John Lothian Newsletter: NYSE proposes 'kill switch' to help catch trading errors; Thailand stock exchange in bid to attract foreign flows; CME to adjust bond futures trades after overnight price spike

Dec 26, 2013

First Read

Memes are for cats
Jonathan Matte
As expected, it’s a pretty slow news day today, and I assume there aren’t many readers at work, either. For some reason, I found myself feeling like a good sport near the end of the year, here, and volunteered to take newsletter duty after Christmas. In Norway, there’s actually still an honest-to-goodness Christmas SEASON that starts on the 23rd and goes through the new year; but this year, it’s not a problem to take a few hours before the family dinners begin each day to put this together. So, Bob, Tina and Dave — oh, and Bev, are you reading this, too? — enjoy the reduced-calorie newsletter today.

To fill the top spot a little, I wanted to write a slightly extended comment about using memes. William Cohan, in “Angry Bart Takes His Parting Shot” (first article below), starts out like this: “As we long suspected, Wall Street continues to use every trick in its playbook to do whatever it can to eviscerate numerous post-financial-crisis rules.”

Leaving aside the issue about “suspecting” — seriously, you don’t actually KNOW what the lobbying industry is doing, William? So you’re left to sit and “suspect”? — who is this “Wall Street” we’re talking about? All financial companies? Banks? Even my little community credit union back in the USA? Nah, they’re good folks, I’m sure they’re not Wall Street. Individual investors? Which ones?

Here’s the thing. Using memes (trigger phrases or images that symbolically transmit a wealth of implied understanding) is lazy and encourages tribalism, except in cases where the memes involve funny pictures of cats that say wise things. That form is ok. But when you hear him use “Wall Street”, you know exactly who that is, right? It’s those no-good, scheming fat cats who are conspiring to pad their already stuffed pockets by stealing from hapless Momanddad Mainstreet while dancing clear of all responsibility! The thing is… we don’t really know WHO that is. We’re just sure they’re out there, and they’re bad.

Those memes don’t really inform or advise us, but they’re great for creating a deep sense of “us versus them.” And my contention is that that form of tribal thinking — we’re under this red flag, and you’re under that blue flag, and that makes us enemies — is actually destructive to progress in every form. Our side is right, and doesn’t need changing; their side is wrong, and there’s no sense dealing with them other than to eliminate them if possible. Nothing improves when that stuff is going on.

So ironically, as Cohan calls out “Wall Street” for misbehavior, he’s actually fuelling the inertia that prevents the misbehavior from being genuinely addressed. And given the depth of stupidity that needs addressing on this issue (including the far more important problem of legislators willing to be bought, than those who would buy their services), it’s a shame that this is apparently the best he can do.

Happy andrejuledag (second Christmas day)!


Angry Bart Takes His Parting Shot
William D. Cohan – Bloomberg
After almost 30 years in Washington, Bart Chilton will soon be taking his leave. For the past 6 1/2 years, he has been an outspoken member of the Commodity Futures Trading Commission, one of the financial industry’s most important regulators. Chilton leaves behind a sobering message: As we long suspected, Wall Street continues to use every trick in its playbook to do whatever it can to eviscerate numerous post-financial-crisis rules.


A dog could run China’s banking system, says former statistics bureau spokesman
Jeremy Blum | South China Morning Post
The former chief economist and spokesman of China’s National Bureau of Statistics estimated that the mainland’s economy grew 7.7 per cent in 2013, while also making a scathing criticism of China’s banking industry, likening it to an automated system that even a dog could successfully run.

*** “With this kind of operational model, banks will continue making money even if all the bank presidents go home to sleep and you replaced them by putting a small dog in their seats.”


Robert W. Wilson leaps to his death at 87; hedge-fund founder and philanthropist
Charles W. Stevens and and Chris Dolmetsch – Bloomberg
Robert W. Wilson, a retired New York hedge-fund founder who committed his life to donating his fortune to charities, died Dec. 23 in Manhattan. He was 87.

***JM: I used to try to find something really wise or insightful to say about this kind of thing. Now I find myself thinking that I really don’t know anything about anybody in this situation, and I’m just left with the hope that there’s a hug waiting on both sides of the abyss for everyone involved.


Bug Bites Cut Florida Orange Crop to Lowest in 2 Decades
Marvin G. Perez – Bloomberg
A gnat-sized insect, the Asian citrus psyllid, forced Dean Mixon to replace about 1,000 orange trees in the past two years on the 50-acre Florida farm his grandfather started in the 1930s. The bug spreads a disease called citrus greening, causing fruit to shrink and drop early.

***JM: Shouldn’t oranges be one of the things on Earth that is too healthy to contract a disease?


Man vs. Machine: Thoughts from Keyboard Trader’s Adam Sheldon
Bionic Trader Systems
The year: 2004. Algorithmic trading was on the rise. Given my love for math and computer ­programming, it was only natural that I considered venturing down that path. But I had some ­nagging concerns.

***JM: This is cool stuff. But Adam, be straight with me. Have you ever spilled coffee on it?


An economist’s Christmas
Izabella Kaminska | FT Alphaville
A little Christmas levity courtesy of Lombard Street’s Dario Perkins: If you put two economists in a room, you get two opinions, unless one of them is Lord Keynes, in which case you get three.’ As Winston Churchill noted, economists rarely agree on anything. And the topic of Christmas should be no different. Here is our guide to the macroeconomics of Christmas:

***JM: This gave me a chuckle. If it makes you laugh a lot, that is probably something you don’t need to tell a lot of people.


Secret Handshakes Greet Frat Brothers on Wall Street
Max Abelson and Zeke Faux – Bloomberg
Conor Hails, head of the University of Pennsylvania’s Sigma Chi chapter, was in a Philadelphia hotel ballroom last month for a Barclays Plc recruiting reception. A friend pointed out a banker from their fraternity. Hails, 20, approached with a secret handshake.

***JM: I’d roll my eyes contemptuously, but I’m afraid that might mark me as being part of some organization that I don’t have a decoder ring for.



MarketsWiki Page of the Day
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MarketsWiki Recent Updates


Chadwick Campbell; Krishnan Seshadri; Laurent Paulhac; Doug Bry; Ernest Jaffarian

Companies, Organizations and Groups

Price Holdings, Inc.; Atrium Trading Inc.; The Price Futures Group, Inc.


46,100,968 pages viewed, 7,726 articles, 170,105 edits
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Lead Stories

NYSE proposes ‘kill switch’ to help catch trading errors
IntercontinentalExchange Group’s NYSE Euronext unit has filed a plan with regulators to offer firms that trade on the New York Stock Exchange a “kill switch” that could cut off trading if preset levels were breached.

Thailand stock exchange in bid to attract foreign flows
Jeremy Grant –
Thailand’s stock exchange plans to change its rules to allow foreign companies to list in Bangkok, in a move that would set it on course to become a southeast Asian trading hub challenging Singapore.

CME to adjust bond futures trades after overnight price spike
The CME Group said on Monday it would adjust the clearing levels of some bond futures trades after the prices of those contracts spiked unusually in overnight trading.

Banks’ Suit Tests Limits of Resisting Volcker Rule
The banks have fired their first salvo in what could soon turn into a war of litigation over the Volcker Rule. As expected, the American Bankers Association, an industry trade group, filed a motion in federal court on Tuesday in Washington seeking to quickly suspend one part of the Volcker Rule, which was officially completed two weeks ago.

In Soured Investments, Brokers Emerge as Culprits and Victims
For years, regulators have typically pursued brokerage firms over the failure of investments they sold rather than going after individual stockbrokers, because the target was larger and the possibility of reaching a financial settlement was greater.

The Huge Costs of Being a ‘Faithless Servant’
The notion of hitting someone where it really hurts – in the wallet – is being taken a step further these days when it comes to violations of securities laws. The government has many avenues of recourse at its disposal when settling cases involving insider trading and investment fraud. Efforts to impose even greater costs on defendants were shown in two cases last week.

Happy Birthday, Federal Reserve! Have Some Punch (Before the Bowl Gets Taken Away)
Paul Vigna – MoneyBeat – WSJ
One hundred years ago on this day, President Woodrow Wilson signed the bill that brought to life the Federal Reserve Board. Through war, depression, market panics and crashes, and raging bull markets, the Fed has been tasked with keeping the nation on an even keel.

Bitcoin fails to gain currency with RBI
Business Standard
Virgin group chief Richard Branson has started accepting these and US Federal Reserve Chairman Ben S Bernanke says these hold long-term promise. But Reserve Bank of India (RBI) Governor Raghuram Rajan is not impressed with virtual currencies (VCs), Bitcoins included.


Fed Releases Final Swaps Push-Out Rule for Foreign Banks
The Federal Reserve completed a rule that gave foreign banks a chance to delay a Dodd-Frank Act requirement that they wall off derivatives trades from their U.S. branches.

Nasdaq OMX Nordic clears first buyside swap
Philip Stafford –
Nasdaq OMX Nordic has cleared its first interest rate swap from an institutional investor as market participants prepare for tougher incoming European rules governing derivatives trading.

Esma enlists research firms for Mifid II analysis
Anish Puaar – Financial News
Europe’s top securities regulator has appointed three research firms to help it craft new guidelines that will underpin the region’s overhaul of rules for trading and financial markets.

FINRA Solicits Comment on Comprehensive Automated Risk Data System (CARDS) Proposal
The Financial Industry Regulatory Authority (FINRA) issued a Regulatory Notice soliciting comment regarding an innovative proposal called Comprehensive Automated Risk Data System (CARDS). CARDS will involve account reporting requirements that would allow FINRA to collect, on a standardized, automated and regular basis, account information, as well as account activity and security identification information that a firm maintains as part of its books and records.

SEC Issues Annual Staff Reports on Credit Rating Agencies
The Securities and Exchange Commission today issued its annual staff report on the findings of examinations of credit rating agencies registered as nationally recognized statistical rating organizations. The agency also submitted an annual staff report on NRSROs to Congress.

SEC: 2013 Summary Report Of Commission Staff’s Examinations Of Each Nationally Recognized Statistical Rating Organization

CFTC’s Division of Swap Dealer and Intermediary Oversight Issues No-Action Relief Regarding Introducing Brokers’ Compliance with Certain Financial Reporting and Capital Computation Requirements

CFTC’s Division of Market Oversight Provides Conditional No-Action Relief from Limitations on Execution Methods for Required Transactions that Involve Basis Risk Mitigation Services Provided by a SEF

CFTC’s Division of Swap Dealer and Intermediary Oversight Issues No-Action Relief Regarding Swaps Entered Into by Persons Registered as Floor Traders

CFTC’s Division of Swap Dealer and Intermediary Oversight Issues Advisory Concerning Commodity Trading Advisors and Swaps

Federal Reserve Board Issues Final Rule On Treatment Of Uninsured U.S. Branches And Agencies Of Foreign Banks Under Section 716 Of Dodd-Frank

Exchanges & Trading Facilities

NYSE Delays Order Imbalance Data Fees – Again
Max Bowie – WatersTechnology
NYSE Technologies has delayed the introduction of new fees for order imbalance data from parent NYSE Euronext’s New York Stock Exchange and NYSE MKT marketplaces for a second time.

Rusal launches legal action against LME warehouse rules
The world’s biggest aluminum producer Rusal has begun legal action aimed at having the London Metal Exchange overturn planned reforms to its warehousing policy, worried about further falls in the price of its metal.

SIX Receives AA- Credit Rating From Standard & Poor’s For The Fourth Time In A Row

NYSE Group Inc. Issues Short Interest Report

NYSE MKT Issues Short Interest Report

NASDAQ Announces Mid-Month Open Short Interest Positions In NASDAQ Stocks As Of Settlement Date December 13, 2013

Hedge Funds & Managed Futures

Cohen Said to Have Warned Friend About Possible Federal Investigation
By the summer of 2009, the billionaire investor Steven A. Cohen appeared to be growing suspicious that federal authorities were gathering evidence about insider trading in the hedge fund industry.

Asset Management Industry – End of Year Report Card
Joe McGrath – MoneyBeat – WSJ
The asset management industry has offered up some hefty achievements this year – including Aberdeen Asset Management’s acquisition of Swip and the strong sales at Old Mutual after it hired Richard Buxton – but there are also areas where it could do better in 2014.

Ackman defends lossmaking Herbalife bet
Stephen Foley in New York –
Bill Ackman has responded to investors’ questions over his lossmaking bet against Herbalife, after representatives for the company contacted several of them telling them to re-examine their investments in his fund.

Outlook for US bonds clouded by taper trajectory
Michael Mackenzie in New York –
After enduring their first negative year in more than a decade, US bond investors face further challenges in 2014 as the Federal Reserve starts retreating from its era of easy money.

Malta sees growth for hedge fund industry
While Malta may be the smallest European Union member state, it has developed a significant financial services sector and, within that, a growing hedge fund business. The sector should get a significant boost from Europe-wide regulation of the industry, as well as the preference for start-up managers to choose a jurisdiction that offers flexibility and responsiveness, tempered with pragmatism.

Nine Surprising Things Jesse Livermore Said
Joshua M Brown | The Reformed Broker
There are those who would convince you that it is somehow smart or in your best interest to be manically switching your investments around, back and forth, long and short, on a daily basis. To pay attention to this kind of overstimulation is the height of madness, even for professional traders.

Gold set for biggest annual drop in 30 years
Neil Hume in London –
Gold slipped back below $1,200 a troy ounce on Monday as investors closed lossmaking positions and continued to fret about the US Federal Reserve’s decision to roll back its bond-buying programme.

Banks & Brokers

Investment Banking – End of Year Report Card
Matt Turner – MoneyBeat – WSJ
The investment banking industry has had a mixed 12 months, a year which has included a pick up in equity capital markets activity but also continuing problems, such as bad behavior and poor fixed-income revenues.

Behind the Headline Numbers of a Mortgage Settlement
The news release said that Ocwen Financial had been ordered to write down $2 billion on the mortgages it services. But that’s not the full story.

Deutsche Bank hires Swip director
Joe McGrath – Financial News
Deutsche Asset & Wealth Management has appointed the former head of consultant relationships at Scottish Widows Investment Partnership as a director.


NFA takes emergency enforcement action against commodity pool operator R2 Capital Group LLC and its principal, Randell A. Vest
National Futures Association (NFA) announced today that it has taken an emergency enforcement action against R2 Capital Group LLC, an NFA Member commodity pool operator, which lists its address as New York City, and Randell A. Vest, a principal and the sole associated person of R2 Capital.

[NFA Regulatory Actions] R2 Capital Group LLC and Randell A. Vest

[NFA Regulatory Actions] Equity Swarm LLC, Adantia LLC, Daryl P. Jamison, Punardeep Sikka and Jagjit S. Sikka

SAP co-CEO’s ex-assistant settles SEC insider trading charges
A former board assistant to German software company SAP AG’s co-chief executive has agreed to pay $89,155 to settle U.S. Securities and Exchange Commission insider trading charges, the regulator said.

BCSC alleges that former registrant gave misleading and unsuitable advice on purchase of securities


Japan Bank Regulator Seeks Authority Over Tibor Benchmark Rate
Monami Yui and Takako Taniguchi – Bloomberg
Japan’s banking regulator will seek to introduce penalties for manipulation of financial benchmarks, joining market watchdogs around the globe in pushing for broader authority and tougher supervision.

South Korean private equity flourishes as foreign rivals fade
Song Jung-a in Seoul –
Nearly a decade after South Korea’s first private equity fund was set up, local funds are emerging as leading players in the domestic buyout market, encouraged by a government keen to develop the industry as a key source of corporate financing.

China cash crunch eases as PBoC reassures
Simon Rabinovitch in Shanghai –
China’s cash squeeze has abated after the central bank reassured investors that it wants to avoid deeper turmoil by making its first market-wide money injection in three weeks.

Markit connects to Hong Kong Monetary Authority’s trade repository
Markit has announced that MarkitSERV, its electronic trade processing service for over-the-counter derivatives, is reporting interest rates and FX derivative trades to the trade repository operated by the Hong Kong Monetary Authority. The service went live on December 10th 2013 allowing for compliance with Hong Kong’s interim reporting regime.

Dalian Commodity Exchange Adjusts Corn Delivery Quality Standards – Adapting To Changes On The Spot Market, Meeting Enterprises’ Demands For Hedging – Amendments To Come Into Effect As Of The Listing Of The New Contract

Japan’s Financial Services Agency: Encouraging The Efforts To Sever Relationships With Antisocial Groups

Thai Bourse Lists First Telecom Infrastructure Fund TRUEIF On Dec 27

Shanghai Stock Exchange: Fueling Investor Relation Management, Cementing Protection Of Small, Medium-Sized Investors – Review One Of The SSE’s “I’m A Shareholder” Activities In 2013

Frontier Markets

Islamic Banks, Stuffed With Cash, Explore Partnerships in West
A noted Muslim law scholar, Yusuf DeLorenzo, recently pored through the books of Continental Rail, a business that runs freight trains up and down the East Coast. Along with examining the company’s financial health, Mr. DeLorenzo sought to make sure that the rail cars didn’t transport pork, tobacco or alcohol.

Soaring compliance costs clip wings of Mideast, African banks
While it may be the most common given name in the world, the global banking system seemingly can’t cope with Mohammed and its various different spellings.

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Past JLN Newsletters

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CME to permanently close most trading pits

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