John Lothian Newsletter: Tokyo, Osaka Bourses Merge as Japan Exchange Group; Collateral clawback fears leave US pension funds unable to clear; Europe, Asia banks join U.S. in swap dealer line-up

Jan 3, 2013

Without fanfare, the stock exchanges in Tokyo and Osaka complete their merger and turn their collective eye toward TOCOM. New FCM-clawback provisions are leaving some pension funds out in the cold as clearing clients, amid fears that collateral posted by funds could disappear in an FCM collapse. Dozens of banks in the US, Europe and Asia sign on as registered U.S. swap dealers

First Read

OneChicago Announces Trading Volume For December 2012
Volume In December Up 142% As Compared To The Same Period In 2011 – Total 2012 Volume Tops 6.3 Million, Up 74% Above Prior Year Levels
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**** Exercise balls for every exchange CEO in the industry.

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2012 Trading Volume Reaches New All-Time High At CBOE Futures Exchange – VIX Futures And Exchange-Wide Volume Double From 2011
Total CFE trading volume in 2012 set a new record with 23.89 million contracts traded, an increase of 98 percent from 12.04 million contracts traded in 2011, the previous annual record. Total 2012 VIX futures volume set a new record with 23.79 million contracts traded, an increase of 98 percent from the 12.03 million contracts traded in 2011, which stood as the previous annual record.
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**** Innovation and marketing is what business is about, Peter Drucker said. CBOE lives it.

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MGEX Reports Continued Volume And Open Interest Growth
December 2012 Exchange volume totaled 76,346 futures and options contracts traded which is an 11.9 percent increase from December 2011. Hard Red Spring Wheat (HRSW) and Apple Juice Concentrate (AJC) futures accounted for 75,458 contracts traded while options accounted for 888 contracts traded. Open interest was reported at 46,394 which is a 7.9 percent increase over a year ago.
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**** MGEX gets the most out of the yeast.

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13 regulatory predictions for ’13
Annette L. Nazareth and Gabriel D. Rosenberg – FT.com
Last year we offered our 12 Regulatory predictions for ’12 with a number of hits and a few misses. We accurately predicted an increase in court challenges to regulatory reform but were wrong in our view that the Consumer Financial Protection Bureau would remain directorless. So with the clear warning that all crystal balls are slightly cloudy, here are our predictions of 13 key regulatory issues for 2013.
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**** Predictions are like regulators…..(fill in the blank).

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Finally, a trading advantage from the Dodd-Frank Act
Daniel Parker – FOW
The Dodd-Frank Wall Street Reform Act (the “DFA”) requires agencies to promulgate hundreds of new rules. With the promulgation of these new rules, which generally require additional or different automation processes, come marketplace opportunities, including trading advantages that are often overlooked by those participants scrambling exclusively for DFA compliance. This obscure rule change could lead to opportunities concerning the lifeblood of trading – data.
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***** The word of the day is “promulgation.”

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Farewell 2012, you will not be missed
William Mitting – FOW
The bull-run was always going to come to an end. After a decade of unimaginable growth on global derivatives exchanges, 2012 saw an abrupt reversal of the trend and the worst recession of volumes in the modern history of the industry.
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***** Such a sour headline. How about, 2012 was a great year because we were alive?

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13 Wall Street voices to ignore (or not) in 2013
David Weidner, MarketWatch
Another year is in the books. It’s time for the annual list of Wall Street voices to ignore for the coming year. There are some repeat appearances for 2013. These are pundits and sages who took a big risk, went out on a limb and fell flat on their faces in 2011 and then did the same thing this last year.
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**** Jim Cramer is a repeater on this list.

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CFTC fines futures brokerage for years of failed supervision
Lynne Marek – Crain’s
Chicago-based R.J. O’Brien & Associates LLC, which calls itself the largest independent futures brokerage in the U.S., agreed to pay a $300,000 fine to settle charges that it failed to properly supervise its employees over four years.
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**** Just for the record, this crime is one of the oldest tricks in the book.

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There’s No Avoiding Google+
AMIR EFRATI – WSJ.com
Google Inc. is challenging Facebook Inc. by using a controversial tactic: requiring people to use the Google+ social network.
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**** I like Google + but I can’t find the like button.

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Deferring Six Figures on Wall Street for Teacher’s Salary
CNBC
In the last several years, hundreds of would-be finance professionals and management consultants have looked to teaching instead, the NYT reports.
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***** A noble, if underpaid, profession.

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Poland seeks probe of Warsaw stock exchange chief
Channel 8 San Diego
Poland’s treasury minister has asked state officials to investigate the suspended head of Warsaw’s Stock Exchange for allegedly abusing his position by trying to secure funds for a movie featuring his girlfriend.
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**** Was her name Rosebud?

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JLN Options

Volatility Plunges, But Math Still Suggests ‘Shock’ is Coming: MKM
By Brendan Conway, Barrons
As stock indexes surge Wednesday, the market’s worry barometers are plunging. And yet for MKM Partners’ derivatives strategist Jim Strugger, the math of stock-market volatility still shows plenty of embedded risk.
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Vix Futures Set New Single-Day Volume Record [December 31, 2012]
The CBOE Futures Exchange, LLC (CFE) announced today that CBOE Volatility Index (VIX index) futures set a new single-day volume record of 212,800 contracts (estimated) today. The new daily record eclipsed the previous single-day record of 190,081 contracts traded on September 13, 2012.
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Cliff Optimism May Be Short-Lived
Steven Russolillo, The Wall Street Journal
While the so-called fiscal cliff has finally been averted, plenty of future budget clashes will likely set the stage for a volatile 2013.
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MarketsWiki

MarketsWiki Page of the Day
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Cindy James; Alan Grigoletto; Rebecca Wing; Ira Bodenstein

Companies, Organizations and Groups

IntercontinentalExchange Inc.

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33,199,211 pages viewed, 7,307 articles, 151,619 edits
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Lead Stories

Tokyo and Osaka Bourses Merge as Japan Exchange Group
WatersTechnology
The Tokyo Stock Exchange (TSE) and Osaka Securities Exchange (OSX) have merged their operations under a new holding company, the Japan Exchange Group.
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Collateral clawback fears leave US pension funds unable to clear
Risk magazine
With nine months until they are expected to start clearing over-the-counter derivatives, corporate pension funds in the US are being rejected as clearing clients amid fears that collateral posted to their futures commission merchant (FCM) could be clawed back in the event of the fund’s bankruptcy.
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Europe, Asia banks join U.S. in swap dealer line-up
Douwe Miedema – Reuters
Asian and European banks registered as U.S. swap dealers this week, joining Wall Street rivals in complying with new rules that aim to shed light on the opaque $650 trillion derivatives market.
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Sweden Cracks Down on Traders Ignoring Bond Rules
Bloomberg
Sweden’s financial watchdog will stop turning a blind eye to traders who have ignored a rule requiring them to report company bond prices as the regulator seeks to improve transparency in a growing market.
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NCDEX to buy NSE’s stake in JV clearing firm
Business Standard
The National Commodity %26 Derivatives Exchange ( NCDEX), India’s second-largest, is set to acquire 65 per cent stake in National Commodity Clearing Limited ( NCCL) from National Stock Exchange, at an enterprise value of about Rs 5 crore.
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Basel Becomes Babel as Conflicting Rules Undermine Safety
Bloomberg
The first Basel agreement on global banking regulation, adopted in 1988, was 30 pages long and relied on simple arithmetic. The latest update, known as Basel III, runs to 509 pages and includes 78 calculus equations.
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Regulatory

French transaction tax favours structured products and swap-based ETFs
Risk.net
With derivatives so far immune to the French Financial Transaction Tax (FTT), which came into force in August, banks and providers are seeing the resulting benefits to sales of swap-based exchange-traded funds (ETFs) and structured products.
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Richard Berner Confirmed As Director Of The Office Of Financial Research
Richard Berner was confirmed by the United States Senate yesterday to serve a six year term as the first Director of the Office of Financial Research (OFR). In this role, Berner will lead the OFR in its mission to support the Financial Stability Oversight Council, its member agencies, and the public by improving the quality, transparency, and accessibility of financial information and by providing analysis of threats to financial stability.
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SEC Asked to Do More to Help Whistleblowers
Forbes
The Securities and Exchange Commission bends over backwards to assist companies it supposedly regulates comply with the law. As I learned as a young attorney with the SEC decades ago, corporations can request from the Commission exemptions, or relief, from the federal securities laws; guidance related to those laws; and even assurance in advance of dicey proposed transactions that the Commission will take “no-action” against them.
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Schadenfreude Alert: SEC Enforcement Chief Khuzami Issues Wounded Reply to Simon Johnson
Naked Capitalism
My, my, SEC head of enforcement Robert Khuzami has revealed himself to be both remarkably thin skinned and not very good at making a case for himself.
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CFTC Announces Real-Time Public Reporting of Swap Transactions and Swap Dealer Registration Began December 31, 2012
The Commodity Futures Trading Commission (CFTC) today announced that both real-time public reporting of swap transactions and swap dealer registration, pursuant to reforms enacted by Congress, began on December 31, 2012.
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CFTC’s Division of Swap Dealer and Intermediary Oversight Issues Further No-Action Relief for Certain U.S. Banks Wholly Owned by Non-U.S. Swap Dealers, for Purposes of Making Calculations Under the Swap Dealer Definition
The Commodity Futures Trading Commission’s (CFTC) Division of Swap Dealer and Intermediary Oversight (DSIO) today issued a no-action letter that provides further relief for certain U.S. banks that are wholly owned by non-U.S. swap dealers.
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Exchanges & Trading Facilities

ICE Reports Record Futures Volume in 2012 on 10% ADV Growth
IntercontinentalExchange, a leading operator of global markets and clearing houses, today reported futures volume for December 2012, the fourth quarter of 2012 and the full year 2012. ICE’s December 2012 and fourth quarter of 2012 average daily volume (ADV) increased 1% and declined 1% compared to December 2011 and the fourth quarter of 2011, respectively. Total contract volume in 2012 reached 847 million contracts, up 10% from 2011. All prior period contract volumes have been adjusted to include the converted futures contracts, which previously traded as swaps in ICE’s OTC markets.
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CBOE Holdings Reports 2012 Consolidated Trading Volume
CBOE Holdings, Inc. reported today that 2012 consolidated trading volume for options contracts on ChicagoBoard Options Exchange and C2 Options Exchange and futures contracts on CBOE Futures Exchange totaled 1.13 billion contracts. Average daily volume in 2012 was 4.54 million contracts, down six percent from 4.83 million contracts traded in 2011.
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Total trading volume at Eurex Group at 2.3 billion contracts in 2012
The international derivatives markets of Eurex Group ended 2012 with a turnover of approximately 2.3 billion contracts, compared with 2.8 billion in 2011. The total volume for 2012 splits into 1.7 billion contracts traded at Eurex Exchange (2011: 2.0 billion) and 631.8 million contracts traded at the International Securities Exchange (ISE) (2011: 778.1 million). This corresponds to a daily average trading volume of 9.0 million contracts (2011: 11.1 million), thereof 6.5 million contracts at Eurex Exchange and 2.5 million contracts at ISE.
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Turnover at Deutsche Börse’s cash markets at 1.16 trillion euros in 2012
Order book turnover on Xetra, the Xetra Frankfurt specialist trading and Tradegate stood at E67.9 billion in December (December 2011: E88.4 billion). Of the E67.9 billion, E62.5 billion were attributable to Xetra (December 2011: E82.7 billion). E3.1 billion were attributable to the Xetra Frankfurt specialist trading (December 2011: E3.8 billion). Order book turnover on Tradegate Exchange* totalled approximately E2.4 billion in December (December 2011: E1.8 billion).
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ISE Reports it is The Largest Equity Options Exchange in December with 18.6% Market Share
The International Securities Exchange (ISE) today reported average daily volume of 2.4 million contracts in December 2012, an increase of 6.1% over December 2011. Total options volume for the month was 47.8 million contracts. ISE was the largest U.S. equity options exchange in December 2012 with market share of 18.6%*.
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BOX Options Exchange Price Improvement Activity for December
In the month of December, price improved contracts on BOX Options Exchange (“BOX”) averaged 199,725 per day. Price improvement versus the prevailing NBBO for contracts submitted via BOX’s price improvement auction, PIP averaged $172,992 per day, while total savings to investors this month were $3.5 MM. With this, BOX has saved investors over $412 MM since its inception in 2004. Overall average daily trading volume on BOX in the month of December was 414,435 contracts.
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The Options Industry Council Announces December Options Volume Down 2% With 2012 Volume Surpassing 4 Billion Contracts
The Options Industry Council (OIC) announced today that 312,528,471 total options contracts were traded in December, which is a 2.43 percent decrease compared to the previous December when 320,324,954 contracts were traded.
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NASDAQ OMX Nordic And Baltic Markets Annual Trading Statistics 2012
The share trading on NASDAQ OMX Nordic decreased by 22.5 % to a daily average of 2.1bn EUR, compared to 2.6bn EUR in 2011.
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December Statistics Report From The NASDAQ OMX Nordic Exchanges
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BME: The Spanish Stock Exchange Traded E698.93 Billion In 2012
The equity trading volume on the Spanish Stock Exchange in 2012 totalled E698.93 billion, down 24% from a year earlier. However the trading volume in December came in at E57.15 billion, up 35% from the previous month and down 3.7% year on year.
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Burgundy Annual Aggregated Market Shares Finnish Equities 2012
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Burgundy Annual Aggregated Market Shares In Swedish Equities 2012
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Burgundy – Aggregated Market Shares – Finnish Equities, December 2012
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Nordic Growth Market NGM AB: December Turnover Exceeds 1.5 Billion SEK (183 Million Euro) At NGM
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Montreal Exchange Launches Competitive Liquidity Incentive Program (CLIP)
Montreal Exchange (MX) announced that it has launched a Competitive Liquidity Incentive Program (CLIP). The groundbreaking program rewards those participants with the highest monthly trading volumes. This program further enhances liquidity on key products represented in the Yield Curve Project.
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NYSE Euronext Welcomes AbbVie to Its European and U.S. Markets
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WFE Focus December 2012 issue and Focus Survey
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[CBOE] Liquidity Provider Transaction Fees Sliding Scale Prepayment Incentive Reminder
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[CBOE] Anti-Money Laundering (“AML”) Compliance Program Annual Requirements for Previous Filers Meeting Certain Conditions
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[CBOE] Anti-Money Laundering (“AML”) Compliance Program
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[CBOE] FOCUS Report (Form X-17A-5) 2012 Year-End Filing Due MARCH 1, 2013
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Hedge Funds & Managed Futures

Ex-Citigroup Prop Trader Joel Salomon to Start Hedge Fund
Bloomberg
Joel Salomon, a former director at Citigroup Inc. , plans to start long-short equity hedge fund SaLaurMor Capital LP this month.
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Gundlach’s DoubleLine Hires TCW’s Stallings, Nazer
Bloomberg
Jeffrey Gundlach, the bond manager who founded DoubleLine Capital LP, has hired two stock fund managers from TCW Group Inc. as his firm expands into equities.
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Insurer sues Paulson firm
The Wall Street Journal
ACA Financial Guaranty sued billionaire hedge fund manager John Paulson’s firm for allegedly inducing the company to insure part of a mortgage-linked investment that soured.
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CVC to acquire data provider Cerved for $1.49bn
The Wall Street Journal
Private equity company CVC Capital Partners said Wednesday that it plans to acquire Italian business-information provider Cerved for E1.13bn ($1.49bn).
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Financial sponsor fees hit Europe low
Paul Hodkinson – Financial News
Europe accounted for 19% fees paid to investment banks by the global private equity industry last year – the lowest share on record, according to Dealogic.
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Byron Wien Announces Predictions for Ten Surprises for 2013
Business Wire via Yahoo! Finance
Byron R. Wien, Vice Chairman, Blackstone Advisory Partners, today issued his list of Surprises for 2013. This is the 28th year Byron has given his views on a number of economic, financial market and political surprises for the coming year.
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Banks & Brokers

JPMorgan Among 65 to Register as Swap Dealers Under Dodd-Frank
Bloomberg
The 65 trading units that have registered include the biggest banks in the U.S., U.K., France , Germany , Switzerland and Japan , according to the Commodity Futures Trading Commission.
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Plaintiff Lawyers in Citigroup Case Seek Big Markup For Outside Attorneys
Forbes
Plaintiff lawyers who negotiated a $590 million settlement of a securities lawsuit against Citigroup are seeking nearly $100 million in fees — including more than $1,000 an hour for outside contract attorneys who likely earned a small fraction of that amount working on the case.
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UBS embraces more modest ambitions
Daniel Schäfer – FT.com
The record $1.5bn fine paid by UBS over Libor manipulation and other regulatory breaches was yet another public relations disaster for Switzerland’s biggest bank. But for Sergio Ermotti, chief executive, it marked a leap forward in his attempt to clean up the lender’s many legacy issues.
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Goldman Sachs to Present at the 2013 Credit Suisse Financial Services Forum
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Clearing & Settlement

OCC Cleared Contract Volume Reached 4 Billion Contracts In 2012
OCC announced today the total cleared contract volume in 2012 reached 4,042,175,801 contracts, a 12 percent decline from the 2011 record volume of 4,600,955,949 contracts. Despite this decline, 2012 marks the second highest year for OCC cleared contract volume to date and the second consecutive year OCC volume has surpassed 4 billion contracts.
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Indexes & Products

According To New Research From ETFGI Assets Invested In ETFs And ETPs Listed In The United States Reach A New Record Of $ 1.35 Trillion At The End Of 2012
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S%26P Dow Jones Indices Announces Changes To The S%26P/TSX Canadian Indices – An Addition To The S%26P/TSX Capped REIT Index
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Dow Jones Industrial Average – 2012 Year In Review
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S%26P Dow Jones Indices Announces Changes to the S%26P/TSX Canadian Indices
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Technology

New York Trading Technologists Unite to Create Tradepoint Systems
Today, three trading technology colleagues join forces to co-found Tradepoint Systems, LLC. All three were previously partners of a financial services software provider whose assets were acquired by a global media and finance giant in early 2010. Tradepoint Systems will provide consulting and software development services in the areas of liquidity aggregation, multi-asset execution management, high-frequency algorithmic trading, and automated testing of FIX-based trading systems.
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Numerix Strengthens Valuation Framework with Core Functionality for Structured Products Valuations
Numerix announces new functionality for multi-curve modeling now available in Numerix’s trade capture application – Portfolio, the powerful front and middle office application for pricing, managing risk and hedging of structured products.
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Enforcement

Chicago-Based R.J. O’Brien %26 Associates, LLC Sanctioned $300,000 for Supervision Violations
The U.S. Commodity Futures Trading Commission (CFTC) today issued an order filing and settling charges against R.J. O’Brien %26 Associates, LLC (RJO), of Chicago, Ill., a registered Futures Commission Merchant, for failing to diligently supervise its employees in connection with the handling of commodity futures orders of a Guaranteed Introducing Broker (GIB) of RJO and the GIB’s Associated Person (AP), sole principal, and owner.
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Environmental & Energy

Carbon Trading on 2013 Energy-Law Agenda
Wall Street Journal
In Monday’s Wall Street Journal, we wrote about the big greenhouse-gas debate coming up in 2013 over Environmental Protection Agency plans to restrict emissions from coal-fired power plants.
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**RKB — Blog entry shows shift among EPA counsel that’s similar to political shift on carbon trading.

Environmental cap-and-trade regulations in force
Montreal Gazette
On Tuesday, Jan. 1, Quebec and California became the first jurisdictions in North America to enforce compulsory cap-and-trade regulations to reduce greenhouse gas emissions.
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**RKB — Everyone’s watching. Linkage between the two slated for Q2 or Q3 say exchange officials.

California starts new carbon emissions cutting programme
BBC
A new system for cutting carbon emissions starts in California on new year’s day 2013. Hundreds of the biggest polluters will be forced to reduce their emissions every year or buy expensive carbon credits, as California aims to reduce its emissions to 1990 levels by 2020.
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Asia-Pacific

Hong Kong’s Securities And Futures Commission: Former Morgan Stanley Banker Du Jun Withdraws Application For Leave To Appeal
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Frontier Markets

Global banks rethink Middle East model as deals slump
Reuters via Yahoo! News
DUBAI – When U.S. banking giant Citigroup Inc moved one of its top bankers, Alberto Verme, to Dubai in 2008, it was a sign of international banks’ ambitions to tap economic growth in the oil-rich region.
jlne.ws/RuEP78

Emea lending falls by a third
Matthew Attwood – Financial News
Syndicated lending in Europe, the Middle East and Africa fell by almost a third in 2012, with full-year figures from Thomson Reuters highlighting the extent to which companies turned to the capital markets to diversify their funding needs.
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Launching QE Al Rayan Islamic Index On January 7th 2013
Qatar Exchange and Al Rayan Investment today announced the launch of the QE Al Rayan Islamic index. Set to debut on January 7, 2013 the index is based on QE listed stocks of minimum free float size and liquidity that are Shari’a compliant according to Al Rayan’s Shari’a Supervisory Board.
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Malawi Stock Exchange Annual Market Performance Report 2012
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