First Read
Brazilian Bits
Jim Kharouf – JLN
The World Federation of Exchanges/IOMA Derivatives and Clearing Conference got underway in São Paulo, Brazil on Monday. Market regulation and clearing issues ruled the day’s panels. Here are a few bits from this beautiful, gritty and sprawling city which has more trees and traffic than expected, as well as graffiti that appears to be on almost every building, on every story. One could only ask two questions – why and how?
Stu Wexler, regional COO and general counsel of ICAP North America, made the point that the CFTC’s overreach, often dubbed extraterritoriality, essentially cut swaps trading between European and Asian customers with US clients, out of fear the CFTC would soon be knocking on doors in London and across Asia.
Cicero Augusto Vieira Neto, COO of the host exchange BM&FBovespa, said it has consolidated four clearing divisions, cash equities, futures, FX and bonds, into one-pot clearing. Why? Because of new international capital requirements that have forced it to provide more favorable margining for customers.
Many of the panel conversations were about systemic risk and the methods used to prevent massive failures. Mike McClain, president and COO of the OCC, outlined the traditional clearing models used there and added that OCC is also stress testing future scenarios its never tested for before.
Gaurang Desai, interim CEO of the Dubai Gold and Commodities Exchange, said his exchange is working to build a new “Silk Road” from China through Dubai to Africa for gold, diamonds and tea.
Panelists on the commodities panel, which I moderated, agreed that Africa has enormous potential in terms of its commodities exchange growth. Clive Furness, managing director at Contango Markets said the Chinese push into the continent for raw materials necessitates the need for more price transparency there.
The Nairobi Securities Exchange plans to open a derivatives market this year or next.
Juan Pablo Cordoba, chair of WFE and CEO of the Bolsa de Velores de Colombia, articulated the unintended consequences of Dodd-Frank and European regulation, which has driven up costs and requirements in developing markets, and driven down volumes. “We will end up with six or seven global central clearing parties and a second class world with domestic markets, with domestic players. This isn’t good for emerging markets.”
Stay tuned for more from the cloudy and rainy metropolis of 13 million, that is also known as “the land of drizzle.”
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Rocking for ALTSO: Live at the Tech Tap
Trade Talk: Trading Technologies’ Blog
Last week at the TT Tech Tap, we hosted a sponsor-appreciation event for a terrific non-profit group called A Leg To Stand On (ALTSO). Several talented folks who have day jobs in our industry entertained the crowd with live music, and proceeds raised went to provide relief for the Nepal earthquake victims. We even got featured on Chicago’s WGN-TV news in a story about local Nepal fundraisers.
You might have heard of ALTSO and their Rocktoberfest events, which take place each October in New York and Chicago. TT is proud to be associated with ALTSO and their mission of providing free orthopedic care to kids around the world who suffer from limb disabilities. Last week’s event was aimed at recognizing ALTSO’s many corporate sponsors while also attracting support from additional firms in the industry.
I sat down with two industry veterans and long-time friends, Chuck Mackie and Ray McKenzie, to talk about their personal involvement with ALTSO, the group’s mission, their upcoming events and how others can help.
Read the interview on the Trade Talk blog site
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SEC Backlog Delays Whistleblower Awards; Claimants are often kept waiting for a decision, data show
By RACHEL LOUISE ENSIGN And JEAN EAGLESHAM, WSJ
As part of its popular whistleblower program, the Securities and Exchange Commission promises to move swiftly on useful information about potential wrongdoing. But the agency isn’t as speedy when it comes to paying off its tipsters.
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***** Is this delay a function of regulatory uncertainty?
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OIC Conference Preview: BOX CEO Ed Boyle on how the options industry is working to address market challenges
JohnLothianNews.com
At this year’s Options Industry Conference in Miami Beach, participants will discuss such crucial industry issues as market quality and deteriorating volumes, the implementation of Dodd-Frank and Reg SCI, technology and risk management. The conference is hosted by BOX Options Exchange, whose new CEO, Edward Boyle, spoke with John Lothian News about some of these issues and what’s being done to address them.
Watch the video »
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Webinar on demand: Collateral efficiency: mobility, velocity & optimization required – but how?
Eurex
Our recent webinar gives you insights on collateral efficiencies and capital management. Hosted by DerivSource, the panel of buy and sell side industry experts discusses practical strategies for achieving collateral efficiency including the use of tools to improve collateral optimization, mobility and velocity.
jlne.ws/1GM9eCf
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Lead Stories
Goldman’s Self-Defeating Case Against a Programmer
By Leonid Bershidsky, Bloomberg
Here’s to Sergey Aleynikov, the former Goldman Sachs programmer convicted Friday of stealing the bank’s high-frequency trading code, for accepting no compromises and persisting with a legal battle that still could put him in prison. By having the U.S. court system recycle the shaky six-year-old case, he is showing others like him the absurdity of working for old Wall Street banks in an era when a tiny startup, or even a guy trading from his home, can run circles around them.
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Bond platforms look to bury archaic phone trading
Robin Wigglesworth, FT
When bond traders fancy lunch, they can order from a panoply of smartphone apps and get a burrito or pad thai delivered promptly to the desk. When they want to buy some corporate bonds, an archaic landline phone is still usually required. But that may soon be changing.
jlne.ws/1F3wErZ
LSE Enters Contest to Build European Dark Pool Called Plato
by John Detrixhe, Will Hadfield, Bloomberg
London Stock Exchange Group Plc has entered the competition to build a not-for-profit European dark pool backed by a consortium of banks and asset managers.
jlne.ws/1zw4PGe
Exchanges urged to do more to oust tricksters
Philip Stafford in London and Gregory Meyer in New York, FT
The renowned freewheeling and aggressive environment of futures trading is now firmly under the microscope with the industry keen to show it can still police itself. The arrest of UK trader Navinder Singh Sarao for four years of alleged market manipulation of equity futures has shone a fierce spotlight on the dubious trading practices known as spoofing and layering, and done little to improve the reputation of markets.
jlne.ws/1Kcp7Vq
Why Elizabeth Warren Makes Bankers So Uneasy, and So Quiet
by Katrina Brooker, Bloomberg
The rollback of financial regulation is stalled. Income inequality is a campaign issue. Americans are still angry about the financial crisis. Things aren’t shaping up the way the big banks expected, and an important reason is one laser-focused senator from Massachusetts.
Let’s assume that when he woke up on the morning of Dec. 12, Michael Corbat, CEO of Citigroup, was feeling pretty good. The day before, the House of Representatives had passed a bill that would save his bank and others lots of money and headaches.
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Shedding light on domestic oil prices: New ETF will track Western Canadian Select crude market
Financial Post
Tim Pickering, the chief executive of Calgary-based hedge fund Auspice Capital Advisors, wants to provide greater, more direct access to the Canadian crude market. “If you have a view on Canadian oil, looking at WTI or Brent prices is not representative of that,” he said in an interview in Toronto. “So we’re giving investors a tool to finally exercise that view.”
jlne.ws/1zIM7eQ
EU lawmakers brace for fight over financial-whistleblower protection
Neil Roland, MLex
A push to give financial whistleblowers greater legal protection appears to be heading for a showdown between the European Parliament and national governments. Safeguards for whistleblowers are being considered by European Commission officials drafting rules to implement the market-abuse legislation approved last year.
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Finra’s longtime critics become its supporters and vice versa
Friday hearing with CEO Rick Ketchum finds Republicans on the attack and Democrats doing the defense
By Mark Schoeff Jr., Investment News
Critics of the Financial Industry Regulatory Authority Inc., the industry-funded broker-dealer regulator, have been pining for Congress to delve into the organization’s workings with the same fervor it applies to the Securities and Exchange Commission. For the first time in the five years I’ve been covering Finra, the regulator appeared before a congressional committee on May 1 to discuss itself, not to testify on a particular rule.
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Regulatory
CFTC views cybersecurity and data integrity as top priorities; may issue regulations
By Boris Segalis (US), Michael Loesch and Ananda Radhakrishnan, Norton Rose Fulbright
Cybersecurity has recently become a high priority issue at the US Commodity Futures Trading Commission (CFTC) – the agency overseeing designated contract markets, swap execution facilities, derivatives clearing organizations, swap data repositories (SDRs), swap dealers, futures commission merchants, commodity pool operators and other derivatives market participants.
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Exclusive: Barclays Bank faces multimillion-pound legal challenge over Libor rigging – Business News – Business
The Independent
Barclays Banking Group’s role in the Libor-rigging scandal looks set to fall under the microscope once again after a storage company launched a multimillion-pound legal claim against the bank.
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Dodd-Frank Update: CFTC Proposes to Reduce Trade Option Obligations for End Users
by Todd Brecher, Craig Enochs, Paul Turner, Michael Yuffee, Reed Smith via JD Supra
On April 30, 2015, the Commodity Futures Trading Commission (“CFTC”) issued a notice of proposed rulemaking (“NOPR”) proposing to reduce certain reporting and recordkeeping requirements for end users. Notably, the NOPR proposes to eliminate the Form TO filing requirement and the Part 45 swap reporting requirement for end users in connection with trade options, while requiring end users to notify the CFTC if their trade option transactions have, or, alternatively, are expected to have, an aggregate notional value in excess of $1 billion in any calendar year.
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U.S. Supreme Court hands win to Barclays over $4 billion in Lehman assets
Reuters
The U.S. Supreme Court on Monday allowed Barclays Plc to claim about $4 billion of disputed assets as part of its hurried purchase of much of Lehman Brothers Holdings Inc’s brokerage unit at the height of the 2008 financial crisis. The U.S. top court declined to hear an appeal filed by Lehman’s creditors, leaving intact an August 2014 ruling by the 2nd U.S. Circuit Court of Appeals in New York that went in favor of Barclays.
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Commissioner Bowen Speech before the Managed Funds Association, 2015 Compliance Conference
CFTC
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Finra CARDS data breach risk is real; But it is no greater than what brokers already face and with proper software, can be minimized
By Alessandra Malito, Investment News
Potential security risk concerns over Finra’s highly-debated Comprehensive Automated Risk Data System proposal, or CARDS, are not simply hot air, cybersecurity and big data experts say.
jlne.ws/1ENp8OF
CFTC Staff Issues Interpretive Letter to Ford Motor Credit Company LLC
CFTC
The U.S. Commodity Futures Trading Commission’s (Commission) Division of Clearing and Risk (Division) today published a letter interpreting Section 2(h)(7)(C)(iii) of the Commodity Exchange Act (CEA) to clarify that a securitization special purpose vehicle that is wholly-owned by, and consolidated with, an entity described in Section 2(h)(7)(C)(iii) of the CEA qualifies as a captive finance company and, therefore, is eligible to elect the end-user exception from a clearing requirement determination issued by the Commission under Section 2(h) of the CEA.
ASIC cancels AFS licences for failing to lodge annual statements
ASIC
ASIC has cancelled the Australian financial services (AFS) licences of four licensees that failed to lodge audited annual statements.
These cancellations are the result of ASIC’s most recent proactive review of the conduct of 14 AFS licensees operating in the financial advice industry that had failed to lodge their audited annual statements.
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Exchanges & Trading Facilities
Average daily volume of 8.3 million contracts at Eurex Group in April
Eurex
In April 2015, the international derivatives exchanges of Eurex Group recorded an average daily volume of 8.3 million contracts (April 2014: 8.7 million). Of those, 5.9 million were Eurex Exchange contracts (April 2014: 6.1 million), and 2.4 million contracts (April 2014: 2.6 million) were traded at the U.S.-based International Securities Exchange (ISE). In total, 118.0 million contracts were traded at Eurex Exchange and 50.0 million at the ISE.
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Robert Grant Joins UnaVista to Boost North American Expansion
London Stock Exchange Group
UnaVista, London Stock Exchange Group’s global matching, reconciliation and regulatory reporting platform, today announced that Robert Grant has joined the firm as Head of Business Development, Software for Americas. Grant has 25 years of industry experience and, most recently since 2011, served as senior vice president of sales at Axiom Software Laboratories, where he also led marketing and business development across the Americas. During the previous five years, Grant managed sales at FRSGlobal, the regulatory reporting and risk management arm of Wolters Kluwer Financial Services.
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***DA: Bob Grant was yesterday’s MarketsWiki Page of the Day.
Toronto Exchange Confronts Controversial Trading Rebate System
Bloomberg Business
The Toronto Stock Exchange and its sister markets announced a step to curb one of the most controversial aspects of modern equity trading: the system of rebates and fees exchanges use to spur and reward transactions.
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Updated NYSE ARCA Trader Update for Short-sell Restriction
NYSE
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Hedge Funds & Managed Futures
For Top 25 Hedge Fund Managers, a Difficult 2014 Still Paid Well
By ALEXANDRA STEVENSON, ny Times
For investors in hedge funds, like big pension funds, 2014 was not a lucrative year. But for those who managed their money, the pay was spectacular.
jlne.ws/1IJfu2l
Junk Bonds Are The New Haven Assets
by Anchalee Worrachate, Sally Bakewell, Katie Linsell, Bloomberg
The new fixed-income haven is, of all things, the market for junk bonds.
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Pimco fund loses crown to Vanguard
Eric Platt and Stephen Foley in New York, FT
Turmoil sparked by the sudden exit of Bill Gross last September has cost the Pimco Total Return Fund its title as the world’s largest bond mutual fund, after another month of withdrawals in April.
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Banks & Brokers
Increase in investment banking revenue boost HSBC profits
Martin Arnold, Banking Editor, FT
HSBC has been embroiled in a scandal over its role in alleged tax-dodging
A rebound in HSBC’s investment banking operations helped Europe’s biggest bank by assets to report a 4 per cent rise in first-quarter pre-tax profits even as compliance and regulatory costs continued to rise.
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UBS almost doubles first-quarter earnings
Laura Noonan, FT
UBS came close to doubling its earnings in the first quarter, as higher levels of client activity and strong inflows of cash helped its wealth management business to its best performance since 2008 while market volatility drove higher returns at its investment bank.
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Clearing & Settlement
CME Group Clearing Notices
CME Group
Performance Bond Requirements: Equity Outrights- Effective Tuesday, May 5, 2015
CME Group Deliveries Plus ? SMART Click Migration
Modification to the CST610 Settlement Report for LSOC Minimum Margin Calls
Final Reminder: CME SFTP Enhancements Effective May 9th
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Understanding the Settlement Matching Initiative
DTCC
The Depository Trust & Clearing Corporation (DTCC) – recently completed the final phase of its Settlement Matching initiative, enabling clients to reduce risk, increase financial certainty and boost intraday settlement finality. John Kiechle, DTCC Vice President, Settlement Services, gives insight into the multi-year, four phase initiative that has fundamentally altered the U.S. settlement process for transactions in equities, corporate debt and municipal debt securities.
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Indexes & Products
It’s Not So Much the Current Weight, But the Weight That’s Put On
Indexology: S&P Dow Jones Indices
In addition to liquidity concerns in the credit markets, the rising amounts of debt have become a topic for discussion. The S&P U.S. Issued Investment Grade Corporate Bond Index has seen its market value actually decline from the beginning of the year’s USD 4.126 trillion to USD 4.077 trillion as of April 30, 2015.
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‘Passive’ Doesn’t Always Mean ‘Index’
Morningstar
DFA, strategic beta funds prove that traditional indexing isn’t the only passive method.
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TD Ameritrade’s Investor Movement Index: New Two-Year Low Marks Fifth Month of Decline in Seven Months
MarketWatch
TD Ameritrade, Inc., a broker-dealer subsidiary of TD Ameritrade Holding Corporation is today releasing the Investor Movement Index reading for April 2015. The Investor Movement Index, or the IMXsm, is a proprietary, behavior-based index created by TD Ameritrade that aggregates Main Street investor positions and activity to measure what investors are actually doing and how they are positioned in the markets.
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Russell Investments launches new fund for investors seeking yield-oriented investment strategies
Business Wire
To help investors balance the need for generating income today, while also aiming to drive portfolio growth to generate sustainable future income, global asset manager Russell Investments has launched the Russell Multi-Strategy Income Fund. The new fund, available via financial professionals, invests across a set of asset classes with both income and growth potential using a team of specialist money managers and strategies. Moreover, recognizing that market opportunities will likely change over the course of an investor’s time horizon, the fund has built-in flexibility to seek to adapt to risk and opportunities using dynamic portfolio management.
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MSCI offers A-share flexibility over index inclusion
AsianInvestor
MSCI sees a more flexible timetable ahead for reviewing China A shares’ admittance to global indexes. Capital market reforms and launch of Shenzhen-Hong-Kong Stock Connect would likely help China’s cause.
jlne.ws/1JnOdRb
FTSE Appoints New Director Of Australia And New Zealand
MondoVisione
FTSE Group (“FTSE”), the global index provider, today announces that Justin Walsh has been appointed as Director of Australia and New Zealand. The new hire builds on FTSE’s existing regional presence, reinforcing its commitment to providing innovative indices to superannuation funds, asset managers and consultants. The strengthening of the team reflects the continuing growth in popularity of passive investment management across the Australian and New Zealand market.
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Technology
Fidessa’s Affirmation Management Service named Best New Post-trade Solution for the Buy-side
Fidessa
Fidessa group plc (LSE: FDSA) has today announced that its Affirmation Management Service (AMS) has been recognised as the best new post-trade solution for buy-side firms in the Financial Technologies Forum and FTF News Technology Innovation Awards 2015. The award was presented in recognition of the innovation that AMS has brought to post-trade operations and the crucial operational efficiency improvements it delivers.
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Enforcement
Hong Kong’s Securities And Futures Commission Reprimands And Fines Kingston $500,000
MondoVisione
The Securities and Futures Commission (SFC) has reprimanded and fined Kingston Securities Limited (Kingston) $500,000 for fitness and properness concerns (Notes 1 & 2).
jlne.ws/1FMBCYP
Environmental & Energy
Latest Victim of California’s Drought: Water Bonds; Investors steer clear of debt issued by water utilities
By AARON KURILOFF, WSJ
California’s drought is starting to spread to the market for bonds issued by water utilities, long considered one of the safest types of debt sold by state and local governments.
jlne.ws/1PkTpH8
Einhorn targets US ‘frack addicts’
Stephen Foley in New YorkA, FT
David Einhorn, the short seller who bet against Lehman Brothers and Green Mountain Coffee, has turned his attention to US oil exploration companies, labelling them “frack addicts” who are wasting money on uneconomic wells.
jlne.ws/1ENq6KJ
Renewable energy investment fading, patents data show
By Julia Kollewe – The Guardian
The number of patents for renewable energy products filed worldwide has fallen by 42% over the last three years,which could suggest that global investment in green energy is stalling.
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Asia-Pacific
CLSA and CITIC launch global capital markets business
The Trade
Asian brokerages CITIC and CLSA have launched a new capital markets and corporate finance business to provide inbound and outbound investment services in Mainland China.
jlne.ws/1JnNgbA
Continued volume growth in SGX securities and derivatives markets for April
SGX
Singapore Exchange (SGX) saw continued growth in securities trading and record volumes in its derivatives market. There were 21 trading days in April 2015 as compared with 22 trading days in March 2015 and 21 trading days in April 2014.
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SGX seeks feedback on revised price limits for SGX MSCI Taiwan futures
SGX
Singapore Exchange (SGX) is launching a consultation on proposed revisions to price limits for the SGX MSCI Taiwan Index Futures contract traded on its derivatives market.
jlne.ws/1JnLZ4k
Forfeiture of Unclaimed Final Dividend for 2008
HKEx
Pursuant to the Articles of Association of Hong Kong Exchanges and Clearing Limited (“HKEx”), the unclaimed final dividend for 2008 is forfeited and reverts to HKEx.
jlne.ws/1dK896Q
China knocks on door of reserve currency club
Gabriel Wildau in Shanghai, FT
The internationalisation of China’s renminbi faces its stiffest test yet as the International Monetary Fund debates whether to endorse the “redback” as a reserve currency alongside the dollar, euro, yen and sterling.
jlne.ws/1QhUbao
Frontier Markets
Driehaus Capital Management Launches Frontier Markets Mutual Fund
PR Newswire
Driehaus Capital Management launched the Driehaus Frontier Emerging Markets Fund on May 4, 2015. The new mutual fund offering provides institutional investors with dedicated exposure to high growth frontier market companies.
jlne.ws/1GXKPPs
Africa’s growth momentum to slow
Ghana Web
The International Monetary Fund’s Regional Economic Outlook (REO) for sub-Saharan Africa has revealed that the region will record a growth of 4.5 percent amidst the impact of decline in price of commodities on the global market. Growth in the region has been boisterous, but a significant fall in the price of oil, iron ore among others will impact negatively on the region’s outlook, the Fund said at press conference in Accra last week.
jlne.ws/1GXKRqA
EU Looks to Turkmenistan to Break Dependence on Russian Gas
The Moscow Times
The European Union, keen to lessen its dependence on Russia for energy supplies, expects to start receiving natural gas from Turkmenistan by 2019, European Commission Vice President Maros Sefcovic said in an interview.
jlne.ws/1GXL3pR
Miscellaneous
These Brokers Will Get Your Favorite Celebs to Hang Out With You—for a Fee; The meet and greet has become a lucrative part of daily life for many musicians and movie stars
by Mark Ellwood
This month, Mariah Carey becomes the latest celebrity to hang her shingle at a permanent residency in Las Vegas, commandeering Celine Dion’s erstwhile home, the Colosseum at Caesar’s Palace, for her show, Mariah #1 to Infinity. She isn’t just selling conventional tickets to the concerts. The self-described Elusive Chanteuse is proving all-too-easy to track down, offering packages (aptly named after her biggest hits, such as We Belong Together) that offer an in-person experience with MC. The priciest, Fantasy, confers the chance to “share a moment on stage in the spectacular setting of her Las Vegas show” to anyone willing to pay $3,000 for the privilege.
jlne.ws/1EcQbiU
Broadridge Financial Solutions and the SIFMA Foundation Expand Partnership to Provide Financial Education and Math Skills to Students in NYC and LI
Broaderidge Financial Solutions, Inc.
Broadridge Financial Solutions, Inc. BR, -0.09% and the SIFMA Foundation have expanded their partnership to provide up to 24,000 students across New York City and Long Island access to The Stock Market Game™, a financial education tool with a strong track record of increasing students’ math skills and financial awareness.
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READ MORE: John Lothian Newsletter: Goldman’s Self-Defeating Case Against a Programmer; Bond platforms look to bury archaic phone trading; LSE Enters Contest to Build European Dark Pool Called Plato.