First Read

Newsletter News Recap
Sarah Rudolph
In case you missed the John Lothian Newsletter on Friday, here’s a brief recap:

John is having back surgery on Tuesday and this week begins his four-week absentia from editing the newsletter. We wish him a swift recovery and hope they give him some good drugs. I will share news about how he is doing as soon as I hear anything. In his place (as if anyone could replace…) will be several guest editors. I will be guest editor this week along with Jon Matte, with additional commentary from Doug Ashburn and Jim Kharouf. Following that we will have commentary from the likes of Martin Mosbacher, Nils-Robert Persson and Alun Green. Jon will make sure they all behave.

Also this week, Jim Kharouf will be in Austin, TX at at the OIC Conference. He will be keeping us posted and sending in dispatches on the latest news from the options conference. Doug Ashburn will be in New York for the CTA Expo and the NIBA New York conference, but today he has contributed commentary (below) on DTCC and the shortening of the securities settlement cycle.

This week will apparently also be notable, here in Chicago, for near-constant rain. We’d better see some May flowers soon or we’re all going to be very grumpy.


T+2 in T-??
by Doug Ashburn, John Lothian News
With high-frequency trading issues commanding the headlines these last few weeks, the story line has been about slowing down that which may be too fast. There is another issue concerning securities markets, however, that is about speeding up that which is too slow – the securities settlement cycle.

Last week, the Depository Trust & Clearing Corporation (DTCC), published a white paper advocating the move from a three-day settlement cycle (T+3) to a two-day cycle (T+2) for U.S. equities, corporate and municipal bonds and unit investment trust (UIT) trades. The paper is the next step after a DTCC-commissioned study by the Boston Consulting Group, which looked at the costs and benefits of a move away from T+3. According to DTCC’s Neil Henderson, shortening to T+2 will “reduce both operational and systemic risk, as well as streamline operational flows.”

Read the rest of the commentary =>


High-frequency trading is ‘bad influence’
Steve Johnson –
The majority of financial market participants regard both high-frequency trading and the proliferation of dark pools and other off-exchange trading venues as having a negative effect on market efficiency, according to a survey of 700 organisations.

***JM: Maybe HFT is a kind of “gateway trading”. Sure, first it’s a few 3ns transactions, but pretty soon you’re trading gold indexes, and the next thing you know you’re standing around in funny coats making rude gestures at people. And there’s no way back from there.


Big U.S. Banks Make Swaps a Foreign Affair
Katy Burne –
As regulators tighten rules on the U.S. swaps market, large American banks are maneuvering to take some of the business overseas. Banks including Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., J.P. Morgan Chase & Co. and Morgan Stanley are changing the terms of some swap agreements made by their offshore units so they don’t get caught by U.S. regulations, according to people with knowledge of the situation.

***JM: Oh, THOSE swaps. See, I thought… oh, look at the time, must dash.


A High-School Freshman’s Investing Lesson: Time Horizons Matter
Jonah Jakab – MoneyBeat – WSJ
You don’t have to be old enough to drive to play master of the universe. I’m just 15 years old, but in a national stock-market game sponsored by the Securities Industry and Financial Markets Association, I quickly grasped the way hedge fund managers must feel when they make decisions.

***JM: An excellent article. It’s always puzzled me why these contests are sometimes used to springboard people into money management positions. Analogy: “This is a mighty fine steak you grilled. How’d you like to be the new CEO of my national restaurant chain?”


HFT: It’s Time to Lose Sight of the Forest and Focus on the Trees, Part 1
Cristian Zarcu – TabbFORUM
The fiery debate started by ‘Flash Boys’ underscores how little the financial industry itself really understands about high-frequency trading. The only way to clearly define what constitutes legitimate market activity and what is manipulation is to actually have a clear picture of both.


Making algorithms pass a test before heading out on the road
Dan Barnes – Financial News
Inexplicable crashes and freezes that disrupt markets and can cost millions of dollars in seconds mean that tighter policing of electronic trading is inevitable. While formal EU rules on the issue are not expected to come into force for another two years, Hong Kong has introduced a strict requirement that some market participants say could serve as a model for European regulation.

***JM: It makes sense to put something like this in place. That said, care should be taken to understand that being “qualified” to understand a piece of software does not correspond directly to error-free operation. See also, “the error free operation of every other type of software ever written.”


Bridging the Week by Gary DeWaal: April 21 to 25 and 28, 2014 (More Flash Boys and Old Rogue Trading Fallout)
After more than one year under the umbrella of Gary DeWaal and Associates, “Bridging the Week” begins a new life today as a weekly publication of Katten Muchin Rosenman LLP. This is prompted by my joining Katten as a Special Counsel in the firm’s New York office as of today, April 28, 2014, where I look forward to servicing my existing clients as well as new clients.

***JM: Thumbs up, Gary.


Alderney’s Bitcoin plans take pounding
Jane Wild –
The Channel island of Alderney has found that virtual cash is harder to turn to gold than it thought, after a double blow to its plans to issue a physical Bitcoin made of the precious metal.

***JM: Well, I guess if you’re going to mint a Bitcoin, gold seems like the perfect choice to me…


Keep it Simple: Peter Nabicht on Liquidity and Simplicity of Market Structure
Today’s financial markets can be summed up in three words – global, fast, and complex. But as the market structure evolves, so must the regulatory structure that oversees it. John Lothian News has spoken with several industry experts to create this series on the evolution of financial market structure.

In Part 2, Peter Nabicht, senior advisor of the Modern Markets Initiative looks at the nature of liquidity and how high-speed traders have aided liquidity over the last decade.

Watch the video »



MarketsWiki Page of the Day
Alasdair Haynes

MarketsWiki Recent Updates


William Knottenbelt; William O’Brien; Phil Bruno; David Howson; Dave Creagan

Companies, Organizations and Groups

CME Europe; Direct Edge; Aquis Exchange Ltd; BATS Options; BATS Global Markets; European Multilateral Clearing Facility


T+3; T+2 Settlement Cycle


48,546,717 pages viewed, 7,938 articles, 182,274 edits
MarketsWiki Statistics

Lead Stories

Futures giant begins trading at its new London exchange
The Independent
The owner of the world’s largest futures market, which has been caught up in the crackdown on high-frequency trading, has launched a new exchange in London.

DoJ raises stakes in forex probe
Caroline Binham in London and Kara Scannell in New York –
US criminal prosecutors have flown to London to question individuals as part of their probe into the alleged rigging of foreign exchange rates in a sign that the stakes are getting higher for the traders involved in the sprawling probe.

***JM: Look, we’re not saying you HAVE to attend. We’re just inviting you. These other guys, they’re the ones saying you have to go. So you choose.

ING Is Considering Buying a Stake in Euronext, CEO Says
ING Groep NV (INGA), the biggest Dutch financial-services company, is considering buying a stake in Euronext NV as IntercontinentalExchange Group Inc. (ICE) prepares to spin off the European stock-exchange operator.

U.S. prosecutors cross Atlantic to question UK currency trades -source
Criminal prosecutors from the U.S. Department of Justice have gone to London to interview individuals in connection with an investigation into traders’ alleged rigging of foreign exchange rates, a person familiar with the matter said.

Vanguard chief defends high-frequency trading firms
Stephen Foley in New York –
The chief executive of Vanguard, which became the world’s largest mutual fund company by championing low costs for the small investor, has ridden to the defence of high-frequency trading firms and dismissed suggestions that the stock market is “rigged”.

Och-Ziff Loans Financed Controversial Congo Deals
John Carreyrou –
Hedge-fund company Och-Ziff Capital Management Group LLC helped finance controversial African oil and mining deals, a trail of corporate documents shows, and now faces scrutiny from U.S. authorities.

High Frequency Debate Influences Survey on Stock Market Fairness
Ivy Schmerken
A survey conducted by ConvergEx Group found that 70% of participants believe the US equity market isn’t fair to all participants, and more than half said that HFT is harmful to US equity markets.

First stage of Eurex-Taifex cross-listing project to go live in May
Xiao Wang –
Co-operation is the key word for Asian exchanges as they seek to expand market share and develop index liquidity and May 15 will see a further extension of this trend with the trading of a joint Eurex and Taiwan Futures Exchange (Taifex) product.

European banks to be stress-tested against two years of recession – source
European banks will be tested on their ability to withstand a recession stretching through 2014 and the following year as part of a landmark review into whether they finally have enough capital to withstand economic shocks, a source familiar with the tests said on Friday.

Alderney’s Bitcoin plans take pounding
Jane Wild –
The Channel island of Alderney has found that virtual cash is harder to turn to gold than it thought, after a double blow to its plans to issue a physical Bitcoin made of the precious metal.


CFTC Staff Issues Time-Limited No-Action Letter on the Applicability of Oral Recording Requirements for Certain Members of Designated Contract Markets or Swap Execution Facilities
The U.S. Commodity Futures Trading Commission’s (CFTC) Division of Swap Dealer and Intermediary Oversight and Division of Market Oversight (Divisions) today issued a time-limited no-action letter that provides relief to commodity trading advisors that are members of designated contract markets or swap execution facilities.

Exclusive: U.S. expanding corporate foreign bribery probes to include hiring
U.S. government agencies that have been probing banks’ hiring of children of powerful Chinese officials are expanding existing investigations in other industries across Asia to include hiring practices, four people familiar with the matter said.

Integration In European Financial Markets Improved, But Still Worse Than Before Crisis, New European Commission, ECB Reports Show
The European Central Bank (ECB) and the European Commission have today published reports analysing financial integration and stability in Europe. The two annual publications, “Financial Integration in Europe” and the “European Financial Stability and Integration Report”, were presented at a conference at the ECB headquarters in Frankfurt.

Exchanges & Trading Facilities

London Stock Exchange Launches Elite Programme For High Growth Companies
London Stock Exchange today launches ELITE, an innovative business support programme for high growth private UK companies.

Deutsche Börse Offers “Supervisory Board Audit Committee Specialist Member/Financial Expert” Exam
Deutsche Börse Group is expanding its offering of supervisory board training with the “supervisory board audit committee specialist member/financial expert” exam, thus continuing its efforts to create more transparency on the capital markets.

NYSE Group Inc. Issues Short Interest Report

NYSE MKT Issues Short Interest Report

NASDAQ Announces Mid-Month Open Short Interest Positions In NASDAQ Stocks As Of Settlement Date April 15, 2014

MIAX Technical Alert: MIAX Options Exchange Will Be Conducting DR Testing On Saturday, June 7th

BUWOG Makes Its Debut On The Vienna SE Today

Hedge Funds & Managed Futures

Private Equity Takes Steps Toward Wooing Smaller Investors
One of Wall Street’s most exclusive investment products is inching toward the mainstream.

Trading divisions struggle to slim
Tim Cave – Financial News
As any dieter will tell you, the multitude of ways to lose weight have one thing in common: they are easy to start but a lot harder to stick to. Investment banks face a similar predicament. Regulatory reform and balance sheet pressure are forcing them to shrink their capital-hungry sales and trading divisions.

Soured Mortgages Attract Institutional Dollars
A Wall Street executive who helped Goldman Sachs make more than a billion dollars betting against mortgages now wants to buy up troubled home loans.

KKR Profit Rises Slightly
Mike Spector – MoneyBeat – WSJ
KKR & Co. said first-quarter profit rose slightly from a year ago, as the private-equity firm sold shares of companies it took public and reeled in fees from raising money and doing deals.

Bond funds worldwide attract $3.3 bln over week – BofA
Fund investors worldwide poured $3.3 billion into bond funds in the week ended April 23, outpacing inflows into stock funds on outperformance in bonds this year, data from a Bank of America Merrill Lynch Global Research report showed on Friday.

Banks & Brokers

Morgan Stanley’s Equities Head Has Helped Lead Firm’s Revival Since Financial Crisis
Standing before a roomful of clients in Morgan Stanley’s New York headquarters, Edward “Ted” Pick couldn’t hold back tears. His voice wavering, the investment bank’s equities boss thanked money managers from firms such as Wellington Management Co. and Viking Global Investors during the June 2009 meeting for not abandoning Morgan Stanley even as it teetered near collapse during the financial crisis.

How Badly Will the Bonus Smackdown Hurt RBS?
Giles Turner – MoneyBeat – WSJ
The U.K. government is making headlines today for cracking down on bonuses at Royal Bank of ScotlandRBS.LN -1.35%, the bank in which it owns an 81% stake. But it might not be taking money out of as many bankers’ pockets as you might think.

Jimmy Elliott, a Senior JPMorgan Deal Adviser, to Retire
Jimmy Elliott, one of JPMorgan Chase’s most senior deal makers, plans to retire, the firm announced in an internal memorandum on Friday.

Exclusive: Morgan Stanley makes ‘riding the calendar’ less lucrative for brokers
Wary of brokers who make their money by “riding the calendar” of new stock and bond issues rather than patiently building the firm’s wealth management business, Morgan Stanley (MS.N) is cracking down where it hurts the most: compensation.

Welcome to the Barclays investment bank layer cake
Ben Wright – Financial News
What a difference a year makes. On April 18 last year, Barclays chief executive Antony Jenkins said that the investment banking division was so important that he wanted to “de-layer” the management structure giving him a “clearer line of sight” into the business. On April 17 this year, he added that management layer right back in. What’s going on?

Indexes & Products

[SIX] “Trade Sponsored Funds as easily as shares”
SIX has published its 2013 annual report. It includes a special chapter dedicated to Sponsored Funds, the new trading segment of SIX Swiss Exchange.

SIX Swiss Exchange launches SPI Select Dividend 20 Index

Wall Street Horizon Readies ETF Calendar Feed
Faye Kilburn – WatersTechnology
Woburn, Mass.-based corporate earnings and event data provider Wall Street Horizon has launched a new ETF Calendar Data Feed to provide institutional traders and market makers with access to announced, projected and historical exchange-traded fund distributions, to enable them to better manage ETF investments.


SunGard Survey Reveals Concerns That Testing Of Financial Services Infrastructure Is Inadequate
As the technology infrastructure relied upon by financial services firms to carry out their day-to-day operations becomes increasingly complex, a survey* undertaken by SunGard Consulting Services has revealed concerns that the testing of these systems is insufficient to protect against failure.


Ex-Finance Chief at Bank of America to Pay $7.5 Million in Settlement
The New York State attorney general announced Friday that the office had reached a $7.5 million settlement with Joe L. Price, the former chief financial officer for Bank of America, over allegations that the bank’s management withheld material information related to its 2008 merger with Merrill Lynch.

U.S. money manager pleads guilty in long-running fraud case
More than five years after his indictment, a U.S. money manager and one-time part owner of the New York Islanders hockey team pleaded guilty Friday to engaging in a massive securities fraud.

SEC Charges Six Individuals With Insider Trading in Stock of E-Commerce Company Prior to Acquisition by eBay
The Securities and Exchange Commission today charged a former executive with insider trading in advance of eBay’s acquisition of the e-commerce company where he worked by tipping friends and relatives with confidential information about the pending deal so they could attain more than $300,000 in illegal profits.

CFTC Obtains a Permanent Injunction against Australian Firm Halifax Investment Services, Ltd., Charged with Acting as an Unregistered Retail Foreign Exchange Dealer
The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge James B. Zagel of the U.S. District Court for the Northern District of Illinois issued a Consent Order of Permanent Injunction that bars Australian firm Halifax Investment Services, Ltd. from soliciting orders to trade foreign currency (forex) from United States residents who do not qualify as eligible contract participants (ECPs) and from offering to be the counterparty to United States residents’ forex transactions without registering with the CFTC.

UK’s Financial Conduct Authority: Invesco Perpetual Fined GBP18.6 Million For Failings In Fund Management

Environmental & Energy

White House contests report that Obama will reject Keystone
Laura Barron-Lopez, The Hill
The White House is firing back at a story in Rolling Stone magazine that cites two Obama administration sources as saying President Obama has already decided to reject the Keystone XL pipeline.

Support for Keystone hits all-time high in poll
Laura Barron-Lopez
Support in the United States for the Keystone XL pipeline is at an all-time high, according to a new poll released Thursday.

***LB: Also in this story “The survey from the conservative-leaning pollster Rasmussen Reports found 61 percent of likely U.S. voters at least “somewhat favor” building the oil-sands pipeline. “

French govt plans to meet GE on Alstom future
France’s government weighed in to the furore over the future of the country’s struggling engineering group Alstom on Friday and the stock market regulator forced a suspension of trading in its shares pending a company statement.


PE Investors in China Face ‘Insane’ Valuations, Cultural Differences
Shasha Dai – MoneyBeat – WSJ
The massive amount of capital raised for private equity and venture capital deals in China in recent years has driven the valuation of some companies to “insane” levels, according to Kleiner Perkins Caufield & Byers Managing Partner James Huang.

Japan Exchange Group, Inc. And Consolidated Subsidiaries Consolidated Financial Results For The Year Ended March 31, 2014, Unaudited

Japan Exchange Group Update Of Medium-Term Management Plan for FY2013 to FY2015

Thailand Futures Exchange Gears Up To Improve Products, Boost Liquidity For Its Upcoming 9th Anniversary

Thailand Futures Exchange Welcomes Apple Wealth Securities As Derivatives Brokerage From May 6

Frontier Markets

Funds play it cautious in emerging markets
Henny Sender –
A recent Morgan Stanley Asia Credit research report includes a chart of high-yield companies with high leverage and little interest coverage. It makes for scary reading.

London-based RiverCrossing debuts with Islamic real estate fund
London-based RiverCrossing Capital Partners, a new Islamic investment firm, has launched its first product, a U.S. real estate fund, as part of a plan to offer non-traditional asset classes to institutional investors in the Gulf.

Carlyle leads the case for African private equity
Kanika Saigal – Euromoney magazine
The shine of the Bric nations has dulled, so investors such as The Carlyle Group are setting their sights towards burgeoning African countries for better returns on their investments through private equity.

Frontier markets lure pension funds hungry for yield
Joe McGrath and Mark Cobley – Financial News
After a sustained period of disappointing returns from emerging markets, some pension funds are turning to even less developed, or frontier, markets for growth.

Thomson Reuters Named Best Technology Provider For Islamic Banking In The Asset Triple A Islamic Finance Awards 2014

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