Finance v physics: even ‘flash boys’ can’t go faster than light

Feb 21, 2019

First Read

Hits & Takes
JLN Staff

CTAs started 2019 on a sour note — with 86 percent of funds reporting, BarclayHedge’s CTA Index was down .39 percent for January. Only three of BarclayHedge’s CTA indices were positive in January, and none by very much – the discretionary traders index was up .23 percent, the financials/metals traders index was up .2 percent and the ag traders index was up a measly .04 percent.~SD

The mobile trading universe is a tough nut – there are screen/display/data limitations and big generational differences in expectations regarding functionality. How are devices like the Samsung Galaxy Fold, a foldable smartphone unveiled yesterday, going to change the way we think about and view mobile trading? (If you want a Fold you will need to increase your phone upgrade budget to $2,000 and you need to wait until the end of April.)~SD

Last week the @JohnLothian Twitter account had 104,119 impressions.~JJL

David Prosperi of OCC shared this on LinkedIn: OCC wants to fill a Manager of Public Relations role based in our corporate headquarters in Chicago. It offers a strategic and hands-on execution opportunity for the right person who wants to work for the world’s largest equity derivatives clearing organization and help create external awareness for our brand. If you have done media relations and want to work for a smart organization, take a look at this job posting.~-JJL

The CFTC Division of Enforcement is hiring trial attorneys.~JJL

The oldest stock exchange in the world is the Amsterdam Stock Exchange, established in 1602. What are the rest of the oldest?~JJL


IEX just released a mock infomercial trolling NYSE and Nasdaq, and it’s sure to get Wall Street’s attention
Dan DeFrancesco – Business Insider
In January, IEX published a whitepaper outlining market data fees at all the exchanges.
Wall Street firms are known for filing detailed comment letters and publishing lengthy white papers when voicing their opinion on complex market issues. But in today’s day and age, sometimes the best way to get your point across is an infomercial.

***** Dear IEX, here is your silver platter.~JJL


CME’s bitcoin futures are off to a record breaking start this year
Frank Chaparro – The Block Crypto
CME Group is reporting a record breaking start to 2019 for its futures product tied to bitcoin
In an internal email, the firm said institutional interest has increased for the contract
CME Group, the Chicago-based derivatives market, has seen its future tied to bitcoin take off during the first quarter of 2019, according to an internal email.

**** What influence does having a market maker program have on CME bitcoin futures vs. Cboe’s?~JJL


Hog Futures Crash on Huge Supply as Snowy Weather Boosts Cattle
Lydia Mulvany – Bloomberg
There are so many hogs in the U.S. it’s causing futures to crash in Chicago. American pork output last week was 5.7 percent above year-earlier levels, while the industry only expected an increase of 2 percent to 3 percent, Terry Roggensack, one of the founding principals at commodity researcher Hightower Report, said in a note Wednesday. Wholesale-pork prices have dropped to the lowest since 2009.

***** Expect to see more bacon memes on social media soon to help soak up this excess supply.~JJL


Facebook’s Mark Zuckerberg Sees Pros and Cons in Blockchain Authentication
Marc Hochstein – Coindesk
Facebook CEO Mark Zuckerberg is seriously evaluating blockchain’s potential to allow internet users to log in to various services via one set of credentials without relying on third parties.
Such as a use for the technology would make a compelling alternative to services like Facebook Connect, the social media giant’s single sign-on (SSO) application, Zuckerberg said in a recently posted video interview with Harvard Law professor Jonathan Zittrain.


Wednesday’s Top Three
Our top story of the day was The Block’s The derivatives market is heating up in crypto, and Binance might be the next firm to jump in. Second went to The Trade’s piece about the acquisition of Ronghui Tongjin Technology, in HKEX to acquire exchange technology business. Third was Reuters’ coverage of corn futures, with Funds sold entire CBOT corn long undetected during U.S. government shutdown: Braun


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Lead Stories

Finance v physics: even ‘flash boys’ can’t go faster than light; ‘High-frequency trading illuminates the real-world underpinnings of digital markets’
Gillian Tett – FT
Five years ago, the author Michael Lewis achieved a remarkable feat: his book Flash Boys made the arcane world of high-frequency trading sound thrillingly exciting, as he described finance houses’ efforts to whizz data ever faster between Chicago and New York in a battle to grab a millisecond edge over each other. It was head-spinning stuff — not least because those millisecond margins were what enabled the traders to make profits.

Cryptocurrencies untether the goat of sovereign tender; The existence of digital currencies challenges the idea that money can only be created by nation-states
Simon Gleeson – FT
Back in the 1930s, according to John Maynard Keynes, one of the jobs of a district commissioner in Uganda was to inspect and evaluate goats.

Russian Hackers Targeted European Research Groups, Microsoft Says
Karen Weise – NY Times
A group of hackers associated with Russian intelligence targeted civil society groups across Europe ahead of May elections there, Microsoft said on Tuesday. The attacks, disclosed by Microsoft in a blog post, demonstrate the continuing spread of a broad online campaign aimed at disrupting real and potential political opponents of Russia’s president, Vladimir V. Putin. The company said it had found that hackers targeted more than 100 email accounts at think tanks and nongovernmental organizations that work on issues including election security, nuclear policy and foreign relations.

The chilly feeling around Sweden’s struggling krona; With interest rates stuck in the freezer, the currency’s woes are unlikely to ease
Katie Martin – FT
The humble Swedish krona is offering a neat reminder that relationships in financial markets are not static.

Deutsche Bank Lost $1.6 Billion on a Bond Bet
Jenny Strasburg and Gretchen Morgenson – WSJ
Deutsche Bank AG racked up a loss of $1.6 billion over nearly a decade on a complex municipal-bond investment that it bought in the runup to the 2008 financial crisis, and failed to confront head-on even as markets were upended and regulations tightened.
The loss, which hasn’t previously been reported, represents one of Deutsche Bank’s largest ever from a single wager—roughly quadruple its entire 2018 profit—and ranks as one of the banking industry’s biggest soured bets in the last decade.

****There was an opinion piece titled How I’d persuade people to work for Deutsche Bank now on efinancialcareers Tuesday (well before the above news dropped). The author had two general ideas: pitch it like a career call option or, if the applicant is German, appeal to their patriotic spirit.~SD

Warren Buffett Can’t Find Anything Big to Buy; Investors are hoping his annual letter to Berkshire’s shareholders will offer hints on plans to spend its cash
Nicole Friedman – WSJ
Warren Buffett is always on the hunt for “elephants,” as he calls large acquisitions. But three years have passed since he bagged a new one.

GAM sacks star portfolio manager for ‘gross misconduct’; Swiss fund manager acts against Tim Haywood after internal investigation
Jennifer Thompson – FT
GAM has sacked a star portfolio manager who oversaw one of its key bond funds after an internal investigation found he had engaged in “gross misconduct”, deepening the crisis at the Swiss investment manager.

HSBC banking veteran to leave months after scathing memo
Lucy Burton – The Telegraph
A top HSBC executive who was singled out in a scathing internal memo about the bank’s leadership last year is understood to be leaving the business.

Lowball Prices on Stock Options Could Be Silicon Valley’s Juiciest Perk; The stock valuations companies report ahead of an IPO can be significantly below what outside investors would pay—creating a future windfall for employees
Jean Eaglesham, Telis Demos and Coulter Jones – WSJ
Silicon Valley startups are often eager to tout their soaring values. But they are far more pessimistic when they hand out stock before going public—a sleight of hand that creates a hidden future windfall for employees while potentially lowering their taxes.

Barclays Trader Goes to Trial Over Criminal Front-Running Claims
Joel Rosenblatt – Bloomberg
Prosecutors are ‘trying to create a crime,’ lawyer argues; Bogucki vowed, failed to keep $8 billion unwind quiet: U.S.
The criminal trial of a Barclays Plc foreign exchange trader over a complicated $8 billion transaction may hinge upon the context and perceived meaning of conversations, instant chats and emails — ranging from the ordinary to the profane — among his cohort.

SEC proposes to give big investors IPO information edge over retail investors
Francine McKenna – MarketWatch
A new Securities and Exchange Commission proposal is aiming to make good on Chairman Jay Clayton’s pledge to increase the number of initial public offerings.
On Tuesday the SEC issued a proposal that would give another benefit of the 2012 JOBS Act to all companies. The proposal expands a so-called “testing-the-waters” technique to all potential public companies so they can gauge institutional investor interest in advance of an IPO filing.

U.S.-China trade war rattles agribusinesses, especially Bunge
Karl Plume – Reuters
U.S. President Donald Trump’s trade war with China has roiled agricultural markets and given the world’s top grain merchants the one thing they have long claimed was essential to turn a trading profit: volatility. And yet, Archer Daniels Midland Co, Bunge Ltd , Cargill Inc and Louis Dreyfus Co, the so-called ABCDs of grain, have not performed as well as expected – and, in some cases, failed to deliver the profit windfall promised by company executives, investors and analysts said.

The Investment Association guides buy-side through Libor transition; Industry body has produced a roadmap aimed at guiding asset managers through the transition from Libor to Sonia.
Hayley McDowell – The Trade
The Investment Association has published a set of guidelines aimed at helping asset managers navigate the transition from Libor to Sonia benchmarks.

Asia’s Richest Delight Banks by Abandoning Their Trading Egos
Alfred Liu – Bloomberg
Credit Suisse says clients outsource investing amid volatility; Managing money boosts margins for firms’ wealth managers
For private bankers in Asia, there’s a silver lining to the stock market meltdown that engulfed the world in late 2018. With Asia’s swelling ranks of millionaires chastened by portfolio losses, firms from Julius Baer Group Ltd. to UBS Group AG say they’re finding rich clients more open to giving them discretionary mandates, where they hand over lump sums and let the bank manage the money for a fee. For private banks, that’s a far more lucrative proposition than having customers pay per trade.

State Street Finds Insurers Still Wary of ETFs After Rule Change
Rachel Evans – Bloomberg
Almost 40% avoid using the funds, according to a new study; A rules overhaul was expected to boost use of debt ETFs
Many insurance companies are steering clear of exchange-traded funds even after a high profile rule change designed to make them easier to own.

UBS’s Paris Penalty Shows Le Sheriff Has Come to Town
Hugo Miller – Bloomberg
$5.1 billion in damages and fines is a French record; ‘I think we’re going to see more and more of it,’ lawyer says
Fans of French exceptionalism may not want to admit it but the $5.1 billion penalty a Paris judge slapped on UBS Group AG for helping clients to launder their hidden assets is the strongest sign yet that American-style justice has come to town.

UBS hit with EUR4.5bn penalty in French tax evasion ruling; Swiss bank accused of using ‘James Bond’ tactics to solicit wealthy clients
Stephen Morris and David Keohane – FT
UBS has been hit with a record EUR3.7bn fine and ordered to pay EUR800m in damages in France after a judge found the Swiss bank guilty of helping rich clients evade paying tax.

Exchanges, OTC and Clearing

IPC to Offer ICE Data Services’ Cryptocurrency Data Feed on the IPC Connexus Cloud
Seeking Alpha
NEW YORK, Feb. 20, 2019 /PRNewswire/ — IPC, a leading global provider of secure, compliant communications and networking solutions for global financial market participants, announced it will include ICE Data Services’ Cryptocurrency Data Feed on the IPC Connexus Cloud.

How Listed Companies Have Addressed Japan’s Corporate Governance Code (as of December 31, 2018)
Tokyo Stock Exchange, Inc. has published “How Listed Companies Have Addressed Japan’s Corporate Governance Code (as of the end of December 2018)”, based on corporate governance reports submitted by listed companies.

The role of CCPs in evolving market structures (part I); Useful and unique in the global market structure. By Erik Müller, CEO of Eurex Clearing
The financial crisis revealed that the concentration and interconnectedness of banks could prove problematic if these leveraged businesses add outsized incremental leverage. It is particularly difficult to manage where such risk transfer or acquisition occurs outside organized and regulated markets or financial market infrastructures. While even some of the larger players needed support from investors, governments or taxpayers, the same was not true for market infrastructure providers.

Deutsche Börse increases transparency in ETF trading; New key figure informs about trading costs during the day
Deutsche Börse
Deutsche Börse is now offering ETF investors a new indicator: the iXLM (intraday Xetra liquidity measure) provides information on how the trading costs of an ETF have developed over the course of the day. From this, investors can deduce the period during which the trading costs of an ETF were particularly favorable and feed this information into future decisions. The individual key figure is available for all ETFs on Xetra.

HKEX Establishes International Advisory Council
Hong Kong Exchanges and Clearing Limited (HKEX) today (Thursday) is pleased to announce the establishment of an International Advisory Council (the Council). The Council comprises experts in economics, business and finance from around the world who will act as advisors to the Board of Directors of HKEX (the Board).

Lyft Is Planning to List Shares on Nasdaq; Ride-hailing company expected to make IPO filing public as early as next week
Corrie Driebusch and Maureen Farrell – WSJ
Lyft Inc. is preparing to list its shares on Nasdaq around the end of March, as the ride-sharing firm’s hotly anticipated plan to join the public markets comes into focus.


Well-regulated fintech offers salvation to the financial services
Michael Kent – Financial Times
Karen Petrou tells us that regulatory sandboxes “are battlefields on which the big tech companies are taking great risks with our financial future” and that fintech poses “a real risk not just to regulated competitors but also to economic equality” (Opinion, February 19).
Her comments are misguided. Far from posing a risk to the established financial service sector, well-regulated innovation and new technology are its salvation.

NICE Actimize Enhances Sales Practices & Suitability Solution with Flexible Client Review Models and Investigative Tools
As regulatory bodies around the world step up enforcement of investment suitability regulations to ensure firms and advisors are properly managing investor wealth, NICE Actimize, a NICE (Nasdaq: NICE) business and the leader in Autonomous Financial Crime Management, has further enhanced its Sales Practices & Suitability solution with new flexible client review models and investigative tools. These new models and investigative tools enable firms to align compliance programs with changing business models to better serve customer needs, while also driving down costs by automating investment suitability compliance processes.

States, consumer groups blast CFPB’s fintech protections
Steven Harras – Roll Call
State attorneys general, consumer advocates, community activists, and banking regulators are criticizing proposed legal protections for banks and technology firms that develop “innovative” financial products.
The protections would come from the Consumer Financial Protection Bureau, which in December unveiled what it calls a “regulatory sandbox” that will allow firms to develop untested fintech products and services without fear of reprisals from regulators. While the criticism rolls in, financial industry groups are rallying behind the plan, even asking the CFPB to expand the legal safe havens.

CSBS to Implement Fintech Advisory Panel Recommendations
John D. Socknat and Stacey L. Valerio – National Law Review
The Conference of State Bank Supervisors (CSBS) announced last week that it has agreed to implement 14 recommendations made by its Fintech Industry Advisory Panel (Advisory Panel).


SEC Settles Unregistered Securities Charges Against ICO Issuer Gladius
Nikhilesh De – Coindesk
Crypto startup Gladius Network LLC has settled charges of running an unregistered securities offering with the U.S. Securities and Exchange Commission (SEC), the regulator announced Wednesday. Gladius Network conducted an initial coin offering (ICO) near the end of 2017, raising $12.7 million in the form of nearly 24,000 ETH. In a press release, the SEC explained that this ICO was not registered under federal securities laws, and the ICO itself did not qualify for an exemption from any registration requirements these laws impose.

Global Cryptocurrency Trading Volumes Jump to 300-Day Highs
Sam Ouimet – Coindesk
The total volume of all cryptocurrency trading as tracked by market metrics leader Coinmarketcap hit a 300-day high Tuesday, reaching $33.85 billion, the most observed in 10 months. As such, the data point is the latest to suggest that trading activity in the cryptocurrency markets is increasing – Coinmarketcap tracks the aggregate trading volume of 2,074 cryptocurrencies, including data about how they are being bought and sold across exchanges worldwide.

Why Cryptocurrency Market Capitalizations Are Not What They Seem
Moe Adham – Forbes
There are over two thousand digital currencies out there, and a quick visit to any one of their sites will reveal that many of these assets — even obscure altcoins, which may be down as much as 90% — have market capitalizations of millions of dollars or more. You have to ask yourself: Is this an accurate reflection of the actual value of these tokens?

Singapore a honeypot for cryptocurrency and blockchain projects, data shows
Spencer Yang – Yahoo Finance
Over 634 companies have been registered in Singapore from 2016 to 2018 with a combined market capital of US$8.3 billion. Singapore was dubbed ‘extremely hot and frothy’ in the Initial Coin Offering (ICO) boom-period from 2017 to 2018. Because all information on companies registered in Singapore is public, a chance encounter led me to check out which companies in the blockchain and cryptocurrency industry were registered here.

Samsung Confirms Galaxy S10 Will Include Private Crypto Key Storage
Nikhilesh De – Coindesk
Samsung’s latest flagship phone will include a dedicated secure storage function designed for cryptocurrency private keys. The Galaxy S10, formally unveiled Wednesday, includes a new function targeted toward cryptocurrency users in the form of the Samsung Knox, the world’s largest smartphone producer announced.

Elon Musk: ‘Paper money is going away’
Catherine Clifford – CNBC
Silicon Valley billionaire Elon Musk has sounded the death knell for cash. “Paper money is going away,” Musk said in a podcast released Tuesday. “Crypto[currency] is a far better way to transfer value than pieces of paper, that’s for sure,” Musk said on the “FYI — For Your Innovation” podcast. In particular, Musk said the technology behind bitcoin is “quite brilliant” and “it seems like there is some merit to etherium and maybe some of the others.”

Prediction: Tesla Will Eventually Dive Head-First into Bitcoin
Wes Messamore – CCN
In a rare comment from Elon Musk on cryptocurrency, the Tesla and SpaceX founder said that Bitcoin “is quite brilliant.” He continued: “Paper money is going away and crypto is a far better way to transfer value than pieces of paper, that’s for sure, but it has its pros and cons.” Musk also gave Ethereum props on the ARK Investment podcast Tuesday (listen here): “There seems like there is some merit to Ethereum as well.”

Bloomberg Hilariously Reports JP Morgan’s Fake Cryptocurrency is Boosting Bitcoin’s Price
Ben Brown – CCN
Bloomberg is outrageously reporting that the launch of JP Morgan’s new cryptocurrency is boosting bitcoin prices. It reveals an epic lack of understanding on the part of mainstream media and the financial industry at large. And it’s a disservice to those who rely on traditional financial media for trusted information.

Anatomy of a cryptocurrency scam
Camilla Hodgson
In November this guesting Alphavillian wrote an article for the Financial Times about the falling price of bitcoin (what’s new?). Half an hour later we received a direct Twitter message from an account saying it was a good time to invest in the cryptocurrency, which could become a “second source of income.”

KuCoin’s leaked ‘volume-boosting’ offers draw accusations of wash trading
Isabel Woodford – The Block Crypto
There appeared to be only one logical conclusion when 16 tokens were simultaneously delisted from KuCoin in late 2018: they were useless tokens, and the Hong Kong-based exchange was making an example of them for failing to generate trading volumes for its 5 million registered users.

QuadrigaCX Has Sent All Its Bitcoin and Ether to ‘Big Four’ Auditor EY
Anna Baydakova – Coindesk
QuadrigaCX’s online wallets for bitcoin and ethereum have nearly been emptied and the funds sent to the failed cryptocurrency exchange’s court-appointed monitor, Ernst & Young (EY).


Russia Exploits U.S.-China Trade Tensions to Sell More Soybeans; Commercial conflict has choked American soy exports to the bean’s biggest market, China, providing Russian farmers an opportunity
Thomas Grove and Anatoly Kurmanaev – WSJ
The Partizan collective farm in this Siberian village should have been swept into the dustbin of history like thousands of others like it that collapsed after the Soviet Union’s fall. Instead it just raked in the biggest harvest of its 90-year history, bought new machines and paid out record bonuses.

Jared Kushner and the triumph of Saudi Arabia; Washington is importing the Gulf’s culture of patronage clientelism
Edward Luce – FT
In the Gulf they joke that Saudi-US relations are run by the crown prince and “the clown prince”. The first, Mohammed bin Salman, is Saudi Arabia’s strongman. The second, Jared Kushner, is Donald Trump’s son-in-law. If it were not for their friendship, relations between the US and the House of Saud might be in serious crisis. But Mr Kushner has an Arab-Israeli peace plan up his sleeve.

Trump ‘fear-mongering’ fuels rise of U.S. hate groups to record: watchdog
Katharine Jackson – Reuters
The number of hate groups operating in the United States rose 7 percent to an all-time high last year, the Southern Poverty Law Center said on Wednesday, attributing the increase largely to anti-immigrant rhetoric from President Donald Trump.

The S&P 500 Lost 11% of Value From Trump’s Trade War, Research Says
Tatiana Darie – Bloomberg
Despite the rally, stocks have yet to turn neutral on the risk; Wall Street tries to assesss market’s thinking on trade
As U.S. equities extend gains from their December lows, a fresh debate is brewing on Wall Street: has the market priced in a U.S.-China trade deal? Quite the contrary, according to Renaissance Macro Research.

Trump’s Presidency Is Getting Weaker; A defeat for the president’s “Space Force” proposal was typical – and telling.
Jonathan Bernstein – Bloomberg
This week offered two prime examples of why Donald Trump’s presidency has been weaker than most people realize.

Democrats Embrace Tax-the-Rich Label After Years of Ducking It
Laura Davison – Bloomberg
Wealthy donors so far unafraid of Sanders, Warren plans; Democrats more focused on beating Trump than paying taxes
Some of the top Democratic presidential candidates are trying to make a name for themselves by calling for higher taxes on the wealthy. And for some wealthy donors, that’s not a problem.


NY Court reschedules oral argument in “mega lawsuit” against FXCM Inc
Maria Nikolova – FinanceFeeds
There has been a slight change in the timing of the proceedings in the lawsuit launched by investors in FXCM Inc, now known as Global Brokerage Inc (OTCMKTS:GLBR). The New York Southern District Court has rescheduled the oral argument on the defendants’ Motion to Dismiss the case against them.

Danske bolsters board as U.S. expands money laundering investigation
The money laundering scandal at Danske Bank deepened on Thursday when the Danish lender said it had received an inquiry from the U.S. Securities and Exchange Commission (SEC).

The Malaysian Securities Industry Development Corporation (SIDC) Introduces Innovative Online Platform To Develop Competency Of Capital Market Professionals
Securities Industry Development Corporation (SIDC), the learning and development arm of the Securities Commission Malaysia (SC), today launched its Capital Market Competency Management System (CMS), an innovative online industry-wide utility platform that centralises the Industry Competency Framework (ICF), assessment and development activities on a common hub.

Swedish watchdog calls Swedbank money laundering report ‘very serious’
Esha Vaish, Johan Ahlander – Reuters
Sweden’s financial watchdog said allegations in a media report linking Swedbank to a Baltic money laundering scandal, involving Danske Bank were “very serious” as shares in the Swedish bank tumbled on Thursday.

SEC Charges Broker-Dealer and Transfer Agent in Microcap Shell Factory Fraud
The Securities and Exchange Commission today announced charges against a broker-dealer, a transfer agent, and three individuals for their roles in the creation of over a dozen undisclosed “blank check” companies from 2009 to 2014.

FCA issues its first decision under competition law
The Financial Conduct Authority (FCA) has today issued a decision which finds that 3 asset management firms breached competition law. This is the FCA’s first formal decision under its competition enforcement powers.

ASIC welcomes new whistleblowing laws
ASIC has welcomed the passing of the Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2018, approved by Parliament late on 19 February 2019. The reforms significantly improve the protections available for whistleblowers who report company misconduct.

Standard Chartered prepares for $900m fines in UK and US; Standard Chartered said the fines relate to violations of US sanctions laws and financial crime control failures in the UK.
Hayley McDowell – The Trade
Investment bank Standard Chartered has set aside a total of $900 million to cover financial penalties it expects from regulatory authorities in the US and the UK.

SEC Joins List of Authorities Probing Money Laundering at Danske Bank; Investigations in several countries into allegedly facilitating the laundering of about $230 billion
Dominic Chopping – WSJ
The Securities and Exchange Commission joined a long list of authorities investigating Danske Bank DNKEY -0.26% A/S over its massive money-laundering scandal.

FCA fines two investment groups over IPO price collusion
Siobhan Riding – FT
The UK financial watchdog has fined two investment groups for breaching competition law over price collusion prior to an initial public offering and placing.

UK watchdog fines asset managers for breaking competition rules
Britain’s markets watchdog said three asset management firms have breached competition law, with two of them fined in the first such use of the regulator’s competition powers.

Supreme Court Rules Against Excessive State Fines; Ruling potentially jeopardizes asset-forfeiture programs that help pay for police operations
Jess Bravin – WSJ
The Supreme Court ruled unanimously Wednesday that states may not impose excessive fines, extending a bedrock constitutional protection but potentially jeopardizing asset-forfeiture programs that help fund police operations with property seized from criminal suspects.

Danske Investigated by SEC as Money Laundering Case Grows
Frances Schwartzkopff – Bloomberg
Danske Bank A/S said that the U.S. Securities and Exchange Commission is now conducting an investigation into the Danish lender’s money laundering case.

CFTC Commissioner Stump to Participate on a Panel at FIA BOCA 2019

Investing and Trading

The Heat Grows on Indexing
John Rekenthaler – Morningstar
Chastised Again: On Monday, The New York Times continued its periodic critiques of investment indexing, with “What’s Really in Your Index Fund?” This follows two reproachful Op-Ed articles about indexing in 2016 and then another last year.
Steven Davidoff Solomon, a law professor at UC Berkeley, penned the first of these missives and was joined on Monday by Robert Jackson Jr., one of five commissioners at the SEC. As Jackson was appointed to his position by President Trump, and the driving force behind the Times’ other articles, Eric Posner, generally espouses leftist views (although he describes himself as a centrist), the criticisms of indexing are bipartisan.

Slowing global growth likely to test risk appetite
Philip Lawlor – FTSE Russell Blog
Fear of US Fed overtightening was a major catalyst behind the global market spasms late last year. The good news is that financial conditions have broadly loosened since then, particularly in the US, bringing relief to nervous markets and powering the recent risk rally.

Fund groups nod through huge CEO pay deals, says non-profit group; Fidelity, BlackRock, Axa IM and Northern Trust opposed handful of 100 top packages
Owen Walker – FT
Big asset managers stand accused of rubber-stamping exorbitant executive pay deals in the US, as the income gap between bosses and staff grows even wider.

Bunge results disappoint after dismal end to 2018
Neil Hume – FT
Bunge, the world’s largest oilseed processor, reported annual results that undershot market forecasts on Thursday following a dismal end to the year, which earned the company a stiff rebuke from its recently appointed chairperson.

World Bank’s ‘pandemic bonds’ under scrutiny after failing to pay out on Ebola; Severe outbreak of disease in the DRC tests the limits of financial innovation
Kate Allen – FT
Two years ago the World Bank celebrated what it called “a momentous step”: an attempt to use the global bond markets to change the face of aid and development.

Fed Superstars Lay Out a Map for the Central Bank’s Big Rethink
Jeanna Smialek – Bloomberg
Central bank will spend 2019 thinking about policy strategies; Bernanke, Williams, Clarida, Kiley have worked on solutions
Federal Reserve officials will face the next recession with limited ammunition. Their ongoing search for backup firepower could shape the future of American central banking.

Why the $9 Trillion Stock Rally Is Beginning to Look Tired
Adam Haigh and Cormac Mullen – Bloomberg
Momentum indicators in Asia and Europe are flashing concerns; Global equities have soared about 15% in just under two months
With more than $9 trillion restored to global stock markets in less than two months, investors are questioning if the rally has more legs.

Wall Street, Seeking Big Tax Breaks, Sets Sights on Distressed Main Streets
Matthew Goldstein and Jim Tankersley – NY Times
Distressed America is Wall Street’s hottest new investment vehicle. Hedge funds, investment banks and money managers are trying to raise tens of billions of dollars this year for so-called opportunity funds, a creation of President Trump’s 2017 tax package meant to steer money to poor areas by offering potentially large tax breaks.


Barclays Counters Activist Investor Sherborne With 2018 Profit Growth; Chief executive pledges to pay future dividends, buy back shares as Edward Bramson pushes for strategy changes
Margot Patrick – WSJ
Barclays PLC sought to fend off an activist investor Thursday with plans to buy back shares and a strong message that its current strategy is working.

Aberdeen launches fund that will track index of 140 hedge funds; Firm raises more than $150m amid relentless demand for passive investment
Laurence Fletcher – FT
The relentless demand for passive investments is reaching the top tiers of active fund management. Fund firm Aberdeen Standard Investments has raised more than $150m for a fund that will track the performance of an index of about 140 Europe-based hedge funds.

Schroder family patriarch, Bruno Schroder, dies at 86; He joined asset management group’s board in 1963
Peter Smith – FT
Bruno Schroder, patriarch of the Schroder family which controls the FTSE 100 asset management group of the same name, has died at the age of 86 after a short illness.

Barclays outperforms European rivals in trading; Results come as bank faces pressure from activist investor Edward Bramson
David Crow – FT
Traders at Barclays avoided the worst of the December stock market rout, helping the bank’s markets unit post fourth-quarter results that were better than European peers and handing executives a victory in their fight against activist investor Edward Bramson.

Credit Suisse to Impose Bonus Penalties on Asia Bankers Who Quit
Cathy Chan , Jan-Henrik Foerster , and Viren Vaghela – Bloomberg
Firm introduces clawback for cash bonuses for top Asia bankers; Move could help boost retention in competitive Asian markets
Credit Suisse Group AG just tightened the golden handcuffs for some of its most senior bankers.

Barclays is promising buybacks just as Brexit looms, impairments rise and the investment bank stutters.
Lionel Laurent – Bloomberg
Barclays Plc Chief Executive Officer Jes Staley clearly thinks his bank’s shares are too cheap. But the British lender’s latest results make arguing that case no slam dunk.

Large asset managers are thinking about farming off some of their trading desks, and it could be a gold mine for custodian banks and prime brokers
Meghan Morris – Business Insider
The asset management industry has faced a tough few months, as volatile markets pushed billions of capital out and demand for lower fees continued to eat into revenue.

A star trader and US head of equity derivatives just quit Bank of America Merrill Lynch after less than 2 years at the bank
Alex Morrell – Business Insider
A 35-year-old stock-trading star and head of equity derivatives in the Americas has quit Bank of America Merrill Lynch after a year and a half at the firm.


China Freezes $1.5bn in Assets, Arrests 62 in P2P Purge
Regulation Asia
Since last June, a crackdown on peer-to-peer lenders by China’s Ministry of Public Security, codenamed ‘Fox Hunt’, has yielded $1.5bn in seized assets and 62 arrests.
Local authorities have arrested 62 suspects abroad and frozen about CNY 10 billion (USD 1.5 billion) in assets since June last year as part of a crackdown on fraudulent P2P (peer-to-peer) lending platforms, said China’s Ministry of Public Security.

Zimbabwe forced to ditch dollar peg
Country bows to the inevitable as issuance of electronic dollars surges
Joseph Cotterill in Johannesburg and Steve Johnson in London – The Financial Times
More than a decade after Zimbabwe’s currency was destroyed by hyperinflation under Robert Mugabe, the money is set to make a comeback under a plan devised by the central bank.

Fitch puts UK credit rating on negative watch; Growing likelihood of a no-deal Brexit prompts unscheduled update
Kate Allen – FT
The UK faces a credit rating downgrade because of the mounting risk that it will leave the EU without a transition deal, according to a leading rating agency.

Hong Kong’s Central Banker to Step Down After a Decade in Charge
Fion Li – Bloomberg
HKMA Chief Executive Norman Chan to retire in October; Chan started as government official and joined HKMA in 1993
Hong Kong’s de facto central bank is bidding farewell to its chief after a decade, starting the search for a successor at a time when the city faces an outlook made uncertain by the slowing Chinese economy and the trade war with the U.S.

Russia Formally Charges Jailed U.S. Investor Calvey With Fraud
Anna Baraulina – Bloomberg
Calvey will plead not guilty and declined to give evidence; Putin had criticized jailing of suspects in business cases
Russia’s Investigative Committee formally charged U.S. private equity investor Michael Calvey with fraud following his arrest in Moscow last week, his lawyer said on Thursday.

Rio Tinto sells coal mine for less than a cup of coffee; Latest cut-price sale of an Australian asset in the troubled coal sector
Jamie Smyth – FT
Rio Tinto is selling its interest in an Australian coal mine for A$1 (US$0.75) — the latest transaction in the troubled coal sector agreed for less than the price of a cup of coffee.


U.K. Official Says Don’t Expect Deal Next Week: Brexit Update
Kitty Donaldson , Robert Hutton , Alex Morales , and Ian Wishart – Bloomberg
Theresa May has sent two of her key ministers to Brussels for talks to find a way out of the impasse, as the threat of a chaotic no-deal breakup grows. May needs at least some evidence of progress by next week, when lawmakers are once again threatening to wrest control of the Brexit process from her.

No deal Brexit: Fitch warns on UK credit rating cut
Will Martin – Business Insider
Fitch, one of the “Big Three” ratings agencies, has warned that the looming spectre of a no deal Brexit puts the UK at risk of a first credit rating cut from the agency in over five years.
The agency on Wednesday evening placed the UK on what is known as a Rating Watch Negative (RWN), meaning that it is actively monitoring the UK’s credit rating with an eye to lowering it in the near future.

UK and Ireland retailers warn of 40% tariffs on food in no-deal Brexit
Julia Kollewe – The Guardian
A no-deal Brexit could lead to tariffs of 40% or more being imposed on food such as beef and cheddar cheese, driving up prices in shops and squeezing household budgets across the UK and Ireland, retail organisations from both countries have warned.
With mounting fears that the UK could leave the European Union without an agreement in 36 days’ time, the British Retail Consortium (BRC), Northern Ireland Retail Consortium (NIRC) and Retail Ireland, issued a joint warning that this outcome could lead to delays at borders and shortages of fresh meat, fish, fruit and vegetables.

Britain’s Brexit Earthquake Shakes Parliament
Tim Ross – Bloomberg
The democratic earthquake that began with the Brexit referendum in 2016 finally cracked the mold of British politics.

The credit of British companies is declining in quality and austerity and Brexit are largely to blame
Jim Edwards – Business Insider
The credit of British companies is declining in quality and austerity and Brexit are largely to blame, according to David Carruthers, the head of research at Credit Benchmark, a firm which tracks corporate debt.


How do bonus structures affect risk and effort choices? Insight from a lab experiment
Qun Harris, Analise Mercieca, Emma Soane and Misa Tanaka – Bank of England Bank Underground Blog
The bonus regulations were introduced based on the consensus amongst financial regulators that compensation practices were a contributing factor to the 2008-9 financial crisis. But little is known about how they affect behaviour in practice. So we conducted a lab experiment to examine how different bonus structures affect individuals’ risk and effort choices. We find that restrictions on bonuses, such as a bonus cap, can incentivise people to take less risk. But their risk-mitigating effects weaken or disappear once bonus payment is made conditional on hitting a high performance target. We also find some evidence that bonus cap discourages effort to search for better projects.

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