First Read

The Curious (or Not So Curious) Case of Our Current Regulatory Environment
Carl Gilmore, President, Integritas Financial Consulting
Carl Gilmore In the old days on the exchange trading floors there used to be a saying – “No matter what you did the night before, you have to make the bell.” The clear implication being that a hangover was no excuse for not showing up and doing your job. In some ways the current regulatory environment is like a big hangover.

It shouldn’t surprise anyone that after the credit crisis, MF Global, Peregrine, Lehman and Sentinel, etc. that the regulatory community has taken a harder line in conducting its duties. It is hard being a regulator. The pressures must be immense and it is often a thankless job. I’ve known junior, mid-level and senior regulators over the years and by and large they are hard-working people trying to do the right thing.

However, if I were advising the regulatory community, I would gently remind them that the most effective regulation and protection of the public, market participants and marketplaces occurs when a reasonable approach is taken, and the perception in the marketplace, rightly or wrongly, is that the current regulatory approach is unreasonable. Maybe that perception is right or maybe it’s wrong, but I hear it day in and day out.

That brings us to the case of DRW and Don Wilson. The hue and cry by the industry has been deafening, and from what I understand of the case, it may be warranted. But is the original enforcement action just about DRW and Don Wilson or is it about redefining what constitutes market manipulation generally by trying to lower the standard of proof?

By way of background, while the Commodity Exchange Act has always prohibited price manipulation, the CEA does not define price manipulation and the Commodity Futures Trading Commission has never put forth a rule or guidance defining price manipulation. Rather the CFTC has traditionally relied on a four-part test derived from an early case from the 1980s known as In re Farm Bureau Ass’n Inc. In that case, the CFTC put together a four-part test that courts, the CFTC itself, and pretty much everyone else, have relied upon for 30 years when determining whether prices have been manipulated. Essentially, to prove price manipulation the following must be shown: 1) a person had the ability to influence prices, 2) a person specifically intended to create a price that doesn’t reflect legitimate supply and demand, 3) that artificial prices existed, and 4) a person caused the artificial prices. This has been the test since Ronald Reagan was president.

The CFTC, in bringing this case, apparently now takes the position that rather than proving that a party specifically intended to create an artificial price, they only need to prove that a party intended to influence a price. Aside from significantly lowering the government’s burden in price manipulation cases, it is difficult to determine what that means.

What is fascinating to me, from a factual point of view, is that if the convexity bias topic of this case is accurate, DRW’s activity could have actually corrected an artificial price rather than created one!

Perhaps the CFTC should take a step back and reassess the case. Even though I understand that tactically it is hard for the CFTC to back down in an enforcement action, as more facts come out and the public learns more about what happened, some serious questions need to be asked and some reasonable answers need to be given. Because even when we have a hangover we still have to make the bell.


Flavio Castillo, 1971-2016
By Carl Gilmore
It is with great sadness that we say goodbye to our friend Flavio Castillo from RSM (formerly McGladrey) who passed away this week. I first met Flavio 10 years ago when I was working at Goldenberg, Hehmeyer & Co. Throughout the years his thoughtfulness, wit and personality were greatly appreciated by his friends and industry colleagues. We will miss him greatly. Visitation for Flavio is scheduled for this Sunday, Mar. 13, from 4:00 pm – 9:00 pm at Drake and Son Funeral Home, 5303 North Western Ave. Chicago, ILL. 60625. His funeral service will be held Monday, Mar. 14, at 10:00 am at Queen of Angels Catholic Church, 2330 West Sunnyside Avenue, Chicago, Ill. 60625.


ISE Getting A New Parent
John Lothian News Special Report
Amid all the talk about mega-deals in the exchange space, Nasdaq has grabbed the latest headlines with a deal to buy the International Securities Exchange, (ISE) for $1.1 billion. The transaction is expected to close in the second half of 2016.
The move bolsters Deutsche Boerse’s pocketbook in its push to merge with the London Stock Exchange. From Nasdaq’s perspective, they get a relative bargain in the ISE, which was bought by Deutsche Boerse’s Eurex for $2.8 billion cash in December 2007.

***CG – Perhaps we are nearing an inflection point.

***DA: Also included in the special report is a roundup of the top stories on the acquisition.


Patrick Lothian Is a Dedicated Employee and Husband
Employee compensation is an interesting thing. Some people want more money, while others like titles and others appreciation. Here is a new way to compensate an employee, encourage readers of your newsletter to click on a wedding picture in Facebook in order for him and his wife to win a competition for the best wedding picture.

Patrick Lothian was married last summer and one of the pictures from his wedding is a finalist in a competition on The picture, located here, is a finalist in this competition for the best wedding picture.

If you have enjoyed the video work of John Lothian News, or John Lothian Productions, here is your way to say thank you to the gifted videographer who helped develop that work.
On behalf of Patrick, and more importantly, his wife Amanda, thank you for your help.

***CG – Good work Patrick!


OCC News March/April 2016
The latest edition of OCC News is out! Read stories about OCC’s development and strategy for 2016, the renewal of OCC’s liquidity program with CalPERS and OIC taking options education to Capitol Hill and check out a sneak peek of the 2015 annual report.


Sponsored Content


John Gutfreund, 86, Dies; Ran Wall Street Investment Firm at Its Apex
The New York Times
John H. Gutfreund, whose aggressive leadership of Salomon Brothers and extravagant lifestyle personified the meteoric rise and fall of Wall Street moguls in the heady 1980s, died on Wednesday in Manhattan. He was 86.
***JK: Gutfreund also told Michael Lewis many years after Liars Poker, “Your f—–g book destroyed my career, and it made yours.”

***CG – Say what you want about him, he was never boring.

***DA: One hand. One million. No tears.


CME Group Announces Singaporean Team Wins 13th Annual Trading Challenge
Press Release
CME Group, the world’s leading and most diverse derivatives marketplace, today announced the winners of its 13th annual CME Group Trading Challenge, including the first-place winners from Nanyang Polytechnic in Singapore. This is the first time a Singaporean team has won the competition, and the third year in a row that the winning team has been from a university outside the United States.

***DA: CME Group has quietly been carrying the education torch for the derivatives markets, from the youngsters in 4-H to Futures Fundamentals and the Futures Institute, which helps new and aspiring traders navigate the modern toolkit. And that is just internally. Externally, the exchange has been equally supportive, in endeavors including our own MarketsWiki Education.


The Bull Market Is Seven Years Old; Why Aren’t People More Excited?
MoneyBeat – WSJ
The S&P 500 is up nearly 200% since March 9. 2009, when it bottomed in the wake of the financial crisis. The index has gained 194% since closing at 676.53 on that day, through Tuesday’s closing level. Every major index, in fact, is up at 100% since then. The Dow Jones Industrial Average is up 160%. The Dow transports are up 251%. The Nasdaq biotech index is up 342%. The Nasdaq 100 is up 311%. The Russell 2000 is up 213%.
So, why don’t people seem more jazzed about this anniversary? Well, there are a number of reasons. For one thing, the global backdrop has plenty of pebbles in it that could start an avalanche.

***CG – The people, like the bull market, are too tired to be excited.


A Monty Python alum offers a cheeky economics lesson in Boom Bust Boom
The A.V. Club
Anyone who was bothered by the fourth-wall-breaking explanations of the fiscal crisis in The Big Short will want to stay far, far away from Boom Bust Boom, a documentary that’s ostensibly a 70-minute version of those quirky little info-dumps. It’s like a movie version of Economics For Dummies or a freshman class lecture by a self-styled “cool” professor. Some may find this approach grating – or at the least, unduly remedial.

***DA: Coincidentally, when JLN decided on the “irreverent but never irrelevant” slogan, “unduly remedial” was one of the (rejected) nominees.

***CG – Spam, spam, spam, spam….


Wednesday’s Top Three
Yesterday’s leaderboard was dominated by Don Wilson and the story of his spat with the CFTC. Matt Leising’s story, Manipulation or Brilliant Trade? The Curious Case of Don Wilson, led all clicks, but the post on, which included a link to the report from the CFTC’s expert witness, followed closely behind. Also high on the click list were the additional links Wilson included to show the history of the ongoing dispute over alleged manipulation. (Click HERE to see all of the above, with links.) The one non-DRW story to crack the top three was the Trade News story by Joe Parsons on the Management shakeup at Eurex

Lead Stories

Nasdaq to Buy International Securities Exchange
The New York Times
Buying the I.S.E., which comprises three stock options markets, will help Nasdaq bolster its presence in a fiercely competitive industry that has been growing faster than the traditional equity exchange business. Other market operators with big options venues include the Chicago Board Options Exchange and BATS Global Markets.
***CG – Game and players are lining up…

***JK: Last fiscal year, ISE generated EUR88 million in net revenues.

Here’s Why Fintech Companies Are Opting to Stay Private: Funding Just Hit a Record
While shares of LendingClub Corp. and On Deck Capital, Inc. have each fallen more than 40 percent since their initial public offerings and LoanDepot shelved its own IPO, their private market colleagues seem to have fared better.
A new report from KPMG International and CB Insights shows that private funding flowed relatively freely into the fintech industry in 2015, feeding into an overall trend that has seen startups opt to stay private for longer.

Why Citadel opposes IEX’s stock exchange application
Francine McKenna, MarketWatch
Citadel LLC, the high frequency trading firm that’s one of the largest internalizers—a firm that fills retail trades purchased from others by using their own inventory—still says the Securities and Exchange Commission should reject IEX’s application to be an exchange even after the firm revised its application to placate critics.

Next Stop on ECB QE Adventure: $980 Billion Company Bond Market
The next target for the European Central Bank’s expanding asset purchase program: the region’s 900 billion-euro ($980 billion) corporate-bond market.
The ECB will buy investment grade euro-denominated bonds issued by non-bank corporations established in the euro area, according to a press release on Thursday.

***CG – Qualitative easing?

Mutual Funds Resist S.E.C. Plan to Pump Up Buffer Against Cash Flight
The New York Times
At an industry conference last week, the lead regulator for the Securities and Exchange Commission’s asset management division came under fire. The official, David W. Grim, was highlighting an initiative that would require mutual funds to increase their liquidity cushions to accommodate investors looking to leave in a hurry.

***CG – Why is the regulatory response always “put up more money”?

CalPERS Settles Moody’s Negligent Ratings Case For Record $130 Million
The California Public Employees’ Retirement System (CalPERS) today announced it has settled its case against Moody’s and Moody’s Investors’ Services (Moody’s) for a record $130 million. The case stemmed from Moody’s erroneous ratings of “AAA” rated structured investment vehicles prior to the financial crisis. Early in 2015, CalPERS settled with defendant Standard & Poor’s (S&P) for $125 million, bringing total recovery from the now-concluded lawsuit to $255 million.

Amazon to Lease 20 Boeing 767s to Build Its Own Delivery Network
Bloomberg Business
The agreement shows Amazon’s commitment to expanding its own logistics network to make deliveries faster and more efficient. The Seattle-based company wants to lessen its dependence on United Parcel Service Inc. and FedEx Corp., which have sometimes run into delays during the busy holiday season.

***Those are some big drones!

Norway’s $830 billion wealth fund to invest in UK regardless of Brexit
Norway’s $830 billion sovereign wealth fund, the world’s biggest, does not see the prospect of Britain leaving the European Union as a significant risk to its investments, its chief executive told Reuters on Wednesday.

**CG Where have I heard that before? On a different Norway topic, all of you fans of Netflix should check out their Norwegian TV series Occupied. Sub-titled in English but worth watching.

MassMutual to create $260bn firm under Barings brand
Investment Week
MassMutual Financial Group, the marketing name for Massachusetts Mutual Life Insurance Company, said it is combining its affiliates Babson Capital Management, including its subsidiaries Cornerstone Real Estate Advisers and Wood Creek Capital Management, with Baring Asset Management to create a multi-asset investment management firm led by Tom Finke, current chairman and CEO of Babson.

***CG – Time to short the Nikkei?

Goldman Sachs Hire Came as Bank Pitched 1MDB
Goldman Sachs Group Inc. hired the daughter of a close ally to Malaysia’s prime minister around the time the firm’s bankers were pitching business to the country’s government investment fund, people familiar with the matter said. Goldman is looking into the hiring as part of its investigation into the firm’s actions related to the Malaysia fund and into the Wall Street firm’s former Southeast Asia chairman, Tim Leissner, said one of the people.

***CG – I suspect we will be hearing about this on the presidential campaign trail.


MiFID II – back to square one
Christian Voight – Fidessa – Regulation Matters
A proposed new law is currently making its way through the Brussels/Strasbourg law-making factory to delay the introduction of MiFID II. There is little doubt that the industry will breathe a sigh of relief when the delay is finally confirmed. My concern is not about the proposed amendments themselves or whether they are beneficial. The issue here is that the MiFID II review was initially kicked off in 2010, and six years later we are back to square one trying to work out what the Level 1 text will finally say.

***CG – Now what will all of the lawyers do?

Buyside firms face Mifid II reporting headache
Financial News
Buyside firms in Europe could face hefty fines if they fail to get up to speed with new reporting requirements being imposed on them under the region’s new trading rules, practitioners have warned.

SBSDR: The SEC Version of SDR
Clarus Financial Technology
The CFTC began publishing rules about Swap Data Reporting in 2011, and we’ve come a very long way since then. Just read any of our blogs on SDR data and you’ll realize there is a world of data now on this once-opaque market. The SEC, however, took it a bit easier in their rulemaking for the reporting of swaps under their jurisdiction. It wasn’t until February 2015 that they put out their final rule that requires swaps to be reported to an SDR.

Protesters in France Take to Streets Over Proposed Changes to Labor Law
The New York Times
Nothing for years has so revived labor tensions — or divided the Socialist Party — as the government’s plan to overhaul the voluminous labor code, removing, ever so slightly, a few layers of worker protection.

***CG – You think our labor laws are voluminous? Try navigating this.

Growth of Financial Tech Industry Requires Unified Regulation
The New York Times
America’s financial technology industry has exploded in recent years, but regulators have not kept pace. This is partly because of the country’s outdated patchwork of state rules. Britain and other countries are further ahead in addressing this emerging sector in a fresh way. Creating a modern, federal agency to oversee these companies is a priority for United States policy makers.

***CG – This is a topic we are going to be hearing about a lot over the next few years. Change is coming and it usually gets here faster than we think.

FCA publishes a Discussion Paper on the client money distribution rules and the Special Administration Regime
Financial Conduct Authority
Following the failure of Lehman Brothers in 2008, the Treasury created a specific insolvency regime for investment firms holding client assets, the SAR. This works with the CASS rules to create the mechanism under which client assets are dealt with in a failed investment firm. The SAR sets out three special objectives for administrators

CCPs must be able to haircut initial margin in a crisis
Initial margin is the best source of liquidity for CCPs in a crisis, argues Irish central banker

Exchanges & Trading Facilities

Fixed income platform market reaches saturation
The Trade News
The growth in fixed income platforms will grind to a halt leaving behind only a few in the market, according to industry experts. As the market is now over-crowded with fixed income initiatives and platforms, industry experts believe any new entrants are unlikely to succeed and many existing platforms will disappear in the coming years.

***CG – And yet this market still isn’t efficient.

Eurex Exchange’s MSCI news – March 2016
Eurex Exchange
Since December, open interest has grown by 167,000 contracts, resulting in a new total high of more than 335,000 contracts (241,000 Futures and 94,000 Options) at the end of February. This translates into a notional value of EUR 5 bn in MSCI Futures and EUR 1.83 bn in MSCI Options.

EEX: New Daily Record In Butter Futures
On 9 March 2016, EEX recorded a new daily record volume in butter futures. On that day, a volume of 300 contracts was traded, which is equal to 1,500 tonnes. The last high was achieved on 3 February 2016 with 169 contracts traded (equals 845 tonnes). The products on the EEX’s dairy derivatives market comprise futures on butter, skimmed milk powder and whey powder.

***CG – That market is really churning.

World Stock Markets & Stock Index Performance
PXAfrica Ltd, a subsidiary of PanXchange, Inc., reached two new milestones this week, the first of which is a live offer for world market wheat delivered to Dar es Salaam. This is the first market order that ties the regional East African market to the world market.

BOX Options Exchange Price Improvement For February
In the month of February price improved contracts on BOX Options Exchange (“BOX”) averaged 375,006 per day. Price improvement versus the prevailing NBBO for contracts submitted via BOX’s price improvement auction, PIP, averaged $736,376 per day, while total savings to investors in February was $14.7M. With this, BOX has saved investors over $736M since its inception in 2004. Overall average daily trading volume on BOX in the month of February was 524,548 contracts.


Why Americans are so angry in 2016
The rise of Donald Trump and Bernie Sanders, many say, is a reflection of the anger in America today.
In numerous polls, voters say America’s economy is their No. 1 issue. They believe the middle class is dying, trade is killing U.S. jobs and that their kids won’t have a chance to get ahead.
There’s some rationale behind their claims.

***CG – My view is that what we are seeing in this election is simply a function of changing demographics and attitudes. The old guard and old ways of thinking go out kicking and screaming.

How Central Banks Have Made Wealth Inequality Worse
Bloomberg Business
Central banks’ attempts to kick-start advanced economies following the financial crisis have made the gap between the rich and poor wider, suggests the Bank for International Settlements. In the BIS’ Quarterly Review, Analysts Dietrich Domanski, Michela Scatigna, and Anna Zabai studied the evolution of wealth inequality in France, Germany, Italy, Spain, the U.K. and the U.S. was influenced by monetary policy since the recession.

Hedge Funds & Managed Futures

Why the 401(k) system is a blight on the face of the American republic
The Week
Defined benefit pensions still more or less work, but they’re vanishing fast. But the 401(k) system is a blight on the face of the American republic. This set of tax subsidies (together with a few other similar programs) is suppose to enable people to invest for retirement, but as a new report from the Economic Policy Institute shows in crushing detail, it’s failing in every conceivable way.

Hedge Fund Consistency Isn’t The Point
Bloomberg Gadfly
Hedge funds offer investors a range of appealing ingredients. Diversificaton. Big returns. Limited downside. How about consistency? Hedge fund data provider Preqin this week published league tables showing which hedge funds were the most consistent across a range of different strategies.

Markets betting on near-zero interest rates for another decade
World markets may have recovered their poise from a torrid start to the year, but their outlook for global growth and inflation is now so bleak they are betting on developed world interest rates remaining near zero for up to another decade.

***CG – FCM executives hope they are wrong.

Commodities Explainer: how is iron ore priced?
It may not attract as many headlines as oil, but a record 19 per cent jump in iron ore prices this week has drawn renewed attention to the key steel making ingredient, which underpins the profits of most of the world’s biggest miners.

Trend-following hedge fund strategies lead performance in 2016
Computer-driven hedge funds renowned for “trend-following” are beating their highly paid human counterparts so far this year after struggling to make money in four of the past five years. Now as stock markets and commodity prices continue rebounding this month, the question is whether these funds, often known as commodity trading advisers, or CTAs due to their legal set-up, can still prosper.
***CG – It won’t be long until my CTA advisor is an artificial intelligence. The first step to the financial entelechy. (look that one up!)

US settlement fails, bond shortages and 3% charges
FT Alphaville
¡Ay, caramba! Something’s gotten hold of The Bond… keeping its yields and its coupons apart

NZ’s surprise rate cut sends kiwi tumbling, stokes talk of global currency war
New Zealand’s central bank unexpectedly cut interest rates to a record-low 2.25 percent on Thursday, triggering a slide in the local dollar and sparking talk of a global currency war as countries seek to revitalize their economies in a world of slow growth.

***CG – So the war started in New Zealand.

Clash of the Bond Titans
Bloomberg Gadfly
A fight is brewing between two types of debt that serve as guideposts for assets around the world. On one side, there’s the $13 trillion U.S. government debt market, which seems to be sending a steady message that growth is slowing and not picking up anytime soon. On the other is the $1.4 trillion U.S. high-yield bond market, which had been saying that things looked gloomy but reversed course quickly and now sees sunshine and rainbows.

***CG – Sunshine and rainbows. What’s not to like about that?

Banks & Brokers

ICAP Unveils CrossTrade – A Solution On Its New Buy Side Portal ‘TrueQuote’
ICAP plc (IAP.L), a leading markets operator and provider of post trade risk mitigation and information services, announces today that ICAP Global Broking has expanded its electronic capabilities by unveiling TrueQuote, a new portal for buy side clients. The portal will offer a number of multi asset class solutions over the coming months and launches with its first fixed income solution, ‘CrossTrade.’

Citi creates new group focused on serving fund clients
Senior investment bankers Zubaid Ahmad and Brad Coleman will be leading a new group at Citigroup Inc focused on better serving clients that are private equity firms, hedge funds and sovereign wealth funds, according to a memo seen by Reuters on Wednesday.

Citigroup: the bigger picture –
Go ahead. Indulge in some cleansing hysteria. Investment banking revenues down 25 per cent from last year! Fixed income and equity markets down 15 per cent! The first three months of the year are meant to be the good ones. The January market shudder and a wobbly global economy mark the beginning of the end for big US banks. Primary and secondary markets desks will fall off a cliff. Commercial and consumer banking will crawl. Eek!

***CG – The sky is falling, the sky is falling!

Credit Suisse probed in Italy in tax evasion case: sources
Credit Suisse Group (CSGN.S) is under investigation in Italy in connection with a case looking into allegations that the bank helped wealthy clients transfer undeclared funds offshore, Italian judicial sources said on Wednesday.

***CG – Sounds disturbingly familiar.

Societe Generale says to cut 550 jobs over five years
French bank Societe Generale (SOGN.PA) said on Wednesday it would shed 550 jobs over five years as part of consolidation of its 20 French client treatment centers into 15 sites.

***CG – Perhaps they should wait until the labor code is overhauled.

Northern Trust lifted Waddell’s pay in 2015; salaries frozen now
Crain’s Chicago Business
Northern Trust CEO Frederick “Rick” Waddell saw a modest pay increase in 2015, collecting nearly $12.8 million in cash, stock and benefits. Waddell’s compensation rose from $12.4 million in 2014, reflecting financial progress at Chicago’s largest locally headquartered bank last year, according to Northern Trust’s proxy statement, filed March 9.

Deutsche Bank and UBS lose $200 million UK bonus tax case
The UK Supreme Court has ruled a “contrived” scheme used by Deutsche Bank and UBS to allow the banks and their bankers to escape 135 million pounds ($192 million)in tax on bonuses was unlawful. The arrangement, which dated back to 2004, involved bankers receiving bonuses in the form of shares in specially created companies, rather than cash, the UK’s tax authority, Her Majesty’s Revenue and Customs (HMRC), said on Wednesday.

UBS and Deutsche avoided tax on bonuses, rules Supreme Court
UBS and Deutsche Bank have lost a legal challenge brought by HM Revenue & Customs over two offshore schemes designed to avoid paying tax on bankers’ bonuses. The Supreme Court on Wednesday overturned two earlier court decisions over the controversial schemes that operated in 2003 and 2004.

Clearing & Settlement

Clearstream’s Monthly Report
The International Central Securities Depository Clearstream is well on track for its connection to the pan-European platform for securities settlement, TARGET2-Securities (T2S). Following the postponement of the T2S migration plan, Chairman Jeffrey Tessler calls for certainty on the new schedule, which currently provides Clearstream to be connected on February 6th, 2017 – pending further approval by the European Central Bank (ECB).

Euroclear hits settlement record in 2015
Financial News
Profits at Euroclear rose by 4% in 2015, while the post-trade giant hit a record for the number of trades it settled in Europe, as it increasingly eyes emerging technology. The company operates central securities depositories in the UK, Ireland, Belgium, the Netherlands, Finland, France and Sweden, which handle the settlement of securities transactions in those countries.

ABN AMRO Clearing To Consolidate UK Equity Clearing With EuroCCP
ABN AMRO Clearing Bank N.V. announced today that it will consolidate the clearing of its UK equity trading with European Central Counterparty N.V. (EuroCCP) as of today. EuroCCP is the largest cash equities central counterparty (CCP) in Europe. Since October 2015, EuroCCP has been providing CCP services to LSE’s SETS and SETSqx order books, on an interoperable basis with LCH.Clearnet Ltd. and SIX x-clear.

Banks save EUR3.5bn in swaptions compression drive
Capitalab removes EUR1.3 trillion notional, cutting capital requirements

ESMA drafting unified technical standards for OTC derivatives
The European Securities and Markets Authority (ESMA) said on Wednesday it is developing a set of technical standards for over-the-counter (OTC) derivatives not cleared by a Central Counterparty (CCP). The unified standards will apply for all EU member states.

Bank of China joins as the first Chinese Settlement Bank for DGCX
Dubai Gold & Commodities Exchange (DGCX) announces the appointment of Bank of China (BOC), as a Settlement Bank for Dubai Commodities Clearing Corporation (DCCC) which is a wholly owned subsidiary of DGCX. With the addition of Bank of China, DCCC has expanded its network of Settlement Banks to five with Emirates NBD, Standard Chartered, HSBC and Bank of Baroda as existing Settlement Banks. Bank of China is the first Chinese bank to be appointed as a Settlement bank and would be operating through its Abu Dhabi branch.

Indexes & Products

The S&P 500 beat 66% of stock pickers last year
Last year, 66% of large-cap stock fund managers underperformed the S&P 500, the company said in an update to its U.S. S&P Indices Versus Active Funds (SPIVA) Scorecard.

Copia launches first ETF led Smart Beta portfolio
FT Adviser
Discretionary fund manager Copia Capital Management, which is part of the Novia group, has today (10 March) announced its new smart beta portfolio range.
According to Copia, this is the first smart beta portfolio proposition to enter the UK adviser market.

Source Issues First Smart Beta ETF From FTSE RAFI Equity Income Index Family In Europe On Xetra
Deutsche Börse Cash Market
A new equity index fund from the ETF offering issued by Source has been tradable in Deutsche Börse’s XTF segment on Xetra and Börse Frankfurt since Tuesday.

MSCI analyzes 21,000 mutual funds, ETFs on sustainability factors
Pensions & Investments
The new MSCI ESG fund metrics, announced Tuesday, measure environmental, social and governance characteristics of portfolio holdings and rank funds based on a set of ESG factors, including carbon footprint, the news release said.

FTSE Russell signs collaboration agreement with Trendrating
FTSE Russell, the global index provider, has today announced that it has signed a collaboration agreement with momentum investing specialist and analytics firm, Trendrating.


Banks pile into heady fintech funding
Banks and corporations helped push financial technology start-up funding to an all-time high, according to a joint report by KPMG and CB Insights.
The global funding tally of $13.8 billion represents a doubling of money put to work by investors in 2015, according to the report.

***CG – A drop in the bucket. Wait until next year. And the year after…

The bitcoin magic is losing its Midas touch
Unfortunately, the magic is wearing off. Some of the technological innovations associated with bitcoin will stick around. The political project will not. Rather than overcoming conventional politics, bitcoin is succumbing to it.

***CG – Bitcoin isn’t the point. The technology behind it is the point.

Startup funding is drying up and fintech is no exception
Times are getting tough for the startup industry—and its starting to affect financial technology startups.
According to CBInsights, a research firm, says the fintech startup industry saw a pullback in venture capital funding in the fourth quarter of 2015.

***CG – Which is it? Are banks piling in money or is it drying up? Both probably.

Bloomberg Delivers First Quantitative Model For Calculating Liquidity Risk
Bloomberg L.P.
Bloomberg announced its Liquidity Assessment Tool, or LQA, which gives institutional investors a quantitative approach to calculating liquidity risk consistently across asset classes. It is the first liquidity estimation tool to combine Bloomberg’s rich financial data and machine learning techniques to calculate the multitude of relevant factors influencing liquidity.

**CG – An interesting development.

$13.8B for Global Funding for VC-Backed Fintech Firms; Payments, Lending & Blockchain Lead Way
Crowdfund Insider
2015 was the year that financial technology entered the mainstream, claims the new report “Pulse of Fintech” from KPMG and CB Insights (see also the University of Cambridge Centre for Alternative Finance seminal benchmarking surveys last year), which estimates that VC-backed fintech firms around the world secured $13.8 billion in funding as they began having a serious impact in every area of banking and insurance, according to a statement.

The Fintech Ultimatum: Adapt or Die
Institutional Investor
Many years from now, when people look back on the first two decades of the 21st century, the stories they will tell won’t be about the financial crisis or its aftermath. Instead, this period will be remembered for the role that technology-driven innovation played in transforming and disrupting the way we live and work. Companies that fail to move quickly and decisively to adopt new technologies risk being rendered obsolete by those that do.

***CG This headline should read “FCM Ultimatum: Adapt or Die”.


Money Returning to Investors Harmed by Unregistered Broker
The Securities and Exchange Commission today announced that a Cyprus-based company has agreed to pay $11 million to settle charges that it illegally sold binary options to U.S. investors. A judge signed a court order late yesterday authorizing the distribution of this money to harmed investors through a Fair Fund.

Florida man pleads guilty in Gilead insider trading case
A Florida man admitted to conducting insider trading based on a tip he received from a former Morgan Stanley broker about Gilead Sciences Inc’s planned $11.2 billion purchase of Pharmasset Inc in 2011, federal prosecutors said.

Federal Court Orders Banc de Binary Ltd., ET Binary Options Ltd., BO Systems Ltd., BDB Services Ltd. & Oren Shabat Laurent to Pay More than $9 Mln in Restitution & a Civil Monetary Penalty for Violating the CFTC’s Ban on Off-Exchange Binary Options
The Order, entered on February 26, 2016, stems from a CFTC complaint filed June 5, 2013, charging the Defendants with violating the CFTC’s ban on off-exchange options trading by offering commodity option contracts to U.S. customers for trading, as well as soliciting, accepting orders and funds from, or confirming the execution of orders from U.S. customers. Through the Banc de Binary website, customers buy or sell binary “call” or “put” options that allow them to predict whether the price of a certain “asset” will go “up” or “down” at a future date and/or time, with a specified payout structure.

CFTC Orders CHS, Inc. and CHS Hedging, LLC to Pay $1 Million for Inaccurately Reporting Positions in Corn and Soybeans
The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and simultaneously settling charges against CHS, Inc. (CHS), a cooperative corporation for failing to comply with its legal obligation to submit accurate monthly CFTC Form 204 Reports, regarding the composition of CHS’s fixed price cash corn and soybean purchases and sales, in violation of the reporting requirements in CFTC Regulation 19.01. CHS is based in Inver Grove Heights, Minnesota.

California Water District to Pay Penalty for Misleading Investors
The Securities and Exchange Commission today charged California’s largest agricultural water district with misleading investors about its financial condition as it issued a $77 million bond offering. In addition to charging Westlands Water District, the SEC charged its general manager Thomas Birmingham and former assistant general manager Louie David Ciapponi.

Insider Traders Returning Illegal Profits and Kickbacks
Jay Y. Fung has agreed to pay back more than $700,000 in illegal profits plus more than $60,000 in interest earned after allegedly purchasing stock and call options in Pharmasset Inc. based on his friend’s tip that it was about to be acquired. The SEC alleges that Fung cashed in when Pharmasset’s stock rose 84 percent after its acquisition by Gilead Sciences was publicly announced, and he paid kickbacks to his friend who provided the nonpublic information.

Hong Kong’s Securities And Futures Commission Bans Raaj Shah For 12 Months
The SFC investigation found that during the period from January 2009 to May 2014 Shah, a responsible officer of Matchpoint Investment Management Asia Limited (MIMAL), failed to disclose all his personal accounts and obtain prior approval for securities transactions, in breach of the staff personal trading policy of MIMAL.

Environmental & Energy

Twitter Deletes Oil-Data Tweets Following Industry Complaints
Twitter deleted posts that included market-sensitive data from a U.S. oil-industry group after the group complained, roiling the tight-knit energy-trading community on the social network.
API’s inventory data often moves prices after its release every Tuesday. The group charges a subscription for access. The data is used by many traders positioning ahead of the official inventory data, which is released by the U.S. government on Wednesdays.

Climate Whirlwind: Severe Tornado Outbreaks Are Increasing
Severe tornado outbreaks are increasing over time.
A new study just published in Nature Communications shows a worrisome trend: The number of severe tornado outbreaks is increasing with time.

Fearless, non-partisan action needed to stop climate change
National Observer
GLOBE 2016 was a mash up of 2,000 leaders from 50 countries all seeking solutions to our global sustainability challenges. Three days and numerous panel presentations generated data, resources, and ideas that will inform my program planning at SFU’s Faculty of Environment. Highlights included the opening speech of Canada’s Prime Minister who made it exceedingly clear that we are on the pathway to a low carbon future and Canada has a leadership role to play.

Chesapeake Said to Weigh Sale of Assets in Oklahoma Stack Region
Bloomberg Business
Chesapeake Energy Corp. is weighing a sale of some of its holdings in an oil-soaked patch of shale in Oklahoma known as the Stack, as the natural gas giant unloads assets to pay down debt, according to people familiar with the matter.

U.S. to Announce Steps to Cut Well Methane Emissions — Energy Journal
MoneyBeat – WSJ
The White House is expected to announce its first step toward regulating methane emissions from hundreds of thousands of existing oil and natural gas wells across the U.S., Amy Harder reports. The move is likely to face pushback from an industry battered by cheap oil and to be cheered by environmentalists.

Oil, Gas Well Emission Cuts Agreed to by U.S., Canada
Bloomberg Politics
President Barack Obama and Canadian Prime Minister Justin Trudeau announced steps to limit methane emissions from existing oil and natural gas wells, a move intended to underscore their commitment to combat climate change.

The shale revolution devours its children
In a nutshell, what the drillers were doing was the equivalent of the military manoeuvre known as la fuite en avant (an escape forward), a desperate act in which an embattled army, lacking better options, charges straight into the enemy’s guns. Sometimes this works, but usually there are few soldiers left to celebrate.


Chinese investment in Europe hits $23bn record
China’s investment in Europe and the US has reached record highs, despite the slowdown in its domestic economy. Overall, state-owned and private businesses invested an unprecedented $23bn in Europe — including Norway and Switzerland as well as the EU — in 2015 while investing $15bn in the US, according to a report by Baker & McKenzie, a law firm, and Rhodium Group, a consultancy.

Government calls meet to review gold monetisation scheme
Business Standard News
Following a tardy progress in the most ambitious Gold Monetisation Scheme since its launch on November 5 last year by Prime Minister Narendra Modi, Finance Ministry has called another meeting of all stakeholders on March 18 to discuss why the scheme is not gaining momentum.

Deutsche Bank: China’s Oil Demand Growth Could Be Cut in Half by the End of the Decade
Bloomberg Business
Expectations that immense growth in China’s demand for raw materials would continue in perpetuity, coupled with the prevailing low-interest-rate environment, fostered a wave of capacity increases across the commodity sector. The global economy is now grappling with deflationary forces stemming from this state of oversupply.

Exclusive: China to ease commercial banks’ bad debt burden via equity swaps – sources
China’s central bank is preparing regulations that would allow commercial lenders to swap non-performing loans of companies for stakes in those firms, two people with direct knowledge of the new policy told Reuters. The new rules would reduce commercial banks’ non-performing loan (NPL) ratios, and free up cash for fresh lending for investment in a new wave of infrastructure products and factory upgrades that the government hopes will rejuvenate the world’s second-largest economy.

Negative Rates Dig a Hole for Bank of Japan
For once, Bank of Japan Gov. Haruhiko Kuroda faces pressure to hold fire as a monetary policy meeting approaches next week, despite gloomy economic conditions. It is an unusual situation for a central bank chief who has talked gleefully of unleashing a monetary “bazooka” and vowed to do whatever it takes to put the nation’s economy back on a path to stable growth.

$1 Billion Plot to Rob Fed Accounts Leads to Manila Casinos
Bloomberg Business
Casinos, money laundering and a scheme to steal $1 billion from the Bangladeshi central bank. These are just some of the intriguing elements in a murky story shaping up to be one of the biggest documented cases of potential money laundering in the Philippines. It risks setting back the Southeast Asian nation’s efforts to stamp out the use of the country to clean cash, and tarnishing the legacy of President Benigno Aquino as elections loom in May.

***CG – Always love a good crime story.

China’s state-owned zombie economy
On a rainy afternoon at one of China’s largest shipyards, workers taking a break from welding cluster beneath the hulls of half-built vessels to keep dry. Despite the collapse in freight rates that has ravaged the shipping industry, the yard at Shanghai Waigaoqiao Shipbuilding is not short of business. A worker could ride his bicycle across the 1.1km yard entirely under the line of partial hulls.

***CG – I have to make a zombie joke, right?

Frontier Markets

Moody’s to withdraw from Russian domestic market
Moody’s is withdrawing from the Russian domestic market as global rating agencies are caught in a dilemma between new Russian laws and western sanctions. Moody’s said on Wednesday that it would withdraw domestic credit ratings in Russia following “legislative changes and other potential restrictions” that affect the business of providing national scale ratings by its joint venture in the country, Moody’s Interfax Rating Agency.

Africa: Climate Change Set to Wreck African Bean Farming
Climate change could wipe out 60 per cent of bean production in Sub-Saharan Africa, and decimate banana and maize crops in the region, a study warns.

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