John Lothian Newsletter: SEC proposes tighter oversight of computer trading; Global Derivatives Trading Fell 15pct In 2012; Warsaw bourse open to consolidation

Mar 8, 2013

The SEC takes a step towards standardizing and improving computerized trading. According to the WFE, derivatives trading around the world took a double-digit hit last year. The new head of the Warsaw Exchange says that actually, it might be ok after all to merge with other exchanges. In today’s First Read, take a look at our new video interview with Walt Lukken of the FIA; and take a look at the A-list for JLN guest editors starting in two weeks.

First Read

FIA Boca Preview: Walt Lukken on State of Futures Industry

In advance of the FIA Boca 2013 conference next week, John Lothian News traveled to Washington D.C. this week to interview Walt Lukken, president and CEO of the Futures Industry Association to get his comments on the state of the futures industry today and what is in store for the rest of the year.

This two-part interview focuses on the key issues facing exchanges and brokers, as well as a rundown on the Dodd-Frank regulatory process.

This year’s FIA Boca conference will be one of the more important events of the year as industry participants begin to make the transition from regulatory compliance into new growth and opportunities.

Watch Part 1 of the interview:

Walk Lukken FIA Boca JLN

FIA Boca Preview: Walt Lukken on the 2013 Outlook for the Futures Industry (Part 1)

 

Watch Part 2 of the interview:

Walk Lukken FIA Boca JLN

FIA Boca Preview: Walt Lukken on the Impact of Regulation on the Futures Industry (Part 2)

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Guest Editors confirmed
Jon Matte
Here’s the list of guest editors for the John Lothian Newsletter during John’s surgical absence. We had more interest than available weeks so it’s possible we may add more guests, especially if John’s convalescence takes longer than is planned, or if we really just enjoy making the newsletter more without him.

March 18 to 22 – Steve Grob, Director of Group Strategy, Fidessa
March 25 to 29 – Andy Yemma, Managing Partner, Intermarket Communications
April 1 to 5 – Veronica Augustsson, CEO, Cinnober Financial Technology
April 8 to 12 – Gary Katz, President and CEO, International Securities Exchange
April 15 to 19 – Ed Tilly, President and COO, CBOE Holdings, Inc.
April 29 to May 2 – Walt Lukken, President and CEO, Futures Industry Association
May 3 – No Newsletter

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Singapore Bourse Plans Thai, Philippine Futures
Bloomberg
Singapore Exchange Ltd. will increase revenue from derivatives 10 percent to 15 percent this year as the operator of Southeast Asia’s biggest bourse introduces more products linked to benchmark stock indexes in the region, President Muthukrishnan Ramaswami said in an interview.
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***** Still to come: JLN’s special report on Asia. There’s a lot going on over there.

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CFTC decision on swaps reporting unlikely to settle the issue
Galen Stops – FOW
Yesterday the CFTC approved a request from the CME allowing the exchange group to adopt the controversial Rule 1001, but in doing so it has highlighted flaws in current regulation regarding swaps reporting. Do not expect this decision to be the end of this debate though.
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***** A battle is won; the war is hardly over.

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Filling a Fed Vacuum in Bank Supervision
New York Times
The Federal Reserve must stop its internal wrangling and impose more effective control over the biggest banks, and Sheila Bair is the kind of strong regulator to lead the effort, an economist writes.
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***** Sheila Bair: the next Elizabeth Warren?

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Bailout Official at the Treasury to Leave Post
MICHAEL J. DE LA MERCED – NYTimes.com
After more than two years of long train rides and selling off more than $120 billion in assets, the chief investment officer of the Treasury Department’s bailout program is stepping down. The official, Matt Pendo, will serve his last day on Friday. He will be succeeded by Charmian Uy, who joined the department last summer from Sunoco, where she was treasurer.
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Regulators look to punish bankers for money laundering
Anna Yukhananov and Aruna Viswanatha | Reuters
Bank executives who violate anti-money laundering laws may soon face harsher punishment in the United States as regulators consider ways to step up the fight against illicit money flows.
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***** What about “too big to flail”?

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Davos Man’s faith in globalisation is shaken
Gillian Tett – FT.com
A decade ago, I sometimes joked that “Davos Man” (as the global elite is sometimes dubbed) believed in a holy trinity of ideas. First, there was reverence for innovation; second, there was blind faith that capitalism was good; third, it was assumed that globalisation was beneficial and unstoppable. The 21st century was thus presumed to be an era when capitalism, innovation and globalisation would rule – and develop in a straight line. How times change.
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***** Will we find Davos Man someday frozen in the ice with his bag of global swag?

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New Restoring Customer Confidence Video
We’re back with an update on confirmations. This new video explains the NFA and CME Group’s electronic confirmation system for futures brokers.

Restoring Customer Confidence More ideas»
Confirmations: NFA and CME’s Financial Match.com

Confirmations: NFA and CME’s Financial Match.com
MarketsWiki.tv

The fraud at Peregrine Financial Group was uncovered in July 2012 by the National Futures Association (NFA) which used an electronic bank account confirmation system. (See Confirmations: Plugging Into Electronic Confirmations)

In November 2012, the NFA and CME Group announced they would implement an electronic confirmation system for futures brokers. The system, operated by Alphametrics, provides a comprehensive check and match of what FCMs say they have in customer funds with what banks say they have.

Chris Hehmeyer, CEO of HTG Capital Partners and chairman of the NFA, says the new system will help regulators and customers assure such a fraud does not occur again.

Watch the video »

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About the Restoring Customer Confidence video series
In the aftermath of the MF Global collapse, fraud at Peregrine Financial Group and high profile high-frequency trading shocks, John Lothian News asks – how do you restore customer confidence and bring traders back? Visit the video series page on MarketsWiki.tv

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Pension funds are the new banks
Sophie Baker, Mark Cobley and Mike Foster in Edinburgh – Financial News
Pension schemes are gearing up to step into banks’ shoes and provide financing for lending, infrastructure spending and the property market, but they don’t want to be treated as a backstop for buying just anything.
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***** I can’t find a hedge fund drive-up window anywhere.

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SEC moves to prevent computer glitches
Dow Jones Newswires
The Securities and Exchange Commission took a step toward preventing computer glitches from overrunning markets, proposing rules that would for the first time impose standards for the electronic architecture of private trading venues known as dark pools.
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***JM: Standards that prevent software defects? That’s a new one.

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MarketsReformWiki: 50K to go
As of this morning, MarketsReformWiki had 3,950,900 page views. Here comes four million!

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MarketsWiki

MarketsWiki Page of the Day
Walt Lukken
jlne.ws/afDDwC

MarketsWiki Recent Updates

People

Walter L. Lukken; Mary Jo White; Gary G. Gensler

Companies, Organizations and Groups

CQG; International Securities Exchange; Futures Industry Association; OCC

Statistics

36,125,083 pages viewed, 7,426 articles, 155,899 edits
MarketsWiki Statistics

Lead Stories

SEC proposes tighter oversight of computer trading
Associated Press via Yahoo! News
U.S. stock exchanges could be subject to tighter oversight of automated trading under a federal proposal that advanced Thursday. The Securities and Exchange Commission voted 4-0 to seek comment on rules that would require routine testing of trading systems.
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Global Derivatives Trading Fell 15% In 2012 -WFE
Jacob Bunge – Dow Jones Newswires
Trading activity on futures and options exchanges around the world dropped by 15% last year as market turbulence calmed and interest rates remained suppressed, according to a report from the World Federation of Exchanges.
jlne.ws/XXl4H8

Warsaw bourse open to consolidation
Jan Cienski in Warsaw – FT.com
The Warsaw Stock Exchange is open to tie-ups with other exchanges, including capital links, the exchange’s new chief executive said, a dramatic change of policy for central Europe’s largest bourse.
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SGX May Renegotiate LME Metals License Agreement, President Says
Bloomberg
Singapore Exchange Ltd., Southeast Asia’s largest bourse, may renegotiate its licensing deal to trade London Metal Exchange contracts after Hong Kong Exchanges & Clearing Ltd. bought the LME, according to the SGX president.
jlne.ws/XXl5Lc

Bats Chi-X Europe grabs Spanish share
Philip Stafford – FT.com
The Spanish stock exchange’s monopoly of domestic share trading is coming under serious assault from alternative trading platforms in the wake of the end of the short selling ban in Spain.
jlne.ws/XXl4Xn

Fed Tests Show 17 of 18 Banks Weathering Severe Slump
Craig Torres & Joshua Zumbrun – Bloomberg
The Federal Reserve said 17 of the 18 largest U.S. banks could withstand a deep recession and maintain capital above a regulatory minimum, a sign of how higher standards and supervisory prodding are strengthening the financial system.
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For White-Collar Defense Bar, It’s Happening in Vegas
By PETER LATTMAN – NYTimes.com
In 1986, Raymond Banoun, a Washington lawyer, organized an annual meeting for the white-collar criminal defense bar. He picked a warm-weather locale for the event, reserving conference facilities at the Boca Raton Resort and Club in Florida.
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Peregrine Trustee Seeks March Extension
JACOB BUNGE – WSJ.com
The trustee appointed to wind down Peregrine Financial Group Inc. sought court permission to run the defunct brokerage until mid-March, while trimming its staff to 15. Trustee Ira Bodenstein said in a court filing he has closed all of Peregrine’s Iowa-based operations but needs more time to shut down the futures and currency firm’s operations and sell off its assets.
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Regulatory

SEC Proposes Rules to Improve Systems Compliance and Integrity
The Securities and Exchange Commission today unanimously proposed new rules to require certain key market participants to have comprehensive policies and procedures in place surrounding their technological systems.
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CFTC Provides Operational Guidance Concerning Maintenance of CICIs Issued Through Assisted Registration
The Utility designated by the Commodity Futures Trading Commission (CFTC) to issue legal entity identifiers or LEIs (currently known as CFTC interim compliant identifiers or CICIs) has requested operational guidance from the CFTC concerning maintenance of CICIs issued through assisted registration with explicit permission from the entity registered.
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Opening Statement At The SEC Open Meeting By SEC Chairman Elisse Walter
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Developing Solutions To Ensure That The Automated Systems Of Our Marketplace Are Secure, Robust, And Reliable By SEC Commissioner Luis A. Aguilar
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Opening Statement At The SEC Open Meeting By Commissioner Daniel M. Gallagher
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SEC: Remarks To The Investment Management Institute 2013 By Norm Champ, Director, Division Of Investment Management As Delivered By David W. Grim, Deputy Director, Division Of Investment Management
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ISDA Response To HMT Regarding ‘Amendments To The Recognition Requirements For Investment Exchanges
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ASIC consults on regulatory approach to managed discretionary accounts
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[ASIC] Female and financially fit
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General Regulation of the AMF – Integral version and table of contents (3 MB)
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General Regulation of the AMF – Book II – Issuers and financial disclosure (Last amended on 21 February 2013)
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General Regulation of the AMF – Book III – Services providers (Last amended on 21 February 2013)
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General Regulation of the AMF – Book IV – Collective investment products (Last amended on 21 February 2013)
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General Regulation of the AMF – Book V – Market infrastructures (Last amended on 21 February 2013)
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General Regulation of the AMF – Book VI – Market abuse: insider dealing and market manipulation (Last amended on 21 February 2013)
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General Regulation of the AMF – Book VII – Regulated markets for emissions trading (Last amended on 21 February 2013)
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BCSC panel releases reasons for declining jurisdiction in Huntingdon’s offer for KEYreit
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Exchanges & Trading Facilities

Exchange Traded Derivatives Trading Volumes Decrease 15% In 2012
For the first time since 2004, the number of Exchange Traded Derivatives (ETD) worldwide decreased in 2012 by 15% to 21 billion, according to statistics compiled by the World Federation of Exchanges (WFE).
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London Stock Exchange in Revised Deal with Clearinghouse
New York Times
The London Stock Exchange said on Thursday that it had agreed to a revised takeover offer for LCH.Clearnet that valued the company at around $824 million. The deal will allow the London exchange to increase its stake in the clearinghouse to as much as 58 percent.
jlne.ws/XXl6yJ

LSE partners with Nasdaq in LCH deal
Tim Cave and Michelle Price – Financial News
The London Stock Exchange and Nasdaq OMX became unlikely bedfellows this morning when it was announced that the US operator would take a 5% stake – and a board seat – in LCH.Clearnet, the international clearinghouse which the LSE is to acquire in a landmark E351m transaction.
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BATS Chi-X Europe Reports New Daily Record Of 16.2% Market Share In Spain – BATS Chi-X Europe’s Market Share In The IBEX 35 Continues To Grow Rapidly
jlne.ws/XXl6P2

NYSE Euronext Amsterdam celebrates International Women’s Day
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NYSE Euronext Paris celebrates International Women’s Day
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Report: adoption by ASX-listed companies of the ASX Corporate Governance Principles and Recommendations on diversity (PDF 38 KB)
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Restrictions on Transactions in Sycamore Networks, Inc. (SCMR)
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Order Origin Code Requirements
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Program Trading Averaged 30.5 Percent of NYSE Volume during Feb. 25-Mar. 1
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Scotty Group SE Starts Trading On The Vienna Stock Exchange Today
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Hellenic Exchanges Monthly Statistics Bulletin – February 2013
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Bulgarian Stock Exchange Monthly Report – February 2013
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Irish Stock Exchange Statistics – February 2013
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Hedge Funds & Managed Futures

Fidelity faces new suit alleging improper use of funds
Reuters
Fidelity Investments, the largest U.S. provider of workplace retirement plans, is facing more accusations that it improperly uses customer money earned in overnight accounts to pay its own operating expenses.
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Showdown Over Notes That Float
PATRICK MCGEE – WSJ.com
Investors are facing off against companies and cities in the booming market for floating-rate bonds. They are taking opposing bets on when and how much the Federal Reserve will allow ultralow interest rates to rise.
jlne.ws/XXl8Xb

Hedge Fund Investors Returning to Europe as Crisis Concerns Fade
Bloomberg
Net demand among clients for hedge funds focused on Europe climbed to positive 26 percent from negative 2 percent a year ago, the biggest swing in sentiment of 13 geographic regions tracked by the Zurich-based bank.
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Rate smoothing will not ease QE pain
Mark Cobley in Edinburgh and Sarah Krouse – Financial News
The UK government’s plan to ease the impact of quantitative easing on pension funds would actually make their situation worse, the National Association of Pension Funds warned yesterday.
jlne.ws/XXl8Xj

Paulson’s Gold Fund Loses 18% in February
Wall Street Journal Blogs
Hedge-fund manager John Paulson’s gold funds took another beating in February, as his bet on the gold market continues to lose money.
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Editorial: A reckless promise again haunts CalPERS
The Sacramento Bee
The honchos at the California Public Employees’ Retirement System are in hot water again. Higher-than-expected claims and lower-than-expected returns on investments have forced the CalPERS board to raise premiums for its long-term care insurance by a whopping 85 percent.
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Banks & Brokers

The Fed’s stress test may not be stressful enough
CNN Money
Some experts worry that the so-called fortress balance sheets of big banks are more fragile than they appear because the Fed is being too lenient regarding how banks account for derivatives.
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JPMorgan Sees Profit Gain in Helping Clients Follow New Rules
Matthew Leising – Bloomberg
The biggest overhaul of financial regulation since the 1930s is creating one of the largest sources of revenue growth for JPMorgan Chase & Co. (JPM), according to managing director Carlos Hernandez.
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IDX Capital Says it Wins $8.25 Million Over Failed Sale
Matthew Leising – Bloomberg
IDX Capital LLC said the company and two former principals were awarded $8.25 million by a jury over the actions of a former colleague that allegedly doomed a $25 million buyout of the firm by Knight Capital Group Inc. (KCG)
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Goldman Sachs Releases Dodd-Frank Act Stress Test Disclosure
The Goldman Sachs Group, Inc. (NYSE: GS) (Company) today announced that as required under the Dodd-Frank Wall Street Reform and Consumer Protection Act (DFA), the Company and Goldman Sachs Bank USA have published a summary of the results of the DFA stress tests performed by each of them under the Federal Reserve’s severely adverse scenario.
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Major Changes Under Way at Goldman Sachs
CNBC
For decades, Goldman Sachs has named a new class of managing directors every year. Now it is switching to every other year. What does this tell us about the future of Wall Street?
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Citigroup asks to spend $1.2 billion on stock buybacks
Reuters via Yahoo! News
NEW YORK – Citigroup Inc said on Thursday it has asked the Federal Reserve for permission to spend $1.2 billion to buy back its own stock through next March but has not asked to raise its quarterly dividend.
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RBS restores customer service after technical glitch
Reuters via Yahoo! News
LONDON – Royal Bank of Scotland said all systems were back to normal on Thursday after overnight computer problems caused disruption for customers for the second time in nine months.
jlne.ws/XXl7CA

Barclays Chief Wants 30% Staff Reduction
CNBC
Barclays’ Antony Jenkins told investors that cost reduction is his absolute priority and he wants to find a way for the bank to operate with as few as 100,000 staff. The Financial Times reports.
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Barclays names new head of operations and technology
Reuters via Yahoo! News
LONDON – British bank Barclays appointed a new head of operations and technology on Thursday and said it had no plans to fill the chief operations officer position left vacant after the exit of Jerry del Missier last year.
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Clearing & Settlement

CME Clearing: Performance Bond Requirements – Steel and Petroleum Crack/Spread Outrights – Effective Tuesday, March 12, 2013
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Indexes & Products

STOXX Announces New Composition Of Select Dividend, Style And Grand Prix Indices Results Of The Review To Be Effective On March 18, 2013
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FTSE4Good Semi-Annual March 2013 Review Admits 20 New Companies To The FTSE4Good Index Series
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Enforcement

SEC Charges California-Based Lawyer with Issuing Fraudulent Legal Opinion Letters
The Securities and Exchange Commission today charged a California-based lawyer who has been fraudulently churning out baseless legal opinion letters for penny stocks through his website without researching and evaluating the individual stock offerings.
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FINRA Bars Florida Broker for Unsuitable Recommendations and Unapproved Securities Transactions Involving 31 NFL Players—3/7/13
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Equities trader sentenced for insider dealing
In a case brought by the Financial Services Authority (FSA), Paul Milsom, a senior equities trader, has today been sentenced at Southwark Crown Court to 2 years imprisonment for disclosing inside information between October 2008 and March 2010. A confiscation order was also made in the sum of £245,000.
jlne.ws/XXl7Tb

The Best Way Yet to Proclaim Love for a Tax Cheat
Bloomberg
Ernst & Young LLP received the usual kid-glove treatment given to too-big-to-fail enterprises when it reached a settlement with the U.S. Justice Department over illegal tax shelters it sold more than a decade ago. The government chose not to prosecute the Big Four accounting firm, and Ernst is getting off by writing a relatively small check.
jlne.ws/XXl7Te

Environmental & Energy

UN Carbon Offset Role to Give Way to New Markets, IETA Head Says
Bloomberg
National carbon cap-and-trade measures will play a bigger role in climate-change efforts as the importance of offset mechanisms started by the United Nations wanes, the head of an emissions trading lobby said.
jlne.ws/12ygtzr

**RKB — CDM and joint implementation losing ground, ETS links are next, adds Forrister.

Poland fails in challenge to EU carbon permit rules
Reuters
The European Union’s second-highest court on Thursday dismissed a Polish challenge to the European Commission over the allocation of free carbon permits to energy-intensive industry.
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**RKB — Challenge to drag on. From the article: Polish environment ministry said that it needed to analyse the verdict but would continue its fight against rigorous targets for 2020 and beyond. “Our economy is not based on gas and yet we have to distribute allowances based on gas-based benchmarks,” spokesman Pawel Mikusek said. “We had to learn this lesson the hard way. Now, when working on the 2030 horizon, we will be better prepared.”

Canadian Arctic May Lose 20% of Glaciers by 2100, Study Shows
Bloomberg
A fifth of Canada’s Arctic glaciers may disappear this century, raising sea levels as their retreat becomes harder to reverse, scientists said.
jlne.ws/XVOTrr

Asia-Pacific

Hong Kong clamps down on quirky property buys
CNN Money
Virtually every piece of privately-owned concrete is up for grabs in Hong Kong as the city’s overheated property market continues to swell, driven by low interest rates, limited supply and waves of cash from mainland China.
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Shanghai Stock Exchange Governor: System Of Decentralizing Refinancing Examination Being Studied
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Japan Exchange Group: Start Of Discussions On Merger Between A Subsidiary And An Affiliate
jlne.ws/XXl7Tg

Invest ASEAN 2013 Draws Enthusiastic Response From Local Investors At Bursa Malaysia – Local Investors Gain Insights To Investing In ASEAN Stocks Directly From Experts And Corporate Leaders
jlne.ws/XXl9KL

HKEx Announces Senior Appointment
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Tokyo Commodity Exchange Announces Rolling Update Of Midterm Management Plan
jlne.ws/XXlaOM

Press Conference By Taro Aso, Deputy Prime Minister, Minister Of Finance And Minister For Financial Services – System Glitch At Osaka Securities Exchange
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Thai Bourse Continues Banker To Broker Scheme To Enhance Investor Base
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Shanghai Stock Exchange Governor’s Proposal: Prompt Amendment To
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Frontier Markets

Lahore Stock Exchange: Bushra Naz Malik Appointed As Member Competition Commission Pakistan
jlne.ws/XXlaOV

Lahore Stock Exchange To Introduce Stock Index Futures Contracts Very Soon
jlne.ws/XXlaOW

Lahore Stock Exchange Becomes The First Exchange In Pakistan To Lauch SMS Trade Alerts To Facilitate The Investors
jlne.ws/XXlaP0

Welcome Remarks By Yabhg Tun Mohamed Dzaiddin Haji Abdullah, Chairman Of Bursa Malaysia Berhad At Launch Of Exchange Traded Bond And Sukuk (ETBS)
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Malawi Stock Exchange Weekly Trading Report
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MCX Weekly Market Report March 01, 2013 – March 07, 2013
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Miscellaneous

Couples Argue Over Money on Average 5 Times a Year, Survey Suggests
Business Wire via Yahoo! Finance
First comes love, then comes marriage. But, what’s the cost of shared financial bliss? A recent survey conducted by TD Ameritrade, Inc., a broker-dealer subsidiary of TD Ameritrade Holding Corporation (AMTD) and LearnVest revealed that the average couple discusses money less than two times a month and fights over money, on average, five times a year.
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