John Lothian Newsletter: NYSE Order Revamp Seen Worsening Conflicts That Sprecher Decried; Bank of America to pay USD17bn fine over toxic loans; CME group eyeing stake in MCX

Aug 7, 2014

First Read

Bits & Pieces
by John J. Lothian
Breaking News: I rode ten miles on my mountain bike today for the first time since my April 29 back surgery. And that was after I rode 6 miles last night. I am tired of being “hefty.”

Today is the fourth of five sessions in our Summer Intern Education Series sponsored by BATS, CBOE, CME Group, Spot Trading, The IFM and The Stuart School of Business at IIT.

We will again give away some swag before the program begins for the interns who show up early.

Our lineups keep getting better and better. Today we have John Ruth, Jr. of ABN AMRO, Jamie Farmer of Dow Jones S&P Indexes, Jeromee Johnson of BATS, Ethan Kahn of Wolverine and Jim McNulty, an ICE board member. We are not biased toward people whose first names begin with a “J,” it just seems that way.

We recently had a problem with the form where we capture information about jobs that companies post to MarketsWiki. We have a new form up and operational. The jobs posting page on MarketsWiki is one of the site’s most popular ones. If you have jobs you would like to post, please go to johnlothian.com/jobs.html to submit the job description and contact details.

Our friends at Trading Technologies are looking for a graphic designer/web developer. You can see the listing on our MarketsWiki job board. Please help them find some talented young person to fill this job.

Doug Ashburn is back from summer vacation. I gave him 3 days. Jim Kharouf goes on vacation for two weeks starting next Friday.

Finally, we hope to have the first video up from the Summer Intern Education Series up yet this week. You will all get to see the best presentations from the series in the coming weeks.

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NYSE Order Revamp Seen Worsening Conflicts That Sprecher Decried
Sam Mamudi – Bloomberg
The New York Stock Exchange, whose owner has been at the head of efforts to improve U.S. equity markets, is asking regulators for permission to alter order types in a way that is drawing criticism on Wall Street.
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***** What does Michael Lewis have to say about this?

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Senior U.S. CFTC staffer joins law firm DLA Piper
Douwe Miedema – Reuters
Elizabeth Ritter, a former chief counsel at the Commodity Futures Trading Commission, has joined law firm DLA Piper where she will be working with Bart Chilton, a former commissioner at the derivatives regulator.
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***** Ritter was on Chilton’s staff at the CFTC, so this is not surprising. Rock on!

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FCA’s social media move ‘leaves 40 characters for product promotion’
Nick Paler – Investment Week
The Financial Conduct Authority’s (FCA) newly published guidance on social media promotion leaves firms with 40 characters to promote their products on Twitter, warned a consultancy as it criticised the regulator for “not going far enough” in telling firms what they are allowed to do.
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***** Let’s see, 40 characters, I would start with Dick Tracy, maybe Superman, Batman and Ironman. Oh, not those kind of characters?

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CBOE Launches New S&P 500 End-Of-Month Options
Matt Moran – www.cboeoptionshub.com
Following up on an earlier CBOE Blog, CBOE recently launched the new, and long anticipated, S&P 500 End-of-Month Options. The introduction of these options stemmed from requests by asset managers who wanted an SPX option expiration that more precisely coincided with their end-of-month fund cycles and performance periods. To date the launch has been very well received, with a total of about 320,000 contracts traded during the month of July, at an approximate average daily volume of 16,800 contracts.
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CME Group to Conduct Industry Outreach on CME Livestock Hours
CME Group, the world’s leading and most diverse derivatives marketplace, today announced it will begin the process of conducting broad outreach to customers, producer groups and other market participants to review existing CME livestock trading hours on CME Globex.
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***** There is just not enough quality time to spend with your livestock.

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Market Data Isn’t Free – & Other Lessons FinTech Startups Learn the Hard Way
Becca Lipman – Wall Street & Technology
The current business of financial technology highly resembles a gold rush, and Stephane Dubois, CEO and founder of the cloud-based market data provider firm Xignite, says he is providing the shovels.
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***** I know one firm that always seemed to “find” free data.

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Risk culture must change to protect financial system
William Rhodes – Financial Times
Financial firms are dialling up risk in their search for yield due to the extraordinary amounts of liquidity created by central banks, and the prolonged low rate environment. This is often not being done prudently; the key causes of past financial crises are being forgotten at many financial institutions.
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***** The key causes you need to keep in mind are greed and fear. Stupidity is up there too.

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Quad Advisors Debuts Hedge Fund Incubator and Accelerator
Quad Advisors, a hedge fund incubator and accelerator, announced it has signed two growing hedge funds as its first resident firms. Quad Advisors is the newest initiative in a family of financial entities housed within the Quad family of companies.
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***** Peter Borish with an innovative career move. I like it.

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Cathy Lyall working with LSE on new launch
William Mitting – Futures & Options World
Cathy Lyall is advising the London Stock Exchange on the upcoming launch of a new derivatives market, FOW understands.
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***** I sometimes wonder what FOW does understand. I mean it is one thing to see something, hear something and write something, but to understand something is another thing. I don’t even understand most things. However, Will Mitting is a very understanding guy, as I understand it.

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MarketsWiki

MarketsWiki Page of the Day
Alexander “Sandy” Broderick
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MarketsWiki Recent Updates

People

Alexander “Sandy” Broderick; E. Javier Loya; Catherine Rainey; William O’Brien; Peter F. Borish

Companies, Organizations and Groups

Quadriserv, Inc.; OTC Global Holdings; BATS Global Markets; Quad Group

Statistics

51,708,569 pages viewed, 8,014 articles, 185,051 edits
MarketsWiki Statistics

Lead Stories

Bank of America to pay $17bn fine over toxic loans
Julia Rampen – www.investmentweek.co.uk
Bank of America Merrill Lynch is close to agreeing a $16bn-$17bn settlement over its handling of mortgage-backed securities in the run up to the financial crisis, according to reports.
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CME group eyeing stake in MCX
Business Standard News
US-headquartered and the world’s leading derivatives exchange group CME is eyeing a stake in India’s leading commodity exchange Multi Commodity Exchange. As an overseas entity, CME group can pick up to five per cent stake in an Indian exchange and it is said to be negotiating for Financial Technologies’ five per cent stake in MCX.
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Banks’ Failure on ‘Living Wills’ Frays Relations With Regulators
Victoria McGrane and Ryan Tracy – WSJ
The failure of the biggest U.S. banks to convince regulators they can go bust without bringing down the financial system is likely to further strain an already tense relationship between Wall Street and Washington.
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Bharara vs. Cuomo Emerges as Battle of Two N.Y. Sheriffs
Freeman Klopott, Martin Z. Braun and Patricia Hurtado – Bloomberg
Manhattan U.S. Attorney Preet Bharara and then-New York Attorney General Andrew Cuomo once teamed up to take down members of the Lucchese organized crime family, a mortgage-fraud ring and a crooked dermatologist. The sheriffs aren’t working together anymore.
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How One Whistleblower Turned the Tables on High-Frequency Traders
Scott Patterson – MoneyBeat – WSJ
A once esoteric corner of the stock market —- “order types” —- has taken center stage the past few years in the debate about the health of the market, the role of high-speed traders in it and how stock exchanges interact with clients. A big reason for the scrutiny: Order types in many ways stand at the boundary between exchanges and their trading clients.
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IOSCO to investigate commodity warehouses
Joe Parsons – Futures & Options World
The International Organisation of Securities Commissions (IOSCO) has launched an investigation into the potential effects of storage infrastructure on the integrity of the price formation process of commodity derivatives. Launched on August 1, the IOSCO survey is asking its members and other relevant entities, such as storage and market infrastructure providers, market participants and end users, to provide their input.
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Goldman’s Symphony of Babble
Tracy Alloway – Financial Times
Since plans for the Wall Street chat project were reported by the Financial Times, many have been scratching their heads as to why Goldman feels the need to develop a new messaging service. There are some obvious reasons, but some not so obvious ones too. Here, we discuss various theories that we have picked up in our reporting on this issue.
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Regulatory

Buy-side told to brush up on best execution
John Bakie – The Trade
UK buy-side trading desks have been warned they need to undertake a thorough review of their best execution procedures in light of a Financial Conduct Authority (FCA) review published last week.
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Swap data deadlock could be fixed in months, DTCC hopes
Tom Osborn – Risk.net
A clause in the Dodd-Frank Act that is preventing foreign regulators from accessing information held by US swap data repositories (SDRs) could be struck out in a matter of months, the Depository Trust and Clearing Corporation (DTCC) hopes. A bill that would do the job is waiting for consideration by the Senate once the upper house of the US Congress returns from its summer recess.
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Divergent nexus rules threaten reporting chaos in Asia
Viren Vaghela – Risk.net
Asia is pioneering how cross-border trades should be reported when they touch one jurisdiction but are booked elsewhere. However, Australia’s rules are diverging from those in Hong Kong and Singapore, causing a headache for foreign banks that value consistency
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Exchanges & Trading Facilities

HKEx says LME fees to rise in 2015; Q2 profit up
Lawrence White and Michelle Price – Reuters
Hong Kong Exchanges & Clearing Ltd (HKEx) will raise fees on the London Metal Exchange (LME) from Jan. 1 2015, HKEx said on Wednesday, as it battles costs from its acquisition of the LME and absorbs the London exchange’s rising legal expenses.
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Strong Recovery of Equity Trading Volumes on Global Exchanges
Ivy Schmerken – Wall Street & Technology
Statistics from the World Federation of Stock Exchanges show that equity trading volumes rose 10%, signaling a strong recovery for the first half of 2014.
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Euronext Publishes Second Quarter 2014 Results
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TMX Group Consolidated Trading Statistics – July 2014: Toronto Stock Exchange, TSX Venture Exchange, TMX Select, Alpha, Montreal Exchange, NGX
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Vienna Stock Exchange Monthly Statistics – July 2014
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Irish Stock Exchange Statistics July 2014
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CME Group Declares Dividend
CME Group Inc., the world’s leading and most diverse derivatives marketplace, today declared a third-quarter dividend of $0.47 per share, payable September 25, 2014, to shareholders of record as of September 10, 2014.
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Disclosure Rules In Motion – The Disclosure Office At SIX Swiss Exchange Publishes Its 2013 Annual Report
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Hedge Funds & Managed Futures

Summertime Living Isn’t Easy for Macro Funds
Gregory Zuckerman – WSJ
The market’s summer stumble has dealt a new blow to a group of macro hedge funds that seek to anticipate trends in global markets. Graham Capital Management LP has laid off more than 10% of its staff, or more than 20 employees, according to people close to the matter. Six funds at the firm, run by Kenneth Tropin, have posted declines of as much as 5.9% this year, the people said.
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SWFs go direct to pass $50bn milestone
Dan Dunkley – Financial News
Sovereign wealth funds are putting more money to work through direct investing than at any time since 2008, as giant state-investment funds look to bypass fees charged by fund managers
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Alternative investments to grab up to 40 percent of revenues by 2020: McKinsey
Sam Forgione – Reuters
Hedge funds, private equity funds and other alternative investments will command up to 40 percent of the asset management industry’s global revenues by 2020 as investors seek them for safety and consistent returns, consulting firm McKinsey & Co said on Wednesday.
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John Paulson Funds Said to Fall in July as Stocks Slumped
Kelly Bit – Bloomberg
John Paulson, whose Paulson & Co. oversees $22.8 billion, posted losses in his main hedge funds last month as stocks fell and concern grew that credit markets will deteriorate.
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Private Equity Giant Apollo’s Profit Falls 6% in Quarter
WILLIAM ALDEN – Dealbook – NY Times
Apollo Global Management on Wednesday reported a decline in second-quarter income as it earned less from selling its investments and allocated more of that profit to employees.
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Once Flashy, Hedge Funds Now Seen as Staid but Consistent
ALEXANDRA STEVENSON – Dealbook – NY Times
Hedge funds once had the allure of being high octane and exotic. Today, they have a reputation of being mundane and consistent.
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Hedge Funds Betting Against Banco Espírito Santo in Line for Big Gains
Laurence Fletcher – WSJ
A handful of hedge funds may have made tens of millions of dollars on the collapse of troubled Portuguese lender Banco Espírito Santo SA. One of the biggest funds to bet the bank’s shares would fall was Marshall Wace LLP, which initially made the wager on May 15, according to a filing with the Portuguese regulator.
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Skandia sees profits jump to GBP10m as WealthSelect assets hit £1bn
Nick Paler – www.investmentweek.co.uk
Old Mutual Wealth’s soon to be re-branded Skandia platform today reported profits had jumped 400% in the first half of 2014 to GBP10m, while assets in its recently-launched WealthSelect range hit £1bn.
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Henderson sees inflows of £5bn as institutional flows turn positive
Julia Rampen – www.investmentweek.co.uk
International investor demand for European equities helped Henderson boost retail net inflows by more than seven times in the first half of 2014.
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To leave or not to leave…that is the question
Alec Macfarlane – Financial News
A partner at a private equity firm can potentially earn millions of pounds from a cut of the firm’s profits – but leaving that same job could be expensive.
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Banks & Brokers

J.P. Morgan Takes the Biggest Hit from Thwarted Deals
Maureen Farrell – MoneyBeat – WSJ
It’s only Wednesday, and already roughly $112 billion in anticipated M&A volume has evaporated this week. Among the investment bankers, J.P. Morgan Chase & Co. appears to be taking the biggest hit from the mega-deals that now appear to be off the table.
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OTCGH’s EOX Market Data Group Hires for ‘Rainey’ Day
Faye Kilburn – WatersTechnology
Over-the-counter energy and commodities broker consortium OTC Global Holdings (OTCGH) has hired Catherine Rainey as director of its technology and data subsidiary EOX Holdings’ market data group.
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Former Greek Central Banker Questioned on Bank Sale
LANDON THOMAS JR. – Dealbook – NY Times
Financial prosecutors in Greece are asking the former head of the central bank there to explain his actions in approving a bank sale to a Greek businessman later jailed on fraud charges.
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Headcount falls at Macquarie’s Europe banking unit
Sarah Krouse in New York – Financial News
The European unit that houses most of Macquarie’s investment banking activities in the region has been cut to about a third of its previous size.
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Clearing & Settlement

CME raises margin requirement for interest rate swaps clearing
Katy Burne – WSJ
CME Group Inc. is raising margin requirements for most customers using its interest-rate swaps-clearing services, the latest sign of financial institutions girding for possible rate increases over the next year.
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DTCC names two new trade repository CEOs
The Trade
The Depository Trust & Clearing Corporation (DTCC) has made two executive management appointments in its Global Trade Repository business, including Chris Childs as CEO of DTCC Deriv/SERV (the OTC derivatives asset servicing and repository subsidiary) and Ian McLelland as CEO of DTCC’s European Trade Repository (DDRL Europe).
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Indexes & Products

ETFs Extend Their Reach, With Unknown Consequences
Randall W. Forsyth – Barron’s
Buying a government-bond fund is like paying to hear Yo-Yo Ma on the radio. So asserted Peter Lynch back in the 1980s, when he was riding high as manager of the Fidelity Magellan Fund. Things have changed a lot in the meantime.
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ETF Backed by Swaps Offered for Investors Leery of Junk
Sridhar Natarajan and Mary Childs – Bloomberg
An exchange-traded fund that allows individual investors to short junk bonds with credit-default swaps is set to debut after the market recorded its first monthly loss of 2014. ProShares is set to list a new ETF as soon as tomorrow that provides a way for investors to take a bearish position on high-yield debt issuers, according to Chief Executive Officer Michael Sapir.
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ICAP, MTS offer benchmark euro zone repo index
Emelia Sithole-Matarise and Huw Jones – Reuters
Interdealer broker ICAP and fixed income electronic trading platform MTS have introduced a daily benchmark index to track borrowing costs in the euro zone repo market, a major source of secured short-term funding in the region.
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ETFGI’s Analysis Finds ETFs And ETPs Listed Globally Gathered A Record US$160.5 Billion In Net New Assets Through The End Of July 2014
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Technology

The Execution Challenge
Kathy Burger – Wall Street & Technology
It’s one thing for banks to encourage innovation and transformation, and it’s quite another to execute successfully on these strategies.
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Interactive Data Rolls Out FutureSource 4.0
Faye Kilburn – WatersTechnology
Interactive Data has released version 4.0 of its web-based FutureSource market data and analytics platform, featuring new content sets and capabilities.
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Sapient Global Markets Enhances Emir Reporting Services
Marina Daras – WatersTechnology
Sapient Global Markets has enhanced the capabilities of its Compliance Management and Reporting System (CMRS) to support collateral and valuation reporting.
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Scila Snatches Contract Win with Optiver
James Rundle – WatersTechnology
Scila AB has announced a six-month contract with high-frequency trading (HFT) firm Optiver, in which its market surveillance product will be evaluated for its capabilities in the Asia-Pacific region.
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Enforcement

Wylys’ lawyer calls U.S. SEC $750 mln claim ‘overblown’
Joseph Ax – Reuters
A lawyer for Texas businessman Sam Wyly and his late brother Charles on Wednesday urged a U.S. judge to reject the Securities and Exchange Commission’s request for as much as $750 million in damages for their role in a fraudulent offshore scheme.
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UK’s Financial Conduct Authority Fines Stonebridge International Insurance Limited £8.4m In Relation To Sales Of Insurance Policies
jlne.ws/1pYX9kC

New Zealand’s Financial Markets Authority: Brian Henry Admits Market Manipulation
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NZX Statement Re Brian Henry Decision
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[AMF Canada] Freeze order and suspension against Donald Murphy
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Environmental & Energy

How the (European) Commission blocked key environmental plans
EurActiv
Plans to crack down on endocrine disruptors and illegal timber being imported into the EU, were buried by the outgoing President of the European Commission, José Manuel Barroso, and his secretary-general Catherine Day, according to a senior EU source.
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Obama announces $12B in new aid to Africa power sector
Laura Barron-Lopez, The Hill
President Obama unveiled $12 billion in new pledges from the private sector and government institutions on Tuesday to help strengthen Africa’s electric power infrastructure.
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***LB: Also in this story “More than 600 million Africans are without a reliable electricity supply, Kerry said on Tuesday. That’s nearly twice the population of the U.S.”

Reports: Beijing to ditch coal use by 2020
BusinessGreen
Beijing is set to ban coal sales and use across its six main regions by the end of 2020 in a bid to cut air pollution, Chinese state media has reported.
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Asia-Pacific

Stock Connect participation reaches century mark
Simon Osborne – The Trade
Over 100 participants in Hong Kong have signed up for the new Shanghai Hong Kong Stock Connect, the pipeline for two-way securities investment between the mainland and Hong Kong which is scheduled to go live this year.
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Newspaper Has Lock on Prescience Covering Japan Earnings
Tom Redmond, Toshiro Hasegawa and Aaron Clark – Bloomberg
If you wanted to find out what Toyota Motor Corp., NTT Docomo Inc. and Canon Inc. earned last year before they reported results, the best guide wasn’t analyst or company predictions. It was the Nikkei newspaper. The business daily printed full-year profit figures for Japan’s biggest car, phone and camera makers before they released financial statements, without saying where it got the information.
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Singapore Firm Launches Asia’s First Multi-Asset, Broker-Neutral Trading Platform Called The Trading Atrium
Trading Atrium gives ultra-low latency access to Singapore Exchange (SGX) and other major global exchanges, proliferates number of market players and amplifies liquidity; Furthers Singapore’s vision to be premier international financial trading hub
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HKEx CEO says tax, rights problems on Shanghai stock connection to be resolved
Reuters
Lingering tax and rights problems related to the opening of reciprocal stock exchange access between Hong Kong and Shanghai will be resolved before the October launch of the programme, Hong Kong Exchanges and Clearing Ltd Chief Executive Charles Li said at a press conference on Wednesday.
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Frontier Markets

Old Mutual U.S. IPO ‘On Track’ by Year End; Profit Drops on Rand
Renee Bonorchis – Bloomberg
Old Mutual Plc (OML), Africa’s largest insurer, said it still plans to sell stock this year in its U.S. asset-management arm, whose inflows rose in the second quarter even as a weak rand hurt profit at the rest of the firm.
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S.Africa’s Abil to seek $800 million cash call as CEO quits
David Dolan and Tiisetso Motsoeneng – Reuters
African Bank Investments warned on Wednesday it needs to raise nearly $800 million after it flagged an annual loss and its chief executive quit, prompting a shareholder to liken the South African mass-market lender to a “bottomless pit”.
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Palestine Securities Exchange Monthly Investor Newsletter- July 2014
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Malawi Stock Exchange Monthly Market Performance Report-July 2014
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Egyptian Exchange: Regarding The Discovery Session
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TASE’s Market Analysis Project Gets Underway
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PEX Monthly Investor Newsletter- July 2014
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Miscellaneous

Appearances Deceive, Conversations Reveal in Hunt for Clients
Corrie Driebusch – WSJ
When Amy Parvaneh was just starting her career as a wealth manager, she dropped $15,000 on a trip to Monaco to prospect for high-net-worth clients at an elite investment conference. She came home without a single new lead. “It was a waste of my time and money,” she recalls.
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