Observations / Statistics / Commentary

HFT in the Crosshairs
Doug Ashburn, John Lothian News

When Michael Lewis’ “Flash Boys” hit the bookshelves a couple weeks ago, it was as if a giant HFT target had been placed on the shooting range. Since then, the calls for HFT curbs, taxes, and other regulation have become increasingly shrill. While John Lothian News has been saying for years that the equity market structure is broken and in need of a fix, too much of the current narrative is based on misinformation and partial-truths, and its chief critics have consistently, if not willfully, misrepresented the facts.

A new round of shots was fired this weekend, this time at CME Group, by a trio of disgruntled traders who claim that the exchange is running an “unequal and two-tiered marketplace” and that high frequency traders are allowed to see orders before they are reflected in the market. The complaint is seeking class-action status.

Read the Commentary  =>  http://jlne.ws/1jIvsfH

Get your Comments in (CTA/CPO Capital Requirements)
Attain Capital
In late January 2014, the National Futures Association announced to its membership they were considering requiring Commodity Pool Operators and Commodity Trading Advisors to have minimum net capital requirements similar to what the clearing firms and Introducing Brokers have. The review of the CTA/CPO regulatory structure also includes possible measures such as the verification of CPO fund balances similar to what is done now for FCM’s, and the possibility of requiring all CPO’s to use third party administrators, or at least have a third party approve all movement of money out of funds.
***DA: Today is the last day, so shake a leg, get a move on, and tell the NFA what you think about cap requirements.

John Lothian News Survey – Final Days!
We are closing out our survey campaign at the end of the week, so if you wish add your input, please click the link below and give us 30 seconds of your time. More to the point, if you wish to get in the running for your choice of an iPad Mini or a pair of Bose Quiet Comfort Noise-Canceling Headphones, it is now or never (or maybe next year when we conduct our next survey).

Lead Stories

Information Regarding the “Heartbleed” Security Issue
Recent news reports have raised serious concerns about an Internet security vulnerability that is now being commonly called “Heartbleed.” Safeguarding Member data is a top priority at NFA, so we continuously monitor our systems to ensure effective security. NFA has examined its systems and has determined that the NFA website, including the ORS and EasyFile systems, is not vulnerable to the Heartbleed security flaw.
***DA: We cannot guarantee protection from all fraud, but on this one we’ve got you covered.

Manning & Napier, Inc. Announces Acquisition of 2100 Xenon
Manning & Napier, Inc. announced that it will acquire the business and operations of 2100 Xenon Group, LLC, an alternative investment manager specializing in managed futures and global macro strategies for institutional and individual clients. The acquisition will enhance Manning & Napier’s alternative capabilities and provide increased product diversification to clients. The transaction is subject to certain regulatory approvals and is expected to close within the second quarter. Financial terms of the transaction were not disclosed.
***DA: Best wishes to Mr. Feuerstein and colleagues.

Hedge Funds Down 0.35% In March, Still Up For The Quarter: Eurekahedge
Performance was led by distressed debt, while Europe and long/short funds were most popular with investors
***DA: Managed futures had a rough month in terms of both return and capital outflow.

Hedge funds end ‘record’ ag commodity buying spree
Hedge funds’ longest run of bullish positioning by agricultural commodities in recent history ended as investors took profits on gains, as well as placing more bets on falling prices. Managed money, a proxy for speculators, cut its net long position in futures and options in the top 13 US-traded agricultural commodities, from cotton to cattle, by nearly 38,000 contracts in the week to last Tuesday, according to data from the Commodity Futures Trading Commission regulator.

Receiver sues AlphaMetrix brass for $19 million
By Lynne Marek, Crain’s Chicago Business
A federal receiver appointed to dismantle the failed futures investment fund administrator AlphaMetrix Group LLC sued the company’s top officers, alleging they used Chicago-based AlphaMetrix as their “personal piggy bank.” The complaint filed in U.

What A Hedge Fund Failure Looks Like
The Twittersphere couldn’t get enough of the news that hedge fund legend Paul Tudor Jones was shutting down one of his eponymous funds, the Tudor Tensor Fund And critics of hedge funds will jump to the conclusion that it’s a dangerous world out there among alternative investments, and investors need to be careful because even a legend like Paul Tudor Jones can’t make money, having to shut down his futures fund.


Managed Futures / Managed Funds

Commodity ETF Breakdown
Attain Capital Management Here’s our monthly look at the various commodity ETFs and how they track a simple strategy of buying December futures and rolling them annually. Plus, a comparison to Ag Traders and an overall commodity index.  C’mon futures…

Evanston Capital Management Issues Report on Hedge Fund Replication
Business Wire
Evanston Capital Management, LLC, an alternative investment firm, today published a report examining the intricacies of hedge fund replication strategies. The white paper, Hedge Fund Replication: Is It Appropriate For You?, is available atwww.evanstoncap.com
Mid-Sized Hedge Fund Series
Woodbine Associates
The competitive environment for capital markets service providers has never been more difficult.  The “new normal” that began with the Credit Crisis of 2008 shows no signs of abating. So what are the alternatives? Mid-sized hedge funds constitute approximately 4% of US-based hedge funds or approximately 350 firms.

Carry Trade’s Return Lures Easy Profits, Poses Risks in Emerging Markets
By Michael J. Casey, WSJ
Emerging markets are caught between the Fed’s rock and the ECB’s and BOJ’s hard place.
***DA: Easy money until it isn’t. Then everyone wants out at the same time. I have some fond memories from the yen pit back in the day.

This Is How Much The Average Person Can Make Working For A Hedge Fund
By Nicholas Kapur, Business Insider
Last August SumZero, a social research site for investment professionals, launched a new feature dedicated to compensation trends within our buyside-only investment community. We (SumZero) have since collected thousands of salary reports sourced directly from analysts, associates, and portfolio managers working at hedge funds, mutual funds, and private equity funds around the world. A handful of high-level findings from our database are available below.
***DA: Average people don’t get to work for hedge funds.

Capstone’s Britton Foresees a $10 Billion Volatility Fund
By Katherine Burton, Bloomberg
Capstone Investment Advisors LLC’s Paul Britton, whose volatility hedge-fund firm oversees $2.5 billion, predicts that within five years his small sector of the industry will produce a pool whose size rivals some of the biggest managers today.
***DA: That’s what I call a forward-looking statement.

Niederhoffer: CTAs Could Face Historic Challenges From Rising Rates
Mark Melin, ValueWalk
Managed futures CTA have enjoyed a “cozy relationship with declining interest rates,” and in a rising rate environment “evolution will become mandatory,” according to an investor letter from R. G. Niederhoffer.

Pensions & Institutions

Institutions now largest hedge fund investors – study
Reuters via The West Australian
Pension funds and other institutions have become the largest investors in hedge funds over the past decade as they seek protection from any re-run of the financial crisis.
***DA: Protection from a rerun of the crisis? I suppose it depends on the type of hedge fund, but a good chunk of them were hit hard in 2008-09. Of course, managed futures was among the winners.

Better oversight of HFT
Pensions & Investments
Michael Lewis shocked the investing public with his charge that the stock market is rigged. He will have done investors a great service if he has also shocked the Securities and Exchange Commission into re-examining high-frequency trading and taking steps to halt it. If the SEC finds it cannot take action under current laws and regulations, Congress must step in. Institutional investors should lend their support to efforts to halt, or at least slow, high-frequency trading because they are potentially the biggest losers from the practice.

Harvard adopts ‘responsible investment’ principles
Harvard University said on Monday it adopted a set of environmental and social investing principles backed by the United Nations for its huge endowment fund, a move that could add pressure on companies in its portfolio to make more disclosures on areas like carbon emissions.
***DA: Were their previous investment principles “irresponsible?”

’40 Act no panacea for raising hedge fund assets

To be able to attract institutional money, what size do hedge funds need to be and how can they raise assets? There are still lots of funds starting up that can be profitable below $200 million, but most do not have the infrastructure in place to position themselves to take institutional money from investors, who will want to see that the fund’s technology is more than just a spreadsheet as well as that human capital, including experienced operations and legal personnel, is in place.

Is ‘smart beta’ the latest magic money tree?
Financial Times
Investors are always on the lookout for a magic money tree. The latest candidate for that label has been dubbed “smart beta”, although some would argue it fits neither of those descriptions.
Even conservative investors such as Japan’s Government Pension Investment Fund, the biggest pension fund in the world, have embraced this trend. The fund announced this month it would be moving some of the money in actively managed equity strategies into smart beta instead.
***DA: I have heard it said that smart beta in neither smart nor beta.

EDITORIAL: Schools struggle with funding public employee pensions
Glen Falls Post-Star
School districts face a long-term challenge because of public employee pension costs that transcends the short-term budget crunch created by the tax cap and gap elimination adjustment.The tax cap limits the amount of revenue school districts can raise through property taxes, and the gap elimination adjustment reduces districts’ revenue from state aid.
***DA: Now that the news has reached Glen Falls, we know it’s serious.


Regulators Weigh Curbs on Trading Fees
By Scott Patterson and Andrew Ackerman, WSJ
A fee system that is a major source of revenue for exchanges and some high-frequency trading firms is coming under the heightened scrutiny of regulators concerned that market prices are being distorted, according to top Securities and Exchange Commission officials.
***DA: And so it begins anew.

Modernizing our regulatory structure
By Richard H. Neiman and Mark Olson, The Hill
Streamlining America’s financial regulatory architecture was a major missed opportunity in the Dodd-Frank Act. Our existing structure is a patchwork of reactions to past financial crises that date back more than 150 years. Modernizing this patchwork system would improve regulation, enhance financial stability and increase economic growth. Today, we propose a road map for how to achieve these goals.

Energy firms to Fed: Hands off banks’ commodity trading
By Anna Louie Sussman, Reuters
Energy companies are mounting a last-ditch effort to prevent the Federal Reserve from cracking down on physical commodity trading by major Wall Street banks, saying more restriction may further damage liquidity and raise hedging costs.

Exclusive: SEC forms squad to examine private funds – sources
By Greg Roumeliotis and Sarah N. Lynch, Bloomberg
The U.S. Securities and Exchange Commission (SEC) has put together a dedicated group to examine private equity and hedge funds, after the 2010 Dodd-Frank law required the funds to be regulated, according to people familiar with the matter.
***DA: They’re after us.

CFTC Chief Says High-Speed Traders Aren’t Rigging Futures
Silla Brush – Bloomberg
The U.S. Commodity Futures Trading Commission is reviewing futures markets to ensure high-speed trading isn’t violating the law, acting CFTC Chairman Mark P. Wetjen told reporters in Washington.

MF Global Customers to Be Paid Back in Full
Ever since the collapse of MF Global, the search for $1 billion of the brokerage firm’s customer money evoked one ominous metaphor after another, including “uphill battle” and “magical mystery tour.” But on Thursday, the search ended with a different saying: “Checks are going in the mail.”

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