Fund industry assets fall for first time in five years; HSBC launches new R&D lab for fintech in Hong Kong; How a Smooth Talker Convinced Bankers to Invest $32 Million, Then Vanished

Nov 1, 2016

First Read

Another successful MarketsWiki Education event
Spencer Doar – JLN

Yesterday, we held our third education event in London, and it went off with nary a hitch. Over the course of three sessions hosted by the London branch of the University of Chicago Booth School of Business, young professionals were treated to the insights of some of London’s finest minds in business and finance — plus, John got to give his first talk in the history of the event. We had about 140 registrants.

Getting the chance to mingle with these recent graduates and current university students was truly a treat. They were a diverse bunch from a range of backgrounds and interests — everywhere from Italy to Kosovo was represented.

Steve Grob of Fidessa and Cathryn Lyall of Minnamurra Consulting really stood out. Grob’s talk went in a different direction than most — he spoke about why so many businesses that the attendees will end up working for will inevitably fail. Lyall, in a wide-ranging talk, offered practical advice through the lens of her storied career in derivatives. Stay tuned for the videos of these presentations.

Thanks to our global premiere sponsor, CME Group, and to CBOE, the University of Chicago Booth School of Business, and the LME for sponsoring drinks at a nearby pub.

I’m already looking forward to next year.

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Dear Friends O’ the ‘Stache,
From Derek Sammann, CME Group
Believe it or not, it’s that time of year again when I’d like to invite you all to join me and my “Chicago Mustache Exchange” team mates in changing the face of men’s health! Using the power of the humble mustache, we’re again taking the fight to Prostate Cancer, Testicular Cancer and Mental Health. Over the course of “Movember”, I have committed to growing hair on my upper lip for the third time in my 48 years on this planet (having broken hallowed ground on this over the last 2 years…!). I’m breaking my own personal rule of no facial hair, but if there was ever a reason to break that rule, this is clearly it!

In exchange for me looking like a very poor resemblance of 80’s Tom Selleck/70’s Burt Reynolds, I’d like to ask for your financial support for me and my “Chicago Mustache Exchange” team mates in this year’s effort. To help me in this worthy cause, please visit my “Mo Space” donation page at: http://mobro.co/sammannstache . I’ve already kicked off this year’s fundraising campaign by priming the pump myself, so please take a moment to visit my donation page to help me out in raising funds for this fantastic cause and posting a message! As we kick off this year’s effort, here is my starting point this morning:

Derek Sammann

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FOW webinar – ETFs vs futures
On 10 November at 09:00 New York/14:00 London/22:00 Singapore/Hong Kong, FOW will host a webinar looking at ETFs vs futures.
It is free for you to register, click here to do so.
This webinar will ask:
– What’s behind the recent growth in ETFs in Europe and Asia
– When should futures and options traders should look to ETFs
– How to calculate the cost of ETFs and what to consider when trading them
– What is the potential for the growth of ETFs across Europe and Asia

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CME Group to Host Ninth Annual Global Financial Leadership Conference
CME Group
CME Group, the world’s leading and most diverse derivatives marketplace, today announced it will host the ninth annual Global Financial Leadership Conference (GFLC) Nov. 14-16, at the Ritz-Carlton Beach Resort in Naples, Fla. The GFLC is an exclusive, invitation-only event that brings together decision-makers from the world’s leading financial institutions to discuss the global investment climate and outlook, debate critical economic issues and share insights and analysis of geopolitical trends and the global financial landscape.
/goo.gl/H6bQ0T

**JK: I wonder what Tony Blair and Gordon Brown will say about Brexit.

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London’s Iconic Red Trading Sofas Find a New Home in China
Agnieszka De Sousa – Bloomberg
Few things are more iconic to global commodities trading than traders shouting at each other on red leather sofas at the London Metal Exchange.
So when Hong Kong Exchanges & Clearing Ltd. decided to launch a metals-trading platform in the southern Chinese city of Shenzhen, executives stuck with a tried and true formula. They built a replica of the London open-outcry ring, complete with red leather sofas and big digital pricing boards hanging overhead.
jlne.ws/2dYpcH1

**JK: Lay down and tell me your troubles.

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Cubs Nation Is Way Bigger Than You Thought
Kyle Stock – Bloomberg
Baseball is the new football.
Television ratings for the current World Series are, to put it scientifically, boffo. When the title is decided, average viewership may well be the highest that baseball has seen in 12 years, since the Boston Red Sox beat the St. Louis Cardinals in the game’s 100th championship battle, breaking Babe Ruth’s curse. That’s even as viewers turn away from the NFL and the Olympics, traditionally the clutch performers in the ratings game.
jlne.ws/2dYmPUv

**JK: If they don’t win tonight, Cubs nation will be way sadder than you thought.

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Monday’s Top Three
From yesterday’s most read stories, CBOE took the top spot, with the Markets Media piece CBOE Downplays Early Close of Bats Deal. The second most read article was Bloomberg’s interesting look at where Wall Street is finding coding talent in Wall Street’s Frantic Push to Hire Coders. Third place went to our Halloween coverage This Is What Economists Are Carving Into Their Pumpkins This Year

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Lead Stories

Fund industry assets fall for first time in five years; Asset managers have been hurt by challenging investment landscape and redemptions
by: Chris Newlands and Attracta Mooney – FT
The assets of the world’s largest 500 fund managers have fallen for the first time in five years as investment houses continue to grapple with outflows from some of their biggest clients.
/goo.gl/hjCz1f

HSBC launches new R&D lab for fintech in Hong Kong
Alun John – South China Morning Post
HSBC and the Hong Kong Applied Science and Technology Research Institute (ASTRI) launched a research and development innovation laboratory on Monday, the latest in a series of initiatives to boost the development of financial technology (fintech) in the city.
jlne.ws/2dYkedk

How a Smooth Talker Convinced Bankers to Invest $32 Million, Then Vanished
Bloomberg
Inside Hong Kong’s posh American Club, few worked a room quite like Avery Stone. Over steak dinners and cigars, Stone charmed a Who’s Who of financiers into investing millions in his fledgling business. Then, earlier this year, everything unraveled–and he vanished.
/goo.gl/SnJVgX

Was Alan Greenspan Motivated by Politics More Than Economics?
By JUSTIN FOX – NY Times
In 1959, at the annual meeting of the American Statistical Association, a 33-year-old economist named Alan Greenspan argued that central banks should beware of letting financial markets get too comfortable. The Federal Reserve’s success in smoothing economic fluctuations in the 1920s, he said, had led to the dangerous belief that “the business cycle is dead.” The crash and depression that followed were “inevitable” consequences of that cavalier attitude toward risk.
/goo.gl/mRpcpr

Switzerland’s Back to Battling Might of Global Currency Markets
Bloomberg
The Swiss National Bank may have abandoned its currency cap, but that doesn’t mean it has stopped capping its currency. While policy makers haven’t confirmed it, they’re defending a de facto franc limit more than 10 percent stronger than the one they scrapped 21 months ago, according to Bank of America Corp. and the wealth-management unit of UBS Group AG. The franc appreciated to this 1.08-per-euro threshold four times since mid-year, and each time snapped back.
/goo.gl/Ow7aC5

Victims Seek Mercy for a Wall St. Scion Who Defrauded Them
By MATTHEW GOLDSTEIN and ALEXANDRA STEVENSON – WSJ
Some of the people that Andrew Caspersen bilked out of millions of dollars are asking a federal judge to show mercy on the now-disgraced scion of a well-known Wall Street family.
/goo.gl/IhVN41

Euroclear appoints new CEO as Howell steps down
CTO Mostrey to take over top role next year.
By Jonathan Watkins – The Trade
Euroclear has named Lieve Mostrey as its chief executive officer after Tim Howell announced he would be stepping down after six years.
Mostrey has served as chief technology and services officer for Euroclear since 2010 and will assume the role on 1 January.
/goo.gl/V0Yj0C

Brexit

Capital markets: Has Brexit killed CMU?
By: Louise Bowman – Euromoney
Capital markets activity in Europe is dominated by the UK, so the Brexit vote could have dealt a mortal blow to the European Commission’s plans to promote it through the capital markets union initiative. To survive, CMU will have to get global.
/goo.gl/hXYuu5

This Investment Bank Sold All U.K. Assets Before Brexit Vote
Colin McClelland, Markus Karlsson and Caroline Hepker – Bloomberg
Carnegie Investment Bank AB, which manages $17.2 billion for clients, sold all of its U.K. holdings as opinion polls narrowed ahead of the June vote to exit from the European Union.
“We had equities and corporate bonds in Britain before the vote,” chief strategist Henrik Drusebjerg said in a telephone interview on Monday. “We started selling off our U.K. holdings to absolute zero maybe a month before the vote,” he said. He wouldn’t give the value of the assets sold.
jlne.ws/2dYkRDR

Exchanges, OTC and Clearing

‘A genuine first’: LME makes move into mainland China
Financial Times
The London Metal Exchange has made its first move into the warehousing business in China, with plans to test its new warehouse receipt system in the world’s largest consumer of metals. The Hong Kong Exchanges and Clearing-owned company said warehouse operator Henry Bath would sponsor a pilot roll-out of the LME’s warehouse receipt system in China, which would allow users to register metal on the exchange.
/goo.gl/LfH9aW

Intercontinental Exchange Reports Solid Third Quarter Earnings Growth
ICE Press Release
For the quarter ended September 30, 2016, consolidated net income attributable to ICE was $344 million on $1.1 billion of consolidated revenues less transaction-based expenses. On a GAAP basis, diluted earnings per share (EPS) in the third quarter were $2.86. On an adjusted basis, net income was $385 million and diluted EPS were $3.21. Please refer to the reconciliation of non-GAAP financial measures included in this press release for more information on adjusted net income and adjusted diluted EPS.
jlne.ws/2fqyRY6

Challenge Accepted: Chris Isaacson, Bats Global Markets
Dan DeFrancesco – WatersTechnology
CBOE Holdings’ acquisition of Bats in September is the newest and largest hurdle for Isaacson, who will be in charge of technology for the soon-to-be combined entity. Dan DeFrancesco talks to Isaacson about his early days at Bats, lessons learned, and what’s next for the man who can’t seem to turn down a challenge.
/goo.gl/hwkdhz

Eurex is #1 in Equity Index Derivatives in Europe
Eurex
Eurex Exchange is the #1 derivatives exchange in Europe, providing investors access to the widest spectrum of Equity Index Derivatives. Our offering ranges from global benchmarks, such as MSCI World, MSCI Emerging Markets to European and national indexes including DAX®, SMI®, (EURO) STOXX® and RDX®.
/goo.gl/rMhQYM

Qatar Stock Exchange Hosts Annual Conference And Meetings Of Arab Federation Of Exchanges On 25-28 April
Qatar Stock Exchange will host the Annual Conference and meetings of the Arab Federation of Exchanges (AFE), which will be held in Doha during the period 25-28th April 2017.
/goo.gl/8wpp1N

SX5E TRF Launch To Drive Greater Implied Equity Repo Participation
by Georgia Reynolds, EMEA Reporter – Eurex
A move by Eurex Exchange to launch total return futures (TRFs) on the Eurostoxx 50 (SX5E) will drive greater participation from institutional investors to trade equity implied repo, according to market participants. The SX5E total return futures are set to be launched on Dec. 2, 2016.
/goo.gl/Ibd2Ug

Nasdaq Clearing cuts buy-side fees
The Trade
Nasdaq Clearing has significantly reduced its buy-side clearing and collateral fees in the Nordic region in a bid to remain competitive in a cost-sensitive client space.
/goo.gl/pxDzTd

ICE Futures Europe Receives FBOT Authorisation
Intercontinental Exchange (NYSE:ICE) today announced that the Commodity Futures Trading Commission (CFTC) has approved ICE Futures Europe’s application to become registered under the Foreign Boards of Trade (FBOT) requirements.
/goo.gl/lnYCmX

CME Group Announces New Precious Metals Spot Spread
CME Press Release
CME Group, the world’s leading and most diverse derivatives marketplace, today announced it will offer a new Precious Metals Spot Spread to enable customers to effectively manage spot-futures spread price risk. The Spot Spread will be facilitated by the introduction of London Spot Gold futures and London Spot Silver futures contracts, and will provide traders with transparent, real-time information on the price relationship between COMEX futures and London spot markets. These two new contracts will be listed on COMEX and will begin trading on Monday, January 9, 2017, pending regulatory review.
/goo.gl/SQhW3C

Politics

What Happens to the Markets if Donald Trump Wins?
Andrew Ross Sorkin – NY Times
Assume, for a moment, that Donald J. Trump wins the presidency.
Some readers of this column will shudder at the thought and might even stop reading now. Others in the business world will beam, like Peter Thiel, the Silicon Valley entrepreneur.
But what exactly happens the day after? To markets? To the economy?
jlne.ws/2dYruWP

The VIX’s Pre-Election Peak Could Be Today
WSJ
A tumultuous presidential election has taken Wall Street’s “fear gauge” along for the ride. The CBOE Volatility Index, or VIX, popped Friday afternoon on the news that the FBI had reactivated its investigation of Hillary Clinton’s email practices. The revelation disrupted a relatively calm stretch for the VIX, sending it 17% higher in the space of about an hour.
/goo.gl/YqXKp2

Investigating Donald Trump, F.B.I. Sees No Clear Link to Russia
Eric Lichtblau and Steven Lee Myers – NY Times
For much of the summer, the F.B.I. pursued a widening investigation into a Russian role in the American presidential campaign. Agents scrutinized advisers close to Donald J. Trump, looked for financial connections with Russian financial figures, searched for those involved in hacking the computers of Democrats, and even chased a lead — which they ultimately came to doubt — about a possible secret channel of email communication from the Trump Organization to a Russian bank.
/goo.gl/PK24Kg

Big Mergers May Face a Higher Bar in Washington
By JUSTIN LAHART – WSJ
From General Electric- Baker Hughes to AT&T- Time Warner, a flood of new mergers are facing regulatory scrutiny. They may face a new wrinkle when they head to Washington—how the deals affect workers.
/goo.gl/d1KCgE

Investing and Trading

More millionaire investors are moving to the sidelines
CNBC
Nearly 4 in 10 millionaires said they would move to the investment sidelines over the next month, as uncertainty around the presidential election added to their ongoing anxiety about the markets. According to a survey by Spectrem Group, 36 percent of millionaire investors said they planned to sit out the next month. That was up from 26 percent in September’s survey.
/goo.gl/QxqoYc

Examining Low Volatility’s Performance in Various Market Environments
S&P Indexology
Late summer has not been fruitful for the low volatility factor. From July 6 to Sept. 9, the S&P 500 Low Volatility Index has fallen by 4.67%, while the S&P 500 Index gained 1.70%.1 This is in sharp contrast to the second quarter, when the low volatility index returned 6.75%, and the broad-market index returned 2.46%.1 Naturally, some investors are wondering what’s behind the shift.
/goo.gl/NW21y0

A Pair of Record Withdrawals Just Hit Corporate Bond ETFs
Chris Dieterich – WSJ
Record withdrawals last week from the market’s best-known corporate bond exchange-traded funds highlight fresh nervousness about soaring valuations for high-yielding assets at a sensitive time for the bond markets. Investors pulled $2.2 billion from all junk bond ETFs last week, the most in six weeks, according to XTF, a market analytics firm. Nearly half of that sum came from just one ETF on a single day: $998 million flowed out of the iShares iBoxx High Yield Corporate Bond ETF last Thursday, a record one-day withdrawal for the oldest and largest junk bond ETF, according to BlackRock, the ETF’s provider.
/goo.gl/hKUL7R

Bond liquidity in US has not deteriorated since financial crisis
The Trade
The Federal Reserve Bank of New York has found no strong evidence of deterioration in bond market liquidity since the financial crisis, according to its latest report.
/goo.gl/qeBIRa

Institutions

Banks Are Hoarding $2.4 Trillion of Bonds
Liz McCormick, Andrea Wong – Bloomberg
Government debt holdings soar as deposits outpace loan demand; Tighter standards, lackluster U.S. economy damp lending
If the world’s biggest economy is really on the upswing, then why are America’s banks stockpiling a record amount of ultrasafe bonds?
/goo.gl/6LxeTC

Barclays’s 25% London Office Space Cut Signals Glut Threat
Bloomberg
Barclays Plc’s decision to cut 25 percent of its London office space highlights the growing risk that tenants will be in short supply for developers of buildings being constructed.
/goo.gl/QK08pM

Goldman Sachs Said Outsourcing Dark Pool Operation to Nasdaq
Annie Massa – Bloomberg
Goldman Sachs Group Inc. hired exchange owner Nasdaq Inc. to run its Sigma X stock-trading system, according to two people familiar with the matter, outsourcing day-to-day operations of its dark pool following an industrywide regulatory crackdown and amid escalating costs.
/goo.gl/6m79y7

Fintech

FIA Tech And JDX Partner On Global Product Reference
Mondovisione
FIA Technology Services (FIA Tech) announced the creation of a global reference database of exchange-traded derivative product data which is being implemented across all FIA Tech services. The database, which is available free of charge to all FIA Tech Brokerage Services subscribers, was compiled in partnership with JDX Consulting.
/goo.gl/je5ix9

Ex-Barclays CEO Antony Jenkins’ fintech 10X signs deal with Virgin Money
Oscar Williams-Grut – Business Insider
10X Future Technologies, the fintech startup founded by former Barclays CEO Antony Jenkins, has signed a deal with challenger bank Virgin Money to build a new digital banking platform.
The deal comes just a day after 10X was first unveiled to the public. Jenkins said in a blog post on Monday that the startup was already “in advanced talks with a number of potential major clients.” The financial terms of the deal are not disclosed but it’s likely a big deal. Virgin Money is a FTSE 250-listed company with a market capitalisation of £1.4 billion.
jlne.ws/2dYjCEI

Bernstein Says the Future of Robo-Advice Is Bright, but There’s a Catch
Bloomberg
How big a threat are the new batch of robo-advisors to traditional active fund managers? Are they, as Sanford C. Bernstein & Co LLC put it in a new research note, an “innocuous robot like R2-D2 or are they Terminator?” To answer the question, Bernstein analysts opened multiple accounts at two prominent European based robo-advisors, Nutmeg Saving and Investment Ltd. and MoneyFarm SIM SpA.
/goo.gl/5tSgZU

Alibaba Fintech Arm Ant Financial Says Its Focus Remains on Asia
Fortune
Ant Financial Services Group, the world’s biggest financial technology company, plans to focus its expansion plans in Asia before looking to go more global, a senior official said on Tuesday.
Ant, Alibaba Group Holding’s online finance arm, will offer its insurance and investment management products outside of China, senior vice president Douglas Feagin said at an event to mark a tie-up with Thai payment firm Ascend.
jlne.ws/2dYi5i0

Banks not keeping up with tech times, says fintech CEO
Marco della Cava – USA Today
Taavet Hinrikus has boyish looks and a quiet tone.
But don’t be fooled. The co-founder of money-wiring site TransferWise, recently valued at $1.1 billion, doesn’t mince words when it comes to describing how banks make him feel.
jlne.ws/2dYkZTQ

New OCC Group to Push FinTech Innovation
Eugene Grygo – FTF News
The Office of the Comptroller of the Currency (OCC) quietly let it be known that it is creating an office “dedicated to responsible innovation” that will build a formal framework to help the agency “identify, understand, and respond” to the growing number of FinTech changes impacting the federal banking system.
jlne.ws/2dYlhtP

Xero CEO Rod Drury and UK MD Gary Turner on London fintech and Brexit
Oscar Williams-Grut – Business Insider
The CEO of £1.4 billion accountancy software giant Xero says London is a world leader in fintech — financial technology — and will remain that way post-Brexit.
Rod Drury, founder and CEO of Xero, told Business Insider during a recent interview in London: “We love the fintech innovation happening in London, it’s absolutely world-class. When you see the apps that are being built here, they will go global. We’re really impressed by the quality of the finch thinking that goes on here.”
jlne.ws/2dYnCVB

Nasdaq ‘Innovation Lab’ Unveils Suite of Trading Performance Analytics
Waters Technology
Nasdaq releases the first three products from its new Innovation Lab, designed to help traders refine their trading strategies by comparing them to the market and their peers.
/goo.gl/tbH4fd

Regulation

CFTC Issues Orders of Registration to Five Foreign Boards of Trade to Permit Trading by Direct Access from the U.S.
Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today issued Orders of Registration to the following Foreign Boards of Trade (FBOT):
Eurex Deutschland (Eurex)
CME Europe Limited (CMEEL)
ICE Futures Europe (IFE)
The London Metal Exchange (LME)
London Stock Exchange plc. (LSE)
Under the Orders, each of the FBOTs is permitted to provide identified members or other participants located in the U.S. with direct access to its electronic order entry and trade matching system.
/goo.gl/QiBY2Q

Company Co-Founder Charged in Manipulation Scheme
SEC
The Securities and Exchange Commission today charged the co-founder of a Minnesota-based energy company with manipulating its stock price and concealing his control of the company to attain lucrative financial payouts. The company’s other co-founder agreed to pay nearly $8 million to settle separate charges against him. Three others also are charged in the case.
/goo.gl/dz1io2

Wells Fargo agrees to $50 million settlement over homeowner fees
Dena Aubin – Reuters
Wells Fargo & Co (WFC.N) has agreed to pay $50 million to settle a racketeering lawsuit accusing it of overcharging hundreds of thousands of homeowners for appraisals ordered after they defaulted on their mortgage loans.
/goo.gl/Xmk7Qz

Audit Partner Charged in Failed Audits of Venture Capital Fund
SEC
The Securities and Exchange Commission today announced proceedings against a PricewaterhouseCoopers audit partner who served as engagement partner for the independent audits of a venture capital fund.
/goo.gl/Kkn6sy

ESMA Is Closed For Public Holidays On 1 & 2 November
Mondovisione
ESMA will open on Thursday 3 November.
/goo.gl/70VFGr

Regions

China Starts Credit-Default Swap Trading as Bond Failures Spread
Bloomberg
Faced with mounting bond failures, China has started trading of credit-default swaps on the nation’s interbank market.
Trading began Monday, according to a statement on the website of the National Association of Financial Market Institutional Investors, a unit under the nation’s central bank. Industrial Bank Co. and Bank of China Ltd. were among the institutions to conduct transactions, using China United Network Communications Ltd.’s bonds as underlying debt, said a person familiar with the matter, asking not to be identified because the authorities haven’t disclosed the information.
jlne.ws/2dYo8TF

Standard Chartered Faces Inquiry Into Hong Kong Stock Sale
Chad Bray – NY Times
Standard Chartered, a bank that is based in London and has extensive activities in Asia, said on Tuesday that it was facing an inquiry by regulators into its underwriting of a stock sale in Hong Kong.
jlne.ws/2dYnSUI

StanChart faces action from HK regulator over China Forestry IPO
Martin Arnold and Don Weinland – Financial Times
Standard Chartered has warned that the Hong Kong regulator plans to take action that could have “financial consequences” for the emerging markets bank because of its role as a sponsor of an initial public offering in 2009.
jlne.ws/2dYoOsa

Bank of Japan Trims Inflation Forecasts
Takashi Nakamichi and Megumi Fujikawa – WSJ
The Bank of Japan has given up its starring role in Abenomics, for now.
After a refitting of its tool kit in September, the central bank opted Tuesday to leave policy unchanged, despite sharply cutting its inflation forecasts. And the bank doesn’t look like it will act in the coming months either as it backpedals to a less clear goal of maintaining “momentum” toward its 2% inflation target.
jlne.ws/2dYpvS3

South African dollar bonds rally, CDS fall as finmin charges dropped
Reuters
The cost of insuring exposure to South African debt fell to five-week lows on Monday and sovereign dollar bonds rallied, after the state prosecutor dropped fraud charges against respected finance minister Pravin Gordhan.
jlne.ws/2dYonxT

Miscellaneous

Morningstar expands HQ for more techies
Crain’s Chicago Business
Investment research company Morningstar recently expanded onto another floor at its Chicago headquarters building in the Loop to accommodate a growing technology staff.
/goo.gl/HmwucD

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