John Lothian Newsletter: Deutsche Boerse gets offer from U.S. to settle Iran case; Fed to outline bank commodity policy early 2014; New U.S. trading platform, IEX, aims to disrupt market structure

Oct 29, 2013

First Read

Ed Tilly

Two-part Ed Tilly Interview
It has been half a year since Ed Tilly took over as CEO of the CBOE from Bill Brodsky, who moved to the newly created role of executive chairman. With six months under his belt, John Lothian News Publisher John Lothian sat down with him to talk about his new job, new initiatives from the CBOE and the challenges facing the industry.

WATCH: Taking the Reins: CBOE’s Ed Tilly Makes The Transition to CEO

WATCH: Getting Shorter: CBOE’s Ed Tilly Introduces Short-term VIX and Industry Taxes


A Leg To Stand On’s (ALTSO’s) Hedge Fund Rocktoberfest NYC Raises $400k On Its Ten-Year Anniversary Celebration To Provide Children In Developing Countries With Prosthetic Limbs and Life-Altering Surgeries
Recognized as one of the most unique fundraising events in the global hedge fund industry, A Leg To Stand On’s (ALTSO’s) Hedge Fund Rocktoberfest raised approximately $400,000 on its 10-Year Anniversary celebration last week at Capitale on 130 Bowery in New York City with the strong support of major sponsors and attendees from the Tri-State Area financial, business and hedge fund communities. Finance industry professionals performed rock and roll and acoustic music to raise funds for ALTSO, which offers treatment to children who have lost their limbs in traumatic accidents or suffer from congenital disabilities, empowering them with the opportunity for both an education and employment. 100% of the net proceeds raised at Hedge Fund Rocktoberfest are allocated to ALTSO’s life-changing programs in Africa, Asia and Latin America.

**JK: Great event and great cause. A tip of the cap to Mead Welles, Gabby Mueller and AJ Warco, and the volunteers who made it happen.


Trials and Tribulations of First Time Funds
Hillary Canada – MoneyBeat – WSJ
The proliferation of so-called zombie funds, frustration among institutional investors over the performance of the old guard and plenty of capital returning to limited partners have paved the way for hungry executives to set up shop. But the recent travails of two first-time partnerships speak to the difficulties limited partners face when choosing which new shops to back.

***DA: Nothing new here. Caveat Emptor. Want to come out a winner in this game? Get a law degree and represent one side of the inevitable dispute.


ISE Gemini Completes Third Successful Product Rollout Since Launch
The International Securities Exchange (ISE) today announced that ISE Gemini has completed the rollout of 199 additional products. This represents the third successful product rollout since ISE Gemini’s launch on August 5, 2013. ISE Gemini now lists approximately 700 total products that together represent over ninety percent of equity options industry volume.

**JK: 199 more listings of options on the screen, 199 listings…

***JM: Can 199 new products be a “launch”? Maybe we should call this an “avalaunch”.


Richard Sandor Interview
Chicago Tonight
Richard Sandor is known as the “father of financial futures,” and he just received the French Legion of Honor for accomplishments in the field of environmental finance and carbon trading. He joins us to talk about the award, and his recent work.

**JK: Doc does the whole interview in French, with Chinese subtitles he wrote himself.


TradeMonster Celebrates 5-Year Anniversary
Greg MacSweeney – Wall Street & Technology
TradeMonster, the online retail brokerage that was launched five years ago during the financial crisis, is celebrating its fifth anniversary with $5.00 flat execution commissions today for equity and options trades.

**JK: I’m going as a TradeMonster for Halloween this year. Happy number 5 guys!


So, about that Volcker rule you’ve spent years considering
Dan McCrum | FT Alphaville
To regulators, naysayers and haters, the hedge fund industry has had one trump card to play for years: hey, we didn’t cause the financial crisis. Cause the crisis? Maybe not. But a staff report lands from the New York Fed which suggests hedge funds did at least make it worse, adding to disruption in the credit markets that helped to seize up funding for US companies after Lehman Brothers collapsed.

***DA: “Old man Fuld?!! And they would have gotten away with it, too, if it weren’t for those meddling central bankers!”


Goldman Pushes Junior Investment Bankers to Take Weekends Off
Michael J. Moore – Bloomberg
Goldman Sachs Group Inc., this year’s top merger adviser, is discouraging investment banking analysts from working weekends as it overhauls demands placed on entry-level employees and the support they receive.

**JK: Let’s see, 100 hours a week, for $70k to $90k comes out to…$15.38 an hour. I can’t wait to work on Wall Street!


The Perils of Ascribing Meaning to a Random Event
Life is more random than we care to admit. I suspect it’s because randomness implies uncertainty and a lack of control. But when we try to assign meaning to one or two events, it can blind us to what’s really happening. For instance, think back to 2008-9.

***JM: When we’re little kids, we really do believe in cause-and-effect for crazy things like shouting at a traffic light to change it to green. Then when we’re older, we change that silly belief system to include finance.


More Noise, Less Signal
Barry Ritholtz | The Big Picture
On Friday, I described a goal of mine: To pursue more signal, and less noise. Toward that end, I listed 10 ways to reduce the noise. This morning, strictly as a thought experiment, I wondered what the process might look like if went another way: What would happen if you purposefully tried to assemble a “How-to” list to pursue the exact opposite goal — how to get more noise, and less signal?

***JM: Even though it sounds a little sardonic, this is actually a great way to evaluate behavior.



MarketsWiki Page of the Day
NYSE Technologies

MarketsWiki Recent Updates


Roland Bellegarde; Larry Harris; Atsushi Saito; Chitra Ramkrishna; Laurent Paulhac

Companies, Organizations and Groups

NYSE Technologies, Inc.; CQG; Global Markets Exchange Group International LLP; Deutsche Börse Group; Japan Exchange Group; ICAP


44,686,900 pages viewed, 7,690 articles, 166,706 edits
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Lead Stories

Deutsche Boerse gets offer from U.S. to settle Iran case
German exchange operator Deutsche Boerse said on Monday it had received an offer from the United States to settle an investigation into the possible violation of U.S. sanctions against Iran for $152 million.

**JK – How do you say, this is crazy in Farsi?

Fed to outline bank commodity policy early 2014: source
The U.S. Federal Reserve may not unveil its plans for regulating Wall Street’s commodity trading business until early next year, a person briefed on the matter said, deferring a decision on the politically fraught debate into 2014.

New U.S. trading platform, IEX, aims to disrupt market structure
IEX Group is the latest U.S. trading platform alongside 44 other alternative trading system (ATS) and 13 stock exchanges, but rather than try to blend into the current market structure, IEX says its goal is to disrupt it.

SGX launches Asian foreign exchange futures
Singapore Exchange (SGX) is introducing Asian foreign exchange (FX) futures for deliverable and non-deliverable Asian currencies from 11 November 2013. Futures contracts for six currency pairs, AUD/USD, AUD/JPY, USD/SGD, INR/USD, KRW/USD and KRW/JPY, will be launched initially.

Banks’ business models: adapting to the market
Dan Barnes – FOW
Restructuring can take place on the balance sheet or at an operational level; there are compelling drivers for banks to do both right now. A higher cost of capital, lower margins and in­creased leverage ratios are all weighing on banks. In addition, authorities are mandating the restriction of some trading activities, or their functional separation from retail operations.

Hedge funds caused post-Lehman liquidity crisis, says NY Fed research
Central Banking Newsdesk –
A paper published this week by the New York Fed challenges a popular perception that the misalignment between corporate bond and credit default swap (CDS) spreads during the 2007–09 financial crisis was due to corporate bond dealers shedding inventory when liquidity was scarce, putting the blame instead on hedge funds.

Rabobank to Pay More Than $1 Billion in Libor Settlement; Chief Resigns
The Dutch lender Rabobank admitted on Tuesday to criminal wrongdoing by its employees and agreed to pay more than $1 billion in criminal and civil penalties to settle investigations by United States, British and other authorities into its role in setting global benchmark interest rates.

UBS Probed Over Foreign Exchange
John Letzing –
UBS AG said it has received inquiries from authorities probing the possible manipulation of foreign-exchange markets and is conducting a related internal probe, adding yet another potential legal concern for the Swiss bank.

Greece’s Aggressive Pursuit of Tax Evaders Appears to Collect More Anger Than Money
The tax inspectors swept into this picturesque village in Crete during the middle of a saint’s day celebration recently, moving from restaurant to restaurant demanding receipts and financial records. Soon, customers annoyed by the holiday disruption confronted them. Pushing, shoving and angry words followed, and eventually the frightened inspectors were forced to flee.

Richard Sandor Receives French Legion Of Honor Award From France’s Ambassador To United States

**JK – And moi? I had French toast for breakfast.


CFTC Requests Public Comment on an Application by Singapore Exchange Derivatives Clearing Limited for Registration as a Derivatives Clearing Organization

EMIR reform: The time to act is now
David Field – Euromoney magazine
Having taken years to draft and agree, Dodd-Frank and the European Market Infrastructure Regulation (EMIR) are now beginning to come into force. Research conducted by Rule Financial in 2012 revealed huge disparity in the level of preparedness for regulatory reforms between buy-side and sell-side firms. One year on, little progress has been made in closing this gap.

Extraterritoriality and the rebalancing of the global economy
Aaron Woolner –
The derivatives sector in Asia has been vocal over the past 18 months about the extraterritorial aspect of the respective US and European approaches to increasing oversight of the over-the-counter derivatives market, but for Ashley Alder, chair of Hong Kong’s Securities and Futures Commission (SFC), such concern could well be the tip of a regulatory iceberg.

FINRA Issues New Investor Alert: Closed-End Fund Distributions: Where is the Money Coming From?
The Financial Industry Regulatory Authority (FINRA) issued a new Investor Alert called Closed-End Fund Distributions: Where Is the Money Coming From? to explain what closed-end funds are, how they differ from traditional mutual funds, what a distribution rate is and what to ask before investing.

Remarks by Richard Ketchum From the SIFMA C&L New York Regional Seminar

Exchanges & Trading Facilities

HKEx’s Upgraded Derivatives Trading And Clearing Systems Complete Stabilisation Period
The trading and clearing systems for Hong Kong Exchanges and Clearing Limited’s (HKEx) derivatives market – HKATS (Hong Kong Futures Automatic Trading System) and DCASS (Derivatives Clearing and Settlement System) – have completed the stabilisation period that followed their upgrade earlier this month to Genium INET, a new technology platform that provides better performance and supports the further development of the market.

Eurex And Vienna Stock Exchange Conclude Index Licensing Agreement – Listing Of New Futures And Options Planed On Leading Indices Of The Vienna Stock Exchange
The international derivatives market Eurex Exchange has concluded an index licensing agreement with the Vienna Stock Exchange (Wiener Börse AG). The agreement will allow Eurex Exchange to list futures and options on well-known indices of the Vienna Stock Exchange.

ISE Launches New Service For Pre-Legal Entity Identifiers (LEI) On
The Irish Stock Exchange (ISE) has launched its pre-Legal Entity Identifier (LEI) service. The ISEis sponsored by the Central Bank of Ireland as the pre-LEI provider in Ireland and is now providing an online application service for customers through a new website

Deutsche Börse – Xetra Release 14.0 Launched
Trading System Lays Foundations For Implementation Of German HFT Act / System-Based Risk Management Introduced

Reorientation Of Frankfurt Stock Exchange Strengthens Trading Venue
Quality Guarantee For Investors – Certificates Trading Under Frankfurt Stock Exchange Umbrella In Future – New Corporate Image

Former CFTC economist supports LME transparency, analysis of options
The London Metal Exchange’s proposals and consumer input are positive developments to solve aluminum trading problems, but further transparency is needed, Jeffrey Harris, a former chief economist at the US Commodity Futures Trading Commission from 2007-2010, said Monday.

SIX Exchange Regulation: Investigation against Liechtensteinische Landesbank AG

Hedge Funds & Managed Futures

High five for largest hedge fund start-ups
Harriet Agnew – Financial News
Last year was a tough time to launch a hedge fund in Europe.

Fleckenstein Sees ‘Really Stupid Valuations,’ Launches New Short Fund
Juliet Chung – MoneyBeat – WSJ
Hedge-fund managers have had a tough time on their short bets lately. But at least one short-seller sees a big reversal on the horizon. Seattle-based Bill Fleckenstein of Fleckenstein Capital, who shut down his profitable short-only fund in early 2009, plans to start another short-only stock fund early next year.

Investors pile into Spanish recovery
Peter Lee – Euromoney magazine
Capital is flowing into Spain in expectation of the economy’s return to growth but optimism might be excessive. Even before the Bank of Spain reported on Wednesday that initial third-quarter GDP data suggest the economy might have ceased to shrink and even have posted a slight increase after two years of continuous declines, investors were already piling into the recovery play.

Frenzy of Deals, Once Expected, Seems to Fizzle
It was mere months ago when headlines were blaring news of the return of merger mania. Deals were back! Confidence had returned! Warren Buffett was buying Heinz! Dell was going private! American Airlines was merging with US Airways! Well, take a look around. Prognostications of a return to deal-making have turned out to be wrong, very wrong.

Gold Fades From Investment Picture
Matt Day and Francesca Freeman –
The investor gold rush that propelled the precious metal to a dozen years of annual price gains is on the verge of ending with a whimper. Gold’s rise was powered initially by the introduction of financial products in the mid-2000s that made the metal more accessible to investors of all stripes. After the financial crisis, gains accelerated as investors snapped up gold amid fears that central banks’ easy-money policies would stoke inflation and diminish the value of paper currencies. Five years later, inflation remains subdued, dimming gold’s allure.

Hedge fund gains 93% on Spanish recovery play
Harriet Agnew – Financial News
A hedge fund that was set up to play on a recovery in southern Europe is up over 90% this year.

Hedgez launches portal to match accredited investors with hedge funds
Hedgez has launched a portal that takes a data driven approach to introducing high quality investors to appropriate hedge funds and other investments.

ADM has no update on potential sale of cocoa business, CEO says
Archer Daniels Midland Co said on Tuesday it had no update for investors about a potential sale of its cocoa business.

Banks & Brokers

Standard Chartered Puts Currencies Trader on Leave
Chiara Albanese –
Matt Gardiner, a senior currencies trader at U.K. bank Standard Chartered PLC, has been placed on leave of absence from his role, according to a person familiar with the situation.

Former central bankers urge better scrutiny of bank boards
Supervisors should focus on improving boards at top banks now their work on toughening up rules was coming to an end, a group a report from a think-tank of former central bankers said.

Speaking in Banking Tongues
David Reilly – MoneyBeat – WSJ
Bank regulators often speak a language all their own, replete with a host of acronyms amd jargon describing the nuances of different capital buffers. Even bank stress tests, a seemingly simple term, get dressed up as CCAR, or comprehensive capital analysis and review.

Ex-Credit Suisse chairman calls Dougan’s 90 million Swiss francs payout a ‘mistake’
Credit Suisse made a “mistake” by paying Chief Executive Brady Dougan nearly 90 million Swiss francs ($100.51 million) in 2010 under two different payout plans, the board member who oversaw the payment said in a television interview on Monday.

Why Wells Fargo’s loan losses are plunging
Wells Fargo & Co’s loan book is performing better than many of its peers and better than even the bank expected in the middle of the last year, thanks to factors including higher house prices and tougher loan standards.

Deutsche Bank profit slammed by legal charges
Deutsche Bank posted a 98 percent drop in quarterly pre-tax profit to 18 million euros ($24.81 million), below the lowest expectations, weighed by a fall in trading income and a 1.2 billion euros increase in litigation provisions.

Lloyds Wants Permission To Start Paying Dividends Again
David Cottle – MoneyBeat – WSJ
Lloyds Banking Group hasn’t paid out shareholder dividends since 2008, the year in which it was bailed out by the taxpayers of the United Kingdom, as were many other institutions, in an effort to avert the collapse of the financial sector.

MyTreasury announces addition of BofA fund to its cash investment portal
MyTreasury, a leading multi-product cash investment portal, announces today that its customer BofA Global Capital Management has added several of its domestic BofA Funds to the MyTreasury platform.

TD Ameritrade profit rises 40 pct as trading fees jump

Clearing & Settlement

Accenture Completes Transfer of Securities Processing Operations for First Client of Accenture Post-Trade Processing
Accenture ACN and Societe Generale Corporate & Investment Banking (SG CIB) completed the first step in transforming the bank’s securities processing back-office operations on October 14 by transferring them to Accenture Post-Trade Processing , a service launched by Accenture and Broadridge Financial Solutions BR.

BNY Mellon Releases Liquidity Aggregator
BNY Mellon, the global leader in investment management and investment services, has added to its arsenal of risk and collateral management-related services with the introduction of the Liquidity Aggregator, available through the company’s Liquidity DIRECT portal.

New EMIR Counterparty Classification Tool Launched On ISDA Amend To Help Businesses Comply With EMIR
The International Swaps and Derivatives Association, Inc. (ISDA), The British Bankers Association (BBA), The Investment Management Association (IMA) and Markit today announced the launch of the EMIR Counterparty Classification Tool on ISDA Amend, the online service from ISDA and Markit that facilitates compliance with certain European Market Infrastructure Regulation (EMIR) and other regulatory requirements.

CC&G Expands CCP Services – CC&G To Clear EuroMOT, ExtraMOT And HI MTF Markets
Expansion Of Offering Now Includes Clearing Of Euro-Denominated Bonds Settled Outside Of Italy – Increases Range Of Services Offered Outside Of Italy

ISDA Chairman Stephen O’Connor’s Presentation At The 2013 ISDA Regional Conferences In Asia

Moscow Exchange Launches Clearing Of OTC Derivatives With Central Counterparty

CME Group Clearing: Trading Tick Size Reduction for 16 CASIO Power Futures

Indexes & Products

Gold ETF Work Seminar Jointly Held By Shenzhen Stock Exchange And Shanghai Gold Exchange
Gold ETF Work Seminar has been jointly held by Shenzhen Stock Exchange (SZSE) and Shanghai Gold Exchange (SGE) on October 25, 2013. As innovative fund products that cross both markets of securities and gold, Gold ETF elevate the operation standard of ETF products in China, and offer a good type of investment products for numerous gold investors in China.

Shenzhen Stock Exchange: Cyclical Sector And Defensive Sector Series Indices Issued

Moscow Exchange To Launch Transportation Index

FTSE Launches New Shariah Developed Minimum Variance Index


Options and Redline expand partnership
Options, the leading private financial cloud provider for the global capital markets industry, has today announced a further expansion of their partnership with Redline Trading Solutions, Inc., a provider of low-latency market data and order execution solutions, which will see the IaaS provider offer a fully managed ticker plant for options and equities.

Ultra High-Performance FPGA Trading Gateway Launched by NanoSpeed
NanoSpeed, the provider of ultra-fast FPGA solutions to the trading community, has today announced the launch of Nano-TG, an ultra-low latency trading gateway. NanoSpeed provides the lowest latency, highly-robust FPGA-based trading, market data and risk management solutions to investment banks, prop traders and hedge funds, as well as exchanges and other financial institutions.

GFI Group Inc. : FENICS Releases Next Generation of Exotic Pricing Models
FENICS, a leading provider of FX options software, announced today the release of FENICS Professional 12.3, a new generation of its award-winning FX options software. This major release applies cutting-edge quantitative models to greatly enhance FENICS’ exotic math offering.

SunGard Announces Third Quarter 2013 Results
SunGard, one of the world’s leading software and technology services companies, today reported results for the third quarter ended September 30, 2013. For the third quarter, revenue was $1.0 billion, down 1% year over year. Currency had no material impact on reported revenue for the quarter compared to the prior year. Operating income was $122 million and the operating margin was 11.9% in the quarter, compared to an operating loss of $279 million in the third quarter of 2012.

Thomson Reuters’s financial business turns corner
Thomson Reuters Corp said on Tuesday that net sales in its financial business turned positive for the first time since 2011 and announced 3,000 job cuts aimed at streamlining the global news and information company.


SEC Charges Three Firms With Violating Custody Rule
The Securities and Exchange Commission today sanctioned three SEC-registered investment advisory firms for violating the “custody rule” that requires them to meet certain standards when maintaining custody of their clients’ funds or securities.

Goldman, Feeling Robbed, Still Has to Pay for Accused’s Defense
A victim of a crime would never be expected to pay for the perpetrator’s lawyer to defend the case. But corporate law can be counterintuitive, and Goldman Sachs found itself on the wrong side of a court decision that found that the bank’s bylaws require it to advance the legal fees of a former employee who has been accused of stealing its computer code.

Environmental & Energy

Economists back emissions trading over direct action: poll
Financial Review
Leading Australian economists have given a resounding thumbs down to the Coalition’s direct action climate change policy, with one saying it would cause more economic disruption for a lesser environmental pay-off than an emissions trading scheme.

EU environment ministers call for action on climate
Thirteen European environment ministers urged the European Union on Monday to adopt ambitious energy and climate goals for 2030 or risk falling behind the rest of the world.

Energy: Serbia’s renewables growth aims to outstrip EU
Financial Times
Energy security, greater use of renewables and market liberalisation are the three priorities of Serbia’s energy strategy over the next decade. In June, the government adopted an action plan that foresees meeting 27 per cent of gross final energy consumption from renewable sources by 2020. This is up from 21.2 per cent at present and well above the EU’s 2020 target of 20 per cent.


China Financial Futures Exchange And NASDAQ OMX Sign MOU
China Financial Futures Exchange (CFFEX) and the NASDAQ OMX Group, Inc (Nasdaq:NDAQ), signed a memorandum of understanding (MOU) at the World Federation of Exchanges’ annual meeting to strengthen cooperation and promote mutual development.

Foreign Hedge Funds Warm to China
Chao Deng – MoneyBeat – WSJ
More foreign hedge funds are devoting resources to China, attracted by strong returns, the potential for growth and signs that the country will continue to develop its financial markets.

Mizuho Report Finds No Cover-Up of Gangster Loans
The used-car dealers that dot the lonely outskirts of Tokyo and other Japanese cities are an unlikely link between one of Japan’s biggest banks and the country’s yakuza gangsters.

Eight Reasons Mizuho Didn’t Pull the Plug on Loans to Crime Syndicates
Kana Inagaki – MoneyBeat – WSJ
An investigative panel of experts blamed Mizuho Bank officials’ “lack of awareness” for the lender’s failure to cut off loans its affiliate made to crime-syndicate members. Hastily commissioned by Mizuho on Oct. 8, the panel of three external lawyers compiled a report spanning 102 pages, wrapping up a 20-day investigation that included hearings of 85 officials of Mizuho and its affiliate.

Taiwan structured product volumes rise by 70% in 2013
Justin Lee –
An increase in corporate and retail investor demand has seen a 70% rise in the amount of structured notes issued by overseas providers in Taiwan so far this year, revitalising a market that was crippled by investor losses following the collapse of Lehman Brothers in 2008.

JCCH: Japan Commodity Clearing House SPAN Parameter Update effective 11/1

Shenzhen Stock Exchange Market Bulletin 28 October, 2013 – Issue 21

HKEx Holds Listing Seminar In Heilongjiang

HKFE Announces Revised Margins For Futures Contracts

Frontier Markets

U.K. Considers Islamic Bond Sale
Ben Edwards –
The U.K. government on Tuesday said it is considering a sale of bonds compliant with Islamic law in what would be the first deal of its kind from a non-Islamic country.

Qatar fund sets sights on impact investment schemes
Vanessa Kortekaas in London and Simeon Kerr in Dubai –
Qatar’s $100bn sovereign wealth fund has sought to soften its image as an aggressive acquirer of trophy assets by putting money into so-called impact investment schemes with social or environmental objectives.

Dubai’s DGCX Plans to Launch Spot Gold Contracts Next Year; To Continue Exponential Growth
Arpan Mukherjee – MoneyBeat – WSJ
Dubai has been a gold-trading center in the Middle East for decades, but the market’s size has increased exponentially in recent years as the trade has expanded from traditional “souks” to the Dubai Gold & Commodity Exchange.

Dubai Financial Market Announces Its Board Of Directors Meeting To Be Held On 4 November 2013

CEO Of Qatar Exchange Attends The 53rd General Assembly And Annual Meeting Of The World Federation Of Exchanges In Mexico

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