Top investors want Deutsche Börse chief to resign; ICE ramps up move on corporate bond market

Oct 25, 2017

First Read

Hits & Takes

It was a big day for ICE yesterday as they announced two acquisitions, BondPoint from Virtu and a stake in Euroclear from RBS. Here is a commentary written August 17 by Jim Greco of TradingPlaces about Virtu and the possibilities for BondPoint.~JJL

Slides are available for download by STAC members on the STAC website. This is the Securities Technology Analysis Center, not Securities Traders Association of Chicago.~JJL

Myron Scholes, Ph.D. will be speaking at the CFA Society of Chicago on November 17 at the Palmer House on “The Evolution of Asset Management: Risk Management.”~JJL

LSE’s Xavier Rolet was included in the 2017 Harvard Business Review List of the World’s 100 Best #CEOs.~JJL


Michael Bloomberg: Brexit is stupidest thing any country has done besides Trump
Graham Ruddick – The Guardian
Michael Bloomberg, the billionaire media mogul and former mayor of New York, has said Brexit is the “single stupidest thing any country has ever done” apart from the election of Donald Trump as US president.

****** Bloomberg opens his new London headquarters and insults half the population of the UK? But then maybe they needed to hear what he had to say.~JJL


Latest Use for a Bitcoin Technology: Tracing Turkeys From Farm to Table; Cargill tests a blockchain tool that would let shoppers see where their individual bird came from
By Jacob Bunge – WSJ
Agricultural conglomerate Cargill Inc. aims to harness the technology underlying bitcoin to let shoppers trace their turkeys from the store to the farm that raised them.

***** When the turkeys are eaten, what happens to the token?~JJL


Tuesday’s Top Three
Our top story on Tuesday was the new-hire news from R.J. O’Brien, R.J. O’Brien Hires Giemza to Lead Global Risk Department. Second was the Financial Times article Two Sigma rapidly rises to top of quant hedge fund world. And in third was LeapRate’s story, TradingScreen responds to allegations of former CEO Philippe Buhannic


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Lead Stories

Top investors want Deutsche Börse chief to resign; Shareholders unhappy after Frankfurt judge blocks settlement of insider-trading probe
Olaf Storbeck in Frankfurt – FT
Three big investors in Deutsche Börse want chief executive Carsten Kengeter to resign after a court in Frankfurt blocked his efforts to settle a criminal insider-trading investigation.

ICE ramps up move on corporate bond market; US exchanges operator to buy BondPoint from Virtu Financial in $400m deal
Joe Rennison in New York – FT
Intercontinental Exchange, the US exchanges operator, has underscored its designs on the corporate bond market by agreeing to buy fixed income trading platform BondPoint from Virtu Financial for $400m in cash.

Libor’s demise must not see us sleepwalk into a disaster; The wording of bond documentation could be crucial for investors when the new benchmark comes into force
Andrew Falco – Financial News
A story that has caught headlines around the world, and seen a spiral of fines and negative publicity in the banking sector, has been the issues surrounding Libor (the London Interbank Offer Rate) and its impending demise.

Exchange operator Nasdaq’s profit rises 30.5 pct
Reuters Staff
Nasdaq Inc reported a 30.5 percent rise in its quarterly profit as the U.S. exchange operator benefited from an increase in revenue from its market services business that oversees transactions, clearing and settlements.

Hong Kong’s storied stock trading hall shuts up shop
Donny Kwok – Reuters
The lights go out and screens turn blank in the trading hall of Hong Kong’s stock exchange this week, marking the end of an era for the red-carpeted, cavernous space that was home to more than a thousand floor traders in its heyday.

ICE to buy bond trading venue from Virtu for $400m
Joe Rennison – FT
Intercontinental Exchange, the US exchanges operator, has agreed to buy fixed-income trading platform BondPoint from Virtu Financial for $400m in cash.

ICE buys Euroclear stake from RBS for EUR275m
Philip Stafford – FT
Intercontinental Exchange, the US exchanges operator, has strengthened its hand in the plumbing of European markets, snapping up a 4.7 per cent stake in Euroclear, one of the world’s largest settlement houses, for EUR275m.

ICE to buy Virtu’s BondPoint for $400m; Doug Cifu, CEO at Virtu, said BondPoint was better suited outside of the firm’s core operations.
By Hayley McDowell – The Trade
ICE has agreed to buy Virtu Financial’s fixed income trading venue BondPoint in a deal worth $400 million.

Congress Votes to Overturn CFPB Arbitration Rule; Vice President Mike Pence breaks Senate tie in vote
Andrew Ackerman and Yuka Hayashi – WSJ
Congress overturned a rule by an Obama-appointed financial regulator that would have made it easier for consumers to sue banks in groups, with Vice President Mike Pence casting a tiebreaking vote in the Senate.

Wealthier Depositors Pressure Banks to Pay Up; As the Fed has raised rates, banks have been reluctant to do the same on their deposits. But for wealth-management customers, that’s starting to change
Telis Demos and Christina Rexrode – WSJ
Large U.S. banks are starting to pay up to keep depositors from moving their money, saying customers are becoming increasingly demanding as the stronger economy nudges interest rates higher.

EU scraps its answer to U.S. Volcker Rule for banks
Huw Jones – Reuters
The EU has scrapped a draft law that could have forced the bloc’s biggest banks to split up in order to reduce the risk of them being “too big to fail”, in a rare move that will cheer major trading firms.

Exchanges, OTC and Clearing

Deutsche Boerse board to consider Kengeter’s fate on Thursday: source
Reuters Staff
Deutsche Boerse’s (DB1Gn.DE) supervisory board will meet on Thursday to consider the fate of Carsten Kengeter, a source said on Tuesday, after the embattled CEO suffered a court setback in an insider trading investigation.

Intercontinental Exchange Announces Strategic Stake in Euroclear
Intercontinental Exchange (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, announced it has acquired a 4.7% stake in Euroclear for EUR 275 million. ICE anticipates having one representative join the Board of Euroclear. Euroclear is a leading provider of post-trade services, including settlement, central securities depositories and related services for cross-border transactions across asset classes.

Intercontinental Exchange Announces Agreement to Acquire Virtu BondPoint
ICE Press Release via Businesswire Intercontinental Exchange, a leading operator of global exchanges and clearing houses and provider of data and listings services, has entered into an agreement to acquire Virtu BondPoint from Virtu Financial for $400 million in cash. The transaction is expected to close in the first quarter of 2018, and the closing is subject to applicable regulatory reviews and approvals. ICE will provide further details on its third quarter earnings call on November 2, 2017.

ICE eyes fixed income after buying BondPoint from Virtu; Atlanta-based company secures second acquisitive deal in 24 hours
Samuel Agini – Financial News
Intercontinental Exchange has struck a deal to extend its reach into the corporate-bond market with a $400m acquisition of a trading platform from electronic market-maker Virtu Financial, marking its second deal in 24 hours.

Race for NCDEX top job hots up
Palak Shah –
The race for the top post at NCDEX, a leading agri-commodity trading bourse, is hotting up after its current MD Samir Shah said he may not continue in the role.

The Listing Committee censures Mr Wang Kai, a former Executive Director of Sound Global Limited (Stock Code: 967), for breaching the Director’s Undertaking

Nasdaq Reports Third Quarter 2017 Results; Delivers Strong Profitability and Income Growth
Net revenues were a record $607 million in the third quarter of 2017, an increase of 4% compared to the third quarter of 2016. Subscription and recurring revenues, which includes revenues from our Corporate Services, Information Services and Market Technology segments, as well as our Trade Management Services business, increased 5% compared to prior year period and represented 76% of total net revenues in the third quarter of 2017.

Nasdaq Announces Quarterly Dividend of $0.38 Per Share
The Board of Directors of Nasdaq, Inc. (Nasdaq:NDAQ) has declared a regular quarterly dividend of $0.38 per share on the company’s outstanding common stock. The dividend is payable on December 29, 2017 to shareowners of record at the close of business on December 15, 2017. Future declarations of quarterly dividends and the establishment of future record and payment dates are subject to approval by the Board of Directors.

SGX reports 1Q FY2018 net profit of S$91 million
Singapore Exchange (SGX) today reported 1Q FY2018 net profit of S$90.7 million (S$83.1 million), on the back of revenues of S$204.5 million (S$190.8 million). Operating profit rose to S$106.0 million (S$97.2 million), while earnings per share increased to 8.5 cents (7.8 cents). The Board of Directors has declared an interim dividend of 5 cents (5 cents) per share,

Saudi stock exchange pushing for ‘exclusive’ Aramco listing
Anjli Raval, Simeon Kerr – FT
The head of Saudi Arabia’s stock exchange has said the Tadawul is pushing to be the “exclusive” listing venue for the initial public offering of Saudi Aramco, the kingdom’s state energy giant, raising questions about the status of the international leg of what has been billed as the biggest IPO in history.

Bursa Malaysia’s 9M 2017 Profit After Tax And Minority Interest Up 17.0% YoY To RM167.8

Colt provides connectivity between JPX and Chicago; New exchange-to-exchange service from JPX leverages Colt IQ Network for security and low latency
Automated Trader
Colt Technology Services has announced that it will provide direct connectivity between trading venues in Tokyo and Chicago for the Japan Exchange Group’s new inter-exchange service dubbed ‘JPX-Chicago Co-Location Direct’.


Why Bitcoin Matters More Than Blockchain
Brian Kelly – Forbes
Bitcoin is going to do to banks what email did the post office and Amazon did to retail. Understandably those at the center of the financial system are concerned.

People are worried the boom in selling digital coins could mean ‘boiler room is resurrected’
Oscar Williams-Grut – Business Insider
Concerns are growing that the recent boom in “initial coin offerings” (ICOs) could leave many investors burned by scammers looking to make easy money.

There’s Now a Cryptocurrency Fund-of-Funds
Camila Russo – Bloomberg
Just a year ago there were hardly any dedicated cryptocurrency funds, now investment in the sector has mushroomed enough that the first funds-of-funds are emerging.

How an Analyst Thinks Bitcoin’s Volatility Predictable; J.C. Parets, founder of Eagle Bay Capital and author of the All Star Charts blog, reckons the Fibonacci sequence is the key to the cryptocurrency’s twists and turns
Steven Russolillo – WSJ
Bitcoin isn’t for the faint of heart. Neither is technical analysis. Still, one analyst believes marrying the two can help explain the cryptocurrency’s surge this year.

Singapore And Hong Kong Bolster FinTech Ties With Cooperation Agreement
The Monetary Authority of Singapore (MAS) and the Hong Kong Monetary Authority (HKMA) signed an agreement to strengthen co-operation on FinTech between the two cities and foster FinTech development within the region. The Co-operation Agreement (“Agreement”) was exchanged on 25 October 2017, at the FinTech Day organised by the HKMA.


Rift Widens Within GOP in Battle for Control of Party; Sen. Flake’s remarks and war of words between the president and Sen. Corker spotlight a widening crack among Republicans
By Michael C. Bender and Kristina Peterson – WSJ
The fault lines within the Republican Party cracked further on Tuesday as feuding between President Donald Trump and senators intensified within the U.S. Capitol, and anti-establishment activists claimed political momentum outside of it.

Japan’s Abe Has Pulled Off a Landslide—But He’s Not as Popular as You Might Think
Prime Minister Shinzo Abe’s Liberal Democratic Party swept away the opposition in Japan’s Oct. 22 election, even as polls show a sizable chunk of the electorate doesn’t support him. His ruling coalition maintained its two-thirds majority, with the next-largest party taking only about 12 percent of the available seats.

Trump Asks GOP Senators for Show of Hands on Fed Nominee Choices
Terrence Dopp , Steven T. Dennis , and Laura Litvan – Bloomberg
Senators say Trump mentioned Taylor and Powell in discussion; Most lawmakers didn’t take part in president’s straw poll
President Donald Trump asked Senate Republicans for a show of hands in support of potential nominees for chairman of the Federal Reserve as he took part in a lunch meeting Tuesday with the fractious caucus, two lawmakers said.

Former Trump Campaign Chairman Paul Manafort Faces Another Money-Laundering Probe; Manhattan U.S. attorney’s inquiry comes as President Donald Trump is weighing candidates to run the office
Erica Orden and Nicole Hong – WSJ
The Manhattan U.S. attorney’s office is pursuing an investigation into possible money laundering by Paul Manafort, said three people familiar with the matter, adding to the federal and state probes concerning the former Trump campaign chairman.


ESMA agrees MiFID II position limits proposed by FCA
The European Securities and Markets Authority (ESMA) has published today nine opinions on position limits regarding commodity derivatives under the Markets in Financial Instruments Directive and Regulation (MiFID II/MIFIR).

Christmas Didn’t Turn Out So Well for Ex-HSBC Trader; The Mark Johnson case gave us some memorable quotes, but there’s still a serious question about the difference between pre-hedging and front-running.
Lionel Laurent – Bloomberg
A 75-page highway code for currency traders was released this year to try to foster a robust, fair, liquid, open and “appropriately transparent” functioning of the $5 trillion foreign-exchange market. The Global Code of Conduct is a self-regulation manual designed to restore the reputation of an industry dogged by scandal and rigging allegations.

Germany’s BaFin Chief Tells U.K. He’s ‘Missing You Guys Already’
John Glover – Bloomberg
Hufeld says there’s a ‘different dynamic’ when U.K. is absent; Euro clearing in London without supervision ‘out of question’
Germany’s top banking supervisor said he’s already bemoaning the U.K.’s absence from the world of European Union financial supervision.

3 Creepy Investment Scams
Pete Chandler – FINRA
There aren’t many things creepier than an investment that starts out sounding safe and full of opportunity, but ends up leaving the investor in a state of financial shock.

HomeFor Industry ProfessionalsRules and GuidanceRule Filings
Proposed Rule Change to Amend Rule 7730 to Establish Fees for the New TRACE Security Activity Report and End-of-Day TRACE Transaction File
Financial Industry Regulatory Authority, Inc. (“FINRA”) is filing with the Securities and Exchange Commission (“SEC” or “Commission”) a proposed rule change to amend Rule 7730 to establish fees for the new TRACE Security Activity Report and End-of-Day TRACE Transaction File.

FCA advises those affected by investment scams to speak up
The call comes after a survey among Britons aged above 55 years showed they are more likely to report accidents with spilled liquids in the supermarket than a suspected investment fraud.

FCA urges public to report and speak out against fraudulent investment schemes
More than a fifth (22%) of those contacted by a suspected fraudulent investment firm stay silent; Brits are more likely to report fly-tipping (81%) than investment scams (63%); Londoners report the most investment scams to the FCA followed by people from Birmingham and Belfast
The Financial Conduct Authority (FCA) is today urging the public to get in touch if they have been contacted by a company offering what they think could be a fraudulent investment. This plea comes as new research shows more than a fifth (22%) of over 55s surveyed who suspect they have been contacted about a fraudulent investment in the last three years, did not tell anyone about it. The most common reason given for not reporting was not knowing who to report to (49%).

Investing and Trading

Record flows for exchange traded funds that track bond markets; Fixed-income funds boom led by BlackRock’s investment grade corporate bond vehicle
Robin Wigglesworth, US markets editor – FT
Inflows into exchange-traded bond funds have surged past last year’s record with several months to spare, as the seismic migration towards passive investing broadens out beyond the equity market.

Big Oil Is Investing Billions to Gain a Foothold in Clean Energy
Anna Hirtenstein – Bloomberg
Oil majors have spent $6.2 billion to acquire stakes in firms; Interest shifted away from biofuels and toward digital energy
The world’s biggest oil companies are closing more clean energy deals as pressure to diversify their businesses mounts and growth accelerates among green technologies.

Bond Market’s 2.4% Moment of Truth Elicits Warning From Gundlach
Brian Chappatta – Bloomberg
Ten-year yield closes above key mark for first time since May; Breakthrough has traders eyeing 2.5% and 2.6% levels
The bond bears may finally be having their moment.

Bond Traders Are Piling Into a Fed-Proof Bet
Brian Chappatta – Bloomberg
Flattest U.S. yield curve since 2007 may just keep flattening; All potential Fed leaders seen as more hawkish than the market
Traders in the $14.2 trillion Treasuries market have found a way to avoid fighting the Federal Reserve, or at least its imminent leadership change.

Like the Terminator, This Robot Fund Just Keeps On Buying
Lionel Laurent – Bloomberg
Robots are so hot right now. CEOs know it, Silicon Valley knows it and even robots know it (kind of). Investors naturally want to cash in on the excitement. But their eagerness to buy anything with the word “robot” on it has created some bubbly price disparities — such as when vacuum cleaners earn the same premium as cutting-edge droids.


Poorly timed trades crush fund assets managed by Crispin Odey; Total value has dropped from $11.7bn at start of 2015 to $6bn at end of August
Miles Johnson in London – FT
A string of ill-timed bearish trades and client outflows have slashed in half the money managed by Crispin Odey, one of London’s best-known hedge fund figures.

Carlyle names executives to succeed its co-founders; David Rubenstein, Bill Conway and Daniel D’Aniello are stepping back from day-to-day management
Javier Espinoza in London – FT
Carlyle has named two executives as successors to the ageing founders of the $158bn US private equity group, a rare move in an industry where succession plans are not usually revealed publicly.

Have Active Managers Given Active Management a Bad Name?
John Rekenthaler – Morningstar
Two weeks back, Barry Ritholtz of Ritholtz Asset Management and Nir Kaissar, a Bloomberg columnist, discussed the merits of active versus passive investing. The debate’s outcome was a foregone conclusion; these days, few if any investment writers wholeheartedly support active management. They either recommend passive investing fully or they advocate blending the two approaches, typically by starting with a core of passive investments and then adding active funds as desired.

Lawyers slam key witness in ex-NYC union head’s bribery trial
Brendan Pierson – Reuters
Lawyers defending the former head of New York City’s correction officers’ union and a co-founder of defunct hedge fund Platinum Partners in a federal bribery trial told jurors on Tuesday that prosecutors’ star witness was a liar.

David Einhorn Is Wondering If Value Investing Even Works Anymore
Simone Foxman and Joshua Fineman – Bloomberg
Is there a ‘new paradigm for valuing equities?’ he asks; Firm also disclosed stakes in Tempur Sealy, HP Enterprise
Hedge fund manager David Einhorn is wondering if value investing — the strategy he’s famous for following — remains viable.

Citigroup’s equities team is closing the gap on rivals; The US bank has a way to go but equities co-head Murray Roos expects wins from rising volatility and Mifid II
Samuel Agini – Financial News
Though it remains committed to growing its equities trading business, Citi has struggled to dethrone those at the very top. But on the heels of recent gains in the league tables, the US bank’s equities co-head Murray Roos points to its deep balance sheet as a competitive advantage that can propel it into the stratosphere.

JPMorgan appoints head of FX prime brokerage; Wall Street bank promotes 16-year veteran to lead business serving hedge funds in the currency markets
Fareed Sahloul – Financial News
JPMorgan has named a new head of its business serving hedge funds in the $5.1tn-a-day foreign exchange markets.


Saudi Sovereign Wealth Fund Sets Growth Targets; The fund seeks to almost double its assets to around $400 billion by 2020 and increase rates of return
By Margherita Stancati and Maureen Farrell – WSJ
Saudi Arabia’s sovereign wealth fund, a key engine of the kingdom’s plan to diversify the economy, on Wednesday laid out new targets for growth, saying it aims to nearly double the value of assets it manages to around $400 billion by 2020.

China’s Stock Markets Are Calm, but Its Traders Are Restless; Many market participants see Beijing’s hand behind a long period of placid trading that has made the market more predictable, but often less profitable
The placid trading that has swept global markets this year has reached an unlikely destination: China.

Chinese investment banks face new headwinds; Slowing domestic bond markets have hit fee revenues for mainland groups
Laura Noonan and Don Weinland in Hong Kong and Gabriel Wildau in Shanghai – FT
Booming debt markets and extravagant trading fees made China’s investment banks the envy of many global rivals for the last few years.

Mongolia launches $650m bond offering
Miles Johnson – FT
The Government of Mongolia has launched a $650m bond offering in the latest example of so-called “frontier markets” lowering their borrowing costs by feeding insatiable demand from yield-hungry institutional investors.

Russian financial institutions suffer ‘BadRabbit’ cyber attack
Henry Foy – FT
Some Russian financial organisations suffered a cyber attack from the so-called “BadRabbit” malware distributed through email, the country’s central bank said on Wednesday, adding that none of the affected entities were compromised.

Indian state banks soar on $32bn recapitalisation plan; Shares surge after move to bolster balance sheets weakened by soured corporate loans
Simon Mundy in Mumbai – FT
Shares in some of India’s largest banks surged by more than a quarter on Wednesday in response to a $32bn government recapitalisation plan for large state-controlled lenders dogged by soured corporate loans.


London won’t be replicated as a financial centre on the continent anytime soon, says Bank of England deputy governor
Rebecca Smith – City AM
The Bank of England’s deputy governor for financial stability has expressed confidence in the City of London’s standing as a financial hub post-Brexit, saying he does not see its success being replicated on the continent.

Brexit ain’t so bad, say fund managers and institutional investors looking at the UK
Lucy White
Fund managers and institutional investors think that Brexit challenges may be overstated, according to a new survey from asset management consultancy MJ Hudson.

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