John Lothian Newsletter: ICE acquires automated trading technology patents; TMX CEO Tom Kloet likely to stay at helm till this fall; Liquidnet Approves Bond Foray

Aug 8, 2014

First Read

Trading Technologies Renews MarketsWiki Premier Sponsorship
John Lothian News is pleased to announce that Trading Technologies has renewed its Premier Sponsorship of MarketsWiki. A sponsor since before MarketsWiki launched, TT has been a loyal supporter of MarketsWiki and John Lothian News.

Trading Technologies International, Inc. (TT) is an independent software vendor that develops high-performance trading software for active derivatives professionals. Customers include international banks, brokers, hedge funds, proprietary traders and other trading institutions.

“As one of the original MarketsWiki sponsors, we’ve enjoyed a long, collaborative relationship with John and the team,” said Elise Fleischaker, Vice President of Markets at TT. “From the wikis and daily newsletter to special video segments and events, such as the Intern Series, they keep us informed and serve as a voice for our industry. We’re happy to renew our sponsorship for another year.”

“We are grateful for TT’s continued support of our efforts to inform, educate and inspire people in and out of our industry,” said John J. Lothian, co-founder of MarketsWiki.


Bits & Pieces
By John J. Lothian
Yesterday was a very strong performance by the five speakers at the Summer Intern Education Series. Jeromee Johnson started with a talk on how and why to build a new exchange, and then quickly flew back to Kansas City to continue his work building BATS’ options business.

John Ruth, Jr., CEO of ABN AMRO Clearing Chicago, gave a terrific presentation about how to build your career and the impact you can have immediately on your organization. He talked about the need for honesty and integrity and also re-evaluating your plan in light of changing market conditions and the situation within your company.

Jamie Farmer of S&P Dow Jones Indexes followed with an illuminating presentation on indexes and the role and growth of indexes in our markets. That dovetailed very nicely with Ethan Kahn‘s presentation on ETF’s and how and why to trade them. Kahn, of Wolverine Trading, made an important point about the importance of knowing what is in the ETFs.

Jim McNulty, who may be the person who has sat on more exchange boards than any other living person, gave a stimulating talk on corporate governance. His intellectual framework for good governance delved into all of the conflicts between boards, management and shareholders and how to balance all of those.

All in all, it was a great day. We gave away a lot of swag before the program started and I bundled The IFM‘s Series 3 course with a Trading Technologies beach towel. I told the interns with a smile on my face I did that because they could make so much money with their Series 3 they could spend a lot of time at the beach.

Today we have the final day of the Chicago series and our social event following it. Our speakers today include Julie Winkler of the CME, Donnie Roberts of TD Ameritrade, Craig Donohue of OCC, Steve Crutchfield of NYSE Options, Mike Gorham of the Stuart School of Business and finally Matthew Scharpf of Eurex. Scharpf will be playing music prior to the start of the program.


How Many Exchanges Does The World Need?
Roger Aitken, Contributor – Forbes
Among the many financial trading and IT conferences I have attended over the years – from TradeTech in Paris to Burgenstock in Montreux, Switzerland, and beyond – the question has always arisen as to how many stock and derivatives exchanges there would be in three, five or ten years time. Depending on who you canvassed the answer would always be different. Perhaps not that surprising I suppose. Some pundits suggested that in the end analysis there would be five or six global exchange groups.

***** It is like whack a mole, every time there is consolidation, another new exchange pops up.


ICE’s Sprecher Talks Equity Market Structure
IntercontinentalExchange is one of the most influential market operators in the world, and chief executive Jeff Sprecher is by extension one of the more influential individuals. ICE’s roots are in commodity futures, but the Atlanta-based company has had a seat at the table of U.S. equity market structure since its November 2013 acquisition of NYSE Euronext, owner of the New York Stock Exchange.

***** I am sure he is not talking about baseball and the Atlanta Braves recent play.


SEC Computer Called CAT Will Peer Into Dark Pools, Track Orders
Matthew Philips and Silla Brush – Bloomberg
The Consolidated Audit Trail, or CAT, will be one of the largest databases in the world, designed to funnel 50 billion daily records into an archive. The computer will track every stock quote, order, and trade, including when and where transactions occur, the brokers who handle them, and the customers they represent. If it works as planned, the CAT will improve the SEC’s ability to scrutinize parts of the market it can already see and shine a spotlight on the places it currently can’t.

***** How many lives does this CAT have? I can’t wait for the SEC’s CAT video posts to Facebook.


Bright Lights of Finance Head to Low-Key Camp
Spencer Jakab – WSJ
The pack of wilderness guides huddled outside Leen’s Lodge in Grand Lake Stream, Maine, last Friday morning knew how to identify countless fish and birds, trap bears and even build canoes. Unlike those in the rest of the state, though, they also knew why their customers were keeping them waiting on a beautiful August morning—the nonfarm-payrolls report.

***** I love trading in the woods.


Ex-ConvergEx Unit Chief Blumberg Charged in Fee Scheme
Tom Schoenberg – Bloomberg
The former chief executive officer of a ConvergEx Group LLC unit was charged with fraud for allegedly bilking clients out of millions of dollars through hidden fees. Anthony Blumberg, 49, was indicted yesterday by a federal grand jury in New Jersey on securities and wire fraud charges, the Justice Department said in a statement today. T

***** ConvergEx has recently has a bunch of layoffs.


CBOE Risk Management Conference Returns To Europe September 3
The Chicago Board Options Exchange (CBOE) and CBOE Futures Exchange (CFE) will host the CBOE Risk Management Conference (RMC) Europe, from September 3 through 5, 2014, at the Powerscourt Hotel in Enniskerry, County Wicklow, Ireland. The annual CBOE RMC is the premiere financial industry conference designed for institutional users of equity derivatives and volatility products. Now in its 30th year in the U.S., this September’s event in Ireland marks the 3rd annual CBOE RMC Europe.

***** I went last year to Florida. This year might be more risky and involve more whiskey.



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Lead Stories

ICE patents automated trading technology
Jon Watkins – The Trade
Intercontinental Exchange (ICE) has acquired intellectual property rights in the US, relating to automated trading strategies that make price and trading decisions based on market price information.

TMX CEO Tom Kloet likely to stay at helm till this fall -sources
Alastair Sharp, Euan Rocha and John McCrank – Reuters
Tom Kloet, who was initially set to bow out later this month as chief executive of Toronto Stock Exchange operator TMX Group Ltd, is now likely to stay on until at least October as TMX hunts for a long-term replacement, seven financial industry sources familiar with the succession process said.

Stock-Trading Venue Liquidnet Approves Bond Foray
Katy Burne – WSJ
Institutional equities-trading platform Liquidnet is preparing to launch a credit-trading network in the fall, following regulatory approval last week of its acquisition of high-yield bond platform Vega-Chi. The initiative is the latest example of a technology company seeking to shake up the way corporate bonds trade…

Eurex expands network for block trade service
Futures & Options World
German derivatives exchange Eurex has connected three trade capture platforms to its newly enhanced block trade execution service.

Goldman Sachs Adds U.S. Dark Pool to Regulatory Review List
Michael J. Moore – Bloomberg
Goldman Sachs Group Inc. added its U.S. alternative-trading system to a list of items that are under review by governmental and regulatory bodies. Goldman Sachs made the disclosure today in its quarterly filing with the Securities and Exchange Commission.

Central collection box proposed for FTT
Tim Cave and Anish Puaar – Financial News
The proposed European financial transaction tax may be collected through a central industry utility, raising the possibility of using existing market infrastructure such as trade repositories to gather the levy.

‘No more bank bailouts’ cannot be an empty slogan
Sheila Bair – Financial Times
Sometimes it is hard to state the obvious. Your spouse’s middle-aged bulge. Your boss’s bad breath. You are aware of it but you are afraid to say it, fearing the awkwardness that will result if you speak up. So it was this week, when two US regulatory authorities announced that they were not convinced by contingency plans put forward by 11 big banks, which are supposed to demonstrate that the institutions in question could go into bankruptcy without disrupting the broader financial system.

SEC Charges Former CEO of ConvergEx Subsidiary in Scheme to Deceive Customers About Trading Fees
The Securities and Exchange Commission today charged the former chief executive officer of a broker-dealer subsidiary of ConvergEx Group LLC for deceiving brokerage customers with hidden fees to buy and sell securities.

How RenCap reflects Russia’s rollercoaster
Elliot Wilson – Euromoney Magazine
The outrageous swings in fortune of Renaissance Capital over the past 20 years are the stuff of Hollywood legend. But what’s the next instalment for the Moscow-based investment bank? Out of Africa? Or just back to being The Russia House?

Evolving Your Investor Relations in the Age of Social Media
Kristine Eissing – TABB Forum
The investor relations website is where the buy side, Main Street, media and others go to find the most direct, quantitative and qualitative intel on a company. But one of the biggest opportunities and challenges for a public company is how to adapt investor relations to the rise of social media as a communication tool for the investment community. Here are four steps to start to incorporate social media into your IR program.


Vertical silos could force eight-year wait for open access
The Trade
Europe’s vertically integrated clearing houses could delay meeting open access requirements under MiFID II until 2022, according to the head of clearing at a European central counterparty (CCP).

EU-US trade talks won’t tackle swaps reform – poll
Tom Osborn –
Market participants do not expect US and European Union trade negotiators to be given the job of resolving conflicts arising from cross-border swaps reforms, although over two-thirds of respondents to a poll believe it would be helpful to put these issues on the agenda of the ongoing Transatlantic Trade and Investment Partnership (TTIP) talks.

ECB Publishes Comprehensive Assessment Stress Test Manual
The European Central Bank (ECB) has today published a manual detailing how it will incorporate findings from its AQR into stress test projections. It also describes the stress test quality assurance process, which is vital to ensuring that the exercise is robust and credible.

ASIC Statement Of Intent
ASIC has today published its Statement of Intent in response to the Australian Government’s Statement of Expectations. The Statement of Intent responds to the Government on ASIC’s high-level priorities and intentions around its role, responsibilities and relationship with government.

Exchanges & Trading Facilities

ICE targets Singapore launch in coming months
Joe Parsons – Futures & Options World
IntercontinentalExchange (ICE) is planning to launch its new Singapore-based exchange and clearing house in the next couple of months. Speaking on an earnings call Jeffery Sprecher, chairman and chief executive of ICE, said the launch was on track with progress going well.

Intercontinental Exchange Results Beat Expectations
Bradley Hope – WSJ
Intercontinental Exchange Inc.’s second-quarter results topped analysts’ expectations as the company made progress in selling off several businesses previously part of the NYSE, but the company’s share price fell over expectations of weakening performance in the months ahead.

Euronext accelerates cost cuts; CEO says job not in danger
Alexandre Boksenbaum-Granier – Reuters
Exchange operator Euronext posted a 4.6 percent increase in quarterly operating profit on Thursday, boosted by cost cutting and a rise in stock market listings, and said it would accelerate its cost-savings plan.

Canadian Exchange Operator TMX Swings to Loss
Ben Dummett and Judy McKinnon – WSJ
TMX Group Ltd., Canada’s flagship exchange operator, late Thursday said it swung to net a loss in the second quarter, after taking a noncash impairment charge to reflect lower revenue projections from its BOX Options Exchange LLC subsidiary in the U.S.

Philippines Stock Exchange to co-operate on market data with Deutsche Börse
Simon Osborne – The Trade
The Philippines Stock Exchange has signed a memorandum of understanding to explore market data cooperation with Deutsche Börse.

TMX Group Limited Reports Results For The Second Quarter 2014

TMX Group Limited Declares Dividend Of $0.40 Per Common Share

TMX Group Equity Financing Statistics – July 2014: Toronto Stock Exchange, TSX Venture Exchange

BM&FBOVESPA Announces Results For The Second Quarter Of 2014

MIAX Options Exchange – MIAX Price Improvement Mechanism (PRIME) Auction Related Transaction Fees And Rebates

TOM Insight July 2014

Hedge Funds & Managed Futures

KKR, Blackstone and TPG pay $325m to settle collusion lawsuit
Henny Sender in New York – Financial Times
KKR, Blackstone and TPG have agreed to pay $325m to settle a lawsuit that accused seven private equity groups of conspiring to fix the prices of some of the world’s biggest leveraged buyouts.

Buyers eye style-agnostic funds over ‘dogmatic’ managers
Anna Fedorova – Investment Week
Fund selectors have begun to move away from ‘dogmatic’ equity funds that favour either growth or value investment approaches to focus on more balanced equivalents.

Investors ‘out on a limb’ over volatility, economists warn
Julia Rampen – Investment Week
Fund managers have a “critical” imperative to warn clients about the risks of chasing yield despite low volatility, former monetary policymakers have warned.

Sovereign-Wealth Funds Pump Near Record Amount of Cash Into Deals
Dan Dunkley – MoneyBeat – WSJ
Sovereign-wealth funds are putting more money to work through direct investing than at any time since 2008, as investors look to boost returns and bypass fees charged by fund managers.

Allianz GI launches US small cap fund
Julia Rampen – Investment Week
Allianz Global Investors has brought its US small cap growth strategy to the UK via the launch of a new fund.

Allianz second-quarter profits rise despite Pimco outflows
Alice Ross in Frankfurt – Financial Times
Allianz reported a rise of more than 10 per cent in net income in the second quarter, even as outflows from Pimco were still weighing on the German insurer.

Algebris co-founder Eric Halet hires Karl Spielmann to Silvaris Capital Management
Vivek Ahuja – Financial News
Silvaris Capital Management, an equities hedge fund set up last year by Algebris Investments co-founder Eric Halet, has completed the senior line-up in its investment team with the hire of a former managing director at Och-Ziff Capital Management.

Ex-Temasek Manager Welch Starts Asia-Focused Midcap Hedge Fund
Klaus Wille – Bloomberg
Mathew Welch, a former Temasek Holdings Pte managing director, is starting a hedge fund that invests in small and midcap firms in Asia’s developing markets where he said companies are undervalued.

How Hedge Funds Can Adapt As Wall Street Puts on the Squeeze
Juliet Chung – MoneyBeat – WSJ
Conversations between banks and their hedge-fund clients about the impact of stiffer capital requirements on those relationships ramped up early this year, industry executives say, after J.P. Morgan Chase & Co. released a wonky whitepaper on the topic (title: “Leveraging the Leverage Ratio”).

U.S. Stock Funds See Biggest Outflows Since February
Chris Dieterich – MoneyBeat – WSJ
U.S. stock funds shed the most cash last week since February as geopolitical and central bank jitters hit Wall Street.

Banks & Brokers

ICAP targets data services for growth
John Bakie – The Trade
Interdealer broker ICAP believes significant opportunities exist to grow its business in the market data and benchmarking space.

Santander Consumer Gets Subpoena in Subprime Inquiry
Santander Consumer USA disclosed on Thursday that it had received a Justice Department subpoena related to its subprime auto lending business, the latest company to be touched by a federal investigation into the booming industry.

Clearing & Settlement

Indexes & Products

New ProShares ETFs focus on credit of junk bond issuers
Ashley Lau – Reuters
Investors looking to bet on the credit of issuers in the high-yield bond market can do so now with the launch of two exchange-traded funds, the first of their kind, backed by credit default swaps.

Vanguard’s European ETP push pays off with top 10 debut
Sarah Krouse in New York – Financial News
US-based Vanguard Asset Management is now one of the top 10 managers of money in exchange-traded products in Europe, where it began a targeted effort to grow market share two years ago.

BATS Exchange Welcomes New ProShares ETFs

BlackRock ETP Landscape: Non-US Equity Drives Flows

ETFGI’s Analysis Finds ETFs And ETPs Listed In Japan Reached US$91.5 Billion In Assets, A New Record High, At The End Of July 2014
The ETF/ETP industries in Europe, in Japan and globally have gathered record levels of YTD NNA at US$42.7 Bn, US$14.9 Bn and US$160.5 Bn, respectively. New record highs in assets were reached at the end of July by ETF/ETP industries in Canada with US$66 Bn, Asia Pacific (ex-Japan) with US$103 Bn and Japan with US$91.5 Bn.


Adapt and thrive: How Numerix evolved beyond pricing and analytics to become a leader in risk
Steve O’Hanlon, Numerix –
Steven O’Hanlon, chief executive officer, describes how Numerix has evolved over the past 10 years, and the remarkable changes to the business since the onset of the financial crisis. Numerix has proven that, as well as being a leader in risk management, it has also emerged as an aggressive solution-selling company, with structured products featuring prominently in a time of growth and opportunity

Thomson Reuters Adds Platts Data to DataScope
Max Bowie – WatersTechnology
Thomson Reuters has added commodities market data from McGraw-Hill Financial-owned commodities and energy data provider Platts to its DataScope Select product to provide clients with increased transparency to support valuations, risk management and trading strategies.

Jefferies Joins Markit Collaboration Services Messaging Network
Faye Kilburn – WatersTechnology
Investment bank Jefferies has joined Markit Collaboration Services, the open messaging network initiative developed by data vendor Markit that allows financial professionals to communicate and share information across communication platforms.


Former Calpers board member charged with bribery in corruption case
Robin Respaut – Reuters
A federal grand jury indicted on Thursday a former Calpers board member on charges of bribing a chief executive of the California public pension fund and faking documents to gain million of dollars in investments fees.

Ex-Citadel Worker Pleads Guilty to HFT Data Theft
Andrew Harris – Bloomberg
A former Citadel LLC employee pleaded guilty to stealing data from the Chicago investment firm and high-frequency trading computer code from another company.

Fifth Third to pay $1.5 mln in mortgage loan bias case
Fifth Third Bancorp Inc’s mortgage unit will pay $1.52 million to settle U.S. government charges that it discriminated against some loan applicants by demanding letters from doctors to document income from Social Security disability insurance.

Arab Bank Plc faces Hamas financing trial in U.S.
Bernard Vaughan – Reuters
Arab Bank Plc goes on trial next week in New York over claims that it provided material support to the Palestinian group Hamas, in what one of the plaintiffs’ lawyers said is the first terrorism financing case against a bank to go to trial in the United States.

Discord Among Private Equity Firms Is Their Best Defense in Lawsuit
JEFFREY GOLDFARB – Dealbook – NY Times
Even when it might help them, private equity firms can’t seem to cooperate.

Federal Court Orders Florida Resident Lawrence Scott Spain and His Florida Company, Palm Beach Capital LLC, to Pay More than $520,000 in Restitution for Engaging in Illegal, Off-Exchange Precious Metals Transactions
The U.S. Commodity Futures Trading Commission (CFTC) today announced that on August 4, 2014, Judge Beth Bloom of the U.S. District Court for the Southern District of Florida entered a Consent Order for Permanent Injunction against Florida resident Lawrence Scott Spain and his company, Palm Beach Capital LLC (PBC) (the Defendants), for engaging in illegal, off-exchange precious metals transactions.

Federal Court in Florida Imposes over $35 Million in Sanctions against Florida Company AmeriFirst Management LLC and its Principals, John P. D’Onofrio, George E. Sarafianos, and Scott D. Piccininni, for Fraudulent Precious Metals Scheme
The U.S. Commodity Futures Trading Commission (CFTC) obtained a federal court Supplemental Consent Order requiring Defendants John P. D’Onofrio of Fort Lauderdale, Florida, George E. Sarafianos of Lighthouse Point, Florida, Scott D. Piccininni of Fort Lauderdale, Florida, and their Florida company AmeriFirst Management LLC jointly and severally to pay more than $25 million in restitution and a $10 million civil monetary penalty in connection with operating a fraudulent precious metals scheme (see CFTC Press Release and Complaint 6655-13, July 30, 2013).

CFTC Charges North Carolina Resident Edwin A. Vasquez and His Company Vasquez Global Investments, LLC with Commodity Pool Fraud
The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing of an enforcement action in the U.S. District Court for the Western District of North Carolina on July 30, 2014, charging Defendants Edwin A. Vasquez of Arden, North Carolina, and Vasquez Global Investments, LLC (VGI), a North Carolina company, with misappropriation, solicitation fraud, and issuing false statements in connection with the operation of an unregistered commodity trading pool.

Environmental & Energy

Strong economic case for coal divestment
Al Gore and David Blood, Financial Times
The call for investors to divest from coal assets, one of the most carbon-intensive energy sources, has been primarily based on the harmful social and environmental outcomes linked with carbon emissions.

African negotiators urge U.S. leadership for U.N. climate deal
Valerie Volcovici, Reuters
African climate negotiators attending the U.S.-Africa Leaders Summit in Washington this week said leadership from the United States is critical to finalizing a global deal on measures to address climate change in 2015 after years of deadlock.

Coal assails Obama’s Power Africa pledge
Benjamin Goad, The Hill
President Obama’s pledge to boost funding for his Power Africa initiative appears out of line with the administration’s energy policies, the coal industry charged Wednesday.


Japan’s turnover declined in July
Simon Osborne – The Trade
In July 2014, the daily average trading value for the TSE 1st Section was JPY 1.95 trillion. In June, the daily average trading value for the TSE 1st Section had risen for the second consecutive month to JPY 2.16 trillion.

Vietnam Seeks Rule Changes to Accelerate Bad Debt Sales
Nguyen Dieu Tu Uyen – Bloomberg
Vietnam may change rules to quicken bad-debt sales that have been stalled by a reluctance to accept losses, hampering an economy that risks missing its growth target this year.

BlackRock names Tan-Yuan Kueh head of private bank business Asia ex-Japan
BlackRock Inc appointed Tan-Yuan Kueh as head of private bank business and strategic client development, Asia ex-Japan, effective Aug. 7

Wooing Mrs. Watanabe With the Sheep, Wine — and Yields – of New Zealand – MoneyBeat
Eleanor Warnock – MoneyBeat – WSJ
The latest strategy to woo the proverbial Japanese retail investor, “Mrs. Watanabe,” involves plenty of sheep, wine and stunning film locales — all found in New Zealand. Three Japanese asset management firms have introduced New Zealand-dollar investment trusts since the beginning of the year, and more are in the pipeline.

Japan’s Financial Services Agency Publishes The Status Of Loans Held By All Banks As Of End- March 2014, Based On The Financial Reconstruction Act

Frontier Markets

China in Africa: how Sam Pa became the middleman
Tom Burgis with additional reporting by Demetri Sevastopulo in Hong Kong and Cynthia O’Murchu in London – Financial Times
For a decade, Sam Pa has opened doors for Beijing in Africa. But his story reveals a troubling side to China’s ambitions.

Frontier markets’ bumper rally: Too far, too fast?
Ansuya Harjani – CNBC
Frontier markets are storming higher, extending last year’s stellar performance and outpacing emerging market peers as risk-seeking investors pile in, but their performance has raised questions over whether the exotic asset class is getting ahead of itself.

Gulf markets approach maturity
Chris Wright – Euromoney Magazine
The region’s markets are growing rapidly, and might even hit new highs this year. Meanwhile, a patchy record in growth and some important issuer absences do not seem to trouble international investors.

MCX Weekly Market Report – August 01, 2014 – August 07, 2014

Malawi Stock Exchange Weekly Trading Report – 8th August, 2014


Cargill Earnings Drop 12%, Hurt by Shifting Economic Conditions Abroad
Jacob Bunge – WSJ
Cargill Inc. said fiscal fourth-quarter earnings fell 12%, as shifting economic conditions abroad and struggling energy trading operations weighed on the agricultural conglomerate.

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