The Eagle Has Arrived
Jeremie Bacon – Orc Group
Howdy! My name is Jeremie Bacon. I’m the president of Orc Group’s North and South American operations and am thrilled to be the guest editor of the John Lothian Newsletter this week. I’ve been with Orc Group since last May, and genuinely enjoy helping our clients exceed their trading goals with our trading and market connectivity platforms. Since I got here, we’ve appointed new management, enhanced and expanded our solutions and revamped our strategic roadmap; it’s been an exciting time for Orc and I am honored to be a part of a company that is helping grow the derivatives markets.
That said, this newsletter isn’t about me or Orc, it’s about the financial markets, and as you’ll read in a moment, the Boy Scouts of America. If you’re interested in more of my back story or have questions or comments, you can find me at firstname.lastname@example.org or on LinkedIn
The main reason I’m guest editing the newsletter this week is because John is away at Boy Scout summer camp (hope you’re having a blast, John!). As an Eagle Scout myself, I will forever appreciate the life lessons and countless opportunities to learn and grow that were afforded to me by the scouting program. So, as I thought about what to write today I figured what better way to kick off the week than by telling a story about one commonality between scouting and the financial markets: trading. Seriously! I have pictures and a lovely written history of Boy Scout patch trading to prove it.
I first experienced the thrill of trading at a Boy Scout Jamboree in the 1980’s. Picture this: hundreds of 13, 14, and 15 year old young men from hundreds of scout troops all gathered together in an outdoor amphitheater in the mountains of Colorado. We’re shouting out bids and offers to one another while flashing colorful patches from all over the country depicting various animals, trinkets, and mountain scenes in a frenzy of activity. Those patch trading sessions epitomized the action and excitement of open outcry pit trading and were the first memories that came to mind first time I watched real traders in Japan and later here in Chicago at the CME. The major difference: there were no losers in those sessions. When the ‘market’ finally closed, even though some of us walked away with more than others, everyone had somehow managed to get exactly what they wanted. Fast forward 25+ years and things have changed quite a bit in the world of trading and scouting but one thing is certain, both institutions have made a huge contribution to the growth and development of every single person they’ve touched.
Well, that’s it for today. I’m no John Lothian but I promise to do my best to engage you with relevant commentary throughout the week and if that fails, I’ll at least do my best to entertain you with a few fun stories that I promise will relate (in one way or another) to the industry we all love. Thank you and happy reading!
RJO chief ascends to FIA chair
Jon Watkins – The Trade
The Futures Industry Association (FIA) has named long-serving R.J. O’Brien chief executive, Gerald Corcoran, as its chairman after serving on the board for six years. Corcoran will replace Barclays’ Michael Yarian as chairman of the US derivatives trade association, after the managing director moved to a new role at the bank as head of its rates trading franchise.
***JB: Congrats Gerry!
IPXI Prices First Offerings; Intellectual Property Market Opens for Trading
Intellectual Property Exchange International, Inc. (IPXI), the world’s first financial exchange for licensing and trading intellectual property (IP) rights, announced that on Friday it successfully closed its first two initial offerings of unit license rights. The offerings are based on patent rights to prepaid stored value card (SVC) technology owned by JPMorgan Chase Bank, N.A. Trading on the contracts can now take place on the IPXI Trading Platform.
***JB: Been a long time coming — well done!
Asset managers tight-lipped on dark pools
Madison Marriage – Financial Times
Dark pools have seemingly lived up to their name as murky trading venues after an increase in regulatory action against them in the US and growing scrutiny in Europe. Asset management companies, however, are loath to admit they might have suffered as a result of how some of these off-exchange trading venues have operated, despite the regulatory backlash.
***JK: Sometimes it is best to swim in dark pools tight-lipped, with ears and nose plugged as well.
World Of Opportunity Chicago 2014: Ben Van Vliet (Promo)
Our MarketsWiki World of Opportunity Summer Intern Education Series in Chicago is quickly approaching. Ben Van Vliet, assistant professor at the Illinois Institute of Technology Stuart School of Business, will be discussing the organizational structure of High Frequency Trading as well as what key components help give traders a competitive advantage.
For more information on the event and how to register, click here.
Ghosts of 2008 Haunt SEC’s ‘Outsider’ Pushing Tough Rules
Dave Michaels – Bloomberg
Since becoming one of three Democratic appointees on the five-member commission in August, [Kara] Stein has criticized the SEC – – and by extension, White — for weaknesses in rules for crowd-funding and overseas swaps trading. She’s also questioned whether White’s plan to cut risks in money-market mutual funds, coming to a vote this week, will do more harm than good.
***JB: Sometimes, it’s good to shake things up a bit.
HKEx’s takeover of LME is ‘risky bet’ that could yet pay off
Enoch Yiu – South China Morning Post
While the Hong Kong Exchanges and Clearing has been busy getting into bed with former rival Shanghai to develop cross-trading of stocks, some brokers wonder whether the local bourse was wise to cut a big cheque to buy the London Metal Exchange
**JK – $2 billion is a lot to pay for a payoff later on.
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As an investment strategy, the HEFI factors enable investors to obtain precise exposure to a set of factors or to combine factors to achieve diversification benefits beyond broad market investing. What was once available to only large, sophisticated organizations is now available to a broader range of investors.
Bridging the Week: Mutual Non-Recognition; Wash Sales; Unregistered CPOs; IBs
Gary DeWaal – Katten Muchin Rosenman
No single theme predominated globally this week among the many disparate matters raised by international regulators and through litigation. However, one regulator raised concerns about the potential deleterious impact on global liquidity if international regulators do not better coordinate their implementation of the G20 mandates that followed the 2008 financial crisis, while two self-regulatory organizations’ disciplinary actions remind brokerage firms that surveillance of account activity is an important part of effective supervision.
Execution Equalizer: Christian Hauff Talks Trade Execution Quality and TCA
While electronic platforms and trade algorithms have made for more efficient markets, some buyside participants believe it comes at a cost, and the cost is execution quality. Christian Hauff, co-founder and CEO of Quantitative Brokers says these same modern tools can help the buyside obtain better execution, as well as better transaction cost analysis (TCA).
Watch the video »
ICE’s Swap Execution Facility Head Barsoom to Leave in August
Matthew Leising – Bloomberg
Peter Barsoom, president of Intercontinental Exchange Inc. (ICE)’s swap trading service, is leaving the company at the end of August. For the past four years, Barsoom, 43, has helped Atlanta-based ICE develop futures contracts on credit-default swaps and build the company’s swap execution facility, ICE Swap Trade LLC, one of the venues mandated by the Dodd-Frank Act to increase transparency and competition in derivatives trading.
Serious Fraud Office gears up for UK forex trading probe
Caroline Binham, Legal Correspondent – Financial Times
The UK’s main anti-fraud agency is gearing up to launch a full-blown criminal investigation into alleged rigging of the $5.3tn-a-day foreign-exchange market, adding to the web of regulatory and criminal investigations around the world.
Barclays Dark Pool Drew Early Alarms on Fast Trading
Scott Patterson and Bradley Hope – WSJ
Trading firms and employees raised concerns about high-speed traders at Barclays PLC’s dark pool months before the New York attorney general alleged in June that the firm lied to clients about the extent of predatory trading activity on the electronic trading venue, according to people familiar with the firms.
Dark Pool Disfavor Above 50% in Poll Amid High-Frequency Fallout
Doni Bloomfield and Sam Mamudi – Bloomberg
Dark pools and high-frequency traders, two elements of the electronic U.S. stock market whose rise has been decried in books and Congress, are finding little support among financial professionals.
Dodd-Frank’s Four Years of Doing Nothing
Four years after President Barack Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law, polling suggests that most Americans think it hasn’t done enough to protect them from a repeat of the 2008 financial crisis, a disaster from which the global economy has yet to fully recover. Unfortunately, they’re right.
***JB: Is anybody really surprised by this? Implementing the 3 stages to zen protective finance (Volcker Rule + Capital Requirements + “Orderly Liquidation”) will take a decade or more…
Antitrust Regulator to Examine British Banks
Dealbook – NY Times
Britain’s antitrust authorities said on Friday that they expected to open a formal investigation into the country’s retail banking industry, citing potential barriers to competition that include the control of a national network of branches by four big banks that offer free banking to many customers.
How To Stop Bitcoin Banking; Give It A BitLicense In New York
Tim Worstall, Contributor – Forbes
New York State has decided to issue a regulatory structure for Bitcoin, meaning that businesses in that State can be sure of what they can and cannot do. This is excellent news of course, the regulatory uncertainty is most certainly holding back development of all cryptocurrencies. However, there is one tiny problem with the regulations as they’ve proposed them. They actually make running a Bitcoin bank illegal. Which, if you’re trying to encourage people to develop new banks is probably something of a bad idea.
***JB: I love that people (and now regulators) have a love/hate relationship with Bitcoin. It’s the wave of the future; NY should be encouraging entrepreneurs to grab their surfboards.
European Commission agrees to front-loading relief
Jon Watkins – The Trade
European regulators have united in agreeing to banish front-loading requirements for OTC derivatives deals entered into from 18 March, with uncertainty still surrounding which instruments will be affected under new rules.
Senate Panel to Examine Renaissance Trading Strategy
ALEXANDRA STEVENSON – Dealbook – NY Times
Peter Brown, the co-chief executive of Renaissance Technologies, is scheduled to testify on Tuesday before a Senate panel hearing into a trading strategy that helped the firm pay lower taxes.
Transaction tax means more compliance challenges for banks
Mohit Sarda – Risk.net
After years of debate, a European financial transaction tax in at least some of the EU now looks close to a certainty. Negotiations continue, but there is enough known about key features to allow financial institutions to start implementation planning now
Exchanges & Trading Facilities
Exchanges keen to sign up for exclusive club
Tim Cave – Financial News
Getting a licence to run the highest grade of exchange in the UK is not cheap. Jumping through the hoops demanded by the Financial Conduct Authority before it will grant Recognised Investment Exchange status can cost as much as £1 million, industry practitioners say.
Cyprus Stock Exchange Monthly Bulletin – June 2014
TOM MTF Statistics Week 29, 2014
TOM Insight June 2014
Brederode Debut On The Luxembourg Stock Exchange
Hedge Funds & Managed Futures
One in four lose some more
Dan McCrum – Financial Times
The cover of FTfm features some tough Monday morning reading for professionals paid to help investors pick hedge funds: Roughly a quarter of all hedge funds tracked by Preqin have posted negative returns year to date, though the industry is up 3.2 per cent overall. One in four is pretty bad for an industry with aspirations to asset class status, when the world has largely been calm and markets positive.
***JB: Sad but true. At what point in the last 10 years has this not been the case?
Hedge funds braced for some of their worst returns since 2008
Madison Marriage – Financial Times
Hedge fund managers expect to deliver some of their worst returns since the financial crisis this year, amid rising concerns over stretched equity market valuations and signs of rising geopolitical tension.
Who Routinely Trounces the Stock Market? Try 2 Out of 2,862 Funds
JEFF SOMMER – NY Times
Almost anyone can post good numbers in a bull market, though. It’s like sprinting downhill with the wind at your back: The chances are good that you’ll be pleased with your own performance.Outperforming most other people consistently, year in and year out, is obviously a much more difficult feat, in any competition. But how rare is it, exactly, for stock market investing?
Hedge Funds Notch Another Milestone
Steven Russolillo – MoneyBeat – WSJ
Hedge-fund assets have hit yet another record. The hedge-fund industry oversaw a record $2.8 trillion in assets at the end of the second quarter, according to industry tracker HFR Inc. That marked the eighth consecutive quarterly record for industry wide assets under management, up from $2.7 trillion at the end of the first quarter.
Why Is the Investor’s Personal Rate of Return Missing on Financial Statements?
Ivy Schmerken – Wall Street & Technology
Only 25% of statements across the annuity, mutual fund, and brokerage sectors include a “personal rate of return,” Dalbar’s annual survey says.
**JB – Uhh… because they’re not that great?!
Stephen Peak to manage equities hedge fund at Henderson
Mike Foster – Financial News
Stephen Peak, who has been in investment management for 39 years, is to return to hedge fund management at Henderson Group.
Some alternatives firms not covered as AIFMD goes live
Becky Pritchard and Rachael Singh – Financial News
A range of private equity firms and hedge funds have yet to receive authorisation to operate under the European Union’s Alternative Investment Fund Managers Directive despite the fact it comes in to force this week.
NewSmith founding duo depart fund manager
Vivek Ahuja and Mike Foster – Financial News
Two of the founding partners of NewSmith have left the asset management group that they and other former senior Merrill Lynch executives set up in 2003.
Swotting up for a career on the buyside
Andrew Pearce – Financial News
The tossing of mortar boards across the university campuses of Europe and the US has been in full swing.
CFTC Commitments Of Traders Reports Update
Banks & Brokers
For big U.S. banks, June’s trading bonanza may not persist: executives
Peter Rudegeair – Reuters
U.S. banks posted stronger-than-expected trading results in the second quarter due to surprisingly active markets in June, but bank executives stopped short of saying the good times would continue.
[Video] Wall Street, Investors, and the F-Word
Paul Vigna – MoneyBeat – WSJ
MarketWatch’s Chuck Jaffe joined the MoneyBeat show this morning to talk about the F-word – fiduciary – and why after years of effort, regulators and Wall Street still can’t agree on whether or not all advisers and brokers should be held to the same high standard: putting their clients interests above their own.
Banks Aren’t Quite Ready to Let Go of Reserve Releases
Michael Rapoport – MoneyBeat – WSJ
Big banks’ releases of bad-loan reserves are supposed to be going away – but, apparently, not just yet.
Julius Baer CEO sees ‘fair and equitable’ solution to U.S. probe
Julius Baer said it believes it will find a “fair and equitable” solution to a U.S. criminal probe into the Swiss bank’s role in helping wealthy Americans evade their taxes.
Julius Baer to buy Bank Leumi private bank business in Luxembourg, Switzerland
Zurich-based private bank Julius Baer said on Monday that it will buy the private banking activities of Bank Leumi in Luxembourg and Switzerland, in a deal which will cost up to 70 million Swiss francs ($78 million).
Cantor Fitzgerald seeks global bolt-ons
Sarah Krouse and Matt Turner – Financial News
Cantor Fitzgerald is looking to “aggressively” bulk up globally across asset management and investment banking, with the US brokerage setting its sights on acquisition targets on both sides of the Atlantic.
Clearing & Settlement
Non-cleared OTC rules breach international standards, says ICI
Jon Watkins – The Trade
A buy-side trade association has hit back at two critical areas of new rules for non-cleared OTC derivatives, recommending changes in the legislation.
Outdated software poses risks for T+2
Charlie Woodward – The Trade
Back-office confirmation software has failed to keep pace with technological change, which could threaten the upcoming move to T+2 in Europe, according to a white paper from data and reporting service Trax.
Indexes & Products
VIX Rose 32% on Thursday, as VIX Futures Now Offered Round-the-Clock
Matt Moran – VIX Views
On Thursday the world experienced unsettling news as a plane was shot down in Ukraine, and there was violence in the Gaza Strip. There continues to be strong futures and options trading activity related to the recent rise in volatility indexes at CBOE. Long futures and long call options positions in volatility indexes are used as catastrophe hedges by some investors.
ETFs to Avoid If You Don’t Want to Fight Janet Yellen
Eric Balchunas – Bloomberg
‘Don’t fight the Fed’ is usually a broad bit of advice, meaning that it’s smart to invest in line with the Federal Reserve’s monetary policy. For example, invest in stocks when interest rates are low and look to take profits when policy tightens. But on July 15, Federal Reserve Chair Janet Yellen got unusually specific in talking about the market. In Senate testimony, she dissed stock sectors such as social media and biotechnology, calling them “substantially stretched” and overvalued.
European providers should study the evolution of US exchange-traded funds
Shawn McNinch – Financial News
Assets in US exchange-traded funds have grown by 230% since 2008, creating an industry worth more than $1.8 trillion.
First Trust’s smart beta attracts the money for ETFs
Mike Foster – Financial News
The Big Three exchange-traded fund providers – BlackRock, Vanguard and State Street Global Advisors – have dominated the ETF market for years by consistently attracting the lion’s share of inflows to their funds. But a new kid on the block has been knocking on the leaders’ door and in the first half of the year it managed to attract the third-largest inflow of new money.
Autilla Outlines Data Plans Ahead of MiFID 2
Faye Kilburn – WatersTechnology
London-based precious metals market Autilla, which announced last week that it has migrated to a new electronic trading platform from Swedish exchange trading and market technology provider Cinnober, is leveraging the platform to create a repository of historical quote and trade data to increase transparency in the over-the-counter precious metals markets.
Market Prophit Preps Full Launch, Fees
Max Bowie – WatersTechnology
Social media sentiment analysis provider Market Prophit is preparing to emerge from its beta testing phase and begin charging fees for its service in September, chief executive Igor Gonta tells Inside Market Data.
GFT Shortlisted For ‘Best Offshored Outsourcing Team’ At NOA Awards For Volcker Rule Project
GFT Recognised For Delivering ‘Big Data’ IT Solution For Major Multinational Bank
CFTC Files Amended Complaint against Daniel K. Steele and His Foreign Currency (Forex) Firm to Include Charges of Fraudulent Misrepresentation, False Statements, and Misappropriation of Approximately $1 Million in Pool Participant Funds
The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing of an amended Complaint against Defendant Daniel K. Steele of Rolla, Missouri, and his firm, Champion Management International, LLC (Champion Management), charging them with misappropriation, issuance of false account statements, and other acts of fraudulent solicitation and concealment.
SEC Charges Penny Stock Company CEO and Purported Business Partner for Defrauding Investors With False Press Releases
The Securities and Exchange Commission today charged a serial con artist and a penny stock company CEO with misleading investors in a supposed vaccine development company by issuing false press releases portraying it as a successful venture when it was in fact a failing enterprise.
Ex-Santander executive to pay $1.9 mln for insider trading -SEC
Nate Raymond – Reuters
A former Banco Santander SA executive will pay $1.92 million to settle a U.S. lawsuit accusing him of insider trading ahead of a proposed 2010 takeover of Potash Corp of Saskatchewan Inc by mining group BHP Billiton Ltd.
Madoff associates should get ‘significant’ time: prosecutors
Bernard Vaughan – Reuters
Five former employees of disgraced investment manager Bernard Madoff should be sentenced to “significant” prison sentences of up to 20 years or more, prosecutors said in a court filing on Friday.
Stanford’s Ponzi victims cannot file compensation claims -U.S. court
Sarah N. Lynch – Reuters
A U.S. appeals court dealt a blow to the victims of financier Allen Stanford’s Ponzi scheme on Friday, ruling that they were not eligible under federal law to file claims seeking compensation for their losses.
Australia Regulator Censures Royal Bank of Scotland
Robb M. Stewart – WSJ
Australia’s securities regulator has censured Royal Bank of Scotland Group PLC after the bank found some of its traders likely tried to influence the daily setting of the country’s benchmark interbank lending rate.
[AMF Canada] Bans against Beryl Henderson
Illegal practice and illegal distributions – AMF files penal proceeding against Sylvain Bélair and Patrick Boisvert
Environmental & Energy
Australia Axing Pollution Levy Marks First U-Turn on Climate
Jason Scott and Mike Anderson, Bloomberg Businessweek
Australia’s decision to repeal its levy limiting fossil-fuel pollution makes it the first nation to turn back from a market approach to fighting global warming.
***LB: Also in this story “Australia’s participation in reducing the gases blamed for global warming is crucial for United Nations-led climate talks aimed at establishing a worldwide emissions-limiting pact by next year. China is considering its first absolute cap on carbon and creation of a national market for emissions.”
Australia’s carbon tax abolition draws international criticism
Oliver Milman, theguardian.com
Australia’s repeal of the carbon price has provoked a largely negative reaction overseas, with former US vice president Al Gore calling it a “disappointing step”.
Abbott bets house on coal, as price crashes. And Plan B is?
Giles Parkinson, REneweconomy
As Prime Minister Tony Abbott celebrated the promised axing of the carbon price and the re-focus of Australia’s economic future on the extraction of fossil fuels, the market price supporting his economic blueprint is in the process of collapsing.
Tocom sets sights on Hong Kong traders
Luke Jeffs – Futures & Options World
The Tokyo Commodity Exchange has identified Hong Kong as a key international focus just weeks after opening up trading to Singapore-based investors.
HKEx needs to step up its game in futures
Enoch Yiu – South China Morning Post
Bourses used to compete on product offerings and new listings; now they vie for custom by extending their trading hours. Hong Kong Exchanges and Clearing will extend the night trading session for its futures markets by 45 minutes from November 3. Trading will last from 5pm to 11.45pm, instead of ending at 11pm as it does now.
Long wait between drinks for new bourse
Maggie Lu Yueyang – The Australian
THE Asia Pacific Stock Exchange (APX), a new Australian bourse, may need to wait another three months to see a new initial public offering after two China-based companies floated in March.
PSE, PDEx aiming for Oct. merger
AFTER SEVERAL DELAYS, the planned merger of the country’s equity and fixed-income bourses could finally take place this October. In an interview last Friday, Philippine Stock Exchange (PSE) President and Chief Executive Hans B. Sicat said the parties involved were now working on setting “realistic objectives” in order to close the deal.
Japan’s retail investors pile into US dollar funds
Ben McLannahan in Tokyo – Financial Times
Since former Federal Reserve chairman Ben Bernanke began to gesture towards an exit from ultra-easy monetary policy last May, Japan’s retail investors have taken every opportunity to pile into the US dollar.
Tokyo Stock Exchange: Introducing Decimal Pricing For TOPIX100 Stocks
From July 22, 2014, sub-yen tick sizes will be introduced for TOPIX100 stocks, and TOPIX100 stock prices will contain decimals. Please refer to the attached leaflet for the outline of the tick size change.
China treasury operations face location conundrum
Paul Golden – Euromoney Magazine
Treasurers and banks are divided on the extent to which financial-system liberalization in China has made it possible, or desirable, for multinationals to manage China treasury functions from elsewhere in Asia.
Speech By Song Liping, President And CEO Of Shenzhen Stock Exchange, At The Opening Ceremony Of The Entrepreneurial Trainingseminar Of The Thousand Talents Program In Guangzhou
Africans Open Fuller Wallets to the Future
Across sub-Saharan Africa, consumer demand is fueling the continent’s economies in new ways, driving hopes that Africa will emerge as a success story in the coming years comparable to the rise of the East Asian Tigers in the second half of the 20th century.
Emerging market debt issuance hits record high
Elaine Moore – Financial Times
Emerging and frontier market countries have borrowed a record amount of money in capital markets in the first half of this year, even as central bankers warn that “debt market euphoria” could be storing up trouble for the future.
Q&A With Dubai International Capital’s David Smoot
Nicolas Parasie – MoneyBeat – WSJ
Dubai International Capital, the private-equity arm of one of the emirate’s main holding companies, recently agreed to sell industrial packaging firm Mauser for $1.7 billion to a U.S. investor.
S.African pension manager Alexander Forbes raises $347 mln from flotation
Tiisetso Motsoeneng – Reuters
South African pension manager Alexander Forbes priced its stock market listing in the middle of its marketed range on Friday, raising 3.7 billion rand ($347.32 million) in Africa’s second-largest initial public offering this year.
India derivatives tax plans could deter foreign investors
Justin Lee – Risk.net
A change in the way derivatives trades and securities transactions are taxed for foreign portfolio investors (FPIs) could hit investment flows into India and provide incentives for FPIs to set up operations in Singapore or Mauritius – which benefit from favourable treaties with India – say market participants.
Bahrain Bourse Goes Live With Its Upgraded Trading Engine Powered By NASDAQ OMX
Nigerian Stock Exchange Weekly Report For The Week Ended 18 July 2014