A group of investment firms sue the CBOE, alleging improper fee assessment over a multi-year period. FINRA extends a new regulatory reach to stock trading platforms catering to high-frequency traders, and takes a closer look at dark pools. After earning jeers and criticism in 2008, credit rating agencies are taking fresh damage for their mis-estimation of the US housing market.

First Read

CBOE Celebrates 40 Years
Last night the CBOE held a star-studded panel discussion at the exchange and later a dinner at a Chicago hotel in honor of its 40 anniversary, the 30th anniversary of the index options and the 20th anniversary of the introduction of the VIX. Today, they will have their annual meeting and Bill Brodsky cede the CEO role to Ed Tilly and Mr. Brodsky will assume the role of executive chairman.

The panel discussion featured the President of Barron’s as the moderator, as well as Mr. Brodsky, Myron Scholes, Thomas Peterffy, Larry McMillan and Buzz Gregory from Goldman Sachs. Steve Sears of Barron’s was supposed to be on the panel, but did not make it in due to the weather.

Prior to the dinner, I had the opportunity to meet and shake hands with a hero of mine, Joe Sullivan. Later in the evening, Mr. Sullivan, the first president of the CBOE and the person considered most responsible for getting the CBOE and the whole options industry started, was honored with a standing ovation.

Mr. Sullivan does not get out much, or regularly attend industry conferences, but does have an award named after him. The Joseph W. Sullivan Options Industry Achievement Award was established in May 2002 to recognize individuals who have made outstanding contributions to the growth and integrity of the U.S. options market. Not bad for a former Wall Street Journal reporter.

Mr. Brodsky also received a standing ovation last night, signifying his years of contributions to the options industry and the CBOE. Both ovations were well deserved and gave me a chance to work my new knees during the dinner.

The John Lothian Productions crew received a shout-out during the thank yous for the 40th anniversary video we produced for the CBOE.

The CBOE did a nice job of putting the two events together and even had the Mayor of Chicago making the rounds at the cocktail party before the dinner.

Congratulations to the CBOE on their 40 years. Congratulations to Bill Brodsky on a great run as CBOE CEO and best of luck to Ed Tilly as he moves into the role of CEO.

~John J. Lothian


Save the Date: The 2013 Rocktoberfest benefit for A Leg to Stand On will be Thursday, October 3, 2013 at Crossroads, House of Blues Chicago
ALTSO’s 2nd Annual Rocktoberfest-Chicago will take place at Crossroads at House of Blues on Thursday, October 3, 2013. The event raises funds for A Leg To Stand On (ALTSO), a non-profit organization providing free orthopedic care – including prosthetic limbs, orthotic devices, mobility aids, corrective surgery and rehabilitative care – to children in the developing world.

This year marks the 10th annual Rocktoberfest New York and the 2nd annual Chicago event. Since 2003, ALTSO has helped approximately 10,000 children through partnerships with doctors and hospitals around the world. The Chicago event last year raised over $85,000 while New York raised over $400,000.

Rocktoberfest is a rock-n-roll event and the entertainment for the evening will be provided by musicians from the Chicago financial services community. There is an open competition for bands to play with a requirement to raise donations to ALTSO via corporate sponsors, ticket sales and individual contributions. If you play in a band or know of a band in the industry, please contact Ray McKenzie, VP of ICE and ALTSO committee member, at ray.mckenzie@theice.com.

Attendance to this year’s Chicago event is expected to top 350, making this a great opportunity to perform for your industry peers in a fantastic rock and roll setting and to raise money for a tremendous cause. Please contact Ray McKenzie (ray.mckenzie@theice.com) or Chuck Mackie (chuck.mackie@mavenwave.com) for more details and to get involved.


ITG launches Singapore’s first ‘dark pool’
Jeremy Grant in Singapore – FT.com
Investment Technology Group, the US-based broker, has launched its “dark pool” service in Singapore, marking the first time an electronic block trading platform aimed at buyside investors has been attempted in the city-state, in a sign of growing interest in dark pools in Asia.

***** Who is this Jeremy Grant guy?


CME Group Inc. Announces Preliminary Results from its 2013 Annual Meeting of Shareholders
At the meeting, shareholders:
* elected Terrence A. Duffy, Charles P. Carey, Mark E. Cermak, Martin J. Gepsman, Leo Melamed, Joseph Niciforo, C.C. Odom II, John F. Sandner and Dennis A. Suskind each for a one-year term expiring in 2014;
* ratified the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2013; and
* approved, by advisory vote, the compensation of our named executive officers.

***** And where is the big news?


Despite Risks, Brazil Courts the Millisecond Investor
New York Times
The São Paulo stock exchange is trying to accommodate high-speed traders, even as regulators around the world are skeptical of the sector.

***** But everyone is doing it.


Markit comes of age
Tim Cave – Financial News
There comes a defining event in the history of every successful company. It may be a major contract being won or the launch of ground-breaking product. For Markit, which began life in a Hertfordshire barn 10 years ago as a provider of data on credit derivatives, that moment may just have arrived.


Cinnober builds financial IT cluster in northern Sweden
Cinnober is boldly investing in a financial IT cluster in northern Sweden, centered on the university town of Umeå. The company is also introducing a one-year trainee program this fall.


CME chairman takes credit for MF Global response
Lynne Marek – Crain’s
The chairman of CME Group Inc. said the futures exchange made the right decision when it declined to reimburse customers of the failed MF Global Inc. because those customers have recouped close to 99 percent of their $1.6 billion in lost funds through the bankruptcy process.

***** I wanted the CME Group to lead a consortium of players buying MF Global, but that was before I knew about the hold in the segregated funds. But this type of scenario could be used in the future, and might be needed in certain sectors if there were other significant brokerage failures.


Good Riddance to Bad Rubbish: MF Global Trustee Liquidates CME Group Memberships
MrTopStep.com via Yahoo! Finance
I remember getting to the floor that day and seeing Charlie Carey, the director of the CBOT, being told by security that he was not allowed on the floor. Like many higher-ups in the CME, his firm cleared MF. I will never forget the look on the faces of all the floor locals as they scrambled to get new clearing firms, with no money in their accounts. All the people who lost jobs, all the customers who lost money and all the stress it put on the industry can never be paid back.

***** It was not a nice day.


‘Eureka’ moment for rating agency critics
Stephen Foley and Dan McCrum in New York – FT.com
Marc Joffe reckons it could be a “Eureka!” moment for bond investors and critics of the big credit rating agencies. Mr Joffe, who used to build data models for Moody’s, has just put online a guide to the creditworthiness of all California’s cities, from Eureka in the north to Calexico on the Mexican border.


Silver’s slide shows hedging benefits
Jack Farchy – FT.com
Silver bugs may have been complaining this week as the price of the commodity tumbled to a 2½-year low; but many of the largest miners of the “devil’s metal” had less to worry about. The miners began hedging en masse in late 2010 and early 2011, as silver prices skyrocketed from $18 to $49 in the space of eight months.

***** Huh?


Wall Street Advocacy Group Turns to Former Lawmakers
Wall Street’s top advocacy group is finally getting with the program. The Securities Industry and Financial Markets Association, known as Sifma, announced on Monday that it had hired two former members of Congress to run the ship.

***** See, everyone is helping improve the unemployment rate.


Wall Street & Washington: Fiscal and Regulatory Update
Clarke Camper – Inside the Beltway
Good news / bad news about the federal fiscal landscape; tax reform; crystal balling on Dodd-Frank; the debate on market structure.

*****The first week in June, I will be “John the Camper” with the Boy Scout Troop on a trip to Mammoth Cave.



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Lead Stories

Investment firms sue exchanges in dispute on improper fee charges
A group of investment firms including Citadel Securities LLC sued the Chicago Board Options Exchange Inc and four other exchanges on Wednesday for improper charges on millions of options trades over a seven-year period.

Finra Upgrades Surveillance
Wall Street’s self-regulator, in an effort to catch up with a boom in computer-driven trading, is extending its oversight to two stock exchanges catering to high-speed traders and taking a deeper look at “dark pools” that lure investors away from the public market, the watchdog’s chief said.

Rating agencies under fire again
Dan McCrum in New York – FT.com
After coming under fire for their blessing of risky mortgage backed securities in the lead-up to the financial crisis, credit rating agencies are again facing criticism – this time for misjudging the impact of the rebound in the US housing market.

Fallout spreads in Hong Kong over shut-down Mercantile Exchange
Reuters via Yahoo! Finance
A close political ally of Hong Kong’s chief executive has vowed to cooperate with an investigation into the shuttered Hong Kong Mercantile Exchange after the city’s financial watchdog said it had alerted the police to “serious irregularities”.

Wall Street Seeks Dodd-Frank Changes Through Trade Talks
U.S. bankers and insurers are trying to use trade deals, which can trump existing legislation, to weaken parts of the Dodd-Frank Act designed to prevent a repeat of the 2008 financial crisis.

As Gleacher Vote Nears, A Tale of the Little Bank That Couldn’t
Liz Moyer – MoneyBeat – WSJ
Call it the little bank that couldn’t. Gleacher & Co. shareholders meet Thursday to vote on directors who are supporting a liquidation or sale of the beleaguered advisory firm. It marks the end of a bitter episode for Eric Gleacher, a M&A banker from the 1980s-era merger boom and the firm’s founder and namesake, who quit as chairman in January to go it alone, again.

Eurozone looks to ease ‘Robin Hood’ tax collection
Alex Barker in Brussels and Philip Stafford in London – FT.com
The biggest eurozone economies are looking at commandeering Europe’s market infrastructure to collect a tax on financial transactions in the latest attempt to ensure the levy captures trades executed in the City of London.

Europe Tries to Tackle Tax Evasion
Faced with public outrage over tax-evasion scandals at a time of austerity budgets, European leaders pledged Wednesday to ensure that everybody—from high rollers to big multinationals—pay their fair share to cash-strapped governments.

Wall Street’s A-List Turns Out to Fight Skin Cancer
Jeffrey Rowbottom, a managing director at Kohlberg Kravis Roberts, was greeting guests Tuesday evening at a charity event at the Sea Grill in Rockefeller Center, when one issued a challenge.


Volcker: Multiple Bank Regulators Is ‘Recipe for Getting Nothing Done’
Wall Street Journal Blogs
Paul Volcker, the former chairman of the Federal Reserve, says the U.S. has too many agencies charged with the supervision and regulation of banks.

Russell Ryan: Why the SEC Needs ‘No-Admit’ Settlements
Last week, in a letter to the heads of the Securities and Exchange Commission, the Department of Justice and the Federal Reserve, Sen. Elizabeth Warren (D., Mass.) criticized the SEC practice of settling its civil litigation without requiring the defendant to admit wrongdoing. She said this practice reduces the Wall Street regulator’s leverage and forces it “to settle on terms that are much more favorable to the wrongdoer.”

CFTC’s Division of Market Oversight Issues Advisory Regarding the Obligation to Report Omnibus Account Information in a Timely Manner
The Division of Market Oversight (DMO) of the Commodity Futures Trading Commission (CFTC) today issued an advisory regarding the ongoing duty to comply with the timely reporting requirements of CFTC Regulation 17.04(a).

Merely Cracking The Glass Ceiling Is Not Enough: Corporate America Needs More Than Just A Few Women In Leadership By SEC Commissioner Luis A. Aguilar – Women’s Executive Circle Of New York, The University Club Of New York, New York, New York, May 22, 2013

ASIC reports on relief decisions – October 2012 to January 2013

ASIC to further improve hedge fund disclosure

BCSC alleges fraud and illegal distributions against two sisters and Alberta company

Exchanges & Trading Facilities

Direct Edge Selects FINRA for Market Surveillance
Direct Edge, the third largest stock exchange operator in the U.S., has agreed with the Financial Industry Regulatory Authority (FINRA), the independent, non-governmental regulator for all securities firms doing business with the public in the U.S., to provide market surveillance services on behalf of Direct Edge’s two licensed stock exchanges.

ASIC releases ASX assessment report

Bahamas International Securities Exchange January To December 2012 Statistical Report

Bermuda Stock Exchange Will Be Closed For Bermuda Day Holiday

CBOE, CFE, C2 and CBSX Trading Schedule for the Memorial Day Holiday

Direct Edge: Market Holiday – Memorial Day

Hedge Funds & Managed Futures

Hedge Funds Trail S&P 500 by 10 Percentage Points, Goldman Says
Hedge funds’ returns have stayed “lackluster” this year, with the $2.3 trillion industry trailing the gains of the Standard & Poor’s 500 Index by about 10 percentage points, according to Goldman Sachs Group Inc.

IMF studies changes to bond restructurings
Robin Harding in Washington and Robin Wigglesworth in London – FT.com
The International Monetary Fund is studying changes to how it handles sovereign debt restructurings after a turbulent period that has rattled the balance of power between governments and their creditors.

Morgan Stanley Said to Seek $4 Billion for Infrastructure
Morgan Stanley ’s infrastructure investment unit plans to seek $4 billion for a second global fund, according to two people with knowledge of the matter.

Real estate debt funds still at ’embryonic’ stage
Sarah Krouse – Financial News
Property debt funds are stepping in to replace banks as a source of lending, but real estate experts say the process is still at a very early stage of development.

Pension funds should seize the opportunity to step into lending
Mike Foster – Financial News
Markets abhor a vacuum and there is no shortage of asset managers and specialists trying to supplement the banks as lenders of first resort.

CalPERS Nominated For Best Responsible Investment Report By Large Pension Fund – System’s

Subscription begins for SANHA GmbH & Co. KG bond

BM&FBOVESPA’s Socio-Environmental Investment Exchange Lists Five New Projects Today

Banks & Brokers

Citigroup Chief Says Supermarket Bank Not Right for Times
Citigroup Inc. Chief Executive Officer Vikram Pandit said supermarket banking, a strategy pursued by his firm in past decades to provide all financial products including insurance, no longer fits the times.

Banks Should Abolish the Bonus System
The bonus system is no longer fit for purpose and should be scrapped. No bank will ever be brave enough to do this on its own, but it would only take one to open the floodgates.

Monte Paschi director accused of insider trading
Reuters via Yahoo! News
MILAN – A board member at Italy’s troubled lender Monte dei Paschi di Siena is being investigated over allegations of breaking insider trading rules and has been suspended, the bank said on Wednesday.

Morgan Stanley fixed-income head deRegt retires
Reuters via Yahoo! Finance
Morgan Stanley’s head of fixed income, Ken deRegt, is retiring from the firm, according to internal bank memos obtained by Reuters, after the company sustained a more than 40 percent decline in bond trading

Neas Energy Hires Deutsche Bank’s Smithson as Power Trader
Neas Energy A/S, the Danish energy-trading company, boosted its power team with the hire of Benjamin Smithson from Deutsche Bank AG as a short-term European electricity trader.

After a Vote, Dimon Moves to Mend Bank’s Fences
A resounding shareholder endorsement of Jamie Dimon has done what JPMorgan Chase’s robust profits and soaring stock price could not: it helps the nation’s largest bank and its chief executive move beyond a multibillion-dollar trading loss that has dogged the bank for more than a year.

Société Générale to Dismiss Rosbank Chief
French bank Société Générale SA said Wednesday that it was moving to dismiss Vladimir Golubkov, chief executive of its Russian unit Rosbank, a week after he became the target of a probe into alleged bribery in the country.

Bank of New York Mellon to increase wealth management sales force by 50%
Dow Jones Newswires
Bank of New York Mellon plans to increase its wealth management sales force by 50%, or up to 100 new positions, under a two-year recruiting campaign.

Indexes & Products

New Lyxor Active ETF launched in the XTF segment on Xetra


Moscow Exchange To Launch The Blue-Chip Index

FT Portfolios Canada Co. Launches Three ETFs On Toronto Stock Exchange – FT Portfolios Canada Co. To Open Trading On TSX This Morning


Redline Trading Extends Ultra-Low Latency Futures Trading Solution with Support for the Intercontinental Exchange (ICE)
Redline Trading Solutions today announced support for the Intercontinental Exchange (ICE) futures exchange in its ultra-low latency InRushTM 3 Accelerated Ticker Plant and Execution Gateway products.

Advise Technologies Launches New Integration Services – Automation Streamlines The Process For Form PF, CPO-PQR
Advise Technologies, LLC, a software solutions provider for global regulatory and investor reporting, announced today that it has launched a new consulting and integration services offering. This service is designed to help clients create more robust and efficient filing processes for Form PF, CPO-PQR and similar reporting.


SEC Charges City of South Miami with Defrauding Investors About Tax-Exempt Status of Municipal Bonds
The Securities and Exchange Commission today charged the City of South Miami, Fla., with defrauding bond investors about the tax-exempt financing eligibility of a mixed-use retail and parking structure being built in its downtown commercial district.

FCA fines JP Morgan International Bank £3.1m
Dow Jones Newswires
The UK’s financial regulator said on Thursday that it had fined a JPMorgan Chase wealth management unit £3.1m for control failings.

NFA takes emergency enforcement action against California firm Light Tower Investments, Inc. and one of its principals, Klaus P. Weyers
National Futures Association (NFA) announced today that it has taken an emergency enforcement action against Light Tower Investments, Inc. (LTI), an NFA Member commodity pool operator (CPO) and commodity trading advisor (CTA) located in Escondido, California, and Klaus P. Weyers (Weyers), a principal and associated person (AP) of LTI.

HSBC Client Avoids Prison for Hiding Bank Accounts From U.S.
A New Jersey businessman avoided prison after admitting he conspired with five HSBC Holdings Plc bankers to hide his Indian bank accounts from U.S. tax authorities, getting credit for helping prosecutors.

Former Bell Potter adviser sentenced to 5 years jail

ASIC concerns sees payday lender change advertising

Environmental & Energy

Airlines May Delay Emissions Measure for Extra Year: ICAO
Airline industry agreement on a standard measure of aircraft greenhouse-gas emissions may be delayed at least a year for more research, according to the International Civil Aviation Organization.

China to cap carbon emissions by 2016
China will apply a cap on its greenhouse gas emissions by 2016, according to local media. The National Development and Reform Council (NDRC) has sent a proposal to the State Council for approval that would place a limit on the world’s biggest emitter. It is expected to be supportive of the plan.

California carbon permits sell for record high price
Climate Spectator
California’s largest greenhouse gas-emitting businesses paid $14 per metric tonne (1.1 tonnes) for the right to release carbon this year, a record-high price that narrowly beat market expectations, the state said on Tuesday.


[TSE] mini-TOPIX index futures trading hits a record high today
As of today, the trading volume of mini-TOPIX index futures reached a record high of 51,969 contracts.

TSE Market Impact View Report, “How Can I Profit Using TMIV?- Opportunities for Non-High Frequency Traders” Now Available

[OSE] To Those who Acquire SPAN Risk Parameter Files – Changes, etc. associated with Integration of Clearing Organizations Scheduled on July 16

HKEx Main Board And GEM Listed Issuer Corporate Documents 2012 On DVD

Frontier Markets

Fears grow over EM sovereign bond bubble
Robin Wigglesworth – FT.com
As far as financial follies go, tulip mania takes some beating. But future economic historians may look back at the time when investors financed a convention centre in Rwanda as the moment that the rush into emerging market bonds became frothy.

T. Rowe Price Says Dubai, Qatar Deserve MSCI Upgrade to Emerging
Dubai and Qatar deserve to be upgraded to emerging-market status at MSCI Inc. next month, T. Rowe Price Group Inc. said, after the emirates failed to satisfy the index provider’s requirements for four years.

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