Expo Bits & Pieces, Day 1
Yesterday was the first full day of 31st Annual FIA Expo Chicago, and from our vantage point, the conference is shaping up to be among the best ever. Sure, it helps that we are experiencing unusually balmy temperatures for November. One exchange executive said to me yesterday, “it feels more like an FIA Boca than an Expo.”
One of the highlights of the day was the showing of MarketVoice’s video on the closing of the trading floors. Quite a nostalgic trip for many of us in the room.
But after a quick look back, the crowd took to looking forward, to the real story of Expo 2015 – innovation. Innovation is everywhere at the Chicago Hilton – in every panel, throughout the exhibit hall, and especially in the Innovators Pavilion, in what used to be the less-traveled Red Room. You would be well served to spend some time there.
Innovation made its way into the video project we have undertaken this week at Booth 314, where, in partnership with Cinnober Financial Technology, we conduct short interviews with industry participants on the important topics facing the financial markets, in what we are calling “Sweet 16: The Tops For 2016.” What technology, regulation, exchange or macroeconomic issue or trend will be most important to our industry next year? We will take the 16 best ideas and thoughts and package them in a John Lothian News video series.
Interestingly, very few of yesterday’s participants stuck to one topic – a true testament to how interwoven these topics are to the industry, and this fact is punctuated by today’s innovation.
The ever-popular Exchange Leaders panel looked at the challenges of the lack of liquidity and the concern that the fragmentation common in the equity markets could infect the derivatives markets. Market making programs help provide liquidity, but there, too, the equity model is problematic, as market makers are finding ways to put on “risk free” trades, ICE CEO Jeff Sprecher said. Eurex CEO Andreas Preuss agreed that transparency is needed around exchanges’ market making programs and said Eurex’s program details are all publicly available. He said that individual deals with market makers should be abolished and that “stupid stipends won’t help the industry overall and have never proven a good way to create sustainable open interest in these programs.”
Paul Pantano, partner at Cadwalader, Wickersham & Taft LLP, chucked a few wry barbs at regulators during the sparsely attended end of day “Commodities: Will Hedging Survive” panel, — sparsely attended, we’d assume, because beer had already appeared in the Exhibit Hall.
“The good news is the longer the [position limit] rules take, the better they’ll be.”
“In the U.S., deadlines only apply to market participants, not to regulators.”
And if anybody was wondering, Pantano revealed he likes Oreos during a discussion of the ongoing anti-manipulation case against Kraft Foods.
During the same commodities panel, Matthew Chamberlain, head of business development at the LME, had a few colorful analogies from across the pond, the best of which was “the snake in the tunnel,” a reference to the need for flexibility in new rules and regs (and not, as was suggested, a less family-friendly meaning).
And one of the most important items of the week, is the return of CME Group’s Kim Taylor who has quietly returned to work, looking healthy again and giving us that signature laugh. Welcome back Kim.
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Grace Under Pressure: OCC’s Chief Risk Officer Talks About Preparing for Systemic Threats
As a Systemically Important Financial Market Utility (SIFMU), the OCC must be able to manage capital and operational risk on a day to day basis and during extraordinary events. JLN spoke with John Grace, chief risk officer for the OCC, about the challenges OCC faces as a SIFMU and what it’s doing to prepare for cyber and physical attacks, such as using multiple backup sites and creating third party risk management systems.
Watch the video »
Old Memo on Shenzen Hong Kong Stock Markets Causes Trading Frenzy
A statement from China’s central bank indicating that a link between exchanges in Shenzhen and Hong Kong would commence this year caused a surge in the country’s stock market — until it was discovered the comment was five months old.
***DA: In honor of the above story, I will pull out a quote from a few months ago. “The Cubs are looking good this year, especially these young guys. Perhaps they will make it into the playoffs by the end of the decade.”
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Bill Introduced to Require Hedge Funds to Disclose Holdings More Frequently
By MIKE CHERNEY – WSJ
A bill requiring hedge funds to disclose their holdings more frequently was introduced in Congress on Wednesday, a move that if signed into law would represent a seismic change for the hedge-fund industry.
Regulators step up efforts to stop spoofing
Gregory Meyer and Lindsay Whipp in Chicago and Philip Stafford in London – FT
Only months after the first trader was found guilty in court of manipulating a key reference rate for over-the-counter derivatives markets, the futures market now has its own criminal conviction.
Fed’s Fischer warns against shackles on central bank
Sam Fleming in Washington – FT
A leading Federal Reserve official has warned against the imposition of constraints on the central bank’s monetary policy independence by Congress, arguing that new fetters would be economically dangerous.
The illiquidity trap in Treasuries?
Robin Wigglesworth – FT
The Federal Reserve insists there is nothing wrong with the $14tn US government bond market (aside from the influx of pesky high-frequency trading firms). But an analyst at Bank of America Merrill Lynch has found more evidence that even mighty Treasuries have been affected by the liquidity crunch afflicting markets.
Virtu Financial: a fraction late
Keeping pace with high-frequency traders is not easy. Virtu Financial, which had come to embody the controversial business model, delayed its planned listing in 2014 by a year to let the heat subside. It finally listed its shares in April, and they have rallied 30 per cent in the past 6 months. But even after reporting surprisingly strong trading revenue growth, of 34 per cent, the stock fell nearly a tenth on Tuesday.
CFTC Pulls Plug on Commodity-Flows Report; Agency to no longer survey banks, traders about money following commodity indexes
By CHRISTIAN BERTHELSEN – WSJA
U.S. futures market regulators are going to stop collecting data on the flow of money from index funds into commodity markets, retreating from a practice they began a decade ago when those funds were blamed for soaring prices.
The Man Who Hates E.T.F.s
By LANDON THOMAS Jr. – NY Times
Bearded and tanned, Peter S. Kraus, the chief executive of AllianceBernstein, strode with assurance into a Midtown Manhattan conference room full of financial advisers from a large investment bank.
Neal Shear Joins ‘Software Turret’ Maker Green Key’s Advisory Board
Green Key Technologies, winner of the 2015 most promising sell-side start up award and maker of patented voice software designed specifically for traders and brokers, announced that Neal Shear, the former Global Head of Commodities Trading at Morgan Stanley and current board member of Cheniere Energy, has agreed to join the Company’s strategic advisory board. The advisory board consists of founder and CEO of DRW Trading, Don Wilson, former CFTC commissioner Jill Sommers, former CEO of ICAP Electronic Broking David Rutter and former General Counsel of ICE Exchange Jim Falvey.
Market Changes May Prompt New Definition of Insider Trading
The law of insider trading has not changed much since important Supreme Court rulings in the 1980s established a high bar for convictions.
Yellen Says U.S. Banks Still Have Risk-Management Challenges
Ian Katz – Bloomberg
Fed chair tells House panel regulators want to reduce burdens
Yellen speaks at Financial Services hearing on Fed’s oversight
Large U.S. banks have major risk-management flaws that could potentially hurt the broader financial system if not addressed, Federal Reserve Chair Janet Yellen told lawmakers Wednesday.
I’m Not Spoofing You About Judicial Overkill
The Streetwise Professor
Yesterday in a federal court in Chicago, Michael Coscia of Panther Energy Trading was convicted of six counts each of commodity manipulation and fraud for “spoofing.” Coscia faces decades in prison.
Financial Regulators Are More Diverse Than The Companies They Oversee, Report Finds; Report from House Financial Services Committee Democrats analyzes workforce at seven federal agencies
By YUKA HAYASHI – WSJ
Federal financial regulators have generally done more to hire minority workers and promote women than the companies they oversee, but most of the agencies haven’t yet fully implemented requirements to increase racial and gender diversity included in the 2010 Dodd-Frank law, according to a new report.
End Users And Policy Makers Discuss Supplemental Leverage Ratio Calculation
End users and policy makers have raised concerns on how segregated initial margin for centrally cleared derivatives is treated under the Basel III leverage ratio. End-users at the Commodity Markets Council and the Managed Funds Association, have written to the Basel Committee on Banking Supervision, regarding the adverse effects of the Basel III supplementary leverage ratio on end user and buy-side market participants.
Keynote Remarks of Chairman Timothy Massad before the Futures Industry Association Futures and Options Expo
There’s a lot going on at the Commission today. And I’d like to discuss a few of the items that are on our agenda for the next few months. But then I’d like to talk about something I haven’t discussed much lately. And that’s the issue of reporting of data on swaps. This is a critical component of the overall reform of the swaps market, and I believe today is a good opportunity to discuss this in some detail, for reasons I’ll explain in a moment.
ASIC’s Greg Medcraft says ‘robo advice’ can reduce fees and conflicts
Sydney Morning Herald
ASIC has established a “robo-advice taskforce”, which is investigating the suitability of potential entrants, who use computer algorithms to match investors with suitable assets at a lower cost than human advisers. ASIC wants to know how they intend to comply with best interest duties, how algorithms are developed and tested, and how the people running the start-ups are trained and compensated.
FCA consults on Market Abuse Regulation policy proposals and Handbook changes
The Financial Conduct Authority (FCA) has today published its policy proposals and Handbook changes to support the implementation of the new European Market Abuse Regulation regime, which will apply from 3 July 2016.
Global OTC derivatives reform gathers pace
by Paul Golden – Euromoney
Companies that use over-the-counter (OTC) derivatives to manage foreign-currency earnings exchange-rate risk will have taken note of recent pro-active developments on market reform in Asia and Africa. The next step – mandatory clearing in Asia – will trigger a wave of margin compression and shifts in market infrastructure.
Our Modern Markets: SEC Enforcement Focuses On Market Structure In Response To Rapidly-Changing Equity Markets
by King & Spalding
On Monday, November 2, 2015, Andrew Ceresney, Director of the SEC’s Division of Enforcement, gave a speech at the SIFMA Compliance & Legal Society New York Regional Seminar in which he sought to address what he views as the future of SEC enforcement and the existing risks created by technology and innovation in equity markets. Mr. Ceresney highlighted that, “[w]ith the passage of Regulation NMS in 2007, the increase in the number of exchanges and other trading venues, the automation of nearly all equity trading, and the emergence of high frequency and algorithmic trading, market structure issues—especially technology-related issues—have taken on increased prominence.”
CFTC head issues warning to spoofers after U.S. verdict
BY TOM POLANSEK – Reuters
The top U.S. commodities regulator warned traders on Wednesday that he will aggressively pursue cases of market manipulation, a day after federal prosecutors won a landmark victory over the banned practice known as “spoofing.”
Self-Regulatory Organization (SRO) Rulemaking and National Market System (NMS) Plans
- ISE: Notice of Filing of Proposed Rule Change to Comply with the Requirements of Rule 1004 of Regulation SCI (Release No. 34-76334; File No. SR-ISE-2015-35; November 3, 2015); see also Exhibit 5
- ISE Gemini: Notice of Filing of Proposed Rule Change to Comply with the Requirements of Rule 1004 of Regulation SCI (Release No. 34-76332; File No. SR-ISEGemini-2015-23; November 3, 2015); see also Exhibit 5
- NASDAQ: Notice of Designation of a Longer Period for Commission Action on Proposed Rule Change to Establish a Retail Order Process Known as RTFY (Release No. 34-76335; File No. SR-NASDAQ-2015-112; November 3, 2015)
European Regulators Provide Details on Next Bank Stress Tests
By CHAD BRAY – NY Times
Regulators provided more details on Thursday on next year’s tests of the European banking sector, as they prepare to examine the ability of the region’s lenders to survive a financial crisis or severe economic downturn.
Exchanges & Trading Facilities
Intercontinental Exchange Reports ICE & NYSE Monthly Statistics for October 2015; Gasoil and Sugar Daily Volume up 23% and 72% over Prior October
Intercontinental Exchange, the leading global network of exchanges and clearing houses, today reported October exchange traded volume.
Euronext Publishes Third Quarter 2015 Results
Positive momentum continues with third party quarterly revenue increasing by +18.4% to EUR 133.0 million (Q3 2014: EUR 112.3 million). This performance has been largely driven by an exceptional quarter for listing, extraordinary market conditions propelling strong activity in cash trading and volatility in derivatives, positively impacting both trading and clearing revenues.
Aequitas, TMX rivalry set to heat up over fund trading platforms -sources
BY EUAN ROCHA – Reuters
The rivalry between Canada’s TMX Group Ltd and smaller rival Aequitas Innovations Inc is set to intensify as the two exchange operators race to create platforms for the buying and selling of some actively managed funds.
Eurex KOSPI-Product: Changed Trading hours on 12 November 2015
Due to the Korean Exam Day, the continuous trading of the Eurex KOSPI-Product (OKS2) will start on 12 November 2015 at 11 am CET (regular: 10 am CET).
SGX reports market statistics for October 2015
Total securities market turnover value grew 3% month on month and 6% year on year to $23.1 billion, during 22 trading days compared to 21 in October 2014.
Securities daily average value (SDAV) fell 7% month on month and increased 1% year on year to $1.0 billion.
Market turnover value of Exchange Traded Funds (ETFs) was $270 million, up 19% month on month and 30% year on year.
There were 22 new bond listings, raising $13 billion.
Total market capitalisation value of 769 listed companies stood at $930.6 billion as at end October 2015.
Hedge Funds & Managed Futures
Goldman Sachs: Only the Fed Can Undo QE—Not Foreign Central Banks; “QT” ain’t all it’s cracked up to be.
Luke Kawa – Bloomberg
Emerging-market central banks have been dumping U.S. dollar assets accumulated over the boom years in an effort to support their domestic currencies.
‘Exceptional Trader’ Rokos Attracts $500 Million From Blackstone
Saijel Kishan, Katherine Burton – Bloomberg
Rokos has about $500 million of his own money in the fund
He plans to pause money raising when he reaches $3 billion
Chris Rokos, a star money-maker for his former boss Alan Howard, raised more than $500 million from Blackstone Group for his new hedge fund firm, according to two people familiar with the transaction.
Steve Cohen Is Trading Art Like Stocks
Katya Kazakina – Bloomberg
Egg-shaped Fontana canvas may break record for Italian painter
New breed of collectors like Cohen treats art as asset class
Steven A. Cohen built a reputation as a fast trader with an uncanny ability to predict where stock prices are headed. He’s applying his investing style to an art collection that now accounts for about $1 billion of his $11 billion fortune.
Gold-Standard Backer Finds Friend in Cruz; Hedge-fund manager Sean Fieler has struggled to get traction with for his political ideas for years.
Zachary Mider – Bloomberg
When Ted Cruz talked about tying the U.S. dollar to gold on national television last week, he made Sean Fieler’s night.
Taxpayers May Be Funding Billionaires’ Biggest Apartment Deals
Sarah Mulholland – Bloomberg
Freddie Mac providing cheap loans in U.S. lending boost
Blackstone said to seek financing for Stuyvesant Town deal
Who do billionaires turn to when they want to buy apartment complexes? The U.S. taxpayer.
Groupon had already lost 80% of its value before Tuesday’s CEO change
Matt Rosoff – Business Insider
Groupon’s stock dropped about 30% on Wednesday morning after the company announced in its earnings release on Tuesday that it was changing CEOs. Cofounder Eric Lefkofsky will move to the chairman role, and ex-Amazon ad chief and current Groupon COO Rich Williams will take over as CEO.
Banks & Brokers
Crédit Agricole and Société Générale Post Higher 3rd-Quarter Profits
By DAVID JOLLY – NY Times
Crédit Agricole and Société Générale, two of France’s largest banks, reported higher third-quarter profits on Thursday as their retail divisions posted improved results.
Big Banks Lock Horns With Personal-Finance Web Portals; J.P. Morgan, Wells Fargo are snarling the flow of data to popular websites that help consumers manage their finances
By ROBIN SIDEL – WSJ
J.P. Morgan Chase & Co. and Wells Fargo & Co. are snarling the flow of data to popular websites that help consumers manage their finances, according to people familiar with the matter.
Goldman, Thomas H. Lee in bid to buy Blackstone’s GCA -sources
BY GREG ROUMELIOTIS
Goldman Sachs Group Inc’s private equity arm and buyout firm Thomas H. Lee Partners LP are in talks to acquire facility management company GCA Services Group Inc from Blackstone Group Inc, according to people familiar with the matter.
New Barclays C.E.O. James Staley Buys $10 Million of Bank’s Shares
By CHAD BRAY – NY Times
James E. Staley, the incoming chief executive of Barclays, has bought shares in the British bank valued at about 6.5 million pounds, or about $10 million, the lender said on Thursday.
Clearing & Settlement
CME Clearing Europe receives authorization to extend services
The European Securities and Markets Authority (ESMA) on Wednesday announced an update to its list of authorized central clearinghouses (CCPs), which fall within the scope of the European Markets Infrastructure Regulation (EMIR). The latest update concerns CME Clearing Europe, a subsidiary of CME Group Inc (NASDAQ:CME). CME Clearing Europe has been authorised to extend its activities and services to clear futures on European Union allowances.
Accenture: Fintech Investment in APAC Will Quadruple in 2015
Although much of the blockchain focus has been on front-office applications, blockchain and similar distributed ledger technologies might soon play a role in the entire lifecycle of a trade, including clearing and settlement, collateral management, payments and reconciliation
Indexes & Products
Smart Beta Arena Growing Rapidly
Smart beta funds are growing rapidly and the growth is coming in three areas- the number of funds offered, the assets under management and the number of financial advisors using them. According to a recent report from Morningstar, the number of funds grew from 673 to 844 funds they categorize as strategic beta. The assets invested in these funds grew from $396 billion to $497 billion over the last 12 months which is also the timeframe of the growth in the number of funds.
MSCI Inclusion Could Fuel Demand for Some Chinese Tech Majors
MSCI Inc. ‘s expected decision to add U.S.-listed Chinese companies to some of its most heavily tracked stock indexes this month could give a boost to some of China’s prominent technology champions, whose shares have already endured a roller-coaster ride this year.
MSCI adds after-tax benchmarking
GBST will provide after-tax performance measurement and after-tax analytics to superannuation funds in Australia using the MSCI global index series, in line with MySuper legislation, a statement by GBST said.
ETF Investors Are Unbundling Emerging Markets; While ETF investors seem to dislike emerging markets, that doesn’t mean they aren’t investing in them.
Eric Balchunas – Bloomberg
It turns out that exchange-traded funds that track emerging markets have experienced healthy inflows of investment over the past few years. They just hasn’t come in the form we’re used to.
Deutsche Börse: Four WisdomTree Equity Index ETFs Launched On Xetra – ETFs Track German, European And Japanese Companies With Weighting Factor Dividends
Four new exchange-listed index funds issued by WisdomTree have been tradable on Xetra and Börse Frankfurt since Thursday. The stock corporations in the reference indices are weighted according to dividend amount, with those paying a higher dividend weighted heavier.
Duco Opens European Headquarters in Luxembourg
Duco, a London-based fintech provider of hosted reconciliation services, today announced the establishment of its European regional headquarters in Luxembourg as the next step in its global expansion plans. The move follows the opening of Duco’s North American regional headquarters in September and continued investment in its global base in London.
Finance industry will invest more than $1bn in blockchain in the next two years
More than $1bn will be invested by financial businesses in blockchain, the ledger technology behind bitcoin, over the next two years. A study by technology industry consultants Magister Advisors found the top 100 financial institutions worldwide will be spending money on blockchain technologies in the next two years, with many leading banks currently running between 10 and 20 blockchain projects.
SunGard Announces Third Quarter 2015 Results
Bitcoin Surges, Emerging From a Lull in Interest
By NATHANIEL POPPER – NY Times
After a long period of quiet, the price of the virtual currency Bitcoin is surging again as signs of interest from China and Wall Street have helped kick off a new speculative frenzy.
Bitcoin surges as Chinese flock to Russian fraudster’s site
Izabella Kaminska, Dan McCrum and Robin Kwong – FT
The price of the cryptocurrency bitcoin surged on Wednesday to its highest in more than a year amid a wave of Chinese testimonials for a “social financial network” called MMM, which bears the hallmarks of a pyramid scheme.
TradingScreen Releases Market Surveillance Tool
TradingScreen, a provider of liquidity, trading and investment technology on a software-as-a-service (SaaS) basis, announced the launch of its Market Surveillance Tool, which monitors a wid
Convergex hires Jason Emerson for new strategic planning role
Agency focused brokerage Convergex said on Wednesday it hired Jason Emerson for the position of managing director and head of operations and strategic planning.
SEC Identifies More Alleged Corrupt Brokers in Stock Manipulation Case
The Securities and Exchange Commission today announced it has identified three additional individuals to charge in a penny stock manipulation case the agency filed last year against alleged corrupt brokers and others. The SEC filed a request in federal court in Brooklyn to lift the stay in its civil action for the purposes of filing an amended complaint alleging that two additional brokers, Michael Morris and Ronald Heineman, facilitated the scheme through their brokerage firm while a third man, attorney Darren Ofsink, profited illegally by selling unregistered shares for which no registration exemption applied.
SEC Announces Whistleblower Award of More Than $325,000
The Securities and Exchange Commission today announced a whistleblower award totaling more than $325,000 for a former investment firm employee who tipped the agency with specific information that enabled enforcement staff to open an investigation and uncover the extent of the fraudulent activity. The whistleblower provided a detailed description of the misconduct and specifically identified individuals behind the wrongdoing to help the SEC bring a successful enforcement action.
Deutsche Bank to Pay $258 Million in Fines for Violating U.S. Sanctions; New York regulator says bank employees handled more than $10.8 billion in restricted transactions
By CHRISTOPHER M. MATTHEWS – WSJ
Deutsche Bank AG agreed to pay $258 million to New York and U.S. banking regulators Wednesday for violating U.S. sanctions to facilitate what one bank manager called its “lucrative” business within sanctioned countries including Iran, Libya, and Syria.
Ex-Federal Reserve worker admits to leaking secrets to Goldman Sachs
By Kevin Dugan – NY Post
The Wall Street jobs that recent grads covet the most
An ex-employee of the Federal Reserve Bank of New York pleaded guilty in Manhattan federal court on Wednesday to passing off secret government documents to Goldman Sachs.
Environmental & Energy
Marathon Oil has third-quarter loss as low oil prices hurt
Marathon Oil Corp, on Wednesday reported a quarterly loss that topped Wall Street expectations, as low commodity prices prompted the a U.S. oil company with operations in Texas and Equatorial Guinea to write down the value of assets.
London-HK Connect to create more intermediary opportunities
London-Hong Kong Connect, the proposed link between the two financial centers’ commodities markets, will provide Hong Kong with more intermediary opportunities, a senior banker in the city said. Yue Yi, chief executive and vice chairman of BOC Hong Kong (Holdings) Ltd., said the business opportunities that the link will bring about could turn Hong Kong into a commodity trading center.
How China’s reforms could benefit stocks and Canada’s housing market
Reform is in the air in China, and with it comes opportunity for investors.
So far this year, markets have focused on the troubling news coming out of China, specifically slower-than-expected economic growth, its volatile stock markets and its worst export numbers since the financial crisis.
There’s a huge amount of oil stuck on boats in Singapore
in Singapore there’s whole treasure trove worth of oil sitting on tankers in the country’s docks because dozens of energy and shipping companies are unable to get funding for smaller deals to shift the goods, in an environment where the price of oil has tanked by over 50% since summer last year.
Are We Ready for the Next Emerging Market Crisis?
Council on Foreign Relations
This summer’s market turmoil was a serious jolt to emerging markets, particularly commodity exporters and those countries with strong trade and financial ties to China. Fortunately, there are good reasons for comfort that the tail risks facing these countries do not rise to the level of the Asia financial crisis or the Great Recession.
Ponzi ideology + social media = disaster
Izabella Kaminska – FT
Touting Ponzi schemes, or as the hip and the cool prefer to call them these days ‘mutual aid’ programmes, is so much easier if you have a handy Marxist-esque ideology to hand.
A Great Education Can Hurt a Woman’s Salary; New research shows that the pay gap between men and women is higher for those with postgraduate degrees and Ivy League educations.
Sarah Grant – Bloomberg
Education can be transformative, but it isn’t improving the chasm between what men and women make. In fact, the gender pay gap seems to get worse the fancier your degree is, a new report shows.
Bonuses for Bank Executives Should Be Tied to Gender Diversity, Review Says
By CHAD BRAY – NY Times
The annual bonuses of financial services executives in Britain should be tied to targets to bring more women into senior roles, according to the preliminary findings of a government commission’s review of gender diversity in the sector.