John Lothian Newsletter: CFTC faces data problems on swaps; ICE, NYSE Euronext tweak merger structure; Hong Kong’s LME Purchase Helps in Bargaining With China

Mar 20, 2013

The CFTC’s Scott O’Malia says that the agency is receiving so much computer-crashing data with regard to market trades, that it is not effective in tracking swaps activity. ICE adjusts the collar and tie on its bid for NYSE Euronext, in order to make it more attractive for regulatory reviewers. The head of Hong Kong Exchanges says that its recent purchase of the London Metal Exchange may help in future negotiations with China. In today’s First Read, take a look at JLN’s latest video profile: Neal Kottke, chairman of Kottke Associates in Chicago, talks with JLN about his career highlights and the challenges of trading in today’s markets.

First Read

The mouse that roared
Steve Grob, Fidessa
Day 3 of editing the JLN and I have pretty much run out of things to say… just kidding.

Imagine for a minute that you are reading today about America’s smallest state – Rhode Island – and how it is holding the rest of the US to ransom over a proposed federal bailout of its two biggest banks. If that seems far-fetched, then welcome to Europe.

Cyprus makes up around 0.2 percent of Europe’s GDP and yet its (legitimate) refusal to bow to Central European demands for a stealth tax on bank deposits highlights the mess here in Europe. Right now there is no clear distinction between what is enforceable (or even legal) on a European basis and what remains within the jurisdiction of individual country states. Given the enormity of the financial reform agenda that politicians wish to implement in Europe then perhaps we should start to worry. Throw in a bit of extraterritoriality and watch the stampede for the panic button. Although, as I mentioned yesterday, all this confusion actually creates opportunity. Some firms, for example, are already looking at how they can arbitrage the different financial transaction taxes that are springing up all over Europe.

I know that US regulators get their fair share of stick from market participants at home and abroad, but at least there is a sensible system for making their rules enforceable throughout its member states. The net result is that even if they are wrong then at least it’s the same for everybody.

Anyway, Wednesday’s rant is now over. Here’s the news…


Profiles: Neal Kottke

John Lothian Profiles: Neal Kottke

Neal Kottke, chairman of Kottke Associates in Chicago, is one of those industry veterans who has done it all in his career, from the commercial side to clearing, to starting his own clearing firm to proprietary trading. His contributions to the futures industry also included a term as chairman of the Board of Trade Clearing Corporation as well as two terms as vice chairman of the Chicago Board of Trade.

Kottke has seen more events and trends than most during a career that now spans four decades. In this John Lothian Profile, JLN explores Kottke’s experiences, how the markets have changed and evolved and how “discipline” is the key feature for successful trading. He also talks about how to manage volatility in the markets, managing risk and Black Swan events.

Watch the video >


EU executive plays down transactions tax impact on UK
Huw Jones – Reuters
A tax on trading in 11 euro zone countries won’t harm Britain and its government cannot be forced to collect the levy, a senior European Commission official said on Tuesday.

***SG: This article contains the stupidest thing I have read all week. The rationale for the tax is apparently “to make the banks pay for taxpayer help in the financial crisis”. Why don’t they understand that if you introduce a sales tax (like an FTT) then it is the END consumer that pays, not the banks, as the can just gets kicked on down the road?


Taxes on Financial Transactions Won’t Save Europe
The Exchange via Yahoo! Finance
Would a tiny tax on securities turnover corral the frightening volatility of global financial markets and raise a ton of revenue painlessly in the process? Or would it undermine innovation and drive trading to friendlier climes? There will soon be no need to speculate (pun intended). Eleven EU countries are about to embark on a large-scale experiment in what some commentators label the “Robin Hood tax,” and others see as a self-defeating exercise in revenge against the wonderful folks who gave us the financial meltdown of 2008.

***SG: Ditto.


Rebutting the Contention That Small Is Better for Banks
New York Times
In relation to the economy it supports, the United States banking system is relatively small compared with those of other developed countries, so breaking up banks doesn’t seem justified, the author writes.

***SG: Isn’t the problem that regulators are making it all but impossible for smaller banks to survive. At a systemic level, spreading the risk has to be better.


The reality of high-frequency trading
Opinion: People shouldn’t buy into the notion of it as “a clear and present danger” to our markets.

***SG: Shock, horror – two balanced views on HFT in one week.


Coba trade records scheme fails
Philip Stafford –
A new industry-backed project to develop a consolidated tape for European markets has foundered, with exchanges, banks and institutional investors unable to back the plan amid regulatory uncertainty.

***SG: It’s amazing that 5 years on, Europe hasn’t solved this. Everyone acknowledges that the lack of an agreed tape of record makes any concept of true best execution meaningless.


Dodd-Frank Swap Data Fails to Catch JPMorgan Whale, O’Malia Says
Silla Brush – Bloomberg
Dodd-Frank Act derivatives rules are failing to give regulators a full picture of the swaps market and wouldn’t help them detect a loss similar to JPMorgan Chase & Co. (JPM)’s London Whale trades, according to Commodity Futures Trading Commission member Scott O’Malia.


Calpers turns back to commodities
Gregory Meyer in New York –
Calpers, the largest US public pension fund, has endorsed commodities as a safeguard against inflation despite recent moves to pull money from the asset class.


Eurex Names new Head of its Hong Kong Office
The international derivatives marketplace Eurex Exchange announced today the appointment of a new Head of the Hong Kong Representative Office. Markus Georgi (36) has succeeded Paul Lo as Chief Representative of Eurex’s Hong Kong office.


SHORT NOTICE AUCTION: Peregrine Financial Group, Inc. d.b.a. PFG Best – Lots begin closing online 3/20
Bankrupt Peregrine Financial Group d/b/a/ PFG Best, formerly led by convicted felon Russell R. Wasendorf, Sr., will have the assets of its Chicago office auctioned on March 20th after defrauding investors of more than $
215,000,000 in a commodity futures trading fraud.

***JK – How much do computers with confiscated hard drives go for these days?



MarketsWiki Page of the Day
Mini options

MarketsWiki Recent Updates


Christopher Rodriguez; Laurent Paulhac; Xiao Gang

Companies, Organizations and Groups

ICE Clear Credit; MSCI Barra


Mini options


36,899,866 pages viewed, 7,435 articles, 156,146 edits
MarketsWiki Statistics

Lead Stories

CFTC faces data problems on swaps
Shahien Nasiripour in Washington –
US derivatives regulators are failing to keep track of the swaps market because of inconsistencies in data reporting, according to a top regulator. Scott O’Malia, a commissioner on the Commodity Futures Trading Commission, said the “problem is so bad” that the agency has not been able to find the JPMorgan Chase trades entered into by a group of traders led by the “London whale” that led to more than $6bn in losses.

CFTC says agency’s data on swaps market useless
The Wall Street Journal
The Commodity Futures Trading Commission has requested too much data that it doesn’t have the ability to analyse, making it impossible for staff to find the giant JP Morgan trade dubbed the “London Whale,” Republican Commissioner Scott O’Malia said at a trade conference in Phoenix yesterday.

***SG: If you think this is bad,, then take a look at OTC equities reporting in Europe – another case of “garbage in garbage out”.

ICE, NYSE Euronext tweak merger structure
IntercontinentalExchange has revised the structure of its proposed acquisition of NYSE Euronext to help the deal get regulatory approval.

***SG: I wonder if they’ve worked out a name for the European futures business yet – ICE NYSE Euronext LIFFE London doesn’t exactly roll of the tongue

***JM: I’m thinking iNYSE.

***SG: And I’m going with NISE or NYCE LIFFE. So many possibilities.

Hong Kong’s LME Purchase Helps in Bargaining With China, Li Says
Hong Kong Exchanges & Clearing Ltd. ’s $2.2 billion purchase of the London Metal Exchange may help the bourse operator in its negotiations with China , said Chief Executive Officer Charles Li.

Cyprus, EU Work on Contingency Plans
The Cyprus government was working with European officials on contingency plans to keep the island’s teetering financial system afloat in case of a crippling outflow of deposits when the island’s banks reopen after an extended bank holiday.

Rejection of Deposit Tax Kills Bailout for Cyprus
Lawmakers rejected a 10 billion euro bailout package on Tuesday, sending the president back to the drawing board to devise a new plan that might still enable the country to receive a financial lifeline while avoiding a default that could reignite the euro crisis.

UBS departure deals Euribor fresh blow
Reuters via Yahoo! News
UBS become the latest big name European bank to stop contributing to money market benchmark Euribor on Tuesday, dealing the credibility of the scandal-tainted lending rate a fresh blow.

DealBook: Lesson Learned After Financial Crisis: Nothing Much Has Changed
New York Times
The investigation into JPMorgan Chase’s multibillion-dollar trading loss shows that bankers are not acting cautiously and regulators remain docile.

JPMorgan, MF Global trustee reach agreement
Associated Press via Yahoo! News
JPMorgan Chase has agreed to a deal that will return $546 million to former customers of trading firm MF Global Holdings Ltd., which collapsed in 2011 with $1.6 billion missing from its accounts.

Freddie sues over ‘substantial’ Libor loss
Kara Scannell in New York and Shahien Nasiripour in Washington –
Freddie Mac has sued more than a dozen banks and the British Bankers Association, alleging it suffered “substantial losses” as a result of the manipulation of the Libor benchmark interest rate.

***SG: As the old saying goes, if you are at a card game and you can’t work out who the patsy is then, quite possibly, it’s you.

TABB publishes Options LiquidityMatrix for February: Options Volume Flat on Declining Volatility
Options trading volume in the first two months of 2013 fell .4%, says Andy Nybo, TABB Group’s head of derivatives research and publisher of TABB Options LiquidityMatrix, which is attached (also available globally on TabbFORUM). But the ongoing federal budget debate and the introduction of mini options should prop up volumes in March.

Cyprus reveals chinks in ECB armour
Ralph Atkins in London –
Central banks are not omnicompetent after all. For the past eight months, the European Central Bank and US Federal Reserve have nudged western economies towards recovery – the former by countering worries about the eurozone’s stability, the latter through open-ended “quantitative easing”.


CFTC eyes derivatives reform compromise
Shahien Nasiripour in Washington and Michael Mackenzie in New York –
A lead US regulator has circulated a confidential draft proposal in an attempt to broker a deal that would finalise planned rules for the $639tn derivatives market.

***SG: So the debate is over the number of RFQs a SEF should send out. The simple answer is no one really has a clue – but, with such prescriptive legislation being attempted it’s not surprising Dodd-Frank weighs in at over half a ton.

SEC Digging Into Fund Fees
The Securities and Exchange Commission is closely scrutinizing the fees and expenses, including travel and entertainment, that hedge funds and private-equity firms charge to their investors.

COBA Project suspends operations and concludes initial findings on consolidated tape collaboration
Press Release
The COBA Project today announced the conclusions of its industry collaboration designed to establish a consolidated tape for European equities. Further to the proposal outlined in its open letter dated 27th November 2012, The COBA Project engaged in broad industry consultation and organised a key stakeholders working group for an initial phase of delivery.

Derivatives sector urges wider Iosco role
Philip Stafford –
The heads of some of the world’s largest derivative trade associations have urged the body for global securities regulators to help resolve the controversial issue of cross-border application of derivatives rules.

Did Mary Jo White get the message?
Compared to some recent nominations, Mary Jo White sailed through a Senate panel charged with vetting President Obama’s choice to lead the Securities and Exchange Commission. But for investors interested in fair and transparent markets, the Senate Banking Committee’s seal of approval doesn’t count for much. What matters is whether White will vigorously enforce the rules.

New appointments for governance of Financial Conduct Authority
Three new Chairmen have been appointed to the independent Panels which lead the process for constructive challenge of the Financial Conduct Authority’s (FCA’s) policies and practices from the point of view of regulated firms.

CFTC’s Implementation Of Dodd-Frank – Grading Agency Transparency – Keynote Address By Commissioner Scott D. O’Malia, SIFMA Compliance And Legal Society Annual Seminar

ESMA Publishes Responses Received To The Call For Evidence On Short Selling

SIFMA Acting President & CEO Kenneth E. Bentsen, Jr. Remarks At SIFMA’s Compliance & Legal Society Annual Seminar

[ASIC] ePayments code: New era in electronic payments protection

ASIC consults on reforms to superannuation forecasts

Exchanges & Trading Facilities

CME Group Announces Open Interest Records in Henry Hub Natural Gas
CME Group, the world’s leading and most diverse derivatives marketplace, announced it reached two consecutive records in open interest for its benchmark Henry Hub Natural Gas (NG) futures contract.

CME Group Inc. Announces Date of First-Quarter 2013 Earnings Release, Conference Call
CME Group Inc. will announce earnings for the first quarter of 2013 before the markets open on Thursday, May 2, 2013. The company has scheduled an investor conference call that day at 7:30 a.m. Central time.

NASDAQ OMX Announces New CEO Of NASDAQ OMX Tallinn
The NASDAQ OMX Group, Inc. announces that the Supervisory Council of NASDAQ OMX Tallinn approved Rauno Klettenberg as the Chief Executive Officer of NASDAQ OMX Tallinn.

Deutsche Börse places corporate bond of 600 million euros

Additional Date and Times to Power Up Systems After CBOE Power Shutdown

EEX: Fourth Flemish Auction Clears At 3.32 Euro

Renault Makes Use Of EEX Transparency Data For New Electric Car

ICE Futures Canada: Close Of Trading To Change To 1:15 P.M. CT Beginning On April 8, 2013

Sanction Proposal against Publigroupe Ltd

Moscow Exchange Weekly Market Report: March 4-7, 2013

Cyprus Stock Exchange Suspension Of Trading

***SG: No s*** Sherlock.

Hedge Funds & Managed Futures

Agricultural-Commodity Price Swings Seen Rising by Tozer
Rudy Ruitenberg – Bloomberg
Farm-commodity price swings are set to increase on tight supply, said Bruce Tozer, a consultant at De Novo Agricultura and former head of EMEA sales for soft and agricultural products at Credit Agricole SA. (ACA) He spoke at a commodity-industry meeting in Geneva organized by the United Nations Conference on Trade and Development.

Exclusive: Farallon hedge fund launches real estate vehicle
Reuters via Yahoo! Finance
Hedge fund firm Farallon Capital Management LLC is raising a new real estate fund of about $350 million to $400 million, the first time Farallon has set up a separate fund exclusively for the asset class, according to two sources familiar with the situation.

Deutsche Bank Securities CEO Joining PE Firm Providence
Wall Street Journal Blogs
Providence Equity Partners LLC. is hiring another senior Deutsche Bank AG executive for its growing credit business.

Commodity Trade Financing Seen by HSBC’s Lambert as Sufficient
Commodity trade continues to attract sufficient financing amid instability in the Middle East and reduced lending by some European banks, said Jean-Francois Lambert, HSBC Bank Plc’s global head of commodity and structured trade finance.

Dark Pool Directory 2013: Characteristics, Operations, and Liquidity
Dark Pool Directory 2013: Characteristics, Operations, and Liquidity, illuminates the difficult-to-navigate ATS space through an in-depth examination the key non-displayed trading venues in the current market. This directory is a “must have” for all traders and anyone with a need to understand how individual venues operate. Unlike any other publication on the market today, this directory provides individual in-depth examination of approximately 25 different venues offered by 19 different ATS providers.

Banks & Brokers

J.P. Morgan Bosses Hit by Bank Regulator
J.P. Morgan Chase & Co. was downgraded in a confidential government scorecard over concerns about the company’s management and its board, a blow to a firm that has long been considered one of the best-run on Wall Street.

What Have We Learned? 3 Lessons from the London Whale Trading Debacle
Time Magazine
Of the many scandals that have plagued Wall Street of late, the “London Whale” trades, which cost banking giant JPMorgan Chase more than $6 billion, has captured the attention of the financial media more than any other.

The parable of Bear Stearns (five years on)
William Wright – Financial News
Bear Stearns holds a special place in the story of the credit crunch. When the investment bank was rescued from bankruptcy by JP Morgan in March 2008 – a full six months before Lehman Brothers went down – it wiped billions of dollars off the net worth of thousands of Bear Stearns staff, and fired the starting gun on the acute phase of the financial crisis.

Goldman Sachs’s Scialla Twins Leave for Home-Design Firm
Paul D. Scialla and Peter E. Scialla, 39-year-old twins who have been partners at Goldman Sachs Group Inc. since 2008, left the firm last week to pursue interests outside of finance, according to two memos.

Goldman Names Fisher Head of Technology Equity Capital Markets
Goldman Sachs Group Inc. named Andy Fisher head of technology equity capital markets, effective immediately, according to a memo to employees.

Morgan Stanley Said to Shut Princeton, Move Workers
Morgan Stanley , owner of the world’s largest brokerage, is closing its Princeton, New Jersey, office and will move the location’s 95 employees elsewhere, according to a person briefed on the matter.

Deutsche Bank Restates 2012 Earnings on Lawsuits
Deutsche Bank said mortgage-related lawsuits and regulatory investigations have forced it to revise downwards its 2012 earnings.

HSBC hires ex-Citi banker in specialist push – sources
Reuters via Yahoo! Finance
HSBC , Europe’s biggest bank, has hired former Citi banker Daniel Bailey to lead its global telecom, media and technology team, two people with direct knowledge of the matter said on Tuesday.

Oppenheimer to double staff in Europe drive
Giles Turner – Financial News
The investment banking arm of US financial services group Oppenheimer & Co is set to double headcount in the UK and Europe over the next five years, as part of plans to build a capital markets and advisory business in the region.

Clearing & Settlement

JSCC to start client clearing by March 2014
Japan Securities Clearing Corporation (JSCC) will start client clearing by March next year and plans to add a further suite of yen and non-yen denominated products to its existing service, says Takeshi Hirano, director of strategic planning for the OTC derivatives clearing service at JSCC in Tokyo.

***SG: JSCC gets dolled up for Dodd-Frank.

Markit partners with BNY Mellon on tri-party repo data
Sophie Baker – Financial News
Markit, a leading data provider, has agreed a tie-up with BNY Mellon to include details of the custodian’s tri-party repo transactions in its analyst reports amid a drive for greater transparency in the repo market.

Broadridge Says Rising Cost Pressures and Risks Drive the Need to Centralize Operations Across Asset Classes
A new report released today by Broadridge Financial Solutions (BR), a leading technology and operations solutions company for the global financial services industry, finds that leading financial firms are increasingly turning to external solutions providers as a way to attain post-trade processing simplicity while reducing technology costs and risks and enabling easier entry into new asset classes.

A new report released today by Broadridge Financial Solutions (BR), a leading technology and operations solutions company for the global financial services industry, finds that leading financial firms are increasingly turning to external solutions providers as a way to attain post-trade processing simplicity while reducing technology costs and risks and enabling easier entry into new asset classes.

Indexes & Products

The Spanish Stock Exchange Trades The First ETF On Spanish Sovereign Debt


Lucena’s QuantDesk Price Forecaster & Portfolio Optimizer Are Now Available On Bloomberg’s App Portal


CalPERS Criminal Prosecutions Needed To End Public Pension Fraud
Yesterday a federal grand jury indicted two former top officials of CalPERS, the nation’s largest public pension fund on fraud, conspiracy and obstruction charges. Three years after the “pay-to-play” influence peddling scandal surfaced at the $225 billion fund, the Department of Justice may be poised to investigate and prosecute public pension corruption nationally.

Federal Court Imposes More than $57 Million in Sanctions against Two Mexican Companies, MXBK Group S.A. de C.V. and MBFX S.A., for Defrauding their U.S. Foreign Currency (Forex) Customers
The U.S. Commodity Futures Trading Commission (CFTC) today announced that it obtained a federal court judgment against two Mexican companies, MXBK Group S.A. de C.V. (MXBK), and its forex division, MBFX S.A. (MBFX), requiring them jointly to pay restitution of $28,969,059 to defrauded U.S. customers and an equal amount as a civil monetary penalty.

SEC Charges Financier with Stealing Investor Funds in Purported Offerings of Pre-IPO Facebook Shares; 2013-44; March 19, 2013
The Securities and Exchange Commission today announced charges against a financier masquerading as a sophisticated fund manager who defrauded investors seeking to acquire highly coveted pre-IPO shares of Facebook and other social media companies.

SEC Charges Craig Berkman And Lawyer In Alleged Facebook Investment Scam
The Securities and Exchange Commission today charged Craig Berkman, 71, a former Oregon gubernatorial candidate who now lives in Florida, and his lawyer, with operating an investment scam peddling pre-IPO shares in Facebook, LinkedIn, Groupon, and Zynga.

SEC: Former Chelsea broker Gary Martel is sentenced to 7 years for defrauding investors
Boston Globe
The Securities and Exchange Commission said Gary J. Martel, a former Chelsea broker, was sentenced earlier this month to more than seven years in prison for defrauding investors. A judge in federal court also ordered him to pay restitution to victims of nearly $3.3 million.

[ASIC] WA men acquitted on insider trading charges

Environmental & Energy

US Republican puts hold on EPA nominee; hearing set for Moniz
A Republican senator from Missouri on Monday said he will place a hold on President Barack Obama’s nominee to head up the Environmental Protection Agency until it moves forward with a project to repair a levee on the Mississippi River.

Shale-Gas Boom Alone Won’t Propel U.S. Industry
The Wall Street Journal
Cheap energy flowing from the U.S. shale-gas boom is often touted as a “game changer” for manufacturing. Despite the benefits of lower energy costs, however, the game hasn’t changed dramatically for most American manufacturers.

Clean Energy Is Comparable to Fossil Energy Reserves, BNEF Says
The “energy reserves” contained in wind and bioenergy projects in the U.S. and Brazil are “significant” compared to oil and gas in the countries, according to a study commissioned by BP Plc (BP/) that estimates the barrels of oil equivalent for the renewable resources.


Dell Services Helps Singapore Exchange Modernize Mainframe Application
Business Wire via Yahoo! Finance
Dell Services today announced the successful completion of a project with Singapore Exchange designed to future-proof the technology underpinning its depository business and enhance operating efficiency.

Chinese factories struggle to keep staff
Rahul Jacob in Dongguan –
Outside a factory in Dongguan, a city in China’s manufacturing heartlands, school buses drop off children whose parents work at the Maisto toy factory, which manufactures Bburago collectable cars and radio-controlled vehicles.

Shanghai Stock Exchange: Notice Of Issues About Participation of Shares With Sales Limit And Stock Shares With Terminated Sales Limit In Listed Companies In Margin Trading, Securities Lending

Shenzhen Stock Exchange Kicked Off The “Open House Program For International Investors”

HKEx Announces Liquidity Provider Programme For After-Hours Futures Trading

HKEx: Arrangements For Adjustment Of Hong Kong And China Gas Futures And Options

Frontier Markets

Election limbo keeps Egypt’s IMF loan on ice
Reuters via Yahoo! News
Once parliamentary elections are out of the way, Egypt stands a chance of securing an International Monetary Fund loan to help address its currency and budget crisis; the problem is that no one knows when that will be.


SIFMA Presents Alfred J. Rauschman Award To Loren Schechter
SIFMA today announced that the Executive Committee of its Compliance & Legal (C&L) Society has presented the Alfred J. Rauschman Award to Loren Schechter, partner in the New York Office at Duane Morris LLP, in recognition of his contributions to the Compliance & Legal community and a career dedicated to the financial services industry.

Time to update exec pay disclosures
Joe Cahill – Crain’s
If you own a business, chances are you know how much you’re paying the employees, especially those who make the most money. Unless, of course, you’re a shareholder in a publicly traded company. In that case, all you know is how much you paid the help last year.

John Lothian Newsletter

We visit more than 100 websites daily for financial news (Would YOU do that?)

“John Lothian and Company… our industry intelligence.”

Rick Lane

CEO, Trading Technologies

Past JLN Newsletters

CME to permanently close most trading pits

CME to permanently close most trading pits

First Read $40,626/$300,000 (13.5%) Anonymous ++++ Hits & Takes John Lothian & JLN Staff Without fanfare or amplification from its executives, the CME Group shut the books on most -- but not all -- of its floor trading history Tuesday afternoon with the...

Pin It on Pinterest

Share This Story