John Lothian Newsletter: CBOE may cut VIX futures trading hours after glitches; Computer Malfunction Make Deutsche Boerse Halt Trading; Nasdaq lures HFTs in new Nordic strategy

Nov 3, 2014

First Read

Bits & Pieces, FIA EXPO Edition
By John J. Lothian
SGX is celebrating the 30th anniversary of the launch of SIMEX and has published an anniversary video, which John Lothian Productions contributed some of the interview footage from U.S. sources. Take a look at the video, at

The CFTC is holding a meeting to decide a few “bits & pieces” of its own today beginning at 9:30 CST. They are looking at tweaks to the residual interest rule, the definition of swaps concerning forwards with “volumetric optionality” and the recording of transactions. To view a webcast, click HERE and stay tuned for a summary on MarketsReformWiki.

In Friday’s newsletter, we mentioned two panels to be held Tuesday – an Asian exchange panel hosted by Phillip Capital and moderated by me, and the annual SunGard Clearing panel, which was to be moderated by Doug Ashburn. SunGard has decided to pull the plug on its panel, citing numerous scheduling conflicts. We will look for SunGard to pick it up again next year, but for this year, please consider attending the Phillip Capital Trading Asia Symposium 2014. For more information and to register, click HERE

To sign up for the PhillipCapital panel, email

Please feel free to stop by the Cinnober booth, #314 in the Green Room at the FIA EXPO and say hello to members of the John Lothian News team. Thank you to Cinnober for giving us this great opportunity.

Lastly, don’t miss the ALS ICE Bucket Challenge Video by John Lothian Productions which will be showing on the EXPO video screens.


FIA General Counsel Barbara Wierzynski To Depart Role At End Of 2014
Walt Lukken, President and CEO of FIA, announced today that after 20 years as FIA’s general counsel, Barbara Wierzynski has decided to take leave of this role at the end of 2014. In her 28-year career at FIA, Barbara played a key role in the growth of the organization from a small trade association to the industry leader of today.

***** The end of an era. Barbara was an incredible asset for the FIA and the industry. We wish her well with whatever comes next.


Mood easier to change than method for new Deutsche Boerse CEO
Andreas Kröner –
Deutsche Boerse is counting on its new chief executive to raise both the profile and prospects of the German exchange operator, which has seen its efforts at strategic mergers repeatedly stymied. The suave 47 year-old already enjoys a reputation as communicative and approachable from his years at UBS, where in the wake of the Lehman collapse, he had the tough task of cutting jobs in the investment banking business that he earlier helped to expand.

***** We just met Reto for the first time at a dinner the day the story about his leaving broke. This always happens.


Clive Furness, managing director, Contango Markets – Commodities’ Oddities

“Commodities are now so much part of the infrastructure of the marketplace and the asset classes that buy side investors get involved with…that they are going to continue to look for those opportunities.”

Clive Furness, managing director of Contango Markets, discusses commodities and how the commodities markets function. Starting with a brief history of commodities, Furness illustrates why commodities sit uneasily with other mainstream products and the pros and cons of the situation. He then discusses the evolution of commodities, covering the shift in technology and people’s attitudes then and now. Finally, Furness gives his predictions and thoughts on the future of commodities and discusses a project he is currently working on with an African exchange in order to build the products the exchange will trade.

Watch the video »


A Company Caught Between a Hostile Bid and a Side Deal
Steven Davidoff Solomon – Dealbook – NY Times
The hostile offer from BGC Partners to acquire the GFI Group, a New York brokerage and clearing firm, may really just be a smokescreen. Its true intent may be to break up GFI’s previous agreement to be acquired by the CME Group, which operates the Chicago Mercantile Exchange, the Chicago Board of Trade and the New York Mercantile Exchange.

***** I am not betting against the CME prevailing.


Stock exchanges consider more than money
Sophia Grene – Financial Times
The phrase “sustainable stock exchange” usually elicits a groan from people in financial services. One expert in sustainable investment was dismissive, saying “companies love to accumulate awards and certifications, some even have whole departments dedicated to collecting them”. That same expert was quick to row back when it became clear we were talking about the Sustainable Stock Exchanges Initiative, a collaboration aimed at promoting transparency on environmental, social and governance issues.

***** There should be an award for winning awards.


GMEX signs deal with Tradition
Futures & Options World
GMEX, the European exchange, has made a crucial break-through in its plan to launch a new futures-like contract aimed at the interest rate swap traders. GMEX, which is set to go live shortly, said on Monday the broker Tradition has cut a deal GMEX by supplying the fledgling exchange group with real-time prices from Tradition’s Trad-X to underpin the emerging trading platform.

****** Every time I hear the name Tradition I start to sing Fiddler on the Roof in my head.


Why banking got out of control in the digital age
Izabella Kaminska – Financial Times
Could the real cause of today’s financial malaise have less to do with greedy bankers, bad regulation and poor monetary policy, and more to do with the effects of the information technology age on banking?

***** Yay, let’s blame the IT guys. I love it.


Publicis to buy U.S. digital ad firm Sapient for $3.7 billion
Publicis, the world’s third-largest advertising agency, is to buy U.S.-based digital ad specialist Sapient for $3.7 billion in cash as it seeks to accelerate growth after a botched merger earlier this year.

***JK: Sapient is the parent company for Sapient Global Markets (an exhibitor at Expo this year).


Bridging the Week: Election Prediction; Reg SHO; Custody Rule; More Liquid Assets
Gary DeWaal – Katten Muchin Rosenman
Three regulators—the Commodity Futures Trading Commission, the Securities and Exchange Commission and the Korea Financial Services Commission—took practical approaches to operational hurdles posed by their previously adopted rules. Has the pendulum of knee-jerk regulation in response to the financial crisis beginning in 2007 finally started to inch back towards a more sensible position? Meanwhile, the CFTC also approved one university to begin taking orders for binary contracts to help predict certain US election outcomes, but solely for research purposes.


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Lead Stories

CBOE may cut VIX futures trading hours after glitches
Tom Polansek – Reuters
CBOE Holdings Inc may trim trading hours at its futures exchange after suffering glitches that disrupted activity this month, the company’s president said on Friday.

Computer Malfunction Make Deutsche Boerse Halt Trading
Will Hadfield – Bloomberg
A computer malfunction forced Deutsche Boerse AG (DB1) to suspend trading on its Xetra equities platform for 72 minutes, temporarily stopping investors from taking part in a global rally prompted by new stimulus from Japan’s central bank.

Nasdaq lures HFTs in new Nordic strategy
Tim Cave – Financial News
Nasdaq’s bid to boost the number of high-speed firms trading directly on its Nordic markets is paying off, with several firms signing up as members in recent months and one of those becoming the second-largest participant on its Swedish market.

Benchmark rules and FTT in focus as Brussels cranks up
Walter Hemmens and Tim Cave – Financial News
A law to prevent the rigging of financial benchmarks will resume its progress through the European Parliament this month at the same time as 10 finance ministers from the bloc meet to make a renewed push for a long-delayed agreement on a financial transaction tax.

Bonds, Careers, Mentors at J.P. Morgan Public Finance Women’s Forum
Aaron Kuriloff – MoneyBeat – WSJ
After she left investment banking and before she became New York City’s deputy comptroller for public finance, Carol S. Kostik went through a time when she was tired of bonds.

Banks boost FX settlement war chest to as much as $6.5 bln
Jamie McGeever – Reuters
Major U.S. and European investment banks this month boosted to as much as $6.5 billion their collective war chest for settling with global regulators who are investigating allegations of collusion and manipulation in the foreign exchange market.


Senate Panel to Scrutinize Bank Regulators
Peter Eavis – Dealbook – NY Times
A Senate subcommittee plans to hold a hearing in November into whether banking regulators are beholden to the institutions that they are meant to police.

HFTs lament French reporting demands
Tim Cave – Financial News
High-frequency trading firms and brokers remain in the dark as to how new French reporting rules will be implemented less than two months before they come into effect, in the latest example of European regulation being forced on market participants at short notice and without proper guidance.

CFTC Staff Issues Interpretation Regarding Notification and Reporting Requirements Applicable with Respect to Uncleared Swap Transactions

CFTC Staff Issues an Extension of Time Limited, No-Action Relief to Futures Commission Merchants

Europe continues its long journey to a banking union
October’s review of European banks was a vital step towards banking union – but in the midst of ongoing institutional and bureaucratic change, challenges still abound, a London conference hears

ASIC Update Of Employee Incentive Scheme Policy And Release Of Class Orders

Exchanges & Trading Facilities

Cboe, bursa malaysia, cme, bme lead upbeat q3 exchange data revenues with double digit growth
Major global exchanges reported growth in market data sales in their latest round of financial results, typically delivering revenue increases of between 5 and 10 percent, with four achieving even higher growth, and usually—though not in all cases—accompanying gains in overall revenues.

CBOE Holdings, Inc. Reports Strong Results For Third Quarter 2014
CBOE Holdings, Inc. today reported net income allocated to common stockholders of $48.1 million, or $0.57 per diluted share, for the third quarter of 2014, compared with $41.0 million, or $0.47 per diluted share, in the third quarter of 2013. Operating revenue for the quarter was $148.9 million, up 9 percent compared with $136.7 million in the third quarter of 2013.

GMEX Group And Tradition Announce Strategic Partnership
Global Derivatives Indices (GDI), a wholly owned subsidiary of Global Markets Exchange Group International LLP (GMEX Group), today announced a strategic partnership with Tradition, the interdealer broking arm of Compagnie Financière Tradition, to use prices from Trad-X to calculate a new USD version of GDI’s Constant Maturity Index (CMI). This will underpin the GMEX interest rate swap (IRS) Constant Maturity Futures (CMF) contracts.

WSE head: No merger with Vienna
The Warsaw Stock Exchange (WSE) has given up on the idea of a merger with Vienna-based CEE Stock Exchange Group (CEESEG) and instead will focus on organic growth. CEESEG is the parent company of not only the Wiener Börse but also the exchanges in Budapest, Ljubljana and Prague. The merger would have made a regional giant.

EEX Presents Excellence Award At Brussels Reception – Peter Altmaier And Jos Delbeke As Guests Of Honour

Vienna Stock Exchange: Carinthian BKS Bank Capital Increase

TMX Group: Acquisition Of Strike Technologies Services’ Microwave Network Business Completed

TOM MTF Statistics Week 44, 2014

Hedge Funds & Managed Futures

BlackRock bleeds $18bn from active equity arm
Madison Marriage – Financial Times
Heavy outflows continue to dog BlackRock’s active equity funds, putting the world’s biggest investment house on course to register a fourth consecutive year of net outflows from this part of its business.

The Case for ‘Alternative’ Investments – WSJ
Brett Arends – WSJ
Should you adopt a few hedge-fund strategies in your portfolio? At first blush the idea seems perverse.

Einhorn’s Greenlight Gained 2.2% in October Amid Swings
Simone Foxman – Bloomberg
Greenlight Capital Inc., the hedge-fund firm led by billionaire David Einhorn, gained 2.2 percent in its main hedge fund in October, when peers on average posted losses amid surging volatility.

Threadneedle eyes soft-closure of UK Property trust
Anna Fedorova – Investment Week
Threadneedle Investments is looking at soft-closing its UK Property trust after seeing a surge in inflows into the product this year, Investment Week understands.

Polar Capital unveils European Income fund for Davis
Anna Fedorova – Investment Week
Polar Capital has launched a European Income fund for ex-Threadneedle manager Nick Davis, who joined the group last month.

Hermes launches multi-asset inflation fund
Alice Rigby – Investment Week
Hermes Investment Management is launching its first product for the recently launched multi-asset team headed by Tommaso Mancuso.

Pay dirt hard to find for new breed of resource funds
Nick Kostov – Financial News
Out-of-work mining executives used to tell former colleagues that they were “consulting”. Now, they’re more likely to say they are “raising an investment fund”.

Hedge funds pursue alternative lending
Miles Johnson, Hedge Fund Correspondent – Financial Times
Sharp-suited hedge fund managers used to look down with disdain at the humdrum world of commercial banking. Now, this low-octane finance is being viewed by some as the biggest opportunity in a generation.

The secrets of successful energy trading firms
The energy trading world has seen various companies come and go over the years, including utilities, commodity trading houses and banks. Some of those firms have proven to be phenomenally profitable, while others have not. What is the recipe for success?

Banks & Brokers

Swiss Bank’s Deputy CEO Resigns
John Letzing, Jenny Strasburg and Eyk Henning – WSJ
A Swiss bank said Friday one of its top executives has resigned amid a German tax-fraud investigation that has recently expanded across national borders.

Bonds, Careers, Mentors at J.P. Morgan Public Finance Women’s Forum
Aaron Kuriloff – MoneyBeat – WSJ
After she left investment banking and before she became New York City’s deputy comptroller for public finance, Carol S. Kostik went through a time when she was tired of bonds.

HSBC Hit by $1.7 Billion of Provisions
Margot Patrick – WSJ
HSBC Holdings PLC on Monday posted weak third-quarter results as it set aside around $1.7 billion to cover one-off charges, including $378 million to cover a potential settlement in the U.K. Financial Conduct Authority’s probe of foreign-exchange markets.

Deutsche’s GTB hit by rising regulatory costs
Kimberley Long – Euromoney Magazine
Deutsche Bank’s explicit admission in its third-quarter results that higher regulatory costs are hitting the profitability of its global transaction banking business will come as blow to the bank and a warning to others.

JPMorgan has not ‘exited physical commodities’ despite sale
Neil Hume, Commodities Editor – Financial Times
JPMorgan Chase has not abandoned physical commodities in spite of increased scrutiny from regulators and politicians, and will continue to finance metals and crude oil as it battles to keep its market leading position in raw materials.

Citi Execs Say Focus Is On Cities, Not Countries
Saabira Chaudhuri – MoneyBeat – WSJ
Citigroup Inc. plans to focus on cities rather than countries. Chief Financial Officer John Gerspach and Global Consumer Banking Chief Executive Manuel Medina-Mora told analysts at RBC Capital Markets this week that the bank plans to focus on the top 100 global cities and on affluent and emerging affluent segments.

Ex-SAC trader returns to Credit Suisse
Giles Turner – Financial News
A former fixed income trader at Credit Suisse has rejoined the Swiss bank after three years and three jobs in the hedge fund industry

Move away from risk forces banks to sweeten deal terms
Ayesha Javed – Financial News
Banks that have lent money to firms owned by private equity are having to slash prices and sweeten terms when they try to sell the debt to other investors in the latest sign of the move away from risky assets.

Italian Bank Monte dei Paschi to Sell Shares to Meet Capital Demands
Jack Ewing – Dealbook – NY Times
The Italian bank Monte dei Paschi di Siena said on Sunday that it would ask investors to help it raise the money it needed to satisfy demands from the European Central Bank that it bolster its ability to survive an economic downturn or other crisis.

Be careful with that commissions axe on investment research
Paul Murphy – Financial Times
The internet domain name is still available. If you run a City investment research operation, that web address could be worth having. It is a snip at just GBP1.99 if you sign up for two years, which probably offers a reasonable timeframe in which to see whether the business of investment research goes hopelessly downmarket.

Clearing & Settlement

ICAP’s post-trade business under threat from MiFID II
The Trade
ICAP is lobbying for an amendment to the MiFID II trading obligation rule which in its present form would force the interdealer broker to discontinue four of its key post-trade risk reduction services.

Buy-side onboard in first weeks of T+2
John Bakie – The Trade
Most buy-siders have successfully transitioned to Europe’s T+2 settlement cycle despite widespread fears they would not be ready.

US T+2: All That’s Left Is the Execution
Jennifer Costley, Ph.D – Wall Street & Technology
T+2 settlement is right around the corner for the US. What will it take to get from where the industry is now to implementation?

OptionsCity To Launch Customizable Trading Experience
Becca Lipman – Wall Street & Technology
The Metro Now platform breaks tools down into downloadable build or buy widgets for faster deployment and a more customized trading style.

ESMA Add OMIClear To The List Of Registered CCPs Under EMIR

Indexes & Products

Commodity leveraged ETFs: Tracking errors, volatility decay and trading strategies
Commodity exchange-traded funds (ETFs) and their leveraged counterparts are a significant part of the growing ETF market.

iShares Japan ETF options draw bullish call activity
Saqib Iqbal Ahmed – Reuters
Options on the iShares MSCI Japan Index fund attracted a rush of bullish trading activity on Friday after the Bank of Japan significantly ramped up its stimulus program.

ETPs struggle in low volatility
Chris Flood – Financial Times
Volatility in foreign exchange markets has been muted for much of this year and exchange traded funds and products that provide exposure to currency fluctuations have struggled to win investors’ attention.

STOXX Europe 600 Licensed To US-Based Investment Manager ALPS


Inventing a smarter way for finance
Gren Manuel – Financial News
Ideas were flowing fast at the conference on fintech organised jointly last week by Financial News and WSJD, the home of the Wall Street Journal’s technology coverage.

CME Super-Fast Hardware Acceleration For Market Risk By NanoSpeed
Press Release
NanoSpeed, the provider of ultra-fast FPGA solutions to the trading community, today released its latest Nano-Risk FPGA for the CME.

Finextra: Infront terminals access Neonet trading infrastructure
Infront, provider of the innovative Infront market data, analytics and trading terminal to thousands of professional users, has partnered with Neonet Securities, the independent agency broker and execution specialist, to offer users of its Infront terminals access to Neonet’s trading infrastructure.


SEC Announces Fraud Charges Against New York Businessman
The Securities and Exchange Commission today announced securities fraud charges accusing a New York businessman and his software company of making false statements to investors while raising more than $3 million to fund operations.

NYDFS Announces AIG To Pay $35 Million Penalty For Insurance Law Violations Related To Its Former Subsidiaries Alico And Delam
Benjamin M. Lawsky, Superintendent of Financial Services, announced today that AIG will pay a $35 million penalty for Insurance Law and other violations related to its former subsidiaries ALICO and DelAm. A New York State Department of Financial Services (DFS) investigation uncovered that those subsidiaries solicited insurance business in New York without a license and made intentional misrepresentations and omissions to the Department about those activities.

Environmental & Energy

Oil price declines have small-cap shale investors scrambling
David Randall, Reuters
Plummeting oil prices are pushing some of the small-cap companies which flourished as part of the U.S. shale energy boom close to their breaking point, while also prompting some well-known fund managers to aggressively buy energy stocks.

Poll: Swing-state voters back climate action
Laura Barron-Lopez, The Hill
A majority of voters in swing states prefer a candidate that wants to take action on climate change and curb carbon pollution, according to a new poll.

Solar Grid Parity In All 50 US States By 2016, Predicts Deutsche Bank
Giles Parkinson, RenewEconomy
Rooftop solar PV will reach grid parity in 50 US states by 2016 – up from just 10 now – setting the scene for a dramatic increase in the uptake in household and commercial rooftop solar in the world’s biggest economy.


Shanghai mayor says work underway on Hong Kong stock-trading link
Brenda Goh – Reuters
Shanghai’s mayor said “initial preparations” were underway to enable global investors to trade Shanghai-listed Chinese shares via the Hong Kong exchange, asking investors to be patient after the trading scheme missed its launch date.

Hong Kong Asks Funds to Seek RQFII Elsewhere as Quotas Exhausted
Eduard Gismatullin and Fion Li – Bloomberg
Hong Kong advised fund managers who seek more yuan investment quotas for China’s onshore markets to apply through London and Singapore, as the city has exhausted its own limits.

The renminbi’s place in the FX world
Elaine Moore – Financial Times
This year, the UK became the first western country in the world to issue government debt in renminbi.

JCCH SPAN Parameter Update Effective 11/4

Frontier Markets

Argentina failed to transfer Par bonds coupon payment – BNY
Davide Scigliuzzo – Reuters
Bank of New York Mellon, the trustee for some of Argentina’s restructured bonds, notified bondholders on Friday that the sovereign’s default has spread to its Par bonds.

ADX Heads To Far East For Roadshow
Abu Dhabi Securities Exchange (ADX) announced today that it will be leading some of the UAE’s chief companies to meet investors in Singapore and Hong Kong on the 3rd and 5th of November respectively. The Far East roadshow follows successful roadshows in New York and London earlier this year.

JSE Announces Winners Of 13th Annual Spire Awards – Excellence In South Africa’s Fixed Income, Currency And Commodity Derivatives Markets

JSE Announces Overall Winners Of The 2014 JSE Investment Challenge

Lahore Stock Exchange Market Holiday – Yaum-E-Ashoora

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