John Lothian Newsletter: SEF Trading Volumes Emerging From Summer Doldrums; Regulators Weigh Delay for Separating Banks’ Swaps Units; SGX gets Bank of China backing for FX

Sep 19, 2014

First Read

Silicon Valley sucks
Jim Kharouf
If you want to find some truly innovative technology and talent, it’s time to start looking at cities such as New York, London and yes, Chicago. Thursday night’s City Lights awards dinner from the Illinois Technology Association featured the best tech firms and leaders in the state, and many of those compete nationally and internationally.

Among the winners last night was Kristi Ross, co-CEO and president of Tastytrade, who won the “Prominent Women In Tech Award.” The other co-founder of TastyTrade, an online financial media firm with a focus on equity options trading and education, is Tom Sosnoff, founder of Thinkorswim. Ross served as Thinkorswim’s CFO.

The financial services industry was well represented in other categories with nominations for Rick Lane, of Trading Technologies for “Technologist Of The Year” and Sanjib Sahoo, CTO of tradeMonster, which recently merged with OptionsHouse, for the “City Lights Award.”

I sat at a table hosted by ORC‘s regional president of the Americas Jeremie Bacon and asked him how Chicago stacks up against other tech centers. He said it is coming along quickly and in the next five to 10 years, Chicago will be one of several powerhouse cities in technology and tech innovation. And with tech incubators and collaborative hubs such as 1871 and TechNexus, Illinois will not only keep some of its best young talent from schools such as the University of Illinois, one of the top computer science schools in the world, but also draw talent and venture capital from elsewhere.

Such trends bode well not only for Chicago and other non-Valley cities, but also for the financial services industry, which is always competing for talent. The fact that executives such as Ross, Bacon, Lane and Sahoo are plugged into the broader technology community, and are recognized for their talents means that the financial services sector is not walled off from other innovative people and ideas. A good sign indeed.

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John Ruth, CEO – ABN AMRO Clearing Chicago – Career Builder
JohnLothianNews.com

“If you want to get noticed in your organization, be someone who can solve problems.”

It’s your first day at a new company. You have yet to learn the ropes and you need to get yourself acquainted with the basics. You’re not ready to make an immediate impact on your organization, right? Wrong. John Ruth, CEO of ABN AMRO Clearing Chicago, believes that everyone in an organization – from interns and new hires to the company’s established veterans – can make a positive impact. Ruth says that problem solvers are extremely important assets for an organization. Those are the people who get noticed quickly and can unlock more possibilities in their career advancement. Along with managing career development, Ruth discusses the importance of adapting to change and what it can mean for not just an individual, but an entire organization.

Watch the video »

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Peak6 Hedge-Fund Business to Spin Out From Chicago Trading Firm
Jenny Strasburg – WSJ
Chicago trading firm Peak6 Investments LP is spinning out its $2.3 billion hedge-fund business, which will change its name and focus on growth by trading European credit and stocks out of a new London office. Peak6 Investments, which specializes in options trading and clearing using its own capital, told investors Thursday of the plans to sell its stake in its Peak6 Advisors hedge-fund business
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***DA: Technically the 6 should be divvied up as well – Peak3 Investments and Peak3 Advisors, or something to that effect.

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CME Group Announces Record Volume Day in Eurodollar Futures
CME Group, the world’s leading and most diverse derivatives marketplace, announced a Eurodollar futures record volume day with 6,880,382 contracts traded on Sept. 17, 2014, exceeding the previous record of 6,039,753 contracts, which occurred on March 19, 2014.
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***DA: And on an up day no less. Not bad for a contract hovering near zero interest. Although in Germany, negative interest rates have gone beyond the 2-year treasury.

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The changing face of futures brokerage
William Mitting – Futures & Options World
The business model for Future Commission Merchants (FCMs) is undergoing radical change. Cost pressures and regulatory burdens with fragmenting liquidity and evolving client demands pose major challenges. FOW and Object Trading brought together key figures from the global listed derivatives market to discuss the evolving business models facing FCMs and how they are tackling the challenges in the market today. Four key themes emerged, all interlinked but all posing individual challenges to firms. Taken together, they highlight a new business model for FCMs, one built around technology and delivering efficient risk and capital management.
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FINRA Marks 75th Anniversary of Protecting Investors
The Financial Industry Regulatory Authority (FINRA) marked the 75th anniversary of the creation of the National Association of Securities Dealers (NASD) in 1939. In 1938, the Maloney Act amended the Securities Exchange Act of 1934 to provide for the creation of a regulatory entity that would create and enforce securities rules and promote just and equitable principles of trade.
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***** It is that last part, “create and enforce securities rules and promote just and equitable principles of trade,” that is the real challenge.

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[Video] Why Is It So Hard for Uncle Sam to Collect Fines From Wall Street Swindlers?
Paul Vigna – MoneyBeat – WSJ
Government watchdogs have been very successful in going after market malefactors by one key count: the total amount of fines over the past decades has tripled. They’ve been much less successful by a different metric: how much of those fines they’ve been able to collect.
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***** This is the scandal that needs some light.

***DA: Fines make great headlines, but if there is no follow-through, the net effect is marginal. Jon Matte calls it the Elliott Ness Catch-and-Release Program.

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To Mark I.P.O., Alibaba to Make Gift to Its New Market Home
Michael J. de la Merced – Dealbook – NY Times
With the Alibaba Group poised to hold one of the biggest initial public offerings on record, the Chinese Internet giant plans to mark the momentous occasion in its own way.
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***DA: In return, NYSE offered Mr. Ma an official Jeff Sprecher bobblehead.

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NIBA Chicago Conference Sept 22 – Registration Deadline Today!
The National Introducing Brokers Association’s fall membership meeting is scheduled for September 22, 2014 in Chicago, IL. This is full-day of education, and information focusing on compliance and marketing for IBs and CTAs. A networking reception is included. Morning Sessions at the Chicago Board of Trade Building & Afternoon Sessions at the CME Group Building.
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***DA: Plenty of great speakers, including one of my favorites, CME Group Chief Economist Blu Putnam. Speaking of which:

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Latin America: Opportunities and Risks
Blu Putnam recently hosted a webinar on Latin America, in which he have a thorough assessment of the current macroeconomic environment and trends. He focused on monetary policy and inflation, the effects of U.S. and European economies, and FX and equity market scenarios, risks and opportunities. Well worth 34 minutes of your time.
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Ethan Kahn, Principal, Wolverine Trading, LLC – Exploring ETF’s
JohnLothianNews.com

“It’s a very competitive market out there. Constantly innovating and constantly adapting is what makes opportunities occur.”

Ethan Kahn, principal at Wolverine Trading, gives an explanation of ETF’s and shows why the product has become popular over the years. Kahn discusses the differences between ETF’s and mutual funds, breaking down how much lower the costs of ETF’s are and how there is more buying and selling flexibility compared to mutual funds. Finally, Kahn explains the importance of innovation and adapting in the financial industry, telling his audience that constantly changing with the industry is key to staying competitive.

Watch the video »

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Lead Stories

SEF Trading Volumes Emerging From Summer Doldrums
Ivy Schmerken – Wall Street & Technology
Tradeweb’s SEF saw a twenty-fold increase in interest-rate derivatives trading volume in the first two weeks of September, while Tabb Group looks for signs of summer doldrums turning around.
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Regulators Weigh Delay for Separating Banks’ Swaps Units
Jesse Hamilton and Silla Brush – Bloomberg
U.S. banks may get another year to shift some swaps trading from their government-insured units as regulators respond to demands to give them more time, according to two people familiar with the talks.
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SGX gets Bank of China backing for FX
Joe Parsons – Futures & Options World
The Singapore Exchange has won the backing of Bank of China (BoC) for its new Chinese renminbi (RMB) foreign exchange future, marking the latest win for Singapore as it seeks to establish itself as the gateway to the offshore Chinese market.
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LME Clear gears up for Monday launch
Luke Jeffs – Futures & Options World
The London Metal Exchange has confirmed it will migrate clearing to its new LME Clear service this weekend, marking the final push in a forty month project to deliver on Monday the British exchange’s first clearing house.
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Stocks rally as Scotland stays in UK
Jamie Chisholm, Global Markets Commentator – Financial Times
The London stock market is posting strong gains after a majority of Scots voted to stay in the UK, but sterling is paring its early surge as the US dollar strengthens across the board.
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U.K. Prosecutors Said to Plan New Libor Charges This Year
Suzi Ring – Bloomberg
The U.K. Serious Fraud Office is readying more criminal charges this year against traders in its Libor-manipulation probe, according to people with knowledge of the matter.
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Santander’s Questionable Dividend Benefited ‘Subprime Billionaire’
Ryan Tracy – MoneyBeat – WSJ
The Federal Reserve on Thursday faulted a U.S. unit of Banco Santander SA for allowing the payment of an unauthorized dividend. A major beneficiary of that payout: A Texas-based auto-lending magnate whom The Wall Street Journal in January called “a subprime billionaire.”
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We have to hope smart beta is not another example of dumb alpha
James Mackintosh – Financial Times
The financial services industry has spent hundreds of years perfecting new and exciting ways of separating investors from their money.
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Why Germans pay cash for almost everything
Matt Phillips – Quartz
As banks, technology giants and would-be disruptors such as Square scrummage over the payment system of the future, German consumers seem perfectly happy with the payment system of the past. Germany remains one of the most cash-intensive advanced economies on earth.
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Regulatory

US margin rules ‘punish lenders’, warns CFTC’s Giancarlo
Peter Madigan – Risk.net
The Commodity Futures Trading Commission (CFTC) has unanimously approved proposed rules on margining for non-cleared swaps, despite one commissioner’s concerns that the rules will apply to more US entities than would be the case under the equivalent international standards.
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Jim Burns, Deputy Director of Trading and Markets, to Leave SEC
The Securities and Exchange Commission today announced that James R. Burns, Deputy Director in the Division of Trading and Markets, will leave the agency in October.
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SEC Commissioner Urges Agency to Reform Equities & Fixed Income Markets
Ivy Schmerken – Wall Street & Technology
In a speech this week, SEC Commissioner Dan Gallagher said the SEC must act on the opaque fixed income markets and put Reg NMS under the microscope.
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Regulators walking the walk on reform timeline
David Uren – The Australian
BANKING regulators are close to a deal on the major outstanding elements of bank regulation that will be unveiled at the G20 summit in Brisbane in November. After talks with the ­Financial Stability Board chair and Bank of England governor Mark Carney, Joe Hockey highlighted progress on dealing with banks that are considered too big to fail.
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SEC 2014-2018 Strategic Plan
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Exchanges & Trading Facilities

NYSE tests systems, to brief investors before Alibaba’s debut
Herbert Lash – Reuters
The New York Stock Exchange tested its trading systems over the summer to make sure Alibaba Group Holding Ltd’s market debut on Friday goes without a hitch, after the Chinese e-commerce company’s initial public offering raised $21.8 billion.
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ASX plans A$65m investment in Yieldbroker
Philip Stafford – Financial Times
ASX, the Australian exchange, is seeking its first foray into over-the-counter derivatives trading by offering to buy a 49 per cent stake in Yieldbroker, a local electronic trading platform, for A$65m.
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SGX Boosts Yuan Aspirations with New FX Contracts ~ Welcomes Bank of China as First Chinese Settlement Bank
Singapore Exchange is adding new Asian foreign exchange futures contracts on Chinese Renminbi, Japanese Yen and Thai Baht, to further augment its successful suite of FX offerings.
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TSX Markets Top 20 Largest Consolidated Short Position Report – September 15, 2014
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WSE Maintains Trading Session Timetable Until End Of 2015
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Hedge Funds & Managed Futures

Vanguard Reaches $3 Trillion In Assets, Matching Entire Hedge-Fund Industry
Kirsten Grind – MoneyBeat – WSJ
An asset manager selling index funds from a leafy suburb of Philadelphia now has about the same amount of assets under management as the entire hedge fund industry. Vanguard Group reached $3 trillion in global assets under management for the first time, a company spokesman said Thursday, a record for the country’s largest mutual fund firm.
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Several Veteran Traders Exit Point72 Asset Management
Juliet Chung and Jenny Strasburg – WSJ
A handful of longtime traders for Steven A. Cohen have left his firm, according to people familiar with the matter, continuing a stream of high-profile departures from one of Wall Street’s most prominent hedge-fund firms.
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Emerging hedge fund managers lead industry gains, says HFR
Hedgeweek
Emerging hedge fund managers have led industry performance over the past year, as equity markets have extended gains, investor risk tolerance has escalated and total hedge fund capital has increased to a record level.
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Omni backs ex-Barclays top trader to launch European hedge fund
Reuters
Omni Partners is preparing to launch a hedge fund to be managed by former head of European equity trading at Barclays Howard Spooner in December, as the London-based firm looks to diversify its product offerings to investors.
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Fortress Pays Executives for Expenses to Manage Fortunes
Margaret Collins, Katherine Burton and Brandon Kochkodin – Bloomberg
Fortress Investment Group LLC (FIG) paid four of its top executives $63 million last year. As part of the package, the first publicly traded private-equity and hedge-fund firm is paying to help manage their fortunes.
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LindenGrove Capital hires for growth push
Clare Dickinson – Financial News
LindenGrove Capital, the hedge fund firm set up two years ago by a former Nomura prop trader and FN Rising Star, has hired a head of business development as it eyes new markets and product launches.
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Post-CalPERS Rumors Of Hedge Funds’ Deaths Greatly Exaggerated: Institutional Investor – Focus on Funds
Teresa Rivas – blogs.barrons.com
Despite the California Public Employees’ Retirement System (CalPERS)’s decision earlier this week to remove hedge funds from its portfolio, recent hedge fund inflows overall have been positive, pushing the industry to new records.
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Russia sanctions bring compliance headaches for private equity owners
Shasha Dai – Financial News
For the first time, private equity firms must contend with economic penalties against a major economy after the US and European Union issued extensive sanctions against Russia. Although US and European firms say they so far have seen little direct effect, the sanctions are complex and their impact could be wide.
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Australian Hedge Fund Award Winners Announced
The winners of Australia’s Hedge Fund Awards have been announced. Now in their 12th year, Awards recognise the leaders in the hedge fund industry in Asia.
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Banks & Brokers

U.S. Fed raps Santander over unsanctioned dividend
Douwe Miedema – Reuters
The Federal Reserve on Thursday disciplined Spain’s Santander over paying out a dividend without approval, as it tightens control of how foreign banks manage risk in the United States.
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SEC probing Goldman Sachs internship for brother of Libyan ex-official: WSJ
Reuters
U.S. regulators are investigating a Goldman Sachs Group Inc (GS.N) internship for the brother of a former official at Libya’s sovereign wealth fund and perks allegedly offered by the bank to the fund, the Wall Street Journal reported on Thursday, citing people familiar with the matter.
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Failed Bank’s Broken Vows Mean Little
FLOYD NORRIS – NY Times
Where were the regulators when small banks across the country were succumbing to the lure of easy money and embarking on a strategy of rapid growth that would end up destroying many of them? In at least some cases, the answer is that the regulators told the banks to change course and were ignored.
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Citi launches Total Touch in Europe amid block demand
John Bakie – The Trade
Citi has launched its block trading offering for equities, currently available across the US, to the European market.
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Citigroup takes Argentine bond payment case to U.S. appeals court
Reuters
Citigroup argued before a U.S. appeals court on Thursday it faces “a serious and imminent hazard” if it cannot process another interest payment by Argentina on $8.4 billion in bonds the country issued under local laws following its 2002 default.
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Germany says won’t delay plans to isolate risky bank business
Reuters
Germany’s government will not delay plans to isolate risky hedge fund activities from banks’ normal retail business, a finance ministry spokeswoman said on Friday, rejecting calls from financial institutes.
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BGC Partners Named “Global Cross-Asset Interdealer Broker of the Year” and “FX Derivatives Interdealer Broker of the Year” at GlobalCapital’s 2014 Global Derivatives Awards
BGC Partners, Inc., a leading global brokerage company servicing the financial and real estate markets, today announced that GlobalCapital has awarded BGC first place in two categories.
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Clearing & Settlement

Jefferies Joins SGX as Clearing, Trading Member
Marina Daras – WatersTechnology
US investment bank Jefferies has joined the Singapore Exchange (SGX) as a clearing and trading member, making the partnership its first derivative exchange membership in Asia.
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FSB Publishes Feasibility Study On Aggregation Of OTC Derivatives Trade Repository Data And Announces Next Steps
G20 Leaders agreed in 2009 that all over-the-counter (OTC) derivatives contracts should be reported to trade repositories, as part of their commitments to reform OTC derivatives markets in order to improve transparency, mitigate systemic risk and protect against market abuse.
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Indexes & Products

Schwab expands commission-free ETF platform, putting focus on cost
Ashley Lau – Reuters
Charles Schwab Corp said on Thursday it added 65 exchange-traded funds to its commission-free trading platform, including a handful of alternative funds, citing demand from customers who want to invest in ETFs without paying online trade commissions.
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MSCI declares first dividend, doubles buyback program
Reuters
Stock market indexes provider MSCI Inc declared its first-ever quarterly dividend and more than doubled its stock repurchase program to $850 million from $300 million.
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UPDATE 1-ETFs outpacing retail stock funds by wide margin -Lipper
Luciana Lopez – Reuters
Investors in U.S.-based funds added a net $6.7 billion into stock funds in the week ended Sept. 17, data from Thomson Reuters’ Lipper service showed on Thursday.
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Newly Launched STOXX Global 3d Printing Tradable Daily Short Index Licensed To Unicredit Bank Ag
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WSE Decides Index Modifications
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Technology

Flash Boys concerns boost FIX launch of venue trail standard
John Bakie – The Trade
New FIX messaging standards supporting venue audit trails are set to be launched before the end of the year.
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Fintech execs question finance’s ability to innovate
Anna Irrera in Barcelona – Financial News
Financial services firms will struggle to adapt to keep pace with the changes that technology has brought to the sector, senior industry executives have said.
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Enforcement

SEC Charges Tacoma, Wash.-Area Firm for Undisclosed Principal Transactions and Misleading Performance Advertisements
The Securities and Exchange Commission today charged an investment advisory firm located outside Tacoma, Wash., with engaging in hundreds of principal transactions through its affiliated broker-dealer without informing clients or obtaining their consent.
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SEC Charges Eight for Roles in Widespread Pump-and-Dump Scheme Involving California-Based Microcap Company
The Securities and Exchange Commission today charged a ring of eight individuals for their roles in an alleged pump-and-dump scheme involving a penny stock company based in California that has repeatedly changed its name and purported line of business over the past several years.
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Environmental & Energy

‘No’ vote sparks questions over Scotland’s energy future
Jessica Shankleman, BusinessGreen
Like Scottish voters, the renewable energy industry was largely divided between yes and no. And even though the country rejected independence, power over Scotland’s future energy market remains up for grabs.
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Russia says Ukraine gas talks preliminarily agreed for September 26
Reuters
Russian Energy Minister Alexander Novak said Russia, Ukraine and the European Union had preliminarily agreed to hold new talks on resolving a gas-pricing dispute between Russia and Ukraine on Sept. 26, Russian news agencies reported on Friday.
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What the sharing economy can learn from fleets
Mira Inbar, GreenBiz.com
Leaders of the sharing economy are disrupting traditional industries such as transportation and hospitality, but what if they played an equally disruptive role in reducing our consumption of natural resources such as water and gas.
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***LB: Also in this story “UPS used 1.3 million gallons less fuel in 2012 than the year prior, in large part by using efficient routing systems and incentivizing drivers to change behavior.”

Asia-Pacific

Korea Exchange(KRX): Trading Of 3-Year KTB Futures Set A Record High For The Year
On September 12, 2014, 3-year KTB futures trading achieved a record-high daily trading volume of about 400 thousand contracts equivalent to KRW 43 trillion for the year.
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KRX Publishes Online Fact Book For 2013
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Frontier Markets

Emerging markets brace for a bumpy ride
Gillian Tett – Financial Times
In 2008 investors learnt about financial chain reactions. This was not simply because the demise of Lehman Brothers hit other western groups; there was also fallout for emerging market companies.
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Borsa Istanbul Markets Monthly – August 2014
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Malawi Stock Exchange Weekly Trading Report- 19 September, 2014
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MCX Weekly Market Report Sept 12, 2014 – Sept 18, 2014
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Miscellaneous

Virtu’s Viola Cuts Price for New York Home to $98 Million
Nick Baker – Bloomberg
It hasn’t been high-frequency trader Vincent Viola’s best year. His trading firm, Virtu Financial Inc., shelved plans for an initial public offering amid the furor stirred up by author Michael Lewis’s “Flash Boys,” a critique of the industry published in March. His hockey team, the Florida Panthers, won only a third of its games last season. Now he’s cut the offering price for his six-floor, 19-room Manhattan townhouse, nine months after putting it on the market.
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How vineyard villains play on the vanity of collectors
Matthew Vincent – Financial Times
A tarantula, sharks, piranhas, a high-powered laser aimed at the groin, several hungry alligators, more sharks and a tall man with metal teeth: when millionaire villains sought revenge on James Bond, they certainly spared no expense. It is perhaps understandable.
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