John Lothian Newsletter: Big bourses take on dark pool competitors; Regulators Consider Easing Volcker Trading Rules; Thomson Reuters Suspends System That Tracks Dark Pools

Nov 10, 2014

First Read

Bits & Pieces
By John J. Lothian
Things in the office today are going to be awkward as Green Bay Packer fan Jim Kharouf tries not to rub in the drubbing his team gave the Chicago Bears. His constant smile today will just be obnoxious. We will survive it though.

This week is the LaSalle Street After Hours Affair supporting the Chicago Area Boy Scouts of America. Yours truly is delivering the keynote address at the affair. It was at this event in 2002 that I decided to become a Boy Scout Adult Volunteer. I became a Den Leader for my son Tim’s den. It seems about 7 percent of Boy Scouts go on the rank of Eagle. Of the 10 Cub Scouts I had in that den, four of them went on to earn the rank of Eagle. And another two from that class from other Pack’s also earned the rank along with Tim.

Register for the event:

It was a great week for the industry last week as the FIA EXPO hit town. It was also a very good week for John Lothian News. We conducted a couple dozen interviews in the Cinnober booth at the EXPO. We also gave away a bunch of free pens.

The Great Steak Out fundraiser at the end of EXPO continues to be a huge success as I saw one of those Happy Gilmore checks with $353,000 on it going to the Greater Chicago Food Depository.

This week Doug Ashburn, RJ Roxas and I head to New York for SEFCON V. Headliners for SEFCON include CFTC Chairman Massad and new ISDA CEO and former CFTC Commissioner Scott O’Malia.

Note from Doug: If you are interested in a sit-down with us, we have time tomorrow. I will also be on hand on Thursday, but John will need to head back sooner and address an office furniture shortage.

Have a great week, even if you are a Bears fan like me.


The Case for the Defense: Steve Grob Says the World Needs the Financial Markets
Financial markets have taken a beating by legislators, regulators and in the press over the past several years. But Steve Grob of director of group strategy for Fidessa Group, says that much of the criticism is unfounded. Jim Kharouf, editor-in-chief of John Lothian News, spoke with him about his defense of the financial industry.

“The idea that there is a real economy on one side and a financial economy that is separate, isn’t really valid,” Grob argues. “The idea that the financial economy has been sent to the back of the classroom because its been beating up on the real economy is equally untrue.”

Watch the video »


Nasdaq OMX Won Over SIP Committee With Latency Reductions & Tech Upgrades
Ivy Schmerken – Wall Street & Technology
Nasdaq OMX’s plan to move the SIP to the INET technology platform, coupled with ongoing reductions in latency and plans for hot/hot disaster recovery, influenced the committee’s final decision.

***** A TIP of the hat for NASDAQ winning the SIP.


Hugh Vyvyan, Saracens Rugby Team – Transitions: Lessons on a career change

“You have to work incredibly hard to survive. That’s a fact of being a rugby player, and that’s a fact of life.”

Hugh Vyvyan, former player of the Saracens Rugby Team, discusses the importance of working as a team and what individuals need to do to better both themselves while contributing to their group, whether it be a sports team or financial firm. Vyvyan uses his own personal experiences with the Saracens team to illustrate how successful organizations focus more on its people rather than being driven by achieving results. Vyvyan noted how the Saracens organization did a complete overhaul on its philosophies by taking better care of its players and getting them to buy into a system where everyone contributes, whether or not their contributions were noticed during every game. However, all this begins with the individual. Hard work, making oneself well-rounded and becoming focused on the team first is what drives organizations to be great for years to come.

Watch the video »


The Gensler Clean-Up
Even Obama appointees are beginning to acknowledge the damage from the Obama wave of financial regulation. Witness the Commodity Futures Trading Commission, where regulators are starting a modest retreat from derivatives rules the agency has been rolling out since Dodd-Frank passed in 2010.

***** There is a new CFTC, with three new Commissioners and a seemingly more pragmatic chairman, this is only natural.


If You Like Shanghai Stocks You’re Going to Love Shenzhen
Kana Nishizawa – Bloomberg
Stock investors in search of the next big thing in China say they’ve found it — not in Shanghai, but just over the border from Hong Kong in the city of Shenzhen.

***** Shenzhen is on my bucket list.


A New Era Dawns for ETFs: ‘Nontransparent’
Karen Damato – MoneyBeat – WSJ
Twenty-one years after the first exchange-traded fund arrived as an alternative to the traditional mutual fund, a new regulatory ruling could spur a rush into the ETF vehicle by traditional stock-picking asset managers.

***** I love trading blindly.


The Raging Bulls on Wall Street, Charity Division
William Alden – Dealbook – NY Times
Leon D. Black, the billionaire financier, watched silently as his son administered a flurry of punches. Jab-jab-jab: Ben Black, 30, at 188 pounds, had Eric Vreeland in a corner of the boxing ring and was attacking at close range. These scrappy contenders entered the ring on Thursday night as part of an amateur boxing event organized by Haymakers for Hope, a foundation that raises money for cancer research.

****** My right is not what it used to be.


Bridging the Week: Tweaking, Residual Interest; CFTC Priorities; Enforcement Highlights; G-IBs; Stress Tests
Gary DeWaal – Katten Muchin Rosenman
The 30th Annual Futures Industry Association Futures and Options Expo may have occupied the main stage in Chicago last week, but continued preparation for the rollout of new futures-industry rules—including, principally, important measures involving the protection of customer funds—as well as new proposed tweaks to previously adopted old rules, occupied the day-to-day plate of many remaining back at the office. As a result, futures industry themes dominated the financial industry landscape last week, but large banks were also told they could not get significantly larger, and one Fed governor proposed the implementation of standardized stress tests to help ensure the critical reliability of clearinghouses.


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Lead Stories

Big bourses take on dark pool competitors
Jonathan Guthrie – Financial Times
The London Stock Exchange is planning a high-noon equities shootout, and dark pools – sophisticated trading venues run mostly by banks and brokers – are in the line of fire. The LSE is to launch intraday auctions as a means of wresting back business from dark pools, amid deepening controversy over the high-tech interlopers. But will the innovation catch on? And is it good for investors?

Regulators Consider Easing Volcker Trading Rules
Cheyenne Hopkins and Ian Katz – Bloomberg
U.S. regulators are considering changes to the Dodd-Frank law that could ease requirements on the Volcker Rule’s trading restrictions.

Thomson Reuters Suspends System That Tracks Dark Pools
Tim Cave – Reuters
Thomson Reuters is to suspend a closely-watched data tool that tracks equities trading on exchanges and other venues globally, after the system had issues with accuracy. The data vendor confirmed that its European Market Share Reporter, or EMSR product, would be suspended Friday afternoon. It’s expected to be fully closed by Monday morning, according to a spokesman.

Bond Swings Draw Scrutiny
Tom Lauricella and Katy Burne – WSJ
The day’s trading was just hitting its stride in New York on the morning of Oct. 15 when bond investors, traders and strategists were stunned by an unusual move in the $12 trillion U.S. Treasury market playing out on their computer screens.

LBMA-With gold benchmark fixed, OTC trade eyed as next reform milestone
Clara Denina – Reuters
Calling time on London’s century-old gold “fix” could mark the beginning of an even wider industry overhaul that may ultimately dilute the dominance of the highly profitable bilateral over-the-counter trading.

UK prepares forex fines for six banks on Wednesday: sources
Steve Slater and Jamie McGeever – Reuters
British regulators investigating allegations of collusion and manipulation in the foreign exchange market could fine a group of six banks as early as next Wednesday, people familiar with the matter said.


CFTC Turns Toward Administrative Judges
Jean Eaglesham – WSJ
The Commodity Futures Trading Commission plans to start steering some of its cases against trading firms, brokers and others to administrative law judges appointed by federal agencies, instead of trials in federal court, according to a top official.

‘How the SEC Helps Speedy Traders’
Scott Patterson – MoneyBeat – WSJ
A new study revealed how fast-moving traders can get an early peek at Securities and Exchange Commission filings before they’re made available to the general public and trade on the information profitably.

CFTC Staff Provide Time-Limited No-Action Relief for Certain Affiliated Counterparties

ESMA Publishes Responses Received To Third Consultation Paper On Clearing Obligation

ESMA Consults On AIFMD Passport And Third Country AIFMs

Exchanges & Trading Facilities

CME Group Announces First Trade of New USD-Denominated Palm Olein Swaps
CME Group, the world’s leading and most diverse derivatives marketplace, today announced the first USD Malaysian Palm Olein Calendar Swaps were cleared on 4 November 2014, through CME ClearPort. The trade was between Just Oil & Grain Pte Ltd and another Singapore-based company, and was brokered by Starsupply (SG) Pte Ltd, part of the SCB Group.

Barclays Dark Pool Trading Falls 33% Amid U.S. Lawsuit
Stephen Morris – Bloomberg
Barclays Plc (BARC)’s dark pool saw a 33 percent drop in the number of shares traded, suggesting a U.S. lawsuit alleging it misled customers continues to weigh on volumes while threatening revenue at its investment bank.

Lit and dark volumes bolster BATS in October
Volatile market conditions during October have benefited BATS Chi-X Europe, which made major market share gains during the month.

LME Proposes Rules to Prevent Market Abuse at Warehouses
Agnieszka de Sousa and Laura Clarke – Bloomberg
The London Metal Exchange proposed changes designed to strengthen its powers to investigate and prevent market abuse at warehouses amid scrutiny of delivery backlogs.

LME Consults On Enhancements To Physical Delivery Network

Nordic Growth Market NGM AB: New Opening Hours At The Stock Exchange Give Finish Investors Advantage In The Market

TOM MTF Statistics Week 45, 2014

Direct Edge Trading Notice #14-49: EDGX Release Schedule For Opening Process And Halt Re-Opening Process

Hedge Funds & Managed Futures

Pimco to Spend $280 Million on Staff Retention
Sarah Krouse – MoneyBeat – WSJ
The asset management industry is all about stability and 2014 hasn’t exactly been even-keeled for Pacific Investment Management Co.

Fewer active managers beat market than at any time in decade
Stephen Foley in New York – Financial Times
Fewer fund managers are beating the market this year than at any time in over a decade, piling further misery on a profession that faces increasing investor scepticism.

Macro Funds That Lamented Boring Market Lose in October
Kelly Bit – Bloomberg
Hedge-fund managers Paul Tudor Jones and Michael Novogratz said in May that calm markets made it hard to make money. In October, investors that bet on macro-economic themes got their desired volatility. By the end of the month, some of the biggest managers, including Ray Dalio’s Bridgewater Associates LP, Fortress Investment Group LLC (FIG) and Jones’ Tudor Investment Corp., posted losses.

Too quick to PIK? The deals set to haunt European high yield
Louise Bowman – Euromoney Magazine
Participants in the European high-yield market say the collapse of Phones 4U, which left PIK-note holders wiped out, was a one-off event. But it serves as a stark reminder of the liquidity trap that lies in wait for yield-hungry investors chasing each other further and further down the credit curve. And it calls into question whether European investors have developed the necessary credit skills to invest in such risky assets.

Old Mutual GI introduces fixed OCF and volume discounts
Dan Jones – Investment Week
Old Mutual Global Investors is to introduce a fixed ongoing charges figure (OCF) across its fund range next year, and will also implement a volume discount for its largest funds.

Rathbones’ Coombs invests in China fund for first time ever
Anna Fedorova – Investment Week
Rathbones Unit Trust Management’s multi-asset team has allocated to a China equity fund for the first time since the inception of the strategy in 2010.

A private equity vintage to remember
Becky Pritchard – Financial News
It is more than six years since Lehman’s bankruptcy put an end to the boom years for private equity. The years leading up to the collapse were record-breaking both in terms of the total money raised by buyout firms for European deals and the money they spent.

Banks & Brokers

JPMorgan to cut 3,000 more jobs in retail bank unit
JPMorgan Chase & Co said it would cut more than 3,000 jobs than previously expected in its retail banking unit.

Wall Street’s Bonus Season Not Likely to Be Filled With Joy, Survey Finds
Nathaniel Popper – Dealbook – NY Times
A few corners of Wall Street are expecting big bonuses, but for most of the industry it is likely to be a disappointing year.

Bond Liquidity Isn’t Dead, It’s Just Moving Away From Big Banks
Lisa Abramowicz – Bloomberg
Amid all the craziness and volatility in U.S. bonds last month, a few telling data points emerged that reflect where the market is heading. As some measures of trading surged to records, those carried out by Wall Street’s biggest banks lagged behind.

Clearing & Settlement

The Inefficient Back Office: A Checklist of Pain Points
Ian Danic – Wall Street & Technology
Many firms consider their reconciliation process fully automated, but “automated” doesn’t necessarily mean “efficient.”

Dealers say CCP fire drills do not reflect real default scenario
Dealers claim the current CCP fire drill process is flawed because it doesn’t take into account that banks can be members of multiple CCPs

Clearstream To Offer Settlement And Custody For China A-Shares
Shanghai-Hong Kong Stock Connect Program Broadens Foreign Investors’ Access To Chinese Markets – Clearstream Will Offer Corresponding Services As Of 17 November / Anne-Pascale Malréchauffé: “We Welcome This Program As A Notable Step Towards A Further Internationalisation Of The Renminbi And The Chinese Capital Markets”

JSE Successfully Implements Phase 2 Of T+3 Project

Indexes & Products

JPX has ‘no plans’ to list Nikkei 400 futures overseas
Onshore derivative market is the focus for Hiromi Yamaji, president of JPX’s Osaka Securities Exchange, which is preparing for November 25 launch of Nikkei 400 index futures

BlackRock ETP Landscape: Record Fixed Income Flows

ETFGI’s Research Finds Global ETFs/ETPs Gathered 35.8 Billion US Dollars In Net New Assets In October 2014 And A Record 233.0 Billion US Dollars In NNA Year-To-Date

New OMX Helsinki Benchmark Portfolio Selected – The New Portfolio Of The OMX Helsinki Benchmark Index Will Become Effective On Dec 1, 2014

New OMX Stockholm Benchmark Portfolio Selected – The New Portfolio Of The OMX Stockholm Benchmark Index Will Become Effective On December 1, 2014


Bigger Fines Faster for FX Reveal Libor Lessons Learned
Suzi Ring – Bloomberg
British regulators are closing in on a settlement in their currency-rigging probe that will yield bigger penalties for more banks in less than half the time spent investigating Libor.

SEC seeks to double $200 million damages award against businessman Wyly
Joseph Ax and Nate Raymond – Reuters
The U.S. Securities and Exchange Commission will ask a federal judge to more than double the money Texas businessman Sam Wyly must pay from $200 million to $455 million for his involvement in an offshore fraud scheme, a lawyer for Wyly said on Friday.

Former Trader Ensnared in Libor Case Faces Another Inquiry
Chad Bray – Dealbook – NY Times
The British brokerage firm Tullett Prebon Group said on Friday that it was facing a regulatory investigation over trades made by two former employees.

Environmental & Energy

Impact Investors Look for Opportunities in Conservation
David Bank,
Finance Private equity fund managers are sitting on more than $1.5 billion in private capital that already has been raised for investments in sustainable agriculture and forestry, water quality, wildlife habitat and other conservation projects.

***LB: Also in this story “They expect to raise more than $4 billion more in the next five years.”

Senate GOP steeling for battle against EPA
Timothy Cama, The Hill
Senate Republicans are gearing up for a war against the Obama administration’s environmental rules, identifying them as a top target when they take control in January.

***LB: Also in this story “Incoming Senate Majority Leader Mitch McConnell (R-Ky.) identified his top priority come January as “to try to do whatever I can to get the EPA reined in.””

Incoming GOP senator: Keystone votes are there
Mario Trujillo, The Hill
Sen.-elect Shelley Moore Capito (R-W.Va.) on Sunday said President Obama would be smart to compromise on approving the Keystone XL pipeline.


Regulators Approve Launch Of Shanghai-Hong Kong Stock Connect
The Securities and Futures Commission (SFC) and the China Securities Regulatory Commission (CSRC) have approved the launch of the Shanghai-Hong Kong Stock Connect pilot scheme following the finalization of all necessary regulatory approvals and relevant regulatory operational arrangements required for its commencement (Note 1).

Brokers ready to roll for 17 November stock connect launch
Simon Osborne – The Trade
A 17 November start date has been named for the Shanghai-Hong Kong Stock Connect. It follows a month of silence, in which the regulators in China and Hong Kong made no utterances on the issue, leaving traders and investors in a state of limbo. However, with the preparatory work already finished, the sell-side is ready for the launch date.

Hiccups in Hong Kong-Shanghai Trading Link Illustrate Risks of Investing in China
Wei Gu – WSJ
Starting next week, global investors will have direct access to China’s stock market for the first time. Despite their excitement, they need to remember they are still in China.

Shanghai Same-Day Stock Trade Study Accelerated as Link Nears
Shanghai (SHCOMP)’s stock exchange will speed up its review of a proposal to scrap rules that prevent investors from buying and selling the same shares in one day. The bourse will accelerate the review and start a trial allowing same-day trading, known as T+0, it said on its microblog. The exchange didn’t provide a time frame for the trial.

Japanese portfolio flows support weaker yen but raise default risk
Solomon Teague – Euromoney Magazine
Long-awaited changes announced last week to the composition of Japan’s state pension fund portfolios, combined with increasing flows into foreign – predominantly US dollar – assets from retail investors and the insurance sector, should weaken the yen, but could be storing up problems in the long term.

SGX sets up Board Level Inquiry Committee to oversee investigation of 5 November 2014 breakdown
The SGX Board of Directors has set up a board level inquiry committee following the breakdown on 5 November 2014. The Committee will comprise four Board directors who are all independent of management. Mr Quah Wee Ghee will chair the Committee and the other three members are Mr Chew Choon Seng, Mr Kevin Kwok and Mr Lee Hsien Yang. Mr Quah Wee Ghee is the Chairman of SGX’s Risk Management Committee.

Presentation By HKEx Chief Executive Charles Li At A Press Conference On The Launch Of Shanghai-Hong Kong Stock Connect

Dalian Commodity Exchange: Futures Of Oils And Oil Oilseeds Provide Important Testing Ground For Institutional Innovation – It Has Become One Of The Best-Performing Sectors In The Domestic Futures Market

Frontier Markets

DFM Announces The Inclusion Of “Emaar Malls” And “Marka” Into The General Index

Tehran Stock Exchange Monthly Bulletin – October 2014


Archer Daniels properly handles CEO succession to Luciano, signaling culture change
Joe Cahill – Crain’s Chicago Business
The handoff of power at Archer Daniels Midland Co. shows how far the big grain processor has come in the past decade.

Trader speak: what they really mean
Jonathan Kingsman – Financial Times
Commodity trading is defined as moving something from a surplus region to a deficit region – and hopefully making a profit in the process. But for some traders, what this really means is: “Selling something that you don’t own to someone who doesn’t want it”. So what do commodity traders really mean when they talk about the markets?

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