Industry news
Date: Aug 15, 2013
August 15, 2013: Lehman Exits Bats Global Stake Through Sale to Spectrum, TA; Revival of equity listings boosts HKEx profit; Fitch and Fed warn on risks from ETFs
Lehman Brothers sells its stake in BATS Global Markets to a pair of private equity firms. Hong Kong Exchanges records a solid Q2 profit as interest in new listings improves. The ETF market is booming, and both Fitch Ratings and the Federal Reserve express concerns that overactive trading in those markets could cause a larger market crash under the right conditions. In today’s First Read, check out our latest MarketsWiki.tv interview with Richard Bornhoft, president and CIO of Bornhoft Group, who discusses the opportunities and challenges that are still facing the managed futures industry.
First Read
Richard Bornhoft, founder of the Bornhoft Group, discusses what he looks for in CTAs
MarketsWiki.tv
Richard Bornhoft is founder, president and CIO at Bornhoft Group and has specialized in the creation and oversight of CTA-managed futures portfolios for more than 30 years. He sat down with JLN editor-in-chief Jim Kharouf to talk about the managed futures space, the opportunities in the space and the challenges that are still facing the industry.
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Corn, From Ear to Ear
My trip to Columbia, MO to take my son Tim to college at University of Missouri convinced me of one thing. This is the best looking corn crop I have ever seen in my 35 years in the markets. The soybeans I saw were also exceptional, with some such a deep green and so tall that I could not believe it.
While I understand that we had a wet spring and some corn did not get planted or was washed out in some areas, anywhere I saw corn it was tall, plump and reaching to the sky. Corn near the roads, normally where you have some washed out areas, was all gorgeous. After last year’s drought, this crop is surely a beautiful sight for the farmers.
~John J. Lothian
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35 mile charity walk in aid of Futures for Kids
Charlotte Crosswell – Nasdaq OMX NLX
On 13th September, I will be setting off from Billericay, Essex at 6am to “walk 35 miles to work” in the City in aid of Futures for Kids. Fortunately, I’ll only arrive in time for drinks after work and hopefully will be there before last orders…
I know you all get lots of requests for sponsorship and may be already supporting someone in the Walk to Work this year or even walking it yourself, but if not, please do consider supporting this very worthy cause. justgiving.com/Charlotte-Crosswell
Futures For Kids was launched in February 2008 by a group of people in the futures industry in Europe, with the aim of raising funds to support children’s charities around the world. The charity has raised in excess of £1 million since inception and continues to go from strength to strength. FFK is supporting four fantastic charities this year:
Hope HIV hopehiv.org/
Everychild everychild.org.uk/
Demelza, demelza.org.uk/
Variety variety.org.uk/
Please do consider sponsoring Futures for Kids and I will hopefully be in Paternoster Square before dark on the 13th September. Many thanks.
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IntercontinentalExchange Sets Daily Open Interest Record for ICE WTI Crude Futures
IntercontinentalExchange, a leading operator of global markets and clearing houses, today reported a daily record for open interest in ICE West Texas Intermediate (WTI) Light Sweet Crude Oil futures contracts traded on ICE Futures Europe of 650,583 contracts on August 13. The previous daily open interest record was 649,982 on November 8, 2007.
jlne.ws/13ZKMy4
***** I like the smell of record volumes in the morning.
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BATS Attracts 2 Private Equity Investors: What Does it Mean?
Ivy Schmerken – Wall Street & Technology
It’s interesting that two private equity firms, Spectrum Equity and TA Associates, have acquired minority stakes in exchange operator BATS Global Markets, shifting attention away from last week’s outage and potentially bringing a fresh perspective. The entry of new investors tells me that both private equity firms see growth potential in global trading and the exchange business and that they don’t see the last week’s network glitch as a major problem.
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***** What does it tell the writer about the people who sold their shares? Wait. It was Lehman?
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ESMA Answers All Your Questions
George Bollenbacher :: TabbFORUM
In the unfolding implementation of derivatives reform in Europe (which is occurring at the same time as it is in the US, Canada, Asia and pretty much everywhere else), the European Securities and Markets Authority (ESMA) has adopted the welcome approach of issuing a “living Q&A” document where the regulator responds to industry questions over time.
jlne.ws/1cF7CRh
***** A living Q&A, from the regulators with all the answers.
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NSEL investors nearing a dead end as promoter tries to wash hands of fiasco
The Economic Times
The worst fears are coming true. Investors of crisis-hit National Spot Exchange Limited won’t get back their money soon, if at all they can recover any. Jignesh Shah, founder of the group that promoted NSEL, is trying to distance himself from the default that has hurt thousands of investors. And the chaos at the spot exchange is threatening to impact Multi Commodity Exchange, the country’s only listed commodity futures exchange, with member brokers demanding an independent audit of the exchange’s books and a scrutiny of the MCX settlement guarantee fund.
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***** We continue to stay in “told you so” status.
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HKEx CEO says close to picking new LME chief
Reuters
Hong Kong Exchanges and Clearing Ltd is close to picking a new CEO for the London Metal Exchange and will make an announcement in due course, Chief Executive Charles Li said on Thursday.
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****** Word is it will be a person.
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Derivative Clearing Houses Shouldn’t Be Too Big to Fail, Either
Mayra Rodriguez Valladares – American Banker
Since the financial crisis, global regulators have been pushing to have as many over-the-counter derivative products as possible cleared with central counterparties, to improve transparency and minimize operational and credit risks.
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***** If only life were so easy.
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Campbell opens non-trend programs to investors
Kris Devasabai – Risk.net
One of the oldest commodity trading advisers (CTAs) in the US is posting industry-leading returns with a suite of new strategies. Campbell & Company’s Prism portfolio, which was opened to outside investors on April 1, is up around 20% year-to-date, Hedge Funds Review has learned.
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****** One of the great names of the CTA world.
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Battling the bottleneck: an analysis of the new Eurex platform
Automated Trader
Eurex introduced a new trading platform that represents a radical departure from its previous platform based on OpenVMS (Eurex Version 14.0, the final release on this technology stack). It was originally named “New Trading Architecture” (one had to wonder what the next “new” version would have been called), but Eurex sensibly renamed it T7.
jlne.ws/1cF7AZH
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Japanese Banks Focused on Operationally Readiness for OTC Client Clearing
Press Release
Calypso Technology, Inc., the leading integrated capital markets software provider, has announced the results of a survey on OTC clearing conducted at its recent Japanese Market Forum 2013 in Tokyo. The survey revealed that 80% of respondents are working on achieving operational readiness for OTC clearing in Japan. 20% are already operationally ready, even though it is not mandated.
jlne.ws/13AClG0
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MarketsWiki.tv
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.
MarketsWiki
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Lead Stories
Lehman Exits Bats Global Stake Through Sale to Spectrum, TA
Sam Mamudi – Floomberg
Bats Global Markets Inc. gained two new owners after Lehman Brothers Holdings Inc.’s estate exited its investment in the operator of U.S. and European exchanges. Private-equity firms Spectrum Equity Investors LP and TA Associates Management LP bought all of Lehman’s stake, according to a statement from Bats and the investors. Lehman had been the second-largest Bats owner. Financial terms weren’t disclosed.
jlne.ws/1cF7CRr
Revival of equity listings boosts HKEx profit
Josh Noble in Hong Kong – FT.com
Increased trading and a revival in the market for new equity listings helped Hong Kong’s stock market operator record a 10 per cent rise in second-quarter profits. Hong Kong Exchanges and Clearing, the world’s second-largest exchanges operator by market value, on Thursday reported profits attributable to shareholders of HK$1.2bn (US$150m) in the three months that ended June 30.
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Fitch and Fed warn on risks from ETFs
Tracy Alloway and Arash Massoudi in New York – FT.com
Parts of the booming market for exchange traded funds risk worsening broader market sell-offs or triggering crashes, according to two studies released this week. The reports, from the Federal Reserve and Fitch Ratings, come weeks after a sharp sell-off in fixed income sparked scrutiny of certain ETFs and the structure of the industry, which has grown to a market worth more than $2tn.
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Will clear dues in 30 weeks, says NSEL; brokers not convinced
Business Standard
National Spot Exchange Ltd (NSEL), which has been at the centre of a major payment crisis, has decided to settle the entire dues of Rs 5,574.31 crore in 30 weeks beginning August 20. From August 16, the pay-ins will happen every Friday, while pay-outs will take place every Tuesday. The detailed settlement plan, however, failed to convince brokers, who had gone on the warpath against the management and promoters of the exchange on Wednesday.
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Broker raises money via IPO to invest in NSEL products
Business Standard
Just before the National Spot Exchange Limited (NSEL) crisis escalated, a broker, GCM Commodity and Derivatives, raised funds from the equities market to invest in the products of the now beleaguered bourse. Terming NSEL’s product offerings as “unique low risk high return investment opportunity in the commodity market for Indian resident investors”, GCM Commodity raised money from more than 350 investors through its initial public offering (IPO) earlier this month.
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‘NSEL brokers have no legal, monetary liability’
Business Standard
Sharad Saraf, convenor of the National Spot Exchange Ltd (NSEL) Investors’ Forum, who has invested through NSEL, is clear about who is responsible for the payment crisis. “We entered into a contract which was facilitated by the broker but whose counter-party was the exchange. The liability is that of the exchange, not of the broker,” he says.
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Members of MCX want promoters to pay them by pledging personal shareholdings
The Economic Times
Top executives of the Jignesh Shah-promoted Multi Commodity Exchange (MCX) met members of the exchange in Delhi to reassure them about its future prospects in the wake of the trouble facing the National Spot Exchange, but the gathering turned stormy as many members were worried about the security of their money in the exchange.
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NSEL crisis: What is Sebi doing with its new powers?
Business Standard
The $1-billion National Spot Exchange Ltd (NSEL) scandal can be approached in two ways. First, it was an exchange and was allowing clients to sell commodities they did not own or short-sell, which is illegal. Second, it was a financing scheme, which allowed a small group of people to pool money from a large number of investors, assuring them returns. These two views need not be mutually exclusive and in this case, they certainly are not.
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How Do You Hide a London Whale?
David Benoit – MoneyBeat – WSJ
Hiding a London whale was one stressful task. And it even came with a spreadsheet. The criminal complaints filed Wednesday against two former J.P. Morgan employees near the center of the bank’s $6 billion loss lay out in detail how the unit allegedly “marked” their daily positions in what was known as the synthetic-credit portfolio. That portfolio was traded by Bruno Iksil who was dubbed the London Whale.
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Swiss open door to helping tax crackdowns spurred by stolen data
Reuters via Yahoo! News
ZURICH – Switzerland may cooperate with tax crackdowns by other countries even if requests for help are based on leaked Swiss bank data from paid informants, the government said on Wednesday. However, it said such cooperation would only be provided to governments that had not bought stolen files directly nor ordered their theft.
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New Zealand May Clip Central Banker’s Wings
Wall Street Journal Blogs
There’s one central banker who sets interest rates without interference from any stinkin’ committee: the governor of the Reserve Bank of New Zealand. But for how much longer?
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Regulatory
Regulators move ahead on reform as banks howl
The Tennessean
With American banks kicking and screaming about new requirements, U.S. regulators seem increasingly determined that if there is to be another banking crisis, it will be somewhere else.
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ESMA Closed For EU Public Holidays On 15 And 16 August
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New Zealand’s Financial Markets Authority: Presentation By Sean Hughes To The Workplace Savings Conference 2013
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Exchanges & Trading Facilities
Aequitas Begins Journey To Transform Canadian Capital Markets Through Proposed Market Structure Solutions
Aequitas Innovations Inc. (“Aequitas”) is pleased to be commencing its next implementation stage with the Ontario Securities Commission (“OSC”) publication of a Staff Notice relating to the Aequitas Proposal to build a new stock exchange in Canada. The OSC Staff Notice sets out OSC Staff views on current market structure in Canada and requests comments in connection with the Aequitas Proposal. The OSC Staff Notice includes questions on Investor Confidence, Market Quality, Segmentation, Market Making and Approach to Developing New Solutions. Comments are due to the OSC by Friday, September 27, 2013.
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More Exchange Outages: Do We Learn from the Past?
Jo Kinsella, Verdande Technology – Wall Street & Technology
Risk management has certainly received a massive amount of attention since the financial crisis, with regulators, market participants and pundits pontificating on it until they’re blue in the face. As a result, financial firms have invested billions on infrastructure enhancements and new risk platforms and applications to safeguard critical systems. Yet even with the regulatory mandates and growing IT spend, these headline-grabbing market failures seem to persist, and with alarming frequency, seriously undercutting trust in the markets.
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LSE’s Pinar Emirdag Departs Exchange After Three Years
Bloomberg
Europe’s oldest independent bourse hired Emirdag, a former board member of Turquoise, in 2010 as it sought to lure back customers from its rivals. Emirdag was responsible for developing relations and business with the wholesale market including investment banks, brokers and high-frequency traders.
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***JM: Full story today with link
Direct Edge Trading Notice #13-36: Disaster Recovery Testing Opportunities
As announced in Direct Edge Trading Notice #13-24, the disaster recovery facilities for EDGX ExchangeSM (EDGX) and EDGA ExchangeSM (EDGA) will be relocated to the Equinix data center in Chicago, IL effective September 3, 2013, the first trading day in September. Members will be able to test exchange order entry using assigned back-up sessions and the receipt of market data on Saturday, August 24, 2013, from 9:00 a.m. to 12:00 p.m. (ET).
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ASX Welcomes CMC Markets Stockbroking To The Australian Liquidity Centre
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HKEx 2013 Interim Results
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Exercise Of Ibovespa Options Generates BRL 7.76 Billion Financial Volume On BM&FBOVESPA
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CBOE, C2, CFE, and CBSX Trading Schedule for Labor Day Holiday
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Hedge Funds & Managed Futures
Paulson Halves Exposure to Gold
JULIET CHUNG – WSJ.com
John Paulson, the billionaire investor who has been one of the most bullish investors in gold, cut his hedge-fund firm’s exposure to the precious metal by more than half in the second quarter, according to a securities filing Wednesday.
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To His Collection of Steinways, Hedge Fund Titan Adds Their Maker
WILLIAM ALDEN – NYTimes.com
John A. Paulson, the hedge fund billionaire, already owns three Steinway & Sons pianos; the medium model M grand, the larger model O and the nearly seven-foot-long model B, together worth tens of thousands of dollars. But Mr. Paulson, in investing parlance, was looking to increase his exposure. On Wednesday, his firm, Paulson & Company, agreed to buy the company that makes the pianos, Steinway Musical Instruments, for $512 million.
jlne.ws/1cF7DEM
Bridgepoint secures extra time on 2008 fund
Dan Dunkley – Financial News
Investors have granted UK private equity firm Bridgepoint an extra 12 months to spend money from its fourth fund after the firm asked for permission last month, according to two people familiar with the matter.
jlne.ws/1cF7BwT
Brazil’s woes cast shadow over IPOs
Arash Massoudi in New York and Samantha Pearson in São Paulo – FT.com
Prospects for heightened activity in Brazil’s equity capital markets have darkened as a promising start to 2013 has given way to pessimism among investors for new listings from Latin America’s struggling star.
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BondDesk’s Bond Factsheet Service Now Free for a Limited Time to All Investors
BondDesk Group LLC, the leading provider of retail fixed income technology and operator of the largest odd-lot fixed income alternative trading system in the United States, today announced that it is offering its Factsheet service free of charge for a limited time to all investors. The offer is designed to raise awareness of the tools that are currently available for making the fixed income markets more transparent and accessible to retail investors.
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Numerix introduces ‘life’ asset class for capturing longevity risk
Numerix, the leading provider of cross-asset analytics for derivatives valuations and risk management, today announced the availability of a new “Life” asset class with the introduction of the Lee-Carter Stochastic Mortality Model.
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Banks & Brokers
German banks in fight for market share as FTT looms
Michael Marray – Risk.net
With German structured product providers still awaiting the return of retail investor interest, Michael Marray maps the country’s competitive landscape and hears concerns about the implications of a financial transaction tax
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JP Morgan promotes Rising Star to risk role
Tim Cave – Financial News
JP Morgan has promoted one of its most senior clearing executives, and a 2012 Financial News Rising Star, to a new risk role as it looks to strengthen oversight of its global operations in the wake of last year’s ‘London Whale’ trading loss.
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Citigroup to Buy Back Up to $3.07 Billion of Notes
Dow Jones
Citigroup Inc. intends to repurchase up to $3.07 billion of notes as part of its ongoing efforts to enhance its funding and capital structure.
jlne.ws/1cF7DER
JPMorgan Blamed for Misleading in SEC’s Case Against Ex-Traders
Bloomberg
U.S. regulators signaled they will hold JPMorgan Chase & Co. accountable for violating securities laws when it disclosed inaccurate information to investors because of allegedly deceitful accounting by traders in London.
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JPMorgan Broke Disclosure Rules Over Paschi: Central Bank
Bloomberg
JPMorgan Chase & Co. broke disclosure rules when it arranged a 1 billion-euro exchangeable bond for Banca Monte dei Paschi di Siena SpA in 2008, the Bank of Italy told Siena prosecutors.
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Clearing & Settlement
CMEGroup – ‘Sunset’ NYMEX Biodiesel Contracts
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CMEGroup – Consolidate Power Slate: Phase 1B – Amend Products
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CMEGroup – Iron Ore Listing Extension on Globex
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CMEGroup – Delist Non-RED Biofuels from NYMEX
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Indexes & Products
Index licensing fees: heading for a fall?
Jonathan Lopez – Risk.net
Index providers tend to charge companies wishing to use their indexes licensing fees based on assets under management (AUM), which means the bigger the exchange-traded fund (ETF), the greater is the revenue from fees that goes to the index provider. And with the total volume of ETFs in existence now in excess of $2 trillion, some market participants believe index firms have never had it so good and are questioning the rationale behind the fee structures.
jlne.ws/1cF7EIZ
Silver ETF holdings rise to four-month high, more gains expected
Reuters
The amount of silver held by the world’s largest silver-backed exchange-traded fund, iShares Silver Trust, rose to a four-month high as a sharp price rally in the metal and economic optimism triggered strong retail interest.
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NASDAQ OMX Iceland Starts Trading A New Equity ETF From Landsbref
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S&P Dow Jones Indices Announces Changes To The S&P/TSX Canadian Indices
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Technology
FlexTrade announces new integration with OTC Link ATS
FlexTrade Systems, the provider of broker-neutral, multi-asset execution and order management trading systems, has announced a complete integration with OTC Link, a wholly-owned subsidiary of OTC Markets Group, to support trading and market making on OTC Link’s SEC registered Alternative Trading System, OTC Link ATS. The new functionality integrates OTC Link ATS’ capabilities into existing broker-dealer workflows for clients using FlexTrade’s sell-side OMS products.
jlne.ws/1cF7EZs
MarketPrizm To Provide Full Depth Historic Data From Global Exchanges
MarketPrizm, a leading provider of market data and trading infrastructure services, today announced that it will offer high quality historic data from major exchanges to financial services firms. The data can be downloaded and used for simulation models to test investment strategies before putting them into the live market.
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Wolverine Adds Two New VWAP Algos
Wolverine Execution Services, the agency brokerage affiliate of the large market maker, launched two new algorithms: WEX VWAP and WEX Basket VWAP.
jlne.ws/1cF7EbK
Interactive Data Expands Middle Eastern Content as MSCI Upgrades Status of Qatar and UAE
Marketwired via Yahoo! Finance
Interactive Data Corporation, a leading global provider of managed ultra-low latency IT and market data feed services to facilitate electronic trading, today announced the availability of enhanced content for the Middle East and North Africa (MENA) region via its Consolidated Feed.
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Enforcement
SEC Charges Two J.P. Morgan Traders With Fraudulently Overvaluing Investments to Conceal Losses
The Securities and Exchange Commission today charged two former traders at JPMorgan Chase & Co. with fraudulently overvaluing investments in order to hide massive losses in a portfolio they managed. The SEC alleges that Javier Martin-Artajo and Julien Grout were required to mark the portfolio’s investments at fair value in accordance with U.S. generally accepted accounting principles and JPMorgan’s internal accounting policy.
jlne.ws/1cF7EbR
Ex-trader in ‘whale’ scandal keeps low profile in French village
Ingrid Melander – Reuters
Hundreds of miles from the bustling trading rooms where he worked with the “London Whale”, a former JPMorgan trader has taken refuge in a French hamlet where few have heard of the $6.2 billion scandal to which he is being linked.
jlne.ws/1cF7EZw
Charging Documents: U.S. V. Javier Martin-Artajo And U.S. V. Julien Grout – U.S. Charges Javier Martin-Artajo And Julien Grout With Fraud In ‘London Whale’ Scandal
jlne.ws/1cF7EbT
Three Lessons from the Twitter Hedge Fund Ponzi
The Reformed Broker
The SEC has charged Anthony Davian, a make-believe “successful hedge fund manager” from Akron, Ohio with operating a Ponzi scheme. Independent journalist Roddy Boyd ripped the lid off this fraud at his excellent Southern Investigative Journalism Foundation and the regulators have put a stop to it.
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Investment Scheme Based on Astrology Lands Perpetrator in Prison
TheStreet.com
By Hal M. Bundrick NEW YORK — Divining market movement on moon motion might not work. Gurudeo “Buddy” Persaud of Orlando gave it a go and is now facing three years in federal prison. Last year, the Securities and Exchange Commission charged the ex-broker with defrauding investors through an astrology-based Ponzi scheme that bilked clients out of nearly $1 million.
jlne.ws/1cF7Ec0
NFA Regulatory Actions
Gurpreet Singh Sabharwal
jlne.ws/1cF7Ec1
Alpha Capital Ventures LLC
http://jlne.ws/1cF7H7r
[Canada] Illegal practice as a dealer – Irène Hornez and Luc Chartrand guilty
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[Canada] Illegal practice as a dealer – Pasquale Schiavone Found Guilty
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BCSC alleges that dealer and two directors sold securities without proper disclosure
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Environmental & Energy
Brokered EU Carbon Trade Plunges as Banks Scale Back
Bloomberg
Carbon trading via brokers including ICAP Plc (IAP) and GFI Group Inc. (GFIG) plunged to its lowest since at least January 2011 as banks scaled back buying and selling amid tighter regulation and a record glut of permits.
jlne.ws/14AIuBg
Slashing renewables will push up electricity bills, BNEF
Reneweconomy.com.au
A new report from global research house Bloomberg new Energy Finance has punctured the rhetoric from incumbent fossil fuel generators, saying that cutting the renewable energy target would lead to an increase in electricity bills for consumers, not a reduction.
jlne.ws/16nxwWc
Rudd Gloom Misses Australia’s Looming Natural Gas Surge: Economy
Bloomberg
Prime Minister Kevin Rudd’s strategy of centering an election pitch on his ability to steer Australia through the end of a China-led minerals boom is overlooking the next big thing: natural gas.
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Asia-Pacific
China Raises Scrutiny on Foreign Firms
LAURIE BURKITT – WSJ.com
BEIJING—China’s regulators are increasing their scrutiny of foreign companies in industries from drugs to cars to baby formula as part of a drive to push down prices for consumers.
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Hong Kong’s Securities and Futures Commission Suspends Ching Yim Har For Three Years
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Frontier Markets
Indonesian Oil Regulator Arrested in Corruption Probe
VOA News
The head of Indonesia’s energy regulator has been arrested for allegedly taking bribes from an oil company. The Corruption Eradication Commission (KPK) says SKK Migas Chairman Rudi Rubiandini was taken into custody after allegedly receiving a $400,000 cash bribe at his home in Jakarta.
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Argentina Won’t Extend Maturities on Dollar Debt, Fernandez Says
Bloomberg
Argentina plans to obtain new funding from multilateral lenders like the Inter-American Development Bank for projects and won’t roll over existing debt, President Cristina Fernandez de Kirchner Fernandez said.
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