John Lothian Newsletter: CME To Introduce Futures That Deliver Swaps; LSE makes play for collateral management market; Fed warns high-frequency trading firms

Sep 19, 2012

CME Group announces new deliverable interest-rate swap futures contracts.  The London Stock Exchange plans to begin offering collateral management services from its Monte Titoli settlement house in Italy. The Chicago Fed warns that the majority of algo traders and trading venues are relying on “others” to handle exceptions and errors in order flow.

First Read

Social media and the return of high touch trading
Steve GrobFidessa
The past decade has witnessed the wholesale electronification of global trading. The term “low touch” was coined to describe exactly this and the electronic routing of client orders to markets with the minimum of intervention from their broker. This meant that the value add of the sales trader was increasingly denuded and the key differentiators became simply cost and market coverage. Interesting, then, that at the International Trader Forum in Madrid last week a number of high profile buy-sides were talking about a return to full service, high touch brokerage. This is because a combination of persistent low volumes and increased venue complexity are making it harder and harder to get orders filled. On top of this, the desire to avoid predatory HFT activity has meant that firms want to know exactly who they are dealing with and the likely outcome of showing their hand at any given venue.


Deutsche Boerse reappoints Francioni as CEO
German exchange operator Deutsche Boerse AG Tuesday said its supervisory board reappointed chief executive Reto Francioni for another four year and named a manager for its newly created business segment combining information technology, market data and analytics.


Financial Futures and Environmental Markets pioneer Dr. Richard Sandor to receive 2012 WFE Award for Excellence
The World Federation of Exchanges (WFE) announced today that the recipient of the WFE Award for Excellence this year will be Dr. Richard Sandor, chairman and CEO of Environmental Financial Products LLC (EFP). Dr. Sandor was selected for this Award in recognition of his work at the epicenter of environmental and financial markets for more than four decades.
***Funny how Dr. Sandor has not been awarded a Fred Arditti Award from CME Group.


OCC Wins Ragan PR Daily Award for Best Annual Report in Print Category
OCC announced today that its 2010 annual report won the Best Annual Report (Print) category at the 2012 PR Daily Awards presented by Ragan Communications and Factiva in Washington, D.C., on September 11, 2012.

Newedge names Ghislaine Mattlinger group CFO
Newedge, a global leader in multi-asset brokerage and clearing, announced today the appointment of Ghislaine Mattlinger as Group Chief Financial Officer (CFO) and member of the Newedge Executive Committee.


Actant releases CBOE CMi 2.0 compliant options trading applications
Automated Trader
Having offered programmable trading solutions to CBOE participants since 2003 when the exchange first introduced CBOE Hybrid, the Hybrid Trading System, Actant has taken this opportunity to re-write its CBOE market interface, delivering performance improvements to traders mass quoting with Actant Quote.


Meet Cargill, the news wire
Gregory Meyer in New York –
It is said that the internet allows anyone to be a member of the media. This apparently also applies to Cargill, the world’s biggest agricultural trading house. The company has urged the US Department of Agriculture to end the practice of giving news wire services such as Bloomberg and Reuters privileged advance access to market-moving crop reports.


For Superfast Stock Traders, a Way to Jump Ahead in Line
Haim Bodek was a Wall Street insider at Goldman Sachs and UBS before launching his own trading firm. Now he is taking on the financial establishment that spawned him. Mr. Bodek approached the Securities and Exchange Commission last year alleging that stock exchanges, in a race for more revenue, had worked with rapid-fire trading firms to give them an unfair edge over everyday investors.


Farmer’s Daughter Haugerud Reaps Riches on Drought-Struck Corn
For three excruciating weeks in May, Renee Haugerud, the founder of New York hedge fund Galtere Ltd., agonized that her wager on corn was a massive mistake.


Volatile commodities may need intervention-U.N.
Emma Farge – Reuters
Governments should let regulators step into commodity markets to pop price bubbles, prevent crashes and combat powerful financial investors, a U.N. report showed on Tuesday, a day after a sudden oil price plunge baffled traders.


Hedge Fund Giant Louis Bacon’s Bold Mission To Save The American West
With the government lacking the funds and mandate to conserve American land, a handful of billionaires have filled the void. Hedge fund billionaire Louis Bacon did so at a cost of $400 million–and his privacy.


OIC Announces Investor Education Day In San Francisco September 29
The Investor Education Day offers two different tracks for attendees based on their investment experience and skill level – Options Basics or Advanced Strategies. Options Basics will examine fundamentals, such as strategies to get started and the risks and rewards of using options, while Advanced Strategies will focus on more complicated concepts such as butterflies, condors and the Greeks.


ICAP Patent Brokerage Announces Fall 2012 Patent Monetization Event and Open Call for IP Auction Technology Submissions
ICAP Patent Brokerage, a division of ICAP plc and the world’s largest intellectual property brokerage and patent auction firm, announces the Fall 2012 Patent Monetization Event and IP Auction will be held November 28 and 29 at the Ritz Carlton, San Francisco.


JLN Forex

by Douglas Ashburn

Correction: Last week’s commentary (Parallel Worlds, JLN Forex, September 11, 2012), contained an incorrect statement. In paragraph three, the line “Ignoring a problem does not make it go away, and moving a loss or a non-performing asset from one entity’s balance sheet to another’s does not will it out of existence” should have read “Now that the Federal Reserve and ECB have committed themselves to unlimited intervention in the bond market, everything is fine and dandy. There are absolutely no risks building in the system, so investors should freely exchange their dollars for riskier assets. Party on.”

JLN Forex regrets the error.

I am just kidding, of course — sort of. Last week’s column was a reaction to ECB president Mario Draghi’s September 6 announcement that the bank would begin an aggressive bond buying spree. I referred to the ECB move as fool’s errand, necessitated by such dire underlying weakness that no rational investor would consider to be bullish. Besides, it was doubtful that the Germans would appease the periphery with unlimited borrowing. On September 12, however, a German court ruled in favor of the European Stability Mechanism, saying its creation does not represent an illegal transfer of sovereignty.

For the rest of this week’s commentary, visit

Visit the JLN Forex site every business day for currency and economic news!


MarketsWiki Page of the Day
Ghislaine Mattlinger


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Michael D. Robbins; Jim Harkness; Adam Sheldon; Ghislaine Mattlinger; Reto Francioni

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Lead Stories

CME To Introduce Futures That Deliver Swaps
CME Group Inc. is rolling out a new kind of interest-rate futures contract, looking ahead of new regulations that will thrust privately negotiated contracts onto open platforms like exchanges.

LSE makes play for collateral management market
Michelle Price – Financial News
The London Stock Exchange Group has weighed into the growing industry scramble to provide collateral management services with the launch of a new service at its Italian settlement house Monte Titoli. The establishment of a tri-party collateral management offering marks chief executive Xavier Rolet’s first major move to expand the exchange’s settlement capability, which it obtained through the acquisition of Italy’s national exchange group Borsa Italiana in 2007.

Fed warns high-frequency trading firms
Arash Massoudi in New York and Philip Stafford in London –
Many high-frequency trading firms are taking shortcuts in their risk controls as they seek out faster ways to trade, a US regional Federal reserve bank has warned. The study by the Federal Reserve Board of Chicago found many high-speed traders were relying on others to catch an out-of-control algorithm or erroneous trade and called for controls to be tightened.

One big order, thousands of small ones, seen behind oil tumble
Reuters via Yahoo! Finance
A single large sell order in the benchmark European Brent oil market, followed by an abrupt U-turn among high-frequency traders, may have caused one of the most abrupt price routs ever, brokers and analysts said on Tuesday.

Head of Knight Capital’s Trading Algorithms Leaves
Wall Street Journal Blogs
Knight Capital Group Inc.’s head of trading algorithms has left the company, marking the first senior-level departure since a trading error rocked the firm Aug. 1.

City Kills Plan to End Hedge Fund Tax Break
The New York Observer
The New York City Department of Finance is backing off a proposed policy change that would have increased the tax liability of hedge funds and private equity firms, according to an article published by Tax Analysts.

Deposit Flight From Europe Banks Eroding Common Currency
Yalman Onaran – Bloomberg
An accelerating flight of deposits from banks in four European countries is jeopardizing the renewal of economic growth and undermining a main tenet of the common currency: an integrated financial system.

BOE Official Details Plan to Address Too-Big-To-Fail Banks
Dow Jones
A Bank of England official Tuesday detailed the bank’s ideas on how to involve creditors in future collapses of “too big to fail” banks in the U.K. and abroad, part of its bid to help prevent a repeat of the Lehman Brothers insolvency that sent shockwaves through the global financial system in 2008.

EU Riddle: Will Spain Seek a Bailout?
The European rally has ended, and now the waiting begins. Mario Draghi, the president of the European Central Bank, triggered a burst of optimism this month with the bank’s plan to support weak countries like Spain. Spanish bonds strengthened sharply, and the Spanish stock market rebounded to levels not seen since the first quarter—when another ECB plan delivered a welcome boost. But like the last one, this newest fervor is showing signs of frost.


SEC Gives Up On Web Schedules For Dodd-Frank Rules – Real Time Economics
Andrew Ackerman – WSJ
For nearly two years, the agency sorted its roughly 100 mandates into broad six-month periods, based on staff estimates of when the five-member agency would act. Though it failed to meet a July 2011 statutory deadline for the bulk of the Dodd-Frank rule mandates, it continued to include on its website the rough internal timetable. But now the SEC is conceding it has no idea when it will finish the rules.

Esma opens eleventh-hour short-selling consultation
Tim Cave – Financial News
Europe’s top financial regulator has opened a consultation into part of the EU’s proposed new rules on short-selling, less than six weeks before they are set to take effect, in a further sign of the massive task faced by policy-makers trying to manage post-crisis regulation. The Paris-based European Securities and Markets Authority yesterday opened a consultation into the “market-maker and primary dealer” exemptions in the EU’s short-selling rules, which are due to come into force from November 1.

Former Fed Regulation Chief to Advise Banks
Wall Street Journal Blogs
The Federal Reserve’s most recent head of bank supervision and regulation will now be helping advise big banks how to adapt to the changing regulatory landscape he was once at the center of crafting.

IOSCO’s Wright defends clearing Interoperability
The Trade
As the debate on post-trade interoperability gathers pace, David Wright, one of the architects of MiFID and currently the secretary general of International Organisation of Securities Commissions (IOSCO), hopes MiFID II will enshrine existing arrangements between central counterparties (CCPs).

Research and Markets: Anti-Bribery and Financial Crime Handbook – An Authoritave Guide Ensuring Compliance with Anti-Bribery Regulation

New Zealand’s Financial Markets Authority Announces lLcensing Of Securities Trustees And Statutory Supervisors

ECC Establishes Risk Committee

PwC Survey Highlights The Need For More Financial Services Firms To Act Now On MiFID II

Exchanges & Trading Facilities

CME Group to Launch Deliverable Interest Rate Swap Futures
Press Release
CME Group, the world’s leading and most diverse derivatives marketplace, announced it will launch deliverable Interest Rate Swap Futures contracts November 13, 2012.

Supervisory Board resolves Executive Board composition at Deutsche Börse AG
Press Release
The Supervisory Board of Deutsche Börse AG resolved changes to the composition of the Executive Board in a meeting held today. CEO Dr Reto Francioni (57) was reappointed, and will serve a further term of office until 31 October 2016. He has been CEO of Deutsche Börse AG since 2005.

ASX Bookbuild Brings Efficiency, Fairness And Transparency To The Primary Equity Market
The Australian Securities Exchange (ASX) today announces a proposed new facility that will improve the pricing and allocation process for bookbuilds. ASX BookBuild is expected to be operational prior to the end of 2012, subject to regulatory approval.

Monthly SFE Trading Report For August 2012

NZX CEO Share Acquisition

Woodward Partners Securities Accredited As An NZX Advising Firm

Implementation Of The Trading System UTP Enters The Decisive Phase
The First Day Of Availability Of The New Technology For Market Participants And The Warsaw Stock Exchange Will Be Announced On 15 November 2012

The MiG Report August 2012 – Brought To You By The Market Intelligence Group At TSX And TSX Venture Exchange

Hedge Funds & Managed Futures

Head Of MF Global Equity Derivatives Trading Launches Hedge Fund
Zero Hedge
Several weeks ago we learned that 2011’s vaporizer extraordinaire Jon Corzine is contemplating starting his own hedge fund : presumably one that invests all its capital in Italian 2 year bonds, charges 2 and 20, and then disappears when all LP capital blows up in an AUM supernova. Today, we learn that the stigma freeze associated with all other former MF Global trading whizkids has officially melted, as the former head of equity derivatives of MF Global has just launched a new hedge fund.

Pimco’s Giant Commodities Fund Facing More Heat
Murray Coleman – WSJ
As investors keep pouring into commodities, the 800-pound gorilla among mutual funds broadly playing those markets is starting to show signs of bleeding in an increasingly competitive market.

Cost to Insure Treasurys Dips to Five-Month Low
The cost of insuring U.S. Treasurys against default fell 11% Tuesday to a five-month low, highlighting investors’ increasingly bullish sentiment driven by recent central-bank support.

EDHEC-Risk Alternative Indexes: Bountiful Harvest For Hedge Funds In August
Hedge fund strategies exposed to the equity risk factor, having adapted to the newly established market regime, displayed improved performances when compared to the previous month (Long/Short Equity: 1.02%, Equity Market Neutral: 0.75%, Event-Driven: 1.38%).

BlackRock(R) Announces September Distributions on Big Bank Big Oil Split Corp.

Orinda Asset Management Launches Multi-Manager Macro Opportunities Mutual Fund
Orinda Asset Management LLC, an independent, privately-held asset management firm, announced today the launch of the Orinda SkyView Macro Opportunities Fund.

Banks & Brokers

UBS Credit-Swaps Trade System Shows Clients Like Live Prices (1)
By Mary Childs and Matthew Leising – Bloomberg
Credit-default swaps traders are executing more of the derivatives on an electronic UBS AG system than at any time since it was started six months ago, according to the bank.

ITG sets up European sellside business
Tim Cave – Financial News
ITG, the US agency broker which has traditionally served hedge funds and asset managers, has set up a new European business targeting sellside firms, as a sustained slump in equities trading puts pressure on the brokers to diversify. ITG has established a new entity, called AlterNet (UK) Ltd, which was authorised by the UK’s Financial Services Authority on August 1 and will handle sales to broker-dealers.

BGC Partners To Offer Listed Equity Options And Cash Equities Products In Australia
BGC Partners, Inc., a leading global brokerage company servicing the wholesale financial markets, today announced that it has been granted license to offer listed Equity Options and Cash Equities products in Australia.

Goldman Sachs’s Schwartz to Succeed Viniar as Firm’s CFO
Goldman Sachs Group Inc. Chief Financial Officer David A. Viniar, who guided the firm through its 1999 initial public offering and the 2008 financial crisis, will end his 32-year career as an employee in January.

DealBook: Behind Goldman Sachs’s Success Is a Focus on Survival
New York Times
Goldman Sachs has made an effort to heal self-inflicted wounds and maintain its dominance in investment banking.

Citigroup’s Polkinghorne, Houghtalin leaving company, Bloomberg reports via Yahoo! Finance
Jeffery Polkinghorne, a senior risk manager at the CitiMortgage division, and Donald Houghtalin, a compliance officer at the unit, are leaving the company, Bloomberg reports.

Court overturns $5 million ruling against Morgan Stanley
Reuters via Yahoo! News
A California court overturned a nearly $5 million securities arbitration ruling against Morgan Stanley Smith Barney in a case filed by two brokers who said the company broke promises it made when recruiting them.

Deutsche Bank’s Byrne Said to Leave Distressed Debt Trading Team
Stephen Byrne has left Deutsche Bank AG as a managing director in the distressed debt trading team, said two people with knowledge of the departure, who asked not to be identified because the information is private.

Deutsche Bank Co-CEO Fitschen Likely New Bank Assoc Chief-Report
Dow Jones
Juergen Fitschen, co-chief executive officer of Deutsche Bank AG, is likely to become president of the German private banking association BdB in April 2013, Handelsblatt reported Wednesday, citing persons close to the industry.

Clearing & Settlement

DTCC And SWIFT: CICI Portal Registers And Certifies Over 1,100 Entities In First Weeks Of Operation – New Bulk Registration Method Also Announced

CME Group: FECPlus FIXML 5.0 Production Deployment Schedule

Indexes & Products

Fidelity To Open ETF Unit via Yahoo! Finance
Financial services giant Fidelity Investments has taken another step toward expanding its presence in the ETF market by enlisting former State Street Global Advisors’ Managing Director Anthony Rochte to head its planned Denver-based ETF unit, according to a report.

BlackRock(r) Announces Final September Distributions on Certain Exchange-Traded Funds


KBW Extends Relationship With Fidessa – Long-Standing Global Client Continues With Fidessa To – Expand Front And Middle Office Functionality And Connectivity Services
Fidessa group plc, provider of high-performance trading, investment management and information solutions for the world’s financial community, announced today that global client Keefe, Bruyette & Woods (KBW) has re-signed and extended its use of Fidessa’s sell-side trading platform.

Initial sales of Zeptonics switching devices confirm lowest- latency claims
Zeptonics, a Sydney-based financial technology firm, today announced the first sales of its ZeptoMux and ZeptoLink switching devices after a successful customer testing program.

XIGNITE API Makes It Easy To Track And Monitor IPOs – Market Data Cloud Now Delivers Renaissance Capital IPO Calendar & IPO Performance Data

Portware Builds On 2012 Success With Key Hires – Top Industry Veteran, Savyona Abel, Joins Portware’s Management Team As Company Adds Talent To Enhance Client Experience And Capitalize On Alpha Vision And FX Momentum
Portware, the leading provider of global, multi-asset trading solutions, today announced it has appointed three industry veterans to its product and sales ranks. The company continues to invest in exceptional talent and product innovation — focusing on the client experience and meeting the growing market demand for Portware Alpha Vision and Portware FX.

Interactive Data Adds NASDAQ Basic Data to Managed Solutions Offerings
Marketwire via Yahoo! Finance
Interactive Data Corporation, a leading provider of financial market data, analytics and related solutions, has added NASDAQ Basic data to its PrimeTerminal, PrimePortal and PrimeDeveloper products, providing customers with cost effective access to real-time quote and trade data for key U.S. exchange-listed securities.

DuPont Fabros Technology Selects Sidera’s Xtreme Ultra-Low Latency Network Between its NJ1 Data Center and Aurora, IL Financial Exchange
New York, NY – September 19, 2012 – Sidera Networks, the premier provider of fiber optic-based network solutions announces ultra-low latency connectivity between DuPont Fabros Technology’s (NYSE:DFT) NJ1 data center located in Piscataway, NJ and 2905 Diehl Road in Aurora, IL via Sidera’s Xtreme Ultra-Low Latency Network.  Sidera’s network provides strategic advantages to financial services firms and other high bandwidth customers who value both diversity and low latency while guaranteeing optimal business performance.


SEC claims Australia man ran $53 million forex investment fraud
Joshua Gallu, Bloomberg
U.S. regulators accused an Australia man of raising at least $53 million from investors with false claims that he ran a group of elite foreign-exchange traders who could generate 78 percent annual returns.

SEC Charges Chicago-Based Investment Firm with Misleading Investors in Private Equity Offerings
The Securities and Exchange Commission today charged the co-founder of a Chicago-based investment firm with misleading investors in two private equity offerings, and charged the other co-founder with supervisory failures related to the offerings.

Ex-UBS trader “obfuscated” accounts for weeks, court hears
Reuters via Yahoo! News
LONDON – Former UBS trader Kweku Adoboli used “obfuscation” to deflect weeks of questions from the bank’s accountants about why his trading books did not balance, allowing him to keep making risky unauthorized deals, a London court heard on Tuesday.

SEC adds to charges against Cole
Columbia Daily Tribune
The U.S. Securities and Exchange Commission filed a civil complaint Tuesday charging former Mamtek U.S. CEO and Chairman Bruce Cole with fraud in the sale of Moberly’s municipal bonds.

Environmental & Energy

CF Partners Starts Voluntary Carbon Unit, Competing on Price
CF Partners (U.K.) LLP, the London investment manager, is expanding beyond mandatory carbon trading to offer voluntary emission reduction products and services to boost sales.

SEC says Chicago firm misled investors on Energy Dept loan
A Chicago-based investment firm will pay $1 million to settle civil allegations that it misled investors in private equity offerings about an alternative energy company’s finances and loan application to the U.S. Department of Energy.

What is the state of international climate talks?
Despite near-collapse at each of the last three annual conferences of the UN Framework Convention on Climate Change, the international negotiations always seem to pull back from the brink. Why? Because no country is willing to abandon the goal of an international regime which will effectively combat dangerous climate change. So the search for international agreement continues.

**RKB – Article written by Michael Jacobs of the Grantham Research Institute on Climate Change and the Environment at LSE in collaboration with the Guardian.


OSE Wins FOW Award for Asia 2012 for Most Innovative New Contract Launch by an Exchange – Equities and Index
Osaka Securities Exchange Co., Ltd. (OSE) announced today that it has won a Futures and Options World (FOW) Award for Asia 2012 from FOW, a global derivatives magazine. OSE’s Nikkei Stock Average Volatility Index (Nikkei 225 VI) Futures received an award for “Most Innovative New Contract Launch by an Exchange – Equities and Index,” in the category of Exchanges and CCPs, at the awards ceremony held on September 18, 2012.

HKMEx Welcomes Greatwall Futures As Broking Member
The Hong Kong Mercantile Exchange (HKMEx), China’s global marketplace, continues its expansion with the addition of Greatwall Futures Limited as its newest broking member, bringing total number of members to 32.

English translation of the keynote speech by Mr. Ryutaro Hatanaka, Commissioner, Financial Services Agency, at the Association for Real Estate Securitization “Real Estate Investment Forum 2012” on Recent Trend of Financial and Capital Markets, Regulatory and Supervisory Challenges has been posted

HKFE Announces Revised Margins For CNOOC Futures

HKEx: Forfeiture Of Unclaimed Interim Dividend For 2006

Tokyo Stock Exchange Market Impact View Report
Hiwon Yoon, President and CEO of CMD Lab, Inc. and Engineering PhD who assisted in the development TSE Market Impact View (TMIV) introduced by the TSE in December last year, has created a report on the service entitled “Results of TSE Market Impact View Trading Simulation”.

Frontier Markets

FlexTrade Connects With BFX Trading Platform
The Bahrain Financial Exchange (BFX), the first international financial exchange in the Middle East and North Africa (MENA) region, announced today it has signed an agreement with FlexTrade Systems, Inc. to operate as an Independent Software Vendor (ISV) of the BFX.

Securities Commission Malaysia: Increasing Need To Enhance And Harmonise Disclosure Requirements In The Islamic Capital Market
The growing recognition of the increasing significance of the Islamic capital market, especially in view of rising cross-border transactions, has triggered the need for stronger oversight, greater transparency and more robust disclosure requirements, global standard-setters and senior regulators acknowledged today.

Coutts Hiring Private Bankers to Boost Middle East Business
Coutts, the wealth management unit of Royal Bank of Scotland Group Plc, hired four private bankers in the Middle East and said it plans further additions to tap rising demand for wealth management services in the region.

Protracted Myanmar investment law faces further delay
Reuters via Yahoo! News
A long-awaited investment law in Myanmar is likely to be delayed until November after the president opted to return the latest draft to parliament, another setback for foreign firms eager to tap one of Asia’s last frontier markets.

Palestine Exchange: Palestine Winter Time Effective Date

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