First Read

Och-Ziff took out $49m loan for jet while under investigation; Hedge fund borrowed $120m more to prepare for bribery settlement
by: Miles Johnson and Lindsay Fortado
Asset manager Och-Ziff took out a $49m loan for a corporate jet when it was facing the possibility of a multimillion dollar fine for alleged bribery of Libya’s Gaddafi regime and other African government officials.

***** What are two things you can’t get rid of? Add a jet to the list.


FCM Rankings – Q1 2016
Tod Skarecky, Clarus Financial Technology
I’ve written about the public FCM data in America a couple times before, most recently back in October 2015 here. I was keen to revisit and update the analysis to see:
Growth in clearing business
FCM rankings for swaps & futures
Concentration amongst top FCM
Any real evidence to firms leaving the clearing business

***DA: Some interesting tidbits from Clarus.


Opinion: Fighting the next global financial crisis instead of the last one
What do people mean when they criticize generals for “fighting the last war”? It’s not that generals ever think they will face the same weapon systems and the same battlefields. They certainly know better. The error, to the extent that the generals make it, must operate at a more subtle level.

***** The brilliant Robert Shiller gives some excellent advice that is never going to be followed. Politicians are politicians, not market strategists.


How a tax scam built Shakespeare’s outrageous fortune
By MARK ARCHER – MarketWatch
While making much ado about tax avoidance recently, has George Osborne ever stopped to think that excessive enforcement of the tax rules might have deprived the U.K. of one of its greatest exports?

***** To pay taxes or not to pay, that is the question. Beware of the taxes of April.


Google’s New Products Reflect Push Into Machine Learning; At developers conference, Alphabet unit updates devices for home, phone and body
Google is betting it can outsmart rivals on new products—from virtual assistants to messaging apps—with advances in artificial intelligence, technology that helps computers make decisions rather than follow instructions.

****** The Google implants are coming next.


Want to See ‘Hamilton’ in a City Near You? Buy a Subscription and Wait Two Years
“Hamilton” is about to hit the road. And, more than a year before it arrives in many cities, theaters around the country are trying to convert the hunger for tickets into subscriptions and memberships.

***** Two years. A Ticket!! A Ticket!! My kingdom for a ticket!!
***** If you missed my “Hamilton the Musical is a Market Obsession” you can read it here.


Sandy Weill’s Wine Country Retirement, With Notes of Rue and Chagrin
Sanford I. Weill, who built Citigroup into a too-big-to-fail colossus and dominated the New York charity and social circuit more than a decade ago, lately can be found relaxed in jeans attending local wine country social events or riding his John Deere farm utility vehicle across his property to visit the neighbors.

***** All the world ‘s a stage, and all the men and women merely players. They have their exits and their entrances; And one man in his time plays many parts. ~WS (As You Like it)


Wednesday’s Top Three
In our top story yesterday the SEC says cyber security biggest risk to financial system. I think many people would be surprised at how many cyberattacks banks and large financial firms fend off (partly because they never share that information for fear of people losing confidence in them). The second most read story on Wednesday was US clearer OCC faces credit rating cut. You can read the OCC’s response here. Rounding out the top three yesterday was the story Electronic trading innovator predicts brokerage industry cull



MarketsReformWiki, our financial regulatory reform archive, is still going strong, as global regulatory reform efforts continue. Recent rulings and updates include a ruling from the CFTC that amends the definition of “material terms” for swap documentation, the next phase of the SEC’s Consolidated Audit Trail, and a new rule from the SEC on incentive-based compensation.

Recently Updated Pages

Recently updated pages include
SEC, Prudential Regulators Joint Proposed Rule: Incentive-Based Compensation Arrangements
Executive Compensation Regulation
SEC Final Rule: Consolidated Audit Trail
CFTC Proposed Rule: Amendments to the Definition of ”Material Terms” for Purposes of Swap Portfolio Reconciliation


12,464,166 pages viewed; 3907 pages; 32,583 edits
MarketsReformWiki Statistics

Lead Stories

A New Trading Floor in 2016? Options Market Turns to Old Tactic
Brian Louis – Bloomberg
BOX Options plans to start an open-outcry floor this year; Options market still has floors, an exception in modern era
In an age of light-speed electronic trading, an options exchange is going old school with a plan to let traders conduct business face to face. BOX Options Exchange, which operates an electronic trading venue, plans to add open-outcry trading in Chicago later this year, according to Chief Executive Officer Edward Boyle. The proposal requires regulatory approval.

SwapClear Compresses Over $1 Quadrillion Of Cleared Notional
Landmark milestone for LCH’s interest rate derivatives compression service; Notional outstanding now stands at $280 trillion, down from all time high of $452 trillion in November 2013; Over one million trades, representing $115 trillion in notional compressed so far in 2016; Continued strong uptake of compression services by members and their clients
LCH, the global clearing house, today announced that its SwapClear service has compressed a total of over 8.4 million cleared trades, representing $1 quadrillion ($1,000,000,000,000,000) in notional since it started offering compression services in 2008. This milestone follows a number of recent innovations in SwapClear’s compression offering which have significantly expanded the number of trades eligible for compression.

Earth’s Relentless Warming Just Hit a Terrible New Threshold; In an age of broken temperature records, this one is especially worrisome.
Tom Randall – Bloomberg
The number of climate records broken in the last few years is stunning. But here’s a new measure of misery: Not only did we just experience the hottest April in 137 years of record keeping, but it was the 12th consecutive month to set a new record.

Five banks sued in U.S. for rigging $9 trillion agency bond market
Five major banks and four traders were sued on Wednesday in a private U.S. lawsuit claiming they conspired to rig prices worldwide in a more than $9 trillion market for bonds issued by government-linked organizations and agencies.

More than 25,000 Madoff victims now eligible for $4 billion fund
The overseer of a $4 billion U.S. Department of Justice fund for victims of Bernard Madoff’s Ponzi scheme said he expected to recommend payouts for at least 25,280 claimants with nearly $4 billion in fraud losses.

JPMorgan wins dismissal of Madoff investors’ U.S. lawsuit
JPMorgan Chase & Co (JPM.N) on Wednesday won dismissal of a lawsuit brought by former customers of Bernard Madoff who blamed the U.S. bank for playing an active role in his Ponzi scheme and ignoring red flags of his fraud.

Justice Department’s Madoff Fund Inches Closer to Victim Payouts
Erik Larson – Bloomberg
Fund administrator set to act on 25,000 claims for $4 billion; Victims haven’t been told when checks to start flowing
The government fund to repay Bernard Madoff’s fraud victims is preparing to recommend approval of more than 25,000 claims covering almost $4 billion in losses, but the Justice Department didn’t say how much it would pay or when checks might go out.

EU MiFID II Market-Rule Revamp Advances With Equity-Market Rules
Julia-Ambra Verlaine – Bloomberg
The European Union took a step closer to completing the overhaul of market rules known as MiFID II as the bloc’s executive arm adopted technical standards on equity markets.

What’s holding back Morningstar’s big push into a new business
By LYNNE MAREK – Crain’s Chicago Business
Morningstar wants to expand its credit ratings business, but the Securities and Exchange Commission is holding it back.

Bond Traders: Did We Underestimate the Fed?
Bond investors have long doubted the Federal Reserve will be able to lift interest rates as many times as it plans to. They’re doubting it a little less these days.

Banks Sued by Investor Over Agency-Bond Rigging Claims
Tom Schoenberg, David McLaughlin, Chris Dolmetsch – Bloomberg
Suit follows probes of SSA bond market in U.S. and U.K.; Traders are alleged to have colluded to fix bond prices
Bank of America Corp. and Deutsche Bank AG were among five banks sued over claims that traders conspired to manipulate trading agency bonds issued by government entities and institutions like the World Bank, harming investors who bought and sold the securities.

Outside groups rally early against Wall Street measures in must-pass bills
By JOSEPH LAWLER – Washington Examiner
Advocates of strict regulations on banks are already pressuring Congress not to include financial deregulations in must-pass spending bills, renewing early a large-scale effort that last year frustrated banks and their Republican allies in Congress.

Activist Investors Have a New Target: Washington; Circa will make case in Washington that activism is good for companies, economy
The activists are taking on Washington. Billionaire investors Paul Singer, Carl Icahn, Barry Rosenstein, William Ackman and Daniel Loeb are setting aside their political differences to launch a Washington-based lobbying group to fight mounting attacks on shareholder activism.


SEC Tightens Crackdown on ‘Adjusted’ Accounting Measures; Regulator plans to release comment letters to more firms regarding the customized metrics
The Securities and Exchange Commission is keeping up its recent drumbeat criticizing the use of “non-GAAP” financial measures that may make a company’s earnings look stronger than they really are.

Recovery plans – initial observations
We recently assessed the compliance of firms’ recovery plans with the Recovery and Resolution Directive (RRD) – a comprehensive recovery and resolution regime that helps firms plan for recovery from financial difficulty – and report on areas for improvement.

UCITS V Level 2 Regulation, SFTR and consequential changes to the Handbook
We are consulting on proposed changes to the Client Assets sourcebook (CASS) and the Collective Investment Schemes sourcebook (COLL), following the adoption of the Undertakings for Collective Investment in Transferable Securities V Level 2 Regulation (UCITS V Level 2 Regulation). We are also consulting on minor changes to SYSC and consequential amendments in COLL and the Investment Funds sourcebook (FUND) to reflect certain measures in the Securities Financing Transactions Regulation (SFTR).

Regulation remains top concern for US energy risk managers; Capital requirements, position limits and other rules still hampering liquidity, conference hears
Elizabeth Blosfield –
Nearly six years after the passage of the Dodd-Frank Act, the stricter regulations that have resulted from the law and other post-crisis legislation are still a major headache for risk managers in the energy and commodity markets, according to speakers at Energy Risk Summit USA in Houston. “Clearly, the 6,000-pound gorilla in the room is regulation,” said Saji John, Houston-based managing director and global head of commodity market risk at Citi, speaking at a May 17 panel discussion devoted to…

Self-Regulatory Organization (SRO) Rulemaking and National Market System (NMS) Plans
NYSE Arca: Order Instituting Proceedings to Determine Whether to Approve or Disapprove a Proposed Rule Change, as Modified by Amendment No. 1 Thereto, to Adopt NYSE Arca Equities Rule 8.900 to Permit Listing and Trading of Managed Portfolio Shares and to Permit Listing and Trading of Shares of Fifteen Issues of the Precidian ETFs Trust (Release No. 34-77845; File No. SR-NYSEArca-2016-08; May 17, 2016)

Exchanges & Trading Facilities

CME Group Inc. Announces Preliminary Results from its 2016 Annual Meeting of Shareholders
CME Group
CME Group Inc. (NASDAQ: CME) today announced the preliminary shareholder voting results from its 2016 annual meeting. At the meeting, shareholders: elected Terrence A. Duffy, Phupinder S. Gill, Timothy S. Bitsberger, Charles P. Carey, Dennis H. Chookaszian, Ana Dutra, Martin J. Gepsman, Larry G. Gerdes, Daniel R. Glickman, Leo Melamed, William P. Miller II, James E. Oliff, Alex J. Pollock, John F. Sandner, Terry L. Savage, William R. Shepard and Dennis A. Suskind each for a one-year term expiring in 2017; ratified the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2016; and approved, on an advisory basis, the compensation of our named executive officers.

LME profits rise 160% as fee hike offsets falling trading volumes
Metal Bulletin
The London Metal Exchange recorded net profits of $108.57 million in 2015, up 160% on the previous year, as an increase in trading fees, stronger market data sales and the disposal of a stake in LCH.Clearnet more than offset the commercial impact of a 4.5% drop in trading volumes.

A. Single Stock Futures: Introduction of seven Single Stock Futures; B. Single Stock Dividend Futures: Introduction of two Single Stock Dividend Futures
The Management Board of Eurex Deutschland and the Executive Board of Eurex Zürich AG took the following decision with effect from 30 May 2016:

SGX provides retail investors greater access to bonds
Singapore Exchange (SGX) is increasing the range of bonds available to retail investors with the introduction of the bond seasoning framework effective today.

SGX welcomes second Oxley Holdings retail bond offering
Singapore Exchange (SGX) today welcomed the listing of Oxley Holdings Limited’s (Oxley Holdings) four-year retail bonds with a coupon rate of 5.15% per annum, payable half-yearly, on the Mainboard under the stock code, “BTNZ”.

Russian Deputy Prime Minister visits HKEX
A delegation led by Yury Trutnev, Deputy Prime Minister of the Russian Federation, visited Hong Kong Exchanges and Clearing Limited (HKEX) today (Thursday).

Japan Exchange Group: The 15th Annual General Shareholders Meeting
The Notice of the 15th Annual General Shareholders Meeting above is scheduled to be sent to shareholders on May 30, 2016.

LSE and Deutsche Börse to hold vote after referendum
The London Stock Exchange and Deutsche Börse will put their proposed $30bn merger to create one of the world’s largest exchanges operators before shareholders only after Britain has voted on whether to leave the European Union on June 23.

Sydney Stock Exchange’s blockchain system targets venture capital funds, commodities
Shaun Drummond – Sydney Morning Herald
Two-year-old Sydney Stock Exchange is building a blockchain settlement system to avoid high ASX fees and build a market for venture capital funds to exit their investments and commodities markets.


Eze Software Adds Tech Industry Veteran To Seasoned Executive Bench
Eze Software Group
Eze Software Group, a leading provider of global investment technology, has appointed Brad Rinklin as Senior Managing Director – Marketing, adding a seasoned technology industry sales and marketing expert to its tenured leadership ranks. Prior to joining Eze Software, Rinklin spent over 15 years at Akamai Technologies, the global Content Delivery Network services provider where he served as the company’s Chief Marketing Officer and Senior Vice President of Global Alliance Sales. He will be leading the charge in positioning Eze Software Group for the next stage of its growth as a leader in financial technology.

GMEX Avenir Warehouse Receipt System Goes Live At The Agricultural Commodity Exchange For Africa
GMEX Technologies (GMEX TECH), part of the GMEX Group and Avenir Technology Limited (Avenir), the UK based post-trade software firm, today announced phase 2 of the project to implement the warehouse receipt system, AvenirWRS, is live at the Agricultural Commodity Exchange for Africa (ACE) in Malawi. This latest project phase delivers warehouse receipts creation, management and financing.

Here’s where big banks stand on blockchain
Daniel Roberts – Yahoo Finance
In case you haven’t heard, blockchain is all the rage lately on Wall Street, whereas bitcoin, the digital currency that blockchain came along with in 2009, is suddenly very uncool.

This bitcoin challenger is up 1,100% this year — but is it ready for prime time?
Ethereum, the world’s second-most valuable cryptocurrency, has seen its value skyrocket as investors and developers have sought different ways to use the technology introduced by bitcoin. But is it ready for the big time?


Failing elites are to blame for unleashing Donald Trump; A healthy republic requires a degree of mutual sympathy rather than equality
by: Martin Wolf – FT
Donald Trump will be the Republican candidate for president. He might even become president of the US. It is hard to exaggerate the significance and danger of this development. The US was the bastion of democracy and freedom in the 20th century. If it elected Mr Trump, a man with fascistic attitudes to people and power, the world would be transformed.

Hedge Funds & Managed Futures

Warren Buffett’s protégés flex investment muscle; Todd Combs and Ted Weschler running greater share of Berkshire’s pension money
by: Stephen Foley in New York – FT
A takeover of Berkshire Hathaway’s largest pension funds allowed Warren Buffett’s two investment protégés, Todd Combs and Ted Weschler, to make bigger bets like the $1bn stake in Apple that was disclosed this week.

Be wary if your mutual fund manager also runs hedge funds: James Saft
By James Saft – Reuters
If your mutual fund manager is also managing a hedge fund you may not be getting the best deal.

Steven Cohen’s $11 billion hedge fund is targeting college sophomores in its recruiting efforts
Julia La Roche – Yahoo Finance
Point72 Asset Management, the $11 billion family-office hedge fund led by Steven A. Cohen, has begun targeting college sophomores in its recruiting efforts.

Banks & Brokers

Ex-JPMorgan, Citi FX sales employees sue banks
A former London-based JPMorgan (JPM.N) foreign exchange sales person is suing the Wall Street bank for unfair dismissal, according to a court filing released on Wednesday.

BNP Paribas Said to Cut 233 Investment-Banking Jobs in London
Fabio Benedetti Valentini, Keith Campbell – Bloomberg
Bank cutting London securitization team by half, person says; Cuts implemented by end of year will see 100 leave in weeks
BNP Paribas SA, France’s biggest lender, is cutting 233 investment-banking jobs in London, according to a person with knowledge of the plan.

Wells Fargo doubles US swaps client clearing business; Client collateral held at Wells Fargo doubled over the year, while European banks saw their volumes contract.
By Joe Parsons – The Trade
Wells Fargo has moved into the top five US swaps client clearing rankings as it doubled customer collateral over the year.

Clearing & Settlement

Clearstream’s monthly report
Global securities financing faces structural changes; Demand for collateral makes it more attractive to use multiple types of securities
The global securities financing business is undergoing structural changes. Negative interest rates affect the activities of market participants, while at the same time central bank funding predominates. However, the new scene opens opportunities for market infrastructure providers like Clearstream who offer products that meet the needs of banks, corporates and the buy side. According to Philippe Seyll, Head of Global Securities Financing and Co-CEO of Clearstream Banking Luxembourg, the securities financing business of the future is a secured market in which market participants are increasingly deploying multiple types of securities.

Clearers strive to solve the collateral challenge
By Tim Cave and James Rundle – Financial New
Ever since the financial crisis, when it seemed like any firm could blow up at any moment, regulators have insisted on one thing more than anything else: insurance against it happening again.

Bourses may need to transfer a quarter of profits to clearing houses
The decision is expected to be announced on Thursday, on the day of the Sebi board meeting
The Securities and Exchange Board of India (Sebi) is likely to make it mandatory for exchanges to transfer 25 per cent of annual profits to their clearing corporations to guarantee settlement of trades.

LCH compresses US$1 quadrillion of cleared trades
Clearing house SwapClear reached the milestone of US$1 quadrillion of compressed interest rate swaps, effectively removing a huge chunk of notional outstanding from the derivatives market.
The LCH-owned clearing house said that it had compressed 8.4m contracts on the platform.

Indexes & Products

EQDerivatives: “VSTOXX Futures spreads garner interest as key events near”
By Rob McGlinchey – EQDerivatives’ via Eurex
Portfolio managers have shown increased interest in trading VSTOXX Futures spreads in an effort to profit from the vol differential between monthly expiries. Although the EURO STOXX 50 continues to be used primarily to hedge event risk, others are finding greater value in using the VSTOXX as a way of positioning around the E.U. referendum. Elsewhere, investors are showing greater interest in 1×2 put ratios on VSTOXX June Futures.

MSCI fields sceptics and enthusiasts as China “A” share decision looms
The world’s biggest investors are divided over whether MSCI will decide next month to include China-listed shares in a key global benchmark, with many harboring concerns over the country’s handling of last summer’s rout and lack of full-market access.

How Can ‘Smart Beta’ Go Horribly Wrong?
Seeking Alpha
Because active equity management has largely failed to deliver on investors’ expectations,1 investors have acquired a notable appetite for any ideas that seem likely to boost returns. In this environment, impressive past results for so-called smart beta strategies, even if only on paper, are attracting enormous inflows. Investors often choose these strategies, as they previously chose their active managers, based on recent performance. If the strong performance comes from structural alpha, terrific! If the performance is due to the strategy becoming more and more expensive relative to the market, watch out!

A Year Later, Record Eludes Dow
Thursday is the anniversary of the Dow Jones Industrial Average’s all-time closing high, reinforcing for stockholders just how long a new record has eluded them.


FINRA Fines Raymond James $17 Million for Systemic Anti-Money Laundering Compliance Failures
The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Raymond James & Associates, Inc. (RJA) and Raymond James Financial Services, Inc. (RJFS), a total of $17 million for widespread failures related to the firms’ anti-money laundering (AML) programs. RJA was fined $8 million and RJFS was fined $9 million for failing to establish and implement adequate AML procedures, which resulted in the firms’ failure to properly prevent or detect, investigate, and report suspicious activity for several years. RJA’s former AML Compliance Officer, Linda L. Busby, was also fined $25,000 and suspended for three months.

Wealth Adviser Daily Briefing: Raymond James Fined $17 Million for Anti-Money-Laundering Lapses
by Michael Wursthorn – WSJ
Raymond James Financial agreed to pay $17 million for “significant systemic” failures in complying with anti-money-laundering requirements, according to The Wall Street Journal.

Gold Trader Zarrab Seeks Release in U.S. on $50 Million Bond
Patricia Hurtado – Bloomberg
Turkish-Iranian man accused of helping Iran launder money; Zarrab was at the center of a bribery scandal in Turkey
A Turkish-Iranian gold trader, facing U.S. charges that he helped the Iranian government launder hundreds of millions of dollars and evade American sanctions, asked a federal judge to treat him like con man Bernie Madoff and allow him to be placed under house arrest.

The FCA bans Keydata’s former compliance officer, Peter Johnson
The Financial Conduct Authority (FCA) has banned Mr Peter Johnson, former compliance officer of Keydata Investment Services Ltd (Keydata), from performing any function in relation to any regulated financial activity and publicly censured him. Were it not for Mr Johnson’s serious financial hardship, the FCA would have fined him £200,000.

Environmental & Energy

Climate change threatens £110trn worth of assets
The Week
Lack of preparation in urban areas at a time when the risk of climate change-related natural disasters is rising poses a risk to $158trn (£110trn) worth of assets by 2050, according to the World Bank.

Kuwait Says Oil Near $50 Shows OPEC’s Strategy Is Working
Wael Mahdi, Zainab Fattah, Manus Cranny – Bloomberg
Oil market to rebalance by end of 2016, Kuwait’s Al-Saleh says; Kuwait plans oil projects in China, South Korea, India, Oman
OPEC’s strategy to defend market share rather than target a price is working as crude gains amid rising demand and declining output from producers including U.S. shale wells, Kuwait’s acting oil minister said.

Latest evacuations plunge oil sands restarts into uncertainty
The sudden surge north of the massive wildfire burning in Canada’s oil sands region has dealt a new setback to producers, triggering a second round of evacuations and threatening work camps north of Fort McMurray.


Credit Suisse targets rich Thais; Bank’s Bangkok push is latest effort to win business from region’s growing super-elite
by: By Michael Peel in Bangkok – FT
Credit Suisse is targeting rich Thais in the latest move by a Swiss bank to tap Asian markets where private wealth business is growing faster than in Europe.

What Can Be Learned From China’s Monetary Past; The cause of China’s decline as a great power in the 19th century? It was bad monetary policy, after all.
China’s decline as a great power in the 19th century wasn’t the fault of imperialism and opium. It was bad monetary policy, after all.

Hong Kong stock inflows from China surge as state leader visits – Asia Times
Hong Kong’s stock market needs all the help it can get. On Tuesday, aid came in the form of the biggest inflows from mainland investors in a year.
The surge happened as the Communist Party’s No. 3 official arrived in the the city. Zhang Dejiang, the People’s Daily said, would bring “confidence and hope” to a city facing a contracting economy. Mainland institutions appeared to be behind the purchases, according to Reorient Financial Markets Ltd.

Frontier Markets

Emerging-Market Stocks Erase 2016 Gains as Fed Weighs June Hike
Emerging-market stocks and currencies fell to two-month lows as Federal Reserve minutes revived the possibility of an interest-rate increase in June, raising the specter of capital flows out of riskier assets.

India proposes tough uncleared swap margin rules; RBI underscores India’s status as a non-netting jurisdiction
Blake Evans-Pritchard –
The Reserve Bank of India (RBI) has reinforced the country’s status as a non-netting jurisdiction by insisting margining for non-centrally cleared derivatives must be done on a transaction-by-transaction basis rather than across the whole portfolio. The RBI insists the legal position for netting in India is not “unambiguously clear”, but this view is not shared by the International Swaps and Derivatives Association (Isda), which has already pronounced the country to be a clean netting jurisdiction…


Phil Falcone’s Pained Grain Grab
Gillian Tan – Bloomberg
Things aren’t falling into place as easily as they once did for former hedge fund titan Philip Falcone.Late on Tuesday, Falcone’s investment holding company HC2 Holdings decided to make known that it had “repeatedly expressed interest” in a takeover of U.S. grain trader and ethanol producer Andersons. HC2 said it made the disclosure because it hadn’t received a substantive response to its all-cash offer of $37 a share, which values Andersons at $1 billion in entirety.

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