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April 10, 2012

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CME Group considers launching futures exchange in London
CME Group is looking into developing a futures exchange in London, a move that would complement the firm's clearing business in the U.K. Financial Times (tiered subscription model) (4/9)

RBC opts to challenge CFTC's futures lawsuit
Royal Bank of Canada has decided not to settle with the Commodity Futures Trading Commission regarding allegations that it conducted illegal futures trades. Instead, the bank will challenge the regulator in court. "It was a conscious decision to defend ourselves vigorously, and we made that decision because we believe we didn't do anything wrong," said RBC attorney Arthur Hahn. Bloomberg (4/9)

Regulatory Roundup

Regulators' spotlight moves to shadow banking
Regulators focused on the banking system in the wake of the global financial crisis, but their attention has turned to shadow banking, which includes hedge funds, repo markets and other financial transactions that take place outside traditional channels. The sector has grown since the crisis, and officials have tackled some issues, including pushing forward with mandatory clearing and exchange trading of derivatives. However, much work remains. Financial Times (tiered subscription model) (4/9), The Wall Street Journal (4/9), Bloomberg (4/9)

Some hedge funds register with SEC even if not required
Some hedge fund and private-equity managers have registered with the Securities and Exchange Commission even though they are not required to do so, says Alan Scholnick of David Landau & Associates. Under the Dodd-Frank Act, firms with a minimum of $150 million in assets must register with the regulator. However, some firms see the move as a way to appeal to investors. The Wall Street Journal/Private Equity Beat blog (4/9)

"London whale's" bets prompt questions and speculation
Bruno Iksil, a trader at JPMorgan Chase dubbed the "London whale," has prompted debate about whether his credit-derivatives positions would be allowed under the U.S. Volcker rule and whether the bets are too large. Experts say the market-moving trades likely will prompt regulators to look more closely at banks' derivatives positions. Bloomberg Businessweek (4/9), The Washington Post/Bloomberg (4/9), Bloomberg (4/9)

Industry Developments

Singapore Exchange aims to improve risk controls
The Singapore Exchange says it will implement risk checks on customer credit before their orders hit its order-matching engine. The checks are aligned with the Futures Industry Association's recommendations and are intended to lower systemic risk and enhance the quality of the derivatives market. The bourse also is looking into changing the rules on direct access to SGX derivatives markets. The Business Times (Singapore) (4/9), Securities Technology Monitor (4/9)

European banks ramp up equities-derivatives franchises
Some banks in Europe are expanding their equities-derivatives staffs as they pare back other business lines. The moves are prompted by expectations that hedge funds and institutional investors will increasingly demand more derivatives products as well as the prospect of greater margins. Financial News Online (U.K.) (subscription required) (4/10)

BSE aims to maintain interest in derivatives trading
The Bombay Stock Exchange says it's considering an extension of its Liquidity Enhancement Incentive Programs-II, which is scheduled to end this month. The move would be aimed at maintaining interest in derivatives trading on the BSE platform. "The management is planning to propose to the board of directors of the exchange at its meeting scheduled later this month for an extension of the LEIPS-II. There has been robust participation from members and it has helped BSE achieve significant volumes in the derivatives segment. Therefore, we think an extension of six months will be helpful," an unidentified source said. Business Standard (India) (4/10)

Analysis: Markets have become less transparent in some ways
The advancement of technology has altered trading, in some instances making it less transparent. Investors often don't have easy access to information about securities, including prices and valuations. The Wall Street Journal (4/9)

Other News

VIX continues to rise amid concerns about jobs and earnings
Bloomberg (4/9)

Electronic Trading News

Commentary: SEBI thoughtfully addresses algorithmic trading
The Securities and Exchange Board of India reacted to a trading mishap by calling for curbs on high-frequency trading and other extreme measures. But Mobis Philipose writes that SEBI ultimately released clear, realistic guidelines for the trading practice. "This will bring much-needed uniformity in the risk management processes of different stock exchanges," Philipose writes. LiveMint.com/The Wall Street Journal (India) (4/9)

Commodities and Managed Futures

Hedge fund industry has a good start in 2012, Hennessee Group says
Hennessee Group, which advises hedge fund investors, says the industry is off to a good start this year. The Hennessee Hedge Fund Index has risen 4.59% so far this year. "Hedge funds posted their best first quarter since 2006 but lagged equity markets as managers were conservatively positioned," managing principal Charles Gradante said. AdvancedTrading.com (4/9)

Teucrium Trading offers easy access to ag commodities
The Teucrium Agricultural Fund is the first exchange-traded fund to offers investors access to the four major agriculture commodities. The fund holds an equal weighting of ETFs that invest in wheat, soybean, sugar and corn futures. Teucrium Trading President and Chief Investment Officer Sal Gilbertie said the ETF is a response to investor demand. InvestmentNews (free registration) (4/9)

Other News

Analysis: Don't expect higher commodity-futures volume in India
The Hindu Business Line (India) (4/10)

Chesapeake Energy removes most of its derivatives positions
CNBC (4/9)

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FIA News

Lukken and Damgard to Speak at FIA Futures Services Division Meeting in New York
The FIA Futures Services Division will host a "Washington Update" discussion at its monthly dinner meeting on April 12 in New York. Walt Lukken, the new FIA president and CEO, and John Damgard, now senior adviser to the FIA, will offer their perspectives on past and future developments in Washington. Nonmembers are welcome to attend. Contact Mary Kincheloe at mkincheloe@futuresindustry.org with questions. Register today.

FIA FAQs Provide Essential Information on Customer Fund Protections
FIA's Law & Compliance Division has addressed the basics of segregation, collateral management and investments, capital requirements and other issues for FCMs and joint FCM/broker-dealers, and clearinghouse guarantee funds in an easy-to-read question and answer format. Sample Q-and-A:

Question: Will a DCO's guarantee fund compensate a customer in the event the customer's FCM becomes insolvent and there is a shortfall in the customer segregated account maintained by the insolvent FCM?
Answer: A DCO's guarantee fund does not compensate customers of a defaulting FCM. The purpose of the guarantee fund is to meet the DCO's obligations to other clearing members arising from the default of the clearing member FCM.
Download all 30 questions.

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