John Lothian Newsletter: CME Group says CFO to retire; Banks' pressure stalls opening of U.S. derivatives trading platform; Eurex gears up for swap future launch

Aug 28, 2014

First Read

Rocktoberfest from A Leg to Stand On is close at hand
Raymond McKenzie – JLN Blog
Happy last days of summer! I hope you have all had a great one so far. I am reaching out to you again this year as we are approaching October and that means that the annual fundraiser for. Thank you for all your support in the past few years in helping ALTSO make a difference in so many children’s lives around the world.

Our annual fundraising benefit, Rocktoberfest-Chicago (altso.org/hfr/), is moving into its 3rd year after having originated 11 years ago in New York. Rocktoberfest unites leaders from the finance industry for a night of rock&roll music performed by industry professionals. Moving into its 3rd year, our Rocktoberfest-Chicago, on October 8th at City Winery, will host over 500 attendees; now in its 11th year, our New York event, on October 22 at Capitale, will host over 1,400 guests.
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***** Don’t miss this party.

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CME Unit That Trades With Clients Earning Millions With Futures
Matthew Leising – Bloomberg
While CME Group Inc. (CME) makes most of its money charging the people who use its markets, the world’s biggest futures exchange captures a sliver of sales with a little-known group that trades directly with those customers. The GFX Corp. unit, which has been disclosed for years in regulatory filings, generated about $9 million in revenue last year, or 0.5 percent of CME’s total, according to spokeswoman Anita Liskey.
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***** Matt Leising caught me in a frank mood evidently.

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Is it Time to MAT the Entire Curve?
Tod Skarecky – Clarus Financial Technology
Scrutinizing the most recent OTC data tells a fairly consistent picture over the previous months. The percentage of trades registered On-SEF in recent times is, at best, inching up. In fact the preliminary August data shows no change from July, hovering right around 58% of all trades (and 67% of all cleared trades).

Let’s not forget that the late spring and early summer had the benefit of No-action relief runoffs for most of the packaged trades (curve trades, butterflies, spreadovers, etc). The only carrot, or should I say stick, left in the bag is the November “non-swap” package trades. Will that lead to any uptick? I am not even aware that anyone has gotten their head around how such a product, notably an invoice spread (futures + swap) is going to be traded pursuant to the rules. But let’s face it, even if a mysterious SEF figured it out, we might see a small uptick in adoption.
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**** Look for the 2 for 1 deals in futures + swaps coming soon.

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Jefferies CEO Takes ALS Ice Bucket Challenge in Style
Saabira Chaudhuri – MoneyBeat – WSJ
Mark Zuckerberg has done it. So has Bill Gates. Even Alan Greenspan has taken part in it. From Silicon Valley to Washington, some of the biggest names across the country have been swept up in the ALS Ice Bucket challenge. Now it has caught up to some of the top echelon on Wall Street.
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***** A cold chill has swept through Wall Street and LaSalle Street.

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Ed Tilly, CEO of CBOE – Embrace Change
JohnLothianNews.com

“We were challenging people’s livelihoods…”

Reaching our goals in life does not always involve a linear path. Ed Tilly, CEO of the Chicago Board Options Exchange, discusses the long and winding road he followed in his career and key experiences that helped him get where he is today. He stresses that examining your own strengths and weaknesses and knowing the limits of your abilities is one of the keys to success. Making mistakes and taking chances are two other important areas that help us learn and grow in our careers. “You will fail,” he tells his audience, “and that’s okay.” For Tilly, not receiving a nomination to the CBOE’s Board of Directors motivated him to try again and come back the next year with fresh ideas to help improve the exchange.

Watch the video »

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Speed Traders Seize NYSE Floor as IMC Takes Goldman Post
Sam Mamudi and John Detrixhe – Bloomberg
When Scott Knudsen rang the opening bell at the New York Stock Exchange this week, he signaled the ceremonial start of the day’s session and the conquest of the NYSE floor by high-frequency trading firms. His firm, IMC Chicago LLC, just finished its takeover of Goldman Sachs Group Inc.’s NYSE unit, giving it rights to manage buying and selling of dozens of stocks including prominent ones like International Business Machines Corp., Verizon Communications Inc. and Visa Inc.
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***** The new style of exchange fees is not maker-taker, it is now Dutch Treat.

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Liffe Sets Daily Volume Record In Long Gilt And Ultra Long Gilt Futures, Long Gilt Futures Surpass 1,000,000 Daily Contract Mark
Intercontinental Exchange, the leading global network of exchanges and clearing houses, announced today that daily volume records were reached in Liffe Long Gilt futures and Ultra Long Gilt futures with 1,042,074 contracts and 5,118 contracts traded respectively on August 26, 2014.
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***** The crown jewel sparkles.

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‘Crop tourists’ predict record corn and soyabean harvests
Gregory Meyer in New York – Financial Times
Every August, travellers with a high tolerance for monotony flock to the two-lane highways of the rural US Midwest. Tracing 1,000-mile routes across corn and soyabean fields, these participants in annual “crop tours” stop to measure ears, count bean pods and interview the locals. Their aim is to predict crop sizes in the world’s largest grain exporter.
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***** Humongous!

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Sponsored Content
Katten’s Summer 2014 Review: Financial Services Regulatory and Legal Development Highlights
Wednesday, September 10, 5p.m., New York

The firm’s Financial Services practice will present “Katten’s Summer 2014 Review: Financial Services Regulatory and Legal Development Highlights” at 5:00 p.m. on Wednesday, September 10. The first in a series of Katten programs addressing recent developments in the financial services industry that impact a broad range of market participants, the presentation will tentatively address the following topics:

  • final rules from the SEC: money market funds and security-based swaps;
  • futures: EFRPs, block trades and position limits; international developments regarding swaps;
  • managed futures: commodity pool operator director delegations;
  • litigation developments and enforcement actions: dark pools and high-frequency traders;
  • liquid alternatives; and
  • bitcoin developments.

The panel discussion will be moderated by Arthur Hahn, global co-chair of the Financial Services practice, and panelists will include six Katten attorneys, including special counsel Gary DeWaal. To register for the program, click here

Sponsored
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Lead Stories

CME Group says CFO to retire at age 49, new CFO is 50
Tom Polansek – Reuters
CME Group Inc’s 49-year-old chief financial officer will retire at the end of the year and will be replaced by an executive who is a year older, the world’s largest futures exchange operator said on Wednesday. Jamie Parisi, who has held the role of CFO for a decade, will be replaced by his deputy, John Pietrowicz, 50, who has worked for CME since 2003.
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***** They wear them out young at the CME.

Banks’ pressure stalls opening of U.S. derivatives trading platform
Karen Brettell – Reuters
The first interdealer trading platform aimed at opening up credit derivatives markets to new competition has hit roadblocks due to resistance from some banks that dominate such trading, according to several people familiar with the situation.
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Eurex gears up for swap future launch
Luke Jeffs – Futures & Options World
Eurex has published the full contract specifications for its new swap future and confirmed it will have market-maker support at launch in the countdown to the debut on Monday of the first of many European swap futures contracts.
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FBI Examining Whether Russia Is Tied to JPMorgan Hacking
Michael Riley and Jordan Robertson – Bloomberg
Russian hackers attacked the U.S. financial system in mid-August, infiltrating and stealing data from JPMorgan Chase & Co. (JPM) and at least one other bank, an incident the FBI is investigating as a possible retaliation for government-sponsored sanctions, according to two people familiar with the probe.
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U.S. bank watchdogs to adopt liquidity, margin rules
Douwe Miedema – Reuters
U.S. regulators will next week vote to adopt two major rules to reduce risks to banks, the Federal Reserve said, including a plan for them to hold enough easy-to-sell assets to survive a future financial crisis.
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Bank forex trading revenues fall by a third
Delphine Strauss – Financial Times
Investment banks’ earnings from foreign exchange trading fell at their fastest rate since the global financial crisis in the first half of 2014, hit even harder than other trading areas by low volatility and volumes.
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Regulatory

SEC Shelves Plan for Private Asset-Backed Bond Disclosure
Jody Shenn, Dave Michaels and Matt Robinson – Bloomberg
The U.S. Securities and Exchange Commission, while expanding disclosure requirements for one set of asset-backed securities, has stepped back from a plan to shed more light on a major part of the market.
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Credit-Rater Profit Spared in SEC Rules Banning Conflicts
Dave Michaels and Matt Robinson – Bloomberg
Sweeping changes imposed by U.S. regulators on the credit-rating industry will force firms to disclose more about their methods and prove analysts aren’t pressured to issue bond grades that please Wall Street.
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Plan to slow ‘Flash Boys’ already has some holes
Jeff Cox – CNBC
A test program to change the way small-company stocks are traded could slow high-frequency action, though some market participants worry that the initial steps are too tepid.
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Consultation reveals division over MiFID liquidity classification
John Bakie – The Trade
Industry bodies are split over how best to class non-equity instruments under MiFID II in order to determine whether they should be subject to transparency rules.
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Regulatory costs break risk neutrality
Chris Kenyon and Andrew Green – Risk.net
Regulations impose idiosyncratic capital and funding costs for holding derivatives. Idiosyncratic costs mean that no single measure makes derivatives martingales for all market participants. Chris Kenyon and Andrew Green demonstrate that regulatory-compliant pricing cannot be risk neutral, which in turn has implications for exit prices and mark-to-market
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PPF Q&A: Direct lending shift ‘very much geared’ to bond market fears
Mark Cobley – Financial News
The Pension Protection Fund, a £17 billion lifeboat fund that absorbs UK pension schemes orphaned by bankrupt companies, is the latest big investor to warn that banking regulations are creating a liquidity drought in the bond markets.
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SEC Adopts Asset-Backed Securities Reform Rules
Press Release
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SEC Adopts Credit Rating Agency Reform Rules
Press Release
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Exchanges & Trading Facilities

NYSE extends system testing for Alibaba IPO
John Bakie – The Trade
The New York Stock Exchange is taking no chances with next month’s IPO of Alibaba Group Holding and is offering exchange members a second weekend where they can test their internal trading systems with NYSE’s IPO trading logic.
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Biggest Past One-Day Moves – VXST Up 81.8%; GVZ Up 61.7%
Matt Moran – www.cboeoptionshub.com
Investors who explore volatility and diversification strategies often are looking for instruments that provide a lot of “bang-for-the-buck,” and they may ask – if most items in my portfolio are falling, are there any products with negative correlations that can experience sharp jumps in uncertain times?
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Bucharest Exchange Bows Tablet App
Giulia Lasagni – WatersTechnology
The Bucharest Stock Exchange has rolled out a tablet app that supplies users with market information, in an effort to increase investors’ interaction with the exchange.
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NXT – The Next Step For NZ’s Capital Markets
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Direct Edge Trading Notice #14-33: BATS/Direct Edge Integration Update Conference Call
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Hedge Funds & Managed Futures

Permira’s Kurt Björklund Quits Board of Russian State Investment Fund
Simon Clark – WSJ
Kurt Björklund, the co-managing partner of London-based private-equity firm Permira, has quit the advisory board of a Russian state-owned investment fund where he sat alongside other prominent U.S. and European deal makers.
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ECB signs up BlackRock to advise on bond buying
Alice Ross in Frankfurt – Financial Times
The European Central Bank has stepped up preparations for a fresh move to combat deflation by appointing BlackRock to advise on a possible bond-buying scheme.
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Banks & Brokers

Swiss Bank Lombard Odier Reveals Results for First Time
CHAD BRAY – Dealbook – NY Times
The private bank Lombard Odier unveiled its financial results publicly for the first time in its 218-year history on Thursday, reporting a profit and becoming the latest Swiss financial institution to pull back the curtain on what has been a traditionally secretive banking culture.
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Powell says Fed will ‘make sure’ swap market can ditch Libor
Joe Rennison, Duncan Wood – Risk.net
Derivatives markets have two years to end their Libor love affair, but may need help to do so. They will get it, says Jerome Powell, a member of the Board of Governors of the Federal Reserve System.
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Serving clients, not beating markets
James Saft – Reuters
It may be that the future of wealth management lies not in beating the market but in helping the client beat her true opponent: herself. The traditional offering of the investment management industry – putting people into products which outperform – is under siege, hit by a trend of dwindling relative performance and massive defections of money to passive index-based strategies and products.
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SEC slips trade-at into tick pilot
Rob Daly – The Trade
After three months of hard work by US exchange operators and the Financial Industry Regulatory Authority (FINRA), the US Securities and Exchange Commission (SEC) has released the details of the 12-month pilot project that will broaden the trading increments for certain small-cap stocks.
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JP Morgan names Luxembourg fund services head
Rachael Singh – Financial News
A 20-year veteran of JP Morgan has returned for a third stint in Luxembourg as head of its custody and fund services business in the country.
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CISI Exam Candidates Globally Achieve Outstanding Results
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Clearing & Settlement

New Street Entity Aims to Integrate Client Data
Katy Burne and Emily Glazer – WSJ
Wall Street is working to compile the ultimate financial dossier. The Depository Trust & Clearing Corp. last month launched a new entity with six big banks to shed more light on Wall Street’s web of client relationships.
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Investors advised to broaden optimisation strategies beyond collateral
The Trade
Buy-side firms should undertake a thorough review their counterparty and trade type processes alongside collateral optimisation efforts in response to incoming regulatory changes to derivatives trading, according to a white paper from financial software provider 4sight.
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CME Group – Clearing: CME Equity Ibovespa (IBV) Futures Outright Margin Change
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CME Group – Performance Bond Requirements: Crude Oil and Refined Products Outrights; Crude Oil and Refined Products Inter-Commodity Spreads Credits- Effective Thursday, August 28, 2014
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CME Group – Clearing: Product Listing Expansion: Add European-Style Weekly FX Options to ClearPort
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Technology

Ex-Deutsche Bank Chief Lauches Market Disrupting App
invstr, the new social network for finance has launched on the Apple store. The app makes the financial markets more accessible through a game and the use of individual predictions which in turn provides crowd sourced market sentiment. This ‘virtual execution’ of trades is designed to enable users to learn more about the markets, based on the outcomes of their predictions and how instruments perform against sentiment.
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Wavetec gives new look to Barcelona Stock Exchange
The Barcelona Stock Exchange recently upgraded its facility in order to cater to modern-day business people, news and media. Wavetec, a provider of display and signage material to financial institutions, identified the Barcelona Stock Exchange as a potential client and submitted a proposal to its management team for consideration.
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Barchart Announces the Addition of The CRB Commodity Yearbook 75-year Collection to Mergent Archives
Commodity Research Bureau (CRB), the world’s leading commodity and futures research, data and analysis firm since 1934 and a division of Barchart.com, Inc., announces the availability of 75-years of CRB Commodity Yearbooks through Mergent Archives.
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Enforcement

CFTC Orders FirstRand Bank, Ltd. to Pay $150,000 Civil Monetary Penalty for Unlawfully Executing Prearranged, Noncompetitive Trades on the CBOT
The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and simultaneously settling charges against financial services company FirstRand Bank, Ltd. (FirstRand), headquartered in Johannesburg, South Africa, for executing unlawful prearranged, noncompetitive trades involving corn and soybean futures contracts on the Chicago Board of Trade (CBOT), a designated contract market of the CME Group. FirstRand has never been registered with the CFTC.
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Civil Case Against Former SAC Head Cohen May be Delayed Again
Erin McCarthy – WSJ
Proceedings in the civil case against hedge fund investor Steven A. Cohen look set to be delayed yet again, according to a filing with the Securities and Exchange Commission.
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BAML fined for clearing fee failures
The Trade
The US Commodity Futures Trading Commission (CFTC) has settled charges against Bank of America Merrill Lynch (BAML) related to the processing of futures exchange and clearing fees, resulting in a US$1.2 million fine.
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Deutsche Bank Fined by U.K.’s FCA
Margot Patrick – WSJ
Deutsche Bank AG’s London branch was fined £4.7 million ($7.8 million) on Thursday by the U.K.’s Financial Conduct Authority for putting the wrong buy and sell markers on millions of transactions in regulatory reports.
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PwC must face $1 billion lawsuit over MF Global advice
Jonathan Stempel – Reuters
A federal judge on Wednesday ordered PricewaterhouseCoopers to face a $1 billion lawsuit claiming that its bad accounting advice was a substantial cause of the October 2011 bankruptcy of MF Global Holdings Ltd, a brokerage run by former New Jersey Governor Jon Corzine.
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Environmental & Energy

Analyst: New clean tech investment vehicles needed to enable $5tr fossil fuel divestment
James Murray, BusinessGreen
The global campaign to encourage institutional investors to ditch fossil fuel assets in a bid to protect themselves against long-term financial risks will only succeed if viable and large-scale alternative investments are identified.
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***LB: Also in this story “Fossil fuels offer four attributes (overall scale, liquidity, value growth, and dividend yield), a more complete investment package than that provided by most other sectors.”

Unlocking Private Sector Financing for Alternative Fuel Vehicles and Fueling Infrastructure
C2ES
C2ES, in partnership with National Association of State Energy Officials (NASEO) and with funding from the U.S. Department of Energy’s Clean Cities Program, began a two-year project in early 2013 to develop innovative finance strategies aimed at accelerating the deployment of AFVs and fueling infrastructure.
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Obama Pursuing Climate Accord in Lieu of Treaty
Coral Davenport, The New York Times
The Obama administration is working to forge a sweeping international climate change agreement to compel nations to cut their planet-warming fossil fuel emissions, but without ratification from Congress.
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Asia-Pacific

Thomson Reuters Named Official Calculating Agent For CNT TAIBOR Benchmark
Thomson Reuters, the world’s leading source ofintelligent information for businesses and professionals, has been appointed byTaipei Foreign Exchange Market Development Foundation (TFEMDF) as the officialcalculating agent for its offshore renminbi benchmark CNT TAIBOR (the Taipei Interbank Offered Rate).
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Shanghai’s iron ore swap volumes reach one third of SGX’s
Xiao Wang – Risk.net
The second onshore China iron ore derivative contract takes volumes from Singapore as some Chinese industrial users look to avoid currency basis risk
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Thai Bourse Continues To Tighten Collaboration With GMS Exchanges
The Stock Exchange of Thailand (SET), together with four stock exchanges in Greater Mekong Subregion (GMS) – Cambodia, Hanoi, Hochiminh and Laos – , participated in the second GMS exchanges CEOs meeting ‘GMS Focus’. This SET’s hosted meeting serves as a platform for closer collaboration among GMS exchanges.
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Japan’s Financial Services Agency Exchanges Letters For Cooperation With The Office Of Insurance Commission Of Thailand
The Financial Services Agency and the Office of Insurance Commission of Thailand signed the Exchange of Letters for Cooperation (EOL) on August 18, 2014.
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JCCH SPAN Parameter Update effective Sept 1
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Tokyo Stock Exchange: The Council Of Experts Concerning The Corporate Governance Code[The Second Council]
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Notice Of Paper Solicitation For 5th “Shanghai Stock Exchange Legal Forum” Also “On Securities Laws”
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Shenzhen Stock Exchange: Convertible Bond Serial Indices Launched Today
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SGX Market Updates – Optionality In Iron Ore Prices
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Frontier Markets

Sukuk Drought Poised to End on First-Time Sales: Islamic Finance
Liau Y-Sing and Yudith Ho – Bloomberg
First-time sellers of bonds that adhere to Islam’s ban on interest are poised to revive an industry suffering its worst quarter in more than four years.
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MCX Weekly Market Report August 22, 2014 – August 27, 2014
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