First Read

Bits & Pieces
By John J. Lothian

Just as this newsletter was about to go to press, I learned a longtime friend has died. Jim Hayes passed away last night surrounded by his family. I met Jim in the early 1980s. He was a neighbor and good friend of Thomas J. Cashman, who helped me get my start in this industry.

Jim also helped get me my start and in a way had a hand in this newsletter. Jim was was the Hayes in Hayes & Griffith, a small investment banking firm focused on futures. It was Jim Hayes who introduced me to Jim McNulty, then the president of Hayes & Griffith. Jim Hayes was also Jim McNulty’s uncle.

McNulty was very helpful to me as I was looking for my first job out of college, and then I lost track of him as we both moved on with our careers. It was not until McNulty was named CEO of the CME that I realized I needed to do a better job of staying in touch with people.

That motivation was one of the reasons for this newsletter. I wanted to give people I know and people I want to know a gift every morning to remind them I am around and on top of what is going on. It used to be to help my brokerage and CTA equity raising businesses. Now it is a full-fledged media business aimed at helping the industry grow and manage its non-price oriented risk.

Jim Hayes was a wise and gentle man. He has left a great legacy of integrity and kindness and I shall never forget him. My thoughts and prayers go to Jim’s family and friends.


Chris Ferreri, Eight Point Strategies – Market Structure, Regulations and Tying it All Together

“I want you to think differently, all the time, when thinking about things, and look for parallels, because parallels help you understand things. We often speak in stories because people understand stories.”

Chris Ferreri, former head of e-commerce for ICAP and founder of Eight Point Strategies, is a master at taking complicated issues and breaking them down into pieces that can be readily understood. When at ICAP, Ferreri was tasked with explaining market structure to legislators and regulators as they crafted the rules related to the Dodd-Frank Act. In this MarketsWiki Education presentation, he explains the different modes of execution in fixed income markets in terms we can all understand – Zillow, Craigslist, Kelley Blue Book, and the used car salesman down the street.

Watch the video »

A Plea to President Obama
Steven M. Sears, Barron’s
The president should drop his plan to ban options in retirement accounts. It could expose investors to more risk.

***** Let’s not mess with how investors can manage their risk at a time of great risk, or any other time. When Steve Sears talks, I listen.


Turbulent markets frazzle investor nerves
Robin Wigglesworth, Nicole Bullock and Gavin Jackson, FT
After an awful week for global markets, Jim Kochan, a senior strategist at Wells Fargo Fund Management, quipped that he was “pleased to see the sun come up” again on Monday. But for many investors, the sun might as well have stayed away.

****** Who has nerves left?


Was This a Flash Crash? And Other Questions About Monday’s Swoon
By Sam Mamudi, Bloomberg
U.S. investors were jittery on Monday morning after fears of an economic slowdown had rocked markets around the world. Their concern was realized when the Standard & Poor’s 500 Index plunged 5.3 percent in the opening minutes of trading, the biggest intraday loss in four years. It was the start of a roller-coaster ride, as the market bounced up only to fall again. The pattern repeated through the day until the close, when the benchmark finished down 3.9 percent. Along the way there were wild price swings, trading halts and volatility at levels not seen in years. Things got so bad that former Treasury Secretary Larry Summers took to Twitter to compare the day’s events to previous meltdowns and say, “we could be in the early stage of a very serious situation.” As investors ponder what it all means, we answer some of the day’s biggest questions.

****** Watch the bouncing market. How long has it been since there was a break you could not buy?


Kremlin moves to ban Russian Wikipedia
Kathrin Hille in Moscow, FT
Russia’s internet regulator on Monday added the Russian-language version of Wikipedia to its list of blocked sites. The escalation in Moscow’s online censorship campaign is likely to bring the issue to the attention of the broader public which has so far ignored it.

***** No word on MarketsWiki? We just passed 67 million page views, Mr. Putin.



MarketsWiki Page of the Day
People’s Bank of China

MarketsWiki Recent Updates


Dan Day-Robinson; Blair Hull; Nicole (Rohr) Stephani; Greg Burns; Aaron Lucchetti; Jos Schmitt; Alexa Jaworski; Aline van Duyn; Alyce Andres-Frantz; Andy Yemma

Companies, Organizations and Groups

Rosenblatt Securities Inc.; Cinnober Financial Technology


TMX Alpha


People’s Bank of China; TRADExpress


67,007,623 pages viewed, 8,257 articles, 193,851 edits
MarketsWiki Statistics

Lead Stories

Precious Metals Trading Is Probed by EU After U.S. Investigation
Gaspard Sebag Stephen Morris, Bloomberg
European Union antitrust regulators are probing precious-metals trading following a U.S. investigation that embroiled some of the world’s biggest banks.

Credit derivatives clearing catches on
Credit investors are buying into clearing for single-name credit default swaps as a cure for the ailing market – even though it is sometimes more expensive than existing bilateral execution methods. The Intercontinental Exchange has signed up 21 new buyside firms to its single-name CDS clearing offering this year – more than doubling the total buyside participation to 39 firms – via a lobbying effort that includes discounts for buyside firms that back-load existing swaps into clearing between June and December.

VIX Didn’t Update for 30 Minutes on Erratic Options Quotes
Bloomberg Business
The Chicago Board Options Exchange Volatility Index failed to update for about 30 minutes after the open of stock trading at 9:30 a.m., data sent to Bloomberg show. Trading in the options from which the VIX is derived was too disjointed to calculate a value, its overseer said. “Because of market conditions, the quoting in S&P 500 and S&P 500 options was erratic,” said Suzanne Cosgrove, a spokeswoman for the CBOE. “As more people resume quoting, it’ll level out.”

Sebi paves way for FMC merger; To place report for interoperability of clearing corporations for public comment
BS Reporter
The Securities and Exchange Board of India (Sebi) on Monday paved the way for the merger of the markets regulator with the Forward Markets Commission (FMC). According to a press release issued by Sebi, its board has cleared the norms for commodity exchanges and brokers.

Historic profits for Virtu as HFTs ‘catch falling knives’
By Bradley Hope, The Wall Street Journal
Virtu Financial, one of the world’s largest high-frequency trading firms, was on track to have one of its biggest and most profitable days in history Monday amid a tumultuous 24 hours for world markets, according to its chief executive.

Anatomy of a Market Selloff
By Mohamed A. El-Erian, Bloomberg
Some commentators have rushed to describe the recent global stock market turmoil as “historic” and “unprecedented,” yet its evolution has been quite traditional so far.

The Truck Running Over the Stock Market Was Headed Our Way for Months
Michael P Regan, Bloomberg
It’s been a bit difficult to get the license plate of the truck that’s running over the stock market, considering that when you look up right now all you see are axles and undercarriage.

Lesson for Yellen: Trigger-Happy Central Bankers Reversed Course
Simon Kennedy, Bloomberg
Call it hiker’s remorse. All 15 central banks of the 34 countries in the Organization for Economic Cooperation and Development that raised interest rates since the 2008 financial crisis ended up cutting again. New Zealand even reversed course twice.

Commodity Meltdown to 16-Year Low Pauses as Bears Take Breather
Sharon Cho, Bloomberg
Flush from a collapse in everything from oil to aluminum to cotton, commodity bears are taking a break.

Myths and facts about “risk parity”
Matthew C Klein, FT
Companies often denigrate products sold by competitors, so it isn’t surprising that Alliance Bernstein is warning that the growth of so-called “risk parity” strategies is akin to the growth of the dreaded “portfolio insurance” in the 1980s — and could similarly make “the system more fragile”.

Volatile Vix surges into fear territory
Michael Mackenzie, FT
Turmoil across markets has once again reminded investors how measures of bond and equity volatility can abruptly switch into the danger zone almost without warning.

Biggest Day in Years for Currencies as Investors Flee Risk; Euro, yen surge; kiwi, aussie tumble
Rachel Evans Andrea Wong, Bloomberg
Traders in the $5.3 trillion-a-day foreign-exchange market were busy Monday.


FIA EPTA – Further evidence that new rules could threaten market liquidity in Europe
Automated Trader
The researchers used data from Euronext to investigate the behaviour of liquidity suppliers during the Greek crisis of 2010, Johannah Ladd, secretary general, FIA European Principal Traders Association, said in a blog post. Their initial findings demonstrate that all firms using high frequency trading technology continued to provide liquidity in the markets during the 2010 crash, even when slower liquidity providers had ceased.

Hot, Hot, Hot!
ISDA media.comment
The Basel Committee on Banking Supervision’s rules for determining the amount of capital relief banks can achieve by hedging credit risk have most likely been called a lot of things by tired and frustrated risk managers over the years. ‘Hot’ is probably a new one.
That, though, is exactly how the Wall Street Journal describes hedges that result in capital relief in a recent article

EU Probing ‘Anticompetitive Behavior in Precious Metals Spot Trading’; Competition watchdog investigation follows WSJ report of major U.S. bank probe
The European Union’s competition watchdog is investigating alleged “anticompetitive behavior in precious metals spot trading,” a spokesman said.

Need to regulate crowdfunding, crypto currency: S S Mundra; RBI Dy Governor cites concerns about consumer protection, grievance redressal, disaster recovery and business stability plans for intermediating electronic platforms
BS Reporter
A few days after the Reserve Bank of India Governor Raghuram Rajan said that they are looking at regulating the crowdfunding space to see if it poses any concerns, the RBI deputy Governor S S Mundra also stressed on the need for bringing about regulatory changes in this regard.

Sebi approves new norms for commodity derivatives market
The Securities and Exchange Board of India (Sebi), which is set to regulate the commodity derivatives market, on Monday approved new norms for the country’s commodity derivatives market and its brokers.

Mundra calls for regulating electronic funding platforms; The remarks were made in the context of peer-to-peer lending, a flourishing system of lending money to unrelated parties gaining popularity in the West
Press Trust of India
Days after RBI Governor Raghuram Rajan flagged concerns on emerging financial instruments, including crowd-funding, his deputy S S Mundra today said there was a need for bringing in a legislation to regulate electronic fund raising platforms.

Exchanges & Trading Facilities

Nasdaq poised to launch FX trading platform: top executive
Nasdaq (NDAQ.O) is poised to launch a platform for foreign exchange trading which it says would make the $5 trillion-a-day global market more transparent and would diversify its own business, a top executive from the stock market operator said. Nasdaq Co-President Hans-Ole Jochumsen, one of two presidents who are both second in command of the tech-oriented stock market operator, told Reuters the FX trading platform is ready to be tested with banks although a launch was more likely in 2016.

Stock slump sparks busiest trading day in Europe
By James Rundle, Financial News
European equity desks had a rude awakening from the summer lull on Monday, as fears over the stability of China’s economy rippled through world markets and sent volumes soaring past previous records for the year.

Thai stock exchange updates systems to boost business
Securities Lending Times
The Stock Exchange of Thailand has rolled out new clearing and depository systems to enhance securities lending and asset servicing. The new systems will enhance overall straight-through processing in the capital market, which has been attracting increasing demand, according to the exchange.

Trafigura to exit LME’s metals storage business
Commodities trader Trafigura’s Impala Terminals division will exit the business of storing metals for the London Metal Exchange.

Hedge Funds & Managed Futures

Investors Bet on Currency Pegs Coming Under Strain; Bets against pegs in Hong Kong and Saudi Arabia accelerated after China devalued currency
With global markets thrown into a twist, some investors are betting that long-standing currency pegs might come under strain.

This Fund Manager Picks Stocks by Watching Bonds, Beating 99% of Peers; Sandy Rufenacht buys shares of companies that pay down debt for the Aquila Three Peaks Opportunity Growth Fund.
Jon Asmundsson, Bloomberg
Sandy Rufenacht is a bond guy who figured out stocks.

The Cruel Psychology of the 1,000-Point Drop
If you weren’t paying attention to the stock market before Monday, you are now. A 1,000-point drop in the Dow Jones Industrial Average will do that.

I Knew Black Monday. Black Monday Was a Friend of Mine. This Was No Black Monday
Streetwise Professor
Today the S&P500 dropped about 4 percent. A pretty big move, yes, but hardly a catastrophe. But to follow the financial media and Twitter, you’d think it was market Armageddon. It’s Monday, so of course everybody was screeching “Black Monday,” and (of course)^2, #blackmonday trended on Twitter.

A Warning on China Seems Prescient
Andrew Ross Sorkin, NY Times
Kenneth Rogoff has long warned of a potential financial crisis in China.

A Stock Market Rout in a Month That Hedge Funds Would Sooner Forget
From his getaway cabin deep in the woods, an experienced adviser to wealthy hedge fund investors was hopping from one conference call to another to manage clients’ mounting anxiety.

De Beers Said to Cut Diamond Prices as Much as 9%
Thomas Biesheuvel, Bloomberg
De Beers, the world’s biggest diamond producer, lowered prices after production cuts failed to support demand for the precious stones, according to three people familiar with the situation.

Banks & Brokers

Banks Leave Investors in Dark on Exposure to Market Turmoil
Mayra Rodriguez Valladares, American Banker
It is probably too early to predict the long-term effect of the events in Brazil and China on the broader global economy and the Federal Reserve’s plans to raise interest rates. However, it is not too early to scrutinize the extent to which many U.S. banks are exposed to emerging markets. Yet it is difficult to get an accurate picture of banks’ exposures to emerging markets because of their opacity.

CTA Challenge participants in final stretch of 2015 competition
Coquest Inc.
The CTA Challenge, a year-long competition for commodity trading advisors (CTA) organized by Dallas-based Coquest Inc., is hitting the home stretch of 2015, and at this point the winner is too close to call. Several different trading programs, judged by a combination of risk adjusted return and volatility, have held the pole position, jumping as much as five levels in a month.

Clearing & Settlement

Upcoming Changes to Trading and Clearing Rules effective September 7, 2015
As announced in Exchange Information 50/15, subject to testing and regulatory approval Nasdaq Commodities will launch new Nordic Electricity Futures and Option Contracts and extend the German Electricity Product Suite September 7. Further subject to testing and regulatory approval Nasdaq Commodities also introduces US Shredded Scrap Steel Futures and Iron Ore Futures and Options for trading and clearing September 7.

SGX proposes segregation of collateral for clearing members’ affiliates
Singapore Exchange Ltd. said Aug. 20 that it is proposing a system to segregate the collateral of a derivatives clearing member’s affiliates in order to protect the collateral in case of a default.

LCH.Clearnet eyes standardisation for portfolio margining
Futures & Options World
LCH.Clearnet, the London Stock Exchange-owned clearing house, has called for more uniformity in regulatory standards over portfolio margining, as part of plans to boost debate amongst firms and regulators on how to deal with the issue. In a new white paper released Monday, the London-based firm said while current regulatory standards allow portfolio margining across assets that are significantly and reliably correlated, they do not, “specify the meaning of significance and reliability in exact quantitative terms.”

Indexes & Products

MSCI Asia ex Japan index gearing up for a slowdown
The Economic Times
After the rout in Asian equity markets, the valuation of the MSCI Asia ex Japan index is just 6% away from the lows hit during the global financial crisis in 2008 and 10% away from the levels seen during 2001-03.

O’Shares adds to smart beta range with Asia Pacific and European ETFs
ETF Strategy
The new ETFs aim to deliver a quality income strategy through a combination of factor exposures (quality, low volatility and dividend yield) which seek to allocate to companies which will, in aggregate, deliver enhanced total returns at a lower level of risk.

Blair Hull Beat Black Monday, Now His ETF Is Staying Ahead Of The Market Correction
When the Dow Jones industrial average tumbled 8% at the open of trading on Monday, financial pundits wondered aloud if the selling would be another Black Monday. But one investor, who earned an enduring place in Wall Street trading lore after profiting from the panic of October 1987 was more than prepared for a second act.

***DA: For more on Mr. Hull, watch our recent profile piece

Perseverance and Low Vol
Indexology: S&P Dow Jones Indices
Weak markets tend to make low volatility indices shine. As a strategy that attenuates the performance of the broader market, the S&P 500 Low Volatility Index had lagged the benchmark S&P 500 by 1.22% from the beginning of 2015 thru July 31. As of last Friday, the tide has shifted in favor of low vol. In the U.S., our low volatility indices for large, mid-, and small-cap stocks all outperformed their benchmarks for 2015 through August 21. Abroad, the S&P BMI International Developed Low Volatility Index has done the same.


CQG connects to ASX 24 ITCH
Automated Trader
CQG has announced direct market access to ASX 24 ITCH, the Australian Securities Exchange’s low latency protocol for accessing ASX 24 markets, which include interest rate futures and options, equity futures and options, agricultural futures and options, and energy futures and options.

OptionsCity to Provide Settlement Price Solution for Nasdaq Futures, Inc.
OptionsCity Software
OptionsCity Software, a global provider of futures and options trading and analytics solutions, has been selected by Nasdaq to provide a settlement price solution for derivatives contracts traded on Nasdaq Futures, Inc. (NFX).

Metamako Expands Into New Stone & Chalk Fintech Hub
Metamako [ ], one of KPMG’s top 50 tech-innovators and the leader in deterministic, ultra-low latency technology, has today announced that it is relocating to become a key participant in the fintech ecosystem in the Stone & Chalk [ ] fintech hub in Sydney.

Orc extends connectivity to Borsa Istanbul to enable access from next-generation trading platform
Orc, the global market leader in electronic trading technology for listed derivatives, today announced certified connectivity to Borsa Istanbul. This new high-speed interface enables quoting and trading on Borsa Istanbul for all Orc clients using the Execution Bricks or the Orc Trading Bricks platforms. Since its formation in 2013, Borsa Istanbul brings together all the exchanges operating in the Turkish capital markets under one roof.


Swiss bank fines dwarfed by US/British peers
UBS ($7.4 billion or CHF7 billion) and Credit Suisse ($4.8 billion) have been served with the biggest fines of all Swiss banks since 2009, according to the research. But these figures are dwarfed by the total cost to all banks from criminal and civil litigation of $259 billion.

FCA reaches agreement with HFO Services Limited, Roxburghe (UK) Limited and HFO Capital Limited
Financial Conduct Authority
The Financial Conduct Authority (FCA) has reached an agreement with debt purchasing and debt collection firms HFO Services Limited, Roxburghe (UK) Limited, HFO Capital Limited and their solicitor (“the Appellants”) to bring proceedings in the First-tier Tribunal (Consumer Credit) General Regulatory Chamber to an end.

Environmental & Energy

Oil Traders Race for Cover as Light at End of Tunnel Grows Dim
Mark Shenk, Bloomberg
What a difference a few days make. Investors are willing to pay the most since mid-July to protect from a drop in U.S. crude prices by the end of the year, according to a measure of options values. That’s a reversal from Aug. 20, when the premium for puts over calls was the smallest in nine months. Puts give holders the right to sell futures at a certain price within a period, allowing them to potentially profit from a decline.

Saudi Arabia in the Spotlight Amid Oil Price Rout — Energy Journal
The plunge in global oil prices has eroded an important pillar of Saudi Arabia’s strategy of pumping freely to shore up global market share: demand growth that once looked solid doesn’t look so steady any more, mainly due to concerns about China, The Wall Street Journal’s Bill Spindle and Summer Said report.

Kyoto protocol’s carbon credit scheme ‘increased emissions by 600m tonnes’
By Arthur Neslen – The Guardian
UN officials confirm the findings by the Stockholm Environment Institute that around 600m tonnes of carbon were wrongly emitted as a result, under the UNFCCC’s Joint Implementation (JI) scheme.

Why wind and solar are already better value than fossil fuels
By Giles Parkinson – REneweconomy
When radio shock jock Alan Jones got the cost of wind energy so horribly wrong in front of a million or so viewers on ABC TV last month, he did more than misplace a decimal point.


People’s Bank of China cuts interest rate to boost ailing economy
Ben Bland in Hong Kong, FT
China’s central bank cut interest rates on Tuesday and said it would inject liquidity into the banking sector, in a move to stimulate the slowing economy and stem a slide in share prices that has rattled global investors.

China’s Citic to consolidate its Hong Kong and mainland property operations soon
South China Morning Post
Citic, China’s largest state-backed conglomerate, is close to launching a consolidation of its real estate operations and plans to combine its mining-related units. The Beijing-based company has drawn up a proposal on restructuring its human and financial resources across its property units in Hong Kong and China.

Market Mess Throws Deals in Doubt
With China’s turmoil causing disarray in global markets, deal makers in Asia are bracing for a rout. Chinese stock losses this week exceed 15%, and Japanese stocks Tuesday registered their biggest drop in over two years. Falling stock markets hit mergers several ways: reducing what investors will pay for targets in the same sector; hurting buyers’ stomach for risk; reducing the funds lenders make available for takeovers; and encouraging bidders to renegotiate or back out of deals, even at the cost of a “breakup” fee.

Drop in Yuan Caught Businesses Off Guard
Hong Kong businessman Daniel Cheng was meeting clients in southern China on Aug. 11 when an urgent message from his finance manager appeared on his phone: The Chinese yuan had dropped 2% against the dollar. Mr. Cheng was stunned. For the past three years, his revenue soared from selling wastewater-treatment equipment to coal-gasification plants in China. His bottom line was boosted by a steadily strengthening Chinese currency that made the parts he purchased in euros from overseas suppliers such as Germany’s Siemens AG and France’s Schneider Electric SE cheaper to import.

Frontier Markets

Kim Jong Un Can’t Take Credit for Roiling South Korea’s Markets; The selloff in Seoul has much more to do with China than the Hermit Kingdom
Sangwon Yoon Andre Tartar, Bloomberg
Kim Jong Un would have you believe that North Korea’s declaration of “a semi-state of war” sent its neighbors in a blind panic, stocking up on ramen and fleeing the country to escape conscription.

Sebi to make share trading cheaper and simpler
By Reena Zachariah, ET Bureau
The Securities and Exchange Board of India (Sebi) is considering ways to make share trading cheaper and less cumbersome for market participants. The capital market regulator will discuss, in its board meeting on Monday, the feasibility of a single clearing corporation for share trades in India or to allow interoperability between clearing corporations, and Forward Markets Commission’s (FMC’s) merger with it. It will also mull a proposal to grant exemption from making an open offer under the takeover code in case of forfeiture of partly-paid shares.

VN banks to lead derivatives market – Economy
VietNam News
The role of financial institutions in Viet Nam was essential for the derivatives market, said Can Van Luc, vice-president of the Bank for Investment and Development of Viet Nam (BIDV) said at a workshop yesterday.


Top Bloomberg editor exits after Federal Reserve data flub
By Kevin Dugan, NY Post
Chris Wellisz, a top Bloomberg editor who on Wednesday afternoon inadvertently broke an embargo of highly sensitive Federal Reserve data, left the company Thursday, The Post has learned.

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