John Lothian Newsletter: Nasdaq Said to Plan End to Role Running Stock Price System; Hong Kong exchange considers circuit breakers; Europe Reaches Agreement on Trading of Derivatives

Jan 15, 2014

First Read


Emerging Opportunity: Silvercrest’s Mike Dubin on Matching Small Funds with Large Investors
The managed futures space continued to struggle to post enticing returns in 2013, but Silvercrest Asset Management’s managing director Mike Dubin says that has not kept his firm from looking for emerging manager talent in the space. Dubin, who spoke at the Emerging Manager Forum in Miami in December, says the research shows that smaller emerging managers have continued to outpace larger funds by 2 percent to 4 percent per annum. There have been a number of studies that conclude that smaller funds that produce nice returns tend to perform poorly going forward when they have large pools of capital to manage and invest. Here’s how Silvercrest is matching small funds with large investors.

Watch the video »


CBOE reviews hardware, software to prevent trading glitches
CBOE Holdings Inc is examining hardware and software systems as it tries to prevent any repeat of the shutdowns and glitches that plagued U.S. financial exchanges last year, executives said on Tuesday.

***** The CBOE had their annual press lunch in Chicago yesterday and will do the same in New York today. They had a good story to tell about the growth of their business, particularly VIX and SPX. Oh, and the stock did not do too badly either. This was Ed Tilly’s first annual press lunch as CBOE CEO, with President & COO Ed Provost also attending. There was a startling lack of acrimony at the lunch, except for some uncomfortable questions from one tall and shiny-headed journalist in attendance. There was nothing about being a takeover target, or lawsuits from other exchanges or members or even much mention of the former CEO Bill Brodsky. There was a happy story of growth, innovation (new short term VIX to be launched soon) and industry engagement and leadership in addressing the technology and procedural issues confronting the equities and equity derivatives markets.


7 Benefits of Simplifying Exchange Connectivity: Enabling Innovation and Growth
Steve Woodyatt – TabbFORUM
Faced with significant market access and pre-trade risk management challenges, the sell side must streamline exchange connectivity and reduce operational complexity to innovate and compete.

***** Where is my “Innovate or Die” t-shirt?


Regulators Ease Volcker Rule Provision on Smaller Banks
Federal regulators on Tuesday bent to the will of the banking industry and some lawmakers and revised a rule that would have forced community banks to take write-downs on a security that many had invested in before the financial crisis.

***** Those darn community banks, they almost brought down the whole system. Thank goodness we have Dodd-Frank to keep them in line.


For 2 Wall Street Regulators, More Belt-Tightening
Two primary regulators of Wall Street are preparing, once again, to make the most of scarce resources. Under a new budget proposal, the regulators, the Securities and Exchange Commission and the Commodity Futures Trading Commission, would receive less money this year than President Obama had requested, though slightly more than they were allowed last year.

***** This is the wrong approach, starving the beast. The beast has an ability and willingness to fine heavily and excessively because it does not have the time or resources to educate themselves or the industry.


The Wrong Way on Bank Risk
Regulators have been working hard to make new global capital rules more palatable for banks. They should now raise the minimum requirements high enough to make the risk of financial disaster more bearable for everyone else.

***** Higher capital requirements could help, or they could be the seed of the next problem.


Foreign-Exchange Futures May Double on New Rules, Greenwich Says
Joseph Ciolli – Bloomberg
Foreign-exchange futures trading has the potential to more than double as regulatory measures push investors out of options and non-deliverable forwards, according to Greenwich Associates.

***** Somewhere Terry Duffy is smiling.


Navigating Dodd-Frank Trading Mandates in 2014 and Beyond
Eris Exchange Webinar, January 30
With the final execution mandate deadlines approaching for swap trading, market participants are seeking answers to many questions. In this complimentary webinar, “Navigating Dodd-Frank Trading Mandates in 2014 and Beyond”, a panel of industry experts will review the anticipated deadlines and recent regulatory developments, then debate what will happen as the mandates take hold.

***** Eris does good webinars.



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Companies, Organizations and Groups

Optiver; IG Group; TriOptima; NASDAQ OMX PHLX; ICAP


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Lead Stories

Nasdaq Said to Plan End to Role Running Stock Price System
Sam Mamudi – Bloomberg
Nasdaq OMX Group Inc. gave notice that it no longer wants to run the marketwide quote service that broke down and froze thousands of its U.S. stocks in August, according to a person with direct knowledge of the matter.

***JM: If it were easy to make it ultra-reliable, I doubt that they’d be looking to dump it. Hence… yep, you get the picture.

***JL: If it does not make you money, and brings a big reputational risk, then get out of it.

Hong Kong exchange considers circuit breakers
Jeremy Grant in Singapore –
Hong Kong’s stock exchange is considering introducing circuit breakers that would halt share trading in the event of wild swings in prices, making it the latest bourse in Asia to move to safeguard markets against glitches in electronic dealing.

***** In Hong Kong, do you flip the switch up or down to go on? Or do you push a button?

Europe Reaches Agreement on Trading of Derivatives
The three branches of the European Union government reached an agreement on Tuesday night to more tightly regulate the trading of derivatives and other complex instruments, striking a compromise after a flurry of lobbying by oil and commodity interests.

Clearstream to widen Target2Securities system
Philip Stafford –
Clearstream is to allow eurobonds to be settled by European Central Bank-backed money in the ECB’s planned settlement system, a move that potentially vastly widens the scope of the ambitious project.

Deutsche Bank suspends multiple FX traders in New York -source
Deutsche Bank, Germany’s biggest bank, has suspended several currency traders in New York in an internal probe that forms part of an international investigation into alleged manipulation of the global currency markets, a source familiar with the matter said on Wednesday.

Shanghai Gold Exchange to Launch Yuan-Denominated Gold Contract in New Free-Trade Zone
MoneyBeat – WSJ
Gold buyers in the world’s biggest consumer of the precious metal want more of a say in its price, and the government wants to increase the international use of its currency: The Shanghai Gold Exchange is combining these two wants with the upcoming launch of an “international board” for gold trading in Shanghai’s pilot free-trade zone.

Fed Weighs Further Restrictions on Banks’ Commodities Units
Cheyenne Hopkins – Bloomberg
The Federal Reserve is weighing further restrictions on banks’ trading and warehousing of physical commodities as Congress scrutinizes potential conflicts of interest and manipulation in those markets.

Barclays Traders Said to Face U.K. Libor Interviews
Suzi Ring – Bloomberg
Several former Barclays Plc traders suspected of involvement in Libor manipulation were ordered to report to U.K. fraud prosecutors for interviews, according to a person with knowledge of the case.

Taking steps to rebuild Libor
Anish Puaar – Financial News
The reform of critical financial benchmarks will be a hot topic this year as the industry seeks to rebuild confidence following a series of scandals that led to billions in fines for some of the world’s largest institutions over the past two years.

Penny-Wise, Wall Street-Foolish
Both Republicans and Democrats won a little and lost a little in this week’s $1.1 trillion spending agreement, as congressional negotiators reached compromises that were mostly reasonable.

Economists: there is no such thing as the ‘economic approach’
John Kay –
Economics is not a method but a subject – one defined by the problems it tackles


Outsourced trade reporting services ramp up ahead of key deadline
Anish Puaar – Financial News
With new EU rules that require reporting of derivatives trades fast-approaching, a flurry of new services to help the industry handle the burden is continuing to emerge.

Agencies Approve Interim Final Rule Authorizing Retention of Interests in and Sponsorship of Collateralized Debt Obligations Backed Primarily by Bank-Issued Trust Preferred Securities
Five federal agencies on Tuesday approved an interim final rule to permit banking entities to retain interests in certain collateralized debt obligations backed primarily by trust preferred securities (TruPS CDOs) from the investment prohibitions of section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, known as the Volcker rule.

FCA Board appoints three new members to the Regulatory Decisions Committee
The Regulatory Decisions Committee (RDC) is responsible for taking decisions on whether to refuse or grant contested applications into the regulated community, and issuing warning and decision notices for certain enforcement cases on behalf of the FCA.

Dispute over foreign bank assets sent to New York’s highest court
In a case with wide implications for the global banking industry, New York’s highest state court has been asked to decide if banks operating in the state can be forced to turn over to litigants assets held in their foreign branches.

European Parliament and European Council Agree “In Principle” on MiFID II
Gary DeWaal and Associates LLC

Acting Chairman Mark Wetjen Statement On CFTC Budget

Acting CFTC Chairman Mark Wetjen Statement Of Support

Statement Of Concurrence By Commissioner Scott D. O’Malia On The Volcker Rule Treatment Of Certain CDOs Backed Primarily By TruPS

Statement Of CFTC Commissioner Scott O’Malia Regarding H.R. 3547, The Fiscal Year 2014 Omnibus Appropriations Act

Dissenting Statement Regarding Adoption Of Interim Final Rule Regarding Certain CDOs Backed By TruPS As A “Companion Rule” To The Volcker Rule By SEC Commissioner Michael S. Piwowar

Exchanges & Trading Facilities

Q&A with Nasdaq OMX’s Valerie Bannert-Thurner
Anna Irrera – Financial News
Last month, Nasdaq OMX signed an agreement with Turkish exchange Borsa Istanbul aimed at overhauling the emerging market bourse’s technology infrastructure. Financial News spoke to Valerie Bannert-Thurner, vice-president and head of European sales for market technology at Nasdaq OMX, about the agreement.

TMX Group Limited To Announce Financial Results For Q4 2013 On Wednesday, February 5, 2014

TOM Insight December 2013

MIAX Options Holiday Schedule – Martin Luther King Jr. Day

Hedge Funds & Managed Futures

Emerging Markets Specialist Ashmore Shares Tumble as Assets Fall by $3.5 Billion
Joe McGrath – MoneyBeat – WSJ
Shares in emerging markets manager Ashmore Group fell 12.43% Tuesday after it declared $3.5 billion in net outflows in the final quarter of 2013. The asset outflows came in all investment themes except for corporate debt.

Everyone’s Buying Cyclicals (except hedge funds, who are selling everything)
Joshua M Brown | The Reformed Broker
The latest Equity Client Flow Trends report is out from the quants at Bank of America Merrill. This past week, we see that everyone is buying, save for hedge funds, who are net sellers for the second week straight.

QFS Asset Management Shuts Currency Hedge Fund
QFS Asset Management is shutting its sole remaining hedge fund and returning nearly $1 billion to clients, making it the latest casualty of increasingly treacherous foreign-exchange markets.

Deutsche Bank quant chief fundraising
Harriet Agnew – Financial News
A former quantitative trading chief at Deutsche Bank is hoping to raise as much as $250 million for a managed futures hedge fund that he will begin marketing in earnest this year.

Investment by acronyms makes no sense
James Mackintosh –
Albert Edwards of Société Générale thinks everything is overvalued – even popular acronyms. A look at the performance of the past few years suggests he has a point.

Coffee Farmers in Vietnam Curbing Sales From Record Harvest
Bloomberg News
Coffee farmers in Vietnam, the biggest producer of robusta beans used by Nestle SA in instant drinks, are limiting sales from a record harvest before the Tet Lunar New Year festival as they expect higher prices.

Forecast Trading Group (FTG) and TIF Fund Management LLC (TIFFM) are pleased to announce the formation of a joint-venture in which FTG’s active futures management will be included as a trading strategy in Triumph Fund’s Diversified Share Class or, for greater transparency and daily liquidity, properly qualified investors may prefer to open a Separate Managed Account.
(via email)

CalPERS Board Re-Elects Feckner As President; Elects Priya Mathur As Vice President

Australia’s Largest Platforms Join Calastone – BT Financial Group

Banks & Brokers

Monte Paschi rights issue crucial for Italy banking system: chairman
Failure by Italy’s troubled Banca Monte dei Paschi di Siena to carry out a $4 billion capital hike later this year would bring down the country’s entire banking system, Chairman Alessandro Profumo told Italian daily La Repubblica.

Funding Value Adjustment Proves Costly to J.P. Morgan’s 4Q Results
Michael Rapoport – MoneyBeat – WSJ
So what is a “funding valuation adjustment,” and why did it cost J.P. Morgan Chase & Co. $1.5 billion?

Long-Time Morgan Stanley Deal Maker Scott Matlock to Retire
Dana Cimilluca – MoneyBeat – WSJ
Scott Matlock, a long-time deal maker at Morgan Stanley who has been responsible for its mergers-and-acquisitions business in Europe and Asia, is leaving the firm, according to an internal announcement last week.

Wells Fargo’s Mortgage Business Sputters
Maureen Farrell – MoneyBeat – WSJ
The mortgage boom that drove profits early last year for Wells Fargo and other U.S. banks continues to sputter.

As Refinancing Wanes, Banks Remain Wary of New Loans
The stars seem to be aligning in the housing market. Home prices have been rising for many months, and the federal government is providing immense support to bolster the mortgage market. The big banks that make home loans are strong enough to provide credit to borrowers, as seen in the fourth-quarter results reported Tuesday by JPMorgan Chase and Wells Fargo.

Analysis: JPMorgan set to reap rewards of playing it safe on rates
In 2010, senior executives at JPMorgan Chase & Co (JPM.N) came to realize that interest rates, already at zero for more than a year, ultimately had only way to go: up.

Deutsche suspends trader suspected of forex rigging -paper
Deutsche Bank has suspended at least one currency trader on suspicion of manipulating benchmark forex rates, a German paper reported.

Cantor Gambling Unit Settles for $5.5 Million in ‘Jersey Boys’ Matter
The gambling affiliate of Wall Street firm Cantor Fitzgerald LP has negotiated to pay more than $5.5 million under a settlement with Nevada gambling regulators to address allegations filed in a civil complaint.

Tradenext Introduces New Dedicated Institutional Service At The iFX Expo

Clearing & Settlement

CME Group Clearing: Martin Luther King Jr Holiday Clearing Schedule-Monday, January 20, 2014

CME Group Clearing: Floating Rate Notes – Acceptance for Performance Bond & Guaranty Fund Requirements at CME Clearing

Indexes & Products

Deutsche Börse: New UBS ETF Launched On Xetra – ETF Provides Access With Currency Hedging To MSCI USA For The First Time


Interactive Data Expands Global OTC Data in Collaboration With BGC Partners
Interactive Data Corporation today announced an agreement with BGC Partners, Inc. to provide BGC’s globally available Over-the-Counter (OTC) asset class data via its Consolidated Feed and through the 7ticks network.

Commoditization of Financial Data Demands New Business Model
Becca Lipman – Wall Street & Technology
The ubiquity and rapid commoditization of standard data points, especially as they relate to public documents, is causing firms to question high price tags. That’s according to Dave Frankel, president of EDGAR Online, a leading distributor of company data and public filings for many publicly traded assets.

Markit Acquires ThinkFolio, Pushing into Front Office
Ivy Schmerken – Wall Street & Technology
The London-based maker of portfolio management software offers cross asset capabilities, a sophisticated OMS, and brings along 50 asset management clients.

Centercore: The Flexible Datacenter
Greg MacSweeney – Wall Street & Technology
Fidelity Investments develops a modular datacenter that can grow at 500 megawatt increments.

Data Boiler Names Former JP Morgan Exec COO
Max Bowie – WatersTechnology
Edward Lai, former vice president and chief information officer at JP Morgan in Asia, has joined Big Data analytics startup Data Boiler Technologies as managing director and chief operating officer, responsible for product development, compliance and building a support organization in Asia.

Volta’s Data Centre Welcomes Openreach As A Major New Carrier
Openreach Selects Volta’s Great Sutton Street Facility To Deliver High Speed Fibre Backhaul Links In Response To Growing Customer Demand

Douglas T. Breeden Selected As The Recipient Of The 2013 IAQF/SunGard Financial Engineer Of The Year Award


Testifying in SAC Case, Doctor Admits Sharing Data
When Mathew Martoma, a hedge fund manager at SAC Capital Advisors, met Joel S. Ross, a prominent physician specializing in Alzheimer’s research, for dinner at a Midtown Manhattan restaurant, Mr. Martoma shocked Dr. Ross with a prescient question.

Federal Court In Illinois Orders Chicago-Based Introducing Broker New World Holdings, LLC To Pay $50,000 To Settle Record-Keeping Violation Action

Environmental & Energy

RGGI States Make Major Cuts to Greenhouse Gas Emissions from Power Plants
Press Release
Having completed revisions to their state CO2 Budget Trading Programs, the nine states participating in the Regional Greenhouse Gas Initiative (RGGI) today announced that the 2014 RGGI cap is 91 million tons. This represents a 45 percent reduction to the RGGI CO2 cap.

**RKB — First auction under the new cap is March 5.

Northeastern US states tighten carbon trading scheme
Responding to Climate Change blog
Northeastern US states have followed the European Union in taking measures to tighten their carbon market after a glut of permits drove prices so low that power plants and heavy industry had little incentive to cut carbon dioxide emissions.

Korea Exchange wins bid to host nation’s carbon trading
The Korea Exchange (KRX) will host trading under South Korea’s emissions trading scheme, set to become the world’s second biggest when it launches on Jan. 1, 2015, the Ministry of Environment said Monday.


S.Korea plans price band limits on futures, options trading
South Korea’s financial regulator said on Wednesday that it plans to impose price band limits on futures and options trading after a local brokerage suffered crippling losses on erroneously placed options transactions last month.

Is China’s Focus on Reform Clouding the Picture on Shadow Banking?
Bob Davis and Lingling Wei – MoneyBeat – WSJ
To be a player politically in China means to be a reformer, at least when it comes to the economy. But when it comes to controlling the growth of shadow banking and China’s spiraling debt, the reform fixation could be backfiring.

The stock market impact of China’s reforms
Tony Welch – Euromoney magazine
The country faces many problems in banking, real estate, consumption and demographics that cannot be quickly solved.

Thai Exchange Moves Personnel Offsite After Protest Threats
Thailand’s stock exchange will keep its main office closed indefinitely until the threat of seizure by antigovernment protesters who have tried to shut down the capital has passed, officials said Wednesday.

[Osaka] Survey on website content

Frontier Markets

China urges IMF to give more power to emerging markets
China called on the IMF on Wednesday to stick to a commitment to give emerging markets more power at the world body after U.S. lawmakers set back historic reforms that would give developing countries a greater say.

Nigerian Fannie
Dan McCrum | FT Alphaville
Nigeria intends to set up a mortgage finance company along the lines of the US agency Fannie Mae, according to Bloomberg, who were informed by the government’s PR agency, Mercury.

UAE Minister Of Economy Presents DMCC’s Ahmed Bin Sulayem With Award For Outstanding Contribution To Islamic Finance
DMCC Executive Chairman Dedicates Islamic Finance Award To His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Vice President, Prime Minister Of The UAE And Ruler Of Dubai – 8th DMCC Award Received For Longstanding And Continuous Contributions To Islamic Finance

Egyptian Exchange Reviews Stocks Elligible For Specialized Activities Twice A Year

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