John Lothian Newsletter: SEC targets 10 firms in high frequency trading probe; CME Group throws down gauntlet in race to run gold fix; UK financial watchdog has prioritised most serious Libor cases

Jul 18, 2014

First Read

Bits & Pieces
John Lothian News Staff
If you read JLN yesterday, you may have wondered whether, when John left for scout camp, he took all of our apostrophes with him, as the opening comment and color remarks were dotted with words such as don t, won t, wouldn t and you re.

The culprit is NOT a lapse in quality control — at least, that’s what Jon insists — but rather some variety of gremlin in between our email delivery service’s “send it out” button and your inbox. The error occurs only with certain punctuation characters and email clients. Yours may be working fine, in which case… nothing to see here, read along!

A scheduling conflict has led to a change in one of the speakers for our MarketsWiki Education Intern Series 2014. We would like to welcome Julie Winkler, senior managing director of research and product development for CME Group as a speaker at our August 7th installment. Product innovation has been one of the key drivers of growth in the derivatives market, and CME Group and its affiliates have been at the forefront of it. We look forward to hearing what Julie has to say.

Speaking of the intern series, we have officially surpassed last year’s enrollment, with a week and a half until the first event. But since we have moved to a larger venue this year, the auditorium at IIT Stuart School of Business, 565 W. Adams in Chicago, we can still accommodate you and/or your interns. For more information, including links to the sign up forms, visit our MarketsWiki Education site HERE.

***JM: I wanted people to simply substitute the wrong words for the time being (“your not really serious?”), but Sarah said ABSOLUTELY NOT!

***DA: If you did not understand the problem, we invite you to check out Word Crimes, by “Weird Al” Yankovic, which is trending way way up this week.

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World Of Opportunity Chicago 2014: Tim McDermott (Promo)
JohnLothianNews.com
Our MarketsWiki World of Opportunity Summer Intern Education Series in Chicago is quickly approaching. Tim McDermott, CEO of Nadex, will be discussing his career path in the financial industry and how his experiences have helped shape his career today.
For more information on the event and how to register, click here.

Watch the video »

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CME Group throws down gauntlet in race to run gold fix
Clara Denina and Jan Harvey – Reuters
The Chicago Mercantile Exchange (CME) said on Thursday it would be happy to administer, with Thomson Reuters, the global price benchmark for gold known as the “fix”, a day after banks effectively called time on the current arrangement.
jlne.ws/1rm7dtH

**JK – Strike up the “Chariots of Fire” music and imagine Gill and Terry running on the beach.

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High Frequency Trading Really Does Save Investors And Traders Money
Tim Worstall, Contributor – Forbes
One of the debates still rumbling along in the background is over whether High Frequency Traders cost other investors money or whether they save money for them overall. There’s also a more minor concern about whether HFT liquidity is still there when everyone would really like it to be, at times of high stress. The answer to the second seems to be no but to the first, yes, obviously HFT saves other investors money.
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Singapore opens Asia’s first ‘trading atrium’
Jeremy Grant in Singapore – Financial Times
A new Singapore-based company set up by a former trading technology executive has launched what it calls the first “trading atrium” in Asia offering multi-asset trading to proprietary firms and hedge funds.
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**JK – This sounds better than the “Arboretum.”

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Execution Equalizer: Christian Hauff Talks Trade Execution Quality and TCA
JohnLothianNews.com
While electronic platforms and trade algorithms have made for more efficient markets, some buyside participants believe it comes at a cost, and the cost is execution quality. Christian Hauff, co-founder and CEO of Quantitative Brokers says these same modern tools can help the buyside obtain better execution, as well as better transaction cost analysis (TCA).

Watch the video »

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U.S. SEC scuttles Nasdaq options rebate plan
John McCrank – Reuters
The U.S. Securities and Exchange Commission has denied a plan by Nasdaq OMX Group Inc to offer rebates to some of the biggest customers of one of its options exchanges, based on the amount of trading they do across all three of Nasdaq’s options markets.
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***DA: Since yellow card/red card jokes are soooo last week, we will go back to saying an SEC ref threw a flag.

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Schwab Launches New Online Educational Content Resource for Traders
Charles Schwab today launched a new Trading Insights hub on schwab.com, giving traders easy access to an on-demand educational experience to help them develop their skills and avoid common missteps. A broad range of articles and videos curated from Schwab’s team of trading professionals are available on the hub, along with materials from the robust, client-facing Trading Services Learning Center.
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***DA: Educating market participants with new media is a great idea. We should do that. Oh, wait. We do

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Asia’s Chocolate Binge Compounding Global Cocoa Shortage
Chanyaporn Chanjaroen and Morgane Lapeyre – Bloomberg
Surging consumption of chocolate in Asia is pushing cocoa-bean prices to the highest level in three years as buyers including Barry Callebaut AG expand their search for more supply.
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***JM: The photo with this article indicates a better form of “black swan”. More mousse, Mr. Taleb?

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MarketsWiki

MarketsWiki Page of the Day
Chris Gibson-Smith
jlne.ws/1qiEg2l

MarketsWiki Recent Updates

People

John Phizackerley; Julie Winkler; Cynthia Williams; Chris Gibson-Smith; Jamie C. Sokalsky

Companies, Organizations and Groups

Thailand Futures Exchange; Tullett Prebon Ltd; Barrick Gold Corporation; London Stock Exchange Group plc; Frank Russell Investments

Statistics

51,121,972 pages viewed, 8,000 articles, 184,576 edits
MarketsWiki Statistics

Lead Stories

Exclusive: SEC targets 10 firms in high frequency trading probe – SEC document
Reuters
The U.S. Securities and Exchange Commission has been seeking information on 10 registered broker dealers as part of an ongoing investigation into high-frequency trading strategies, according to an internal SEC document reviewed by Reuters.
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**JK – Some big names on this list.

Financial watchdog has prioritised most serious Libor cases
Kirstin Ridley – Reuters
Britain’s financial watchdog said it had prioritised the worst cases of Libor benchmark interest rate fixing, providing a signal that the largest fines for banks’ alleged role in the scandal may already have been levied.
jlne.ws/1pi73yX

Respite for derivatives deals from incoming European rules
Philip Stafford – Financial Times
Swaps dealers and banks are set to win a respite from meeting incoming European derivatives rules after regulators admitted their implementation put market participants’ right to legal certainty of their contracts at risk.
jlne.ws/1oQuD4j

Asset managers and asset servicers ramp up back-office investments
Rob Daly – The Trade
With the financial crisis delaying investments into fund accounting and associated middle- and back-office systems asset managers and asset servicers are now ramping up spending to improve their efficiency, accuracy and automation of their systems, according to a whitepaper from Aite Group.
jlne.ws/1pi1joI

Commission struggles to improve FTT revenue estimate
Anish Puaar – Financial News
The European Commission has been unable to revise its revenue projections from the proposed financial transaction tax after requests for estimates from member states were ignored.
jlne.ws/1zQ6KlS

The darker side of Iceland’s showcase recovery
Gillian Tett – Financial Times
Six years ago, Iceland became a miniature emblem of the crazy credit boom – and bust. This volcanic island has just 320,000 people; think of Buffalo, New York. But in the 2000s, the country’s three main banks expanded at such a breathless pace that they assumed $85bn of debt to fund a collective balance sheet 10 times bigger than the country’s economy.
jlne.ws/1phXwrE

Citigroup’s Settlement, Pro and Con
FLOYD NORRIS – NY Times
Citigroup’s $7 billion settlement of charges that it sold bad mortgage securitizations is a classic example of prosecutors striking a deal that seemingly has little to do with what the bank did. The bad actions cited by the Justice Department damaged investors, but there is nothing in the settlement to benefit most of those affected.
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Regulatory

Regulators Come Up With Own Plan to Coordinate Bank Supervision
DAVID ZARING – Dealbook – NY Times
The problems caused by the failure of Lehman Brothers during the financial crisis were worsened by the lack of a coordinated response by its many regulators around the world.
jlne.ws/1pi3Yi9

SEC Widens Trading Probe to Investment Firms
Brody Mullins And Andrew Ackerman – WSJ
Federal investigators are examining nearly four dozen hedge funds, asset managers and other investment firms to determine whether they violated insider-trading rules after receiving a tip from a Washington research firm. In a new court filing, the Securities and Exchange Commission said it is looking at 44 investment funds and other entities, including “some of the largest hedge funds and asset management advisors in the nation,”
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‘Unprecedented Global Cooperation’ on FX Probe, Says FCA
Chiara Albanese – MoneyBeat – WSJ
The U.K.’s Financial Conduct Authority’s investigation into the possible manipulation of foreign exchange markets has led to an “unprecedented global cooperation” among authorities looking at whether traders colluded to manipulated a key industry benchmark.
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Major benchmark providers adopt global standards ahead of EU rules
Anish Puaar – Financial News
The world’s major providers of indices have committed to following global principles set by the International Organization of Securities Commissions, adopting a framework that is likely to form the basis of incoming EU regulations on benchmarks.
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FINRA Announces Arbitration Task Force
The Financial Industry Regulatory Authority (FINRA) announced today the formation of a 13-member Arbitration Task Force to consider possible enhancements to its arbitration forum to improve the transparency, impartiality and efficiency of FINRA’s securities arbitration forum for all participants.
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US regulators urged to accept dealers’ use of affiliates
Peter Madigan – Risk.net
Recent focus on US banks’ use of non-guaranteed affiliates risks taking regulators down a slippery slope – issue could be tackled via disclosure instead, argues ex-SEC chair
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OFR Names Advisory Committee Members
Michael Shashoua – WatersTechnology
Interactive Data’s Stephen Daffron and Northern Trust’s Kay Vicino are among the new appointees to the US Treasury unit’s advisory group
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Statement from the Financial Conduct Authority on the joint market study on banking services for small businesses
The market study on banking services for small and medium-sized businesses published today was a result of work undertaken jointly by the Financial Conduct Authority (FCA) and the Competition and Markets Authority (CMA).
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Canadian securities regulators adopt amendments to the auditor oversight rule
The Canadian Securities Administrators (CSA) today published final amendments to NI 52-108 Auditor Oversight, which alter the ‘triggers’ for when an audit firm must notify securities regulators about significant remedial actions imposed on the firm by the Canadian Public Accountability Board (CPAB).
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ESMA Advises Commission On Creditworthiness Assessment For Sovereign Debt
The European Securities and Markets Authority (ESMA) has published its advice to the European Commission on the appropriateness of the development of a European creditworthiness assessment for sovereign debt.
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SEC Statement On The Anniversary Of The Dodd-Frank Act
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Exchanges & Trading Facilities

CME to expand paired delivery as banks rethink third-party CLS
Joel Clark – FXWeek
CME Group is to extend its new paired-delivery model for the physical settlement of foreign exchange futures from Europe to the US in September, as banks step back from the provision of indirect settlement through CLS to financial market infrastructures (FMIs), which include exchanges and central counterparties (CCPs).
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Alibaba NYSE debut slides beyond August
Nicole Bullock in New York – Financial Times
Alibaba’s hotly anticipated initial public offering – which is expected to be among the largest ever stock market listings – will not come until after the US Labor Day holiday on September 1, according to people familiar the deal.
jlne.ws/1oQtZDZ

Don’t outsource risk, ASX head warns
Andrew White – The Australian
AUSTRALIAN Securities Exchange chief executive Elmer Funke Kupper has called for regulators to take a conservative approach to one of the signature G20 reforms — moving the $600 trillion over-the-counter derivatives market to central clearing houses.
jlne.ws/1nSIgDq

Mexican Stock Exchange Releases Monthly Financial Report For June 2014
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SIX Exchange: Investigation against Accu Holding AG
www.six-swiss-exchange.com/media_releases/online/media_release_201407180728_en.pdf

Hedge Funds & Managed Futures

Private Equity, Venture Returns Are Best Since Buyout, Dot-Com Booms – MoneyBeat
Hillary Canada – MoneyBeat – WSJ
The last time venture capital returns were this good, the Pets.com sock puppet had its own balloon in the Macy’s Thanksgiving Day parade.
jlne.ws/1phYO5Q

Hedge Fund Readiness for AIFMD Is Lacking as Deadline Approaches
Ivy Schmerken – Wall Street & Technology
With the July 22 deadline looming, hedge funds are unprepared to meet the AIFMD data reporting requirements, and they worry about compliance costs, two studies say.
jlne.ws/1rm6ngB

Blackstone Profit Soars as Huge Fund Crosses Performance Threshold
WILLIAM ALDEN – Dealbook – NY Times
At a heady time for the private equity industry, the Blackstone Group is raking in profit.
jlne.ws/1rm5EMp

Blackstone, KKR, TPG in talks to settle deal collusion lawsuit -sources
Reuters
Blackstone Group LP, KKR & Co LP and TPG Capital LP are in talks to settle a U.S. lawsuit accusing them of conspiring not to outbid each other and other buyout firms on takeovers of companies, two people familiar with the matter said on Thursday.
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Bonus pool hits nine figures at Tudor Capital
Vivek Ahuja – Financial News
Bonuses have more than doubled at Tudor Capital, the European arm of the hedge fund run by renowned manager Paul Tudor Jones.
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A new gate to foreign investors
Anita Likus – Financial News
The German commercial property market has often been a domestic affair, but the country’s economic growth and rising values have meant that more foreign investors have been allocating capital to the country.
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Banks & Brokers

Growth in Wealth Management Bolsters Morgan Stanley
RACHEL ABRAMS and PETER EAVIS – Dealbook – NY Times
Since the financial crisis, Morgan Stanley has wrestled with erratic results in its powerful trading business, once its most lucrative unit, a situation familiar to its peers.
jlne.ws/1pi3ybA

JPMorgan’s Dimon Gets $37 Million of Crisis-Era Options
Hugh Son – Bloomberg
JPMorgan Chase & Co. (JPM) will let Jamie Dimon collect about $37 million in stock options created during the financial crisis, as the board stands by its leader after risk-management lapses and billions of dollars in legal settlements.
jlne.ws/1lbz4W7

Bank Lending Accelerates After Slump
Michael Rapoport, Saabira Chaudhuri and Andrew R. Johnson – WSJ
Bank lending is finally starting to pick up steam. After many fits and starts, most of the nation’s largest banks said in their second-quarter earnings reports over the last week that consumers and corporations are starting to ramp up borrowing.
jlne.ws/1zQ75VI

Instinet Wins Three Awards In Waters Rankings 2014
Instinet Incorporated today announced that Instinet, LLC, its U.S. brokerage subsidiary, has reconfirmed its position as a leading institutional, agency-only, electronic brokerage following the announcement of Waters Rankings 2014.
jlne.ws/1lbzGLo

Clearing & Settlement

Credit Suisse replaces Barclays as biggest swaps clearer
Joe Rennison – Risk.net
Rivals surprised by Swiss bank’s ascent at a time when regulatory burdens are growing – client collateral has jumped 83% since last October
jlne.ws/1rm4SPq

Indexes & Products

DAX Serves As Basis For First-Ever European Exchange-Traded Fund In China
The DAX index underlies the first exchange-traded fund (ETF) based on a European index that will be available in China. The HuaAn Germany DAX 30 ETF was introduced by HuaAn Asset Management Co. Ltd. on July 14, 2014 and will later be listed on the Shanghai Stock Exchange.
jlne.ws/1nSJbnE

Two New ComStage Equity Index ETFs Launched On Xetra – ETFs Provide Currency-Hedged Access To MSCI Japan And S&P 500
jlne.ws/1nSFOgf

Technology

INTL FCStone chooses Duco for listed derivatives
Duco has announced that INTL FCStone Ltd., part of INTL FCStone Inc., the global commodity trading, foreign exchange, asset management and treasury services firm, has adopted Duco Cube as the hosted reconciliation solution for its exchange traded derivatives and LME business units. The service went live within a 7 day period and has been up and running since June.
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Thomson Reuters Wins Multiple Awards For Financial Markets Data Coverage And Technology Solutions
Thomson Reuters has again been recognised for the depth, breadth and quality of the data and analytics tools it provides to financial markets professionals worldwide in this year’s Waters Rankings awards.
jlne.ws/1nSJfnp

Bloomberg Brings Cloud-Based Enterprise Information Archiving to Firms Using Salesforce
Today, Bloomberg announced it has joined the salesforce.com Partner Program to bring cloud-based enterprise information archiving to Salesforce1 for Financial Services.
jlne.ws/1rm4OPI

CoreSite Rolls Out Perseus’ Time Synch in VA Datacenter
Faye Kilburn – WatersTechnology
Carrier-neutral datacenter and co-location provider CoreSite Realty Corporation has deployed connectivity and managed services provider Perseus Telecom’s High-Precision Time certified timing service at its facility in Northern Virginia, to enable customers to synchronize their time systems across multiple datacenters and calibrate their networks to the National Institute of Standards and Technology timescale.
jlne.ws/1rm4HDJ

Tradier Bows No-Cost ‘Sandbox’ Environment for Startup Developers
Max Bowie – WatersTechnology
Tradier, a cloud-based brokerage platform operator and provider of a supporting data, trading and analytics application hosted environment, has unveiled a new service, dubbed Tradier Developer Sandbox, aimed at startup developers that find it hard and expensive to obtain the resources to develop new applications, to promote innovation and the development of new applications for its cloud “ecosystem.”
jlne.ws/1rm4AIt

Thomas Murray Data Services Launches Total Risk Solution For Depositary Banks Under AIFMD
jlne.ws/1nSG1QA

Enforcement

7 Indicted in $50 Million Pump-and-Dump Scheme
STEPHANIE CLIFFORD – Dealbook – NY Times
The former husband of “The Sopranos” actress Jamie-Lynn Sigler was indicted on Thursday along with six other defendants in a pump-and-dump stock scheme.
jlne.ws/1pi46OS

S.E.C. Seeks Delay in Case Against Rengan Rajaratnam
RACHEL ABRAMS – Dealbook – NY Times
Acquitted of insider trading, the former hedge fund manager Rengan Rajaratnam may now avoid a separate court battle with the Securities and Exchange Commission.
jlne.ws/1pi3MiR

SEC Charges Seattle Firm and Owner With Misusing Client Assets for Vacation Home and Vintage Automobile
The Securities and Exchange Commission today charged the owner of a Seattle-based investment advisory firm with fraudulently misusing client assets to make loans to himself to buy a luxury vacation home and refinance a rare vintage automobile.
jlne.ws/1pi4w7G

Call for SEC probe into Walgreen’s meetings on moving offshore
James Covert – New York Post
A pension adviser has asked the Securities and Exchange Commission to investigate private meetings that top Walgreen execs held with investors who prodded the drugstore chain to reincorporate overseas for tax reasons.
jlne.ws/1rm7mxg

Environmental & Energy

Australia Scraps Tax on Carbon
Michelle Innis, The New York Times
The Australian government on Thursday repealed laws requiring large companies to pay for carbon emissions, fulfilling a key election promise of Prime Minister Tony Abbott.
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Who wins, who loses when the carbon tax goes?
Peter Hannam, The Sydney Morning Herald
Now that the Abbott government has succeeded in repealing the carbon price, who stands to win and who stands to lose?
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FACTBOX – Australia’s carbon trading future
Reuters
Australia’s Parliament on Thursday repealed the country’s controversial carbon tax and the emissions trading scheme that was to succeed it in 2015, signaling an end to what would have been the second largest such system after the European Union’s.
jlne.ws/1ndfDSC

Asia-Pacific

South China Morning Post Article About TOCOM Providing DMA From Hong Kong
On July 16, 2014, Tokyo Commodity Exchange, Inc. (TOCOM), held a seminar introducing its offering of direct market access (DMA) among other things to market participants in Hong Kong. Ahead of the seminar, South China Morning Post interviewed Mr. Hamada (Senior Executive Managing Officer & COO of TOCOM) about TOCOM providing DMA to market participants in Hong Kong and posted the related article.
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Frontier Markets

Markets of the Once ‘Fragile Five’ Countries Are Now Soaring
LANDON THOMAS JR. – Dealbook – NY Times
Just six months after fears of an emerging-market meltdown rattled world markets, stocks and bonds in the so-called Fragile Five economies — Turkey, India, Indonesia, Brazil and, to a lesser extent, South Africa — have become the primary targets for yield-hungry global investors.
jlne.ws/1pi3Sae

MCX Weekly Market Report – July 11, 2014 – July 17, 2014
jlne.ws/1lbwYp6

Malawi Stock Exchange Weekly Trading Report- 18th July, 2014
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