John Lothian Newsletter: Exchange-Traded Funds Targeted in EU Shadow-Bank Clampdown; Swaps squad to oversee $300tn US market; Global Exchange Body Weighs New Structure

Mar 20, 2012

ETFs may face tougher regulation as the EU goes after “shadow banks”. The CFTC reveals the creation of two regulatory squads, one to monitor the growing swaps market, and one to look into manipulative market practices (no mention was made whether dated polyester suits would be required as uniforms). Major players at the World Federation of Exchanges are looking at ways to overhaul and update the organization so it can keep up with the fast-changing and occasionally conflicting regulatory structure of financial markets around the world. In today’s top box, John Lothian pens a kind and completely uncoerced tribute to CQG’s Pat Kenny.

Observations – Statistics – Commentary

The Most Interesting Man in the World
By John J. Lothian

Traveling to Budapest for the Association of Futures Markets 15th annual conference was a fun experience for several reasons. On the top of the list was spending time with the most interesting man in the world.
Pat Kenny
During the conference, on Thursday night, there was a gala dinner held at a notable restaurant on a plaza near the hotel where the conference was held. One of the conference attendees, knowledgeable in the ways of conference galas, called the week before and asked the conference secretariat if the gala was a black tie event. He was assured that it was. So he wore his tuxedo to dinner and of course, showed up as the only one in black tie attire. Among friends at the event, we immediately gave him the moniker, “the most interesting man in the world” after the character in the Dos Equis beer commercials.

Read the rest here.


Exchange Consolidation is Dead Says Liquidnet CEO Seth Merrin
Business Wire via Yahoo! Finance
Seth Merrin, founder and CEO of Liquidnet, the global institutional trading network, advised exchange leaders to look for new alternatives over exchange consolidation to compete in today’s global market as part of his opening keynote address at the World Exchange Congress in Istanbul.


R.J. O’Brien Hires Industry Veteran Mark Sachs as Executive Vice President
R.J. O’Brien & Associates (RJO), the nation’s oldest and largest independent futures brokerage and clearing firm, today announced that the firm has hired Mark B. Sachs, 48, as Executive Vice President, Sales & Marketing. Sachs has more than 26 years of futures industry experience, primarily in leadership roles at the former entity widely regarded as the premier futures brokerage for individual investors.


Taming of the traders
By Robin Wigglesworth – Financial Times
A loud roar of approval breaks out across the cavernous, crisp packet-littered trading floor in London’s Canary Wharf, as robust US employment figures flash past the screens, causing a palpable ripple of excitement and giving the rallying market another dose of vim. Traders and salespeople seize their phones, hoping that the news will enliven a quiet Friday, but their hopes are dashed. Despite the positive US data, trading remains relatively muted.


JSE Introduces Wheat Futures Under License From KCBT
Today the Johannesburg Stock Exchange (JSE) confirmed its plans to introduce a new foreign-referenced wheat contract to its existing portfolio of international soft commodities. The cash-settled futures contract, based on hard red winter wheat, will reference the Kansas City Board of Trade’s (KCBT) benchmark settlement prices.


GFI Group Signs Up Summit Energy for Energy Data Agreement
GFI Market Data, a division of GFI Group Inc., announced today that it has entered into an agreement with the US corporation Summit Energy by which GFI will supply Summit with market data on European gas, power, emissions and coal. GFI will provide historical data as well as streaming updates.


Regulators Are Slow to Act on Speed Traders
By Matthew Philips – Bloomberg
It’s been almost two years since the “Flash Crash” of May 2010, when the Dow Jones plummeted 600 points in five minutes, only to gain most of it back over the next 20. In their after-action report (pdf) a few months later, the SEC and CFTC faulted high-frequency traders for exaggerating the sell-off with their rapid-fire trading techniques.


Ex-ETraders plan HK social media trading platform
By Robert Cookson in Hong Kong – Financial Times
A group of former employees of Etrade, the US-based online share trading platform, have established a rival venture in Hong Kong designed to appeal to tech-savvy users of social networks such as Facebook.


[Video] Fictional Thriller Tackles Dangers of High-Frequency Trading

***JM: Favorite part, at 3:30: The author says, “…kind of Frankenstein monster run amok in the world,” and the video cuts to a clip from CNBC showing Jim Cramer.


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Lead Stories

Exchange-Traded Funds Targeted in EU Shadow-Bank Clampdown
By Jim Brunsden – Bloomberg
Exchange-traded funds may face tougher regulation of derivatives trades as part of a European Union clampdown on so-called shadow banks that could pose a threat to the region’s financial system. The European Commission said today that it is examining potential “conflicts of interest” affecting ETFs, a type of fund that tracks an index and whose shares are publicly traded.

Swaps squad to oversee $300tn US market
By Kara Scannell in Miami and Gregory Meyer in New York – Financial Times
A specialised enforcement “squad” has been set up by Washington’s main futures regulator as it increases scrutiny of the $300tn US derivatives market, a top official said. David Meister, director of enforcement at the Commodity Futures Trading Commission, said the swaps squad is one of two created in recent months. The other unit is focusing on manipulative and disruptive trading practices, including possible violations by high-frequency traders, he said at a securities industry conference.

Global Exchange Body Weighs New Structure
The world’s largest financial exchanges are looking to revamp their global trade group in an effort to sharpen the focus provided by a patchwork of often conflicting lobby groups as an unprecedented wave of regulation courses through the industry. Officials from NYSE Euronext, CME Group Inc., Hong Kong Exchanges & Clearing and Nasdaq OMX Group Inc. will discuss Monday a planned restructuring of the World Federation of Exchanges, a 51-year-old group better known for its research activities than for lobbying.

LSE pursues ‘holy grail’ of clearing
By Jeremy Grant – Financial Times
This week London Stock Exchange shareholders and those of LCH.Clearnet, the Anglo-French clearer, will receive a 169-page offer document setting out the terms of the UK bourse’s proposal to acquire a majority stake in the London-based clearing house.

Payouts On Greek CDS Will Be 78.5 Cents On Dollar, Or $2.5B
A two-part auction held Monday to determine compensation owed to holders of insurance-like contracts on Greek sovereign debt fixed payouts at 78.5 cents for every dollar of credit-default swap protection sold, according to the auction’s administrators. That was roughly in line with expectations, experts say, and it translates to $2.5 billion of payouts from protection sellers, based on the net $3.18 billion of Greek CDS contracts currently outstanding, per the latest figures from the Depository Trust & Clearing Corp.

Markit and IntercontinentalExchange Announce Results of Credit Event Auction re: The Hellenic Republic
Markit and IntercontinentalExchange’s Creditex subsidiary today announced the results of a Credit Event Auction conducted to facilitate settlement of credit default swap (CDS) trades referencing The Hellenic Republic’s sovereign debt. This is the second time that a Credit Event Auction has been run to settle credit default swaps (CDS) referencing the debt of a sovereign nation.

Barclays: Two-Thirds of Investors See Another Greece Coming
Nearly two-thirds of institutional investors expect Portugal or Ireland to restructure its public debt, according to a survey by Barclays Capital of 700 institutional clients.

Amid Wall Street Giants, a Firm Thinks Small and Exclusive
When courting new business, Wall Street’s deal makers often point to their long client lists as proof of deep industry knowledge. Three Ocean Partners takes the opposite approach. The three-month-old boutique firm pitches clients on the promise of exclusivity, pledging to take just one account per industry.

Environmental Trading News

EEX to launch new U.N.-backed carbon contracts
The European Energy Exchange (EEX) will launch futures on Emission Reduction Units (ERUs) at the end of April, its first offering of credits issued to emission-reduction projects in industrialised countries under the Kyoto Protocol.

**JK – EEX’s Peter Reitz makes his move.

Korea Set to Try Again on Carbon Trading, Climate Head Says
South Korea, the fastest-growing emitter among rich nations, will try again to pass a bill that sets up emissions trading in 2015 and allows lawmakers to work out details later this year, a top climate official said.

**JK – Korea, Australia, China – now that’d be a market.

Germany’s $263 Billion Renewables Shift Biggest Since War
Chancellor Angela Merkel is planning to build offshore wind farms that will cover an area six times the size of New York City and erect power lines that could stretch from London to Baghdad. The program will cost 200 billion euros ($263 billion), about 8 percent of the country’s gross domestic product in 2011, according to the DIW economic institute in Berlin.

**JK – What is often tagged as folly here in the US, is a real focus in Germany. Who’d of thought Germany as more entrepreneurial than the US?

For more environmental trading news, subscribe to the Environmental Markets version of the John Lothian Newsletter edited by Jim Kharouf.
Visit http://www.jlnenvironmental.comto subscribe.

Exchange & ECN News

Deutsche Boerse To Legally Challenge EU Rejection Of NYSE Merger
Deutsche Boerse AG will legally challenge the European Union’s prohibition of its planned merger with NYSE Euronext at the EU Court in Luxembourg, the German exchange operator said Monday.

Deutsche Börse: Recommendations to the Annual General Meeting for the Election of the Supervisory Board

SIX Securities Services Now Interoperable On Turquoise
The clearing arm of SIX Securities Services, SIX x-clear Ltd, todayannounced that its fully interoperable clearing and risk management services are now available on Turquoise. With this step, the highly recognized clearing house continues its rapid European expansion after becoming interoperable on BATS and Chi-X earlier this year.

Equity Options Exercise On BM&FBOVESPA Turns Over BRL 6.40 Billion

CME Group Clearing Advisory
IMPORTANT: CDX North American Investment Grade Index Series 18

[CBOE] Operational Systems Settings on Volatility Index Product Settlement Days

NASDAQ OMX Riga calendar week 12/2012

NASDAQ OMX Tallinn stock exchange calendar week 12/2012

Mobile Network Group Admitted To NYSE Alternext

Banks, Brokers & Dark Pools

Federal Reserve to fine eight more banks on foreclosure violations
Los Angeles Times
Eight large banks face will be fined by regulators for foreclosure abuses, the Federal Reserve official said Monday.

ICAP hires Mark Newson-Smith Into Metals Business
Press Release

Ex-Goldman trading chief resurfaces at BTIG
Michelle Price – Financial News
The former head of European equity sales and trading at Goldman Sachs, who left the bank over a year ago, has resurfaced to lead the European business of US-based broker BTIG.

Knight Launches Enhanced Sumo Algorithm
PR Newswire via Yahoo! Finance
Knight Capital Group, Inc. today introduced the enhanced Sumo algorithm from Knight Direct for institutions looking to execute blocks with immediacy through focused size discovery.

Goldman Sachs Cuts Staff in Annual Review Process
Goldman Sachs has begun a new round of staff cuts in its trading and investment banking divisions, three sources familiar with the matter said, a sign of continued cutbacks on Wall Street.

Morgan Stanley offers lesson for Blankfein
By Tom Braithwaite – Financial Times
Seven years to the week before Greg Smith offered his blistering criticism of Goldman Sachs, his employer, eight former Morgan Stanley executives and directors went public with their own concerns about that company’s leadership.

Citigroup Sells Shanghai Pudong Bank Stake
FOX Business
Citigroup Inc. (C) said Monday it has sold its entire 2.71% equity stake in Shanghai Pudong Development Bank (600000.SH), which will result in an after-tax gain of approximately US$349 million.

HSBC Brazil Chief Executive Conrado Engel Steps Down
Dow Jones
The chief executive of HSBC’s operations in Brazil, Conrado Engel, will step down from his position at the end of the month, and will leave the bank to take up “new professional challenges,” HSBC said in a statement.

Deutsche Bank’s New Co-CEO Jain Gets EUR9.77 Million Total Compensation For 2011
Dow Jones
Deutsche Bank AG (DB) Tuesday said its top investment banker and designated co-Chief Executive Anshu Jain earned slightly more for 2011, including deferred bonus payments, than outgoing CEO Josef Ackermann despite the weak performance of his division.

Deutsche Bank to Open Gold Vault in London Next Year
Deutsche Bank is to open a new precious metals vault in London next year, joining a growing number of banks and logistics companies seeking to cash in on booming investor demand for physical gold and silver. The FT reports.

BarCap hit in commodities trading jostle
By Javier Blas and Jack Farchy in London – Financial Times
The hierarchy of investment banks in the fiercely competitive arena of commodities trading has been shaken up as Barclays Capital, usually a leader, suffered one of its worst performances in a decade last year while JPMorgan and Deutsche Bank enjoyed a surge in revenues.

Under Pressure From Regulator, MBIA Pays No Bonuses
MBIA did not award bonuses to its top executives in 2011, but only after its regulator pressured the beleaguered bond insurer to withhold the payouts, people briefed on the matter said.

Bank of America Merrill Lynch Adds Physical Cash Concentration to Global Liquidity Platform
Business Wire
Bank of America Merrill Lynch today announced it has expanded its Global Liquidity Platform, a centralized technology hub for liquidity management, to include enhanced global Physical Cash Concentration capabilities.

WaMu Exits Bankruptcy, On Heels Of Lehman
International Business Times
Washington Mutual Inc , one of the biggest corporate casualties of the 2008 financial crisis, on Monday emerged from bankruptcy protection, just two weeks after Lehman Brothers Holdings Inc also emerged from Chapter 11.

Morgan Stanley Declares A Regular Quarterly Dividend on Preferred Stock

CastleOak Securities Continues Steady Expansion With the Hire of Seasoned Veterans in Its Fixed Income and Municipal Divisions
CastleOak Securities, L.P., a leading New York-based boutique investment banking firm, today announced the continued expansion of its Fixed Income and Municipal Sales and Trading and Underwriting divisions with the additions of six industry professionals. In addition, the firm announced the recent opening of its new office in Los Angeles as it extends its presence in order to meet the growing demand of clients.

Regulatory News

The SEC News Digest
The SEC News Digest provides daily information on recent Commission actions, including enforcement proceedings, rule filings, policy statements, and upcoming Commission meetings.

UK Treasury Minister: Financial Regulation Mustn’t Hit Growth
Dow Jones
The wave of new financial regulation sweeping the world must avoid the unintended consequence of stopping economic growth, a U.K. government minister said Monday.

Judge Rakoff’s Wall Street Zombies Arise In FINRA Citi Settlement
Rakoff warned the SEC. He warned Wall Street and the investing public. The recidivist zombies are coming. But no one would listen. Now the living dead are popping up all over.

FINRA Fines Citi International Financial $600,000 and Orders Restitution of $648,000 for Excessive Markups and Markdowns
The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Citi International Financial Services LLC, a subsidiary of Citigroup, Inc., $600,000 and ordered more than $648,000 in restitution and interest to more than 3,600 customers for charging excessive markups and markdowns on corporate and agency bond transactions, and for related supervisory violations.

SEC Issues Risk Alert on Strengthening Practices for Underwriting of Municipal Securities, and Investor Bulletin on Municipal Bonds
The Securities and Exchange Commission today issued a Risk Alert on compliance measures to help broker-dealers fulfill their due-diligence duties when underwriting offerings of municipal securities. The agency also issued an Investor Bulletin to help educate investors about municipal bonds.

Public Statement By SEC Staff: Commission Credits Individual Under Cooperation Initiative By Robert Khuzami, Director, Division Of Enforcement

Remarks At The 2012 Mutual Funds And Investment Management Conference By SEC Commissioner Elisse B. Walte

Address To AICD Leaders’ Edge Luncheon – Challenges Facing ASIC Over The Next Decade

[AMF Canada] March 19, 2012March: Fraud Prevention Month – Monitoring and detection help prevent fraud

ASIC Roadshow for new business names registration service

Investments – Indexes – Managed Futures – Managed Funds

In Greek Crisis, a Little-Known Adviser With Outsize Influence
In unmarked offices here on a dusty block choked with strip clubs and burned-out buildings, several dozen employees of a Wall Street firm spent months poring over bank loan portfolios as Greece struggled with its debt crisis.

Hedge funds ditch Treasuries in droves: report
Reuters via Yahoo! News
A good deal of the recent flight from U.S. Treasuries has been driven by hedge fund selling, according to a Wall Street analyst. Hedge funds and other large investors sold 78 percent of their holdings of 2-year Treasury note futures in the week ended March 13, said Bank of America/Merrill hedge fund analyst Mary Ann Bartels in a report released Monday.

TIG shuts 15-year-old emerging markets hedge fund
Reuters via Yahoo! Finance
TIG Advisors, LLC is liquidating its $210 million global emerging markets hedge fund, according to a letter to investors seen by Reuters, the latest in a growing list of hedge funds to shut shop after their second annual loss in four years.

Ex-Credit Suisse gas trader to close fund at $1 billion-plus
Reuters via Yahoo! Finance
Taylor Woods Capital Management, the commodity hedge fund founded by former Credit Suisse natural gas trader George “Beau” Taylor, will close to new investment this month with more than $1 billion, two industry sources said.

Investor In $1.4 Billion Hedge Fund Firm Run By Twin Brothers Sues To Get Money Back
Medley Capital’s transfer of hedge fund assets to a publicly-traded outfit has not gone over well with one of its investors.

Man Group CEO pay off 30% on failing to reach goal
Market Watch
Man Group PLC EMG.LN cut Chief Executive Peter Clarke’s pay by almost a third in 2011, the latest in a string of reduced pay packages for executives across the financial sector.

EDHEC-Risk Alternative Indexes: Overview February 2012 – Hedge Funds’ Vigorous Start To The Year Continues

U.S. Department Of The Treasury Completes Wind Down Of Mortgage-Backed Securities Investment, Generates $25 Billion Positive Return For Taxpayers

Two new Ossiam equity index ETFs launched on Xetra

Second Eyemaxx Real Estate AG bond planned for listing on the Entry Standard

Semi-Annual Changes to the NASDAQ OMX Clean Edge Global Wind Energy Index

Semi-Annual Changes to the NASDAQ OMX Clean Edge Smart Grid Infrastructure Index

Semi-Annual Changes to the NASDAQ OMX CEA Smartphone Index

Dow Jones Indexes To License Dow Jones Russia GDR Index To Lyxor – New Index To Measure The Performance Of Russian GDRs, An Expanding Portion Of The Equity Market

Boerse Stuttgart’s Bondm Segment For Medium-Sized Enterprises: Subscription To The Ekosem-Agrar GmbH Issue Closes Early

Technology News

Qatar Exchange goes live with Scila Surveillance
Thomson Reuters ONE via Yahoo! Finance
Qatar Exchange has successfully taken its new market monitoring system, Scila Surveillance, into production. The system, delivered by Cinnober, is customized to the needs of Qatar Exchange (QE) in terms of (a) new alerts to detect abnormal market behavior and conditions that are specific to the exchange`s Rule Book, (b) integration with the exchange`s trading engine, post-trade system and news feed, and (c) new reports and screen features.

Orc Group AB: Orc Clients Enjoy Success with Orc Market Maker for CME Group Markets
Business Wire via Yahoo! Finance
Orc Group, a leading provider of technology and services for the global financial industry, announced today that Orc Market Maker clients are enjoying continued success on CME Group markets.

Exegy & MarketPrizm Launch MarketDataPeaks, First Tool To Track Market Data Rates In Europe

Media News

EU demands Google response to privacy worry
By Chris Nuttall in San Francisco – Financial Times
European data protection authorities have asked Google to respond to concerns about the search engine’s new privacy policy, which came into force at the beginning of March.

Facing Fees, Some Sites Are Bypassing Google Maps
When it comes to offering online maps to their users, some companies have been leaving Google Maps and setting out for less familiar territory.

Reports Economic Calendar

USDA Today

CBOE Events Calendar

Economic Release Calendar
The Economic Release Calendar (PDF) is a schedule of government, academic and industry economic releases, provided as a service to CME customers.

Asia-Pacific News

RBS to Close Some Asia Units
Royal Bank of Scotland PLC will close some businesses in Indonesia, South Korea and Singapore, in a move that will affect some 70 employees as the U.K. bank moves toward completing the sale of its Asia operations to Malaysia’s CIMB Group Holdings Bhd.

MAS and SGX join Malaysia and Thailand to expedite review process for Secondary Listings within ASEAN
The Monetary Authority of Singapore (MAS) and the Singapore Exchange (SGX) today jointly signed a Memorandum of Understanding (MOU) on the Expedited Review Framework for Secondary Listings.

FTSE: Industry Classification Benchmark (ICB) Adopted By Petrovietnam

Shanghai Stock Exchange Releases Report On Work Of Self-Regulatory Management In 2011

Dalian Commodity Exchange: Notice Of 2012 Seat Fees Due

Frontier Markets

Smaller India banks flex muscles on Wall Street woes
By Sumeet Chatterjee – Reuters
When Warburg Pincus sold a $150 million stake in Kotak Mahindra Bank last month, the U.S. buyout firm skipped past established investment banks such as Goldman Sachs and Morgan Stanley and chose a local house instead to handle the deal.

Sudan eyes up to $1.5 bln with pipeline-backed sukuk
Reuters via Yahoo! News
Sudan aims to raise $1 billion to $1.5 billion this year with Islamic “sukuk” bonds that offer stakes in an oil pipeline, a move the African country hopes will draw more Gulf Arab investment to its debt market, a senior official said on Monday.

BFX Organises Training For Students In The Kingdom Of Bahrain – A Series Of Training Courses On “Understanding The Financial Derivatives Markets From Theory To Practice” Will Be Delivered To Over 100 Students From Different Universities In Bahrain

Brics to discuss common development bank
By Joe Leahy in São Paulo and James Lamont in New Delhi – Financial Times
The Brics group of fast-growing nations is expected to discuss the creation of a common development bank for the grouping at a meeting in New Delhi next week.

China and IDB set up $1bn Latin American fund
By Jude Webber in Montevideo – Financial Times
China is setting up a $1bn fund with the Inter-American Development Bank to make equity investments in Latin America, in a new move into financing in a region where it is already a major trade partner.

Arcapita, a Bahraini Investment Firm, Files for Bankruptcy
Arcapita Bank, a $7.4 billion Bahraini investment firm that owns the clothier J. Jill, filed for bankruptcy protection in Manhattan on Monday after it was unable to extend a $1.1 billion credit line set to expire next Wednesday.

Miscellaneous News

Modern whistle-blowers don’t get it
Douglas Rushkoff – CNN
Back when I was a kid, they were called “whistle-blowers”: employees of corrupt companies or government agencies, who went to the press with shocking stories of criminality or abuse.

Business, beware, the rules of the game have changed
By Philip Stephens – Financial Times
Politicians, bankers, journalists: one after another they have seen their reputations shredded. It will not stop there. Capitalism survived the financial crash, but the rules of engagement have changed. Standards that passed muster during the boom years have now begun to look like a serious source of reputational risk.

John Lothian Newsletter

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