CME Group, stung by a second brokerage that misused its customer funds, proposes taking customer funds away from brokers and storing the money in a safe place. The LIBOR investigation is now targeting individual groups of traders at multiple institutions. Spain and Italy reinstate previously-ineffective bans on short selling at their exchanges, evidently this time hoping for a different result from the same action. In today’s First Read, Jim Kharouf discusses the CME Group’s fund safety plan.
By Jim Kharouf
Just a few days removed from the National Futures Association’s live fire drill to reexamine and perhaps retool its audit functions, the CME Group brought its fire hose in the form of a letter to customers on Monday.
In the letter, CME’s leaders Terry Duffy and Phupinder Gill proposed that clearing houses or other depositories hold all customer segregated funds, with any interest earned going back to the FCMs. This third-party custodian model has been around for decades, for managed futures firms, hedge funds and other institutions that need their cash separate and secure.
A CME Group spokesperson said the idea is being discussed with customers now but that there are no distinct details on how it would work with the exchange’s clearing house. Among the details worth asking about are:
- Will the customer funds be held in separate FCM accounts or commingled?
- How much of the excess cash will be held in overnight investments and how much will rest in other longer-term passive investments?
- What are the fees involved with such a set-up?
- What type of account will it be? In other third-party custodial arrangements, cash is sometimes held in a trust, completely separate from the bank’s balance sheet.
- And ultimately, in the case of a massive default, who or what funds back up the clearing house?
I contacted an independent investment firm that specializes in managing cash for managed futures and hedge funds to get their take on such an idea. Of course, they think creating a third-party custodial account system would be good – they’ve been doing it successfully for more than 20 years. And they were flooded with calls a couple of weeks ago when Peregrine Financial Group went under. What is interesting is that some of those calls were coming from FCMs themselves. And there are industry best practices already documented from the Alternative Investment Management Association (AIMA), Managed Funds Association and others.
The question now is whether the CME Clearing and other clearing houses are up to the challenge. Can they protect and monitor customer accounts better than a specialized firm and a bank? Can CME also offer a reasonable return back to FCMs? On that count, if recent earnings reports are worth noting, it seems it can. In the first quarter of 2012, CME Group reported $12.1 million in investment income, and has reported similar numbers in recent quarters. So they can manage cash safely and profitably, even in tough markets. That leaves a couple more questions. Can they do so for the rest of the industry? And does the rest of the industry want them to?
The futures industry’s confidence depends on it.
On a personal note, thanks to all of those readers sending along well-wishes on the news of my home getting broken into and robbed over the weekend. It’s comforting on one level and disturbing on another hearing so many similar stories. The worst I think, was one reader who had her home burglarized right before Christmas when thieves tore open Christmas presents, taking the gifts they liked and leaving the ones they didn’t. In the end, most readers said they got over it. It’s just stuff. The rest – health, happiness and family – are what matters.
CME Group Plan Would House Customer Money Away From Brokerages
Matthew Leising – Bloomberg
CME Group Inc., the world’s largest futures market, said it’s considering a plan to house all customer funds at clearinghouses or other depositories after futures investors have lost money held at MF Global Holdings Ltd. and Peregrine Financial Group Inc.
CME Exploring Use of Clearinghouses to Hold Client Funds
By Jacob Bunge – Dow Jones
CME Group Inc. (CME) is looking into using its clearinghouse as a depository for the money that ranchers, power companies and asset managers use to trade futures markets, according to a letter sent Monday by the company to its customers.
Letter from CME Group
CME Group is appalled by the recent misuse of segregated funds by two firms, MF Global Inc. and PFG, particularly since there has never been anything like it in the history of the futures industry. Clearly there were serious management transgressions at each firm. But while these firms may have been at fault, it’s nevertheless our problem as an industry, and this problem needs a solution. Not protecting customer funds is such a fundamental breach of trust that, without question, the current system in which customer funds are held at the firm level must be re-evaluated.
NYSE Liffe U.S. Trades Nearly 20,000 Futures on DTCC GCF Repo IndexTM in First Week
NYSE Liffe U.S., the innovative U.S. futures exchange of NYSE Euronext today announced the successful completion of the first week of trading in futures based on the DTCC GCF Repo Index. In the first full week of trading, NYSE Liffe U.S. executed 19,959 contracts, valued at approximately $100 billion with 10,980 lots of open interest by week end. The new market featured participation from a diverse customer base from go-live with all transactions processed and cleared seamlessly throughout the first week of trading.
**JK – Open interest is a healthy 10,980. A nice start.
Newedge Selects Fidessa For Global Multi-Asset Trading Platform And OMS – System To Provide A Fully Managed, Multi-Asset Workflow Solution For 100+ Markets Worldwide
Fidessa group plc, provider of high-performance trading, investment management and information solutions for the world’s financial community, today announced that Newedge, one of the leading forces in multi-asset execution globally, has selected the Fidessa trading platform and order management system for its global derivatives and equity trading business.
**JK – Another big deal signed for Fidessa.
Futures arcades stung by costs and losses
Tom Osborn – Financial News
London’s community of futures day traders may be in jeopardy, as clearing costs rise and the big brokers that accommodate them suffer losses. Day traders are mainly housed within independent arcades, which rent them desk space and allow them a connection to a derivatives exchange in return for a monthly fee. But many firms suffered widespread losses last year, according to accounts filed at Companies House.
**JK – Trading arcades, a dying model?
GFI Group, Thomson Reuters And SDIC Trust To Form Joint Venture And File Application To Establish Full Service Foreign Exchange And Money Brokerage In China
GFI Group Inc., a leading provider of wholesale brokerage services for the global financial markets, and Thomson Reuters, the world’s leading source of intelligent information for businesses and professionals, today announced that they will be forming a joint venture with SDIC Trust Co., Ltd. of China to create a foreign exchange and money broker for the domestic Chinese financial markets.
MarketAxess Seeks to Encourage Direct Bond Trading
By TELIS DEMOS And SERENA NG – WSJ
MarketAxess Holdings Inc. is stepping up efforts to get investment firms to trade corporate bonds directly with each other, amid growing threats from rival electronic trading networks that could hurt its bond-trading business.
A Gift From Interactive Brokers
Steven M. Sears, Barron’s
Of all the market’s manifold contradictions, large looms the disconnect between Thomas Peterffy and shares of his company, Interactive Brokers. The brokerage and market-making firm’s stock never seems to trade at a premium, even though Peterffy and his cadre of traders and programmers are among the best in the business. In fact, Interactive Brokers (ticker: IBKR) stock gets very little respect. The price has barely budged in the past three years; the shares closed Friday at $13.38, close to their book value.
**JK – A look at IB’s shares.
Finding Recourse When Investors Are Cheated
By PETER J. HENNING – NY Times
The financial scandals of recent weeks seem to involve the simple act of cheating. Whether it’s falsifying documents or fudging an interest rate quote, many of the actors of these schemes knowingly cheated in some form or another. But the federal government may need to find new ways of providing some recourse for investors who are victims of brazen fraud.
**JK – Have you been cheated? Fill out this form and get in line.
Libor: What Criminal Charges Are Likely?
CNBC via Yahoo! Finance
The news that U.S. prosecutors are close to arresting traders in connection with the Libor scandal gives rise to the question: what criminal charges are prosecutors likely to levy?
**JK – Cheaters and their punishment.
Saying Goodbye to Libor Won’t Be Easy, but It’s Necessary
Amid the investigations into manipulation of Libor, policy makers are coming around to the idea that the world needs a new benchmark to price hundreds of trillions of dollars in loans, securities and derivatives. The challenge will be getting banks, investors and borrowers to agree on what that benchmark should be.
NYSE Liffe: Commodity Futures & Options Workshops
NYSE Liffe, in conjunction with K2 London Ltd, is pleased to offer Futures & Options education workshops designed specifically for commodity markets. These workshops are highly interactive, with an emphasis on discussion, exercises and examples which delegates can then apply to their own business activities.
Introduction to Commodity Futures & Options
Suitable for anyone interested in learning the basics of commodity derivatives. No previous knowledge of derivatives is required.
Technical Analysis; Charting
Technical analysis course covering a broad range of charting techniques. It emphasises practical application of technical analysis to hedging and trading.
Two day course covering options from fundamentals to intermediate level.
Advanced Commodity Options
An in-depth workshop covering volatility and analysing options portfolios. Recommended for delegates who have previously attended the 2 day options workshop or have a sound knowledge of options trading and methodology.
All courses are held at NYSE Liffe:
Cannon Bridge House, 1 Cousin Lane, London, EC4R 3XX
For details and registration, visit http://jlne.ws/MCU6PT
U.S. Chamber to Host Event to Examine “Financial Regulatory Reform: Past, Present, and Future”
The U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness (CCMC) will host an event with Sen. Richard Shelby (R-AL), former Securities and Exchange Commission Chairman Harvey Pitt, and other industry experts to highlight the impact of financial regulation over the past ten years as well as pending and future regulations under consideration in Washington.
Wednesday, July 25, 2012, 10:30 am – 1:45 pm EDT
U.S. Chamber Headquarters, 1615 H Street, NW, Washington, D.C. 20062
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Libor Probe Expands to Bank Traders
By JEAN EAGLESHAM And DAVID ENRICH – WSJ
Several groups of traders are under investigation by regulators around the world for allegedly banding together to rig interest rates, people close to the probe said. The continuing criminal and civil scrutiny includes more than a dozen traders from at least nine banks, often allegedly working together in small groups to target different interest rates on separate continents, the people said.
Spain, Italy Ban Short Selling to Slow Market Turmoil
By Alexis Xydias and Jim Brunsden – Bloomberg
Spain and Italy reinstated a short- sale ban on stocks as bank shares plunged to record lows, bond yields rose and the euro traded below its lifetime average against the dollar on concern the debt crisis is growing.
Spain’s Death Spiral
The Online NewsHour
The interior of the Madrid Stock Exchange, or Bolsa y Mercado, on Monday, July 23, 2012. Spanish bonds slumped, with 10-year yields climbing to a euro-era high, after the Spainish newspaper El Pais said six regions may ask the central government for financial assistance, increasing concern the nation will need additional aid.
Spain aid could be firewall boost, ECB action: France
Reuters via Yahoo! News
French Foreign Minister Laurent Fabius said on Tuesday that further aid for Spain could take the form of an increase in Europe’s rescue fund or action by the European Central Bank, though he hoped neither option was necessary.
House panel seeks more documents from NY Fed on Libor probe
Reuters via Yahoo! News
A U.S. House panel on Monday asked the New York Federal Reserve for a second round of documents as part of an investigation into possible manipulation by top banks of a benchmark interest rate known as Libor.
Hollande Transaction Tax Drives Investors’ Quest for Loopholes
French President Francois Hollande’s transaction tax is set to take effect Aug. 1. Not all investors will be paying it.
Merkel’s Right, Greece Should Act Like Bulgaria
Earlier this month, German Chancellor Angela Merkel cited Bulgaria as an exemplar of fiscal virtue in its response to the financial crisis.
Satyjit Das: The LIBOR Fix – Part II
Satyajit Das – Naked Capitalism
The scandal surrounding the manipulation of LIBOR sets raises a number of issues. The first part of this two part piece set out the known facts. In the second part, we discuss the broader implications of the episode.
Banking At The Cross-Roads: Where Do We Go From Here? Speech By Lord Turner, UK Financial Services Authority Chairman At Bloomberg
Esma chief warns against clearing ‘escape route’
Michelle Price – Financial News
The chair of the European Securities and Markets Authority has warned that policymakers must not undermine regulatory efforts to promote the use of central clearing. Steven Maijoor’s comments come amid growing concerns that new capital rules may result in clearing becoming prohibitively expensive.
National Futures Association launches education initiative in wake of CFTC rule amendments rescinding exemptions from registration for commodity pool operators and commodity trading advisors
National Futures Association (NFA) today announced an education initiative to assist commodity pool operators and commodity trading advisors that will be affected by the Commodity Futures Trading Commission’s (CFTC) recent rule amendments rescinding exemptions from registration. The initiative will include published guidance, webinars, workshops and tutorial videos.
Kay Review Sets Out Measures To Transform UK Equity Markets
Seven More Banks Agree To Join The UK’ Financial Services Authority’s Review Of Sales Of Interest Rate Hedging Products To SMEs
ESMA Announces An Open Hearing On The AIFMD
The AMF clarifies the rules applying to public offerings of securities on Alternext Paris
The Autorité des Marchés Financiers accepts a new market practice relating to liquidity contracts for bonds
AMF Accepted Market Practice 2012-04 Liquidity contract for bonds
[Japan] FSA publishes Weekly Review No.4
Exchanges & Trading Facilities
Nasdaq’s Facebook payout still not enough
Nasdaq increased the amount it plans to spend to compensate trading firms for losses incurred by Facebook’s botched debut, but experts say it may still not be enough.
Relocation of Option Classes on CBOE
ASX Equity Research Scheme trial commences
ASX has commenced a 12-month trial of the ASX Equity Research Scheme, an initiative to fund high-quality, independent research for ASX-listed companies with a market capitalisation below $1 billion (around 92% of all listed companies) that may not have been covered by research before. ASX is contributing $1 million to fund the trial.
NZX 2012 Half Year Results
NZX advises that its 2012 Half Year Results will be released pre market on Monday 20 August.
Hellenic Exchanges S.A. H1 2012 Financial Results
The Warsaw Stock Exchange – Derivatives Market: Jan-Jun 2012
Hedge Funds & Managed Futures
Man Group Had $2.4 Billion Outflows in Half; Cuts More Costs
Man Group Plc , the world’s biggest publicly traded hedge- fund manager , said clients pulled a net $2.4 billion in the first half of 2012, adding pressure on the company to revamp its computer-driven trading strategies.
Man Group: Interim Results for the six months ended 30 June 2012
Funds under management (FUM) at 30 June 2012 of $52.7 billion (31 December 2011: $58.4 billion), reflecting sales of $7.2 billion, redemptions of $9.6 billion, investment movement of -$0.3 billion, FX translation effects of -$0.5 billion and other movements, principally guaranteed product degears, of -$2.5 billion
We have entered the world of disaster economics
Gillian Tett – Financial Times
Are the bond markets going mad? It is a question that many investors might ask. For as anxiety has erupted in the eurozone, something striking has occurred with respect to US Treasuries and German Bunds.
Private Equity Loses to Junk as Dealmaking Wanes: Credit Markets
Private-equity firms from Blackstone Group LP to Carlyle Group LP that fueled an expansion in the market for junk bonds and loans during the leveraged buyout boom are now loading up on that debt as takeovers dwindle.
Hedge fund manager: patient and confident enough to do nothing
The Christian Science Monitor
Hedge fund manager Seth Klaman runs his practice to avoid the short term in favor of long-term performance.
Ackman Protege Ferguson to Leave Pershing to Start Fund
Bill Ackman, the hedge-fund manager who is pressing for changes at Procter & Gamble Co., is losing the first analyst he hired for his Pershing Square Capital Management LP, according to a letter to investors.
KKR Plans to Offer Retail Funds to Pursue Debt Investments
KKR & Co. LP, the private-equity firm run by Henry Kravis and George Roberts, plans to open two debt funds for individual investors, according to government filings.
Avenue Capital Hedge Fund Takes Chance on Euro Zone
New York Times
Marc Lasry, chief of the hedge fund Avenue Capital, sees a long-term opportunity in investing in the debt of troubled European countries.
Apparently, Anthony Scaramucci Wants To Debate Simon Lack And Lack’s Not Into It
Anthony Scaramucci is the founder of fund of funds, SkyBridge Capital. Simon Lack, an investment advisor, is the founder of SL Advisors. Recently, these men have realized that they disagree very passionately about something.
Erik Ogard Joins Madison Park Capital Partners as Managing Principal
Business Wire via Yahoo! Finance
Madison Park Capital Partners, LLC, a newly formed alternative asset management firm, today announced that Erik Ogard, CFA, former Director of Multi Strategy Solutions for Russell Investments, has joined the Firm as a Managing Principal.
Revere Insights Offers Investing Ideas Based on Themes and Sector Trends
Revere Data, LLC, the industry leader in sector classification systems and supply chain data, is pleased to announce the launch of Revere Insights, which offers unique investment ideas through themes and sector-based analysis.
Moody’s Changes The Outlook To Negative On Germany, Netherlands, Luxembourg And Affirms Finland’s Aaa Stable Rating
Statement By The President Of The Eurogroup – Rating Decision Of Moody’s
Banks & Brokers
Fed’s Raskin: No government backstop for banks that do prop trading
Reuters via Yahoo! News
Banks that trade for their own accounts should not benefit from the implicit backing of taxpayers, and Wall Street’s opposition to new rules curbing such activities is unfounded, a top Federal Reserve official said on Monday.
Citigroup, CommSec Got Australia Data Early
Australian retail sales data for March was sent about 18 minutes before the scheduled release time on May 7 to six recipients, including Citigroup Inc. (C) and Commonwealth Bank of Australia’s (CBA.AU) CommSec unit, Bloomberg News reported Monday, citing documents obtained under the Freedom of Information Act.
Head of gilts exits BrokerTec
Tom Osborn – Financial News
The head of UK gilts at the market’s largest electronic trading platform, Icap’s BrokerTec, has left the firm, Financial News understands, as the world’s biggest interdealer broker suffers amid the global downturn in trading volumes. Will Dean, who headed gilt-backed products for the platform, is understood to have left the firm last month. A lawyer by training, Dean joined Icap in 2004, rising to become head of gilt products for the platform. Icap declined to comment.
Impossible for Traders at 5 Banks to Rig Euribor Rates, EBF Says
By Aoife White and Maryam Nemazee – Bloomberg
Traders at five banks would have found it impossible to successfully manipulate the euro interbank lending rate known as Euribor, said the head of the European Banking Federation.
Trading Surges Boosted Whale Positions Before Audits
Trading surges that temporarily boosted the value of credit derivatives held by JPMorgan Chase & Co. may provide clues about whether traders at the bank masked losses that have spiraled to $5.8 billion.
BofA Nears Deal On $8.5 Billion Mortgage Settlement – FT
Bank of America Corp. edged closer to a $8.5 billion mortgage bonds settlement after a Boston-based hedge fund withdrew its objection, the Financial Times reported late Monday.
Bank of America Promotes Hammond to Head US Capital Introductions
Bank of America Merrill Lynch has promoted Elizabeth Hammond to lead its U.S. capital-introduction effort within its prime-brokerage business, with immediate effect, according to the bank’s internal memo.
Citi poaches Morgan Stanley financial institutions head McLane: memo
Reuters via Yahoo! News
Citigroup has named Will McLane as head of corporate and investment banking for the ASEAN region and head of the financial institutions group in the Asia-Pacific region, according to an internal memo obtained by Reuters.
UBS Credit Strategist Bory Leaves as Investment Banking Shrinks
George Bory left his post as global head of credit strategy at UBS AG this month as the lender reduces its investment bank by half.
Citi’s Hands-On Chairman
By SUZANNE KAPNER – WSJ
Michael E. O’Neill is remaking the chairman’s office at Citigroup Inc. Since taking over for Richard Parsons three months ago, Mr. O’Neill, a longtime bank executive, has been peppering employees, executives and fellow directors with questions about how Citigroup works and what it does to make money.
Clearing & Settlement
LCH Raises Extra Margin for Trading Some Italian, Spanish Bonds
LCH Clearnet Ltd., Europe’s biggest clearing house, raised the extra deposit it demands from clients to trade some Italian and Spanish government bonds, it said today in a statement on its website.
Cross-margining benefits help drive surge in pre-mandate clearing of OTC FRAs
LCH.Clearnet Limited’s market-leading interest rate swap (IRS) clearing service, SwapClear, announced that it now clears approaching 50% of all outstanding over-the-counter forward rate agreements (FRAs). The rapid and broad adoption of FRA clearing since its introduction on SwapClear in December 2011 comes well ahead of mandatory clearing and reflects the market’s recognition of the value the product plays in cross-margining as an alternative to listed futures contracts.
Indexes & Products
TASE Rules for ETN Underlying Indices and Leveraged ETNs
Business Wire via Yahoo! Finance
The Exchange-traded notes market has developed rapidly in Israel over the past few years, as has the market for exchange-traded funds abroad. As of the middle of 2012 more than 300 ETN series tracking bonds and share price indices trade on the Tel Aviv Stock Exchange .
Crown Agents Bank Selects SunGard’s Ambit Core Banking
Crown Agents Bank has selected SunGard’s Ambit Core Banking solution to help boost operational efficiency and reduce costs.
Thomson Reuters Expands Elektron Data Offering for US Customers
Thomson Reuters has launched two new Elektron data solutions that will help US market participants have lower latency access to broader and deeper content from financial markets venues.
Ex-Anglo Irish Bank Chief Charged With Fraud
Irish police say detectives have arrested the former chief executive of Anglo Irish Bank and charged him over a conspiracy to hide losses at the bank before its 2009 nationalization.
UK’s Financial Services Authority: Six Found Guilty Of Operating Insider Dealing Ring
Following a four and a half month trial at Southwark Crown Court, Ali Mustafa, Pardip Saini, Paresh Shah, Neten Shah, Bijal Shah, and Truptesh Patel have been convicted of offences relating to insider dealing between 2006 and 2008, when they were arrested. The defendants will be sentenced on Friday 27th July 2012.
[BCSC] Portfolio manager agrees to pay $12,000 for lack of compliance and failing to maintain minimum regulatory capital
As part of a settlement agreement with the British Columbia Securities Commission, Kilburn Ogilvie Waymann Investment Management Ltd. (KOWIM) and Trevor G. Kilburn have agreed to pay $12,000 to the commission for failing to establish and maintain an adequate compliance system, and failing to maintain a minimum level of regulatory capital.
Former Stanford executive says in limbo as SEC case drags
Reuters via Yahoo! News
WASHINGTON – Bernerd Young has waited more than two years for a final decision from U.S. securities regulators about whether he will be charged over his role as compliance officer at the brokerage owned by convicted Ponzi schemer Allen Stanford.
Environmental & Energy
China bids $15bn for Canada’s Nexen
China’s Cnooc has agreed to buy Calgary-based oil group Nexen for $15.1bn plus debt, a bold step that marks the increasing confidence of Chinese energy groups expanding overseas.
**RKB — One result of long Canadian-China courtship after Keystone rejection.
China Push in Canada Is Biggest Foreign Buy
The Wall Street Journal
Cnooc Ltd. CEO -4.34% swept into Canada with China’s biggest overseas acquisition yet, a $15.1 billion deal to buy one of that country’s largest energy producers that reignites a debate over the role of Chinese state players in North America’s energy industry.
World Energy Congress releases first list of speakers for 2013 event
The World Energy Council (WEC) and the Congress Organising Committee today announced the first list of 15 confirmed speakers for its 22nd World Energy Congress, which will take place in 15 months’ time in Daegu, South Korea, from 13 to 17 October 2013.
SGX enhances default management framework of derivatives market
Singapore Exchange (SGX) is enhancing the rules to strengthen its default management framework to protect its derivatives market against systemically destabilising events, which include the possibility of multiple member defaults. This enhancement follows a public consultation issued in September 2011.
The Tokyo Commodities Exchange Extends Technology Contract With NASDAQ OMX To 2019
Tokyo Stock Exchange Monthly Statistics Report – June 2012
SGX welcomes JB Foods to Mainboard
Singapore Exchange (“SGX”) is pleased to welcome the listing of JB Foods Limited on its Mainboard today, under the stock code of “Q0W”.
[OSE] Financial Statements [1st Quarter, FY2012]
Thai Bourse Holds Investor Fair To Promote Online Trading
HKEx: Trading In Securities And Derivatives Markets Will Resume At 1:00pm After Lowering Of Typhoon Signal No. 8
Brazil’s Scrapped IPOs Follow Worst Stock Rout in BRICs
Brazilian companies are canceling initial public offerings at the second-highest rate among the biggest emerging markets as slowing economic growth makes the country’s benchmark stock index the worst performer this year.
Dubai Gold And Commodities Exchange Reaches Out To UAE Gold Traders
Exchange Seeks To Raise Awareness Of Hedging Tools That Can Help Gold Traders To Manage Price Risk In The Precious Metal And Boost Profitability
JSE Expands Foreign-Referenced Commodities Range With Introduction Of Quanto Futures
Tel Aviv Stock Exchange Rules For ETN Underlying Indices And Leveraged ETNs
The Bad Boys Of Bear Stearns: Where Are They Now?
Back in the day, the men in charge at Bear Stearns were known for being big boys on The Street. And then 2008 happened, and the entire bank was washed out. In fact, you barely even hear the name anymore.