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Tokyo Stock Exchange takes aim at Japan’s corporate ghosts; U.S. Default? Unlikely, But Bond Traders Are Taking No Chances; Deutsche Börse CEO Looks to Cut Deal

Tokyo Stock Exchange

First Read

Hits & Takes

Our video today from MarketsWiki Education World of Opportunity Chicago 2017 features NFA President and CEO Tom Sexton.~JJL

There is a signup form on the Upcoming Events page of the site for college students to sign up for our MarketsWiki Education Recruiting event on the afternoon of October 16 at the CBOE.~JJL

Spencer Doar, Mike Forrester and John Lothian will be in Washington, DC from September 12 to 15 for the Securities Traders Association annual regulatory conference.~JJL

Today we have a blog from Jim Falvey about cryptocurrencies and distributed ledger technology. See it below.~SR

There is something going on with the sun and the moon on August 21.~JJL

CQG has a webinar titled “Care Orders: A Flexible Way to Manage Customer Trades” scheduled for August 22, 2017 at 3:00 p.m. CT.~JJL

The 2017 CBOE Risk Management Conference will take place Monday – Wednesday, September 11 – 13 at The Grove Hotel in Hertfordshire, UK. The focus, of course, is on the VIX and volatility, with such topics as: “New Developments in Options and Volatility-Based Benchmarks and Volatility Indicators”; “Timing Considerations for Short Volatility Strategies”; and “Implementing Volatility Strategies within Institutional Portfolios” among others. It might be worth the trip just to hear the keynote speaker, Zanny Minton Beddoes, Editor-in-Chief of the Economist. Details can be found HERE. ~SR

We updated IEX‘s MarketsWiki page to reflect the SEC’s approval of IEX’s application to conduct opening and closing auctions, a crucial step in its bid to launch a listings business. ~SR

Overall options volume figures can show something happened, but not what happened. Check out OCC’s daily cleared volumes from the past week.
August 8 = 18.8m contracts
August 9 = 20.6m contracts
August 10 = 27.5m contracts
August 11 = 23.3m contracts
August 14 = 16.1m constracs ~SD


Alphabet Soup: The DAO, ETH, ICOs and the SEC
By Jim Falvey

Technology usually outpaces the law. It can take months, if not years, for legislators, regulators and courts to gain an understanding of technology and then to apply existing law to the new technology and/or create new laws for the technological developments. In the remarkable world of cryptocurrencies and distributed ledger technology (often referred to as “Blockchain”), we are seeing both occur.

In May 2016, a virtual organization called The DAO, which stands for Decentralized Autonomous Organization, came onto the scene in the Ethereum world. For the uninitiated, the Ethereum Blockchain sponsors the second most significant virtual currency in the world behind Bitcoin, known as Ether (“ETH”). The total market capitalization of the Ether is about $27 billion.

The DAO, which took its name from the description of itself (its approach to naming itself is not unlike a well-known rock group in the 60s calling itself, “The Band” – elegant in its simplicity), sought to raise ETH to fund projects to generate profit. That sounds awfully similar to private equity and/or venture capital raising dollars to fund projects to make money. However, there are a few wrinkles between the two models. For example, to raise capital/ETH in order to fund projects, The DAO itself issued what it called “DAO Tokens” in exchange for ETH. So, instead of creating a VC firm and raising US dollars to fund projects and providing shares and/or ownership interest in the VC to those who provided funds, The DAO raised Ether in exchange for DAO Tokens.

To read the rest of Jim Falvey’s op-ed, go HERE


‘Father of Financial Futures’ Seeks Cryptocurrency Hardware Patent
Stan Higgins – CoinDesk
A U.S. economist and businessman known for his work in spearheading the early development of futures contracts is seeking a cryptocurrency patent.
Richard Sandor, a former Chicago Board of Trade chief economist and vice president, advanced the utilization of financial futures back in the 1970s, earning him the moniker “the father of financial futures” and, later, “the father of carbon trading,” according to Time.

***** Doc Sandor is a man for all ages.


From Lenin to Lehman ó the big lies; Those who want to save capitalism should note echoes of the Russian Revolution
Martin Sandbu – FT
Two anniversaries we mark this year ó the centenary of the Russian Revolution and the decade since the start of the global financial crisis ó have more in common than is apparent at first sight.

****** A free press is an essential element of free markets.


Grasp Your Opportunities and Adapt – Tom Sexton

“Our markets here are the envy of the world because they are regulated in a very fair and orderly manner.”

In this video from MarketsWiki Education’s World of Opportunity event in Chicago, Tom Sexton, president and CEO of the National Futures Association, discusses what opportunities lie in the regulatory arena. Sexton asks that when you look at all the different areas of finance, think about regulation and how important it is to not only the U.S. markets, but markets all around the world.

Read the rest and watch the video »


Monday’s Top Three
Our top read stories of the day yesterday were led by the FT’s somewhat deceiving headline Tudor and Brevan Howard abandon Mifid. The firms have, instead, adopted Alternative Investment Fund Manager licences. Second went to Waters’ piece on Adam Honore in CME Hires Ex-Analyst, Strategist HonorÈ to Lead Data Product Management. Third was Wall Street Trader Chris Arnade Seeks Redemption for ‘Intellectual Grift’ from the Wall Street Journal, making one wonder, what if?


MarketsWiki Stats
106,081,836 pages viewed; 22,673 pages; 207,778 edits
MarketsWiki Statistics


Lead Stories

Tokyo Stock Exchange takes aim at Japan’s corporate ghosts; The presence of former chief executives as special advisers is a persistent concern
Peter Wells and Leo Lewis in Tokyo – FT
The Tokyo Stock Exchange will intensify its role in Japan’s push for better corporate governance by raising pressure on companies to admit how badly their boardrooms are haunted by corporate “ghosts”.

U.S. Default? Unlikely, But Bond Traders Are Taking No Chances
Brian Chappatta and Alex Harris – Bloomberg
T-bill rates jump even as Republican lawmakers give assurances; Ideological divide, Trump’s unpredictability shake confidence. In many ways, the thought that the United States of America would default is utterly preposterous.

Deutsche Boerse CEO Looks to Cut Deal; Carsten Kengeter, Deutsche Bˆrse’s CEO, may pay a fine to settle an insider trading controversy. But he may not be able to continue as before.
Michael Br‰cher, Daniel Sch‰fer – Handelsblatt
In his spare time, Deutsche Bˆrse chief executive Carsten Kengeter runs mountain marathons, skis endless loops and he’s a fighter in his professional life too. Bombarded with public criticism for months now, there’s no question that it has affected him. But he isn’t about to throw in the towel.

JPMorgan launches new algo-driven ‘dark pool’ for stocks
John McCrank – Reuters
JPMorgan Chase & Co has begun trading on a new private stock trading venue, or “dark pool,” that lets its clients use the bank’s algorithms to buy or sell stocks at a benchmark price reached over a period of time.

Goldman Tops Banks Betting on a New Type of Hedging
Sarah Ponczek – Bloomberg
Goldman has bet on 15 fintech ventures this year, report finds; JPMorgan ranks second among banks with nine investments
A new type of hedging is sweeping Wall Street this year. Goldman Sachs Group Inc. and JPMorgan Chase & Co. are leading big banks in plowing record funds into outside ventures trying to disrupt their industry, a role typically dominated by venture capital firms, according to a report from Opimas, a management consultancy.

CFTC Staff Extends Position Limit Aggregation Relief
Jai R. Massari and Annette L. Nazareth – FinRegReform
The CFTC’s position limit rules, which currently apply to limited types of futures contracts and options on futures, include aggregation requirements that specify the circumstances under which positions controlled or held by a person must be counted together for purposes of the position limits. These aggregation rules were significantly amended in 2016.

JPMorgan launches new algo-driven ‘dark pool’ for stocks
John McCrank – Reuters
JPMorgan Chase & Co has begun trading on a new private stock trading venue, or “dark pool,” that lets its clients use the bank’s algorithms to buy or sell stocks at a benchmark price reached over a period of time.
Trading in the new dark pool, known as JPBX, began the week of July 17, according to data from the Financial Industry Regulatory Authority.

IOSCO Consults On Recommendations To Improve Transparency Of Corporate Bond Markets
Corporate bond markets are a significant part of the global capital markets and a critical source of financing for economic growth. Since 2004, various developments have impacted corporate bond markets. These include changes in regulation as well as the market structure; the entrance of new participants; a shift from the traditional dealer-based principal model to an agency based model; and the increasing use of technology. In response to these significant changes, the Board of the International Organization of Securities Commissions (IOSCO) agreed to examine the liquidity of secondary bond markets and published its findings in March 2017.

We’re Still Not Ready for the Next Banking Crisis; One chart says everything about how well the financial system will cope.
By Mark Whitehouse – Bloomberg
A reasonable conclusion. Photographer: Chip Somodevilla/Getty Images
The 10th anniversary of the financial crisis has prompted a lot of analysis about what we’ve learned and whether we’re ready for the next one. Pretty much everything you need to know, though, can be found in one chart: the capital ratios of the largest U.S. banks.

Exchanges, OTC and Clearing

Euronext Closes Acquisition of FastMatch
Markets Insider
Euronext today announces it has completed the acquisition of c.90% of FastMatch, the fastest growing Electronic Communication Network (“ECN”) in the spot foreign exchange market, after having received regulatory and anti-trust approvals. This follows the announcement of 23 May 2017 on the signing of the agreement with the existing shareholders of FastMatch.

Liquidnet provides targeted invitations for algos in Europe; First launched in 2015, the targeted invitations were developed to help the buy-side access block liquidity.
Hayley McDowell – The Trade
Liquidnet has added its targeted invitations system to its Virtual High Touch service for algorithms in Europe.

Aviva Investors first buy-side client of new LCH direct collateral accounts; The new account structure will allow buy-side clients to post collateral directly with the clearing house.
Joe Parsons – The Trade
LCH has gone live with a new account structure allowing buy-side clients to post collateral directly with the clearing house, and has secured Aviva Investors as its first client.

City worker dies after falling from seventh floor of London Stock Exchange
Telegraph Reporters
A City worker has died after falling from the seventh floor of the London Stock Exchange. The man fell from a glass walkway inside the building at around 9.45am on Tuesday, landing in the front lobby.

Joseph Ratterman Joins Axoni’s Board of Directors
Today Axoni announced the appointment of Joseph Ratterman as an independent member of the company’s board of directors. Mr. Ratterman was a founding employee of BATS Global Markets serving as BATS’ Chief Executive Officer and Chairman of the Board for eight years. Joe currently serves on the board of CBOE following its $3.2 billion acquisition of BATS.



TradeStation, Interactive Brokers refuse mediation in Trading Technologies patent infringement case
Appellees IBG LLC and Interactive Brokers LLC also confirm that they have had settlement discussions with other parties but state that “IBG LLC and Interactive Brokers LLC do not believe that mediation would be fruitful at this time”.

How Brokerage App Robinhood Got Millennials To Love The Market; With 2 million users and $75 billion worth of transactions, Robinhood is ushering a new generation into the stock market and beyond.
Ainsley Harris – FastCompany
Dallas resident Steven Card has a thing for Costco hot dogs. “Every time I go, I Snapchat the sign, [telling friends,] ‘I’m here again!’?” he says.
So when the 26-year-old started trading stocks through Robinhoodóan online brokerage that launched in 2014óit made sense to him to buy shares of both Costco and Snap, Snapchat’s newly public parent company.

Fintech Marriage Made in Germany; A rare merger of two financial technology, a.k.a. fintech, firms could shake up the market for online banking in Europe.
Katharina Schneider – Handelsblatt
It’s a massive market with EUR2 trillion in potential in Germany alone. That’s about how much money sits in German online savings accounts and fixed-term deposits. And like many industries in today’s digital world, competition for these deposits is being shaken up by financial-technology firms (fintechs) looking to get a piece of the action.

How Coinbase Can Be a Real Unicorn
Richard Johnson – Fortune
Last week Coinbase, the five year-old digital currency startup, announced it had raised $100 million in Series D funding, valuing the company at $1.6 billion. This funding round represents a major milestone not just for Coinbase, but for the digital currency industry as a whole.


In Trump We Trust? Three More CEOs Turn Backs on CEO President
Jeff Green – Bloomberg
Frazier, Plank, Krzanich quit White House advisory council; Who’s next? ‘This conversation is viral in boardrooms’
Intel’s CEO has become the latest business leader to abandon President Trump’s Council of Business Leaders. He follows on the heels of the bosses of Under
Could America’s first CEO president lose America’s CEOs?

A Fake-News Warning From a Former Propagandist; Why readers shouldn’t underestimate the power of disinformation.
By Faye Flam – Bloomberg
On the march in Czechoslovakia, 1965. Photo: Three Lions/Getty Images
From pizza-parlor pedophilia rings to Sharia law in Florida, viral fake news stories often seem propelled by their own preposterousness. It’s a different matter for professionally produced disinformation. That, I learned from a former pro, requires a core of logic and verifiable fact.

Investors Conflicted About Trump, Not Hostilities
By Stephen Gandel – Bloomberg
Investors worried about what will happen to stocks in the wake of increasing tension between the U.S. and North Korea are going to be hard-pressed to find a reliable historical comparison.


US agencies provide respite with variation margin changes; Derivatives trading bodies are pushing for US agencies to ease rules on how client cash margin held by banks is calculated as part of their capital exposures.
Joe Parsons – The Trade
A group of US regulatory agencies have made changes to how variation margin is treated for certain, centrally cleared derivatives, providing significant capital relief for banks.

Equinix Sheds High-Speed Trading Access Suit
Jeannie O’Sullivan – Law360
Trading platform Tradestream Analytics Ltd. has dropped an antitrust suit accusing data center service firm Equinix Inc. of cornering the market for low-latency trading services for options and stock exchanges, according to a dismissal order filed Monday in New Jersey.

ESMA is closed for Public Holiday on Tuesday 15 August
We will reopen on Wednesday 16 August.

FINRA Expels Hallmark Investments, Inc. and Bars CEO for Fraud; Restitution Ordered to Affected Customers
The Financial Industry Regulatory Authority (FINRA) announced today that it has expelled New York-based Hallmark Investments, Inc. and barred its Chief Executive Officer, Steven G. Dash, in connection with a scheme to sell shares of stock to customers at fraudulently inflated prices. FINRA also suspended Hallmark representative Stephen P. Zipkin for two years and required him to pay more than $18,000 in restitution to affected customers.

NFA bars Christian Robert Mayer, a former associated person, from membership
NFA has permanently barred Christian Robert Mayer from membership and from acting as a principal of an NFA Member. Mayer was an associated person of Northstar Commodity Investment Co. LLC, an NFA Member introducing broker and commodity trading advisor in Minneapolis, Minn.

CloudMargin Unveils “FlightPlan”: Interactive Microsite to Help Financial Institutions Navigate Uncleared Margin Regulations through 2020
CloudMargin press release via email
CloudMargin’s network of partners collaborates to provide best practices guidance, resource hub for OTC derivatives community
London / New York, 15 August 2017 – CloudMargin, the multi-award winning creator of the world’s first web-based collateral and margin management solution, today announced the release of a comprehensive interactive “FlightPlan” microsite designed to help financial institutions globally navigate the uncleared margin rules and other regulations impacting their collateral management function.

Investing and Trading

Oil ‘God’ Blames Weaker Outlook and Algos in His Goodbye Letter
Jack Farchy and Javier Blas – Bloomberg
Andy Hall, the oil trader known to many as “God”, said he decided to close his flagship hedge fund amid a deteriorating outlook for prices next year and the “frustrating” dominance of algorithmic traders.

The fine art of not putting all your eggs in one basket
Catherine Yoshimoto, senior index product manager – FTSE Russell
Surely you’ve heard the proverb, “Don’t put all your eggs in one basket.” But whether you’re talking about indexing or life in general, following that advice isn’t always as simple as it sounds. Many popular market indexes are weighted by the market caps of their constituents, resulting in indexes that predominantly reflect the performance of the few largest companies. An index that equally weights each of its constituents would mitigate this size bias. However, this approach simply moves your eggs into yet another basket – the sectors with the highest number of constituent companies. So how can we neutralize both of these biases to arrive at an index with both sector and company diversification?

U.S. Stock Buybacks Are Plunging
Luke Kawa – Bloomberg
U.S. stocks have been able to hit fresh highs this year despite a dearth of demand from a key source of buying.

Shadow Fed is Glum on Stock Market; Camp Kotok’s fearless forecasters mainly see little change in economic and financial measures, but they are somewhat bearish on stocks
Asjylyn Loder – WSJ
The economic predictions from the annual gathering known as Camp Kotok resemble two smart people trying to steer a canoe: lots of zigging and zagging to get back to the same place.

Why Blackstone Is Betting $7 Billion on Natural Gas; U.S. gas prices are stuck in a rut, which is fine with the world’s largest private-equity firm
Ryan Dezember – WSJ
Blackstone Group BX 1.50% LP is making one of its biggest bets on the growth of natural gas production, wagering that even if gas prices remain stuck at depressed levels, it can profit.

Bill Ackman Wants The World To Know How Hard It Is Being Bill Ackman
Owen Davis – Dealbreaker
We had some advice to Bill Ackman the day the world learned that his latest activist play was a big stake in the human-resources company ADP: Sell ADP. For reasons we won’t attempt to divine, the fact that Pershing Square had amassed an 8-percent chunk of the company caused ADP shares to go up. In one day the stock rose a healthy 10 percent, a gain anyone should be happy to book, damn the consequences.

Hopes for European ‘safe’ bonds lean on pre-crisis techniques; Advocates say packaging up sovereign debt would make European financial system safer
Thomas Hale and Kate Allen – FT
Ten years ago, exotic credit instruments were at the heart of what seemed like financial Armageddon. This time around, the financial engineering techniques used to create them are seen by some as the solution to a particularly European problem.


Dudley tells skeptical markets he sees Fed rate hike: AP
One of the Federal Reserve’s most influential members expects to raise interest rates once more this year, and to soon begin shedding some of the Fed’s bond holdings, according to comments on Monday that pushed back on doubts in financial markets.

Royal Bank of Scotland to cut nearly 900 IT jobs in London, union Unite says
William Turvill – City AM
Royal Bank of Scotland is planning further cuts to its IT operation, leading to nearly 900 new job losses, according to a union.

Goldman Sachs looks to invigorate its bond trading business; Addressing hedge fund-heavy client mix looks best bet to get its engine firing again
Ben McLannahan in New York – FT
Investment bankers at Goldman Sachs have grown used to calling on chief executives and chairmen of big companies, as they pitch ideas for deals and fundraisings.

Goldman Adds Pay, Perks in Silicon Valley War for Tech Talent
Dakin Campbell – Bloomberg
Investment bank hires Square executive for new recruiting post; Looser dress code, flashier monitors also await engineers
Goldman Sachs Group Inc. is upping its game to lure top technology talent. The Wall Street firm recently boosted pay for programmers fresh from college to compete with the likes of Google and Facebook Inc. And it’s enlisting a Silicon Valley fixer, Andrew Trout from Square Inc., for a new post leading engineering recruitment.

Jailed Barclays Libor Trader Asks for Case to Be Reviewed
Suzi Ring – Bloomberg
Jonathan Mathew sent case to Criminal Cases Review Commission; CCRC accepted case of convicted Libor trader Tom Hayes in June
A second convicted Libor trader submitted his case to an independent U.K. criminal review body in a bid for an appeal after the panel accepted the case of Tom Hayes, who became the best known banker in the scandal.


China’s Economic Speed Bump May Reignite Corporate Bond Defaults
Lianting Tu – Bloomberg
Strong first-half growth buoyed company earnings: ANZ’s Yeung; Goldman says defaults may pick up as economy slows this half
China had unexpected buoyancy in its economy to thank for an easing off in corporate defaults in the first half. But as growth shows signs of pulling back, the question is: will it last?

Lead prices rise after China shuts imports from North Korea
Henry Sanderson – FT
Prices for lead rose on Tuesday after China put in place a ban on imports from neighbour North Korea, as part of international sanctions agreed last week to limit the country’s weapons programme.

Why Russia’s Biggest Private Bank Rattles Nerves
Jake Rudnitsky – Bloomberg
Bank Otkritie FC, Russia’s largest private bank, has had a bumpy ride of late. In June it lost $1.7 billion in deposits. Then, following the collapse of a smaller competitor, a wave of rumors on social media questioning the bank’s stability grew so intense that Vadim Belyaev, its largest shareholder, was forced to address them. With the bank currently in talks with a potential investor over a significant capital injection, Belyaev has returned to the helm to calm the market’s nerves.

The Nordic Bank That Doesn’t Want Corporate Cash
Frances Schwartzkopff – Bloomberg
Clients urged to place surplus cash in other Danske products; Denmark holds the world record in negative interest rates
Danske Bank A/S is telling corporate clients to think hard about what to do with their excess cash before Dec. 31, because Denmark’s biggest lender doesn’t want it in deposit accounts.

As China’s Shadow Banking Takes a Hit, the Cash Flows Elsewhere
Bloomberg News
China’s giant shadow banking industry shrank for the first time in nine months during July — evidence Beijing’s campaign to quash risks to the financial system may be starting to bear fruit.


UK aims to retain EU customs deal for years after Brexit; Paper envisages frictionless trade but Brussels blessing may be needed for new talks
Jim Pickard and Gemma Tetlow in London and Arthur Beesley and Rochelle Toplensky in Brussels – FT
Britain will seek to continue its current customs arrangements with the EU for several years after Brexit, in a victory for supporters of a smooth transition.

Britain’s Inexcusable Dithering Over Brexit; Prime Minister Theresa May needs a plan. Now.
By The Editors – Bloomberg
The Brexit deadline of March 2019 creeps ever closer, and exit talks are under way — but Britain’s government still doesn’t know what it wants. This failure to set a clear goal, much less devise a strategy for achieving it, isn’t all that surprising, given the political mess caused by Prime Minister Theresa May’s decision to call an early election. It’s nonetheless inexcusable.

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Graduate of University of Minnesota School of Journalism and Mass Communication