First Read

Bits & Pieces
Doug Ashburn – JLN

John is out of the office this week on a mission to provide fresh food for every mosquito north of Chicago. He is also camping and canoeing with a group of Boy Scouts.

After a successful first foray into New York, MarketsWiki Education plays a home series in Chicago August 4th, 5th and 7th. This will be our third annual World of Opportunity Summer Intern Education series. The first two events will be held at IIT’s downtown campus and the final event will be held at TT’s Tech Tap.

We added two new event sponsors last week – BATS Global Markets and CBOE, two firms that sponsored the Chicago event last year. CME Group is the Global Premier sponsor for the 2015 series, which includes New York, Chicago and London.

Speaking of London, we have set tentative dates of October 14th and 15th. We are in the process of selecting speakers and a venue. Stay tuned.

We have begun editing the video footage from the New York event, and everything looks great. The former members’ dining room at the NYSE was the perfect venue for the event. Keep a lookout for the videos.


All Washed Up: Putting an End to Self Trading
Last week the CFTC issued a report detailing the flash crash experienced in the U.S. Treasury cash and futures markets on October 15. The report highlighted the lack of a “smoking gun” culprit as the cause of the sudden and dramatic price swing witnessed in these markets. Instead, it pointed the finger at a culmination of many factors, including downward pressure on yields leading up to the event combined with an economic data release which contradicted the market’s expectations of a rate increase. It also highlighted another phenomenon prevalent in today’s highly automated markets: self trading.

**JK – TT getting the washing done. Factoid from this piece: According to the CFTC report, nearly 15% of all transactions were “wash trades” during the October 15, 2014 bond market “flash crash.”


Dodd Frank Creators on Wall Street Reform, Five Years Later
Victoria McGrane and Andrew Ackerman – WSJ
The Dodd-Frank regulatory overhaul, the most sweeping financial legislation in a generation, turns five this week. Debate over the law’s impact continues to rage. Proponents say it made the financial system safer by making banks less risky. Detractors say the law has hurt smaller banks and hamstrung the economy.

**JK – Q&A with Mr. Dodd and Mr. Frank who say the act is pretty darn good. Shocking.


Fidessa explores challenge of truly ‘smart’ order routing
Automated Trader
Fidessa group has published a new paper entitled What you see is not what you get – the challenge of truly ‘smart’ order routing, authored by Will Winzor-Saile, Electronic Execution Product Specialist at Fidessa. In his first paper of this series, Shifting Sands – the harsh realities of executing in today’s markets, the issues around constructing a reliable, globally-consistent market access infrastructure were examined, along with how the more enlightened brokers were starting to rethink their approach to electronic execution. This new paper focuses on a fundamental part of this, the smart order router (SOR), and the challenges facing firms as they struggle to stay on top of the ever-changing market landscape.

***DA: It is no longer good enough to be a smart order router. Now it must test at the genius level.


Vision Statement: Fidessa Looking At Realtime and Predictive Analytics and Cybersecurity

The financial technology space is always moving and aiming at moving targets. Justin Llewellyn-Jones, COO and global head of derivatives for Fidessa, said firms now are facing broader and deeper technology challenges than ever, from real time order analytics to new cyber security needs.

Speaking with John Lothian News at the FIA IDX conference in London, Llewellyn-Jones said Fidessa has been focused on expanding its execution algorithms, an initiative that was moving forward over a year ago.

“We’ve been extending that set of algorithms in terms of the synthetic order types, the execution types we cover, the benchmark algorithms.”
Watch the video »

Bridging the Week by Gary DeWaal: July 13-17 and 20, 2015 (Disruptive Trading Redux; Penalties; Treasury Flash Crash; CCOs )
Gary DeWaal, Katten Muchin & Rosenman LLP
This week, United States banks are required to cease certain proprietary trading activities under the so-called Volcker rule. Last week, one more US exchange amended its rules to enact new disruptive practices prohibitions. In addition, a federal appeals court told the Securities and Exchange Commission it cannot apply new Dodd-Frank sanctions retroactively. As a result, the following matters are covered in this week’s edition of Bridging the Week:

**Mark it on your calendars, 7/21/2015 the day the Volcker Rule started.


MarketsWiki Education Intern Series 2015

Nothing Says Panic Quite Like Three TARPs
Streetwise Professor
The invaluable Christopher Balding has been tracking closely the massive financial support the Chinese government has been injecting into the banking system, the shadow banking system, local governments, and the stock market. In a blog post earlier this week, he estimated that this support totaled at least $692 billion, rising to $933 billion if the Reserve Ratio cut is counted as a subsidy to the banking system.

***DA: Best line from the article: “That’s what economists call revealed preference. Or, in this instance, revealed panic.”


Banks back rival to Bloomberg messaging system
A chat tool described as a WhatsApp for business is being launched by 15 Wall Street banks in a bid to challenge Bloomberg’s dominance of the market in financial messaging. The service, Symphony, will debut two years after it emerged that Bloomberg’s reporters had used private terminal data to spy on bank employees.

***DA: I say bring back the CB radio. Instantaneous, anonymous and free to all. “Breaker 1-9, this here’s the Rubber Duck. Looking for a yard of 1-month dollar yen 30 delta puts.”


Lead Stories

Eurex Technical Glitch Delays Trading in Futures, Options
A technical glitch postponed the start of trading in futures and options contracts on Eurex by more than two hours, the latest in a run of breakdowns by exchanges.

CITIC in the lead to buy Russell Investments-sources
China’s CITIC Group Corporation is in negotiations to acquire Russell Investments from London Stock Exchange Group Plc in what is expected to be a roughly $1.8 billion deal, according to people familiar with the matter. The acquisition of Russell, if finalized, would give CITIC, a Beijing-based conglomerate that has a financial services arm and also owns CITIC Asset Management Corp, an entry into the United States market.

Barclays plans to cut more than 30,000 jobs: The Times
Barclays Plc plans to cut more than 30,000 jobs within two years after firing Chief Executive Antony Jenkins this month, The Times reported on Sunday.

Libor, FX Probe, A Public Apology: A Timeline of Martin Wheatley at the FCA
MoneyBeat – WSJ
You can’t say he hasn’t been busy. In the two years at the helm of the U.K. Financial Conduct Authority, Martin Wheatley has laid down billions in fines, instigated innumerable reviews into corporate practices, and made one public apology. Here are some of the key moments.

China’s hunt for short-sellers tests legal boundaries
Gabriel Wildau in Shanghai, FT
In the wake of the Chinese stock market’s dramatic fall early this month, police and securities regulators announced they had launched an investigation into “malicious short selling” in the equity futures market.

Gold Continues Sliding, Hits 5-Year Low
Gold prices fell to five-year lows on Monday after a sharp selloff at the beginning of the Asian session, before recovering slightly.
The fall in Asia came amid suggestions of a big fund selling its holdings as well as data from China’s central bank that showed its gold reserves were lower than expected. Adding to this are growing expectations of an increase in U.S. interest rates later this year.

Banks reopen, first repayments start as Greece aims for return to normal
Greece reopened its banks and started the process of paying off billions of euros owed to international creditors on Monday in the first signs of a return to normal after a deal to agree a new package of bailout reforms.
Customers were queued up outside bank branches open for the first time in three weeks on Monday after they were closed to save the system from collapsing under a flood of withdrawals.

Greeks Worry About Bailout’s Push for an Economic Overhaul
NY Times
For Greece, it’s the economic equivalent of the Big Bang.
So far, the questions about the tentative Greek bailout deal have focused on the pact’s austere insistence on further cost cuts and new tax increases. But just as disruptive to Greek life could be the fundamental changes the pact is demanding in the cozy old ways that the country conducts business — changes meant to make Greece a more modern, efficient eurozone economy.

Mutual Funds Are Front and Center in Puerto Rico Talks
Hedge funds are known as heavy buyers of Puerto Rico bonds, but as the U.S. commonwealth works to restructure about $72 billion in debt, it is a pair of mutual-fund firms that may take the lead in negotiations.

Clinton to Push Revamp of Capital-Gains Tax Rates; Move is part of a broader plan to prod companies to emphasize longer-term growth
Hillary Clinton will propose a revamp of capital-gains taxes that would hit some short-term investors with higher rates, part of a package of measures designed to prod companies to put more emphasis on long-term growth, a campaign official said.

Hedge Fund Titans Choosing Hillary Clinton Over Top Republicans
Hillary Clinton received donations from some of the biggest names in the hedge fund industry, including Paul Tudor Jones, even as the presidential candidate wants to boost their tax rate.
Jones, the billionaire founder of Tudor Investment Corp., Jamie Dinan, who started York Capital, and Neil Chriss, who runs Hutchin Hill Capital, each contributed the maximum $2,700 to Clinton’s bid for the White House, according to Federal Election Commission filings for the second quarter.

Global miners face succession crisis as old guard nears retirement
As if slumping commodity prices and unhappy shareholders were not enough, global mining companies are also facing a looming succession crisis.
Several mining CEOs have reached or are nearing retirement age and industry executives, recruiters and analysts worry that there is not enough people with the right skills and experience to replace the old guard.


Senators Put Pressure on Janet Yellen Over Living Wills for Banks
MoneyBeat – WSJ
Big banks had better hope that where there’s a will, there isn’t a way for the Federal Reserve to deflect congressional heat. Under the Dodd-Frank Act, big banks must submit plans for how they could be resolved in the event of failure. Last year, the Fed and Federal Deposit Insurance Corp. told banks their early efforts on these so-called living wills were seriously inadequate.

?US regulators ‘sluggish’ in requiring LEI identification tags, IMF says
Neil Roland, MLex
The International Monetary Fund said many US agencies have been slow to mandate financial institutions’ use of identification tags to enable a global risk snapshot.

Mifid II increases burden on custodians
Financial News
While Mifid I was primarily aimed at sellside firms including the likes of investment banks and interdealer brokers, it would be a mistake to be complacent. Mifid II, like many of the regulations introduced since the financial crisis, aims to enhance investor protection, and custodians, as safe keepers of client assets, cannot ignore it.
Safe keeping is not an “investment service” under Mifid II, and custody is listed instead as an “ancillary service”, alongside cash and collateral management. Despite this exemption, Mifid II does lay additional burdens on custodians.

Wealth Adviser: SEC Probes Fund Firms’ Fees
MoneyBeat – WSJ
The Securities and Exchange Commission is examining more than a dozen firms to determine whether mutual-fund managers are dipping more deeply than allowed into their investors’ money to pay the brokerages that distribute their products, reports The Wall Street Journal. OppenheimerFunds, Franklin Templeton and J.P. Morgan Chase are among the fund firms under review by the SEC, which has been conducting a broad sweep of how companies sell their products for the past two years. The SEC is concerned that the additional fees aren’t being properly disclosed to investors, and that brokers may be more likely to suggest funds that pay for such services. “It creates the notion of pay to play,” says Bing Waldert, a Cerulli Associates director.

Thinktank calls for EU asset manager regulation shake-up
Thinktank New City Initiative (NCI) is calling for investment firms that only market their products in one country to be exempt from European regulation, such as AIFMD and MiFID II

Michele Anderson Named Associate Director in the Division of Corporation Finance
Ms. Anderson has served as Chief of the division’s Office of Mergers and Acquisitions since 2008. She began her career at the SEC in 1998 as an attorney-advisor in the division and from 2004 to 2008, she was Legal Branch Chief in the division’s Office of Telecommunications.

Self-Regulatory Organization (SRO) Rulemaking and National Market System (NMS) Plans

    • C2: Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to AIM (Release No. 34-75473; File No. SR-C2-2015-020; July 16, 2015)


    • CBOE: Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to AIM and FLEX AIM (Release No. 34-75476; File No. SR-CBOE-2015-068; July 16, 2015)


    • EDGX: Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Rules 11.6, 11.8, 11.9, 11.10 and 11.11 to Align with Similar Rules of the BATS Exchange, Inc. (Release No. 34-75479; File No. SR-EDGX-2015-33; July 17, 2015); see also Exhibit 5


    • EDGX: Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Fees for Use of EDGX Exchange, Inc. (Release No. 34-75478; File No. SR-EDGX-2015-34; July 17, 2015); see also Exhibit 5

Exchanges & Trading Facilities

HKEx And LME – Update On Legal Proceedings: Class Action Lawsuits Filed In The United States
Press Release
As disclosed in the announcements dated 4 and 7 August 2013 as well as 14 March, 13 May and 25 September 2014 (collectively, the “Announcements”), Hong Kong Exchanges and Clearing Limited (“HKEx”), along with its subsidiaries, The London Metal Exchange (the “LME”) and LME Holdings Limited (“LMEH”), were named as co-defendants in class action lawsuits filed in the United States alleging anti-competitive and monopolistic behaviour in metal warehousing in connection with aluminium prices.

Challenges for new SGX CEO to boldly tackle
Is there a lack of appropriate products suitable for Singapore’s risk-averse investors? Not really. The recent announcement by the Monetary Authority of Singapore (MAS) to introduce a savings bond is a good start. But that alone is insufficient.

TAIFEX: Successful Launch Of RMB FX Futures
Press Release
The Taiwan Futures Exchange (TAIFEX) launched two RMB FX futures contracts, the USD/CNT FX Futures (RTF) and the USD/CNH FX Futures (RHF) today. Trading in both products together achieved a total volume of 5,290 contracts on the first day of trading.

EEX: Trading Of Cap Futures To Begin On 14 September – Payment Threshold For Cap Future Determined
Press Release
The European Energy Exchange (EEX) has confirmed the launch date for trading of the new Cap Futures and specified the product design in more detail. From 14 September 2015, trading participants on the EEX derivatives market can hedge against price peaks that may occur on the German intraday market.

Strongest Half-Year Volumes Ever On?European Power Exchange EPEX SPOT
The trend towards short-term power trading is unbroken: In the first half year of 2015, a total volume of 216.6 TWh was traded on EPEX SPOT’s Day-Ahead and Intraday power markets. This is a 16.1% increase compared to the previous year’s volumes (186.6 TWh) and the best half year ever recorded on EPEX SPOT, with every market segment contributing to the growth. In addition, 20.8 TWh were traded on APX markets since 4 May 2015, part of EPEX SPOT since that day.

Hedge Funds & Managed Futures

San Diego County Pension Says Goodbye to Controversial Strategy
MoneyBeat – WSJ
A large California pension fund is stepping away from a controversial investing strategy as it parts ways with a longtime outside manager.

The San Diego County Employees Retirement Association said this week it would end a six-year relationship with Salient Partners LP, which had implemented a so-called “risk parity” strategy that uses leverage to boost performance.

Gold bugs squashed by aggressive selling
Henry Sanderson, Neil Hume and David Sheppard, FT
Gold sank to its lowest level in five years after heavy selling in early Asian trading hours saw a billion dollars worth of the precious metal dumped on the market in a matter of minutes, in a sign funds were aggressively targeting bullion as its outlook deteriorates.

Commodities crash could turn Australia into a new Greece
The Telegraph
The commodities boom made Australia the lucky country but rising debt and a slump in Chinese demand for resources signal tough times ahead Down Under.

Blurring the lines between active and smart beta
Financial News
From an investor’s point of view, active management arguably begins as soon as they drift from choosing anything other than a market capitalisation weighted index, according to Laurent Trottier, global head of index management and smart beta at Amundi, which offers both active and passive smart beta.

Banks & Brokers

StanChart CEO Winters grabs reins in management shake-up
Standard Chartered Plc Chief Executive Bill Winters will take more direct responsibility for the bank’s biggest business divisions, as he seeks to restore the fortunes of the emerging markets-focused bank. Under a new management structure to be phased in from Oct. 1, the heads of major business units will report directly to Winters rather than his deputy, Mike Rees, StanChart said on Sunday.

Julius Baer U.S. Tax-Probe Finale May Spur Dealmaking
Julius Baer Group Ltd. should have cash to purchase rivals even as it prepares to settle a four-year probe into tax evasion by the U.S. Justice Department.

JPMorgan reaches $388 million settlement in mortgage securities case
JPMorgan Chase & Co (JPM.N) agreed to pay $388 million to settle a suit by investors claiming that the largest U.S. bank had misled them about the safety of $10 billion worth of residential mortgage-backed securities it sold before the financial crisis.

Morgan Stanley beats estimates as trading revenue jumps
Morgan Stanley (MS.N) reported a better-than-expected second-quarter profit on Monday as its business that trades bonds and equities handily outperformed those of its Wall Street rivals. Morgan Stanley, the last big U.S. bank to report for the quarter, said its net income from continuing operations applicable to the company fell to $1.67 billion, or 85 cents per share, from $1.82 billion, or 92 cents per share, a year earlier.

Greek banks reopen with restricted service
Henry Foy in Athens, FT
Greek banks opened for the first time in three weeks on Monday in an attempt to bolster savers’ confidence in the country’s crippled lenders.

ITG Named Best TCA Provider
ITG (NYSE:ITG), an independent execution broker and research provider, today announced that it has been recognized by Waters Technology for its best-in-class transaction cost analysis (TCA) offerings.

Clearing & Settlement

Wells Fargo To Offer Clients Clearing Member Services For Nodal Exchange
Press Release
Nodal Exchange, LLC announced that Wells Fargo Securities, LLC, through its LCH.Clearnet Ltd membership, is now offering clients clearing member services for Nodal Exchange. Since Nodal Exchange’s launch in April 2009, it has become a significant part of the North American power market, providing the most granular and diverse set of locations for trading of cleared power contracts in North America.

Euroclear reports increased client activity levels
The Trade
Euroclear saw increased client activity throughout the first half of 2015, attributing the growth of the business to favourable market conditions.

Holland Clearing House Renamed ICE Clear Netherlands
AMSTERDAM & LONDON–(BUSINESS WIRE)– Intercontinental Exchange (ICE), the leading global network of exchanges and clearing houses, today announced that Holland Clearing House will be renamed ICE Clear Netherlands, effective July 27, 2015. ICE acquired a majority stake in Holland Clearing House in December 2014, with ABN AMRO Clearing Bank holding a minority stake.

Indexes & Products

China’s MSCI hopes soured by stock rout
Financial Times
China’s shock intervention in propping up its once highflying stock market has cost the country near-term access to more than a trillion dollars invested in emerging markets, according to some of the world’s biggest investment groups.
Just one month ago, foreign investors were focused on whether China’s mainland A-share market was on the cusp of gaining entry to the leading index of emerging stock markets, tracked by funds with $1.7tn to invest.


Growth-Starved Investors Bid Up Tech Shares
Investors are handsomely rewarding large technology firms for sales gains, underscoring how scarce growth has become amid economic softness.

WTO negotiators agree tariff cuts on more IT products
World trade negotiators seeking to eliminate tariffs on information technology (IT) products agreed over the weekend to expand the list of items covered. Participants said the 54 nations had struck a tentative deal to expand to about 200 the IT products on which tariffs would be dropped. The list had an annual trade value of some $1 trillion, the World Trade Organization said late on Saturday.

Building a Start-Up Culture in a Broken-Down Economy
The New York Times
In a leafy back alley, two lifelong friends tap away at their keyboards, perfecting their eighth Internet start-up company, a hotel recommendation service called, which began in November and is already turning a profit.

YouTube advertisers increase 40% in year
Hannah Kuchler in San Francisco, FT
The number of advertisers on YouTube has soared more than 40 per cent in the past year as big brands seek to reach millennial consumers on Google’s video site.

Tech World Prepares Obituary for Adobe Flash; Latest security risk is only the latest strike against with the video software
Flash, the popular software from Adobe Systems Inc., once brought Web to life, endowing pages formerly occupied by static text and photos with video clips and animated cartoons. Last week the program, criticized for years as a security risk and a drag on online progress, became a top contender for the technology dead pool.

Leading Hedge Funds In Asia Adopt Broadridge’s Trading, Portfolio Management And Operating Solution – BosValen Asset Management And Pleiad Investment Advisors Deploy Broadridge’s Investment Management Platform
Broadridge’s integrated solution features order management, portfolio accounting, compliance, a central data warehouse, shadow NAV generation, a mobility feature and performance management capabilities. It includes real-time reporting capabilities and covers a very broad range of asset classes. A cross-asset risk management system is also available as part of the platform.


SEC Pays More Than $3 Million to Whistleblower
The whistleblower’s specific and detailed information comprehensively laid out the fraudulent scheme which otherwise would have been very difficult for investigators to detect. The whistleblower’s initial tip also led to related actions that increased the whistleblower’s award.

July 2015 Disciplinary Actions
FINRA has taken disciplinary actions against the following firms and individuals for violations of FINRA rules; federal securities laws, rules and regulations; and the rules of the Municipal Securities Rulemaking Board (MSRB).

Environmental & Energy

The Freakish Year in Broken Climate Records
By Tom Randall – Bloomberg News
The annual State of the Climate report is out, and it’s ugly. Record heat, record sea levels, more hot days and fewer cool nights, surging cyclones, unprecedented pollution, and rapidly diminishing glaciers.

America must lead the climate change fight or our leadership record is toast
By Senator Ben Cardin and Senator Sheldon Whitehouse – The Guardian
The atmosphere is warming. Ice is melting. Droughts are worsening; seas are warming, rising and acidifying. We’re past theory and well into measurement on those points.

Over 200 businesses call on (UK’s) Chancellor to save zero carbon homes standard
By James Murray – BusinessGreen
Nearly 250 organisations, including some of the UK’s largest construction and property firms, have today written to Chancellor George Osborne urging him to reconsider the government’s controversial decision to axe long-awaited zero carbon home standards.


As Beijing Becomes a Supercity, the Rapid Growth Brings Pains
The New York Times
Every morning at 5:30, Liu Desheng joins a dozen retirees waiting for the express bus to central Beijing from this small city in Hebei Province. They stand at the front of the line but never board, instead waiting as bus after bus pulls up, each picking up 50 people from the ever-lengthening line behind the retirees.

Manage, meddle or magnify? China’s corporate debt threat
Beijing may have averted a crisis in its stock markets with heavy-handed intervention, but the world’s biggest corporate debt pile – $16.1 trillion and rising – is a much greater threat to its slowing economy and will not be so easily managed. Corporate China’s debts, at 160 percent of GDP, are twice that of the United States, having sharply deteriorated in the past five years, a Thomson Reuters study of over 1,400 companies shows.

Notorious activist investor storms back to Tokyo market
Leo Lewis and Kana Inagaki in Tokyo, FT
Yoshiaki Murakami, once convicted of insider trading and Japan’s most notorious shareholder activist, has stormed back to a Tokyo stock market where corporate governance and share buybacks are in vogue.

Frontier Markets

Foreign investors try to tap into Iran
A few investors are racing to establish funds for Iran following last week’s nuclear deal with world powers, and many others are tapping into multinationals already present in the $400 billion economy.

Oil price casts shadow over Mexico’s ambitious energy reforms
Oil price casts shadow over Mexico’s ambitious energy reforms
Mexico’s energy reforms are a game-changer, with some saying oil and gas output could be doubled over the next 10 years, meaning the country could become one of the top five producers in the world, rivalling the likes of Iraq and China. However, the oil price needs to recover first for the ambitious programme to be fully realised. Philip Moore reports.


Cargill welcomes clearance from European Commission for purchase of ADM’s chocolate business
Cargill Press Release
The acquisition underlines Cargill’s commitment to meeting customer needs and constitutes a milestone for our chocolate growth strategy. It is strengthening our position as a leading player in the cocoa and chocolate industry. The new organisation will deepen our service to chocolate customers and expand our footprint and production capability significantly. Customers will benefit from a combined business with a broad range of high quality cocoa and chocolate products for confectionery, bakery, dairy, and other applications.

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