John Lothian Newsletter: Tokyo Exchange Merges With Osaka to Form World's No. 3; Overnight futures trading suspended due to system failure; Libor arrests signal switch to individuals

Jul 16, 2013

Tokyo forms world’s third largest exchange.  Technical problems with South Korea’s futures market.  Libor investigation going after invdividuals.

First Read

How To Innovate In An Uncertain World
By now, we all know what it takes to become successful: as Malcolm Gladwell revealed in Outliers: The Story of Success, with a steady diet of 10,000 hours? practice, we can become experts in our field. And yet, examples abound of novices who dive in and thrash the competition. What did Reed Hastings know about video rentals before starting Netflix? Very little, just as Jeff Bezos was inexperienced in book sales before he launched Amazon. How did they evade this iron-clad law?

**** “Do you believe you can increase the amount of serendipity in your life – and if so, how do you do it?”


US lawyer gets year in prison in Refco fraud
NEW YORK (AP) – A Chicago-area lawyer convicted in a $2.4 billion fraud that led to the collapse of a giant independent commodities firm was sentenced Monday to a year and a day in prison. Joseph P. Collins, 62, of Winnetka, Ill., was sentenced in Manhattan federal court after his November conviction on charges including conspiracy, securities fraud and wire fraud.

***** The Refco story continues seven years later.


MarketAxess Files Swap Execution Facility Application with CFTC
NEW YORK–(BUSINESS WIRE)–MarketAxess Holdings Inc. (Nasdaq: MKTX), the operator of a leading electronic trading platform for U.S. and European high-grade corporate bonds, emerging markets bonds and other types of fixed-income securities, filed its application on Friday July 12, 2013 to become a swap execution facility (SEF) under the Commodity Futures Trading Commission’s (CFTC) Dodd-Frank Act.

***** To be a SEF or not be a SEF is no longer the question.


Glass-Steagall II: If It’s Not Fixed, Break It
By Jeff Macke
Mega-banks have a grotesque amount of control over the financial system and no real control over themselves. As evidenced by the mortgage meltdown, the London Whale and far too many near-crisis events to count, America and indeed the entire world would be well-served by the enforcement of coherent and practicable regulations.

**** Dear Jeff, it is not about preventing a meltdown, it is getting my deposits out of the collateral pool for the bank when the meltdown happens.


R.J. O’Brien Further Expands Chicago Institutional Brokerage Operation
Press Release
R.J. O’Brien & Associates (RJO), the oldest and largest independent futures brokerage and clearing firm in the United States, announced that the firm has set the stage for further expansion of its Chicago institutional brokerage operation. RJO exercised an option for more square footage on the floor that houses its institutional group, renovated and expanded the trading floor the firm established in 2010, and prepared space to attract new experienced teams of institutional brokers.
(via email)


McDonald’s to bring Big Mac to Vietnam
By Jeremy Grant in Singapore
Vietnam is finally set to get its first taste of the Big Mac after US burger chain McDonald’s said it would open its first outlet in the communist-run country early next year.

**** This creates quite a diplomatic pickle.


Bridging the Week
Gary DeWaal
This week’s Bridging the Week features:
1. The EC and CFTC July 11 Accord on Cross Border Swaps Transactions;
2. The CFTC July 12 Final Guidance and Exemptive Order on Cross Border Swaps Transactions;
3. The On-again, Off-Again, and Now On-Again CME Guidance on Wash Trades; and
4. The BASEL Consultation on Banks’ Capital Charges for CCP Exposure…and more

***** The latest on Gary DeWaal’s new website.


SGX launches ‘Born to Trade’ initiative
Automated Trader
Singapore Exchange has launched its “Born to Trade” initiative. Intended to support the futures trading profession and expand its community, the initiative also highlights the contributions of former and current traders towards the development of the Singapore derivatives market.

**** DA: Will they get Bruce Springsteen to perform at the kickoff event? “Baby, we were born to traaaade!”


Is This the Worst Ponzi Scheme Ever?
New York Magazine
It’s possible that this story by the Southern Investigative Reporting Foundation’s Roddy Boyd, about an Akron, Ohio–based hedge-fund manager named Anthony Davian , describes the worst Ponzi scheme in history.

***** It ranks right up there.

Turkey: Setting the Bar High


View Special Report »

It’s been quite a summer for Turkey – once a darling emerging economy for investors, the country has been turned on its ear over, of all things, a planned shopping mall on a park in Istanbul. That snowballed into massive demonstrations airing a litany of complaints against Turkish Prime Minister Recep Tayyip Erdoğan and sent investors to the exits.

But in the longer term view, Turkey has made tremendous strides economically. The consolidation of its equities and derivatives markets into the Borsa Istanbul is considered a critical step in the development of its capital markets growth.

This special report features: a feature article on Turkey, a Q&A with Valerie Bannert-Thurner on Nasdaq OMX’s partnership with Borsa Istanbul and video interviews with key players in the Turkish capital markets.

View Special Report »




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Lead Stories

Tokyo Exchange Merges With Osaka to Form World’s No. 3
The Tokyo Stock Exchange (TPX) became the world’s third-biggest bourse by listed companies today, adding 1,100 stocks from the Osaka Securities Exchange as the two merged their cash-equity trading platforms.

Overnight futures trading suspended due to system failure
Global Post
South Korea’s overnight futures market closed two hours earlier than usual due to a system failure, the bourse operator said Tuesday.

UK fraud prosecutor charges two brokers in Libor probe
(Reuters) – Britain’s fraud prosecutor on Monday charged two former brokers at interdealer broker RP Martin with conspiracy to defraud, stepping up its investigation into the rigging of Libor benchmark interest rates.

Libor arrests signal switch to individuals
By Brooke Masters, Caroline Binham and Daniel Schäfer
The arrests on Tuesday of a former UBS trader and two employees of RP Martin, an interdealer broker, signal a change of pace in the sprawling investigation into rate-fixing on Libor and other interbank lending benchmarks.

Settlement houses in repo collateral deal
By Philip Stafford, FT
Europe’s two largest settlement houses have agreed a deal to open access to each other’s infrastructure, in a bid to improve the flow of scarce collateral around financial markets.

Fresh criminal action in Libor probe
By Brooke Masters in London
Two former interdealer brokers who worked in rates trading with Tom Hayes, the former UBS and Citigroup trader, have been hit with criminal fraud charges for allegedly attempting to manipulate the yen-Libor rate.

Seven years prison for U.S. lawyer in Refco fraud
By Grant McCool -Reuters
A U.S. judge sentenced a former outside lawyer for Refco Finance Holdings LLC to seven years in prison on Thursday for his role in a $2.4 billion fraud that caused the collapse in 2005 of the commodities broker.

FXCM Strengthens Its Lead Over Competitors in the US
Business Wire via Yahoo! Finance
FXCM Inc. announced today that Investment Trends’ April 2013 United States Foreign Exchange Report declares FXCM Number One in Overall Client Satisfaction, Customer Services, and Online Education Materials.

DealBook Column: On Wall St., a Culture of Greed Won’t Let Go
New York Times
A report on ethical conduct surveyed 250 industry insiders, a quarter of whom said they would engage in insider trading to make $10 million if there were no repercussions.


CFTC Seeks Public Comment on Request from CME Group to Issue Market Regulation Advisory Notice Regarding CME Rule 534 (“Wash Trades Prohibited”)
Washington, DC – The Commodity Futures Trading Commission (CFTC) is requesting public comment on a request from the Chicago Mercantile Exchange Inc., The Board of Trade of the City of Chicago, Inc., New York Mercantile Exchange, Inc., Commodity Exchange, Inc., and Kansas City Board of Trade, Inc., for approval of CME Group Market Regulation Advisory Notice RA1308-5 submitted pursuant to section 40.5 of the CFTC’s regulations.

Fed’s Tarullo says Glass-Steagall return not high on his list
Reuters via Yahoo! News
WASHINGTON – A Federal Reserve official on Monday questioned the latest congressional plan to break up big banks, saying it is unclear whether such a move would prevent the next financial crisis. Fed Governor Daniel Tarullo, who has been the agency’s point man on financial regulation, said regulators should instead crack down on short-term funding methods that leave banks susceptible .

Lew Nixes Including Financial Rules in EU Trade Talks
U.S. Treasury Secretary Jacob Lew poured cold water on a push by the European Union’s top financial markets regulator to include negotiations over financial services regulation in EU-U.S. trade talks, according to a Treasury spokeswoman.

Fed’s Tarullo Says Regulators Must Do More on Short-Term Funding
Federal Reserve Governor Daniel Tarullo said U.S. regulators should focus on protections around banks’ short-term wholesale funding as they finish implementing reforms prompted by the global financial crisis

More capital, not nostalgia, will make banking system stronger
St. Louis Post-Dispatch
Regulators’ proposal is promising; bill to reinstate Glass-Steagall won’t help.

Exchanges & Trading Facilities

BME 2012 Report on share ownership structure in Spain
Non-resident investors remain the main owners of Spanish listed shares, at 39.2% of the market value
Households are again the second most relevant share owners, a position they had lost to non-financial firms in 2004
For the first time in 20 years shares beat investment funds as the preferred savings instrument of Spanish families

CME seeks exemption from SEC testing, oversight rules
CME Group Inc. wants to be left out of proposed rules that would require testing and better preparation to handle trading glitches or natural disasters.

Rupee futures drive Dubai exchange volumes in first half
Zee News
Trading volumes on the Dubai Gold and Commodities Exchange (DGCX) in the first half of 2013 registered a substantial year-on-year growth of 101 percent, reaching 7,716,340 contracts valued at USD 268.85 billion. The significant increase was led by currency volumes, which were up 112 percent from H1 2012. First half currency volumes were driven mainly by the consistent growth of Indian Rupee futures.

Google Finance Gets Five New Stock Exchanges
Google announced that it has added five new stock exchanges to Google Finance, further bolstering its international market offerings. Google has now added the BM&F Bovespa, Borsa Istanbul, The Stock Exchange of Thailand, SIX Swiss Exchange and Wiener …

Hedge Funds & Managed Futures

Krispy Kreme OKs $50 million share buyback
Krispy Kreme approves $50 million share buyback, increases credit line

‘Nuke option’ could cause market meltdown
With the Senate thinking the unthinkable-a “nuclear option” on filibusters-you may have to factor in politics before your next investment.

Hedge Fund Ads: Will They Grab You?
U.S.News & World Report LP via Yahoo! News
The Securities and Exchange Commission has voted to lift an 80-year ban on advertising by hedge funds and private equity groups, and the secretive funds are likely to become more visible soon. But there are a few things investors should know that are not likely to be a big part of the high-end funds’ ad campaigns.

Banks & Brokers

DealBook: Jury Is Seated at Trader’s Trial, Then Is Showered With Jargon
New York Times
The civil trial of former Goldman Sachs trader Fabrice P. Tourre over a failed investment product began Monday in Federal District Court in Manhattan.

Morgan Stanley turns ‘cautious’ on financial services
Reuters via Yahoo! Finance
Reuters Market Eye – Morgan Stanley has changed its view on India’s financial services stocks to “cautious” from “in-line”, citing the Reserve Bank of India’s decision to raise two ..

Former Merrill Lynch president Herbert Allison Jr dies: Bloomberg
Reuters via Yahoo! News
NEW YORK – Herbert Allison Jr, a former Merrill Lynch & Co president who also oversaw the U.S. government’s $700 billion bank-bailout program, died on Sunday at the age of 69, Bloomberg News reported on Monday. Allison died at his home in Westport, Connecticut, Bloomberg reported citing an interview with his son Andrew. “Herb was part of the proud Merrill Lynch tradition, helped build …

Lehman Trustees in U.S. and Germany Defend $550 Million Settlement
Lehman Trustees in U.S. and Germany Defend $550 Million Settlement

Indexes & Products

The Credit Suisse Hedge Fund Index Finished Down 1.66% in June
PR Newswire via Yahoo! Finance
NEW YORK, July 15, 2013 /PRNewswire/ — The Credit Suisse Hedge Fund Index finished down 1.66% for the month of June. (Logo: …

MSCI Launches Daily Hedged Indices
Business Wire via Yahoo! Finance
MSCI Inc. , a leading provider of investment decision support tools worldwide, announced today the launch of new daily hedged indices, as part of the MSCI Hedging and Currency Indices family.


Some data center operators take their chances with floods
PC World
Given the dire warnings about climate change, some business leaders and IT professionals are pondering this question: How should data center managers handle the crop of so-called 100- and even 500-year storms, coastal floods and other ecological disasters that climatologists predict are heading our way? Some experts suggest that managers of mission-critical data centers simply need to harden …


Exclusive: Smithfield’s China bidders plan Hong Kong IPO after deal – source
SINGAPORE/HONG KONG (Reuters) – China’s Shuanghui International Holdings, which has agreed to buy U.S. pork producer Smithfield Foods Inc. for $4.7 billion, plans to list the combined company in Hong Kong after completing the takeover, people with knowledge of the matter told Reuters.

Wealth Products Threaten China Banks on Ponzi-Scheme Risk
The day before, Zhang had received a text message saying the bank was selling a 37-day wealth-management product with a 5 percent expected annualized return, principal guaranteed. He was too late. The offer, requiring a minimum of 500,000 yuan, had sold out in less than three hours.


Why Hedge Funds Suing The Government Over Fannie And Freddie Have A Bad Case
With the housing market collapsing in July 2008, President George W. Bush signed the Housing and Economic Recovery Act into law, 260 pages aimed at bolstering mortgage giants Fannie Mae and Freddie Mac and overhauling the regulations of these government-sponsored entities that were crashing. The law created the Federal Housing Finance Agency and gave it the authority to place Fannie Mae and …

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