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John Lothian Newsletter: CME’s Market Surveillance Found Lacking by Its Chief Regulator; Bats tilt prices in favour of HFTs; US prosecutors to interview London FX traders

First Read

It’s Time
Jim Kharouf, Editor-in-Chief, John Lothian News
It’s time for the derivatives industry to innovate again. The last several years have been focused on redefining, resizing and revising the industry’s structure and rules.

Now with much of that set, it’s time for some real product innovation. There are many areas in which innovation can be extended and explored but for the purposes of this column, it’s in the contract space. An argument could be made that the last great product innovation in the derivatives industry was the CBOE Volatility Index futures, an index that was launched 10 years ago.

There have been a few other hits along the way but I’m talking about something new, interesting and potentially world changing. If the derivatives industry is truly about enabling companies, institutions and individuals to offset risk, then its time to address some truly global issues such as healthcare or more directly, cancer.

Andrew Lo, the director of the Massachusetts Institute of Technology Sloan School of Management’s Laboratory for Financial Engineering, believes he has part of the answer to curing cancer – better financial engineering using derivatives.

There’s more! Read the whole article on the JLN Blog at


Donnie Roberts, Thinkorswim – Traversing Seismic Shifts

“The biggest shift in this world is to a knowledge-based environment. You guys can fuel that.”

Donnie Roberts of Thinkorswim discusses how we all go through event shifts during our careers. Beginning with his start at Thinkorswim Group Inc., a small Chicago-based options brokerage firm, Roberts discusses how the firm was acquired by TD Ameritrade and his transition of working in a small office environment to the expectations of a larger firm. Roberts also acknowledges the importance of education and how it is an essential factor to the future participants of the financial industry. Roberts explains how he keeps himself educated to understand new regulation and learn about key members in the financial industry. He says that all new entrants into the industry have a chance to shape its future, but keeping yourself educated is the biggest advantage you can have.

Watch the video »


CFTC knocks CME Group for lack of enforcement staff
Lynne Marek – Crain’s Chicago Business
CME Group, the world’s biggest futures exchange operator, lacks sufficient enforcement staff to process disciplinary cases in a timely way and sometimes staff deliberates too long on whether to take action, according to a Commodity Futures Trading Commission rule enforcement review.

***** Good story by Lynne Marek on the CFTC review of the CME Group, but it does not include a quote from yours truly like the Bloomberg piece in Lead Stories does.


SGX fights back against thin volumes
Jeremy Grant in Singapore – Financial Times
For Singapore’s SGX exchange, this month’s launch of a trading link between the Hong Kong and Shanghai equity markets has loomed large, as investors look ever more anxiously at the rise of China’s capital markets.

***** Some things take time to develop, especially where China is involved. We looked at starting a China or Asia newsletter six years ago and are still not ready to make that move.


Global metal trading becomes more difficult to regulate
Henry Sanderson – Financial Times
Global metals markets are becoming more difficult to regulate as manipulation takes more subtle forms and new trading platforms spring up, according to a new study.

***** Metals? How about all the markets? This author is giving the tinfoil hat crowd a Thanksgiving present.


HFT critic Michael Lewis ‘dead wrong:’ Author
Michelle Fox – CNBC
As the debate over high-frequency trading continues, a new book is out defending the practice, with its author calling critic Michael Lewis “dead wrong.” Lewis, who wrote the best-selling book “Flash Boys: A Wall Street Revolt,” accuses high-frequency trading firms of rigging the market.

***** Sensationalized and salacious? Watch the video to find out who said this about Flash Boys.


Simon Puleston Jones, CEO of FIA Europe – In pursuit of Happiness

“Try to find someone who does things right that you really aspire to be over the course of your career.”

Simon Puleston Jones, CEO of FIA Europe, gives advice for balancing personal life with career life. Jones begins his presentation with an acronym for “DREAM”, discussing how happiness and achieving your goals is related to Diligence and drive, Relationships and recruitment, Education and ethics, Adjustments and appreciation, and Mistakes and mentors. He stresses that your career should be something you truly enjoying waking up for and how some perks such as fancy cars and large boats can be outweighed by having a family and raising children. Jones shows that happiness is not about materialistic possessions, but rather the relationships you build with others and the experiences you have throughout your life.

Watch the video »


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Lead Stories

CME’s Market Surveillance Found Lacking by Its Chief Regulator
Nick Baker and Sam Mamudi – Bloomberg
CME Group Inc. (CME)’s efforts to police its exchanges, which are some of the biggest in the world, should be improved, according to its primary regulator.

CFTC tells CME Group to work more on ‘spoofing’ detection
Tom Polansek – Reuters
CME Group Inc, the world’s largest futures market operator, should continue to develop strategies to detect an illegal manipulative trading practice known as “spoofing,” the U.S. Commodity Futures Trading Commission said on Monday.

Bats tilt prices in favour of HFTs
Tim Cave – Financial News
Bats Chi-X Europe, the region’s largest stock exchange, is to change a tiered pricing model it introduced in April in a move likely to further reward its most active traders, such as investment banks and high-frequency trading firms.

Exclusive: U.S. prosecutors to interview London FX traders – sources
Jamie McGeever and Aruna Viswanatha – Reuters
U.S. prosecutors will travel to London in the coming weeks to interview traders about currency market manipulation, the latest sign that authorities are closer to filing criminal charges stemming from the long-running probe, sources told Reuters.

Women’s Exchange At HKEx Event Spotlights Women Opting Back In
The Women’s Exchange at HKEx (Hong Kong Exchanges and Clearing Limited) hosted a reception today (Monday) to spotlight women who opted back into full time employment. The Women’s Exchange at HKEx (the Women’s Exchange) was initiated by HKEx staff in 2013. It aims to promote the development of policies and programmes within the company that support women in leadership roles.

In Battle of Sexes at Central Banks, Thai Women Have Already Won
Suttinee Yuvejwattana – Bloomberg
Janet Yellen’s appointment as Federal Reserve chair this year was hailed as another step toward gender equality. How about a central bank where women outnumber men? This is the Bank of Thailand, which runs monetary policy in Southeast Asia’s second-largest economy and has 31 women among its 60 top executives.

FBI Files Say Hedge Fund Analyst Made Millions on Tips From Dell Insider
Neil Weinberg, David Glovin and Patricia Hurtado – Bloomberg
The FBI files spell it out: An analyst at Citadel LLC, the hedge fund with $23 billion in capital invested globally, told agents he made millions of dollars trading on information from a company insider.


CFTC DMO Issues Rule Enforcement Reviews of the Chicago Board of Trade, Chicago Mercantile Exchange, Commodity Exchange, Inc. and New York Mercantile Exchange, Inc.
The U.S. Commodity Futures Trading Commission’s Division of Market Oversight (Division) today issued three separate rule enforcement reviews of certain Designated Contract Markets (DCMs).

CFTC Staff Issues Time-Limited Extension of Swap Data Reporting Relief for Certain Swap Dealers and Major Swap Participants Established under the Laws of Australia, Canada, the European Union, Japan and Switzerland
The U.S. Commodity Futures Trading Commission’s Division of Market Oversight issued a time-limited no-action letter today that extends certain relief provided to certain Commission-registered swap dealers (SDs) and major swap participant (MSPs) in CFTC Letter No. 13-75.

SCI: A Whale of a Regulation
Jennifer Costley, Ph.D – Wall Street & Technology
The SEC’s Reg SCI weights in at a whopping 742 pages. Here is what you need to know about the oversized regulation.

European regulators issue fresh Kid proposals
European supervisory authorities have issued a paper proposing forthcoming requirements for retail product’s key information documents, with a focus on cost transparency and types of risk indicator

Another successful edition of Rendez-vous with the AMF
On November 10, 2014, close to 450 people took part in the 9th edition of Rendez-vous with the AMF. This annual major event is a unique forum for exchanges between professionals and key players in the financial products and services industry in Québec.

GOP Lawmakers Tell SEC to Delay Pay Rule
Andrew Ackerman – MoneyBeat – WSJ
A trio of key Republican lawmakers are urging the Securities and Exchange Commission to drop its plans to soon require companies to disclose the pay gap between chief executives and their employees, warning it would be unduly costly and detract from more important SEC priorities.

Exchanges & Trading Facilities

Intercontinental Exchange Completes Liffe Transition To ICE
Intercontinental Exchange, the leading global network of exchanges and clearing houses, announced that it has successfully completed the Liffe futures and options transition to ICE Futures Europe. The final phase of the Liffe transition was completed with the equity derivatives complex transferring to the ICE platform, following the previous migrations of European interest rate derivatives and soft commodity contracts.

CME to launch repo futures through BNY Mellon agreement
CME has teamed up with BNY Mellon to launch futures contracts based on US Tri-Party Repo indices, set to go live in 2015.

Presentation By HKEx Co-Head Of Global Markets Romnesh Lamba At A Media Workshop On London Metal Mini Futures

Presentation By HKEx Head Of Asia Commodities Rebecca Brosnan At A Media Workshop On London Metal Mini Futures

Direct Edge Trading Notice #14-52: Reminder: BATS/Direct Edge Integration Update Conference Call On November 25, 2014

Hedge Funds & Managed Futures

Rothschild spin-out reaches first close
Becky Pritchard – Financial News
Seligman Private Equity Select, which spun out of private bank Edmond de Rothschild in 2011, has reached a close on its first independent fund.

Carlyle Said to Seek $5 Billion for Fund With Longer Life
Sabrina Willmer and Devin Banerjee – Bloomberg
Carlyle Group LP is gathering as much as $5 billion for a fund that can hold stakes in companies for as long as 20 years, joining private equity firms such as Blackstone Group LP (BX) and CVC Capital Partners Ltd. in seeking more permanent capital from investors.

A Bearish Hedge Fund Going Against the Bulls Still Profits
Peter Eavis – Dealbook – NY Times
The stock market has been rising for years, hitting new highs almost every week. So how is it that one of Wall Street’s most bearish investors can claim to have profited strongly over this period?

Wealth manager research reveals true cost of fund manager exits
Julia Rampen – Investment Week
The departure of star managers may have hidden costs for investors “stampeding” for the exit, a wealth manager has warned.

FCA review of in-house funds reveals communication issues
Anna Fedorova – Investment Week
Some wealth managers are unclear and inconsistent in their communication with clients regarding in-house fund ranges, an FCA review has found.

Why It’s Been a Tough Year for Hedge Fund Managers: Video
Bloomberg’s Mike Regan discusses hedge fund managers with Julie Hyman on “Street Smart.”

Banks & Brokers

GFI launches USD MAC swaps on RatesMatch
GFI Group Inc, an intermediary in the global OTC and listed markets, has launched USD Market Agreed Coupon MAC Swaps on its SEF.

Ana Botín appoints Santander CFO as new chief executive
Tobias Buck in Madrid – Financial Times
Ana Botín has made her first big move since taking over as chairwoman of Banco Santander, appointing a new chief executive and naming three new independent directors.

Deutsche and Goldman finalise backing of Greek private equity spin-off
Vivek Ahuja – Financial News
Senior staff at the private equity arm of the National Bank of Greece have set up a London-based entity in preparation for a spin-off, having secured backing from units of Deutsche Bank and Goldman Sachs.

Goldman to Disclose Profit It Made on Libyan Trades
Jenny Anderson – Dealbook – NY Times
Goldman Sachs will disclose how much it earned on a set of complex derivatives trades at the heart of a lawsuit brought by Libya’s sovereign wealth fund, the two parties decided before a hearing Monday.

BNP Paribas restructures securities services governance
John Bakie – The Trade
BNP Paribas has shaken up its investment banking division, in which its Securities Services business will now report to the head of its newly formed Corporate and Institutional Banking (CIB) unit, effective 5 January 2015.

RBS ‘wanted critic’s mortgage back’
A businessman who wrote a government report that criticised RBS has been told he can no longer remain a customer of the bank, according to the BBC’s Panorama programme.

ECB in a quandary on asset purchase programmes
James Mackintosh – Financial Times
Switzerland votes on Sunday on whether to force its central bank to more than double its gold holding to a fifth of reserves, and ban it from selling the bullion. The policy is barmy and would kill the Swiss National Bank’s efforts to offset demand for the safety of its currency by printing money on a Zimbabwean scale. But 200 miles north, the idea of buying gold might usefully be deployed by the European Central Bank, as the most politically acceptable, if least effective, form of large-scale quantitative easing.

OpenMarkets Executes Its First Direct-To-Consumer Managed Funds Trade, Through Its New Multi-Asset Trading Hub
OpenMarkets, Australia’s fastest growing independent execution-only stockbroker, broke new ground in the investing landscape last week, by executing its first direct-to-consumer Managed Funds trade through its new Multi-Asset Trading Hub (MATH).

Clearing & Settlement

Clearing houses may face new capital rules
Philip Stafford – Financial Times
The risk management houses that underpin derivatives markets may need to hold more capital to prevent a taxpayer bailout if one of them fails, a senior regulator from the Bank of England has warned.

ISDA calls for more CCP ‘skin in the game’
The Trade
The International Swaps and Derivatives Association (ISDA) has called for increased transparency in the amount of capital central counterparties (CCPs) put aside in the case of a member default.

What the leverage ratio means for clearing fees – Citi analysis
From their current levels of a few hundred US dollars, clearing ticket fees for some typical over-the-counter derivatives trades would need to jump to $1,000 or more if banks are to earn a healthy return on the capital required by the supplementary leverage ratio, according to Citi’s Mariam Rafi.

Indexes & Products

HKFE Announces Revised Margins For iShares FTSE A50 China Index ETF & Ping An Insurance Futures

Irish Stock Exchange : Daily Disclosure Requirement For Actively Managed ETFs Removed

Semi-Annual Changes To The NASDAQ OMX CRD Global Sustainability Index


Goldman Sachs leads $15m financing of data service for investors
Tracy Alloway in New York and Arash Massoudi in London – Financial Times
Goldman Sachs has emerged as the largest investor in a financial analytics start-up that enables institutions to mine a wealth of big data, underscoring Wall Street’s drive to tap new technology.

News Brief: Independent Research Firm Names SunGard’s WealthStation Best-in-Class for Financial Planning Technology
SunGard’s WealthStation Financial Planning solution has been named best-in-class in the CEB TowerGroup “Financial Planning Solutions: Technology Analysis”* published in November 2014. WealthStation received a best-in-class ranking in all four categories: Client Engagement, Advisor Experience, Advisory Tools, and Enterprise Support.

FIX Trading Community Revamps Efforts to Address High-Performance Trading
Ivy Schmerken – Wall Street & Technology
The nonprofit industry standards body said it has combined all initiatives related to the support of FIX for high-performance trading and market data under a single working group.

FIX restructures to support high performance development
John Bakie – The Trade
FIX Trading Community has combined two key working groups as part of a focus on using the protocol for high performance trading applications.

Wall Street Horizon Appoints Industry Veteran Bruce Fador as President
Ivy Schmerken – Wall Street & Technology
Demand for stock calendar event data services is increasing among quants. Wall Street Horizon appointed Bruce Fador as president to push growth into other sectors.

Data Vets Sigillo, Johnson Establish MDI ‘Data Management-as-a-Service’ Practice
Market data management veterans Rich Sigillo and Cindy Johnson have set up a new company focused on providing market data expense management and optimization as a managed service for firms that are not large enough to have a dedicated market data management function or want to outsource portions of their market data management processes.

Bse to implement solarflare technology
The BSE, previously known as the Bombay Stock Exchange, has announced the application of Solarflare technology on its customer gateways and throughout its core network.

OTAS Technologies Launches OTAS Base, Developer Toolkit That Integrates OTAS Analytics – API And Visualisation Toolkit Assists Developers In Building Applications That Integrate OTAS Analytics And Visual Elements


FINRA Fines Citigroup Global Markets Inc. $15 Million for Supervisory Failures Related to Equity Research and Involvement in IPO Roadshows
The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Citigroup Global Markets, Inc. $15 million for failing to adequately supervise communications between its equity research analysts and its clients and Citigroup sales and trading staff, and for permitting one of its analysts to participate indirectly in two road shows promoting IPOs to investors.

AMF launches penal proceeding in matter of Ressources Lingot d’Or inc.

AMF seeks fine against Gilles Dufresne

Environmental & Energy

Solar and Wind Energy Start to Win on Price vs. Conventional Fuels
NY Times
For the solar and wind industries in the United States, it has been a long-held dream: to produce energy at a cost equal to conventional sources like coal and natural gas. That day appears to be dawning.

**Cost comparison is amazing – solar as low as 5.6 cents a kilowatt-hour, wind as low as 1.4 cents and nat gas at 6.1 cents, coal at 6.6 cents.

67% Of Americans Support Federal CO2 Regulations
Cynthia Shahan – Clean Technica
The Yale Project on Climate Change Communication recently released statistics based on the answers of adult voters. 67% wanted environmental protection and investment into renewable energy.

**JK – States will have to address this, as Congress hasn’t, and likely won’t.

Nearly three quarters of Brits want global action on climate change
Jessica Shankleman – Business Green
The pressure for world leaders to act on climate change is not just coming from green businesses and NGOs, according to a new government-backed survey which reveals 73 per cent of the British public want to see a global deal on climate change agreed in Paris next year.


Tokyo Stock Exchange: Results Of Discussion On Extension Of Trading Hours
Tokyo Stock Exchange, Inc. (TSE) has today decided not to extend its trading hours. The background to the decision-making process can be found below.

Korea Exchange And DME Announce Cooperation
Korea Exchange (KRX), the leading North Asian equities and derivatives operator, and the DME, the premier energy futures and commodities exchange in the Middle East, today announced that they have signed a Memorandum of Understanding (MoU) to strengthen their cooperation in promoting the development of commodity futures contracts and in particular crude oil.

Warning over ‘fake’ offshore bank
Banking regulators in Jersey have warned consumers and investors not to deal with a bank claiming to operate in the Channel Islands.

New Kospi volatility futures register low volumes
Korea’s volatility futures product launched last week, but onerous barriers on retail investors have acted as a drag on the market

JCCH SPAN Parameter effective 12/1

Thai Bourse Successfully Holds SET In The City Event In 2014

Frontier Markets

Jim Rogers’ contrarian view on Russia
Izabella Kaminska – Financial Times
The rouble may be down more than 25 per cent versus the dollar this year, but the currency’s recent slide won’t be enough to dissuade legendary investor and author Jim Rogers from adding to his Russia investments.

Exchange trading on the march in EMFX
On-exchange trading has been targeted as a potential growth area for emerging markets (EM) foreign exchange as firms clamour for more liquidity in this rapidly expanding sector.

African Bond Sales Poised for Buoyant Year-End
Ben Edwards – WSJ
African bond sales are poised for a buoyant end to the year.

Dubai Financial Market: Market Holiday, UAE National Day, Market Closed On Tuesday And Wednesday 2-3 December 2014

HE Mohammed Al Gergawi Attends The Bell-Ringing Ceremony To Celebrate The Listing On NASDAQ Dubai Of AED 2.57 Billion Sukuk Issued By DIFC Investments

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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.