John Lothian Newsletter: CME to Offer Swaps Users Cash Protection That Beats CFTC Rule; EU unveils plan to overhaul settling of trades; Greek bond swap prospects lifted by fresh pledges

Mar 8, 2012

CME Group intends to allow swap traders to keep their collateral cash at a third party. The EU reveals its plans for reforming the way that trades are settled. As the March deadline nears for Greece’s debt payment, more creditors are agreeing to accept the transaction’s terms. In merger news, both CME Group and ICE note their continued interest in hooking up with somebody; and TOCOM is said to be talking to CME Group about a deal to use Globex.

Observations – Statistics – Commentary

US bourses to fine HFT data-cloggers
By Telis Demos in New York – Financial Times
Two of the biggest US stock exchanges are set to impose penalties on high-frequency traders who clog the markets’ data pipes with unnecessary messages that do not result in trades. This move comes as Mary Schapiro, head of the Securities and Exchange Commission, recently expressed worries that such activity might be disruptive to markets.

**JK – The new Data-Drano. “But won’t it hurt my pipes?”


Direct Edge To Reward Judicious Market Activity
Direct Edge Holdings LLC became the latest exchange company to try and tone down the deluge of data produced by high-frequency trading firms, detailing plans for a program to reward more judicious market activity.

**JK – Judicious is a word not used much of late.


CME exec repeats stance of being open to small deals
A CME Group Inc. executive repeated a long-standing promise that the giant exchange operator will not make any more large acquisitions but defined ‘large’ so as to rule in a smaller deal like the London Metals Exchange.

**JK – Big exchange on small deals.


ICE Still Thinks Big Exchange Mergers Are Allowed
Wall Street Journal Blogs
IntercontinentalExchange continues to see opportunities to do “large, transformative deals” in the exchange sector, according to its US president Thomas Farley.

**JK – Smaller exchange on big deals.


Brussels plans to end paper shares in 2020
By Alex Barker in Brussels – Financial Times
All paper share certificates are to be abolished from 2020 under a Brussels proposal that would push millions of retail shareholders into the electronic age.


SEB Futures enhances post trade clearing services for clients
Press Release
SEB Futures today announced a major expansion of its exchange-traded derivatives client service platform. Using Traiana Harmony, SEB addresses the issue of dealing with multiple counterparties. It streamlines several post trade processes including allocations, reconciliations, average pricing, give ups and confirmations for listed derivatives and FX.


Collateral is king
Ted Leveroni – FOW
The age of central counterparties (CCPs) is now well and truly entrenched in the fabric of financial markets infrastructure. The entities have already had ramifications for the buy-sides’ collateral management strategies, but change is in the offing as the final rules and details impacting collateral management of OTC derivatives are being ironed out in Dodd-Frank, MiFIR, Basel III and the CPSS/IOSCO.


A supercomputer for Citigroup
By Robert Shrimsley – Financial Times
Citigroup has announced an agreement to use the services of Watson, the IBM supercomputer that gained renown last year when it beat a couple of humans on the US quiz show Jeopardy . A spokesman for the bank said: “We are working to rethink and redesign the various ways in which our customers and clients interact with money.”

**JK – Also see CME Group Magazine’s piece on Watson architect’s David Ferrucci from 2011.


Banks Shouldn’t Be Both Judge and Jury in World of Credit Defaults: View
Imagine you bought a house and, to insure it, you had to purchase coverage from the homebuilder.


Five Leadership Lessons From James T. Kirk
Alex Knapp, Forbes
Captain James T. Kirk is one of the most famous Captains in the history of Starfleet. There’s a good reason for that. He saved the planet Earth several times, stopped the Doomsday Machine, helped negotiate peace with the Klingon Empire, kept the balance of power between the Federation and the Romulan Empire, and even managed to fight Nazis. On his five-year mission commanding the U.S.S. Enterprise, as well as subsequent commands, James T. Kirk was a quintessential leader, who led his crew into the unknown and continued to succeed time and time again.


JLN Options Newsletter

DERIVATIVES: ETN trading surges on VIX spike
By Helen Bartholomew, International Financing Review
Trading in listed volatility products surged yesterday as volatility indices spiked on the back of hefty losses across global equity benchmarks. Barclays’ iPath VXX note – the most liquid of the exchange-traded volatility products – delivered its most active session since September 2011 as more than 51m shares traded compared to total shares outstanding of 63m.

VIX Trading Volume Tells a Different Story
By Dave Fry, TheStreet
A peculiar situation has recently arisen with regards to the VIX Index. Popularly referred to as the “fear index” or “fear gauge,” the VIX is the Chicago Board Options Exchange Market Volatility Index. It roughly corresponds to the expected movement (or volatility) of the S&P 500 over the next 30 days.

One Of These Volatility Funds Is Not Like The Others
By Brendan Conway, Focus on Funds –
Amid Tuesday’s market downdraft, it’s worth noting that there’s a bottleneck in the burgeoning market to “trade” stocks’ volatility. It’s located in an exchange-traded product that behaves like a closed-ended fund, with much of the inefficiency, profit potential and risk of that investing niche. Except this time, your prediction of where fundamentals or even market volatility are headed doesn’t really matter. That’s a lesson in one of the dangers of exchange-traded notes, whose existence and wellbeing are at the special mercy of major investment banks. It’s also a sign that the “volatility trading” niche is having some significant growing pains.


MarketsWiki Page of the Day
Marc Lorin


MarketsWiki Recent Updates


Russ Chrusciel; Marc Lorin; Michael Dunn

Companies, Organizations and Groups

Direct Edge; Dubai Mercantile Exchange; Lightspeed Financial; Chicago Board Options Exchange; Scottrade, Inc.


LEAPS; Barclays iPath S&P 500 VIX Short-Term Futures ETN; VXX; VIX


Upcoming Events; CFTC Swaps Hearings and Testimony, 2009-2010


20,298,120 pages viewed, 6,738 articles, 137,756 edits
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Lead Stories

CME to Offer Swaps Users Cash Protection That Beats CFTC Rule
By Matthew Leising – Bloomberg
CME Group Inc. plans to allow swaps traders to keep collateral with a third party, offering stronger protections than U.S. regulators required after MF Global Holdings Ltd. failed to safeguard $1.6 billion in customer cash.

EU unveils plan to overhaul settling of trades
By Alex Barker in Brussels and Jeremy Grant in Paris – Financial Times
Tougher rules to prevent a breakdown of securities markets infrastructure have been unveiled by the European Commission, as regulators turn their sights on settlement risk.

Greek bond swap prospects lifted by fresh pledges
Reuters via Yahoo! News
Major banks and pension funds threw their weight behind Greece’s bond swap offer to private creditors on Wednesday, making it increasingly likely that the deal will pass and clear the way for a bailout package to avert an immediate default on its debt.

Greece inches closer to E206bn debt deal
By Richard Milne in London and Kerin Hope in Athens – Financial Times
Greece inched nearer to a successful E206bn debt restructuring after private sector bondholders representing almost 40 per cent of securities said they were backing the deal.

Greek Debt Restructuring Expected To Put CDS Market To Test
It isn’t yet known if Greece’s debt restructuring will trigger payouts on insurance-like contracts called credit-default swaps covering the government’s debt. But if it does, it will touch off the biggest-ever CDS auction for sovereign bonds and determine how much banks and others will have to pay to settle the swaps.

MF Global Parent Can Restrict Some Information, Judge Says
By Tiffany Kary – Bloomberg
MF Global Holdings Ltd (MFGLQ). won permission to implement rules that will restrict the sharing of confidential information while sharing some other information from Oct. 17 to Oct. 31 about its failed brokerage.

Fed economists: Yes, TARP may have increased moral hazard
Washington Post
Two Federal Reserve researchers have confirmed what many have long suspected: big banks that were bailed out by the government took on greater risk without increasing lending to businesses. In other words, after they were stabilized by an injection of government funds, the specific loans made by “too big to fail” became riskier, perhaps in an effort to recoup losses, but the total volume of …

Environmental Trading News

EU Governments May Leave Out CO2-Permit Set-Aside in Energy Law
Governments in Europe intend to exclude from a planned energy law the option of withholding some carbon permits from the market, setting up a possible clash with European Parliament members seeking higher emission prices.

This Week in Voluntary Carbon: Change at the Tops
Ecosystem Marketplace
Carbon pioneer Dirk Forrester took the baton from Henry Derwent at the International Emissions Trading Association (IETA), while both Gold Standard and VCS took giant strides towards issuing new releases in an eventful week in voluntary carbon. Here is our summary of the major stories shaping the sector.

Schwarzenegger, UN leaders unveil virtual platform Sustainia
Business Green
For sustainability advocates, the failure of the 2009 Copenhagen climate negotiations to produce a strong global agreement was a major setback to climate action. But a group of businesses and leaders saw an opportunity to change the conversation by focusing on a positive future and by bringing more businesses and people into the discussion.

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

CME in trading system talks with Tocom
By Jeremy Grant in Paris and Ben McLannahan in Tokyo – Financial Times
CME Group, operator of the largest US futures exchange, is in talks with the Tokyo Commodity Exchange (Tocom) about the Japanese bourse using the CME’s Globex trading system.

ICE exec sees “industrial logic” in LME
By John McCrank – Reuters
A merger between the London Metal Exchange and InterContinental Exchange would have a certain “industrial logic” to it, the president of ICE Futures U.S. said on Wednesday, without going so far as to confirm that ICE has actually put in a bid for the exchange.

Clearstream and Deutsche Bank partner to facilitate market access to Russia
Clearstream and Deutsche Bank, partners in the Russian market for 6 years, continue to facilitate market openness in the region. Clearstream, via its Russian agent Deutsche Bank Ltd. Moscow, now has successfully settled its first domestic government bond transaction on an over-the-counter (OTC) basis.

BME: The Outstanding Balance On AIAF Hits A Record High, At E900 Billion

NZX Receives Initial Orders For Return Of Capital

Borsa Italiana Monthly Update: February 2012

SIX Swiss Exchange And Scoach Switzerland: Trading Turnover Rises In February 2012

CME Group Clearing Advisory
NYMEX Options Expiration Operational Procedures for the Trading Floor and Clearing Members (GX) Effective Thursday, March 8, 2012

MICEX-RTS: Initial Margin Requirement Increased For The Holidays Season

Banks, Brokers & Dark Pools

DealBook: Management Changes Expected at Deutsche Bank
New York Times
Anshu Jain, the incoming co-chief executive of Deutsche Bank, intends to appoint two investment bankers to replace him, according to a person with direct knowledge of the decision.

Newedge Announces Three Senior Appointments to Prime Clearing Services (PCS) Team
Newedge, a global leader in multi-asset brokerage and clearing, announced today three senior appointments in the Alternative Investment Solutions (AIS) division of its Prime Clearing Services team.

Lightspeed Announces Promotion of Michael Sedek to Chief Retail Officer, Names Collin Carrico as Chief Institutional Officer
Lightspeed Financial, Inc., a leading provider of ultra low latency direct market access (DMA) trading technology, risk management solutions, and brokerage services for professional retail traders and institutions, today announced the promotion of Michael Sedek to Chief Retail Officer and named Collin Carrico as Chief Institutional Officer, effective immediately.

Bank Of America Loses Another $1 Billion Merrill Lynch Team
No matter how you look at it losing a team with $1.4 in assets is going to hurt. In this case, Bank of America is hurting, and it’s not the first nor last time it will feel this kind of pain.

How Citi Could Be More Transparent
Citigroup’s chief executive, Vikram S. Pandit, likes to talk about transparency, and on Wednesday he repeated his call for new ways to compare the risks at different banks.

Giant JPMorgan lures brokers with boutique pitch
Joseph A. Giannone – Reuters
JPMorgan Securities, the brokerage arm of banking giant JPMorgan Chase & Co (NYS:JPM), is trying to lure advisers from Wall Street rivals with an unlikely pitch: “We’re actually a small boutique.”

Audit finds no transaction violations by SNB board
Market Watch
The Swiss National Bank on Wednesday said an audit of activities by members of its governing board and their families found no violations of the central bank’s guidelines and regulations on financial transactions. The probe was conducted by KPMG.

Jain makes mark at Deutsche Bank
By Daniel Schäfer in London and James Wilson in Frankfurt – Financial Times
Deutsche Bank’s incoming co-chief executive, Anshu Jain, is making an early mark on Germany’s largest bank with a wide-ranging reshuffle that ushers several investment bankers into top management positions.

Deutsche Bank Supervisory Board Wants 2 Executives To Resign -Report
Dow Jones
Deutsche Bank AG’s (DB) supervisory board wants executive board members Hugo Baenziger and Hermann-Josef Lamberti to resign, German tabloid Bild reports in a pre-release of an article to be published Thursday, citing banking sources.

[Video] Goldman Sachs No. 1 in Investment Banking Fees
Goldman Sachs Group Inc. is No. 1 in the Bloomberg 20, Bloomberg Markets’ eighth annual ranking of the best-paid investment banks by the fees they earn. Morgan Stanley held on to the second spot, while JPMorgan Chase & Co. fell to No. 3 from No. 1 in the overall ranking.

BNP Paribas Boosts Its Electronic Trading Offering for Clients With Launch of CORTEX FX
Marketwire via Yahoo! Finance
BNP Paribas announces the launch of its advanced, electronic foreign exchange trading platform — “CORTEX FX” — which provides an innovative multi-product solution for corporate and financial institutional clients to manage their foreign exchange requirements.

Citigroup Launches Latin America Trade Desk Based In China
Citigroup Inc.’s (C) Global Transaction Services launched a Latin America trade desk based in Shanghai, China, as it looks to expand its presence in emerging markets.

HSBC’s Andrew Bell Joining Jefferies: Sources – Reuters
HSBC Holding PLC’s (HBC) global head of mergers and acquisitions Andrew Bell will join U.S. investment bank Jefferies Group Inc. (JEF) in June to lead their European and Asian M&A

Citigroup’s Pandit Shows Love for Dodd-Frank
Is Vikram S. Pandit the anti-Jamie Dimon? Speaking to a packed ballroom at the Waldorf-Astoria hotel in Manhattan on Wednesday, Mr. Pandit, the chief executive of Citigroup, championed an idea that most Wall Street titans would shun: regulation is good.

‘Totally inappropriate’ to break up RBS, says former boss
Sir George Mathewson, the former Chief Executive of Royal Bank of Scotland (RBS), has said that it would be ‘totally inappropriate’ to break up the bank, responding to Business Secretary Vince Cable who has called for the lender to be split up.

Over 17 Million Shares Put Up For Auction On The AX In February

Finansinspektionen’s Chief Economist Lars Frisell Accepts Post At The Central Bank Of Ireland

IMF Managing Director Christine Lagarde Names Jianhai Lin Secretary Of The Fund

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.

EU blueprint to shake up settlement of trades
Reuters via Yahoo! Finance
The settlement of share and bond trades in the European Union will be thrown open to competition and close scrutiny under a draft EU law published on Wednesday.

CFTC Charges Alabama Resident John David Stroud and His Companies with Commodity Pool Fraud and Misappropriation
The U.S. Commodity Futures Trading Commission (CFTC) today announced that it filed an enforcement action in the U.S. District Court for the Middle District of Alabama charging John David Stroud and his companies, Stroud Capital Management, LLC, TS Capital Partners, LLC, and TS Capital Management, LLC, all of Auburn, Ala., with fraud and misappropriation in operating two commodity pools.

Federal Court in Illinois Orders Windsor Brokers, Ltd. of Cyprus to Pay $140,000 Civil Monetary Penalty, Cease Soliciting U.S. Customers, and Modify Website
The U.S. Commodity Futures Trading Commission (CFTC) obtained a federal court consent order requiring Windsor Brokers, Ltd. (Windsor), of Limassol, Cyprus, to pay a $140,000 civil monetary penalty to settle CFTC charges. Windsor unlawfully solicited U.S. customers to engage in foreign currency (forex) transactions and operated as a Retail Foreign Exchange Dealer (RFED) without being registered with the CFTC (see CFTC Press Release 6108-11, September 8, 2011).

SEC Charges CEO of Las Vegas-Based Penny Stock Company and Several Consultants in Pump-and-Dump Scheme
The Securities and Exchange Commission today charged a Las Vegas-based food and beverage company and its CEO with conducting a fraudulent pump-and-dump scheme, and charged several consultants for their illegal sales of company shares into the markets.

Enforcement and Registration Actions
Strategic Futures Management, Inc. and Mark B. Katzenberger

Stanford’s Ponzi Scam: The System is Still Broken
John Wasik – Forbes
With R. Allen Stanford’s conviction for running a $7 billion ponzi scam — defrauding some 30,000 investors — we’ve come to yet another valuable teaching moment in the history of investor protection.

[AMF Canada] March: Fraud Prevention Month – Caution with regard to social media

BC Iron complies with ASIC infringement notice for alleged continuous disclosure breach

[ASIC] Former Australian Capital Reserve directors sentenced

BioProspect complies with ASIC infringement notice for alleged continuous disclosure breach

Investments – Indexes – Managed Futures – Managed Funds

Goldman Begins 2-Year Hedge Fund Wind-Down Per Volcker Rule
Dow Jones
This month Goldman Sachs Group Inc. (GS) began unwinding its investments in hedge funds to comply with the Volcker Rule’s ban on banks holding stakes of greater than 3% of the assets of any single fund.

Most hedge funds gain but Paulson loses again
Reuters via Yahoo! Finance
Most hedge funds had good news for their investors last month but not John Paulson, who told clients that one of his biggest portfolios lost money, again.

CalPERS considers moves that would boost pension costs for governments
Los Angeles Times
CalPERS staff has recommended lowering the target return on its investments and its ongoing inflation assumptions. That could lead to higher contributions for state and local governments.

CalSTRS loses PE portfolio manager
CNN Money
Pascal Villiger is leaving the California State Teachers’ Retirement System, where he has been a private equity portfolio manager for the past four years, Fortune has learned.

Bold hedge funds mull risky Greek debt battle
International Business Times
Some hedge funds are refusing to join Greece’s bond swap, threatening legal action if the government does not come up with a better offer and complicating efforts to restructure the country’s debt.

STOXX Announces New Composition Of Select Dividend, Style And Grand Prix Indices – Results Of The Review To Be Effective On March 19, 2012

Aberdeen Asset Management And Croda International To Join FTSE 100 Index

FTSE MIB Index Quarterly Review March 2012

Technology News

CameronTec Releases Ultimate FIX Messaging Enabler
CameronTec, the global financial industry’s long-standing provider of FIX infrastructure and connectivity solutions today announced the release of the ultimate FIX messaging enabler with the upcoming launch of Catalys 2.0.

FFastFill contract win with INTL FCStone (Europe) Limited for front, middle, and back office base metals trading, clearing and settlement
FFastFill plc, the leading provider of Software as a Service (“SaaS”) to the global derivatives community, today announced that INTL FCStone (Europe) Limited, formerly Ambrian Commodities, the metals futures trading arm of Ambrian Capital plc, has signed for both its Trading Pro, SEALS and Eclipse applications for execution, matching and settlement.

Global Currency Manager Omaha Foreign Exchange Implements Panopticon Data Visualizations
Panopticon Software the leading provider of visual data analysis software for real-time, CEP and historical time series data, today announced that Omaha Foreign Exchange (OFX) is implementing Panopticon’s CEP-enabled Treemaps, Heatmaps and other data visualizations in its proprietary trading systems.

RTS Connects to Thailand Futures Exchange (TFEX)
RTS Realtime Systems Group, a leading global trading solutions provider, today announced that the firm is now able to offer market access to the Thailand Futures Exchange plc (TFEX), a subsidiary of the Stock Exchange of Thailand (SET) Group.

Fundamental Interactions Inc Announces the International Expansion of the Neutron Trading Appliance
Fundamental Interactions Inc plans to take clients of the Neutron Trading Appliance live across three continents by the end of 2012. As part of the global expansion, routing and market data integration will be added for new trading venues in Europe, Asia and Latin America. Additionally a complete FX trading module will be integrated into the product.

Media News

Altegris Partners with Carpenter Group to Develop a Powerful New Website
Carpenter Group, strategic marketing and creative agency to Altegris, a provider of alternative investments, created a new website that integrates disparate existing sites into a compelling, unified Web experience.

EU Almunia: Thomson Reuters Investigation Parallels Deutsche-NYSE
Dow Jones
The same concerns that led the European Union to block the merger of Deutsche Boerse AG and NYSE Euronext are behind an investigation into Thomson Reuters Corp., said European Union Competition Commissioner Joaquin Almunia Thursday.

Facebook reveals ‘fake’ user accounts
By April Dembosky in San Francisco – Financial Times
After a month of negotiations with federal regulators, Facebook has filed an amendment to its initial public offering, acknowledging new risks associated with its business and adding a further 25 banking firms to its roster of underwriters. The company admitted that 5 per cent to 6 per cent of the accounts on its social network were fictitious or duplicative, amounting to about 42m of its 845m monthly active users.

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

China to make yuan loans to Bric nations: FT
Market Watch
China will extend yuan-denominated loans to other nations that make up the Bric group of nations, according to a report in the Financial Times on Thursday, which cited people familiar with the plan.

Mr. Anderson Takes the Red Pill
Wall Street Journal Blogs
The great China myth-buster, UBSs Jonathan Anderson, is calling it quits as an investment bank economist.

SGX welcomes new CIMB-Principal ETF listing
Singapore Exchange (SGX) announced today the listing of CIMB S&P Ethical Asia Pacific Dividend ETF by CIMB-Principal Asset Management (CIMB-Principal). This brings the total number of ETFs on SGX to 93.

No change to STI constituents after half-yearly review
Singapore Press Holdings (SPH), Singapore Exchange (SGX) and FTSE Group (FTSE) announced today that constituents of the Straits Times Index (STI) will remain unchanged following the conclusion of its half-yearly review.

Monetary Authority Of Singapore: Reply To Parliamentary Question On The Recent Fraudulent Withdrawals From The ATMs Of DBS Bank

Frontier Markets

Private equity eyes Africa, lured by middle class
Market Watch
Private equity is set to ramp up investment in Sub-Saharan Africa, as demand from a growing middle class for iPads, Nike sneakers and fast food adds to the region’s traditional attraction as a continent of rich natural resources.

Qatar Exchange Expands Range Of Benchmark And Tradable Indices

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