Breaking News

Mifid II launch overshadowed by futures delay; Ex-UBS Trader Says Bank ‘Mandated’ Conduct That Led to Libor Ban

First Read

Hits & Takes
By JLN Staff

OCC announced that 2017 volume reached the third highest total cleared contract volume ever.~JJL

Jessica Darmoni will be moderating a panel at #STAC’s MidWinter Meeting on Artificial Intelligence and how it will influence future traders and analysts.~JJL

Want a job with the NFA? Click here to learn more.~JJL

CME Group averaged 16.3 million contracts per day in 2017, up 4% from 2016.~JJL

John Sodergreen’s Risk Desk has an interview with CFTC Chairman Giancarlo on page 11 of the latest edition.~JJL

Nasdaq PHLX LLC has given “Notice of Withdrawal of a Proposed Rule Change to Introduce the Intellicator Analytic Tool” to the SEC.~JJL

While usually worth naught, predictions are fun. Reuters’ Breakingviews has its full slate of Predictions 2018 out, such as the TV content wars will come to a “grisly” head and passive funds will have an activist effect on a big company. ~SD

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From Soybeans to Corn, La Niña Could Shake Up Agricultural Markets in 2018; Grains, soybeans and other agricultural commodities are likely in for a wild ride if the La Niña weather pattern takes hold
David Hodari – WSJ
A weather phenomenon that has wreaked havoc on commodity prices in the past could return in 2018. Indicators currently suggest a 75% probability of a La Niña in the coming months, according to Stefan Vogel, head of Rabobank’s agricultural commodity markets research team. The weather pattern could inject volatility into markets like grains, soybeans and palm oil next year.
/goo.gl/AxG9yG

****News of some volatility potential?! Blasphemous.~SD

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Storm in a tea cup
Steve Grob – Fidessa Fragmentation Index
As Storm Eleanor literally howled across the UK last night I woke up wondering if it was some portent to today – Jan 3rd – MiFID II go-live day. But here I am, sat at my desk, and everything seems pretty normal. No one seems to expect huge volumes today though, as traders gently blip the throttles of their new MiFID compliant trading machines. But, now the day has come, two things strike me – first is the enormity of the industry effort involved in getting ready and, second, the almost complete insignificance of it all. The first is easy to understand – 10 years and 7 million paragraphs of new rules (thanks Phil at the FT for counting them all up for us). These then had to be read, interpreted, reinterpreted, coded, tested and implemented. Fidessa alone spent more than 10 thousand man days on this just in 2017, so who knows what the total industry bill is.
/goo.gl/JZUPU5

***** I thought I would need a bottle of gin, errr, glass for MIFID II, not a teacup.~JJL

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As Flow of Foreign Students Wanes, U.S. Universities Feel the Sting
Stephanie Saul – NY Times
At Wright State University in Ohio, the French horn and tuba professors are out. So is the accomplished swimming team. At Kansas State, Italian classes are going the way of the Roman Empire.
/goo.gl/UiyY1v

***** Tell me how this makes America Greater?~JJL

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Tuesday’s Top Three
Yesterday’s top story was one from the FT about the plight of the “flash boys” – How high-frequency trading hit a speed bump. Second went to a Bloomberg piece about Monero – The Criminal Underworld Is Dropping Bitcoin for Another Currency. Third was a Bloomberg story about the topic of the day – Europe’s MiFID II Challenge to U.S. Finance

 

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Lead Stories

Mifid II launch overshadowed by futures delay; UK and Germany allow key exchanges more time to implement rules on clearing
Philip Stafford and Hannah Murphy – FT
Europe’s biggest markets regulatory shake-up for a decade was overshadowed on its debut as the UK and Germany granted last-minute reprieves to the continent’s biggest futures exchanges to implement the rules.
/goo.gl/NS1U7z

****SD: Reuters on the launch here.

Ex-UBS Trader Says Bank ‘Mandated’ Conduct That Led to Libor Ban
Kaye Wiggins – Bloomberg
Arif Hussein’s lawyer calls former trader ‘very junior’; FCA proposing to ban Hussein over Libor-related allegations
An ex-UBS Group AG trader banned from the finance industry over allegations that he manipulated Libor rates told a London court that his actions were “mandated” and “sanctioned” by the bank.
/goo.gl/Qxqu21

U.S. blocks MoneyGram sale to China’s Ant Financial on national security concerns
Greg Roumeliotis – Reuters
Ant Financial’s plan to acquire U.S. money transfer company MoneyGram International Inc (MGI.O) collapsed on Tuesday after a U.S. government panel rejected it over national security concerns, the most high-profile Chinese deal to be torpedoed under the administration of U.S. President Donald Trump.
/goo.gl/cLwfXm

Three of the world’s largest exchange groups granted last-minute reprieve from Mifid II futures rules
Lucy White – City AM
The City regulator and its German counterpart have allowed three of the world’s largest exchange groups to delay the implementation of new rules designed to boost competition.
/goo.gl/zK1w3g

Bitcoin Loses Some Dazzle as Second-Tier Crypto Coins Catch Up
Todd White and Olga Kharif – Bloomberg
Leader’s market share drops to 37% as alternatives rally; Altcoins rising faster than bitcoin as investors pile in
Bitcoin alternatives are closing the gap with the market leader after names like stellar and cardano became red hot as 2017 was closing.
/goo.gl/oznwXf

As Mifid Rolls Out, Bond Volumes Fall; Traders had expected a drop-off in volumes as market adjusted to new rules
Christopher Whittall – WSJ
Trading in some bonds fell sharply in Europe on Wednesday as banks implemented the massive set of new finance regulations known as Mifid II.
/goo.gl/rYXwvt

MiFID Shake-Up Goes Smoothly Even as Trading Volumes Dry Up
William Canny, Will Hadfield and John Glover – Bloomberg
European regulator says they haven’t seen big glitches so far; Biggest EU regulation change in decade sees investors pause
The biggest regulatory change in Europe in 10 years got off to a comparatively smooth start as the chairman of the European Securities and Markets Authority said he’s seen no teething problems.
/goo.gl/MhLbz5

EU Asks: Does Control of ‘Big Data’ Kill Competition?; Regulators say the information could allow big businesses to exclude rivals from markets
Natalia Drozdiak – WSJ
European Union antitrust regulators are taking a hard look at an increasingly important corporate currency: data.
/goo.gl/BDiUoB

MiFID II D-Day – Reasons to Stay Cheerful
Rebecca Healey – Liquidnet via TabbForum
Despite the grim scenarios predicted for January 3, as we head into the final hours before MiFID II implementation, there is a palpable sense of relief that we are finally getting on with the job. In reality, the start date may not provide much on the day itself; more likely, the delivery of a more transparent asset management industry will take time to evolve. But there are reasons to stay positive about the future impact of regulation on European capital markets. Liquidnet’s Rebecca Healey busts 5 MiFID II myths.
/goo.gl/1NeE7J

Redbridge Officially Registers with FINRA as a Broker Dealer Member Firm
PRNewswire
Recently, Redbridge Securities LLC (“Redbridge”), became registered with the Financial Industry Regulatory Authority (“FINRA”) as a broker dealer and member firm.
/goo.gl/S6LwqQ

Exchanges, OTC and Clearing

Major European futures exchanges gain relief from MiFID II open access; ICE Futures Europe, the LME and Eurex have been granted last-minute exemptions from MiIFD II’s open access regime until 2020.
Joe Parsons – The Trade
Two of Europe’s largest derivatives exchanges were granted a deferral by UK and German regulators from complying with open access, on the day MiFID II went live for traders.
/goo.gl/MjYC6F

Eurex Exchange outlines 2018 road map
Eurex
In 2018, Europe’s largest derivatives exchange Eurex, part of Deutsche Börse Group, will continue to focus on helping its clients to navigate the regulatory changes ahead. “The introduction of MiFID II, rising capital requirements and Brexit pose challenges to the whole market,” said CEO Thomas Book. “In this environment, we gather our innovative power and develop solutions that support the industry.”
/goo.gl/k1fXuP

OCC 2017 Total Cleared Contract Volume Up Four Percent, Third Highest Volume Year Ever
OCC
OCC, the world’s largest equity derivatives clearing organization, today announced 2017 volume reached the third highest total cleared contract volume ever with 4,327,576,930 contracts, a four percent increase from the 4,167,747,777 cleared contracts in 2016. December cleared volume was 346,006,092 contracts, up three percent from December 2016. OCC also reported record-breaking 2017 volume for cleared futures with 138,029,762 cleared contracts; a 32 percent increase from 2016.
/goo.gl/dnQLzH

CME Group Reached Record Average Daily Volume of 16.3 Million Contracts in 2017, up 4 Percent from 2016
CME Group
CME Group, the world’s leading and most diverse derivatives marketplace, today announced 2017 average daily volume (ADV) reached a record 16.3 million contracts, up 4 percent from 2016. During 2017, there were 34 trading days above 20 million contracts, up from 32 days in 2016, despite significantly lower volatility. CME Group reached several annual average daily volume records in 2017. Interest Rate ADV was a record 8.2 million contracts, up 9 percent compared with 2016. Energy ADV for 2017 reached a record 2.6 million contracts, up 6 percent. Agricultural Commodities ADV for the year grew 2 percent to a record 1.4 million contracts. Metals ADV increased 23 percent to a record 568,000 contracts. Full-year 2017 options ADV reached a record 3.5 million contracts, up 11 percent, with record electronic options ADV of 2.2 million contracts, up 25 percent. Open interest at the end of December was 108 million contracts, up 5 percent from the end of December 2016.
/goo.gl/94NEdX

OCC AA+/Stable Rating Reaffirmed By S&P
OCC
OCC, the world’s largest equity derivatives clearing organization, today commented on the reaffirmation of its AA+/Stable rating by Standard & Poor’s (S&P). S&P published their rating on December 28, 2017.
/goo.gl/N8HYT6

Xetra Gold closes 2017 with a record hold of 175 tonnes of gold; Germans continue to invest heavily in gold / 57 tonnes year-on-year / Europe’s largest physical-backed gold security
Deutsche Börse Group
The gold holdings of Xetra-Gold, the exchange-traded bearer bond, reached a new all-time high of 175.04 tonnes by the end of 2017. At the end of 2016, the value was still 117.59 tonnes. Holdings increase whenever investors buy Xetra Gold shares on the stock market. For each unit certificate, exactly one gram of gold is deposited in the central safe deposit for German securities in Frankfurt. The assets under management of Xetra-Gold currently amount to 6.1 billion euros.
/goo.gl/8yy2Ao

These were the highest-volume shares in Xetra trading in 2017; Deutsche Börse’s cash markets achieve second-highest trading volumes since 2012 / Four startups from the Deutsche Börse Venture Network are listed on the stock exchange
Deutsche Börse Group
The shares of Siemens, Covestro, Rocket Internet and Wirecard were the highest-volume papers in the major German indices DAX, MDAX, SDAX and TecDAX. Deutsche Börse announced this today with the publication of its cash market trading revenues for 2017. Overall, the three trading venues Xetra, Frankfurt Stock Exchange and Tradegate Exchange had an order book turnover of 1.47 trillion last year. Euro, an increase of 6.5 percent compared to 2016 (EUR 1.38 trillion) and also the second strongest year since 2012.
/goo.gl/AUoaC9

New Deutsche Boerse CEO sees good year after turbulent 2017
Reuters
The new chief executive of Deutsche Boerse (DB1Gn.DE) forecast 2018 would be a good year for the German stock exchange operator after a turbulent 2017 marred by an insider trading scandal, a failed merger and a profit warning.
/goo.gl/2Ptrjm

Intercontinental Exchange Statement on Non-Discriminatory Access Arrangements for Exchange Traded Derivatives under Markets in Financial Instruments Regulation; ICE Futures Europe and ICE Clear Europe Receive 30 Month Deferral
ICE
Intercontinental Exchange (NYSE: ICE), a leading operator of global exchanges and clearing houses and provider of data and listings services, today announced that ICE Futures Europe and ICE Clear Europe have received a deferral from the Financial Conduct Authority (FCA) and the Bank of England (BoE) in respect of non-discriminatory access provisions in the Markets in Financial Instruments Regulation (MiFIR).
/goo.gl/QqLe2Q

OneChicago’s innovative solutions on display at the Family Office Super Summit
William Griffo – via LinkedIn
Robert Marcellus, founder and president of Richmond Optimus, a Virginia based alternative investment management firm was on hand to discuss how he is capitalizing on the value OneChicago’s Single Stock Futures (SSF) provide.
/goo.gl/UkFFW4

Boerse Stuttgart generates 2017 turnover of around EUR 80.6 billion
Boerse Stuttgart
Record turnover in equities trading; Boerse Stuttgart maintains position as top German exchange for securitised derivatives and corporate bonds
Based on the order book statistics, turnover from all trading activities at Boerse Stuttgart amounted to around EUR 80.6 billion in 2017. As such the turnover across every asset class at Germany’s leading floor-trading exchange was slightly above the previous year’s level.
/goo.gl/fUeMeY

BSO syncs up with emagine in time for MiFID II
BSO
Global network provider BSO has teamed up with software vendor emagine to distribute synchronized time in order for market participants to accurately timestamp their trades to comply with MiFID II.
/goo.gl/k7QwmT

Fintech

Hooters Franchisee Surges 41% on Cryptocurrency Rewards Program
Eric Lam – Bloomberg
Add Chanticleer Holdings Inc. to the list of companies racking up big stock-market gains by jumping on the cryptocurrency bandwagon.
/goo.gl/sGvgoM

A No-Name Solar Firm Is the Latest to Tap Blockchain Craze for 233% Rally
Chris Martin – Bloomberg
TGI Solar said it’ll enter “hot” blockchain, crypto market; Shares more than tripled to as much as 0.2 cent on the news
A little-known New Jersey firm that, as recently as 2011, specialized in renewable energy projects just became the latest to join the blockchain and cryptocurrency craze.
/goo.gl/1NMHRJ

Politics

Trump Says His Nuclear Button Is Bigger Than North Korea’s
Kanga Kong and Margaret Talev – Bloomberg
U.S. leader said pressure on North Korea having ‘big impact’; South Korea proposed talks with Kim on attending Olympics
President Donald Trump responded to North Korean leader Kim Jong Un’s latest threats, saying that he has a “much bigger and more powerful” nuclear button.
/goo.gl/9JHkez

Trump nuclear rhetoric threatens thaw between Koreas; US president warns Pyongyang of his ‘bigger and more powerful’ nuclear arsenal
Bryan Harris in Seoul – FT
US President Donald Trump has reverted to threats of war and destruction, warning North Korea of his “bigger and more powerful” nuclear arsenal in comments that could upset signs of detente on the peninsula.
/goo.gl/5aK4ut

Regulation

Hotshot broker served with SEC subpoena on Christmas Eve
Kevin Dugan – NY Post
Guy Gentile — a hotshot stockbroker who got attention in October when his ex-girlfriend drove his Mercedes into his backyard swimming pool — says he got served with a subpoena from federal securities regulators as he stepped off a plane at JFK airport on Christmas Eve.
/goo.gl/GRsZse

FCA gives last-dash breathing room to Ice and LME over Mifid rules
Katie Martin – FT
The UK’s financial regulator has followed its German peers in awarding a last-minute reprieve to key futures trading venues for complying with the sprawling financial-market rules that come into effect today.
/goo.gl/2iHJhF

Mifid II can succeed if it encourages competition; Financial rules that create oligopolies serve customers poorly
FT View
It is widely understood that the Mifid II rules, which go into effect across the European Economic Area on Wednesday, represent the biggest regulatory overhaul to affect global financial markets since 2010, when the Dodd-Frank Act went into effect in the US. Funny, then, that what the acronym stands for is not widely remembered. This is a shame. The full name — the Markets in Financial Instruments Directive — serves as an important reminder.
/goo.gl/9Qx5D7

MiFID Fund-Fee Disclosure Makes Comparison Shopping Clear as Mud
Julie Edde – Bloomberg
Managers must break down fees to distributors under rules; Investors cannot compare fund costs without common methodology
Apples? Oranges? Orange apples? A rule change that came into effect under MiFID II Wednesday is supposed to make it easier for investors to compare fees charged by investment funds and distributors. But a lack of consistent methodology means they may struggle to figure out exactly what they’re comparing.
/goo.gl/B1d8NG

Mifid II architect: you might not like it, but it could have been far worse; ‘I had to fight to renegotiate, scrutinise and reform legislation that was initially onerous and overreached’
Kay Swinburne – Financial News
I entered the EU Parliament at one of the most turbulent times in modern financial history. When I arrived discussions about the EU’s response to the financial crisis were in full swing — and the first drafts of the revised Markets in Financial Instruments Directive would land on my desk just a year later.
/goo.gl/g6qdAf

Final Statements for Broker-Dealers, Investment Adviser Firms, Agents and Investment Adviser Representatives, and Branches
FINRA
FINRA is issuing this Notice to help firms review, reconcile and respond to their Final Statements in E-Bill as well as view the reports that are currently available in Web CRD/IARD for the annual registration renewal process. The payment deadline is January 22, 2018.
/goo.gl/xt8Vd7

FINRA Introduces Two New TRACE Data Products
FINRA
On February 1, 2018, FINRA will introduce two new TRACE data products: the End-of-Day TRACE Transaction File and the TRACE Security Activity Report.
/goo.gl/8NdKkM

Investing and Trading

OPEC Wins Over Hedge Funds to Make 2017 Oil’s Most Bullish Year
Carlos Caminada and Catherine Traywick – Bloomberg
Net-long position on WTI and Brent crude hits record level; Shale drilling growth slows, while futures surpass $60
/goo.gl/SzRhep

The New Floor for Bond Underwriting Fees: $1; Some bankers say they have earned nothing in recent deals
Manju Dalal – WSJ
Fierce competition to underwrite debt offerings in Asia’s booming U.S.-dollar bond market is forcing some big global banks to work on deals for next to nothing.
/goo.gl/f97qTa

Why the University of Illinois Is Investing in Farmland; This big Midwestern state school is betting on corn and soy.
Janet Lorin – Bloomberg
Farm properties gifted to the University of Illinois. SOURCE: UNIVERSITY OF ILLINOIS
Early in Ellen Ellison’s tenure as chief investment officer for the University of Illinois Foundation, she and some staff toured a university-owned farm in Monticello, 30 miles west of the flagship Urbana-Champaign campus. Ellison was impressed by the complexity of a GPS-outfitted planting machine, which was able to track the variety of seeds used, measure their depth in the soil, and record the exact number of them planted per acre.
/goo.gl/UVB3Bh

MIT President Says Immigrant Travel Ban Will Hurt U.S. Economy
Michael McDonald and Tom Moroney – Bloomberg
Rafael Reif sees U.S. losing edge in getting best students; He moved to U.S. from Venezuela in 1974 to attend Stanford
If higher education is under attack from restrictive U.S. immigration policies, the president of the Massachusetts Institute of Technology considers it a personal battle.
/goo.gl/Dbbwp6

Stock Fund That Beats 95% of Peers Ignores CEO Talk, Research
Jonas Cho Walsgard – Bloomberg
Maj Invest holds MTU Aero, Taiwan Semiconductron and GM; Fund invests in ‘hated’ stocks that are ‘covered by dust’
Reading brokerage research and meeting chief executive officers are a waste of time for this fund manager.
/goo.gl/g23pDR

The Hottest Commodity of 2017 Climbs to a Record
Luzi-Ann Javier – Bloomberg
Palladium builds on 55% surge in 2017 as dollar extends losses; Inventories tracked by Nymex shrank in December amid shortages
There’s no stopping the palladium rally. The metal used to curb pollution from gasoline-fueled engines climbed to a record on the New York Mercantile Exchange as the dollar weakened for a fifth straight session, boosting the appeal of raw materials as an alternative investment. Palladium inventories in warehouses tracked by Nymex shrank 25 percent in December, capping a fourth straight annual decline, the longest streak since 2000.
/goo.gl/VKxF38

Institutions

All Change at Top of the ECB as Draghi Era Approaches the End
Alessandro Speciale and Piotr Skolimowski – Bloomberg
Five of seven prime posts will change hands by the end of 2019; Nationality and gender key as political horse-trading starts
The European Central Bank is heading for a two-year leadership overhaul that peaks with the selection of a successor to President Mario Draghi, and it will be politics as much as ability that determines who get the jobs.
/goo.gl/d7qLHV

Gelband to Start Hedge Fund After Dispute With Millennium Ends
Yalman Onaran and Saijel Kishan – Bloomberg
Gelband and Hyung Soon Lee are said to launch ExodusPoint; Millennium and Gelband went to arbitration over hiring
Michael Gelband, the former head of credit at Millennium Management, will start his long-anticipated hedge fund in the next six months after resolving a hiring dispute with billionaire Izzy Englander.
/goo.gl/sjsDua

Thiel’s Founders Fund Has Been Quietly Buying Bitcoin Since 2012
Lizette Chapman – Bloomberg
The firm’s purchases are said to total less than $20 million; Investment in digital currency is a point of debate among VCs
Bitcoin has gained global fame in the past year, but it’s been popular at Peter Thiel’s venture firm since at least 2012.
/goo.gl/7YyrgE

Bankers to burn midnight oil ahead of ‘MiFID’ dawn
Huw Jones – Reuters
Bankers will work through the night to iron out last minute hitches before Wednesday’s launch of a major reform of European Union financial markets that aims to apply lessons from the financial crisis nearly a decade ago.
/goo.gl/RvcHkw

Regions

Japan’s banks downsize to stay alive
Japan Today
Japan’s biggest banks are racing to adapt to changing business conditions amid a shrinking population and the spread of online banking.
/goo.gl/ahNsJK

China, Moving to Cut Emissions, Halts Production of 500 Car Models
Hiroko Tabuchi – NY Times
China is suspending the production of more than 500 car models and model versions that do not meet its fuel economy standards, several automakers confirmed Tuesday, the latest move by Beijing to reduce emissions in the world’s largest auto market and take the lead in battling climate change.
/goo.gl/Dqmws7

Petrobras reaches $2.95bn settlement in US investor lawsuit; Agreement ends class action over corruption scandal at Brazilian oil group
Joe Leahy in São Paulo – FT
Brazil’s Petrobras says it has reached a $2.95bn settlement with investors in the US to end a class-action lawsuit over a corruption scandal at the state-owned oil company.
/goo.gl/7yPyX3

Germany’s Jobless Rate Drops to Record Low as Economy Booms
Oliver Sachgau and Piotr Skolimowski – Bloomberg
Unemployment was 5.5% in December, November was revised lower; Bundesbank predicts that tight labor will soon boost wages
Germany’s unemployment rate fell to a record low as the number of people out of work slid for a sixth month, reflecting a boom in Europe’s largest economy that could push up wages and inflation.
/goo.gl/X7NW4E

Brexit

EU Can’t ‘Cherry Pick’ Post-Brexit Trade Deal, U.K.’s Davis Says
Alex Morales – Bloomberg
Brexit secretary says ‘doable’ to agree transition by March; Britain defends access to EU markets by U.K. services
The European Union can’t pick and choose which bits of its economic relationship with Britain it maintains and which it eliminates in any future trade deal, U.K. Brexit Secretary David Davis said, throwing the words of EU diplomats back at them.
/goo.gl/xpG9hB

Miscellaneous

US winter storms spark record natural gas demand; But plunging temperatures have not sent prices soaring
Gregory Meyer in New York – FT
Frigid temperatures across much of North America have sparked record natural gas demand — but in a sign of the overpowering supply coming from shale rock, the surge has done little to ignite prices.
/goo.gl/FieBkB

First Comes the Bone-Rattling Cold, Then Comes the Snow Bomb
Brian K Sullivan – Bloomberg
A winter storm is set to race up the U.S. East Coast Thursday
New York’s airports have already registered record lows
As if the deep freeze that’s sent temperatures plunging to all-time lows across the eastern half of the U.S. weren’t enough, the region may get hit with a snow bomb.
/goo.gl/4pf7bk

Welcome to 2018, the Year of Censored Social Media; The limitations of selective censorship and the need for better regulation will soon be apparent.
Leonid Bershidsky – Bloomberg
This year, don’t count on the social networks to provide its core service: an uncensored platform for every imaginable view. The censorship has already begun, and it’ll only get heavier.
/goo.gl/GVV9Lb

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About Author

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