First Read

Flash Boys Recap
HFT Gets Hit by Blindside Author

By John J. Lothian

The author of the book “The Blind Side,” “The Big Short” and “Liar’s Poker,” Michael Lewis, has taken aim at High Frequency Trading in his latest Book “Flash Boys: A Wall Street Revolt.”

Mr. Lewis appeared on the U.S. television news show 60 Minutes last night and stated that the U.S. equity markets are “rigged.”. (see below).

The HFT-haters are out in force today, with Joe Saluzzi of Themis Trading appearing on CNBC this morning and Eric Hunsader of Nanex, LLC being quoted in at least one of the stories. Mr. Saluzzi noted on his CNBC appearance that there is not even a definition of what high frequency trading is. He also mention that scalpers make up 50% of the stock trading volume, which makes me wonder why that is so low.

Peter Nabicht of Modern Markets Initiative was quoted in the Chicago Tribune story below. Mr. Nabicht told me he talked Mr. Lewis for 30 minutes, but that none of his comments made the book.

The Principal Traders Group offered a statement on the publication of the book (see below).

It is very interesting to me that the solution highlighted by the book is a “non-displayed Alternative Trading System (ATS), IEX.

If you asked the average member of the Chicago Board of Trade in the 1980s if the stock markets in the U.S. were rigged, they would say YES. The market structure allowed in behaviors in equities which if used in the futures markets would lead to people going away to prison.

Today, we have done away with the Specialist system, commissions have been cut and traders can easily move in and out of equities with very narrow spreads. And yet there are big problems, especially for this product of the Chicago futures markets.

The average investor is not helped by trades being executed in non-displayed markets, so be wary of the HFT haters espousing populist themes. The battle is between the big players on the buyside and the price discovery process. The buyside wants to make their very large trades without impacting the current prices. Who doesn’t?
That battle will never end.


Is the U.S. stock market rigged?
CBS News – 60 Minutes [VIDEO]
This month marks the fifth anniversary of the current bull market on Wall Street, making it one of the longest and strongest in history. Yet U.S. stock ownership is at a record low and less than half of Americans trust banks and financial services. And in the last two weeks, the New York attorney general and the Commodities Futures Trading Commission in Washington have both launched investigations into high-frequency computerized stock trading that now controls more than half the market. The probes were announced just ahead of a much anticipated book on the subject by best-selling author Michael Lewis called “Flash Boys.” In it, Lewis argues that the stock market is now rigged to benefit a group of insiders that have made tens of billions of dollars exploiting computerized trading. The story is told through an unlikely cast of characters who figured out what was going on and have devised a plan to correct it. It could have a huge impact on Wall Street. Tonight, Michael Lewis talks about it for the first time.


Michael Lewis Views Market as ‘Rigged’ in Favor of High-Speed Traders
By WILLIAM ALDEN – New York Times
The author Michael Lewis, who has written in previous books about everything from subprime mortgage securities to the Oakland As, is now taking aim at a dominant force in the stock market: High-frequency trading.


The Wolf Hunters of Wall Street
An Adaptation From ‘Flash Boys: A Wall Street Revolt,’ by Michael Lewis
New York Times
Before the collapse of the U.S. financial system in 2008, Brad Katsuyama could tell himself that he bore no responsibility for that system


FIA PTG Statement on Flash Boys (March 30, 2014)
The FIA Principal Traders Group issued the following statement in anticipation of the release of “Flash Boys”, a book by Michael Lewis that describes some of the recent developments in electronic trading and market structure in the U.S. equity markets


Professor proposes slowing down automated trading
By Ameet Sachdev – Chicago Tribune
In an era of high-speed, automated trading, a big debate rages over how to keep markets safe after several technology-related snafus scarred investors. Instead of cracking down on high-speed traders, a University of Chicago economist says he has a better idea: Change the rules of the game.

***** Batch auction? Who would have thought the ring of the LME would be the model of trading.


ICE out to shrink Big Board to sweeten sale
By John Aidan Byrne – NY Post
The New York Stock Exchange is skating on thin ICE — new owner IntercontinentalExchange plans hundreds of exchange layoffs to slash costs, and may sell some tech assets, Street execs familiar with the situation told The Post.

****** What did you think happens when a firm gets bought?


NFA launches two new tutorial videos for CPOs and CTAs
National Futures Association
NFA has recently added two new tutorial videos to its library of Member education materials. The first, “How to File an Exemption through NFA’s Electronic Exemption System,” provides Commodity Pool Operators and Commodity Trading Advisors with a step-by-step guide on where to find the electronic exemptions system and instructions on how to navigate the system. The second, “How to Avoid Common PQR Filing Deficiencies,” summarizes the new PQR filing requirements for CPOs and highlights areas of the filing process where NFA has found deficiencies.

****** Talk about viral videos!


World Is Ill-Prepared for Global Warming Impacts, UN Says
By Alex Morales and Chisaki Watanabe – Bloomberg
Global warming is depleting fresh water and crops, destroying coral reefs and melting the Arctic, the United Nations said today in a report that concludes the world is ill-prepared to face many new threats.

***** I still believe in market-based solutions to deal with this problem. Are you ready for water futures?



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Lead Stories

‘Flash Boys’ starts Wall St soul searching
Arash Massoudi and Tracy Alloway in New York – FT
Michael Lewis, the author of Liar’s Poker and The Big Short , has Wall Street on edge.
The prospect of a new book by the prolific former bond salesman turned chief scrutiniser, taking a hard look at the predatory world of high-frequency trading, is spurring industry participants to change their approach to a business that has

PwC is sued for $1 billion over MF Global collapse
Jonathan Stempel – Reuters
The administrator of MF Global Holdings Ltd’s bankruptcy plan on Friday sued the auditor PricewaterhouseCoopers for at least $1 billion over its advice on a $6.3 billion European sovereign debt investment that helped fuel the brokerage’s rapid demise.

Peregrine Bankruptcy Trustee Ends Dispute With JPMorgan
Steven Church – Bloomberg
Peregrine Financial Group Inc.’s trustee agreed to settle a dispute with JPMorgan Chase & Co. in a deal that will bring more than $15 million to creditors of the commodities firm, which filed for bankruptcy after its founder looted client accounts.

Swiss forex probe targets eight banks
Daniel Schaefer- FT
Switzerland’s competition commission has launched an investigation into eight domestic and international banks after it found “indications” that they co-operated to manipulate a pivotal foreign exchange rate

Swiss competition watchdog opens probe into forex manipulation
Switzerland’s competition commission WEKO said on Monday it had opened an investigation into several Swiss, British and U.S. banks over potential collusion to manipulate foreign exchange rates.
WEKO said it is investigating UBS, Credit Suisse, Zuercher Kantonalbank (ZKB), Julius Baer, JP Morgan, Citigroup, Barclays and Royal Bank of Scotland.

CFTC Close to New Rules for European Swaps Trading
The Commodity Futures Trading Commission is preparing to impose additional conditions on European swaps trading platforms while granting them relief from certain U.S. rules, according to people familiar with the matter.

RBC Joins Goldman Sachs Voicing Support for New Stock Market
Traders Magazine, Michael P. Regan – Bloomberg
Royal Bank of Canada joined Goldman Sachs Group Inc. in voicing support for IEX Group Inc.’s five- month-old U.S. stock market, which was designed to mitigate the influence of computerized high-speed traders.

COMMENTARY: Co-Location Levels the Playing Field
Dr. David Snowden
March 28, 2014 – In the wake of the NY Attorney General’s probe into co-location, exchange proximity actually levels the playing field and adds more “fairness” to the capital markets.

Sir Win Bischoff – Lloyds grandee’s valedictory portrait
By Martin Arnold and Sharlene Goff –
Banking isn’t just facts, it is also stomach,” says Sir Win Bischoff, patting his midriff. There have been many occasions when the Lloyds Banking Group chairman, who steps down on Thursday, has needed to use his gut when faced with challenging decisions.

US Supreme Court to hear key patent case
The US Supreme Court will on Monday hear oral arguments in a landmark patent infringement case that could restrict the types of software and computer programs that are eligible for patent protection.

‘Lehman moment’ in China? Not quite, says BlackRock
It is wrong to describe a recent corporate debt default in China as a ‘Lehman’ or ‘Bear Stearns’ moment, the Asia Pacific chairman for the world’s largest asset manager told CNBC on Monday.

Euronext announces three new senior appointments
Amsterdam, Brussels, Lisbon, London and Paris – 31st March 2014 – Euronext, a wholly owned subsidiary of IntercontinentalExchange Group, announced the appointment of three leaders for its financial derivatives, commodities and cash businesses with effect from 1st April 2014.

Dame Clara Furse warns on appetite for equity
By Chris Giles, Economics Editor, FT
Low interest rates may be masking a long-term problem of low investor appetite for equity, potentially threatening to starve infrastructure and smaller companies of finance, a leading regulator at the Bank of England warned on Friday.


U.S. Senator sets hurdle for CFTC hopeful Bowen
A U.S. senator questioned a candidate for the Commodity Futures Trading Commission over a decision that left victims of the Allen Stanford fraud out of pocket, raising a hurdle she must jump to get the job.

British Regulator to Increase Scrutiny of Controls on Benchmark Rates
The Financial Conduct Authority says it plans to review how investment banks control the flow of internal information on benchmark rates, potential conflicts of interests within financial institutions and internal controls on traders in relation to global benchmarks.

SEC Halts Pyramid Scheme Targeting Asian and Latino Communities
The Securities and Exchange Commission announced charges and asset freezes against the operators of a worldwide pyramid scheme targeting Asian and Latino communities in the U.S. and abroad.

FSA and European Commission hold Japan-EU High Level Meeting on Financial Issues
On March 28, 2014, the Financial Services Agency (FSA), the European Commission and European Supervisory Authorities held the Japan-EU High Level Meeting on Financial Issues in Brussels.

CFTC Staff Issues Interpretative Guidance Regarding Auditor Independence
Washington, DC — The U.S. Commodity Futures Trading Commission’s (Commission) Division of Swap Dealer and Intermediary Oversight (DSIO) today issued an interpretation regarding the auditor independence requirements under Regulation 1.16 for certified public accountants conducting examinations of futures commission merchants (FCMs).

CFTC’s Division of Clearing and Risk Issues Time-Limited No-Action Letter for Singapore Exchange Derivatives Clearing Limited and its Clearing Members
Washington, DC — The Commodity Futures Trading Commission (Commission) Division of Clearing and Risk (DCR) today issued a time-limited no-action letter to the Singapore Exchange Derivatives Clearing Limited (SGX-DC), a registered derivatives clearing organization.

Exchanges & Trading Facilities

LME warehousing throws up roadblock for Charles Li
By Melanie Burton and Polly Yam – Reuters
SYDNEY/HONG KONG (Reuters) – Earlier this month, the chief executive of Hong Kong Exchanges and Clearing , Charles Li, was eager to talk about anything but the years-long warehousing crisis at the London Metal Exchange.

3rd Annual Managed Futures Pinnacle Awards, June 17, 2014, Chicago
The Managed Futures Pinnacle Awards recognizes excellence exclusively in the managed futures space. Presented by CME Group and BarclayHedge, the Awards honor the top managers in the industry today, while providing networking opportunities for managers and investors.

LME tightens ‘Chinese Wall’ rules on warehouses, traders
By Eric Onstad – Reuters
LONDON (Reuters) – The London Metal Exchange (LME) pressed on with reforms to its warehousing network on Friday, unveiling tighter “Chinese Wall” restrictions a day after a court ruling forced the LME to halt a plan to cut delivery backlogs.

HKEx Report On Initial Public Offering Applications, Delisting And Suspensions – As At 31 March 2014

New iron ore futures market a winning bet
The Australian
Fledgling Chinese iron ore futures traded by speculators and small-time industry players are giving accurate predictions of moves in the iron ore spot price, which has become increasingly important to the health of ­Australia’s biggest miners and national export revenue.

SGX Proposes New Electricity Futures
Singapore Exchange (SGX) is consulting the public on the proposed introduction of SGX Uniform Singapore Energy Price (USEP) Quarterly Base Load Electricity Futures, to be traded on SGX-Derivatives Trading platform and cleared on SGX-Derivatives Clearing house. This is the first electricity futures to be introduced in Asia. The proposed contract will be a standard, cash-settled futures contract listed as contract quarters (i.e. January to March, April to June, July to September, and October to December).

London Stock Exchange Group launches third annual Charity Trading Day

ASX lodges submission to the Financial System Inquiry

Hedge Funds & Managed Futures

Bernanke to Dine with Hedge Fund Mangers, for a Hefty Fee ?
As chairman of the Federal Reserve, Ben Bernanke was paid $199,700 a year to oversee the bailout of Wall Street, and to administer a massive cash infusion into the U.S bond market — a series of purchases that swelled the central bank’s balance sheet to $4.16 trillion.

Banks & Brokers

UBS Honors Billie Jean King With Its Trailblazer Award
UBS is pleased to bestow its inaugural Trailblazer Award to Billie Jean King, a true champion of social change and equality. The award, given by UBS Americas, recognizes an individual, who through their remarkable leadership, strength of character and talent, has paved the way for all women.

Broker’s insider-trading woes may hurt Morgan Stanley, Oppenheimer
By Jed Horowitz – Reuters
Vladimir Eydelman, the former Morgan Stanley and Oppenheimer Holdings broker arrested on insider trading charges last week, could expose some former clients and the firms to regulatory and legal actions, lawyers and securities industry veterans said.

Morgan Stanley’s CEO gets a 100% raise
CNN Money
James Gorman gets $18 million in 2013 pay and long-term compensation.

New York, March 31, 2014 – GFI Group Inc. (NYSE: “GFIG”) is pleased to announce that it has appointed Mr. Fernando Del Cueto García as General Manager of GFI Group’s Mexican affiliate, GFI Group Mexico, S.A. de C.V.
(by email)

Newedge appoints Steeve Charvet as Global Head of FFOE&FI Execution
London/New York/Hong Kong, 31 March 2014 – Newedge, a global leader in multi-asset brokerage and clearing, today announced the appointment of Steeve Charvet as Global Head of Financial Futures Options, Equities & Fixed Income (FFOE&FI) Execution. Steeve will also join Newedge’s Executive Committee.
(by email)

Deutsche Bank Said to Mull Forgoing IPO Amid China Probes
By Cathy Chan
Deutsche Bank AG is weighing whether to refrain from working on China General Nuclear Power Group’s initial public offering amid a probe into hiring practices in Asia, three people with knowledge of the matter said.

‘Happily ever after’ a long way off for Bank of Cyprus CEO
By Laura Noonan – Reuters
If John Hourican manages to drag Bank of Cyprus (CYS:BOCY) back from the brink of collapse, it would resurrect a financial institution, a national economy and his own career.
Deposed less than a year ago as Royal Bank of Scotland’s head of investment banking, 43-year-old Hourican faces what is likely to be his defining legacy in trying to resuscitate the stricken Cypriot lender.

RBS to poach Credit Suisse banker as finance chief – reports
One of the architects of Britain’s bailout of Royal Bank of Scotland during the financial crisis is close to being hired as the UK government-backed lender’s new finance director, according to media reports.

Royal Bank of Scotland set to report up to £8bn losses for 2013
The Guardian
Unscheduled trading statement to reveal bank, 81% owned by taxpayer, hit by extra £2.9bn over conduct and mis-selling issues

Barclays Investor Showdown Looms as Targets Elude Jenkins
By Ambereen Choudhury and Elisa Martinuzzi
Antony Jenkins replaced Robert Diamond as Barclays Plc (BARC) chief executive officer 19 months ago, pledging to control costs at the investment bank and boost returns. So far, both goals are eluding him.

Citigroup’s Business Model Is ‘Not Sustainable,’ Says Societe Generale
BY Philip van Doorn –
Citigroup’s business model is “not sustainable in [the] new regulatory era,” and the bank needs ramp up its efforts to simplify its operations, according to Societe Generale’s equity research team.

Of Course The Crisis Would Have Been Different If Lehman Brothers Had Been Lehman Sisters
This is an idea that has been around for some time now, that the Great Financial Crisis would have been rather different if it had been Lehman Sisters rather than Lehman Brothers. The idea being that women are rather more risk averse than men and thus if the organisation had been female staffed then it wouldn’t have taken on so much financial risk. And there’s very definitely an element of truth to this: but the final story is rather different from what is commonly assumed. It’s only if financial organisations are completely female, or completely male, that risk is reduced. Adding more of either gender to an organisation actually increases risk.

Lehman Brothers Returns Additional $17.9bn to Creditors
IB Times, via Yahoo! News
Collapsed investment bank Lehman Brothers is planning to distribute an additional $17.9bn (£10.8bn, €13bn) to creditors next week, its fifth distribution since its bankruptcy approval in December 2011.

Hedge fund vultures feast on Lehman corpse
IB Times, via Yahoo! News
Lehman Brothers may be long dead, but its assets continue to be a lucrative investment for hedge funds.

Clearing & Settlement

Clearing Corp. CEO to SEC: ‘We weren’t . . . wrong’
By Lynne Marek, Crain’s Chicago Business
For 32 years, Michael Cahill built his career at low-profile Options Clearing Corp. And then, just before he became CEO in January, the Securities and Exchange Commission blasted the Chicago company for “systemic weaknesses.” Not only is Mr. Cahill untroubled by the criticism, he doesn’t see much need for change.

***** I am troubled by this interview as it does not make any sense.


Pleas by ‘Dewey Seven’ Reveal Details on Financial Manipulation
The seven former employees of Dewey & LeBoeuf who pleaded guilty to participating in a scheme to manipulate the law firm’s finances came from much different backgrounds than many of the high-powered lawyers at the once-prominent New York firm.

‘Remorseful’ SAC Urges Approval of U.S. Insider Trading Pact
Traders Magazine
SAC Capital Advisors LP urged a federal judge to approve its record $1.8 billion insider-trading settlement with the government, saying the firm is “deeply remorseful” for the illegal acts of its employees.

Three ex-ICAP brokers face Libor charges
By Caroline Binham,
The UK Serious Fraud Office will charge three former brokers of ICAP as part of its criminal probe into the alleged manipulation of yen Libor.

Environmental & Energy

Threat from global warming heightened in latest U.N. report
Global warming poses a growing threat to the health, economic prospects, and food and water sources of billions of people, top scientists said in a report that urges swift action to counter the effects of carbon emissions.


China’s World-Beating IPOs Get a Little Help From the Regulators
China’s initial public offerings are vastly outperforming IPOs in the U.S. and Europe so far this year — and investors can thank Chinese regulators for much of the gains.


MCX investors band to oust promoter FTIL
Business Standard
Financial Technologies alleges hostile takeover ‘in garb of minority shareholders’
To oust the promoter of Multi Commodity Exchange (MCX), the country’s largest in the segment, some institutional investors are together planning to approach the authorities to expedite the process.

Stung by NSEL, government may withdraw waiver to bourses
Economic Times
Seven years after it granted a waiver to national spot exchanges from regulatory oversight, the government is set to withdraw the controversial exemption to prevent a potential repeat of the Rs 5,500-crore payment crisis on the National Spot Exchange Ltd, or NSEL.


Wall Street’s Top Trading Schools
Traders Magazine
Maggie Patrick
As trading has evolved from hands-on deals made by people who left college with business degrees to electronic-based dealmaking, so too have the majors from top trading schools. The days of graduating from business school with an MBA and gliding into a top-notch investment banking job may not be over, but a new breed of trader is coming up. Buyside firms are now looking for recent graduates with first-rate programming and mathematical skills.

Tribune profits, revenues tank in 2013
Chicago Suntimes
According to a report in Crain’s, Chicago Tribune and WGN parent Tribune Co., saw a 43 percent drop in profit – to $241.6 million – since 2012.

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