John Lothian Newsletter: Nasdaq To Take 5pct Equity Stake in Borsa Istanbul; Global regulators turn to UK’s FCA for help with Libor probe; South Korea exchange rushes to implement ‘kill switch’

Dec 31, 2013

First Read

Something Not Proven to Fail
Jonathan Matte
The end of the year: we made it. Good job. Personally, I don’t mark today as an extraordinary thing; as time goes by, I’ve come to see each day as sort of its own self-contained milestone. But in honor of those that celebrate the New Year with one eye on the past and the other toward tomorrow, I’ll offer my best wishes; and to those in the business of writing laws and regulations, I’ll offer a suggestion:

Next year, why not try to write smaller, simpler rules that can – for good or for ill – be swiftly and pragmatically put into place and used?

I’m beyond unimpressed with Dodd-Frank and the attendant regulations that spawned around it, but not because of some political view or because I have a particular financial iron in the fire. I’m unimpressed because as is usually the case, legislators and regulators set out not to fix or improve ONE thing, but to create a grand, sweeping reform that would fix just about everything in every way. Two years on, this creaking behemoth has been hacked up, badly formed, watered down, misunderstood, clumsily implemented, litigated, partially neglected, and scorned or reviled by the rest of the regulatory world. And as time rolls on and exceptions and adjustments are handed out, it drifts farther and farther away from its grand, sweeping purpose.

They didn’t create a sweeping anything; it’s not even a total failure. But the one thing it IS, is familiar. Search me why legislative efforts are measured by the pound and page count, rather than by how effective the laws turned out to be. It seems like the time it takes to go from “we should fix this” to “we should make a towering mountain of legislative mashed potatoes” is often infinitesimally small.

Complexity is a liability, not an asset, when it comes to all kinds of human endeavors. It makes things worse, not better. So dear legislators, next year when you feel tempted to trumpet forth about “grand, sweeping” nonsense, please remember that every time you do that, you’re making something worse. And if your goal is to make something better, you’re going in the opposite direction.

This means you’ll need to do something different, because you don’t get “different” by being the same. Try doing something that’s not already proven to fail, maybe?

**JJL: You have to forgive Jon. He lives by the North Pole and this time of year is rough. With the elf layoffs and the end of the reindeer games, things get a little boring.

**JJL: Happy New Year from the John Lothian News team. Thank you to all our readers and sponsors for a great year.


The non-scandal of Scott Irwin and Craig Pirrong
Felix Salmon
Ostensibly Respectable Academic Is In Fact A Hack: it’s a hardy perennial, and an enjoyable one at that. The best example is Inside Job, where big names like Ric Mishkin and Glenn Hubbard got their well-deserved comeuppance. But here’s the thing: for this kind of article to carry any weight, it has to demonstrate the mendacity or venality of the academics in question — and, ideally, those academics should have a high-profile reputation which deserves to be tarnished. Which is why David Kocieniewski’s article about Craig Pirrong and Scott Irwin this weekend is such a disappointment.

***JM: Good. This reaction to the NYT story is deserved and needs more coverage (see Craig’s response below for more details, too). I don’t understand why, with so much out there going wrong to report on, major journalists have to invent stuff to write about. Maybe Kocieniewski and Bloomberg’s Evans should team up and buy the National Enquirer…


I Have Not Yet Begun to Write: Responding to the New York Times’ Farrago of Dishonesty, Insinuations, and Ad Hominem
Craig Pirrong – Streetwise Professor
The New York Times, in an article written by David Kocieniewski, has singled out me and the University of Illinois’ Scott Irwin for an extended ad hominem treatment alleging that our statements and research on commodity speculation are tainted due to financial connections with “Wall Street.” As one individual put it to me, the article is “nasty, biased and thinly researched.” All true (if incomplete-the list of sins is even longer). But at the risk of providing credence to the incredible, I believe some sort of response is warranted. So here it goes.


High-speed trades, changes
ROY STROM – Law Bulletin
Nancy Laethem Stern knew at least one thing was certain when she joined Allston Trading LLC in July. Change was coming.


Tech Beat: outsourcing comes at a price
Philip Stafford –
Investors are still making investments in cutting-edge technology for high-speed trading but demands on the independent companies that develop the tools are also rising. Despite the bashing that high-frequency trading has received, investment has continued this year in the ceaseless quest to cut the time it takes to trade.


Eliminating Maker-Taker Would Increase Transparency & Reduce Conflicts
Rich Steiner – TabbFORUM
Exchange rebates distort price discovery, compromise efficiency and create conflicts of interest. But the only way to study the effects of eliminating maker-taker pricing would be to initiate either a pilot study or reform.

***** Is there nowhere that maker-taker does not exist? There has to be a marketplace on some long lost island somewhere?


Ten Things That Didn’t Happen in 2013
Ben Wright – MoneyBeat – WSJ
A great many things didn’t happen this year. On one level, that’s true every year; an infinite number of things don’t happen every day. But 2013 was almost more notable for the things that didn’t happen than the things that did.


The Worst, the Best, and Some Odd Couples
Ahem. Please find your seats. It is time again for DealBook’s annual “Closing Dinner,” at which we toast and roast the world of finance and corporations — and look back at the year that was.


2013 counted out: Year in statistics
FT reporters select the numbers that defined the past 12 months



MarketsWiki Page of the Day
Taiwan Futures Exchange

MarketsWiki Recent Updates


Tony C. Fan; Eric Mainz

Companies, Organizations and Groups

NYSE Arca Inc.; NYSE Liffe; Consolidated Tape Association; Taiwan Futures Exchange; Futures and Options Association


Book value


46,192,376 pages viewed, 7,729 articles, 170,636 edits
MarketsWiki Statistics

Lead Stories

Nasdaq To Take 5% Equity Stake in Borsa Istanbul
Nasdaq OMX Group will take a 5% equity stake in Borsa Istanbul A.S. as part of a deal that also includes technology-sharing and advisory services, the exchanges said Tuesday. Nasdaq will have the option to increase its stake in the Turkish entity by 2% and will receive a series of cash payments.

Global regulators turn to UK’s FCA for help with Libor probe
Caroline Binham, Legal Correspondent –
The UK’s financial markets watchdog is on track to receive a record number of pleas for help from overseas authorities in 2013 as cross-border scandals such as Libor-rigging underscore the global nature of regulatory investigations.

South Korea exchange rushes to implement ‘kill switch’
Song Jung-a in Seoul and Jeremy Grant in Singapore –
South Korea’s exchange operator, Korea Exchange (KRX), is rushing to implement a “kill switch” system designed to minimise the fallout from trading algorithms going wrong after a local broker was brought to the brink of bankruptcy by erroneous electronic trades this month.

Happy New Year Euro Zone. Now Reform.
David Cottle – MoneyBeat – WSJ
It’s been quite some time since the euro zone could look a New Year in the eye with quite the straight and level gaze it can in dawning 2014.

Barclays Antony Jenkins to Edit Radio Four’s Today Program
Max Colchester – MoneyBeat – WSJ
Barclays Chief Executive Antony Jenkins is going the extra mile to prove the scandal prone bank is on the same wavelength as the British public. On Tuesday the executive will take to the radio booth at the crack of dawn to guest edit one of the BBC’s most popular radio shows, Today.

Reduced Fed support reflected in January bond-buying plan
The Federal Reserve plans to purchase about $40 billion in longer-dated federal government debt in 18 operations next month, the New York Fed said on Monday, reflecting the U.S. central bank’s decision to trim its support for the economy.

Fed Finds Herding Investors Isn’t Easy
Alen Mattich – MoneyBeat – WSJ
However hard it might be to imagine Ben Bernanke in a Stetson, it’s not too much of a stretch to think of central bankers as cyber cowboys, keeping the herd moving steadily in the same direction. And avoiding stampedes.

A Guide to the HFT Arms Race
Brian Durwood, Nick Granny – Wall Street & Technology
High Frequency Trading took a leap in the last 18 months with the introduction of extremely competent FPGA-based hardware from nearly a dozen manufacturers. What seems to be emerging as the industry standard is a PCIe board with two to four bidirectional 10 GBP/S ports which fits in an inexpensive 2U chassis and deployed in co-located trading sites worldwide.

Winners of 2013: Boring Investors
In the best year for U.S. stocks since 1995, the smart way to play the markets has been to follow the dumb money. So-called dumb-money strategies, which involve buying and holding a plain-vanilla portfolio of U.S. stocks, did much better than the more complex approaches employed by hedge funds and other professional investors.

Latvia Becomes The 18th Member State To Adopt The Euro
After Latvia adopts the euro at midnight tonight – on the 15th anniversary of the launch of the euro in 1999 – 18 Member States and 333 million Europeans will share the same currency. This is a major achievement for Latvia and for the euro area as a whole.


Key Esma body comes under fire
Tim Cave – Financial News
A key advisory body to financial regulator the European Securities and Markets Authority has been described as having “limited usefulness”, as a review of the EU’s two-year-old regulatory regime nears its conclusion.

Gary Gensler defends record as he leaves CFTC
Gina Chon in Washington –
Gary Gensler is regarded by some as one of the toughest regulatory cops policing Wall Street. Over the past five years, the former Goldman Sachs banker helped transform a sleepy Commodity Futures Trading Commission into a more powerful regulatory force.

Regulators Have New Cases of Frauds and Abuses to Tackle
Goodbye 2013 frauds; welcome 2014 abuses. The financial crisis may be five years behind us, but there will never be a shortage in the ways in which the financial markets may be manipulated and abused.

CFTC’s Division of Swap Dealer and Intermediary Oversight Issues No-Action Relief for Certain Futures Commission Merchants, Swap Dealers, and Major Swap Participants Concerning Annual Reports of Chief Compliance Officers
The U.S. Commodity Futures Trading Commission’s (CFTC or Commission) Division of Swap Dealer and Intermediary Oversight (DSIO) today issued two no-action letters that provide certain futures commission merchants, swap dealers, and major swap participants with limited relief surrounding the requirement that chief compliance officers of such firms prepare and submit an Annual Report, pursuant to Commission Regulation 3.3.

Exchanges & Trading Facilities

LME to implement warehouse reforms, shed owners restrain rent hikes
The London Metal Exchange will push ahead with proposed reforms to its warehousing policy, it said on Monday, and warehouses announced lower average rent increases than last year in response to the LME’s calls for restraint.

[JEG] Trading Overview in Year 2013 & December 2013
Japan Exchange Group announced a trading overview (preliminary estimates) in November 2013.

BM&FBOVESPA: The Exchange At New Year´s Day

Six Year High For London Stock Exchange IPOs

Oslo Børs: Strongest Growth In Share Prices Since 2009

NFEA Taps Moscow Exchange FX Fixing for Swap Rates
Max Bowie – WatersTechnology
Russia’s National Foreign Exchange Association has announced that from Jan. 9, it will begin using the Moscow Exchange’s US dollar-ruble price fixing to calculate the NFEA FX swap rate instead of the current Central Bank of Russia rate.

CME Group Rings in New Year with Trading Floor Confetti Drop
CME Group will welcome the New Year with showers of confetti at the close of trading on the Chicago trading floors.

Börse Berlin – 2013 With Steady Turnover Development
Börse Berlin Completes 2013 Nearly Unchanged With A Total Turnover Of 48.5 Billion Euro (2012: 48.3 Billion Euro). The Number Of Trades Has Declined To 6.3 Million.

MIAX Options – To Continue The Priority Customer Rebate Program Beyond December 31, 2013

Hedge Funds & Managed Futures

Private Equity Enjoys a Record Year
Ryan Dezember –
Private-equity firms are set to return a record amount of cash to their investors for 2013, after taking advantage of buoyant markets to sell hundreds of billions of dollars of investments.

Commodity hedge fund Higgs Capital to wind down -founders
Commodity hedge fund Higgs Capital Management, founded by two former bank commodity executives, will wind down and return money to investors as it faces headwinds raising money, joining other commodity funds that closed this year.

Frosty market conditions leave fixed-income engine room spluttering
Matt Turner – Financial News
For every silver lining, there is a cloud.

CFTC Commitments Of Traders Reports Update

Banks & Brokers

Barclays’ Antony Jenkins says it will take years to rebuild trust
Alistair Gray –
The chief executive of Barclays has warned it could take as much as a decade to rebuild trust in the bank, following a series of scandals that have shaken public confidence in the industry.

Wells Fargo agrees to $541 million loan settlement
Wells Fargo & Co will pay a net $541 million to Fannie Mae to settle claims over defective home loans, completing the government-controlled mortgage company’s efforts to have banks buy back troubled loans made before the financial crisis.

Clearing & Settlement

KDPW Is Granted Pre-LOU Status
According to a decision of the Regulatory Oversight Committee (ROC), the regulatory supervisory body of the global LEI system, the Central Securities Depository of Poland (KDPW) has been awarded the pre-LOU status. As a result, identifiers assigned by KDPW in order to report data to trade repositories become pre-LEIs. This also concerns identifiers (KEIs) assigned by KDPW before 27 December 2013.

Indexes & Products

BME: IGBM Index New Composition For The First Half 2014

Moscow Exchange Indices Weekly Review: December 23-27, 2013


Big Data Techniques Can Give Institutional Portfolio Managers Upper Hand
Henri Waelbroeck – Wall Street & Technology
Institutional asset managers often compete to implement similar investment decisions on shared information. However, the market impact from other managers can erode the potential benefits of a trade for those unable to execute first. While Chief Information Officers (CIOs) have previously adopted quantitative methods for portfolio optimization, today the race is on to deploy big data optimization solutions to extend these capabilities to trade execution as well.


Video – A Year of Corporate Fines
Five years after all those bailouts for big banks, major financial institutions like JPMorgan Chase and Bank of America agreed to pay many billions of dollars in fines this year to settle claims involving a range of wrongdoing, from questionable mortgage practices to trading fiascos.


Reappointments In The Monetary Authority of Singapore Board Of Directors

HKEx Report On Initial Public Offering Applications, Delisting And Suspensions

Frontier Markets

American-Style Start-Ups Take Root in India
India has built a reputation as a notoriously tough place to do business, one that has stymied even giants like Walmart. And unlike Silicon Valley, where a decent idea can attract funding, investors in India are much more reluctant to risk their money on start-ups.

Unusual Emerging-Market Bond Bet Pays Off
Neelabh Chaturvedi –
For most emerging-markets investors, 2013 was a year to forget. The beginning of the end of the U.S. Federal Reserve’s giant stimulus program sucked money out of risky assets. The J.P. Morgan Emerging Market Bond Index has lost more than 5%, its worst performance in half a decade. But a handful of fund managers bucked the trend, with some unusual strategies.

Turkey 2014: More Volatility As Politics Add To Fed-Driven Risks
Fercan Yalinkilic and Emre Peker – MoneyBeat – WSJ
Turkey had a turbulent 2013, with markets seesawing from a sound rally as the country clinched investment-grade ratings to a selloff amid rising political and financial pressures. Next year promises to be equally challenging.

EGX Provides A New Disclosure Report About Listed Companies

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