Ultrafast Trading Costs Stock Investors Nearly $5 Billion a Year, Study Says

Jan 27, 2020

First Read

Spoofer Sarao Looks Forward to His (Last?) Court Appearance
Thom Thompson – John Lothian News

This Tuesday afternoon, Navinder Singh Sarao will be sentenced by Virginia M. Kendall, U.S. Judge of the United States District Court for the Northern District of Illinois. Sentencing will end the most notorious federal criminal commodities case so far in this young century. Sarao has admitted to manipulating the E-mini S&P futures traded at the Chicago Mercantile Exchange, where he made $40 million trading from 2009 to 2015.

Sarao was most recently seen in Chicago testifying in federal court against Jitesh Thakkar on behalf of the U.S. Department of Justice in its unsuccessful prosecution of Thakkar and his Edge Financial for fulfilling a software development engagement from Sarao. Sarao’s approximately six hours on the stand persuaded the court that there was no conspiracy between Sarao and Thakkar.

When Sarao was arrested back on April 21, 2015 he was charged with 22 counts across four different crimes: wire fraud, commodities fraud, commodities manipulation and spoofing. Under federal law, spoofing is the crime of placing orders in futures markets intending to cancel them before execution. The charges were brought by the U.S. Department of Justice and were supported by separate civil charges by the CFTC filed the day Sarao was arrested.

To read the rest of this commentary, go here.

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Hits & Takes
By JLN Staff

The SEC has approved the OCC’s Capital Management Policy. On page 7 in their approval notice, the SEC says, “OCC also proposes to charge losses remaining after the application of OCC’s excess capital to OCC senior management’s deferred compensation as well as non-defaulting Clearing Members. The Commission understands these aspects of the proposal to constitute the first instance where a covered clearing agency is seeking Commission consideration of a “skin-in-the-game” component to financial risk management for central clearing.” ~SR

The American Financial Exchange last week announced it had reached $762 billion transacted since its inception in 2015. That volume number was nearly triple the level reached at the end of 2018 when $275 billion were traded, the exchange said.~SR

About 120 of Chicago’s cryptoscenti turned out Thursday night to learn about U.S. Congressman Bill Foster’s proposal for a digital dollar issued by the Federal Reserve. Foster, who represents Illinois’s 11th District, along with Congressman French Hill of Arkansas, asked the Fed to study developing a digital currency for daily commercial use. The event was sponsored by FinTank, a local financial services incubator that sponsors monthly events on cryptocurrencies and related topics.~Thom Thompson

Clayton Christensen, the author of “The Innovator’s Dilemma” and other books on innovation and disruption, has died at the age of 67. I learned of Christensen from David Downey, the CEO of One Chicago back when he worked for Interactive Brokers. It was a very influential book for me and how I viewed innovation.~JJL

The Motley Fool has an analysis of CME Group versus Cboe Global Markets and their stocks’ performance.~JJL

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The Spread: Hedge Early, Hedge Often
JohnLothianNews.com

This week on The Spread, Cboe sets its sights on the European derivatives market abroad while preparing for growth at home, and options traders clamor for more VIX data to make “unprecedented” hedges against market volatility.
Produced by Mike Forrester.

Watch the video »

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Sponsored Content
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Charles River onboards £8.5bn Edinburgh pension fund to IMS; Lothian Pension Fund becomes the latest investment firm to deploy the Charles River IMS for portfolio management and trading.
Hayley McDowell – The Trade
Edinburgh-based local government pension scheme provider, Lothian Pension Fund, has implemented the Charles River Investment Management Solution (IMS) platform.
bit.ly/38JqLRa

***** The Lothian Pension Fund sounds really good to me, but alas it is for the Lothian Region of Scotland, not for the man with the shiny forehead.~JJL

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Do You Have Enough Humility to Lead? The most effective managers put others first.
Dimitra Kessenides – Bloomberg
Blessed are the humble. Increasingly, research shows that leaders who share credit and don’t seek the spotlight have better-performing teams that produce better results. That’s backed up by data from Tulsa-based Hogan Assessments, which develops personality tests to predict workplace performance. “A CEO who makes big promises, who is a narcissist, can ruin a company,” says Hogan Chief Science Officer Ryne Sherman. “The cure to all that is humility.”
/bloom.bg/2tTfgYw

******One can never have enough humility, says the man with the shiny forehead.~JJL

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Scores of Republican lawmakers enriched themselves off the Trump tax cuts, report says
Joseph Zeballos-Roig – Markets Insider
Many Republican lawmakers profited off the tax cuts President Trump signed into law in 2017, according to a joint investigation by Center for Public Integrity and Vox on Friday. The report sheds light on the lack of federal guardrails in place that prevents lawmakers from crafting and passing legislation they stand to benefit from.
bit.ly/2uyZDFC

***** Is there a law against insider law making? Asking for a friend.~JJL

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Position Limits Redux; Programmer Liability; Security or Virtual Currency
Gary DeWaal – Bridging the Week
Will the fourth time be the charm? This week, the Commodity Futures Trading Commission will try for the fourth time since 2011 to revise its speculative position limits rules. Details have not been made public, but Heath Tarbert, the CFTC’s Chairman, suggested last week that the proposed amended rules will provide for “flexible” bona fide hedging exemptions. Separately, the CFTC’s Division of Enforcement and a programmer sued by the Commission for allegedly aiding and abetting spoofing activities of a trader have agreed on terms to end the enforcement action. However, the full Commission must approve the settlement to be binding; this apparently may take up to three months. To date, the agreed terms have not been made public.
bit.ly/3aKYYS7

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Friday’s Top Three
Our top story Friday was John Lothian’s Endgame vs. Infinity War: Justice for Jitesh. Next was Online Brokers Go From Zero to Hero, about the boost in trading after online brokers moved to zero-commission trading,]] from the Wall Street Journal. In third was a story worth a second movie, Real-Life ‘Wolf of Wall Street’ Claims He Was Scammed by Film’s Producers, Seeks $300 Million in Lawsuit, from Variety.

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Lead Stories

Ultrafast Trading Costs Stock Investors Nearly $5 Billion a Year, Study Says; U.K. regulator’s study says ‘latency arbitrage’ imposes a small but significant tax on investors
Alexander Osipovich – WSJ
High-frequency traders earn nearly $5 billion on global stock markets a year by trading shares at slightly out-of-date prices, imposing a small but significant tax on investors, a new study says. The study—released Monday by the U.K.’s financial regulator, the Financial Conduct Authority—sheds light on a controversial practice called “latency arbitrage,” in which ultrafast traders seek to react to fresh, market-moving information more quickly than others can.
/on.wsj.com/3aNvNhm

China’s Markets Are Likely to Stay Shut on Extended Break
Richard Frost – Bloomberg
Chinese stock index futures tumble more than 5% in Singapore; Death toll climbs to 80 with 2,700-plus cases in China
China’s massive financial markets may remain closed until at least next Monday after authorities extended the Lunar New Year break by three days as they grapple with the worsening virus crisis.
/bloom.bg/2O0qD7G

MarketAxess deploys machine learning tech to bond algo pricing engine; H2O.ai has teamed up with MarketAxess to integrate machine learning technology with the firm’s Composite+ pricing engine.
Hayley McDowell – The Trade
MarketAxess has integrated artificial intelligence and machine learning technology to its algorithmic pricing engine for corporate bonds. The fixed income trading platform provider teamed up with AI specialist H20.ai to deploy its technology to power its Composite+ platform, which provides real-time price discovery for more than 24,000 corporate bonds globally.
bit.ly/2vlBdzK

Companies warn of huge black market in greenhouse gas; Massive smuggling of HFCs is undermining climate goals and costing business millions
Jude Webber – FT
A greenhouse gas is being smuggled into the EU on a massive scale in defiance of quotas designed to limit its environmental impact, compromising the fight against climate change, leading industry figures say.
/on.ft.com/2t0Y6aV

Platforms vie to become the connective tissue of Wall Street; Automation of trading has brought a new challenge of integrating disparate systems
Richard Henderson – FT
Big banks and asset managers are grappling with a common problem: how to link the scores of computer programmes that dominate today’s markets. In recent years trading has become highly automated, relying on huge amounts of data coursing down the fibre-optic wires that link fund managers to banks and exchanges. Even the most hidebound corners of capital markets, such as fixed income, have lurched into the modern age as bond traders have dropped the phone for the keyboard to buy and sell. This means data must move cleanly and seamlessly between different systems to avoid lags and errors.
/on.ft.com/2vqnPKQ

Investor inaction: a story behind Australia’s wildfires; Pressure builds on reticent pension funds and asset managers to treat global warming seriously
Chris Flood and Attracta Mooney – FT
Apocalyptic wildfires in Australia have supercharged a national debate over how it should respond to a crisis that has cost dozens of lives, killed hundreds of millions of animals and scorched more than 10m hectares of land.
/on.ft.com/2TVD6gZ

Investors pull $43bn from hedge funds in 2019; Sector’s best annual performance in a decade fails to stop high redemptions
Chris Flood – FT
Hedge funds suffered more than $40bn of investor withdrawals last year even though the industry delivered its best annual performance for a decade.
/on.ft.com/2U6pCPD

London loses top spot as global finance hub; Survey of executives rates New York number one
Caroline Binham – FT
London has surrendered its position as the world’s top financial centre to New York due in part to uncertainty over Brexit, according to a survey of senior financial services executives.
/on.ft.com/2RRpQHA

Curbing the great sand grab
FT
Up to 50 billion tonnes of sand a year is being mined, dredged and even stolen to satisfy the global appetite for infrastructure, according to the UN, and it’s disappearing faster than it can be replenished. The plunder cuts biodiversity, destroys fishing communities, and increases the risk of flooding. Curbing the problem could include improved governance or finding alternative materials, but there are no simple answers.
bit.ly/2O38LJq

Cheap Natural Gas Is About to Kick More Coal Out of Europe; Margins for fueling power generators with gas are growing while coal becomes less profitable.
Vanessa Dezem and Mathew Carr – Bloomberg
Cheaper natural gas prices this year are likely to cement Europe’s shift away from coal as a fuel for producing power.
/bloom.bg/2O5KmmK

Asset Managers Lock Horns With $7 Trillion Prize Up for Grabs
Annie Massa and Claire Ballentine – Bloomberg
Champions of active non-transparent funds to gauge appetite; T. Rowe, Fidelity among firms with approval for new products
There’s a brutal showdown brewing beside the blissed-out beaches of Hollywood, Florida. As thousands of financial advisers gather for the ETF industry’s largest event of the year, some of the world’s biggest asset managers are going head-to-head to promote a new type of actively managed exchange-traded fund that could one day house $7 trillion.
/bloom.bg/36x9DMV

Banks Build New Tools to Shift Short-Term Borrowing; Increased trading in derivatives tied to SOFR has eased some worries about the transition away from Libor
Julia-Ambra Verlaine – WSJ
Investors are starting to trade complex derivatives tied to the Federal Reserve’s preferred replacement for the London interbank offered rate, a sign the financial industry is coalescing around a new benchmark for short-term interest rates.
/on.wsj.com/2sXnEpk

Why Invest? A 22-Year-Old’s Tough Questions About Capitalism; Investment analyst Laurence Siegel tries to convince a 22-year-old skeptic why the future for markets—and the environment—is bright
Jason Zweig – WSJ
A few days ago, a smart 22-year-old asked me how to invest some savings from her first job. I advised her to open an individual retirement account. When she found out she couldn’t withdraw it without penalty until she turns 59 1/2, she shot back: “By then the planet will be a rotating cinder!”
/on.wsj.com/2Rtignw

Europe’s Banking Regulator Paves the Way for Bank Mergers; Softer stance toward tie-ups comes as sector struggles to make money against backdrop of low rates
Patricia Kowsmann, Giovanni Legorano and Ben Dummett – WSK
Europe’s main banking regulator is trying to clear the path for mergers between the continent’s lenders as the belief grows that scale is the key to reviving the struggling sector, people familiar with the matter said.
/on.wsj.com/37yznK7

Solar Scammers Plead Guilty After Bilking Berkshire, Others
Brian Eckhouse and Katherine Chiglinsky – Bloomberg
DC Solar built mobile solar generators for sporting events; Feds say company used money from new investors to pay old ones
The co-owners of a California-based solar company pleaded guilty in connection with an alleged $1 billion Ponzi scheme whose victims include Berkshire Hathaway Inc.
/bloom.bg/2uF9yJC

ErisX and Etale Partner to Enhance Trading Experience for Institutional Investors
Business Wire
ErisX today announced support from Etale’s institutional trading platform. Members of ErisX are able to view real-time market data, and manage account balances and order execution via a secure connection using either Etale’s front end or API.
/yhoo.it/2OcGbWn

Exchanges, OTC and Clearing

American Financial Exchange Reaches Record Volume Levels on AMERIBOR Benchmark, Trading More Than Three Quarter-Trillion Dollars in Value Since Inception
AFX
The American Financial Exchange (AFX), a centralized, electronic, self-regulated exchange for direct interbank lending and borrowing for American financial institutions, announced a record volume milestone, reaching $762 billion transacted since its inception in 2015. AFX volume has nearly tripled from levels reached at the end of 2018 when $275 billion were traded since opening on December 11, 2015, in addition the velocity of volume has accelerated in the past six trading months alone, where $260 billion in value has change hands.
/bit.ly/2TYaIe4

Equity index derivatives: Introduction of futures on MSCI ESG Screened Indexes (World, USA, EM, EAFE, Japan)
Eurex
The Management Board of Eurex Deutschland took the following decisions with effect from
2 March 2020:
bit.ly/38FG5OA

Hemp Prices Plunge as CBD Demand Falls Short: Cannabis Weekly
Kristine Owram – Bloomberg
Hemp biomass trades at $10/lb, down from $40/lb in July; PanXchange CEO says market is ‘rife with desperate sellers’
It may not be apparent when you’re spending $70 on CBD foot cream, but hemp prices are plunging amid a “grossly oversupplied” market, according to the head of the industry’s first price provider.
/bloom.bg/2t1sLVH

It’s all about liquidity and how to unlock it
Jonathan Lombardo – Eurex
Senior Vice President at Eurex Clearing
Financial institutions are seeking more and more sophisticated collateral solutions enabling them to use a wide range of securities to back their trades. As liquidity is always the key driver, we have taken additional measures to broaden our Lending CCP offering by extending our services aiming to include additional value to Agent Lenders and their Beneficial Owners. Here are two examples:
bit.ly/2GqMOQn

Fintech

AI will rewrite the future of fund management; Technology is set to disrupt the industry and unleash a winner-takes-all dynamic
Amin Rajan – FT
“If you don’t accept technology, you better go to another place, because no place here is safe,” said Robert Rauschenberg, one of the most iconic visual artists of the last century.
/on.ft.com/2RWhlep

Here’s why banks, asset managers and brokerages don’t see a fintech threat
Dan DeFrancesco and Shannen Balogh – Business Insider
Fintechs are friends, not foes.
That, largely, was the takeaway from many of the nine people we surveyed from some of the world’s largest financial institutions. We asked them one question: what is a fintech?
Often, fintechs are portrayed as the young, agile upstarts taking on the big incumbents, whether they be banks, asset managers, or brokerages. With lower overhead costs and a tech-first mindset, fintechs have marketed themselves as being able to respond faster to customer demands and disrupting the status quo.
bit.ly/38Hz0wX

Philip Hammond joins advisory board of fintech OakNorth
Nicholas Megaw – Financial Times
Philip Hammond, the former UK chancellor and foreign secretary, has joined SoftBank-backed OakNorth as the fintech looks to accelerate its overseas expansion.
Mr Hammond will become a member of OakNorth’s advisory board from Monday, alongside Conservative grandee Francis Maude and former senior regulators Adair Turner and Martin Stewart.
/on.ft.com/38ISrFC

Fintech startup Currencycloud raises $80 million from Visa, BNP Paribas and others
Anna Irrera – Reuters
London-based financial technology startup Currencycloud has raised $80 million in funding from strategic investors including Visa Inc, BNP Paribas SA, SBI Group, Siam Commercial Bank and the International Finance Corp, the company said on Sunday.
Existing investors including Sapphire Ventures, Notion Capital and GV, formerly Google Ventures, also participated in the round, CurrencyCloud said.
/reut.rs/2RVYeRk

Cryptocurrencies

Coronavirus-Linked Stock Speculation Reminds Health Sector of Bitcoin
Bailey Lipschultz – Bloomberg
The deadly coronavirus that has sparked stock rallies for a cluster of health companies developing drugs and screening tests reminds industry watchers of the frenzies that greeted other health scares — and even the cryptocurrency craze.
/bloom.bg/38HoWnF

Digital asset exchanges are the crypto industry’s biggest employers, research shows
Mike McSweeney – The Block
More than 85% of employees in the crypto space work for companies focused on three major service areas: exchanges, development, and mining.
bit.ly/2GqIUXJ

Former Employees Sue Justin Sun and TRON Foundation, Alleging Workplace Hostilities
Ada Hui – Coindesk
A lawsuit accuses the frontman of the TRON cryptocurrency and his business associate of harassing and firing two employees, allegedly as payback for the employees’ objections to management practices and applications of the technology they were developing.
In a 70-page court document filed in October in California state, Richard Hall, 50, and Lukasz Juraszek, 28, said they put up with escalating hostilities on the job that culminated in their termination last summer from BitTorrent, a file-sharing service that combined with the TRON Foundation in a $120 million sale two years ago.
bit.ly/37xknMu

Bitcoin’s Halving Captures Growing Interest – Among Google Searchers
Bradley Keoun – Coindesk
Bitcoin traders are split on whether the cryptocurrency’s once-every-four-years “halving” will jolt prices toward 2017’s all-time-high near $20,000 or multiples of that. What’s clear is interest in the topic is surging on Google, according to a report from the Norwegian cryptocurrency analysis firm Arcane Research. The search engine’s Google Trends feature shows queries on the term “bitcoin halving” have doubled this month from December levels to the highest since the last such event in 2016. According to Arcane Research, the increasing number of Google searches is a sign the halving might be capturing greater public interest as a potential catalyst for higher prices in 2020.
bit.ly/30XWknv

Court Documents Reveal More Possible Investors in Telegram’s $1.7B ICO
Anna Baydakova – Coindesk
Some big names that may have invested in Telegram’s token sale are surfacing in court documents as the company fights a case brought by the U.S. Securities and Exchange Commission. The list includes some prominent individuals as well as investment firms. One of them, a former board member of Bitcoin Foundation and a partner of Ribbit Capital Micky Malka, is mentioned in the deposition of Telegram CEO Pavel Durov.
bit.ly/2t0w3IG

Top 5 Crypto Regulatory Developments Of 2019
Charles Bovaird – Forbes
In recent years, the regulatory environment surrounding digital currencies and distributed ledger technologies (DLT) has been in a state of constant flux. In the beginning, digital assets existed on the margins, with bitcoin being something that was advocated by technologists and Libertarians.
bit.ly/2uxHjge

Unregulated Crypto Futures Aren’t Going Anywhere
Oluwaseun Adeyanju – Forbes
In 2019, the crypto derivatives market saw the introduction of the much-anticipated physically delivered futures products. United States based Bakkt and ErisX finally received regulatory approval from the U.S Commodity Futures Trading Commission (CFTC) in 2019 to operate crypto derivatives markets in the country.
bit.ly/2RWvQ1P

Effect of CME Futures Options on BTC Price Depends on Halving=
Joseph Young – Cointelegraph
CME Group launched new Bitcoin options on Jan. 14, which was revealed by the company’s global head of equity products Tim McCourt. The introduction of crypto options by a derivatives heavyweight in CME will further uplift the institutional infrastructure supporting the asset class.
bit.ly/37xPKXj

WEF Launches Global Consortium for Crypto Governance
Nikhilesh De – Coindesk
The World Economic Forum has created an international consortium to design a governance framework for cryptocurrencies, including stablecoins. Announced Friday, the consortium seeks to bring together financial institutions, government representatives, developers and other members of the global community to determine what sort of governance around cryptocurrencies can best further the goal of financial inclusion. Digital currencies are “a key area of interest for the Forum,” said WEF Founder and Chairman Klaus Schwab. The area “requires input across sectors, functions and geographies.”
bit.ly/2U1c1sO

Ripple investor SBI, Visa join $80M round for remittance startup Currencycloud
Yogita Khatri – The Block
Currencycloud, a London-based startup that builds tools and APIs (application programming interfaces) for payment companies to enable money transfers, has raised $80 million in Series E round. The round was backed by notable investors, including Japanese financial services giant SBI Group, Visa, the World Bank Group’s International Finance Corporation, BNP Paribas and Thailand’s oldest bank Siam Commercial Bank. Existing investors, including Notion Capital, GV (formerly known as Google Ventures) and Accomplice also participated in the round, according to an announcement Monday. Notably, SBI Group and GV, are also investors in blockchain remittance firm Ripple.
bit.ly/2U2dNtw

Bitcoin Gold Blockchain Hit by 51% Attack Leading to $70K Double Spend
Jack Martin – Cointelegraph
The Bitcoin Gold (BTG) blockchain has suffered a 51% attack resulting in over $70,000 worth of BTG being double spent. According to a GitHub post by James Lovejoy, a researcher at MIT’s Digital Currency Initiative, the hard-fork of Bitcoin was hit by two deep reorganizations of over 10 blocks on Jan. 23 and 24.
bit.ly/2t2sFx5

If This Bipartisan Bill Passes, Banks in Hawaii Could Hold Bitcoin (BTC) and Cryptocurrency for Customers
The Daily Hodl
Hawaiian lawmakers have introduced a bipartisan bill that would allow banks to hold cryptocurrencies. Introduced on January 17th and sponsored by five state senators, the bill defines all digital assets as “intangible personal property” and categorizes cryptocurrencies by three different categories: assets, securities and digital currencies. Under the proposal, banks could hold all three, maintaining cash reserves for all digital assets in their possession.
bit.ly/2tKMp8V

Over 1,000 crypto miners given licenses in Iran
Yogita Khatri – The Block
Iran is said to have given more than 1,000 licenses to cryptocurrency miners in the country. The licenses have been issued by Iran’s Ministry of Industry, Mine and Trade, local news outlet Financial Tribune reported Friday, citing an official from ICT Guild Organization – an Iranian NGO representing information and communications technology (ICT) sector. The official, Amir Hossein Saeedi Naeini, said crypto mining industry has the potential to add $8.5 billion to Iran’s economy.
bit.ly/36u6nBS

Bitcoin Just Made the Big Time. The Davos Crowd Has Signed On.
Avi Salzman – Barron’s
Cryptocurrency is being embraced by the Davos set, and some Bitcoin fans are excited. The World Economic Forum said on Friday that it is putting together a consortium made up of public and private-sector leaders to write guidelines for cryptocurrency governance. The announcement was light on specifics, but it signified that the people who keep watch over the traditional banking system—central bankers, in particular—are willing to be associated with digital assets, and even promote them.
bit.ly/2RuKD4v

It’s tax season and the IRS wants to know about your crypto. How to prepare
Darla Mercado – CNBC
For your 2019 income tax returns, the IRS is asking whether filers sold or acquired a financial interest in any virtual currency. How your cryptocurrency holdings are taxed will depend on how you obtained it. Whether you earn virtual currency, buy it or receive it as a gift, keep track of your cost basis.
/cnb.cx/38FP2HJ

U.S. regulatory uncertainty is the biggest issue for crypto firms, research interviews show
Mike McSweeney – The Block
Interviews of crypto firms conducted by The Block shows – perhaps unsurprisingly – that regulatory uncertainty in the U.S. remains the top barrier for companies working in the crypto and digital asset space. Ninety-one percent of companies interviewed as part of The Block Genesis’s Digital Asset Human Capital Trends Report, commissioned by the Blockchain Association, cited “regulatory uncertainty” as a barrier.
bit.ly/2vqFqlU

Politics

Sanders Goes After JPMorgan CEO Jamie Dimon in New Ad
Todd Shields Bloomberg
Bernie Sanders goes after Jamie Dimon in a new campaign ad, labeling the JPMorgan Chase & Co. chief executive officer “the biggest corporate socialist in America today.”
/yhoo.it/2O0oLvG

Bernie Sanders’ blatant blunder against JPMorgan’s Jamie Dimon
Jonathon Trugman – NY Post
In a bid to stir up trouble at the World Economic Forum in Davos, Switzerland, last week, Democratic presidential candidate Sen. Bernie Sanders took a misguided swipe at JPMorgan CEO Jamie Dimon on Twitter. Dimon, a responsible, moderate Democrat, has been on a mission to educate the far left that socialism is not quite what its supporters would have you believe.
bit.ly/2U0Dxqo

Debate on ‘too big to fail’ needs reframing; Deposits at largest US banks keep growing organically even with controls on expanding by acquisition
Robert Armstrong – FT
Brian Moynihan, who runs Bank of America, recently told the FT his bank’s retail operation could in time double its market share. Given BofA is already the largest retail bank in the country, that would make it very large indeed, with about a quarter of the US market and something in the order of $1.5tn in retail deposits.
/on.ft.com/2ROLnAy

Trump warns Schiff of ‘price’ to pay for impeachment; President’s attack on Democrat is sign of increasing acrimony surrounding Senate trial
Kiran Stacey – FT
Donald Trump launched a bitter attack on the Democratic lawmaker leading the impeachment case against him on Sunday, saying he had “not paid the price, yet” as the president’s lawyers prepared to present their defence this week.
/on.ft.com/2U03oyp

Trump Tied Ukraine Aid to Inquiries He Sought, Bolton Book Says; Drafts of the book outline the potential testimony of the former national security adviser if he were called as a witness in the president’s impeachment trial.
Maggie Haberman and Michael S. Schmidt – WSJ
President Trump told his national security adviser in August that he wanted to continue freezing $391 million in security assistance to Ukraine until officials there helped with investigations into Democrats including the Bidens, according to an unpublished manuscript by the former adviser, John R. Bolton.
/nyti.ms/37xAyJE

This Is a Trial of the Constitution Itself; To condone the president’s behavior is to shift power further into the executive and break the protections the Framers created.
Maya Wiley – Professor at The New School via The Atlantic
The Senate impeachment trial of President Donald Trump has begun. Senators now face the monumental question of whether to remove the president from office—and yet, something bigger is at stake here. The Constitution’s fundamental design is on trial too.
bit.ly/2O3DnL0

The growing threat of political ‘deepfakes’
Kadia Tubman – Yahoo News
On the first day of 2020, a video of former Vice President Joe Biden circulated on Twitter. It appeared to show the presidential candidate agreeing with GOP proposals to cut Social Security benefits, a hot-button issue for Democratic primary voters.
/yhoo.it/38E7GQ4

Germany Urged to Fight Anti-Semitism to Avoid Jewish Exodus
AP
Germany’s foreign minister is calling for strengthened efforts against anti-Semitism to ward off the possibility that many Jews decide to leave the country.
/bloom.bg/37HRA7W

Making the US justice system fairer is good business; Companies should create second chances for people embroiled in the court system
Silas Horst – FT
“The true measure of our character is how we treat the poor, the disfavoured, the accused, the incarcerated, and the condemned,” writes social justice advocate Bryan Stevenson. That holds true for all of us, including businesses.
/on.ft.com/2t2yD0X

US threatens retaliation against EU over carbon tax; Wilbur Ross warns environmental plan could be new irritant in trade relations with Europe
Gillian Tett and Chris Giles and James Politi – FT
The EU’s plans for a carbon tax have emerged as a potential new flashpoint in transatlantic trade ties, after the Trump administration warned that it would “react” with possible punitive measures against Brussels.
/on.ft.com/38MzC4j

Regulation

Lawyers push to toughen new US insider trading law; Preet Bharara’s task force wants culprits held liable even if they do not personally benefit
Kadhim Shubber – FT
A group of influential US lawyers has urged Congress to toughen insider trading laws by making insiders liable even when they do not benefit from giving non-public information to traders.
/on.ft.com/38DVRta

Deutsche Bank payments to Saudi royal adviser probed; German prosecutors investigate two former employees for suspected bribery
Olaf Storbeck and Stephen Morris and Arash Massoudi – FT
Deutsche Bank paid $1.1m to secure the wealth management business of a senior Saudi royal, according to an internal probe that led to two former staff being reported to criminal prosecutors.
/on.ft.com/30YVIy3

SEC Publishes Annual Reports on Credit Rating Agencies
SEC
Two annual SEC staff reports released today highlight the important work of the Office of Credit Ratings in examining and monitoring nationally recognized statistical rating organizations (NRSROs). The reports indicate that the NRSROs made certain improvements in response to the staff’s examinations and that both the range of NRSROs issuing commentaries as well as the topics covered by those commentaries has expanded.
bit.ly/37xkgAy

SEC Charges Husband and Wife with Nearly $1 Billion Ponzi Scheme
SEC
The Securities and Exchange Commission today charged a California-based couple with orchestrating a nearly billion-dollar Ponzi scheme involving alternative energy tax credits. According to the SEC’s complaint, Jeffrey and Paulette Carpoff raised approximately $910 million from 17 investors between 2011 and 2018 by offering securities in the form of investment contracts through their two solar generator companies, DC Solar Solutions Inc. and DC Solar Distribution Inc. The Carpoffs allegedly promised investors tax credits, lease payments, and profits from the operation of mobile solar generators. In reality, the complaint alleges, most of the generators were never manufactured, and the vast majority of the purported lease revenue paid to investors in fact came from new investor funds. As part of the scheme, the Carpoffs arranged for investors to receive false documents, including financial statements, lease arrangements, and generator certifications. Throughout the scheme, the Carpoffs allegedly siphoned off investor funds and used at least $140 million of investor money to fund their lavish lifestyle, which included 150 luxury and sports cars, dozens of properties, and a share in a private jet service.
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Incoming Bank of England chief to face questions over investment firm collapse
Huw Jones – Reuters
Bank of England governor-designate Andrew Bailey will be interviewed about his supervision of collapsed investment firm London Capital & Finance as head of the Financial Conduct Authority (FCA), an independent inquiry said on Thursday.
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Former MLB Star Player Wins $2M Award Against Merrill Lynch
Jacqueline Sergeant – Financial Advisor
A three-member arbitration panel of the Financial Industry Regulatory Authority has ordered Merrill Lynch to pay a former professional baseball player and his wife more than $2 million in connection with the losses of Puerto Rican bonds. The panel ruled that Merrill Lynch also must pay Ángel and Windy Pagán $1.7 million in compensatory damages, $88,758.31 in costs and 4.5% interest on the cost from June 20, 2017, through Tuesday, the award date.
bit.ly/2tX8VLw

Investing and Trading

The Hidden Factor Making Junk Bonds Less Risky; Near record-low yields in riskier corporate bonds look more attractive to investors after accounting for shrinking expected life spans
Sam Goldfarb – WSJ
Yields on junk bonds are near record lows. But their expected lifespans are shrinking fast, causing some investors to see a surprising amount of value in the lower-rated debt.
/on.wsj.com/2RSDfz1

The Fed Won’t Take Away Markets’ Punch Bowl; Concerns about low inflation should keep the Fed on hold for a prolonged period, removing a major uncertainty for ebullient investors.
Justin Lahart – WSJ
The Federal Reserve has taken away, for now, one of the biggest uncertainties that investors face. When they meet this week, Fed officials are all but certain to leave their target range on overnight rates on hold. Nor do they seem likely to do much of anything in the months ahead, with projections released following last month’s Fed meeting showing policy makers expect their target range to remain at the current 1.5% to 1.75% through the remainder of 2020.
/on.wsj.com/2RQcrzv

America’s Gold Giant Bets on Dividends, Improved Mines to Hold Off Rival; Newmont’s push to attract more investors comes after Barrick Gold made inroads with its $6 billion acquisition
Alistair MacDonald – WSJ
Newmont Corp., NEM 1.35% the biggest gold producer in the world, has seen bitter rival Barrick Gold Corp. GOLD 1.52% catching up after both gold giants recently made big acquisitions. Now Newmont is betting high dividends and its new mines will drive future stock growth.
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Warren Buffett Is One of the World’s Richest Fossil-Fuel Billionaires; The 10 largest fortunes with links to greenhouse gas emissions are valued at $537 billion.
Tom Metcalf – Bloomberg
Berkshire Hathaway’s annual shareholder meeting is a quaint and wholesome corporate custom. Thousands of Warren Buffett superfans listen to the 89-year-old investor, maybe sample Dairy Queen ice cream, and watch Bill Gates play bridge. These days, the traditional pilgrimage to Omaha is also likely to turn up sharp-edged climate debates.
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Fail to Act on Climate and You’re Fired, Pension Fund Says
Alastair Marsh – Bloomberg
Managers that don’t cut risk may have their mandates removed; Brunel will also punish portfolio firms not acting on climate
A 30 billion-pound ($39.3 billion) U.K. pension fund has threatened to fire managers that fail to curb their exposure to climate change and position for a low-carbon economy.
/bloom.bg/2TZpEZn

Oil Traders Made Billions in 2019 as Conflict Shook the Market
Javier Blas – Bloomberg
Last year was ‘among the best years ever’ for energy trading; Boom to help oil companies offset weakness elsewhere
The world’s largest energy traders enjoyed one of their best ever years in 2019 as pipeline outages, dramatic changes in ship fuel regulations and Middle East conflicts shook up the global oil market.
/bloom.bg/30UOXNK

Are you a champion stockpicker? Enter our competition and raise money for the FT Seasonal Appeal
Robert Smith – FT
As we close in on the final stretch of January, new year’s resolutions are already falling by the wayside. There’s a good chance that your dry January has already turned wet, the allure of a good burger has undone your valiant attempt at Veganuary, or your expensive new gym membership is gathering dust.
/on.ft.com/2uCM0oK

Institutions

Fidelity chief on becoming the fund house to fear; Anne Richards wants the $584bn asset manager to be the company rivals ‘have to beat’
Attracta Mooney – FT
When Fidelity International moved into its new London headquarters last year, chief executive Anne Richards spotted a problem. Her office looked straight into the Financial Times’ newsroom.
/on.ft.com/2RTHNVN

Wells Fargo Quashes Hope That Its Scandals Are Nearly Resolved
Hannah Levitt – Bloomberg
New CEO strikes cautious tone as he looks to appease watchdogs; Charges against ex-leaders and Fed’s cap on growth extend pain
Wells Fargo & Co.’s finance chief was promising analysts they would be kept abreast of the bank’s efforts to resolve scandals when his new boss chimed in.
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Top UK pension scheme threatens managers over climate risk; Brunel toughens stance and says it will fire funds if they fail to reduce exposure
Owen Walker – FT
One of Britain’s largest pension schemes has given its 130 asset managers a two-year deadline to reduce their exposure to climate change or risk being fired.
/on.ft.com/2tTiqeQ

BlackRock hit by backlash in France; World’s biggest fund house becomes target as questions are raised over its political lobbying role
Siobhan Riding – FT
The grandiose entrance hall of BlackRock’s Paris office in the historic Centorial building is often used for fashion shows and high-end cocktail parties. But earlier this month the dome-topped room was host to chaotic scenes when leftwing activists stormed the building brandishing flares and chanting slogans attacking the New York-based group.
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Goldman Sachs: will Solomon’s consumer gamble pay off? Once seen as Wall Street’s most prestigious operation, the bank is betting a shift in focus will pay off in the long run
Laura Noonan – FT
Goldman Sachs spent most of its first 130 years shrouded in the secrecy of a partnership structure. It jealously guarded that mystique for its first two decades as a listed company.
/on.ft.com/38GlGsB

Deutsche Bank Appointed as Depositary Bank for the Sponsored American Depositary Receipt Program of LIZHI INC.
Business Wire
Deutsche Bank announced today its appointment as depositary bank for the NASDAQ-listed American Depositary Receipt program of LIZHI INC. (the “Company” or “LIZHI”).
/bwnews.pr/2uA5EC4

UK active fund managers suffer bloodbath in 2019; Heavy redemptions from London’s best-known active managers follow demise of Neil Woodford and industry scandals
Attracta Mooney and Siobhan Riding – FT
Invesco, Standard Life Aberdeen, M&G and Schroders have topped a ranking of the worst-selling fund houses in Europe in 2019 as high-profile scandals in the sector intensified investor aversion to traditional stockpickers.
/on.ft.com/30Wn6wA

Suspended New York Natixis Trader Jacquet to Leave After Probe
By Donal Griffin and Viren Vaghela – Bloomberg
Jean-Baptiste Jacquet has been suspended since late last year; Jacquet oversaw derivatives businesses for Natixis in New York
A senior trader at Natixis SA in New York is leaving the French lender after he was suspended late last year amid an internal probe into some of his transactions, according to people familiar with the matter.
/bloom.bg/2Go4Umd

Regions

Big investment banks cool on Chinese IPOs on Wall Street; Falling valuations and trade war to blame as lenders back out of companies’ listings
George Hammond and Ryan McMorrow – FT
Big investment banks are backing out of Chinese IPOs on Wall Street, as tumbling valuations and a frosty political climate force companies to slash the size of their deals. Credit Suisse, Citigroup and Bank of America are among those that have walked away from Chinese companies’ efforts to sell shares in New York in the past few months.
/on.ft.com/2TYl6SX

Switzerland’s Central Bank Is Stomaching a Stronger Franc
Catherine Bosley – Bloomberg
Sight deposits indicate no major currency interventions by SNB; Swiss currency has appreciated to strongest since April 2017
Sight deposits at the Swiss National Bank increased only marginally last week, suggesting President Thomas Jordan and his colleagues aren’t taking much action to counter the strengthening franc.
/bloom.bg/3aEOJP8

SBI seeks to be ‘white knight’ for Japan’s regional banks; Declaration comes as regulator plans biggest shake-up of ailing lenders since 1990s
Leo Lewis – FT
The president of SBI Holdings, Japan’s biggest online brokerage, has declared himself the “white knight” rescuer of the country’s regional banks — a sector whose chronic troubles are building both domestic and global financial stability risk.
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Mexico goes ghost as its oil hedge bill spirals
Stefanie Eschenbacher, Devika Krishna Kumar – Reuters
Mexico is playing a risky game of hide and seek with the oil market. To frustrate speculators and contain an annual bill of more than $1 billion, Mexico is going to new lengths to mask its attempts to insure its revenue from oil sales against falling prices – no mean feat for a hedging program known as Wall Street’s biggest oil trade.
/reut.rs/2tBDMNT

Zimbabwe’s central bank hits back at currency ‘manipulators’; Street value of the country’s currency fell by a tenth this week
Joseph Cotterill – FT
Zimbabwe’s central bank has frozen the local bank account of a Chinese company, accusing it of triggering a sharp drop in the southern African country’s currency while Harare battles a damaging shortage of dollars.
/on.ft.com/37xEmKW

Brexit

Major hedge funds calculate cliff-edge Brexit fears overdone; Lansdowne, Odey and Wadhwani among those betting on a revival of UK equities
Laurence Fletcher – FT
Investors are too worried about a possible no-deal Brexit and are in danger of missing out on overlooked UK stocks, according to prominent hedge fund managers betting on a UK resurgence.
/on.ft.com/2vlxK4c

Brussels to fight tough on state aid in post-Brexit talks; Red line on subsidies sets tone for the trade battle to come
Sam Fleming and Jim Brunsden and George Parker – FT
EU member states are determined to curtail Britain’s ability to hand out state money to prized industries as a key price for agreeing a trade deal, according to senior European diplomats, opening up a major battleground in the post-Brexit negotiations.
/on.ft.com/38LUp8r

U.K. to Mint Brexit Coins Months After Early Version Melted Down
Sara Marley – Bloomberg
Some coins had already been made when extension was requested; Money marked entry into EEC, rotating presidency of the EU
The U.K. will release about 3 million Brexit coins on Friday when the country officially leaves the European Union, marking the third version of the commemorative currency after the departure date was twice delayed.
/bloom.bg/2O0qUrk

U.K. Opens Door to Scientists But Warns Businesses on Brexit
Jess Shankleman – Bloomberg
Government unveils fast-track visa route for mathematicians; Migration Advisory Committee due to report findings this week
The U.K. will relax visa rules for top scientists next month, while pledging to clamp down on low-skilled migration after Brexit.
/bloom.bg/2TZ5pek

Labour Front-Runner Starmer Warns Brexit Risks Breaking Up U.K.
Alex Morales – Bloomberg
Party’s Brexit spokesman calls for radical devolution of power; Wealth and opportunity needs to go to towns, regions: Starmer
Keir Starmer, the front-runner to replace Jeremy Corbyn as leader of Britain’s opposition Labour Party, said Brexit risks breaking up the U.K. as he called for a “radical” redistribution of power to towns and regions.
/bloom.bg/2RTEDkT

Miscellaneous

Why Planting a Trillion Trees Should Start With Small Farmers; A group working with African farmers has figured out how to improve the low success rate of tree-planting programs.
Akshat Rathi – Bloomberg
Trees are an important tool to counter climate change: They capture carbon dioxide, improve biodiversity and increase groundwater. Adding a trillion trees could scrub out two-thirds of all emissions, according to scientists, and that’s why everyone from the World Economic Forum to YouTube influencers have launched large planting programs. There’s just one problem: The success rate of typical programs is often dismal. Many end up with no trees surviving to maturity.
/bloom.bg/37wyvFY

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