John Lothian Newsletter: ICE to Plan Waiving Libor Usage Fee for Small Banks; Bats seeks European expansion with senior hire; 5 Big Banks Fined USD3.3 Billion in Foreign Exchange Scandal

Nov 12, 2014

First Read

Jim Kharouf
There are stories I wonder about – like whatever happened to X? One that has been bugging me is MF Global, which filed for bankruptcy just over three years ago on October 31, 2011. We all know what happened to the firm, but what of any investigation into Jon Corzine and his merry band of misfits?

I recall the Congressional hearings and so-called SEC and CFTC investigations and pleading the fifth amendment. But what’s become of that? Just a thought.


Steve Tucker, S&P Capital IQ – Dynamic Data: How markets use and consume information

“If you think about it…nothing happens in our industry without [data]. There are no fiscal decisions made, there are no financial trades made, there are no mergers and acquisitions.”

Steve Tucker, managing director, global head of enterprise and real-time solutions for S&P Capital IQ, discusses the importance of data and how the digitalization of data has affected today’s financial industry. Tucker gives a humorous opening example of two hamsters his son acquired, and how his son did not realize that he had a male and female hamster. After discovering a new set of baby hamsters in their household, Tucker relates this experience to how important knowing your data is, and then calculates the possible number of combinations of breeding hamsters his family could end up with. Tucker also discusses new and innovative ways firms are tapping into data and what the future of markets and trading holds for new graduates.

Watch the video »

**JK – If you want to know what hamsters have to do with market data, this is the place to see it.


Comex copper steals march over LME in battle for Asia trade
Melanie Burton – Reuters
Asian traders are increasingly choosing CME Group Inc over the London Metal Exchange (LME) for buying and selling copper, as they seek to cut costs and complexity of trade.

**JK – Is it me, or did the headline writer badly want copper and steal in the same header?


IEX Wins 1% Market Share in Quest to Blunt Speed Trading
Sam Mamudi – Bloomberg
IEX Group Inc., the year-old dark-pool operator that plans to become a stock exchange, has seen its share of U.S. equity trading hit 1 percent for the first time.

**JK – T-shirts are being handed out saying “We are the 1%.” Michael Lewis is first to get one.


Evaluating Progress and the Road Ahead at FIA’s 30th Annual Expo
Jessica Titlebaum – The Glass Hammer
Sharon Bowen at FIA. The Futures Industry Association (FIA) held their 30th annual Expo in Chicago last week featuring over 4000 delegates representing 30 countries and showcasing the latest in technology and services with 130 exhibitors.

While attendees and speakers were optimistic about the state of the markets, serious issues impacting the derivatives industry were discussed. Topics included the status of Dodd Frank implementation, concerns about insufficient funding at the regulatory level and the continuous need to manage market risk.

**JK – Notable factoid from CFTC chairman Timothy Massad – “In December 2007, only 16% of outstanding transactions measured by notional value were cleared. In September 2014, that number had grown to 74%.”


Eris eyes H2 2015 European swap future
Luke Jeffs – Futures & Options World
Eris Exchange has become the second US swap futures platform this week to hint at a European launch in 2015, marking the latest statement from a range of firms eyeing this new market.

**JK – “When Eris eyes are smiling, Sure, ’tis like the morn in Spring.”


Donating skills, not money
Graeme Kerr – Financial News
Alex Cunningham did not really know what to expect when a team of bankers came from Morgan Stanley to offer his charity the benefit of their strategic skills, but even he was surprised by quite what a revelatory experience it turned out to be.


Wine Futures Market Creates Investment Opportunities
Shelley Goldberg, Commodity Strategist – Wall Street Daily
I just returned from the Tuscany region of Italy, where I spent some time imbibing and immersing myself in a niche market. Wine is one “commodity” that has consistently appreciated. That’s quite a feat compared to the growing number of depressed commodity prices.

***JM: Nice work if you can get it…


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Lead Stories

ICE Said to Plan Waiving Libor Usage Fee for Small Banks
Jody Shenn and Matthew Leising – Bloomberg
Intercontinental Exchange Inc., which took over administering the London interbank offered rate this year, is planning to excuse the smallest banks from paying new fees it started charging users of the interest-rate benchmark, according to a person with knowledge of the matter.

Bats seeks European expansion with senior hire
Philip Georgiadis and Anna Irrera – Financial News
Bats Chi-X Europe has hired a senior manager from derivatives exchange Eurex as it looks to ramp up its business in key parts of continental Europe.

**JK – And the winner is – Marcello Sicuro, previously a senior vice president at Eurex.

5 Big Banks Fined $3.3 Billion in Foreign Exchange Scandal
Chad Bray and Jenny Anderson – Dealbook – NY Times
British, American and Swiss regulators fined five of the world’s biggest banks a combined $3.3 billion on Wednesday for conspiring to manipulate the foreign currency markets, the latest scandal to hit an industry facing increased scrutiny and mounting legal costs for its past sins.

BOE Dismisses Chief Foreign-Exchange Dealer
Chiara Albanese – WSJ
The Bank of England has dismissed its chief foreign-exchange dealer for breaching internal policies, a spokesperson said, but the central bank said it wasn’t involved in any of the improper activity in the currencies market that has led to a series of fines for banks in the market

U.K. Regulator Won’t Take Action Against Deutsche Bank in Forex Probe
David Enrich and Katie Martin – WSJ
British regulators investigating misconduct in the foreign-exchange markets have informed Deutsche Bank AG that they don’t intend to take any enforcement action against the German bank, according to people familiar with the matter.

JPMorgan says improved systems and controls after FX rigging probe
Wall Street bank JPMorgan , fined $662 million by UK and US regulators for failings in foreign exchange, said on Wednesday that it had made significant improvements to systems and controls.

Bank of England says FX investigation finds no BoE wrong-doing
The Bank of England said an investigation commissioned by its oversight committee had found no evidence that any BoE official had been involved in unlawful or improper behaviour in relation to a foreign exchange trading scandal.

As Currency Settlement Draws Near, Barclays Is Said to Get Cold Feet
Ben Protess – Dealbook – NY Times
On the eve of a multibillion-dollar settlement with six giant banks suspected of manipulating the foreign currency market, regulators in Washington and Britain encountered a last-second complication: One of the banks was dropping out of the deal.

Leverage as High as 50-1 Lures OTC Forex Traders Who Most
David Evans – Bloomberg
It’s a Saturday afternoon in March, and more than 500 people have tuned in for a two-hour webinar that tells them they can become rich trading foreign currencies. “Success in trading is not a fantasy; it’s a formula,” Jared Martinez, founder of Market Traders Institute Inc., the oldest and largest such school in the U.S., tells his audience. “We have that formula.”

***JM: I can make a million jillion dollars working one hour a day, but I’d rather bust my ass full-time to tell you about it instead. A story as old as the hills, and every generation provides a new crop of people to fall for it.


Europe pulls back on research cost revamp
Philip Stafford – Financial Times
The UK markets regulator is set to fail in its attempt to introduce a Europe-wide ban on brokers bundling the cost of research with trading, according to a senior European politician.

CFTC’s Giancarlo Says New Rules Are Dividing Swaps Market
Katy Burne – WSJ
A top U.S. regulator said new rules governing the multitrillion-dollar derivatives markets are sending swaps trading overseas, threatening Wall Street jobs and potentially destabilizing financial markets.

SEC Chairman Discusses Rule Changes on HFT
Ivy Schmerken – Wall Street & Technology
SEC Chair Mary Jo White discussed HFT and the agency’s plans for equity market structure in 2015 in a video interview with Bloomberg Market Makers at the SIFMA annual meeting.

Industry divided as regulators mull NDF clearing
David Wigan – Euromoney Magazine
European proposals for mandatory clearing of non-deliverable forwards (NDFs) published in October seemed to be a decisive step toward a new framework for FX derivatives trading. However, responses to the consultation reveal deep divisions among FX market participants over the way forward.

DTCC Sponsored Aite Study Reveals Increased Regulations And Immature Processes As Top Concerns In The Management Of Client And Legal Entity Data
80 Percent View Derivatives Regulation And FATCA As Greatest Operational Challenges

Exchanges & Trading Facilities

Virtu Financial Joins Eris Exchange as a Liquidity Provider
Eris Exchange (Eris), a US-based futures exchange offering capital-efficient Swap Futures, today announced that leading global electronic market maker, Virtu Financial (Virtu), is streaming liquidity into Eris SwapBook and will be offering two-way voice markets for off-exchange trades for Eris Swap Futures.

October 2014 FIF Market Share Report – Executive Summary

NYSE says short interest down 2.15 pct in late October

Nasdaq says short interest down 0.1 pct in late Oct

Nasdaq Announces End-Of-Month Open Short Interest Positions In Nasdaq Stocks As Of Settlement Date October 31, 2014

Mexican Stock Exchange Releases Monthly Financial Report For October 2014

Direct Edge Reminder: BATS Weekend Test Opportunity For New EDGA And EDGX Exchange Platforms In NY5 On November 15, 2014

Hedge Funds & Managed Futures

Pimco could withstand extra $300-$350 billion outflows over two years: Morningstar
Jennifer Ablan – Reuters
Pacific Investment Management Co can withstand additional outflows of about $300 billion to $350 billion over the next two years before its portfolio management operation is impaired, according to research firm Morningstar Inc on Tuesday.

Five reasons to return to high yield bonds
Anna Fedorova – Investment Week
The high yield bond sector saw its worst third quarter for three years, but the sharp falls are a good entry point for investors, according to Legg Mason affiliate Western Asset.

L&G bucks market consensus with May rate rise forecast
Laura Dew – Investment Week
L&G’s asset allocation team predicts the most likely date for an interest rate rise will be May 2015, despite a clash with next year’s general election.

Schroders ‘actively considers’ reopening Marriage’s long/short fund
Dan Jones – Investment Week
Schroders UK small-cap manager Paul Marriage has said the company is considering reopening his Absolute UK Dynamic fund after assets fell to a more manageable level.

Spain Koplowitz’s Family Office Starts New Hedge Fund
Macarena Munoz – Bloomberg
Omega Gestion de Inversiones SGIIC, the asset manager of billionaire Alicia Koplowitz’s family office, registered a new hedge fund in Spain that will invest in three to 10 hedge funds.

Banks & Brokers

BNP Paribas Could Make a Merger With Monte dei Paschi Work
Neil Unmack – Dealbook – NY Times
BNP Paribas should be thinking seriously about Monte dei Paschi di Siena. After this year’s $8.9 billion fine from American regulators, BNP’s shareholders probably feel they’ve had enough excitement. But looking past the risks, there would be logic to swooping on the Italian lender.

Goldman Partners Profit From No-Fee Private-Equity Funds
Michael J. Moore – Bloomberg
Of all the perks bestowed on those selected as Goldman Sachs Group Inc. (GS) partners this week, the most uncommon may be access to a private fund named for a street that stretches two blocks at the southern tip of Manhattan.

Why shareholders should share the bank pain over fines
Patrick Jenkins – Financial Times
Another day, another multibillion-dollar clutch of fines to punish banks’ past wrongdoing. This time the $3.4bn bill levied on five global banks relates to foreign exchange trading abuses – and there will be more. Extra money will be extracted from other banks by additional regulators.

Clearing & Settlement

Clearing houses feel the regulatory pressure
Jon Watkins – The Trade
The world’s largest central counterparties are wading through a tough period of regulatory uncertainty, with capital requirements, default fund contributions and Basel III topping their list of concerns.

Clearing rules shifted to facilitate Traiana OTC utility
John Bakie – The Trade
Clearing regulations across multiple jurisdictions had to be changed in order to finally achieve an industry solution to clearing OTC equity trades, Traiana has revealed.

NZX Consults On Proposal To Shorten Settlement Cycle To T+2
NZX is proposing to move to a shortened trading settlement cycle from the current trade date plus three business days settlement (T+3) to a trade date plus two business days settlement (T+2) for cash market trades on its markets.

Clearstream: Liquidity Alliance Implements Next Generation Of Customer Connectivity
The Liquidity Alliance, the global association of market infrastructures delivering collateral management services to their markets through a common platform, has announced the implementation of a new customer connectivity solution. The new interface was developed on the basis of experience and feedback received from clients using the underlying collateral management solution since its introduction in 2011.

Traiana Expands TR Connect Regulatory Offering

Indexes & Products

First China onshore bond ETF launches in the United States
U.S. investors can now gain direct access to China’s onshore bond market through a new exchange-traded fund that invests in a broad swath of the country’s swelling fixed-income market, which has largely been closed off to foreigners.

ISE ETF Ventures Launches the ISE Cyber Security Index (HXR)
ISE ETF Ventures announced today the launch of the ISE Cyber SecurityTM Index (ticker: HXR), an index that allows investors to quickly take advantage of both event-driven news and long term economic trends in the cyber security and information technology space.

Gold Swings as SPDR Assets Post Longest Losing Streak in a Year
Glenys Sim – Bloomberg
Gold swung between gains and losses as investors weighed whether U.S. interest rates will rise and after assets in the largest exchange-traded product backed by the metal posted the longest slump in a year.

As Fixed-income ETFs Fall, Will VXTYN Futures Have Huge Upswings?
Matt Moran –
In a 2012 op-ed piece in the Wall Street Journal, Professor Burton Malkiel wrote – “Bonds are the worst asset class for investors. Usually thought of as the safest of investments, they are anything but safe today … the 10-year U.S. Treasury note is a sure loser.”


How Big Data Analytics Helps Financial Institutions Navigate Today’s Regulatory Maze
Drew Rockwell – Wall Street & Technology
As firms work to meet new regulatory reporting requirements and keep pace with constant change, it all comes down to harnessing data.

Perseus Builds PoP in Interxion’s Dublin Datacenter
Faye Kilburn – WatersTechnology
Fiber and microwave network provider Perseus Telecom is creating a point of presence in European cloud services and datacenter provider Interxion’s facility in Dublin to provide customers in Ireland with connectivity to its managed global network.

‘social’ trading firm 8 securities gets funding for mobile wealth platform
Hong Kong-based trading firm 8 Securities, which captures data from social media sources and allows participants to crowd-source trading ideas from other analysts on the platform, has raised $8.7 million in Series B financing to accelerate its mobile offering.

Eze Software Group Releases New Version of its Execution Management System
Eze Software Group, a premier provider of global investment technology, today announced a new release of RealTick EMS, its award-winning multi-broker, cross-asset electronic execution platform. Version 11.3 provides enhanced execution management workflow and new trade performance capabilities, enriching the overall trading experience.

Abacus Group Employs Varonis Software To Advance The Management, Analysis And Compliance Of Its Customers’ Unstructured Data
Abacus Group LLC, a leading provider of hosted IT solutions for hedge funds and private equity funds, today announced a relationship with Varonis Systems, Inc. (NASDAQ: VRNS), the leading provider of software solutions for unstructured, human-generated enterprise data, to provide a comprehensive platform to monitor, manage and capture unstructured data in the Abacus private cloud.

Moscow exchange preps datacenter move
The Moscow Exchange has announced plans to migrate its core technology operations and co-location hosting to a new datacenter run by Moscow-based provider DataSpace over the next 18 months.

Taiwanese Securities Firm Joins Calastone Network
Marina Daras – WatersTechnology
Yuanta Securities, the largest securities firm in market share in Taiwan, went live on the Calastone network.


Ulster Bank Slapped With Record Irish Fine Over Failure
Joe Brennan – Bloomberg
Royal Bank of Scotland Group Plc’s Irish unit was fined 3.5 million euros ($4.4 million) by local regulators for an information-technology failure in 2012 that left thousands of customers unable to access their accounts.

Wave of Derivatives Risk & Fraud Scuppers Shipping Company
Dr. John Bates – Wall Street & Technology
Ships’ fuel company OW Bunker has been scuppered by a rogue wave of derivatives trades and fraudulent pirates.

CFTC Orders Five Banks to Pay over $1.4 Billion in Penalties for Attempted Manipulation of Foreign Exchange Benchmark Rates

FCA fines five banks GBP1.1 billion for FX failings and announces industry-wide remediation programme

Environmental & Energy

U.S. and Chinese leaders make major breakthrough on climate change
Christi Parsons, Julie Makinen, Neela Banerjee, Los Angeles Times
Reflecting the urgency and scale scientists have called for to cope with climate change, the U.S. and Chinese presidents laid out ambitious new targets Wednesday to cut pollution in a deal that negotiators hope will inspire similarly dramatic commitments from other countries.

White House: China needs to come to table in ‘serious way’ on climate
Laura Barron-Lopez, The Hill
President Obama will talk with Chinese President Xi Jinping about climate change and the ongoing negotiations to forge a global treaty during his visit to China this week, according to White House officials.

McConnell: US-China deal ‘unrealistic’
Timothy Cama, The Hill
Senate Minority Leader Mitch McConnell (R-Ky.) wasted little time Tuesday night in blasting President Obama’s climate agreement with China as another costly, unpopular environmental move.


Asia Macro Hedge Funds Beat Bridgewater, Tudor in October
Bei Hu – Bloomberg
Asia-focused managers of macro hedge funds beat U.S. veterans such as Paul Tudor Jones and Ray Dalio in October, the worst month for the strategy in more than a year.

Hong Kong scraps renminbi-conversion caps – fastFT: Market-moving news and views, 24 hours a day
Financial Times
Hong Kong residents will soon be allowed to buy and sell as much renminbi as they want after the city ditched long-standing currency conversion limits.

Hong Kong Plans to Finish Foreign-Exchange Probe by Year-End
Fion Li – Bloomberg
The Hong Kong Monetary Authority said it plans to complete an investigation into the local foreign-exchange operations of banks by the year-end. It’s the first time the city’s de facto central bank has given a timeline on the probe, which has “reached an advanced stage,” according to an e-mailed statement today.

Capital-Gains Tax Is a Puzzle as Shanghai Market Opens
Gregor Stuart Hunter – WSJ
Days before a much-heralded trading link opens Shanghai’s stock market to overseas investors, traders in Hong Kong say they are in the dark about a more prosaic concern—paying taxes in China.

China’s anti-corruption push may drive wealthy overseas
Henny Sender – Financial Times
One of the more memorable articles in the Hong Kong press of late featured a diagram comparing the height of a stack Rmb100 bills worth Rmb200m with the height of a well-known skyscraper in Causeway Bay. It was meant to demonstrate the amount of currency reportedly found in one of the homes of Wei Pengyuan – a deputy director of the National Development and Reform Commission’s coal department.

[TSE] ETF/ETN Monthly Report for Oct 2014

Shenzhen Stock Exchange Market Bulletin 10 November, 2014 – Issue 35

Frontier Markets

Iraqi Bourse Deploys Nasdaq Tech
James Rundle – WatersTechnology
The Iraq Stock Exchange (ISX) has successfully gone live with Nasdaq’s X-stream technology, the Baghdad-based bourse announced today.

Dubai International Financial Centre Celebrates 10 Years Of Operations

Dubai Mercantile Exchange: Oman Crude Oil Futures Contract (DME Oman) Trades Below $80/b

Thomson Reuters & The Union Of Arab Securities Authorities To Host The First Arab Capital Markets Conference In Dubai

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