John Lothian Newsletter: Upstart trading venue IEX may prompt U.S. market rule change; London Gold Fixing Set for New Administrator by Year-End; Global exchange volumes fall 14pct in first half 2014

Jul 30, 2014

First Read

Education Series, Session One
John Lothian
“You can’t over communicate.” That was an important message from CBOE CEO Ed Tilly. Should I say that again, you can’t over communicate.

Our MarketsWiki World of Opportunity Summer Intern Education Series started off with a bang yesterday, with interns overflowing in the seats of the Stuart School of Business at IIT. We even had a dozen or so people in the balcony. Come early to get a good seat was also a lesson of the day.

Tony McCormick, the CEO of BOX, started the session with serious and humorous lessons he learned from his experiences as an intern so many years ago. McCormick worked as a caddy, mail boy, on a beer truck, replacement salesman for a cookie company and as a waiter. I did not know the cookie business could be so nasty. But his salient point about how our perception of change, changes, how we take that as risk as we get older, was a message for anyone, any age, any profession.

Mr. Tilly followed with his story about the need to manage change and how he handled so much change in the industry. Tim McDermott of NADEX also focused on change the and the unpredictability of it and its influence on your career and career choices.

Ben Van Vliet gave a piercing critique of high frequency trading bashers and the risks to free markets and society in declaring some strategies good and some bad.

And Matt Rees finished the session with an intriguing look at the way we interact with technology, and the challenge of blending personal communication with technology.

Thursday is session two of the series and we have had to shuffle the lineup a little because one our of speakers, Craig Donohue, needed to move to August 8. Instead Thursday’s session will include Chris Edmonds of ICE. He will be joined by Chris Hehmeyer of HTG Capital, Mead Welles of A Leg to Stand On, Pat Kenny of CQG and Stefani Sandow of Trading Technologies

We also announced how the MarketsWiki Scholars program is going to work going forward. Interns who sign up for the program and contribute 25,000 characters to MarketsWiki are given the title as a MarketsWiki Scholar and are eligible for prizes. We gave away a few prizes during the session to whet their appetite.

Also, those MarketsWiki Scholars then are eligible to win the John Damgard MarketsWiki Scholars Prize, which will be awarded to the scholar who contributes significantly to a MarketsWiki page which wins a public poll to be conducted in February of 2015. The winner or the prize will receive $1000 and it will be announced during the FIA’s Boca Raton International Conference.

We are very pleased with the response the series has received in Chicago so far and very appreciative of the sponsors of the event, BATS, CBOE, CME Group. Spot Trading, The IFM and the Stuart School of Business at IIT.

Thank you also to all the firms which have sent interns to the event yesterday and the rest of the series. We have a great line up of speakers and I can’t wait to hear what the rest of them have to say. Should I say that again?

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Why Can’t the Banking Industry Solve Its Ethics Problems?
Neil Irwin – NY Times
The financial crisis that nearly brought down the global economy was triggered in no small part by the aggressive culture and spotty ethics within the world’s biggest banks. But after six years and countless efforts to reform finance, the banking scandals never seem to end. The important question that doesn’t yet have a satisfying answer is why.
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***** There are two things that move the markets, fear and greed. People who move the markets are impacted by the same dynamics. If you want better ethics, there better be a fear of not having them.

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Secret Irish Derivatives Stay Hidden After Bank Crisis
Joe Brennan and Donal Griffin – Bloomberg
Six years ago, an obscure financial instrument hastened the demise of Anglo Irish Bank Corp., the lender which helped drive Ireland into an international bailout. Today, those instruments remain in the shadows.
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***** Come here little guy. Come on out. We won’t hurt you.

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Singapore latest to outline benchmark reform
Joe Parsons – Futures & Options World
The Monetary Authority of Singapore (MAS) has proposed changes to the regulatory framework for overseeing financial benchmarks in the latest international move to overhaul these crucial industry standards.
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***** This is not a case of “no mas,” but of “more MAS.”

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In Charity Auction, Citi CEO Corbat Is No Warren Buffett
Christina Rexrode – MoneyBeat – WSJ
In the world of charity auctions, Michael Corbat is no Warren Buffett. Mr. Corbat, the chief executive of Citigroup Inc. was kind enough to give up an evening of his time to go to dinner with the winner of a charity auction that raised money for BYkids, a nonprofit that teaches young people how to make documentaries.
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***** It is not the dinner that is tough, it is the kiss goodnight.

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SEC’s Money Can’t Break Hooker-Client Bond
Matt Levine – Bloomberg
Pretty much the best line you’ll read in a financial regulatory article today is this one, from a Wall Street Journal story about the Securities and Exchange Commission’s whistleblower program: “We have a sacred bond with our clients,” he said. “Money can’t take precedence.”
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***** Does the whistleblower program have a wolf call whistle too. Yowza!

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MarketsWiki

MarketsWiki Page of the Day
Robert Greifeld
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MarketsWiki Recent Updates

People

Alan C. Greenberg

Companies, Organizations and Groups

The Bear Stearns Companies Inc.; Lloyds Banking Group Plc

Miscellaneous

Contract for difference; Backwardation; Contango

Statistics

51,485,670 pages viewed, 8,005 articles, 184,852 edits
MarketsWiki Statistics

Lead Stories

Upstart trading venue IEX may prompt U.S. market rule change
John McCrank – Reuters
U.S regulators may relax rules that require the fastest possible execution of securities trades, potentially helping upstart trading venue IEX Group’s plans to become a full-fledged stock exchange.
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London Gold Fixing Set for New Administrator by Year-End
Nicholas Larkin – Bloomberg
The banks that conduct the century-old gold fixing and the London Bullion Market Association will seek proposals next month for a new administrator to run a revamped process for the benchmark by year-end.
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Global exchange volumes fall 14% in first half 2014
Joe Parsons – Futures & Options World
Global futures and options volumes fell 14% in the first six months of the year versus the same period last year with the sharpest declines seen in the European interest rate sector.
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Lawsky Said to Seek Forex Monitors at Deutsche, Barclays
Greg Farrell – Bloomberg
New York’s banking regulator is pressing to put monitors in place at Deutsche Bank AG (DBK) and Barclays Plc (BARC) as part of an investigation into whether traders manipulated benchmark currency rates, a person briefed on the matter said.
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Ending ‘Too Big to Fail’ Could Rest on Obscure Contract Language
Jesse Hamilton and Silla Brush – Bloomberg
Wall Street and global financial regulators, trying to squash the lingering perception that banks remain “too big to fail,” are looking to an obscure change in derivatives contracts to solve the problem.
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Lloyds and lessons from past scandals
Financial Times
Every time the financial sector seems about to draw a line under the financial crisis, another scandal drags it back into the mire. This week, it has been the turn of Lloyds Banking Group to confess to past misdeeds, as the once staid UK clearing bank coughed up £226m to settle charges that it manipulated interest rates.
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Euronext chief Cerutti cites France as weak spot to EU recovery
Philip Stafford and Peggy Hollinger – Financial Times
The head of the eurozone’s largest stock exchange has cautioned that France remains a risk for the recovery of the economic bloc.
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Harvard Is Summer Mecca as Chinese Students Crowd Boston
Kelly Blessing – Bloomberg
Chinese students have a new favorite summer destination: Harvard University. So many students and their families are visiting Boston-area schools such as the Massachusetts Institute of Technology and Tufts University that Hainan Airlines Co. started direct flights from Beijing to Boston in June and increased the number from four to seven a week in July and August. Tufts gets so many requests from large organized groups that it runs separate tours for them.
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Regulatory

A Nickel for Your Thoughts: The SEC Tick Size Pilot Program
Paul Daley – TABB Forum
Will the SEC’s tick size pilot, intended to gauge whether wider minimum tick sizes would improve market quality for small cap stocks, increase liquidity sufficiently to compensate for wider spreads?
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Financial Incentives for Whistleblowers
As part of our response to the PCBS recommendations we agreed to conduct further research into the impact of financial incentives on encouraging whistleblowing in the US, working with the Treasury and the Department for Business, Innovation and Skills (BIS), and to publish the conclusions. This note sets out our agreed conclusions.
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BoE to increase oversight of bankers and their bonuses
Huw Jones – Reuters
Top bankers in Britain will become directly accountable for their actions under proposals from regulators on Wednesday, with those behaving recklessly facing a spell in jail.
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New Zealand’s Financial Markets Authority And The Serious Fraud Office: MOU Signed To Improve Agency Cooperation
Police Minister Anne Tolley and Commerce Minister Craig Foss today welcomed an updated memorandum of understanding (MOU) between the Financial Markets Authority (FMA) and the Serious Fraud Office (SFO).
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Bank of England: Prudential Regulation Authority And Financial Conduct Authority Consult On Proposals To Improve Responsibility And Accountability In The Banking Sector
The Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) have today published two joint consultation papers aimed at improving individual responsibility and accountability in the banking sector.
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Exchanges & Trading Facilities

LME warehousing; all change or no change?
Andy Home – Reuters
On the surface at least, much has changed in the London Metal Exchange (LME) warehousing business over the past year. But take a deeper look, and it is clear that the underlying structural problems are still there.
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Nasdaq OMX wins second tech deal in two days
Luke Jeffs – Futures & Options World
Nasdaq OMX Group and trueEX Group said on Tuesday they had signed a five year deal which involves Nasdaq supplying its SMARTS surveillance system to trueEX’s two US swap trading systems, including its swap execution facility.
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Moscow Exchange: New Specs For Options On Futures On Russian Shares To Come Into Force
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Direct Edge Trading Notice #14-29: Attribution Program Available On Order-By-Order Basis
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PLANET.FR’s Listing On Alternext Paris
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Hedge Funds & Managed Futures

Ireland to give green light for hedge funds to lend
Reuters
Ireland, one of the biggest hubs for funds in Europe, will allow hedge funds based in the country to lend to companies under new rules drawn up by the central bank, the bank said.
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Cohen Still Beating Hedge Funds After Shutting Down SAC
Saijel Kishan – Bloomberg
Even after shutting down SAC Capital Advisors LP, Steven A. Cohen is still beating most hedge funds. The billionaire, who started Point72 Asset Management LP to oversee his own wealth, has gained about 9 percent this year, according to two people with knowledge of the matter.
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Vontobel Says First-Half Profit Drops 3%, Begins Buyback
Giles Broom – Bloomberg
Vontobel Holding AG (VONN), the Swiss asset and wealth manager that’s trying to expand its structured products business, said first-half profit fell 3 percent.
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St. James’s Place posts record funds under management
Simon Jessop – Reuters
UK wealth manager St. James’s Place bucked a patchy investment environment to post record funds under management (FuM) in the first half of the year, boosted by new client inflows.
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UBS funds head: ‘It’s very tricky’ for pension funds to disclose costs
Andrew Pearce – Financial News
UBS Global Asset Management’s head of UK and Ireland Ian Barnes has likened the mooted publication of asset managers’ fees by local government pension schemes to supermarkets offering a “loss-leader”.
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Elliott founder reveals his dread of electromagnetic pulse
Miles Johnson, Hedge Fund Correspondent – Financial Times
Hedge fund manager Paul Singer, famed for aggressively chasing governments for unpaid debts, has revealed his biggest fear – and it has nothing to do with interest rates or political instability. The US billionaire has used the latest letter from his Elliott Management hedge fund to investors to reveal that he is most worried about an electromagnetic pulse destroying the world.
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First State Super Selects MSCI Multi-Asset Class Risk Management Platform
MSCI Inc., a leading provider of investment decision support tools worldwide, announced today that one of Australia’s largest superannuation funds, First State Super (FTC), has selected BarraOne, MSCI’s multi-asset class risk management and performance attribution platform, to help the continued evolution of their investment process.
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StockViews Appoints Thomas Beevers as CEO
SStockViews today announced the appointment of Thomas Beevers to the role of CEO. Beevers was previously at Newton Investment Management, where he spent ten years as a fund manager of European Equities and managed funds in excess of $1 billion. Prior to that, he was a manager at PricewaterhouseCoopers.
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Banks & Brokers

UBS, Deutsche Bank’s Earnings Overshadowed by Litigation
Elena Logutenkova, Nicholas Comfort and Jeffrey Vögeli – Bloomberg
UBS AG (UBSN) and Deutsche Bank AG (DBK)’s better-than-estimated second-quarter earnings were overshadowed by the disclosure of new regulatory probes as the banks struggle to boost revenue.
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Deutsche Bank, Fitschen Try to Avoid Ackermann Juggling
Karin Matussek and Nicholas Comfort – Bloomberg
Deutsche Bank AG Co-Chief Executive Officer Juergen Fitschen is seeking to keep prosecutors from filing charges against him. If he fails, he may have to juggle his duties with his defense as his predecessor did a decade ago.
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Swiss Banks Turn On, Tune In, Drop Out
John Letzing – MoneyBeat – WSJ
Yes, more than 100 Swiss banks initially signed up for a U.S. Justice Department program designed to unearth hidden American accounts and exact penalties. But it’s an open question how many will remain by the time a key deadline hits later this week.
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JP Morgan’s Emea swaps head to lead new compliance team
Anish Puaar – Financial News
JP Morgan has created a team to look specifically at regulatory requirements for the FX and rates markets, promoting a senior derivatives executive to run the new outfit.
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UBS picks Barclays man for FX e-trading role
Tim Cave – Financial News
UBS has hired an algorithmic trading specialist from Barclays into its FX, rates and credit division, filling a vacancy left by a senior departure to Bank of America Merrill Lynch earlier this year.
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Tullett Prebon Interim Management Report For The Six Months Ended 30 June 2014
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Clearing & Settlement

DTCC unveils client data utility
Rob Daly – The Trade
Six of the largest global banks in conjunction with the Depository Trust & Clearing Corporation (DTCC) have launched Clarient Global, a new DTCC company that will operate a third-party centralised client data collection and validation utility that seeks to improve client onboarding and additional back-office processes.
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EU clearing timeline could drive banks out of the business
Cecile Sourbes – Risk.net
Start of widespread client clearing – and revenues that go with it – could be more than two years away under draft Esma rules
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TMX Group Clearers Recognized as Qualifying CCPs
Marina Daras – WatersTechnology
The Bank of Canada has announced that clearing houses operated by the Canadian exchange consortium TMX Group are now recognized as qualifying central counterparty clearing houses (QCCPs) in accordance with the Basel Committee on Banking Supervision standards.
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CME Group – Clearing: Harmonization of EFRPs for NYMEX, COMEX, DME/Re-Categorizing of Exchange of Options on Options (EOO) Trade Types
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Indexes & Products

Another Fund Giant Plays Footsie With ETFs – Total Return
Karen Damato – WSJ
The company behind the giant American Funds mutual-fund family is seeking regulatory approval to offer actively managed exchange-traded funds. But ETFs resembling funds such American Funds Growth Fund of America and American Funds EuroPacific Growth aren’t likely to appear any time soon.
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Invesco investors wiped out after Property Income Trust closure
Joe McGrath – Financial News
Investors in a listed Invesco property fund have had their entire investment wiped out after the company confirmed the fund is to be liquidated.
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Technology

Shore Up Cyber Security Now
Patrick Mullevey – Wall Street & Technology
Knowing that a data breach can and will happen at some point, asset management firms can manage new operational and regulatory risk with a layered approach to cyber security.
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Tracking the True Technology Cost of Compliance, Regulation & Risk
Dr. Howard Rubin – Wall Street & Technology
In financial services, technology costs are rising rapidly while revenues are declining. This makes for a bad business recipe.
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Nasdaq Ships Surveillance Tech for trueEx
James Rundle – WatersTechnology
Nasdaq OMX’s Smarts surveillance platform will oversee both the swap execution facility (Sef) and designated contract market (DCM) operated by trueEX, the exchange group has announced.
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Confisio And Dion Global Solutions Launch Collateral Valuation Solution
Confisio Managed Services Ltd (Confisio), a premier supplier of customized turnkey solutions to the financial services industry, today announced that it is launching a collateral valuation solution in conjunction with Dion Global Solutions (Dion) and Traiana. The new solution will be available across all asset classes for exchange traded and OTC derivatives and builds on Confisio’s successful EMIR trade reporting collaboration with Traiana.
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Enforcement

JPMorgan Filed Inaccurate Large Trader Reports, CFTC Says
Silla Brush – Bloomberg
JPMorgan Chase & Co. (JPM) will pay $650,000 to settle U.S. regulatory claims that the bank repeatedly filed inaccurate reports about its clients’ derivatives trades. The bank’s brokerage unit, JPMorgan Securities LLC, filed reports between 2012 and this year with hundreds of errors about clients’ futures and options trades, the Commodity Futures Trading Commission said in a statement today. The unit continued to file inaccurate reports even after the agency flagged the errors to the bank, the CFTC said.
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SEC Announces Charges in “Solar Farm” Penny Stock Scheme
The Securities and Exchange Commission today announced fraud charges against a penny stock company and its CEO linked to a scam artist whom the agency separately charged earlier this month.
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NFA orders Michigan forex firm Institutional Liquidity LLC and three of the firm’s principals to pay $225,000 fine; firm must permanently withdraw from membership
National Futures Association (NFA) has ordered Institutional Liquidity LLC (ILQ), a forex dealer Member of NFA located in Grand Rapids, Michigan, and three of the firm’s principals and registered associated persons – Mark D. Krier (Krier), James D. Pieron (Pieron) and Jason L. Tanner (Tanner) – to pay a fine of $225,000.
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[NFA Regulatory Actions] Pan Asia Investment Group, Inc. and Xiao Peng Hu
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U.K. Ban Upheld on Hedge Fund Manager Alberto Micalizzi
Laurence Fletcher – WSJ
A U.K. tribunal has upheld a ban against hedge fund manager Alberto Micalizzi, finding that his conduct was “at the most serious end of the scale.” It stops him from working in regulated financial services. The tribunal, which was hearing an appeal by Mr. Micalizzi against a 2012 judgment from Britain’s financial regulator, reduced his fine to £2.7 million ($4.6 million) from £3 million.
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British court takes tough line on working notice
Luke Jeffs – Futures & Options World
A senior British court has found in favour of a derivatives firm that brought a case against one of its brokers that walked out and refused to work his notice period, setting a precedent for City workers set to quit their jobs.
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[AMF Canada] Illegal Practice and Illegal Distributions – Guy Bégin pleads guilty
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Environmental & Energy

White House Report Presses Economic Case for Carbon Rule
Coral Davenport, The New York Times
Failing to adequately reduce the carbon pollution that contributes to climate change could cost the United States economy $150 billion a year, according to an analysis by the White House Council of Economic Advisers released on Tuesday.
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Russia to appeal against $50bn Yukos shareholder payout
BBC
Russia will appeal against a international court ruling that it should pay $50bn (GBP29.5bn) in damages, the biggest compensation package ever.
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Q&A: $50bn Yukos award against Russia
Kathrin Hille, Financial Times
Former Yukos shareholders have been awarded $50bn in damages against Russia in one of the biggest arbitration awards ever made against a sovereign state. What does the ruling mean for Russia and what are the broader implications?
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Asia-Pacific

Why it’s time for China and South Korea to shine
CNBC
Khiem Do, Head of Asian Multi-Asset at Baring Asset Management, says Chinese and South Korean markets may outperform in the second-half of 2014 amid domestic efforts to boost growth.
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MOVES-Morgan Stanley’s Asia ex-Japan head of electronic trading quits-filing
Reuters
Morgan Stanley’s head of electronic trading for Asia ex-Japan Gabriel Butler has quit, according to Hong Kong Securities and Futures Commission (SFC) filing.
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China: IPOs in line for a ticket on the through train
Rob Hartley – Euromoney Magazine
New system connects Shanghai and HK markets; regulations need to catch up.
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Monetary Authority Of Singapore Proposes Legislation For A Regulatory Framework For Financial Benchmarks
The Monetary Authority of Singapore (MAS) today released a consultation paper on legislation to introduce a regulatory framework for financial benchmarks. A financial benchmark is typically a price, estimate, rate, index or value that is made available to third parties for use as a reference in financial instruments or transactions.
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SGX welcomes Terratech Group to Catalist
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Chi-X Japan Welcomes Yamawa Securities Co., Ltd. & Ark Securities Co., Ltd. As Trading Participants
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Dalian Commodity Exchange, Securities Association Of China Hold Seminar On “Securities Companies Innovating Service For Real Economy
Helping Securities Companies To Carry Out Commodity-Related Businesses, Exploring Innovative Paths For Serving Real Economy
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Frontier Markets

Brazil’s Bankers Mute After Santander Apology to Rousseff
Cristiane Lucchesi, Ney Hayashi and Francisco Marcelino – Bloomberg
With Brazil’s stocks rallying every time President Dilma Rousseff slides in the polls, the October election is all the market is talking about — behind closed doors, that is. Representatives of six Brazilian and foreign banks, brokerages and funds said they’re no longer willing to comment publicly about politics, with some citing the risk of government retaliation.
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