John Lothian Newsletter: Citigroup, ETrade Said to Be Breached by JPM Hackers; Wall St. watchdog to shut penny-stock market, boost OTC oversight; Investors warn on crisis plan for derivatives

Oct 9, 2014

First Read

Donald Wilson, CEO of DRW Trading Group – Reminiscences (and Prognostications) of a Futures Operator

“My focus was on combining the disciplines of trading and risk management with quantitative research and computer science.”

Donald Wilson, CEO of DRW Trading Group, gives his story of how he found his way into the financial industry, starting with his realization that he enjoyed mathematics and then discovering how to connect it with trading currency futures. Having no connections to the financial industry, Wilson was persistent in sending his resume out to firms until finally landing a job where he started by observing traders on the trading floor. Wilson also discusses DRW Trading Group, giving a brief history of the firm and its growth throughout the years, as well as giving insight on what he thinks the future holds for the financial industry. While regulatory change may seem to have created a burden on the industry, Wilson believes that there are still plenty of opportunities that can be created from new rule changes.

Watch the video »


A Late Entry into our London Event
The John Lothian News team heads to London in a few days to host our World of Opportunity events. We just received word from our sponsor, CME Group, that Hugh Vyvyan, who plays lock for the Saracens rugby team, will be kicking off the final session on Wednesday. He will talk about his illustrious career, and, more importantly, he will talk about Saracens’ program that helps its players prepare for life after rugby. If you have a chance, check out this piece from last week’s OpenMarkets blog

Speaking of CME Group, we would like to take a moment to thank them for serving as Premiere Sponsor for the event. We appreciate not only their financial support for the series, but also the work they are doing in London to prepare for our arrival next week. We could not have pulled this off without the “boots on the ground” over there.


Death of Legendary CME Member, Maurie Schneider
Larry Schneider
Yesterday morning my father, Maurie Schneider, passed away, at home in Morton Grove. He was 86. His passion was trading and the Chicago Mercantile Exchange. He joined the Merc in 1949, following in the footsteps of his father, and up until six months ago, still came down to the trading floor every day, wearing a Retired Members badge. People will recall his custom-made trading coat decorated with pink pigs. I believe he was the oldest CME member in terms of both age and length-of-service.

During his career he was a member of the CME, CBOT and NYMEX and was president of two clearinghouse member firms, Araness Trading and M-S Commodities. He was an innovator in the use of the “hotline,” to broadcast trading floor activity direct to the branch offices; as well as in marketing direct to potential retail speculators. He helped pave the way for the managed futures industry with a case heard before the Supreme Court, establishing that discretionary commodity trading accounts are not investment contracts. The list of people he brought into the industry and tutored is too long to mention.

Details of his funeral (to be held Friday, October 10), can be found here


The Volcker Rule Has a People Problem
Mayra Rodriguez Valladares – American Banker
Until regulators finalized the Volcker Rule, domestic and foreign bank lobbies spent thousands of hours and millions of dollars lobbying against it. Even now, lobbies continue their push to soften the rule’s requirements. Ironically, all this lobbying has greatly contributed to the rule’s complexity, since even lobbyists who share a common goal often have differing demands. While lobbyists move from battling one regulation to another, they leave the daunting implementation of the Volcker Rule to risk managers, compliance officers and auditors, not to mention information technology professionals.

***DA: Second in an 8-part series. Also, Mayra published an introspective on risk weighted assets yesterday on John Lothian News. View it HERE


The New Frontier: Born Technology’s Haworth Says Price Now Matters in Technology and HFT
Today’s markets are often touted as “all about speed”, but that reach for low latency is only part of a successful strategy. Derek Haworth, president of Born Technology Solutions says that more firms are looking to cut costs on technology, such as exchange connectivity and order book solutions. For his clients, its about finding the balance between financial technology and expenses.

“What we’ve been seeing over the course of the past year, year and a half, is that people are moving toward what I would call smart latency,” Haworth said, “where there is an understanding that spending an extra $100,000 to shave off another 200 nano-seconds isn’t really commercially or economically feasible. So we’re seeing the pendulum swing a little away from the lowest latency trade.”

Watch the video »


T+2 – comment from Fidessa
Steve Grob
There’s no doubt that T+2 has put a huge strain on the industry as it is cutting the effective time to clear and settle by a third. That said, it’s simply too important a process to let it fail and so I doubt that we will hear any immediate horror stories. What we will see is a lot of late nights as operations departments struggle with the extra workload.

**JK: I thought T + 2 = 4.


CME plans to corner invoice spread trading, dealers claim
Peter Madigan –
CME Group has sparked outrage among dealers by discussing plans to launch invoice spread trading on its swap execution facility (Sef). Critics claim this would allow it to corner the market, after a rule tweak by the exchange in March this year effectively made it impossible to execute the trades at other venues. Invoice spreads pair up interest rate swaps with CME-listed US Treasury futures in a single package.

***DA: An exchange cornering its own market? That’s interesting.


Icap’s global head of futures next to leave
Luke Jeffs – Futures & Options World
Gary Pettit, the global head of financial futures and options at Icap, is set to become the most high-profile broker to leave the firm as the British group forges ahead with its plan to cut back its broking unit.


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content from:


Lead Stories

Citigroup, E*Trade Said to Be Breached by JPM Hackers
Michael Riley – Bloomberg
Citigroup Inc., E*Trade Financial Corp., Automatic Data Processing Inc. and Regions Financial Corp. were attacked by the same hackers that breached JPMorgan Chase & Co., according to a person familiar with the matter.

Wall St. watchdog to shut penny-stock market, boost OTC oversight
John McCrank – Reuters
Wall Street’s industry-funded watchdog plans to shutter its antiquated, quarter-century old trading system for penny stocks, while increasing its oversight of over-the-counter (OTC) securities traded elsewhere, according to a regulatory filing.

Investors warn on crisis plan for derivatives
Philip Stafford in London – Financial Times
Institutional investors and pension funds have warned they may resist a plan by the world’s biggest banks to rewrite their derivatives contracts as part of reforms aimed at preventing a failing institution from destabilising global markets.

Turf War Pushed CFTC to Embarrassing Amaranth Deal, Senators Say
Silla Brush – Bloomberg
The main U.S. derivatives regulator undermined a government probe into a trader’s alleged rigging of an energy market and imposed an embarrassing $750,000 fine to settle the case, three Democratic senators said in a letter.

SEC Delays Action on Wall Street Safeguards
Scott Patterson – WSJ
Regulators have delayed action on a proposal to require trading firms to put in place new testing and maintenance checks aimed at preventing market mishaps such as Nasdaq Stock Market’s fumbling of the Facebook Inc. public offering.

Geithner and Boies clash over AIG bailout
Gina Chon in Washington – Financial Times
Tim Geithner verbally sparred with the lawyer for former AIG chief executive Hank Greenberg on Wednesday, over whether excessive risk-taking by the insurer had led it to need a government bailout in the depths of the worst financial crisis since the Great Depression.

New York Fed Needed a Culture Change, Columbia Professor Says – Real Time Economics
Jon Hilsenrath – WSJ
In 2009, Columbia University professor David Beim was asked by the Federal Reserve Bank of New York to conduct a confidential study of its supervision of banks. He found a culture among the staffers which he believed left them too deferential to superiors and unwilling to take a stand on looming threats to the financial system.


CFTC’s Wetjen urges fix to commodity options problem
Alexander Osipovich –
A member of the US Commodity Futures Trading Commission (CFTC) has called for the agency to take action on an issue stemming from its Dodd-Frank Act regulations, which has bedevilled energy companies for the past two years.

Calling Time on ‘Swap ‘Til You Drop’ Derivatives Party
John Carney – WSJ
An impending change to the basic contract governing derivatives demonstrates how much power regulators have to reshape the financial system under Dodd-Frank—and their greater willingness to use it.

Tough Talk on Dodd-Frank Rules Misses Relevant Points
Jesse Eisinger – Dealbook – NY Times
In New York, threats can be punctuated with a mention of cement shoes or arson. In the nation’s capital, they come with a mention of committee hearings.

10 things on Esma’s agenda next year
Anna Irrera – Financial News
Europe’s financial watchdog has published its programme for the coming year in which it estimates it will need a 16% budget increase to keep up with the increasing workload.

Heightened Regulatory Scrutiny Makes Blackstone Halt Some Transaction Fees
The Blackstone Group, the private equity giant, has agreed to stop levying transaction fees for services that the firm didn’t actually render, a practice that officials at the Securities and Exchange Commission have criticized.

Expected Change in Derivatives Aims to Curb Damage From Bank Failure
Peter Eavis – Dealbook – NY Times
Six years ago, the $700 trillion derivatives market helped turn Lehman Brothers’ collapse into a full-blown global financial crisis. But this weekend, regulators and large banks expect to agree on a change to derivatives that is intended to contain the damage caused by the crash of a large bank, several people briefed on the negotiations said.

Industry concerned at prospect of full unbundling
The Trade
Regulators should beware the potential for disruption that full unbundling could cause, particularly to smaller firms, according to Markit’s Tom Conigliaro.

CFTC’s Global Markets Advisory Committee Releases Agenda for Upcoming Public Meeting

CFTC Staff Issues No-Action Letter for Singapore Exchange Derivatives Clearing Limited

Exchanges & Trading Facilities

New York Stock Exchange To Implement Surveillance Technology Developed By Scila
NYSE Regulation, a not-for-profit subsidiary of NYSE Group, has chosen to implement state-of-the-art market surveillance technology developed and powered by Scila in Stockholm for NYSE Group’s equities and options exchanges, including the New York Stock Exchange.

ISE Holdings Launches Cross Market Speed Bump
The International Securities Exchange Holdings, Inc. (ISE Holdings) today announced the launch of the Cross Market Speed Bump, which allows Market Makers to establish a common risk threshold across both ISE and ISE Gemini.

ICE Completes SuperDerivatives Acquisition
James Rundle – WatersTechnology
The IntercontinentalExchange (ICE) Group has completed its acquisition of SuperDerivatives, in an all-cash deal worth $350 million.

FESE: Search Secretary General
The Federation of European Securities Exchanges AISBL is seeking to recruit a Secretary General to lead its work in Brussels.

LME wins UK appeal over metals delivery
Thomas Hale and Neil Hume – Financial Times
The London Metal Exchange has won an appeal against a court ruling that stalled a key measure aimed at easing delivery backlogs at its global network of warehouses.

LME Will Start Warehouse Rule in February After U.K. Win
Agnieszka de Sousa – Bloomberg
The London Metal Exchange, the world’s biggest metals bourse, will introduce a rule aimed at cutting warehouse logjams in February after winning an appeal over a court ruling that blocked the change in the first place.

Aluminum Costs Seen Rising More Even After LME Wins Case
Agnieszka de Sousa and Laura Clarke – Bloomberg
A courtroom victory allowing the London Metal Exchange to ease backlogs of deliveries of aluminum may do little to reduce the cost of the metal used in everything from beer cans to auto parts.

EnterNext supports the EuropaBio 5th most innovative award and the ENTENTE-Life Sciences Investment Forum in Brussels

Hedge Funds & Managed Futures

Bacon toasts sizzling year in Europe
Vivek Ahuja – Financial News
The departure of star fund manager Greg Coffey from Moore Capital Management in late 2012 did not prevent profits at the hedge fund manager’s European arm from surging last year to their highest level since 2009.

CalPERS Selects GCM Grosvenor To Run $200 Million Private Equity Emerging Manager Fund-Of-Funds – New Commitment To Be Deployed Over Four Years Starting In 2014

‘Bill Gross effect’ sparks flows into BlackRock, Legg Mason -KBW
Jennifer Ablan – Reuters
BlackRock Inc, Legg Mason Inc, Federated Investors Inc and Janus Capital Group Inc could see “better” fixed-income flows if investors keep fleeing Pimco in the wake of the departure of Bill Gross, Keefe, Bruyette & Woods said in a note on Wednesday.

Old Mutual Wealth scraps drawdown fee and minimum investment charge
Anna Fedorova – Investment Week
Old Mutual Wealth is removing the annual pension drawdown fee and scrapping the current minimum charge on its platform in order to simplify its charging structure.

Odey storms back with 10% gain in September
Andrew Pearce – Financial News
Star hedge fund manager Crispin Odey’s flagship EUR1.9 billion European fund returned to form in September with its strongest monthly gain in three years.

Elevation Said to Tell Investors No New Fund Is Coming
Pui-Wing Tam and Sabrina Willmer – Bloomberg
Elevation Partners LP, a private-equity firm operated by Silicon Valley veterans and U2’s lead singer Bono, has decided not to raise a new fund.

The muppet market in numbers
Bryce Elder – Financial Times
For disappointment, dashed hopes, false dawns, broken promises, under-delivery and consistently dolorous failure, there’s little to match Aim. London’s junior market has proved time and again to be a money pit.

Banks & Brokers

Citigroup Plans I.P.O. for Its Subprime Lending Unit, OneMain Financial
Michael Corkery – Dealbook – NY Times
In a long-awaited move, Citigroup’s lending unit, OneMain Financial, is preparing for a $50 million initial public offering.

More Big-Bank CEOs Doubling Up Their Roles
Daniel Huang – MoneyBeat – WSJ
Bank of America Corp.’s announcement last week that chief executive Brian Moynihan will assume the chairmanship extends a trend among the nation’s biggest banks: having their top executive fill both roles.

Neonet sees block services as future for dark pools
Jon Watkins – The Trade
Agency broker Neonet will provide access to Turquoise’s Block Discovery service when the solution launches later this month, preparing itself for regulatory changes that will encourage more block trades.

Wall St. Traders Need Help in Bolstering Banks’ Returns
Antony Currie – Dealbook – NY Times
Wall Street’s fixed-income trading desks welcomed a rare return of volatility. It probably hasn’t been enough, though, to ensure decent profitability for Goldman Sachs, JPMorgan Chase and Morgan Stanley in the quarter that just ended. They would need to generate up to $12 billion of extra revenue among them trading bonds, foreign exchange and commodities to achieve a return on equity of 15 percent.

Banks Face Basel Clampdown on Risk-Model Variation
Boris Groendahl and Rebecca Christie – Bloomberg
Global regulators are preparing to narrow banks’ options for assessing credit risk in a bid to prevent the understatement of possible losses.

Clearing & Settlement

EMIR delay prompts BNY Mellon clearing exit
The Trade
The European Market Infrastructure Regulation (EMIR) has claimed its latest victim, BNY Mellon’s derivatives clearing business. The custodian bank announced it has decided to close its European exchange traded and OTC derivatives clearing unit as a result of the delay in mandatory central clearing.

Oslo Børs: Transition To The New Settlement Cycle Complete
Oslo Børs VPS is pleased to confirm that the transition from a settlement cycle of T+3 to T+2 is completed.

CFTC Swaps Report Update

Indexes & Products

Euronext To Refresh Product Offering By Listing 12 New ComStage ETFs
Euronext is pleased to announce that it is expanding its ETF offering by listing 12 new ComStage ETFs on the Lisbon market.


Innovation Is Job One At Fidelity Labs
Becca Lipman – Wall Street & Technology
Fidelity Labs has a long history of investing in technologies ahead of the business case. Sean Belka has taken up the mantle.

NY Fed: Capital Markets Must Be More Wary of Data Cyber Threats
Faye Kilburn – WatersTechnology
Capital markets firms must take more steps to protect sensitive information and market data from cyber-terrorists intent on stealing and reselling valuable data, including carefully guarding their internal data architectures and external providers, warned Roy Thetford, information security officer at the Federal Reserve Bank of New York

Portware to Offer S3’s Counterparty Intel Analytics Platform to Clients
Dan DeFrancesco – WatersTechnology
S3 announced its Basel III analytics solution, Blacklight, will be available for all Portware clients.


Barclays to pay $20 million to settle U.S. class action over Libor manipulation
Barclays Plc has agreed to pay nearly $20 million to resolve a U.S. class action lawsuit accusing the bank of manipulating the Libor benchmark interest rate, according to court papers filed Wednesday.

Federal Court Orders Florida Resident Richard Morello and His Florida Company, Vertical Integration Group LLC, to Pay over $2.5 Million in Monetary Sanctions for Engaging in Illegal, Off-Exchange Precious Metals Transactions

CFTC Settles Action against Friedberg Mercantile Group, Inc., a Registered Futures Commission Merchant, for Secured Amount Deficiency, Commingling of Customer Funds and Failure to Timely Report Secured Amount Deficiency

NY AG says Citi unit to return $16 mln overcharged fees to consumers
Citigroup Global Markets Inc (CGMI), a unit of Citigroup Inc, has agreed to reimburse about $16 million to more than 31,000 customers, who were overcharged for advisory fees, the New York Attorney General said.

UK’s Financial Conduct Authority: Two Former Directors Of Pritchard Stockbrokers Fined And Banned For Recklessly Failing To Protect Client Money

[AMF Canada] $226,500 fine for illegal practice and illegal distributions

Market Manipulation – AMF launches penal proceeding against Carol McKeown, Daniel Ryan and Downshire Capital inc.

Environmental & Energy

Ericsson CEO touts role of business in climate fight
Heather Clancy,
Amid the lead-up to last month’s Climate Week NYC, Ericsson CEO Hans Vestberg penned letters to hundreds of his Swedish telecommunications company’s top customers.

Rival corporate giants join forces to get millennials acting on climate change
David Levene, The Guardian
A coalition of otherwise rival global corporations announced on Tuesday they have jointly created a digital platform for young people to take action against climate change.

***LB: Also in this story “It sends a strong signal that large numbers of multinational companies are increasingly frustrated at the fossil fuel lobby’s stranglehold on the political process, and are prepared to become more involved in pressing for change.”

Warren Buffett’s Big Bet on Renewables in Nevada
Felicity Barringer, The New York Times
Roads often follow rivers, taking advantage of the level ground created by water.


Phillip Futures, one of the region’s top brokers for the trading of global Futures and Commodities, today announced that it has received the Futures & Options World (FOW) Award for Non-bank Futures Commission Merchant (FCM) of the Year.
(via email)

TOCOM Participates In FIA Expo 2014
TOCOM participates in FIA’s 30th Annual Futures & Options Expo (FIA Expo 2014), which is to take place from November 4 to November 6, 2014 at the Hilton Chicago in Chicago, the United States.

China landmark bond default heads towards bailout
Gabriel Wildau in Shanghai – Financial Times
A state-owned bad-loan bank has agreed to bail out China’s first domestic bond default, in a move that could reinforce the assumption that even risky credit enjoys an implicit government guarantee.

Global Funds Still Keen On Thailand During Roadshow In New York
“Thai Forum”, held by The Stock Exchange of Thailand (SET), Bank of America Merrill Lynch, and Phatra Securities pcl, has drawn great attention from global institutional investors in New York, United States after key government executives, including Finance Minister Sommai Phasee, provided a clear direction on Thailand’s economy and its promising outlook.

Monetary Authority Of Singapore: Precious Stones And Metals Dealers To Report Cash Transactions Above SGD 20,000

HKEx: Legal Proceedings Involving A Subsidiary

Taiwan Futures Exchange Monthly Newsletter- October 2014

Frontier Markets

MOVES-JP Morgan names Mesmari head of UAE investment banking coverage
JP Morgan Chase has appointed Majed al-Mesmari as its head of investment banking coverage for the United Arab Emirates, the U.S. bank said in a statement on Thursday.

Nepal Stock Exchange formally begins paperless trading
The Nepal Stock Exchange (Nepse) formally embraced the paperless system of stocks trading on Wednesday, with first transactions of the dematerialised shares of commercial banks.

Bahrain bourse preparing Islamic product range -CEO
Bernardo Vizcaino – Reuters
Bahrain’s stock exchange plans to launch a range of Islamic investment products, including a novel equity-based murabaha financing tool and Islamic real estate investment trusts (REITs), its chief executive told Reuters.


Slow down, make friends and have faith, panel tells top risk managers
Olesya Dmitracova –
Avoid being too busy, build strong relationships and don’t expect much praise – this was some of the advice on offer for chief risk officers (CROs) at the Insurance Risk Europe conference this week.

John Lothian Newsletter

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CEO, Trading Technologies

Past JLN Newsletters

When Americans Took to the Streets Over Inflation

When Americans Took to the Streets Over Inflation

First Read $42,376/$300,000 (14.1%) ++++ Hits & Takes John Lothian & JLN Staff CME Group and FTSE Russell are putting on a webinar TODAY at 11 a.m. ET titled, "Russell U.S. recon: Mitigating risk with derivatives." If you are invested in small cap stocks, you...

Gensler says SEC to review payment for order flow

Gensler says SEC to review payment for order flow

First Read $42,376/$300,000 (14.1%) ++++ Hits & Takes John Lothian & JLN Staff The new CME Group micro Treasury futures contracts are not the basis point futures I have suggested, but they are very close and maybe better. Certainly the micro name will enhance...

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