Trump Nominates J. Christopher Giancarlo as CFTC Chairman; Trump Picks a Regulator Who Could Help Reshape Dodd-Frank Act; Untested Robo-Advisers Are Becoming a Big Market Risk

Mar 15, 2017

First Read

Don Wilson Gobsmacks Regulators in First FIA Boca Panel
By John J. Lothian

In a power-packed first panel at the FIA International Conference in Boca Raton, Florida, DRW founder Don Wilson gobsmacked the regulators with a directly-to-the-point opening statement. Here it is:

“When it comes to regulatory costs, I describe what we’re in now as an era of “gotcha” regulation. Enforcement arms of regulatory agencies are more interested in collecting fines and generating headlines than in making markets better.

I am hopeful that, under the new administration, regulatory agencies will work with market participants to make the markets better, rather than continue this adversarial and counterproductive approach.

At DRW, we are strong proponents of thoughtful regulation and well-functioning markets. Our door is always open to work with regulators toward these goals.”

Wilson’s direct approach and that of Michael Spencer of NEX Group led to an engaging panel discussion to kick off the conference.

Spencer railed against prescriptive regulation in Dodd-Frank and said we need a better understanding of what market manipulation is. He was not paid to say that on our behalf, considering the market manipulation study we announced with Leslie Sutphen, but you would have thought he was.

He also said something I hope is not in the smallest amount true, that regulators believe all trading organizations are crooked.

Don Wilson also said the declining number of FCMs has created increased systemic risk.

Craig Donohue of the OCC joined the fray with a comment that equity market structure is so complex no one but a few experts can explain it and no one can explain the guiding principles of it. He also said new product innovation is what moves the industry forward.

Walt Lukken had opened the conference by listing FIA’s goals for 2017, which included smart regulation and enforcement, globally accessible markets and innovation and competition.

Lukken pointed to the 35 percent decline in the number of FCMs since 2008 as evidence the post crisis regulatory overhaul has swung too far and some balance needed to be restored.

He also reported a record number of contracts traded globally in 2016: 25 billion of them. And a record was also set with the number of different countries represented at the Boca conference.

Lastly, Lukken always includes a plug for the most interesting man in world, CQG’s Pat Kenny, noting that the small town (Fontana, WI) mayor was trying to keep FIBs out of the land of cheeseheads by building a wall on the Illinois-Wisconsin border. Lukken also showed a stack of paper 7 foot 7 inches tall that is the regulatory result of Dodd-Frank, which is almost a foot taller than FIA’s Bill Herder.

Walt is definitely using his funny side to great effect.


CBOE Looks To Futures Market For Growth
By Jim Kharouf, JLN

CBOE is looking to move further into the futures space with the newly merged Bats Holdings now closed.

CBOE Futures, which has stayed largely with one product, VIX futures, is now looking to grow its menu of futures contracts. Chris Concannon, president and COO of CBOE, said he sees potential for futures on exchange traded products.

“There is a play between ETFs and futures that is a little unappreciated and could be leveraged,” Concannon said at the FIA Boca conference.

While no new futures products were announced, CBOE executives said they are also looking at the index space as well as FX.

CBOE also detailed a new department called the Multi-asset Solutions Division, which is designed to cover three main aspects of the CBOE business – product development, market research and information solutions such as a data and quote services. The new division is looking to leverage not only the product suite offered by the exchange, but also the research and information packaging that could be sold in new ways to end-user customers.

Beyond that, CBOE is investing further into the education space. The exchange plans for its education arm, the CBOE Options Institute, to extend its offerings to include Bats products. The exchange sees an opportunity to reach end users in ways that sell-side participants can’t.
“We think we’re better positioned to talk to them about these product sets,” said Ed Tilly, chairman and CEO of CBOE. “No one has that channel direct to clients the way we do.”

It’s early days with the newly merged companies, but CBOE is looking for new ways to leverage products and services that come with a much larger footprint.


TT at Two
TT Trade Talk by Rick Lane
It’s been just over two years since we officially launched the TT platform here at the annual FIA Conference in Boca Raton. It’s been even longer—approaching five years—since taking our very first steps toward what many outside of TT thought was a crazy idea: that Software-as-a-Service could redefine our industry the way it had so […]

**JK: Rick Lane shows how kids and software go together, like walking and running.


A Whisky Startup Unearths Rare Scotch You Never Knew Existed; That Boutique-y Whisky Company woos connoisseurs with rare blends and comic-book packaging—and now, experimental, one-of-a-kind gins.
by Spike Carter – Bloomberg
Whisky is one of the most time-consuming artisanal productions—to be declared Scotch, the spirit must be aged in oak barrels for a minimum of three years, though many go for 12- and 18-year stints or longer.

**JK: Demonic Teddy bear packaging. Who knew that is actually a marketing ploy?


This May Be the World’s Most Honest City
More than $30 million worth handed over in 2016, police say.
by Toru Fujioka – Bloomberg
In addition to keys and eyeglasses and other commonly lost objects, millions of dollars worth of cash reaches the Tokyo police’s lost and found department every year.
In fact, last year people handed over a record 3.67 billion yen ($32 million) in lost cash, and about three-quarters of that money ended up back with its rightful owners, according to the Metropolitan Police Department.

***JB: I didn’t need to go further than the headline to know this was not about Chicago.


How to Get an Invite Onto Quintessentially One, World’s Biggest Yacht
It takes a lot of good business to be able to afford a megayacht. But owning one is very, very bad business, according to Aaron Simpson, founder and group chairman of the members-only concierge service Quintessentially.

***JB: More a small, exclusive cruise ship than a big yacht. Still cool.


This Wall Street Legend Failed to Conquer Vegas Sports Betting
by Brian Louis and Christopher Palmeri – Bloomberg
March Madness, the ultimate in U.S. college basketball, hits Las Vegas like a tomahawk jam.
Each year, hundreds of millions of dollars course through the Vegas sports betting parlors, far exceeding wagers placed on the one-day Super Bowl event.
Howard Lutnick, the man who rebuilt Cantor Fitzgerald LP, and then some, after the catastrophe of 9/11, has spent the past decade looking for a piece of the action by building a sports gambling powerhouse. But Vegas can be a tough town — even a player like him has run into one obstacle after another.

***JB: Seems gambling and investing are different after all.


Tuesday’s Top Three
Leading off yesterday’s top three is Bloomberg’s story Proof Wall Street Is Still a Boys’ Club. In second was welcome news reported by The Independent that Google kills off the Captcha, ensuring humans don’t need to see the most annoying thing on the internet. Third was Bloomberg’s Sports Betting Is Starting to Look a Lot More Like Wall Street


MarketsWiki Stats
95,588,760 pages viewed; 22,385 pages; 204,339 edits
MarketsWiki Statistics


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Lead Stories

Trump Nominates J. Christopher Giancarlo as CFTC Chairman; Giancarlo has been serving as acting chairman of Commodity Futures Trading Commission
President Donald Trump on Tuesday picked J. Christopher Giancarlo to head the Commodity Futures Trading Commission, elevating a critic of the commission’s approach to postcrisis rules as its new chief.

Trump Picks a Regulator Who Could Help Reshape Dodd-Frank Act
President Trump rounded out his financial regulatory team on Tuesday, announcing plans to select J. Christopher Giancarlo to oversee a lucrative corner of Wall Street that helped unleash the financial crisis.

Untested Robo-Advisers Are Becoming a Big Market Risk
By Jason Schenker – Bloomberg
FinTech is now considered trendy enough to be part of the 2017 South by Southwest Festival in Austin, Texas — one of the most important technology and culture conferences in the U.S. — along with Kesha, “Game of Thrones” and Mark Cuban.

Shortfall in Bank Ethics Stretches to the Very Top
By Mark Gilbert – Bloomberg
One of the inescapable conclusions of the economic crisis that engulfed the world a decade ago was that the culture of banking needed to change. Allowing finance to regulate itself ended in spectacular failure, underwritten by the taxes of the masses who didn’t profit from the culture of risk-taking in those institutions. But the resignation this week of a British central banker, plus a survey by one of the bodies specifically established to promote higher standards of behavior, suggest there’s still a long way to go in addressing the moral vacuum in finance.

Bank bosses must ensure honesty is best policy; If political lies threaten democracy, business lies undermine capitalism
by: Patrick Jenkins – FT
Fake news has become a horrible euphemism for lying. But call it what you will, the dissemination of untruths has become dangerously entrenched in the modern world. If political lies threaten democracy, business lies undermine capitalism. Consider the damage to carmaker Volkswagen after its faked emissions testing scandal or to retailer Tesco when it overstated profits. No sector, though, can compete with banking for the scale, depth, longevity or variety of lying that has infected a whole way of doing business.

Trump Nominates Goldman’s Donovan as Deputy Treasury Secretary
by Saleha Mohsin – Bloomberg
Nominee was managing director in private wealth management; Donovan’s appointment must be confirmed by U.S. Senate
U.S. President Donald Trump said he intends to nominate Jim Donovan, a Goldman Sachs bank

Lie-bor? More like Li-BORE, am I right?
By: Alexandra Scaggs – FT
A financial crisis followed by a rate-rigging scandal can really take the life out of a market. (And some of its usefulness as an indicator, too.)

James Comey to officially reveal if FBI is investigating Trump’s ties to Russia during presidential election; FBI director James Comey will say if the FBI is investigating Trump-Russia ties; He will confirm if there is an ongoing investigation in a hearing on Wednesday; He told senators Sheldon Whitehouse and Lindsey Graham of the news Tuesday; Both of the men had requested the FBI provide evidence of wiretapping claims
FBI director James Comey is set to officially reveal if the bureau is investigating Donald Trump and his administration’s ties to Russia during the presidential election.

Exchanges, OTC and Clearing

S Korea’s Kosdaq targets tech start-ups; Tech-heavy junior bourse expects record initial public offerings in 2017
by: Song Jung-a in Seoul
South Korea’s tech-heavy junior bourse Kosdaq is aggressively targeting foreign listings to become a regional hub for tech start-ups, with the small-cap board forecasting a record number of initial public offerings this year

Nasdaq Technology Goes Live In Borsa Istanbul Derivatives Market (VIOP)
In the course of the strategic partnership agreement signed between Borsa Istanbul and NASDAQ, the BISTECH Technological Transformation program was initiated on January 20, 2014. Within the context of the program, the Genium INET software and other related technological components, which are being used in leading exchanges worldwide, are revised and redeveloped in conformity with the Turkish capital markets legislation.

CMA to decide on Trayport case in mid-May
FOW magazine
The UK competition watchdog has said it will make a new decision on the Intercontinental Exchange’s new agreement with Trayport by mid-May. The UK Competition and Markets Authority (CMA) published its conduct of remittal notice on Monday and …

HKEX Sets Asian Record For L&I Product Listings On A Single Day
Four providers of Leveraged and Inverse Products (L&I Products) listed a total of 16 products today on the Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX), setting a new exchange record for the most L&I Product* listings in Asia on a single day

Euronext Amsterdam and Euronext Brussel today welcomed Avantium (ticker code: AVTX), a leading chemical technology company and forerunner in renewable chemistry. The listing follows the company’s successful Initial Public Offering (IPO), with a total offering of EUR 125.8 million Including maximum greenshoe to be exercised. .


CloudMargin Signs Major U.S. Asset Manager, Closes Series A Funding
PR Newswire
LONDON and NEW YORK, March 14, 2017 /PRNewswire/ — CloudMargin, the multi-award winning creator of the world’s first web-based collateral and margin management solution, today announced that it has signed a leading U.S.-based asset manager, helping the client achieve full compliance of its thousands of over-the-counter (OTC) agreements included in the new Variation Margin rules that took effect March 1.

Eris Exchange (pdf)
Eris Exchange (Eris), the U.S.-based futures exchange offering cash-settled swap futures as the leading alternative to traditional OTC swaps, announced that Bloomberg Trade Order Management Solutions (TOMS) now supports Eris Standard Swap Futures. Bloomberg TOMS provides capabilities to efficiently manage inventory, risk and P&L for fixed income instruments including swaps and futures.

Office staff in top tech cities want it all at work and beyond; Landlords are reacting to the changing demands of key employers in leading world sites
by: Judith Evans
Change is afoot at the Paddington Central office campus in London. Landlords British Land, who bought the site in 2013, have so far invested £100m upgrading the site, with features ranging from gardens with phone chargers and WiFi to a rooftop basketball court.


Treasury Will Invoke ‘Extraordinary Measures’ as Debt Ceiling Looms Again; Cash-management steps will allow Treasury to pay bills until Congress raises borrowing limit
The debt limit is back. The Treasury Department will begin employing emergency cash-conservation steps this week to avoid breaching the federal borrowing limit after a 16-month suspension of the debt ceiling expires this week.

Trump to Nominate Goldman Banker to No. 2 Post at Treasury; James Donovan is pick for deputy to Steven Mnuchin
WASHINGTON – The White House announced nominations for six top posts at the Treasury Department on Tuesday, including a senior Goldman Sachs Group Inc. private banker as the agency’s No. 2 official.

Preet Bharara wasn’t the Wall Street ‘sheriff’ that many make him out to be
Jesse Eisinger, ProPublica via Business Insider
After his election in 1968, President Richard Nixon asked Robert Morgenthau, the US Attorney for the Southern District of New York, to resign. Morgenthau refused to leave voluntarily, saying it degraded the office to treat it as a patronage position.

British security official denies UK spy agency eavesdropped on Trump
By Mark Hosenball – Reuters
A UK spy agency did not eavesdrop on Donald Trump during and after last year’s U.S. presidential election, a British security official said on Tuesday, denying an allegation by a U.S. television analyst.

Bridgegate Prosecutor Criticizes Abrupt Ouster of U.S. Attorneys
by David Voreacos – Bloomberg
New Jersey’s former top federal prosecutor criticized the Trump administration’s handling of his forced resignation, saying despite more than seven years on the job he was given only seven hours to leave and no time to prepare his successor.


Focus on Bank Culture Is an Odd Regulatory Strategy
Dealbook – NY Times
The general counsel of the Federal Reserve Bank of New York said last week that everyone “should be concerned with culture in financial services.” This has been a theme raised by banking regulators the world over.
Janet L. Yellen, the chairwoman of the Federal Reserve, has said that “we expect the firms we oversee to follow the law and to operate in an ethical manner. Too often in recent years, bankers at large institutions have not done so, sometimes brazenly.”

Sebi probes broker-bourse collusion on dark fibre link
By Sugata Ghosh & Reena Zachariah, Economic Times
The capital markets regulator will scan internal emails of brokers, their communication with the leading exchange, and trade data for past seven years to find out whether any brokerage using the ‘dark fibre’ connection received preferential treatment from bourse officials.

Westpac, ANZ Bank to Pay A$6 Million Over FX Trading Conduct
by Emily Cadman – Bloomberg
Banks sanctioned by regulator over inappropriate conduct; Action follows industry-wide investigation by regulator
Two of Australia’s largest banks vowed to toughen oversight of their foreign-exchange practices and each pay A$3 million ($2.3 million) to the nation’s financial literacy fund after a regulator found inappropriate conduct in their currency trading divisions.

In China, talk of ‘super-financial regulator’ is cheap – until next crisis hits
South China Morning Post
Financial crises are said to come once a decade – the Black Monday market crash of 1987, the Asian contagion in 1997 and the global financial crisis of 2007. If true, we’re about due for a hit.
And if a crisis is looming, China must be especially cautious given it’s the world’s second-largest economy, with capital markets full of shadow bankers and “crocodiles” – Beijing’s term for high-rolling insider traders.

Trump’s ‘core’ regulatory principles warrant more scrutiny
American Banker
Unlike the response to his executive order on immigration, thousands of citizens did not hit the streets to protest President Trump’s executive order on “core principles” for regulating the financial system. No clever signs, no calls to “Dump Trump” — just resignation to the fact that a new attitude toward regulation is upon us.

Investing and Trading

Fund Managers Seen Cutting $300 Million on External Research
by Silla Brush – Bloomberg
Greenwich survey assesses impact of EU rules starting January; U.S. firms with European units seen adopting global standards
Asset-managers in Europe and the U.S. will probably cut more than $300 million from research budgets in anticipation of regulations aimed at rooting out conflicts of interest in the market for investment information.

Trump Waiting Game Turns a Stock Picker’s Paradise Into ETF Land
by Dani Burger – Bloomberg
Active managers hold record amount of ETF assets, says Goldman; Exchange-traded funds account for more of U.S. daily trading
What should be the year of the active investment manager is morphing into something surprising: ETF heaven.

Hedge Fund Sees 30% Gain by Betting Only on Tomorrow, Literally
by Jonas Cho Walsgard – Bloomberg
Runestone Capital invests only in one-day U.S. volatility; Runestone targets average annual return of more than 20%
This hedge fund is only looking one day ahead. That delivered a 30 percent return in 2016 for the London-based Runestone Capital Fund, which crunched more than 700 variables to develop a quantitative model for trading U.S. equity index volatility.

Five things to watch as oil prices fall; Fight between Opec and US shale contributing to renewed bout of selling
by: David Sheppard – FT
Oil prices have fallen almost 10 per cent in the past week to their lowest level since Opec agreed to cut output in November.

Oil at $40 No Problem as U.S. Drillers Snub OPEC With Hedges
by Joe Carroll and David Wethe – Bloomberg
Saudi Arabia insists it won’t pick up the slack on output cuts; Two years of cost cutting has made shale more resilient
OPEC’s worst enemy isn’t U.S. shale drillers. It’s the hedges propping them up.

How Slipping Oil Prices Are Hurting the Global Reflation Rally
by Sid Verma – Bloomberg
In the latest blow, Saudi Arabia announced Tuesday that it raised output back above 10 million barrels a day in February — reversing about a third of the cuts made the previous month — sending crude to the lowest level since late November. That pushed stocks and commodity-linked currencies, such as the ruble and the Norwegian krone, lower, while fueling demand for the relative safety of Treasuries.


Konnichiwa Amsterdam: Japan Banks Seek New Home After Brexit
As Frankfurt, Paris and Dublin vie for financial jobs that may move from London after Brexit, two of Japan’s biggest banks have been quietly building their presence elsewhere: Amsterdam.

FCMs target ‘specialised’ business models; With buy-side clients taking on multiple brokers for execution and clearing, FCMs will have to become specialist service providers.
By Joe Parsons – The Trade
Banks offering derivatives services will have to adapt their business to become specialised in certain areas, in order to fit with clients adopting multi-broker models.

Are Banks The New Department Stores Of Finance?
Tom Groenfeldt – Forbes
Banks and department stores share certain characteristics — they have long histories as convenient, somewhat stodgy venues to conduct business, and they are under pressure from nimble newcomers and changing customer expectations.
For a recent Fortune magazine feature, Phil Wahba visited Newport Mall in Jersey City, New Jersey where four anchors — Sears, Penney’s, Kohl’s and Macy’s carried much the same merchandise —Izod polo shirts, six-packs of Hanes underwear, Levi’s jeans.
“Blah, blah, blah,” he wrote.
What if he’d gone to four major banks?

Blockchain misreads could set banks up for mistakes
Penny Crosman – American Banker
After a recent column, I got a lot of feedback about the lack of understanding of blockchain, bitcoin and distributed-ledger technology in banking.
So, I reached out to some smart people in the industry and came up with the following list of truths about the adoption of this nascent technology in the industry so far.
After all, misinformation and misunderstandings could be a little dangerous.


South Korea Hedge Fund Inspired by Elliott Eyes Chaebol Cash
Heejin Kim and Tom Redmond – Bloomberg
Lime Asset says country’s conglomerates will have to dip in; Free cash flow at Korea’s largest firms tripled since 2008
A homegrown hedge fund has taken up activism in South Korea, betting the country’s family-owned conglomerates will have to deploy their cash hoards.

The Only Way to Stop Indians Buying Gold? Take Away Their Cash
by Swansy Afonso – Bloomberg
Customers not tempted by 16-month-old gold deposit program; Plan was designed to curb India’s massive gold imports
It seems the only way to stop Indians from buying more gold is to take their money away.


The great unknowns of Brexit; Nobody can be sure how the negotiations will play out
by: Gideon Rachman
A friend of mine — long separated from his wife and intent on a new life — told me that his stomach still turned over, when he opened the letter formally starting divorce proceedings. It will feel a bit like that when Britain invokes Article 50 of the Lisbon treaty, by the end of this month. The legal process of divorce from the EU will have begun and Brexit will suddenly feel real.

TP ICAP considers moving more business to Europe; As part of its ‘Brexit scenarios’, group debates shift to Paris, Frankfurt and Madrid
by: Hannah Murphy
TP ICAP, the world’s largest interdealer broker, said it was likely to manage more customer relationships in the EU following Brexit.


This May Be the World’s Most Honest City
More than $30 million worth handed over in 2016, police say.
by Toru Fujioka – Bloomberg
In addition to keys and eyeglasses and other commonly lost objects, millions of dollars worth of cash reaches the Tokyo police’s lost and found department every year.

US Defence Secretary James Mattis says climate change is already destabilising the world
‘I agree that the effects of a changing climate — such as increased maritime access to the Arctic, rising sea levels, desertification, among others — impact our security situation’
Climate scientists may have an ally in the Trump administration in the form of General James ‘Mad Dog’ Mattis EPA
The US Defence Secretary, General James ‘Mad Dog’ Mattis, has warned that climate change is already destabilising parts of the world.
In written responses to questions put during his confirmation hearings, which were not published but were obtained by the ProPublica news website, the former Marine Corps officer indicated he had very different views to other leading members of the Trump administration.

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