John Lothian Newsletter: EU executive document says transaction tax plan legal; Wall Street Trade Groups Challenge Overseas Swaps Rules; Large investors turn cold on commodities

Dec 5, 2013

First Read

Volcker Rule Won’t Allow Banks to Use ‘Portfolio Hedging’
In a defeat for Wall Street, the “Volcker rule” won’t allow banks to enter trades designed to protect against losses held in a broad portfolio of assets, according to people familiar with the rule.

***** This is a “whale” of a rule.


Where are the Technologists’ Voices in Global Financial Reform?
Allan Grody – Wall Street & Technology
In an attempt to fix the plumbing of the global financial markets under Dodd Frank with a unique identification code for swaps and counterparties, technology has been an afterthought.

***** The Technology Advisory Committee of the CFTC will meet next in January.

***DA: The data mess will get sorted out in time, but rule-writing has been center stage for three years and regulators have been starved of resources. For a glimpse of the plan, take 2 minutes and watch the video with Mr. O’Malia.


Scott O’Malia

CFTC’s Scott O’Malia Calls for a Plan of Action on Swap Data
New Dodd-Frank rules have allowed regulators their first look into swap data repositories, but the quality of swap data is not always up to par. In fact, it has been called “a mess” by CFTC Commissioner Scott O’Malia, who also chairs its Technology Advisory Committee. O’Malia sat down with John Lothian News editor-at-large Doug Ashburn at SEFCON IV to discuss the commission’s data challenges and his “call to action” in early 2014.

Watch the video »


ICE Endex Sets Daily Volume Record In Dutch TTF Natural Gas Futures
IntercontinentalExchange Group, the leading global network of exchanges and clearing houses, today announced that ICE Endex reached a daily volume record of 15,125 contracts in Dutch TTF natural gas futures on December 3, 2013. The previous ICE Endex and ICE Futures Europe volume records were 10,295 and 12,630 contracts respectively on October 11, 2012 and September 17, 2013.

***** It is going to get very cold this weekend in Chicago. We may see some records here too.


Millions Of Hidden Share Trades To Be Revealed
Millions of previously hidden US stock trades will be revealed for the first time on Monday December 9 thanks to research from a team of academics. Previously odd lots, which are trades of less than 100 shares, have not been revealed on the publicly available ‘consolidated tape’, with only big investment banks and sophisticated computer-powered high-frequency traders paying to see them from individual exchanges. US regulators have decided that all odd lots will be included in the publicly available ‘consolidated data’ so they will no longer be hidden. This is due to be implemented on Monday December 9.

***** Odd lots will be made a little less odd by this move. In fact, I am not sure “odd” is politically correct. I would call them “stock trades of unusually diminutive size” or STUDS.


The European Union’s Clever Dealing With The Banks
Tim Worstall, Contributor – Forbes
I know that there are a large number of people who argue that we’ve not done enough to punish the banks for what they got up to before the crash. But even they should cheer the announcement that has been made today, about the fines that the European Union has imposed upon banks for fixing interest rate benchmarks. There’s two reasons for this: the first is simply the sheer size of the fines and the second is a good bit of applied game theory.

***JM: Regarding the question, “Are big fines enough to improve compliance?” – here’s more to chew on.


Reports of potential insider trading soar
Anna Irrera – Financial News
Reports of potential insider trading to UK regulators have jumped by nearly 40% over the past year, following a widespread campaign by authorities to clampdown on market abuse.

***** I can only inside trade on sunny days.


Survey of CCP Progress Since the US Clearing Mandate Kicked In
Bill Hodgson | The OTC Space
It’s been a few months since we last updated the CCP chart, and in that time clearing has become mandated in the US. In most cases the quantity of trades in each CCP has increased, but the effects of netting and tear-ups might be behind the reduction in others. There have been plenty of announcements of the intention to provide clearing, and in most cases no evidence of progress on those plans – building a CCP is a hard task, and even harder to bring liquidity given the netting benefits of having fewer CCPs.

***** I am going to buy myself a CCP Net. I am sure I can catch some pretty ones.


CQG introduces mobile trading application
CQG, Inc. has expanded its product offering with the addition of CQG M, a mobile trading application which provides traders with market data and trade execution capabilities on the go. CQG M utilizes HTML5 mobile technology, which allows traders to access CQG data on tablets and phones.

***** Where did they get the name CQG M from? Is it for “mobile” or do they have cool James Bond technology tool thing going on here. “James, if you need to make a quick futures trade on the run, use this.” “Thanks M.”


Barchart Releases New OnDemand Market Data APIs, Inc., a leading provider of market data and information, today announced the release of a variety of new web services APIs made available through its Barchart OnDemand service.

***JM: This is good, but I still need two more functions: getTomorrowsHigh and getTomorrowsLow. If you could also include volumeAtLow and volumeAtHigh so I can estimate the entry and exit opportunities there, that’d be great.


2014 CBOE Risk Management Conference
The Chicago Board Options Exchange (CBOE) will host the 30th Annual CBOE Risk Management Conference, from Monday, March 17 through Wednesday, March 19, 2014, at the Hyatt Regency Coconut Point Resort and Spa in Bonita Springs, Florida. RMC’s agenda covers a variety of concepts, challenging attendees to think differently about how they manage trade positions, employ hedging techniques, utilize equity derivatives, and model and trade volatility. Topics — ranging from basic derivatives applications to advanced trading concepts — are current and relevant. Strategy discussion is overlaid with ex
amples of actual trades and real-market applications.

***** This conference comes right after FIA’s Boca International Conference. It would so make sense to stay in Florida over the weekend after Boca and attend this one. But, can I do it? Can I get away with 2 weeks in Florida without being killed by my wife?

***DA: Or your staff.


Steven Schoenfeld

Indexing Israel: Steven Schoenfeld Talks About His Next Index Venture
Steven Schoenfeld knows a thing or two about stock indexes as the chief investment officer of BlueStar Indexes and author of the book Active Index Investing. He spoke with John Lothian News editor-in-chief Jim Kharouf about his latest indexes based on Israeli companies and another on Israel’s tech sector. The first is called the BlueStar Israel Invest (BIGI), a comprehensive index launched in 2011 on the top Israeli companies that are traded around the world. The index returned 0.08 percent through September this year. Schoenfeld has also developed a new index focused on Israel’s technology sector, which is among the largest in the world. BlueStar Israel Global Technology Index (BIGTech), features large, mid-cap and small-cap firms listed on the Tel Aviv Stock Exchange, plus those listed on other markets. Through September, BIGTech posted a 13.5 percent gain over the first three quarters of 2013, and was up 12.7 percent over the past five year period. Schoenfeld said there is still much more room for indexes and index growth, despite critics who say the space has been covered.

Watch the video »



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Lead Stories

EU executive document says transaction tax plan legal
The proposed tax on financial transactions in 11 European Union countries complies with EU and international laws, the bloc’s executive said, hoping to revive the flagging project.

Wall Street Trade Groups Challenge Overseas Swaps Rules
Banking trade groups, fearful of a push by the United States to scrutinize the overseas trading activities of large international banks, filed a lawsuit on Wednesday that challenges new guidelines put in place recently by the Commodity Futures Trading Commission.

Large investors turn cold on commodities
Gregory Meyer in New York –
After two years at the helm of the world’s worst-performing asset class, managers of commodities funds are no doubt feeling a little unloved, and the expanding cast of doubters suggests the rejection is only beginning.

Treasury Chief to Declare Big Gains in Financial Reform
Treasury Secretary Jacob J. Lew will assert on Thursday that the Obama administration’s vast overhaul of the financial system is close to accomplishing its goal of shielding society from the dangers posed by giant banks.

South Korea Watchdog to Goldman Sachs: Penalties Imminent
Kanga Kong – MoneyBeat – WSJ
South Korea’s financial watchdog has told Goldman Sachs it may impose penalties on its Korean branch for possibly breaching capital markets rules. This could include the first-ever “institutional penalty,” the Financial Supervisory Service has imposed on the investment bank.

TAIFEX and Eurex announce launch date of joint product cooperation
TAIFEX, the Taiwan Futures Exchange, and Eurex Exchange, the international derivatives marketplace and part of Deutsche Börse Group, today announced their plan to launch the Eurex/TAIFEX Link on 15 May 2014. With this link, Eurex Exchange will list TAIEX futures and options as daily expiring futures on Eurex Exchange. Derivatives on the TAIEX index are one of the most heavily traded Asian equity index contracts.


The Big Question: Will Volcker Prevent Next ‘London Whale’
Scott Patterson – MoneyBeat – WSJ
“The devil here is in the details.” Janet Yellen’s comment in Congressional testimony last month captures the complex challenges that have faced regulators crafting the Volcker rule, the Dodd-Frank rule that bans proprietary trading and is widely expected to be approved next week after years of wrangling among the five regulators Congress asked to write the rule.

[AMF Canada] General exemption decision regarding service provider for operation of national systems

FMA amends Regulation on Investments to help insurance undertakings lend to companies in the real economy

FMA Q3 2013 Report on Austrian Pensionskassen

FMA Q3 2013 Survey on Foreign Currency Loans

Exchanges & Trading Facilities

NYSE Euronext Announces Trading Volumes for November 2013
Global derivatives average daily volume of 6.6 million contracts, excluding Bclear in November 2013 increased 1.6% compared to November 2012 and increased 1.7% from October 2013. U.S. equity options volumes in November 2013 decreased 7.8% compared to November 2012 and decreased 4.4% sequentially. ADV in U.S. cash equities declined 12.6% year-over-year and decreased 5.2% month-over-month. European cash equities ADV in November 2013 increased 14.4% compared to November 2012, but decreased 3.3% from October 2013 levels.

HKEx Monthly Market Highlights – November 2013
The average daily turnover for the first 11 months of 2013 was $63,097 million, an increase of 19 per cent when compared with $53,233 million for the same period last year.

HKEx On-Floor & Off-Floor Trading Statistics

BATS Global Markets In November: European Trade Reporting Service Becomes Market Leader
1Q14 Close Projected For Direct Edge Merger – U.S. Equities Market Share Totals 10%, BATS Chi-X Europe Posts Another New Record In Spain

November Trading Volume Rises To Around EUR 7.7 Billion At Boerse Stuttgart
Growth In Trading Of Debt Instruments And Equities – Strong Demand For Derivative Investment Products

Ljubljana Stock Exchange Monthly Statistical Report November 2013

Aquis Exchange Joins TMX Atrium Community – Providing Further Trading Choice For TMX Atrium Users
TMX Atrium, provider of smarter infrastructure solutions for the financial community, today announced that Aquis Exchange, the pan-European equities exchange, has joined the TMX Atrium community.

CME Group Inc. Announces Date of Fourth-Quarter 2013 Earnings Release, Conference Call
CME Group Inc. will announce earnings for the fourth quarter of 2013 before the markets open on Tuesday, February 4, 2014.

MOEX To Participate In London Presentation And Panel Discussion On MIFC Initiative And Financial Infrastructure For The Russian Market

Hedge Funds & Managed Futures

Dear Dromeus Capital investor…
Joseph Cotterill | FT Alphaville
One-year total return of the Athens stock index, to the end of October 2013: +50%
One-year return of the Bloomberg Greece Sovereign Bond Index, same period: +134%
One-year net return of Dromeus Capital’s Greek Advantage Fund: +107%

Barclays spinout eyeing up to $1 billion for debut fund
A new firm formed by former distressed debt executives from Barclays is preparing to hit the fundraising trail in search of about $1 billion, according to two people with knowledge of the situation.

Asset Managers Flock to OTC Derivative-Intensive Portfolio Management Systems
Ivy Schmerken – Wall Street & Technology
A study by Aite Group found that traditional asset managers, more so than hedge funds, are venturing into portfolio management systems with risk analytics and core infrastructure for derivatives products.

Banks rediscover taste for asset management
Mike Foster – Financial News
Whisper it gently, but banks are rediscovering their taste for asset management. Last month, following Lloyds Bank’s sale of Scottish Widows Investment Partnership to Aberdeen Asset Management, HSBC chief executive Stuart Gulliver was quick to kill gossip that he planned a similar move.

Private equity holders find public listing is right up their street
Alec Macfarlane – Financial News
The market for initial public offerings of private equity-backed businesses has roared back into life in Europe. From a trickle of listings in March to a swathe of flotations in the past two months, institutional investor demand for equities and a weak mergers and acquisitions market has led many private equity firms to turn to the public markets for exits.

Commodity trader Louis Dreyfus ties up 500 mln euro bond issue
Louis Dreyfus Commodities has completed a 500 million euro ($678 million) bond issue, the trading firm’s third foray into bond markets in just over a year as it seeks to increase its financing muscle.

Convergent Wealth Advisors Expands Wealth Management Presence in New York and Los Angeles
To meet the rising demand for the firm’s wealth management expertise in New York, Los Angeles, and nationally, Convergent is pleased to announce Charles (Charlie) Winn, formerly of Goldman Sachs, has joined the team.

Hedge fund interest drives Japan convertible bond issuance
Justin Lee –
The ability to hedge out the credit risk of a convertible bond via an asset swap combined with market volatility in Japan over the past 12 months has led to a significant uptick in hedge fund investment into convertible bonds, say market participants.

Banks & Brokers

Fear of Volcker Rule Raising Borrowing Costs for Municipalities
Al Yoon – MoneyBeat – WSJ
Implementing the Volcker rule could result in higher borrowing costs for municipalities as banks may boost fees they charge to sell securities that finance state budgets, schools and other public needs, California’s top treasury official said on Wednesday.

BNP Paribas to Take Control of Polish Unit of Rabobank
The French bank BNP Paribas has agreed to acquire a controlling stake of the Polish unit of Rabobank Group in a deal valued at about $1.36 billion.

Banks Fail to Comply With Parts of Mortgage Settlement, Report Says
Three of the nation’s largest mortgage lenders are still failing to comply with key requirements of a national settlement over mortgage abuses, according to a new report that suggests that some borrowers are still trapped in a tangle of red tape and errors as they try to save their homes from foreclosure.

Credit Suisse to Sell German Private-Banking Unit to ABN
Credit Suisse Group AG said Thursday it will sell its German private-banking business to Dutch firm ABN Amro, marking a strategic withdrawal from private banking in Germany as the Swiss bank focuses more on wealthy clients who register Swiss-based accounts.

Citigroup’s Former CEO Backs a Peer-Lending Upstart
After a long career in mainstream finance, Vikram Pandit is going alternative. The former Citigroup Inc. chief executive is helping to fund an upstart in the peer-to-peer lending industry called the Orchard, whose seven employees share office space in downtown Manhattan with a company that teaches disc jockeying.

Senior credit trader leaves Nomura
Nick Kostov
One of the most senior credit traders at Nomura in London has left the Japanese bank, Financial News has learned.

Global Trading Systems Names Steven Reich Head of FX and Commodities
Global Trading Systems (GTS), the automated market-maker in thousands of securities including U.S. equities, ETFs, commodities, financial futures and U.S. cash Treasuries/rates products, today announced that it has hired Steven Reich as Head of FX and Commodities Liquidity Solutions.

Goldman Sachs Conference Call to Announce Annual and Fourth Quarter 2013 Results

Indexes & Products

Macquarie index aims to be lead indicator of food inflation
Macquarie Commodities Research has created a new global agricultural commodity index designed to indicate the future level of food inflation, it said on Wednesday.

Q&A with Russell Investments’ Pascal Duval: ‘we have aggressive plans for 2014’
Joe McGrath
Having recently embarked on a hiring spree, Russell Investments’ chief executive officer for Europe, the Middle East and Africa, Pascal Duval, tells Financial News about further expansion plans and ideas to bring new products to market.

New Indices On Warsaw Stock Exchange From The Beginning Of 2014

Semi-Annual Review Of The OMX Stockholm 30 Index

Semi-Annual Review Of The OMX Copenhagen 20 Cap Index

BM&FBOVESPA Announces The 1st Preview For Ibovespa And Other Indices, Valid For January-April 2014


Actant, a leading provider of trading solutions for financial firms, today announced its readiness to support market makers quoting CBOE RVX Options. Actant provides market makers and algorithmic traders with state of the art automation management solutions. Given their successes supporting CBOE VIX Options market makers, preparations for supporting RVX Options and futures trading were straight forward.
(via email)

GMEX Launches Trade Reporting Service, Mulls Data, Analytics
Faye Kilburn – WatersTechnology
GMEX Technologies, the wholly-owned technology subsidiary of Global Markets Exchange Group, the derivatives exchange operator and consultancy established by former Chi-X Europe co-founder and chief operating officer Hirander Misra and industry veteran VJ Angelo, has established a trade reporting service, dubbed Global Reporting Company, and plans to create value-added derived datasets from the post-trade data it collects.

Sapient Launches End-of-Day Reporting Service
Jake Thomases – WatersTechnology
Sapient Global Markets has launched Close of Business Service (CoBS), an end-of-day reporting service for capital and commodity markets firms.

Equinix Continues Expansion in Japan; Opens its First Data Center in Osaka
Equinix, Inc., the global interconnection and data center company, today announced the opening of its International Business Exchange data center in Osaka, called OS1 — its first in the western region of Japan.


Federal Court Orders Defendants Arista LLC, Abdul Sultan Walji, and Reniero Francisco, All of Southern California, to Pay over $22 Million in Restitution and Fines for Commodity Pool Fraud and Making False Statements to the CFTC

Fifth Third Bank and Executive Settle Charges With the S.E.C.
The Securities and Exchange Commission said Wednesday that it had settled with Fifth Third Bancorp and its former chief financial officer, Daniel Poston, in a case involving improper accounting for soured mortgages around the time of the financial crisis.

Ex-aide says Madoff workers duped investor’s account postmortem
To hear his former aide tell it, even a client’s death posed no problem for Bernard Madoff as he perpetrated his massive Ponzi scheme.

Environmental & Energy

China Doubles Pace of Adding Renwables Amid Pollution Cut
China doubled the pace of adding renewable energy capacity in the first 10 months of the year as the government worked to cut pollution in its largest cities.

China grapples with natural-gas shortage
Caixin Online
Winter has only just started, and China’s is experiencing its biggest natural-gas shortage ever. At a shareholder’s meeting in May, the chairman of China National Petroleum Co. (CNPC), Zhou Jiping, announced that “resources are extremely tight this year.”

Britain to change subsidies to boost offshore wind power – BBC
The British government plans to reduce support for onshore wind and solar energy while giving more backing to offshore wind power from 2015 onwards, the BBC reported on Wednesday citing sources within the Conservative-Liberal Democrat coalition.


South Korea Watchdog to Goldman Sachs: Penalties Imminent
Kanga Kong – MoneyBeat – WSJ
South Korea’s financial watchdog has told Goldman Sachs it may impose penalties on its Korean branch for possibly breaching capital markets rules. This could include the first-ever “institutional penalty,” the Financial Supervisory Service has imposed on the investment bank.

Japan approves $182 billion economic package, doubts remain
Japanese Prime Minister Shinzo Abe’s cabinet approved a $182 billion package on Thursday to pull the economy out of deflation, but doubts remain about the impact.

Shanghai Stock Exchange : Five Measures For Reform Of New Share Issuance

Frontier Markets

India’s ‘Exchange King’ Says Managers Misled Him
Jignesh Shah, once one of India’s richest men, was little known outside of financial circles until this year, when his empire of electronic exchanges started to fall out of favor with regulators and investors.

Turkey’s Hefty Current Account Deficit Curbs Ratings Love
Yeliz Candemir – MoneyBeat – WSJ
Turkey secured two investment grade ratings in quick succession from the end of 2012—no mean feat. But unless it can zap its vulnerability to foreign capital flows—a lingering problem that hit it hard this year–it is unlikely to feel much ratings love again any time soon.

Myanmar to allow foreign banks to begin some operations next year
Myanmar will allow some foreign banks to begin offering limited financial services next year, a senior central bank official said, as the Southeast Asian country slowly opens up its banking sector following a series of economic and political reforms.

African Bourses From Nairobi to Abidjan Luring IPOs After Rally
Olivier Monnier – Bloomberg
African bourses from Ivory Coast to Kenya are forecasting an increase in share sales in 2014 as a rally in stock markets helps end a drought of initial public offerings.

Dubai Financial Market (DFM) Accredits “Al Dhabi Brokerage” And “Securities & Investment Company UAE” For Margin Trading

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