John Lothian Newsletter: Eurex launches euro-swap futures suite; Brussels urged to resolve delay over trade rules definition; IEX to Apply for Exchange Status

Sep 3, 2014

First Read

Bits & Pieces
By John J. Lothian
The arbitration of HTG Capital Partners and [Allston Trading]]is doing all of us a big favor. It is highlighting the CME’s new spoofing rule, which is based upon last year’s CFTC guidance on disruptive trading. It will give us the arbitration version of case law upon which other spoofing cases will be judged.

Last week the CME issued its new spoofing rules, just as the Bloomberg story about the HTG arbitration against Allston Trading was hitting the wires. The CME “Disruptive Practices Rule 575” was issued August 29 and takes effect on September 15, 2014:

CME Group: Disruptive Practices Prohibited
New Rule 575 and the accompanying Questions & Answers and examples in this Advisory Notice codify particular types of disruptive order entry and trading practices that the CME Group Exchanges find to be abusive to the orderly conduct of trading or the fair execution of transactions.

Of particular interest is this from the Rule 575 notice: (C) is, is of the character of, or is commonly known to the trade as, “spoofing” (bidding or offering with the intent to cancel the bid or offer before execution). On May 28, 2013, the Commodity Futures Trading Commission (“CFTC”) made effective its “interpretive guidance and policy statement” respecting subparagraph (5). Rule 575 prohibits the type of activity identified by the Commission as “spoofing,” including submitting or cancelling multiple bids or offers to create a misleading appearance of market depth and submitting or cancelling bids or offers with intent to create artificial price movements upwards or downwards.

Another CME and ICE feature being discussed related to the HTG/Allston story is the CME Group Globex Self-Match Prevention Functionality. This functionality, which helps firms avoid large wash trade instances and related fines, was called a “recipe for spoofing” by one proprietary trading executive. ICE’s Self-Trade Prevention Functionality can be seen here

The question of how HTG could identify an anonymous trade counterparty on Globex has been raised in trading and Internet circles. The answer is this. When a party proves to the exchange a pattern of abuse has occurred it can file a John Doe arbitration. This means the other party is not named initially, but the exchange has to name them as part of the arbitration proceeding if there is a single party on the opposite side of the alleged abuse. In this case, CME determined that single party was Allston.

I was very sad to read in the Bradley Hope story about saving the NYSE yesterday that ICE had discontinued the veterans’ intern program. I was honored and privileged to have two veterans from the program last year participate in our Summer Intern Education Series. Meeting, getting to know and helping veterans Juan Portillo and Andrew Brown was one of the highlights of my summer. We must always remember and honor those who stand tall with courage and fortitude to protect the freedoms which we enjoy. Those freedoms include the ability to pursue our capitalistic pursuits. Giving some veterans an internship to learn our industry is a but a small sacrifice to honor that courage.


Ex-FIA chief Belchambers joins Saxo board
Jon Watkins – The Trade
The founder and former CEO of the Futures and Options Association, Anthony Belchambers, has joined Saxo Capital Markets as a non-executive director.

***** FIA or FOA, which one?


Jeromee Johnson, VP & Head of BATS Options, BATS Global Markets – Exchanges, Dark Pools and Other Market Places

“You can absolutely gain as much and learn as much from those failures as you can from the things that work.”

Jeromee Johnson, vice president and head of BATS Options for BATS Global Markets, gives an overview on exchanges and marketplaces. He discusses how certain regulatory factors affect some but not all markets, as well as an exchange’s overall goal of bringing buyers and sellers together. Johnson also details the process of creating a new exchange gives an in-depth look at how the regulatory environment could potentially affect a fledgling exchange.

Watch the video »


CBOE Futures Exchange Reports August 2014 Is Busiest Month Ever
CBOE Futures Exchange, LLC today reported that August 2014 was the busiest month all-time for average daily volume and total trading volume, both exchange-wide at CFE and for futures on the CBOE Volatility Index

***** OK, there is some good news out there. Here it is.


CME Group Announces the Launch of Illinois Basin Physically Delivered Coal Futures
CME Group, the world’s leading and most diverse derivatives marketplace, announced today the launch of Illinois Basin physically delivered Coal futures contracts in October, pending all regulatory approvals.

***** The delivery date is December 25.


Summer lull fails to dent strong 2014 European equity trading
John Bakie – The Trade
European equity market volumes slowed in August but remain considerably higher than a year ago as the turnaround of 2014 continues. Trading volume by share value across both lit and dark order books dipped 13.2% from EUR788.2 billion in July to EUR684.2 billion last month, according to figures from Thomson Reuters Equity Market Share Reporter, though this is broadly in line with seasonal expectations.

***** I love a good cherry picking. Things were bad, but not as bad as this.



MarketsWiki Page of the Day
Corinna Schempp

MarketsWiki Recent Updates


Corinna Schempp; Tim Gits; Jamie Farmer

Companies, Organizations and Groups

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Lead Stories

Eurex launches euro-swap futures suite
The Trade
Eurex’s euro-denominated interest rate swap futures have gone live today, with the German exchange getting the jump on competition by launching the alternative products to OTC derivatives.

Brussels urged to resolve delay over trade rules definition
Philip Stafford – Financial Times
Commodity industry groups have urged Brussels to resolve a long-running delay over their definition of off-exchange derivatives, arguing the deferment is putting European markets “at a material competitive disadvantage” to rivals.

IEX to Apply for Exchange Status
Scott Patterson and Jenny Strasburg – WSJ
IEX Group Inc., the upstart private trading venue that launched less than a year ago, plans within a week to seek U.S. regulatory approval to become a full-fledged stock exchange, according to people familiar with the company’s plans.

Steve Wynn Joins Bain Capital in Financing IEX Dark Pool
Sam Mamudi – Bloomberg
IEX Group Inc., the dark pool made famous by Michael Lewis, has raised $75 million from backers including billionaire Steve Wynn and Bain Capital Ventures for its efforts to become a registered stock exchange.

LME Clear gains Emir authorisation
Joe Parsons – Futures & Options World
LME Clear, the new clearing house set for by the London Metal Exchange (LME), has won crucial regulatory backing to move ahead with its planned launch later this month, making LME the latest European exchange to win approval.

Call it whatever you like, but a financial transaction tax is bad news
Ben Wright – Telegraph
You really would have thought that Europe’s finance ministers had better things to talk about. But, no, when they gather in Italy at the end of next week, a good portion of the agenda will be taken up with discussions about introducing a financial transaction tax in the European Union. Yep, that hoary old chestnut.

FBI Finds No Evidence J.P. Morgan Breach Hit Other Big U.S. Banks
Danny Yadron and Devlin Barrett – WSJ
The Federal Bureau of Investigation hasn’t found any evidence to suggest the hacker or hackers who successfully penetrated the computer system at J.P. Morgan Chase & Co. scored any similar successes against other big U.S. banks, four people close to the investigation said.

Frontloading still a thorn in industry’s side
Automated Trader
Despite a phased-in approach for the clearing obligation, frontloading continues to present major operational challenges for buy side firm caught in the “category 2” net. AT considers the responses from ESMA’s clearing obligation consultation for this and other issues.

NYSE’s New Owners Want to Restore Old Look to Trading Floor
Bradley Hope – MoneyBeat – WSJ
Intercontinental Exchange Inc. is in the midst of a top-to-bottom renovation of the New York Stock Exchange, but there is another ambitious change under consideration that could leave a big impact on the look of the trading floor. The idea is to restore it to what it once was: an immense trading room with clear views of the hand-carved wooden buttonwood flowers on the ceiling.


Banks Face More Oversight of Ability to Weather Credit Crunch
Jesse Hamilton – Bloomberg
U.S. regulators, closing in on their mandate to force financial firms to prove they can weather another credit crisis, are set today to finish two key rules governing the banks’ balance sheets.

EBA: Objections over WGMR rules not our fault
Fiona Maxwell –
European regulators have defended their stance on global margin requirements for uncleared derivatives, arguing they are bound by the original recommendations from the Working Group on Margin Requirements (WGMR). But banks insist they would be unable to implement the requirements owing to confusion over the complex rules, and an industry group has called for a two-year delay to the implementation date.

You win some, you lose some
Rob Mannix –
The past month brought us several reminders that regulation is often the art of the possible – two of them from the UK and one from the US market. Taking the UK cases first, we have seen a note from the PRA on some of the contentious points in Solvency II and a consultation from the UK Treasury on the directive’s volatility adjustment. The PRA might like to have been clearer. The Treasury would probably have preferred to be tougher. In both instances, outside factors have constrained them.

Exchanges & Trading Facilities

EEX Switches on Power Transparency Data Site
Giulia Lasagni – WatersTechnology
Leipzig, Germany-based European Energy Exchange has rolled out a new website,, to provide users with access to fundamental data and information on wholesale energy trading, in response to new requirements derived from the Regulation on Market Integrity and Transparency (REMIT).

The Options Industry Council Announces – Average Daily Options Volume Increased 4 Percent in August
The Options Industry Council (OIC) announced today that 15,245,495 contracts were traded on average each day in August, a 4.17 percent increase compared to the 14,635,274 contracts in August of last year.

MGEX Reports 10th Highest Monthly Volume In Exchange History
MGEX, a Designated Contract Market (DCM) and Derivatives Clearing Organization (DCO), announces a total volume of 199,512 from August, the 10th-highest monthly volume in Exchange history and a 17 percent increase over the total volume from August 2013. It is the highest volume during the month of August since 2010.

OneChicago Announces August 2014 Trading Volume Increase Of 32% Year-Over-Year
OneChicago, LLC (OCX), an equity finance exchange, today announced its August 2014 volume of 826,453, a 32% increase year-over-year. OneChicago is a CFTC and SEC regulated exchange offering Single Stock Futures (SSF), a Delta One product, on approximately 1,500 equities, including ADRs and ETFs.

CBOE Holdings Reports August 2014 Trading Volume
CBOE Holdings, Inc. reported today that August 2014 trading volume for options contracts on Chicago Board Options Exchange and C2 Options Exchange and futures contracts on CBOE Futures Exchange totaled 99.10 million contracts. Average daily volume was 4.72 million contracts, a two-percent increase from August 2013 and a five-percent decrease from July 2014.

ISE Holdings Reports Business Activity for August 2014
ISE and ISE Gemini combined represent 16.1% of equity options market share, excluding dividend trades. ISE and ISE Gemini reported a combined ADV of 2.2 million contracts. Dividend trades made up 2.0% of industry volume in August 2014.

BOX Options Exchange Price Improvement Activity For August
In the month of August, price improved contracts on BOX Options Exchange averaged 282,085 per day.

Euronext announces monthly trade volumes for August 2014
Cash markets average daily volume increased 11.6% for the month of August 2014 compared to August 2013, an average daily volume increase of 13% year-to-date. ETF trading saw a steep rise, with average daily volumes up 40% from August 2013 and assets under management set a new record of EUR187.7 billion.

Boerse Stuttgart Generates Turnover Of Around EUR 6.4 Billion In August – Increases In Leverage Products, Investment Funds And Exchange-Traded Products

ASX Group Monthly Activity Report – August 2014

ASX Compliance Monthly Activity Report – August 2014

NZX August 2014 Shareholder Metrics

SGX Sees Market Volume Growth In August
Singapore Exchange (SGX) reported increased daily average value in securities market and volume growth in derivatives for August.

TOCOM August Volume Averaged 76,579 Contracts Per Day, Down 7.8% M-on-M
The Tokyo Commodity Exchange announced today that average daily trading volume for August was 70,594 contracts, down 7.8% from July. TOCOM’s main commodities saw lower volume: Gold decreased 0.2% to 27,490 contracts, Platinum dropped 20.1% to 15,049 contracts and Rubber was down 7.8% to 7,479 contracts.

Hedge Funds & Managed Futures

Hargreaves weathers margin pressure as assets jump to GBP47bn
Dan Jones – Investment Week
Hargreaves Lansdown has reported a record pre-tax profit of GBP209.8m for the year to 30 June as it begins to deal with the initial impact of changes to its charging model and falling returns on cash.

London’s DN Capital Closes $200 Million Fund
Lisa Fleisher – MoneyBeat – WSJ
London-based venture firm DN Capital said it has closed a $200 million fund, one of a string of European investment groups that have reached their targets this year.

Credit fund targets EUR1.5 billion amid bank deleveraging
Sarah Krouse – Financial News
Credit specialist LCM Partners is aiming to raise EUR1.5 billion for a new European credit opportunities fund that aims to take advantage of the ongoing disposal of non-core assets by the region’s banks.

SunGard and PRMIA Research Reveals Risk Management Evolution From Regulatory Burden to Strategic Function
A global survey undertaken by the Professional Risk Managers’ International Association (PRMIA) and SunGard reveals an attitudinal shift among risk managers, who are now increasingly viewing risk management as a strategic core competency rather than just a regulatory obligation. The survey captured the views of more than 200 banking risk managers across the world about their collateral and exposure management priorities.

Banks & Brokers

Marex Spectron global energy head departs
Luke Jeffs – Futures & Options World
Marex Spectron, a commodities futures broker, said its global head of energy, Gordon Bennett, has left the company to be replaced by Jeremy Elliot and Hunter Baldwin as co-heads.

Jefferies Earnings Rise Sharply
Julie Steinberg and Daniel Huang – WSJ
Jefferies Group LLC, in an early release of financial results, reported a sharp increase in preliminary net earnings for its fiscal third quarter driven by gains in fixed-income trading and mergers advice.

Banks’ Fee Bonanza Dries Up
James Sterngold – WSJ
Banks are making less of their money from customer-account fees than at any time in the past seven decades as strict government rules and changing consumer behavior squeeze a major source of revenue. After peaking in 2009, the annual account fees collected at U.S. commercial banks have declined markedly, even as the volume of bank deposits has swelled, according to the Federal Deposit Insurance Corp.

Exclusive: Deutsche Asset & Wealth Management opens Dallas office in regional shift
Elizabeth Dilts – Reuters
Deutsche Bank AG’s Asset & Wealth Management division said on Tuesday it has opened a private bank in Dallas with two former JP Morgan Private Bank executives at the helm. The move is part of a global push to increase the German bank’s financial adviser base by 15 percent in the next three years.

Sellside bankers find novel ways to pump up M&A prices
Nick Kostov – Financial News
When one M&A lawyer walked into a pitch recently, empty coffee cups had been left out. It obviously suggested his client faced competition because another presentation had just taken place, but perhaps all was not as it seemed.

U.S. judge dismisses FDIC lawsuit against banks over mortgage bonds
Nate Raymond – Reuters
A judge on Tuesday dismissed a lawsuit by the Federal Deposit Insurance Corporation against banks including Deutsche Bank AG and Credit Suisse Group AG over mortgage-backed securities sold before the 2008 financial crisis.

Clearing & Settlement

OCC Announces Average Daily Cleared Contract Volume Up 4% in August
OCC’s average daily cleared contract volume in August was 15,502,290 contracts, a 4 percent increase from August 2013. Total cleared contract volume for the month reached 325,548,099 contracts, a 0.35 percent decrease from August 2013.

LME Clear Receives EMIR Authorisation
LME Clear, the new clearing house of the London Metal Exchange (LME), today announced that the Bank of England has approved its application as a central counterparty under the European Markets Infrastructure Regulation (EMIR). LME Clear’s authorisation takes effect on 3 September 2014.

GH Financials to become full member of Eurex
William Mitting – Futures & Options World
Broker GH Financials is set to become a General Clearing Member on Eurex in a significant step forward for the firm.

DTCC’s Three SIFMU Subsidiaries, DTC, NSCC And FICC, Recognized With Aaa Long-Term And Prime-1 Short Term Issuer Ratings
Three core subsidiaries of The Depository Trust & Clearing Corporation (DTCC), the premier post-trade market infrastructure for the global financial services industry, have been recognized for their superior creditworthiness and risk management capabilities in meeting their clearing and settlement obligations.

South Africa still unsure about onshore CCP
Fiona Maxwell –
After years of waiting, and heated debate, South Africa recently unveiled its draft clearing rules, but they duck the biggest question of all – whether to require use of an onshore clearing house.

BNY Mellon’s central securities depository links up with Euroclear
Rachael Singh – Financial News
US custodian and asset manager BNY Mellon has developed its Belgian-based central securities depository by establishing a link with rival Euroclear and announcing its first external client.

CME Group – Clearing: USD and EUR Interest Rate Swap Futures – Delivery Process, September 2014

CME Group – Clearing: Gasoil 7F Price Flux change (Globex,NX Pit) and extend listing cycle

CME Group – REVISED: Futures for Delivery of Standardized Bundle Combinations of CME Three-Month Eurodollar (ED) Futures

Indexes & Products

SGX: FTSE Singapore Index Generated 16% Total USD Return Over 12 Months To 29 Aug


Fidessa Expands UK Service With Alliance News
Fidessa group plc today announced that it has expanded the service it offers its UK broker clients with the addition of Alliance News, a new journalistic news service targeted at UK companies, investors and their advisors. Covering all UK listed companies, Alliance News delivers both breadth and depth of coverage including smaller and AIM-listed companies, as well as providing general, global economic content.

Russell builds out Emea implementation team
Andrew Pearce – Financial News
Russell Investments has continued to expand its European implementation services team, with a brace of hires from Record Currency Management and Legal & General Investment Management.

Thomson Reuters Announces Winners Of 2014 StarMine Analyst Awards – Europe
Barclays Recognised As The Top Brokerage Firm – Cormac Leech Of Liberum And Benjamin Rosenberger Of UBS Take Top Individual Awards

Thomson Reuters Announces Winners Of 2014 Starmine Analyst Awards – Asia
Deutsche Bank Recognized As The Top Brokerage Firm – Chaw Sook Ting Of RHB Research Institute And Johnny Lau Of Sunwah Kingsway Take Top Individual Awards

smartTrade OMS Adds New Functionality And Sees Wider Adoption
smartTrade Technologies announces today a new release of its Order Management System (OMS) and adoption by clients in Europe, the Americas and Asia Pacific.

SunGard Wins Big in Singapore
James Rundle – WatersTechnology
SunGard has announced a raft of contract wins in Singapore for its managed services offering.


Houston-Based Investment Advisory Firm and Co-Owners Charged With Failing to Disclose Conflict of Interest to Clients
The Securities and Exchange Commission today announced fraud charges against a Houston-based investment advisory firm accused of recommending that clients invest in particular mutual funds without disclosing a key conflict of interest: the firm was in turn receiving compensation from the broker offering the funds.

Environmental & Energy

ISIS Will Target the U.S. Power Grid, Former CIA Says; Could Tap Other Fellow Extremist Groups to Do the Job
Esther Tanquintic-Misa, International Business Times
A former CIA officer has warned the United States its power grid will sure to be massively hit once the ISIS carries out its anticipated terror strike against the superpower.

***LB: Also in this story “The study said the country stands to suffer a coast-to-coast blackout with saboteurs just merely knocking down nine key substations.”

Solar Company Seeks Stiff U.S. Tariffs to Deter Chinese Spying
Diane Cardwell, The New York Times
In the daunting battle against corporate online espionage worldwide, one major solar company wants to deploy a powerful and novel weapon: higher tariffs.
***LB: Also in this story “SolarWorld Americas, the largest manufacturer of solar panels in the United States, has asked the Commerce Department to investigate claims that Chinese military personnel broke into the company’s computers and stole documents important to its business and its long-running trade dispute with China.”

Burger King Deal With Tim Hortons May Be Disastrous For Rainforests Alexander C. Kaufman, Huffingtonpost
Burger King’s plan to merge with doughnut chain Tim Hortons in Canada may be a bad sign for Southeast Asia’s rainforests.

***LB: Also in this story “Now, advocates fear that Burger King’s plan to build the fastest-growing fast food empire in the world will lead to a marked uptick in the destruction.”


The CPC Central Committee And the State Council Appoints New Chairman Of The Shenzhen Stock Exchange
Mr. Wu Lijun, former Assistant Chairman of the China Securities Regulatory Commission (CSRC), was appointed Secretary of the CPC SZSE Committee and nominated Board Chairman of the SZSE.

Dalian Commodity Exchange “2014 Top Ten Futures Investment R & D Teams” Selection Kicks Off

Dalian Commodity Exchange: Notice On Time Of Night Trading During The Mid-Autumn Festival Of 2014

HKEx Announces Temporary Holiday Risk Management Arrangements

Shenzhen Stock Exchange Market Bulletin 1 September, 2014, Issue 30

Frontier Markets

Holdouts give vultures a bad name
Martin Wolf – Financial Times
In one corner we have Argentina, serial defaulter. In the other, we have professional “holdouts”, bondholders who refused to accept a compromise deal with Buenos Aires and have become serial litigators. Whom should one wish to succeed? This is a tough choice. But I have backed Argentina for two reasons. The strategy of the holdouts works at the expense of other creditors. And, as sensible new proposals from the International Capital Market Association reveal, it works at the expense of restructurings, even when these are essential.

Ex-Goldman India Head Lauds Hands – On Approach for Private Equity
Shefali Anand – MoneyBeat – WSJ
For private equity investors to succeed in India, they need to be more hands-on, says L. Brooks Entwistle, former India head of Goldman Sachs Group Inc., who this week took over as group chief executive of Asian private-equity firm Everstone Capital.

The Royal Award For Islamic Finance 2014 Presented To Founding Member Of Malaysia’s First Islamic Bank

Palestine Securities Exchange: First Palestinian Commercial Bond Starts Trading


Cargill to buy ADM’s chocolate business
Cargill has agreed to purchase Archer Daniels Midland Company’s (NYSE: ADM) global chocolate business for $440 million. The acquisition is an excellent fit with Cargill’s existing chocolate business and brings together two organizations with strong talent, broad customer bases and extensive research and development capabilities.

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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