LSE sells French clearing unit to Euronext for EUR510m; Basel postpones bank reform vote amid policy differences; Anshu Jain to Join Cantor Fitzgerald as President

Jan 3, 2017

First Read

Ringing In New Year’s Resolutions
Jim Kharouf, JLN

Some years are more important than others. The trick is guessing what’s going to happen ahead of those. Welcome to 2017, the year of Trump, the true start of Brexit, the end of the trading floors in some places and the beginning of a new one in Chicago at the Boston Options Exchange. It will be a year for regulatory change – again, with a new administration in the White House. It could be a year of extreme volatility due to the geopolitical landscape around the world, but we’ve heard that before as well.

It could be the year of more exchange consolidation and IPOs as well. Let’s see if Deutsche Boerse and LSE Group can finally get the deal done. CBOE and Bats already have a deal done, but we’ll see how fast it all happens. There is also the curious sale of the Chicago Stock Exchange to the Chinese-based Chongqing Casin Enterprise Group. Meanwhile, the National Stock Exchange of India is heading toward an IPO while the India International Exchange gets off the ground.

This will be a year where regulation, if you are not tired of it already, will be facing a Republican-led Dodd-Frank Rollback. This seems less like a Walmart price rollback and more like a “Yeah, that? We’re not doing that” kind of rollback. What will be interesting to watch is what impact it may have on the careful harmonization of rules that have been put in place already. Might we see the regulatory arbitrage everyone was so concerned about?

This may be the year where interest rates begin to matter – or at least make a difference in the US economy and the markets as well. Futures commission merchants have been waiting, and waiting and waiting for something to happen there. But markets in general have been frustrated with the heavy hand of central banks. Could this be the year they begin the return to normalcy?

Market participants are also heavily focused on technology, which is no different than any other year. But will this be the year where blockchain, or AI or some other technology breakthrough is truly disruptive?

Those are just a few of the items we’re keeping an eye on. What’s on your radar?


It’s the ‘Most Volatile’ Year for Political Risk Since WWII, Eurasia Group Says
by Rainer Buergin – Bloomberg
Analysts predict highest volatility level since World War II; Weakened Merkel, China-U.S. tension, Turkey drift cited
U.S. unilateralism under Donald Trump, China’s growing assertiveness and a weakened German Chancellor Angela Merkel are helping make 2017 the “most volatile” year for political risk since World War II, according to Eurasia Group.

***** Welcome to 2017!


Mutual Funds Aren’t an Option at tastyworks, an Online Broker
Theresa W. Carey – Barron’s
Everything investors are being told today is wrong, says Tom Sosnoff, an entrepreneur and options trader. For starters, he bristles at the popularity of passive investing, calling for investors to become more involved with their portfolios, not less. Mutual funds? Not transparent enough. Robo-advisors? That’s akin to putting your money in “jail,” allowing it to languish for years without attention. Even beginning investors should start with stockpicking and options strategies. And Sosnoff’s latest effort encourages them to do just that.


Paris Eyes Luring 20,000 Bankers From London Amid Brexit Rupture
by Gavin Finch and John Detrixhe – Bloomberg
French lobby group sees banks ‘accelerating’ their planning; Europlace will argue Paris has skills, markets to draw talent
Paris could lure as many as 20,000 workers from Britain’s finance industry with the exodus potentially starting within weeks as the U.K. begins its withdrawal from the European Union, according to Europlace, the French capital’s lobby group.

****** I was big on Paris before Brexit, but that is just me.


Tradovate Teams Up with Order Flow Analytics to Make OFA Tools Available on its Cloud-Based Platform
Tradovate, LLC, an online brokerage firm for active, self-directed futures traders, and Order Flow Analytics (OFA), a data visualization company, announced today that Tradovate has integrated OFA’s analytical and algorithmic trading tools into its cloud-based platform. The move enables thousands of current OFA clients to transform their experience with the products, providing new means of access, a higher quality data delivery and the potential for significant cost savings.
***** Here is our video of Rick Tomsic of Tradovate from our 2015 MarketsWiki Education World of Opportunity series.


Trump Suggests Chicago May Need Federal Help to Reduce Murder
by Kevin Cirilli – Bloomberg
Chicago had 762 killings in 2016 and 4,331 shooting victims; Trump also takes aim at media for wrongly predicting his loss
President-elect Donald Trump chided Chicago Mayor Rahm Emanuel over the city’s 2016 homicide rate, saying he should request assistance from the federal government if he can’t reduce the crime.

***** There is a supply-side economics problem in Chicago. The problem is the excessive supply of guns.


Author of Unflattering Biography Says Donald Trump Threw Him Off Golf Course
Harry Hurt III, author of an unvarnished 1993 biography of Donald Trump, says the now-president-elect booted him from the Trump International golf course after calling the biographer’s presence there “inappropriate.”

***** Koch brother David Koch and former FIA President John Damgard were part of the foursome that included Harry Hurt.


Thursday’s Top Three
The last top-read story of 2016 was a throwback from our Top 10 stories of 2016 list – Sarah Rudolph’s piece about Billy Assimos, the Face of Ceres. The second was similarly reflective in nature, the Wall Street Journal’s Nymex Trading Pits Shut Down, Marking End of an Era. (There’s another story about the NYMEX pits in Exchanges today if you’re interested.) And we had a tie for third – Tullett Prebon Completes $1.6 Billion Deal for ICAP Brokers and Joseph Stiglitz’s The age of Donald Trump share the honors.


Lead Stories

LSE sells French clearing unit to Euronext for EUR510m; Deal designed to allay antitrust concerns over Deutsche Börse merger
by: Hannah Murphy and Philip Stafford – FT
The London Stock Exchange Group has agreed to sell its French clearing arm to rival Euronext for EUR510m in cash, in a move it hopes will ease the regulatory path to its planned merger with Deutsche Börse.

Basel postpones bank reform vote amid policy differences; Global financial supervisors fail to agree on latest capital rules
by: Caroline Binham, Financial Regulation Correspondent – FT
European banks have won a reprieve from new post-crisis reforms tha?t they feared would disproportionately hit their balance sheets.

Anshu Jain to Join Cantor Fitzgerald as President
Landon Thomas Jr. – NY Times
Anshu Jain, who was forced to step down from the top job at Deutsche Bank after a series of regulatory mishaps, will join the private trading firm Cantor Fitzgerald this month as group president. The appointment, which was announced in an internal email on New Year’s Day by Cantor’s chairman and chief executive, Howard Lutnick, comes 18 months after Mr. Jain resigned under pressure from his job as co-chief executive of Germany’s largest bank as concerns mounted over Deutsche’s financial health and the many investigations it was facing.

Swiss banking secrecy nears end following new tax rules
Switzerland’s reputation as a secretive tax haven looks set to end following the introduction of rules over sharing bank account data. The International Convention on the Automatic Exchange of Banking Information (AEOI) entered into force on January 1, pulling Switzerland in to line with international standards on taxation.

Deutsche Bank Flew and Fell. Some Paid a High Price.
Landon Thomas Jr. – NY Times
In 2005, Deutsche Bank, then a powerhouse in the selling of risky derivatives on a global scale, was minting money. To mark the moment, the bank’s profit engine — its global markets division — commissioned a book about itself. The remembrance would celebrate how Deutsche Bank, once a sleepy lender to German car companies, had transformed itself in just 10 years into a force in financial engineering, selling interest-rate swaps, credit derivatives and opaque tax-slashing investment vehicles to the world’s wealthy elite.

The Champions of the 401(k) Lament the Revolution They Started; The dominant vehicle for retirement savings has fallen short of its early backers’ rosy expectations
Timothy W. Martin – WSJ
Herbert Whitehouse was one of the first in the U.S. to suggest workers use a 401(k). His hope in 1981 was that the retirement-savings plan would supplement a company pension that guaranteed payouts for life.

Scottish currency pioneers consider life after the pound
Mure Dickie – FT
Kenny Low pours a couple of brimming glasses of Stone of Destiny lager and sets them down on the dark wood counter of The Arlington Bar in Glasgow. “That will be four-and-a-half thousand Scotcoin, sir,” he says. Welcome to the world of alternative money, a branch of economic life that has drawn unprecedented interest in Scotland since currency policy became a central issue of the 2014 independence referendum.

ETFs globally gather record cash in 2016 -BlackRock
Trevor Hunnicutt – Reuters
Investors funneled $375 billion into exchange-traded funds in 2016, investment manager BlackRock Inc said on Tuesday, a global record that came as investors looked to cut costs.

Foreign fund managers struggle for China foothold; Curbs on capital outflows add to challenge for fund managers in the $1.3tn market
Gabriel Wildau in Shanghai and Jamie Smyth in Sydney – FT
Foreign asset managers are putting on a brave face as Chinese regulators throw them crumbs in the form of incremental market opening, even as a clampdown on capital outflow dims their prospects.

China Gets Strict on Forex Transactions to Stop Money Exiting Abroad
Bloomberg News
Regulator targets outflows for property, money laundering; Bank customers must pledge to stick to currency rules
At risk of capital flight, China marked the new year with extra requirements for citizens converting yuan into foreign currencies.


‘Bad Boys of Brexit’ headed for screen, says Farage associate
Estelle Shirbon – Reuters
Three film production companies including Netflix are interested in making a warts-and-all screen dramatization of Nigel Farage’s insurgent Brexit campaign, according to an associate of Farage.

Brexit: banks consider whether to start moving business out of UK; Announcements expected soon on whether to implement contingency plans for access to remaining EU states
Jill Treanor City editor and Lisa O’Carroll – The Guardian
Brexit could have an impact on the City in the coming months as banks decide whether to implement contingency plans to ensure they retain access to the remaining 27 EU member states by moving business out of the UK.

JP Morgan chief: Jobs could leave London sooner if UK fails to grab Brexit transition deal
Ben Martin, banking correspondent – Telegraph
The boss of JP Morgan has warned the Wall Street giant could start to move jobs out of London faster than expected if the Government does not quickly agree a deal with the EU on a transition period to stabilise financial markets.

Exchanges, OTC and Clearing

LSE sells clearing business to Euronext in bid to win merger approval
By Andreas Kroner – Reuters
London Stock Exchange Group (LSE.L) has agreed to sell its French clearing business to Euronext (ENX.PA) for 510 million euros ($534 million), as it seeks to win regulatory approval for its proposed merger with Deutsche Boerse (DB1Gn.DE).

For Whom the (Trading) Bell Tolls
Streetwise Professor
It tolls for the NYMEX floor, which went dark for the final time with the close of trading today. It follows all the other New York futures exchange floors which ICE closed in 2012. This leaves the CME and CBOE floors in Chicago, and the NYSE floor, all of which are shadows of shadows of their former selves. Next week I will participate in a conference in Chicago. I’ll be talking about clearing, but one of the other speakers will discuss regulating latency arbitrage in the electronic markets that displaced the floors.

Cash markets achieve third strongest year since 2010
Deutsche Borse
Deutsche Borse cash markets recorded a total of EUR1.38 trillion in turnover in 2016, the third strongest year since 2010 (2015: EUR1.64 trillion). Thereof, EUR1.26 trillion were attributable to the Xetra venue, EUR43.9 billion to Börse Frankfurt and EUR71.0 billion to Tradegate Exchange.

Euronext makes irrevocable cash offer to acquire LCH.Clearnet SA
Euronext, the leading pan-European exchange in the Eurozone, has signed a binding offer and been granted exclusivity to acquire 100% of the share capital and voting rights of Clearnet. Clearnet is a leading, multi-asset, Eurozone-based Central Counterparty (CCP) serving Euronext’s markets, pan-European electronic trading platforms and OTC markets, with gross income of EUR137m and profit after tax of EUR36m in 2015, and shareholders’ equity of EUR301m[2]. Together, Euronext and Clearnet will deliver a powerful multi-asset CCP based in the Eurozone.

Euronext Offers to Buy Unit of London Stock Exchange for $536 Million
Chad Bray – NY Times
Euronext said on Tuesday that it had offered to buy the French arm of the London Stock Exchange Group’s majority-owned clearing business, as the British company looks to win regulatory approval for a merger with Deutsche Börse.

Boerse Stuttgart generates 2016 turnover of over EUR 80.1 billion
Boerse Stuttgart
Brisk trading in equities and exchange-traded products // Boerse Stuttgart remains market leader for securitised derivatives and for corporate bonds in Germany

Annual Trading Statistics 2016
Nasdaq Nordic today publishes annual trade statistics for the Nordic and Baltic markets.

DGCX Rounds Off a Record-Breaking Year
Dubai Gold and Commodities Exchange (DGCX), the region’s largest and most diversified derivatives bourse, closed the year on a high note, recording growth of 36% over 2015. In 2016, the Exchange reached its highest annual volume traded with an aggregate of 19.7 Million contracts, valued at US $ 439.5 Billion.


How Trump’s Regulation Skeptic Helps Wall Street Navigate the Rules
Dave Michaels and Andrew Ackerman – WSJ
Paul Atkins is Wall Street’s regulation whisperer. The man tapped by President-elect Donald Trump to oversee his early financial deregulation strategy has spent the past seven years counseling clients how to influence regulators—sometimes charging $1,200 per hour for the advice, according to people familiar with the matter.

How Trumponomics will set the pace for market uncertainty in 2017; Investors focus on four macro influences that will determine returns and volatility
Mohamed El-Erian – FT
In the last two months of the year, financial markets responded to the unanticipated election of Donald Trump in a textbook fashion — not only at the asset class level, with the major moves up in stocks and government yields, but also within asset classes as financials and the dollar surged.

The economy isn’t going to do what Trump wants, banks say
Kevin Dugan – NY Post
Wall Street is not convinced the incoming Trump administration will immediately reignite the US economy’s afterburners. While President-elect Donald Trump is promising to increase US gross domestic profit to 5 percent to 6 percent from its current 2 percent level, Wall Street banks are forecasting that, at least in its first year, a Trump White House will fall short of its goal.

An Open Letter to President-elect Donald J. Trump on Financial Reform
Financial InterGroup
Financial InterGroup’s Research Paper “Trumpeting in the New Era of a Lean Technology-Driven Financial System”

Investing and Trading

Hedge Funds Bet the Commodity Revival Will Keep Going in 2017
Joe Deaux and Megan Durisin – Bloomberg
Commodities had a resurgence in 2016, with the first annual advance since 2010. The gains will continue next year for many of the markets, at least that’s what hedge funds are signaling.

Re-Energized Dollar Looms Over the Rest of the World
Ira Iosebashvili – WSJ
On Wall Street, the rising dollar has been one of the most visible signals of growing optimism in the U.S. economy. For many other countries, it spells trouble. Most analysts expect the U.S. currency to strengthen in 2017, extending a gain that has boosted the value of the dollar by more than one-third since the U.S. credit downgrade in 2011.

Bitcoin hits milestone of $1,000 as 2017 begins
Barbara Kollmeyer – MarketWatch
As 2017 kicked off, and with the bulk of other financial markets closed, Bitcoin took the stage, hitting a fresh milestone atop $1,000. A single Bitcoin US:BTCUSD was trading at $1,025 Monday morning, according to pricing data from Coin Market Cap. Other big exchanges such as Bitfinex, Kraken and Coinbsae showed the cryptocurrency topped $1,000 late Sunday, according to a report from

To Be a Great Investor, Worry More About Being Wrong Than Right
Jason Zweig – WSJ
If all you learn from the stunning surprises of 2016 is that the unexpected will happen, you haven’t learned nearly enough. Great investors like Warren Buffett practice trying to disprove their investing assumptions to determine whether they are correct. This past year showed how tightly most of us cling to our preconceived notions, how fiercely we resist evidence that we might be wrong and how adept we are at deluding ourselves into thinking we were right all along.


Why German Banks Took Stand Against Capital Floors Made in Basel
Yalman Onaran – Bloomberg
Deutsche Bank, Commerzbank would be among most affected; ‘Setting floors is not the right way,’ says one lobbyist
No wonder Germany is on the warpath against a proposed global standard for how banks calculate the capital they need: Its largest lenders rank among the worst when it comes to how they assess risk.

Deutsche Bank chairman rules out European merger: Frankfurter Allgemeine
Deutsche Bank (DBKGn.DE) Chairman Paul Achleitner has ruled out a European merger or a state bailout after the lender’s mortgage settlement with the U.S. Department of Justice, Frankfurter Allgemeine Sonntagszeitung reported.

For Financials, Expectations Are Already High
John Carney – WSJ
The dual prospects of a Donald Trump presidency and further interest-rate increases lifted banks’ shares in the closing weeks of 2016. This year will reveal whether a new economic order will actually emerge, and boost banks’ businesses with it. The outcome is crucial for both broader markets and the nation’s outlook for growth. Financial stocks are a big part of the S&P 500, and banks’ ability and willingness to lend could prove critical to the business boom the Trump administration aims to generate.

Cashless society makes bank statements longer
Martin Arnold, Claer Barrett and Emma Dunkley in London – Financial Times
The traditional paper statement is growing ever longer, complain banks, because they now have to log millions of extra payments from customers tapping their contactless cards. The rapid growth of contactless “tap and pay” and online card transactions means greater volumes of low-value purchases are being recorded line-by-line on bank statements.

Central Banks Loosening Their Grip on Markets
Jon Sindreu – WSJ
For markets, the era of the central bank may be starting to draw to a close. In 2017, tightening monetary policy and brighter economic fundamentals could ease markets from the grip of the central banks whose policy in recent years has dominated trading in bonds, shares and other assets.

Anshu Jain Joins Cantor Fitzgerald as President; Former Deutsche Bank co-CEO to oversee companywide strategy and expansion efforts
Jenny Strasburg – WSJ
Anshu Jain has landed a top job at New York-based Cantor Fitzgerald LP a year and a half after being replaced as co-chief executive officer of Deutsche Bank AG.

Indonesia Cuts Ties With J.P. Morgan Over Downgrade; Equities downgrade on Trump’s election could destabilize country’s financial system, Indonesia officials say
Ben Otto and I Made Sentana – WSJ
Indonesia’s government has cut its business partnerships with J.P. Morgan Chase & Co., faulting a recent equities downgrade by the U.S. bank after Donald Trump’s election win that officials here say could destabilize the nation’s financial system.

US bank faces profits hit from higher interest rates; Most lenders should benefit from higher rates, but NYCB shows there are exceptions
by: Alistair Gray in New York – FT
New York Community Bank, one of the largest US lenders, is facing a potential hit to annual profits from higher interest rates.


Chinese Access to U.S. Semiconductor Industry May Be Curbed; Recommendations loom on bolstering protection of industry deemed critical to national security
Ian Talley – WSJ
The Obama administration is finalizing a study that could lead to restrictions on Chinese investment in the U.S. semiconductor sector.

Battling the Tyranny of Big Data
By Mark Buchanan – Bloomberg
The data scientists writing the algorithms that drive giants like Alphabet Inc. (Google) and Facebook Inc. are today’s technology wizards, and companies and governments increasingly use their creations — often in secret and with little oversight — to do everything from hiring and firing employees to identifying likely suspects for police monitoring. But there’s a dark side — and computer scientists warn that we’ll need a lot more transparency if the big-data revolution is really to work for all of us.


US Sen. Warren seeks to pull pot shops out of banking limbo
Associated Press via Fox Business
As more marijuana shops take root in states that have legalized the drug, they’re struggling with a lack of access to the kind of routine banking services other businesses take for granted.

Legal Sparring Continues in Bitcoin User’s Battle with IRS Tax Sweep
David Z Morris – Fortune
In a strange twist, Coindesk reports that the IRS has, somewhat indirectly, removed one target from its broad request for data about U.S. users of the Bitcoin exchange Coinbase. It no longer wants data about Jeffrey Berns, a lawyer who also happens to be fighting the IRS’s “John Doe” request in court.

NFA permanently bars Eden Prairie, Minn., introducing broker Vincent Capital Group from membership
National Futures Association (NFA) has permanently barred Eden Prairie, Minn., introducing broker Vincent Capital Group LLC (Vincent Capital) from membership and from acting as a principal of an NFA Member.

Hong Kong’s Securities And Futures Commission Reprimands And fines MIS Services Limited (Formerly Known As Standard Chartered Investment Services Limited) $3 Million For Regulatory Breaches
The Securities and Futures Commission (SFC) has reprimanded and fined MIS Services Limited (formerly known as Standard Chartered Investment Services Limited) (SCIS) $3 million for its failure to comply with regulatory requirements under the SFC Code on MPF Products (MPF Code) and Fund Manager Code of Conduct (Notes 1 & 2).

Standard Chartered fined $3m for hiring inexperienced investment personnel; Standard Chartered Investment Services in Hong Kong failed to ensure key personnel met experience requirements.
By Hayley McDowell – The Trade
Standard Chartered Investment Services has been slapped with a fine worth $3 million in Hong Kong for hiring staff with insufficient investment experience.


China Tries to Recalibrate Credit
Rachel Rosenthal – WSJ
At the top of regulators’ agenda in China for 2017 is a campaign to wean the nation’s sprawling financial system off of cheap borrowing and rising credit levels. Years of easy money have helped fuel growth, but also have sparked a worrisome surge in asset prices and other financial risks.

Renminbi faces confidence test as Chinese FX purchase quota resets
Tom Mitchell – Financial Times
Chinese residents hoping to cash out of the renminbi will face a great wall of paperwork on Tuesday in a test of confidence for the currency as the annual quota for individuals’ foreign exchange purchases resets. With individuals in China allowed to purchase up to $50,000 worth of foreign exchange each calendar year, observers will be watching for signs of a rush to use up their limit as banks reopen after the new year holiday.

China’s brokerages told to manage reputation risk as scandals spread
The Securities Association of China (SAC) has told brokerages to strengthen their risk management regimes to include reputation risk, SAC said in a statement on its official website late Friday.

China shakes up 2,000-year-old salt monopoly
Tom Hancock – Financial Times
China has moved closer to dismantling a 2,000-year-old government monopoly on table salt by allowing producers to set prices and sell directly to the market. The monopoly has supported successive Chinese rulers from the Han dynasty onwards, and helped pay for the construction of the Great Wall. The Communist party retained the monopoly after taking control of the country in 1949, with courts continuing to imprison private salt sellers even in the past decade.

Chinese investors shrug off forex scrutiny; Market professionals query effectiveness of rules on use of foreign currency purchases
Tom Mitchell – FT
Chinese investors and financial advisers on Tuesday shrugged off stricter government vetting of foreign exchange purchases, saying the measures were unlikely to have a dramatic impact on overseas spending.

Turkish Lira Plunges Most Worldwide to Record Low Per Dollar
by Tugce Ozsoy – Bloomberg
Turkey’s lira weakened the most among major world currencies on Tuesday, falling as much as 1.7 percent to a new record, as the killer of 39 people at an Istanbul nightclub remained at large and inflation accelerated more than estimates in December.


Pork giant Smithfield skips middlemen in grain supply chain
By Michael Hirtzer – Reuters
Smithfield Food Inc, the world’s biggest pork producer, is buying grain elevators and purchasing grain directly from farmers, a move that hits grain handlers already reeling from multiyear lows in corn and soybean prices.

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