We’ve created a list of the five most influential stories of 2011 for each of our newsletters, as well as from MarketsReformWiki, to help define what was a very eventful year across almost every market and industry sector.
The year was punctuated by one major story inside another. The bankruptcy of MF Global, which requires its own top five list, became tied to another top story, the European sovereign debt crisis sequel – Greece and Italy.
Of course, the downgrade of U.S. debt in August and assorted European states raised the ire of politicians and regulators who called for more regulation, not just of rating agencies themselves but of speculators, hedge funds and others. Even Paul Volcker made a comeback. It’s the year when Bart Chilton became a swear word among family members of derivatives traders and Gary Gensler was forever linked to the word “recuse.” It’s also a year when Congress’ Super Committee was anything but and when that trend of indecision led gold over $1,900.
And don’t lay all the bad bets on Corzine. 2011 had John Paulson and Bill Gross on their knees, apologizing to investors. (Gross wasn’t crying. That’s just his usual voice.)
2011 also saw a tragic earthquake and tsunami in Japan, which inflicted unimaginable pain and suffering, and prompted a G-7 coordinated intervention to stem a record rise in the yen. Our hearts and thoughts go out to them this holiday season. Such a tragedy makes a story like CME and CBOE staying in Illinois with shiny new tax breaks somewhat trivial.
Beyond that, the exchange consolidation that began more than a decade ago, revved up again in 2011. The NYSE Euronext-Deutsche Boerse deal, which is pending regulatory approval, also involved the intrigue of competing and ultimately failed bids from interlopers Intercontinental Exchange (ICE) and Nasdaq OMX Group. That deal overshadowed the big news from Canada, where London Stock Exchange’s bid for TMX Group was usurped by other meddlers such as the Canadian regulators and the Maple Group. Both deals will likely be completed, or scrapped in 2012. And let’s not forget the Singapore Exchange’s failed bid for the Australia Stock Exchange – a clash and crash of cultures. Speaking of Australia, it stepped up for capitalist solutions to real world problems by passing carbon legislation that will lead to cap-and-trade in that country. California also raised hopes that market-based structures are not dead in the U.S., winning a final green light in court this year.
It’s also a year when London Metal Exchange was on the block for no apparent reason.
Of course, we likely left something out here. But you get the picture.
Finally, let’s wrap it up with a bit about John Lothian News – two wiki sites, one video site and seven newsletters. MarketsWiki, launched in 2008, surpassed all of the prior years’ page views combined in 2011, topping the 17 million mark yesterday. That’s more than 9 million page views in 2011 from users located in more than 200 different countries. MarketsWiki also topped 1 million page views for a single month from November into December.
Meanwhile, MarketsReformWiki has also picked up steam since its launch on February 28, 20111. The site topped 500,000 page views on November 29 and now 600,000 on December 17.
MarketsWiki.tv also launched in 2011, kicking off with MarketsWiki Questions: Exploring Financial Technology, a seven part series that addressed key issues about technology from more than three dozen executives in the derivatives space. The 4-month series led to a live event that featured seven speakers who addressed those questions at the Illinois Institute of Technology’s auditorium in Chicago. If you haven’t looked at those presentations or segments, you can find them HERE.
In short, 2011 was an eventful year at John Lothian News and there’s plenty more drama in the news to come in 2012.
Thanks for your interest and support.
-John J. Lothian, publisher, Jim Kharouf, editor-in-chief and the rest of the team here at John Lothian News
Top Five Videos
MarketsWiki Questions: Exploring Financial Technology
October 5, 2011 – MarketsWiki.TV
NICK FERA CEO – Firm58
“Where is money wasted, lost or inefficient in the transaction chain and how can technology fix it?”
Emil van Essen – Emil van Essen Managed Futures
December 1, 2011 – JLN Managed Futures
Emil van Essen has 25 years experience trading and modeling in the futures markets and has been a CTA since 1997. His firm, now with $240 million in assets under management, has been successful with its spread trading program launched in December 2006. JLN Managed Futures editor Jim Kharouf spoke with van Essen about his trading program, how the industry evolved and the issue on most minds in the industry, what impact will MF Global have on the managed futures space.”
Tammy Botsford – Penson Futures
July 6, 2011 – MarketsReformWiki
Tammy Botsford, vice president and deputy general counsel at Penson Futures, spoke with John Lothian News (JLN) editor-in-chief Jim Kharouf about the Dodd-Frank Act and the current status of the reform process. Botsford also spoke about rule proposals on position limits, credit ratings and segregated funds, as well as the costs of regulation and how new rules will likely be rolled out for market participants.
Lisa Noller – Foley & Lardner LLP
August 30, 2011 – MarketsReformWiki
Lisa Noller, litigation partner in Government Enforcement, Compliance and White Collar Crime at Foley & Lardner LLP in Chicago, spoke with John Lothian News (JLN) web content editor Nicole V. Rohr about the passing of final SEC whistleblower rules. Among other things, Noller explains what companies should prepare for the SEC following a whistleblower complaint by an employee.
Gary Delany – Options Industry Council (OIC)
September 28, 2011 – JLN Options
JLN Options editor Sarah Rudolph sat down with Gary Delany, Director of European Marketing and Education for the Options Industry Council (OIC), to discuss some of the findings of the study, “European Demand for U.S. Listed Equity Options,” including identifying the biggest users of US options and the barriers to trading. The OIC commissioned study conducted by the TABB Group found strong European demand for US listed options. The study included interviews with 29 participants from a cross section of US and European firms active in the US listed options industry, including broker-dealers, market makers, data providers, hedge funds, and traditional asset managers.
Visit MarketsWiki.tv for more.
John Lothian Newsletter
Corzine Knew MF Made Loan From Customer Accounts, Duffy Says
MF Global Holdings Ltd. Chief Executive Officer Jon Corzine knew that the company made a loan out of segregated customer accounts before it went bankrupt, CME Group Inc. chairman Terrence Duffy told the Senate today.
**For more MF Global news, see the special section JohnLothianNewsletter.com.
The Market’s Disaster Drill
In the aftermath of Japan’s triple disaster — an incomprehensible 9.0 earthquake, an incredible tsunami that killed thousands and the resulting damage at the Fukushima Daiichi nuclear works — its stock market fell more than 14% before regaining some ground on March 16.
European Debt Crisis
Since the fall of 2009, the European Union has been struggling with a slow-moving but unshakable crisis over the enormous debts faced by its weakest economies, such as Greece and Portugal, or those most battered by the global recession, like Ireland. By August 2011 European leaders found themselves scrambling once again to intervene in the markets, this time to protect Italy and Spain, two countries seen as too big to bail out.
In December, leaders of the countries that use the euro agreed to an intergovernmental pact adopting tighter fiscal controls.
D Börse and NYSE Euronext seek to woo Brussels
They are calling it “a turning point in the development of European financial markets”.
**JK – Let’s call it the Concession Stand. More to come in the coming days and weeks.
Timeline: Canada’s TMX Group in play
Here are the major events in the saga for control of the TMX Group, which was first courted by Transatlantic rival, the London Stock Exchange.
Lawmakers reach deal to keep CME, Sears, CBOE
Chicago Sun Times
The legislative logjam that had blocked consideration of a deal to keep Chicago’s financial exchanges and Sears in Illinois broke Thursday with House Republicans indicating they would sign on to the deal.
**JK – Sears options now discounted at CBOE.
Super Committee Fails To Reach Agreement
President Barack Obama and congressional leaders traded blame Monday for the failure of the congressional “super committee” to forge a deficit reduction deal, but they also called for Congress to work out an agreement before painful automatic budget cuts take place in 2013. Earlier, the co-chairs of the bipartisan special joint committee said in a statement that “after months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline.”
**JK – Is it hard work when it doesn’t pay off?
Federal Reserve launches Operation Twist
The Federal Reserve announced “Operation Twist” Wednesday, a widely expected stimulus move reviving a policy from the 1960s. The policy involves selling $400 billion in short-term Treasuries in exchange for the same amount of longer-term bonds, starting in October and ending in June 2012.
S&P downgrades U.S. credit rating for first time
The Washington Post
Standard & Poor’s announced Friday night that it has downgraded the U.S. credit rating for the first time, dealing a symbolic blow to the world’s economic superpower in what was a sharply worded critique of the American political system. Lowering the nation’s rating to one notch below AAA, the credit rating company said “political brinkmanship” in the debate over the debt had made the U.S. government’s ability to manage its finances “less stable, less effective and less predictable.” It said the bipartisan agreement reached this week to find at least $2.1 trillion in budget savings “fell short” of what was necessary to tame the nation’s debt over time and predicted that leaders would not be likely to achieve more savings in the future.
**JK – Prepping for global downgrade.
Fed Pledges Rates Near Zero for Next 2 Years
The New York Times
The Federal Reserve made a rare promise on Tuesday to hold short-term interest rates near zero through at least the middle of 2013, in a sign that it has all but written off the chances of an expansion strong enough to drive up wages and prices.
**JK – The announcement that rocked the bond markets.
SEC proposes Volcker rule, swap dealer plan
The U.S. Securities and Exchange Commission agreed on Wednesday to seek comments on a major plan that would restrict banks from trading for their own profits or investing in hedge funds. The SEC’s proposal, approved in a 4-0 vote, would implement the so-called Volcker Rule, a provision in the 2010 Dodd-Frank Wall Street overhaul law that was championed by former Federal Reserve Chairman Paul Volcker. The provision aims to curb the excessive risk-taking seen during the 2007-2009 financial crisis. The SEC also proposed a second major rule in a 3-1 vote, which would require dealers and major traders of security-based swaps to register with regulators. The registration rule is a key Dodd-Frank provision designed to establish the first uniform regulatory regime for swap dealers.
**JK – The “Ride of the Volcker-rule”
Visit JLNInterestRates.com for more.
OCC Announces 2011 Options Volume Passes 4 Billion Contracts
OCC announced today that year-to-date total options volume surpassed 4 billion contracts yesterday. This is the first time that U.S. exchange-listed options volume has ever reached this milestone in a single year.
**JK – Congrats to the options industry.
Weeklies Volume Surges With New Listings
Peter Chapman, Traders Magazine
Volume is up for the ninth straight year in the options industry, but there’s a big difference this year. Of the 21.6 percent increase in total year-over-year volume through October, over a third of the growth is coming from contracts that expire weekly. That makes weeklies one of the most successful product launches in the industry’s history. Since the creation of the listed marketplace in 1973, most options contracts have expired monthly.
CBOE Sees No Threat From An S&P-Dow Jones Index Deal
By Jacob Bunge Of DOW JONES NEWSWIRES
The parent of the Chicago Board Options Exchange said Wednesday its long-running license to trade options on the Standard & Poor’s 500 stock index would not be threatened by a potential deal combining the index with the Dow Jones Industrial Average. http://bit.ly/sqdM29
ISE Wins Clean Cross Battle
Peter Chapman, Traders Magazine
The Securities and Exchange Commission’s decision to approve a new order type at the International Securities Exchange could open a new era of institutional options trading. In February, the SEC brushed aside complaints from competing exchanges and market makers and permitted the all-electronic ISE to offer “clean” crosses for so-called delta neutral trades. These are trades whose executions are dependent on executions of a related stock order.
SEC Approves CBOE Holdings’ Proposal To Trade SPXpm
CBOE Holdings, Inc. (NASDAQ: CBOE) announced today that the Securities and Exchange Commission (SEC) has approved its rule filing to launch, on a pilot basis, SPXpm, its proposed new S&P 500 Index option product. SPXpm will be traded on the C2 Options Exchange (C2), the Company’s all-electronic exchange.
**JK – One of the biggest stories in the industry, that got almost no coverage. Interesting.
Visit JLNOptions.com for more.
Dodd-Frank Act: For One-Year Anniversaries, Paper Is the Appropriate Gift
The Dodd-Frank Wall Street Reform and Consumer Protection Act passed on July 21, 2010, a little more than a year ago. To mark this anniversary, I thought it would be helpful to ask whether we are where we thought we’d be. The answer of course is “yes” and “no.”
On October 12, 2011, the U.S. Securities and Exchange Commission (SEC), the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board, and the Office of the Comptroller of the Currency issued its proposed regulation to implement Section 619 of the Dodd-Frank Act, the so-called “Volcker Rule,” which would prohibit banking entities from engaging in proprietary trading of derivatives and limit the ownership or sponsorship of hedge funds and other private funds to three percent of Tier 1 capital.
**DA: The Glass-Steagall Act was 32 pages in length. The latest draft of the Volcker Rule tips the scales at 394 pages.
Europe Forges Fiscal Union, Sees Way out of Crisis
Working almost to exhaustion and persuading countries one by one, European leaders agreed Friday to redefine their continent — hoping that by joining their fiscal fortunes they might stop a crippling debt crisis, save the euro currency and prevent worldwide economic chaos. Only one country said no: Britain. It will risk isolation while the rest of the continent plots its future.
**DA: Was this the “shot heard ’round the world” that will lead the continent out of the sovereign debt crisis and usher in a new era of peace and prosperity? Time will tell.
Whistleblower rule clears divided SEC
A divided U.S. Securities and Exchange Commission voted 3 to 2 to finalize the measure that has grown into one of the most contentious requirements of last year’s Dodd-Frank Wall Street overhaul law. Tipsters would be paid 10% to 30% of sanctions of $1 million or more for original and useful information. Companies from Google Inc. to JPMorgan Chase & Co. have expressed fears the whistleblower rule will undermine internal compliance programs at public companies by encouraging employees to go directly to the SEC.
CFTC Completes Client-Funds Rule After MF Global Collapse
U.S. derivatives regulators approved restrictions on how brokers can invest customer funds, acting on a delayed rule after as much as $1.2 billion went missing before MF Global Holdings Ltd. sought bankruptcy protection.
The Commodity Futures Trading Commission voted 5-0 today to limit how brokers invest clients’ margin in money market funds, and ban investments in foreign sovereign debt and in-house transactions such as repurchase agreements.
Visit MarketsReformWiki for more.
Environmental Markets Newsletter
California Becoming World’s Second Largest Carbon Market
California’s cap-and-trade program — part of the state’s groundbreaking Global Warming Solutions Act — won an important victory this week on the path to implementation in 2013
**JK – Environmentalists – and capitalists. Who’d of thought?
Climate change: The great regrouping
It is being called the huddle that made history. Even by the standards of UN climate talks, where delegates have been known to leap on tables, fling insults or dissolve publicly into tears, what happened on the conference floor of the Durban convention centre in the small hours of Sunday morning was unusual.
**JK – Let’s see how they execute the play.
Australia passes landmark carbon price laws
Australia passed landmark laws on Tuesday to impose a price on carbon emissions in one of the biggest economic reforms in a decade and injecting new impetus into December’s global climate talks in South Africa.
U.S. punts tricky pipeline decision past 2012 election
The U.S. government on Thursday delayed approval of a Canada-to-Texas oil pipeline until after the 2012 U.S. election, bowing to pressure from environmentalists and sparing President Barack Obama a damaging split with liberal voters he may need to win reelection.
Obama’s Big Bet on Solar Power Is Backfiring
President Obama’s token green energy start-up Solyndra announced plans to file for Chapter 11 bankruptcy and lay off 1,100 workers on Wednesday. The Department of Energy gave the company a $535 million loan guarantee in 2009 as a part of a broader plan to invest in America’s future as a pioneer in green energy. But with China manufacturing cheaper solar panels and the supply of solar panels outpacing the demand, the investment seems to be failing. Solyndra is the third solar manufacturer to declare bankruptcy in the past month, and politicians are starting to get very worried about the future of green energy in the United States.
**JK – Big story for Obama. Bad story for renewable space.
Visit JLNEnvironmental.com for more.
Gold Vaults to Record, Just Shy of $1,900 – August 22, 2011
By TATYANA SHUMSKY – WSJ
Gold ended at a record amid speculation that the U.S. won’t be able to resist another round of stimulus and amid broader worries about the global economy. The contract for August delivery gained $39.80, or 2.2%, to settle at a record $1,888.70 a troy ounce on the Comex division of the New York Mercantile Exchange. Gold futures are up 54% from a year ago.
**JK – This just in, Jim Rogers is bullish on commodities.
SPDR Gold Wrests ETF Crown From S&P 500 Fund as Turmoil Reigns
Gold reached a new milestone in its role as an investment and haven, with the leading exchange- traded fund that tracks bullion surpassing its equities counterpart as the biggest ETF by market value. SPDR Gold Trust’s market capitalization rose to $76.7 billion on Aug. 19, according to the most recent data compiled by Bloomberg, as the metal topped $1,881 an ounce for the first time. SPDR S&P 500 ETF Trust, which has been the industry’s largest exchange-traded fund since 1993, stood at $74.4 billion, now 3.1 percent smaller.
Spot Silver Drops 12% In 11 Minutes As Bulls Routed
By DAVID FICKLING – WSJ
Spot silver suffered one of its most severe drops on record early Monday, as bulls who have driven the metal up to 31-year records failed to carry it above $48 a troy ounce and were routed in a headlong collapse. The metal fell 12% in just 11 minutes when the fall was at its most severe. Spot silver saw its informal open at $47.863/oz before rising to a peak of $48.150/oz; it then sold off sharply to a base of $42.210 before stabilizing.
LME considering selling itself after approaches
The London Metal Exchange, the world’s top market for industrial metals that has had surging volumes recently, is considering selling itself after being approached about deals, it said on Friday. Any deal would come as commodity trading volumes hit record highs, and could refresh a wave of exchange-industry consolidation that crested earlier this year.
Central bank gold buying at 40-year high
By Jack Farchy – Financial Times
Central banks made their largest purchases of gold in decades in the third quarter, as a sharp drop in prices in September accelerated the shift to bullion as a means of diversification.
Visit JLNMetals.com for more.
Swiss shock with move to weaken franc
The Swiss National Bank shocked foreign exchange markets by setting a minimum exchange rate target of 1.20 francs to the euro on Tuesday, knocking back a currency rally which has threatened its economy with recession. Using some of the strongest language by a central bank in the modern era, the SNB said it would buy other currencies in unlimited quantities and use all means within its power to hold to the target. The move immediately knocked around 8% off the value of the franc, which has soared by a third since the collapse of Lehman Brothers in 2008 as investors used it as a safe haven from the eurozone’s debt crisis and stock market turmoil.
Yen Climbs to Record Against Dollar
The Japanese yen rocketed to an all-time high against the U.S. dollar on Wednesday but gave back some ground in Asian trading on Thursday, as markets were buffeted by worries about the nuclear crisis in Japan. The dollar rose to 79.31 yen Thursday in Asian trading after a sudden plunge by three yen to a record low of 76.32 yen on Wednesday. The fall, which pushed the yen more than 5% lower than late Tuesday’s close of 80.81 yen, came late in the New York session and before Asian markets opened, a time when activity and staffing on trading desks generally is at its thinnest in the 24-hour-a-day currency markets.
European debt crisis spiralling out of control
Fears that Europe’s sovereign debt crisis was spiralling out of control have intensified as political chaos in Athens and Rome, and looming recession, created panic on world markets. Reports emerging from Brussels said that Germany and France had begun preliminary talks on a break-up of the eurozone, amid fears that Italy would be too big to rescue.
**JK – Which ways do toilets flush in the Eurozone?
Currency Wars Shift Toward Intervention
So much for the global battle to hold currencies down to keep a competitive edge. Now authorities around the world are intervening to prop them up in the wake of a mad scramble for dollars, especially in export-orientated Asia.
An EU Currency Breakup Would Be Unlike Any Other
By STEPHEN FIDLER – WSJ
Past breakups of currency unions provide some guideposts to how Europe’s deepening financial crisis could end if its leaders can’t find a solution. But its case is unique. History suggests two types of monetary unions survive the longest, says Gabriel Stein, a director of Lombard Street Research, a London-based economic-analysis firm.
Visit JLNFX.com for more.
JLN Managed Futures
Paulson’s fund posts another poor month
As November performance numbers roll in it is clear John Paulson will go down as the hedge fund industry’s biggest and best-known loser in 2011.
CTA Industry – Assets Under Management
Assets under management (AUM) in the commodity trading advisor (CTA) sector continues to rise. In 2011 year-to-date, total AUM is $320.3 billion, up from $267.6 billion in 2010.
**JK – Nice year for managed futures.
When Your FCM Melts Down: A CTA’s Perspective
By Robb Ross, Futures Magazine
As a commodity trading advisor (CTA) you constantly take risks and try to manage those risks. One thing that you don’t want to manage is the risk of your client’s futures commission merchant (FCM) failing. This is what happened on Oct. 31, 2011 when MF Global melted down. Here is what it’s like to be a CTA when you’re FCM melts down.
On Wednesday, Oct. 26, I got a call from a competing FCM; “Hi Robb, I know you have some business over at MF global. You may have heard that they have been having some problems. We’d certainly like your business. You might want to consider what is happening over there and we’d be happy to help.”
Michael Lipper: why futures costs are set to rise
Investors get the bulk of their actionable investment news from paper or electronic means, either with the volume on or off. Because of the squeeze on both the profits of agency brokerage and to some extent hedge fund net compensation, less and less original long-term research is being conducted. Thus many investors are reduced to reacting to various elements of so-called news from media sources. If one learns to search the news for longer-term investing implications, often written between the lines, this limitation might not be so bad.
**DA: I blame MF Global.
A New Alternative to Stocks and Bonds
Wall Street Journal
Managed futures made a name for themselves in 2008, notching a solid gain as the stock market took a sickening tumble. But at that time they were out of the reach of most investors, because they were available almost exclusively through partnerships with relatively high minimum investments and net-worth requirements. Now, a rapidly growing number of mutual funds make managed futures easily obtainable, and small investors are flocking to them.
**DA: Episode VII: Rise of the Managed Futures Mutual Fund.
Visit JLNManagedFutures.com for more.