Breaking News

John Lothian Newsletter: Aequitas revises exchange proposal; SEC may seek more power to enforce Volcker rule; Growth-hungry bourses beat a path to Singapore

First Read

Open for Business: SEFs Navigate the New Regulatory Environment
JohnLothianNews.com
Swap execution facilities (SEFs) were given life by the Dodd-Frank Act, which requires over-the counter (OTC) swaps to be cleared and traded on this new type of regulated platform. The CFTC published its final SEF rules in mid-2013 and trading commenced on 18 registered SEFs. John Lothian News interviewed a dozen of the leading SEF operators, regulators and other participants and put together a three part series on SEF regulation, the changing market structure and the new technology required to make it all happen. Part I looks at the state of SEF regulation. Though the final rules are out, the industry is still working on a few lingering issues such as new staff guidance and no-action letters on certain aspects of the rules. Also, as the CFTC begins making classes of swaps “available to trade” and subjecting them to mandatory execution on SEFs, the industry is expected to quickly adjust and comply.

Watch the video »

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John’s Bits and Pieces
The CBOT Building unveiled a concierge service yesterday. They claim to be able to get you tickets, directions, travel plans, etcetera. Stop by or contact them by phone at 312-605-9196 or by email at cbotbuilding@conciergeunlimited.com . If you are in the building, stop by and ask them to get you some Cubs World Series tickets.

David Setters’ sons are running in the 2014 Brighton Marathon in order to raise money for the Motor Neuron Disease Association. David announced last spring in this newsletter that he was suffering from the disease. You can donate to Andy and Rob’s efforts by going to jlne.ws/L2rKRQ.

Our good friend Simon Rostron in London has announced that his goal for his 60th year on this planet is to raise £60,000 for Futures for Kids. Simon will have to show a lot more leg while wearing his kilt in order to raise that amount. We will have more details soon on this on the charitable giving page of JohnLothianNews.com .

Peggy Brandt, formerly of MF Global, RJO O’Brien and LIT America, has a new full-time job in compliance with Rand Financial. Peggy is an old friend from my LIT days. Congrats Peggy.

Doug Ashburn will be taking on the moderator role next week at the Security Traders Association of Chicago’s 88th Annual Mid-Winter Meeting. He will be leading a discussion on minority owned asset managers and brokers. Dr. Maggie Crowley, also known as Jim Kharouf’s wife, will be moderating a panel on trader psyche.

Also, There will be a very interesting panel about “What the Trading Industry Can Learn from Chicago Startups.” Panelists include:

David Bowen, CEO MarketMaker4
Galen Mason, Special Counsel at Foley and Lardner and Founder of Catapult
Yan Pritzker, CTO of Reverb.com
Jim Swartwout, President, tradeMONSTER

Add @DebbieCarlson1 to your list of people you follow on Twitter. Debbie is a talented Chicago financial journalist specializing in commodities.

My friend and Elmhurst neighbor David Heinle, formerly of FIMAT and MF Global has a new career as an agent for New York Life. He can be reached at dheinle@ft.newyorklife.com .

On Wednesday of this week, we had James Koutoulas of Typhon Capital as a guest editor for JLN Managed Futures. You can see the January 15 edition of the newsletter and his comments at jlne.ws/1avfGhU

We will have guest editors for JLN Options and JLN Environmental/Energy the last week of the month.

Monday is Martin Luther King, Jr. Day in the US on Monday. We will publish this newsletter, but will not be publishing JLN Options or JLN Financials. We will publish JLN Environmental/Energy.

Evidently I have an anniversary that LinkedIn has announced. It has been 11 years since I started John J. Lothian & Company, Inc.

BTW, if you have not paid for your 2014 subscription to the John Lothian Newsletter yet, please do. If you would like an invoice, just email me back to request one. You can pay online at johnlothiannews.com/payments/ or there is a link with each invoice I send out.

Lastly, Tuesday is a key meeting for the CFTC’s Technology Advisory Committee in Washington. This will be the first one I have not attended in person since being named to the committee. I will be attending via teleconference from Chicago in the CFTC’s offices there. It should be interesting.

Have a great weekend!

~John

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Growth-hungry bourses beat a path to Singapore
Jeremy Grant – FT.com
Since it was founded by Sir Stamford Raffles in 1819, Singapore has been known as a commodity trading centre in Asia, first in rubber and tin. Now exchanges are beating a path to the city-state as they tap the region’s fast-growing commodity and energy markets.
jlne.ws/1czLMsr

***** The back story is that Jeremy Grant would like you to visit him in Singapore.

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Buying New York Exchange brought worldwide attention to Sandy Springs business
Reporter Newspapers
Jeff Sprecher says he could see right away the difference that buying the iconic New York Stock Exchange meant for his Sandy Springs-based company. A college friend texted him to say, “Who knew you could actually buy that thing?”
jlne.ws/1czLLEV

***** Now Jeff has a great life and the great Liffe.

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Exclusive – Derivatives may escape euro zone transaction tax: document
Reuters
The “bogeymen” of derivatives and securitised debt, blamed for deepening the financial crisis, may escape a new euro zone transactions tax as policymakers fear harming funding for companies and the economy, a document seen by Reuters showed.
jlne.ws/1czLMsz

***** The threat of a transaction tax is never dead.

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FX: A Superhero-Free Zone
Katie Martin – MoneyBeat – WSJ
Remember Bernieman? This time last year, he was Citigroup’s very own superhero in cartoon form. Ripped, lycra clad, tongue-in-cheek, exhorting the bank’s foreign-exchange staff to badger clients for votes in the FX market’s answer to the X Factor: Euromoney’s market share poll. Now, the annual poll is live again, for the 36th time, but Bernieman is not being brought out of retirement, people familiar with the matter say.
jlne.ws/1czLLF1

***** We don’t have a Bernieman here, but we do have a Windyman who is a golf hero. We also have a BiketoWorkMan among other men in tights.

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Spillmann

Emerging Opportunity: Silvercrest’s Mike Dubin on Matching Small Funds with Large Investors
JohnLothianNews.com
The managed futures space continued to struggle to post enticing returns in 2013, but Silvercrest Asset Management’s managing director Mike Dubin says that has not kept his firm from looking for emerging manager talent in the space. Dubin, who spoke at the Emerging Manager Forum in Miami in December, says the research shows that smaller emerging managers have continued to outpace larger funds by 2 percent to 4 percent per annum. There have been a number of studies that conclude that smaller funds that produce nice returns tend to perform poorly going forward when they have large pools of capital to manage and invest. Here’s how Silvercrest is matching small funds with large investors.

Watch the video »

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MarketsWiki

MarketsWiki Page of the Day
Emily Thomas
jlne.ws/Lblg2o

Phill Jeffrey
jlne.ws/Lbl82S

MarketsWiki Recent Updates

People

Aric Forsythe; Marisa Coleman; Daniel Cook; John Austin; Nick Solinger; Phill Jeffrey; William McCoy; Jodi Kawada

Companies, Organizations and Groups

North American Derivatives Exchange (Nadex); OCC; Novus Investments

Miscellaneous

Binary contracts; Binary options

Statistics

46,560,155 pages viewed, 7,765 articles, 176,786 edits
MarketsWiki Statistics

Lead Stories

Aequitas revises exchange proposal
Philip Stafford – FT.com
A new stock exchange in Canada designed to limit high-frequency trading has amended its proposals after regulators said they would not back its initial plans. Aequitas Innovations, a start-up backed by large fund managers and the country’s biggest bank, will begin building its technology and finalise a formal regulatory application after incorporating responses from regulators and customers, it said on Thursday.
jlne.ws/1czLMsD

Exclusive: SEC may seek more power to enforce Volcker rule
Reuters
U.S. securities regulators fear they do not have the full range of enforcement powers to police Wall Street’s compliance with the controversial Volcker rule, and told Reuters they are considering new rules to fill the gap.
jlne.ws/1czLMIT

ICE Benchmark Administration To Become New Administrator Of LIBOR On February 1, 2014
IntercontinentalExchange Group, the leading global network of exchanges and clearing houses, today announced that ICE Benchmark Administration (IBA) will officially take over as the new administrator of the London Interbank Offered Rate (LIBOR) from February 1, 2014.
jlne.ws/1czLMsx

LSE appoints Sherry Coutu and Joanna Shields as directors
Lina Saigol – FT.com
The London Stock Exchange appointed two women directors on Friday, removing itself from the City’s shrinking pool of all-male boards. Sherry Coutu and Joanna Shields will join as non-executive directors with immediate effect, the LSE said in a statement.
jlne.ws/1czLMIU

J.P. Morgan Narrows Field of Bidders for Commodity Assets
WSJ.com
J.P. Morgan Chase & Co. has settled on a short list of potential buyers of its physical-commodity assets, coming a step closer to exiting from a business that has come under regulatory pressure.
jlne.ws/1czLOAy

EU Weighs Ban on Proprietary Trading at Some Banks From 2018
Jim Brunsden – Bloomberg
The largest banks in the European Union would face a “narrowly” defined ban on proprietary trading from 2018 under draft plans by Michel Barnier, the EU’s financial services chief.
jlne.ws/1czLOAE

ECB s Noyer prods French financial sector over Euronext
Reuters
France’s financial sector should use the impending spin-off of stock market group Euronext as an opportunity to enhance Paris’ status a financial centre and boost the economy, the governor of the Bank of France said on Thursday.
jlne.ws/1czLMsB

Bank Execs Shrug Off Volcker Rule… Even Jamie Dimon
Maureen Farrell – MoneyBeat – WSJ
Remember when J.P. Morgan’s CEO Jamie Dimon wondered aloud on a conference call whether Dodd-Frank regulations could destroy the health of the capital markets in the U.S.? Fast-forward two years, and he’s not so worried.
jlne.ws/1czLMJ5

Competition for banking business lurks in the shadows
Tracy Alloway in New York – FT.com
Cocktails, cabanas and credit quality were some of the talking points at a commercial real estate conference held this week in Miami, as attendees swapped their overcoats for beachwear and sat down to discuss the rebounding market.
jlne.ws/1czLMJ9

IPO Fund Lures Record Money in Best Year Since 1999
Alexis Xydias – Bloomberg
The best year for U.S. initial public offerings since the 1999 technology boom is driving record money into an exchange-traded fund that invests in newly listed companies from Twitter Inc. to General Motors Co. (GM)
jlne.ws/1czLOR1

Banks Keep Their Mortgage Litigation Reserves a Secret
PETER EAVIS – NYTimes.com
From JPMorgan Chase’s $13 billion settlement over mortgage securities to lawsuits brought by bondholders, a barrage of litigation has been raining down on Wall Street banks. Yet the banks are not disclosing a number that is crucial for assessing their ability to deal those legal costs.
jlne.ws/1czLOR8

Firms Get Penalized, but Many Workers Don’t
WSJ.com
The Justice Department hasn’t charged employees at two-thirds of nearly 400 companies that have settled criminal investigations or been convicted of crimes in recent years, according to newly analyzed data.
jlne.ws/1czLORc

Regulatory

At last
The Economist
IT MAY sound like another instalment of “The Hobbit”, but “MiFID 2” is in fact the European securities industry’s biggest date with destiny in half a decade.
jlne.ws/1czLORh

Top 10 OTC Derivatives Events of 2013: Regulatory Recap
Sol Steinberg – TabbFORUM
From launching a platform for trading USD swaps, to completing production testing with credit hubs for pre-trade clearing certainty, to celebrating the clearing of an inaugural trade under the new regulations, 2013 continued the momentum in the changing OTC swaps markets.
jlne.ws/1hxOfJ9

The Commodity Futures Trading Commission Staff Announces Trade Execution Mandate for Certain Interest Rate Swaps
The Commodity Futures Trading Commission (CFTC or Commission) Division of Market Oversight (Division) today announced that Javelin SEF, LLC’s (Javelin) self-certification of available-to-trade determinations (MAT Determinations) for certain interest rate swap contracts, as described below, is deemed certified.
jlne.ws/1czLP7w

CFTC Expands Portal Capabilities to Make Public Submissions More Efficient and Secure
The U.S. Commodity Futures Trading Commission (CFTC or Commission) announced today that it has expanded the capabilities of an external portal that allows market participants and the general public to submit information more easily and securely while enhancing the CFTC’s ability to process submissions.
jlne.ws/1czLMZu

Update on independent review of Royal Bank of Scotland’s treatment of business customers in financial difficulty
The Financial Conduct Authority (FCA) has appointed Promontory Financial Group and Mazars to conduct an independent skilled persons report under section 166 of the Financial Services and Markets Act (FSMA) 2000.
jlne.ws/1czLP7x

Crackdown on fund industry entertainment begins
Madison Marriage – FT.com
The UK regulator plans to crack down on fund companies that splash out on lavish events and gifts for financial advisers in an attempt to win business.
jlne.ws/1czLP7B

Statement Of Commissioner Scott D. O’Malia On Made Available-To-Trade Determination
jlne.ws/1czLP7H

Insurer global capital standard unfairly constrains loss-absorbing capital instruments
Louie Woodall – Risk.net
New insurer capital standards proposed by the International Association of Insurance Supervisors (IAIS) unfairly constrain the loss-absorbing instruments that insurers can use and will clash with existing regulatory regimes, insurance industry bodies are warning.
jlne.ws/1czLMZC

CSA seek comment on derivatives Model Rule for customer clearing and protection of customer collateral and positions
The Canadian Securities Administrators (CSA) today published for comment CSA Staff Notice 91-304 Model Provincial Rule Derivatives: Customer Clearing and Protection of Customer Collateral and Positions, (Model Rule). The Model Rule is intended to increase the protection of customer collateral and positions, and to increase the resilience of derivatives clearing agencies.
jlne.ws/1czLP7M

AMF supports six education projects
The Autorité des marchés financiers announced today the education projects which will receive support from the Education and Good Governance Fund. The Assessment Committee chose six projects, submitted before the September 30, 2013 deadline, which will receive a total of $387,780.
jlne.ws/1czLNfX

Exchanges & Trading Facilities

Warsaw Eyes Creation of Regional Stock Exchange Giant
Anish Puaar – MoneyBeat – WSJ
The Warsaw Stock Exchange Thursday spoke about its growth strategy for 2014-2020, with the bourse targeting partnerships and acquisitions to expand in Central and Eastern Europe and diversify the revenue base. One crucial part of that: a potential merger with the Vienna Stock Exchange, with chief executive Adam Maciejewski hoping a deal can be completed this year.
jlne.ws/1czLMsA

Launch Of SGX HRC Steel Index Futures And Swap
SGX is pleased to announce the launch of the SGX Hot-Rolled Coil Steel CFR ASEAN (“HRC Steel”) Index Futures and Swap Contracts on Monday, 17 February 2014. This will be Asia’s first seaborne steel derivatives.
jlne.ws/1czLNg0

An aluminium supernova which the LME never saw coming
Izabella Kaminska | FT Alphaville
Forcing LME warehouse operators to comply with faster aluminium load-out rates was supposed to bring down excessive spot premiums for fabricators and end-users. And yet, as FT Alphaville pointed out on a number of occasions, we thought the LME’s solution — by misdiagnosing the problem — would not be successful.
jlne.ws/1czLPo4

Aquis Exchange To Add German Blue-Chips – Trading Universe To Expand Further In Early 2014
jlne.ws/1czLPo5

Moscow Exchange Monthly Market Report: December 2013
jlne.ws/1czLNg6

Hedge Funds & Managed Futures

The Lagging Effect of Alternative Funds
WSJ.com
Finding alternative ways to invest might sound like a smart idea, but in practice it can prove much tougher to pull off. Last year, the average so-called “alternative” mutual fund and exchange-traded fund returned 6.1%, according to Chicago-based investment researcher Morningstar Inc.
jlne.ws/1czLNg8

Northern property fund targets rebound in prices
Andrew Bounds – FT.com
A former Rothschild banker is setting up a fund to buy property in northern England and the Midlands as investors begin to look beyond London for returns.
jlne.ws/1czLPoa

Former FX Concepts Executives Savage, DiRusso Start Citic Fund
Lucy Meakin – Bloomberg
Former FX Concepts LLC executives Robert Savage and Ron DiRusso started a hedge fund with Citic Capital Holdings Ltd., the company backed by the sovereign-wealth funds of China and Qatar.
jlne.ws/1czLNwo

BlackRock Active Equity Management Improves
Sarah Krouse – MoneyBeat – WSJ
Efforts by the world’s largest fund manager to improve its actively managed equity fund performance showed further signs of payoff at the end of last year.
jlne.ws/1czLNwt

Banks & Brokers

Fixed Income Drops at Some Big Banks, but Who’s to Blame?
MICHAEL CORKERY and RACHEL ABRAMS – NYTimes.com
Bank executives may want to blame an uncertain economic climate for steep drops in fixed income, but some analysts are questioning that rationale.
jlne.ws/1czLNwu

Hellwig prescribes stricter recipe for banks to avoid financial meltdown
Business Standard
Martin Hellwig, a co-author of a book on wrong notions about the banking sector, has suggested increasing equity requirement for banks to 20%-30% of total assets against 3%, prescribed by the Basel III to avoid recurrence of financial meltdown.
jlne.ws/1czLPof

Bankia, Caixabank sell stakes in NH Hoteles, BME
Reuters
Spanish banks Bankia and Caixabank on Thursday announced stake sales in other companies as lenders bulk up capital ahead of Europe-wide health checks of their balance sheets this year.
jlne.ws/1czLNwv

Goldman Year-End Bonuses are a Mixed Bag
Justin Baer and Julie Steinberg – MoneyBeat – WSJ
Goldman Sachs Group Inc. employees were informed this week what their year-end bonus would be, and the result was a mixed bag. With the overall pool flat or a bit lower, the firm’s fixed-income traders on average received a smaller payout than a year ago, people familiar with the matter said.
jlne.ws/1czLPoh

Goldman Sachs’ Trading Machine Humbled In 2013
Forbes
Goldman Sachs has long ruled Wall Street because of its powerful trading machine, but last year the investment bank’s trading magic disappeared.
jlne.ws/1czLPoi

Morgan Stanley Names 153 Managing Directors, Up From 144 Last Year
Justin Baer – MoneyBeat – WSJ
Morgan Stanley on Thursday named 153 managing directors, a slight increase from the 144 employees awarded the senior title last year.
jlne.ws/1czLPoj

Citigroup Only Bank to Fall Far Short
Maureen Farrell – MoneyBeat – WSJ
Most of the big banks have now released fourth-quarter earnings, and CitigroupC -4.35% is the first to have stumbled.
jlne.ws/1czLNwB

For Goldman in Europe, a 3rd Way to Get Paid
NYTimes.com
To skirt caps placed on bonuses in Europe, the company will pay some employees a salary, a bonus and what it calls “role-based pay.”
jlne.ws/1czLPEE

JP Morgan finally paying cost for unethical behaviour, expert warns
Jessica Meek – Risk.net
A fall of 7.3% in fourth-quarter earnings for JP Morgan shows the significant cost of unethical behaviour, according to an expert in organisational behaviour. On Tuesday the bank reported net earnings of $5.3 billion, or $1.30 per share, in comparison with $5.7 billion, or $1.39 per share, for the same period in 2012.
jlne.ws/1czLNwH

Schwab Earnings Up 51% in Q4 on Record $2.25 Trillion in Assets
jlne.ws/1czLNMY

BGC Partners’ Fourth Quarter and Full Year 2013 Financial Results Announcement to be Issued Prior to Market Open on Wednesday, February 12, 2014
jlne.ws/1czLNN1

Clearing & Settlement

SocGen’s Cabannes Calls for Derivatives Clearinghouse in Paris
Fabio Benedetti-Valentini – Bloomberg
Paris should be considered for a euro-area clearinghouse for rates and equity-derivatives trades, helping the city compete with London, Societe Generale SA (GLE) Deputy Chief Executive Officer Severin Cabannes said.
jlne.ws/1czLPEH

Amundi chief Yves Perrier lands LCH.Clearnet board role in buyside boost
Vivek Ahuja and Anish Puaar – Financial News
LCH.Clearnet has appointed the chief executive of French asset manager Amundi as a director, in a move that boosts the buyside presence on its board.
jlne.ws/1czLNNb

CME Group Margins: Performance Bond Requirements – Coal, Crude Oil, Refined Products, Electricity, and Natural Gas Outrights; Crude Oil, Meals, and National Gas Intra-Commodity Spread Charges
jlne.ws/1czLPEK

Indexes & Products

Senior women in ETFs launch working group
Sarah Krouse in New York – Financial News
A group of senior female executives working in exchange-traded funds is launching a women’s network for the fast-growing industry, which saw assets rise to a record $2.39 trillion last year.
jlne.ws/1czLNNd

Tokyo Stock Exchange ETF/ETN Monthly Report For Dec 2013
jlne.ws/1czLPV4

Enforcement

FINRA Bars J.P. Morgan Vice President and Broker Friend in Insider Trading Scheme
The Financial Industry Regulatory Authority (FINRA) announced today that it has barred David Michael Gutman, a Vice President in the conflicts office of J.P. Morgan Securities, LLC, and Christopher John Tyndall, a former registered representative at Meyers Associates, L.P., from the securities industry for their roles in an insider trading scheme.
jlne.ws/1czLPV6

Environmental & Energy

Zombie carbon trading’s latest resurrection
Gar Lipow on Grist.org
Even as London carbon trading desks shut down in response to the crumbling European Trading System (ETS) , the zombie concept of carbon trading spreads to China. Because Robin Hahnel’s carbon trading defenses offer the best pro-carbon market arguments to date, this article tackles carbon trading largely by answering Hahnel.
jlne.ws/1djv1oM

Climate Protection May Cost 4% of World GDP by 2030
Bloomberg
The cost of containing rising temperatures to safe levels may reach 4 percent of economic output by 2030, according to a draft United Nations report designed to influence talks for a global-warming treaty.
jlne.ws/LaSejp

**RKB — Additional coverage of the UN report story we ran earlier this week.

EU Parliament Committee Surveys Members on Carbon-Fix Scrutiny
Bloomberg
The European Parliament’s environment panel gave its members until Jan. 24 to signal opposition to a measure that would alleviate oversupply of carbon permits, said two people with knowledge of the matter.
jlne.ws/1dxHeaL

Asia-Pacific

Neway Valve soars in Shanghai as China IPO freeze ends
Josh Noble in Hong Kong – FT.com
China’s first initial public offering for more than a year got off to a flying start, with the stock rising more than 40 per cent on its first day of trading.
jlne.ws/1czLO3z

ChiNext Valuations Surge as Small Turns Big in China Stocks
Bloomberg News
Companies in China’s benchmark index for small-capitalization stocks have never been so big.
jlne.ws/1czLO3F

SGX Welcomes EuroSports Global to Catalist
jlne.ws/1czLO3G

HKEx Announces Temporary Holiday Risk Management Arrangements
jlne.ws/1czLPVf

Frontier Markets

Brazil asset managers see challenging year for fundraising
Reuters
Brazil’s asset management industry faces a challenging year for fundraising in some segments, as higher interest rates and a presidential election in the country as well as the removal of monetary stimulus in the United States make investors skittish, industry group Anbima said on Thursday.
jlne.ws/1czLOjX

Storms gather over emerging markets
FT.com
Since the financial crisis, emerging markets have enjoyed some indirect benefit from the sluggish recovery of the developed world. The unprecedented stimulus unleashed by the largest central banks has depressed yields on safe assets, pushing investors to search for higher rates in ever more exotic locations. Between 2010 and 2013, private capital inflows to developing countries jumped to about 6 per cent of their combined gross domestic product.
jlne.ws/1czLOk4

Brokers say NSEL scam a corporate fraud
Business Standard
Commodity traders have protested against the threat of the economic offences wing (EOW) of the city police to attach properties of brokers of the National Spot Exchange (NSEL). Members of the commodity trading fraternity see the Rs 5,600-crore payment default as entirely a corporate fraud.
jlne.ws/1czLOke

MCX Weekly Market Report January 10, 2014 – January 16, 2014
jlne.ws/1czLOkf

Miscellaneous

A Game for Would-Be Deal Makers
SYDNEY EMBER – NYTimes.com
For young finance professionals, an investment banking deal usually conjures up images of spreadsheets, weekend work and late-night emails from managers. It does not usually inspire thoughts of a game.
jlne.ws/1czLQbI

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About Author

Matte is chief operating officer of John J. Lothian & Co. He edits the John Lothian Newsletter, JLN Forex and MarketsWiki.