John Lothian Newsletter: CME Opens Electronic Futures Trading After 4-Hour Delay; Defections give new life to revolving door debate; ASEAN Exchanges proffer ambitious strategic plan

Aug 25, 2014

First Read

Steve Crutchfield, EVP at IntercontinentalExchange – How to Build an Options Trading System (In Ten Minutes)

“You’ve got to come up with some numbers that describe the universe based on data that fit that model.”

Steve Crutchfield, Executive Vice President at IntercontinentalExchange, explains the three key components of building a trading system. Beginning with a brief history of the New York Stock Exchange, Crutchfield gives a glimpse of trading activity in its early stages and its evolution into today’s intricate electronic systems. Crutchfield emphasizes that looking at historical data and determining which numbers to pull out from it is a difficult problem to solve, among many other challenges in the trading world today.

Watch the video »

***** Steve Crutchfield gave one of my favorite performances at our Summer Intern Education Series.


CME Group’s Terry Duffy Takes the ALS Ice Bucket Challenge
John Lothian News
CME Group Executive Chairman Terry Duffy takes the ice bucket challenge, then takes a quick dip in the pool. He nominates Liz Claman of Fox Business Network, Rick Santelli of CNBC, and LPGA golfer Brittany Lincicome.


Day 4 in Shanghai: Jack Ma and the Gamechangers
Raymond McKenzie – JLN Blog
I can’t believe this week is almost over. It is Friday morning in Shanghai. I don’t know the Mandarin for TGIF but actually my week has been so great I almost wish it wasn’t over. It is too bad Shanghai isn’t as close to Chicago as say Kalamazoo. I’d drive there all the time.

***** Ray McKenzie has a future as a travel writer.


Why CFTC reauthorization matters
Michael Dunn, Richard Shilts and Matthew Kulkin – TheHill
Congress has reauthorized the Commodity Futures Trading Commission seven times since its creation in 1974. While reauthorization has been the focus of past political debate, particularly the Commodity Futures Modernization Act of 2000, extending the CFTC’s governing laws has never been more important than right now.

***** When Mike Dunn talks, I listen. I think it is the silver hair.


Flash boy Katsuyama on market structure
Financial Times
Brad Katsuyama, founder of IEX, the investors’ exchange, who featured in the high-frequency trading novel ‘Flash Boys’, talks to Nicole Bullock about the conflicts exchanges face and what he thinks should be done to achieve neutrality in the market.

***** I can listen to Brad Katsuyama when he is not insulting the whole industry and participants in it.


Weathering a Storm
Jessica Titlebaum via JLN
I had lunch with John Lothian and Doug Ashburn this last week. It was a nice day when got to Ceres so we sat outside. Soon after we ordered, our waitress rolled out the recently installed, maroon umbrellas to hide us from the impending rain clouds. The sky got darker and raindrops got heavier but John stubbornly did not want to move, so we sat outside and talked throughout the entire storm.

We talked about the industry and how it had changed. It’s no secret that times have been tough. We’ve fallen down but picked ourselves up, brushed off the dirt and are ready to move on.


Too Much Corn With Nowhere to Go as U.S. Sees Record Crop
Jeff Wilson, Lydia Mulvany and Megan Durisin – Bloomberg
The ripening corn and soybean fields stretch for miles in every direction from Dennis Wentworth’s farm in Downs, Illinois. As he marveled at his best-yielding crops ever, he wondered aloud where the heck he’ll put it all.

***** This is the year when you WILL finally get your corn contract delivered to your front yard.


Market watchdog warns on danger of cyber attack
Sam Fleming in London – Financial Times
A global watchdog has sounded the alarm about the growing danger of cyber attacks, on financial markets, warning that firms and regulators around the world need to address the “uneven” response to the threat of online assaults.

***** A cyber attack is just part of the competitive world. You have to manage this risk in order to survive.


Indispensable apps for the modern trader
Lauren Schmidt – Futures Magazine
In the new world of trading the modern trader is more likely to follow markets on an iPad than tied to a desk manually charting each market tick by tick. With more markets to follow busy traders dealing with clients, responding to e-mails and performing numerous tasks throughout the day need help. We decided to ask our experts what apps they found most helpful in managing their trading in today’s not stop information age.

***** I find my afternoon nap is my favorite. Oh, apps? The one that wakes me up from my afternoon nap.



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Lead Stories

CME Opens Electronic Futures Trading After 4-Hour Delay
Adam Haigh and Phoebe Sedgman – Bloomberg
The Chicago Mercantile Exchange started electronic futures trading after a technical issue halted markets for as long as four hours, affecting contracts from U.S. stock indexes to Treasuries, oil and gold.

***** “Technical issues” was all I got out of the CME.

Defections give new life to revolving door debate
Tom Osborn –
Post-crisis reforms have spurred demand for regulatory staff from banks, consultants and law firms. This has changed the career – and earnings – prospects for rule-makers, but critics fear it could also have a chilling effect on current supervision.

ASEAN Exchanges proffer ambitious strategic plan
Simon Osborne – The Trade
The CEOs of Southeast Asia’s stock exchanges are optimistic that by their joint efforts, they can create collaboratively an ‘”ASEAN asset class.'” However, their communique does not elaborate on the shape that this might take.

SEC widens the net of mutual hedge fund review
Madison Marriage – Financial Times
The US regulator has widened its investigation into how the alternative mutual fund industry operates as concerns build about the liquidity terms being promised to investors.

Indian Commodities-Exchange Founder Released on Bail
Debiprasad Nayak – WSJ
An Indian court on Friday granted bail to Jignesh Shah, founder of a group that owns commodity, currency and stock exchanges, in a case relating to alleged financial fraud at one of the exchanges. The court ordered Mr. Shah’s release on deposit of a bail bond and on condition that he will present himself before the investigators on fixed days, Gunjan Mangla, one of the lawyers representing Mr. Shah told The Wall Street Journal.

MF Global judge questions then approves added defense funds for Corzine
U.S. Bankruptcy Judge Martin Glenn is “surprised and disappointed” by the mounting legal costs incurred by Jon Corzine and other former MF Global Holdings executives. But he signed off on another $7.5 million for them, anyway.


Pressure grows over fund fee transparency
Emma Dunkley – Financial Times
Two major industry bodies are clamping down on the way fees are levied across pensions and investments amid continuing concern that many savers are confused by charges and cannot effectively compare products.

Bankers brace for a brave new world
Financial Times
As the interest rate cycle turns, banks will benefit from greater returns on deposits and savers will be properly rewarded. This may improve sentiment toward bankers – the time for remorse may finally be over. But the BofA settlement is a sobering reminder of the scale of misdeeds. If bankers are to regain public trust, they must learn the lessons of the past.

ISDA calls for delay in margin rules for uncleared derivatives
Charlie Woodward – The Trade
The International Swaps and Derivatives Association (ISDA) has called on global regulators to push back the date for the implementation of margin rules relating to uncleared OTC derivatives.

New Risk Exposure Report filing requirement for swap dealers and major swap participants
NFA recently amended Compliance Rule 2-49 to specifically provide that NFA is authorized to require SDs and MSPs to submit identified reports or other documentation not only to NFA but also to the CFTC in the form and manner prescribed by NFA.

CFTC Staff Issues Extension of No-Action Relief to Southwest Power Pool
The U.S. Commodity Futures Trading Commission’s (CFTC or Commission) Divisions of Clearing and Risk, Market Oversight, and Swap Dealer and Intermediary Oversight (Divisions) today issued a no-action letter to Southwest Power Pool that extends, for a limited period of time, the relief previously granted by the Divisions.

Exchanges & Trading Facilities

TMX Group CEO Plans To Exercise Options And Sell Common Shares

Stock Connect passes HKEx’s weekend test
Simon Osborne – The Trade
Hong Kong Exchanges and Clearing (HKEx) announced over the weekend that a two-day connectivity test for the Shanghai-Hong Kong Stock Connect commenced on Saturday and worked smoothly.

Hedge Funds & Managed Futures

Private equity’s goose is ‘overcooked’
Steve Johnson – Financial Times
“What wise people do at the beginning, fools do at the end,” says William Smead, chief executive and chief investment officer of Seattle-based Smead Capital Management. If any of our readers have recently committed money to private equity, Mr Smead is referring to you.

The Decline and Fall of Fund Managers
Jason Zweig – MoneyBeat – WSJ
Active fund management is outmoded, and a lot of stock pickers are going to have to find something else to do for a living. The debate about whether you should hire an “active” fund manager who tries to beat the market by buying the best stocks and avoiding the worst—or a “passive” index fund that simply matches the market by holding all the stocks—is over.

Skandia shifts $1 bln to manager Woodford’s new firm from Invesco
Nishant Kumar – Reuters
Star British fund manager Neil Woodford will get a 640 million pound ($1.1 billion) boost for his new investment firm from asset manager Skandia, which is shifting money to him from Invesco Perpetual funds that he previously managed.

Who are the most bearish UK equity managers?
Anna Fedorova – Investment Week
Investment Week reveals the most bearish UK equity managers at a time when an increasing number are holding a significant chunk of their portfolios in cash as fears of a correction grow.

Why this mammoth mining fund is nervous over gold price outlook
Nick Paler – Investment Week
The team running J.P. Morgan Asset Management’s natural resources fund has said the gold price is unlikely to surge ahead from current levels, as US monetary policy and a strengthening dollar continue to weigh on sentiment.

Banks & Brokers

Goldman Sachs Settles FHFA Lawsuit For About $1.2 Billion
Justin Baer and Joe Light – WSJ
Goldman Sachs Group Inc. settled a U.S. housing regulator’s lawsuit for about $1.2 billion, resolving claims the Wall Street firm failed to disclose the risks on the mortgage bonds it sold before the financial crisis.

HSBC is sued in US for $250 mln over alleged role in ‘death bonds’
Jonathan Stempel – Reuters
HSBC Holdings Plc was sued for $250 million on Friday for allegedly ignoring red flags that a colorful British entrepreneur, the late David Elias, was committing fraud through an investment vehicle he controlled.

Exclusive: ASIC urges Interactive Brokers to launch new company for Australian clients
Andrew Saks-McLeod – LeapRate
North American retail FX giant Interactive Brokers LLC has encountered a rough business challenge in the Land Down Under. LeapRate has been informed that the Australian Securities & Investment Commission (ASIC) has demanded that the broker opens a new business entity in the country if it wants to continue its provision of margin loans to Australian residents.

Clearing & Settlement

SEC’s White urges Carney to remove reporting barriers
Joe Parsons – Futures & Options World
A body of 12 regulators has pleaded with the Financial Stability Board’s chairman, Mark Carney, to remove barriers that prevent certain counterparties from reporting their over-the-counter derivatives trades. The letter comes from the OTC Derivatives Regulators Group (ODRG) and is signed by the chair of the US Securities and Exchange Commission (SEC), Mary Jo White.

Trading Places: LCH.Clearnet’s SwapClear names new head
Lauren Schmidt, Yesenia Duran – Futures Magazine
LCH.Clearnet, the global clearing house, has announced that Marcus Robinson has been appointed Head of SwapClear Australia, to support the growing demand for on-the-ground, robust interest rate derivative (IRD) clearing solutions. He has relocated to Sydney.

Indexes & Products

Singapore Fixed Income Indices (SFI) Weekly – 25 August 2014


Calling All Voters
Trade Talk – Trading Technologies
Our CEO, Rick Lane, has been named a finalist in the Illinois Technology Association (ITA) CityLIGHTS Awards. He is up for Technologist of the Year, which recognizes the individual whose talent has championed true technology innovation.


Settlements make up 97% of fines collected by FCA, says research
Sam Fleming – Financial Times
Almost all the £943m of fines collected by the UK’s financial watchdog between 2010 and 2013 came from settlements, according to research by law firm Freshfields. In a trawl of Financial Conduct Authority cases, 97 per cent of fine money came from deals, rather than decisions challenged by the company accused of wrongdoing, the firm found.

Wylys’ lawyer warns SEC’s $729 mln claim would bankrupt them
Joseph Ax – Reuters
A lawyer for Texas tycoon Sam Wyly and the estate of his late brother Charles told a federal judge on Friday that a U.S. securities regulator’s demand for more than $729 million in damages would “bankrupt” the one-time billionaire.

California-Based Telecommunications Equipment Firm and Two Former Executives Charged in Revenue Recognition Scheme
The Securities and Exchange Commission today announced charges against a Newport Beach, Calif.-based telecommunications equipment company and two former executives accused of improperly recognizing as revenue more than a million dollars’ worth of inventory that was shipped to a Florida warehouse but not actually sold.

Environmental & Energy

China to Let Foreign Investors Trade in Shenzhen Carbon Market
China, the world’s biggest emitter of greenhouse gases, said it will allow foreigners to trade carbon permits in Shenzhen, making it the nation’s first emissions exchange to welcome outside investors.

Greens, industry square off over putting cars in EU carbon market
Ben Garside and Barbara Lewis, Reuters
Environmental campaigners are bracing to take on big business over whether Europe should follow California’s lead and include road transport in the EU carbon market.

Unilever confirms it has quit BusinessEurope lobby group
Jessica Shankleman, BusinessGreen
Consumer products giant Unilever has ended its membership of BusinessEurope, hinting at tensions over the lobby group’s stance on environmental policies and sustainability issues.

***LB: Also in this story “The move will further fuel speculation that BusinessEurope’s lobbying against a host of European environmental and climate change policies has put it at odds with some of its members.”


China gold exchange gains traction as yuan reforms stir interest
A. Ananthalakshmi – Reuters
China’s planned global gold exchange has signed up more members than targeted, as foreign banks and trading houses seek direct access to the world’s top physical gold consumer and to test out reforms allowing them to trade commodities in the yuan currency.

Investor Central: Singapore Exchange Limited — How much do the improved regulatory and risk management capabilities cost?
The Malay Mail Online
Singapore Exchange Ltd warns costs are going to rise substantially in the year ahead. It says it expects operating expenses of between S$330 million (RM835 million) and S$340 million, up from S$315 million in the year just ended.

China May Cut Salaries of SOE Executives by 70%, Caijing Says
Ting Shi – Bloomberg
China may cut salaries of executives at state-owned enterprises and financial institutions by as much as 70 percent, the most drastic proposal yet in a planned overhaul of SOE management, according to Caijing magazine.

Thailand allows foreign currency structured product issuance
Justin Lee –
Thailand’s Securities and Exchange Commission (SEC) is poised to allow foreign currency structured notes to be offered onshore in Thailand as part of a package of rule revisions that are expected to increase participation from foreign investors and allow for more product innovation, say structured product issuers.

Ex-Chinese Banking Executive Raises $8 Bln for Private Firm
Chao Deng – MoneyBeat – WSJ
The chairman who used to run China’s largest private bank has his eyes set on transforming the country’s private sector through a new investment vehicle.

Wang Xiaoqi Vice President Of The China Iron And Steel Association: Iron Ore Futures Accepted by Int’l Market Participants – Wild Speculation Caused By Asymmetric Information Is Eliminated

ASEAN Capital Market Regulators Launch Framework For The Cross-Border Offering Of CIS

Dalian Commodity Exchange: Factory Warehouse Delivery Added For Blockboard Futures – Promoting Industry Upgrading Taking Effect, Factory Warehouse Delivery Achieved Without Extra Effort

SGX to introduce reduced board lot size from 19 January

Frontier Markets

Egypt Seeks to Have First, Biggest Commodities Exchange in MENA
Amwal al Ghad
Egypt plans to launch the first and biggest commodities exchange in the Middle East in the coming period, said Minister of Supply Khaled Hanafy.

South African money funds ‘break the buck’
Steve Johnson – Financial Times
At least 10 South African money market funds have “broken the buck” in the wake of a central bank-led bailout of African Bank Investments, the country’s biggest provider of unsecured loans.

Bursa Malaysia Reveals The Best Virtual Traders In Town – Winners Of Fantasy FTBL.TRADR Challenge – More Than 6,000 Malaysians Pitted Their Trading Skills To Win Their Share Of The RM125,000 Total Prize Money

Dubai Financial Market Successfully Concludes Its Summer Training Program 2014 – The Program Offered 10 Emarati Students The Opportunity To Sharpen Their Skills And Plan For Their Future Career

Securities And Exchange Commission Of Pakistan Expressed Contentment Over The State Of Preparedness For Divestment Of Shares Of Lahore Stock Exchange

John Lothian Newsletter

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