John Lothian Newsletter: LSE to conclude Russell deal within weeks; CFTC to Look Into Disclosure of Identities of Swap Counterparties; Rolet: US is our 'number one' market

Nov 13, 2014

First Read

Bits & Pieces
By John J. Lothian
The WMBA held a very successful SEFCON V in New York yesterday, with over 350 people in attendance. The media company Profit & Loss organized the event for the WMBA this year and attracted more media to the event than the FIA had for the recent EXPO.

John Lothian News was well represented with Doug Ashburn, RJ Roxas and myself in attendance, with Doug and RJ conducting video interviews on the side. Expect a video recap of issues addressed at SEFCON V and confronting the SEF and Interdealer Broker community to be published in the coming weeks.

The Chicago Board of Trade Building is holding a food drive to aid the Greater Chicago Food Depository, one of my favorite charities. As we approach Thanksgiving in the US, the timing of their food drive could not be better.

Speaking of Thanksgiving, my Boy Scout troop is holding their annual Turkey Feast this weekend at a nearby forest preserve. Amid 30 degree temperatures, we will be cooking turkeys and Thanksgiving fixings and serving 55 people. It is one of the ways we try to recruit Webelos into our troop. I expect we will have a big fire going the whole time.

Also speaking of Boy Scouts, which I do seemingly even more frequently these days, I am the keynote speaker at tonight’s LaSalle Street After Hours Affair. I am addressing the issue of making Chicago the STEM Capital of the World. You can still sign up and attend if you like.

Thank you to Craig Donohue of the OCC for chairing this year’s event and to all of the people on the event’s committee who have worked so hard to make it a success.

In tomorrow’s newsletter I will tell you all about what I had to say tonight. Stay tuned.

I had an interesting phishing experience yesterday. One of my Facebook contacts requested to be Friended again. It was an elderly friend who I thought had created a new, second account. Instead it was someone impersonating him, with his picture and details, in a new account trying to get me to apply for government money. You have to admire their creativity to try to steal my money.

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CFTC head defends agency from idea of merging
EricGarcia – Marketwatch.com
After news of the Commodity Futures Trading Commission ordering five banks to pay more than $1.4 billion over foreign-exchange trading abuses, Chairman Timothy Massad defended the agency from proposals of merging with the Securities Exchange Commission because the two agencies had different purposes.
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**JK – There are many reasons the two agencies should merge. And given the staffing and budget issues that have gone on for years at the CFTC, a merged entity may give it the resources it needs.

***JL – There are many reasons the CFTC and SEC should not merge, among them is the different cultures and purposes they play. Forget a merger, create a new agency with a new culture and purpose.

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Investors flee from commodities as markets slide
Neil Hume, Commodities Editor – Financial Times
After a torrid couple of months, investors are voting with their feet and fleeing raw materials. The latest figures show that almost $9bn was withdrawn from commodity investments in September and October following steep declines in key sectors such as crude oil, agriculture and gold.
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***** Markets go down faster than they go up. I have seen it too many times. Where is the short commodities ETF?

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Steve Tucker, S&P Capital IQ – Dynamic Data: How markets use and consume information
JohnLothianNews.com

“If you think about it…nothing happens in our industry without [data]. There are no fiscal decisions made, there are no financial trades made, there are no mergers and acquisitions.”

Steve Tucker, managing director, global head of enterprise and real-time solutions for S&P Capital IQ, discusses the importance of data and how the digitalization of data has affected today’s financial industry. Tucker gives a humorous opening example of two hamsters his son acquired, and how his son did not realize that he had a male and female hamster. After discovering a new set of baby hamsters in their household, Tucker relates this experience to how important knowing your data is, and then calculates the possible number of combinations of breeding hamsters his family could end up with. Tucker also discusses new and innovative ways firms are tapping into data and what the future of markets and trading holds for new graduates.

Watch the video »

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Tech Tap Live: Fixed Income Spread Trading Workshop with Eurex and TT
Trading Technologies
222 S. Riverside Plaza, 11th Floor, Chicago, IL
TODAY!! November 13, 2014 from 4:00 PM to 7:00 PM (CST)
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**JK – This is worth it, just for checking out TT’s bar. Oh, and the spread trading info too.

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Emerging Manager Forum: Miami 2014
December 9, 2014 | Hotel Fontainebleau Miami Beach
The Emerging Manager Forum at Hotel Fontainebleau in Miami Beach, Florida provides emerging hedge funds and CTAs from Europe, the U.S. and Latin America the opportunity to network and exchange ideas with capital sources from those regions looking for new sources of alpha for their portfolios. EMF is designed with significant networking time for participants and sessions with topics that will benefit capital sources and managers. This is the 13th conference organized by CTA EXPO LLC. The last conference in Chicago in September 2014 had over 430 registered including 180 registered as capital sources and 68 trading firms.
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**JK – Always a good conference and now at the hotel where they filmed James Bond – as in, Isaacson, Bucky Isaacson.

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Webinar: Harness the Power of ZEMA’s data with FutureSource
Join ZE and Interactive Data Corporation (IDCO) for a complimentary webinar on November 13, 2014 from 9:00-9:45 a.m. (PST) to learn how an integrated ZEMA and FutureSource solution will help you extract the most value from your real-time public, third-party, and proprietary client data all in one consolidated view and workflow.
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Sponsored Content
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Our cloud supported solutions include Data Feeds, Trading Software (Barchart Trader), Website Content Solutions and our flagship cloud service Barchart OnDemand, which is a solution within AWS that brings cloud infrastructure to financial and technology firms. Barchart OnDemand offers an extensive collection of web services APIs containing everything from global futures and equity pricing to reference and fundamental data to news and weather.

Additionally, Barchart’s cloud-based infrastructure and applications are being used by businesses as their own for EDM and Big Data solutions. Whether as a Data Warehouse, a Distribution Platform or for End-User Solutions like APIs, Analytics and Software.

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Lead Stories

LSE to conclude Russell deal within weeks
Philip Stafford – Financial Times
The London Stock Exchange Group said its planned $2.7bn purchase of Russell Investments, the US indices compiler, was ahead of schedule and likely to close in the coming weeks.
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CFTC to Look Into Disclosure of Identities of Swap Counterparties
Katy Burne – WSJ
A top U.S. regulator said his agency would scrutinize a practice in the multitrillion-dollar swaps market that some investors say has been discouraging trading.
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Lazard’s Weiss Selected as U.S. Treasury Undersecretary
Ian Katz and Zachary R. Mider – Bloomberg
Antonio Weiss, global head of investment banking at Lazard Ltd., will be nominated by President Barack Obama as the U.S. Treasury Department’s top domestic finance official, the White House said in a statement.
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**JK – What? This doesn’t say anything about Goldman Sachs. Something’s wrong.

Rolet: US is our ‘number one’ market
Tim Cave – Financial News
London Stock Exchange chief executive Xavier Rolet today described the US as the exchange’s “number one” market, in a further sign of the group’s rapid expansion beyond its UK roots.
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Bloomberg Swaps-Trading Platform Suffers Nearly Hourlong Outage
Katy Burne – WSJ
A swaps-trading platform operated by news and technology provider Bloomberg LP went down for about an hour early Wednesday, the company said, in the latest hitch for market participants complying with a postcrisis regulatory overhaul of derivatives trading.
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Europe money fund yields set to go negative
Christopher Thompson – Financial Times
Risk-averse investors seeking short-term safety will soon have to pay for the privilege as yields on ultraconservative money market funds are set to go negative.
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‘Cartell’ Chat Room Traders Boasted of Whacking FX Market
Gavin Finch and Liam Vaughan – Bloomberg
In an early morning chat, three senior currency traders at some of the world’s biggest banks weighed the pros and cons of admitting a fourth member to their private instant-message group.
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A Primer on How Currency Manipulation Worked
Chad Bray – Dealbook – NY Times
Some of the world’s biggest banks have agreed to pay regulators in Britain, the United States and Switzerland more than $4 billion for conspiring to manipulate benchmark foreign currency rates. How, according to regulators, did the banks manipulate the rates?
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Foreign Exchange Settlement Shows the Lessons Banks Have Learned
Peter J. Henning – Dealbook – NY Times
The settlements by five global banks for manipulating the foreign currency markets show a strategy based on strength in numbers: The more banks that are disciplined, the less any one of them will be the focus of public attention for their violations.
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No end in sight to a rotten culture
John Plender – Financial Times
On the Richter scale of financial skulduggery, this surely rates a score of 10. When traders at some of the world’s largest banks collude in rigging systematically the world’s biggest and most liquid market, foreign exchange, even seasoned observers of high (or low) finance will blanch.
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Questions Raised as Barclays Takes a Step Back
George Hay – Dealbook – NY Times
Barclays is once again exposed. In June 2012, the British bank was the first to settle claims that its staff tried to rig the London Interbank Offered Rate. It promptly lost its senior management and a good deal of its reputation. A decision this time round to hang back from an industry settlement for multiple failings in foreign exchange trading is harder to immediately assess. But it probably isn’t good news.
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World too complex for smart beta
James Saft – Reuters
Ironically, the simple truth may be that the world is more complex and less stable than popular smart beta strategies assume.
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Forex Investors May Face $1 Billion Loss as Trade Site Vanishes
David Evans – Bloomberg
The first time Rajibuddin Mandal, a family doctor in Birmingham, England, tried his hand at trading currencies online, he lost 2,000 British pounds. From that experience, he concluded that the foreign-exchange market was too big, too complex and too hazardous for amateur investors like himself. He decided he needed help from the professionals.
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Regulatory

Poacher turned gamekeeper, Swiss overseer Branson shows teeth
Reuters
Switzerland’s top bank regulator signalled a tougher line on Wednesday for a watchdog that has long been accused of being too soft on big institutions, as newly appointed boss Mark Branson slapped a record fine on his own former employer, UBS.
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Statement Of CFTC Chairman Tim Massad On Today’s Forex Enforcement Announcement
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Statement From Commissioner J. Christopher Giancarlo: Reconsidering The CFTC’s Swaps Trading Rules For Greater Effectiveness In The Global Economy
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Regulation In A Recovery – Speech By John-Griffith Jones, FCA Chairman, At The CASS Business School, London
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Comptroller Of The Currency Thomas J. Curry Discusses The Globalization Of Bank Supervision
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Exchanges & Trading Facilities

LSEG’s post-trade businesses boost revenues
The Trade
Revenues from the London Stock Exchange Group’s (LSEG) post-trade services increased by over a third during the first half of the financial year, with global investors shifting their operations to meet central clearing requirements.
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CLTX And Deutsche Börse Market Data + Services Announce Exclusive Real-Time Data Agreement
Cleartrade (CLTX), the Singapore regulated futures exchange for commodity derivatives, today announced an exclusive worldwide real-time data agreement with Deutsche Börse Market Data + Services.
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Eris wins key market-maker client for US swap future
Luke Jeffs – Futures & Options World
Eris Exchange, the US swap future market, has won the backing of one of the world’s top market-makers in the latest sign of growing support for the new breed of US swap futures markets.
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Cross Listing Of EEX And Cleartrade Exchange (CLTX) Products – EEX Offers Clearing For Dry Bulk Freight Futures From January – Other Products Will Follow Soon
On 6 January 2015 EEX extends its product range by additional commodities. In addition to the existing products for power, natural gas, emission rights and coal, EEX will launch Dry Bulk Freight Futures contracts as part of its trade registration service.
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Xetra/Börse: Subscription Launch For German Pellets GmbH Bond In The Prime Standard
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Hedge Funds & Managed Futures

Autumn volatility puts managed futures top in class
Sarah Krouse – Financial News
Managed futures hedge funds continued a strong run in October as positive returns, helped by the uptick in volatility, made the strategy the best performer for the year-to-date.
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A private equity vintage to remember
Becky Pritchard – Financial News
It is more than six years since Lehman’s bankruptcy put an end to the boom years for private equity. The years leading up to the collapse were record-breaking both in terms of the total money raised by buyout firms for European deals and the money they spent.
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Aronstein’s Marketfield Fund Has $2.2 Billion Redemptions
Miles Weiss – Bloomberg
Michael Aronstein’s MainStay Marketfield (MFLDX) Fund, one of the biggest beneficiaries of demand for alternative trading strategies in recent years, suffered record withdrawals of $2.2 billion in October amid losses and surging market volatility.
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Patrick Drahi’s investment vehicle takes shape
Nick Kostov – Financial News
A former wealth manager at Goldman Sachs is the latest senior recruit to a London-based investment vehicle with links to Patrick Drahi, the French billionaire telecoms entrepreneur.
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Knightsbridge: An alternative home for alternative investors
Clare Dickinson – Financial News
Knightsbridge, home of Harrods, Harvey Nichols and One Hyde Park, is rarely considered the cheaper option.
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Rothschild adviser steps down from new funds unit
Vivek Ahuja – Financial News
A former head of Axa’s investment solutions business has stepped down from his role as a director at a new unit within Rothschild’s asset management arm that he had been expected to lead.
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TABB Group Estimates Technology Total Cost Of Ownership (TCO) Per Front Office Employee Averages $461,000 Per Year
New Research Shows Human Capital Is 75% Of TCO – Recommends Comprehensive TCO Framework – Develops TCO Benchmarks Based On Staffing Categories And Usage Intensity
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Banks & Brokers

State Street Probe Centers on Ties to Ohio Lobbyist
Saabira Chaudhuri, Dan Fitzpatrick and Jean Eaglesham – WSJ
Federal officials are examining the connections between Boston financial giant State Street Corp. and an Ohio lobbyist as part of a broader look at the company’s dealings with public pension funds, according to people familiar with the investigations.
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Monte dei Paschi Reports Nearly $1 Billion Loss in Third Quarter
Jack Ewing – Dealbook – NY Times
Monte dei Paschi di Siena, Europe’s oldest bank and one of its most troubled, on Wednesday reported a loss of 797 million euros, or $991 million, in the third quarter after it drastically increased the amount of money set aside to cover problem loans.
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Here Are the 78 New Partners at Goldman Sachs – MoneyBeat
MoneyBeat – WSJ
Goldman Sachs Group Inc.% on Wednesday revealed a list of 78 employees who have been tapped to join one of Wall Street’s most exclusive clubs: the prestigious firm’s partnership.
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BGC Issues Letter To GFI Shareholders
Clarifies Tender Offer Terms, Largely in Response to GFI Board Request; BGC’S $5.25 Per Share All-Cash Offer is Clearly Superior to the Proposed CME Transaction; Shareholders Urged to Send a Strong Message by Promptly Tendering Their Shares
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E*Trade Unveils New Debt Plans
Daniel Huang – WSJ
E*Trade Financial Corp. unveiled new debt restructuring plans Wednesday as well as regulatory approval for another quarterly dividend.
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Goldman Sachs defeats appeal over collapsed buyout
Reuters
A federal appeals court ruled in favor of Goldman Sachs Group Inc in a lawsuit accusing the Wall Street investment bank of negligence for arranging the $580 million sale of a married couple’s speech recognition company to Lernout & Hauspie, which soon collapsed in an accounting fraud.
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Nasdaq to Provide SMARTS Broker Technology to Kyte Group Limited (NASDAQ:NDAQ)
Nasdaq, the world’s leading provider of market technology, today announced it will provide SMARTS Broker technology to The Kyte Group Limited, an independent Futures Commission Merchant (FCM), providing DMA, brokerage, clearing and settlement services to professional traders who transact business on the world’s leading exchanges. The surveillance technology, which is now live, will be leveraged across their entire span of trading on derivatives and equities markets.
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Clearing & Settlement

US-EU Clearing Cliff down to single day
Luke Jeffs – Futures & Options World
The current regulatory impasse that could see European firms paying much more to trade in the US is down to disagreement between Europe and the US over their differing approaches to margin calls, according to sources.
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Brazil first to go live on new collateral service
Futures & Options World
Brazil’s settlement house Cetip will be the first to trial a new client platform from the Liquidity Alliance, a consortium of international settlement providers seeking to address the global liquidity constraints of global banks and money managers.
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Global exchanges in fight for Asia clearing market share
Risk.net
CME has no clear Australia strategy and Eurex is still waiting for a licence. Meanwhile, Ice and LCH.Clearnet are running ahead in the battle for the Asia clearing market
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Bloomberg and UBS clash over Sef aggregation
Risk.net
UBS claims users of its Neo platform are being blocked from trading on Bloomberg’s Sef; Bloomberg questions value of aggregation Bloomberg and UBS clashed yesterday over attempts by the Swiss bank to provide clients of its Neo trading platform with access to Bloomberg’s swap execution facility (Sef) – a so-called introducing broker service that UBS claims the Sef refuses to support.
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Technology

Trading Technologies Wins “Best Buy-Side Commodities Trading Platform” at Buy-Side Technology Awards
Trading Technologies International, Inc. (TT), a provider of high-performance professional trading software, was named “Best Buy-Side Commodities Trading Platform” at Waters Technology’s Buy-Side Technology Awards luncheon in London last Friday.
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Finra to Focus on Fixed Income ATSs & Algo Providers
Ivy Schmerken – Wall Street & Technology
Finra CEO Richard Ketchum outlines plans for requiring brokers that use fixed-income “RFQ systems” to provide more pre-trade price transparency to customers. In equities, Finra wants to register firms involved in designing algorithms.
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Instinet aims at sell side with newport 3 enhancements
WatersTechnology
Instinet Incorporated has added new functionality to Newport 3 in an effort to grow the trading platform’s presence in order and execution management (OEMS) space on the sell side.
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Colt to Buy Japanese Network, Hosting Partner KVH
WatersTechnology
Network and hosting service provider Colt has announced a deal to acquire Japanese counterpart KVH for JPY18.595 billion [$3.03 billion] in cash, to expand the vendor into Asian markets, with a particular focus on Singapore, Hong Kong and Seoul.
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Interxion To Host Perseus Telecom’s New Global Network Operations Centre Infrastructure
Interxion, a leading European provider of cloud and carrier-neutral colocation data centre services, today announces that Perseus Telecom is to host its new network infrastructure at Interxion’s Dublin facility. This will connect to Perseus’s new Network Operations Centre (NOC) in Galway.
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Lombard Risk Winner Of Custody Risk’s European Award 2014 – “Collateral Technology Vendor Of The Year”
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Enforcement

SEC Announces Charges Against India-Based Operators of High-Yield Investment Scheme Using Social Media
The Securities and Exchange Commission today announced charges against two India-based operators of an alleged high-yield investment scheme seeking to exploit investors through pervasive social media pitches on Facebook, YouTube, and Twitter.
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Court Rejects Bail for Former SAC Capital Trader Mathew Martoma
Matthew Goldstein – Dealbook – NY Times
Mathew Martoma’s bid to stay out of prison pending an appeal of his insider trading conviction did not last much past lunchtime.
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Environmental & Energy

U.S. and Chinese leaders make major breakthrough on climate change
Christi Parsons, Julie Makinen, Neela Banerjee, Los Angeles Times
Reflecting the urgency and scale scientists have called for to cope with climate change, the U.S. and Chinese presidents laid out ambitious new targets Wednesday to cut pollution in a deal that negotiators hope will inspire similarly dramatic commitments from other countries.
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White House: China needs to come to table in ‘serious way’ on climate
Laura Barron-Lopez, The Hill
President Obama will talk with Chinese President Xi Jinping about climate change and the ongoing negotiations to forge a global treaty during his visit to China this week, according to White House officials.
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McConnell: US-China deal ‘unrealistic’
Timothy Cama, The Hill
Senate Minority Leader Mitch McConnell (R-Ky.) wasted little time Tuesday night in blasting President Obama’s climate agreement with China as another costly, unpopular environmental move.
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Asia-Pacific

PBOC Said to Invite Smaller Banks to Apply for Cash Injections
Bloomberg
The People’s Bank of China is gauging city commercial banks’ demand for funds to support lending to small enterprises, according to an official with knowledge of the matter.
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SGX Publishes Terms Of Reference For Board Committee Of Inquiry Into The Breakdown On 5 November 2014
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Frontier Markets

Large funds bust underperformance myth
Business Standard News
The myth that size is a constraint for larger equity schemes when it comes to performance appears to have been busted. India is now home to more Rs 5,000-crore-plus asset size equity funds than ever before in the past.
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The Appointment Of Mr. Azar as CEO Of The Amman Stock Exchange
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John Lothian Newsletter

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CEO, Trading Technologies

Past JLN Newsletters

Market Narratives Have Pushed Aside Fundamentals

Market Narratives Have Pushed Aside Fundamentals

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

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