John Lothian Newsletter: Don’t Tell Anybody About This Story on HFT Power Jump Trading; SEC's path to MMF reform ends in compromise; UK Talks on Currency-Rigging Settlement Accelerate

Jul 24, 2014

First Read

Bionic Eye
Jeremie Bacon – Orc Group
Orc is well known for it’s sophisticated automated trading and market making software platforms like Orc Market Maker, which has an electronic eye to help traders capture more market opportunities inside quoted spreads. Using technology to nab trading opportunities that come and go faster than the human eye can identify is pretty cool but not quite as cool (to me, anyway) as a story from my youth about a different kind of electronic eye, my bionic eye!

When I was little, two of my favorite TV shows were The Six Million Dollar Man and The Bionic Woman. I was fascinated with the idea of cyborgs, robots, and all things digital and used to pretend I had bionic parts of my own. One day my mom asked me to watch my little sister, then 3 or 4 years old, while she went outside to gather some eggs at the chicken coop and I got to demonstrate my bionic powers.

Being a good little boy I assured my mom that I would watch over my sister and that all would be fine as she walked out the back door. As she disappeared down the path I I touched the tip of my pointer finger to my temple, turning on my bionic eye. Then, sure in the knowledge that my bionic eye would warn me if anything out of the ordinary was about to transpire, I skipped merrily across the house, up the stairs, and into my bedroom to play with my toys.

Imagine my surprise when around 30 minutes later I was startled from my play by the shrill screech of my mother’s voice demanding that I come marching down the stairs “right this instant!” As soon as I turned the corner at the base of the staircase I realized something had gone terribly wrong with my bionic implants. Standing there in the middle of the living room was my little sister clutching the handlebar of her toy shopping cart. Inside it were pots, pans, overturned plants, crumpled up family photos, and last but not least, the rabbit ear antennas which she’d broken off our new 19 inch Curtis Mathes color television.

“I asked you to watch your sister!” my mother shouted, red faced and fire-eyed.

“But mom,” I replied, “I was watching her… with my bionic eye!”

++++

Don’t Tell Anybody About This Story on HFT Power Jump Trading
Saijel Kishan and Matthew Leising – Bloomberg
Far from Wall Street in a Chicago neighborhood once synonymous with urban blight, two futures industry veterans are using secrecy and speed to mint fortunes. Their firm, Jump Trading LLC, was all but invisible until it was among six companies subpoenaed in April by New York prosecutors.
jlne.ws/WINtDH

**JK – This reads more like an FBI file than a profile, leading one to wonder “what is the point here?” It’s also another example of why prop shops and HFT firms need to tell their story.

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Fed-Up Workers at U.S. Overseer of Swaps Move to Join Union
Silla Brush and Robert Schmidt – Bloomberg
Workers at the U.S. agency that polices the swaps market have taken the first formal step to join a union as they press for higher pay and benefits. The National Treasury Employees Union filed a petition yesterday seeking to represent more than half the staff at the Commodity Futures Trading Commission, the union said in an e-mail.
jlne.ws/1pKO5Bc

*** JB – Dodd Frank forced an overhaul of the derivatives market. It’s not surprising that the CFTC is next.

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SGX sets sights on US with New York office
Luke Jeffs – Futures & Options World
Singapore Exchange plans to open an office in New York, marking the Asian group’s first US base and its latest new regional centre as the firm moves into new regions. SGX is currently looking to hire staff to work in its new US office and plans to open the regional centre as soon as it has brought in the right people, according to sources.
jlne.ws/WILRKg

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World Of Opportunity Chicago 2014: Tim McDermott (Promo)
JohnLothianNews.com
Our MarketsWiki World of Opportunity Summer Intern Education Series in Chicago is quickly approaching. Tim McDermott, CEO of Nadex, will be discussing his career path in the financial industry and how his experiences have helped shape his career today.
For more information on the event and how to register, click here.

Watch the video »

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Bank settlements create windfall for U.S., and wrangling over how it is spent
Karen Freifeld and Edward Krudy – Reuters
U.S. authorities’ $8.9 billion settlement last month with French bank BNP Paribas for sanctions busting will pay for New York cops to get live computer feeds of street crime and for new carpets in the offices of prosecutors, among many other things.
jlne.ws/1pKCnq9

**JB – No brainer: they should give it to the guys at Jump (see above)!

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Regulatory Ruins? The Aftermath of a Financial Crisis
Anthony J. Perrotta, Jr. – TABB Forum
The balancing act between financial stability and economic growth is a delicate matter. Has regulation and intervention into the financial markets gone too far?
jlne.ws/1rcpbeT

**JB – I don’t know but I was impressed by the author’s use of the word ‘sagacious’ in the article. He just earned me 127 points in scrabble!

++++

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++++

“What have you done for me lately?”
Joshua M Brown – The Reformed Broker
The flipside of the performance chase. “What have you done for me lately? How dare you miss a market trend? Why aren’t we on top right now? Is something wrong? Have you lost your edge?”
jlne.ws/1penqxM

***JM: Been there, heard that. Market highs and lows are pretty easy to spot when you look back at the end of every month, yeah.

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Lead Stories

SEC’s long path to money market fund reform ends in compromise
Sarah N. Lynch – Reuters
U.S. regulators adopted moderate reforms for money market mutual funds on Wednesday, in what amounted to a compromise that aims to balance the need to reduce the risk of runs on the funds while still protecting the product’s utility for investors.
jlne.ws/1pKBnCn

U.K. Talks on Currency-Rigging Settlement Accelerate
Lindsay Fortado, Suzi Ring and Gavin Finch – Bloomberg
Talks to reach the first settlement in the currency-rigging probe are accelerating, with Britain’s markets regulator preparing to reach a deal with a group of banks this year, people with knowledge of the situation said.
jlne.ws/WIBnuo

White House to Begin $10 Billion Farm Investment Fund
ALEXANDRA STEVENSON – Dealbook – NY Times
Wall Street is looking for ways to invest in America’s heartland, and the government is ready to play matchmaker.
jlne.ws/1pKCHFe

**JB – Institutional investors only own around 1% of global farmland today; my money says we’re going to hear a lot more about this trend in the future.

Swaps Lobbyist’s New CEO to Limit Role in CFTC Lawsuit
Matthew Leising and Sam Mamudi – Bloomberg
The swaps industry lobbying group said Scott O’Malia, the U.S. regulator it hired to be chief executive officer, will limit his role in a lawsuit against the Commodity Futures Trading Commission he is leaving.
jlne.ws/1kcYsjP

Some Asset Managers Avoid Brunt of New Money-Fund Rules
Andrew Ackerman – WSJ
Asset managers that cater to individual investors are set to avoid the brunt of new money-market mutual-fund restrictions, after discount broker Charles Schwab Corp. built support for an approach to exempt companies like it from some provisions of the new rules.
jlne.ws/1pKFZs6

UBS Being Investigated in France Over Tax Evasion
DAVID JOLLY – Dealbook – NY Times
UBS, the largest Swiss bank, was placed under formal investigation by the French authorities on Wednesday and ordered to post bail of more than $1 billion in the kind of tax-evasion case that ensnared it in the United States several years ago.
jlne.ws/1pKCySs

Virtu to take on banks as swap market-maker
Duncan Wood – Risk.net
High-frequency trader, Virtu Financial, has been executing test interest rate swap trades on a broker-run central limit order book (Clob) – one of only two non-banks known to have done so. The firm, best known as an equities trader, is preparing to take on incumbent dealers by launching an over-the-counter derivatives market-making business, says president and chief operating officer, Chris Concannon.
jlne.ws/1qBLcrw

European Central Bank Announces Data Theft
Todd Buell – WSJ
The European Central Bank said Thursday that email addresses and contact data left by people registering for events at the central bank has been stolen. “There had been a breach of the security protecting a database serving its public website. This led to the theft of email addresses and other contact data left by people registering for events at the ECB,” said the central bank.
jlne.ws/1pKG7rO

Regulatory

Republican lawmaker to grill U.S. SEC over Ackman tactics
Sarah N. Lynch – Reuters
A U.S. lawmaker will pressure the U.S. Securities and Exchange Commission on Thursday to consider a raft of reforms, after William Ackman’s aggressive efforts to take over Allergan Inc raised concerns about loose rules governing disclosure and shareholder voting.
jlne.ws/1pKCh1Q

Super Regulator On A Libor Reform Mission
Chiara Albanese – MoneyBeat – WSJ
The Financial Stability Board, an umbrella of global regulators, is on a mission to give back credibility to scandal-plagued Libor. For more than two years, the benchmark – calculated on banks’ submissions and used to price around $450 trillion of financial products — has been in the eye of authorities in U.S., Europe and Asia probing attempts to manipulate it.
jlne.ws/1pengXi

SEC Approves FINRA Rule to Prohibit Conditioning Settlements on Expungement
The Financial Industry Regulatory Authority (FINRA) today announced that the Securities and Exchange Commission (SEC) has approved a new rule prohibiting firms and registered representatives from conditioning settlement of a customer dispute on—or otherwise compensating a customer for—the customer’s agreement to consent to, or not to oppose, the firm’s or representative’s request to expunge such information from the Central Registration Depository (CRD) system.
jlne.ws/1pKCWjJ

CFTC Staff Issues Time-Limited No-Action Relief from Electronic Reporting Requirements in the OCR Final Rule
The U.S. Commodity Futures Trading Commission’s (Commission) Division of Market Oversight (DMO) today issued a no-action letter that provides additional time for reporting parties to comply with certain reporting requirements of the ownership and control final rule (OCR Final Rule).
jlne.ws/1pKD3M7

SEC Adopts Money Market Fund Reform Rules
Press Release
jlne.ws/1pKCQbY

Surviving & Thriving in the Current Risk Management & Regulatory Environment
Bill Kramer – Wall Street & Technology
How financial institutions can leverage compliance initiatives to improve their business with a 360-degree view of the customer.
jlne.ws/1pKD8zt

Esma board fails to agree AIFMD prime broker segregation position
Luke Clancy – Risk.net
The board of the European Securities and Markets Authority (Esma) has failed to agree whether segregation provisions applying to hedge fund client assets held at prime brokers under the alternative investment fund managers directive (AIFMD) should be watered down.
jlne.ws/WIKrQ1

Statement At SEC Open Meeting On Money Market Fund Reform, SEC Chair Mary Jo White, Washington, D.C., July 23, 2014
jlne.ws/1pKJrTO

Statement Of Commissioner Daniel M. Gallagher, SEC Commissioner Daniel M. Gallagher, Washington, D.C., July 23, 2014
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Statement Of Commissioner Kara M. Stein – SEC Commissioner Kara M. Stein, Washington, D.C., July 23, 2014
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Strengthening Money Market Funds To Reduce Systemic Risk – SEC Commissioner Luis A. Aguilar Washington, D.C., July 23, 2014
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Statement At Open Meeting Regarding Money Market Fund Reform – SEC Commissioner Michael S. Piwowar, Washington, D.C., July 23, 2014
jlne.ws/1pKJnTO

New BCBS Intraday Liquidity Reporting Tools Present Data Challenges For The Banking Community
New SWIFT Whitepaper Suggests Banks Should Act Without Delay To Embrace A Pragmatic Approach To Intraday Liquidity Management
jlne.ws/WIJAyQ

Exchanges & Trading Facilities

Ice pumps over $15 million into benchmark business
Anish Puaar – Financial News
IntercontinentalExchange has invested $15.7 million in its benchmark business since the start of 2013, as the exchange group forges ahead with reforms to the Libor benchmark it inherited as part of its takeover of NYSE Euronext.
jlne.ws/WIKYS2

Intercontinental Exchange Completes Sale Of Wombat Financial Software To SR Labs
Press Release
Intercontinental Exchange, the leading global network of exchanges and clearing houses, announced today that it has completed its previously announced transaction with SR Labs for the sale of the Wombat Financial Software, a unit of NYSE Technologies. The transaction closed today and terms were not disclosed.
jlne.ws/1pKKJOH

LME And Colt Collaborate To Launch LMEnet
The London Metal Exchange is working with Colt Technology Services to launch LMEnet, a dedicated network that will provide market participants a fast, reliable and secure connection to the Exchange’s electronic systems, including LME Clear.
jlne.ws/1pKKSS8

Nasdaq reports higher second quarter earnings
Reuters
Transatlantic exchange operator Nasdaq OMX Group Inc on Thursday reported a higher second-quarter profit, as recent acquisitions helped drive growth across its business units.
jlne.ws/1pKKpiQ

Hedge Funds & Managed Futures

No new ‘Bond King’ for Pimco when Gross reign ends
Thomas Atkins and Kathrin Jones – Reuters
When Bill Gross eventually retires as chief investment officer of California-based asset manager Pimco, his “Bond King” crown will go with him.
jlne.ws/1pKC5Qb

Giant EUR375bn APG fund adds pensions expert
Mark Cobley – Financial News
APG, the EUR375 billion Dutch pensions management group, has recruited Philip Neyt, one of Europe’s foremost corporate pensions managers, as a strategic adviser, following the appointment of a new finance chief and chief investment officer.
jlne.ws/1pKFONA

Why Polish Private Equity Precedent Could Be Dangerous
Simon Clark and Marcin Sobczyk – MoneyBeat – WSJ
Poland’s financial regulator, the KNF, is ordering private equity firm Abris Capital Partners to sell a bank it owns by the end of this year. Why? Well the regulator alleges that the private equity firm failed to properly “consult” the KNF when it appointed a new chief executive officer at FM Bank PBP last year. In the regulator’s eyes, that’s enough to force a sale.
jlne.ws/1penhdV

EDHEC-Risk Institute Study Shows Room To Improve Investment Solutions In The Australian Super System
Press Release
Latest research argues that the Australian superannuation industry could be further strengthened by the development of an industry-led reporting standard and certification scheme.
jlne.ws/1pKKXVP

Banks & Brokers

Ex-Banco Espírito Santo Head Detained Under Money Laundering Investigation
Patricia Kowsmann – WSJ
Ricardo Salgado, who until recently was chief executive of troubled Portuguese lender Banco Espírito Santo SA, has been detained for questioning as part of a three-year money-laundering and tax evasion investigation.
jlne.ws/1pKGfaP

J.P. Morgan Promotes Top European Strategist
Sarah Krouse – MoneyBeat – WSJ
J.P. Morgan has handed its top equity strategist in Europe new global responsibilities amid a wider research reshuffle that also saw the bank name a successor to well-known strategist Thomas Lee.
jlne.ws/1pennCm

MOVES-Cantor Fitzgerald Europe appoints corporate finance director
Reuters
Financial services firm Cantor Fitzgerald Europe appointed Eric Bourguignon director of consumer & retail in its corporate finance team.
jlne.ws/1pKC2DX

Standard Chartered Says Its Board Supports C.E.O.
CHAD BRAY – Dealbook – NY Times
Standard Chartered, the British bank that earns most of its profit in Asia, on Thursday denied media reports in Britain that it was preparing a succession plan for its chief executive under pressure from investors.
jlne.ws/1pKCMsB

STAN: “We do not accept these media rumours”
Paul Murphy – Financial Times
We should just note the livid statement from Standard Chartered on Thursday morning…
jlne.ws/WIFJ4A

Saxo Bank Appoints Bressan as Equity Products Chief
James Rundle – WatersTechnology
Based in London, Bressan will report to Dennis Malamatinas, global head of regions and global marketing. Most recently, he was global head of dbIntegrate sales at Deutsche Bank, and spent eight years at Morgan Stanley prior to that in equities electronic trading.
jlne.ws/WIKhrM

Clearing & Settlement

ASX lowers fees for interest rate futures clearing
Simon Osborne – The Trade
The Australian Securities Exchange (ASX) will implement a new fee schedule for interest rate futures and provide volume discounts for OTC clearing from 1 October. The new schedule reduces fees, which have not been changed during the last decade.
jlne.ws/WILlfc

Indexes & Products

U.S. gold ETF delivers first physical bullion coins; holdings grow
Frank Tang – Reuters
Merk Gold Trust, a bullion-backed exchange-traded fund which allows its shares to be redeemed for physical gold, said on Wednesday it has made its first delivery in dozens of U.S. gold coins to an investor.
jlne.ws/1pKBRsh

Crashing the Communist Party With China-A Share ETFs
Eric Balchunas – Bloomberg
One of the final frontiers of investing may provide investors with some old-school value plays. Until last year, U.S. investors had no direct access to the universe of 2,500 stocks that trade solely in mainland China.
jlne.ws/WIO9Jv

Technology

SunGard Named Best Market Risk Solution Provider and Best Network Provider in 2014 Waters Rankings
SunGard has been named as “Best Market Risk Solution Provider” and “Best Network Provider” in the 2014 Waters Technology Rankings for its Adaptiv and SunGard Global Network (SGN) solutions, respectively. Readers of Waters Technology magazine and industry participants vote in the Waters Rankings, which recognize excellence among providers to the financial industry.
(via email)

FIX Finishes TESI Extension to FX
Timothy Bourgaize Murray – WatersTechnology
The industry group says its Trading Enablement Standard Initiative (TESI) will now be available for foreign exchange (FX) client enablement.
jlne.ws/1qBL2QI

Morningstar Adds 20 Markets to Consolidated Feeds
Max Bowie – WatersTechnology
The real-time division of data and investment research provider Morningstar has added data from more than 20 new marketplaces to its consolidated feeds, in response to client demand, particularly from online brokerages and wealth managers in North American and Europe.
jlne.ws/1peo3r6

Thomson Reuters Increases OTC Data Coverage through Expanded Partnership with BGC Partners
Expanded range of BGC Partners over-the-counter data available via Eikon and Elektron with new market data distribution & access model
jlne.ws/1pKD6rn

TESI extended to include FX trades
The Trade
FIX Trading Community today announced it has extended the Trading Enablement Standard Initiative (TESI) to include foreign exchange (FX) client enablement.
jlne.ws/1pKKqDu

Enforcement

UPDATE 3-Ex-Jefferies trader gets 2 years in prison in fraud case
Jonathan Stempel – Reuters
A former Jefferies Group Inc managing director convicted of defrauding investors who traded mortgage bonds through a government program established after the 2008 financial crisis was sentenced on Wednesday to two years in prison.
jlne.ws/1pKBL3Y

Judge dismisses suit claiming JPMorgan knew of Madoff fraud
Reuters
A U.S. federal judge on Wednesday dismissed a shareholders’ lawsuit claiming JPMorgan Chase & Co board members knew about Bernard Madoff’s Ponzi scheme and ignored red flags signaling his massive fraud.
jlne.ws/1pKC8LV

S.E.C. Scrutinizes McGraw Hill Over Commercial Mortgage Securities
RACHEL ABRAMS – Dealbook – NY Times
McGraw Hill Financial, the parent company of the Standard & Poor’s Ratings Services, could face an enforcement action related to six commercial mortgage-backed securities issued in 2011.
jlne.ws/1pKCG4h

Pension liberation websites frozen in clampdown
Investment Week
Eighteen websites have been suspended and arrests made during a campaign, being revamped on Thursday, against pensions liberation schemes. The schemes encourage people to access their pension savings before the age of 55.
jlne.ws/1qBJOVK

Illegal practice as a dealer and distribution without a prospectus – AMF files charges against Marie-France Dayan
jlne.ws/1qBLnmw

Environmental & Energy

Goldman Sees EU Using More Gas for Power as Short-Lived
Isis Almeida, Bloomberg Businessweek
Europe’s return to favoring natural gas for power generation for the first time in almost three years will be short-lived as Russian and Norwegian gas imports will be needed for winter, according to Goldman Sachs Group Inc.
jlne.ws/1neZ6wx

Putin suggests ending Gazprom pipeline monopoly
Courtney Weaver, Financial Times
President Vladimir Putin has ordered the Russian government to consider breaking Gazprom’s monopoly on pipeline gas exports by allowing other producers to export from new fields in eastern Siberia and the far east.
jlne.ws/1z09Cvi

An Austrian Company in Gazprom’s Grip
Stanley Reed, The New York Times
With tensions escalating between Russia and the West, and Moscow facing the possibility of tougher economic sanctions, few European executives may feel caught in the middle more than Gerhard Roiss.
jlne.ws/1pEVEJG

Asia-Pacific

Japan FSA threshold for trade execution ‘extremely high’
Viren Vaghela – Risk.net
A proposed JPY6 billion threshold for Japanese banks to trade swaps electronically from September 2015 will only capture the “10 or 20” largest dealers, providing relief to many smaller financial institutions
jlne.ws/1peoa6i

Frontier Markets

African IPO Fund-Raising Surpasses 2013 in First Half of 2014
Joe McGrath – MoneyBeat – WSJ
IPO activity in the first half of 2014 has resulted in capital raising totaling $808.5 million. The total amount raised through the whole of 2013 was $757.5 million, according to figures from consultant EY.
jlne.ws/1penbCX

Brazil Sells $3.5 Billion 30-Year Bonds
Rogerio Jelmayer – WSJ
Brazil’s government on Wednesday tapped the global debt market, issuing $3.5 billion in new bonds maturing in January 2045, and announced the buyback of shorter-dated global bonds to whittle down the country’s debt-service costs. The new 30-year, dollar-denominated bonds sold at 97.992% of face value, to yield 5.131%.
jlne.ws/1pKFRsC

John Lothian Newsletter

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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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