John Lothian Newsletter: SEC probing private equity performance figures; Fast Traders Are Getting Data From SEC Seconds Early; Bond trading platforms raise stakes

Oct 29, 2014

First Read

Deutsche Boerse Looking Onward and Outward
By Jim Kharouf
Deutsche Boerse’s plans go well beyond clearing, IT and trading. Here’s a look at the exchange, following a 2-day informational meeting with members of the Deutsche Boerse team in Frankfurt last week.

Think big.

Deutsche Boerse, and its subsidiaries Eurex, Clearstream and Eurex Clearing and its market data and services division (which together represent 93 percent of its revenues) are looking for new and innovative ways to drive growth in the new global regulatory structure.

In other words, this isn’t just about trading volume anymore.

In Deutsche Boerse’s view, the recipe for success hinges largely on this – leveraging its clearing houses – Clearstream and Eurex Clearing – to provide a global banking and custodial services to customers. And one thinks “Gee, that sounds like a bank.” And you’d be correct. What makes Deutsche Boerse’s strategy interesting is that its clearing houses are technically and officially registered banks, and are looking to act like banks that also offer clearing services.

For the rest of the story, visit the John Lothian blog at jlne.ws/1yHzN9t

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Charlotte Crosswell, CEO, Nasdaq OMX NLX – Startups Aren’t Just Found in Garages
JohnLothianNews.com

“When people are sitting there talking about you and criticizing you or doing something against you, that means they’re taking notice.”

Charlotte Crosswell, CEO of Nasdaq OMX NLX, talks about her introduction into the financial industry and how she found herself in her current role. Beginning with a temporary position at Goldman Sachs, Crosswell assisted a salesperson who needed someone who understood French. She later moved on to the London Stock Exchange and has been in the exchange world ever since. Because of her own experiences, Crosswell emphasizes the importance of work experience versus just having a degree. Crosswell also discusses startup companies and how despite having the Nasdaq name, Nasdaq OMX NLX is still considered a startup in which she still works persistently to keep relationships with investors. Finally, Croswell discusses how being tough and having “the skin of a rhino” is necessary, especially in startups, to keep yourself protected from critics and opposition.

Watch the video »

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Bond Market Overhaul Requires Patience for Tradeweb CEO
Matthew Leising – Bloomberg
Tradeweb Markets LLC said yesterday that its customers can buy and sell investment grade U.S. company debt on its platform starting today, joining other firms trying to bring the business into the computer age. Only about 15 percent of trading happens electronically, with the rest occurring directly among humans, said Tradeweb Chief Executive Officer Lee Olesky.
jlne.ws/1yHw4sG

***** Human interaction?

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New York Stock Exchange Names Cunningham President Of NYSE Governance Services
The New York Stock Exchange announced today that effective immediately, Stacey Cunningham has been named President of NYSE Governance Services, a leading provider of corporate governance, risk, ethics and compliance services for public and privately held companies.
jlne.ws/1thshjZ

***** Corporate interaction?

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Visit Orc at FIA Expo
Looking for an FIA Expo exhibit hall pass? Orc invites you to visit us at FIA Expo Booth 1014. Come by to catch up with us about our enhanced Trading and new Electronic Execution solutions as well as to play one of thousands of games including Pac Man, Paper Boy and Street Fighter on the Orc Arcade. If you have one of the highest scores during the day on Wednesday, November 4, you will be invited back to compete in the Orc Tournament held during the Taste of Expo. Tournament participants will have a chance to win games and prizes!
jlne.ws/1yHC5p5

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Bats Global Markets joins exchange lobby
Tim Cave – Financial News
Bats Global Markets, the nine-year-old US exchange operator, was one of four bourses to join the World Federation of Exchanges on Tuesday, as the lobby group overhauls itself to become a more active industry association.
jlne.ws/1thiDxC

***** BATS steps up to WFE plate.

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US plan to curb speed traders “will hike cost”
Luke Jeffs – Futures & Options World
One of the world’s top electronic trading firms has slammed US plans to introduce speed bumps to counter high-frequency trading on exchanges, arguing this will make doing business more expensive for everyone.
jlne.ws/1yHwwqQ

***JM: This fails my apples-and-oranges test. We must not make regulatory changes if they will raise costs?

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Australian Exchange Looks to Women in Hunt for Higher Earnings
Adam Haigh – Bloomberg
Women in top roles means better returns for investors, according to a Credit Suisse Group AG study. ASX Ltd. (ASX), Australia’s exchange operator, is listening.
jlne.ws/1yHw8Zs

***** I think Demi Moore will get to play a leading role when this is made into a movie.

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Lead Stories

Exclusive: SEC probing private equity performance figures – sources
Greg Roumeliotis – Reuters
The U.S. Securities and Exchange Commission is examining how private equity firms report a key metric of their past performance when they market new funds to investors, as the regulator boosts its scrutiny of the industry, according to people familiar with the matter.
jlne.ws/1pXaISJ

Fast Traders Are Getting Data From SEC Seconds Early
Ryan Tracy and Scott Patterson – WSJ
Hedge funds and other rapid-fire investors can get access to market-moving documents ahead of other users of the Securities and Exchange Commission’s system for distributing company filings, giving them a potential edge on the rest of the market.
jlne.ws/1pXaMSn

Bond trading platforms raise stakes
Tracy Alloway and Michael Mackenzie in New York – Financial Times
The battle of the electronic bond trading platforms is set to intensify as Tradeweb rolls out its new offering to a wider range of market participants on Wednesday.
jlne.ws/1thlExX

Hong Kong Ready for Trading Link With Shanghai
Alexandra Stevenson – Dealbook – NY Times
The head of Hong Kong’s stock market regulator said Wednesday that his agency had ticked all the boxes needed to start a highly anticipated project connecting the Hong Kong and Shanghai stock exchanges, indicating delays were coming from its counterpart in mainland China.
jlne.ws/1yHvGKD

Tax conundrum may explain Stock Connect delay
Simon Osborne – The Trade
For the Shanghai-Hong Kong Stock Connect, 27 October 2014 had been the start date that had been anticipated by many in the industry. Despite the authorities having trumpeted its introduction for six months and systems testing having been completed, October has come and will now pass without the Stock Connect having gone live.
jlne.ws/1yHvDOO

Kengeter: The ‘perfect inside job’
Tim Cave – Financial News
Wanted: German speaker with extensive banking experience to run a European bourse. That job spec worked a decade ago for Deutsche Börse, and it seems to have done so again.
jlne.ws/1yHvYRO

Convergence to Agreement With Matt Levine
Streetwise Professor
Matt Levine graciously led his daily linkwrap with a response to my post on his copper column: It’s not that hard to manipulate copper. Craig Pirrong, who knows a lot more about commodities markets than I do [aw, shucks], objects to my take on copper.
jlne.ws/1pX9oze

Ex-Employee of Broker in Britain Charged in Libor Inquiry
Chad Bray – Dealbook – NY Times
The Serious Fraud Office of Britain said on Tuesday that it had begun criminal proceedings against a former employee of the brokerage firm Tullett Prebon Group in connection with the manipulation of a global benchmark interest rate.
jlne.ws/1pXaOtz

Former S.E.C. Chairman to Advise Two Prominent Bitcoin Companies
Sydney Ember – Dealbook – NY Times
Since it was introduced more than five years ago, Bitcoin has been viewed as a way to operate outside the realm of the existing financial system and the laws that govern it. But more recently, Bitcoin companies have been luring the financial establishment into their ranks.
jlne.ws/1pXaUl1

Regulatory

FCA proposes permanent ban on retail sales of CoCos
Scott Sinclair – Investment Week
The Financial Conduct Authority (FCA) is proposing to make its block on the distribution of contingent convertible bonds (CoCos) to retail investors permanent, following a temporary ban earlier this year.
jlne.ws/1yHvz1D

Steven Levine Named Associate Director for Investment Adviser/Investment Company Exam Program in Chicago
The Securities and Exchange Commission today announced that it has named Steven J. Levine as the Associate Director for the Investment Adviser/Investment Company examination program in its Chicago office. He will oversee the IA/IC examination program in nine Midwestern states, with a staff of approximately 65 examiners, accountants, and attorneys.
jlne.ws/1pXb4sw

FCA offers ‘informal steer’ on simplified advice
Dan Jones – Investment Week
The Financial Conduct Authority (FCA) has offered help to financial advisers who want to build simplified advice models, saying it is prepared to give ‘individual guidance’ or an ‘informal steer’ as part of its Project Innovate.
jlne.ws/1tgsS6S

Japan FSA: cross-border recognition process too slow
Risk.net
US and Europe need to speed up moves to recognise third-country regulation as equivalent
jlne.ws/1pX917R

Innovation: The regulatory opportunity
Speech by Martin Wheatley, Chief Executive of the FCA, at the Financial News Conference, London.
jlne.ws/1pXb2kn

ESMA announces two vacancies in the IT team
jlne.ws/1yHw5N1

Exchanges & Trading Facilities

Exchange-traded derivatives trading set to soar
Jon Watkins – The Trade
Trading in futures and options has surged during the last two months and activity could continue upwards as the market begins turning to exchange-traded products in place of OTC derivatives.
jlne.ws/1pX6x9p

CME rule hurts FX broker business, say participants
www.fxweek.com
CME enrages brokers, who claim their once-profitable business in transitory FX EFRPs has vanished, despite the launch of a product to help offset the changes
jlne.ws/1pX8m6j

Deutsche Börse names new CEO as Francioni signs off
The Trade
Reto Francioni will step down from his role as chief executive of exchange group Deutsche Börse to be replaced by the former head of UBS’s investment bank, Carsten Kengeter.
jlne.ws/1pX6zy0

Eris Sets 8th Consecutive Quarterly Open Interest Record
8th Consecutive OI Record; Eris Compression Trading ; Volume & OI Reporting Enhancements; CQG to Offer Eris Connectivity; TABB Report on Buy Side Views; TT Tech Tap Live Invite, October 28; FIA EXPO: Request a Meeting; Eris Sponsors CME GFLC Conference
jlne.ws/1yHyebK

ISE CEO Discusses “Exchanges Serving The Real Economy” At The 2014 WFE General Assembly
Deirdre Somers, the ISE CEO, is attending the World Federation of Exchange’s 2014 General Assembly in Seoul Korea, where she is moderating a panel on “exchanges serving the real economy”.
jlne.ws/1thsT9g

ASX Improves Back Office Operations With GoldenSource EDM – Product To Yield 80% Productivity Benefit At Exchange
jlne.ws/1thrSxT

NZX Q3 2014 Revenues And Operating Metrics
jlne.ws/1ths2oY

Moscow Exchange: Expanded Equity Market Making Program
From 3 November, Yandex ordinary shares (YNDX) will be added to the Equity Market Making program, having been admitted to trading with partial collateral from 13 October.
jlne.ws/1thrNu9

SIX Swiss Exchange To Simplify Access For Trading With Foreign Equities
jlne.ws/1thrTSD

Q3 2014: Bonds Quarterly Statistics – The Latest Issue Of The “Bonds Quarterly Statistics” Report Looks At The Performance Of SIX Swiss Exchange’s Bonds Segment In Q3 2014
jlne.ws/1thsvaN

Hedge Funds & Managed Futures

Alliance Trust cuts five equity team jobs in GBP2m cost saving drive
Hannah Smith – Investment Week
Alliance Trust has overhauled its equity team, with the loss of five roles expected to save GBP2m a year.
jlne.ws/1yHvzi2

Quant Hedge Fund Archipel Shuts After Biggest Investor Pulls Out
Will Wainewright – Bloomberg
Archipel Asset Management AB, a Swedish hedge-fund firm that makes trades based on computer algorithms, is closing after its biggest investor pulled out.
jlne.ws/1yHwcsa

Full Faith Japan Hedge Fund Beats Peers’ Returns in First Month
Komaki Ito – Bloomberg
Full Faith Investment Inc., a Japan-focused hedge fund run by former JPMorgan Chase & Co. and Nomura Holdings Inc. (8604) managers, returned 2.1 percent in its first month, outperforming peers.
jlne.ws/1yHwjUl

Morgan Stanley: Average balanced fund return may halve over next decade
Dan Jones – Investment Week
Returns on a typical 60/40 US equity and fixed income portfolio over the next decade may be half those seen over the previous 50 years, according to Morgan Stanley strategists.
jlne.ws/1tgsSUx

SLI reports GBP1bn net outflow from bond funds prior to Ignis rates team exit
Julia Rampen – Investment Week
Standard Life Investments has reported a GBP1bn net outflow from its fixed income products over the nine months to September, with the subsequent departure of the Ignis rates team adding to outflows.
jlne.ws/1yHvyKZ

Julie Dean joins Sanditon Asset Management
Hannah Smith – Investment Week
Former Schroders manager Julie Dean is to join former Cazenove colleagues Chris Rice and Tim Russell at Sanditon Asset Management.
jlne.ws/1yHvAmd

Banks & Brokers

Deutsche Bank Announces Management Shakeup on Eve of Earnings Report
Jack Ewing and Chad Bray – Dealbook – NY Times
The German lender Deutsche Bank announced a management shakeup Tuesday that will move the chief financial officer, Stefan Krause, to a newly created post and give his duties to a Goldman Sachs Group partner, Marcus Schenck.
jlne.ws/1pXaVVO

CVA hedge losses prompt focus on swaptions and guarantees
Risk.net
Banks are turning to credit swaptions and guarantees to reduce the earnings volatility that arises when hedging the credit valuation adjustment capital charge in Basel III.
jlne.ws/1pX8e6Q

Deutsche Bank Posts Loss
Eyk Henning – WSJ
Deutsche Bank swung to a net loss in the third quarter after the lender boosted its reserves to cover fines from pending litigation.
jlne.ws/1thj7UF

BGC Announces the Appointment of Phil Cramp as Head of Credit, Repo and EGBs in London
jlne.ws/1yHvI5f

GFI Group (GFIG) Reports In-Line Q3 EPS
jlne.ws/1yHvTh0

Clearing & Settlement

Asia needs regional securities depository within five years
Risk.net
Sufficient amount of internationally accepted collateral in the system for now – but this will change
jlne.ws/1pX8X7S

Indexes & Products

Eurex Exchange Strengthens Offering In Volatility Derivatives
Eurex Exchange continues to ensure market support for its recently launched listed variance futures contract, which is based on the EURO STOXX 50, the most prominent equity index in Europe.
jlne.ws/1thpqaz

Russia ETF Swells as Valuations Lure Bargain Hunters
Elena Popina and Jackie Klauberg – Bloomberg
Investors are piling into the biggest exchange-traded fund tracking Russian equities at a record pace as the cheapest valuations in emerging markets and easing tension in Ukraine spur bets stocks will rebound.
jlne.ws/1yHwiA3

Technology

OptionsCity Reveals Metro NOW, Empowers Users to Build a Customized Trading Experience
OptionsCity Software, a global provider of electronic trading solutions for professional futures and options traders, today announced that the next generation software of its flagship trading platform, Metro NOW, will be available early next year. This web-deployed solution opens up the world of downloadable widgets to a range of users, allowing them to streamline their trading environment to fit their specific trading style.
jlne.ws/1u76PSk

smartTrade hopes to profit from fixed income fragmentation
John Bakie – The Trade
Trading technology provider smartTrade has launched a new liquidity management system for the fixed income market to enable traders to deal with the consequences of fragmentation.
jlne.ws/1pX6B92

Bridging the Divide Between Finance and Technology
Joshua M Brown – thereformedbroker.com
Coronado is an island divided. On the one hand, it’s a historic seaside resort town – all spanish-style rooftops and turn-of-the-century Queen Anne-accented architectural flourishes. On the other hand, it’s a Naval base and the centerpiece of an eight-installation military presence spanning the coast of SoCal. Tourists frolic in the Pacific ocean as heavy-duty aircraft criss-cross in the sky above.
jlne.ws/1pX6Ocm

Misys Announces Winners Of The 2014 Americas Technology Leadership Awards
jlne.ws/1thr8c6

SunGard Wins A-Team Data Management Summit Award for Best Corporate Actions Processing Platform
SunGard has won A-Team’s Data Management Summit Award for Best Corporate Actions Processing Platform for its XSP solution
jlne.ws/1pXbaAf

Numerix and Transamerica Take New Approach to Insurance Risk Management – Innovative Technology Introduced for Future Valuation and Scenario Generation
Numerix, the leading provider of cross-asset analytics for derivatives valuations and risk management, today announced that Transamerica, a member of the AEGON Group has adopted new, and innovative insurance risk management technology for future valuations and scenario generation. The ability to project Future Greeks for liabilities supports calculating future hedge performance in financial reports.
jlne.ws/1yHy5oH

Enforcement

UK charges former Tullett Prebon employee over Libor rigging
Kirstin Ridley – Reuters
Britain’s Serious Fraud Office (SFO) has filed criminal charges against Noel Cryan, a former employee of UK brokerage Tullett Prebon, as part of a sprawling and drawn-out global investigation into the manipulation of benchmark interest rates.
jlne.ws/1pXaBqa

Ex-UBS broker wins and loses in split U.S. arbitration ruling
Suzanne Barlyn – Reuters
In a rare move, a securities arbitration panel sided with a broker who alleged UBS AG had hurt his business model and team, although the broker also has to return bonus money.
jlne.ws/1pXaET4

NY regulator seeks $300 mln from Israel’s Bank Leumi in tax probe – source
Reuters
New York state’s financial regulator is seeking more than $300 million from Bank Leumi as part of a probe of whether the Israeli bank assisted U.S. citizens in evading taxes, according to a person familiar with the matter.
jlne.ws/1pXaHy5

Environmental & Energy

Climate change could spark conflict in emerging economies, study finds
Will Nichols, BusinessGreen
Climate change vulnerability and food insecurity could damage economic growth and amplify the risk of conflict in India, Bangladesh, and a number of other major emerging markets, according to risk analysts Maplecroft.
jlne.ws/1rSjbXQ

Chinese vice premier meets Obama’s adviser on climate change
Xinhua
Chinese Vice Premier Zhang Gaoli met with U.S. President Barack Obama’s adviser John Podesta, vowing to make their cooperation in countering climate change a highlight of bilateral relations in Beijing on Tuesday.
jlne.ws/1Dv0hMp

Beijing Zeroes In on Energy Potential of South China Sea
Chris Horton, The New York Times
For the past several years, China has been throwing its weight around the South China Sea, a body of water studded with coral reefs that laps at the shores of not only China but also Vietnam, Malaysia, the Philippines, Brunei and Taiwan.
jlne.ws/1rz2xeM

Asia-Pacific

China signs currency swap deal with Russia
Simon Osborne – The Trade
China’s central bank, the People’s Bank of China, has signed a currency swap agreement worth RMB 150 billion (US$ 24.4 billion) with Russia’s central bank. The agreement lasts for three years and is extendable.
jlne.ws/1pX6EC2

SGX Announces Resignation Of Chief Regulatory Officer
Singapore Exchange (SGX) today said Richard Teng, Chief Regulatory Officer, has decided to leave the organisation effective 28 February 2015.
jlne.ws/1thpxmG

HKEx To Extend Its After-Hours Futures Trading Close To 11:45 Pm From 3 November
Beginning from 3 November 2014, the close of Hong Kong Exchanges and Clearing Limited’s (HKEx) after-hours futures trading (AHFT) of Hang Seng Index (HSI) Futures, H-shares Index (HHI) Futures, Mini HSI Futures, Mini HHI Futures and Renminbi Currency (RMB) Futures* will be extended from 11:00 pm to 11:45 pm. In addition, the close of the AHFT clearing session will be extended from 11:45 pm to 12:30 am.
jlne.ws/1thpAib

Dalian Commodity Exchange Iron Ore Futures Promote New Market Order
The iron ore futures of Dalian Commodity Exchange (DCE), the world’s first iron ore futures contract with physical delivery, has maintained a steady development trend in the one year since the listing, with the market liquidity improved continuously, the quality and efficiency of the market operation constantly enhanced, the futures market functions of price discovery and hedging gradually achieved, the profound impact found on the international iron ore pricing mechanism, and the role of the market in serving the industries and the real economy brought into play.
jlne.ws/1thrYFS

Tick Size Boosts Japanese Market Efficiency
New research released by the Capital Markets Cooperative Research Centre (CMCRC) suggests that reducing tick size for stocks in the TOPIX 100 on the Tokyo Stock Exchange has significantly improved quality of the Tokyo Stock Exchange, decreasing transaction costs and improving price discovery.
jlne.ws/1yHvHhB

Frontier Markets

DGCX Launches Two New Pairs Of Mini Indian Rupee Futures
Further building on the success of its Indian product suite, the Dubai Gold and Commodities Exchange (DGCX) today announced the launch of two new pairs of Mini Indian Rupee (INR) futures contracts denominated in British Pound (INRGBP) and Euro (INREUR) respectively. The new contracts, which went live on October, 26, 2014, will be cleared by the Dubai Commodities Clearing Corporation (DCCC).
jlne.ws/1thrEGW

Turkish brokers show strong appetite for EU stocks
John Bakie – The Trade
BATS Chi-X Europe has seen strong demand from the Turkish investment community, with more than a dozen local broker enquiries since it announced its expansion into the country last week.
jlne.ws/1pX6t9O

Mexico eyes sovereign sukuk
Rob Dwyer – Euromoney Magazine
Mexico is considering issuing an inaugural sukuk bond, an official in the ministry of finance has told Euromoney. Pemex may follow.
jlne.ws/1pX6haA

Russell looks off benchmark to boost returns on Lazard EM fund
Dan Jones – Investment Week
Lazard Asset Management’s Stephen Russell has pointed to off-benchmark positions as a driver of returns for his EM Core Equity fund as a growing number of global stocks turn to the developing world for revenue growth.
jlne.ws/1yHvxHd

Dubai Insists the Boom is Not a Bubble This Time Around
Jeremy Kahn – Bloomberg
Alongside the Dubai Mall, one of the world’s largest shopping centers, sits an ersatz version of what would be an authentic retail experience in most Persian Gulf cities: an Arab souk.
jlne.ws/1yHworc

Dubai Mercantile Exchange, Bank of China announce partnership agreement
GulfNews.com
Dubai Mercantile Exchange (DME), the premier international energy futures and commodities exchange in the Middle East, and Bank of China, today signed a Memorandum of Understanding to boost cooperation in offering innovative finance solutions to their mutual customers.
jlne.ws/1yHy2sV

Dubai Financial Market Board Of Directors’ Meeting
jlne.ws/1thtjwm

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