John Lothian Newsletter: Deutsche Börse to create dedicated fintech venture fund; Drop the U.K. Panic Talk and Protect Global Markets; Hedge Funds Still Can’t Figure Out a Way to Avoid a $25 Billion Tax Bill

Jun 21, 2016

First Read

MFA Has Come to Town, or So We Hear
Doug Ashburn, JLN

The Managed Funds Association has tiptoed into Chicago today to host Forum 2016, its flagship event that brings together asset allocators and CTAs and hedge fund managers for education and networking. I say “tiptoed” because, well, the MFA has become increasingly tight-lipped about its conferences and, in our opinion, paranoid about the myriad rules surrounding marketing, messaging and other restrictions. They are closed to outside media, yet still have six “media partners” who are treated to this warning:

“The Forum 2016 Conference is a press-free event. MFA reserves the right to deny admission to any representative from a media/publication who is actively engaged in press and other journalistic pursuits.”

I doubt I would wish to attend, anyway, as registrants are required to sign a policy statement that is longer than the first mortgage I signed 25 years ago. This is not meant as a criticism, but rather an observation, regarding the legal and regulatory environment surrounding private funds. I thought hedge fund marketing restrictions were supposed to loosen.

Perhaps we should discuss the issue with our friends at CTA Expo, Frank Pusateri and Bucky Isaacson, when they come to town in September. They run a similar event, with break-out sessions, panels, private meeting rooms and networking, and they have been quite receptive to press participation. I would ask the MFA, but they do not wish to engage with the press today.

The only reason we knew MFA Forum was this week is because last night was the 5th Annual Managed Futures Pinnacle Awards, hosted by CME Group and BarclayHedge. The annual event gives out 15 awards in eight categories of commodity trading advisors and managed futures funds. To see the list of nominees and winners, click HERE

The event also gives out its annual Pinnacle Achievement Award, which recognizes a person or people who have achieved, pioneered or otherwise made a difference to the managed futures sector. This year had two awardees, Richard Dennis and William Eckhardt, two industry legends renowned for their experiment in the early 1980s that brought together a number of novice traders (the “Turtles”) and taught them how to trade and manage money, to tremendous success.
Richard Dennis, William Eckhardt
The host for the evening, radio and TV personality Dennis Miller, seemed a bit off his game. It seems he was asked to stay away from politics and, as he just finished a 5-year stint on AM radio, this meant he was not allowed to use the bulk of his “A” material. In a nod to CME’s flagship energy contract, Miller said he was asked to be “light and sweet, but not crude.”


Fidessa and Commcise solve industry MiFID II unbundling conundrum
New partnership to evidence transparency when using dealing commissions to fund RPAs
Fidessa group plc (LSE: FDSA) has today announced a new partnership with Commcise that brings to the market a transactional method for funding Research Payment Accounts (RPAs). This allows the industry to support evolving MiFID II regulatory requirements whilst at the same time improving operational efficiency.

***** The goal is noble. That is a good place to start.


The IEX Exchange and Its Consequences for Investors
Larry Tabb, in TABB Forum
The SEC has approved IEX, warts and all. The question now is: How will the approval of IEX impact US market structure? Investors will rue the day, says Larry Tabb.

***DA: Tabb’s upshot: “While the development of IEX was an attempt to turn the tables on sophisticated traders, the SEC in one fell swoop by approving IEX will effectively make the markets exponentially more complicated, line the pockets of sophisticated trading firms, and pick the pockets of investors both large and small (but especially small), while degrading the quality, effectiveness and competitiveness of the US capital markets.”


Algo Trading


Is Chicago the most corrupt city in the world?
Jack Shenker – The Guardian
From Al Capone to Rod Blagojevich, the Windy City has a reputation for being the ‘capital of corruption’. But how does it compare with other cities globally?; Which are the most corrupt cities in the world?
Cities around the world – from Mogadishu to London – are under the spotlight for corruption, with heightened focus following the Panama Papers leak. But what does urban corruption look like – and how is it measured?

***** Let’s just say this about Chicago and corruption: where’s mine?


Employers Wonder Who Will Make the Coffee in a Britain After Brexit
From baristas to builders, Britain’s economy leans heavily on overseas labor.
Stephanie Baker; Sam Chambers – Bloomberg
Anthony Mansell, the only British barista at a Costa Coffee shop near London’s financial district, worries about what might happen if the U.K. votes to leave the European Union. All his co-workers are from other EU countries, including Italy, Spain, Bulgaria and Portugal.

****** The true Brexit Crisis. No wonder Allan Schoenberg left London.


National 4-H Council and CME Group Bring Commodity Carnival to 150 State and County Fairs in Fourth Year of Partnership; Carnival Educates Youth on the Business of Agriculture
CME Group
CME Group, the world’s leading futures exchange, and National 4-H Council are partnering for a fourth consecutive year to bring their popular and award-winning fair experience, Commodity Carnival, to a growing number of fairs during 2016. The interactive experience is scheduled to visit 150 state and county fairs across nine states this summer to teach fair-going families the fundamentals of risk management in agriculture, by way of bringing a hog to market. The game will also continue to be accessible beyond the fairgrounds this year via the mobile companion app, Risk Ranch.

***** Get yourself an elephant ear and a corn dog and go over and play Commodity Carnival.


Monday’s Top Three
We had a runaway winner in yesterday’s click race, and it was quite a coup for the home team, Sarah Rudolph’s story on Ceres Cafe’s Billy Assimos. It’s not just a bio of Billy, but also a look at the history of Chicago’s commodities markets through the eyes of a man who not only traded these markets, but also served, and continues to serve, stiff drinks to its participants.
The second place story, A Hacking of More Than $50 Million Dashes Hopes in the World of Virtual Currency, is a reminder that, though digital currencies and distributed ledger technology has shown much promise, we aren’t quite there yet. Rounding out the top three was What’s the Buzz at Goldman Sachs?, which detailed Goldman’s annual list of buzzwords.

Lead Stories

Deutsche Börse to create dedicated fintech venture fund
Philip Stafford – FT
Deutsche Börse, Europe’s largest exchanges operator, is to shake up its disparate investments with the creation of a new venture capital fund targeting fintech in capital markets.

Drop the U.K. Panic Talk and Protect Global Markets
By Ashoka Mody – Bloomberg
The doomsday narrative of British Prime Minister David Cameron, the Bank of England and their official friends around the world is setting a course for a self-fulfilling financial panic. They insist that the British economy will be permanently poorer and global markets will be roiled if the British public votes to leave the European Union in a referendum on Thursday.

Hedge Funds Still Can’t Figure Out a Way to Avoid a $25 Billion Tax Bill
Katherine Burton; Margaret Collins – Bloomberg
Loophole for fund managers slams shut at the end of 2017; Experts searched but ‘no one has come up with magic bullet’
The tax man cometh for some of the richest money managers in the U.S. They’ve had eight years to dream up a dodge. So far, no luck.

Euronext chief eyes assets as exchange industry consolidates
Michael Stothard in Paris – FT
Stéphane Boujnah, chief executive of pan-European exchange Euronext, refuses to be left out of the consolidation that is shaking up his industry.

CME Group Announces the Launch of European Union Wheat Futures and Options
CME Group
CME Group, the world’s leading and most diverse derivatives marketplace, today announced the launch of physically delivered European Union (EU) Wheat futures and options on futures contracts to begin trading on 12 September 2016, pending all relevant regulatory review periods. These contracts will be listed subject to the rules and regulations of the Chicago Board of Trade (CBOT).

IEX Sees Winning Enough Volume to Muscle Into Top Exchange Ranks
Annie Massa
Now that IEX Group Inc. has the same coveted regulatory status as the New York Stock Exchange, Nasdaq Inc. and Bats Global Markets Inc., the company’s chief executive officer plans to steal a significant chunk of business from them.

IEX: US equity market upstart has to prove slow is best
Nicole Bullock in New York – FT
Having won a bitter industry fight to become a US equity exchange, investors will soon see whether IEX of Flash Boys fame can fundamentally disrupt and change the business of buying and selling shares.

SEC Issues Near Record-Breaking Whistleblower Award
By Meredith-Anne Berger, Cliff Fonstein | Seyfarth Shaw LLP via JD Supra
On June 9, 2016, the Securities and Exchange Commission announced it awarded over $17 million to an ex-employee of a financial services firm. The SEC’s press release touts the award as the second-highest bounty ever handed to a whistleblower, bested only by a $30 million award from September 2014. This recent award brings the grand total of whistleblower awards to over $85 million since the bounty program began in 2011 and adds to the already substantial sum of $2.5 million awarded since January 2016.


Brexiters split into nice and nasty camps
Sebastian Payne – FT
Chancellor George Osborne has branded the controversial poster unveiled by Nigel Farage “vile”
Those campaigning for Brexit can be split roughly into two camps: the nice and the nasty. Both sides have charismatic leaders: Boris Johnson, the former mayor of London, leads the former tendency with his upbeat bonhomie and Churchillian rhetoric about the vision of a great “independent” Britain trading with the rest of the world.

Brexit Vote in Balance in Polls as Soros Warns of Pound Plunge
Thomas Penny; Svenja O’Donnell; John Follain – Bloomberg
YouGov shows Leave ahead 44% to 42%; ORB has Remain 53% to 46%; Soros warns of 20% slump in pound if U.K. votes to leave EU
Britain’s referendum on European Union membership remained too close to call two days before the vote, with separate polls showing leads for both sides and billionaire investor George Soros warning of a slump in the pound should voters back a so-called Brexit.

Brexit would end City’s dominance of euro trading
By Michael Stothard in Paris – FT
A British vote to exit the EU this week would spell the end of the City of London’s dominance in euro trading, the chief executive of pan-European exchange Euronext has warned.

Brexit Looms Over Art Market With London Auctions Set to Decline
Katya Kazakina
Referendum falls in middle of two weeks of London auctions; ‘You could get a lot more for your money’ if pound falls
It hasn’t exactly been an easy year for the world’s two biggest auction houses as their major sales contracted, clients got spooked by falling oil prices and scores of specialists exited.


CFTC draws US energy agency reproach over plan to let electricity traders file fraud suits
Neil Roland, MLex
A turf battle is brewing between federal derivatives and energy regulators over a US Commodity Futures Trading Commission proposal to let futures traders and consumers sue electricity companies for fraud. The CFTC, in a May proposal, sought to supplement its own authority to pursue fraud claims by giving private plaintiffs the right to seek damages for the same violations by regional grid operators. The US Federal Energy Regulatory Commission said it already “pervasively regulates” grid operators.

CFTC proposes measure to keep derivatives collateral safer
Financial News
Farmers, ranchers and others who use futures and swaps to hedge business risks could soon see new protections for the collateral they post to back up their transactions.

Canadian Securities Regulators Publish List of Unprotected Marketplaces
Today, the Canadian Securities Administrators (CSA) published CSA Staff Notice 23-316 Order Protection Rule: Implementation of the Market Share Threshold and Amendments to Companion Policy 23-101 Trading Rules (CSA Staff Notice 23-316), which lists marketplaces that will be considered unprotected for the purposes of the order protection rule (OPR) in National Instrument 23-101 Trading Rules (NI 23-101).

AMF launches whistleblower program
The Autorité des marchés financiers (the “AMF”) today launched its whistleblower program, intended to better protect individuals who report wrongdoing and enable the AMF to gather information on offences committed under the laws and regulations it administers.

Practice Pointers on Navigating the Securities Act’s Prohibition on General Solicitation and General Advertising
By Ze’-ev Eiger, Jared Kaplan, David M. Lynn, Anna T. Pinedo | Morrison & Foerster LLP via JD Supra
The Jumpstart Our Business Startups Act (the “JOBS Act”) included a measure directing the Securities and Exchange Commission (the “SEC” or “Commission”) to relax the prohibition against general solicitation and general advertising pursuant to Rule 502(c) (“Rule 502(c)”) under Regulation D (“Reg D”) of the Securities Act of 1933, as amended (the “Securities Act”), for certain Rule 506 offerings. In July 2013, the SEC adopted final rules establishing that an issuer relying on Rule 506(c) may engage in general solicitation “provided that the sales are limited to accredited investors and an issuer takes reasonable steps to verify that all purchasers of the securities are accredited investors.

ASIC finalises relief to smooth transition for responsible entities to implement new tax system for managed investment trusts
Following its announcement on 2 June 2016 (refer: 16-176MR), ASIC has granted relief to assist responsible entities of registered schemes to allow them to make changes to their constitutions without holding a members’ meeting to help them smoothly implement the new tax system for managed investment trusts should they make the choice to do so.

Exchanges & Trading Facilities

Deutsche Börse establishes a corporate venture capital platform
Deutsche Börse
New platform to foster strategic investments in fintech firms/New study “Future of Fintech in Capital Markets” by Deutsche Börse, in collaboration with Celent, outlines potential areas of opportunities for financial market infrastructure providers

Bats Global Markets Joins FTSE Mondo Visione Exchanges Index
Bats Global Markets, Inc. (Bats: BATS), a leading global operator of exchanges and services for financial markets, was added to the FTSE Mondo Visione Exchanges Index effective for the open of Monday June 20.

SGX Welcomes Frasers Logistics & Industrial Trust to Mainboard
Singapore Exchange (SGX) today welcomed Frasers Logistics & Industrial Trust to its Mainboard under the stock code “BUOU”.

SGX launches Sustainability Reporting Guide and rule; will provide training and tools to companies
Singapore Exchange (SGX) today introduced sustainability reporting on a “comply or explain” basis.

HKEX and KRX Sign Non-binding Letter of Intent
Hong Kong Exchanges and Clearing Limited (HKEX) and Korea Exchange (KRX) today (Tuesday) signed a non-binding letter of intent (LOI) to explore the cross-listing of their equity derivatives in each other’s market. The equity derivatives under consideration include, but are not limited to, stock index futures and options and single stock futures and options offered in local currency*.

Arrangements for Adjustment of Hengan Structured Products and Options
Hong Kong Exchanges and Clearing Limited (HKEX) has announced the arrangements for the adjustment to Hengan International Group Company Limited (Hengan) structured products and options to account for Hengan’s spin-off and separate listing of the QinQin Foodstuffs Group (Cayman) Company Limited on HKEX’s securities market by way of a conditional distribution in specie.

HKEX to Work to Revise its Stock Option Position Limit Model
Hong Kong Exchanges and Clearing Limited (HKEX) announced today (Monday) that it will work to revise its stock option position limit (SOPL) model.

Moscow Exchange pays out dividend to all shareholders
Moscow Exchange announces it has completed dividend payments for 2015. The total sum paid was RUB 16.2 billion, representing 58.2% of 2015 consolidated net profit under International Financial Reporting Standards (IFRS).


Donald Trump’s Man on Wall Street Explains Himself
Hamilton Nolan – Gawker
If Donald Trump wants to win the presidency, he’ll need to raise a lot of money. One of the men helping him do that is the hedge fund manager Anthony Scaramucci. We asked him why.

Hedge Funds & Managed Futures

Pensions: The slow burn financial crisis
Patrick Jenkins – FT
A lethal mix of low investment returns, high charges and insufficient contributions
The latest developments in Britain’s pensions landscape have got rather lost of late among the more brutal items dominating the domestic news agenda.

The Fed Gets an Attitude Adjustment
One of the officials responsible for setting interest rates at the U.S. Federal Reserve — St. Louis Fed President James Bullard — has signaled a big change: Previously an outspoken advocate for raising rates aggressively, he now thinks the economy is so weak that a mere quarter-percentage-point increase would be enough for the foreseeable future.

These CEOs Could Earn Millions From Stock Awards Valued at Zero
Anders Melin – Bloomberg
Boards tie equity grants to goals deemed unlikely to be met; Potention pay can then be left off company compensation tables
As scrutiny of executive compensation intensifies, some companies are using a little-known technique that keeps potential payouts under the radar. Six Flags Entertainment Corp. and Tempur Sealy International Inc. have awarded millions of dollars in stock to top bosses and given the equity a unique value: zero. To use that figure, the companies set performance targets they said were unlikely to be met.

Banks & Brokers

OTCGH’S EOXLIVE Represents Nearly 52 Percent of Natural Gas European Options Market Volume
Press Release
OTC Global Holdings (OTCGH), the leading independent commodities interdealer broker, announced today that on June 17, 2016 its EOXLive platform represented 51.8 percent of CME, ICE and Nasdaq’s total volume for the Natural Gas European Options market. The total volume brokered by OTCGH on this day was 66,700 lots.

Interactive Brokers Expands OTC Markets Content
Waters Technology
Officials say the data will give Interactive Brokers’ clients a more comprehensive view of trading on OTC Markets’ platforms.

Credit Suisse Chief Contends With Rising Tensions, and a Sinking Stock
Another downturn in the stock price of Credit Suisse has put Tidjane Thiam, the bank’s embattled chief executive, on the defensive — again.

Clearing & Settlement

Europe Shielded From Lehman-Like Blow Three Years After the U.S.
Europe is finally catching up to the U.S. in safeguarding derivatives trading.
It took the U.S. four years. The European Union needed almost seven. Now, the largest traders of interest-rate swaps in the 28-nation club must from Tuesday direct their trades to clearinghouses — third parties that guarantee a trade won’t fail if the other party to the transaction collapses.

Euroclear looks to apply blockchain to gold market —
Financial Times
Euroclear, one of the world’s largest settlement houses, is to make its first foray into emerging blockchain technology by exploring creating a new settlement system for the London gold market.

Eurex Clearing enhances the marketplace for securities lending central clearing
Deutsche Börse
The securities lending business turns gradually into a centrally cleared segment. “The impact of regulation and the increasing cost of capital, combined with the drive for operational efficiency, support central clearing for the securities lending marketplace”, said Erik Müller, who will take over responsibility for Eurex Clearing on 1 July.

EU swaps clearing starts: Five things you should know
Financial News
Rules imposing clearing requirements on Europe’s interest rate swaps market took effect on June 21, as the region adopts global reforms already begun in the US and Japan.

CME to Offer CCP Services in Europe
FTF News
The Chicago Mercantile Exchange Inc. (CME) has gotten the approval of the European Securities and Markets Authority (ESMA) to operate in the European Union as central counterparty clearinghouse (CCP).
The notice came as part of an ongoing update of approved CCPs based in third countries, according to ESMA officials.

Indexes & Products

The S&P 500 is outperforming the Nasdaq 100, and that’s not going to change: Traders
Annie Pei – CNBC
The S&P 500 has been outpacing the Nasdaq 100 this year, and two traders believe the trend will continue.
Erin Gibbs, equity chief investment officer at S&P Global, points out that the current global outlook and a low interest rate environment have caused investors to turn to the more defensive in their stock selection.

The most ‘dangerous thing’ that could push the S&P below 700
By Shawn Langlois, Social-media editor – MarketWatch
Start the countdown now. There’s just a few days left until Thursday’s vote on whether Britain quits the European Union, and the Brexit drama looks to keep us gripped until then. Polls this weekend showed a swing back to the “remain” camp, and that seems to be giving the market a huge boost this morning.
The Fly of the iBankCoin blog surely isn’t alone in struggling with the buying frenzy.

Index users back Bats’ UK entry to rival FTSE
By Dave Baxter and Taha Lokhandwala – FT Adviser
Bats Europe’s entry into the UK index market has raised hopes of a shake-up for retail users.
Last week, the firm launched a UK-focused index series with the backing of a number of wealth managers. The benchmark provider is launching 18 products covering UK-listed companies across the market-cap scale in 12 industry sectors.
Included is a rival index to investment management staple, the FTSE 100, that will also include quarterly rebalancing.

High flyer: STOXX® Europe 600 Index Derivatives
Our STOXX® Europe 600 Index Derivatives provide many opportunities. The index represents large, mid and small capitalization companies across 18 countries of the European region. It is therefore a broad, investable index, making it useful as a benchmark for the entire European stock market. Our derivatives on the STOXX® Europe 600 Index enjoy a successful development in the first half of 2016.


Questions with Kristi Ross, CEO, Dough
FinTEx Chicago
Kristi Ross is a prominent figure in Chicago’s tech scene as co-CEO of dough. Wikipedia can tell you she’s been EY’s Entrepreneur of the Year and on Crain’s Tech 50; having served with her on ChicagoNEXT’s FinTech Council since inception, I can tell you she’s a passionate believer in Chicago and the City’s potential as a global leader in FinTech. This pillar of the community sat down with me to answer 9 questions about the FinTech revolution (she refused to answer 10).

Twitter Buys Magic Pony Technology to Expand in Machine Learning
Jeremy Kahn; Sarah Frier
Startup uses machine learning to create high-quality images; Twitter facing competition from Facebook, Snapchat in video
Twitter Inc. agreed to acquire a London-based artificial intelligence startup to make tweeted live videos look more professional.


CFTC Obtains Default Judgment Orders against Three Magee Family Members of Calgary, Alberta, Canada, for Commodity Pool Fraud
The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Lynn Adelman of the U.S. District Court for the Eastern District of Wisconsin entered an Order of Default Judgment and Permanent Injunction against Defendants Ryan Magee, his father David Magee, and Ryan’s wife Dalyne Rae Magee, all of Calgary, Alberta, Canada, in connection with a commodity pool fraud that victimized United States and Canadian participants.

Federal Court Orders Florida Resident Todd Owen Marshall, Harvard Assets LLC, London Assets Inc. & Harvard International Trading, Inc. to Pay More than $2.4 Mln for Engaging in Illegal, Off-Exchange Precious Metals Transactions & Registration Violations
Judge Bloom’s Order requires the Defendants to pay disgorgement totaling $612,892 and a civil monetary penalty totaling $1,838,676. The Order also imposes permanent trading, solicitation, and registration bans against the Defendants and prohibits them from violating provisions of the Commodity Exchange Act (CEA), as charged.

Environmental & Energy

A Quick Trip to the Oil Patch Shows Energy-Related Losses Rising; The Dallas Fed’s southwest economy report sees noncurrent loans picking up at the region’s banks.
Tracy Alloway
“Like an oil lease, you’re easily disposable,” the villainous J.R. Ewing quipped to his beauty queen wife in the 1970s television series Dallas.

Uncompleted wells could hold back oil price rebound
Ed Crooks – FT
As oil trades at about $50 a barrel, everyone in the US industry is looking at DUCs.

Fund Manager Franklin Templeton Bets on Higher Oil Prices
Javier Blas – Bloomberg
Firm pours money into shares of independent producers; Current price of $50 a barrel isn’t enough to boost supply
Franklin Templeton Investments, a fund manager with $740 billion in assets, is pouring money into shares of independent oil exploration and production companies, betting that crude prices will rise further.


China’s debt problem needs more than Three Stooges impression
Gilliam Collinsworth Hamilton – FT
There are signs Beijing is making Chinese regulators adopt a joined-up approach to corporate debts
When China’s stock market plunged more than 30 per cent over the summer last year, Chinese regulators leapt into action. Unfortunately, the leaping in question was less a graceful, synchronised jump, and more a Three Stooges physical comedy routine as the Chinese government scrambled to retain control of its equity markets. Regulator actions were uncoordinated, at times even contradictory

In a World of Below-Zero Bond Yields, China Debt Bucks the Trend
Justina Lee – Bloomberg
Time to buy nation’s bonds as prices will rise, Fidelity says; Spread between U.S. and Chinese yields is widest in 10 months
As investors drive bond yields across the world to record lows, China is going the other way.

Frontier Markets

Look to Vietnam, Frontier Markets for Growth
Frontier markets will be the new emerging markets over the next 10 years, and that means long-term investors need to start looking to places like Vietnam for opportunities, said Khanh Vu, investment director at Vina Capital.

Visiting The Vietnam ETF
VNM received something of a slight last week when index provider MSCI Inc. MSCI
opted to elevate Pakistan to emerging markets status, a promotion long-coveted by Vietnam.
In fact, Vietnam didn’t even make the list of frontier markets MSCI is considering promoting to its major emerging markets benchmarks. The lone frontier market to receive that designation was Argentina.

John Lothian Newsletter

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CEO, Trading Technologies

Past JLN Newsletters

CME to permanently close most trading pits

CME to permanently close most trading pits

First Read $40,626/$300,000 (13.5%) Anonymous ++++ Hits & Takes John Lothian & JLN Staff Without fanfare or amplification from its executives, the CME Group shut the books on most -- but not all -- of its floor trading history Tuesday afternoon with the...

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