John Lothian Newsletter: Australia exchange to tap SE Asia market; SIP Up for Bid; U.S. securities watchdog to monitor off-exchange stock trading

Feb 3, 2014

First Read

Open for Business: Tech Drives the Transition to SEFs

The Swap Execution Facility was given life by the Dodd-Frank Act.

After three years of meetings, rule proposals comments, and more meetings, the final SEF rules were published by the CFTC in mid-2013 and trading has commenced on 18 registered SEFs. John Lothian News attended SEFCON IV and interviewed a dozen of the leading SEF operators, regulators and other participants to bring you this three part series on SEF regulation, the changing market structure and the new technology required to make it all happen. Part three of the series explores the importance of technology in the rapidly changing SEF landscape. Mandatory execution on SEFs, along with clearing and data mandates, have necessitated a technology transformation in financial markets. While most of the pieces are in place, several questions remain.

Watch the video »


ICE completes acquisition of Singapore Mercantile Exchange
IntercontinentalExchange Group, the leading global network of exchanges and clearing houses, today announced the successful completion of its previously announced acquisition of Singapore Mercantile Exchange, following regulatory approval by the Monetary Authority of Singapore.

***** The first entry in Lead Stories is about ASX opening an office in Singapore.


Europe and US watchdogs align on derivatives action
Philip Stafford –
US and European regulators have pledged greater co-operation as they introduce rules to tighten oversight of the global $700tn over-the-counter derivatives market, seeking to diffuse tensions between the two sides.

***** And the CFTC and SEC are going to cooperate too. And the Broncos are going to win the Super Bowl. Oops.


After Gensler, U.S. grain trade hopes for gentler CFTC
After years of battling tighter regulations in the wake of the 2008 financial crash, the U.S. grain industry is hoping a change in the regulators can bring some relief.

***** Good luck with that. The CFTC, not just Gary Gensler, were/are under attack by Congress for a multitude of perceived sins. Changing the players at the CFTC, does not change the pressures from Congress, or the influence from the administration.


Bats-Direct Edge Merger Puts Traders in Control of Venues
Sam Mamudi – Bloomberg
Bats Global Markets Inc.’s merger with Direct Edge Holdings LLC will put a broker-owned stock exchange operator in the top ranks on Wall Street for the first time since NYSE Euronext and Nasdaq OMX Group Inc. went public.

***** Who owns exchange is important. Who it benefits is even more important. BATS is now going to have to really differentiate themselves to make this case.


R.J. O’Brien Names Robert Keeley to New Post of Senior Vice President, Institutional Sales and Business Development
R.J. O’Brien & Associates, the oldest and largest independent futures brokerage and clearing firm in the United States, today announced that Robert A. Keeley has joined the firm to assume the new role of Senior Vice President, Institutional Sales and Business Development. Keeley, 46, has more than 23 years of experience in institutional sales, futures brokerage and trading, and management.

***** Go get them Bob.


Unwinding the Volcker Rule: From Confusion to Threats and Opportunities
Sol Steinberg – TabbFORUM
Despite the finalization of the Volcker Rule, confusion still swirls around compliance. Meanwhile, the operational burden may drive down liquidity and drive up trading costs. But the challenges do create opportunities for buy-side platform providers.

***** There is always opportunity in change.


Speed Dating by Candlelight – The Growth of Twilight Pools
Peter Fredriksson – Baymarkets
With today’s fragmented markets, firms are faced with an increasingly wide choice of trading venues on which they can execute their business. The majority of these fall into one of two categories; either lit markets or so-called dark pools of liquidity. However, there is a third way. An increasing number of market operators are now starting to adopt a “twilight pool” approach, where the level of opacity is controlled to match pre-defined conditions.

***** I prefer twilight bowling.


A Parting Gift as Ben Bernanke Hangs Up His Cleats
Ben S. Bernanke now has his own baseball card. The Federal Reserve distributed the card at a staff reception this week in honor of its outgoing chairman, a banker who also happens to be a passionate baseball fan.

***** Thank goodness. I have way too many Volker and Greenspan cards. Now I can trade them for a Bernanke or 2.


Just How Healthy Are the US and EU Economies?

The climb back from the economic crisis has been long and hard. Two market participants believe that much is left to be done in Europe and in the US.

Bob Swarup, principal of Camdor Capital in London who has studied economic crisis dating back to ancient Greece, says Europe isn’t out of trouble, while Charles Johnson, managing director of Tano Capital said the US economy still has some major hurdles in 2014. Jim Kharouf, editor-in-chief of John Lothian News spoke with Swarup and Johnson at the Emerging Manager Forum in Miami last month.

Watch the video »



MarketsWiki Page of the Day
BATS Global Markets

MarketsWiki Recent Updates


Don Davis; Nick Solinger; Jens Quiram; Brookly McLaughlin; Peter Reitz; Steffen Köhler

Companies, Organizations and Groups

Direct Edge; BATS Global Markets; Traiana; IEX Group


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Lead Stories

Australia exchange to tap SE Asia market
Jeremy Grant in Singapore –
ASX, the Australian exchange, is poised to open an office in Singapore this year as it seeks to tap into growing regional demand from proprietary trading groups and Chinese brokers for derivatives.

SIP Up for Bid
Ivy Schmerken – Wall Street & Technology
A decision by Nasdaq OMX to stop running the securities information processor (SIP), which had an outage last summer, has raised the need to find a new vendor, and sources say the UTP SIP committee has made a decision to put it out for bid.

U.S. securities watchdog to monitor off-exchange stock trading
An industry-funded watchdog for the U.S. securities industry will begin monitoring stock transactions in off-exchange trading venues in a bid to increase transparency in the markets.

Cetip scraps plan to create Brazil bourse -newspaper
Cetip SA Mercados Organizados , Brazil’s largest securities clearinghouse, dropped plans to create a local bourse or help ATS Brasil clear and settle cash equities trades when it sets up an exchange in coming months, newspaper Valor Econômico reported on Friday.

ICAP plans US electronic swaps venue
Philip Stafford in London –
ICAP has applied to operate a US electronic swaps trading venue overseen by UK regulators, stepping up its moves to address sweeping US laws governing the over-the-counter derivatives market.

HFT firms face German slowdown after rules change
Tim Cave – Financial News
A number of US and European high-frequency trading firms face the prospect of radically altering their strategies in Germany after an 11th-hour update to incoming regulations.

Bank Manager, Rate Submitter Face Fines in U.K. Libor Probe
Suzi Ring – Bloomberg
The U.K. markets regulator notified a bank manager and a rate submitter that they face penalties for their involvement in manipulating benchmark rates in the first civil cases against individuals in the global probe.

DOJ probes finance firms’ dealings with Libya – WSJ
The U.S. Department of Justice is investigating banks, private equity firms and hedge funds that may have violated anti-bribery laws in their dealings with Libya’s government-run investment fund, the Wall Street Journal reported, citing people familiar with the matter.

Ex-Banker Krawcheck Heads Up ‘Broad’ Effort at Boosting Women in Business
Sara Murray –
When Sallie Krawcheck’s relationship with her boss, then- Citigroup Inc. Chief Executive Vikram Pandit, soured in 2008, she called Zoe Cruz to meet for lunch. Until that lunch, they had never met; Ms. Krawcheck realized they should have done so sooner.


SEC panel advises against study to widen tick sizes for small firms
A regulatory advisory panel on Friday urged the U.S. Securities and Exchange Commission not to launch a test program that would allow the stocks of small-cap companies to trade in wider increments, a recommendation that clashes with a proposal from a different SEC committee.

CFTC’s Division of Market Oversight to Host Public Roundtable Regarding the Trade Execution Requirement and Package Transactions
The U.S. Commodity Futures Trading Commission’s (CFTC) Division of Market Oversight (Division) will hold a public roundtable on February 12, 2014, from 9:00 a.m. to 12:30 p.m., to discuss the application of the Commodity Exchange Act’s (CEA) trade execution requirement to so-called “package transactions.”

Morrison & Foerster issues review of SEC financial reporting and accounting enforcement in 2013
Public companies and accounting firms are back in the SEC’s sightlines, as the Commission has vowed to put renewed emphasis on pursuing potential fraud by public companies and auditors. Law firm Morrison & Foerster has been watching the tide turn in this area and just issued its first Financial Reporting and Accounting Enforcement Annual Review.

Gary DeWaal’s Bridging the Week: January 27 to 31, and February 3, 2014 (Computer Glitches, Employee Raid Aftermath, and a CCO Suspension)
Gary DeWaal and Associates LLC
Last week, many in the world celebrated the lunar New Year and the arrival of the “Year of the Horse.” However, there were no celebrations at two large financial service firms when complex computer systems they daily relied on for compliance with regulatory obligations turned out to be Trojan horses. This was because coding issues made these computer systems produce reports that looked accurate but in fact contained incomplete or inaccurate information that caused the firms significant regulatory headaches, including large fines.

SEC judge who took on the ‘Big Four’ known for bold moves
Cameron Elliot, the U.S. administrative judge who recently delivered a stunning rebuke to the global “Big Four” accounting firms, has a reputation for not shying away from big cases.

Law Doesn’t End Revolving Door on Capitol Hill
A top aide to a Republican congressman from Arizona helped promote a legislative plan to overhaul the nation’s home mortgage finance system. Weeks after leaving his government job, he reappeared on Capitol Hill, now as a lobbyist for a company poised to capitalize on the plan.

London eyes collaboration on pension fund investments
Mark Cobley – Financial News
Almost three quarters of London’s borough councils, running pension funds worth at least £14 billion, have signed up to an initiative to create a collective investment vehicle in order to make savings on their asset-management costs.

Asset managers and consultants clash on generic advice regulation
Mike Foster – Financial News
Asset managers have thrown down the gauntlet to investment consultants by saying publicly that the generic advice they give to clients should be regulated.

DOJ Antitrust Chief to Companies: ‘Get Serious With Us Early’
Gillian Tan – MoneyBeat – WSJ
The Justice Department’s top antitrust cop told companies pursing potentially anticompetitive deals to come to him early, and with something real, if they want to get their deals done.

MMT Becomes A FIX Administered Standard: A Significant Step Forward For Trade Data Standardisation
The Federation of European Securities Exchanges (FESE) and FIX Trading Community are pleased to announce that the Market Model Typology (MMT) has become a FIX standard.

Exchanges & Trading Facilities

[JEG] Trading Overview in January 2014
Japan Exchange Group announced a trading overview (preliminary estimates) in January 2014. The average daily trading value for the 1st Section in January 2014 was JPY 2.8526 trillion, reaching a new high since May 2013. The trading volume of the JPX derivatives markets in January 2014 was 26,948,865 contracts. The trading volume in the night session in January 2014 was 7,346,620 contracts.

January 2013: Good Growth In Trading Volume On Oslo Børs
January saw strong growth in trading volume for equity instruments. The level of activity in equity instruments was more than 20% higher than in January 2013.

NZX Granted Registration As Foreign Board Of Trade By CFTC
The US regulatory agency the Commodity Futures Trading Commission (CFTC) has registered NZX as a Foreign Board of Trade under the US Commodity Exchange Act.

NZX Head Of Energy Update
NZX announces that Shane Dinnan has accepted the role of Head of Energy and will start on 10 February.

Kudrin Tipped to Head Moscow Exchange Board
The Moscow Times
The Central Bank has asked former Finance Minister Alexei Kudrin to head the Moscow Exchange’s supervisory board, a source familiar with the situation said.

WFE Focus January 2014 issue: 2013 Market Highlights

EEX Launches New Online Presence
The new website with its refreshed design provides visitors with a simpler and significantly faster access to the entire range of information.

Amendments To The MIAX Options Fee Schedule Beginning February 1, 2014

TOM MTF Statistics Week 5, 2014 – 31% Market Share

Hedge Funds & Managed Futures

Succession exposes risks for hedge funds
Stephen Foley –
“As we age, time becomes our most precious commodity.” So wrote Robert Karr, one of the “Tiger cub” hedge fund managers to have learnt their craft at Julian Robertson’s Tiger Management, who decided last week that he would shut down his $5bn fund, Joho Capital.

After Scandal, SAC Capital Begins to Fade to Black
SAC Capital Advisors, synonymous with an insider trading scandal that has consumed the hedge fund industry, will soon cease to exist as Wall Street has known it.

Reaching the Top Ranks of Blackstone Without an M.B.A.
Mike Spector – MoneyBeat – WSJ
Real-estate guru Jonathan Gray heads Blackstone’s largest business, chairs the board of Hilton Worldwide Holdings Inc., just became a billionaire on paper and is in line to one day run the world’s largest private-equity firm. But he’s also notable for something he doesn’t have: an M.B.A.

Over $1.5 trillion changes hands in fund manager takeovers
Mike Foster – Financial News
The value of assets supervised by fund managers acquired during 2013 jumped 34% against the previous year to $1.8 trillion, according to advisory firm Freeman & Co, although transactions fell in number.

KKR to Open First Spain Office
KKR & Co. is set to open its first office in Spain on Monday, as the buyout specialist seeks to build on its billion-euro stake in a country that is attracting a growing volume of investment from abroad.

Moore Capital hires nine-strong SAC Capital team in London
Harriet Agnew – Financial News
A team of nine from the now-defunct London office of SAC Capital Advisors has joined Louis Bacon’s $12.1 billion hedge fund Moore Capital Management.

Unlikely Allies Seek to Check Power of Activist Hedge Funds
An unlikely alliance of investors, board members and advisers has formed in an effort to counter the disproportionate influence of activist hedge funds on corporate America.

Orkney’s pension fund lands a big investment catch
Mark Cobley – Financial News
Councils in Orkney, the Isle of Wight, and the City of London have some of the best-performing pension funds in the country, while Bedfordshire Council and the London Borough of Barking and Dagenham are among the worst.

Anglo American sharpens commercial focus
Neil Hume, Commodities Editor –
Unlike some of their peers in the oil industry, the world’s big mining companies have traditionally shied away from trading physical commodities.

Banks & Brokers

Morgan Stanley Says Its Emerging-Markets Risk Is Limited
Saabira Chaudhuri – MoneyBeat – WSJ
Morgan Stanley has “limited risk” in emerging markets, the bank’s Chief Financial Officer Ruth Porat said on Friday.

Role change for Kinol as Credit Suisse plans new trading venture
Joe Rennison –
Jon Kinol will lead a new electronic market-making project, leaving David Tait as sole head of the bank’s macro products group

Bank of America Settlement on Bonds That Soured Is Approved
A New York State Supreme Court justice on Friday approved an $8.5 billion settlement between Bank of America and a group of mortgage securities investors, but the ruling contained a caveat that could create new problems for the bank.

Barclays must hand over more ex-boss emails in Libor case
Barclays has been told to hand over thousands more emails and other documents from its former bosses in a UK court case tied to the alleged manipulation of Libor interest rates, which will start in April.

Barclays names audit chief Roemer as head of compliance
Barclays said its new head of compliance will be Mike Roemer, currently its head of internal audit, filling the role left vacant two months ago by the exit of former UK regulation chief Hector Sants.

Lloyds to Take £1.9 Billion in Added Charges
Lloyds Banking Group said Monday that it would set aside 1.9 billion pounds to cover potential claims related to the improper selling of insurance and other products — the latest European bank to increase its reserves in the fourth quarter for past sins.

Clearing & Settlement

Calypso releases interface to DTCC GTR for Emir reporting
Calypso Technology Inc., the leading integrated capital markets platform provider, today announced the release of an interface to the DTCC’s Global Trade Repository service (GTR) for EMIR (European Markets Infrastructure Regulation) reporting.

Indexes & Products

Emerging markets are badly served by ETFs
John Authers –
Money is flowing out of the emerging markets. A debate is raging over whether this is the fault of the US Federal Reserve, which has effectively encouraged investors to bring their money back home.

New ETN to be Listed on Mar. 12, 2014 (Wed.) – Nomura Group, “NEXT NOTES” Series (Fourth Installment)-


SunGard Hackathon Produces Algo Trading, Visualization and Security Apps
Greg MacSweeney – Wall Street & Technology
Hackathon events are a regular occurrence at many technology companies, such as Google, Facebook and Microsoft. But the software development cram sessions, also known as codefests or hackfests, are relatively new to the financial services technology space.

Centercore: A New Flexible Datacenter Approach
Greg MacSweeney – Wall Street & Technology
Centercore, a flexible datacenter design created by Fidelity Investments, allows enterprise organizations to build out datacenters in smaller 500-kilowatt increments. This approach differs from a traditional datacenter build out where the entire datacenter is built at once, leaving space for future growth.

Thomson Reuters adds Twitter and news sentiment analysis to Eikon


CFTC Obtains Court Order against Arizona Resident Thomas L. Hampton for Issuing False Account Statements and Operating as an Unregistered Commodity Pool Operator
The U.S. Commodity Futures Trading Commission (CFTC) announced that Judge H. Russel Holland of the U.S. District Court for the District of Arizona entered an Order of final judgment by default and permanent injunction against Defendant Thomas L. Hampton of Scottsdale, Arizona.

SEC Charges Two College Professors in Naked Short Selling Scheme
The Securities and Exchange Commission today charged a pair of college professors in Tallahassee, Fla., with perpetrating a complex naked short selling scheme for more than $400,000 in illicit profits.

FTSE groups hit by lingering scandals see legal costs swell
Caroline Binham, Legal Correspondent –
The biggest publicly traded companies in the UK had to set aside a record amount to settle legal costs in 2013, as banks in particular saw regulatory fines and litigation damp their profits in the wake of lingering scandals.

Expert Says Key Document in Martoma Trial Was Public
An expert witness, testifying on behalf of Mathew Martoma, told jurors Thursday that allegedly confidential information central to prosecutors’ insider-trading case against the SAC Capital Advisors LP portfolio manager was actually public before he received it.

[AMF Canada] MWM Assurances inc. and its responsible officer agree to pay administrative penalty

Environmental & Energy

U.S. report on Keystone indicates little climate impact
A long-awaited State Department environmental report on the proposed Keystone XL oil pipeline indicates what the oil industry and its backers have been saying — it won’t have a big impact on carbon emissions that cause climate change.

**RKB — Approval or denial of any single project was unlikely to affect how much oil gets extracted from the tar sands, Assistant Secretary of State Kerri-Ann Jones said in a conference call with reporters, covered in this CNN article. Jones noted that the oil from the tar sands was more carbon intensive than normal oil, producing 17% more carbon emissions.

Five takeaways from State Department’s review of the Keystone XL pipeline
Washington Post Wonk Blog
The State Department has finished its massive environmental review of the controversial Keystone XL pipeline, which would carry oil from the tar sands of Alberta, Canada, down to Steele City, Nebraska, where it would move on to refineries on the Gulf Coast.

The Obama Administration’s Big Chance to Cut Carbon
Audobon Magazine
There’s going to be plenty of hullabaloo this February when the Supreme Court hears a case on a greenhouse-gas permitting program for industrial facilities. But that’s merely a prelude to a much bigger, far more controversial crackdown that could come this summer–one with substantial implications for the health of humans and wildlife alike.


Philippines’ bank governor adds voice to monetary policy debate
Roel Landingin in Manila and Paul J Davies in Hong Kong –
The Philippine central bank governor has waded into the battle over the handling of monetary policy and its resultant impact on emerging markets, as capital starts flowing out at the prospect of higher US interest rates.

Thailand Futures Exchange Improves SET50 Futures Contract Size In May
The Thailand Futures Exchange PCL (TFEX), under The Stock Exchange of Thailand (SET) group, announced that it will modify its SET50 futures contract to have a smaller contract size on May 6, 2014. The new size of SET50 futures will increase liquidity to the product and reduce the capital outlay, enabling more investors to participate.

JCCH: Japanese Commodity Markets Summary for January 2014

Frontier Markets

Emerging Markets’ Victimhood Narrative
Dani Rodrik and Arvind Subramanian – Bloomberg
From Istanbul to Brasilia to Mumbai comes a crescendo of complaints about dollar imperialism. Heads of state and central bank governors allege that the policies of central banks in industrial countries, especially the U.S. Federal Reserve, pursued in self-interest, are wreaking havoc in emerging-market economies. This allegation is mostly unfair. Emerging markets aren’t hapless and undeserved victims; for the most part they are simply reaping what they sowed.

South Africa’s problems worsened by China slowdown
Jeremy Weltman – Euromoney magazine
The central bank’s decision to raise interest rates to stem the slide in the rand has had little impact in shoring up negative sentiment surrounding the regional giant.

Ex-Cinven exec joins Abu Dhabi deal team
Dan Dunkley – Financial News
Abu Dhabi Investment Authority has become the latest large investor to bolster its direct dealmaking team with the hire of a veteran of European private equity firm Cinven.

DME sets new trading records
DME (Dubai Mercantile Exchange) today announced record average daily trading volumes (“ADV”) of 8,162 lots in January 2014, equivalent to almost 8.162 million barrels of crude oil per day.

Lahore Stock Exchange: Pakistan IPO Summit 2014 Held At Karachi

Dubai Financial Market – The Board Proposes 5% Cash Dividend: DFM Company Net Profit Rises 709% To AED 284.6 Million In 2013

Dubai Financial Market Accredits “Naeem Shares And Bonds” For Margin Trading

NASDAQ Dubai Welcomes Arqaam Capital As An Equities Trading Member Amid Expanding Market Activity

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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