John Lothian Newsletter: UBS, Deutsche drawn into ‘dark pool’ probes; ASX heeds call to address flaws; U.S. derivatives regulator faces test in big courtroom showdowns

Jul 29, 2014

First Read

Summer Intern Education Series Kicks Off Today
Today is the first in a series of five events in the MarketsWiki World of Opportunity Summer Intern Education Series in Chicago. Speaking at today’s event are Tony McCormick of BOX, Ed Tilly of CBOE, Ben Van Vliet of IIT, Tim McDermott of NADEX and Matthew Rees of R.J. O’Brien

McCormick’s subject is “The Summer Intern Giftbox,” Tilly’s is “Embrace Change,” Van Vliet’s is “HFT: The Need for More Than Speed,” McDermott’s is “You Can’t Google Map Your Career,” and Rees’ is “Three Old Words for a New Generation of Futures Trading.”

The event begins today at 3:30 PM at the Stuart School of Business at IIT at 565 West Adams. The doors open at 3 PM for check in. All those registered will receive today a ticket they need to bring for entrance, though we will have alternative means to check them in as well.

This is our second year of this series. We have 26 speakers lined up to deliver 10 to 12 minute talks on a variety of subjects over the five events. We are video recording the events and will be publishing them on our education website.

There is a lot of excitement leading up to this series after a very successful run last year. We have 171, 152, 190, 167 and 160 participants signed up for the respective events. Last year we had 100 to 125 attend the various events. It should be fun.


World Of Opportunity Chicago 2014: Tony McCormick (Promo)
Our MarketsWiki World of Opportunity Summer Intern Education Series in Chicago is quickly approaching. Tony McCormick, CEO of BOX, will be discussing the importance of internships. McCormick looks back on his years as an intern and how they helped shape his professional life. For more information on the event and how to register, click here.

Watch the video »


Greifeld warns on ‘perverted’ dark pools
Gina Chon in Washington and Nicole Bullock in New York – Financial Times
In his strongest statements on the need for overhauling the equity markets, ²Nasdaq OMX chief executive Bob Greifeld said on Monday that “dark pools” have become perverted, while a key regulation aimed at improving the markets by requiring investors to receive the best price has become meaningless.

***** I believe they are pro-verted.


[Video] N.J.’s Garrett Hosts Roundtable on Market Structure
U.S. Representative Scott Garrett, a Republican from New Jersey, conducts a roundtable discussion in Washington on equity market structure. KCG Holdings Inc. Chief Executive Daniel B. Coleman, SIFMA CEO Ken Bentsen, Nasdaq OMX Group Inc. CEO Robert Greifeld, Joseph Gawronski, chief operating officer of Rosenblatt Securities, InterContinentalExchange Inc. Chairman Jeffrey Sprecher, and BATS Global Markets Inc. CEO Joe Ratterman are among the participants.

***** More must see TV.


SEC rules favour dark over lit trades
John Bakie – The Trade
US regulations could be providing dark pools with additional advantages that have made them more popular at the expense of lit venues, according to research from the Capital Markets Cooperative Research Centre (CMCRC).

***** And that would be wrong. Regulation should be skewed towards lit trading as a full bodied price discovery mechanism is key to all trading, lit and dark.


Clearing competition lures buy-side to derivatives
Jon Watkins – The TRADE
Buy-side firms are finding new clearing arrangements to be the biggest draw to Europe’s derivatives markets as a result of increased exchange competition, according to’s July poll.

***** Clearing arrangements are like ring around the rosie. Sooner or later you get left out.


Meet the SEC’s 6,500 Whistleblowers
Maxwell Murphy – WSJ
What do four adult entertainers, 138 engineers, a handful of pilots and a pastor have in common? They all think they have hot tips about an alleged financial fraud. They are also among the more than 6,500 people who have offered confidential information under the whistleblower program of the Securities and Exchange Commission

***** Where there is money, there is motivation to get the money.


Meditate to sharpen your assertive edge
Charles Wallace – Financial Times
I have written previously about the dangers of long-term workplace stress. So what do you do about it? Too many people in the US and UK resort to tranquillising drugs or sleeping pills to deal with chronic anxiety. One recent study found a 12.5 per cent annual increase in prescriptions for benzodiazapenes such as Xanax and Valium. My personal answer to stress has been meditation, albeit practised somewhat erratically and with mixed results over the years.

***** I take one dose of scouting a week for my anxiety.


Bürgenstock 2014 – Register before 1 August and save!
Join us for SFOA/FIA/FIA Europe Bürgenstock: The Global Forum for Derivatives Markets which will take place on September 23-25 in Geneva, Switzerland. The Bürgenstock conference, now in its fourth decade, has a long history of attracting distinguished speakers and prominent names from the economic, academic and political worlds for high-level debate and discussion. Please check back for information about this year’s program.

***** Meet the world famous Doug Ashburn in Geneva this year when you attend the Bürgenstock 2014 conference.



MarketsWiki Page of the Day
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MarketsWiki Recent Updates


Alan C. Greenberg; Tom Haldes

Companies, Organizations and Groups

The Bear Stearns Companies Inc.; Lloyds Banking Group Plc; London Metal Exchange


CFTC commissioners


51,461,449 pages viewed, 8,005 articles, 184,846 edits
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Lead Stories

UBS, Deutsche drawn into ‘dark pool’ probes
James Shotter in Zürich, Daniel Schäfer in London and Alice Ross in Frankfurt – Financial Times
UBS and Deutsche Bank have been drawn into an expanding investigation of the anonymous “dark pool” trading venues of banks as it emerged that both have received inquiries from authorities over their operations.

ASX heeds call to address flaws
Anthony Klan – The Australian
THE Australian Securities Exchange has agreed to lift its game after an annual review by the corporate regulator highlighted a number of deficiencies, including its handling of listing applications from “emerging market” companies and its detection of fraudulent company announcements.

U.S. derivatives regulator faces test in big courtroom showdowns
Douwe Miedema and Sarah N. Lynch – Reuters
The U.S. federal agency regulating derivatives has fought just three trials since 2011, all against small-time fraudsters in Florida. Now it is poised to take on a series of formidable opponents in the biggest courtroom tests yet of its efforts to crack down on market wrongdoing.

Nasdaq CEO says maker-taker model has value, but fees too high
Sarah N. Lynch – Reuters
Nasdaq OMX’s chief urged U.S. regulators on Monday to re-examine the pricing model that stock exchanges use to attract trading, joining the debate about a fee-based incentive for traders that has come under scrutiny in recent months.

Citadel and Virtu prepare for tilt at OTC market
Joe Rennison –
Non-bank dealers – including an arm of Citadel and Virtu Financial – are preparing to go up against banks as swap market-makers, but some barriers remain, including regulatory costs and the need for big, easily checked clearing limits.

Best Brokers Beat Bank Dark Pools by Trading Only for Clients
Doni Bloomfield – Bloomberg
The best stock brokers last year only traded for their clients, according to research group Abel Noser Solutions. Liquidnet Holdings Inc. and Investment Technology Group Inc. (ITG) topped the list, which tracked the amount equity prices moved between the time a customer sent an order and when it was completed. Liquidnet and ITG are agency brokers, which means they don’t buy and sell for themselves. The two were the only large firms to save clients money, Abel Noser found.

‘Every Little Helps’ for Lloyds Traders Rigging Benchmark Rates
Richard Partington – Bloomberg
For traders at Lloyds Banking Group Plc (LLOY), “every little helps” when rigging benchmark interest rates, according to transcripts of conversations released by regulators as part of the bank’s settlement.

How Argentina’s Default May Trigger $29 Billion in Claims
Katia Porzecanski and Camila Russo – Bloomberg
By defaulting tomorrow, Argentina may trigger bondholder claims of as much as $29 billion — equal to all its foreign-currency reserves. If the overdue interest on Argentina’s dollar-denominated securities due 2033 isn’t paid by July 30, provisions in bond indentures known as cross-default clauses would allow the nation’s other debt holders to also demand their money back immediately.


Transparency Is Good for Markets: Chilton: Video
Lloyds Banking Group Plc agreed to pay $370 million to U.K. and U.S. authorities for manipulating benchmark interest rates such as Libor. Former CFTC Commissioner Bart Chilton speaks on “In The Loop.”

CFTC Extends Designation of DTCC-SWIFT as LEI Provider
In order to further the smooth transition to a global system of legal entity identification, the U.S. Commodity Futures Trading Commission (Commission) issued an Amended and Restated Order on July 22, 2014, extending the designation of the utility operated by DTCC-SWIFT as the provider of legal entity identifiers, or LEIs, pursuant to the Commission’s swap data recordkeeping and reporting rules.

Focus on culture and reputation at OpRisk Europe 2014 – video
Alexander Campbell –
In June Operational Risk & Regulation hosted its largest London conference ever: OpRisk Europe, this year at the Victoria Park Plaza hotel. Anchored by keynote speakers Roberto Setola (Finra) and Duncan Wilson (HSBC), the two-day conference covered the gamut of operational risk and regulatory topics, including culture, reputation, AML, regulatory compliance, loss modelling and risk appetite.

Proposed bitcoin regulations ‘unworkable’ in current form
Jessica Meek –
Bitcoin-friendly New York State proposes regulation for the crypto-currency world that commentators fear are too onerous and compliance heavy for the young industry to work with

Hiring Trends: Wall Street Regulators in Demand
Ivy Schmerken – Wall Street & Technology
High-ranking government officials continue to leave the CFTC, landing lucrative industry jobs.

World Federation of Exchanges: Answer to IOSCO Task Force on Cross-Border Regulation

Global Legal Entity Identifier Foundation (GLEIF) Announces Funding Plan

SIFMA President And CEO Kenneth E. Bentsen, Jr. Participates In Equity Market Structure Reform Roundtable

Exchanges & Trading Facilities

Thailand Futures Exchange To Launch Gold Physical Exchange Service
Thailand Futures Exchange PCL (TFEX), under the Stock Exchange of Thailand group, joins hands with seven gold shop operators to offer physical gold exchange service for gold futures investors, enabling them to exchange a matured contract into physical gold at the gold shop operators. The service will start from the gold futures contract maturing in August.

Nasdaq to build JPX derivatives platform
Jon Watkins – The Trade
The Japan Exchange Group (JPX) has ended months of speculation by announcing that Nasdaq OMX and the NTT DATA Corporation will develop its new derivatives trading system. The newly merged exchange sparked interest in February by publically appealing for system development vendors to apply to build the system, set to be launched in 2016.

Tamborski takes helm at Warsaw Stock Exchange
John Bakie – The Trade
A former Polish Treasury minister has been appointed as CEO and president of the Warsaw Stock Exchange (WSE). Since 2012 Pawel Tamborski has been under-secretary of state at the Ministry of the Treasury in Poland, where he was responsible for promoting the country’s financial and capital markets to international investors.

Court appeal to move LME closer to cutting warehouse backlogs
Eric Onstad and Susan Thomas – Reuters
The London Metal Exchange (LME) is likely to move quickly to implement its tough warehousing rules to cut backlogs if it is successful at an appeal hearing this week, metals market sources said.

NGX And Alliance Pipeline Launch Services At New U.S. Trading Hub
NGX and Alliance Pipeline announced, effective today, the addition of the Alliance Chicago Exchange market hub (APC-ACE) as a cleared trading point on NGX.

The Spanish Stock Market Admits To Trading The First Stayhigh / Staylow Products
The Spanish stock market today started trading the first StayHigh and StayLow on its Warrants, Certificates and other products segment.

Bahamas International Securities Exchange Q2, 2014 Statistical Report

TMX Group Civic Holiday Market Closures

Hedge Funds & Managed Futures

Ex-Citi FX trading head Prasad readies macro hedge fund- sources
Nishant Kumar and Simon Jessop – Reuters
Former global head of foreign exchange at Citigroup, Anil Prasad, is preparing to launch his own hedge fund in the first quarter of 2015, three sources familiar with the matter said.

Managed Futures Funds’ Uncertain Future – Focus on Funds
Brendan Conway – Barron’s
Colleague Lawrence C. Strauss reviews one of the last few years’ least attractive fund-investing niches: Managed futures, where the average fund suffers a multi-year losing streak.

No Bonds, No Problem as Pimco Increases Bets Using Swaps
Lisa Abramowicz – Bloomberg
If corporate bonds don’t trade frequently enough for you, one solution is to turn elsewhere. More and more investors are betting on whether the notes will go up or down in value without owning the securities, using derivatives. This has been attractive for asset managers looking to be nimble in markets or make big bets, especially as corporate-debt trading volumes wane.

DFMs under pressure over portfolio charges as FCA considers review
Alasdair Pal
Discretionary fund managers are facing growing pressure to standardise managed portfolio fees as the FCA considers warning advisers against using any service where costs are not clear.

BlackRock soft-closes European Opportunities fund
Anna Fedorova – Investment Week
BlackRock has soft-closed its European Opportunities Extension fund at £540m to protect investors.

ECI hits first close as fundraising gains momentum
Dan Dunkley – Financial News
UK mid-market firm ECI Partners has reached a first close for its 10th buyout fund, according to three people familiar with the matter, after making steady progress with existing investors and attracting new backers.

New Venture Fund Binary Capital Focuses on Mission, Not Just Metrics
SARAH MAX – Dealbook – NY Times
The notion that the best entrepreneurs are driven by a bigger vision is front and center in the investment strategy at Binary Capital, a new venture firm founded by Mr. Teo and Justin Caldbeck, 37, his friend and a former managing director at Lightspeed Venture Partners

Banks & Brokers

UBS, Deutsche Bank Cooperating Cooperating in Trading Pro
Elena Logutenkova – Bloomberg
UBS AG said the U.S. Securities and Exchange Commission is investigating its dark pool, while Deutsche Bank AG (DBK) is responding to requests for information from regulators on high-frequency trading.

Carney Calls Lloyds ‘Reprehensible’ For Rate Manipulation
Richard Partington and Suzi Ring – Bloomberg
Lloyds Banking Group Plc (LLOY)’s manipulation of key interest rates was branded “reprehensible” by Bank of England Governor Mark Carney as the lender agreed to pay 226 million pounds ($383 million) in fines and redress.

Barclays Sued by Investor Over Losses From Dark Pool Suit
Patricia Hurtado – Bloomberg
Barclays Plc (BARC) was sued by an investor over a plunge in share prices that followed New York Attorney General Eric Schneiderman’s lawsuit accusing the bank of lying to customers and hiding the role of high-frequency traders to promote its dark pool.

Barclays’s Investment Banking Revenue Seen Falling 20%
Stephen Morris – Bloomberg
Barclays Plc (BARC)’s chief executive officer, who has seen shares slump 20 percent this year following scandals involving high-frequency trading and currency probes, may report that revenue at the investment bank dropped at least 20 percent in the second quarter from a year earlier, according to six analysts surveyed by Bloomberg News.

Deutsche Bank Revenue From Debt Trading Beats Estimates
Nicholas Comfort – Bloomberg
Deutsche Bank AG (DBK), Europe’s biggest investment bank, reported revenue from debt trading that beat analysts’ estimates in the second quarter as pretax profit rose 16 percent.

Lloyds staff will find it harder to sneer at RBS rivals
Martin Arnold – Financial Times
Lloyds Banking Group employees have always taken comfort from the fact that however bad things seemed at the UK lender, they inevitably appeared far worse at its rival Royal Bank of Scotland. But in recent days the tables have been turning between the two banks that were bailed out by the British government during the financial crisis at a total cost to the taxpayer of more than £67bn.

Deutsche Bank: Fixed income’s immovable object
Vivek Ahuja – Financial News
Deutsche Bank’s broad product mix helped it justify analyst predictions that it was among the best-placed European banks to benefit from an improvement in fixed income.

Morgan Stanley to Increase Base Salaries for Junior Bankers
WILLIAM ALDEN – Dealbook – NY Times
Morgan Stanley plans to increase base salaries for junior and midlevel bankers by as much as 25 percent, a person briefed on the matter said on Monday, in the latest move by Wall Street to try to improve working conditions for those lowest on the totem pole.

UBS Second-Quarter Profit Before Tax CHF 1.2 Billion

Clearing & Settlement

TMX Group Clearing Entities Recognized As Qualifying CCPs
Press Release
The Bank of Canada and certain provincial commissions today announced that the TMX Group Limited central counterparties (CCPs) – CDCC, CDS and NGX – can each be considered qualifying central counterparties (QCCPs) pursuant to the standards developed by the Basel Committee on Banking Supervision and adopted by OSFI. This status allows certain bank exposures to the CCPs to be subject to lower capital requirements.

CME Group – Clearing: UPDATED: Product Modification Summary for Clearing Firms, Bookkeeping Software Providers, ISVs

Indexes & Products

Exclusive: Goldman moves executive to new role building ETFs
Lauren Tara LaCapra – Reuters
Goldman Sachs Group Inc has moved an executive from its trading division to its investment-management division to launch a business that will sponsor exchange-traded funds and sell them to retail clients through third parties, according to a memo and people familiar with the matter.

Vietnam to list first domestic ETF as it liberalises market
Justin Lee –
ETFs seen as the first step in Vietnamese government’s plan to launch a domestic derivatives market in 2016 with the sale of warrants and option contracts

USD 29 Billion In Net New Assets Gathered In First 6 Months By ETFs Based On MSCI Indexes
MSCI Inc., a leading index provider to the ETF industry worldwide for nearly 20 years, released data today that highlights the continuing strength and popularity of ETFs based on MSCI indexes.


Tabb: Firms Spend $25 Billion on Content, $3.1 Billion on Data Tech in 2013
Faye Kilburn – WatersTechnology
Research firm Tabb Group’s Data and Analytics (DnA) group has released a new report, “Market Data Technology Innovation: Bigger Data, Simpler Solutions, Better Functionality,” which estimates global spend on market data at about $25 billion in 2013, after flat growth since 2011.


SEC Charges Smith & Wesson With FCPA Violations
The Securities and Exchange Commission today charged Smith & Wesson Holding Corporation with violating the Foreign Corrupt Practices Act (FCPA) when employees and representatives of the U.S.-based parent company authorized and made improper payments to foreign officials while trying to win contracts to supply firearm products to military and law enforcement overseas.

Japanese hedge fund challenges regulators in insider trade case
A small Japanese hedge fund has made a rare challenge against financial regulators over a 2010 insider trading case, disputing a finding that one of its fund managers acted on an insider tip of a share offering by energy firm Inpex Corp.

Ex-Harbinger COO settles SEC claims he aided fraud
The former chief operating officer of Philip Falcone’s hedge fund Harbinger Capital Partners has agreed to pay $200,000 to resolve charges he aided a scheme to misappropriate fund assets, the U.S. Securities and Exchange Commission said Monday.

Lloyds Banking Group fined £105m for serious LIBOR and other benchmark failings
The Financial Conduct Authority (FCA) has fined Lloyds Bank plc (Lloyds) and Bank of Scotland plc (BoS), both part of Lloyds Banking Group (LBG), GBP105 million for serious misconduct relating to the Special Liquidity Scheme (SLS), the Repo Rate benchmark and the London Interbank Offered Rate (LIBOR).

Environmental & Energy

Yukos Owners Win $50 Billion in 10-Year Fight With Russia
Irina Reznik, Henry Meyer and Jessica Morris, Bloomberg
Former majority owners of Yukos Oil Co. won a landmark $50 billion award against Russia for the confiscation of what was once the nation’s largest oil company after a decade-long battle.

Solar Industry Is Rebalanced by U.S. Pressure on China
Diane Cardwell and Keith Bradesher, The New York Times
Even as regulators continue to wrestle with the protracted trade conflict with China over solar panels, the case has already started to reshape the industry, lifting manufacturers based outside China while also raising prices of panels for developers.

***LB: Also in this story “SolarCity, the fast-growing rooftop solar power provider based in San Mateo, Calif., recently announced it would buy as much as 240 megawatts’ worth of panels from REC Solar, a Norwegian manufacturer, and acquired a start-up, Silevo, with plans to produce panels in Buffalo.”

China Solar Projects Poised to Fuel Panel Price Rebound
Bloomberg News
JA Solar Holdings Co. expects solar-panel prices in China to recover as developers scale up projects and government measures encourage developments.


Exclusive: Goldman unit eyes foray into China amid metals financing scandal
Goldman Sachs Group Inc’s metals warehousing unit is exploring its first foray into China, and privately held C Steinweg has expanded capacity there, sources said, as a financing scandal in a major Chinese port fuels a scramble for market share.

China Said to Allow Five Regions to Create Bad-Loan Firms
China’s banking regulator is allowing governments in five places including Shanghai to set up asset-management companies to buy bad loans from financial institutions, three people with knowledge of the matter said.

Abe Becomes Biggest Globetrotter in Japan-Is-Back Campaign
Andy Sharp – Bloomberg
By this time next week Abe will have visited 47 nations since taking office in 2012, after an itinerary encompassing six Latin American and Caribbean cities in nine days.

Default settings in China
David Keohane – Financial Times
Or, how far is market pricing of credit risk catching on in China, after all? Here’s your default-risk adjusted corporate bond yields in China from Nomura

Japan’s Financial Services Agency: Opening Ceremony At The Asian Financial Partnership Center (AFPAC)
The Asian Financial Partnership Center (AFPAC) has started to invite two officials from Financial Regulatory Commission of Mongolia (FRC) and one official from State Bank of Vietnam (SBV) as Visiting Fellows and held an Opening Ceremony on July 29, 2014.

Shenzhen Stock Exchange Market Bulletin 28 July, 2014, Issue 25

Frontier Markets

Hong Kong to issue sukuk of up to $1 billion after summer
Andrew Torchia – Reuters
Hong Kong’s government plans to issue as much as US$1 billion worth of Islamic bonds later this year, a spokesperson for its central bank said, suggesting the territory’s debut sukuk issue might be larger than initially expected.

John Lothian Newsletter

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