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John Lothian Newsletter: Reform looms anew for money market funds; NYSE Amex Options to Eliminate Position Limits for Options on SPY; Japan takes its first steps

The day after the SEC declared it would abandon its effort to reform money market funds, other regulators in and out of the US say they will step up and consider new requirements.  NYSE Amex Options exchange announces that they’ve received SEC approval to eliminate position limits on SPY options.  With the TSE-OSE merger good to go, Japan moves toward having more weight to compete globally; the Financial Times takes a look at the progress and challenges.

First Read

Asia knuckles down to get algorithms right
By Jeremy Grant – Financial Times
Tracing a 7,800km route from Japan past the Philippines and across to Singapore and Malaysia, a new underwater cable costing $430m opened for business this week aimed at automated traders. The “Asia Submarine-cable Express” will loop up to Hong Kong in a month’s time, shaving three milliseconds off the speeds offered by existing cables and providing the shortest link between the Tokyo and Singapore bourses.


FIA Announces Hiring of Dawn Stump as Head of Government Affairs
The Futures Industry Association is pleased to announce that Dawn Stump will join the association as senior vice president and head of government affairs, starting Sept. 10. In this newly created position, Stump will lead and coordinate FIA’s relations with Congress and participate in the development and implementation of FIA’s legislative and regulatory strategy.

**** Congratulations to Dawn Stump on her new job, which reunites her with former NYSE Euronext colleague Walt Lukken at the FIA.


Don’t be fooled by short-selling bans
Gillian Tett –
When the latest market squall hit the eurozone last month, the governments of Spain and Italy responded with a time-honoured defence; as panic mounted, they banned the short selling of shares in banks, in a desperate bid to shore up confidence. One month later, it might seem as if this achieved some respite; eurozone stocks have stabilised, as the European Central Bank has pledged fresh support. But is there any evidence that short-selling bans have any long term effect? Or can they potentially make a bad situation worse? If a new paper published in a report from the Federal Reserve Bank of New York is correct, the answer is sobering.


Released Report on Money Funds Persuaded SEC Official
For Luis Aguilar, the last push persuading him to vote against new rules on money-market funds came while he was on vacation. By early August, the Securities and Exchange Commission member learned that SEC Chairman Mary Schapiro‘s office gave lawmakers a report on the risks of money funds that he viewed as misleading.


Bad Grades Rising at Audit Firms
Are audits getting worse? Or are the inspectors getting pickier? Those would seem to be two possible explanations of a trend that looks very bad.

**** Audits, what audits?


Trader casts light on RBS Libor setting
Jeremy Grant in Singapore –
A former Singapore-based trader at Royal Bank of Scotland has opened a new window into how attempts were allegedly made to manipulate Libor, in a court claim that RBS withheld vital information on his dismissal from the bank. Tan Chi Min, who was employed by RBS in Singapore until last year as head of “delta” trading at its global banking and marketing unit, is suing the bank for wrongful dismissal.


World watches as Danes venture below zero
Richard Milne, Nordic Correspondent –
Of all the many striking policy measures taken since the financial crisis, one of the most extraordinary has gone almost unremarked – the introduction of negative official interest rates by Denmark.


GOLD BOOK 2012: Newedge’s Stephen Davy Is Making a Difference
Ivy Schmerken – Wall Street & Technology
In the world of execution and clearing, where the fastest technology often determines the winners and losers, Newedge USA is so concerned about the quality and capacity of its software that it has hired forensic analytics specialists to go deep inside its systems and improve the underlying processes.


Elisabeth Murdoch Criticizes ‘Profit Without Purpose’
Elisabeth Murdoch, daughter of News Corp. Chief Executive Rupert Murdoch, declared on Thursday that “profit without purpose is a recipe for disaster,” drawing a distinction from views expressed by her brother James. Ms. Murdoch said in a speech at an Edinburgh television festival that her brother “left something out” when he told the same event three years ago “the only reliable and perpetual guarantor of independence is profit.”


2012 ISDA Annual North America Conference and Press Briefing: Implementing the New Market Framework
Business Wire via Yahoo! Finance
The International Swaps and Derivatives Association, Inc. will hold its 2012 Annual North America Conference in New York on Thursday, September 13, 2012. Accredited journalists are invited to attend the full day’s events and morning press briefing.

Layne Carlson Tells the Story Behind MGEX’s Apple Juice Contract
The Minneapolis Grain Exchange, now known as MGEX, launched Apple Juice Concentrate (AJC) futures and options on August 13, 2012.  We asked Layne Carlson, corporate secretary and treasurer of the exchange, for the story behind the new Apple Juice contract. Interview by JLN publisher John Lothian.

JLN Interest Rates

To QE3, or not to QE3?
That is the question. Ever since the minutes from last month’s FOMC meeting were released Wednesday, the pundits have been pondering. Are there clues hidden in code somewhere in the minutes? Has the committee taken a more “wait and see” attitude? Is Mr. Bernanke using the stock market as a barometer for the economy? There seems to be something in there to suit everyone. Sort of like a horoscope. **DA

QE3 Not A Sure Thing
Evan Schnidman, Seeking Alpha
Most analysts see the minutes of the July 31-August 1 FOMC meeting as indicating a third round of asset purchases beginning in September, but I am less certain. The Committee has moved toward a dovish consensus, but this does not mean they are ready to act or that action would necessarily be in the form of quantitative easing.

**DA: Not one, but three options for easing, according to the article – adjusting forward guidance, more QE, or stimulate lending. I read that as “talk it off the ledge,” “throw good money after bad,” or “recreate the credit bubble.”

Fed minutes show active discussion of QE3
Members of the Federal Reserve got closer to pushing the button on a new round of bond purchases even as a less-aggressive step of altering language on a low-rate pledge seems to be in the works, according to minutes from the most recent meeting released Wednesday.

Minutes of Federal Open Market Committee
July 31 – August 1, 2012

**SR: From the Federal Reserve’s web site


MarketsWiki Page of the Day
MGEX Apple Juice Concentrate Contract


MarketsWiki Recent Updates


Alex Merriman; Sandy Weill; Layne G. Carlson

Companies, Organizations and Groups

Minneapolis Grain Exchange, Inc.; BSE Ltd; National Stock Exchange of India Ltd


MGEX Apple Juice Concentrate Contract


27,570,278 pages viewed, 7,076 articles, 146,753 edits
MarketsWiki Statistics

Lead Stories

Reform looms anew for money market funds
Dan McCrum in New York and Shahien Nasiripour in Washington –
Fresh from a victory over the US securities regulator, the $2.6tn money market fund industry now faces a co-ordinated response from other US and European financial regulators determined to address what they see as the sector’s systemic risk.

NYSE Amex Options to Eliminate Position Limits for Options on SPY
NYSE Amex Options, one of NYSE Euronext’s (NYX) two leading U.S. options exchanges, today announced that it has become the first exchange to file for and receive approval from the U.S. Securities and Exchange Commission (SEC) to eliminate position limits for options on the SPDR S&P 500 Exchanged-Traded Fund (“SPY”) on a fourteen-month pilot basis.

Quick View: Japan takes its first steps
Philip Stafford –
After years of discussion, at last the merger between Tokyo Stock Exchange and Osaka Securities Exchange looks set to go through. The $1.7bn deal is set to create the world’s third-largest exchange by capitalisation of listed companies, and it has been a long time coming.

Swap Clearing to Add $480 Billion of Margin, Morgan Stanley Says
By Matthew Leising – Bloomberg
Banks and money managers will need to post $480 billion in new collateral to back swaps processed by clearinghouses under the Dodd-Frank Act, according to a Morgan Stanley analysis.

Plan B Considered for Money Market Fund Rules
After the failure of one effort to overhaul a major part of the mutual fund industry, top government officials worked on Thursday to find alternative ways to rein in what they see as a systemic threat to the financial system.

Money Funds Test Geithner, Bernanke Resolve as Schapiro Defeated
Money-market mutual funds, an alternative to bank accounts for individuals and companies, will test the resolve of the U.S. Federal Reserve and Treasury Department to prevent another financial crisis after the $2.6 trillion industry successfully lobbied against more regulation by the Securities and Exchange Commission.

JPMorgan “London Whale” hires lawyer in France – sources – Yahoo! Finance
Reuters) – The trader at the center of the criminal investigation surrounding JPMorgan’s $5.8 billion trading loss has hired a lawyer in Paris, two sources familiar with the investigation said on Thursday.

Merkel, Hollande urge Greece to stick to reforms
AFP via Yahoo! News
Angela Merkel and Francois Hollande urged debt-wracked Greece on Thursday to push through with painful but crucial reforms to safeguard its eurozone future as they began talks here.

Greek Leader Hopes to Persuade Merkel
Greece’s prime minister faces a tough sell in Berlin on Friday to persuade German Chancellor Angela Merkel to warm to a softening of the economically-stricken country’s reform program, as German leaders staunchly rejected the appeal for more time and money in run-up to the talks.


SEC faces call to reject Facebook offer
Arash Massoudi and Tom Braithwaite in New York –
US regulators are facing growing pressure to reject Nasdaq OMX’s proposed $62m settlement for its members following the glitch-ridden debut of Facebook on its stock exchange.

Levitt: SEC Money Markets Stance `Disgraceful’
Arthur Levitt, former chairman of the U.S. Securities and Exchange Commission and a Bloomberg LP board member, discusses the rejection by SEC commissioners of chairman Mary Schapiro’s push to toughen regulations on money market mutual funds.

Fidelity hails SEC backtrack on money market funds
Boston Globe
Fidelity Investments on Thursday cheered the news that Securities and Exchange Commission won’t be adopting stricter rules for money market mutual funds any time soon.

CFTC Approves Conforming Amendments to Part 4 Regulations Governing Operations and Activities of Commodity Pool Operators and Commodity Trading Advisors
The Commodity Futures Trading Commission (CFTC) today approved final conforming amendments to Part 4 of its regulations, which govern the operations and activities of commodity pool operators (CPOs) and commodity trading advisors (CTAs)

[NFA] Archive of “Registration and Compliance Issues for Swap Dealers and Major Swap Participants” webinar

Statement Regarding Money Market Funds By SEC Commissioner Luis A. Aguilar

Statement Of Support – Operations And Activities Of CPOs And CTAs – Part 4 – CFTC Chairman Gary Gensler

Statement At SEC Open Meeting By Commissioner Elisse B. Walter, U.S. Securities And Exchange Commission

Opening Remarks Regarding The Adoption Of Final Rules For Conflict Minerals By SEC Commissioner Elisse B. Walter

ESMA Calls For Candidates To Join Its Consultative Working Group On Investor Protection And Intermediaries
ESMA has launched a

Exchanges & Trading Facilities

SIX Exchange Regulation: Corinne Riguzzi New Head Surveillance & Enforcement
Ms Corinne Riguzzi has taken over as the new Head Surveillance & Enforcement, the trading surveillance unit at SIX Exchange Regulation. Surveillance & Enforcement oversees trading on the exchanges SIX Swiss Exchange and Scoach Switzerland in such a way that permits breaches of regulations, infringements of the law and other irregularities to be identified and the appropriate action to be taken or initiated.

Program Trading Averaged 31.0 Percent of NYSE Volume during Aug. 13-17

Hedge Funds & Managed Futures

Moody’s warns on credit impact of OTC rules
Michelle Price – Financial News
Managed funds could invest more heavily in lower credit-quality investments because of new derivatives regulation, Moody’s has warned, as regulatory-driven demand for liquid government debt pushes down yields. Moody’s argued in a note that the industry-wide need for more collateral could in the long term lead to a surge in demand for liquid, high-quality clearing-eligible government securities.

A defense of the hedge fund industry. Really.
The Christian Science Monitor
The hedge fund industry has its issues, but buying up Apple stock is not one of them.

Citi to yank $410 million from Paulson’s funds: sources
Reuters via Yahoo! News
The blows keep coming for hedge fund manager John Paulson, with Citi Private Bank deciding it will withdraw $410 million from his Paulson & Co hedge fund, according to people familiar with the decision.

Pension fund down $1 billion
The State
South Carolina’s retirement fund is worth about $1 billion less than it was this time last year, according to a preliminary financial report.

Hedge funds are betting on disaster
CNN Money
Hedge funds are betting on a disaster hitting the financial markets within the next several quarters, with managers of both large and small hedge funds holding onto historic levels of cash.

Calamos Hires Ex-Janus CEO
Morningstar via Yahoo! Finance
Calamos Investments(CLMS) has hired Gary Black, former CEO of Janus, as its global co-chief investment officer. Black will join the firm’s investment committee and will oversee portfolio management, research, trading, and risk management.

‘Tiger Cub’ Hedge Fund Manager Lee Ainslie Is Killing It This Year
Business Insider
Tiger Cub Lee Ainslie III is making a huge turnaround so far this year. Bloomberg News Katherine Burton reports that his ~$10 billion AUM long/short equity hedge fund Maverick Capital’s biggest fund was up 20% through July.

New York Fed Sells Remainder Of Maiden Lane III LLC Securities
Marks End Of AIG-Related Assistance – Approximately $6.6 Billion Net Gain Generated For U.S. Public From The Portfolio

Banks & Brokers

The Former CEO Of JPMorgan Wrote A Big Defense Of Big Banks In The NYTimes
Business Insider
This was surprising because Sandy Weill essentially created the big bank model when he led the merger of Citicorp and Travelers. Today, William B. Harrison Jr. — the banker who led the merger that resulted in JPMorgan Chase — has an op-ed in today’s New York Times defending the big bank model.

Quelle Surprise! Former JP Morgan Chairman Offers Dubious Defenses of Big Banks
Naked Capitalism
Ordinarily, it might not seem worth the bother to debunk yet another piece of bank propaganda. However Thursday’s op ed by former JP Morgan Chase chairman William Harrison, ” Don’t Break Up the Big Banks ,” recites a classic set of time-worn canards. As regulatory compliance expert Michael Crimmins said via e-mail, “It’s sounding desperate that they’re dragging Harrison out of retirement …

Citigroup Blasts Nasdaq Over Facebook I.P.O.
EVELYN M. RUSLI | New York Times
Citigroup is not happy with Nasdaq’s response to Facebook’s ill-fated initial public offering. In a 17-page letter sent to the Securities and Exchange Commission on Wednesday, the bank slammed Nasdaq for its “mishandling” of the I.P.O. and its compensation offer. Citigroup said that Nasdaq’s $62 million proposal would only cover “fraction of its total losses.”

UBS Says Nasdaq Plan For Facebook IPO ‘deficient’
UBS AG has criticized the Nasdaq OMX Group’s proposal to compensate investors who lost money due to trading glitches during Facebook Inc’s May 18 initial public offering, according to a Wednesday letter to the Securities and Exchange Commission.

HSBC in Settlement Talks With U.S. Over Money Laundering
HSBC Holdings Plc , which is under investigation by U.S. regulators for laundering funds of sanctioned nations including Iran and Sudan, is in talks to settle the matter, two people with knowledge of the case said.

Knight Capital rescuers let Scottrade in on deal
The financial services firms that rescued Knight Capital Group after its near-fatal software glitch earlier this month have sold some of their preferred stock in the firm to retail online broker Scottrade, according to three people familiar with the transactions.

Equities slump guts investment bank revenues: study
Reuters via Yahoo! News
Tumbling revenue from stock trading dragged down global investment banks’ earnings below year-ago levels in the first six months of 2012, a report showed on Thursday, underlining how equities divisions are likely destined for big cutbacks.

JPMorgan Unit No Longer Faces Peralta College Bond Suit
The Peralta Community College District in Oakland, California , dropped its lawsuit against a JPMorgan Chase & Co. unit over a $25 million bond purchase contract that it claimed would give the bank a windfall.

London Whale Lawyers Up in Three Jurisdictions; Who’s Picking Up the Tab?
The New York Observer
And Bruno Iksil, a.k.a. the London Whale, a.k.a. Voldemort, is lawyering up, and in comprehensive fashion: According to Reuters, Mr. Iksil has hired attorneys in France, New York and Washington D.C. Ina Drew, Achilles Macris, Javier Martin-Artajo, Peter Weiland or Irvin Goldman—all former employees of JPMorgan’s chief investment office—have also retained legal representation.

Standard Chartered Appoints Alex Manson Group Head, Wholesale Banking Geographies
Dow Jones
Standard Chartered Bank PLC Friday said it has appointed former Deutsche Bank AGhead of global corporate banking coverage Alex Manson as its group head of wholesale banking geographies.

Clearing & Settlement

CME Group Clearing Advisory
NYMEX Options Expiration Operational Procedures for the Trading Floor and Clearing Members (HHQ) Effective Friday, August 24, 2012

CME Clearing – Performance Bonds / Margins
Performance Bond Requirements – Agriculture, Natural Gas, and Real Estate Outrights; Crude Oil, Natural Gas, and NGLs Intra-Commodity Spread Charges – Effective Monday, August 27, 2012

Indexes & Products

S&P Dow Jones Indices Announces Changes To The S&P/TSX Canadian Indices – A Deletion From The S&P/TSX Venture Composite Index


CFTC Charges Illinois Resident Donald A. Newell and his Company, Quiddity, LLC, with Running a Fraudulent Allocation Scheme, Making Material False Statements to the CFTC, and Recordkeeping Violations
The U.S. Commodity Futures Trading Commission (CFTC) today filed a federal civil enforcement action charging defendants Donald A. Newell of Glenview, Ill., and his Chicago-based company, Quiddity, LLC, with engaging in a scheme that fraudulently allocated commodity futures and options trades to benefit a corporate proprietary account, at the expense of customer accounts managed and traded by Quiddity.

Environmental & Energy

Mitt Romney Energy Plan: More Oil & Natural Gas Production On Federal Lands
Republican presidential candidate Mitt Romney will lay out policies on Thursday aimed at achieving North American energy independence by 2020 by pursuing a sharp increase in production of oil and natural gas on federal lands and off the U.S. coast.

Romney Energy Plan Would Expand States’ Say in Production
Mitt Romney would seek to give states control over energy production on federal lands within their borders and allow drilling off the East Coast as part of his plan to reduce crude oil imports.

Giving Reins to the States Over Drilling
The New York Times
By proposing to end a century of federal control over oil and gas drilling and coal mining on government lands, Mitt Romney is making a bid for anti-Washington voters in key Western states while dangling the promise of a big reward to major campaign supporters from the energy industry.


Tokyo bourse gets two-thirds stake in OSE for $1.1 bln
The Tokyo Stock Exchange said on Thursday it acquired a two-thirds stake in the Osaka Securities Exchange for $1.1 billion in a public tender offering, paving the way for a combination to create a dominant equities bourse in Japan.

Fallout Continues at Vietnamese Bank
Police in Vietnam have arrested the former head of one the country’s biggest banks, state media said Friday, as the fallout from a banking scandal continues to spread.

Heard on the Street: The Tip of the Iceberg for China’s Banks
China’s big state owned banks appear as unsinkable as the Titanic. A look at the results for Bank of China, the first of the big four banks to report interim earnings, suggests it is full steam ahead. Bank of China’s nonperforming loan ratio fell to 0.94% in June from 1% at the end of 2011. Its core capital adequacy ratio rose to 10.15% from 10.08%.

SGX Statement – SGX Files Report on MF Global Singapore with MAS and Liquidators
On 22 August 2012, Singapore Exchange Derivatives Clearing Limited completed its proceedings with MF Global Singapore Pte. Limited by filing a report to the Monetary Authority of Singapore and Messrs Chay Fook Yuen, Bob Yap Cheng Ghee and Tay Puay Cheng, in their capacities as the liquidators of MFGS.

SGX Market Update: Opportunities To Diversify Portfolios Amongst Top 40 Stocks

FSA publishes the status of Loans held by all banks as of end- March 2012, based on the Financial Reconstruction Act

Shanghai Stock Exchange: Enhancing Blue Chips’ Value By Speeding Up Reform And Innovation

Dalian Commodity Exchange Makes Amendment And Improvement To Some Business Implementation Rules

Frontier Markets

Private Equity Firms Stimulate Earnings and Deals in Post-Revolution Egypt
After Abraaj Capital bought a stake in AlBorg Laboratories in May 2008, the Dubai-based private equity firm braced for a rough ride. Over the next four years, AlBorg, an Egyptian medical testing company, weathered the global financial crisis, the economic downturn and the revolutions that swept the Mideast.

Myanmar Mogul Zaw Zaw Tries to Skirt Sanctions
Myanmar construction and mining magnate Zaw Zaw for several years has been squeezed by international sanctions, which have targeted him and other Myanmar tycoons for punishment because of alleged ties to the country’s former military regime.

BSE Ranks Among Top 3 Stock Exchanges Globally In Index Options*: World Federation Of Exchanges
According to data released for July 2012 by the World Federation of Exchanges (WFE), BSE Ltd. has been ranked 3rd in the world in terms of number of index options contracts traded. On YTD (year-till-date) basis, BSE Ltd finds place in the Top 5 exchanges globally.

Heard on the Street: Tinkering Won’t Build India’s Future
From crumbling ports and highways to a jammed power grid, India’s infrastructure needs are acute. The potential is big for those willing to bet on long term development. Yet most foreign investors continue to shy off Indian infrastructure.

MCX Weekly Market Report August 17, 2012 – August 23, 2012

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About Author

Rudolph is managing editor of John Lothian News (JLN).