First Read

Sad News from JLN
We are saddened to report that Jim Kharouf’s father passed away Sunday in Milwaukee, WI at the age of 81. We will provide more details as they become available. Please keep Jim and his family in your thoughts and prayers during this difficult time amidst the holiday season.


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 »


Long term questions as Euronext’s momentum gathers pace
Philip Stafford, FT
Six months after regaining its independence, momentum is developing around Euronext. Shares in the group — Europe’s fourth-largest exchange by market capitalisation — are now trading at around EUR 25 apiece, having languished for several months below June’s 20 euro listing price. The market is beginning to acknowledge its extensive cost cutting and speculate on possible dividend payouts on next year’s earnings. What, though, is the longer-term play for Euronext?

***** I was on the Euronext bandwagon months ago.


Top bankers need to take cyber threat seriously: BoE
By Matt Scuffham and William Schomberg, Reuters
Top British bankers and other senior executives in the financial services industry are not taking the risk of cyber attacks seriously enough, financial policymakers at the Bank of England say.

****** So a bunch of guys who may or may not use email themselves (they have assistants) are supposed to figure out how to take cyber security seriously.


Chris Hehmeyer, managing member, HTG Capital Partners – Why Cereal Might Be Cheaper On Mondays At 8 AM

“The technologies are changing so fast that you can always jump in to whatever’s next.”

Chris Hehmeyer, managing member at HTG Capital Partners, gives a brief history of the financial markets and discusses his journey from Tennessee to Chicago. Hehmeyer describes the setting of the fledgling Chicago Board of Trade and remembers when technology was really beginning to impact the financial industry. One memory was when Hehmeyer saw an Apple II computer create a spread chart for the first time. Prior, all data was written out and charts were drawn by hand, but Hehmeyer knew that the simple chart was the beginning of something revolutionary.
Watch the video »


Charles Li Direct; Letter to Santa
Christmas is just around the corner, and it is usually the time to reflect on the year past and ponder on the year to come. But I’ve never felt entirely comfortable writing year-end reviews. This year, though, I decided to do something I’ve never done before: write a letter to Santa, just like my three children used to do at this time of year when they were little. They used to talk about how good they’ve been during the year, and ask Santa for gifts. I think it’s a great idea, so here is my humble first try.

***** Making LME payoff must be on the list somewhere.


Why is Elizabeth Warren so angry about Dodd-Frank?
By Chicago Tribune Editorial Board
A small change to Dodd-Frank financial reform doesn’t mean the law was gutted
This tweak to Dodd-Frank is only a small victory for banks
Earlier this month, Congress approved a $1.1 trillion spending bill that rolls back a provision of the Dodd-Frank financial reform law. That happened over the ferocious objections of Massachusetts Sen. Elizabeth Warren and other progressive Democrats.

***** A you ready for a rumble?


Bridging the Week by Gary DeWaal: December 15 to 19 and 22, 2014 (MiFID II, MiFIR, Block Trade Washes, AlphaMetrix, Charges for Cash, Bitcoin Options Exchange, Trading System Failures)
Katten Muchin Rosenman
An inadvertent system logic flaw caused two affiliated broker-dealers not to perform required anti-money laundering obligations and resulted in sanctions by the Financial Industry Regulatory Authority, while automated trading system malfunctions resulted in fines to three firms by the CME Group. In addition, one clearinghouse says that posting cash with it may soon be more costly, while another entity seeks designation with the Commodity Futures Trading Commission to trade and clear options on Bitcoin. Meanwhile, MiFID II and MiFIR inch their way towards implementation in Europe.

***** The weekly must read from Gary DeWaal.


SEFCON Snapshot 2014, Part II: Cross-Border Issues

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 II looks at the differences between U.S. SEF rules and those of other jurisdictions. The conference featured a panel on cross-border issues, moderated by ISDA CEO and former CFTC Commissioner Scott O’Malia, and also a keynote address by current CFTC Chairman Tim Massad.

Watch the video »



MarketsWiki Page of the Day
Royal Bank of Canada

MarketsWiki Recent Updates


Aleks Kins; David I. McKay; Kathleen Taylor

Companies, Organizations and Groups

Royal Bank of Canada; AlphaMetrix; ICE Futures U.S.; IEX Group


Volcker Rule


56,409,341 pages viewed, 8,117 articles, 187,696 edits
MarketsWiki Statistics

Lead Stories

CME Group fines three firms for automated trading violations
CME Group Inc on Friday fined three Chicago-based proprietary trading firms for violations stemming from problems with automated trading systems. The firms, 303 Proprietary Trading, Allston Trading and Traditum Group, had no immediate comment or declined to comment.

UK to extend Libor manipulation laws to cover gold, oil, silver
Britain will widen the scope of laws which make the manipulation of market benchmarks a criminal offense to include seven more rates covering the currency, gold, oil and silver markets by April 1, the government said on Monday.

ICE Has Unlikely Ally on Trading Proposal; Credit Suisse Executives Back Plan to Bring Trading to Exchanges
By Bradley Hope
Jeffrey Sprecher, chief executive of Intercontinental Exchange Inc. , recruited an unlikely ally in his efforts to revamp the U.S. stock market and bring more trading back onto exchanges.

China Investigates Possible Stock-Price Manipulation; Move Follows Recent Surge in Chinese Share Market
By Lingling Wei
BEIJING—China is investigating possible stock-price manipulation amid the recent run-up in the country’s equity market, according to officials with direct knowledge of the matter, a move that serves as a stark reminder of the problems that have long haunted Chinese stocks.

China Offers Russia Help With Currency Swap Suggestion
By Bloomberg News
Two Chinese ministers offered support for Russia as President Vladimir Putin seeks to shore up the ruble without depleting foreign-exchange reserves.

Ruble Crisis Ripples Through Wheat as Bulls Advance: Commodities
By Joe Deaux, Bloomberg
The ruble crisis is rippling through the global wheat market. As Russia’s currency extended a plunge to a record low against the dollar last week, the nation slowed grain shipments to preserve stockpiles and keep domestic prices in check. Russia is the fourth-largest exporter and the measures spurred hedge funds to triple their bets on higher prices.

The End of the World As We Know It?*
The Streetwise Professor
I have been named to the CFTC’s Energy and Environmental Markets Advisory Committee, at the invitation of Commissioner Christopher Giancarlo. Given how I was viewed during the Gensler years, this is a sign that the winds have shifted at 1155 21st St. NW. Or maybe it’s a harbinger of the impending apocalypse. It is particularly ironic, given that Frankendodd specifically mandated that the Commission create the EEMAC: there’s a mandate I can get behind!

The $6.3 Trillion Frenzy That Vanquished Treasury Bears
By Daniel Kruger, Bloomberg
When it comes to the ability of the U.S. government to finance itself in the bond market, this year will go down as as one of the best on record — and dealers say 2015 will be no different.

Russia faces full-blown crisis, says Kudrin
Jack Farchy, FT
Russia faces a “full-blown economic crisis” next year that will trigger a series of defaults and the loss of its investment-grade credit rating, a respected former finance minister has warned.

Whistleblowers Score a Big Payday; Three Individuals, One Firm to Receive $170 Million in Bank of America Probe
By Christina Rexrode and Timothy W. Martin
There is a new winner in the biggest bank settlement to come out of the financial crisis: whistleblowers.

Why Saudis Decided Not to Prop Up Oil; In American Shale Oil, A Perceived Threat to OPEC Market Share
By Jay Solomon in Washington and Summer Said in Dubai, WSJ
In early October, Saudi Arabia’s representative to OPEC surprised attendees at a New York seminar by revealing his government was content to let global energy prices slide.

Saudi Arabia and UAE blame oil rout on countries outside Opec
Anjli Raval, Oil and Gas Correspondent, FT
Saudi Arabia and the United Arab Emirates on Sunday blamed the oil price rout on producers outside Opec and reaffirmed their stance to keep output at current levels.


Ponzi Scheme Paid for Cars, Freezing Dead Wife, U.S. Says
By Erik Larson and Patricia Hurtado, Bloomberg
The head of a New Jersey investment firm that claimed to make annual returns of 24 percent on foreign currency trades and gold was charged with bilking customers out of more than $5 million, some of which he used to buy luxury cars and to have his dead wife cryogenically frozen. Whileon Chay, 38, the founder and manager of 4X Solutions Inc., lost $2.3 million of investors’ cash on bad trades in commodities and forex, without reporting it, and used their money to finance a luxurious lifestyle, according to an indictment unsealed today in Manhattan federal court.

We Really Should Regulate High-Risk Bank Derivatives – Letters to the Editor
Thomas Hoenig, FDIC Vice Chairman – Wall Street Journal
In response to your editorial “Let’s Pretend Dodd-Frank Works” (Dec. 12): Those who believe in markets, as I do, should be concerned that Congress rolled back one of the few effective mechanisms in the Dodd-Frank Act to reduce government protections and subsidies for some of the highest-risk derivatives. Therefore, I take issue with a point in your editorial that implies that the swaps push-out requirement is insignificant.

U.K. to Criminalize Manipulation of Financial Benchmarks; Government Hopes to Introduce Rules in April After Consultation Period
By Katie Martin
LONDON—Manipulating financial benchmarks, including a key currencies benchmark, is set to become a criminal offense that could carry a prison sentence of up to seven years, Chancellor George Osborne said on Monday.

ILS & cat bond issuers exempt from commodity pool designation: CFTC
by Artemis
The U.S. Commodity Futures Trading Commission has issued a letter providing no-action relief to insurance-linked securities (ILS) and catastrophe bond issuers seeking exemption from being treated as a commodity pool operator.

Exclusive – Southwest’s oil swap trade waiver raises CFTC questions
By Douwe Miedema, Reuters
Last month’s move by the U.S. commodities regulator to let Southwest Airlines Co (LUV.N) keep its multibillion-dollar oil trades secret for 15 days offered the world’s biggest low-cost carrier a break it has been seeking for three years.
However, the decision to grant the airline an exemption from rules calling for greater derivatives transparency raised concerns about its market impact and sparked a debate among regulators, according to people familiar with the approval process.

What’s New on the SEC Website
Self-Regulatory Organizations
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend the Schedule of Fees (Release No. 34-73889; File No. SR-ISEGemini-2014-30; December 19, 2014); See also: Exhibit 5
Division of Investment Management No-Action Letters
New Mountain Finance Corporation, December 18, 2014
LCH.Clearnet Limited and LCH.Clearnet LLC, December 19, 2014
ICE Clear Credit LLC, December 19, 2014
Chicago Mercantile Exchange, December 19, 2014

CFTC Staff Issues No-Action Letter Providing Relief to Entities Operating Insurance-Linked Securities Issuers
The U.S. Commodity Futures Trading Commission’s (Commission) Division of Swap Dealer and Intermediary Oversight (DSIO) issued a letter that provides no-action relief to entities operating issuers of insurance-linked securities (ILS Issuer) subject to specific conditions.

ASIC provides relief for 31-day notice term deposits
ASIC today released a class order to facilitate term deposits that are only breakable on 31 days’ notice.

AMF adjusts its annual and other fees
As of January 1, 2015, the annual and other fees payable under the laws administered by the Autorité des marchés financiers (the “AMF”) will be adjusted.

CME Group fines three firms for automated trading violations
By Mike Fox, Leaprate
In a Reuters news bulletin that slipped under the radar over the weekend, CME Group (NASDAQ:CME) reported last Friday that it fined three Chicago-based proprietary trading firms for violations stemming from problems with automated trading systems. The firms, 303 Proprietary Trading, Allston Trading and Traditum Group, had no immediate comment or declined to comment.

Exchanges & Trading Facilities

CBOE Fee Changes

CME Group Notices
Cash Interest Pass-Through Program
Collateral Fees Program
Performance Bond Requirements: Energy and Agriculture Volatility Scans and Short Option Minimum Charges – Effective Friday, December 19, 2014
January 2015 BRL/USD Futures and Options Contracts Terminate Trading Tuesday, December 30, 2014 at 9:15 AM CT
CME Clearing Notice: Week of Monday, December 15, 2014

HKFE Announces Revised Margins for Sinopec Corp and PetroChina Futures Contracts

SGX to report 2Q FY2015 results on 21 January 2015
Singapore Exchange (SGX) is reporting second-quarter results for Financial Year 2015 (FY2015) after the market closes on 21 January 2015.

Hedge Funds & Managed Futures

Meredith Whitney’s Fund Said to Drop 11% as Office Put on Market
By Max Abelson, Bloomberg
Meredith Whitney, who started a hedge fund after becoming one of Wall Street’s most famous analysts, has found it harder to bet on stocks than scrutinize them. Her fund is down 11 percent this year through last month, its main investor has demanded money back, top executives have left and her full-floor Madison Avenue office is now on the market.

Rising price of olive oil is a pressing matter
Emiko Terazono, FT
Never mind the shale revolution, or Opec’s deliberations. Some oil producers are enjoying the highest prices in six years. A severe drought in Spain and a fruitfly infestation in Italy have caused a surge in the price of olive oil. The two countries normally account for just under 70 per cent of output, and the Madrid-based International Olive Oil Council forecasts that production will drop next year by 27 per cent.

RPT-Citi buys Credit Suisse commodities trading book
Citigroup has bought the commodity trading books of Credit Suisse, sources familiar with the matter said on Friday, as the U.S. bank extends its reach in the sector as others retreat.

Banks & Brokers

How J.P. Morgan Does Business, in 100 Pages
By Emily Glazer
J.P. Morgan Chase & Co. released a report on how it does business Friday that acknowledges its mistakes and details how it is improving its culture and controls among other things. The report was initiated in response to a request from a shareholder group led by The Sisters of Charity of Saint Elizabeth, a member of the Interfaith Center on Corporate Responsibility. The shareholders had asked for J.P. Morgan to conduct a business standards review report.

London City Executives See 21% Bonus Hike, Survey Shows
By Richard Partington, Bloomberg
Managing directors at London’s financial-services companies are expecting a 21 percent increase in bonuses for 2014, according to Astbury Marsden.

Swiss Bankers in Limbo After U.S. Jury Clears Ex-UBS Man
By David Voreacos, Bloomberg
The U.S. Justice Department has a mixed record of success in prosecuting offshore bankers, lawyers and advisers accused of helping U.S. taxpayers cheat on their taxes.

Clearing & Settlement

LCH.Clearnet plans equity clearing fee cuts
Philip Stafford, FT
LCH.Clearnet is planning to cut fees for processing equities in Europe as the region’s main clearing houses gear up for fierce competition for market share next year. The fee cuts will come into effect in February and come after LCH, which is controlled by the London Stock Exchange Group, consulted with the market, according to two people familiar with the talks.

Indexes & Products

US regulator probes ETF pricing structures
Tracy Alloway in New York, FT
Extreme movements in the prices of bonds, commodities and other assets have prompted regulators at the Federal Reserve Bank of New York to take a closer look at the inner workings of exchange traded funds.


Why Bitcoin’s Erratic Price Doesn’t Matter
by Michael J. Casey, WSJ
Bitcoin prices have dropped almost 60% since January, outpacing the Russian ruble. Critics say that’s proof digital currency has failed. Ignore them. Bitcoin’s price is irrelevant to the key question of whether the underlying technology will disrupt finance. There are many signs it will.

Risk modelers look to clarify cyber risk costs
By Luciana Lopez, Reuters
Even as the Sony Corp cyber attack laid bare the kinds of vulnerabilities that typically drive companies to buy insurance policies, the lack of a risk model for insurers means such protection is not always easy to get.


Police let trader at centre of £130m ‘con’ slip through their fingers
The Telegraph
Currency trader Joe Lewis, whose business collapsed losing investors millions, turned up at a police station in Hull claiming he was a victim of crime – and police let him go

Environmental & Energy

Cheaper Oil, Fatter Wallets and a National Opportunity
By Jeff Sommer – The New York Times
Oil prices have plunged so rapidly that financial markets are treating them less as an opportunity than a danger, like a falling knife.

Keystone ‘not even nominal benefit’ to US consumers, Obama says
By Laura Barron-Lopez – The Hill
President Obama on Friday said building the Keystone oil pipeline would “not even have a nominal benefit” to consumers, pushing back at claims it would lower gas prices further.

Regulators want to change energy pricing rules for federal land
By Timothy Cama – The Hill
Federal land managers will release proposed rules next month to change the pricing structure for oil, natural gas and coal leases on public land.

WH: Agencies should factor for climate change in project reviews
By Laura Barron-Lopez – The Hill
The White House is floating new guidelines for federal agencies on how to weigh climate change impacts when reviewing energy and infrastructure projects.


Citic Bigger Than Credit Suisse, Nearing UBS: Chart of the Day
By Billy Chan, Bloomberg
Citic Securities Co. has become the world’s fourth-largest securities firm by market value, as China’s stock rally lures new investors and bolsters trading fees.

China stock connect scheme scorecard throws up surprises
By Saikat Chatterjee, Reuters
A month after China opened up its equity markets in a landmark trading link with Hong Kong, demand has been subdued and the bulk of activity has come from short-term speculative investors.

Frontier Markets

FTIL promoter group entity skips holdings disclosure; Sigma Financial Services, part-owned by Jignesh Shah’s private firm, held 7,000 shares of FTIL
N Sundaresha Subramanian, Business Standard
A promoter group entity of Financial Technologies (FTIL) has skipped the disclosure of its shareholdings to the stock exchanges, as required under regulations. Sigma Financial Services, an entity in which Jignesh Shah’s private firm La-Fin Financial Services owned 18 per cent till March 2013, owned 7,000 shares of FTIL at Rs 45.2 a piece. However, Sigma’s shareholding did not figure in the shareholding pattern of FTIL filed with the exchanges in March 2013 or before.

Bombay HC extends stay on NSEL-FTIL merger till Feb 4; The court has fixed the next hearing of the case for February 4, 2015
Sharleen D’Souza, Business Standard
The Bombay High Court today extended till February 4 the stay on merger of crisis-hit National Spot Exchange Lmited (NSEL) with parent Financial Technologies (FTIL) and has asked the Ministry of Corporate Affairs (MCA) to respond by January 23.

Need to simplify regulations to allow financial markets to deepen: Ratna Sahay
International Monetary Fund works towards global growth and economic stability. It provides policy advice and financing to members in economic difficulties and also works with developing nations to help them achieve macroeconomic stability and reduce poverty.

Hong Kong watchdog takes action against shortseller
Jennifer Hughes in Hong Kong, FT
Citron Research has become the first shortseller to face action from Hong Kong’s watchdog, which alleges the California-based group knowingly made “false and misleading” claims about Evergrande, the Chinese developer.


Russian Roulette: Taxpayers Could Be On The Hook For Trillions In Oil Derivatives
Ellen Brown, Seeking Alpha
The sudden dramatic collapse in the price of oil appears to be an act of geopolitical warfare against Russia. The result could be trillions of dollars in oil derivative losses; and the FDIC could be liable, following repeal of key portions of the Dodd-Frank Act last weekend.

Rich Russians head for UK in record numbers
Caroline Binham and Helen Warrell in London, FT
Rich Russians are gaining entry to the UK in record numbers amid a worsening economic outlook in their home country.

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