First Read

Know your risk
Nils-Robert Persson – Cinnober
On this day 33 years ago, the Bank of Canada changed the bank rate to the new high of 18.98%, and it reached over 22% later the same year. In Sweden we had a similar development in the early 1990s causing many personal tragedies.

Today in contrast, the western world’s interest rates are extremely low. Will we ever be back at 20% again? What will happen at a more normal level, say 4-5%? In many countries, including Sweden, there is a risk it could burst a housing bubble.

Reforms are increasing transparency in the derivatives markets. What if national central banks tried to achieve something similar for the housing industry? Would stability increase if homeowners, regardless of whether they are foreclosing banks or private persons, were more aware of their current risk levels. What if borrowers had to post additional payments to the bank if asset values went down and caused loan-to-value ratios to be too high (mark-to-market)?


Data Dive: CFTC’s O’Malia says swaps analytics need work
The CFTC is mandated to help police the futures arena and its much bigger relative, the swapsmarket. Collecting and monitoring data on the swaps market has been a vexing problem for the agency, but CFTC Commissioner Scott O’Malia said it will solve it.

“We have four different trade repositories, all of them accepting different data,” he said. “All of them have a different data architecture. So that means aggregating it is much difficult.”

Watch the video »


So many options: OptionsPlay looks to make better trades
Jim Kharouf – John Lothian News
Mark Engelhardt is like many entrepreneurs – he looked for something to help him out and couldn’t find the tool he wanted. So he built it himself. The CEO and founder of OptionsPlay, Engelhardt wanted to find a tool that can help traders pick the right strike prices on options, a practice which is sometimes difficult and often ignored by retail traders.


CME Softens High-Speed Traders’ Edge
Scott Patterson –
CME Group Inc. Chairman Terrence Duffy said in congressional testimony Tuesday that the futures exchange operator has taken steps to reduce delays in the time between when clients, including high-speed traders, receive market data and when other firms get the same information.

***NRP: That’s good. We would never think of punishing Usain Bolt for being fast, but head starts are not okay either.


Gensler’s Swaps Revolution Begins With GFI Poised to Open Up
Matthew Leising – Bloomberg
GFI Group Inc. anticipates that investors will soon start trading swaps on its platform, finally broadening access to a corner of the market previously reserved for banks. The shift would be a victory for Gary Gensler, the former chairman of the U.S. Commodity Futures Trading Commission who helped rewrite the rules for the $710 trillion over-the-counter derivatives market.

***NRP: Good news for centralized pre-trade credit checks, such as MarkitSERV’s Credit Centre.


Top European exchange lobbyist Judith Hardt quits amid row
Philip Stafford –
Judith Hardt has resigned after a decade as head of Europe’s main lobby group amid rising tensions between its members over the exchanges’ relationships with banks. Ms Hardt, one of the most well-known lobbyists in Brussels, stepped down as secretary-general of the Federation of European Securities Exchanges, on Wednesday following several months of internal debate over how exchanges forged stronger links with investment banks and institutional investors.

***NRP: The main question is whether it’s possible at all to have one common view from the European exchange industry when so many are competing with one another? Welcome back to the old times when these organizations mainly just threw great parties?


Wall Street banks count commodities trading profits
Gregory Meyer and Neil Hume –
While the world has been writing epitaphs for Wall Street banks’ commodity trading desks, Wall Street is counting its profits. Banks that held firm amid an industry pullback from energy, metals and agricultural markets – even some that beat a partial retreat – have mined a rich seam as North America’s coldest winter in three decades drove up energy prices, results show.

***NRP: Shows the importance of multi-asset capabilities – you never know where the future profits will come from.


Traders gonna trade
Joshua M Brown | The Reformed Broker
The best piece of daily market commentary I’ve read in awhile is today’s missive from Nicholas Colas, Chief Strategist at ConvergEx, in which he takes an analyst’s perspective of the trader’s mentality…
If you want to know the substance of someone’s character, watch them trade a real-money portfolio for a week or two. Tell them they have to make money every day and will have their results posted to their Facebook page (if under 40) or on the cover of the WSJ (if over 40). At the end of that period you will know more about them than their best friends, their spouse, and probably their shrink.

***NRP: Might be a difference if it’s their own or other peoples’ money?


Between Bridges by Gary DeWaal: CFTC Implements Streamlined Way for Certain CPOs to Apply for Registration Relief
Katten Muchin Rosenman
The Commodity Futures Trading Commission yesterday introduced a simplified way for certain commodity pool operators to apply for registration exemptions. Under the new streamlined process approved by the Division, qualified CPOs requesting registration relief are simply obligated to file a specially designed form of letter that contains certain basic information about both the delegator and designated CPOs. In the letter the delegator CPO confirms that the applicable criteria for the relief has been met. Both the designated and delegator CPOs must also execute forms of certification that must accompany the request.



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Lead Stories

Regulators scrutinize financial risk-modeling firms
U.S. government officials recently proposed creating scorecards to measure the potential threat posed by firms that offer risk models, amid concerns that large financial institutions may be too dependent on the same products, according to documents reviewed by Reuters.

***NRP: Is it the time for regulators to expect key risks to be assessed using more than one model? Model competition could be good! And trust me, the technology is available.

Derivatives Markets Growing Again, With Few New Protections
Despite slow economic growth in the United States and most of Europe still in or hovering around recession, global derivatives markets are 20 percent larger than in 2007. The Bank for International Settlements announced late last week that global derivatives markets is about $710 trillion. That is not a measurement of credit and market risks, but the figure merits attention from regulators and the public, which continues to suffer the ill effects from weakly managed derivatives portfolios in the global financial crisis. Higher volumes are a strong indication that derivatives players’ operational risk is rising.

**NRP: Regulations still have a long way to go.

Chambliss introduces End-User Protection Act
Today, U.S. Sen. Saxby Chambliss, R-Ga., introduced the End-User Protection Act, which would clarify for the U.S. Commodity Futures Trading Commission (CFTC) how to best protect end-users – the individuals and businesses that use futures markets to both purchase commodities, and use derivatives to hedge their risks.

Impact of Algo trading on commodity exchanges
Nilanjan Ghosh | Business Line
High Frequency Trading (HFT), through systematic computer based algorithms by gauging market movements and eventually acting upon pre-defined protocols, has become a popular mode commodity derivatives trading. Such techniques initially introduced in fixed income, currency, and equity markets are now increasingly being applied to trading in bullion, energy, and the agricultural commodities. HFT has contributed to a surge in the number of trades in NYMEX crude from under 1 million in 2005 to almost 42 million in 2011, and in CBOT corn from 133,000 to 10.7 million.

***NRP: An idea for a follow up by Mr Lewis?

Judith Hardt quits Federation of European Securities Exchanges
Anish Puaar – Financial News
Judith Hardt will resign from her role at the helm of the Federation of European Securities Exchanges, after rising tensions within the organisation, Financial News has learned.

It’s Probably Not a Good Idea To Run Your Insider Trading Network With Your Linked In Contacts
Tim Worstall – Forbes
Sadly there’s always a great temptation, when in possession of knowledge that the markets in general do not as yet have, to try and make money by trading upon that knowledge. Sometimes this is just peachy: your or my knowledge that a new product isn’t going to do well is information that we’re allowed to trade upon. However, there’s not all that much of that type of information around so the valuable stuff tends to be known by those who have a fiduciary or professional duty not to trade upon it. And that, of course, is insider trading, trading on information that the law says you should not be trading upon.

Investors seek over $40 bln from Madoff victim fund
A U.S. fund to compensate victims of Bernard Madoff’s Ponzi scheme has received roughly 51,700 claims seeking to recoup more than $40 billion, totals far higher than expected, the official in charge of the fund said on Tuesday.

US prosecutors push for $3.5bn BNP fine for violating sanctions
Kara Scannell in New York, Michael Stothard in Paris and Martin Arnold in London –
BNP Paribas is being pushed to pay more than $3.5bn in penalties as US authorities seek to bring criminal charges against the French bank for allegedly violating sanctions, a person familiar with the negotiations said.

Dems use flash trades to push cash for regulators
The Hill
Democrats said federal officials need the tools to keep up with the high-tech, high-speed trading practices that are sweeping Wall Street. Several members of the Senate Agriculture Committee specifically advocated increased funding for the Commodity Futures Trading Commission (CFTC).

London Silver Fix To Close
The London Silver Market Fixing Limited (the ‘Company’) announces that it will cease to administer the London Silver Fixing with effect from close of business on 14 August 2014. Until then, Deutsche Bank AG, HSBC Bank USA N.A. and The Bank of Nova Scotia will remain members of the Company and the Company will administer the London Silver Fixing and continue to liaise with the FCA and other stakeholders.

***NRP: Perfect, I have been trying to educate my wife, who is a silversmith, to hedge her positions with derivatives, but she doesn’t trust the fixing!


U.S. regulator to weed out unfair advantage for automated traders
The U.S. futures regulator wants to weed out any unfair advantage speed traders may have by getting sensitive information ahead of others, an official said on Tuesday, as it weighs new rules for computerized trading.

CFTC ‘days away’ from setting out DCO exempt pathway for foreign CCPs
Viren Vaghela –
Hot on the heels of HKEx becoming the latest CCP to be granted no-action relief to service US bank branches, the CFTC is edging towards a new set of rules for foreign CCPs not seeking a full DCO licence

CFTC’s Technology Advisory Committee to Meet on June 3, 2014
The Commodity Futures Trading Commission announced today that on Tuesday, June 3, 2014 from 10:00 a.m. to 5:00 p.m., the CFTC’s Technology Advisory Committee will hold a public meeting at the CFTC’s headquarters in Washington, DC. This meeting will focus on three issues related to 1) high-frequency trading, 2) the CFTC’s surveillance program, and 3) swap execution facilities. A complete agenda will be available prior to the June 3rd meeting.

CFTC Issues Notice of Temporary Registration as a Swap Execution Facility to Clear Markets North America, Inc
The U.S. Commodity Futures Trading Commission (CFTC) has approved the application of Clear Markets North America, Inc. (CMSEF) for temporary registration as a swap execution facility (SEF). CMSEF is incorporated in the state of Delaware.

Lineup Set For Public Discussion of Asset Management Risk
Ryan Tracy – MoneyBeat – WSJ
The Treasury Department released the lineup for next week’s public conference on the risks associated with the asset management industry, but don’t expect the discussion to yield much insight into potential future regulations.

FCA says most asset managers not clear on fees
Mark Cobley – Financial News
Most asset management firms in the UK are failing to provide retail investors with clear “all-in” figures on fund charges, a Financial Conduct Authority review has suggested – and the industry’s trade body has called on its members to overhaul their pricing as a result.

Testimony Of Vincent McGonagle, Director Of The Division of Market Oversight, Commodity Futures Trading Commission Before The U.S. Senate Committee On Agriculture, Nutrition And Forestry

Markets In Financial Instruments: Council Of The European Union Adopts New Rules

Exchanges & Trading Facilities

Tel Aviv bourse chief sets new plan to revive trading
Israel’s stock exchange hopes to recover from a sharp downturn in its fortunes which cost the jobs of two top executives last year with a new plan to boost trading volumes, its recently appointed CEO said on Tuesday.

***NRP: All the best to Yossi. There are great challenges and opportunities ahead.

Five questions on the LSE’s bid for Russell Investments
Tim Cave – Financial News
The London Stock Exchange’s bid for the US fund manager Russell Investments is further proof, if any were needed, of the diversification drive taking place among exchanges all over the world.

ASX CIO gets busy on new technology rollouts
Rebecca Merrett – CIO
For CIO of the Australian Securities Exchange, Tim Thurman, every day is a busy day ensuring the technology that supports listings, trading, clearing and settlement activities runs smoothly. CIO Australia caught up with Thurman to see what he is up to at the ASX.

***NRP: I see that Tim Thurman is looking at real time risk management to give ASX a competitive edge. I know someone who could help him!

IEX Group looks beyond ‘garden variety’ equities
Sarah Krouse – Financial News
IEX Group, the alternative exchange group that drew worldwide attention on the back of Michael Lewis’s latest book, is looking to move beyond plain vanilla equity trading.

Live Streaming Prices for Eris Swap Futures Available Through UBS Neo
Eris Exchange announced today that live streaming prices for Eris Swap Futures are now available through the UBS Neo platform, a cross asset class platform featuring buy-side focused agency execution services. Additionally, end-users can now trade Eris Swap Futures by calling the UBS execution services desk.

Looking back: Nymex moves into ‘classy’ new headquarters
Tom Groenfeldt –
CME Group’s Nymex trading floor is now sparsely populated, but back in 1997, the exchange was in urgent need of additional capacity, as Energy Risk reported in May that year

Moscow Exchange To Host Global Derivatives Summit
Moscow Exchange, Russia’s main public markets trading platform, will host the 31st annual World Federation of Exchanges (WFE) — International Options Market Association (IOMA) Derivatives Conference on 26-28 May 2014. The annual conference brings together the leaders of the world’s futures and options markets and derivatives clearing houses to discuss market and regulatory issues affecting the world’s derivatives landscape.

Moscow Exchange Monthly Market Report: April 2014

Toronto Stock Exchange, TSX Venture Exchange, Montreal Exchange, TMX Select And Alpha Closed For Victoria Day

SIX Exchange Regulation: Investigation against Credit Suisse Funds AG

Hedge Funds & Managed Futures

Q&A with EQT’s New Chief: ‘The Market Euphoria Scares Me’
Alec Macfarlane – MoneyBeat – WSJ
This year the Stockholm-based firm backed by Sweden’s Wallenberg family marks two decades in the business and Thomas von Koch, who took over as managing partner from Conni Jonsson in March, has been there from the very start. Jonsson will continue to work full time for EQT, focusing on investment advisory and increased interaction with EQT investors.

Pimco outflows dent Allianz asset management earnings
German insurer Allianz saw operating profit in its asset management arm slump by more than one fourth in the first quarter as its California-based Pimco unit suffered 21.7 billion euros ($29.7 billion) in investment outflows.

CalPERS Launches Search For Chief Investment Officer
The California Public Employees’ Retirement System seeks an experienced investment professional for the role of Chief Investment Officer (CIO) to lead and manage its 400-plus person Investment Office, which invests CalPERS $285 billion in assets across a diversified global portfolio in public and private equity, fixed income, real estate and inflation-linked assets.

Peak Bitcoin or peak hedge fund?
Izabella Kaminska | FT Alphaville
Tim Hartford directs us to a nice piece by John Cassidy in the New Yorker this week wondering why it is that hedge funds can still get away with making a killing when their performance is so underwhelming these days. It is, in his opinion, a bit of a mystery.

Highbridge Capital Continues Hiring Spree in London
The hedge fund Highbridge Capital Management, which sees big opportunities in Europe and is on a hiring spree to make inroads there, has just scooped up two portfolio managers.

UPDATE 2-Ex-Goldfinch trader eyes July launch for natgas fund -partner
Barani Krishnan | Reuters
A former portfolio manager at Houston-based energy hedge fund Goldfinch Capital is expected to launch a natural gas-focused fund in a couple of months, his partner said on Tuesday.

Ex-Barclays Chief’s New Venture to Raise $400 Million in Private Placement
The investment company Atlas Mara Co-Nvest, backed by a former Barclays chief executive, Robert E. Diamond Jr., is seeking to raise another $400 million to fund its investments in the African financial sector.

RCS Capital Management Positions for More Acquisitions
Two weeks after RCS Capital Corp. closed its $1.15 billion acquisition of Cetera Financial Group, the firm unveiled management changes that include Cetera Chief Executive Valerie Brown stepping down.

Asset managers likely to get bigger bonuses this year: consultant
Asset managers on Wall Street may again take home higher bonuses this year as rising stock markets boost inflows into funds, according to a forecast by compensation consulting firm Johnson Associates.

Key man risk avoidable for hedge funds
Luke Clancy –
Hedge fund founders may be reluctant to pass the baton to the next generation, but heirs apparent should be given more time and autonomy to prepare for the exit of owners

Concerns over conflict of interest in large structured product hedges
Vita Millers –
Taking an average reading from several strike dates could help avoid a potential conflict of interest where UK traders put on multi-million-pound hedges that can move the level of a structured product’s underlying before it strikes, says industry source

Motif Investing Enters Financial Advisor Market
Ivy Schmerken – Wall Street & Technology
After raising $35 million in a second funding round, the online site announced a platform for financial advisors along with plans to expand internationally and roll out asset allocation models to self-directed investors.

Anne Simpson Elected To CII Board
Anne Simpson, CalPERS Senior Portfolio Manager and Director of Global Governance, has been elected to the Council of Institutional Investors (CII) Board of Directors.

Banks & Brokers

Icap to cut headcount and restructure pay
Anish Puaar – Financial News
Icap will reduce headcount and restructure voice brokers’ compensation in the coming year as the interdealer broker sharpens its focus on electronic trading and post-trade initiatives.

ICAP Says Market Conditions to Remain Challenging
Interdealer broker ICAP PLC Wednesday reported an 85% rise in fiscal 2014 pretax profit even as revenue fell, reflecting mainly goodwill impairment charges a year earlier, and said market conditions remain very challenging.

Credit Suisse chief FX spot dealer and 5 others leave bank
At least six foreign exchange employees at Credit Suisse in London and New York, including head of FX spot trading in London Danny Wise, have left the Swiss bank in a cost-cutting drive, a source familiar with the matter said on Wednesday.

Citizens Bank Faces a Stormy Spinoff
Being cast off from a struggling foreign parent company might bring on an identity crisis for some institutions. Not so for Citizens Bank, which is looking to turn its coming independence from the Royal Bank of Scotland into an opportunity to strengthen its consumer banking in the United States. But it may be a slog.

More Bad News For Goldman Sachs: Anthony Noto Bolts For Hedge Fund
Nathan Vardi – Forbes
This has not been a particularly good year for Goldman Sachs. Its stock is down 9.4% in 2014. The bank’s key fixed income, currency and commodities trading machine continues to sputter, and regulators are limiting Goldman’s risk-taking bets. Now, an important Goldman investment banker is heading to the buy side.

For Morgan Stanley, a Quiet Meeting of Shareholders
Morgan Stanley’s annual investor meeting lasted 20 minutes, and no one asked any questions. The gathering was notable only for its lack of excitement, and for the absence of one particular shareholder who always made the event more lively.

Julius Baer says four-month assets rise, net new money on track
Julius Baer said on Wednesday that four-month assets rose 4 percent from year-end to 264 billion Swiss francs ($296.70 billion), as it won fresh funds from clients and added a recent Brazilian acquisition to its assets.

Citigroup Asia Pacific executive Faruqui leaves for ANZ
Farhan Faruqui, one of Citigroup Inc’s highest-ranking bankers in Asia, is leaving the company to work for rival Australia and New Zealand Banking Group Ltd , according to three people familiar with the matter.

Clearing & Settlement

TriOptima and CME Group To Provide Data Verification and Portfolio Reconciliation of Trade Repository Data For OTC Derivatives Portfolios
TriOptima, provider of OTC derivative post trade services, announces that it will offer data verification and portfolio reconciliation of data in CME’s Swap Data Repository (SDR) with TriOptima’s triResolve OTC derivatives reconciliation service as requested by their mutual clients.

***NRP: Good stuff. There’s a lot of good techie stuff within our industry with its origin in central Stockholm. Go TriOptima Go!

Indexes & Products

US institutions see long-term appeal in ETFs
Philip Georgiadis – Financial News
US institutional investors are broadening their use of exchange-traded funds and are beginning to view them as long-term strategic investment opportunities, a new report shows.

First ETF To Track FTSE Italia Mid Cap Index


Trading Technologies To Support Launch Of TAIEX Derivatives At Eurex Exchange
Trading Technologies International, Inc., a global provider of high-performance professional trading software, today announced that it will introduce support for derivatives based on TAIEX, the Taiwan Stock Exchange’s main stock index. TAIEX derivatives will be available through TT’s existing Eurex Gateway when Eurex and the Taiwan Futures Exchange (TAIFEX) launch the Eurex/TAIFEX Link on May 15.

Numerix Executives Honored at New York SmartCEO 2014 Executive Management Awards
Numerix, a leading provider of cross-asset analytics for derivatives valuations and risk management is pleased to announce its prominent inclusion in the 2014 New York SmartCEO 2014 Executive Management Awards. Numerix was profiled in SmartCEO magazine and celebrated at a combined awards ceremony at Capitale on April, 30, 2014 that brought together two of SmartCEO’s most popular awards programs — the Executive Management Awards: Honoring Your Leadership Team Members and the Voltage Awards: Leaders in Technology.

Scots Firm Takes Bite Out Of Big Apple To Become World’s Largest Low Latency Cloud Provider For Automated Forex Trading
A Scotland-based company set up by an ex-IBM employee has bought a New York rival to become the world’s largest low latency cloud provider for algorithmic trading. BeeksFX VPS – which helps both retail and institutional foreign exchange (forex) traders run automated trades more quickly – has bought rival company Gallant VPS for an undisclosed seven-figure sum.


U.S. judge tosses SEC case over alleged Ponzi scheme
Five former real estate executives do not have to face a U.S. Securities and Exchange Commission lawsuit accusing them of engaging in a $300 million Ponzi scheme, a U.S. judge has ruled, saying the agency waited too long to sue.

Environmental & Energy

Guangdong carbon scheme sparks China green vs growth dispute
Kathy Chen and Stian Reklev, Reuters
China’s campaign against pollution and greenhouse gases is hitting early resistance in Guangdong province, where more than 60 manufacturers are holding back from a carbon market launched last year, saying the scheme is unfair and too costly.

***LB: Also in this story “Despite strong backing from Beijing, Guangdong has limited power to force SGIS or other hold-outs – mostly cement and steel makers – to participate in its carbon market.”

China’s Coal Dependency Threatens Efforts to Curb Warming
Michael Forsythe, The New York Times
Projected increases in China’s coal consumption may render it “almost impossible” for the world to limit global temperature increases from greenhouse gases to 2 degrees Celsius (3.6 degrees Fahrenheit) unless the country acts quickly to cap and then reduce its dependency on the fossil fuel, a new study has found.

Beijing Shakes Up Its Biggest Energy Company
Wayne Ma, The Wall Street Journal
China is shaking up its largest energy company by breaking apart its monopoly on natural-gas pipelines, which for years has discouraged the independent development of promising new supplies of the cleaner-burning fuel.

***LB: Also in this story “China is thought to have rich shale-gas resources, but the high cost of development and the dominance of its state-owned energy companies are among the factors that have discouraged small-scale development, which was key to the U.S. shale boom.”


Benefits of Shanghai free-trade zone still shrouded in mystery
Simon Rabinovitch in Shanghai –
Within seconds of entering the Shanghai free-trade zone, an area hyped as the launch pad for the next big wave of Chinese economic reforms, a gaggle of touts surrounds and hounds visitors. “Do you want to register a company? We can help you,” shouts one. “We are qualified accountants,” barks another. “We can give you legal assistance,” a third chimes in.

SGX Welcomes KOP To Catalist

Shanghai Stock Exchange News Conference Held To Report Annual Reports’ Examination

HKEx: New publication requirement under the new sponsor regime debuted smoothly

Frontier Markets

Foreign investors unhappy with some of Indonesia’s new investment rules
Indonesia’s new foreign-investment rules, rather than attract new investors, could deter them from entering energy, agriculture, retail, storage and other sectors, business lobby groups and some company executives say.

Moody’s Says South Africa Rating Pressure Doesn’t Mean Downgrade
Rene Vollgraaff – Bloomberg
Moody’s Investors Service said while South Africa’s Baa1 credit rating remains under pressure, that doesn’t mean it will necessarily be downgraded.

The Egyptian Exchange (EGX) Monthly Statistical Report April 2014

JSE Launches High Tech Colocation Centre
Allows For The Fastest Access To All JSE Markets, Giving Clients Even Greater Ability To Take Advantage Of Market Movements

***NRP: Further step into taking control of their own destiny. Way to go!

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