John Lothian Newsletter: MF Global Commodity Customers Must Be Paid First, CFTC Says; SEC Charges Fund Managers and Analysts in Insider Trading Scheme; IMF requests $500bn for bail-out loans

Jan 19, 2012

The CFTC says that MF Global’s trustee has made rookie errors about bankruptcy payouts, and that the ex-brokerage’s customers are first in line for payback.  The SEC continues its insider-trading cleanup program by arresting fund managers and analysts, and leveling new charges in some cases at the firms themselves.  The IMF, looking over the European crisis, asks for more capital in order to weather rough financial seas ahead.

Observations – Statistics – Commentary

Why the Internet is Going on Strike
By Jeff Bergstrom
As a media company dedicated to the financial sector, John J. Lothian & Company would not ordinarily comment on proposed legislation unrelated to the financial industry.  However, as a media company and one that is a particular fan of the First Amendment, we feel this issue is of import not only to us but to all our readers, as the potential effects of this proposed legislation will easily reach into all our lives and businesses.

On January 18, a number of websites including Wikipedia, Reddit and BoingBoing will be going “dark” in protest of the Stop Online Piracy Act (SOPA) and Protect IP Act (PIPA) currently being considered in congress (House and Senate respectively and largely the same with some minor differences).

The legislation, on the face of it, seems reasonable.  These bills are meant to give copyright holders a means to thwart those who would steal their work via the internet.  There is no difference, in character, from downloading an album illegally and walking into a store and shoplifting that same album.

When one looks more closely, however, one can see that this legislation is deeply flawed.

Read the rest of the article at


Futures industry self-regulatory organizations form joint committee to address customer segregation issues
Press Release
January 18, Chicago – CME Group and National Futures Association (NFA) today announced, in conjunction with the InterContinental Exchange (ICE), the Kansas City Board of Trade (KCBOT) and the Minneapolis Grain Exchange (MGEX), the formation of a joint committee to review how self-regulatory organizations can strengthen current safeguards for customer segregated funds held at the firm level in light of the MF Global bankruptcy.

This coordinated effort by all of the futures industry self-regulatory organizations (SROs) will examine what changes can be made to rules or to the ways firms demonstrate compliance with those rules to prevent customer losses due to the insolvency of a futures commission merchant (FCM).

**** Stay tuned.


CME, National Futures Association To Weigh Futures Market Reforms
CME Group Inc. (CME) and the National Futures Association on Wednesday stepped up their defense of the U.S. futures industry’s system of self-regulation, forming a joint committee to explore new methods for protecting customers following the collapse of MF Global Holdings (MFGLQ).

**** For more on this subject.


Price Holdings, Inc. is Pleased to Announce that Ron Mark Has Been Named Director of Risk and Business Development
Press Release
CHICAGO, Jan. 18, 2012 /PRNewswire/ — In this role, Ron will work directly with senior managers to assess The PRICE Futures Group’s daily risk exposure to develop new business ventures and the marketing of internal commodity related products.

**** Congratulations to my long time Price Group colleague Ron Mark on his new position.


In MF Global, JPMorgan again at center of a financial failure
By Carrick Mollenkamp, Lauren Tara LaCapra and Matthew Goldstein – Reuters
(Reuters) – In late October, as MF Global Holdings Ltd teetered toward bankruptcy, Jon Corzine phoned his close-knit circle of Wall Street friends for help. His firm, facing demands from customers and other firms for cash, needed to sell billions of dollars in securities to raise the money. As the week progressed, MF Global executives came to believe that JPMorgan Chase & Co., one of MF Global’s primary bankers and a middleman moving that cash, was dragging its feet in forwarding the funds.

*** This story is getting a lot of buzz.  These reporters are digging and clawing deeper and deeper into the story.


OptionsCity Software appoints Margaret Wiermanski as Chief Operating Officer
Press Release
Chicago – OptionsCity Software, Inc, a provider of end-to-end electronic trading software, has named Margaret Wiermanski as the company’s Chief Operating Officer.


Orc Group: Year-end report January 1 – December 31, 2011
Press Release
Strong position in a challenging market
The drop in revenue for technology operations during 2011 compared to the prior year is mainly explained by the Swedish krona’s strengthening against the US dollar and the euro. Neonet is a disappointment, above all due to shrinking market volumes.


Fidessa Intelligence Initiative To Deliver Powerful Real-Time Trading And Pre-/Post-Trade Analysis Tools
Press Release
Fidessa group plc, provider of high-performance trading, investment management and information solutions for the world’s financial community, has today announced the launch of Fidessa Intelligence.


Latest Issue of InsideAdvantage from Advantage Futures – Winter 2012
From the Inside – A note from Advantage Futures CEO Joe Guinan
CME Group Brent Crude Contracts
Outlook 2012: Global Markets
Advantage Futures Seminar Series
Navigating Exchange Memberships and Incentive Programs
Upcoming Events


Quick View: The DB-NYSE dilemma
By Jeremy Grant – Financial Times
Three speeches in 24 hours have exposed the dilemma that faces the EU’s college of commissioners as they figure out whether to allow or block the Deutsche BörseNYSE Euronext deal.


LSE in Italian trading switch
By Jeremy Grant – Financial Times
The London Stock Exchange plans to shift the trading system used for trading Italian stocks back to Milan as part of the roll out of new trading technology across the LSE group, which has included Borsa Italiana since it was acquired in 2007.


Is trading dead?
CNN Money
It’s been eerily quiet on stock trading desks around Wall Street and across the United States. In fact, it’s been the slowest and lowest volume start to the year since 2007.

**** It is only nearly dead.


Carlyle Readies an Unfriendly I.P.O. for Shareholders
It is quite possible that the Carlyle Group, the private equity firm that is preparing to go public, is proposing the most shareholder-unfriendly corporate governance structure in modern history.


Leaders who generate diminishing returns
By Philip Stephens – Financial Times
For a fleeting moment after the collapse of Lehman Brothers it seemed the politicians were masters again. Leaders of rich and rising nations sidestepped their differences to avert a global economic slump. The Group of 20 issued ringing declarations promising a new political architecture for the international financial system. Wall Street and the City of London were unceremoniously toppled from their gilded pedestals.


JLN Options Newsletter

SEC Clears Way For NYSE, Deutsche Boerse To Merge 
The U.S. Securities and Exchange Commission on Wednesday approved the proposed merger of NYSE Euronext (NYX) and Deutsche Boerse AG (DB1.XE, DBOEF), while leaving room for the European Union to have final say on the deal.

Europe Leans Toward Blocking NYSE-Deutsche Borse Merger
By JAMES KANTER, The New York Times
The European Union’s competition commissioner, Joaquín Almunia, won support on Tuesday from European government representatives on an advisory panel in his effort to block a merger between NYSE Euronext and Deutsche Börse, a move that is one of the last stages before a formal decision on the deal is made early next month.

EU’s Almunia Pledges to Spur Competition as DB-NYSE Veto Looms
By Aoife White and Nandini Sukumar, Bloomberg
Europe’s top antitrust regulator pledged to use “all available instruments” to spur competition in the region as he prepares to block the merger of Deutsche Boerse AG and NYSE Euronext.


MarketsWiki Page of the Day
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Companies, Organizations and Groups

Minneapolis Grain Exchange, Inc.Kansas City Board of TradeCME Group, Inc.National Futures AssociationIntercontinentalExchange Inc.MF Global Holdings LtdCBOE Holdings Inc.Chicago Board Options ExchangeSecurity Traders Association of Chicago (STAC)Direct EdgeIM TrustCapstone Holdings Group, LLC


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Lead Stories

MF Global Commodity Customers Must Be Paid First, CFTC Says
By Linda Sandler – Bloomberg
Jan. 18 (Bloomberg) — MF Global Inc. commodity customers must be paid before all other claimants, including the bankrupt parent company, according to the Commodity Futures Trading Commission. Court papers by the trustee for MF Global Holdings Ltd., Louis Freeh, contain “errors and misstatements of law” in arguing that commodity laws, which require that customers be “made whole” first, don’t apply to brokerage liquidations, the regulator said in a court filing today.

SEC Charges Fund Managers and Analysts in Insider Trading Scheme
Hedge Fund Firms Diamondback Capital and Level Global Also Charged
Press Release
Washington, D.C., Jan. 18, 2012 – The Securities and Exchange Commission today charged two multi-billion dollar hedge fund advisory firms as well as seven fund managers and analysts involved in a $78 million insider trading scheme based on nonpublic information about Dell’s quarterly earnings and other similar inside information about Nvidia Corporation.

IMF requests $500bn for bail-out loans
By Alan Beattie in Washington and Peter Spiegel in Brussels – Financial Times
The International Monetary Fund has asked its member countries for an extra $500bn in firepower to combat the world’s spreading fiscal emergencies, which it estimates will generate demand for bail-out loans totalling $1tn over the next two years.

Franc Test Looms for Jordan in Race to Replace Hildebrand
Thomas Jordan’s first test as interim president of Switzerland’s central bank will be to prove he can defend the four-month old cap on the franc as well as its chief architect did.

Eastern Europe May Need Funding Deal to Avert Credit Drought
Eastern Europe may require funds from the International Monetary Fund and other international lenders to pre-empt a banking crisis and a shortage of credit in the region’s economies as western banks pare assets.

Hedge Funds May Sue Greece if It Tries to Force Loss
LONDON — Hedge funds have been known to use hardball tactics to make money. Now they have come up with a new one: suing Greece in a human rights court to make good on its bond payments.

Fed seeks to allay Volcker rule concerns
By Shahien Nasiripour in Washington – Financial Times
The US Federal Reserve has sought to allay lawmakers’ fears of mass job losses and reduced market liquidity as a result of a proposed rule aimed at banning banks from trading for their own account.

New Chief of S&P Defends Its Moves
Doug Peterson, the new president of Standard & Poor’s Ratings Services, defended the firm’s downgrades of U.S. and European sovereign bonds, rebuffing criticism the ratings company had become more aggressive following the financial crisis.

New Laws Possible In Wake of MF Global’s Demise
Lawmakers are considering new policies aimed at preventing a repeat of the MF Global debacle, in which the futures brokerage firm misused an estimated $1.2 billion in customer money as it collapsed.

Environmental Trading News

Keystone XL pipeline: Obama rejects controversial project
Barack Obama rejected the controversial Keystone tar sands pipeline on Wednesday, making good on a promise not to give in to a Republican ultimatum on the project.

Merriman Capital Announces Sponsorship of Carbon Energy Limited on OTCQX
Press Release
Merriman Capital, Inc., a wholly owned subsidiary of Merriman Holdings, Inc., today announced that it will serve as the new Principal American Liaison (PAL) for Carbon Energy Limited, sponsoring the Company’s American Depositary Receipts (ADRs) on OTCQX.

Tougher 30% emissions cut would be cheaper than expected: report
Moving to a tougher Europe-wide target on greenhouse gas emissions would present the UK with little problem, contrary to what some business lobbyists and thinktanks have been alleging, according to a new analysis of the goals seen by the Guardian.

For more environmental trading news, subscribe to the Environmental Markets version of the John Lothian Newsletter edited by Jim Kharouf. 
Visit to subscribe.

Exchange & ECN News

SEC Clears Way For NYSE, Deutsche Boerse To Merge 
The U.S. Securities and Exchange Commission on Wednesday approved the proposed merger of NYSE Euronext (NYX) and Deutsche Boerse AG (DB1.XE, DBOEF), while leaving room for the European Union to have final say on the deal.

EU’s Almunia Pledges to Spur Competition as DB-NYSE Veto Looms
Europe’s top antitrust regulator pledged to use “all available instruments” to spur competition in the region as he prepares to block the merger of Deutsche Boerse AG and NYSE Euronext.

UK wants no “interference” in megabourse ruling
Reuters via Yahoo! News
LONDON (Reuters) – Britain urged European Union competition officials on Wednesday to reject “political interference” and “vested interests” when ruling on plans to create the world’s biggest exchange operator.

US Exchanges Seek To Extend ‘Flash Crash’ Fixes Until July 31
U.S. stock exchanges aim to extend a system of cushions against rapid price swings until the end of July, while regulators and market operators develop a more sophisticated replacement.

Warehousing problem hangs over LME
By Jack Farchy – Financial Times
“Too little, too late” was the verdict in June from Novelis, the world’s top buyer of aluminium metal, on the London Metal Exchange’s decision to change its rules in response to the uproar among traders over long queues to take metal out of its warehouses.

European Buy-Side Traders Call For Standards Supporting The Quality Of Liquidity Across Lit Venues, TABB Says – Electronic Trading In Europe To Reach 45% Of Average Daily Value Traded By Traditional Asset Managers In 2012, Up From 38% In 2010
Press Release

Clearstream and Strate explore collateral management cooperation for South Africa
Press Release
On 18 January 2012, Clearstream and Strate, the South African central securities depository, signed a Letter of Intent (LOI) aimed at exploring a new triparty collateral management service for South Africa. The service intents to target the collateralisation of exposures in the South African market. Under the LOI, Strate will look to utilise Clearstream’s collateral management infrastructure, the Global Liquidity Hub, for the allocation, optimisation and substitution of local collateral.

Press Release
KANSAS CITY, Mo. and ST. LOUIS – January 18, 2012 – BATS Global Markets (BATS), a global operator of stock and options markets, and Savvis, a CenturyLink (NYSE: CTL) company and an outsourcing provider of managed computing and network infrastructure for IT applications, today announced that BATS will use Savvis’ Chicago CH4 data center as its secondary data center facility for all three of its U.S. markets.

EEX to launch OTC Clearing for NBP Gas Futures on 29 February
Press Release
The European Energy Exchange AG (EEX) will expand its product portfolio and offer clearing for bilaterally concluded transactions on the National Balancing Point (NBP) from 29 February 2012.

Birgit Kuras – New Member Of The Management Board Of Wiener Boerse AG
Press Release

New Zealand’s Financial Markets Authority And Serious Fraud Office Sign Memorandum Of Understanding
Press Release

NASDAQ OMX Helsinki Disciplinary Committee Imposed A Warning And A Fine Of EUR 20,000 To Tectia Corporation For Breaching The Rules Of The Stock Exchange
Press Release

SIX Exchange Regulation: Investigation Against Dufry Ltd
Press Release

London Stock Exchange Group Welcomes Italian Prime Minister, Mario Monti
Press Release

[CBOE] Restrictions on Transactions in Trident Microsystems, Inc. (“TRID”)

TMX Group Top 20 Largest – Consolidated Short Position Report – Highlights – January 15, 2011

RTS Exchange: Results Of Russian Federation Government Bonds Auction
Press Release

Banks, Brokers & Dark Pools

US custodian banks hit by shift into cash
By Telis Demos and Dan McCrum in New York – Financial Times
Global custodian banks have adopted a defensive position as fund managers and large institutions shift into cash and ultra-safe assets, putting pressure on the banks’ ability to generate income.

Obama Said to Consider Nominating Summers as World Bank Chief
President Barack Obama may put his mark on the World Bank by nominating Lawrence Summers, his former National Economic Council director, to lead the bank when Robert Zoellick’s term expires later this year, according to two people familiar with the matter.

Morgan Stanley Says Strategist Caron Succeeded by Mutkin
Morgan Stanley said James Caron, head of U.S. interest-rate strategy, has left the primary dealer and his responsibilities will be assumed by Laurence Mutkin.

DealBook: Goldman’s Profit Falls but Tops Estimates
New York Times
Goldman Sachs’s chief financial officer says his firm cannot cut its way to prosperity. That may be, but Goldman has been busy slashing costs from compensation to car services to deliver a profit.

The cutting kind
New York Post
Goldman CEO Lloyd Blankfein may not want to cut his way to prosperity – but scissors do appear to be the most effective tool he has at his disposal right now.

RBS Says Former Trader in Singapore Sought to Manipulate Libor for Profits
Royal Bank of Scotland Group Plc said it did nothing wrong when it fired a former Singapore trader because he sought to manipulate London interbank offered rates to boost his own profits.

Deutsche Bank Said to Cut 30 Jobs at Japan Global Markets
Deutsche Bank AG is eliminating about 30 jobs from its global markets division in Tokyo, the second round of redundancies in less than two months, two people with knowledge of the matter said.

Commerzbank outlines plans to raise E6.3bn
By James Wilson in Frankfurt – Financial Times
Commerzbank has revealed its plans to strengthen its capital through its own efforts and without state aid, saying it can surpass the demands set by European regulators.

Goldman Sachs Reports 2011 Earnings Per Common Share of $4.51; Fourth Quarter Earnings Per Common Share were $1.84.
Press Release

Schwab Reports Fourth Quarter and Full Year Results
Business Wire via Yahoo! Finance

Regulatory News

The SEC News Digest
The SEC News Digest provides daily information on recent Commission actions, including enforcement proceedings, rule filings, policy statements, and upcoming Commission meetings.

Regulators eye Volcker Rule impact on foreign debt
Market Watch
Regulators are looking at whether to extend an exemption to the Volcker Rule in the area of proprietary trading in foreign government bonds.

Fed: Volcker rule complicates market liquidity
Market Watch
WASHINGTON (MarketWatch) -A top Federal Reserve official on Wednesday acknowledged that the distinction between prohibited profit-making speculative proprietary trading and permissible market-making, liquidity-injecting trades can be difficult to draw, all of which complicates the implementation of the Volcker Rule.

SEC Obtains Emergency Relief Against St. Louis-Based Private Investment Funds after Charging Them and Their Principal with Fraud
Press Release
Washington, D.C., Jan. 18, 2012 — The Securities and Exchange Commission today announced that it has obtained an emergency court order to freeze the assets of St. Louis-based private investment funds and management firms after suing them and their principal for a scheme to defraud investors.

SEC Charges Florida Bank Holding Company and CEO with Misleading Investors about Loan Risks During Financial Crisis
Press Release
Washington, D.C., Jan. 18, 2012 — The Securities and Exchange Commission today charged the holding company for one of Florida’s largest banks and its top executive with misleading investors about growing problems in one of its significant loan portfolios early in the financial crisis.

FINRA Fines Citigroup Global Markets $725,000 for Failure to Disclose Conflicts of Interest in Research Reports
Press Release
WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Citigroup Global Markets, Inc. $725,000 for failing to disclose certain conflicts of interest in its research reports and research analysts’ public appearances.

FSA imposes £2.17 million fine for failure by Direct Line and Churchill to conduct their businesses with due skill, care and diligence
Press Release
The Financial Services Authority (FSA) has imposed a fine of £2,170,000 for failings by Direct Line Insurance Plc (Direct Line) and Churchill Insurance Company Limited (Churchill) to prevent files that the FSA had requested from being improperly altered.

SIFMA Calls For Significant Changes To Current Volcker Rule Proposal At Congressional Hearing
Press Release

Testimony By Federal Reserve Board Governor Daniel K. Tarullo On The Volcker Rule
Press Release

Testimony On “Examining The Impact Of The Volcker Rule On Markets, Businesses, Investors And Job Creation” By SEC Chairman Mary L. Schapiro
Press Release

Testimony Before The U.S. House Financial Services Subcommittees On Financial Institutions & Consumer Credit And Capital Markets & Government Sponsored Enterprises, Washington, DC, CFTC Chairman Gary Gensler
Press Release

Investments – Indexes – Managed Futures – Managed Funds

Analyst’s arrest puts Cohen’s SAC in spotlight again
Reuters via Yahoo! News
(Reuters) – Hedge fund titan Steven A. Cohen is once again in the spotlight over allegations of improper trading at his $14 billion SAC Capital Advisors. The arrest on Wednesday of technology analyst Jon Horvath marks the fourth time in two years that U.S. authorities have implicated or charged a person with engaging in insider trading while working at SAC Capital. It is the latest to come from …

Hedge Fund Employees Said to Be in Custody in Insider Probe
Two hedge fund employees are in custody in the U.S. probe of insider trading that has already snagged Galleon Group LLC co-founder Raj Rajaratnam, according to a person familiar with the matter.

Hedge Fund Manager Arrested In Needham In $61 Million Stock Fraud Case
CBS Boston
A hedge fund manager arrested in Needham Wednesday is one of seven people charged in a record-setting insider trading scheme that netted more than $61.8 million in illegal profits.

First senior exit at Glencore since IPO
By Javier Blas, Commodities Editor – Financial Times
Glencore, the world’s largest commodities trading house, is to lose Steven Blumgart, one of its most senior executives, in the first significant departure since its multibillion-pound initial public offering last year.

State pension chief wants to double down on investment strategy
Miami Herald
The head of Florida’s $120 billion pension fund wants authority to make “alternative investments” in the future.

Man Group’s Funds Decline
New York Times
Man Group, the world’s largest publicly traded hedge fund, said on Wednesday that its funds under management fell 9.5 percent in the final three months of 2011, as investors withdrew money in response to volatility in financial markets.

EDHEC: Mixed Month For Hedge Funds Caps Unsteady Year
Press Release

Ram Investment Advisors, LLC’s Absolute Return Governance Fund Seed Account Launches on the AlphaMetrix Global Marketplace
Press Release

Technology News

NYSE Technologies Completes Toronto Liquidity Center
Press Release
New York, NY – Jan. 18, 2012 — NYSE Technologies, the commercial technology division of NYSE Euronext, today announced the opening of its latest Liquidity Center installation in Toronto, ON Canada.

Media News

With Twitter, Blackouts and Demonstrations, Web Flexes Its Muscle
The Web buzzed with protests large and small on Wednesday as the tech industry rallied against Congressional legislation to curb Internet piracy.

Google says 4.5 million people signed anti-SOPA petition
Deborah Netburn – Los Angeles Times
When Google speaks, the world listens. And today, when Google asked its users to sign a petition protesting two anti-piracy laws circulating in Congress, millions responded.

Reports Economic Calendar

USDA Today

CBOE Events Calendar

Economic Release Calendar
The Economic Release Calendar (PDF) is a schedule of government, academic and industry economic releases, provided as a service to CME customers.

Asia-Pacific News

Chinese Officials Said to Weigh Easing Constraints on Banks
China is allowing the nation’s five biggest banks to increase first-quarter lending and weighing a plan to relax capital requirements as economic growth cools.

Are Japanese Stock Brokers Impoverishing Their Clients?
My sense is that there is little joy in Japanese securities companies in the best of times. These may be the worst of times. It must be miserable.

Thai Bourse Announces 2012 Plan To Match Right Financial Opportunities
Press Release

Presentation By HKEx Chief Executive Charles Li At Annual Media Luncheon
Press Release

Tokyo Commodity Exchange: Important Notice For Customers Dealing In Nikkei-TOCOM Commodity Index Futures
Press Release

HKEx Market Statistics 2011
Press Release

Dalian Commodity Exchange: Adjustment Of Trading Margins And Price Limits During The 2012 Spring Festival Period
Press Release

Newly Listed Contracts At The Dalian Commodity Exchange.
Press Release

HKFE Announces Margin Rates for Adjusted Swire Pacific A Futures
Press Release

Frontier Markets

Dubai Mercantile Exchange Grows Trading Volumes By 19% In 2011
Press Release

DME 2011 – The Year In Review
Press Release

Saudi Stock Exchange (Tadawul) Confirms Systems And Operations Continue Normally
Press Release

ADX Denies Hacking Claims
Press Release
Abu Dhabi Securities Exchange denies the rumors that its website was hacked, as claimed by some media outlets.

Miscellaneous News

How to Save Capitalism
Time Magazine
As the global economic ­crisis enters its fourth excruciating year, just about everybody who can be blamed for the downturn has been blamed. Irresponsible bankers. Greedy corporate executives. Incompetent regulators. Bickering politicians. Underpaid Chinese workers. Overpaid Greek workers. George W. Bush. Ben Bernanke. Angela Merkel. Credit-rating agencies. The euro.

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