John Lothian Newsletter: ICE plans single-name CDS platform; Blythe Masters Tells Banks the Blockchain Changes Everything; U.S. Currency Probe Expands to Russia, Brazil Trades

Sep 1, 2015

First Read

Why the commodities super cycle was a myth
FT View
Falling prices show the world is not running out of resources
In 1980, the economist Julian Simon challenged doom-mongering biologist Paul Ehrlich to a bet that the prices of any five metals would be lower in 10 years’ time. He won, and made his point: over the long run, technological progress means commodity prices are likely to fall in real terms.

***** Over the long run, higher prices will cause over production and thus lower prices. And years of low prices will cause under production and thus higher prices in the long run. I guess it just depends on how long you want to run.


Tech Firm Serving Hedge Funds Shows Perils in Money-Losing IPOs
Neil Weinberg, Bloomberg
Brian Ferdinand, a young financier who once managed 400 day traders from lower Manhattan, saw opportunity in the thousands of small hedge funds eager to make it big. Offer them a trading platform and free software, he thought, and then charge them for each trade. He founded a company, eventually pulling in former executives from UBS, Nymex and Goldman Sachs, to cash in on this combination of Wall Street and cloud computing.

***** Fascinating story from Bloomberg. Former NYMEX Chair Richard Schaefer was the one time chairman of the company.


A Disruptive Environment: Sidley Austin’s Lisa Dunsky Offers Practical Compliance Tips for Firms and Traders

New rules and guidelines and a couple recent high profile criminal cases on disruptive trade practices have made compliance and supervision a high priority at trading firms and clearing firms. Lisa Dunsky, derivatives attorney and former counsel at CME Group, shares her insights on what firms and traders need to consider.


On the Farm: Startups Put Data in Farmers’ Hands; Farmobile, Granular and others are developing tools that enable crop producers to compile, analyze their own information
Farmers and entrepreneurs are starting to compete with agribusiness giants over the newest commodity being harvested on U.S. farms—one measured in bytes, not bushels.

***** You remember Dow Jones reporter Jacob Bunge, he is the skinny reporter who used to get all those great market structure stories when he was on that beat.


China Follows IMF’s Market-Opening Prescriptions Through Turmoil
Bloomberg Business
A series of technical policy changes overshadowed last month by a plunging stock market and the biggest yuan devaluation in two decades suggests China’s leaders are pressing on with reforms to open up the economy in the push to win reserve-currency status. The steps are part of an IMF prescription, including a 40-item list for capital-account opening, as the fund reviews whether to add the yuan to its Special Drawing Rights basket along with the dollar, euro, yen and pound.

***DA: Amid the bad news coming out of China, here is a bright spot. The nation still looks committed to openness, but, like any path through the wilderness, it is not a straight line.


MarketsWiki Education London 2015

Lead Stories

ICE plans single-name CDS platform
Recent efforts to revive the once robust market for single-name credit default swaps are set to be augmented by the launch of a buyside-centric anonymous trading platform by the Intercontinental Exchange – possibly in the next few months, according to traders. The exchange has floated plans to buyside and sellside traders behind the scenes for a platform that would cater to an industry desire for a revival of the single-name market as an answer to the lack of liquidity in the cash bond market.

***DA: Hey, why not? ICE already has a single-name cash equity business that does OK.

Blythe Masters Tells Banks the Blockchain Changes Everything; The banker who helped give the world credit-default swaps wants to upend finance again—this time with the code that powers bitcoin.
by Edward Robinson, Matthew Leising, Bloomberg
The penthouse meeting room in Le Parker Meridien hotel in midtown Manhattan is humming with chatter on this June afternoon. About a hundred money managers are networking at the end of the day at a Sandler O’Neill & Partners investor conference as the green rectangle of Central Park stretches into the distance 42 floors below. With neckties loosened and icy drinks in hand, the attendees largely ignore the founder of a fintech startup who’s presenting a PowerPoint about his investing smartphone app. But when the next guest takes the floor, the room falls silent.

U.S. Currency Probe Expands to Russia, Brazil Trades
Tom Schoenberg, Silla Brush, Bloomberg
U.S. prosecutors have expanded their probe of currency-market manipulation by some of the world’s largest banks to include the Russian ruble and Brazilian real, according to two people familiar with the matter.

At 2 p.m. in China, the Stock Market Rescue Suddenly Switches On
Kyoungwha Kim, Bloomberg
Afternoons in the Chinese stock market have turned into a waiting game for the state-backed funds to arrive.

***DA: How do you say “plunge protection team” in Mandarin?

China Announces Legal Actions for ‘Securities Violations’; High-profile targets in government, brokerages and media named
Chinese authorities are cracking down on what they are labeling securities violations in the wake of the country’s failed stock market rescue effort, announcing legal actions against high-profile targets in the government, brokerages and media.

Nasdaq to Sell Surveillance Technology to China
Nasdaq OMX Group will supply market-surveillance technology to a Chinese securities exchange and a number of mainland financial firms, at a time when Beijing is stepping up scrutiny of its financial industry for potential market manipulation. The exchange operator, which generates a quarter of its sales through selling market technology to other exchanges and financial firms, says it will launch its SMARTS Trade Surveillance system for domestic Chinese brokerages early next year.

Man Group’s China chief in talks with authorities: report
By Karen Friar, MarketWatch
Shares in Man Group PLC fell 6.2% early Tuesday after a report that the head of the hedge fund’s Chinese unit has been detained by police to help with an investigation into market volatility. Chinese authorities have taken Li Yifei, chairwoman of the Man Group unit, into custody, Bloomberg reported late Monday, citing a person familiar with the matter. But Li’s husband, Wang Chaoyong, denied she was in detention, saying she was in a confidential meeting with Chinese officials also attended by other foreign financial institutions, the Financial Times reported.

Man Group’s China Chief Said to Assist Police in Probe
Bloomberg News
Chinese authorities took Li Yifei, chairwoman of hedge fund Man Group Plc’s China unit, into custody to assist with a police probe into market volatility, according to a person familiar with the matter.

High-frequency traders: bond market scourge or saviour?
Joe Rennison in New York, FT
Depending on who you speak to, high-frequency traders are either the scourge of the US Treasury market, contributing to volatile price movements, or its saviour as banks make a broad retreat.

China turns up heat on market participants
Patti Waldmeir in Shanghai, FT
The whereabouts of one of China’s leading hedge fund managers remained unclear on Tuesday as Beijing intensified its clampdown on stock market impropriety and rumour-mongering.

The Mirage of Fannie Mae-White House Truce Talks; Speculation that a pro-investor settlement looms in the Fannie Mae and Freddie Mac cases has driven shares sharply higher, but this is wishful thinking
Rallies based on rumors all too often end in tears. That is almost certain to be the outcome of a rapid rise in shares of Fannie Mae and Freddie Mac, which have gained 15% since last Wednesday. This has followed reports speculating that the Obama administration could be close to settling a number of lawsuits filed by investors in the two mortgage giants.

Vol uncertainty reigns as illiquidity takes hold
The VIX has become a market convention in recent years as Wall Street’s so-called “fear gauge”. But after a tumultuous week of whipsawing equity markets, traders are grappling with increasing uncertainty about what the fear gauge itself is going to do.


Summer Reading
ISDA media.comment
We always like to pack a few good yarns to enjoy while on vacation in August…and this one is at the top of the list. It’s a tale of vanishing trades, shadow banking and international intrigue.
Kind of like The Da Vinci Code meets Wall Street.
Except…the trades in question did not vanish (the article admits as much, despite the scary lead) and nothing was done in the shadows.

S.E.C.’s In-House Judges Not Too Tough, a Review Shows
The Dodd-Frank Act allowed the Securities and Exchange Commission to bring almost any claim that it can file in a federal court before its own administrative law judges. The agency has since taken up this power against a panoply of inside traders and others accused of securities fraud.

HFT risks go down as US lawsuits dismissed – Dechert
Automated Trader
With dismissal of another set of major high frequency trading suits, litigation risk from providing fast data and other services to high frequency traders fades, write Dechert’s Kathleen Massey, partner, and Jeffrey Benner, associate.

U.S. fund managers want less market intervention from Chinese regulators
U.S. fund managers want less involvement from officials in China in the country’s volatile stock markets, even if it means their portfolios take hits in the short run.

Exchanges & Trading Facilities

World Federation Of Exchanges (WFE) Chairman Juan Carlos Pablo Cordoba And WFE CEO Nandini Sukumar Pay A Visit To Borsa Istanbul
World Federation of Exchanges (WFE) Chairman Juan Carlos Pablo Cordoba and WFE CEO Nandini Sukumar paid a visit to Borsa Istanbul. On this occasion, an opening-bell ceremony was organized with the participation of Borsa Istanbul Board members and Borsa Istanbul CEO Tuncay Dinç. Following the ceremony, the delegation had a tour in the Trading Floor.

FIA Releases SEF Tracker Report for June
This issue shows average daily volume from January 2014 to June 2015 for interest rate, credit default and foreign exchange products. This issue also includes a spreadsheet containing total notional volume on a weekly basis going back to January 2014.

Euronext expands global reach to Israel
Euronext on September 1 announced that it has received approval from the Israeli Securities Authority (ISA) to allow Israeli based qualified trading firms to have direct access to Euronext’s cash and derivatives markets. The agreement will allow Israeli based firms to trade cash and derivatives on the regulated markets operated by Euronext. In addition, Euronext will now be able to promote its products locally with such qualified firms, according to Euronext.

Bloomberg Launches Electronic Trading Platform In Japan
Bloomberg Tradebook Japan Limited today announced the launch of its Electronic Trading Platform (ETP) in Japan, in support of the September 1 mandate for banks and securities firms to use electronic platforms for specified over-the-counter (OTC) derivative transactions.

CBOE, C2 and CFE Trading Schedule For the Labor Day Holiday
CBOE Holdings, Inc. (NASDAQ: CBOE) today announced the following trading schedule for Chicago Board Options Exchange® (CBOE®), C2 Options Exchange (C2) and CBOE Futures Exchange (CFE®) in observance of the Labor Day holiday:

The equity trading on the Spanish Stock Exchange in August came in at EUR 62 billion, up 40.4% higher than in the same month a year earlier. The trading volume in the first eight months of the year was EUR 681.6 billion, up 23.6% year on year.

Equity options: Change of quote obligations for two Dutch equity options
With effect from 1 September 2015, the Management Board of Eurex Deutschland and the Executive Board of Eurex Zürich AG have decided the following amendments to the Market Maker obligations:

Hedge Funds & Managed Futures

Investors wake up to emerging market currency risk
Roger Blitz, FT
If there is a mood of anxiety across the US and Europe over the impact of China catching a cold, there is an air of déjà vu for investors who deal in emerging markets.

Collapse in premiums hits aluminium trade
By Henry Sanderson, FT
While aluminium prices have declined to six-year lows, what has really hurt big trading houses such as Glencore and Noble Group is the sharp fall this year in what is known in industry speak as “premiums”.

Einhorn’s Greenlight Falls 5.3% as August Rout Deepens Slide
Simone Foxman, Bloomberg
Greenlight Capital, the investment firm led by David Einhorn, fell 5.3 percent in its main hedge fund in August as volatility in oil and Chinese stocks rattled markets.

BNY Mellon says catching up providing missing fund prices
BNY Mellon Corp said it has worked through a backlog of missing prices on about 1,200 mutual funds and exchange-traded funds, more than a week after a software glitch at the world’s largest custody bank disrupted pricing for about 5 percent of the U.S. fund industry.

DoubleLine Capital opens commodity mutual fund to investors
By Jonathan Stempel, Reuters
DoubleLine Capital, the investment firm overseen by Jeffrey Gundlach, on Monday opened a new mutual fund to give investors exposure to commodities markets and help them diversify.

BNY Mellon names Michelle Neal as president
Automated Trader
BNY Mellon has appointed Michelle Neal as president of BNY Mellon Markets Group. Most recently global head of listed derivatives, markets clearing and fixed income market structure with Deutsche Bank, Neal brings financial services industry experience including global fixed income, FX, equity markets, collateral services, clearing, and electronic trading. Assuming her new role on November 30th, 2015, Neal will report to Curtis Arledge, vice chairman of BNY Mellon.

Banks & Brokers

BNY Mellon snaps up Deutsche Bank derivatives head
The Trade News
BNY Mellon has named Deutsche Bank’s derivatives expert Michelle Neal as president of its Markets Group.

BNY Mellon names Michelle Neal as president of Markets Group
BNY Mellon appointed Michelle Neal as president of BNY Mellon Markets Group at the group’s headquarters in New York, replacing Kurt Woetzel, who recently retired.

Clearing & Settlement

Standardising client data management
With new AUSTRAC penalties set to kick in next January, investment managers cannot afford to be non-compliant when it comes to anti-money laundering, writes DTCC Solutions’ Donna Milrod.

Concentric Circles: Central Clearing, Leverage Ratios and Concentration Risk
Radi Khasawneh, TABB Group
A regulatory rethink of bank leverage ratios could make the clearing business more attractive, reinvigorating competition and helping redistribute concentrated clearing flows and the associated risk.

Indexes & Products

S&P 500 posts biggest monthly loss in more than 3 years
USA Today
U.S stocks tumbled and oil prices surged Monday as Wall Street closed out a volatile August with hefty losses that gave the S&P 500 its worst monthly performance since May 2012.

Uncertainty about the timing of Federal Reserve rate hikes and persistent fears about a China slowdown continue to weigh on financial markets after last week’s wild ride.

Your ETF not all it seems for emerging market currency hedges
Financial Post
The devil is in the details for investors looking for safer emerging market assets after a currency rout that’s stretched from Russia to Brazil. More than US$1.4 billion has flowed into exchange-traded funds that protect against currency fluctuations in developing nations this year, 64 per cent more than in all of 2014. Yet buyers of these products, from moms and pops to institutional investors, may not be as protected as they think.

Big Picture: Bonds Have Held Up Well
Indexology – S&P Dow Jones Indices
August is shaping up to be a negative month for the S&P 500 Bond Index (-0.52% month-to-date and -0.61% YTD), as of Aug. 28, 2015. Though, for all the drama of this month, attributable to the drop in oil prices (-24% YTD), weakness in the Chinese economy, and a major sell-off in equities, bond returns look relatively stable. U.S. equities, as measured by the S&P 500, have a total return of -2.07% YTD, (-3.4% price return) as of the same date.

Goldman Sachs Thinks This Volatility Index Should Be Much Lower; The VIX is trading like the U.S. is in a recession
By Julie Verhage, Callie Bost, Bloomberg
Oh, how times have changed.
For much of the past year the story has been the extremely low levels of volatility in the market, but that trend came to a screeching halt last week when the Chicago Board Options Exchange Volatility Index rose to levels not seen since the financial crisis.


Market Volatility Raises Questions For Pre-IPO Ad Tech Firms
Last week’s stock market dip and subsequent recovery could have particularly troublesome consequence for ad tech firms looking to play on public markets. Though market volatility is a constant, last week’s flux put a spotlight on a handful of ad tech firms often mentioned as IPO candidates, among them AppNexus, Quantcast, Collective, Dstillery, PubMatic, Integral Ad Science, ironSource, Centro, Exponential Interactive, Collective and Turn.

LinkedIn rolls out overhauled messaging service
LinkedIn Corp unveiled a revamped messaging service on Tuesday, departing from its previous unpopular design that resembled email.

Avery Trading Selects Orc Tbricks For Next-Generation Spread Trading Solution
Orc, the global market leader in electronic trading technology for listed derivatives, today announced that Avery Trading has chosen Orc Tbricks for spread trading on CME Globex.

Is Silicon Valley in Another Tech Bubble?
Vanity Fair
With the tech industry awash in cash and 100 “unicorn” start-ups now valued at $1 billion or more, Silicon Valley can’t escape the question. Nick Bilton reports.


US to hit Chinese hackers with sanctions
Demetri Sevastopulo in Washington, FT
The White House is preparing sanctions on Chinese individuals and companies as it tries to pressure Beijing to stop its alleged cyber theft of commercial and economic information from US organisations.

Ex-Agent Charged in Bitcoin Case Attempted Identity Change
Joel Rosenblatt, Bloomberg
A former U.S. Secret Service agent charged with stealing more than $800,000 in bitcoins while investigating the Silk Road Internet drug emporium tried to change his identity after reaching an agreement to plead guilty, prosecutors said. A federal judge on Monday ordered Shaun Bridges to submit to electronic monitoring and a curfew after a prosecutor said Bridges sought to change his name and Social Security number and was found with illegal firearms, including an assault weapon.

Canadian suspect in Cynk stock fraud surrenders to U.S.
A Canadian citizen has surrendered to U.S. authorities in connection with a $300 million penny-stock manipulation fraud that prosecutors say drove the market value of little-known Cynk Technology Corp past $6 billion.

Environmental & Energy

Russia, Venezuela to Discuss Stabilizing Oil — Energy Journal
The leaders of Russia and Venezuela, two of the countries hardest hit by plunging oil prices, will meet in China Thursday to discuss “possible mutual steps” to stabilize prices, James Marson and Summer Said of The Wall Street Journal report. A Kremlin aide, Yuri Ushakov, didn’t provide details on what potential steps could be taken by Russian President Vladimir Putin and his Venezuelan counterpart Nicolas Maduro, but said they could be “within the context of Russia’s cooperation with OPEC.”

Oil’s Three Big Days Wipe Out a Month of Losses
Mark Shenk, Bloomberg
OPEC signaled that it might cut production in the future and the U.S. lowered output estimates, propelling oil back into a bull market less than a week after hitting a six-year low.

Warren Buffett vs. the greens
By Andrew Restuccia – Politico
Another billionaire is angering environmentalists these days: Democratic hero Warren Buffett.

***LB: Also in this story “For Democrats, the world’s third-richest person is a champion who has advocated higher taxes for millionaires and donated money to put Hillary Clinton in the White House. But green-energy advocates are expressing increasing frustration with Buffett, whose sprawling business empire is opposing them on fronts including solar power, oil train safety and the Keystone XL oil pipeline.”

Is Europe the new frontier for US energy exports?
By Francesco Stipo – The Hill
In the past five years, new techniques of oil and natural gas extraction in the United States have untapped large volumes of oil and natural gas and transformed the U.S. from an energy importer to a self-sufficient economy with an oil and gas surplus.

Obama Calls for U.S. to Show Leadership in Fighting Climate Change; President says sound environment and strong economic growth don’t need to be in conflict
President Barack Obama called for U.S. leadership in fighting climate change, saying Monday a sound environment and strong economic growth don’t need to be in conflict.


Portuguese Central Bank Ends Talks With China’s Anbang Over Novo Banco Sale; Talks to take over bank created out of Banco Espírito Santo will now take place with another bidder
Portugal’s central bank said Tuesday that it ended talks with China’s Anbang Insurance Group to sell Novo Banco SA, the Portuguese bank created out of failed lender Banco Espírito Santo SA last year, and will begin negotiations with another bidder.

Slowdown at Chinese Factories Accelerates
Activity at China’s factories shrank at the fastest rate in at least three years in August, as domestic and export orders tumbled, increasing investors’ fears that the economy may be lurching toward a hard landing.

Hong Kong Buys $2 Billion to Keep the City’s Currency Pegged
Fion Li, Bloomberg
Hong Kong’s de facto central bank stepped in for the first time in more than four months to prevent the city’s currency from breaking out of the strong end of its pegged range against the U.S. dollar.

The China syndrome, or why the market crashed
By Dan Perkins, contributor
Many people wonder why there was such a precipitous decline in such a short time in both markets. I believe there is downside in both markets, but I believe there’s greater risk in China than in the U.S. Growth at any cost has been the philosophy of the Chinese government. A growing population and the movement of people from the agricultural environment into the cities have placed a great deal of pressure on the government to find jobs and keep the economy growing.

Frontier Markets

The Saudi Stock Exchange Announces The Launch Of “Tadawulaty” Mobile Application
As part of the Saudi Stock Exchange’s strategic direction and continuous efforts to introduce the latest and most innovative new products and services to all of our clients, the Saudi Stock Exchange is pleased to announce the launch of “Tadawulaty” mobile application for iOS and Android operated devices.

Naming those too big to fail
Business Standard
SBI, ICICI named systemically important banks in India and required to maintain higher levels of capital; both rule out need for immediate fund raising

Investors turn wary over JPMorgan redemption cap
Business Standard
Investors in debt funds have reason to worry about some mutual funds carrying excessive credit risks, with JPMorgan Mutual Fund capping redemptions at one per cent of the total outstanding units in two of its short-term debt funds – India Treasury Fund and India Short Term Income Fund.

FTIL sells power bourse trading software to IEX
Business Standard
Financial Technologies (India) (FTIL) has signed a Perpetual License Agreement with Indian Energy Exchange (IEX) for granting license of the application software at a total consideration of Rs 108 crore. With this, the software PowerARMS DAM, PowerARMS TAM and REC, back office and software development life cycle (SLDC) installed in India along with source code will be the property of IEX.


How Donald Trump Is Winning Over Anti-Wall Street Republicans
Sahil Kapur, Bloomberg
It may sound absurd that a super-rich real estate mogul who peddles opulence is enticing voters who are fed up with the finance community.

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Market Narratives Have Pushed Aside Fundamentals

Market Narratives Have Pushed Aside Fundamentals

First Read $46,041/$300,000 (15.3%) ++++ Hits & Takes John Lothian & JLN Staff We have a new and improved version of The Spread today. We have overhauled our approach to this video series and have the whole JLN team contributing to it. Suzanne Cosgrove has...

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