The ETF Tax Dodge Is Wall Street’s “Dirty Little Secret”

Mar 29, 2019

First Read

Hits & Takes
JLN Staff

The American Financial Exchange had a daily record transaction volume of $1.889 billion across all its products on Tuesday, March 26.~JJL

Next week Acuiti will launch the first Derivatives Insight Report survey. Over 200 senior figures have joined the network to take part so far and get free business analytics. JLN encourages you to sign up. If you haven’t yet, you can do so at

The CME Group has issued a report titled “A Cost Comparison of S&P 500-Related Options.”~JJL

Word from the Cboe’s Risk Management Conference is that they are tight lipped about their reasons for delisting future months of bitcoin futures. Theories abound, but nothing makes complete sense; however, the absence of a unofficial explanation leads some to believe there is a non-disclosure agreement in effect.~JJL

CFTC Commissioner Russ Behnam has been confirmed as a speaker at the International Commodities and Derivatives Association (ICDA) one-day Brexit seminar in London on May 23. For more info and the full list of speakers, go here.~SR

Deutsche Börse is expanding the historical building housing the Frankfurt Stock Exchange, creating a conference center and an “interactive experience space” in the visitor center.~SR

A new entry in the operational risk space – PanXchange, a trading platform centered around emerging commodities, recently started covering hemp pricing. Per CEO Julie Lerner’s LinkedIn: “Have just learned that due to our launch in #hemp, our website is now blocked by many corporate firewalls 🙁 Catch up, people! #CBD.” That was followed by an update: “this is turning out to be more serious than we thought and we’re working with the top firewall service providers to clear this up…. customers trying to subscribe to our #fracsand newsletters are getting shut out.” ~SD

The Purdue University men’s basketball team won their sweet-sixteen game against higher ranked Tennessee last night in a thriller of a game. Purdue moves to the elite eight round for the first time in 19 years. The good news is that Purdue won. The bad news is that FIA’s Walt Lukken had Tennessee winning his NCAA pool picks.~JJL

Brexit was originally supposed to happen today. Instead, it has been postponed.~SR


Trucking Freight and Power: Not as Different as You Think – Paul Cusenza, Nodal Exchange
March 29th marks the launch of Nodal Exchange’s trucking freight futures. In this video, Nodal Exchange CEO Paul Cusenza talks about how trucking freight fits in with the rest of Nodal’s offerings and the potential for the exchange to address the financial transmission rights market.
Watch the video »


Nasdaq Named “Best Place to Work for LGBTQ Equality” by the Human Rights Campaign Foundation
In recognition of its inclusive workplace, Nasdaq received a perfect score of 100 percent on the 2019 Corporate Equality Index (CEI), the nation’s leading benchmarking survey and report on corporate policies and practices related to LGBTQ workplace equality, administered by the Human Rights Campaign (HRC) Foundation.

**** They had me at “Nasdaq received a perfect score of 100 percent”~JJL


Thursday’s Top Three
Our top stories Thursday were led by Crain’s Chicago Business’ Chicago hedge fund Citadel keeps headquarters at home, but expands faster in New York. Second was CFTC Staff Issues Research Report on Impact of Automated Orders in Futures Markets. Third was Bloomberg’s A $55 Trillion Bond Market Goes `Mad’ as Everything Rallies


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CryptoMarketsWiki Coin of the Week: Stellar Lumens (XLM)
Stellar has been adopted by Western Union, which will use Stellar’s XLM tokens to settle cross-border payments. Earlier this week, Western Union signed a partnership agreement with Thunes, a blockchain startup focused on improving how cross-border payments are settled; Thunes uses XLM as a crucial component in these settlements.

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Lead Stories

The ETF Tax Dodge Is Wall Street’s “Dirty Little Secret”; Banks are pumping billions of dollars into and out of funds with “heartbeat” trades.
Zachary R. Mider, Rachel Evans, Carolina Wilson and Christopher Cannon – Bloomberg
One day last September an unidentified trader pumped more than $3 billion into a tech fund run by State Street Corp. Two days later that trader pulled out a similar amount. Why would someone make such a large bet—five times bigger than any previous transaction in the fund—and then reverse it so quickly? It turns out that transfusions like these are tax dodges, carried out by the world’s largest asset managers with help from investment banks.

UK financial services watchdog to ban binary options trading; FCA says move will stop investors losing money from an ‘inherently flawed product’
Cat Rutter Pooley – FT
The UK financial services watchdog will permanently ban trading in complex derivatives by retail customers from Tuesday in a move the regulator said could save consumers up to £17m a year and cut the risk of scams.

Hedging Rises on New Benchmark Rate Amid Concerns of Quarter-End Swings; Robust swaps trading signals SOFR is gaining traction in replacing Libor
Daniel Kruger and Telis Demos – WSJ
Trading of swaps using the benchmark rate expected to replace Libor surged to a record this month, as investors anticipated a repeat of the volatility that hit the market at the end of December.

SEC Delays Program to Rein In Rebates in Win for Stock Exchanges; Agency is delaying implementation until federal appeals court can rule on case brought by major exchanges
Alexander Osipovich – WSJ
The Securities and Exchange Commission temporarily halted its own initiative to limit the rebates that stock exchanges can pay to attract investors’ orders, marking at least a temporary victory for the New York Stock Exchange and Nasdaq Inc.

Coinbase’s New Customer Incentive: Interest Payments, With a Crypto Twist; Amid cryptocurrency slump, platform looks to ‘staking’ as new way to make revenue
Paul Vigna – WSJ
The newest enticement in the crypto world is something traditional investors know very well: interest payments. Coinbase, a platform where users can buy and sell bitcoin and other cryptocurrencies, is launching a program for institutional investors that will pay them a set interest rate, likely between 5% and 8%, when they park money in its custody service. The program, called “staking,” comes with a crypto twist. The interest is earned only if customers are holding certain cryptocurrencies, and the interest will be paid in those cryptocurrencies.

Second former Barclays banker found guilty of Euribor rigging; Colin Bermingham convicted by London jury days after fellow employee Carlo Palombo
Barney Thompson – FT
A second former Barclays banker has been convicted of conspiracy to manipulate the Euribor interbank lending rate, bringing an end to the two-month trial.

Morgan Stanley’s No. 2 Executive to Retire; Colm Kelleher, Morgan Stanley’s president, won’t be immediately replaced, the CEO says
Liz Hoffman – WSJ
Morgan Stanley ‘s MS 1.35% second-in-command, Colm Kelleher, is retiring, opening a seat whose filling will signal the Wall Street firm’s likely heir apparent.

How the woes of Danske and Swedbank are rippling out; A seemingly small affair has turned into one of the biggest money laundering scandals ever
Richard Milne – FT
When Danske Bank’s Estonian money laundering scandal exploded last autumn, other Nordic banks rushed to reassure investors that they were different.

Lehman Lives On as Theatrical ‘Love Story of the American Dream’
Amanda L Gordon – Bloomberg
Play at Park Avenue Armory tracks three brothers from Bavaria; Opening night draws Tony James, David Stockman and John Loeb
It was a smash in London, so much so that it has added a run starting in May. But until April 20, the play “Lehman Trilogy” is in New York, hitting closer to home.

Inside a Star Do-Good Investor’s Stunning Fall from Grace
Sabrina Willmer – Bloomberg
Bribery allegations taint a private equity giant’s crusade; Company vows investigation, while ousted leader apologizes
Before a rapt gathering of investors, Bill McGlashan was holding forth on his favorite subject: “impact investing,” which aims to generate lofty social, as well as financial, returns.

A London Banker Was Fired for ‘Stealing’ a Bike Part Worth $6.50. So He Sued
Kaye Wiggins – Bloomberg
Marius Caracota says episode was convenient way to remove him; Mizuho Bank denies his allegations in London tribunal case
A former Mizuho Bank Ltd. executive — who was fired for taking a part from a bicycle in the company storage shed — is suing the bank, saying it used the episode as a “convenient way” to get rid of him after he complained about bullying and potential regulatory breaches.

Women running the money? Rarely at hedge funds
Generous salary and juicy bonus? Check. Client meetings at private members’ club? Check. Swanky Mayfair office? Check. Company maternity scheme? Maybe, we’ll get back to you.

A $2 Million Scam by a Former Vanguard Supervisor Is Scaring Investors. Here’s How to Protect Yourself — and Your Elderly Relatives Too
Sergei Klebnikov – Money
Most people don’t expect to ever become victims of financial fraud. But as one recent case at investment giant Vanguard shows, it can sometimes happen even to customers of the biggest, most-reputable organizations.

Wells Fargo CEO Abruptly Steps Down, Succumbing to Scandals
Hannah Levitt – Bloomberg
Board names interim CEO while looking for external successor; Chair credits Sloan with ‘working tirelessly’ over 31 years
Wells Fargo & Co. Chief Executive Officer Tim Sloan gave in to critics and abruptly stepped down Thursday, after the 31-year company veteran struggled to tame a range of scandals, launching the fourth-largest U.S. bank into a hasty search for a successor.

Exchanges, OTC and Clearing

Deutsche Bank and Nasdaq Sign New Market Technology Agreement
Deutsche Bank Securities Inc. and Nasdaq are pleased to announce that Deutsche Bank’s new Single Dealer Platform will be developed with Deutsche Bank, and hosted and operated by Nasdaq’s market technology. The expected go-live is targeted for Q3 2019.

Nodal Exchange, FreightWaves and DAT® Successfully Launch the World’s First Trucking Freight Futures Contracts
Nodal Exchange, in collaboration with FreightWaves, the leading provider of freight market news, data and analytics, and DAT, the largest spot freight marketplace in North America, announced today the successful launch of the world’s first Trucking Freight Futures contracts.

Nasdaq Announces 2019 Annual Meeting of Stockholders
Nasdaq (Nasdaq:NDAQ) has scheduled its 2019 annual meeting of stockholders for April 23, 2019 at 8:30 AM ET. The meeting will be held at the Nasdaq MarketSite, 4 Times Square, New York, NY.

Fulbright Securities Limited Goes Live With Horizon Options Market Making Platform For HKEX
Horizon Software (Horizon), the leading provider of electronic trading and algorithmic technology, today announced that Fulbright Securities Limited, a large securities company located in Hong Kong, has deployed Horizon’s Platform for Market Making on listed options connecting to the Hong Kong Stock Exchange (SEHK).

Start of ETF Market Making Incentive Scheme Version 2
As scheduled, Tokyo Stock Exchange (TSE) will start its ETF Market Making Incentive Scheme to Version 2 from April 1, 2019 with the aim of further improving the liquidity of the ETF market.

LME launches discussion paper on potential warehouse rule enhancement
The London Metal Exchange (LME) is today launching a discussion paper and market-wide engagement process, setting out proposals from the LME Warehousing Committee designed to enhance the efficiency of the LME warehousing network, and create further opportunities for metal owners to make use of LME warranting.

“Welcome to the German Capital Market” – new video lecture for capital market professionals from abroad
Deutsche Börse
Deutsche Börse’s Capital Markets Academy is offering a new video lecture for bankers and other capital market professionals from abroad. Within 150 minutes, the participants will be familiarized with the market structures and legal framework conditions of the German capital market.

C7 Release 5.0: Release announcement
With this circular, Eurex Clearing announces the production launch of C7 Release 5.0 on 24 June 2019. The European Commodity Clearing house (ECC) will continue to reduce infrastructure complexity by moving the Position and Transaction Management service from the Eurex Classic system to Eurex Clearing’s C7 infrastructure.

‘Delivery option in metals contracts helps consumers’
Compulsorily deliverable futures contracts in base metals at MCX will benefit consumers, said Chittaranjan Rege, Head of Base Metals, MCX, at the Commodity Conclave held in Bengaluru on Monday.


How Tech Unicorns Are Raking In Cash But Losing Big Money; The IPO class of 2019 is notable for big valuations, diverse business models and little to no profits
Stephanie Stamm – WSJ
Several tech unicorns—privately held startups valued at more than $1 billion—are preparing to go public this year at eye-popping valuations. They range from Peloton Interactive Inc., the exercise-bike company that is targeting a roughly $4 billion valuation, to Uber Technologies Inc., whose initial public offering could value the ride-hailing giant at more than $120 billion, far above the $72 billion of according to Dow Jones Venture Source data.

Goldman Sachs loves investing in “unloved” fintech firms
John Detrixhe & Nupur Anand – Quartz
Goldman Sachs, in addition to running one of the world’s storied investment banks, is also an avid investor in financial startups. As venture capital money pours into the sector and valuations climb, the bank thinks there are bargains among the companies that don’t make the headlines.

Cappitech Launches New Data Insights Product; Regulatory reporting and intelligence solutions provider Cappitech has just announced the addition of a brand new product to its portfolio.
Victor Golovtchenko – Finance Magnates
Regulatory reporting and intelligence solutions provider Cappitech has just announced the addition of a brand new product to its portfolio. The company’s new Insights tool enables compliance teams and risk managers to gain a competitive advantage by improving regulatory reporting and allowing them to benchmark their performance to their peers.

A broker for the new app economy; M1 Finance aims to be “what Charles Schwab was in the ’70s and ’80s.”
Shane Tritsch – Crain’s Chicago Business
By the time Brian Barnes’ parents bought him his first stock, early in the new millennium when he was about 10, millions of investors had discovered the ease of buying and selling stocks with the click of a mouse, avoiding the high fees of full-service brokers.

A fintech entering the crowded wealth management space just nabbed nearly $9 million in funding from the VCs that backed Venmo, Monzo and Acorns
Dan DeFrancesco – Business Insider
The financial markets can be a scary place for the inexperienced. It helps to have some support from your friends.

Algo Trading Software and the Human Touch: Finding the Execution Sweet Spot
Ahmed Heikal – Vela
For much of the past decade, market players have been focused on low-touch or no-touch execution solutions. As market electronification has taken off, quant funds and other proprietary trading firms have looked to automate most, and in some cases all, of their trading. The development of ever more sophisticated algo trading software bore out the wisdom of this strategy and you don’t have to look far to find low-touch advocates.

While It Merges With FIS, Worldpay Looks to Expansion in Australia And New Zealand
John Stewart – Digital Transactions
Worldpay Inc. may be embroiled in combining its business with that of Fidelity National Information Services Inc., but that isn’t stopping the huge processor from seeking international expansion.


Blow To Bitcoin As World’s Largest Cryptocurrency IPO Is Iced
Billy Bambrough – Forbes
Bitcoin, trapped in a more than year-long bear market, has lost some 80% in value over the last 15 months and caused many of those in the nascent industry to change or postpone their bitcoin and cryptocurrency plans. The bitcoin price, after rocketing to an eye-watering near $20,000, fell back to around $4,000 late last year—where it has remained since the beginning of 2019.

How to file taxes on your cryptocurrency trades in a bear year
Chandan Lodha – TechCrunch
Fred traded bitcoin, ether and a handful of other cryptocurrencies on Gemini, Binance and Coinbase last year. Unfortunately, due to the crypto downturn, his trading yielded a capital loss of more than $35,000. He’s not alone — the stories have been coming out right and left about people who are not already rich, who have lost serious money lately. While it was a rough loss, filing taxes could add another headache in a few weeks if not done correctly.

Fake Volume on Crypto Exchanges Isn’t the Half of It
Daniel Cawrey – Coindesk
Recently, a report was produced by Bitwise Asset Management showing the existence of faked volumes in the bitcoin market – 95% of total volume according to its research. It’s hard to disagree with many of the facts in the report. Yet there are some items left out in this presentation to the SEC. It’s hard to justify bitcoin is a mature asset and has a sophisticated market supporting it. And despite the fabricated volumes across crypto exchanges, this presentation makes a compelling argument there is maturity. However, this market isn’t sophisticated and there are key issues the report simply does not address.

Coinbase Leads Wall Street to Brave New World of Crypto Staking
Ian Allison – Coindesk
Coinbase’s custody arm is trying to entice its institutional customers into the brave new world of staking crypto assets for profit. Starting with the Tezos proof-of-stake (PoS) network, San Francisco-based Coinbase is offering clients the opportunity to make a return on their XTZ, that blockchain’s native token, the company announced Friday. After deducting Coinbase’s fee, investors can expect an annual return of around 6.6 percent, the firm estimated.

It’s Hard to Create Crypto Value With an Algorithm
Matt Levine – Bloomberg
In 2017, the default assumption was that every cryptocurrency would automatically be valuable. That’s no longer the case.

Don’t Send Your Boss’s Lies to Customers
Matt Levine – Bloomberg
If you work at a boiler room, and your boss writes an email full of lies and tells you to send it to customers to get them to buy securities, and you know that it is full of lies but he is your boss so what are you gonna do, and you send the email on to customers, have you committed securities fraud? I feel like when I put it like that the answer is obviously yes, and in fact yesterday in a 6-2 decision the Supreme Court ruled that the answer is yes.

More Regulations, Fewer Chances of an ETF as Wash Trading Data Revealed
Rachel McIntosh – Finance Magnates
It’s not exactly bold to say that market manipulation is happening in the Bitcoin market. While Bitcoin’s distributed-ledger network is somewhat more transparent than most financial markets, the distribution of wealth is, unfortunately, just as uneven as it is in most of the rest of the world – although most of the largest players are individuals, not banks.

Ethereum Is Losing Its Luster And Its Market Share
Olga Kharif – Bloomberg
EOS, Tron surpass Ethereum in popularity with many developers; Some startups are now issuing tokens on competing networks
When Ethereum debuted in 2015, it was hailed as the more savvy successor to Bitcoin because it offered tools that allowed programmers to create apps that could perform transactions automatically rather than just serving as a means of exchange.

JPMorgan Is Hiring For More Blockchain Jobs Than Any Other Wall Street Firm
Michael del Castillo – Forbes
The biggest bank in America is continuing on a blockchain rampage by posting more jobs in the industry than any other financial firm. According to results released today by job-hunting site, JPMorgan Chase was the only financial firm in the top ten companies posting jobs with the words “blockchain,” “cryptocurrency,” or “bitcoin” over the past year.

Facebook’s Blockchain Hiring Spree Continues With 5 New Postings
Ian Allison – Coindesk
Social media behemoth Facebook is advertising for five more blockchain-related positions – adding to the 20 positions already posted by the company in the last month or so. The new blockchain-related positions, all of which are based at the company’s Menlo Park HQ in California, include: production manager, business operations manager, data scientist, software engineer and growth product manager. CEO Mark Zuckerberg has been talking a lot in public about blockchain and cryptography of late. His comments suggested a move to embrace end-to-end encryption of users’ data on Facebook, Instagram and WhatsApp. However, some critics are calling his decentralization and privacy mantra nothing more than a PR message.

Android Malware Targets Users of 32 Crypto Apps, Including Coinbase, BitPay
Marie Huillet – Cointelegraph
A new strain of Trojan malware for Android phones is targeting global users of top crypto apps such as Coinbase, BitPay and Bitcoin Wallet, as well as banks including JPMorgan, Wells Fargo, and Bank of America. The news was reported by technology news outlet The Next Web on March 28. Based on research from prominent cybercrime analytics firm Group-IB, this is reportedly the first time the Trojan — now named “Gustuff” — has been reported or analyzed. The malware is described as being designed for mass infection and is spread by SMS messages with links to load malicious Android package kit files.

Bitcoin Daily: Celebs Hit By Bitcoin Scam; Fraudsters Steal $19M From UK Investors
The Money Cloud
Australian TV presenters Karl Stefanovic and Waleed Aly are the latest celebrities to become victims of common bitcoin scams.

Stellar Lumens [XLM]: Binance’s Trust Wallet adds XLM following IBM partnership
Akash Anand – AMB Crypto
The push for the mainstream adoption of cryptocurrencies by several organizations in the cryptosphere captured multiple headlines over the past couple of weeks. One cryptocurrency that became popular over the past week was Stellar Lumens [XLM], which shot to fame after its partnership with IBM’s World Wire.


Trump Taunts OPEC in Tweets as U.S. Officials Court the Cartel; Most administrations avoid direct dealings with OPEC but the Trump administration has a new approach as it seeks to oust the cartel’s Venezuelan leader
Benoit Faucon,Timothy Puko and Summer Said – WSJ
President Trump renewed his push for OPEC to lower oil prices on Thursday. But behind scenes the U.S. has opened a rare dialogue with the leadership of what many have long considered an illegal cartel.

When DoJ and the FCC slowed inflation
Brendan Greeley – FT
Two weeks ago Alphaville published a clarification on modern monetary theory by Scott Fullwiler, Rohan Grey and Nathan Tankus. They argued that, counter to what had been reported, MMT does not rely exclusively on raising taxes to counter inflation. Proper MMT, they wrote, uses a lot of tools to manage inflation — taxes only one among them.

Citadel Founder Ken Griffin Says It’s Important to Embrace Freedom
Bloomberg TV
Citadel founder Ken Griffin tells David Rubenstein that he supports “personal rights, personal liberty,” what he describes as “what our founding fathers put their lives on the line for.” The interview is the latest episode of “The David Rubenstein Show: Peer-to-Peer Conversations.”

How gerrymandering became one of the biggest issues in politics
Will Rahn – CBS News
As the 2020 Democratic primary takes shape, progressives across the country are once again taking aim at gerrymandering, the process by which state legislatures draw congressional maps to benefit one party over the other. On Tuesday, for the second time in two years, the Supreme Court heard arguments about limiting the practice. The last time the high court considered gerrymandering, the justices declined to rule on the merits. And given the court’s conservative lean, they could do so again in this most recent case, which involves House district maps drawn by state legislatures in Maryland and North Carolina.

Trump turns Mueller probe’s findings into political weapon
Jonathan Lemire and Jill Colvin – Associated Press
Presenting himself as both vindicated and vindictive, a fired-up President Donald Trump on Thursday turned the findings of the Russia investigation into a political weapon at a Michigan rally that was part victory lap, part 2020 campaign push. Trump unleashed a fervent diatribe about the inquiry, which he deemed “the greatest hoax in the history of our country.” He warned that those behind the probe “would be held accountable,” aired his grievances about the “unfair” media coverage and seethed that the matter was an attempt “to tear up the fabric of our great democracy.”

Trump to pick Fox News contributor for State Dept spokeswoman
Josh Lederman – NBC News
The Trump administration has chosen counterterrorism expert and former Fox News contributor Morgan Ortagus to be the new State Department spokeswoman, three people with knowledge of the decision told NBC News.


FCA confirms permanent ban on the sale of binary options to retail consumers
Following consultation feedback, the Financial Conduct Authority (FCA) is today confirming all firms acting in or from the UK are prohibited from selling, marketing or distributing binary options to retail consumers.

Brexit: the FCA confirms final rules for firms
The Financial Conduct Authority (FCA) has today published its final instruments and guidance that will apply in the event the UK leaves the EU without a deal or an implementation period.

ESMA clarifies format for disclosure of risk factors in prospectuses
The European Securities and Markets Authority (ESMA) has published its final guidelines on how national competent authorities (NCAs) should review risk factors, as required by the new Prospectus Regulation (PR).

FINRA Proposes Disseminating New-Issue Reference Data for Corporate Bonds; TRACE to Serve as Centralized Source for Consistent, Timely, Accurate Security Information
FINRA today filed with the U.S. Securities and Exchange Commission a proposal to expand its collection and dissemination of new-issue reference data for corporate bonds. The proposal calls for FINRA’s TRACE (Trade Reporting and Compliance Engine) to serve as a centralized source for market participants to receive more comprehensive and timely security description information about new issues.

SEC Charges College Official for Fraudulently Concealing Financial Troubles From Municipal Bond Investors
The Securities and Exchange Commission today charged the former controller of a New York-based not-for-profit college with defrauding municipal securities investors by fraudulently concealing the college’s deteriorating finances.

Statement of Chairman J. Christopher Giancarlo on the Final Rule Amending Regulations on Segregation of Assets Held as Collateral in Uncleared Swap Transactions (23.700-704)
This final rule is another Project KISS proposal simplifying and reducing burdens by revisiting our rules based on staff implementation experience and public comment. Today’s amendments will remove overly burdensome and prescriptive conditions for providing notice to counterparties of their right to segregate initial margin for uncleared swaps and the commercial arrangement between the parties regarding the investment of segregated initial margin.

Statement of CFTC Chairman J. Christopher Giancarlo on the Final Rule Regarding Financial Surveillance Examination Program Requirements for Self-Regulatory Organizations (1.52)
This Project KISS final rule regarding financial surveillance examination program requirements for self-regulatory organizations (SROs) will revise and appropriately limit the scope of a third-party expert’s evaluation of a SRO’s financial surveillance program, and extend the minimum timeframes from three to five years from when a SRO must engage a third-party expert to evaluate its FCM standards for consistency with certain auditing standards. All of the comments received were in support of this proposal. I also support it because it will reduce the burdens and costs for SRO examinations, without reducing their effectiveness. It also more appropriately balances and recognizes the role and capabilities of the Commission’s oversight expertise.

Statement of Concurrence by CFTC Commissioner Rostin Behnam on Segregation of Assets Held as Collateral in Uncleared Swap Transactions; Amendments
I respectfully concur with the Commodity Futures Trading Commission’s (the “Commission” or “CFTC”) approval of amendments to subpart L of the Commission’s Regulations (“Segregation of Assets Held as Collateral in Uncleared Swap Transactions” consisting of Regulations 23.700 through 23.704), which implement Section 4s(l) of the Commodity Exchange Act (“CEA” or the “Act”). The amendments to subpart L respond to ongoing concerns and confusion created by the finalization of the CFTC and Prudential Regulator Margin Rules and CFTC interpretive guidance.

Statement of Commissioner Dan M. Berkovitz on Less is More – Segregation of Assets Held as Collateral in Uncleared Swap Transactions; Amendments
The final rule amends CFTC regulations giving certain swap counterparties the right to require initial margin segregation. I support the amendments.

Statement of Commissioner Dan M. Berkovitz on Financial Surveillance Examination Program Requirements for Self-Regulatory Organizations
I support the targeted amendments to Commission Regulation 1.52 made in today’s final rules regarding third-party expert examinations of self-regulatory organization (“SRO”) financial surveillance programs. The amendments adopted in these final rules are an outgrowth of the Commission’s experience with Regulation 1.52 since 2013, and they maintain the Commission’s strong commitment to customer protection while modifying certain requirements found to provide no incremental regulatory benefit. The Commission’s customer protection rules are fundamental to safeguarding customer assets, promoting the safety and soundness of U.S. derivatives markets, and maintaining public confidence in our markets. I strongly support these customer protection rules.

Federal Court Orders Futures Trader to Pay a Penalty of More Than $1 Million for Fraud
The Commodity Futures Trading Commission (CFTC) announced today that a federal court in Illinois ordered William H. Powderly IV (Powderly) of New Hope, Pennsylvania, to pay a civil monetary penalty of $1,083,138 for fraudulently soliciting customers and distributing false account statements. The Order stems from a CFTC Complaint filed on May 1, 2017. [See CFTC Press Release 7553-17]

CFTC Unanimously Approves Project KISS Rulemakings to Ease Regulatory Burdens
The Commodity Futures Trading Commission (CFTC) announced today that it has unanimously approved two final rule amendments to simplify registrants’ obligations.

Industry funding: 2018-19 estimates of ASIC’s levies to industry
ASIC has today published estimated industry sector levies for 2018-19 as well as details on how it allocated its regulatory costs in 2017-18, as part of the its draft Cost Recovery Implementation Statement (CRIS).

Goldman Sachs fined £34m for over 200 million MiFID transaction reporting errors; Goldman Sachs is handed largest penalty to date by the FCA after the watchdog found errors in more than 200 million transaction reports.
Hayley McDowell – The Trade
US investment bank Goldman Sachs has been handed a fine of £34 million by the UK’s financial watchdog for botched transaction reporting under MiFID in Europe.

Chairman of France’s Iliad faces EUR1m fine for insider trading; Maxime Lombardini sold shares ahead of Iliad’s takeover bid for T-Mobile USA in 2014
Harriet Agnew – FT
The French market regulator is seeking to impose a EUR1m fine on Maxime Lombardini, the chairman of telecoms company Iliad, for allegations of insider trading during the company’s $15bn attempted takeover of T-Mobile USA in 2014.

The FCC Has Fined Robocallers $208 Million. It’s Collected $6,790; U.S. telecom regulators impose penalties and seek to recoup ill-gotten gains from robocallers, but have struggled to collect
Sarah Krouse – WSJ
America’s telecommunications watchdogs have levied hefty financial penalties against illegal robocallers and demanded that bad actors repay millions to their victims. But years later, little money has been collected.

European regulator slaps record fine on Fitch Ratings; Credit rating agency violated rules on conflicts of interest stemming from French billionaire
Philip Stafford and Robert Smith and Harriet Agnew – FT
A European watchdog has slapped a record fine on Fitch for breaching conflicts of interest rules relating to the stake a French billionaire held in the rating agency.

Investing and Trading

Investors face ‘unacceptable’ delays to switch platforms; Smaller providers imposing transfer blackout periods
Kate Beioley – FT
Investors are being forced to wait up to six months to move pensions and investments from one investment platform to another, despite heavy pressure from the financial regulator which says the process should take a fraction of that time.

Pot Stock Volatility Is Something This Company Wants No Part Of
Sam Unsted – Bloomberg
Grow Biotech pushing back plan to list shares in London; Firm is working to improve acceptance of medical cannabis
The frenzy in Canadian pot stocks has created plenty of opportunities for short-term traders. That kind of volatility holds no attraction for one European medical cannabis company.

Now the German Yield Curve Is Flattening to a Post-Crisis Low
Todd White – Bloomberg
Yield gap between 10-year and 3-month notes halves this year; But with 90-day rate well below zero, inversion looks unlikely
A key part of the German yield curve is flattening at the fastest quarterly pace since 2014. Just one week after the same pocket of the yield curve for Treasuries inverted — fueling speculation a recession is on the horizon — the extra yield on 10-year bunds over three-month bills has slipped to within two basis points of the post-crisis low. It closed at 45 basis points on Thursday, having tumbled from 100 at the start of the year.

After Striking Out Twice, A Trader Makes Another Big Bet on Australia’s Rate Cut
Stephen Spratt – Bloomberg
Trade emerges even though markets largely ruling out a move; Open interest in April futures has jumped almost 30% this week
A jumbo wager on an Australian interest-rate cut has emerged again, stoking speculation the same trader is hoping to strike gold at the third attempt.

Fixed Income Investors See Economic Cycle Ending Soon: Survey
Interest in ESG and China are on the rise, an Invesco survey finds.
Michael S. Fischer – ThinkAdvisor
Forty-nine percent of fixed income investors globally expect the economic cycle to continue for one or two more years, while 27% see it ending within the next six months to one year, according to a recent survey from Invesco.

Cargill third-quarter profit jumps 14 percent; cost cuts offset swine fever, trade war
P.J. Huffstutter – Reuters
Grains trader Cargill Inc on Thursday reported a 14 percent jump in fiscal third-quarter 2019 net earnings, as spending cuts buoyed profits that were weighed down by factors as varied as the U.S.-China trade war, swine fever in Asian hogs and slumping U.S. ethanol prices.


Wells Fargo CEO Tim Sloan retiring
Hugh Son and Kate Rooney – CNBC
The embattled CEO of Wells Fargo is stepping down. Tim Sloan, who took over as chief executive of the bank in October 2016, will retire, the bank said in a press release Thursday. The bank’s general counsel, Allen Parker, will take over as Interim CEO and president.

Schwab Wants the Investing Business to Be Subscription-Based Too
Julie Verhage – Bloomberg
Premium offering switches to $30 monthly from asset-based fee; Can the Netflix-Apple strategy succeed for financial services?
It’s not just Apple Inc. that’s betting big on subscriptions.
Charles Schwab Corp., the low-cost investing pioneer that now handles more than $3.5 trillion in assets, is switching to a subscription-based financial planning option to its digital advisory service that offers more hands-on help, the company said Thursday.
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Capital Question Clouds Deutsche Bank Merger Talks; Deutsche Bank executives discussed requiring EUR8 billion for a tie-up with Commerzbank that was considered last year
Jenny Strasburg and Ben Dummett – WSJ
One of the big questions surrounding Deutsche Bank AG’s DB -3.19% possible merger with Commerzbank AG CRZBY -3.62% is how much capital it might need to raise from shareholders to finance the deal.

Traders ponder future at Barclays without their bullish boss; UK’s last investment bank with global ambitions set for another period of uncertainty
Stephen Morris and Laura Noonan – FT
When Tim Throsby worked at JPMorgan Chase, he had a reputation among colleagues of being “a bull in a china shop”. After taking charge of Barclays’ investment bank two years ago he decorated his office with a vast painting of a naked Minotaur.

Vanguard Opts for Limited Addition of China’s Bonds to Its Funds
Chris Anstey – Bloomberg
Plan is to allocate 0.2% to 0.5% to China bonds starting April; Constraints remain for investors looking at China: Vanguard
Mutual-fund giant Vanguard Group Inc. is opting for a limited addition of Chinese domestic bonds to its portfolios, stopping short of the inclusion plans for one of the benchmark indexes for global debt.

Financial Management Startup Carta Is Raising New Funding at a $1.8 Billion Valuation
Julie Verhage and Ellen Huet – Bloomberg
Carta Inc., a startup that makes software to manage equity stakes in other startups, is wrapping up a round of investment that would value the seven-year-old company at about $1.8 billion, according to a person familiar with the matter.

Deutsche Bank’s Merger Plan Is Being Threatened by Mounting Opposition
Steven Arons, Jan-Henrik Foerster, and Ruth David – Bloomberg
Shareholders, unions, employees balk at Commerzbank proposal; German Finance Ministry championed $20 billion-plus deal
Less than two weeks ago, the leaders of Deutsche Bank AG and Commerzbank AG agreed to take an unbiased look at a proposed merger. Almost every day since then, their efforts have been undermined by internal and external forces.

JPMorgan’s Role in Nigerian Oil Deal Has Come Back to Haunt It
Emily Flitter – NY Times
Under the rule of the Nigerian dictator Sani Abacha more than 20 years ago, a handful of high-ranking government officials looted billions of dollars from the country’s coffers.

Deutsche-Commerzbank tie-up opposed by 43 percent of Germans in poll
Some 43 percent of Germans are against a merger between Deutsche Bank and Commerzbank, a survey showed on Friday, while only 17 percent are in favor.

Deutsche Bank discusses raising up to EUR10bn for Commerzbank deal; Proposed equity raising would aim to end debate over lender’s capital levels
Stephen Morris and Olaf Storbeck – FT
Deutsche Bank is discussing plans to raise as much as EUR10bn in fresh equity as part of a potential merger with Commerzbank, a move designed to end the debate over whether Germany’s largest lender has enough capital.

Asset Managers Are Racing Each Other … to the Bottom; Investment funds are slashing fees so freely that it’s been nicknamed “feemageddon.”
Robin Wigglesworth –
In addition to pruning fees on active strategies, many asset managers have launched competing passive funds at rock-bottom prices to gain market share. The ferocious price war has intensified this year, with investment groups such as BlackRock and JPMorgan Asset Management cutting fees to stay competitive.

Exclusive: Goldman’s China-backed fund bucks trade tensions to buy U.S. firm
Harry Brumpton, Echo Wang, Liana B. Baker – Reuters
Goldman Sachs Group Inc invested money from China’s sovereign wealth fund in a California-based industrial company and is looking for more U.S. deals, three sources familiar with the matter said, even after increased scrutiny from Washington all but stopped U.S.-China deals last year.

Deutsche Bank’s Merger Knife Won’t Spare Asia; A high cost base and knock-on effects from shrinkage in the U.S. mean job cuts may be unavoidable.
Nisha Gopalan – Bloomberg
Sometimes being good enough just isn’t enough. That’s the situation Deutsche Bank AG’s Asian employees may find themselves in if a merger with Commerzbank AG goes ahead.

Jefferies’ revenue hurt by U.S. government shutdown, weak markets in December
Jefferies Group LLC’s quarterly revenue fell 17 percent on Thursday, as the company’s investment banking business took a hit from a partial government shutdown and a dip in market activity in December, but said it expects a better trading environment going forward.


U.S. and China Got Into a Trade War and Mexico Won; America’s imports from Mexico surge the most in seven years as Trump’s policies shift supply chains
Matthew Townsend and Eric Martin – WSJ
The Trump Administration’s trade war with China has turned out to be a windfall for another country the president frequently berates: Mexico.

US-China trade war casts chill over liquefied natural gas market; Top executive at Houston-based Cheniere Energy says deals with China are on ice
Anjli Raval and Emiko Terazono – FT
The US’s largest exporter of liquefied natural gas has said that deals for the supercooled fuel with China are on hold until both countries resolve a trade spat that has disrupted the shipping of goods from soyabeans to medical equipment.

EU Toughens CO2 Limits for Cars in Bid to Spur Electric Vehicles
Jonathan Stearns – Bloomberg
New caps clear last political hurdle with EU Parliament vote; Reductions of 15% in 2025, 37.5% in 2030 versus 2021 limit
The European Union tightened caps on carbon dioxide from cars in a bid to accelerate the development of electric vehicles.

This Mobile App Backed by Jack Ma Is Mimicking Ant Financial
Lulu Yilun Chen – Bloomberg
Mynt, the Philippine mobile payments operator backed by billionaire Jack Ma’s Ant Financial, plans to roll out insurance products en route to becoming a sprawling financial services platform in its Chinese ally’s image.

Lira Traders Brace for Vote After Turkey’s Week of Market Chaos
Alexander Nicholson – Bloomberg
State Street’s Timothy Graf says market not worth touching; Turkish economy entered recession in run-up to Sunday election
Lira traders braced for the results of Turkey’s local elections this Sunday following a week of turmoil that rattled faith in the nation’s markets.

JP Morgan, Nomura get nod for China brokerage JVs as market access expands
Sumeet Chatterjee, Xiaochong Zhang – Reuters
JP Morgan and Nomura have won Chinese regulatory approval to set up majority-owned brokerage joint ventures, in China’s latest move to open its financial sector up to foreign firms.

An Emissions Trading System for Mexico
Juan Carlos Arredondo Brun – LinkedIn
Carbon pricing as policy has become one of the main instruments available to governments for driving down emissions in a cost-effective manner. Its application has been structured around two main options: a carbon tax and an emissions trading system (ETS). The expected benefits, their technical requirements, and the complexities of each option has been widely discussed around the world in an number peer-reviewed articles, research documents, and policy briefs.


Dominic Raab: The divisive Brexiteer who could soon be Britain’s Prime Minister
Adam Payne – Business Insider
Former Brexit Secretary Dominic Raab is leading the race to succeed Theresa May as Conservative leader and prime minister with dozens of Conservative MPs already privately backing him for PM.

The Brexit Day That Wasn’t Leaves Britain Counting the Cost
Joe Mayes, Irene Garcia Perez, and Aine Quinn – Bloomberg
Preparations put in place for March 29 split are kicking in; Delay came too late for companies to change their plans
For more than two years, the clock ran down toward March 29, the day Prime Minister Theresa May pledged Britain would leave the European Union. As the drama rolls on, the costs mount from the Brexit day that wasn’t.

EU says it needs a Brexit ‘yes’ from UK parliament
The European Union’s executive said on Thursday that if Britain fails to ratify its divorce agreement this week, Brexit will only postponed until April 12 by which time London must inform the bloc of its plans.

Brexit and trade to haunt Europe’s investment banks in nightmare quarter
Lawrence White – Reuters
Europe’s beleaguered investment banks are preparing to report one of their toughest first quarters as qualms over Brexit and global trade tensions dampened investors trading appetite.

Brexit: Government plans to hold new vote
BBC News
MPs will vote again on Brexit on Friday but it is not clear whether it will be another “meaningful vote” on the PM’s withdrawal deal. Asked whether the motion would be the “full package”, Commons Leader Andrea Leadsom said discussion was “ongoing”. There is speculation that MPs might be asked to vote on the withdrawal agreement but not the further “political declaration”. Labour said that would lead to the “blindest of blind Brexits”.

Brexit: Last chance to guarantee 22 May delay, MPs told
BBC News
MPs have been told they face their “last opportunity” to ensure the Brexit process is extended to 22 May and bring certainty to people and businesses. The attorney general said any further extension past 12 April would be “subject to the veto” of 27 EU leaders. MPs will be asked to approve only part of the PM’s Brexit deal, the withdrawal agreement, covering the terms of exit. Labour said separating that from the political declaration would mean voting on a “blindfold Brexit”.

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ETF trading surges on European stock exchanges

ETF trading surges on European stock exchanges

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