John Lothian Newsletter: Trading houses in line for increased regulator scrutiny; SEC's newest enforcement weapon: powerful software; ATS Brasil hopes to break stock market monopoly

Feb 27, 2014

First Read

Vol Spike: CBOE Futures Exchange’s Jay Caauwe Introduces the Short-term Volatility Index
In February 2014, the CBOE Futures Exchange began listing contracts on the short term volatility index (VXST) – a 9-day variant of its flagship 30-day VIX futures.

In an interview with John Lothian News Editor-At-Large Doug Ashburn, CFE’s Jay Caauwe discusses the launch of VXST, the rationale behind the listing of VXST futures and which participants and strategies will be prevalent.

Watch the video »


JLN/MarketsWiki 2014 Annual Survey – Please Give us 30 Seconds of Your Time
John Lothian News
We say “annual” but, quite frankly, it has been three years since we’ve conducted one, so the last one is getting a little, shall we say, stale. Please click the link below and answer five simple questions. 30 seconds of your time once every three years? It isn’t too much to ask, right? Besides, you might win a valuable prize.


NFA’s Board of Directors re-elects Christopher Hehmeyer to serve as Chairman
The Board of Directors of National Futures Association (NFA) has re-elected Christopher K. Hehmeyer, Non-Executive Vice Chairman, Knight Futures, to serve a one-year term as Chairman. The Board also re-elected Michael C. Dawley, Managing Director, Goldman Sachs & Co., to serve as Vice Chairman.

***** Congratulations to Mr. Hehmeyer and Mr. Dawley, truly two leaders in our industry.


Trading Technologies looks to next generation of financial-tech talent
Amina Elahi – Blue Sky Innovation
As more business students entertain the call of Silicon Valley over Wall Street, the high-tech trading world is looking for inventive ways to develop and recruit top talent. The need is magnified as algorithm-based trading strategies surge, increasing the financial industry’s demand for software developers, says Leo Murphy, university program manager at Chicago-based Trading Technologies.

***** Trading Technologies is showing good business sense and good citizenship in their efforts to aid in the education of university students.

***** John J. Lothian & Company, Inc. is personally committed to the issue of helping the next generation of market professionals and participants as evidenced by our Summer Intern Education Series. You can see now six of the videos from last summer’s series, including that latest from Dr. Richard Sandor at

***** Additionally, I am personally committed to cause of educating young people about Science, Technology, Engineering and Mathematics, or STEM, through my volunteer work for the Boy Scouts of America at the troop level and at the Chicago area level.

***DA: We also hear he is personally committed to finding a cure for the common cold. A real Renaissance man, that Lothian guy.


Fund investors find small is beautiful
David Oakley –
Size matters. And when it comes to active investment management, there is a strong case for small rather than big as the performance of some of the giant, or leviathan, funds trails in the slow lane.

***** Yes, in terms of market impact for an active trading strategy. It is easier to move a sports car than a bus. The question is whether small firms can handle the regulatory burdens of today.


Keeping the faith in commodity trading
Neil Hume, Commodities Editor –
The commodities trading landscape is changing. Faced with rising costs, increased regulation and directionless markets big banks such as Deutsche Bank are retrenching or retreating from the sector. It is a trend that looks set to continue.

***** Two things. Markets and participation in them goes in cycles. Secondly, there are people who are in this business because that is their business. Then there are people who are in this business when the cycle is on the way up, or way down and they don’t realize it yet.


Forget $10 Trades, Meet Robinhood: New Brokerage Targets Millennials With Little Cash
The stock market is hitting all sorts of records lately, but where do you go to pick up a few shares of your favorite company? If you’re young and every dollar is precious, then paying the usual $5 or $10 fee most online brokerages charge isn’t appealing.

***** There are many ways to pay. Some are transparent, like $10 commissions, are others are not. Why is my order being shopped around? Why is it not executed on NYSE, NASDAQ or BATS?


Why would anyone trade forex?
Jonathan Eley –
The Financial Conduct Authority has today fined FXCM GBP4m for a practice it euphemistically termed “asymmetric price slippage”, and which most of us would describe as ripping off clients.

***** Mr. Eley writes an article about how difficult it is to make money in FX trading as opposed to equities based on FXCM getting fined for improper handling of customer orders. There is friction in all markets, so you can see, some you can’t see. One reason we need the regulators is to have someone authorized to be a fair observer of what we can’t see and to correct any problems they see. The FX market is a great market to trade, for many of the reasons Mr. Eley states as reasons not to trade it. Yes, it is efficient (fairly so), but it represents the greatest measure of macroeconomic changes in different countries and economic unions. The average little trader is driving a sports car, not a bus. I am an FX trader myself.


CME Clearing Europe Expands its Suite of OTC Interest Rate Swap Offerings
CME Clearing Europe, CME Group’s European clearing house, today announced that it has received Bank of England approval to add Overnight Index swaps (OIS), zero coupon swaps, Forward Rate Agreements, basis swaps, variable notional swaps and SEK, DKK and NOK currencies for clearing beginning 3 March to its existing interest rate swap offering.

***** CME continues to grow its offerings in Europe. Get used to that.


CBOE Wins Three Top Awards
Executive Chairman William J. Brodsky received Wall Street Letter’s “Outstanding Contribution” award at WSL’s Institutional Trading Awards on February 25. He also accepted the “Most Innovative Exchange Technology – Options” award on behalf of CBOE.

***** I have decided on a new strategy. I am going to hold a dinner, charging small fee of course, to honor all of those award winners from all the different publications. I am going to aggregate the awards dinner. Any takers?


ISE and ISE Gemini Named “Best Options Trading Venue” at Wall Street Letter 2014 Institutional Trading Awards


Perseus Acquires Chicago’s TLV Networks, Microwave Access Provider
Perseus Telecom, a leading provider of high-speed global connectivity, High Precision Time and Market-to-Market networks announced today the acquisition of TLV Networks, Ultra-Low Latency Microwave Networks connecting the CME Group Aurora data centre and ICE at 350 Cermak, Chicago.

***DA: Steven Wright once said, “I put instant coffee in a microwave oven and almost went back in time.” These Perseus guys are starting to scare me.



MarketsWiki Page of the Day
Juan R. Luciano

MarketsWiki Recent Updates


David Johnson; Patricia Woertz; Juan R. Luciano; Bevan Miller; Christine Bookmyer; Tim Bennett

Companies, Organizations and Groups

European Commodity Clearing AG (ECC); European Energy Exchange AG; Archer Daniels Midland; Dubai Gold and Commodities Exchange


CME Group interest rate products; CME Group 2-Year U.S. Treasury notes; CME Group 30 Year USD Deliverable Interest Rate Swap


Swap futures; Interest rate swaps


47,310,120 pages viewed, 7,832 articles, 179,911 edits
MarketsWiki Statistics

Lead Stories

Trading houses in line for increased regulator scrutiny
Neil Hume and Xan Rice in London –
Trading houses are set to attract greater attention from the UK’s financial watchdog as commodity markets come under increased political and regulatory scrutiny. Oil and utility companies that have large energy trading arms such as BP will also be in focus as Financial Conduct Authority prepares to implement sweeping new rules policing Europe’s financial markets.

U.S. SEC’s newest enforcement weapon: powerful software
The U.S. Securities and Exchange Commission is beefing up its capacity to detect insider trading and other illegal activity by engaging with Palantir Technologies, a software company originally set up to help foil terrorists.

ATS Brasil hopes to break stock market monopoly
Mimi Whitefield –
This could be the year that competition returns to the Brazilian stock market. Americas Trading System Brasil — a joint venture between Americas Trading Group (ATG), a Brazil-based electronic trading company that serves key Latin American markets, and NYSE Euronext — is seeking regulatory approval to open Brazil’s second exchange.

CME Ex-CEO Tackles Options Market Risk in New Clearinghouse Role
Nandini Sukumar – Bloomberg
Craig Donohue, the new chairman of Options Clearing Corp., says he’s focused on improving the organization’s operations after regulators criticized how it managed risk in the $1.2 trillion U.S. equity options market.

***JM: Repeated from yesterday, now that a link to the whole article is available…

Troubled MtGox Bitcoin boss emerges after shut down
BBC News
The head of troubled Bitcoin exchange MtGox has made his first statement since the service went offline. Mark Karpeles said he was “working very hard with the support of different parties” to address issues with the service, which went offline on Tuesday.

Firms Bank on Bitcoin Bounce Back
Perseus Telecom, a provider of high-speed telecommunications lines for securities exchanges and trading firms, is joining forces with bitcoin-trading platform Atlas ATS and Strevus Inc., which produces compliance-management tools for financial institutions and other firms, to build one or more U.S.-based digital-currency exchanges in the U.S. and elsewhere.

10 Takeaways from Credit Suisse’s Senate Hearing on Tax Evasion
MoneyBeat – WSJ
During more than three hours of cross-examination from members of the Senate Wednesday, Credit Suisse’s CEO Brady Dougan and three other top bank executives discussed their knowledge, or lack thereof, of the Swiss bank’s alleged role in helping U.S. citizens and corporations evade U. S. taxes.

Bernanke is set to make legal first with deposition on Thursday
Former Federal Reserve Chairman Ben Bernanke will give a deposition Thursday in a lawsuit about the 2008 bailout of American International Group Inc., a case that once seemed a long shot but is marching toward a trial date.

‘Tartan’ bond plan branded a ‘gimmick’
Ralph Atkins –
Even if Scotland’s nationalists fail in their bid for independence – a referendum on exiting the United Kingdom will be held in September – the country will soon taste one feature of life as an autonomous state: raising debt in capital markets.

Market abuse reports on the rise
Anna Irrera – Financial News
Reports of potential insider trading and other market malpractice to UK regulators jumped 28% in 2013, as authorities clamped down on misconduct.


CFTC’s Division of Swap Dealer and Intermediary Oversight Issues a Staff Advisory on Best Practices for Complying with the Gramm-Leach-Bliley Act Security Safeguards
The U.S. Commodity Futures Trading Commission’s (Commission) Division of Swap Dealer and Intermediary Oversight (Division) today issued a Staff Advisory that outlines recommended best practices for covered financial institutions to comply with Title V and Part 160 of the Commission’s regulations concerning security safeguards.

National Futures Association: FCM and lB Regulations – Proposed Amendments to NFA Compliance Rule 2-26 to lncorporate CFTC Risk Management Program Requirement for FCMs

New Zealand’s Financial Markets Authority: Crowd Funding Gets Green Light
Commerce Minister Craig Foss today announced Cabinet has approved regulations for crowd funding and peer-to-peer lending as part of the Government’s financial market overhaul.

“What a mess”: market reflects on start of Emir reporting
Fiona Maxwell –
By any standards, Europe’s new reporting regime got off to a bad start. Many companies were not ready to comply; some repositories were not able to cope with those that were. Regulators, meanwhile, did not agree on what was in scope. Fiona Maxwell reports

WM Datenservice: “Emir was too fast”
Fiona Maxwell –
Germany’s issuer of legal entity identifiers opened for business almost 12 months ago, but demand only surged in the weeks leading up to Europe’s February 12 reporting deadline

Measures needed to curb advantage of High Frequency Trading
Richard Curran –
NINETY to 95pc of all bid offer spreads on American stock exchanges are automatically generated by computers. When it comes to the actual volume of shares sold, more than 50pc of them fall into the computerised high frequency trade category. In Europe, the figure is around 40pc.

US Trade Groups Send Letter To Chairman Camp Opposing Lending Tax In Tax Reform Proposal

[AMF Canada] Warning – Caution regarding foreign exchange market

Exchanges & Trading Facilities

Hong Kong exchange chief Charles Li receives 55% pay rise
Michelle Price in Hong Kong – Financial News
The compensation package of Hong Kong Exchanges and Clearing chief executive Charles Li rose just over 55% to HK$38.3 million (US$4.9 million) last year, according to the company’s annual remuneration report published yesterday.

BATS Chi-X Europe Appoints Jill Griebenow as Chief Financial Officer
Ms. Griebenow joins from parent company BATS Global Markets with immediate effect, and is responsible for all financial control and human resource functions at BATS Chi-X Europe.

HKEx maps out plans for 2014
The Trade
Hong Kong Exchanges and Clearing (HKEx) has laid out its intentions for upcoming market microstructure improvements. The plans were set out in tandem with the exchange’s announcement of its 2013 results.

HKEx says expects LME trading fees to rise in 2015
Hong Kong Exchanges & Clearing expects London Metal Exchange trading fees to rise in 2015, the chief executive of the world’s fourth largest exchange said on Wednesday.

LME rules will see Rusal lose ‘tens of millions of pounds’, court hears
Xan Rice –
Rusal, the world’s biggest aluminium producer, told a court that it could lose “at the very least tens of millions of pounds” under new regulations from the London Metal Exchange that it has called a breach of its human rights.

RUSAL v LME: Warehousing proposals came from Charles Li, consultation was unfair, court told
Metal Bulletin
The London Metal Exchange’s recently implemented policies on warehouse load-in and load-out rates originated with Charles Li, ceo of owner HKEx, and may have been connected with a desire to be seen not to be “doing nothing”, the UK High Court was told on Wednesday February 26.

CFTC-EC Sef accord ‘will not solve liquidity split’
Peter Madigan –
A new transatlantic accord will not resolve the problem of split US and non-US liquidity pools, according to the platforms it was designed to help.

ISE 2014 Has A New Participation Category For All Companies Listed On BM&FBOVESPA

NYSE Group Inc. Issues Short Interest Report

NYSE MKT Issues Short Interest Report

London Stock Exchange Welcomes DX Group To AIM

NASDAQ Announces Mid-Month Open Short Interest Positions In NASDAQ Stocks As Of Settlement Date February 15, 2014

Hedge Funds & Managed Futures

Man Group Reports Net Profit, Announces Share Buyback; Shares Up 9%
Hedge fund manager Man Group PLC Thursday announced a net profit for 2013 of $72 million and said it plans to repurchase $115 million of its ordinary shares to return surplus capital to shareholders.

Investment chief of top U.S. pension fund Calpers dies after cancer
The chief investment officer of Calpers, the largest pension fund in the United States, has died after a battle with cancer, his office said on Wednesday. He was 62.

The 25 Highest-Earning Hedge Fund Managers And Traders
The vast majority of hedge fund managers were yet again unable to keep up with the U.S. stock market as equities boomed from New York to Tokyo. But prominent hedge fund managers and traders did not have to match the 32% return of the Standard & Poor’s 500 index to make a lot of money in 2013—and many of them increasingly argued they should not even be measured against such a benchmark during a bull market.

A Hedge Fund Manager Says SAC Taint Is Manageable
Dmitry Balyasny is one hedge fund owner who isn’t afraid of hiring traders from SAC Capital Advisors as long as they were far away from the “messiness” that engulfed the firm during the federal government’s crackdown on insider trading.

Carlyle’s Co-Founder Says More Private Equity Firms Likely to Go Public
David M. Rubenstein, the co-founder of the private equity firm Carlyle Group, said on Wednesday that he believed more private equity firms would seek to go public in the next few years.

Managers improve, but scale kills
James Saft | Reuters
Fund managers are getting better, but active fund management is getting worse. Yes, I realize that is a bit like saying improved medical care is causing us to lose more patients, but this is indeed the upshot of new research and it should put investors in a quandary.

EU rules force fund managers to have skin in the game
Joe McGrath – Financial News
Fund managers will receive half of their bonuses in units of the funds they manage and will receive 40% of their bonus three years after allocation when European rules take effect in 2016.

CVC’s Steve Koltes: From plague to paradise in Europe
Ayesha Javed af SuperReturn in Berlin – Financial News
Steve Koltes, one of the founding partners of CVC Capital Partners, said today that Europe had gone from a place that investors avoided like the plague to a region generating a sense of euphoria.

Banks & Brokers

Greece’s lenders accept lower capital ratio for bank health test- source
Greece’s international lenders have agreed that a lower capital ratio can be used in a second stress test of the country’s major banks, bringing it in line with a European banking benchmark, a banker close to negotiations told Reuters on Thursday.

R.B.S. Posts $15 Billion Loss for 2013
Royal Bank of Scotland Group, the British lender that is trying to return to health after nearly collapsing during the financial crisis, on Thursday posted a huge annual loss as it set aside more money for its legal woes.

In a Retirement, a Loss for Barclays
Hans-Joerg Rudloff’s retirement at age 73 comes at an unhelpful time for Barclays.

Goldman Sachs Conference Call to Announce First Quarter 2014 Results

Clearing & Settlement

UK investors, banks at odds over who to cover clearing house risks
Britain’s race to shield taxpayers from a potentially new breed of “too big to fail” financial firms is pitting investors against banks over who pays the bill if one of the clearing houses handling the trillions of dollars of trades made each year in financial markets runs into trouble.

CME Clearing Europe Set To Expand Swaps Support
Victor Anderson – WatersTechnology
CME Clearing Europe, the Chicago Mercantile Exchange (CME) Group’s European clearing house, has received Bank of England approval to add a number of derivatives to its interest-rate swap service.

Indexes & Products

S&P Dow Jones Indices Announces Changes To The S&P/TSX Canadian Indices – A Deletion From The S&P/TSX Preferred Share Index


CMC Picks Colt as Datacenter Provider
Waters Technology

FIX Trading Community Announces Industry’s Adoption Of FIX Protocol For TESI


Regulator penalises US forex trading group FXCM twice
Daniel Schäfer and Philip Stafford in London –
FXCM, a US forex trading group, has been hit with a penalty for failing to pass on profits to clients as regulators crack down on retail foreign exchange markets.

Ex-boss tells former Jefferies trader’s fraud trial bond traders spoke in code
A former supervisor of onetime Jefferies Group Inc trader Jesse Litvak, who is on trial on federal fraud charges, testified on Wednesday that traders sometimes used coded language to conceal trades whose prices were not necessarily best for clients.

U.S. justices say Allen Stanford victims can sue lawyers, brokers
Investors in Allen Stanford’s $7 billion Ponzi scheme can sue to recoup losses from lawyers, insurance brokers and others who worked with the convicted swindler, the U.S. Supreme Court ruled on Wednesday.

UK’s Financial Conduct Authority Bans Former CIB Partners Limited CEO Arnold Eber

[AMF Canada] In the Matter of Norshield – Enrico Bruni fined $18,000

Environmental & Energy

Emerging Economies Lead Climate Action, Globe Study Finds
Nations have passed almost 500 laws to tackle climate change, with emerging economies led by Mexico and China making the most progress last year, a study by Globe International found.

No Conflict of Interest Found in Favorable Review of Keystone Pipeline
The New York Times
A State Department contractor who prepared an environmental analysis of the Keystone XL pipeline did not violate conflict-of-interest rules, even though the contractor had previously done work for TransCanada, the company seeking to build the pipeline, a State Department Inspector General’s investigation concluded on Wednesday.

Global Carbon market to reach record volumes by 2016
Commodities Now
In 2014, the value of the globally-traded carbon market will rise by two thirds from 2013 reach 64bn euro, (39bn euro in 2013), with volume increasing by 3 percent to 9.6 Gt CO2e, according to analysis by Thomson Reuters Point Carbon


More Flexible Yuan Is Low-Hanging Fruit of Financial Reforms By The People’s Bank of China
MoneyBeat – WSJ
China’s central bank is moving closer to widening the trading range for the tightly controlled yuan, but it still faces obstacles to carry out other reforms that have long been on the agenda.

Why the Yuan’s Decline Matters
MoneyBeat – WSJ
China’s yuan has fallen steadily against the U.S. dollar in the past week. On Wednesday, The Wall Street Journal reported that it wasn’t market forces or traders behind the move, but that the Chinese central bank was deliberately pushing the currency lower. That a central bank would do this on purpose has caught some off-guard, especially since the yuan was long seen by investors as a currency that was only going up.

Tentative China pension reforms tackle inequality, but financing issues remain
China’s latest step to overhaul its pension system to even out payments between urban and rural residents is a move experts say is more symbolic than sweeping.

China: Progressing Towards Financial Market Liberalisation And Currency Internationalisation – Speech By Yves Mersch, Member Of The Executive Board Of The ECB, Renminbi Forum Luxembourg, 26 February 2014

Tokyo Commodity Exchange Starts Offering SCO On Inter-Commodity Spreads On March 24

HKFE Announces Revised Margins for Futures Contracts

TSE Imposes Disciplinary Action Against SMBC Nikko Securities Inc.

Hong Kong’s Securities And Futures Commission Issues Third-Quarter Report

Dalian Commodity Exchange: Reasonable Risk Control System To Ensure Smooth Operation Of PP Futures

Frontier Markets

Former Argentina policymakers predict new era of economic reforms post-2015 elections
Euromoney magazine
A shift in the political landscape in favour of pragmatists for the 2015 elections will trigger a slew of economic reforms to correct Argentina’s structural imbalances, Martín Redrado, the former central bank governor, and Miguel Kiguel, former finance secretary, tell Euromoney.

MCX cuts transaction charges to push up volumes
The Multi Commodity Exchange, India’s biggest exchange in terms of volumes, has cut transaction charges on futures contracts of all commodities effective Wednesday, in a bid to push up battered volumes.

Nigerian Stock Exchange Declared That Submitting Corporate Actions With Accompanying Financials Has Been Very Valuable For Quoted Companies

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