John Lothian Newsletter: NYSE Euronext to Take Over Libor; Talks on US derivatives rules run to the wire; UK vows jail for reckless bankers in bid to lift standards

Jul 9, 2013

NYSE Euronext to administer LIBOR. Deadline over derivatives rule looming. UK will expect better from its bankers.

First Read

WILD Panel

A Look at Forensic Accounting and Financial Fraud
MarketsWiki.tv

In the aftermath of the Peregrine Financial Group fraud, many wondered how it could have happened and how forensic accounting works after a fraud occurs. On June 20, John Lothian News president and editor-in-chief Jim Kharouf moderated a panel at the Women In Listed Derivatives (WILD) event on forensic accounting with John Hague, financial services industry leader with McGladrey and Christen Morand, senior manager, Ernst & Young. He sat down with both separately to ask about the accounting space today and how forensic accounting digs into fraudulent cases.

Watch the video »

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Lineup Gets Even Deeper for Intern Education Series

The lineup for the Intern Education Series from John J. Lothian & Company, Inc. got even deeper yesterday.  Kim Taylor, head of the CME Clearinghouse and Sam Mele, founder and managing director of Firm58 have joined the list of speakers at the series.

Ms. Taylor will speak about clearing at our kickoff event on 7/16.  The other speakers for the July 16 event are Leo Melamed, Emily Lambert, Joe Gits, Pat Fay and Tom McCabe.

Mr. Mele will speak at the Jlu 30 event, the last in the series.  Other speakers at the 7/30 event include Ray McKenzie, Ben Van Vliet, George Hanley, Rick Lane and June Furlan.

We expect another high profile announcement tomorrow.  Stay tuned.

~John J. Lothian

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NYSE Euronext Liffe US Names New CEO    

Lynn Martin, a 12-year veteran of the NYSE Euronext, has been named CEO of NYSE Euronext US, replacing Tom Callahan.  Martin becomes the first female futures exchange head in the US since Rosemary McFadden was President of the NYMEX in the 1980s.

Last week it was announced that Callahan would leave the exchange company and take a position with asset manager BlackRock.  Martin had previously served as Chief Operating Officer of NYSE Liffe US, as well as various positions at NYSE Liffe.

Other women exchange leaders in the US more recently on the options side of the exchange traded derivatives business include Amy Farnstrom who was Co-CEO of NYSE Arca.

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Forward guidance only works if you do it right
Wolfgang Münchau – Financial Times
Mario Draghi said the European Central Bank would commit to keeping interest rates low for an “extended period of time”. Should we think of this as forward guidance?
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**DA: Central bankers are equal parts economist, politician and cheerleader. The uncharted territory in which Draghi, Bernanke, et. al. find themselves these days requires a “damn the torpedoes” attitude.

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Central Bankers Hone Tools to Pop Bubbles
David Wessel and Alex Frangos – The Wall Street Journal
The new fad in central banking is something called macroprudential policy: targeting controls at particular areas of concern, such as raising minimum down-payment rules for home mortgages. WSJ’s David Wessel explains.
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****All it takes is one big…..

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The Goldilocks Economy Revisited
Alen Mattich – The Wall Street Journal
Low inflation, solid growth, low interest rates, rising asset prices–when did we read this story before?
The Goldilocks economy. Not too hot, not too cold, just right.
That was how commentators described the years of recovery following the U.S. tech bust and recession of the early ’00s. And once again the U.S. feels like it’s settling into the pleasant pages of a familiar fairytale.
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**DA: In this episode, the role of Papa Bear is being played by the bond market and Mama Bear is the impending regulatory overhaul. But I am most afraid of Baby Bear, which is some small, seemingly insignificant thing that no one is paying any attention to.

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Regulators Examining Sales of Early Financial Data
Nathaniel Popper – Dealbook
The financial industry is bracing for new scrutiny of services that give trading firms an advance look at market-moving data and news. The New York attorney general’s office has been taking a broad look at the common practice.
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**** There is right and there is wrong, then there are wrongs that you get paid a lot of money for.

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Market rout snatches revenues and hope from investment banks
William Wright – Financial News
The capital markets have their own version of Murphy’s Law: if things look like they are back on track, something is bound to go horribly wrong. And sure enough, just as an encouraging start to the year for investment banks had started to gather steam, the good news has ground firmly to a halt.
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***** Hopeless investment banks. Now there is a headline that will not sell newspapers.

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Perelman Sues Old Friend Milken (Not to Worry. It Isn’t Personal.)
Peter Lattman – Dealbook
The billionaire deal maker Ronald O. Perelman loves to litigate, having tussled over the years with, among others, his former vice chairman, his onetime chief financial officer and the investment bank Morgan Stanley — not to mention his four former wives. Now he has begun a legal battle against a man who helped put him on the map: Michael R. Milken.
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***** You would have thought Perelman was an old CBOT member.

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Madoff Case Puts Focus on Duties of Custodial Banks
Susan Antilla – Dealbook
Among the far-flung feeder funds, brokerage houses and institutions interconnected in the vast Ponzi scheme perpetuated by Bernard L. Madoff, one little-known local bank is now in the spotlight.
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*****The custodian bank sweeps up.

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Sore Feelings as U.S. and Europe Begin Trade Talks
Annie Lowrey – The New York Times
Negotiations over a trade deal encompassing nearly half the global economy formally kicked off on Monday, despite concerns that the United States has been spying on its European allies.
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***** Spying is really a harsh word. We were just checking them out. We think they are cute.

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Inflationphobia, Part I
Bruce Bartlett – The New York Times
Generals and admirals are always fighting the last war, it is said, designing weapons and devising strategies that are inherently out of date, rather than planning for the next war.
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***** Deflationphobia is coming next.

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MarketsWiki

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Lead Stories

NYSE Euronext to Take Over Libor
Julia Werdigier – Dealbook
NYSE Euronext won a contract to administer and improve the embattled London interbank offered rate, or Libor, a person briefed on the decision said on Tuesday.
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NYSE Euronext awarded contract to run Libor
Brooke Masters and Philip Stafford – Financial Times
NYSE Euronext, the transatlantic exchanges operator, has beaten a London-led consortium to take over and reform the scandal-plagued Libor rate.
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Corzine off the crook
Kaja Whitehouse – New York Post
It’s official.
Jon Corzine will not be cuffed over MF Global’s improper handling of customers’ funds leading up to the commodity brokerage firm’s spectacular collapse in late 2011, The Post has learned.
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Citigroup sells £1.5bn EMI pension fund to PIC
Matthew Garrahan – Financial Times
Citigroup has sold EMI Group’s £1.5bn pension fund to the Pension Insurance Corporation, in the UK’s largest pension insurance buyout.
jlne.ws/1bkEH1U

Talks on US derivatives rules run to the wire
Financial Times
Talks over Washington’s reach in policing offshore derivatives deals are set to run to the last minute this week, with US officials at odds ahead of a key deadline.
Passing the Commodity Futures Trading Commission’s cross-border guidance looks likely to become a final, fractious chapter in its three-year process of writing rules to rein in the $633tn swaps market.
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Japan Sold Record U.S. Treasuries in May During Global Bond Rout
Candice Zachariahs – Bloomberg
U.S. Treasury sales by Japanese investors exceeded purchases by a record in May amid the biggest monthly drop for the securities in more than three years.
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Court Rules TOM May Continue To Offer Options Based On The AEX
Press Release (via Mondovisione)
Today the court in The Hague ruled that trading platform TOM may continue to offer options based on the AEX index and that TOM is allowed to refer to the AEX-index in the description of the options. Nevertheless, TOM will have to add a new ticker symbol for these options. The ticker symbols refer to the abbreviations used to indicate which option is traded. Euronext had filed a lawsuit against TOM for offering options based on the AEX index and the general use of ticker symbols.
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UK vows jail for reckless bankers in bid to lift standards
Steve Slater – Reuters
Britain will adopt a raft of proposals aimed at raising standards at scandal-tainted banks, including the threat of prison for reckless bosses and greater scope to claw back bonuses and pensions.
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Citigroup, BTG May See Sizable Batista Losses, Moody Says
Francisco Marcelino – Bloomberg
Citigroup Inc. (C)’s Brazil unit and Grupo BTG Pactual (BBTG11) are among banks that may face “sizable” losses if companies controlled by Brazilian billionaire Eike Batista default, Moody’s Investors Service said.
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New York Attorney General Schneiderman Secures Agreement By Thomson Reuters To Stop Offering Early Access To Market-Moving Information
Press Release (via Mondovisione)
Attorney General Eric T. Schneiderman announced today that financial information giant Thomson Reuters has agreed to immediately discontinue the practice of providing high-frequency traders with certain market-moving consumer survey results prior to the release of that information to its other subscribers, a move prompted by a current investigation by the Attorney General’s office into this matter.
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Call to FBI shone light on grey data area
Andrew Edgecliffe-Johnson and Arash Massoudi – Financial Times
On June 29 last year, a Thomson Reuters data salesman earning $100,000 a year told his managing director he had concerns about one of its products.
The Thomson Reuters/University of Michigan ­Surveys of Consumers, produced twice a month under an arrangement in which the company pays the university more than $1m a year, have long been available to subscribers to its data terminals five minutes before the wider market sees the press release.
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Regulatory

Renteria withdraws candidacy for U.S. CFTC chair
Reuters
Amanda Renteria, mooted as a candidate to succeed Commodity Futures Trading Commission Chairman Gary Gensler, on Monday said she had withdrawn her name from the race to head the top U.S. derivatives regulator.
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Wheatley cautious on shift away from Libor
Anish Puaar – Financial Times
The head of the UK’s Financial Conduct Authority has warned that there is “no clear route” away from key financial benchmarks like the London Interbank Offered Rate, a year after the rate-rigging scandal first came to light.
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CFTC’s Division Of Market Oversight Issues Advisory Regarding The Obligation To Submit Accurate Form 204 Reports Showing Cash Positions In Wheat, Corn, Oats, Soybeans, Soybean Oil, And Soybean Meal
Press Release (via Mondovisione)
The Division of Market Oversight of the Commodity Futures Trading Commission (CFTC) today issued an Advisory to remind reportable market participants of their obligation to submit accurate Form 204 reports for wheat, corn, oats, soybeans, soybean oil, and soybean meal on a monthly basis, as required under CFTC Regulation 19.01, and to follow the instructions included on Form 204.
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SIFMA Submits Cost Estimates To SEC On Fiduciary Rulemaking
Press Release (via Mondovisione)
SIFMA today released its response to a data request by the Securities and Exchange Commission (SEC) to help inform the agency’s cost-benefit analysis of a uniform fiduciary standard for broker-dealers and investment advisers under Section 913 of the Dodd-Frank Act. For the first time, the industry provides estimates on the cost of complying with a uniform fiduciary standard.
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Exclusive: Regulator close to deal with Europe on swaps rules
Reuters
A trans-Atlantic rift over derivatives could be ended by an offer from the U.S. swaps regulator that would spare foreign banks from some tough U.S. rules, according to two people briefed on the matter.
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Exchanges & Trading Facilities

NYSE Euronext Will Take Over Administration of Libor From BBA
By Lindsay Fortado & Nandini Sukumar – Bloomberg
Britain is poised to hand over administration of the London interbank offered rate to the operator of the New York Stock Exchange as regulators try to revive confidence in the scandal-hit benchmark.
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June 2013 busiest month on record for VIX futures trading at CFE
Hedgeweek
New records for total trading volume and average daily volume (ADV) were set during the month and for the second quarter of the year.
Trading volume of VIX futures at CFE totalled a record 4,213,488 contracts during June, eclipsing the previous high of 4,056,760 contracts in April 2013. June’s volume increased 96 per cent versus the 2,154,055 contracts traded in June 2012 and rose 31 per cent when compared to the 3,212,399 contracts traded in May 2013. June marked the second month in CFE history in which total monthly volume in VIX futures exceeded four million contracts traded.
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BM&FBOVESPA New Trading Hours Starting From July 8, 2013
Press Release (via Mondovisione)
BM&FBOVESPA will be implementing new trading hours. The main changes now introduced include:
For each segment, adoption of a uniform, countrywide timetable for trading, effective throughout the year:
– BOVESPA Segment (Equities): from 10:00 a.m. to 6:00 p.m.
– BM&F Segment (Derivatives): from 9 a.m. to 6:00 p.m.
Adoption of a single timetable for closing price determination and stock index calculations, including for marking to market purposes:
– BOVESPA Segment (Equities): 4:55 p.m. – 5:00 p.m. – closing call for all cash market securities, including odd lots; 4:50 p.m. – 5:15 p.m. – closing call for options on Bovespa Index; 4:55 p.m. – 5:15 p.m. – closing call for all options series and ETFs.
– BM&F Segment (Derivatives): 5:00 p.m. – 5:15 p.m. – determination of settlement price for Bovespa Index futures contracts.
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Hedge Funds & Managed Futures

“Valuations Don’t Matter:” Howard Lindzon Explains ‘Eclectic Investing’
Aaron Task – Yahoo Finance
After a rough June, the stock market has rebounded to start the second half. But volatility has risen and declines in former high-flyers such as Lululemon (LULU), Rackspace Hosting (RAX) and Lennar (LEN) suggest even more-than-normal risks to momentum trading.
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Clearing & Settlement

CME chief defends clearing houses’ growing role
Philip Stafford – Financial Times
The head of the world’s largest exchanges operator, CME Group, has rejected calls from global banks that the growing reliance on clearing houses is posing a new challenge to the stability of the financial system.
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Indexes & Products

Tesla Motors, Inc. To Join The NASDAQ-100 Index Beginning July 15, 2013
Press Release (via Mondovisione)
Tesla Motors, Inc. (Nasdaq:TSLA) will become a component of the NASDAQ-100 Index® (Nasdaq:NDX) and the NASDAQ-100 Equal Weighted Index (Nasdaq:NDXE) prior to market open on Monday, July 15, 2013. Tesla Motors, Inc. will replace Oracle Corporation (Nasdaq:ORCL).
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Technology

Bahrain Bourse to Boost Trading Engine With NASDAQ OMX X-stream Technology
Press Release (via Financial Times)
The NASDAQ OMX Group (Nasdaq:NDAQ) has entered an agreement with Bahrain Bourse (BHB) to upgrade its current trading platform. Under the terms of the agreement, Bahrain will replace its existing NASDAQ OMX platform (Horizon) with one powered by the industry leading X-stream technology. Additionally, BHB has reconfirmed its commitment to NASDAQ OMX’s post-trade solution. The upgrade is estimated to be rolled out by late 2014.
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TMX Atrium Upgrades North American Infrastructure
Press Release (via Mondovisione)
TMX Atrium, provider of smarter infrastructure solutions for the financial community, today announced the completion of a significant upgrade to its North American infrastructure. The upgrade has been implemented to offer TMX Atrium community members flexible and fully scalable access to multiple markets across North America and into Eastern and Western Europe.
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Enforcement

Trader’s Day in Court May Lack Some Details
Andrew Ross Sorkin – Dealbook
Next Monday, in a courtroom in downtown Manhattan, the Securities and Exchange Commission will begin what is likely to be its most prominent case stemming from the financial crisis: its case against Fabrice Tourre, a former Goldman Sachs trader who is accused of misleading clients by selling a mortgage securities investment that the government said was designed to fail.
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Environmental & Energy

White House issues veto threat to House energy funding bill
Reuters
The White House on Monday threatened to veto the energy funding bill for fiscal 2014 that is expected to be debated by the House of Representatives this week, citing steep cuts proposed for renewable energy programs.
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China Says It Will Not Set Carbon Cap
Renewable Energy World
Although several major newspapers of record reported in May that China’s National Development and Reform Commission (NDRC) had proposed introducing a cap on greenhouse gases from 2016, the nation says it has no such plan.
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Asia-Pacific

Asia Pacific CFOs Remain Bullish on 2013 Earnings Potential, Says Bank of America Merrill Lynch Survey
Daily Finance
The majority of Asia Pacific-based chief financial officers expect growth in revenues and profits at their corporations in 2013. A full 71 percent are forecasting year-on-year revenue growth in 2013, while 62 percent are anticipating that their 2013 net profits will exceed that of 2012, according to the Bank of America Merrill Lynch 2013 CFO Outlook Asia report, which surveyed 600 CFOs and senior finance executives in the region.
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Asia stocks gain but China economy caution lingers
Kay Johnson – AP (via Yahoo News)
Asian stock markets rebounded and European shares continued a global rally Tuesday following positive U.S. economic news as nervousness about an imminent scaling back of the Federal Reserve’s monetary stimulus eased.
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