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Fed’s Dudley Warns on Dangerous ‘Speculative Mania’ Around Cryptocurrencies

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First Read

FCMs Big And Small Suffer Major Losses On Latest Black Monday
Jim Kharouf – JLN
On February 5, the historic trading day when the Dow Jones Industrial Average fell 1,175 points and the S&P 500 plunged 113 points, many customers suffered significant losses which forced several futures commission merchants to cover those deficits. The severity of the losses on that day was reflected in major drops in FCM customer segregated funds, some to alarming levels.
Among the biggest shocks was at RBC Capital Markets, which on February 5 posted a deficiency of funds in segregation of $1.13 billion. FCMs should never post a negative amount there, as it is a potential violation of CFTC rules.


Hits & Takes
JLN Staff

The Commodity Futures Trading Commission (CFTC) and the Center for Risk Management Education and Research at Kansas State University will jointly host “Protecting America’s Agricultural Markets: An Agricultural Commodity Futures Conference,” on April 5 – 6, 2018 in Overland Park, Kansas.~JJL

ISDA’s 33rd AGM is in Miami from Apr 24-26 and will cover challenges facing the derivatives market in the year ahead, including benchmarks, Brexit, capital, technology and more. Watch a video preview here.~JJL

FIA President and CEO Walt Lukken addressed the FIA Operations Division Washington Update at the Union League Club of Chicago sporting facial hair.~JJL

ABN AMRO won the FIA Corporate Challenge for raising the most money for the Greater Chicago Food Depository.~JJL

Jim Kharouf has written a piece for Gate 39 Media, titled “Crypto Markets Are Young, Hungry and Just Getting Started.”~JJL

Economists from Purdue University’s Center for Commercial Agriculture and CME Group will present a learning center session at Commodity Classic on Feb. 27 at 8:15 a.m. The conference runs Feb. 27-March 1 in Anaheim, California.


Walt Lukken Boca 18 Preview

Walt Lukken, president and CEO of the Futures Industry Association, gives us a preview of what to expect at the upcoming 43rd Annual Futures Industry Conference in Boca Raton, Florida on March 13-16, 2018.

Watch the video here »


DRW’s Wilson expects cryptos will change world
Lynne Marek – Crain’s Chicago Business
DRW Holdings founder and trader tycoon Don Wilson made a rare public appearance in Chicago to plug one of his company’s growing interests: crypto assets. His mission: to explain why these holdings, including cryptocurrencies like bitcoin, are important and “will change the world,” he told about 200 people gathered yesterday for a CFA Society Chicago luncheon in downtown Chicago.

***** Good reporting sometimes means being a good stalker.~JJL


TABB Group Announces New Management Structure, Appoints Bruce Morris CEO
TABB Forum
TABB Group, the international research, advisory and consulting firm focused on financial markets, today announced changes to its executive management team. Bruce Morris joins TABB Group as CEO, while Larry Tabb maintains his role as Research Chairman and assumes overall management responsibilities for the research and consulting business.

***** Another new CEO at the TABB Group and Larry Tabb gets control back for “overall management responsibilities for the research and consulting business.” There is a story in there somewhere.~JJL


Wednesday’s Top Three
Our top read story on Thursday was Business Insider’s Top cryptocurrency traders asking for big shake-up to bitcoin futures. Second went to
Bloomberg’s Risky Crypto Bet Dents Dennis Gartman’s Retirement Account. Third went to Chuck Mackie in JLN’s wrap-up of the CryptoCon event, CryptoCon 2018 – Impressions



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Lead Stories

Fed’s Dudley Warns on Dangerous ‘Speculative Mania’ Around Cryptocurrencies
Michael S. Derby – WSJ
Federal Reserve Bank of New York President William Dudley warned that investing in privately issued digital money such as bitcoin could end in big financial losses for those involved.

Listings-Hungry Hong Kong Exchange Looks to Loosen Rules
Gregor Stuart Hunter – WSJ
Hong Kong’s stock exchange, losing listings to New York and London, is advancing a plan to permit initial public offerings that restrict shareholders’ voting rights.

JPMorgan’s Quants Warn Risks Are Growing for Bond Short-Squeeze
Adam Haigh, Joanna Ossinger – Bloomberg
Kolanovic highlights record short position in Treasury futures; Risk of ‘proper short squeeze’ in bond futures: Kolanovic
Investors have become so bearish on U.S. government bonds that they risk getting caught out, according to JPMorgan Chase & Co.’s quantitative and derivatives strategy team.

RBS First Profit in Decade Clouded by Costs and Litigation
Stefania Spezzati – Bloomberg
Shares drop 4.5% in London, its biggest decline in a year; CEO says restructuring costs will be around 2.5 billion pounds
Royal Bank of Scotland Group Plc swung to its first full-year profit in a decade, but the delay in settling with the U.S. Department of Justice over a mortgage-securities probe and rising restructuring costs are casting a shadow on any celebrations. The shares fell.

Investment Association slams FX ‘last look’ practices; The IA is looking to overhaul the last look practice in FX trading to head off misuse of information.
Hayley McDowell – The Trade
The Investment Association (IA) has raised concerns that ‘last look’ practices in FX trading are no longer acceptable due to misuse of information by liquidity providers.

Singapore moves to migrate OTC derivatives trading on exchange; MAS is seeking industry feedback on proposed rule changes to OTC derivatives already implemented in the US and the EU.
Hayley McDowell – The Trade
Financial authorities in Singapore have proposed changes to OTC derivatives trading, which could see a migration of activity onto electronic venues.

Indian Exchange Warns Indexer Compilers to Stay Out of Offshore Dispute
Santanu Chakaborty – Bloomberg
NSE’s chief executive says he’s been in discussions with MSCI; Three bourses said this month they’ll be cutting overseas ties
India’s biggest exchange operator, which ended licensing deals with its global counterparts in an effort to rein in offshore derivatives, wants index compilers to stay out of the dispute.

VIX Funds Face Fresh Scrutiny From U.S. Regulators
Benjamin Bain, Matt Robinson – Bloomberg
SEC is said to start broad review of exchange-traded products; CFTC is also said to examine trades tied to ‘fear gauge’
U.S. regulators are scrutinizing this month’s implosion of investments that track stock-market turmoil, including whether wrongdoing contributed to steep losses for VIX exchange-traded products offered by Credit Suisse Group AG and other firms, several people familiar with the matter said.

Nasdaq wants to boot iced tea maker for taking advantage of bitcoin craze
Matt Egan – Money
Nasdaq wants to boot an iced tea maker off its exchange for allegedly trying to fool investors caught up in the cryptocurrency mania.

Matt Simon Joins Markets Media Group; Industry veteran will drive strategic initiatives and develop new business.
Markets Media Group
Markets Media Group (MMG) is pleased to announce that Matt Simon has joined the company in the new position of Head of Strategy. Simon joins MMG from TABB Group, where he was Head of Consulting and Advisory Services. Previously in his 12-year tenure at TABB, he was Senior Research Analyst focused on equities and equity derivatives. His career also includes five years as an investment liaison at T. Rowe Price.

Exchanges, OTC and Clearing

TSX Venture Exchange Announces the 2018 Venture 50; Market open ceremony held today to celebrate the Venture 50 winners
TSX Venture Exchange (TSXV) is pleased to announce today the 2018 Venture 50 – an annual ranking of top performing companies from five industry sectors: Clean Technology and Life Sciences, Diversified Industries, Mining, Oil & Gas, and Technology. Representatives of the Venture 50 companies will join TMX Group executives at a market open ceremony today at 9:30 a.m. EST to celebrate their achievement.

Exchange proposes adding three new chapters to Main Board Listing Rules; Consultation paper closely follows Way Forward set out in December; Market feedback sought during one-month consultation period
The Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX), today (Friday) published a consultation paper seeking public feedback on the proposed new rules to expand Hong Kong’s listing regime to facilitate listings of companies from emerging and innovative sectors.

HKEX says listing reforms could be in place by late April
South China Morning Post
Hong Kong Exchanges and Clearing may amend its listing rules to accept companies with dual class shares and biotech companies with no revenue as early as late April, accelerating the timeline for the widely-expected listing regime change by several months, the bourse operator said on Friday. HKEX chief executive Charles Li Xiaojia in January predicted the listing rules could be amended from June.

HKEX to offer concessions for U.S., UK-listed firms to list in Hong Kong
Reuters Staff
Hong Kong Exchanges and Clearing (HKEX) (0388.HK), the city’s exchange operator, said on Friday it plans to offer concessions to U.S. and UK-listed companies considering a secondary listing in Hong Kong.

ETF settlement: Change of settlement structure for ETFs of SSGA SPDR ETFs
Effective 12 March 2018, SSGA SPDR ETFs Europe I plc and SSGA SPDR ETFs Europe II plc will convert their Exchange Traded Funds (ETFs) traded on Xetra (MIC: XETR) and Börse Frankfurt (MIC: XFRA) to the International Central Securities Depository (ICSD) model.

Clearing of Section 871 (m) Internal Revenue Code transactions: Amendment to the Clearing Conditions of Eurex Clearing AG
This circular outlines further developments on the general clearing framework of potential Section 871 (m) Internal Revenue Code (IRC) transactions (hereinafter: potential Section 871 (m)-transactions) and reminds all Clearing Members of Eurex Clearing AG (Eurex Clearing) to fulfill all requirements of the relevant regulations of the IRC with particular reference to all withholding and reporting obligations as laid out in Eurex Clearing circulars 028/17 and 074/17.

Fixed Income Highlights – February 2018 edition

SGX may buy stake in NSE’s GIFT exchange
Palak Shah – TheHinduBusinessLine
Singapore bourse SGX and India’s National Stock Exchange (NSE), two of Asia’s largest trading venues, are scripting a new chapter in their partnership. SGX may pick up a stake in NSE’s GIFT (Gujarat International Finance Tech-city) exchange, known as NSE IFSC, two sources told BusinessLine.

BSE, NSE, MSEI Assure Global Stock Exchanges Of Orderly Transition
Indian stock exchanges assured international bourses and index providers of orderly transition. Steps would be taken to ensure that ending licensing pacts do not disrupt the markets, BSE Ltd., National Stock Exchange of India Ltd. and Metropolitan Stock Exchange of India Ltd. said in a joint statement.

Nasdaq accuses Long Blockchain of misleading investors; Former drinks company added ‘blockchain’ to its name in December
Adam Samson in London – FT
Long Blockchain, the iced tea maker that last year changed its focus to blockchain, has been accused by Nasdaq of misleading investors.


Look at Quant Hires for Ken Griffin’s Habit of Pouncing on Distress
By Saijel Kishan, Nico Grant, Katherine Burton – Bloomberg
Citadel hires 10 quants from Hutchin Hill as it shutters; Firm’s main funds gained 3% in January, outperforming peers
Your pain is Ken Griffin’s gain. At a time when hedge funds are struggling to lure assets and beat benchmarks, the billionaire founder of Citadel continues to pounce on opportunities. This week, Griffin hired a quant team from Hutchin Hill Capital less than three months after its founder Neil Chriss said he was closing his hedge fund.

Is Bitcoin getting better, and for five year-olds?
Dan McCrum – FT
Allow us to point you to an infographic which channels the Jesuit approach to proselytism. We are lucky enough to spend time with some smart five year-olds, and they can have surprising knowledge. Octonauts is layering in some pretty obscure marine biology, for instance.


The Trump Administration Is a Golden Age for Corporate Crooks
Jonathan Chait – NY Magazine
The Republican Party’s main legislative achievement was to facilitate the direct transfer of hundreds of billions of dollars into the hands of business owners. (The proceeds of the Trump tax cuts are mainly going into stock buybacks, a simple windfall for owners of capital.) But a second, less visible channel is the Trump administration’s program of lax regulation. While the tax cuts spray money at business owners as a whole, weak enforcement of regulations confers a windfall targeted specifically at businesses that cheat their customers or break the law.

An Epidemic of Dishonesty on the Right
Kevin D. Williamson – National Review
Enough with the rancid conspiracy theories
First it was the Holocaust, now Parkland — is there any act of depravity to which the less respectable right-wing media cannot imagine a connection for George Soros?

BlackRock puts gunmakers on notice after Florida school shooting
Ross Kerber, Trevor Hunnicutt – Reuters
The world’s largest asset manager put U.S. gunmakers on notice on Thursday that it is no longer business as usual in the wake of a shooting that killed 17 at a Florida high school.

Dina Powell, Former Trump Adviser, Weighs Return to Goldman Sachs; Powell spent a decade at Goldman before joining the Trump administration last year
Liz Hoffman – WSJ
Dina Powell, who until recently served as a top national-security adviser in the White House, is talking to Goldman Sachs GS -0.75% Group Inc. about returning to the firm, according to people familiar with the matter.

Two top White House advisers may leave over tensions with Trump: sources
John Walcott – Reuters
Longstanding friction between U.S. President Donald Trump and two top aides, the National Security Adviser and the Chief of Staff, has grown to a point that either or both might quit soon, four senior administration officials said.

Trump, Ryan and McConnell, stop ignoring your oaths
Fred Wertheimer and Norm Eisen – CNN
President Donald Trump, House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell each took an oath of office that included solemnly swearing to defend the Constitution of the United States.


Podcast: CFTC Talks EP032: CFTC Commissioner Rostin Behnam
This week on CFTC Talks, we bring on CFTC Commissioner Rostin Behnam to discuss his vision and priorities for the…

EU official to U.S.: clearing plans won’t undermine bilateral pacts
Huw Jones – Reuters
European Union representatives have sought to reassure the United States that plans to tighten oversight of foreign clearing houses operating in the bloc will not disrupt transatlantic ties on market access that took years to agree.

U.S. arrests operator of shuttered bitcoin investment platform
Nate Raymond – Reuters
The operator of a shuttered bitcoin-denominated exchange was arrested on Wednesday on federal charges that he lied to U.S. securities regulators to avoid taking responsibility for the theft by hackers of virtual currency now worth nearly $70 million.

Investing and Trading

Why Markets Have Gotten So Jumpy; To understand the wild swings on Wall Street, consider a farm town, a long drought and the cost of flood insurance.
Neil Irwin – NY Times
To understand why global financial markets have been so volatile the last few weeks, imagine a town full of farmers who have been living through a decade-long drought.

Playing With $100 Billion, Warren Buffett Is Giant Trader of U.S. Treasury Bills; Berkshire Hathaway now one of world’s largest owners of Treasury bills; cash pile soars as it struggles to find acquisitions
Nicole Friedman and Daniel Kruger – WSJ
Berkshire Hathaway Inc. BRK.A -0.04% shareholders will look to Warren Buffett’s annual letter on Saturday for new clues of what the conglomerate plans to do with more than $100 billion in cash.

Equity Investors Fleeing Wall Street Are Turning to Europe
Blaise Robinson – Bloomberg
Year-to-date, U.S. funds see outflows, Europe sees inflows; Plenty of reasons playing in favor of Europe as bonds rise
Tempted in buying the dip? OK, just maybe not the one in U.S. stocks. While Wall Street is still reeling from its first 10 percent correction in two years, U.S. equity funds continue to suffer outflows, according to Bank of America Merrill Lynch, and the money is resurfacing in Europe.

First-Time Homebuyers Make Biggest Share of Deals in 17 Years
Prashant Gopal – Bloomberg
Millennials are playing homeownership catch-up. First-time buyers rushed into the market last year, making 38 percent of all U.S. single-family home purchases, the biggest share since 2000, data released Thursday by Genworth Mortgage Insurance show. The 2.07 million new or existing homes bought by first-timers was 7 percent more than in 2016, according to the insurer, part of Genworth Financial Inc.

Why insurers are being blamed for equity market instability; Annuity providers in spotlight over ‘managed volatility’ strategies
Alistair Gray and Robin Wigglesworth in New York – FT
Computer-powered hedge funds shouldered much of the blame for exacerbating turmoil in markets this month but some are pointing the finger at a pillar of the financial system: the insurance sector.


ETF Investors Returned to Stocks Soon After Rout, BlackRock Says
Eric Lam – Bloomberg
Investors in exchange-traded funds remain bullish about equities despite the global selloff at the start of February, according to BlackRock Inc.

Robinhood Opens Cryptocurrency Trading
Julie Verhage – Bloomberg
Users in select states can now trade Bitcoin and Ethereum; Robinhood competing with fellow fintech startup Coinbase
More than 4 million people have signed up to open accounts at Robinhood Markets Inc. as the brokerage app begins offering commission-free trading of Bitcoin and Ethereum today for the first time.


Latvian central bank governor accuses banks of trying to oust him; Ilmars Rimsevics tells FT that bribery allegations are ‘totally ridiculous’
Neil Buckley in Riga – FT
Latvia’s embattled central bank governor Ilmars Rimsevics has claimed that he is the victim of a concerted campaign by several banks to have him removed from his position.

Icy Blast Hitting Europe Sets Up Winter’s Coldest Week
Jesper Starn, Rachel Morison – Bloomberg
Rare weather pattern may extend chill to middle of March; Abnormal cold to test energy markets across continent
A last chilly blast headed for Europe is setting up the coldest week this winter.

Russians, Bribes and Spies Raise the Scandal Bar for EU Banking; Kremlin shrugs off the turmoil of ‘our Latvian comrades’
Aaron Eglitis, Jake Rudnitsky, Ott Ummelas – Bloomberg
Even for a country long accused of funneling dirty Russian funds into the European Union, Latvia’s latest banking scandal is a doozy.


Legal limbo looms for banks in Brexit transition tumult
Huw Jones – Reuters
Even if Britain agrees a Brexit transition deal with the European Union next month, bankers and regulators say it is unlikely to provide the legal certainty they are seeking.


After years of testing, The Wall Street Journal has built a paywall that bends to the individual reader
Non-subscribers visiting now get a score, based on dozens of signals, that indicates how likely they’ll be to subscribe. The paywall tightens or loosens accordingly: “The content you see is the output of the paywall, rather than an input.”

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About Author

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