John Lothian Newsletter: Global regulators plan margin rules soon for uncleared derivatives; LCH.Clearnet left off U.S. “systemic” list; Jones to leave NYSE Euronext amid restructure

May 30, 2012

Regulators around the world plan to suggest rules to require clearing derivatives, but they won’t be ready to do that in time for the June G20 summit. Even though it’s a big player in the clearing sector, LCH.Clearnet was omitted from the “systemically important” list of companies in the U.S., despite suggestions that trouble at LCH.Clearnet would strongly affect the American financial system. The EU considers a plan to create a “banking union” (or perhaps more accurately, “a banking failure union”) to spread around and better absorb the shock that could come from failing institutions within the eurozone. Garry Jones, global head of derivatives at NYSE Euronext, will leave NYSE Euronext  following a restructuring.

First Read

Corzine rule proposed for futures brokers
Reuters via Yahoo! News
Futures brokers would need to get approval from a top executive before making big withdrawals from customer accounts under a rule now pending and referred to in the industry as the “Corzine rule”, after MF Global‘s former CEO Jon Corzine.


Penson Worldwide Sells Futures Business To Knight Capital Group
Penson Worldwide agreed Tuesday to sell its futures business to Knight Capital Group Inc., as the troubled brokerage and clearing firm works to sell assets and raise capital.


Jones to leave NYSE Euronext amid restructure
Michelle Price, Jacob Bunge and Tom Osborn, Dow Jones Newswires
Garry Jones, global head of derivatives NYSE Euronext, is due to step down following a management restructure at the US-headquartered exchange, according to sources familiar with the matter.
NYSE Euronext issued a memo today confirming his departure after a transitional period, according to one source. It is not known where he is moving to. A spokesperson for NYSE Euronext had no immediate comment.


Why S.E.C. Settlements Should Hold Senior Executives Liable
A federal judge rejected a proposed settlement last year between Citigroup and the Securities and Exchange Commission. The S.E.C. had alleged that Citi had defrauded investors by selling them collateralized debt obligations that included assets the bank handpicked and then bet against. In rejecting the settlement, the judge, Jed S. Rakoff of the Federal District Court in Manhattan, cited in particular a lack of admission of guilt by Citigroup, even as it agreed to pay $285 million and promised not to violate securities laws in the future. Whether or not Citi’s behavior was illegal, it is clearly behavior that should be discouraged. But how should this best be accomplished?


The Simplicity Solution
Time to fess up: With the two-year anniversary of the passage of the Dodd-Frank financial reform law approaching, I’m still not sure what to think about the darn thing.


Networks Built on Milliseconds
Microwaves—Not Fiber Optics—Are Latest Thing for High-Frequency Traders
A cellphone tower here, standing next to an abandoned bus that still says it’s bound for Richmond, has become one of the hottest properties in global finance. Trading firms, angling for even a split-second advantage over rivals, are rushing to build chains of microwave dishes to provide higher-speed links between financial markets in Chicago and New York.


For Private Equity Industry, Fewer Deals in Leaner Times
It is not easy being a private equity firm like the Blackstone Group or Kohlberg Kravis Roberts these days. Not only do you have to worry about being dragged through the mud in a presidential election, but the business isn’t the money machine it used to be.


Dangers Of Contagion: EU Banks Sitting On A Lot Of European Bonds
Europe is in deep trouble as this latest iteration of the never-ending sovereign debt crisis could finally result in a partial breakup of the EU. With countries and institutions already ramping up contingency planning for a possible Greek exit, it might be a good idea to look at banks’ exposure to different peripherals and countries that could be in trouble to understand the risks of contagion.


The riddle of German self-interest
By Martin Wolf – Financial Times
How will the crises inside the eurozone end? Many people have asked me this question in the US in recent weeks. How, in particular, might the eurozone move from crisis into stability? To address this question, we need to distinguish three aspects of the turmoil: where the eurozone is going; where Germany wants the eurozone to go; and where the eurozone needs to go.


Protectors of investors’ money
CNN Money
Meet four advocates, including former CFTC chairperson Brooksley Born, who have worked to protect investors and the financial system from misconduct.


Dim Prospects for Financial Crisis Prosecutions
As has been noted many times, the lack of criminal prosecutions arising out of the financial crisis has been painfully obvious. And two items in the news last week underscores that the prospect for a signature case is growing even more distant.



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Lead Stories

Knight Capital buys Penson futures unit to expand in derivatives

Global regulators plan margin rules soon for uncleared derivatives
Reuters via Yahoo! Finance
Global regulators said on Wednesday they will issue proposals in coming weeks on rules to encourage banks to put derivative trades through a central clearing house, but they won’t be ready for the G20 summit in June.

LCH.Clearnet left off U.S. “systemic” list
By Ann Saphir – Reuters
LCH.Clearnet, the world’s biggest clearer of interest-rate swaps, did not make an initial list of global clearinghouses labelled “systemically important” by a council of U.S. regulators earlier this week, three sources familiar with the decision said.

EU Proposes ‘Banking Union’
The 17 countries that use the euro should consider setting up a “banking union” that allows them to share the burden of bank failures, the European Union’s executive arm said Wednesday in a report on the currency union’s crisis-fighting efforts.

Most Aid to Athens Circles Back to Europe
Its membership in the euro currency union hanging in the balance, Greece continues to receive billions of euros in emergency assistance from a so-called troika of lenders overseeing its bailout.

Euro-Zone Business Confidence Slumps
Paul Hannon – WSJ
Businesses in the 17 countries that use the euro became much more gloomy about their prospects in May as the currency area’s fiscal crisis deepened.

Investors back spending on growth
By Robin Wigglesworth in London – Financial Times
Some of the world’s biggest investors have indicated they would back heavier spending to encourage growth by governments with very low borrowing costs, warning that austerity alone will not restore their budgets to health.

6 reasons Spain will leave the euro first
Commentary: Spain is too big to rescue, and doesn’t want it anyway
By Matthew Lynn – MarketWatch
The euro debt crisis, like any really spectacular geoeconomic event, is spawning its own special vocabulary.

Cataloguing The Rats In JPMorganChase’s Granary
Against the background of Charlie Munger’s memorable remark that Wall Street traders “have all the social utility of a bunch of rats admitted to a granary,” we now have more information about the counterparties of JPMorganChase’s disastrous trades by Bruno Iksil in its Chief Investment Office.

Banks’ Hyper-Hedging Adds to Risk of a Market Meltdown
By Roger Lowenstein – Bloomberg
JPMorgan (JPM) Chase & Co.’s lost billions remind us that modern finance has changed the world, and not in ways that we should celebrate. Nothing demonstrates this more than the use of hedging.

Analysis: As LME preps sale, NY rival gains copper trade share
The CME Group is quietly carving out a growing share of the global copper futures market, eating into the London Metal Exchange’s near monopoly just as the UK bourse reviews offers for a potentially game-changing takeover.

Expect continued changes in futures market trading
By Cory G. Walters, University of Kentucky

BGC Partners To Acquire Wolfe & Hurst, Inc.
Press Release
BGC Partners, Inc. (NASDAQ:BGCP) (“BGC Partners” or “BGC”), a leading global brokerage company servicing the wholesale financial and property markets, today announced that its subsidiary[1] has entered into a purchase agreement to acquire the assets of Wolfe & Hurst Bond Brokers, Inc. (“Wolfe & Hurst”), a leading municipal bonds interdealer broker in North America.  The acquisition is expected to close later this year and is subject to FINRA and other regulatory approvals. Upon close, Wolfe & Hurst will be integrated into MINT Partners (“MINT”)[2].


Federal Circuit Court Reverses SEC’s Fraud Victory In North American Clearing’s Goble Case
Bill Singer – Forbes
According to a dramatic interpretation of what constitutes federal securities fraud, the 11th Circuit Court of Appeals just set off a minor explosion on the securities regulatory landscape. There’s securities fraud and then there’s fraud and then there’s just plain old bungling, according to this dramatic decision.

Embracing Finra, ‘the Devil We Know’
New York Times
While many investment advisers first panned a bill that would give broader authority to the Financial Industry Regulatory Authority, the plan is gaining traction in some parts of the financial world.

National Futures Association proposes new financial requirements for FCM treatment of customer segregated funds
National Futures Association (NFA), the self-regulatory organization for the U.S. futures industry, has proposed new financial requirements that will strengthen regulations regarding the treatment and monitoring of customer segregated funds held by futures commission merchants (FCMs). The proposed new requirements were approved by NFA’s Board of Directors on May 17.

National Futures Association: Protection of Customer Funds
Proposed Amendment to NFA Financial Requirements Section 4 and Adoption of NFA Financial Requirements Section 16 and its Related Interpretive Notice Regarding FCM Financial Practices and Excess Segregated Funds/Secured Amount Disbursements

FSA confirms its regulatory fees and levies for 2012/13
The Financial Services Authority (FSA) has published a policy statement confirming its regulatory fees and levies for 2012/13.

ESMA Publishes Updated List Of Measures Adopted By Competent Authorities On Short Selling
ESMA today published an update regarding the measures taken by EU competent authoritites regarding short selling.

[ASIC] Business name transactions commenced before 28 May 2012

[ASIC] Latest updates – business names

[ASIC] ASIC highlights compliance concerns in client money handling

FMA extends temporary ban on naked short selling of selected financial stocks

Exchanges & Trading Facilities

Expansion of API Light Interface on CBOE

[CBOE] Restrictions on Transactions in American Oriental Bioengineering, Inc.

NYSE Member Firms Report First-Quarter 2012 Results

11th AGM Of Hellenic Exchanges S.A. Holding, Clearing, Settlement And Registry – Voting Results

Hedge Funds & Managed Futures

Hedge funds take bets against core euro zone bonds
Reuters via Yahoo! News
Hedge funds are piling into bets against the bonds of core euro zone countries like Germany and France, signaling a growing fear that nations once considered safe havens could be dragged down by the crisis in peripheral states like Greece and Spain.

Rockefeller and Rothschild Banking Dynasties Join Forces
Two of the world’s best known banking families are combining forces after RIT Capital Partners, the London-based investment trust chaired by Jacob Rothschild, said on Wednesday that it was buying a minority stake in the investment and wealth management firm Rockefeller Financial Services.

BlackRock Completes Secondary Offering of Common Stock
Business Wire
BlackRock, Inc. today announced that it has completed the secondary offering of 26,211,335 shares of common stock held by Barclays Bank PLC at a price of $160.00 per share. The Company also announced the closing of its repurchase of 6,377,552 shares, directly from Barclays at a price of $156.80 per share.

Analysis: Investors turning to reinsurance for juiced returns
Reuters via Yahoo! News
(Reuters) – Investors globally, from hedge funds to retirement systems, are looking to an obscure corner of the insurance industry to boost returns and avoid some of the swings that have plagued stock and bond markets in recent years.

Adding Diamonds to an Investor’s Options
New York Times
Entrepreneurs are founding companies that would permit investing in diamonds, which could be attractive for ultrahigh-net-worth investors seeking to diversify their portfolios.

Analysis: Investors may be stoking the volatility they fear
By Mike Dolan – Reuters
Long-term investors fearful of another global financial storm may be better prepared than they were before Lehman Brothers went bust in 2008, but their increasingly nervous disposition could itself be making markets more fragile.

Taleb Says Euro Breakup ‘Not a Big Deal’ as U.S. Scariest
Nassim Taleb, author of “The Black Swan,” said he favors investing in Europe over the U.S. even with the possible breakup of the single European currency in part because of the euro area’s superior deficit situation.

Hedge-Fund Master Channels P.T. Barnum, Morphs Into Salesman
Richard Perry is best known as a hedge-fund heavy, an event-driven investor who thrives on companies caught up in mergers and spinoffs or emerging from bankruptcy.

Paulson, Dalio, Ackman: Hedge Fund Legends Tell All In The Alpha Masters
Author of the The Alpha Masters and Forbes 30 under 30 winner, Maneet Ahuja, talks about her new book.

Banks & Brokers

Banks shrink from counterparty risk as euro crisis rolls on
Reuters via Yahoo! News
Alarmed by Europe’s latest debt crisis and its unpredictable outcome, banks are getting increasingly picky about who they do business with for fear of taking on risky exposures to rivals who could be about to be whipsawed by bad debts.

JPMorgan’s top hedge fund liaison out
CNN Money
Lou Lebedin, the head of JPMorgan’s prime brokerage unit, is out, according to a source close to the company. The prime brokerage unit executes and clears trades for hedge fund clients. JPMorgan is one of the giants in the space.

Visa Beats JPMorgan as Cards Wage War on Cash: Riskless Return
Visa Inc. (V) and MasterCard Inc. (MA) , the biggest bank-card networks, produced better risk-adjusted returns than 81 publicly traded U.S. financial firms as the two benefit from a long-term global shift to electronic payments.

BoE’s Fisher says can’t rule out euro break up: paper
Reuters via Yahoo! News
A break up of the euro zone cannot be ruled out, Bank of England policymaker Paul Fisher was quoted as saying on Wednesday, amid growing jitters about the stability of the single currency bloc.

Barclays cancels sale of French, Italian operations, Telegraph says

Deutsche Bank Strengthens Equity Research in North America
Business Wire
Deutsche Bank today announced two senior additions to its Equity Research group in North America. John Inch will join in July as a Managing Director covering the Multi-Industry sector in the US. Inch will join from Bank of America Merrill Lynch, where he was a managing director covering capital goods and industrials in equity research.

Citi seeks its next act in wealth management
Reuters via Yahoo! News
As Citigroup prepares to exit its ownership in brokerage giant Smith Barney, the bank is on a hiring spree to build what it hopes will become a significant U.S. wealth management business centered around its high-end Citigold account.

Fitschen and Jain Revive Deutsche Bank Co-CEO Tradition
When Juergen Fitschen and Anshu Jain take over as co-chief executive officers of Deutsche Bank AG this week they’ll be reviving a tradition of dual leadership at Europe’s largest bank that ran from the 1960s to the 1980s.

Three Things Goldman Sachs’ $40B Greentech Investment Means, and Two it Doesn’t

State Street Wins Outsourcing Provider of the Year Award from Custody Risk Magazine
Business Wire
State Street Corporation, one of the world’s leading providers of financial services to institutional investors, announced today that it has won Custody Risk magazine’s 2012 Outsourcing Provider of the Year award for the second consecutive year.

E*TRADE Financial Corporation Announces Upcoming Speaking Engagement

MarketPrizm To Provide Direct Market Access Infrastructure To Marex Spectron – Asset Class Coverage Grows With The Addition Of Commodities

Wells Fargo Hires Father-Son UBS Advisor Team
Wells Fargo Advisors has picked up a father-son financial advisor team from UBS Financial Services in Corpus Christi, Texas.

Clearing & Settlement

ASX launches Equity OTC Clear service for equity options
ASX today launched Equity OTC Clear, an efficient clearing service for ASX participants to anonymously report transactions in over-the-counter (OTC) equity options.

CME Group Clearing Advisory
Consolidation of National Registries into a New Union Registry for European Emission Contracts Scheduled for June 2012 and Partial Delisting of Contracts During Transition Period


SunGard Enhances its Protegent Solution to Help Meet ESMA’s Guidelines for Market Manipulation and Insider Trading Detection
SunGard has extended the capabilities of its Protegent solution suite to help regulators, trading venues and firms monitor, detect and resolve market manipulation and insider trading activities.

Actant announces strategic partnership with Sailfish Systems to deliver high-speed access to new CBOE and PHLX data centers
Actant, a market-leader in software solutions for high-performance automated derivatives trading, is excited to announce a partnership with Sailfish Systems, a leading full-service technology provider specializing in ultra-fast networking and collocation resource management.

Broadway Technology Named Red Herring Top 100 North Americas Winner
GlobeNewswire via Yahoo! Finance
Broadway Technology, LLC, a leader in high-performance trading solutions for top-tier global banks and hedge funds, announced today that it is a winner of Red Herring’s Top 100 Private Companies award, recognizing the year’s most innovative and fastest growing companies in North America.

Fixnetix Introduces Exchange Membership Service Software: iX-EMS – Immediately Accessible iX-EMS Targeted At Mainstream European Brokerages – Responds To Financial Technology Cost Challenges Whilst Significantly Lowering Latencies

Abide Financial launches optimised “High-frequency Trading” Transaction Reporting service
PRWeb via Yahoo! News
Abide Financial (Abide), an Approved Reporting Mechanism (ARM), launches a Transaction Reporting service designed to meet the requirements of High-frequency Traders (HFT), needing a high level of service from their ARM, with a paired down price to support their business model.

Cross River Fiber capitalizes on NYSE Euronext’s new data center rules with New Jersey fiber routes
Cross River Fiber, a competitive dark fiber provider, is going to build a new dark fiber route to Mahwah, N.J. in an effort to appeal to the state’s financial trading community. Financial trading companies looking for alternative fiber routes will be able to get what the service provider says is “express connectivity” between Mahwah and Carteret, Secaucus and Weehawken, N.J.

RTS Offers Access to the Four Chinese Futures Exchanges
Solutions Empower Sell- and Buy-side to Build, Deploy and Execute Fully Customizable Algorithms Across Markets

Fixnetix introduces Exchange Membership Service software: iX-EMS
Automated Trader
London – Fixnetix, the managed services provider for market data, trading and risk controls, has announced new product, iX-EMS, a software version offering similar functionality to iX-eCute, the nanosecond Field Programmable Gate Array (FPGA.)


Miami Hedge Fund Adviser Charged for Misleading Investors About “Skin in the Game” and Related-Party Deals
The Securities and Exchange Commission today charged a Miami-based hedge fund adviser for deceiving investors about whether its executives had personally invested in a Latin America-focused hedge fund.

FSA decides to ban and fine hedge fund CEO Alberto Micalizzi £3 million
The Financial Services Authority (FSA) has today published a decision notice indicating that it has decided to fine Alberto Micalizzi £3 million and ban him from performing any role in regulated financial services for not being fit and proper. This is the FSA’s largest fine for an individual in a non market abuse case.

UK’s Financial Services Authority Takes Action Against IFA Patrick Francis O’Donnell Over The Sale Of Non-Mainstream Investments
The Financial Services Authority (FSA) has fined Patrick Francis O’Donnell of P3 Wealth Management Limited (P3) £60,000 for advising his clients to invest in Unregulated Collective Investment Schemes (UCIS) and other non-mainstream investments, when these products were clearly unsuitable. O’Donnell did not understand the regulatory restrictions on the promotion of UCIS and failed to promote UCIS compliantly.

NFA Enforcement and Registration Actions
Futures Technology LLC, Frank M. Holmes and Bradley W. Crotzer

Environmental & Energy

American Companies Beating Europe to First Commercial CCS Plant
Companies in the U.S. and Canada are likely to beat European rivals in building the first large-scale project trapping carbon dioxide to sequester underground, Bloomberg New Energy Finance said.

North America leading the race for CCS commercialisation
Business Green
A Yorkshire carbon capture and storage (CCS) project has been named among the world’s top 10 most advanced large-scale projects in a new ranking compiled by analysts Bloomberg New Energy Finance (BNEF).

Inspecting China’s carbon trading plans
Climate Spectator
China’s three main carbon markets – the Beijing Environment Exchange, Shanghai Environment Energy Exchange and Tianjin Climate Exchange – were all formed within two months of each other, towards the end of 2008. At that point, the European Union’s emissions trading system was still struggling to recover from a crash a year previously, which had seen the price of carbon allowance plummet from 30 euro to just a few cents.


Exclusive: Japan insider probe snares JP Morgan
Japan’s widening probe of insider trading reached JP Morgan Chase & Co on Tuesday as the embattled U.S. bank was identified as the source of leaked confidential information regarding a planned share offering by Nippon Sheet Glass Co Ltd in 2010.

Shanghai Stock Exchange Takes Three Measures To Optimize Structure Of Blue Chip Market

Japan’s Securities And Exchange Surveillance Commission: Recommendation In Relation To False Statements In Annual Securities Reports, Etc. Of Olympus Corporation

Hong Kong Leads World In Offshore RMB Bond Listings

Tokyo Stock Exchange: Summary Of Comments Submitted In The Public Consultation Procedure Regarding

Meeting Of The Financial Stability Board In Hong Kong On 29-30 May

HKFE Announces Revised Margins For Futures Contracts

For The Patient, Vietnam ETF Looking Good
International Business Times

Frontier Markets

Emerging markets are faltering
By Steve Smith – MarketWatch
While much investor and media focus has been on the slow-moving train wreck that is broadly labeled the euro crisis, there is growing concern that the real derailing of the global economy could come with a faltering of the emerging markets.

Govt allows foreign individuals to buy debt
By Arup Roychoudhury and Archana Narayanan – Reuters
India will allow foreign retail investors to buy local corporate bonds for the first time in its latest move to bolster capital inflows and support the shaky rupee, though the action was seen as too limited to boost the local currency.

Analysis: Indonesia’s “Hatta-nomics” makes foreign investors nervous
Reuters via Yahoo! News
Growing signs of nationalist policies in Indonesia ahead of major elections due in two years are spooking foreign investors already nervous about emerging markets.

Bahrain Financial Exchange Successfully Completes Six Months Of Trading
The Cumulative (Single-Side) Trading Turnover On The BFX Futures Market Increased To USD 3.68 Billion With A Trading Volume Of 77,076 Contracts During The First Six Months Since Its Launch On The 23rd Of November 2011

Myanmar banking’s new “wow” factor – ATMs
Reuters via Yahoo! News
As Myanmar opens up after five decades of military rule, a country run on cash is finding a new alternative: plastic. Private banks in Myanmar have begun rolling out automated teller machines in recent weeks, revolutionary in a country where people often haul sacks and suitcases of cash to banks. And more ambitious plans are in the works.

Abu Dhabi Securities Exchange Receives First Gulf Bank Employees

ADX Signs Registrar Agreement With Injaz Mena Investment

DIFC And The Australia Gulf Council Sign A Strategic Partner Agreement

Qatar Exchange & the ME-IR Society Continue To Promote The Adoption Of Best Practices Amongst Listed Companies And Potential Issuers


An Inside Job: More Firms Opt to Recruit From Within
Here’s a recruiting riddle: What costs more but often works worse? Outside hires. Fueled by a conviction that there’s plenty of talent in their ranks and backed by research showing that hiring outsiders can lead to costly missteps, firms are ramping up internal hiring efforts and investing in new career sites to boost intra-office movement.

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