Industry news
Date: Nov 21, 2012
November 21, 2012: Bats Chi-X Europe to unveil price rises; Australian reforms to limit flash crash risk; Ex-SAC Manager Martoma Charged in Record Insider Scheme
Bats Chi-X Europe moves to substantially change its fee and cost structure for market participants. Australian regulators move to restrict and rein in high frequency traders and dark pool providers. An arrest is made regarding insider trading charges at SAC Capital Advisors, with the founder of that firm implicated for the first time in the complaint.
First Read
Happy Thanksgiving – US Holiday
We will not be publishing JLN on Friday, the day after the Thanksgiving holiday in the US. However, we will be posting any important news to Twitter and the John Lothian Newsletter blog or any of our JLN sites. Have a Happy Thanksgiving Day and we will see you again on Monday.
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2 + 2 = 5: The Value of Exchange Alliances
Philippe Carré – Sungard
Last month, the Stock Exchange of Thailand joined the ASEAN Trading Link, an alliance comprising three exchanges from across southeast Asia. Russian exchanges Micex and RTS completed their tie-up in December 2011 to form the Moscow Exchange. More recently, the Tokyo Stock Exchange and Osaka Securities Exchange announced their imminent merger, expected to complete on 1 January 2013. These events have brought the debate regarding consolidating the Middle East’s own exchanges into sharper focus. Trading across multiple markets is commonplace across the globe, but this practice is yet to become a reality here. Why?
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FCA chief calls for debate on client assets
Philip Stafford – FT.com
The UK’s new chief regulator has called for a “robust debate” to help determine new rules protecting customers’ assets as it seeks to end the legal delays that have held up the return of money to clients of failed firms Lehman Brothers and MF Global.
jlne.ws/UIDMfR
**** I think that robust debate has been going on since October 31 of last year.
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Wrong sort of volatility hits trend followers
Sam Jones – FT.com
In the days of British Rail, in the depths of winter, there was a particularly notorious excuse for tardy trains: the wrong type of snow on the lines. So it is too with some of the world’s biggest hedge funds. The snow, in their case, is volatility.
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**** Volatility is the lifeblood of the markets, but even blood can be toxic.
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| Restoring Customer Confidence | More ideas» |
Regulatory Changes: A Pretty Picture For Gross Margining The Dodd-Frank Act has addressed numerous risks in the financial markets. Ron Filler, a Professor at New York Law School, says one provision, called gross margining, could alleviate segregated customer account risk, starting in January 2013. +++++ About the Restoring Customer Confidence video series The Restoring Customer Confidence video series answers that question by exploring potential solutions using expert interviews and simple animations. John Lothian News interviewed more than a dozen professionals in the industry to get their ideas and solutions. As these ideas become practice, or as new concepts are adopted by the industry, we will continue to add them to the site. Visit the video series page on MarketsWiki.tv over the next several weeks for new ideas and solutions. |
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‘Devastating’ EU rules would cost pensions £150bn
William Hutchings – Financial News
The European Commission’s plans to update its rules on retirement funds would add £150bn to the liabilities of UK pension schemes, according to estimates just published by the Department of Work and Pensions, and could cost £400bn, in a move the UK government minister responsible for pensions described as “devastating”.
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***** And the benefits would be…? Remember, it is cost/benefit analysis, not cost analysis.
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Top Treasury Official Eyed as Possible SEC Chairman
DAMIAN PALETTA AND JESSICA HOLZER – WSJ.com
A Treasury Department official who played a key role during the debt-ceiling debate is under consideration to be the next chairman of the Securities and Exchange Commission, according to several current and former government officials.
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**** Mary John Miller is the potential candidate.
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Cohen, insider trading and reputational risk
MarketWatch
It’s hard to imagine another hedge-fund manager approximating the larger-than-life reputation of Steven A. Cohen, the founder of SAC Capital Advisors LLP. Cohen, aptly described by the Wall Street Journal as one of the best-known and most successful practitioners of his trade, a billionaire art collector and a cherished client of Wall Street firms that earn millions of dollars annually from SAC Capital’s trades. Now that résumé is in jeopardy.
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**** Reputational risk is real risk, but without the fancy models.
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China set to ‘aggressively open up’ capital markets
Matt Turner and Shanny Basar in New York – Financial News
A reform-minded Politburo Standing Committee, the introduction of a new payments system and the potential future full convertibility of the renminbi all point towards an explosion in activity in China’s capital markets, according to market participants.
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**** But how about the legal system?
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Special Report – How gaming Libor became business as usual
Carrick Mollenkamp, Jennifer Ablan and Matthew Goldstein – Reuters
In late 1996, Marcy Engel, then a lawyer for Wall Street heavyweight Salomon Brothers Inc, fired off a warning letter to U.S. regulators: If they approved a Chicago Mercantile Exchange plan to change how a popular futures contract was priced, they would put at risk the integrity of a key interest rate in the global financial system.
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***** Makes you think.
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Graphic: A Long Line of Accounting Scandals
By DEALBOOK
Hewlett-Packard said that it had taken an $8.8 billion accounting charge after discovering what it said were “serious accounting improprieties” and “outright misrepresentations” at Autonomy, a British software maker that it bought for $10 billion last year.
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**** I wonder if this accounting scandal started in a garage in California.
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Virtu eyes further European growth
Tim Cave – Financial News
Virtu Financial, one of the largest proprietary trading firms on US and European exchanges, has not ruled out further acquisitions in Europe amid growing speculation that the high-frequency trading sector could fall prey to a round of consolidation.
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**** Consolidation or contraction?
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JLN Forex
FX Swaps and Forwards: A Special Case?
by Douglas Ashburn
After the financial world (and much of the press that covers it) had “powered down” for the weekend, the U.S. Department of the Treasury issued its long-awaited “final determination” on FX swaps and forwards last Friday. In the final ruling, Treasury essentially exempted these FX instruments from certain Dodd-Frank requirements such as mandatory clearing and trading on a designated contract market or a swap execution facility.
For a full summary of the rule and its history, I invite you to visit the FX Swaps Regulation page in MarketsReformWiki, but outlined below are a few salient points to consider when asking whether FX is indeed a “special case” in need of a special exemption, or whether Treasury just delivered an early Christmas present to the banking sector.
Of note, self-proclaimed industry watchdog Better Markets is livid, not only because of the exemption, but also the manner in which it was delivered. Important and controversial rulings such as this should not be issued after 5 pm on a Friday, right after the election, during Congressional recess, into the Thanksgiving-shortened week. “Shamefully manipulating the release of information to prevent scrutiny, analysis and criticism,” said Better Markets, “should simply never be engaged in or tolerated.”
So here are a few arguments promulgated by Treasury when issuing its decision, followed by, in the words of Better Markets, “scrutiny, analysis and criticism.”
For the rest of the commentary, visit the JLN Forex blog at jlne.ws/UcJQRq
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Lead Stories
Bats Chi-X Europe to unveil price rises
Michelle Price
Bats Chi-X Europe, Europe’s largest alternative trading platform, is due to unveil changes to its liquidity rebate programme which will represent a 50% increase on the current pricing schedule, according to two individuals familiar with the plans. The new pricing regime highlights the increasingly tough European trading environment which saw the monthly value traded slump to a two-and-a-half year low in August.
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Australian reforms to limit flash crash risk
Neil Hume in Sydney – FT.com
All high-frequency traders operating in Australia will be required to install “kill switches” by 2014 and “dark pools” will have to offer “meaningful price improvement” by the middle of next year under new rules unveiled by the Labor government.
jlne.ws/UIDMwu
Ex-SAC Manager Martoma Charged in Record Insider Scheme
Bob Van Voris and Patricia Hurtado – Bloomberg
A former portfolio manager for Steven A. Cohen’s SAC Capital Advisors LP was charged with what U.S. prosecutors called a record-setting insider-trading scheme that netted as much as $276 million for the hedge fund.
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Insider Inquiry Inching Closer to a Billionaire
PETER LATTMAN – NYTimes.com
Over the last half-decade, as federal authorities secured dozens of insider trading convictions against hedge fund traders, they have tried doggedly to build a case against one of Wall Street’s most influential players: the billionaire stock picker Steven A. Cohen.
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US banks warn on money transfer rule
Tracy Alloway in New York and Shahien Nasiripour in Washington – FT.com
Banks are urging regulators and politicians to rethink new US rules governing international money transfers just months before they are due to come into effect. The rules could lead to big changes for the way remittances are sent from the US. Money transferred from the US to other countries totalled $51bn in 2010 – far outpacing the amount of remittances sent by any other country.
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Ex-Trader Sentenced In Loss at UBS
New York Times
Kweku M. Adoboli, a former UBS trader, was given a seven-year jail sentence after he was found guilty on two charges of fraud for actions that prompted a multibillion-dollar trading loss at the Swiss bank, though he was found not guilty on four counts of false accounting.
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Adoboli’s Fate Decided at Wine Bar as UBS Market Bets Unravelled
Bloomberg
On a cool late summer evening last year in London’s financial district, with the euro-zone crisis worsening and Greece tottering on the edge of default, Kweku Adoboli says he asked the three traders who worked with him at UBS AG’s exchange-traded funds desk to join him for a drink.
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Those ‘technical’ issues that broke up last night’s Eurogroup meeting
Kate Mackenzie | FT Alphaville
About that meeting of eurozone finance ministers, ECB and IMF officials that collapsed in the early hours of this morning (at least, until Monday) for ‘further technical work’… First: looks like our bold call was correct. Um, yay?
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On Greece, Europe should listen to the IMF
Mohamed El-Erian – FT.com
Despite a courageous public stance by the International Monetary Fund, European officials failed again on Tuesday to deal with the critical issue of Greece’s debt sustainability. If this continues, they will undermine yet another bailout package for Greece and suffer further erosion in credibility, especially in the eyes of their own citizens. They also risk seeing another hard-fought cash infusion do little more than buy a few months for a struggling Greek population.
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Chart of the Day: how fund managers voted on pay
Mark Cobley – Financial News
The results are in. This is how 20 of the UK’s biggest fund managers voted on executive pay during early 2012′s “shareholder spring”. It’s no surprise to see firms like the Co-op racking up the ‘no’ votes here, but other serial rebels, such as State Street Global Advisers, have kept a lower profile until now.
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Regulatory
CFTC’s Division of Swap Dealer and Intermediary Oversight Issues No-Action Letter on the Pay-to-Play Rules for Swap Dealers Conducting Business with Certain Governmental Special Entities
The Commodity Futures Trading Commission’s (CFTC) Division of Swap Dealer and Intermediary Oversight (DSIO) today issued a no-action letter addressing the pay-to-play rules applicable to swap dealers who conduct business with certain governmental special entities.
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CFTC Seeks Public Comment on Request from Natural Gas Exchange Inc. for an Amendment to its Order of Registration as a Derivatives Clearing Organization
The Commodity Futures Trading Commission (CFTC) is asking for public comment on a petition submitted by the Natural Gas Exchange Inc. (NGX), for an amendment to its order of registration as a derivatives clearing organization. Specifically, NGX is requesting that the Commission’s Order of Registration that restricts NGX’s clearing activities to certain energy and over-the-counter contracts only, be amended to permit it to clear foreign futures.
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Lorraine Echavarria Named Associate Regional Director To Lead Enforcement Program In SEC’s Los Angeles Office
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CFTC Chairman Gary Gensler’s Message For The Agency Financial Report
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Remarks During News Conference Call About Enforcement Actions Against J.P. Morgan And Credit Suisse By Robert Khuzami, Director Of The SEC’s Division of Enforcement, U.S. Securities And Exchange Commission
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ASIC makes key announcements on market structure, dark liquidity and high frequency trading
ASIC has made new market integrity rules to address risks emerging from developments in market structure, including growth in automated trading and the changing nature of dark liquidity. ASIC Chairman Greg Medcraft said the rules represent an appropriate policy and regulatory balance.
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ESMA Publishes An Opinion On The Interpretation Of Article 50(2)(a) Of The UCITS Directive
To view this document, please
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The US Is Guilty Of Behaving Like A Bully On FATCA And The UK Government Should Have The Courage To Say So, Says CISI
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Exchanges & Trading Facilities
BATS CHI-X Europe Unveils 2013 Trading Tariffs – Sets Lowest Liquidity Removal Rate In Europe On BXE Lit Order Book
jlne.ws/UIDNjQ
Warsaw Stock Exchange Decides To Make UTP Available On 15 April 2013
The Warsaw Stock Exchange has set 15 April 2013 as the first day of operation of the new trading system UTP. The WSE’s decision was based on the dialogue and consultations with all participants of the complex process which will result in the transition of the Polish capital market to the new technology.
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Montréal Exchange to Host 13th Annual CADC Conference
Montréal Exchange Inc., a wholly-owned subsidiary of TMX Group Limited and Canada’s national derivatives exchange, will host Canada’s Annual Derivatives Conference (CADC), in Québec City from November 28-30, 2012. Now in its 13th year, CADC focuses on topics and issues that are most relevant for the users of Canadian derivatives.
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Frankfurt Stock Exchange: IPO By China BPIC Surveying Instruments AG In Entry Standard
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CBOE/CFE/One Chicago Move to Equinix NY4
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[CBOE] Thanksgiving Holiday Schedule & Expiring Exercise Declaration (EED) Submissions for Friday, November 23, 2012
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Hedge Funds & Managed Futures
Billionaire Hedge Fund Manager Steven Cohen’s Insider Trading Problem
Forbes
In July 2008 Matthew Martoma spoke to the owner of the affiliated hedge funds where he worked and recommended that they should dump securities of Elan and Wyeth before the latest drug trial results of an Alzheimer?s drug the companies were developing were announced. The very next day Martoma and the hedge funds’ owner told a trader at the hedge fund to start selling its entire position in Elan.
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Smouha to grow family firm in London
Sarah Krouse – Financial News
Geneva boutique advisory firm Atlanticomnium, which manages seven fixed income funds for GAM, is expanding its operations into the UK led by chief executive Jeremy Smouha whose father founded the firm.
jlne.ws/UIDQfw
Retail bond spurt raises regulation concerns
Farah Khalique – Financial News
The UK retail bond market is coming to life as companies diversify away from bank lending for funding, but critics argue that the Financial Services Authority needs to step up and give individual investors better bondholder rights.
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Brevan Howard on Hiring Spree Makes Comeback in New York
Bloomberg
Brevan Howard Asset Management LLP, Europe’s second-biggest hedge fund, is rebuilding in the U.S. after largely pulling out during the 2008 financial crisis.
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Catastrophe Bonds Unshaken By Superstorm Sandy
By Katy Burne – Dow Jones
Even Superstorm Sandy hasn’t stopped a banner year for catastrophe bonds. Early loss estimates from Sandy have ranged as high as $25 billion, according to disaster-modelling firm Risk Management Solutions, threatening to dim the outlook for “cat” bonds. These bonds allow insurers to transfer the risk of potential losses from a predetermined list of natural disasters to investors in exchange for regular payments.
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MBIA Recommends Note Holders Reject BofA’s Offer
WSJ.com
MBIA Inc. (MBI) recommended holders of its 5.70% senior notes due 2034 reject Bank of America Corp.’s (BAC) hostile offer to purchase all of the notes. Last week, Bank of America said it was offering to buy certain MBIA bonds, the latest twist in a long-running legal battle between the nation’s second-largest bank and a bond insurer that issued the company billions of dollars in policies backing subprime bonds.
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Deal Professor: In Goldman Sachs’s Retreat From I.P.O., a Signal to Investors
New York Times
Goldman withdrew as the lead underwriter for the initial public offering of the Russian cellphone operator MegaFon, but the multibillion-dollar offering is hurtling forward nonetheless, highlighting a flawed system.
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Speech By Federal Reserve Chairman Bernanke On The Economic Recovery And Economic Policy
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Banks & Brokers
Adoboli Trading Losses Hastened UBS Investment-Banking Retreat
Bloomberg
Fourteen months after the largest loss from unauthorized trading in British history, UBS AG is accelerating a retreat from risk taking. The actions of Kweku Adoboli, the 32-year-old former trader found guilty of fraud in a London court today, hastened a strategic review that culminated in a decision to eliminate 10,000 jobs and dismantle portions of an investment bank
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Credit Suisse Shakes Up Management in Restructuring
MARK SCOTT – NYTimes.com
Credit Suisse shook up its management team on Tuesday, appointing a co-head of investment banking and merging its asset management division into its wealth management and private banking unit.
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Deutsche Bank’s Jain Sees ‘Significant’ Banking Consolidation
Bloomberg
Deutsche Bank co-chairman Anshu Jain said he expects “significant consolidation” in the banking industry amid new regulations. He spoke today at a conference in Dubai.
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Deutsche Bank to Cut Jobs at Sal. Oppenheim Wealth Manager Unit
Bloomberg
Deutsche Bank AG , Germany ’s largest bank, is in talks with employee representatives on reducing headcount at its Sal. Oppenheim unit as the wealth manager will use more services offered by its parent.
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OANDA Named ‘Best Forex Broker’ at Forex Magnates Summit, 2012
OANDA, a provider of innovative foreign exchange trading services, has been honored at the Forex Magnates Summit with the Forex Magnates Award for ‘Best Forex Broker’. The award recognizes OANDA’s industry-leading forex trading platform and comprehensive trade decision support tools designed to help investors make informed trading decisions. OANDA was shortlisted for the award alongside 14 other forex brokers, including FXCM, Saxo Bank, Alpari, CitiFX, and IG Group.
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State Street Chief Financial Officer to Retire in 2013
Business Wire
BOSTON—-State Street Corporation announced today that Executive Vice President and Chief Financial Officer, Edward J. Resch, 60, has informed the company of his plan to retire in 2013, after more than a decade in the role, following the appointment of his successor and an orderly transition of the function.
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Shadow Banking: Balance Benefits And Risks, Say MEPs
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Clearing & Settlement
LCH.Clearnet named ‘Best FX Clearing house’ by FX Week
LCH.Clearnet Ltd (LCH.Clearnet) today announced it has been awarded FX Week’s ‘Best FX Clearing house’ in recognition of the success of ForexClear, its market-leading clearing service for Foreign Exchange.
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DTCC And STA Agree On Protocol For Presentment Of Physical Securities
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Indexes & Products
Deutsche Bank to Offer Physical-Replication ETFs
Alexis Xydias – Bloomberg
Deutsche Bank AG (DBK) will follow Societe Generale SA (GLE) in offering exchange-traded funds backed by bonds and shares amid concern over the use of derivatives to track the performance of underlying indexes.
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BME – The Spanish Stock Exchange – Trades 1 New ETF Issued By Lyxor
The Spanish Stock Exchange will today admit to trading, at the market close, one new exchange-traded fund (ETF) issued by LYXOR,
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S&P Dow Jones Indicies, TMX Group Launch Preffered Share Laddered and Equal Weight Sector Indices
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New SPDR ETF launched on Xetra
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Tokyo Stock Exchange To Begin Calculating Pound Hedged Index
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Technology
SL Private Equity Fund Administration Services Selects SunGard’s Investran for all Private Equity Third Party Fund Administration Services
Third-party-administrator SL Private Equity Fund Administration Services has selected SunGard’s Investran to help offer a higher level of administration and reporting for its global network of clients.
jlne.ws/UIDR38
VTLWaveNet Selected As An Accredited Connectivity Partner By London Stock Exchange Group
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Software ‘glitches’ are not acceptable. Learn from aviation
Network World
The term “glitch” is often used to describe an error in software, but the word itself undermines the severity of such errors, according to open source software company Adacore.
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Enforcement
Martoma Fund Used Dark Pool to Keep Inside Trade Quiet, SEC Says
Bloomberg
When Mathew Martoma needed to get rid of more than 10 million Elan Corp. shares in July 2008 without drawing attention, his trader turned to dark pools, the government says.
jlne.ws/UIDR3g
SEC Sanctions Two Investment Advisers for Impeding Examinations
The Securities and Exchange Commission today sanctioned two investment advisory firms for impeding examinations conducted by SEC staff.
jlne.ws/UIDPbE
SEC Charges Hedge Fund Firm CR Intrinsic and Two Others in $276 Million Insider Trading Scheme Involving Alzheimer’s Drug
The Securities and Exchange Commission today charged Stamford, Conn.-based hedge fund advisory firm CR Intrinsic Investors LLC and its former portfolio manager along with a medical consultant for an expert network firm for their roles in a $276 million insider trading scheme involving a clinical trial for an Alzheimer’s drug being jointly developed by two pharmaceutical companies.
jlne.ws/UIDR3h
CFTC Orders Eagle Market Makers Inc. to Pay over $223,000 in Penalties and Disgorgement to Settle Charges of Violating Corn Futures Speculative Position Limits and Failing to Supervise Traders
The U.S. Commodity Futures Trading Commission (CFTC) today announced that Eagle Market Makers Inc. (Eagle) of Chicago, Illinois, agreed to pay a $220,000 civil monetary penalty and $3,475 in disgorgement to settle CFTC charges that it exceeded spot-month position limits in corn futures and failed to diligently supervise its traders. Eagle is currently registered with the CFTC as a Futures Commission Merchant, a Commodity Pool Operator, and a Commodity Trading Advisor, according to the order.
jlne.ws/UIDRjy
NY AG Strikes Again, Sues Credit Suisse On Mortgage Securities Fraud
Forbes
Just weeks after suing JPMorgan Chase, New York Attorney General Eric Schneiderman strikes again with a mortgage securities suit against Credit Suisse.
jlne.ws/UIDRjH
New York Attorney General Schneiderman Sues Credit Suisse For Fraudulent Residential Mortgage-Backed Securities
Lawsuit Charges Credit Suisse Misrepresented Loan Quality Review Process, Deceived Investors & Contributed To Mortgage Crisis – Continued Legal Action by State-Federal Residential Mortgage-Backed Securities Working Group – Schneiderman: Credit Suisse RMBS Trusts Incurred Billions In Losses And Will Be Held Accountable
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[ASIC] Enforceable undertaking from financial adviser
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Environmental & Energy
EEX launches CER Spot Market and expands Carbix Index
The European Energy Exchange (EEX) will expand its product range on the CO2 secondary market with spot contracts on Grey Certified Emission Reductions (Grey CER) and Green Certified Emission Reductions (Green CER).
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Asia-Pacific
HKEx And Shaanxi Financial Affairs Office Sign MOU
Hong Kong Exchanges and Clearing Limited (HKEx) and the Shaanxi Province Financial Affairs Office signed a Memorandum of Understanding (MOU) today (Wednesday) on cooperation and exchange of information.
jlne.ws/UIDRA8
RMB controls stifling iron ore swap market participation in China
Alex Davis – Risk.net
The renminbi’s lack of convertibility and concerns that steel contracts are not physically settled are limiting Chinese steel mill participation in the iron ore swaps market, according to a China industry participant.
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Muddy Waters Turns Its Focus On Singapore
NEIL GOUGH – NYTimes.com
Carson C. Block made a name for himself and his company, Muddy Waters Research, by betting big against the shares of Chinese companies that were listed in North America. Now the short seller is setting his sights on Singapore.
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Frontier Markets
India’s uphill battle against “black money” in real estate
Reuters via Yahoo! News
MUMBAI – Ulwe, a village of dusty, uneven streets on the outskirts of Mumbai, lacks basic amenities like water supply and electricity, but a two-bedroom, 1,000 sq ft house costs about 5 million rupees, beyond the reach of many middle-class Indians.
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Burgan Bank of Kuwait to Sell Bonds This Year Amid Expansion
Bloomberg
Burgan Bank SAK , the third-biggest Kuwaiti lender by assets, plans to raise 100 million dinars from a bond sale this year to boost capital as it expands, the chief executive officer said.
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Citi Extends Securities Lending Services to Malaysian Investors
Business Wire via Yahoo! Finance
Citi today announced that it now offers securities lending services in Malaysia through its OpenLendSM platform. This follows a successful market launch in India earlier last month, reinforcing Citi’s strength in Asia and dominance in the emerging markets space.
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Business Leaders Gather At DIFC Forum To Discuss Emerging Economies Of The Region – Event Brings Together Thought Leaders From Across The World To Discuss The Ever Increasing Levels Of Trade Between Emerging Markets In MENASA Region
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IOSCO Emerging Markets Prepare For Bigger Role In The Global Economy
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