John Lothian Newsletter: Investment Technology Group to Launch Dark Pool for Bond Trading; Regulators Propose Rule to Reduce Risk of Derivatives; Fed steps up search for Libor alternative

Sep 4, 2014

First Read

Terry Duffy, president and executive chairman, CME Group – My Road and the Industry Challenge
JohnLothianNews.com

“Take a deep look at where you could possibly go…and if you don’t do that and take the near-sighted approach, you’ll be sorry.”

When starting your career, it’s best to think about where each opportunity can take you, rather than being envious of your peers. Terry Duffy, president and executive chairman of the CME Group gives a brief glimpse of how he entered the financial industry and addresses how his audience should utilize each opportunity they receive. One never knows where each job can take them; an entry-level position could one day lead to a top executive role. According to Duffy, we should not look at our careers in a “near-sighted” way, but instead look at long-term possibilities each job can eventually lead to.

Watch the video »

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Nasdaq CEO: We have to confront brutal reality
Geoff Colvin – fortune.com
When Robert Greifeld, 57, became Nasdaq’s chief in 2003, it ran one equity market in the U.S. Today, it owns and operates 26 markets globally for trading stocks, bonds, derivatives, and commodities; its technology runs 70 markets on six continents. Greifeld’s aggressive expansion has been necessary to keep Nasdaq OMX relevant in an industry being heavily disrupted by infotech and globalization. He talked recently with Fortune about high-frequency trading, U.S. competitiveness in capital markets, and more.
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***** How many Russian programmers does it take to attack an exchange?

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Eyes on High-Speed Traders as IEX Pushes for Exchange Status
Scott Patterson – MoneyBeat – WSJ
A big challenge for IEX Group Inc. as it pushes to become a U.S. stock exchange is whether it can compete against stock exchanges that cater to high-speed traders.
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***** Exchanges do a lot more than trading. Is IEX up to the job?

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MGEX Breaks Fiscal Year Volume Record
MGEX, a Designated Contract Market and Derivatives Clearing Organization, concluded its fiscal year on Friday with a total volume of 2,019,544, breaking the previous fiscal year volume record set in 2010-2011 and surpassing the previous fiscal year’s mark by 49 percent.
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***** It was a hard red spring, summer and fall.

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The Options Industry Council And Borsa Istanbul VIOP Sign Content Sharing Agreement
The Options Industry Council announced today that it has entered into a content licensing agreement with Borsa Istanbul Derivatives Market to develop an options education program for Turkish financial professionals and investors.
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***** I hope the OIC has better luck than The IFM did.

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Some Top Prosecutors Are Heading for the Exits
Andrew Grossman and Christopher M. Matthews – WSJ
Some of the Justice Department’s top guns in the fight against financial crimes are leaving. Tony West, the Justice Department’s point man on its high-stakes talks with big banks over mortgage-backed securities, is set to step down Sept. 15, according to department officials.
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***** Is the game over, or does one team just have that big of a lead?

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Michael Bloomberg to Return to Lead Company He Founded
ANDREW ROSS SORKIN – NY Times
Michael R. Bloomberg has decided to reassume the leadership of his business empire only eight months after ending his final term as mayor of New York.
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***** Can you return from government into business? Yes, when you own it.

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Does your alma mater matter?
Joe McGrath – Financial News
Many of those starting university in a few weeks may have little clue what they want to do when they emerge, but any of them organised enough to have their sights already set on a career in fund management might be keen to know how the institution they are about to join could affect their prospects.
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***** Yes, but does Oxford have a good (American) football team?

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Jeromee Johnson, VP & Head of BATS Options, BATS Global Markets – Exchanges, Dark Pools and Other Market Places
JohnLothianNews.com

“You can absolutely gain as much and learn as much from those failures as you can from the things that work.”

Jeromee Johnson, vice president and head of BATS Options for BATS Global Markets, gives an overview on exchanges and marketplaces. He discusses how certain regulatory factors affect some but not all markets, as well as an exchange’s overall goal of bringing buyers and sellers together. Johnson also details the process of creating a new exchange gives an in-depth look at how the regulatory environment could potentially affect a fledgling exchange.

Watch the video »

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Lead Stories

Investment Technology Group to Launch Dark Pool for Bond Trading
Bradley Hope and Katy Burne – WSJ
Investment Technology Group Inc. is jumping into the race to solve one of the trickiest problems for big investors: finding a better way to trade bonds now that banks have stepped back from the business. The New York-based brokerage and technology firm said Wednesday that it is planning to launch a trading venue known as a dark pool, a private platform in which buyers and sellers remain anonymous.
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Regulators Propose Rule to Reduce Risk of Derivatives
PETER EAVIS – Dealbook – NY Times
Federal regulators announced on Wednesday an overhaul of a murky Wall Street market that gained infamy during the financial crisis of 2008.
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Fed steps up search for Libor alternative
Gina Chon in Washington – Financial Times
The US Federal Reserve is stepping up efforts to corral market participants to agree to alternatives to the US dollar Libor benchmark, in what would be a major transition affecting hundreds of trillions of dollars in derivatives contracts.
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Fund managers warn on China trading rules
Jennifer Hughes and Lucy Colback in Hong Kong – Financial Times
The Hong Kong-Shanghai Stock Connect is due to go live next month, allowing investors in each market to trade shares directly in the other. But fund managers say that a series of still unresolved issues could cause traditional long-only investors – exactly the kind of investor China wants to attract – to hold back from using the new system.
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Exclusive: Commerzbank close to settling U.S. sanctions probes
Karen Freifeld – Reuters
German lender Commerzbank AG is nearing agreement with U.S. authorities over its dealings with Iran and other countries under U.S. sanctions, sources familiar with the matter said.
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On Board, at a Mutual Fund
James Sterngold – WSJ
IT MAY BE the most lucrative job you never heard of, and the companies involved may be delighted to keep it that way.
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Computers for Hire Said to Send JPMorgan Data to Russia
Jordan Robertson and Michael Riley – Bloomberg
JPMorgan Chase & Co. (JPM)’s own investigators have found clues that a global network of computers available for hire by sophisticated criminals was used to reroute data stolen from the bank to a major Russian city, according to people familiar with the probe.
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Regulatory

Ex-FDIC Chief Bair Criticizes Bank Rules for Adding Complexity
Rachel Evans – Bloomberg
Updated rules to govern banking after the financial crisis are creating complexity and encouraging lenders to contemplate bailouts, according to Sheila Bair, former chairman of the Federal Deposit Insurance Corp.
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The Mystery of ‘Living Will’ Rules for Banks
Hal Scott – WSJ
Most college students now returning to campuses will never hear the words that the Federal Reserve and the Federal Deposit Insurance Corp. spoke in August to the managements of the country’s 11 largest banks: You’ve failed. Each of these big banks flunked the course titled “living wills.”
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Jet setting FCA: Foreign travel tops regulator’s board expense claims
Laura Miller – Investment Week
The Financial Conduct Authority’s (FCA) directors racked up expense claims between April last year and this March of GBP61,887, mainly to cover the cost of foreign travel for the chairman, chief executive and supervision director.
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Financial reform: Call to arms
Martin Wolf – Financial Times
The financial crises and the years of economic malaise that followed represent profound failures of the economy and of policy. Above all, they were failures of understanding. We have learnt much since. But we have not learnt enough to avoid a repeat of this painful experience. As I argue in a new book, we retain unbalanced and financially fragile economies. We need to be substantially more radical than we have dared to be hitherto.
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US energy firms cheer regulators’ shift on margin rule
Alexander Osipovich – Risk.net
Energy companies breathed a sigh of relief this week after US bank regulators scrapped a three-year-old proposal that would have required non-financial end-users to post margin on bilateral swap transactions not cleared through a central clearing house.
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Dispute Resolution President Linda Fienberg to Retire From FINRA
The Financial Industry Regulatory Authority (FINRA) today announced that Linda D. Fienberg, President, FINRA Dispute Resolution, and Chief Hearing Officer is planning to leave the organization at the end of November. Ms. Fienberg joined FINRA in June 1996 and has responsibility for FINRA’s dispute resolution and disciplinary hearing programs.
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US Federal Agencies Seek Comment On Swap Margin Requirements
Press Release
Five federal agencies are seeking comment on a proposed rule to establish margin requirements for swap dealers, major swap participants, security-based swap dealers, and major security-based swap participants as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).
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National Futures Association: Decrease in Membership Dues for Major Swap Participants – NFA Bylaw 1301 Regarding Schedule of Dues and Assessments
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National Futures Association: Daily Confirmation of Funds Covering Liabilities to Retail Forex Customers – NFA Financial Requirements Section 14 Regarding Assets Covering Liabilities to Retail Forex Customers
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New Zealand’s Financial Markets Authority: Presentation By Rob Everett To The Institute Of Directors
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ESMA Sees Valuation Risks In Key Market Segments Rising
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Exchanges & Trading Facilities

Exchange glitch hurts German bond auction demand – traders
John Geddie and Clare Hutchison – Reuters
Derivatives exchange Eurex suspended trading on its five-year German bond future contracts on Wednesday morning, a move that dented demand at a coinciding five-year German bond auction, traders said.
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IEX CEO Katsuyama Says Capital Gives `Flexibility’: Video
Bloomberg
Brad Katsuyama, chief executive officer of IEX Group Inc., talks about the company’s move to raise $75 million from investors including billionaire Steve Wynn and Bain Capital Ventures. Katsuyama, speaking with Trish Regan on Bloomberg Television’s “Street Smart,” also discusses stock exchange technology and high-frequency trading.
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CME Group Volume Averaged 13.0 Million Contracts per Day in August 2014, Up 7 Percent from August 2013
CME Group, the world’s leading and most diverse derivatives marketplace, today announced that August 2014 volume averaged 13.0 million contracts per day, up 7 percent from August 2013. Total volume for August 2014 was more than 273 million contracts, of which 87 percent was traded electronically. This includes a record 52 percent of options traded electronically. CME Group open interest hit a record level of 105.6 million contracts on August 14 and stands at approximately 103.7 million contracts at the end of the month, up 3 percent from the end of July 2014 and 24 percent year-to-date.
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TMX Group Consolidated Trading Statistics – August 2014: Toronto Stock Exchange, TSX Venture Exchange, TMX Select, Alpha, Montreal Exchange, NGX
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Vienna Stock Exchange Monthly Statistics – August 2014
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Monthly Summary Bulgarian Stock Exchange-Sofia August 2014
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Hedge Funds & Managed Futures

Blackstone Said to Commit $200 Million to Brown’s Fund Firm
Bei Hu – Bloomberg
Blackstone Group LP (BX) has committed $200 million to Arkkan Capital Management Ltd., run by a former head of Goldman Sachs Group Inc.’s Global Special Situations Group, said a person with knowledge of the matter.
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Och-Ziff attracts billions despite tepid performance, legal concerns
Lawrence Delevingne – CNBC
Och-Ziff Capital Management Group grew to be one of the largest hedge fund firms in the world by convincing clients it could deliver relatively modest but steady returns as a stable and safe steward for institutional investors.
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Pimco’s Flagship Fund Shrinks Again
Min Zeng – WSJ
Investors withdrew cash in August for the 16th straight month from the Pimco Total Return bond fund run by Bill Gross, the latest reversal for the giant fund and its high-profile manager.
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Equilibrium readies launch of in-house range
Nick Paler – Investment Week
Equilibrium Asset Management is to launch its own range of in-house funds next year as it looks to curtail its use of platforms and avoid trading delays.
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Arrowgrass hedge fund moves into electronic invoicing
Miles Johnson, Hedge Fund Correspondent – Financial Times
Arrowgrass Capital, the $5bn London hedge fund, is planning to develop an electronic invoicing service in the latest move into disruptive financial services businesses by alternative investors.
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Names of U.S. Billionaires Vanish From Russian Fund’s Website
Simon Clark – WSJ
The names of three billionaire U.S. private-equity tycoons have disappeared from the website of a $10 billion Russian state investment fund, although they continue to serve on its international advisory board. Blackstone Group LP founder Stephen Schwarzman, TPG founder David Bonderman and Apollo Global Management LLC founder Leon Black became advisers to the Russian Direct Investment Fund in 2011.
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UK’s biggest pension fund prepares for a ‘difficult’ year
Mark Cobley – Financial News
The Universities Superannuation Scheme, the pension fund that covers the UK’s higher-education sector, has warned of “difficult decisions in the coming year” as it grapples with a GBP7 billion funding shortfall.
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Banks & Brokers

Bank Liquidity Rules Excluding Munis Set for Approval
Jesse Hamilton – Bloomberg
U.S. regulators set requirements for the amount of high-quality, liquid assets big banks must stockpile to survive a 30-day liquidity drought, taking a major step in efforts to prevent a repeat of the 2008 credit crisis.
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Deutsche Bank Names New North America Head of Corporate Banking and Securities
Justin Baer – WSJ
Deutsche Bank AG appointed veteran Wall Street executive Tom Humphrey to head the German lender’s investment-banking and securities business in North America.
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Citi to pay $217,841 to settle OFAC violation liabilities
Reuters
Citigroup Inc has agreed to remit $217,841 to settle potential civil liability for apparently violating multiple sanctions programs of the Office of Foreign Assets Control, the U.S. Department of Treasury said on Wednesday.
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Clearing & Settlement

CME Clearing signs up for BNY CSD
The Trade
CME Clearing Europe, CME Group’s European clearing house, settled its first securities transaction through BNY Mellon CSD, the custodian bank’s central securities depository, in late August.
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Faster, faster: speedier settlement arrives
Anish Puaar – Financial News
In little more than a month, Europe’s securities markets will be facing one of the most significant operational challenges for some time, with the introduction of shorter settlement cycles.
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CFTC Swaps Report Update
CFTC’s Weekly Swaps Report has been updated, and is now available.
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Indexes & Products

F-Squared Investments Receives Wells Notice From SEC, and Brokers Back Away
Chris Dieterich and Corrie Driebusch – WSJ
Three large brokerage firms are distancing themselves from money manager F-Squared Investments Inc., amid regulatory scrutiny of whether the firm overstated its track record. RBC Wealth Management and Raymond James Financial Inc. have set limits on how much new business its advisers can conduct with F-Squared, according to people familiar with the policies.
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Deutsche Annington Immobilien SE And Kion Group AG To Be Included In MDAX Deutsche Börse Reviews Index Composition – Changes Are Effective On 22 September 2014
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Technology

EEX Selects Trading Technologies’ Next-Generation Trading Platform as Direct Screen Offer
The European Energy Exchange AG (EEX), Europe’s leading energy exchange, and Trading Technologies International, Inc. (TT), a provider of high-performance professional trading platforms, today announced that EEX has contracted with TT to supply the exchange’s trading participants with direct access to the exchange via the direct screen.
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SmartTrade OMS enhances feature lineup
Charlie Woodward – The Trade
SmartTrade Technologies has announced a new release of its order management system (OMS), with improved algo support and custom order types.
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Quincy Extreme Data adds Eurex Futures Order Book Data to its Lowest Latency Service
The Quincy Extreme Data service now offers order book data on select Eurex bond and equity futures. The QED service distributes select Eurex futures in major trading centers in the UK, New Jersey and Illinois at the lowest known commercial latency.
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Australian-Based BlueScope Moves Global Treasury to the Cloud
BlueScope, a steel producer in Australia, New Zealand and the U.S. and a leading international supplier of steel products and solutions, has automated its global treasury processes with AvantGard’s Treasury (Integrity) solution, in SunGard’s private cloud hosted environment for improved operational efficiencies and global visibility into cash and risk.
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PanXchange Welcomes Norman Hay as Director
Norman Hay, who retired recently as CEO of Cargill, International S.A. and head of the Petroleum Business Unit, joins PanXchange, Inc. as Director. Mr. Hay, who has 38 years with Cargill in global leadership roles across grains, energy and soft commodities, will be remain in Geneva, Switzerland and focus US and international energy projects for PanXchange. PanXchange provides a patented web-based negotiation and trading platform specializing in regional and international physical commodities.
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Azul Systems Showcases Award-Winning Java Solutions At Multiple Conferences Throughout September 2014 – Catch Up With Azul In Las Vegas, San Francisco, San Diego And London
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Dion Completes Acquisition Of European Banking Software Specialist
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Enforcement

Court Overturns Ruling Against Goldman Sachs – Law Blog
Daniel Huang – WSJ
Goldman Sachs Group Inc. shouldn’t be required to advance legal fees to a former computer programmer at the firm, Sergey Aleynikov, a federal appeals court ruled Wednesday.
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SEC Charges L.A.-Based Immigration Attorneys With Defrauding Investors Seeking U.S. Residency
The Securities and Exchange Commission today charged a Los Angeles-based immigration attorney, his wife, and his law firm partner with conducting an investment scheme to defraud foreign investors trying to come to the U.S. through the EB-5 Immigrant Investor Program.
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Environmental & Energy

France plans climate harmony ahead of 2015 UN summit
Sophie Yeo, RTCC (Responding to Climate Change)
Laurence Tubiana wants the finale to the UN climate talks – taking place next winter in the Parisian suburbs, miles from the centre’s concert halls and cabarets – to resemble an orchestra.
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Now Is the Time to Act on Climate Change
Ban Ki-moon, Huffpost
Climate change has been one of my top priorities since the day I took office in 2007. I said then that if we care about our legacy for succeeding generations, this is the time for decisive global action.
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New York climate summit is a chance to push for long-term climate neutrality
Christiana Figueres and Mario Molina, theguardian.com
This month, the UN secretary general will host a major climate summit: it is a moment in time for heads of state, cities, organisations, and companies to announce bold new initiatives to address climate change in the short to medium term.
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Asia-Pacific

Fidelity to launch high conviction Asia Pacific fund
Nick Paler – Investment Week
Fidelity Worldwide Investments is preparing to launch a high conviction Asian equities fund for Anthony Srom.
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Japan volumes level out in August
Simon Osborne – The Trade
The Japan Exchange Group has released its trading overview for August 2014. In the cash equity market, the daily average trading value in the Tokyo Stock Exchange’s 1st Section was JPY 1.95 trillion, unchanged on the previous month. In June, average daily turnover was JPY 2.16 trillion.
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Taiwan seeks co-operation with LSE
Simon Osborne – The Trade
The Taiwan Exchange (TWSE) is on the road in Europe and hopes to strike up a relationship with the London Stock Exchange (LSE).
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TOCOM Corn Open Interest Tops 30,000 Contracts
The open interest for the corn futures contract was 30,631 hitting the 3 year high today. The last time it reached beyond 30,000 contracts was September 15, 2011, when the contract was traded on the Tokyo Grain Exchange. The contract was transferred to TOCOM in February 2013.
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China’s State Media Join Brokerages Saying Buy Equities
Bloomberg
China’s state-run media are trying to do something the securities industry has failed to accomplish for much of the past three years: get the world’s biggest population to buy more stocks.
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Hong Kong Brokers Sign up with SunGard for China Connect
In preparation for the launch of Shanghai-Hong Kong Stock Connect (also called “China Connect”) shares in October, five brokerages have turned to SunGard to access the China Connect program via the Hong Kong Exchange’s China Connect Open Gateway (CC OG). SunGard’s solutions propel a number of financial services operations across the globe, helping customers connect to international markets and capture new trading opportunities.
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HKEx: Establishment Of Shanghai-Hong Kong Stock Connect
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HKEx: Four-Party Agreement For Shanghai-Hong Kong Stock Connect Signed
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Frontier Markets

Equity markets: Saudi Arabia’s big step forward
Chris Wright – Euromoney Magazine
Its stock market is the biggest in the region, but impenetrable. That is about to change: the local regulator says foreigners will be allowed to invest from next year. That’s a big deal.
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Meet the New Rich…in Myanmar
Shibani Mahtani – WSJ
On this balmy Saturday evening at Yangon’s Wardan jetty, dock workers have momentarily stopped loading and unloading crates from rickety fishing boats. Vegetable sellers that line the dusty road by the Yangon River are sitting quiet, and trishaw drivers, too, have stopped shouting out at passersby to offer them rides.
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Oman Crude Oil Futures Contract (DME Oman) Trades Below $100/b
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Miscellaneous

‘How to Speak Money’, by John Lancaster
Review by Lucy Kellaway – Financial Times
In the mid-1980s I went to a talk at the Bank of England designed to help journalists understand the ins and outs of banking supervision. It was long and pretty impenetrable, and at the end of it a man at the back put up his hand and asked: “What is a bond?”
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