Industry news


Date: Aug 13, 2013

August 13, 2013: Derivatives Margin Losses Could Help Save CCPs, Regulators Say; Eurex ups the stakes in battle for swaps clearing; EuroCCP cuts settlement fees for UK and Irish stocks

Global regulator IOSCO proposes a grand plan to save central counterparties by taking initial margin away from depositors if needed. They must’ve been watching how well that Cyprus bank bailout went. Eurex Clearing launches a new service in a bid to capture interest-rate swap clearing market share. And rounding out today’s clearing news, EuroCCP announces new pricing for UK and Irish stock settlement. In First Read today, be sure to see Doug Ashburn’s latest interview with former NYBOT exec Joe O’Neill, who talks about his work during the filming of the movie Trading Places.

First Read

Turn Those Machines Back On!!!
by Doug Ashburn
Sometimes the best part of an interview comes just after the camera is turned off. Such was the case last fall when we interviewed former NYBOT executive Joe O’Neill for a long-term project on the history of the futures markets. Afterward, as we were packing up our audio and video gear, I told Joe that I had never heard of the New York Cotton Exchange, or any commodity exchange not based in Chicago, until 1983 when the movie Trading Places came out.

Joe’s eyes lit up, and he began to tell the story of how it was he who had been first approached by the producers, how he served as the intermediary between the board and the studio before and during the shooting, and how he worked with them on the script.

In my best Mortimer Duke voice I said, “turn those machines back on!” The result is the impromptu interview below, “When Joe O’Neill went Hollywood.”

* * * * *

If you have been reading the newsletter regularly over the past few weeks, you know that John is out of the office for the next two days as he is taking his oldest son Tim off to college. In his absence, Mr. Matte and I will be offering our take on the day’s news.

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Joe O'Neill

When Joe O’Neill Went Hollywood: “Trading Places” 30 Years Later
MarketsWiki.tv

Joe O’Neill has been around the futures markets since 1970. If you stick around long enough, you will have seen just about everything. Such was the case in 1983 when he was proposed with the idea of filming a movie, “Trading Places” at the New York Board of Trade. Now celebrating its 30th Anniversary, “Trading Places” is still considered the go-to movie when anyone in the industry talks about the futures markets, even if the floors ain’t what they used to be. O’Neill spoke with JLN editor-at-large Doug Ashburn about the making of “Trading Places,” how true the film is to real life and also shared some behind-the-scenes stories about the movie.

Watch the video »

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Derivatives Margin Losses Could Help Save CCPs, Regulators Say
Ben Moshinsky – Bloomberg
Derivatives traders should be prepared to lose the initial margin they post at clearinghouses if it’s needed to prevent a financial crisis, global markets regulators said. The “margin is likely to constitute a very large pool of assets which would, if it can be used, provide a high degree of loss-absorbency” to help stabilize a central counterparty, or CCP, the International Organization of Securities Commissions and the Committee on Payment and Settlement Systems said in a joint report published today.
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***DA: Last year we spent several months putting together a video series on restoring customer confidence. If this really the regulatory mentality, I wonder why we even bothered trying.

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How Many Options Exchanges can be Profitable?
Dan Collins | Dan Collins Report
For more than a decade I had been going to the Futures Industry Association conference in Boca Raton and to its Futures and Options Expo in Chicago. As part of each conference the FIA would always include a panel of options exchange leaders. These panels would include the usual griping regarding Securities and Exchange Commission’s (SEC) regulatory structure, which was much more hands on than what the exchanges in the futures world experienced with the Commodity Futures Trading Commission (CFTC).
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***DA: Dan has been following markets long enough to know that no trend stops exactly at fair value, but rather tends to overshoot the mark.

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[Video] Nasdaq in global interest-rate trading push
Arash Massoudi – FT.com
Nasdaq OMX has made a calculated push to fashion itself as a home for trading interest-rate products. Eric Noll, executive vice president, talks to US markets reporter Arash Massoudi about the exchange operator’s efforts and how it sees trading in the products evolving.

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For S.E.C., Any JPMorgan Settlement Could Serve as a Template
PETER J. HENNING – NYTimes.com
Trades by the so-called London Whale have already cost JPMorgan Chase over $6 billion in losses. They could also result in a precedent that will make the transactions live on in the annals of notoriety, if the Securities and Exchange Commission can extract an admission of wrongdoing from the bank.
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***JM: “…dogs and cats, sleeping together…” (YouTube explanation: jlne.ws/16N9Jxp

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U.S. regulator opposes fast-track CFTC markets policing
Reuters
The U.S. derivatives regulator needs to better explain how it goes about cracking down on wrongdoers, one of its commissioners said on Monday calling on Congress to conduct a full review.
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***DA: While the commissioner is right on this matter, I don’t think the public will side with him. Too many got away with too much during the crisis.

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Understanding the HKEx’s index futures fanfare
Michelle Price in Hong Kong – Financial News
On Monday Hong Kong Exchanges and Clearing began trading new stock index futures in a development that has been heavily publicised by the company and which has attracted a good deal of attention from Hong Kong and mainland Chinese media. At a packed press conference held at the company’s Hong Kong headquarters last week, HKEx chief executive Charlies Li unveiled the CES 120 Index Futures which he described as a “milestone” and world “first”. So why all the fanfare?
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***DA: It took 12 paragraphs to say, “We are forging ties with the mainland.” This is one of the trends spotlighted in our Asia special report released last week.

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HKEx: Contributions Of Late Stock Exchange Chairman Sir Q W Lee
Hong Kong Exchanges and Clearing Limited deeply regrets the passing of Sir Q W Lee, who contributed significantly to the development of Hong Kong’s securities market when he was the chairman of The Stock Exchange of Hong Kong Limited between October 1988 and December 1991.
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A New Order Is Emerging for Banking
Francesco Guerrera – MoneyBeat – WSJ
Wall Street is struggling to define itself. Markets and business models, not to mention the world economy and U.S. monetary policy, are rudderless, making it difficult for finance’s captains of industry to chart a course. One of them recently bemoaned the inability to define the moment. We had the era of plenty, he told me referring to the credit boom of the early 2000s through 2007, followed by the crisis era. Now what?
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***DA: How about “the error of plenty.”

***JM: I’d go for “Banking in the Age of Nero”.

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New Breed of Bank Chief Can Spin a Yawn
MAX COLCHESTER – WSJ.com
Out of the ashes of the financial crisis, a new breed of banking leader is rising: the dull chief executive. Large banks, burned by years of scandal, often with swashbuckling CEOs at the helm, are turning to new bosses who sport well-polished veneers of boringness. The goal is to avoid further controversy.
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***DA: I think the goal is to avoid the ILLUSION of controversy.

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CEO Series: Cynthia DiBartolo – A Tigress In A Shark Tank
Sasha Galbraith, Contributor – Forbes
Cynthia DiBartolo is one tenacious Tigress, and her father’s words inspired her to pick herself up from tragedy and start a business. Both the woman and her story are unique, amazing and forcefully inspiring.
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***DA: Great story; bad title. Having watched Shark Week on Discovery last week, I know what would happen if a tigress was placed in a shark tank.

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Work Can Be a Happy Hour
Patricia Kowsmann – MoneyBeat – WSJ
Feeling guilty about drinking that bottle of wine at lunch on a work day? Don’t. In fact, depending on what you do, that may even be a good thing, according to a Portuguese court.
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***DA: Well, let’s see. The publisher is taking his son to college today, the editor-in-chief is on vacation, the marketing department is on his honeymoon, and it is starting out to be a slow news day. Any guesses as to what I am having for lunch today?

***JM: “It’s five o’clock in Svalbard. All day long.”

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MarketsWiki

MarketsWiki Page of the Day
Hirander Misra
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MarketsWiki Recent Updates

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James F. Lubin; Gerald T. O’Connell; Ann Shuman; Gail Osten; Hirander Misra

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Lead Stories

Eurex ups the stakes in battle for swaps clearing
Anish Puaar – Financial News
Eurex Clearing is set open a new front in its battle to grab a greater share of interest-rate swap clearing with the launch of a new service that aims to reduce the costs associated with G20-led derivatives regulation.
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EuroCCP cuts settlement fees for UK and Irish stocks
Philip Stafford – FT.com
EuroCCP, Europe’s largest equities clearing house, has begun offering traders a service that cuts settlement fees for UK and Irish stocks traded on many of the region’s alternative trading venues. The clearing house, a unit of US-based Depository Trust and Clearing Corporation, will allow investors to net their transactions across all venues for which it clears.
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JPMorgan’s London Whale Helping Feds for Possible Arrests
Phil Albinus – Wall Street & Technology
As the SEC works on JPMorgan Chase’s admission of wrongdoing in the $6 Billion London Whale disaster, we now learn that the trader himself is helping US authorities. In exchange for his help and avoiding jail time, Bruno Iksil is helping the Feds to build a case against the trader’s former supervisor and senior associate.
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U.S. Subpoenas Goldman in Inquiry of Aluminum Warehouses
DAVID KOCIENIEWSKI – NYTimes.com
Goldman Sachs has been subpoenaed by federal regulators investigating complaints that the financial giant’s metals warehouses have intentionally created delays and inflated the price of aluminum.
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CPSS-Iosco proposes central body to overcome trade data impasse
Philip Stafford – FT.com
Governments should consider creating a centralised public body to oversee sharing of comprehensive off-exchange derivatives data and overcome a potential barrier to efforts to reform markets, global securities regulators have said.
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Fear of asset-based lending holds back SMEs
Jonathan Moules, Enterprise Correspondent – FT.com
Businesses using asset-based lenders known as factors are being penalised as potential bad risks by their customers, with negative perceptions of the practice hindering small and medium enterprises lacking other sources of finance. Factoring typically involves a company selling its invoices to a lender, and is praised by brokers as a sensible way for young companies to generate working capital.
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Will the 24 companies pay Rs 5,599 crore that they owe to NSEL?
Economic Times
Mohan India is essentially a shell company. In 2011-12, the last date for which its financials were available, the company earned a net profit of Rs 2,044, and had revenues of Rs 72,400. Its balance sheet size was about Rs 17 lakh. Yet Mohan India, along with a sister concern Tavishi Enterprises (which was incorporated this year and whose financials are not yet available) together owe the National Spot Exchange Ltd (NSEL) Rs 952 crore.
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Investors want FIR against NSEL; IGF wants FMC & ministry officials too named in FIR
The Economic Times
The Investors Grievance Forum ( IGF) has filed a complaint with the Economic Offences Wing of the Mumbai police against NSEL alleging “cheating, fraud and forgery” affecting “17,000 small farmers and investors”.
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Regulatory

ASIC Releases New Rules on Dark Liquidity and HFT
WatersTechnology
The Australian Securities and Investment Commission (ASIC) has released a new set of rules for dark liquidity and high-frequency trading that are designed to influence market participants’ behavior.
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Eric Holder Owes the American People an Apology
Jonathan Weil – Bloomberg
The Justice Department made a long-overdue disclosure late Friday: Last year when U.S. Attorney General Eric Holder boasted about the successes that a high-profile task force racked up pursuing mortgage fraud, the numbers he trumpeted were grossly overstated.
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CFTC Issues Final Rules to implement Enhanced Risk Management Standards for Systemically Important Derivatives Clearing Organizations
The Commodity Futures Trading Commission (CFTC) approved final rules to implement enhanced risk management standards for systemically important derivatives clearing organizations (SIDCO).
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Kinetic And Eukleia Announce Joint Transaction Reporting Training Initiative
Kinetic Partners and Eukleia Training have launched a new online transaction reporting (TR) module. The course has been devised in response to FCA’s on-going enforcement activity and its recent remarks on weaknesses in industry training on this topic.
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Financial Stability Board Consults On Implementation Guidance For The Key Attributes Of Effective Resolution Regimes
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Canadian Securities Regulators Provide Update On Transition To New National Systems Service Provider
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SEBI Board Meeting
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[Japan] FSA publishes Weekly Review No.58
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Exchanges & Trading Facilities

[CBOE] June 2015 and January 2016 Index, Equity and ETF LEAPS Listing Schedule
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Hedge Funds & Managed Futures

Blackstone Gets $1 Billion From Fidelity for Mutual Fund
Bloomberg
Blackstone Group LP, the world’s largest manager of alternative assets, raised almost $1 billion from Fidelity Investments for its mutual fund that will invest in hedge funds, Fidelity said.
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Ex-Nomura bankers launch ‘streaming’ venture
Suzi Ring – Financial News
Two former managing directors at Nomura have teamed up with a group of oil industry veterans – including a one-time chief executive of Shell in Africa – to launch a new commodities venture, Financial News has learnt.
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SAC Capital Shut Parameter Capital Trading Unit Last Week
Juliet Chung – MoneyBeat – WSJ
SAC Capital Advisors LP shut down a nine-person trading unit last week, according to a person familiar with the firm, with eight of the nine leaving to start a new hedge fund.
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Fidelity Boosts Hedge-Fund Offerings for Retail Clients
Juliet Chung – MoneyBeat – WSJ
Mutual-fund giant Fidelity Investments is stepping up its hedge-fund offerings. Fidelity has invested about $1 billion in Blackstone Group’s first mutual fund, which launched last week and gives money to 11 hedge-fund firms to invest.
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Hedge Funds Increasingly Look to Outsource
Becca Lipman – Wall Street & Technology
Financial institutions are no strangers to outsourcing of back and middle office tasks, but their hedge fund peers did not often partake. Their typically small-sized operations and wish to protect their secret sauce would hold them back from outsourcing, and not so long ago, money flowed freer, causing them to overlook the cost benefits. No longer.
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Single-strategy funds pay off for Citadel
Risk.net
Citadel’s decision to launch a series of single-strategy funds is paying off. Its equities funds have posted returns and a recently launched fixed income fund has attracted interest from investors
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A Solid Start for Australian Private Equity in 2013
Marketwired via Yahoo! Finance
The first quarter of 2013 saw the Cambridge Associates LLC Australia Private Equity and Venture Capital Index post gains of 2.36%, according to the latest quarterly report released by The Australian Private Equity and Venture Capital Association Ltd today.
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SuperDerivatives adds Fitch Solutions CDS pricing to market data platform
Reuters
Fitch Solutions is pleased to announce that SuperDerivatives, a leading provider of real-time market data, risk management and valuation services, has added the availability of Fitch’s CDS Pricing Service to its market data platform, DGX.
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Pimco Sees Steeper Gilt Curve Carney Can’t Control: U.K. Credit
Bloomberg
Pacific Investment Management Co. says the growing difference between two- and 10-year gilt yields shows the Bank of England’s ability to anchor borrowing costs is limited to shorter-dated notes.
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India Gold Premiums Seen Extending Climb to Record on Curbs
Pratik Parija, Prabhudatta Mishra & Swansy Afonso – Bloomberg
Gold premiums in India, the world’s largest consumer last year, may extend their advance to a record as central bank restrictions halt imports.
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FOCUS: Funds Bolster Net-Longs In PGM Futures, Options — CFTC
Kitco
Speculators continued to increase their net-long positions in platinum group metals futures and options traded on the New York Mercantile Exchange, and are now sitting at some sizable long positions in the white metals, as seen in data released Friday by the Commodity Futures Trading Commission.
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People Think Bill Ackman Is Having A Stress-Induced Meltdown, But Someone Who Knows Him Says He’s Having ‘Fun’
Business Insider
Hedge fund manager Bill Ackman, the founder of $12 billion Pershing Square Capital Management founder, can’t stay out of the spotlight.
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Banks & Brokers

Exclusive: Barclays considers potential sale of UAE retail business
Reuters
Barclays Plc is conducting a strategic review of its retail banking operations in the United Arab Emirates which could lead to a sale of the business, according to two sources familiar with the matter.
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Commodity Revamp at Morgan Stanley
CHRISTIAN BERTHELSEN AND AARON LUCCHETTI – WSJ.com
Morgan Stanley has reorganized its commodities division in the face of challenging markets and intensifying scrutiny of banks’ participation in the business, according to people familiar with the firm’s strategy.
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ON THE MOVE-Morgan Stanley hires veteran Deutsche Bank adviser
Reuters
Morgan Stanley Wealth Management said Monday it hired a veteran adviser who managed $350 million in client assets at Deutsche Bank.
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JPMorgan Said to Hire Deutsche Bank’s Corfield as Analyst
Bloomberg
JPMorgan Chase & Co. hired Natalia Corfield from Deutsche Bank AG to join its emerging-market corporate credit research group, according to two people with direct knowledge of the matter.
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JPMorgan Chase’s List of Legal Challenges
Time Magazine
The London Whale trading loss is JPMorgan Chase’s legal headache-of-the-week, but it’s hardly its only problem. The bank, the nation’s biggest, faces a swirl of investigations and lawsuits in addition to the $6 billion loss with the memorable nickname. JPMorgan also is accused of wrongdoing in how it marketed mortgage-backed securities, how it chases down credit card payments from delinquent borrowers, and whether it should have noticed that Bernie Madoff was running a giant Ponzi scheme.
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Lloyds receives $900 million bids for Australian operations – WSJ
Reuters via Yahoo! Finance
Britain’s Lloyds Banking Group has received indicative bids for its Australian asset finance and commercial lending units that value them at more than 1 billion Australian dollars (£590 million), the Wall Street Journal reported late on Monday.
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Clearing & Settlement

Trade repositories eye Remit opportunity
Risk.net
Some of the entities backing trade repositories for over-the-counter derivatives are also making clear their intention to become registered reporting mechanisms (RRMs) under the European Regulation on Wholesale Energy Market Integrity and Transparency (Remit), in a development that is likely to be welcomed by market participants.
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DTCC Reaches Milestone With Corporate Action Messages
The Depository Trust & Clearing Corporation (DTCC) announced today that it reached a milestone in June when the number of ISO 20022 corporate actions announcement messages it has distributed to banks, brokerages and other financial institutions surpassed the 100 million mark.
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NYMEX Options Expiration Operational Procedures for the Trading Floor and Clearing Members (A) Effective Tuesday, August 13, 2013
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Performance Bond Requirements – Natural Gas and Petroleum Spread Outrights; Crude Oil Intra-Commodity Spread Charges; Interest Rates and Natural Gas Inter-Commodity Spread Credits – Effective Tuesday, August 13, 2013
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Indexes & Products

Vanguard adds five new ETFs to Canadian lineup
Reuters
Vanguard Group has listed five new exchange-traded funds in Canada as the No. 1 U.S. mutual fund company expands in the region, which last month reached more than $1 billion in assets under management.
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Bond ETFs under stress in market sell-off
Risk.net
Fixed-income ETFs were having a great year until a sell-off inspired a wave of bad publicity. But did the selling really expose weaknesses in the ETF mechanism, as initial reports suggested?
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Two new UBS ETFs launched on Xetra
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Moscow Exchange Indices Weekly Review: August 5-9, 2013
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Technology

SunGard expands XSP business into Singapore
In response to customer demand for solutions to address increasing complexity and volumes of corporate actions in Asia-Pacific, SunGard has expanded its XSP business to build a presence in Singapore.
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Equinix opens fourth IBX in Tokyo | Financial Industry & Algorithmic Trading News
Automated Trader
Equinix has announced the opening of its fourth International Business Exchange data centre in Japan, located in Otemachi, Tokyo.
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Enforcement

O.C. lender CashCall scammed borrowers, N.Y. attorney general says
Los Angeles Times
NEW YORK — New York’s top law enforcement official has accused an Orange County-based lender of scamming borrowers out of “millions of dollars” with high-interest loans.
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BCSC alleges that B.C. man concealed his connection to an offshore trading account and lied to staff
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ASIC successful in appeal against Storm settlement deal
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Environmental & Energy

Lignite power revenues boosted by cheap carbon prices
Reuters
European electricity revenues generated from lignite are now three times as high as from hard coal, boosted by a collapse in the price of carbon permits, undermining Europe’s ambition to cut greenhouse gas emissions.
jlne.ws/1cIrP7W

Disgraced British ex-energy minister lands job with US firm
Reuters
Former British minister Chris Huhne has taken up a senior job at a U.S. renewable energy firm, less than three months after he was released from prison where he was serving time for lying to the authorities about a speeding offence.
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Effects of climate change in California are ‘significant and growing
LA Times
California is feeling the effects of climate change far and wide, as heat-trapping greenhouse gases reduce spring runoff from the Sierra Nevada, make the waters of Monterey Bay more acidic and shorten winter chill periods required to grow fruit and nuts in the Central Valley, a new report says.
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Asia-Pacific

China’s Shenzhen index outshines Shanghai
Josh Noble in Hong Kong – FT.com
Investors looking at China are facing an increasingly puzzling picture. The mainland is now home to both the best and worst performing Asian stock markets outside Japan this year.
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Japan must press ahead with tax reform
Frederic Neumann – FT.com
The easy part is done. The Bank of Japan is pumping money and officials have delivered a generous fiscal kick. Preliminary numbers suggest Japan was the fastest growing advanced economy over the first half of the year. The question now is whether Prime Minister Shinzo Abe can seal the deal by taking the third arrow out of his quiver and firing off structural reforms.
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Former Hang Seng Bank Chairman Lee Quo-wei Dies in Hong Kong
Bloomberg
Lee passed away on Aug. 10 at Prince of Wales Hospital in the city’s Shatin district, Hang Seng said in an e-mailed statement on behalf of his family, without giving a cause of death.
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HKFE Announces Revised Margins For CITIC Pacific Futures
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Shenzhen Stock Exchange Market Bulletin 12 August, 2013 – Issue 12
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Frontier Markets

The Egyptian Exchange Confirms Its Commitment In Abiding To Institutional Framework Of The Market Management
Within the framework of EGX confirmation of its commitment to strengthening the institutional framework of the market management, EGX management announces that there will be no change or cancellation to any administrative or regulatory decisions taken during the last period.
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Thomson Reuters & Dubai Chamber Of Commerce Host A Global Islamic Economy Summit In November 2013
Summit Will Shape The Future Of The $8 Trillion Islamic Economy
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The Egyptian Exchange (EGX) Monthly Statistical Report July 2013
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