor interest rates, news agency Bloomberg reported on Tuesday. Rabobank, the second-largest financial group in the Netherlands by balance sheet size, is expected to reach a settlement with U.S. and UK regulators over claims it tried to manipulate benchmark interest rates
jlne.ws/ZGajeS

GFI Group opens new office in Manila, Philippines
GFI Group Inc. announced today the opening of an office in Manila, the Republic of the Philippines. The new office will focus on brokering of Philippine Government and corporate fixed income products in the domestic market.
jlne.ws/ZGagQf

Richard Kerschner joins EBS as Chief Corporate Development Officer
EBS, ICAP’s market-leading electronic FX business, today announces that Richard Kerschner is joining the Company as Chief Corporate Development Officer and a member of the EBS Executive management team, reporting to Gil Mandelzis, EBS’s Chief Executive Officer.
jlne.ws/ZGagQh

Knight to Sell Credit Brokerage Unit to Stifel: Report
CNBC
Knight Capital plans to sell its credit-brokerage unit to Stifel Financial, a person familiar with the matter told Reuters.
jlne.ws/ZGajvi

Rebuilding the house of GSAM
Mike Foster – Financial News
The resignation of Jim O’Neill as chairman of Goldman Sachs Asset Management has reignited a debate over whether it is more sinned against than sinning.
jlne.ws/ZGagQj

Deutsche Bank Is Caught In A Spiral Of Lies
Business Insider
Deutsche Bank, long coddled by the German government, is mired in a swamp of costly “matters,” such as the Libor rate-rigging scandal or the carbon-trading tax-fraud scandal that broke with a televised raid by 500 police officers on its headquarters.
jlne.ws/ZGagQl

BNY Mellon Names Debra Baker to Head New Global Risk Solutions Group
BNY Mellon, the global leader in investment management and investment services, has announced that Debra Baker will lead the company’s newly renamed Global Risk Solutions group, which brings together the functions of its current Performance & Risk Analytics business.
jlne.ws/ZGagQo

Citigroup names new chairman of strategy unit
Crain’s New York Business
Citigroup Inc., the third-largest U.S. bank, named Peter Orszag chairman of its expanded financial strategy and solutions group while selecting Ajay Khorana and Elinor Hoover to co-lead the unit.
jlne.ws/ZGajvr

JPMorgan names auto loan head as it works to win back business
Reuters via Yahoo! News
NEW YORK – JPMorgan Chase & Co named a new head of auto finance on Monday as the bank tries to boost its lending in a red-hot area where it has lost market share in recent years.
jlne.ws/ZGah6E

UBS expands in Brazil even as it cuts back elsewhere
Reuters via Yahoo! Finance
SAO PAULO – UBS AG is expanding its capital markets and mergers advisory business in Brazil even as it cuts back in those areas globally, and despite worries over Brazil’s economic policy and the Swiss bank’s refusal to use lending to win business.
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BofA Affirms Buffett Bet as Moynihan Recovers From Gaffes
Bloomberg
Brian Moynihan was impatient. It was August 2011, and the Bank of America Corp. chief executive officer was reviewing plans to impose a $5 monthly fee on debit- card users.
jlne.ws/ZGah6M

Barclays may seek shareholder approval for more CoCos
Reuters via Yahoo! News
LONDON – Barclays is considering asking its shareholders for approval to sell bonds that would convert into shares if the British bank hits trouble, a person close to the matter said on Monday.
jlne.ws/ZGah6P

Goldman ex-director Gupta must repay bank $6.22 million
Reuters via Yahoo! News
– A federal judge on Monday ordered former Goldman Sachs Group Inc director Rajat Gupta to reimburse $6.22 million to help the Wall Street bank cover its legal expenses related to his criminal insider trading case.
jlne.ws/ZGajvu

Nomura Becomes General Clearing Member Of Cassa Di Compensazione E Garanzia – Nomura To Be GCM For Equity Derivatives Traded On IDEM
jlne.ws/ZGah6X

Clearing & Settlement

Newedge clears first OTC IRS swap on CME
Multi-asset brokerage and clearing firm Newedge has announced it has cleared its first OTC interest rate swap (IRS) contract. The transaction is the first to be cleared on CME Clearing by a non-traditional OTC swap dealer.
jlne.ws/YRODHQ

Moscow Targets March Move to 2-Day Settlement: Russia Overnight
Bloomberg
The Moscow Exchange is accelerating plans to transition to two-day settlement of transactions as the bourse seeks to lure more foreign investors and bolster trading after its initial public offering.
jlne.ws/ZGahnf

28 Financial Institutions Worldwide Adopt Exchange-Traded Derivatives Functionality on Omgeo CTM
Omgeo, the global standard for post-trade efficiency, today announced that 28 investment manager and broker/dealer firms, including several of the world’s largest broker/dealers, have signed to adopt the new exchange-traded derivatives (ETD) functionality in Omgeo Central Trade ManagerSM (Omgeo CTM), Omgeo’s central matching service for equity, fixed income, exchange-traded derivative (futures and listed options) and contracts-for-difference trades
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Clearing Advisory: CME Group Delivery Dates for March 2013
jlne.ws/ZGajLZ

Indexes & Products

EDHEC-Risk Institute Survey Confirms Investor Dissatisfaction With Corporate Bond Indices
In a survey entitled ‘Reactions to “A Review of Corporate Bond Indices: Construction Principles, Return Heterogeneity, and Fluctuations in Risk Exposures”’ researchers at EDHEC-Risk Institute have analysed industry reactions to a previous EDHEC-Risk study on corporate bond indices and confirmed that investors are dissatisfied with the indices currently on offer.
jlne.ws/ZGahnj

New Amundi ETF launched in the XTF segment on Xetra
jlne.ws/ZGajM7

db X-trackers Nikkei 225 launched on Xetra
jlne.ws/ZGak2l

Finex ETF launches on London Stock Exchange
jlne.ws/ZDNHvr

The Expert Indices Committee
jlne.ws/ZGahDG

Tokyo Stock Exchange Has Published The Index Value Of TSE Home Price Index For December
jlne.ws/ZGak2s

CFTC’s Division Of Clearing And Risk Announces Revised Compliance Schedule For Required Clearing Of iTraxx CDS Indices
jlne.ws/ZGak2z

Changes In The Composition Of The Athex Indices
jlne.ws/ZGak2A

KBW Announces Change to KBW Global Financials (Ex-U.S.) Index (KGXSM)
jlne.ws/ZGahDT

Technology

NAB Asset Servicing Connects To Calastone – Over 40% Australian Managed Funds Now Electronic
Calastone, the global fund transaction network for the managed fund industry, now has more than 40% of Australia’s fund managers available for transacting over its electronic network, as NAB Asset Servicing (NAS) goes live.
jlne.ws/ZGakiT

Enforcement

Federal Court in Massachusetts Imposes $600,000 Penalty on Jeffrey Liskov and His Company, EagleEye Asset Management, for Committing a $3 Million Forex Fraud
The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Joseph L. Tauro of the U.S. District Court for the District of Massachusetts issued an Order requiring Defendants Jeffrey Liskov and his company, EagleEye Asset Management, LLC (EagleEye), both of Plymouth, Mass., each to pay a $300,000 civil monetary penalty for fraud in connection with foreign currency (forex) trading.
jlne.ws/ZGakiU

NASDAQ OMX Stockholm Disciplinary Committee Fines ABN AMRO
jlne.ws/ZGahUe

New Zealand’s Financial Markets Authority: Ross Asset Management Update
jlne.ws/ZGakiZ

Environmental & Energy

CME Said to Approach Deutsche Boerse to Weigh Deal Talks
Bloomberg
CME Group Inc. (CME), the world’s largest futures exchange, has approached Deutsche Boerse AG to consider beginning talks on a merger, according to four people familiar with the situation.
jlne.ws/VHW5Xu

EU lawmakers will not vote Tuesday on drafting CO2 law
Reuters
European politicians will not vote on Tuesday, as had been expected, on whether to begin drafting a law to prop up the EU Emissions Trading Scheme (ETS), delaying any possible deal on supporting the carbon market, an official agenda showed.
jlne.ws/YThlIv

**RKB — Officials take to Twitter to try to keep ahead of the media. “Backloading will not feature in the committee hearing tomorrow. All other reports are inaccurate,” Matthias Groote, chairman of the environment committee, who is leading the debate, tweeted. Normal procedure then pushes the debate to a plenary session, another potential slowing tactic. More in Bloomberg’s report below.

EU Parliament’s Biggest Group Wants Plenary Talks on Carbon Fix
Bloomberg
The biggest group in the European Parliament wants the whole assembly to decide about talks with governments on a carbon fix, avoiding fast-track negotiations, lawmaker Eija-Riitta Korhola said.
jlne.ws/VJl50q

Asia-Pacific

Singapore prices biggest IPO in two years
Josh Noble in Hong Kong – FT.com
Mapletree has priced the initial public offering of its greater China real estate investment trust at the top end of the range, marking the biggest new listing in Singapore for more than two years.
jlne.ws/ZGakj4

Singapore Trading Hub May Reduce World’s Costliest LNG, IEA Says
Bloomberg
A new LNG terminal in Singapore, set to receive its initial cargo from Qatar in the first quarter, will serve a wide array of tankers and boost import capacity “far beyond” domestic consumption, the IEA said today in a report.
jlne.ws/ZGahUo

Survey Results Highlight Diversity Of Investors In HKEx’s Securities Market
jlne.ws/ZGahUs

SGX welcomes Chasen Holdings to Mainboard
jlne.ws/ZG0KN1

Hong Kong’s Securities And Futures Commission Quarterly Report
jlne.ws/ZGaiaI

Frontier Markets

Bursa Malaysia To Host Invest ASEAN 2013 Showcasing Top Performing ASEAN Companies – Regional Investment Roadshow Aims To Promote ASEAN As An Asset Class
Bursa Malaysia, a member of the ASEAN Exchanges collaboration, will host the third Invest ASEAN 2013 roadshow this Saturday, 2 March, presenting top performing public listed companies from Singapore and Thailand to retail investors in Malaysia.
jlne.ws/ZGakzn

Lahore Stock Exchange Becomes The First Exchange To Introduce Regular Interaction With The Listed Companies
jlne.ws/ZGakzo

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