John Lothian Newsletter: Deutsche Börse eyes Asia expansion; Nasdaq to roll out 'kill switch' to help catch trading errors; JPX Will Consider Merging Jasdaq, Mothers, TSE Second

Feb 20, 2014

First Read

Quick View: Eurex caught out
Philip Stafford – FT.com
Two days ago, this column welcomed a move by Eurex, the German futures exchange, to explain unusual activity on its market. […] A shame that just two days later Nanex, the financial markets consultancy, discovered Eurex had quietly altered its explanatory chart from this:
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***** Really Philip?

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Australia’s new exchange offers fast track for Chinese firms
Reuters
Australia’s newest stock exchange launched on Thursday with plans to attract Chinese companies that want to dodge red tape at home and shake off regulatory pressure on valuations, in the latest challenge to ASX Ltd’s near monopoly.
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***** Companies don’t dodge, they maximize the utility of where the list their shares so as to attract the largest number and greatest diversity of shareholders. But then “dodge” sounds edgier.

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Deutsche Boerse has little fear of hostile bid by CME
Reuters
Deutsche Boerse said it has little fear of a hostile takeover bid by Chicago-based CME Group Holdings Inc, as the regulatory hurdles are too high.
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***** Trying to buy Deutsche Boerse in a hostile takeover would not be “low hanging fruit,” which has been the focus of the CME’s acquisition strategy over the years.

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DERIVATIVES: CFTC relief dampens ICAP cross-border headstart
IFR
Swaps brokers are taking starkly different views on how their European platforms will be affected by the Dodd-Frank electronic trading mandate even as swap execution facilities go live this week.
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****** Brokers always have different views. That is a big part of what they do.

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Myron Scholes Appointed to CME Group’s Competitive Markets Advisory Council
CME Group, the world’s leading and most diverse derivatives marketplace, today announced that Myron S. Scholes, Nobel Laureate in Economic Sciences and the ‘Frank E. Buck’ Professor of Finance, Emeritus, at the Stanford Graduate School of Business, has returned to the CME Group’s Competitive Markets Advisory Council (CMAC).
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***** Welcome home.

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New Book from Richard Sandor
Environmental Financial Products (EFP) is proud to announce the publication of “Environmental Markets: A New Asset Class”, authored by Richard L. Sandor, Nathan Clark, Murali Kanakasabai and Rafael L. Marques. The book, commissioned by the CFA Institute Research Foundation, was created as a research and teaching tool.
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***** Doc’s books are always an essential read.

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Euronext Brussels hosts the 2014 Belgian Traders Trophy final
Euronext, a wholly owned subsidiary of IntercontinentalExchange Group, today hosted the final of the Belgian Traders Trophy, bringing together 20 students from top universities to participate in a unique challenge.
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****** Is the trophy shaped like a giant waffle?

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Rosenblatt Securities 4th Annual European Market Structure Conference
March 18, 2014; Royal Science Center, Burlington House, Piccadilly, London, UK
Rosenblatt‘s European Market Structure Conference brings together buy-side traders and analysts, exchange executives, proprietary traders, financial technology and regulatory personnel for an afternoon of thought-provoking content and first-class networking. This year’s event will feature a fireside chat with Euronext CEO Dominique Cerutti and a debate on the impact of high-frequency trading between IMC Capital Markets’ Remco Lenterman and Finance Watch’s Benoit Lallemand.
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****** Rosenblatt always has an interesting conference.

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Brand New: Craig Donohue takes the reins at OCC
JohnLothianNews.com
In January, Craig Donohue returned to the financial industry as the new executive chairman of the OCC, the world’s largest clearing house. Donohue, who stepped away from the financial markets after 25 years and the CEO post at the CME Group, spoke with Jim Kharouf, editor-in-
chief of John Lothian News about why he took the job, governance issues at the organization as well as where the OCC may be heading next.

Watch the video »

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jlne.ws/1dO3A8r

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Lead Stories

Deutsche Börse eyes Asia expansion
Philip Stafford in London – FT.com
Deutsche Börse, Europe’s largest exchanges operator, is planning to increase spending projects aimed at delivering long-term growth by about EUR30m in the coming year, seeking to lessen its dependence on its depressed core markets.
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Nasdaq to roll out ‘kill switch’ to help catch trading errors
Reuters
Nasdaq OMX Group plans to roll out a “kill switch” that would cut off trading of its member firms when pre-set limits are breached, the exchange operator said in a regulatory filing.
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JPX Will Consider Merging Jasdaq, Mothers, TSE Second
Anna Kitanaka and Satoshi Kawano – Bloomberg
Japan Exchange Group Inc. (8697) will consider merging three smaller equity markets to simplify its exchange structure, a bourse official said.
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Brazil approves BM&FBovespa’s post-trading platform for some notes
Reuters
BM&FBovespa SA received approval from two Brazilian regulatory agencies for permission to operate a platform to register, clear and settle certain securities, in a key step as Brazil’s sole financial exchange seeks to expand into over-the-counter fixed income instruments.
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France and Germany in push for ‘Robin Hood’ tax deal
Hugh Carnegy in Paris and Alex Barker in Brussels – FT.com
France and Germany have pledged to reach a deal on a European financial transaction tax by the end of May in a bid to give some impetus to efforts to find accord on the issue.
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HKMEx three set for trial
The Standard
The District Court has concluded there is sufficient evidence to show the three mainland defendants involved in the collapse of the Hong Kong Mercantile Exchange have committed fraud.
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Royalty Exchange and ICAP Patent Brokerage Create New Opportunities to Invest in Patent Royalties
Royalty Exchange, the world’s only online auction marketplace for royalty-based assets, confirmed today it is entering the intellectual property market by announcing a collaboration with ICAP Patent Brokerage, the global leader in patent and IP transactions. Royalty Exchange and ICAP Patent Brokerage will team up to offer patent royalties for sale at auction through the Royalty Exchange website.
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Regulatory

European Bankers Grill ECB Panel
WSJ.com
Representatives from some of Europe’s largest commercial banks grilled European Central Bank officials on Wednesday over the ECB’s plan to create a single bank supervisor this year, with concerns ranging from the regulatory appeals process, fees and even in what languages they could communicate.
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SEC’s Stein calls for more reforms to short-term lending market
Reuters
The short-term lending market is in need of reform to improve its transparency, a top U.S. regulator said on Wednesday, saying that the lack of public information on how much financial firms rely on such borrowing could lead to another financial crisis.
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Schroders and Sarasin join attack on mark to market
Mike Foster – Financial News
Asset managers Schroders and Sarasin & Partners have joined a campaign among institutional investors to oppose mark-to-market accounting and put prudence at the heart of UK accounting standards.
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Ex-sheriff Sheila Nicoll explains how to stay on the right side of the law
Joe McGrath – Financial News
When asset management groups struggling to comply with the recent blizzard of regulation hit a detail they don’t understand they must often long for an explanation. Many are hiring experts or seeking outside help, but there cannot be many better advisers on what the new rules really mean than the person who wrote many of them.
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ESMA-EBA: Euribor Makes Significant Progress With Reforms
The European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) have today published the results of their joint review of the Euribor-EBF
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Exchanges & Trading Facilities

Deutsche Börse Affirms Dividend Even as Profit Slips
Ulrike Dauer – WSJ.com
German exchange operator Deutsche Börse AG said it will keep its dividend stable for 2013, although net profit fell short of the company’s latest guidance.
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BATS Global Markets Selects Equinix’s Secaucus Data Center for BATS and Direct Edge Exchanges
Newly Combined BATS-Direct Edge to Offer Customers Best-in-Class Connectivity, Cost Efficiency, and Network Choice
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Colombian Exchange Resumes Bond Trading After 2 1/2-Hour Halt
Andrea Jaramillo – Bloomberg
The Colombian stock exchange resumed trading on its fixed-income platform after a 2 1/2-hour halt caused by a technical failure.
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Direct Edge Trading Notice #14-07: BATS/Direct Edge Integration Plan
jlne.ws/1mvCfh1

EnterNext welcomes Novisource to Amsterdam market
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Hedge Funds & Managed Futures

Founder of Citadel Pledges $150 Million to Harvard, Its Largest Gift Ever
MICHAEL J. DE LA MERCED – NYTimes.com
When the billionaire hedge fund manager Kenneth C. Griffin was a sophomore at Harvard, he was betting on convertible bonds in his dorm room — thanks to a satellite dish he had hooked up on the roof — while his fellow students were going to classes.
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SAFT ON WEALTH-Should you fire your economists?
Reuters
Rather than waste time and money making doubtful predictions about economic growth, you might just do better by buying stock in countries which have recently had hard times.
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Investment Company Institute Endorses Move To Shorten Settlement Cycles – Initiative To Reduce Systemic, Operational Risks Could Benefit Investors
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Banks & Brokers

Exclusive: Deutsche Bank moves closer to settling Kirch dispute
Reuters
Deutsche Bank is close to a 900 million euro deal to settle a dispute with the heirs of late media mogul Leo Kirch, a move that would end an acrimonious courtroom battle that has dogged German’s largest bank for more than a decade.
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BofA CEO Moynihan awarded $14 million in 2013
Reuters
Bank of America Corp Chief Executive Brian Moynihan received a 17 percent pay raise in 2013 as the bank posted its best year since the financial crisis, according to a regulatory filing on Wednesday.
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Lehman Settlement Frees Cash for Creditors
WSJ.com
Creditors of Lehman Brothers Holdings Inc. will receive hundreds of millions of dollars from the estate of the bankrupt firm following a settlement with Federal Home Loan Mortgage Corp.
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BGC Partners Announces Its 2014 Annual Meeting of Stockholders
To be held on Tuesday, June 3, 2014 at 10:00 a.m. ET
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Central Tanshi and Tullett Prebon Agree to Reorganise Joint Venture in Japan
Tullett Prebon, one of the world’s leading interdealer brokers, and its long-time joint venture partner in Japan, Central Tanshi, have agreed to reorganise their Tokyo business operations.
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Clearing & Settlement

DTCC, Information Asset Partners Collaborate To Provide New Market Intelligence For Insurance Industry
Breakthrough Solution Helps Carriers, Distributors, And Producers Identify Market Potential For Annuities
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DTCC backlog leaves corporates unable to comply with Emir
Fiona Maxwell – Risk.net
Corporates say backlogs at the Depository Trust & Clearing Corporation’s (DTCC) European trade repository have forced them to stop trading in order to avoid breaching derivatives reporting rules that took effect on February 12.
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NYSE Liffe Taps SuperDerivatives Volatility Data for Settlement Pricing
Faye Kilburn – WatersTechnology
Derivatives pricing, data and risk management software provider SuperDerivatives has begun providing IntercontinentalExchange’s London-based NYSE Liffe derivatives market with volatility data to enhance daily settlement price calculations for flexible FTSE 100 options, after recently extending the maximum expiry of the options to 10 and a half years.
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SEFs Go Live – Incumbents Sitting Pretty
Radi Khasawneh – TabbFORUM
While the four largest interdealer-brokers have dominated SEF volumes for interest rate swaps, and Bloomberg’s SEF has controlled credit default swaps volumes, there are opportunities for new entrants to grab a share of the emerging SEF market as new workflows develop.
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CME Group Margins: Performance Bond Requirements: Commodity Index Inter Commodity Spread Ratios- Effective Thursday, February 20, 2014
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CME Group Margins: Performance Bond Requirements: Natural Gas Outright Margin Changes- Effective Thursday, February 20, 2014
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Indexes & Products

NASDAQ OMX Launches Two New Indexes in the NASDAQ IBIS Index Family
The NASDAQ OMX Group, Inc. has introduced two new indexes on the Global Index Data Service 2.0 – the NASDAQ IBIS Focused Growth Index; and the NASDAQ IBIS Focused Growth Total Return Index.
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Xetra/Börse Frankfurt: New db x-trackers Equity Index ETF Launched On Xetra – ETF Tracks Companies With Above-Average Dividends
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Technology

Gemini Plumps for SunGard’s Hedge360 Platform
Victor Anderson – WatersTechnology
Gemini Hedge Fund Services, the Hauppauge, New York-based hedge fund administrator, has selected SunGard’s Hedge360 application suite as its platform of choice.
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Enforcement

CFTC Charges Ron Earl McCullough and David Christopher Mayhew with Fraudulent Solicitation, False Statements, and Misappropriation of More than$1.6 Million of Customer Funds
The U.S. Commodity Futures Trading Commission (CFTC) filed an enforcement action in the U.S. District Court, Eastern District of North Carolina, charging Ron Earl McCullough and David Christopher Mayhew. The CFTC Complaint charges McCullough and Mayhew with fraudulently soliciting, directly and through others, approximately $2.3 million from at least 11 individuals to trade leveraged or margined off-exchange foreign currency (forex) contracts. Further, the CFTC Complaint alleges that McCullough and Mayhew misappropriated at least $1.6 million of their customers’ funds.
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Analyst Charged With Stealing Quant Trading Models From Major Hedge Fund
Forbes
Manhattan District Attorney Cyrus Vance Jr., has accused a former hedge fund analyst of stealing documents that detailed the methods and application of two trading models from a major New York hedge fund firm that specializes in quantitative trading.
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Bond executive testifies ex-Jefferies banker lied on trades
Reuters
A senior AllianceBernstein Holding LP executive testified on Wednesday that former Jefferies Group Inc banker Jesse Litvak misled him into overpaying for bonds, prompting him to press for an investigation.
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SEC claims drunk lawyer had insider tipple
Kara Scannell in New York – FT.com
An alleged insider trading scheme involving a claim about an intoxicated lawyer and his wealth manager has drawn the attention of US prosecutors.
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Environmental & Energy

Obama Keystone Pipeline Review Roiled by Nebraska Judge
Bloomberg
A Nebraska judge’s decision throwing out the Keystone XL pipeline route in the state may push President Barack Obama’s final decision on the contested project until after the midterm congressional elections.
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Nebraska Court Ruling Voids Approval For Keystone XL Pipeline
AP
Just as pressure was building on President Barack Obama to make a decision on the Keystone XL pipeline that would carry oil from Canada to refineries in Texas, the project ran into another obstacle — and it came again from Nebraska.
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Keystone pipeline approval in limbo after Nebraska ruling
Reuters
A Nebraska court on Wednesday voided the governor’s decision to allow the Keystone XL pipeline to pass through the Midwestern state, creating another snag for the controversial project to link Canada’s oil sands with refineries in Texas.
jlne.ws/1csRRLz

Asia-Pacific

S’pore bourse may miss revival of Chinese IPOs
Business Times
Even as initial public offerings (IPOs) of Chinese companies are back in favour on major stock exchanges globally, the Singapore market seems to have missed out on this revival.
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China Sets New Rules for Bank Liquidity
WSJ.com
China unveiled rules aimed at making sure banks keep on hand enough cash and other liquid assets after three credit squeezes hit the nation’s financial system last year.
jlne.ws/1mvCh8E

The Auditing Roadblock: It’s Not Just China
FLOYD NORRIS – NYTimes.com
The Public Company Accounting Oversight Board is out with a list of 58 international audit firms that it has been unable to inspect for at least four years. Those firms all audited companies registered in the United States, and — under American law — must be inspected by the board. The board has tried to arrange joint inspections with regulators from other countries, but a variety of impediments have arisen.
jlne.ws/1mvCfxD

China’s Latest Data Pose Policy Issues
WSJ.com
China’s economic growth appears to have slowed significantly at the start of the year, raising questions about the government’s ability to hit its expansion targets without exacerbating strains on the financial system.
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[HKEx] Arrangements for Adjustment of MGM China Options
jlne.ws/1mvCfxE

TOCOM Receives Authorization From SFC As ATS Provider
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Taiwan Futures Exchange Monthly Newsletter- February 2014
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SGX And SIM University Partner On Investor Education
Singapore Exchange (SGX) is collaborating with SIM University (UniSIM) to develop and provide investor education to the public.
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Frontier Markets

Collaborative Arrangement Between Bursa Malaysia And Saudi Stock Exchange (Tadawul)
Bursa Malaysia and the Saudi Stock Exchange (Tadawul) recently entered into a Memorandum of Understanding (MoU) to formalise a collaboration to develop cross border activities between both exchanges in capital market development.
jlne.ws/1mvCit6

KKR’s Kravis: ‘really tough’ to buy controlling stakes in emerging markets
Reuters
Global private equity firm KKR & Co LP (KKR.N) co-founder Henry Kravis on Thursday said buying controlling stakes in companies is “really tough” in emerging markets, and is particularly hard in India because of the prevalent family-owned business structure.
jlne.ws/1mvCita

G20 final document to address U.S. policy impact on emerging markets
Reuters
The world’s financial leaders will address the impact of U.S. monetary policy on emerging markets in a final document from their meeting this week in Sydney, but the wording has yet to be agreed, a Russian G20 official said.
jlne.ws/1mvChp2

Court upholds Citigroup arbitration win over Abu Dhabi fund
Reuters
A U.S. appeals court on Wednesday rejected the Abu Dhabi Investment Authority’s effort to void Citigroup Inc’s (C.N) arbitration win in a dispute over a $7.5 billion investment in the bank less than a year before the 2008 financial crisis.
jlne.ws/1mvChp4

Nigeria’s President Suspends Central Bank Governor
WSJ.com
Nigeria’s president on Thursday suspended the governor of the country’s central bank, a decision that stunned investors and pointed to growing political tensions in Africa’s top oil producer.
jlne.ws/1mvCith

Brazil losing its appeal for private equity and venture capital
Samantha Pearson in São Paulo – FT.com
Private equity and venture capital groups have slashed fundraising for Brazil by more than 70 per cent over the past two years as the country’s gloomier economic outlook drives away larger companies such as London-based 3i.
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