John Lothian Newsletter: CME Group reports big switch to futures; Pimco Pulled Futures-Clearing Business From State Street; NYSE Had Malfunction in Price Feed

Oct 31, 2014

First Read

Bits & Pieces
By John J. Lothian
The first order of business is to wish you all a Happy Halloween. It is nice that it is not happening in the middle of the FIA’s EXPO, which is next week. If you need a ticket to the EXPO Hall, please email me.

Today we run the video of Clive Furness from our MarketsWiki Education Series in London. We owe Clive an apology as we had hoped to have him play his guitar and reprise the song he sang in Chicago for us at our “Exploring Financial Technology” series a couple years back. I owe you one, or more Clive. Lou Malnati’s pizza on me while you are in town.

The derivatives world comes to our house next week for FIA’s 30th Annual Futures & Options Expo Chicago. We are doing something different this year at Expo. We are partnering with Cinnober to bring you JLN Conversations (powered by Cinnober), a chat with the industry about current topics, thought leadership, new initiatives, etc. We will have a conversation area and video studio set up.

Of particular interest to us is the topic of transparency. Where do we need to improve transparency in the markets today? What is the solution to achieve that? How will futures and options markets, or OTC, equities and the like look like in the future, in terms of transparency? These broad ranging questions are designed to get a broad range of answers from our interviewees. After Expo, we will piece together the best answers and roll out the video series in multiple parts, to correspond with each of the three questions.

Come visit us at Booth 314 in the Green Hall to participate.

Also next week, I will be moderating a panel discussion among six Asian exchanges on Tuesday for PhillipCapital. Doug Ashburn will be moderating a clearing panel, also on Tuesday, for Sungard. You can get details for Doug’s panel by clicking on the banner Sungard has been running on, just below our video listings.

Lastly, let me give a big shout out to the Great Steak Out, the charity dinner on Thursday night which will benefit the Greater Chicago Food Depository. This is a great event and an important cause and the money we raise goes right into the stomachs of hungry people in Cook County. Click the pic for details!

See you at EXPO!


Residual Issues
Doug Ashburn – JLN
The CFTC meets next Monday to consider three “bits & pieces” of its own. These rules are, in the words of Chairman Massad, a “fine-tuning” of previous rules. That is a nice way of saying that these are rules on which the previous commission kicked down the road. Since these rules pertain to basic functions within the FCM, farmer, rancher and energy communities (in other words, the people who will be attending Expo next week), what better time to address these issues?

The first rule pertains to forward contracts with “volumetric optionality,” which is a fancy way of saying “a bit of wiggle room on the exact size of the contract.” These types of forwards are rather useful in certain energy forwards, but are they swaps? The commission tabled the decision in its final swap product definitions rules in July 2012.

The dreaded residual interest rule, which is drastically altering the long-standing margin practices at FCMs, will on November 14 require margin to be posted as of 6 pm on the settlement date. Monday’s rule, if approved, will prevent the 6 pm deadline from being moved any earlier unless being changed at the commission level, complete with rule proposal and public comment period. For a background on residual interest see the video we made last year

The final rule tweak concerns the recording of transactions (CFTC Rule 1.35). The final rule, which became effective in March 2013, was viewed as an overreach, and has since been subject to no-action relief by the CFTC staff. On Monday, the commission will decide whether to codify the no-action relief.

We will watch the meeting and report next week, then follow up with a complete summary on MarketsReformWiki


Clive Furness, managing director, Contango Markets – Commodities’ Oddities

“Commodities are now so much part of the infrastructure of the marketplace and the asset classes that buy side investors get involved with…that they are going to continue to look for those opportunities.”

Clive Furness, managing director of Contango Markets, discusses commodities and how the commodities markets function. Starting with a brief history of commodities, Furness illustrates why commodities sit uneasily with other mainstream products and the pros and cons of the situation. He then discusses the evolution of commodities, covering the shift in technology and people’s attitudes then and now. Finally, Furness gives his predictions and thoughts on the future of commodities and discusses a project he is currently working on with an African exchange in order to build the products the exchange will trade.

Watch the video »


BGC Partners Hires James Cawley to Lead Swap-Trading Platform
Silla Brush – Bloomberg
James Cawley, who pushed regulators to require that more derivatives be traded on public markets, has joined BGC Partners Inc. (BGCP) to help the New York-based brokerage boost its share of trading in interest-rate swaps.

**** Get ready for a busy week of next week. EXPO week is always full of announcements.


CME to post highest monthly volumes in its history
Jon Watkins – The Trade
CME Group is on course to record the busiest month of trading in its long history, driven largely by a surge of activity on 15 October.

***** Some good news heading into EXPO, amid lots of long faces.


U.S. options exchanges say new rule threatens to hurt investors
John McCrank – Reuters
U.S. equity options exchange operators warned on Thursday that a new rule to be implemented on Jan. 1 aimed at making sure banks have adequate capital levels could significantly raise costs for many investors that trade options.

***** No pain, no gain. No hair, Rogaine.


Social trading grows amid calls for regulatory oversight
Solomon Teague – Euromoney Magazine
The full-scale disruptive potential of social trading is beginning to become clear, according to proponents. But there are fears that it is encouraging inexperienced traders to load up with risk in the pursuit of large returns and there have been calls for tougher regulation.

***** Social trading is what used to happen in the trading pits. Now it happens on the screen in different forms. Herd behaviour has always been a part of trading, it is just a matter of difference in terms of how the market signals and tendencies are disseminated.


Bloomberg Tradebook records bigger volumes – and offers helping hand
Simon Osborne – The Trade
Bloomberg Tradebook has continued its revenue growth in the wake of its Asian reorganisation this summer, and has put some of that momentum back into local good causes through its first ever Hong Kong Charity Day.

***** I thought it had to do with Allan Schoenberg joining Bloomberg.


The Options Industry Council Announces Investor Education Day In The San Francisco Area November 15
The Options Industry Council (OIC) today announced that its fourth and final Investor Education Day (IED) for 2014 is being held in Millbrae, CA on November 15. Investor Education Day offers two different tracks for attendees based on their investment experience and skill level – Options Basics or Advanced Strategies. Options Basics examines fundamentals, such as basic strategies and the risks and rewards of using options, while Advanced Strategies will focus on more complicated concepts such as position management and the Greeks.

Interested parties can obtain schedule and location details and also register through OIC’s website, or by calling 1-888-OPTIONS (1-888-678-4667).

***** Go to Frisco, learn about options and pick up some blue jeans right from Levi’s.


Charlotte Crosswell, CEO, Nasdaq OMX NLX – Startups Aren’t Just Found in Garages

“When people are sitting there talking about you and criticizing you or doing something against you, that means they’re taking notice.”

Charlotte Crosswell, CEO of Nasdaq OMX NLX, talks about her introduction into the financial industry and how she found herself in her current role. Beginning with a temporary position at Goldman Sachs, Crosswell assisted a salesperson who needed someone who understood French. She later moved on to the London Stock Exchange and has been in the exchange world ever since. Because of her own experiences, Crosswell emphasizes the importance of work experience versus just having a degree. Crosswell also discusses startup companies and how despite having the Nasdaq name, Nasdaq OMX NLX is still considered a startup in which she still works persistently to keep relationships with investors. Finally, Croswell discusses how being tough and having “the skin of a rhino” is necessary, especially in startups, to keep yourself protected from critics and opposition.

Watch the video »


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Lead Stories

CBOE Q3 earnings top estimates as trading volume improves
CBOE Holdings Inc, operator of the largest U.S. stock-options market, on Friday reported stronger-than-expected quarterly earnings due to a rebound in trading volumes.

CME Group reports big switch to futures
Gregory Meyer in New York – Financial Times
Mayhem in interest rate markets this month attracted traders to listed futures contracts instead of derivatives traded over the counter, according to executives at CME Group, the biggest futures exchange.

Pimco Pulled Futures-Clearing Business From State Street
Katy Burne – WSJ
Pacific Investment Management Co. in the past month pulled all its futures-clearing business from a unit of State Street Corp. after State Street asked Pimco to reduce some positions, said people familiar with the matter. The spat occurred as Pimco was grappling with the departure of legendary bond investor Bill Gross and the billions of dollars of investor cash that followed him out the door, the people said.

NYSE Had Malfunction in Price Feed for U.S.-Traded Equities
Nick Baker and Matthew Leising – Bloomberg
The computer system that carries prices for thousands of equities listed by the New York Stock Exchange malfunctioned today, sowing confusion among traders. The market operator later said the issue had been resolved.

Disaster Averted in NYSE Stocks as Backup Feed Kicks In
Nick Baker, Callie Bost and Sam Mamudi – Bloomberg
Securities professionals around the country endured a rough few minutes yesterday as a feed for carrying prices and quotes for thousands of stocks on the oldest American equity exchange misfired.

Nasdaq drops OMX name from branding
John Bakie – The Trade
Nasdaq has removed OMX from its branding almost seven years after its acquisition of the Nordic exchange group. The group will now simply be known as Nasdaq, a move aimed at reflecting its growing global presence.

U.K. FCA Said to Review BGC Pre-Bid Stake Purchase in GFI
Suzi Ring – Bloomberg
The U.K. Financial Conduct Authority is looking into whether interdealer broker BGC Partners Inc. (BGCP) erred in not notifying the regulator that it crossed a critical threshold in buying shares of GFI Group Inc. (GFIG) ahead of a takeover bid, two people with knowledge of the matter said.

Some MF Global creditors to get first payout, 3 years after bankruptcy
Jonathan Stempel – Reuters
A large group of creditors of MF Global Holdings Ltd’s bankrupt brokerage unit will soon receive their first payout, as $518.7 million of checks start to be mailed out on Friday, the third anniversary of the company’s Chapter 11 filing.

MF Global agrees to settle platinum, palladium manipulation claims
Nate Raymond – Reuters
The failed MF Global Holdings Ltd and its broker-dealer unit have agreed to settle class action lawsuits accusing them of manipulating platinum and palladium prices.


FINRA Names Richard Berry Director of Dispute Resolution
The Financial Industry Regulatory Authority (FINRA) announced today that Richard W. Berry will become Executive Vice President and Director of Dispute Resolution, starting December 1. Berry will report directly to Richard Ketchum, FINRA’s Chairman and CEO. He is replacing Linda Fienberg, who is retiring on November 30.

Statement On Passing Of Former SEC Chairman Rod Hills
Roderick M. Hills, who passed away yesterday, had a brilliant legal career and was a man of great character. He served as Chairman of the Securities and Exchange Commission from 1975 to 1977, with distinction. Chairman Hills was a true champion for America’s investors. The SEC has lost a strong leader and friend. Our deepest sympathy goes out to his loved ones.

Exchanges & Trading Facilities

Italian exchange latest to adopt weekly stock options
Jon Watkins – The Trade
Borsa Italiana has followed a growing number of its European counterparts by launching options with weekly expirations on its most liquid single stocks.

BME Posts A Net Profit Of EUR122.2 Million To The End Of September, Up 16.2% Year On Year
BME reported a net profit of EUR122.2 million for the first nine months of the year, up 16.2% year on year. This is the best net profit for the first nine months of the year since 2008. Net profit for the third quarter of the year reached EUR38.5 million, up 16.2% from the same period last year.

Japan Exchange Group, Inc. And Consolidated Subsidiaries Consolidated Financial Results For Six Months Ended September 30, 2014 -Japanese standards, Unaudited

Moscow Exchange: Derivatives Market Activity Reaches Record
Moscow Exchange’s Derivatives Market saw record volumes on 30 October on the back of increased FX Market volatility and the strengthening rouble.

Direct Edge Trading Notice #14-44: EDGX Functionality Changes

MIAX Options – OPRA Issues Resolved

MIAX Options – Due To OPRA Dissemination Issues MIAX Options Has Manually Cleared Stale OPRA Data

MIAX Options – Removal Of Marketing Fee Requirements For LMMs Receiving Directed Orders – Effective November 1, 2014

Hedge Funds & Managed Futures

Centerbridge Closes $6 Billion Private-Equity Fund
Mike Spector – MoneyBeat – WSJ
Centerbridge Partners LP finished raising a $6 billion private-equity fund last week, its largest since the investment firm formed nine years ago. The fund, pitched to investors over the past four-and-a-half months, can be used for a number of different purposes, said people familiar with the matter.

BlackRock to take on GBP480m British Assets trust from F&C
Laura Dew – Investment Week
BlackRock is set to replace F&C as manager of the British Assets trust after the company’s board proposed a change of objective in order to target pension savers.

Banks & Brokers

KCG reports loss, says could sell Hotspot FX trading venue
John McCrank – Reuters
Trading firm KCG Holdings Inc , which reported a third quarter loss on Thursday, said it may sell its electronic foreign exchange trading venue, Hotspot, as regulatory pressures in the FX market may

BGC Partners Reports Third Quarter 2014 Financial Results

GFI Empire Electronic Brokerage Launches Block Futures on EnergyMatch
GFI Group Inc. today announced that it will offer block future services of Crude Oil, Natural Gas, and Refined Products block futures on its EnergyMatch platform. It is anticipated that energy options will be added in early 2015.

RBS sets aside $639 million to settle forex probes
Royal Bank of Scotland said it had set aside 400 million pounds ($639 million) to cover potential fines for manipulating currency markets and another 100 million pounds to compensate customers mis-sold loan insurance.

Citigroup sets aside $600 million more to cover legal costs
David Henry and Ankur Banerjee – Reuters
Citigroup Inc (C.N) said it was setting aside an extra $600 million to cover legal expenses in the third quarter due to “rapidly evolving regulatory inquiries,” while also disclosing that it was subject to foreign exchange market probes.

JPMorgan tops pay table with $740,000 for London bankers: survey
U.S. bank J.P. Morgan pays managing directors at its investment bank in London an average of 461,000 pounds ($737,877), substantially more than pay across its rivals, according to a survey.

Barclays Should Spin Off Investment Banking, Cenkos Says
Stephen Morris – Bloomberg
Barclays Plc (BARC), the U.K.’s second-biggest bank, should spin off its investment-banking operations as new regulations push returns lower than its cost of capital, according to Cenkos Securities Ltd. (CNKS)

Clearing & Settlement

Q4 2015 launch for DTCC-Euroclear collateral tool
Jon Watkins – The Trade
A joint venture between post-trade utilities Euroclear and the Depository Trust and Clearing Company is targeting Q4 2015 for the launch of a new service to help buy-side firms monitor their collateral positions.

Asia-Pac clearers given green light but EU stalls on US approval
Tim Cave – Financial News
The European Commission has today given its international seal of approval to clearing houses in Asia Pacific, in a long-awaited move that will help European banks avoid higher capital costs against swap exposures.

First ‘Equivalence’ Decisions For Central Counterparty Regulatory Regimes Adopted Today
The European Commission has today adopted its first ‘equivalence’ decisions for the regulatory regimes of central counterparties (CCPs) in Australia, Hong Kong, Japan and Singapore.

Indexes & Products

Gross’ Pimco Exit Sets Up Bond ETFs for Record Monthly Inflow
Chris Dieterich – MoneyBeat – WSJ
Bill Gross’ abrupt departure from Pacific Investment Management Co. turned into a bonanza for U.S. bond exchange-traded funds, which are poised to net their biggest-ever monthly cash hoard.

Bloomberg today announced the composition and new target weights for 2015 for the Bloomberg Commodity Index (BCOM). Launched in 1998, BCOM, formerly the Dow Jones-UBS Commodity Index, is a highly liquid, diversified and transparent benchmark for the global commodities market. There will be no new contracts added or removed as a result of the annual reconstitution.

First Leveraged ETF And Inverse ETF Debut In Greater China On Taiwan Stock Exchange
The Taiwan Stock Exchange (“TWSE”) today welcomed the debut of the “Yuanta Daily Taiwan 50 Bull 2x ETF” and “Yuanta Daily Taiwan 50 Bear -1x ETF”, the first leveraged and inverse Exchange Traded Funds (ETFs) available in the Greater China region.

New Benchmark For PEA-PME Eligible Companies: EnterNext Launches “EnterNext PEA-PME 150” Index – A New Addition To Euronext’s Pea-Pme Index Family

BISX Q3, 2014 Statistical Report – January To September 2014 Statistical Report


AlphaGen Securities selects award-winning Orc Flow Control for risk management needs
Orc, the global leader in derivatives trading technology, today announced that AlphaGen Securities LLC, a broker/dealer headquartered in Chicago, has chosen the award-winning Orc Flow Control as its pre-trade risk management system. Orc Flow Control allows firms to efficiently manage order flow and ensure regulatory compliance, enabling them to capture new customer business.

State Street’s FX Connect Platform to Integrate With ITG’s Triton EMS
One of the leading execution and research brokers, ITG (NYSE: ITG), and State Street’s FX Connect end-to-end, multi-bank foreign exchange platform, announced today that the ITG Triton’s execution management system will be integrated with the FX Connect foreign exchange platform.


NFA orders California commodity pool operator Belvedere Asset Management LLC to permanently withdraw from NFA membership and sanctions its principal, Keith D. Pagan
National Futures Association (NFA) has ordered Belvedere Asset Management LLC (Belvedere), a commodity pool operator Member of NFA located in San Rafael, Calif., to permanently withdraw from NFA membership. NFA also has ordered the firm’s chief executive officer, principal and associated person (AP), Keith D. Pagan, to withdraw from NFA membership for a period of five years.

U.S. SEC wants to distribute $602 mln SAC settlement to victims
The U.S. Securities and Exchange Commission wants to make its $602 million settlement with SAC Capital Advisors hedge fund available to people who say they are victims of illicit trading by a former SAC portfolio manager, according to a lawyer representing them.

FCA fines Sesame Ltd for ‘pay-to-play’ arrangements
Sesame Ltd, the UK’s largest network of financial advisers, has been fined GBP1,598,000 by the Financial Conduct Authority (FCA) for setting up a pay-to-play scheme.

FINRA, SEC Warn Investors About Penny Stock Scams Hyping Dormant Shell Companies

Environmental & Energy

Australia divestment war shows investment is now the main climate change battleground; 8 foods you’re about to lose due to climate change; Germany CO2 emissions to fall in 2014, as renewables deliver a record 28 per cent of country’s power.
8 foods you’re about to lose due to climate change
David Levene, the Guardian
What does climate change taste like? It’s an odd question, but an increasingly pertinent one. After all, as temperatures rise and extreme weather becomes the norm, many food production systems are becoming threatened.

Emissions trading will be back in the game if (Australia’s) Direct Action proves ineffective
Lenore Taylor,
Greg Hunt vows emissions trading is dead and won’t be revived for 20 years or more. But he has quietly given himself the power to bring back a form of carbon trading, and he has advice that if he doesn’t use it, Australia cannot meet the climate promises it has made to the world.

Australia divestment war shows investment is now the main climate change battleground
Julian Poulter, the Guardian
For those following the rapid change in the climate change debate towards a more financial system orientation, a remarkable situation is unfolding in Australia that will act as a pointer to future developments elsewhere.

***LB: Also in this story “The fallout over Australian National University’s decision to divest from fossil fuel companies shows the language of climate risk is now in dollars and returns not degrees centigrade.”


SGX Voted Derivatives Exchange Of The Year
Singapore Exchange, Asia’s leading exchange and clearing house, won the industry endorsement as the “Derivatives Exchange of the Year” at the prestigious Asia Risk Awards ceremony held in Hong Kong on 30 October 2014.

South Korea Plans to Start Won-Yuan Direct Trading in December
Jiyeun Lee and Cynthia Kim – Bloomberg
South Korea will start direct trading between the won and the yuan in Seoul from December and is considering selling sovereign debt denominated in the Chinese currency for the first time.

Icap to shut Singapore futures desk
Futures & Options World
Icap is to shut its futures broking desk in Singapore as part the ongoing restructuring of its global brokerage operations. FOW has learned that the futures desk will shut tomorrow as part of the move to save GBP60m of costs across the group.

HKEx extending after-hours futures trading close
Simon Osborne – The Trade
Hong Kong Exchanges and Clearing (HKEx) is extending the session time of its after-hours futures trading of Hang Seng index futures, H-shares index futures, and their ‘mini’ equivalents, as well as renminbi currency futures.

Japan Exchange Group: Opening Of Hong Kong Representative Office
Today, Japan Exchange Group, Inc. (JPX) announced that subsidiaries Tokyo Stock Exchange, Inc. and Osaka Exchange, Inc. will open representative offices in Hong Kong’s Central business district on November 1, 2014. The joint launch will make Hong Kong the fifth city covered by the corporate group’s network of overseas offices that currently spans New York, London, Singapore, and Beijing.

Thai Bourse, BMA, 9 Banks To Hold “Bangkok Savings & Investment Fest 2014”

Thai Bourse To List Bangkok Airways On November 3

Shenzhen Stock Exchange Market Bulletin 27 October, 2014 – Issue 34

Frontier Markets

Argentina Gets Reserves Boost From China Currency Swap
Camila Russo – Bloomberg
Argentina’s Central Bank reserves are set to rise after receiving the first installment of yuan as part of a three-year, $11 billion currency swap agreement with the People’s Bank of China.

Malawi Stock Exchange Weekly Trading Report For Week Ending 31st October, 2014

MCX Weekly Market Report, Oct 24, 2014 – Oct 30, 2014

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