John Lothian Newsletter: Gary Gensler explains how financial reform is going; Banks Brace For Fallout From J.P. Morgan’s Record Settlement; Bank Earnings Wrap-Up: The Good, the Bad, the FICC

Oct 21, 2013

First Read

Top 10 Morale Booster Suggestions From CFTC Staff

10) Hawaiian Shirt Day! (thanks Michael Cosgrove)
9) Cocktail Weenie Eating Contest
8) Staff basketball game with Gary Gensler as center
7) Dancing with the Stars competition with the chairman
6) Poetry contest using only words from SEF regulation
5) “Regulation Jeopardy!” with Gary DeWaal and Ron Filler as your hosts
4) How to build and operate an aircraft carrier workshop with 680 people, or less
3) Mountain climbing exercise up the SEC’s $1.67 billion budget
2) Halloween corn maze with paintball gauntlet – exit papers at the end
1) Jimi Hendrix jam session with Bart Chilton in front of the White House

***** This is what happens when Jim Kharouf has too much time on his hands.

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Gary Katz

Born Under a Good Sign: Gary Katz Says ISE Gemini Off to Fast Start
JohnLothianNews.com

Gary Katz, president and CEO of the International Securities Exchange (ISE), has seen the options markets change dramatically since he co-founded the all-electronic options exchange in 2000. Now with the launch of ISE Gemini in August, the ISE is looking to add another exchange model that differs from the flagship exchange. Gemini also represents the 12th US options exchange. Katz sat down with JLN editor-in-chief Jim Kharouf about the new exchange, which garnered 2 percent marketshare of the total industry options volume in its first month.

Watch the video »

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Who Really Wins if JPMorgan Pays $13 Billion?
Jonathan Weil – Bloomberg
Memories of the fictional sports announcer Biff Burns came to mind this weekend amid all of the anonymously attributed news reports that the Justice Department had reached a tentative settlement agreement with JPMorgan Chase & Co. worth $13 billion.
jlne.ws/16mRHVg

***** No one wins. We are all worse off.

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The Infographic That Ate Wall Street
Joshua M Brown – The Reformed Broker
There’s some serious red meat in the below infographic for the low-cost passive crowd to chew on. I’ve probably blogged about most of these stats over the last few years in one form or another but I don’t believe I’ve ever seen them all in one place before…
jlne.ws/GXLNhr

***** Pay no attention to the man with the statistics. He probably has flying monkey stats too.

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Financial regulator: Dodd-Frank rules ‘largely completed’
The Hill
“We were tasked by Congress to do something quite unusual in government,” Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler said in an interview with The Washington Post published on Saturday. “And that is to bring a whole regime to what is now known to be a $400 trillion market where there was no oversight prior to that.” He added that, while all the agency’s work is not done, “we have largely completed what Congress set out for us to do.”
jlne.ws/17bC0kr

***** I have yet to see any fat lady sing.

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The Nobel Prize Is No Crystal Ball
Jason Zweig – The Wall Street Journal
For investors, the main lesson from this week’s announcement of the Nobel Prize in economics should be humility about anyone’s market-forecasting ability—especially your own.
jlne.ws/16mRFN4

***** I have never believed anyone who thinks they can predict future market direction.

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How the Billionaires’ Shadow Government Works
William D. Cohan – Bloomberg
There is no shortage of billionaires — the Koch brothers, Carl Icahn, Dan Loeb and, yes, Mike Bloomberg, to name a handful — who are willing to use their vast wealth to push a particular political agenda or to advocate for a specific social reform. That’s hardly a revelation.
jlne.ws/16mRFN5

***** Some people should just buy a baseball team and stop trying to save the world.

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One Fear Gauge Trader Looks in Horror at New Debt Ceiling Date
Kaitlyn Kiernan – The Wall Street Journal
Even as most investors put the debt-ceiling fight behind them, one options trader Friday made a big bet that another flare-up in Washington is in the cards for February.
jlne.ws/16mRHVj

***** One trader, or one fund representing lots of people, who may or may not be afraid.

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The Inefficient Market Hypothesis
Nancy Folbre – The New York Times
Either it was a partisan compromise, or the Nobel Memorial Prize in Economic Science committee simply hedged its bets, bestowing its annual prize on three economists, two of whom represent divergent views. One Financial Times blogger compared it to a joint celebration of Milton Friedman and John Maynard Keynes.
jlne.ws/16mRFN6

***** I predicted this would happen.

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Euro Calm Lures Investors Shaken by U.S. Disruptions: Currencies
Joseph Ciolli – Bloomberg
The euro is staking its claim as an alternative to the dollar on concern the world’s largest economy is destined to suffer fiscal upheavals every few months.
jlne.ws/16mRHVk

****** One word. Italy. Another word. Spain.

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ECB Men-Only Club Threatened as Draghi Sifts Bank Resumes
Jennifer Ryan & Jana Randow – Bloomberg
Last-minute resumes sent to Mario Draghi for the European Central Bank’s new financial supervisor job are unlikely to feature many men.
jlne.ws/16mRFN8

***** Was Draghi given Mitt Romney’s binder full of women?

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Onion Bonanza Makes India’s Farmers New Target for Tata
Siddharth Philip – Bloomberg
For Dayanand Sakharam Kute, it seems money is finally growing on trees.
Well, not trees exactly. But it’s sprouting from the ground. This year’s crop of tomatoes and ivy gourd on his 4 acre farm in the village of Pimpri Pendar is looking so bountiful that the 58-year-old farmer is thinking of buying his first car.
jlne.ws/16mRHVl

***** $2400 is a nice price point, but I don’t think it is ready for off-roading.

++++

MarketsWiki

People

Kathleen Traynor; Mike Marley; Jeffrey Wecker

Companies, Organizaions and Groups

Javelin Capital Markets; ICE Coal futures; Interactive Data Corporation

Statistics

44,490,495 pages viewed, 7864 articles, 166, 567 edits
MarketsWiki Statistics
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Wolfgang Eholzer

We Have Liftoff: Wolfgang Eholzer on the New Eurex Trading Platform
JohnLothianNews.com

Wolfgang Eholzer, head of Eurex Trading IT, has seen his share of technology changes to exchange platforms. The latest, and biggest of his career, was the creation of a brand new trading platform for Eurex, called T7. Eholzer spoke with John Lothian News editor-in-chief Jim Kharouf about building the new system and the thought process that went into the project, which has been rolled out gradually beginning in December 2012 and is now complete.

Watch the video »

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Lead Stories

Interview: Gary Gensler explains how financial reform is going
Washington Post Wonkblog
Health care wasn’t the only area where the federal government launched an exchange this month designed to fix a broken system. On Oct. 2, the CFTC oversaw the launch of “swap execution facility” platforms. To better understand both the launch of this crucial part of financial reform, as well as how the status of derivatives reform is going more broadly, I spoke with Gary Gensler, the chairman of the CFTC. This interview has been edited for clarity and length.
jlne.ws/15XdIaV

Banks Brace For Fallout From J.P. Morgan’s Record Settlement
Devlin Barrett, Dan Fitzpatrick, Shayndi Raice and Saabira Chaudhuri – The Wall Street Journal
Attorney General Eric Holder plans to use the deal as a model for ongoing probes of other major financial firms’ conduct in the run-up to the 2008 financial crisis, according to several people familiar with his thinking.
jlne.ws/16mRFN9

Bank Earnings Wrap-Up: The Good, the Bad, the FICC
Saabira Chaudhuri – The Wall Street Journal
Morgan Stanley’sMS better-than-expected results Friday wrapped up a third-quarter earnings season for large U.S. banks that was predictably marked by large fixed-income trading declines and a slump in mortgage-production revenue.
jlne.ws/16mRHVo

Fed’s Evans: will take a ‘few months’ to gauge shutdown impact – CNBC
Reuters
The Federal Reserve will need more time to figure out how much harm the budget battles in Washington have done to the U.S. economy, potentially delaying the start of the Fed’s bond tapering, a senior U.S. central banker said on Monday.
jlne.ws/19WwA7c

China’s Good Inflation
Alen Mattich – The Wall Street Journal
Chinese inflation is picking up. Ultimately, that’s a good thing for the whole world–though in the shorter term it could well cause some scattered pain.
jlne.ws/16mRIbD

ECB Sheds Light on Emergency Lending Program
Todd Buell – The Wall Street Journal
On Friday, the European Central Bank lifted the lid on one of the most secretive lending programs, revealing for the first time details of how its emergency lending program, Emergency Liquidity Assistance, works.
jlne.ws/16mRFNc

What’s Going On With The T-bond/Bund Spread?
Alen Mattich – The Wall Street Journal
Since the summer, there’s been an eye-catching reversal in relative U.S. and German bonds.
The differential between yields on 10-year U.S. Treasury bonds and equivalent German bonds, known as the spread, has reversed a broad trend that’s been in place over the past two years.
jlne.ws/16mRFNd

In debate over bubbles, one Fed official warns against tighter policy
Ann Saphir and Richard Valdmanis – Reuters
The Federal Reserve should be “extraordinarily careful” about hiking interest rates to head off potential risks to financial stability, a top U.S. central banker said on Friday, warning about consequences to the economy.
jlne.ws/16mRFNe

Change is in the air, promises London Metal Exchange chief
Andrew Critchlow – The Telegraph
Garry Jones, the new chief executive of the world’s largest bourse for industrial metals, has plans to grow business out of Asia, open a clearing house and develop more options trading.
jlne.ws/16mRIbE

Regulatory

FX Math: German Court Decision Looms as Next Potential Global Crisis
Vincent Cignarella – The Wall Street Journal
One crisis has been averted, but another looms.
While the eyes of the world have been on Washington, investors have all but forgotten a threat in Europe: Any minute now, Germany’s constitutional court could rule against the European Central Bank’s bond-buying program.
jlne.ws/16qgMcv

Banks Face Risk-Model Clampdown in Basel Trading-Book Review
Jim Brunsden – Bloomberg
Banks face an overhaul of how they calculate possible losses on securities they hold in their trading books as global regulators target discrepancies in how lenders measure the riskiness of their investments.
jlne.ws/17bGA2e

EU unveils rules to ensure level playing field in bank tests
Huw Jones – Reuters
Europe’s top banking regulator has set out rules to ensure EU banks cannot rely on national definitions to obscure the true state of their books in an upcoming assessment of whether they need more cash.
jlne.ws/16mRFNf

Britain to ratchet up capital requirements for banks
Steve Slater – Reuters
British banks may have to build up more capital and more quickly than they expected, forcing firms like Barclays to rein in dividends to shareholders and restrain bankers’ bonuses to find the extra cash.
jlne.ws/GXPd3K

Exchanges

What’s next for Euronext in Amsterdam?
FOW
Amsterdam has a long history of being a driver of innovation in the European financial markets. Euronext’s Amsterdam subsidiary will have to harness some of that history to re-establish itself as an independent entity, says William Mitting.
jlne.ws/16mRIbF

Ice bows to pressure on Brent contract changes
Alexander Osipovich – Risk Magazine
Atlanta-based Ice is delaying its plan to shift the expiry calendar for Brent futures and options, following an outcry from market participants who say they need more time to prepare for the change. The plan will be implemented on December 6, not November 7 as initially planned, the exchange said in a circular on October 17.
jlne.ws/16mRG3u

SGX and Shanghai Futures Exchange to collaborate on commodity derivatives
Press Release
Singapore Exchange (SGX) and the Shanghai Futures Exchange are cooperating in the development of the commodity derivatives markets in both China and Singapore.
The two exchanges signed a memorandum of understanding on the cooperation in Shanghai, China, on Saturday, 19 October 2013.
jlne.ws/16mRIbJ

Co-hosting International Conference on “The Future of Asian Markets and Exchanges” with The Financial Research Center (FSA Institute)
Press Release
The Financial Research Center (FSA Institute) and Japan Exchange Group, Inc. will hold an international conference on “The Future of Asian Markets and Exchanges” on November 26, 2013, in Tokyo.
The conference will examine challenges and roles of Asian exchanges that are enlarging their footprint in the global financial markets, and also the position of Tokyo market in Asia through presentations and panel discussion.
jlne.ws/16mRG3y

New IEF5 Provider – Wells Fargo Bank, N.A.
Notice (CME Group)
CME Clearing (CME) is pleased to announce the latest addition to its Cash with Interest Program
(IEF5). Wells Fargo Bank, N.A. will be a provider of this service to CME Clearing beginning October 21, 2013.
jlne.ws/GXBudx

POSTPONED: Seventh Month CL TAS Removed from Listing Rules
Notice (CME Group)
CME will postpone the Seventh Month CL TAS Removal from Listing Rules on Monday, October 21, 2013, as previously announced in this advisory notice.
The postponement is resulting from the lapse in appropriations and the curtailment of CFTC regulatory review activity,
The new implementation date for the Seventh Month CL TAS Removal from Listing Rules will be determined subsequent to resumption of regulatory review activity at the CFTC.
jlne.ws/16mRG3A

Brokers

J.P. Morgan to Sell Local Mutual Funds in China
Chao Deng – The Wall Street Journal
Chinese authorities have given J.P. Morgan Chase’sJPM China unit a bit of good news to offset the generally unpleasant recent headlines involving fines and a criminal probe into the investment bank’s U.S. parent.
jlne.ws/16mRG3C

Clearing

BNY Mellon considers extending clearing operations to Asia
FT.com
BNY Mellon, the global custodian bank, is considering extending its clearing operations to Asia as it looks for opportunities created by upheaval in global derivatives markets.
jlne.ws/1fQ4sL4

Technology

Wall Street banks learn how to survive in staged cyber attack
Lauren Tara LaCapra – Reuters
A few months ago, a group of Wall Street banks fashioned a risk-manager’s worst nightmare to determine how they would survive. Luckily, it was all pretend.
jlne.ws/16mRG3D

Eurex: Deutsche Börse Market Data + Services Launches Virtualised Private Simulation – On-Demand Access To Simulation Environment
Press Release
Deutsche Börse Market Data + Services today announced the release of Virtualised Private Simulation (VPS) – a proprietary cloud-based solution providing clients with self-provisioned, on-demand access to Eurex Exchange’s T7 simulation environment.
jlne.ws/16mRG3G

$1trn+ SEF trades via MarkitSERV in 10 days
Press Release
Markit, a leading, global financial information services company, today announced that MarkitSERV has handled more than $1 trillion of swaps traded on swap execution facilities (SEFs) in the first ten business days of SEF trading.
jlne.ws/16mRIbK

First Metro Securities Connects to SunGard Global Network
Marina Daras – Waters Technology
First Metro Securities Brokerage, part of the Metrobank Group, has connected to the SunGard Global Network (SGN), linking to more than 2,500 buy-side and sell-side firms and about 150 trading venues around the world.
jlne.ws/16mRIbL

Perseus First to Market with Real-Time View of Ultra-Low Latency Built with ITRS Geneos
Press Release
Perseus Telecom, a leading provider of ultra low-latency, high-capacity global networks has launched an industry first, with PrecisionView, a state-of-the-art, ultra-low latency, real-time monitoring application for critical trading and exchange connectivity.
jlne.ws/16mRG3I

SAC Defections Accelerate as Cohen Approaches Settlement
Katherine Burton & Jesse Westbrook – Bloomberg
As Steven Cohen nears a settlement that may put his SAC Capital Advisors LP out of business over allegations of insider trading, some of his overseas money managers aren’t waiting.
jlne.ws/16mRIbP

Enforcement

Where J.P. Morgan’s Settlement Sits in History of Corporate Fines
David Benoit and Stephen Grocer – The Wall Street Journal
J.P. Morgan is nearing a record $13 billion settlement with the Department of Justice and other federal regulators over mortgage-backed securities.
While the deal, as WSJ has reported it, will include some homeowner assistance payments and fines, it would likely be the biggest fine ever levied by the DOJ.
jlne.ws/16mRG3K

SEC Announces Fraud Charges Against Collateral Manager Of CDO
SEC
The Securities and Exchange Commission today announced charges against a Morristown, N.J.-based investment advisory firm and its owner for misleading investors in a collateralized debt obligation (CDO) and breaching their fiduciary duties.
jlne.ws/16mRIbQ

Ex-UBS banker wanted in U.S. tax probe arrested in Italy
Reuters
A former top executive at Swiss bank UBS (UBSN.VX) wanted in the United States for allegedly helping wealthy Americans avoid paying tax was arrested in Italy at the weekend, the Bologna police said on Monday.
jlne.ws/16mRG3L

Asia

Increased structured product sales reboot Asian dispersion market
Justin Lee – Risk Magazine
There has been a sharp uptick in dispersion trades in Hong Kong and Japan this year as growth in structured product sales has left dealers with increased long vega exposure on their exotic books which they have then looked to offload on to hedge funds.
jlne.ws/16mRIbS

Sharp Japan export slowdown dents ‘Abenomics’, flags Asia weakness
Leika Kihara and Tetsushi Kajimoto – Reuters
Japan’s export growth fell well short of expectations in September as the country posted a record run of trade deficits, a sign that slowing demand in Asia is taking the shine off Prime Minister Shinzo Abe’s stimulus policies.
jlne.ws/16mRIbU

Frontier

Zimbabwe Needs $5.3 Billion Investment for Platinum
Godfrey Marawanyika – Bloomberg
Zimbabwe needs investment of as much as $5.3 billion and stable mining policies if it’s to boost platinum output to a point where it can rival Russia as the world’s second-biggest producer of the metal, an industry organization said.
jlne.ws/16mRGk0

John Lothian Newsletter

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