John Lothian News: Big asset managers eye new trading venue; Finra Scrutinizes Banks' Role in Bond Market; Exclusive: SEC eyes test that may lead to shift away from 'dark pools'

Apr 11, 2014

First Read

Strong Debut for CBOE Short-Term Volatility Index Options
A Reported 3,134 Contracts Trade on First Day
Chicago Board Options Exchange) reported that first-day trading volume for CBOE Short-Term Volatility Index (VXST Index or “Short-Term VIX Index”) options with weekly expirations totaled an estimated 3,134 contracts.
jlne.ws/1iAOf9m

***** Good timing with the market break.

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VXST Options – Day 1 Est. Volume of 3,134, as Index Jumps 30%
By Matt Moran, SPVixViews
Today CBOE launched options on the CBOE Short-Term Volatility Index (VXST), and the VXST Index rose 30% to close at 16.50.
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***** Indexes values derived from options prices don’t jump. They leap.

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FIA Webinar – Washington Update: A Briefing on CFTC Reauthorization, CFTC Nominations Process & Other Key Issues
Futures Industry Association
The U.S. House of Representatives is set to consider legislation to reauthorize the Commodity Futures Trading Commission. The bill, which was approved by the House Agriculture Committee on April 9 by a voice vote, reauthorizes the CFTC through September 2018. The legislation also includes provisions to better protect customer assets, it revises the organizational and operational requirements of the CFTC, and it provides regulatory relief to end-users of derivatives. Dawn Stump, FIA’s head of government affairs, will host a brief webinar Wednesday, April 16, 2014,11:00 AM – 12:00 PM EDT.
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***** Don’t miss this.

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Shares in HKEx Jump on Mainland Connectivity News
by Ned Levin, WSJ MoneyBeat
Shares in Hong Kong Exchanges and Clearing Ltd. jumped more than 10% in trading this morning following the announcement of a plan to connect HKEx with the Shanghai Stock Exchange, which would offer investors in Hong Kong and the Chinese mainland unprecedented access to markets across the border.
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***** CME Group investors did not enjoy a jump or leap yesterday with the market break, but what did Merrill Lynch recommend the CME Group do?

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Hold the Champagne, Hong Kong
By William Pesek, Bloomberg
Alibaba, who? The decision last month by the Chinese e-commerce giant to list in New York presented Hong Kong with an existential crisis. Now that seems like a distant nightmare, after China announced it would link the stock exchanges of Hong Kong and Shanghai and allow a combined $4 billion of daily cross-border trading. It’s New York’s turn to question the very foundations of its place in the world.
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***** Times Square is moving to Hong Kong?

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Federal prosecutors in Manhattan probe JPMorgan’s Masters – report
Reuters
Blythe Masters, who will leave JPMorgan Chase & Co after a 27-year career, is under investigation by federal prosecutors in Manhattan, Bloomberg reported citing two people with knowledge of the matter.
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***** A power move by federal regulators.

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Slow Cop, Fast Beat: SEC Takes Its Time on High-Frequency Trading Rules
By Dave Michaels, Matthew Philips, and Silla Brush, Bloomberg
When Mary Jo White appeared before the Senate in March 2013 seeking confirmation as chair of the Securities and Exchange Commission, she told lawmakers that understanding high-frequency trading’s impact on the stock market would be a “very, very high priority.” She spoke about the “sense of urgency” the SEC needed to bring to the issue so that “appropriate regulatory responses can be made.” More than a year later, lawmakers, investors, and SEC commissioners are still waiting to see what that response will be.
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***** What exactly is high frequency trading again?

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Flash Boys are the good guys in all this
From Dr Thomas Auld, FT Letters
Sir, Many of us who chose to work in the electronic trading industry did so because we were uncomfortable with the relationship between the investment banks and their clients. Michael Lewis’ latest book Flash Boys does go some way in describing how this relationship has manifested itself in the modern, fragmented, US equity markets.
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****** Speculators are my heroes.

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Only the ignorant fear hyperinflation
Martin Wolf, FT
Failure to understand how the monetary system works has made it more difficult for central banks to act effectively. Some years ago I moderated a panel at which a US politician insisted that the Federal Reserve’s money printing would soon cause hyperinflation. Yet today the Fed’s main concern is rather how to get inflation up to its target. Like many others, he failed to understand how the monetary system works.
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***** We all have our deep seated fears. Mine is running out of beer.

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CME tests support for cocoa contract to rival ICE -traders
By Marcy Nicholson and Chris Prentice, Reuters
The CME Group Inc, the world’s biggest futures exchange operator, has canvassed traders in recent months about opening a cocoa futures contract to challenge its rival’s grip on the niche $15 billion market, traders said.
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***** Will it be for real this time? I can’t tell you how many times I have heard this story.

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2014 NIBA New York Conference May 1
National Introducing Brokers Association
Join fellow IBs, CTAs, CPOs, APs, regulatory officials and futures industry service providers including the exchanges, FCMs, legal, accounting, compliance, technology, marketing and more for an afternoon of learning, discussion, and networking. May 1, 2014, New York Athletic Club, 180 Central Park South, 2pm.
jlne.ws/1kvZjM0

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Exchange CEO Series – Expanding Metal: LME’s Garry Jones tells a Hong Kong growth story
JohnLothianNews.com

Garry Jones is no stranger to exchange competition. Now the CEO of the London Metal Exchange, which was acquired by the Hong Kong Exchanges & Clearing (HKEx) last year, Jones been in the exchange, trading platform and derivatives dealer space for decades.

The LME deal represents a new set of opportunities, he said.

“Hong Kong’s acquisition of the LME was interesting, because for them it was the first real push into a new asset class,” Jones told Jim Kharouf, John Lothian News’ editor-in-chief at the FIA Boca Conference last month. “They bought the LME because of the strong franchise in metals but also as a bridgehead into Asia as well.”

He said that kind of M&A is moving exchanges out of their core areas and into new areas. “I think most exchanges realize that in order to grow at a particular rate, you have to do it not just organically, but by acquisition.”

Watch the video »

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Lead Stories

Big asset managers eye new trading venue
By Stephen Foley and Arash Massoudi in New York, FT
Regulators have stepped up their scrutiny of the booming bond markets, launching an inquiry into Wall Street banks’ trading profits and expanding a probe into how new offerings are doled out to investors, according to officials.
jlne.ws/1kAnYio

**** You should never use the words “Big Asset” in a headline.

Finra Scrutinizes Banks’ Role in Bond Market; Regulators Are Looking at Whether Some Money Managers Are Favored at the Expense of Other Investors
By Jean Eaglesham, Katy Burne and Justin Baer, WSJ
Regulators have stepped up their scrutiny of the booming bond markets, launching an inquiry into Wall Street banks’ trading profits and expanding a probe into how new offerings are doled out to investors, according to officials.
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Exclusive: SEC eyes test that may lead to shift away from ‘dark pools’
By Sarah N. Lynch and John McCrank,Reuters
U.S. securities regulators are considering testing a proposed reform that could drive business to major stock exchanges and away from alternative trading venues such as “dark pools” that critics say may be hurting investors by reducing the quality of pricing.
jlne.ws/1qni3MI

Citadel Fund Said to Quadruple With High-Frequency Trades
By Katherine Burton, Bloomberg
High-frequency trading has been good to billionaire Ken Griffin.
His Citadel LLC returned more than 300 percent in a fund started as a high-frequency strategy in late 2007, according to two people familiar with the Chicago-based money manager. The $830 million pool, which added other strategies in recent years, beat the 44 percent gain of the U.S. stock market in the six years through 2013 as well as Griffin’s two main hedge funds, which together have $8.8 billion in assets and rose 45 percent in the period.
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China opens big window to equity market
By Josh Noble in Hong Kong and Simon Rabinovitch in Shanghai, FT
Though China has kept the door to its equity market closed, on Thursday it opened a pretty big window.
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SGX’s push for more market liquidity
By Nicole Tan, Channel NewsAsia
The Singapore Exchange (SGX) is taking measures to improve liquidity in the market. It announced on Thursday that it is introducing new incentives to bring market makers and liquidity providers into the market.
jlne.ws/1i7ZNVf

High-frequency trading is ‘legalised scalping’
Bianca Hartge-Hazelman, Syndey Morning Herald
High profile Bell Potter trader Charlie Aitken has labelled high-frequency trading “legalised scalping” and warns that the national stock exchange is headed for trouble because it profits from allowing investors to gain faster access to the equity market to the disadvantage of other participants.
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Let Flash Boys fix the Lincoln Tunnel
Gary Silverman By Gary Silverman in New York, FT
The fast-money folks can make themselves, and those who move at slower speeds, much happier. The whole financial world is talking about high-frequency trading. It’s the kind of thing that happens when Michael Lewis takes on a subject, whether bond trading in Liar’s Poker or baseball in Moneyball. The guy is to buzz what Anheuser-Busch InBev is to beer.
So I would like to offer a modest proposal for reining in the fast-moving folks Mr Lewis claims are helping to rig the stock market. I suggest they pay tolls like anyone else who uses the Lincoln Tunnel.
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Complex Order Types, Fragmentation And Dark Pools, Oh My!
Ivy Schmerken, Wall Street & Technology
Traders agree that market structure and some complex order types are not benefiting investors.
jlne.ws/1sL7DZz

Arabica coffee premium over robusta soars, blends questioned
By Marcy Nicholson, Reuters
The premium of arabica coffee over the more bitter robusta bean soared to the highest level in more than two years on Thursday, raising the likelihood that some roasters will need to alter their highly secretive blends to maintain profit margins.
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INSIGHT-Gold rush threatens West Africa’s cocoa future
By Joe Bavier and Loucoumane Coulibaly, Reuters
* Rise in gold prices tempting farmers to try mining
* Artisanal mining destroying plantations in Ghana, Ivory Coast
* Drain on labour force hindering harvesting
* Youth see little future in West Africa’s cocoa sector
YOHO, Ivory Coast, April 11 – A month ago, Bouafu Kouassi dug a neat circular hole in the middle of his one-hectare cocoa plantation in western Ivory Coast, and, sifting through the gravel on his shovel, found the unmistakeable traces of gold dust.
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Regulatory

DoJ probes Citigroup unit over suspicious transactions – WSJ
Reuters
The Justice Department is investigating whether a Citigroup Inc unit in California failed to alert the government about suspicious banking transactions along the U.S.-Mexico border, the Wall Street Journal reported, citing people familiar with the matter.
jlne.ws/1gS0ugs

Federal Regulators Advise Banks to Protect Their Systems From Internet Security Flaw
By MICHAEL CORKERY, NY Times
Federal regulators are advising banks to take steps to protect their systems from the Heartbleed Internet security flaw that could put sensitive customer information at risk.
jlne.ws/R8RX48

UK’s Financial Conduct Authority: Statement On Achilles Macris – JPMorgan Chase – ‘London Whale’ Trades
MondoVisione
On 14 October 2013 Mr Macris made a reference to the Upper Tribunal (Tax and Chancery Chamber) asserting that the FCA should have given him the right to make representations on certain matters set out in the final notice issued to JPMorgan Chase Bank N.A (JP Morgan) on 19 September 2013 which related to the ‘London Whale’ trades. Such rights are known as ‘third party rights’.
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Exchanges & Trading Facilities

CME Group to delay start of new North American aluminum contract to May 6
Platts
The CME Group has delayed the launch of its new North American physically delivered aluminum futures contract by one day, the exchange group said Thursday.
jlne.ws/1ghn2eE

BM&FBovespa Planning New Rules to Bolster Transparency
By Ney Hayashi
BM&FBovespa SA (BVMF3) is planning to adopt new equity-trading rules to improve transparency in Latin America’s biggest securities exchange.
jlne.ws/PXlRaK

NYSE Preps Standalone Amex, Arca Complex Order Book Options Feeds
by Max Bowie, Waterstechnology.com
NYSE Euronext will break out complex order book data for its NYSE Amex Options and NYSE Arca Options markets into two standalone and separately-billable and -reportable datafeeds, NYSE Amex Options COB and NYSE Arca Options COB, from May 1.
jlne.ws/OOuAec

Direct Edge Trading Notice #14-12: Market Holiday Reminder – Good Friday
Bats Global Markets
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TMX Group Statement On The Passing Of James Flaherty
WSJ
TMX Group today offers its condolences on the passing of the Former Minister of Finance James Flaherty.
Thomas Kloet, TMX Group Chief Executive Officer said:
“Mr. Flaherty was fully committed to Canada and to its economic development and prosperity. He served this country with excellence, and more than that, he earned the deep respect of his international peers and represented Canada so effectively on the world stage. This is a sad day for the nation. To Mr. Flaherty’s family, friends and former colleagues, we offer our deepest sympathies.”
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Hedge Funds & Managed Futures

Gross Says El-Erian Should Explain Reason for Exit
By Alexis Leondis, Bloomberg
Pacific Investment Management Co.’s Bill Gross said Mohamed El-Erian should speak up and explain why he resigned from his role as chief executive officer of the bond-fund manager.
jlne.ws/1nbQi80

Ex-Glencore pair open up hedge fund
Giles Turner, Financial News
A brace of former Glencore and Goldman Sachs commodities traders have launched an oil and agriculture-focused hedge fund, as the market improves for the sector.
jlne.ws/1lV89CE

Hedge funds’ March performance worst in nine months – data
Reuters
Hedge funds had their weakest month since mid-2013 in March, data showed on Thursday, as investments took a hit from tensions in Ukraine and fears of a slowdown in China.
jlne.ws/1oSOXHU

Millennium boosts London portfolio management team
Joe McGrath, Financial News
Millennium Management – Izzy Englander’s $21.8 billion hedge fund – continues to broaden its London talent pool, recruiting a portfolio manager from rival hedge fund GMT Capital.
jlne.ws/1iD1Wpw

Q&A with executive director of Apsley Specialty: Are hedge fund managers waking up to AIFMD?
Andy Pearce, Financial News
With the Alternative Investment Fund Managers Directive now stating that the majority of hedge fund managers must have liability risk insurance cover in place by July 22 2014, Apsley Specialty’s executive director James Lawrie assesses how ready hedge fund managers are ahead of the deadline.
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Banks & Brokers

JPMorgan Is Keeping Busy
by Matt Levine, Bloomberg
A bank’s financial statements don’t measure the health of its children or the joy of their play, the beauty of its poetry or the strength of its marriages, the intelligence of its boardroom debate or the integrity of its executives. Honestly, they barely even measure its assets and liabilities. But JPMorgan is breaking new ground in what measures it chooses to report to shareholders, with this magnificent chart from Jamie Dimon’s letter in its annual report:1
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JPMorgan profit falls 19 percent as trading revenue drops
Reuters
JPMorgan Chase & Co reported a 19 percent decline in first-quarter profit as revenue from securities trading fell in a climate of uncertainty about the strength of the economic recovery and the Federal Reserve’s intentions on interest rates.
jlne.ws/1kQ5iH4

Saxo Bank is First Retail Platform to Offer Direct Access to IEX
PR NewswirePress
Saxo Bank, the online trading and investment specialist, has today announced the addition of IEX to its award-winning online trading platform, SaxoTrader. Saxo Bank is the first retail broker to offer access to IEX, an alternative trading system (ATS) which focuses on investor protection and performance by resisting high frequency trading.
jlne.ws/1iD7EHV

Citigroup CEO faces grilling over failed plan, missed target
By David Henry, Reuters
As Citigroup Inc (C.N) Chief Executive Mike Corbat prepares to talk to investors on Monday about the bank’s biggest failure during his 18-month tenure, his biggest struggle may be with how little he knows about the reason he failed.
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Clearing & Settlement

Clearstream’s March 2014 Figures – Continued Peak Of Assets Under Custody At EUR 12.1 Trillion – Significant Growth Across All Four Clearstream Business Streams (Custody, Settlement, Global Securities Financing, Investment Funds Services) – Growth Stems From Both The Global ICSD Business And The German Domestic CSD Business
Deutsche Borse
jlne.ws/1kcyE48

Indexes & Products

STOXX Limited named Most Innovative ETF Index Provider for Europe for fifth time
STOXX
jlne.ws/1hFZFaN

Deutsche Börse Receives Three Global ETF Awards In New York
MondoVisione
At this year’s 10th Annual Global ETF Awards® in New York Deutsche Börse has been awarded for the tenth consecutive time and received awards in the following categories: “Exchange with the largest number of primary listed ETFs in Europe”, “Largest Exchange for ETFs by Dollar Turnover in Europe” and “Most Proactive ETF Exchange in Europe”.
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Technology

Fast and Furious: High Frequency Trading Raises Hackles
Dr. John Bates, Wall Street & Technology
Michael Lewis’ new book “Flash Boys” has whipped up a furious tornado of criticism about high frequency trading. But the market and regulators need to resist the urge to ban the practice and instead embrace the notion of high frequency monitoring and surveillance.
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***** I suggest they get some new Google Glass for the monitoring part.

Enforcement

14-075MR Wealth Within Ltd pays $20,400 in penalties over misleading advertising
ASIC
Wealth Within Limited has paid $20,400 in penalties after ASIC issued two infringement notices for misleading online advertisements. The advertisements related to the investment returns of Wealth Within’s individually managed account service, known as the Direct Equity Managed Account Service.
jlne.ws/1ew1R4A

U.S. judge accepts SAC guilty plea, approves $1.2 billion deal
By Nate Raymond and Emily Flitter, Reuters
SAC Capital Advisors’ $1.2 billion criminal settlement for insider trading received final court approval on Thursday, as a U.S. judge accepted a guilty plea from the hedge fund firm run by billionaire Steven A. Cohen.
jlne.ws/1lV6cpZ

Singapore Took Action Against Standard Chartered Over Bank-Statement Theft; StanChart Revealed Four Months Ago That Clients Had Their Monthly Statements Stolen
By Chun Han Wong, WSJ
SINGAPORE—Singapore’s central bank said Friday it has taken “appropriate supervisory actions” against Standard Chartered PLC over the recent theft of monthly bank statements belonging to some of the U.K. lender’s private-banking clients.
jlne.ws/1sL8OrX

Environmental & Energy

Ikea investing in Illinois wind farm
By Julie Wernau, Chicago Tribune
Home goods giant Ikea is building a wind farm in downstate Illinois large enough to ensure that its stores will never have to buy a single kilowatt of power again.
jlne.ws/1gflU7V

Singapore seeks sustainable water supply
By Jeremy Grant, FT
For a tiny island nation roughly the size of Bahrain or a moderately sized Caribbean island, Singapore has done an astonishing job ensuring it has enough drinking water.
When the island was settled by the British under Sir Stamford Raffles in 1819, its streams and wells were enough to supply its population of 150 people.
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Asia-Pacific

TSE proposes launching late afternoon market
Hideo Kamata / Yomiuri Shimbun, The Japan News
The Tokyo Stock Exchange has proposed a plan to create a late afternoon market from 3:30 p.m. to 5 p.m., as part of efforts to strengthen its global presence by extending its trading hours, according to sources.
jlne.ws/1sLpBLB

1st Dalian Commodity Exchange Blockboard Futures Warehouse Receipts Registered Successfully – Inspection In Place, Registration In Smooth Process – Futures Will Serve As A New Facilitator For Industrial Upgrading.
Dalian Commdodity Exchange
On April 2, the first warehouse receipts of the blockboard futures on Dalian Commodity Exchange (DCE) for 1404 Contract were successfully generated at Benniugang Delivery Warehouse in Changzhou. The blockboards produced by Dalian Penghong Wood Industry Group, a client of Xinhu Futures, smoothly passed the delivery quality inspection and were registered as the first warehouse receipts for the blockboard futures market. The registration process of the blockboard warehouse receipts was fully tested.
jlne.ws/PXg98F

Hong Kong’s Securities And Futures Commission Welcomes Shanghai-Hong Kong Stock Connect Pilot Programme
HKSAR
jlne.ws/1egdXEc

SGX Welcomes Masterlink Futures As Derivatives Trading Member
SGX
Singapore Exchange (SGX) welcomes Masterlink Futures Corporation to its derivatives market as a Trading Member.
jlne.ws/1lPAaJt

Latest China-HK Market Opening Better For Mainland Than HK
By Michelle Yuan and Gregor Stuart Hunter, WSJ
China’s move Thursday to open up its stock markets to more foreign cash, while allowing further access for domestic investors to Hong Kong could be more of a boon for its domestic bourses than for the former British colony.
jlne.ws/1hxW7NH

Frontier Markets

NSEL investors file complaint to freeze IBMA assets
Commodity Online
The investors forum also alleged that NSEL regularly extended loans to IBMA to memet the deficit in funds required to discharge IMBA’s settlement obligations.
jlne.ws/1gS1Wj4

Thomson Reuters eyes ‘opportunities’ with Tehran Stock Exchange
Reuters
Thomson Reuters (TRI.TO) (TRI.N) is exploring potential business opportunities with the Tehran Stock Exchange should Western sanctions be lifted, the company confirmed on Thursday.
jlne.ws/1iD0Uty

EGX Performance During The First Quarter Of 2014
EGX
The Egyptian Exchange (EGX) listed a new company with a capital of as much as 757.5 million Egyptian pounds during the first quarter of 2014. It also succeed in adding 6 capital increases by a total value of about 945.9 million Egyptian pounds. At the same time there was a reduction of the capital of the three companies by a total value of 100.3 million Egyptian pounds. Approved stock splits was a percentage of 67 of the total companies that requested during the first quarter of 2014 which is the highest rate in nearly 4 years .
jlne.ws/1eg9hOM

Miscellaneous

Bitcoin Price Crashes as Chinese Exchanges Halt Deposits
By Anthony Cuthbertson
The price of bitcoin has fallen by almost $50 (£30) in a 24-hour period following announcements from bitcoin exchanges in China that they will be suspending bank transfers from customers.
jlne.ws/1kcFKFV

Obituary – Canada’s Jim Flaherty dies aged 64
By Robert Delaney in Toronto
Jim Flaherty, the former Canadian finance minister who guided the country through the global financial crisis with a stimulus programme and targeted support for struggling companies, passed away at the age of 64, just 22 days after resigning from his post.
jlne.ws/1erkwnJ

TradeTech Paris: Mind the Gap
by Marina Daras, Waterstechnology.com
The annual TradeTech event currently taking place in Paris has triggered a lot of debate, ranging from the legitimacy of high-frequency trading (HFT) practices, to the need for accurate and reliable Transaction-Cost Analysis (TCA) tools and the future of dark-pool trading in the wake of Mifid II.
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