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Europe begins countdown to Mifid II; How high-frequency trading hit a speed bump

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First Read

Hits & Takes
By John J. Lothian

Welcome to 2018! Today we begin work on invoicing readers of this newsletter and their firms for the 2018 subscriptions. If you would like to receive a firm or individual invoice, please contact me directly at johnlothian@johnlothian.com

Thank you to all of our loyal subscribers who have helped support this newsletter, now in its 18th year. You have allowed us to grow our offerings to continue to help you, the industry and beyond understand our markets.

At John Lothian News we believe in market-based solutions for the problems facing the world. If you also support that view, please become a paid subscriber to this newsletter, or continue to be a paid subscriber. Your paid subscription is a strong and powerful statement that you believe in what we contribute to markets and also support market-based solutions.

MarketsWiki had its best year ever in 2017 for traffic with over 2 million pageviews on average per month. On January 4, 2017, JLN reported MarketsWiki had 91,787,487 page views. As of this morning, we have 116,985,434, which is growth of 25,197,947 or 2,099,828 per month.

Our Twitter activity also had a good year in 2017. As of this morning, the @JohnLothian Twitter account is ranked number one by the Streeteye.com website.

Late in 2017, we introduced a new weekly feature for JLN Options which has Spencer Doar and Mike Forrester collaborating to bring a pithy view of the week in options. Last week’s edition is HERE

We will have more news to share on statistics of 2017 in the coming days.

Finally, we start the year with reorganized leadership at John J. Lothian & Company, Inc. I have returned to the job of CEO, as well as executive chairman. Jim Kharouf is embarking on a freelance career move, but he will still be contributing to John Lothian News, John Lothian Productions and MarketsWiki on a part-time basis. We wish him success and happiness in his career move.

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Europe’s MiFID II Challenge to U.S. Finance; The new rules are proving tough to implement, but they’ll give Europe an edge in the end.
By The Editors – Bloomberg
Europe’s regulators and financial institutions are under the gun: With a Jan. 3 deadline approaching, they’ve been scrambling to comply with new rules designed to make the region’s capital markets more investor-friendly.
/goo.gl/mA1UQX

***** Ready or not, here it comes.~JJL

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Criminal Underworld Is Dropping Bitcoin for Another Currency
Olga Kharif – Bloomberg
Monero and others lure criminals as bitcoin’s privacy weakens; Some coins post fake blockchain entries to hamper surveillance
Bitcoin is losing its luster with some of its earliest and most avid fans — criminals — giving rise to a new breed of virtual currency.
/goo.gl/rUi1XU

***** My theory about the role of volatility in bitcoin’s utility is supported by this news.~JJL

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North Korean Hackers Hijack Computers to Mine Cryptocurrencies
Sam Kim – Bloomberg
New hacking group linked to North Korea behind Monero mining; Hacking attacks focused primarily on financial gain in 2017
North Korean hackers are hijacking computers to mine cryptocurrencies as the regime in Pyongyang widens its hunt for cash under tougher international sanctions.
/goo.gl/xZrG1j

***** Can you dig a tunnel in a cryptocurrency mine to get out of North Korea?

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Joke Cryptocurrencies Like ‘Jesus Coin’ Are Making Serious Money; The bubble led by bitcoin is so huge that even something with ‘useless’ in the title has raised a quarter-million dollars.
Kelly Weill – The Daily Beast.
Jesus Coin promises to “outsource sin,” “decentralize Jesus,” and “provide miracles exclusively to Jesus Coin owners.”
/goo.gl/R1hozX

***** Faith in Risen Christ takes many forms.~JJL

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ICOs; Financed Spot Virtual Currencies; Investment of Customer Funds; Wash Sales
Gary DeWaal – Bridging the Week
Last week, the Securities and Exchange Commission said it had no appetite to classify as a non-security a digital token issued to support an iPhone food app, while the SEC chairman issued a personal statement cautioning generally about initial digital coin offerings. Separately, the Commodity Futures Trading Commission issued proposed interpretive guidance to clarify when financed offers and sales of virtual currencies to retail clients would be subject to regulatory requirements that ordinarily apply to all futures contracts.
jlne.ws/2yQSYD3

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Friday’s Top Three
Our top story to finish out the year was Coindesk’s Chinese Investor Buys Stake in Delaware Blockchain Exchange. Coming in at #2 was Reuters’ Goldman warns of $5-billion earnings hit from U.S. tax law and rounding out the top three was from Quartz, A bitcoin exchange’s exec was kidnapped before hackers attacked its site

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MarketsWiki Stats
116,982,778 pages viewed; 22,945 pages; 210,939 edits
MarketsWiki Statistics

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Lead Stories

Europe begins countdown to Mifid II; Sweeping changes to EU rules on financial instruments come into force on January 3
Philip Stafford and Peter Smith – FT
Global markets are counting down to their biggest reform in a decade. January 3 marks a defining moment in financial regulation, the much anticipated introduction of a revamped version of Europe’s Markets in Financial Instruments Directive, more commonly known as Mifid II.
/goo.gl/xPoeuH

How high-frequency trading hit a speed bump; Smaller volumes and a fall in market volatility have dented business — so much so that some are quitting
Gregory Meyer, Nicole Bullock and Joe Rennison in New York – FT
The 19th century newspaper editor Horace Greeley urged young Americans to “Go West” to the unsettled frontier. When he went himself, the trip from Chicago to the Pacific took two-and-a-half months by steamboat and ox-drawn wagon. He later advocated a transcontinental railroad to speed up commerce and shorten the mail service to 10 days.
/goo.gl/Y8mgk5

How China Will Shake Up the Oil Futures Market
Sungwoo Park – Bloomberg
China, the world’s biggest oil buyer, is on the verge of opening a domestic market to trade futures contracts. It’s been planning one for years, only to encounter delays. The Shanghai International Energy Exchange, a unit of Shanghai Futures Exchange, will be known by the acronym INE and will allow Chinese buyers to lock in oil prices and pay in local currency. Also, foreign traders will be allowed to invest — a first for China’s commodities markets — because the exchange is registered in Shanghai’s free trade zone. There are implications for the U.S. dollar’s well-established role as the global currency of the oil market.
/goo.gl/fjVJTG

Bitcoin’s gender divide could be a bad sign, experts say; Women will get more involved in the cryptocurrency world when — and if — it becomes less risky
Anne Gaviola – CBC
Bitcoin, and the world of cryptocurrency, is a boys’ club, say some experts, and that should be cause for concern.
/goo.gl/7oiPSE

Cryptocurrencies: debased coinages; Holding on for dear life will become costly rather than remunerative
FT LEX
Year-end reviews like to identify words and phrases that have captured the zeitgeist. Lex’s choice is “hodl”, an in-word as niche as many of the cryptocurrencies to which it is applied. The term describes a determination to hang on to bitcoin’s latest rival, in hopes that it too may appreciate ten times in twelve months.
/goo.gl/it79Mg

Judge Says PricewaterhouseCoopers Was Negligent In Colonial Bank Failure; Ruling opens accounting firm to hundreds of millions of dollars in potential damages
Michael Rapoport – WSJ
PricewaterhouseCoopers LLP was negligent in connection with one of the biggest bank failures of the financial crisis, a federal judge has ruled, opening up the Big Four accounting firm to the potential of hundreds of millions of dollars in damages.
/goo.gl/g2DTRr

No Idea What MiFID Stands For? Here’s What You Need to Know
Sarah Jones, Will Hadfield, and Silla Brush – Bloomberg
New financial law comes into force on Jan. 3 across Europe; Covers everything from trade reporting to research costs
Everyone in European finance has been abuzz over an obscure acronym — MiFID II — that’s about to radically change how assets from stocks to commodities are traded and investors’ money is managed.
/goo.gl/R5EZf9

Markets must prepare for more volatility; Never before have central bank balance sheets been so large and interest rates so low
Axel Weber – FT
How to explain the paradox of low market volatility, record highs on the world’s stock markets and reduced levels of investor anxiety despite rising political risk?
/goo.gl/fs2PMA

European finance sector scrambles over Mifid II rules; Introduction of the reforms midweek have increased the risks of glitches
Hannah Murphy – FT
Europe’s financial services industry is scrambling to stave off any potential last-minute trading glitches as the major regulatory shake-up of EU financial markets comes into force on Wednesday.
/goo.gl/FkMAiH

The Wall Street epidemic being kept behind closed doors
By Gregory Bresiger – NY Times
While the opioid epidemic ravages rural America, Wall Street is not immune to its scourge.
In fact, given its unique pressures, the securities industry leaves its professionals particularly vulnerable to drug problems. Those are the warnings of an addiction specialist who has treated securities professionals with drug problems. The industry, she added, doesn’t understand that its professionals could be hurt by the opioid epidemic sweeping the country.
/goo.gl/R68XuN

Compass CEO Richard Cousins and family killed in plane crash: The City pays tribute
Alys Key – City AM
Richard Cousins was one of six killed in a seaplane crash (Source: Compass Group)
Tributes have been paid to the FTSE 100 chief executive who was killed alongside his family in a New Year’s Eve plane crash.
/goo.gl/sr9WVW

Exchanges, OTC and Clearing

HKEX Welcomes Yue Yi To Its Risk Management Committee (Statutory)
HKEX
Hong Kong Exchanges and Clearing Limited (HKEX) welcomes Yue Yi, the new Chairman of the Hong Kong Interbank Clearing Limited (HKICL), to its Risk Management Committee (Statutory) (RMC). His appointment was in accordance with the Securities and Futures Ordinance. Mr Yue replaced Raymond Cheng, the former chairman of HKICL.
/goo.gl/Y4JuyL

Euronext becomes minority shareholder of LCH SA
Euronext
Today Euronext announces closing of the share swap of its current 2.3% stake in LCH Group for an 11.1% stake in LCH SA and becomes minority shareholder of LCH SA. This follows the announcements of 8 August 2017 and 1 November 2017.
/goo.gl/n2JN5L

Euronext N.V. becomes shareholder in LCH SA
LCH
LCH, a leading global clearing house, today announces the completion of Euronext N.V.’s swap of 2.3% stake in LCH Group for an 11.1% minority stake in LCH SA. This follows the agreement as outlined in the announcement of 8 August 2017 and the entry into a new long-term derivatives clearing agreement for listed financial and commodity derivatives.
/goo.gl/Mb7MvT

Intercontinental Exchange Completes Acquisition of Virtu BondPoint; Expands Fixed Income Market Solutions
ICE
Intercontinental Exchange (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, announced it has completed its acquisition of Virtu BondPoint from Virtu Financial for $400 million in cash.
/goo.gl/K4ks3a

Fintech

The Limits of Amazon; The tech giant is very good at delivering what customers need, but is it as well positioned to sell them things they want?
Christopher Mims – WSJ
Amazon.com Inc. is a colossus. In the near future, it could even surpass Apple Inc. as the world’s largest publicly traded company.
/goo.gl/Yhn2Lh

The documentary about Google DeepMind’s ‘AlphaGo’ algorithm is now available on Netflix
Sam Shead – Business Insider
One of the greatest breakthroughs in the field of artificial intelligence was turned into a documentary called “AlphaGo” last year and the movie has just been released on Netflix.
/goo.gl/ScBvkM

Miners Look to Cash In on Cobalt Demand; Firms step up operations as battery makers seek new sources of the metal
David George-Cosh – WSJ
A handful of Canadian miners are ramping up operations to mine cobalt, betting on demand for a socially responsible source of the metal that is in high demand as a key component of electric cars.
/goo.gl/gktXpr

Vela adds Virtu to SI data hub; Vela’s SI data hub offers price and best bid and offer feeds for liquidity across various venues.
By Hayley McDowell – The Trade
Market access technology provider Vela has expanded its systematic internaliser (SI) data hub with the addition of Virtu Financial.
/goo.gl/yM4MDh

Politics

US considers mortgage credit check shake-up; Critics complain current system outdated and locks millions out of home ownership
Alistair Gray in New York – FT
A new fight for a share of the lucrative US credit scoring market has broken out as Washington considers the first big change for about two decades in the way would-be mortgage holders are assessed.
/goo.gl/rjZNfW

The Trump Effect: Business, Anticipating Less Regulation, Loosens Purse Strings
Binyamin Appelbaum and Jim Tankersley – NY Times
A wave of optimism has swept over American business leaders, and it is beginning to translate into the sort of investment in new plants, equipment and factory upgrades that bolsters economic growth, spurs job creation — and may finally raise wages significantly.
/goo.gl/RK4bcQ

Trump Can’t Run the Government With Temps; Failing to staff key positions isn’t negligent — it’s illegal.
The Editors – Bloomberg
In at least one respect, Donald Trump’s presidency is already historic: Never before has a president left so many senior jobs vacant for so long. If his goal is to downsize the bureaucracy — not a terrible idea — then he is going about it in a spectacularly wrongheaded way.
/goo.gl/QbHCKY

Trump and Congress Spoil for Fights With Shutdown Again at Stake
Justin Sink , Erik Wasson , and Anna Edgerton – Bloomberg
Lawmakers return to Washington, agenda of contentious items; Spending plans, immigration loom against Russia probe backdrop
President Donald Trump and many Democrats and Republicans in Congress all enter the new year spoiling for a fight.
/goo.gl/2d82Mq

Regulation

Enforcement Agencies May Bring Bitcoin Exchanges Under Scrutiny; The Action Can Be Taken Against Bitcoin Platforms And Exchanges For Illegal Money Pooling
Meha Agarwal – Inc 42
Bitcoin platforms and exchanges may soon come under the scanner of enforcement agencies after the Indian government likened them to ‘Ponzi schemes’ recently. As per a LiveMint report, the bitcoin exchanges are set to be investigated for any attempts of illegal money-pooling.
/goo.gl/uVzds1

EU Competition Chief Tracks How Companies Use ‘Big Data’; Regulators say the information could allow big businesses to exclude rivals from markets
Natalia Drozdiak – WSJ
European Union antitrust regulators are eyeing an increasingly important corporate currency: data.
/goo.gl/BDiUoB

Investing and Trading

Bitcoin mania: What the big names of finance are saying
Daniel Shane – CNN
Bitcoin’s stunning rise was one of the big stories of 2017, and it’s set to divide opinions further this year.
/goo.gl/ickopL

Beware of the media inflating the bitcoin bubble
Nicole Gelinas – NY Post
The price of bitcoin has soared from $1,012 a year ago to $15,417 last week — tempting people to risk their savings to grab a piece of the riches. Regulators are reacting, but no law can protect everyone against their own bad judgment.
/goo.gl/vNYaCB

Bitcoin’s share of the crypto universe is the lowest it has ever been; A view of Ducatus cafe, the first cashless cafe that accepts cryptocurrencies such as Bitcoin, on their opening day in Singapore December 21, 2017.
John Detrixhe – Quartz
Bitcoin’s share of the $628 billion cryptoasset universe has fallen to its lowest ever. While the price of the original and most popular digital coin has stumbled in recent weeks, the market value of others like ethereum and ripple has appreciated steadily, setting consecutive records, according to Coinmarketcap.com.
/goo.gl/cm3EbF

Markets Benefited From What Didn’t Happen in 2017; Nine expected events didn’t materialize, leading to a banner year.
Mohamed A. El-Erian – Bloomberg
Many of the assessments of the 2017 financial markets understandably focused on the impressively favorable outcomes delivered by stocks and other risk assets. Yet it is also worth considering what didn’t happen — in particular, nine events, which, by not taking place, contributed to make the last 12 months exceptional for many investors, big and small.
/goo.gl/y2YJTw

2018 Feels Ripe for ‘Big Unexpected Crisis,’ Eurasia Group Says
By Enda Curran – Bloomberg
‘Geopolitical depression’ now closer than shift to stability; China’s ability to fill U.S. power vacuum tops list of risks
This year could see a geopolitical crisis on the scale of the financial crash a decade ago, Eurasia Group warned in its annual outlook.
/goo.gl/okZyXu

Gold Is on Its Best Run Since 2011
Ranjeetha Pakiam and Jasmine Ng – Bloomberg
Spot bullion gains for 8th day to the highest since September; Precious metal advanced in 2017 even as Fed hiked three times
Gold is opening the new year on the front foot. Bullion advanced for an eighth day to head for the longest stretch of gains since mid-2011, building on an annual surge.
/goo.gl/i7jxRj

Central bank support set to be game-changer for bonds; Most expect yields to climb noticeably with less accommodative monetary policy
Robin Wigglesworth – FT
Global monetary policy has been a multi-trillion dollar relay race over the past decade. But in 2018, there will be no one to pick up the baton, setting up a potentially anxious year for the world’s bond markets.
/goo.gl/BbJb1o

Who Are the Big Players in the Bond Market? Small Investors; Individuals have had a significant role in keeping yields down even as the Fed has raised interest rates
By Daniel Kruger – WSJ
The latest pillar supporting the U.S. Treasury market: everyday investors.
/goo.gl/cfh9zc

Institutions

PwC ‘fell short’ on averting one of the biggest US bank collapses; Huge chunks of loans from Colonial Bank to mortgage firm TBW were secured against non-existent assets
Ben McLannahan in New York – FT
PwC should have done more to avert one of the biggest bank collapses in US history, according to a US federal judge, at the end of a case that shone new light on the responsibility of auditors to detect fraud.
/goo.gl/JfnG5A

Why Are Mutual Fund Fees So High? This Billionaire Knows
Landon Thomas Jr. – NY Times
The billionaire investor Ronald S. Baron flashed the grin of a proud father at his annual investor jamboree in November, as the chief executives of his favorite companies explained how slashing prices stoked their bottom lines.
/goo.gl/vrEugi

Which Banks to Own When Savers Get Fed Up; 2018 will be the year that banks finally start paying decent returns to savers, but some will have to pay more than others
Aaron Back – WSJ
Savings accounts, which have paid out almost nothing for the past decade, could get more interesting in 2018 as yields rise and investors scramble for the higher returns. That could be bad news for certain banks.
/goo.gl/wdVVHK

Bridgewater’s Bruce Steinberg Killed in Plane Crash With Family
David Scheer – Bloomberg
Steinberg, his wife and their three sons died in Costa Rica; It’s a ‘devastating tragedy,’ Bridegwater’s Ray Dalio says
Bridgewater Associates executive Bruce Steinberg and his family were among 10 Americans killed when a charter plane crashed into a mountain in Costa Rica on Sunday.
/goo.gl/HPyk5x

Opinion: Look who’s attacking index funds now; Costs of defending possible anti-trust lawsuits would hit shareholders
Mark Hulbert – MarketWatch
While index funds have had their share of critics, they could always rely on academia to defend them. Until now.
/goo.gl/SY4ibR

Deutsche Bank says ‘normal’ bonuses and pay rises are back; Chief executive John Cryan signals happy new year at Germany’s biggest lender
Laura Noonan in Dublin – FT
Deutsche Bank chief executive John Cryan has promised staff “normal” bonuses and pay increases for the first time in his two and a half years in charge, as Germany’s biggest lender emerges from its most turbulent period.
/goo.gl/vPdVFq

Stockpickers’ fees set to suffer from ETF price war; Ever cheaper index-tracking funds will sharpen the pressure on the active managers
Robin Wigglesworth, US markets editor – FT
Asset managers are bracing themselves for an even tighter squeeze on fees this year, as an intensifying price war between exchange-traded fund providers raises the pressure on those who promise to beat the market.
/goo.gl/oRYVsG

Europe’s bank bosses see need for consolidation in sector; Cross-border deals to return only when eurozone banking union is complete, says a CEO
Martin Arnold, Banking Editor – FT
In most industries, persistently low profits, fierce competition and downtrodden share prices would mean only one thing: takeovers. The strongest buy their weaker rivals and the weakest are simply forced out of business. But not in banking. Or at least not yet.
/goo.gl/voCkKP

Regions

Australian Banks Reportedly Freezing The Accounts Of Bitcoin Users
Matthew Tompkins – Bitcoinist.com
Reports are emerging on Twitter that bank accounts in Australia associated with Bitcoin purchases are being frozen alongside transactions that users may be making to some of the country’s most popular cryptocurrency purchasing sites.
/goo.gl/aqPNHD

Trafigura Denies Involvement in Illicit North Korea Oil Transfer
Kanga Kong and Dan Murtaugh – Bloomberg
South Korea on Tuesday said trader owned fuel cargo on vessel; Co. says didn’t order transfer; no part in final destination
Trafigura denied it was involved in the illicit transfer of fuel to North Korea after the South Korean government said the world’s third-biggest independent oil trader originally owned the cargo that was shipped in breach of United Nations sanctions.
/goo.gl/oUKUGM

Negative Bond Yields Are the Betamax of European Markets
Mark Gilbert Marcus Ashworth – Bloomberg
The start of 2018 marks the beginning of the European Central Bank’s efforts to unhook financial markets from its life support machine by halving monthly bond purchases to 30 billion euros ($36 billion). The bond market is starting to pay attention.
/goo.gl/1N9JvE

Putin considers ‘cryptorouble’ as Moscow seeks to evade sanctions; Russian leader orders officials to devise framework for establishing digital currency
Max Seddon in Moscow and Martin Arnold in London – FT
Russia is exploring ways to create a “cryptorouble” that could help it circumvent western sanctions as the traditionally technophobic Kremlin gets swept up in the cryptocurrency craze.
/goo.gl/gBhKio

Brexit

Britain wants financial services included in EU trade deal – Davis
Reuters Staff
Britain wants to include financial services in a trade deal with the European Union which covers a full sweep of economic areas, Brexit minister David Davis said on Tuesday.
/goo.gl/mmXavA

Economists still gloomy on post-Brexit economy; FT’s annual survey shows events of 2017 have done little to brighten the outlook
Gemma Tetlow and Gavin Jackson in London – FT
The majority of economists remain gloomy about Britain’s economic prospects outside the EU, with the recent conclusion of withdrawal negotiations having done little to reassure them that Britain will be able to maintain sufficiently close trade links with the bloc after Brexit.
/goo.gl/yvniFk

France’s northern ports fight to stop hard Brexit; Hauts-de-France region has much to lose in the event of a disorderly UK exit from EU
Anne-Sylvaine Chassany in Dunkirk – FT
As the man in charge of the French region nearest the British coast, Xavier Bertrand says he will not watch quietly as the UK negotiates its way out of the EU.
/goo.gl/pYcjLL

Miscellaneous

Deep freeze keeps grip on eastern United States; four die
Brendan O’Brien – Reuters
A record-shattering Arctic freeze kept its grip on much of the United States east of the Rocky Mountains on Tuesday but temperatures everywhere except the Northeast were expected to warm within 24 hours.
/goo.gl/93d9oZ

Dairy Producers, Farmers Struggle With Organic-Milk Oversupply; Companies that invested in producing organic milk are cutting capacity or looking to turn it into cheese or other products
Heather Haddon and Benjamin Parkin – WSJ
Organic milk sales have cooled as the very shoppers who drove demand for the specialty product not long ago move on to newer alternatives, leaving dairy sellers and producers grappling with oversupply.
/goo.gl/Yp2oUn

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About Author

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