First Read

The Why
Jim Kharouf, JLN

Simon Sinek said in his TED Talk that “People don’t buy what you do; they buy why you do it. And what you do simply proves what you believe.”

What we do is produce a financial newsletter and websites that are dedicated to enlighten, inform and educate you on what is happening in this industry. We do it because we believe that more informed readers make for better markets, everywhere. Better markets make all our lives better. That’s simply the what and why for John Lothian News. We believe in this so much we offer the newsletter free to anyone who wants it with the understanding that if you find value in it, we ask you to pay for it.

This is the time of year we ask our loyal readers to embrace the why and support John Lothian News. This year’s subscription rate is $175 for individuals and $125 for enterprise subscribers, or those with five or more subscribers. For individuals, that’s 69 cents an issue, and for enterprise subscriptions, that’s 49 cents per issue. That’s a pretty nice price to support the content we provide and aggregate each day.

For enterprise subscribers, we will be sending your invoice shortly. For individuals, we invite you to pay via Paypal or contact us directly if you would like an invoice.


Number of bond trading platforms available reaches 128; The explosion of new fixed income trading venues shows no signs of letting up.
Hayley McDowell – The Trade
As of January this year there are 128 trading platforms available for fixed income trading, suggesting the explosion of new bond venues is yet to slow down.

**JK: And equity markets thought they had it bad.


Calling all Java Software Engineers – Friday 20th January 2017
CME Group Jobs
Calling all Java Software Engineers Welcome to the CME Group; Where Futures Are Made . Are you a Problem solver, difference maker, trailblazer? Then we are looking for you. We are hosting a recruitment drive on Friday 20th January 2017 As a Java Software Engineer you will be working within our Engineering and Execution Division that is responsible for developing and maintaining applications and software that are critical to our core business. To be eligible to attend this event you must have the following experience; 4 – 7 years’ commercial development experience in Core Java including; MVC Spring Database experience in either Oracle or SQL Join us on Friday 20th January for the opportunity to join our team and shape your future with CME Group.

**JK: Are hoodies optional?


Index Industry Leaders Opine on Key Index Issues and Innovations in 2017
Index Industry Association
The most significant innovation in indexes has been the growth of smart beta indexes:
While factor-based investing is not new, a majority of IIA members feel the act of bringing the discipline of a rules-based methodology to a strategy different from traditional cap-weighted benchmarks is driving innovation in the industry and providing more choices for investors. Overall, IIA members felt that innovation around smart beta indexes has opened access to a wider variety of new investment opportunities for a broader population.

**JK: The index world is cooking right now.


Correction from a reader: Yesterday’s John Lothian News cited an article in the Business Standard News incorrectly stating that the world’s first diamond futures exchange was about to open in India.
In fact, diamond futures first started at the West Coast Commodity Exchange (located in either San Francisco or Los Angeles, I can’t recall) in 1972 and closed the same year. Speculators pushed up the price of the nearby contract well above par values and professional diamond merchants started selling short, driving prices down sharply forcing the longs to liquidate rather than take delivery at inflated prices. See more details here. ~Lawrence Schneider, former member of the CME, CBOT and Coffee, Sugar and Cocoa Exchange, EA Compliance, Inc.


Tuesday’s Top Three
Yesterday’s top read story was JLN’s own piece on Tom Sosnoff and his tastytrade team’s new bold effort to upstage the brokerage world,
The tasty nation adds an entree, tastyworks: Tom Sosnoff and the tastytrade crew are “going to murder passive investing”. He’s not kidding, by the way. Second went to Bloomberg’s piece on the disappearing numbers of arbitrageurs in Where Have All the Arbitrageurs Gone?. Third went to Bloomberg’s article on DTCC’s push into blockchain with IBM Partners With Wall Street to Bring Blockchain to CDS Market


MarketsWiki Stats
92,181,867 pages viewed; 22,302 pages; 203,142 edits
MarketsWiki Statistics


Lead Stories

NYSE MKT to end floor trading for small stocks; Open outcry venue is the latest to digitise but main trading floor remains unaffected
Nicole Bullock in New York – FT
The New York Stock Exchange plans to end floor trading on its NYSE MKT venue for small capitalisation stocks in the latest example of financial dealings going completely electronic.

****SD: Reuters article here

US regulator warns on tough UK and EU derivatives battle; Outgoing CFTC head highlights challenges ahead for London traders and infrastructure
Philip Stafford – Financial Times
The UK’s looming departure from the European Union will pose a challenge for London’s derivatives trading and infrastructure, according to a key US market regulator.

Wall Street’s Most Famous Quants Fed Up With JPMorgan Soothsayer
Dani Burger – Bloomberg
Risk parity, trend-following strategies used as scapegoat: AQR; Size of industry overestimated in bank research, firm says
Don’t listen to Marko Kolanovic. Or anybody else who tells you quant managers regularly whip up bouts of pain and suffering for stock investors. Funds with programs that follow trends and sell like robots are getting smaller and simply aren’t big enough to overwhelm the $24 trillion U.S. equity market.

U.S. charges three traders in forex rigging probe
Nate Raymond – Reuters
The U.S. Justice Department on Tuesday brought charges against three former traders at JPMorgan Chase & Co, Citigroup Inc and Barclays Plc arising from a global probe into the manipulation of foreign exchange prices at major banks. Richard Usher, formerly of JPMorgan, Rohan Ramchandani, formerly of Citigroup, and Chris Ashton, formerly of Barclays, were charged in an indictment filed in federal court in Manhattan with conspiring to restrain trade.

Texas $1 billion carbon project to curb emissions, up oil recovery
Ernest Scheyder – Reuters
NRG Energy Inc and JX Nippon Oil & Gas Exploration Corp said on Tuesday they had begun operations at a $1.04 billion carbon capture facility at a Texas coal-fired power plant and were using the emissions to extract crude from a nearby oilfield. The facility, the largest of its kind in the world, is the latest in efforts by the power industry to curb carbon dioxide (CO2) emissions as pressure mounts from regulators, investors and consumers to stem climate change.

****SD: They do say everything’s bigger in Texas. Here is a more technical look at the project from POWER Magazine.

Bitcoin plummets in value as PBOC announces formal investigation into virtual currency
Xie Yu – South China Morning Post
Leading bitcoin prices plummeted in China on Wednesday evening, after The People’s Bank of China (PBOC) revealed it was placing the country’s major bitcoin trading platforms under close scrutiny. It is the first regulatory move China’s central bank has taken over the virtual currency, since it defined bitcoin as a “commodity” rather than a “currency” in 2013, when it ruled it out of its financial regulatory coverage.

Exclusive: Banks forced to cover tracks of China’s forex regulator
Engen Tham and Samuel Shen – Reuters
China’s forex regulator is telling banks to keep its instructions about curbing capital outflows secret and to ensure that research analysts keep any negative views about the yuan’s prospects to themselves, several bankers said.

HSBC adopts Bloomberg’s collateral management ahead of non-cleared margin rules; Non-cleared margin rules will come into effect as of March this year.
Hayley McDowell – The Trade
HSBC and other financial institutions have implemented Bloomberg’s MARS collateral management and reconciliation service, ahead of impending non-cleared derivatives rules.

Big Banks Lose Bid to Halt Crisis-Era Lawsuits
Victoria Finkle – NY Times
The Supreme Court has rebuffed an effort by some of the country’s largest banks to halt several financial crisis-era lawsuits that could result in tens of billions of dollars in legal costs.


Government will lose Brexit supreme court case, ministers believe; Senior government figures believe seven of 11 judges will uphold demand that Theresa May secure MPs’ backing for article 50
Anushka Asthana and Heather Stewart – The Guardian
Cabinet ministers have privately conceded that they are very likely to lose a landmark legal case on Brexit in the supreme court and have drawn up at least two versions of a bill that could be tabled after the ruling.

LSE CEO Sees Brexit Risking 232,000 Jobs, Market Stability
John Detrixhe and Stephen Morris – Bloomberg
CEO Rolet joins HSBC, Allianz Global Investors in warnings; HSBC chairman compares financial system to Jenga game
London financial bosses entered 2017 with renewed warnings about the potential impact of Brexit.

HSBC chairman: Brexit could trigger ‘Jenga tower’ of City job loses
Ben Martin – Telegraph
Brexit could trigger a “Jenga tower” of job moves out of the City, according to the chairman of HSBC, who has warned MPs that some banks could start to act on their contingency plans in a matter of months.

Exchanges, OTC and Clearing

Chicago Stock Exchange responds to fake news’ over China deal
John McCrank – Reuters
The Chicago Stock Exchange has asked the U.S. Securities and Exchange Commission to remove a letter from its website that fraudulently claims to be from a journalistic organization calling for a halt to the exchange’s sale to a China-led consortium.

Nadex Ends 2016 with Another Record Quarter
Updates for Android and iPhone Apps Make Applying Even Easier; December 2016 Saw the Highest Monthly Trading Volume in Nadex’s History
Nadex’s total binary option trades and volume up over 70% year-to-year versus Q4 2015.

SIX Group names Romeo Lacher as chairman
Reuters via Yahoo
Swiss financial services company SIX Group Ltd named Romeo Lacher as its new chairman, effective immediately.

NSE gets Sebi nod to operate international exchange at GIFT
NSE IFSC Ltd, the global exchange promoted by the National Stock Exchange, has received in-principle approval from the Securities and Exchange Board of India (Sebi), to set up operations at Gift city, an NSE official told PTI.

TMX Group Equity Financing Statistics – December 2016
TMX Group today announced its financing activity on Toronto Stock Exchange and TSX Venture Exchange for December 2016.

Exchange Traded Funds derivatives: Introduction of futures on the db x-trackers Harvest CSI300 ETF
The Management Board of Eurex Deutschland and the Executive Board of Eurex Zürich AG decided to introduce futures on the db x-trackers Harvest CSI300 ETF effective 20 February 2017. The EXTF futures will be launched in cooperation with China Europe International Exchange (CEINEX).

ETF on inflation-protected US government bonds from UBS on Xetra; ETF forms TIPS (US Treasury Inflation Protected Securities) with a minimum maturity of 10 years
Deutsche Börse
A new index index ETF has been tradable on Tuesday from UBS Global Asset Management via Xetra and Börse Frankfurt.

NSE struggles with controversy over algo trading; Sebi letter written in Dec reveals exchange’s management has failed to comply with earlier directive
N Sundaresha Subramanian – Business Standard
Four days before National Stock Exchange (NSE) managing director Chitra Ramkrishna quit on December 2, the exchange received an important letter from the market regulator. It had some good news and some bad news. The Securities and Exchange Board of India (Sebi) had extended the deadline to submit the forensic audit report of Deloitte on the alleged misuse of its co-location facility, which allows brokers to locate their servers close to the exchange’s server in order to reduce latency, and algorithmic trading facilities.

EEX Group Achieves Yet Another Record Year In 2016
Double-digit growth on the core markets – Product portfolio expanded; PXE becomes part of EEX Group
The European Energy Exchange (EEX) successfully continued its growth story and was able to significantly increase its trading volumes in 2016. On its core markets – the power, gas and CO2 markets – it set new records while achieving growth in new market segments. This growth was supported by new product developments on its core markets as well as through acquisition.

DTCC puts blockchain at heart of $11 trillion credit derivatives market
Taking post-trade processing onto distributed ledger could be the first big step, with clearing and settlement and even payments to follow.

Nasdaq Dubai Welcomes European Union’s Recognition Of DFSA’s Central Counterparty Framework – Decision Encourages Cross-Border Investment In Nasdaq Dubai Equities And Equity Futures
Nasdaq Dubai has welcomed the announcement that the regulatory framework of Dubai Financial Services Authority (DFSA) for central counterparties has been classified as equivalent to that of the European Union.


Trump Said to Be Told of Unverified Russian Intelligence
Margaret Talev and Chris Strohm – Bloomberg
U.S. spy agencies told Obama and president-elect about scheme; Uncorroborated memos claim Russia sought damaging information
U.S. intelligence officials have informed President-elect Donald Trump about unsubstantiated reports they’ve received that the Russian government had compiled potentially damaging personal and financial information on him, a person familiar with the situation said.

Jared Kushner: the powerful son-in-law of Donald Trump and his ties with Chinese businesses
Violet Law – South China Morning Post
As a real estate developer, Jared Kushner is used to chasing deals and tapping deep pockets, including many in China. But then Kushner isn’t just a typical developer – after the son-in-law of US President-elect Donald Trump was named his senior policy advisor, Kushner’s wheeling and dealing, especially with Chinese investors, has courted fresh media scrutiny. His appointment as the unpaid special adviser to the incoming president has raised questions of nepotism and conflicts of interest.

Trump’s HHS pick faces calls for probe of stock trades
Ricardo Alonso-Zaldivar – Associated Press via Seattle Times
President-elect Donald Trump’s nominee to be the nation’s top health official is facing calls for investigation of whether his stock picks were guided by insider knowledge gleaned as a senior member of Congress.

‘The Mooch’ Earns the Ear of Donald Trump; Hedge-fund investor Anthony Scaramucci expected to take a new role as adviser to president
Dave Michaels and Lisa Beilfuss – WSJ
Wall Street’s hedge-fund showman is ready to leave investing behind for a new act in Washington.

Investing and Trading

Goldman: Here’s One Way Passive Investing Actually Looks A Little Marxist
Luke Kawa – Bloomberg
From each according to his ability, to each according to his flows?Goldman Sachs Group Inc. has hit on one way in which the rise of passive investing might resemble Marxism, arguing that the popularity of funds seeking to replicate market indexes has the effect of rewarding corporate directors more equally than the fundamental performance of their respective businesses might warrant.

S&P GSCI Rebalance Triggers Brent Outflows 8X Bigger Than For WTI
Jodie Gunzberg – S&P Indexology
The S&P GSCI annual rebalancing is beginning today to adjust the commodity weights to their 2017 target weights over the next five days. Energy remains the biggest sector in the index in 2017, targeting 56.2%, despite a significant decrease from its 2016 target weight of 63.1% and ending weight on Jan, 6. 2017 of 62.2%. In fact, it is the lowest target weight for energy since 1999, driving $600 million of energy outflows for every $10 billion tracked.

Anti-establishment wave to help push blockchain into real world in 2017
Jemima Kelly and Anna Irrera – Reuters
A wave of anti-establishment sentiment sweeping the Western world is likely to help push blockchain – the technology that gave birth to the renegade digital currency bitcoin – out of cyberspace and into the real world in 2017.

Bitcoin was the best performing currency of 2016; As political and economic uncertainty grows across the world, bitcoin is becoming more stable
Federica Cocco – FT
The year 2016 was a good one for bitcoin. The virtual currency became the best performing currency by more than doubling its value, rallying 126 per cent on the year, while the runner-up, Brazil’s real, gained 21 per cent.

Applying Science To The Art Of Investing
Successful investors call investing an art, but in reality, most apply well established scientific principles to win in the market.

False Dawn in America
Satyajit Das – Bloomberg
Markets are expecting big things from a Donald Trump presidency, at least as judged by long-term U.S. interest rates. After Trump’s election in November, 10-year and 30-year rates peaked at above 2.6 percent and 3 percent respectively, increases of around 75 basis points. Emerging market rates have risen by similar amounts. (European and Japanese increases have been more modest, primarily due to continued aggressive purchases by the European Central Bank and Bank of Japan.) While rates have retreated somewhat, they remain well above lows of 2016.


Richmond Fed President Jeffrey Lacker Announces Retirement
Federal Reserve Bank of Richmond
Jeffrey M. Lacker, president and chief executive officer of the Federal Reserve Bank of Richmond, announced today that he will retire on October 1, 2017, after 28 years of public service at the Richmond Bank. Dr. Lacker joined the Richmond Fed in 1989 and served in various leadership positions prior to this appointment in August 2004.

Fed 2016 profits to Treasury fall as interest to banks jumps
The interest paid by the Fed to major banks last year jumped to $12 billion as the central bank’s chief tool for raising rates nationally provided a boon to some of the country’s largest financial institutions.

SoftBank’s $100 Billion Investment Fund Starts to Take Shape
Landon Thomas Jr. – NY Times
Many business titans have made the trek to Trump Tower for a private audience with Donald J. Trump since he was elected president, but none have made a bigger splash than Masayoshi Son, the billionaire telecommunications entrepreneur.

Rokos Hedge Fund Said to Gain 20% in First Full Trading Year
Nishant Kumar and Hema Parmar – Bloomberg
Return ranks ex-Brevan manager near the top in macro category; Firm gets boost as it prepares to raise another $2 billion
Chris Rokos’s hedge fund rose about 20 percent in 2016, its first full year of trading, to become one of the world’s best-performing money pools betting on economic trends, according to people with knowledge of the matter.


Wall Street Horizon and Estimize Partner to Help Investors Find Alpha
Business Wire
Wall Street Horizon, the corporate events surveillance expert, and Estimize, the preeminent crowdsourced financials estimates platform, today announced they have partnered to provide their respective datasets to each other’s platforms in an effort to help investors find additional sources of alpha. Effective immediately, Wall Street Horizon Enchilada subscribers will have access to Estimize’s crowdsourced earnings and economic estimates, and Estimize’s clients will have access to Wall Street Horizon’s forward-looking earnings date calendar.

Policing the digital cartels; Price-setting algorithms mean regulators must now tackle collusion among machines
David J Lynch
David Topkins is no John D Rockefeller. But like the famed industrialist, the unheralded ecommerce executive has stirred fundamental concerns about the laws of economic competition in the digital age.

Anti-establishment wave to help push blockchain into real world in 2017
Jemima Kelly and Anna Irrera – Reuters
A wave of anti-establishment sentiment sweeping the Western world is likely to help push blockchain – the technology that gave birth to the renegade digital currency bitcoin – out of cyberspace and into the real world in 2017.


Swiss Banker Latest Conviction in Singapore’s 1MDB-Linked Cases
Andrea Tan – Bloomberg
Sturzenegger is first foreigner charged in Singapore’s probe; Former Falcon Bank branch manager charged with 16 counts
Jens Sturzenegger, a former branch manager at Falcon Private Bank Ltd. in Singapore, became the first foreigner convicted in the city’s probes linked to a Malaysian state investment fund.

SEC: Port Authority Omitted Risks to Investors in Roadway Projects
The Securities and Exchange Commission today announced that the Port Authority of New York and New Jersey has agreed to admit wrongdoing and pay a $400,000 penalty to settle charges that it was aware of risks to a series of New Jersey roadway projects but failed to inform investors purchasing the bonds that would fund them.

China’s finance regulators walking a fine line after year of indecision over inflating bubbles
Xie Yu – South China Morning Post
Top of the agenda for China’s financial regulator in 2017 is to deflate various economic bubbles without crushing them. The steepest yuan depreciation in more than two decades, runaway house prices, booming bad loans, and a sudden bond market rout by at the end of last year suggested financial risks surged in China in 2016, after years of easy credit.

FIA publishes due diligence questionnaire for IT outsourcing and procurement
FIA’s e-Trading Working Group has produced a Due Diligence Questionnaire for IT Outsourcing and Procurement which aims to provide a standard form for firms to request information from their vendors as part of MiFID II regulatory requirements.

ESMA Publishes Extract On Enforcement Decisions On Financial Statements
The European Securities and Markets Authority (ESMA) has published an extract from its confidential database of enforcement decisions on financial statements. The extract includes a selection of 14 decisions that were taken by national enforcers in the period from March 2014 to June 2016.

Remarks of Chairman Timothy Massad before the London School of Economics
We find ourselves in a very different position than eight years ago when President Obama was about to take office. In January of 2009, the world was in the depths of the worst financial crisis since the Great Depression. Financial institutions across the globe were on the brink of collapse. In the United States alone, we were losing more than 750,000 jobs a month. Over time, nearly nine million people lost their jobs, over five million lost their homes, and thirteen trillion dollars in family wealth was destroyed. Many lives were shattered, and many opportunities were lost.

ESMA Finds Improvement in Regulators’ Supervision of MIFID Best Execution Requirements
The European Securities and Markets Authority (ESMA) finds that national regulators are giving greater attention to best execution requirements under the Markets in Financial Instruments Directive (MiFID) in the follow-up report to its Peer Review published in 2015.

Narrative for 0426431 – LITFIN, RYAN
DECISION: On January 10, 2017, NFA’s Hearing Panel issued a Decision as to Litfin only in which it accepted the his settlement offer. Pursuant to the offer, the Panel dismissed the charge that Litfin used deficient promotional material and expressly acknowledged that he neither admitted nor denied that he violated NFA Compliance Rules 2-5 and 2-9(a). The Panel ordered Litfin to pay a $15,000 fine within 30 days of the effective date of the Decision.

Sebi plans steps to tighten settlement norms; Fresh steps would be taken to popularise new investment vehicles like municipal bonds, REITs, InvITs
Business Standard
In slew of reform measures, Sebi plans to tighten its settlement norms by making the suspected defaulters pay more for any delay on their part, while fresh steps would be taken to popularise new investment vehicles like municipal bonds, REITs and InvITs.

SEC partly rules for ‘Big Short’ adviser but orders bigger payment
Nate Raymond – Reuters
The U.S. Securities and Exchange Commission has partially overturned a ruling finding an investment adviser featured in the best-seller “The Big Short” liable in a case stemming from the 2008-09 financial crisis, but it increased how much he owes.

ASIC warns customers about scam emails
The Australian Securities and Investments Commission (ASIC) is warning its Registry customers to be vigilant of scam emails purporting to be from ASIC.


In China, Insurers Sell Risky Products to Fund Risky Investments, Freaking Out Regulators; Regulators have criticized insurers for straying from their core mission of providing long-term security
James T. Areddy – WSJ
When Han Deqiang decided to plow $15,000 of his savings into life insurance, he wasn’t planning for posterity. Instead, the 27-year-old was jumping into the latest trend in China’s internet-powered investment boom—one that is alarming regulators.

Jakarta tightens rules for primary bond dealers after spat with JPMorgan
Nikkei Asian Review
Indonesia’s Finance Ministry has issued tougher rules for primary bond dealers, requiring them to “maintain partnership with the government” after it terminated contracts with U.S. investment bank JPMorgan Chase over an equity downgrade.

Chinese investors losing appetite for bonds in 2017
Samuel Shen and John Ruwitch – Reuters
Stung by a late-2016 tumble in bonds, Chinese investors are signalling a switch into shares this year in the hope of better returns as the economy recovers and as a hedge against rising inflation and tighter monetary policy.

Hong Kong court hears Moody’s appeal over “red flags” report
Hong Kong’s Court of Appeal on Wednesday began hearing Moody’s (MCO.N) appeal against a tribunal decision that partly upheld regulatory action imposed on it for a report on Chinese firms, in what is considered a landmark case for the financial center.

China in a squeeze over financial liberalisation; Authorities must tread carefully as they squeeze out the leverage that risks instability
Henny Sender – FT
When Chinese conglomerate HNA paid 80 per cent over the market rate for a plot of land on the site of Hong Kong’s former airport in Kowloon late last year, there was little surprise. Many analysts simply assumed the lofty price was paid to get around the increasingly stringent controls on capital outflows from mainland China.


Breitbart Nabs Wall Street Journal Vet to Expand Audience
Joshua Green – Bloomberg
In a bid to expand its influence in the era of Donald Trump, Breitbart News, the crusading populist-right website that was an early champion of the incoming president, has hired veteran financial journalist John Carney of The Wall Street Journal to lead a new finance and economics section set to launch soon after the Jan. 20th presidential inauguration.

Reporter Who Broke The Story Of Start Of WWII Dies At 105
Camila Domonoske – NPR
Clare Hollingworth, the war correspondent who told the world of the outbreak of World War II, has died at 105. She died Tuesday evening in Hong Kong, according to long-time friend Cathy Hilborn Feng, who says Hollingworth “had a smile before she left us.”

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