John Lothian Newsletter: ICE Launches Electronic Trading Network for Credit-Default Swaps; CME and ICE warn on plan to force open European clearing houses; France, Germany urge ring-fencing, not ban of prop trading

Jan 28, 2014

First Read

A Suspect Emerges in Stock-Trade Hiccups: Regulation NMS
The Chicago Stock Exchange long ago ceased to be a major market hub. Its wood-paneled trading floor was boxed up and moved to the Art Institute of Chicago in 1977. Now all-electronic, it accounts for just 0.5% of shares that change hands nationally. Yet each of the millions of buy and sell orders issued around the world for U.S.-listed stocks each day must scan the Chicago Stock Exchange’s computers before it can be completed.

***** At the STAC (Securities Traders Association of Chicago) Mid-Winter Conference last week, someone asked in a private conversation, “How much trading occurs just to capture the fees from the different venues?” This was a great question. Not all liquidity and price discovery even is the same. There is too much centered around just collecting fees, and not enough in taking risk in the markets. Reg NMS killed the trading floors, but has spawned too much complexity. It is time to take a good long look at it.


We must do better: CFTC’s O’Malia
Dan Collins – Futures Magazine
Scott O’Malia, commissioner with the Commodity Futures Trading Commission (CFTC), told market participants the agency must do a better job in protecting end users from overly burdensome rules at the Commodity Markets Council’s State of the Industry 2014 Conference in Miami on Monday.

***** In retrospect, maybe I should have attended CMC Miami conference this year. Stirring speeches and warm weather sound good. It is -11 F this morning in Elmhurst.


CME Group Announces Equity Index Options Record Volume
CME Group, the world’s leading and most diverse derivatives marketplace, today announced a record volume trading day in the Equity Index options complex, which reached 1,061,279 contracts on January 24, 2014, surpassing the previous record of 931,164 on June 20, 2013, a 13 percent increase. This is the first time in CME Group’s trading history that the entire Equity Index options complex has surpassed one million contracts in a single trading day.

***** Nicely timed index options record to go with my commentary published Friday about the CME and CBOE.


S&P 500 Weeklys Options Establish Consecutive Daily Volume Records At CBOE: Today’s estimated SPXW volume totals nearly 750,000 contracts
Chicago Board Options Exchange, Incorporated reported that trading volume in S&P 500 Index Weeklys options today totaled an estimated 747,616 contracts, an all-time daily volume record. Today’s record surpassed — by 75 percent — the previous daily record of 426,955 SPX Weeklys contracts traded yesterday. Prior to this week, the single-day volume record had been 425,270 contracts from May 31, 2013.

***** Innovative needs customers to need that innovation, and here is a good example of the CBOE’s good works.


ISE Gemini Surpasses 750,000 Contracts in a Trading Day
ISE Gemini today announced that it surpassed 750,000 contracts for the first time (actual: 852,184 contracts) in a single day. Through January 2014, ISE Gemini has an average daily volume of 565,730 and an overall equity options market share of 3.5 percent, excluding dividend trades.

***** On the road to 1 million.


Can clearing be decentralised?
Izabella Kaminska | FT Alphaville
Regulators have long extolled the virtues of central clearing, championing it as a favourite solution for managing risk within the financial system. Others, however, have been less enthusiastic about their potential. Concerns in that case have focused on the propensity of CCPs to concentrate wrong-way risk and to create a single-point of failure problem. Regulators, however, seemed reluctant to listen.

****** I am not sure what this means? How can you concentrate wrong way risk in a CCP? Don’t you have 2 parties submitting the trade to the clearinghouse. Oh, and the writer seems to have drank the Bitcoin Kool-Aid and applied it to clearing.


The Retail Options Renaissance
Andy Nybo – TabbFORUM
The US retail options industry has never been healthier. Brokers are seeing strong revenue growth and retail participation continues to expand along with growing demand from investors who are getting smarter about how they use options.

***** Not so much true in the futures space, excepting those retail securities firms which also offer futures.


Michelle Smith, working behind the scenes to shape the Fed’s public image
Zachary A. Goldfarb – The Washington Post
Before she helped Ben S. Bernanke transform the Federal Reserve, before she was a top aide to Alan Greenspan, before she was a confidante to Timothy Geithner and a senior adviser to Lawrence Summers, Michelle Smith made a mistake that could have ended her career. She told a group of reporters not to get lunch.

***** Michelle is someone you should know about.


Four Trends Impacting the Capital Markets in 2014
Object Trading
The coming year will be one of adapting to the unrelenting increase in market complexity and weathering a cycle of creative destruction to achieve trading efficiency and lower risk, according to Object Trading, an independent provider of global direct market access (DMA). Based on insights collected from trading venues and its global buy-side and sell-side client community in reaction to regulatory and competitive forces, the firm predicts that the below points will shape the global capital markets landscape in the coming year.

***** Bell bottom pants are not one of the four trends.


Open for Business: Competition Heating Up in the New Market Structure
Swap execution facilities (SEFs) were given life by the Dodd-Frank Act, which requires over-the counter (OTC) swaps to be cleared and traded on this new type of regulated platform. The CFTC published its final SEF rules in mid-2013 and trading commenced on 18 registered SEFs. John Lothian News interviewed a dozen of the leading SEF operators, regulators and other participants and put together a three part series on SEF regulation, the changing market structure and the new technology required to make it all happen. Part II looks at the changes to the overall market structure brought about by new regulation. Though the swap execution facility is a new entity as defined by Dodd-Frank, an ecosystem of platforms and processes for the trading OTC derivatives has been in place for decades. The introduction of new requirements for quoting, clearing and data transmission significantly altered the competitive landscape among inter-dealer brokerage firms (IDBs) and dealer-to-client platforms.

Watch the video »



MarketsWiki Page of the Day
Kevin J. Hall

MarketsWiki Recent Updates


Kevin J. Hall; Atsushi Yoshikawa; Koji Nagai

Companies, Organizations and Groups

Newedge; Tokyo Stock Exchange, Inc.; Nomura Group; European Commodity Clearing AG (ECC); European Energy Exchange AG


U.S. Treasuries; ISDAFIX; Bailout; Shareholder; Capital markets


46,779,658 pages viewed, 7,779 articles, 177,313 edits
MarketsWiki Statistics

Lead Stories

ICE Launches Electronic Trading Network for Credit-Default Swaps
Katy Burne –
IntercontinentalExchange Group Inc. has launched an electronic trading network for credit-default swaps, seeking to boost a market that has shrunk by nearly half since the financial crisis and is facing new rules that will shift more trading to digital venues.

CME and ICE warn on plan to force open European clearing houses
Gregory Meyer in Miami and Philip Stafford in London –
The heads of the world’s two largest exchange operators by market value have warned against proposals to force open Europe’s clearing houses, arguing policy makers could undermine the stability of global markets.

France, Germany urge ring-fencing, not ban of prop trading
France and Germany said on Monday banks should ring-fence speculative activities from other business lines rather than be banned from them outright, setting out their position ahead of European Commission proposals aim at limiting risk.

Nasdaq cancels trades in erroneous transactions
Nasdaq MarketWatch said on Monday it was cancelling some trades in 11 securities that occurred within the first minute of trading on Monday. The canceled trades had price movements of 10 percent or more from the previous session’s close.

Swaps body to reform benchmark to make rigging less likely
A benchmark used in the $630 trillion market for swaps will be based on actual market transactions rather than quotes from banks this year in an effort to make it less vulnerable to rigging and to comply with new global transparency rules.

Bundesbank proposes wealth tax for EU states facing bankruptcy
Jeevan Vasagar in Berlin and Peter Spiegel in Brussels –
Eurozone governments facing the threat of bankruptcy should impose a one-off wealth tax on their citizens before seeking help from others, Germany’s Bundesbank proposed on Monday.

Bair, Critic of the Revolving Door, Joins Board of Santander
Sheila C. Bair, a former head of the Federal Deposit Insurance Corporation who once argued that former regulators should be barred from joining the banks they oversaw, is joining the board of Banco Santander, the Spanish bank said on Monday.

Australian regulator reprimands BNP Paribas over rate fixing
French bank BNP Paribas SA (BNPP.PA) has been censured by Australian regulators after revealing its traders tried to influence the setting of the country’s benchmark inter-bank interest rate, the latest in a string of scandals over global rates setting.

Portugal on course for ‘clean’ bailout exit
Peter Wise –
Portugal is jostling to be next in line to perform the periphery escape trick. The fact that Portugal can even consider emerging from its own E78bn international bailout without the safety net of an EU credit line is testimony to how debt market sentiment has changed in favour of the eurozone’s crisis-hit periphery.

Bitcoin Figure Is Accused of Conspiring to Launder Money
One of the most prominent players in the Bitcoin universe, Charles Shrem, was arrested by federal authorities on Sunday and accused of helping smooth the way for drug transactions on the now-defunct online bazaar Silk Road.

Bitcoin Crime Risk Sparks Warning at Top Nordic Forex Bank
Niklas Magnusson – Bloomberg
SEB AB (SEBA), the largest Nordic foreign currency trader, is rejecting requests from clients seeking to set up accounts to manage Bitcoin amid concern the software could be used to aid crime.


Tighter regulation of money market funds needed: SEC member
Money market funds still remain vulnerable to runs by investors, and should be subject to further regulation to reduce such risks, one of the newest members of the U.S. Securities and Exchange Commission said Monday.

SEC Official Takes Aim At FSOC
MoneyBeat – WSJ
Michael Piwowar, a Republican member of the Securities and Exchange Commission, ratcheted up criticism of a financial regulatory council created to help prevent a repeat of the financial crisis, saying the council is encroaching on the turf of independent regulators like the SEC.

U.S. securities class-action suits rise, big Supreme Court case looms
Investors are pursuing more lawsuits accusing companies of fraud, according to a new study, but filings may plunge if the U.S. Supreme Court decides soon to remake the legal landscape.

Banned from ethics conference for caring about ethics
Francine McKenna | Al Jazeera America
A few months ago I was invited, then abruptly disinvited, to speak at a gathering of ethics and compliance professionals. To my chagrin, even those who recommend legal and ethical best practices to others will bend for the big bucks.

Financial markets’ law of unintended consequences…
William Wright – Financial News
There are a handful of laws in the financial markets that never change. The customer always pays, even when it’s free. The market is always right, except when you disagree with it. And every time regulators introduce a new reform it is followed by negative unintended consequences.

Many firms will not meet Emir reporting deadline, says Isda’s Pickel
Tom Osborn –
Many market participants will not be able to comply with new European derivatives reporting requirements when they take effect next month, and will have to rely on regulatory forbearance, according to Bob Pickel, chief executive of the International Swaps and Derivatives Association, who was speaking at a legal conference today in the Netherlands.

Transatlantic tug-of-war puts European hedge funds in “impossible position”
Kris Devasabai –
Hedge funds are calling for a change to cross-border derivatives rules before European clearing requirements come into force – arguing overseas funds of European managers will be caught in a regulatory tug-of-war. Some of these funds also fall within the scope of the US clearing regime, but are not covered by the transatlantic framework designed to resolve such conflicts, lawyers say.

The SEC in 2014 – Chair Mary Jo White – 41st Annual Securities Regulation Institute, Coronado, Calif.

Keynote Address By CFTC Commissioner Scott D. O’Malia, State Of The Industry 2014 Conference, Commodity Markets Council – We Can Do Better: It’s Time To Review Our Rules A nd Make Necessary Changes

A Renewed Perspective On SEC Priorities – Commissioner Daniel M. Gallagher – Forum For Corporate Directors, Orange County, California

ISDA Announces Key Steps In ISDAFIX Transition – The Association Outlines Move To Automated Rate-Setting Process

Exchanges & Trading Facilities

HKEx To Introduce Four New Stock Option Classes On 17 February
Hong Kong Exchanges and Clearing Limited (HKEx) will introduce four new stock option classes on Monday, 17 February this year: Kunlun Energy Co. Ltd., Want Want China Holdings Ltd., Dongfeng Motor Group Co. Ltd. and Hengan International Group Ltd.

Leiv Askvig Resigns As Chairman Of Oslo Børs VPS
Leiv Askvig has, on his own initiative, resigned from his positions as chairman of the boards of directors of Oslo Børs VPS Holding ASA and Oslo Børs ASA. The reason for this is that in the late afternoon of 27 November 2013 the company Sundt AS exceeded the 20% limit for a notifiable change of shareholding in respect of EAM Solar ASA, but notification of this was not sent to Oslo Børs until 11:56 on 28 November 2013. Leiv Askvig is the Managing Director of Sundt AS.

MGEX Reports Top 20 Open Interest Day
Total open interest for Hard Red Spring Wheat (HRSW) and Apple Juice Concentrate(AJC) futures and options was reported at 77,010 open contracts, coming in at number20 on the daily open interest records.

Montréal Exchange Sets New Open Interest Record On BAX
TMX Group Limited today announced that Montréal Exchange (MX) set a new open interest record of 889,471 contracts on the Three-Month Canadian Bankers’ Acceptance Futures (BAX)* on January 24, 2014. The previous record was set on December 4, 2013 with open interest of 866,569 contracts.

NYSE Group Inc. Issues Short Interest Report

NYSE MKT Issues Short Interest Report

NASDAQ Announces Mid-Month Open Short Interest Positions In NASDAQ Stocks As Of Settlement Date January 15, 2014

Euronext Amsterdam Welcomes Rabobank Certificates

Hedge Funds & Managed Futures

Emerging-Market Funds Pile Up Losses
Prabha Natarajan and Nicole Hong – MoneyBeat – WSJ
A tumble in stocks and bonds from Turkey to Mexico has spared few funds that invest in emerging markets. Funds that mainly buy emerging-market stocks are down an average 5.2%, while bond funds are off 1.5%, according to Morningstar Inc.

Distressed Debt Hedge Fund Commits $530 Million to Europe
Marathon Asset Management has gained a reputation for being a rag-and-bone picker, finding opportunities in the aftermath of financial disaster.

Melanion bets on progress of dividend futures as an asset class
Margie Lindsay –
As the first pure-play dividend futures hedge fund, Melanion Capital believes it has an advantage in giving investors a solid return on investment by using this new asset class to generate pure alpha

Remuneration policy occupies hedge fund minds
Luke Clancy –
The summer storm over remuneration in the investment management industry has largely subsided but the resulting compromises between industry and regulators have created waves that will continue to influence the direction of hedge funds considering where to moor up and market their wares.

COLUMN-What would Keynes have done?
John Wasik | Reuters
What many people don’t realize about economist John Maynard Keynes is that he was a professional investor, not just a thinker who addressed big issues.

Assetdyne LLC Develops Complexity Portfolio Theory (CPT) to Measure Intricacy and Resilience of Stock Portfolios
Assetdyne LLC, a privately held company founded in 2013 developed the Complexity Portfolio Theory (CPT) and offers an exclusively sophisticated system which measures the complexity and resilience of stocks and stock portfolios and introduces the concept of complexity to portfolio theory and design.

Greater Automation, Transparency Required in Model Portfolios
Bill McKinney – Wall Street & Technology
The increasing number of programs, complexity and strategies require better automated model communication for sponsors and managers.

Henry R. Kravis Named Chairman of Sponsors for Educational Opportunity
Sponsors for Educational Opportunity (SEO) today announced that business leader and philanthropist Henry Kravis, Co-Chairman and Co-CEO of KKR, has been elected Chairman of the board of directors of SEO, effective January 2014.

Banks & Brokers

Past Sins Haunting Royal Bank of Scotland
Nearly six years after the financial crisis, the sins of the past still weigh heavily on the Royal Bank of Scotland. Bailed out by the British government in 2008, the bank said on Monday that it would set aside nearly 3 billion pounds, or about $4.97 billion, to cover potential litigation claims related to mortgage-backed securities and other products sold before the financial crisis.

RBS: Cutting Back On Forex Fixes that Bank Offers
Royal Bank of Scotland Group PLC is cutting back on the range of currency benchmarks that it offers to clients, according to a memorandum sent to clients and seen by The Wall Street Journal Tuesday.

Sallie Krawcheck warns on money market funds
Sarah Krouse in Fort Lauderdale – Financial News
Former Bank of America executive Sallie Krawcheck warned financial advisers to be careful when advising clients on money market funds, saying she supported new regulation for the products.

Clearing & Settlement

European CCPs overhaul futures margin models
Tom Osborn –
Some clearing houses are pushing up margin requirements to address procyclicality concerns – but no change is planned at CME or Eurex

Itaú AM Taps Omgeo for Automated Post-Trade Processes
Marina Daras – WatersTechnology
Brazil’s largest investment manager, Itaú Asset Management, has implemented Omgeo services for central trade matching and settlement instruction capabilities.

CME Group Clearing: NYMEX Options Expiration Operational Procedures for the Trading Floor and Clearing Members (OB, OH, I, ON) Effective Tuesday, January 28, 2014

Indexes & Products

ISE ETF Ventures Inaugural Year-in-Review
The International Securities Exchange Holdings, Inc. (ISE Holdings) announced the inaugural year-in-review for ISE ETF Ventures, the business unit within ISE Holdings dedicated to bringing new exchange traded products (ETPs) to market through capital commitment, business development, and marketing support.

No.1 platinum ETF sees biggest weekly outflow since launch
The world’s largest platinum-backed exchange-traded fund, Johannesburg-listed NewPlat ETF, recorded its largest weekly outflow since its launch in April last year, data from the fund showed on Monday.

WSE To Introduce WIG50 And WIG250

New db X-Trackers Equity Index ETF Launched On Xetra – ETF Tracks German Mid Caps


OCC Teams With Securities Finance Trust Company To Create An Automated Default Management Platform
OCC and Securities Finance Trust Company (SFTC) announced today they have developed Auction Platform Services (APS) to aid OCC with its default management process.

What’s Next in Disruptive Technology and Innovation in Financial Services – Download from Davos
David Craig – Wall Street & Technology
One topic debated at last week’s World Economic Forum is whether the current model of capital markets, buy- and sell-side, can survive in a world where technology no longer presents the barrier it once did, writes David Craig of Thomson Reuters.

Redline Trading Offers Bridge to Shift OpenMAMA Trading Applications to its Ticker Plant
Ivy Schmerken
Banks that have written trading applications based on the OpenMAMA API, will have a seamless way to access Redline Trading Solutions’ ultra-low latency ticker plant.

NASDAQ OMX: Independent Research Firm Cites NASDAQ OMX’s BWise As A Leader In New Report On GRC Platforms


SEC Charges Legg Mason Affiliate With Defrauding Clients
The Securities and Exchange Commission today announced sanctions against a California-based investment adviser for concealing investor losses that resulted from a coding error and engaging in cross trading that favored some clients over others.

Two Hong Kong firms to pay $11 mln to settle SEC insider trading charges
Two Hong Kong asset management firms have agreed to pay $10.9 million to settle charges by the U.S. Securities and Exchange Commission of insider trading ahead of a bid by China’s CNOOC for Canadian oil company Nexen Inc.

For Switzerland, 106 is a Pretty Good Number
John Letzing – MoneyBeat – WSJ
Swiss banks may loathe it the U.S. Justice Department program designed to put the Alpine country’s financial sector though a deep legal cleanse, but Swiss officials are pleased with the fact that hundreds of lenders are nonetheless participating.

SEC to Drop Suit Against Deloitte Over China Documents
The Securities and Exchange Commission said it would drop a federal lawsuit in which the commission had demanded documents from Deloitte Touche Tohmatsu’s Chinese affiliate to help with its investigation of a U.S.-traded Chinese company.

Environmental & Energy

Citigroup Sees Capital Markets Reviving Renewables
Renewable-energy companies will derive more of their funding from bond markets as banks curb lending to the industry, Citigroup Inc. (C)’s head of environmental finance said.

Renewable Spending to Turn Corner as Bonds Hit Record, BNEF Says
Renewable energy investment is set for a turnaround this year with sales of green bonds rising to a record, according to the head of Bloomberg New Energy Finance.

Green bond issuance to more than double this year: HSBC
Global “green bond” issuance should more than double this year to a record $25 billion as increased information on how the money will be used attracts more investors to the fledgling market, investment bank HSBC said.


Nasdaq OMX in Southeast Asia push
Michelle Price in Hong Kong – Financial News
US exchange operator Nasdaq OMX is expanding in India as part of a broader push into Southeast Asia, a development which reflects the exchange industry’s scramble to capture growth opportunities in Asia Pacific amid increasing competition at home.

‘Mini Defense’ Fails for Hong Kong’s Sun Hung Kai International
Enda Curran and Prudence Ho – MoneyBeat – WSJ
If you pay for a Mini, don’t expect a Rolls-Royce. That was the defense offered on behalf of one of Hong Kong’s best-known local brokerages, Sun Hung Kai International Ltd. , over its role in the 2009 listing of Chinese funeral-services provider Sino-Life Group Ltd.8296.HK -2.88%, according to a court ruling.

China’s ‘invisible man’ quits forex role
Simon Rabinovitch in Shanghai –
The “invisible man” who held one of the world’s most important investment jobs for the past four years in leading the diversification of China’s foreign currency wealth has resigned.

Bourse adopting reform to improve trading
BusinessWorld Online
THE PHILIPPINE Stock Exchange (PSE) will phase-in, starting March, a practice aimed at preventing “herd mentality” among market participants and improving quality of trading, the bourse said in a statement posted on its Web site yesterday.

Availability of RMB instruments lags demand for insurance – Wim Hekstra profile
Aaron Woolner –
While the UK’s politicians have recently flirted with the idea of forcing visitors from certain countries to hand over a “security bond” worth $5,000 to encourage them to leave at the end of their stay, Hong Kong’s authorities have instead been using financial instruments to enable foreigners to gain residency.

Shenzhen Stock Exchange Market Bulletin 27 January, 2014, Issue 4

Frontier Markets

Indonesia the most vulnerable of a fragile five
Jeremy Weltman – Euromoney magazine
A toxic combination of large external financing gaps and US liquidity withdrawal has increased the risks of investing in triple-B rated emerging market (EM) sovereigns. With many countries facing elections this year and stalling on structural reforms, economists taking part in Euromoney’s Country Risk Survey have placed five of the larger EMs under the microscope.

Emerging Markets Offer ‘Greatest Potential to Surprise’
Mia Lamar – MoneyBeat – WSJ
Investors rushing for the exits from emerging markets may want to check their contrarian instincts, according to Deutsche Asset Management.

African Investors Join Race for Africa
Africans are joining the scramble for Africa. Private-equity firms run by African investors are eyeing assets in energy, manufacturing and services across the continent, according to executives running big funds in Africa.

The Largest English Weekly in Ethiopia
The Ethiopian Commodity Exchange (ECX) installed mung beans as the sixth commodity to be traded on its floor on Wednesday, January 22, 2014.

Bombay Stock Exchange (BSE) Launches Trading In Interest Rate Futures (IRF) Contracts On 10 Year Cash Settled Government Securities

Call For Applications: SC-OCIS Scholar In Residence Programme In Islamic Finance At The Oxford Centre Of Islamic Studies

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