John Lothian News: N.Y. Attorney General Sends Subpoenas to High-Speed Firms; Subpoenas Sent to High-Speed; Deutsche Börse hopes that its philosophy has global appeal; Brown, Warren Say Commodities Expose Banks to Unmanageable Risk

Apr 17, 2014

First Read

The Great HFT Debate Gets Stifled
By John J. Lothian

Subpoenas have a way of killing a conversation. According to media reports, six trading firms received a subpoena duces tecum, or a summons for production of evidence, from the New York Attorney General Eric Schneiderman. This is not to be confused with subpoena dunces rapidum techum, or summons to stupid high speed technologists.

John Lothian News has been working on a series of reports about the current explosion of debate about high frequency trading lit by the publication of Michael Lewis’ new book “Flash Boys.” While we have had numerous discussions with people who are intimately involved in high frequency trading and can speak authoritatively about it, it has been a challenge to get them to go on the record. In fact, Two people who had initially agreed to sit for an interview have backed down.

Perhaps the problem is that we are limiting participation to those interested in reasoned, thoughtful debate, and have shied away from bombastic finger-pointers. Yes – we have fielded plenty of calls and emails from such people, on both sides of the issue.

We begin today with the first installment of an interview with Peter Nabicht, former CTO of Allston Trading, now spokesman for the Modern Markets Initiative. Though he technically represents one side of the issue, he has demonstrated a refreshing amount of open-mindedness about what is happening and where we go from here.

The issuing of subpoenas is not going to make this any better. We want to help foster a spirited debate about what is happening, what is right about HFT and what is wrong. What do we need to fix. What do we need to leave alone.

As Doug Ashburn pointed out Monday in his elegant explanation of the latest news of HFT, “too much of the current narrative is based on misinformation and partial-truths, and its chief critics have consistently, if not willfully, misrepresented the facts.”

Let us try to keep the conversation going. Speaking of keeping the conversation going, we would like to remind you that the conversation is coming to Chicago on May 6, in the form of the TABB Group’s 2nd Annual Derivatives Chicago Conference. The afternoon will be focused on market structure and technology, and the keynote speech will be delivered by CFTC Commissioner Scott O’Malia, who also chairs its Technology Advisory Committee.

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Flash Point: Peter Nabicht Talks HFT, Innovation and Misinformation
JohnLothianNews.com

Today’s financial markets can be summed up in three words – global, fast, and complex. But as the market structure evolves, so must the regulatory structure that oversees it. John Lothian News has spoken with several industry experts to create this series on the evolution of financial market structure.

In Part 1, Peter Nabicht, senior advisor of the Modern Markets Initiative, welcomes the public’s interest in high frequency trading in the wake of Michael Lewis’ book “Flash Boys”, but cautions that changes may have unintended consequences.

Watch the video »

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Deutsche Börse hopes that its philosophy has global appeal
Philip Stafford, FT.com
While EU and US policy makers press on with reforming markets in the wake of the financial crisis, Deutsche Börse (DB) stands apart. North Atlantic rivals may have more volume in particular products, but none has the breadth of operations of Europe’s largest infrastructure operator by market capitalisation.
jlne.ws/1tdP9RF

***** I have always appreciated the great German philosophers, among them now the great Reto Francioni and the ever quotable Andreas Preuss

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ICE in Asia: Jeff Sprecher in his own words
By Jeremy Grant, FT
Plans by IntercontinentalExchange (ICE) , the US exchange and clearinghouse operator, for a new Singapore-based business are focusing attention on the Asian city-state’s growing role as a hub for market infrastructure. In an interview in Singapore Jeff Sprecher, ICE chief executive, explains to Jeremy Grant why the company picked Singapore for its push into Asia.
jlne.ws/1kD7Lqk

***** See our interview with Jeff Sprecher in our recent CEO Interview Series at http://jlne.ws/Qgw4zc

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2 Hedge Fund Titans Agree to Buy the Milwaukee Bucks
By WILLIAM ALDEN, New York Times Dealbook
Two Wall Street bigwigs, Marc Lasry and Wesley Edens, have a taste for distressed assets.
jlne.ws/1hP3i48

***** The new mascot is the Quick Buck.

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Ever Wanted to See Bankers Strip?
Wall Street Journal MoneyBeat
Ever wonder what some of London’s top financiers would look like if they ripped off their shirts while belting out show tunes? Well, wonder no more.
jlne.ws/1j62VPl

***** How am I ever going to get this image out of my head? Yeech!

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NASDAQ OMX Expands London Presence
MondoVisione
The NASDAQ OMX Group, Inc. (NASDAQ: NDAQ) has expanded its London business to new, larger premises as the Group’s presence in the capital continues to grow.
jlne.ws/1eVKlqN

***** New location, but where is the closest Starbucks? Can it handle the new business?

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U.S. SEC releases cyber security examination blueprint
By Sarah N. Lynch, Reuters
U.S. securities regulators have unveiled a road map that lays out how they plan to make sure Wall Street firms are prepared to detect and prevent cyber security attacks.
jlne.ws/1r2f8aF

***** The bad guys would like to thank you for this blueprint.

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Singapore Iron Ore Week 2014
The second Singapore Iron Ore Forum will be held at Resorts World Sentosa from 6 – 8 May 2014, organised by CUSTEEL in collaboration with Singapore Exchange (SGX) and supported by International Enterprise Singapore (IE Singapore).
SGX
jlne.ws/1pcV3D3

***** I can’t even imagine the schwag you would get for Iron Ore Week.

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MarketsWiki

MarketsWiki Page of the Day
ALGO Technologies Ltd?

MarketsWiki Recent Updates

People

George Hanley?; Shimelis Habtewold; Peter Nabicht?; Jennifer Ilkiw?; Rami Habib?; Sanjeev Joshipura?; Hamish Purdey?; Bart Chilton?

Companies, Organizations and Groups

Ethiopia Commodity Exchange?; Bank of America Corp.?; Bantix Technologies, LLC?; Singapore Mercantile Exchange?; Options Industry Council?; ALGO Technologies Ltd?; ADM Investor Services, Inc.?

Products

QuikStrike?

Miscellaneous

Modern Markets Initiative?; Internalizer

Statistics

Page views: 48,309,668; Pages: 20,510; Articles: 7,934
MarketsWiki Statistics

Lead Stories

N.Y. Attorney General Sends Subpoenas to High-Speed Firms; Subpoenas Sent to High-Speed Firms Jump Trading, Chopper Trading, Tower Research, Others
By Scott Patterson, WSJ
WASHINGTON—New York Attorney General Eric Schneiderman’s office sent a first wave of subpoenas to more than a half-dozen high-frequency trading firms in an investigation into whether some of the firms have an unfair advantage over other trading outfits, according to a person familiar with the investigation.
jlne.ws/1gKWa7h

Deutsche Börse hopes that its philosophy has global appeal
By Philip Stafford, FT
While EU and US policy makers press on with reforming markets in the wake of the financial crisis, Deutsche Börse (DB) stands apart. North Atlantic rivals may have more volume in particular products, but none has the breadth of operations of Europe’s largest infrastructure operator by market capitalisation.
Thanks to long-term planning, its operations have mushroomed in the last 20 years from share trading to derivatives and commodities, and providing IT services and market data.
jlne.ws/1eMVEqX

NY attorney-general subpoenas high-frequency traders
FT.com
New York’s attorney-general has sent subpoenas to six high-frequency trading firms as its investigation into whether certain traders have an unfair advantage over others widens beyond the stock exchanges. The office of Eric Schneiderman last week sent subpoenas to six trading firms, including Tower Research, Chopper Trading and Jump Trading, a person familiar with the matter said. The identity of the other three firms could not immediately be identified. A seventh high-frequency trading firm received a letter, this person said.
jlne.ws/1hY0ITw

Brown, Warren Say Commodities Expose Banks to Unmanageable Risk
By Gregory Mott, Bloomberg
Senators Sherrod Brown and Elizabeth Warren urged the Federal Reserve to bar banks from owning physical commodity assets, saying the holdings expose financial holding companies to “unprecedented and unmanageable financial, legal, environmental, and reputational risks.”
jlne.ws/1ndKrSC

SIFMA Supports Move to Shorten Settlement Cycle
SIFMA
New York, NY, April 16, 2014– SIFMA today announced it supports a move to shorten the settlement cycle for U.S equities, corporate bonds and municipal bonds to trade date plus two days (T+2) from the current T+3. SIFMA recognizes that shortening the settlement cycle on a timeframe that is workable for all market participants can meaningfully benefit investors by reducing systemic risk.
jlne.ws/1r2cvWC

How a 56-Year-Old Engineer’s $45,000 Note Loss Spurred SEC Probe
By Kevin Dugan, Bloomberg
Jeff Steckbeck didn’t read the prospectus. He didn’t realize the price was inflated. He didn’t even know the security he read about online was something other than an exchange-traded fund.
jlne.ws/1j64xHJ

New U.S. attorney unit targets securities, commodities fraud
By Lynne Marek, Crain’s Chicago Business
The U.S. attorney in Chicago has created a new section to focus on prosecuting securities and commodities fraud, creating such a focus here for the first time.
jlne.ws/QgkGmN

THE CHINA FUTURES ASSOCIATION AND THE OPTIONS INDUSTRY COUNCIL SIGN MOU REGARDING OPTIONS EDUCATION IN CHINA
OIC
CHICAGO, IL (April 16, 2014) – The China Futures Association (CFA) and The Options Industry Council (OIC) announced today that they have signed a Memorandum of Understanding (MOU) to establish cooperation on options education, information sharing and training.
jlne.ws/1hPcGVy

Regulatory

Regulation On Securities Settlement And On Central Securities Depositories In The EU (‘CSD Regulation’) – Frequently Asked
jlne.ws/1hY2Hrb

SEC Guidance Frees RIA Marketing on Social Media
Institutional Investor
jlne.ws/1gDbFdU

Self-Regulatory Organization (SRO) Rulemaking and National Market System (NMS) Plans
jlne.ws/1eCTnOv

Closing Remarks at the SEC’s 24th Annual International Institute for Market Development
Commissioner Daniel M. Gallagher, SEC
jlne.ws/P7HYKy

AMF part of international meeting on OTC derivatives market
AMF Canada
AMF part of international meeting on OTC derivatives market The Autorité des marchés financiers (“AMF”) is contributing to the work carried out by the OTC Derivative Regulators Group, which is composed of executives and senior representatives from OTC derivatives regulators in Australia, Brazil, the European Union, Hong Kong, Japan, Ontario, Singapore, Switzerland and the United States.

NASDAQ OMX Expands London Presence
MondoVisione
The NASDAQ OMX Group, Inc. (NASDAQ: NDAQ) has expanded its London business to new, larger premises as the Group’s presence in the capital continues to grow.
jlne.ws/1eVKlqN

FCA bans partners of firm that failed to consider customer SIPP suitability
Andrew Rees and Timothy Hughes, partners at 1 Stop Financial Services (1 Stop), have been banned by the Financial Conduct Authority (FCA) from performing any significant influence function in relation to any regulated activity. Mr Rees and Mr Hughes had advised customers to switch into self-invested personal pensions (SIPPs), which enabled those customers to invest in unregulated and often high risk products, regardless of whether those products were suitable for the customers. 1 Stop has now ceased trading and has applied to cancel its FCA permissions.
jlne.ws/1r26qcH

Traders watchful for Mifid II detail
Futures & Options World
The European Parliament ratified on Tuesday the next wave of Mifid and effectively fired the starting gun on the introduction and implementation of the most ambitious piece of legislation in the history of the European markets, says Luke Jeffs
jlne.ws/1tb8KSw

CFTC told EU platforms not to seek Sef equivalence
by Peter Madigan, Risk.net
After realising an overhaul of its Sef-equivalence framework was needed, the CFTC told European platforms not to apply. At the same time, the FCA was working through rules with UK venues
jlne.ws/1ns95vW

Exchanges & Trading Facilities

Stock Exchange of Thailand (SET) and Deutsche Börse AG sign Memorandum of Understanding
Eurex
“This partnership is an important element of our overall Asia strategy.”
jlne.ws/1hNBUTg

BM&FBOVESPA announces the 2nd preview for Ibovespa and other indices valid for May-August 2014
BM&FBOVESPA
São Paulo, April 16, 2014 – BM&FBOVESPA announces the second preview for the BOVESPA Index theoretical portfolio, which will be valid for the period of May 05-August 29, 2014, based on the closing of the April 15, 2014 session. The preview registers the entrance of MMXM3 (MMX MINER ON) onto the Ibovespa portfolio, which is now made up of 73 stocks from 68 companies.
jlne.ws/P5Jmx2

Nasdaq OMX Orders Danske Bank To Pay A Fine
Mondovisione
In Section 4.6.2 of the NASDAQ OMX Nordic Member Rules, it is stipulated that a member may not place orders or complete transactions that are intended to improperly influence price formation in the trading system or that are devoid of a commercial purpose. In the case in question, the Disciplinary Committee has found that Danske Bank has breached these regulations.
jlne.ws/1m9Ig2c

Highlights of Q1 in fixed income futures & options
Eurex
n this issue of our quarterly key figures, we are introducing a new section about the clearing of our fixed income and money market derivatives. At the end of this article, you will find more about the opportunities Eurex Clearing offers for cross margining and capital efficiencies.
jlne.ws/1nsaPFs

First db x-trackers ETF on Indonesian government bonds launched on Xetra
Deutsche Boerse
Xetra/Börse Frankfurt: A new db x-trackers bond index fund from the ETF section of Deutsche Asset & Wealth Management has been tradable in the XTF segment on Xetra since Thursday.
jlne.ws/QgiN9G

Weibo Corporation [WB] to Ring The NASDAQ Stock Market Opening Bell in Celebration of IPO
NASDAQ OMX
jlne.ws/1m9EEgx

STOXX announces results of annual Emerging and Developed Markets Classification Review
STOXX
jlne.ws/1hFZFaN

REVISED .. HOLIDAY SCHEDULE – Good Friday, April 18th, 2014
CME Group
jlne.ws/1mglm6R

Hedge Funds & Managed Futures

Influence of banks, hedge funds on commodities lowest since 2008
By David Sheppard, Reuters
United Nations economists who previously called for government intervention to tame volatile swings in commodity prices say banks and hedge funds have since reduced their influence to the lowest level since 2008.
jlne.ws/1r2cHoP

Chocolate price hikes could make it ‘like champagne’
Jenny Cosgrave, CNBC
As cocoa prices surge to near-record highs on demand for emerging markets, chocoholics brace for a hike in price – and maybe even a different taste, as chocolate makers hunt out cheaper ingredients.
jlne.ws/1hNESXY

Once a Notorious Short Seller, Martin Shkreli Now Sees a Future in Biotech
By Paul M. Barrett, Bloomberg
Martin Shkreli doesn’t sit still. Slouching in a modern black chair at the Manhattan offices of Retrophin (RTRX), the biotechnology company he started three years ago, he fiddles with a keyboard connected to a wall-mounted monitor, multitasking even as he gives an interview. As he talks, he flips through a copy of the Journal of the American Medical Association. He tugs at the blue hoodie he’s wearing over a crimson golf shirt and jeans. He’s 31 years old but could easily pass for an undergraduate.
jlne.ws/1nsbA1c

Private Equity Fundraising Is Off to Strongest Start Since 2008
Wall Street Journal MoneyBeat
Last year’s massive private equity selloff has propelled fundraising in the U.S. to its highest first-quarter level since the onset of the economic downturn in 2008. A total of 204 buyout and corporate finance funds, venture capital, mezzanine, secondary and funds of funds raised $49.73 billion, according to Dow Jones LP Source,
jlne.ws/1jMQidM

Russell Investments Strategists’ Outlook – Second Quarter Update: Economies thaw from a cold winter and valuations heat up
Russell Investments
Strategists maintain preference for equities over fixed income globally
Team sees moderately stronger growth in the U.S., a resilient Japanese economy and signs that China is stabilizing
jlne.ws/1pao95U

Banks & Brokers

Goldman battles bond trading decline
By Tom Braithwaite in New York, FT
Goldman Sachs suffered another steep decline in fixed income trading revenues and was overtaken by arch-rival Morgan Stanley in equity trading but still beat analysts’ estimates.
jlne.ws/P7OSiZ

Goldman’s stock-trading prowess wanes
By Justin Baer and Scott Patterson, WSJ
Under pressure from unhappy clients and losing market share to rivals, Goldman Sachs Group Inc. is trying to jump-start its stock-trading business.
jlne.ws/1gBskhS

Profit and Revenue Drop at Goldman Sachs
By RACHEL ABRAMS, New York Times Dealbook
Goldman Sachs on Thursday reported a drop in first-quarter profit, to $2.03 billion, reflecting declines in its fixed-income unit and overall revenues.
jlne.ws/1eVWNqz

Morgan Stanley Profit Increases 18%
By PETER EAVIS, New York Times Dealbook
Morgan Stanley’s efforts to re-establish itself as a Wall Street powerhouse since the financial crisis gained some ground on Thursday, when the bank reported that first-quarter earnings rose 18 percent from the period a year earlier.
jlne.ws/1l73m1C

Clearing & Settlement

LME says court refuses permission to appeal warehouse ruling
Reuters
The London Metal Exchange (LME) on Wednesday lost the first stage of an effort to appeal against a court ruling which halted a reform aimed at reducing logjams at its global network of warehouses.
jlne.ws/1isFyS4

Indexes & Products

 

Technology

High-Frequency Fightback Starts in Foreign Exchange: Currencies
By Lucy Meakin
Foreign-exchange dealers say they have the solution to the high-frequency trades eroding banks’ profits across financial markets. A currency-dealing platform known as ParFX, established in 2011 by firms from Deutsche Bank AG to Citigroup Inc., was approached last month by banks asking if its technology could be applied to other asset classes, Chief Executive Officer Dan Marcus said. The system works by pausing trades at random to prevent dealers with high-powered computers from jumping in front of investors and gaining an advantage.
jlne.ws/1eVVp76

SunGard Wins Waters’ Sell-Side Technology Awards for Best Trading Network and Best Smart Order Routing Tool
SunGard Global Network for Securities (SGN Securities) and SunGard’s Fox Flashlight have been named “Best Sell-Side Trading Network” and “Best Smart Order Routing Tool” at Waters magazine’s 2014 Sell-Side Technology Awards, respectively. The award winners were announced at an event on April 15 in New York.
jlne.ws/1pcUskQ

Enforcement

Tribunal upholds £80,000 fine for broker who lied about income and used falsified payslips in mortgage application
The Upper Tribunal (Tribunal) has upheld the decision of the Financial Conduct Authority (FCA) to impose a financial penalty of £80,000 on Amir Khan, director of Sovereign Worldwide Limited (Sovereign), for dishonestly submitting false income details to a mortgage lender in a personal mortgage application.
jlne.ws/1mghSRN

Environmental & Energy

Discontinuation of Eurex-EEX product cooperation / Decommission-ing of the Clearing Link between Eurex Clearing and ECC
EEX
Since 2007, Eurex Exchange, Eurex Clearing, European Energy Exchange (EEX) and Europe-an Commodity Clearing (ECC) have been co-operating in energy derivatives products. Within this cooperation framework, Eurex trading participants could use their existing infrastructure and established clearing relationship to access EEX markets.
jlne.ws/1lb7jxY

Asia-Pacific

Rivalry builds in battle for a share of China’s currency trades
By Philip Stafford, FT
Germany and the UK became involved in a minor, yet highly symbolic, public relations skirmish during Chinese president Xi Jinping’s tour of Europe last month.
jlne.ws/1hY2X9t

Taiwan Stock Exchange Leads Delegation To Singapore To Foster The Establishment Of An International Trading Platform
Mondovisione
Taiwan Stock Exchange (TWSE) Chairman, Mr. Lee Sush-der, led a delegation to Singapore from 16 to 18 April to meet with Mr. Magnus Böcker, Chief Executive Officer of Singapore Exchange (SGX). During the talks, the two parties discussed areas for potential cooperation, including measures to further internationalize the Taiwan and Singapore capital markets and develop a trading platform for Southeast Asia.
jlne.ws/1gKYTO4

Thai Bourse Launches First Index Derivative Warrants On
Mondovisione
The Stock Exchange of Thailand (SET) starts trading the first five derivative warrants on SET50 index scheduled to be launched today, underlining SET’s commitment to provide various products to meet investor demands. Proportion of DW trading accounts for 2.74 percent of the total securities trading value, comparatively higher than those of other key markets in the region.
jlne.ws/1pcPKU1

Frontier Markets

Bursa Malaysia Posts 18% Jump In Its Profit
Mondovisione
Bursa Malaysia Berhad (“Bursa Malaysia” or “the Exchange”) registered a PATAMI of RM45.1 million, up by 18 percent for the first quarter ended 31 March 2014 (“1Q2014”) compared to the same period last year on the back of higher operating revenue. On an annualised basis, the return on equity recorded an increase from 18 percent in 1Q2013 to 23 percent in 1Q2014.
jlne.ws/1mgtwfk

Miscellaneous

Bitcoin Creator ‘Satoshi Nakamoto’ Unmasked–Again?
By Paul Vigna, WSJ
A month after a firestorm erupted over Newsweek’s claim that it “unmasked” the creator of bitcoin, a U.K. university has released a new study that points to a different candidate.
The study by students and researchers at Aston University in Birmingham claims a linguistics analysis of the writings by people most often listed as bitcoin’s potential creator leads them to believe that Nick Szabo, a former George Washington University law professor, is the mysterious father of the digital currency.
jlne.ws/1nqopsY

John Lothian Newsletter

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Past JLN Newsletters

CME to permanently close most trading pits

CME to permanently close most trading pits

First Read $40,626/$300,000 (13.5%) Anonymous ++++ Hits & Takes John Lothian & JLN Staff Without fanfare or amplification from its executives, the CME Group shut the books on most -- but not all -- of its floor trading history Tuesday afternoon with the...

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