John Lothian Newsletter: ICE secures foothold in growing Asia derivatives market; Three Companies Weigh Bids for Euronext; UK probes private accounts of foreign exchange traders

Nov 19, 2013

First Read

Christmas came early for us today at SGX (alright it was Ice, not Snow) – with Singapore likely now to be one of a handful of cities hosting multiple international exchanges. There is much to study and admire from ICE’s pioneering narrative, and (more selfishly) it makes our task of growing the Singapore marketplace now easier. It is good to have a fellow advocate in reaching out to global participants, conveying the Asia derivatives growth story, and locking in their connectivity to Singapore.

Singapore derives its name from the Sanskrit words “Singha” (for lion) and “Pura” (for Town), so-named in 1324 by a Sumatran prince who probably saw a tiger rather than lion. At the southern tip of continental Asia, it was the logical stopping-off point between East and West for sailing ships which could not travel from India to China in a single monsoon. East-West trade continues to be our lifeblood today as the world’s busiest seaport and probably the world’s largest bunkering port also. Treasury activities naturally lead to Singapore also being Asia’s largest in FX trading and wealth management as well.

The last tiger was supposedly shot in 1902 in the Bar and Billiards room at the Raffles Hotel. So these days there’s not much left in the way of charismatic megafauna, except occasionally for a billherder which can sometimes be spotted against foliage at the 19th hole. Or a ramapillai sporting its magnificent beard at the St Regis Hotel Singapore in December for FIA Asia. And keep your eyes trained at the prata stall for that remarkable Singapore native beastie the phupindergill.

Happy hunting,

Mike Syn


Pat Fay

Small Cap Splash: Russell’s Pat Fay talks about CBOE’s latest volatility contract
The CBOE Volatility Index futures, or VIX, has been THE most successful futures contract in recent years. With the VIX posting record volumes this year, the exchange and Russell Indexes say now is the time to launch the Russell 2000 Volatility Index futures or RVX. John Lothian News sat down with Russell Investment’s Pat Fay to talk about RVX and its potential, especially versus other indexes like VIX and the European volatility index VSTOXX. Fay says the appetite for a small cap stock volatility futures is strong, especially among money managers looking to incorporate volatility hedges into their portfolios. “Clients are asking for volatility products,” Fay says. “Folks have taken the opportunity to educate themselves on it, develop strategies, it’s become very popular.”

Watch the video »


ICE secures foothold in growing Asia derivatives market
Jeremy Grant in Singapore –
IntercontinentalExchange, the US energy exchange operator, has bought the Singapore Mercantile Exchange for $150m, gaining a foothold in a region that is rapidly becoming the main global battleground in derivatives trading.

***MS: Jeremy says he predicted this. Next time I’m sure he will say so in advance.


Gensler Says Three Swap Market Operators Must Tweak Access Rules
Matthew Leising – Nov 18, 2013 9:16 PM GMT+0100 – Bloomberg
The U.S. Commodity Futures Trading Commission, charged with promoting fairness on the new public markets for swaps mandated by the Dodd Frank Act, is telling three operators they must change their access rules. Swap execution facilities run by Tradeweb Markets LLC, MarketAxess Holdings Inc. (MKTX) and Bloomberg News parent Bloomberg LP are giving banks too much control over who their customers buy and sell with, CFTC Chairman Gary Gensler said today.


Gensler defends swaps rules shake-up
Gina Chon in New York –
Leading US markets regulator Gary Gensler used his last speech to an annual conference of interdealer brokers to defend his agency’s controversial swaps rules.


CME Group Announces Record Trading Volume for Coal Futures
CME Group, the world’s leading and most diverse derivatives marketplace, today announced a monthly volume record for its coal futures of 171,988 contracts in October compared to 160,496 in September 2013, the last record month for this contract.

***MS: There’s a Christmas angle to this, but I’d rather not have one in my stocking


BATS Chi-X Europe launches European listings business
Elliott Holley – Banking Technology
BATS Chi-X Europe has begun its pan-European listings business with the start of trading in two exchange-traded funds. The firm’s strategy is to focus on ETFs, where it believes it has found an opportunity to cut costs.


Regulation: Shadow banks slip through the net
Joti Mangat – Euromoney magazine
Global regulators are pumping out new rules to address potential systemic risk within the shadow banking system, with money-market funds and repo in the firing line. While governments and central banks continue to offer underhand guarantees to non-bank credit intermediation, however, the moral hazard associated with the shadow sector is unlikely to go away.


CME Hack Reawakens Electronic Threat to Financial Services Firms
Matthew Leising – Bloomberg
The cyberattack on CME Group Inc. last week, routed through Hong Kong, is reminding the financial services world of one of its most constant threats to business.

***JM: This isn’t a very good threat to forget about…


McGladrey Enhances Its Financial Services Industry Consulting Offering
McGladrey LLP, the nation’s leading provider of assurance, tax and consulting services focused on the middle market, recently announced that Matt Reynolds has joined the firm as director – financial services consulting, effective Nov. 18.


Maria Bartiromo to Leave CNBC for Fox Business
Maria Bartiromo of “Closing Bell” was the first to make daily live reports from the floor of the New York Exchange. CNBC confirmed the news Monday,
thanking Ms. Bartiromo for her 20-year career at CNBC.

***JM: I could make a cheap shot about, “Not sure who this is a step down for,” but I will.


David Robin

Fed Carousel: Newedge’s Robin says bond market could move in Q2 2014
Fed tapering, a government shutdown and last minute debt-ceiling deal rocked the bond market in recent weeks. John Lothian News’ editor-in-chief Jim Kharouf sat down with David Robin, managing director of Newedge to talk about what’s next for the bond market and interest rate futures volumes. In Robin’s view, we are not likely to see another Washington fiasco as we did back in October. “The significance of the debate itself and the process the marketplace and the political theater underwent, has sort of got the marketplace in a situation where know that for any extended period of time, the Fed is the only game in town,” Robin says.

Watch the video »



MarketsWiki Page of the Day
CBOE Russell 2000 Volatility Index Futures

MarketsWiki Recent Updates


Magnus Böcker; Walter Thomas (Tom) Price, III; Larry Arnowitz; Harris Brumfield; Emmanuel Doe

Companies, Organizations and Groups

Anova Technologies; IEX Group


CBOE Russell 2000 Volatility Index Futures


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Lead Stories

Three Companies Weigh Bids for Euronext
Jacob Bunge and Telis Demos –
Three exchange companies are considering individual bids for Euronext, the European exchange group set to be spun off after it was acquired last week by IntercontinentalExchange Group Inc., according to people familiar with the discussions.

UK probes private accounts of foreign exchange traders
Daniel Schäfer and Vanessa Kortekaas in London and Alice Ross in Frankfurt –
The UK’s financial regulator is probing the use of private accounts by foreign exchange traders amid allegations they traded their own money ahead of clients orders, in a serious twist in the global probe into possible currency market manipulation.

Wall Street Pushes Back on CFTC’s Advisory for Overseas Swaps
Robert Schmidt and Silla Brush – Bloomberg
The largest Wall Street banks are mobilizing to fight a new policy by the U.S. Commodity Futures Trading Commission that gives the regulator broader authority in overseas derivatives deals. The policy, issued Nov. 14, negates a legal interpretation that banks have been using to keep some swaps trades off electronic platforms and away from CFTC rules enacted to make the market less opaque.

Deutsche Boerse chairman says no large deals on the cards
German stock exchange operator Deutsche Boerse will continue to shun large acquisitions, its supervisory board chairman said on Tuesday.

Court Orders MF Global to Pay $1.2 Billion
Michael Calia –
A federal court in New York has ordered MF Global Inc. to pay $1.2 billion in restitution to the failed brokerage firm’s customers, the U.S. Commodity Futures Trading Commission said Monday. The order from U.S. District Court Judge Victor Marrero also imposes a $100 million civil penalty on MF Global to be paid after the bankrupt firm fully pays customers and certain of its creditors, the CFTC said.

CFTC Issues Notice of Temporary Registration as a Swap Execution Facility to LatAm SEF, LLC
The U.S. Commodity Futures Trading Commission (CFTC) has approved the application of LatAm SEF, LLC (LatAm) for temporary registration as a swap execution facility (SEF).

Insight: Wall Street uses ‘merchant’ workaround to cling to commodity assets
Wall Street’s commodity trading giants are using a 14-year-old law to hold on to their oil storage terminals and metals warehouses a little bit longer, even as the Federal Reserve considers cracking down on such investments.

Regulators See Value in Bitcoin, and Investors Hasten to Agree
The virtual currency bitcoin took a big step toward the mainstream on Monday as federal authorities signaled their willingness to accept it as a legitimate payment alternative.

***MS: I’m pretty sure I know what Magnus is going to add to my KPI tomorrow

Obama’s First-Term Finance Team: Where Are They Now?
Timothy F. Geithner’s move to the private equity firm Warburg Pincus is a big shift by a finance official from the Obama administration’s first term to the private sector. But it’s an ever-lengthening list, as several appointed officials had already made the jump to private life well before Mr. Geithner, the 75th Treasury secretary, announced his new job.


Futures data will be useless to regulators without reporting delay, Esma warns
Tom Osborn –
Regulators will end up with useless data if Europe’s new reporting regime starts on schedule in February, the European Securities and Markets Authority (Esma) has warned in a letter to the European Commission (EC) – the latest instalment in a wrangle between the two bodies over the timeline for the new rules. An earlier request from Esma for a year’s delay was rejected by the EC.

***JM: It speaks volumes when the response to, “This work will produce useless results”, is, “Yes, well, do it anyway.” For an extra dollar, I’ll bet you that they aren’t 100 percent sure how they plan to use that useless data, either.

***MS: The industry (through FOA) worked very well with ESMA to lay out the issues and complications, and ESMA’s letter to the EC was thoughtfully crafted.

SEC vs. Knight: Alarms, Codes and Lock-Down Modes for the Market Access Rule
Anthony Masso – TabbFORUM
In October the SEC issued a $12 million penalty to Knight Capital for its failure to prevent a rogue algorithm from unleashing erroneous trades on the market. But lost in the media coverage of the settlement was the clarity to the Market Access Rule provided by the SEC’s enforcement action, including to the definition of ‘reasonableness’ and the use of open order limits, technology controls and automated kill switches.

A Hurdle to Winding Down a Failing Global Bank
A seemingly small derivatives detail could sink global bank wind-down plans. American and European regulators want to standardize contracts to help cross-border lenders fail smoothly. If the problem isn’t fixed, investors could undermine financial stability by calling in swaps. It’s a reminder of how much work still needs to be done to end “too big to fail.”

*** MS: This could get complicated ….

CFTC Closes Loophole, Treasuries Rule, Tech REITs: Compliance
Carla Main – Bloomberg
The top U.S. derivatives regulator moved to close off large banks’ ability to avoid new regulation by arranging trades in America and then booking the deals in overseas affiliates.

Remarks Of CFTC Chairman Gary Gensler At Swap Execution Facility Conference: Bringing Transparency And Access To Markets

NFA Notice to Members I-13-36: Important Request for CPOs that Operate Registered Investment Companies Utilizing Wholly Owned Subsidiaries (Known as Controlled Foreign Corporations)

McGladrey: Investment Industry Insights
Developments in accounting, regulation and compliance for the investment company and brokerage industries

Informal Remarks At Columbia Law School Conference (Hot Topics: Leading Current Issues In Securities Regulation and Enforcement) – SEC Commissioner Daniel M. Gallagher, Columbia Law School, New York, NY, Nov. 18, 2013

Exchanges & Trading Facilities

CBOE Short-term VIX Index Values Now Disseminated Every 15 Seconds
Chicago Board Options Exchange, Incorporated today announced that it has expanded the frequency for disseminating values on its recently created CBOE Short-term Volatility Index. VXST index values now are generally disseminated every 15 seconds during the trading day versus once a day previously, allowing traders to track intra-day volatility of the index.

Euronext celebrates Entrepreneurship week with initiatives across Europe
Euronext N.V., a wholly owned subsidiary of IntercontinentalExchange Group, Inc., is pleased to announce that it is celebrating Global Entrepreneurship Week through several events held in its European locations. These initiatives, involving entrepreneurs and business leaders, are aimed at sharing ideas and discussing regional and international issues surrounding entrepreneurship.

Deutsche Börse Enhances Xetra Market Data Offering With Exclusive Real-Time Analytics
Deutsche Börse Market Data + Services is introducing exclusive analytics based on raw, unpublished Xetra order book data. Effective 25 November 2013, Xetra real-time analytics will provide market participants with additional, exclusive in-depth trading information.

London Stock Exchange Endorsed As A Globally Accepted Pre-Local Operating Unit In The Interim Global LEI System
The Regulatory Oversight Committee of the Global LEI System announced that the London Stock Exchange has been endorsed as a globally accepted Pre-Local Operating Unit for the allocation of Pre- Pre-LEIs .

IntercontinentalExchange To Acquire Singapore Mercantile Exchange – Broadens Exchange And Clearing Operations To Asian Markets And Customers
Press Release

October 2013 FIF Market Share And Market Dynamics Reports – Executive Summary

Moscow Exchange Announces 3Q13 Results

Citi Becomes A New Member Of The Spanish Stock Exchange Under The Trading, Non-Settling Status

Hedge Funds & Managed Futures

Benefits of Studying Insiders’ Trading Patterns
Francesco Guerrera – MoneyBeat – WSJ
Michael Babich seems like the right kind of insider trader—the legal kind. Investors may be able to learn a thing or two from studying bets like his. New research suggests that closely following the trading patterns of corporate insiders—who are allowed to buy and sell their companies’ stock during certain time windows—may help outside investors earn big returns.

*** MS: I had thought this was an established finding … almost a definition of “informed trading” …

Time for a timer
Minqiang Li and Fabio Mercurio –
Timer options are derivatives that expire when the underlying’s realised variance hits a certain level, adding another layer of complexity that is usually tackled with computationally costly numerical methods.

*** MS: Talk about path dependence! Good luck visualising the exercise frontier on these babies.

Thoma Bravo invests in Chicago asset manager Segall Bryant & Hamill
Lynne Marek – Crain’s Chicago Business
The transaction, which is expected to be completed next year, will allow Segall Bryant to sever its ties to Minneapolis-based Dougherty Financial Group LLC, Thoma Bravo said in a statement.

Banks & Brokers

Breaking Down J.P. Morgan’s Latest Settlement
David Benoit – MoneyBeat – WSJ
J.P. Morgan is having one expensive 2013. Friday, the bank announced a $4.5 billion settlement with private investors in mortgage-backed securities issued by the bank and Bear Stearns.

JPMorgan vs The DOJ: $4 Billion Down, A Few More Billion To Go
Halah Touryalai – Forbes
It’s not quite $13 billion yet but JPMorgan Chase and the US government are slowly getting there. The nation’s biggest bank has reportedly agreed to shell out $4 billion for customers negatively affected by its bad mortgage behavior. That comes after weeks of negotiation with the US Department of Justice which has been playing hardball with the bank over the amount it wants it to pay over the matter.

Bank of America $8.5 billion settlement a ‘win’ for investors, lawyer says
A lawyer for an investor group on Monday urged a judge to approve Bank of America Corp’s proposed $8.5 billion settlement over mortgage-backed securities that soured in the financial crisis, noting that not one investor testified against the deal in a nine-week proceeding.

How To Effectively Integrate A Bank-Brokerage
By Joe Stensland – Wall Street & Technology
With the number of active self-directed investors and traders growing, banks and brokerages need to build a better model.

Goldman to resume talks on sale of metals warehouse unit -source
Goldman Sachs plans to resume talks with parties interested in buying its metals warehousing business now that new exchange rules have been released, a source familiar with the matter said on Monday.

Rabobank says another top executive to step down
Dutch lender Rabobank , which was fined $1 billion for rigging benchmark interest rates, said on Monday that another of its top executives will leave in the aftermath of the scandal because the cooperative bank’s members no longer support him.

Goldman Sachs takes top honours at FN awards
Matt Turner – Financial News
Goldman Sachs won a bevy of accolades at Financial News’ annual Awards for Excellence in Investment Banking last night, toppling JP Morgan as the top investment bank after a five-year run and pipping its rival to a host of other prizes.

Bank FX revenues set to drop further in 2013
Peter Garnham – Euromoney magazine
G10 bank FX revenues, which fell 22% in 2012, were forecast to drop by an additional 7% to $7 billion for the full-year 2013.

*** MS: Volatility will return. It always does. But in the meantime, the boys at Cantab Capital have invested in some heavy duty Lego sets to keep idle hands occupied.

Cantor Fitzgerald Europe Bolsters Credit Fixed Income Business
Cantor Fitzgerald Europe, a leading global financial services firm, today announced the continued growth of its European credit fixed income sales and trading business with the appointment of Sara Simmons and Per Mortensen as Managing Directors based in London.

ICAP and Clarus announce new data service for OTC derivatives
ICAP plc, a leading markets operator and provider of post-trade risk mitigation and information services, and Clarus Financial Technology, a provider of services to the global derivatives market, today announce a new OTC data service offered by the two groups.

Clearing & Settlement

OTC clearing implementation: lessons from the US market
Jonathan Watkins – FOW
In a hare and the tortoise scenario, the remaining jurisdictions have let the US march ahead, giving them a chance to observe and correct the mistakes made in their year of rolling out the sweeping reforms. While differences exist in the confirmation process, collateral mechanisms and the reporting to trade repositories, the US has still left a trail of lessons for the regulatory enforcers in Europe and Asia learn from.

*** MS: I haven’t learned enough yet to be able to say I’ve forgotten more than I learned.

Indexes & Products

BATS Chi-X Europe Launches First Listings With iShares ETFs Today
Pan-European Listings Venue Now Live With iShares IEEM and MVOL

Semi-Annual Changes To The NASDAQ OMX CRD Global Sustainability Index

STOXX Launches EURO STOXX 50 Futures Roll Index
STOXX Limited, a leading provider of innovative, tradable and global index concepts, today introduced the EURO STOXX 50 Futures Roll Index. The new index measures the return of a hypothetical, rolling portfolio invested into a series of EURO STOXX 50 futures contracts.


TeraExchange SEF Connects to IPC’s Connexus Extranet for Data Access
Faye Kilburn – WatersTechnology
New Jersey-based provisional swap execution facility (SEF) TeraExchange has joined network and trading turret provider IPC’s Connexus financial extranet to provide the SEF with a means to offer market data distribution, trading and connectivity services ahead of its planned launch in the first quarter of next year.

Morningstar Bolsters Fund Data with eVestment Deal
Faye Kilburn – WatersTechnology
Chicago-based investment research and data provider Morningstar will make fund management software provider eVestment’s database of more than 22,000 separate accounts and 23,000 hedge funds data available to users of its Morningstar Direct investment analysis platform.

Trayport Acquires Contigo

Vulpes Selects OneTick For Quant Research, Mathematical Modeling, Strategy Development

AxiomSL Reporting Platform Meets Basel III Liquidity Requirements
Data-Integrated, Multi-Jurisdictional Calculation Solution Enables Banks To Comply With Regulatory Mandates


Federal Court in New York Orders MF Global Inc. to Pay over $1 Billion in Restitution to Customers of MF Global Inc.
The U.S. Commodity Futures Trading Commission (CFTC) obtained a federal court consent Order against Defendant MF Global Inc. (MF Global) requiring it to pay $1.212 billion in restitution to customers of MF Global to ensure customers recover their losses sustained when MF Global failed in 2011.

Broader Pool of Madoff Victims to Benefit From Fund
The largest category of victims in the vast Ponzi scheme run by Bernard L. Madoff — those who lost cash through accounts with various middleman funds — will be first in line for compensation from a $2.35 billion fund collected by the Justice Department.

Insider trading conviction of Galleon’s Rajaratnam stands
A federal appeals court on Monday refused to disturb the insider trading conviction of Galleon Group hedge fund founder Raj Rajaratnam, one of the most prominent defendants in the U.S. government’s wide-ranging probe into insider trading.

Environmental & Energy

London banks quit carbon trading
Jim Pickard and Ajay Makan –
At least 10 London banks have scaled back or closed their carbon trading desks amid turmoil in the European emissions trading scheme.

Global carbon emissions rise to new record in 2013: report
Global carbon dioxide emissions from burning fossil fuels will rise to a record 36 billion metric tons (39.683 billion tons) this year, a report by 49 researchers from 10 countries said, showing the failure of governments to rein in the main greenhouse gas blamed for global warming.

World Emissions May Peak Amid China Green Push, Germanwatch Says
Global carbon-dioxide emissions from energy may peak this decade because of China’s efforts to cut pollutants, Bonn-based research group Germanwatch said.


Analysis: Forced lending to China SMEs may risk more harm than good
Beijing’s strategy to reroute money away from state-owned giants towards smaller firms to help fuel the economic transformation behind its reform plans is less of a success than it may seem on the surface.

China plans national accounting system overhaul: stats official
China is planning to overhaul the system used to measure the health of the world’s second largest economy to bring it in line with global standards, according to the country’s National Bureau of Statistics (NBS).

China banks forced to delay bond issues
Paul J Davies in Hong Kong and Simon Rabinovitch in Shanghai –
China Development Bank and fellow state policy lender Agricultural Development Bank of China have had to delay or dramatically reduce Chinese bond issues as the impact of a tight onshore credit market begins to be felt.

HKEx to Introduce After-hours Trading of Mini HSI Futures and Mini HHI Futures
Hong Kong Exchanges and Clearing Limited (HKEx) plans to introduce Mini Hang Seng Index (Mini HSI) and Mini H-shares Index (Mini HHI) Futures to its After-Hours Futures Trading (AHFT) session starting on Monday, 6 January 2014.

Hong Kong caves in on Alibaba
Euromoney magazine
Hong Kong’s exchange, starved of big IPOs, is adopting a more conciliatory tone on the landmark potential listing.

Shanghai Stock Exchange Studies, Implements Requirements Of 3rd Plenary Session Of 18th CPC Central Committee

Press Conference By Taro Aso, Japan’s Deputy Prime Minister, Minister Of Finance, And Minister For Financial Services

HKEx Stock Exchange Participants’ Market Share Report

Shenzhen Stock Exchange Market Bulletin 18 November, 2013 – Issue 24

HKFE Announces Revised Margins For Bank Of Communications Futures

Frontier Markets

DGCX To List Plastics Futures Contract
Dubai Gold and Commodities Exchange (DGCX) today announced it will launch its new plastics futures contract on February 28, 2014. The contract is designed to provide enhanced liquidity in the global trade of plastics and will be the first ever plastics contract to be listed in the MENA region.

Building better benchmarks in Dubai: DME’s Chris Fix on running an oil exchange
Miranda Alexander-Webber –
Top of the agenda for the Dubai Mercantile Exchange and its chief executive, Christopher Fix, is assuring the integrity of its crude oil benchmark. He talks to OpRisk about the operational challenges stemming from the exchange’s unique regulatory obligations and the advantages of time zone crossover with Beijing and London

ECR: In search of the next investment-grade sovereign
Jeremy Weltman – Euromoney magazine
Identifying countries ripe for an investment-grade rating is a complicated task, with the main rating agencies differing in their assessments of credit risk.

Middle East offers distant hope to ETFs
Peter Davy – Financial News
At the end of October, the UK became the first non-Muslim country to host the World Islamic Economic Forum. Not content with Middle Eastern money boosting the capital’s property market and helping build iconic buildings such as the Shard, Chancellor of the Exchequer George Osborne wants London to become “the unrivalled western centre for Islamic finance”.

*** MS: No doubt London will make it happen, but when the PM claimed that Britain was the first non-Muslim country to launch a Sharia-compliant bond he didn’t quite get his facts right. (Singapore had already launched one).

Technical Incident Led Qatar Exchange To Halt Trading Twice And Cancel All Trades Executed Today

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