John Lothian Newsletter: CFTC Sues Former MF Global CEO Corzine and Treasurer O’Brien; HKMEx’s Barkshire Resigns as Director as Police Probe Company; CME finalising plans for swaptions clearing

Jun 28, 2013

As expected, the CFTC files a civil no-settlement suit against ex-MF Global’s Jon Corzine and Edith O’Brien. In Hong Kong, one of the directors of the shuttered Hong Kong Mercantile Exchange resigns amid the ongoing scandal there. CME Group nears completion on its plans for clearing swaptions products, and hopes to start that clearing in the US and Europe within months.

First Read

Coming Out…
David SettersContango Markets
To end the week I’d like to take this opportunity to ‘come out’ by by letting those who don’t yet know that I have been diagnosed with Motor Neurone Disease (or ALS/Lou Gehrig’s as it is known in the USA). Mercifully it is a slowly progressing form, affecting only my hands/arms at present, so you should have me around for a few years yet!

The great advantage of being able to do this through John’s widely distributed newsletter is that I’ll no longer have to explain why

1 – I’ve developed a Masonic-like handshake
2 – I seem to be looking for a sort of ‘legal high’ by ‘mainlining’ my conference champagne through a drinking straw
3 – I occasionally disappear into handicapped bathrooms at conference events with attractive ladies (she was putting my bow tie on, honestly!)

But much more importantly than that it also gives me the opportunity to say a huge ‘thank you’ to all those in the industry (you know who you are!) who have given me so much support and encouragement since my diagnosis.

At the same time there are others known to many in our industry who I have worked with and met this week (you also know who you are!) facing up to serious health issues with fortitude, good humour and boundless enthusiasm for both their ‘proper’ jobs and their charity work. My thoughts and best wishes go out to them all.

So – and I know you wouldn’t expect me to go without one last plug for Futures for Kids – if you’ve liked what you’ve read this week (and even if you haven’t) you would do me and a whole raft of children’s charities around the world a great honour by

1 – signing up for the FFK Walk to Work on September 13th at to help us achieve our target of £100k for 2013. ‘Celebrity’ walkers this year include Charlotte Crosswell, CEO of Nasdaq OMX NLX and William Knottenbelt, CEO, CME Europe. Eurex and Traiana are lead sponsors while Fidessa, Cinnober, Trading Technologies and ICAP are also providing financial support.

2 – making a donation to Clive Furness’s kilt fund at

All funds raised by Clive’s kilt will go to carefully selected FFK charities. FFK is currently considering allocating some funds to MND Association projects which help children affected by the disease (e.g. a parent has it) in terms of information dissemination, counselling and practical assistance (e.g. education) but in the meantime you can be assured your funds will go to charities that do make a real difference.

And, as a special thank you to JLN readers here is the ‘sneak peak’ of Clive Furness in his full tartan glory:

* * * * *

Conference weeks can get quite surreal and, while it may not quite have matched up to Burgenstock in its heyday, International Derivatives Week was no exception. Here are a few highlights…

– An English industry consultant wearing a kilt
– An American trade association supremo promising to wear a kilt next year
– Americans playing cricket
– Grown men bidding to buy a young British Olympic diver’s signed swimming trunks
– Other grown men outbidding each other to secure a lunch with the UK’s answer to James Cagney, Ray ‘Bet in play, bet now’ Winstone
– A German exchange outbidding all others to secure an advertising slot on the Nasdaq Tower in New York’s Times Square – can’t think why…

…and all in the name of raising funds for Futures for Kids, echoing its ‘raison d’etre’ of putting something back into the global community from an industry which has given us so much.

And aside from all that mayhem the conference and the accompanying seminar programme was well thought out and very well attended so congratulations to all involved at the FIA and FOA for their efforts and, in particular, for continuing to support FFK. While we are still counting the takings, the Gala Dinner has so far raised in excess of £120,000.

* * * * *

Huge thanks to John, Jon, Doug and Jim for their invitation and their guidance this week. In the meantime it’s over to Pat Kenny of CQG, probably the most interesting Guest Editor in the World…

(Outgoing Guest Editor’s aside to advertising dept …‘Did you pitch Carlsberg for running something next week? He drinks enough of it!’).

***JM: Thanks for all of your contributions this week, David! It was great to have you here, and any time you want to come back, just let me know and we’ll arrange a little “vacation” for Mr. Lothian…


CBOE Expands Its Global Volatility Franchise With Addition Of CBOE EFA ETF Volatility Index
The Chicago Board Options Exchange, Incorporated today announced that it will begin disseminating values for a new volatility index benchmark — the CBOE EFA ETF Volatility Index — on Monday, July 1. The VXEFA Index, the newest addition to CBOE’s suite of volatility benchmarks, expands investors’ ability to track market volatility of major geographic regions outside of the United States.

***DS: CBOE volatility products. Probably the best attempt in recent years to get a genuinely ‘new’ asset class out there in the futures markets and now they are expanding out of the USA. Hats off to CBOE.


New rules may not catch all market abuse
Philip Stafford in Berlin –
Europe’s most senior markets regulator has warned that new rules agreed by Brussels may not fully catch potential market abuse by high-frequency traders.

***DS: The growing number of cameras on a UEFA Champions’ League game doesn’t catch the increasing amount of diving,simulation,cheating (call it what you will) by the highly paid players (none of them, of course, from Manchester United – there I got the good guys in for once this week)! However, retrospective inspection of what they’ve been up to might get them thinking of stopping doing it. But, as in the financial markets, don’t expect it to happen overnight.


Economists Tackle Puzzle of Libor Losses for Investors
Keri Geiger – Bloomberg
Paula Ramada, who has a doctorate in economics from the Massachusetts Institute of Technology, says she can calculate how much investors lost from banks’ alleged rigging of benchmark interest rates. Now all she needs is funding, a team of analysts and weeks to run the numbers.

***DS: Wow! That’s an interesting new business line. Could pay the mortgage for year
s if she moves into other asset classes which may or may not need their benchmarking/indices looking at. My colleague, Clive Furness, has spotted another related opportunity…to do the calculations before they actually make the losses. He can come across as being a little cynically minded though….


TABB Group Exclusive Survey on SEFs
The rules for Swap Execution Facilities (SEFs) have been published in the Federal Register and the SEF registration process has begun. But how much of the swaps market will actually migrate to SEFs and do the rules create a clear framework for swaps trading? TABB Group would like to know your thoughts on the SEF rules and their impact on the market. We’ve created a brief online survey that can be found by accessing the following link.

Click Here to take the survey:


Asset manager margins approach their 2007 peak
Mike Foster – Financial News
Pre-tax operating margins in global asset management have risen to 32%, the highest level since the peak of the credit boom in 2007, according to a survey led by US consultant Casey, Quirk and Associates.


Hog-Futures Market Is Red Hot
Hog futures, long a sideshow in the trading pits here, suddenly are whetting the appetite of investors after a rally that has made pork the hottest U.S. commodity of 2013.

***DS: Looks like a BBQ is in order then to celebrate not only the Hawks’ victory but even Andy Murray’s hoped for (by long suffering UK tennis fans at least) march to the Wimbledon final! Beer anyone?


Former banker launches peer to peer-style currencies exchange
Jonathan Moules, Enterprise Correspondent –
A former banker has launched a new online marketplace to directly match buyers and sellers of currencies, in an attempt use the principles of peer-to-peer lending to undercut conventional foreign exchange brokers.


Inside the epic, all-night, Goldman Sachs scavenger hunt
Euny Hong – Quartz
One Saturday evening last fall, some 180 Goldman Sachs employees assembled at a dock along the East River of Manhattan, divided into 20 teams. Standing on a platform overlooking the crowd was Mat Laibowitz, an impresario-mad-scientist-type dressed in a red t-shirt printed with the words Game Master.

***CF: Game of Drones? Seriously though, this is an expensive game but these guys know how to make returns – whether it’s for charity or the bond market. Good for them! All we need now is to get a senior Goldman employee in a kilt alongside Walt at next year’s IDX Gala Dinner and the cash tills will start glowing red hot!



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Lead Stories

HKMEx’s Barkshire Resigns as Director as Police Probe Company
Hong Kong Mercantile Exchange’s co- president William Barkshire resigned as a director of the company amid a police investigation into financial irregularities involving the failed commodities bourse.

CME finalising plans for swaptions clearing
Tom Osborn – Risk magazine
CME Group is close to finalising its launch plans for swaptions clearing, with the service set to be launched at the firm’s US and European clearing houses within a matter of months, according to two people familiar with the matter.

CFTC Sues Former MF Global CEO Corzine and Treasurer O’Brien
Tiffany Kary and Silla Brush – Bloomberg News
The Commodity Futures Trading Commission sued former MF Global Holdings Ltd. Chief Executive Officer Jon Corzine for failing to properly oversee the company as it spiraled toward bankruptcy in 2011.

Suit Accuses Corzine of a Failure at the Helm
Jon S. Corzine, no stranger to bare-knuckle brawls after spending nearly 40 years on Wall Street and in New Jersey politics, now faces the biggest fight of his career: a showdown with the United States government.

Swiss Exchange Operator to Run Nation’s Repo Market
Nandini Sukumar – Bloomberg
SIX Group, operator of the Swiss stock exchange, will run the nation’s market for repurchase agreements, or repos, from May 2014 instead of Deutsche Boerse AG (DB1)’s Eurex unit.

White House Assembles List of Potential Bernanke Successors
The Obama administration is assembling a shortlist of candidates to lead the Federal Reserve, in the expectation that chairman Ben Bernanke won’t seek reappointment when his second term at the central bank ends in January, according to people familiar with the matter.

SEC Investigating Early Release of Reuters, ISM Data
The SEC is investigating the relationship between the news organization Thomson Reuters and the Institute for Supply Management, CNBC has learned. The two entities join forces to publish market-moving manufacturing data that is generated by ISM and published to high-speed data clients by Thomson Reuters.

Wall Street watchdog scraps controversial supervision plan
Reuters via Yahoo! News
By Suzanne Barlyn – Wall Street’s industry-funded watchdog has scrapped a controversial plan that would have required brokerages to supervise business lines that are not related to the securities industry, according to a recent regulatory filing.

LSOC: The Price of Safety
Neeraj Batra – TABB Forum
There is general agreement across the industry that the expected costs of implementing the set of rules known as Legally Segregated Operationally Commingled, or LSOC, will be greater than the risks that it purports to protect against.

Monsignor Nunzio Scarano held in Vatican bank inquiry
A senior Italian cleric has been arrested in connection with an inquiry into the Vatican bank scandal over allegations of corruption and fraud. Monsignor Nunzio Scarano works in the Vatican’s financial administration. A secret service agent and a financial broker have also been arrested.

BondDesk Sets All-Time Record for Trading Volume in Municipal Bonds
An all-time record 11,590 municipal bond trades were done yesterday on the BondDesk ATS, the industry’s leading retail platform for municipal bond trading. The record came on the heels of the largest three-day increase in yields since April 1987 and in the wake of last week’s Fed meeting. John Bagley, President of BondDesk Trading, noted that interest in municipal bonds from retail investors has spiked over the past week along with the increase in yields.

Ignore the pessimists – central banks are helping
David Miles –
Much of the most vocal and opinionated analysis of the impacts of central bank asset purchases – quantitative easing – strikes me as somewhat contradictory. But it is also important and may explain the recent reaction, quite probably an overreaction, to limited news from the Federal Reserve on asset purchases.

Gold sinks to near 3-year low as investors rush for exit
Emiko Terazono, Jack Farchy and Dan McCrum –
Gold has tumbled to its lowest level in nearly three years, putting it on track for its biggest quarterly fall since the collapse in 1971 of the Bretton Woods system of exchange rates, which pegged the value of the dollar to the precious metal.

News from Turkey

Witch Hunt Burning Turkish Bonds as Erdogan Lashes at Koc
Benjamin Harvey – Bloomberg
Investors are driving up bond yields of Turkish companies as concern mounts that Prime Minister Recep Tayyip Erdogan will take action against some for their alleged complicity in the unrest that spread this month in the nation.


CFTC’s Division of Swap Dealer and Intermediary Oversight Issues Corrected No-Action Letter on Relief from Certain External Business Conduct Standards and Documentation Standards
The Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight (DSIO) today issued an amended a no-action letter providing relief from certain duties imposed on swap dealers (“SDs”) and major swap participants (“MSPs”) pursuant to the Commission’s Business Conduct Standards with Counterparties, as well as certain documentation requirements imposed on SDs and MSPs pursuant to Commission regulation § 23.504, when executing swaps with the intention to clear contemporaneously with execution

CFTC’s Division of Swap Dealer and Intermediary Oversight Issues No-Action Letter Providing Relief for Swap Dealers in Connection with Foreign Exchange Intermediated Prime Brokerage Arrangements
The Commodity Futures Trading Commission’s (CFTC) Division of Swap Dealer and Intermediary Oversight (DSIO) today issued a time-limited no-action letter that provides swap dealers with relief from certain External Business Conduct Standards rules in the context of foreign exchange intermediated prime brokerage arrangements.

CFTC’s Division of Swap Dealer and Intermediary Oversight Issues Time-Limited No-Action Relief from Certain Swap Trading Relationship Documentation Standards with Foreign Exchange Counterparties
The Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight (“DSIO”) today announced the issuance of a no-action letter relating to requirements imposed on Swap Dealers (“SDs”) and Major Swap Participants (“MSPs”) pursuant to Commission regulation § 23.504 in connection with (i) foreign exchange transactions that are swaps , and (ii) physically-settled foreign exchange forwards and swap agreements that have been exempted from the definition of swap by the Secretary of the U.S. Department of the Treasury.

Fund Manager Bonus Curbs May Face Tight Vote in EU Parliament
European Parliament lawmakers will vote next week on rules to curb fund manager bonuses, amid a split within the assembly over how far the EU should go in regulating pay.

Statement Of CFTC Commissioner Bart Chilton On The Filing Of Charges In The MF Global Case

New financial requirements for custodians

New ASIC guidance for platforms a boost for investors

FMA report on the Q1 2013 performance of the Austrian insurance sector

NZX First Half 2013 Financial Results Date

Exchanges & Trading Facilities

Kansas City Wheat Pit Trade Ends 157-Year Run in Move to Chicago
CME Group Inc., the world’s largest futures-exchange owner, is closing its wheat-trading pit in Kansas City today, ending a 157-year run, before shifting transactions next week to the Chicago Board of Trade.

Integrated Swiss Intraday Market Successfully Launched – 15-Minute Contracts For The First Time Available For Cross-Border Trading
The Swiss Intraday market was successfully launched on 26 June 2013. It joins France, Germany and Austria as the fourth national market to be integrated using ComXerv, the commodity trading system provided by Deutsche Börse AG. ComXerv allows implicit cross-border transactions which lead to an efficient use of capacity on interconnectors.

Deutsche Börse opens special exhibition “Look at Me”
Deutsche Börse opens the new exhibition “Look at Me” tonight. The company will be exhibiting works from its extensive collection to the general public until the end of August.

HKEx Chief Executive Charles Li Live And Direct – Latest Charles Li Direct
We’ve just wrapped up an incredible couple of days filled with events to mark the very first LME Week Asia in Hong Kong. Producers, consumers, metals traders, Mainland exchanges, and LME members from around the world converged in Hong Kong, with more than 900 tickets selling out for the LME Week Asia gala dinner on Tuesday night.

WFE Focus June 2013 issue

[CBOE] HAL/HALO, SAL and COA Timer Reductions

Program Trading Averaged 35.1 Percent of NYSE Volume during June 17-21

UBS MTF Trading Notification – Addition Of Spanish Instruments

Moscow Exchange Monthly Market Report: May 2013

Warsaw Stock Exchange Strengthens London Presence With A Local Representative

NASDAQ OMX Nordic Welcomes Matas To Its Main Market In Copenhagen

Direct Edge: Independence Day Market Holiday

Hedge Funds & Managed Futures

China Wealth Fund to Get New Chief
China’s top leaders are expected to name a senior government official with a deep finance background as head of its sovereign-wealth fund, according to people with knowledge of the matter.

Fashionable ‘Risk Parity’ Funds Hit Hard
Investors who piled into “risk parity” funds, which follow a popular strategy that promises to make money in most environments, are being hit hard by the current market turmoil.

Singapore’s Temasek Seeks Deals in U.S. and Europe
Singapore’s giant state investment company, Temasek Holdings Pte. Ltd., is looking to bulk up its portfolio in the U.S. and Europe, seeing opportunities in those regions despite persistent uncertainty over the health of their economies.

Optiver veteran to retire after 20 years
Tim Cave – Financial News
Jelle Elzinga, a 20-year veteran of Dutch marketmaking firm Optiver – and a key backer of electronic trading venues such as Chi-X Europe and The Order Machine – is to leave the firm.

An Old Champion Returns for Mortgage-Based Bonds
Lewis S. Ranieri helped pioneer mortgage-backed securities in the 1980s. On Thursday, his new firm priced its first mortgage bond deal.

Hedge fund firm Lansdowne names new CEO
Reuters via Yahoo! Finance
One of London’s largest hedge fund firms, Lansdowne Partners, has named Alex Snow, the former head of UK Investment Banking at Investec, as its new chief executive officer.

Largest Hedge Fund Operator Ray Dalio Stricken by Emerging Markets
Investor Ray Dalio , founder of the $150 billion hedge fund Bridgewater Associates, has developed a unique view of the economy, comparing it to a machine.

Business Venture, and Friendship, Sour After Insider Conviction
Rajat Gupta, the former managing director of the consulting giant McKinsey & Company, and Parag Saxena were not just business partners in a South Asian private equity fund, New Silk Route.

Banks & Brokers

ICAP Says Senior Managers Unaware of Any Attempts to Rig Libor
ICAP Plc, the world’s largest broker of transactions between banks, said senior managers were never aware of or involved in attempts by traders at UBS AG to manipulate the London interbank offered rate.

Mocking Germans Adds Insult to Irish Banking Injury: Euro Credit
Irish politicians say jibes at Germans by some of the country’s former bankers undermine their case for securing help to cut the 64 billion-euro bill for saving the financial system.

Bank Of America Rejects Calls By AIG To Renegotiate $8.5 Bln Settlement Of 2011
RTT News
Financial services major Bank of America Corp. is said to have rejected a request from insurer American International Group, Inc. and other investors to renegotiate the $8.5 billion settlement deal that was struck in July 2011 over soured mortgage-backed securities. This was reportedly revealed by AIG in a court filing.

Citigroup may add three new directors, chairman says
Reuters via Yahoo! Finance
Citigroup Inc may name as many as three more directors to its 11-member board to add skills and share the work load, Chairman Michael O’Neill said on Thursday.

Citigroup Hires Barclays’s Croft for Telecommunications Banking
Citigroup Inc. , the third-biggest U.S. bank, hired Barclay Plc’s Gordon Croft to lead its telecommunications investment banking in the Americas.

Clearing & Settlement

Clearstream’s innovative master agreement enables repo with multiple counterparties via just one contract
A new legal master agreement for triparty repo transactions has been developed by Clearstream to enable market participants to sign just one contract for multiple counterparties and speed up counterparty “marriage broking”. Clearstream Repurchase Conditions (CRC), a master agreement governed by Luxembourg law, effectively enables customers to be able to trade with their chosen counterparties within just a few days.

Indexes & Products

NYSE Euronext and Vigeo expand range of ESG indices
NYSE Euronext, the world’s largest exchange group, and Vigeo, the leading European expert in responsible performance, are expanding their range of ESG1 indices with the launch of the Euronext Vigeo Benelux 20, the Euronext Vigeo Eurozone 120 and the Euronext Vigeo US 50.

ISE Partners with BlueStar Indexes
The International Securities Exchange (ISE) announced today the launch of their partnership with BlueStar Indexes to develop a family of indexes and use them as the basis for exchange traded products (ETPs) and other index-linked vehicles.

[OSE] Change in Component Issues of JASDAQ-TOP20


Thomson Reuters Launches Unique Analytics Tool on Eikon to help Predict Prices in Major European Power Markets
The new tool, Power Curve, uses innovative visualization techniques to enable traders and analysts focused on European power markets to obtain real-time, fundamental fair value assessments of the Nordic and German power markets.


SEC Charges Medical Imaging Device Company and Its CEO with Fraud
The Securities and Exchange Commission today announced that it filed fraud charges on Tuesday against Burbank, Calif.-based Imaging3, Inc., and its founder and chief executive Dean Janes for misleading shareholders about the Food and Drug Administration (FDA)’s view of the company’s medical device.

SEC, ex-Goldman VP Tourre battle over key fraud trial witness
Reuters via Yahoo! News
By Nate Raymond NEW YORK – As the civil fraud trial approaches of former Goldman Sachs Group Inc vice president Fabrice Tourre, the two sides are focusing on a key witness and whether her own legal troubles could affect her testimony.

ASIC to press ahead with case against Storm Financial founders

New Zealand’s Financial Markets Authority: More Charges Laid Against David Ross

New Zealand’s Financial Markets Authority: Capital + Merchant Finance Directors Receive Increased Prison Sentences

Environmental & Energy

PEGAS: Successful Migration Of EEX NCG Futures
As from today, trading in natural gas futures for the market area NetConnect Germany (NCG) listed at the European Energy Exchange (EEX) is activated on PEGAS, the joint platform of EEX and Powernext.

Obama’s Push For Carbon Regulations Seen Boosting State Trading System
Ecosystem Marketplace
Advocates of carbon trading are cautiously optimistic following US President Barack Obama’s decision to issue a presidential memorandum directing the Environmental Protection Agency (EPA) to work expeditiously to complete carbon pollution standards for both new and existing power plants. The president’s explicit acknowledgement of state leadership in forming cap-and-trade programs signals that these programs will be welcomed into a federal regulatory regime and could even instigate an expansion of trading programs to other states.

RGGI: 2011 Annual Monitoring Report
RGGI Press Release
On behalf of the states participating in the Regional Greenhouse Gas Initiative (RGGI), RGGI, Inc. released the CO2 Emissions from Electricity Generation and Imports in the Regional Greenhouse Gas Initiative: 2011 Monitoring Report. This report is the third in a series of annual monitoring reports, called for in the 2005 RGGI Memorandum of Understanding. The report summarizes data for electricity generation, electricity imports, and related carbon dioxide emissions in the ten states participating in the first RGGI control period from 2005 through 2011.
**RKB — This report and the 2009 and 2010 monitoring reports are available here.


China Bad-Loan Alarm Sounded by Record Bank Spread Jump
Borrowing costs for Chinese banks have surged the most in at least six years this month as rating companies say a cash crunch threatens to swell bad loans.

Dalian Commodity Exchange, Guangdong Materials Group Corporation To Develop Timber Index Futures

HKFE Announces Revised Margins For China Construction Bank And Industrial And Commercial Bank Futures

Frontier Markets

MCX Weekly Market Report – June 21, 2013 – June 27, 2013


Jimmy Wales Is Not an Internet Billionaire
By AMY CHOZICK – The New York Times
The founder of Wikipedia has a brand-new life in London with Kate Garvey, his third wife, whom he often describes as “the most connected woman in London.”

John Lothian Newsletter

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Past JLN Newsletters

How Ken Griffin rebuilt Citadel’s ramparts

How Ken Griffin rebuilt Citadel’s ramparts

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