Observations & Insight

OCC Lingo: SIFMU Stands For Clearinghouse Changes
JohnLothianNews.com

The OCC was designated a systemically important financial market utility in 2012. That led to some big changes at the organization, along with challenges in risk management and credit and liquidity resources. John Lothian News spoke with John Fennell, executive vice president, financial risk management at the OCC, about what the organization is doing to insure that it meets these and other regulatory obligations.
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Lead Stories

Crash Boys
Michael Lewis – Bloomberg
The first question that arises from the Commodity Futures Trading Commission’s case against Navinder Singh Sarao is: Why did it take them five years to bring it?
A guy living with his parents next to London’s Heathrow Airport enters a lot of big, phony orders to sell U.S. stock market futures; the market promptly collapses on May 6, 2010; it takes five years for the army of U.S. financial regulators to work out that there might be some connection between the two events. It makes no sense.
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Flash crash trader an impatient businessman for others
Reuters
The Briton blamed for contributing to the May 2010 Wall Street flash crash maintained frenetic relationships with a series of brokers, banks and software firms that appear to mirror his rapid-fire trading activity, court documents showed.
Navinder Singh Sarao, 36, was arrested in London on criminal charges this week, and authorities have sought to link his trades to the flash crash, when about $1 trillion was briefly wiped out from U.S. stock markets in a matter of minutes.
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How Not to Diversify and Other Lessons of the Tech Bubble
Callie Bost, Joseph Ciolli and Oliver Renick – Bloomberg
Thinking back on all the mistakes his clients made as the dot-com bubble inflated two decades ago, Dan Morgan remembered some funny ideas about diversification.
“They’d say ‘I own Microsoft, Dell and Intel,'” said the 52-year-old fund manager at Synovus Securities Inc., recounting a strategy that proved ruinous as those stocks plunged an average of 72 percent starting in March 2000. The Nasdaq Composite Index has only now recovered from the carnage, closing at a record high for the first time in 15 years
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‘We Built A Robot That Types’: The Man Behind Computerized Stock Trading
David Kestenbaum – NPR
Peterffy eventually makes his way to the United States where he meets his first computer – a big, boxy calculator of a thing, and he falls in love; stays up all night programming it. And eventually gets a job at a company that is trying to use computers and math to make money on Wall Street. In particular, there are these complicated things called options or derivatives that give you the right to buy, say, a certain stock at a certain price on a specific date. It’s hard to calculate what one should cost, but Peterffy, with a computer, he finds a kind of secret formula.
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Random Friday: Spoofing, Volume Dips, and Yahoo! Inc.’s (YHOO) New Business
Adam Warner – Schaeffer’s Investment Research
What did we learn this week? We learned new uses of the words “spoofing” and “layering” — as in, “Spoofing and Layering by One Guy in His U.K. Basement Caused the Flash Crash.” Except it probably didn’t, seeing as how it was a common practice before, and remained a common practice after. But … whatever. How about some random thoughts? Careful though, I may have written an algo that automatically pulls the links as you click on them (though probably not).
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Weekly Market Commentary 4.24.15
Larry McMillan – CBOE Options Hub
Both bulls and bears are frustrated by recent action. Most recently, $SPX has made repeated attempts to challenge the all-time highs, but it has not yet been able to break out. There is resistance in the 2110- 2120 area that has contained all advances.
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Ex-Goldman Guys Think Citi Was a Little Abrupt With FX Trades
Bloomberg
Last month, we talked about Citigroup’s lawsuit against Tormar Associates, “the joint family office of former Goldman Sachs partners Ron Marks and John Tormondsen,” which happened to be short a whole lot of Swiss francs the day that the Swiss franc went up a whole lot. It’s a sad old story: Tormar suddenly owed Citi, its prime broker, millions of dollars on trades that had gone horribly wrong.
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Volatility on the cards for investors in the UK
Simoney Kyriakou – FT Adviser
A correction could be on the cards for UK investors currently enjoying the bull market run, John Greenwood has warned.
The chief economist for Invesco Perpetual said: “For every area of strength in the recovery there appears to be an associated element of weakness or vulnerability.”
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Bitcoin and the Wall Street brain drain
Ian Allison – International Business Times
Wall Street has been throwing its weight behind bitcoin lately with high profile names leaving big ticket investment banks to join unheard of start-ups, focused on all aspects of cryptocurrency.
The block chain is evolving into what has been called Finance 2.0 and it’s now time the “grown-ups in the room” got involved, notes one Wall Street veteran. There are also sensible reasons why all banks should be looking at this.
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Regulation & Enforcement

Deutsche Bank to Pay $2.5 Billion Fine to Settle Rate-Rigging Case
Dealbook – NY Times
They called each other “dude,” “mate” and “amigo,” suggesting a certain innocence to their friendship. And yet at the center of their dispatches, United States and British authorities say, was actually a collusive effort to manipulate worldwide interest rates.
“I’m begging u, don’t forget me,” one Deutsche Bank trader wrote in an online chat to an employee at a rival bank, seeking to influence rates. “Pleassssssssssssssseeeeeeeeee … I’m on my knees …”
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***JB: They admitted to criminal activity. I’ll give you a guess how many people will face criminal charges for this. (Hint: It’s not more than zero) Brings to mind the famous quote, “All animals are equal, but some animals are more equal than others.”

Nasdaq CEO says exchanges need to be vigilant against bad actors
Reuters
Exchanges need to constantly be on the lookout for abusive trading behavior in order to protect the resiliency of the marketplace, Robert Greifeld, chief executive officer of Nasdaq OMX Group said on Thursday.
“We have to have the assumption that bad actors will try to do bad things within the market,” Greifeld said in an interview.
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Despite doubters, swaps group ISDA touts central role in market reform
Reuters
When Scott O’Malia, chief executive officer of the International Swaps and Derivatives Association, took the stage at the trade group’s 30th annual general meeting this week, he explained the strength of ISDA as “in a word, relevance.”
To maintain relevance, however, the association needs to adapt to market reforms that in some ways may make ISDA less likely to hold sway.
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