John Lothian Newsletter: LSE to allow customers to clear trades on EuroCCP; Goldman puts Metro metals warehousing unit up for sale; Dark Pools Opening Up Amid Increased Scrutiny

May 21, 2014

First Read

Regulation and all its [reporting] glory
Alun Green – Sungard
One of the things I like most about both our industry and the company I work for is their truly global nature. I’ve been writing this week’s column from my desk in Paris where I have been based for the last 18 months but have been collaborating with friends and colleagues in other parts of Europe as well as the US. Modern technology makes it so easy to work with people I have never met in real life. Although there are still many differences in local practice and culture around the world there are many more areas that we have in common.

This got me thinking about cross border collaboration in the regulatory world. The derivatives reporting mandated by the European Securities and Markets Authority (ESMA) is a mess. The six European trade repositories, or TRs, are having problems. The number of matched trades is low due to missing legal entity identifiers (LEIs) and the unique trade identifiers or UTIs that are intended to make pairings possible. A month after the reporting rules came into force on February 12th, the DTCC said that more than half the reports entering its system could not be paired up. The task of matching between TRs is looking daunting.

A lot of the problem comes from confusion about who needs to get an LEI and who should generate a UTI as well as poor definition around the fields used for matching. ESMA has given the industry little guidance on the roles of the different counterparties so non-standard placeholders are proliferating. As we move forward towards valuation reporting there are even more problems looming on the horizon. It is not obvious what to report as the value of a future that is cash settled daily and there is currently little progress being made on this issue. Maybe there is something to be learnt from the US experience in balancing legislation, rule-making, and guidance to ensure that the political mandate is implemented with as little disruption as possible to the industry.


CME Group faces battle in bid to shrink board
CME Group Inc, the world’s largest futures market operator, aims to win shareholder approval on Wednesday to halve the number of board members who represent Chicago Mercantile Exchange users.

***AG: I wonder how important that industry experience is to their role as DSRO.


Mutual funds not guilty of systemic risk charge
Burton Malkiel –
On both sides of the Atlantic, regulators say mutual funds may be “systemically important financial institutions” and therefore subject to bank-like regulation. This would be incorrect and harmful.

***AG: Hard to see that mutual funds are the biggest concern right now.


Mixed Signals in a Corporate Felon’s Punishment
There is a new felon on Wall Street – Credit Suisse. Yet for the most part, the bank will be doing business as usual. The guilty plea the federal government extracted from the bank on Monday was intended to send a clear signal that global financial firms are not “too big to jail.”


CFTC Issues First Whistleblower Award
Commodity Futures Trading Commission (CFTC) Acting Chairman Mark Wetjen announced today that the agency will make its first award to a whistleblower as part of the Commission’s Whistleblower Program created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The person will receive approximately $240,000 for providing valuable information about violations of the Commodity Exchange Act.


The Options Industry Council Signs Content Sharing Agreement with The Shanghai Stock Exchange
The Options Industry Council announced today that it has entered into a content licensing agreement with The Shanghai Stock Exchange to create an educational program for financial professionals and investors in China. The terms of the agreement were finalized in April and mark the first time a content licensing agreement for OIC has been executed with a financial institution in mainland China.

***AG: A great example of the global collaboration I talk about above.


Coquest, Inc. Completes Purchase of Mega Capital LLC
Energy broker Coquest Inc has finalized its purchase of Mega Capital, LLC, an introducing broker specializing in managed futures. The purchase allows Coquest, one of the largest independent US introducing brokers, specializing in energy markets, to diversify its operations and leverage its expertise throughout its brokerage and managed futures businesses.


Itochu Enex selects SunGard Valdi and Stream Clearvision ASP services
Itochu Enex, a major Japanese energy provider, extends its technology outsourcing with SunGard’s Valdi and Stream Clearvision ASP Services to help operate its front-to-middle office technology platform.

***AG: Don’t want to plug too much, too often, but we’re glad to be helping Itochu Enex


Energy Trader Turned Caribbean Surfer Watches for Waves
Rachel Morison – Bloomberg
Europe’s fivefold surge in wind and solar power generation in the past decade sent power prices to nine-year lows and Lars van der Laan to a new job as a kite-surfing instructor.

***AG: Doesn’t seem like such a hard life being an ex-Energy trader


Forget the bonds and get a glass – red wine is a winner in 20th century
Forget government bonds, fine art and even stamps: Red wine outperformed them all over the 20th century.

***AG: The concept of a self-financing wine cellar? Now that’s something that could really excite my friends here in France.



MarketsWiki Page of the Day
Penson Worldwide, Inc.

MarketsWiki Recent Updates


Ralph Kugler

Companies, Organizations and Groups

NASDAQ OMX Group, Inc.; Eagle Seven; Coeur d’Alene Mines Corporation; Credit Suisse Group; Investment Company Institute Education Foundation; London Stock Exchange Group plc; Penson Worldwide Inc.; ICE Endex; Borsa Italiana S.p.A.


Hypothetical Results Disclosure


49,087,023 pages viewed, 7,954 articles, 183,035 edits
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Lead Stories

LSE to allow customers to clear trades on EuroCCP
Philip Stafford –
The London Stock Exchange Group is to allow customers to clear trades on EuroCCP, in a move that could potentially cut the overall costs of share dealing for big market participants in Europe.

Dark Pools Opening Up Amid Increased Scrutiny
Sam Mamudi – Bloomberg
Dark pools, the private trading venues that together host more U.S. equity volume than the New York Stock Exchange, are opening up. New rules on Wall Street this month are forcing dark pool operators to report trading details to regulators.

US Dark Pools to Recede in Year Ahead
Sayena Mostowfi – TabbFORUM
The rise of dark pools in the past decade is about to pause, as the total number of registered Alternative Trading Systems is set to see its first net decline since the SEC approved Reg ATS.

Exclusive: Goldman puts Metro metals warehousing unit up for sale
Goldman Sachs has begun a formal process to sell the metals warehousing business it purchased four years ago, a spokesman said on Tuesday, disclosing the first definitive effort to shed the operation amid regulatory and political pressure.

Senate Clears Path to Confirmation Vote on Fischer to Fed Board
The Senate voted Tuesday to advance the nomination of Stanley Fischer to join the Federal Reserve’s Board of Governors. Mr. Fischer passed the procedural hurdle on a 62-35 vote, with all the opposition coming from Republicans. The Senate is expected to vote to confirm him to the central bank’s board Wednesday.

Commerzbank Suspends Two Foreign-Exchange Traders
Commerzbank AG said Wednesday it has suspended two currencies traders, alleging it caught them in the act of attempting to manipulate foreign-exchange rates. The two traders were trying to move the Polish zloty’s rate against the euro, according to a person familiar with the matter.

German regulator’s discovery advances financial centre twinning
Jonthan Guthrie –
City twinning has taken a leap forward with the uncovering by BaFin of forex-rigging evidence. The misdeeds presumably ramified from the regulator’s Frankfurt stamping ground, which might thus buddy naturally with London, epicentre of Libor-fixing in US eyes. The first delegation of UK crooked traders may even now be en route to Germany, keen to extend the grubby paw of complicity.


NFA Notice to Members: Late Disclosure Filing Fee
NFA staff spends a considerable amount of time and effort to obtain disclosure of matters that applicants or registrants fail to disclose but that NFA discovers on its own. NFA recently adopted rule changes that provide for payment of a $1,000 fee when a firm or individual fails to disclose a disciplinary matter on a registration application or fails to promptly update an existing registration record to disclose a new disciplinary matter. This fee is intended to offset, in part, the cost associated with NFA’s efforts in reviewing non-disclosed matters.

Wall Street watchdog prepares to launch data collection plan in 2015
Wall Street’s industry-funded watchdog aims to build and launch the initial phases of a mammoth broker data collection system in 2015, assuming it secures approval for the plan, the regulator’s head said on Tuesday.

Wall Street regulator backs registration for high-speed traders
Suzanne Barlyn and Sarah N. Lynch | Reuters
High-frequency trading firms should be required to register with U.S. securities regulators, the head of Wall Street’s industry-funded regulator said on Tuesday.

The Future Of Monetary Policy – Speech By Charlie Bean, Deputy Governor Of The Bank Of England

[AMF Canada] Canada-wide insurance of persons qualification program

Exchanges & Trading Facilities

Analysts back LSE deal but warn on execution risk
Ben Wright – Financial News
Analysts have welcomed news that the London Stock Exchange Group has entered exclusive talks to buy Russell Investment, the Seattle-based stock index and asset management business, but warned that the deal faces significant “execution risk”.

Nasdaq Hunting Alibaba After ‘Hundreds’ of Smooth IPOs
Nick Baker – Bloomberg
Nasdaq OMX Group Inc.’s recent successes with initial public offerings should allay any concerns spurred by the exchange’s mishandling of Facebook Inc.’s debut in 2012, Chief Financial Officer Lee Shavel said.

CME Group Declares Dividend
CME Group Inc., the world’s leading and most diverse derivatives marketplace, today declared a second-quarter dividend of $0.47 per share, payable June 25, 2014, to shareholders of record as of June 10, 2014.

Orc Group opens Toronto Stock Exchange, May 20, 2014
TMX Group – YouTube

EnterNext and Midcap Partners host Forum for Paris Region software publishers
EnterNext, the Euronext subsidiary designed to promote and grow the market for SMEs[1], today hosted a forum for software publishers from the Paris region. The event — the first of its kind — led to 54 investor meetings for seven software companies listed on Euronext.

NYSE Margin debt falls in April for 2nd straight month
The value of equities investors bought on the New York Stock Exchange with borrowed money fell 2.9 percent in April from the previous month, marking the second straight monthly decline after reaching a record high in February.

Futures Trader Competition to Award PLN 140 K
The Futures Trader competition organised by Warsaw Stock Exchange and Dom Maklerski mBanku opens on 19 May 2014. The competition is addressed to futures trading fans. The awards total PLN 140 thousand.

Bolsas y Mercados Españoles (BME): Shortening Of The Settlement Period For Bond Transactions To 2 Business Days (D+2)

Hedge Funds & Managed Futures

Hedge fund exit requests rise to five month high in May
Demand to pull out money from hedge funds rose to five month high in May as investors looked to adjust their portfolios ahead of the mid-year point.

Hedge-Fund Middlemen are Getting Cheaper
Rob Copeland – MoneyBeat – WSJ
It’s getting cheaper to get into hedge funds, by one avenue at least. Fund of funds, the middlemen who spread money across a variety of independent hedge funds, have dropped their fees to historic lows, according to a report from researcher Eurekahedge.

Hedge funds wrongfooted by choppy markets
Miles Johnson –
It was meant to be the year of the hedge fund. After near indiscriminate gains for shares in 2013, the choppier markets of this year were hailed as the perfect conditions for the specialist and skilled active fund manager. It has not turned out that way.

BlackRock’s Fink: Managers ‘need to get back to basics’
Sarah Krouse – Financial News
Fund managers are too short-termist and spend too much time talking about products rather than investment outcomes, the chief of the world’s largest fund manager said Tuesday.

Carl Icahn and Ackman’s Bourbon Man Named to Hall of Fame Together
David Benoit – MoneyBeat – WSJ
Good thing Carl Icahn and Bill Ackman made up. Otherwise this would have made for an awkward ceremony. Mario Gabelli’s Gamco Management Hall of Fame (yes, such a hall exists) named to its 2014 class Mr. Icahn and Matthew Shattock, the CEO of bourbon maker Beam Inc. and a man who made a small fortune for Mr. Ackman.

Brevan Howard winds down recovery fund early with 20% profit
Miles Johnson, Hedge Fund Correspondent –
Brevan Howard, the world’s third-largest hedge fund, is winding down early a $385m one-off fund designed to bet on the recovery of US mortgages after making its investors annualised returns of more than 20 per cent over two years.

Mesirow’s Gary Klopfenstein to leave firm
Lynne Marek – Crain’s Chicago Business
Mesirow Financial Holdings Inc. is losing a top executive and board member who built its currency and commodity asset management business into a global business.

Private-Equity Firm CVC Capital Makes First Investment From $3.5 Bln Fund
Chao Deng – MoneyBeat – WSJ
For its first buy from its $3.5 billion Asia fund, CVC Capital Partners is going for office space. The private-equity firm will buy Asian office operator The Executive Centre Ltd.

Five key takeaways from ICG’s results
Dan Dunkley – Financial News
London-listed private equity investor Intermediate Capital Group, once known as a niche provider of mezzanine debt, is moving to becoming a highly-diversified asset manager.

Government in ‘listening mode’ over passive pensions push
Mark Cobley – Financial News
Brandon Lewis, the minister leading a cost-cutting drive at the UK’s £180 billion local government workers’ pension fund, said he was in “listening mode” over his reforms – but council officials reacted badly after he appeared to blame them for poor investment performance.

Norway Loses Reputation as Stable Investment as Firms Recoil
Mikael Holter – Bloomberg
Norway, western Europe’s largest oil producer, is angering a growing number of oil and gas companies after dictating terms for offshore projects worth billions of dollars.

FNEX Appoints Carissa Newton Chief Marketing Officer, Initiates FNEX Marketing Campaign
FNEX, the financial marketplace for alternative investments, today announced that it has appointed Carissa Newton as the company’s Chief Marketing Officer. Ms. Newton reports directly to FNEX CEO Todd Ryden and leads all strategic marketing efforts at FNEX beginning with the company’s national marketing and advertising campaign.

Banks & Brokers

U.S. may seek more than $5 billion in BNP settlement: Bloomberg
U.S. authorities are seeking more than $5 billion from BNP Paribas SA to settle federal and state investigations into the French lender’s dealings with sanctioned countries, Bloomberg reported, citing a person familiar with the matter.

Fewer Theatrics at J.P. Morgan Annual Meeting
Aaron Lucchetti – MoneyBeat – WSJ
J.P. Morgan Chase held an hour-long meeting with much less drama than last year’s edition. The 2013 meeting capped a months-long battle between activist shareholders and the bank’s board, led by Chairman and CEO James Dimon.

HSBC, UBS Ramp Up Investment in Financial Technology
MoneyBeat – WSJ
HSBC has allocated up to $200 million for investment in tech start-ups with the aim of improving the bank’s financial technology, underscoring the growing interest from the financial sector in the fast-growing fintech area.

Banks’ Guilty Secret
Paul J. Davies – MoneyBeat – WSJ
Nowhere is rational self-interest more transparent than in the politics of banking – just look at events around Credit Suisse. The Swiss group Monday pleaded guilty to aiding tax evasion and agreed a $2.6 billion settlement after a long dance of briefings and spin involving the whole industry.

J.P. Morgan’s Annual Meeting Lets Down Two Locals
Emily Glazer – MoneyBeat – WSJ
J.P. Morgan Chase & Co.’s fairly quiet shareholder meeting in Tampa, Fla., disappointed two locals. They came for entertainment, but all they got was a free lunch.

Credit Suisse CEO Brady Dougan Nearly Lost Job During Tax Probe
As a yearslong U.S. tax-evasion case dragged on in recent months, board members at Credit Suisse Group AG considered actions that likely would have cost Brady Dougan his job as chief executive, according to people familiar with the deliberations.

Vatican Bank Cleanup Making Progress, Says Regulator
The regulator overseeing the Vatican’s troublesome financial institutions said on Monday there has been considerable improvement in transparency and the prevention of money laundering, but that more progress was needed.

Clearing & Settlement

EuroCCP (finally) lands LSE link
Anish Puaar and Tim Cave – Financial News
EuroCCP, Europe’s largest cash equities clearing house, is to launch a long-anticipated clearing service for trades conducted on the London Stock Exchange in one of its first contract wins with a major European bourse.

ICAP’s new London SEF targets OTC derivatives
Elliott Holley – Banking Technology
ICAP has launched a swap execution facility in the UK, as part of a push to dominate both the European and the US OTC derivatives markets as they are brought under new regulation.

EC tackling final questions on CCP resolution
Cecile Sourbes –
The European Commission is drawing up proposals on the recovery and resolution of CCPs, but a number of tricky questions still have to be answered

Indexes & Products

Investors pile into palladium and platinum ETFs
Xan Rice –
Holdings of physically backed palladium and platinum exchange traded funds have surged to record highs on the back of concerns over supply from Russia and South Africa and hopes of stronger industrial demand.

Investec Structured Deposits Have Delivered 6.3% Per Annum Average Maturity Returns – Past Performance Data Suggests Structured Deposits Can Provide Better Returns Than Cash Deposits
Past performance data from Investec Structured Products shows returns from their structured deposits with a kick-out feature have outperformed savings bond rates since 2010, with average returns of 6.3% per annum, according to Investec Structured Products (ISP), the leading structured products specialist in the UK

Europe’s First MSCI China A Index ETF Launched On Xetra – New ETF Securities ETFs Provide Access To Chinese A-Shares And US Energy Infrastructure Sector

NASDAQ OMX Lists First Trust Managed Municipal ETF – Actively Managed ETF Began Trading May 15, 2014

ETF Securities Celebrates Listing Of New Chinese Equity ETF On Euronext – First Physical ETF Granting Access To The Chinese Market For European Investor

Half-year review of Euronext-Vigeo CSR indices


Silver Lake’s BlackLine Systems Expects IPO in 18-20 Months
Emily Chasen – MoneyBeat – WSJ
Financial software firm BlackLine Systems Inc., which got more than $200 million in private-equity funding last year from a unit of Silver Lake, expects to go public in the next 18 to 20 months, Chief Executive Officer Therese Tucker said Tuesday.

Patriot Missiles for the Market
Wall Street & Technology
Financial services firms can control wanted behaviors in trading through analysis of fast, big data streams. So why can’t these firms use the same technologies to detect unwanted behavior?

Wall Street IT Salary Survey: Tech Pros Looking for More
Wall Street & Technology
More than five years removed from the start of the 2008 financial crisis, the securities industry is starting to see some growth when it comes to IT salaries and demand for highly skilled workers. However, no one expects IT hiring to reach pre-crisis staffing levels anytime soon, as banks are running more efficient technology organizations than they have in decades.

Nasdaq strategy exec switches to Broadridge
Tim Cave – Financial News
Broadridge Financial Solutions, a provider of outsourced securities services, has hired a senior executive from Nasdaq OMX’s global corporate strategy group as it eyes more acquisitive growth.

DEVnet Releases Open Source Version Of Its kdb+ Building Blocks


SEC Charges Former Deloitte Chief Risk Officer for Violations of Auditor Independence Rules
The Securities and Exchange Commission today charged the former chief risk officer at Deloitte LLP for causing violations of the auditor independence rules that ensure audit firms maintain their objectivity and impartiality with respect to their clients.

Deloitte Partner Sanctioned Over Conflict of Interest With Casino Client
James T. Adams, a partner at the accounting firm Deloitte & Touche, would not ordinarily have gotten in trouble for borrowing money at a casino where he liked to gamble.

U.S. rejects challenge to $13 billion JPMorgan Chase settlement
The U.S. government urged a federal judge to throw out a lawsuit seeking to scuttle its landmark $13 billion settlement with JPMorgan Chase & Co, rejecting a claim that the accord let the largest U.S. bank off too easily.

ASIC launches court action over Astra Resources | The Australian
THE ambitious Adelaide-headquartered Astra Resources and its directors have been thwarted by the corporate watchdog, which has accused the company of illegally raising more than $7.6 million from Australian investors.

[AMF Canada] Three individuals fined $490,000

Environmental & Energy

Carbon debt launch signals progress of China carbon derivatives
Xiao Wang –
MTNs issued by China General Nuclear Power Group are a first step for China’s carbon trading market but significant structural barriers remain in place


Former Top China JPMorgan Banker Said to Be Arrested in Hong Kong
The former head of China investment banking at JPMorgan Chase has been arrested by Hong Kong’s anticorruption agency, a Chinese news report and one person briefed on the matter said on Wednesday, possibly opening up a significant new front in what has now become a global investigation into the Wall Street bank’s hiring practices in China.

China State Planner Unveils Projects Open to Private Investment
China on Wednesday unveiled details of its plans to let private capital take part in major infrastructure projects as part of an effort to support a slowing economy.

China opens debt window for local governments
Jamil Anderlini in Beijing –
China will allow local governments to sell bonds for the first time in a big step towards tackling a looming crisis in local public finances and reining in the shadow banking sector that municipal authorities rely on for funding.

PSE-PDEx merger at a standstill
BusinessWorld Online
THE PLANNED merger of the country’s stock and fixed-income exchanges is at a standstill, a banking industry official yesterday said.

ICAP Rated Best Broker In AsiaRisk Magazine’s Interdealer Rankings For 2014
ICAP, a leading markets operator and provider of post trade risk mitigation and information services, today announced that it has been rated best broker in AsiaRisk Magazine’s Interdealer Rankings for 2014, for the seventh time in the history of the awards.

Markets See EU RMB Centres As Key To Global Role For China FX, Aite Group & Clearstream Report Says
A study from Aite Group, commissioned by Clearstream, on “Internationalising the Renminbi: Weaving a Web for the Next World Currency” shows that market participants in Asia and Europe see the development of offshore centers in Europe as having a key impact on the global liquidity of China’s trading currency, the renminbi (RMB).

Thai Alternative Bourse’s Listed Firms Report 11.93% Sales Increase In Q1
In the first quarter of 2014, companies listed on Market for Alternative Investment (mai), under the Stock Exchange of Thailand (SET) group, reported combined sales of THB 28.5 bln (approx. USD 877 mln), an 11.93 percent increase from a year ago while aggregate net profits declined as a result of rising operating costs.

SGX welcomes Marigold as Hong Kong member in derivatives market

Frontier Markets

Foreign funds may get to hedge foreign exchange in stock exchange derivatives
The Economic Times
Foreign portfolio investors, or FPIs, the largest investors in Indian stocks, who largely cover their currency risk in overseas markets, will now be able to hedge their risk of a falling dollar in currency derivatives segment of stock exchanges such as NSE, BSE and MCX-SX.

African bonds lose honeymoon feeling
Javier Blas in Kigali, Rwanda –
Few statistics better show the rise of Africa over the last decade than the sharp increase in the number of countries in the region boasting a sovereign credit rating.

Mall Built on Saudi Sand Spells Sukuk Success: Islamic Finance
Samuel Potter – Bloomberg
Dar Al Arkan’s third Islamic bond sale in a year is attracting buyers as investors bet the Saudi Arabian company’s real estate assets outweigh a junk credit rating at Standard & Poor’s.


Minyanville’s Harrison: Online Media Model Is ‘Broken’
Paul Vigna – MoneyBeat – WSJ
Todd Harrison is looking for a new business model. Mr. Harrison, who 13 years ago founded Minyanville, the independent, online financial news and commentary website that presented a lively, insider view of the markets, says he’s tired of “fighting for the next click,” of trying to soldier on by sheer will and determination against a business model he believes is “broken.”

Current Account Weekly Column to End
Francesco Guerrera – MoneyBeat – WSJ
All good things must come to an end, and so it is for the Current Account column. For more than three years, I have been privileged to write about finance and markets for the Wall Street Journal. I have thoroughly enjoyed the experience, particularly the interaction with the Journal’s smart, knowledgeable and engaged readers.

John Lothian Newsletter

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Past JLN Newsletters

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How Ken Griffin rebuilt Citadel’s ramparts

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