LedgerX cries foul

Sep 30, 2019

First Read

Hits & Takes
By JLN Staff

Paul Chou, the CEO of LedgerX, has been removed from the CFTC’s Technology Advisory Committee by “unanimous decision by the Commission” according to our lead story. The TAC this week should be interesting.~JJL

I will be in Washington, DC later this week for the CFTC’s Technology Advisory Committee meeting and the Security Traders Association’s Regulatory Conference.~JJL

The CFTC v Kraft et al. case was diverted to the Seventh Circuit Court of Appeals, whose oversight was sought by the CFTC. This cancels the scheduled examination under oath of the CFTC chairman and other commissioners by the lower federal court that was scheduled for Wednesday this week. That reprieve was accompanied by an order to publish all of the previously secret pleadings by tomorrow, October 1. ~Thom Thompson

Here is the list of traders we have interviewed for the Open Outcry Traders History Project so far. We have released two of the interviews: Leo Melamed and Jordan Melamed. Here is the list: Alan Palmer, Bill Dudley, Bill Speth, Dan Stern, Donnie Roberts, Doug Ashburn, Ed Tilly, Gary Sagui, Jacob Morowitz, Jeff Bernacchi, Jeff Carter, Lee Tenzer, Marc Nagel, Mike Fishbain, Paul RT Johnson Jr., Jim Downs, Jordan Melamed, Leo Melamed, Tom Gould and Tony Saliba.~JJL

Do you want to learn more about binary options fraud? Then check out the CFTC’s webpage about this subject.~JJL

According to a Vanity Fair article, Facebook’s Mark Zuckerberg claims that his new cryptocurrency won’t be evil. He is such a do-gooder.~JJL

According to a Bloomberg article, a Dutch treasure hunter Is digging for 800 barrels of gold on Robinson Crusoe island.~JJL


The Spread: Quadruple witching causes VIX hiccup; Bakkt vs. CME

In this week’s episode of The Spread, VIX hiccups after quadruple witching day, drone strikes and impeachment announcement, Bakkt and CME duke it out in bitcoin, and MIAX announces SPIKES futures on the Minneapolis Grain Exchange.

Watch the video »


The Road to Replacing Libor Led This Finance Legend to the Best Barbecue
Alex Harris and Nick Baker – Bloomberg
After Richard Sandor sold his carbon exchange for almost $600 million in 2010, the Chicago trading legend set out to find another big idea.
He’s good at that.

***** The good doctor knows his interest rates, photography, and barbeque.~JJL


Scammers Find More Opportunities on Internet Marketplaces; Craigslist, eBay and social-media platforms are more lucrative than robocalls for fraudsters, study finds
Yuka Hayashi – WSJ
The online ads that you willingly click on are more likely to make you a scam victim than the robocalls flooding your phone with urgent messages. A new study of consumer behavior toward fraudulent schemes found that scammers are far more likely to succeed in engaging and stealing money from potential targets by using websites and social media than through the phone calls and emails they have long used.

***** I hope this means I get fewer robocalls.~JJL


Now You Can Build Your Own Real-Estate Empire, $100 at a Time; Platform could capitalize on retail investors’ thirst for alternatives such as hedge-fund, private-equity and real-estate strategies
Justin Baer – WSJ
A financial-technology startup is taking on the difficult task of enticing mom-and-pop investors to invest in small slices of office towers and other commercial buildings.

*****Michael J. Friedman left Trillium, where he was general counsel and chief compliance officer, and is now head of trading at LEX Markets.~JJL


Sponsored Content

BCause LLC has received a proposal to sell its equity interests in BCause Secure, LLC and its cryptocurrency spot exchange platform (the “Spot Exchange”) as part of the chapter 11 bankruptcy cases of BCause LLC and BCause Mining LLC, which are jointly administered as Case No. 19-10562 and pending before the U.S. Bankruptcy Court for the Northern District of Illinois.

All parties interested in making a competing proposal for the Spot Exchange must send an e-mail to BCauseAuction@freeborn.com on or before October 4, 2019 at 5:00 p.m. Central, which includes the following:

  • Discloses the identity and contact information for each person or entity interested in the Spot Exchange; and
  • A list of requested information necessary to make a proposal relating to the Spot Exchange.

All potential purchasers of the Spot Exchange shall submit an offer, letter of intent, and term sheet, via email to BCauseAuction@freeborn.com on or before October 11, 2019 at 5:00 p.m. Central.


Speculative Limits; Twice Is Not Necessarily Better; Anonymous ATS; Let the Sunshine In
Gary DeWaal – Bridging the Week
Both the Commodity Futures Trading Commission and the Chicago Board of Trade settled related disciplinary actions for speculative position limits violations. The CFTC sanctioned the trading firm while the CBOT sanctioned the firm’s trader. The CFTC’s action was based on two incidents, including one event that was addressed by a CBOT disciplinary action over two years ago. Separately, the Securities and Exchange Commission penalized an alternative trading system operator that promised anonymity but allegedly disclosed subscribers’ names. And there is a new twist in the ongoing fallout from the CFTC’s enforcement settlement with two food giants.


Friday’s Top Three
Our top read story of the day on Friday was Bloomberg’s Kraft, Mondelez Contempt Claims Against CFTC Stayed by Court. Second was another Bloomberg piece about another CFTC-related matter A Promotion Highlights CFTC’s Ties to Wall Street. Third was CCN’s story Traders React to a Study That Says It’s Virtually Impossible to Day Trade for a Living. It’s not, say most of them; at least 1% to 3% can do it.


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Lead Stories

LedgerX cries foul; CFTC says there’s no favoritism
Frank Chaparro – The Block Crypto
Regulatory drama in the cryptocurrency derivatives market reached a fever pitch this weekend. Executives at U.S.-based cryptocurrency options exchange LedgerX are claiming that their primary regulator, the Commodities Futures Trading Commission (CFTC), has acted unfairly, favoring their legacy rival Bakkt over the Chicago-based crypto-native firm. Paul Chou, the firm’s CEO, went off in a series of tweets Friday night, alleging that the CFTC broke promises and engaged in backroom dealings.

***** Here is the Coindesk version of this story.

Entrenched uncertainty is a global problem; It started with Brexit but is now depressing worldwide capital investment
Gavyn Davies – FT
Mark Carney, the outgoing governor of the Bank of England, remarked in August that “entrenched uncertainty” about Brexit may be exerting a pervasive depressing effect on the UK economy. Instead of temporarily flaring up from time to time, and then disappearing, this form of uncertainty does not automatically disappear when harmful policy developments are reversed.

Fed Rate Cuts Put Pressure on Electronic Brokers; Near-zero fees for products and services seemed like a good idea—until it wasn’t
Lisa Beilfuss – WSJ
Depending on where you turn, it can seem as though it costs almost nothing to buy and sell stocks, invest in exchange-traded funds and even get financial advice.

A Wall Street Revolt That Fizzled; How IEX lost the listings battle
Alexander Osipovich – WSJ
Upstart exchange operator IEX Group Inc. cooked up its own version of the New York Stock Exchange’s daily, opening-bell ceremony in an attempt to lure corporate listings from rivals.

IEX Exchange may be up for sale after leaving listings business
John Aidan Byrne – NY Post
It could be done in a flash. The high-speed IEX Exchange — made famous in Michael Lewis’ 2014 bestseller “Flash Boys: A Wall Street Revolt” — is believed to be up for sale after its announcement last week that it is exiting the listings business.

Shanghai’s Star Market fades after initial success; Listing activity slows on would-be rival to Nasdaq but prices remain high
Hudson Lockett – FT
When the gong was sounded back in July to mark the first day of trading at Shanghai’s Star Market, which was hailed by state media as China’s answer to Nasdaq, expectations were sky-high.

Hellman & Friedman considers joining battle for stake in Euroclear; US buyout group joins private equity interest in linchpin of financial markets
Javier Espinoza and Philip Stafford – FT
Hellman & Friedman, the US buyout group, is exploring a bid to acquire a stake in Euroclear amid growing interest in one of the world’s largest securities depositories from other financial buyers, according to multiple people with direct knowledge of the proposal.

Launch of Facebook’s Libra could be delayed over regulatory concerns: executive
Brenna Hughes Neghaiwi – Reuters
The launch of Facebook’s Libra could be pushed back to tackle the regulatory concerns that have been raised around the world, the head of the organization set up to oversee the cryptocurrency told Reuters.

Credit Suisse Saga Reveals Ever-Present Bank Surveillance State
Anders Melin and Edward Robinson – Bloomberg
Deutsche Bank hired private eyes for board, HSBC for staff; Swiss bank’s board poised to decide executives fate this week
The scene: a street in Zurich. The mark: a wealthy Swiss banker. His pursuers: hired goons looking for intel.

Who Succeeds Mark Carney? Brexit Brings Uncertainty to the Bank of England; The central bank is independent, but its future leadership rests on the most political of questions: Who is in government?
Amie Tsang – NY Times
The British government is hiring. Requirements: A candidate who can keep markets calm, put up with criticism from politicians and deftly respond to an unprecedented economic event as Britain tears itself away from the European Union, while the rest of the world economy stutters.

The New York Fed Chief Is Facing His Biggest Test. Here’s His Response; The Federal Reserve Bank of New York president, a top economist, has been criticized for his bank’s response to turmoil in the repo market.
Jeanna Smialek – NY Times
John C. Williams, president of the Federal Reserve Bank of New York, has spent the past two weeks grappling with the regional bank’s most tumultuous period in years.

‘Why Were They Surprised?’ Repo Market Turmoil Tests New York Fed Chief; After years of calm, the financial regulator under chief John Williams must show it can tamp down unexpected turbulence
Nick Timiraos – WSJ
?John Williams, a Ph.D. economist and Federal Reserve lifer, made his mark inside the central bank with his deep knowledge of interest-rate theory and a solid record as a policy maker and communicator.

Markets beset by foolery fit the bubble description; The greater fool theory flourishes when investments become speculative
John Plender – FT
Fund managers have long since learned to live with the accusation of short-termism. Yet in the current cycle they could equally be accused of being excessively patient in managing their beneficiaries’ capital. The reason for this counter-intuitive assertion is an outbreak of long-termism in the market for initial public offerings.

Britain’s finance watchdog tells firms to think, not tick boxes
Huw Jones – Reuters
Britain’s finance industry watchdog wants financial services firms to think for themselves when applying new accountability rules for staff rather than adopt a “tick box” mentality for the new regime.

Taking the next step in sandbox evolution; The Financial Conduct Authority’s sandbox, which has successfully cultivated UK innovation in fintech, must evolve if it is to remain relevant in a fast-moving sector
Michelle Perry – Raconteur
Since the Financial Conduct Authority launched its Innovate programme in 2014, resulting in the creation of the FCA sandbox, it has supported more than 700 firms and increased their average speed to market by 40 per cent compared with the regulator’s standard authorisation time.

New group tries to boost the EU’s capital markets as Brexit looms
Huw Jones – Reuters
The European Union could speed up efforts to build an EU-wide capital market by creating euro denominated benchmarks for trading commodities, a new group backed by financial companies, former politicians and central bankers said on Friday.

Fed Adds $63.5 Billion to Financial System in Repo Transaction; Latest transaction seeks to relieve funding pressure in money markets
Dave Sebastian – The Wall Street Journal
The Federal Reserve Bank of New York added $63.5 billion to the financial system Monday, using the market for repurchase agreements, or repo, to relieve funding pressure in money markets.
Banks asked for $63.5 billion in overnight reserves, all of which the Fed accepted, offering collateral in the form of U.S. Treasury and mortgage securities.

Exchanges, OTC and Clearing

Exchanges Round The World Ring The Bell All Week For Financial Literacy
The World Federation of Exchanges (“WFE”), the global industry group for exchanges and CCPs, has partnered with the International Organization of Securities Commissions (“IOSCO”) to set up the inaugural ‘Ring the Bell for Financial Literacy’ initiative as part of WIW 2019, which runs from Monday 30 September to Friday 4 October 2019.

Schedule for Setting up Systems at New Secondary Data Center
With the aim of further enhancing stability in operating its markets, Japan Exchange Group, Inc. has been constructing a new secondary data center (back-up center) in the Kansai region. As such, we hereby announce the schedule for setting up systems, including trading systems, at the center as indicated in the PDF below.

Intercontinental Exchange Provides Statement About New SEC Rule on ETFs.
Intercontinental Exchange
Intercontinental Exchange, Inc. (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, made the following statement today in response to passage of Rule 6c-11 by the U.S. Securities and Exchange Commission. This rule was designed to modernize the regulation of Exchange Traded Funds (ETFs), bringing new standards to the ETF industry and opening the door to significantly more participation and innovation.

Changes in Eurex Liquidity Provider requirements
The Management Board of Eurex Deutschland and the Executive Boards of Eurex Frankfurt AG and Eurex Clearing AG took the following decisions with effect from 1 December 2019:

Eurex Exchange Readiness Newsflash | T7 and C7 updates regarding capacities, trade size limits and pre-trade risk limits
With the planned migration of functionality away from Eurex Classic, changes to T7 and C7 will apply with the launch of T7 Release 8.0 and C7 Release 6.0 (both on 18 November 2019).

NatWest Markets joins Neptune dealer network; Neptune said that with NatWest Markets, 29 dealers have now signed up to provide axe indications to investors via its network.
Hayley McDowell – The Trade
NatWest Markets has joined the bond dealer community of fixed income data provider Neptune, marking the 29th bank to sign up to the network.

FTSE Russell scraps ‘non-renewable energy’ label after LSE pressure; Move seen as step back in efforts to steer investment toward cleaner forms of energy
Henry Sanderson – FT
Index provider FTSE Russell has reversed a decision to label oil and gas companies as “non-renewable energy” following pressure from its sister company, the London Stock Exchange, which is competing to host the listing of Saudi Arabia’s state oil company.

Amman Stock Exchange Launches Its New Index ASE20 Next Tuesday
The ASE’s Chief Executive Officer, Mr. Mazen AlWathaifi said that Amman Stock Exchange (ASE) will launch its new index the ASE20 index at the beginning of next month. The ASE20 index is a weighted index based on the market capitalization for the free float shares available for trading.


Charles River and Tradeweb expand fixed income trading partnership; Charles River adds Tradeweb to growing list of trading venue ecosystem via its OEMS.
Hayley McDowell – The Trade
Charles River Development and Tradeweb have expanded their partnership to provide mutual clients with access to fixed income liquidity via the Charles River Investment Management Solution (IMS).

Money managers take cues from ‘Moneyball’ playbook; AI tools are combined with in-house team of scientists for better insights
Owen Walker – FT
Billy Beane’s unexpected success as general manager of the unfancied Oakland Athletics baseball team spawned an analytical arms race among US sports teams, with each desperate to find an edge over rivals by wading through unconventional statistics.

UK-based gold fintech Glint Pay goes into administration after loan shortfall
Mobile Payments Today
UK-based gold fintech Glint Pay goes into administration after loan shortfall
Glint Pay Services Ltd., the U.K.-based fintech that allows users to buy and sell gold through a mobile app, has been placed in administration, which is similar to a U.S. bankruptcy filing.


Overstock.com and execs sued for securities fraud; crypto strategy and “bizarre” CEO statements cited
Stephen Palley – The Block Crypto
Lawsuit also alleges flawed cryptocurrency strategy and “bizarre” CEO statements led to draw in stock price
A two count federal securities fraud lawsuit against Overstock.com, Gregory Iverson and Patrick Byrne was filed Friday in Utah federal court. This follows Iverson’s resignation as Overstock CFO on September 17 and Byrne’s resignation as CEO on August 22.

New Interest in DAOs Prompts Old Question: Are They Legal?
Christine Kim – Coindesk
“Ethereum is only now starting to shrug off its ‘PTSDAO,'” tweeted Ameen Soleimani, the SpankChain CEO and creator of a now-$1.2 million decentralized autonomous organization (DAO) called the MolochDAO.

Details of Lightning Network security vulnerability discovered in September have been released
The Block Crypto
Full details of the security vulnerability found on Bitcoin’s Lightning Network late last month have been published on Friday by software developer Rusty Russel. According to the disclosure, the vulnerability was in the process of creating and funding a Lightning Network channel. When a channel is created, the receiver of the channel was not required to verify the amount of the funding transaction output or the scriptpubkey, a script that ensures certain conditions are satisfied before an output is spent.

Cryptocurrency Exchanges Including Coinbase to Rate Digital Assets
Dave Michaels – The Wall Street Journal
The U.S.’s biggest cryptocurrency exchanges have developed a system to rate which digital assets are probably securities that can’t be traded on their venues—and which likely can. The system, which the firms will make public Monday, comes as the industry continues to face skepticism from regulators about how it protects investors and complies with federal laws, including anti-money-laundering provisions.

***See also: “Coinbase, Kraken and others develop a system to rate cryptocurrencies on likelihood they are securities” by The Block

Congress Questions The SEC On Libra, Cryptocurrency And “The Whole Blockchain Phenomenon”
Jason Brett – Forbes
The House Financial Services Committee (HFSC) held a hearing on Tuesday, September 24, 2019 titled “Oversight of the Securities And Exchange Commission: Wall Street’s Cop On The Beat”. For the SEC, this was a chance for all five Commissioners to publicly meet together and sit as witnesses before the Committee in the House of Representatives.

Ex-Fed Official Takes Aim at Bank of England’s Crypto Proposal
Katherine Greifeld – Bloomberg
Simon Potter spoke publicly for first time since N.Y. Fed exit; Plan to overtake dollar ignores status quo’s benefits, he says
Bank of England Governor Mark Carney’s plan to end the dollar’s dominance in the global financial system ignores the benefits of having the greenback as a reserve currency, according to former senior Federal Reserve official Simon Potter.

JPMorgan Says ICE Debut, Position Shakeout Likely Tanked Bitcoin
Joanna Ossinger – Bloomberg
New futures may allow for easier expression of bearishness; Some position liquidation on CME, Bitmex may have fueled drop
Bitcoin’s 20% drop earlier this week was likely fueled by the effect of Intercontinental Exchange Inc.’s new futures contracts and an unwinding of long positions, according to JPMorgan Chase & Co.

Bitcoin Mayhem Results In Mixed Messages
Billy Bambrough – Forbes
Bitcoin and cryptocurrency market chaos this week has caused panic among traders and investors who have been nervously waiting for a sudden move for months. The bitcoin price plummeted this week from its recent plateau of around $10,000 per bitcoin to under $8,000 – losing some 15% of its value in a matter of hours.

Is Kik’s Restructuring a ‘Hail-Mary Pass’ or a True Saving Grace?
Rachel McIntosh – Finance Magnates
The relationship between the cryptosphere and the United States Securities and Exchange Commission has been growing both closer and more tenuous over the last several years. For better or for worse, the cryptocurrency industry has been increasingly shaped by the SEC’s actions and rulings within the space.

Fidelity Digital Assets to Provide Custody for Bitcoin Derivatives Yield Fund
David Pan – Coindesk
An asset manager wants to have a go at a bitcoin-options-based fund as major exchanges make crypto derivatives trading more accessible to investors. The Los Angeles-based Wave Financial has launched the Wave BTC Income & Growth Digital Fund, touting the fund to be the first crypto-derivatives-based yield fund on the market.

Binance.US Opens Account Registration for Puerto Rico Residents
Marie Huillet – Cointelegraph
The United States-based branch of major cryptocurrency exchange Binance, “Binance.US,” opened account registration and verification services for residents of Puerto Rico. According to an official announcement published on Sept. 30, Puerto Rico residents have the same levels of access as U.S. residents from those states already permitted to use the platform.

Asian Institutions Are Finally Warming to Crypto Hedge Funds
Nina Xiang – Coindesk
Asian institutional investors, mostly high-net-worth individuals and family offices, are increasingly showing interest in digital assets, with some having allocated part of their portfolios to crypto hedge funds. The gloomy macroeconomic outlook and the news of Facebook’s Libra and China’s central bank digital currency have fueled this interest, market participants say. Crypto hedge funds in the region face hurdles to getting off the ground, including licensing, banking, custody and insurance.

Ripple Expands Into Iceland With Acquisition of Crypto Trading Firm
Nathan DiCamillo – Coindesk
Ripple is expanding its engineering team and moving into a new geography with the acquisition of Iceland-based crypto trading firm Algrim. The Algrim team will add six engineers to Ripple’s ranks, with a focus on integrations with partner crypto exchanges.

The Ukrainian government plans to legalize cryptocurrency
The Block via Yahoo Finance
The Ukranian government has plans to legalize cryptocurrency, according to a report in the independent Ukrainian news publication Ligamedia. Incoming Digital Transformation Deputy Minister Alexander Bornyakov said in a recent presentation that Minster Mikhail Fedorov will authorize the legalization. Bornyakov stressed that cryptocurrencies are not currently illegal in Ukraine.

Crypto Giant Bitmain Is Setting Up a Miner Matchmaking Service
Zheping Huang – Bloomberg
Platform will connect hardware owners with data centers; China’s intolerance of crypto has led to mining-farm closures
Bitmain Technologies Ltd. dominates cryptocurrency mining by selling the chips that generate most of the world’s new virtual coins. Now it wants to expand its grip on the industry by helping miners find optimal locations to host their lucrative machines.

Iranian Bitcoiners Risk Fines, Jail Time as Government Regulates Mining
Leigh Cuen – Coindesk
The Iranian government has been cracking down on cryptocurrency mining operations over the past three months, pending new legislation for formal mining licenses.


Trump administration considers ban on Chinese listings in US; Measure is one option as advisers debate expanding trade war into capital markets
James Politi and Peter Wells and Colby Smith – FT
The White House is weighing a plan to stop Chinese companies listing on US exchanges in a move that would take its trade war with China to Wall Street.

U.S. Treasury Says No Plans to Block Chinese Listings ‘at This Time’
Jenny Leonard, Shawn Donnan, and Saleha Mohsin – Bloomberg
Treasury official says option is not on the table at this time; Trump advisers are divided on path forward and possible action
A U.S. Treasury official said there are no current plans to stop Chinese companies from listing on U.S. exchanges, a day after a report that the Trump administration is discussing ways to limit U.S. investors’ portfolio flows into China.

Two Trump Family Members’ Tax Returns Are With Deutsche Bank
Gerald Porter Jr.
September 27, 2019, 5:15 PM CDT Updated on September 27, 2019, 7:26 PM CDT
Bank won’t name the members despite recent showdown with judge; Disclosure comes days after House launches impeachment inquiry
Deutsche Bank AG said it has tax returns filed by two members of President Donald Trump’s family but declined to give their names, injecting an extra note of intrigue into a week that didn’t lack for it.

Senate Has No Way to Sidestep an Impeachment Inquiry, Aide Says
Ros Krasny – Bloomberg
There’s no way the U.S. Senate can avoid presenting articles of impeachment on President Donald Trump if the House of Representatives votes in favor of formal charges, according to a Republican Senate leadership aide.

Why the markets aren’t worried about impeachment; Investors aren’t yet betting that Donald Trump will be out of office anytime soon
Rana Foroohar- FT
Americans are glued to their phones and televisions for impeachment news, but for global financial markets it’s all just a sideshow. Sure, the S&P 500 index reacted rather badly to the news that Our Dear Leader might be ousted from office (or as Republican presidential challenger Bill Weld suggested, much worse) but that was a blip. Market volatility is being driven, as ever, by uncertainty about central bank policy, late cycle excesses such as an unprecedented corporate debt bubble, and an increasing sense of fragility (eg, the repo shocks).

Once-Shunned Capital Controls Surface in U.S.-China Trade War
Shawn Donnan – Bloomberg
News that the White House is considering broadening its trade war with China into a financial flow war and discussing controls on capital coursing between the U.S. and China shook financial markets on Friday. So it is worth pointing out the context.

Trump Seeks Treason Inquiry Into House Impeachment Leader
Justin Sink – Bloomberg
President demands to meet anonymous whistle-blower ‘accuser’; Trump has equated the complaint behind inquiry to espionage. President Donald Trump called for the Democrat leading the House impeachment inquiry to be questioned for treason and demanded to meet the anonymous whistle-blower who lodged a complaint about the U.S. leader’s request that Ukraine investigates his political opponents.

China urges ‘calm and rational’ resolution to U.S.-Sino trade war
Ryan Woo, Kevin Yao – Reuters
China hopes Beijing and Washington will resolve their trade dispute “with a calm and rational attitude”, Vice Commerce Minister Wang Shouwen said on Sunday, ahead of talks in two weeks between the two sides.

Trump and Schwarzman Disagree on Whether They Discussed Bidens
David Scheer – Bloomberg
President Donald Trump is on tape saying he had a conversation with Blackstone Group Inc. founder Steve Schwarzman about former Vice President Joe Biden’s son. On Friday, Schwarzman’s spokeswoman disputed that account.

Elizabeth Warren wants the SEC to crack down on Moody’s and S&P
Paul R. La Monica, CNN Business
New York (CNN Business)Democratic presidential candidate Elizabeth Warren wants the SEC to crack down on credit rating agencies Moody’s and Standard & Poor’s for what she calls “troubling reports of inflated bond ratings and the perverse incentives within the bond rating industry.”


Personal accountability would have avoided fund scandals, says FCA boss; Managers have fresh incentives to stamp out bad behaviour
Owen Walker – FT
The European investment industry’s recent spate of scandals would have been avoided if executives took greater personal responsibility for their company’s actions, according to the Financial Conduct Authority’s head of supervision.

ESMA issues an opinion on product intervention measures by Cyprus
The European Securities and Markets Authority (ESMA) has today issued an opinion on product intervention measures taken by the National Competent Authority (NCA) of Cyprus.

Two BMO Advisory Firms Pay Over $37 Million to Harmed Clients for Failing to Disclose Conflicts of Interest
The Securities and Exchange Commission today announced that two BMO advisers have agreed to pay over $37 million to settle charges regarding their failure to tell clients about certain aspects of how the advisers selected investments in their retail investment advisory program, known as the Managed Asset Allocation Program (MAAP), which included the selection of more expensive investments from which BMO advisers profited.

SEC Charges Canadian Clean Fuel Technology Company and Former CEO with FCPA Violations
The Securities and Exchange Commission today announced that Westport Fuels Systems, Inc., a Canadian clean fuel technology company headquartered in Vancouver, Canada, and its former chief executive officer, Nancy Gougarty, of Leesville, South Carolina, have agreed to pay more than $4.1 million to resolve charges that they violated the Foreign Corrupt Practices Act (FCPA) by paying bribes to a foreign government official in China.

Automaker to Pay $40 Million for Misleading Investors
The Securities and Exchange Commission today charged Michigan-based automaker FCA US LLC, and its parent company, Fiat Chrysler Automobiles N.V., for misleading investors about the number of new vehicles sold each month to customers in the United States. FCA US and Fiat Chrysler Automobiles have agreed to pay $40 million to settle the charges.

Herbalife to Pay $20 Million for Misleading Investors
The Securities and Exchange Commission today announced that Herbalife Nutrition Ltd.—a direct selling company with operations in over 90 countries— has agreed to pay $20 million to settle charges that it made false and misleading statements about its China business model in numerous U.S. regulatory filings over a six-year period.

Mylan to Pay $30 Million for Disclosure and Accounting Failure Relating to EpiPen
The Securities and Exchange Commission today announced charges against Pennsylvania-based pharmaceutical company Mylan N.V. for accounting and disclosure failures relating to a Department of Justice (DOJ) probe into whether Mylan overcharged Medicaid by hundreds of millions of dollars for EpiPen, its largest revenue and profit generating product. Mylan agreed to pay $30 million to settle the SEC’s charges.

SEC Updates List of Firms Using Inaccurate Information to Solicit Investors
The Securities and Exchange Commission today announced that it updated its list of unregistered entities that use misleading information to solicit primarily non-U.S. investors, adding 23 soliciting entities, two impersonators of genuine firms, and 12 bogus regulators.

FCA confirms new rules for certain open-ended funds investing in inherently illiquid assets
The Financial Conduct Authority (FCA) has today confirmed new rules which apply to certain types of open-ended fund investing in inherently illiquid assets such as property. The new rules apply to these funds, known as non-UCITS retail schemes (NURSs), but will not apply to other types of fund, such as UCITS, which are already subject to restrictions relating to such assets.

FCA fines Prudential £23,875,000 for failures relating to non-advised annuities sales
The Financial Conduct Authority (FCA) has today fined The Prudential Assurance Company Limited (Prudential) £23,875,000 for failures related to non-advised sales of annuities.

US adopts ETF framework to speed up time to market; The SEC has voted to adopt a new framework to modernise rules for ETFs and reduce barriers to entry in the marketplace.
Hayley McDowell – The Trade
Exchange-traded funds (ETFs) have been given a boost in the US after the markets regulator voted to adopt new rules that will speed up the time it takes to bring products to market.

UK financial watchdog FCA widens checks on property funds; Outflows hit record levels on no-deal jitters, fuelling fear of liquidity crunch
Siobhan Riding, Judith Evans, Caroline Binham and Owen Walker – FT
The UK’s financial regulator has increased its checks on property funds as it steps up its no-deal Brexit contingency planning amid fears of another liquidity crunch in the sector.

Investing and Trading

European investors target lavish executive pay in US; Tougher stance taken by EU funds on S&P 500 remuneration awards than American peers
Chris Flood – FT
Pay deals for top company bosses in the US face mounting opposition from some of Europe’s most influential investors even as their large American counterparts continue to provide solid support for exorbitant executive remuneration packages.

IPO crashes send chills from Wall Street to Silicon Valley; Broader reset expected in valuations for highly-touted start-ups
Richard Waters and Richard Henderson – FT
A series of IPO crashes, as investors turned their backs on some of Silicon Valley’s most prized companies, has prompted forecasts of a broader reset in valuations after the long tech boom.

Saudi strikes and spiking oil price raise spectre of ‘black swan’; Investors worry about future attacks against oil facilities
Siobhan Riding – FT
The twists and turns of the US-China trade war and Britain’s torturous departure from the EU have consumed asset managers in recent years as they fretted over the possible impact on their portfolios.

Thomas Cook’s collapse shows perils of debt derivatives; Credit default swaps added angst to fraught attempts to rescue UK travel group
Robert Smith – FT
Thomas Cook’s collapse is unpleasant for just about everyone involved: the UK travel agent’s more than 20,000 employees, the 150,000 holidaymakers stranded abroad, and the shareholders and lenders facing severe losses.

Banks’ demand for short-term cash wanes in Fed’s latest repo operation
Joe Rennison – FT
Bank’s demand for short-term cash from the Federal Reserve Bank of New York waned on Friday, with just $49bn in two-week loans requested of the $60bn on offer.

When risky zero-sum behaviours prop-up growth
Izabella Kaminska
In an extended research note out this month entitled Bubble or Nothing, David Levy of the Jerome Levy Forecasting Centre sets out to prove that the modern investment tendency of putting balance sheet growth above all else has added untold risk to the global economy. And we don’t really appreciate quite how so.

Wall Street Falls in Love Again With Companies Loaded Up on Debt
Sarah Ponczek and Molly Smith – Bloomberg
It’s a victory of sorts for the Fed as officials cut rates; Inexpensive financing will help most indebted companies
The Federal Reserve’s new round of interest-rate reductions just might be working. At least, that’s what one obscure, but key, stock market indicator suggests.

Shale Boom Is Slowing Just When the World Needs Oil Most; U.S. oil production grew less than 1% in early 2019 as operational issues weighed on shale companies
Christopher M. Matthews and Rebecca Elliott – WSJ
The American shale boom is slowing as innovation plateaus—and just when shale’s importance in global markets has reached new highs following an attack on the heart of Saudi Arabia’s oil infrastructure.

Investors Seek Middle Ground in Convertible Securities; Hybrid between stocks and bonds attracts a following in uncertain markets
Sam Goldfarb – WSJ
Concerned that the long bull run in stocks may have run its course yet tired of high-yield bonds that don’t live up to their name, more investors are turning to convertible bonds.

Mohammed bin Salman warns of skyrocketing oil prices; Saudi crown prince calls for action against Iran to prevent damage to world economy
James Politi and Andrew England – FT
Mohammed bin Salman, the Crown Prince of Saudi Arabia, has warned that oil prices could skyrocket to “unimaginably high numbers” due to tensions with Iran, offering a grim prognosis for the world economy if Riyadh’s dispute with Tehran ramps up any further.

Why the next global financial crisis may dwarf the one in 2008
Anthony Rowley – South China Morning Post
Big risks today include the nonbank financial sector and high corporate debt. There are more ‘zombie companies’ now than at any time during the 2008 crisis, while huge dollar liabilities in banks outside the US and emerging market indebtedness add to the dangers

Businesses Finally Think Big About Cutting Emissions; The private sector now has the scientific framework to help prevent warming beyond 2 degrees Celsius.
Nathaniel Bullard and Kyle Harrison – Bloomberg
Amazon.com Inc.’s recent announcement that its operations will be carbon neutral by 2040 stands out for its sheer size. But Amazon is only one among dozens of companies that announced new carbon-intensity benchmarks ahead of this week’s United Nations General Assembly.


Credit Suisse board set to back CEO Thiam over spying affair; Directors assured by support from top shareholders including Harris Associates
David Crow and Sam Jones – FT
Directors at Credit Suisse are closing ranks around chief executive Tidjane Thiam as the Swiss bank attempts to draw a line under a corporate espionage scandal.

Woodford on the brink of exit as trust results loom; Growing chorus to sack Patient Capital manager after latest writedowns
Owen Walker – FT
Neil Woodford’s role as manager of the investment trust that bears his name looks ever more perilous following a spate of damaging writedowns and simmering tensions between Britain’s best-known stockpicker and the fund’s independent board.

Iqbal Khan, a bold banker who took on his boss; The man regarded as the heir apparent at Credit Suisse has been embroiled in a lurid feud
Sam Jones and Stephen Morris – FT
It takes a certain kind of person to move in next door to their boss. Today the biggest question in Swiss banking is just what kind of person Iqbal Khan is.

Woodford blames underperformance on fund suspension
Owen Walker – FT
Neil Woodford has blamed the poor performance of his remaining open investment fund partly on the suspension of his flagship Equity Income vehicle, which sparked Britain’s biggest investment crisis for a decade.

Woodford investment trust considering stockpicker’s position; Woodford Patient Capital Trust in talks with rival investment managers
Owen Walker – FT
The board of Neil Woodford’s investment trust is holding talks with potential new managers, as it weighs removing Britain’s best-known stockpicker from the listed fund that bears his name.

UK regulator calls for clearer warnings in wake of Woodford case; Equity Income fund investors were unaware of their ‘liquidity risk’ exposure, FCA says
Siobhan Riding – FT
The UK regulator has called for investors to be given clearer warnings about the liquidity risks posed by funds investing in hard-to-sell assets following the suspension of Neil Woodford’s flagship fund.

Repo Turmoil Lets Banks Pump Low-Risk Profits
Yalman Onaran and Shahien Nasiripour – Bloomberg
New rules and years of calm left lenders reluctant to rush in; Now, as they relearn to stomach volatility, they’re profiting
The turmoil that’s gripped repo markets this month, leaving hedge funds and small broker-dealers scrambling for cash, has turned into a stream of low-risk profits for some of the world’s biggest banks.

Goldman Sachs Tries Banking for the Masses. It’s Been a Struggle; So far, Goldman has lost $1.3 billion on its consumer bank—and its makeover is challenging the firm’s identity as a titan of high finance
Liz Hoffman and Peter Rudegeair – WSJ
Two dozen of Goldman Sachs Group Inc. GS 0.36% ‘s most profitable traders were kicked off their desk last year to make room for the swelling ranks of the firm’s Main Street lending arm.

HSBC flips crime-spotting tool to scope new business
Lawrence White – Reuters
British bank HSBC (HSBA.L) has converted a financial crime-spotting algorithm it was forced to build in the wake of a money-laundering scandal into one that can scope out new business opportunities, bank executives said.

Penny-Pinching Funds Are Going to Get Even Cheaper; Index funds that are merely cheap aren’t good enough for retirement investors, contend several recent lawsuits
Jason Zweig – WSJ
Index funds cost next to nothing. That’s still too much. So says a class-action lawsuit filed this month against H-E-B LP, which alleges that the San Antonio-based company has been overpaying for index funds in its employees’ retirement plan. Annual expenses on some of those market-matching funds run between 0.11% and 0.14%—but should instead be as low as 0.015%, the lawsuit argues.


China Vows to Continue Opening Financial Markets
Bloomberg News
China said it would continue to open up its financial markets and encourage foreign investment amid reports the Trump administration is considering restrictions on fund flows to China.

China Markets to Test Risk of Most Extreme U.S. Threat Yet
Chris Anstey – Bloomberg
Citigroup Inc. has termed it the most extreme potential American move against China in the escalating rivalry between the world’s largest two economies: restricting access to U.S. finance.

China Pledged to Give Foreign Financial Firms More Access. How’s That Going?
Bloomberg News
While the trade war was tangling the flow of goods between the U.S. and China, the Chinese government was opening doors in another arena: Inviting more foreign banks, insurance providers and other financial services companies to set up shop. China has also been making it easier for foreigners to buy stocks and bonds — something many fund managers are required to do now that major index compilers are including Chinese assets in their gauges. The top financial regulators in Beijing say the liberalization will press ahead. The take-up by foreign companies and investors is gathering pace but the going is tough.

South Korea Sold Net $3.8 Billion to Intervene in Currency in First Half of 2019
Hooyeon Kim – Bloomberg
South Korean authorities sold a net $3.8 billion in the first six months of the year to intervene in the currency market, compared with $187 million in the second half of 2018, according to central bank data.


Boris Johnson defiant on EU departure date; Prime minister hints he could encourage another member state to block Article 50 extension
Sebastian Payne and Sam Fleming – FT
Boris Johnson has remained defiant he will not delay the UK’s departure from the EU, giving his strongest hint to date that he might provoke another EU member state into blocking a further Brexit delay.

In Westminster, MPs felt Brexit fury. At home they see hate rising
Mark Townsend – The Guardian
Shortly after 1pm on Friday, detectives left the ground-floor offices of the Labour MP for Dewsbury. After talking to Paula Sherriff for more than an hour, West Yorkshire police launched three separate investigations into death threats made against her. All are linked to the fallout from Sherriff’s exchange with Boris Johnson in the Commons on Wednesday night.

The Mythical Bets On No-Deal Brexit
Frances Coppola – Forbes
It’s very hard to correct things that go viral, however wrong they are. Nowhere is that more true than in the febrile atmosphere of pre-Brexit Britain, where allegations that the new Prime Minister is backed by “speculators who have bet billions on a hard Brexit” have been made by, among others, the U.K.’s former Chancellor of the Exchequer, Phillip Hammond, and the Prime Minister’s own sister.

With a Month to Go, Here’s How EU Rates Brexit Deal Chances
Ian Wishart – Bloomberg
It’s endgame time (again) on Brexit. A month before the U.K.’s scheduled departure, it seems to be anyone’s guess whether Prime Minister Boris Johnson will get a revised divorce deal with the European Union, ask for another postponement or defy Parliament and leave without an agreement.

Boris Johnson’s own party no longer believes he will keep his promise to deliver Brexit by October 31
Adam Bienkov – Business Insider
Boris Johnson’s Conservative Party are meeting for their annual conference in Manchester as Britain heads towards the Brexit deadline of October 31. However, a majority of party members no longer believe the prime minister will fulfill his promise to take the UK out fo the EU by the end of October “do or die.” Johnson’s strategy of forcing a no-deal Brexit, if necessary, looks likely to fail after opposition members of Parliament passed a law instructing him to request an extension if no deal is agreed.

Brexit crisis pushes UK business expectations to weakest since 2011: CBI
Andy Bruce, Daniel Wallis – Reuters
Pessimism in British businesses rose in the three months to September to the highest level in almost eight years, as the escalating Brexit crisis weighed heavily on companies, a survey showed on Sunday. The Confederation of British Industry’s (CBI) gauge of private sector activity held steady at -6% in the three months to September, the same as in the period to August.

DUP delivers blow to Johnson plan for Brexit backstop
George Parker, Sebastian Payne, and Sam Fleming – FT
Boris Johnson’s plan to offer a compromise Brexit deal to Brussels this week suffered a setback after Democratic Unionist party leader Arlene Foster warned that she was not prepared to see new border checks in the Irish Sea as part of any deal. Mrs Foster told a fringe meeting at the Conservative conference she would not accept extra regulatory checks between Northern Ireland and the mainland — beyond health inspections for animals and food — or any customs border in the Irish Sea.

Tory conference: Sajid Javid promises ‘significant response’ to no-deal Brexit
The chancellor has promised “a significant economic policy response” in the event of a no-deal Brexit. Sajid Javid did not give details, but the BBC’s Norman Smith said it could mean tax cuts and reduced interest rates to help mitigate the impact. Mr Javid is setting out plans for infrastructure investment on the second day of the Tory conference. But the event has so far been overshadowed by claims Boris Johnson touched a female journalist’s thigh.


Divorce Is Costly. Divorce in Retirement Is Costly and Complicated.
Neal Templin – Barron’s
My wife and I have made some big financial decisions over our 38-year marriage, but the most consequential was staying together

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