John Lothian Newsletter: China set to win Asia gold pricing race with new exchange; HFT Firm Latour to Pay $16 Million SEC Penalty; ISDA Delays Overhaul of $18 Trillion Credit Derivatives Market

Sep 18, 2014

First Read

Bits & Pieces
Jim Kharouf & Doug Ashburn, guest editors
John is on his way to the University of Missouri, (Mizzou for some of us), to visit his son Tim, the former boy scout now sophomore in college. Doug Ashburn and myself, along with Jon Matte – the true brains and brawn behind this newsletter, have the controls today.

Among the items worth noting in the Lothian world, we are prepping for our London speaker event, October 14 & 15. We have a great line-up of speakers and registration is free. Please pass the word on, and register your students, interns or young professionals HERE

After a several year absence, we will have a presence (of sorts) at the FIA Burgenstock conference next week as Doug and Nancy Ashburn will be stopping in Geneva in conjunction with their 25th anniversary celebration in Paris. If you would like to set up a meeting with Doug (Nancy will be at the spa), please email him at dougashburn@johnlothian.com

Doug’s last task before heading out is putting together a MarketsReformWiki summary of the CFTC’s long-awaited proposed rules on margin for uncleared swaps. Similar in nature to the rules proposed last week by the Fed and other prudential regulators, the CFTC sets out its view of how and when swap participants will exchange initial and variation margin.

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NYSE’s Bell-Ringing an Earful for Nasdaq With Alibaba Record IPO
Sam Mamudi and Leslie Picker – Bloomberg
When Alibaba rings the opening bell at the NYSE tomorrow, as planned, it will mark the biggest win yet in the exchange’s years-long campaign to lure initial offerings of technology and Internet companies. Once a bastion for industrial companies, NYSE last year beat rival Nasdaq OMX Group Inc. in technology listings for the first time, a trend continuing this year, according to data compiled by Bloomberg.
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**JK – A sure sign the market is set up for a drop is when a guy from China named Jack, launches an IPO named after a mythical Middle Eastern guy who had 40 friends who were thieves.

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The belated Michael Lewis effect?
Paul Murphy – Financial Times
The five and a half months since this book was published have not been an easy one for the high frequency trading community, certainly in the US… The SEC have been all over the HFT industry, threatening to fine/close/jail anything that moved.
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**JK – Latour Capital paid $16 million to the SEC for violating the net capital rule, and in doing so, is now in violation of the net capital rule.

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Insider Trader Mostly Unfazed by Co-Worker’s Insider Trading Arrest
Matt Levine – Bloomberg
Sometimes we like to talk about insider trading technique around here. This is the worst way to insider trade:
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**JK – How I love stupid insider trading, let me count the ways.

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Ethan Kahn, Principal, Wolverine Trading, LLC – Exploring ETF’s
JohnLothianNews.com

“It’s a very competitive market out there. Constantly innovating and constantly adapting is what makes opportunities occur.”

Ethan Kahn, principal at Wolverine Trading, gives an explanation of ETF’s and shows why the product has become popular over the years. Kahn discusses the differences between ETF’s and mutual funds, breaking down how much lower the costs of ETF’s are and how there is more buying and selling flexibility compared to mutual funds. Finally, Kahn explains the importance of innovation and adapting in the financial industry, telling his audience that constantly changing with the industry is key to staying competitive.

Watch the video »

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Block traders prefer the human touch
Philip Stafford in London, Jeremy Grant in Singapore and Josh Noble in Hong Kong – Financial Times
For all the headlines they generate, you could be forgiven for thinking computer “algos” had taken over equity markets. Not so. It is far from over for human traders.
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**JK – My kids love Legos, the most human block trading there is.

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R.J. O’Brien & Associates Appoints Paul Goodhew As Head Of Global Markets At R.J. O’Brien (UK) Limited Affiliate
R.J. O’Brien & Associates (RJO), the oldest and largest independent futures brokerage and clearing firm in the United States, announced the appointment of industry veteran Paul Goodhew, 45, as Senior Vice President and Head of Global Markets at its London-based R.J. O’Brien (UK) Limited affiliate. In that role, he will focus on expanding the operation’s institutional commodity brokerage business, including energy, as well as fixed income, rates and equity derivatives.
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Exchange Analytics Launches the First Customer Protection Rule Training Program for Futures Commission Merchants
Press release
Exchange Analytics Inc., the premier provider of training courses for the futures and derivatives industry, announces the launch of a web-based course for Futures Commission Merchants (FCMs). It is the first course available for satisfying the training requirement of the U.S. Commodities Futures Trading Commission’s (CFTC) new Customer Protection Rules, which took effect in January 2014.
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**JK: “Where have you been soldier?”
“Training, sir!”
“What kind of training?”
“First Customer Protection Rule Training, sir!” (Did I just ruin Stripes, the entire movie?… Yep, sorry.)

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Perseus Telecom Earns INC.500 2014 Ranking – Extends Thanks To Team, Customers And Partners
Perseus Telecom, an Irish company and leading provider of high-speed global connectivity, High Precision Time and Market-to-Market networks, announced today the company has been named in the 2014 INC.500 Fastest Growing Companies exclusive list of privately held companies.
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**JK – Congrats to Dr. Percy and his crew. I’m expecting space travel to Mars for all within the decade.

**DA: With Perseus, I would say time travel is more likely.

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MarketsWiki

MarketsWiki Page of the Day
Jeffrey M. Bandman
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MarketsWiki Recent Updates

People

Lynn Martin; George Hanley; Drew Shields; Jeffrey M. Bandman

Companies, Organizations and Groups

Infinium Capital Management, LLC; Liquidnet; SwapClear; Born Technology

Statistics

53,230,968 pages viewed, 8,039 articles, 185,996 edits
MarketsWiki Statistics

Lead Stories

China set to win Asia gold pricing race with new exchange
A. Ananthalakshmi – Reuters
China will launch a gold exchange open to foreign players for the first time on Thursday, putting the world’s top bullion buyer on track to win a race to set the benchmark price in Asia.
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High-Frequency Trading Firm Latour to Pay $16 Million SEC Penalty
Scott Patterson and Bradley Hope – WSJ
The Securities and Exchange Commission, in its first enforcement action against a high-frequency trading firm, charged a little-known but powerful New York company with violating rules meant to ensure trading firms don’t take excessive risk. The SEC said the firm, Latour Trading LLC, used faulty calculations in complex trading strategies that let it buy and sell stocks without holding enough capital.
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ISDA Delays Overhaul of $18 Trillion Credit Derivatives Market
Abigail Moses – Bloomberg
The International Swaps & Derivatives Association said it postponed the biggest overhaul to the $18 trillion credit derivatives market in more than a decade to give investors more time to prepare for the changes.
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CFTC Seeking Comment on Overseas Impact in Swap-Collateral Rules
Silla Brush – Bloomberg
The U.S. Commodity Futures Trading Commission has released revised collateral rules for swaps traded directly between banks, manufacturers and other firms while seeking comment on how to apply the regulations overseas.
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Justice Department Urges Banks to Implicate Employees
Ben Protess – Dealbook – NY Times
The Justice Department has a suggestion for banks hoping to avoid criminal charges: Rat out your employees.
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Why These London Bank Staff Aren’t Pulling an All-Nighter for Scotland
Josie Cox – MoneyBeat – WSJ
For the staunchest supporters of both the Yes and the No campaigns, Thursday might mark the most important day of the decade, if not the century. But 400 miles south of Edinburgh, the traders and strategists at the heart of London’s finance districts of Canary Wharf and the City say the Scottish referendum is more business-as-usual than historical juncture.
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Regulatory

ESMA on verge of submitting IRS clearing standards
Jon Watkins – The Trade
European regulators plan to publish and submit rules for the clearing of OTC interest rate derivatives products to the European Commission next week.
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Market manipulation won’t be stopped by Socrates or Spinoza
Vincent Kaminski – Risk.net
Despite all the headlines about market manipulation, business school ethics classes are not the answer, writes Vincent Kaminski. Instead, it must be emphasised that graduates have much to lose and little to gain from engaging in market abuse
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CFTC Approves Final Rule and Proposed Rule at its Open Meeting Today
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NFA Notice to Members I-14-22: FCM Filing Requirements — Risk Exposure Reports and CCO Annual Report
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NFA Notice to Members I-14-21: Reminder — NFA assessment fee reduction will become effective on October 1, 2014
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Opening Statement Of CFTC Chairman Timothy G. Massad, Open Meeting On Proposed Rule On Margin Requirements For Uncleared Swaps And Final Rule On Utility Special Entities
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Opening Statement Of CFTC Commissioner J. Christopher Giancarlo, Open Meeting On Proposed Rule On Margin Requirements For Uncleared Swaps And Final Rule On Utility Special Entities
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Statement Of CFTC Commissioner Mark P. Wetjen Before The Open Meeting Of The Commodity Futures Trading Commission
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Collaboration, Cooperation And Oversight, SECChair Mary Jo White, 2014 SRO Outreach Conference Washington, D.C., Sept. 17, 2014
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Whatever Happened To Promoting Small Business Capital Formation? – SEC Commissioner Daniel M. Gallagher Washington, D.C., Sept. 17, 2014
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Remarks by US Principal Deputy Assistant Attorney General For The Criminal Division Marshall L. Miller At The Global Investigation Review Program
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US Attorney General Holder Remarks On Financial Fraud Prosecutions At NYU School Of Law
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Exchanges & Trading Facilities

ASX plans stake in electronic market operator
Simon Osborne – The Trade
The Australian Securities Exchange (ASX) has announced that it has put forward an offer to buy a stake in Yieldbroker, a firm that operates electronic markets in trading Australian and New Zealand debt securities and interest rate derivatives.
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HKEx names new risk chief
Simon Osborne – The Trade
Hong Kong Exchanges and Clearing (HKEx) has appointed Ketan Patel to the new position of group risk officer.
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NYSE to provide operational updates for Alibaba IPO
Reuters
The New York Stock Exchange said on Wednesday it will hold an industry conference call to provide operational updates for the Alibaba Group Holding Ltd (BABA.N) initial public offering.
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LME Welcomes Paul Macgregor As Head Of Sales
The London Metal Exchange (LME) is pleased to announce the appointment of Paul MacGregor as Head of Sales.
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August 2014 FIF Market Share Report – Executive Summary
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August 2014 FIF Market Dynamics Report – Executive Summary
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FIF Capacity Statistics For August 2014: One New Record 1 Second Peak: MIAX-TOM
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Hedge Funds & Managed Futures

Vanguard European institutional head Vanstone dies
Julia Rampen – Investment Week
Vanguard’s head of European institutional business Simon Vanstone has died aged 53, the company has said.
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BlackRock, Goldman unconstrained bond funds double in assets
Jessica Toonkel – Reuters
Goldman Sachs and BlackRock Inc have seen their unconstrained bond funds double in size over the past 12 months as investors continue to search for yield in this low interest rate environment.
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Pimco’s head of emerging market equities Masha Gordon departs
Chris Vellacott and Jennifer Ablan – Reuters
Pimco’s London-based emerging market equities head Masha Gordon has left the giant U.S. asset management firm “to pursue other interests”, the company confirmed on Wednesday.
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Neptune profits tumble 40% in 2013 as headwinds impact global approach
Julia Rampen – Investment Week
Neptune Investment Management’s profits before tax fell by over 40% in 2013, against a backdrop of falling assets under management, after a difficult year for its global investment approach.
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Calpers Taps Insider Ted Eliopoulos as Chief Investment Officer
Dan Fitzpatrick – WSJ
The board of the largest U.S. public pension fund tapped Ted Eliopoulos as its permanent investment chief, ending a seven-month search in favor of a longtime insider.
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Calpers Shows Masters of Hedge-Fund Universe Have No Clothes — Heard on the Street
Justin Lahart – WSJ
The most surprising thing about the California Public Employees’ Retirement System’s announcement Monday that it will be exiting its $4 billion investment in hedge funds over the next year may not be the decision itself, but that it took so long. In the fiscal year that ended this June, the pension fund’s hedge-fund investments returned just 7.1%. That compares with a 12.5% return for the Vanguard Balanced Index Fund, which follows the allocation of 60% stocks, 40% bonds that pension funds have historically followed.
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The (obscene) cost of hedge funds [Update]
Dan McCrum – Financial Times
With back of envelope in hand, lets estimate what the world’s pension funds have paid its hedge fund managers, and what they got back in return.
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eVestment’s August 2014 Hedge Fund Asset Flows Report: CalPERS Decision Aside, Institutional Investors Still Keen On Hedge Funds
With the news this week that CalPERS is exiting hedge funds, eVestment’s latest August 2014 Hedge Fund Asset Flows Report shows continued increase in hedge fund assets, with a portion of that rise attributable to institutional investors.
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The High-Water Mark for Hedge Funds
Geoffrey Rogow – MoneyBeat – WSJ
For years, hedge funds have been on the receiving end of a mountain of criticism, blamed for everything from the credit crisis to the flash crash. But all the while, investors have ignored the criticism and poured money into the funds.
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Dirty Secret of $1 Trillion Loans Is When Do You Get Money Back
Lisa Abramowicz – Bloomberg
Imagine a trillion-dollar market that runs on faxes and phone calls while routinely tying up investors’ money for months before they get any return. That’s not fiction: It’s the unregulated market for leveraged corporate loans.
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Compliance director leaves Spire Europe
Philip Georgiadis – Financial News
Spire Europe’s director of compliance has left the high-frequency trading firm at a time when the industry is facing increased regulatory pressures.
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Banks & Brokers

State Street Asks Head of FX Spot Trading to Stay Away From Office
Chiara Albanese – WSJ
U.S. bank State Street Corp. has asked its London-based head of foreign-exchange spot trading to stay out of the office following an internal review of its foreign-exchange business, people familiar with the matter said Wednesday.
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Citigroup Embraces Derivatives Risk as Deals Surge After Crisis
Dakin Campbell – Bloomberg
Citigroup Inc. is diving deeper into derivatives. In the past five years, the firm that took the largest U.S. bank bailout of the financial crisis increased the total amount of derivatives on its books by 69 percent, surpassing most U.S. peers and closing the gap with the market leader, JPMorgan Chase & Co.
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Julius Baer CEO says any takeover of bank far off: Bloomberg
Reuters
The head of Julius Baer, a rumored takeover target for larger rival Credit Suisse, said any purchase of the Swiss private bank was unlikely for the foreseeable future, Bloomberg News reported.
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Brokers Countersue to Thwart Suits by Unhappy Investors
Susan Antilla – Dealbook – NY Times
Ron Vaerewyck was making his way through the convention floor at the annual World Money Show in Orlando, Fla., in February 2008 when he stopped by the booth for Reef Securities of Richardson, Tex.
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Ex-Currency Trader Braves Tumultuous Market
Jenny Anderson – Dealbook – NY Times
Two weeks ago, Charles-Henri Sabet, a 52-year-old former Swiss backgammon champion and longtime foreign exchange trader, took over as executive chairman of the London Capital Group, an online trading services firm that has struggled in recent years. He quickly turned to hiring senior executives.
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Clearing & Settlement

LME Clear gears up for Monday launch
Luke Jeffs – Futures & Options World
The London Metal Exchange has confirmed it will migrate clearing to its new LME Clear service this weekend, marking the final push in a forty month project to deliver on Monday the British exchange’s first clearing house.
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Bolsas y Mercados Españoles given green light for derivatives clearing
Walter Hemmens – Financial News
A subsidiary of the Spanish stock exchange has been granted approval by national and European Union watchdogs to begin clearing derivatives trades.
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Iosco outlines standards for uncleared swaps
Joe Parsons – Futures & Options World
The International Organisation of Securities Commissions (Iosco) has proposed in a report seven methods to standardise uncleared swaps trades between banks.
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CFTC Swaps Report Update
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Indexes & Products

Silver ETP Buyers Defy Hedge Fund Exit Amid Price Slump
Nicholas Larkin and Debarati Roy – Bloomberg
Buyers of exchange-traded products backed by silver are betting $11.9 billion that big speculators are wrong about the outlook for prices, which slumped last week to a 14-month low.
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Funds and ETFs magnify EM volatility
John Authers – Financial Times
Emerging equity markets are taking another lurch. The reasons are well rehearsed: angst about the future actions of the Federal Reserve occasionally prompts western investors to pull back their money in a hurry.
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Small ETFs stand to gain in first days after Alibaba IPO
Ashley Lau – Reuters
For a handful of U.S. exchange traded funds, Alibaba’s initial public offering has the potential to be a bonanza: they can make the Chinese e-commerce company available to investors in as little as a few days, unlike some of their larger rivals, which may need months.
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Technology

REDI Expands Boston Presence
REDI Holdings LLC (“REDI”), the independent, industry-backed provider of the REDIPlus execution management system (EMS), today announced the strengthening of its sales, account management and development capabilities in the New England region with the hiring of Sean Graham and Roseann Hoffman Woodford, two seasoned equity trading professionals, and Jeremy Warburg, a veteran buy-side software developer.
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SR Labs Names ex-NYSE Exec McIntyre European COO to Drive Wombat Growth
Faye Kilburn – WatersTechnology
New York-based low-latency data platform and feed handler provider SR Labs has appointed former NYSE exec Ian McIntyre as chief operating officer in Europe, to spearhead the rollout of new capabilities as part of ongoing changes to the vendor’s leadership team following its recent acquisition of the Wombat data platform business from Intercontinental Exchange’s NYSE Technologies division.
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Banks to Increase IT Spend on Big Data Challenges, Finds Aite Report
Becca Lipman – Wall Street & Technology
Big data has presented the greatest challenges and dissatisfaction for banks, yet it is the most likely to see upward spending in the next two years.
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FirstBPM Signs OEM Deal With Kx Systems To Deliver High Performance Data Analytics Platform
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Enforcement

SEC Charges N.Y.-Based High Frequency Trading Firm With Violating Net Capital Rule For Broker-Dealers
The Securities and Exchange Commission today charged a New York-based high frequency trading firm with violating the net capital rule that requires all broker-dealers to maintain minimum levels of net liquid assets or net capital. The firm’s former chief operating officer is charged with causing the extensive violations.
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Former Hedge Fund Manager in Bay Area Charged With Taking Excess Management Fees to Make Lavish Purchases
The Securities and Exchange Commission today announced charges against a former hedge fund manager accused of fraudulently taking excess management fees from the accounts of fund clients and using their money to remodel his multi-million dollar home and buy a Porsche.
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CFTC Orders Florida Resident Sean F. McCabe and His Company WorldPMX, Inc. to Pay Restitution and a Civil Monetary Penalty of More than $1.1 Million for Engaging in Illegal, Off-Exchange Precious Metals Transactions
The U.S. Commodity Futures Trading Commission (CFTC) today announced that it entered an Order filing and simultaneously settling charges against Sean F. McCabe, a resident of Sunny Isles, Florida, and his company, WorldPMX, Inc. (WorldPMX), for engaging in illegal, off-exchange precious metals transactions and for operating WorldPMX as an unregistered Futures Commission Merchant (FCM).
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Environmental & Energy

Scottish Independence Movement’s Wager on Energy Could Prove Risky
Stanley Reed, The New York Times
Scottish nationalists have long argued that being governed from London has deprived their country of its fair share of the wealth from Britain’s oil and natural gas fields, which mostly lie in North Sea waters off their shores.
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Scottish independence: Energy firm EDF notes ‘uncertainty’
David Miller, BBC News
The firm which operates Scotland’s two nuclear power plants has said there is ongoing uncertainty about the impact of independence on the power sector. http://jlne.ws/1qL1u0u

What Happens To Clean Energy Investments If Scotland Votes “Yes”?
Roy L Hales, ECOreport
It is only a matter of hours before the Scots vote on whether to become an independent country.
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Asia-Pacific

Minimum trading price set for change in Singapore
Simon Osborne – The Trade
Singapore Exchange (SGX) has commenced a public consultation on its plans regarding the minimum trading price requirement. The exchange is consulting the public on operational details of the proposed new rules.
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Use of euro-renminbi options surges
Josh Noble in Hong Kong – Financial Times
Rising renminbi trade settlement and a sliding euro are fuelling a surge in hedging between the two currencies both by multinationals and investors.
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Jefferies Joins SGX Derivatives Market
Singapore Exchange (SGX) is pleased to welcome Jefferies Singapore Ltd as a Clearing and Trading member to its derivatives market.
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HKEx: Stock Exchange Participants’ Market Share Report
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Frontier Markets

S&P says to move Greek, UAE, Qatar stocks to emerging indexes Sept 22
Reuters
S&P Dow Jones will move Greek stocks into its emerging indexes on Sept. 22 while formally removing Qatar and the UAE from frontier indexes and upgrading them to emerging markets, the company said on Monday.
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Argentina agrees draft energy law to boost foreign investment
Sarah Marsh – Reuters
Argentina’s federal government said on Wednesday it had reached a preliminary agreement with provinces to reform energy regulations and improve incentives to lure the foreign investors needed to develop its vast shale oil and gas reserves.
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South Africa joins sukuk bond rush
Elaine Moore, Andrew England and Robin Wigglesworth – Financial Times
South Africa has joined Hong Kong and the UK to become the third non-Muslim country to sell government debt that adheres to Islamic law.
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