Observations/Commentary

Meet our newest sponsor
A warm welcome to FGMK Fund Dynamics as our newest sponsor. Led by Allen Goodman, the company provides process improvement consulting services for businesses of all sizes. Goodman, who previously served as CFO of Price Holdings and founder of Fund Dynamics, provides fund administration along with a host of other consulting expertise. FGMK provides professional services across many business lines through its affiliated companies, and is listed as the 9th largest accounting firm in the Chicago area.

We’re glad to have FGMK Fund Dynamics as one of our sponsors.

If you would like to connect with Allen, you can reach him at agoodman@fgmk.com or at 847-964-5313.

NFA’s Chairman and Executive Committee respond to recent allegations of improprieties regarding the 2014 public director nominations
National Futures Association Member Notice
Dear Member of NFA,
In January of each year, NFA’s Executive Committee makes recommendations to the Board of Directors regarding the election of public representatives at the February Board meeting. NFA Board member James Koutoulas has publicly accused the Executive Committee and others of improprieties in regard to the January 2014 Executive Committee meeting and the Board’s subsequent February 2014 election of public representatives. The Executive Committee has authorized me to assure you that these allegations are false and we deny each and every allegation.
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Futures group board members file election complaint with CFTC
By Lynne Marek – Crains Chicago Business
Two board members of the National Futures Association board have filed a complaint with the Commodity Futures Trading Commission alleging that the organization skirted its own rules in selecting candidates for the board and then falsified its records. The complaining board members, James Koutoulas and John Roe, are in hotly contested re-election campaigns for the board that will be decided in January. But their complaint concerns an election that took place early in 2014. Other board members and the NFA staff dispute their assertions.
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James Koutoulas Needs to Put Up or Step Aside
by John J. Lothian
NFA board of directors member James Koutoulas has made some troubling accusations about the nomination of public directors by the NFA Board’s Executive Committee. He needs to come forth with some convincing smoking gun, proving the conspiracy and cover up he is accusing NFA staff and fellow Executive Committee members of, or resign from the board.
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Case study: Straits gives managed futures a facelift
By Ginger Szala – AllAboutAlpha.com
When the JOBS Act is discussed in managed fund circles, it’s typically due to its elimination of the ban on general solicitation and advertising by capital raisers, such as hedge funds. Obviously that’s a big plus, but another part of the Act that gave a lift to private placement funds was the increase to 2000 in allowable accredited investment holders. Previously, going over 500 investors triggered onerous reporting requirements under the Securities Exchange Act of 1934. The JOBS Act was passed in early 2012, and signed into law in 2013. That timing was perfect for a team of investment experts who were looking to expand their product base. This is their story.
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**JK – Nice piece on Straits Financial.

NFA Election 2015
CPO/CTA Category Interviews

The 2015 NFA elections for the CPO/CTA category ongoing; ballots must be received by January 20. John Lothian News spoke with four of the candidates – print interviews with Brendan Kalb, George Berbeco, and video interviews with John Roe and James Koutoulas. Read/watch them John Lothian News HERE.

For ballot information visit the NFA web site HERE

 

Lead Stories

MF Global Holdings to pay $100 mln fine in CFTC settlement
By Douwe Miedema and Karey Van Hall,Reuters
The U.S. Commodity Futures Trading Commission said on Wednesday it had fined MF Global Holdings Ltd for wrongdoing during the collapse of the futures brokerage, but will continue its lawsuit against the firm’s former chief, Jon Corzine.
A federal judge in Manhattan approved a settlement in which the company will pay a $100 million fine and be jointly responsible for returning $1.212 billion in client funds that another unit had been ordered to restitute last year.
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**JK – And still no news about the CFTC’s suit against Jon Corzine. The last story found on the subject was from January 23, 2014.

US Bank Settles With CFTC In Suit Over Peregrine Debacle
By Stephanie Russell-Kraft, Law360
An Iowa federal judge on Friday agreed to dismiss a suit brought by the U.S. Commodity Futures Trading Commission against U.S. Bank NA after the two parties agreed to settle claims that the bank aided bankrupt Peregrine Financial Group Inc.’s former CEO in misappropriating $215 million in customer funds.
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**JK – Terms of the settlement are secret, according the piece. Ironic isn’t it for the CFTC, an agency designed and mandated to promote transparency and fairness.

Hot Fund Takes Wrong Turn
Kirsten Grind – WSJ
The money-management industry’s push to bring hedge-fund-style trading to the masses has suffered a setback. Investors yanked more than $5 billion so far this year from the largest and most popular “liquid-alternative” mutual fund as losses mounted on bad bets tied to the global economy, according to fund-research firm Morningstar Inc. Assets in the MainStay Marketfield fund have fallen 45% from a February peak of $21.5 billion.
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**JK – If so-called sophisticated investors pulled money from alternatives, why would it be a surprise if retail investors did so. The perils of chasing returns.

The Best (and Worst) Investments They Ever Made
WSJ
It’s the time of year for reflection. The Wall Street Journal asked successful people in the world of finance and beyond about the best or worst investments they ever made.
Responses came from a former chairman of the Federal Reserve, two Nobel laureates in economics, several prominent investors and business leaders, a nationally renowned poet and many others.
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**JK – Some good bests and worsts – and some bad worsts and worse bests.

Managed Futures/Managed Funds

Fed Downplays Worries About Leveraged ETFs
MoneyBeat – WSJ
Concerns that leveraged exchange-traded funds could fuel undue market volatility are misplaced because they ignore the offsetting effects from capital flows on the need for the funds to adjust to the benchmarks they track, according to two Federal Reserve Board economists.
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Commodities Head for Record Losing Run on Oil to Dollar
Businessweek
Commodities headed for the biggest annual loss since the global financial crisis in 2008, retreating for a record fourth year, as a global glut spurred a rout in oil prices and a stronger dollar cut the allure of raw materials.
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When Funds Insult Their Investors
Jason Zweig – WSJ
To the insult of chronic underperformance, mutual funds are adding the injury of unusually high taxes. The week of Dec. 15, dozens of mutual funds paid out taxable gains to their shareholders—even as the worst year of fund returns relative to market averages in modern history drew to a close.
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Correlations to Break Down in 2015
Michael J. Casey – WSJ
In 2014, global markets started breaking a multiyear pattern in which different asset classes and geographic markets mostly moved in unison. Correlations are set to break down further in 2015. Accelerating this breakdown is fact that central banks are going their separate ways – the Federal Reserve is preparing for a rate increase, the European Central Bank for more monetary easing – while energy producers and consumers are experiencing starkly different effects from falling oil prices.
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Meredith Whitney Fund Sued by Billionaire Platt’s BlueCrest
By Max Abelson, Bloomberg
Meredith Whitney’s hedge fund is being sued by its biggest investor, a fund connected to billionaire Michael Platt’s BlueCrest Capital Management, as demands to recoup money spill into court, according to people with knowledge of the dispute.
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**JK – How does that saying go – Guess once right, shame on you for missing it, guess right twice…Oh, yeah, you didn’t, so I’m suing you.

Pensions & Institutions

Comment: Futures trading costs are rising
By Rachel Lord, FT
Futures contracts have long been accepted by traders and institutional investors as a way to get long-term exposure to an equity index. Having started as a way to hedge commodity, currency, interest rate and equity risks, index futures are now considered staples of the market.
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Pimco’s Seksaria Fired After CME Fine Tied to Trading
By Mary Childs, Bloomberg
Rahul Seksaria, a money manager at Pacific Investment Management Co. running inflation-protection strategies, was dismissed after CME Group Inc. fined him for improper trades that resulted in the transfer of client money to his personal account.
Seksaria in April 2012 placed trades that improperly sent $2,675 of client funds into his personal account, CME, operator of the world’s biggest futures market, said on its website. CME this month barred him from using its markets until after March 19 and ordered Seksaria to repay the $2,675 as well as a fine of $65,000.
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Fed Grants Volcker Reprieve in Banks’ Second Big Win This Month
By Jesse Hamilton and Cheyenne Hopkins, Bloomberg
Banks added to their wins in Washington this month by getting a reprieve from the Volcker Rule that will let them hold onto billions of dollars in private-equity and hedge-fund investments for at least two more years.
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Wealth Adviser: Will Advisers Be Blamed for the Next Crash?
by Kevin Noblet, WSJ
Taking advantage of investors’ hunger for yield, brokers who sell their clients nontraded REITs, load-bearing fixed-income mutual funds and other expensive products are driving us toward the next financial meltdown, Bob Veres fears. Should that occur, “headlines will paint the entire financial planning profession as a bunch of greedy sales agents,” he writes on Financial Planning. The longtime industry commentator calls that outcome “a grimly logical consequence of all the sales incentives that still govern so much of the financial services marketplace. It’s a shadowy world where what you make is infinitely more important than what the customer makes.”
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Pimco Gets Impaled on a Volatility Spike
Streetwise Professor
This is crazy to me: selling massive quantities of volatility when volatility is at very low levels.
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Regulation

CFTC Revokes Registrations of Illinois Resident Aleks A. Kins and Chicago-based AlphaMetrix, LLC
CFTC
The U.S. Commodity Futures Trading Commission announced that it has revoked the registration of Aleks A. Kins of Chicago, Illinois, as an Associated Person and the registrations of AlphaMetrix, LLC as a Commodity Pool Operator and Commodity Trading Advisor. The CFTC issued Orders revoking the registrations simultaneous with its filing of Notices of Intent to Suspend, Revoke, or Restrict Registration of Kins and AlphaMetrix, which alleged that the Registrants were subject to statutory disqualification based upon conduct prohibited by the Commodity Exchange Act (CEA).
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Royal Bank to Pay $35 Million to End CFTC Wash-Trade Suit
By David Glovin, Bloomberg
Royal Bank of Canada will pay $35 million to settle a lawsuit brought by U.S. regulators over claims that it engaged in more than 1,000 illegal futures trades worth hundreds of millions of dollars to garner tax benefits tied to equities.
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China May Allow Foreigners to Invest in Futures
By Shen Hong, WSJ
China has proposed allowing foreign investors and brokerages to trade some futures contracts, granting the latter access to a vast, potentially lucrative but notoriously volatile market. The proposed change, which comes in the form of draft guidelines that the country’s securities watchdog released for public consultation on Wednesday, is also seen as a fresh effort to reform its volatile commodities futures market by bringing in foreign institutional investors with more experience and better practices, analysts said.
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French market regulator opens consultation on grains futures position limits
Reuters
French market regulator AMF said on Monday it was launching a two-month public consultation on a proposal to introduce position limits and position reporting on Euronext’s Paris-based grains futures and options.
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INSIGHT-Derivatives exchanges prove resistant to regulatory change
By David Henry, Reuters
In December 2013, Hanmag Securities Corp, a small South Korean brokerage firm, lost 46 billion won ($42 million) in a day after a stock option trading algorithm went bad. It was a fatal blow for a company that had just 15 billion won of capital – Hanmag went bust. What happened next rattled regulators around the world: Hanmag defaulted on its obligations, forcing the Korea Exchange’s clearinghouse to tap its emergency funds.
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CFTC allows FCMs more time to obtain acknowledgements from trade depositories
By Andrew Saks-McLeod, Leaprate
US based futures commission merchants (FCMs) have been afforded until April 30, 2015 to comply with CFTC regulations requiring them to obtain acknowledgement letters from certain depositories
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Speculation in financial markets not a crime, Putin says
RT
Currency speculation can’t be considered a crime, as market speculators just create a favorable situation for themselves, but don’t steal, Russia’s President Putin has said.
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***DA: In Soviet Russia, CURRENCIES speculate on YOU.

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