John Lothian Newsletter: Hedge Funds Keep Winning Despite Losing; Bank of England’s Carney urges ‘big push’ on bank rules; John Whitehead, Ex-Chairman Who Helped Define Goldman Culture, Dies at 92

Feb 9, 2015

First Read

Making A Call Around the Pits
by John J. Lothian

It seems like a lifetime ago, when I used to publish daily statistics in this newsletter about the percentage of open outcry trading versus electronic trading at the CBOT and CME. It was a fun daily exercise, especially when the CBOT was taking on the NYMEX/COMEX for the gold and silver contracts.

By that time, some 10 years ago, the statistics of electronic trading on the bonds or financial futures as a percentage the total volume were well over 90 percent electronic. So what took so long closing the pits?

The two key tests for the CME Group as a corporation were profitability and liquidity. Most of the futures pits, or the futures pits as a whole, failed both of these tests a long time ago.

Futures markets are about two things: price discovery and risk transfer. It has been clear to many the price discovery was no longer happening in the pits. And without price discovery, there can be no risk transfer.

Read the rest of the commentary at


John Whitehead, banker, 1922-2015
Tom Braithwaite in New York, FT
John Whitehead, who helped transform Goldman Sachs into an international investment bank, has died at the age of 92. Whitehead ran Goldman with John Weinberg between 1976 and 1984, the high point of a 37-year career during which the firm morphed from a small commercial paper specialist into the top underwriter of stocks and bonds and adviser on mergers and acquisitions.

***** Ninety-two years is a good run.


Tempers flare as CME execs meet members over futures pit closure
Dozens of angry CME Group members abruptly left a meeting with CME Group Inc on Friday, saying executives were dismissive and largely failed to answer questions about the exchange’s plans to close most open-outcry futures markets. It was the first of two members-only sessions in Chicago and New York to address this week’s announcement by CME Group that most open-outcry futures markets will be closed by July 2 due to dwindling trading volumes.

***** This story makes me very angry for the lackadaisical reporting and the misinformation given to the reporter. The reporters writes, ” The last full membership sold for $290,000 on Thursday, down from a record of $775,000 in 1997.” This makes no mention of the demutualization and the huge windfall CME members gained from a stock that went from $35 to over $700 per share. How many times do people have to be paid? The members took a risk, knowing full well the futures pits could go away. That risk was well known, not a Black Swan event by any means. The CME made the right decision. If there is some function that the floor can do that the screen can’t, then that is an opportunity to innovate, not complain.


A eulogy for Chicago’s trading pits
By Margery Teller As told to Melissa Harris, Chicago Tribune
If the CME Group were to hold a funeral for open-outcry trading, Margery Teller should deliver its eulogy. A legendary trader, she earned the nickname “Large Marge” for taking enormous positions in the eurodollar pit in the early 2000s. Her remarks below are adapted from emails and phone interviews with Tribune business columnist Melissa Harris after CME announced Wednesday it would close most of its futures trading pits in Chicago and New York.

***DA: Before heading to the eurodollars, she traded D-mark options, and when I was a newly-badged trader I remember her as lightning-fast, visionary and, let’s be honest, female in a male-dominated environment. She took the options philosophy and applied it to back month futures trading. Genius.


Ken Griffin, Jay Jordan among nation’s top philanthropists of 2014
By Shia Kapos, Crain’s Chicago Business
Three of the nation’s largest individual philanthropic donations came from Illinois last year, according to the Chronicle of Philanthropy, a Washington, D.C.-based newspaper that covers the nonprofit world.

******Ken Griffin deserves some good press after getting raked over the coals by the Chicago Tribune for this divorce issues.


Spread betting comparison site aims to improve transparency
Harriet Agnew, City Correspondent, FT
A new price comparison website for UK financial spread-betting companies has launched, designed to shine a light on the wide variety of fees being charged by many of these operators which are popular with retail investors.

***** Sounds like the forex market.


America’s Dollar, the World’s Problem
Bloomberg View
When officials from the Group of 20 nations gather in Turkey next week, the worsening currency wars will likely be a source of friction. The biggest question is whether the United States will finally get sick of being a casualty in the ongoing skirmishes.

***DA: False. The recent surge in the dollar is not a problem. It is a symptom.


Navigating Bridges: Timely Updates in Financial Services
Gary DeWaal – Katten Muchin Rosenman LLP
Two regulators published findings of surveys of buy and sell side firms in the securities industry regarding cybersecurity while making recommendations to help mitigate threats. Also, a national bank settled an enforcement lawsuit by the Commodity Futures Trading Commission related to its alleged role in the collapse of Peregrine Financial Group.


George Martin, Cheevers & Co. – Keeping The Human Element

“The human element is critical. There’s so much power in a handshake or a face-to-face meeting.”

George Martin, trade support specialist at Cheevers & Co., discusses the importance of human interaction in the financial industry. Despite the fact that technology has moved a majority of trading activity from open outcry pits to digital screens, Martin stresses how human interaction is still a key element in the industry. He also gives a brief background of his own trading career, and recalls the state of the financial industry before the technology boom. Giving an example from his own office, Martin tells the audience how he receives instant messages from someone a few feet away from him, when instead he would prefer them to get up and ask him the question. While Martin is not completely against technology, he believes that there is a balance that must be found between spending time in front of a screen and spending time in front of another human.
Watch the video »


MarketsWiki Page of the Day
CME Group, Inc.

MarketsWiki Recent Updates


Chris Ferreri; Helen Pound; Jeffrey C. Sprecher; Cees Vermaas

Companies, Organizations and Groups

IntercontinentalExchange Group Inc.; Enron; Chicago Climate Exchange; BATS Global Markets; Russell Investments


S&P 500 Index; VIX


58,376,466 pages viewed, 8,147 articles, 189,322 edits
MarketsWiki Statistics

Lead Stories

Hedge Funds Keep Winning Despite Losing; How Do They Keep Winning Clients? Maybe It’s About Job Security.
By Gregory Zuckerman, WSJ
Hedge funds are in a six-year slump. Financial markets have been rising but these highly paid investors can’t seem to keep up. It’s getting so bad, hedge funds are starting to draw comparisons to mutual funds, long criticized for poor performance relative to their fees. It’s a bit like saying Ferraris are starting to resemble Fords.

Bank of England’s Carney urges ‘big push’ on bank rules, worries over reform fatigue
By Randall Palmer, Reuters
Bank of England Governor Mark Carney has urged the G20 to mount a “big push” to implement global regulatory reforms, fearing that governments may be tiring of non-stop rulemaking since the financial crisis six years ago.

John Whitehead, Ex-Chairman Who Helped Define Goldman Culture, Dies at 92; Wall Street Stalwart Ushered in Modern Era at Goldman Sachs
By Justin Baer, WSJ
John Whitehead, a Wall Street stalwart who helped define Goldman Sachs Group Inc. ‘s culture and usher in the firm’s modern era, died Saturday at his home. He was 92 years old.

Best party mood for oil traders since 2008 price crash
By Dmitry Zhdannikov, Reuters
The oil price crash has meant slashed budgets, staff layoffs and mothballed projects for big producers, but oil traders will celebrate their best market for years this week.

HSBC in Swiss tax avoidance storm
Martin Arnold and Claer Barrett, FT
HSBC has admitted that its Swiss private bank may have held accounts for tax-dodging clients, after secret files from Europe’s biggest bank were leaked to several news organisations exposing widespread tax-avoidance practices.

In J.P. Morgan Emails, a Tale of China and Connections
Firm’s Hiring of Son of Chinese Government Official Has Drawn Scrutiny From U.S. Authorities Investigating Hiring Practices of Several Big Banks

US scrutiny of Barclays and UBS widens forex trading probe
Caroline Binham in London and Gina Chon in Washington, FT
The US Department of Justice is scrutinising currency-linked investments marketed by Barclays and UBS in an indication that the sprawling global probe into the foreign exchange market may become more troubling for banks.

BIS says financial flows partly to blame for oil collapse
Neil Hume, Commodities Editor, FT
The near 50 per cent fall in oil prices since mid-June cannot be solely explained by changes in consumption and production, according to the Bank for International Settlements, which says heavy trading on commodity futures markets has also played a part.

Oil ‘contango’ puts profit in storage
Gregory Meyer and Ed Crooks in New York, FT
Anyone seeking to understand oil’s fall should watch what is happening in Cushing, Oklahoma.

When It Comes to Oil, the “I” in BIS is Superfluous
Streetwise Professor
The Bank for International Settlements is creating some waves with a teaser about a forthcoming report that claims to show that financialization is largely responsible for the recent fall in oil prices. Even by the standards of argument usually seen criticizing financializaton, this one is particularly lame.


Sen. Feinstein working to reinstate U.S. swaps ‘push-out’ rule -aide
Senator Dianne Feinstein of California hopes to reinstate a hotly contested requirement for big banks’ swaps trading after U.S. lawmakers voted in late 2014 to loosen the rules for Wall Street.

Bank of England’s Carney urges ‘big push’ on bank rules, worries over reform fatigue
The Fiscal Times
Bank of England Governor Mark Carney has urged the G20 to mount a “big push” to implement global regulatory reforms, fearing that governments may be tiring of non-stop rulemaking since the financial crisis six years ago. Carney was speaking ahead of a meeting of finance ministers and central bankers from the Group of 20 economies (G20), whose regulatory task force, the Financial Stability Board, he chairs.

Always double-check.
By The Editors, Bloomberg
U.S. lawmakers say they want regulators — notably, financial regulators — to weigh the economic impact of their actions more carefully. That’s actually not a bad idea, as long as it doesn’t end up neutering rules that the economy badly needs.

Regulations hit smaller US banks hardest
Tracy Alloway in New York, FT
Small US banks have been disproportionately hurt by post-financial crisis regulation, a former JPMorgan Chase executive working at Harvard University has found.

Grand Central: The Fed’s Republican Tries Talking Republicans Out of “Audit the Fed”
Real Time Economics – WSJ
The question at hand is whether the Fed’s lone Republican can talk a Republican Congress out of passing legislation that would subject the central bank to more scrutiny from Capitol Hill. Atop the Fed’s growing list of legislative concerns is an “Audit the Fed” bill that could open the central bank’s interest rate decisions to scrutiny from the Government Accountability Office, which is Congress’s watchdog.

NFA Investor Newsletter
Credit card use denied at retail forex firms
The top 10 scam trends of 2014
CFTC launches its SmartCheck investor protection resource
12 investment tips for 2015
Visit NFA at Traders Expo New York

Address by CFTC Commissioner J. Christopher Giancarlo Before the ABA Business Law Section, Derivatives & Futures Law Committee Winter Meeting
A Pro-Reform Reconsideration of the CFTC Swaps Trading Rules

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

  • BATS: Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Adopt an Options Regulatory Fee (Release No. 34-74214; File No. SR-BATS-2015-08; February 5, 2015); see also Exhibit 5


  • BOX: Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Amend the Fee Schedule on the BOX Market LLC Options Facility (Release No. 34-74221; File No. SR-BOX-2015-11); see also Exhibit 5


  • BOX: Order Approving Proposed Rule Change Adopt BOX Rule 7300 to Allow the Exchange to Trade Preferenced Orders (Release No. 34-74210; File No. SR-BOX-2014-28; February 5, 2015)


  • ICEEU: Notice of Filing of Proposed Rule Change Relating to Additional European Sovereign CDS Contracts (Release No. 34-74213; File No. SR-ICEEU-2015-004; February 5, 2015)


  • NASDAQ OMX BX: Notice of Filing and Immediate Effectiveness of Proposed Rule Change by NASDAQ OMX BX, Inc. Relating to a Typographical Error (Release No. 34-74211; File No. SR-BX-2015-008; February 5, 2015); see also Exhibit 5


  • NMS: Notice of Amendment to the National Market System Plan Governing the Process of Selecting a Plan Processor and Developing a Plan for the Consolidated Audit Trail by BATS Exchange, Inc., BATS-Y Exchange, Inc., BOX Options Exchange LLC, C2 Options Exchange, Incorporated, Chicago Board Options Exchange, Incorporated, Chicago Stock Exchange, Inc., EDGA Exchange, Inc., EDGX Exchange, Inc., Financial Industry Regulatory Authority, Inc., International Securities Exchange, LLC, ISE Gemini, LLC, Miami International Securities Exchange LLC, NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, The NASDAQ Stock Market LLC, National Stock Exchange, Inc., New York Stock Exchange LLC, and NYSE MKT LLC, NYSE Arca, Inc. (Release No. 34-74223; File No. 4-668)


  • NYSEMKT: Notice of Filing and Immediate Effectiveness of Proposed Rule Change Part 8 of the NYSE MKT Company Guide to (i) Require the Chief Executive Officers of Listed Companies to Provide Annual Certification with Respect to the Company’s Compliance with the Requirements of Part 8 of the Company Guide, (ii) Require Listed Companies to Submit Annual and Interim Written Affirmations, and (iii) Make Certain Other Clarifying Changes (Release No. 34-74209; File No. SR-NYSEMKT-2015-09; February 5, 2015); see also Exhibit 3 and Exhibit 5


  • OCC: Notice of Filing of a Proposed Rule Change, and Amendment 1 Thereto, to Expand the Officers Who May Declare That a Clearing Member is Summarily Suspended (Release No. 34-74212; File No. SR-OCC-2015-04; February 5, 2015)

Exchanges & Trading Facilities

Not surprised, but still (deleted)
By Daniel P. Collins, Futures Magazine
The special meeting for CME Group members with its management team on Friday afternoon to discuss CME Group’s recent announcement that it was closing most of its futures pits had gone on for less than a half-hour when some members began trickling out. They had heard enough.

Deutsche Borse Market Data + Services and PEGAS announce market data partnership
Automated Trader
Deutsche Börse Market Data + Services has announced that it is the exclusive licensor of real-time market data for spot, derivatives and spread products traded on PEGAS, as of 1 January 2015. PEGAS is the central natural gas trading platform of EEX Group, operated by Powernext.

SEFs face reckoning with unintended consequences warns report
Banking Technology
Like opening Pandora’s box, the emergence of swap execution facilities in US derivatives markets has brought unexpected consequences and problems as well as benefits. In some cases, asset managers are actively looking to avoid trading on the new platforms and even turning to other asset classes, according to a new report by OpenLink.

Mexico exchange signs Nasdaq Smarts deal
Jude Webber in Mexico City, FT
Mexico has signed a deal — for an undisclosed fee — to replace its in-house trading surveillance with Nasdaq’s Smarts system as the volume of algorithmic and high-frequency trading increases in Latin America’s second-biggest economy.

ICE’s Swann steps down from FCA role
Futures & Options World
Paul Swann, the chairman of ICE Clear Europe, is to step down as the chairman of the Financial Conduct Authority’s Markets Practitioners panel to make way for the compliance head at Goldman. The Financial Conduct Authority said in a statement that Swann will be replaced as chairman of the committee by Robert Mass, the head of international compliance and global head of securities division compliance at Goldman Sachs.

February 2015 Eligible ETFs and Stocks 06 Feb 2015
CME Group
Short-Dated New Crop Soybean Meal/Oil Options – February 23, 2015 06 Feb 2015
Change to Standard Settlement Instructions to send JPY Cash to CME for Margin

SIX Selects UnaVista as partner for its Swiss Derivative Trade Repository Solution
London Stock Exchange Group
SIX Securities Services have just announced their selection of UnaVista to be their trade repository solution for all Swiss trades. You can read the full press release from SIX below.

SGX has busy start to 2015
The Trade
Singapore Exchange (SGX) has reported continued growth in securities trading in January 2015. Derivatives volumes remained strong with record volumes in the leading derivatives contracts.

Hedge Funds & Managed Futures

Fund Pros Who Live Together, Buy Together; Study Suggests Managers Are Influenced by Investments of Peers Who Are ‘Neighbors’
By Chris Gay, WSJ
It is no surprise that fund managers make portfolio choices for reasons other than dispassionate financial analysis. Studies suggest they invest in companies with headquarters nearby and with ties to their old schools, and for reasons related to politics and religion.

Exclusive: BlackRock to ramp up impact investing
By Jessica Toonkel, Reuters
BlackRock Inc (BLK.N) is planning an array of new investment products that will allow clients to invest in addressing large societal issues, such as global hunger or poverty, an executive at the New York-based firm said.

Apple plans debut of Swiss franc bond sale
By BenEdwards
Apple Inc. is seeking to add to its recent run of blockbuster bond deals with a debut sale in Swiss francs, according to a person familiar with the offering.

A rising appetite for risk isn’t luring smart money back to the oil patch
By Shawn Langlois, MarketWatch
Risky is Madonna flashing her 56-year-old assets at the Grammys. Perhaps riskier still is taking crude’s recent spurt to the upside as a reason to pour money back into the energy sector. At least that’s what the hedge fund guys seem to be saying as they load up on bearish bets heading into this week (see call of the day).

Warren Buffett faces pressure for more disclosure
Stephen Foley in New York, FT
Warren Buffett is under fire from investment analysts who cover his $370bn company, Berkshire Hathaway, over the quality of its financial disclosures.

Hedge funds short property companies as London housing wobbles
Miles Johnson and Kate Allen, FT
Hedge funds have begun to take out bets against property businesses that are exposed to the downturn in London’s housing market, in the first sign that investors are tentatively seeking to profit from the slowdown.

Banks & Brokers

BGC Becomes The First Interdealer Broker To Launch An Electronic Platform For The Yen IRS Market
This new market offering utilizes BGC Trader, BGC’s proprietary multi-asset, integrated voice and electronic price execution platform. By leveraging BGC’s existing global technology and applying it to this market, BGC has become the first interdealer broker to introduce rapid and efficient price discovery, order management and execution for customers seeking access to the Yen IRS market. BGC has electronically executed Yen IRS trades with a variety of domestic and international banks and has utilized JSCC, LCH and SEF settlements.

Leaked HSBC List Shows Who Was Banking on Swiss Secrecy
by David Kocieniewski, Bloomberg
The private-banking unit of HSBC Holdings Plc made significant profits for years handling secret accounts for an array of criminals, from drug cartels and arms dealers to tax evaders and fugitive diamond merchants, according to a report released Sunday by an international news organization.

Morgan Stanley Aims to Sell Stake in Lansdowne Partners; Investment Bank Joins Some Rivals in Retreat as Regulatory Landscape Changes
By Juliet Chung and Emily Glazer, WSJ
Morgan Stanley is joining the hedge-fund retreat. The New York investment bank is looking to sell its 19% stake in the $17.5 billion London-based Lansdowne Partners LLP, according to people familiar with the matter

Saxo Bank Takes Hard Line on Clients’ Swiss Franc Losses; Danish Bank Says Losses Are Customers’ Fault
By Tommy Stubbington and Chiara Albanese, WSJ
When the Swiss National Bank suddenly let its country’s currency rocket on Jan. 15, Pawel Jaworski, a welding engineer from Elblag, Poland, was a loser.

U.S. Banks Say Soaring Dollar Puts Them at Disadvantage; Firms Say They May Be Forced to Hold More Capital Than Foreign Rivals
By Victoria McGrane, James Sterngold and Ryan Tracy, WSJ
The strengthening U.S. dollar is rippling through the financial system in unexpected ways, revealing what bankers say is a hidden flaw in a Federal Reserve proposal to increase capital cushions at the nation’s largest banks.

Credit Suisse Plans Specialty Finance Company; Firm Would Invest in Unrated Debt of Small and Midsize U.S. Companies
By Katy Burne, WSJ
Credit Suisse Group AG is launching a specialty finance company to invest in the unrated debt of small or midsize U.S. companies, following in the footsteps of rivals such as Goldman Sachs Group Inc. and a handful of private-equity giants.

J.P. Morgan Emails Illuminate Hiring of China Official’s Son
by Ned Levin, Emily Glazer and Christopher M. Matthews, WSJ
An article in The Wall Street Journal tells the story of J.P. Morgan Chase & Co.’s employment from 2007-2009 of the son of Chinese trade official Gao Hucheng. The article draws on emails seen by the Journal, including one in which a J.P. Morgan executive writes that Gao Hucheng—then a vice minister of commerce and now China’s commerce minister—said he would be “willing to go extra miles” for the bank if the son kept his job at J.P. Morgan amid layoffs in 2008. Below are that email and three other exchanges shedding light on the bank’s handling of its employment of the son, Gao Jue.

Clearing & Settlement

Renminbi clearance in Australia crucial as Chinese firms keen on yuan settlement: RBA
IB Times
The launch of the Bank of China (Sydney) as an official RMB clearing bank is a crucial step as renminbi settlement of China-Australia trade is set to increase, Reserve Bank of Australia Governor Glenn Stevens said. The bank will make transactions between Australian and Chinese firms more effective. Besides, it will help raise awareness among Australian firms that the local financial system has the capacity to effect cross-border RMB transactions on their behalf, Stevens said.

Indexes & Products

China’s ETF Options Are Latest Stock-Market Milestone: Timeline
Bloomberg Business
The Shanghai Stock Exchange starts trading options on the China 50 ETF on Monday, the first new equity derivatives allowed by Chinese regulators since CSI 300 Index futures were introduced in 2010. Since then, the nation’s equity market has expanded to become the second largest worldwide.

MSCI Barra Peer Analytics Gives Greater Transparency to Mutual Fund Performance
Herald Online
MSCI Inc. (NYSE: MSCI), a leading provider of investment decision support tools worldwide, today announced the launch of MSCI Barra Peer Analytics, a new tool to provide a factor-based analysis of mutual funds. This new offering will deliver holdings-based insight into investment strategies and performance of 6,500 of the largest US mutual funds over 5 years, offering an unprecedented factor-based analysis of individual funds.

MSCI Ambition Leads Romania Bourse to Push for State IPOs
Bloomberg Business
The Bucharest Stock Exchange expects the Romanian government to push ahead with state-asset sales this year, helping the bourse boost trading volumes needed to achieve an upgrade to emerging-market status.

LSEG to explore sale of Russell Investment Management
Automated Trader
London Stock Exchange Group has concluded the comprehensive review of the investment management business of Russell Investments, as previously announced on 26 June 2014. The comprehensive review focused principally on assessing the strategic fit of Russell Investment Management with the Group’s long term strategy. After careful consideration the conclusion of the comprehensive review is to explore a sale of this business in its entirety.


First Libor rate-fixing battle as Icap rejects EU’s EUR15m fine
by Tim Wallace, City A.M.
Brokerage?Icap has become the first City institution to challenge a fine for attempted Libor manipulation, yesterday vowing to battle the European Commission.

SEC Imposes Sanctions Against China-Based Members of Big Four Accounting Networks for Refusing to Produce Documents
The Securities and Exchange Commission today imposed sanctions against four China-based accounting firms that had refused to turn over documents related to investigations of potential fraud. The China-based firms are members of large international networks associated with the “Big Four” accounting firms and registered with the Public Company Accounting Oversight Board (PCAOB).

Johnson Matthey Companies fined for failing to lodge financial reports
Australian unlisted public companies Johnson Matthey Holdings Limited and Johnson Matthey (Aust.) Limited have been fined a total of $10,000 for failing to lodge their annual financial reports.

Environmental & Energy

China sets CO2 reporting standards ahead of national market launch
China issued new guidelines on Monday to help standardise the way big industrial firms measure and report their greenhouse gas emissions, in a step towards the launch of a national carbon market scheduled for the middle of next year.

Vast majority opposes gas tax hike, poll shows
By Keith Laing – The Hill
Nearly 70 percent of U.S. residents are opposed to the idea of raising the federal gas tax to pay for new transportation projects, according to a poll released Friday by a group that is working to stop such an increase.

Clean tech loses power in energy portfolios
By Arleen Jacobius – Pensions & Investments
Once positioned to be a star of investors’ portfolios, clean technology has been reduced to bit-part status, morphing into an opportunistic investment in a broader energy infrastructure strategy.

As investors move to passive funds, stockpickers get creative
By David Randall, Reuters
Undaunted by the popularity and outperformance of index-tracking investments, mutual fund companies last year rolled out 193 new actively managed stock funds, many with some highly colorful concepts.


Rand Paul’s Know-Nothing Fed Bashing
By Noah Smith, Bloomberg
See if you can spot the errors in Senator Rand Paul’s push to audit the Federal Reserve, which he laid out Friday in Des Moines:

John Lothian Newsletter

We visit more than 100 websites daily for financial news (Would YOU do that?)

“John Lothian and Company… our industry intelligence.”

Rick Lane

CEO, Trading Technologies

Past JLN Newsletters

Pin It on Pinterest

Share This Story