Make Grandma Proud
I like shortened weeks like this one. By starting work on Tuesday the week is almost over less than three days later, today, Thursday.
As I was looking over some of the enforcement proceedings brought by various regulators last week in the UK and USA, I was thinking of the evolution of the compliance function since I joined the industry back in 1982.
Back then, almost every firm on the street had a wise sage who routinely walked the back office every morning and afternoon, and could smell out and solve problems before they blew up an enterprise. It was hands on compliance at its best. I have had the good fortune of knowing many of these legendary sages over the years.
Unfortunately, these wise sages have long ago retired or been laid off, and now most firms rely mostly on extensive policies and procedures and much automated surveillance to ensure their employees’ adherence to applicable laws and rules. There is no doubt that robust policies and procedures are very important, and automated surveillance is absolutely necessary where trade activities occur in nano-seconds and the volume of transactions are many many multiples of what they were just a few years ago.
But in the end, it’s the compliance culture that distinguishes a company – much more so than it’s specific policies or procedures, or mechanistic detection ability. Employees must be reminded over and over again not to engage in activities that fail the grandmother test: namely, if you would not be proud to defend conduct your grandmother reads about in the morning tabloid, don’t engage in it! This requires repetitive training, as well as financial incentives that expressly reward good and penalize bad corporate behavior. Particularly bad conduct should always be more severely penalized – and firms must think twice before giving a miscreant a second chance no matter how good a producer or trader he or she is! And encourage employees to speak out and not be afraid to report suspicious or wrongful conduct they may observe.
A strong compliance culture must be ingrained in a company’s DNA. Ultimately it enhances a firm’s reputation and helps the bottom line. And more than anything else, having a few of those old wise sages walking the beat will help ensure that a firm’s employees stay in line. Nothing trumps hands-on compliance for effectiveness. As for grandma — make her proud!
Index Evolution: Guillermo Cano Looks at the New Generation of Equity Indexes
Equity indexes have come a long way over the past few decades, says Guillermo Cano of Russell Indexes.
While market cap-weighted indexes still capture the lion’s share of volume, new investment choices include such things as sector weighting, factor modeling and so-called “smart beta ” which aims to blend active and passive investing.
MarketsWiki World of Opportunity Summer Intern Series Goes to London
John Lothian & Co. is pleased to announce the MarketsWiki World of Opportunity Summer Intern Education Series is coming to London on July 1st and 2nd, 2014 with the generous support of the CME Group
***JK: For employers with interns, please contact John to get them on the list. It’s a great event, and great for your interns’ brains. John is at email@example.com
NFA Board of Directors approves reduction in assessment fees
On May 15, 2014, NFA’s Board of Directors approved a reduction in NFA’s assessment fees from $.02 per side (futures & options contracts) to $.01 per side. Assuming the proposal is approved by the CFTC, the reduction will become effective on October 1, 2014.
***GDW: Give me the money is much nicer than show me the money! Congratulations to NFA for running a sufficiently efficient organization (in a time of increased demand for their services) to permit fee lowering!
ASX chief not concerned about high frequency trading
Georgia Wilkins – SMH
BASX chief executive Elmer Funke Kupper has played down the threat of high frequency trading in Australia and called again for the government to review its 15 per cent ownership restrictions on the local bourse.
***GDW: Everyone realizes that today’s low latency trading will be yesterday’s Edsel relatively soon? Who will politicians and regulators blame for plague and pestilence then?
Shaved heads for a good cause
Hello, this is Robby Lothian, John Lothian’s youngest son. I’m writing this because I’m on a travel baseball team and we’re going to Omaha, Nebraska for a huge tournament and for the College World Series. In order to go we’re having a fundraiser. What we’re doing is shaving our heads and having people give $10 pledges. But the fundraiser isn’t just for baseball. Half of the money we earn is going to cancer research because one of my teammate’s mom has been diagnosed and treated for cancer. Each player is suppose to get 10, 10-dollar pledges. I would love to get more! So if you can pledge, that would be terrific! My dad can give you the details on where to send the money; send email to firstname.lastname@example.org
Infinium Capital says ‘sour grapes’ spurred employees’ fraud lawsuit
Infinium Capital Management has asked a U.S. judge to dismiss a lawsuit accusing the now-defunct high-speed trading firm and its leaders of securities fraud, saying it was based on former employees’ “sour grapes.”
**JK: Are they also on the hook for the 60,000 square foot office space too?
CFTC Announces Agenda for the Upcoming Public Meeting of the Technology Advisory Committee
The U.S. Commodity Futures Trading Commission (CFTC) announced today the full agenda for the upcoming CFTC Technology Advisory Committee (TAC) public meeting. The meeting will be held on Tuesday, June 3, 2014 at the CFTC’s headquarters in Washington, D.C. from 10:00 a.m. to 5:00 p.m. For more information regarding the meeting, view CFTC Press Release 6928-14.
***GDW: Scott O’Malia through the TAC was intelligently considering issues around low latency trading even before it became a political hot potato.
***DA: As a member of Mr. O’Malia’s TAC, Gary ought to know. Speaking of which, John Lothian, also a TAC member, will be traveling to DC for the meeting next week. Look him up.
Data woes move front and center
Mike Kentz – Ticker | IFRe
Discrepancies in how the four main US swap trade repositories collect and store data is threatening to derail regulatory efforts to build a comprehensive view of the over-the-counter derivatives market – a key tenet of the 2009 G20 agreement on financial reforms.
***DA: For more on the story, see our recent interview with Commissioner O’Malia on the swap analytics subject: jlne.ws/1nZ5hCk
Liffe Sets Daily Volume Record In Long Gilt Futures, Surpasses 900,000 Daily Contract Mark
IntercontinentalExchange Group, the leading global network of exchanges and clearing houses, today announced that Liffe reached a daily volume record of 905,515 contracts in Long Gilt futures on May 27, 2014. The previous volume record was 815,251 contracts on November 27, 2012.
BlackRock’s Fink says letter to CEOs triggered angry phone calls
BlackRock Inc Chief Executive Larry Fink, who runs the world’s largest asset manager, said Wednesday he had fielded angry phone calls after he sent a letter in March to S&P 500 executives warning them about the perils of short-term thinking. “I’ve had some really angry phone calls,” Fink said at a New York investment conference hosted by Sanford Bernstein.
***GDW: Anytime anyone complains about the short-term I think of John Maynard Keynes musing about the alternative, “In the long run we are all dead.” Bring on more short-terms!
IDX International Derivatives Expo – Online Registration Closing June 2
This year’s IDX will be held June 10-11, 2014, once again at The Brewery, Chiswell Street, London.
Join FIA and FIA Europe to discuss current issues, network with colleagues and meet with exhibitors to see the latest industry products and technology. This year’s panels will cover diverse topics such as: The State of the Industry, Best Execution and Open Access, Collateral, Tagging Algos, The Operational Challenges of the Convergence of OTC and ETD, SEFology, Off-the-Wall Products and more.
More than 1,300 senior-level executives from intermediaries, exchanges, clearinghouses, regulatory agencies, service providers and members of the press will be in attendance. Join this distinguished group of delegates today!
***DA: Though the big guy, still recuperating from back surgery, will not be attending IDX this year, Jim and I will be there all week. Our dance cards are rapidly filling up, but we still have some meeting time available. Drop us a line at either email@example.com or firstname.lastname@example.org
MarketsWiki Page of the Day
MarketsWiki Recent Updates
Companies, Organizations and Groups
49,312,052 pages viewed, 7,959 articles, 183,264 edits
Nasdaq Goes to Light Speed With Treasuries Trading
Matthew Leising – Bloomberg
Nasdaq OMX Group Inc. is revving the engine of its ESpeed U.S. Treasuries platform. Bond dealers that use ESpeed are gaining access to a microwave network connecting Nasdaq’s data center near New York City to a CME Group Inc. (CME) facility just outside Chicago, permitting almost light-speed buying and selling of U.S.debt.
Man Group confirms Numeric Investor acquisition talks
Daniel Thomas in London – Financial Times
Man Group, the British hedge fund manager, has confirmed talks about an acquisition of Numeric Investors, a rival Boston-based fund management group. In a deal expected to be valued at more than $200m, Numeric would bring in long-only investment funds to sit alongside Man Group’s hedge fund products.
LSE rises as investors warm to Russell deal
Bryce Elder – Financial Times
Investors have warmed to the idea of the London Stock Exchange buying Russell Investments, with the stock up for six straight days since it entered exclusive talks.
IEX & the Re-Mutualization of Market Infrastructure
Wall Street & Technology
Whether success or failure, devil or savior, IEX exists because enough members of the buy-side community wanted it to.
***GDW: IEX is a good example of how the market forces should operate. If enough folks complain about the status quo, someone creates an alternative to profit from the dissent. As Adam Smith wrote, [i]t is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”
Revealed: Brian Moynihan’s Grand Plan For Bank Of America
Halah Touryalai – Forbes
For Moynihan, 54, the last four and a half years as the bank’s chief executive have been exhausting. Damage control, cost-cutting and extinguishing legal fires have consumed his tenure. He is tasked with running one of the world’s largest financial institutions, yet at the same time he must wear a government-imposed straitjacket that in many ways turns the role of megabank chief executive into little more than a conservatorship.
Paper money is unfit for a world of high crime and low inflation
Kenneth Rogoff – Financial Times
Has the time come to consider phasing out anonymous paper currency, starting with large-denomination notes? Getting rid of physical currency and replacing it with electronic money would kill two birds with one stone.
Regulators Set New Rules for Companies’ Revenue Accounting
FLOYD NORRIS – Dealbook – NY Times
Accounting for revenue — one thing that every company has, or at least needs if it is going to stay in business — will be significantly changed in 2017, the two boards that set accounting standards for companies in most major countries around the world announced on Wednesday.
At a glance: Mifid II proposals on controlling HFT
Anish Puaar – Financial News
The second version of Mifid includes measures to control aspects of electronic trading and HFT for the first time.
Exchanges & Trading Facilities
Canada small businesses need more funding options – TMX’s Kloet
Departing Toronto Stock Exchange chief Tom Kloet called on Tuesday for more access to capital for Canada’s million-plus small, private companies.
Instinet Adds Global Connectivity To Nomura’s Electronic Futures Trading Platform
Instinet Incorporated today announced the global availability of Nomura’s advanced electronic futures trading platform via the Newport Execution Management System (EMS).
Moscow Exchange Signs Charity Cooperation Agreements
On 28 May, Moscow Exchange hosted a roundtable on Corporate Social Responsibility. Roundtable participants included Chulpan Khamatova, co-founder of Gift of Life; Ingeborga Dapkunaite, fundraising council co-chair of Vera; Daria Lisichenko, President of ORBI; as well as Alexander Afanasiev, CEO of Moscow Exchange and other members of the management team.
The Board Of Oslo Børs Approves Software Innovation For Listing
MIAX Options Exchange: Multi Tick Price Protection – Available Beginning May 28, 2014
Euronext: Visiativ Lists On Alternext In Paris
Hedge Funds & Managed Futures
Ex-RBC Executive Appears to Confirm Proprietary Trading Spinoff
Ben Dummett – WSJ
Mark Standish, former co-chief executive of Royal Bank of Canada’s RY.T -0.21% RBC Capital Markets division, appeared to confirm on his LinkedIn page that the division is planning to spin off its New York-based proprietary trading business into a stand-alone hedge fund.
Ackman Plans Public Hedge Fund
ALEXANDRA STEVENSON – Dealbook – NY Times
One of Wall Street’s boldest investors, the billionaire hedge fund manager William A. Ackman, is building an unusual multibillion-dollar war chest. While hedge funds typically raise funds privately, the founder of the $13 billion Pershing Square Capital Management is planning to tap the public stock market.
Ziffs Shut Down Hedge Fund, Shift Way Wealth Is Managed
Juliet Chung – WSJ
The billionaire Ziff brothers are shutting down the last multibillion-dollar hedge fund that invests their family fortune, one of the biggest such pots of money in the U.S.
Europe’s Funds Industry is Coming Out of Hibernation
Chiara Albanese – MoneyBeat – WSJ
Fresh highs across major stock markets this year has awakened the European funds industry, where launches are picking up pace after a slowdown that’s lasted several quarters.
Brokers, Liquid Alts and the Fund That Never Goes Up
Joshua M Brown – The Reformed Broker
Today we’re going to talk about the boom in hedge fund-like mutual funds and the difference between brokers and advisors.
Goldman Shuns Bonds Pimco’s Gross Favors in ‘New Neutral’
Charles Stein – Bloomberg
As Bill Gross vows to restore top performance at the world’s biggest bond fund, he’s taking a path many of his rivals shun.
Cocoa Shortage Looms as Growers Opt to Farm Rubber: Commodities
Morgane Lapeyre – Bloomberg
Cocoa shortages are poised to extend into the next decade as West African growers struggle with underachieving farms or switch to more lucrative crops, such as rubber.
***GDW: Maybe it’s me, but the idea of having a cup of hot rubber with marshmallows on a cold day does not sound so appealing.
Banks & Brokers
Big Profit Engines for Banks Falter
Robin Sidel and Andrew R. Johnson – WSJ
It is becoming tougher and tougher being a U.S. bank. Squeezed by stricter regulations, a sputtering economy and anemic markets, financial institutions are finding profits hard to come by on both Main Street and Wall Street.
Wells Fargo CFO Says Investment Bank to Remain ‘U.S.-Centric’
Emily Glazer – MoneyBeat – WSJ
Wells Fargo doesn’t intend to grow its investment bank beyond the United States, though it hopes to boost its market share in the next few years, Chief Financial Officer John Shrewsberry said at a conference Wednesday morning.
JP Morgan’s corporate broking head bids farewell to investment banking
Matt Turner – Financial News
The head of corporate broking at JP Morgan, one of the biggest corporate advisers to FTSE 100 companies, has decided to leave the investment banking industry.
Goldman Sachs’ Gary Cohn blames economy for trading declines
Tom Braithwaite in New York – Financial Times
Gary Cohn, president of Goldman Sachs, blamed the world economy rather than regulation for sharp declines in trading volumes at his bank and across Wall Street, but said “we’re not just waiting for things to get better”.
Santander Bank to Face Suit Claiming Bias in Mortgages
SHAILA DEWANMAY 28, 2014 – NY Times
As the housing bubble expanded in the early 2000s, mortgage lenders aggressively handed out money in black and Hispanic neighborhoods, though often at exorbitant rates and in ways that made the loans unaffordable to more vulnerable borrowers. Now, the pendulum has swung the other way, raising concerns that some banks are shutting out blacks and Hispanics in favor of white homeowners.
Clearing & Settlement
Sapient Global Markets Survey Reveals Industry Desire to Evolve Collateral Management to a Front Office, Revenue Generating Function
Sapient Global Markets, a division of Sapient, and leading global provider of business and technology services for the capital and commodity markets, today announced the results of a new survey it conducted which examines trends, issues and requirements for efficient collateral management across global market participants.
Indexes & Products
MarketAxess and BlackRock Partner to Provide iShares Fixed Income Exchange Traded Fund Information and Electronic Basket Trading Technology for ETF Market Makers
The consolidated iShares content on the MarketAxess trading system now enables ETF market makers to efficiently trade baskets of iShares ETF constituent bonds using MarketAxess’ patented list trading functionality. Bid and Offer Wanted lists can also be sent via Market Lists, MarketAxess’ flagship Open Trading protocol, to access the broadest all-to-all liquidity pool of over 1,000 institutional investor and broker-dealer firms.
Fink Says Leveraged ETFs May ‘Blow Up’ Industry
Mary Childs – Bloomberg
BlackRock Inc.’s Laurence D. Fink, who oversees the world’s biggest exchange-traded fund lineup, said leveraged ETFs are a structural problem and have the potential to “blow up” the industry.
Global ETP inflows hit $33.5bn in April, says BlackRock
Richard Jory – Risk.net
Year-to-date inflows in Europe bigger than those for the whole of 2013; Lyxor lists first ETF to track Euronext CAC PME index; commodity ETPs helped by precious metals and agriculture; ETFs tracking the healthcare sector see assets pass $1 billion
More ‘adult supervision’ needed, SEC’s Muoio tells conference
Richard Jory – Risk.net
Structured products in the US can fall under the jurisdiction of the SEC, state regulators and Finra. Representatives from each were speakers at this year’s Structured Products Americas conference.
Growing appetite: Which smart beta strategies are available to order?
Joe McGrath – Financial News
Investors normally employ smart beta strategies either to reduce the level of risk in a portfolio or to enhance returns.
JonesTrading Names Lutz To Head ETFs
JonesTrading Institutional Services LLC, a leading block trading firm in U.S. and international securities for institutions, announced today that industry veteran David Lutz has joined the firm to lead an expansion to develop ETF business. The expansion builds on the already substantial presence the firm has in equities and derivatives.
FINRA Issues New Investor Alert, High-Yield CDs: Red Flags That Signal a Scam
The Financial Industry Regulatory Authority (FINRA) issued a new investor alert called High-Yield CDs: Red Flags That Signal a Scam warning investors to be wary of promotions touting certificates of deposit (CDs) that promise interest rates that are substantially higher than current averages.
New FTSE ASEAN Index Series Provides Comprehensive Suite Of Indices Benchmarking The ASEAN Region
4th Story Combines Market, Fundamental Analytics, Boosts Analyst Automation
Max Bowie – WatersTechnology
San Francisco-based data and trading software developer 4th Story has unveiled a new tool for analysts and portfolio managers that runs analytics on a combination of traditional price data and fundamental information, and which also automates time-consuming data capture and processing tasks, freeing up research staff to perform more critical tasks.
***JM: Nice going, Steve & Co.!
SIX Financial Info Pushes FISD FIA Certification
Max Bowie – WatersTechnology
The US arm of Swiss data vendor SIX Financial Information has begun mandating that its client-facing staff achieve industry association FISD’s Financial Information Associate (FIA) professional certification, to demonstrate the expertise of its employees.
Nasdaq OMX Migrates eSpeed Platform to Its Carteret Datacenter
Wall Street & Technology
On top of performance gains, the move positions Nasdaq OMX to offer electronic trading services to broker dealers who are still relying on voice brokerage and to expand the fixed-income product set.
eClerx Named a Finalist in European Outsourcing Association Awards
eClerx, a leading provider of knowledge and business processing, announced today that it has been named a finalist in three categories in the 2014 European Outsourcing Association (EOA) Awards. The firm’s ISDA CSA Document Risk Review offering earned eClerx a spot on the “Award for Innovation in Pan-European Outsourcing” shortlist.
Former SAC Trader Martoma Seeks Lenient Sentence
MATTHEW GOLDSTEIN – Dealbook – NY Times
Mathew Martoma, the former SAC Capital Advisors trader convicted of insider trading in February, does not think he should get more jail time than the 11 years in prison that Raj Rajaratnam, the co-founder of the Galleon hedge fund, is serving for insider trading.
Former Top JPMorgan Banker in Britain Loses Appeal in Insider Case
CHAD BRAY – Dealbook – NY Times
A former top banker at JPMorgan Chase has lost his appeal of a ruling by British regulators two years ago that he improperly disclosed inside information.
Delay Sought in S.E.C. Case Against Steven Cohen
MATTHEW GOLDSTEIN – Dealbook – NY Times
It could be months, maybe even years, before there is a resolution of the Securities and Exchange Commission’s administrative case against the billionaire investor Steven A. Cohen, whose former hedge fund pleaded guilty to insider trading.
Ex-AIG chief Greenberg loses bid to end New York lawsuit
A New York state judge has rejected a request by Maurice “Hank” Greenberg, the former American International Group Inc chief executive officer, to dismiss a long-running civil lawsuit by the state’s attorney general.
Former hedge fund analyst pleads guilty in insider trading case
Former hedge fund analyst Matthew Teeple pleaded guilty on Wednesday to a criminal conspiracy charge in connection with the 2008 takeover of a technology company.
Tribunal upholds decision of Financial Conduct Authority to find Ian Hannam guilty of market abuse
The Upper Tribunal (Tribunal) has upheld the decision of the Financial Conduct Authority (FCA) that Ian Hannam engaged in two instances of market abuse.
SEC Obtains Asset Freeze to Halt Fraud at Illinois-Based Transfer Agent
The Securities and Exchange Commission today announced fraud charges and an emergency asset freeze against an Illinois-based transfer agent and its owner whose misappropriation scheme was exposed during an SEC examination of the firm.
New Zealand’s Financial Markets Authority Issues Formal Warning To St Laurence Directors – Investigation Closed
Environmental & Energy
Elections have limited impact on EU climate goals
The results of the European Parliament elections could have only a limited impact on climate and energy targets up to 2030, despite a successful showing in the polls by parties hostile to expanding EU climate regulation.
EU-Skeptic Parties Unlikely to Focus on Carbon, Consultancy Says
Ewa Krukowska, Bloomberg Businessweek
The U.K. Independence Party and the French National Front are unlikely to compete for key posts in the European Parliament environment committee, which leads work on carbon-market legislation, according to G+Europe consultancy.
Russia’s Gazprom says Ukraine will owe $5.2 billion as of June 7
Ukraine will owe Russia about $5.2 billion for natural gas as of June 7 if it makes no payments by that date, the CEO of state-controlled Russian gas exporter Gazprom, Alexei Miller, said on Wednesday.
***LB: Also in this story “Russia and Ukraine are fighting over gas prices, with Kiev wanting to change a 2009 contract that locked it into buying a set volume of gas, whether it needs it or not, at $485 per 1,000 cubic metres – the highest price paid by any client in Europe.”
European Firms Are Cooling on China, Survey Shows
Richard Silk – WSJ
European companies doing business in China are finding the market less attractive due to rising labor costs, a slowing economy and lack of adherence to the rule of law, the European Union Chamber of Commerce in China said Thursday.
Japanese head of ADB welcomes rival Chinese fund
David Pilling in Hong Kong – Financial Times
The president of the Japan-dominated Asian Development Bank has cautiously welcomed a proposal by China to set up a rival $50bn infrastructure fund, but warned that the new institution should not disregard environmental and other safeguards.
Falling renminbi raises eyebrows overseas
Josh Noble – Financial Times
When the renminbi began falling back in February, traders expected it to be temporary as China’s central bank fired a warning shot across the bows of naughty exporters. Many of them had been fiddling invoices to bring cash onshore and profit from a steadily rising renminbi.
HKFE Announces Revised Margins for Futures Contracts
Goldman Predicts Brazil Will Win the 2014 World Cup
RACHEL ABRAMS – Dealbook – NY Times
The thousands of screaming soccer fans who root for their national teams at the World Cup every four years probably aren’t rooting for their local stock market. But victorious nations can experience a boost after the world’s largest soccer tournament, at least temporarily, according to the latest report from Goldman Sachs on the economics of the World Cup.
Hedge Fund Takes On African Bank Investors as Stock Falls
Jaco Visser – Bloomberg
African Bank Investments Ltd. (ABL), South Africa’s worst-performing stock in May, is pitting the country’s largest hedge fund against some of the nation’s biggest investors.
Brazil: Rousseff’s water torture
Rob Dwyer – Euromoney Magazine
A lack of rain to fill the dams that power Brazil is becoming a potential crisis. But as experts call for action to protect dwindling reservoirs the government refuses to act, and running the hydrology risk is becoming increasingly dangerous for it.