John Lothian Newsletter: US traders resist Nasdaq’s Treasury push; EU Unveils Plan on Proprietary Trading; SEC Fights Turf War Over Asset Managers

Jan 29, 2014

First Read

Trading Technologies University Milestone
John Lothian
The milestone that Trading Technologies hit in the university software sharing program is impressive. They have now given software to 50 universities for their students to use, including my alma mater Purdue University. Our arch-rival Indiana University also is part of the program, as is the University of Illinois where my former Boy Scout Senior Patrol Leader is studying computer science and working on a trading related research project for a professor for whom he has no classes.

The next stage of development in our markets is going to be driven by these kids in college right now. TT’s university sharing program is just the right strategy for their company, but also for our industry. Kids using TT’s Algo Design Lab (ADL) tool are learning about how the markets, algos and systems work together. I was lucky to come out of school knowing what a call and put were.

Programs like this will make a difference in the long term growth of our markets and industry. We hope to add to programs like this with another Intern Education Series this summer. Details are coming soon. And I hope to have very shortly the first of our videos from last summer’s series.


Trading Technologies’ University Program Now Active In More Than 50 Schools Across The Globe
Press Release


Nasdaq’s plan for cutting prices infuriates rivals
Nasdaq OMX Group is pushing to cut the fees it charges big customers that trade on several of its exchanges, a move that is arousing the attention of regulators and triggering accusations from rivals that the company is seeking to stifle competition.

***** Cutting prices is stifling competition? It is actually spurring innovation, because if the new prices don’t work, you better make some changes so they do.


Druckenmiller Lawyer Takes On Hedge Funds Over Contracts
Katherine Burton – Bloomberg
Stan Druckenmiller, one of the top-performing money managers of the past three decades, discovered a hard truth when he started investing in other hedge funds: Most don’t treat their clients fairly.

***** The golden rule: He who has the gold rules. This will be interesting to see who has the gold in this case.


OCC Prepares To Launch OTC S&P 500 Equity Index Options Clearing
OCC announced today it has received regulatory approvals to clear over-the-counter (OTC) equity index options, bringing capital and operational efficiencies and enhanced customer protections to the equity derivatives marketplace.

***** Question: How does this impact Flex Options?


Perseus tapped in FinTech 50 2014 high-growth businesses of Europe
Perseus Telecom, a leading provider of high-speed global networks, market-to-market microwave connectivity and High Precision Time, has been named as one of the FinTech 50 2014 companies in Europe. The award recognises Perseus for its high-growth momentum and technological innovation within the fast-paced financial services sector

***DA: Perseus Awesomus Maximus.


Barbara Lorenzen Named to Senior Position in National Exam Program
Securities and Exchange Commission
The Securities and Exchange Commission today announced that Barbara S. Lorenzen has been promoted to a senior position in the agency’s Office of Compliance Inspections and Examinations (OCIE), which conducts the national examination program.

***DA: For those of you who do not know Barb, she spent 28 years at the CBOT, working her way up to head of the audit department before parting ways after the CME/CBOT merger. She has been with the SEC since 2009. Congratulations and best wishes on your new gig.


The challenges of a post-crisis world
Martin Wolf –
The consensus view of the world economy has become more optimistic, for good reason. The high-income economies seem at last to be taking off; this is particularly true for the US and UK. But significant challenges lie ahead, notably for the eurozone. For emerging countries, stronger growth in high-income countries brings benefits, but also costs. If euphoria is among the dangers to stability, 2014 should not see too much of it.

***** Martin Wolf is another wolf of Wall Street, but without all the cussing.


Navigating Dodd-Frank Trading Mandates in 2014 and Beyond
Eris Exchange Webinar, January 30
With the final execution mandate deadlines approaching for swap trading, market participants are seeking answers to many questions. In this complimentary webinar, “Navigating Dodd-Frank Trading Mandates in 2014 and Beyond”, a panel of industry experts will review the anticipated deadlines and recent regulatory developments, then debate what will happen as the mandates take hold.

***** I would pay attention….


ACT webinar: EMIR – the final countdown
The deadline for EMIR reporting is just weeks away. From 12 February all European companies will be legally required to report derivative trades to a registered trade repository. Join this ACT technical webinar for an essential checklist on complying with the new regulation. The January 30 webinar is free to attend and open to all. For more details and to register, please click here:
****** I would pay attention, because this is the brave new world.


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Lead Stories

US traders resist Nasdaq’s Treasury push
Michael Mackenzie and Arash Massoudi in New York –
A push by Nasdaq OMX to secure a stronger foothold in US government bond trading is running into stiff resistance from the tight-knit group of big banks that dominate the world’s largest and most important fixed income market.

EU Unveils Plan on Proprietary Trading
The European Union has unveiled a much-delayed plan to rein in banks’ proprietary trading and give supervisors the power to split off risky trading activities from safer lending operations in an effort to tackle the risks posed by banks that are deemed “too big to fail.”

SEC Fights Turf War Over Asset Managers
Senior U.S. officials are clashing over whether the asset-management industry poses risks to the financial system, setting up a fight over whether the industry should face tougher oversight.

NYSE Liffe revamps cocoa, coffee warehousing rules
NYSE Liffe has revised its cocoa and coffee grading and storage rules to impose limits on how long warehouses can charge rent when delivery or transfer of stock is delayed, a document published on its website showed.

European Banks Show Signs of Healing
Europe’s banks are accelerating efforts to raise money and improve their balance sheets after years of taking heat for moving too slowly to boost their financial health.

Deutsche keeps forex fixings under review
Deutsche Bank, the world’s biggest foreign exchange dealer, keeps its involvement in currency fixings processes under constant review, it said on Wednesday. Royal Bank of Scotland told customers on Tuesday it would stop accepting client orders for a number of currency fixings.

US finance regulator voices backing for Bitcoin
Stephen Foley in New York –
Benjamin Lawsky, the superintendent of financial services in New York whose tough stance against money laundering wrung a $340m settlement from Standard Chartered, says that Bitcoin has reached a “tipping point” where its potential benefits outweigh the risks of illegal activity.

U.K. Lawmakers Criticize Management of Queen Elizabeth’s Budget
Poor management of Queen Elizabeth II’s finances last year resulted in some royal properties falling into a dangerous or deteriorating condition, while overspending forced the Royal Household to run down its financial reserves to historically low levels, according to a report by U.K. lawmakers.


The Commodity Futures Trading Commission’s Division of Market Oversight Announces Trade Execution Mandate for Certain Credit Default Swaps and Additional Interest Rate Swaps
The Commodity Futures Trading Commission’s (CFTC or Commission) Division of Market Oversight (Division) today announced that TW SEF LLC’s (Tradeweb) self-certification of available-to-trade determinations (MAT Determination) for certain interest rate swap (IRS) and credit default swap (CDS) contracts is deemed certified.

[FCA] Temporary restriction in short selling

Untying the knots in private equity taxation
Becky Pritchard – Financial News
Tax cases in Sweden don’t normally get pulses racing, but the trials and tribulations of one of Nordic Capital’s subsidiaries through the Swedish administrative courts have been followed with keen interest by private equity houses.

Volcker Rule Reporting: A Review
Senthil Radhakrishnan – Wall Street & Technology
Some of the more obscure types of reporting required in the Volcker Rule will make implementation difficult.

Structural Reform Of The EU Banking Sector

European Commission: Structural Measures To Improve The Resilience Of EU Credit Institutions – Frequently Asked Questions

European Commission: Reporting And Transparency Of Securities Financing Transactions – Frequently Asked Questions

Exchanges & Trading Facilities

SEC Approves Listing Options on Nations VolDex
International Securities Exchange Holdings, Inc. today announced that the SEC has approved listing options on the Nations VolDex Index. The Nations VolDex measures implied volatility by focusing on at-the-money options while also offering an alternative gauge of volatility.

SGX China Futures Traded a Record 22 million Contracts in 2013
SGX China A50 Futures traded a record annual volume of 21.9 million contracts in 2013, up 119% from a year earlier. As the world’s only offshore SGX China A-share futures, participation in the SGX China A50 Futures is well spread across global investors like banks, hedge funds, pension funds, proprietary trading firms, asset management companies and individual investors.

EU exchanges aim to reduce FX risk for ETF trading
Anish Puaar – Financial News
Two of Europe’s largest stock exchange groups plan to launch multi-currency trading for exchange-traded funds in moves designed to reduce currency risk and attract more Asian investors to European markets.

MGEX Breaks Into Top 15 Daily Open Interest Records
MGEX, a Designated Contract Market (DCM) and Derivatives Clearing Organization (DCO), reports that open interest reached the top 15 on the daily Exchange open interest records after Monday’s trade date.

Montréal Exchange Celebrates Its 140th Anniversary

NYSE Announces Super Bell Week Leading Up to Super Bowl XLVII

NZX Full Year 2013 Shareholder Metrics Materials

Introduction Of T+2 Standard Settlement Period At Oslo Børs VPS

Hedge Funds & Managed Futures

Hedge Funds Sniff for Even Bigger Payouts From Banks
One of the biggest bets on Wall Street rests on a theory that also deeply unsettles Wall Street. The provocative theory is that the big banks have not paid enough in recent legal settlements to make amends for their role in stoking the subprime housing boom and bust.

Bank of Montreal Parent Acquires British Asset Manager for $1.2 Billion
In a bid to expand its wealth management offerings in Europe, the Bank of Montreal’s parent company said on Tuesday that it would acquire F&C Asset Management of Britain for 708 million pounds, or about $1.2 billion.

Fidelity beat benchmarks by $35 billion, but does anyone care?
U.S. investors have all but tuned out the boldest and best mutual fund stock pickers, leaving billions of dollars on the table for each of the past five years.

US owner Northwestern Mutual confirms Russell sale plan
Mike Foster – Financial News
US insurer Northwestern Mutual has confirmed it is willing to consider selling its majority stake in Russell Investments, one of the world’s largest investment consultants.

Blackstone-backed hedge fund goes long with $125m
Harriet Agnew – Financial News
Carrhae Capital, an emerging markets-focused hedge fund manager that received a seed investment from alternatives giant Blackstone Group, has raised $125 million for a new long-only fund that will launch next month.

Bob Diamond hires MF Global veteran David Schamis at Atlas
John Aglionby –
Former Barclays boss Bob Diamond has hired financial services veteran David Schamis as a founding partner to run the private equity arm of his new venture Atlas Merchant Capital.

T. Rowe Price quarterly profit rises 24 percent
Asset manager T. Rowe Price Group Inc said fourth-quarter profit rose 24 percent.

Banks & Brokers

Rick Bartlett, Citigroup’s Head of Equities for Americas, Dies at 46
Maureen Farrell – MoneyBeat – WSJ
Rick Bartlett, the bank’s head of equities for the Americas, passed away on Friday following a three-year battle with lung disease, a Citigroup spokeswoman confirmed.

Barclays to shut hundreds of branches – FT
Barclays is planning to shut 400 UK branches, or a quarter of its network, as part of the bank’s plan to cut costs, the Financial Times said on Wednesday.

Barclays Job Cuts to Largely Miss Asia Investment Banking Operations
Enda Curran – MoneyBeat – WSJ
The Asian investment banking operations of Barclays PLC will largely sidestep the lender’s new round of aggressive global job cuts, according to a person familiar with the matter.

Erskine Bowles to Lead Morgan Stanley Board
Morgan Stanley announced Tuesday that Erskine Bowles, who has served as a director of the board since 2005, had been named as lead director. Mr. Bowles will replace C. Robert Kidder, effective Feb. 1.

Lloyds Banking Group to Cut More Than 1,000 Jobs
The Lloyds Banking Group said on Tuesday that it would eliminate an additional 1,080 jobs as part of a restructuring plan first it began in 2011.

Stop your block trade blowing a fuse
Richard Partington – Financial News
When a multimillion-dollar block trade in a European company turned sour for a US bank last March, it prompted the bank’s top regional executives to gather for a post-mortem.

Clearing & Settlement

LCH and EuroCCP prices to rise next week
The Trade
Central counterparties (CCPs) LCH.Clearnet and EuroCCP are set to increase prices for clearing equities at the beginning of February, blaming regulation and market conditions.

Were the Biggest Banks Playing Brer Rabbit on the Clearing Mandate, and Was Gensler Brer Fox?
Streetwise Professor
One interesting part of the Coeuré speech was his warning that the clearing business was coming to be dominated by a few large banks, that are members of multiple CCPs:

TeraExchange connects to Traiana CreditLink
TeraExchange, a multi-asset class swap execution facility, announced today that it is certified and live with a connection to Traiana CreditLink.

CME Group Clearing: NYMEX Options Expiration Operational Procedures for the Trading Floor and Clearing Members (BDO) Effective Wednesday, January 29, 2014

Indexes & Products

ISE ETF Ventures and BlueStar Indexes Expand Partnership
ISE ETF Ventures announced today the expansion of its partnership with BlueStar Indexes, a provider of Israeli-focused investment research, by launching the jointly developed BlueStar Israel Global Technology Index, “BIGTech” (Ticker: BGTH).

Exchange Traded Fund providers worry about ‘clutter’ in sector
At a time when the number of exchange-traded funds has skyrocketed to more than 1,500, major fund providers say they see a need to rein in product proliferation and focus on developing ETFs that are more targeted to specific investor needs.

Risk premia: the end of the road for smart beta?
Richard Jory –
Allegations of mis-selling are generally the preserve of the financial industry’s regulators and enforcers or, at worst, US law firms trying to drum up business with a scattergun approach to accusations of foul play. But now a new focus for the mis-selling crowd has emerged – so-called smart beta. Ask almost any specialist in the field of structured products, exchange-traded funds or indexes what they think of smart beta and you’ll apparently find all the evidence you need to support the latest outbreak of catcalls aimed in its direction.

Exchange-traded products industry worth $2.4 trillion, says ETFGI
Richard Jory –
The size of the global exchange-traded fund (ETF) and exchange-traded product (ETP) industry hit a record high in 2013, with a total of $2.4 trillion of assets invested last year. The figure was bolstered by $24.5 billion of net inflows in December, according to ETFGI’s latest global ETF and ETP industry insights report. Equity ETFs and ETPs saw inflows of $28.3 billion in December, followed by fixed income at $403 million, but commodity products saw net outflows of $5 billion.


Technology Will Help Boost Some Banks’ Revenue, Report Says
Andrew R. Johnson – MoneyBeat – WSJ
The banking industry has largely dug its way out of the post-financial crisis doldrums in terms of profitability. Now comes the hard part: actually growing revenues in the face of tepid loan demand, low interest rates and new regulations.

Real-Time Monitoring Spreads Beyond the Front Office to Risk Systems
Ivy Schmerken – Wall Street & Technology
London-based ITRS and Excelian developed a real-time performance monitoring interface for Murex, once considered to be middle office, but sell side are now scrutinizing downstream and upstream interdependencies among systems

Morningstar Australia Ticker Plant to Cut Latency by 100ms
Waters Technology
Chicago-based data and investment research provider Morningstar’s UK subsidiary has begun distributing streaming equities news from UK-based newswire startup Alliance News via two of its investment research platforms, to enable users to view real-time news alongside company data and analysis.

Options Expands Their Low Latency Offering, Adds Quincy Extreme Data To The Firm’s Electronic Trading Platform
Options, the leading private financial cloud provider for the global capital markets industry, today announced the availability of Quincy Data LLC’s Quincy Extreme Data (“QED”) service, enabling the managed service provider to offer data at the lowest known latencies to customers trading across markets in Equinix NY4 and the CME.


Cohen Wanted Trades Hidden From SAC Employees
When SAC Capital Advisors LP began unloading a massive position in two pharmaceutical companies in July 2008, Steven A. Cohen didn’t want anyone to know, including his own employees, the firm’s top trader told jurors Tuesday.

U.S. rests its case in insider trading trial of SAC’s Martoma
Steven A. Cohen tried to sell stock as quietly as possible as SAC Capital Advisors unwound positions at the center of an insider trading trial, the hedge fund’s head trader said on Thursday. The testimony came as the government called its final witnesses in the trial of former portfolio manager Mathew Martoma, putting the case within days of its conclusion.

SAC’s Counsel Testifies at Insider Trading Trial in Unexpected Move by the Defense
Peter Nussbaum, the general counsel of SAC Capital Advisors, took the witness stand on Tuesday in a bold and surprising move by the defense at the insider trading case of Mathew Martoma, a former SAC trader.

FINRA Fines Banorte-Ixe Securities $475,000 for Inadequate Anti-Money Laundering Program and for Failing to Register Foreign Finders
The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Banorte-Ixe Securities International, Ltd., a New York-based securities firm that services Mexican clients investing in U.S. and global securities, $475,000 for not having adequate anti-money laundering (AML) systems and procedures in place and for failing to register approximately 200 to 400 foreign finders who interacted with the firm’s Mexican clients.

FCA bans former BGC senior executive Anthony Verrier
The Financial Conduct Authority (FCA) has banned Anthony Verrier (a former senior executive at BGC) from performing any function in relation to any regulated activity in the financial services industry. The FCA found that Verrier is not a fit and proper person due to concerns over his integrity.

[ASIC] New South Wales man charged with market manipulation
A 32-year-old New South Wales man has appeared in the Brisbane Magistrates Court on three market manipulation charges, following an ASIC investigation.

ASIC Accepts Enforceable Undertaking From BNP Paribas

Environmental & Energy

Obama touts natural gas in speech
President Barack Obama used his State of the Union speech to underscore the role of natural gas in transitioning to a lower-carbon nation, the White House indicated tonight.

Obama Stresses Commitment to Energy in State of the Union Address
Fox News
President Obama stressed a commitment to energy in his State of the Union address.

Has Obama Kept Promises on Climate Since Last State of the Union?
National Geographic
In his State of the Union address a year ago, President Barack Obama promised that he would begin tackling climate change, whether or not Congress wanted to cooperate.


Ten questions on China’s funds passporting scheme
Michelle Price in Hong Kong – Financial News
International asset managers who have long-looked enviously upon China’s retail investment market may find their patience rewarded in coming weeks.

Thai exchanges aim to improve market liquidity and trading systems
The Trade
Thai exchanges have announced plans to enhance their offerings to investors. Thai markets continue to trade, despite political protests that have caused problems in the capital, Bangkok. In 2014, the SET index is up approximately 5%.

Press Conference By Taro Aso, Japan’s Deputy Prime Minister, Minister Of Finance, And Minister Of State For Financial Services

SGX Welcomes SAC Capital As Full Sponsor On Catalist

Shanghai Futures Exchange: Notification On Schedule For Continuous Trading Hours During The Spring Festival 2014

Frontier Markets

Turkey’s Central Bank Declares a Shock-and-Awe Rate Hike
Paul Vigna – MoneyBeat – WSJ
The bank raised interest rates to 12% from 7.75% at the conclusion of an emergency meeting convened late Tuesday night Ankara time to address the pummeled lira. This was far above the expected “emergency” rate hike; market consensus centered on a 2% rate hike.

Impact of Turkey Rate Decision Fades Fast
Tommy Stubbington –
The soothing effect of Turkey’s unexpectedly huge interest-rate rise faded quickly Wednesday, as investors worried that many of the problems facing fragile emerging markets remain.

African Investors Join Race for Africa
Africans are joining the scramble for Africa. Private-equity firms run by African investors are eyeing assets in energy, manufacturing and services across the continent, according to executives running big funds in Africa.

Euromoney Islamic finance awards 2014

Bursa Malaysia Delivers Highest Profit After Tax And Minority Interest (Patami) Since 2008 – Posts 15% Jump In Its Patami And Proposes 16 Sen Final Dividend

Egyptian Exchange Launches Nilex First Index

Egyptian Exchange Approves The Semi-Annual Review Of Market Indices

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