A Disruptive Environment: Sidley Austin’s Lisa Dunsky Offers Practical Compliance Tips for Firms and Traders
New rules and guidelines and a couple recent high profile criminal cases on disruptive trade practices have made compliance and supervision a high priority at trading firms and clearing firms. Lisa Dunsky, derivatives attorney and former counsel at CME Group, shares her insights on what firms and traders need to consider.
China reporter confesses to stoking market ‘panic and disorder’
Patti Waldmeir in Shanghai, FT
A leading journalist at one of China’s top financial publications has admitted to causing “panic and disorder” in the stock market, in a public confession carried on state television.
***** When was Jim Cramer in China?
China ‘punishes’ nearly 200 for spreading rumors
By CHUN HAN WONG, MarketWatch
Chinese authorities said they punished nearly 200 people for spreading online rumors in connection with recent major news events, in a government crackdown on politically sensitive discourse.
****** That is not even one chatroom or one episode of Mad Money.
U.S. Stock Swings Don’t Shake Investors; Whipsaw action aside, U.S. stocks’ appeal suggests that buyers see no better options
By SAUMYA VAISHAMPAYAN, WSJ
Stock indexes’ wildest week in years rattled investors and fueled expectations for further price swings, but it failed to squelch the belief U.S. markets remain the best place to put money.
****** Investors are, however, stirred.
Bridging the Week: Net Capital, Flash Boys, Forum Choice, AML, Investment Advisers and Regulatory Equivalency
By Gary DeWaal
In a flash, five complaints against various stock exchanges and two non-exchange entities based on allegations in Michael Lewis’s 2014 book entitled Flash Boys: A Wall Street Revolt were dismissed by a US district court in New York. Meanwhile, a federal appellate court in New York upheld a decision by a US district court refusing the plaintiff’s challenge at this time of the constitutionality of her Securities and Exchange Commission enforcement proceeding brought in an administrative as opposed to a federal court tribunal.
David Krein, MarketAxess – Career Planning in Today’s Financial Industry
“Ultimately your career objectives fit in with your life objectives. You may not yet know what those are, but time moves extremely quickly and, before long, you will be looking to make certain changes with respect to your life. Those decisions will impact your career.”
In this MarketsWiki Education talk, David Krein dispenses wisdom both timeless and timely. Through tales and anecdotes, Krein reminds us all that the only constant is change, and today’s job market requires consistent matching of one’s skill set to the needs of the market. One must also remain introspective and be honest about what one really wants out of life.
Watch the video »
If the Options Market Is Right, China’s Stock Rescue Is Doomed
Kana Nishizawa, Bloomberg
Cost of bearish contracts on China A-share ETFs reaches record
Median stock valuation is the highest among 10 largest markets
Options traders have never been so pessimistic on China’s stock market, betting the government’s renewed effort to prop up share prices is doomed to fail.
ETF providers question US trading limit rules
Joe Rennison and Nicole Bullock, FT.com
Providers of exchange traded funds reeling from the market turmoil this week are calling for a reassessment of stock market risk controls, which they say prevented accurate pricing of ETFs.
China Brokers Tumble as Citic Staff Detained, Rescue Costs Grow
Four Citic executives made confessions, state news agency says
Brokerages said told to stump up another 100 billion yuan
China’s brokerages tumbled after four Citic Securities Co. executives were detained and people familiar with the matter said the industry was told to contribute another 100 billion yuan ($15.7 billion) to a stock market rescue fund.
30-Minute VIX Frenzy Exposes Obsession With Volatility Hedging
Callie Bost, Bloomberg
On Aug. 24, the VIX didn’t open for almost a half hour
The gauge jumped as much as 90 percent for a record increase
Among the many scary things traders witnessed as stocks plunged last Monday, one of the most harrowing was the sight of the VIX, an index designed to measure investor fear, briefly going dark.
BNY Mellon ETF Bug Could Still Sting; Bank of New York Mellon’s computer glitch may prove costly
By JOHN CARNEY, WSJ
The computer glitch at Bank of New York Mellon that obscured the value of holdings in hundreds of mutual funds and exchange-traded funds may finally be close to being resolved. But that might not be an end to trouble for the bank.
Funds face more uncertainty from BNY Mellon software glitch
Stephen Foley in New York, FT
Investors in popular US mutual funds and exchange-traded products are heading into a second week of uncertainty, as Bank of New York Mellon continues to work on the computer glitch that left it unable to properly produce valuations.
Beijing abandons large-scale share purchases
Jamil Anderlini in Beijing, FT
China’s government has decided to abandon attempts to boost the stock market through large-scale share purchases, and will instead intensify efforts to find and punish those suspected of “destabilising the market”, according to senior officials.
Senators Start Asking Questions About Hedge Funds Betting on Lawsuits; The “litigation finance” industry provokes a skeptical look from two powerful Republican lawmakers
Paul Barrett, Bloomberg
Hedge funds have been speculating on lawsuits, a new form of financial engineering that some business interests say encourages wasteful courtroom warfare. Now two top Republican senators—Chuck Grassley of Iowa and John Cornyn of Texas—have a few questions of their own. The lawmakers announced a move to start “examining the impact of third-party litigation financing is having on civil litigation.” Their starting point is not one of enthusiasm.
Obama, GOP in blame game over financial nominees
About a dozen key financial oversight positions in the Obama administration are vacant amid growing fears that they won’t be filled until after President Obama leaves office. No top regulatory position is open, but key spots are unfilled at the Securities and Exchange Commission, the Federal Reserve, the Commodity Futures Trading Commission and the Federal Deposit Insurance Commission.
Meet the Private Watchdogs Who Police Financial Institutions; Prosecutors rely on small cadre of outside monitors; friction at Western Union
By RACHEL LOUISE ENSIGN in New York and MAX COLCHESTER in London, WSJ
After Western Union Co. settled allegations by Arizona’s attorney general that it moved funds used for human smuggling, ex-prosecutor Ted Greenberg got a plum assignment: Make sure the money-transfer company mended its ways.
NFA Board Update–August 2015 Meeting
NFA President and CEO Dan Roth joins Chairman Chris Hehmeyer to review cybersecurity and other issues discussed at NFA’s August Board of Directors meeting.
Self-Regulatory Organization (SRO) Rulemaking and National Market System (NMS) Plans
Phlx: Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding NASDAQ Last Sale Plus (Release No. 34-75763; File No. SR-Phlx-2015-72; August 26, 2015); see also Exhibit 5
Exchanges & Trading Facilities
Johannesburg Stock Exchange Launches JSE Eris Interest Rate Swap Futures
The new JSE Eris Interest Rate Swap (IRS) Futures will be based on the Johannesburg Interbank Agreed Rate (JIBAR) and denominated in South African Rand (ZAR). The product will follow the standard South African swap market conventions while using the Eris Methodology, allowing the contracts to replicate the cash flows of over the counter (OTC) swaps. The new product offering will be available for trading by all registered Interest Rate market members and their clients and will be cleared through JSE Clear.
Deutsche Boerse names Ashwin Kumar as head of product development
Deutsche Boerse AG appointed Ashwin Kumar as global head of product development.
SGX welcomes Aspial Treasury retail bonds
Singapore Exchange (SGX) today welcomed the listing of Aspial Treasury Pte Ltd.’s five-year retail bonds with a coupon rate of 5.25% per annum, payable half-yearly, on the Mainboard under the stock code, “BEYZ”.
Thai Bourse Announces Winners Of 2015 Young Financial Star Contest
The Stock Exchange of Thailand (SET) and Thailand Futures Exchange (TFEX), together with Muang Thai Life Assurance pcl, PTT pcl, Kasikornbank pcl and three key institutions in the capital market, have announced the winners of “Young Financial Star Competition 2015” (YFS), consisting of four young financiers from Thammasat University and Chulalongkorn University, as well as one student teams.
BSE to auction investment limits for Rs 561-cr for govt bonds
Leading bourse BSE will auction, tomorrow, investment limits for foreign investors to buy government debt securities worth Rs 561 crore.
MOU Signed Between Qatar Stock Exchange And Borsa Istanbul
Qatar Stock Exchange (QSE) and the Borsa Istanbul today signed a Memorandum of Understanding (MOU) at the QSE premises in Doha. The purpose of the MOU is to formalize cooperation between the two markets. The Memorandum of Understanding was signed by Mr. Rashid bin Ali Al-Mansoori, CEO of Qatar Stock Exchange, and Mr. Tuncay Dinç, CEO of Borsa Istanbul in the presence of the Turkish delegation representing Borsa Istanbul.
Hedge Funds & Managed Futures
Some Stock-Market Experts Still Bracing For More Trouble
By E.S. BROWNING, WSJ
The big question worrying investors now is whether last week’s rally is sustainable or just the prelude to another storm.
Don’t Get Carried Away By Political Rhetoric on Carried Interest Taxation
The tax treatment of “carried interest” for private equity and hedge fund general partners is something pretty much everyone loves to hate. Politicians particularly. Several major candidates, including Hillary, Sanders, and Trump, have said that they will scrap it.
S&P 500 Rout Has Room to Go If Bond Spreads Have Anything to Say
Lu Wang, Bloomberg
Credit markets foretold the selloff in U.S. equities. Should they also prove prescient in calling its extent, stock bulls have more to worry about.
Lessons From Last Week’s Wild Markets
By Mohamed A. El-Erian, BloombergView
It might be tempting to conclude that there are no lessons to draw from the wild ride in financial markets last week. After all, the Standard & Poor’s 500 Index closed 1 percent higher Friday, and the Dow Jones Industrial Average and the Nasdaq 100 Index ended up recording their best week in almost two months. And some might even dismiss the unusual volatility as the reflection of nothing more than a bout of market irrationality that is temporary, reversible and inconsequential.
Did Alternative Funds Stand Tall or Fall Down?
When the markets swooned in late August, many eyes pivoted to liquid alternatives. Would these newfangled investments, promoted in part for their ability to provide a cushion to portfolios during times of turbulence for the markets, fulfill their promise? A sharp six-day market correction (or even a multimonth downturn, if you count the S&P 500’s decline from its high point in May 2015), is probably not sufficient to take the full measure of these funds, but it’s enough of a deviation from the largely placid bull market of the last half-decade to at least offer some relevant insights. Call it a stress-test, if you will, of alternative mutual funds’ resiliency.
China turmoil divides Fed over inflation
Sam Fleming in Jackson Hole, FT
The turmoil in China has intensified the debate within a divided Federal Reserve over whether the inflation outlook will be strong enough to justify higher interest rates as soon as next month, as policymakers around the world struggle to get to grips with the clouded outlook for the People’s Republic.
‘Alternative’ Mutual Funds Providing Limited Protection; As the U.S. stock market tumbled in the past three months, these funds didn’t provide a lot of shelter
By ANNE TERGESEN and ANNA PRIOR, WSJ
Since the market crash of 2008, more investors have embraced the idea of owning an array of investments—from commodities to hedge-fund-like mutual funds to energy partnerships. The goal is to reduce risk and moderate the ups and downs of owning stocks.
Largest Dutch pension fund exits Mylan over death penalty concerns
By Thomas Escritt, Reuters
The Dutch public employees’ pension fund, the world’s third largest, has sold all its shares in pharmaceuticals maker Mylan after it emerged that one of the company’s products is in stock at a U.S. prison where death sentences are carried out.
How to avoid huge losses in the next stock market plunge
Gail MarksJarvis, CHICAGO TRIBUNE
It was a brutal week that finished with a relatively happy ending for people paralyzed with fear about the stock market, but a disaster for some who tried to escape danger at any cost.
A ‘Black Swan’ Fund Makes $1 Billion; As market collapsed, hedge-fund firm Universa Investments gained roughly 20% on Monday
By JULIET CHUNG, WSJ
The recent market rout caught some star Wall Street traders by surprise. But not a hedge-fund firm affiliated with “The Black Swan” author Nassim Nicholas Taleb, which gained more than $1 billion on a strategy that seeks to profit from extreme events in financial markets.
Banks & Brokers
BNY Mellon Races to Fix Pricing Glitches Before Markets Open Monday; More than 100 executives worked throughout the weekend to correct issues
By KIRSTEN GRIND And TIMOTHY PUKO, WSJ
Bank of New York Mellon Corp.’s chief executive warned clients that his firm might not be able to solve all pricing problems caused by a computer glitch before markets open Monday, the latest delay in an unprecedented outage that has frustrated investors and prevented nearly 50 fund companies from providing accurate values for their holdings.
Exclusive: Citi aims to boost equities franchise amid industry shakeout
BY JOHN MCCRANK AND OLIVIA ORAN, Reuters
Citigroup plans to rebuild its long-neglected equities franchise seeking to capitalize on a retrenchment by rivals in the face of new rules designed to make the financial system less risky, according people familiar with the bank’s plans.
Investment banks outshine parent groups
Laura Noonan, Investment Banking Correspondent, FT
Investment banking divisions at the world’s largest financial institutions are now reporting greater profitability than their parent groups, despite rising capital requirements and other regulations that have constrained their activity.
Banks warn over European privacy rules
Laura Noonan and Jim Brunsden, FT
Banks are lobbying Brussels over a sweeping overhaul of the EU’s privacy rules, which would make it harder for lenders as well as technology groups to collect and keep personal data.
BofA investors to vote on Moynihan roles
Ben McLannahan in New York, FT
A rebellion is brewing among shareholders in Bank of America, who are upset about the bank’s move last year to award Brian Moynihan, chief executive, the additional role of chairman.
Clearing & Settlement
Banks need to look before they go digital
Even as the banking world speaks in one voice about the need to go digital, something happens to burst its bubble. In October last year, it was the failure of Bank of England’s creaky CHAPS (Clearing House Automated Payment System) that delayed hundreds of thousands of payments, leaving home buyers and sellers and big businesses stranded. And extremely unhappy.
ESMA Publishes Discussion Paper on EMIR Standards Relating to CCP Client Accounts
The National Law Review
The Discussion Paper asks for commentary from the stakeholders as to whether client margins maintained at the CCP level on a gross margining basis with a one-day liquidation period would generally be higher than margins held at the CCP level on a net margining basis with a two-day liquidation period, to aid ESMA in its decision as to whether the RTS should be revised to permit one-day gross margining for client accounts.
Indexes & Products
You might have to wait 18 months for the Dow to make back what it lost
Why would anyone want to sell stocks, when they know the market will always rise to new highs again eventually? Maybe it’s because they don’t want to wait 18 months for the Dow Jones Industrial Average to get back what it lost.
Commodities Post 4th Biggest 2-Day Gain Since 1970
S&P Dow Jones Indices
As of the close on Aug. 28, 2015, the S&P GSCI Total Return gained 8.98%, the most in 2 days since Jan. 2, 2009. It was the 4th best gain over 2 consecutive days in the history of the index that has data beginning on Jan. 2, 1970. The bigger 2-day gains are shown in the table
Betashares adds new US ETFs to fund line-up
Betashares has expanded its exchange traded funds (ETF) suite to 21 funds with the addition of two currency hedged funds focusing on returns from US equity exposures.
Where’s the Next ETF Boom?
According to ETFGI, record levels of net new assets (NNA) have also been gathered by U.S. listed ETFs/ETPs, which have gathered $125 billion during the first seven months of 2015, beating the previous record of $116 billion gathered in the first seven months of 2013. But where will the next boom in ETFs be? Will it be from actively managed funds, 401(k) retirement plans, or alternative asset classes like Bitcoin?
Turning blockchain into a disruptive force for good
Banking is at an inflection point. Most people think that banking is being reshaped by regulations since the global financial crisis. But that’s only half the story. The other half is about technology.
Sumitomo Mitsui zeros in on U.S. ‘fintech’ sector
The Japan Times
Over the past two years, Sumitomo Mitsui Card Co. met with more than 500 U.S. so-called fintech companies and narrowed the list of potential targets for acquisitions or tie-ups to around 10, President Ken Kubo said in an interview. The unit, which bought a $10 million stake in Jack Dorsey’s mobile payments company Square Inc. in 2012, could spend up to ¥100 million ($830,000) on each deal, according to Kubo.
Bitcoin Technology Piques Interest on Wall St.
By NATHANIEL POPPER, NY Times
Most people still think of Bitcoin as the virtual currency used by drug dealers and shadowy hackers looking to evade the authorities.
Federal Court in North Carolina Enters Judgment against Ron Earl McCullough and David Christopher Mayhew in Foreign Currency Ponzi Scheme
In the Order, the Court found that, from approximately December 2008 to January 2012, McCullough and Mayhew operated a fraudulent scheme that solicited approximately $2.3 million from at least 11 members of the public to trade leveraged or margined off-exchange foreign currency contracts. The Court also found that McCullough and Mayhew misrepresented their trading record, used some customer funds to repay other customers in the manner of a Ponzi scheme, and misappropriated more than $1.6 million from their customers, including $829,000 for their personal use.
NFA bars British Virgin Islands firms Primary Assets Management Corporation and Accredited Investment Management Corp. from membership
National Futures Association (NFA) has permanently barred Primary Assets Management Corporation (Primary Assets), an NFA Member commodity trading advisor and commodity pool operator, and Accredited Investment Management Corp. (Accredited Investment), a former NFA Member introducing broker, from membership. Peter G. Catranis, the firms’ principal, was also ordered to withdraw from NFA membership and not to register as an associated person or act as a principal of an NFA Member for four years.
An S.E.C. Settlement With Citigroup That Fails to Name Names
By GRETCHEN MORGENSON, NY Times
can we expect Wall Street’s me-first culture to change when regulators won’t pursue or even identify the me-firsters who are directly involved?
Man linked to JPMorgan hacking in talks to resolve U.S. case: filing
BY NATE RAYMOND, Reuters
A Florida man accused of running an unlicensed bitcoin exchange and who is among five defendants linked to last summer’s massive data breach at JPMorgan Chase & Co is in talks to resolve his criminal case, according to court papers filed Friday.
Environmental & Energy
Obama to Urge Aggressive Climate Action in Visit to Arctic Alaska
By Julie Hirschfeld – New York Times
President Obama will travel to Alaska on Monday to call for urgent and aggressive action to tackle climate change, capitalizing on a poignant tableau of melting glaciers, crumbling permafrost and rising sea levels to illustrate the immediacy of an issue he hopes to make a central element of his legacy.
Maersk Oil Gets U.K. Nod for $4.5 Billion North Sea Gas Project; Giant field could start production in 2019
By KJETIL MALKENES HOVLAND, WSJ
A.P. Møller-Maersk A/S said it has received approval to develop the $4.5 billion Culzean gas field, the largest new find in the U.K. North Sea for a decade, with the capacity to deliver around 5% of Britain’s demand come 2021.
World’s biggest coal port joins fossil fuel divestment push
By Amanda Saunders – Sydney Morning Herald (part of the Climate Publishers Network)
Newcastle city council in Australia has voted to exit holdings in the big four banks if they continue to fund fossil fuel projects.
Eni Discovers Massive Gas Field in the Mediterranean
By Anthony Dipaola – Bloomberg
Eni SpA discovered a “super giant” natural gas field offshore Egypt in what the Italian oil company said is the largest find in the Mediterranean Sea.
China’s Next Problem: Paying for Its Stock-Market Bailout; Beijing will need to look for ways to deal with this problem, lest it further
By ALEX FRANGOS, WSJ
China’s epic stock-market drops over the past week give the impression that Beijing may have given up on trying to prop up the market or is at least retreating to defend a lower level. The question is, what will the government do with all that stock that it already has bought?
China stocks slide as crackdown on speculators spreads, lose 11 pct in Aug
China stocks fell sharply on Monday before recovering much of their losses as regulators cracked down on speculators which Beijing blames for a 40 percent crash in the country’s stock markets since June.
Asian Currencies Record Biggest Monthly Decline in Three Years
Fion Li, Bloomberg
Asia’s currencies posted their biggest monthly loss in three years, led by Malaysia’s ringgit, after a yuan devaluation heightened the risk of a currency war in the region as the U.S. prepares to raise interest rates.
China’s Stocks Cap Biggest Selloff Since 2008 on Rescue Doubts
China’s stocks fell, capping the benchmark index’s biggest two-month tumble since 2008, amid concern that government intervention to prop up the market will fail.
China’s banks face tightening bad loans squeeze
Ben Bland in Hong Kong, FT
China’s banks are facing an ever tighter squeeze as profits stagnate and bad loans jump while the economy continues to slow and heavily indebted companies struggle to survive.
Emerging-Market Stocks Head for Biggest Monthly Slide Since 2012
Emerging-market stocks headed for their steepest monthly loss in more than three years as Federal Reserve officials signaled they’re prepared to raise interest rates and concern grew China’s efforts to prop up equity prices is failing. Russia’s ruble led currencies lower.
Macau Economy Slumps 26.4% as Anti-Graft Crackdown Deters Gamblers
Catherine Chen, Stephanie Wong, Bloomberg
Macau’s economy dipped to its lowest since 2011 as high-end gamblers avoided the world’s largest casino market amid a widening crackdown on graft in China.
China turbulence casts shadow on Africa
Andrew England in Johannesburg, FT
With much of the world weighed down by anaemic growth, high debt and painful austerity programmes, Africa has been a rare bright spot, producing some of the world’s fastest growing economies.
Iran Targets Foreign Investment to Boost Economy, Rouhani Says
Golnar Motevalli, Ladane Nasseri, Bloomberg
Iran will encourage foreign partners and investment as sanctions are lifted and the country seeks to boost its economy after July’s nuclear agreement with the world powers, President Hassan Rouhani said.
Wall St. Policy Poses a Challenge for Presidential Candidates
By NATHANIEL POPPER, WSJ
Even seven years after the financial crisis, Wall Street has lost none of its ability to stir partisan rancor.
The Sharing Economy Comes to the Farm; As commodity prices tank, growers look to rent out their tractors
Alan Bjerga, Bloomberg
Three months out of the year, the 5,500 members of the Heartland Co-op push their sprayers and fertilizing machines to maximum capacity in hopes of getting the most out of a million acres of central Iowa farmland planted mostly with corn and soy. The rest of the time, the machinery typically sits in barns, idle until the next season, like most of the $248 billion of equipment owned by farmers across the country.
How Cartoonists Covered the Market Crash
By Joshua M Brown, The Reformed Broker
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I love editorial cartoons. I collect the ones about the stock market and the economy because they’re like snapshots of the different fears we harbor about investing at every turn. Cartoonists only get excited about drawing market-related stuff when its crashing or there’s an obvious bubble.
Bloomberg News to lay off 80 staffers by Labor Day
By Kevin Dugan, NY Post
Bloomberg is gearing up for a big round of layoffs before Labor Day, The Post has learned.