MSCI hands Chinese stocks bigger global role; NYSE Dumps Bots for Humans

Mar 1, 2019

First Read

Hits & Takes
JLN Staff

TT’s Chief Marketing Officer Brian Mehta‘s excellent interview with tZERO CEO Saum Noursalehi revealed tZERO tentatively plans to launch the first SEC-approved security token exchange by early Q3. TZERO and BOX Digital Markets are working together on the new market which is yet to be named.~JK

Paul Rowady over at Alphacution put together a really cool visualization of the Top 100 Players in US Listed Market Structure.~SD

Innovation and Development Foundation is hosting the 3rd International Blockchain Congress (“Blockress”) together with Microsoft on April 2 at AON Center in Chicago. You can click here for more info and to register.~SR

CME Group’s Chief Financial Officer John Pietrowicz will present at the Raymond James 40th Annual Institutional Investors Conference in Orlando, Florida on Tuesday, March 5, 2019, at 1:05 p.m. ET. The presentation will also be available live over the Internet and via the exchange’s web site at ~SR

ICE, together with The TRADE, is holding a panel session in London on March 7 from 8-11 a.m. on market structure and transparency in the fixed income markets. You can register here. ~SR

Ethereum, the second-biggest cryptocurrency by market cap, recently went through one of the biggest software upgrades in its history. Check out our “Crypto” section for more details.~MR

CurveGlobal says total open interest is up 260% YOY and breaks through 500,000 lots, CurveGlobal Euribor OI has grown 57% in 2019 and now accounts for 5% of total Euribor open interest.~JJL


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Exclusive: Sen. Brian Schatz will introduce a new bill to tax stock trades and curb high-frequency trading
Emily Stewart – VOX
Democrats have been talking a lot about different ways to tax the rich as of late, ranging from Sen. Elizabeth Warren’s wealth tax to a variety of proposals related to stock buybacks. Now Sen. Brian Schatz is floating another idea: a tax on stock trades.

***** Will this be the “Schatz Act?”


Thursday’s Top Three
Our top read stories of the day on Thursday were led by Michael West’s piece Chicago Exchange giant clears deal with FEX to compete with ASX. Second was Forbes’ Leaving Wall Street Behind: Five Former Traders On Starting Over. Third was OCC CEO John Davidson‘s article Technology is the Foundation of Efficient and Effective Capital Markets


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CryptoMarketsWiki Coin of the Week: Ethereum
After months of delays, setbacks, and infighting between developers – the sixth and seventh major updates to the core code of Ethereum, dubbed “Constantinople” and “St. Petersburg,” finally went live Thursday night.

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Lead Stories

MSCI hands Chinese stocks bigger role in global markets; The decision by the index provider could send up to $125bn into the Chinese market
James Kynge and Emma Dunkley – FT
The world’s leading equity index provider, MSCI, took its biggest step yet to integrate China’s domestic stock markets with international capital on Friday in a move that could see an estimated $125bn flowing into the country’s equities this year.

****The WSJ has Chinese Shares Gain Global Sway Thanks to Index Firm’s Move and China’s Stock Market Isn’t Too Big to Ignore. Reuters with the news here.

NYSE Dumps Bots for Humans to Make ETF Trading Smoother
Rachel Evans – Bloomberg
Trading venue wants to list the funds on its main exchange; Bond, commodity and currency ETFs can switch from NYSE Arca
The New York Stock Exchange is preparing to hand human traders a bigger role making markets for exchange-traded funds. The exchange plans to allow bond, commodity and currency ETFs to list on its main floor as soon as August, according to Douglas Yones, NYSE’s head of ETFs. Last year, regulators approved the proposal, through which individuals known as designated market makers, or DMMs, will oversee ETF trading.

Hong Kong exchange operator sharpens rivalry with Singapore; Chief executive says bourse plans to tap foreign demand for Chinese stocks
Philip Stafford – FT
The operator of the Hong Kong stock exchange plans to become a “department store” for investors looking to increase their exposure to China, in a bet that Beijing will persist with its ambition to open its capital markets to the rest of the world.

New LSE chief abandons growth targets in favour of investment
Philip Stafford – FT
The new head of the London Stock Exchange Group has used his first set of earnings to reset investors’ expectations for growth, warning the exchange will not meet a key earnings metric this year.

LSE to cut 250 jobs as it resets earnings target; Chief David Schwimmer says he will prioritise investment for longer-term growth
Philip Stafford – FT
The London Stock Exchange Group is to cut 250 jobs as its new chief executive David Schwimmer reset earnings targets and signalled he would prioritise making investments for longer-term growth.

****The Trade has LSEG sees revenues continue to rise in 2018 but will miss 2019 growth targets.

Options Clearing returns $110 million to exchanges as it begins unwinding capital plan
The Chicago-based options clearinghouse is being forced to act after an SEC order called its four-year-old plan into question.
Lynne Marek – Crain’s Chicago Business
Options Clearing, which acts as a guarantor for all U.S. stock options trading, is unwinding a four-year-old capital plan and returning $110 million to three major U.S. stock options exchanges.

One of Wall Street’s Most Popular Trading Strategies Is Now Failing; Machines that decide when to buy and sell are struggling to keep up with central banks and Donald Trump.
Nishant Kumar – Bloomberg
Sometimes machines are only as smartóor dumbóas the humans who program them. Hedge fund investors learned that the hard way last year when data-crunching computers that invest $220 billion based on historical price trends did worse than most other managers, robot or human. The losses were so bad that investors pulled billions of dollars out of an investment strategy that for years had, paradoxically, been regarded as a great way to protect portfolios from downside risks.

CAT NMS Selects FINRA as Consolidated Audit Trail Plan Processor
Business Wire
CAT NMS, LLC (CAT NMS) today announced that the Financial Industry Regulatory Authority, Inc. (FINRA) has been selected as Plan Processor for the Consolidated Audit Trail (CAT), following a vote by the Operating Committee (FINRA recused itself from the voting process). As Plan Processor, FINRA is responsible for all aspects of the continued build out and ongoing maintenance of the CAT.

How the World’s Cleanest Banks Became a Haven for Russian Crooks
Frances Schwartzkopff – Bloomberg
Swedbank AB regularly topped rankings of Europe’s safest banks half a decade ago. On Thursday, Sweden’s finance ministry told regulators to explain how the venerable institution had become enmeshed in allegations of money laundering.

Markets must adjust to a new type of sudden shock; Analysis suggests that the calm is being punctuated by a different type of turbulence
Robin Wigglesworth – FT
It isn’t your imagination, markets really have become more tempestuous. But instead of extended storms, they are suffering shorter but more intense hurricanes. That raises some interesting questions over whether this is just a statistical oddity, a cyclical shift, or a structural change in the financial system.

UBS is using laser beams and 5G to trade stocks in the latest escalation of a technological ‘arms race’
Dan DeFrancesco – Business Insider Prime
From fiber optic cables to dark fibre and microwaves, financial firms have spent the better part of a decade looking to slice fractions of milliseconds off how quickly they can trade stocks. But the latest chapter in how firms are aiming improve their trading speed and execute trades more efficiently for their clients reads like something out of a science fiction novel.

Wall Street loan managers cut fees to pep up market; Incentives come after grim fourth quarter which tested demand for risky corporate debt
Joe Rennison – FT
Managers of leveraged-loan vehicles are cutting fees in an attempt to get new deals over the line, as the market struggles to rebound from a sharp sell-off at the end of last year.

Financier Who Amassed Insurance Firms Diverted $2 Billion Into His Private Empire; The sheer scale of Greg Lindberg’s efforts has little precedent in recent decades, industry experts say
Mark Maremont, Leslie Scism – WSJ
Soon after Greg Lindberg moved into the insurance business, the North Carolina entrepreneur went on a spending spree.

IG Group Announces Launch of Foreign Exchange Provider IG US; After being named the best forex broker in the UK in 2018, IG brings its award-winning service to U.S. Market
IG Group
IG Group (‘IG’) – a global leader in online trading – announces today the launch of IG US, its US-based subsidiary offering foreign exchange (forex) trading.

Exchanges, OTC and Clearing

London Stock Exchange Group Plc Preliminary Results for the Year Ended 31 December 2018
London Stock Exchange Group
Good progress towards achievement of financial targets with strong revenue and margin growth; prioritisation of further investment in growth opportunities means the Group does not plan to achieve cost and Group margin targets in 2019

Hong Kong exchange primed for some M&A trades
Alec Macfarlane – Reuters Breakingviews
Hong Kong Exchanges and Clearing is primed for some M&A trades. The $43 billion bourse operator enjoyed a blowout 2018, but its three-year strategic plan unveiled on Thursday offers few bold ideas for reducing dependence on trading in local equities. Looming Chinese reforms pose a further threat. A trio of new blue-chip advisers may be able to help.

****The WSJ has Hong Kong Exchange Eyes New Chinese Trading Opportunities.

STOXX Europe 600 Media Futures: Withdrawal of availability for trading for U.S. Participants
As of 11 March 2019, tradability of the STOXX Europe 600 Media Index futures (Eurex product code: FSTM) will be withdrawn for U.S. Eurex Participants and U.S. investors.

Trading Overview in February 2019; Japan Exchange Group released Trading Overview in February 2019.
Cash Equity Market- In February 2019, the daily average trading value for the TSE 1st Section (domestic common stocks) was JPY 2.6356 trillion; The daily average trading value for the ETF market was JPY 175.1 billion.
Derivatives Market – In February 2019, total derivatives trading volume was 25,597,915 contracts.

NSE to launch Brent crude oil derivatives on March
Business Standard
In a bid to develop an efficient hedging mechanism against major spike in crude oil prices, the National Stock Exchange (NSE) on Thursday said it would launch trading of Brent crude oil derivatives on its platform starting Friday, March 1.

Nasdaq Renews Benchmark FRA Contracts In The Nordics
Nasdaq (Nasdaq: NDAQ) today announced the launch of a series of updated Nordic Generic Forward Rate Agreement (FRA) contracts, including the flagship Nasdaq Stiborô 3 Month Contract. The products have been redesigned in order to increase liquidity and realize the advantages of listed products compared to over the counter (OTC) instruments. Also, expiration has been concentrated to International Money Market (IMM) days and the new products are now open to all market participants.


Finance chief resigns from fast-growing fintech Revolut; Company confirms departure of Peter O’Higgins as it pursues global expansion
Nicholas Megaw – FT
Revolut’s chief financial officer has stepped down in favour of a replacement with more retail banking experience as the British fintech faces growing questions over its ability to effectively manage its rapid growth.

IHS Markit Brings Innovative New Features to Securities Finance Platform
IHS Markit announced the addition of new functionality to its Securities Finance platform, a leading source of data and intelligence on global securities financing transactions. The enhancements deliver public disclosure coverage for the Japanese market, a global data feed on corporate bond lending activity, an updated model for forecasting short interest in the US and multi-asset performance measurement tools.

Fintech firms like SoFi and Robinhood offer “free” stock trading. What’s the catch?
John Detrixhe – Quartz
Online lender Social Finance is rolling out a slew of new features, from commission-free brokerage to zero-fee exchange traded funds and crypto trading. But buying and selling securities, of course, is not free. So how does SoFi plan to make money?

Revolut insiders reveal the human cost of a fintech unicorn’s wild rise Applicants asked to work for free, rudeness, and high staff turnover tarnish the fintech startup’s success story
Emiliano Mellino – WIRED
“You’re nothing but a number to them with dollar signs attached.” That’s how Revolut, one of the fastest growing fintech startups in the UK, described traditional banks when advertising for business development manager vacancies last October. Revolut was the alternative to these banks, and had already acquired 2.8 million customers without spending a single penny on advertising, the ad said.

Regulatory showdown awaits for Big Tech ó but who gets the job?; Pressure is growing on both sides of the Atlantic for giants’ dominance to be curbed
Richard Waters – FT
Wanted: an antitrust enforcer to lead the charge against Big Tech. Must be able to invent novel applications of competition theory to digital markets.

Here’s the pitch deck Trumid, a Wall Street trading startup backed by George Soros and Peter Thiel, used to raise $53 million
Dakin Campbell and Madeline Shi – Business Insider
Wall Street electronic-trading startup Trumid Financial went out hat in hand last year for more money to fund its expansion plans.

Former Barclays equities chief swaps trading for tech
Samuel Agini – Financial News London
The former head of Barclays’ equities sales and trading business in Europe has resurfaced at an $18bn technology company. Rich Evans, who quit Barclays in 2018, has joined DXC Technology’s banking and capital markets team, which helps banks to keep up with rapid developments in tech.

Bank apps are hit by major glitches every week leaving millions unable to access their cash, new figures show
Ben Wilkinson – Daily Mail
It comes as Barclays and TSB’s online services both failed again yesterday. Most big banks have at least one IT outage every month, says finance watchdog.


Ethereum Upgrades as Hard Forks Activate on Blockchain
Christine Kim – Coindesk
Two long-anticipated upgrades appear to have officially activated on the ethereum blockchain, the world’s second-largest by market value, without incident. At 19:57 (UTC), the sixth and seventh system-wide upgrades to the software, dubbed Constantinople and St. Petersburg, respectively, rolled out on the main network at block number 7,280,000. As seen on blockchain monitoring website Fork Monitor, there is so far no evidence of a chain split that would suggest a portion of ethereum users are still running an older ethereum software.

Square Records $166 Million in Bitcoin Revenue in 2018; Despite the impressive revenue, the firm pocketed only $1.69 million from BTC sales.
Arnab Shome – Finance Magnates
The US-based mobile payment platform has reported $116 million in revenue from selling Bitcoin in 2018. According to Square’s quarterly earnings report published on February 27, its overall net revenue was capped at $3.3 billion last year, 5 percent of which was generated from its crypto buying service on Cash app.

Facebook and Telegram Are Hoping to Succeed Where Bitcoin Failed
Nathaniel Popper and Mike Isaac – The New York Times
Some of the world’s biggest internet messaging companies are hoping to succeed where cryptocurrency start-ups have failed by introducing mainstream consumers to the alternative world of digital coins. The internet outfits, including Facebook, Telegram and Signal, are planning to roll out new cryptocurrencies over the next year that are meant to allow users to send money to contacts on their messaging systems, like a Venmo or PayPal that can move across international borders.

Federal Reserve May Add Bitcoin Crash to Stress Test Scenarios
Yogita Khatri – Coindesk
The U.S. Federal Reserve could soon include a cryptocurrency market crash as one of the risks to take into account when conducting supervisory stress tests. The Fed’s board of governors on Thursday announced amendments to a policy statement on the scenario design framework for stress testing, saying that “the collapse of the bitcoin market” may be considered as one of the “salient” market risks.

NICE Actimize Selected by Crypto Finance Leader Circle to Implement Markets Surveillance and Protections Strategy
Leading the industry with solutions supporting digital financial services offerings, NICE Actimize, a NICE (Nasdaq: NICE) business and the leader in Autonomous Financial Crime Management, was selected by Circle, a leading global crypto finance company, to implement its market surveillance and protections strategy. Through the usage of NICE Actimize’s Cloud Markets Surveillance (MS) solution, Circle will augment key infrastructure to guard against market manipulation across its exchange and trading products which currently see more than $3 billion in monthly trading volume.

Japanese Megabank Mizuho is Launching its Own Digital Currency in March
Mark Emem – CCN
Almost a fortnight since JPMorgan unveiled its own cryptocurrency and nearly three years after conducting tests, Japanese financial giant Mizuho Financial Group has announced a launch date for its digital currency, J-Coin.

Dukascopy Bank Officially Launches its Own Cryptocurrency
Aziz Abdel-Qader – Finance Magnates
Dukascopy Bank today is airdropping its own cryptocurrency, the Dukascoin, one day ahead of its scheduled date because the forex broker wants to save its self-described designation as “the first regulated bank to launch an ICO.” “We got to know that Japanese Mizuho Bank has equally announced their token to be unveiled on the same day. We accept the challenge and move the date of the launch to the 28th of February – one day in advance,” the company said in a statement.

The ‘existential threat’ cryptos pose to traditional payments systems ‘bears watching,’ says expert
Aaron Hankin – MarketWatch
Although the idea that cryptocurrencies will overthrow incumbent payment systems might seem far-fetched to most, according to one payments expert, it is a scenario that crypto-skeptics shouldn’t dismiss. In a research note titled, “V, MA, PYPL: Not Imminent, but Worth Watching ó the Risk of Disruption from Cryptocurrencies and Blockchain,” Lisa Ellis, an analyst at MoffettNathanson tracking the rapidly evolving payments sector, said nascent digital coins aren’t a fad.

Mark Karpeles Fails to Halt US Court Case Over Mt Gox Losses
Yogita Khatri – Coindesk
Mark Karpeles, the former CEO of bankrupt bitcoin exchange Mt. Gox, has been refused a motion to stay a U.S. court case brought by former investors. Earlier this week, Karpeles had filed the motion to stay in “light of ongoing civil rehabilitation proceedings in Japan that are likely to provide full recovery” to the plaintiffs, Gregory Greene and Anthony Motto. The plaintiffs brought the case saying that they hold Karpeles “personally liable” for any losses they occurred from their investments in bitcoin made through Mt. Gox. At the court for the Northern District of Illinois, judge Gary Feinerman ruled Thursday, however, that Karpeles’s motion is denied.

What the hell is a blockchain phoneóand do I need one?
Mike Orcutt – MIT Technology Review
The crypto world is full of buzzwords, but if you can peel away the marketing fluff, you sometimes find innovation beneath the surface. You are often also reminded just how early it is in the history of this technology. Case in point: the blockchain phone. All of a sudden, several crypto-focused handsets are hitting the market, or will soon. The biggest player in the new game is Samsung, which confirmed this month that the Galaxy S10 will include a secure storage system for cryptocurrency private keys.

Hong Kong cryptocurrency promoter thought to be behind money-tossing stunt arrested for fraud over sale of digital coin ‘mining machines’
Danny Mok – South China Morning Post
A flamboyant Hong Kong cryptocurrency businessman thought to be behind a recent “money from the sky” stunt was arrested on Thursday with a core member of the company for conspiracy to defraud after allegedly selling “mining machines” to investors. Officers from the police’s Commercial Crime Bureau arrested Wong Ching-kit, 25, better known as “Coin Young Master”, and a 20-year-old man at their office in TML Tower in Tsuen Wan.


The endless doom loop of journalism today; There are positives to Donald Trump but it would be negligent to ignore the rest
Edward Luce – FT
A couple of times recently I’ve received plaintive emails from otherwise friendly readers complaining that my columns have become too negative. To which my Pavlovian response is: Have you seen what’s happening in the world? My slightly more considered reply is that, of course, positive stuff is happening, but it’s outweighed by the negative right now. One email from a nice gentleman in Maryland, entitled “there is always a bright side”, went on to say: “Just once?.?.?.?just once, could you find it in your heart to write a positive article about something?” Yes, I can excavate cheerful sentiments when pushed. Here’s one: More people in the world are getting better off at a rate never before seen in history.

Quantitative easing was the father of millennial socialism; Federal Reserve’s bid to stave off depression sowed the seeds of a generational revolt
David McWilliams – FT
Is Ben Bernanke the father of Alexandria Ocasio-Cortez? Not in the literal sense, obviously, but in the philosophical and political sense. As we mark the 10th anniversary of the bull market, it is worth considering whether the efforts of the US Federal Reserve, under Mr Bernanke’s leadership, to avoid 1930s-style debt deflation ended up spawning a new generation of socialists, such as the freshman Congresswoman Ms Ocasio-Cortez, in the home of global capitalism.

Michael Cohen’s Testimony Opens New Phase of Political Turbulence for Trump
Alexander Burns and Jonathan Martin – The New York Times
A small group of Republican strategists opposed to President Trump, branding themselves Defending Democracy Together, quietly conducted polling and focus groups last fall to gauge whether the president was vulnerable to a primary challenge in 2020. Assembling a presentation for sympathetic political donors, they listed points of weakness for Mr. Trump such as “tweeting/temperament” and “criminality/corruption.”

(Video) Stephens: Netanyahu to be remembered as the ‘Richard Nixon of Israeli politics’
Katy Tur – MSBNC
Israeli Prime Minister Benjamin Netanyahu is expected to be indicted after a two-year investigation into allegations of bribery, fraud and breach of trust. Bret Stephens of the New York Times and Former NBC News Tel Aviv Bureau Chief Martin Fletcher discuss the implications of this coming indictment.

Europe markets move higher after fresh US-China trade comments; WPP up 8%
Silvia Amaro and Alexandra Gibbs – MSNBC
European stocks traded higher Friday, beginning the first trading day of March on a positive note. The pan-European Stoxx 600 was up 0.7 percent with almost every sector in positive territory. Autos were the top performing sector, with Faurecia leading the gains, up more than 5 percent. The French auto equipment firm said that it’s to buy Clarion and launch a Japan-based business group in April.

Michael Cohen’s testimony prompts a new question: In web of Trump investigations, is anyone safe?
Kevin Johnson and Brad Heath – USA Today
WASHINGTON – The first domino was an eager Trump campaign operative who shared what sounded at the time like an idle boast that Russia had dirt on Hillary Clinton. The conversation between George Papadopoulos, a largely unknown foreign policy adviser for Donald Trump’s then-fledgling bid for the White House, and an Australian diplomat took on significance only later, after the Democratic National Committee said Russian hackers had stolen troves of emails. It became the first inkling that “Americans might be working with the Russians,” former FBI Director James Comey would later tell a House committee.


CFTC official: CCPs should war-game default auctions; Risk appetite should be factor in selecting auction participants – Wasserman
Steve Marlin –
Clearing houses must think carefully about whom they invite to participate in default auctions, a senior official at the US Commodity Futures Trading Commission has said, in one of the first public comments from a national supervisor on auction practices at central counterparties (CCPs) in the wake of the recent Nasdaq Clearing episode.

ESMA chair wants objectivity, open minds for crypto-asset regulation; Steven Maijoor also talked down development of a bespoke regulatory regime for crypto-assets during keynote speech in Brussels.
John Brazier – The Trade
The chair of the European Securities and Markets Authority (ESMA) has called for objectivity and open mindedness from regulators in developing regulatory frameworks for crypto-assets and distributed ledger technology (DLT), while highlighting industry calls for the technology to deliver on its early promise.

Oil deals a focus of US investigation into Glencore; Probe looking into “offtake” deals Nigeria and Venezuela
Neil Hume – FT
The US regulatory investigation into Glencore’s activities in Nigeria and Venezuela is focused on agreements to secure oil supplies for its trading arm, according to the company’s annual report.

India to allow MFs, portfolio managers to trade in commodity derivatives
India’s market regulator said on Friday it would allow mutual funds and portfolio managers to trade in commodity derivatives, in a move to boost trade and deepen the market.

ESMA withdraws the registration of Bloomberg Trade Repository Ltd
The European Securities and Markets Authority (ESMA), the EU supervisor of trade repositories (TRs), has today withdrawn the registration of Bloomberg Trade Repository Ltd (UK).

ESMA registers DTCC Data Repository (Ireland) PLC as trade repository
The European Securities and Markets Authority (ESMA), the EU supervisor of trade repositories (TRs), has registered today DTCC Data Repository (Ireland) PLC as a TR under the European Market Infrastructure Regulation (EMIR), with effect from 1 March 2019.

ESMA to recognise the UK Central Securities Depository in the event of a no-deal Brexit
The European Securities and Markets Authority (ESMA) has today announced that, in the event of a no-deal Brexit, the Central Securities Depository (CSD) established in the United Kingdom (UK) – Euroclear UK and Ireland Limited – will be recognised as a third country CSD to provide its services in the European Union (EU).

Investing and Trading

ETF growth surges on the back of European volatility, social conscience; Research from Greenwich associates finds ETF allocations grew by 50% in Europe last year, with further growth expected in 2019.
John Brazier – The Trade
Allocations in exchange-traded funds (ETFs) by institutional firms grew by 50% in Europe last year, according to research from Greenwich Associates.

Show Us Your Climate Risks, Investors Tell Companies; Companies are expected to face a record of 75 or more climate-related shareholder proposals at coming annual meetings
Gabriel T. Rubin – WSJ
Companies are under more pressure than ever to disclose their exposure to climate-change risks. In the coming annual-meeting season, companies are projected to face a record of 75 or more climate-related shareholder proposals, up from 17 in 2013, according to ISS Analytics, the data-intelligence arm of Institutional Shareholder Services. Investing powerhouses such as BlackRock Inc. and Vanguard Group are separately backing voluntary climate-change reporting standards for public companies and hope to prompt an uptick in disclosures this spring.

How Debt Makes the Market Volatile
James Piereson – WSJ
The U.S. stock market took a 10-day up-and-down ride after the Federal Reserve announced a quarter-point increase in the target for the federal-funds rate just before Christmas. The Dow Jones Industrial Average lost more than 2,300 pointsó10% of its valueóin the six trading days from Dec. 17-24, before regaining nearly 1,100 points on Dec. 26. Other stock-market indexes traced similar patterns.

Private equity investors fret about managers overpaying for deals
Joshua Franklin – Reuters
Some of the world’s biggest private equity investors raised concerns this week that the $3.4 trillion leveraged buyout industry is overheating, as more fund managers pay top dollar for acquisitions that could prove costly down the line.

Investors favor equity ETFs, junk bonds as risk appetite grows: Lipper
Jennifer Ablan – Reuters
Investors poured money into equity exchange-traded funds and high-yield “junk” bond funds in the week ended on Wednesday, as U.S. President Donald Trump said he would extend a deadline to delay escalating tariffs on Chinese imports, citing “substantial progress” in talks between the two countries.

“The world’s most famous trader in the world’s most famous trading room”?
Mark B. via LinkedIn
So began Padraic Fallon’s interview with John Gutfreund for Euromoney back in 1979. If you don’t know who Gutfreund was and why he mattered, now’s your chance to find out.


It All Started With Wedbush
Paul Rowady – Alphacution Blog
If you’ve ever had the distinct pleasure of driving around downtown LA, particularly heading north on the 110 just past the famed Staples Center where the LA Kings hockey team and a couple little-known basketball teams play, then you can’t help but be confronted by the sign at the top of the building just up ahead: Wedbush. Beyond the tony Wilshire Boulevard address, it is here – certainly more metaphorically than physically – that our fascination with the SEC’s Form 13F reports truly began in the Spring of 2018 – and later, by extension, where our Hiding in Plain Sight (#HIPS) series was born in the Fall of 2018. Prior to stumbling over this data, I did not know Wedbush all that well beyond the fuzzy belief that it was mainly a brokerage operation.

What trading jobs at JPMorgan, Goldman Sachs, Morgan Stanley, Citi and BofA are really like
Sarah Butcher – efinancialcareers
So you want to work in trading for a U.S. investment bank? Choose your spot with care: one bank’s approach to risk is very different to another’s. The discrepancy between U.S. banks’ attitudes to trading is amply illustrated by the 10-K reports recently filed by JPMorgan, Morgan Stanley, Goldman Sachs, Citi and Bank of America for 2018. Within these reports are charts reflecting banks’ approach to market risk and the gains and losses their traders made in 2018. These charts, we have replicated below.

British hedge fund Man Group’s performance fees plunge as assets slip
British hedge fund manager Man Group said on Friday its assets under management slipped 0.5 percent to $108.5 billion (81.79 billion pounds) last year on market weakness and currency losses, sending its performance fees plunging 81 percent.

Surprise as Goldman Sachs lets go of risk managers first of all
Sarah Butcher – efinancialcareers
As Goldman Sachs makes its annual round of redundancies, insiders say risk managers have been among the first to feel the squeeze. This appears to have come as a shock in a function that’s become used to being treated gently, both at Goldman and elsewhere. Goldman isn’t commenting on its layoffs, which are only understood to have affected 5-10% of the bank’s risk management division, in line with annual cuts elsewhere in the firm. One insider, however, suggested the cuts in risk appeared higher than in previous years. Another said both analysts and MDs are being let go, with up to 40 seemingly asked to leave.

HSBC’s New Boss Faces Challenges From China and Brexit
Harry Wilson – Bloomberg
John Flint, a lifer who rose to the top job at HSBC Holdings Plc in 2018, inherited an institution that had already seen shake-ups. In the previous seven years, 60,000 jobs had been eliminated and operations in 21 countries were sold, closed, or shrunk. Even so, the same core problem remains in the 67 countries where HSBC still does business: Costs are too high and revenue isn’t increasing fast enough.


Man Who Revealed the Depth of Greece’s Financial Quagmire Is Cleared
Nektaria Stamouli and Marcus Walker – WSJ
A Greek court acquitted the country’s former statistics chief of faking the budget deficit that deepened the country’s debt crisis, potentially ending a marathon prosecution that has drawn widespread international criticism and raised doubts about the objectivity of Greek justice.

Election jitters to keep India stock market on edge: Reuters poll
Indradip Ghosh – Reuters
How Indian shares fare this year will depend heavily on the outcome of national elections in May, with market experts polled by Reuters saying a majority win for the ruling party would be the most favorable outcome for equities.

Poland returns to debt market to bolster green credentials; Coal-dependent country marks third sale of environmentally-labelled debt
Kate Allen – FT
Poland has returned to the “green bond” market for a third time, cementing its status as the most frequent sovereign issuer of debt linked to climate and environmental projects.

Opaque world of Chinese state-linked debt unsettles bond investors; Qinghai default highlights difficulty of assessing likelihood of government support
Gabriel Wildau – FT
The Tibetan plateau, whose grassland encompasses most of north-west China’s Qinghai province, was the unlikely setting for a bond default scare this week.

EU States Object to Dirty-Money List After U.S. Outrage
Alexander Weber , Stephanie Bodoni and Nikos Chrysoloras – Bloomberg
Governments didn’t back list proposed by European Commission; Plan would raise hurdles for EU banks’ Saudi, U.S. business
Plans for a European Union money-laundering blacklist stalled after objections by all but one of the bloc’s 28 governments, lowering the risk of additional regulatory hurdles for banks doing business with Saudi Arabia and several U.S. territories.

Turkey to Seek Funding to Bolster State-Owned Banks, Sources Say
Kerim Karakaya and Ercan Ersoy – Bloomberg
Government working on a plan boost lenders’ capital levels; A clearer plan will emerge after elections as economy wilts
Turkey is working on a plan to bolster the capital levels of state-owned banks to keep fueling cheap credit and stoke an economy heading for recession.


EU bank watchdog calls for deposits to be protected post-Brexit; ‘Take steps’ to guarantee money in EU branches of UK lenders, regulator tells authorities
Myles McCormick – FT
The European Banking Authority on Friday called for individual bank deposits to still be protected in EU-based branches of UK lenders in the case of a no-deal Brexit.

UK pays Eurotunnel £33m to settle Brexit contracts lawsuit; Out-of-court deal adds to pressure on transport minister Chris Grayling
Jane Croft and George Parker – FT
Britain’s Department for Transport has paid out £33m to settle a high stakes legal case which, if it had lost, could have swept away a crucial part of the government’s preparations for a no-deal Brexit.

U.K. Factories See a Burst of Activity As They Stockpile for Brexit
David Meyer – Fortune
The latest manufacturing figures show British factories last month cut jobs at the most dramatic pace in the last six years, and are stockpiling parts and materials at record rates. No prizes for guessing the reason: Brexit, which is due to happen on March 29. IHS Markit’s latest Purchasing Managers’ Index (PMI) for the U.K. stands at 52.0 for February, down from 52.6 in January. As noted by Reuters, that suggests greater factory output than in France or Germany, but mainly because manufacturers are stockpiling and racing to clear backlogs before the Brexit date.

Brexit: EU rejects no deal citizens rights call
BBC News
The EU has rejected calls for an agreement to protect UK and EU expats’ rights, if there is a no-deal Brexit. Tory MP Alberto Costa quit his government job to table an amendment calling for the protections. It was backed by the government in votes on Wednesday, with Mr Costa urging the PM to write to EU chiefs to demand an agreement on rights. But the European Commission said it would “not negotiate mini deals” as it would imply negotiations had failed.

Postpone Brexit? Maybe Get a Do-Over? The Negotiations Enter a High-Stakes Game-Theory Stage
Amy Davidson Sorkin – The New York Times
Brexit, at the moment, is an exercise in game theory. This week, both Prime Minister Theresa May and Jeremy Corbyn, the leader of the Labour Party, grudgingly agreed to open the way for options that could help to break the current deadlock over the terms of Britain’s exit from the European Union. In May’s case, the option was a possible vote in Parliament to delay Brexit, which is now scheduled, ready or not, for March 29th; in Corbyn’s, it was a new referendum that might overturn Brexit altogether. Both May and Corbyn were acting because of rebellions within their own ranks, which escalated last weekówhen both Labour and Conservative M.P.s resigned from their partiesóand threatened to spread.


With Ground Zero Payments Slashed, a Push to Replenish a 9/11 Fund
Shane Goldmacher – NY Times
It has been more than 17 years since the World Trade Center collapsed in the terrorist attack of Sept. 11, and since 2011, a rededicated fund has compensated emergency personnel and others who responded to the scene and have since gotten sick, as well as the families of the deceased.

In Tech Race With China, U.S. Universities May Lose a Vital Edge
Susan Decker and Alexandre Tanzi – Bloomberg
They get the most patents — but not in key areas like AI, 5G; Researchers say Trump’s order on AI needs financial follow-up
The U.S. is still out in front of global rivals when it comes to innovation, but American universities – – where new ideas often percolate – – have reason to look over their shoulder.

John Lothian Newsletter

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Rick Lane

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Past Newsletters

SGX and NZX seal partnership on dairy derivatives to unlock growth

SGX and NZX seal partnership on dairy derivatives to unlock growth

First Read $34,126/$300,000 (11.4%) Andrew Mauck, Ernesto Pinto and Brian Rice ++++ Hits & Takes John Lothian & JLN Staff The NFA is holding a Town Hall Webinar on Tuesday, April 20, at 9:30 a.m. CT. NFA Board Chairwoman Maureen Downs, NFA Public Directors Ron...

How Ken Griffin rebuilt Citadel’s ramparts

How Ken Griffin rebuilt Citadel’s ramparts

First Read $33,626/$300,000 (11.2%) Charlie Carey ++++ Trading Technologies Announces Matching Program to Benefit GoFundMe Campaign for MarketsWiki Education Video Series and John Lothian News As a pioneer of electronic trading, we at Trading Technologies value our...

China Creates Its Own Digital Currency, a First for Major Economy

China Creates Its Own Digital Currency, a First for Major Economy

First Read $32,626/$300,000 (10.9%) ++++ Hits & Takes John Lothian & JLN Staff JLN published two videos yesterday, one with SGX CEO Loh Boon Chye and the other with The Full FX Co-Founder Colin Lambert. Lambert talks about the new publication he and Michelle...

The New York Stock Exchange’s massive post-COVID question

The New York Stock Exchange’s massive post-COVID question

First Read $32,626/$300,000 (10.9%) ++++ Hits & Takes John Lothian & JLN Staff The OCC reported that March 2021 total volume was up 34.8 percent from a year ago and that it was the highest total volume month on record for U.S. equity options. March also marked...

MSCI hands Chinese stocks bigger global role; NYSE Dumps Bots for Humans

Mar 1, 2019

Observations & Insight

Wednesday’s Miscellany

JLN Staff

MLex has a (paywalled) story titled CFTC’s Giancarlo cites threat from China futures markets in bid for more money. Obviously it is a futures story, but I see it as indicative of the overall “threat” posed by the ongoing development of Chinese derivatives markets.

Check out this Bloomberg/Saxo Bank chart of yuan denominated oil futures trading and you’ll see why Giancarlo said what he did. (Besides, the usual rhetoric about needing money to protect investors hasn’t worked for the CFTC’s budget so maybe some fear-mongering will.) Also see this Reuters story from May – China’s crude oil futures boom amid looming Iran sanctions. ~SD

The newest CFTC Talks podcast is out. It’s a shorter, “FlashCast” episode focused on a single subject and features John Coughlan of the CFTC’s Market Intelligence Branch.

FIA updated its FCM tracker tool. Check it out here.

According to CLS data, currency trading volumes rose 2.6 percent in July on last year, although July volumes were 13.7 percent lower than the previous month of June. CLS said the average daily traded volume of currencies submitted to it reached $1.638 trillion in July, up from $1.596 trillion in the same month in 2017, Reuters reported.~SR


Lead Stories

Traders Pile Into Bets That Stock Rally Will Continue; Tax cuts and a robust U.S. economy boosted corporate profits in the three months through June

Gunjan Banerji – WSJ (SUBSCRIPTION)

With U.S. stock benchmarks mere points away from fresh records, some traders are piling into bets that share prices will rally higher and volatility will remain muted. The S&P 500 and the technology-heavy Nasdaq Composite hit their second-highest close in history on Tuesday. Options investors and traders are wagering the gains will continue. They have been scooping up bullish call options on the S&P 500, contracts that would pay out if the stock index took another leg higher, according to Credit Suisse . Call options give the right to buy shares at a later time if they hit a designated price.


****SD: Initially heralded as a year that would be “different,” 2018 seems more and more like 2017, with long equity, short vol being the strategy du jour (tous les jours).

Tesla options bulls reap windfall on Musk’s going private tweet

Saqib Iqbal Ahmed – Reuters

Tesla Inc’s options activity surged on Tuesday after Chief Executive Elon Musk tweeted he was considering taking the company private and some quickly executed trades netted massive paper profits as shares in the electric car maker rallied as much as 9 percent.


****SD: The role Elon Musk’s twitter feed plays continues to strike me as remarkable. I don’t believe Donald Trump’s tweets – price action-related as they occasionally are – have ever caused a trading halt in a listed name/ETP. At the time of the breaking news, IHS Markit analyst Sam Pierson commented: “[Tesla’s] short interest equates to 20.7% of outstanding shares, down from a YTD peak of 23% observed in June. The short value is higher than any S&P 500 stock, only Under Armor has a higher percentage of outstanding shares short with 24%.”

Volatility slump stokes flames for post-summer blow up

Jamie McGeever – Reuters

Financial market volatility is slumping across the board to historically – or, dangerously – low levels, potentially fanning the flames for a repeat of February’s “volmageddon” explosion that sparked a 10-per-cent correction in U.S. and world stocks.


New Chinese forex crackdown to hit corporate hedging; Despite new reserve requirement, dealers say ‘maturity’ in risk management is here to stay

Blake Evans-Pritchard – (SUBSCRIPTION)

Dealers fear a move by the Chinese authorities to reinstate a deposit requirement on foreign currency derivatives could slow a recent pick-up in hedging from local corporates, despite warnings from regulators that firms need to do more to brace for future market volatility.


Sterling/dollar risk reversals at 17-month low, signal more weakness


Nine-month and one-year sterling/dollar risk-reversals fell on Wednesday to the lowest since early-March 2017, as investors rushed to protect themselves from further weakness in the British currency.


Exchanges and Clearing

NSE says working on a structure to address SGX issue


New Delhi: Locked in arbitration proceedings with SGX, the National Stock Exchange on Wednesday said it is working on a “structure” to address the issues and more clarity is likely to emerge in the next two-three weeks.


SGX reports market statistics for July 2018


…Total Derivatives volume was 16.9 million, down 5% month-on-month (m-o-m) and up 19% year-on-year (y-o-y).


Presentation By HKEX Chief Executive Charles Li And Group Chief Financial Officer John Killian On 2018 Interim Results Announcement


…Strong growth in trading volumes: Cash Market headline ADT +67% YoY, Futures and Options ADV +58% YoY, LME chargeable ADV +11% YoY


Dalian Commodity Exchange Holds Training For Corn Options Instructors


To strengthen the corn options training on member units, promote teaching staff construction and guarantee the steady listing and operation of corn options, Dalian Commodity Exchange (DCE) held the training on corn options instructions lately. A total of 100 trainees from 100 units attended the training, including futures companies, risk management subsidiaries of futures companies, spot companies and other financial institutions.



Tradeweb On Track For Record Year Of Trading Activity


…Credit and Equities Derivatives Volumes Climb: Global equity derivatives ADV is up 351.55% and global credit derivatives volume is also up 80.16% year-over-year on the Tradeweb platform.


Redline Trading Solutions Breaks 180 Nanosecond Tick-to-Trade Barrier

Redline Trading Solutions

Redline Trading Solutions, the premier provider of high-performance market data and order execution solutions, today announced the production deployment of its hybrid software and FPGA-based market data and order execution gateway solution.


The art of designing markets. Part III

Eurex Exchange

This is the third article in a series of topics related to the market design of electronic marketplaces. The first article discussed the most common execution models in electronic derivatives markets, while the second covered the various components of an order-generating process that define its arrival time. It thus gave an overview of the three steps market participants need to generate and submit an order to an exchange whereby connectivity drives the third step. We explained that for all participants timing matters but that ‘timing’ means different things to different market participants. Today, we are looking at the electronic connectivity of market participants who are not members of an exchange (i.e. indirect participants), typically institutional investors, but also retail investors.



Morgan Stanley sees two ‘broken legs’ for stocks, heralding ‘significant market correction’

Ryan Vlastelica – MarketWatch

For years, one of the primary factors lifting the U.S. stock market has been the fact that some of the economy’s biggest, fastest-growing names just kept rising.

The strength of growth stocks, in particular some large technology and internet plays, has been a boon for momentum investors, who bet that recent outperformers will continue to do better than the overall market over the medium term. This trade has been one of the easiest ways for investors to make money, but analysts are increasingly concerned that its era may be drawing to a close.


A big shift to the S&P 500 may change the way you invest in tech

Stephanie Landsman – CNBC

The S&P 500 is about to undergo a major structural change that may alter which technology stocks you own.

Facebook and Google’s parent Alphabet will move out of the index’s technology sector and to a newly formed communication services sector in about six weeks. The goal is to make tech appear less dominant in the S&P 500.



Crypto pukes, again; Somebody pass the mop.

Jamie Powell – FT Alphaville

Ah, the crypto.

After the gyrations of early June, it all went pretty quiet recently as bitcoin, and its fellow tokens, began to recover from their lows.


****SD: First, great title. Second, with all these gyrations you’d think there would have been more activity on LedgerX. After all, the exchange did have a “record” July. While open interest seems to be building (4,000+ contracts) and Monday had 400+ trades, yesterday saw only 21 swaps trade. Oh, and the reason attributed to the puking? See Bloomberg’s SEC Postpones Decision on Bitcoin ETF Listing to September

Private Banks Are the New Hedge Funds

Yakob Peterseil – Bloomberg

Who needs hedge funds when a $2.4 trillion private bank is offering global macro trades to navigate late-cycle markets — mimicking fast-money strategies with leverage to boot.

UBS Group AG’s wealth management arm, the world’s largest, is pitching just that to billionaire clients.


John Lothian Newsletter

So you want to know what’s happening in the financial markets?

We visit more than 100 websites daily for financial news (Would YOU do that?)

“John Lothian and Company… our industry intelligence.”

Rick Lane

CEO, Trading Technologies

Past Newsletters

Seeing red: tricky times in the markets

Seeing red: tricky times in the markets

$34,126/$300,000 (11.4%) ++++ Lead Stories Seeing red: tricky times in the markets Stefan Wagstyl - Financial Times As investors we like to think we're acting rationally, even though there are mountains of evidence to show that, all too often, we're not. A successful...

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