First Read

Boca Bits & Pieces
JLN Staff

Happy St. Patrick’s Day, or as it is called during the FIA Boca conference, Happy Pat Kenny CQG Green Shirt Day. Pat Kenny, the most interesting man in the world who is not being sent to Mars, has a tradition of giving out green logoed shirts to key industry CEO’s during the FIA Florida conference. The tradition dates back to Kenny’s days with PATS.

It is often said that St. Patrick’s Day is amateur day for drinking. If the conference has been any indication, many amateurs have been getting some pretty good practice. Thank you to SGX for holding a nice “reception” last night. The Tiger beer is still clouding my head this morning.

Carl Gilmore continues to add gravitas to Integritas Financial Consulting, as he has announced today that Chris Hehmeyer of HTG Capital Partners has signed on as chairman of his advisory board. Hehmeyer just stepped down as chairman of the National Futures Association board, so he has a lot more time on his hands.

Is the Exchange Leaders Panel Still the Exchange Leaders Panel?

As the big exchanges continue to diversify holdings and spread revenues well beyond the traditional, Walt Lukken‘s question at yesterday’s exchange leader seemed rather appropriate. Driving the point home, Andreas Preuss of Deutsche Boerse said the company is moving into less than 50% revenue generated by trading and clearing, and the industry is fast embracing fundamentally disruptive technology improvements. In the near future, he said, tech companies will rule, and the way the business looks today “may soon be a fond memory.” The industry should look to what other companies outside the financial markets have done in the forefront of technology, and must also focus on making the cycle from invention to production shorter.

Jeff Sprecher, however, said that exchanges are still the ecosystem and they evolve their technology to accommodate their exchange customers. “The exchange is the touchpoint that drives these other value services,” he said. And the exchange companies are providing a one stop shop for customers.

Phupinder Gill of CME Group said exchanges’ core mission has transformed now that they have a financial obligation to shareholders. But he said that offerings such as data are complementary to the core exchange business.

Now on to other bits and pieces from Boca Wednesday.

Continuing a major theme from yesterday’s newsletter, options are a driving driving growth in exchange volume, and the industry is taking note. In a blog post yesterday, Trading Technologies announced it is ready to roll out options functionality on its new platform. CME Group‘s Derek Sammann says options on futures are the fastest growing product at the CME Group these days. While overall volume at the exchange is up 17% year on year, options trading is up 27%. The trend has been going on for the last 5 years or so but has accelerated in the past two or three years.

In addition, electronic trading of options has jumped, with 45% of options trading electronically.

Interestingly, while historically commodity lows have tended to push volumes in options lower, the reverse trend is now taking place – even though commodities across the board are at historic lows, traders are flocking to options, because while typically hedgers would be more concerned with hedging upside risk rather than downside risk in commodities, they are now more concerned with hedging the downside, Sammann said.


Options traders prepare for ‘worst of all worlds’
Financial Review
Users of the US equity options market fear they face higher costs as the latest industry consolidation involving Nasdaq is not expected to alleviate a fragmented landscape of trading venues. The New York-based group stole a march on rivals last week with a $US1.1 billion deal to buy the International Securities Exchange from Deutsche Börse. By taking control, Nasdaq will decisively leapfrog the Chicago Board Options Exchange to become the biggest operator in a field of 14 exchanges, with a 40 per cent market share.

***** The worst of all worlds is the day after St. Patrick’s day.


Cinnober once again one of Sweden’s most attractive employers
Cinnober has, for the third year in a row, secured a place among the top 100 of Sweden’s most attractive employers. This in the comprehensive Employer Study “Företagsbarometern” within the computers and IT segment.

***** I could not agree more.


Coke Thinks Designer Milk Could Be a Billion-Dollar Brand
In its quest to slake the world’s thirst, Coca-Cola is intent on making milk a billion-dollar brand. But not just any kind of milk. Coke has joined forces with a dairy cooperative to create Fairlife, which produces a filtered, high-protein, low-sugar, lactose-free designer milk also called Fairlife. It costs about $4 for a 52-ounce bottle—more than organic milk and about double what the conventional stuff sells for. In its first year on shelves, Fairlife reached about $90 million in sales, giving a sizable boost to the specialty milk category, which includes milk with more calcium or no lactose.

****JB: Coca-Cola milk? Doesn’t bear thinking about.


Crude Mystery: Where Did 800,000 Barrels of Oil Go?
There is mystery at the heart of the oversupplied global oil market: missing barrels of crude. Last year, there were 800,000 barrels of oil a day unaccounted for by the International Energy Agency, the energy monitor that puts together data on crude supply and demand. Where these barrels ended up, or if they even existed, is key to an oil market that remains under pressure from the glut in crude.

****SD: Only so many barrels can fall off the back of a truck or a tanker.


Bond Vigilantes So Yesterday as Budget Brigade Seeks More Debt
Say good-bye to the bond vigilantes and hello to the budget brigade.
A passel of investors, academics and even central bankers are calling on governments to spend more and tax less to provide a budgetary boost to the struggling global economy. That’s a 180 degree turn from the bond vigilantes of yore who pressed for smaller deficits and less debt about a quarter century ago.

****JB: Up is down. Right is left. Cats and dogs living together…


Top Three Stories on Wednesday
These first two stories were heavily read and came in neck-and-neck. First, by an inch, was the story CME Group sells data center outside Chicago, to lease back space. A very close second was FIA Elects New Board Members at Annual Meeting. My co-workers got to be there for it. I got to report on it from Chicago. Maybe they will bring me a t-shirt. Edging out a host of others for third place is Jefferies writes off KCG stake following massive Q1 losses


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Lead Stories

ICE’s Sprecher Contemplates Next Move as LSE Bidding War Looms
John Detrixhe, Will Hadfield and Matthew Leising – Bloomberg
Your move, Jeff Sprecher. The chief executive officer of Intercontinental Exchange Inc. has to decide whether to jump into the bidding for London Stock Exchange Group Plc, now that Deutsche Boerse AG and LSE have announced an all-share deal that they’ve described as a merger of equals. ICE, the owner of the New York Stock Exchange, confirmed on March 1 it’s considering a bid. It has started lining up financing, people familiar with the matter said last week.

Industry criticises CFTC’s plans for new automated trading rules
Gregory Meyer in Boca Raton – FT
Released in November, the 521-page rule would require that proprietary trading firms register with the CFTC and follow mandates such as on how many orders can be placed in a given time. Reg AT would also give the commission a chance to peek at secret computer source code, what one Chicago-based trading executive called the “lifeblood” of his business.

ETFs reflect market conditions rather than dictate them
Joel Dickson – FT
Controversy over exchange traded funds centres around three key questions
As exchange traded funds have become more popular, the amount of controversy about them has grown. The current ETF debate centres around three key questions. Are there now too many ETFs? Do they contribute to market volatility? Is there something about the way that ETFs work that means they are uniquely challenged in times of market stress?

Integritas Financial Consulting Announces Christopher Hehmeyer Named Chairman of Advisory Board
Integritas Financial Consulting
Integritas Financial Consulting (“Integritas”), a boutique advisory specializing in futures and securities, announced today that industry veteran and recent National Futures Association Chairman Christopher Hehmeyer is now serving as chairman of the company’s advisory board.

Deutsche Börse and LSE: exchanging vows
Financial Times
A 16-year courtship came to an end on Wednesday. Deutsche Börse, the German listed exchange group, officially popped the question with an all-share offer for London Stock Exchange Group. There is still much to be done before the wedding is held. Specifically, regulatory risks remain and a competing proposal is possible. One non-issue should be dispensed with first. An Out vote in the Brexit referendum will not derail the deal. The LSE shareholder vote should come before the June 23 referendum. D Börse chief Carsten Kengeter insists that the combined company will benefit whether the UK is in or out, and he plans to set up a committee to manage the issue. One might expect a more detailed plan. It seems there is none.

JPMorgan, Citi shareholders to vote on potential breakup plans
Shareholders of JPMorgan Chase & Co (JPM.N) and Citigroup Inc (C.N) will get to vote on whether their banks should consider breaking into smaller pieces.

Goldman Sachs’s Gerald Corrigan to retire
Financial News
E Gerald Corrigan, the former New York Federal Reserve president who embarked on a second career at Goldman Sachs, will retire from the Wall Street firm at the end of May.
Corrigan, a partner who joined Goldman in 1994, held a series of advisory roles at the firm. In 2010, Goldman appointed him co-chair of the business standards committee to strengthen practices and its relationship with clients frayed by the financial crisis.

Bridgewater, World’s Largest Hedge Fund, Grapples With Succession; Founder Ray Dalio dominates an idiosyncratic culture of ‘intellectual Navy SEALs’ amid promise of ‘planful transition’ of power
Bridgewater Associates LP often tells clients that the world’s largest hedge fund is halfway through a “planful transition” of power from founder Ray Dalio.


FIA Comments On CFTC’s Proposed Rule On Automated Trading
Press Release
FIA filed a comment letter with the Commodity Futures Trading Commission (CFTC) today in response to its proposed rule on automated trading. “Automated trading has revolutionized markets, enhancing efficiency and contributing to liquidity,” said Walt Lukken, president and CEO of FIA. “To be effective, regulation of automated trading must be implemented in a manner that protects market integrity while allowing for continued evolution of trading practices and technology. We appreciate the CFTC’s goal of modernizing regulations and enhancing transparency, but we have concerns with the proposed rule as written, particularly with regard to the scope of their application.”

LSE/Deutsche Börse: Twenty degrees of regulation
Financial News
Despite the two companies agreeing terms, the planned merger between the London Stock Exchange Group and Deutsche Börse is not scheduled for completion until late 2016 or early 2017 – hardly surprising, given that it needs the nod from no fewer than 20 regulators, including authorities as far afield as the US, Russia and Singapore.

Basel nears probe into leverage ratio
Luke Jeffs – Futures & Options World
The Basel Committee on Banking Standards is to take a step towards its long-awaited probe into the impact of its controversial leverage ratio reforms, according to the world’s top future trade body. Walt Lukken, the president and chief executive of the FIA, said the leverage ratio was the biggest challenge facing his members and welcomed a plan by the Basel Committee to launch a consultation with the banks the leverage ratio could hurt.

Libor trader Hayes tells court he used spread-betting gains to buy house
Tom Hayes, the former trader serving an 11-year jail sentence for conspiracy to rig Libor interest rates, told a London court on Wednesday that he had paid for about half of his seven-bedroom country house with cash earned privately from spread-betting. Britain’s Serious Fraud Office (SFO), which is seeking to recover alleged proceeds of crime, argued that Hayes bought his country house in southern England with part of 2.45 million pounds ($3.45 million) of bonuses he earned while at UBS and Citigroup in Tokyo between 2006 and 2010.

Esma ordered to revisit Mifid II bond trading rules
Financial News
The European Commission has sent contentious parts of the review of Europe’s trading rulebook back to the regulator that wrote them, saying that they do not sufficiently take the views of the European Parliament into account. The technical standards in question form part of the review of the Markets in Financial Instruments Directive, known as Mifid II, and its accompanying regulations. They focus on transparency requirements for bonds and some derivatives, exemptions from Mifid II for market activities that are undertaken by non-financial businesses, and the limits placed on positions that can be taken in commodity instruments.

Faking it for fun and profit
Dan McCrum – Financial Times
Son, there are many ways to make your fortune in this world. Plastics, oil, inventing Ubers for things. But for a man of your intelligence and flexible moral equilibrium, here are two words to take to heart: stock fraud. It may seem daunting at first, but remember the world thinks share prices going up are a good thing. Brokers and exchanges want companies to list on public exchanges, analysts want to cheerlead, and everyone wants to make money. Appeal to hopes and dreams, and know that most assume someone else has checked the details.

SEC Scrutinizing Use of Non-GAAP Measures by Public Companies
Dave Michaels – WSJ
U.S. securities regulators are looking at whether it is time to restrict companies’ use of financial metrics that deviate from official accounting standards, Securities and Exchange Commission Chairman Mary Jo White said Wednesday.

Chinese hedge funds scramble as regulators clean up ‘Wild East’
China’s hedge fund industry has been thrown into disarray as managers rush to comply with stringent new rules, introduced overnight, that could see over half the industry shut down by August, fund managers and lawyers told Reuters. Domestic and foreign hedge fund managers are scrambling to secure legal advice, hire qualified staff and launch new products in a bid to save their licenses after the regulator threatened last month to close down around 17,000 “phantom” fund managers as part of a broader government financial sector crackdown.

Exchanges & Trading Facilities

Frankfurt fightback starts over exchange merger
Financial News
It is not that the Germans oppose the deal. They know that as competition intensifies between global exchange giants, Deutsche Börse must adapt to survive, and a merger with LSE Group would be a welcome addition to its strength. But they do not accept that the deal should be done at any price. The two sides are so far apart on certain issues that the deal could lead to an open political clash between Europe’s two biggest financial centres. The Germans are particularly irked that the LSE Group apparently made it a condition of the deal that the holding company, the legal entity owning the new, merged exchange group, must be incorporated in London. The Germans want it in Frankfurt. Likewise, they argue that if the merged company runs a single clearing house, that operation should be in Frankfurt.

LSE-Deutsche Börse merger is ICE’s to disrupt
Financial Times
Deutsche Börse and the London Stock Exchange are sticking to their script: the combination will be a nil-premium merger of equals. That means the deal is now Intercontinental Exchange’s to disrupt, if it chooses. Deutsche Börse and LSE are promising hefty cost synergies of EUR450m, or £355m. That’s around £100m better than estimates. Taxed and capitalised on the back of an envelope, the figure is worth about £5.7bn at prevailing multiples. Not bad for a combined group worth some £20bn. However, the value would flow to investors over decades. If ICE can offer some of its own cost savings from a takeover of LSE in the form of cash, many investors would prefer it.

Host of advisers jostle for $85 mln fees from LSE-Deutsche Boerse deal
It took a staggering 11 banks and 30 named bankers to seal the $30 billon tie-up between Deutsche Boerse and London Stock Exchange Group (LSE). The roll call was included in Wednesday’s announcement of the deal to create a European trading powerhouse to see off competition from U.S. rivals. But the list would be longer still if it included the lawyers, PR advisers and accountants that will no doubt claim a slice of the fee bonanza. The 11 banks will be fighting for an estimated fee pot of $85 million, according to Freeman Consulting/Thomson Reuters estimates.

Merger of London Stock Exchange and Deutsche Börse Has Skeptics
George Hay – NY Times
Investors buy only half of the logic of splicing together the London Stock Exchange and the Deutsche Börse. The two European exchanges announced on Wednesday that their proposed merger would create 450 million euros in annual cost synergies, in three years’ time. The market has factored this in, but little more. Since Feb. 23, when the deal was announced, L.S.E. shares have risen 14 percent from their three-month average of 25.30 pounds. Deutsche Börse’s are up 4 percent from 57.74, the sterling value of its undisturbed share price average at the current exchange rate. Collectively, that’s a premium of £1.7 billion.

China Merchants Group joins race to buy Baltic Exchange – sources
State-run conglomerate China Merchants Group [CNMGP.UL] has made an informal bid to buy London’s Baltic Exchange, becoming the latest contender for the business that has been the hub of the global shipping market for centuries, two sources told Reuters.

Nasdaq Looks Outside China for Asian Unicorns
Jonathan Cheng – WSJ
A Nasdaq Inc. executive said that after years of focus on China, the New York-based stock exchange is seeking more growth from other countries in the region, including India, South Korea and Japan. In particular, Bob McCooey, Nasdaq’s senior vice president of listings, said in an interview he was closely watching many of the so-called unicorns, or startups valued at $1 billion or more, in the region that he expected would soon be seeking public listings. In recent years, the Nasdaq Stock Market has benefited from a stream of Chinese companies listing in the U.S., but he said that growth in the listing business “seems like it’s transitioning to outside China.”

Nasdaq Futures Market Showing Consistent Growth
Press Release
Robust market support with more than 7 million contracts since July 2015 launch
Consistent growth of 20% in volume and open interest
More than 20% market share in natural gas options on multiple trading days demonstrates support from energy trading community

HFT Act: Amendments to the calculation of Excessive System Usage Fee (“ESU Fee”)
The Excessive System Usage Fee (“ESU Fee”), initially announced in Eurex circular 212/13, came into effect on 1 December 2013.

Money market derivatives: Extension of expirations in Three-Month EURIBOR Futures (FEU3) and adjustment of contract specifications
Effective 18 March 2016, the Management Board of Eurex Deutschland and the Executive Board of Eurex Zürich AG decided to adjust the contract specifications for Three-Month EURIBOR Futures (FEU3).

Adjustment of FIH Mobile Structured Products, Futures and Options
Hong Kong Exchanges and Clearing Limited (HKEX) has announced the arrangements for the adjustment to FIH Mobile Ltd (FIH Mobile) structured products, futures and options to account for FIH Mobile’s distribution of a special dividend.

Moscow Exchange benchmarks recognised as IOSCO compliant (OJSC Moscow Exchange MICEX-RTS)
Moscow Exchange benchmarks recognised as IOSCO compliant (OJSC Moscow Exchange MICEX-RTS) (Source: OJSC Moscow Exchange MICEX-RTS) Moscow Exchange’s (MOEX) benchmarks for the currency, equity, bond and money market segments have been recognised as compliant with the principles of the International Organization of Securities Commissions (IOSCO), confirming the Exchange’s commitment to good global practices in financial benchmarking. MOEX’s robust benchmarks form the foundation for a number of financial…


Trump as president? It’s a top 10 global risk, The Economist warns
Donald Trump becoming U.S. president ranks among the top 10 risks facing the planet, according to the Economist Intelligence Unit.

Regulation Alone Will Not Change Bad Behavior on Wall St.
William Cohan – NY Times
Perhaps trying to burnish his legacy on financial reform, President Obama has recently trumpeted his signature steps to transform Wall Street in the years since the financial crisis that confronted him as he began his term eight years ago. But there are reasons to doubt that his efforts will have the profound effect he hopes they will. After a March 7 meeting at the White House with the top Wall Street regulators, including Janet L. Yellen, the chairwoman of the Federal Reserve, Mr. Obama praised the Dodd-Frank reform law, the Volcker Rule that seeks to prevent proprietary trading and the creation of the Consumer Financial Protection Bureau, which is intended to make the world as safe from bad mortgages as it is from bad toasters.

Hedge Funds & Managed Futures

How the secondaries market is offering investors a way out
Financial News
They say good things come to those who wait. Yet waiting for the returns of a private equity investment can be painfully long. The average fund life is 13 years. For fund of funds it is even longer – around 15 years. And if investments prove troublesome they can stretch out much longer.

Bridgewater, World’s Largest Hedge Fund, Grapples With Succession
Rob Copeland and Bradley Hope – WSJ
Bridgewater Associates LP often tells clients that the world’s largest hedge fund is halfway through a “planful transition” of power from founder Ray Dalio. So far, the succession plan has moved in fits and starts. Mr. Dalio has experimented with power by committee, shuffled through several high-profile executives brought in from the outside and yanked responsibilities away from his presumed heir apparent. Hedge funds, like many closely held firms, are known for hewing closely to the personalities of their founders. Mr. Dalio, 66 years old, turned Bridgewater into one of the most successful investment firms ever, with more than $70 billion in profits for clients since its launch in 1975.

Commodity Crisis Eats into Global Capex
The global slump in commodity prices that has seen the benchmark Goldman Sachs Commodity index slump by around 50% over the past 20 months, has already claimed victims in the form of jobs and dividend cuts, profit warnings and credit rating downgrades. Now Standard & Poor’s says it’s also eaten into capital expenditure plans, and is likely to keep doing so for the next couple of years at least. In a report Thursday it put figures on just how deep that could go. According to a survey by the ratings agency, global capital expenditure by companies across all sectors fell 10% in 2015.

Pershing Square falls 26.4% year through March 15 on Valeant
Pershing Square Holdings Ltd., the publicly traded security of Bill Ackman’s activist hedge fund, lost 26.4 percent this year through March 15, hammered by losses at Valeant Pharmaceuticals International Inc., the beleaguered drugmaker whose shares plunged by more than half this week.

Investment bank analysts stayed bullish as Valeant struggled
Financial Times
Twenty-one of the 23 analysts who cover Valeant were telling investors to buy or hold on to the drug group’s shares before Tuesday’s massive sell-off, reigniting questions whether the research produced by investment banks is too bullish about the companies they cover. Shares in Valeant, the besieged Canadian drugmaker, tumbled by more than 50 per cent after the company raised the spectre of a default on its $30bn of debt and bungled its much reduced earnings forecasts. They have barely moved since.

Will Financial Alchemy Help RBS Sale?
Is the privatization of Royal Bank of Scotland Group PLC about to get even more complicated? Eight years after pumping £45.5 billion ($64.88 billion) into the lender, British taxpayers still own 73% of RBS. The bank’s share price is languishing at £2.32, well below the £5 level at which the government bailed it out. A looming vote over whether the U.K. will leave the European Union, wild market swings and plunging European bank shares have made big RBS share sales hard to contemplate.

Chicago settling $390 million tab when city can least afford it
Chicago taxpayers, already reeling from a financially strapped school system and mounting pension costs, are looking at a final tab of about $390 million to end ill-timed bets on interest rates. The city council on Wednesday authorized issuing as much as $200 million of bonds to help pay termination fees, estimated at $100 million, to unwind derivative contracts linked to its water debt, the last of the city’s interest-rate swaps.

Buybacks Aren’t What They Used to Be
Steven Russolillo – WSJ
The corporate buyback binge continues at full tilt. But, perhaps with good reason, investors may be losing faith in its ability to propel share prices. U.S. companies authorized $158 billion of new stock buyback programs in January and February, according to Birinyi Associates Inc.

Why Blockbuster Funds go Bust
One of the biggest killers of good asset management companies is too much money flowing into too few products too quickly. Blockbusters can both make and break asset managers. Not all fund flows should be equally valued. A key component in analyzing the volumes of AuM gathered is the quality of flows. Sustainable blockbuster AuM levels are built on high quality flows. Measures of quality are strongly correlated with the timing of flows. Higher quality is found in early flows; later flows show a marked decrease.

Diamonds suffer from oversupply, price falls in new era
James Wilson – Financial Times
Only eight years ago, De Beers celebrated the opening of Snap Lake — a landmark project for the diamond producer. The diamond mine in Canada’s remote North West Territories was De Beers’ first outside its African heartland and the first completely underground diamond mine in the country. By the end of 2014, $2.2bn had been spent on development and operations.

The Fed’s Hidden Message
By Narayana Kocherlakota – Bloomberg
The U.S. Federal Reserve’s latest economic projections contain an encoded message crucial to understanding the central bank’s policies: Inflation has been stuck below the Fed’s target in part because officials don’t actually want to get it back up.

Bill Ackman is acting a lot like he did the last time he blew up a hedge fund
Linette Lopez – Business Insider
Part of why history repeats itself so often is that it’s so rare for grown people to change, especially if they are Masters of the Universe accustomed to being right.

Banks & Brokers

J.P.Morgan, Citi shareholders to vote on potential breakup plans: WSJ
Shareholders of J.P.Morgan Chase & Co (JPM.N) and Citigroup Inc (C.N) will get to vote on whether the two banks should break up into smaller pieces, the Wall Street Journal reported, citing people familiar with the matter.

Brokerages Adapt to Pending Labor Rule
Michael Wursthorn – WSJ
Some brokerages are lowering the bar for retirement savers. Ahead of a pending Labor Department rule that would require brokers to put the interests of retirement savers ahead of their own, brokerages are reducing account minimums on some products that charge an annual fee for investment advice and services.

Kitces: Silver Lining for Broker-Dealers in a Fiduciary Future
In coming years, the broker-dealer business model will be under threat from the looming rollout of the Department of Labor’s fiduciary rule, which at best will likely reduce upfront commissions and drive a shift toward more level compensation for advisors, and some predict may eventually eliminate product commissions altogether.

Morgan Stanley Says It Was ‘Wrong’ on LinkedIn Call
Kristen Scholer – WSJ
Morgan Stanley has a message for its clients: We were wrong on LinkedIn. The bank previously had an “overweight,” or bullish, rating on shares with a lofty $190 price target. But, as shares have fallen 43% since the company reported earnings in early February, Morgan Stanley is dialing back its call, downgrading the stock to “equal-weight” and slashing its price target to $125.

Brokers want entry bar raised
Business Standard News
A number of brokers recently met the Securities and Exchange Board of India (Sebi), asking it to raise the minimum net worth criterion for their sector to at least Rs 10 crore. The current minimum net worth criterion for brokers varies between Rs 25 lakh and Rs 3 crore, depending on the exchange. Net worth is the amount by which assets exceed liabilities and is a measure of how much an entity is worth.

Clearing & Settlement

China Construction Bank authorised as trading and direct clearing participant; Admission for both cash and derivatives markets/ Supporting the development of China Europe International Exchange (CEINEX)
Deutsche Börse
China Construction Bank (CCB) Frankfurt Branch received authorisation as a trading and direct clearing member to the cash and derivatives markets operated by Deutsche Börse Group. This further contributes to the accessibility of the German and European capital market to Chinese issuers and Asian investors. China Construction Bank Frankfurt Branch is the first Chinese direct clearing member at Eurex Clearing, for both cash and derivatives markets. The admission also enables the CCB to participate in CEINEX, China Europe International Exchange.

Intercontinental Exchange (NYSE: ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, introduced credit default swap (CDS) clearing today for the iTraxx Australia and iTraxx Asia ex-Japan Investment Grade indices, and the following sovereign names: Australia, China, Indonesia, Korea, Malaysia and the Philippines.

Bank names obstruct single-name CDS clearing
The dangers of clearing single-name credit default swaps (CDSs) on bank members of a central counterparty (CCP) are impeding efforts to voluntarily clear the product – a bid by the industry to bolster dwindling liquidity – and it could obstruct mandatory clearing of the product, credit traders warn.

Europe will open gates to US CCPs, says Massad
US clearing houses should have “no problem” getting approval to operate in the European Union after the US Commodity Futures Trading Commission (CFTC) unanimously approved a substituted compliance framework for European CCPs that are dually registered with US regulators, CFTC chairman Timothy Massad said today (March 16).

CFTC approves substituted compliance framework in follow-up to equivalence agreement between the US and the EU
The US Commodity Futures Trading Commission (CFTC) has unanimously approved a substituted compliance framework for dually-registered central counterparties (CCPs) located in the European Union (EU), together with a comparability determination with respect to certain EU rules.

CFTC Cements Swaps Clearing Framework With EU
Law360, New York (March 16, 2016, 3:40 PM ET) — The U.S. Commodity Futures Trading Commission formally declared Wednesday that certain European Commission regulations concerning the central clearing of swaps agreements and other instruments are equivalent to the CFTC’s, facilitating derivatives trading among companies on opposite sides of the Atlantic.

Final Regulatory Technical Standards on Margin for Uncleared Derivatives
Shearman & Sterling LLP – JDSupra
The European Supervisory Authorities published final draft regulatory technical standards on risk-mitigation techniques, including details on specific operational procedures, for OTC-derivative contracts not cleared by a Central Counterparty. Under the European Market Infrastructure Regulation, counterparties to uncleared OTC derivative transactions are required to implement risk mitigation techniques to reduce counterparty credit risk.

Indexes & Products

CBOE to add options on FTSE 100, FTSE China 50 indexes to offering
The Chicago Board Options Exchange (CBOE), part of CBOE Holdings, Inc (NASDAQ:CBOE), today announced its intentions to list options on the FTSE 100 and FTSE China 50 indexes beginning March 29, 2016.

HSBC GAM cuts fees on six ETFs as price war continues
Investment Week
HSBC Global Asset Management has significantly reduced management fees on six exchange-traded funds, marking the latest move in the tracker price war, Investment Week can reveal.

Disagreement with a legend
Jack Bogle may have contributed more to the investment management industry than any other human in history. Mr. Bogle is the founder of Vanguard, the largest mutual fund company in the world, and innovator who came up with the idea of the shareholders owning the funds they invest in. Because of this structure (no shareholders who are demanding profits), they are able to keep their fees exceptionally low, which is one of the reason we use them for our clients. They are also the fund company that popularized index funds, espousing the idea that owning the entire market passively is a much better bet than trying to pick winning stocks. Low fees, broad diversification…what’s not to like?

Smart-Beta Investors Chase Performance at Their Peril
Institutional Investor
Smart beta is the Swiss Army knife of the investment world. Smart-beta products reorganize indexes in a variety of ways to tilt portfolios in multiple directions, trying to exploit volatility or capture value or ride momentum. But new research suggests that many of these vehicles may simply be dressed-up performance chasers. To succeed with smart beta, investors should focus more on what a product is actually doing and less on the popularity of a specific factor.


G. H. Financials And Object Trading Bring The World To ASX 24 Clearing Broker On Object Trading’s Managed Service Platform Provides On-Demand DMA To One Of The World’s Largest Derivatives Exchanges
Press Release
Object Trading and G. H. Financials announced readily-available direct market access to the ASX 24. G. H. Financials, a leader in order-routing, clearing and settlement services to the world’s derivatives markets, has become a conformed broker on the managed DMA (Direct Market Access) service platform of Object Trading, a provider of a global, multi-asset trading infrastructure. Market participants can now easily trade on the ASX 24, with minimal onboarding times, as G. H. Financials’ execution, clearing, and risk management infrastructure and related setup processes are in place and already active on the Object Trading platform.

PwC: Banking Execs Fear Risk Due to Fintech Innovation & Disruption – Crowdfund Insider
Crowdfund Insider
Top banking executives fear that up to a quarter of their business could be at risk from emerging fintech firms, according to research conducted by PwC. The report notes that information on FinTech is somewhat “dispersed and obscure,” which can make data synthesizing challenging. PwC’s findings are based on DeNovo insights and the views of survey participants, highlighting key trends that will enhance customer experience, self-directed services, sophisticated data analytics and cyber security.

Mega-Round Funding Hits Fintech
The Daily Brief
Funding and deals in the financial technology space hit a record high last year, due in large part to the rise in mega-rounds of $50 million or more, according to a new report by KPMG and CB insights. North America saw fewer than 10 mega-round deals cumulatively between 2011 and 2014, but that number was nearly 40 in 2015. Avant, for example, an online lending platform, raised $325 million in September. The total number of fintech deals increased from 933 in 2014 to 1,162 last year. Venture capital-backed fintech companies raised $13.8 billion in 2015, up from $6.7 billion in 2014. “It appears VC investors are committing more money to fintech with the belief that banking and insurance are industries ripe for change,” the report said.

FIX Urges Takeup of V3 of MMT Trade Data Standard
Waters Technology
Industry standards body FIX Trading Community has published version 3.0 of its Market Model Typology (MMT) standard, which aims to provide a MiFID 2-conformant trade flagging model that will help data vendors deliver MiFID-compliant data solutions to customers.

Innovate Finance and OnDeck set up transAtlantic fintech policy group
The UK’s Innovate Finance and US marketplace lender OnDeck have launched a Transatlantic Policy Working Group (TPWG) to share and exchange information on regulatory and policy issues impinging on the emerging fintech scene.

JPMorgan Chase & Co Pushes Further in Fintech
Business Finance News
JPMorgan Chase & Co. (NYSE:JPM) has been aggressively pushing in the financial technology (Fintech) sector. According to Quartz, the banking giant has recently hired Seth Wheeler, a former economic advisor to US President, as its managing director to lead the Fintech innovations.


CFTC Orders Equinox Fund Management, LLC to Pay over $5.65 Million for Material Misstatements and Omissions
The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and settling charges against Equinox Fund Management, LLC (Equinox). The Order finds that Equinox, a CFTC-registered Commodity Pool Operator (CPO), made material misstatements and omissions in its disclosure documents and annual and quarterly reports concerning its operation of a multi-advisor commodity pool, the Frontier Fund (TFF), which offered investments in several separate and distinct series.

Ex-Goldman employee settles SEC insider case, to give up profits
A former Goldman Sachs Group Inc employee hired to help the bank root out illegal conduct settled Securities and Exchange Commission insider trading charges by agreeing to give up $468,132 in profit he made by stealing from the Wall Street bank’s email system, the SEC said.

SEC Obtains Insider Trading Judgment Against Yue Han
On March 16, 2016, the Honorable Valerie E. Caproni of the United States District Court for the Southern District of New York entered a final judgment against defendant Yue Han, based on insider trading charges filed against Han on November 24, 2015. In its Complaint, the Commission alleged that Han, who worked as an associate in Goldman Sachs’ compliance department, traded on confidential information contained in e-mails sent and received by Goldman Sachs’ employees who advised investment banking clients on impending merger and acquisition transactions.

ASIC Imposes Additional Licence Conditions On Macquarie Bank
Press Release
ASIC has imposed additional conditions on the Australian financial services (AFS) licence of Macquarie Bank Limited (Macquarie).

Environmental & Energy

The world’s carbon-dioxide emissions have stabilised
The Economist
It could be a rare piece of good news in the battle against global warming. The International Energy Agency (IEA), the world’s most prominent energy forecaster, said on March 16th that carbon-dioxide emissions from burning fossil fuels have remained flat for two years in a row. Emissions from the world’s two biggest polluters, America and China, have been falling. The world has not seen such a lull since the early 1980s.

U.S. Coal Sector Faces Reckoning
Peabody Energy Corp. warned Wednesday that it could go bankrupt, signaling the end of an era for listed U.S. corporate coal companies, even as their mines continue to fuel a big chunk of the country’s power stations.

Salmon prices leap on global supply shock
Financial Times
Salmon prices have jumped as a severe toxic sea algae bloom has wrought havoc on fish farms in Chile, the world’s second-largest producer. Chilean salmon prices have risen 25 per cent to about $5 a pound since December before the crisis hit, according to analysts. Unusually high sea temperatures, caused by the El Nino weather phenomenon, and a lack of rainfall are believed to have prompted the algae outbreak.


Asia Cheers as Yellen Succumbs to Cry-Bullies
Well, here’s another nice mess you’ve gotten us into, Janet.
U.S. Fed Chair Janet Yellen left rates unchanged this week, and confided after the Fed’s two-day policy meeting that, despite continuing improvement in the U.S. economy, weak global economic growth and turbulent markets had spooked the Fed into halving the number of times it expects to raise rates this year, to two from four.

Japan lawmaker urges expansion of retail tax-free stock investment program
A Japanese ruling party lawmaker said on Thursday the government needs to consider expanding its tax-free stock investment program targeting retail investors to boost household assets and spur fund supply for economic growth.

China’s muddled FX policy sows reform doubts
Euromoney Magazine
China has reportedly drafted a Tobin tax on foreign currency transactions – just the latest in a series of measures that appears to backpedal on financial reform. However, bulls say it’s a classic move by Beijing to limp towards reform without subjecting domestic markets to volatility.

Negative Rates and Japan’s Pension Crunch
Stable retirement benefits arriving in their silver years are something Japanese salarymen look forward to after a lifetime of hard work. But for companies who haven’t saved enough to meet those obligations, negative interest rates could make a bad situation worse.

China Snubs Global Banks in Hong Kong IPOs
A northern Chinese commercial lender is the latest example of large Chinese companies turning a cold shoulder to Wall Street banks when doing big Hong Kong initial public offerings.
Chinese IPOs have been the traditional lifeblood of Hong Kong’s global banking community, providing a big chunk of investment banking fees for Asia. Now that’s changing.

Beyond China’s Bad Debt
Everyone suspects that Chinese banks understate their soured debt. Nonperforming loans at 1.67 percent of total assets, the highest since 2009, are still well below where many analysts believe they should be.
But two lenders from the mainland that are set to break a drought in listings in Hong Kong have been pretty open on other fronts.

US Hedge Fund Is Predicting Big Things for World’s Worst-Performing Stock Market
Jordi Visser, head of investments at $1.4 billion U.S. hedge fund Weiss Multi-Strategy Advisers, has a bold prediction for the world’s worst-performing stock market.
Not only does he foresee China’s Shenzhen Composite Index beating most global peers by the end of December, he expects the measure to top all others in the next three to five years. Foreign funds should have unprecedented access to the city’s equities this year when a delayed exchange trading link via Hong Kong opens up.

Frontier Markets

African Bank to Expand Consumer Deposits After Lender’s Recovery
African Bank Ltd., the unsecured lender that collapsed almost two years ago, said it will offer a broader range of financial products and services when it starts operating under a new banking license next month, including the expansion of retail deposits from 2017.

Maintaining the Emerging-Economy Growth Engine
Lee Jong-Wha – Project Syndicate
The world’s emerging economies seem to be losing their dynamism. Countries that only a few years ago were being hailed for their resilience in the face of a global economic meltdown are now facing myriad challenges, reflected in significantly slower GDP growth. Is the emerging-economy growth engine breaking down?

Brazen Heist of Millions Puts Focus on the Philippines
Floyd Whaley and Neil Gough- NY Times
It is a financial whodunit for the digital era: More than $80 million of Bangladesh’s money vanished last month after it was electronically transferred out of that country’s account at the Federal Reserve Bank of New York. As officials around the world search for the money and place blame, the caper is highlighting what looks like a weak point in the global financial system that allowed the money to get by regulators: the murky banking system of the Philippines.

4 Reasons Emerging Markets Are Oversold – Emerging Markets Daily
But emerging markets remain in the red over the past 12 months. The folks at TIS say they have turned bullish on emerging markets as central banks globally “reflate” economies and asset prices with stimulative policy, commodity prices recover and currencies stabilize. Another factor: the changing political tide in North America, which could boost trade with Latin America. TIS was negative on emerging markets and related currencies at the start of the year:

Emerging-Market Stocks Are Very Cheap
Flows into emerging-market funds globally in early March were at the highest levels since the end of 2013. That happened as a rebound in appetite for risk assets returned amid a period of relative stability in all financial markets. The rebound in risk appetite brought the MSCI Emerging Market Index to about the flat line for 2016.

India-focused funds see surge of domestic investors
Business Standard News
India-dedicated funds raised nearly two and a half times more money from domestic investors in 2015, after the activity dropping around 74 per cent a year ago. However, experts still believe domestic capital will take time to mature and get unlocked in India.

With Lula back, who is in charge of Brazil?
Financial Times
Who is actually in charge in Brazil? Last week it seemed to be Dilma Rousseff, the country’s incompetent and unpopular president. Then, last weekend, it looked to be the people. An estimated 3m protesters marched in Brazil’s largest ever anti-government demonstration to demand Ms Rousseff’s impeachment on corruption charges.


Forbes investigates after ‘contributor’ asks PR for £300 to write online profile; Freelance journalist asked for ‘someone to fund my time’ saying they were ‘only paid a very small sum by Forbes which doesn’t stretch far’
John Plunkett – The Guardian
US business publisher Forbes has launched an investigation after a freelance journalist who claimed to be a contributor to its 1,800-strong digital network offered to write a company profile in return for a £300 payment from its PR agency.

Moneyball for Book Publishers: A Detailed Look at How We Read
Andrew Rhomberg wants to be the Billy Beane of the book world. Mr. Beane used analytics to transform baseball, famously recounted in “Moneyball,” a book by Michael Lewis. Now Mr. Rhomberg wants to use data about people’s reading habits to radically reshape how publishers acquire, edit and market books.

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