First Read

Reconcilable Differences: Duco’s Christian Nentwich on what can be done to address reconciliation problems in the financial industry

Today, trades occur in milliseconds around the globe. But there are still aspects of the business that lag behind, especially in the post trade area. Christian Nentwich, CEO and co-founder of tech firm Duco, estimates there is more than $500 million in unreconciled fees in the brokerage space. Here is how his firm is attempting to address the reconciliation problem.
Watch the video »

The Lisa Fund Hits $18K in Donations
The TEAM KT of the Lisa Fund, honoring CME Group’s Kim Taylor’s fight with colon cancer, has raised over $18K to date. The amount is $18, 108 as of this morning. Congratulations to all who have given. The goal for the team is $50K, so there is still work to be done. If you donate, I will send you one of the “No One Fights Alone” wristbands.


Bats to Offer Free Gold Trading on Hotspot Currency Platform
by John Detrixhe, Bloomberg
Bats Global Markets Inc. is going after ICAP Plc as it seeks to broaden its foreign-exchange business.

*****And then all that Chris Concannon touched turned to gold…


Retail Traders Wield Social Media for Investing Fame
Dispensing stock tips on Twitter, Facebook and online brokerage sites, some build a following; ‘If you’re wrong, people will know it.’
Justin Pulitzer always wanted to be a professional trader. He just never imagined he could build a career powered by little more than his Twitter account.

***** It is not if you are wrong, it is when you are wrong.


Derivatives Pioneer Blythe Masters Tackles Digital Currency
Institutional Investor
Blythe Masters has seen the future before, and Wall Street followed. Will it happen again?
If the development of virtual currencies is the story of a long cultural struggle between the idealistic hackers who founded them and the incumbent powers of the financial industry, this year has already seen established money strike two major blows. In March, San Francisco Bitcoin firm 21 emerged from stealth mode to announce a $116 million round of venture funding, the largest ever by a company in the digital currency sector. But it was the announcement of Wall Street pioneer Masters, 46, as CEO of Digital Asset Holdings — a New York start-up with fewer than 20 employees that has yet to launch a single product — around the same time that really caught the attention of the investment world.

****** I am going to ask the panel at the Fintech Exchange 2015 on Thursday about this. I think the blockchain technology could be the next game changer in trading and clearing.


NYC Apartments, Art Top Gold as Stores of Wealth, Says Fink
by Jonathan Burgos Netty Idayu Ismail, Bloomberg
Gold’s traditional role as a store of wealth has been usurped by contemporary art and apartments in cities such as New York and London, according to Laurence D. Fink, head of the world’s biggest asset manager.

***** Call it bling with a mortgage.


Tech Surge: Nasdaq’s Lars Ottersgard on New Developments in the Technology Space

Nasdaq, the world’s first electronic stock market, is almost synonymous with technology, from listings to licensing. John Lothian News spoke with Lars Ottersgard, head of market technology at Nasdaq, at FIA Boca, about what they are providing to marketplaces, brokers, and corporates, and the areas of growth he sees in the tech sector.
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Lead Stories

Exchanges, SIFMA go to SEC trial in battle over market data fees
Wall Street’s leading trade group went to battle on Monday against two top U.S. stock exchanges, arguing they should not have leeway to hike the fees they charge traders to access crucial proprietary equity market data.

Aberdeen, Blackrock flag risks in frothy Chinese stock markets
Aberdeen Asset Management’s head of Asian operations warned on Tuesday that Chinese money was moving “a bit like a casino” in domestic stock markets, while BlackRock called on China to reform its capital markets further to avert boom and bust scenarios.

Stock-Trading Monopolies Weren’t So Bad
By Justin Fox, Bloomberg
The people who run Norway’s giant sovereign wealth fund have discovered something. It turns out that when stock trading is done in lots and lots and lots of different places, it can actually be hard for investors to get a good deal — or at least to be able to tell if they’re getting a good deal.

BlackRock to pay $12 mln in SEC conflict of interest case
BlackRock Inc, one of the world’s largest asset managers, agreed to pay $12 million to resolve U.S. Securities and Exchange Commission charges that a unit failed to disclose a conflict of interest created by the outside business activity of a top portfolio manager.

DoJ pushes for foreign exchange deal with 5 banks in May
Gina Chon in Washington and Tom Braithwaite in New York, FT
The US Department of Justice is pushing for five banks, including JPMorgan Chase and Barclays, to resolve allegations they manipulated the foreign exchange markets in one mega settlement scheduled for mid-May, according to people familiar with the case.

Hidden dangers that banking regulators fail to chart
Robert Lenzner
Seven years after the crash the authorities still know next to nothing, writes Robert Lenzner
Nobody knows anything.” Applied to Hollywood, William Goldman’s words inspired optimism, but such words also apply to finance, where they bring a far darker mood.

MOVES-SIX trading unit head to leave over strategy differences
Switzerland’s SIX Group said on Monday the head of its securities trading unit has decided to leave the group at the end of this month due to a difference of opinion over strategy.

Volcker calls for U.S. financial regulation shakeup
The U.S. financial regulatory system is outdated and riddled with loopholes, former Federal Reserve Chairman Paul Volcker said on Monday as he offered an overhaul plan to make watchdogs more effective.

Banks Paid to Borrow as Three-Month Euribor Drops Below Zero
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by Anchalee Worrachate, Bloomberg
Banks in the euro area can now get paid to look after each others’ cash for three months as the European Central Bank’s bond-buying program floods the region’s money markets with excess liquidity.

Imagine: Brokers Who Work for Investors
By Barry Ritholtz Bloomberg
In 2011, the Securities and Exchange Commission published a study, mandated by the Dodd-Frank Act, which concluded that all financial advisers and stock brokers should be placed under “a uniform fiduciary standard.” Basically this meant that brokers and advisers would have an obligation to put the interests of clients first and must disclose any conflicts of interest that might compromise that duty.


Ex-Fed chief Volcker calls for merger of SEC, CFTC
Paul Volcker, the former head of the Federal Reserve, has issued a radical call for the streamlining of US financial regulators. Mr Volcker called for the abolition of one bank regulator, the Office of the Comptroller of the Currency, and the merger of two market regulators – the Securities and Exchange Commission and the Commodity Futures Trading Commission, reports Barney Jopson in Washington.

Financial Crisis Cases Sputter to an End
Yogi Berra once said that “it ain’t over ’til it’s over.” Unlike the final out or winning run in a baseball game, determining when cases arising from the 2008 financial crisis will end is a bit harder to discern. But the resolution of two cases last week clearly indicates that enforcement actions for conduct leading up to the crisis are pretty much done, with no real finding of liability for violations.

British regulator challenges US over Berkshire scrutiny
Alistair Gray in London and Tom Braithwaite and Stephen Foley in New York, FT
British regulators have challenged their US peers over their apparent reluctance to subject Warren Buffett’s Berkshire Hathaway to tougher scrutiny as part of a worldwide push to make the financial system safer.

Self-Regulatory Organization (SRO) Rulemaking and National Market System (NMS) Plans

BATS: Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Fees for Use of BATS Exchange, Inc. (Release No. 34-74767; File No. SR-BATS-2015-33; April 20, 2015); see also Exhibit 5

NASDAQ: Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to HGX and OSX (Release No. 34-74764; File No. SR-NASDAQ-2015-037; April 17, 2015); see also Exhibit 5

NYSE: Notice of Filing of Proposed Rule Change to Amend the Seventh Amended and Restated Operating Agreement of the New York Stock Exchange LLC. (Release No. 34-74766; File No. SR-NYSE-2015-16; April 20, 2015); see also Exhibit 5

NYSE Arca: Notice of Designation of a Longer Period for Commission Action on Proposed Rule Change to Amend NYSE Arca Equities Rule 8.600 to Adopt Generic Listing Standards for Managed Fund Shares (Release No. 34-74755; File No. SR-NYSEArca-2015-02; April 17, 2015)

NYSE Arca: Notice of Filing of Proposed Rule Change, and Amendment No. 1 Thereto, to List and Trade Shares of the iShares iBonds Dec 2021 AMT-Free Muni Bond ETF and iShares iBonds Dec 2022 AMT-Free Muni Bond ETF under NYSE Arca Equities Rule 5.2(j)(3) (“Release No. 34-74730; File No. SR-NYSEArca-2015-25; Date:: 2015-04-15″)


Fort Worth Regional Director David Woodcock to Leave SEC
The Securities and Exchange Commission today announced that David Woodcock, Regional Director of the Fort Worth office and leader of the Enforcement Division’s nationwide Financial Reporting and Audit Task Force, is leaving the SEC later this spring.

FINRA Launches Toll-Free FINRA Securities Helpline for Seniors
The Financial Industry Regulatory Authority (FINRA) has launched the toll-free FINRA Securities Helpline for SeniorsTM to provide older investors with a supportive place to get assistance from knowledgeable FINRA staff related to concerns they have with their brokerage accounts and investments.

Exchanges & Trading Facilities

Christian Katz, Division CEO Swiss Exchange, to leave SIX
Christian Katz, Division CEO Swiss Exchange, has decided to leave SIX. His decision is based on diverging views on the strategic direction and on the further development of the business area Swiss Exchange. Christian Katz has headed up the business area since May 2009. Under his leadership, Swiss Exchange has expanded to become one of Europe’s leading stock exchanges, which was confirmed last year with the award of the “Exchange of the Year” title by various international bodies. Swiss Exchange has developed into the most profitable business area of SIX. The Board of Directors and the Executive Board would like to take this opportunity to thank Christian Katz for the great commitment he has shown towards the further development of the business area Swiss Exchange and wish him all the best in both his professional and personal life.

Tickmill Reports March Statistics of CFD Trading
Global ECN broker Tickmill announced today its first monthly trading statistics of CFDs following successful launch of the product in March 2015.

Chicago’s CME mulls international exchange at GIFT
Kalpesh Damor,TNN
The Chicago-headquartered CME group is in talks to set up an international stock and commodity exchange in GIFT in Gandhinagar. Senior executives from CME discussed options with GIFT officials on Monday.

Hedge Funds & Managed Futures

Investors See Opportunities in Commodities; Commodities from crude oil to copper to sugar are luring investors, fueled by signs of a healing global economy and a pause in the dollar’s rally
Investors are tiptoeing back into commodities from crude oil to copper to sugar, fueled by signs the global economy is healing and a pause in the U.S. dollar’s rally.

Inflation goal may be too low, says Fed’s Rosengren: FT
Central banks including the Federal Reserve may need to set higher inflation targets in the future to avoid dealing with low economic growth, Eric Rosengren, president of the Federal Reserve Bank of Boston, said in an interview with the Financial Times.

Hedge fund ‘bad boy’ ups Liontrust stake to 10%
Natalie Kenway , Investment Week
Reade Griffith, the hedge fund manager who built sizeable stakes in Ashcourt Rowan and WH Ireland last year, has upped his stake in Liontrust Asset Management to 10%.

Wealth Adviser: Morgan Stanley’s Wealth Profits Buoyed by Markets
by Kevin Noblet , WSJ
Profit margins at Morgan Stanley ‘s wealth-management unit have finally reached the target range of 22%-25%, thanks in part to a focus on getting more client money into fee-based accounts and the swelling value of those accounts as the stock market keeps rising. But that tailwind may be lost when markets eventually weaken, an analyst tells Wealth Adviser at WSJ.com. Another factor that helped the bottom line: a 3% reduction in the cost of pay and benefits to Morgan Stanley’s financial advisers and other employees. The bank tweaked its adviser compensation for 2015 so that a slightly bigger portion of their pay would be deferred to future years.

Bond investors grumble at buyback bonanza
Robin Wigglesworth, FT
Shareholder activists are on the prowl, and fearful executives are taking no chances. US companies are expected to hand a record $1tn to shareholders this year through dividends and stock buybacks. But not all investors are thrilled at their munificence.

Banks & Brokers

Morgan Stanley posts highest profit since financial crisis
By Anil D’Silva and Avik Das
Q1 net profit jumps 60 pct
Adjusted net revenue rises 10.3 pct
Adjusted revenue from equities trading rises 33 pct
Shares up 0.4 pct in early trading (Adds Breakingviews link and graphic link)
Wall Street investment bank Morgan Stanley reported its most profitable quarter since the financial crisis on Monday, boosted by higher revenue from trading bonds and equities.

FXCM places interbank business in shop window to repay SNB shock loan by Solomon Teague, Euromoney
FX broker FXCM has unveiled its plans to sell its non-core assets to repay loans post-Swiss National Bank disaster, and focus its resources on wholesale as well as prime of prime services.

INTL FCStone Joins ECC As New Direct Clearing Member
The European Commodity Clearing (ECC) welcomes INTL FCStone, London, as a new Clearing Member.

J.P. Morgan Reassigns Banking Roles Across Asia
J.P. Morgan Chase & Co. reassigned roles among its senior bankers across Asia, giving broader roles to a handful of veteran bankers from within its own ranks, according to people familiar with the situation.

Credit Suisse beats first-quarter expectations
Laura Noonan, FT
High market volatility helped Credit Suisse boost net income 23 per cent in the first quarter, but shares in the lender dropped over concerns that the bank may have to raise capital.

Clearing & Settlement

The Mother Of All Margin Calls!
This past Friday, Dave Kranzler of Investment Research Dynamics put out a very thoughtful article and chart regarding the spike in “reverse repurchase agreements” RRP’s held at the Fed.

LCH.Clearnet opens Australian dollar account with RBA
Asset Servicing news
Central counterparty (CCP) LCH.Clearnet has established new deposit and liquidity facilities with the Reserve Bank of Australia (RBA). It is the first overseas licensed CCP to maintain an exchange settlement account with the RBA and has started to settle its Australian dollar payments via this account.

Can SEBI – FMC merger work?
Business Line
ceptics have two views on what lies ahead with regard to SEBI-FMC merger. Views are that while the merger will be smooth, the commodities regulator will simply be a division under SEBI or no real changes will be effected.
Their alternate view is that despite the best of intentions, the differences in regulating markets as diverse as equities and commodities will actually stymie growth in commodities markets since the regulator will now try to drive both bulls with the same stick.

LCH sees swaps value fall below $300 trillion
Luke Jeffs – Futures & Options World
LCH. Clearnet said its Swapclear service has reduced the value of interest rate swaps on its system by more than a sixth this year to less than $300 trillion as more firms have started using the service to avoid punitive capital costs.

Indexes & Products

Low Volatility Works for This Small-Cap ETF
ETF Trends
With risk appetite high, low volatility exchange traded funds have recently taken some flak for lagging their traditional broad market peers.
That criticism, a familiar refrain as low volatility funds have become increasingly popular with investors, often focuses on the performance of “low vol” ETFs in short time frames. Over the long haul, ETFs that emphasize a volatility damping approach have often offered superior risk-adjusted returns.

Schwab Touts Fundamental Indexes As Alternative To The S&P 500
Seeking Alpha
Traditional market capitalization-based indexes like the S&P 500 assume “the biggest companies are the best companies,” according to Schwab’s Anthony Davidow, and “some would even say that market-cap indexes overweight the overvalued stocks and underweight the undervalued stocks.” In response to these inherent shortcomings of market cap-weighting, Mr. Davidow advocates fundamentally weighted indexes in the recently published whitepaper, Fundamentally Weighted Indexes: An Alternative to the S&P 500?

Despite Rate Increase Chatter, Bonds Are Outperforming
ETF Trends
The yield of the U.S. Treasury 10-year as measured by the S&P/BGCantor Current 10 Year U.S. Treasury Bond Index ended the week 9 basis points as month-over-month CPI was the same as prior and lower than the 0.3% expected level. A drop in crude oil futures also helped push treasury yields to lower at the close of the week. The index has returned 0.71% MTD and 3.79% YTD. Ahead this week the Treasury will be auctioning $18 billion of 5-year TIPS.

The Empowering Ability to be Selective in Emerging Markets
S&P Dow Jones Indices
With a recent webinar on China, an ETF.COM article titled “Global Investors Plan To Shun Emerging Markets” caught my eye. The article, written by Rachael Ravesz, noted that 29% of the 4,208 investors surveyed by asset manager Legg Mason planned to move money from Emerging Markets into Developed Markets. The article shared a few reasons why global investors may now be reassessing their views on Emerging Markets including poor performance of the EM benchmark, the impact of oil prices, and a strong US dollar.


China’s Stock Market Boom Sees Shanghai Exchange Grow Too Big For Its Own Computers
A boom in China’s stock markets caused confusion on the Shanghai bourse on Monday, when it grew too big for its own computer software to handle.
Trading on the Shanghai Stock Exchange (SSE) totaled 1.15 trillion yuan ($185 billion) — the first time it has exceeded the one-trillion mark. However the exchange’s computers were not able to display the figure fully, since its computer software simply did not have enough zeros, according to officials.

Wells Fargo exec leaves for St. Louis fintech accelerator
Atul Kamra, who was appointed head of advice at Wells Fargo Advisors in 2012, is leaving the St. Louis-based brokerage to become managing partner at SixThirty, the financial services technology accelerator.

22 Fintech Apps Coming To Apple Watch
There are at least 22 fintech apps coming to Apple Inc.’s smartwatch. Read on to see which apps have been confirmed.

Meet the Game Changers from the FinTech Startup Conference
Money makes the world go ’round and, the 2015 FinTech Startups Conference brought together forty Silicon Alley game-changers to continue the dialog on revolutionizing how we use it. Here were my favorite, thought-provoking moments from the conference:

Fintech investment growing in Hong Kong
Press Release
John Tsang, the Financial Secretary of Hong Kong, has said that the country would be “an ideal place” to develop into a financial technology hub and venture capitalists are increasingly seeing the potential for fintech investment opportunities in this region.
Herman Lam, CEO for the creative digital community Cyberport, says that fintech companies can be split into two groups: “FSI solution providers and status quo disrupters.” The former comprises of companies who help large financial institutions generate more revenue, cut cost or launch new services like Cyberport is doing.


CFTC Charges Florida Resident Dorian A. Garcia and his Companies, DG Wealth Management, Macroquantum Capital LLC, and UKUSA Currency Fund LP with Fraud and Registration Violations
Garcia Allegedly Operated a Ponzi Scheme in Connection with Forex and Options Pools and Stole Approximately $2.5 Million Invested by Customers; Federal Court Enters Emergency Order Freezing Defendants’ Assets and Protecting Books and Records
The U.S. Commodity Futures Trading Commission (CFTC) announced that Judge Sheri Polster Chappell of the U.S. District Court for the Middle District of Florida entered an emergency restraining Order freezing assets and prohibiting the destruction or concealment of books and records of Defendants Dorian A. Garcia, and his companies, DG Wealth Management (DG Wealth), Macroquantum Capital LLC, and UKUSA Currency Fund LP, all of Naples, Florida. The judge set a hearing date for April 29, 2015.

SEC Charges BlackRock Advisors With Failing to Disclose Conflict of Interest to Clients and Fund Boards
The Securities and Exchange Commission today charged BlackRock Advisors LLC with breaching its fiduciary duty by failing to disclose a conflict of interest created by the outside business activity of a top-performing portfolio manager.

Environmental & Energy

PEGAS: Launch of Physical Futures contracts for PSV market area on 17 June 2015
PEGAS, the pan-European gas trading platform operated by Powernext, will launch new physical natural gas Futures contracts on the Italian Punto di Scambio Virtuale (PSV) on 17 June 2015 to complete the existing offer.
(No Link)

Top oil trader calls end to price rout
Ian Taylor, chief executive of the world’s largest independent oil trader Vitol, said oil prices have hit their lows.

Dispatches from the 2015 FT Commodities Summit
by Izabella Kaminska , FT
FT Alphaville is in Lausanne, Switzerland, for this year’s Commodities Summit. The conference is taking place at the Beau Rivage — a hotel so good that John Oliver has even expressed a desire to have intimate relations with it — and the opening keynote from Ning Gaoning, chairman of China National Cereals, Oils and Foodstuffs Corporation (COFCO) is about to begin.

ArcelorMittal steels itself for revamped green push
By BusinessGreen
Steel and mining giant ArcelorMittal has this published a wide-ranging new sustainability, setting out a 10 point plan designed to boost steel recycling rates and help build a “low carbon future”.

Apple Makes New Commitment To Fight Climate Change, But Has A Long Way To Go
By James Gerken – The Huffington Post
Apple on Monday released its 2015 Environmental Responsibility Report, underscoring its commitment to lessening the environmental impact of its products and operations.

British Columbia Carbon Plan Eyes Buildings While Caps Ruled Out
By Josh Wingrove – Bloomberg News
British Columbia, pledging to step up the fight against climate change while ruling out carbon caps, is considering tougher building standards, its premier said.


Hong Kong stock surge spurs block trade boom; China bank deals seen
A sharp rally in Hong Kong stocks has spawned 11 block trades worth $3.4 billion in April alone and bankers say a raft of similar deals is waiting in the wings, including Spanish lender BBVA’s stake in China’s CITIC Bank Corp.
In a welcome fee windfall for investment banks amid a lacklustre IPO market, demand for block share trades is so robust that fund managers who missed out on the recent surprise stock surge are taking the unusual step of actively seeking out deals.

How Beijing will control soaring stocks
South China Morning Post
The Hong Kong stock market has garnered a lot of attention of late amid increased volatility and a huge rise in transaction volumes. Even the financial secretary commented on the market, saying in his blog that he was delighted to see the rebroadcasting of the TV drama The Greed of Man during this volatile period.
There has been talk about whether the mainland government is behind the rise of the A-share market to create a wealth effect and support the slowing economy, and whether it has also been encouraging money flows into Hong Kong to facilitate a similar rise in the Hong Kong stock market.

The 80% BlackRock ETF return that shortchanged China stock bulls
Most stock investors would be thrilled with an 80 per cent return in the past year. For those who bought BlackRock’s flagship ETF for mainland Chinese shares, however, it’s akin to getting shortchanged.
The $US9.1 billion iShares FTSE A50 China Index ETF, an exchange-traded fund designed to track returns of the 50 largest companies traded in Shanghai and Shenzhen, has underperformed its benchmark by a whopping 29 percentage points on a total return basis over that span.

China to approve new foreign fund managers for QDLP scheme
Five foreign fund and private equity managers are set to gain approvals to enter a pilot scheme aimed at opening China to the $2 trillion-plus global hedge fund industry.

Currency Swings Worry Treasurers in Asia
The biggest worry for treasurers of Asian companies this year? Currency markets. That’s according to a J.P. Morgan survey that found 40% of treasurers in the region said foreign exchange was their primary concern as they worry that big currency swings could hit global growth over the next year.

China Sees First Bond Default by State Firm With Tianwei
A Chinese power-transformer maker became the country’s first state-owned company to default on an onshore bond, signaling the government’s willingness to let market forces decide an enterprise’s fate.

China needs more reform to avert ‘boom bust’ market scenarios: BlackRock
The chief executive of BlackRock Inc (BLK.N), the world’s largest money manager, said on Tuesday that China will need to continue to reform its capital markets to avert what he called boom and bust scenarios.

Frontier Markets

Top Commodity Trading Houses Line Up for Iran’s Return to Market
by Javier Blas, Bloomberg
The world’s largest commodity trading houses are first in line to profit from the much expected return of Iran to global markets as Tehran and Washington enter into the final three-months of nuclear talks.

Africa ‘Could Tackle Insecurity With Smart Agriculture Policies’ – Frontier Markets News – Emerging & Growth Markets
Rapid urbanization across Africa and growing inequality are threatening to increase social tensions and further destabilize a continent that is already home to 29 fragile states, says Akinwumi Adesina, Nigeria’s Minister of Agriculture. The solution, he believes, lies in smart planning and a new approach to agricultural development.

Mongolia – Is This Guy For Real?
Seeking Alpha
Mongolia has a kind of raw seething grittiness to it. It is like a brand spanking new 8 liter V-10 engine with the chassis in place but the rest of the machine is a mishmash of bolted on parts, the seats come from an abandoned Lada, the interior is decorated with sun damaged vinyl from a 1960s Japanese import and somebody stuck the wrong wheels on the damn thing.
The potential is there and you know that if you put your foot down, no matter the appearance it’ll hop. Replace just a few parts and you’ll be enjoying a whole new experience. This promises to be chaotic.

READ MORE: John Lothian: Exchanges, SIFMA go to SEC trial in battle over market data fees; Aberdeen, Blackrock flag risks in frothy Chinese stock markets; Stock-Trading Monopolies Weren’t So Bad.

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