John Lothian Newsletter: NYSE owner says outlawing exchange rebates would simplify market; U.S. banks OK to trade on European derivatives platforms; Banks left guessing on Volcker rule

Feb 13, 2014

First Read

Challenger ATS Brasil prepares to take on BM&F Bovespa “super monopoly”
Elliott Holley – Banking Technology
After nearly a decade of trying, ATS Brasil is finally poised to launch an equities trading venue, bringing competition to Latin America’s largest market for the first time in many years.

***** Super monopoly is such a harsh phrase. I prefer superior customer loyalty position.


US dark trading could stall despite 2013 high
The Trade
Market share for dark pools trading US equities was higher in 2013 than any prior year, but a slowing of growth could lead to a contraction, research compiled by broker Rosenblatt Securities has found.

***** What goes up, must come down, spinning wheels have to go round…


High-Speed Traders Prompt Business Wire to Study Delays
Business Wire is considering whether to encourage corporations that distribute press releases through its service to delay sending announcements until a few minutes after 4 p.m. New York time, reducing the odds of altering their stock’s closing price.

***** Anti price discovery zealots.


Repository Story: Jonathan Thursby Discusses CME Group’s SDR Services
The Dodd-Frank Act in the U.S. and EMIR in Europe introduced new data reporting requirements. Exchanges like CME Group have long been experts in processing and disseminating data to market participants. But regulatory reporting of swap data brings its own challenges. John Lothian News Editor-at-Large Doug Ashburn spoke with Jonathan Thursby, executive director and chief operating officer of data repository services at CME Group, about its repositories in the U.S. and Europe, and their philosophy and approach to repository services.

Watch the video »


What’s the Best Way to Regulate HFT?
Megan Morgan – TabbFORUM
New regulations could present a great opportunity for the entire industry to put the proper safeguards in place to ensure that our markets are protected against manipulation. If regulators continue to use regulation as a way to lynch high-frequency trading, however, the goal to protect investors and increase the safety of the markets may be severely missed.

***** How can you lynch high frequency trading? Do you string up the algos?


NYSE Liffe Sets Daily Volume Record in Short Sterling Futures
IntercontinentalExchange Group, the leading global network of exchanges and clearing houses, today announced that NYSE Liffe reached a daily volume record of 2,055,972 contracts in Short Sterling futures on February 12, 2014. The previous highest volume was 1,985,457 contracts on January 22, 2014.


LME launches EMIR trade reporting service powered by Cinnober
The London Metal Exchange (LME) today announces the launch of its new derivatives reporting service LMEwire. Behind the technology stands the exchange’s long-term supplier Cinnober. The new solution will enable members to comply with a key trade reporting deadline under incoming European Market Infrastructure Regulation (EMIR).

***** You have to love good plumbing.


The MAT Date for CDS is Fast Approaching: What will be the Real Impact?
MarketAxess Research Blog
2014 marks a new era for CDS trading. The recent certification by the CFTC of ‘Made Available to Trade’ (MAT) products means that from February 26, 2014 certain CDS contracts must trade on swap execution facilities (SEFs) or Designated Contract Markets (DCMs). Yet today, we estimate that less than 20% of CDS index trading is taking place on SEFs.


5 Things You Need to Work in Private Equity
Laura Kreutzer – WSJ
Landing a job at a private equity firm is the elusive brass ring for many MBA candidates around the country this year. Although many hopefuls play up their experience in finance and engineering or their mastery of complex mathematical algorithms, they may also want to emphasize what some consider to be softer skills. At a Sunday private equity conference at Harvard Business School, David Rubenstein, co-founder of Washington, DC-based Carlyle Group, shared five skills that he believes are among the building blocks to a successful private equity career.

***** I want to know the other 5 things in what should be a top 10 list.


There is no such thing as the banking profession
John Gapper –
Antony Jenkins’ efforts to change the culture of Barclays by cutting bankers’ pay are on hold. At its investment bank, it is paying bonuses that are 13 per cent higher to “compete in the global market for talent”. The bank’s chief executive wants to reform the pay of US and Asian investment bankers but it is beyond his control. His problem – shared with the rest of with an industry struggling to alter behaviour – is that there is no such thing as a banker.

****** Funny, ever car loan I ever have had I received from the dealer, not any banker. Who is a banker anyway.


Blackstone’s Burger and Beer Night for Charity
High-flying financiers from the Blackstone Group would normally frequent power lunch spaces like the Four Seasons restaurant in Midtown Manhattan. But on Tuesday night, a handful of top executives of the investment giant were serving burgers and beer in a decidedly more casual establishment to raise money for charity.

***** The Blackstone Bar and Grill. I like it.



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Lead Stories

NYSE owner says outlawing exchange rebates would simplify market
Banning the practice of U.S. equity exchanges paying brokers in return for order flow would go a long way toward reducing the complexity and risks in the market, the head of the new owner of the New York Stock Exchange said on Wednesday.

U.S. banks OK to trade on European derivatives platforms
The U.S. derivatives regulator said on Wednesday that Wall Street banks can trade on European platforms that are not registered with the U.S., a decision expected to mainly affect the London market.

Banks left guessing on Volcker rule
Gina Chon in Washington –
The world’s largest banks could be left scrambling to meet a key reporting date for the Volcker rule because US regulators disagree on what the requirements are, people familiar with the matter said.

Seven banks face new forex market-rigging claims in lawsuit
Daniel Schäfer and Madison Marriage in London –
Seven global banks including Barclays and UBS face new claims of alleged foreign exchange market manipulation in the first US class-action lawsuit to include original research that highlights unusual price spikes in euro, sterling and other major currencies.

Has banking reform become too complex?
Giles Williams – Financial News
I will get straight to the point. The “more and more of everything” approach to financial regulation is failing. It has not, and will not, achieve the desired outcomes for the wider economy, individual customers or investors.

Six more people to face Libor charges
Caroline Binham, Legal Correspondent –
Six more individuals will be charged criminally by the UK’s Serious Fraud Office by the end of this month in connection with its probe of alleged Libor-rigging, according to two people familiar with the investigation.

SocGen chief sees EU move to ban prop trades foundering
European Commission moves to ban top EU banks from market bets with their own money will run out of momentum once this year’s health check on the sector shows it is in sound shape, the head of France’s Societe Generale said.

Exclusive: EU executive sees personal savings used to plug long-term financing gap
The savings of the European Union’s 500 million citizens could be used to fund long-term investments to boost the economy and help plug the gap left by banks since the financial crisis, an EU document says.


After Changes, Banking Group Drops Suit Against Volcker Rule
The American Bankers Association announced on Wednesday that it was dropping its lawsuit to block parts of the Volcker Rule from going into effect after regulators modified what the group found most objectionable.

Top EU Regulator Backs Returning National Powers
As the EU’s top financial regulator, Michel Barnier isn’t an obvious ally in Britain’s bid to wrest back powers from Brussels. But as he campaigns for the EU’s top job, he says his line would be “less regulation…and more politics.”

Statement by the CFTC and the European Commission on progress relating to the implementation of the 2013 Path Forward Statement
Today Acting Chairman Mark Wetjen and European Commissioner Michel Barnier announced that staff of the United States Commodity Futures Trading Commission (CFTC) and staff of the European Commission (EC) have made significant progress towards harmonizing a regulatory framework for CFTC-regulated swap execution facilities (SEFs) and EU-regulated multilateral trading facilities (MTFs), as contemplated under the Path Forward statement issued in July 2013.

CFTC Grants Conditional Relief for Swaps Trading on Certain Multilateral Trading Facilities Overseen by EU Regulators
Gary DeWaal and Associates LLC
Two divisions of the US Commodity Futures Trading Commission granted “no action” relief on February 12, 2014, that allows Qualified Multilateral Trading Facilities overseen by EU regulators from having to register with the Commission as Swap Execution Facilities in order to handle certain swap transactions on behalf of US persons. The two divisions are the Division of Market Oversight and the Division of Swap Dealer and Intermediary Oversight.

Federal Reserve Seeks Comment On Repealing Its Regulations DD And P And Amending Regulation V
The Federal Reserve Board on Wednesday requested comment on proposals to repeal its Regulation DD (Truth in Savings) and Regulation P (Privacy of Consumer Financial Information) and to make amendments to the Identity Theft Red Flags rule in Regulation V (Fair Credit Reporting).

CFTC tells Sefs to collect paper Isda master agreements
Peter Madigan –
Derivatives trading platforms are protesting a shock requirement for them to obtain and store paper copies of their users’ bilateral over-the-counter derivatives contracts – a policy that runs counter to years of efforts by US regulators to bring back offices into the electronic age.

David Fredrickson Named Chief Counsel in the Division of Corporation Finance
The Securities and Exchange Commission today announced that David Fredrickson has been named associate director and chief counsel in the agency’s Division of Corporation Finance. He is expected to assume his new position in March.

Paul A. Leder Named as Director of SEC’s Office Of International Affairs
The Securities and Exchange Commission today announced that Paul A. Leder has been named director of its Office of International Affairs, which advises the Commission on cross-border enforcement and regulatory matters and coordinates the SEC’s involvement with regulatory authorities outside the United States.

SEC Names Rick Fleming as Investor Advocate
The Securities and Exchange Commission today announced that Rick A. Fleming has been named as the first head of the agency’s Office of the Investor Advocate.

Former Top S.E.C. Enforcer Returns to Milbank
After spending the last few years investigating financial institutions, George Canellos will now be defending them.

Fee Rate Advisory #3 for Fiscal Year 2014
The Securities and Exchange Commission today announced that starting on March 18, 2014, the fee rates applicable to most securities transactions will be set at $22.10 per million dollars. The assessment on security futures transactions will remain unchanged at $0.0042 for each round turn transaction.

ESMA Consults On Guidelines For Issuers Performance Measures

Opening Statement Of CFTC Commissioner Scott D. O’Malia, Meeting Of The Global Markets Advisory Committee

Exchanges & Trading Facilities

Nasdaq OMX slams EC for calls to accelerate FTT
Future and Options Intelligence
Nasdaq OMX is the latest trading firm to criticise European plans for a FTT following calls by a European Commissioner to speed-up the controversial levy.

EnterNext announces new Directors
The EnterNext Board of Directors, meeting on Monday, February 10, 2014, coopted Anthony Attia and CGPME, represented by Bernard Cohen-Hadad, as Directors.

Exchanges face off in global tech race
Anna Irrera and Anish Puaar – Financial News
For modern stock exchange groups a strategic focus on technology is essential. Over the past decade, global financial markets have grown in complexity, with many firms now relying on speed to make money from trading.

Instinet Sets US Options Volume Record in January
Instinet Incorporated today announced a record options volume month for its US broker dealer subsidiary, Instinet, LLC, in January 2014. During the month, the firm executed 18.55M contacts, an average of 884K per day. This included a single-day firm volume record of 1.48M contracts on January 17, and a single-day firm market share record of 3.10% on January 21.

BATS Global Markets in January: Direct Edge Merger Closes; Another New Monthly Record in Spain
BATS Global Markets (BATS) today announces highlights for January, including the successful merger close with Direct Edge Holdings LLC and new monthly market share records in Europe, including 18.2% in Spain’s IBEX 35 and 9.0% in Depositary Receipts (FTSE RIOB).

User Experience is Driving Changes to Nasdaq’s Corporate Solution Platform
Becca Lipman – Wall Street & Technology
With a global army of developers, Nasdaq is building a new investor relations platform that moves beyond the technology issues of execution. More significant investments have been made in the design and user experience side, explains Michael Cotter, senior VP of Corporate Solutions at Nasdaq OMX.

ASX Half-Year Interim Dividend – FY14

ASX Limited Half-Year Results To 31 December 2013

MIAX Options FIX Order Interface Specification (FOI) Update To Support Auto Cancel On Disconnect (ACOD) & Cancel/Replace Changes Clarification

Hedge Funds & Managed Futures

Hedge funds enjoy January performance boost -SS&C
Hedge fund returns grew 1.39 percent in January, recovering from December’s four-month low and outperforming many leading developed market stock indexes, the SS&C Hedge Fund Performance Index showed.

OppenheimerFunds increased Puerto Rico risk in two safer funds
Some investors in OppenheimerFunds may be exposed to more uncertainty than they bargained for: The company has ramped up holdings of Puerto Rican debt in two of its lower-risk municipal bond funds, even as much of the U.S. mutual fund industry reduces its exposure to the island’s newly junk-rated debt.

BlackRock expands retirement business with new bond funds
BlackRock Inc, the world’s largest money manager, is expanding its push into the retirement market with a new set of bond funds tied to indexes that track an individual’s expected annual retirement income once he or she reaches age 65.

Active fund managers welcome return of volatility
David Oakley –
It is the year of the stock picker, or at least that is what stock pickers are saying. These active fund managers tend to make bold promises every year that they can beat the market and the passive funds that follow the indices. This year, though, they might be on to something.

Evaluating the Dearth of Female Hedge Fund Managers
If women are, in general, better suited to be successful investors, then this is a strange market inefficiency. It would be like discovering that tall people were vastly underrepresented in the N.B.A. What could possibly explain this?

Krawcheck Says Women on Wall Street Have ‘Gone Backwards’
It has long been a feature of Wall Street that women are underrepresented in the executive ranks. But since the financial crisis, the situation has gotten worse, according to one former big bank executive.

Barchart Publishes the 2014 Edition of the CRB Encyclopedia
Commodity Research Bureau (CRB), the world’s leading commodity and futures research, data and analysis firm since 1934 and a division of, Inc., announces the publication of the 2014 version of The CRB Encyclopedia of Commodity and Financial Markets.

Banks & Brokers

World’s 100 Biggest Banks: China’s ICBC #1, No U.S. Banks In Top 5
The list of the world’s biggest banks is out and China is on top. The biggest bank in the world today is Industrial and Commercial Bank of China with $3.062 trillion in assets, according to SNL Financial. The second spot goes to UK’s HSBC with $2.723 trillion in assets followed by France’s Crédit Agricole at number three overseeing $2.615 trillion.

The Force Is with Goldman’s Federation
John Carney – MoneyBeat – WSJ
It has yet to rival the influence of the Trade Federation in Star Wars, but the so-called Federation at Goldman Sachs is gaining power. The firm announced Tuesday the addition of five new members to its management committee, heralding a subtle shift in its composition.

Why Brokers Pitch Non-Traded REITs
Joshua M Brown | The Reformed Broker
When I dropped my Series 7 and strangled it on the banks of a river in the dead of night, I left behind a world of conflict and horrendously incentivized brokers. I also left behind the atrocious products that no one would ever recommend to a customer if all fees were equal. But all fees are NOT equal and Brown’s Law of Broker Compensation is that the worse a product is, the more brokers get paid to sell it.

BGC Partners – BGC Partners Reports Fourth Quarter and Full Year 2013 Financial Results

Wall Street’s most eligible banker Fleming waits for suitor
Wall Street power brokers are betting that Greg Fleming will be chief executive of a major U.S. company one day, but no one is quite sure of which one or when.

Standard Chartered Plans to Sell Swiss Private Bank
Amidst a global crackdown on tax evasion that has shaken up Switzerland’s offshore financial center, Standard Chartered PLC is seeking a buyer for its Swiss private bank, while two investment funds are looking at the Swiss wealth-management unit that Italian insurance giant Assicurazioni Generali SpA has put on the block.

Clearing & Settlement

Tradition and Tullett Prebon draw fire in Sef volumes flap
Tom Osborn –
Differing trade reporting practices are distorting market share numbers for swap execution facilities (Sefs), and could give some platforms an unfair advantage, according to their rivals.

Eris Exchange Announces UBS Execution and Clearing for Buy-Side Clients Ahead of the SEF Trading Mandate
Eris Exchange announced today the first execution of Eris Standard Swap Futures by UBS Securities LLC, a division of UBS AG, acting for a buy-side client. Buy-side market participants can take advantage of familiar agency execution and clearing of Eris Swap Futures as an alternative to OTC interest rate swaps, which are mandated for trading through Swap Execution Facilities beginning later in February.

Bloomberg’s SEF Completes First Sponsored Access Trade | Business Wire
Ahead of next week’s Commodity Futures Trading Commission mandatory swap execution facility trading deadline, Bloomberg today announced that global firms can use Bloomberg SEF LLC’s sponsored access model for swaps trading. Asset manager NISA Investment Advisors, LLC, supported by its futures commission merchant Credit Suisse Securities (USA) LLC, executed the first-ever sponsored access trade with Goldman Sachs on Bloomberg’s SEF.

LMEwire Launch Hits Trade-Reporting Deadline
LME Clear has successfully launched its new trade-reporting service, LMEwire, in time to meet the 12 February reporting deadline set out by the European Market Infrastructure Regulation (EMIR). The service, offered in partnership with the Depository Trust & Clearing Corporation’s (DTCC) trade repository, began reporting on schedule with uptake from 30% of the LME clearing membership.

MF Global demonstrates the need to keep collateral onshore says ASX chief
Aaron Woolner –
The problems faced by non-US futures clearing clients of MF Global in accessing their collateral following the broker-dealer’s insolvency in 2011 highlight the benefits of clearing in a firm’s local market, according to Elmer Funke Kupper, chief executive of the Australian Securities Exchange (ASX).

Omgeo Sees Growth in Fixed Income Trade Allocations Globally in 2013
Omgeo, the global standard for institutional post-trade efficiency, today announced that its fixed income community has grown by more than 12 percent during 2013.

DTCC Helps Launch NIST Cybersecurity Framework
Broad Spectrum Of Industry Leaders Convene At White House To Support New Cybersecurity Framework

CME Group Clearing: REVISED: CME Group Delivery Dates for February 2014

Indexes & Products

Tokyo Stock Exchange: ETF/ETN Monthly Report For Jan 2014

TSX Venture Exchange Announces The 2014 TSX Venture 50


Additional technology talents for Cinnober’s coveted trainee program cinCube
Cinnober’s trainee program cinCube, introduced early last fall, has had a very promising start and has attracted a great deal of interest among the young and technically talented. The program’s second round will start up in the next few days with two more talents joining the scene, with the opportunity to develop within financial IT.


UK’s Financial Conduct Authority: HomeServe Fined £30 Million For Widespread Failings
The Financial Conduct Authority (FCA) has issued its largest ever retail fine of £30,647,400 to HomeServe Membership Limited (HomeServe). The FCA found that HomeServe had serious, systemic and long running failings, extending across many key aspects of its business.

Environmental & Energy

S.Korea risking sky high carbon prices, worry for exports – analysts
South Korea’s refusal to revise estimates of future greenhouse gas emissions could earn it the world’s highest carbon price, and have a potentially damaging impact on its export-oriented industry, according to a report released by Thomson Reuters Point Carbon.

China treads cautiously in setting up carbon emissions trading
South China Morning Post
The mainland, which is taking a cautious approach in building a market-based mechanism for the reduction of greenhouse gas emissions, could shorten its learning curve by drawing lessons from the world’s largest carbon market in Europe.

California mulls easing environmental rule for gas-fired power plants
California, grappling with how to keep the lights on and meet environmental goals after closing a major nuclear power plant, is considering allowing owners to delay retiring some older gas-fired generators.


Chi-X Japan appoints Makoto Nagahori as new president
Anish Puaar – Financial News
Chi-X Japan, the alternative equity market for Japanese stocks, has appointed former Nomura electronic trading head Makoto Nagahori as its new president and first chief operating officer.

The real reason the Chinese are mad for gold
Izabella Kaminska | FT Alphaville
It’s not an easy concept for some gold lovers to grasp, but… a nation importing huge amounts of gold into its economy doesn’t necessarily reflect prosperity on its part. In fact, it can imply economic weakness around the corner.

HKEx Chief Executive Charles Li – Charles Li Direct.
Clearing the air on circuit breakers

China issues rules to limit bond investment by shadow bank products
China’s central bank published rules on Thursday governing investment by wealth management products (WMPs) in the country’s bond market, in a move aimed at containing risks posed by banks’ off-balance-sheet business.

Obituary: Hideki Takahashi, Tokyo Commodity Exchange Director, Senior Executive Managing Officer And COO

Hong Kong’s Securities And Futures Commission: Retail Investor Convicted Of Misleading The SFC In Market Manipulation Investigation

Tokyo Stock Exchange: Indicative NAV Published For New ETFs Through The FLEX Standard Service

Frontier Markets

Puerto Rico’s Junk Status Unlikely to Force Funds to Sell
Cynthia Lin – MoneyBeat – WSJ
Puerto Rico’s new junk credit status doesn’t necessarily mean big funds will have to dump its debt.

Emerging markets volatility lucrative for discerning investors
Luke Clancy –
From China to Turkey to South Africa, volatility in emerging markets has been a hallmark of the start to the year. How might investors profit?

For Venezuela, Bond Payments Create a Bind
When it comes to choosing between its own people and Wall Street, Venezuela’s socialist government has picked the latter—at least in regard to allocating foreign currency. The oil-rich country pays its overseas bondholders right on time. But the cash-strapped government is in hock to the tune of $50 billion to the private companies that service its economy.

Idemitsu Kosan joins DME As Its First Japanese Refiner Member

Egyptian Exchange Registered Custodians

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