First Read

“Maybe I’ll go to the movies…by myself” The Plight of the FCMs
Carl Gilmore, President, Integritas Financial Consulting
Carl Gilmore That famous line in the movie “Trading Places” sums up the current financial profitability position of the typical futures commission merchant. With increasing compliance, operational and technology costs, a zero tolerance regulatory environment, virtually no interest income, transactional commissions racing to zero, and increased competition, it is no wonder that the FCM community continues to dwindle. And now, if things weren’t bad enough, blockchain technology threatens the final disintermediation. What to do? That is the $64,000 question.

I don’t want to spend too much time pointing out problems, or lamenting them, as that ground has been pretty well traveled. Rather, I think it is more useful to step back, look at the overall picture and suggest a path forward.

First, commission rates are not going back up. If you operate an FCM and are waiting for an environment in which you gain upward pricing power, you are probably going to be waiting quite a long time. Thus, don’t base your business strategy on incrementally higher transactional revenue. It isn’t likely to happen. Also, there are some interesting things going on in the marketplace with respect to subscription models that bear watching.
Second, assume that the current intrusive regulatory environment is probably going to get worse and act accordingly. As a former FCM executive I commiserate with all of you, but taking it seriously and acknowledging that the zero tolerance regulatory environment isn’t going away soon will help with strategic planning. If there was ever a topic in which an ounce of prevention is worth a pound of cure, this is it. Organizing compliance activities and systems to be even more pro-active than they have traditionally been provides greater benefits to your organization than ever.

Third, think about how technology is utilized. Reorganize workflows around a central technology spine or framework in a way that allows all of the functional disciplines in an organization to communicate with each other in an effective way. That means that technology solutions have to be able to talk to each other. Compliance technology needs to integrate with risk management that needs to communicate with finance and the front, middle and back offices. Data analytics and workflow management are key.

Fourth, think about your business in different ways. I believe it is likely that the FCM of the future will look more like a technology company than a traditional financial services intermediary. Place a premium on creativity and figuring out how to solve business challenges in new ways.

The FCMs that have survived so far have done a great job of organizing their businesses so that they run more efficiently. To survive the next wave and to thrive, FCMs will need to reinvent themselves yet again. That is the future and that is progress.

Also, for all of you going to the FIA conference in Boca Raton next week, make sure you check your email. The Futures Industry Association has sent an email asking attendees to participate in a survey about where the futures industry is headed.


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Wells Fargo Sued by SEC Over Bond Sale for Curt Schilling
Bloomberg Business
Wells Fargo & Co. and a Rhode Island government agency were sued by a U.S. regulator for allegedly misleading investors about how much money a company led by former Boston Red Sox pitcher Curt Schilling needed to develop a video game.

**JK: A wild pitch, in the dirt, all the way to the backstop.


Royal Bank of Scotland Loses Finra Arbitration Over Firing
The New York Times
When a Wall Street executive is fired, it is usually done quietly. But a recent arbitration award has now shed a light on a termination that has caused an embarrassment for the bank. The Royal Bank of Scotland’s United States securities division botched the firing of a former executive so badly that a Financial Industry Regulatory Authority arbitration panel ordered the bank to pay him $2.05 million in compensatory damages.

***CG – Now that is some severance.


Johannesburg Stock Exchange (JSE) Rings The Bell For Gender Equality
Today the Johannesburg Stock Exchange (JSE) joined 34 other stock exchanges around the world in marking International Women’s Day (8 March) in order to raise awareness of gender equality and the need for transformation in the financial industry. The initiative involved collaboration with the UN Global Compact South Africa Network / National Business Initiative, the Sustainable Stock Exchanges Initiative (SSE), UN Women, IFC, the World Federation of Exchanges and Women in ETFs.

***CG – Good work by the JSE. Closer to home, our friends at Women in Listed Derivatives (WILD) continue to do great work.


The Bull Market’s Nominal Happy Birthday
MoneyBeat – WSJ
It’s time to wish the old bull a happy birthday. But be careful not to yell around him, he startles easily these days.
The bull market turns seven on Wednesday. That’s 84 months, which makes it the third-longest such run in market history, behind the dot-com run, which went from October 1990 to March 2000 (113 months) and a post-war run from June 1949 to September 1956 (86 months), according to numbers calculated by Howard Silverblatt, the senior index analyst at S&P Dow Jones Indices.

***CG – Happy birthday bull market!


Yesterday’s Top Read Stories
On top of the leader board yesterday was the Institutional Investor story The 2016 Trading Technology 40. In second place was an opinion piece on Donald Trump (because there simply aren’t enough of THOSE out there), Donald Trump’s business disaster is worse than you think. Rounding out the top three, from Bloomberg, was the info piece on Amercanex, the electronic cannabis-trading platform, America’s Marijuana Exchange and the Wall Street Vets Behind It


Lead Stories

Wall Street Bonuses Fell in 2015
The New York Times
Wall Street bonuses are down for the second straight year, and recent market volatility and cutbacks suggest that 2016 is shaping up to be a difficult year, according to the New York State comptroller.

LSE and Deutsche Börse to pledge up to $7bn of capital savings
Financial Times
Banks and investors will be promised up to $7bn in efficiency savings on trading when Deutsche Börse and the London Stock Exchange Group outline synergies and seek investor support for their planned merger. People familiar with their plans say the two exchange groups will highlight the benefits of allowing customers to offset the capital requirements of overlapping trades currently housed at rival exchanges.

*** CG – Some capital efficiencies…finally.

LSE-Deutsche Boerse merger would signal end to exchange mega-deals
If the merger between London Stock Exchange and Deutsche Boerse goes ahead, it could be the final mega-deal in the industry as further combinations of such scale are likely to hit antitrust buffers. The two companies will seek to overcome the kind of regulatory concerns that scuppered Deutsche Boerse’s attempt to merge with NYSE Euronext four years ago, a deal blocked because it would have created a near-monopoly on exchange-traded derivatives in Europe.

***CG – Never say never.

CME Group Announces New Managing Director Roles
CME Group
CME Group, the world’s leading and most diverse derivatives marketplace, today announced the following Managing Director promotions, which were effective in February.
Peter Keavey, 47, Managing Director and Global Head, Crude & Refined Energy Products
Tim McCourt, 37, Managing Director and Global Head, Equity Products
Agha Mirza, 43, Managing Director and Global Head, Interest Rate Products
Adrienne Seaman, 45, Managing Director and Associate General Counsel, International

The Case Against an Options Ban
By Steven M. Sears – Barron’s
By late March, investors should learn if the Labor Department will ban options trading in retirement accounts. The outcome right now is too hard to call. The proposal, part of a larger plan to expand the definition of a qualified fiduciary to prevent conflicts of interest among financial advisors, remains under tight wraps, and Wall Street lobbyists have no idea what’s in it, a senior derivatives industry executive says.

***CG – This is a tough call. Using options to reduce risk ought to be allowed.

China financial regulators say more co-ordination, data sharing necessary to quell volatility, fraud
South China Morning Post
China’s top financial regulators are mulling over a merger of financial regulatory agencies to create a super agency that would oversee the securities, banking and insurance markets. This enhanced authority would be able to share information and better coordinate policy and, if needed, intervene to stabilise financial markets, sources said.

Symphony financial messaging set for wide rollout this year – Goldman
Symphony, the WhatsApp for the financial world, will significantly increase its user base this year at major institutions including a top asset manager, shareholder Goldman Sachs said on Monday. Google and 18 of the world’s biggest banks and fund managers have invested around $170 million in Symphony, touted as a rival to the Instant Bloomberg messaging system and Thomson Reuters’ Eikon Messenger, which link traders across the main global financial markets.

***CG – Another example of technology potentially disrupting the status quo.

US exchanges: the ‘speed bump’ battle
War has broken out in the US stock market. On one side is the establishment, led by the New York Stock Exchange and Nasdaq. On the other is IEX, an upstart trading venue with a tiny sliver of the business but outsized ambitions to disrupt the world’s largest equity market by becoming an exchange itself.

***CG – Competition is good. Maybe IEX makes it, maybe they don’t, but forcing the conversation has a benefit to the marketplace.

Bank ethics under scrutiny as UK sets up standards body
this week, in the UK, a new body will try to convince the world that banks’ behaviour really is changing. The Banking Standards Board, created last year to vet the industry’s ethics, will on Tuesday unveil its first annual review at a conference

**CG – I’m keeping my fingers crossed.


New regulations take toll on Wall Street bonuses
The average bonus paid on Wall Street slipped 9 per cent last year to $146,200, as banks hired more staff and tried to cap pay amid a surge in compliance costs and volatile trading activity. The much-watched figure, published annually by the office of the New York State Comptroller, reflects the mood of the securities divisions of New York Stock Exchange member firms, which generate almost one-fifth of the state’s total tax receipts.

***CG – I guess that means the new sports car has to wait until next year.

BoE says UK banks within hair’s breadth of capital adequacy target
A Bank of England (BoE) policymaker said on Monday that Britain’s banks would not need much more capital to comply with its solvency rules, as the central bank tries to quell talk that another major increase in capital requirements is on the way.

Keynote Remarks of Chairman Timothy Massad before the Institute of International Bankers Annual Washington Conference
One of the most significant achievements took place just last month, when European Commissioner Jonathan Hill and I announced that we have reached an agreement that resolves the “equivalence” issue with respect to clearinghouse recognition. Today I’d like to take a little time to explain that agreement, and discuss the progress we’ve made in the other areas I discussed with you last year—as well as some priorities for the months ahead.

***CG – Chairman Massad continuing to get things done.

Treasury Official Calls for Greater Foreign Bank Policies
International regulators have made significant headway in putting in place regulatory changes in the wake of the 2008 financial crisis, but the U.S. Treasury is continuing to push for more policies to establish a level playing field between foreign and U.S. banks, said Treasury Under Secretary for International Affairs Nathan Sheets.

Exchanges & Trading Facilities

CBOE and Bloomberg Expand Connectivity to CBOE’s PULSe Trader Workstation
Chicago Board Options Exchange announced today that it has joined with Bloomberg to establish direct connectivity between CBOE’s PULSe trader workstation® (PULSe) and Bloomberg’s Execution Management System (EMSX). The linkage between CBOE and Bloomberg expands access to the PULSe trader workstation, allowing Bloomberg EMSX users to send, execute and confirm orders electronically with CBOE floor brokers and other PULSe users.

Ex-TD Bank Head Appointed to Run TMX Market Insights’ Division
Finance Magnates
The Canada-based exchange operator under the TMX Group company structure, has today appointed Tom Wadden as Head of Data Science and Analytics for TMX Insights, a sub-division of TMX Markets, effective immediately, according to a company press release.


Obama says both left and right are wrong on Wall Street rules
On the left, Democratic presidential contender Bernie Sanders has said Wall Street regulations have not gone far enough. He wants to break up big banks and has criticized his rival Hillary Clinton for being too close to Wall Street. On the right, Republicans have complained that Dodd-Frank favored big banks and hurt the ability of small banks to make loans.

Clinton and Sanders talk tough on fracking
Both contenders for the Democratic party’s nomination in this year’s US presidential election have taken strong stands against hydraulic fracturing, a technique that is essential for most of the country’s oil and gas production.

Hedge Funds & Managed Futures

Goldman Sachs Sees Best Time in Two Decades to Buy S&P 500 Calls
Bloomberg Business
It’s the best time to buy bullish options on the Standard & Poor’s 500 Index in 20 years, Goldman Sachs Group Inc. says. The U.S. benchmark has a 21 percent probability of rising 5 percent in the next month, according to a model by the New York bank that looks at free-cash-flow yield, return on equity, Institute for Supply Management data and capacity utilization. The options market is pricing in only a 5 percent chance the S&P 500 will move as much.

***CG – They might be two weeks too late.

Corporate bond markets thaw for spring
International capital markets are thawing out for spring with companies looking to sell new debt as volatility eases and money flows into bond funds. US high-yield spreads and the value of the S&P 500 index have returned to levels last seen at the start of January. According to data from EPFR, global high-yield bond funds recorded their biggest weekly inflow of capital since the research company began tracking in 2003.

The Problem With the World’s Most Obvious Trade
Sometimes a bet is so obvious that it is hard to believe it isn’t working out. The so-called divergence trade is a leading example. This week should provide the perfect opportunity for betting that the stronger U.S. economy and Europe’s struggle with low inflation will produce a stronger dollar. The European Central Bank has indicated it will ease at its meeting on Thursday, while expectations for tightening this year by the U.S. Federal Reserve are once again picking up.

Banks & Brokers

OTC Global Holdings
OTC Global Holdings (OTCGH), the leading independent commodities interdealer broker, celebrated a landmark year in 2015 in the face of continued industry upheaval and a highly fractured market. As always, OTCGH’s success was driven by two primary factors: its people and technology. Continued investments in both yielded significant results for the company’s clients around the globe.

Goldman banker Leissner quit after violating company rule: source
Goldman Sachs’ (GS.N) Southeast Asia chairman, Tim Leissner, resigned last month after he had allegedly violated the firm’s internal rules, a person familiar with the matter said on Tuesday, confirming a Wall Street Journal report. Earlier on Tuesday, the Wall Street Journal reported that Leissner, who had been placed on leave since January, quit after a review of his emails found that he had allegedly sent an unauthorized reference letter on behalf of an individual to another financial firm in 2015.

JPMorgan to stop direct financing of new coal mines
JPMorgan Chase, one of the world’s biggest banks, is to stop direct financing of all new coal mines and new coal power plants in rich countries in the wake of the global climate accord agreed in Paris in December. The US bank has included coal projects alongside child labour on a list of “prohibited transactions” in the new version of its environmental and social policy published on its website.

***CG – Good for you, JP Morgan. We need more of this.

Derivatives traders among latest to exit Morgan Stanley
Financial News
Morgan Stanley’s European heads of financial engineering in equities, exotic trading and single stock exotic trading are among the most recent departures from the US bank in London, which has been making cuts across its markets business.

It’s hard out there for a banker: Wall Street slashes bonuses
By Kevin Dugan – NY Post
It’s getting a lot tougher to make a living on Wall Street.
Average bonuses paid out in New York’s financial services sector tumbled 9 percent last year, to an average $146,200 — its lowest level in three years, the state’s fiscal watchdog said on Monday.

***CG – same comment as above.

Clearing & Settlement

The New Danger From Derivatives
Global regulators are turning their attention to an important piece of unfinished business: ensuring that a bad bet on derivatives can’t upset the entire financial system. They’ve hit on a good solution — as long as they can prevent it from becoming a threat in itself.

**CG – Ultimately this leads back to the CCP “Skin in the game” debate.

Clear The Way: LSE (And LCH!) On The Block
Seeking Alpha
The biggest news from the exchange world in a long time is the proposed merger between LSE and Eurex. Both entities operate stock exchanges, but that’s a commoditized business these days, and it’s not the real driver of the merger. Instead, LSE’s LCH.Clearnet, and in particular LCH’s SwapClear, are the prizes. LSE and Eurex also both have valuable index businesses, but it’s hard to see how their value is enhanced through a combination: synergies, if they exist, are modest.

CME set to launch swaptions clearing in Q2
CME Group’s long-delayed swaptions clearing service is set to launch in the second quarter of this year, according to clearing executives, driven by the incoming margin rules for non-cleared derivatives.

Central Clearing Doesn’t End Risk
Central clearing shifts and reduces risk but doesn’t eliminate it, finds Ivana Ruffini of the Chicago Federal Reserve Bank’s economic research department.

***CG – the world is not riskless. The trick is differentiating the smart risks from the not so smart risks.

US sets 5 September 2017 as T+2 deadline
Press Release
The U.S. T+2 Industry Steering Committee (T+2 ISC), organized by The Depository Trust & Clearing Corporation (DTCC) and co-chaired by the Securities Industry and Financial Markets Association (SIFMA) and the Investment Company Institute (ICI), announced the industry target date of September 5, 2017, for the U.S. move from a T+3 to a T+2 settlement cycle.

**CG – what will be happening with blockchain by this time?

Indexes & Products

The ETF Game Has a New Bible
The Reformed Broker
I want to take a moment to congratulate my friend Eric Balchunas on his new book, The Institutional ETF Toolbox, which goes on sale today. With over $3 trillion in assets under management, the ETF game is all grown up now and it’s high time that a book came along with a sophistication to match the way these products are currently being used.

Defaults Are on the Rise
S&P Dow Jones Indices
The March rebalancing of the S&P U.S. Distressed High Yield Corporate Bond Index saw another increase in the number of qualifying constituents. This marks the eighth increase of this kind in the last nine months. The index, which is designed to measure securities with an option-adjusted spread greater than or equal to 1,000 bps, is down 35% over the past one-year period as of March 1, 2016.

Bats Global Markets, T3 Index to Launch SPYIX Market Volatility Index
Press Release via BATS
(Bats) and T3Index (T3) today announced the launch of the SPYIX (“the Spikes”), an
index measuring expected 30-day volatility in the most actively traded security
worldwide, the SPDR S&P 500 ETF (SPY).

Our STOXX products experienced a strong February
February 2016 was again another successful month regarding our derivatives on STOXX® Sectors, Broadbased & Size Indexes.

Euronext announces yearly review results of the PSI 20 Index MAR 2016
Euronext today announced the annual reweighting of the PSI 20®, that will take place after close of the markets on Friday 18 March, 2016. The changes due to the review will be effective from Monday 21 March, 2016.

MSCI ESG Research Scores Funds on Sustainability
Press Release
MSCI today announced it has expanded its MSCI ESG Research coverage to include approximately 21,000 mutual funds and ETFs. MSCI ESG Fund Metrics will measure the Environmental, Social and Governance (ESG) characteristics of portfolio holdings and rank or screen funds based on a diverse set of factors including sustainable impact, values alignment and ESG risks, including carbon footprint.

Smart Beta ETFs That Stood Out Amid Market Volatility
The ‘smart beta’ rage has lately taken the charge of the ETF world. Simply put, the days of plain vanilla ETFs or market-cap weighted ETFs are gone and products with several wining attributes are coming on stream.


Fidessa Prospector searches for undiscovered trading opportunities
Fidessa group plc (LSE: FDSA) today announced the next step in its award-winning Optimized Trading initiative, Fidessa Prospector, which discovers potential trading and crossing opportunities that would otherwise not be found.

Why blockchain won’t save banks from the capital squeeze
Financial News
Distributed ledger technology could help banks reduce their back-office technology costs, but it is unlikely to free-up significant regulatory capital, according to a study by Autonomous Research.

***CG – We’ll see…

Fintech Sandbox: Celebrates One Year Anniversary – Crowdfund Insider
FinTech Sandbox, a nonprofit that helps FinTech startups access data and build great products, today announced a series of celebrations marking its one-year anniversary. The biannual FinTech Sandbox Demo Day will be held on March 24, 2016 at Fidelity Investments headquarters. Sandbox sponsors, data partners, residents, investors, members of the media, industry analysts, academics and FinTech professionals will convene in Boston for this unique occasion.

In JPMorgan Fintech Bunker, Button-Down Coders Build Bank Apps
For the biggest U.S. bank, the best way to fight Silicon Valley is to mimic it.
JPMorgan Chase & Co.’s. new technology hub across the street from the Hudson Yards development on Manhattan’s West Side — a 125,000-square-foot space so vast it’s subdivided into five neighborhoods — has all the trappings of a startup: foosball tables, a game room, industrial decor and fridges stocked with sodas and snacks.


BlackRock gold fund may face penalties over unregistered share issue
BlackRock Inc’s iShares Gold Trust may face penalties and other costs after the U.S.-listed fund sold $296 million in shares earlier this year without properly registering them, the company said in a filing on Monday with the U.S. Securities and Exchange Commission.

Visium Hedge Fund Being Investigated by Justice Dept. and S.E.C.
The New York Times
The hedge fund Visium Asset Management is being investigated by the Justice Department and the Securities and Exchange Commission, the fund told investors on Monday. The agencies have requested information from several years ago relating to Visium’s valuation of certain securities in a credit fund it shut down in 2013.

SEC Charges Rhode Island Agency and Wells Fargo With Fraud in 38 Studios Bond Offering
The Rhode Island Economic Development Corporation (RIEDC, now called the Rhode Island Commerce Corporation) issued $75 million in bonds for the 38 Studios project as part of a state government program intended to spur economic development and increase employment opportunities by loaning bond proceeds to private companies. The SEC also charged Wells Fargo’s lead banker on the deal, Peter M. Cannava, and two then-RIEDC executives Keith W. Stokes and James Michael Saul with aiding and abetting the fraud.

Environmental & Energy

How Might U.S. Oil Output Be Impacted by Prices?
MoneyBeat – WSJ
Is U.S. oil going to keep flowing at its current pace? Ever since oil prices began sliding in 2014, one of the most enduring questions has been how U.S. production would respond to the decline in oil prices.

Oklahoma Puts Limits on Oil and Gas Wells to Fight Quakes
The New York Times
Facing a six-year barrage of increasingly large earthquakes, Oklahoma regulators are effectively ordering the state’s powerful oil-and-gas industry to substantially cut back the underground disposal of industry wastes that have caused the tremors across the state.


China Reality Check Halts Stock Rally as Japan Leads Bond Gains
Global stocks dropped as a slump in Chinese exports dragged metals lower and brought equities’ five-day winning streak to a halt. Japanese government bonds surged in a haven-asset rally that also lifted the yen, gold and Treasuries.

Who’s next? Asia investor activism set to grow after BlackRock public campaign
Following a rare public campaign, BlackRock Inc (BLK.N) voted against a deal planned by a Hong Kong firm that the world’s biggest asset manager partly owns, revving up investor activism in Asia after it roared ahead in 2015. In a ballot on Tuesday, BlackRock rejected G-Resources Group Ltd’s (1051.HK) plan to sell its main asset, an Indonesian gold mine, saying it didn’t have confidence G-Resources would use the proceeds in investors’ best interests. Owning 8 percent of G-Resources, BlackRock urged other shareholders to follow suit.

Swamped by Deposits, Japan’s Banks Can’t Lend Fast Enough: Chart
Japanese banks are managing to lend less than 70 percent of their deposits, leaving them with 205.8 trillion yen ($1.8 trillion) in surplus liquidity at a time when the central bank is charging them on some of their cash parked at the institution.

Taiwan Stock Exchange To Promote Taiwan Capital Market To Japanese Investors
During their meetings with a number of Japan’s major asset management and investment companies, TWSE’s senior representative will highlight the advantages and features of Taiwan’s capital market and illustrate how the TWSE can facilitate their investments in Taiwan. The TWSE expects that it will be able to enhance Japanese investors’ understanding of the Taiwan market and emphasize the investment advantages of its market.

Hong Kong regulator approves short and leveraged ETFs
ETF Strategy
The Securities and Futures Commission (SFC), Hong Kong’s financial markets regulator, has authorized the issuance of leveraged and inverse exchange-traded funds. The move follows a report in October last year from Hong Kong’s Financial Services Development Council (FSDC) detailing concerns over the territory’s ETF market falling behind the likes of Mainland China, Taiwan, Singapore and South Korea.

Frontier Markets

Nigerian Stock Exchange National Council Renews Executive Director’s Contract For Second Five Year Term
The Nigerian Stock Exchange is pleased to announce today that its National Council has approved the contract renewal of Mr. Ade Bajomo, for another term of five years as Executive Director, Market Operations and Technology, pursuant to a new employment agreement to be effective on 23rd May 2016.

Commodity traders in barter deals with Iran post-sanction: sources
Global oil traders have entered into rare barter deals with the National Iranian Oil Company (NIOC), supplying Iran with much-needed gasoline in exchange for high-quality fuel oil, after most economic sanctions against Tehran were lifted in January.


Cargill Cocoa Promise report: how livelihoods for cocoa farmers and their communities are improving
Cargill has published its second report on the Cargill Cocoa Promise, highlighting its progress towards improving the livelihoods of cocoa farmers and their communities. Strengthening the Cargill Cocoa Promise, the company has introduced a monitoring and evaluation system to improve the effectiveness of its activities, enabling a more evidence-based approach to help raise the living standards of farmers and their families, as well as to address the sustainability challenges in the cocoa supply chain.

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