John Lothian Newsletter: Maker-taker pricing: Econ 101?; Europe's Banking Risk Plan Is a Long Shot; Deutsche Bank chief says change needed on FX fixings

Jan 30, 2014

First Read

NFA Board Election Results
John Lothian
The story of the NFA board election results were not very different from many years gone by, with incumbents re-elected across the board. However, two candidates, their candidacy supported by this newsletter, were re-elected over extremely well qualified challengers encouraged to run by NFA staff members.

Rogue incumbent candidates Doug Bry and Ernest L. Jaffarian were re-elected to the NFA’s board of directors representing CTA’s and CPOs, the NFA announced yesterday. Congratulations to Bry and Jaffarian, and to Adam Cooper (Citidel) and Brendan Kalb (AQR) for well run campaigns.

Also winning re-election, in the FCM space was Michael C. Dawley (Goldman Sachs), Gerald F. Corcoran, (RJO), and Scott A. Cordes (CHS Hedging). Additionally, incumbent Paul J. Georgy (Allendale), was re-elected to represent introducing brokers.

The NFA also reported re-elections of the following swap dealer/major swap participants: Robert P. Burke, Managing Director, Bank of America Merrill Lynch; Charlotte B. McLaughlin, President and CEO, PNC Capital Markets; Philip A. Olesen, Managing Director and Global Head of Credit Trading, UBS Securities; and Don Thompson, Managing Director and Associate General Counsel, JPMorgan Chase & Co.

The next challenge for the NFA board will be the election of public directors on February 20.


Just How Healthy Are the US and EU Economies?

The climb back from the economic crisis has been long and hard. Two market participants believe that much is left to be done in Europe and in the US.

Bob Swarup, principal of Camdor Capital in London who has studied economic crisis dating back to ancient Greece, says Europe isn’t out of trouble, while Charles Johnson, managing director of Tano Capital said the US economy still has some major hurdles in 2014. Jim Kharouf, editor-in-chief of John Lothian News spoke with Swarup and Johnson at the Emerging Manager Forum in Miami last month.

Watch the video »


It’s economics 101, says DirectEdge CEO on “maker-taker” trading debate
The so-called maker-taker fee structure that U.S. exchanges have adopted is working just fine, says the Direct Edge CEO, respectfully disagreeing with other exchange CEOs. “We are a big believer in all kinds of pricing structures that can meet different investor needs,” said O’Brien. “It’s economics 101.”

***** Giving customers a choice Economics 101. Figuring out the negative impact, or unintended consequences of a market structure law is graduate work.

***DA: I don’t remember studying Rube Goldberg contraptions in Econ 101.


Position limits pose no threat to futures market
Philip McBride Johnson | Futures & Options World
When I first became involved with the futures business in the 1960s as outside legal counsel to the Chicago Board of Trade – then, the worlds’ largest futures market – there were prescribed limits on the size of futures positions that speculators could hold or control -but none for hedgers. The Government set most such limits but, as the futures markets expanded beyond farm products, which then almost 100% of volume, now less than 10%, the exchanges determined such limits or accountability levels for nonfarm futures.

***** In today’s global markets, many laws and rules don’t have the impact they are expected to have.


Voice of Experience: Kim Taylor, President, CME Clearing
Jessica Titlebaum – The Glass Hammer
Kim Taylor, President of CME Clearing, said that the automobile industry is to Detroit what the futures industry is to Chicago. Taylor moved to Chicago from the Detroit area to work for Sprint, managing 25 telemarketers. One year later when the firm moved her function to Kansas City, Taylor started looking at job ads in the Chicago Tribune.


MarketAxess Reports Fourth Quarter and Full Year Earnings for 2013
Total revenues for the fourth quarter of 2013 increased 24.4% to $60.4 million, compared to $48.6 million for the fourth quarter of 2012. Total revenues for the year ended December 31, 2013 increased 25.1% to a record $238.7 million, compared to $190.8 million for 2012. Pre-tax income was a record $107.3 million, compared to $89.4 million for 2012, an increase of 20.0%.

***** Yah baby!


OneChicago Launches OCX.Weekly Futures
OneChicago, LLC, an equity finance exchange, today announced the launch of OCX.Weekly futures as part of the OCX.NoDivRisk futures product suite. Pending regulatory approval, OneChicago will be releasing its physically settled OCX.Weekly futures product with next day settlement for the stock delivery upon expiration.

***** I am so old, I can remember when OneChicago was a securities futures exchange, or single stock futures exchange. Now, they are an equity finance exchange.


CME Group sells Kansas City Board of Trade building
CME Group Inc has sold the building that housed the Kansas City Board of Trade to a Kansas-based real estate company for an undisclosed sum, representatives of the exchange operator said on Wednesday.

***** The CME Group likes to sell real estate so much there is a rumor going around they are trying to sell the Willis Tower, even though they don’t own it.


Wall Street Attracts Chop Shops 20 Years After ‘Wolf’
Zeke Faux – Bloomberg
Twenty years after Jordan Belfort and his Stratton Oakmont Inc. defrauded investors out of more than $200 million from its offices on Long Island — a story retold in the movie “The Wolf of Wall Street” — New York’s financial district has become a hub for veterans of defunct boiler rooms who use decades-old scripts to pressure investors into speculative trades, more than 40 current and former brokers said in interviews.

***** We will always have the bad element. But FINRA could be a lot more transparent to help people figure out who are the bad guys.


Tom Freytag and other execs on the joys of iceboating
Shia Kapos – Crain’s Chicago Business
This winter’s frigid temperatures should have made iceboating a paradise in Lake Geneva, Wis., but snows that followed mucked up the ice and insulated it, making it too weak to sail.
“It’s been a terrible season,” says Tom Freytag, co-founder of Chicago-based Geneva Trading USA LLC, who hopes to take his boat, a Skeeter side-by-side, out on the ice in the coming days.

***** Ice boating is the most fun you can have on this earth, while propelled purely by the forces of nature and not having to jump off a cliff. No motors, just wind and ice. I grew up in the summers on Geneva Lake and learned to race sailboats while competing against a couple of Freytags.


Gorkana US Alert
Fox Business Network
Maria Bartiromo has joined The Fox Business Network as Global Markets Editor and Anchor. Maria and her team are currently developing two programs to be launched by the end of the first quarter; one daily live program during market hours on The Fox Business Network and another Sunday morning program on The Fox News Channel. She can be reached on Twitter at

Lauren Young has joined Reuters’ digital team as Money Editor. She previously served as Wealth Editor at Reuters and oversaw personal finance, investment management and wealth management. Lauren will continue to serve as Host of “Money Clip”. Prior to joining Reuters in 2010, she was a Personal Finance Editor at BusinessWeek. Lauren can continue to be reached at and on Twitter at



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Lead Stories

Europe’s Banking Risk Plan Is a Long Shot
The European Union on Wednesday revealed a long-awaited proposal to reduce the systemic risk posed by big banks, a measure that would bring the bloc’s regulations more closely into line with those of the United States. But it is unlikely to become law anytime soon.

Deutsche Bank chief says change needed on FX fixings
The way daily currency benchmarks are set in the $5-trillion-a-day market needs to be looked at but limiting trade at daily fixings is not the answer, Deutsche Bank chairman Paul Achleitner said on Wednesday.

One third of bank execs see poor money laundering controls-survey
One in three senior bank executives believes their institution has poor anti-money laundering controls at a time when the threat of vast regulatory fines and criminal prosecutions is increasing, according to a KPMG survey.

Exclusive: Deutsche Bank suspends New York head of EM forex desk: source
Gertrude Chavez-Dreyfuss | Reuters
Deutsche Bank has suspended the head of its emerging markets foreign exchange trading desk in New York in connection with ongoing investigations into the alleged manipulation of the global currency market, a source familiar with the matter said.

Analysis: Only time will define Bernanke’s crisis-era legacy at Fed
Jonathan Spicer and Ann Saphir | Reuters
Ben Bernanke did not hesitate when asked whether he was confident that his signature response to the Great Recession would work.

A Former Regulator Returns to Private Practice
Before David Meister was butting heads with Wall Street’s top defense lawyers, he was one of them. And now, after spending nearly three years as a federal regulator, Mr. Meister is returning to his defense lawyer past.

Law Enforcement Strikes Back in Bitcoin Hearing
Law enforcement officials testified on Wednesday that virtual currencies like Bitcoin have opened up new avenues for crime that government has not been able to keep up with.

Bitcoin Needs Tighter Rules Than Banks, Say Prosecutors
Carter Dougherty – Bloomberg
Virtual-currency firms should face regulations that are tougher than those for established financial-services providers because of their ability to hide criminal activity, according to law enforcement officials.

Q&A with LMAX CEO: Financial sector ‘foolish’ not to look at virtual currencies
Anna Irrera – Financial News
Last week UK regulated exchange LMAX introduced trading in Ven, a digital currency based on a basket of fiat currencies, commodities and carbon futures.

Poland plays with fire over pension reform
Ralph Atkins –
Among turbulent emerging markets, Poland is one of the heroes – with a robust economy and well developed capital markets to rival those of Turkey and Russia, which are not part of the European Union. It may be about to tarnish its reputation.


What Does Europe’s ‘No Prop Trading’ Plan Mean?
Geoffrey T. Smith – MoneyBeat – WSJ
So after a long delay, the European Union has finally unveiled a plan to rein in banks’ proprietary trading activities in Europe, and give supervisors the power to split off risky trading activities from safer lending operations in an effort to tackle the risks posed by banks that are deemed “too big to fail.”

Republicans Press Treasury on Asset Management Report
MoneyBeat – WSJ
Republican Senators pressed a senior Treasury Department official on the risks associated with large asset-management companies in a sign of brewing lawmaker opposition to heightened regulation of the industry.

Goodhart: Regulatory reform ‘won’t stop next crisis’
Alexander Campbell –
The regulatory changes brought in since the 2008 financial crisis won’t be enough to stop the next crisis, a seminar at the London School of Economics (LSE) heard yesterday.

New rules proposed for sponsors to enhance listing regime
Financial Conduct Authority
Proposed new rules to ensure sponsors – typically investment banks and corporate finance specialists who assist issuers by advising them on their listing obligations – have the right skills, knowledge and expertise were published today by the Financial Conduct Authority (FCA) for consultation.

Financial Benchmarks: EDHEC-Risk Institute Welcomes Vote Delay, Calls For Transparency
EDHEC-Risk Institute welcomes delay of European Parliament vote on the regulation of financial benchmarks and calls for high and uniform standards of transparency to allow investors to make informed decisions and promote integrity, competition and innovation in the indexing industry

[FCA] Proposed amendments to the Listing Rules in relation to sponsor competence and other amendments to the Listing Rules and Prospectus Rules

IOSCO Publishes Recommendations Regarding Client Asset Protection and Survey of Client Asset Protection Regimes of 20 Jurisdictions
Gary DeWaal and Associates LLC
The International Organization of Securities Commissions on January 29, 2014, published recommendations regarding the protection of client assets at regulated intermediaries, as well as a survey of the client protection regimes of 20 worldwide jurisdictions.

IOSCO Publishes Recommendations Regarding The Protection Of Client Assets

NFA announces results of Board elections
Press Release

Statement On Financial Accounting Foundation Announcement – SEC Chair Mary Jo White – U.S. Securities And Exchange Commission

Exchanges & Trading Facilities

The MEFF Board of Directors has appointed Jorge Yzaguirre Chairman to replace Tomás Muniesa. Clotilde Salmerón, previously Markets Director, has been appointed General Manager of the Spanish Derivatives Market.
(via email)

NASDAQ OMX Introduces TradeGuard to Expand Access Services Suite of Risk Management Solutions
The NASDAQ OMX Group, Inc. and its Access Services business today announced TradeGuard, a comprehensive solution for all levels of risk management and an expansion of the enterprise risk management platform formerly known as FTEN.

Rich Ricci takes 10% stake in Aquis Exchange
Tim Cave – Financial News
Rich Ricci, the former chief executive of Barclays’ corporate and investment bank and once right-hand man of Bob Diamond, has emerged as the third-largest shareholder in fledgling European trading venue Aquis Exchange.

Vienna Stock Exchange And Kazakhstan Stock Exchange Intensify Cooperation – Joint Data Vending Agreed
The Vienna Stock Exchange has signed an agreement with the first Asian partner – Kazakhstan Stock Exchange (KASE) for cooperation in market data vending.

World Federation Of Exchanges Publishes 2013 Global Market Highlights – Market Capitalization Growth Rate Up, Bond Turnover Value Down
The World Federation of Exchanges (WFE), now headquartered in London, announced today the publication of its annual survey of global markets.

Direct Edge Trading Notice #14-03: Tier Calculation Update Effective February 3, 2014

Hedge Funds & Managed Futures

Pimco appoints four more deputy CIOs after El-Erian quits
Pimco on Wednesday promoted another four of its top investment managers into more strategic roles, expanding the pool of potential successors to the fund management firm’s co-founder and star bond picker Bill Gross following the sudden resignation of his previous heir apparent.

Jonathan Gray Shines in Blackstone’s Succession Plan
A 43-year-old real-estate specialist is in line to become one of the most influential figures in the private-equity industry. Jonathan Gray, head of Blackstone Group LP’s $69 billion property business, is the top candidate to succeed Hamilton “Tony” James as the firm’s No. 2 executive, according to people close to the situation.

New 3D Printing Mutual Fund Launched
24/7 Wall St.
The first mutual fund to cover the 3D printing and additive manufacturing space was announced Wednesday by Outlook Trust Funds. The fund is also the first to be launched by Outlook Trust and is managed by 3D Printing Fund Advisors, which lists Alan M. Meckler as its lead portfolio manager and John M. Mecler as co-portfolio manager.

Investors Leave Dividend-Paying Stock Funds
Murray Coleman – MoneyBeat – WSJ
As the U.S. Federal Reserve trims its purchases of bonds and expectations of higher interest rates grow, investors are pulling billions of dollars from funds focused on dividend-paying stocks.

TPG Capital says it is raising up to $2 billion for bridge fund
TPG Capital LP, a private equity firm that is behind some of the world’s largest leveraged buyouts, said on Wednesday it was asking some of its key investors for up to $2 billion to spend on deals until it raises a new $10 billion flagship fund.

Blackstone’s fourth-quarter earnings more than double
Blackstone Group LP, the world’s largest publicly listed alternative asset manager, reported a 130-percent rise in fourth-quarter profit on Thursday, showing particularly strong gains in its real estate business.

Bill Gross: Buy U.S. Treasurys, Don’t Wait
Maureen Farrell – MoneyBeat – WSJ
Investors are running back to the safe embrace of U.S. Treasurys, as they become increasingly concerned about problems in emerging markets.

Shareholder activism hedge funds stand out
Event driven and distressed were among the best performing hedge funds segments in 2013 with shareholder activism funds at the fore

Mondoalternative: Italian Fund Selectors Survey
The first survey conducted by the Research department of MondoAlternative considered 53 fund selectors managing, or with assets under advisory, over EUR 480 billion: of which EUR 268.1 billion are managed by asset management companies, EUR 66.4 billion refers to family offices and financial intermediaries (SIM), while EUR 81.8 billion refers to private bankers and wealth managers.

Banks & Brokers

Citigroup Tells Some Junior Bankers to Take Saturdays Off
Shayndi Raice
Citigroup Inc. is dialing back on the hours young – MoneyBeat – WSJstaff members are required to work, the latest big bank to try to improve working conditions for junior employees.

U.S. Banks Steer Clear of Sensitive Customers
Under fire from several regulators, U.S. banks increasingly are rejecting customers involved in activities that are legal but might attract government scrutiny, according to executives, consultants and lawyers.

Barclays Sets Aside Extra Funds for Charges
Barclays PLC said it will set aside an extra GBP330 million ($547 million) to cover litigation and regulatory charges in the fourth quarter, becoming the latest European bank to issue a financial warning.

Clearing & Settlement

Javelin SEF Goes Live with Traiana’s CreditLink for Interest Rate Swaps
Javelin SEF announced today that it is now live with Traiana’s CreditLink service for real time pre-trade credit checks on interest rate swap trades.

Comment: risks remain in G20 clearing plan
Thomas Krantz –
The G20’s proposal in 2009 to mandate use of clearing as one element of the measures to rein in over-the-counter (OTC) instrument risk is hardly a military matter.

Clearstream And NSD Have Opened Russian Corporate Bond Market To International Investors
Russian Corporate Bond Settlement Opened By Clearstream On 30 January 2014 – Clearstream To Help Establish Russian Market Linkage Between ICSDs To Boost Liquidity -New Russian Equities Service By Clearstream As Next Step

Isda forced to rework year-old standard CSA
Matt Cameron –
Regulation hits key element of landmark collateral contract – but planned revisions will reintroduce settlement risk

CME Group Clearing: NYMEX Options Expiration Operational Procedures for the Trading Floor and Clearing Members (9T, 9U, 9V, CSZ, F, JCL, JO, N9P, OE, OT, OU, OY, PEP, PJD, PJN, PML, PSG, Z) Effective Thursday, January 30, 2014

Indexes & Products

Asset managers lure insurers with new exchange-traded funds
Louie Woodall –
Asset managers are refining their exchange-traded fund (ETF) products in a bid to attract insurers seeking to invest in a wider range of credit securities.


The Big Five-O
Trade Talk – Trading Technologies
It seems with every milestone comes a little reflection. And so it is as TT’s University Program adds a 50th school to its roster of university partners. The list continues to grow and spans ten countries throughout North America, Europe, Asia and the Middle East. The future looks bright, but taking a look at the past reaffirms how we got here and why.

Liquid Adds Pre-Trade Risk and Compliance Tools to OEMS
Timothy Bourgaize Murray – WatersTechnology
Liquid Holdings, the trading and risk management platform provider to emerging hedge funds, has added new options trading capabilities, expanded global equities markets coverage, and complian

DWPBank Extends SIX Data Deal
Max Bowie – WatersTechnology
Frankfurt-based Deutsche WertpapierService Bank (DWPBank) has signed a five-year extension to an existing deal for SIX Financial Information to supply the bank with market data and evaluated prices.

SWIFT Institute Announces Research Agenda For 2014 – Research Will Focus On Standards, Big Data, Network Liquidity Effects And The Unit Cost Of Financial Services

Sapient Global Markets and Energy Data Hub Launch Benchmarking Service for Energy Market Participants


Colleague of SAC Leader Was Not Alerted to Trades
The billionaire investor Steven A. Cohen kept one of his closest associates at SAC Capital Advisors in the dark about the hedge fund’s rapid selling of a substantial stock position in two drug companies, just days before the companies reported disappointing results of a clinical trial for an Alzheimer’s drug.

Cohen Trading Strategy a ‘Dangerous’ Topic, Judge Says
Bob Van Voris – Bloomberg
The judge in Mathew Martoma’s insider-trading trial warned his lawyers against questions tied to Steven Cohen’s trading strategies, saying it could open the case to a wider probe of the SAC Capital Advisors LP founder.

SEC Charges Chicago-Based Accountant With Insider Trading in Wife’s Account
The Securities and Exchange Commission today announced charges against the former director of internal audit at a Chicago-based health care information technology company for insider trading ahead of the release of its financial results and making more than a quarter-million dollars in illicit profits.

Scottrade Agrees to Pay $2.5 Million and Admits Providing Flawed “Blue Sheet” Trading Data
The Securities and Exchange Commission today charged Scottrade with failing to provide the agency with complete and accurate information about trades done by the firm and its customers, which is commonly called “blue sheet” data.

NFA orders five-year membership suspension for Rylan Peters, a principal of previously disciplined Cincinnati firm QFC LLC
National Futures Association has suspended for five years the membership of Rylan Peters, a listed principal and registered associated person of QFC LLC, a former commodity pool operator member of NFA located in Cincinnati, Ohio.

NFA orders trading prohibition against California futures firm Newport Private Capital, and its former principals, Jonathan M. Hansen and David M. Giunta
National Futures Association has issued a trading prohibition against Newport Private Capital LLC, a registered commodity pool operator and commodity trading advisor located in Newport Beach, California, and its former principals Jonathan M. Hansen and David M. Giunta.

NFA Regulatory Actions: Fx Bootcamp LLC and Wayne A. McDonell

NFA Regulatory Actions: Alpari US LLC

Illegal practice and distributions – AMF charges against Bryan Singfield and Avy Cohen

Illegal practice in insurance of persons – AMF files suit against Fred Pincemin

Environmental & Energy

Obama touts ‘responsible’ energy development measures, climate goals
President Barack Obama told lawmakers on Tuesday his energy strategy had boosted the economy and reduced carbon emissions, but he did not address the question of whether he will approve the politically charged Keystone XL oil pipeline.

**RKB — additional coverage of the SOTU.

Obama’s State of Disunion on Energy
Climate Spectator
In his State of the Union address on Tuesday, President Obama once again tried to reconcile the split personality of his energy policy.

COLUMN-America’s energy revolution transforms international relations: Kemp
North America’s energy revolution is remaking all aspects of the global economy and international relations in what has turned out to be the most profound shift in the second decade of the 21st century.


Thai Bourse Launches Investment Center In Eastern Region
The Stock Exchange of Thailand today launches its seventh financial and investment information center, called a “SET Investment Center (SET IC)”, conveniently located in Kasetsart University’s Si Racha campus, reaching out to provide extensive information to students, investors, securities professionals and the general public in Chonburi and neighboring provinces on the eastern seaboard.

[HKEx] Report on Initial Public Offering Applications, Delisting and Suspensions

HKFE Announces Revised Margins for ICBC Futures

SGX welcomes TalkMed Group to Catalist

Frontier Markets

Investec Promotes Smith to Australia Investment Banking Head
Daniel Stacey – MoneyBeat – WSJ
Investec has named Ben Smith as its new head of investment banking in Australia, following the resignation of Christian Nicks as the South Africa-based bank shrinks its local operations.

What Shock and Awe Means for Turkey’s Banks
Yeliz Candemir – MoneyBeat – WSJ
So Turkey’s central bank has aggressively hiked interest rates. That much we know. But what happens now to the country’s banks?

Emerging market plunge: Sino the times?
Sid Verma – Euromoney magazine
Not all emerging markets are in free fall, investors are discriminating between surplus and deficit countries, it’s not all China’s fault, and domestic EM policies matter.

Dubai International Financial Centre (DIFC): His Highness Sheikh Maktoum Bin Mohammed Bin Rashid Al Maktoum Meets With CEO Of Credit Agricole

ADX To Host Market Maker Conference


Helicopters search for stranded Southern drivers
Helicopters took to the skies Wednesday to search for stranded drivers while Humvees delivered food, water and gas – or a ride home – to people who were stuck on roads after a winter storm walloped the Deep South.

John Lothian Newsletter

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CEO, Trading Technologies

Past JLN Newsletters

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