John Lothian Newsletter: Asia futures focus takes wind from Chicago’s sails; ICE chief blasts rival’s tactics to lure users; Nasdaq to Test Lower Trading Fees

Nov 5, 2014

First Read

Bits & Pieces, FIA EXPO Edition
By John J. Lothian
The Futures Industry Association’s EXPO started with a bang yesterday with pre-EXPO events like the PhillipCapital Asia Panel I moderated and dinners and cocktail parties all over Chicago.

The second annual PhillipCapital Asia panel discussion was a success, with about 160 people in attendance. With representatives from SGX, HKEx, TFEX, TOCOM and DGCX, along with the CEO of PhillipCapital Singapore, we had an enlightening and engaging discussion. I always judge a panel by the discussion and if I can get any jokes off, and it worked on all accounts.

Here I am pictured in my underwear next to PhillipCapital US CEO Lynette Lim.

Chris Hehmeyer told a joke to end the ICE dinner last night. Ask him to tell his chicken joke. Or just go up to him and say “CHICKENS?”

Sungard had a big crowd at Moe’s Cantina on the near north side of Chicago, which more than compensated for their cancelled panel discussion.

John Lothian News is conducting interviews in the Cinnober booth at EXPO. We are going to be all alone as Fredrik Backlund came down with stomach flu and could not make it. So if you want to buy a trading platform from Cinnober, you get to talk to me. I wonder if I can get a commission on that?

Today the industry gets to hear Timothy Massad, whose last name I am told rhymes with acid. I am not sure what to make of that, but his speech may make the industry reach for some Tums.

Don’t ask Doug Ashburn about rock salt. I am just saying. It also involves reaching for Tums.

The FT has a special report today on trading and clearing. You will see a special section below and today’s lead story is from the uber-talented Jeremy Grant.

Lastly, let me give a plug for the Patrick Birley video we published yesterday from our London MarketsWiki Education Series and is included again below. It is a great story and well worth the watch.

Have a GREAT EXPO and come to the GREAT STEAK OUT and support the industry’s efforts to support the needs of the Greater Chicago Food Depository.


Post-Trade Views: Euronext’s Andrew Simpson on Interoperability and Open Access
Financial regulators began their overhaul a few years ago with several goals in mind, one of which was to make clearing and trading venues more open and transparent. But can cash securities and derivatives be shoehorned into the same set of rules? Andrew Simpson, head of post-trade services at Euronext, compares the regulatory objectives with the realities of the market.

Watch the video »


Barry Neumann named communications head at SocGen
Barry Neumann, the longtime global head of brand & external communications for Newedge has returned to his roots. He is now managing director, head of communications with Societe Generale and is officially based in New York. SocGen is in the process of integrating Newedge into its business.

**JK – Welcome back to the biz Barry.


Exchange Operator Bats Names Virtu’s Concannon President
Sam Mamudi – Bloomberg
Bats Global Markets Inc. has hired Chris Concannon as its president. Concannon joins Bats on Dec. 15 after leaving New York-based high-speed trading firm Virtu Financial Inc. where he was president, according to a statement. He worked at Nasdaq OMX Group Inc. for six years before Virtu.

**JK – A virtuous choice. Good luck Chris.


NFA announces nominations made by the 2014 Nominating Committee
In accordance with NFA Bylaw 406, the Office of the Secretary has received from the 2014 Nominating Committee a list of its nominees for positions on NFA’s Board of Directors and 2015 Nominating Committee. The list of nominees included with this notice shall serve as notification to NFA Members of the candidates proposed by the 2014 Nominating Committee.

***DA: The elections are getting more intense. Click over and check out the CPO/CTA category.


Patrick Birley, CEO of ISDX – Variety is the Spice of Life

“If you’re not happy with what you do, change. Do something else. Take the risk and get out there. “

Patrick Birley, CEO of ISDX, discusses his numerous career path transitions. Starting with an entrepreneurial experience for an exchange in Africa, Birley highlights the success he achieved and how he thought he would be unstoppable in his career. After a life changing event that forced him to reconsider the safety of his family, Birley returned with his family to the UK and ended up switching from several other corporate and entrepreneurial positions, until finally landing where he is today. In between those jobs, Birley became involved in the brewing industry before returning to the financial world. All these various experiences helped shape both Birley’s personality and professional attitude. His overall message is to take advantage of new opportunities and be willing to try something else if you don’t enjoy what you currently are doing.

Watch the video »


Will High Frequency Trading Force a Market Redesign?
Ginger Szala – Advantage Futures
Notwithstanding the evident benefits of HFT in electronic markets, many market participants have argued that some HFT practitioners utilize trading techniques that are detrimental to the well-functioning of financial markets. Some of the trading techniques are spoofing, layering, and quote stuffing.

***DA: I would say the redesign is already underway.


Chopper Trading closes EU equities team
Tim Cave – Financial News
Chicago-based high-speed trading firm Chopper Trading has disbanded its fledgling European equities trading team, becoming the second US firm in a matter of weeks to pull back from the market amid mounting regulatory and operational costs.


MarketAxess Celebrates 10 Years of Growth as a Public Company
MarketAxess Holdings Inc., the operator of a leading electronic trading platform for fixed-income securities, and the provider of market data and post-trade services, will commemorate a decade of growth as a public company when it rings the NASDAQ Stock Market Opening Bell on Wednesday, November 5, 2014.

***DA: Congratulations and best wishes to Rick McVey and the team.


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Lead Stories

Asia futures focus takes wind from Chicago’s sails
Neil Munshi and Jeremy Grant – Financial Times
Trading on the Chicago Mercantile Exchange hit a record high last month, but few in the Windy City are popping the champagne corks just yet. Yet in Asia, where futures markets have existed for only a fraction of the 150 years they have powered Chicago’s trading community, the mood is quite different.

**JK – All eyes on Asia.

ICE chief blasts rival’s tactics to lure users
Gregory Meyer in New York – Financial Times
The head of Intercontinental Exchange, the world’s second-largest exchange group by market value, launched an unusually explicit criticism of its bigger competitor’s business strategy as he touted growth in his flagship oil contract.

Nasdaq OMX to Test Lower U.S. Stock-Exchange Trading Fees
Sam Mamudi – Bloomberg
Nasdaq OMX Group Inc. is planning to test the effects of lower trading fees on the world’s largest equity market. The experiment, which starts in February, covers charges paid by broker-dealers and market makers who operate on Nasdaq and will be limited to 14 stocks, according to a statement on the exchange’s website.

New rules may break voting stalemate over Nasdaq data processor
Herbert Lash – Reuters
A stalemate over selecting a new manager of a data processor that publishes quotes and sale prices for Nasdaq-listed stocks may be resolved because of new rules that ease voting requirements, according to a recent regulatory filing.

BATS Near Settlement, Hyundai-Kia, U.K. Banks: Compliance
Carla Main – Bloomberg
BATS Global Markets Inc. is close to settling with U.S. regulators over accusations that Direct Edge, the stock exchange operator it bought in January, gave unfair advantages to high-frequency traders, according to a person familiar with the matter.

Major exchanges seek to dismiss high-frequency trading lawsuit
Jonathan Stempel – Reuters
Major U.S. stock exchanges have asked a federal judge to dismiss a lawsuit accusing them of costing ordinary investors billions of dollars by rigging markets to benefit high-frequency traders.

LSE to launch midday stock auction
Philip Stafford – Financial Times
The London Stock Exchange Group will launch a midday intraday auction period for UK stock trading late next year, hoping to put pressure on rivals to follow suit and create a standardised mid-session process across all European markets.

NYSE boss Thomas Farley sees value in trading floor
Nicole Bullock and Gregory Meyer – Financial Times
The venerable trading floor of the New York Stock Exchange, the daily backdrop to television business news reports, has found an unlikely champion.

This Cuts No ICE With Me
Streetwise Professor
I admire Jeffrey Sprecher. ICE has been an amazing success story, and a lot of that has to do with his rather unique combination of vision and ability to execute. But he is not above talking his book, and he delivered some self-serving, and in fact anti-competition, remarks in ICE’s earnings call held earlier today:

Some Light Shed on Delay of Hong Kong-Shanghai Trading Link
Gregor Stuart Hunter And Wei Gu – WSJ
Hong Kong’s chief executive and an influential think tank with the ear of China’s government have indicated that Beijing is delaying the highly anticipated trading link between Hong Kong and Shanghai in reaction to Hong Kong’s pro-democracy protests.

FT Report: Exchanges, Trading, and Clearing

The Financial Times has a special report out today on exchanges, trading and clearing. But since we’re so darn efficient, here are links to the stories in that section, just waiting for you to visit:

Trading industry strives to find its form
Philip Stafford – Financial Times
On retiring from Sanford Bernstein last month, veteran analyst Brad Hintz penned some observations about the capital markets in which had worked for 30 years. In a memo to clients, he pointed out that the trading businesses of Wall Street were still generating returns far below their cost of capital six years after the crisis. Even so, he noted, most investors expected returns to rebound once services had been repriced to reflect increased regulatory costs.

Shrinking margins and higher costs drive down investment banks’ returns
Daniel Schäfer – Financial Times
Disruption: it might sound like a hollow buzzword but it has become far too real for the investment banking industry.

Oil price swings come too late for banks who made desk cutbacks
Gregory Meyer – Financial Times
The recent big decline in oil prices has helped not just car owners but Wall Street commodities desks too. Years of static commodities markets have slashed revenues because banks’ trading partners – corporate clients and hedge funds – have had less impetus to protect against, or place bets on, price moves.

Search for liquidity tests corporate bond market
Michael Mackenzie – Financial Times
Prolonged droughts usually compel cities to invoke water restrictions and perhaps explore fanciful ideas such as cloud seeding. For Wall Street and the vast US corporate bond market, the current liquidity drought appears to have no solution, unless radical changes occur and technology dreamers make their mark.

China’s financial reforms boost integration with global markets
Gabriel Wildau – Financial Times
Despite the slow progress in implementing many of the large-scale economic and financial reforms endorsed in a landmark policy blueprint last year, China has made headway in modernising its financial market infrastructure and launching new financial and commodity derivatives.

Interview: Per Sjöberg, chief executive, TriOptima

NSEL bourse scandal highlights shortcomings
James Crabtree – Financial Times
In late October, India tried to draw a line under one of the most damaging scandals in the history of its financial markets, when a government order forced the defunct National Spot Exchange Limited (NSEL) to merge with its holding company, Financial Technologies.

Jobs Act to simplify capital raising boosts crowdfunding
Tracy Alloway – Financial Times
On a cloudy day in October, dozens of crowdfunding professionals gathered at a hotel in central San Francisco to discuss the up-and-coming sector. More than 150 years after thousands flocked to the US west coast to prospect for precious metals, crowdfunding is presenting another gold rush of sorts.

Clearing house members fear they may have to stump up in case of a failure
Philip Stafford – Financial Times
Post-financial crisis, regulators have been steadfast in their insistence that more of the derivatives market be passed through risk managers known as clearing houses. But many market participants worry about the implications of a failure of one these institutions.

Start-ups making waves in Chicago’s derivatives industry
Neil Munshi – Financial Times
Last month, the world’s largest futures exchange played host to a meeting of tech workers, venture investors and traders. CME Group had not formally organised the event, but it had provided the venue and Rumi Morales, representing the CME’s new venture capital fund, was moving about the crowd. CME’s involvement demonstrates its appreciation of the important role that start-ups are likely to play in the future of the derivatives industry – and the city.


S.E.C. Raises Barrier to Disclosure of Information
William D. Cohan – Dealbook – NY Times
The Freedom of Information Act is supposed to make it easier for journalists and ordinary Americans to obtain documents and other information about how the federal government conducts its business. As such, it is one of the bedrocks of our democracy. “It is often described as the law that keeps citizens in the know about their government,” boasts, a website dedicated to the law.

A Recent Surge of Leveraged Loans Rattles Regulators
Peter Eavis – Dealbook – NY Times
As regulators hunt for the next financial bubble, they are homing in on an obscure corner of Wall Street: the debt market where Tom Shannon’s company, a chain of flashy bowling alleys, recently borrowed nearly half a billion dollars.

Hedge Fund, Investor Groups Hammer Swaps ‘Stays’
Andrew Ackerman – MoneyBeat – WSJ
Hedge funds, insurers and other companies said global regulators shouldn’t implement new rules aimed at protecting the financial system against the failure of big banks.

NFA’s BASIC System – Changes to Public Display of FCM Financial Information

ESMA Chair Steven Maijoor Delivers Keynote Address To EFAMA’s Investment Management Forum 2014 In Brussels

ESMA Announces New CWG For The Post Trading SC

Exchanges & Trading Facilities

TradingScreen Launches Trading Access to Eris Exchange
TradingScreen, the leading independent provider of liquidity, trading, and investment technology via SaaS, today announced the addition of Eris Exchange as a destination. Buy-side trading participants can now access margin efficient Eris Swap Futures traded on Eris SwapBookTM through TradingScreen’s suite of offerings: TradeSmart an award winning EMS, TradeExchange a SaaS Exchange Links offering, and TradeFast a high speed API through TradeNet , a global network of brokers, liquidity providers and exchanges.

SGX sees growth in securities and derivatives for October
SGX securities average daily value was up 8% month-on-month, but lower 7% year-on-year. Total traded value in October increased 4% month-on-month to S$21.7 billion, as compared to September, despite fewer trading days in the month (21 days) versus September (22 days).

Euronext says Oct. 2014 average daily transaction value on Euronext cash order book up 49.2 pct

Nadex Now Offering 20-Minute Binary Option Contracts
The North American Derivatives Exchange (Nadex), a regulated online binary options exchange in the United States, today announced the launch of 20-minute binary options contracts.

IEX says visible orders to complement its current structure
IEX Group, which runs an alternative trading system known as a “dark pool,” said on Tuesday its plan to allow brokers to post visible orders on its platform at the end of January would not affect the brokers’ ability to place hidden orders.

Nasdaq adds implied order data to phlx feeds
Nasdaq will add data for implied orders – orders also known as “legging orders” that are generated by Nasdaq that represent one leg of a complex order – to its PHLX Orders and PHLX Depth of Market datafeeds starting Thursday, Nov. 13

Euronext Announces Monthly Trading Volumes For October 2014

Intercontinental Exchange Declares Quarterly Dividend Of $0.65 Per Share

Borsa Italiana Monthly Update October 2014

Ljubljana Stock Exchange: Monthly Statistical Report October 2014

HKEx 2014 Third Quarter Results
The board of directors (Board) of Hong Kong Exchanges and Clearing Limited (HKEx or the Company) is pleased to submit the unaudited consolidated results of the Company and its subsidiaries (collectively, the Group) for the nine months ended 30 September 2014.

Direct Edge Trading Notice #14-48: BATS Weekend Test Opportunity For New EDGA And EDGX Exchange Platforms In NY5 On November 15, 2014

Warsaw Stock Exchange Revises Terms Of Classification In Alert List – WSE Management Board Decides To Maintain The Penny Stock Threshold At PLN 0.50

Hedge Funds & Managed Futures

Janus chief Dick Weil revels in Bill Gross hire
Stephen Foley in Denver – Financial Times
Dick Weil has fond memories of the 15 years he spent at Pimco, the California-based fund management group, but he is not sure the ties he forged there have survived what he did this summer.

Pimco Total Return ETF posts $437 million outflow in October: Morningstar
The Pimco Total Return Exchange-Traded Fund posted its second straight month of outflows in October, totaling $437 million compared with $631 million outflow in September, according to Morningstar data on Tuesday.

Hedge Fund Kingsguard Said to Close After October Losses
Kelly Bit – Bloomberg
Kingsguard Advisors LP, a global macro hedge-fund firm started in 2012 by two former Goldman Sachs Group Inc. traders, is shutting down after losses in October, according to two people familiar with the matter.

Och-Ziff third quarter profit beats Wall Street estimates
Och-Ziff Capital Management Group reported lower quarterly profits on Tuesday but handily beat Wall Street’s estimates as fresh demand for the company’s hedge fund portfolios boosted yearly inflows to a new record.

Carl Icahn’s Investment Fund Loses 5.3% In Third Quarter
Count Carl Icahn in among the big shot investors who have gotten hurt in financial markets recently amid the drop in oil prices.

Invesco Fund Treads Risky Path as Major Investor in Distressed Corporate Debt
Landon Thomas Jr. – Dealbook – NY Times
When a unit of a Texas power giant filed for bankruptcy this year, investors did not go looking for bargains. Because the company was saddled with $40 billion in debt from a boom-era buyout in 2007, the virtual “buyer beware” tag on its leveraged loans kept even the most brazen risk-seekers at bay.

ETF Trading Enhanced Bond Market Liquidity After Gross’ Exit – BlackRock
Chris Dieterich –
BlackRock (BLK) said in a position paper last week that bond exchange-traded funds helped “defuse uncertainty and facilitate orderly and stable markets” while billions of dollars poured out of Pacific Investment Management Co. in recent weeks.

Hedge Fund Lions’ Den live now – Season 2
The first and second episodes of Hedge Fund Lions’ Den – a six-part series following the fortunes of three emerging managers trying to convince three hedge fund lions to invest in their products – is live

Banks & Brokers

Amrolia to lead Deutsche Bank digital drive
Clive Horwood – Euromoney Magazine
Zar Amrolia, Deutsche Bank’s co-head of fixed income and currencies, will take on a new role leading the firm’s development of digital technology within its corporate banking and securities business, Euromoney understands.

Goldman Sachs to Present at the Bank of America Merrill Lynch 2014 Banking and Financial Services Conference

Clearing & Settlement

Clearstream And Standard Chartered Bank Implement Their Collateral Management Offering For Singaporean Collateral
Only 18 months after starting development work, Clearstream and Standard Chartered Bank have now implemented a collateral management service for Singapore. From 17 November onwards, mutual customers will be able to consolidate their assets held across both institutions into one single pool to perform collateral management transactions with any Clearstream collateral receiver.

Indexes & Products

U.S. ETFs Climb Toward $2 Trillion in Assets
Ari I. Weinberg – WSJ
It has been clear for a while that exchange-traded funds would eventually break through $2 trillion in assets in the U.S. But it now looks like it will happen much sooner than most observers expected.

Record Index Options Volume in October Reflects Demand for Risk Management Tools
Matt Moran –
In my discussions with institutional investors I often hear questions and comments about market liquidity and capacity, particularly in times of market volatility. To help answer these questions I often turn to data on contract volume, and I note that much of the volume for index options is related to portfolio or risk management strategies.


The Chicago Board Options Exchange today announced it has released its new state-of-the-art “CBOE Mobile” options application for iPhone and iPad users.

Free New Mobile App from Successful Farming and AgriCharts
Farmers have been early adopters of many communications technologies, and Successful Farming and AgriCharts are meeting that growing demand by launching a new app for farmers on the go.

UCX, The Universal Compute Xchange, Launches Beta for Trading Cloud
UCX, announces the beta launch of the Universal Compute Xchange. The launch of UCX builds on the news earlier this year that the CME Group (Chicago Mercantile Exchange) signed a definitive agreement to develop an IaaS exchange.

Rise of the retail structured products app
The arrival of simple structured product apps has been welcomed by retail investors, but should any moves towards allowing the trading of complex structures via smartphone or tablet be a cause for concern?


SAC’s Martoma wins delay of nine-year insider trading prison term
Nate Raymond – Reuters
Mathew Martoma, a former portfolio manager at billionaire Steven A. Cohen’s SAC Capital Advisors LP hedge fund, won an order Tuesday to delay the date he would begin serving a nine-year prison term for insider trading.

Environmental & Energy

ICE Endex Introduces Belgian ZTP Natural Gas Futures
Intercontinental Exchange, the leading global network of exchanges and clearing houses, today announced that ICE Endex, the leading energy exchange in continental Europe, successfully launched Belgian ZTP Natural Gas futures contracts on November 4, 2014. The first Belgian gas futures contract offered for trading is the December 2014 contract and the contracts extend through January 2017.

From Drought Relief to Oil Revenues, 5 Climate-Related Ballots To Watch
Katherine Bagley and John H. Cushman Jr., InsideClimate News
A record number of anti-fracking measures are on the midterm ballots—but gas drilling isn’t the only climate and environmental issue that will be put to voters on Tuesday.

Record Number of Anti-Fracking Measures on Nov. 4 Ballots
Zahra Hirji, InsideClimate News
Eight towns and counties across the country are taking their health and environmental concerns about hydraulic fracturing, or fracking, to the ballot boxes next week.


HFT: Flash boys come to Asia
Rob Hartley – Euromoney Magazine
High-frequency trading is not confined to Europe and north America. Some Asia-Pacific countries are further along in embracing the strategy than others.

Hong Kong asset managers seek alternatives as China investment quotas dry up
Michelle Chen – Reuters
Asset managers in Hong Kong are scrambling to figure out how to meet growing demand for yuan assets after they were hit by a double blow – a shortage of China investment quotas and the delay of a scheme linking the Hong Kong and Shanghai stock exchanges.

Poor liquidity stalls long-dated Thai derivatives market
Demand for long-dated products in Thailand remains strong, but thin markets make filling this void difficult. However, some reforms are afoot Thai markets had a tumultuous six months in the first half of the year, following December’s anti-government protests.

JCCH: Japanese Commodity Markets Summary for October 2014

HKEx: Arrangements For Adjustment Of PICC Property And Casualty Structured Products, Futures And Options

HKEx Announces Appointments To Various Committees

Frontier Markets

Cairo Amman Bank: Jordan Capital Market Development Flash

Palestine Securities Exchange Monthly Investor Newsletter- October 2014

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How Ken Griffin rebuilt Citadel’s ramparts

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