John Lothian Newsletter: BlackRock calls for U.S. stock market reforms; Calpers to Exit Hedge Funds, Divest $4 Billion Stake; GFI to open its books to BGC Partners

Sep 16, 2014

First Read

CME Group overhauls jobs of senior executives
CME Group Inc‘s president of clearing and chief operating officer will move into expanded roles at the world’s largest futures exchange operator and be replaced by other executives, the company said on Monday.

***** The CME is positioning itself for being closer to the customer when the tide turns and volumes really get rolling. I did like the new CFO position, Chief Fun Officer. And Gill is the new Chief Entertainment Officer.


Interview: Walt Lukken, Futures Industry Association
Gina Chon – Financial Times
Walt Lukken, president and chief executive of the Washington DC-based Futures Industry Association trade organisation, is leading the group at a time of enormous change in the derivatives markets. Global regulators have implemented radical reforms aimed at boosting transparency and diminishing risks in the financial system.

***** At any point in my adult life the derivatives markets have gone through a time of enormous change. Change has been the one constant.


Sense of urgency underpins fresh scrutiny of markets
Philip Stafford – Financial Times
For the past five years, global policy makers have sought, with varying degrees of success, to reform the over-the-counter derivatives market that they believed had exacerbated the events of 2008. Their aim was to make the opaque $700tn swaps market more transparent, turning it from something that was largely bilateral and telephone-based into an anonymous, electronic market. Yet, in that same period, some argue trading equities in the US, and to a lesser extent Europe, has been steadily becoming less transparent.

***** I would argue this argument. The equities are less and less transparent and there is a question mark over the price discovery process. It is our job to self-police these markets. There is always someone, or something, that will try to game the system. History is full of examples. But is also full of example of people in the markets saying enough, and let’s fix this and make things more fair. The time has come to do that in the equities markets.


‘Trend-following’ algo funds back in fashion
Miles Johnson – Financial Times
They are the fashion victims of the hedge funds world: funds that make money by copying exactly what everyone else has been doing. But more recently “trend following” trading strategies were regarded by investors as distinctly passé.

***** What does not work yesterday is tomorrow’s killer strategy.


Adam Smith Explains Why Calpers Is Pulling Out Of Hedge Funds
Tim Worstall – Forbes
Calpers has decided to pull its investments out of the various hedge funds where it has money. They’re the experts paid to place that pension money where it will do best so possibly better not to try and second guess them. However, we can look back all the way to 1776 and the foundation text of modern economics, Adam Smith’s “Wealth of Nations” and find a reasonable explanation of what’s happening here. Essentially, hedge funds were a great idea but the innate structure of free market capitalism means that no idea stays great over time.

***** The bread slicer will always be a great idea!


ICE Futures US Sets Daily Volume Record In MSCI And Russell Equity Index Contracts
Intercontinental Exchange, the leading global network of exchanges and clearing houses, announced today that ICE Futures U.S. reached a daily volume record in the mini MSCI Index futures complex, the mini MSCI EAFE Index contract, and the Russell 1000 Value Index mini contract on Friday, September 12, 2014.

***** I love the smell of volume records in the morning.


The Astonishing Story of the Federal Reserve on 9-11
Arliss Bunny –
On the morning of 11 September 2001, when Federal Reserve Vice Chairman Roger W. Ferguson, Jr. arrived at work in his office in the Federal Reserve Bank in Washington, DC, he was alone. I don’t mean there weren’t other people in the building it’s just that it was a busy day and all the other members of the Fed Board of Governors who are normally in Washington were traveling.

***** There were many heroes of 911. Some of them worked in the Federal Reserve system and this is their story. It is a compelling read.


Jamie Farmer, Managing Director, S&P Dow Jones Indices – Indexing 101

“This is a big industry…but it’s very tight, very interconnected, very close. It’s unbelievable how many people you come in contact with again.”

Jamie Farmer, managing director of S&P Dow Jones Indices, gives a rundown on indices, beginning with the history of indexing and the creation of the Dow Jones industrial average. According to Farmer, the original purpose of indexing was for editorial value. Eventually, it expanded and evolved into what we know as the Dow Jones S&P Indices. Farmer also covers trends along with the growth and expansion of the financial industry. He concludes by discussing the importance of networking and how he was able to progress to his current position by building several relationships throughout his career.

Watch the video »



MarketsWiki Page of the Day
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Bryan T. Durkin; Jeff Mezger; Michael North; Michael D. Robbins; Sara Jean Goodman

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Lead Stories

BlackRock calls for U.S. stock market reforms
John McCrank – Reuters
BlackRock Inc, the world’s largest asset manager, has asked regulators to force exchanges to lower their access fees and require greater transparency of broker dealer-run trading venues known as “dark pools.”

Calpers to Exit Hedge Funds, Divest $4 Billion Stake
Michael B. Marois – Bloomberg
The California Public Employees’ Retirement System plans to divest the entire $4 billion that it has with hedge funds, saying they’re too expensive and complex.

GFI to open its books to BGC Partners
Philip Stafford in London – Financial Times
GFI Group, the US interdealer broker, has agreed to open its books to rival BGC Partners in the face of a potential higher offer from BGC that threatens to break up an agreed deal with CME Group.

U.S. Prosecutors Said Close to Charging Forex Traders
Keri Geiger and Tom Schoenberg – Bloomberg
U.S. prosecutors are preparing to file charges as soon as next month against currency traders at some of the world’s biggest banks in an investigation into possible manipulation of benchmark exchange rates, according to two people familiar with the matter.

Biggest Banks Said to Overhaul FX Trading After Scandals
Julia Verlaine and Gavin Finch – Bloomberg
The world’s biggest banks are overhauling how they trade currencies to regain the trust of customers and preempt regulators’ efforts to force changes on an industry tarnished by allegations of manipulation.

Inside-Trading Arrests Vanish as FX, Libor Top FCA Agenda
Suzi Ring – Bloomberg
The U.K. Financial Conduct Authority hasn’t arrested anyone for insider trading this year, prompting lawyers and lawmakers to question whether cross-border cases like currency manipulation are over-taxing the regulator.

Vienna bourse cites hurdles in Warsaw merger talks-paper
The co-head of the Vienna Stock Exchange cited stumbling blocks to a potential merger with the Warsaw Stock Exchange in a newspaper interview published on Monday as cooperation talks drag on.

Swaps traders resist moves to increase use of platforms
Michael Mackenzie – Financial Times
Reforming over-the-counter derivatives remains a work in progress, as investors, banks and trading venues in the US come to grips with a new era of transacting swaps.

March of the algorithms raises issues
Sally Davies – Financial Times
Smart, self-teaching algorithms are taking over from people in homes, cars and hospitals. Are they going to do the same to the capital markets? To an extent the machines have already won. High-frequency trading (HFT) has accounted for the majority of trading on US markets for several years. But there is a qualitative difference between statistical modelling software that is primed to pick up on market cues to obtain an edge over rivals, and genuine “machine learning” algorithms that teach themselves tactics.


Financial regulators probe dark pools
Nicole Bullock – Financial Times
Dark pools are squarely in the spotlight. Following the publication of Flash Boys, which claims that the US equity market is rigged, scrutiny has intensified.

Europe looking for swift cross-border derivatives resolution
John Bakie – The Trade
The European Commission is in ‘near daily’ discussions with US regulators as it tries to solve the cross-border issues surrounding the mutual recognition of central counterparties (CCPs) on both sides of the Atlantic.

Dealers welcome US uncleared margin rules
Fiona Maxwell, Lukas Becker –
Dealers have welcomed the US banking regulators’ proposal to restrict variation margin for uncleared swaps to cash only, but acknowledge that the buy side will be upset at being denied the ability to post bonds.

CFTC Staff Sets Forth Enabling Process for No-Action Relief with respect to Swaps Trading on Certain Financial Markets that are Licensed in Australia and Overseen by the Australian Securities & Investments Commission

Exchanges & Trading Facilities

CME Group Announces Executive Team Appointments
CME Group
To better meet the needs of its global customer base, CME Group, the world’s leading and most diverse derivatives marketplace, today unveiled a new leadership structure, appointing a number of individuals to new roles on its Executive Team, which reports to Phupinder Gill, CME Group Chief Executive Officer. Gill will continue to report to CME Group Executive Chairman and President Terry Duffy.

ICE Futures U.S. Updates Mini Gold Contract
Intercontinental Exchange (NYSE: ICE), the leading global network of exchanges and clearing houses, announced updated terms for the mini gold futures and options contracts that are listed and traded on ICE Futures U.S. The change is effective today and reflects customer feedback on size, quality and delivery options for the mini gold products. These contracts were previously listed on Liffe U.S. and were transitioned to ICE Futures U.S. in June.

Independence crucial to future of the Irish Stock Exchange
Vincent Boland – Financial Times
Deirdre Somers likes to keep things in perspective. The chief executive of the Irish Stock Exchange has been delving into the 216-year-old institution’s archives and is struck by the upheaval of the decade from 1913 to 1923.

Euronext Announces RMB Bond Listing By Bank Of China And Signs MOU
Euronext, the primary exchange in the Euro zone, is pleased to welcome the first offshore RMB denominated bond listing by Bank of China(BOC), on its regulated Euronext market. In addition Euronext has today signed a Memorandum of Understanding (MOU) with BOC to develop comprehensive strategic relationships between the two companies.

Toronto Stock Exchange And TSX Venture Exchange Host Inaugural “Golden Bull” Charity Golf Classic
Toronto Stock Exchange and TSX Venture Exchange today host the inaugural TMX Group Golden Bull Charity Golf Classic at the Lynx Ridge Golf Club in Calgary.

Nasdaq to cancel late-day Eagle Rock Energy trades
Nasdaq said it would cancel all trades in Eagle Rock Energy Partners at or above $4.62 that were executed between 3:59 p.m. EDT and 4 p.m. EDT on Monday.

Office Depot to Move Stock Listing to Nasdaq
Tess Stynes – WSJ
Office Depot Inc. said it will transfer its stock listing to the Nasdaq Global Select Market from the New York Stock Exchange later this month. The office-products retailer said it plans to retain its current ticker symbol and begin trading on Nasdaq on Sept. 26.

SPOT – SIX Swiss Exchange Open Day 2014 – Your Opportunity To Connect With Thought Leaders From Finance To Discuss Topical Issues, Network, And Meet Exhibitor Firms Closely Linked To The Exchange

London Stock Exchange Announces Improvements To SETSqx Trading Service

Toronto Stock Exchange and TSX Venture Exchange: The MiG Report August 2014

Direct Edge Regulatory Notice #14-04: Notice Regarding Amendments To Direct Edge Market Data Requirements

Direct Edge Trading Notice #14-38: Enhancement To Opening And Halt Re-Opening Processes

Direct Edge Trading Notice #14-36: Post Only Changes On EDGA

Moscow Exchange: Russian Eurobond Futures To Begin Trading

Hedge Funds & Managed Futures

Calpers ditches hedge funds
Dan McCrum – Financial Times
The message is starting to get through. Calpers, the largest US public pension fund, has said that it will stop investing in hedge funds. It took a while.

Pressure for High Marks at Harvard Extends to Its Investment Chief
Randall Smith – Dealbook – NY Times
The chief investment officer of the Yale endowment, David F. Swensen, set the bar for universities starting in 1988 when he created a widely imitated blueprint for high-octane investment returns with heavy doses of private equity and other alternatives to stocks and bonds.

Magellan Global Fund Boosts Cash on Equity Valuation Concern
Adam Haigh and Narayanan Somasundaram – Bloomberg
Magellan Financial Group Ltd. (MFG) is selling stocks and increasing the cash position in its A$5.6 billion ($5.1 billion) global equities fund on concern valuations are too stretched.

Blackstone Group seeks to raise $16 bln for its latest fund -WSJ
Blackstone Group LP is aiming to raise about $16 billion for its latest buyout fund, the Wall Street Journal reported, citing sources familiar with the matter.

KKR Banks on Bisignano Forging Apple Deal at First Data
David Carey – Bloomberg
Frank Bisignano has been busy forging ties with Silicon Valley since leaving JPMorgan Chase & Co. (JPM) 17 months ago to run First Data Corp.

Pimco Seeks Replacements for Two Total Return Fund Trustees
Kirsten Grind – WSJ
Pacific Investment Management Co. is trying to replace two independent trustees overseeing its massive Pimco Total Return fund at a time when the fund is seeing extensive outflows, according to people familiar with the matter.

Tiger’s Chopra Stumbles in Rise to Top Robertson Empire
Kelly Bit – Bloomberg
Nehal Chopra has been sprinting ahead of the pack most of her life. Since 2009, Chopra has trounced her competitors, averaging 19 percent annual gains by betting on companies in upheaval, almost triple the industry average. To the 34-year-old’s supporters, including Robertson, she’s a brilliant stock picker whose aggressive nature has made them millions of dollars. Chopra has plenty of detractors too.

Ex-Goldman Sachs duo’s Fulcrum enjoys best year since 2007
Vivek Ahuja – Financial News
Profits at Fulcrum Asset Management, the multi-strategy investment manager co-founded a decade ago by former Goldman Sachs executives, surged last year to their highest level since before the financial crisis.

Architas cuts fees on passive multi-asset range
Anna Fedorova – Investment Week
Architas is the latest group to slash pricing on its range of passive multi-asset funds as the price war in the tracker space continues to rage.

Why These Scottish Fund Manager Brothers Are on Opposite Sides of the Vote
Chiara Albanese – MoneyBeat – WSJ
With only three days to go before Scotland will be called to polls, we’ve found two Scottish brothers, working for fund management firms managing more than $2 billion of assets, to explain why they hold opposing views on Scottish independence, and how they see the outcome of the vote playing out for investors.

Banks & Brokers

Smaller Firms Taking Corporate Bond Dealing Share From Top Banks
Katy Burne – WSJ
The top five banks dealing in U.S. corporate bonds have lost market share to smaller firms, according to figures from researcher Greenwich Associates, the latest sign of the financial-sector shake-up being driven by tougher rules and bank retrenchment.

U.S. Bank hires four people for private client reserve in Chicago
Wealth manager U.S. Bank, a unit of U.S. Bancorp, said it appointed four people for its private client reserve in Chicago.

MOVES-SYZ Asset Management names Michael Clements as European equities head
SYZ Asset Management, the institutional arm of Swiss banking group SYZ & Co, appointed Michael Clements as head of European equities.

Clearing & Settlement

First derivatives trade repository licence granted in Australia
Simon Osborne – The Trade
DTCC Derivatives Repository (Singapore) has been named as the first recipient in Australia of a derivatives trade repository licence.

Calypso Collateral Management Solution Successfully Implemented At LCH.Clearnet
Calypso Technology, Inc., a leading provider of cross-asset front-to-back technology solutions for financial markets, announced today LCH.Clearnet Ltd and LLC have completed the project to introduce the Calypso Collateral Management solution to their Collateral and Liquidity Management (CaLM) offering. With this development, LCH.Clearnet is able to deliver further processing efficiencies with automated, real-time Collateral Management operations.

CCPs must get familiar with the C-factor
Cindy Leiw –
The new approach for calculating clearing houses’ default funds set out by the Basel Committee for Banking Supervision means that CCPs must familiarise themselves with the C-factor

CME Group – Clearing: September 2014 Final Foreign Currency Settlement Prices

CME Group – Clearing: CDS Margin Model Change in New Release

Indexes & Products

Silver ETF holdings set record high as price drop sparks interest
Frank Tang – Reuters
Holdings at the world’s largest silver-backed exchange-traded funds (ETFs) rose to a record high as a pullback in prices prompted long-term retail investors to increase purchases of the precious metal.

Xetra/Börse Frankfurt: New Amundi ETF Launched In XTF Segment On Xetra – ETF Provides First Access To Multi-Strategy Approach Of Scientific Beta Index Family

Semi-Annual Changes To The NASDAQ Global Index Family


FT Taps Morningstar for Print Price Data
Max Bowie – WatersTechnology
The Financial Times has enlisted the UK arm of Chicago-based data and investment research provider Morningstar to supply the price data in the back pages of its daily Companies & Markets section, as part of a new look for the newspaper, starting today, Monday, Sept. 15.

ITRS Opens Singapore Office
Giulia Lasagni – WatersTechnology
ITRS Group, a London-based provider of real-time systems monitoring and management technology, announced it has opened an office in Singapore in response to increased customer demand in the region.

TABB to provide clarity on TCA
John Bakie – The Trade
Research consultancy TABB Group has launched a new analytics service looking at US equities market trading and routing.

Victor Technologies and ACTIV Financial Announce Partnership For Real-Time Risk Analytics
Victor Technologies LLC, a financial analytics provider that specializes in risk management and listed derivatives pricing, today announced that the company is partnering with ACTIV Financial, a global provider of real-time, multi-asset financial market data and solutions, to offer its enterprise-grade Market Volatility Feed (MVF) as part of ACTIV’s market data platform.

Green Key Technologies Hires Managing Director For London Office
Green Key Technologies, a trader voice software provider, announced today the hiring of Ty Devlin as Managing Directors of the London office.

Thomson Reuters Monthly Market Share Reports Updated To Include August 2014 Data


Federal Court Orders Brian Hunter of Calgary, Alberta to Pay a $750,000 Civil Fine in CFTC Action Alleging Attempted Manipulation of Natural Gas Futures Prices during the Expiry on Two Trading Days
The U.S. Commodity Futures Trading Commission (CFTC) today announced that it has entered into a consent Order settling charges brought against Brian Hunter, resident of Calgary, Alberta, for attempting to manipulate the price of natural gas futures contracts traded on the New York Mercantile Exchange (NYMEX) during the expiry on February 24 and April 26, 2006.

CFTC Fines Morgan Stanley for Failure to ‘Know Its Customer’
Saabira Chaudhuri – WSJ
Morgan Stanley has been fined $280,000 by the U.S. Commodity Futures Trading Commission for failures tied to certain know-your-customer procedures. The CFTC found that Morgan Stanley failed to supervise accounts held at the investment bank in the name of a family of companies called SureInvestment.

FCA bans and fines ex-St James’s Place senior partner
Laura Miller – Investment Week
The Financial Conduct Authority (FCA) has banned and fined GBP300,000 a former senior partner of St James’s Place after clients lost out investing in companies he controlled.

Tennessee-Based Animal Feed Company Agrees to Pay $18 Million to Settle Accounting Fraud Case
The Securities and Exchange Commission today announced that a Tennessee-based animal feed company has agreed to pay back $18 million in illicit profits from an accounting fraud that resulted in an SEC enforcement action earlier this year.

Environmental & Energy

Corporates leading charge for robust carbon price, says CDP
Jessica Shankleman, BusinessGreen
Hundreds of the world’s largest public companies are already preparing themselves for a robust international carbon market, and in many cases are way ahead of governments in planning for climate change risks and opportunities.

***LB: Also in this story “Significantly, 638 companies said carbon regulation presented a business opportunity for them, suggesting a new mechanism would help drive investment in low carbon technologies.”

Naomi Klein: ‘We tried it your way and we don’t have another decade to waste’
Suzanne Goldenberg, The Guardian
Naomi Klein is the star of the new American left. At 44, the writer and activist has twice written blockbusters combining ground-level reporting and economic analysis that challenged people to take a hard look at what they took for granted: their shopping choices, America’s place in the world, and the devastating effects of arcane trade policy and rampant free market ideology.

Richard Branson failed to deliver on $3bn climate change pledge
Suzanne Goldenberg, The Guardian
Richard Branson has failed to deliver on his much-vaunted pledge to spend $3bn (GBP1.8bn) over a decade to develop a low carbon fuel.

***LB: Also in this story “Seven years into the pledge, Branson has paid out only a small fraction of the promised money – “well under $300m” – according to a new book by the writer and activist, Naomi Klein.


SGX Study Finds Positive Correlation Between Higher Trading Prices And Liquidity, Market Depth
Press Release
Numerous studies show that stock price is an important function of liquidity, a major component of market quality. Low-priced securities are generally associated with the risk of high volatility, making them more susceptible to excessive speculation and market manipulation, while higher-traded prices are associated with greater liquidity and market depth.

ICBC sets $650m record for ‘Lion City’ bond issuance
Jeremy Grant in Singapore – Financial Times
Industrial and Commercial Bank of China has issued a total of Rmb4bn ($650m) of renminbi-denominated bonds in Singapore and Taiwan, in the first case of cross-border collaboration between the two offshore markets for the Chinese currency.

Hong Kong Gold Bourse Approved to Build Vault in China
Alex Davis – Bloomberg
Hong Kong’s Chinese Gold & Silver Exchange Society was given permission to set up a precious metals vault in Shenzhen, China, becoming the first non-mainland bourse granted onshore commodity warehousing access.

China’s SOE Reform Is Boon for Investment Bankers
Ned Levin – MoneyBeat – WSJ
Chinese buying of overseas assets are at record highs so far this year, both by dollar amounts and number of deals, according to new Dealogic data.

BAML Gets Morgan Stanley Deal Maker to Lead China Investment Bank
Enda Curran – MoneyBeat – WSJ
At a time when China investment banking revenues are hitting record highs, bankers are poaching key deal makers.

Goldman’s new platform unveiled in Asia
Simon Osborne – The Trade
Goldman Sachs new Asian algorithm platform is complete and has been rolled out across the continent.

Tokyo Commodity Exchange Statement On Some Recent News Reports On TOCOM’s Trading System
Press Release
The Tokyo Commodity Exchange, Inc states that the recent media stories reporting the Exchange’s plan to share a new trading system with another financial exchange in Japan are devoid of any facts based on the Exchange announcements.

MOVES-BNP Paribas Securities appoints new head of Hong Kong
BNP Paribas Securities Services named Stephanie Marelle as head of Hong Kong division and David Raccat as head of market and financing services for the Asia Pacific region.

Foreign investment into China slumps
Jamil Anderlini in Beijing – Financial Times
Foreign direct investment to China has fallen at the sharpest rate since the height of the financial crisis, as Beijing targets a widening array of global companies in the country for alleged price-fixing and monopolistic behaviour.

ITRS Builds On Asia Success With New Singapore Office
ITRS Group is further expanding its Asian presence through the opening of a new Singapore office. The new office will sit alongside the application performance and management technology provider’s existing hubs in Hong Kong and Philippines.

SGX welcomes YuuZoo Corporation to Mainboard

Tokyo Financial Exchange: FIA Japan Newsletter September 2014 Edition Released

Frontier Markets

DEALTALK-Blackrock, investment funds wary of revival in Brazil IPOs
Guillermo Parra-Bernal and Paula Arend Laier – Reuters
BlackRock Inc and other investment firms are not so sure that a revival of initial public offerings in Brazil will fly.

Goldman Sachs revises price guidance on debut sukuk; books at $1.4 billion: leads
Goldman Sachs (GS.N) will complete a $500 million debut sukuk issue later on Tuesday, with price guidance tightened slightly from earlier indications due to strong demand from investors, a document from lead managers showed on Tuesday.

The Options Industry Council And Saxo Bank Announce Dubai Seminar, Part Of Options Education Roadshow
Patrice Hénault, Futures & Listed Options Product Manager At Saxo Bank, And Gary Delany, Director At The Options Industry Council, Will Conduct A Seminar On Equity Options At The Saxo Bank Office In Dubai On September 17 As Part Of An Ongoing Series Of Seminars

Tehran Stock Exchange Invites Investment Community To Kish Island Exhibition
Once Final Deal In Place Between Iran And Global Powers On The Challenging Issues, TSE’s Potentials Will Be An Investing And Fresh Investment Opportunity For Foreign Investors

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First Read $31,126/$300,000 (10.4%) Ajay Jain ++++ Hits & Takes John Lothian & JLN Staff Welcome to International Women's Day 2021. The theme for this year's International Women's Day is "Choose To Challenge." The WFE says there are over 100 women today...

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