Index Providers Rule the World; Unknown traders gain influence in commodities; Beijing is Making Its Most Serious Effort Yet to Tackle Its Financial-System Issues

Nov 27, 2017

First Read

Hits & Takes

The Canadian Annual Derivatives Conference is November 27-29 in Quebec City. Blythe Masters will be a keynote speaker.~JJL

Seismic Foundry website is now live.~JJL

OPEC’s next meeting is this Thursday. Bantix Technologies, the provider of the Quikstrike options analytics suite, has a blog laying out everything you need to know about the upcoming meeting.~SD

Ever wonder when charts became such a standard part of news presentation? Priceonomics has a blog covering the origins of charts and graphs. Scottish political economist William Playfair is credited with creating the modern statistical chart in the late 1700s.~SD

Nasdaq Nordic set a Listings Record.~JJL

On the second anniversary of the launch of LME’s steel scrap and rebar contracts and combined volumes have risen tenfold in the last 12 months alone.~JJL


Mr. MiFID on Finance’s Low-Fee Future
Neil Callanan and Stryker McGuire – Bloomberg
Steven Maijoor isn’t an obvious master of the universe. He was a longtime academic and then a financial markets regulator in the Netherlands before becoming chairman of the European Securities and Markets Authority in 2011. The far-reaching regulatory regime known as Markets in ­Financial Instruments Directive II, which takes effect on Jan. 3, has rapidly elevated the profile of Maijoor and a once-obscure bureaucracy ­beavering away in Paris. Working with national regulators within the European Union, Maijoor, 53, has helped to implement the legislation, which grew out of the financial crisis in an attempt to avoid another one by increasing transparency.

****** The most powerful man in the markets?~JJL


Holiday Homes: A historic resort in Switzerland has got some of its mojo back after finding a Qatari buyer
Shelley Rubenstein – City AM
If anywhere epitomised the glamour of Hollywood in its halcyon days, it was Switzerland’s Bürgenstock Resort, nestling 500 metres above Lake Lucerne. Opening the first hotel in 1873, its reputation peaked in the 1950s and 1960s, when luminaries from across the globe were drawn to this secluded mountain retreat.

***** The most beautiful spot on the earth I have ever seen.~JJL



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Why a 16th-century saint is a model of modern management; Nearly 500 years ago, St Ignatius showed how to lead a global enterprise
Paul Almeida – FT
When Pope Francis assumed the papacy in 2013, there were cheers from many around the world. Francis was the first pope from the Americas and the first Jesuit. While his appointment focused new attention on the Jesuit Order, the Society of Jesus has been around since 1540, when it was founded by St Ignatius Loyola.

***** One must have faith to be an entrepreneur.~JJL


Friday’s Top Three
Our top story by a long shot on Friday was Matt Levine’s take on Bitcoin futures for Bloomberg – The Uncertain Future of Bitcoin Futures. Would you be surprised if our second story was related to the crypto field as well? The next most-clicked was ICO regulation inconsistent as cryptocurrency bubble fears grow. In third was MavenWave’s 2017 CME GFLC Recap.

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Lead Stories

Index Providers Rule the World—For Now, at Least; Decisions about what to include are leaving some on the outs.
Tracy Alloway, Dani Burger and Rachel Evans – Bloomberg
In September 2015, Peru’s then-finance minister abruptly changed his plans and hopped on a jet to New York. By the time ­Alonso Segura Vasi landed in the U.S., officials from the country’s central bank and ­securities regulator were also en route to join him.

Unknown traders gain influence in commodities markets; Growth of so-called ‘other reportables’ raises concerns on transparency
Gregory Meyer in New York – FT
A mysterious group is exerting growing influence in commodities markets: the “other reportables”. The vague term is a catchall for speculative traders that are not money managers published in a weekly report by the US Commodity Futures Trading Commission, a crucial market weathervane.

Beijing is Making Its Most Serious Effort Yet to Tackle Its Financial-System Issues; New rules to crimp the country’s ballooning shadow banking system are a healthy step. The Chinese government must persist through any market fallout.
Anjani Trivedi – WSJ
Beijing is coming to grips with its Wild West-like financial system—not a moment too soon, many would argue. The jittery market reaction shows just how delicate that operation is going to be.

A Decade After the Crisis, King Dollar Is the World’s Tyrant; Regulation has made dollars harder to come by, triggering scrambles among banks
Jon Sindreu and Mike Bird – WSJ
It is one of the ironies of the global financial crisis: A decade later, a panic whose origins were in the U.S. has left the dollar more important to the rest of the world than ever before.

Jerome Pustilnik Pioneered Computerized Stock Trading in the Late 1960s; Wall Street analyst founded Instinet but left before it grew into a major force
James R. Hagerty – WSJ
In the mid-1960s, when a computer still filled a large room, a Wall Street analyst named Jerome Pustilnik saw the potential for the technology to transform stock markets. He teamed up with associates to found Institutional Networks Corp., later known as Instinet. When it launched its computerized-trading service in 1969, Mr. Pustilnik promised it would slash trading costs and cut out brokers and other middlemen.

Child labour fuels fear of reputational risk; MSCI compiled list of 62 companies facing allegations of employing underage workers
Chris Flood – FT
Controversy surrounding school-age interns working illegal overtime at Foxconn, a key supplier to Apple, the US iPhone maker, is fuelling concerns that many more companies could be exposed to reputational damage and legal challenges for using child labour.

Exclusive: Nearly 4 Million Bitcoins Lost Forever, New Study Says
Jeff John Roberts and Nicolas Rapp – Fortune
Just as gold bars are lost at sea or $100 bills can burn, bitcoins can disappear from the Internet forever. When all 21 million bitcoins are mined by the year 2040, the actual amount available to trade or spend will be significantly lower.

Julius Baer chief quits suddenly for Pictet; Boris Collardi’s unexpected move to Geneva rival highlights Swiss banking competition
Ralph Atkins in Zurich and Martin Arnold in Paris – FT
Swiss private banking has been rocked by the defection of the high profile chief executive of Zurich’s Julius Baer to Geneva-rival Pictet as the industry scrambles to win the business of the world’s rich.

Hedge-Fund Platforms Fear Bitcoin Is a Fad Like Tamagotchi
Suzy Waite and Nishant Kumar – Bloomberg
Platforms are turning down cryptocurrency funds as clients; Mirabella, Brooklands, Privium have all had meetings recently
Bitcoin’s march toward respectability faces another hurdle as hedge-fund platforms reject the overtures of firms trading cryptocurrencies.

Exchanges, OTC and Clearing

TMX Group Provides Update Regarding Regulatory Engagement
TMX Group, owner and operator of CDS, Canada’s equities and fixed income clearing house, today provided an update on the engagement with the Canadian Securities Administrators (CSA), an umbrella organization of Canada’s provincial and territorial securities regulators, regarding the clearing of securities of issuers with marijuana-related activities in the U.S. This is a complex matter which touches multiple aspects of Canada’s capital market system, and as such requires close examination and careful consideration.

Intercontinental Exchange – NYSE Group Announces 2018, 2019 and 2020 Holiday and Early Closings Calendar
NYSE Group announced today the 2020 holiday calendar and early closing dates for its cash equity markets: New York Stock Exchange, NYSE American and NYSE Arca Equities, as well as NYSE American Options, NYSE Arca Options and NYSE Bonds markets. The previously-announced 2018 and 2019 holiday and early closing dates are also included below.

Clearing is not something we need to own – Cboe
Louisa Chender – Global Investor Group
US exchange Cboe Global Markets has said it could leverage existing clearing infrastructures in order to create new clearing opportunities in Europe. According to John Deters, chief strategy officer of Cboe, the group is “open in terms of clearing”. He claims that working with other European clearing houses would allow the group to concentrate on the benefits of the products.


Investment Bankers Are Hard to Replace With Robots, Nordea Says
Kati Pohjanpalo – Bloomberg
Not all bankers need to fear the march of the robots. Nordea Bank AB, which last month said it will need to cut 6,000 jobs as part of a process to become a more digital firm, is now offering some insight into who’s likely to be hardest hit.

Amazon Plays Catch Up in a Corner of the Cloud Where It Lagged
Dina Bass – Bloomberg Inc.’s cloud unit dominates the market for computing power delivered over the internet. But there’s one area where it has lagged: artificial intelligence tools that let customers parse data, understand speech and recognize images without buying their own expensive machinery.

Bitcoin soars above $9,000 to new record high
Frank Chaparro – Business Insider
The price of bitcoin, the scorching-hot cryptocurrency, soared above $9,000 a coin for the first time early Sunday morning; Bitcoin was trading at an all-time high of $9,481 a coin Sunday afternoon, according to data from Markets Insider; Billionaire businessman Mark Cuban told Business Insider the price of bitcoin will continue to rise as long as it continues to act more as a collectible than a currency.
Bitcoin’s impressive march into record territory continued Sunday afternoon.

****SD: WSJ here.

Fake Americans Dominated the Net-Neutrality Debate
Eric Levitz – NY Magazine
Americans do not want internet service providers (ISPs) like Comcast and Verizon controlling what websites they can see, or how quickly they can load them. When pollsters ask U.S. voters whether they support net neutrality — regulations that require ISPs to treat all web traffic equally — a large bipartisan majority answers in the affirmative.


CFPB Official Sues Trump Administration Over Agency Leadership; Leadership contest is the latest battle to control agency’s direction
Yuka Hayashi – WSJ
An Obama-era official at the Consumer Financial Protection Bureau sued the Trump administration on Sunday night to block budget director Mick Mulvaney from taking control of the agency.

Richard Cordray’s Political Stunt; Democrats pretend that the Consumer Financial Protection Bureau is its own branch of government.
The Editorial Board – WSJ
The Trump Administration ducked a fight with Richard Cordray by letting him quit rather than fire him for cause. So much for conciliation. The Consumer Financial Protection Bureau director on Friday provoked a bureaucratic brawl, and a fight over proper legal authority, by appointing his own replacement.


Battle for Control of Consumer Agency Heads to Court
Stacy Cowley – NY Times
The battle over who will lead the federal government’s top consumer financial watchdog agency is now headed to court.

Amended FINRA/NYSE TRF Post-Market Trading Session Hours
As previously announced, the TRF Systems are closing early today, Friday, November 24, 2017. There has been one update to the FINRA/NYSE TRF Post-Market Trading Session Hours where the NYSE TRF will be closing at 4 p.m. ET today.

Podcast: CFTC Talks EP017: Derek Scissors, AEI resident scholar on Chinese and Indian Economies

Will Supreme Court open a ‘dam burst’ of legalized sports betting?
Robert Barnes – Washington Post
Twelve television screens in Jay Kornegay’s office just off the casino floor are filled with NFL action. His cellphone is blowing up. His inbox blinks with new emails. Twitter won’t stop chirping.

China’s regulator to halt Hong Kong-bound funds over fear of an impending market correction
South China Morning Post
China Securities Regulatory Commission to temporarily delay approval of some mutual fund products that will invest more than 80pc in HK stock market

Investing and Trading

New York Startup Unleashes Big Data on Art Investing; Arthena wants to democratize a traditionally opaque market in an era of record art auctions.
Molly Schuetz – Bloomberg
Hedge funds and some of the world’s biggest banks have embraced the predictive properties of machine learning to spot patterns and guide their investment decisions. Could this branch of artificial intelligence be used to divine the vagaries of the art market? A New York startup says it can.

Bitcoin Guns for $10,000 as Cryptocurrency Mania Defies Skeptics
Julie Verhage, Eric Lam and Todd White – Bloomberg
This year’s 10-fold increase adds to 120% gain in 2016; Institutional investors seen entering: Gatecoin’s Glucksmann
Bitcoin blew past $9,700 just a week after topping $8,000 and approached its closest ever to five figures, gaining mainstream market attention as it defies bubble warnings.

Stocks Around the Globe Stage Most Widely Shared Rally in Years; Investors say stock rally is a culmination of improving corporate earnings, strengthening economies and supportive monetary policies
Steven Russolillo – WSJ
The vast majority of global stock markets in 2017 have surged either to fresh records or multiyear highs, one of the broadest rallies in years that investors say is a result of the increasingly synchronized global economic recovery.

Opinion: The Trump Fed will fuel another huge stock-market rally
Mark Grant – MarketWatch
President Donald Trump with Jerome Powell, his pick to head the Federal Reserve.
President Trump is about to reshape the Federal Reserve, and his choices will arguably impact Americans more than his recent Supreme Court appointment.

These 6 investment newsletters have delivered top returns in good stock markets and bad
Mark Hulbert – MarketWatch
The money managers with the best track records are not necessarily the best choice for many stock investors.

Here’s one thing the bitcoin frenzy has in common with the dot-com bubble
Anora M. Gaudiano – MarketWatch
Shares of companies that change their names to include the word ‘blockchain’ see big boosts
Whether bitcoin is in a bubble may be up for debate. But there is one thing about the cryptocurrency craze that is reminiscent of the late 1990s tech boom.

Bubble or breakthrough? Bitcoin keeps central bankers on edge
Francesco Canepa – Reuters
Central bankers say the success of bitcoin and other cryptocurrencies is just a bubble.

Harding Says VIX a Bit Like Bitcoin, It’s Misunderstood
David Harding, chief executive officer and founder of Winton Capital Management, discusses active versus passive investing, artificial intelligence and financial services overall. He speaks with Francine Lacqua and Tom Keene on “Bloomberg Surveillance.”

What the Renewed Upward Move in Stocks Tells Us; Markets are focusing on data showing that the advanced economies, led by the U.S. and Europe, continue to build growth momentum.
Mohamed A. El-Erian – Bloomberg
As stocks encountered headwinds and a wide range of risk assets came under pressure in the week ended Nov. 18, some market observers again rushed to announce the end of what has been an impressive and rewarding rally. But rather than decline further, these markets bounced back yet again. Both the S&P 500 and the Nasdaq indexes ended last week at record highs; and the Dow Jones Industrial Average almost finished the holiday-shortened week at a record, too.

Wall Street’s Running of the Bulls May Trample Investors; Expectations for double-digit returns after a series of more modest estimates have often spelled trouble.
Stephen Gandel – Bloomberg
The race to be Wall Street’s biggest bull is on, and the charging this year is harder — and the pack tighter –than it’s been in a while. That may suggest it’s time for investors to take cover.

The Stock Market Might Be Right, Sort Of; New research suggests that prices might reflect true value, but only very roughly.
Mark Buchanan – Bloomberg
The idea that prices in financial markets reflect all available information — also known as the efficient markets hypothesis — has many variations: Some adherents think the process is immediate and precise, while others think it’s much messier, with prices often missing true value by a significant margin.

Snapchat Is Having a Crisis of Confidence. So Are Investors.
Shira Ovide – Bloomberg
Let’s not mince words: Eight months after Snapchat went public, the company is a disaster.


Julius Baer CEO Quits in Surprise Departure, Joins Rival
Jan-Henrik Foerster and Patrick Winters – Bloomberg
Collardi to join Pictet as co-head of global wealth management; Deputy CEO Bernhard Hodler will take over for Collardi
Boris Collardi unexpectedly resigned as chief executive officer of Julius Baer Group Ltd. to become a partner at rival Pictet Group, triggering the search for a long-term successor. He will be replaced for now by Deputy CEO Bernhard Hodler.

Here’s What the World’s Central Banks Really Think About Bitcoin
Eric Lam – Bloomberg
Bloomberg’s Chris Anstey reports on the views of global central banks on bitcoins.
Eight years since the birth of bitcoin, central banks around the world are increasingly recognizing the potential upsides and downsides of digital currencies.

Central banks and pension funds are rarely boring; Bank of England’s pension scheme looks at moving up risk spectrum, writes Peter Smith
Peter Smith – FT
When he was governor of the Bank of England, Mervyn King liked to say that central banking should be boring. The accounts of the bank’s £4.4bn pension fund “should be boring too”, says John Footman, chairman of the trustees, in a note to scheme members.

BNP Paribas to step up cross-selling with U.S. Bank of the West
Reuters Staff
France’s biggest bank BNP Paribas said on Monday its corporate and institutional bank (CIB) unit in the United States would extend its mergers and acquisitions services for corporate clients of its U.S. retail unit Bank of the West.


Norway’s $1 Trillion Wealth Fund Steps Up `No’ Votes on CEO Pay
Mikael Holter – Bloomberg
NBIM executive says fund will provide more details in February; Wants stricter and clearer rules in companies it invests in
When Norway’s $1 trillion sovereign wealth fund said it wanted companies to curb excessive and opaque top-management pay, it meant business.

How to Play Emerging Markets Now; America first? Not when it comes to world stocks.
Reshma Kapadia
In a year full of political and economic drama, emerging markets have outpaced an aging bull market in the U.S. over the last 12 months. Still, the prospect of Beijing wielding a heavier hand in Chinese companies and economic reforms in India potentially slowing near-term growth means that investors who take a closer look now will need to pick their spots carefully.

Beijing Hinders Free Speech in America
Wang Dan – NY Times
I spent nearly seven years in a Chinese prison for being a leader of the 1989 Tiananmen Square protests. I was freed in 1998, and the Chinese government let me leave the country. I chose to go to the United States, where I could freely speak my mind without fear of being thrown in prison.

Philippines To Allow Bitcoin & Co, Classified As Securities
The Philippines’ Securities and Exchange Commission (SEC) announced that it is considering legalising the use of digital currencies in the country by classifying them as securities, and also increasing the number of exchanges. The move comes following the financial regulator’s issuance of regulations for the cryptocurrencies like Bitcoin earlier in 2017.


Brexit Spurs European Banks to Trim Exposure to U.K. Assets
Silla Brush – Bloomberg
Banks’ U.K. assets decline by $425 billion in year since vote; Shift driven by 35% drop in exposure to U.K. derivatives
European banks pared their exposure to Britain in the aftermath of its vote to quit the European Union, slashing their U.K. assets by $425 billion in the span of a year

A Thriving British Industry Confronts the Price of Brexit; Aerospace might be more integrated with continental Europe than any British sector. Not for long.
Matthew Campbell – Bloomberg
As monuments to Britain’s past glories go, it’s hard to beat the Royal Air Force Club.

City ignores Whitehall charm offensive as Brexit patience wanes; Banks are triggering their contingency plans as they prepare for the impact of a hard Brexit
Lucy Burton – Telegraph
When Brexit Secretary David Davis made a speech at the London headquarters of Swiss bank UBS earlier this month, there was one message he wanted the City of London to hear loud and clear – it is not possible to recreate, or duplicate, another leading financial centre in Europe.

Britain falls in infrastructure investment ranking as Brexit and political instability weigh
Alan Tovey – Telegraph
Britain remains one of the top countries for investors looking to sink money into infrastructure – but political instability means the UK has slipped from the top spot.

UK financial sector needs favourable Brexit banking deal after paying record amounts of tax, says City of London; The financial services sector contributed record tax revenues of £72.1bn in the past year
Huw Jones – Independent
The City has called for a transition deal by the end of the year AFP/Getty
Britain’s financial services industry paid a record £72.1bn ($96.2bn) in tax during the past fiscal year, PwC said in a report that piles pressure on the Government to secure favourable trading terms for banks after Brexit.


Walter Smith Piled Up ADP Stock Options, Then Founded a Newspaper Business; Publisher’s weekly papers focus on black communities in New York and Philadelphia
James R. Hagerty – WSJ
After serving in the U.S. Army in Korea in the early 1950s and studying business at North Carolina Central University, Walter Smith found a job at the New Jersey payroll-services company that would later be known as Automatic Data Processing , or ADP.

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Past JLN Newsletters

CME to permanently close most trading pits

CME to permanently close most trading pits

First Read $40,626/$300,000 (13.5%) Anonymous ++++ Hits & Takes John Lothian & JLN Staff Without fanfare or amplification from its executives, the CME Group shut the books on most -- but not all -- of its floor trading history Tuesday afternoon with the...

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