John Lothian Newsletter: Accounting errors hit INTL FCStone; Sentinel trustee wants Bank of NY Mellon to return $337 million; Trading Error Leaves Korean Broker Scrambling

Dec 18, 2013

First Read

Crunch time for exchanges’ ‘vertical silo’ as EU rules finalised
Philip Stafford – FT.com
After three sometimes interminable years, Europe stands on the brink of agreeing its flagship financial markets legislation. European policy makers meet tomorrow to hammer out the final details for the Markets in Financial Instruments Directive, and an accompanying piece in which some rules are given the greater force of a full-blown Regulation.
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***** What else can we fix that is not broken?

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Commodity funds head for record outflow
Xan Rice in London – FT.com
Commodity-linked investment funds are headed for record outflows in 2013, with an $88bn decline in assets under management in the year to November, according to a Barclays report.
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***** What goes up must come down, spinning wheel got to go round, talking about your troubles it’s a crying sin, ride a painted pony let the spinning wheel spin…You got no money, and you, you got no home, spinning wheel, spinning all alone, talking about your troubles and you, you never learn, ride a painted pony let the spinning wheel turn.

***** All it is, is Blood, Sweat & Tears.

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Jignesh Shah, Financial Technologies unfit to run an exchange, says FMC
Livemint
Jignesh Shah, chairman of Financial Technologies (India) Ltd, or FTIL, is not fit to run an exchange in the country, the commodities markets regulator said in a order late Tuesday.
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***** “FTIL, as the anchor investor in MCX, does not carry a good reputation and character, record of fairness, integrity or honesty to continue to be a shareholder…,” said the FMC order.

***** I hate to say I told you so, but we told you so.

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High-Speed Trading, Interest Rates Pose Risks, Treasury Says
Bloomberg
The U.S. financial system’s vulnerabilities include a sudden spike in interest rates amid greater risk-taking and high-frequency trading, the Treasury Department said.
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***** You mean if everyone heads for the door at the same time, really really fast, it might be a problem?

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ADM to move headquarters to Chicago
Phil Rosenthal and Ray Long Tribune reporters – chicagotribune.com
Archer Daniels Midland, unable to secure the special tax incentives it sought from Illinois legislators, nonetheless is expected to announce Wednesday that it will go forward with its plan to move its world headquarters to Chicago from Decatur, Ill.
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***** Please leave the processing plants where they are, though.

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MarketAxess Launches First Independent Central Limit Order Book for Single-Name Credit Default Swaps
MarketAxess announces the expansion of MarketAxess Trade Crossing Hub (MATCH), the first independent central limit order book (CLOB) for single-name credit default swaps (CDS). MATCH offers a new way to trade single-name CDS, with market participants able to send and receive anonymous orders, to be accessed by all other market participants. Barclays will act as the primary market maker to help ensure the availability of continuous two-way markets on the platform.
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***DA: Though MATCH was soft-launched a few months ago, there was never any serious promotion of it. As security-based products, CDS are under SEC jurisdiction and, since the SEC has not finalized its SEF rules, the MATCH order book exists outside MarketAxess’ SEF.

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Numerix Names Tim Carley New Managing Director of EMEA Sales Territory
Numerix, the leading provider of cross-asset analytics for derivatives valuations and risk management, today announced the appointment of Tim Carley to Managing Director of EMEA where he will oversee all direct sales efforts in the region – driving the day-to-day initiatives of financial engineering, quantitative research and development.
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CADC Sheds Light On How To Navigate New Derivatives Landscape
By Jessica Titlebaum
The Toronto Montreal Exchange (TMX) held it’s 14th Annual Canadian Annual Derivatives Conference (CADC) December 4-6 in Mont-Tremblant, Canada. Orc has been a proud sponsor of the event since 2002. This year’s conference was coordinated around the Tremblant 24h, a 24 hour skiing relay challenge that attracts close to 2000 participants to raise money for children’s causes. To accommodate those participating in the relay, the conference was held in a ski town two hours north of Montreal. Professionals in the Canadian and US markets gathered in Mont-Tremblant to discuss the current market conditions, the global regulatory challenges and how to optimize performance in these historic times; all the while raising money for charity.
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***** Rule number one: Never comment on a Jessica Titlebaum story. Rule number two: See rule number one.

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Women in Listed Derivatives Holds Election for North American Board
Women in Listed Derivatives (WILD), a group that promotes networking and relationship-building among women in listed and OTC derivatives, announced today the results of its first Board of Directors election.
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***** Welcome back Leslie Sutphen to the most powerful board in the industry that does not raise exchange fees.

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SEC Announces Enforcement Results for FY 2013
The Securities and Exchange Commission today announced that the agency’s enforcement actions in fiscal year 2013 resulted in a record $3.4 billion in monetary sanctions ordered against wrongdoers.
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***JM: And, does that mean there is less wrongdoing now than a year ago? We’re measuring that, right? Oh… we aren’t?

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A Comparison of CTA Indexes
Red Rock
Investors and money managers interested in diversifying into Managed Futures are often attracted to the daily transparency and better liquidity that Managed Futures have over the typical hedge-fund structure. However, with hundreds of CTA programs from which to choose, it can be daunting to know where to start one’s analysis of this investment space. One place to begin is with CTA indexes, which compile and track the performance of different CTA programs. This paper summarizes and analyzes information on over ten CTA indexes, and while it attempts to encompass the most-oft used indexes, it is not a completely exhaustive list.
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***** A good primer on the different CTA indexes and their strengths and weaknesses.

***DA: For more on Mr. Rollinger’s perspective, check out our recent video interview.
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China bans new Bitcoin deposits
Simon Rabinovitch in Shanghai – FT.com
China has blocked the country’s Bitcoin exchanges from accepting new inflows of cash, a move that imperils the much-hyped virtual currency in its biggest market. The head of BTCChina, the world’s largest Bitcoin exchange by trading volume, said he had received word at midday on Wednesday that his platform would no longer be able to accept renminbi from would-be Bitcoin buyers.
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***** Bitcoin is down $300 today, with a low of $455 according to Mt. Gox.

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Can You Get Investment Knowledge from Twitter?
Joshua M Brown | The Reformed Broker
Yes and no. Here’s what I get from Twitter:
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***** You can get investment advice anywhere, but it is when the cab drivers give it to you that you know it is time to get out.

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Gary DeWaal

Business Remodeling: Satyam Kancharla of Numerix Says Firms Must Rethink Risk and Collateral Management
JohnLothianNews.com
There has been an avalanche of regulation over the past several years. While firms are digging out from under it in an effort to comply, others are looking for new opportunities this environment presents. Satyam Kancharla, chief strategy officer of Numerix, told John Lothian News’ Jim Kharouf that firms must find ways to create more efficiencies in terms of collateral management and looking at their operations in a more holistic way. The combining of OTC and futures into cleared structured environments are forcing firms to break down those trading desk silos that have been part of firms over the years.

Watch the video »

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MarketsWiki

MarketsWiki Page of the Day
Mark Wetjen
jlne.ws/pM9jq9

MarketsWiki Recent Updates

People

George Möller; Anthony Saliba; Mark P. Wetjen

Companies, Organizations and Groups

National Futures Association; GFI Group Inc; Dubai Gold and Commodities Exchange

Products

CME ClearPort

Miscellaneous

Pecora Commission; Recession; Depression; Regulators; Glass-Steagall Act; Great Depression; Exchange-traded derivatives

Statistics

45,944,994 pages viewed, 7,719 articles, 169,659 edits
MarketsWiki Statistics

Lead Stories

Accounting errors hit INTL FCStone
Gregory Meyer in New York – FT.com
Shares of INTL FCStone plunged 7.9 per cent on Tuesday after the futures broker disclosed accounting errors that may have overstated past profits.
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Sentinel trustee wants Bank of NY Mellon to return $337 million
Reuters
Bank of New York Mellon should be ordered to return about $337 million to Sentinel Management Group Inc, a U.S. futures broker that went bankrupt in 2007, according to a court filing made by the bankruptcy trustee.
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Trading Error Leaves Korean Broker Scrambling
Kanga Kong – MoneyBeat – WSJ
South Korea’s stock exchange operator and a small local brokerage are attempting to unravel a trading error that has brought the trading firm to the brink of collapse and led to the suspension of its operations.
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LCH.Clearnet’s Longden Leaves CDSClear, Wells Takes Over
Nandini Sukumar – Bloomberg
LCH.Clearnet Group Ltd., the world’s largest clearinghouse for interest-rate swaps, said the chief executive officer of its CDSClear unit, Charlie Longden, has left.
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***DA: I had slated Gavin Wells, an accomplished actor as well as the head of a clearing house, as the 12th Doctor, but the nod went to Peter Capaldi. Dr. Who’s loss is LCH’s gain.

Euronext increases trading fees for 2014
Tim Cave – Financial News
NYSE Euronext is to increase trading fees on its European markets from the start of next year, making it the latest in a string of exchange operators to raise fees despite falling prices elsewhere in the industry amid competitive pressures.
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New owners plan major overhaul of SMX
Andrea Soh – Business Times
The new owners of the Singapore Mercantile Exchange (SMX) are planning a major overhaul of the once struggling exchange.
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U.S. Treasury cautions Bitcoin businesses on legal duties
Reuters
The U.S. Treasury Department’s anti money-laundering unit is warning businesses linked to the digital currency Bitcoin that they may have to comply with federal law and regulation as money transmitters, a Treasury spokesman said.
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Australia to receive go-ahead for CFTC substituted compliance
Viren Vaghela – Risk.net
The Commodity Futures Trading Commission (CFTC) is set to grant Australia a positive substituted compliance determination across several key areas that will allow Australian firms to follow local rules in order to comply with the Dodd-Frank Act.
jlne.ws/1fmssm8

JPMorgan, Deutsche Bank Expand Multitrader Chat-Room Bans
Bloomberg
JPMorgan Chase & Co. (JPM) and Deutsche Bank AG (DBK) are cracking down on multitrader chat rooms amid investigations into currency manipulation.
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How Much Did Goldman Sachs Pay Fabrice Tourre?
Jonathan Weil – Bloomberg
Here’s a new one. In the same court document yesterday, as part of the penalty phase for former Goldman Sachs Group Inc. Vice President Fabrice Tourre, the Securities and Exchange Commission simultaneously did the following: (1) asked the judge in the case to keep information about Tourre’s pay at Goldman a secret and (2) asked the judge to reveal the information and to make it a matter of public record.
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Regulatory

CFTC Grants LCH.Clearnet SA Registration as a Derivatives Clearing Organization
Today, the Commodity Futures Trading Commission (Commission) issued an Order granting Banque Centrale de Compensation, doing business as LCH.Clearnet SA, registration as a derivatives clearing organization pursuant to Section 5b of the Commodity Exchange Act.
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Two New Public Governors Appointed to FINRA Board of Governors, FINRA Creates New Investor Committee
The Financial Industry Regulatory Authority (FINRA) has named two new public Governors — Dr. Brigitte C. Madrian and Dr. Luis M. Viceira — to its Board of Governors. Dr. Madrian, the Aetna Professor of Public Policy and Corporate Management at the Harvard Kennedy School, and Dr. Viceira, the George E. Bates Professor at the Harvard Business School, will join the Board in January 2014.
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Canadian Regulators Release Status Reports on Mutual Fund Fees and Best Interest Duty
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Zions Not Only Bank to Be Hit by Volcker CDO Impact
Andrew R. Johnson – MoneyBeat – WSJ
Zions Bancorp. has the distinction of being one of the first banks to report a financial hit from the Volcker rule, announcing a $387 million charge Monday due to the regulation’s treatment of debt securities.
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Deloitte Strengthens Enterprise Compliance Practice; Appoints Keith T. Darcy, Former Executive Director, Ethics & Compliance Officer Association, as a Senior Advisor
Keith T. Darcy, former executive director of the Ethics & Compliance Officer Association (ECOA), the largest association exclusively for ethics and compliance executives with more than 1,300 members across six continents, has joined Deloitte’s governance, regulatory and risk strategies (GR&RS) enterprise compliance practice as a senior advisor.
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European Banking Authority Consults On Significant Credit Risk Transfer For Securitisation Transactions
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European Banking Authority Publishes Final Draft Technical Standards On Securitisation Retention Rules
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Finansinspektionen (FI) – Swedish Financial Supervisory Authority – Does Not Intend To Grant Waivers From The Basel 1 Floor
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New Zealand’s Financial Markets Authority AFA Update: Issue # 19 – Guidance Note: Limited Personalised Advice
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Exchanges & Trading Facilities

NASDAQ IPOs Surge 74 Percent In 2013
Led U.S. Exchanges With 125 IPOs And 30 Listing Venue Switches – 7 Of The Top 10 And 60 Percent Of The Top 100 Best Performing IPOs In 2013 Listed On NASDAQ – More Technology And Health Care Companies Listed On NASDAQ Than Any Other U.S. Exchange In 2013
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SMX purchase gives Ice two-year Asia advantage over rivals
Alex Davis – Risk.net
Ice’s $150 million purchase of the Singapore Mercantile Exchange from Chennai-based Financial Technologies Group has given the firm prime position over the CME Group and Deutsche Bourse-owned Eurex in Asia and sharpened competition among the regional exchanges, according to market participants.
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WSE Reaffirms Corporate Social Responsibility Commitment
Warsaw Stock Exchange has published today the new portfolio of the socially responsible company index RESPECT. In the seventh edition of the project, 23 companies listed on the Main Market have been successfully verified for parameters of corporate social responsibility and put in the index portfolio. They include Warsaw Stock Exchange.
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FIF Capacity Statistics For November 2013: One New Record Peak: BATS Options MCASTPITCH AGG
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Direct Edge Trading Notice #13-51: Market Holiday Reminder – Christmas
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Hedge Funds & Managed Futures

US hedge funds threaten EU boycott
Kris Devasabai – Risk.net
As the AIFMD deadline approaches, US firms claim European disclosure rules will expose their top talent to poachers while depository and private placement rules are too restrictive
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Three things long/short hedge funds cannot do (well)
Dan McCrum | FT Alphaville
We have mentioned the five-year problem before. However, we suspect that the ranks of the zombies will be swelling again soon, because of the simple fact that the five-year track record of stock-trading hedge funds is horrible.
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Money Managers Use Weaker Yen to Fund Asian Bets
Fiona Law – MoneyBeat – WSJ
The weakening Japanese yen is gaining allure among top money managers as the funding currency of choice for investing in Asian assets.
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KKR Real-Estate Fund Hits $1.5 Billion Target
Craig Karmin – WSJ.com
KKR & Co. expects to complete raising a $1.5 billion real-estate fund this week, say people familiar with the firm, the latest sign that some large investors are regaining an appetite for riskier real estate.
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Miller Tabak & Co. Partners with FNEX to List Select Investment Opportunities through the FNEX.com Online Investment Marketplace
Miller Tabak + Co., LLC, a leading institutional trading, research firm and investment bank, and FNEX, the market leading online investment marketplace for alternative investments announced today that Miller Tabak will offer select private placement investment opportunities on the FNEX.com platform to enhance and broaden distribution with accredited investors.
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Banks & Brokers

George L. Shinn, Wall Street Chief Who Chose a Different Path, Dies at 90
ROBERT D. HERSHEY Jr. – NYTimes.com
George L. Shinn, who climbed from trainee to president of Merrill Lynch, the nation’s biggest securities firm, then led the First Boston Corporation, a major player on Wall Street during the 1980s, died on Monday in Scarborough, Me. He was 90.
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Cantor Fitzgerald Settles 9/11 Suit Against American Airlines for $135 Million
BENJAMIN WEISER – NYTimes.com
More than a dozen years after the Sept. 11 attacks, a last major piece of litigation against the airline industry and other defendants moved toward an end on Tuesday, as the Wall Street firm Cantor Fitzgerald revealed that it would settle its lawsuit for $135 million.
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JPMorgan seeks more than $1 billion from FDIC over WaMu claims
Reuters
JPMorgan Chase & Co (JPM.N) sued the Federal Deposit Insurance Corporation in federal court on Tuesday, saying the agency owes it more than $1 billion in compensation for not assuming legal claims arising from its acquisition of Washington Mutual’s assets after its 2008 implosion.
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Eurozone agrees ‘backstop’ for failing banks
Peter Spiegel and Alex Barker in Brussels – FT.com
Eurozone finance ministers have reached a tentative agreement to provide a common backstop, by at least 2025, to the EU’s new bank rescue system in case it runs out of money in an emergency and requires taxpayer support.
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Clearing & Settlement

DTCC: Money Market Instrument Optimization Through Finality
The Depository Trust & Clearing Corporation (DTCC), through its subsidiary, The Depository Trust Company (DTC), will institute MMI Optimization through Finality for DTCC Clients beginning in Q4 2015, bringing significant enhancements to the settlement process and further reducing risk for DTC and its Clients.
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CME Group Clearing: December 2013 Final Foreign Currency Settlement Prices
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CME Group Clearing: NYMEX Options Expiration Operational Procedures for the Trading Floor and Clearing Members (CH, RX, W, PAO, PO) Effective Wednesday, December 18, 2013
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Indexes & Products

Results Of The Seventh Edition Of The RESPECT Index Project
Warsaw Stock Exchange has announced the new portfolio of the responsible companies index: the RESPECT Index. Four new index participants include Warsaw Stock Exchange. The new index portfolio is effective as of 23 December 2013.
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New ETF offers the cream of the dividend crop
Reuters
There are investors who couldn’t care less about dividends, and there are those who love them with an unbridled passion. Count Steve Weiss among the latter.
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Chaikin Analytics Launches Desktop Workstation and ETF Analytics
Chaikin Analytics LLC, a provider of proven stock research and analytics to asset managers and wealth advisors, today announced the launch of its Desktop workstation, and the addition of 1,500 ETFs to the workstation’s charting capabilities.
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Technology

InfoReach Adds Fixed Income E-Trade Connection to Nasdaq eSpeed
Becca Lipman
More and more asset classes are being pulled into the e-trading markets, driven by sweeping regulations and desire to standardize product flow. Fixed income has been a particular target over the last three years, a trend that has involved efforts to build new architecture and platforms to compete electronically.
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Bloomberg Aims To Ease Instant Messaging Compliance
Greg MacSweeney – Wall Street & Technology
With the news that a number of large banks are considering limiting or completely banning the use of instant messaging and chat rooms on the heels of rate rigging scandals, Bloomberg LP has taken steps to make monitoring instant messaging easier for its clients.
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City Financial Selects SunGard’s APT For Holistic Risk Management
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Thomson Reuters Improves Performance And Transparency For Autex FIX Order Routing Customers
Thomson Reuters Moves Autex Trade Route Onto Elektron Network To Improve Performance – Also Launches Unique Monitoring Tool For FIX Order Routing To Help Customers Better Manage Operational Risks
jlne.ws/1fmsvOF

Enforcement

Ex-SAC manager Martoma fails to end part of insider case
Reuters
A federal judge on Tuesday rejected former SAC Capital Advisors LP portfolio manager Mathew Martoma’s request to dismiss some insider trading charges because they were based on transactions not covered under U.S. securities laws.
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NFA Regulatory Actions: Friedberg Mercantile Group Inc.
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NFA Regulatory Actions: Vincent Capital Group LLC and Ryan Litfin
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NFA Regulatory Actions: EXC Global Investment Management LLC and Douglas Todd Goeckel
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Environmental & Energy

Guangdong Sells $30 Million CO2 Permits in First Auction
Bloomberg
China’s southern province of Guangdong sold 3 million metric tons of emission permits for 180 million yuan ($30 million) in its first auction.
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International carbon bank could revive flagging market
Eco-Business
On the surface, the recently-concluded United Nations climate talks in Warsaw have failed to revive the global carbon market with observers saying it could remain “in the coma” for years. But experts point to certain signs of life in the market, which could see a price recovery in the next two years.
jlne.ws/IUr8MM

EU, US trade talks could usher in cheaper energy imports
EurActiv.com
European negotiators, hoping to cut fuel bills, will press their US counterparts in Washington this week to include energy exports in a transatlantic trade pact that aims to integrate the two markets, which account for half of the world’s economy.
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Asia-Pacific

HKEx: The Listing Committee of The Stock Exchange of Hong Kong Limited censures Besunyen Holdings Company Limited
jlne.ws/1fmsxWR

Thai Bourse Market Report For November
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SGX Welcomes Linc Energy To Mainboard
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Frontier Markets

Magnificent finish to a great year for DGCX
Cinnober
Our warmest congratulations to DGCX for their recent prestigious award “Exchange of The Year 2013” in the Middle East and Africa, received at the FOW International Awards earlier this week.
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Africa net inflows in 2013: FDI flood, capital-flow drought
Kanika Saigal – Euromoney magazine
Long-term foreign-direct investment into sub-Saharan Africa should remain buoyant despite the threat of Fed tapering, with commodity-rich countries outperforming, say analysts at Fitch, after 2013 saw weak portfolio flows and a boom in FDI.
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Is Brazil as risky as CDS prices suggest?
Jeremy Weltman – Euromoney magazine
Brazil is a riskier portfolio option than Mexico, according to live data from Euromoney’s Country Risk Survey, but the data suggest the risk differential is smaller than is currently priced into the credit default swap market.
jlne.ws/1fmsw5b

Lahore Stock Exchange On The Forefront In Boosting Institutional Investors Particiaption In Developing The Domestic Capital Market
jlne.ws/1fmsydk

Securities Commission Malaysia Revises Equity Guidelines To Simplify Transfer Of Listing And Clarify Regulatory Principles For SPACs
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NASDAQ Dubai, PwC And Latham & Watkins Hold Seminar On How To Conduct IPOs On The Region’s International Exchange
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John Lothian Newsletter

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