IBM Launches Watson for Financial Regulation; Trump’s Wall Street game plan needs players; Dutch Speed-Trader Turns to Currencies After Conquering ETFs

Jun 14, 2017

First Read

Bits & Pieces
By John J. Lothian

Congratulations to our friends in London for raising £30,000 for the inaugural David Setters cricket tournament on behalf of research into MND. Well done!

Welcome back to work for Terry Duffy. We hope you are fully recovered and in good health as you return to work.

Longtime market writer Darrell Jobman reached out to me asking for help finding a home for a lifetime collection of market related magazine editions and trading related books. He is downsizing into a condo and wants to find a good home for these prized items.

The collection includes magazines from the last 45 years, including Stocks & Commodities, CME Magazine, SFO, Trader, Omega Research and Corporate Risk Management. There are also trading books, trading courses and tapes. Contact me if you are interested and I will put you in contact with Darrell.

We have added Trading Technologies CFO Michael Kraines to our Chicago Friday session of the MarketsWiki Education event held at Trading Technologies‘ offices. We also have an agreement from Richard Rosenblatt of Rosenblatt Securities to join our New York series.

Since we passed the 100 million pageview mark on MarketsWiki on May 10, we have seen 2.5 million new pageviews.

Last, please share the information on our MarketsWiki Education World of Opportunity series events in Chicago and New York with your friends and colleagues. This is a great opportunity to show off our industry to some energetic young people. See for details.


Dave Setters Trophy Tournament Raises £30,000
The David Setters Trophy cricket tournament for MND was held at the famed HAC grounds in London yesterday. Four teams – LME, INTL FC Stone, ION and FIA – played off, with LME winning the trophy. The event raised £30,000 on the day for motor neurone disease in honour of Dave. Two ringers from the United States played, CQG’s Pat Kenny and FIA’s Matt Fink.


CME’s Knottenbelt Discusses International Plans and CME Europe Closure

This year the CME Group decided to close CME Europe and CME Clearing Europe, but the exchange group does not see the shuttering as changing overall international and European expansion plans. Rather, the investment CME put into Europe is going to continue to pay dividends as investors overseas realize the offsets CME has to offer given its broad product suite.

In this first video from our Exchange Leader Series filmed at FIA IDX, William Knottenbelt, senior managing director, international, with CME Group, talks about the decision to close CME Europe and the international outlook for CME for the rest of 2017.

Read the rest and watch the video »


CME’s Duffy Returns to Work After Collapsed Lung
Brian Louis – Bloomberg
CME Group Inc. Chief Executive Officer and Chairman Terry Duffy is back at work after recovering from a collapsed lung, according to the company, operator of the world’s largest futures exchange.

**Welcome back Terry.


FINRA Launches Innovation Outreach Initiative – Blockchain Symposium To Take Place In NYC On July 13
The Financial Industry Regulatory Authority (FINRA) announced today that it has established an Innovation Outreach Initiative to foster an ongoing dialogue with the securities industry that will help FINRA better understand financial technology (fintech) innovations and their impact on the industry.

***** Hmmm, this is the day after our event in New York. Maybe we should stay over.


Dodd-Frank is complex and overburdens the financial sector; Banks find stress tests cumbersome so digest what is in place and focus on growth
James Gorman
The redrafting of financial industry regulation has sparked much discussion in Washington, with the House of Representatives last week passing extensive legislation to transform how the US financial system is governed.

****** Financial crises are complex and overburden the financial sector and the rest of us.


CFTC Acting Chairman Giancarlo Appoints Erica Elliott Richardson as Director of the Office of Public Affairs; Steven W. Adamske Departs after Six Years as Office of Public Affairs Director
U.S. Commodity Futures Trading Commission (CFTC) Acting Chairman J. Christopher Giancarlo today announced the appointment of Erica Elliott Richardson to serve as Director of the Office of Public Affairs (OPA), effective immediately. Richardson served as the Communications Director to Majority Leader Kevin McCarthy on Capitol Hill during his tenure as Whip.

***** Thank you to Steve Adamske for his service in the OPA. He moves on as a policy advisor to Commissioner Bowen.


Tall people be relieved! American Air to cut legroom by one inch, not two
By David Shepardson – Reuters
In a move likely to relieve taller air travelers, American Airlines Group Inc will reduce leg room by one inch instead of two as originally planned on some seats in its Boeing 737 MAX jets.

****** This tall person is not relieved to have an inch of legroom taken.


Tuesday’s Top Three
Everybody loves a good heist story, and yesterday’s Bloomberg longform from Matt Leising, The Ether Thief, scratched that itch and nabbed top spot in the process. Second was a WSJ piece about the ever-increasing role of volatility as a tradeable asset, The Snowballing Power of the VIX, Wall Street’s Fear Index. Third was Reuters’ exclusive on Finra, Special Report: Regulator blocks public scrutiny of firms with tainted brokers.


MarketsWiki Stats
102,546,814 pages viewed; 22,552 pages; 206,454 edits
MarketsWiki Statistics



Lead Stories

IBM Launches Watson for Financial Regulation; New tools to help companies comply with rules and detect possible crimes such as money laundering
Gabriel T. Rubin – WSJ
International Business Machines Corp. on Wednesday formally launched a Watson product for financial regulation, rolling out artificial-intelligence tools to help financial institutions comply with rules and detect possible financial crimes.

****SD: I was so amazed when Watson destroyed the competition on Jeopardy. In the ensuing six years, just look how far we’ve come.

Trump’s Wall Street game plan needs players
Pete Schroeder and Lisa Lambert – Reuters
Wall Street banks on Tuesday cheered U.S. President Donald Trump’s plans to loosen the leash put on them in the wake of the 2008 financial crisis but they do not expect significant change any time soon.

Dutch Speed-Trader Turns to Currencies After Conquering ETFs; Flow Traders wants to colonize markets with its approach to trading, but its core business is coming under attack
Will Hadfield – Bloomberg
The bottom shelf of the fridge is laden with Heineken and Corona. The Corona is on rotation, but the Heineken is a permanent fixture: This is Amsterdam. A few strides away there’s a dark, well-stocked in-house pub.

Death of the human investor: Just 10% of trading is regular stock picking
Evelyn Cheng –
Quantitative investing based on computer formulas and trading by machines directly are leaving the traditional stock picker in the dust and now dominating the equity markets, according to a new report from JPMorgan.

London warns Brussels of risk in moving euro clearing business
Jim Brunsden and Philip Stafford – Financial Times
Leading figures in the City of London have warned that any moves by Brussels to seize Britain’s prized euro clearing business would harm European companies, as the EU moved to equip itself with powers to make such activities relocate after Brexit.

****SD: Also see FIA response to EC proposal on clearing in Europe and the European Commission’s release Commission proposes more robust supervision of central counterparties (CCPs)

U.S. plans threaten to undermine global bank reforms
Huw Jones and Michelle Price – Reuters
U.S. plans to delay globally-agreed reforms to make banks safer after the financial crisis will throw a system of international regulatory cooperation into confusion, European Union and Asian regulatory sources said on Tuesday.

Fed Considers Easing Capital Rule Seen as Hampering Swaps Market; Critics including Treasury and CFTC urge relaxing regulation, saying it has undermined key part of Dodd-Frank
Andrew Ackerman – WSJ
An esoteric requirement that bankers and some U.S. officials have long said discourages firms from participating in the derivatives marketóand makes the financial system less safeóis on the regulatory chopping block.

EU targets derivative-clearing giants with relocation threat
Bloomberg via Crain’s Chicago Business
The European Union could force the biggest foreign derivatives-clearing firms to set up shop in the bloc if they want to continue doing business there, as policy makers brace for the changes Brexit will bring to an industry in which London plays a key global role.

Nasdaq seeks to block Bats push for market-close orders
John McCrank – Reuters
Nasdaq Inc (NDAQ.O) has urged regulators to reject a proposal by rival exchange operator Bats to compete for stock orders at the market close, saying it would undermine Nasdaq’s closing process and harm publicly-listed companies and their shareholders.
Bats said in May it planned to offer brokers a type of order that would give them the same closing prices derived from the closing auctions on Nasdaq and the New York Stock Exchange for stocks listed on those exchanges, but with lower execution fees.

Reuters takes fresh swing at Bloomberg chat service with Symphony tie-up
Philip Stafford – FT
Symphony, the start-up messaging platform, has teamed up with data and trading group Thomson Reuters in a move the two hope will finally topple Bloomberg’s position as the dominant network for chat in financial markets.

Exchanges, OTC and Clearing

LSE’s own stock gains as UK equities edge lower; Investors back exchange’s refreshed growth and profitability targets
Bryce Elder – FT
London Stock Exchange hit a record high on Tuesday as investors gained confidence in its refreshed growth and profitability targets.

Renewal of Euronext Reference Shareholders Agreement; Renewal of the Euronext Reference Shareholders Agreement expiring on 20 June 2017 for a further period of two years; New reference shareholders group accounting for 23.86% of Euronext’s share capital; Supervisory Board representation maintained with one third of the Supervisory Board seats
Euronext received today the information that the group of Reference Shareholders (RSH), holding 33.36% of its share capital, has decided to extend an amended version of their RSH Agreement. This agreement dated 3 June 2014 was due to expire on 20 June 2017, and is now extended for a further period of two years commencing on 21 June 2017.

NFEx and LME to do battle over use of settlement prices
Metal Bulletin
The Non-Ferrous Exchange (NFEx) is looking into the prospect of using London Metal Exchange prices to settle its trades, but could face a battle to do so, Metal Bulletin understands.


Ascent Launches Navigator for Regulatory Compliance Automation
Ascent, a leading regulatory technology company, launches Navigator, a platform that provides intelligent assistance to help users build, manage and automate their compliance programs.

Softek wins eRoom mandate for intra-day credit and risk monitoring
Securities Lending Times
eRoom Securities, an introducing broker offering institutional brokerage and execution services, has selected Softek to provide intra-day credit and risk monitoring for its web-based client reporting system.

Thomson Reuters makes its market data blockchain-friendly
Thomson Reuters Corp plans to release a tool on Wednesday that will allow customers to plug its market data into systems that run on the digital ledger technology known as blockchain.

Verizon Completes $4.48 Billion Purchase of Yahoo, Ending an Era
Goodbye, Yahoo. Hello, Oath. Verizon Communications, the wireless powerhouse that was a cluster of local phone companies when two Stanford University graduate students began compiling the Yahoo web directory in 1994, completed its purchase on Tuesday of Yahoo’s internet business for $4.48 billion.

Morgan Stanley Says Bitcoin Needs Regulation to Keep Rising
by Lily Katz – Bloomberg
Cryptocurrency has more than tripled in value this year; Autonomous nature of virtual currencies an initial attraction
While Morgan Stanley is high on the blockchain technology that underpins bitcoin, analysts at the investment bank are a bit more cautious when it comes to the surge in the price of the virtual currency.


Schaeuble Says U.K. Welcome Back If Brexit Was Overturned
German Finance Minister Wolfgang Schaeuble said that the U.K. would be welcomed back to the European Union if the British decided they no longer wanted to quit the bloc.

Elizabeth Warren Calls for Targeted Deregulation of Community Banks; Rules for big banks, consumer protections should stay as they are, Democratic senator says
By Yuka Hayashi – WSJ
Sen. Elizabeth Warren said Tuesday that Senate Democrats are willing to pursue targeted changes for regulations affecting community banks and credit unions as Congress moves to review post crisis financial regulations.

Trump Administration’s Bank Plan Heralds End of Crisis Era; Report demonstrates desire by officials to take a lighter touch after years of new restrictions
By Ryan Tracy – WSJ
The Trump administration’s new plan for bank oversight is raising industry expectations that a postcrisis era of heightened regulation is over.

Trump Wants to Hide Your Complaints About Wall Street; The Treasury recommends blocking public access to one million reports of alleged abuse by lenders, student loan firms, and debt collectors.
by Shahien Nasiripour – Bloomberg
A Republican refrain these last few years has been that the Obama administration went too far in policing Wall Street, resulting in higher costs and less choice for American households. So in February, when President Donald Trump directed his administration to apply a lighter touch, the first move he laid out was a desire to empower consumers instead of regulators so that they could make informed choices when it comes to financial products and services.

Why the Media Keeps Missing Political Earthquakes; Mainstream pundits were too old, too rich, and too enthralled with their own thinking to call the U.K. election correctly.
By Pankaj Mishra – Bloomberg
Last week, as the shocking results of the British elections arrived, the most over-used sentence in Britain seemed to be: “I was wrong.” Another insurgent mass movement following Syriza in Greece, Bernie Sanders and Donald Trump in the United States, and the Five Star Movement in Italy had caused a political earthquake. In one of the biggest political upsets in British history, Theresa May of the Conservative Party lost her majority in parliament, and her socialist rival Jeremy Corbyn led his Labor Party to its largest increase in its share of the popular vote since 1945.

Democrats in Congress to Sue Trump Over Foreign Business Dealings
Sharon LaFraniere – NY Times
Nearly 200 Democratic members of Congress are expected to file a federal lawsuit on Wednesday accusing President Trump of violating the Constitution by profiting from business dealings with foreign governments.


Sebi allows options in one commodity per exchange
Business Standard News
The Securities and Exchange Board of India (Sebi) has issued a circular allowing commodity exchanges to launch options trading in commodities. Initially, an exchange can launch options in only one commodity and the position limits for options will be double that of the respective futures contract.

SEBI asks commodity bourses to set up investor service fund
The Hindu
Commodity exchanges have to compulsorily set up investor protection and service funds, Sebi has said on Tuesday.

US Treasury’s leverage fix tipped to boost repo market; US Treasury plan to exempt US government bond exposures expected to help struggling market
Chris Davis – Reuters
The US repo market could receive a liquidity boost if recommendations made in a US Department of the Treasury report are adopted by prudential regulators, say market participants. But the move w

FCA Warns Against Unregistered FX Broker StoxMarkets
Finance Magnates
The FCA urged customers to avoid engaging in transactions with the company, or any other unregulated broker.

ECB gives renminbi its forex seal of approval; Central bank invested EUR500m of reserves in renminbi-denominated assets in first half
Claire Jones in Frankfurt – FT
The European Central Bank has started to hold foreign exchange reserves in renminbi in what amounts to a seal of approval for Beijing’s ambitions to internationalise its currency.

Here Are Ways Regulators Can Revise Dodd-Frank Without Congress
by Benjamin Bain – Bloomberg
Mnuchin says 80 percent of proposals don’t need legislation; Regulators can act alone on Volcker Rule, stress test changes
Treasury Secretary Steven Mnuchin said Tuesday that if he was king for a day, he would repeal the Dodd-Frank Act. But he’s not, and securing enough votes in the Senate to give Wall Street relief from the 2010 law’s sweeping constraints is difficult.

Ex-Traders in Britain to Face Currency-Rigging Charges in U.S.
Three former traders in Britain have agreed to travel to the United States to face criminal charges that they were part of a conspiracy to rig foreign currency markets.

ESMA issues risk dashboard for first quarter of 2017
The European Securities and Markets Authority (ESMA) has issued today its most recent iteration of its Risk Dashboard, covering risks in the EU’s securities markets for 1Q2017. ESMA’s overall risk assessment remains unchanged from 4Q16 at high levels.

Federal Court Orders Florida-Based North American Asset Management, LLC, Alexi Bethel, and Steven Labadie to Pay More than $1.6 Million in Restitution and a Civil Monetary Penalty for Engaging in Illegal, Off-Exchange Precious Metals Transactions; Court Also Imposes Permanent Trading and Registration Bans against Them
The U.S. Commodity Futures Trading Commission (CFTC) announced that Judge Jose E. Martinez of the U.S. District Court for the Southern District of Florida entered a Consent Order against North American Asset Management, LLC (NAAM) of Fort Lauderdale, Florida, its owner and president Alexi Bethel of Miami, Florida, and its owner and managing director Steven Labadie of Lake Worth, Florida. The Order finds that NAAM, Bethel, and Labadie engaged in illegal, off-exchange transactions in precious metals with retail customers on a leveraged, margined, or financed basis and requires them, jointly and severally, to pay restitution of $648,759.60 and a $977,430.47 civil monetary penalty.

CFTC’s Market Risk Advisory Committee Announces Agenda for June 20 Public Meeting
The U.S. Commodity Futures Trading Commission’s (Commission) Market Risk Advisory Committee (MRAC) will hold a public meeting on June 20, 2017 at the CFTC’s Washington, DC, headquarters.

EU in bid to give ESMA CCP relocation power; ESMA could gain authority to declare CCPs of major systemic importance be established in EU to provide services.
By Hayley McDowell – The Trade
The European Commission has confirmed plans to tighten supervision of central counterparties (CCPs) within the EU and handed ESMA the authority to relocate those considered systemically important.

Investing and Trading

Is your fund manager actually a ‘closet indexer’?
Tom Anderson – CNBC
Investors continue to plow money into passively managed index funds while shunning funds that use active stock pickers.
Performance and lower costs are prompting investors to make the switch from active to passive funds, industry observers say.

The debt and equity linkage and the valuation of credit derivatives
By Sean C Keenan, Jorge R Sobehart and Terry L Benzschawel –
This article was first published as a chapter in Credit Derivatives on September 1, 2003, by Risk Books.

Hidden in Plain Sight: A Powerful Way to Beat the Market
Justin Lahart – WSJ
Companies are a little lazy about what they put into regulatory filings. Investors are profoundly lazy about reading them.
Compare a company’s most recent annual report to its previous one, and you will quickly notice the language doesn’t change much. Hot-dog seller Nathan’s Famous NATH 0.08% has talked about the damage done to its flagship Coney Island location in 2012 in the exact same language three years in a row.
Do investors still care?

Why Having Independent Boards Can Backfire; Research shows that boards where the CEO is the lone inside member are more likely overpay their chiefs and commit financial misconduct
By Joann S. Lublin – WSJ
In an ironic twist, many U.S. corporate boards weakened their oversight of management by trying too hard to be independent, a new study finds.

Market Calm Unnerves Investors Awaiting Fed Shift on $4.5 Trillion Balance Sheet; Some fear that Fed move will lower prices of Treasurys and mortgage bonds
Katy Burne – WSJ
Investor anxiety over the Federal Reserve’s likely decision to soon begin reducing its $4.5 trillion in assets stems in part from the unusual calm in the markets this year and a belief by many analysts the tranquility won’t last.

The Old Are Eating the Young; Around the world, a generational divide is worsening.
Satyajit Das – Bloomberg
Edmund Burke saw society as a partnership between those who are living, those who are dead, and those who are yet to be born. A failure to understand this relationship underlies a disturbing global tendency in recent decades, in which the appropriation of future wealth and resources for current consumption is increasingly disadvantaging future generations. Without a commitment to addressing this inequity, social tensions in many societies will rise sharply.


Goldman Set Out to Automate IPOs and It Has Come Far, Really Fast
Dakin Campbell – Bloomberg
A few years ago, Goldman Sachs Group Inc.’s leaders took a hard look at how the bank carries out initial public offerings. They mapped 127 steps in every deal, then set out to see how many could be done by computers instead of people.

When a Bank Sells for One Euro, Who Gets the Euro?; Spain’s regulator beat bond holders to the symbolic sum
Ben Dummett – WSJ
Banco Santander SA’s plan to sell EUR7 billion ($7.85 billion) in stock to pay for its acquisition of Banco Popular EspaÒol SA highlights the real costs of rescuing its smaller, failing Spanish banking rival.

Just six banks caught by phase two of IM regime; Four EU, one Japanese and one Australian bank to start posting initial margin on non-cleared trades from September
Lukas Becker –
Just six banking groups will start posting initial margin on new non-cleared derivatives trades with covered counterparties from September, has learned.

Goldman e-trading hedge fund sales head joins Dash; Robert Boylan previously led the electronic trading hedge fund sales team at Goldman Sachs and has also worked at Credit Suisse.
By Hayley McDowell – The Trade
Multi-asset trading technology provider Dash Financial Technologies has tapped Goldman Sachs for a managing director for business development.


Emerging market real estate takes the lead in Q1
FTSE Russell
Real estate investment trusts (REITs) have long been popular in the US and have also been gaining popularity globally over the last decade, as we discussed in an earlier blog. Now listed on exchanges around the world, REITs can be analyzed similarly to other listed equities, both on a regional and country-specific basis.

Gangsters, Grandmothers and Gold: Japan’s New Crime Wave
Jonathan Soble – NY Times
TOKYO ó Sometimes the perpetrators are gangsters. Sometimes they are rather less accustomed to the criminal life. In one case, the ringleader of a middle-aged, female crime ring was said to be a 66-year-old woman.


The true saboteurs of Brexit
David Allen Green – FT
Brexit was never going to be simple. But the problem since last summer’s referendum, if not before, is that it is treated by its supporters as if it were an easy exercise. And this approach is the biggest opponent of a successful Brexit.

Sleepwalking towards a chaotic Brexit; The likelihood that there will be no deal is now even higher than before the election
Martin Wolf – FT
Theresa May promised strength and stability. She has delivered the opposite. It would be funny if it were not so serious. Donald Trump is fixated on the idea that the world is laughing at the US. In the case of the UK, it has to be true: David Cameron launched an unnecessary referendum on EU membership; his successor Mrs May follows by destroying her political position. The country looks ridiculous. The general election has also increased the likelihood of “no deal”. Contrary to the idea that “no deal is better than a bad deal”, this would be a calamity, for both sides.


World Coal Production Just Had Its Biggest Drop on Record
Rakteem Katakey – Bloomberg
It’s the end of an era for coal.
Production of the fossil fuel dropped by a record amount in 2016, according to BP Plc’s annual review of global energy trends. China, the world’s biggest energy consumer, burned the least coal in six years and use dropped in the U.S to a level last seen in the 1970s, the company’s data show.

Opinion: Here’s what financial bloggers think will embarrass us in 10 years
Tadas Viskanta – MarketWatch
This is Blogger Wisdom week on Abnormal Returns. As we have done in previous years, we asked an esteemed group of independent finance bloggers a series of (hopefully) provocative questions. Yesterday we asked what we would learn (or not) with 1000 years of good financial market data.

WSJ union report shows persistent gender pay gap at Dow Jones
Daniel Funke – Pointer
The union that represents many journalists at The Wall Street Journal has published an analysis that shows a persistent wage gap between men and women employed by Dow Jones & Company.

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