John Lothian Newsletter: Swaps market prepares for its big bang; Brazil's BM&FBovespa Tightens Rules for Listing Shares Publicly; Liquidnet eyes UK fixed-income platform

Feb 17, 2014

First Read

Happy Mattress Sale Day!
Welcome to today’s slimmed-down and tardy John Lothian Newsletter. In our defense, it is a Federal holiday in the U.S., with banks, equity and bond markets closed. However, with U.S. futures markets open for an abbreviated session, and as a reflection of the expanding global reach of our offerings, we have opted to publish JLN today. We will not be publishing JLN Financials nor JLN Options newsletters today.

If you have the day off, please enjoy, but also take time to reflect upon the lives of our Founding Fathers and the risks they took to forge this nation. You may also consider shopping for a new mattress.


Missouri students support Michael Sam by forming human wall
Chris Johnson –
Missouri students formed a nearly half mile-long human wall to shroud 14 members of the Westboro Baptist Church that were in Columbia, Mo., on Saturday protesting the school’s outpouring of support for defensive end Michael Sam, who revealed earlier this week that he is gay.

***** Tim Lothian is pictured bottom left in the above image. Very proud of the Mizzou students, especially Tim.


Feeling Ripped Off? Don’t Rely on the Street’s Arbitrators
Jonathan Weil – Bloomberg
Here’s some good news for anyone who ever gets ripped off by a securities broker. Wall Street’s self-policing body has decided to make its mandatory-arbitration system a little less rigged. The bad news? It still will be plenty rigged.

***DA: This “foxes guarding the henhouse” story is not new, nor is it confined to markets. In fact, it applies wherever and whenever there is a concentration of power.


ICE Futures Canada Sets Daily Volume Record in Canola Futures
IntercontinentalExchange Group, the leading global network of exchanges and clearing houses, announced today that ICE Futures Canada reached a daily volume record of 71,536 contracts in canola futures on February 13, 2014. The previous volume record was 70,817 contracts on December 10, 2013.

***DA: Did you know that Fellowes and other paper shredder manufacturers suggest using canola oil as lubrication? Open interest is up just ahead of tax season. Coincidence?


Eurex – Safeguard mechanisms ensured orderly trading post ECB rate announcement
Providing background information on the DAX Futures (FDAX) behavior around the ECB announcement on 6 February


Social Media and Trading
Trade Talk
The use of social media within the trading industry is prolific, with an array of different applications. Instant access to news and opinion drives traders to outlets like Twitter as we push to know as much information about our products as possible—and know it before it hits the traditional news venues.


Hedge Fund: Banish the (Word) ‘Taper’
Rob Copeland – MoneyBeat – WSJ
Selfie. Twerk. Hashtag. All are on this year’s closely-followed “banished words” list from Lake Superior State University, and one hedge fund has another suggestion for the verbal chopping block: Taper.

***DA: A “cold turkey” banishment of the word would shock the system. Better that we taper our use of it.


Why the 1929 Chart Is a Bunch of Nonsense
Steven Russolillo – MoneyBeat – WSJ
It’s time, once and for all, to put an end to all the drama surrounding the stock-market chart comparing now to the crash of 1929.

***DA: So in other words, 2008-09 was a pre-quake tremor and the “big one” has yet to occur.


Lead Stories

Swaps market prepares for its big bang
Michael Mackenzie in New York and Philip Stafford in London –
The US swaps market is expected to begin a shift away from the predominance of telephone trading this week as it joins the 21st century in a move towards more tightly regulated electronic trading venues.

Brazil’s BM&FBovespa Tightens Rules for Listing Shares Publicly
Rogerio Jelmayer –
Brazil’s sole stock market on Friday said it will make it more difficult for start-up companies to sell shares publicly as it makes further changes to avoid embarrassing failures.

Liquidnet eyes UK fixed-income platform
Tim Cave – Financial News
Liquidnet, a global operator of buyside-only share-trading platforms, is considering its first UK acquisition as part of its strategy to diversify into fixed-income trading.

ICE to temporarily delay opening times for sugar, coffee, cocoa
ICE Futures U.S. will delay the opening times for its sugar No. 11, arabica coffee and cocoa contracts by one hour for three weeks in March due to seasonal international time changes, the exchange said on Friday.

Three Ex-Barclays Employees to Face U.K. Charges Over Libor
Margot Patrick and David Enrich –
The U.K.’s Serious Fraud Office said Monday it will pursue criminal charges against three former Barclays BARC.LN +0.83% PLC employees over alleged manipulation of interest rates, broadening the global investigation into the alleged rigging of the London interbank offered rate, or Libor.

Eurozone regulators gather for detail on bank review plans
The eurozone’s banks are about to get greater insight into the European Central Bank’s landmark review of their books, as national experts and their advisers meet in Frankfurt on Monday to hammer down details of the next phase of the tests.

Foreign banks bracing for tough U.S. Fed capital rules
Overseas banks look set to win only minor concessions when the Federal Reserve signs off on new capital rules next week, as they become increasingly resigned to the fact that the cost of doing business in the United States will go up.


Change the Way Stock Prices Are Quoted to Help the Economy? The S.E.C. Is Skeptical
Call it the JOBS Act’s little brother. Earlier this week, the House of Representatives, by an overwhelming vote of 412-4, passed the Small Cap Liquidity Reform Act, a bill to alter the way that stock prices are quoted. Given that almost nothing gets such bipartisan support, you’d think this would be a good thing. An expert committee to advise the Securities and Exchange Commission on investor issues and the S.E.C. itself appear to disagree, and the evidence appears to be on their side.

One watchdog circles another in UK pensions review
Joe McGrath and Mark Cobley – Financial News
The Financial Conduct Authority has launched a study of the future of UK pensions regulation in which it will review the role of its fellow watchdog, the Pensions Regulator.

Elizabeth Murphy Named as Associate Director in the Division of Corporation Finance
The Securities and Exchange Commission today announced that Elizabeth Murphy has been named an associate director in its Division of Corporation Finance.

SEC to Hold Cybersecurity Roundtable
The Securities and Exchange Commission today announced that it will host a roundtable next month to discuss cybersecurity and the issues and challenges it raises for market participants and public companies, and how they are addressing those concerns.

SEC Approves 2014 PCAOB Budget and Accounting Support Fee
The Securities and Exchange Commission voted February 5 to approve the 2014 budget of the Public Company Accounting Oversight Board and related annual accounting support fee, as required by the Sarbanes-Oxley Act of 2002.

Esma calls for EC to overrule UK on forex reporting
Fiona Maxwell –
The European Securities and Markets Authority (Esma) is calling for the European Commission (EC) to close a loophole in the continent’s days-old derivatives reporting regime, by imposing on member states a single definition of what counts as a derivative.

Exchanges & Trading Facilities

FINRA/Nasdaq issue led to some late trade reports at market open
Nasdaq OMX Group said on Friday that an issue with the FINRA/Nasdaq trade reporting facility led to untimely trade reports for equities listed on the New York Stock Exchange, NYSE Arca, and NYSE Amex, on Friday morning.

LME widens direct access to market data
The London Metal Exchange today announces a new policy to allow clients of LME members to connect directly to the Exchange’s electronic trading platform, LMEselect, for market data. The change will be effective from 24 March 2014.

Warehouse firms walk away from reforming London Metal Exchange
A bid by the London Metal Exchange (LME) to ensure clients can obtain aluminium faster from owners of warehouses in its global network risks eroding its function as the world’s top metals marketplace. Some warehouse companies are starting to walk away.

Australian dark pool rules shift liquidity back to the lit market
Justin Lee –
The implementation of dark pool and market integrity rules by the Australian Securities and Investments Commission (Asic) last year has resulted in a significant decline in the number of trades executed off exchange on broker-dealer dark pools, say market participants.

Hedge Funds & Managed Futures

Townsend Forms Hedge Fund as Partnership With Hill Ends
Sarah Jacob – Bloomberg
Gary Townsend, the former bank analyst and co-founder of Hill-Townsend Capital LLC, formed his own hedge fund after winding down the firm he started with Vernon Hill.

Pimco’s new chief executive aims for diversification to ‘any market’
Mike Foster – Financial News
Pimco’s new chief executive Douglas Hodge has pledged to make the firm a global provider of a broad range of investment solutions in the next 10 years.

Chief Compliance Officer at SAC Capital Is Stepping Down
Steven L. Kessler, the chief compliance officer at SAC Capital Advisors, will step down on Feb. 28, marking the latest turn in the the final chapter of Steven A. Cohen’s once wildly successful hedge fund.

Brookfield Asset Management cash flow more than doubles in Q4
Brookfield Asset Management Inc notched its best year ever in 2013, more than doubling its funds from operations in the fourth quarter, as investor hunger for real assets drove profits and the company cashed in on big bets made during the financial crisis.

More private equity investors take up DIY
Becky Pritchard – Financial News
As anyone who has done DIY knows, doing a job yourself has its pitfalls but if it is done right it can save you a packet. In the world of private equity, institutional investors are coming to see the benefits of do-it-yourself investing, and are now sourcing their own deals and in the process cutting out expensive managers at private equity firms.

Old Mutual legal head handed role as risk chief
Vivek Ahuja – Financial News
Old Mutual Global Investors has promoted Jessica Brescia, the head of its legal team, to the newly-created position of chief risk officer.

GLG: coaching corrects behavioural biases
Simon Savage –
Flaws in fund manager investment decision-making caused by behavioural biases can be corrected by coaching to achieve repeatable successs

Rhode Island unions settle pension reform battle
Paul Merrion – Crain’s Chicago Business
To end legal challenges similar to those being raised in Illinois, Rhode Island’s precedent-setting pension reforms would be rolled back slightly under a settlement agreement reached today with its unions.

Infrastructure funds wary of change in the pipeline
Mark Cobley – Financial News
From energy to water, from Aberdeen Airport to the Port of Plymouth, the UK’s infrastructure assets have been going through a second privatisation in the years since the financial crisis.

Banks & Brokers

Barclays: for a few thousand pounds more
William Wright – Financial News
While it is clearly tough for banks to tiptoe through the minefield of regulatory scrutiny, public opinion and performance, you might have thought they would avoid throwing grenades in their own paths to make life even harder. Barclays’ results last week suggested otherwise.

Issuers change their tune on structured note disclosures
Lukas Becker –
Despite initial panic, banks now say the US Securities and Exchange Commission’s disclosure requirements have benefited the structured note market, but concerns linger over the impact bank-specific funding practices could have.

Morgan Stanley names Delivanis as MENA IB head as Froehlich heads to Europe
Morgan Stanley named Patrick Delivanis as the head of investment banking in the Middle East and North Africa, a spokesman confirmed on Monday, replacing Klaus Froehlich who is relocating to Frankfurt for a senior investment banking role.

Investment banks struggle to kick the leverage habit
William Wright – Financial News
One definition of addiction: when you can give something up any time, so long as you don’t have to do so today. For all of the promises, investment banks have found it hard to kick the habit of high levels of debt and leverage, and as their latest results show, if they do give up the withdrawal symptoms can be unpleasant.

Clearing & Settlement

Big Five disconnect affiliates to avoid SEFs
The Big Five US banks are in the process of removing parent entity guarantees for their London-based affiliates for all interdealer swaps trades, in an effort to sidestep onerous Dodd-Frank provisions set to go into effect this weekend.

Sefs not expecting a big bang from Mat spark
Tom Osborn –
As the Sef trading mandate approaches, platforms are primed for a jump in volumes – but with many clients currently avoiding Sefs, it may be a small bang, rather than a big one.

ASX targets mid-2014 to deliver OTC clearing
The Trade
The Australian Securities Exchange (ASX) projects the completion of its post trade clearing upgrades by mid-2014.

Indexes & Products

A wobble, but market-tracker funds on course for growth
Sharp withdrawals from equity, currency and commodity tracking funds as emerging markets sold off in early 2014 looks no more than a bump in the road for such vehicles as they expand their share of assets under management.

Women in ETFs: Doing away with the Cinderella image
Sarah Krouse in New York – Financial News
When former Bank of America executive Sallie Krawcheck took the stage at the launch of a networking group for women in the exchange-traded fund industry, she warned of a “Cinderella complex” among females in business.


Caplin Systems appoints John Ashworth as chief operating officer
Eva Szalay – FX Week
John Ashworth has been appointed chief operating officer for Caplin Systems, the electronic distribution specialist that recently launched Caplin Direct, a hosted, managed service designed for banks.


CFTC Revokes Registration of Commodity Trading Advisor Prestige Capital Advisors, LLC
The U.S. Commodity Futures Trading Commission today announced the revocation of the registration of Prestige Capital Advisors, LLC of Charlotte, North Carolina, as a Commodity Trading Advisor.

NFA orders Louisiana futures firms Level III Management LLC and Level III Trading LLC to permanently withdraw from NFA membership and sanctions the firms’ principal, Bruce A. Gwyn
National Futures Association has ordered Level III Management LLC, a commodity pool operator and commodity trading advisor member of NFA located in Metairie, Louisiana, and former registered introducing broker NFA member Level III Trading LLC to permanently withdraw from NFA membership. NFA also has ordered the firms’ former principal, Bruce A. Gwyn, to withdraw from NFA membership for a period of seven years.

[FCA] Over 30,000 Yorkshire Building Society customers to be refunded mortgage arrears fees

Fraudster Benjamin Wilson sentenced to seven years imprisonment following successful FCA prosecution
Benjamin Wilson was sentenced to seven years at Southwark Crown Court today for defrauding investors of over GBP21m, following previous guilty pleas for fraud, forgery and operating a collective investment scheme without authorisation.

FEATURE-Small-firm lawyer takes on Wall Street and wins, twice
Before attorney David Wasinger decided to take on two of the biggest global banks in federal court in New York, he had visited the city just twice: once when he was 6, and the second time on a tour bus with his children.

Environmental & Energy


Chinese credit semantics
FT Alphaville
This is, as the FT put it, Chinese banks bursting out of the 2014 starting blocks with a four-year high in monthly new lending. It just depends on what you take from the data after that. Significantly: whether you think it casts doubt on the PBoC’s recent tightening bias or simply heightens fears of credit addiction.

Frontier Markets

Middle Eastern promise fails to deliver for private equity
Simon Meads – Financial News
Much has been expected from the Middle East private equity market for the past decade, but a lot of that promise has failed to materialise and investment remains sparse. Last year saw less than a quarter of the £3.2 billion deal volume registered in 2006, according to figures from data firm Dealogic.

EMs stay hooked on balm of Fed liquidity
Henny Sender –
Appearing in a crowded lecture room at Harvard Business School in early February, Joe Baratta, the face of Blackstone’s private equity operations, suggested that the US and other developed markets presented more lucrative opportunities for investment than emerging markets, given the risks and pitfalls.

Emerging-world fashions that change with the seasons
Mohamed El-Erian –
As I prepare to step down from Pimco at the end of March, emerging markets are once again in the news for all the wrong reasons. In Argentina the currency has collapsed, Thailand and Ukraine are riven with political conflict, and Turkey is shaky.

CEO of QIA Outlines the Key Focusses of the Fund
H.E. Ahmad Al-Sayed, the CEO of Qatar Investment Authority , spoke publicly for the first time since his appointment to confirm the vision for QIA .

RBS approved to issue Letters of Credit for DME trading direct from Singapore
The Royal Bank of Scotland (RBS) has today been approved to issue letters of credit for trading on DME directly from Singapore. The approval reflects DME and RBS’s joint commitment to facilitate the trading activities of their mutual customers in Asia.


More Reflection, Less Action
Earlier this week, I found myself talking with the chief of staff to the chief executive at a large company. The two of them had been on the road together for four consecutive weeks. I asked how that felt. “It’s brutal,” he said. “But it’s typical. My boss essentially has no openings on his schedule for the next three months.”

John Lothian Newsletter

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