John Lothian Newsletter: New framework for sovereign defaults; CME plans new incentive for cocoa launch; September deadline for CCP recognition – FIA Europe

Aug 29, 2014

First Read

Bits & Pieces
By John J. Lothian

For many, the end of the summer comes this weekend. Have a great weekend and Labor Day for those in the US. We will be back on Tuesday with the next edition of JLN.

RJO Chairman & CEO Gerald Corcoran, who recently was named Chairman of FIA, was proud to take the ALS Ice Bucket Challenge on Aug. 26 in honor of his friend Sandy Carrigan, who passed away from ALS last year. He accepted the challenge from FIA President Walt Lukken, and then extended his challenge to members of the younger generation. From the futures industry, this included L.J. O’Brien, a fourth generation member of the O’Brien family, and Steve Georgy of Allendale, a 25-year client of RJO. He also reached out to the hip hop industry, challenging Chance the Rapper and his manager, Patrick Corcoran, Gerry’s son. He announced that RJO would be making a generous donation to the ALS Association.
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Will Mitting and the London Press Corps took the ALS Ice Bucket Challenge and kept a stiff upper lip. FOW’s Will Mitting, along with colleague Luke Jeffs, the FT’s Phil Stafford and Financial News’ Tim Cave responded together to the ALS Ice Bucket Challenge presented to them by NASDAQ OMX NLX CEO Charlotte Crosswell
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DGCX vs. DME: A Simple Guide is produced by Phillip Futures. As part of its August 2014 Trading Asia Newsletter, Phillip Futures (which, by the way, is changing its name to Phillip Capital as it broadens its service offerings) put together this infographic highlighting the two Dubai exchanges. Interesting little snapshot.
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The University of Illinois at Urbana-Champaign, Department of Agricultural & Consumer Economics is holding a Symposium on Swaps, Clearing, and Too Big to Fail The event is on Friday, September 12 at the Illini Center (Illinois Room, 4th floor), 200 South Wacker Drive, Chicago. There is no charge for the event, but registration is required.
Register at symposium2014.ace.illinois.edu/
Questions? Contact ace-symposium-2014@illinois.edu

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Trading volumes light, even considering summer doldrums
Bob Pisani – CNBC
It’s the biggest complaint of the trading community this year: where has all the volume gone?
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***** I could tell you, but it would kill you.

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Tom Kloet Throws Out First Pitch at Toronto Blue Jays Game
JLN
Retiring TMX CEO Tom Kloet was the center of attention at the Toronto Blue Jays game last night when he threw out the first pitch. Here is Kloet at the game:
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***** Kloet is on his Derek Jeter retirement farewell tour.

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Regulatory revenge risks scaring investors away
Gillian Tett – Financial Times
A couple of years ago Roger McCormick, a law professor at London School of Economics and Political Science, assembled a team of researchers to track the penalties being imposed on the 10 largest western banks, to see how finance was evolving after the 2008 crisis. He initially thought this might be a minor, one-off project. He was wrong.
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***** Everything is scaring away investors.

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Corn Heists Turning Grain Port Into Argentina’s Chicago
Charlie Devereux and Pablo Gonzalez – Bloomberg
The 200 pesos ($24) that truck driver Hector Jofre usually carries to bribe gang members or shanty dwellers for access to Argentina’s biggest grain port did no good one night in April. Six youths in a pickup climbed on the back of the rig when Jofre slowed near a railroad track. They opened hatches that spilled 10 metric tons of corn onto 100 meters of road and swept up as much as they could.
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***** “The river city handles 80 percent of agricultural exports, and is known as Argentina’s Chicago — the deadliest municipality in the U.S. — for its link with commodities and crime.” And there you have it.

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Ed Tilly, CEO of CBOE – Embrace Change
JohnLothianNews.com

“We were challenging people’s livelihoods…”

Reaching our goals in life does not always involve a linear path. Ed Tilly, CEO of the Chicago Board Options Exchange, discusses the long and winding road he followed in his career and key experiences that helped him get where he is today. He stresses that examining your own strengths and weaknesses and knowing the limits of your abilities is one of the keys to success. Making mistakes and taking chances are two other important areas that help us learn and grow in our careers. “You will fail,” he tells his audience, “and that’s okay.” For Tilly, not receiving a nomination to the CBOE’s Board of Directors motivated him to try again and come back the next year with fresh ideas to help improve the exchange.

Watch the video »

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OptionsCity August 2014 Newsletter
In this issue: We shift the customer party into drive in New York; Check out our Algo of the Month – The Profiteer Engine; See Hazem Dawani‘s Innovation Tip and explore careers at OptionsCity; In our blog Debbie Carlson discusses the OIC options study findings and Deana Ward talks with the company interns about the impact they made; Join us at FIA Chicago’s golf outing on 9/22 and OptionsCity will sponsor the 9/23 Trader’s Fulcrum networking event.
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Sponsored Content
Katten’s Summer 2014 Review: Financial Services Regulatory and Legal Development Highlights
Wednesday, September 10, 5p.m., New York

The firm’s Financial Services practice will present “Katten’s Summer 2014 Review: Financial Services Regulatory and Legal Development Highlights” at 5:00 p.m. on Wednesday, September 10. The first in a series of Katten programs addressing recent developments in the financial services industry that impact a broad range of market participants, the presentation will tentatively address the following topics:

  • final rules from the SEC: money market funds and security-based swaps;
  • futures: EFRPs, block trades and position limits; international developments regarding swaps;
  • managed futures: commodity pool operator director delegations;
  • litigation developments and enforcement actions: dark pools and high-frequency traders;
  • liquid alternatives; and
  • bitcoin developments.

The panel discussion will be moderated by Arthur Hahn, global co-chair of the Financial Services practice, and panelists will include six Katten attorneys, including special counsel Gary DeWaal. To register for the program, click here

Sponsored
content from:
Katten Muchin Rosenman LLP

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Lead Stories

New framework for sovereign defaults
Elaine Moore – Financial Times
A group representing more than 400 of the world’s largest banks, investors and debt issuers has agreed a plan for dealing with financially stricken countries and their creditors, in a bid to prevent a repeat of the wrangling that has pushed Argentina into default.
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CME plans new incentive for cocoa launch
William Mitting – Futures & Options World
CME is said to be pioneering a new incentive scheme for its new cocoa contract aimed directly at proprietary traders and end users. The exchange group is currently awaiting Financial Conduct Authority approval for the new contract, which CME plans to list on its US and European exchanges going head-to-head with rival IntercontinentalExchange.
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September deadline for CCP recognition – FIA Europe
Chris Hall – The Trade
FIA Europe, a derivatives industry trade body, is urging agreement by European Union and United States regulators on mutual recognition of central counterparties (CCPs) next month to avoid a major disruption to trading.
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Korea reveals derivatives safety measures
Song Jung-a in Seoul – Financial Times
Korea Exchange said on Friday it would introduce safety measures to protect investors and counterparties from the fallout of erroneous derivatives transactions. The exchange, one of the world’s largest derivatives exchanges for trading index options, will introduce a real-time price limit system and increase the number of underlying equities for stock futures.
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HK exchange says to consider listing rule changes on voting rights
Reuters
Hong Kong’s stock exchange said on Friday it will seek market comments on weighted voting rights for companies in the city, which could lead to changes to listing rules.
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No Weekend for Hong Kong-Shanghai Brokers on Link Tests
Kana Nishizawa and Weiyi Lim – Bloomberg
For stockbrokers in Hong Kong and Shanghai, tomorrow’s just another day at the office. Kingston Financial Group Ltd., Guotai Junan International Holdings Ltd., Tebon Securities Co. and Haitong Securities Co. are among firms working through the weekend in the first full trial of an exchange link between Asia’s biggest stock markets after Japan.
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No arbitrage: New rules make markets ‘less efficient’
Kris Devasabai – Risk.net
Arbitrageurs are being squeezed by post-crisis regulation, meaning market dislocations could be bigger and more persistent in future. In particular, indexes may track the value of their constituents less reliably – a problem for hedgers and investors.
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Barclays Agrees to Lend Detroit $275 Million to Exit Bankruptcy
MARY WILLIAMS WALSH – Dealbook – NY Times
Barclays Capital has agreed to provide $275 million to finance Detroit’s operations as it comes out of bankruptcy, according to documents filed in bankruptcy court.
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***JM: When banks sponsor sports stadiums, they get naming rights… shouldn’t they get to rename Detroit? “Barclays’ City of Detroit”? “Barclayville”? “Loantown”?

Hal Finney, Bitcoin Pioneer, Dies at 58 From ALS – MoneyBeat
Paul Vigna – MoneyBeat – WSJ
Hal Finney, a well-known cryptography expert and the first person to work with Satoshi Nakamoto on the digital currency bitcoin, passed away on Thursday in Scottsdale, Ariz. He was 58.
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Regulatory

CFTC backs US banks clearing with UK firms
Luke Jeffs – Futures & Options World
The Commodity Futures Trading Commission has confirmed that US futures banks and brokers are allowed to deposit customer funds with UK-licensed investment firms, marking the first CFTC guidance on Europe under the new CFTC chair Tim Massad.
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CFTC Staff Issues Rule Interpretation Concerning Deposit of Customer Funds with United Kingdom Depositories
The U.S. Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight today issued an interpretation of Commission Regulation 30.7(c) under the Commodity Exchange Act. The interpretation permits futures commission merchants to deposit customer funds margining foreign futures positions with UK-licensed investment firms that hold such funds in accordance with either UK Financial Conduct Authority’s client money rules or as bank deposits subject to UK Prudential Regulation Authority regulations.
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Buyside voice grows louder at Esma advisory group
Tim Cave – Financial News
The buyside will have a stronger voice in an influential advisory group to Europe’s top securities watchdog, which is close to finalising a new regulatory framework for trading in the region.
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Banks cool on super reforms
Mitchell Neems – The Australian
AUSTRALIA’S major banks have expressed concerns over the breadth and speed of changes to the superannuation system, and complained of an “excessive” focus on superannuation fees.
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UK’s Financial Conduct Authority Publishes Update On PPI Work
Firms Have Improved Complaints Handling And Are Reopening Two And A Half Million Old Complaints To Ensure Fair Redress Is Paid
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Exchanges & Trading Facilities

ABN to send retail equity options flow to TOM
William Mitting – Futures & Options World
ABN Amro has said it will direct all its equity options retail flow to TOM (The Order Machine) from September 1 in a blow to incumbent rival Euronext Amsterdam.
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London Stock Exchange cash call supports underwriting cartel
Neil Collins – Financial Times
You are Chris Gibson-Smith, chairman of the London Stock Exchange. Is your top priority to: a) ensure a fair fight between buyers and sellers of stock; or b) look after the interests of shareholders in the companies listed?
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Sharon Bowles, ‘side-shifter’ (updated)
Paul Murphy – Financial Times
News from the London Stock Exchange, released in deepest August, that it had hired Sharon Bowles, former chairwoman of the European parliament’s economic and monetary affairs committee, as a noddie rather failed to generate much coverage or comment at the time. But it hasn’t escaped the attention of Sven Giegold, a German green MEP. He’s fired off an angry missive.
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Bowles defends LSE appointment
Anish Puaar and Tim Cave – Financial News
Former MEP Sharon Bowles has strongly defended her decision to join the board of the London Stock Exchange Group after being accused by another leading European politician of “selling her good reputation” by taking on the role so soon after leaving Parliament.
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Hedge Funds Hunting Clues in Treasury Tax-Inversion Limit
Robert Schmidt and Richard Rubin – Bloomberg
Tax lawyer Robert Wellen’s telephone keeps ringing with calls from hedge-fund executives he’s never met. They’re desperate for clues about the Treasury Department’s planned crackdown on corporate inversions, overseas mergers that cut companies’ U.S. tax payments.
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Moscow Exchange: Magnit Ords Futures And MOEX Ords Futures To Begin Trading
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Montréal Exchange To Close At 13:30 Today – Markets Closed On September 1, 2014, Labour Day
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Direct Edge Trading Notice #14-34: EDGA And EDGX Fee Schedule Changes Effective September 2, 2014
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Hedge Funds & Managed Futures

Blackstone Hires for ‘Big Bet’ Hedge Fund
Rob Copeland – WSJ
Blackstone Group LP, weeks away from the start of a new “big bet” hedge fund, is close to landing its first traders who will scour the world for concentrated investments, people familiar with the matter said.
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Russian fund with US advisers eludes sanctions
STEPHEN BRAUN, Associated Press
As President Barack Obama warns of stepped-up economic punishments against Russia for its military incursions inside Ukraine, U.S. sanctions have so far avoided one prominent financial institution: the $10 billion Russian Direct Investment Fund, which has partnered with brand-name American companies and whose advisers include top U.S. and European private equity executives.
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EM specialist Glen Finegan departs First State
Laura Dew – Investment Week
First State Stewart manager Glen Finegan is to leave the firm at the end of his sabbatical, rather than return to manage money, the group has said.
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Banks & Brokers

Untangling the Mess of Austrian Bank Hypo
Gabriele Steinhauser – WSJ
A paper sign reading “Forensics” is all that suggests a drab suite of offices at the foot of the Alps may hold the key to one of Europe’s biggest financial scandals.
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Citigroup names Europe securities services chief
Nick Kostov – Financial News
Citigroup has appointed its former head of markets in Australia as head of securities services in Europe, making him the second senior executive at the bank to move from the country to Europe in a matter of weeks.
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Untangling the Mess of Austrian Bank Hypo
Gabriele Steinhauser – WSJ
A paper sign reading “Forensics” is all that suggests a drab suite of offices at the foot of the Alps may hold the key to one of Europe’s biggest financial scandals.
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Newedge in talks to make senior hires following Wilson exit
John Bakie – The Trade
Agency broker Newedge expects to announce some senior hires in the coming weeks after its global head of OTC clearing, John Wilson, stepped down from his role.
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Clearing & Settlement

FIA’s Fifth SEF Tracker Allows Users To Analyze Underlying Data
FIA today published the fifth issue of FIA SEF Tracker, a periodic report on trading activity taking place on swap execution facilities. This issue provides data in two formats: a set of charts and tables that provide a visual representation of trends in market share and overall trading activity, and a spreadsheet with the underlying data aggregated on a weekly basis and sorted in various ways.
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New ways to combat clearing-house risks
Albert Menkveld – Risk.net
Minimising crowded trades will reduce systemic risks building up in clearing houses
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Oslo Børs – Delta – Millennium Exchange: T+2 – The Last Market Wide Test Is Completed
The last Market Wide test of the transition of the settlement cycle from T+3 to T+2 which will go live 6 October 2014 is completed successfully.
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Moscow Exchange: Settlement Price Method For EUR/USD And EUR/RUB Futures To Be Changed
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Indexes & Products

Vanguard stokes ETF price war in Europe
Chris Flood – Financial Times
Vanguard has stoked the price war in Europe among passive fund providers. It has instituted a further round of fee cuts on a broad range of index mutual funds and exchange traded funds, as well as its entire family of LifeStrategy funds.
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Huge spike in China-related derivative and ETF volumes
Aaron Woolner – Risk.net
China-related futures, warrants and exchange-traded funds (ETFs) have all seen a massive spike in volumes over the past two months, which market participants say is driven by investors positioning their portfolios ahead of the opening of the Shanghai-Hong Kong stock connect in October, as well as a general increasingly positive view of the China economy.
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U.S.-based stock funds attract $6.1 bln over week – Lipper
Reuters
Investors in U.S.-based funds poured $6.1 billion into stock funds in the week ended Aug. 27, data from Thomson Reuters’ Lipper service showed on Thursday.
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Technology

Russian Hack Attack on Banks: Is This the Big One?
Kathy Burger – Wall Street & Technology
JPMorgan Chase and at least four other US banks have been hit by a series of coordinated attacks on account information. Was it inevitable?
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U.S. banking group says unaware of any ‘significant’ cyber attack
Jim Finkle – Reuters
An influential U.S. financial services industry group that shares information about cyber threats has said it is unaware of any “significant” cyber attacks, downplaying concerns about possible breaches at JPMorgan Chase & Co and other banks.
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Invstr App Harvests Sentiment Data from Trading Game
Max Bowie – WatersTechnology
Invstr, a social network specifically for financial markets information distribution to investors created by a former Deutsche Bank exec, has launched a mobile trading game app that allows financial professionals and retail investors to predict market movements by placing virtual trades and access crowd-sourced market sentiment based on participants’ predictions.
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Interactive Data Launches Continuous Fixed Income Evaluated Pricing Service
Interactive Data Corporation, a leading provider of independent evaluated pricing and reference data services, today announced the launch of its continuous fixed income evaluated pricing service. This service allows Interactive Data to transcend end-of-day and intra-day ‘snap’ pricing and offer its clients greater pre-trade transparency support and price discovery capabilities on a continuous basis throughout the trading day.
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Enforcement

Ex-LPL broker ordered to pay $1.9 mln in U.S. SEC fraud suit
Suzanne Barlyn – Reuters
A former broker for a unit of LPL Financial LLC accused of diverting clients’ funds for his personal expenses has been ordered by a federal judge to pay more than $1.9 million in civil sanctions.
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York London Office Said to Be Probed by Spain Over Bankia
Miles Weiss – Bloomberg
The London office of James Dinan’s York Capital Management LP may face civil charges from Spanish regulators for allegedly using a banned trading technique before last year’s bailout of mortgage giant Bankia SA. (BKIA)
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Bank of America seeks to void verdict in $1.27 billion ‘Hustle’ case
Nate Raymond – Reuters
Bank of America Corp on Thursday asked a federal judge to throw out a jury verdict finding it liable for fraud over defective mortgages sold by its Countrywide unit that resulted in a $1.27 billion penalty.
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Deutsche Bank fined for swap reporting failings
Charlie Woodward – The Trade
UK regulator the Financial Conduct Authority (FCA) has fined Deutsche Bank’s London Branch £4,718,000 for incorrectly reporting transactions from November 2007 to April 2013.
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SEC Charges Two Information Technology Executives With Mischaracterizing Resale Transactions to Increase Revenue
The Securities and Exchange Commission today charged two executives at a Dallas-based information technology company with mischaracterizing an arrangement with an equipment manufacturer to purport that it was conducting so-called “resale transactions” to inflate the company’s reported revenue.
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FCA hits London adviser with £350k fine for mis-selling UCIS
Laura Miller – Investment Week
The Financial Conduct Authority (FCA) has fined the director of a London advice firm £350,000 and banned him from practising for mis-selling high risk unregulated collective investment schemes (UCIS).
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Environmental & Energy

Russia’s warming faster than the rest of the planet—and seeing disease, drought, and forest fires as a result
Gwynn Guilford, Quartz
When Vladimir Putin declined to support the Kyoto Protocol, a treaty to limit carbon emissions, he famously quipped that higher temperatures might actually benefit Russia since its people would have to spend less on fur coats.
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Big power out, solar in: UBS urges investors to join renewables revolution
John Vidal, theguardian.com
Big power stations in Europe could be redundant within 10-20 years as electric cars, cheaper batteries and new solar technologies transform the way electricity is generated, stored and distributed, say analysts at the world’s largest private bank.
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Germany’s Expensive Gamble on Renewable Energy
Matthew Karnitshnig, Wall Street Journal
In a sandy marsh on the outskirts of this medieval hamlet, Germany’s next autobahn will soon take shape.
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Asia-Pacific

HKEx treads carefully on voting rights
Simon Osborne – The Trade
Hong Kong Exchanges and Clearing (HKEx) has issued a concept paper that solicits views on whether Hong Kong should allow firms to list that permit company founders to retain greater voting rights than its new shareholders.
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Blackrock gets extra US$500 million for China trading
Simon Osborne – The Trade
BlackRock’s Hong Kong subsidiary, BlackRock Asset Management North Asia, has been given an additional US$500 million investment quota by China’s State Administration of Foreign Exchange.
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In China, Detecting Fraud Riskier Than Doing It
FLOYD NORRIS – NY Times
It can be very risky to do things in China that are taken for granted in other countries. Kun Huang, a Chinese-born Canadian citizen, is back in Vancouver after spending two years in a Chinese jail. His crime was contributing to research that led his employer to recommend short sales of Silvercorp Metals, a silver producer that is based in Canada but does its mining in China.
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Night Session Volume Accounted Highest Proportion In August At TOCOM
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[SGX] Introducing the Diversity Action Committee and its Pioneering Members
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SGX adds China Xin Yongan Futures as a Derivatives Trading member
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Presentation By HKEx Chief Regulatory Officer And Head Of Listing David Graham At A Media Briefing On HKEx’s Concept Paper On Weighted Voting Rights
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Frontier Markets

EM’s ‘fragile five’ back under pressure
James Kynge – Financial Times
The two moons that govern the fortunes of emerging market investors are starting to wane in unison. China’s investment spending – the lodestar for EM commodity exporters – is slowing and the US Federal Reserve is sounding more hawkish toward unwinding monetary stimulus.
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High stakes for high reward? Real estate funds come to Africa
Carolyn Cohn – Reuters
High stakes for high return, if you can stick it out for the long term – investors are buying into a boom in sub-Saharan African real estate.
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Malawi Stock Exchange Weekly Trading Report – 29th August, 2014
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Bursa Malaysia To Host Invest Malaysia London In Partnership With Maybank Kim Eng
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Profits Of Listed Companies On The Palestine Exchange Grow By 13.6% In The First Half Of 2014
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John Lothian Newsletter

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