First Read

Contango Whitepaper: The Changing Face of Client Derivatives Clearing
Contango has just released a special report looking at the changing face of client derivatives clearing as regulation, higher capital requirements and constraints on revenue models are changing the way banks in particular look at their clients. In line with a trend that started some years ago, the number of derivatives clearing firms is shrinking further. Banks must earn more from their clients or be faced with exiting the listed derivative brokerage business (unwelcome), accept lower returns on capital utilised (unlikely) or be more picky about the types of clients that they serve (likely). As a result a number are ‘reassessing’ their client base and some clients just don’t fit any more.

Our whitepaper looks at the various choices on offer for these “unloved” clients, with a particular emphasis on the response from clearing houses and a high-level overview of the route to self (or direct)-clearing.

The report can be downloaded for free here


A Former Goldman Employee’s Long, Strange Legal Odyssey
White Collar Watch
Back in early July 2009, the Dow Jones industrial average stood at 8,280, Donald J. Trump had recently crowned the comedian Joan Rivers as that season’s winner of his popular reality television show, “Celebrity Apprentice,” and a phenomenon known as high-frequency trading was just hitting Wall Street’s mainstream. A smaller headline was the arrest of Sergey Aleynikov on July 3 for stealing confidential source code from Goldman Sachs, where he had worked as a programmer.

**JK: In an era when we are asking what is a fact, we are also examining, what is theft?


ICE CEO Says Trump to Bring ‘Fundamental Change’ to Regulation; Jeff Sprecher says Trump’s appointees to lead agencies that oversee Wall Street have broad latitude to loosen rules
President Donald Trump’s administration will usher in “fundamental change” to financial regulation even if Congress is unable to roll back the Dodd-Frank Act, said Jeff Sprecher, chairman and chief executive officer of Intercontinental Exchange Inc.

**JK: Measured words from Mr. Sprecher.


My Next Move: Michael Cavanaugh
I’m happy to announce my new role: Chief Revenue Officer at Neurensic. Having been here for a few months, and seen the impact we have on customers, I can tell you that this company and its machine learning technology are indeed the real deal.

**JK: Congrats and good luck.


Priorities; Whistleblowing; How Could They Know?; AML Officer Sued
Bridging the Weeks by Gary DeWaal
During the past two weeks, the new acting Chairman of the Commodity Futures Trading Commission, J. Christopher Giancarlo, provided a preview of his priorities, while the Securities and Exchange Commission brought two more enforcement actions against publicly traded companies for including in standard severance agreements language that the SEC considered to impede potential whistleblowing. As a result, the following matters are covered in this week’s edition of Bridging the Weeks:

**JK: Apologies for missing this yesterday.


Inside the 20-Year Quest to Build Computers That Play Poker; Recent breakthroughs in artificial intelligence research raise questions about the threat that bots pose to the online gambling industry.
by Joshua Brustein – Bloomberg
Four of the best professional poker players in the world spent most of January holed up at the Rivers Casino in Pittsburgh, losing. They’d show up before 11 am, wearing sweatpants and stylish sneakers, and sit down in front of computer screens. Each of them was supposed to play 1,500 hands of heads-up no limit Texas Hold ‘Em online before they could go back to the hotel for the night. This often meant working past 10 p.m. Over the course of the day, Starbucks cups and water bottles piled up next to the players’s keyboards. Chipotle bags lay at their feet.

**JK: Instead of hold, do you say “pause?”


Monday’s Top Three
Yesterday’s top three stories were led by the Wall Street Journal’s piece CME Tries to Sell Small Investors on Futures Trading. Second went to Bloomberg’s column, Trump’s Travel Ban Is Un-American and Unwise. Third was Bloomberg’s piece How a Russian Banker’s $25 Million Bonus Landed Him in Jail


MarketsWiki Stats
92,991,121 pages viewed; 22,328 pages; 203,420 edits
MarketsWiki Statistics


Lead Stories

Republicans’ Paths to Unraveling the Dodd-Frank Act
President Trump took aim at financial regulations and other federal rules on Monday, signing an executive order to trim back the federal regulatory thicket and promising to do “a big number” on Obama-era Wall Street restrictions.

Are tougher times for Wall Street’s ‘Flash Boys’ here to stay?; A lack of market volatility hits profits and raises questions about the sector’s valuation
Miles Johnson in London – Financial Times
The publication of Michael Lewis’s book Flash Boys in 2014 thrust the arcane world of ultra-high frequency trading firms into the popular consciousness, prompting debate over everything from the industry’s morality to the possible risks it posed to financial stability.

Forged Warehouse Receipts Renew Concerns Over Commodities Fraud
by Mark Burton – Bloomberg
Forgery of Access World’s receipts said to occur in Asia; Metals warehouses in Asia have faced fraud problems in past
Forged commodity-storage receipts discovered by a Glencore Plc unit have rekindled concerns over warehousing fraud two years after the Qingdao scandal in China that cost banks hundreds of millions of dollars.

Ex-HBOS Bankers Convicted in Scheme That Cost Bank $315 Million
by Jeremy Hodges – Bloomberg
Fraud cost bank customers hundreds of millions of pounds; Defendants mismanaged troubled businesses for their own gain
Two former HBOS Plc bankers were convicted by a London jury of participating in a scheme that siphoned millions from failing businesses and eventually cost the bank around 250 million pounds ($315 million).

The $2 Trillion Woman Who’s Turning Around Pimco; Jackie Hunt, who oversees Pimco at Allianz, doesn’t take credit for the company’s first net inflows since 2013—which is exactly the response you’d expect from a trained accountant.
by Oliver Suess and Sarah Jones – Bloomberg
Walk down a side alley in Munich, beneath apartments with net curtains in the windows, past figures of female superheroes on a cafe storefront, and you come to the unprepossessing headquarters of a $2 trillion asset manager. On the fifth floor, an elegantly dressed woman leans forward to field questions. She’s focused. In her hands is a coffee mug emblazoned with the word “integrity” in six languages.

Wall Street Reassures Employees, Without Wholly Rejecting Travel Ban
By MICHAEL J. de la MERCED – NY Times
Wall Street is an industry built on courting clients around the globe and hiring some of the best and brightest, wherever they may be.

Trump Vows to ‘Do a Big Number’ on Dodd-Frank Regulations
Glenn Thrush – NY Times
President Trump on Monday reiterated his intention to roll back Dodd-Frank financial regulations enacted to prevent another financial crisis, telling reporters that he soon planned to “do a big number” on the 2010 law.

Republicans to start rapid rollback of Obama regulations; Trump seeks boost for oil, gas and mining industries
by: Ed Crooks in New York and Barney Jopson in Washington – FT
Republicans in Congress are moving this week to help President Donald Trump roll back business regulations imposed by the Obama administration, with a focus on the oil, gas and mining industries.

Deutsche Bank’s Bill for Russia Trades Reaches $629 Million
by Suzi Ring – Bloomberg
Control failures allowed $10 billion to move out of Russia; Fine relates to bank’s use of mirror trades to change currency
Deutsche Bank AG was fined $629 million by U.K. and U.S. authorities for compliance failures that saw the bank help wealthy Russians move about $10 billion out of the country using transactions that were likely thinly veiled attempts to cover up financial crime.

Deutsche Bank fined for $10 billion sham Russian trades
By Karen Freifeld and Arno Schuetze – Reuters
Deutsche Bank (DBKGn.DE) has agreed to pay $630 million in fines for organizing $10 billion in sham trades that could have been used to launder money out of Russia, the latest in a string of penalties that have hammered the German lender’s finances.
In two detailed reports, U.S. and British regulators criticized the bank for not knowing the customers involved or the source of money for the trades, which helped buoy revenue during a slowdown following the global financial crash.

Path to Bitcoin ETF still uncertain but may be easier under Trump
Ryan Vlastelica – MarketWatch
Does bitcoin have a friend in Donald Trump? Investors are eagerly awaiting a decision by the Securities and Exchange Commission on whether it will approve the first exchange-traded fund to track cryptocurrency bitcoin, and the newly inaugurated president could be a powerful ally in their corner.

HFT supports liquidity in times of market stability – study
Hayley McDowell – The Trade
High frequency trading (HFT) provides vital support to liquidity in times when markets are stable and not volatile, the French regulator found in a recent study. The Autorité des marchés financiers (AMF) analysed HFT activity on Euronext over a nine-month period – from November 2015 to July 2016 – during which market volatility varied widely.

Citadel Securities veteran Zhao takes over as CEO
Lynne Marek – Crain’s Chicago Business
Peng Zhao, the new CEO of Citadel Securities who takes over after the abrupt exit of Kevin Turner, is no stranger to the Chicago company, despite the low profile he has kept there.

NYSE to Win IPO Prize: Listing of Snap; Snapchat parent expected to go public as early as March
Snap Inc. plans to list its highly anticipated initial public offering on the New York Stock Exchange, in a big competitive victory for the Big Board, according to people familiar with the decision.


Germany talks to banks about Frankfurt move after Brexit
John O’Donnell – Reuters
Germany’s top regulators met about 50 envoys from foreign banks on Monday to explain how they could move business to Europe’s biggest economy after Britain leaves the European Union, German financial watchdog Bafin said.

Old Mutual’s ‘Bitter’ Brexit Year Prompts Smallcap Stock-Picking
by Charlotte Ryan – Bloomberg
Politics “is very difficult to call” for 2017, firm says; Fevertree, Paysafe are among stocks owned by the fund
A year of political turmoil has made Daniel Nickols wary of relying on sector trends to guide his investment strategy.

What the World’s Biggest Bank Bosses Say About Brexit Exodus
by Gavin Finch – Bloomberg
Frankfurt, Dublin, New York are winners as U.S. banks retreat; Banks planning for no access to EU market once U.K. exits
Frankfurt and Dublin are emerging as the biggest winners at London’s expense as banks prepare for Brexit by planning new hubs in the European Union.

Donald Trump is a disaster for Brexit
Gideon Rachman – Financial Times
For the most ardent supporters of Brexit, the election of Donald Trump was a mixture of vindication and salvation. The president of the US, no less, thinks it is a great idea for Britain to leave the EU. Even better, he seems to offer an exciting escape route. The UK can leap off the rotting raft of the EU and on to the gleaming battleship HMS Anglosphere.

EC could use thresholds to squeeze London euro clearing
Most euro clearing could be repatriated after Brexit without hitting other jurisdictions
By Luke Clancy,

Exchanges, OTC and Clearing

LME volumes plunge as liquidity falls during Chinese new year
Henry Sanderson and Neil Hume – Financial Times
For the London Metal Exchange, the traditional winter holiday lull in activity which affects most other financial markets comes almost a month later. Traders say that the influence of China in copper, aluminium and nickel markets, means their operations almost grind to a halt during the Chinese new year. The slowdown was clearly visible on Monday, with turnover in benchmark three-month copper futures falling to just 8 per cent of the daily average trading volume of the past year.

Nasdaq NLX plans to shutdown on April 28
Written by: Julie Aelbrecht, FOW
Venue’s volumes fell sharply after incentive schemes were dropped in late 2014
Nasdaq said it will close its European interest rate futures venue NLX in April after more than three years of trading, marking the first major move by the exchange group under new chief executive Adena Friedman.
Following a meeting of the NLX board on January 25, a decision was reached to close down the platform, Nasdaq said in a statement on Tuesday. The last day of trading is slated to be April 28, the exchange said.

Snap selects New York Stock Exchange for IPO: source
Lauren Hirsch – Reuters
Snap Inc, the owner of the popular messaging service Snapchat, has chosen Intercontinental Exchange Inc’s (ICE.N) New York Stock Exchange (NYSE) for its initial public offering (IPO), a person familiar with the matter said on Monday. The selection comes as Snap prepares to make its earnings public this week ahead of the IPO that is expected in March. It represents a setback for Nasdaq Inc (NDAQ.O), which had also vied to host the listing.

TMX Group Names Alison Simpson Senior Vice President, Marketing And Branding
TMX Group Limited today announced that Alison Simpson has been named Senior Vice President, Marketing and Branding, effective February 13, 2017.

Proposed EU Legislation on CCP Resolution – Open Letter of Dismay
Thomas Krantz, Thomas Murray – TABB Forum
The premise behind the European Parliament’s proposed framework for the recovery and resolution of central counterparties is wrong, according to Thomas Murray Data Services. If the Parliament is attempting to build walls around the EU in case of a fundamental problem with these systemically important infrastructures, the goal, while understandable, is unworkable. The firm breaks down the draft legislation along with its concerns.


Goldman CEO does not support travel ban; others avoid criticism
Olivia Oran – Reuters
Goldman Sachs Group Inc Chief Executive Lloyd Blankfein became the first major Wall Street leader to speak out against President Donald Trump’s order to halt arrivals from several Muslim-majority countries.

Trump’s Falsehoods Make Foreign Leaders Ask: Can We Trust Him?
President Trump’s litany of false statements and spurious claims has opened a national debate on the fragility of a fact-based society. But overseas, where America’s allies and enemies parse a president’s every word for signs of threat or reassurance, Mr. Trump’s falsehoods have prompted a different kind of alarm.

Trump tweets drive day trading but leave math, computer whizzes sidelined
Gertrude Chavez-Dreyfuss and Anna Irrera – Reuters
Day traders love making bets on tweets from U.S. President Donald Trump, but some of the most prominent quantitative strategists from hedge funds and banks are not quite ready to make big, bold trades on his social media musings.

Worst S&P 500 Drop Since Election Day Emboldens Trump’s Haters
Lu Wang and Felice Maranz – Bloomberg
It was bound to happen sometime. The biggest stock selloff since Donald Trump’s election victory cast the president in an unfamiliar role Monday: market villain. Equities in the S&P 500 Index fell as much as 1.2 percent, the most since Election Day, with companies seen vulnerable to his immigration policies among the biggest losers.

Trump’s top trade adviser accuses Germany of currency exploitation; Berlin using neighbours and US and is an obstacle to deal with EU, says Navarro
by: Shawn Donnan in Washington – FT
Germany is using a “grossly undervalued” euro to exploit the US and its EU partners, Donald Trump’s top trade adviser has said in comments that are likely to trigger alarm in Europe’s largest economy.

Trump Fires Acting Attorney General Who Defied Him
President Trump fired his acting attorney general on Monday night, removing her as the nation’s top law enforcement officer after she defiantly refused to defend his executive order closing the nation’s borders to refugees and people from predominantly Muslim countries.

Trump order targeting business rules leaves key regulations untouched
Ayesha Rascoe and Amanda Becker – Reuters
President Donald Trump signed an order on Monday that will seek to dramatically reduce federal regulations, but the policy will not apply to most of the financial reform rules introduced by the Obama administration. Trump’s latest executive action will require that agencies cut two existing regulations for every new rule introduced and it will set an annual cap on the cost of new regulations.

Tech leaders agitate against Donald Trump’s travel ban
Hannah Kuchler – Financial Times
Technology leaders tried to move from anger to action in their response to US President Donald Trump’s executive order on immigration, by crowdsourcing proposed amendments to the order and soliciting funds for the non-profit group taking the government to court.

Rep. Tom Price Got Privileged, Discounted Offer on Biomedical Stock, Company Says
James V. Grimaldi – WSJ
Rep. Tom Price got a privileged offer to buy a biomedical stock at a discount, the company’s officials said, contrary to his congressional testimony this month.

McCain, Again the Maverick, Challenges President Trump
Gerald F. Seib – WSJ
The maverick is unleashed. Sen. John McCain, famously independent-minded and fresh from his own resounding re-election victory, has served notice that he is the Republican lawmaker most willing to defy the new Republican president.

Investing and Trading

Bond markets set for a taste of the 60s as inflation picks up
Dhara Ranasinghe – Reuters
Inflation has a habit of creeping up on you. Just ask historians. From rates below zero less than a year ago, inflation across the developed world has risen in recent months toward central bank targets, largely driven by a rising oil price.

Why investors need multiple betas
Damian Handzy –
Beta analysis has become a staple of the investment industry because it provides a simple way of encapsulating expectations about both relative return and relative risk. But virtually all measures of beta assume that the fund and its benchmark have the same relationship when making money as when losing money. Possibly even more egregious is the built-in assumption that the relationship is linear across all returns.

****SD: (Not a paywalled Risk story.)

The Markets Don’t Believe in Trump for the Long Term
James Mackintosh – WSJ
Investing is about two things: deciding what is likely to happen, and comparing it to what’s priced in to markets. The discussion about what’s likely to happen under President Donald Trump has dominated all media since his election, and every investor has their own view. What’s important, then, is to compare it to what’s priced in.

The Dumb Money Isn’t So Dumb
Barry Ritholtz – Bloomberg View
Last week, Jason Trennert, chief investment strategist at Strategas Research Partners, noted on Bloomberg Daybreak how remarkable it was that the Dow Jones Industrial Average hit 20,000 without the help of individual investors.

ISDA Americas Credit Derivatives Determinations Committee:
Avaya Inc. Bankruptcy Credit Event
The International Swaps and Derivatives Association, Inc. (ISDA) today announced that its Americas Credit Derivatives Determinations Committee resolved that a bankruptcy credit event occurred in respect of Avaya Inc.

As Yields Climb, Bonds Regain Allure as a Hedge; Growing demand for Treasurys and other high-grade debt could limit losses for sovereign bonds
The recent bond selloff has brought back one of the main reasons for investors to hold them: As an insurance policy.

Markets Are Right Not to Fall in Line With Fed’s Dots
By David Ader – Bloomberg
No one expects the Federal Reserve to raise interest rates this week when policy makers meet. It’s doubtful that they do anything at their next meeting in March, either. It’s only down the road, toward the end of the year, that the odds of multiple hikes as measured by futures on the federal funds rate shoot up.


Goldman Sachs Breaks With Government Sachs on Immigrant Ban
by Dakin Campbell and Hugh Son – Bloomberg
Blankfein says immigration order has potential to disrupt firm; CEO joins other U.S. executives in denouncing Trump policy
Goldman Sachs is pushing back against Government Sachs.

Deutsche Bank’s future capital needs uncertain: Handelsblatt
There is still some uncertainty over whether Deutsche Bank (DBKGn.DE) may need to increase its capital, management board member Christian Sewing was quoted as saying in German daily newspaper Handelsblatt.

Alarm Over the Fed’s $4.45 Trillion Balance Sheet Is Silly
Tim Duy – Bloomberg
The Federal Reserve is laying the groundwork for shrinking its $4.45 trillion balance sheet. But don’t panic yet, bond traders. This isn’t 2013.

JPMorgan Chase in push to mine customer data
Laura Noonan – Financial Times
Wall Street’s biggest bank is taking a cue from Amazon in using customers’ spending histories to sell them products or services they might want in future. JPMorgan Chase, which has the biggest sales and trading businesses in the world, is launching a new Customer Relationship Management and analytics system so that its sales people can sell better, a person familiar with the project said.

UBS Expects to See Fiduciary Rule Delay; Despite $7 billion in outflows, Swiss bank recorded record profit in its U.S. brokerage unit
UBS Group AG is planning for a brokerage landscape unaffected by sweeping new retirement rules set to take effect later this year.


Data61 wants Australia to go all-in on fintech and cybersecurity innovation; The country’s innovation body has urged industry and government to create startups by fostering ‘collaboration’ between the financial services and cybersecurity sectors in Australia.
By Asha McLean- ZDnT
Data61 has published a guide on how Australia can leverage the cybersecurity and fintech talent present in the country’s startup scene, highlighting in particular the need to combine the two sectors with the strong backing of both industry and government to advance Australia’s global competitiveness.

Which Fintech CEO Starts His Day With An Ice Shower And Ends It With Books And Bourbon?
Spencer White – Benzinga
A Day In The Life
Andy Swan is the founder of LikeFolio, a company that provides social media analytics on publicly traded stocks.

The Future of FinTech, Adena Friedman at Goldman Sachs | Nasdaq MarketInsite; In a wide-ranging interview, Nasdaq’s CEO discusses FinTech, blockchain, private companies and more.
Adena Friedman, CEO of Nasdaq spoke at a “Talks at GS” session on Friday, January 19th. Her fireside-styled chat focused on how Nasdaq is adapting new technologies to promote access, efficiency and security across markets.


U.S. lawmaker moves to scrap SEC’s ‘resource extraction’ rule
Sarah N. Lynch – Reuters
A senior U.S. lawmaker unveiled a legislative plan on Monday to scrap a rule devised under the 2010 Dodd-Frank financial reform law requiring publicly-traded mining, oil and gas companies to disclose payments they make to foreign governments.

Former HBOS bankers found guilty in $307 million fraud trial
Andrew MacAskill – Reuters
Two former HBOS bankers and four other people were found guilty on Monday in a $307 million fraud trial. They are among the first people to have been found guilty for contributing to losses that led to taxpayer-funded rescues of several of Britain’s top banks during the financial crisis.

Remarks of Commissioner Sharon Y. Bowen before the Commodity Markets Council
First, let me say a few words about Reg AT, our automated trading rule. Following significant engagement with a variety of stakeholders, from exchanges and proprietary traders to financial reform advocates, we recently issued a supplemental rule proposal where we made several important revisions to our previous proposal on automated trading. Of the many changes, there are two aspects that I particularly want to highlight since I believe they are crucial to a well-functioning trade execution infrastructure.

Former Fed Employee Fined $5,000 for Using Computer for Bitcoin
Christopher Condon – Bloomberg
A former Federal Reserve employee was sentenced Friday to 12 months probation and a $5,000 fine after pleading guilty in October to installing unauthorized software on a computer server at the U.S. central bank.

NFA’s in-office registration kiosks will close May 1, 2017
Since NFA launched its Online Registration System (ORS) in 2002, NFA has offered in-office kiosks at its Chicago office for individuals to complete and file applications and updates in ORS. In recent years, use of these kiosks has declined.

Josh Drobnyk Joins FINRA as Senior Vice President, Corporate Communications
The Financial Industry Regulatory Authority (FINRA) announced today that it has named Josh Drobnyk as its Senior Vice President for Corporate Communications. Mr. Drobnyk will start at FINRA on February 6.

OCIE Director Marc Wyatt to Leave SEC
The Securities and Exchange Commission today announced that Marc Wyatt, Director of the Office of Compliance Inspections and Examinations, will leave the agency next month to return to the private sector.

ESMA consults on future guidelines for portability between trade repositories
The European Securities and Markets Authority (ESMA) has put for public consultation future guidelines on the transfer of data between trade repositories (TRs) authorised in the European Union under the European Market Infrastructure Regulation (EMIR).

ESMA updates Q&As on MiFID II transparency and market structure
The European Securities and Markets Authority (ESMA) has updated two Questions and Answers (Q&A) documents on implementation issues relating to transparency and market structure topics under the revised Market in Financial Instruments Directive and Regulation (MiFID II/ MiFIR).

Deutsche Bank fined $425M for Russian ‘mirror-trade’ scheme
By Kevin Dugan – NY Post
New York’s Department of Financial Services fined Deutsche Bank $425 million on Monday for engaging in its notorious “mirror-trade” scheme that helped wealthy Russians launder $10 billion out of the country.


Asset managers push for governance change in Mexico
Jude Webber – Financial Times
Aberdeen Asset Management and Franklin Templeton Investments are among asset managers pushing Mexican authorities to overhaul two practices they say are harming investor confidence in a country that has been in global crosshairs since US president Donald Trump took office earlier this month.

China’s Bond Market Has a Forgery Problem; A pair of scandals shakes traders’ confidence.
Bloomberg News
Forged seals, fake letters, and counterfeit documents. They’re all part of a recent spate of fraud in China that’s added to worries about the country’s $3 trillion corporate bond market, where defaults have been rising and companies are finding it increasingly difficult to sell debt issues.


Trump Must Choose Between Farmers and ‘Big Meat’; Rural America was instrumental to his election, but some worry he’ll shelve rules meant to help them in favor of big business.
by Deena Shanker – Bloomberg
In November, farmers voted overwhelmingly for Donald Trump. Now they’re waiting to see if it pays off.

A ‘rogue’ group of staffers is tweeting secrets from the White House
Chris Smith – BGR News
There’s no question about it, technology is playing a bigger and bigger role in all aspects of our lives, especially when it comes to the way we consume news. Social media — and especially Twitter — was an important weapon for Donald Trump as he ascended to the ultimate position in the country. On the flip side, the same weapon that he wields to disseminate his own versions of the truth, to attack anyone who’d criticize him and to rant about whatever comes to mind, can also be used against him.

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