John Lothinan News: SEC Said to Weigh Shining Light on Brokers’ Stock Routing; Exchanges, brokerages hit with high-speed trading class action; FCA Misconduct Fines of Individuals Drop 40% in 4 Years

Apr 21, 2014

First Read

Time to change the political climate; The world should take global warming more seriously
FT Editorial
The past five years have been a bad time for those fighting against climate change. Since the chaotic failure of the Copenhagen climate summit in 2009, political leaders have been focused on other issues while the world pumps carbon dioxide and other greenhouse gases into the atmosphere at an unprecedented rate. At the same time, although scientists point to growing evidence of climate change such as melting Arctic ice and more extreme weather, their arguments are undermined by the fact that the simplest measure of global warming – average temperature across the world – is not rising in line with earlier predictions.

***** The editorial board of the Financial Times saying what needed to be said about global warming.


China admits widespread soil pollution in ‘state secret’ report
By Lucy Hornby in Beijing, FT
One-fifth of China’s agricultural land is polluted, particularly in the country’s southern rice baskets, according to a sobering government report previously classified as a “state secret”.

***** Here is one of the biggest humanitarian and economic threats I see, pollution in China. When food prices around the world skyrocket in coming years, here will be the reason why.


Banks fear effects of stress on workforce
By Daniel Schäfer in London
Banks are worried about a rise in mental health issues and stress-related illnesses in their workforce as a “squeezed middle” of mid-level bankers struggle to cope with more work and less job security. A spate of suicides in the banking sector in the past few months has fuelled concerns that a rise in revenues in some areas has exacerbated already high stress levels after drastic staff cutbacks in the past few years.

***** The World Health Organization estimates that approximately 1 million people die each year from suicide.


COLUMN-Career risk makes the world go round: James Saft
By James Saft, Reuters
Fund and pension investors who are watching their biotech and social media stakes melt before their eyes may well feel they’ve had their pockets picked by self-serving investment managers.
But actually they are also helping to fund, if only as an unintended side-effect, useful innovation which might not otherwise happen. The lesson here: career risk makes the world go round.

***** What career risk?


U.S. SEC’s information technology at risk of hacking -report
By Sarah N. Lynch, Reuters
The U.S. Securities and Exchange Commission has failed to protect its data network against possible breaches, to encrypt highly sensitive information, or to use strong enough passwords, the Government Accountability Office said on Thursday.

***** Stupid is as stupid does.


Swaps and Derivatives Trade Group Chief Robert Pickel to Step Down; Executive Says It is Good Time to Explore Other Opportunities
By Katy Burne, WSJ
The International Swaps and Derivatives Association said its chief executive, Robert Pickel, would step down later this year, in the latest change to the derivatives trade group’s management at a time of a regulatory overhaul in the $693 trillion market for instruments called swaps.

***** We relished the opportunity to make Robert Pickel our page of the day on MarketsWiki.


How to Spot a Market Bubble; Investors can get burned when the air rushes out of a hot market.
By Joe Light, WSJ
Investors have big fears about a small word: pop. The bursting of two major asset bubbles—in home prices in recent years and Internet stocks at the turn of the century—has trained investors to scan the horizon for signs of where the next one might form.

***** Remember when you hear “pop,” look for the weasel.


Flash Point: Peter Nabicht Talks HFT, Innovation and Misinformation

Today’s financial markets can be summed up in three words – global, fast, and complex. But as the market structure evolves, so must the regulatory structure that oversees it. John Lothian News has spoken with several industry experts to create this series on the evolution of financial market structure.

In Part 1, Peter Nabicht, senior advisor of the Modern Markets Initiative, welcomes the public’s interest in high frequency trading in the wake of Michael Lewis’ book “Flash Boys”, but cautions that changes may have unintended consequences.

Watch the video »



MarketsWiki Page of the Day
Robert G. Pickel


Jim Swartwout; Michael Lewis; Robert G. Pickel; George Hanley; Shimelis Habtewold; Peter Nabicht; Jennifer Ilkiw

Companies, Organizations and Groups

TradeMONSTER; Ethiopia Commodity Exchange; Modern Markets Inititative; Bantix Technologies, LLC; Singapore Mercantile Exchange; Options Industry Council


Page views: 43,398,004; Pages: 20,510, Articles: 7934
MarketsWiki Statistics

Lead Stories

SEC Said to Weigh Shining Light on Brokers’ Stock Routing
By Dave Michaels, Bloomberg
The U.S. Securities and Exchange Commission is weighing a requirement that brokers tell investors exactly where their stock trades go to be executed, a proposal that may address complaints that the decisions are sometimes made against the client’s best interests.

SEC weighs requiring brokers to identify where trades made -Bloomberg
The U.S. Securities and Exchange Commission is weighing a proposal that would require brokers to tell investors exactly where their stock trades are executed, Bloomberg reported on Saturday.

Exchanges, brokerages hit with high-speed trading class action
Dozens of the largest U.S. stock exchanges, brokerages and high-frequency trading firms were hit with a class action lawsuit by the capital of the state of Rhode Island, accusing them of manipulating the U.S. securities markets.

BofA, NYSE, Brokerages Sued Over High-Frequency Trading
By Bob Van Voris
Bank of America Corp. and the New York Stock Exchange were among dozens of exchanges, brokerages and traders sued over high-frequency trading by the city of Providence, Rhode Island, over claims they rigged securities markets to divert billions of dollars from buyers and sellers of shares.

Chicago firms subpoenaed in high-speed trading probe
Crain’s Chicago Business
(Bloomberg) — Subpoenas have been served at a pair of Chicago-based firms as part of an investigation into high-frequency trading.

FCA Misconduct Fines of Individuals Drop 40% in 4 Years
By Ben Moshinsky, Bloomberg
The number of fines issued to senior bankers by the U.K.’s financial watchdog has fallen 40 percent since 2010 as the new regulator continues to seek its first “big fry.”

NY attorney general seeks info from high-speed firm Virtu: source
High-speed trading firm Virtu Financial Inc, which has been pursuing an initial public offering, has received a letter of inquiry from the New York attorney general amid a wider probe of the industry, a person familiar with the matter said on Friday.

2014’s worst hedge fund performers so far
By Chris Flood, FT
Sloane Robinson, Coupland Cardiff, Graham Capital and Discovery Capital Management were among the worst-performing hedge fund managers in the first quarter as managers with heavy exposure to Japan and quantitative investment specialists suffered.

US regulators to monitor London over-the-counter swaps
By Philip Stafford, FT
Part of London’s lucrative over-the-counter swaps market is set to come under direct US regulatory oversight as dealers in the UK capital wrestle with meeting tighter rules for overseas swaps dealers accessing US markets.

Esma chief warns securities regulators on monitoring risk
By Sam Fleming and Philip Stafford, FT
Securities watchdogs have inadequate resources to cope with their new regulatory responsibility for monitoring systemic risk, the EU’s top markets regulator has warned.

Commodity giant steps out of the shadows in academic case study
By Anna Louie Sussman, Reuters
A detailed new case study scrutinizing the risk-management practices of Swiss-based Trafigura is the latest effort to “demystify” the once-secretive commodity trading industry, just as big merchants seek to fill a void being left by Wall Street banks.

Tracing a Bitcoin’s Exchange’s Fall From the Top to Shutdown
Mark Karpelès hoped to set up a bitcoin cafe in the building where his exchange rented space.
By Takashi Mochizuki, Kathy Chu and Eleanor Warnock
TOKYO—As Mt. Gox, once the pre-eminent exchange for buying and selling bitcoins, sank deeper into trouble late last year, a 28-year-old Frenchman in jeans and a T-shirt was busy focusing on coffees and pastries for a bitcoin cafe he planned to open in the same building where his company rented space.

Struggling NYSE lobbies against high-frequency trading
By John Aidan Byrne
The New York Stock Exchange is on an high-frequency trading war footing. The struggling mart, in a frantic new bid to regain market share, is huddling with lawmakers and bringing in reinforcements. The maneuvers include a speedier and more reliable NYSE “matching” platform for stock and options trading, industry sources say.


U.S. SEC proposes rules for security-based swap dealers
The U.S. Securities and Exchange Commission proposed rules for banks trading in security-based swaps, a type of derivative, the regulator said on Thursday, laying out how to keep records of their trades and how to report them.

CFTC Issues Notice of Temporary Registration as a Swap Execution Facility to GTX SEF, LLC
Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) has approved the application of GTX SEF, LLC (GTX) for temporary registration as a swap execution facility (SEF). GTX is the 20th SEF temporarily registered by the CFTC to date. GTX is a Delaware limited liability company, and an indirect wholly-owned subsidiary of Gain Capital Holdings, Inc., a publicly-traded company.

Financial Industry Associations Send Comment Letter On Bank Involvement In Commodities Activities
WASHINGTON, D.C., April 17, 2014 – The Securities Industry & Financial Markets Association (SIFMA), the American Bankers Association (ABA), the Financial Services Forum (FSF), Financial Services Roundtable (FSR), and the Institute of International Bankers (IIB), collectively the “Associations,” yesterday evening filed a comment letter with the Board of Governors of the Federal Reserve on the Advance Notice of Proposed Rulemaking on complementary activities, merchant banking, and other activities of financial holding companies (FHCs) related to physical commodities. The letter is accompanied by a joint memorandum of law drafted by four law firms.

Robert Pickel to step down as CEO of ISDA
NEW YORK, April 17, 2014 – The International Swaps and Derivatives Association, Inc. (ISDA) today announced that its Chief Executive Officer (CEO), Robert Pickel, will step down from his role later this year.

SEC Proposes Rules for Security-Based Swap Dealers and Major Security-Based Swap Participants
The Securities and Exchange Commission voted yesterday to propose new rules for security-based swap dealers and major security-based swap market participants. The proposed rules cover recordkeeping, reporting, and notification requirements for security-based swap dealers and major security-based swap participants and would establish additional recordkeeping requirements for broker-dealers to account for their security-based swap activities.

FCA set to implement new listing rules in May 2014
The Financial Conduct Authority (FCA) has confirmed that new rules on the UK listing regime are scheduled to be taken to the Board for consideration on 1st May 2014. If approved, the new rules are expected to come into force on 16 May 2014.

AMF Signs New Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information
AMF Canada
AMF Signs New Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information The Autorité des marchés financiers (the “AMF”) recently signed a memorandum of understanding (“MOU”) with the U.S. Commodity Futures Trading Commission (“CFTC”) regarding cooperation and the exchange of information in the supervision and oversight of regulated entities that operate on a cross-border basis in the jurisdictions of the signatory authorities.

Exchanges & Trading Facilities

– Addition of options trading should create tighter spreads and increased liquidity
CHICAGO – April 21, 2014 – The North American Derivatives Exchange (Nadex), a regulated online binary options exchange in the United States, today announced that Group One Futures Trading, LLC (Group One) has joined the exchange as a market maker. Group One and its affiliates form one of the largest, privately held options trading firms in the United States. Group One will make markets in a wide range of popular contracts listed on Nadex including stock index and commodity futures.

SIX Swiss Exchange Q1 2014: Bonds Quarterly Statistics
SIX Exchange

MGEX Open Interest Reaches All-Time High Again

NASDAQ OMX’s SMARTS Wins Best Sell-Side Surveillance Product – Waters Technology’s 2014 Sell-Side Technology Awards Select SMARTS Broker As ‘Best Sell-Side Market Surveillance Product’
Nasdaq OMX

Hedge Funds & Managed Futures

Fund managers adopt smart approach
By David Oakley, Investment Correspondent, FT
Fund managers have found a new way to make money as many of them tap into smart beta, one of the fastest growing investment products in recent years.

Fund managers fret as Facebook pushes into financial services
By Madison Marriage, FT
Facebook’s push into financial services has sparked fears among asset managers that major technology groups have the potential to destroy the livelihoods of investment companies if they decide to offer funds.

Where wealth managers can rent an ‘entire back office’
Mike Foster, Financial News
The wealth sector is gripped by merger mania as advisory firms jump into each other’s arms to deal with rising costs and regulatory challenges.

Big Japan Investors Tell Firms to Shape Up; Life Insurance Association of Japan Demands Return on Equity Targets
By Kosaku Narioka
TOKYO—Some of Japan’s biggest investors are shedding their reluctance to prod domestic firms to improve performance and calling on them to make better use of their huge stockpiles of cash.

Live Longer and Heirs Will Prosper in New York
New York Times
DYING is going to have lower tax consequences in New York — if you can wait five to eight years. But in the meantime, the new estate and gift tax law that went into effect on April 1 is going to create enormously complex financial planning problems for all sorts of people.

Floating A Few Cents to Investors; In January, the U.S. Treasury began issuing floating-rate notes.
Investors who want steady income are used to scrounging around trying to squeeze a little more cash flow out of their securities. Now Uncle Sam is coming to their aid.

DEALTALK-Canadian gold mining’s bidding war shows appeal of buy over build
By Nicole Mordant, Reuters
A takeover battle for Canada’s Osisko Mining Corp, involving three of the world’s top gold producers, is more than just a testament to the quality of the company’s low-cost mine, it also spotlights a shortage of top-class gold assets in politically stable areas of the world.

Barrick proposal to acquire Newmont hits roadblock-sources
By Euan Rocha, Reuters
The talks between Barrick Gold Corp and Newmont Mining Corp over a combination that would create a gold mining behemoth have hit a snag, but two sources close to the situation say the companies remain keen on a deal and discussions are likely to resume.

Banks & Brokers

Jury still out on Barclays’ ‘Saint Antony’
By Martin Arnold, FT
In two decades, Barclays has transformed itself from a UK high street lender to a global financial colossus with an investment bank accounting for two-thirds of its assets and half its pre-tax profits.

Goldman looks to fight rivals with capital advantage
By Tom Braithwaite in New York, FT
Goldman Sachs was starting to benefit from the capitulation of its rivals in riskier businesses, its chief financial officer said, after earnings marked by record investment banking fees but marred by another poor performance in trading.

Barclays to wind down commodities trading
By Martin Arnold and Daniel Schäfer in London, FT
Barclays, one of the world’s biggest commodities traders, is planning to exit large parts of its metals, agricultural and energy business in a move expected to be announced this week.

Banks lobby to retain commodities units
By Gina Chon in Washington and Gregory Meyer in New York, FT
Wall Street groups and their corporate clients touted the benefits of banks owning physical commodities businesses, including greater competition, as they stepped up their fight against possible tougher restrictions on those operations.

Goldman Says It Has No Plans to Exit Dark Pool Business
By RACHEL ABRAMS, New York Times
Goldman Sachs is not quite ready to get out of the pool.

Indexes & Products

The Best Way to Find Value ETFs
By Brendan Conway, Barron’s
Value stocks have been on a tear, and the best opportunities now are overseas. But the choice isn’t simple. What to look for.
Warren Buffett has famously said his favorite holding period for an outstanding company is “forever.” Value investors need a similarly long-term outlook most of the time—though not lately.


Virtu Financial Said to Shelve I.P.O. Plans
By WILLIAM ALDEN, New York Times
The high-frequency trading firm Virtu Financial, which had expected to go public this month, has decided to postpone those plans indefinitely, a person briefed on the matter said on Thursday.

Stiglitz on HFT
The Streetwise Professor
Joe Stiglitz presented a paper on HFT at the Atlanta Fed conference earlier this week that has received a lot of attention. The paper is worth reading, but I actually recommend Felix Salmon’s synopsis, which breaks out the issues nicely.
I agree with Stiglitz in part, and disagree in part. The agreement is that Stiglitz hits many of the themes of my recent posts on HFT, notably that when there is private information, financial markets are unlikely to reach first best outcomes, and that making welfare comparisons is very difficult: I would say nigh-on to impossible, actually. Stiglitz also recognizes that HFT affects the incentives to collect information, which is another theme that I’ve emphasized.

The Tradeoff Between Fairness and Liquidity Is an Old Story, Part 2
By Steve Wunsch
The SEC created an environment for high-frequency trading to flourish, and the competition among HFTs has driven the cost of trading down to nearly nothing. More reforms will only further sap investor confidence as regulators run into the impossibility of making trading that is already nearly free even cheaper.
Related: “The Tradeoff Between Fairness and Liquidity Is an Old Story, Part 1”
Like any good true detective series that is building interest in the sequel, the villains of Michael Lewis’s “Flash Boys” – HFTs, the electronic exchanges and the Wall Street banks – could turn out next season to be the victims of the real villain. We might end this season with the supposed bad guys rounded up and on their way to jail, while sinister images of the chief of police and the politicians pulling the real strings behind them flash ominously over the fading scene as the credits run.


U.S. insider trading cases face test at appeals court
By Nate Raymond, Reuters
A U.S. appeals court is set hear a case whose outcome could make it harder for the government to prosecute insider trading and potentially jeopardize several high-profile guilty verdicts, including that of SAC Capital Advisors portfolio manager Michael Steinberg.

Fund managers seek reversal on insider trading conviction
By Kara Scannell in New York, FT
Two former hedge fund managers found guilty of insider trading hope to persuade a US appeals court to throw out their convictions by arguing that the government failed to prove a central element of the law.

Rajaratnam’s brother loses bid to dismiss insider trading charges
By Nate Raymond, Reuters
Rengan Rajaratnam, the younger brother of imprisoned hedge fund manager Raj Rajaratnam, on Friday lost a bid to dismiss some of the insider trading charges leveled against him last year.

SEC Charges Former BP Employee with Insider Trading During the Deepwater Horizon Oil Spill
The Securities and Exchange Commission today charged a former 20-year employee of BP p.l.c. and a senior responder during the 2010 Deepwater Horizon oil spill with insider trading in BP securities based on confidential information about the magnitude of the disaster. The price of BP securities fell significantly after the April 20, 2010 explosion on the Deepwater Horizon rig, and the subsequent oil spill in the Gulf of Mexico, resulted in an extensive clean-up effort.

SEC Halts Pyramid Scheme Targeting Dominican and Brazilian Immigrants
The Securities and Exchange Commission today announced that on Tuesday it filed charges against the Massachusetts-based operators of a large pyramid scheme that mainly targeted Dominican and Brazilian immigrants in the U.S. The charges were filed under seal, in connection with the Commission’s request for an immediate asset freeze. That asset freeze, which the U.S. District Court in Boston ordered on Wednesday, secured millions of dollars of funds and prevented the potential dissipation of investor assets. After the SEC staff implemented the asset freeze, at the SEC’s request the court lifted the seal today, permitting public announcement of the SEC’s charges.

CFTC Orders Florida Resident Derek J. Bridges and His Companies, Empire Sterling Metals Corp. and I.P.M. Investments, Inc., to Cease Illegal Fictitious Precious Metals Sales
Order includes restitution award and prohibitions against future activity
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and simultaneously settling charges against Derek J. Bridges, a resident of Coral Springs, Florida, and his companies, Empire Sterling Metals Corp. (Empire) and I.P.M. Investments, Inc. (I.P.M.), for engaging in illegal, off-exchange precious metals transactions.

CFTC Charges New York Financial Advisor Wayne Pennoyer Weddington III and His Companies, Brunswick Capital and Brunswick Capital Partners, with Solicitation Fraud, Making False Statements, and Registration Violations in Connection with Operating a Commodity Pool
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today filed an enforcement action against Defendant Wayne Pennoyer Weddington III of New York, New York, and his companies, Brunswick Capital LLC (BCLLC), a Connecticut corporation, and Brunswick Capital Partners LP (BCLP), a Delaware corporation, charging them with solicitation fraud, making false statements, and registration violations in connection with a commodity pool that he formed called Pennoyer International Funds Global Opportunity LLC (the Pennoyer Fund).

Environmental & Energy

The world’s dumbest idea: Taxing solar energy; Solar power is not just any energy source. It could be the key to saving civilization.
By John Aziz
In a setback for the renewable energy movement, the state House in Oklahoma this week passed a bill that would levy a new fee on those who generate their own energy through solar equipment or wind turbines on their property. The measure, which sailed to passage on a near unanimous vote after no debate, is likely to be signed into law by Republican Gov. Mary Fallin.


Singapore uncorks Asia wine hub potential
By Jeremy Grant in Singapore, FT
Singapore is muscling in on Hong Kong’s status as Asia’s hottest wine market. A growing number of wealthy collectors and wine drinkers in southeast Asia have spurred record sales, luring western wine merchants to set up shop in the island nation.

First Shanghai Stock Set to Delist in 7 Years Plunges
CSC Nanjing Tanker Corp. (600087), the first stock set to be delisted from Shanghai’s exchange in seven years as China seeks to bolster its markets, plunged as it began its final 30 days of trading.

Decision on cessation of OSE-FX
OSE-FX will be put in cessation on October 23, 2014(Trading Session Ends is 6 00 am on October 24, 2014). Please note that open positions that are not resold or repurchased by the end of the trading session on last trading day will be settled, treated as final settlement, by the final settlement price on the the final settlement day (October 27, 2014).

Frontier Markets

ADX Successfully Launches X-Stream
Abu Dhabi Securities Exchange (ADX) has announced that the new trading system, X-Stream Trading has gone live as of the opening of trading at 10:00 am on Thursday 17th April. X-Stream Trading, developed by NASDAQ OMX, is the most widely used exchange trading system in the world. The final full-function test of the system was completed successfully by ADX on 12th April in the presence of NASDAQ OMX.

Russian debt and equity sales stall
By Andrew Bolger and Elaine Moore, FT
The crisis in Ukraine has had a chilling effect on issuance in Russia’s bond and equity markets.

U.S. funds warn of risks from sanctions against Russia
By Ross Kerber, Reuters
U.S. fund managers warned this month of risks shareholders could face from current or future Western sanctions against Russia, underscoring the stakes for emerging-markets investors arising out of the turmoil in Ukraine.

Emerging markets repent of ‘original sin’
By Gillian Tett, FT
Issuing bonds in local currencies has not spared countries from volatility
A decade ago, economists often fretted about the so-called “original sin” that plagued emerging markets. During the 1980s and 1990s, countries such as South Korea and Argentina issued vast quantities of bonds denominated in non-domestic, “hard” currencies such as the dollar.


USDA will require reporting of killer piglet virus PEDv
By Ros Krasny, Reuters
In an expected move, the U.S. Department of Agriculture on Friday announced new measures to combat the spread of disease in the U.S. pig population.

Taking On Adam Smith (and Karl Marx)
PARIS — Thomas Piketty turned 18 in 1989, when the Berlin Wall fell, so he was spared the tortured, decades-long French intellectual debate about the virtues and vices of communism. Even more telling, he remembers, was a trip he took with a close friend to Romania in early 1990, after the collapse of the Soviet empire.

At Mt. Gox bitcoin hub, ‘geek’ CEO sought both control and escape
By Sophie Knight, Reuters
In June 2011, when customers of now-bankrupt bitcoin exchange Mt. Gox agitated for proof that the Tokyo-based firm was still solvent after a hacking attack, CEO Mark Karpeles turned to the comedy science fiction novel “The Hitchhikers Guide to the Galaxy”.

Bank Executive Used TARP Money for Luxury Condo
By Joel Schectman, WSJ
Regulators have banned a financial executive from working in banks after he used his firm’s bailout money to buy a luxury condo.

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