John Lothian Newsletter: Nasdaq Merges Technology, Shareholder Units, Hires CIO; Thailand pushes to create trading hub; Bright spots amid 2012 futures gloom

Jan 18, 2013

Nasdaq OMX announces that it’s combining two of its business technology units. Riding a successful 2012, the Thailand stock exchange is pushing hard to become a regional financial hub. 2012, no surprise, wasn’t the US futures industry’s banner year; yet the news in the industry isn’t all bad. In First Read today, JLN’s Doug Ashburn pens a sharp analysis of the DTCC-CME Group data war.

First Read

The $639 Trillion Question: Who Owns the Data?
By Douglas Ashburn

A major storm is brewing in the typically sleepy world of derivatives regulation over the reporting and storage of swap data. The dispute between the Depository Trust & Clearing Corporation (DTCC) and CME Group seeks a definitive answer to a fundamental question: who owns the data? In the case of the OTC derivatives market, whose notional value is about $639 trillion according to the last BIS survey, it may be up to the courts to decide the answer.

I have asked this ownership question many times over the years – to regulators, exchanges, vendors, and algorithmic code writers – and I usually get the same answer: “We like to think we own it, and have the rights to use anything that crosses our pipes.” Given the high stakes involved in obtaining control over swap data, one would think the CFTC would have anticipated this fight and had its answers ready. Instead, the commission appears to be fence-sitting, leading DTCC general counsel Larry Thompson to say at a press briefing on January 16 that the firm will “consider all options, including litigation” against the commission.

How come this basic question is being argued so late into the rulemaking process? To answer, it is important to offer a little historical perspective. The Dodd-Frank Act established the swap data repository (SDR) as a new type of entity that would collect and maintain swap transaction data and make it available to regulators. However, the Act left the development of the SDR framework in the hands of the CFTC. The commission issued its final SDR rules in September 2011 and, in October 2012, issued a “frequently asked questions” sheet on the reporting of cleared swaps.

Though Dodd-Frank is silent on which entity or entities would be considered SDRs, it was assumed throughout the industry that DTCC, which does most of the processing, sorting and other post-trade services for bilateral interest rate swaps (which comprise about 80 percent of all swaps) would be handling the data.

Do read the rest of the essay! You can find it on MarketsReformWiki at jlne.ws/YdddqO

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CME derivatives land grab sparks anger
Shahien Nasiripour in Washington and Michael Mackenzie in New York – FT.com
CME Group is facing the wrath of leading financial groups in a dispute over US derivatives rules, which has pitted Wall Street against Chicago. At stake is whether the Chicago-based global exchange operator can bypass industry-owned utilities, such as Depository Trust & Clearing Corporation, and bundle services for clients that clear swaps via CME.
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**** This is a problem of regulatory synchronization. Or, to quote Paul Simon the song writer, “I notice so many people, Slipping away, And many more waiting in the lines in the courtrooms today, Oh, in the courtrooms today. “

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Scila Proposes Methods For Surveillance Of Algorithmic Trading
Being one of the leading providers of trade surveillance software to trading venues, regulators and market participants, Scila closely follows regulatory development around the world. Scila not only updates its software according to regulatory development, Scila also analyses, and sometimes, comment on specific regulation that is about to become reality for Scila’s customers.
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***** “Oh [Scilia], you’re breaking my heart, you’re shaking my confidence daily….”

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CBOE starts to get it
Joe Cahill – Crain’s
I’m glad to see CBOE Holdings Inc. dropping directors with ties to firms that trade on its Chicago Board Options Exchange. Sure, the move came at the point of an investigation by the Securities and Exchange Commission into CBOE’s regulation of traders. But it makes the board more independent, and that’s good for shareholders.
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***** The CBOE had before this move one of the most independent boards. Independent board members were not friends or perhaps even known by the CEO before their selection. What this move does is make it devoid of traders and brokers who are current traders and hold trading rights on the exchange.

***** This move is like a “Bridge over troubled water.”

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‘Pharaoh’s curse’ costs WSE chief his job
Jan Cienski in Warsaw – FT.com
A film called The Curse of the Pharaoh has cost one of Poland’s most successful chief executives his job. Ludwik Sobolewski, the president and chief executive of the Warsaw Stock Exchange, was fired on Thursday over allegations that he had approached companies listed on the bourse to finance the film, which will star his girlfriend.
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***** There must be “50 ways” to raise money for your lover.

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New Restoring Customer Confidence Video
The seventh video in our Restoring Customer Confidence series deals with high frequency trading. Each week we will post a new idea answering the question – how do you restore customer confidence and bring traders back?

Restoring Customer Confidence More ideas»
HFT Rules: Three Part HFT Harmony

HFT Rules: Three Part HFT Harmony
MarketsWiki.tv

High Frequency Trading (HFT) has been in the financial press a lot over the past several years. From the Flash Crash of 2010 to the collapse of Knight Capital in 2012, trading glitches and the negative impact of HFT on markets and investor confidence is well-documented. In this segment of the Restoring Customer Confidence series, Mayer Brown attorney Zachary Ziliak outlines the three sources that will address HFT and help restore customer confidence.

Ziliak says regulatory bodies will likely continue to address HFT guidelines, exchanges are imposing new fees on HFT practices and AT 9000, standards system for HFT practices, will help establish a higher bar for HFT participants.

Watch the video »

This video is sponsored by:
Traiana

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About the Restoring Customer Confidence video series
In the aftermath of the MF Global collapse, fraud at Peregrine Financial Group and high profile high-frequency trading shocks, John Lothian News asks – how do you restore customer confidence and bring traders back?

The Restoring Customer Confidence video series answers that question by exploring potential solutions using expert interviews and simple animations.

John Lothian News interviewed more than a dozen professionals in the industry to get their ideas and solutions. As these ideas become practice, or as new concepts are adopted by the industry, we will continue to add them to the site.

Visit the video series page on MarketsWiki.tv over the next several weeks for new ideas and solutions.

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Technology and the Politics of Swaps Data Repository Issues
Allan D. Grody – FOW
In order to observe risk in the OTC markets, the CFTC focused on regulating global swaps activity. It set itself on a course that parallels existing trading markets, a reasonable approach at the time. It begins with the concentration of swaps trading on trading venues similar to those that exists for listed securities and futures.
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***** “Oh I’m weary from waiting in washington d.c., I’m coming to see my congressman. But he’s avoiding me, Weary from waiting down in washington d.c.”

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Cayman Islands to open up to scrutiny
Sam Jones, Hedge Fund Correspondent – FT.com
The Cayman Islands are poised to break with decades of secrecy by opening thousands of companies and hedge funds domiciled on the offshore Caribbean territory to greater scrutiny.
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***** “Slip slidin’ away, slip slidin’ away, you know the nearer your destination, the more you’re slip slidin’ away.”

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Crowdfunding Efforts Draw Suspicion
JEAN EAGLESHAM – WSJ.com
Regulators are scrutinizing about 200 websites set up by entrepreneurs to profit from a more lenient law on the sale of shares in small companies. State securities officials identified the websites after a sweep of thousands of Internet addresses for possible threats to investors following the looming change.
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***** “You can just call me Al.”

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Blackstone’s Latest Hired Help? No, Just Two Well-Dressed Visitors
MICHAEL J. DE LA MERCED – NYTimes.com
It appears that a couple of visitors to the Blackstone Group elevated the private equity firm’s dress code for an afternoon. Late on Thursday, the private equity firm’s Twitter account posted the following message with little fanfare:
jlne.ws/WMkffp

**** Not a “one trick pony.”

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How to STAC Your Panel?
Next week the Securities Traders of Chicago(http://www.stachicago.org/) will bring their annual winter-time meeting to the Hilton Chicago. Featured among the speeches and panels is one moderating by Drew Mauck of 3Points Communications titled “Who Gave You That Black Eye?”

As you can imagine, this panel will explore the negative image problems for Wall Street and the rest of the trading community.

On the panel is Author and Journalist Emily Lambert, currently serving as Associate Director of Intellectual Capital at University of Chicago Booth School of Business. Also on Drew’s crew is Skip Shean, founder of 16Wells, an online marketing consultancy. Additionally, you have Dave Carlson, an Account Director in the Corporate Practice of Ogilvy PR Worldwide and Yosef Abbasi of Jones Trading.

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MarketsWiki

MarketsWiki Page of the Day
Wells Fargo Securities, LLC
jlne.ws/S9oDsd

MarketsWiki Recent Updates

People

Emily Lambert; Sandra Thompson; Doreen R. Eberley; Charles P. Carey; Bruno Michel Iksil; James “Jamie” Dimon; Jorge Alegria

Companies, Organizations and Groups

Minneapolis Grain Exchange, Inc.; Wells Fargo Securities, LLC; Radar Logic; Wells Fargo Securities; Bolsa Mexicana de Valores S.A.B.

Miscellaneous

Five Minutes With Bette Smith; High-frequency trading; London Whale

Statistics

33,782,806 pages viewed, 7,337 articles, 152,363 edits
MarketsWiki Statistics

Lead Stories

Nasdaq Merges Technology, Shareholder Units, Hires CIO
Bloomberg
Jan. 17 — Nasdaq OMX Group Inc. , the second- largest U.S. equity market operator, said it’s combining two technology units that provide advisory services to exchanges and research on company shareholders.
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Thailand pushes to create trading hub
Gwen Robinson in Bangkok – FT.com
Thailand’s stock exchange is spearheading the country’s push to transform itself into a regional capital markets hub, after a record year which saw the bourse become Asia’s second-best performing stock market.
jlne.ws/WMkdnK

Bright spots amid 2012 futures gloom
Tom Osborn – Financial News
It was a year to forget for the US futures industry. Low volatility, deleveraging by banks and weak demand from clients saw volumes sink by 13.2% across all US futures and options markets, according to figures released by the Futures Industry Association yesterday, with benchmark equity and interest rate futures the worst hit.
jlne.ws/WMkdnM

Tokyo Commodity Exchange Officially Approved To Launch Agricultural Product And Sugar Market On February 12, 2013
The Tokyo Commodity Exchange, Inc, (TOCOM) announced today that the launch of the Agricultural Product and Sugar Market has been approved by the Minister of Economy, Trade and Industry, as well as the Minister of Agriculture, Forestry and Fisheries.
jlne.ws/WMkdnO

U.S. SEC to Offer Money-Market Overhaul Soon, Commissioner Says
Dave Michaels – Bloomberg
A second effort to overhaul rules governing the $2.6 trillion money-fund industry will be offered by the U.S. Securities and Exchange Commission before the end of March, said SEC Commissioner Daniel M. Gallagher.
jlne.ws/W90UG5

Tycoons shunning financial services as they get richer
Reuters via Yahoo! Finance
Tycoons are shunning banks and wealth managers, preferring to put a flood of money from selling stakes in companies into property and new ventures rather than trust industries whose reputations have been battered by the global financial crisis.
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JP Morgan settles with former supervisor of London whale
The Wall Street Journal
JP Morgan Chase settled out of court with a former supervisor of the trader known as the “London Whale” for the super-sized bets that backfired last year into more than $6bn in trading losses for the US bank, said a person close to the case.
jlne.ws/WMkdnP

Confidence in Europe Up, Even as Economies Stall
MARCUS WALKER and CHARLES FORELLE – WSJ.com
Evidence is piling up that European financial markets think the euro zone’s debt crisis is fading—the euro rose to near a 10-month high Thursday—but feeble economic activity suggests the crisis is only in remission.
jlne.ws/WMkfvV

Regulatory

U.K. FSA’s Successor Must Be Radically Different, Panel Says
Bloomberg
The successor to the Financial Services Authority needs to take a “radically different” path to make sure consumers receive stronger protection and major financial failings are discovered earlier, a U.K. Parliamentary committee said.
jlne.ws/WMkdnV

Bank of England’s Jenkins says Basel rules not up to job
Reuters via Yahoo! Finance
New global rules forcing banks to hold more capital and cash to shield taxpayers and make the financial system safer won’t achieve their aim, a UK regulatory policymaker warned on Thursday.
jlne.ws/WMkfvZ

Treasury issues final foreign-account tax regulations
Dow Jones Newswires
The US on Thursday released final rules on a new program meant to keep Americans from dodging taxes by stashing money overseas.
jlne.ws/WMkdo2

FESE: The Impact Of MAD, MiFID And EMIR On The Integrity Of Financial Markets
Speech by Judith Hardt to The Institute for Global Financial Integrity finance lunch on 17th January.
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Exchanges & Trading Facilities

NASDAQ OMX To Combine Market Technology And Corporate Solutions Businesses
The NASDAQ OMX Group, Inc. today announced the company will combine its Market Technology and Corporate Solutions businesses. The combination will enable increased focus and drive growth across the company’s technology businesses, create a dedicated software and technology management structure and advance NASDAQ OMX’s market position by leveraging global distribution and scaling our products and services. The new business unit will be led by Anna Ewing, executive vice president, Global Technology Solutions, NASDAQ OMX.
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Background To Downfall Of Former Warsaw Stock Exchange CEO Ludwik Sobolewski – From January’s Trading Places – Lights! Camera! Action (Against The CEO)!
Our columnist Patrick L Young, as always, manages to find stories that somehow or other the mainstream media seem to have missed. Who would have thought you could have a sentence with “glamour, femme fatale, scandal, movies and stock exchange CEO” all rolled into one?
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Appointment Of Adam Maciejewski As President Of WSE Management Board
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MGEX Announces AJC Webinar Series
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FIA Volume Report: U.S. Futures And Options Volume Fell 13.2% In 2012
jlne.ws/XHdHS3

FIF Capacity Statistics For December 2012
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[CBOE] http://www.cboe.com/framed/PDFframed.aspx?content=/publish/InfoCir/IC13-008.pdf&section=SEC_ABOUT_CBOE&title=CBOE%20-%20CBOEThree Consecutive, Near-Term Contract Expiration Months in 100 Most Active Classes
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Program Trading Averaged 25.8 Percent of NYSE Volume during Jan. 7-11
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Hedge Funds & Managed Futures

BlackRock nears $4 trillion milestone
Sophie Baker – Financial News
BlackRock is closing in on funds under management of $4 trillion after what one Nomura analyst described as “a pretty darn good” year for the world’s largest investment manager.
jlne.ws/WMkfMv

Small hedge funds top big ones in 2012 with strong returns
Reuters via Yahoo! News
BOSTON – In tough times, small hedge funds appear to have bested many of their bigger competitors. As the industry digests another year of largely mediocre hedge fund returns, especially at many of the largest players, some investors are beginning to turn their sights toward smaller newcomers to deliver the kind of double-digit returns that made the industry famous.
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Goldman’s commodities risk taking falls
Javier Blas in New York – FT.com
Goldman Sachs has reduced its risk taking in commodities to the lowest in eight years, the clearest sign of how Wall Street is facing up to tighter regulation. Goldman is the largest bank in commodities by revenues.
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Ernst & Young LLP wins two awards for outstanding service to the hedge fund industry
Ernst & Young LLP, a leading service provider for start-up and established hedge funds, has received the award for Best Audit Services in the 2012 HFMWeek U.S. Hedge Fund Services Awards and was ranked as the top audit and accounting firm in Hedge Funds Review’s 2012 Service Provider Rankings.
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FBR Founder’s Fund Profits From Big Government Bemoaned by Bacon
Bloomberg
For many hedge funds, financial rules and state intervention in markets are anathema. Emanuel J. Friedman, former co-chairman of investment bank Friedman, Billings, Ramsey Group Inc., sees them as an opportunity.
jlne.ws/WMkdUV

On the Trail of SAC Capital’s Steven Cohen
BusinessWeek
A sprawling government investigation into insider trading keeps leading back to Cohen’s SAC Capital. An inside look at the probe and where it’s heading
jlne.ws/WMkfMH

Is a 60/40 stock-bond mix the right balance?
Associated Press via Yahoo! News
Is it time to retire the idea of a 60/40 portfolio? The strategy has been generally regarded as a good starting point for most investors.
jlne.ws/WMkdUY

Temasek won’t join Silver Lake for Dell buyout: source
Reuters via Yahoo! News
Singapore state investor Temasek Holdings Pte Ltd is not interested in investing in Dell Inc as part of a consortium led by private equity firm Silver Lake Partners, a source with knowledge of the matter said.
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Hatteras Managed Futures Strategies Fund Available On Schwab’s Mutual Fund OneSource Platform
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Banks & Brokers

Barclays CEO Jenkins Tells Workers to Follow New Rules or Leave
Bloomberg
Barclays Plc Chief Executive Officer Antony Jenkins told employees he expects them to stick to his new rules on ethics or quit as he seeks to steer the bank from scandals that forced out his predecessor.
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E-Trade names ex-Barclays exec Idzik as new CEO
Associated Press via Yahoo! News
Online brokerage E-Trade Financial Corp. appointed banking industry veteran Paul Idzik as its new CEO as the company seeks to regain its financial footing.
jlne.ws/WMkg3d

GAIN Capital Hires Joseph Wald to Lead Institutional Business
GAIN Capital Holdings, Inc. (GCAP), a global provider of online trading services, announced today the appointment of Joseph Wald as Executive Vice President, Head of Institutional. Joe will be responsible for leading GTX, GAIN Capital’s institutional business.
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Citi falls short on earnings, blames regulations
MSNBC
Citigroup badly missed earnings estimates in the fourth quarter, reflecting what its new CEO called a “challenging” environment due to increased regulatory pressures and legal costs.
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Citi’s Corbat tempers investor expectations in debut
Reuters via Yahoo! News
NEW YORK – Mike Corbat, Citigroup Inc’s new CEO, used his earnings debut to temper investor expectations for a turnaround at the company, delivering subdued profits and saying the bank still had a lot left to clean up.
jlne.ws/WMkebr

General Electric: Still a Bank
KATE LINEBAUGH – WSJ
General Electric Co. may be the world’s top producer of aircraft engines and medical-imaging equipment, but as far as its profits are concerned, GE is very much a bank.
jlne.ws/WMkebs

Goldman Sachs Sells $750M of Junior Loans on Hawaiian Hotel Portfolio
Wall Street Journal Blogs
Goldman Sachs Group has sold about $750 million of junior loans on a large hotel portfolio owned by the private-equity firm Cerberus Capital Management, according to people briefed on the transaction.
jlne.ws/WMkebw

Merrill spurs Bank of America revenue though broker count falls
Reuters via Yahoo! News
NEW YORK – Buried within the mixed quarterly earnings report from Bank of America Corp Thursday was strong news about its global wealth and investment management division, comprised primarily of its Merrill Lynch retail operations.
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BofA Brokerage Chief Thiel Says Merrill Strategy Working
Bloomberg
Bank of America Corp. brokerage head John Thiel, who boosted incentives for financial advisers to steer clients to more of the lender’s products, said the firm’s strategy to garner more fees is taking hold.
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Barclays may use bonuses to recoup Libor fines – Financial Times
Reuters via Yahoo! Finance
LONDON – British bank Barclays Plc is considering using its 2012 bonus pool to help pay fines for its role in Libor interest rate rigging, the Financial Times reported.
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Clearing & Settlement

LCH.Clearnet Repowatch, January 2013
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CME Group Clearing Advisory: NYMEX Options Expiration Operational Procedures for the Trading Floor and Clearing Members (CH, RX, W) Effective Friday, January 18, 2013
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Technology

IPC Deploys Innovative Trading Communication Solutions In Equinix Data Centers In Top Asia-Pacific Financial Centers
jlne.ws/WMkerT

Asia-Pacific

Dalian Commodity Exchange: Notice On Testing And On-Line Of
jlne.ws/WMkes0

ASEAN Regulators Discuss Regional Cooperation In Islamic Capital Market
jlne.ws/WMkgjI

Frontier Markets

Malawi Stock Exchange Weekly Trading Report
jlne.ws/WMkeIl

MCX Weekly Market Report January 11, 2013 – January 17, 2013
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Dubai Financial Market Closed On Thursday, 24 January 2013 – Market Holiday
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Tel Aviv Stock Exchange Launches New Index – Tel-Bond Yields
jlne.ws/WMkeIn

Miscellaneous

U.S. Treasury: Iran using third-country trading companies to evade sanctions
World Tribune
WASHINGTON — The United States has alerted financial institutions to Iran’s attempts to evade sanctions. The Treasury Department said Iran was using exchange houses and trading companies to acquire revenues through illegal business transactions.
jlne.ws/WMkeIo

Robert Citron, Jailed After Orange County Bankruptcy, Dies at 87
Bloomberg
Robert Citron, a former treasurer of California’s Orange County who spent nine months in prison for his role in what stood for years as the nation’s biggest municipal bankruptcy, has died. He was 87.
jlne.ws/WMkgA0

Thomas Weisel, Banker Behind Armstrong, Says He Was Unaware of Doping
SUSANNE CRAIG – NYTimes.com
The financier Thomas Weisel recently boxed up the bright-yellow cycling jerseys that lined an entire wall of his office, which overlooks San Francisco’s harbor. They were gifts from Lance Armstrong, a longtime friend whom Mr. Weisel had bankrolled through seven Tour de France wins.
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