Industry news

Date: Feb 6, 2013

February 6, 2013: ICE Profit Rises 2 Pct on Expense Cuts; CME sees signs of OTC business moving to exchanges; TAIFEX and Eurex agree on strategic alliance

IntercontinentalExchange pulls a nifty Q4 profit out of a challenging environment in 2012. CME Group finds evidence that OTC trading is being set aside in favor of exchange-traded products. Eurex and TAIFEX announce a product and clearing alliance.

First Read

IRS approves 60/40 tax treatment for EUREX products effective March 1, 2013
Harlan Ten Pas, McGladrey LLP
Is this a good example of the separation of powers between the branches of the U.S. government? Less than two weeks ago, the Chair of the House Ways & Means Committee submitted a tax bill that would totally eliminate 60/40 capital gain tax treatment for domestic futures contracts starting in 2014. On Tuesday, the Internal Revenue Service issued Rev. Rul. 2013-5 which approved 60/40 treatment for EUREX derivative products effective as of March 1, 2013. However, this ruling is less a reaction to Congress than it is the final result of a long administrative approval process.

**** What are the odds of keeping 60/40? Congratulations to Eurex on this long sought after tax treatment from the US.


New Restoring Customer Confidence Video
The tenth video in our Restoring Customer Confidence series deals with insurance funds. Each week we will post a new idea answering the question – how do you restore customer confidence and bring traders back?

Restoring Customer Confidence More ideas»
Protection Fund: Slip it to SIPC

Protection Fund: Slip it to SIPC

If there is one solution to restoring customer confidence in futures that has been talked about more than any other, it would be the creation of a customer or insurance fund. Securities customers have the Securities Investor Protection Corporation (SIPC), so why can’t futures customers use SIPC as well? That’s the idea from Neal Wolkoff, Of Counsel at the law firm of Richardson & Patel and longtime exchange executive, who argues that not only does it make rational sense, but using SIPC could be the easiest and most cost effective way to protect futures customers. This approach differs from others who have touted some type of insurance protection fund just for the futures industry.

Watch the video »

Also see — Protection Fund: Building a Better Piggy Bank

This video is sponsored by:
Trading Technologies


About the Restoring Customer Confidence video series
In the aftermath of the MF Global collapse, fraud at Peregrine Financial Group and high profile high-frequency trading shocks, John Lothian News asks – how do you restore customer confidence and bring traders back? Previous videos:

Visit the video series page on over the next several weeks for new ideas and solutions.


Tradition’s Julian Harding Elected Chair of the WMBAA; BGC’s Stephen Merkel Chosen Vice Chair
The Wholesale Markets Brokers’ Association, Americas has elected new officers. Tradition Executive Director Julian Harding will serve as Chair of the WMBAA, while BGC Executive Vice President and General Counsel Stephen Merkel will become Vice Chair. Mr. Harding succeeds GFI Executive Vice President Christopher Giancarlo.
via email

**** Mr. Harding gets to take the lead on the futuresization of swaps issue for WMBAA.


A London-Singapore axis looks attractive
By Jeremy Grant –
Step into the visitors’ gallery in Singapore’s pint-sized parliament and you immediately sense how the tiny island nation modelled its chamber on Britain’s parliamentary system. Look around Singapore, however, and other similarities emerge between the Lion City and London.

**** I don’t like the word “axis”


Five reasons SGX might be attracted to LCH.Clearnet
Michelle Price and Tom Osborn – Financial News
The Financial Times yesterday reported that the Singapore Exchange is in talks with international clearing house LCH.Clearnet about taking a stake in the company. The development comes as the London Stock Exchange looks to seal its long-awaited deal to purchase 60% of the clearing house, at E15 per share. The deal is expected to close at the end of this quarter.

**** LCH.Clearnet is one of the hottest clearing houses in the world. Who would not be attracted to them. Youuzzahh!


La bozza del decreto
Paolo Adragna – Fidessa
Italy’s Ministry of Economy and Finance published a draft of the decree for the Italian Financial Transaction Tax (FTT) just after the 31st January deadline imposed by the law (for an English translation visit our Raw material section). The decree sheds light on most of the dark corners left by the bill, detailing how charges are to be calculated, who is responsible for their declaration and, with a few exceptions, explaining the rules for the payments due. At around 20 pages, it’s twice as long as the original law and confirms the complications of a tax, originally intended as a tool to guard against speculation, that now looks set to penalise investors.

**** Another thought provoking piece from Fidessa.


Innovation Is Not Dead, Just Different
If the cover of The Economist is any indication of public sentiment – and it often is – many are speculating that innovation is dead. Two separate articles – “Has the ideas machine broken down” and “The great innovation debate” – suggest doom and gloom.


Patent Reform, System Should Be Abolished, Fed Economists Say
Zach Carter – Huffington Post
Two economists at the St. Louis Federal Reserve published a paper arguing to abolish the American patent system, saying there’s “no evidence” patents improve productivity and that they have a “negative” effect on “innovation.”

**** The debate about innovation and patents is roaring.


The Chickens Come Home to Roost for Standard & Poor’s
Jake Zamansky – Forbes
The U.S. Justice Department announced plans to file civil fraud charges against Standard & Poor’s (S&P) relating to the atrocious ratings that Standard & Poor’s gave to toxic subprime mortgage-backed securities. (It is unclear whether their cohorts at Moody’s and Fitch will be targeted by prosecutors as well.) This is a welcome—if long overdue—development for investors who have been waiting for years for the Feds to take decisive action against those responsible for crashing the world economy.

**** It is not chickenfeed the government is asking for.


The Things Credit-Rating Analysts Say
A credit-rating analyst with an affinity for the Talking Heads? The Justice Department’s lawsuit against Standard & Poor’s, filed Monday evening, accuses the credit-rating agency of bestowing top ratings on investments that were destined to fail. But the behavior described in the complaint, leading up to the financial crisis, was not without its colorful moments.

***** Sounds like a movie title only Wall Street would love.


Regulatory impasse? Force banks into diplomacy
William Wright – Financial News
The 19th-century British statesman Lord Palmerston said: “Only three people have ever really understood the Schleswig-Holstein business. One of them is dead, the other is mad, and the third has forgotten all about it.” He could as easily have been talking about financial regulation.

**** We know all about Dodd-Frank. What is your point?


Local pension plans punished by safe investments: study
Reuters via Yahoo! Finance
Cities and local governments are likely to put more money into their public pension plans than U.S. states, but conservative investments have led their retirement systems historically to be worse-funded, a Boston College study released on Tuesday found.

***** Low interest rates don’t help fiduciaries.


Metals old boys’ club loses sole woman
Jack Farchy in London –
The London Metal Exchange is often called an “old boys’ club”. That description just became a little more apt: Bethan Wilde, the only female trader on the LME’s “ring”, is leaving the open outcry trading floor.


2 Great Lakes hit lowest water level on record
TRAVERSE CITY, Mich. (AP) – Two of the Great Lakes have hit their lowest water levels ever recorded, the U.S. Army Corps of Engineers said Tuesday, capping more than a decade of below-normal rain and snowfall and higher temperatures that boost evaporation.

**** This is not good.



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Lead Stories

Intercontinental Exchange Profit Rises 2 Percent on Expense Cuts
By Matthew Leising – Bloomberg
Intercontinental Exchange Inc., which agreed in December to acquire NYSE Euronext, said fourth-quarter profit rose 2 percent as it cut expenses to boost earnings.

IntercontinentalExchange Reports Record 2012 Earnings and Revenues; Net Income Attributable to ICE Up 8% to $552 Million on Revenues of $1.36 Billion; 4Q12 Adjusted Diluted EPS of $1.84, Up 5% on $323 Million in Revenues
Press Release
IntercontinentalExchange, a leading operator of global markets and clearing houses, today reported financial results for fourth quarter and full year 2012. Consolidated net income attributable to ICE for the quarter grew 2% to $129 million on consolidated revenues of $323 million, down 1% compared to the prior fourth quarter. Diluted earnings per share (EPS) in the quarter increased 2% to $1.76.

CME sees signs of OTC business moving to exchanges
Jacob Bunge – Dow Jones
CME Group Inc. said Tuesday new business is being steered towards its exchange platforms from the huge over-the-counter derivatives market ahead of a March deadline set by U.S. regulators.

TAIFEX and Eurex agree on strategic alliance to cooperate in derivatives trading
TAIFEX, the Taiwan Futures Exchange, and Eurex Exchange, the international derivatives marketplace, announced an extensive product cooperation to trade and clear derivatives based on the TAIEX index, one of the most heavily traded Asian equity indexes.

Japan Exchange Happy to Talk to Foreign Bourses, CEO Says
Nandini Sukumar – Bloomberg
Japan Exchange Group Inc. (8697), created by the merger of the nation’s two biggest bourses, is willing to pursue an alliance or merger with an overseas exchange to drive growth, Chief Executive Officer Atsushi Saito said.

Clearinghouses Should Divulge More Risk Information, Report Says
Matthew Leising – Bloomberg
Derivatives clearinghouses should standardize and report more information on risk management practices so bank members can assess the threats they face, according to a report sponsored by the Federal Reserve Bank of New York.

HFT Revenue to Increase as Volume Rebounds, Tabb Predicts
Revenue from high-frequency stock trading may increase by about 22 percent to $2.2 billion in 2013 as volume in U.S. equity markets rebounds following a three-year slump, according to Tabb Group LLC.

Nasdaq in Talks With SEC Over Computer Errors in Facebook IPO
Nasdaq OMX Group Inc. is in talks with federal regulators about how to prevent breakdowns such as the one that caused Facebook Inc.’s public debut to malfunction in May, according to a person with knowledge of the matter.

U.S., S&P Settle In for Bitter Combat
The U.S. government wants Standard & Poor’s Ratings Services to pay more than $5 billion—roughly what its parent company has earned in the past seven years—for giving its seal of approval to bundles of subprime mortgages that eventually crumbled, costing investors billions and helping sink the economy.

RBS expected to announce £500m Libor settlement
The Wall Street Journal
Royal Bank of Scotland is expected today to announce a settlement of up to £500m with US and British authorities related to the bank’s attempts to rig benchmark interest rates such as Libor, according to people briefed on the settlement talks.

Banks return to commodities finance
Javier Blas and Ajay Makan in London –
The credit crunch that has engulfed the commodities trading industry for the past two years has eased with French banks regaining their appetite to lend to the sector after a large retrenchment in 2011 and 2012.


Saudi Arabia replaces market regulator
The Wall Street Journal
Saudi King Abdullah Abdulaziz al Saud replaced the head of the kingdom’s capital market regulator in a move that is likely to accelerate the opening of the Arab world’s largest stock exchange to foreign investors.

CFTC Seeks Public Comment on the Request of trueEX LLC for an Amended DCM Order to Allow Intermediated Trading on its Platform
The Commodity Futures Trading Commission (CFTC) is requesting public comment on the request submitted by trueEX LLC (trueEX) to amend its order of designation, dated September 25, 2012. trueEX seeks to amend its designation order to allow intermediated trading on its platform.

[AMF France] Professional obligations towards retail clients imposed on investment services providers managing a portfolio on behalf of a third party

Exchanges & Trading Facilities

CME Group Net Income Falls as Interest Rate, Equity Volume Drops
Matthew Leising – Bloomberg
CME Group Inc. (CME), the world’s largest futures market, said fourth-quarter profit fell, compared with a year-earlier period that included a $528 million Illinois state tax benefit. Net income dropped to $166.8 million, or 50 cents a share, from $746 million, or $2.25 a share, a year earlier, Chicago- based CME said today in a statement distributed by PR Newswire.

Deutsche Börse Group: preliminary net revenue in 2012 amounted to around E1,930 million
Deutsche Börse Group’s preliminary net revenue in 2012 amounted to around E1,930 million. Preliminary operating costs adjusted for special items stood at around E920 million, in-line with the company’s guidance. The adjusted preliminary EBIT amounted to around E1.0 billion and the adjusted preliminary net income to around E660 million.

NASDAQ OMX January 2013 Volumes

Powernext Successfully Launched TTF Natural Gas Contracts
After four years of successful development of its gas activities in France, Powernext has extended its products offering with TTF Futures contracts as well as cleared geographical PEG Nord / TTF spreads. These products were launched on Friday 1st February 2013.

HKEx Monthly Market Highlights – January 2013

HKEx On-Floor & Off-Floor Trading Statistics For January 2013

TMX Group Consolidated Trading Statistics – January 2013 – Toronto Stock Exchange, TSX Venture Exchange, TMX Select, Alpha, Montreal Exchange, NGX

Vienna Stock Exchange Monthly Statistics – January 2013

Vienna Stock Exchange Monthly Statistic Derivatives Market – January 2013

Ljubljana Stock Exchange (LJSE) Monthly Statistical Report January 2013

Borsa Italiana Monthly Update – January 2013

Record Monthly Volume Of 1.1 Million Contracts Gives Dubai Gold And Commodities Exchange A Robust Start To 2013

Top 20 Largest Consolidated Short Position Report – January 31, 2013

Share Sales Increase Free Float On Warsaw Stock Exchange

Irish Stock Exchange’s GEM Market Approved By ECB For Eurosystem Monetary Policy

Hedge Funds & Managed Futures

SAC Capital Sees Returns in January Amid Trading Scandal
Hedge fund SAC Capital, still fighting distractions on multiple fronts, churned out a modestly positive January with returns of about 2.5 percent, say two people familiar with the matter.

Merchant Commodity Hedge Fund Cuts Jobs After Second Losing Year
The Merchant Commodity Fund, managed by London-based Doug King, cut a third of its staff after two consecutive years of losses during which assets under management slumped almost 90 percent.

Macquarie and Tikehau complete maiden financing deal
Kiel Porter – Financial News
Investment bank Macquarie and French alternative asset manager Tikehau have provided financing to support an acquisition by Oaktree Capital Management, in the first deal to be completed under a joint credit programme set up last year.

ADM lifts profits despite US drought
Gregory Meyer in New York –
Archer Daniels Midland overcame a stubborn US drought to report sharply higher profit in the last three months of 2012, but had little to say about its $2.9bn bid for Australia’s GrainCorp.

PRIM: State pension fund posted a 13.9 percent gain for 2012
Boston Globe
The state pension fund posted a 13.9 percent gain for 2012, beating its benchmark by 0.84 percent. Fixed income and global equities had strong results, with double digit returns, the Massachusetts Pension Reserves Investment Management Board said Tuesday.

Deutsche Bank Says May Be Too Early for USDA to Cut Corn Usage
Deutsche Bank AG said it may be too early for the U.S. Department of Agriculture to lower its estimate of corn used to make ethanol.

Banks & Brokers

Goldman Sachs Asset Management Chairman Jim O’Neill to Retire
Goldman Sachs Group Inc. economist Jim O’Neill, who bound Brazil to Russia, India and China to form the BRIC investing strategy, will retire this year.

Jim O’Neill To Retire From Goldman Sachs
After nearly 20 years of outstanding service, Jim O’Neill, chairman of Goldman Sachs Asset Management, has decided to retire from the firm later this year.

Ireland ‘bad bank’ tries to make good with sales
Sarah Krouse – Financial News
When Ireland set up a so-called bad bank to manage the country’s mountain of distressed real estate assets in 2009, critics blasted its plan to liquidate its properties and loans with a face value of E74bn ($100bn) over the long time frame of 10 years.

RBS CEO Hester Calls Libor the Bank’s “Biggest Disappointment”
Dow Jones
Royal Bank of Scotland Group PLC Chief Executive Stephen Hester called the bank’s involvement in interest-rate rigging investigation “the biggest disappointment of our legacy,” and pledged to answer “the difficult questions” around it.

Barclays raises mis-selling costs by $1.6 billion
Associated Press via Yahoo! News
LONDON — Barclays PLC said Tuesday it is putting aside another 1 billion pounds to cover the costs of scandals related to the mis-selling of financial products, raising speculation that other British banks may soon have to cough up more cash to cover similar scandals.

Swiss private banks end partner liability
James Shotter in Geneva –
Pictet and Lombard Odier, two of Switzerland’s oldest private banks, have broken with more than 200 years of history by calling time on their existence as unlimited liability partnerships.

Courtship of Carney Stretched From Marseille to Mexico for BOE
Negotiations weren’t on the agenda when British Chancellor of the Exchequer George Osborne and Bank of Canada Governor Mark Carney sat down for a drink to get better acquainted on a terrace overlooking the Mediterranean in the harbor city of Marseille on Sept. 9, 2011.

Scope to improve UK bank payments system – BoE’s Haldane
Reuters via Yahoo! Finance
Bank of England regulation of the bank payments system from April will increase competition and give customers a better service, the central bank’s executive director for financial stability said.

Morgan Stanley Bankers Whayne, Rashid Said to Depart Amid Cuts
Morgan Stanley investment bankers Thomas Whayne, who worked with media and telecommunications companies, and Karim Rashid, an energy banker, have left the firm, two people briefed on the departures said yesterday.

UBS brokers in U.S. break $1 million average revenue barrier in fourth-quarter
Reuters via Yahoo! News
NEW YORK – The big bonuses that UBS Wealth Management Americas has been paying to recruit top advisers appeared to pay off in the fourth quarter. Average revenue generated by the approximately 7,000 advisers at UBS AG’s U.S. brokerage topped $1 million in the fourth quarter of 2012, the Swiss bank reported on Tuesday.

Clearing & Settlement

Ice sculpts NYSE clearing challenge
Tom Osborn – Financial News
Little noticed amid the fanfare that greeted the proposed $8.2bn merger between Intercontinental-Exchange and NYSE Euronext was a significant agreement over clearing services.

Euroclear Bank’s Service For Russian OFZs To Start On 7 February

Indexes & Products

FTSE Launches New FTSE Cyclical And Defensive Index Series

Shanghai Stock Exchange 10-Year China Treasury Note (Futures Deliverables) Index To Be Launched

IndexIQ Announces January 2013 Performance of Its IQ Hedge Family of Investable Benchmark Hedge Fund Replication Indexes


Steven R. O’Hanlon Embarks on New Role as Chief Executive Officer of Numerix
Numerix, the leading provider of cross-asset analytics for derivatives valuations and risk management, today has the distinct honor to announce the appointment of Mr. Steven R. O’Hanlon as Chief Executive Officer & President of Numerix.

NASDAQ OMX Selected To Deliver Board Communications System To Vattenfall – Vattenfall Commits To NASDAQ OMX’S Director’s Desk Solution For Mobile And Secure Board Communication
NASDAQ OMX announces that it has been selected as the supplier of board communications technology to Vattenfall, one of Europe’s largest producers of electricity and the largest producer of heat.

Thomson Reuters Launches Datascope Workflow License For Order Management Systems
Combines Technical Indicators, Pricing And Reference Data To Seamlessly Streamline Workflow Processes.

Fiserv Reports Fourth Quarter and Full Year 2012 Results


SEC may fine Nasdaq $5M for Facebook flop
New York Post
Nasdaq hopes to update its Facebook status soon. The tech-heavy stock exchange is in talks with regulators about a potential settlement over its handling of Facebook’s bungled initial public offering.

CFTC Sues Australian Company, Halifax Investment Services, Ltd., for Unlawfully Soliciting U.S. Customers
The U.S. Commodity Futures Trading Commission (CFTC) today announced that it filed a complaint in the U.S. District Court for the Northern District of Illinois against Halifax Investment Services, Ltd. (Halifax) of Sydney, Australia for soliciting and accepting foreign currency (forex) orders from U.S. customers without registering with the CFTC as required.

SEC: To Fund Insider-Trading Scheme, Oregon Men Sold Car, Took Out Loan From Peer-to-Peer Lending Site
The Securities and Exchange Commission filed a lawsuit against two Oregon IT specialists, accusing them of violating federal securities laws by trading on inside information of their company’s impending merger with a competitor.

SEC socks Stamford adviser $808K on stock plays
Hartford Business Journal
A Stamford investment adviser must cede more than $500,000 in gains, plus $308,000 more in penalties and interest, for breaching federal securities laws when it bought stock in three public companies, authorities say.

ASIC cancels licences of national financial planning business

ASIC permanently bans former WA credit representative

Environmental & Energy

Greenhouse-Gas Emissions Fall in Power Plants on Coal Cuts
Greenhouse-gas emissions from U.S. power plants fell 4.5 percent in 2011 from the previous year as those facilities burned less coal, the most-intense source of carbon-dioxide pollution.

Can Congress ever agree on climate change? An interview with Henry Waxman
The Washington Post
Four years ago, Rep. Henry Waxman (D-Calif.) was trying to craft a climate-change policy for the entire country. But he only got halfway there: His massive bill to cap U.S. greenhouse-gas emissions passed through the House, but eventually died in the Senate.

**RKB — Excerpt on cap and trade: A price on carbon can take a number of forms. One is cap-and-trade. Many people have argued for a carbon tax. Some Republican economists have urged that we put a carbon tax in place and use the money to lower other taxes. Other economists have said that a price on carbon can help us not just solve an intractable problem in climate change but also help reduce the deficit. And others have suggested a carbon tax where the money is recycled back to consumers. The essential point here is that any carbon price would have a strong impact on decision-making throughout the economy.

Republican senator lays out path for U.S. independence from OPEC
U.S. independence from OPEC could be a reality if the U.S. government opens more lands for oil and gas development, speeds permitting and approves the Keystone XL pipeline, the top Republican on the Senate energy committee said in a policy report on Monday.


Taiwan to Follow Hong Kong With First Chinese Yuan Bonds
Taiwan is poised to sell its first Chinese yuan-denominated bonds, following Hong Kong and London, as the cities compete for business in a currency that is moving toward becoming convertible.

HKEx Announces Senior Appointment
Hong Kong Exchanges and Clearing Limited (HKEx) has appointed London Metal Exchange’s Liz Milan to its new position of Head of Asia Commodities with immediate effect.

HKMEx Adds Zhujiang International Futures As Broking Member
Second Exchange Membership Addition In 2013 As HKMEx Forges Ahead In Building China’s Global Marketplace

Dalian Commodity Exchange: Accelerating The Development And Improvement Of Farm Produce Futures Market And Better Serving Agriculture, Farmers And Rural Areas

HKFE Announces Revised Margins For Sinopec Corp Futures

Frontier Markets

Dubai Mercantile Exchange (DME) Hits The 4 Billion Barrels Traded Mark
DME announced today that it has now reached the 4 billion barrel mark, with a total of 4 million contracts (eqv. 4 billion barrels) traded on the Exchange. This milestone comes just 10 months after the DME passed the 3 billion mark and continues the trend of strong trading growth on the Exchange.

Financial Stability Board Completes Peer Review Of South Africa

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