Industry news

August 6, 2013: Upstart US exchange eyes European foray; CFTC Holds Up GFI Group’s Application to Become Futures Exchange; Bafin Reviews German Banks’ Role in ISDAfix Rigging Allegations

Eris Exchange looks to Europe as a possible place to introduce its products. Brokerage GFI Group has applied to become an exchange, but the CFTC wants more information before it will agree to that idea. Germany’s financial regulatory agency Bafin is taking a look at whether banks in that country were involved in ISDAfix rate fixing.

First Read

Talking about Asia often leaves professionals from those regions a bit tongue-tied. When JLN decided to do a special report talking about Asia, many of those experts had the same question: “Which country? Asia is a big place.” Indeed, talking about Asia is difficult, given the number of markets and regulatory differences, not to mention geographic distance between various Asian financial centers.

The debate still goes on over which one or two or three are the most important in the region. Some say Japan, while others discuss Hong Kong’s status. Others like the positioning of Singapore. And this doesn’t include Australia, South Korea, Taiwan, mainland China or India. But collectively, the region is a force in the derivatives world. JLN interviewed seven executives on the changes, challenges and opportunities that exist in the region today.

- SPONSORS -

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Robert Barnes Appointed As New CEO Of Turquoise
Turquoise, the pan-European MTF, today announces the appointment of Dr Robert Barnes as its new CEO. Dr Barnes has extensive industry experience and market knowledge having formerly been CEO of UBS MTF and a Managing Director, Equities, at UBS.
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***** A turquoise tie at the press conference would be a nice touch.

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Brazil’s BM&F Bovespa Explores Ways to Attract Liquidity
By Jessica Titlebaum
BM&F Bovespa has good news for US traders interested in the Brazilian agriculture markets. For the first time, traders in the States can make markets in Brazil and settle in New York.

Under Brazilian regulation, CMN Resolution 2687, non-resident firms trading agriculture products can open an account in Brazil with a local broker; provide liquidity, incur zero fees and settle in US dollars.

BM&F is hoping market makers will take advantage of the regulation and increase volumes in its sugar market. The exchange launched a Crystal Sugar futures contract in January 2013, which resembles the Intercontinental Exchange’s (ICE) Raw Sugar #11 contract. The Brazilian offering weighs about 25.4 metric tons, about half the size of the 50 long ton contract traded at ICE, enabling traders to take advantage of arbitrage opportunities.
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***** No, Jessica Titlebaum is not back with JLN, but she had the urge to write a story for us. She is still at Orc.

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IntercontinentalExchange and Leading Credit Market Participants Establish ICE Swap Trade
IntercontinentalExchange, a leading operator of global markets and clearing houses, announced that several leading market participants will support the development of markets on ICE Swap Trade, ICE’s credit default swap (CDS) execution facility that is expected to be introduced in the third quarter of 2013.
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NYSE lands Libor amid regulatory turf war
Joti Mangat – Euromoney
NYSE Euronext is to become the new administrator of the capital markets’ most important interest rate benchmark, the London Interbank Offered Rate (Libor), in early 2014. In July the operator of the New York Stock Exchange won a competitive tender run by a new regulatory agency formed by the UK government to restore confidence in Libor following revelations that dealers were rigging the British Bankers’ Association-managed rate to bolster credit confidence during the crisis.
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***** I would rename LIBOR as No-LIE-BOR.

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Hedge Fund Association Appoints Industry Leaders Juan Garrido and Les Baquiran Co-Directors of LatAm Chapter
The Hedge Fund Association announced today new regional leadership appointments that demonstrate the HFA’s enduring commitment to growth and diversity. Victor Hugo Rodriguez, the first director of the HFA’s LatAm Chapter, is passing the reins to prominent hedge fund industry pioneers Juan Garrido and Les Baquiran.
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Inside Business: Regulation pushes banks on to a riskier path
Daniel Schäfer – FT.com
Can regulation make banks less safe? What has happened in the past week certainly seems to suggest so. Three large European banks – Barclays, Deutsche Bank and Société Générale – moved to partly dismantle one of their main bulwarks against another liquidity crisis: their massive cash reserves.
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Govt puts NSEL in a spot
Business Standard
Stung by the potential payment crisis on National Spot Exchange Ltd (NSEL), the government on Monday hardened its stand and asked the exchange to discontinue trading in e-series contracts. In effect, this means NSEL’s operations will come to a halt from Tuesday, as the exchange had on July 31 suspended trade in all other contracts, following a direction from the consumer affairs ministry not to launch new contracts because of violation of rules.
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***** Ugly and uglier. See Lead Stories, below, for deeper coverage.

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“Cowboy Company”- Speech Of CFTC Commissioner Bart Chilton To The Amcot 2013 Business Conference, Lake Tahoe, California – Hey Yeah, Hold Your Horses!
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***** I want some of whatever Chilton is on. Holy Cowboy Cliches!!!

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MarketsWiki

MarketsWiki Page of the Day
Borsa Istanbul
jlne.ws/1b74IAL

MarketsWiki Recent Updates

People

Edward T. Tilly; William J. Brodsky; Boris Ilyevsky; Elisabeth Samuels; Tim Gits

Companies, Organizations and Groups

Borsa Istanbul; CBOE Holdings Inc.; CQG

Statistics

42,476,140 pages viewed, 7,608 articles, 162,789 edits
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Lead Stories

Upstart US exchange eyes European foray
Tim Cave – Financial News
Eris Exchange, a start-up US derivatives platform backed by large trading firms, has held discussions with a number of European exchanges and clearing houses about launching its products in the region.
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CFTC Holds Up GFI Group’s Application to Become Futures Exchange
Katy Burne and Jacob Bunge – WSJ.com
The Commodity Futures Trading Commission has delayed GFI Group Inc.’s (GFIG) bid to register as a futures exchange, citing the broker’s “materially incomplete” application. GFI, a New York-based broker of financial trades between banks, applied to the CFTC earlier this year to open a proprietary U.S. futures exchange. But the CFTC’s division of market oversight notified GFI on July 26 that the application had been stayed and requested that the firm provide more information to show how the proposed platform will comply with U.S. market rules.
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Bafin Reviews German Banks’ Role in ISDAfix Rigging Allegations
Karin Matussek – Bloomberg
German financial regulator Bafin is reviewing allegations the country’s banks may have participated in manipulating a benchmark for interest-rate derivatives. Bafin is in contact with the German lenders taking part in the ISDAfix benchmark, Ben Fischer, a spokesman for the regulator, said in an interview today.
(via email)

Integral Files SEF Application With CFTC
Integral Development Corp. (www.integral.com), a leading provider of FX trading solutions and services, announced today that it has filed an application with the Commodity Futures and Trading Commission (CFTC) to launch a Swap Execution Facility (SEF) under the CFTC’s recently announced SEF rules issued pursuant to the Dodd-Frank Act. INFX SEF is a wholly-owned subsidiary of Integral Development Corp.
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Morgan Stanley Sees the End of LME Warehouse Trades
Tatyana Shumsky – MoneyBeat – WSJ
Two things have allowed massive amounts of metal to build up in London Metal Exchange-licensed warehouses: low interest rates and the exchange’s warehouse rules. Both factors are on their way out, Morgan Stanley said in an analyst note Monday, so “the long-awaited demise of inventory financing deals in a number of LME-traded metals appears to have arrived.”
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Raghuram Rajan to head up India central bank
Amy Kazmin in New Delhi – FT.com
India has appointed Raghuram Rajan, a former chief economist for the International Monetary Fund, as its new central bank governor, making the announcement on Tuesday as its currency, the rupee, tumbled to an all-time low.
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The Gray Line of ‘Confidential’ Information
PETER J. HENNING – NYTimes.com
The insider trading case against SAC Capital Advisors seems to be all about the trading “edge,” a term the firm’s owner, Steven A. Cohen, once said he hated. The charges filed last week against Sandeep Aggarwal for tipping off a SAC portfolio manager to give that edge raise the question of when information is sufficiently confidential that its use constitutes insider trading.
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The ‘typo’ that unnerved Financial Technologies investors
Business Standard
On June 30, Financial Technologies (FT) published a 25 page quarterly results presentation giving detailed insight into the performance of the company during the first quarter of FY14. This presentation showed that National Spot Exchange (NSEL) was an associate company of FT. An associate company is typically one in which the other company owns a significant stake but not more than 50%.
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India’s Financial Tech shares fall; unit halts electronics trading
Reuters
Shares of Financial Technologies lost as much as a quarter of its value on Tuesday after its commodity exchange unit National Spot Exchange Ltd (NSEL) halted its electronics trading services.
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Investors can take delivery or wait
Business Standard
The ban of the e-series contract on the National Spot Exchange could put retail investors, who were betting on commodities, in trouble. The e-series contract was targeted towards small investors who could buy small quantities even up to one or two grams of their preferred commodity.
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No financial commitment or exposure with NSEL: MCX
Business Standard
Staying away from the ongoing “payment crisis” faced by one of the group companies – the National Spot Exchange Ltd (NSEL) – the Multi Commodity Exchange (MCX) has clarified that the futures exchange has no financial commitment or exposure with the spot one.
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The men who saw it coming
Business Standard
K M Abraham saw it coming. The wholetime member of Securities and Exchange Board of India (Sebi) asked some pertinent questions in his order against the MCX Stock Exchange in September 2010. In his order he dealt with the “fit and proper” criteria of the exchange promoted by Financial Technologies (FT) and Multi Commodity Exchange (MCX) and their founder Jignesh Shah.
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Memo from banks to shareholders: mind your own business
William Wright – Financial News
If transparency is the currency of trust, then investment banks are badly in the red. One of the most remarkable aspects of the latest round of quarterly reporting by the investment banks is the woeful lack of transparency and highly variable disclosure across the industry.
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Australia and the curious case of the highly politicised interest rates
Kate Mackenzie | FT Alphaville
Politics has definitely been an element in the discussions around who will replace Ben Bernanke at the Fed. That’s probably putting it mildly. But we suspect even the US doesn’t have quite the partisan obsession Australia boasts.
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Regulatory

Basel’s New Guidance on Derivatives’ Counterparties Fixes Shortcomings
Mayra Rodriguez Valladares – TabbFORUM
Banks globally have significantly been underestimating important credit risk drivers about their derivatives counterparties. But not measuring counterparty risk in derivatives portfolios can quickly become a problem for all banks and the global economy.
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TABB Examines Voice RFQ SEFs in the CFTC’s Swaps Market Transformation
Even as the Commodities Futures Trading Commission’s (CFTC) Swap Execution Facility (SEF) rules go into effect October 2, 2013, execution models are emerging that will help the buy side preserve their existing workflow for swaps trading.
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Alphabet Soup under CFTC Scrutiny: CFTC Review of CME handling of EFRPs (EFPs, EFRs, and EOOs) Suggests Tougher Times for Traders and FCMs; Time to be Pro-active!
Gary DeWaal and Associates LLC
On August 2, 2013, the US Commodity Futures Trading Commission released a Rule Enforcement Review of the Chicago Mercantile Exchange for the period November 1, 2010 through October 31, 2011. In general the CFTC reviewed the Exchange’s compliance with core principles related to market surveillance and generally found that the CME’s routine market surveillance was adequate.
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CFTC’s Chilton won’t back current Volcker Rule
CNBC
CNBC learned Monday Bart Chilton, the CFTC’s commissioner, has sent a letter to Fed Chairman Ben Bernanke urging the Fed to firmly draft the final Volcker Rule in a way that ensures banks can no longer speculate in commodity markets.
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How the FCA can be more transparent
Financial Conduct Authority
We are continuing our debate into how the FCA and the financial services industry can be more transparent. This document provides feedback on the responses we have received and how we will proceed with the ideas.
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ESMA – Updated EMIR Q&A
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Statement By SEC Commissioner Paredes upon Departure from the Commission
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Exchanges & Trading Facilities

IntercontinentalExchange Reports 2Q13 Adjusted Diluted EPS of $2.19, +12% yty; Record Adjusted Net Income Attributable to ICE of $161MM
IntercontinentalExchange, a leading operator of global markets and clearing houses, today reported record financial results for the second quarter of 2013. Consolidated revenues were a record $372 million, an increase of 6% from the second quarter of 2012. Consolidated net income attributable to ICE was $153 million, up 7% from the second quarter of 2012, and diluted earnings per share (EPS) increased 7% over the second quarter to $2.09 on a GAAP basis.
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[Australia] New rules to monitor dark pool transparency
InvestorDaily
Dark pools and high frequency trading will be subject to new market rules, as the government looks to improve transparency. The minister assisting for financial services and superannuation, David Bradbury, has announced a series of market integrity rules, which he said will help to improve transparency in the sector.
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Tokyo Commodity Exchange July 2013 Volume Averaged 100,524 Contracts Per Day, Down 7%
The Tokyo Commodity Exchange (TOCOM) announced today that July 2013 trading volume averaged 100,524 contracts per day, down 7% from June 2013. Average daily volume fell in its most active commodities such as Gold, down 12.8% to 47,716 contracts; Platinum, down 24.4% to 15,100 contracts; and Crude Oil, which was down 22.8% to 3,507 contracts.
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NASDAQ OMX July 2013 Volumes
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Warsaw Stock Exchange Introduces New Multiplier For WIG20 Futures
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Irish Stock Exchange Statistics July 2013
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Athens Exchange Monthly Statistical Bulletin June 2013
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Moscow Exchange Indices Weekly Review: July 29 – August 1, 2013
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Hedge Funds & Managed Futures

Ackman goes to SEC in latest chapter of Herbalife saga
CNBC
Bill Ackman is taking his campaign against Herbalife to a new level, with sources telling CNBC that the hedge fund manager has filed a complaint with regulators against George Soros, who last week made a big investment in the nutritional supplement maker.
jlne.ws/13COca6

Blackstone-Backed Senrigan’s Fund Gets First Inflow Since March
Bloomberg
Senrigan Capital Group Ltd., the Asia-focused, event-driven hedge fund backed by Blackstone Group LP , has received more than $13 million of additional capital from an existing investor, the first inflow since March.
jlne.ws/13COf5v

Lafarge in-house pension team loses FCA status
Joe McGrath and Mark Cobley – Financial News
The in-house team that had been responsible for running 63% of the assets in Lafarge’s £2.6 billion UK pension plan is longer authorised by the Financial Conduct Authority, it has emerged.
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Cantab employs former Lansdowne COO
Margie Lindsay – Risk.net
Multi-billion systematic global macro manager Cantab Capital Partners has hired Adam Glinsman for the newly created position of managing partner. Glinsman will join at the start of September. He brings 25 years of experience across the investment and capital markets industries.
jlne.ws/13COduy

Hatteras Funds Appoints President of Distribution and Managing Director of Strategic Relationships
Business Wire via Yahoo! Finance
Hatteras Funds , a boutique alternative investment specialist providing unique alternative investment solutions for financial advisors and their clients, has announced that Michael J. Hutten has been named President of Distribution.
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Gold dips below $1,300 as revival fades
Jack Farchy – FT.com
Gold prices have dipped below $1,300 on Monday as July’s rebound fades amid a lack of investor enthusiasm for the precious metal. While demand from China, on track to become the world’s top gold consumer this year, has surged as prices fell, much of the rest of the world’s gold buyers have been subdued.
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FOCUS: Speculators’ Trim Bullish Exposure To Gold — CFTC
Forbes
Large speculators returned to sell gold futures and options on the Comex division of the New York Mercantile Exchange, following two straight weeks where they added bullish positions, according to U.S. government data.
jlne.ws/13COf5z

Banks & Brokers

Top rates trader exits BAML in London
Richard Partington – Financial News
One of the most senior London-based traders at Bank of America Merrill Lynch, who was once global co-head of rates at UBS, has left the bank.
jlne.ws/13COf5C

Brazil’s BTG hires metals warehousing exec in commodities push
Reuters
Brazil’s Grupo BTG Pactual SA has hired Shon Loth, a metals warehousing expert, an official said on Monday, as Latin America’s largest independent investment bank continues to build its physical commodity trading business.
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Citi infrastructure partners depart
Alec Macfarlane – Financial News
A team of partners from Citigroup’s infrastructure unit has left the bank following the expiration of the investment period for the fund they run, according to three people familiar with the situation.
jlne.ws/13COduB

Search for Bank of Israel chairman intensifies
John Reed in Jerusalem – FT.com
Central bank appointments rarely arouse much tabloid passion but the search for a Bank of Israel chairman has brought that and much more, including poison-pen letters and accusations of sexism, professional misconduct and petty crime.
jlne.ws/13COf5H

Crédit Agricole posts results by accident
Hugh Carnegy in Paris and Tom Braithwaite in New York – FT.com
Crédit Agricole reported better than expected quarterly results as it continued to recover from the effects of the eurozone crisis – but was left red-faced after accidentally publishing the figures early on its website.
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E*TRADE Hits New 52-Week High
Zacks
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Clearing & Settlement

Omgeo Named Best Exceptions And Reconciliation Management Provider In 2013 Waters Rankings
Waters’ Readers Voted Omgeo Leading Vendor In The Category For Fourth Consecutive Year
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Indexes & Products

Cash Is King…but Not for ETF Shareholders
BRENDAN CONWAY – Barrons.com
Know what you own: It’s one of those cardinal rules of investing. It usually serves to remind people to understand the businesses behind the stocks they buy, or to assess the kinds of investments their funds hold. But investors in bond exchange-traded funds recently learned that it’s not the underlying securities that can cause a problem — it’s the fund itself.
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New Managed Futures ETF Takes Hedge-Fund Approach
ETF Trends via Yahoo! Finance
A new ETF from First Trust Advisors uses a strategy popular with hedge funds in an effort to provide investors with a positive return in any market while diversifying a portfolio of stocks and bonds.
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Technology

Open Platform: ‘As-a-Service’ Should Come ‘As Standard’ for Market Data
Frank Piasecki – WatersTechnology
All financial services industry survivors share the goal of getting more out of IT with less initial and ongoing investment. And nowhere is the pressure to lower costs higher profile than in the market data space. For many firms, market data expenses are second only to personnel costs. In today’s environment, firms are struggling to justify that proportion of investment in delivering data, and are now considering heretofore unimaginable strategies to rein in legacy system dependency built up over several market cycles.
jlne.ws/13COduH

Asset Control Acquired By Marlin Equity Partners – Acquisition Will Invigorate Strategic Development And Provide Platform For Growth
Data management software vendor, Asset Control, has been acquired by Marlin Equity Partners (“Marlin”). The deal will enable Asset Control to invest in its products and strategic initiatives, while maintaining best practices in implementation and support for its global client base.
jlne.ws/13COfm9

Enforcement

FINRA Fines Oppenheimer & Co., Inc. $1.4 Million for Sale of Unregistered Penny Stocks and Anti-Money Laundering Violations
The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Oppenheimer and Co., Inc. $1,425,000 for the sale of unregistered penny stock shares and for failing to have an adequate anti-money laundering (AML) compliance program to detect and report suspicious penny stock transactions.
jlne.ws/13COfmc

Environmental & Energy

EEX Takes A Stand On Capacity Markets In Position Paper
The European Energy Exchange (EEX) has published a position paper discussing the need for, and design of capacity markets in Germany. By publishing such a paper, EEX is making an active contribution to the intense debate which has been underway in Germany for two years.
jlne.ws/13COdKW

German Capacity Power Market Should Be Last Resort, EEX Says
By Julia Mengewein – Bloomberg
The German power market is flexible enough to secure the nation’s power without the introduction of a mechanism that steers the availability of generation capacity, according to the European Energy Exchange AG.
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This gamble on carbon and the climate could trigger a new financial crisis
Kevin Watkins – The Guardian
If you want to see market irrationality in action, look no further than current stock market valuations for the world’s major oil, gas and coal companies. At a time when governments are supposedly preparing for a global climate change deal that will cut carbon emissions, energy multinationals are investing in carbon assets like there’s no tomorrow.
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**JK – I’m not sure the numbers here add up and its a bit overstated.

Asia-Pacific

Double trade reporting burden for international banks in Hong Kong
Garima Chitkara – Risk.net
International banks have hit out at the extra operational requirements caused by the Hong Kong Monetary Authority’s (HKMA) decision to force banks to report over-the-counter derivative transactions locally rather than following Singapore’s lead of using a global trade repository service.
jlne.ws/13COfmg

More casualties in JP Morgan funds review
Joe McGrath – Financial News
JP Morgan Asset Management has confirmed further funds will cease to exist in their current form as it outlines more mergers as part of a strategic review.
jlne.ws/13COfmj

HKEx Kicks Off Series of Events To Mark 20th Anniversary Of H-share Listings
jlne.ws/13COfCz

Thailand Focus 2013 To Highlight Connecting Regional Markets
jlne.ws/13COdL5

Hong Kong’s Securities And Futures Commission: PME Group Convicted Of Making False Or Misleading Announcements
jlne.ws/13COfCD

Frontier Markets

New rules, products lay groundwork for Nigeria Islamic finance sector
Reuters
Nigeria is gradually opening up to Islamic finance, a move that could bring non-interest banking to over 80 million Muslims and develop one of Africa’s fastest-growing consumer and corporate banking sectors.
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Palestine Exchange Investor Monthly Newsletter Issue #40, July 2013
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Miscellaneous

Billionaires’ Latest Trophies Are Newspapers
ANDREW ROSS SORKIN – NYTimes.com
$250 million. That’s all Jeffrey P. Bezos paid on Monday for The Washington Post, which was once worth several billion dollars. $70 million. That’s all John Henry paid on Friday for The Boston Globe, a paper The New York Times had acquired for $1.1 billion in 1993.
jlne.ws/13COfT2

Tight U.S. crop supply squeezes ADM profits | Reuters
Agribusiness company Archer Daniels Midland Co said on Tuesday that quarterly earnings fell as crop supplies tightened in the United States.
jlne.ws/13COfT3