John Lothian Newsletter: Clearer OCC agrees capital raising deal; US SEC's new investor watchdog lays out risky products for 2014; EU Retreats on Prop-Trading Ban

Dec 24, 2014

First Read

George J. Kharouf, 1933-2014

George Kharouf, father of our friend and colleague Jim Kharouf, died this past weekend in Milwaukee at the age of 81. A visitation will be held Friday, December 16, from 5-7 pm at Krause Funeral Home, 12401 W. National Ave., New Berlin, WI. For more details, click the link or contact John at Please keep Jim and his family in your thoughts and prayers this holiday season.

***** Thank you to all who have sent expressions of condolences, thoughts and prayers to Jim and his family during this difficult time. It means a lot to him and to us to have such support.


FINRA Warns Investors of E-Cigarette Stock Scams


The Financial Industry Regulatory Authority (FINRA) issued a new Investor Alert called E-Cigarette Stock Scams: New Smoking Technology Could Light Up Pump-and-Dump Fraud warning investors of aggressive promotions touting stocks that claim to capitalize on the e-cigarette and vaporizer, or “vape,” market. FINRA’s Alert follows the Securities and Exchange Commission’s recent trading suspension for a company that purported to make disposable electronic cigarettes because of concerns about manipulative activity related to the company’s common stock.

***** Don’t invest in things that can go up in smoke.


Cuba Shows That The Efficient Markets Hypothesis Is Wrong

Tim Worstall, Forbes

A standard part of the sort of free market, classically liberal, economics that I subscribe to is the efficient markets hypothesis. No, this doesn’t mean that markets are efficient, nor that markets are the efficient way of handling everything. Rather, that markets are efficient at processing the information about what prices should be in markets. And while I do still subscribe to the point it can be difficult at times, as this story about Cuba shows. No, not Cuba the place so much, as a fund with the stock ticker CUBA and the reaction to Obama’s recent announcement of the limited ligting on the ban on trade with or visiting Cuba.

***** I keep investing in CUBS.


US Bank Settles With CFTC In Suit Over Peregrine Debacle

By Stephanie Russell-Kraft, Law360

Law360, New York (December 19, 2014, 3:53 PM ET) — An Iowa federal judge on Friday agreed to dismiss a suit brought by the U.S. Commodity Futures Trading Commission against U.S. Bank NA after the two parties agreed to settle claims that the bank aided bankrupt Peregrine Financial Group Inc.’s former CEO in misappropriating $215 million in customer funds.

***** I can remember seeing Russell Wasendorf in line at US Bank.


Exclusive – U.S. airlines confront cheap oil’s flip side: costly hedges


Some major U.S. airlines including Delta and Southwest are rushing to finance losing bets on oil and revamp fuel hedges as tumbling crude prices leave them with billions of dollars in losses, according to people familiar with the hedging schemes.

***** Puts and Calls are the way to go.


Thirteen traits of a truly innovative organisation

Luke Johnson, FT

Culture matters when inventing but only a minority of companies are any good at it

The Holy Grail for most companies is innovation. Those that manage to successfully invent, and thus grow organically, are generally the most productive and highly valued of enterprises. So how do they do it?

***** I am a pushover for innovation.


On the Radio, It’s Been Sounding a Lot Like Christmas


Tune your radio dial to any station in Chicago this week, and there’s a very good chance you’ll hear Christmas music. With no less than six stations that have changed to holiday music this season, Chicago leads the radio industry in what has become the biggest year for the annual format. No less than 529 stations have gone all-holiday this year, an increase of 8.4 percent from last year and the largest number of such stations ever recorded, according to Inside Radio, a trade publication that tracks the holiday format.

***** If you want some nice Christmas music on the Internet, try Nothing like classical music and Christmas.


SEFCON Snapshot 2014, Part III: The New Market Structure

The WMBA Americas hosted SEFCON V on November 12, 2014, and John Lothian News was there. We interviewed 14 SEF operators, regulators and participants and put together this three part series on the state of SEFs one year into the mandate.

Part III looks at the new market structure brought about by the creation of SEFs and the regulations that guide them.

While many of the pieces are now in place, this structure is still taking shape, and in some cases, the rules have led to uncertainty and unintended consequences in the market structure.

A key aim of Dodd-Frank and other regulations was increased competition, but is a true “all-to-all” market possible? Is there a cost in terms of liquidity from these and other regulations? Is aggregation of separate liquidity pools a viable option?

Watch the video »



MarketsWiki Page of the Day


MarketsWiki Recent Updates


Catherine Alexander; Nickolas Notorangelo

Companies, Organizations and Groups

Chicago Board Options Exchange; Trading Technologies


FINRA; Options Regulatory Services Authority (ORSA)Spoofing


56,451,083 pages viewed, 8,119 articles, 187,729 edits

MarketsWiki Statistics

Lead Stories

Clearer OCC agrees capital raising deal

Philip Stafford, FT

The Options Clearing Corporation has struck a deal with its shareholders, the US exchanges that trade equity derivatives, over an increase to its capital base so the risk manager can meet tougher new regulations for clearing houses.

***DA: For the complete picture on what is happening at OCC, check out Sarah Rudolph’s interview with Craig Donohue

US SEC’s new investor watchdog lays out risky products for 2014

By Sarah N. Lynch,Reuters

The U.S. securities investor watchdog office on Tuesday unveiled its list of the top products and practices that bedeviled mom and pop investors in 2014.

U.S. retail brokers warn ‘tick size’ plan to boost investor costs

By John McCrank, Reuters

A plan by the U.S. Securities and Exchange Commission to widen the minimum trading increments of some small-cap stocks to test if that would spur more trading could end up harming mom-and-pop investors, retail brokerages said in letters to the regulator.

China unveils fresh support for outbound investment


China will simplify currency rules and step up credit support for firms investing overseas, the cabinet said on Wednesday,

Credit-Default Swaps Get Activist New Look; Focus Is on Distressed Companies

By Matt Wirz, Matt Jarzemsky And Tom McGinty

Hedge-fund managers are putting a new twist on credit-default swaps, using the contracts to fortify bets on troubled companies.

Capital Markets Currents: 3 Themes for the New Year

Sol Steinberg – TabbFORUM

The drive for efficiency, fundamental market shifts and ongoing debates over high-frequency trading, dark pools and other market structure issues will continue to transform the capital markets in 2015.

Trichet Sees G-7 Opportunity Window for Currency Accord: Economy

By Mark Deen and Simon Kennedy, Bloomberg

Former European Central Bank President Jean-Claude Trichet said there is a “window of opportunity” for the world’s advanced economies to strike a fresh accord against competitive devaluations.


EU Retreats on Prop-Trading Ban; Nations Back Separation


The European Union’s biggest banks may be spared a ban on proprietary trading, with a majority of the bloc’s member states preferring for such activities to be split off into separately capitalized units. A narrowly defined ban aimed at banks’ dedicated proprietary trading desks proposed this year by the European Commission, the EU’s executive arm, has failed to win support, according to a report prepared by Italy, which holds the EU’s rotating presidency.

***DA: No Volcker for you!

SEC Issues Annual Staff Reports on Credit Rating Agencies


The Securities and Exchange Commission today issued its annual staff report on the findings of examinations of credit rating agencies registered as nationally recognized statistical rating organizations (NRSROs). The agency also submitted an annual staff report on NRSROs to Congress.

CFTC Staff Extends Time-Limited No-Action Relief to Eurex Clearing and its U.S. Clearing Members


The U.S. Commodity Futures Trading Commission’s (Commission) Division of Clearing and Risk (Division) today extended the no-action relief granted in CFTC Letter 14-27 to Eurex Clearing AG (Eurex Clearing)

Self-Regulatory Organization (SRO) Rulemaking and National Market System (NMS) Plans

BATS: Notice of Filing of a Proposed Rule Change, as Modified by Amendment No. 1, to Rule 20.6 of BATS Exchange, Inc. (Release No. 34-73884; File No. SR-BATS-2014-067; December 18, 2014); see also Exhibit 5

CHX: Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Amend the Trading Permit Application Fee (Release No. 34-73906; File No. SR-CHX-2014-20; December 22, 2014); see also Exhibit 5

NASDAQ: Notice of Filing of Proposed Rule Change to Require That a Company Publicly Disclose the Denial of a Listing Application (Release No. 34-73912; File No. SR-NASDAQ-2014-102; December 22, 2014)

NYSE Arca: Order Instituting Proceedings to Determine Whether to Approve or Disapprove Proposed Rule Change Relating to Listing and Trading of Shares of the SPDR SSgA Global Managed Volatility ETF under NYSE Arca Equities Rule 8.600 (Release No. 34-73914; File No. SR-NYSEArca-2014-100; December 22, 2014)

NYSE Arca: Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Exchange Rules Regarding Trade Nullification and Price Adjustment (Release No. 34-73909; File No. SR-NYSEArca-2014-140; December 22, 2014); see also Exhibit 5

NYSE Arca: Order Granting Approval of Proposed Rule Change Relating to the Listing and Trading of Shares of the PIMCO Low Duration Investment Grade Corporate Bond Active Exchange-Traded Fund under NYSE Arca Equities Rule 8.600 (Release No. 34-73908; File No. SR-NYSEArca-2014-85; December 22, 2014)

NYSEMKT: Notice of Designation of a Longer Period for Commission Action on a Proposed Rule Change Amending Rule 13 – Equities and Related Rules Governing Order Types and Modifiers, as modified by Partial Amendment No. 1 (Release No. 34-73913; File No. SR-NYSEMKT-2014-95; December 22, 2014)

NYSEMKT: Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Exchange Rules Regarding Trade Nullification and Price Adjustment (Release No. 34-73910; File No. SR-NYSEMKT-2014-102; December 22, 2014); see also Exhibit 5

OCC: Notice of Filing of Proposed Rule Change Concerning Extended and Overnight Trading Sessions (Release No. 34-73907; File No. SR-OCC-2014-24; December 22, 2014)

Exchanges & Trading Facilities

OCXdelta1 Connection Fees-Reminder


On October 20, 2014 OneChicago launched our new proprietary matching and reporting platform: OCXdelta1. As stated in the User Agreement, firms are obligated to pay monthly fees to access OCXdelta1.

MIAX Options – January 1, 2015 Fee Changes – Market Maker Volume Tiers And Priority Customer Rebate Program


Effective January 1, 2015, pending SEC approval, the MIAX Options Fee Schedule will be amended as follows:

Montréal Exchange Market Holiday – Xmas Period


Interest rate derivative trading will cease at 1:30 p.m. and equity, currency, index and ETF derivative trading will cease at 1:00 p.m. today, December 24, 2014. Furthermore, the Exchange’s offices and markets will be closed on December 25 and 26, 2014 (Christmas Day and Boxing Day).

Hedge Funds & Managed Futures

Wealth Adviser: The Big Mistake in a Family Succession

By Kevin Noblet, WSJ

Lots of advisory firm owners pass the business on to a son, daughter or other family member. That doesn’t always go smoothly, notes Wealth Adviser at One big mistake: Failing to make sure the new boss has the knowledge and experience to really lead the business. “We’ve seen this erode morale quickly, putting the founding adviser in the difficult position of having to ask his child to leave the firm or risk losing top talent,” says Waldemar Kohl of Fidelity Institutional Wealth Services. To make sure a successor has the skills to succeed, an owner needs to create a detailed development plan – and leave ‘parent role’ at home.

Iron ore proves 2014’s commodity turkey

Neil Hume –

And the prize for the worst performing major commodity in 2014 goes to –

If you thought the answer was oil you would be wrong. Crude’s vertiginous fall since June may have grabbed the headlines but as the year draws to a close, iron ore is on track to take this unwanted accolade.

Low Interest Rates Set To Continue Says Allianz Chief


Relatively low interest rates could continue in the near term, according to Michael Diekmann, Chairman of the Board of international financial services company Allianz, who also pointed to emerging financial opportunities on the Chinese mainland ahead of his appearance at the Asian Financial Forum (AFF) in Hong Kong on 19-20 January.

Meredith Whitney Fund Sued by Billionaire Platt’s BlueCrest

By Max Abelson, Bloomberg

Meredith Whitney’s hedge fund is being sued by its biggest investor, a fund connected to billionaire Michael Platt’s BlueCrest Capital Management, as demands to recoup money spill into court, according to people with knowledge of the dispute.

Banks & Brokers

Craig Schiffer, Ex-Lehman Executive, Dies in Avalanche at 58

By Laurence Arnold, Bloomberg

Craig Schiffer, who held global leadership roles at Lehman Brothers Holdings Inc., Nomura International and Dresdner Kleinwort during a 35-year career in finance, has died. He was 58.

He died on Dec. 23 after being caught in an avalanche while skiing in the French resort area of Val d’Isere, according to Edwin McGuinn, a former Lehman colleague. A resident of Summit, New Jersey, Schiffer had a vacation home outside Grenoble and was there on a ski vacation with some of his children, McGuinn said.

RBS Suspends Bonus Payments of 18 Individuals; Suspension Is Pending a Review of Involvement In Bank’s Alleged Rigging of Foreign Exchange Rates

By Max Colchester

LONDON— Royal Bank of Scotland Group PLC has suspended the bonus payments of 18 individuals, pending a review of their involvement in the bank’s alleged rigging of foreign exchange rates.

Goldman move caps Reubens’ metal ambitions

Henry Sanderson and Neil Hume, FT

The deal to buy the controversial warehousing business of Goldman Sachs marks a high-profile return to the metals market by the billionaire Reuben Brothers.

Bank dealmakers set for bonus cheer, bond traders not so much

By Steve Slater, Reuters

Takeover advisers and dealmakers set for bonus rises

Bond, foreign exchange traders to see bonuses down

After big fines for misconduct, some bonus pools to be cut

Critics say banks still need to rein in pay to improve returns

Investment bankers working on corporate takeovers and share issues can expect good news on bonuses when they return from the holidays after a buoyant year, but bond and currency traders face lower payouts.

Clearing & Settlement

OCC Approves New Capital Plan


Existing Stockholders to Contribute $150 Million in Equity Capital and Provide Replenishment Capital Commitments

Members to Receive 2014 Refund of approximately $40 Million and Reduced Fees in 2015

OCC announced today its Board of Directors approved a newly formed capital plan designed to comply with proposed new standards for covered clearing agencies. Under the plan, OCC’s existing stockholders, Chicago Board Options Exchange, Incorporated, International Securities Exchange, LLC, NASDAQ OMX PHLX LLC, NYSE MKT LLC, and NYSE Arca, Inc. will contribute $150 million in equity capital, increasing OCC shareholders’ equity to approximately $247 million by Q1 2015.1 The existing stockholders will also commit to provide specified replenishment capital if needed. The plan, which is subject to regulatory approval, and approval by the exchange stockholders’ boards of directors, will enable OCC to be compliant with the proposed new standards by February 2015, well in advance of the expected implementation date.

Indexes & Products

SASX-10 Index Future Contracts Start Being Traded On Borsa Istanbul


A meeting was held in Bosnia and Herzegovina on the occasion of the introduction of the future contracts written on the Sarajevo Stock Exchange’s (SASE) price index SASX-10 for trading on Borsa Istanbul Derivatives Market (VIOP) Borsa Istanbul Chairman & CEO Dr. Ibrahim M. Turhan said they view the Sarajevo Stock Exchange as a “strategic partner”; adding, “We are ready to share our knowledge and experience with them”.

Deutsche Börse announces compliance of DAX index family with IOSCO Principles for Financial Benchmarks

Deutsche Börse

Deutsche Börse: Deutsche Börse, the official Index Administrator of the DAX index family and other leading financial market indices, today announced that the indices comply with the International Organisation of Securities Commission’s (IOSCO) Principles for Financial Benchmarks. Deutsche Börse has published the Letter of Compliance on the company’s website.


Top 2014 Trends: Fewer Algos but More Customization

Traders Magazine

The days of hundreds of algorithms on a buyside trader’s desktop order management system are gone. Now a trader has just a handful of electronic tools from which to enter his orders despite myriad algorithm providers. But the key difference is that the few algorithms in his arsenal are often custom- tailored to his particular needs — built for him from standardized off-the-shelf modules — and very ready to use.

Next-Gen Cloud: Bifurcation Becomes Trifurcation

TradeTalk, Trading Technologies

This post originally appeared on TabbFORUM and is reprinted with permission from TABB Group.

To enable solution architectures that can deliver more for less while also providing the agility to better respond to whatever comes next, firms increasingly must adopt proprietary plus multi-tenancy infrastructure configurations, in which infrastructure includes not just internal and external (cloud) components, but further places assets in locations that match the desired performance.


SEC Charges California-Based Stock Promoter With Defrauding Investors Seeking Pre-IPO Facebook and Twitter Shares; SEC Announces Separate Case Against Broker in Texas for Alleged Involvement


The Securities and Exchange Commission today charged a stock promoter based in Santa Barbara, Calif., with fraudulently raising nearly $3.5 million from investors purportedly to purchase Facebook and Twitter shares prior to their initial public offerings (IPOs).

South Carolina Federal Court Enters Judgment against Robert Stanley Harrison for Commodity Pool Fraud


The U.S. Commodity Futures Trading Commission (CFTC) today announced that Magistrate Judge Jacquelyn D. Austin of the U.S. District Court for the District of South Carolina entered a Consent Order for Permanent Injunction resolving charges against Robert Stanley Harrison of Easley, South Carolina, for operating a fraudulent futures and off-exchange foreign currency pool scheme called Investors Choice Advisors LLC (ICA).

Environmental & Energy

Restored Forests Breathe Life Into Efforts Against Climate Change


Over just a few decades in the mid-20th century, this small country chopped down a majority of its ancient forests. But after a huge conservation push and a wave of forest regrowth, trees now blanket more than half of Costa Rica.

Australia records biggest emissions drop in a decade as carbon tax kicks in

Oliver Milman – The Guardian

Australia’s greenhouse gas emissions dropped 1.4% in the second full year of the carbon price – the largest recorded annual decrease in the past decade.

Ice-free Arctic could be just six years away

By Bob Weber – The Canadian Press

Frank Pokiak remembers long days on the land, camped at traditional hunting grounds under June’s 24-hour sun, secure in the knowledge that sea ice would provide a safe highway back to his Tuktoyaktuk home.

In 2014, U.S. Climate Movement Grew in Grassroots Might But Lost Ground in Congress

By Katherine Bagley – InsideClimate News

Hundreds of thousands of people filled the streets of New York City in September demanding that world leaders act on global warming in the largest climate demonstration yet.


China Brokers’ Profit Seen at Risk From Government Action

By Bloomberg News

China’s surging stock market is raising the prospect of government action to prevent an equities bubble, a potential threat to brokerage earnings that are projected to hit a seven-year high this year.

SMBC to buy Citi Japan retail business in October – sources


Sumitomo Mitsui Banking Corp (SMBC) will buy Citigroup Inc’s Japanese retail banking operations in October for about 40 billion yen ($332 million), people with knowledge of the matter said on Wednesday.

China’s Shadow-Banking Boom Is Over; Tighter Government Rules, Jump in Stock Market Curb Informal-Lending Sector

By Shen Hong

Following years of explosive growth, China’s shadow-banking industry is experiencing a sharp slowdown after Beijing tightened its grip on the sector, which has been a key source of funding for the economy but also has added to rising debt levels and other risks in the financial system.

SZSE Strengthens Commitment Openness, Making Efforts to Build up a Market Environment of Good Faith


In a bid to put the “New National Nine Positive Stimuli” into practice, China Securities Regulatory Commission (CSRC) successively published the Opinion on Further Promoting IPO Reform and the No.4 Regulatory Guidelines for Listed Companies – Commitment and Performance by De Facto Controllers, Shareholders, Related Parties, Acquirers and Listed Companies this year, which require corresponding mechanism to be set up to strengthen the fiduciary duties of issuers, their controlling shareholders and other subjects of liabilities, and to supervise the commitment performance behaviors by parties involved. Under the leadership of the CSRC, Shenzhen Stock Exchange (SZSE) has always regarded commitments management as an important task. Recently, SZSE has completed the development of a Commitments Management System, disclosing to the market commitments made by Shenzhen-listed companies and their performance degree.

Dalian Commodity Exchange Corn Starch Futures Launched On December 19


On December 9, Dalian Commodity Exchange (DCE) issued the Notice on the Matters Related to the Listing and Trading of the Corn Futures Contracts, confirming that the corn starch futures will be listed and traded as of December 19, 2014 (Friday) and making clear the matters related to the listing and trading of the corn starch futures contracts.

Frontier Markets

Lahore Stock Exchange Market Holiday December 25 On Account Of Anniversary Of Quaid-E-Azam Muhammad Ali Jinnah


Trading and offices of the Lahore Stock Exchange shall remain closed on Thursday, December 25, 2014 on account of Public Holiday declared by the Federal Government of Pakistan on the account of anniversary of Quaid-e-Azam Muhammad Ali Jinnah.

Saudis dig in to protect Opec’s market share

Anjli Raval, Oil and Gas Correspondent, FT

Ali al-Naimi, the oil minister of Saudi Arabia, was in no mood to address reporters at Opec’s November meeting, refusing to offer more than a few words after the cartel decided to hold output at 30m barrels a day.

Securities and Exchange Board of India Notices

PR – Exit Order in respect of Cochin Stock Exchange Ltd (CoSE)

Certificate No.506 of 2014 – Release of Attachment of Bank and Demat Accounts – Manoj Jhaveri Stock Broking Ltd.

Prohibitory Order ? Order No. 014 of 2014 – Sun Plant Agro Limited

PR – Order against Wasankar Wealth Management Limited, Mr. Prashant Wasankar having Trade name – Wasankar Investments, Mr. Vinay Wasankar, Ms. Mithila Wasankar, Mr. Abhijeet Chaudhari and Ms. Bhagyashree Wasankar

Notice of attachment in Re. M/s Simply Class Fashions Pvt. Ltd.

Notice of attachment in Re. M/s Karuturi Global Ltd.

Future Retail Limited – Corrigendum

Adjudication order against Mahadev Agro Industries Ltd.

Prime Focus Limited

Adjudication order against Marnite Polycast Ltd.

Adjudication order in respect of Mr. Akshat Ashok Gupta in the matter of M/s Santowin Corporation Ltd.

Adjudication order in the matter of M/s Santowin Corporation Ltd.


My man.

by Joshua M Brown, The Reformed Broker

I’ve gotten to meet and even befriend many of my biggest investing and market heroes over the last few years, but Art Cashin is at the top of the list. The preeminent NYSE trader and historian celebrates fifty – FIFTY! – years on the floor on December 30th. In the meanwhile, he’s seen his share of milestones over the decades – today’s new record for the Dow Jones being just the latest and greatest.

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