First Read

Bits & Pieces
Sarah Rudolph and Douglas Ashburn
In a Bloomberg story from yesterday, some CFTC employees are currently considering joining a union. This comes on the heels of the recent decision by a group of Northwestern football players to explore unionizing. There is a difference. One is a group working their tails off for modest compensation in what has been called a “developmental league,” but with an opportunity to move to a major franchise for large sums of money. The other is the Northwestern football team.

Another item in yesterday’s newsletter was a press release from Euronext announcing the launch of the “world’s first index-based Exchange for Physicals (EFPs).” Our downstairs neighbors at OneChicago suggest an asterisk may be appropriate for that claim. Although Euronext is launching the first EFPs on broad based indexes, OneChicago’s NoDivRisk EFPs are listed (and centrally cleared) for both single stock futures and narrow-based indexes.

And we received a dispatch from Trading Technologies noting that this week, TT CEO Rick Lane, EVP Mike Ryan, MD of Europe Steve Stewart and others opened trading of the London Stock Exchange Group’s London markets. The ceremony commemorated the imminent release of TT’s connection to the London Stock Exchange Group’s Derivatives Markets, including Borsa Italiana’s IDEM and London Stock Exchange Derivatives Market. The new link will make it possible for TT’s global client base to trade the products listed on IDEM and LSEG Derivatives Market through TT’s software, including its flagship X_TRADER platform and the upcoming Nextrader browser-based platform. You can see some pictures and the video of the opening ceremony here: and

This coming Tuesday, May 6, our friends at TABB Group are coming to town for their second annual derivatives conference. The theme is “A market in transition,” a theme that was chosen, I believe, before the recent HFT blowup. Click here for more information:

Speaking of HFT, today’s newsletter begins with the third installment of our market structure series. This one features a video interview with Keith Ross, CEO of PDQ ATS, who offers his views on HFT, dark pools, maker-taker and other issues.

We sent a representative out to see John yesterday (last year after his knee surgery the staff accidentally converged on the hospital en masse, and we may have overwhelmed him). We brought him a bottle of booze to help wean him from the morphine. He is making great progress and plans to move to a rehab facility (not for the booze – for the back) this weekend.

Finally, we are pleased to have a new guest editor of the Newsletter next week: Martin Mosbacher, chairman and managing partner of Intermarket Communications, will be joining us. He has been a fixture in the financial industry for many years, and we look forward to his insights and commentary.


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

In Part 3, Keith Ross, CEO of PDQ ATS offers his thoughts on HFT, Regulation NMS, maker-taker arrangements, and dark pools, and voices his concerns that regulatory oversight may give way to legislative overreach.

Watch the video »


SEC Fires First Shot Since ‘Flash Boys’ With NYSE Oversight Fine
Sam Mamudi – Businessweek
The New York Stock Exchange’s $4.5 million penalty for oversight violations represents the Securities and Exchange Commission’s first salvo since Michael Lewis reignited scrutiny of market structure.


NYSE Fined for Rigging Markets Four Years Ago
Matt Levine – Bloomberg View
One of the most amusing functions of the Securities and Exchange Commission is to keep track of the various stock exchanges’ dumb screw-ups and periodically send them a bill.1 The New York Stock Exchange’s bill came due today. It is $4.5 million, and it is a delight:

****SR: “Four years ago” is the operative phrase. The article suggests that the case is less about market rigging than failure to fill out the proper paperwork and that the SEC is making a point of fining the NYSE now because of all the current focus on co-location and HFT.


CME says speedy traders make up less than 15% of income
Lynne Marek – Crain’s Chicago Business
Futures exchange operator CME Group Inc. today tried to put a damper on the perceived power of high-frequency traders in its markets, saying they made up less than 15 percent of the company’s first-quarter revenue.

****SR: Terry Duffy points out the structural differences between the fragmented equity markets and the futures markets, which are dominated by the CME Group.


What Michael Lewis Missed: 4 Factors More Important Than Latency for Automated Traders
Andrew Lisy, OptionsCity Software – Wall Street & Technology
The praise delivered to Michael Lewis for his prose is much deserved – he is a truly amazing storyteller – but praise for his reporting in “The Flash Boys,” particularly as it relates to his understanding of electronic markets, is perhaps not so deserved. The fact is, for proprietary trading firms, market makers, hedge funds and bank trading desks that are building new automated trading strategies, ultra-low latency is simply no longer the most impactful factor influencing success and failure.


MGEX: April Volume Record Shattered
MGEX, a Designated Contract Market (DCM) and Derivatives Clearing Organization (DCO), reports record-breaking April volume. All futures and options contracts traded totaled 214,038, a 17 percent increase over the previous record set back in 2007 and a 46 percent increase from April 2013. This places April 2014 in the number four spot on the monthly Exchange volume records and is the best volume month in 33 months.


ITG Joins Dark Pool Disclosure Debate With Push for Transparency
Sam Mamudi – Bloomberg
Investment Technology Group (ITG) Inc., operator of one of the oldest U.S. dark pools, is pulling back the curtain on its private venue. The New York-based firm is posting to its website the normally private regulatory filing that explains how its Posit dark pool operates, Chief Executive Officer Bob Gasser said on an earnings call today. ITG will also provide a plain-English guide to how the platform works.

****SR: ITG is following in the footsteps of IEX, the firm Michael Lewis praises in ‘Flash Boys’.


Demise of the Trickle-Down Delusion
Barry Ritholtz – Bloomberg View
Any reader of this site has likely heard about the book currently setting the world of economics aflame. “Capital in the Twenty-First Century” was written by a French economist named Thomas Piketty. It is on the New York Times best-seller list and is currently sold out, with its publisher scrambling to print more copies.

****SR: It may be sold out, but it appears to be available on Amazon to download to your Kindle. (Not that I want to promote anything.) It also appears to be translated very well from the French, in case you were worried.



MarketsWiki Page of the Day

MarketsWiki Recent Updates


Mike Persico; Vladimir Parizhsky

Companies, Organizations and Groups

OneChicago LLC; Euronext; Options Industry Council; JPMorgan Chase & Co.; ICE Endex


48,653,540 pages viewed, 7,944 articles, 182,386 edits
MarketsWiki Statistics

Lead Stories

ICE aims for Q4 launch for new global cotton contract -executive
IntercontinentalExchange expects to launch its new global cotton futures contract in the fourth quarter of this year, later than previously scheduled, a senior executive said on Thursday.

CME plans to launch cocoa futures contract this year
CME Group Inc, the world’s largest futures exchange operator, plans to launch a cocoa futures contract this year, sources said on Thursday.

New York attorney general eyes exchanges in high frequency probe: sources
The New York Attorney General’s office is seeking information from exchanges and alternative trading platforms about their relationships with high frequency trading firms, as part of its probe into allegedly unfair trading practices on Wall Street, according to sources familiar with the situation.

Don’t Let “Flash Boys” Throw the HFT Baby Out with the Bathwater
Dev Tyagi, Supermicro – Wall Street & Technology
The release of ‘Flash Boys’ by Michael Lewis was always going fuel the ‘is HFT a good or bad thing for markets’ debate. But it is important to remember that there are two sides to every story.

“Worst trade of all time” pits Santander against Portuguese client
Tom Osborn –
Dealers settled a crop of disputed derivatives trades with Portuguese state-owned entities last year, with one exception – Santander is set for a court battle with the country’s state-backed rail operator, over a trade that critics describe as “nonsensical”.

FX: No Fun Any More (Cont.)
Katie Martin – MoneyBeat – WSJ
The ban on fun in the miserable foreign exchange industry continues.


CFTC Further Implements Trade Execution Mandate
The Commodity Futures Trading Commission’s (CFTC or Commission) Divisions of Market Oversight (DMO) and Clearing and Risk (DCR) announced today further implementation of the trade execution requirement for certain interest rate and credit default swaps.

Scott O’Malia, it’s your fault
Duncan Wood –
Sorry, that might sound a little rude. I should probably explain. At this year’s Futures Industry Association get-together in Boca Raton in March, Risk had the chance to speak with O’Malia – one of the commissioners at the Commodity Futures Trading Commission (CFTC). The topic of swaps market fragmentation came up.

Wall Street watchdog revamps plan for broker disclosure link
Wall Street’s industry-funded watchdog is asking for public input on a retooled plan designed to make it easier for investors to research the backgrounds of brokerage firms and brokers.

The SEC could find new uses for an old law
FT Alphaville
It is probably too late to change the number of individuals charged in relation to the financial crisis, even if US regulators reconsider their treatment of offending corporations, but there may be a route to more aggressive enforcement by dusting off a little used part of a 1934 statute. Jordan Thomas, a former SEC Enforcement Director and chairman of the whistleblower representation practice at Labaton Sucharow, outlines a way the Commission could go after malign managers in the future.

Remarks To The 2014 IAA Investment Adviser Compliance Conference, Norm Champ, Director, SEC Division Of Investment Management, Washington, D.C., March 7, 2014

Exchanges & Trading Facilities

Brazilian Prosecutors Probing Exchange Over Handling of OGP
Brazil’s public prosecutors confirmed Wednesday that they’re investigating BM&FBovespa, the country’s stock exchange operator, over whether the exchange committed any infractions during the collapse of businessman Eike Batista’s oil company.

BATS Global Markets Reports April Volume and Activity
Direct Edge Merger Integration Process Moving Forward; BATS Chi-X Europe Reports 21.4% Market Share

CBOE Holdings Reports April 2014 Trading Volume
CBOE Holdings, Inc. reported today that April 2014 trading volume for options contracts on Chicago Board Options Exchange and C2 Options Exchange and futures contracts on CBOE Futures Exchange totaled 107.17 million contracts. Average daily volume was 5.10 million contracts, a nine-percent increase from April 2013 and a one-percent decrease from March 2014.

CBOE Futures Exchange Reports April 2014 Trading Volume
The CBOE Futures Exchange, LLC today reported that April 2014 average daily volume and total monthly volume in futures on the CBOE Volatility Index and total exchange-wide at CFE were down slightly from year ago levels.

ISE Holdings Reports Business Activity for March 2014
ISE and ISE Gemini combined represent 16.2% of equity options market share, excluding dividend trades. ISE and ISE Gemini reported a combined ADV of 2.4 million contracts. Trading of multi-legged strategy orders on ISE through Implied Order functionality exceeded 26 million contracts. Dividend trades made up 1.4% of industry volume in March 2014.

The Options Industry Council Announces April Options Volume Down 4 Percent
The Options Industry Council (OIC) announced today that 355,803,000 total options contracts traded in April, which is 4.13 percent less than last April when 371,147,433 contracts were traded.

OneChicago Announces April 2014 Trading Volume
OneChicago, LLC, an equity finance exchange, today announced its April 2014 volume of 556,385 and -2% decrease year-over-year.

BOX Options Exchange Price Improvement Activity For April
In the month of April, price improved contracts on BOX Options Exchange (“BOX”) averaged 300,510 per day, which represented a 38% increase over the same period last year. Price improvement versus the prevailing NBBO for contracts submitted via BOX’s price improvement auction, PIP, averaged $466,285 per day, while total savings to investors this month was $9.8MM. With this, BOX has saved investors over $497 MM since its inception in 2004. Overall average daily trading volume on BOX in the month of April was 453,931 contracts, an increase of 23% over the same period last year.

TOCOM April 2014 Volume Averaged 74,006 Contracts Per Day, Down 16.1% Month-On-Month

Hedge Funds & Managed Futures

Alternative Mutual Funds Draw Concerns from Financial Advisers, Regulators
Alternative mutual funds are growing in popularity, but some financial advisers say they are not yet sold on these complex and evolving products. Investors generally have been smitten with the funds, which may use strategies common to hedge funds or combine several different investment strategies. Many use them to improve their portfolios’ performance or provide returns not correlated to stocks or bonds.

Joe McDevitt: Pimco’s $620bn man in Europe hangs up his boots
Mike Foster – Financial News
Some 16 years ago, Joe McDevitt launched Pimco’s London office over a shoe shop in Mayfair. With the business now reaching $620 billion, he is stepping aside for a younger generation to develop its European operation.

K.K.R. Seeks to Attract Investments as Small as $10,000
Only the wealthiest and most sophisticated investors are allowed to put money into the leveraged buyouts done by Kohlberg Kravis Roberts. But that may be changing.

Ares Management Set to Go Public, Joining Rivals
The biggest private equity firms were widely known to investors by the time they first sold their shares to the public. Now, a relatively unfamiliar but rapidly growing firm is poised to join the ranks of listed companies.

Ares Management slashes IPO size as demand wanes
Ares Management LP could raise only about half of what it had intended from its initial public offering as weak demand led the investment firm to cut the offering size and price units below its anticipated range.

‘Bond King’ Gross suffers twelfth month of Pimco fund outflows
The flight from the Pimco Total Return Fund continued apace in April with investors withdrawing another $3.1 billion, the 12th straight month of outflows from the world’s largest bond fund, run by Bill Gross.

Asset manager Legg Mason’s profit more than doubles on lower costs
Asset manager Legg Mason Inc’s quarterly profit more than doubled as investors poured more money into its funds and expenses fell.

SEC probing hedge funds’ bets on Herbalife
The U.S. Securities and Exchange Commission (SEC) is probing whether a number of hedge funds many have acted improperly when they made bets on nutrition and weight loss company Herbalife Ltd last year, a source said.

Profits surge at Frere Hall Capital Management in 2013
Vivek Ahuja – Financial News
Profits at Frere Hall Capital Management, which was set up by a former Goldman Sachs managing director and was one of Europe’s biggest hedge fund start-ups of 2012, surged by 59% last year as revenues almost doubled.

Pension funds weary of interest rates high-wire act
Cecile Sourbes –
Rising rates would help reduce pension fund deficits, but would also hurt the sector’s hedges. That could be managed by trimming hedge ratios, but funds are scared of acting too soon.

CalPERS Releases Second Report On Progress Towards Sustainable Investments And Operations

Banks & Brokers

A Dinner Among Survivors of the Financial Crisis
Lloyd C. Blankfein, the chief executive of Goldman Sachs, went to dinner recently with Jamie Dimon, the chief executive of JPMorgan Chase, and Peter Sands, the chief executive of the British bank Standard Chartered, according to Mr. Blankfein. The three men and their wives traded stories from the dark days of 2008, when it seemed as if the financial world was crumbling around them.

BGC Partners Reports First Quarter 2014 Financial Results
BGC Partners, Inc., a leading global brokerage company servicing the financial and real estate markets, today reported its financial results for the quarter ended March 31, 2014.

Lazard’s Earnings More Than Double on Jump in M.&A. Activity
The strong burst of deal-making this year has been good to Lazard. The investment bank reported $81 million in first-quarter net income on Thursday, more than doubling what it earned in the period a year earlier as Lazard claimed significant merger advisory assignments.

R.B.S. Profit Triples on Lower Loan Charges and One-Time Gains
The Royal Bank of Scotland said Friday that its first-quarter profit tripled as the lender benefited from a reduction in loan impairments in its Irish business and several one-time gains.

Clearing & Settlement

OCC Announces Total Cleared Contract Volume Increased 6 Percent Year-To-Date
OCC announced today that total cleared contract volume in April reached 360,854,580 contracts, which is 4 percent less than the previous April with one less trading day. OCC’s year-to-date cleared contract volume stood at 1,469,337,112 contracts up 6 percent so far for 2014. Average daily volume for the year was also up 6 percent with 17,918,745 contracts traded.

CME Clearing Europe: Scale will count, says Betsill
Tom Osborn –
The new head of CME’s European clearing business expects competition to be intense as the region heads towards the start of mandatory clearing, but he believes his firm has a winning hand.

Heightened Expectations for Systemically Important Clearing Houses: How OCC is Meeting the Challenge
Craig Donohue at the Options Industry Conference in Austin, TX, gave the following speech on May 1, 2014:

FCM models for CDS portfolio margin “varied widely”
Joe Rennison –
The in-house methodologies banks cooked up to support the portfolio margining of index and single-name credit default swaps (CDSs) – a way of offering savings to buy-side clearing clients – produced very different results when tested by regulators, according to Carlo di Florio, chief risk officer and head of strategy at the Financial Industry Regulatory Authority (Finra).

ICE changes margins for trading cocoa and soybean
ICE Clear U.S. on Thursday lowered initial margin requirements for trading cocoa and raised soybean margins effective at the opening of business on May 5.

CME Group Margins: Performance Bond Requirements – Agriculture, Electricity, Equity Index, Ethanol, and Natural Gas Outrights; Crude Oil and FX Intra-Commodity Spread Charges – Effective Friday, May 2, 2014

Indexes & Products

ETF Flows Bounce Back – Especially EM
The Reformed Broker
Via, some interesting info on ETF flows during the month of April: Investors poured more than $20 billion into U.S.-listed ETFs in April—a third more than in the entire first quarter—pushing total ETF assets to a record high of $1.762 trillion.


ConvergEx Group’s LiquidPoint Completes Integration With Actant Software
ConvergEx Group, a leading provider of global brokerage and trading-related services, today announced that its LiquidPoint options technology business has completed a software integration with Actant, a leading provider of high performance automated derivatives trading solutions.

First Derivatives Launches Delta Tools for Calypso Platform
Marina Daras – WatersTechnology
Software and consulting services provider First Derivatives has launched Delta Tools, a suite of monitoring, testing and application management tools designed for the Calypso cross-asset trading platform.


SEC Charges NYSE, NYSE ARCA, and NYSE MKT for Repeated Failures to Operate in Accordance With Exchange Rules
Press Release

Environmental & Energy

Mexico lays out energy reform rules
Mark Stevenson, AP
The Mexican government on Wednesday unveiled its proposed rules for a historic opening of the state-owned oil and energy industry, saying contracts and production licenses should be put out for public bid and go to the company that offers the best return.

Oil Bill to Give Pemex 20% Ownership of Cross-Border Fields
Nacha Cattan and Adam Williams, Bloomberg
Mexican President Enrique Pena Nieto is proposing legislation that will ensure Petroleos Mexicanos owns at least 20 percent of oil and gas fields that span the country’s borders.

***LB: Also in this story “Mexico will probably offer its first oil drilling contracts to private companies as early as this year or the beginning of next year”

Mexico says reforms will boost wind
Global wind energy Council (GWEC)
The Mexican government said it wants the renewables industry to play a key role in the country’s future as it rolls out far-reaching energy market reform.


Barclays Asia CEO to Retire
Barclays PLC’s top executive in Asia plans to retire from the bank, paving the way for a shake-up of its management team in the region. His is the latest departure of a senior executive from the British lender. Robert Morrice, 51, is a 17-year veteran at Barclays.

China’s sorpasso is a numbers game
For those who fear China’s inexorable rise, economic data published this week bring little comfort. The International Comparison Program hosted by the World Bank has updated gross domestic product in purchasing power parity terms to show that China will this year overtake the US to become the world’s largest economy.

China tried to undermine economic report showing its ascendancy
Jamil Anderlini in Beijing and David Pilling in Hong Kong –
China fought for a year to undermine new data showing it is poised to usurp the US as the world’s biggest economy in 2014 based on purchasing power, according to people who helped compile the report.

Abe steps up his salesmanship on foreign odyssey
Jonathan Soble in Tokyo –
Shinzo Abe’s harshest detractors call him a jingoist and a xenophobe, but if the Japanese prime minister dislikes foreigners you would not know it from his travel schedule.

HKEx: New Articles Of Association Approved

Frontier Markets

Reasons to be wary of African debt expansion
Ralph Atkins –
Young bond markets grow up so fast. With a flurry of issuance expected and few maturing debts, Africa is likely to be one of the biggest expansion stories of 2014.

Malawi Stock Exchange Weekly Trading Report- 02nd May, 2014

DME Welcomes Philip Futures As Clearing Member

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