First Read

Bits & Pieces
By John J. Lothian

We are off to New York this morning for our Summer Intern Education Series at the New York Stock Exchange on Wednesday, July 15. We now have 90 people signed up for the New York events. Thank you to all who helped us get the word out and to those who have signed up for the series. We hope it exceeds your expectations.

There is a lot going on July 15. Our friends at Markets Media are also holding an event in NYC on Wednesday, but this one is aimed at the C suite. Of course, they are charging $495 for their Summer Trading Network and we are charging $50. Thus is the difference between the C suite and the intern locker room.

Also, in Chicago Advantage Futures will be holding the first merit badge classes of Trading Tech 300 in their offices. Twenty-four Boy Scouts will be taking the Chess and Public Speaking merit badges. The merit badge classes are free, thus the difference between the intern locker room and the Boy Scout classroom.

Thank you to our sponsors of the Summer Intern Education Series, including our Global Premier Sponsor, the CME Group. Thank you also to event partners ICE[NYSE, BATS, NADEX,, The IFM, IIT Stuart School of Business, We could not put on this series without their support, for one reason because we don’t charge $495 per person.


Update: Unchained – How Blockchain and Bitcoin Are Going Mainstream
John Lothian News Special Report
Earlier the month we issued a special report on digital currencies and the blockchain technology that underpins it. We used Sway, a platform for content publication that incorporates and infuses multiple media channels. Think of it as a magazine, except that the pictures are short, there are supplemental videos and the story can be tweaked and updated as needed.

In this report, JLN editor-in-chief Jim Kharouf looks at why industry experts are calling the technology “the key to the industry.”

As blockchain is back in the news this week, we have updated the report to incorporate some fresh content.
Read the report on Sway


FT Explainer: The blockchain and financial markets
Philip Stafford, FT
Banks and exchanges are all taking a keen interest in applying the blockchain, the record of asset ownership that underpins bitcoin, to financial markets. It mixes Silicon Valley and Wall Street and could represent a radical departure from longstanding financial networks.

***** You have the splaining to do.


FIA PTG Statement on the Joint Staff Report on the U.S. Treasury Market on October 15, 2014
FIA Principal Traders Group
Based on our preliminary review of this report, it seems to reflect our understanding of market behavior on October 15: principal traders continued to provide liquidity and maintain tight bid-ask spreads, even during the period of unusually high volatility, while engaging in sensible risk management practices.

****** Our job is to do our job. Understand?


Reg Roadmap: European Regulation Winding Its Way Forward

The European regulatory overhaul has been long and winding as industry participants grapple with three major initiatives simultaneously: EMIR, MIFID II and Basel 3, just to name a few.

Even with the recent delay of MIFID II standards to September, regulatory experts say there is progress on some key areas, including an ongoing effort by US and EU regulators to find common ground on key sticking points, such as margin rule differences.
View the Special Report »

Hillary’s credibility questioned after HSBC takedown
By Kevin Dugan and Marisa Schultz, NY Post
If Wall Street wants to get out of Hillary Clinton’s crosshairs, it may have to pay up. In her first major economic policy address, Clinton said that she would “offer plans to rein in excessive risks on Wall Street and ensure that stock markets work for everyday investors, not just high frequency traders and those with the best — or fastest — connections.”

****** NY Post knows how the game is played.


MarketsWiki Education Intern Series 2015

Lead Stories

Here’s What We Learned From the Official Report on the ‘Flash Crash’ in U.S. Treasuries
by Tracy Alloway, Bloomberg
On Oct. 15, Wall Street watched in collective shock as the yield on the benchmark 10-year U.S. Treasury plunged before careering upward again on seemingly little news.

College Kid’s Secret Stock Trade Shows China’s Moral Hazard
Lu Tao can’t sleep. He gets bouts of panic at night. And he’s too afraid to tell his parents why. The 23-year-old university student in Hangzhou, a city on China’s eastern seaboard, has a stock-market problem. He borrowed 200,000 yuan ($32,215) from mom and dad, piled the money into mainland shares without their permission, and got caught in the biggest sell-off in two decades.

Wall Street’s Top Cop Takes Harder Line; SEC has more than doubled the typical fine against individuals over the past decade
The Securities and Exchange Commission has ratcheted up its punishment of individuals, more than doubling the typical fine over the past decade amid pressure to prove the agency is tough on Wall Street.

US Treasuries turmoil probe finds no smoking gun
Joe Rennison and Michael Mackenzie, FT
After months of study, no smoking gun.
US regulators say a number of factors, notably the rise of electronic trading, helped spark last October’s eruption of volatility in the world’s largest and most liquid government bond market.

After Chinese Stock Plunge, a Hole Shows in Xi’s ‘China Dream’
China’s stock-market meltdown last week not only stole the thunder of President Xi Jinping’s Russia trip but made it impossible to ignore the economic realities threatening his geopolitical ambitions.

China stock suspensions opens can of derivatives worms; Suspension of China stocks causes valuation problems -dealers; Standard derivatives terms may not apply to China circumstances; More than half of China stocks suspended during stock plunge; Could be wrangling over derivatives valuations -ISDA
By Michelle Price, Reuters
The suspension of hundreds of mainland China stocks during a market plunge from mid-June could lead to disputes between banks and their clients over the valuation of billions of dollars of equity derivatives.

China Opens Interbank Market to Central Banks, Sovereign Funds
China issued new rules making it easier for foreign central banks, sovereign wealth funds and global financial organizations to access its interbank bond market, the latest step in the opening up of Asia’s largest economy.

Hong Kong sees silver lining in China market turmoil
Ben Bland in Hong Kong, FT
With Hong Kong riven by political deadlock, politicians and investors have repeatedly warned in recent years that the financial centre risks sliding into irrelevance as its Chinese rivals Shanghai and Shenzhen go from strength to strength.

Einhorn Says Europe Letting Greece Collapse to Stop Populism
by Simone Foxman, Joshua Fineman, Bloomberg
David Einhorn, founder of Greenlight Capital, said Europe’s leaders are prepared to let Greece fail to discourage other countries from electing populists.

‘Clawbacks’ Could Backfire
Andrew Ross Sorkin, NY Times
Clawbacks are coming to corporate America. After the financial crisis, regulators forced Wall Street to adopt programs to be able to “claw back” — or recover — compensation that had been paid to bankers or traders if deals they were involved in soured later. The idea was that traders would be more responsible if they knew they would have to return some of their income should risky trades blow up years after they were made.

Trader tells court of his ‘rage’ over transatlantic Libor probe
Lindsay Fortado, FT
Tom Hayes, the first trader to go on trial for Libor manipulation, told a court that he reversed his intent to plead guilty because he felt “intense rage” over the transatlantic investigation into his conduct and wanted to be judged by a jury rather than become a “political football”.


Release of Joint Staff Report on October 15, 2014
The joint report makes clear that a number of developments help explain the conditions that likely contributed to the volatility. Specifically, the report finds that in addition to other factors, changes in global risk sentiment and investor positions, a decline in order book depth, and changes in order flow and liquidity provision together provide important insight into the developments that day. The report also underscores the changing structure of the U.S. Treasury market, the deepest and most liquid government securities market in the world. Finally, the report also offers several next steps to further enhance the public and private sectors’ understanding of changes to the structure of the U.S. Treasury market and their implications.

The State of Cost-Benefit Analysis at the S.E.C.
Regulators now decide whether to regulate by conducting a formal analysis of whether the costs of adopting a rule would outweigh its benefits.

Brazil names 30 bankers in forex probe
The Brazilian authorities have widened their investigation into alleged foreign exchange manipulation, naming 30 bankers as part of the probe. The state is the latest to launch investigations into the market, and follows high-profile investigations in the UK and US.

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

    • BATS: Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Fees for Use of BATS Exchange, Inc. (Release No. 34-75437; File No. SR-BATS-2015-53); see also Exhibit 5


    • BSECC: Order Approving Proposed Rule Changes to Amend the Amended and Restated Certificate of Incorporation and By-Laws of The NASDAQ OMX Group, Inc. (Release No. 34-75421; File Nos. SR-BSECC-2015-001, SR-BX-2015-030, SR-NASDAQ-2015-058, SR-Phlx-2015-46, SR-SCCP-2015-01; July 10, 2015)


    • BYX: Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Fees for Use of BATS Y-Exchange, Inc. (Release No. 34-75439; File No. SR-BYX-2015-32); see also Exhibit 5


    • CBOE: Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule, as Modified by Amendment No. 1, to Introduce Asian Style Settlement and Cliquet Style Settlement for FLexible Exchange Broad-Based Index Options (Release No. 34-75425; File No. SR-CBOE-2015-044; July 10, 2015)


    • EDGA: Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Fees for Use of EDGA Exchange, Inc. (Release No. 34-75433; File No. SR-EDGA-2015-27); 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. 34-75435; File No. SR-EDGX-2015-32); see also Exhibit 5


    • FINRA: Notice of Filing of a Proposed Rule Change to Amend FINRA Rule 6730 (Transaction Reporting) to Require Members to Report Transactions in TRACE-Eligible Securities As Soon As Practicable Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (Act), and Rule 29b-4 thereunder, notice is hereby given that on July 2, 2015, Financial Industry Regulatory Authority, Inc. (FINRA) filed with the Securities and Exchange Commission (Commission) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by FINRA. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons (Release No. 34-75428; File No. SR-FINRA-2015-025; July 10, 2015); see also Exhibit 5


  • NYSE Arca: Notice of Filing and Immediate Effectiveness of Proposed Rule Change Allowing the Listing of Options Overlying Portfolio Depositary Receipts and Index Fund Shares that are Listed Pursuant to Generic Listing Standards on Equities Exchanges for Series of ETFs Based on International or Global Indexes Under Which a Comprehensive Surveillance Sharing Agreement is not Required (Release No. 34-75440; File No. SR-NYSEArca-2015-60); see also Exhibit 5/li>
  • NYSE Arca: Notice of Filing and Immediate Effectiveness of Proposed Rule Change Adding a Pricing Tier Applicable to Orders of ETP Holders for Tape A, Tape B and Tape C Securities that are Eligible to be Routed Away from the Exchange (Release No. 34-75434; File No. SR-NYSEArca-2015-57); see also Exhibit 5
  • NYSEMKT: Notice of Filing and Immediate Effectiveness of Proposed Rule Change Allowing the Listing of Options Overlying Portfolio Depositary Receipts and Index Fund Shares that are Listed Pursuant to Generic Listing Standards on Equities Exchanges for Series of ETFs Based on International or Global Indexes Under Which a Comprehensive Surveillance Sharing Agreement is not Required (Release No. 34-75441; File No. SR-NYSEMKT-2015-47); see also Exhibit 5
  • NYSEMKT: Order Approving Proposed Rule Change, as Modified by Amendment No. 1, Adopting a Principles-Based Approach to Prohibit the Misuse of Material Nonpublic Information by Specialists and e-Specialists by Deleting Rule 927.3NY and Section (f) of Rule 927.5NY (Release No. 34-75432; File No. SR-NYSEMKT-2015-23)
  • OCC: Order Granting Approval of Proposed Rule Change Concerning the Implementation of New Risk Models in Order to Support the Clearance and Settlement of Asian-Style Flexibly Structured Options and Flexibly Structured Cliquet Options (Release No. 34-75427; File No. SR-OCC-2015-010; July 10, 2015)
  • Phlx: Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Section II of the Pricing Schedule (Release No. 34-75438; File No. SR-Phlx-2015-57); see also Exhibit 5
  • Phlx: Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend Various References to Rule 1080.08 (Release No. 34-75436; File No. SR-Phlx-2015-55); see also Exhibit 5

Exchanges & Trading Facilities

Bats Plans Block-Trading Service to Prepare for Dark-Pool Rules
by John Detrixhe, Bloomberg
Bats Chi-X Europe will unveil a block-trading initiative within months as markets prepare for European Union rules that will restrict dark-pool trading.

Eurex approved to clear inflation swaps
Jon Watkins – The Trade News
Eurex Clearing has been authorised by German regulator BaFin to clear inflation swaps, squaring up with rival LCH.Clearnet which has also been permitted to clear the products. While inflation swaps are not subject to mandatory clearing, buy-side firms will want to clear them alongside their interest rate swaps in order to avoid bifurcation of their books. This will be especially important to pension funds as they have a large amount of liability which are inflation linked.

Nasdaq’s BWise Positioned as a Category Leader in Chartis RiskTech Quadrant for Enterprise GRC Solutions
Nasdaq’s BWise (Nasdaq:NDAQ), a global leader in enterprise Governance, Risk Management and Compliance (eGRC), announced today that it has been positioned as a category leader in the Chartis RiskTech Quadrant for Enterprise GRC Solutions 2015. According to the Chartis Research report, Nasdaq BWise belongs to the ‘leaders’ category showing “key strengths in multiple industries.” In total, nineteen vendors have been positioned on their enterprise GRC technology offering based on ‘completeness of offering’ and ‘market potential’.

Successful public exchange offer for Lafarge and Holcim merger; New LafargeHolcim Group joins CAC 40 Index
One of the largest transactions over the last ten years.
Market capitalisation of around EUR39 BN following public exchange offer
Euronext, the primary exchange in the Euro zone, today congratulated the new LafargeHolcim Group, the world leader in building materials, on its successful merger and inclusion in the CAC 40 index.

TMX Equities Head Cowan Exits Canada’s Largest Exchange Operator
by Eric Lam, Bloomberg
Kevan Cowan has left his job as head of equities at TMX Group Ltd., marking the fourth key executive to depart Canada’s largest stock exchange in the past 18 months.

Hedge Funds & Managed Futures

Bond King Gundlach Feuds With Morningstar; Years of perceived slights and missteps preceded clash
Jeffrey Gundlach is locked in a protracted stare-down with an unlikely foe: Morningstar Inc.

Why the bond market went bananas one day
By Steve Goldstein, MarketWatch
It was the day that shook the bond market’s world — Oct. 15, 2014.

Banks & Brokers

Syz Buys Royal Bank of Canada’s Swiss Unit as Foreigners Exit
by Giles Broom, Bloomberg
Banque Syz SA of Geneva is buying Royal Bank of Canada’s Swiss unit as foreign financial firms retreat from Switzerland amid higher regulatory costs.

J.P. Morgan’s Profit Rises, Results Beat Expectations; New York bank kicks off reporting season for U.S. banks
J.P. Morgan Chase & Co.’s second-quarter profit increased 5.2% as the firm benefited from strong trends in lending and corporate deals but wrestled with increasing volatility in markets.

Clearing & Settlement

Europe’s changing clearing landscape – EuroCCP |
Automated Trader
European equities clearing is akin to a European Union in which almost a third of the population can only make a phone call to another party using the same telephone company. Perhaps it is time to accept that there is a better way, writes Diana Chan, chief executive of EuroCCP.

Swift offers grant for research into the blockchain in securities markets
The Swift Institute is offering up a EUR15,000 grant for research into the development of blockchain technology for use in securities markets.

Global payment system delayed
The Standard
China is set to launch a watered down version of its long-awaited international payments system, using it only for cross-border yuan trade deals rather than also including capital-related deals, two people with direct knowledge of the matter said yesterday. The move would delay billions of dollars worth of transactions including securities purchases and foreign direct investment that would have gone through the system.

Indexes & Products

China’s trading freeze can undermine MSCI inclusion
Portfolio Adviser
The recent suspension of trading in 1300 A-share stocks could delay their much-awaited inclusion in MSCI’s emerging market index, fund houses said.

China ETF Switches Its Strategy After Stock Trading Halts
Bloomberg Business
China’s use of trading restrictions amid its worst market rout in more than two decades has prompted a rare strategic change at one of three U.S. exchange-traded funds with access to the Shanghai and Shenzhen stock markets.

The Impact of Currency Exposure: Evidence From the Performance of Actively Managed Global Equity and Bond Funds
S&P Dow Jones Indices
In the past 18 months, currency hedging has become one of the hottest topics in the investment community. As the U.S. economy strengthens and decouples from the rest of the developed and emerging economies, and as there is unprecedented quantitative easing by the Bank of Japan and the European Central Bank, it is nearly inevitable that the U.S. dollar will rally strongly against other major currencies. The movement into currency-hedged, passive investment products has been strong, as investors seem to be looking at their non-USD exposure.

Greece and China Battle for Most Dangerous ETF
Bloomberg Business
The Global X FTSE Greece 20 ETF (GREK) and the Deutsche X-Trackers Harvest CSI 300 China A-Shares ETF (ASHR) appear to be vying for riskiest ETF1. Both have seen their volatility more than triple in the past 10 days, to levels that surpass even the most hard-core leveraged funds.


The Buy Side and TradingScreen to Launch TradeCross
PR Newswire
A select group of large Asset Managers and TradingScreen, the leading independent provider of liquidity, trading, and investment technology via SaaS, announced today their intention to launch the first Buy side designed crossing platform for Fixed Income corporate bonds. TradeCross will cover all segments of the credit market and will offer numerous new and innovative trading models that are not offered today on traditional platforms with an overarching goal to create a much more efficient way to trade these securities. Key elements of the initiative are to insure complete trade confidentiality and reduction of market impact, especially during periods of market stress. It has been carefully designed with the Buy side needs in mind and will continue to evolve as market changes dictate.

Kx Systems appoints Mark Sykes as Global Market Strategist; New role supports expansion within financial services and new markets –
Kx Systems
Kx Systems, a leader in high-performance database and time-series analytics, has expanded its senior team with the appointment of Mark Sykes as Global Market Strategist. Mark’s role will be to broaden the application of the kdb+ database solution within financial services and into other markets such as energy, pharmaceuticals and click-stream analytics.

TRLPC: Electronic messaging system for loan market set to be released
A final standard for an electronic messaging system that seeks to eliminate the use of faxes in the $840 billion U.S. leveraged loan market may be released as early as this week.

New Paper From The SWIFT Institute Examines The Instability Of Large Bitcoin Mining Pools – SWIFT Institute Research Shows That Smaller Bitcoin Mining Pools May Lead To A More Stable Ecosystem For The Digital Currency
The SWIFT Institute announces the availability of a new paper that investigates Bitcoin mining pools and considers whether an evolution towards smaller mining pools might stabilise the Bitcoin system. The report, entitled “Bitcoin – the Miner’s Dilemma” by Ittay Eyal from Cornell University, focuses on inherent dangers of mining pools, an essential part of the bitcoin ecosystem.

Thomson Reuters Extends Low-Footprint, High-Performance Direct Feed Service to Derivatives Exchanges
By GlobeNewswire
Customers can now access key options data in a standardized, familiar and flexible format via Elektron Direct Feed whilst reducing costly server footprint

Edelweiss Selects OneTick Data Management Platform
OneMarketData, LLC, the founders of OneTick, a single solution for real-time streaming analytics and tick data management, today announced that Edelweiss Financial Services Ltd. (Edelweiss), one of India’s leading diversified financial services firm has selected OneTick as its market data collection, analytics and tick data management platform. Edelweiss is utilizing OneTick’s powerful analytical tools to conduct in-depth quantitative research across the entirety of Indian markets including equities, futures and options. Edelweiss is the first India based entity to use OneTick to build and test mathematical algorithmic trading models for the Indian markets.


SEC Announces Settlement With Cooperator in Grand Central Post-It Notes Insider Trading Case
The SEC last year charged a law firm clerk and a stockbroker with insider trading in a scheme that used a mutual friend to pass material, nonpublic information from the law firm’s computer systems about clients’ pending corporate transactions. The SEC identified that middleman as Frank Tamayo in a subsequent complaint filed in federal court in New Jersey. The SEC alleged that after receiving the tips from the law firm clerk, Tamayo typically met the stockbroker near the clock at the information booth at Grand Central and chewed up or ate post-it notes or napkins after using them to show the stockbroker the ticker symbol of the company that would be acquired. The stockbroker then traded for himself, Tamayo, and other customers.

Financial Adviser and Race Car Driver Convicted of Conning Millions from Investors; Arizona men convicted of defrauding Long Island business people, professional athletes
A former financial adviser and a retired professional race car driver were convicted Thursday of conning millions of dollars from investors, from Long Island businessmen and police officers to Olympics and National Hockey League stars.

Environmental & Energy

Carbon-Trading Program Generates $1.3 Billion in U.S. Northeast
By Alex Nussbaum – Bloomberg News
A cap-and-trade program for carbon dioxide generated $1.3 billion in benefits for nine U.S. states, a finding that may win converts elsewhere in the country.

China’s Guangdong to allocate 408 million carbon permits this year
China’s biggest carbon market in Guangdong province will allocate 408 million carbon permits to firms to help them comply with emission targets set for the trading year ending in June 2016, the same amount as the previous year.

Black Hills Burns for Gas as Power Utilities Hunger for Growth
By Mark Chediak and Jim Polson – Bloomberg News
Black Hills Corp.’s deal to buy SourceGas Holdings LLC for $1.89 billion shows how sales-challenged electric utility owners are on the hunt for natural gas delivery companies that promise better growth.


Hedge Funds Reassess China After Market Free Fall
It wasn’t long ago that hedge funds were preparing for one of the biggest openings into China in years. In November, foreign investors were for the first time able to buy and sell shares listed in the Shanghai market directly. It was a chance to ride the great China bull run.

China share shock has lasting impact at home and abroad
Henny Sender, FT
The spectacle of Chinese shares in freefall last week gave rise to a sense of schadenfreude among many western observers who remember complacent Chinese statements about the superiority of their own financial system in the wake of the global financial crisis.

Frontier Markets

Frontier Markets Begin to Emerge
Frontier markets offer the chance for fantastic returns but investors should be aware – many frontier-markets funds have short track records and carry unique risks

No exit for investors as India dithers on stock exchanges’ IPOs; Policy makers have long viewed the bourses as public utilities to promote an equity culture in India rather than as a business
Santanu Chakraborty , Livemint
Toronto-based Caldwell Securities Ltd chose India over China in 2007, buying about 5% of what was then the Bombay Stock Exchange. Eight years later, chairman Thomas Caldwell is frustrated because he has few exit options.

Myanmar delays launching stock exchange
Global Post
Myanmar has delayed launching of the country’s first ever stock exchange to mid November or early December this year.

FMC to bar brokers named in NSEL scam from bourses
The Hindu BusinessLine
The Forward Markets Commission plans to ban brokers involved in the National Spot Exchange (NSEL) scam from commodity exchanges.


Hillary Clinton vows crackdown on Wall Street risk-taking
Megan Murphy in Washington, FT
Hillary Clinton pledged to rein in risk-taking on Wall Street and to jail executives found guilty of financial crimes, in a wide-ranging speech that laid out a progressive agenda for boosting growth and wages that will form the centrepiece of her 2016 presidential campaign.

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