First Read
Have a nice extended weekend everyone. For those in Chicago, you can ride your bike on Lake Shore Drive on Sunday morning. On Monday, a tip of the cap to those who put their lives on the line and made the ultimate sacrifice for our country.
We’ll be back on Tuesday.
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Winston & Strawn sued in $100 million malpractice lawsuit
Claire Bushey, Crain’s Chicago Business
A more than $100 million malpractice lawsuit filed in federal court against Winston & Strawn says the firm failed a client by not advising the business to stop breaking the law. A Winston lawyer counseling Las Vegas-based Hunter Wise Commodities, a company purporting to trade in precious metals, should have told it to change its business model or shut down before it was sued by the Commodity Futures Trading Commission
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**JK – Such is the case in the situations. Customers are still awaiting a decision on Bank of New York’s potential liability in the 2007 Sentinel case.
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Wall Street will always crush the little guy, but the stock market could be fairer
MarketWatch
U.S. stocks have more than tripled since bottoming out in March 2009 during the Great Recession, rising in value by a staggering $12.8 trillion. But the average American household has been left behind. Most of the gains went to the wealthy and institutional investors including investment banks and hedge funds. Fewer than half of U.S. households own stocks either directly or indirectly, down from a peak of more than 53% in 2007.
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**JK – Education, Education, Education.
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Banks caught in forex probe braced for legal barrage
FT.com
Lawyers are rubbing their hands in anticipation of the barrage of civil lawsuits that they expect after the $5.6bn settlements by six banks for allegedly defrauding their clients by manipulating foreign exchange markets.
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**JK – An opportunity for Winston & Strawn!
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Third time unlucky as ICE delays Singapore futures market again
The Edge Markets
Intercontinental Exchange Inc. delayed the start date for its Singapore futures market a third time, another setback for the exchange operator’s expansion into Asia. ICE Futures Singapore will not offer trading in Brent crude, gold or yuan derivatives until the second half of the year, ICE spokeswoman Claire Miller said in an e-mail on Thursday.
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**JK – I’m also thinking they won’t launch on a Friday, the 13th.
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Bank FX Fine Scorecard (Follow Along at Home!)
By Matt Levine – Bloomberg View
The foreign-exchange settlements are very hard to keep straight so I made a little scoreboard of the various fines that various banks have paid to various regulators:
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***DA: Before you click over, take a guess – is the grand total $6 billion, $10 billion, or $18 billion thus far?
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The World’s Top 10 Beers
Bloomberg Business
The global beerscape has changed dramatically over the past decade, as growth in China benefited mainland brands
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***DA: Spoiler alert: none of the top ten contain the word “Milwaukee.” Sorry, Jim Kharouf
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Lead Stories
Investigators probe $500tn interest rate swaps market
Philip Stafford, FT.com
If banks thought Wednesday’s settlement over foreign exchange manipulation would help them draw a line under allegations of benchmark rigging, there was a nasty surprise buried in one of the settlements Barclays inked with a US derivatives regulator. The UK bank became the first institution to be fined over allegations it manipulated Isdafix, a key interest rate swaps benchmark, in a five year-period between 2007 and 2012.
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As LME looks east, CME throws down challenge in west
Andy Home, Reuters
While HKEx looks east, U.S. exchange CME has just thrown down a challenge in the west with an announcement it is planning to launch a zinc contract for North American users. The LME itself is looking to launch new contracts, including a re-entry into the ferrous trading space, in effect counter-challenging CME’s existing steel offering.
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U.S. SEC Commissioner Stein issues dissent on waivers for 5 banks
Reuters
A top U.S. regulator issued a scathing dissent late on Thursday over her agency’s decision to grant a series of regulatory waivers to five big banks which pleaded guilty to market manipulation on Wednesday. Securities and Exchange Commission Democratic member Kara Stein said in a statement that allowing the banks to “continue business as usual, after multiple and serious regulatory and criminal violations, poses risks to investors and the American public that are being ignored.”
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NYSE liquidity drive pushes midday auction
FT.com
The New York Stock Exchange plans to institute a midday auction in an effort to boost liquidity in thinly traded stocks. The move makes it the latest high-profile venue to explore the use of auctions as a way to attract trading back on to the exchange that has either leaked away to rival venues or disappeared as brokers withdraw from uneconomic parts of the market.
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Wall Street Flouts Fed Standards to Fund High-Risk Loans
Bloomberg Business
Regulators’ efforts to rein in Wall Street’s biggest banks are in danger of backfiring. Guidelines aimed at strengthening lending standards are shifting the market for high-yield credit to less-supervised loan funds, raising alarm this week from the Financial Stability Oversight Council.
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Fed Proposes Relaxing Rules Affecting Municipal Bonds
By Ryan Tracy and Andrew Ackerman, WSJ
Large U.S. banks will be able use some municipal bonds to meet new post-crisis rules aimed at ensuring they have enough cash during a financial-market meltdown under relaxed rules proposed by the Federal Reserve
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Jury Sides With High-Speed Trading Firm Quantlab
By Bradley Hope, WSJ
A Houston-based high-frequency trading firm won a six-year civil lawsuit against a former employee and a businessman it accused of stealing code. A jury awarded Quantlab Financial LLC $12.2 million in damages from Andriy Kuharsky and Emmanuel Mamalakis, according to court documents. Both defendants said they would appeal the decision.
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ECB’s Mario Draghi Urges Economic Overhaul in Europe
WSJ
European governments must step up efforts to overhaul their economies, European Central Bank President Mario Draghi said Friday, calling on political leaders to use the recovery brought on by the ECB’s stimulus to reform labor markets and make economic flexibility “part of our common DNA.”
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Regulatory
Lawmaker Subpoenas Fed, Seeking Evidence of a Leak
NYTimes.com
A powerful congressman is compelling the Federal Reserve to provide documents related to a possible leak in 2012 of market-moving interest-rate information to a financial newsletter.
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CFTC should team with exchanges to surveil derivatives market, Wetjen says
Neil Roland, MLex
The US Commodity Futures Trading Commission should partner with futures and swap exchanges to improve derivatives market surveillance following charges that a London trader contributed to the 2010 flash crash, Commissioner Mark Wetjen said Thursday.
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New York Soon to Unveil Fresh Bitcoin Licensing Rules
By Michael J. Casey, WSJ
In one of his final moves as New York’s top financial regulator, Benjamin M. Lawsky will soon unveil a set of new licensing rules that could have long-lasting effects on businesses using bitcoin and other virtual currencies. In doing so, bitcoin advocates fear Mr. Lawsky will cement his reputation for taking tough stands against the financial industry.
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Regulator outlines scope of UK banking probe
FT.com
The practice of banks cross-selling products to corporate clients is set to be a focus of the UK financial regulator’s probe into investment and corporate banking. The Financial Conduct Authority said it would look at the choice, transparency and bundling of services – such as when a bank raises money for a client on the condition it becomes their adviser on mergers and acquisitions.
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The FCA and innovation
Christopher Woolard, Financial Conduct Authority
Historically, financial regulators have had to worry about risks – principally the risk that something bad may happen from a prudential perspective. We still do, and quite rightly so. But this approach can encourage a mind-set where it is seen as somehow safe if the same firms sell the same tried and tested products.
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FCA: We are primed for robo-advice
Investment Week
The Financial Conduct Authority (FCA) has laid the groundwork for firms to come to market with ‘robo-advice’ models, its director of strategy and competition Chris Woolard has suggested.
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ESMA Calls For Modification Of UCITS Directive
Press Release
The European Securities and Markets Authority (ESMA) has published an Opinion to the European Union (EU) institutions on the impact of EMIR on UCITS. In the opinion, ESMA calls for a modification of the UCITS Directive to take into account the clearing obligations for certain types of over-the-counter (OTC) financial derivative transactions under EMIR.
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UK Financial Conduct Authority Publishes Terms Of Reference For Its Investment And Corporate Banking Market Study
Press Release
The Financial Conduct Authority (FCA) has set out the issues it will focus on as part of its market study into competition in investment and corporate banking. These markets are a cornerstone of the UK economy, helping companies raise capital for investment, expansion and funding ongoing operations.
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Exchanges & Trading Facilities
Derivatives in Singapore: More accessible than ever before
The Trade News
The importance of the offshore hard-currency market was not as obvious then. London was overtaking Paris as Europe’s financial hub, due to the growing pool of petrodollars which developed into an offshore Eurodollar market for USD funds. The Eurodollar interest rate future was therefore the first contract that SIMEX launched, with great success.
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Exclusive: CME developing European gold futures contract
Reuters
The Chicago Mercantile Exchange (CME) is developing a European gold futures contract to serve customers in London, three sources familiar with the matter said, which could present a direct challenge to London’s traditional cash market.
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CBOE Holdings Increases Share Repurchase Authorization By $100 Million
Press Release
CBOE Holdings, Inc. (NASDAQ: CBOE) announced today that its Board of Directors increased its share repurchase authorization by $100 million. Including this new authorization, the Board has authorized a total of $500 million for buying back shares since 2011.
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ISE Announces Two New Board Members
Press Release
The International Securities Exchange Holdings, Inc. today announced the addition of Eric Levine and Tyler Sorba to the Boards of Directors of its two exchanges. Additionally, eight non-industry directors, two exchange directors, and the Chief Executive Officer director were re-elected.
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EEX bourse to launch new Belgian, Dutch power futures
Reuters
The European Energy Exchange (EEX), continental Europe’s biggest power bourse, said on Thursday it will offer trading on financially settled Belgian and Dutch electricity futures from June 22.
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LSE sets up new unit to cut regulatory capital
Financial News
The London Stock Exchange Group has set up a dedicated cost-saving unit designed to reduce the capital it is required to hold by regulators, one of several measures helping the UK bourse to knock an additional EUR40 million off the cost base of its clearing house from 2017.
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SGX and Zhengzhou Commodity Exchange Seal Collaboration with MOU
Singapore Exchange
Singapore Exchange (SGX) and Zhengzhou Commodity Exchange (ZCE) have signed a memorandum of understanding (MOU) to collaborate on efforts that jointly develop and expand the commodities markets in China and Singapore. The agreement was signed in Singapore, between Mr Zhangfan, Chairman of ZCE and Mr Magnus Böcker, CEO of SGX on Friday, 22 May 2015.
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Hedge Funds & Managed Futures
Commodity inflows fizzle after strong start in first quarter
FT.com
Enthusiasm for commodities has fizzled following a strong first quarter, as investors started to liquidate their positions after the rally in crude prices stalled.
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Two-fifths of FTSE 100 executives hold shares for five years
FT.com
Two-fifths of the UK’s largest public companies now insist that executives awarded shares in long-term incentive plans (LTIPs) must hold them for at least five years, in a sharp change from recent practice.
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Credit derivatives deserve a revival but only if financiers grow up
FT.com
Back in last decade’s crazy credit bubble, these products (in)famously boomed. But since then, trading in so-called single name credit default swaps, or instruments which let investors bet whether a specific company or country will default, has withered: activity is now a mere third of 2008 levels (although the picture for index products is better).
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Fed Is Trapped, Painted Into a Corner on Rates: Whalen
Bloomberg Business
Chris Whalen, senior managing director at Kroll Bond Rating Agency, discusses the potential timetable of a Federal Reserve rate hike and markets looking for validation on rates and the economy. He speaks on “Bloomberg Surveillance.”
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Risks not reflected in bank fine reaction – FT.com
Washington seems to have lost the power to shock Wall Street. Punishments this week for yet more bad bank behaviour totalled $5.6bn in fines, and a number of criminal charges — and markets shrugged.
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Banks & Brokers
Icap e-Commerce launches US Agency Securities matching engine
Finextra
CAP plc (IAP.L), a leading markets operator and provider of post trade risk mitigation and information services, announces today that ICAP Global Broking’s e-Commerce, the hybrid execution business of ICAP, has launched an US Agency Securities matching engine powered by ICAP’s premier US Agency Securities desk.
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Deutsche Bank suffers shareholder revolt at annual meeting
Investment Week
Deutsche Bank shareholders voiced their lack of confidence in the company’s leadership during its annual meeting yesterday, with 39% voting against approving the performance of the group’s co-chief executives.
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BNY Mellon to pay $180 mln to settle foreign exchange lawsuit
Reuters
Bank of New York Mellon Corp will pay $180 million to settle a foreign exchange-related putative class action lawsuit, the bank said in a regulatory filing on Thursday. BNY Mellon said the settlement will release the bank from all foreign exchange-related securities law claims brought against it or its affiliates in the suit.
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The Leniency Process Didn’t Work Out So Well for UBS
Bloomberg Business
UBS Group AG, in its bid to escape U.S. criminal charges of manipulating currency markets, turned to “the godfather of leniency.” As a Justice Department prosecutor in the early 1990s, Gary Spratling spearheaded a program that encouraged wrongdoers to admit to collusion to escape prosecution. Now UBS’s lawyer, Spratling played the leniency card in an effort to keep the Swiss bank from having to take a guilty plea. The plan came up short.
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Clearing & Settlement
PayPal’s new chief promises new services for a mobile world
Chicago Tribune
As PayPal prepares to split from its corporate parent, its new chief executive is promising to expand the popular online payment system, adding a variety of services for consumers to use when shopping on their phones or in traditional stores.
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European Swaps Market Delays Yielding Benefits to End Users as Final MiFID Rules Emerge, Says TABB
MarketWatch
Now that Europe has begun to implement a much-delayed program of reforms reshaping the landscape for swap market participants, TABB Group in new research, “European Swap Trading: Slow and Steady Wins the Race?”, says MiFID regulations have helped increase flows to central clearinghouses, driving swap compression and altered broker relationships.
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Indexes & Products
Smart beta: 2015 global survey findings from asset owners
FTSE Russell
In 2015, FTSE Russell conducted a follow-up survey to the well-received 2014 survey of institutional asset owners. The results are based on responses from 214 asset owners representing various types of institutional investors across the globe. The goal was to better understand how the perception and adoption of smart beta have continued to evolve globally.
Review the results and comprehensive analysis for greater detail and insight into the growing interest in and adoption of smart beta among asset owners.
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STOXX Monthly Index News: UK Offsets Performance Of Weakening German Market In Europe
Press Release
Heavy distortions in the German debt market sustained by the ECB system’s massive purchase program were corrected before the end of April. Germany’s strong negative impact on the STOXX Europe 600 Index has been compensated by the high country contribution in particular of the UK. Despite insecurity before the elections, the UK market performed strongly after the Greek crisis slightly eased in April.
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Japan Exchange Group: Start Of Calculation And Publication Of JPX-Nikkei 400 Leveraged And Inverse Index
Japan Exchange Group, Inc. and Tokyo Stock Exchange, Inc. and Nikkei Inc. will launch the leveraged and inverse indices of the JPX-Nikkei Index 400, which was launched on January 6, 2014.
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S&P Dow Jones Indices Market Attributes: Risk & Volatility May 2015
The S&P 500 has returned to its winning ways. Beyond the VIX, shorter and longer term measures of S&P 500 implied volatility are depressed. Oil has played the role of the “joker” in recent times, importing geopolitical and energy risk into the equity and credit markets with great effect.
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Technology
These 2 simple slides show just how hot fintech is right now
Business Insider
Financial technology — or FinTech — is booming, with money flooding into the sector on both sides of the Atlantic.
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Nasdaq Taking Apple, Microsoft to Shenzhen With Tech Stock ETF
Bloomberg Business
Nasdaq OMX Group Inc. is seeking to tempt Shenzhen stock investors with Apple Inc. and Microsoft Corp. amid a rally in Chinese technology shares that’s making the U.S. dot-com bubble look subdued.
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When Goldman Sachs Began Flirting with Bitcoin
Bank Think
A few hours after Newsweek released its story about the man it alleged to be Satoshi Nakamoto, in March 2014, four men took the stage at an auditorium in the New York headquarters of the Wall Street giant Goldman Sachs to talk about Satoshi’s creation.
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6 Rising FinTech Startups
Cointelegraph
The financial services technologies (FinTech) industry has had over 45 venture capital investments, equivalent to US$3 billion in global ventures in 2013. Kantox reported that the number of deals in 2014 and 2015 is projected to hit around 60-70, as the global growth rate of the industry reaches a 26%.
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Enforcement
Bitcoin 1, PayPal 0: PayPal Fined $10 Million for Deceptive Practices
CryptoCoinsNews
The crux of their deception was enrolling customers into a credit program without their consent, creating a situation where people were on the hook for credit they’d never asked for. As you know, any credit program can have an effect on your credit score.
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SEC Announces Charges Against Investment Firm and Two Executives Accused of Defrauding Police and Firefighter Pension Funds
SEC.gov
The SEC’s Enforcement Division alleges that Gray Financial Group, its founder and president Laurence O. Gray, and its co-CEO Robert C. Hubbard IV breached their fiduciary duty by steering these public pension fund clients to invest in an alternative investment fund offered by the firm despite knowing the investments did not comply with state law. Georgia law allows most public pension funds in the state to purchase alternative investment funds, but the investments are subject to certain restrictions that Gray Financial Group’s fund allegedly failed to meet.
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Environmental & Energy
Top EU companies urge drastic cuts in greenhouse gas emissions
Reuters
Top European companies urged governments on Thursday to set a goal of slashing greenhouse gas emissions to net zero well before 2100, saying that going green can bring profits rather than costs. Business leaders from global and European alliances of companies including Unilever, Total and Saint-Gobain also called for a global price on carbon emissions and a phase-out of fossil fuel subsidies.
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Energy divestment campaigns a ‘red herring’, says Shell CEO
Reuters
Royal Dutch Shell Chief Executive Ben van Beurden on Thursday slammed as a “red herring” calls for investors to divest from energy companies as part of the fight against climate change. Van Beurden singled out the “Keep it in the Ground” campaign led by British newspaper The Guardian that aims at keeping charitable funds from investing in fossil fuels
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Coal and solar power executives clash at Paris climate conference
FT.com
Tony Hayward, chairman of mining company Glencore, has clashed with wind and solar power executives who say renewable energy can replace coal in industrialising countries such as India and China. Mr Hayward, whose company is the world’s largest exporter of power station coal, told a business and climate change meeting in Paris that people had to recognise it was simply “not possible” to remove coal from the energy mix in countries such as India.
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Asia-Pacific
Japan Still Beating China on One Score: World’s Top Creditor
Bloomberg Business
Japan’s foreign investments and assets climbed to a record in 2014, keeping it in front of China and Germany as the world’s top creditor nation. The reading stretches Japan’s lead as No.1 creditor country to 24 years, with 71 percent more in net assets than China, even after its Asian neighbor surpassed it to become the world’s second-largest economy in 2010.
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China: staggered reform on one side, equities on the other
FT Alphaville
From SocGen’s Wei Yao, a chart we’re very tempted to plonk beside one of China’s equity markets
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How the renminbi has grown from strength to strength
Economia
By the end of this year, the International Monetary Fund will decide whether the Chinese renminbi will join the euro, the Japanese yen, the British pound, and the US dollar in the basket of currencies that determines the value of its international reserve asset, the Special Drawing Right (SDR). China is pushing hard for the renminbi’s inclusion. Should it be admitted?
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Hong Kong market under scrutiny after Goldin and Hanergy falls
FT.com
Since Wednesday, shares in three huge Hong Kong-listed companies have lost half their value. Investors in Hanergy Thin Film, Goldin Financial and Goldin Properties are nursing a combined $36bn in paper losses, without a single fundamental reason, such as a big announcement, to explain the slide.
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Hong Kong and Mainland China to Partly Open Markets for Investment Funds
NYTimes.com
Six months after a groundbreaking link between their stock markets took effect, Hong Kong and mainland China announced on Friday that they would partly open their respective markets for investment funds.
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Asia’s Fastest Growing Cities Aren’t All in China
Bloomberg Business
Move over, Shanghai. The fastest growing city in Asia over the next five years will be Delhi, according to Oxford Economics. Chinese cities make up only three of its top 10 list, with India accounting for six. Ho Chi Minh City is the sole outsider beyond the two giants.
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Hong Kong Investors Want More Oversight After $35 Billion Wipeout
Bloomberg Business
After $35 billion in market value was erased from three Hong Kong-listed companies over two days, investors are asking if the city’s regulator should have done more to prevent the sudden selloff.
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Yet Another Ghost Town in China Shows Extent of Regional Debt Crisis
Bloomberg Business
China’s Ordos city, where towers that sprang from Inner Mongolian farmland now sit empty, is showing the hangover has just begun from a decade-long building boom.
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Frontier Markets
Warsaw Stock Exchange: “Capital For Growth” Project Launch
Capital for Growth’ is our key project designed to enhance IPO activity on the equity and bond markets. We want to meet with companies and local governments and present examples of successful companies which have grown their business, entered new markets and become more credible providers thanks to an IPO on the exchange. We will encourage potential issuers to join the capital market and discuss the related challenges
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Swap transactions allowed for rupee-denominated foreign loans: RBI
Business Standard News
To facilitate external commercial borrowing (ECBs) and lending denominated in rupees by foreign lenders, the Reserve Bank of India (RBI) has allowed such lenders to enter into swap transactions with their overseas bank, which shall in turn enter into a back-to-back swap transaction with banks in India.
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Emerging-Market Crisis Threat Does Little to Scare Bond Buyers
Bloomberg Business
To hear regulators tell it, traders should be up at night worrying about a crisis in emerging-market debt. A sharp increase in U.S. interest rates could threaten financial conditions in developing economies, Federal Reserve members said in meeting minutes released Wednesday. The Financial Stability Oversight Council echoed this warning in a report released this week that said “a rise in yields in advanced economies could spark a sell-off in emerging-market bonds and destabilize markets.”
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READ MORE: John Lothian Newsletter: Investigators probe $500tn interest rate swaps market; As LME looks east, CME throws down challenge in west; NYSE liquidity drive pushes midday auction.