First Read

Summer Intern Education Series Ends on a High Note
Our Summer Intern Education Series ended on Friday with session five of five in the series, with strong performances by the six speakers. Donnie Roberts of TD Ameritrade was the last speaker, sharing the seismic events from his career. He closed with the importance of this intern series, a nice tip of the hat to the John Lothian News team for producing these events.

Eurex’s Matthew Scharpf started the program, or pre-program with 30 minutes of guitar playing and singing. He later would take the stage with his guitar again as he walked the audience through the allegory of the development of this love of music and how it relates to futures trading.

It was a remarkable performance, his interjecting musical riffs with a discussion of the complexity of music as a system.

Julie Winkler walked the audience through innovation, Mike Gorham through being a regulator, Steve Crutchfield through building a trading system and Craig Donohue through clearing. Crutchfield had the hardest challenge, following Scharpf’s performance, but met it and more with a dynamic description of how to build a trading system.

We could not be happier with the way the series went. Altogether, we had 270 interns who signed up for one or more of the five sessions with an average of 187 per session. We had great speakers and support from our event sponsors and MarketsWiki sponsors. The interns came away with a bunch of industry swag, with many saying they were really hoping to win the Series 3 test kit given by The IFM.

The quality of the interns and their interest in the industry as expressed by their participation in the series gives me a warm feeling about the future of the industry.


Terrence Duffy: The state fair: Food, fun and … jobs?
State Journal-Register Many Americans may not be aware that by 2050 global demand for food is expected to nearly double as the world’s population grows to 9.1 billion. While much of the discussion around this challenge is the “how,” such as which farming methods we’ll need to become more efficient and productive, very little focuses on the “who.”

***DA: Speaking of educating the next generation, CME Group has teamed up with 4-H to bring its “Commodity Carnival” to about 120 state and county fairs this year. They teach kids about markets and risk in a lighthearted way, with an interactive games, and have even built a companion app called “Risk Ranch” which, by the way, John raised a blue ribbon steer in his first attempt last week.

***JK: We all should eat chocolate covered bacon and deep fried butter sticks.


CME Group Reaches All-Time High Open Interest of 103.4 Million
CME Group, the world’s leading and most diverse derivatives marketplace, today announced it reached an open interest record across asset classes standing at 103,387,860 open positions as of August 7, 2014. This exceeds the previous record of 103,056,895 contracts on August 25, 2011.

***** Futures markets are about two things, price discovery and risk transfer. Risk transfer is at an all time high. That is good news for the economy as it shows people are managing their risk, some offsetting risk and others taking it on.


Christopher Rokos asks court not to deprive world of his skills
Miles Johnson and Harriet Agnew – Financial Times
Hedge fund managers rarely lack confidence in their own abilities. Few, however, have gone so far as to argue that the public will suffer if they are not allowed to trade. For Christopher Rokos, the once star manager at the $37bn hedge fund Brevan Howard, a five-year, non-compete clause that blocks him from setting up on his own is “contrary to the public interest”.

***** And then there was one less hedge fund manager and the world stopped. Nah!


Taking Stock of Automated Financial Advisers
Liz Moyer – WSJ
The Internet has threatened the livelihood of travel agents, video-store clerks and mail carriers. Now high-tech startups are aiming to put another profession on the endangered list: financial adviser. A new breed of online advisers is using computer models available on their websites to tailor portfolios of inexpensive exchange-traded funds for individual investors and offering to manage those investments automatically.

***** I hope the financial advisors don’t go postal.


When She Talks, Banks Shudder
Bankers are nearly unanimous on the subject of Anat R. Admati, the Stanford finance professor and persistent industry gadfly: Her ideas are wildly impractical, bad for the American economy and not to be taken seriously. But after years of quixotic advocacy, Ms. Admati is reaching some very prominent ears.

***** I can see why.


Phosphate rivals gold in doomsday dividends
Joe Morris – Financial Times
The blunt criticism of gold as the classic bunker asset – that after all you cannot eat it – could never be made against phosphate. No one can eat without phosphate. Largely for that reason, Jeremy Grantham, chief investment strategist at GMO, the US fund manager, views the fertiliser constituent as a superior “rainy-day investment”.

***** At least phosphate would be liquid on a rainy day.


Try Doing This With Your Fiat Currency: “Indian man creates $200,000 shirt made out of gold”
Climateer Investing
Well I suppose you could. And depending on the cotton content of the banknotes it might be more comfortable on a hot day in India. And easier to wash although maybe not easier to launder.

***** Does it stop a bullet, because someone is going to steal it from him.


Bridging the Week: Manipulation, Falsification, Position Limits Criticism, Sour Grapes of Wrath
Gary DeWaal – Katten Muchin Rosenman
Fitting for the dog days of August in the United States, the US Commodity Futures Trading Commission demonstrated it has both a meaningful bark and bite by settling two high profile enforcement actions: one against alleged manipulators of crude oil futures and another against an alleged falsifier of internal trading records of his employer. In an unrelated development, industry participants roundly criticized CFTC proposed position limits rules in the final days of a re-opened comment period.



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Lead Stories

Traders brace for research crackdown as easy money dries up
Lionel Laurent – Reuters
Regulatory pressure to undo the traditional way brokers sell research alongside share dealing is alarming traders in Europe, who fear a further drop in business and more cost-cutting in an already tough environment.

Euronext to Mull Paris Wheat Contract Quality Requirement
Whitney McFerron – Bloomberg
Euronext will consider adding quality specifications to its milling wheat contract in Paris after the silos that manage futures delivery points set grain standards, said Olivier Raevel, head of commodities at the exchange.

Next phase of reporting starts today
Futures & Options World
Collateral and valuation data for derivatives trades will have to be reported to trade repositories (TRs) from today under the European Market Infrastructure Regulation (Emir). The new requirements apply to financial firms and non-financials who have not been granted an exemption. However, doubts remain about the model used in Europe and the value of the data.

High-frequency traders flee investment banks
Daniel Schäfer in London – Financial Times
High-frequency traders in London are increasingly defecting from investment banks to join specialised trading firms as they seek to escape tighter restrictions on pay and looming rules banning proprietary trading.

No influx of European wealth for Singapore
Jeremy Grant in Kuala Lumpur – Financial Times
Singapore sees no evidence that wealthy people are shifting funds from Europe to Asia in order to escape tough rules on tax avoidance and money-laundering, with the head of the central bank saying the city state was “not the place to come to” for anyone wanting to park funds.

Buyside voices fresh fears over market data fees
Tim Cave and Anish Puaar – Financial News
Some of the world’s largest asset managers have launched a fresh attack on the fees being charged by European exchanges for market data, as new rules governing the practice begin to take shape.

Secret email shows Lloyds still pressures staff over sales despite £28m fine for mis-selling
Investment Week
Lloyds is continuing to pressurise staff to mis-sell credit cards, loans and insurance, a leaked email has revealed – just months after the bank was fined £28m for promoting a ruthless sales culture.

RBS to Disband Global Restructuring Group
Max Colchester – WSJ
Royal Bank of Scotland Group PLC is disbanding its controversial Global Restructuring Group, according to people familiar with the matter. The move comes as the 80%-U.K.-government-owned bank fends off allegations the turnaround unit sought to profit by putting struggling companies out of business.


Libor to FX Cases Drive Surge in Teamwork With Regulators
Suzi Ring – Bloomberg
Britain’s financial markets regulator saw requests for assistance from agencies around the world jump 14 percent last year as investigations are increasingly global, according to a law firm study.

Vanguard Case Tests Rights of Lawyer Whistleblowers
Kirsten Grind and Jean Eaglesham – WSJ
A former lawyer at mutual-fund giant Vanguard Group has asked the Securities and Exchange Commission to intervene in an escalating legal battle with the firm, in a case that could test the rights of whistleblowing attorneys with confidential information.

Traders brace for research crackdown as easy money dries up
Lionel Laurent – Reuters
Regulatory pressure to undo the traditional way brokers sell research alongside share dealing is alarming traders in Europe, who fear a further drop in business and more cost-cutting in an already tough environment.

Safer banks make bond markets more risky
Sarah Krouse and Matt Turner – Financial News
In the offices of financial authorities worldwide, justified satisfaction at making big banks more stable is giving way to twinges of alarm that one side effect has been to make the bond market riskier.

SEC Names Thomas M. Piccone to Lead National Exam Program in Denver Office
The Securities and Exchange Commission today announced that it has named Thomas M. Piccone to lead the National Exam Program in the Denver Regional Office.

Exchanges & Trading Facilities

Firms hit out at CME data fee netting burden
Futures & Options World
CME Group members have voiced concerns over the administrative burden that the new market data netting programme will place on them when it begins next year. The exchange group announced in November last year that it will begin charging market data fees across all of its markets, a move that was met with an angry response from the market.

NYSE Outlines XDP Feed Migration Roadmap
Faye Kilburn – WatersTechnology
NYSE Global Market Data, the market data arm of the New York Stock Exchange, has notified clients that it is migrating its NYSE and NYSE MKT best bid and offer datafeeds to its proprietary Exchange Data Publisher (XDP) format, as part of an ongoing project to consolidate all feeds from its equities and derivatives markets onto a single delivery mechanism.

TOM MTF Statistics Week 32, 2014

Hedge Funds & Managed Futures

The Cinderella to banking’s Ugly Sisters
Sophia Grene – Financial Times
The shopkeeper who owned the “licensed grocer” in the village where I grew up continued serving behind the counter well after Alzheimer’s started to impinge on his functioning. The villagers commented that he had become vague about the precise amount of change owing to customers, but the (small) errors were always in his favour. There was no implication that he was doing it deliberately, rather that his subconscious somehow stepped in to make sure he did not give money away.

Brevan Howard battles co-founder’s rival plans
Miles Johnson, Hedge Fund Correspondent – Financial Times
Brevan Howard is battling to stop a co-founder from launching a competitor in a court case that throws open details of the publicity-shy $37bn hedge fund for the first time.

U.S. Public Pensions Show Biggest Investment Gain in Three Years
Martin Z. Braun – Bloomberg
U.S. state and local-government pension investments gained the most in three years as stocks soared, according to a report to be released today by Wilshire Associates Inc.

Calpers could shift investments to avoid risky bets in areas like commodities -WSJ
The California Public Employee Retirement System, the largest U.S. public pension fund, is considering major changes to its portfolio as it attempts to stay away from riskier investments, including commodities, the Wall Street Journal reported on Sunday.

Pimco poised to announce new hires
Chris Newlands – Financial Times
Pimco is poised to announce the first of three “batches” of new hires for its equity arm as the world’s largest bond manager tries to ease the pressure on its faltering bond business.

HEARD ON THE STREET: Pimco Isn’t Allianz’s Only Issue
Paul J Davies – WSJ
The worst of the storm could be passing for Allianz. But it isn’t clear that the German insurance group will emerge on to sunny uplands by the end of the year. Pimco, the West-Coast bond behemoth, has been attracting headlines for all the wrong reasons in recent months.

Neuberger Berman hires M&G property manager
Alasdair Pal – Investment Week
Neuberger Berman has hired M&G’s Gillian Tiltman for its global real estate securities team.

Europe in focus as Carlyle fundraising progresses
Ayesha Javed – Financial News
Carlyle Group is almost halfway to the EUR3 billion target for its fourth European buyout fund. The US company, which owns assets such as UK roadside assistance service the RAC has secured EUR1.4 billion of commitments for the vehicle, according to people familiar with the matter.

‘Brutal’ sector rotation squeezes mutual funds
Chris Flood – Financial Times
Actively managed US mutual funds suffered one of their worst periods of performance in the past 10 years in March and April despite market volatility remaining low. The fear is that disappointing returns could force many active managers to adopt more risky strategies in the second half of 2014 in order to make up for the poor performance.

Five Years of Futility Breaking for Bears as Shorts Drop
Lu Wang – Bloomberg
After a five-year bull market that has impoverished almost anyone trying to profit from falling stocks, bears are finally reaping gains.

Burned by Losses on Portuguese Bank Bonds, Funds Ponder Next Steps
LANDON THOMAS JR. – Dealbook – NY Times
Hedge fund investors, furious at having their bond holdings in Portugal’s Banco Espírito Santo written down to zero, are weighing a legal action against Portuguese regulators.

Banks & Brokers

RBS Libor probe to drag on to next year
Caroline Binham, Legal Correspondent – Financial Times
The criminal investigation into former traders at Royal Bank of Scotland over the Libor scandal is set to drag on well into next year, dashing hopes that the government-controlled lender can swiftly put past scandals behind it.

BofA’s Post-Legal Purgatory Is No Picnic
Steven Russolillo – MoneyBeat – WSJ
Bank of America ‘s legal purgatory is coming to end. But what lies ahead may not be that much better for shareholders. That’s the takeaway from WSJ’s Heard on the Street columnist John Carney, who argues that the future may not impress BofA investors.

Russian Banks Shrug Off Sanctions Threat to Capital Raising
Ben Edwards – MoneyBeat – WSJ
Russian lenders Sberbank and VTB Bank are leading the country’s stock market higher Monday. Why? Well, one of the world’s largest index providers said it would keep the two banks in its equity indexes in spite of EU and U.S. sanctions against Russia that have swept banks up in the net.

Taking Stock of Automated Financial Advisers
Liz Moyer – WSJ
The Internet has threatened the livelihood of travel agents, video-store clerks and mail carriers. Now high-tech startups are aiming to put another profession on the endangered list: financial adviser. A new breed of online advisers is using computer models available on their websites to tailor portfolios of inexpensive exchange-traded funds for individual investors and offering to manage those investments automatically.

Clearing & Settlement

Euroclear and Clearstream collateral pact hits the rocks
Rachael Singh – Financial News
A landmark deal between Europe’s two largest settlement houses to improve collateral and funding flows has broken down less than a year after first being brokered, Financial News has learned.

US to force swaps overhaul to improve wind-downs
Philip Scipio – Reuters
The way the world’s largest banks use derivatives is set for drastic change after the US Federal Reserve and Federal Deposit Insurance Corp moved to strip financial counterparties of early termination rights on new derivatives contacts in the event of some future bank failures.

Swaps Compression: Impact on Clearing Fees and Margin
Amir Khwaja – TABB Forum
Swaps compression trades reduce line items, clearing fees and margin. But they come at a price. And determining whether they are cost-effective depends on the details.

London Stock Exchange Group’s UnaVista Boosts Presence in North America
Ivy Schmerken – Wall Street & Technology
As banks and asset managers grapple with EMIR Phase II of European derivatives rules, LSEG’s UnaVista emerges as a major player in post-trade, regulatory reporting.

Clearstream’s July 2014 Figures: Continuous Growth Across All Business Areas
Increase In GSF Services Reflect Growing Industry Demand – Stefan Lepp: “Progress Made In Collateral Strategy”

Indexes & Products

Mantra of passive dominance is dangerous
José Luis Jiménez – Financial Times
Why has the rise of exchange traded funds and the death of traditional asset managers become the new mantra in asset management? In my view, it is due in large part to the huge amount of money that ETF groups and their cousins, as well as those who are promoting the efficient market hypothesis, are spending every day in marketing and advertising.

Index trackers have taken off but risks remain
Emma Dunkley – Financial Times
Few investment classes have seen the meteoric rise experienced by exchange traded funds in just over a decade. Launched quietly in Europe as the dotcom bubble burst in 2000, ETFs – investment funds that are traded as shares – took off during the financial crisis and have now amassed over $450bn.

Bill Gross’s Total Return ETF Allowed to Trade Derivates
Mary Childs – Bloomberg
The U.S. Securities and Exchange Commission approved the use of derivatives in Pacific Investment Management Co.’s Total Return exchange-traded fund, allowing it to more closely track the world’s biggest bond mutual fund.

Xetra/Börse Frankfurt: Two New ETNs From Boost Launched On Xetra – ETNs Track The Inverse Performance Of German And US Government Bonds


U.K. Financial Sector Eyeing Cyber Security Accelerators
Anna Irrera – MoneyBeat – WSJ
London’s financial district is aiming to become a global hub for innovative technology in cyber security and intelligence, and it couldn’t have come any sooner. Just last week a private security company said a gang of Russian hackers had amassed 1.2 billion usernames and passwords from around the internet.

Technology is a plus but not a panacea for fixed income under stress
Tim Cave and Matt Turner – Financial News
Cedric Price, a radical architect of the 20th century, once said: “Technology is the answer. But what is the question?” It remains just as pressing an issue for fixed income markets today.

Markit Adds Jefferies To Its Open Messaging Network


$128 Billion In Bank Fines, In 1 Chart
Kevin Short and Mark Gongloff –
Since 2009, big banks in the U.S. and Europe have paid at least $128 billion to regulators, according to data compiled by the Wall Street Journal, Reuters, and The Huffington Post, for issues tied to the housing collapse and other financial misdeeds, including aiding and abetting money laundering and tax evasion.

SEC Charges Bahamas-Based Brokerage Firm and President With Facilitating Fraudulent Scheme by Hedge Fund Manager
The Securities and Exchange Commission today charged a Bahamas-based brokerage firm and its president for enabling a fraud that was halted when the SEC charged the hedge fund manager at the center of the scheme.

SEC Announces Charges Against N.Y.-Based Brokerage Firm and Founder Despite Attempts to Mislead Examiners
The Securities and Exchange Commission today announced charges against a New York-based brokerage firm and its founder for allegedly violating net capital requirements and falsifying books and records to conceal the capital deficiencies.

NFA Regulatory Actions: Joel W. Himel

Environmental & Energy

Russia May Be Losing Influence Over European Energy Markets
Stanley Reed, The New York Times
The Ukraine crisis is unlikely to produce many benefits. But it could serve as a kind of stress test to see whether Europe’s approach to energy policy is working.

***LB: Also in this story “Europe’s much-criticized renewables push is also influencing energy markets.”

How did China and India beat the U.S. on energy efficiency?
Elisa Wood, GreenBiz
A new international energy efficiency ranking by the American Council for an Energy-Efficient Economy places the United States at a lowly 13 out of 16 leading world economies.

***LB: Also in this story “The federal government could create a focal point for achievement, but Congress has done nothing significant on energy efficiency for a long time.”

The corporatisation of US green energy: a double-edged sword worth billions
Peter Moskowitz,
There’s a popular meme that surfaces on green energy blogs, forums, and Facebook pages. The gist is that large corporations love oil and gas because they can own and control it. They’re against renewable energy because no-one can own the sun or wind.


HKEx-Shanghai Stock Sale Curb Shows China’s Rules Apply
Richard Frost and Kana Nishizawa – Bloomberg
Investors using the Hong Kong-Shanghai exchange link to access China’s $3.6 trillion stock market will have to play by mainland rules. Traders who want to sell Shanghai-listed shares must transfer the securities to a broker before 7:30 a.m. to comply with Chinese regulations, Charles Li, the chief executive officer of Hong Kong Exchanges & Clearing Ltd. and chairman of the firm’s equity bourse unit, wrote in a blog posting.

Charles Li Direct: Bridging the differences between Hong Kong and Shanghai
We’ve been very busy over the past couple of months preparing for Shanghai-Hong Kong Stock Connect. Our team has held a number of briefings and seminars for market participants, media, and investors, and we’re delighted that the response has been positive and many are excitedly waiting for the scheme to begin.

Japan slams European rules on bilateral swaps
Viren Vaghela –
Stricter European rules governing margining of bilateral swaps will cause liquidity challenges and operational burdens that may ultimately force Japanese firms to eschew trades with European counterparts.

TOCOM To Adopt Alternative Delivery Procedure For Oil Markets

Taiwan Futures Exchange (TAIFEX) Monthly Newsletter- August 2014

Frontier Markets

India Sets Norms to Open $20 Billion REIT Market
Bhuma Shrivastava and Santanu Chakraborty – Bloomberg
India approved the setting up and listing of real estate investment trusts as the nation seeks to unlock a $20 billion market.

South Africa Central Bank Planning African Bank Measures
Renee Bonorchis – Bloomberg
South Africa’s Reserve Bank plans to detail measures for African Bank Investments Ltd. (ABL), the Johannesburg-lender whose stock lost most of its value after saying it needs 8.5 billion rand ($797 million) of new funds.

Israel Investor Confidence Seen in Too-Strong Shekel
Gabrielle Coppola and Ye Xie – Bloomberg
For perhaps the best sign of how it’s been business as usual in Israeli markets since the fighting broke out in Gaza, look no further than the shekel.

Singapore Says Emerging Nations Would Welcome Normal Fed Policy
Sharon Chen – Bloomberg
Emerging economies would benefit from more normal monetary policies globally including rate increases and an end to asset purchases sooner rather than later, given the side effects of the unconventional measures, Singapore’s central bank said.

DGCX Volumes Grow 18% In July

Tehran Stock Exchange Re-Elects CEO, Dr. Hassan Ghalibaf Asl

Bursa Malaysia Securities Reprimands, Fines And Orders To Strike Off Oh Kok Boon (OKB) For Engaging In Manipulative Dealing Activities

The Egyptian Exchange (EGX) Monthly Statistical Report July 2014

Tehran Stock Exchange July Bulletin 2014

Nigerian Stock Exchange Weekly Report For The Week Ended 8 August 2014


IOSCO surveys warehouse impact on commodity derivatives market
A global umbrella group for market regulators is surveying the impact of warehouses on price formation in commodity derivatives markets, seeking members’ views on issues including potential conflicts of interest in storage ownership.

Piketty and the randomness of wealth
Izabella Kaminska – Financial Times
Gary Jenkins of LNG Capital confesses in a note on Friday that reading Piketty’s Capital in the 21st century was not an easy affair. Here’s the strategy he resorted to in order to get through the 577 pages of the book

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