John Lothian Newsletter: CFTC’s Scott O’Malia to Resign; Intercontinental Exchange starts hunt for interest rates chief; Euronext outlines bold futures plans

Jul 22, 2014

First Read

Gold in the Attic
Jeremie Bacon – Orc Group
Precious metals trading is a tough game. Gold prices are coming off of a six-week rally, following a mix of short covering and some new long positions as seen in the Commodities Futures Trading Commission data and some ETF inflows. While geopolitical nervousness, such as the Russia-Ukraine situation or the tensions between Israel and Hamas, has helped gold retain a bid, one thing missing is physical demand from Asian buyers. This has some of Orc’s clients, who are long-time gold traders, wary on how high gold can rally.

While gold trades today at around $1300 an ounce, I want to take you back to a time when you could invest in the metals markets with less than $500 in your pockets.

As a kid, I had certain needs that my parents wouldn’t foot the bill for; stuff like Nintendo games, Topps baseball cards, and Big League Chew bubblegum. So, at the age of 10, I got my first job delivering newspapers to earn the scratch I’d need to buy the superfluous things I wanted. I have wonderful memories of throwing my double pouch canvas newspaper bag over my shoulders, hopping on my super rad BMX bike and zooming around the neighborhood flinging newspapers this way and that. My favorite part of the job though was collection day at the end of the month. I’d put on my best acid-washed jeans and IZOD polo shirt (with the collar up, of course), and use half a can of my mom’s AquaNet hairspray to style my hair like Sylvester Stallone did at the time before setting out to fill my pockets with cold hard cash.

In addition to having money to buy a bunch of cool junk, the great thing about having cash as a kid is that it afforded me the opportunity to start saving and investing at an early age. After I’d saved up a few hundred dollars I went to my father and asked him what I should do with all the extra money I was making. He recommended that in addition to saving some cash at the bank, I begin investing a portion of my new found wealth into gold and silver coins. So, heeding my father’s sage investing advice, I started buying coins from a mail order catalog company in 1985 when they were trading somewhere around $350 and $6.25 per ounce respectively.

As my collection of precious metals began to grow, I became increasingly uncomfortable with the security measures I had in place to protect it: an Air Jordan shoe box covered in duct tape and Garbage Pail Kids stickers. Naturally, I determined the best way to protect my coins was to hide them one by one somewhere safe and draw up a treasure map to ensure I wouldn’t forget their whereabouts. After a day or two of noodling on this idea, I decided to scatter them under the insulation in the attic of our house in Colorado. I was meticulous in both the placement of each shiny coin and the creation of the treasure map that I would someday use to unearth my personal fortune.

Too bad I apparently couldn’t be bothered to remember where I put the darn map! Try as I might, I was never able to find all the coins I’d stashed up there. Bad trade for me, great trade for the insulation installation guy who probably found them years after we’d moved away from that house!


World Of Opportunity Chicago 2014: Ben Van Vliet (Promo)
Our MarketsWiki World of Opportunity Summer Intern Education Series in Chicago is quickly approaching. Chris Hehmeyer, CEO HTG Capital Partners, will be discussing the future of pricing, and how it will be more accessible to the public. For more information on the event and how to register, click here.

Watch the video »


Tech Beat: The new Markits
Philip Stafford – Financial Times
Market infrastructure providers are providing venture capital to start-ups as senior banking executives accept a radical approach to technology may be the only way to survive in their present form. A triple whammy of tougher regulation, low volumes and ever-rising fixed costs are forcing senior executives in banks to accept substantial change, potentially opening the capital markets to changes from which it has hitherto been immune.

***JB: Kudos to our friends at the CME and Deutsche Börse for their venture initiatives


Doing Due Diligence in the Dark
Streetwise Professor
Scott Patterson, WSJ reporter and the author of Dark Pools, has a piece in today’s journal about the Barclays LX story. He finds, lo and behold, that several users of the pool had determined that they were getting poor executions. This relates directly to a point that I made in my post on the Barclays story. Trading is an experience good. Dark pool customers can evaluate the quality of their executions. […] Regardless of what a dark pool operator says about what it is doing, the proof of the pudding is in the trading, as it were.

***JB: I’ll take a little chocolate pudding, please


Why financial regulators should be ‘more like morticians, not ER doctors’
Mark Holan – Washington Business Journal
Who says federal financial regulators are stuffy and boring? In a panel discussion Wednesday marking the fourth anniversary of Dodd-Frank Act, Daniel Gallagher, a commissioner on the U.S. Securities and Exchange Commission, offered some colorful characterizations of the regulatory environment.

***JB: Dodd-Frank (also known by it’s full title, The Legal and Compliance Officer Full Employment Act of 2010)


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J.P. Morgan Forms New Electronic-Trading Team
Emily Glazer – WSJ
J.P. Morgan Chase & Co. is forming a group of about 150 employees to help clients and its own traders make better decisions, according to a memo reviewed by The Wall Street Journal and people familiar with the matter. The new team will monitor trades across asset classes and electronic platforms, look for opportunities and identify threats to the bank’s market share, the people said.


LME Fines Nine Dealers…For Standing Up
Francesca Freeman – MoneyBeat – WSJ
When the London Metal Exchange decided in June to keep its open-outcry trading floor it said there was overwhelming support from users of the exchange. But retaining face-to-face dealing also means keeping within the somewhat arcane rules that come with it. And so it is that nine dealers have been fined by the exchange for the seemingly innocuous crime of standing up.

***JM: “A further 20 points from Gryffindor, Mr. Glencross. I trust that NOW you remember how to sit… or shall I disqualify you from Quidditch as well?” Holy cow, the stuff we let others do to us…


Lead Stories

CFTC’s Scott O’Malia to Resign From U.S. Swaps Regulator
Silla Brush – Bloomberg
Scott O’Malia, a Republican who used his position on the Commodity Futures Trading Commission to criticize some of the agency’s efforts to rein in the $700 trillion global swaps market, said he will resign next month. O’Malia, 46, the longest-serving member of the current CFTC panel, will step down effective Aug. 8 after more than four years at the agency, he said in a letter released today.

***JB: Will be interesting to see where he ends up.

Allston appoints former CFTC Commissioner Jill Sommers to Board
Automated Trader
Allston Holdings has announced the appointment of Jill E. Sommers, former Commissioner of the Commodity Futures Trading Commission (CFTC), to its Board of Managers. Sommers stepped down from the U.S. derivatives regulatory agency last year.

***JB: Congrats Jill!

Intercontinental Exchange starts hunt for interest rates chief
Philip Stafford – Financial Times
Intercontinental Exchange is preparing to deepen its push into off-exchange derivatives markets in Europe, beginning with the search for a head of its interest rates business. The US derivatives operator has appointed Heidrick & Struggles to lead the search, according to three people familiar with the talks.

Euronext outlines bold futures plans
Luke Jeffs – Futures & Options World
Euronext may have been unceremoniously dumped by the IntercontinentalExchange last month when the US energy giant floated the firm but the mood at Europe’s oldest new exchange is bullish and its focus is derivatives. The group comprising the Paris, Amsterdam, Brussels and Lisbon stock exchanges listed in Paris one month ago at EUR20 a share, traded down slightly on debut and is still there now, with shares trading around EUR18.70 at the time of writing.

Barclays’ ‘dark pool’ volumes drop in wake of lawsuit, data shows
Volume in Barclays Plc’s private U.S. trading venue, or “dark pool,” fell 79 percent in the week and a half after the New York attorney general accused the British bank of giving an unfair edge to high-speed traders, according to data released on Monday.

BNP case spurs calls for whistleblower incentives in banking
Henry Engler – Reuters
BNP Paribas SA’s $9 billion settlement with U.S. authorities, aided by internal whistleblowers, has spurred calls for federal banking regulators to protect and reward individuals who report wrongdoing by banks.

Saudi to Open Up $531 Billion Stock Market to Foreigners
Deema Almashabi, Zahra Hankir and Weiyi Lim – Bloomberg
Saudi Arabia will open up its stock market to foreign investors in the first half of 2015, providing greater access to the Arab world’s biggest exchange. The benchmark index surged to the highest level in six years.

Fund managers on alert over money market shake-up
Stephen Foley in New York and Gina Chon in Washington – Financial Times
Fund managers are jostling to keep hold of $900bn of assets that could be shaken loose by new US rules on money markets funds due to be unveiled this week.

**JB – That’s like 35% of MMF AUM… no wonder a few managers are considering legal action against the SEC

Market makers face an uncertain future
The Trade
Market makers play a crucial role in ensuring market liquidity by acting as both the buyer and the seller. Their role allows participants to trade markets more easily due to a larger pool of liquidity and with less of a transactional cost. Without market makers in place, the markets would be highly volatile while the cost of trading would also increase significantly.

China and Switzerland sign bilateral currency swap line
James Shotter in Zürich and Gabriel Wildau in London – Financial Times
The central banks of China and Switzerland have struck a bilateral currency swap agreement, a move that advances the international use of the renminbi and boosts Switzerland’s hopes of becoming a trading hub for the Chinese currency.

Credit Suisse latest bank to quit commodities trading
Joe Parsons – Futures & Options World
Credit Suisse has become the latest high-profile investment bank to quit commodities trading as part of a wider restructure of its investment banking division.

Istanbul Seeking Finance Hub Status Grapples With Delistings
Isobel Finkel and Constantine Courcoulas – Bloomberg
Turkish companies with small free floats are applying to delist from the stock exchange as the government says it’s switching to an emphasis on quality over quantity in its ambitions to make Istanbul a financial center.


Mark J. Flannery Named SEC Chief Economist and Director of Economic and Risk Analysis Division
The Securities and Exchange Commission today announced it has named Mark J. Flannery as its chief economist and director of its Division of Economic and Risk Analysis (DERA), which provides interdisciplinary analysis to help inform the Commission’s policymaking, rulemaking, enforcement, and examinations.

Barney Frank to Testify on Dodd-Frank on Wednesday
Victoria McGrane – MoneyBeat – WSJ
It’s rare that anyone gets too excited about a hearing on Wall Street regulation, but this Wednesday it might just be time to break out the popcorn. Barney Frank is back – and he’ll be taking on Republicans on the House Financial Services Committee to defend the four-year financial law that bears his name.

5 Ways Dodd-Frank Is Reshaping Wall Street
Four years after the Dodd-Frank law on financial regulation was signed, Wall Street’s big banks have reshaped themselves in fundamental ways. Banks are cutting some businesses, while bulking up defenses to help weather future crises. Here’s what five big Wall Street banks have done.

***JB: See comments from above… any regulation that encourages the creation of programs like, “Project Simplify and Improve” and leads to increases in “regulation and compliance staff by 33% from 2011” is good, right?

Nordea Markets: speedy trading book revamp “not safe”
Cecile Sourbes –
Regulators are pushing ahead too quickly with their ambitious review of trading book capital rules, making it difficult to assess the impact, warns Niels Kjaer, Nordea’s market risk chief.

Ercot ‘small fish’ rule criticised amid CFTC probe
Alexander Osipovich –
Amid consternation over the activities of GDF Suez Energy North America in the Texas power market and an investigation by the US Commodity Futures Trading Commission, some market participants are questioning the legal protection afforded to smaller generators.

BitBeat: Lawsky’s ‘Bitlicense’ Drawing Public Comments, Before the Public Comments
MoneyBeat – WSJ
Even before the public-comment period opens up for Benjamin Lawsky’s bitlicense proposal, public comments are indeed being made.

Statement From FIA President And CEO Walt Lukken On The Resignation Of CFTC Commissioner Scott O’Malia
“On behalf of FIA, I want to thank Commissioner O’Malia for his energy, enthusiasm and commitment to public service,” said FIA President and Chief Executive Officer Walt Lukken. “Scott was always willing to roll up his sleeves and dive into complex regulatory issues, and under his leadership the CFTC’s Technology Advisory Committee has developed into a remarkably effective forum for thoughtful discussion on the technological innovations that are transforming our industry.

FCA publishes results of thematic reviews into enhanced transfer values and SIPP operators

Exchanges & Trading Facilities

SIX Swiss Exchange: Q2 2014: Bonds Quarterly Statistics
Today, SIX Swiss Exchange published the latest edition of its Bonds Quarterly Statistics report[pdf]. In the second quarter 2014, turnover in the CHF bonds segment amounted to CHF 41.4 billion. This corresponds to an increase of 0.8% over the previous quarter. Compared to the same quarter in the previous year, the increase even amounts to 6.6%, despite a decline of transactions by -8.4% (to 124’614).

Bucharest Stock Exchange Launches Its First Guide For Non-Resident Investors

TSX Markets Top 20 Largest Consolidated Short Position Report – July 15, 2014

Hedge Funds & Managed Futures

Allianz Backs ‘Legend’ Gross as Pimco Fund Lags Behind
Oliver Suess – Bloomberg
Allianz SE (ALV), Europe’s biggest insurer and owner of Pacific Investment Management Co., is standing by Chief Investment Officer Bill Gross as his main fund trails peers and struggles with a record streak of investor redemptions, calling him an industry “legend”

Newedge: CTA Performance Moves Back Into Positive Territory For 2014 YTD
All managed futures indices calculated by Newedge showed positive returns for the month of June: Trend followers lead with +1.25%; the Newedge CTA index is back to positive territory YTD returning +1.06%, rising +0.48% in the month of June.

Hedge fund exit requests drop to six-month low in July
Investor demand to pull money out from hedge funds dropped to a six-month low in July, following portfolio adjustments during the previous month, data released on Monday showed.

Cash Crops With Dividends: Financiers Transforming Strawberries Into Securities
His boots were caked with mud when Thomas S. T. Gimbel, a longtime hedge fund executive, slipped in a strawberry patch. It was the plumpness of a strawberry that had distracted him. Mr. Gimbel, who once headed the hedge fund division of Credit Suisse, now spends more time discussing crop yields than stock or bond yields.

Senate Inquiry Faults Hedge Funds’ Tax Strategy
A Senate investigation has found that hedge funds — in particular, James H. Simons’ Renaissance Technologies — used complex financial structures to claim billions of dollars in tax savings.

Buy-side looking for independent help as FTT approaches
John Bakie – The Trade
Australian-based technology provider GBST Capital Markets has signed up its first investment bank for a financial transaction tax (FTT) processing service as more firms prepare for the introduction of new pan-European levies.

Good luck to the pensions guides – they’ll need it
Mark Cobley – Financial News
A “right to free and impartial guidance” on pensions will “empower savers”, the Chancellor announced on Monday. But the government, and the industry, will have its work cut out to deliver it.

Super funds return double-digit growth
Andrew Main – The Australian
VICTORIAN state public servants and Telstra employees have more reason than most this year to open their annual superannuation fund statements: their main industry funds scored a dead heat at the top of the performance charts for 2013-4 by returning 15.8 per cent.

Money Manager Foiled by Bad Bets
Rob Copeland – WSJ
A former Olympic fencer who was one of the few hedge-fund managers to predict the financial crisis is floundering in more placid markets. Balestra Capital Partners LP, founded by Wall Street veteran James Melcher, saw investors yank more than $600 million—or more than 60% of its assets—at the end of the second quarter

UK’s GBP16 billion pensions lifeboat sets out hiring plans
Mark Cobley – Financial News
The Pension Protection Fund, the UK government’s lifeboat fund for the pension schemes of bankrupt companies, is looking to double its investment team in the next few years following an expansion of its portfolio to GBP16.4 billion last year.

Banks & Brokers

Credit Suisse Posts Largest Loss Since 2008 After U.S. Fine
JENNY ANDERSON – Dealbook – NY Times
Credit Suisse on Tuesday posted a steep loss after reaching a settlement with the authorities in the United States in May for $2.6 billion and pleading guilty to helping Americans hide their money in Swiss accounts.

For Banks Near Cutoff, Bigger Isn’t Necessarily Better
Saabira Chaudhuri – WSJ
Most chief executives want their companies to grow. Joseph Ficalora isn’t so sure. Mr. Ficalora is CEO of New York Community Bancorp, a lender in Westbury, N.Y., with $47.6 billion in assets as of the end of the first quarter. The bank is projected to reach the $50 billion mark by the end of the year if it continues to expand at its current rate. But with that milestone will come myriad headaches.

RBC Hires Emerging Markets Strategist, Software Analyst
Alexandra Scaggs – MoneyBeat – WSJ
RBC Capital Markets has made two research hires in its New York office, a spokeswoman for the bank said.

Clearing & Settlement

Korea introduces CCP clearing of interest rate swaps
Simon Osborne – The Trade
Korea Exchange (KRX) has introduced mandatory clearing of Korean won-denominated interest rate swaps between financial investment companies. The KRX was authorised as a central counterparty (CCP) for the clearing of OTC derivatives in September 2013.

HKMA and SFC begin consultation on OTC reporting
Simon Osborne – The Trade
The Hong Kong Monetary Authority and the Securities and Futures Commission have started a one-month consultation on requirements relating to reporting and record keeping obligations under new global OTC derivatives rules.

Turquoise expands clearing choice for ETF trades
Anish Puaar – Financial News
Turquoise, the London Stock Exchange’s alternative equity market, will start offering a choice of clearing house for exchange-traded funds from Monday, joining rival Bats Chi-X Europe.

Clearstream Extends Collateral Reach By Linking To Deutsche Bank
Clearstream and Deutsche Bank have signed an agreement to develop a customised triparty collateral management solution that Deutsche Bank can offer to its customers. The cooperation will allow Clearstream to further increase its collateral under management (EUR 626.9 billion in June 2014) with additional Deutsche Bank liquidity; Deutsche Bank’s customers will be able to leverage the integrated suite of triparty collateral management services that Clearstream offers via its Global Liquidity Hub.

Indexes & Products

S&P Dow Jones Indices and the Mexican Stock Exchange Announce Agreement for Index Licensing, Distribution, and Management of BMV Indices
S&P Dow Jones Indices (S&P DJI), one of the world’s leading providers of financial market indices, today announced that it has reached an agreement in principle with the Mexican Stock Exchange (Bolsa Mexicana de Valores, BMV) to license all of the BMV indices including their flagship index, IPC (Indice de Precios y Cotizaciones) – the broadest indicator of the BMV’s overall performance.

Will you get burned by following the hot money in ETFs?
John Wasik – Reuters
All too often, I see investors heading in the wrong direction en masse. Occasionally, though, active investors may be heading in the right direction. A case in point has been the flow of money into certain exchange-traded funds in the first half of this year.

Singapore Fixed Income Indices (SFI) Weekly


So Much Data, So Little Time
Becca Lipman – Wall Street & Technology
In a microsecond economy, most data is only useful in the first few milliseconds, or to an extent, hours after it is created. But the way the industry is collecting data, or more accurately, hoarding it, you’d think its value lasts a lifetime.


Former Senior Executive Of Qualcomm Pleads Guilty To Insider Trading And Money Laundering
Jing Wang, 51, the former Executive Vice President and President of Global Business Operations for Qualcomm Inc., today pleaded guilty to insider trading in shares of Qualcomm and Atheros Communications Inc. Wang also pleaded guilty to laundering the proceeds of his insider trading using an offshore shell company.

FCA publishes Final Notice for Ian Hannam and confirms a financial penalty of £450,000
The Financial Conduct Authority (FCA) has today published a Final Notice for Ian Hannam stating that it has fined him £450,000.

Environmental & Energy

Margareta Wahlstrom: how to deliver a UN climate deal
Sophie Yeo, RTCC (Responding to Climate Change)
If this sounds like an unlikely concept, it’s because the deal in question is not the long-awaited, hotly debated Paris treaty, being overseen by Costa Rican diplomat Christiana Figueres.

How Salesforce, eBay and HP got smart on low-carbon power sourcing
Ryan Schuchard, GreenBiz
Between 2005 and 2010, electricity used by data centers worldwide increased by about 56 percent, and now represents about 1 percent to 1.5 percent of global electricity use.

***LB: Also in this story “They are working on two fronts: developing technology partnerships and putting new renewable energy projects in the ground, and working with policymakers to ensure that they can source low-carbon power on a large scale.”

South Korea’s Doosan buys U.S. fuel cell maker ClearEdge for $32.4 million
Doosan Co Ltd said on Monday it will acquire the assets and operating debt of U.S.-based ClearEdge Power, a fuel cell manufacturer for buildings, for $32.4 million.


HKEx Announces Senior Executive Changes
Hong Kong Exchanges and Clearing Limited (HKEx) has appointed Roger Lee to head its new Market Operations group, reporting to Romnesh Lamba, Co-Head of Global Markets.

SGX opens Liaison Office in India
Singapore Exchange (SGX) announced that, following approval from the Reserve Bank of India, its Liaison Office in India has commenced operations with Neena Prasad as its Chief Representative.

Thai Bourse Announces Promotion Of Four Executives
The Stock Exchange of Thailand (SET) announces the promotion of four key executives to recognize their contributions to SET collective success and synergize to drive SET’s business expansion, initiating excellent products and services for investors and stakeholders.

China treasury operations face location conundrum
Paul Golden – Euromoney Magazine
Treasurers and banks are divided on the extent to which financial-system liberalization in China has made it possible, or desirable, for multinationals to manage China treasury functions from elsewhere in Asia.

Monetary Authority Of Singapore Proposes Stronger Safeguards For Investors
The Monetary Authority of Singapore (MAS) today released a consultation paper on proposals to enhance its regulatory framework for safeguarding investors’ interests.

SGX Welcomes Spackman Entertainment Group To Catalist

Frontier Markets

Zimbabwe stock exchange demutualises, paves way for listing
The Zimbabwe Stock Exchange (ZSE) has been transformed into a company from a mutual society, opening the way for a public listing on the bourse it operates, finance minister Patrick Chinamasa said on Monday.

Bahrain Bourse Goes Live With Its Upgraded Trading Engine Powered by NASDAQ OMX
Bahrain Bourse and NASDAQ OMX Group, Inc., today announced that Bahrain Bourse has gone live with their new trading engine, powered by NASDAQ OMX’s X-stream trading platform. The project went live on Monday, July 14, providing Bahrain Bourse with the world’s most widely deployed, multi-asset trading platform.

Cote d’Ivoire’s return to Eurobond market prices within Kenya
Kanika Saigal – Euromoney Magazine
Cote d’Ivoire’s return to the Eurobond market with a $750 million deal, three years after default, saw huge demand and priced within Kenya’s debut issue just a month ago.

African Central Bank Data Now Available From African Financial And Economic Data Service
Exchange Data International (EDI), a global provider of specialised financial information to market participants, announces the enhancement of its online African Financial and Economic Data service – AFED. The Service now includes African Central Bank economic data reported directly from source.

EGX Cancels Some Precautionary Measures
In accordance to the developments taking place in the Egyptian stock market, market stability and trading rates returning to its normal levels, the Egyptian Stock Exchange (EGX) decided (after coordinating with EFSA) to cancel some precautionary measures that were adopted after the revolution of January 2011.

Thomson Reuters Calculates Benchmarks For Three Of Africa’s Most Dynamic Economies

Bursa Malaysia Introduces New Guide For Independent Advisers

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