John Lothian Newsletter: CFTC steps up probe of ‘exchange for futures’ deals; Nasdaq OMX builds up technology sales in Asia; EU’s plans for growth to bring shadow banking in from the cold

What is the John Lothian Newsletter? Edited by John Lothian and Jon Matte, our flagship newsletter provides daily news and commentary about the global exchange traded derivatives, securities and related OTC markets. The newsletter is offered on a voluntary pay basis. If you find it useful, we ask that you pay for it. Free for students and journalists. Subscribe  Make a Payment

First Read

Exchange CEO Series – Asian Opportunity: CME Group’s Phupinder Gill says Asia is the place to be
JohnLothianNews.com
Exchanges have never faced more challenges and opportunities than they do today.

John Lothian News sat down with six exchange CEOs at the 2014 FIA Boca Conference to talk about their views on four main topics: competition, regulation, growth and technology. Phupinder Gill, CEO of CME Group, said that regulation will continue to define the competition and industry framework for the foreseeable future and rising global demand for existing and new products, particularly from Asia will drive growth.

“The competitive landscape, as it stands now, is going to be largely dictated by where the regulatory landscape takes us,” Gill said. “As exchanges with a global footprint start to think about how the world might evolve, you have to take into account a few things – what the impact of Dodd-Frank is, the finalization of the SEF rules, how MIFID and EMIR work themselves out and implications for infrastructure providers such as ourselves. The trick for us is to make the experience for our client base as seamless as we possibly can.”

Watch the video »

++++

Nasdaq NLX says 10 percent market share in key contract shows momentum growing
Reuters
Nasdaq OMX‘s new London-based derivatives exchange has achieved 10 percent market share in one of its contracts, a level of liquidity that will draw more market participants to connect, its chief executive said.
jlne.ws/1gteMcQ

***** There was not as much talk in Boca about London this year as last, but NLX is making progress.

++++

CME move to shrink board opposed
Neil Munshi in Chicago – FT.com
CME Group, the world’s largest futures exchange, is facing opposition over its efforts to slim down the size of its board after unveiling plans to reduce the representation of some of its traders and users.
jlne.ws/1gteMcT

***** I am no one to talk, but some slimming would be good overall.

++++

JLN/MarketsWiki 2014 Annual Survey – Please Give us 30 Seconds of Your Time
John Lothian News
You still have time to fill out our quick demographic survey and get in the running for your choice of an iPad Mini or a pair of Bose Quiet Comfort Noise-Canceling Headphones. The cost is a mere 30 seconds of your time. Answers will be kept confidential.
jlne.ws/1bOrYYC

++++

Financial reform effort disappoints former CFTC regulator
Gina Chon in Washington – FT.com
Bart Chilton, an outspoken US regulator, said one of his biggest disappointments as he steps down is that the White House has not made financial reform a top priority in recent years.
jlne.ws/1gteNh5

***** Bart Chilton is going to become the new Michael Greenberger for the financial press. You will hear from him regularly.

++++

Schneiderman (and Einstein) Pressure High-Speed Trading
Michael P. Regan and Sam Mamudi – Bloomberg
The most important rules governing high-speed electronic trading weren’t written by market regulators, New York’s attorney general or a computer whiz. They were formulated a century ago when Albert Einstein figured out nothing could travel faster than light.
jlne.ws/1h3f3yc

***** The number one rule of HFT is “thou shalt fill or kill.”

++++

Goldman’s Un-Goldman-Like Fix for the Market’s Glitch Problems
Scott Patterson – MoneyBeat – WSJ
Goldman Sachs Group Inc. President Gary Cohn dived headfirst into the shark tank that is the current debate about computer-driven markets Friday with an op-ed in The Wall Street Journal. To which we say: Welcome, what took you so long?
jlne.ws/1gteMd4

***** He probably came up with this idea in the elevator.

++++

How High-Speed Traders Are Like Fish
Mark Buchanan – Bloomberg View
At precisely 4:00:00 p.m. on Dec. 5, closing time for the Nasdaq stock exchange, a company called Ulta Salon Cosmetics & Fragrance announced worse-than-expected earnings. By 4:00:01 p.m., in the one second Nasdaq required to calculate the final stock price, high-speed traders with access to direct news feeds had already knocked it down by about 3 percent.
jlne.ws/1gteMJT

***** Interesting fish analogy. I have often used the fish metaphor to explain the markets. I even once new a trader who claimed to be a fish.

++++

Banker Deaths Leave Industry Concerned As Coroners Probe
Ben Moshinsky – Bloomberg
Coroners in London are preparing to investigate two apparent suicides as unexpected deaths by finance workers around the world have raised concerns about mental health and stress levels in the industry.
jlne.ws/1gteMtm

***** This can be a great or terrible industry, like any other. But mental health is a very important subject that is not dealt with openly enough.

++++

Gary DeWaal’s Bridging the Week: March 17 to 21 and 24, 2014 (Manipulation and Fraud: More than “I know it when I see it?”)
Gary DeWaal and Associates LLC
The Commodity Futures Trading Commission again warned the financial services industry how broadly it construes and is willing to apply its new anti-manipulation and anti-fraud authority in an enforcement action against an employee of an introducing broker who engaged in unauthorized trading of two customers’ accounts and endeavored to hide his activities from the customers and his employer.
jlne.ws/1gteMtn

++++

MarketsWiki

MarketsWiki Page of the Day
Kathleen Moriarty
jlne.ws/OHIjUl

MarketsWiki Recent Updates

People

Albert Helmig; Leo Murphy; Simon Raybould; Jignesh Shah; Mark Gonzalez

Companies, Organizations and Groups

New Zealand Exchange; McKay Brothers LLC; National Spot Exchange Limited; Financial Technologies (India) Ltd; Man Group plc; Euronext Liffe; Newedge; MCX Stock Exchange; Futures and Options Association; Futures Industry Association

Statistics

47,821,718 pages viewed, 7,857 articles, 180,827 edits
MarketsWiki Statistics

Lead Stories

CFTC steps up probe of ‘exchange for futures’ deals
Gregory Meyer and Kara Scannell in New York – FT.com
The US derivatives watchdog has warned market participants of potential legal charges as it escalates a probe into more than a million energy, metals, foreign exchange and other swap transactions.
jlne.ws/1gteNxt

Nasdaq OMX builds up technology sales in Asia
Jeremy Grant in Kuala Lumpur – FT.com
Nasdaq OMX has agreed to sell its trading systems to the Bangladesh bourse in a sign that the US group is ramping up technology sales to exchanges in Asia as they modernise to boost turnover.
jlne.ws/1gteNxx

EU’s plans for growth to bring shadow banking in from the cold
Reuters
European Commission proposals due to be published on Thursday on how to fund long-term investments to boost Europe’s economies brings the start of a rehabilitation for the image of “shadow banking”, the largely unregulated market-based provision of credit which lay at the heart of the financial crisis.
jlne.ws/1gteMtv

NY Attorney General Stirs Debate on HFT Perks
Ivy Schmerken
As part of his Insider Trading 2.0 investigation, Attorney General Eric Schneiderman is scrutinizing services like that offer high-speed traders the ability to profit from information before other investors see it.
jlne.ws/1gteMtA

WM owner State Street says no decision on FX fix changes
Reuters
State Street said on Friday it had no formal plans to overhaul the WM/Reuters foreign exchange fixing, the benchmark rate which is at the centre of a global investigation by regulators into possible manipulation.
jlne.ws/1gtcH0N

Time for a change in foreign exchange
Joel Clark – Financial News
It was the birthday party that never happened. In November 2013, the Bank of England had planned to host a cocktail party to celebrate the 40th anniversary of the establishment of its Foreign Exchange Joint Standing Committee.
jlne.ws/1gtcFGd

Algorithms will do more and more of the thinking in the world
GigaOM
At the New York Stock Exchange, machines make decisions in as short as 740 nanoseconds — faster than any human can think.
jlne.ws/1gteNO3

Wall Street’s Ties to Putin Threatened as Sanctions Bite
Jason Corcoran and Boris Groendahl – Bloomberg
Wall Street leaders including Lloyd Blankfein and James Gorman, who have courted business in Vladimir Putin’s Russia, are facing a dilemma as tensions over Ukraine escalate.
jlne.ws/1gteNO8

Regulatory

CFTC Division of Swap Dealer and Intermediary Oversight Issues No-Action Letter Regarding the De Minimis Threshold for Swaps with Utility Special Entities
The Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight (Division) issued a letter today providing no-action relief from certain requirements in the de minimis exception from the definition of the term “swap dealer.”
jlne.ws/1gteNOd

Statement Of CFTC Commissioner Scott D. O’Malia, Revised Relief From The De Minimis Threshold For Certain Swaps With Utility Special Entities
jlne.ws/1gteMK8

CFTC’s Division of Market Oversight Provides Extension of Temporary No-Action Relief with respect to Swaps Trading on Multilateral Trading Facilities Overseen by Competent Authorities Designated by European Union Member States
jlne.ws/1gteNOf

CFTC Releases Request for Comment for Swaps Data Overhaul
Becca Lipman
Citing inability to fully understand swaps-market data, the Commodity Futures Trading Commission has requested comments on ways to improve the way information is reported to swap data repositories (SDRs).
jlne.ws/1gtePFB

Asian watchdogs battle to keep pace with western regulations
Michelle Price – Financial News
As Australia’s presidency of the G20 takes shape, the spotlight is shining ever more brightly on the regulatory landscape in the Asia-Pacific region. Watchdogs in many Asian countries are trying to fall in line with standards set by Europe and the US, but fears are growing that this trend is not only expensive but could potentially stymie the development of Asia’s capital markets.
jlne.ws/1gteO4x

Fed’s expanding repo role risks backfiring
Michael Mackenzie and Tracy Alloway in New York – FT.com
The Federal Reserve is muscling into the shadowy realm of funding and leveraging once dominated by the shadow banking industry, seeking to reduce the possibility of tensions in the repo market.
jlne.ws/1gtcFpw

When does an FX spot become a forward?
Paul Murphy | FT Alphaville
Don’t ask a European regulator. Or, if you do, don’t expect an answer any time soon. We’ve written about the feud between the European Commission and the new-ish fangled ESMA before. Last time it was about the fact that no one seemed to be able to agree what constituted an “alternative investment.” This time it’s over a failure to agree a common definition of what constitutes a “derivative.”
jlne.ws/1gtcGtM

Volcker Rule Appendix B: What’s Next?
Senthil Radhakrishnan – Wall Street & Technology
The December Volcker rule enactment addresses the complex and nebulous area of proprietary trading, but one should expect amendments in the coming months.
jlne.ws/1gteO4K

NFA Compliance Rule 2-10: Interpretive Notice Regarding Allocation of Bunched Orders
jlne.ws/1gteOl1

[NFA] Financial Requirements Section 8: Information Requests
jlne.ws/1gtePFN

Backlash forces ‘pause’ to financial advice changes
The Australian
THE Abbott government has backed down on a key element of its controversial reforms to financial advice in a bid to head off a backlash from seniors, consumer groups and parts of the $1.5 trillion superannuation industry.
jlne.ws/1gtePFP

Don’t assume investors are rational, says Medcraft
The Australian
REGULATIONS that assume all investors will act rationally have caused harm and disclosure is not the “disinfectant” it was once thought, according to the corporate regulator.
jlne.ws/1gteOl5

ASIC Forum 2014 – Opening Address: Regulating For Real People Markets And Globalisation – Opening Address By Greg Medcraft, Chairman, Australian Securities And Investments Commission To The ASIC Annual Forum 2014, 24 March 2014
jlne.ws/1gtePW4

[Austria] FMA welcomes European proposal for a Single Resolution Mechanism for banks
jlne.ws/1gteOl9

Exchanges & Trading Facilities

LSE prospers from fears over Russia
Tim Cave – Financial News
Trading in Russian securities has surged on the London Stock Exchange amid fears that sanctions on Russia because of the Ukraine crisis may hit Moscow shares.
jlne.ws/1gtePW6

Nasdaq rethinks FinQloud partnership with Amazon
Arash Massoudi in New York and Barney Jopson in Washington – FT.com
Nasdaq is re-evaluating a venture based on Amazon’s cloud computing services after a landmark partnership to offer back-office data storage to banks and brokers failed to gain traction with customers.
jlne.ws/1gteOle

Interactive Brokers Offers TOM Access To Its Brokerage Clients
Interactive Brokers has decided to offer trading on TOM to its brokerage clients as of 24 March 2014. Clients will be able to trade directly on TOM in derivatives. With the connection of Interactive Brokers, more than 50% of the Dutch retail flow is executed via TOM.
jlne.ws/1gtePWd

TOM MTF Statistics Week 12, 2014
jlne.ws/1gteOBA

Hedge Funds & Managed Futures

U.K.’s Largest Hedge Funds Get Bigger With 82% of Assets
Lindsay Fortado and Jesse Westbrook – Bloomberg
The U.K.’s largest hedge funds are getting even bigger, with 20 firms controlling 82 percent of the assets under management, the country’s markets regulator said.
jlne.ws/1gteOBC

Meet the 2014 Rising Stars of Hedge Funds
Harriet Agnew – Financial News
This is the fourth annual FN 40 Under 40 Rising Stars of Hedge Funds, which is Financial News’ editorial pick of the most promising men and women in the industry. This year’s list, in particular, celebrates the managers who have succeeded in setting up new firms in the past few years, in what has been a tough fundraising climate.
jlne.ws/1gteOBH

Pimco launches first closed-end fund in Canada
Reuters
Pacific Investment Management Co on Friday launched the Pimco Global Income Opportunities Fund, one of the largest closed-end funds to list on the Toronto Stock Exchange, according to a statement by the firm.
jlne.ws/1gteOBJ

A Pension Fund Invests Against the Rules, and Wins
NYTimes.com
The Tampa, Fla., pension fund may be unique in its approach to managing its assets, which totaled $1.76 billion as of last September. Unlike the so-called Yale model, which has been widely copied and stresses alternative investments, the Tampa fund has no hedge fund or private equity investments.
jlne.ws/1gteQcB

Tremors in the Palace of the Bond-Fund King
NYTimes.com
Pimco, the giant asset manager, has been attracting attention for all the wrong reasons. First, the company has been bleeding assets. Perhaps more damaging, the firm’s corporate culture has been closely scrutinized ever since Mohamed A. El-Erian, the chief executive and Mr. Gross’s heir apparent, announced in January that he was resigning to spend time with his family and to work on projects like writing a book.
jlne.ws/1gteOS5

Private-Equity Consortium in $3 Billion Deal to Buy Nordic Payment Company
WSJ.com
Bain Capital and Advent International, together with Danish pension fund ATP, have agreed to buy Nordic card-payment company Nets for 17 billion Danish kroner ($3.14 billion) from a group of Scandinavian banks.
jlne.ws/1gteQcD

Blackstone mulls Israel opening as appetite rises
Alec Macfarlane – Financial News
Blackstone Group is considering opening an office in Israel, according to one of the firm’s senior advisers, amid rising interest in the country from some of the world’s biggest buyout operations.
jlne.ws/1gteOS9

Asset managers seize moment to expand overseas
Mike Foster and Giles Turner – Financial News
Merger activity in the asset management sector is lifting off, as fund managers seek to take advantage of a rising market to expand their borders.
jlne.ws/1gteOSa

CFTC Commitments Of Traders Reports Update
jlne.ws/1gteOSe

Banks & Brokers

Mark Gonzalez Joins Newedge as Head of OTC Clearing Sales Americas
Newedge, a global leader in multi-asset brokerage and clearing, today announced the appointment of Mark Gonzalez as Head of OTC Clearing Sales Americas. Mark will be based in New York and report to Adam Cohen, Head of Institutional Clearing Sales Americas, Prime Clearing Services.
jlne.ws/1gteOSi

JPMorgan top China banker Fang to leave amid hiring probe
Reuters
JPMorgan Chase & Co’s chief executive for China investment banking, Fang Fang, will leave the firm, according to an internal memo – a departure that comes amid a probe of JPMorgan hiring practices in Asia.
jlne.ws/1gteQcR

E*Trade bids goodbye to its iconic baby
Reuters
Digital discount broker E*Trade Financial Corp on Thursday bid farewell to the precocious baby who starred in the television commercials promoting its trading platform for the last six years.
jlne.ws/1gteQcS

Rabobank Names New Chairman
WSJ.com
Rabobank has named Wiebe Draijer as executive board chairman to replace interim chief Rinus Minderhoud, who stepped in when his predecessor resigned over revelations in the long-running interest rate-rigging scandal.
jlne.ws/1gteQt7

Trading desks step up to offer bespoke execution services
Anish Puaar – Financial News
Going the extra mile is a common mantra in any service industry, but for Europe’s biggest electronic brokers it is gaining importance. As weaker volumes have intensified competition among brokers, and asset managers have developed their in-house electronic execution expertise, a bulge-bracket reputation alone is not enough to win business.
jlne.ws/1gteQt9

Banks ‘are missing out on multi-asset revenue stream’
Matt Turner, Sarah Krouse and Michelle Price – Financial News
The biggest investment banks are missing a market that could be worth $7 trillion in five years, according to an influential report.
jlne.ws/1gtePp4

Federal Reserve Governor Jeremy C. Stein At The International Research Forum On Monetary Policy, Washington, D.C. , March 21, 2014, Incorporating Financial Stability Considerations Into A Monetary Policy Framework
jlne.ws/1gtcH0G

Clearing & Settlement

LCH.Clearnet launches new clearing service for Oslo Børs
Oslo Børs, the Nordic exchange, and LCH.Clearnet Ltd (LCH.Clearnet), the global clearing house, today announced that LCH.Clearnet is now clearing listed securities on Oslo Børs and Oslo Axess.
jlne.ws/1gteQtf

Japan FSA proposes two phases for mandatory clearing
Viren Vaghela – Risk.net
Japan has proposed two phases of mandatory clearing for yen interest rate swaps with two different thresholds to capture different sizes of financial institution but insurance companies and pension funds have not been included so far.
jlne.ws/1gteQtk

Indexes & Products

Bucharest Exchange Readies Index Expansion
Giulia Lasagni – WatersTechnology
The Bucharest Stock Exchange plans to launch two new indexes plus supporting data this year and to revise its existing Bucharest Stock Exchange Trading Index (BET) index family, in a move to turn its indicators into more accurate representations of the markets.
jlne.ws/1gtcFWv

FTSE Announces Changes To The FTSE MPF Index Series Following 2013 Market Consultation
jlne.ws/1gteQtn

Tokyo Stock Exchange: New ETFs Included In Real-Time Dissemination Of “TSE Indicative NAV”
jlne.ws/1gteQtp

Technology

Nanospeed Adds FPGA Eurex Data Support
Faye Kilburn – WatersTechnology
London-based startup hardware provider Nanospeed has added support for the T7 trading architecture utilized by Deutsche Börse’s Eurex derivatives market to its FPGA-accelerated Nano-TG ultra-low-latency trading gateway for equities and options markets
jlne.ws/1gteQJF

Compliancy Services selects Lombard Risk REPORTER to provide clients with EBA/COREP/XBRL regulatory returns submission services
Lombard Risk Management plc (Lombard Risk), a leading provider of integrated regulatory reporting, compliance and collateral management solutions for the financial services industry, is pleased to announce that Compliancy Services has selected Lombard Risk’s cloud-based version of REPORTER to provide their clients with EBA / COREP / XBRL regulatory returns submission services.
jlne.ws/1gteQJI

ICD selects Volante Designer to facilitate integration and transformation of SWIFT transactions, payments and reports
Volante Technologies, a global leader in the provision of financial data integration tools, today announced the addition of its latest payments customer, Institutional Cash Distributors Technology, LLC, the technology arm of ICD.
jlne.ws/1gtePpj

Enforcement

‘Big Short’ character sues SEC to stop enforcement case
Reuters
The U.S. Securities and Exchange Commission has been sued by a money manager made famous in Michael Lewis’ book “The Big Short,” who claims the regulator is violating his constitutional rights in how it is pursuing an enforcement case against him.
jlne.ws/1gteSkK

U.S. judge OKs JPMorgan $218 million Madoff class-action settlement
Reuters
A federal judge on Friday gave final approval to JPMorgan Chase & Co’s $218 million settlement to resolve class-action litigation accusing the largest U.S. bank of playing a central role in the huge Ponzi scheme of former client Bernard Madoff.
jlne.ws/1gteSkO

An Ohio Federal Court Rules against Defendants in CFTC Fraud Action and Orders Patrick Cole and Global Strategic Marketing, Inc. to Pay over $2.2 Million in Sanctions in Connection with Foreign Currency Ponzi Scheme
jlne.ws/1gteSkR

Environmental & Energy

EU Russian-Gas Cut Bid Amid Ukraine Crisis Sidelines Climate
Ewa Krukowska – Bloomberg
The annexation of Crimea by Russia pushed European Union plans to cut reliance on natural-gas imports from Russia’s OAO Gazprom (GAZP) to the forefront as the bloc held a first debate on 2030 energy and climate policies.
jlne.ws/1h2z9sz

BP calls for global carbon price to avoid the “worst impacts of climate change”
Barry Saxifrage – Vancouver Observer
Last year BP projected global climate pollution would “most likely” surge 26% by 2030. As I reported at the time, this would crank up the Earth’s thermostat a disastrous +4C according to the International Energy Agency (IEA). That is twice the +2C threshold for “dangerous climate change” that all major nations have promised to stay below.
jlne.ws/1h2PxJA

Lessons offered by emerging carbon trading markets
Phys.Org
Although markets for trading carbon emission credits to reduce greenhouse gas emissions have stalled in United States federal policy-making, carbon markets are emerging at the state level within the U.S. and around the world, teaching us more about what does and doesn’t work.
jlne.ws/1h2Mr8r

Asia-Pacific

KRX Launches Gold Spot Market
As a joint initiative announced last year among related institutions to facilitate transparent, electronic trading of spot gold on a regulated exchange, Korea Exchange(KRX) has pushed forward to launch its first gold spot market(“KRX Gold Market”) on March 24, 2014.
jlne.ws/1gtcFWy

Integration of Derivatives Markets on March 24, 2014
On Monday, March 24, 2014, the derivatives market of Tokyo Stock Exchange will be integrated onto that of Osaka Securities Exchange. The trade name of Osaka Securities Exchange Co., Ltd. will also be changed to Osaka Exchange, Inc.
jlne.ws/1gteSkZ

Japan’s Abe Calls for Investment Now
MoneyBeat – WSJ
Japan Prime Minister Shinzo Abe urged global money managers to invest in the country, during taped remarks delivered to an investment conference in Hong Kong on Monday.
jlne.ws/1gteSBf

SGX reports 3Q results on 23 April
jlne.ws/1gteQJS

[OSE] Commencement of a new contract month for CNX Nifty Futures
jlne.ws/1gteR0b

Frontier Markets

Venezuela Loosens Currency Regulations
WSJ.com
Venezuela’s Socialist government, facing weeks of street protests, is loosening currency regulations as it tries to jump-start an economy plagued by shortages of food and consumer goods.
jlne.ws/1gtcH0P

T Rowe eyes Brazil for return to Latin America
Joe McGrath – Financial News
T Rowe Price is poised to make a return to Latin America, with a new base in Brazil, having quit its previous hub in Argentina in 2013 because the government tightened up capital controls.
jlne.ws/1gteSBq

Buy Sheep, Avoid Goats of Emerging Markets
A. Gary Shilling – Bloomberg View
Since the start of 2014, investors have fretted over emerging markets. And they should. Early in this economic recovery, investors repelled by low returns in the developed world leaped for the stocks and bonds of emerging markets, whose markets promised faster growth.
jlne.ws/1gteR0j

Pari passu, plus ça change
Joseph Cotterill | FT Alphaville
Ah, spring: a season of renewal. The scent of flowers carried on a gentle breeze. And the international financial community can go back to arguing all over again about whether a promise which Argentina made in a bond issued twenty years ago – to treat creditors equally – will end up making sovereign debt restructuring harder to achieve.
jlne.ws/1gtcFpr

Dhaka Stock Exchange Selects NASDAQ OMX’s X-Stream INET Trading Technology
Bangladesh’s Premier Exchange To Upgrade Trading System To Further Increase Regional And International Investor Demand
jlne.ws/1gteSBw

Dubai Financial Market Enrols 4 New Brokerage Firms To Accredited Margin Trading Members
jlne.ws/1gteRgE

Nigerian Stock Exchange Weekly Report For The Week Ended 21 March 2014
jlne.ws/1gteRgI

Jon Matte
Jon Matte COO & Editor Matte is chief operating officer of John J. Lothian & Co. He edits the John Lothian Newsletter, JLN Forex and MarketsWiki. Author Archive  |  MarketsWiki Bio  |  LinkedIn  |  Email