John Lothian Newsletter: CFTC Is Poised to Expand Its Reach Overseas; German Banks Try to Torpedo Transaction Taxes; Zions bank becomes early Volcker casualty

Dec 17, 2013

First Read

Now is the time to give Nadex a try
by John J. Lothian

It is time to give Nadex a good look. The North American Derivatives Exchange is growing and is postured for a great step forward with business introduced by brokerage firms rather than customers just coming directly to the exchange.

While the demise of MF Global and PFGBest have aided Nadex’s no-leverage offering, it was their corporate parent’s pick up of key assets from the bones of PFGBest that have set the stage for their next growth phase.

Nadex’s owner IG Markets bought the PFG back office software, the Best Direct front end and some risk management middleware and packaged them all up as Nadex Connect. They also hired a team of programmers from PFG to make it all work. This new turnkey offering allows FCMs to connect to Nadex in as little as 2 to 3 weeks, as opposed to the 18 or more months it took before.

And to top this all off, they are offering FCMs 6 months free of this new offering. Yes, that is free. And Nadex is offering an aggressive fee sharing with brokerages for the flat fee they charge clients. With a minimum account size of as little as $100, Nadex represents a few path for potential market participants to get a start in the markets without excessive risk or leverage.

Think of Nadex as a today’s version of the MidAmerica Commodity Exchange and the CBOE all rolled into one easy to use and understand market. It is small-sized option trading on a full spectrum of futures contracts. It is a place to start a path to understanding how to trade.

(For the rest of the commentary, visit the JLN web site at )


CFTC Names Mark P. Wetjen Acting Chairman of the Commission
The U.S. Commodity Futures Trading Commission (CFTC or Commission) today announced that the members of the Commission have unanimously elected Commissioner Mark P. Wetjen to serve as Acting Chairman upon the end of Chairman Gary Gensler’s service.

***** Mr. Gensler stays at the Commission until at the most January 3, 2014 when the new Congress opens. Mr. Chilton has wavered about when he will officially leave, though it could be anytime.


GFI Group Receives Best Broker Award from Futures and Options World
GFI Group Inc. a leading provider of wholesale brokerage, electronic execution and trading support products for global financial markets, today announced that it has received the FOW International award for Best Broker for the year 2013. In acknowledging this honour, FOW’s judges said that GFI was “among the best placed to capitalise on the upcoming regulatory reform” and described the company as a “thought leader in the market transformation”.
(via email)
***** A nice addition to GFI’s year.


OptionsCity introduces global hosting service
OptionsCity, a leading provider of electronic trading solutions for professional futures and options traders, today unveiled OptionsCity Hosting, a global hosting service.

***** Consider it a youth hostel for puts and calls.


Interactive Data Brings Energy and Commodities Data to the Cloud
Sarah Rudolph – JLN
Interactive Data’s FutureSource is responding to the continued migration of data & analytics from downloadable software to the cloud. JLN spoke briefly with Tom Mallon, global director of energy and commodities at Interactive Data, who said that the company’s goal is to have a web version of FutureSource which is on par with their downloadable software version. About 20% of their user base is currently on the thin client, and about the same number are using the mobile app for the iPad, he said. In a web-based platform, Interactive Data would host everything, and content would be automatically pushed out to the user. (FutureSource is aimed at an institutional audience.)

Mallon also said that Interactive Data’s board has approved a multi-million-dollar investment plan whose goal is to increase the utility of FutureSource and grow Interactive Data’s business.

***** The press release can be found here:


CME Group Client Clearing of Interest Rate Swaps on the Rise
Open interest in Cleared OTC IRS continues to trend upward, from $3 trillion in June to $8.8 trillion in December with market share increasing from 28% to 51% during this same period. Click below to view the full OTC update.

***** I just have to say, WOW!


Gary DeWaal

Business Remodeling: Satyam Kancharla of Numerix Says Firms Must Rethink Risk and Collateral Management
There has been an avalanche of regulation over the past several years. While firms are digging out from under it in an effort to comply, others are looking for new opportunities this environment presents. Satyam Kancharla, chief strategy officer of Numerix, told John Lothian News’ Jim Kharouf that firms must find ways to create more efficiencies in terms of collateral management and looking at their operations in a more holistic way. The combining of OTC and futures into cleared structured environments are forcing firms to break down those trading desk silos that have been part of firms over the years.

Watch the video »


NYSE: Clear Winner on 2013 IPOs
MoneyBeat – WSJ
Could it be a Facebook curse? Tech IPOs have been at the center of the battle between the New York Stock Exchange and Nasdaq for listings. And for the first time in more than 15 years the NYSE has come out on top.

***** There are winners and there are losers.


The Bridge—Railings or Rulings?
Trade Talk – Trading Technologies
The recent CFTC concept release provided a thorough, detailed summary of the current state of electronic trading and risk controls, and asked for public comments with a set of 124 specific questions. The document itself is a significant effort, intended to serve as an impartial platform to stimulate discussion of current and best practices, and has received more than two dozen responses from industry participants.

***** Concept release is such a nice neutral term, full of such incredible good and bad.


Stern Words for Wall Street’s Watchdogs, From a Judge
It used to be common for the federal government to prosecute prominent people responsible for debacles that rattled the financial system. And what of the recent financial crisis? The statute of limitations on most plausible charges is running out, and it seems there will not be a single prosecution of a prominent figure in the entire mess.

***** Mass stupidity may not be a crime, but it has its price. I believe we are still all paying it.



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Lead Stories

CFTC Is Poised to Expand Its Reach Overseas
Andrew Ackerman and Katy Burne –
The Commodity Futures Trading Commission is moving to force overseas financial firms to comply with certain U.S. rules, according to an official familiar with the process, a move likely to stoke criticism the U.S. is bidding to become the de facto global financial regulator.

Complaint to EU: German Banks Try to Torpedo Transaction Taxes
Claus Hecking and Stefan Kaiser – Spiegel Online
German banking associations have sent letters to the European Commission urging it to forbid the new financial transaction taxes imposed by France and Italy. Insiders believe the letters are an attempt by the banking lobby to block a planned EU-wide financial transaction tax.

Zions bank becomes early Volcker casualty
Camilla Hall and Tracy Alloway in New York and Gina Chon in Washington –
One of the first casualties of the Volcker rule is a small Utah-based bank that is far from the large Wall Street institutions that regulators had sought to rein in.

Don’t Expect Eye-Popping Fines for Volcker Rule Violations
The adoption by five federal agencies of the Volcker Rule aimed at keeping banks from engaging in proprietary trading, is – to borrow a quote from Winston Churchill – the end of the beginning.

In God We Trust: All Others Bring Data
Dr. John Bates – Wall Street & Technology
“In God we trust, all others bring data.” These are the words of William Edwards Deming — a renowned American statistician, professor, author, lecturer and consultant. In Japan, from 1950 onward he taught top business managers how to improve many aspects of their business through the application of statistical methods. Deming’s statistical, data-based methodologies are a familiar concept in this day and age, so one would think they apply to foreign-exchange benchmarks and rates as well.

JP Morgan bans multi-dealer online chat rooms: source
JP Morgan Chase, the biggest U.S. bank by assets, is banning the use of multi-dealer online chat rooms and the use of such chat rooms among staff for social purposes, a person familiar with the matter told Reuters on Tuesday.

Three Charged in Libor Plead Not Guilty
Three men whom British prosecutors have charged with crimes related to alleged interest-rate manipulation entered “not guilty” pleas at a London court hearing Tuesday, kicking off what is likely to be more than a year of legal maneuvering leading up to a trial.

JPMorgan blocked probe in Madoff case: government official
A U.S. Treasury Department watchdog tried to examine whether JPMorgan Chase & Co interfered with a regulatory probe into its relationship with convicted felon Bernard Madoff but the largest U.S. bank was able to nip the inquiry in the bud, a government official said on Monday.

Time for the financial crisis truth and reconciliation commission
William Wright – Financial News
A few billion dollars here, a few billion euros there, and pretty soon you’re talking serious money. As the fines and regulatory settlements for big banks head towards hundreds of billions of dollars, it prompts the question posed by the chief counsel at JP Morgan Chase: “At what point does this stop?”


Volcker Rule Shows Its Wide Reach
Unforeseen consequences of the Volcker rule already are rippling into the furthest corners of the economy and financial markets.

CFTC Announces Sayee Srinivasan as the Acting Chief Economist
U.S. Commodity Futures Trading Commission (CFTC or Commission) Chairman Gary Gensler today announced that Sayee Srinivasan has been named Acting Chief Economist.

LEIs, A Regulatory Darling, Leave Firms In Search of Accuracy
Becca Lipman – Wall Street & Technology
Regulators are recognizing the importance of LEIs, but in the global and ever-changing market it’s difficult for companies to accurately manage scale and complexity of data sourcing.

Why Market Risk Systems Are Vital to Volcker Rule Compliance
Daniel Parker – Wall Street & Technology
The race is on to reconfigure or implement ongoing position management capabilities, specifically as it relates to extraneous agency positions, writes Daniel Park of SunGard’s capital market business in the second part of his series on the Volcker Rule.

Reporting and Recordkeeping Under the Volcker Rule
George Bollenbacher – TabbFORUM
The Volcker Rule’s reporting and recordkeeping requirement begins June 30, 2014, for banks with more than $50 billion in trading assets. Here’s a look at the nine metrics for which banks will need to track and store data to determine the market-making exemption.

New Zealand’s Financial Markets Authority Guidance Helps Consumers Access Financial Advice

Exchanges & Trading Facilities

Nasdaq fails to win dismissal of Facebook IPO lawsuit
A federal judge has rejected Nasdaq OMX Group Inc’s bid to dismiss lawsuits by investors who accused the exchange operator of botching Facebook Inc’s $16 billion initial public offering, a decision released on Monday shows.

Nasdaq OMX Treasuries dark pool will revitalise bond trading
Elliott Holley – Banking Technology
Electronic fixed income trading, one of the last major asset classes traded by humans, could take a big step forward when a new Nasdaq OMX dark pool trading venue goes live next year.

Aquis Exchange Expands Client Sales Team – Appoints Graham Dick To Head Team, Leila Mayet Joins From Nasdaq OMX

CBOE, C2, CBSX and CFE Trading Schedule for the Christmas and New Year’s Holidays

November 2013 FIF Market Share And Market Dynamics Reports – Executive Summary

Hedge Funds & Managed Futures

All equity funds nab $20.1 bln in November, best Nov on record -Lipper
All equity funds excluding exchange-traded funds attracted $20.1 billion in November alone, marking their best November on record, data from Thomson Reuters’ Lipper Service showed on Monday.

Small cap funds rake in the cash in 2013
Joe McGrath – Financial News
Flows into small-cap funds sold in Europe stand at the highest level on record in 2013, as investors allocated less to developed market large-cap funds while seeking alternative ways to maintain equity risk outside of emerging markets.

Invensys drops BlackRock fund of hedge funds
Mark Cobley – Financial News
The £4.8 billion Invensys Pension Scheme has dropped BlackRock from managing a £200 million fund of hedge funds mandate — the latest large pension fund to turn away from this method of investing — and is putting the money into credit instead.

Blackstone India to Get New Chiefs
Shefali Anand – MoneyBeat – WSJ
Blackstone Group on Monday rejiggered the top management for its India unit, announcing that India Chairman Akhil Gupta would step down from his role.

CVC Raises Initial $2 Billion for Fourth Asia Fund
European private equity shop CVC Capital Partners had an initial close for its fourth Asian fund this week, raising $2 billion from investors for what should ultimately end up being a $3.5 billion fund, people familiar with the matter said.

Apollo Would Support More Regulation for PE-Backed Insurers
Leslie Scism – MoneyBeat – WSJ
Executives of private-equity giant Apollo Global Management LLC told state insurance commissioners in a meeting here that they support more regulation and disclosure from life insurers that are backed by investment firms -— as long as any extra oversight is applied equally across the industry.

K.K.R. to Buy Debt-Trading Affiliate for $2.6 Billion
Kohlberg Kravis Roberts said on Monday that it planned to buy a publicly traded credit investment affiliate for about $2.6 billion as it seeks to simplify its corporate structure while expanding its balance sheet.

Vanguard set to capture fund flows crown for third straight year
Vanguard Group, the top U.S. mutual fund company, is poised to capture the most fund flows for a third straight year, according to Morningstar Inc.

Quant losses mount at Cantab
Harriet Agnew – Financial News
Cantab Capital Partners’ flagship computer-driven hedge fund fell 8.35% in the first two weeks of December, adding to big losses suffered by the fund earlier this year, according to a weekly estimate sent to investors.

HFT Specialist NanoSpeed Hires Michael Villain For Global Business Development
NanoSpeed, the provider of ultra-fast FPGA solutions to the trading community, has today announced that Michael Villain is joining the company as the global head of business development. Villain brings a great deal of industry experience and knowledge of the highly competitive HFT and low-latency sectors of global trading.

ADM Boosts Dividend 26%, to Buy Back 18 Million Shares
Archer Daniels Midland Co. raised its dividend by 26%, just after the U.S. grain trader and processor was blocked from a $2.7 billion deal for GrainCorp Ltd.

Banks & Brokers

J.P. Morgan Puts Asia-Based Investment Business on the Block
Dan Fitzpatrick – MoneyBeat – WSJ
J.P. Morgan Chase & Co. is looking to sell a unit that invests in midsized companies as it sheds a number of assets it considers nonessential, said a person close to the bank.

Too Big to Fail? Banks Live Up to Their Name
Steven Russolillo – MoneyBeat – WSJ
The largest U.S. financial institutions may still be considered too big to fail. But in credit markets, far less thought is given to the risk of them actually failing.

Former Barclays Boss Diamond Launches Acquisition Firm
Atlas Mara Co-Nvest Ltd., an Africa-focused acquisition firm created by former Barclays boss Bob Diamond, said it has raised $325 million and will start conditional dealings on the London Stock Exchange at 0800 GMT Tuesday.

Investors Clamor For Spanish Banking Assets
Jeannette Neumann –
Big-money visitors have been turning up lately in remote, windswept Galicia, a Spanish region known better for its signature octopus dish and striking seaside than for its international investment appeal. The attraction: Galicia’s largest bank, NCG Banco SA, is on the auction block in the hottest bidding battle since the bailout of the Spanish banking system last year.

It was a big year for: the investment bankers
Matt Turner and Richard Partington – Financial News
At the beginning of the year, FN identified four banking execs with a challenge ahead. Here’s how they fared.

First woman Lloyd’s of London chief pledges diversity drive
Alistair Gray and Lina Saigol –
The first woman chief executive of Lloyd’s of London has pledged to become a champion of diversity at the 325-year-old City institution as UK insurers try to address a dearth of women in senior positions.

New Basel study confirms variations in how banks tot up risks
Global banking regulators have reinforced their campaign to impose more consistent ways for banks to assess risks on their trading books with a second finding of wide variations between systems in use in the sector.

Clearing & Settlement

HKEx and LME announce formation of LME Clear Board
Hong Kong Exchanges and Clearing Limited (HKEx) and the London Metal Exchange (LME) are pleased to announce the formation of the Board of LME Clear, the LME’s self-clearing platform currently in development. LME Clear is on track to launch, as planned, on 22 September 2014.

LCH.Clearnet Launches Clearing for 187 Single-Name Credit Default Swaps
LCH.Clearnet SA has expanded its credit default swap clearing (CDS) service, CDSClear, to offer single-name CDS clearing. The expansion provides the broadest European CDS portfolio coverage of any clearing house globally. European members and clients can benefit from significant capital efficiencies through risk offsets between 187 single-names and existing index products through Monte Carlo Simulation VaR based portfolio margining.

ECC To Introduce Trade Reporting Services
In the future, European Commodity Clearing (ECC) will also offer reporting of transaction data – so-called Trade Reporting – in the framework of EMIR (European Market Infrastructure Regulation).

Australia dealers face Sef time zone issues
Viren Vaghela –
Australian dealers are facing operational risk due to the potential for trades on swap execution facilities (Sefs) to be voided due to insufficient margin, failures which they will then not be notified of because of the time zone difference between Sydney and London where virtually all trades are currently cleared.

Keler Taps SIX for Settlement and Custody Services
Marina Daras – WatersTechnology
Swiss post-trade services provider SIX Securities Services has signed an agreement with Hungarian central securities depository (CSD) Keler to optimize Keler’s international settlement and custody capabilities.

Indexes & Products

BM&FBOVESPA Announces The 2nd Preview For Ibovespa And Other Indices, Valid From January To April 2014


IEX Utilizes Redline Trading’s Ultra-Low Latency Ticker Plant for Market Data
Ivy Schmerken – Wall Street & Technology
New trading venue IEX firms relies on Redline’s high speed software solution to calculate the national best bid and offer (NBBO) in stocks, providing high reliability and speed.

Exegy Grows FX Coverage with Bloomberg, Currenex, Gain Feed Handlers
Max Bowie – WatersTechnology
St. Louis, MO-based low-latency feed handler and data platform appliance vendor Exegy has rolled out new feed handlers for foreign exchange trading platforms Bloomberg Tradebook, Currenex ITCH and Gain GTX within its Exegy Ticker Plant to expand its existing base among FX trading clients, in response to increased demand for low-latency data technology in the FX markets.

FIX Trading Community Restructures And Gets Ready To Celebrate 20 Years In 2014
FIX Trading Community, the non-profit industry-driven standards body at the heart of global financial trading, is proud to announce a number of organisational changes.

RTS Realtime Systems Introduces Connectivity to Eris Exchange
Eris Exchange
RTS Realtime Systems Group, a leading global trading solutions provider, and Eris Exchange, a U.S.-based futures exchange offering capital-efficient Eris interest rate swap futures, today announced that RTS clients can now enjoy direct connectivity to the Eris SwapBook electronic trading platform through the full range of RTS trading solutions.


NFA takes emergency enforcement action against Illinois firm Novo Trading LLC and one of its principals, Thomas Henry O’Connell Jr.
National Futures Association (NFA) announced today that it has taken an emergency enforcement action against Novo Trading LLC, an NFA Member commodity trading advisor (CTA) located in Oak Park, Illinois, and Thomas Henry O’Connell Jr., a principal and associated person (AP) of Novo.

FINRA Fines COR Clearing LLC $1 Million for Extensive Regulatory Failures
The Financial Industry Regulatory Authority (FINRA) announced today that it has fined COR Clearing LLC (formerly Legent Clearing LLC), of Omaha, Nebraska, $1 million for numerous failures to comply with anti-money laundering (AML), financial reporting and supervisory obligations.

SEC Charges Perpetrators of Prime Bank Schemes in Las Vegas and Switzerland
The Securities and Exchange Commission today announced fraud charges against a company named with an acronym for “Make A Lot Of Money” that is behind a pair of advance fee schemes guaranteeing astronomical returns to investors in purported prime bank transactions and overseas debt instruments.

FCA bans four for ‘disgraceful’ failings in relation to occupational pension schemes
Three men have been banned from working in the financial services industry by the Financial Conduct Authority (FCA); and another has been banned from holding key positions. This follows a review of CBW Trustees Limited and CBW Pensions Forensics Limited (collectively CBW) by the Pension Regulator (TPR) which found serious flaws in CBW’s conduct.

NFA Regulatory Actions: Christopher C. Cady

Is the FCA psychotic?
Paul Murphy | FT Alphaville
More disciplinary action from the FCA, this time against an innocent individual who was innocent in the wrong way.

Tribunal bans former trader for lying to the FCA and the Tribunal
The Upper Tribunal (Tax and Chancery Chamber) has directed the Financial Conduct Authority (FCA) to ban former derivatives trader David John Hobbs from performing any role in regulated financial services.

Trial of Former SAC Trader Goes to a Federal Jury
The fate of a former top trader for the hedge fund SAC Capital Advisors will soon hinge on whether or not jurors believe the government’s star witness, a technology analyst who has pleaded guilty to insider trading.

S.E.C. Calls for Stiff Penalties Against Tourre
Four months after being found liable for defrauding investors in a soured mortgage deal, Fabrice Tourre now faces a stiff financial penalty for his actions.

ASIC: Macquarie Bank Limited Pays $175,000 Infringement Notice Penalty

Environmental & Energy

Study finds piece-by-piece approach to emissions policies can be effective
MIT News Office
Discussions on curbing climate change tend to focus on comprehensive, emissions-focused measures: a global cap-and-trade scheme aimed at controlling carbon, or a tax on all carbon emissions. But a new study by researchers at MIT finds that a “segmental” approach — involving separate targeting of energy choices and energy consumption through regulations or incentives — can play an important role in achieving emission reductions.

Pricing Carbon Not Just A Fad, Says CDP
Ecosystem Marketplace
Even in the absence of global regulation of greenhouse gas (GHG) emissions, dozens of international corporations are seeing the wisdom in setting an internal carbon price to help guide their business decisions, according to a new white paper by the CDP (formerly known as the Carbon Disclosure Project). Technology giant Microsoft, which charges its business units a carbon fee as part of its efforts to reduce its GHG emissions, has published a helpful how-to-guide for companies that want to follow in its footsteps.

EU Adopts Emergency Carbon Fix Law to Curb Permit Glut
The European Union adopted an emergency law change to alleviate a record glut of emission permits in the region’s carbon market and help prices recover from near all-time lows.


Bohai Commodity Exchange launches online yuan trading platform in Hong Kong
Enoch Yiu | South China Morning Post
Bohai Commodity Exchange, the only mainland exchange allowed to do cross-border yuan trading, launched a platform in Hong Kong on Monday – its first step in expanding internationally.

Singapore Exchange looks to China and derivatives for growth
Jake Maxwell Watts and Michelle Price – Financial News
Faced with lacklustre trading in Southeast Asian stocks, Singapore’s main trading platform is looking to resurrect its fortunes by turning to derivatives and China for growth.

China energy corruption probe widens
Jamil Anderlini in Beijing –
The chief accountant for China National Petroleum Corp has been “taken into custody to assist in an investigation” into high-level corruption, in an apparent widening of a probe into Asia’s largest energy company.

South Korean banks struggle to gain a foothold abroad
Song Jung-a in Seoul –
South Korean banks have every incentive to expand overseas: the government is supportive and domestic growth is stalling. Yet a decade into efforts to go global most Korean lenders remain far from their goal of becoming leading players in Asia.

SGX welcomes Wilton Resources to Catalist

HKEx: Employees’ Share Award Scheme

Hong Kong’s Securities and Futures Commission Bans Ivy Kiu Koon Yee For Life

Shenzhen Stock Exchange Market Bulletin 16 December, 2013 – Issue 28

Frontier Markets

DGCX Named Exchange Of The Year 2013 – DGCX EOS Trader Platform Also Wins ‘Best Technology Innovation’ Award
Dubai Gold and Commodities Exchange (DGCX) emerged as a big winner at the Futures & Options World International Awards held this week, picking up two major industry awards. DGCX was named the “Exchange of the Year 2013” in the Middle East and Africa and its EOS trader platform was recognized as the “Best Technology Innovation by an Exchange” in Asia, Australasia, Middle East and Africa.

Ethiopia: ECX to Launch Online Trade Operations
The Ethiopia Commodity Exchange (ECX) is making preparations to introduce online trading that enables market players to participate directly in trade wherever they are.

Nigeria funds switch to bonds as risk appetite wanes
After a bumper year for Nigerian stocks, investors are selling riskier assets and moving money into short-term debt due to uncertainty over government spending and the future leadership at the central bank.

John Lothian Newsletter

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Past JLN Newsletters

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When Americans Took to the Streets Over Inflation

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