John Lothian Newsletter: Swaps Clearinghouses Said Set for Systemic Designation by U.S.; Nasdaq Chief Blames Software for Delayed Facebook Debut; Regulator spurred in push for swaps rules

May 22, 2012

Some swaps clearinghouses are set to go on the “Too big to fail” list in the USA. Facebook-related finger pointing increases, and Nasdaq’s chief has his pointed at software designers to explain how his exchange’s order handling failed to meet the market’s needs. US banks are stung as the CFTC’s Gary Gensler says their offshore branches probably wouldn’t be exempt from Dodd-Frank regulation. In the top box today, definitive analysis demonstrates that Glass-Steagall’s return will absolutely help improve the safety of the markets. Or not.

Observations – Statistics – Commentary

DTCC signals expansion into Asia
By Jeremy Grant in Singapore – Financial Times
The Depository Trust & Clearing Corporation, the US securities post-trade group, signalled expansion into Asia on Monday by picking Singapore as the site for its first data centre in the region to store electronic records of over-the-counter derivatives trades.

**** I have a theory. I call it my Jeremy Grant is in Singapore so let’s do something there theory.


Reinstating an Old Rule Is Not a Cure for Crisis
Call it the Glass-Steagall myth. A meme around Glass-Steagall has been created, repeated so often that it has almost become conventional wisdom: the repeal of Glass-Steagall led to the financial crisis of 2008. And, the thinking goes, has become almost religious for some people, that if the law were reinstated, we would avoid the next crisis.

Bringing Back Glass-Steagall Would Rebuild Shattered Confidence In Wall Street
Give the country a break. It can’t handle another financial meltdown. In 1929, again in 2000, and yet again in 2008, we’ve seen how those meltdowns are inevitable if the financial industry is left to its own devices.

**** No, wait, Yes, wait, I don’t know anymore.


Phil Angelides: Pay No Attention to That Man Behind the Curtain
The Huffington Post
Jamie Dimon was hailed as the wizard of Wall Street. Until the revelation of JPMorgan Chase‘s disastrous derivatives bet, he was the man who supposedly could do no wrong. But, alas, even wizards are not all powerful, not in Oz and not when trading in financial derivatives.

**** Isn’t there a more contemporary movie reference we can use? Jamie Dimon is no Avenger. Jamie Dimon is a mud blood wizard, something like that.


Time to plan a velvet divorce for the euro
By Gideon Rachman – Financial Times
As I read the umpteenth article on the “Grexit”, a phrase from the film Marathon Man ran around my head. In this cult-thriller, Laurence Olivier plays a war criminal turned dentist who tortures Dustin Hoffman by drilling through his dental nerves without anaesthetic. As he does so, he asks repeatedly “Is it safe?”

**** OK, that is a movie reference I could have lived without.


Computer Trading Takes Human Turn
When Robert C. Jones started working on Wall Street 30 years ago, few investors placed their faith—and made big trading bets—in computer-driven models.


Nicole Wesch Joins Newedge as Global Head of PR
Newedge, a global leader in multi-asset brokerage and clearing, today announced the appointment of Nicole Wesch as Global Head of Media and Public Relations. Ms. Wesch is based in the company’s London office and is responsible for leading Newedge’s PR activities internationally.


Raymond J. Learsy: Does JPMorgan’s Derivatives Fiasco Portend The Collapse Of Crude Oil and Gasoline Prices?
The Huffington Post
According to The Wall Street Journal, JPMorgan’s losses on what has been reported as big directional bets on credit derivatives, but never fully disclosed by JPMorgan, could reach $5 billion and counting. Along with credit derivatives and other commodities such as copper JPMorgan Chase is a behemoth trader in crude oil and petroleum products, both as physical product and its financial derivatives.

***JM: No. Next!


Wall Street & Washington: More Partisan Gridlock
Clarke Camper – NYSE Euronext
Crystal balling the end of 2012 regarding the November election; Taxmageddon; and Dodd-Frank.


SEC’s Investigation Unit ‘Outgunned, On A Roll’
The Securities and Exchange Commission (SEC) – once accused by a whistle blower of not being able to find ice cream at a Dairy Queen – is experiencing something of a culture shift. Last year the agency filed a record 735 enforcement actions and collected nearly a billion dollars in penalties from companies with SEC violations.


Calm Seas Can Mask Market Risks That Remain
Whether you are a whale, a squid or one of the smaller fish swimming in the investing sea, “yield” has been hard bait to find. The hunt for the elusive return that can vault fund managers above rivals and benchmarks as well as give investors that bang-for-their-buck feeling is dominating market psychology and driving its behavior. With the Federal Reserve keeping interest rates close to zero to stimulate a sluggish economy, those looking for yield have had to move toward risky assets.


The Case of the Missing Skills
More than half of American employers reported having difficulty filling positions because of a lack of suitable skills in 2010, one of the highest shares for developed countries.


MarketsWiki Page of the Day
Andy Coyne


MarketsWiki Recent Updates


Natasha de Terán; Jessica Titlebaum; Gil Mandelzis; Andy Coyne; Barry Vasudevan; Nicole V. Rohr; John Denza; Gary Delany; Hazem Dawani

Companies, Organizations and Groups



Job Postings; Group of 8


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Lead Stories

Swaps Clearinghouses Said Set for Systemic Designation by U.S.
By Cheyenne Hopkins, Silla Brush and Ian Katz
A panel of U.S. regulators plans to designate some swaps clearinghouses as systemically important as soon as tomorrow, putting them under heightened supervision, according to two people familiar with the panel’s work.

Nasdaq Chief Blames Software for Delayed Facebook Debut
By Nina Mehta – Bloomberg
Nasdaq OMX Group Inc. (NDAQ), under scrutiny after shares of Facebook Inc. were hit by delays and mishandled orders on its first day, blamed “poor design” in the software it uses for driving auctions in initial public offerings.

Regulator spurred in push for swaps rules
By Shahien Nasiripour in Washington – Financial Times
US banks were dealt a blow on Monday after the main US swaps regulator said new rules will probably apply to overseas branches of America’s lenders and the affiliates they guarantee.

Regulators Explore Dodd-Frank Powers To Rescue ‘Another AIG’
Federal regulators tasked with ensuring the safety and soundness of the U.S. financial system have started exploring new powers they have to address the failure of a large and interconnected nonbanking institution that the supervisors may deem “too big to fail.”

Insight: Morgan Stanley cut Facebook estimates just before IPO
International Business Times
In the run-up to Facebook’s $16 billion IPO, Morgan Stanley, the lead underwriter on the deal, unexpectedly delivered some negative news to major clients: The bank’s consumer Internet analyst, Scott Devitt, was reducing his revenue forecasts for the company.

As Facebook’s Stock Struggles, Fingers Start Pointing
Wall Street is playing the Facebook blame game. As shares of the social network tumbled in their second day of trading, bankers, investors and analysts wondered what had gone wrong with the initial public offering of Facebook, the most highly anticipated technology debut in years.

Jamie Dimon Shows Some Love for Volcker Rule
Jamie Dimon has a love-hate relationship with the Volcker Rule. On Monday, he was showing the love.

Fitch Downgrades Japan
Fitch Ratings downgraded Japan’s sovereign rating to A-plus and said it was maintaining a negative outlook due to the “leisurely” pace of the county’s efforts to remedy its dire fiscal situation. The firm’s long-term foreign-currency rating had been AA and its local currency issuer default rating had been AA-minus.

Top U.S. Money-Laundering Regulator Dismissed
The Treasury Department has dismissed the country’s top anti-money-laundering regulator from his post, people familiar with the matter said, a rare move that the Obama administration isn’t explaining.

Environmental Trading News

G-8 to Eliminate Fossil Fuel Subsidies, Curb Climate Pollutants
Leaders of the world’s most developed economies, the Group of Eight, have agreed to phase out government subsidies for coal, oil and gas and pursue sustainable energy and low carbon policies “in order to tackle the global challenge of climate change.”

**RKB – Camp David declaration:

President Obama, Other G8 Leaders Commit to Cutting Short-Lived Climate Pollutants
Institute for Governance & Sustainable Development Development
Press Release
President Obama announced Saturday at the conclusion of the G8 Summit at Camp David, Maryland that the G8 leaders have committed to cutting short-lived climate pollutants to mitigate near-term climate change, save lives, and improve crop yields, and have joined the new Climate and Clean Air Coalition for Reducing Short Lived Climate Pollutants (CCAC).

**RKB — President Obama’s G-8 Closing remarks:

Business leaders downplay Rio influence
Business Green
Businesses have little faith that next month’s international climate talks in Rio will see much progress and expect private sector initiatives to have more of an impact, according to a new survey of chief executives.

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

Nasdaq Confronts Liability On Traders’ Losses In Facebook IPO
Nasdaq OMX Group Inc. on Monday faces demands from irate brokers and traders that want the exchange group to make up losses driven by its mishandling of Friday’s initial public offering of Facebook Inc.

Clearstream and Iberclear to develop collateral management service for Spain
Iberclear, the Spanish central securities depository and subsidiary of BME (Bolsas y Mercados Españoles), and the international central securities depository Clearstream have signed an agreement to develop a new tri-party collateral management service for the Spanish market. The service will target the collateralisation of exposures in the Spanish market of Iberclear clients.

CME Group Clearing Advisory

CBOE, C2, CFE, And CBSX Trading Schedule For Memorial Day Holiday

Banks, Brokers & Dark Pools

JPMorgan to Suspend Stock Buybacks
Two months after announcing a $15 billion share buyback program, JPMorgan Chase reversed course on Monday, saying it was halting the repurchases after the bank’s multibillion-dollar trading loss.

JPMorgan Veered From Hedging Practices at Competing Banks
JPMorgan Chase & Co.’s biggest U.S. competitors say their corporate investment offices avoid the use of derivatives that led to the bank’s $2 billion loss and buy fewer bonds exposed to credit risk.

JPMorgan Counterparty Platt Says Bank’s Loss May Widen
By Erik Schatzker and Stephanie Ruhle – Bloomberg
JPMorgan Chase & Co. (JPM) may face even bigger losses on faulty bets in credit markets if Europe’s debt crisis worsens, according to one of the hedge funds that took the other side of the trades.

JPMorgan’s Dimon: Losing trades were ‘isolated event’
CNN Money
JPMorgan Chase’s multibillion trading loss will be forgotten before the year is through, Chief Executive Jamie Dimon predicted Monday at the Deutsche Bank Global Financial Services Investor Conference.

FDIC sues big banks over mortgage debt losses
Reuters via Yahoo! News
(Reuters) – The U.S. government has filed three lawsuits against a group of large banks over losses on soured mortgage debt purchased by two small Illinois banks that failed in 2009.

Goldman Sachs Spreads Tech Investments After Facebook
Goldman Sachs Group Inc. (GS) , the bank which last week doubled its money from a 2010 bet on Facebook Inc. (FB) , is ramping up investments in Web startups, underscoring the allure of high-growth tech companies to financiers far from Silicon Valley.

Citigroup Disclosure Suit Cancelled
Zacks via Yahoo! Finance
Citigroup Inc. and its Chief Executive Vikram Pandit achieved a dismissal of a lawsuit that indicted them for not disclosing its risk during the financial meltdown in 2008, according to a Reuters report.

Icap unveils top brass across FX and Traiana
By Luke Jeffs – Reuters
ICAP has announced a swathe of senior management changes across its foreign exchange and post-trade systems units, another reshuffle at the British broker as it gears up for regulatory reforms.

RBC Registers $12 Billion Covered-Bond Program After SEC Letter
Royal Bank of Canada won permission from the Securities and Exchange Commission to issue covered bonds as publicly registered securities in the U.S., potentially broadening the pool of investors for debt now sold through private placements.

Bank Of America’s Brian Moynihan Says Universal Banking Model Isn’t Dead
There’s been a lot of talk about the return of Glass Steagall but Bank of America CEO Brian Moynihan thinks the universal banking model is crucial for his business.

Jefferies Expands Its Footprint in European Restructuring
Business Wire
Jefferies today announced the hiring of Lyndon Norley as a Managing Director and Head of European Restructuring & Recapitalization Investment Banking. He is based in the firm’s

Deutsche Bank’s Jain: Europe Has Made ‘Tremendous Progress’ In Recent Months -CNBC
Deutsche Bank AG (DB) investment-banking chief Anshu Jain, who will become co-chief executive in June, said in an interview with CNBC that outside of Greece, the situation in Europe is “encouraging,” with “tremendous progress” in recent months.

Corzine Pay Plan Topped $8 Million
MF Global Holdings Ltd. approved more than $8 million in compensation for former Chief Executive Jon S. Corzine in the year before the firm’s collapse and a shortfall in customer funds estimated at $1.6 billion.

Prominent Team Of Capital Markets Experts Further Boosts BGC Partners’ / Newmark Grubb Knight Frank’s Growing Real Estate Platform
BGC Partners, Inc., a leading global brokerage company servicing the wholesale financial and property markets, today announced the appointments of Mark F. Brown, Jeremy D. Stoler, N. Dante LaRocca, and John B. Tesoriero, who add to BGC/Newmark Grubb Knight Frank’s growing roster of leading professionals within its commercial real estate platform.

Final Reminder: BGC Partners to Host Investors and Analysts on Wednesday May 30, 2012

Morgan Stanley Smith Barney Launches Customized Edition of It’s A Money Thing! A Girl’s Guide to Managing Money

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.

CFTC Confirms Investigation Into JP Morgan
The Commodity Futures Trading Commission has launched a formal investigation into trades that caused J.P. Morgan Chase & Co. (JPM) to report $2 billion in losses earlier this month. CFTC spokesman Steven Adamske, who confirmed the investigation early Monday, said the agency “could not share any additional information at this time” with regard to the specifics of its probe.

CFTC Chief Criticizes Swaps Bill Post-J.P. Morgan
Dow Jones
The nation’s top commodities regulator on Monday said he was concerned about legislation under consideration in the House that would exempt derivatives transactions made by offshore branches of a U.S. bank from regulation required by the Dodd-Frank Act.

SFO in ‘urgent’ review of Tchenguiz case
By Ed Hammond and Caroline Binham in London – Financial Times
The Serious Fraud Office said on Tuesday that it is reviewing its investigation and status of Vincent Tchenguiz, the property tycoon, “as a matter of urgency” after new material raised questions over his suspected role in the collapse of Iceland’s Kaupthing bank.

SEC Charges Former Yahoo Executive And Former Ameriprise Manager With Insider Trading

Keynote Address On The Cross-Border Application Of Dodd-Frank Swaps Market Reforms Before The 2012 FINRA Annual Conference, CFTC Chairman Gary Gensler

Richard G. Ketchum, Chairman And Chief Executive Officer, FINRA, FINRA Annual Conference, Washington, DC, Monday, May 21, 2012

Gupta ‘Threw Away His Duties,’ Prosecutor Says in Opening
Rajat Gupta , who was a director at Goldman Sachs Group Inc. (GS) , “threw away his duties” when he tipped hedge-fund co-founder Raj Rajaratnam to news that the bank would get a $5 billion investment, a prosecutor told jurors.

Galleon prosecutor aims to cement legacy in U.S. Gupta trial
Reuters via Yahoo! News
It was during a quiet afternoon in the sixth week of the insider-trading trial of hedge fund billionaire Raj Rajaratnam that prosecutor Reed Brodsky sprang one of those rare surprises usually seen only in the movie version of a courtroom drama.

FINRA Suspends, Orders Pennsylvania Woman to Pay $200K in Restitution
Cantone Research Inc. and Christine L. Cantone submitted an Offer of Settlement in which the firm was censured, fined $25,000, $10,000 of which was jointly and severally with Christine Cantone, and ordered to pay a total amount of $200,000 in partial restitution to customers, jointly and severally with Christine Cantone.

Tribunal Upholds UK’s Financial Services Authority Decision To Ban And Fine Former UBS Advisers £1.3m For Not Being Fit And Proper In Relation To An Unauthorised Trading Scheme

ASIC’s forward plan for insolvency industry

New Zealand’s Financial Markets Authority Consultation On Disclosure Of Non-GAAP Financial Information

Autorite Des Marches Financiers: Extension Of Transaction Reporting Requirements To OTC Derivatives

Investments – Indexes – Managed Futures – Managed Funds

Unusual ETF Redemption Adds To Investors’ Nerves
An unusual $788 million trade that stripped an exchange-traded fund of 6.5% of its assets–and caused a record one-week decline in assets of the entire market for junk bond ETFs–has long-term investors nervous that similar arcane practices will come at their expense.

Barclays to sell $6.1BN stake in BlackRock
Associated Press via Yahoo! News
Britain’s Barclays Bank PLC said Monday it intends to dispose of its entire 19.6 percent stake in the U.S. asset management company BlackRock Inc., valued at $6.1 billion.

Institutional Investors Spur Hedge Funds To Grow Operational Infrastructure And Increase Transparency, Says AIMA/KPMG Survey
New global report by KPMG and AIMA covered 150 managers with $550bn in assets under management

Man Group to Buy Hedge Fund-of-Funds Manager FRM Holdings
Man Group Plc, the world’s largest publicly traded hedge fund, agreed to buy FRM Holdings Ltd., adding $8 billion of assets invested in other hedge fund managers as its own stock price sinks.

5 hedge fund stars, 5 perspectives
CNN Money
From John Paulson to Daniel Loeb, the best of the best from Maneet Ahuja’s new book The Alpha Masters: Unlocking the Genius of the World’s Top Hedge Funds.

Wall Street Strategists Are Getting Wishy-Washy
Business Insider
This morning, UBS’s US Equity Strategy team led by Jonathan Golub published a report titled Cautious But Constructive . That’s Wall Street-speak for “we kinda like stocks, but we’re also scared to death of them.”

Ray Dalio of Best-Performing Hedge Fund Interview with Barron’s
Ray Dalio, who last year usurped the title of all-time best-performing hedge fund manager from George Soros, makes profitable bets based on his understanding of the world economy. He explains what he is seeing going on in the macro picture now with Barron’s:

Susquehanna Financial Group, LLLP Announces Tom Claps in New Role as Litigation Desk Analyst

iShares Plans LatAm Bond ETF

Semi-Annual Changes to the NASDAQ OMX CRD Global Sustainability Index

Technology News

RTS Announces Readiness for Eurex’s New Trading System
RTS Realtime Systems Group (RTS), a leading global trading solutions provider, today announced that it is preparing for full support of Eurex’s new trading system. With this support, RTS will help global clients achieve an easy transition to the new system Eurex will introduce in December, pending approvals.

GreySpark Partners Releases Detailed Analysis Of OMS And EMS Offerings
Research Identifies Need For Specialised And Sophisticated Systems – New Regulation, Increased HFT And Required Efficiency Shape Vendor Offerings

Media News

Bloomberg TV’s Stephanie Ruhle Likes To Eat Erik Schatzker’s Lunch For Breakfast
Business Insider
Bloomberg TV’s Stephanie Ruhle, a former managing director at Deutsche Bank, has become a star at the financial news network. We asked her to take our Clusterstock questionnaire. Check out her responses below.

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

Chi-X Japan Launches Hosted Risk Controls Platform
Chi-X Japan Limited, a wholly owned subsidiary of alternative trading venue operator Chi-X Global Holdings LLC, today announced the introduction of its Hosted Risk Controls (HRC), becoming the first market centre in Japan to offer this service.

Exclusive: U.S. lets China bypass Wall Street for Treasury orders
China can now bypass Wall Street when buying U.S. government debt and go straight to the U.S. Treasury, in what is the Treasury’s first-ever direct relationship with a foreign government, according to documents viewed by Reuters.

SGX offers MSCI Indonesia Futures from 11 June
Singapore Exchange’s (SGX) MSCI Indonesia Index Futures will begin trading from 11 June 2012.

Huatai-PineBridge Completes US $5.3 billion Exchange Traded Fund Initial Public Offering
Business Wire
PineBridge Investments, the global multi-asset class investment manager, is pleased to announce that its China joint venture, Huatai-PineBridge Fund Management Co , successfully launched its CSI 300 ETF product in Mainland China, raising US$5.3 billion in its initial public offering.

Chinese tycoon jailed after death sentence revoked
Channel 8 San Diego
A former Chinese tycoon who was convicted of illegally raising money for her business was sentenced Monday to prison after China’s supreme court overturned a death sentence following a public outcry.

Japan seeks to get in on act investing in Myanmar
Japan will start negotiations on an investment treaty with Myanmar on Wednesday, the trade ministry said, as corporations around the world scramble to do business in one of the last frontier markets in response to encouraging political reforms.

Koreans Need to Recoup Woori Funds Soon, Regulator Says
More than 10 years after South Korea spent $11 billion bailing out its weakest banks, taxpayers are still waiting to get their money back. It’s time to fix that, says Kim Seok Dong, the nation’s top financial regulator.

Thai Bourse Visits Myanmar For Future Capital Market’s Cooperation
Charamporn Jotikasthira, President of The Stock Exchange of Thailand (SET), together with other SET executives, were recently invited to visit U Hla Tun (6

Shanghai Stock Exchange: Heavy Punch On New Share Speculation

Hong Kong’s Securities And Futures Commission Calls Investors’ Attention To Recent Ordinance Amendments

Hong Kong’s Securities And Futures Commission Introduces Measures To Facilitate Establishment Of FDRC

Osaka Securities Exchange SPAN Parameter Updated (May 28, 2012 – Jun. 01, 2012)

HKEx Participates In Give & Gain Day 2012

Osaka Securities Exchange: SPAN Parameters For DJIA Combined Commodity

Frontier Markets

Bursa Malaysia Derivatives Launches Revamped Options On Index Futures
Bursa Malaysia Derivatives Berhad (BMD) has launched a revamped options contract based on Malaysia’s composite index futures (FKLI) to complement the index futures market and to provide traders with more hedging, arbitraging and trading choices.

John Lothian Newsletter

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