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Flash-crash trader helps US in fight against market abuse; Justice Department Charges Eight Traders With Deceptive Futures Market Trading; Decade of Easy Cash Turns Bond Market Upside Down

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First Read

Turn Yourself In, It’ll Be Easier: Bank Cooperation On Spoofing Charges Saves Millions
Jim Kharouf – JLN

Over the past several months, there has been a fair amount of talk about the Commodity Futures Trading Commission’s push on the so-called “self-reporting” initiative launched last September and aimed at taking it easier on firms that come forward with wrongdoing.

Yesterday’s announced spoofing charges and fines include one of the first such self-reporting cases, with HSBC Securities settling for $1.6 million, Deutsche Bank for $30 million and UBS for $15 million.

For the rest of the commentary, click HERE


Hits & Takes
JLN Staff

Correction: The FinTank CryptoCon 2018 event is on February 15, not 17. We had a typo yesterday on the date. Apologies.~JJL

Integrity Research Associates has a report out titled “Mitigating Legal Risks Associated With Alternative Data.” If you don’t have time for the 20 page report, here is a blog with highlights. Concerns about the use of alternative datasets are not new. For more context on the issue, check out this blog – The (Weak) Link Between Alternative Data and Inside Information – from Quandl CEO Tammer Kamel that was published in September 2016.~SD

Fake social media accounts and bots have been in the headlines quite a bit recently, but it is far more than a Twitter or Facebook thing. According to a report from Distil Networks, a web security firm, if you have a website with “unique content and/or product and pricing information,” there is a 97 percent chance you were hit with scraper bots. Lots of other disconcerting tidbits in there…~SD

Jitesh Thakkar of Edge Financial, arrested as part of the DOJ/CFTC spoofing case announced yesterday, used John Lothian Productions for a video on Edge Financial’s Kill Switch. He also served on a CFTC Technology Advisory Committee subcommittee on high frequency trading.~JJL

We’re living in strange times for everyone, including lawyers. The Wall Street Journal has this story: “Lawyers Faced With Emojis and Emoticons Are All ¯\_(?)_/¯ – Chipmunks, kissy lips and champagne bottles are becoming bones of contention in legal disputes; a court considers the ‘:P'” ~SR

Michael Ivers tweeted this yesterday: “25 years ago today My Father Ivers Riley introduced SPY on the American Stock Exchange.” Here is a story Jim Kharouf wrote for JLN about Ivers in 2015 when he passed.~JJL


Cboe’s Crypto Journey Just Getting Started

At STAC’s 92nd Annual Mid-Winter Meeting, JLN spoke with Michael Mollet, Cboe Global Markets’ director of product development, about the exchange group’s outlook on cryptocurrency derivatives and what’s needed for more growth in the space.

It’s been more than a month since the launch of Cboe’s bitcoin futures, but to render a verdict on the success of the product is far too premature, Mollet says. Cboe is priming itself to be a market for cryptocurrency derivatives and its XBT offering is just a start.

Watch the video and read the rest here »


Sponsored Content



West Corporation Agrees to Acquire Nasdaq’s Public Relations Solutions and Digital Media Services Businesses
West Corporation and Nasdaq, Inc. jointly announced today that West has entered into a definitive agreement to acquire the public relations and webcasting and webhosting products and services within Nasdaq’s Corporate Solutions business for approximately $335 million.

***** Adena Friedman continues to reshape Nasdaq.~JJL


The Connection Between Retiring Early and Living Longer; Research shows a link, but it isn’t retirement itself that leads to a longer life, but what you do in retirement.
Austin Frakt – WSJ
You may not need another reason to retire early, but I’ll give you one anyway: It could lengthen your life. That’s the thrust from various research in recent years, and also from a 2017 study in the journal Health Economics.

***** How do you know you are old? People call at 9 p.m. and ask, “Did I wake you?”~JJL

***** I am so old I have to use glasses. I used to drink directly from the bottle.~JJL


Monday’s Top Three
Our top read story yesterday was Reuters’ piece U.S. authorities charge three banks, eight individuals in futures ‘spoofing’ probe. Second went to the other serious concern in the industry, Bloomberg’s story Flu Season From Hell Keeps Getting Worse. Third went to Bloomberg’s How to Launder $500 Million in Digital Currency, which still seems hard to do even after reading it.



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Lead Stories

Flash-crash trader helps US in fight against market abuse; Briton in spoofing case co-operates with prosecutors in plea deal
Gregory Meyer in New York and Philip Stafford in London – FT
Navinder Singh Sarao, the UK day trader guilty of “spoofing” stock index futures, has helped US prosecutors build a case in a broadening crackdown on market abuse.

Justice Department Charges Eight Traders With Deceptive Futures Market Trading; The Commodity Futures Trading Commission announced related civil charges against three banks and six individuals
Gabriel T. Rubin – WSJ
Federal prosecutors on Monday announced charges against eight traders for deceptive trading practices in the futures markets, with all but one person charged with illegal spoofing.

Decade of Easy Cash Turns Bond Market Upside Down; Debt deals set records from Tajikistan to East Rutherford as investors keep hunting yield
Matt Wirz – WSJ
Last fall, a hydroelectric dam in Tajikistan, the government of Portugal and a cruise-ship operator all issued debt at unusually low interest rates. The seemingly unconnected deals are part of a proliferation of aggressive bond sales influenced by a decade of loose monetary policy and a demographic shift in global investing.

Jamie Dimon signs on for another five years as JPMorgan chief; Move damps speculation about political ambitions
Ben McLannahan in New York – FT
Jamie Dimon has signed on for another five years as chairman and chief executive of JPMorgan Chase, damping speculation that the 61-year-old banker was considering a move into politics.

CFTC Files Eight Anti-Spoofing Enforcement Actions against Three Banks (Deutsche Bank, HSBC & UBS) and Six Individuals
The Commodity Futures Trading Commission today announced, in conjunction with the Department of Justice and Federal Bureau of Investigation’s Criminal Investigative Division, criminal and civil enforcement actions against three banks and six individuals involved in commodities fraud and spoofing schemes.

****The CFTC also put out specific releases on each of the actions: Deutsche Bank; UBS; HSBC, Andre Flotron; James Vorley and Cedric Chanu; Jitesh Thakkar and Edge Financial Technologies; Krishna Mohan; and Jiongsheng Zhao.

FCMs demand self-certification overhaul after bitcoin debacle; CBOE, CME rush to list bitcoin futures “felt like an arms race”, says one FCM chief
Dan DeFrancesco –
The race between two of the US’s largest futures markets to launch bitcoin futures last month has sparked a backlash from clearing banks, which are calling for changes to the self-certification process for listing new derivatives contracts.

Vanguard warns of strengthening ‘predators’ in ETF market
Robin Wigglesworth, US markets editor – Financial Times
Vanguard fears that ”predators” are taking advantage of exchange traded funds at the expense of retail investors and hopes that an expected overhaul by US regulators will not mandate perfect transparency for the booming $4.8tn industry.

Rags to Riches Tale Ends in Disaster for Noble Group’s Elman
Jack Farchy – Bloomberg
Trader’s shareholders to be all but wiped out in restructuring; A one-time scrap metal laborer, Elman became a billionaire as Noble expanded
When Swiss commodity trader Andre & Cie went bust 17 years ago, Richard Elman pounced. He bought its Asian grains business for next to nothing as part of an acquisition spree that would make his own fledgling company, Noble Group Ltd., into Asia’s biggest commodity trader within a decade.

MSCI and Confluence Help Investors Streamline SEC N-PORT Regulatory Reporting Requirements
MSCI Inc., a leading provider of analytics, applications and services to institutional investors, has entered into agreement with Confluence Technologies, Inc, a global leader in investment data management automation for regulatory, financial and investor reporting, to help asset managers streamline compliance with SEC Modernization and other regulatory reporting requirements.

As Scaramucci Puts Hedge Fund Event on Ice, a New Show Emerges
Simone Foxman – Bloomberg
Fear not, hedge funders. There will still be a conference in Las Vegas this May.

Amazon, Berkshire, JPMorgan to Create Healthcare Company
Bloomberg News
Amazon, Berkshire Hathaway and JPMorgan have announced plans to create an independent company focused on technology solutions “that will provide U.S. employees and their families with simplified high-quality and transparent healthcare at a reasonable cost,” Bloomberg News reports.

Why Do So Many Managers Forget They’re Human Beings?
Rasmus Hougaard, Jacqueline Carter, Vince Brewerton – Harvard Business Review
In our assessments, surveys, and interviews of over a thousand leaders, many comments stood out, but one in particular was especially powerful and thought-provoking. “Leadership today,” Javier Pladevall, CEO of Audi Volkswagen, Spain, told us, “is about unlearning management and relearning being human.”

Exchanges, OTC and Clearing

It’s Not A Rebate!
Themis Trading Blog
There seems to be a discrepancy within the industry as to the difference between a “rebate” and a “discount”.

Moscow exchange says bomb call threat forces evacuation
The Moscow stock exchange evacuated its two buildings after a phone a bomb threat call, the exchange said on Monday, adding that its trading operations were not affected.

CAC 40 shareholder profiles – Euronext unveils new study
At its 7th annual Stock Exchange Conference, bringing together key players in the French financial market, Euronext unveiled a new report on trends in direct shareholders of the companies that collectively form the CAC 40 index.

London leads Komodo bonds issuance
London Stock Exchange Group
London Stock Exchange Group today welcomes Wijaya Karya, one of the largest listed state-owned infrastructure and EPC (engineering, procurement and construction) companies in Indonesia, to celebrate the successful issuance of its first Komodo bonds on London Stock Exchange’s International Securities Market (ISM).


Object Trading’s Peck latest to leave Vela
Luke Jeffs – Global Investor Group
Tech firm Vela has parted ways with Object Trading’s former head of sales Des Peck, marking the latest senior Object Trading figure to leave in the six months since it was bought by Vela.
Peck, who was recently a London-based business development manager at Vela Trading Technologies, left the firm in December according to sources close to the firm.
A spokeswoman for Vela Trading Technologies declined to comment.

Kodak’s Dubious Blockchain Gamble
Kevin Roose – NY Times
An eon or two ago, Eastman Kodak was a bleeding-edge technology company. It hired the smartest engineers and put them to work racking up patents, pioneering new chemical processes and building a globe-spanning camera and film business that, at its peak, employed 145,000 people.

Thomson Reuters in Talks to Sell Stake in Unit to Blackstone; The financial and risk unit services banks, money managers and other financial institutions
Ben Dummett – WSJ
Thomson Reuters Corp. said it is in advanced talks to a sell a major stake in its financial and risk business to private-equity giant Blackstone Group LP.

****Financial Times here.

Blockchain is this year’s buzzword – but can it outlive the hype?; The open-source ledger behind bitcoin is touted as revolutionary for everything from banking to health, but the jury is still out
Mattha Busby – The Guardian
The speculation around cryptocurrencies has obscured the fact that blockchain, the decentralised, open-source ledger that drives bitcoin, could radically change how ownership is verified.

How blockchain technology will reduce trade friction for everything from real estate to fine art
Eric Jackson – CNBC
Stephen McKeon is a professor of finance at the University of Oregon, and I first got to know him through a Medium post he wrote last August on asset-backed tokenization. A couple weeks ago, he was on CNBC’s”Power Lunch.” I had a lot more questions in my own mind after that segment so I reached out to him and he kindly agreed to chat.


Theresa May faces growing calls to quit; Unrest grows among MPs and Tory donors
Francis Elliott, Political Editor, Sam Coates, Bruno Waterfield – The Times
The prime minister is facing a donors’ revolt and growing pressure to leave Downing Street as soon as the outline of a trade deal is negotiated with the European Union this autumn.

Trump’s Weakness Is a Dangerous Thing
Jonathan Bernstein – Bloomberg
President Donald Trump attempted to get special counsel Robert Mueller fired back in June, according to reports, but White House counsel Donald McGahn refused to set the plan in motion, threatened to resign in protest, and Trump backed down.

Draft FEC Rules Target Political Ads on Social Media
Nafeesa Syeed , Gerrit De Vynck , and Naomi Nix – Bloomberg
Democratic FEC member says commission reviewing draft rules; Facebook will archive political ads for four years: Harbath
The U.S. Federal Elections Commission is moving forward with a plan to introduce new rules on political advertising on social media ahead of the 2018 election cycle.


U.S. banking regulators sign off on foreign bank ‘living wills’
U.S. banking regulators said Monday that “living wills” submitted by 19 foreign banks are largely satisfactory, and are likely to ease expectations for future submissions from those firms.

Acting Assistant Attorney General John P. Cronan Announces Futures Markets Spoofing Takedown
Today, the Criminal Division of the Department of Justice is pleased to announce the largest futures market criminal enforcement action in Department history.

Eight Individuals Charged With Deceptive Trading Practices Executed on U.S. Commodities Markets
Eight individuals who allegedly engaged in various deceptive trading practices on commodities markets in the United States have been publicly charged with federal crimes. Seven of the eight individuals were charged with the crime of spoofing, an illegal trading practice that can be used to manipulate the commodities markets. Other than the individuals identified today, only three other individuals have ever been publicly charged with the crime of spoofing. Of those identified today, five were traders employed by global financial institutions, two were traders at large commodities trading firms, and one was the owner of a technology consulting firm.

US files ‘spoofing’ charges against UBS, HSBC and Deutsche Bank
The US Justice Department and the country’s derivatives regulator said they had filed civil and criminal charges against three European banks, which paid $46.6m (£33m) to settle the cases, and eight individuals for alleged manipulation in US futures and commodities market.

US regulator fines European banks for ‘spoofing’; Deutsche Bank, HSBC and UBS to pay over $40m between them for futures market abuse
Barney Jopson in Washington, Gregory Meyer in New York and Martin Arnold in London – FT
Three European banks have been fined a total of over $40m to settle US charges of “spoofing” futures markets, extending the efforts of regulators to crack down on the illegal trading practice.

BNP Paribas admits FX price rigging, accepts $90 million fine; Guilty plea makes BNP Paribas the sixth major bank to admit price-fixing charges in FX markets.
Hayley McDowell – The Trade
The North American arm of French bank BNP Paribas has pleaded guilty to price-fixing charges in foreign exchange and will pay a criminal fine of $90 million, the US Justice Department confirmed.

ASIC commences civil penalty proceedings against Commonwealth Bank of Australia for BBSW conduct
ASIC has today commenced legal proceedings in the Federal Court in Melbourne against the Commonwealth Bank of Australia (CBA) for unconscionable conduct and market manipulation in relation to CBA’s involvement in setting the bank bill swap reference rate (BBSW) between 31 January 2012 and October 2012.

ESMA updates equity transparency calculations and tick sizes band assessment for MiFID II/ MiFIR
The European Securities Market Authority (ESMA) has updated today its transitional transparency calculations (TTC) for equity and tick sizes under the Markets in Financial Instruments Directive (MiFID II).

FINRA and ISG Announce Extension of Effective Date for Certain Electronic Blue Sheet Data Elements and Updates to Certain Requestor and Exchange Codes; Effective Date: November 15, 2018; Updates to Requestor and Exchange Codes are Effective Immediately
FINRA and the other U.S. members of the Intermarket Surveillance Group (ISG members) have extended the effective date for compliance with certain data elements for Electronic Blue Sheets (EBS) identified in FINRA Regulatory Notice 15-44 to November 15, 2018. FINRA and the other ISG members are extending the effective date for these data elements to be consistent with the exemptive relief recently granted by the SEC, which extended the compliance date for certain broker-dealer recordkeeping and reporting requirements of SEA Rule 13h-1 (Large Trader Rule) from November 1, 2017, to November 15, 2018.

A Court Is Going to Decide Whether the Government Can Regulate Bitcoin Like Stocks
The U.S. is trying to regulate cybercurrency offerings. It’s still unclear whether it has the authority to do so.

Investing and Trading

ETF minnows struggle to catch up to giants; Vanguard, BlackRock and State Street dominate an industry that is tough for smaller players
Robin Wigglesworth – FT
When Jonathan Steinberg, the founder of exchange-traded fund provider WisdomTree, was asked whether it was feasible to replicate the feat of building a big independent ETF company in today’s environment, he was unequivocal.

Taming the factor zoo
Tom Goodwin – FTSE Russell Blog
Investors’ interest in smart beta has increased significantly in recent years, with a specific focus on factor investing. That interest has helped drive an explosion of research on factors. But there can be too much of a good thing: “We now have a zoo of new factors,” declared Professor John Cochrane from the University of Chicago in 2011. Since this statement, the proliferation of factors purporting to deliver excess returns has only accelerated. In just the years between 2010 and 2012, 59 new factors were “discovered.” By some counts, there are now over 300 factors in academic and practitioner literature. But in a zoo of 300, how can anyone sort through the herd and find a group of factors that will generate reliable, sustainable long run premiums?

US IPO market has strongest start to year on record; Soaring share prices and clarity on tax reform lures 17 companies to list
Nicole Bullock in New York – FT
US initial public offerings are off to their strongest start to a year on record, as the equity market rally lures companies to list.

Alice Handy, a Pioneer in Investing for Nonprofits, to Retire
Michael McDonald – Bloomberg
Investure produced Ivy League-like returns for school funds; She popularized investment office ‘outsourcing’ for nonprofits
Alice Handy brought Ivy League-like returns to college endowments over a four-decade career and helped build the investment management industry for nonprofits. Now, she has ceded control of her company as she prepares to retire at year-end.

VIX Hedging Proves Timely as Record Stock Rally Shows Fatigue
Cecile Vannucci – Bloomberg
Volatility gauge has been rising with S&P 500 more often; Simultaneous advances have led to more stock gains in the past
All the hedging that’s pushed up the VIX lately is now proving useful. The S&P 500 Index’s biggest slump since September halted a rally that came in tandem with an advance in the Cboe Volatility Index, a rare occurrence that happened as investors favored VIX options to protect equity gains. The selloff that started in the U.S. triggered declines in Asian and European stock markets on Tuesday as volatility climbed across regions and asset classes.

Hunting Cheap Stocks Harder Now Than During Dot-Com Mania Peak
Cormac Mullen – Bloomberg
The dot-com bubble was a lot more picky. Even on the day the S&P 500 Index hit its March 2000 peak an investor could buy a third of the index for less than 11 times earnings. Today that figure is just 6 percent.

Bitcoin price dips as South Korea cryptocurrency ban on anonymous accounts comes into force
Lynsey Barber – City AM
New regulation of bitcoin and other cryptocurrencies has come into force in South Korea, one of the biggest markets for trading.


JP Morgan says Jamie Dimon will continue to serve as CEO for five more years
Liz Moyer – CNBC
J. P. Morgan Chase’s Chairman and CEO Jamie Dimon will stay in that role for another five years, the bank said Monday, though it named two lieutenants to a co-president job.

JPMorgan Names Daniel Pinto, Gordon Smith as Co-Presidents, COO; CEO James Dimon says he will stay on for about five more years
Emily Glazer – WSJ
JPMorgan Chase JPM -0.10% & Co. elevated two executives to share the No. 2 post at the nation’s largest bank, the clearest step yet to designate a potential successor to Chairman and Chief Executive James Dimon.

Rags to Riches Tale Ends in Disaster for ‘Mini-Glencore’
Jack Farchy – Bloomberg
Trader’s shareholders to be all but wiped out in restructuring; A one-time scrap metal laborer, Elman became a billionaire as Noble expanded
When Swiss commodity trader Andre & Cie went bust 17 years ago, Richard Elman pounced. He bought its Asian grains business for next to nothing as part of an acquisition spree that would make his own fledgling company, Noble Group Ltd., into Asia’s biggest commodity trader within a decade.

Exclusive: Blackstone in talks to buy majority stake in key Thomson Reuters unit
Pamela Barbaglia – Reuters
U.S. private equity firm Blackstone Group LP is in advanced talks to buy an approximate 55 percent stake in the Financial and Risk business of Thomson Reuters Corp, a deal that would value the unit at about $20 billion including debt, three sources familiar with the matter said on Monday.

The Big Interview: Susan Estes
The Trade – Hayley McDowell
OpenDoor Trading’s CEO, president and co-founder, Susan Estes, discusses the future of fixed income trading and how disparities in US Treasuries trading have affected the buy-side.

Citi makes landmark move to accept ETFs as collateral; Citi’s plans to go live with a fund administration service for European exchange traded funds (ETF) in 2018.
Jonathan Watkins – The Trade
Citi has made a move to accept exchange traded funds (ETFs) as collateral in agency securities lending transactions.

OpenDoor adds $10 million investment for further expansion; Funding will be used to hire more sale and marketing professionals as firm looks to further expand business.
Hayley McDowell – The Trade
All-to-all US treasuries platform provider OpenDoor Trading has completed a third $10 million investment round to support its ongoing expansion.

Deutsche Bank, UBS and HSBC incur $46 million penalty for spoofing; Three major investment banks allegedly carried out various frauds and spoofing on precious metals futures contracts.
Hayley McDowell – The Trade
Authorities in the US have taken enforcement action against Deutsche Bank, UBS and HSBC, imposing a combined $46.6 million penalty on the three institutions.

Julius Baer’s new chief set to cement his authority at Swiss bank; Bernhard Hodler expected to tell investors he plans more acquisitions
Martin Arnold in London and Ralph Atkins in Zurich – FT
Bernhard Hodler will seek to stamp his authority on Julius Baer on Wednesday by telling investors he plans to remain in charge of the Swiss private bank for years to come.

One Million People Are Waiting in Line to Join Robinhood’s Crypto Trading
Kailey Leinz and Julie Verhage – Bloomberg
Eager to trade Bitcoin for free on Robinhood? Take a number and get in line…a very long line.


HNA to Face $2.4 Billion Liquidity Crunch This Quarter
Bloomberg News
The crisis surrounding HNA Group Co. deepened after it emerged that the Chinese company’s ability to repay its debt will face a potential shortfall of at least 15 billion yuan ($2.4 billion) in the first quarter.

Raising India’s Investor Taxes Will Backfire; A capital-gains levy may look like low-hanging fruit, but it’s toxic.
Andy Mukherjee – Bloomberg
Sending investors the bill for a shortfall from India’s new goods and services tax is a bad idea. Finance Minister Arun Jaitley should resist the temptation. A long-term capital-gains levy on equity can be problematic in a country perennially short of domestic savings. In a frothy stock market, it’s like crying “fire” in a crowded room.

Nigeria’s Southwest Cocoa Belt Hit by Dieback Disease
Tolani Awere -Bloomberg
Disease could result in the loss of 750 tons of cocoa; Prolonged dry season making plants vulnerable to attack
Cocoa farms in southwestern Nigeria, the country’s main growing region, have been bit by outbreaks of a fungal disease identified as dieback, which causes plants to wither and die.

Crypto Firm Ordered to Stop Broker Business by German Watchdog
Alexander Weber – Bloomberg
German supervisors ordered a Berlin-based firm to immediately stop offering the exchange of clients’ Bitcoins into euros, saying it had no permission to offer such brokerage services.


Secret data show Britain worse off under all Brexit scenarios; Government analysis on economic impact set to strengthen hand of ‘soft Brexiters’
George Parker, Political Editor – FT
Britain will be left worse off under all Brexit scenarios, with financial services, chemicals, clothing, manufacturing, food and drink, cars and retailing among the sectors worst hit, according to secret government analysis.


City hedge fund millionaire will fund final search for MH370
Alys Key – City AM
City millionaire Anthony Clake is to help fund last-ditch attempts to solve the mystery of what happened to the missing Flight MH370.

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About Author

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