‘Tyrannical Coup’ at Quantlab; Northern Trust Looks at Crypto Custody Business

Aug 1, 2018

‘Tyrannical Coup’ at Quantlab; Northern Trust Looks at Crypto Custody Business

Aug 1, 2018

First Read

Hits & Takes
JLN Staff

Thank you to the Stuart School of Business at Illinois Tech for hosting the first two sessions of the MarketsWiki Education World of Opportunity series in Chicago this week. The series is off today, but on again Thursday in the offices of Trading Technologies.~JJL

Thank you to our speakers for the first two days. We had some great presentations and stories shared.~JJL

The American Financial Exchange (AFX) posted a record trading day of $1.043 billion notional across all interest rate products on July 30. Last week was also a record week, with $4.66 billion traded. AFX has transacted more than $175 billion cumulative since it opened in December 2015.~JK

Eurex reported a strong Q2, with interest rate volumes rising 18 percent. The interest rate group hit a record volume of 10.5 million on June 4.

Cboe will hold the first-ever Risk Management Conference Tel
Aviv in November. ~JJL

According to CB Insights, there are 29 fintech unicorns globally: 18 in the United States, one in Brazil, three in the U.K., one in Sweden, four in China and two in India. In aggregate, they’re worth some $84 billion. ~SD

NFA: On Tuesday, August 14, 2018, NFA will launch a new Promotional Material Filing System. This new system will provide firms the ability to seamlessly track their promotional material submissions throughout the entire review process, access correspondence and communicate with NFA reviewers, and view previously-filed promotional material for reference. To help firms understand the functionality of the new Promotional Material Filing System, NFA will hold a short webinar on Tuesday, August 14, 2018 at 10:00 a.m. CT/11:00 a.m. ET.~JJL


Infographic: The Top 100 Managed Futures Programs
RCM Alternatives Blog
The Grand Canyon. Burj Khalifa. Everest. We all want to check out the world’s biggest mountain, building, corn palace, a ball of tape, and more. It’s almost in our DNA, and the largest hedge funds in the world are no exception. We’ve had as a project to identify the largest managed futures programs to feed this innate curiosity for a while, and put together a nifty infographic doing just that – with a twist.

****SD: I learned last week that the world’s largest mailbox is in Casey, Ill. The link is to a Chicago Tribune story about “the economic impact of kitsch.”


Trump Prepares to Bungle the 2020 Census; Adding a citizenship question would skew its findings ó especially in blue states.
Editorial Board – Bloomberg
Experts have long been warning that the U.S. government might soon fail at one of its most fundamental responsibilities: conducting an accurate census of the population. Increasingly, that looks to be precisely what the Trump administration wants to do ó by adding a last-minute question that doesn’t need to be asked.

***** If we can’t count on the U.S. Census, we create a lot of potential black swan events.~JJL


How Record Heat Wreaked Havoc on Four Continents; We talked to people who found themselves on the front lines of climate change this year. Here are their stories.
Somini Sengupta, Tiffany May and Zia ur-Rehman – NY Times
Expect more. That’s the verdict of climate scientists to the record-high temperatures this spring and summer in vastly different climate zones.

***** Stay cool my friends.~JJL


Tuesday’s Top Three
Our top read piece of the day was Bloomberg’s NYSE Cuts Jobs at Chicago Exchange, CEO John Kerin Departs. Second went to the Wall Street Journal piece NYSE Probe of Alleged Kickbacks Revives Old Questions. Third went to FN London’s piece on Chris Topple in Euronext appoints Societe Generale broker as London CEO


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Lead Stories

Former High-Speed Trading Executives Allege ‘Tyrannical Coup’ at Quantlab
Bradley Hope – WSJ
A leadership fight has broken out over one of the world’s most secretive and profitable high-frequency trading firms, pitting a beret-wearing mathematician against a former business partner and a Ukrainian physicist.

Northern Trust Looks to Join Burgeoning Crypto Custody Business
Olga Kharif – Bloomberg
Proof of concept for crypto custody is being tested by firm; Fiduciary is already doing accounting for digital assets
Northern Trust Corp., which provides investment management, asset and fund administration services, is looking to get into the embryonic business of safeguarding digital assets such as cryptocurrencies.

Wall Street Resurrects Another Financing Tool Killed by Crisis
Adam Tempkin – Bloomberg
Real-estate CLOs on pace for highest issuance since 2007; Market rebrands products called CRE CDOs before collapse
Investors are breathing life back into a once-dead financing tool. The market for bundled loans used to fund riskier real-estate projects is on pace for a post-crisis record after all but disappearing during the 2008 crash.

Blockchain, Once Seen as a Corporate Cure-All, Suffers Slowdown
Olga Kharif – Bloomberg
Many companies will halt their blockchain tests this year; The pullback could hurt IBM and Microsoft, analyst says
Corporate America’s love affair with all things blockchain may be cooling. A number of software projects based on the distributed ledger technology will be wound down this year, according to Forrester Research Inc. And some companies pushing ahead with pilot tests are scaling back their ambitions and timelines. In 90 percent of cases, the experiments will never become part of a company’s operations, the firm estimates.

Are Derivatives Ready for Low Touch?
Christopher Monnery, Fidessa – TABB Forum
The growth of electronic trading in derivatives, including the rise of algo usage and the evolution of the agency algo space, over the past 5 years is an accelerated version of the story within equities. But we are at an inflection point: Are we truly about to see the ‘equitification’ of derivatives trading?

U.S. bank regulator allows fintech firms to seek federal charter
Michelle Price and Pete Schroeder – Reuters
A U.S. bank regulator said on Tuesday it would start accepting national charter applications from financial technology companies, giving so-called fintech firms a path to federal oversight for the first time.

Japanese bond market jolted as traders test BoJ resolve; 10-year yields have biggest jump in two years after central bank introduces bigger range
Emma Dunkley, Alice Woodhouse and Kana Inagaki – FT
Japanese 10-year bond yields had their biggest one-day jump in two years on Wednesday as traders wasted no time in testing the Bank of Japan’s resolve to loosen its target range for the debt benchmark.

Goldman Sachs supports IHS Markit’s service for Libor replacement; Goldman Sachs is among seven major derivatives dealers to use MarkitSERV services to process SOFR transactions.
Hayley McDowell – The Trade
US investment banking giant Goldman Sachs is among seven major dealers to support IHS Markit’s trade processing service for OTC derivatives as the Libor benchmark is phased out.

Exchanges, OTC and Clearing

Intercontinental Exchange Announces October 1 Launch of ICE One and Three Month SOFR Futures
Intercontinental Exchange (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, today announced that subject to relevant regulatory approvals, ICE Futures Europe plans to launch one month and three month, cash-settled futures contracts based on the Secured Overnight Financing Rate (SOFR) on October 1, 2018.

Derivatives platform to hedge cryptocurrency risk planned by SBI
Nikkei Asian Review
A unit of Japanese financial services group SBI Holdings invested in a U.S. developer of digital marketplaces in an effort to create a cryptocurrency derivatives trading platform for institutional investors.

Dubai Mercantile Exchange Sets A New Open Interest Record Of 71.6 Million Barrels Of Crude Oil
Dubai Mercantile Exchange (DME), the premier international energy futures and commodities exchange in the Middle East, reported a new exchange-wide open interest record of 71,586 lots on 31 July 2018. This total is equivalent to almost 71.6 million barrels of crude oil.

China markets regulator orders investigation of Pinduoduo
Hudson Lockett in Hong Kong – FT
China’s market regulator has announced an investigation into reports of counterfeit goods being sold on Pinduoduo, the Tencent-backed shopping site which last week listed on the Nasdaq stock exchange.

EEX conducts milestone in emissions trading: 1,500th auction executed
On 1 August 2018, the European Energy Exchange (EEX) has successfully conducted its 1,500th primary market auction for emission allowances. The auction which was held on behalf of Poland comprised a volume of 1,773,500 European Emission Allowances (EUA) and cleared at a price of EUR17.38/EUA. In total, 26 bidders took part in the auction.

At a glance: Eurex results in Q2 and in the first six months 2018
In the Eurex segment (Financial Derivatives), Deutsche Bˆrse Group reports on the development of the financial derivatives trading and clearing business at Eurex Exchange. The clearing volume of OTC interest rate swaps, one of the secular growth factors for Deutsche Bˆrse Group, is reported as a separate item.

LME consults on key rule changes to progress strategic delivery programme
The London Metal Exchange and LME Clear (together, the LME) today launched a consultation on proposed rule changes to enable the progression of their Strategic Pathway.

SGX welcomes the listing of Asia’s first infrastructure project finance securitisation notes
Singapore Exchange (SGX) today welcomed the listing of Asia’s first infrastructure project finance securitisation notes, marking the debut of a new asset class to facilitate institutional investor access to infrastructure debt in Asia-Pacific and the Middle East.

Trading Overview in July 2018; Japan Exchange Group released Trading Overview in July 2018.
Cash Equity Market – In July 2018, the daily average trading value for the TSE 1st Section (domestic common stocks) was JPY 2.7011 trillion.
Derivatives Market – In July 2018, total derivatives trading volume was 26,585,894 contracts.


SS&C to buy Eze Software for $1.45 billion
Reuters Staff
Financial software maker SS&C Technologies Holdings Inc (SSNC.O) said on Tuesday it would buy Eze Software from TPG Capital for $1.45 billion in cash, to expand its offerings to buy-side investment firms.

Treasury highlights ways to bolster financial tech companies
Sylvan Lane – The Hill
The Treasury Department said policymakers should give financial technology companies more regulatory flexibility to innovate while improving data security protections for U.S. consumers in a report released Tuesday.
The Treasury suggested dozens of ways that regulators and Congress could bolster the growth of financial technology platforms, also called fintechs, while strengthening privacy safeguards amid cyber breaches.

China’s Ant is superstar, India and US mint AI unicorns in Q2 2018
The big star of fintech investment in Q2 2018 is Ant Financial, as the Chinese AI behemoth contributed $14 billion of Q2’s record $20 billion global fundraising, according to CB Insights data.

Hong Kong strives to be Asia’s top fintech hub, Asia News & Top Stories
Lim Yan Liang – The Straits Times
Hong Kong is investing heavily to be Asia’s leading fintech hub, and has positioned itself as the conduit between China’s tech giants and the rest of the world.
The territory sees its strong laws and financial regulations as an advantage, even as mainland cities like Shenzhen are vying hard to attract the same investments, according to its investment promotion agency InvestHK.

IHS Markit provides critical infrastructure to replace LIBOR in derivatives markets
The first wave of OTC derivatives trades using the new Secured Overnight Financing Rate (SOFR) used MarkitSERV to match, confirm and straight through process them for clearing and regulatory reporting. To date, seven major derivatives dealers have completed SOFR trades using MarkitSERV. These included both cleared and non-cleared, as well as party-to-party direct and SEF-executed trades.

Barclays, JP Morgan and NEX target voice trading with $14 million investment; Major institutions back cloud-based voice communications FinTech firm Cloud9 Technologies with latest investment round.
Hayley McDowell – The Trade
Barclays has led a new $14 million investment round in financial communications provider Cloud9 Technologies, alongside JP Morgan and NEX Group.


Crypto Gambling Leaves Regulators In The Dark As Blockchain Bets Are Placed On Trump’s Murder
Oliver Smith – Forbes
Right now people are placing bets on the assassinations of Donald Trump, Jeff Bezos and Warren Buffett. The financial size of these bets is tiny and the chance of their payout is even smalleróthe only thing big about them are the shockwaves that these unregulated, illegal crypto wagers are causing among regulators powerless to act. It’s an example of a wave of crypto-disruption that could soon wash over the $500 billion global gambling market.

Northern Trust Opens Doors to Cryptocurrency Hedge Funds As Part Of Pervasive Blockchain Expansion
Michael del Castillo – Forbes
Financial services giant Northern Trust has significantly expanded its work with blockchain and cryptocurrencies across multiple divisions.

Krugman gets it
Dan McCrum – FT
Paul Krugman, the economics Nobel laureate turned newspaper columnist, has a take on crypto which elegantly says what we have for years: cryptocurrency enthusiasts are effectively celebrating the use of cutting-edge technology to set the monetary system back 300 years. Why would you want to do that? What problem does it solve? I have yet to see a clear answer to that question.

Sunken treasure claims spark South Korea crypto probe; Investigation of start-up follows crackdowns on digital currencies by Seoul officials
Bryan Harris and Song Jung-a in Seoul – FT
South Korean authorities have launched an investigation into a cryptocurrency start-up that is alleged to have raised tens of millions of dollars on the back of claims it had discovered sunken Russian treasure worth more than $130bn.

Grant Shapps resigns from blockchain positions after FTAV discovers secret pay deal
Jemima Kelly – FT
Conservative MP Grant Shapps has resigned from two appointments related to blockchain technology, after FT Alphaville discovered a secret pay deal with a company run by a civil servant that had promoted itself through an event it said would be held in the Houses of Parliament.

Pershing’s global compliance head departs for role at Coinbase; Sell-side veteran Jeff Horowitz joins cryptocurrency exchange after a 12-year stint with Pershing.
John Brazier – The Trade
Cryptocurrency exchange Coinbase has appointed Jeff Horowitz from BNY Mellon’s Pershing as the firm’s new head of compliance.

Exclusive: Marc Andreessen And Chris Dixon Back New Cryptocurrency Investment Firm
Jeff Kauflin – Forbes
Cryptocurrency investment firm Scalar Capital has raised money from new, high-profile investors, including Marc Andreessen and Chris Dixon. After pulling in $8 million in January, the new inflow brings Scalar’s total assets to more than $20 million, according to a person familiar with the matter. Bain Capital Ventures, Coinbase cofounders Brian Armstrong and Fred Ehrsam, and angel investor Elad Gil also invested.

Co-Founder of Wikipedia has “Zero Interest” in Cryptocurrency
Daniel Mitchell – NewsBTC
The ever-outspoken Jimmy Wales conducted an interview with BusinessInsider in which he proclaimed that: Wikipedia are “absolutely never” going to hold “cryptocurrency or ICO ambitions”, despite the popularity such means found elsewhere as a means of public crowdfunding.


Facebook Has Identified Ongoing Political Influence Campaign
Nicholas Fandos and Kevin Roose – NY Times
Facebook announced on Tuesday that it has identified a coordinated political influence campaign, with dozens of inauthentic accounts and pages that are believed to be engaging in political activity around divisive social issues ahead of November’s midterm elections.

China Slams U.S. ‘Blackmailing’ as Trump Weighs Higher Tariffs
Bloomberg News
U.S. may now seek 25 percent tariffs on $200 billion in goods; Officials seeking ways to re-engage after talks stalled
China warned the U.S. against “blackmailing and pressuring” it over trade as the Trump administration mulls trying to force officials back to the negotiating table through threats of even higher tariffs.


CFTC’s Division of Clearing and Risk Extends No-Action Relief for Shanghai Clearing House
The Commodity Futures Trading Commission’s (CFTC) Division of Clearing and Risk (DCR) today issued a no-action letter extending the relief provided to Shanghai Clearing House (SHCH) in CFTC Letter 16-56, which, as extended by CFTC Letters No. 17-26, 17-62, and 18-04, expires February 28, 2019. The extension will last until the earlier of July 31, 2021 or the date on which the CFTC exempts SHCH from registration as a derivatives clearing organization (DCO).

Trader-Turned-Informant Tied to Waste Stock That Surged 1,500%
Lily Katz and Arie Shapira – Bloomberg
Three tiny stocks that went haywire in the past month have one thing in common: a former FBI informant.
Shares of Avalon Holdings Corp., New Concept Energy Inc. and MER Telemanagement Solutions Ltd. skyrocketed and then dropped around the time that MintBroker International Ltd. revealed stakes in the firms, all of which have market values of less than $30 million.

CFTC Sues Forex Dealer for Registration and Disclosure Violations; JAFX, Ltd. Solicits U.S. Retail Customers to Trade Forex without Registering as a Retail Foreign Exchange Dealer
The Commodity Futures Trading Commission (CFTC) filed a civil enforcement action in the U.S. District Court for the District of Utah against JAFX, Ltd. (JAFX), a/k/a JAFX, EOOD, of Sofia, Bulgaria and Kingstown, St. Vincent and the Grenadines. The CFTC Complaint alleges that, from at least September 2016 and continuing to the present, JAFX operates as a retail foreign exchange (forex) dealer, without being registered with the CFTC, as required, and that it fails to provide customers with the required Risk Disclosure Statement.

Professional standards reforms for financial advisers – ASIC update
The Australian Securities and Investments Commission (ASIC) has announced changes to reporting dates for a number of required notifications in the transition to the new financial adviser professional standards reforms.

Participation in the New FINRA/Nasdaq Trade Reporting Facility
The SEC has approved a proposed rule change to establish a new FINRA Trade Reporting Facility in conjunction with Nasdaq (the FINRA/Nasdaq TRF Chicago). Firms that intend to be a participant in the FINRA/Nasdaq TRF Chicago must submit a FINRA/Nasdaq TRF Chicago Participation Request Form to the FINRA/Nasdaq TRF and FINRA, in accordance with amendments to FINRA Rule 7200A that are scheduled to become effective on September 10, 2018.

FCA statement on selling high-risk speculative investments to retail clients following ESMA’s action on CFD products
In June 2018, the European Securities and Markets Authority (ESMA) finalised temporary measures to restrict the sale, marketing and distribution of contracts for difference (CFDs) to retail clients. These measures apply across the EU from today.

Iosco issues recommendations to help trading venues manage extreme volatility
IoscoThe Board of the International Organization of Securities Commissions (IOSCO) today published eight recommendations to assist trading venues and regulatory authorities in the implementation of mechanisms to manage extreme volatility and preserve orderly trading.

Investing and Trading

Wall Street Resurrects Another Financing Tool Killed by Crisis
Adam Tempkin – Bloomberg
Investors are breathing life back into a once-dead financing tool. The market for bundled loans used to fund riskier real-estate projects is on pace for a post-crisis record after all but disappearing during the 2008 crash.

Here’s How America Uses Its Land
Dave Merrill and Lauren Leatherby – Bloomberg
There are many statistical measures that show how productive the U.S. is. Its economy is the largest in the world and grew at a rate of 4.1 percent last quarter, its fastest pace since 2014. The unemployment rate is near the lowest mark in a half century.

Bunge results weaker than expected amid changing trade flows
Gregory Meyer – FT
Bunge, one of the world’s top soyabean and grain traders and processors, issued unexpectedly weak results in the second quarter as it dealt with changing trade flows in South America, China and the US.

Einhorn’s Greenlight is trying to end fund losses – letter
Svea Herbst-Bayliss – Reuters
Billionaire investor David Einhorn, whose Greenlight Capital is nursing double-digit losses, said on Tuesday he is trying to repair the damage done by a big bet against electric carmaker Tesla, among others, but said strong stock performances have made his investment choices “wrong, wrong, wrong.”


Hedge Fund Viking Invests in Battle to Keep Avocados Ripe Longer
Craig Giammona and Hema Parmar – Bloomberg
Halvorsen’s firm joins Bill Gates in backing Apeel Sciences; Startup raised $70 million in recent round and added to board
Viking Global Investors, one of the world’s biggest hedge funds, is joining the fight to keep avocados ripe longer.

Credit Suisse: more dash than cash; Thiam’s turnround remains very much a work in progress
Tidjane Thiam was in an expansive mood on Tuesday, when presenting Credit Suisse’s second-quarter results. The boss of the Swiss bank chuckled at his own jokes. He talked about a “very, very large” private banking opportunity in China. The future is “very, very bright; very positive,” he told media. The shares rose a couple of per cent.

Brookfield Asset Management to Acquire Forest City; Forest City’s portfolio includes 18,500 multifamily units and 10.8 million square feet of office, life science and retail space in major cities in the U.S.
Peter Grant and Aisha Al-Muslim – WSJ
Brookfield Asset Management Inc. BAM 1.22% has agreed to buy real-estate developer Forest City Realty Trust Inc. in an $11.4 billion deal that further fuels this year’s mergers and acquisitions boom in the commercial property sector.

Exclusive: Lloyd’s of London reviews operations after losing $2.6 billion and CEO
Carolyn Cohn, Jonathan Saul – Reuters
Lloyd’s of London is reviewing all aspects of its business, including its centuries-old structure, to ensure it is cost-competitive and responsive to both clients and members, especially after Britain leaves the EU, industry sources said.

BNP Paribas Debt Trading Disappoints After Falling Behind Rivals
Fabio Benedetti Valentini – Bloomberg
Bank says trading conditions less favorable than year earlier; Fixed income revenue declines 17%, stock trading jumps 12%
BNP Paribas SA’s trading woes continued in the second quarter as its key debt-trading business posted a further slide in revenue, offsetting unexpected gains in the equities business.

Wells Fargo finds efficiency target elusive as revenue slips
Imani Moise – Reuters
With Wells Fargo & Co’s revenue slumping and no clear end in sight for sales scandal-related costs, analysts have pushed back predictions for when the bank’s closely watched efficiency ratio will return to pre-scandal levels.


Norway Makes First Deposit to Huge Wealth Fund Since 2016
Jonas Cho Walsgard – Bloomberg
Norway has withdrawn more than $18 billion since early 2016; Wealth fund has weathered withdrawals with steady cash flow
Norway made the first deposit to its $1 trillion wealth fund in almost three years as climbing oil prices and a recovering economy again swell the coffers of western Europe’s biggest crude producer.

Britain Becomes the Economic Black Sheep of G-7 Nations
David Goodman – Bloomberg
Britain was the only G-7 country to see growth slow last year; Further moderation seen as fears of a no-deal Brexit mount
The U.K. was the only Group of Seven country to see growth slow in 2017, according to the Office for National Statistics.


Sanofi stockpiling medicines in UK in case of Brexit no-deal
Reuters Staff
Sanofi on Wednesday said it had made arrangements for additional warehouse capacity in Britain to stockpile drugs, as it makes contingency plans for a potential no-deal over Brexit negotiations.

A no-deal Brexit will not happen. Here’s why
Jonathan Lis – The Guardian
Britain’s national conversation is subjecting voters to two dangerous falsehoods. The first, that a no-deal Brexit couldn’t harm us. The second, that it could ever happen.


California’s Death Valley Will Have the Hottest Month Ever Recorded on Earth
Brian Kahn – Gizmodo.com
July has been one for extreme heat around the world, but every locale pales in comparison to what’s going on at Death Valley in California. Already one of the hottest places on the Earth, the heat has gone into overdrive this July. Death Valley is in line to set a record for the hottest month ever recorded on Earth.

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We visit more than 100 websites daily for financial news (Would YOU do that?)

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Past JLN Newsletters

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