John Lothian Newsletter: Bats Chi-X hikes data fees; Banks rewrite derivatives rules to cope with future crisis; Banker admits Libor fraud conspiracy

Oct 8, 2014

First Read

London Calling
We STILL have some room for guests at our MarketsWiki World of Opportunity speaker series next week in London. We have just two seats left for October 14th. Demand for the October 15th event has pushed us to move to a larger venue, the London Stock Exchange auditorium. We still have room to accommodate more students and young professionals.

We invite you out to hear some really great speakers such as Clive Furness of Contango Markets on commodities, Gareth Parker of Russell Indexes talking about the world of indexes, Brendan Bradley of Eurex talking about the new world of finance in ways you may have not thought about.

To sign up please click HERE

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The New Frontier: Born Technology’s Haworth Says Price Now Matters in Technology and HFT
JohnLothianNews.com
Today’s markets are often touted as “all about speed”, but that reach for low latency is only part of a successful strategy. Derek Haworth, president of Born Technology Solutions says that more firms are looking to cut costs on technology, such as exchange connectivity and order book solutions. For his clients, its about finding the balance between financial technology and expenses.

“What we’ve been seeing over the course of the past year, year and a half, is that people are moving toward what I would call smart latency,” Haworth said, “where there is an understanding that spending an extra $100,000 to shave off another 200 nano-seconds isn’t really commercially or economically feasible. So we’re seeing the pendulum swing a little away from the lowest latency trade.”

Watch the video »

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NYSE defends controversial “retrograde” self-regulation plan
Elliott Holley – Banking Technology
Financial market participants have criticised plans for the New York Stock Exchange to begin monitoring itself through its non-profit division, NYSE Regulation, describing the move as a “retrograde step” that will never work in practice. NYSE is currently monitored by FINRA, an independent organisation.
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***DA: Two things: first, FINRA’s monitoring of NYSE is a recent convention; NYSE self-monitored until 2010 when it outsourced the job to FINRA. Second, if the concern is that NYSE will take too light a regulatory touch for fear of biting the hand that feeds it, let us remember that those same charges have been leveled against FINRA, which gets its funding from the big Wall St. firms.

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Manipulation Prosecutions: Going for the Capillaries, Ignoring the Jugular
Streetwise Professor
The USDOJ has filed criminal charges against a trader named Michael Coscia for “spoofing” CME and ICE futures markets. Frankendodd made spoofing a crime. What is spoofing? It’s the futures market equivalent of Lucy and the football. […] Is this inefficient? Yeah, I guess. Is it a big deal? Color me skeptical, especially since the activity is self-correcting.
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***DA: Actually it is more like a feint in fencing. It was also a common practice in open outcry markets, the difference being that if one’s spoof bid or offer was hit or taken, the trade needed to be honored, lest one face ostracism in the pit.

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Rocktoberfest from A Leg to Stand On is close at hand
JohnLothianNews.com
A Leg To Stand On is a non-profit that provides free prosthetic limbs and corrective surgery to children in developing countries who have lost their limbs in traumatic accidents or suffer from congenital limb disabilities. ALTSO’s annual fundraising benefit, Rocktoberfest Chicago, is moving into its 3rd year after having originated 11 years ago in New York. Rocktoberfest unites leaders from the finance industry for a night of Rock & Roll music performed by industry professionals. Rocktoberfest Chicago will be held on October 8th at City Winery. Hedgefund Rocktoberfest in New York will be on October 22 at Capitale.

Watch the video »

**JK – Come on out tonight for the Chicago event. There are still a few ticket available and it truly is a great cause.

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Wall Street Moles Go to New York’s Top Cop, Spurning SEC Cash
Keri Geiger and Sam Mamudi – www.businessweek.com
The U.S. Securities and Exchange Commission’s offer of huge payouts for details on Wall Street wrongdoing hasn’t stopped whistle-blowers who want quick results from calling New York’s top cop.
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***JM: We could make a whole market out of this. Soon we could have whistleblower futures and options. Oh… but… who would regulate that???

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[Video] OptionsCity: Build Your Own Experience
Lego blocks: still very, very much in use at almost any age. Check out OptionsCity’s latest building blocks, and… keep watching so you can find their booth number at FIA Expo.
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***DA: You can build anything with Legos – even high frequency algorithms.

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Banks consider sealed trading rooms to reform benchmark procedures
Michael Watt – www.fxweek.com
Banks are weighing up the use of sealed trading rooms in an attempt to improve procedures surrounding the execution of client benchmark orders.
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***JM: Safe from fraud AND ebola.

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Lead Stories

Bats Chi-X hikes data fees
Tim Cave – Financial News
Bats Chi-X Europe, the region’s largest equities trading platform, is to raise the fees it charges for its data despite being a long-held critic of the high data prices charged by incumbent exchanges.
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Banks rewrite derivatives rules to cope with future crisis
Tom Braithwaite and Tracy Alloway in New York – Financial Times
The world’s biggest banks have agreed to tear up the rule book on derivatives to make it easier to resolve a future failing institution like Lehman Brothers.
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Banker admits Libor fraud conspiracy
BBC News
A senior banker from a UK bank has admitted conspiring to defraud over manipulating the Libor lending rate. The banker, who can not be named for legal reasons, is the first person in the UK to plead guilty to the offence.
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U.S. CFTC Clearing Rules Eyed for Some Currency Derivatives
Silla Brush – Bloomberg
Foreign-exchange traders, already subject to a global probe over alleged manipulation, may face U.S. restrictions on derivatives contracts for some currencies.
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Geithner Says an A.I.G. Bankruptcy Could Have Been ‘More Damaging’ Than Lehman’s
Aaron M. Kessler – Dealbook – NY Times
A bankruptcy of the American International Group in 2008 could have been “even more damaging” than Lehman Brothers’ failure, Timothy F. Geithner, a former Treasury secretary, told a courtroom on Tuesday.
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Goldman Ordered to Pay Some Costs in Libya Case
Jenny Anderson – Dealbook – NY Times
A judge in London’s High Court ordered Goldman Sachs on Tuesday to pay some of the Libyan Investment Authority’s costs for fighting the bank’s efforts to dismiss a lawsuit that the authority filed against Goldman in January.
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Chicago lawmakers get tough on ‘spoofing’
Gregory Meyer and Kara Scannell in New York and Neil Munshi in Chicago – Financial Times
For professional traders in financial markets, the potential consequences of “spoofing” are not funny. Variants of spoofing, the strategy of entering and quickly cancelling securities or futures orders to trick others into making trades, have long been punishable by fines – usually in the thousands of dollars.
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UPDATE 1-Data breach at bond insurer MBIA may affect thousands of local U.S. governments
Edward Krudy and Hilary Russ – Reuters
Bond insurer MBIA was told two weeks ago about a server breach that compromised the data of thousands of local U.S. government entities, but it did not address the problem until earlier this week, according to the cyber security expert who discovered the intrusion.
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Regulatory

FCA wary of broker market abuse reporting
Luke Jeffs – Futures & Options World
Britain’s Financial Conduct Authority has pointed the finger at inter-dealer brokers for not generating enough market abuse alerts in a speech where the watchdog underlined its commitment to tackling illicit trading.
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Firms underestimating effect of prudent person principle
Rob Mannix – Risk.net
Insurers are underestimating the impact that the prudent person principle in Solvency II will have on their investment activities, particularly in the area of non-traditional investments, according to a leading regulator.
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US commissioner warns against focus on group capital
Louie Woodall – Risk.net
Julie Mix McPeak of the Tennessee department of commerce and insurance says international standard-setters would be unwise to ignore legal-entity level view in developing global capital standards
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Pssst – Can You Keep a Secret? Upholding Compliance Amongst Colleagues
Mitchel Kraskin – Wall Street & Technology
Even when all parties know the rules about sharing non-public information, it’s clear more tools and logic are necessary to stem the free flow of sensitive data.
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New York Attorney General Eric T. Schneiderman Applauds Deal Between University Of Michigan And Bloomberg Ending Early Release Of Market-Moving To High-Frequency Traders
Agreement Helps Curb Unfair Practices By High-Frequency Traders, Part Of Attorney General’s Effort To Combat “Insider Trading 2.0” – Schneiderman: “Insider Trading 2.0” Erodes Confidence In The Markets And Unfairly Disadvantages Other Investors
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Surveillance: The FCAs Expectations And Toolkits – Speech By Patrick Spens, UK’s Financial Conduct Authority Head Of Market Monitoring, At The British Banking Assiciation Market Abuse Conference
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ESMA Vacancy Notice – Procurement Assistant
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FINRA Statement on PIABA’s Arbitrator Report
FINRA’s Dispute Resolution forum is a fair, efficient and cost-effective system to resolve disputes between and among investors, brokerage firms and individual brokers.
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Exchanges & Trading Facilities

US derivatives trading rises as Europe still awaits volatility
The Trade
Trading activity on US derivatives exchanges increased across a range of asset classes and exchanges in September, while Europe is still in need of an injection of volatility to boost its markets.
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Rusal vows to fight after LME wins reprieve
Luke Jeffs – Futures & Options World
Rusal, the world’s largest aluminium producer, has vowed to fight on in its court battle with the London Metal Exchange after a British court of appeal found in favour of the exchange over its warehousing reforms.
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Euronext Opens Dutch And Belgian Equity Options Markets To US Investors
Euronext today announced that, following consultation with the U.S. Securities and Exchange Commission, it has received new class no-action relief for Foreign Options Markets, enabling it to offer Dutch and Belgian equity options to certain eligible US investors.
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Nasdaq September 2014 Volumes, 3Q14 Est. Revenue Capture
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HKEx Monthly Market Highlights – September 2014
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TMX Group Limited Announces Release Date For Q3 2014 Financial Results And Analyst Conference Call
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Moscow Exchange Monthly Market Report: September 2014
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Moscow Exchange Extends List Of Eurobonds Eligible For Interdealer Repo Trades
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Direct Edge Trading Notice #14-42: Access Services Fee Schedule Changes For 2015
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Direct Edge Trading Notice #14-41: Weekend Test Opportunity For New EDGA and EDGX Exchange Platforms In NY5 On October 11, 2014
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Hedge Funds & Managed Futures

Blackstone to Curb Controversial Fee Practice
Mark Maremont And Mike Spector – WSJ
The world’s largest buyout firm will curb a controversial fee practice that is under scrutiny from regulators and investors. Blackstone Group LP, which manages $279 billion, no longer will pocket extra consulting fees when selling or taking public companies it owns, according to a written exchange between the company and one of its fund investors.
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Calpers Reboots Its Real-Estate Ambitions
Craig Karmin And Dan Fitzpatrick – WSJ
As it pulls the plug on hedge funds, the country’s biggest public pension is giving its property portfolio a $7 billion jolt.
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Three’s company for bond trading venture
Tracy Alloway and Michael Mackenzie – New York – Financial Times
The battle being waged to reshape the way bonds are traded on Wall Street has gained intensity with the departure of three fixed income specialists from Goldman Sachs, Barclays and Citadel to create a new electronic platform.
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Is The New ‘Bond King’ a Machine?
Tom Lauricella – MoneyBeat – WSJ
The new bond king is…an index fund. For years, that title belonged to Bill Gross, the high-profile, sometimes controversial manager of Pimco Total Return Fund, which grew to be the world’s largest bond fund.
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Banks & Brokers

Banks join forces to confront due-diligence challenge
Paul Golden – Euromoney Magazine
With various regulatory initiatives demanding that financial institutions gather and disclose information relating to customers, a number of firms have responded to what they see as a market opportunity to develop customer-identity screening services, with a single, industry-wide utility seen, by some, as the end-goal.
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Profit at Goldman Less Easy to Find
Nathaniel Popper – Dealbook – NY Times
Even when Goldman Sachs’s public reputation was taking a beating, the bank’s business acumen and profit remained the envy of Wall Street.
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New York Fed Studied Controls at Citi’s Banamex
Ryan Tracy – MoneyBeat – WSJ
The Federal Reserve Bank of New York examined risk management at Citigroup Inc.C -1.93%’s troubled Banamex unit in 2008, five years before it hit the firm with a public enforcement action for similar problems, according to government documents.
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Why Bank Executives Swing For The Fences In a Crisis
John Carney – MoneyBeat – WSJ
The International Monetary Fund’s downgrade of its outlook for global growth grabbed headlines Tuesday. While less sexy, separate reports released a week earlier on financial stability shouldn’t be overlooked.
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2 HSBC Directors May Leave Over New British Rules on Banking
Chad Bray – Dealbook – NY Times
Two independent directors on the board that oversees HSBC’s British business may leave the bank over stricter rules aimed at holding bankers more accountable for reckless actions that may lead to the failure of a lender, according to a person with direct knowledge of the matter.
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Neonet To Provide Access To New Turquoise Block Discovery At launch – New Service Enables Customers To Find Matches For Larger Blocks
Neonet, the independent agency broker and execution specialist, today announced that it will provide access to Turquoise Block Discovery, the new service from Turquoise from its go-live date.
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Exclusive: Schwab ready to unveil free ‘robo-broker’ service
Jed Horowitz – Reuters
Charles Schwab Corp. is weeks away from introducing an automated investing service aimed at winning business from novice investors it does not currently serve, company officials told Reuters.
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Ex-Barclays Wealth chief Horrell to head Fidelity UK business
Nick Paler – Investment Week
Fidelity Worldwide Investment has appointed Barclays Wealth boss Peter Horrell as managing director of its UK business.
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Clearing & Settlement

ECB demands Euroclear CSD consolidation
Luke Clancy – Risk.net
The European Central Bank believes Euroclear should consolidate its four CSD platforms into one but concedes forces outside its control prevent this from happening
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CME Group – Clearing: Product Modification Summary for Clearing Firms, Bookkeeping Software Providers, ISVs
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Indexes & Products

ETF Provider Source Signs up Ashmore to Manage Two New Funds
Juliet Samuel – WSJ
ETF provider Source has signed up the emerging markets specialist Ashmore to manage two new funds that open to investors Tuesday.
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According To ETFGI ETFs And ETPs Globally Have Gathered A Record 199.0 Billion US Dollars In Net New Assets Through The End Of Q3 2014
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ETFGI’s Research Shows ETFs And ETPs Listed In Europe Have Gathered A Record 47.4 Billion US Dollars In Net New Assets Through The End Of Q3 2014
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Singapore Fixed Income Indices (SFI) Weekly – 7 October 2014
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New FTSE ASFA Australia Bond Index Series Launched
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BlackRock ETP Landscape: Flows Favor US equity
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Technology

Barchart Launches New Website for Institutional Clients and Introduces EDM Solutions
Barchart.com, Inc., a leading provider of market data and information, today announced the launch of a new website featuring financial technology and market data solutions specifically designed for business-to-business (B2B) clients and the introduction of Enterprise Data Management (EDM) solutions.
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Sungard cautions on fintech valuations
Philip Stafford – Financial Times
Sungard has warned that valuations of companies in the buoyant financial technology industry are “quite extreme”, with the world’s largest provider of software to capital markets putting more emphasis on developing home-built tools.
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Nvestly Launches Social Investment Platform for the Average Person
Ivy Schmerken – Wall Street & Technology
The real-time platform is geared to Millennials who can use its social media features to share and compare returns with friends and other investors.
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Kx Systems Releases Version 3.2 Of Its kdb+ Database Software – The Latest Version Of kdb+ Extends Multi-Core Processing And Further Expands WebSocket Support
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Enforcement

Rabobank Suspends 2 London Traders in Currency Review
Chad Bray – Dealbook – NY Times
Two foreign exchange traders working in London for the Dutch lender Rabobank have been suspended after an internal review of the bank’s currency trading operations.
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Barclays says New York ‘dark pool’ suit oversteps legal bounds
John McCrank – Reuters
Barclays PLC on Tuesday urged a New York court to toss the state attorney general’s fraud case over how the bank ran its private U.S. trading venue, saying the case oversteps state securities laws and offers no proof any investors were hurt.
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CFTC Charges Florida-based Forex Monthly Income Fund, LLC and its Principals Jean Chauvel, Renaud Pierre-Charles, and Employee and Agent Robert Tripode with Forex Pool Fraud and Other Violations
The U.S. Commodity Futures Trading Commission (CFTC) today announced that on September 30, 2014, Judge William Dimitrouleas of the U.S. District Court for the Southern District of Florida issued under seal an emergency Order freezing and preserving assets under the control of Jean Chauvel, Renaud Pierre-Charles, and Robert Tripode and their company Forex Monthly Income Fund, LLC (FMIF) (collectively, Defendants), a commodity pool operator based in the Miami, Florida area.
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Environmental & Energy

Ericsson CEO touts role of business in climate fight
Heather Clancy, GreenBiz.com
Amid the lead-up to last month’s Climate Week NYC, Ericsson CEO Hans Vestberg penned letters to hundreds of his Swedish telecommunications company’s top customers.
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Rival corporate giants join forces to get millennials acting on climate change
David Levene, The Guardian
A coalition of otherwise rival global corporations announced on Tuesday they have jointly created a digital platform for young people to take action against climate change.
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***LB: Also in this story “It sends a strong signal that large numbers of multinational companies are increasingly frustrated at the fossil fuel lobby’s stranglehold on the political process, and are prepared to become more involved in pressing for change.”

Warren Buffett’s Big Bet on Renewables in Nevada
Felicity Barringer, The New York Times
Roads often follow rivers, taking advantage of the level ground created by water.
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Asia-Pacific

PSE seals acquisition of bankers’ stake in fixed-income exchange
Krista Angela M. Montealegre, InterAksyon.com
The Bankers Association of the Philippines (BAP) has agreed to sell its stake in the operator of the country’s fixed-exchange trading platform to the Philippine Stock Exchange (PSE).
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Comment: Time to focus on Chinese derivatives
William Barkshire – Financial Times
There have been many false dawns in the progress to open up China’s participation in global capital markets. That has led to the loss of interest by some overseas investors and in some cases retrenchment. However, under Xi Jinping’s leadership market liberalisation is now gathering a real pace and international players should start paying more attention to concrete evidence of development.
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Thomson Reuters To Host The Fifth Pan-Asian Regulatory Summit in Hong Kong – Summit To Be Held On 29 – 30 October, 2014
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SGX welcomes EMAS Offshore Limited to Mainboard
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HKEx: On-Floor & Off-Floor Trading Statistics
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Thai Bourse Joins Thai Listed Companies Association To Launch CEO Survey
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Frontier Markets

Ashmore partners with Source for active EM ETF launch
Anna Fedorova – Investment Week
Emerging markets specialist Ashmore has partnered with ETF provider Source to launch a suite of actively-managed emerging market debt ETFs.
jlne.ws/1vNrGIx

Ex-F&C man to run global equity fund as African group enters UK
Annabelle Williams – Investment Week
Pan-Africa fund house African Alliance is to launch a concentrated global equity fund into the UK, run by F&C’s former European equities manager Peter Jarvis.
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Luxembourg Stock Exchange Lists Luxembourg Sukuk
Following the successful placement of Luxembourg’s debut sovereign sukuk last week, the Luxembourg Stock Exchange (LuxSE) announces today that the issue has been listed and admitted to trading on its Euro MTF market.
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TASE Launches Options And Futures On TA-100 Index
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Miscellaneous

A History of Innovation, With a Few Blind Spots
Jonathan A. Knee – Dealbook – NY Times
Walter Isaacson has written a highly engaging and wildly ambitious history of “the digital revolution.” The author’s book, “The Innovators: How a Group of Hackers Geniuses and Geeks Created the Digital Revolution” (Simon & Schuster), covers more than 200 years of engineering and programming breakthroughs, starting with Jean-Marie Jacquard’s use of punch cards in 1801 to create the first automated loom.
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