First Read

FinTech Chicago Gets Democratic

Today’s financial technology dialog is often about a word you don’t usually associate with it – democracy – bringing software, data, reporting, testing and trading to the masses. And it’s not just one size for everyone – its customizable too. At the FinTech Exchange 2015 Chicago event, 13 firm executives spoke during its lightning round. So John Lothian News took the best of two hours of presentations and condensed into 3 minutes. Here’s how some of those firms are democratizing and customizing technology for all of us.
Watch the video »

Mikhael Subotzky and Patrick Waterhouse win the Deutsche Börse Photography Prize 2015
Deutsche Börse
Deutsche Börse: The Photographers’ Gallery awarded Mikhael Subotzky and Patrick Waterhouse with the Deutsche Börse Photography Prize 2015 in London on Thursday night at a special ceremony in the Gallery. The announcement was made by the artist duo Adam Broomberg and Oliver Chanarin, who won the award in 2013. The annual award comes with a prize of 30,000 GBP and recognizes photographers who have made an important contribution to contemporary photography in Europe in the previous twelve months. Mikhael Subotzky (b. 1981, South Africa) and Patrick Waterhouse (b. 1981, UK) won for their publication Ponte City.

***** There is something to be said for a company with an appreciation for art like Deutsche Börse’s.


Dimon has a point about proxy advisers
By Jonathan Ford
One of the lessons of the financial crisis is that investors should beware of subcontracting key financial decisions to third parties. History might have been different had they been less willing to trust the word of credit rating agencies in the run up to the 2007 crash. However wise intermediaries may seem, they are as prone to conflicts of interest as anyone else.

***** A single point of failure for good decision making is not a good thing. Or put another way, all your eggs in one decision making basket is not a good thing. It seems the opposite of crowdsourcing decision making.


Unclear rules, market volatility take toll on bank capital
The rate at which European banks raised subordinated capital plummeted in the first five months of the year as they struggle to navigate a treacherous regulatory framework and market. It is a blow to those who expected banks to quickly build up an additional layer of loss-absorbing capacity (TLAC) to meet new global proposed requirements.

***DA: This story has been unfolding for six years. Trying to tie up more capital for loss absorption while simultaneously trying to stimulate moribund economies by any means necessary, has been a near impossible needle to thread.


England’s Bank Fines Are a Boon for a Happy Few; U.K. officials are funneling more than $1 billion in Libor penalties to the Battle of Agincourt anniversary, a ‘therapeutic baker’ and other charities
The coming 600th anniversary of the Battle of Agincourt, where King Henry V led England to an underdog victory over France during the 100 Years War, looked like it would come and go with little fanfare.

****** But alas the fines of the English banks come to the rescue of King Henry V’s celebration.


DGCX introduces data enriched website
The Dubai Gold and Commodities Exchange (DGCX) announced the launch of Market Watch, a content rich micro-website that provides in-depth analysis of trading data and price movements of DGCX products along with charts and market depth features. Market Watch can be accessed from the main DGCX website www.dgcx.ae.

***** Another step forward from my friends at DGCX.


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Lead Stories

Why the S.E.C. Could Use Commissioners With Wall Street Experience
The Securities and Exchange Commission will soon have two top vacancies, and a Wall Street pedigree would be a plus for new watchdogs. Nominees with financial industry ties might prompt gripes about the revolving door, but it pays to know how the market works.

Top US fund managers attack regulators
US fund managers have launched a new attack on global regulators as they fight a rearguard action against possible rules that would treat groups such as Fidelity and BlackRock as threats to the financial system.

Thousands more Madoff victims may get payouts
Roughly 11,000 additional victims of Bernard Madoff’s Ponzi scheme may recover some of their losses, and the number could double as an official overseeing a $4.05 billion compensation fund set up by the U.S. government reviews more claims.

Some fund houses ‘manipulate’ benchmarks
Madison Marriage, FT
The fund industry has been dealt a damaging blow by its own professional body. It has accused asset managers of selecting inappropriate benchmarks in a bid to market themselves more easily to investors.

Watchdog suggests EU take less rigid view of foreign derivatives rules
The European Union may need to be less rigid in its approach to dealing with financial rules from outside the bloc to avoid disputes with other countries, the EU’s top markets regulator said on Friday.

Bridging the Weeks; May 18 to 29 and June 1, 2015 (UCITS, CCP Risks, Forex Manipulation; Pre-trade Communications, NFA Forex Dealer, Members Capital)
by Gary DeWaal
By now, the large fines paid by five major banks to resolve criminal and civil allegations of FX manipulation are old news, although the aggregate amount — US $5.6 billion — is still staggering. Moreover, the divide between European regulators and the Commodity Futures Trading Commission appears to be widening, as the European Securities and Markets Authority issued an opinion that, if followed, would penalize so-called UCITS funds that trade US-cleared futures and swaps, while the European Commission proposes to require government oversight over all administrators of benchmark indexes — a proposal that, if adopted, also would restrict European banks and advisers from trading US-futures and swaps based on US benchmarks (whose administrators are not typically regulated)

WaMu ‘Golden Parachutes’ Contested
Seven years after Washington Mutual Inc. collapsed in the biggest U.S. bank failure, two of its former top executives are still looking for their “golden parachutes.”

How Traders at Goldman Sachs Get a Head Start
When it comes to capital markets, Goldman Sachs GS -1.10% has a unique advantage: its trading operations are viewed as supporting its credit rating.

Bond Dealers Enfeebled as Liquidity Woes Boost Derivatives
by Susanne Walker Barton and Anchalee Worrachate, Bloomberg
As Wall Street retreats from its traditional role as the bond market’s middle man, investors frustrated by sudden gyrations and a lack of liquidity are turning to derivatives — in a big way.
In the world’s biggest debt markets, including the U.S., Europe and Japan, the number of futures contracts on government debt reached a post-crisis high in May after doubling since 2009. Trading of German bund options and Italian futures also hit records.

Founder of Silk Road given life in prison
Kara Scannell in New York, FT
Ross Ulbricht, the 31-year-old founder of Silk Road, was sentenced on Friday to life in prison for running a $200m online black market for drugs and hacking services, despite calls for leniency from the mastermind himself who called it a “naive” endeavour.

Executive pay has become totally dysfunctional’
Attracta Mooney, FT
The ability of the UK’s fund industry to tackle rising boardroom salaries and complicated pay structures has been called into question amid suggestions that asset managers also benefit from a high-pay culture.

The trend towards board term limits is based on faulty logic
Robert Pozen and Theresa Hamacher, FT
In the business world, experience is generally considered to be positive. When it comes to corporate directors, however, tenure is increasingly viewed with suspicion. Yet the trend towards board term limits is based on faulty logic and threatens performance.

Australia Regulator Said High Frequency Fears are “Unfounded”
John D’Antona Jr., Traders Magazine Online News
Has the popularity tide finally turned for low-latency traders?
Are high-frequency traders such bad guys after all?
According to Greg Yanco, the Australian Securities and Investment Commission’s head of markets surveillance, investor fears about HFT are out of date and points out there have always been traders with a speed advantage. In an interview with the Sydney Morning Herald, the Aussie equity market’s top cop added that HFT fears are unfounded.

Plus500: grit teeth and back the bid
Jonathan Guthrie, FT
Ordinarily, a bid at a 48 per cent discount to a recent peak in the target’s share price would get short shrift. But Plus500 is no ordinary target. The business helps retail investors make bets on markets such as currencies, often for the slimmest possible collateral. Its shares slumped a fortnight ago when the group said tougher anti-money laundering checks would delay account openings and cash withdrawals.

Government confirms retail sale of Lloyds shares
Emma Dunkley, FT
The government will launch a retail sale of shares in Lloyds Banking Group within the next 12 months as it accelerates plans to offload the rest of its £13.6bn stake.


UK regulator sets rules for insurers applying to use volatility adjustment
Neil Roland, MLex
The Bank of England’s Prudential Regulation Authority issued rules for insurers and participants in the Lloyd’s of London insurance market to apply a volatility adjustment to their capital requirements, under the EU’s Solvency II law. The statement clarifies which items should be included in an application, and how the PRA will assess whether the statutory conditions have been satisfied.

CFTC Announces International Affairs Director Sarah Josephson to Assume New Role at Agency
The U.S. Commodity Futures Trading Commission (CFTC or Commission) Chairman Tim Massad today announced that the Office of International Affairs (OIA) Director, Sarah E. Josephson, has decided to leave her position as director of OIA to return to her previously held position as Deputy Director in the Division of Clearing and Risk (DCR). Ms. Josephson has served the CFTC for eight years, including the past two years as the agency’s Director of OIA. Chairman Massad also appointed Special Counsel, Jeffrey M. Bandman, the Acting Director of OIA while the agency conducts a search for a new director.

Debating trust and confidence in banking
Financial Conduct Authority
Speech by Martin Wheatley, Chief Executive of the FCA, delivered at the ResPublica Vocational Banking event in London. This is the text of the speech as drafted, which may differ from the delivered version.

Watchdog suggests EU take less rigid view of foreign derivatives rules
LONDON | By Huw Jones, Reuters
May 29 The European Union may need to be less rigid in its approach to dealing with financial rules from outside the bloc to avoid disputes with other countries, the EU’s top markets regulator said on Friday.
The EU’s executive European Commission and U.S. Commodity Futures Trading Commission (CFTC) have been at loggerheads for months over whether to recognise each others’ rules for making markets for financial derivatives safer in the wake of the 2007-2009 financial crisis.

The trend towards board term limits is based on faulty logic
Robert Pozen and Theresa Hamacher, FT.com
In the business world, experience is generally considered to be positive. When it comes to corporate directors, however, tenure is increasingly viewed with suspicion. Yet the trend towards board term limits is based on faulty logic and threatens performance.

Ontario Securities Commission Announces Agenda For Roundtable On Proposed Whistleblower Program
The Ontario Securities Commission (OSC) today announced the final agenda, discussion topics and list of panellists for the roundtable on June 9, 2015 to discuss the issues outlined in OSC Staff Consultation Paper 15-401. The Consultation Paper proposed a new whistleblower program to encourage the reporting of serious misconduct of Ontario securities law to the OSC.

Tilney Bestinvest recruits ex-FSA boss Tiner
Tilney Bestinvest has strengthened its board with the appointment of former Financial Services Authority chief John Tiner and Betfair CEO Breon Corcoran as non-execs.

EU watchdog warns of QE pressure on insurers
The European Central Bank’s money printing programme known as quantitative easing (QE) is putting additional pressure on the bloc’s insurance companies and pension funds already beset by low interest rates, the EU’s insurance watchdog said on Monday.

Exchanges & Trading Facilities

Four ETFs to list on BATS Chi-X Europe; venue announces free ETF listings
FTSE Global Markets
On June 1st BATS Chi-X Europe will list four Van Eck Global Market Vectors ETFs, two of which will be uniquely listed on BATS’ Regulated Market Segment (REGM) CXE order book. BATS will also be introducing its new trading tariffs for ETFs on the CXE lit order book alongside free ETF listings for issuers.

CBOE Wins Global Capital’s ‘Derivatives Exchange of the Year – Americas’ Award
According to the GlobalCapital Derivatives editorial team, “CBOE was chosen as this year’s exchange of the year in our Americas Derivatives Awards because of its commitment to client service through its extended trading hours initiative, its work on regulatory issues, the breadth of the range of its index products, and its commitment to developing new ones as the derivatives market evolves.”

Euronext launches country indices for Germany, Italy and Spain
Euronext, the primary exchange in the Eurozone, today announced the launch of three country indices: the Euronext Germany Index GR (ENDEG); the Euronext Italy Index (ENITI); and the Euronext Spain Index (ENESI). The indices will serve as the underlying for new index futures and index options, which will be available for trading in the third quarter of 2015.

MarketAxess appoints Scott Eaton as Europe COO
Automated Trader
MarketAxess, the operator of an electronic trading platform for fixed-income securities, and the provider of market data and post-trade services for the global fixed income markets, announces the appointment* of Scott Eaton as chief operating officer for MarketAxess Europe Limited and Trax.

The Spanish Stock Exchange Traded EUR 84.3 Bn. In May, Up 17% Year On Year- The Best Month Of May In 5 Years
Press Release
As for the ETF segment, the trading volume in May came in at EUR 946 million, up 106% from the same month a year earlier. The trading volume in the first five months of 2015 in this segment totalled EUR 5.3 billion, up 33% from a year earlier.

Japan Exchange Group: Trading Overview In May 2015
Press Release
In May 2015, total derivatives trading volume was 21,356,121 contracts, with a daily average of 1,186,451 contracts (-6.2% MoM, +33.7% YoY)

China may launch first stock index options in September – state media
The China Financial Futures Exchange (CFFEX) may launch the country’s first-ever stock index option as early as September, state media reported on Saturday, giving investors more hedging tools as the government steps up financial market reforms.
“I’d predict that it could launch as soon as September but the exact timing of the launch will be finalised by the market regulator,” a source told Shanghai Securities News.
The CFFEX has completed preparations to launch stock index options, Vice President of the exchange Lu Dongsheng said at a financial forum on Friday, the newspaper said.

Thomson Reuters Proposes FXall Upgrade to Raise Industry Standards
Thomson Reuters is bidding to improve industry standards and transparency through upgrades across its FXall trading platforms through operational procedures including a Provisory Liquidity protocol, which will “outline clear and consistent eligibility and qualification rules” for price makers.

Intercontinental Exchange (NYSE: ICE), the leading global network of exchanges and clearing houses, announced today that Jeffrey C. Sprecher, Chairman and CEO, will speak at the Sandler O’Neill Global Exchange and Brokerage Conference. The fireside chat will take place on Thursday, June 4 at 2:00 p.m. ET. The presentation will be broadcast live over the Internet and can be accessed in the investor relations and media section of ICE’s website at www.theice.com.

Hedge Funds & Managed Futures

Large US endowments cut allocations to private equity
Large US endowments have cut their allocations to private equity by a fifth as a mountain of money already committed to the asset class threatens to drive up already high deal prices. US endowments with more than $1bn in assets cut their allocation to 12 per cent in 2014, from 15 per cent a year earlier, according to the annual Commonfund report on endowments.

Activist Hedge Fund Elliott Hires Chief Operating Officer
Elliott Management, the activist hedge fund run by Paul E.. Singer, has poached a top Citigroup executive to serve as its new chief operating officer, the firm announced in an internal memorandum on Friday.

A Concentrated Bet on Emerging Markets; Some mutual-fund managers say larger bets on fewer stocks is the best way to play less-developed markets
Fund managers who invest in emerging markets have thousands of stocks to choose from, in more than 20 countries across Europe, Asia, Africa and Central and South America. But some of the largest emerging-market funds hold 100 stocks or fewer.

TIAA-CREF president defends approach on executive pay
Chris Flood, FT
Robert Leary’s most exhilarating experience after qualifying as a pilot was flying an Aero L-39 Albatros, a Czech jet trainer.

Wealth Adviser: Life Events, Not the Calender, Should Drive Client Contact
Technology gives advisers an important window into events into clients’ financial lives. So shouldn’t they use this, instead of the calendar, to determine when they need to connect with a client? Massachusetts-based adviser Anthony Bartlett is a believer in event-driven communication, which requires setting up parameters to trigger an alert. “For example, you and your client have agreed that when his or her net worth exceeds $2 million, you need to re-evaluate his or her portfolio,” he writes on Wealth Adviser at WSJ.com. “You will direct the program to send you an alert when that threshold is met.” Mr. Bartlett’s system alerts him when clients deposit a big bonus in a bank account they’ve linked to the firm’s portal. He can then reach out immediately, “instead of leaving it to chance that my client will remember to mention it when we next meet face-to-face.”

LGIM aligns with Invesco over fund fee disclosure
Anna Fedorova, InvestmentWeek
Legal & General Investment Management is changing the way charges are applied to its retail funds, moving to a single fund management fee (FMF) to avoid “confusion” over multiple figures.

Banks & Brokers

Thomson Reuters Expands Financial Markets Psychological Analysis Service
Press Release
Behavioral economists have long recognized that investor perceptions affect financial markets in predictable ways. News and social media are increasingly driving investor activity, with many trading decisions based on emotional responses to the stories circulating around particular companies or sectors. The ability to measure the psychological state of the market as represented by these emotional expressions offers significant advantages in defining effective trading strategies. This is especially the case when applied at the level of individual companies.

Britain to Extend Trading Plan to Reduce Its Stake in Lloyds Banking Group
The British government said on Monday it would extend a trading plan to sell down its stake in the Lloyds Banking Group and said it would offer some of its holdings to retail investors in the next year.

Parker Gilbert, former Morgan Stanley chairman, dies
Parker Gilbert, a former Morgan Stanley chairman who led the firm through its transition from a private partnership to a publicly traded company and later organized a revolt to oust a successor, died on Wednesday.

AmEx President Dies on Plane; Edward Gilligan was viewed as a likely successor to CEO Kenneth Chenault
The president of American Express Co., who was viewed as a likely successor to Chief Executive Kenneth Chenault, collapsed and died on the way home from a business trip Friday. His death sent shock waves through the New York company where he had worked since he was a college student.

British banks pay £12bn in penalties
Lindsay Fortado, FT
FTSE 100 financial companies had to pay £12.6bn to settle legal and regulatory disputes last year — an 18 per cent annual increase and a sum that now makes up more than half of the total liabilities of groups in the index.

Clearing & Settlement

Thank goodness! It is one-sided, clearly, and all at once – Lexology
in two long-awaited and closely-timed releases by the Australian Government and ASIC, two critical steps in the long march of Australia’s derivative reforms have been taken: rules for mandatory clearing of derivatives and single-sided reporting relief. Due to their scope, most participants in Australia’s derivatives market should be keenly interested – whether they are funds, banks, end-users or clearing houses. As we discuss in this Alert, the core messages are as expected, but the small print still holds plenty of surprises.

Indexes & Products

MSCI says not bound to annual review cycle on China A share inclusion
Stock index provider MSCI is flexible on the timing of when it holds reviews on whether to include Chinese A shares in its indices and is not bound to an annual schedule, an official told reporters on Monday.

FTSE Russell and Research Affiliates Launch New Smart Beta Index Series | Business Wire
London Stock Exchange
New index series focuses on high dividend-paying, high quality stocks
Builds on 10 years of smart beta leadership and innovation from FTSE Russell and Research Affiliates
Source ETFs to track the index series in Europe
FTSE Russell, the global index provider, and Research Affiliates LLC, a pioneer in smart beta strategies, today announce the launch of new smart beta indexes: the FTSE RAFI Equity Income Index Series. The benchmarks will track high dividend-paying stocks which are screened to target sustainable income. The indexes are weighted according to fundamental measures, as opposed to market capitalisation.


Cybersecurity lapses at trading giants exposed
James Rundle and Anna Irrera, Financial News
Banks and brokers are putting themselves at risk of costly cyberattacks by neglecting basic security when trading, a leaked industry poll shows.

Google Wants to Turn Your Clothes Into a Computer
If you thought it was only a matter of time before Google tried to turn your pants into a computer, well, guess what, you were right.


Bank of America to Pay $30 Million, Fix Violations on Servicemembers’ Accounts
Case tied to credit card, deposit overdraft collections litigation
Bank of America Corp. has agreed to pay a $30 million civil penalty and correct violations on about 73,000 accounts of U.S. military members.

Environmental & Energy

What is your climate change business plan?
Toby Heaps, FT
Shortly before Nelson Mandela passed away, I had a chance to ask FW de Klerk, his predecessor as South African president, what impact the anti-apartheid divestment campaign had had. He said it had had no impact at all on the end of apartheid — and then expanded for 15 minutes on all the ways it had made no impact.

Molycorp Struggles to Survive Rare-Earths Bubble; U.S. rare-earths miner is expected to skip loan payment, which could lead to bankruptcy filing
In the dusty mountains of the California-Nevada border, 4,800 feet above sea level, the U.S.’s only miner and processor of rare-earths elements is struggling to squeeze a profit out of its small open-pit mine and plant.

Washington finds unlikely ally in OPEC as biofuels debate rages
The Obama administration has found an unlikely ally in its efforts to keep pushing more biofuel into the nation’s gasoline supply: OPEC.

UN Fosters Use of Pre-2020 Carbon Credits for Climate Plans
By Mathew Carr – Bloomberg News
The United Nations climate secretariat’s head of carbon-market demand encouraged countries to use existing credits created under the Kyoto Protocol to meet emission-reduction targets even after that pact ends in 2020.

Six European energy companies seek U.N. help for carbon pricing system
Europe’s six largest oil and gas companies, including Royal Dutch Shell and Britain’s BP Plc, have united together in seeking help from the United Nations to stop global warming.


Chinese step up investment in European finance
Say Fosun or Anbang to most Europeans and they will probably shrug. But this could be about to change as the two acquisitive Chinese groups continue to snap up assets across Europe’s struggling financial services sector.

China duck producer cites tighter bank credit as cause of default
Gabriel Wildau in Shanghai, FT
A profitable Chinese duck processing company has tipped into default after banks refused to roll over loans, making it a rare moneymaking victim of lenders’ wariness as China’s economy slows.

SPAN Parameter file which will be applicable from June 1, 2015xls
Japan Commodity Clearing House

Frontier Markets

Moscow Exchange Expands Instruments For Equities, Bonds And Repos Trading And Settlement
Press Release
Effective 1 June 2015, Moscow Exchange has implemented a number of planned upgrades and new product roll-outs to the equity, bond and repo markets, thereby expanding the range of facilities and opportunities available to its clients.

Indonesia’s c.bank relaxes forex rules to bolster domestic market
Indonesia’s central bank on Monday relaxed some of its foreign exchange regulations to bolster and deepen the country’s domestic foreign exchange market. Among the changes, Bank Indonesia relaxed a requirement that banks had to monitor and manage their net foreign exchange exposure every half an hour of the trading day, and said it could now be done at the end of the day.

Currency derivatives volume jumps 67% in Apr-May to Rs 11.6 lakh crore
The number of contracts also jumped 56% during the period to 17.57 crore
Business Standard
The currency derivatives space has been on a song with the turnover surging by a whopping 67 per cent to about Rs 11.60 trillion in the first two months of the current fiscal over the year-ago period.


The Root of All Evil: Banking, FIFA and Corruption
Miles Reucroft, Thomas Murray – Tabb Forum
FIFA long has been perceived as a corrupt organization – a soulless, morally bankrupt cesspool. This same description is equally applicable to banks: power, leading to avarice, leading to corruption. Marry that to a dangerous lack of transparency and accountability, and there are remarkable parallels between FIFA and the banks.

READ MORE: John Lothian Newsletter: Why the S.E.C. Could Use Commissioners With Wall Street Experience; Top US fund managers attack regulators; Thousands more Madoff victims may get payouts.

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