Breaking News

London’s biggest clearing house open to more EU oversight; Exchanges stranglehold on data costs stifling market activity; Deutsche Boerse says open to index and data business deals

First Read

Have you checked out the lineup for Trading Chicago?
JLN

The FOW-JLN conference Trading Chicago is on June 28th — less than three weeks from now. Is it on your calendar yet?

Check out the lineup. Speakers this year include the Streetwise Professor Craig Pirrong, Leslie Sutphen and Gary DeWaal debating Dodd-Frank, Fidessa’s Steve Grob, Chris Hehmeyer and Joshua Yang talking about our markets in an age of populism with Carl Gilmore. Other notables include Jay Feuerstein of Budo Group, Richard Mackey of Rosenthal Global Securities and Tim Gits of Eurex and Chris Anderson of Itiviti talking about opportunities in the red hot interest rate markets. There are more speakers to check out on the Agenda page

Tickets for CTAs, hedge funds, proprietary traders and asset managers are FREE. For a quick snapshot of the event, see our cool animation of Trading Chicago below. You can register directly HERE
But wait, there’s more.

We have opened up registration for the Marketswiki Education events in New York on July 11 and 12, and our events in Chicago on July 17, 19 and 21. Every year it gets bigger. Every year we have great speakers who tell interns and young professionals about careers, trends and opportunities in the financial marketplace. Click here to sign up.

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Futures For Kids had another successful fundraiser at the FIA IDX Gala Dinner last night, raising more than £140,000.
Jim Kharouf – JLN

Kim Taylor’s kilt challenge raised over £12,000, topping Bill Herder’s total last year, on her birthday no less. Next year’s wearer of the kilt is Mark Ibbotson of GH Financial.

Over its 10-year history, FFK has raised more than £3 million for more than 40 charities in more than 16 countries.

Way to go Bill Templer, Emma Davey and the rest of the FFK team.

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ECB keeps money taps open but drops reference to rate cuts
David Mardiste and Francesco Canepa – Reuters
The European Central Bank kept its money taps wide open on Thursday but dropped a reference to possible interest rate cuts, an unexpectedly hawkish move as euro zone growth accelerates. The currency bloc’s economy has been on its best run since the global financial crisis nearly a decade ago but the ECB was expected to take a more cautious stance as the inflation rebound has yet to show a convincing upward trend.
/goo.gl/oFxbN3

****SD: Money doesn’t grow on trees, it flows from bank plumbing.

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Why women are better investors: study
Chris Taylor – Reuters
When it comes to industries, Wall Street is about as male-dominated as they come. So many people just assume that men are better investors. And they would be wrong. According to new data from financial services giant Fidelity Investments, women are actually superior investors. In sifting through more than 8 million investment accounts, Fidelity discovered that women not only save more than men, 0.4 percent, their investments earn more annually, also 0.4 percent.
jlne.ws/2rWnL1I

***SR: We keep seeing stories like this. So why do women still not rule the world?

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Elon Musk: The Man, the Myth, the Risk
Tesla’s boss is a big part of the auto maker’s soaring value, but his jokes are no laughing matter.
Charley Grant – The Wall Street Journal
Tesla Inc is one of the hottest stocks on the planet, thanks to investor belief in Elon Musk. Paradoxically, that might be the biggest risk investors face.
Take the events at Tuesday’s annual meeting, for instance. In response to a question about what the company CEO and chairman does in his time away from work, Mr. Musk said, in part, “Sometimes go crazy on Twitter. You know, sort of, red wine, vintage record player, some Ambien, magic! Magic happens.” The assembled crowd burst into laughter.
/goo.gl/sTgOYA

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The Last Hedge Fund Pit Bull
Michelle Celarier – Institutional Investor
At first Paul Singer thought it was a joke. The April 11 letter — sent to the Elliott Management Corp. founder from Klaus Kleinfeld, whom the hedge fund billionaire was trying to oust from his post as CEO of Alcoa spinoff Arconic — made no sense.
jlne.ws/2rWJrui

****SD: Paul Singer, unlike pit bulls, can play the piano.

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Wednesday’s Top Three
Apparently when Mark Cuban tweets, people really do listen, as Wednesday’s top-read article, MarketWatch’s Mark Cuban tweets, and bitcoin drops, says. Second was another blockchain-related story, Deutsche Börse Reveals Three ‘Pillars’ of Its Pervasive Blockchain Integration, from Coindesk. And third was the one about the potential “chief disruption officer,” Bloomberg’s Jamie Dimon Wants This Guy to Disrupt JPMorgan.

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MarketsWiki Stats
102,162,187 pages viewed; 22,539 pages; 206,402 edits
MarketsWiki Statistics

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Lead Stories

London’s biggest clearing house open to more EU oversight
Philip Stafford – Financial Times
LCH, London’s biggest clearing house, said on Wednesday it will accept more direct oversight from Brussels of euro-denominated derivatives, which has become an early battleground in the Brexit negotiations.
The rare public comments from LCH, which dominates the vast global clearing of over-the-counter derivatives such as swaps, comes only days before the European Commission will unveil how it will police euro-denominated transactions outside the EU.
jlne.ws/2rWrhZV

Exchanges stranglehold on data costs stifling market activity
Joe Parsons – The Trade
The monopolistic dominance exchanges have on market data costs has stifled market activity for certain buy-side firms, according to panellists at the FIA IDX conference. Market participants have grown increasingly frustrated at rising exchange-led data costs, as they struggle to keep up with a welter of new regulations dictating data use.
/goo.gl/C7FGlG

Deutsche Boerse says open to index and data business deals
John McCrank – Reuters
Deutsche Boerse AG is on the lookout for deals in the index, data, and analytics space following the collapse of its merger with the London Stock Exchange Group PLC, the company’s chief financial officer said on Wednesday.
jlne.ws/2rWjuuY

Steven Bregman says ETFs have created the greatest bubble ever
Akin Oyedele – Business Insider
The shift away from active investing and towards passive strategies and indexing has created “the greatest bubble ever,” says Steven Bregman, the co-founder of Horizon Kinetics.
Money has flowed from active managers since the financial crisis amid low returns and high fees, in favor of exchange-traded funds that track other assets and indexes.
jlne.ws/2rPHRZg

Exclusive: EU in stronger position to tackle Italy after Spain bank rescue – source
Francesco Guarascio and Stefano Bernabei – Reuters
European Union regulators believe their rescue of Spanish lender Banco Popular (POP.MC) has strengthened the case for intervening in Italy’s two weakest lenders, but expect it will be harder to use the same approach, a senior EU official said on Wednesday.
jlne.ws/2rW4Tji

Volatility is Low Because It’s Uncommonly Quiet Out There
Chris Dieterich – WSJ
It’s often said that the simplest explanation tends to be the best one.
If so, then one Wall Street strategist has an elegant answer to this year’s most vexing market question: Why is volatility in stocks, bonds and currencies stubbornly muted even as geopolitical worries abound?
jlne.ws/2rPynNN

Huge grain supplies dampen impact of USDA reports
Mark Weinraub – Reuters
The U.S. Agriculture Department’s monthly crop reports, which have traditionally provided huge shocks to the market, have been met by a shrug in 2017, with price moves and volume muted by the massive supply of grains.
/goo.gl/H46H4h

Exchanges, OTC and Clearing

Providing Stability for the U.S. Listed Equity Options Market
Craig Donohue, OCC Executive Chairman and CEO – OCC
Over the past two years, OCC, in its role as a Systemically Important Financial Market Utility, has taken on a leadership role in advocating for the U.S. listed equity options market with global policymakers on key legislative and regulatory issues.
It was in that context that during the recent 35th Annual Options Industry Conference, I was asked by a member of the media if there was anything that kept me up at night. My answer: financial tax reform.
jlne.ws/2rVRO9B

SEC takes more time to mull Chicago Stock Exchange deal
Reuters
The U.S. Securities and Exchange Commission will take up to another 60 days to decide whether to allow the sale of the Chicago Stock Exchange to a group of investors led by China-based Chongqing Casin Enterprise Group.
/goo.gl/0fJ0fK

Clearing Mandates 2017
Chris Barnes – Clarus Financial Technology Blog
Which jurisdictions currently have Clearing Mandates in place for Interest Rate Derivatives? There are lots of articles and sources of information about upcoming mandates… but finding what is already in force is more difficult. We therefore take this opportunity to summarise the Clearing Mandates that are now active across multiple jurisdictions.
jlne.ws/2sT9gZR

Cracking the FX revenue code
Jon Macaskill – Euromoney
When banks released first quarter 2017 results there was a focus on the recovery in broad fixed income revenues, compared with the same period in 2016. This was driven by strong performance in rates and credit products, however, which masked chronic weakness in FX and commodities. Most banks do not disclose detailed breakdowns of revenue splits within fixed income (or equities), but the Coalition survey of first-quarter income for the 12 top investment banks revealed that G10 FX revenues fell 25% from the same period last year to $1.8 billion, which was the lowest level since the survey began in 2006.
/goo.gl/JttWmo

SGX reports market statistics for May 2017
SGX
Total Derivatives volume was 14.73 million, up 9% month-on-month (m-o-m) and up 9% year-on-year (y-o-y).
jlne.ws/2sT6VOk

Fintech

E-Trading of U.S. Corps at an Inflection Point
Anthony Perrotta – TABB Forum
The institutional U.S. corporate bond market is in the midst of an electronic trading platform renaissance. While dozens of firms are staking a claim for the $30 billion daily market, only a handful are succeeding. Investors are fatigued; many have neither the time or the resources to explore or onboard all the options. Newcomers face a daunting adoption task. Consolidation is the key to unlocking the ‘runway’ for viable solutions and providing optionality for investors.
jlne.ws/2sTBxPO

IHS Markit Launches Derivatives Collateral Management Solution
Press Release
IHS Markit (Nasdaq: INFO), a world leader in critical information, analytics and solutions, today announced the launch of Collateral Manager, an end-to-end solution for calculating margin, settling margin calls and managing margin disputes.
New regulation requires the mandatory exchange of variation and initial margin for cleared and uncleared OTC derivatives transactions. In response, financial institutions seeking operational excellence require new tools with which to automate margin activity and manage legal and liquidity risk.
/goo.gl/VSGv9C

***SR: The initiative includes a partnership with CloudMargin, “the creator of the world’s first web-based collateral and margin management solution, to source key technology for this service.”

NEX to utilise Duco for client-side MiFID II reconciliation reporting
Finextra
NEX Regulatory Reporting, a NEX Group business which provides regulatory reporting services across worldwide regulatory regimes, and Duco, the global provider of self-service data normalisation and reconciliation services, today announce that NEX Regulatory Reporting is to use Duco’s technology to provide MiFID II reconciliation to their clients.
/goo.gl/RVO2Ay

Wall Street firms can’t wait for clarity on blockchain
Frank Chaparro – Business Insider
Blockchain became a ubiquitous Street buzzword thanks to the rise in popularity of the cryptocurrency bitcoin, which is powered by the technology.
Cognizant, a US-based digital consulting firm, recently surveyed over 1,500 executives from over 570 financial services firms on their respective strategies for integrating the technology into their infrastructure. The overwhelming majority (91% to be exact) of firms surveyed said they recognize the importance of blockchain to the future of the industry.
jlne.ws/2rW19OL

Thomson Reuters Starts Integration Drive, Equips Redi Users with Eikon Messenger
Aggelos Andreou – Reuters
Buy-side firms get access to sell-side messaging functionality as Thomson Reuters embarks on integrating its Redi and Eikon platforms.
jlne.ws/2rPulox

Wall Street firms can’t wait for clarity on blockchain
Frank Chaparro – Business Insider
Everyone on Wall Street seems to agree that blockchain is going to be a game-changer.
The technology is thought to have the potential to improve productivity across Wall Street in areas such as as banking, payments, and the capital markets. But the degree to which blockchain will revolutionize financial services is really anyone’s guess.
jlne.ws/2rW19OL

Politics

In U.K. Election, Many Investors Want the Tax-Raising; Socialist Investors are betting a victory for Jeremy Corbyn’s Labour Party would mean a softer Brexit
Christopher Whittall, Alistair MacDonald and Jon Sindreu – WSJ
Jeremy Corbyn is a self-described socialist who says he will raise taxes and nationalize industries if his Labour Party wins Thursday’s U.K. election. Some investors hope he does win. The seemingly counterintuitive choice—markets typically welcome Conservative Party victories—says much about how Britain’s vote to leave the European Union has upended the way investors view U.K. politics.
/goo.gl/8vdiJo

Ken Griffin: US does not need ‘lowest tax rate in the world’
Nicole Bullock, Joe Rennison – Financial Times
Ken Griffin, the founder and chief executive of Citadel, which runs one of the world’s largest hedge funds, said he “cringes” at the Trump administration’s plan for a corporate tax rate of 15 per cent.
“I cringe when I hear 15 per cent. We do not need to have the lowest tax rate in the world, but we should have a more competitive tax rate in America,” Mr Griffin said at the Sandler O’Neill global exchanges and brokerage conference, adding that he favoured something in the “mid- to upper 20s.”
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****SD: From Reuters – Citadel’s Griffin says U.S. rally not over, inflation a worry: CNBC

Wall Street turns a blind eye to Trumpian risks
Edward Luce – Financial Times
Washington and Wall Street cannot both be right. On the one hand, the future of the liberal international order hangs in the balance. Donald Trump is a loose cannon with record low approval at this stage for any presidency. Washington and the world are in a state of fear. On the other, Wall Street sees only blue skies ahead. US stock indices keep breaking record highs.
jlne.ws/2rPpm78

Steven Mnuchin Needs Help
Saleha Mohsin and Robert Schmidt – Bloomberg
Secretary of the Treasury Steven Mnuchin has one of the biggest to-do lists in Washington: Rewrite the tax code, spearhead a repeal of financial regulation, and persuade Congress to raise the debt ceiling. The agenda would be staggering in the best of circumstances, but he has a more urgent problem—a skeletal staff.
jlne.ws/2rPxRzl

Under Trump, regulation slows to a crawl
Danny Vinik – Politico
Before he took office, Donald Trump promised to roll back the reach of the federal government, saying that he would end the “regulation industry” on the first day of his presidency. The effect has been immediate and dramatic: According to data compiled by POLITICO, significant federal regulation since Trump’s inauguration has slowed to an almost total halt.
jlne.ws/2rPHz4O

U.S. business group urges trade fixes ahead of China’s party congress
Reuters
A U.S. business lobby in China said on Thursday that Washington should use leverage afforded by China’s desire to avoid trade frictions with the United States ahead of its Communist Party Congress this fall in order to fix market access discrepancies.
/goo.gl/ZgL3aO

Regulation

How House Bill Would Dismantle an Array of Dodd-Frank Reforms
Victoria Finkle – NY Times Dealbook
The House of Representatives is preparing to vote on Thursday on a bill intended to make sweeping changes to the financial regulatory system.
If enacted, the Financial Choice Act will roll back major portions of the Dodd-Frank Act of 2010 and change significant aspects of the bank oversight process. It was outlined a year ago by Representative Jeb Hensarling of Texas, the Republican chairman of the House Financial Services Committee.
/goo.gl/J0Spr3

SEC to Hire Dalia Blass as Top Regulator of Mutual Funds and ETFs
Dave Michaels – WSJ
The Securities and Exchange Commission is poised to hire as its top mutual-fund regulator an attorney whose spouse is about to step down as chief lawyer for the industry’s trade group, according to people familiar with the matter.
/goo.gl/7NavtZ

No more MiFID II delays says ESMA chief
Paul Walsh – The Trade
The chair of the European Securities and Markets Authority (ESMA) has pledged there will be no further delay on the implementation of MiFID II.
Speaking during the FIA IDX conference in London, ESMA’s Steven Maijoor eased concerns that the regulation would face further delay.
jlne.ws/2rPJKp0

Moody’s loses legal battle with HK’s markets watchdog
Don Weinland in Hong Kong – FT
The Hong Kong Court of Appeals has upheld a $3m fine for rating agency Moody’s over research it published in 2011 that flagged companies in China. The ruling, which Moody’s appealed in 2015, comes as the Securities and Futures Commission steps up its actions against short sellers in the financial hub. A Hong Kong tribunal in August found a short seller culpable of market misconduct in another example of the city’s watchdog pushing back on market commentary.
/goo.gl/HhRNIo

HSBC faces fresh suit alleging forex manipulation
Martin Arnold – Financial Times
HSBC is facing a fresh legal battle over allegations that its traders manipulated foreign exchange markets for their own profit at the expense of their clients, with the allegations centring on trades from more than a decade ago.
jlne.ws/2rPSJX1

Supplementary Leverage Ratio: Comparing US Banks
Amir Khwaja – Clarus Financial Technology
In my recent Basel III Leverage Ratio article I provided an introduction to this important new metric and today I will look at the Supplementary Leverage Ratio (SLR) disclosures published by the six largest US banks.
jlne.ws/2sT7iII

Fed gives extension on complying with part of Volcker rule to three banks
Reuters
The U.S. Federal Reserve on Wednesday gave extensions of up to five years to Deutsche Bank, SVB Financial Group, and UBS Group on complying with part of the Volcker Rule that deals with illiquid funds.
jlne.ws/2rWIS3L

Ex-UBS Compliance Officer Charged With Insider Trading
Suzi Ring – Bloomberg
Fabiana Abdel-Malek and Walid Choucair charged by U.K. FCA; Pair to appear in London court next week to face five charges
A former UBS Group AG compliance officer was charged by U.K. regulators with passing tips on five occasions to a London man who traded on the information, according to court records.
jlne.ws/2rWKeLR

U.S. Justice Department opposes Wells Fargo on whistle-blower suit
John Benny in Bengaluru – Reuters
The U.S. Justice Department filed a friend-of-the-court brief on Tuesday in a lawsuit brought against Wells Fargo & Co (WFC.N) by two former employees, who were fired after they reported misdemeanors they had noticed to their supervisors.
jlne.ws/2rPBWDv

Investing and Trading

On Oil’s Big Fake-Out: Blame the Algos
Tim Puko – WSJ
The rise of the quants is changing more than just the stock market. Commodity markets are also increasingly driven by the quantative and systematic firms that trade by algorithms and sophisticated statistical models. This year’s repeated, surprise retreats in oil are the prime example, according to several brokers and analysts.
/goo.gl/MQCfVN

Orange juice has moved more than any other commodity this year
Seth Archer – Markets Insider
Orange juice investors seem to have lost their zest for the commodity. Since the beginning of the year, prices for orange juice future contracts have fallen 33.1% from $197 to around $132. Several factors have contributed to the dramatic drop in price.
jlne.ws/2rWoPm1

The consequences of allowing a cryptocurrency takeover, or trying to head one off
Tony Yates – Financial Times
The total value of all cryptocurrency in circulation is now almost $100bn. This is roughly double what it was just a few months ago, but it’s still tiny compared to the face value of paper dollars issued by the Federal Reserve, which alone amount to about $1.4trn. We are therefore nowhere near the point yet where cryptocurrencies pose a credible threat of supplanting central-bank-issued money.
jlne.ws/2rVYFjl

Investors cry foul at aggressive clause in euro high-yield sale
Robert Smith – Financial Times
Analysts and investors have raised concerns about the inclusion of an obscure clause in a planned euro bond from Superior Industries, the first example of aggressive US terms being pushed by companies selling euro denominated high-yield debt.
jlne.ws/2rWGXMw

Trafigura looks to coal and metals as oil trading boom ends
David Sheppard, Neil Hume – Financial Times
Trafigura is increasing its focus on coal and metals in the latest sign a near-three year boom in oil trading is at an end, with the Swiss commodity house looking to rebalance its business and pay down debt.
jlne.ws/2rPPK13

Know your Price Return versus Total Return Indices
Mahavir Kaswa – Indexology
Recently, the S&P BSE SENSEX closed above 30,000 (and 31,000 as of 26th May 2017) for the first time, recording a lifetime high in its 31 years of live history. Immediately, print and online media were flooded with news articles discussing various milestones of the S&P BSE SENSEX.
/goo.gl/8yNIjd

Institutions

Hedge fund managers can show off with better returns in May
Svea Herbst-Bayliss – Reuters
Some hedge fund managers can finally brag a little as several prominent ones, including Daniel Loeb and William Ackman, last month beat the broader stock market’s gains, early returns show.
Loeb, who runs $16 billion Third Point, told investors his Third Point Partners LP fund gained 2.1 percent in May while its more aggressive Third Point Ultra Ltd fund climbed 3.5 percent. The Pershing Square Holdings Ltd fund, run by Ackman’s $11 billion Pershing Square Capital Management, meanwhile climbed 2.4 percent in May.
jlne.ws/2rWk9g4

BGC plans spinoff of Newmark unit in IPO before yearend: CEO
Reuters
BGC Partners Inc (BGCP.O) plans to spin off its Newmark Grubb Knight Frank real estate services unit in an initial public offering before the end of the year, Chief Executive Officer Howard Lutnick said on Wednesday.
jlne.ws/2rWlXFH

Regions

Robo-adviser Wahed targets Muslim investors in U.S. and beyond
Bernardo Vizcaino – Reuters
New York-based Wahed Invest will offer its automated investment services across the United States after raising $5 million in seed capital, making it the first robo-adviser to cater to Muslim investors through a sharia-compliant platform, its founder said.
jlne.ws/2rW7F8g

Greece targeting sub-5 percent yields for market return
Lefteris Papadimas and Marc Jones – Reuters
Greece will return to markets once its borrowing costs drop below 5 percent, sources told Reuters, which could happen if the European Central Bank includes Greek bonds in its 2.3 trillion euro asset purchase programme.
jlne.ws/2rWgWgu

Asian perpetual bond market fizzes to life
Don Weinland – Financial Times
Companies in Asia are embracing a niche, high-risk instrument that was once at the very periphery of the region’s capital markets — the perpetual bond.
Perpetual bonds have characteristics of both debt and equity, often getting equity weighting from auditors and rating agencies. For borrowers, the attraction of selling such securities lies in extending the maturity of their debt over a very long horizon.
jlne.ws/2rWIF0s

China bond finance hits record low as market rout hammers demand
Gabriel Wildau – Financial Times
Chinese corporate bond financing hit a record low in May, as a market rout discouraged new issuance while a wave of previously issued notes came due.
The combination of tight liquidity and a regulatory crackdown on leveraged investment in bonds has hammered China’s debt market in recent months.
jlne.ws/2rPzZa3

New joint venture will support China-Hong Kong bond connect
Enoch Yiu – South China Morning Post
Hong Kong Exchanges and Clearing (HKEX) and China Foreign Exchange Trade System (CFETS) have teamed up to prepare for the soon-to-be launched bond connect scheme, the bourse said on Wednesday.
They have formed a joint venture, the Bond Connect Company, which will support trading services related to the new debt-trading link. It is 60 per cent owned by CFETS and 40 per cent by HKEX.
jlne.ws/2rPAZLm

Miscellaneous

Morgan Stanley thinks cars of the future will be nothing but a ‘data pipe’
Matthew DeBord – Business Insider
It has finally come to this: the iconic automobile, the dream machine of the 21st century, is set to become merely a feature of 21st-century infotainment plumbing.
That’s the view of Morgan Stanley auto and mobility analyst Adam Jonas. In a research note published Wednesday, he grappled with Ford’s destiny in what he called the “Auto 2.0” future
jlne.ws/2rVXyAg

Why You Still Can’t Trust Your Financial Adviser; With the Fiduciary Rule in doubt, seeking professional advice on your money remains a dangerous proposition.
Ben Steverman – Bloomberg
Your new financial adviser has a well-decorated office, a firm handshake, and a bright smile. After an hourlong meeting, you leave with what you think is a state-of-the-art investment portfolio. You feel financially secure, taken care of.
/goo.gl/eyoixS

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About Author

Bergstrom is chief information officer of John J. Lothian & Co. He edits MarketsWiki and JLN Options.