John Lothian Newsletter: NYSE says it would take over Nasdaq stock quote system; ICE Drops Most Since 2011 After Europe Revamps Trading Rules; Singapore Exchange to Stop Trading, Clearing LME Minis

Jan 16, 2014

First Read

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MarketsWiki is an online open source knowledge base for current and historical information about the global exchange-traded capital, derivatives, environmental and related OTC markets. It is powered by content contributions from subscribers of the John Lothian Newsletter and JLN Environmental/Energy Newsletter and from a team of professional financial journalists, educators and consultants.

***** Congratulations to the John Lothian News team for this ringing endorsement from our MarketsWiki sponsor Cinnober. And thank you to Cinnober and all our loyal sponsors and paid newsletter subscribers. Without you, we could not do what we do.


CME Group Sued by Long-Time Members Over Exchange Changes
Andrew Harris – Bloomberg
CME Group Inc., owner of the biggest futures market, was sued by shareholders who started with the exchange in the 1970s and claim operational changes to their trading rights have diluted the value of their memberships.

***** As I have said before, one thing the CME bought when they bought the CBOT was a legacy of litigious members.


U.S. Trading Volume Continues To Shrink
Dan Strumpf – MoneyBeat – WSJ
Stock trading volumes in the U.S. are continuing to decline, according to a report from Credit Suisse. Just how much were volumes down? The busiest trading day of the year ranked only 148 on a list of the all-time busiest days.

***** When you are riding a bull market, there is less trading and a lot more just hanging on.


A SIP that turned bitter
Arash Massoudi in New York –
Five months on from a crippling technical breakdown that brought trading on Nasdaq to a three-hour halt, the piece of market infrastructure that was central to the outage remains in flux.

***** What they need is a new flux capacitor.


CFTC Announces Agenda For The Public Meeting Of The Technology Advisory Committee
The Commodity Futures Trading Commission announced that on Tuesday, January 21, 2014, the CFTC’s Technology Advisory Committee will hold a public meeting at the CFTC’s headquarters in Washington, DC from 10:00 a.m. to 5:00 p.m. For more information regarding the meeting, see CFTC News Release 6820-14. You can view the agenda under related links.

***** I am going to participate in this meeting via teleconference from the CFTC’s offices in Chicago. Chris Hehmeyer recommended this during the last meeting when he and Commissioner Chilton participated from Chicago.


NYSE’s Niederauer Preaches Humility to Wall Street Execs
Maria Aspan – American Banker
Wall Street executives aren’t exactly known for their humility, but Duncan Niederauer is trying to change that.

***** He is the right guy to do so.



Emerging Opportunity: Silvercrest’s Mike Dubin on Matching Small Funds with Large Investors
The managed futures space continued to struggle to post enticing returns in 2013, but Silvercrest Asset Management’s managing director Mike Dubin says that has not kept his firm from looking for emerging manager talent in the space. Dubin, who spoke at the Emerging Manager Forum in Miami in December, says the research shows that smaller emerging managers have continued to outpace larger funds by 2 percent to 4 percent per annum. There have been a number of studies that conclude that smaller funds that produce nice returns tend to perform poorly going forward when they have large pools of capital to manage and invest. Here’s how Silvercrest is matching small funds with large investors.

Watch the video »


How Banks Work, as Told by ABN Amro’s Chairman in Drag
In his former life as the finance minister for the Netherlands, Gerrit Zalm was known for his serious demeanor. But as chairman of ABN Amro, he has taken on a decidedly lighter tone on occasion. To help explain the state-owned lender’s core values this month, Mr. Zalm dressed up as his “sister,” Priscilla, wearing a bright blue dress and a vivid red wig. Oh, and his fake sibling just happens to be a brothel owner.

***** I wish I could make this stuff up.

***JM: And you thought Lothian in a kilt was wacky. Hope you speak Dutch.


Banking regulation meets law of unintended consequences
Arcane measures designed to make banks safer are pushing trading activity into areas where the banking regulator’s writ doesn’t run, making conventional markets more risky as volumes dwindle.

***** The law of unintended consequences is really Murphy’s Law of Unintended Consequences.


The Clayton Rule on Manipulation Lives On
Streetwise Professor
I have studied manipulation for going on 25 years now, and one of my pet peeves is the promiscuous and imprecise use of the term. I often quote a cotton broker, William Clayton, who in Congressional testimony said “The word ‘manipulation’ . . . in its use is so broad as to include any operation of the cotton market that does not suit the gentleman who is speaking at the moment.”

***** Manipulation, and like your position on many topics, depends on where you stand. If you are short in a bull market, I am sure you are looking for manipulation to break the bull market fever.


Fidessa appoints Global Head of New Business Sales and Asia Pacific Sales Director
Fidessa group plc has today announced two new key sales appointments for its sell-side business. Emily Thomas will become Global Head of New Business Sales based in New York, and Phill Jeffrey will join the company as Asia Pacific Regional Sales Director based in Hong Kong.

***** Two people announced, both with double first names. Interesting.


OIC Launches New Investor Education Mobile App
The Options Industry Council announced today a new mobile application for iOS devices. Investors can now enjoy OIC’s options education on the go by downloading the OIC app available for iPhone and iPad devices. This free app offers select OIC courses, an interactive strategy section, and delivers the latest information on OIC’s upcoming events and seminars.

***** If you missed the launch yesterday, you can catch it on the video tab on the NASA website.


Tennis Quant’s System Doubles His Money Without Knowing Players
Alex Duff – Bloomberg
For someone who says he bets millions of dollars on tennis a year, sports gambler Elihu Feustel doesn’t watch many matches. Feustel, from South Bend, Indiana, says he doesn’t need to pay attention to who the players on the men’s ATP World Tour are to double his money.

***** I love this story. You cannot even bet on tennis without the algos getting the best of you. The only things missing now is the HFT.



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Lead Stories

NYSE says it would take over Nasdaq stock quote system
NYSE Euronext offered on Wednesday to take over the data processor at the center of the massive Nasdaq trading outage last August after Nasdaq OMX Group Inc (NDAQ.O) indicated it would stop running it.

ICE Drops Most Since 2011 After Europe Revamps Trading Rules
Matthew Leising – Bloomberg
Shares of IntercontinentalExchange Group Inc. (ICE), the owner of Europe’s second-largest futures market, declined the most in two years after the European Union agreed to increase competition among derivatives exchanges.

***** Competition is enabled in Europe, helping CME Group and dinging ICE.

Singapore Exchange to Stop Trading, Clearing LME Minis
Eleni Himaras, Chanyaporn Chanjaroen and Jonathan Burgos – Bloomberg
Singapore Exchange Ltd., Southeast Asia’s biggest bourse, plans to stop trading and clearing futures on three industrial metals after the contracts attracted little interest from customers.

BoE discussed FX fixing process with chief dealers -document
Bank of England representatives discussed the process of setting foreign exchange benchmarks with senior currency dealers at major investment banks in April 2012, more than a year before regulators launched official probes into alleged rate manipulation, according to a Freedom of Information Request made by Reuters.

After Crisis, Iceland Holds a Tight Grip on Its Banks
An angular glass building on the waterfront here used to be the headquarters of a banking giant with operations in Europe, North America and the Middle East. Now, it houses a shadow of that behemoth — a small bank doing business only in Iceland and lacking both the trading culture and ambitions of its failed predecessor.

Davos prepares for annual parade of powerbrokers
The annual Davos gathering, which draws thousands of the world’s most powerful people, will this year welcome more than 40 heads of state and government to focus on questions about the world’s future, organizers said on Wednesday.

Scene Last Night: Neiderauer, Studzinski and Matisyahu
Amanda Gordon – Bloomberg
Surrounded by artifacts from investing’s past — a New York Stock Exchange ticker tape from the morning the market crashed on Oct. 29, 1929, old Federal Reserve notes — guests at the Museum of American Finance last night contemplated what would feature in exhibits of the future.

Libor: The Spider Network
MoneyBeat – WSJ
The Libor manipulation scandal has ensnared at least 17 financial institutions and 22 individuals in a wide-ranging investigation spanning 11 countries and four continents. So far, it has netted at least $5 billion in penalties, with more on the way.

EU securities reform may shine light on market’s dark corners
Sweeping revisions to EU securities trading law agreed late on Tuesday mark the latest step in efforts to avert a repeat of the financial crisis, ushering in a new market landscape with major implications for banks and other participants.

Trust In Global Financial Institutions Stronger Over 2013 But Remains Negative – Thomson Reuters TRust Index Fourth-Quarter Results Down On Third Quarter


Head of Swiss Banking Regulator to Leave Post
ZURICH—Switzerland’s top financial regulator resigned suddenly on Wednesday, leaving the agency in the hands of a former banking executive who may attract controversy.

U.S. Senate hearing urges quicker commodity limits on banks
U.S. lawmakers at a Senate hearing on Wednesday pushed financial regulators to speed up efforts to limit Wall Street’s role in physical commodities markets, pressing for a pivotal policy shift after a decade of deepening trade.

Fed turns sour on banks’ physical commodities trading
Gregory Meyer –
The Fed has given 12 bank holding companies such as Citigroup and JPMorgan Chase increasing latitude to trade physical commodities over the past decade. It is now having second thoughts, as outlined in a 19-page advance notice of proposed rulemaking.

Regulators Say Banks Still Not Adequately Tracking Counterparty Risk
Stephanie Armour – MoneyBeat – WSJ
Five years after the financial crisis, large and complex financial firms are still falling short when it comes to assessing risk from counterparties, global regulators said in a report Wednesday.

European Financial Markets Abbreviations Quiz
Emese Bartha – MoneyBeat – WSJ
“You may wonder why EGBs and SSAs start trading volatile when the EC mulls over the EBA’s proposal for the HQLA classification, which will shape the banks’ LCR composition from 2015, or when the ECB and EBA assess the sensitivity of the AQR and the stress tests on CET1,” quipped Commerzbank in a recent note to clients. Confused? You’re probably not alone.

FDIC resolution powers won’t stop bail-outs, say academics
Peter Madigan –
New US bank resolution tools will not prevent government bail-outs of collapsing institutions, a panel of noted academics told US senators last week – despite claims from leading industry figures that US regulators have solved the too-big-to-fail problem.

Mifid II: the response from the industry
Anish Puaar – Financial News
On Tuesday evening, a long-awaited deal on the second version of the Markets in Financial Instruments Directive was finally agreed by European legislators.

The Philosophies Of Capital Requirements – SEC Commissioner Daniel M. Gallagher, Washington, DC, Jan. 15, 2014

Testimony Of Vincent McGonagle, Director Division Of Market Oversight, Commodity Futures Trading Commission Before The Financial Institutions And Consumer Protection Subcommittee Senate Committee On Banking, Housing, And Urban Affairs

FCA publishes finalised guidance on inducements for product providers and advisory firms

[FCA] Supervising retail investment advice: inducements and conflicts of interest

CSA Announces Successful Transition of CSA National Systems Operations and Support to CGI

Exchanges & Trading Facilities

Bell-Ringing Today for ETF that Tracks CBOE NASDAQ-100 BuyWrite Index (BXN)
Matt Moran – CBOE Options Hub
This morning I had the privilege of participating in a market-opening bell-ringing in New York City for a new ETF that is designed to track the CBOE NASDAQ-100 BuyWrite Index (BXN).

Q&A with Warsaw Stock Exchange CEO Adam Maciejewski
Anish Puaar – Financial News
The Warsaw Stock Exchange today announced its growth strategy for 2014-2020, with the bourse targeting partnerships and acquisitions as a way of expanding within the central and eastern European region and diversifying its traditional revenues.

Nasdaq Quits SIP Over Lack of Tape Progress
Faye Kilburn – WatersTechnology
Nasdaq OMX plans to cease operating the Securities Information Processor (SIP) that collects data on Nasdaq-listed stocks, calculates a best bid and offer, and distributes the consolidated feed of quote and trade data – known as Tape C or the Unlisted Trading Privileges (UTP) Plan – after the UTP Committee, which oversees the administration of the tape, failed to respond to recommendations from the exchange to improve the SIP’s operational resiliency, disaster recovery capabilities and governance.

Summary Of Warsaw Stock Exchange Development Strategy For 2014-2020

Hedge Funds & Managed Futures

Top investor: challenges for emerging markets funds – Financial News
Mark Cobley – Financial NEws
The money raised by private equity funds in emerging markets dropped by almost a third last year – but according to one of the leading investors in the field, market-beating returns are still on offer, as long as you work for them.

BlackRock’s fourth-quarter profit rises 24 percent
BlackRock Inc, the world’s largest money manager, said on Thursday that its fourth-quarter profit rose 24 percent, citing growth in markets, long-term net inflows and strong performance fees.

Want Better Hedge Fund Returns? Try One Led by a Woman
In the world of hedge funds, a relative few have a woman at the helm. And yet, these funds may be the standouts from the bunch, a new report argues.

Secondaries firms saddle up for a champion year
Jennifer Bollen – Financial News
Private equity investors have got into the habit of trading in the same way as wealthy individuals have long bought and sold stakes in racehorses. But whether the market will continue to gallop ahead is still in question.

Fidelity shuffles management on institutional funds
Joe McGrath – Financial News
Fidelity has shuffled the management of its £239 million Institutional UK Index-Linked Bond and £54 million Global Diversified Institutional funds.

Calastone Appoints Cristobal Conde To Its Board Of Directors
New Non-Executive Director Cristóbal Conde Takes Stake In Business

Auctos Capital Management December 2013: Global Diversified Program
The Global Diversified Program generated a +0.44% net return for the month of December. This brings the 2013 year to date performance to +0.18%.

Banks & Brokers

Bank of America Still Haunted by Litigation Costs
Maureen Farrell – MoneyBeat – WSJ
Despite inking billions in settlements, Bank of America hasn’t managed to shake off lawsuits related to its actions leading up to the financial crisis or the two banks it bought during it — Merrill Lynch and Countrywide Financial.

Skeptics Question Banks’ Bottom Lines
Some banks cheer an improvement to their bottom lines, but a debate is brewing over the calculations used to get there.

Banks Make Reservations to Beat Earnings
Michael Rapoport – MoneyBeat – WSJ
Are banks using their reserves for bad loans as a “cookie jar” they can dip into to juice their earnings? Portales Partners LLC, a New York financial-services research firm, thinks so.

Riskier financings persist amid regulatory warnings
Banks are becoming increasingly selective about which highly-leveraged U.S. company loans they are willing to underwrite as they start to heed regulators’ warnings to curb looser lending practices.

Merrill’s herd loses some thunder but produces Q4 lightning
Merrill Lynch’s once-thundering herd of retail brokers fell below 14,000 during the fourth quarter of 2013, but average broker productivity rose to $1.03 million, fueling a 6 percent jump in quarterly revenue.

JPMorgan has ‘time limit’ for selling Henry Bath warehouse -Fed
The U.S. Federal Reserve has given JPMorgan Chase & Co an “ultimate time limit” for selling its Henry Bath warehousing unit, a regulatory executive at the U.S. central bank told a Senate banking committee hearing on Wednesday.

The difficult relationship between analyst and IPO
Matt Turner and Richard Partington – Financial News
Goldman Sachs often takes an atypical approach to investment banking, not least when it comes to initial public offerings in Europe.

Citigroup Earnings Rise, Helped by Cost Cuts
WSJ Staff – MoneyBeat – WSJ
Citigroup Inc.’s fourth-quarter profit more than doubled from a year earlier as the bank reined in expenses and bounced back from a 2012 quarter weighed down by heavy charges.

Goldman Sachs Reports 2013 Earnings Per Common Share of $15.46; Fourth Quarter Earnings Per Common Share were $4.60.

Clearing & Settlement

TeraExchange Strikes Deal with Pair of European IDBs
Timothy Bourgaize Murray – WatersTechnology
The New Jersey-based swap execution facility (SEF) has sealed trading agreements with OTCex and RP Martin, two European interdealer brokers (IDBs) based in Paris and London, respectively.

Shanghai Clearing House becomes fifth in Asia to start OTC clearing
Viren Vaghela –
Shanghai Clearing House (SCH) started clearing CNY interest rate swaps on January 2 with a mandate expected in June but the clearing house is unlikely to apply for Esma recognition according to lawyers.

The readiness of market community in Europe to report to trade repositories
Mathew Lewis –
The repository of OTC and exchange-traded derivatives will be mandatory in Europe as of February and a number of repositories have already been authorised by Esma. Mathew Lewis, vice president, head of European strategy and business development for The Depository Trust and Clearing Corporation (DTCC) talks to Risk on a number of key topics on where are we now and how ready the market is with regard to trade repository reporting.

SEC Approves Minimum Financial Requirements For Registered Investment Companies To Become Members Of DTCC’s Government Securities Division

Indexes & Products

New China A Shares ETF Lists On London Stock Exchange

Europe’s First Physical Replication CSI300 ETF Launched On Xetra – Deutsche Börse European Market Leader In China ETF Trading

NYSE Euronext And Invesco PowerShares Announce Launch Of NYSE Century ETF – ETF Tracks 100-Year Icons Of American Business In The NYSE Century Index


OptionsCity Sees Growth in Electronic Energy Options Trading
OptionsCity, a leading provider of multi-asset electronic trading solutions for professional futures and options traders, said today that it is seeing a strong demand in the energy markets, where electronic trading at NYMEX and ICE exchanges has rapidly expanded over the past year. To help energy traders capitalize on these increasingly electronic markets, OptionsCity has made enhancements to its Metro and Freeway software offerings.

BMO Taps Broadridge for Tax Reporting System
Marina Daras – WatersTechnology
Bank of Montreal Financial Group (BMO) has selected the Tax Forms Plus (TFP) system from Broadridge Financial Solutions to support its tax reporting requirements.

Markit Hub Adds Roubini Economic Data
Markit has added economic research and analysis from Roubini Global Economics (RGE) to its Markit Hub research platform, which aggregates research, analysis and news from banks, data vendors and news providers.

Market Prophit Adds ‘Maven’ Filter to Crowd Sentiment, Ranks Individuals’ Performance


Ex-SAC Trader’s Drug Data a Surprise, Doctor Testifies
Prosecutors may not have any recorded conversations showing how a former SAC Capital Advisors trader, Mathew Martoma, engineered what they have called the biggest insider trading scheme in history. But testimony from one doctor indicates that Mr. Martoma knew the specific results of a clinical drug trial before they were known publicly.

Commodity Traders Face Fines for Failure to Complete Paperwork
Leslie Josephs – MoneyBeat – WSJ
The drudgery of paperwork is the highlight of few commodity traders’ days. But failure to complete the task can carry a hefty price tag. Two Brazil-based agricultural companies tied to Japan’s Mitsui & Co., Ltd., have agreed to pay $500,000 for failing to submit weekly reports showing their cotton purchases and sales, the U.S. Commodity Futures Trading Commission said in a release on Wednesday.

SEC Obtains Settlements in Penny Stock “Shell Packaging” Case
The Securities and Exchange Commission today announced nearly $300,000 in settlements against a Virginia-based “shell packaging” company and its CEO who were charged with facilitating a penny stock scheme as well as a Bronx, N.Y.-based stock promoter who received proceeds from the fraud.

CFTC Orders Multigrain SA And Agricola Xingu SA To Pay $500,000 For Call Cotton Reporting Violations

Federal Court In Texas Orders $1.5 Million In Sanctions Against Defendant Mark E. Rice For Fraudulent Forex Scheme

Environmental & Energy

China Joins U.S. Among Biggest Global Warming ‘Offenders’
China, India and Brazil, three of the largest developing nations, joined the U.S. in a list of the biggest historical contributors to global warming, according to a study by researchers in Canada.

BP study predicts greenhouse emissions will rise by almost a third in 20 years
Global greenhouse gas emissions are set to rise by nearly a third in the next two decades, putting hopes of curtailing dangerous climate change beyond reach, a new report by BP has found.

World may have to suck gases: UN
Governments may have to extract vast amounts of greenhouse gases from the air by 2100 to achieve a target for limiting global warming, backed by trillion-dollar shifts towards clean energy, a draft UN report showed overnight.


FSC to let bourse operator use ‘shutdown switch’ for erroneous derivatives trades
The Korea Exchange (KRX), South Korea’s sole bourse operator, will be allowed from later this year to directly cancel erroneous derivatives tradings after a local broker came on the brink of bankruptcy due to a trade blunder, the financial regulator said Wednesday.

Fears over Hong Kong trading rule spread
Michelle Price in Hong Kong – Financial News
Concerns are growing that stringent new Hong Kong trading rules are poised to spread to other markets, as traders in the island state bed into the new regime that came into force this month.

A trust product test case in China
David Keohane | FT Alphaville
This is from Reuters and makes a nice little moral hazard gauge for China. The story involves a trust product, called “2010 China Credit / Credit Equals Gold #1 Collective Trust Product” which just screams “buy me” but maybe not “stand behind me when I go bad”

ICBC refuses to bail out investors in Chinese fund
Josh Noble in Hong Kong and Jamil Anderlini in Beijing –
China’s vast shadow banking sector is facing its biggest test after Industrial and Commercial Bank of China – which sells many of these wealth products – refused to bail out investors in a dud $500m issue.

Tokyo Commodity Exchange: Mr. Mikio Kawamura Resigns As A Director

Thai Bourse Expects Derivative Warrants On Indices To Be Launched This Year
The Stock Exchange of Thailand (SET) has recently joined hands with brokers to continuously educate investors on using derivative warrants (DW), and expects that DWs on SET Index series can be launched by brokers this year. As many as 761 DWs were launched in 2013, with an average daily trading value of THB 1,000 million (approx. USD 33 million), increasing 254 percent from the previous year.

Frontier Markets

Asian Investors Seeking Out New Opportunities in Fast-Growing Africa
A handful of Asian investors are turning to Africa to scoop up bonds, stocks and currencies from the continent, hoping to benefit from some of the fastest growth in the world.

Changes In FTSE Bursa Malaysia Index Series

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