Breaking News

U.S. considering ‘material changes’ to ‘Volcker Rule’; Stock Bulls in Trump Country; Replacing Libor is harder in practice

First Read

The Man Who Molded Chicago’s Merc; Leo Melamed, chairman emeritus of CME Group, helped make his company the world’s largest manager of financial exchanges. Now he’s focusing on the development of Asian markets
Jacob Bunge – WSJ
In 1939, Leo Melamed learned about the power of financial markets in a bakery in Vilnius, Lithuania. He was 7 years old, trying to use Polish money to buy a loaf of bread. Though Lithuania’s government had deemed the two countries’ currencies equal in value, the baker informed Mr. Melamed that he’d need two Polish zlotys for a loaf that cost one Lithuanian litas.

***** A hearty “THANK YOU” is due to Leo for all his contributions to Chicago and global markets, and I am not talking about the three times he busted out (according to this story).~JJL


Hits & Takes
JLN Staff

Check out this number – U.S. semi-truck orders rose 76 percent in February. More proof of a tightening freight market. Related, but on the shipping front – S&P expects that global demand for the three main shipping categories (dry bulk, tankers and containers) will surpass supply for the first time in several years.~SD

As Jim noted yesterday, the WFE’s latest report said 41 percent of those surveyed thought the big tech companies would be the most impactful in the financial infrastructure space. And what happened right after the report came out? News broke that Amazon is mulling a checking-account like product with big banks.~SD

Some time in February, Interactive Brokers launched a blog dedicated to quants called IBKRQuant. It’s a bit on the heavier side content-wise (as you might imagine).~SD

The Trading Show Chicago, held May 9-10 at Navy Pier, is upping the price of tickets this Friday. Sign up here.~SD

Quote of the day from Chicago Stock Exchange’s CEO and President John Kerin, on dropping plans to sell the exchange to a consortium of investors that included a Chinese firm. “We are very disappointed by the Commission’s decision. We believe that consummating a transaction with NACH (North America Casin Holdings), a consortium comprised mainly of U.S. investors, would have been a good outcome for our shareholders.” ~JK


Reed Smith Releases Comprehensive Update Of Blockchain Landscape; Chamber of Digital Commerce Hails Firm’s Bird’s-Eye View of Past, Present and Future of Distributed Ledger Technology
Reed Smith
Reed Smith, a global law firm, today released an in-depth white paper on the global legal landscape impacting blockchain technology.

*****Get a cup of coffee, this is going to take some time.~JJL


Eventus Systems Establishes Presence in Asia Pacific Region; Ariel Almeda Representing Firm out of Singapore
Eventus Systems
Eventus Systems, Inc., a provider of innovative regtech software solutions for the capital markets, announced today that the firm has established a presence in the Asia Pacific (APAC) region. The decision to provide a regional sales presence for its Validus surveillance and risk software platform follows growth throughout 2017 in the firm’s client base, as well as regulatory requirements in multiple jurisdictions that have created a demand for affordable surveillance solutions.

***** Shouldn’t this be in all Latin?~JJL


Monday’s Top Three
Monday’s top read story was Bloomberg’s Ken Griffin’s Citadel Dismisses 21 People, about trimming staff from one of its stock trading units. Second went to Jim Kharouf’s Q&A with Michael Unetich in Would You Wait Six Months To Get A Bitcoin Account? TT’s Michael Unetich Outlines The Crypto Obstacles And Opportunities Ahead. Third went to the Chicago Sun-Times, Experts break down future of bitcoin, blockchain in Sun-Times discussion


MarketsWiki Stats
121,512,480 pages viewed; 23,025 pages; 211,948 edits
MarketsWiki Statistics

Lead Stories

U.S. considering ‘material changes’ to ‘Volcker Rule’ – Fed’s Quarles
Pete Schroeder – Reuters
The chief regulator for the U.S. Federal Reserve said Monday the nation’s regulators are actively considering a significant rewrite of the”Volcker Rule.”

****Other sources – NY Times, Bloomberg and WSJ

Stock Bulls in Trump Country Are Freaking Out Their Brokers
Michelle Davis – Bloomberg
‘The market is up because of Trump. They all think it’s Trump’; Enthusiasm is so strong that advisers are urging caution
As 2017’s roaring bull market gives way to a markedly choppier 2018, the buzz among Wall Street stock touts is that the best of the Trump Trade has passed. Sure, more gains could be wrung out, but nothing like the 30 percent burst over the past 16 months.

Replacing Libor proves harder in practice after scandal; Floating interest rate benchmark remains a pivotal part of the financial system
Philip Stafford – FT
Abolishing a tarnished benchmark reference rate such as Libor is proving far harder in practice and comes in spite of regulators pushing the market towards adopting a replacement.

Chicago Stock Exchange Ends Proposed Sale to Chinese Investors; Announcement means the exchange won’t seek to fight the SEC, which had blocked the deal last month
Alexander Osipovich – WSJ
The Chicago Stock Exchange has ended a two-year effort to sell a major stake to Chinese investors, the latest deal to run afoul of rising trade tensions between the U.S. and China.

**** FT here

New Tech Centers Sprout in Europe; Lisbon, Krakow, Poland, and Edinburgh are among the cities that have become popular for the industry
Shefali Anand – WSJ
New technology centers are mushrooming throughout Europe, boosting office markets in unlikely places.

Special Report: Fidelity puts 6 million savers on risky path to retirement
Tim McLaughlin, Renee Dudley – Reuters
For three years, the mutual funds in Fidelity’s flagship retirement franchise have outperformed at least 85 percent of their competitors, reversing a decade-long trend of subpar performance.

Equity on Ethereum: Firm Offers Real Stock Through ICO
Testifying before the Senate in early February, Securities and Exchange Commission (SEC) chair Jay Clayton said he believes “every ICO I’ve seen is a security.” Coming from the U.S.’s top markets regulator, those words struck fear into the hearts of blockchain entrepreneurs, with the exception, that is, of Joe Forbes. The CEO of Causam eXchange Inc. is perfectly willing to refer to the company’s upcoming sale of blockchain-based assets to investors as a securities offering.

A Pioneer in Real Estate Blockchain Emerges in Europe; Sweden’s Lantmateriet will test using blockchain technology for property sales
Shefali Anand – WSJ
The blockchain technology that underpins cryptocurrencies such as bitcoin could change the way property deals are done and recorded more than any other new technology, real-estate and technology experts say.

EU Raises Stakes for Trump by Aiming Levies at GOP Heartland
Viktoria Dendrinou, Jonathan Stearns – Bloomberg
Tit-for-tat tariffs of 25% to hit $3.5 billion of U.S. goods; Retaliatory list includes jeans, cosmetics, bourbon, boats
The European Union is preparing punitive tariffs on iconic U.S. brands produced in key Republican constituencies, raising political pressure on President Donald Trump to ditch his plans for taxing steel and aluminum imports.

Continental Grain to push Bunge to consider potential sale: source
Tom Polansek – Reuters
U.S. agricultural investor Continental Grain Co plans to push Bunge Ltd to consider a potential sale, a person familiar with the matter said on Monday, after Archer Daniels Midland Co approached Bunge about a takeover.

Megabanks Get One Big Win in Senate Rollback Bill; Nation’s largest banks would gain incentive to buy more municipal bonds in legislation targeting smaller banks
Andrew Ackerman – WSJ
Bipartisan legislation expected to clear the Senate this week has just one provision that is set to directly benefit the nation’s megabanks: a section aimed at making it easier for them to buy state and local bonds.

Citigroup, Kabbage Form Consortium on Fintech Cybersecurity; Group also includes Zurich Insurance and Depository Trust & Clearing Corp.
Lalita Clozel – WSJ
Four financial companies including Citigroup Inc. C 1.00% and online lender Kabbage Inc. said Tuesday they have formed a consortium to address fintech firms’ cybersecurity risks, a sign of the industry’s growing links to traditional banks and insurers.

****Reuters here

Exchanges, OTC and Clearing

Chicago Stock Exchange and North America Casin Holdings Terminate Merger Agreement
Chicago Stock Exchange via Medium
The Chicago Stock Exchange, Inc., and North America Casin Holdings, Inc., announced today that they have mutually agreed to terminate their previously announced merger agreement, due to the order of the Securities and Exchange Commission (the “Commission”) issued February 15, 2018, which disapproved proposed changes to the rules of the CHX that are necessary for the consummation of the Merger Agreement.

Cboe Global Markets Reports February 2018 Trading Volume
VIX futures, VIX options and SPX options set new ADV records in February 2018; Record month of trading across Cboe Options Exchange, Cboe Futures Exchange, Cboe Periodic Auctions Book and Cboe FX

When VIX Aftershocks End, So Will Cboe Global’s Pain
Crystal Kim – Barron’s
The volatility blowup of Feb. 5 continues to reverberate through the exchange-traded fund industry, the subject of Barron’s “Volatility ETF Aftershocks.” And few companies have been impacted more than Cboe Global Markets (CBOE), which has declined 13% since early February to around $113.

Wall Street’s volatility products in the spotlight; Market retains potential for upsets after February’s ‘Vix-mageddon’
Christian Pfrang in Hong Kong and Robin Wigglesworth in New York YESTERDAY 1
A month ago global markets were thrown into a tailspin, with US equities suffering one of their fastest 10 per cent corrections in history. The mayhem raised questions about a small but complex corner of markets where investors trade volatility itself.

Nasdaq February 2018 Volumes
Nasdaq Inc – Feb U.S. equity options volume 155 million contracts versus 120 million contracts in Feb 2017

BSE shows how to make the most of a minuscule market share
Mobis Philipose – Livemint
Despite its best efforts, BSE Ltd has ended up with nearly zero market share in the equity derivatives segment, the largest category in the exchange business in India. And notwithstanding a 120-year head start over NSE, its market share in the cash equities segment has dwindled to 13.4%, from 33% ten years ago. Put together, BSE has only a tiny sliver in the market for trading Indian equities.

Japan’s Crypto Exchanges Self-Regulate In Wake of $500 Million Hack
Wolfie Zhao – Coindesk
Sixteen cryptocurrency exchanges in Japan have formed a new self-regulatory organization, an effort that comes in the wake of the $500 million theft in January.

Ex-Thomson Reuters chief’s FinTech startup raises $20 million; EBS BrokerTec’s former CEO, Traiana’s former head of technology and the former CEO at Thomson Reuters founded Capitolis in 2017.
Hayley McDowell – The Trade
FinTech startup Capitolis, co-founded by the former CEO of Thomson Reuters, has raised $20 million in funding. The FinTech firm’s second funding round was led by Index Ventures, while the first round was led by Sequoia Capital and generated $9 million in funding. Capitolis was established in 2017 by the former CEO of EBS BrokerTec Gil Mandelzis, former head of technology at Traiana Igor Teleshevsky, and Tom Glocer, formerly the CEO at Thomson Reuters.

Euronext announces volumes for February 2018
Euronext, the leading pan-European exchange in the Eurozone, today announced trading volumes for February 2018.

CCP Release 15.0: Introduction announcement
With this circular, Eurex Clearing announces the introduction of CCP Release 15.0 on 18 June 2018.

ASX Monthly Activity Report – February 2018

HKEX to introduce Tracker Fund and Hang Seng China Enterprises Index ETF futures
Tracker Fund and Hang Seng China Enterprises Index ETF futures to be introduced on 9 April; Commission Levy for new futures to be waived for first 6 months
Hong Kong Exchanges and Clearing Limited (HKEX) will introduce Tracker Fund of Hong Kong (Tracker Fund) and Hang Seng China Enterprises Index ETF futures, its first futures on Exchange Traded Funds, or ETFs, that track Hong Kong stocks, on Monday, 9 April 2018.

Nasdaq ties up with Sina to offer US stock market data to China’s growing pool of investors
South China Morning Post
The US exchange will license two of its products offering data on individual stocks as well as indices and exchange-traded funds


Nouriel Roubini: The blockchain is a pipe dream
Nouriel Roubini and Preston Byrne – Financial News
Blockchain is a slow, energy-inefficient dinosaur that will never be able to process transactions as quickly or inexpensively as an Excel spreadsheet

‘Splinternet’ to herald a trade war for the ages
Rana Foroohar – Financial Times
It’s ironic that the one thing that trade ministers could agree on at the end of the seventh round of Nafta trade talks in Mexico City ó the need to modernise the agreement to account for the shift towards a digital economy ó is also likely to be the real focus of any future trade war.
Steel and aluminium tariffs announced by President Trump have, of course, sucked up all the attention in recent days, particularly as Mr Trump threatened Mexico and Canada (trade allies which would normally be exempt from such measures) with implementation of tariffs if they didn’t comply with US demands on Nafta.

ICOs delivered at least 3.5x more capital to blockchain startups than VC since 2017
Jason Rowley -TechCrunch
Recently, we found that, for 2018, the amount of money being raised by blockchain and blockchain-adjacent companies via traditional VC rounds is on pace to surpass 2017’s highs.

We Are Living in the Golden Age of Fintech
Ron Suber, Prosper Marketplace Via Tabb Forum
While the current golden age of fintech is the product of many forces, Ron Suber highlights the six biggest driving forces today and into the future. Every fintech entrepreneur should be aware of their impact and positioned to benefit from the trends, he says. The golden age will draw to a close in the next few years, and the landscape will change dramatically as the next phase in the innovation cycle begins, triggering a wave of consolidations that will replace today’s crowded and fragmented marketplace.

Coinbase has hired LinkedIn’s M&A boss to spearhead new acquisitions
Fitz Tepper – TechCrunch
Coinbase is continuing its executive hiring spree as the company has announced that Emilie Choi is joining Coinbase as vice president of Corporate and Business Development.

Amazon mulling checking-account like product with big banks: WSJ
Reuters Inc is in talks to create a checking-account-like product with big banks such as JPMorgan Chase & Co, the Wall Street Journal reported, citing people familiar with the matter.

World Economic Forum leads creation of fintech cybersecurity consortium
Anna Irrera – Reuters
The World Economic Forum has led the creation of an industry consortium focused on improving the cybersecurity of financial technology companies, as collaboration between fintechs and financial institutions grows.


Stock Buybacks Are Proof of Tax Reform’s Success; Companies help workers not by being philanthropic but by investing capital in profitable ideas.
John H. Cochrane – WSJ
As the Republican tax reform has gained popularity, the Democrats have had to update their messaging. To cast corporate tax cuts as a “scam” and redistribution to the wealthy, opponents have shifted their focus to the evils of stock buybacks and dividends.

Mitch McConnell’s big gift to the banks
Jennifer Taub – CNN
This month marks the tenth anniversary of the $29 billion US government-backed bailout of Bear Stearns. The collapse of this giant investment bank in March 2008, under the weight of its bad mortgage-linked bets, marked the beginning of the global financial crisis.

Bankers, reformers in opposition on regulatory rollback
Francine McKenna – MarketWatch
Banking bill will either put system at significant risk again or provide much needed relief for smaller banks
The Senate is expected to approve this week the most significant reversal of regulatory requirements for financial services firms since the financial crisis, including a significant retrenchment of the heightened scrutiny for banks with less than $250 billion in assets that was implemented by the Dodd-Frank Act of 2010.

Goldman Sachs Rips Into Trump’s Tariffs Plan
Jasmine Ng – Bloomberg
Bank warns duties will add to price pressures and hurt allies; Report comes as BHP says move is a ‘black day for the world’
Goldman Sachs Group Inc. delivered a comprehensive critique of Donald Trump’s planned metal tariffs, saying they risk damaging the world’s biggest economy by raising costs just as price pressures build, hurting allies more than others, and creating a two-tier global market.


City watchdog: ‘We’re taking action on asset managers that aren’t transparent with clients’
Megan Butler – The Telegraph
Consumers can choose between as many investment funds as they can shades of paint. Lots of choice can be a good thing and we at the Financial Conduct Authority welcome innovation. But consumers might be surprised if they took home a variety of colours, only to discover that each tin just contained white.

The IRS Is Cracking Down On Cryptocurrency Transactions. Here’s What That Means For You
Ryan Derousseau –
Investors aren’t the only ones interested in big cryptocurrency profits. The IRS has a growing curiosity about them too.

U.K. watchdog fines, bans ex-Deutsche Bank trader ‘Gollum’ over Libor
Samuel Agini – MarketWatch
Financial Conduct Authority concludes that Guillaume Adolph ‘improperly influenced’ Libor submissions to benefit his own trading positions
The UK’s Financial Conduct Authority has fined and banned a former Deutsche Bank derivatives trader for his role in the Libor scandal.

****SD: As he’s writing the check I’m hoping he mutters, “My precious…”

SEC can recoup ill-gotten gains from New Mexico businessman: U.S. appeals court
Jonathan Stempel – Reuters
A federal appeals court on Monday ordered a New Mexico businessman to disgorge $5 million to the U.S. Securities and Exchange Commission, nine months after the U.S. Supreme Court curbed the regulator’s power to claw back ill-gotten gains.

FCA bans former Co-op Bank boss Paul Flowers from industry; Action clears way for Treasury inquiry into regulators’ crisis-era supervision of lenders
Caroline Binham in London – FT
Paul Flowers, the former chairman of the Co-operative Bank, has been banned from working in financial services by the City regulator.

FCA bans former Co-operative Bank Chair, Paul Flowers, from the financial services industry
The Financial Conduct Authority (FCA) has banned the former Chair of Co-operative Bank PLC (Co-op Bank), Paul Flowers, from the financial services industry.

ASIC remakes ‘sunsetting’ class order about share and interest sale facilities
ASIC has remade Class Order [CO 08/10] Share and interest sale facilities, which was due to expire on 1 April 2018.

Upcoming Board Meeting
This week, the FINRA Board of Governors will meet for the first time in 2018. I want to take this opportunity to highlight some of the discussions scheduled to take place.

CFTC Charges Iowa Resident Lon Olen Friedrichsen with Solicitation Fraud in Violation of the Commodity Exchange Act; CFTC also Charges Friedrichsen with Acting as an Unregistered Commodity Trading Advisor
The Commodity Futures Trading Commission (CFTC) filed a civil enforcement action in the U.S. District Court for the Southern District of New York, charging Lon Olen Friedrichsen of Alton, Iowa, with fraud and failing to register with the CFTC as a Commodity Trading Advisor, as required. Friedrichsen, as alleged, also solicited clients under the names of Lon Kummer and Lon Richardson, but omitted that these were false names.

Investing and Trading

Mind the gap: Diversity and passive investment
Fong Yee Chan – FTSE Russell Blog
March 8 is International Women’s Day. This week we’d like to reflect on the progress being made to improve diversity in the global workforce. In recent years, a series of initiatives have been enacted around the world to encourage a more diverse and inclusive work environment by increasing female representation at leadership levels. Current research suggests that increasing women’s participation on corporate boards can result in economic and financial benefits, such as increased female employment at all levels as well as positive corporate performance.

Trump Facing ‘Dow Vigilantes’ in Stock Market Verdict on Tariffs
Lu Wang – Bloomberg
Boeing, the heaviest-weighted Dow member, seen vulnerable; ‘Bears could come back’ on rising Trump protectionism – Yardeni
Donald Trump’s yardstick for his own success is going rogue. That’s the Dow Jones Industrial Average, a regular feature in the U.S. president’s commentary over the past year as the equity bull market raged on. Take early January, when the index sailed past 25,000 for the first time: “This is all about the Make America Great Again agenda! Jobs, Jobs, Jobs. Six trillion dollars in value created!”

Are Building-Block Funds on the Scrap Heap?
Chris Chancellor – CFA Institute Blog
The world of mutual funds is often divided into competing categories. Typical distinctions include equity vs. bond, active vs. passive, and proprietary vs. third-party distribution.

Keep Calm About U.S. Crisis And Invest in Stocks, Barclays Says
Ksenia Galouchko – Bloomberg
There’s no need to hide your money under the mattress for fear that the next selloff is around the corner, according to Will Hobbs, head of investment strategy at Barclays Plc in London.


Goldman creates new commodities finance team as unit seeks turnaround
Catherine Ngai – Reuters
Goldman Sachs Group Inc is creating a new commodities finance team that will move staff from the securities division into the investment banking division, according to an internal memo on Monday.


Opec says hedge funds lack ‘basic understanding’ of oil; Cartel’s Mohammad Barkindo urges more focus on market fundamentals
Gregory Meyer in Houston – FT
Hedge funds are important players in the oil market, but some do not comprehend how it works, a senior Opec official has said.

‘Banks will get burned’: Fixed income hiring rises again
Financial News
For European fixed income traders, the long hiring-drought nightmare is over ó but banks who resisted job cuts may be hard to compete with

$1.7 Trillion Asset Manager Sticks to Unloved Stock Market Bet
Aleksandra Gjorgievska – Bloomberg
Europe’s largest asset manager says U.K. equities are trading at a discount they may not deserve.


How to break the banker-promoter nexus; A public trial of bankers will erode both confidence of the bankers as well as people’s trust in the banking system, something which India can ill afford when growth is returning to the economy
Tamal Bandyopadhyay – Livemint
You must have seen the popular TV advertisement campaign for a men’s deodorant brand where different sets of people casually ask each other, “kya chal raha hai?” (‘what’s going on?’). The reply, always, is: “Fogg chal raha hai” (Fogg is very popular these days, referring to the brand). Newspaper headlines and prime time TV discussions over the past fortnight may encourage us to rephrase this: “kya chal raha hai?” “Fraud chal raha hai.”

Investigators Summon Top Bank Chiefs as India Widens Fraud Probe
Shruti Srivastava, Anto Antony, PR Sanjai – Bloomberg
Enforcement Directorate said to seek meetings with 31 banks; Serious fraud unit to meet CEOs of ICICI, Axis Bank: report
Federal investigators are seeking to question the chiefs of India’s biggest lenders as they widen their probe into the $2 billion fraud at Punjab National Bank.

India bets on new financial centre to challenge Singapore; Low-tax financial centre in Gujarat is designed to bring more derivatives trading to India
Simon Mundy in Gandhinagar – FT
On a quiet expanse of scrubland in India’s western state of Gujarat, dotted with a few glass-fronted office towers and others under construction, GIFT City does not look like a buzzing hub of international finance.


UK farmers caught between Brexit and changing consumer tastes; Concerns about animal welfare and rise of ‘flexitarians’ come as subsidies face reform
Scheherazade Daneshkhu in London – FT
When triplet calves were born for the first time on the Suffolk dairy farm belonging to Jonny and Dulcie Crickmore, the husband and wife team excitedly posted the pictures online. But they were not prepared for the reaction of extremist vegan groups.

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Graduate of University of Minnesota School of Journalism and Mass Communication