John Lothian Newsletter: London Quant Funds Report Second Year of Losses; BNY Mellon wins Europe depository backing; Asking Hedge Funds to Turn Themselves In

Jan 8, 2013

London-based hedge funds using computer algorithms for trend-based trading finished in the red for the second year in a row. BNY Mellon bank gets approval to start a central securities depository in Europe, to fill clearing needs prompted by new regulation. Regulators are considering creating rules that require hedge funds to report any wrongdoing in which they might be engaged; hedge fund operators are expected to resist this idea. In today’s First Read, take a look at the fifth installment of JLN’s Restoring Customer Confidence series; John Roe, co-founder of the Commodity Customer Coalition and principal at BTR Trading, discusses the use of a transaction-supported insurance or customer protection fund.

First Read

New Restoring Customer Confidence Video
After a brief holiday hiatus, we present the fifth video in our Restoring Customer Confidence series. This video deals with customer protection funds. 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»
Protection Fund: Building a Better Piggy Bank - John Roe

Protection Fund: Building a Better Piggy Bank
MarketsWiki.tv

Is there any protection for my futures account? That is the key question for futures customers today and quite likely, the answer is “no” or “not much.” While dialog and debate ranges on the type of customer protection fund or insurance that might or might not work, John Roe, co-founder of the Commodity Customer Coalition and principal at BTR Trading, says it is essential to restore customer confidence.

In this video, a simple animation and interview with Roe explain how protection for futures customers can be established with a small fund that ultimately will grow over time using a small trading fee. And, in the case of a default, it would replace customer funds before they were tied up in bankruptcy court.

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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SEC Names Ex-CFTC Enforcement Chief Aronow General Counsel
Dave Michaels – Bloomberg
The U.S. Securities and Exchange Commission today named Geoffrey F. Aronow, a former enforcement chief at the Commodity Futures Trading Commission, to be its top in-house lawyer.
jlne.ws/VQ8epS

***** At least he had some good practice.

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How the sale of the New York Stock Exchange affects CME’s future
Lynne Marek – Crain’s
CME Group Inc. faces a new competitive reality in the wake of IntercontinentalExchange Inc.’s plan to buy NYSE Euronext—one that ratchets up the pressure to be more aggressive in expanding both in the U.S. and abroad.
jlne.ws/TXt73M

*****Despite the dawning of the ICE age, there is still no snow in Chicago.

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CBOE to Offer New Customized Option Pricing Service Through Market Data Express
Chicago Board Options Exchange, Incorporated (CBOE) announced today that its affiliate Market Data Express, LLC (MDX) plans to launch the CBOE Customized Option Pricing Service (COPS) on Monday, January 14. The new data service, which employs the market-making expertise of CBOE’s liquidity-providing community, offers subscribers end-of-day indicative valuations for “customized” options such as FLexible EXchange (FLEX) options and certain over-the-counter (OTC) options.
jlne.ws/VG5v5j

**** With COPs on the beat, who would not want to trade.

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Optionshop, the New Online Futures Broker Specializing in Options on Futures, Opens Doors for Traders and Investors
Optionshop, a new online futures broker specializing in options on futures, today began accepting new accounts. Optionshop was founded on the belief that futures options have the potential to give traders a better way to gain exposure to commodity markets than through straight futures, commodity ETFs or resource company stocks. Its online brokerage tools and services aim to make trading futures options, traditionally a complicated and inefficient process, as simple as trading equity options.
jlne.ws/UCY2SL

***** This is the most interesting new brokerage firm I have seen in a long time.

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Remembering the father of low-volatility investing
MarketWatch
Bob Haugen was an enfant terrible of the Ivory Tower, a rebel economist with a cause. For almost half a century, Haugen made it his mission to tell investors that a bedrock belief of investing is wrong: Greater risk does not necessarily equal greater reward. The most lucrative stocks to own, he said, are the boring, neglected companies that make money but not headlines.
jlne.ws/RDOGrg

***** What is risk? Do we really know what is risk?

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Peregrine Scion Aims to Clean the Slate
JACOB BUNGE – Dow Jones
Six months after Peregrine Financial Group Inc. collapsed in scandal, the son of its disgraced founder is struggling to move forward. Russell Wasendorf Jr., who worked under his now-jailed father at Peregrine for 22 years, is fighting a lawsuit from a group of the firm’s former clients, who say he missed signs of wrongdoing. At the same time, the 42-year-old is trying to figure out his own next move.
jlne.ws/VQ8chJ

***** This is one of those things where the slate may look clean, but there is a lingering odor. Ask some of the Refco people.

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Secret Goldman Team Sidesteps Volcker After Blankfein Vow
Bloomberg
Sitting onstage in Washington ’s Ronald Reagan Building in July, Lloyd C. Blankfein said Goldman Sachs Group Inc. had stopped using its own money to make bets on the bank’s behalf.
jlne.ws/VQ8fKp

***** The conspiracy buffs are going to love this.

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The murky world of derivatives pricing
Galen Stops – FOW
Despite regulators the world over attempting to reduce the number of opaque OTC contracts traded in favour of more transparent and standardised ones, the increasingly complexity of the regulatory requirements are being reflected in derivatives pricing.
jlne.ws/VQ8eGc

***** What is transparency anyway?

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Rescued by a Bailout, A.I.G. May Sue Its Savior
BEN PROTESS and MICHAEL J. DE LA MERCED – NYTimes.com
Fresh from paying back a $182 billion bailout, the American International Group has been running a nationwide advertising campaign with the tagline “Thank you America.” Behind the scenes, the restored insurance company is weighing whether to tell the government agencies that rescued it during the financial crisis: thanks, but you cheated our shareholders.
jlne.ws/VQ8chR

***** They are suing Jesus?

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‘Joke’ Solution to Debt Clash Gets Serious Study
ERIC MORATH – WSJ
What if Washington’s next debt clash, widely expected to be as bitter as the “fiscal cliff” fight, could be resolved with the minting of a $1 trillion coin? That is the idea being pushed by a handful of policy wonks and columnists, and it has caught the attention of lawmakers even though it is an unlikely solution.
jlne.ws/VQ8eGe

***** STOP THE MADNESS!!!!!

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MarketsWiki

MarketsWiki Page of the Day
Romnesh Lamba
jlne.ws/118S2Xk

MarketsWiki Recent Updates

People

Catie Lee; Mike Persico; James A. Forese; Manuel Medina-Mora; Gerald Greiner; Romnesh Lamba; Mark P. Wetjen; Scot E. Warren; Martin Abbott; Shawn Bernardo

Companies, Organizations and Groups

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Miscellaneous

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Statistics

33,382,730 pages viewed, 7,314 articles, 151,837 edits
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Lead Stories

London Quantitative Hedge Funds Report Second Year of Losses
Jesse Westbrook & Chris Larson – Bloomberg
Hedge funds that use computers to follow trends lost money for a second straight year in 2012 as political debates over the U.S. fiscal cliff and Europe’s sovereign-debt crisis roiled markets.
jlne.ws/VQ8cy9

BNY Mellon wins Europe depository backing
Philip Stafford – FT.com
BNY Mellon has received approval in Europe to launch a central securities depository (CSD) as the regulatory push to safeguard all aspects of the trading cycle reaches into securities settlement.
jlne.ws/VQ8cya

DealBook: Asking Hedge Funds to Turn Themselves In
New York Times
The government is weighing whether to require hedge funds to report any suspicious transactions, like insider information or manipulation of stock prices, a move hedge funds are likely to resist.
jlne.ws/VQ8cye

Euribor Facing Bank Exodus After Rabobank’s Departure, EBF Says
Katie Linsell – Bloomberg
Euribor, the base rate for trillions of euros of lending, may face an exodus of contributors after Rabobank Groep’s departure, according to the banking lobby that administers the scandal-hit benchmark.
jlne.ws/VQ8cyk

Central Bank Chiefs Agree to Delay Liquidity Rule
Bloomberg
Global central bank chiefs agreed to water down and delay a planned bank liquidity rule to counter warnings that the proposal would strangle lending and stifle the economic recovery.
jlne.ws/VQ8cyl

Banks, regulators reach mortgage settlements
Los Angeles Times
In two of the biggest civil settlements since the financial crisis, the nation’s biggest banks agreed Monday to cough up nearly $19 billion to resolve federal allegations of mortgage misdeeds.
jlne.ws/VQ8cOC

Federal regulators prepare new mortgage rules while cleaning up faulty foreclosure issues
Chicago Tribune
Six years after the housing bubble burst, federal regulators are trying to restore confidence in the nation’s mortgage industry while continuing to remedy past ills.
jlne.ws/VQ8eGs

Japan Set to Announce Large Stimulus to Jump-Start Economy
ALEXANDER MARTIN AND TOKO SEKIGUCHI – WSJ.com
The Japanese government said Tuesday it would draft a package of emergency economic measures by Friday, offering a shot in the arm to the nation’s long-stagnant economy that is feebly emerging from its latest downturn.
jlne.ws/VQ8eGt

EU jobless total at fresh dire record
Michael Steen in Frankfurt – FT.com
Eurozone unemployment hit a fresh record of 11.8 per cent in November, official statistics showed on Tuesday, highlighting the dire state of the bloc’s economy in spite of hopes for a gradual recovery this year.
jlne.ws/VQ8cOF

Regulatory

DealBook: Easing of Rules for Banks Acknowledges Reality
New York Times
Less stringent capital and liquidity requirements for banks for the world’s banks will help bolster the global economic recovery, which is needed most right now.
jlne.ws/VQ8eWJ

‘Fintech’ start-ups cry out for regulation
Duncan Robinson – FT.com
For most start-ups, regulation is a dirty word. In the “fintech” sector – the nickname for the burgeoning collection of peer-to-peer lenders, online currency exchanges and crowdfunding sites outside the mainstream financial sector – regulation is the main obstacle between remaining a niche activity and becoming the norm.
jlne.ws/VQ8eWL

CFTC Extending Period for Accepting Public Comment on a CME Request to Adopt New Chapter 10 and New Rule 1001 of CME’s Rulebook
The Commodity Futures Trading Commission (CFTC) is extending the time period for which it is accepting public comment on a request from the Chicago Mercantile Exchange Inc. (CME) for approval of a rule (Rule 1001) submitted pursuant to section 40.5 of the Commission’s regulations.
jlne.ws/VQ8cOT

[ASIC] Make a MoneySmart pledge for 2013
jlne.ws/VQ8d58

Exchanges & Trading Facilities

Irish Stock Exchange Statistics December 2012
jlne.ws/VQ8d5a

Trading On The Warsaw Stock Exchange: December 2012
jlne.ws/VQ8eWV

European Power Exchange: Power Trading Results in December 2012
jlne.ws/VQ8eWW

Ljubljana Stock Exchange: Monthly And Annual Statistical Report December And Year 2012
jlne.ws/VQ8d5j

Equiduct Trading Statistics For 2012
jlne.ws/VQ8eWX

TMX Group Equity Financing Statistics – December 2012
jlne.ws/VQ8eX0

Corpedia and NYSE Euronext Release Critical Program: Onboarding Guidance Immediately After M&A
jlne.ws/VQ8d5m

[CBOE] Limit Up/Limit Down – Frequently Asked Questions
jlne.ws/VQ8fdm

[CBOE] New XSP Off-Floor DPM
jlne.ws/VQ8dlJ

[CBOE] Side Added to Complex Order Auction (COA) Message
jlne.ws/VQ8fdo

Hedge Funds & Managed Futures

Commodity Investments Attract $20.5 Billion in 2012, Citi Says
Bloomberg
Investors put a net $20.5 billion into commodity exchange-traded funds and index swaps last year, led by purchases of energy and precious metals, according to Citigroup Inc.
jlne.ws/VQ8fdq

Leon Black Investing Dartmouth Money Stirs Ethics Debate
Bloomberg
It’s not hard to see what Dartmouth College’s wealthy alumni have given to the 244-year-old Ivy League school, nestled among pine trees in Hanover, New Hampshire.
jlne.ws/VQ8dlL

Coffey successors exit GLG
Harriet Agnew
GLG Partners’ well-known co-heads of emerging markets – who took over the GLG Emerging Markets Fund following the departure of Greg Coffey in November 2008 – are leaving the firm after just over four years.
jlne.ws/VQ8fds

Milken Protege Goodman Chases European Junk Loans at Blackstone
Bloomberg
Bennett Goodman, who got his start almost 30 years ago helping Michael Milken use junk bonds to fund companies others thought too risky, says he is now the biggest investor in high-yield corporate loans in Europe as local banks back away.
jlne.ws/VQ8dlR

Big name fund managers bounce back
The Wall Street Journal
Being contrarian really paid off for fund managers Bill Miller and Bruce Berkowitz last year.
jlne.ws/VQ8fdu

Hedge Fund Industry Veteran Groome Joins Highwater
Business Wire via Yahoo! Finance
Former Chairman of the Alternative Investment Management Association and hedge fund industry veteran, Todd Groome, joins the Highwater Group.
jlne.ws/VQ8fdw

Equities duo to launch Asia office at ex-Lehmanite firm
Matt Turner – Financial News
The former global co-head of equities at Nomura and the ex-global co-head of equities distribution at JP Morgan have teamed up to launch the Asian arm of interdealer broker Mariana Capital Markets, Financial News can reveal.
jlne.ws/VQ8dCa

Dell’s M&A head leaving for Blackstone
The Wall Street Journal Online’s Deal Journal blog
A force in Dell’s acquisition binge is leaving the tech company to join private equity operations of Blackstone Group, Dell confirmed ysterday.
jlne.ws/VQ8ftO

Banks & Brokers

Citigroup fires private bank CIO amid job cuts – Bloomberg
Reuters via Yahoo! News
Citigroup Inc has fired Richard Cookson, chief investment officer of its private bank, as the company looks to cut costs, Bloomberg reported on Monday. Citigroup will no longer rely on one person to lead the firm’s investment strategy and will instead seek to “better leverage the existing in-house expertise across Citi,”
jlne.ws/VQ8ftQ

Citigroup Names Forese, Manuel Medina-Mora Co-Presidents
Bloomberg
Citigroup Inc. , the third-largest U.S. bank by assets, named Jamie Forese and Manuel Medina-Mora co-presidents. Forese, 49, will be responsible for all of the New York- based bank’s institutional businesses and Medina-Mora, 62, will continue to oversee global consumer banking and Mexico , Citigroup said today in a statement.
jlne.ws/VQ8ftT

HSBC’s exit from Ping An in jeopardy
Simon Rabinovitch in Beijing – FT.com
The $9.4bn sale of HSBC’s stake in China’s Ping An Insurance has been thrown into doubt by a revelation that crucial financing for the deal is likely to be withdrawn. The buyer of the stake, Thailand’s Charoen Pokphand Group, was planning to fund its purchase with loans from China Development Bank. But people with knowledge of CDB’s plans said the Chinese state-owned lender had changed its mind, presenting a major obstacle to completion of the deal.
jlne.ws/VQ8ftU

Veteran broker departures shift $133 billion client assets in 2012
Reuters via Yahoo! News
NEW YORK – Brokerages saw top advisers depart in droves last year and shift $132.5 billion in client assets with them, a Reuters tally shows, creating headaches for some Wall Street banks at a time when wealth management is becoming an increasingly important part of business.
jlne.ws/VQ8ftV

Bank of America Reaches Settlement with Fannie Mae
KLAS Las Vegas
Bank of America has reached a settlement with Fannie Mae on residential mortgage loans sold by the bank and its Countrywide unit to the agency ahead of the nation’s 2008 financial crisis.
jlne.ws/VQ8fu0

UBS Plans 10,000 Job Cuts, Raises Profitability Goal
Bloomberg
UBS AG , Switzerland’s biggest bank, may have to cut another 2,000 to 3,000 jobs as it scales back from capital-intensive businesses, according to a research note by Deutsche Bank AG.
jlne.ws/VQ8fKo

RBC Hires Ex-Citigroup Analyst Mahaney to Cover Web Stocks
Bloomberg
Mahaney, 47, will be based in San Francisco and report to Marc Harris, co-head of global research, Toronto-based Royal Bank of Canada said today in a statement.
jlne.ws/VQ8fKu

Instinet Named “Preferred Broker” by the Applied Finance Group
jlne.ws/VQ8fKw

Clearing & Settlement

Lack of clarity over clearing provides problems for Asia banks
Risk.net
Banks in Asia are facing a succession of operational challenges as they move to centrally clear over-the-counter derivatives transactions. Domestic regulations governing the central clearing of OTC derivatives trades are yet to be finalised; there is uncertainty over whether banks should clear via an international or domestic central counterparty (CCP); and a proliferation of CCPs within the region is adding to the confusion.
jlne.ws/VxyUwn

ECC: Banco Santander becomes New General Clearing Member
The European Commodity Clearing AG (ECC) has admitted a further clearing bank, Banco Santander S.A., Madrid. Banco Santander has obtained a general clearing licence for all partner exchanges. As a result, it can now offer clearing services for all products and markets cleared by ECC.
jlne.ws/VQ8dSH

CME Group Clearing Advisory: NYMEX Options Expiration Operational Procedures for the Trading Floor and Clearing Members (GX) Effective Tuesday, January 8, 2013
jlne.ws/VQ8dSK

CME Group Clearing Advisory: Curtailing the Back Months Listing for ICE Gasoil Contracts on NYMEX
jlne.ws/VQ8g0N

Indexes & Products

A Call for Ethics in ETF Advertising
Forbes
The fund industry is notorious for comparing the performance of their products to the wrong benchmarks and even made-up benchmarks. This is done to make a fund’s performance appear to be superior relative to something – even if that something makes no sense. This decadent practice harms the credibility of an industry that has lost so much in recent years.
jlne.ws/VQ8g0P

Economic uncertainty boosts commodity ETFs
Suzi Ring
Commodity exchange-traded products hit a record year-end high of nearly $200bn in global assets for 2012, as investors look to more tangible assets amid prolonged economic uncertainty.
jlne.ws/VQ8dSN

Global ETF And ETP Assets Reach A New High Of Nearly $2 Trillion ($1.95 Trillion) At The End Of 2012
jlne.ws/VQ8g0W

S&P Dow Jones Indices Announces Changes To The S&P/TSX Canadian Indices – A Deletion From The S&P/TSX Venture Composite And Venture Select Indices
jlne.ws/VQ8dSV

Technology

SunGard Acquires XcitekSolutionsPlus, LLC
SunGard has acquired XcitekSolutionsPlus, LLC (XSP), a leading provider of end-to-end, automated corporate actions solutions. The acquisition, the terms of which were not disclosed, is not expected to have a material impact on SunGard’s financial results.
jlne.ws/VQ8g0Z

Enforcement

HSBC N.J. Client Admits Conspiracy in Offshore Tax Case
Bloomberg
Sanjay Sethi, 52, who owns San Vision Technologies Inc., conspired with HSBC bankers in New York , London and Geneva to hide assets from the IRS, he admitted today in federal court in Newark, New Jersey.
jlne.ws/VQ8dSX

ASIC suspends financial services licence of Sydney based financial planning business
jlne.ws/VQ8g12

Environmental & Energy

BM&FBOVESPA and BNDES present new portfolio for the Carbon Efficient Index
jlne.ws/VQ8ghk

Carbon market shrinks 36% but signs for a prosperous 2013 remain
Responding to Climate Change blogger John Parnell
The value of the global carbon market fell 36% in 2012 to 61bn euro, according to analysts Bloomberg New Energy Finance (BNEF). The group’s report also found that a combination of more frequent auctions and the drop in price saw the volume of transactions in the carbon markets grow by 26%.
jlne.ws/119CRgx

**RKB — Additional blogger commentary on the BNEF data released last week.

Analysis: Brazil’s once-envied energy matrix a victim of “hubris”
Reuters
Just five years ago, Brazil’s mostly “green” energy landscape was the envy of nations dependent on dirtier sources of power and the pride of a government that believed it was leading the country to economic superpower status.
jlne.ws/WqgxYt

**RKB — Thorough analysis piece, including impact in driving up ethanol prices and tinkering with electricity prices to mixed political consequences.

Argentina cuts oil export tax as it seeks to lure investment
Reuters
Argentina unveiled a new system of export taxes on oil shipments on Monday that will cut levies as the government
seeks to lure investment to revive stagnant production.
jlne.ws/13clRps

Asia-Pacific

China to Require 30% Company Dividend Payout to Lure Investors
Bloomberg
Chinese companies trading on the Shanghai Stock Exchange will be required to pay at least 30 percent of their annual profits to shareholders as the bourse seeks to lure more investors to equities.
jlne.ws/VQ8e9g

SGX observes new global regulatory, risk management and capital standards
Singapore Exchange (SGX) today said it is well positioned to meet the latest international regulatory and risk management standards set by the International Organisation of Securities Commissions (IOSCO)[1] and Committee on Payment and Settlement Systems (CPSS)[2]. This has been achieved after an extensive review and sharpening of SGX’s risk management and operational processes, and the addition of new rules and procedures to enhance the safety and efficiency of its subsidiaries.
jlne.ws/13fLgOc

Monetary Authority Of Singapore: Singapore’s fFnancial Sector To Undergo Financial Stability Assessment
jlne.ws/VQ8e9j

HKEx Monthly Market Highlights – December 2012
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Shenzhen Stock Exchange: ChiNext 300 Series Indices Launched
jlne.ws/VQ8ghx

Frontier Markets

Marex Spectron Group Joins DGCX As Broker Clearing Member
The Dubai Gold and Commodities Exchange (DGCX) announced today that Marex Spectron Group, the world’s largest privately owned broker of financial products in the commodities sector and a leader in brokering physical energy products, has been approved as a Broker Clearing Member of the Exchange.
jlne.ws/VQ8ghB

Citi names Cowles as Emea head
Richard Partington – Financial News
Citigroup has named a 34-year veteran of the firm to replace Mike Corbat as its head of Europe, the Middle East and Africa, as part of the first major reshuffle to be undertaken by its new chief executive.
jlne.ws/VQ8gxO

Miscellaneous

New London finance jobs fall by 35 percent – recruiter
Reuters via Yahoo! Finance
The number of new jobs created in the City of London (LSE: CIN.L – news) fell by more than a third last year as financial firms focused on cost-cutting, research by recruitment agency Astbury Marsden shows.
jlne.ws/VQ8gxQ

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