John Lothian Newsletter: US commodities regulator wrestles hedgers and speculators; Deutsche Bank conducts internal probe into trading on gold fix

Jun 20, 2014

First Read

Summertime in Chicago
Summertime comes to Chicago on June 21. You would think we were already there with the big thunderstorms we have had this week and varying temperatures.

Summertime also means our Summer Intern Education Series. This year we have two such series; one in London and one in Chicago. The details for London are out. The dates are July 1 and 2 at King’s College. You can sign up your interns at education.marketswiki.com

Our Chicago Series will be on July 29, 31 and August 5, 7 & 8. We will be announcing the venue shortly. We do have some confirmed speakers for Chicago already, including CBOE’s Ed Tilly, BOX’s Tony McCormick, ICE Board Member Jim McNulty, Spot Trading’s Steve Brodsky, S&P Dow Jones Indexes’ Jamie Farmer, CME’s July Holzritcher, NYSE AMEX’s Steve Crutchfield, KCG’s Chris Hehmeyer and Terry Duffy from the CME.

We are working on more speakers and will announce them as we confirm with them.

Since it is summertime, I have asked a couple of industry friends to edit my newsletter the next two weeks. Rick Lane of TT will be our guest editor next week and KCG’s Carl Gilmore the following week. Since Carl is owed a round of golf from a fundraiser auction he won more than two years ago, and the round has not been delivered yet, I would be a little worried if I was the person with the delivery issues. Being Guest Editor gives you a big bully pulpit.

From Jon Matte: Apparently, the Dog Days of Summer arrived a little early this year when it comes to financial news. I had so little to report today that I ended up trolling other financial news aggregators, but they were still reporting what little we found yesterday… So if you don’t mind, all you important movers-and-shakers out there, can you go and do something really interesting and exciting for us, so we can report it? Even if you’re only kidding, go ahead and announce that you’re getting new CEOs, or that you’ve all agreed to buy each other’s companies. I checked with Mary Jo White and she says it’s ok, just this once. Thanks!

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Hands-On: Alan Knuckman Demos the Incight Video Aggregation App
JohnLothianNews.com
In today’s Internet age, more news organizations and other companies are using videos to share financial news and information. Alan Knuckman, a partner at Incight, says about 84 percent of Internet traffic will be in the form of video. He has helped with the launch of the Incight application, which lets its users track and share finance-related videos.

Watch the video »

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US commodities regulator wrestles hedgers and speculators
Gregory Meyer in New York – Financial Times
A meeting on commodities regulation held in Washington this week at times felt like an argument among lexicographers. The words “hedger” and “speculator” have long had agreed definitions in commodities markets. But as the agency, prodded by the US Congress, attempts to impose a new rule constraining speculators, the yin-yang nature of these two types of traders is blurring into grey.
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***** I am a speculator hedging my future.

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MarketsWiki World of Opportunity Summer Intern Series Goes to London
John Lothian & Co. is pleased to announce the MarketsWiki World of Opportunity Summer Intern Education Series is coming to London on July 1st and 2nd, 2014 with the generous support of the [[CME Group]].
jlne.ws/1hxS93g

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Euronext: Alone at last
The Economist
After seven years of independence, Euronext disappeared into the maw of the New York Stock Exchange, which in turn was bought by IntercontinentalExchange (ICE) in November 2013. ICE has now spat out Euronext, minus LIFFE and its derivatives business. Defining its new role is almost as big a challenge as Euronext faced in the heroic days of its founding.
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****** Ownership matters and now the Europeans have Euronext back. Let’s see how long they keep it this time.

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Finra Weighs Tougher Stance
Jean Eaglesham – WSJ
The Financial Industry Regulatory Authority, a Wall Street watchdog overseen by the Securities and Exchange Commission, is considering tougher penalties for misconduct after criticism from an SEC official that its sanctions are too lenient.
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***** Their slap on the wrist is more of a fist bump.

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Sefs need five years to hit 50% – survey
Luke Jeffs – FOW
The new US swap execution facilities will take five years to claim half the market, according to two thirds of respondents in a recent survey. Fidessa, the tech firm, said that 60% of respondents thought it will take to the end of the decade for the Sefs to hit 50% while 30%…
jlne.ws/1ys7a1i

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OptionsCity Reports Back from FIA International Derivatives Expo
2014 looks to be, once again, Year of the Regulator. With market surveillance and security trending in on a year wrought with “Flash Boys” rhetoric which has camps divided around high-frequency trading, market safety and regulation remained in the spotlight at this year’s International Derivatives Expo.
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***** Now that we have had the big options brokerage consolidation, will we see OptionsCity take a renewed stab at the brokerage business?

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Lead Stories

Mexico stock exchange to be linked to LatAm bourses in 2014
Reuters
Mexico’s stock exchange said on Thursday it will be connected to bourses in Chile, Colombia and Peru by year-end through the Latin American Integrated Market, or MILA, nearly doubling the size of the bloc.
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**Let’s hope they don’t form one country or FIFA will just give them the Cup now and forever.

Deutsche Bank conducts internal probe into trading on gold fix
Reuters
Deutsche Bank is conducting its own investigation into trading around the setting of London’s daily gold price benchmark, in addition to one being carried out by Germany’s financial watchdog, sources close to the matter said.
jlne.ws/1nnunc5

***** I have done the same thing and I can tell you I am innocent. About the gold fixing that is.

Silver Fix Knock-Out Stage Starts Friday
Francesca Freeman and Laura Clarke – MoneyBeat – WSJ
England vs Uruguay isn’t the only big square-off being talked of in London’s finance district. On Friday, there’ll be a seven-way battle among companies pitching alternatives to the ‘silver fix’, the process of setting prices of billions of dollars in transactions every year.
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***** So let’s not call it a “fix” to start with. How about a “price snapshot?”

Wall Street’s Reputation Still Badly Scarred by Financial Crisis, Executives Say
ELIZABETH OLSON – Dealbook – NY Times
Wall Street companies blame new regulations and riskier markets for the slow recovery of the financial industry’s reputation, according to a new report. In preparing its report, Makovsky, a communications company whose clients are financial services institutions, interviewed about 225 executives at banks, credit card companies, mutual funds and other financial services providers.
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***** You can add the cost of doing business. It is just ridiculous.

Exclusive: BofA asks Holder to meet with its CEO – sources
Reuters
Brian Moynihan may be taking a play out of Jamie Dimon’s book. Representatives of Bank of America Corp have asked U.S. Attorney General Eric Holder to meet with Moynihan, its chief executive officer, in an attempt to resolve differences over a possible multibillion-dollar settlement involving shoddy mortgage securities sold by the second-largest U.S. bank and its units, according to people familiar with the negotiations.
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Regulatory

Exchanges, FINRA Inch Closer to CAT Plan
Faye Kilburn – WatersTechnology
US self-regulatory organizations including the US exchanges and regulator FINRA are preparing to narrow down the list of candidates for the role of processor of the US consolidated audit trail (CAT), which will capture all trades, quotes, cancellations and other information across US-listed equities and options.
jlne.ws/1jCxPhS

NYSE Governance Services Announces 2014 Leadership Award Winners
New York Stock Exchange Governance Services, a subsidiary of Intercontinental Exchange (NYSE: ICE), today announced the winners and finalists of its inaugural Governance, Risk & Compliance Leadership Awards. The awards program recognizes exemplary leaders in governance, risk and compliance.
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Tackling serious failings in firms
The FCA has today published a statement on how we will address serious failings of standards in firms. The statement outlines a new approach called ‘Enhanced Supervision’. The statement applies to all firms and should be read in conjunction with the FCA’s supervisory approach documents.
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Canadian securities regulators adopt amendments to modernize investment fund rules
The Canadian Securities Administrators (CSA) today published final amendments to National Instrument 81-102 Mutual Funds (NI 81-102) and related consequential amendments, as part of the CSA’s Modernization of Investment Fund Product Regulation Project.
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Esma hunts for new advisers on Mifid II
Anna Irrera – Financial News
Europe’s financial watchdog is looking for market participants to join an influential group that will help it craft detailed rules for the revised Markets in Financial Instruments Directive.
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Exchanges & Trading Facilities

I.P.O. Values Euronext Exchange Operator at $1.9 Billion
CHAD BRAY – Dealbook – NY Times
IntercontinentalExchange, owner of the New York Stock Exchange, said late Thursday that an initial public offering of its Euronext unit valued the business at 1.4 billion euros, or $1.9 billion.
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Record Volume Day and Month for PM-Settled Mini-SPX Options (XSP)
Matt Moran – www.cboeoptionshub.com
For investors who want smaller-sized cash-settled S&P 500 options, CBOE initially launched Mini-SPX options (ticker XSPSM) in 2005, and in 2013 CBOE changed the settlement of XSP options to PM-settlement. The 2013 change appears to have had a positive impact on XSP options volume over the past couple years, as the new PM-settled XSP options recently had their high-volume marks
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MGEX Daily Exchange Volume Has Record Day
MGEX, a Designated Contract Market (DCM) and Derivatives Clearing Organization (DCO), reports record trade volume from Wednesday’s activity. Total volume came in at 15,921 contracts traded, ranking 23rd in the daily exchange volume record books. Total electronic volume came in at 13,236 contracts traded, 18th- best on the daily electronic volume records.
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Luxembourg Stock Exchange Signs MOU With Bank Of China
Luxembourg Stock Exchange signed today a memorandum of understanding (MoU) with Bank of China that involves the creation of a strategic partnership between the two companies.
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Post Euronext IPO, Intercontinental Exchange To Report Financial Results For Euronext As Discontinued Operations Starting Second Quarter 2014.
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Hedge Funds & Managed Futures

Bill Gross Dons Shades, Attempts to Brainwash Media
Kirsten Grind – MoneyBeat – WSJ
If you can’t convince the media to stop writing negative articles, why not try brainwashing instead? That’s the tactic Bill Gross, chief investment officer of Pacific Investment Management Co, jokingly resorted to on stage as the keynote speaker at Morningstar Inc.’s annual conference in Chicago Thursday.
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Cybercriminals Zero In on a Lucrative New Target: Hedge Funds
NICOLE PERLROTH – NY Times
They say crime follows opportunity. Computer security experts say hedge funds, with their vast pools of money and opaque nature, have become perfect targets for sophisticated cybercriminals. What makes them such ripe targets is that even as hedge funds expend millions in moving their trading operations online, they have not made the same investment in security.
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Shares of Markit, a Financial Data Provider, Rise on Debut
MICHAEL J. DE LA MERCED – Dealbook – NY Times
Shares of Markit, the big financial data provider, opened on Thursday above their initial public offering price, as investors proved eager for a piece of the newly public company.
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BlackRock Three-Year Wait for Modi Rewarded With Top Fund
Rajhkumar K Shaaw – Bloomberg
BlackRock Inc., the world’s largest money manager, has emerged as one of the biggest winners from Indian Prime Minister Narendra Modi’s plans to revive the country’s economic expansion.
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Typhon Access launches Hydra Platform, all internal Typhon Capital strategies positive in May
Typhon has a wealth of experience operating multiple investment vehicles, and we are excited to announce that the Hydra Platform—a platform solution to allow managers and customers to easily find each other while providing proper checks and balances—launched in May.
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Hedge fund Winton Capital Management doubles shareholder dividend
Andrew Pearce – Financial News
Staff at Winton Capital Management, Europe’s fourth-largest hedge fund, have enjoyed a bumper payout after strong financial performance in 2013, laying the scene for the firm’s ambitious expansion plans.
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The Investment Management Business in a Nutshell
Joshua M Brown – The Reformed Broker
A quick note via email from a reader who’s attending the big Morningstar Investment Conference this week: “I’m at the Morningstar conference in Chicago. There’s a direct correlation between quality of trinkets and trash and the fund’s expense ratio – and it’s inversely correlated to performance…”
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“Hedge funds set the price of stocks”
Joshua M Brown – The Reformed Broker
ConvergEx strategist Nicholas Colas has just spent the week in London meeting with institutional clients of his brokerage firm. He relays the fact that London is now the quintessential globalized financial center (centre?) and that it’s filled with oligarchs from around the world and the high performance sports cars they so adore.
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Investors Back U.K. Manager Neil Woodford’s New Fund
Josie Cox And Andrea Tryphonides – WSJ
A new fund from Neil Woodford, one of the U.K.’s highest-profile money managers, started trading Thursday backed by investors who are betting he can maintain strong returns after quitting long-term employer Invesco Perpetual to set up his own firm.
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Banks & Brokers

Lloyds Sells More Shares Than Expected in TSB Unit I.P.O.
CHAD BRAY – Dealbook – NY Times
The Lloyds Banking Group said on Friday that it sold more shares in the initial public offering of its TSB Banking Group unit than originally anticipated due to high investor demand.
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Senior MD leaves Evercore’s restructuring team
Nick Kostov – Financial News
Evercore Partners has lost one of its two senior managing directors in its restructuring and debt advisory group in London, at a time when restructuring deals are hard to come by.
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Former FSA sheriff Sheila Nicoll to head to Schroders
Joe McGrath – Financial News
Schroders has confirmed the appointment of Sheila Nicoll as head of public policy from consultancy EY, as regulatory scrutiny passes from banks to asset managers.
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German regulator warns Deutsche Bank on commodity trading
Alice Ross in Frankfurt – Financial Times
Germany’s financial watchdog has ordered Deutsche Bank to do more to ensure that commodity prices cannot be manipulated by its traders, in the latest sign that authorities believe some of the world’s largest financial markets are still open to abuse.
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HSBC ramps up bond trading platform
Anish Puaar – Financial News
HSBC is extending the reach of its electronic bond trading platform, which was introduced in response to the changing dynamics of the fixed income market.
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Clearing & Settlement

A solution to the chaos behind the clearing house doors
Financial Times
Sir, Simon Johnson (“Chaos is brewing behind the clearing house doors”, June 18) is right to highlight the risk accumulating in central clearing counterparties as a result of the G20 directive on derivatives clearing issued after the financial crisis. The end-product of that process is that multiple clearing houses have been established around the globe as private concerns rather than the infinitely more sensible concept of a single “not for profit” utility
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Amendment To The ISDA Master Agreement For Use In Relation To Section 2(a)(iii) And Explanatory Memorandum
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CME Group Clearing: June 2014 Currency Order-to-Pay Charges
www.cmegroup.com/tools-information/lookups/advisories/clearing/files/Chadv14-244.pdf

CME Group Clearing: Product Modification Summary- Soybean Crush Options- REVISED
www.cmegroup.com/tools-information/lookups/advisories/clearing/files/Chadv14-228v2.pdf

CME Group Margins: Performance Bond Requirements – Electricity Outrights – Effective Friday, June 20, 2014
www.cmegroup.com/tools-information/lookups/advisories/clearing/files/Chadv14-246.pdf

Indexes & Products

S&P Dow Jones Indices Market Attributes Risk & Volatility Dashboard
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Euro STOXX 50 Hedged JPY Index Licensed To Nomura Asset Management
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Technology

Options Boosts US Co-Lo Coverage with NYSE Mahwah
Giulia Lasagni – WatersTechnology
Infrastructure-as-a-service provider Options (formerly Options IT) has completed the expansion of its Velocity hosting platform into NYSE Euronext’s datacenter in Mahwah, NJ, in a move to provide clients with co-location services for all US equity and options markets.
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Enforcement

Federal Court in Utah Imposes over $44 Million in Sanctions against Robert Andres and His Company, Winsome Investment Trust, and Robert Holloway and His Company, US Ventures, for Commodity Pool Fraud and Misappropriation
The U.S. Commodity Futures Trading Commission (CFTC) obtained a federal court Order requiring Defendants Robert J. Andres of Houston, Texas, his company, Winsome Investment Trust (Winsome), Robert L. Holloway of San Diego, California, and his company US Ventures LC (USV), to pay a civil monetary penalty of $32,370,000 and restitution for defrauded customers totaling $12 million.
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Ex-Goldman Trader Says Bonus Cut to $8.25 Million Unfair
Michael J. Moore – Bloomberg
Deeb Salem, a former Goldman Sachs Group Inc. (GS) trader who said he helped the bank earn more than $7 billion, wants to be paid the almost $5 million difference between his 2010 bonus and what he told his mother to expect.
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Environmental & Energy

Keystone clears Senate panel
Timothy Cama and Laura Barron-Lopez, The Hill
Keystone Moves: The Senate Energy and Natural Resources Committee voted Wednesday to go over President Obama’s head and approve the proposed Keystone XL pipeline.
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China Sets Offshore Wind Power Prices to Spur Development
Bloomberg
China, the world’s biggest wind market, set prices of as much as 0.85 yuan (14 cents) a kilowatt-hour for power from non-auction offshore wind farms that start before 2017 to promote the industry’s development.
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***LB: Also in this story “The government had announced a target of 5 gigawatts of installed capacity by 2015.”

EU energy chief rules out 40 percent energy savings goal
Barbara Lewis, Reuters
A 40 percent energy saving target as the EU’s 2030 goal, supported by some, is unrealistic, Energy Commissioner Guenther Oettinger said, adding that the debate continued.
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Asia-Pacific

Thai stock exchange to consider a capital gains tax – board member
Reuters
A member of the board of Thailand’s stock exchange said on Thursday that a capital gains tax would soon be considered for shares held for a short time, but the board’s chairman disagreed, saying the proposal was untimely.
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Surprise: Barclays Taking Resumes in Asia – MoneyBeat
Enda Curran and Mia Lamar – MoneyBeat – WSJ
Who knew? Barclays is hiring. In Asia the British lender is recruiting sales and trading staff across its Asian stock markets business. That hiring comes even as the bank cuts staff in its Asia investment banking and markets operations as part of a major global restructuring.
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[OSE] Change of Central Contract Months in DJIA Futures Trading
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[OSE] Latest Update of Deliverable Bonds and Conversion Factors of JGB Futures
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[TSE] Calculation of TSE Indices in relation to shares of LCA Holdings Corporation (4798)
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HKEx: Exchange Publishes Consultation Paper On Internal Controls Section Of Its CG Code
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Frontier Markets

South Africa shrugs off downgrade as rand holds steady
Solomon Teague – Euromoney Magazine
The rand, as a high-beta benchmark for global risk appetite, has been buoyed up by benign international market conditions. However, analysts say a stubborn current-account deficit and weak growth suggest a bearish stance on the rand is appropriate in the medium to long term.
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What Will Argentina Do With Its Vultures?
Matt Levine – Bloomberg
On Monday, Argentina lost its appeal against Elliott Management in the U.S. Supreme Court. That means that, leaving aside this footnote,1 Argentina needs to either negotiate a settlement with Elliott over billions of dollars in unpaid debt in the next two weeks, or default on its current debts on June 30. This seems bad for Argentina, and it is. But in a weird way, it almost puts Argentina in a stronger negotiating position than Elliott.
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Argentina’s comments put U.S. lawyers in awkward spot
Reuters
At a hearing Wednesday afternoon in Manhattan, Argentina’s lawyer, Carmine Boccuzzi of Cleary Gottlieb Steen & Hamilton, informed U.S. District Judge Thomas Griesa that Argentine officials “will be in New York next week” in order to begin negotiations with the hedge funds whose bond litigation has forced the country to the brink of a sovereign debt crisis.
jlne.ws/1if7MT7

Startups see dark clouds over Sebi’s crowdfunding plan
Economic Times
Many of the proposals by Sebi to oversee crowdfunding are leading to unrest in the startup community as investors and entrepreneurs fear that if some of the more onerous plans become rules, it could end up constricting access to an important source of capital.
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Malawi Stock Exchage Weekly Trading Report- 20th June, 2014
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MCX Weekly Market Report – June 13, 2014 – June 19, 2014
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Bahamas International Securities Exchange Q1, 2014 Statistical Report
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