John Lothian Newsletter: How did AlphaMetrix go so wrong; Goldman Sachs revenue falls 20% on lower trading; India to Launch Interest Rate Futures

Oct 18, 2013

First Read

Steely Eyed: Why Mike Marley of says there is a future for steel and scrap futures
Sarah Rudolph, John Lothian News
Mike Marley is market intelligence correspondent for He is the editor of the newsletter Marley’s Heavy Melt, in which he reports on metals prices, focusing in particular on steel scrap. Marley has more than 35 years’ experience in the metals industry and has been reporting ferrous and non-ferrous scrap prices since 1977 – first for Iron Age magazine, followed by the American Metal Market, and most recently World Steel Dynamics.

He sat down with JLN’s Sarah Rudolph to discuss the challenges of determining steel and scrap prices, the lack of hedging in the steel industry, Nasdaq’s push into the metals space and the outlook for supply and demand.

To read the rest of the story, visit the JLN website at


Connecting the Dots, Part 2: Starting John J. Lothian Managed Futures, LLC Over
John J. Lothian
The call came during lunch. You can’t do exactly what you want to do was the message. It was the NFA and they were giving me the feedback I asked for. Because we have traded Maple Sugar before with real money, we can’t show any hypothetical results for the same trading program, even if we aren’t trading it now, are showing the real previous results, and are showing the trades day be day in real time. If you have three months of real results, you can’t show any hypothetical results for the same system. Here is the rule.


How did AlphaMetrix go so wrong
Just a few years ago, AlphaMetrix was a financial-technology rocket. Now, it’s desperately looking for a buyer to bail it out.

***** A good story by Crain’s Lynne Marek


First order of business when CFTC reopens: Building morale
When the government shutdown ends and the Commodity Futures Trading Commission reopens its doors, one topic is very much on the mind of agency leaders: How many of its employees still want the job?

***** It could be that the shutdown provided the CFTC staff with a much needed break after the gauntlet of the end of the fiscal year to get all those enforcement actions and rule exceptions. They were working pretty darn hard there, and even more so the last few days of September.


Ice bows to pressure on Brent contract changes
Exchange delays plan to shift expiry calendar for Brent crude oil futures and options after firms complain they need more time to prepare.


U.K. to Name Others in Libor Scandal
British fraud prosecutors next week are expected to publicly name roughly two dozen traders and brokers who they believe were involved in a scheme to manipulate benchmark interest rates.

***** I want to name them.


Journal Ordered Not to Divulge Libor Names
British prosecutors obtained a court order prohibiting The Wall Street Journal from publishing in England, Wales or online names of individuals the government planned to implicate in an alleged scheme to manipulate interest rates.

***** No, I want to name them.


European Central Bank to put banks, and itself, to the test
Business Standard
The European Central Bank (ECB) lays its credibility on the line next week when it outlines how it will test the health of top Euro zone banks, a crucial step in rebuilding confidence after two similar exercises flopped.

***** How do you put a Central Bank on a treadmill?


Wolfgang Eholzer

We Have Liftoff: Wolfgang Eholzer on the New Eurex Trading Platform

Wolfgang Eholzer, head of Eurex Trading IT, has seen his share of technology changes to exchange platforms. The latest, and biggest of his career, was the creation of a brand new trading platform for Eurex, called T7. Eholzer spoke with John Lothian News editor-in-chief Jim Kharouf about building the new system and the thought process that went into the project, which has been rolled out gradually beginning in December 2012 and is now complete.

Watch the video »


This week’s Commitments of Traders, cotton data delayed – CFTC
Key data from the U.S. Commodity Futures Trading Commission – the Commitments of Traders and Cotton on Call reports – will not be published this week as scheduled, the agency said.


40 Years After Embargo, OPEC Is Over a Barrel
Today marks the 40th anniversary of the Organization of the Petroleum Exporting Countries embargo against the U.S. and states that supported Israel after Egypt and Syria initiated simultaneous offensives against it on Yom Kippur in 1973. While it’s not an anniversary that many will celebrate, it’s a good opportunity to reflect on how much more secure our energy situation is, despite our continued heavy reliance on fossil fuels.

***** I am old enough to remember this and the gas lines and the even and odd days.


ICE Futures Europe Sets Daily Volume Record in Coal Futures
ICE Futures Europe reached a daily volume record of 16,034 contracts in ICE Coal futures on October 17, 2013. The previous volume record was 14,090 contracts on March 28, 2013.Volume for ICE Coal futures and options also reached a combined record of 21,734 contracts on October 17, 2013, compared with the previous combined record of 19,390 on June 25, 2013.
(via email)


BGC Partners Announces New Appointments And The Launch Of An Energy Derivatives Desk
PR Newswire
Based in , BGC’s Energy Derivatives desk will focus on brokering Natural Gas Options, WTI and Brent Oil Options. The launch complements BGC’s existing energy practice, which includes environmental energy commodities and its -based electricity, natural gas and environmental products group, and underscores BGC’s increasing ambitions in this space.


How Jim Reynolds went from Englewood to CEO — and what it takes to do it today
Jim Reynolds’ story is more remarkable than he’d like it to be. Reynolds, 59, grew up in Englewood and graduated from Chicago Vocational High School with intentions of becoming a TV repairman. After a misadventure with his mother’s set, Reynolds decided to stop working with his hands. Since then, he’s spent his entire career in finance, first at large firms like Smith Barney and Merrill Lynch. In 1997, he struck out on his own and founded Loop Capital.

**JK – Someone doing well and doing good.



MarketsWiki Page of the Day
Michael Bodson

MarketsWiki Recent Updates


Eric Vincent; Christopher Nagy; Mike Marley; Michael Bodson; Robin McInerney; Christopher K. Hehmeyer?; Wolfgang Eholzer

Companies, Organizations and Groups

Fruition Partners; JPMorgan Chase & Co; SAC Capital Advisors LP


44,406,237 pages viewed, 7,683 articles, 166,553 edits
MarketsWiki Statistics

Lead Stories

Goldman Sachs revenue falls 20% on lower trading
Goldman Sachs Group Inc’s bond-trading revenue plunged in the third quarter, and the bank slashed employee compensation costs by 35 percent – an unusual step that signals its concern about performance for the rest of the year.

SEC Commissioner Said SROs Should be Part of Holistic Market Structure Review
Wall Street & Technology
SEC Commissioner Dan Gallagher said that immunity of exchange SROs in market glitches is something that will come up in a holistic market structure review.

Regulator Clarifies Accounting Rules in Wake of ‘Whale’ Case
Regulators are letting bank executives know they are still watching for whales. The Office of the Controller of the Currency, which oversees the biggest U.S. banks, last week said it would be “inappropriate” for banks to change how they value their derivatives holdings just to make their financial results look better

Exclusive: India gears up to launch interest rate futures – sources
India plans to launch trading of government bond futures within the next two months as part of efforts to deepen its financial markets, according to several sources involved in the discussions with the central bank.

CME Removes Temporary Increase in Margin for Interest-Rate Swaps
CME Group Inc. (CME), which planned to increase margin levels by 12 percent for the interest-rate swaps that its clearinghouse guarantees, reversed the decision after lawmakers reached an agreement avoiding a U.S. default.

Morgan Stanley to Face Group Suit by Singapore Investors
A group of Singapore investors who lost money on $154.7 million in credit-linked notes were allowed by a U.S. judge to pursue their lawsuit against Morgan Stanley (MS) as a group.

Data delayed, taper too?
FT Alphaville
Anyone fiending for economic data after the shutdown delays might be disappointed. Here’s a guide from Capital Economics, based partly on the experience of the 1990s, about the anticipated return of certain indicators.

Canada, EU Near Trade Accord
Canada and the European Union are on the verge of concluding a free-trade deal that has been years in negotiations, after settling their remaining differences over agricultural trade, according to officials.

France Weighs Softening Proposed Transaction Tax
France’s Finance Ministry is considering watering down a proposed financial-transactions tax, in a bid to gain French banks’ support for reviving the country’s stock exchange.

The Sef Games
An anonymous Sef operator sets out the absurdities and uncertainties in the new world of Swap Execution Facilities.

SEC at odds with Finra over Pip data
The Securities and Exchange Commission finds itself in conflict with fellow regulators the Commodity Futures Trading Commission and the Financial Industry Regulatory Authority, while a recent pronouncement on benchmarks appears to contradict a global regulatory drive for greater transparency.

Swiss Bank To Cease Operations
Swiss bank Bank Frey & Co, under investigation for allegedly helping Americans evade taxes, said Thursday it was shutting its doors, marking the latest casualty of a U.S. legal crackdown in the Alpine nation.


Who let the regulatory clowns out?
FT Alphaville
Close readers will recall that just earlier this week we were pondering the case of one Richard Usher, formerly chief FX dealer for JP Morgan in London. His mangled remains were found under the proverbial publicity bus that is the official regulatory investigation into the supposed fixing of the daily WM/Reuters forex price fix, which is currently underway on both sides of the Atlantic.

Fed to propose new bank liquidity requirement at Oct. 24 meeting
The U.S. Federal Reserve said on Thursday it plans to propose new liquidity requirements for U.S. banks during its Oct. 24 board meeting.

Fears over FSB ‘influence’ on global insurance capital standard
Financial Stability Board did not ‘want to waste a good crisis’, claims Geneva Association chief.

Asic hopeful of receiving substituted compliance from CFTC
Australian securities regulator positive about receiving US approval for the domestic regulatory regime.

ASIC Warns Of Dangers Of Foreign Exchange Trading For Retail Investors
ASIC today urged consumers to ensure they understand the risks of foreign exchange trading before putting their money on the line.

CFTC Issues No-Action Relief Regarding The Treatment Of Swap Transactions By Certain Non-U.S. Persons
The U.S. Commodity Futures Trading Commission’s (Commission’s) Division of Swap Dealer and Intermediary Oversight (DSIO) today issued a no-action letter that provides relief for certain non-U.S. persons that are not guaranteed or conduit affiliates of U.S. persons with respect to counting for purposes of the de minimis calculation.

Finra targets conflicts of interest in structured products industry
The US regulator has published a report saying issuers and sellers should be doing more to manage conflicts of interest that arise when deciding which products to sell and to whom

Keynote Address By CFTC Commissioner Scott D. O’Malia, Edison Electric Institute CFTC Compliance Forum, Washington, DC

Preview: UK’s Financial Conduct Authority’s Chief Executive Martin Wheatley’s Speech To The BBA Conference

ESMA Consults On Technical Advice To The Commission On Procedural Rules To Impose Fines On Trade Repositories

Exchanges & Trading Facilities

Regulation leads to exchange regionalization: NYSE Euronext official
Diverging regulation of financial markets will lead to a regionalization of cash markets and make future consolidation between U.S. and European exchanges unlikely, the Executive Vice President of NYSE Euronext said.

SGX reports first-quarter net profit of $92 million
Revenue from the securities business grew 15% to $69.0 million and accounted for 38% of total revenue. The average value of daily trading was steady at $1.3 billion. Securities clearing revenue rose 17% to $54.4 million due to institutions trading a broader range of stocks and increased retail participation. The clearing revenue a year earlier was also lower due to block trades driven by merger and acquisition-related activities.

Analysis: Lurching gold prices mystify traders, undermine confidence
While sudden swings in the price of gold are nothing new, the usual causes – a shock in economic data or a “fat finger” erroneous trade – don’t seem to fit. While the U.S. dollar had also tumbled on Thursday, bullion’s move was far more extreme. Some are pointing at spin offs from today’s predominantly 24-hour electronic trading, with a far smaller number of market makers on the trading floor to match orders and provide liquidity.

MarketAxess Appoints Jane Chwick To Board Of Directors
MarketAxess has confirmed the appointment of Jane Chwick to its Board of Directors. Ms. Chwick spent over 30 years at Goldman Sachs, most recently as a Partner and Co-Chief Operating Officer of Technology, and remains an advisory director of the firm.

Hedge Funds & Managed Futures

DealBook: Plea Agreement Could End SAC’s Advisory Business
NY Times DealBook
The winding down of SAC Capital’s business of managing money for outside investors is said to be part of a plea deal prosecutors are negotiating with Steven A. Cohen’s embattled fund

Morningstar names new chief financial officer
Investment research firm Morningstar Inc. on Thursday named Stephane Biehler as its new chief financial officer.

The hedge fund industry’s $3bn compliance burden
Financial News
For smaller firms, compliance eats up more than 10% of their total operating costs, according to a new report

Banks & Brokers

Fall in Revenue at Goldman Sachs Raises Concerns
NY Times DealBook
The weakness renewed worries about the headwinds that Goldman and other banks are facing in big money-producing areas like fixed-income trading.

OTC Global Holdings Launches Natural Gas Liquids Forward Curves OTC Global Holdings LP (OTCGH), the leading independent interdealer broker in over-the-counter commodities, formally announced today the availability of its latest data product, Natural Gas Liquids (NGL) Forward Curves powered by EOXLive.

ITG Inks TwoFour Deal
Waters Technology
Agency broker ITG has licensed TwoFour FX to help manage its foreign exchange (FX) operations.

Barclays, Citigroup, RBS FX Messages Said to Be Examined Bloomberg
An instant-message group involving senior traders at banks including Barclays Plc (BARC), Citigroup Inc. (C) and Royal Bank of Scotland Group Plc is being scrutinized by regulators investigating potential manipulation of the foreign-exchange market, four people with knowledge of the probe said.

HSBC vows to fight $2.5bn ruling
US court orders bank to pay $2.5bn related to Household International, its credit card and mortgage lender.

Rabobank abolishes board bonuses
Dutch lender bows to its owners and national public opposition to variable pay, becoming the first bank in decades to take such action.

Ex-UBS debt head lands Citi role
Financial News
Swiss bank’s former co-head of European DCM, who was named on the FN100 Women list in 2010, joins Citi’s derivatives team

Clearing & Settlement

Six banks put ‘lazy’ assets to work in first initial margin agreements
Banks tout ‘tremendous’ capital savings as Bank of America, Barclays, Citi and at least three other swap dealers start using illiquid assets as initial margin

Indexes & Products

Leveraged ETFs dodge blame for volatility
The US Federal Reserve has warned that leveraged exchange-traded funds could pose a systemic risk through their rebalancing activities, but many exchange-traded fund providers think these claims are overblown


DDoS Attacks Grow Shorter But Pack More Punch
Wall Street & Technology
If there was ever a riddle asking the listener to name something that has become bigger and shorter at the same time, distributed denial-of-service attacks (DDoS) would be an acceptable answer.


SEC Halts Pyramid Scheme Targeting Asian-American Community
The Securities and Exchange Commission today announced charges and asset freezes against the operators and promoters of a worldwide pyramid scheme that falsely promises exponential, risk-free returns to investors in a venture that purportedly sells Internet-based children’s educational courses.

Two financial advisers banned and fined after investors lose out
Financial Conduct Authority
Two Surrey-based investments advisers have been fined a total of £885,000 and been banned by the FCA from holding any position at a financial firm.

Environmental & Energy

China Tests CO2 Emissions Markets Before Tax, NDRC Official Says
China, the top greenhouse-gas emitter, will continue to test carbon markets and may consider a tax at a later stage to reduce pollution levels, according to a National Development & Reform Commission official.

Climate Change to Cost East Asia 5.3% of GDP, ADB Study Says
Climate change will lead to more flooding and drought in East Asia and could chop 5.3 percent off annual gross domestic product by the year 2100 if measures aren’t adopted to tackle it, according to the Asian Development Bank.

California Must Add 1.3 Gigawatts of Power Storage by 2020
California regulators today voted unanimously to require the state’s utilities to purchase 1.325 gigawatts of storage capacity by 2020 to make renewable energy more reliable and reduce greenhouse-gas emissions.

German power market not expanding and may shrink – EEX
The German power market is unlikely to expand and may even shrink as traders struggle to adjust to the rise of renewable power generation, the chief operating officer of European Energy Exchange (EEX) said on Thursday.


China launches first iron ore contract
China launches its first iron ore contract, providing local steel mills an additional way to hedge their main input costs

John Lothian Newsletter

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CEO, Trading Technologies

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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