John Lothian Newsletter: New listings drive bounce in equity trade; 'Flash Boys' and the Speed of Lies; Jonathan Spall to Chair Platinum to Palladium Fixings

Aug 5, 2014

First Read

Bits & Pieces
By John J. Lothian

Today is the third in our MarketsWiki World of Opportunity Summer Intern Education Series and we have a great lineup of speakers today. Returning for a second year is CME Executive Chairman and President Terry Duffy

Duffy takes us down the road he has traveled, from floor runner to the chairmanship. He will close with a view of the future of the industry.

Next, Spot Trading CEO Steve Brodsky delves into the history of market structure – the transformation of exchanges from private clubs to public companies, the subsequent wave of consolidation, the rise of electronic crossing networks, and the “age of regulation.”

Our third speaker of the day, Tom Cashman, is a 50-plus year member of the Chicago Board of Trade. He’s got a million stories to tell, but unfortunately will only have time to share a few of them.

Following Cashman will be Don Wilson, founder and CEO of DRW Holdings, a Chicago-based proprietary trading group, who shares a few “reminiscences (and prognostications) of a futures (and options) operator.

Our final Tuesday speaker will be another industry legend, Ray Cahnman, founder and chairman of TransMarket Group. Cahnman will offer proof that you can make a successful transition from open outcry to electronic markets.

On another note, this week Jon Matte and I celebrate seven years together working on MarketsWiki and now John Lothian News. Jon started on August 1, 2007. He told me he wanted to work for me and to figure out how to make that happen.

It was this challenge that led to the creation MarketsWiki, and you could say, all the subsequent work we have done. I am eternally grateful for Jon’s challenge and his friendship and great works. I could not have done it without him (and no you still don’t get a promotion).

I ran into Dan Collins of Futures Magazine this morning. Futures Magazine is celebrating its 500th issue.

Lastly, thank you to our intern Alison Fay who finished her work with us last week. We appreciated all her hard work and contributions to our video efforts this summer. Good work Alison.

***JM: Well, what I remember was that John called one day and said, “You know what a wiki is, right?” and I lied and said, “Of course! I’ll just crank one out for you, no problem.” Story of my life. Thanks for the kind words, sir, and I promoted myself last week when you weren’t looking, so no worries.


‘Flash Boys’ and the Speed of Lies
Brad Katsuyama – Bloomberg
In the last few months, I have had a strange and interesting experience. In early April, I found myself the main character in Michael Lewis’s book “Flash Boys.” It told the story of a quest I’ve been on, with my colleagues, to expose and to prevent a lot of outrageous behavior in the U.S. stock market.

***** Brad Katsuyama takes aim at the “lie” told by former CFTC Commissioner Bart Chilton when he made positive comments about high-frequency trading. When I tweeted this I used the hashtag #takethatbartchilton.


Global H1 derivatives trading volume
Joe Parsons – Futures & Options World
Global futures and options fell by 14% in the first six months of the year against the same period last year. In total across the 85 largest derivatives markets covered by FOW Data 9.7bn changed hands between January and June 2013 compared with 11.2bn the previous year.

***** Can you say “Low Vol?”


Massad discusses de-guaranteeing
The Commodity Futures Trading Commission is reviewing information it has received from banks about possible efforts they made to cut ties with their foreign affiliates in order to avoid derivatives regulations, the agency’s chairman said on Thursday.

***** Regulatory arbitrage or just divestment?


Technology and Proprietary Trading Under the Volcker Rule: Unpleasant Surprises
George Bollenbacher – TABB Forum
With the compliance date for the Volcker Rule just under a year away, most banks are fully involved in getting ready. But their technology vendors may be way behind – if they are even aware of the rule’s implications for their products. Unless tech companies get on the stick, banks may find that many of their compliance efforts are compromised, if not rendered ineffective, by technology partners.

***** May we please have a waiver for another year? Our technology just doesn’t work right. I am not sure how well that will work.


The SEC as Prosecutor and Judge
Russell G. Ryan – WSJ
A year after vowing to take more of its law-enforcement cases to trial, Securities and Exchange Commission officials now say the agency will increasingly bypass courts and juries by prosecuting wrongdoers in hearings before SEC administrative law judges, also known as ALJs. “I think you’ll see that more and more in the future,” SEC Enforcement Director Andrew Ceresney told a June gathering of Washington lawyers, adding that insider trading cases were especially likely to go before administrative judges.

***** Penny-wise and pound foolish.


Buffett Waits on Fat Pitch as Cash Hoard Tops $50 Billion
Noah Buhayar – Bloomberg
Warren Buffett has never had so much money to spend. Cash at his Omaha, Nebraska-based Berkshire Hathaway Inc. (BRK/A) rose past $50 billion at the end of June, the first time it finished a quarter above that level since he became chairman and chief executive officer more than four decades ago.

***** There is a lot of money sitting on the sidelines, not just in Buffett’s treasury.



MarketsWiki Page of the Day
Stanley Ross

MarketsWiki Recent Updates


Stanley Ross; Cees Vermaas

Companies, Organizations and Groups

IntercontinentalExchange Group Inc.; Kidder, Peabody & Co; CME Clearing Europe


Job Postings; Eurobond; U.S. Treasury bonds


51,652,336 pages viewed, 8,009 articles, 184,987 edits
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Lead Stories

New listings drive bounce in equity trade
Jeremy Grant in Singapore – Financial Times
Buoyant global equity markets and a resurgence in company listings drove a rebound in the value and volume of share trading on the world’s bourses in the first six months of the year, signalling a possible turnround after years of anaemic performance.

Jonathan Spall to Chair Platinum to Palladium Fixings
Nicholas Larkin – Bloomberg
The company that runs platinum and palladium fixings in London appointed Jonathan Spall to chair the price-setting ritual as it revamps the process.

Deutsche Börse And Philippine Stock Exchange Sign Memorandum Of Understanding To Explore Market Data Cooperation
Deutsche Börse Market Data + Services and the Philippine Stock Exchange, Inc. (PSE) have signed a memorandum of understanding (MoU) to establish a market data cooperation between the two exchanges.

Are dark pools drying up?
Mark Pumfrey, head of EMEA at Liquidnet, defends dark pools saying it is important that they exist to protect retail investors.

Dark pool turnover edges up in July, shrugs off probes
European equity turnover via dark pools edged up in July despite regulatory probes hitting venues operated by Credit Suisse, Deutsche Bank and UBS, among other banks.

Lawsky opens new front in Ocwen probe
Kara Scannell and Tracy Alloway in New York – Financial Times
New York’s top banking regulator has called into question a “troubling transaction” by Ocwen Financial and one of its affiliates as its probe into conflicts at the mortgage servicing company deepens.

Peer-to-peer FX catches on
Farah Khalique – Euromoney Magazine
The foreign-exchange benchmark scandal looks set to be a boon for burgeoning peer-to-peer (P2P) currency-exchange platforms, as they capitalize on the demand for transparent and innovative solutions.


One trade a day is not a liquid market, Isda argues
Tom Osborn –
The first shots were fired yesterday in what promises to be a tense battle over the definition of liquidity in Europe’s over-the-counter derivatives market. Only swaps that trade multiple times a day should be considered liquid, according to the International Swaps and Derivatives Association – regulators have implied even instruments that trade only once every other day might count.

***** Most swaps are not liquid. Does the 80/20 rule apply here too?

Prosecuting bankers would be a start
Martin Arnold – Financial Times
Bank chief executives like to distance themselves from the waves of litigation washing over their companies by saying they stem from “legacy issues” predating their time in charge. But can serial allegations of bankers’ misconduct still be dismissed as ancient history?

UK’s Financial Conduct Authority Restricts Distribution Of CoCos To Retail Investors

Exchanges & Trading Facilities

LME Publishes New Commitments Of Traders Report
The London Metal Exchange (LME) today published its first Commitments of Traders Report (COTR) in response to general market demand for broader transparency. The COTR is designed to reflect the nature of the predominant business activity that LME members and their clients are involved in.

World Federation Of Exchanges: Strong Rebound Of Equity Trading Volumes (+10%) In The First Half Of 2014
he World Federation of Exchanges Ltd. published its first-­half Statistics Market Highlights report. The main trends for this first six months of the years were:

CME boosted by EMIR authorisation and volumes increase
Jon Watkins – The Trade
CME Clearing Europe has received authorisation from European regulators under new regulations, with the exchange group also reporting an upturn in derivatives volumes throughout July.

CME Group Volume Averaged 12.2 Million Contracts Per Day In July 2014, Up 13 Percent From July 2013
CME Group, the world’s leading and most diverse derivatives marketplace, today announced that July 2014 volume averaged 12.2 million contracts per day, up 13 percent from July 2013. Total volume for July 2014 was more than 269 million contracts, of which 86 percent was traded electronically. CME Group open interest stands at 101 million contracts at the end of July, up 10 percent from the end of June 2014 and 20 percent year-to-date.

Liffe seeks to boost Swapnote liquidity
Futures & Options World
Liffe is understood to be currently in discussions with the market over plans to bring more market makers in for its Swapnote suite as it gears up to launch new margin methodology at the end of the year. The Swapnote contracts are exchange traded futures contract referenced to the interbank curves of the top global currencies and were initially launched by Liffe in 2001.

Euronext Announces Trading Volumes for July
Euronext’s cash markets saw a total of EUR131.645 million traded for the month of July 2014, an increase of 13,6% vs July 2013. Euronext’s derivatives markets saw a total of 12.814.271 lots traded for the month of July 2014, an increase of 16% vs July 2013.

TOCOM June Volume Averaged 76,579 Contracts per Day, Down 2.2% M-on-M
The Tokyo Commodity Exchange announced today that average daily trading volume for July was 76,579 contracts, down 2.2% from June. TOCOM’s leading commodiies saw higher volume: Gold increased 2.9% to 27,554 contracts and Crude Oil was up 3.9% to 2,948 contracts. This was outpaced by delines in other listed products such as Rubber, which was down 22.9% to 8,313 contracts.

Investor Activity On WSE Markets: July 2014
The total value of trading in equities on the Main Market was PLN 18.7 billion in July 2014, a decrease of 0.7% year on year. The value of the Electronic Order Book was PLN 122.1 billion year to date at the end of July 2014, a modest decrease of 4.4% year on year. The average number of transactions per session was 55.7 thousand in January-July 2014, an increase of 16.2% year on year.

Boerse Stuttgart Records Turnover Of More Than EUR 7 Billion In July
Sharp Increase In Securitised Derivatives And Exchange-Traded Products – Brisk Trading In Mortgage Bonds

ASX Compliance Monthly Activity Report – July 2014

ASX Group Monthly Activity Report – July 2014

NZX July 2014 Shareholder Metrics

Moscow Exchange’s Turnover At RUB 44.2 Trln In July 2014

Key figures for SIX Swiss Exchange and SIX Structured Products Exchange: July 2014

SGX market volumes grow in July from June
Singapore Exchange (SGX) reported slight growth in securities and derivatives activities in July from a month earlier though volumes were unchanged or lower from a year earlier.

Hedge Funds & Managed Futures

Goldman Rethinks Services It Provides Hedge Funds
Justin Baer and Juliet Chung – WSJ
Goldman Sachs Group Inc. is upending the way it does business with hedge funds, jettisoning less-profitable clients and increasing some fees on others as it adapts to new banking rules, people familiar with the matter said. The bank has told hedge-fund clients that the regulations have forced it to set aside more capital, crimping profits at its prime-brokerage business, which executes and finances the funds’ trades.

Pimco Total Return Fund suffers 15th month of outflows-Morningstar
Jennifer Ablan – Reuters
Investors pulled cash from the Pimco Total Return Fund for a 15th straight month in July, though outflows from the world’s largest bond fund were substantially smaller than previous months.

Pershing Square Holdings fund up 27.2 percent year to date through July
Billionaire investor William Ackman’s Pershing Square Holdings has risen 27.2 percent this year, according to an investor in the fund, after extending its gains modestly last month when many hedge fund managers suffered losses.

Och-Ziff reports record assets that help boost earnings
Svea Herbst-Bayliss – Reuters
Hedge fund company Och-Ziff Capital Management Group LLC reported higher quarterly earnings on Tuesday as assets rose to record levels amid fresh demand for portfolios that invest in real estate, stocks and credit.

Legg Mason reveals plan to reinvigorate Martin Currie
Anna Fedorova – Investment Week
Legg Mason’s CEO tells Investment Week about his ambitious plans for Martin Currie after finally securing a deal the US giant had been chasing “for years”.

CalPERS Announces $500 Million Infrastructure Partnership With UBS
The California Public Employees’ Retirement System (CalPERS) today announced a new $500 million global infrastructure partnership with UBS Global Asset Management (UBS). CalPERS will contribute $485 million to the newly formed company, while UBS will contribute $15 million and act as managing member.

Asset managers to trigger next crisis?
Philip Coggan, Buttonwood columnist at The Economist, says that asset managers could trigger the next crisis due to increasingly tight regulations.

Small, or dancing on pinhead small?
Dan McCrum – Financial Times
Ken Fisher, Forbes columnist and money manager billionaire, took to the pages of the FT in June to poke advocates for small listed companies in the eye. You don’t want to hold speculative stocks late in a bull market. Don’t be seduced by the siren song of small beats all.

How Individual Investors Can Invest Like a Hedge Fund
Rob Copeland and – WSJ
Everyone wants to be a hedge-fund manager these days, it seems. Or at least they want to invest like one. Now, individual investors have more opportunities to get in on the action.

Banks & Brokers

HSBC Chief Warns of Growing Risk Aversion Among Bankers
Margot Patrick – WSJ
HSBC Holdings PLC Chairman Douglas Flint said the ramping up of a regulatory crackdown on banks is spooking its managers from taking normal business risks, as the bank blamed part of a fall in first-half profit on high compliance costs. HSBC reported a $9.46 billion net profit for the first six months, down from $10 billion in the first half of 2013. Underlying revenue fell 4% to $31.36 billion from $32.7 billion.

HSBC CEO Predicts Revenue Rebound in 2015 as Profit Falls
Stephen Morris – Bloomberg
HSBC Holdings Plc Chief Executive Officer Stuart Gulliver said strengthening economic growth and rising interest rates should help bolster revenue in 2015 after Europe’s biggest bank reported weaker first-half profit.

J.P. Morgan Said Possible Losses Related to Litigation Could Be $4.6 Billion
Emily Glazer – WSJ
J.P. Morgan Chase & Co. said the amount it may lose related to litigation in excess of legal reserves could be as much as $4.6 billion as of June 30, up from $4.5 billion three months earlier, according to a regulatory filing released by the bank Monday.

BNP Paribas’s acquisition of DAB latest in growing trend
Duncan Kerr – Euromoney Magazine
Following in the digital footsteps of Spain’s BBVA earlier this year, BNP Paribas announced at the end of July it had acquired a 81.39% stake from UniCredit in Germany’s DAB Bank, an online securities broker.

BofA falls foul of bank etiquette
Harriet Agnew and Arash Massoudi – Financial Times
If the key to investment banking is the trust of your client, Bank of America Merrill Lynch had a day they’d like to forget on Monday. The US bank was publicly fired as corporate broker to Weir Group because of a “new and undisclosed conflict of interest” that arose when Bank of America was appointed as corporate broker by IMI, a smaller rival in the engineering sector.

Espírito Santo Saga Entangles Swiss Company
Patricia Kowsmann in Lisbon, and Margot Patrick and David Enrich in London – WSJ
As regulators try to untangle the financial mess surrounding Espírito Santo International SA, multiple threads lead back to a small Swiss company whose business interests are intermingled with the powerful Portuguese conglomerate. An employee of the firm, Eurofin Holding SA, was the lone auditor of Espírito Santo International’s books, which were later found to be riddled with irregularities.

Exclusive: Wall Street banks take heart from leveraged loan exams
Greg Roumeliotis – Reuters
Wall Street banks have found a U.S. review of their junk-rated loans to have yielded similar results to last year, easing some concern among bankers about a crackdown on one of their most lucrative businesses.

Crédit Agricole Takes $950 Million Hit on Portuguese Bank
CHAD BRAY – Dealbook – NY Times
The French bank Crédit Agricole said on Tuesday that it nearly had its entire second-quarter profit wiped away as it took a $950 million charge to write off its entire investment in the troubled Portuguese lender Banco Espírito Santo, in which it owned a 14.6 percent stake.

Clearing & Settlement

Eurex Clearing Supervisory Board Appoints Matthias Graulich As New Executive Board Member
The Supervisory Board of Eurex Clearing AG appointed Matthias Graulich (40) as member of the Executive Board of the company, effective 1 August 2014.

LCH.Clearnet Recognised As A Clearing House In Québec By The AMF Québec
LCH.Clearnet Limited (LCH.Clearnet) has been granted clearing house recognition by the Autorité des marchés financiers (AMF).

Indexes & Products

U.S. ETF Inflows of $23 Billion at Risk as VIX Rises 34%
Callie Bost and Joseph Ciolli – Bloomberg
The five-year rally that has almost tripled the value of the Standard & Poor’s 500 Index keeps pulling in investors even as signs of strain spread.

China to launch series of volatility indexes by year-end
Xiao Wang –
Volatility benchmarks set to be launched following the start of equity options in China later in 2014, with participants giving mixed views on the benchmarks’ potential to succeed

NASDAQ OMX Lists Compass EMP U.S. Discovery 500 Enhanced Volatility Weighted Index ETF
NASDAQ OMX today announced that Compass EMP listed a new exchange traded fund (ETF) which began trading on Friday, August 1, 2014. Compass EMP U.S. Discovery 500 Enhanced Volatility Weighted Index, listed on The NASDAQ Stock Market.


With Three Hires, ConvergEx Refreshes Electronic Trading Leadership
Timothy Bourgaize Murray – WatersTechnology
Greg Voetsch and Charles Galligan have both joined the firm as CEO of ConvergEx Execution Services and head of program trading, respectively. Oliver Sung comes onboard in September as head of US electronic execution.

Thomson Reuters Launches Web-Based Portal for Accelus
Thomson Reuters, the world’s leading source of intelligent information for businesses and professionals, today delivered a critical milestone in its end-to-end KYC Managed Service for the industry, with the launch of its secure, web-based portal for Accelus Org ID.


Arcadia, traders settle U.S. CFTC oil-rigging suit for $13 million
Jonathan Stempel and Jonathan Leff – Reuters
Global oil trading house Arcadia and two well-known traders will pay $13 million and face an unusual three-year limit on trading physical U.S. benchmark crude to settle a landmark lawsuit over manipulating oil prices in 2008.

SEC Announces Oil-and-Gas Fraud Charges Against Houston-Based Company and CEO
The Securities and Exchange Commission today announced charges against a Houston-based oil-and-gas exploration and production company and its CEO for making fraudulent claims about the company’s oil reserves.

Federal Court Orders Former Citigroup Director, John Aaron Brooks, to Pay $500,000 for Defrauding Two Citigroup Companies by Mismarking and Inflating the Value of His Position in Ethanol Futures to Conceal His Trading Losses
The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Kimba M. Wood of the U.S. District Court for the Southern District of New York entered a Consent Order against Defendant John Aaron Brooks for defrauding Citigroup, Inc. and Citigroup Energy, Inc. (collectively, Citi) by mismarking and inflating the value of his position in ethanol futures in Citi’s proprietary account. Brooks currently resides in Houston, Texas.

Federal Court Orders $13 Million Fine in CFTC Crude Oil Manipulation Action against Parnon Energy Inc., Arcadia Petroleum Ltd., and Arcadia Energy (Suisse) SA, and Crude Oil Traders James Dyer and Nicholas Wildgoose
The U.S. Commodity Futures Trading Commission (CFTC) today announced that it obtained a $13 million civil monetary penalty pursuant to a federal court consent Order against Defendants Parnon Energy Inc. (Parnon) of California, Arcadia Petroleum Ltd. (Arcadia Petroleum) of the United Kingdom, and Arcadia Energy (Suisse) SA (Arcadia Suisse) of Switzerland, and crude oil traders James T. Dyer of Australia and Nicholas J. Wildgoose of the United Kingdom.

Texas tycoons Wylys should pay $750 mln for fraud, SEC tells judge
Joseph Ax – Reuters
Texas tycoon Sam Wyly and his late brother Charles’ estate should pay about $750 million in damages for their role in a fraudulent offshore tax scheme, a lawyer for the U.S. Securities and Exchange Commission told a judge in New York on Monday.

Argentina launches investigation into holdouts’ investments
Sarah Marsh and Eliana Raszewski – Reuters
Argentina’s markets watchdog on Monday launched an investigation into what it believes may have been unlawful speculation by holdout creditors whose litigation against the country for repayment of their defaulted bonds pushed it into a new default last week.

Environmental & Energy

US-Africa oil trade wanes after shale revolution
Javier Blas, Financial Times
There used to be a joke in the oil industry that you could walk from the US to Nigeria without getting your feet wet – just jump from one oil tanker to another.

Shipping Rates Drop as China Hydro Power Cuts Coal Need
Bloomberg News
Record production of hydropower from China’s Three Gorges and newer dams is displacing so much coal that rates to transport it have plunged to about record lows, roiling the shipping market.

***LB: Also in this story “China increased its hydroelectric capacity by 13 gigawatts in the first half, according to the China National Energy Administration. That’s the biggest first-half expansion since at least 2009 and more than enough to power Hong Kong.”

China’s surprise on climate change: Our view
Editorial, USA Today
It’s not true the Chinese aren’t doing anything about pollution. Their reasons just happen to be more domestic than global.


Hong Kong to launch gateway to China stock market
Hong Kong is working night and day to launch an initiative that will let global investors trade Chinese stocks from the city for the first time and secure the former British colony’s position among the world’s pre-eminent share markets.

Japan Pensions With About $500 Billion Set to Copy GPIF
Yoshiaki Nohara and Shigeki Nozawa – Bloomberg
Where the world’s biggest pension fund goes, half a trillion dollars is set to follow. Three retirement managers for Japanese civil servants and private school teachers with 30.4 trillion yen ($296 billion) will mimic the asset allocation changes being planned by the 126.6 trillion yen Government Pension Investment Fund, according to Takatoshi Ito, an adviser to lawmakers on the overhaul.

Abenomics is working for Japanese women
Matthew C Klein – Financial Times
Japanese Prime Minister Shinzo Abe has said that his country’s women are its “most underutilized resource”. They are much less likely to have full-time jobs than their male counterparts, which helps explain why the average Japanese woman earns 30 per cent less than the average Japanese man.

Another Stellar Month For SGX Bond Market
Press Release
SGX bond market continued to perform strongly with 51 new bonds listed and S$21.1 billion raised in July 2014. This brings the total number of bonds listed year to date to 310 with total proceeds of S$133.4 billion, a 23% increase compared to 252 bonds listed and 16% increase compared to S$114.7 billion raised in same period last year.

SGX FTSE China A50 Soars To New Heights With Record 3.2 Million Contracts Traded In July 2014

Shanghai Stock Exchange Holds Talkfest For Int’l Investors
From July 31 to August 1, the Shanghai Stock Exchange (SSE) held the first talkfest for international investors. Among those attending the event were nearly 80 representatives from well-know overseas investment institutions.

Frontier Markets

Rabobank To Issue Letters Of Credit For DME Trading Directly From Singapore
Dubai Mercantile Exchange (DME) announced today that Rabobank has been approved to issue Letters of Credit (LCs) for trading on DME directly from Singapore. The approval marks the culmination of extensive joint efforts to facilitate trading activities of DME’s and Rabobank’s mutual customers in Asia.

Dubai Financial Market Enrols 5 Brokerage Firms To Margin Trading Members


Coffee Producers Sell More at Home, Driving Up the Price of a Cup
Leslie Josephs – WSJ
The world’s biggest coffee producers are turning into their own best customers, a shift that is driving up the price of a cup from São Paulo to San Francisco. Coffee consumption is rising at a breakneck pace in Brazil, Vietnam and Colombia, which together produce 60% of the world’s beans.

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