John Lothian Newsletter: SEC Approves BATS-Direct Edge Merger; Traders faces European repository rerun; Derivatives exchanges raise the stakes

Jan 31, 2014

First Read

Bits & Pieces
John Lothian
Former Livevol CEO Paul Finnegan has landed at ConvergEx. Finnegan is now director of software sales at the LiquidPoint options business of ConvergEx Group. In honor of this new job, we made Paul Finnegan our MarketsWiki page of the day.

ConvergEx is expanding its sales trading force across the U.S. In addition to Mr. Finnegan in Chicago, the company added Sean Croll as SVP, sales, San Francisco and Alexander Krasutsky as VP, sales, New York.

Advantage Futures today is announcing significant reductions in server colocation pricing. Yes, a price reduction.

Tuesday, Feb. 10 is the new date of the CFTC’s Technology Advisory Committee meeting. I will be participating from Chicago.

I will be teaching the Weather Merit Badge at Merit Badge University at York High School on March 1. meritbadgeuniversity.org

We are looking for a new editor for our JLN Environmental/Energy newsletter. Email me at johnlothian@johnlothian.com if you or someone you know is interested.

If you have not paid for your John Lothian Newsletter subscription yet this year, email me and I will send you an invoice and online payment instructions.

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JLN Original Content Recap
The folks here at John Lothian News have been producing a lot of original text and video content lately; take a look at our Friday Recap and see if there’s anything you missed!

Video: Just How Healthy Are the US and EU Economies? — Bob Swarup and Charles Johnson discuss the relative health of the US and EU economies.

Article: Options – and the Options Industry Council – Come to China — Sarah Rudolph reports on OIC’s push to bring options education to China.

Commentary: A Momentary Lapse — Doug Ashburn talks “Lehman Moment” and “Bear Stearns Moment” and “Flash Crash Moment” and… you get the idea.

Commentary: The CME Should Buy the CBOE Soon — John Lothian discusses why the time is now for this transaction.

Video: Open for Business: SEF Competition Heating Up in the New Market Structure — Part two in a three-part series looking at SEFs.

Commentary: One Man Team — Jim Kharouf asks: “Can PIMCO thrive without Mohamed El-Erian?”

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One to Watch in 2014: New CFTC chairman Tim Massad
Luke Jeffs – FOW
The imminent appointment of Tim Massad as the chairman of the Commodity Futures Trading Commission to replace Gary Gensler comes at a crucial time for the emboldened US futures regulator.
jlne.ws/1aMqeio

***** Gary who?

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Exchanges aim to tap rising retail demand for derivatives
Jonathan Watkins | FOW
For nearly a decade, the Korea Exchange was the most actively traded derivatives exchange in the world, driven almost solely by retail investors using its KOSPI index options. The small contracts hit nearly 300m trades a month at their peak, before a politically-fuelled mandate required the exchange to increase the multiplier five-fold, forcing those retail investors out of the market.
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***** I would say the exchanges have been working pretty hard to attract institutional interest with the development of OTC clearing and swaps trading.

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Just How Healthy Are the US and EU Economies?
JohnLothianNews.com

The climb back from the economic crisis has been long and hard. Two market participants believe that much is left to be done in Europe and in the US.

Bob Swarup, principal of Camdor Capital in London who has studied economic crisis dating back to ancient Greece, says Europe isn’t out of trouble, while Charles Johnson, managing director of Tano Capital said the US economy still has some major hurdles in 2014. Jim Kharouf, editor-in-chief of John Lothian News spoke with Swarup and Johnson at the Emerging Manager Forum in Miami last month.

Watch the video »

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CBOE Futures Exchange Announces Launch Date For CBOE Short-Term VIX Futures With Weekly Expirations
CBOE Futures Exchange, LLC announced today that it plans to launch trading of futures with weekly expirations on the new CBOE Short-Term Volatility Index on Thursday, February 13, pending regulatory review.
jlne.ws/Lfj6OY

***** There is a new VIX contract being developed that is based on the blood pressure of all of the CBOE executives.

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Advantage Futures Cuts Server Colocation Pricing
Advantage Futures announced significant reductions in server colocation pricing. In an environment of escalating fees, Advantage believes it appropriate to help our clients in every way possible. “Many clients rely on server colocation for latency sensitive trading, and we believe it prudent to pass along the benefits from our economies of scale,” said Joe Guinan, Chairman and CEO, Advantage Futures.
jlne.ws/MmEKlg

***** A big hat tip to Joe Guinan and the Advantage team for this price reduction.

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Electronify Me: Corporate Bond Platform Pragmatism Creates Fertile Ground
Radi Khasawneh – TabbFORUM
The consequences of change are often hard to predict, but a push to reform fixed income trading practices will bear fruit for some of the solution providers jostling for market share. The evolution of trade protocols and execution leaves the buy side with unprecedented choice
jlne.ws/1aMqeyE

***** Fertile ground. That is what they say everytime someone takes a shot at developing an electronic corporate bond market.

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Webinar – Instant Messaging In The Financial Markets, Today, from 10:30-11am CST
Green Key Technologies
Listen to former CFTC technology committee member, Jim Falvey, explain CFTC trade capture and retention requirements. Falvey currently serves as General Counsel for Green Key Technologies. Previously Falvey served as General Counsel for R.J. O’Brien, ICE Exchange, Eurex U.S. and assistant General Counsel at CME.
jlne.ws/Lwo5M5

***DA: For background, read Falvey’’s recent commentary, “Chatroom Clampdown”

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CFTC Announces Agenda for the Upcoming Public Meeting of the Technology Advisory Committee
Panel I will focus on swap data reporting. Panel II will focus on the CFTC’s Concept Release on Automated Trading Environments. Panel III will first focus on the Made Available-to-Trade (MAT) determinations.
jlne.ws/1aMqgGP

***** We will try this again. Last time we had a snowstorm in Washington, DC cancel the meeting.

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MarketsWiki

MarketsWiki Page of the Day
Paul Finnegan
jlne.ws/1flRItv

MarketsWiki Recent Updates

People

Peter Reitz; Steffen Köhler; Jeffrey C. Sprecher; Duncan Niederauer; Christopher K. Hehmeyer; Mathew Martoma; Derek West

Companies, Organizations and Groups

IntercontinentalExchange Group Inc.; NYSE Euronext; CME ClearPort; Multilateral Trading Facility

Miscellaneous

Markets in Financial Instruments Directive

Statistics

46,825,936 pages viewed, 7,784 articles, 177,499 edits
MarketsWiki Statistics

Lead Stories

SEC Approves BATS-Direct Edge Merger
Bradley Hope – WSJ.com
The Securities and Exchange Commission has approved the merger of BATS Global Markets Inc. and Direct Edge Holdings LLC, and the transaction is expected to close “within days,” the companies said in a statement today.
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Traders faces European repository rerun
Philip Stafford – FT.com
Buried within the latest European proposals on curbing risky trading by banks are two issues that may strike dread into the heart of every trading executive. Waking up to the systemic market dangers inherent in the so-called “shadow banking” market, Brussels yesterday proposed tightening oversight of the repo and securities financing market.
jlne.ws/1aMqeyF

Derivatives exchanges raise the stakes
Jonathan Watkins – FOW
CME, Eurex and Nasdaq OMX have been gradually increasing their foothold in a range of markets with strategic stakes – ranging from around 5-10% – in regions such as Latin America, the Middle East and Asia.
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Investors to share $235m from BATS-Direct Edge merger
Arash Massoudi in New York – FT.com
Investors in BATS Global Markets and Direct Edge, which include Morgan Stanley and Goldman Sachs, are set to share a payout of at least $235m of special dividends once the merger to create a transatlantic stock exchange is completed.
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Russell Investments Chief Economist Dueker Found Dead
Zachary Tracer and Noah Buhayar – Bloomberg
Mike Dueker, the chief economist at Russell Investments, was found dead at the side of a highway that leads to the Tacoma Narrows Bridge in Washington state, according to the Pierce County Sheriff’s Department. He was 50.
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Ex-Barclays Rich Ricci Takes Stake in Fledgling Exchange
MoneyBeat – WSJ
Remember Rich Ricci? In case you need a refresher, he’s the former chief executive of BarclaysBARC.LN -1.63%’ corporate and investment bank and once right-hand man of Barclays group chief executive Bob Diamond.
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Change Of Heart: DOJ Wants $2B Instead Of $864M In BofA Fraud Case
Forbes
The Department of Justice is on a billion-dollar mission. After winning a mortgage case last year against Bank of America the DoJ asked for $864 million from the bank. Three months later, it’s upping its ask to $2.1 billion. That’s quite an increase and one that may be catching Bank of America by surprise.
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Bankers anxious over anti-money-laundering push to go after individuals
Reuters
A new push by regulators and lawmakers to hold individuals, rather than just institutions, accountable for regulatory violations involving money laundering is spooking members of the U.S. financial industry, an executive of retail broker E*Trade Financial said on Thursday.
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Regulator maps out European stress tests for banks
Sam Fleming and Martin Arnold in London – FT.com
European regulators will subject banks to a capital hurdle of 5.5 per cent in forthcoming stress tests that are meant to help end the protracted malaise clouding the sector.
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Bitcoin ‘Ponzi’ Concern Sparks Warning From Estonia Bank
Ott Ummelas and Milda Seputyte – Bloomberg
The central bank of Estonia, where Swedish banks dominate the lending market, urged consumers to steer clear of Bitcoin, warning that the software and others like it could prove to be little more than a “Ponzi scheme.”
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Regulatory

The Commodity Futures Trading Commission’s Division of Market Oversight Announces Trade Execution Mandate for Certain Credit Default Swaps
The Commodity Futures Trading Commission’s Division of Market Oversight today announced that MarketAxess SEF Corporation’s self-certification of available-to-trade determinations for certain credit default swap contracts is self-certified.
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Adding Context to Social Archives is No Picnic
Becca Lipman – Wall Street & Technology
Social information is racking up eDiscovery costs, and surprisingly easy to manipulate.
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Cross-border vortex: Dealers freeze plans to move staff
Peter Madigan – Risk.net
Banks have been quietly planning to move staff from New York to Toronto and London as a way of protecting clients from a new Dodd-Frank trap – but, with the US Commodity Futures Trading Commission now facing a lawsuit and a leadership change, preparations are on hold, and confusion reigns.
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NFA Notice to Members I-14-05
Responses to Request for Comments on CPO/CTA Capital Requirement and Customer Protection Measures not Limited to CPO/CTA Members
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Former Chief of S.E.C. to Shift Consulting Job
BEN PROTESS – NYTimes.com
Mary L. Schapiro spent four years as head of the Securities and Exchange Commission. Her next act was far shorter. Just nine months after joining the Promontory Financial Group, a consulting firm that straddles the worlds of Wall Street and Washington, Ms. Schapiro is planning to leave her full-time role there. Ms. Schapiro, a managing director and chairwoman of the governance and markets practice at Promontory, will instead become the vice chairwoman of the firm’s advisory board.
jlne.ws/1aMqeyV

FMA Executive Director Helmut Ettl appointed voting member of the Supervisory Board for banking supervision at the European Central Bank
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New Zealand’s Financial Markets Authority AFA Update: Issue # 20 – Helping You Understand The Changes Ahead For DIMS
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ASIC Releases Report On Regulating Complex Products
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Exchanges & Trading Facilities

MGEX Reaches Top 10 Daily Open Interest Records
Total open interest for Hard Red Spring Wheat (HRSW) and Apple Juice Concentrate (AJC) futures and options was reported at 78,188 open contracts, number eight on the daily open interest records.
jlne.ws/1aMqgXv

Wiener Börse Inks Data Deal to Distribute Kazakh Exchange Prices
Giulia Lasagni – WatersTechnology
Wiener Börse, the Vienna Stock Exchange, has signed an agreement with the Kazakhstan Stock Exchange (KASE) to allow data vendors to obtain price data from the Kazakhstan market via the Austrian exchange’s Alliance Data Highway datafeed.
jlne.ws/1aMqePf

EPEX SPOT Inaugurates Office In Vienna – An Austrian Voice For Clients, Partners And Stakeholders
jlne.ws/1aMqePg

EEX Introduces Fee Holiday For Guarantees Of Origin
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Oslo Børs: Increase In The Proportion Of The Market Held By Foreign Investors, While Private Investors Remain At A Historic Low Level
jlne.ws/1aMqePj

Altice celebrates Initial Public Offering on Euronext Amsterdam
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Cooperation Between The HELEX Group And The SIBEX Exchange Of Romania
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Hedge Funds & Managed Futures

SEC examiners to review how asset managers fend off cyber attacks
Reuters
U.S. regulators said Thursday they plan to scrutinize whether asset managers have policies to prevent and detect cyber attacks and are properly safeguarding against security risks that could arise from vendors having access to their systems.
jlne.ws/1aMqhdW

For Blackstone, a Pot of Gold Remains Out of Reach
WILLIAM ALDEN – NYTimes.com
Eight years after its inception, the biggest private equity fund in history has yet to meet its own minimum expectations. The investment performance of the fund, a $21.7 billion war chest raised by the Blackstone Group, remains below a threshold that it must clear in order for Blackstone to start collecting profit from it, according to a disclosure on Thursday.
jlne.ws/1aMqhdY

Physical commodity assets ‘inconsistent’ with Blackstone model -exec
Reuters
Blackstone Group’s asset-light model may not fit with the potentially risky, capital-intensive business of trading physical commodities, a top executive said on Thursday, in comments that seemed to jar with its interest in the industry.
jlne.ws/1aMqePs

Blackstone to pursue retail investors
Stephen Foley in New York – FT.com
Blackstone reported a 26 per cent jump in assets under management and promised an expanded push to attract retail investors who have not traditionally invested in private equity, real estate and hedge funds, as soaring equity markets helped the company to a record annual profit.
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AlpInvest helps UniCredit spinout to $1.2bn fund
Ayesha Javed – Financial News
The alternative asset management firm partially spun out of Italian bank UniCredit late last year has secured the backing of one of Europe’s biggest private equity investors.
jlne.ws/1aMqePt

Church of England brings in MSCI to help dodge Wonga
Mark Cobley – Financial News
The Church of England – which was embarrassed last summer when it turned out to own a stake in Wonga after having publicly criticised payday lenders – has appointed MSCI ESG Research to run an ethical screen over its £6 billion-plus investment portfolio.
jlne.ws/1aMqhe3

US person problems: Hedge funds caught in transatlantic tug-of-war
Kris Devasabai – Risk.net
Some European hedge funds will be caught between a rock and a hard place when local clearing rules take effect. They are also expected to comply with the US clearing regime, and as things stand, neither jurisdiction is offering a way out.
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Banks & Brokers

Wearing two hats triggers compliance headaches for advisers
Reuters
Brokers who want to set up their own advisory businesses have a lot of compliance issues to consider, especially when they plan to hold licenses through both of the top U.S. securities regulators instead of just one.
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EU bank reform must reflect French, German regulations: French finmin
Reuters
France wants to make sure that EU banking reform proposals reflect regulations already in place in France and Germany, Finance Minister Pierre Moscovici said on Thursday, voicing concerns that the current plans favor banks in London.
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To sell more, BofA turns to existing clients
Reuters
Bank of America Corp is trying to solve one of the most difficult problems that big banks face: convincing reluctant employees to sell more products to current customers, who are themselves reluctant to buy them.
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E*Trade to give clients access to IPOs from Jefferies
Reuters
E*Trade Financial Corp said Thursday it formed a “retail alliance” giving its customers access to initial public offerings and follow-on offerings underwritten by middle-market investment bank Jefferies LLC.
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Blankfein Joins Bank CEOs Avoiding Pay Crunch for Traders
Michael J. Moore – Bloomberg
Wall Street chief executive officers including Lloyd C. Blankfein and Jamie Dimon are avoiding a squeeze on pay that helped their firms lower costs in 2013.
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Clearing & Settlement

LCH.Clearnet doubles transaction volume with clearing platform upgrade
ComputerworldUK.com
LCH Clearnet has begun implementation of a new clearing platform, allowing it to double the number of transactions it processes each day.
jlne.ws/1aMqf5V

EEX: First OTC Romanian Year Contract registered for clearing
Yesterday, on 30 January 2014, EEX saw the first deal in Romanian Power Year Futures registered for clearing on the exchange.
jlne.ws/1aMqf5Y

The collateral crisis?
Georges Bory – FOW
As the global financial crisis unfurled over the last five years, discussions about risk were propelled to the top of the agenda for most financial institutions. One result of this heightened focus on understanding and managing risk has been a new holistic approach, with middle and back offices no longer exclusively handling risk management and compliance.
jlne.ws/1aMqfme

CME Group Clearing
Live Cattle Grading Capacity Limits
jlne.ws/1aMqhut

Indexes & Products

Freedom Index Co Bows Aussie, Africa Indexes
Faye Kilburn – WatersTechnology
Startup not-for-profit index provider the Freedom Index Company-which launched last year to offer free and independent indexes to the asset management community-is planning to add Australian indexes to its family of free-of-charge products, and is now seeking donations to support expansion to other markets and asset classes.
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Technology

Capital Markets in Transition, Regulators on Watch
Louis Lovas
The days of easy money are long over. Technology is transforming trading styles as algorithms create a more competitive environment and exponential growth in data volumes. As the number of firms deploying algorithms increases they will be chasing after a diminishing pot.
jlne.ws/1aMqhuw

Invesco to Consolidate All Global Trading Activity on Portware EMS
Ivy Schmerken – Wall Street & Technology
Invesco Ltd., the large Atlanta-based asset manager, has picked Portware Enterprise as the asset management firm’s centralized hub for execution management across all of its asset classes around the globe.
jlne.ws/1aMqfmi

Broadridge Appoints Industry Veteran Bennett Egeth As President Of Expanded Investment Management Business – Offers Investment Management, Reference Data And Risk Technology Solutions
jlne.ws/1aMqfmj

Broadridge IM Business Boosts Ref Data Expertise with SmartStream, Paladyne Hires
Max Bowie – WatersTechnology
Technology services and processing provider Broadridge Financial Solutions has bolstered its recently created Investment Management business with the appointment of SmartStream co-founder Lou Longhi and Jonathan Cross from Broadridge’s hedge fund technology subsidiary Paladyne.
jlne.ws/1aMqhuz

Splitting SunGard, sponsors clear path toward exit
Reuters
By spinning off a unit that represents about a third of the company, owners of SunGard Data Systems Inc are separating two businesses going different directions and giving themselves options for exiting the eight-year-old investment.
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Enforcement

U.S. judge takes on SEC again, questions Heinz insider trading pact
Reuters
A federal judge who has questioned the U.S. Securities and Exchange Commission’s practice of settling cases without admissions of wrongdoing is raising concerns about a proposed agreement over insider trading in H.J. Heinz Co.
jlne.ws/1aMqfmq

SEC Charges Manhattan-Based Private Equity Manager With Stealing $9 Million in Investor Funds
The Securities and Exchange Commission today charged a Manhattan-based private equity manager and his firm with stealing $9 million from investors in their private equity fund.
jlne.ws/1aMqhuC

SEC Charges N.Y.-Based Money Manager and Firm for Misleading Advertisements
The Securities and Exchange Commission today charged a New York-based money manager and his firm with making false claims through Twitter, newsletters, and other communications about the success of their investment advice and a mutual fund they manage.
jlne.ws/1aMqfCI

Ex-ICAP Unit Broker Sentenced for Securities Fraud
Ben Fox Rubin – WSJ.com
A former broker at a unit of brokerage ICAP was sentenced to 18 months in prison after pleading guilty last year for his part in a scheme that prosecutors said added millions of dollars in extra costs to trades by institutional clients during periods of high stock-market volatility.
jlne.ws/1aMqfCL

State Street UK fined £22.9m by Financial Conduct Authority for Transitions Management failings
State Street UK has been fined £22,885,000 by the Financial Conduct Authority (FCA). State Street UK’s Transitions Management (TM) business had developed and executed a deliberate strategy to charge clients substantial mark-ups on certain transitions, in addition to the agreed management fee or commission. These mark-ups had not been agreed by the clients and were concealed from them.
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Adviser banned and fined for fabricating RDR qualification certificates
Former retail investment adviser, Ewan King, has been fined £19,900 and banned by the Financial Conduct Authority (FCA) from undertaking any regulated activity, after it was discovered that he had fabricated Statements of Professional Standing.
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ASIC Enforcement Report – July To December 2013
jlne.ws/1aMqhKT

ASIC: Pershing Securities Australia Pty Ltd Pays $15,000 Infringement Notice Penalty
jlne.ws/1aMqfCP

BCSC panel issues reciprocal orders against 18 individuals
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Asia-Pacific

China’s loan sharks circle in murky shadow bank waters
Reuters
China’s crackdown on risky lending has driven borrowers into an even darker place in their search for capital – underground banking.
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Overview Of Earnings For 3Q FY2013 – Japan Exchange Group, Inc.
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Frontier Markets

Why is the Emerging Markets Turmoil Spreading?
MoneyBeat – WSJ
The pullback from emerging-market currencies continued Thursday, dragging down currencies in central Europe in a development that speaks about a wider malaise across the asset class. The Wall Street Journal’s Europe Markets Editor, Charles Forelle, explains how we got here and what it might tell us about the state of the global economy.
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Emerging Markets Inflow Numbers Point to Exit by Bond Investors
LANDON THOMAS JR. – NYTimes.com
With investors on edge following the recent weeks of turmoil in emerging markets, the release this week of updated capital inflow data by the Institute of International Finance could not have been better timed.
jlne.ws/1aMqfCZ

Emerging market funds lose $9 bln in past week-data
Reuters
Investors yanked $9 billion from emerging stock and bond funds during a turbulent past week, with equities seeing their biggest outflow in 2-1/2 years, banks said on Friday citing data from Boston-based fund tracker EPFR Global.
jlne.ws/1aMqhL1

Emerging market strife keeps bond issuers at bay
Andrew Bolger in London and Vivianne Rodrigues in New York – FT.com
The emerging market turmoil that has sent currencies and stocks across the globe sharply lower in the past couple of weeks has also cast clouds over debt capital markets, weighing on new bond sales.
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Malawi Stock Exchange Weekly Trading Report- 31st January, 2014
jlne.ws/1aMqhL3

Cabinet Approves Adding Two Members To Egyptian Exchange Board
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Miscellaneous

A Real-Life ‘Wolf of Wall Street’ Reunion, Minus the Wolf
WILLIAM ALDEN – NYTimes.com
Moviegoers cringed at the many scenes of debauchery and dishonesty in “The Wolf of Wall Street,” a film based on the real-life shenanigans of the boiler room kingpin Jordan Belfort. But that fictionalized account left out some of the intriguing details of Mr. Belfort’s crimes, according to a group of men who had front-row seats to the real thing.
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