John Lothian Newsletter: UK report urges rules to limit HFT risks; CME Challenger Struggles In Largest U.S. Derivatives Market; SEC adopts new risk mgmt rules for clearing agencies

Oct 23, 2012

A UK report, two years in the making, makes several recommendations on how to best limit the risks involved with high-frequency trading systems. The ELX exchange, launched in 2009 to compete against CME Group, is struggling with evaporating volumes as customers walk away from core interest rate products. The SEC adopts rules to regulate risk management practices at clearing companies.

First Read

Catching A Frisbee Is Difficult: The Bank Of England Tells It Like It Is
The pretense of knowledge lays bare the perils of overactive central bank policy.

**** Dogs catch a frisbee in their teeth. It can’t be that difficult.


SunGard Makes its Business Process Management Suite Available For Open Source via the Eclipse Foundation
SunGard’s Infinity Process Platform is now available from the Eclipse Stardust project, an open source business process management (BPM) suite designed to help improve the infrastructure behind many of the finance industry’s key operations.

**** Very cool!


Regulators Should Avoid Choking HFT Benefits, Study Says
European regulators should coordinate controls on high-frequency trading to prevent disruptions in markets without choking off its benefits, the U.K. government’s lead scientific adviser said.

**** As soon as they get to finally analyzing the data from 2007, they will get right on this.


In London, Nimble Start-Ups Offer Alternatives to Stodgy Banks
When Hiroki Takeuchi joined McKinsey & Company in 2008, he had a front-row seat to the upheaval in finance. After the collapse of Lehman Brothers, Mr. Takeuchi, a 26-year-old Oxford graduate, worked with some of the world’s biggest banks trying to figure out how to adjust to new regulations and a changed market. Then he quit.

***** That is the way nature and business works.


Wall Street Rethinks Role in Commodities Trading
Goldman Sachs Group Inc. has held preliminary internal discussions in recent years about splitting off its lucrative commodities-trading business, according to people briefed on the discussions.

***** Or maybe not.


Big ETF providers fight for investors
Mary Watkins, Chris Flood and David Oakley –
A fierce battle for market share has erupted among high-profile providers of US exchange traded funds, with sharp cuts in the fees they charge the chosen weapon to attract cost-conscious investors.

**** Competition in ETF’s. What could be next?


Regulators Clash Over Volcker Definitions
A rift has emerged among regulators responsible for crafting the so-called Volcker rule, one of the most complex and contentious regulations of the landmark Dodd-Frank financial overhaul.

**** Of course they do.


Foresight Report: The Future Of Computer Trading In Financial Markets
A new two-year Foresight study The Future of Computer Trading in Financial Markets – An International Perspective, sheds new light on technological advances which have transformed market structures in recent years.

**** I can’t wait to trade with my new Google glasses.


How Not to Change a Bank CEO
I never tried to manage my career, Vikram Pandit told Stanford University students in May. “I never thought about the future in any way.” That is just as well because on Wall Street the future can be unpredictable. Mr. Pandit found out just how unpredictable last Monday.

***** An economic opportunist, not a planner.


Wasendorf estate: Former lifestyles of the rich and infamous
Victor Epstein | The Des Moines Register
Real estate brokers, bargain seekers and asset liquidators sifted through the wreckage of a ruined life last week in Cedar Falls as they wandered among the former belongings of disgraced business leader Russell Wasendorf. The property and buildings already are for sale. Everything else — from his 4,000-bottle wine collection to his autographed Lance Armstrong jersey — is scheduled for auction Dec. 5.

**** The trustee waited just a little too long to unload that Lance Armstrong jersey.


Five Minutes With Scot Warren
Scot Warren is senior managing director of equity index products and services at CME Group, a position he has held since February 2010. He is responsible for leading the company’s equity and equity index product lines, including new product launches such as the U.S. dollar-denominated Ibovespa futures contract, which is set to launch Oct. 22, 2012. Warren spoke with John Lothian News Editor-at-Large Doug Ashburn about the new Ibovespa contract, how it differs from the existing Brazilian real-based Ibovespa that trades at BM&FBOVESPA (“BVMF”), and how this product launch fits with current trends in market participation, capital and regulation, and how it fits with CME Group’s global strategy.


Byron Baldwin

Byron Baldwin of Eurex Discusses OTC Clearing, Portfolio Margining and Individual Segregation

Byron Baldwin is senior vice president of buyside relations for Eurex. He moved to New York from Eurex’s London office to in February 2011 in order to promote the firm’s listed products, connectivity for high frequency trading firms, and to promote Eurex’s move into OTC clearing. Baldwin spoke with John Lothian News Editor-at-Large Doug Ashburn about regulatory changes across jurisdictions, mandatory clearing of OTC derivatives, margin and collateral efficiency and Eurex’s individual segregation model.

Watch the video »


MarketsWiki Page of the Day


Mark Ibbotson; Finbarr Hutcheson; Michael A.J. Farrell; Scot E. Warren

Companies, Organizations and Groups

MCX Stock Exchange; Multi Commodity Exchange of India; Tokyo Commodity Exchange, Inc.; Ibovespa


U.S. Dollar (USD)-Denominated Ibovespa Futures


Total return index; Brazilian real


29,856,553 pages viewed, 7,177 articles, 149,035 edits
MarketsWiki Statistics

Lead Stories

UK report urges rules to limit HFT risks
Philip Stafford –
A UK-commissioned report into superfast trading will on Tuesday call for action to limit sharp swings in financial markets in an effort to manage better systemic risks. The two-year study, commissioned by the British government, urges regulators, investors and brokers to examine the use of circuit breakers, to stop sudden swings in the market, and to protect investors by reducing so-called “tick sizes”, the increments by which asset prices are allowed to fluctuate.

CME Challenger Struggles In Largest U.S. Derivatives Market
Jacob Bunge – Dow Jones Newswires
A push by big Wall Street banks to challenge the dominance of CME Group Inc. (CME) in handling financial futures is struggling as business on their trading platform has slowed to a trickle. The ELX Futures LP platform, launched in 2009 by a consortium of banks and trading firms, has seen its share collapse this year in trading of interest-rate futures and options–bets on the direction of central bank policy that are among the most-commonly used risk management tool for companies, fund managers and speculators.

**** Don’t count out ELX just yet. They may have lost the first battle, but are still in the war. When the regulatory cloud lifts and we know what the lay of the land looks like, there may be a lot of room for an innovative smaller exchange.

SEC adopts new risk management rules for clearing agencies
Reuters via Yahoo! News
WASHINGTON – Securities regulators on Monday adopted rules designed to bolster risk management practices for clearing agencies. The new rules, which are required by the 2010 Dodd-Frank Wall Street reform law, mark the latest effort by the Securities and Exchange Commission to finalize regulations for the 640 trillion dollar over-the-counter derivatives market.

Foreign Banks Say ‘No’ on U.S. Swaps
Two large banks in Asia and Europe said they won’t register with U.S. regulators to trade complex derivatives with U.S.-based financial companies, amid controversy over a proposed rule tied to the Dodd-Frank markets overhaul. Non-U.S. banks have been complaining for months about regulations that would force banks to register with U.S. regulators if they trade a set amount of swaps, a type of privately negotiated derivative, with U.S. banks or for U.S. clients.

Swaps Exchanges Couldn’t Rival NYSE-Deutsche Boerse, EU Ruled
Nandini Sukumar and Aoife White – Bloomberg
Derivatives exchanges would have been unable to quell the combined market power of Deutsche Boerse AG (DB1) and NYSE Euronext (NYX), European Union regulators said in disclosing their reasons for blocking the duo’s plans to join forces to create a global leader.

Corzine, banks push to end MF Global fraud lawsuit
Reuters via Yahoo! News
NEW YORK – Jon Corzine’s lawyers say allegations that he fraudulently ran MF Global Holdings Ltd make “no sense” and that a lawsuit seeking to hold him and others responsible for the futures brokerage’s bankruptcy must be thrown out.

Northern European Investors Steer Clear of Needy South
Risto Murto, the chief investment officer of Varma Mutual Pension Insurance Co., is pleased that the European Central Bank now says it is ready to fight the euro crisis by buying government bonds of troubled countries like Spain. But not so pleased he will join in. And that means Europe’s leaders may have more work to do.

ECB Has ‘Crossed Red Lines’: Juergen Stark
The European Central Bank has “crossed red lines” by overstepping its monetary policy remit and operating in the realms of fiscal policy and politics, former executive board member of the European Central Bank, Juergen Stark told CNBC on Monday.

Sponsors suffer as tough fundraising market bites
Paul Hodkinson and Kiel Porter – Financial News
Private equity firms are showing signs that they are struggling to raise capital amid one of the toughest markets for a decade.


CFTC Issues Final Interpretative Guidance to Clarify Foreign Regulators Indemnification and Confidentiality Obligations
The Commodity Futures Trading Commission (Commission) today issued final Interpretative Guidance to, under certain circumstances, exempt foreign regulators from the indemnification and confidentiality provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).

Andrew Bailey sets out details of the PRA’s approach to regulation
Andrew Bailey, the head of the prudential business unit at the Financial Services Authority (FSA) and executive director at the Bank of England, is hosting an event today with banks, insurers, building societies, credit unions and investment firms to discuss the details of the two Prudential Regulation Authority (PRA) approach documents published last week.

Volcker Rule May Cut $10 Billion in Bank Profit, S&P Says
The Volcker rule could cut profit at the biggest U.S. banks twice as much as earlier estimates if regulators take a strict stance on limiting proprietary trading, Standard & Poor’s said.

Euro-Area Bailout Fund Faces Challenge at EU’s Highest Court
The euro area’s 500 billion-euro bailout fund faces another test as the European Union’s highest court weighs claims that the firewall violates EU law and should be banned in its current form.

Statement Of Support: Interpretative Guidance Regarding The Confidentiality And Indemnification Provisions Of The Dodd-Frank Act, CFTC Chairman Gary Gensler

Dissenting Statement, Swap Data Repositories: Interpretative Statement Regarding The Confidentiality And Indemnification Provisions Of Section 21(d) Of The Commodity Exchange Act – Commissioner Jill E. Sommers And Commissioner Scott D. O’Malia

ISDA Letter To OCC, Fed Board And FDIC On Regulatory Capital Rules: Standardized Approach For Risk-weighted Assets

SIFMA And Other Trades Submit Comments To US Regulators On Basel III Implementation Proposals

EDHEC-Risk Institute And NATIXIS Set Up A Research Chair On The Investment Characteristics And Governance Of Infrastructure Debt Instruments

Exchanges & Trading Facilities

LME to implement Millennium surveillance platform
MillenniumIT, the technology solutions provider and part of London Stock Exchange Group (LSEG) has signed a contract with the London Metal Exchange (LME) to provide the exchange with new surveillance software.

International Securities Exchange Announces Its Sponsorship Of AWE, The Association Of Women Entrepreneurs And Executives
The International Securities Exchange (ISE) is pleased to announce that it is sponsoring a pre-conference networking dinner for The Association of Women Entrepreneurs and Executives in advance of their

NYSE Euronext Hosts Girls Who Code Inaugural Gala at the New York Stock Exchange on October 22
Today, Girls Who Code, a national nonprofit organization working to close the gender gap in the technology and engineering sectors, will hold its inaugural gala on the trading floor of the New York Stock Exchange. NYSE Euronext is a title sponsor of the event.

Accion, NYSE And Yelp To Host Round Robin Training Event For San Diego Entrepreneurs

Ibovespa Future Contract Is Now Available For Trading At CME Group In Chicago

Direct Edge Trading Notice #12-43: Order Priority Issue

Warsaw Stock Exchange Announces New Rates Of Exchange Fees

Luxembourg Stock Exchange Relaunches Website

Hedge Funds & Managed Futures

Farallon’s Steyer to Step Down as Spokes Named Manager
Thomas Steyer, the founder of $20 billion hedge fund Farallon Capital Management LLC, will step down from the firm after more than a quarter century, with Andrew Spokes becoming the sole managing partner.

The rich bail out of changing hedge fund industry
Reuters via Yahoo! News
LONDON – Rich private investors are turning their backs on hedge funds because moves to attract more conservative pension fund clients mean managers no longer deliver the big returns they crave. The fastest growing source of new money for hedge funds is now pension funds and insurance companies who want managers to go easy on risky trades.

Hedge Funds Hot for Ailing Greece’s Debt
One of the hottest trades of the past few months has been the bonds of a country so shaken by economic and social turmoil that a neo-Nazi party is running third in the polls. That’s right: Hedge funds have been buying Greece.

Ex-Deutsche Bank executive resurfaces at hedge fund
Sophie Baker – Financial News
Deutsche Bank’s former European head of client financing has joined a $250m hedge fund with a mandate to develop its securities lending business.

SVG reduces exposure to Permira
Paul Hodkinson – Financial News
SVG Capital has reduced its exposure to Permira, the UK buyout group with which it has been closely associated for most of its history.

Job cuts to hit Dutch pension group
Dow Jones Newswires
APG Group, the giant Dutch pension manager, said on Monday it will slash 20% of its workforce in the coming years, evidence of the challenges facing the Netherlands’ widely praised pension system.

Pershing Wins Top Hedge Fund Award for the Third Year in a Row at HFMWeek Awards
Pershing LLC, a BNY Mellon company, today announced that its prime brokerage unit was named ‘Best Prime Broker— Custodial Solution’ for the third time in as many years at HFMWeek’s US Hedge Fund Services Awards ceremony in New York.

Evercore Wealth Management Appoints Allan Kaplan Managing Director and Wealth Advisor
Business Wire
Evercore Wealth Management, LLC, today announced the appointment of Allan Kaplan as a Managing Director and Wealth Advisor. Mr. Kaplan joins Evercore Wealth Management from Merrill Lynch, where he served as an advisor to high net worth families and family offices, responsible for designing and implementing wealth management strategies and constructing investment portfolios.

Mox Telecom AG Issues Bond In Bondm Segment – Investors Can Subscribe To The New Bond Issue Starting On 22 October

Banks & Brokers

Goldman Must Face Suit on Montag’s Favorite Deal, Judge Rules
Wall Street Journal Blogs
Goldman Sachs lost its bid to dismiss a $1 billion lawsuit by Australian hedge fund Basis Yield Alpha Fund, which claims the investment bank deliberately sold it securities laden with toxic subprime mortgages.

Alwaleed says Citigroup has great potential
Reuters via Yahoo! News
DUBAI – Saudi billionaire Prince Alwaleed bin Talal, who has a stake in Citigroup , said on Monday the U.S. bank has great potential under new management following the departure of Vikram Pandit as chief executive.

Swedbank Profit Rises
Swedish lender Swedbank AB’s earnings rose in the third quarter, highlighting the strength of the Nordic region’s banking sector as other European lenders struggle to survive.

Preliminary International Banking Statistics At End-June 2012

Clearing & Settlement

Korea to miss OTC clearing deadline
Viren Vaghela – Asia Risk
South Korea is set to miss the deadline to start clearing derivatives through a central counterparty (CCP) by the start of 2013 because of delays in passing new legislation to formalise central clearing through parliament.

Indexes & Products

Behind Vanguard’s ETF change of heart
Ian Salisbury – MarketWatch
Vanguard’s new TIPS ETF may please many of its die-hard fans. But there’s a big catch: The vehicle — years in the making — doesn’t follow the investment strategy Vanguard once said works best in this market.

MTS Licenses Lyxor For MTS France And MTS Italy Indices

S&P Dow Jones Indices Announces Changes To The S&P/TSX Canadian Indices – A Deletion From The S&P/TSX Venture Composite Index

NASDAQ Indexes Are The Underlying Benchmarks For Two Morningstar Award-Winning ETFs: Powershares QQQ And The Ishares NASDAQ Biotechnology Index Fund


b-next Launches CMC:Lite To Provide Entry Level Market Abuse Compliance
b-next, a specialist provider of Market Abuse Surveillance, Insider Dealing, Best Execution and Compliance software solutions, announces CMC:Lite, an entry level version of its successful CMC:Suite.

Advise Technologies Launches CPO-PQR/CTA-PR Solution
Advise Technologies LLC, a software solutions provider for global regulatory compliance, today announced the launch of the CPO-PQR and CTA-PR reporting module for its Consensus RMS suite of regulatory reporting solutions.

Euroclear Bank And Smartstream To Create Central Data Utility
Euroclear Bank and SmartStream today signed an agreement to provide the first centralised reference data utility service. Known as the Central Data Utility (CDU), the Euroclear Bank service will source securities data from data vendors as well as from data originators, such as central securities depositories and stock exchanges.


Prison looks likely for France’s rogue trader Kerviel
Reuters via Yahoo! News
PARIS – Jerome Kerviel, the man behind France’s biggest rogue-trading scandal, finds out this week whether he is heading to prison or walking free after his last court appeal in a four-year battle against former employer Societe Generale .

CFTC Fines Morgan Stanley Smith Barney for Customer Funds Violation
Dow Jones Newswires
The Commodity Futures Trading Commission fined Morgan Stanley Smith Barney $200,000 for failing to diligently supervise customer accounts. The CFTC said that a Morgan Stanley futures customer transferred funds from a third party’s bank account to conduct trades several times between 2006 and 2008.

FINRA Sanctions David Lerner Associates $14 Million for Unfair Practices in Sale of Apple REIT Ten and for Charging Excessive Markups on Municipal Bonds and CMOs
The Financial Industry Regulatory Authority (FINRA) announced today that it has ordered David Lerner Associates, Inc. (DLA) of Syosset, NY, to pay approximately $12 million in restitution to affected customers who purchased shares in Apple REIT Ten, a non-traded $2 billion Real Estate Investment Trust (REIT) DLA sold, and to customers who were charged excessive markups

ASIC consults on code approval under FOFA and confirms facilitative approach to FOFA introduction

Environmental & Energy

Carbon Plan Hurts EU Credibility as Regulator, Traders Say
A plan by the European Commission to prevent emitters from using some Emission Reduction Units issued after the end of this year damages the regulator’s credibility, said a lobby group representing traders.

Government may relax restrictions on cheap Kyoto emission credits
The Sydney Morning Herald
The federal government appears open to the possibility of relaxing restrictions on the number of cheap Kyoto pollution permits Australian businesses can purchase to offset their carbon emissions.

UN Green Fund Could Buy Credits From Carbon Market, CEPS Says
A suggestion by a high-level panel that the United Nations Green Climate Fund buy certain emission credits from the Clean Development Mechanism could help alleviate a supply glut, according to a research group.


China broadens insurance funds investment options
Market Watch
HONG KONG — China’s insurance regulator said Tuesday it will allow the nation’s insurance companies more leeway in how they invest, enabling the firms to trade index futures and financial derivatives based on the domestic market, while also opening more channels to overseas investment.

Japanese groups look for overseas deals
Paul J Davies in Tokyo and Alice Ross and Anousha Sakoui in London –
Japanese companies are set to extend a spate of dealmaking abroad as a battle for survival in the face of a shrinking population, economy and domestic talent pool spurs foreign acquisitions.

Press Conference By Ikko Nakatsuka, Japan’s Minister For Financial Services – Japan Exchanges Relationship With Singapore

Hong Kong’s Securities And Futures Commission: Holdings Chairman Convicted Of Price Rigging

Tokyo Stock Exchange Monthly Statistics Report – September 2012

Frontier Markets

Stenham cools on Asia hedge funds
Harriet Agnew – Financial News
Stenham Asset Management has turned its back on Asian hedge funds with the launch of an emerging markets long-only fund, on the basis that it will cost far less for much the same service.

Abu Dhabi tightens debt rules
Camilla Hall in Abu Dhabi –
Abu Dhabi is attempting to rein in boom-year borrowing that has triggered bailouts of state-linked companies and losses in parts of its swelling global investment portfolio.

Keynote Address By Ybhg Dato Dr. Nik Ramlah Mahmood, Deputy Chief Executive, Securities Commission Malaysia At The Institute Of Internal Auditors, Malaysia National Conference On Internal Auditing 2012 Rising Potential


Phillip Futures DMCC joins DGCX as Broker Clearing Member
The Dubai Gold and Commodities Exchange (DGCX) has announced that Phillip Futures DMCC, a leading provider of online trading services, has been approved as a Broker Clearing Member of DGCX.

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