First Read

Bits & Pieces

by John J. Lothian

Happy Boxing Day! Today is the day employers give gifts to their employees, or something like that. Being an American, I normally think of boxing as something one does with gloves in a ring. But Happy Boxing Day, nonetheless.

I also think of this day for something that happened on December 26, 2002. That was the day the Wall Street Journal’s Peter A. McKay wrote a story about me with a dot drawing titled “Analyst or Broker? Critic Draws Criticism.” Well, the broker thing is no longer true, but the analyst part and the criticism are still relevant. The story was in the Money & Investing section, on the front page under the fold. When I tell the story, I like to say that it only took the slowest news day of the year and the birth of Christ to get me into the Wall Street Journal. How things have moved along in 12 years.

Today is the wake for Jim Kharouf’s father up in Milwaukee. Tomorrow is the mass for him. Here are the details again

As a reminder, we will be only publishing JLN next week. JLN Options, JLN Environmental/Energy and JLN Financials will not be published next week. That is my Boxing Day gift to the team.

Have a great weekend and a safe and happy Boxing Day!

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MF Global Holdings to pay $100 mln fine in CFTC settlement

By Douwe Miedema and Karey Van Hall,Reuters

The U.S. Commodity Futures Trading Commission said on Wednesday it had fined MF Global Holdings Ltd for wrongdoing during the collapse of the futures brokerage, but will continue its lawsuit against the firm’s former chief, Jon Corzine.

A federal judge in Manhattan approved a settlement in which the company will pay a $100 million fine and be jointly responsible for returning $1.212 billion in client funds that another unit had been ordered to restitute last year.

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***** It should have been $1 billion.

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What does online shopping have to do with hyperinflation?

Izabella Kaminska, FT

As the WSJ reported on Tuesday, the Russian rouble’s collapse is taking a particularly heavy toll on Belarus, Europe’s last standing autocratic economy, which remains hugely dependent on Russia to this day.

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***** I have a theory about inflation, online shopping and the iPhone generation. But not hyperinflation. Different animal.

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SEFCON Snapshot 2014, Part III: The New Market Structure

JohnLothianNews.com

The WMBA Americas hosted SEFCON V on November 12, 2014, and John Lothian News was there. We interviewed 14 SEF operators, regulators and participants and put together this three part series on the state of SEFs one year into the mandate.

Part III looks at the new market structure brought about by the creation of SEFs and the regulations that guide them.

While many of the pieces are now in place, this structure is still taking shape, and in some cases, the rules have led to uncertainty and unintended consequences in the market structure.

A key aim of Dodd-Frank and other regulations was increased competition, but is a true “all-to-all” market possible? Is there a cost in terms of liquidity from these and other regulations? Is aggregation of separate liquidity pools a viable option?

Watch the video »

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Putin orders vodka price cap as Russia’s economic crisis escalates

Reuters

Russian President Vladimir Putin ordered his government on Wednesday to rein in rising vodka prices, as he battles to preserve his popularity amid an aggravating economic crisis.

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***** The right intentions and the wrong idea. Happens a lot.

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Singapore Exchange Forging Ground in Derivatives

WSJ

Starved of growth at home as stock trading volumes plummet, Singapore’s exchange is pushing into Asia’s riskier markets to stay competitive. Singapore Exchange Ltd. , or SGX, has rolled out derivatives based on a wide variety of Asian assets from Chinese equities to the Indian currency, which allow yield-hungry investors to gain exposure to hard-to-buy markets across the region.

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***** SGX is one of the stories of the year, and next year too. If you haven’t yet seen the video on the 30th anniversay of SIMEX, check it out HERE

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When to follow the investment herd

James Mackintosh, Investment Editor, FT

“The crowd is untruth,” wrote philosopher Søren Kierkegaard, a proponent of individualism. Existentialism is not much followed by financial markets, but investors should be alert to the dangers of groupthink in the year ahead.

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***** It is important to know when to get off the bus.

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MarketsWiki

MarketsWiki Page of the Day

MF Global Holdings Ltd

MarketsWiki Recent Updates

People

Paul Fry; Joseph Mazurek

Companies, Organizations and Groups

Straits Financial LLC; CBOE

Miscellaneous

Options Regulatory Services Authority (ORSA); FINRA

Statistics

56,518,515 pages viewed, 8,122 articles, 187,754 edits

MarketsWiki Statistics

Lead Stories

Regulators to MF Global: Make customers whole over mishandled funds

Bloomberg

MF Global Holdings Ltd. was ordered to pay $1.2 billion in restitution and a $100 million fine over claims that a brokerage unit misused customer funds, the U.S. Commodity Futures Trading Commission said in a statement today.

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SEC Faults Rating Firms for Rule Lapses, Lax Cybersecurity; Reports Says Some Firms Lack Sufficient Internal Systems to Prevent ‘Misuse, Inappropriate Dissemination’

Andrew Ackerman – WSJ

U.S. securities regulators faulted the credit-rating industry for a variety of lapses in adhering to Securities and Exchange Commission rules, including lax cybersecurity.

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China Extends Forwards, Swaps Trading to Three More Currencies

Businessweek

China will allow trading in forwards and swaps between the yuan and three more currencies in a bid to reduce foreign-exchange risks amid increased volatility in emerging markets. The China Foreign Exchange Trade System will begin such contracts with Malaysia’s ringgit, Russia’s ruble, and the New Zealand dollar from Dec. 29, it said in a statement on its website today.

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Saudi finance minister says no need to create sovereign wealth fund

Reuters

Saudi Arabia’s finance minister said there was no need for the kingdom to create a sovereign wealth fund to manage its oil wealth, rebuffing suggestions by prominent officials and businessmen.

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Volatility in Chinese Stocks Cues Uncertainty Into 2015; Swings Show Pull Between China’s Growth Story and Gloomy Macroeconomic Picture

Daniel Inman – WSJ

As the best year for Chinese stocks since the financial crisis draws to a close, the market is highly volatile with investors looking for clues whether the bull-run will continue or whether equities could fall just as quickly as they rose.

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Regulatory

Federal Court in New York Orders MF Global Holdings Ltd. to Pay $1.212 Billion in Restitution for Unlawful Use of Customer Funds and Imposes a $100 Million Penalty

CFTC

The U.S. Commodity Futures Trading Commission (CFTC) has obtained a federal court consent Order against Defendant MF Global Holdings Ltd. (MFGH) requiring it to pay $1.212 billion in restitution or such amount as necessary to ensure that claims of customers of its subsidiary, MF Global Inc. (MFGI), are paid in full. The CFTC previously filed and settled charges against MFGI for misuse of customer funds and related supervisory failures in violation of the Commodity Exchange Act and CFTC Regulations (see CFTC Press Release 6776-13). MFGI was required to pay $1.212 billion in restitution to its customers, as well as a $100 million penalty. MFGH’s restitution obligation is joint and several with MFGI’s restitution obligation, pursuant to which a substantial portion of the restitution obligation has already been paid (see CFTC Press Prelease 6904-14). The consent Order, entered on December 23, 2014, by Judge Victor Marrero of the U.S. District Court for the Southern District of New York, also imposes a $100 million civil monetary penalty on MFGH, to be paid after claims of customers and certain other creditors entitled to priority under bankruptcy law have been fully paid.

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Self-Regulatory Organization (SRO) Rulemaking and National Market System (NMS) Plans

SEC

BATS: Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Fees of BATS Exchange, Inc. (Release No. 34-73930; File No. SR-BATS-2014-072; December 23, 2014); see also Exhibit 5

BATS: Notice of Amendments No. 2 and Order Granting Accelerated Approval to Proposed Rule Changes, as Modified by Amendments Nos. 1 and 2, to Establish a New Market Data Product called the BATS One Feed (Release No. 34-73918; File Nos. SR-BATS-2014-055, SR-BYX-2014-030, SR-EDGA-2014-25, SR-EDGX-2014-25; December 23, 2014)

NYSE: Notice of Filing and Immediate Effectiveness of Proposed Rule Change Extending the Operation of Its New Market Model Pilot, Until the Earlier of Securities and Exchange Commission Approval To Make Such Pilot Permanent or July 31, 2015 (Release No. 34-73919; File No. SR-NYSE-2014-71; December 23, 2014)

NYSE Arca: Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Rule 6.76A by Revising the Order Allocation Methodology for Certain Orders of Five Contracts or Fewer (Release No. 34-73928; File No. SR-NYSEArca-2014-145; December 23, 2014); see also Exhibit 5

Phlx: Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Strategy Fee Caps (Release No. 34-73927; File No. SR-Phlx-2014-80; December 23, 2014); see also Exhibit 5

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China Investigates Official at Government’s Business Watchdog; Agency Has Probed Foreign Companies Such as Microsoft and GlaxoSmithKline

Richard Silk – WSJ

Chinese anticorruption agents are investigating a senior official at a government agency that has probed Microsoft Corp. and global pharmaceutical majors amid China’s tougher enforcement of its anticompetition laws.

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Japan’s Financial Services Agency: The Council Of Experts Concerning The Corporate Governance Code – Publication Of The Exposure Draft Of The “Japan’s Corporate Governance Code” – Seeking Sustainable Corporate Growth And Increased Corporate Value Over The Mid- To Long-Term

MondoVisione

The Council of Experts Concerning the Corporate Governance Code (Chair: Kazuhito Ikeo, Professor of Economics and Finance, Keio University) has now published the exposure draft of “Japan’s Corporate Governance Code” and started to call for public comments in English.

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Exchanges & Trading Facilities

Tokyo Stock Exchange: New ETF To Be Listed On January 15, 2015

MondoVisione

Today, Tokyo Stock Exchange, Inc. approved the listing of a new ETF managed by DIAM Co., Ltd. The Diam ETF Nikkei 225 will be listed on Thursday, January 15, 2015.

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Hedge Funds & Managed Futures

Cross Border Mergers Face Growing Scrutiny; Growing Contingent of Global Deal Cops Want a Say Over Transactions

Liz Hoffman – WSJ

over deals have been delayed amid slower-than-expected government approvals, the latest sign of the regulatory hurdles facing companies pursuing global mergers.

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Why Vanguard Total Stock Market isn’t the best fund in the fleet

By Paul A. Merriman, MarketWatch

For investors who want everything wrapped into a single package, Vanguard’s Total Stock Market Index fund seems a reasonable way to access U.S. large-cap blend stocks.

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Japan Post Sets Plans for IPO, Listing of Financial Units; Japanese State-Owned Company’s Offerings Are Slated for Second Half of 2015

Kosaku Narioka – WSJ

Japan’s state-owned postal service said Friday the government would sell part of the company to the public as soon as August, and it also disclosed plans to list its banking and insurance units.

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Banks & Brokers

In JPMorgan Chase Report, Worrying Admissions and Ideas for Improvement

By Antony Currie, NY Times

JPMorgan Chase is following Goldman Sachs’s lead by baring some of its soul. The bank, run by Jamie Dimon, unveiled a 96-page publication last week titled “How We Do Business – The Report.” Like its rival’s business standards review almost four years ago, the volume is laden with P.R.-speak, along with some worrying admissions and much-needed improvements.

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One Banker’s Big Deal: College Basketball Scholarships; Dealmaker Turns Coach to Groom Young Players; Top Schools Follow

Ryan Dezember – WSJ

When March rolls around, few will have a tougher time filling out NCAA basketball tournament brackets than Steve Trauber, Citigroup Inc. ‘s top energy banker.

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Citibank Sells Japan Retail Unit to Sumitomo Mitsui

SMBC to Pay Between ¥30 Billion and ¥50 Billion Depending on How Many Customers and Deposits it Inherits

Atsuko Fukase – WSJ

When Japanese regulators accused the local retail unit of Citigroup Inc. of improper lending practices in 2004 and ordered its private banking operations shut down, Charles Prince, then Citi’s chief executive, bowed deeply before reporters and pledged to overhaul the bank’s controls.

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Clearing & Settlement

CME Group Notices

Wash Trades Prohibited 24 Dec 2014

Change to Application of Full Value Margin Requirements for DME Oman Crude Oil Contracts

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Common clearing for commodity exchanges in offing

Business Standard News

In a bid to increase transparency and strengthen the clearing mechanism for commodity exchanges the government of India has proposed for a common clearing system for all commodity exchanges.

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Clearer OCC agrees capital raising deal

FT.com

The Options Clearing Corporation has struck a deal with its shareholders, the US exchanges that trade equity derivatives, over an increase to its capital base so the risk manager can meet tougher new regulations for clearing houses.

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Indexes & Products

IBM Is One Week Away from Dow Infamy

By Kevin Kingsbury, WSJ

International Business Machines Corp.IBM -0.26% has been making a go of it lately, rebounding 7.8% from last week’s low and adding 75 points to the Dow Jones Industrial Average in that time amid the index’s 1,000-point pop since last Wednesday to 18000. However, Big Blue’s shareholders remain, well, blue. Last week’s low was also its lowest level since January 2011, and IBM remains the DJIA’s worst performer of 2014 with a 13.5% drop—all of it since the Dow first closed above 17000 on July 3 and equal to a 168-point ballast on the index since then. The index’s second-weakest stock this year has been Chevron Corp.CVX -0.42% with an 8.8% decline.

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Technology

Google weighed security, free speech in move to stream Sony film

Reuters

Google Inc said on Wednesday it weighed the security implications of screening the Sony Pictures film, “The Interview,” a comedy whose depiction of the assassination of North Korea’s leader was blamed for a massive cyberattack.

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City Living Lures Technology Firms; Move to Urban Clusters Seeks to Foster Collaboration Among Employees

By Eliot Brown

Gradually and quietly, Google Inc. is creating something in New York that most of the city’s oldest and largest employers lack: an urban campus.

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Enforcement

S&P Nears Settlement on Real-Estate Bond Ratings; Pact Would Be With SEC, New York and Massachusetts

By Timothy W. Martin, WSJ Europe

Standard & Poor’s Ratings Services is nearing a settlement with regulators over their investigation of how the company graded real-estate bonds, according to people familiar with the matter.

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China’s antitrust regulator says Qualcomm case to be settled soon

Reuter

The Chinese government said on Friday that it will soon settle its antitrust investigation of U.S. mobile chipmaker Qualcomm Inc.

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Asia-Pacific

China Court Rejects Former Trader’s Bid to Overturn Lifetime Ban

By Bloomberg News

A Beijing court upheld a regulator’s decision to ban a former Everbright Securities Co. (601788) employee for insider trading after the company mistakenly placed 23.4 billion yuan ($3.8 billion) in buy orders in 2013.

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Frontier Markets

Carry Trade Fades as Turkish Lira Gets Trounced by Dollar

By Selcuk Gokoluk, Bloomberg

Just when lira carry traders thought they had 2014 in the bag, along came the dollar.

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Petrobras Probe Seen Infecting Brazil Bond Market in 2015

By Julia Leite and Filipe Pacheco, Bloomberg

Underwriters of Brazil’s corporate bonds, including JPMorgan Chase & Co. and Citigroup Inc., are heading into 2015 with diminished expectations.

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Russia gears up for sharp slump as bailed-out bank gets more funds

By Darya Korsunskaya and Vladimir Abramov, Reuters

Slumping oil prices have put Russia’s economy on course for a sharp recession next year, its finance minister said on Friday, as authorities scaled up the bailout of the first bank to succumb to the country’s currency crisis.

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Securities and Exchange Board of India Notices

Order in the matter of Ecogreen Realestate Limited and its directors

Exit order in respect of Bangalore Stock Exchange Limited (BgSE)

PR – Exit Order in Respect of Bangalore Stock Exchange Ltd

Order against M/s Sai Praksah Properties Development Ltd. and its directors/promoters

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Miscellaneous

Even Bitcoin’s Fans Prefer to Keep Cash; Volatility Deters Merchants From Holding the Virtual Currency

By Robin Sidel

Reeds Jewelers encouraged customers to pay for holiday gifts with bitcoin this year, but the family-owned business isn’t hanging onto the virtual currency for long.

Like many of the growing number of merchants that accept bitcoin, the regional jewelry store immediately converts the payments into real-world dollars. The strategy is aimed at protecting Reeds from big price swings that have plagued the virtual currency for much of the year—and underscores how many business owners remain skittish about the long-term prospects for bitcoin.

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