First Read

A Chicago Cubs Win for All the Ages
John Lothian
Love of the Chicago Cubs is a generational phenomenon and that was never clearer as when the Chicago Cubs claimed the National League pennant and advanced to the World Series for the first time in 71 years. The Cubs are going to the World Series! In what seems like a prayer, my father, who is in heaven, is smiling down on us about the Cubs win. He was a loyal Cubs fan until he passed away the week before the Cubs were in the playoffs back in 2003.


“Sure as God Made Green Apples” ~Harry Caray
JLN Staff
We report financial news but being located in Chicago and having an office filled with Cubs’ baseball fans (and one Chicago White Sox fan…not sure how that happened) we would be remiss if we didn’t say, “Go Cubbies!” They have not been in the World Series in 71 years and have not won one in 108 years but Harry Caray was right about the green apples that they’d get there eventually. They did it in style with a double play to start the game and a double play to end the game. Add in the Cleveland Indians who are second only to the Cubs when it comes to a World Series drought as their opponent (1945 vs 1947) and you have a World Series truly worth watching. One of our co-workers lives in Wrigleyville (where the Cubs’ ballpark is) so she is not likely to get much sleep this week but at least our staff has a place to crash if we brave the crowds to watch the games near the ballpark. I am sure she would be thrilled to find her boss and/or co-workers passed out on her living room floor first thing in the morning.

***** Check out the Hamilton inspired music video about the Chicago Cubs. It is truly inspired.


CFTC’s Massad Recaps 2016

The futures industry’s regulator had several initiatives in 2016 but the top items were tackling the issue of cybersecurity, margin and the upcoming finalization of automated trading rules.

On cybersecurity, the CFTC adopted rules for the exchanges, clearing houses, trading platforms and trade repositories that require more testing of platforms and systems to make them more secure.

“That’s probably the biggest single threat to financial stability in our markets today,” said Timothy Massad, chairman of the Commodity Futures Trading Commission, who spoke with John Lothian News at the FIA Expo 2016 in Chicago last week.

Watch the video »


Chicago Tech Charity Ping Pong Tournament Looks to Raise $100K
Jim Dallke – Chicago Inno
Startups love them some ping pong. Outfitting a tech office with a ping pong table is now so commonplace, it’s basically a cliché.
But one Chicago organization wants to put the city’s table tennis obsession to good use in hopes of raising over $100,000 for the Chicago Tech Academy, a non-profit that teaches STEM to minority and low income students.

**JK: Ping Pong Playa’s include TT’s Rick Lane, and Option City’s Hazem Dawani. And who will be the next Ding Ning or Forrest Gump


Firms of the Future: Regulation, Technology and Finding Your Niche
Jim Kharouf – JLN
In this special report on the state of the futures industry, John Lothian News spoke with several key FCM and proprietary trading firm executives to discuss today’s challenges and opportunities in their respective markets. This off-the-record meeting covers everything from the current market landscape to the challenges of regulation to technology and the future of our industry. Click here to see what executives had to say in this dynamic and shareable report.


Bank founded by Alexander Hamilton embraces its newly hip heritage
Ryan Vlastelica – MarketWatch
There’s a select group of entrepreneurs who double as celebrities. Years—or even decades—after their deaths, everyone knows the names and legacies of Steve Jobs, Henry Ford, or Walt Disney. In these cases, it is not uncommon for a company’s founder to loom just as large as the institution he created. What is uncommon is for a founder’s reputation to last for centuries, and then become, out of nowhere, a part of the zeitgeist. But, that’s exactly what’s happened to The Bank of New York Mellon Corp.

***** How hot are World Series tickets? Cubs fans are swapping Hamilton tickets for World Series tickets.


Friday’s Top Three
Friday’s top read stories were led by Bloomberg’s Hedge Fund Managers Struggle to Master Their Miserable New World. Second place went to John Lothian & Co’s report on the state of the industry, which remained in the top read items for the third straight day – Firms of the Future: Regulation, Technology and Finding Your Niche. The third most read piece was Fortune’s Billionaire Steve Cohen: Inside His Hedge Fund Comeback


MWE Europe 2016


Lead Stories

TD Ameritrade to buy Scottrade in $4bn deal
by: Katie Martin – FT
Brokerage TD Ameritrade has reached an agreement to buy Scottrade in a cash and stock deal worth $4bn that will hugely expand its branch network.

**JK: And worth another look at the JLN story on TD Ameritrade’s push into the futures and options trading space. Bite Sized: TD Ameritrade’s FCM Looks for Bigger Slice of Retail Pie

Massive cyberattack turned ordinary devices into weapons
Samuel Burke – CNN
A cyberattack that took down large swaths of the internet around the world on Friday was carried out, in part, by unsuspecting devices connected to the internet. Security firm Flashpoint said it believes that digital video recorders and webcams in people’s homes were taken over by malware and then, without owners’ knowledge, used to help execute the massive cyberattack.

OCC expands, plans to move Chicago HQ
By LYNNE MAREK – Crain’s Chicago Business
Options Clearing Corp. has been on a hiring spree, and now it needs new digs to accommodate the increased headcount, CEO Craig Donohue said in an interview.

Major banks mark first-ever international trade using blockchain tech
By Byron Kaye – Reuters
The first cross-border transaction between banks using multiple blockchain applications has taken place, Commonwealth Bank of Australia and Wells Fargo & Co said on Monday, resulting in a shipment of cotton to China from the United States.

99% of actively managed US equity funds underperform; Almost all US, global and EM funds have failed to beat their benchmark since 2006
by Chris Newlands and Madison Marriage
The suitability of investing with asset managers that try to beat the market has been thrown into question by figures that show almost all US, global and emerging market funds have failed to outperform since 2006.

Most Crowded Trade in Bonds Is a Powder Keg Ready to Blow
Brian Chappatta, Anchalee Worrachate – Bloomberg
A headlong rush into higher-yielding, long-term bonds in recent years has created one of the most crowded trades in financial markets. Investors seeking relief from central banks’ zero-interest-rate policies have poured into government debt due in a decade or more, swelling the amount worldwide by a record $733 billion this year. It’s more than doubled since 2009 to about $6 trillion, data compiled by Bloomberg and Bank of America Corp. show.

Bundesbank Says High-Frequency Trading Can Enhance Volatility
Carolynn Look – Bloomberg
Findings support debate over tighter regulation, report shows; HFT makes up about 50% of trading in liquid U.S., E.U. markets
High-frequency trading has the potential to both increase market liquidity and remove it at times of higher volatility, a study by the Bundesbank has found.

Raining In High-Frequency Traders
Justin Lahart – WSJ
Can a rainstorm in Cleveland make markets more liquid? Ever since high-frequency trading rose to prominence, a debate has raged over whether the ensuing arms race between super-fast traders helped or hindered markets. One side argues that it helps because the massive number of transactions the fastest traders engage in lower costs by reducing the spreads between bids and offers. Critics counter that, in reality, spreads widen since slower traders need to charge higher spreads as insurance against getting caught flatfooted by a fast-moving event.

LSE-Deutsche Börse competition probe to be extended
by: Philip Stafford – FT
Brussels has extended its investigation into the proposed merger between the London Stock Exchange Group and Deutsche Börse by a further 15 days, adjusting its timetable to examine a proposed remedy from the exchanges to expedite the deal.

Why Corporate America’s Debt Is a ‘Major Risk’
Are investors in denial about how dim the outlook is for American businesses? That’s the question Société Générale’s Andrew Lapthorne, global head of quantitative strategy, posed to his bank’s clients. “Asset valuations are extreme; returns are poor, the probability of losses is high and the ability to recover any losses quickly is low,” he writes.

US energy shakeup continues as solar capacity set to triple
Bobby Magill – The Guardian
Solar power capacity in the US will have nearly tripled in size in less than three years by 2017 amid an energy shakeup that has seen natural gas solidify its position as the country’s chief source of electricity and coal power continue to fade, according to monthly data published by the US Department of Energy.

Highland Capital Investors Allege Wrongdoing in Long-Closed Hedge Funds; Investors in two hedge funds Highland Capital Management closed in 2008 say they are still owed hundreds of millions of dollars, and are suing the firm to recover the money
Most hedge-fund casualties of the financial crisis liquidated years ago. But investors in two funds that Dallas-based Highland Capital Management closed in October 2008 are still owed hundreds of millions of dollars as the fund liquidations stretch into their ninth year.

Big companies fail to meet carbon goals; Research shows 94 of 900-plus groups have strategy to meet Paris climate deal
by: Pilita Clark, Environment Correspondent
More than 900 of the world’s largest companies have a plan to cut their carbon pollution but only a fraction are doing enough to meet the goals of the Paris climate change accord, according to data compiled for Norway’s $876bn oil fund and other big investors.


EXPO Shorts: KCG
The Trade
Samantha Coyne from KCG talks about reporting US Treasury trades

**Video shorts for The Trade produced by John Lothian Productions.

EXPO shorts: Euronext
The Trade
Adam Rose of Euronext talks about the importance of FIA Expo to the industry.

EXPO Shorts: IPC
The Trade
IPC’s Michael Speranza speaks about how its customers are responding to the wave of FinTech innovations.

EXPO Shorts: Ciara Technologies
The Trade
Jeff Cachat from Ciara Technologies explains recent developments and new product offerings arising from the company.

Power, Politics and Passion on Display at 2016 FIA Expo
Jessica Darmoni – The Title Connections
Last week was the Futures Industry Association’s 32nd Annual FIA Expo at the Hilton Chicago. Regulators, exchange leaders, technology providers and industry participants gathered to discuss some of the more pressing issues in today’s derivatives markets including the digitalization of this space and its related regulations, consolidation and current power plays as well as the death, or maybe re-birth, of trading floors.

**JK: Among the many items covered in this recap is BOX’s plan to open a trading floor in early 2017.


Brexit Bulletin: Bankers Prepare for Exodus From London; Bankers threaten early exodus, while PM May tries to head off a constitutional crisis
Emma Ross-Thomas – Bloomberg
Sign up to receive the Brexit Bulletin in your inbox, and follow @Brexit on Twitter.
Banks will start moving operations out of the U.K. late this year and early next as they anticipate a hard Brexit. That’s according to Anthony Browne, chief executive officer of the banking lobby group BBA, writing in the Observer newspaper on Sunday.

UK banks fear public, politicians set against them on Brexit
By Anjuli Davies, William James and Andrew MacAskill – Reuters
For decades, Britain’s bankers have relied on their industry’s outsized status in the economy to find a receptive ear in government.

Banks preparing to leave UK over Brexit, says banking body chief executive
Big international banks are preparing to move some of their operations out of Britain in early 2017 due to the uncertainty over the country’s future relationship with the European Union, a top banking official said.

30 years after big bang, will Brexit cost City of London its status?
Jill Treanor and Sean Farrell – The Guardian
Thursday will mark 30 years since the London Stock Exchange swept away centuries of tradition and beckoned in the modern, global City of London. It signalled the end of leisurely gentleman’s hours and liquid lunches, ushering in computer screens and many more American accents in the once closed shop of London’s financial markets.

London rivals struggle to prepare for Brexit fallout; Businesses seeking to abandon the UK face limited alternatives for office space
by: Judith Evans – FT
“Welcome to FrankfurtRheinMain,” declares a website set up by the German region, which went live after the UK voted to leave the EU. It offers a 24-hour UK-based hotline for companies thinking of opening an office in the area.

Brits Start to Count the Cost of Brexit
By Mark Gilbert – Bloomberg
In the June referendum on whether Britain should leave the European Union, 61 percent of the voters in the city of Sunderland voted to quit. As a result, 6,700 jobs at Nissan’s factory there are now in peril as the Japanese carmaker weighs whether to build the next version of its Qashqai model in the northeast of soon-to-be-independent England. So you have to wonder whether Mackems, as the locals are called, might vote differently if they had a second chance.

Carney’s BOE Future Gives Investors More Brexit Uncertainty
Lucy Meakin, Stefania Spezzati – Bloomberg
U.K. central bank governor testifies to lawmakers this week; Decision on how long to remain in role may impact pound, gilts
A debate about the future of the Bank of England governor may be the last thing U.K. markets need.

Deutsche Bank News

Ruling exposes Deutsche’s US arm to fresh legal battle; Case to proceed that pits bank against investors over its handling of RMBS trusts
by: Ben McLannahan in New York – FT
A verdict by a California judge last week may have opened up a new multibillion-dollar litigation risk for Deutsche Bank, the German bank still in the grip of settlement talks over mortgage-backed securities with the US Department of Justice.

Exchanges, OTC and Clearing

Nasdaq upgrade raises market data questions
Nicole Bullock and Philip Stafford – Financial Times
Nasdaq is set to roll out a major upgrade to a controversial piece of US stock market infrastructure on Monday, in a move that is again raising questions about the speed and cost of trading data in the world’s largest equity market. The US exchanges operator has improved its Securities Information Processor (SIP), the system that governs the collection and distribution of market data, and used by many investors and regulators as their “view” of the market.

BSE shares find favour among richer investors
Business Standard
Even before it goes public, the shares of BSE, the oldest bourse in Asia, are changing hands in off-market deals among rich or high net worth individuals (HNIs).

Bankruptcy Bust: How Zombie Companies Are Killing the Oil Rally
Their owners may be bankrupt, but the sprawling mines of Wyoming’s Powder River Basin are still churning out coal. It is the same story in oil fields along the Gulf Coast and with shale-gas wells in the Rocky Mountains.

BATS Readies MiFID 2-Compliant Data Policy
Joanne Faulkner – WatersTechnology
BATS Europe will offer two commercial poliies for its data–its existing policy, and one designed to help firms affordably meet the requirements of MiFID 2.

New in the Securities market ASTS system starting from 31 October 2016
The following new features are scheduled to be introduced in the equity & bond market ASTS trading & clearing system starting from 31 October 2016.

Four new iShares smart beta ETFs launched on Xetra; ETFs track factor indices from the MSCI USA index family
Deutsche Börse Cash Market:
Four new iShares equity index ETFs from BlackRock’s product offering have been tradable via Xetra and Börse Frankfurt since Monday.

ICE warms to expanding US clearing model; ICE exploring new direct clearing models for US derivatives.
By Joe Parsons – The Trade
Intercontinental Exchange (ICE) is currently exploring new direct clearing models for the US derivatives market.


Trump triumph forecast to trigger market turmoil
Sam Fleming and Robin Wigglesworth – Financial Times
A victory for Donald Trump on November 8 would deliver a sharp blow to stocks around the world and trigger an upsurge in volatility, in contrast to the market impact of previous Republican successes, according to academic research.

Donald Trump being elected president ‘would cause a 15 per cent drop in global markets – study
Daily Mail
Donald Trump winning the election on November 8 would cause financial markets around the world to crash by 15 per cent, experts have warned.

Goldman CEO Blankfein ‘Supportive’ of Clinton for Pragmatism
Zeke Faux – Bloomberg
Lloyd Blankfein, chief executive officer of Goldman Sachs Group Inc., has shied away from publicly backing a presidential candidate this year, saying his support could harm that person’s chances.

Investing and Trading

The $108 Billion Man Who Has Beaten the Market
Jason Zweig – WSJ
Even in the era of index funds, humans have fundamental investing advantages that no machine will ever replace. So says Will Danoff, manager of Fidelity Investments’ $108 billion Contrafund, the biggest actively managed stock or bond mutual fund run by one person.

Batteries May Trip ‘Death Spiral’ in $3.4 Trillion Credit Market
Brian Parkin – Blooombergt
Energy storage technologies impact a quarter of corporate debt; Fitch urges utilities to diversify to limit risk of disruptive
Battery technologies starting to disrupt the electricity and automobile industries may also emerge as a trillion-dollar threat to credit markets, according to Fitch Ratings.

U.S. options market not very ‘Trumped up’ ahead of vote
By Saqib Iqbal Ahmed – Reuters
Prospects that the presidential election will inject a hefty dose of volatility into U.S. stock markets are fading fast as Republican Donald Trump’s victory odds lengthen.

The double payoff of gender-based investing
By Kerry Hannon – MarketWatch
This week, I had my annual face-to-face meeting with my financial adviser. We converse throughout the year via emails and a rare phone call, but this was the have-a look-under-the-hood summit.


TD Ameritrade, Toronto-Dominion Buy Scottrade for $4 Billion
Doug Alexander, Anna-Louise Jackson – Bloomberg
Acquisition would combine two of the largest online brokerages; Industry has been facing pressure from lower trading volumes
TD Ameritrade Holding Corp. and its largest stakeholder, Toronto-Dominion Bank, agreed to buy Scottrade Financial Services Inc. for $4 billion, combining two of the largest online brokerages while expanding the U.S. operations of Canada’s second-largest lender.

Condoleezza Rice to advise RWC on emerging markets
Madison Marriage – Financial Times
The consultancy co-founded by Condoleezza Rice, the former US secretary of state, has become a strategic partner of RWC, the London-headquartered asset manager, to help the company gain an edge in emerging markets.

City banks plan to hoard bitcoins to help them pay cyber ransoms
The Guardian
Several of London’s largest banks are looking to stockpile bitcoins in order to pay off cyber criminals who threaten to bring down their critical IT systems. The virtual currency, which is highly prized by criminal networks because it cannot be traced, is being acquired by blue chip companies in order to pay ransoms, according to a leading IT expert.

Bankers, Regulators Find No Easy Answers at Bank Culture Workshop
Top Wall Street officials gathered Thursday to discuss how to fix conduct problems at banks, but left without simple answers.

Goldman boss ‘scared to death’ of rogue employees
Ben Martin – The Telegraph
The boss of Goldman Sachs has admitted that he is “scared to death” that the Wall Street giant will become mired in a scandal caused by a rogue staff member.


Edge Financial Technologies Introduces RiskResponder, the Proactive Realtime Risk Management Solution
Edge Release
Trading has changed to be always on, highly automated, spread across multiple platforms and brokers. The ability to monitor and control trading is more important than ever, and solutions on the market have not kept up. RiskResponder monitors trading activity in real-time across ISVs, brokers, and exchanges. RiskResponder detects behavior outside of risk parameters, and rapidly responds to slow down or halt the trading activity, protecting profits and limiting losses.” said Jitesh Thakkar CEO of Edge Financial Technologies.

The Possible Vendetta Behind the East Coast Web Slowdown
Nate Lanxon, Jeremy Kahn and Joshua Brustein – Bloomberg
Millions of internet users lost access to some of the world’s most popular websites Friday, as hackers hammered servers along the U.S. East Coast with phony traffic until they crashed, then moved westward. A global attack on one provider of Domain Name System services, Dyn Inc., took down sites including Twitter, Spotify, Reddit, CNN, Etsy and The New York Times for long stretches of time — from New York to Los Angeles.

IBM, SBI to Test Blockchain Bond Trading
Stan Higgins – CoinDesk
IBM is working with a Japanese securities firm on a new blockchain pilot focused on developing the foundations for a next-generation bond trading system.

Algorithmic trader: your next Halloween costume; There is a big rethink under way on where the pound ‘should’ be, writes Katie Martin
by: Katie Martin
The next must-have Halloween outfit for kids should be a robot costume. Some kind of gleaming metal box with small flashing lights on it.

As Artificial Intelligence Evolves, So Does Its Criminal Potential
Imagine receiving a phone call from your aging mother seeking your help because she has forgotten her banking password.

Companies urged to use multiple vendors in wake of cyber attack
By Jilian Mincer – Reuters
Companies can reduce the risk from the type of cyber attack that took out major websites on Friday by using multiple vendors for the critical internet service known as a domain name service, or DNS, companies and security experts said on Sunday.

Citadel becomes first buy-side to compress on TriOptima; The move is a sign that fund managers are also looking to reduce their derivatives exposures.
By Joe Parsons- The Trade
Hedge fund giant Citadel has become one of the first buy-side clients to use TriOptima’s swap compression service, as firms look to reduce their derivatives exposures.


SEC accuses former Pinnacle Financial board member of insider trading…during board meeting
Fred Imbert – CNBC
It didn’t take long for James Cope to get in trouble, according to the Securities and Exchange Commission. The agency formally charged Cope, a lawyer and former member of Pinnacle Financial Partners’s board, with insider trading on Friday after he allegedly purchased shares of Avenue Financial Holdings prior to the two firms announcing a merger in January.

SEC Charges Board Member With Insider Trading During and After Board Meeting
The Securities and Exchange Commission today charged a Tennessee-based lawyer who served on the executive committee of the board of directors at Nashville-based Pinnacle Financial Partners with insider trading based on nonpublic information he learned about an impending merger.

John W. Berry Named Associate Regional Director for Enforcement in Los Angeles Office
The Securities and Exchange Commission today announced that John W. Berry has been named Associate Regional Director for Enforcement in the agency’s Los Angeles Regional Office.

FSOC focuses on non-cleared trades in buy-side Sifi debate; CFTC chairman sees ‘very important distinction’ in cleared versus uncleared trades
Faye Kilburn –
US regulators will consider whether leverage-boosting derivatives used by hedge funds are cleared or non-cleared when they come to determine if such funds should be designated as systemically important financial institutions (Sifis). The Commodity Futures Trading Commission (CFTC) has been collecting data on swaps trades since January 2013, while the largest hedge funds have been reporting their risk exposures to the Securities and Exchange Commission (SEC) in quarterly Form PF filings since June…

Sebi steps up effort to tackle cyber crime
Business Standard
Following reports of cyber security threat in the Indian banking system, the Securities and Exchange Board of India (Sebi) has initiated an urgent review of the overall risk management and has decided to set up a high-level committee to ensure prudent response and quick, corrective measures for any cyber threat.

Ex-financial adviser apologizes for losing $43M of NFL players’ money
The Score
Former financial adviser Jeff Rubin is apologizing for losing $43 million of his clients’ money, all of whom were NFL players. Rubin coerced his clients to invest in Country Crossings, an entertainment and gambling center which included electronic slot machines. Electronic slot machines were deemed illegal at the time, even though Rubin convinced his clients otherwise. Subsequently, their investments were completely ruined.

Trade Informatics works with regulators to launch MiFID II tool in Europe; Trade Informatics launches PLIA tool in Europe ahead of MiFID II regulation.
By Hayley McDowell – The Trade
Trade Informatics has launched its cloud based counterparty and compliance management tool in Europe ahead of MiFID II regulation.

Moody’s Expects U.S. to Sue Over Its Pre-Crisis Bond Ratings; Justice Department case would allege violations related to rosy ratings of securities that later soured
The world’s second-biggest ratings firm said Friday it expects the Justice Department to sue over bond grades it issued prior to the 2008 housing market collapse, setting up one of the industry’s last crisis-related legal clashes.


Australian Cattle Barons Make Counterbid For Kidman
Vera Sprothen and Rob Taylor – WSJ
Four of Australia’s wealthiest farming barons have launched a counterbid to prevent Chinese investors from buying the country’s largest cattle farm, S. Kidman & Co. The BBHO consortium—comprising the families of influential Australian outback ranchers Tom Brinkworth, Sterling Buntine, Malcolm Harris and Viv Oldfield whose interests span livestock, grain and transport—said on Sunday it had secured financing to offer 386 million Australian dollars (US$294 million) for 100% of Kidman’s shares in what would be one of the country’s biggest agribusiness deals on record.

Chinese Money Flowing to Hong Kong Stocks Has Suddenly Dried Up
Kana Nishizawa – Bloomberg
Hong Kong’s stock market is suffering from a post-holiday hangover. The flood of Chinese money into the city before the mainland’s National Day celebrations in early October has slowed to a trickle since traders returned from the week-long break. Investors in Shanghai spent more than $8 billion on Hong Kong shares in September, the biggest monthly inflow through the exchange link since it began in 2014. Net buying this month has been just 7 percent of that amount, data compiled by Bloomberg show.

Sebi steps up effort to tackle cyber crime; Regulator to constitute three-member panel under a whole-time member to tackle security breach in markets
Shrimi Choudhary – Business Standard
Following reports of cyber security threat in the Indian banking system, the Securities and Exchange Board of India (Sebi) has initiated an urgent review of the overall risk management and has decided to set up a high-level committee to ensure prudent response and quick, corrective measures for any cyber threat.


Business school trading room renovated to embody Wall Street
Daniel Hart – The Ithacan
The Center for Trading and Analysis of Financial Instruments, where students in the School of Business access real-time stock market information, has been renovated this year to more closely resemble a Wall Street trading room. The Trading Room has been furnished with a new, longer stock ticker that stretches across the room and flashes stock price changes for major companies, alongside five LED screens with charts, graphs and news. This way, said Abraham Mulugetta, Dana professor of finance and international business, students can visualize what it is like to work on Wall Street. The room previously only held one data wall that displayed limited information.

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