John Lothian Newsletter: Fresh Steps Forward in Libor Probe; US Nasdaq may acquire 7 percent of Borsa Istanbul; Bats Chi-X Europe moves into the black

Sep 6, 2013

Brokerage ICAP is said to be nearly done with settlement talks with regulators over its role in the LIBOR rate-fixing scandal. Nasdaq is said to be in the process of acquiring a small but noticeable stake in Turkey’s Borsa Istanbul. Trading platform Bats Chi-X Europe turns a profit for the first time in recent months, raising hopes of longer-term success.

First Read

The cracks in NSEL
Mobis Philipose – Livemint
For years, Jignesh Shah seemed unstoppable. Then, a spot exchange promoted by him imploded spectacularly. Is this an aberration or a sign of more trouble to come?

***** This story includes a quote from yours truly and the print edition in Singapore even has my picture in it with the quote under it.


CFTC Moves to Safeguard Customer Funds
The Commodity Futures Trading Commission is closing in on rules designed to make the futures market safer in the wake of implosions at MF Global Holdings Ltd. and Peregrine Financial Group Inc.

***** The CFTC is set to kill lots of smaller futures commission merchants with this new rule. See our video story about this issue from February of this year. Will the industry just wither away, or will it innovate around this obstacle?


NYSE’s Options Business Shows the Value of a Penny
Kaitlyn Kiernan – MoneyBeat – WSJ
NYSE Euronext is seeking to make permanent an almost seven-year pilot program for quoting options prices in one-cent increments, saying that further study of the program is unnecessary. Noting its benefits to customers over the years, NYSE’s all-electronic Arca exchange wants to make the so-called penny pilot program permanent in the 150 most-liquid stock-options listed across multiple exchanges.

***** What comes after the pilot program? More discussions at industry conferences, no doubt.


Money Fund Lehman Moment Lurks as New Protections Stall
Dave Michaels & Christopher Condon – Bloomberg
A year ago, when opposition from the asset-management industry killed her plan to make money-market mutual funds safer, U.S. Securities and Exchange Commission Chairman Mary Schapiro looked to Timothy Geithner, then the Treasury Secretary, to tackle “one of the pieces of unfinished business from the financial crisis.” It remains unfinished.

***** The “Lehman Moment” is now the boogieman of financial markets.


Regulators take aim at recycled securities
Brooke Masters and Philip Stafford –
The widespread practice of using the same securities over and over again is back under the microscope as global regulators seek to prevent a repeat of the 2008 financial crisis and get more control over sources of credit outside the regular banking system.

***** One reason I like futures is that you can’t borrow them, lend them or rehypothecate them.


Leigh Faber

Leigh Faber Discusses Family Offices and Allocating to Managed Futures

Leigh Faber is a veteran of the alternatives space, who has conducted over hundreds of due diligence reviews in her career on behalf of family offices. She has covered hedge funds, commodity trading advisors, private equity, venture capital, and other alternative investments. She spoke with John Lothian News editor-in-chief Jim Kharouf about the differences between family offices and other institutions when seeking an allocation to managed futures. The key, according to Faber, is education – on both sides. Managers must explain performance, investment strategy and risk in an easy-to-understand manner, and managers themselves must be sensitive to the nature of family office wealth and how objectives may differ from those of pensions and endowments.

Watch the video »


The $5.3 Trillion a Day Currencies Market: 5 Things You Need to Know
Chiara Albanese – MoneyBeat – WSJ
Three years is a long wait for foreign exchange nerds. But today’s the day: the triennial survey of the foreign exchange market by the Bank for International Settlements is out. Goodbye, “$4-trillion-a-day foreign exchange market”, hello “$5.3-trillion-a-day foreign exchange market.” Reporting a turnover increase of about 35% over the last three years, the 2013 snapshot found a growing role of emerging-market currencies.

***** In the beginning was the currency market; from the beginning of time and from the beginning of exchange traded financial derivatives.


Chinese Investors Greet Reintroduced Bond Futures Enthusiastically
MoneyBeat – WSJ
So far, so good for government bond futures, which were traded for the first time in 18 years in China Friday. Investors showed better-than-expected interest in the derivatives, with 23.4 billion yuan ($3.82 billion) of the most actively traded December contract changing hands as of 0312 GMT. The futures, based on five-year government bonds, rose 0.1% to 94.304 yuan, off the intraday high of 94.540 yuan.

***** What is the nickname for the Chinese Bonds?


How To Restore Sanity in U.S. Financial Markets
Senthil Radhakrishnan – Wall Street & Technology
In the last 14 years we have seen several financial scandals in the United States. Each case essentially stands on its own without a line to connect the dots to other events. However, mistakes are repeated often when you look at these types of scandals. But are U.S. regulators putting the systems and tools in place to bring an end to these scandals, or are the new rules simply tactical patchwork?

***** What is sanity? Sanity is way overrated, especially for this writer with concluding statement, “More governance and brute force rationality in market rules will it make it a “richer” experience for all.”


Buy-side set to bear the costs of reform
Dan Barnes – FOW
Regulators have set out to restrict business that they consider risky and creating instability in the system. Their methods are relatively simplistic. Firstly, by increasing the cost of ‘risky’ business, the risk/reward balance is skewed and the business becomes less appealing.

***** Breaking News: It turns out there is no such thing as a free lunch.


Your wait for new VIX derivatives got longer
Business Standard
The Securities and Exchange Board of India (Sebi) is unlikely to allow derivat
ives based on the volatility index or VIX anytime soon. The National Stock Exchange (NSE) had applied to the regulator for the start of VIX-based derivatives. Sebi has communicated its lack of comfort with the product, though it is yet to deny the application, according to a source.

***** Geez, first it was Global Warming deniers, now we have Volatility deniers.



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Lead Stories

Fresh Steps Forward in Libor Probe
MoneyBeat – WSJ
There’ve been fresh steps forward in the Libor investigation today, with ICAP now in advanced negotiations to resolve the probe into the interdealer’s involvement in the alleged benchmark rigging, as exclusively reported over on The Wall Street Journal.

US Nasdaq may acquire 7 percent of Borsa Istanbul
Hurriyet Daily News
American finance giant Nasdaq OMX Group plans to pay $30 million for a 7 percent share of Borsa Istanbul (BIST), and to give 1 or 2 percent in shares from its technology company, according to a draft of the preliminary deal seen by daily Hürriyet.

***** See our special report on Turkey on from earlier this summer.

Bats Chi-X Europe moves into the black
Tim Cave – Financial News
Bats Chi-X Europe, the region’s largest equities trading platform, has become profitable for the first time in recent months according to its chief executive, rebuffing long-held industry fears over the ability of alternative venues to become viable businesses.

16 Major Firms May Have Received Early Data From Thomson Reuters
By Matt Taibbi – Rolling Stone
Readers may recall an ugly story that broke earlier this summer, when New York State Attorney General Eric Schneiderman rebuked the news/business information firm Thomson Reuters for selling access to key economic survey data two seconds early to high-frequency algorithmic traders. The story strongly suggested that some Thomson Reuters customers were using their two-second head start (an eternity in the modern world of computerized trading) to front-run the markets. It turns out that there’s more to the story.

About 35,000 Global Bank Employees May Face EU’s Bonus Curbs
Ben Moshinsky – Bloomberg
About 35,000 employees at banks around the world may be caught by European Union bonus caps, more than 20 times the current number of people affected by the pay rules, the British Bankers’ Association said.

NSEL broker-client agreements one-sided, contrary to bye-laws
Business Standard
Brokers of National Spot Exchange (NSEL) are standing on shaky legal grounds if the commodity stocks in the exchange’s warehouses are actually established to be insufficient. That is because the member-client agreement, the fundamental document that establishes the framework of relationship between the broker, exchange and the investor had several clauses that absolves both the broker and exchange of many responsibilities, which are contrary to the bye laws of the exchange.

24 NSEL borrowers’ books show money used for biz
Business Standard
Contrary to the general perception, the income-tax (I-T) department, in its survey of 24 borrowers of National Spot Exchange Ltd (NSEL), found most of these had used the money they borrowed for their businesses.


Financial Stability Board Progress Reports On OTC Derivatives Reforms
The Financial Stability Board (FSB) published today a report by the FSB Chairman to the G20 Leaders summarising progress in over-the-counter (OTC) derivatives reforms, together with the sixth of the FSB’s semi-annual comprehensive progress reports on implementation of OTC derivatives market reforms.

CFTC’s Division of Swap Dealer and Intermediary Oversight Issues No-Action Letter for Commodity Pool Operators of Registered Funds with Controlled Foreign Corporations

Former SEC and CFTC General Counsels Join WilmerHale’s Securities Department
WilmerHale is pleased to announce the arrival of Dan Berkovitz and Mark Cahn, who will enhance WilmerHale’s ability to meet the legal needs of financial services and energy firms during this period of unparalleled regulatory change in the financial markets.

Exchanges & Trading Facilities

CME delays launch of European exchange
Anish Puaar and Tim Cave – Financial News
CME Europe, the Chicago-based company’s first fully-fledged exchange outside the US, has moved its anticipated launch date from September 9 to September 29, according to a memo sent to members this morning. It will launch trading on September 30, the memo read.

Nasdaq Looks to Reassure Clients After ‘Flash Freeze’
Katie Roof, Charlie Gasparino | Fox Business
Officials at Nasdaq OMX Group (NDAQ) are said to be scrambling to prevent companies that list on the exchange from jumping ship to rival NYSE Euronext (NYX) following a series of technology glitches, people close to the matter tell FOX Business Network.

LSE Launches Bulk Registration For Pre-LEIs
Nicholas Hamilton – WatersTechnology
The London Stock Exchange (LSE) has launched bulk submission functionality for users who wish to register 10 or more entities for its pre-legal entity identifiers (pre-LEIs), which are called Interim Entity Identifiers (IEIs), at the same time.

Instinet Extends Nighthawk Algo to Japan
Victor Anderson – WatersTechnology
Instinet, the New York-based agency-only broker, has introduced Nighthawk VWAP, a variant of its Nighthawk algorithm, which provides buy-side firms with aggregated access to the pre-market volume-weighted average price (VWAP) crosses in Japan.

Instinet Extends Liquidity Aggregation Technology to Japan VWAP Crossing Platforms
Press Release

Clearstream’s August 2013 figures
In August 2013, the value of assets under custody held on behalf of customers registered an increase of 4 percent to EUR 11.6 trillion (compared to EUR 11.2 trillion in August 2012). Securities held under custody in Clearstream’s international business increased by 2 percent from EUR 6.0 trillion in August 2012 to EUR 6.1 trillion in August 2013 – while domestic German securities held under custody increased by 6 percent from EUR 5.1 trillion in August 2012 to EUR 5.4 trillion in August 2013.

NASDAQ OMX August 2013 Volumes

Vienna Stock Exchange Monthly Statistics Derivatives Market August 2013

Irish Stock Exchange Statistics August 2013

CBOE Holdings To Present At Barclays Global Financial Services Conference On September 10

Nyse Mkt To Delist Securities Of Geopetro Resources Company

TSX Markets Top 20 Largest Consolidated Short Position Report – August 31, 2013

Hedge Funds & Managed Futures

Australian Private Equity Leader to Step Down
Gillian Tan – MoneyBeat – WSJ
The Chief Executive of the Australian Private Equity and Venture Capital Association, Katherine Woodthorpe, has announced her intention to step down after seven years in the role.

Pine River China Fund to Start With as Much as $150 Million
Pine River Capital Management LP, manager of one of the most profitable U.S. hedge funds last year, will start a China fund with as much as $150 million in October, a marketing document seen by Bloomberg News showed.

Nominations open for European FoHF awards 2013
Hedge Funds Review –
Europe’s funds of hedge funds (FoHFs) industry continues to recover from the aftermath of the financial crisis and fallout from Madoff. The trend is towards more customised and sophisticated bespoke offerings.

BlackRock Hires JPMorgan’s Wadhwa as Rates Strategy Head
BlackRock Inc. , the world’s largest asset manager, hired Pavan Wadhwa, former head of U.S. dollar interest rate strategy at JPMorgan Chase & Co., to lead a team focused on global interest rate analysis.

Short-sell hedge funds count cost as M&A picks up
Hedge funds circling the stock of vulnerable companies got an expensive wake-up call this week with Nokia’s dramatic exit from commercial purgatory, prompting many to reassess their targets.

The big get bigger as top hedge funds rake in cash
Investors are still buying into promises of juiced up returns. The largest hedge fund firms in the Americas kept adding assets in the first half of the year, according to Absolute Return’s twice-annual Billion Dollar Club ranking.

Bill Gross swings and misses
CNN Money
Pimco’s Bill Gross is an investing legend. But he’s been dead wrong about stocks. And his massive bond fund has lagged this year as well.

Banks & Brokers

JPMorgan Shuts Down Student Loan Biz
There will be one less player in the student loan business this fall. Later today JPM will notifying colleges that come October 12 it will no longer accept applications for student loans.

Global banks battle Russian brokers for equities trading
Anish Puaar – Financial News
Global investment banks have begun offering clients direct access to the Moscow Exchange, pitting them against Russian brokers that have been developing domestic trading platforms for some time.

UBS Wealth Management Americas Names Jonathan Brooks to Its Equity Compensation Business
Business Wire via Yahoo! Finance
UBS Wealth Management Americas, a division of UBS AG, announced that Jonathan Brooks has joined the firm as a Sales Director to support new business development initiatives in the equity compensation services division.

Clearing & Settlement


Indexes & Products

According To ETFGI: Global ETFs And ETPs Suffered Net Outflows Of US$16.77 Billion In August 2013
Global ETFs and ETPs suffered record net outflows of US$16.77 billion in August after gathering near record net inflows of US$45.26 billion in July, according to ETFGI’s Global ETF and ETP industry insights report*. ETF and ETP assets have declined from the July record high of US$2.17 trillion to US$2.11 trillion at the end of August 2013. There are now 4,938 ETFs/ETPs, with 9,932 listings, from 211 providers listed on 57 exchanges.

Three New db X-Trackers ETFs Launched On Xetra – ETFs Provide Access To Indices On Global Government Bonds And MSCI World With Currency Hedging

Moscow Exchange Indices Weekly Review: August 26-30, 2013

NASDAQ OMX Group: Methodology Change To The PHLX Semiconductor Sector Index


Wainwright Takes Over Financial Services Business at SAP
Jake Thomases – WatersTechnology
SAP, the Walldorf, Germany-based software company, today announced the appointment of Ross Wainwright as its global head of financial services industries.

FactSet Acquires Revere Data
FactSet Research Systems Inc., a leading provider of integrated financial information and analytical applications to the global investment community, today announced it has acquired Revere Data, LLC.

Sapient Global Markets Facilitates Compliance with Swaps Data Reporting Rules with New Hosted Version of Compliance Management and Reporting System
Sapient Global Markets, a division of Sapient has today announced the availability of a cloud-hosted version of its popular Compliance Management and Reporting System. CMRS allows firms to collate vast amounts of data from disparate systems, apply reporting eligibility logic, translate it into the destination message format, and deliver it directly to Swap Data Repositories such as The Depository Trust & Clearing Corporation.


Thailand-Based Trader Agrees to Pay $5.2 Million to Settle Insider Trading Case
The Securities and Exchange Commission today announced that a Bangkok-based trader whose U.S. brokerage account was frozen in an SEC emergency action in June has agreed to pay $5.2 million to settle charges that he traded on inside information in advance of a public announcement about a proposed acquisition of Smithfield Foods by a firm in China.

Prominent Doctor Said to Be Tied to Insider Trading Case at SAC
A prominent New Jersey doctor specializing in Alzheimer’s disease has become ensnared in the government’s criminal case against a former portfolio manager at SAC Capital Advisors, the hedge fund owned by the billionaire investor Steven A. Cohen.

[Canada] Global Finishing Inc. – AMF charges Richard Diotte and France Veer

Environmental & Energy

Climate Talks Should Encourage New Carbon-Trade Tests, IETA Says
Emissions traders want United Nations climate talks in November to set rules on a trial system of globally linked carbon markets, according to their Geneva-based lobby group.

RPT-POINTCARBON – EU agrees to deal on aviation emissions
Reuters Point Carbon
The EU agreed to a deal late Wednesday to scale back its law regulating carbon from flights as U.N. negotiators pledged to craft a global pact on aviation emissions that would not take effect for seven years.

EU concession in aviation emissions row eases trade concerns
Fears of an aviation trade war eased on Thursday after the European Union offered to abandon attempts to apply its rules for curbing emissions outside its airspace in exchange for international cooperation to set up a global scheme.


Singapore Overtakes Japan as Asia’s Biggest Foreign-Exchange Hub
The city’s average daily foreign-exchange volume increased 44 percent to $383 billion as of April from $266 billion in the same month in 2010, the Monetary Authority of Singapore said in a statement yesterday.

SGX introduces new Mainboard rules for mineral, oil and gas companies
Singapore Exchange today announced new Mainboard admission rules and continuing listing obligations for mineral, oil and gas (“MOG”) companies. These new rules set the admission standards applicable to the listing of MOG companies that are not yet in production and introduce continuing listing requirements that cater to the specific characteristics of MOG companies.

HKEx: Exchange Publishes Guidance Letter For Long Suspended Companies And Revises Its Monthly Prolonged Suspension Status Report

Asia Pacific Regulator’s Dialogue On Market Surveillance, September 2013

Frontier Markets

BRICS to float $100-bn currency pool
Business Standard
BRICS (Brazil, Russia, India, China and South Africa) nations on Thursday agreed to set up a $100-billion foreign currency reserve pool to counter the impact of a pull-out by foreign investors when the US Federal Reserve started tapering its quantitative easing programme. The US Federal Open Market Committee meeting, scheduled for September 17-18, is expected to indicate when the Fed might start tapering the stimulus programme.

West Africa Bourse to Switch to Real-Time Trading This Month – Businessweek
Olivier Monnier – Bloomberg
West Africa’s regional stock market said it will switch to real-time trading and extend opening hours on Sept. 16.

Darkest before dawn: Why some foreign investors are buying India
Newspaper headlines spew doom and gloom about India. Analysts are topping each other with ever-more-dire pronouncements on the country’s prospects. And yet some foreign investors are not only ignoring the warnings, they are buying more shares.

Industry Update Regarding Financial Technologies Group (FTIL) – DGCX
Due to unfolding events in India with regards to the Financial Technologies Group (FTIL), DGCX would like to confirm the status of its relationship with the company and its promoters.

MCX zooms 100% from August low
Business Standard
Shares of the Multi Commodity Exchange (MCX) is locked in upper circuit for eleven straight trading sessions, up 5% at Rs 476 on BSE, has been double in less than a month.

Securities Commission Malaysia: Regional Regulators Bolster Cross-Border Cooperation In Market Surveillance

Lahore Stock Exchange To Launch Unified Corporate Announcement System

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