John Lothian Newsletter: US futures trading to rebound after OTC shift; CME Europe exchange to target Asia-Pacific market; CFTC’s Gensler says still reviewing cross-border Dodd-Frank input

Oct 25, 2012

US futures markets may be able to use regulatory clarity as a springboard to improved volume next year. CME Group’s plans for its new London exchange include targeting Asian traders, as its operating hours will cover Asia as well as Europe. The CFTC’s Gary Gensler says the agency is still considering comments and consulting with other regulators on how to implement Dodd-Frank rules across international borders. Inside today’s First Read, check out John Lothian’s new plan to use FIA EXPO to revitalize the global financial marketplace. Yeah, well, you’d better go read it, then.

First Read

An EXPO Fueled Growth Plan
By John J. Lothian
Next week the world’s futures, options and OTC communities converge at the famed Chicago Hilton and Towers for the Futures Industry Association’s EXPO. If you are going to be in attendance, do you have a plan?

I have a plan. My plan is to learn as much as I can about the innovation on display by exchanges, technology firms and even regulators. I plan on hitting the EXPO exhibit hall and going booth to booth to find out what is new and interesting.

I have found some great opportunities and trading tools at EXPO. All the trading platforms I discovered and implemented, back when I was a broker, I found at EXPO.

In my role now, I am privileged to be pitched some great new technology. And I can tell you, there is some pretty cool innovations to be found at EXPO. You will learn about new technologies, but also about new trading instruments, exchange services and opportunities from the regulatory changes taking place.

And innovation is one of the three things we need to help our industry grow. The others are education and marketing.

Back in May I wrote a column that declared the trading world was in a recession. And I said the way out of it was innovation, education and marketing. As I mentioned yesterday, a leading futures industry figure said to me this week that our industry is in a depression. There is a healthy debate about what makes a depression versus a recession, but one factor seems to be the severity of the downturn. A more than 10% decline in GDP represents a key factor in the downturn being termed a depression. The other is the length of the decline.

We have now seen three quarters of declining volumes across asset classes. As I mentioned in June, if you measured industry GDP as volume times commissions or fees, GDP would have declined for two consecutive quarters. That is a recession. Now with three quarters, and given the severity of the decline, we could well be in a depression. In the trading world we are all used to drawdowns in our trading. It is a natural occurrence as sometimes we get on a bad streak and have several months of losing money. One feature of the severity of the drawdown is measured by how much money you lost from the peak of equity to the trough. What is your peak to trough drawdown?

Some investors don’t like to invest in a manager on the way up. They figure they are due for a drawdown and will invest after they see one.

We have seen the drawdown in the industry. The question is now how long will it last and will the volumes continue to drop lower. I don’t have a crystal ball so I can’t tell you. But what I can tell you is that this industry has seen slow downs before and the thing that spurred the next growth cycle was innovation, education and marketing. Where did the listed equity options market come from? It came from Chicago traders looking for something else to trade amid lackluster agriculture markets in the late 1960s and very early 1970s.

Where did the financial futures markets come from? The same motivation, to find new things to trade amid dramatic changes in global macroeconomic conditions and regulatory and monetary policies. Sound familiar?

The exchanges and industry also did a good job of educating the world about their new products, an effort which itself spurred the development of futures exchanges around the world. As we come to EXPO, we are seeing the results of those education efforts by the industry pioneers of the early 1970s.

And lastly, we need marketing. And EXPO is all about the marketing. EXPO is the single greatest marketing event in the industry. It is a place to see and be seen. It is a place to market your product, or market yourself. It is a place to connect with long lost friends and colleagues, a place to network face to face.

As I approach EXPO, I am looking for the ideas and innovations that are going to fuel the next great growth cycle in our markets. I am looking for the ideas that I can share through John Lothian News to help education efforts about the innovative products and tools I find interesting. I am looking for the drivers of the of growth that will generate new marketing efforts.

That is my plan. What is yours?


Ghost Exchange film questions runaway stock market technology
Reuters via Yahoo! News
NEW YORK – A Washington-based filmmaker is taking a hard look at how the U.S. stock market evolved from a crowded, noisy trading space into a quiet one dominated by machines in her new film, “Ghost Exchange.” The feature-length documentary film portrays the market as a system in need of serious repair, with flaws that could be costing the U.S. economy some 20 million jobs.

**** Welcome to the week of Halloween themed headlines and commentary.


High-Frequency Trading: Bob Greifeld Explains It All
Wall Street Journal Blogs
High-frequency trading for years has been cited alternately as a critical component of stock markets and a secretive menace to more ordinary investors. But regulators, investors and even some exchange officials have struggled to explicitly define it. Enter Nasdaq OMX Group CEO Bob Greifeld.

**** Can spiders hear the high frequencies?


MGEX Board Elects Officers and Appoints Committee Assignments
MGEX, a Designated Contract Market (DCM) and Derivatives Clearing Organization (DCO), today announced that its Board of Directors (Board) approved the 2012-2013 Board officers and committee representatives. The Board elected the following officers of the Board: Scott A. Cordes – chairperson; Gary S. Weber – first vice chairperson; Richard A. Dusek – second vice chairperson

**** MGEX, the last historic exchange standing.


ISE Expands Execution Capabilities for Multi-Legged Strategy Orders with a Stock Component
The International Securities Exchange (ISE) today announced that it has significantly expanded its execution capabilities for multi-legged strategy orders that include a stock component. The stock leg of these orders will now be able to access liquidity at Deutsche Bank, Getco, Instinet LLC and Knight, in addition to ISE’s existing routing capabilities to ConvergEX.

**** With all this multi-legged orders, it is amazing there are not more cases of trading arachnophobia.


Orc Introduces Orc Trade Access; Stand-Alone Market Access Solutions For Brokers And Trading Firms
Orc, a leading provider of technology and services for the global financial industry, today announced Orc Trade Access, a stand-alone market access solution which provides high functionality and low-latency connectivity to exchanges, brokers and market data sources.

**** I would not want to stand alone if I was surrounded by spiders.


Analysis: Change of tack from the DME
Galen Stops – FOW
In July 2012 the Dubai Mercantile Exchange (DME) brought in Chris Fix, previously head of marketing for Asia Pacific at PNB Paribas commodity futures, and charged him with continuing to develop liquidity on the exchange and build its Oman futures contract into the third global oil benchmark. Despite only being at the exchange for a short amount of time, he plans to approach this challenge in a different way to his predecessor, Tom Lever.

***** Spiders are not good at changing directions, their legs get all crossed.


SEC’s Schapiro says she’s not eyeing the exits
Mary Schapiro attempted to shoot down rumors that she’s close to wrapping up her tenure as the head of the U.S. Securities and Exchange Commission, saying on Tuesday that she has not thought about her post-SEC career plans.

**** Eyeballs all around.


Knight Capital’s Chief Ponders His Options
More than two months after a rescue ensured Knight Capital Group Inc. had a future, the brokerage’s chief executive is trying to figure out his own. Thomas Joyce, who also is chairman of Knight’s board, had a message for fellow directors ahead of the firm’s earnings announcement last week: Other companies were interested in discussing potential job openings with him, according to people close to the talks. He has had preliminary talks regarding the CEO post at online brokerage E*Trade Financial Corp., people with knowledge of the matter said.

**** He might just disappear in the Knight.


Bernanke’s helicopter malfunction
Mike Foster – Financial News
Federal Reserve chairman Ben Bernanke once said central bankers should drop money on beleaguered economies by helicopter, as necessary. But veteran strategist Marc Faber is unimpressed, saying it tends to land in the wrong place.

**** I know what Ben Bernanke is giving away for Halloween.


FN100 Most Influential Women 2012: The Asset Managers
Financial News
Financial News has published its 2012 list of the most influential women in Europe’s financial markets [ ]. Here are the profiles of those working in asset management.

**** Only scary to men.


Oops! Can I Take Back That Earnings Release?
Google was not the only company suffering from premature release of its earnings. Just a few days after Google’s earnings were inadvertently released hours ahead of schedule, Dow Chemical and Daimler both found themselves in similarly awkward positions.

***** Phantom releases?


Orc invites you to FIA Booth #321
FIA Expo, Chicago, October 31- November 1, 2012
Do we have a treat for you? Come by our Booth #321 to catch up with industry friends, for Halloween goodies and to hear about our new superior stand-alone market access offering Orc Trade Access. Need a pass? Don’t worry, we have one for you:

Wednesday, October 31 at 4:30 pm
After a hard day of collaborating with colleagues and catching up on industry news, stop by Booth #321 for a massage and cold one. We will have a massage therapist, beer, wine and Halloween treats ready when your day of networking is done. We have also invited Novasparks to educate you on the benefits of FPGA technology so come by with questions.

Thursday, November 1 at 10:15 am
Another one of our exciting new initiatives is the integration of Blue Trading System’s tablet system with Orc’s electronic options platform.
Please stop by Booth #321 at 10:15 am on Thursday to see a demonstration of the combined solution, which enables floor traders and market makers to increase opportunities in hybrid markets.

**** Look out for the WILD woman at the booth.


CME Group Webcast: Introducing Deliverable Interest Rate Futures
October 25, 2012, 11 AM CT
Join us for an in-depth discussion on Deliverable Interest Rate Swap Futures. Hear how this futures contract—the first to allow for delivery of a CME cleared interest rate swap (IRS)—provides a unique way to obtain swap exposure and get the most out of your margin. Webcast Discussion Topics Include:
* Multiple ways to save via margin efficiencies, risk offsets and more — with examples
* Buy-side and sell-side support from day one
* Delivery process overview
* Flexible execution choices (CME Globex, block trades, EFPs, floor trading)
* CME Clearing’s role in counterparty credit risk mitigation
* Interactive Q&A session


JLN Options

VIX Briefly Flirts With ‘Backwardation’
Kaitlyn Kiernan, The Wall Street Journal
The market’s so-called fear gauge briefly slipped into an unusual state of worry Tuesday: Traders pushed the cost of short-term protection against market volatility higher than the cost for long-term protection–a sign investors are especially anxious about where the market may be headed in the coming days.

Wall Street’s fear gauge soars
Vivianne Rodrigues and Arash Massoudi, The Financial Times
Wall Street’s fear gauge jumped to its highest level since July and was on course for its biggest one-day rise in almost a year, as investors recoiled from disappointing earnings from a number of large US companies.

US futures trading to rebound after OTC shift
Tom Osborn, Financial News
Trading volumes in the US futures markets, which have endured a torrid 2012, could rebound in the first half of next year thanks to clarity on new rules pushing derivatives onto listed exchanges. Trading volumes in core US derivatives markets, including commodities and interest-rate products, have suffered in the face of falling global demand, denting revenues across large derivatives exchanges.


MarketsWiki Page of the Day


Ian Johnston; Charlie Scharf

Companies, Organizations and Groups

Dubai Financial Services Authority; Tradeweb; Girls Who Code


29,946,069 pages viewed, 7,182 articles, 149,139 edits
MarketsWiki Statistics

Lead Stories

US futures trading to rebound after OTC shift
Tom Osborn – Financial News
Trading volumes in the US futures markets, which have endured a torrid 2012, could rebound in the first half of next year thanks to clarity on new rules pushing derivatives onto listed exchanges.

CME Europe exchange to target Asia-Pacific market
Michelle Price – Financial News
The CME Group will use its new European exchange as a springboard to the Asian-Pacific markets, with trading hours on the platform extending across the region’s trading day, the company’s chief operating officer has told Financial News.

CFTC’s Gensler says reviewing cross-border application comments, consulting with other regulators
Automated Trader
Commodity and Futures Trading Commission Chairman Gary Gensler said the US regulator was still considering comments and consulting with other regulators on the cross-border application of the Dodd-Frank act.

Watchdog faults Treasury, Fed for Libor use, wants alternatives
Reuters via Yahoo! News
WASHINGTON – The U.S. Treasury Department and Federal Reserve need to stop using the benchmark interest rate known as Libor in financial rescue programs, as it might not be reliable and could put taxpayer dollars at risk, a federal watchdog said on Thursday.

US rejects calls to scrap Libor
Shahien Nasiripour in Washington –
The US Treasury and the Federal Reserve have rejected calls to stop using the London interbank offered rate – a lending gauge at the centre of a manipulation scandal – in their bailout programmes.

Ex-Goldman director Rajat Gupta sentenced to 2 years in prison
Los Angeles Times
Former Goldman Sachs director Rajat Gupta will spend two years behind bars for sharing secret company information with a hedge fund manager, becoming the highest-profile Wall Street figure heading to prison for insider trading.

AP News: Prison, $7 billion fine for French rogue trader
The Paris appeals court on Wednesday ordered former Societe Generale trader Jerome Kerviel to spend three years in prison and pay back a staggering E4.9 billion (about $7 billion) in damages for one of the biggest trading frauds in history.

CEOs Call for Deficit Action
Chief executives of more than 80 big-name U.S. corporations, from Aetna Inc. to Weyerhaeuser Co., are banding together to pressure Congress to reduce the federal deficit with tax-revenue increases as well as spending cuts.

Draghi Defends Bond Buying Program
ECB President Mario Draghi launched a vigorous defense of his new bond-purchase plan before German lawmakers, seeking to quiet fears over the central bank’s expanding role in battling the euro crisis.


FSA confirms new rules that will hard-wire common sense into the mortgage market
The Financial Services Authority (FSA) has published new rules that put common sense at the heart of the mortgage market and will prevent future borrowers ending up with a mortgage they cannot afford.

Welcome, Welcome, One and All! – SEC Gains Another 1,500 Advisers to Monitor
The SEC announced earlier this month that 1,504 advisers to hedge funds and other private funds have registered with the regulator since the Dodd-Frank reforms made registration a requirement, rather than simply an option.

Speech By SEC Commissioner Elisse B. Walter: Enhancing Disclosure In The Municipal Securities Market: What Now?

[FINRA] Remarks by Executive Vice President, Member Regulation Sales Practice Susan F. Axelrod From the PLI Seminar on Broker-Dealer Regulation and Enforcement 2012—10/24/12

[Canada AMF] Warning – Caution to Be Used When Solicited to Invest in Derivatives

Exchanges & Trading Facilities

Nasdaq 3rd quarter profit down as trading volumes fall
Nasdaq OMX Group Inc’s profit fell nearly 20 percent in the third quarter due to a steep drop in trading volumes of U.S. and European equities, the exchange operator said on Wednesday.

NASDAQ Announces Mid-Month Open Short Interest Positions in NASDAQ Stocks as of Settlement Date October 15, 2012
At the end of the settlement date October 15, 2012, short interest in 2,177 NASDAQ Global MarketSM securities totaled 7,062,336,033 shares compared with 7,032,266,373 shares in 2,190 Global Market issues reported for the prior settlement date of September 28, 2012. The mid-October short interest represents 4.42 days average daily NASDAQ Global Market share volume for the reporting period, compared with 4.06 days for the prior reporting period.

London Stock Exchange Group’s L300 Million Retail Bond
London Stock Exchange Group plc (“LSEG” or the “Group”) has today announced that the offer period for its 9 year sterling denominated 4.75% bonds (the “Bonds”), which began on 16 October has now expired.

Toronto Stock Exchange Celebrates its 160th Anniversary

NYSE MKT Issues Short Interest Report

NYSE Group Inc. Issues Short Interest Report

Hedge Funds & Managed Futures

Cantor Fitzgerald Investment Advisors to Manage Coast Asset Management’s Fund of Hedge Funds Business
Cantor Fitzgerald Investment Advisors, L.P., a registered investment advisor and a subsidiary of Cantor Fitzgerald, L.P., today announced plans to assume the investment management responsibilities for the fund of hedge funds products of Coast Asset Management, broadening the scope of asset management services Cantor Fitzgerald offers to its clients.
PR Newswire (

Federal Reserve Issues Federal Open Market Committee Statement

Banks & Brokers

DealBook: U.S. Sues Bank of America for $1 Billion Over ‘Brazen’ Fraud
International Herald Tribune
The bank is accused of selling bad mortgages to Fannie Mae and Freddie Mac, the government-controlled housing giants, which suffered heavy losses and many foreclosures.

DealBook: Visa Names JPMorgan’s Scharf as Its New Chief
New York Times
Visa has tapped Charles W. Scharf, a former head of JPMorgan Chase’s vast retail arm, as its new chief executive, as Visa’s current leader prepares for retirement next year.

UBS suspends at least one trader in Singapore: sources
Reuters via Yahoo! News
SINGAPORE – UBS AG has suspended at least one trader in Singapore for possible manipulation of interbank lending rates, sources told Reuters, as the fallout from the Libor scandal widens.

Credit Suisse to cut $1 billion more costs as profits fall
Reuters via Yahoo! News
ZURICH – Credit Suisse will cut an extra 1 billion Swiss francs of costs, including axing more jobs, after its third-quarter net profit more than halved due to losses on the value of its own debt.

Santander Profit Falls 94% in Third Quarter
The Spanish bank Banco Santander on Thursday reported a 94 percent drop in its net profit in the third quarter, after setting aside funds to cover potential losses in its domestic real estate market.

Investment bank of the Week: UBS
Matthew Attwood – Financial News
Two high-profile mandates worth almost $25bn combined are set to keep UBS’s capital markets and M&A bankers busy while they await news of further restructuring at the Swiss bank.

Walker starts Barclays board clean-up: FT
Reuters via Yahoo! News
Sir David Walker plans to overhaul of Barclays’ board after he formally becomes the bank’s chairman on November 1, and he will oversee the replacement of executives, the Financial Times reported on Thursday.

Goldman Sachs Interview: Lloyd Blankfein Discusses Fostering Innovation and Building a Business
Lloyd Blankfein, Goldman Sachs Chairman and CEO; Neil Blumenthal, Warby Parker Co-founder; and Premal Shal, President discuss fostering innovation and building a business, with CNBC’s Julia Boorstin at the Goldman Sachs’ 2012 Builders and Innovators Summit.

Goldman Sachs Interview: Jim O’Neill, Chairman, Goldman Sachs Asset Management, Discusses Current Economic Issues with CNBC
Jim O’Neill, Goldman Sachs Asset Management chairman, discusses the euro zone crisis; opportunities in China and the impact of U.S. elections on the economy, with CNBC’s Gary Kaminsky from the GSAM Alternative Investments Symposium.

Clearing & Settlement

ISDA to Further Develop CCS, the Clearing Connectivity Standard, in Conjunction with Sapient Global Markets
The International Swaps and Derivatives Association, Inc. (ISDA) announced today its support for the Clearing Connectivity Standard (CCS), an industry standard that helps improve over-the-counter (OTC) derivatives reporting and communication for asset managers, futures commission merchants (FCMs), central counterparties (CCPs) and custodians.

Link Up Markets Partners and SWIFT join forces ahead of TARGET2-Securities
SWIFT, the financial messaging provider for more than 10,000 financial institutions and corporations in 212 countries and territories and Link Up Markets, a joint venture of 11 leading CSDs in Europe and beyond, announced today a cooperation in light of TARGET2-Securities, the pan-European settlement infrastructure that the European Central Bank plans to launch in 2015.

DTCC Extends Analytic Reporting For Annuities With Zip Code Detail To Deliver Enhanced Territory Management

CME Group Clearing Advisory
COMEX Options Expiration Operational Procedures for the Trading Floor and Clearing Members (HX, OG, SO) Effective Thursday, October 25, 2012

Indexes & Products

New SPDR ETF Launched On Xetra – ETF Tracks Stock Corporations In The Global Real Estate Sector

S&P Dow Jones Indices Announces Changes To The S&P/TSX Canadian Indices


NYSE Technologies Expands FIX Capabilities with Appia Business Centre
NYSE Technologies, the commercial technology division of NYSE Euronext, today announced the addition of the Appia Business Centre, a management interface that allows front-end users to configure FIX infrastructure without special coding, to its FIX capabilities

Broadridge Named Service Offering “Best in Class” in Outsourcing Technology Assessment for Financial Services Industry
Broadridge Financial Solutions, a leading provider of business process outsourcing (BPO) and technology services for the global financial services industry, today announced that it has been recognized as having a “Best-in-Class” Service Offering in the CEB TowerGroup 2012 Outsourcing Vendor Rankings assessment.

InfoReach Adds Multi-Leg Order Functionality For Futures And Options To Global Institutional Trading Platforms

Thalheim Capital chooses TethysEMS trading platform for its algorithmic trading capabilities


RBS To Pay $42 Mln Over Mortgage Misrepresentation
A unit of Royal Bank of Scotland Group will pay a $42 million fine for its role in buying and securitizing subprime mortgages issued by lenders who potentially deceived consumers about the actual interest rate and payments on their loans, according to a release issued Wednesday by the Nevada attorney general.

United States District Court Southern District Of New York – United States Of America V Rajat K. Gupta, Defendant – Sentencing Memorandum And Order – Rajat K. Gupta Sentenced To 24 Months’ Imprisonment, Concurrent On All Counts, To Be Followed By One Year Of Supervised Release

Environmental & Energy

EU bioenergy policies increase carbon emissions, says leaked EU study
Bioenergy production is often increasing greenhouse gas emissions in the short term even though the EU currently counts it as a carbon neutral technology, according to an unreleased EU report, which EurActiv has obtained.

Carbon traders prepare for global market expansion
Business Green
The International Emissions Trading Association (IETA) has today launched an initiative designed to ensure businesses are adequately prepared for the rollout of new carbon markets in countries around the world.

**RKB- More from IETA below

IETA Launches the Business Partnership for Market Readiness (B-PMR)
Press Release
Today the International Emissions Trading Association (IETA) is proud to announce the launch of a special initiative: the Business Partnership for Market Readiness (B-PMR).


Bank of China Profit Rises 17% in Third Quarter
The Bank of China, the first of the country’s major state-owned lenders to report earnings for the third quarter, said Thursday that profit for the period rose a robust 16.6 percent from a year earlier, beating analysts’ expectations.

The Shenzhen Stock Exchange and The Options Industry Council Sign MOU Regarding Options Research and Education in China
The Shenzhen Stock Exchange (SZSE) and The Options Industry Council (OIC) announced today they have signed a Memorandum of Understanding regarding joint options research and education. The ceremony was held with members of the OIC and SZSE in Shenzhen, China on Tuesday October 23, 2012.

SGX welcomes DeClout to Catalist

Tokyo Grain Exchange: SPAN Parameters Effective From Nov. 1, 2012 To Nov. 15, 2012

Thai Bourse Launches OppDay Application On iPad To Boost Info Access Channel

Hong Kong’s Securities And Futures Commission Spots Deficiencies In Selling Practices Of Licensed Corporations

News Report Regarding Purported HR Matters Related To Merger Of Osaka Securities Exchange And Tokyo Stock Exchange

Frontier Markets

Macro funds seek succour in emerging markets
Sam Jones –
When the dust settles on the retirement of Moore Capital’s star trader, Greg Coffey, at the age of 41, and the flutter of speculation and flattering commentary it occasioned last week fades, one thing will be certain. For two years running, Mr Coffey, one of the hedge fund industry’s celebrated money makers who retired with a fortune, lost clients money. He has not been alone.

Bursa Malaysia Reprimands, Fines And Suspends Chin Khuen Sinn For Engaging In Unlawful Trading Practices

MCX Weekly Market Report October 19, 2012 – October 24, 2012

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