MF Global Collapse FIA International Futures Industry Conference Things Happen March 13-16, 2012 at Boca Boca Raton Resort & Club

New Era for Wheat Futures | Kospi Explosion on Eurex | Dodd-Frank Update

january 2012 | v22.n1

Washington Examines MF Global Collapse FIA International Futures Industry Conference Things Happen March 13-16, 2012 at Boca Boca Raton Resort & Club

1976 The first FIA International Futures Industry Conference is held in 1978 The first Commodity Futures Trading Commission Chairman Innisbrook. The conference moves to the Boca Raton Hotel and Club in 1979 William T. Bagley delivers his first major address to the futures industry. where it remains for the next 32 years with the exception of one year in Miami (1980) when the hotel is under renovation. 1985 Robert Rubin, Goldman Sachs, predicts that the futures industry could suffer “if stock index futures trading at some point really upends trading on the New York Stock Exchange … it will resurrect the 1983 John Damgard’s first Boca as president latent view of futures activity as socially useless speculation and that of the Futures Industry Association. will cause us a lot of trouble in the regulatory arena.”

1989 Chicago Board of Trade unveils “Aurora”, an electronic trading system that 1993 CME Chairman Jack Sandner puts forth a plan to tries to simulate the pit on a trading screen; create a financial super agency to replace the Commodity traders will use a pointing device known as Futures Trading Commission and the Securities and a “mouse”. Exchange Commission.

1995 Two weeks after the demise of Barings Bank, FIA assembles a panel 1996 International futures regulators from 14 jurisdictions sign a on the crisis and establishes FIA Global Task Force on Financial Integrity to Declaration on Cooperation and Supervision of International Futures make recommendations that would enhance the protection of the assets of Exchanges and Clearing Organizations—49 international foreign market participants. futures exchanges and clearing organizations from 18 countries sign a complementary memorandum of understanding. This enables regulators and exchanges post-Barings to share information on the participants in 1998 After a 12-hour bargaining session, CBOT and CME officials announce their markets. a plan to combine their clearing systems. This deal ultimately fails to materialize and it isn’t until early 2004 when the CBOT moves its clearing from the Board of Trade Clearing Corporation to the CME clearinghouse. 1999 Alan Greenspan addresses Boca delegates via satellite transmission (and again in 2007 after he retires).

2007 Boca delegates wake up to the news that IntercontinentalExchange President Jeff 2009 OTC clearing comes to Boca and along with it new delegates with Sprecher is challenging the CME bid for the expertise in the over-the-counter world. Chicago Board of Trade.

2011 CME Group announces that it will launch its London-based clearinghouse. Rumors of a tie-up between ICE and Nasdaq OMX circulate. 2011 FIA announces it will extend its mission to include cleared swaps.

2012 Anything can happen. Don’t miss it. Register at www.futuresindustry.org/boca FIA International Futures january 2012 | v22.n1 Industry Conference Things Happen March 13-16, 2012 at Boca Boca Raton Resort & Club | Dodd-Frank Update Kospi Explosion on Eurex | v22.n1 | january 2012 1976 The first FIA International Futures Industry Conference is held in New Era for Wheat Futures 1978 The first Commodity Futures Trading Commission Chairman Innisbrook. The conference moves to the Boca Raton Hotel and Club in 1979 William T. Bagley delivers his first major address to the futures industry. where it remains for the next 32 years with the exception of one year in Miami

(1980) when the hotel is under renovation. Washington Examines 1985 Robert Rubin, Goldman Sachs, predicts that the futures MF Global features industry could suffer “if stock index futures trading at some point really Collapse upends trading on the New York Stock Exchange … it will resurrect the Washington Examines MF Global Collapse 1983 John Damgard’s first Boca as president latent view of futures activity as socially useless speculation and that Several Congressional committees are examining the disappearance of as much as $1.2 of the Futures Industry Association. will cause us a lot of trouble in the regulatory arena.” 24 billion in customer funds in the final days of MF Global and beginning to explore ways to prevent this from ever happening again. | 1989 Chicago Board of Trade unveils By Joanne Morrison “Aurora”, an electronic trading system that 1993 CME Chairman Jack Sandner puts forth a plan to tries to simulate the pit on a trading screen; new Era for Wheat Futures create a financial super agency to replace the Commodity traders will use a pointing device known as on the cover 30 After years of debate, the Canadian Parliament finally approved legislation ending the Futures Trading Commission and the Securities and a “mouse”. “Funds don’t simply disappear. Wheat Board’s control over the pricing and marketing of Canada’s wheat production. This Exchange Commission. Someone took action, whether landmark shift to open markets is set to bring about major changes in the wheat futures 1995 Two weeks after the demise of Barings Bank, FIA assembles a panel legal or illegal, to move that money. business. | By Joanne Morrison 1996 International futures regulators from 14 jurisdictions sign a on the crisis and establishes FIA Global Task Force on Financial Integrity to And the effect of that decision is being felt across the countryside.” make recommendations that would enhance the protection of the assets of Declaration on Cooperation and Supervision of International Futures -Senator Pat Roberts (R-Kan) cftc Moves Forward on Dodd-Frank Rulemaking Exchanges and Clearing Organizations—49 international foreign market participants. During the final months of 2011, the Commodity Futures Trading Commission held several futures exchanges and clearing organizations from 18 countries sign a in this issue 36 Trading firms like Optiver are open meetings to finalize a number of rulemakings required under the Dodd-Frank Act, complementary memorandum of understanding. This enables regulators including speculative position limits, real-time reporting of swaps transactions, and the and exchanges post-Barings to share information on the participants in praising the new pre-trade risk 1998 After a 12-hour bargaining session, CBOT and CME officials announce controls at SGX, saying the investment of customer segregated funds. | By Will Acworth and Joanne Morrison their markets. a plan to combine their clearing systems. This deal ultimately fails to exchange’s approach is setting a materialize and it isn’t until early 2004 when the CBOT moves its clearing high standard for risk management from the Board of Trade Clearing Corporation to the CME clearinghouse. while preserving a level playing 1999 Alan Greenspan addresses Boca field for all market participants. delegates via satellite transmission (and Page 42 again in 2007 after he retires).

2000 Boca delegates strike out when President Clinton calls U.S. Treasury Secretary Larry Summers back to Washington to sign a gun 2005 FIA introduces the control bill before he can deliver the keynote address at the international Futures Hall of Fame and exchange breakfast. John Henry, a long-time friend of the FIA, steps up to departments inducts 55 members. the plate to take his place—a home run. 08 President’s Message 44 @Markets By John Damgard Tech Vendors Build New 2007 Boca delegates wake up to the news High-Speed Links to Asia that IntercontinentalExchange President Jeff 10 Trading Volume 2009 OTC clearing comes to Boca and along with it new delegates with Sprecher is challenging the CME bid for the 48 Product Profile 18 News Briefs Korean Traders Flock to Eurex expertise in the over-the-counter world. Chicago Board of Trade. • G-20 Derivatives Reforms By Bennett Voyles • Court Challenge to Position Limits 2011 CME Group announces that it will launch its London-based clearing- • Transaction Tax Plans 52 Prominent People house. Rumors of a tie-up between ICE and Nasdaq OMX circulate. • Self-Clearing at LME

2011 FIA announces it will extend its mission to include cleared swaps. 42 Tech Talk SGX Launches Pre-Trade Risk Controls By Will Acworth

2012 Anything can happen. Don’t miss it. Register at www.futuresindustry.org/boca Futures Industry | January 2012 03 Boca 2012 Spread_Futures Industry Template 1/17/12 12:07 PM Page 2

Join senior managers from brokerage firms and exchanges, money managers and international regulators. More than 900 decision makers, innovators and policymakers from more than 30 countries will gather to share information, exchange ideas, discuss trends and network with peers.

Preliminary Panel Topics Include: Boca Fast Facts • CFTC Chairman’s Address • More than 900 professionals attend from • The Future of Over-the-Counter all over the world and Exchange-Traded • Nearly 30% of the attendees come from • Derivatives Markets outside the U.S. • Exchange Leaders Meet the Press • Representatives from 39 brokerage firms • MF Global: The Default of a • Representatives from 61 international Global Clearing Member exchanges and clearing organizations • Global Financial Reform • 26 members of the press • The Mechanics of OTC Execution •32 countries are represented: • The Mechanics of OTC Clearing Argentina, Australia, Brazil, • New Perspectives on the Canada, China, Colombia, Protection of Customer Funds Ethiopia, France, Germany, Hong • Equity Options Kong, India, Indonesia, Ireland, • The Evolution of Commodity Markets Italy, Japan, Korea, Mexico, • Measuring Market Quality Netherlands, Norway, Poland, Qatar, Russia, Saudi Arabia, Boca Contacts Singapore, South Africa, Spain, Program subject to Sweden, Switzerland, Taiwan, change without notice. Sponsorship & Exhibit Information Turkey, United Kingdom Toni Vitale Chan: 312.636.2919 Register online at [email protected] www.futuresindustry.org/boca Payment Payment Registration Questions postmarked on or postmarked before 1/27/2012 after 1/27/2012 Damon Roberts: 202.466.5460 FIA Member $1,075 $1,200 Non-Member $1,475 $1,600 [email protected] Spouse/Guest $275 $275 Conference Delegate registration includes all conference sessions and materials, social events and FIA meal functions. Program & Speaker Suggestions Promotional gifts are distributed on a first-come, first-served basis. Spouse/Guest registration fee includes social events and FIA meal functions, not sessions. Registration Cancellation Mary Ann Burns: Notice of cancellation must be received in writing before 2/14/12 and will be subject to a $100 administrative fee. [email protected] No refunds will be made after 2/14/12. Substitutions may be made without penalty. Special Requirements We would like to accommodate the special needs of our delegates and therefore ask you to advise us in advance of any special dietary or access requirements. Boca 2012 Spread_Futures Industry Template 1/17/12 12:07 PM Page 2

The Futures Industry Association, Inc.

John Damgard President Barbara Wierzynski Board of Directors Executive Vice President and General Counsel officers Robert T. Cox Sanjay Kannambadi n Edward J. Rosen Mary Ann Burns Chief Executive Officer and Partner n Michael C. Dawley n George E. Crapple Executive Vice President, Industry Relations Global Head Cleary Gottlieb Managing Director, Co-Chairman and BNY Mellon Clearing LLC Steen & Hamilton LLP Guy Sheetz Co-Head of Futures and Co-Chief Executive Officer Senior Vice President, n Derivatives Clearing Services Millburn Ridgefield Corporation Jerome Kemp n Michael Schaefer Chief Financial Officer and Chief Operating Goldman, Sachs & Co. Global Head of Exchange n John M. Damgard n Stephen Schuler Officer Chairman Traded Derivatives Sales President Co-Managing Member Tracy Wahler n Peter G. Johnson and Clearing Futures Industry Association GETCO, LLC Vice President of Communications Managing Director, Citigroup Global Laurie Ferber n William Sexton Global Head of Futures, Markets Limited Angelique Wilkins Executive Vice President Chief Executive Officer OTC Clearing and n Vice President, Conferences and Meetings Andy Milnes Newedge USA LLC FX Prime Brokerage and General Counsel MF Global Holdings Ltd. Head of Supply and Trading, Maria Banks Bank of America Merrill Lynch Global Oil Americas n Donald R. Wilson, Jr. Accounting Assistant Vice Chairman Fredrik Gentzel BP Corporation Chief Executive Officer Managing Director, DRW Trading Group Adoncia Boykins n Najib Lamhaouar North America, Inc. Global Head of Director Member Services Global Head of n David S. Mitchell Jeremy Wright OTC Clearing and ETD Listed Derivatives Global Head of Futures Steven Bradbury Deutsche Bank AG Partner HSBC Securities (USA) Inc. Fried, Frank, Harris, Shriver & and Options Senior Accountant Secretary n Arthur W. Hahn Jacobson LLP RBS Futures (London) Michael Cho Partner n Alice Patricia White Senior Accountant board members Katten Muchin Rosenman LLP Reinhardt Olsen Patrice Blanc Managing Director and n Michael Yarian Gary Herman n President Christopher K. Hehmeyer North America Head of ETD Managing Diretor, Controller UBS Securities LLC Jefferies Futures Brokerage Managing Member Head of Futures and Mary Kincheloe HTG Capital and Chief Executive Officer n Todd E. Petzel OTC Derivative Trading Communications Assistant Jefferies Bache LLC Partners LLC Chief Investment Officer Barclays Capital Inc. Linda Leerdam n M. Clark Hutchison, III Offit Capital Advisors LLC n Philippe Buhannic Receptionist Chairman and Global Co-Head of n Emily Portney Roselia Marmolejos Chief Executive Officer Listed Derivatives Managing Director, special advisors Morgan Stanley Administrative Assistant TradingScreen Inc. Global Head of Richard Berliand Steve Proctor Gonzalo Chocano n Jeffrey D. Jennings Futures and Options Management Consultant Managing Director, JP Morgan Securities LLC Technology Coordinator n Gerald F. Corcoran Gary DeWaal Global Head Listed Derivatives n Kenneth M. Raisler Damon Roberts Chairman and Senior Managing Director and Credit Suisse Securities (USA) Partner Meetings Coordinator Chief Executive Officer Global General Counsel LLC Sullivan & Cromwell LLP R.J. O’Brien & Associates LLC Newedge USA LLC Marsha Saunders Manager, Meetings and Events n Executive Committee Member n Associate Member Director n Public Director Mindy Serin eCommunications Coordinator Toby Taylor Executive Assistant and FIA Chapters and Divisions Presidents/Chairmen Office Manager Beth Thompson fia asia fia european information law & compliance Law & Compliance Division Coordinator Paul S. Davies principal traders technology Maria Chiodi Goldman Sachs association Matthew Rees Credit Suisse Futures Pte Ltd. Remco Lenterman R.J. O’Brien & Associates Securities (USA) LLC IMC Trading B.V. fia chicago japan chapter fia principal Bill Metzger futures services Mitch Fulscher traders group Vincent Mattera Chairman Donald R. Wilson, Jr. Dennis Murray Consulting Shozo Ohta DRW Trading Group Tokyo Financial Exchange President

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FIA Welcomes New President New Year Brings New Challenges

s many of you probably know, the FIA announced in early designed rules, no matter how well-intended, won’t make us any January that Walt Lukken will be the next president and safer than before, especially if they collide with the many rules A chief executive officer of the FIA. After nearly 30 years at already on the books. As Joe Nocera recently said in a New York the head of the FIA, the time has come for me to hand over the Times column, complexity creates its own risks; far better to reins to someone new, and I am absolutely delighted to leave this “keep it simple.” organization in his very capable hands. Meanwhile the Dodd-Frank rulemaking process continues Thanks to his many years in government, Walt knows his way to grind its way forward. Under the leadership of Chairman around Washington, and that is a priceless asset in dealing with Gary Gensler, the CFTC is steadily working its way through the all the regulatory and legislative issues now facing our industry. mountain of rulemakings mandated by that statute. It is now Furthermore, his experience in running a clearinghouse will be ex- becoming abundantly clear that the ultimate cost of compli- cellent preparation as we begin to deal with the over-the-counter ance with Dodd-Frank will be much higher than anyone would market’s transition to clearing. I have known Walt for a long time have expected when we started down this road. And the likely and I am looking forward to welcoming him to the association in consequence, which I don’t think anyone intended, is that the time for our annual meeting in Boca Raton in March. universe of firms able to provide clearing services for derivatives As we start 2012, the collapse of MF Global is without ques- will continue to shrink. tion the single most urgent issue facing our industry. The bank- That’s not good for our customers, who will have fewer ruptcy of one of the largest brokers in our business was a huge choices for clearing. And it’s not good for the clearinghouses, blow; the shortfall in customer funds was absolutely shocking. which will have to rely on fewer members to shoulder the financial This unprecedented breach in the segregation of customer funds burden of clearing. I hope the regulators recognize this problem struck a severe blow to confidence in our system of customer as they finalize the reforms here and abroad. protections, and item number one on our agenda must be to I’ve been in Washington a long time and I’ve seen the regula- find a way to restore that confidence. I have no doubt that the tory pendulum swing back and forth many times. Nobody ever Commodity Futures Trading Commission and the self-regulatory gets it 100% right on the first try, and I fully expect that Congress organizations will soon come forward with proposals for reform, will take a long, hard look at Dodd-Frank and rework some of and we as an industry will need to participate constructively in the sections that are proving to be particularly troublesome. That the dialogue with policymakers in Washington. may take several years to play out, but the process is already As we consider these proposals, I urge everyone to avoid the starting and I expect the FIA to play an important role. temptation to simply layer on more rules and regulations. Badly As we go forward, let’s keep in mind the essential purpose of this industry. We live in uncertain times, and this industry at its core is all about providing people with protection against adverse price movements. So long as we continue to provide that service in the most efficient and innovative manner possible, our markets will grow for many years to come.

John Damgard President

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Element79 200 E. Randolph 33rd Floor Chicago, IL 60601 • www.element79.com Global Futures and Options Volume Based on the number of contracts traded and/or cleared at 81 exchanges worldwide

Jan-Oct 2010 Jan-Oct 2011 % Change Futures 9,376,054,320 10,374,909,705 10.7% Options 9,155,646,624 10,870,193,029 18.7% Combined 18,531,700,944 21,245,102,734 14.6%

Global Futures and Options Volume by Category Based on the number of contracts traded and/or cleared at 81 exchanges worldwide

Category Jan-Oct 2010 Jan-Oct 2011 % Change 33.6% Equity Index Equity Indexes 6,119,748,359 7,130,058,024 16.5% 28.2% Individual Equities 5,238,376,138 5,983,003,212 14.2% Individual Equity Interest Rates 2,643,688,660 3,031,378,562 14.7% 14.3% Currencies 2,107,701,480 2,756,446,740 30.8% Interest Rate

Agriculture 1,030,081,893 855,927,457 -16.9% 13.0% Currency Energy Products 606,314,016 690,843,332 13.9% 4.0% Non-Precious Metals 544,320,876 344,201,510 -36.8% Agricultural

Precious Metals 139,019,273 275,898,464 98.5% 3.3% Energy

Other 102,450,249 177,345,433 73.1% 2.9% Metals Total 18,531,700,944 21,245,102,734 14.6% 0.8% Other Note: Energy includes contracts based on emissions. Other includes contracts based on commodity indices, credit, fertilizer, housing, inflation, lumber, plastics and weather.

Global Futures and Options Volume by Region Based on the number of contracts traded and/or cleared at 81 exchanges worldwide

Region Jan-Oct 2010 Jan-Oct 2011 % Change 38.5% Asia Pacific Asia Pacific 7,348,966,638 8,355,467,801 13.7% 32.4% North America 5,914,364,379 7,009,892,842 18.5% North America Europe 3,727,137,289 4,256,608,733 14.2% Latin America 1,272,929,374 1,337,043,124 5.0% Other 268,303,264 286,090,234 6.6% 20.5% Europe Total 18,531,700,944 21,245,102,734 14.6% 7.1% Latin America Note: Location of exchanges is determined by country of registration. Other consists of exchanges in Dubai, Israel, South Africa, and Turkey. 1.5% Other

10 Futures Industry | www.futuresindustry.com Top 30 Derivatives Exchanges Ranked by number of contracts traded and/or cleared

Rank Exchange Jan-Oct 2010 Jan-Oct 2011 % Change 1 Korea Exchange 3,056,680,326 3,355,791,355 9.8% 2 CME Group (includes CBOT and Nymex) 2,551,625,738 2,909,534,767 14.0% 3 Eurex (includes ISE) 2,242,690,496 2,430,757,388 8.4% 4 NYSE Euronext (includes U.S. and EU markets) 1,826,443,690 1,947,547,637 6.6% 5 National Stock Exchange of India 1,326,509,226 1,847,801,288 39.3% 6 BM&FBovespa 1,186,533,780 1,250,588,328 5.4% 7 Nasdaq OMX (includes U.S. and Nordic markets) 868,583,542 1,095,460,380 26.1% 8 CBOE Group (includes CFE and C2) 942,143,261 1,052,054,159 11.7% 9 Multi Commodity Exchange of India (includes MCX-SX) 914,141,771 1,019,095,505 11.5% 10 Russia Trading Systems Stock Exchange 498,873,685 881,762,862 76.8% 11 Zhengzhou Commodity Exchange 381,185,564 361,227,050 -5.2% 12 United Stock Exchange of India 101,331,567 342,534,233 238.0% 13 IntercontinentalExchange (includes U.S., U.K., and Canadian markets) 276,006,843 325,251,142 17.8% 14 Shanghai Futures Exchange 531,028,952 235,834,957 -55.6% 15 Dalian Commodity Exchange 299,703,966 231,997,644 -22.6% 16 ASX Group (includes ASX and ASX 24) 88,450,241 188,188,031 112.8% 17 Osaka Securities Exchange 166,504,080 166,829,900 0.2% 18 Taiwan Futures Exchange 115,859,629 154,945,477 33.7% 19 JSE South Africa 140,601,183 133,441,314 -5.1% 20 BATS Options Exchange 16,250,680 129,998,451 700.0% 21 Tokyo Financial Exchange 98,489,405 125,967,417 27.9% 22 London Metal Exchange 98,598,443 120,436,739 22.1% 23 Hong Kong Exchange and Clearing 92,380,519 119,989,982 29.9% 24 Boston Options Exchange 74,022,233 117,150,006 58.3% 25 Tel-Aviv Stock Exchange 66,533,066 81,518,533 22.5% 26 London Stock Exchange Group 76,771,173 75,415,333 -1.8% 27 Turkish Derivatives Exchange 53,658,327 61,806,214 15.2% 28 Singapore Exchange (includes SGX and AsiaClear) 51,308,838 61,307,749 19.5% 29 Mercado Español de Futuros y Opciones Financieros 54,639,870 53,727,503 -1.7% 30 Montréal Exchange 35,910,922 52,129,000 45.2%

Futures Industry | January 2012 11 Exchange Groups Futures and options volume broken down by subsidiary exchanges Exchange Jan-Oct 2010 Jan-Oct 2011 % Change Bolsa de Valores de São Paulo 692,927,165 688,520,247 -0.6% Bolsa de Mercadorias & Futuros 493,606,615 562,068,081 13.9% BM&FBovespa 1,186,533,780 1,250,588,328 5.4%

Chicago Board Options Exchange 939,047,827 997,385,528 6.2% C2 Exchange 657 44,099,973 NA CBOE Futures Exchange 3,094,777 10,568,658 241.5% CBOE Holdings 942,143,261 1,052,054,159 11.7%

Chicago Mercantile Exchange 1,376,489,074 1,551,567,759 12.7% Chicago Board of Trade 756,385,402 894,484,844 18.3% New York Mercantile Exchange 418,751,262 463,482,164 10.7% CME Group 2,551,625,738 2,909,534,767 14.0%

Eurex 1,616,194,223 1,760,296,601 8.9% International Securities Exchange 626,496,273 670,460,787 7.0% Eurex 2,242,690,496 2,430,757,388 8.4%

ICE Futures Europe 181,737,503 228,795,594 25.9% ICE Futures U.S. 90,441,158 92,431,951 2.2% ICE Futures Canada 3,457,722 3,946,661 14.1% Chicago Climate Futures Exchange 370,460 76,936 -79.2% IntercontinentalExchange * 276,006,843 325,251,142 17.8% * does not include OTC transactions

MCX-SX 751,254,825 747,590,644 -0.5% Multi Commodity Exchange of India 162,886,946 271,504,861 66.7% Multi Commodity Exchange of India 914,141,771 1,019,095,505 11.5%

Nasdaq OMX PHLX 667,020,319 830,509,308 24.5% Nasdaq Options Market (U.S.) 110,320,407 166,783,586 51.2% Nasdaq OMX (Nordic markets) 90,404,494 97,466,107 7.8% Nasdaq OMX Commodities * 838,322 701,379 -16.3% Nasdaq OMX 868,583,542 1,095,460,380 26.1% * formerly Nord Pool

NYSE Liffe Europe 1,050,400,545 988,820,815 -5.9% NYSE Amex Options 358,475,868 525,234,092 46.5% NYSE Arca Options 414,181,683 416,424,269 0.5% NYSE Liffe U.S. 3,385,594 17,068,461 404.1% NYSE Euronext 1,826,443,690 1,947,547,637 6.6%

12 Futures Industry || www.futuresindustry.com Top 20 Agricultural Futures & Options Contracts Rank Contract Contract Size Jan-Oct 2010 Jan-Oct 2011 % Change 1 Cotton No. 1 Futures, ZCE 5 tonnes 44,745,611 136,812,724 205.8% 2 White Sugar Futures, ZCE 10 tonnes 265,965,944 110,241,341 -58.6% 3 Rubber Futures, SHFE 5 tons 144,252,298 80,396,357 -44.3% 4 Corn Futures, CBOT 5,000 bushels 56,391,340 66,946,233 18.7% 5 Soy Oil Futures, DCE 10 tonnes 67,539,460 49,049,058 -27.4% 6 Soy Meal Futures, DCE 10 tonnes 99,793,503 42,194,237 -57.7% 7 Soybeans Futures, CBOT 5,000 bushels 29,448,737 38,216,694 29.8% 8 Corn Options on Futures, CBOT 5,000 bushels 16,384,782 25,152,950 53.5% 9 Corn Futures, DCE 10 tonnes 21,122,883 22,439,911 6.2% 10 Sugar #11 Futures, ICE U.S. 50 long tons 24,898,537 22,238,031 -10.7% 11 No. 1 Soybeans Futures, DCE 10 tonnes 27,165,886 21,963,065 -19.2% 12 Wheat Futures, CBOT 5,000 bushels 19,304,183 20,879,596 8.2% 13 Soybean Oil Futures, CBOT 60,000 lbs 16,250,925 19,992,812 23.0% 14 Palm Oil Futures, DCE 10 tonnes 32,709,572 18,995,267 -41.9% 15 Soybean Meal Futures, CBOT 100 short tons 11,305,882 14,111,688 24.8% 16 Live Cattle Futures, CME 40,000 lbs 9,482,614 11,519,147 21.5% 17 Soybeans Options on Futures, CBOT 5,000 bushels 7,661,615 11,450,007 49.4% 18 Lean Hogs Futures, CME 40,000 lbs 6,837,790 8,503,893 24.4% 19 Guar Seed Futures, NCDEX 10 tonnes 9,219,236 7,301,508 -20.8% 20 Strong Gluten Wheat Futures, ZCE 10 tonnes 4,273,445 7,173,404 67.9%

Top 20 Energy Futures & Options Contracts Rank Contract Contract Size Jan-Oct 2010 Jan-Oct 2011 % Change 1 WTI Crude Oil Futures, Nymex 1,000 barrels 142,807,145 151,433,549 6.0% 2 Brent Crude Futures, ICE Futures Europe 1,000 barrels 83,687,741 111,684,716 33.5% 3 Natural Gas Futures, Nymex 10,000 MMBTU 52,539,395 64,868,958 23.5% 4 Gasoil Futures Futures, ICE Futures Europe 100 tonnes 43,491,667 55,889,301 28.5% 5 WTI Crude Oil Futures, ICE Futures Europe 1,000 barrels 44,390,044 44,957,456 1.3% 6 Crude Oil Futures, MCX 100 barrels 35,305,864 44,547,741 26.2% 7 Crude Oil Options on Futures, Nymex 1,000 barrels 27,641,135 31,916,141 15.5% 8 No. 2 Heating Oil Futures, Nymex 42,000 gal 22,610,137 26,148,237 15.6% 9 NY Harbor RBOB Gasoline Futures, Nymex 42,000 gal 23,118,235 26,125,335 13.0% 10 U.S. Oil Fund ETF Options * NA 12,784,510 24,940,426 95.1% 11 Natural Gas European-Style Options, Nymex 10,000 MMBTU 20,134,594 19,832,148 -1.5% 12 Brent Crude Oil Futures, RTS 10 barrels 9,130,602 17,349,559 90.0% 13 Henry Hub Swap Futures, Nymex 2,500 MMBTU 17,493,265 16,935,080 -3.2% 14 U.S. Natural Gas Fund ETF Options * NA 16,114,707 11,478,737 -28.8% 15 Natural Gas Futures, MCX 1,250 MMBTU 8,988,140 7,463,502 -17.0% 16 Henry Hub Penultimate Swap Futures, Nymex 2,500 MMBTU 7,693,379 5,986,335 -22.2% 17 EUA Futures, ICE Futures Europe 1,000 EUAs 3,606,215 4,438,833 23.1% 18 Crude Oil Futures, NCDEX 100 barrels 569,795 4,039,174 608.9% 19 Crude Oil 1 Month CSO Options, Nymex 1,000 barrels 1,764,673 2,614,660 48.2% 20 miNY Crude Oil Futures, Nymex 500 barrels 2,754,684 2,590,027 -6.0% * Traded on multiple U.S. options exchanges

Futures Industry | January 2012 13 Top 20 Equity Index Futures & Options Contracts Rank Contract Index Multiplier Jan-Oct 2010 Jan-Oct 2011 % Change 1 Kospi 200 Options, KRX 100,000 Korean won 2,871,629,507 3,140,818,598 9.4% 2 S&P CNX Nifty Options, NSE India 100 Indian rupees 415,717,255 701,858,270 68.8% 3 SPDR S&P 500 ETF Options * NA 374,284,515 613,817,277 64.0% 4 E-mini S&P 500 Futures, CME 50 U.S. Dollars 474,540,993 522,925,797 10.2% 5 Euro Stoxx 50 Futures, Eurex 10 Euros 315,286,045 347,628,543 10.3% 6 Euro Stoxx 50 Options, Eurex 10 Euros 238,651,473 311,123,815 30.4% 7 RTS Futures, RTS 2 U.S. Dollars 187,476,386 304,329,463 62.3% 8 S&P 500 Options, CBOE 100 U.S. Dollars 150,359,561 166,765,838 10.9% 9 iShares Russell 2000 ETF Options * NA 100,542,085 146,612,691 45.8% 10 Powershares QQQ ETF Options * NA 104,608,117 120,068,541 14.8% 11 Taiex Options, Taifex 50 New Taiwan dollars 78,968,788 107,467,694 36.1% 12 S&P CNX Nifty Futures, NSE India 100 Indian rupees 107,317,740 102,170,701 -4.8% 13 Nikkei 225 Mini Futures, OSE 100 Yen 107,368,855 100,897,766 -6.0% 14 CBOE Volatility Options, CBOE 100 U.S. Dollars 50,084,329 86,167,494 72.0% 15 Kospi 200 Futures, KRX 500,000 Korean won 72,745,836 74,010,485 1.7% 16 TA-25 Options, TASE 100 New Israeli shekels 58,313,359 71,496,572 22.6% 17 E-mini Nasdaq 100 Futures, CME 20 U.S. Dollars 69,136,512 64,532,463 -6.7% 18 Financial Select Sector SPDR ETF Options * NA 57,357,289 64,223,684 12.0% 19 iShares MSCI Emerging Markets ETF Options * NA 44,109,065 61,281,376 38.9% 20 Dax Options, Eurex 5 Euros 63,595,204 57,274,210 -9.9% * Traded on multiple U.S. options exchanges

Top 20 Foreign Exchange Futures & Options Contracts Rank Contract Contract Size Jan-Oct 2010 Jan-Oct 2011 % Change 1 U.S. Dollar/Indian Rupee Futures, MCX-SX 1,000 USD 690,775,795 708,078,059 2.5% 2 U.S. Dollar/Indian Rupee Futures, NSE India 1,000 USD 597,737,826 611,556,531 2.3% 3 U.S. Dollar/Indian Rupee Futures, USE * 1,000 USD 100,753,045 331,441,174 229.0% 4 U.S. Dollar/Indian Rupee Options, NSE India ** 1,000 USD 305,401 215,777,555 70553.8% 5 U.S. Dollar/Russian Ruble Futures, RTS 1,000 USD 59,737,251 164,823,104 175.9% 6 U.S. Dollar Futures, BM&F 50,000 USD 70,405,531 72,739,432 3.3% 7 Euro FX Futures, CME 125,000 Euro 71,253,372 72,260,033 1.4% 8 U.S. Dollar Futures, KRX 10,000 USD 52,463,042 58,068,010 10.7% 9 U.S. Dollar Futures, Rofex 1,000 USD 50,479,951 44,605,070 -11.6% 10 Euro/U.S. Dollar Futures, RTS 1,000 Euro 26,270,772 40,341,712 53.6% 11 Australian Dollar/Japanese Yen Futures, TFX 10,000 AUD 29,084,747 36,014,787 23.8% 12 US Dollar/Japanese Yen Futures, TFX 10,000 USD 21,605,865 28,541,438 32.1% 13 Euro/Indian Rupee Futures, MCX-SX 1,000 Euro 44,444,874 27,625,638 -37.8% 14 Australian Dollar Futures, CME 100,000 AUD 21,930,236 25,690,215 17.1% 15 Japanese Yen Futures, CME 12,500,000 Yen 26,882,327 25,433,212 -5.4% 16 British Pound Futures, CME 62,500 GBP 25,829,949 24,958,834 -3.4% 17 Euro/Japanese Yen Futures, TFX 10,000 Euro 16,440,841 22,857,510 39.0% 18 Canadian Dollar Futures, CME 100,000 CAD 18,559,149 19,269,492 3.8% 19 Euro/Indian Rupee Futures, NSE India 1,000 Euro 15,533,769 16,889,775 8.7% 20 U.S. Dollar Rollover Futures, BM&F 50,000 USD 15,911,770 16,795,760 5.6% * Began trading in September 2010 ** Began trading in October 2010

14 Futures Industry || www.futuresindustry.com

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Other Functions • My Cart • IFM Bookstore, Educational Courses, and Ethics Training www.futuresindustry.org Top 20 Interest Rate Futures & Options Contracts Rank Contract Contract Size Jan-Oct 2010 Jan-Oct 2011 % Change 1 Eurodollar Futures, CME 1,000,000 USD 407,805,071 495,925,079 21.6% 2 10 Year Treasury Note Futures, CBOT 100,000 USD 243,518,427 276,437,017 13.5% 3 One Day Inter-Bank Deposit Futures, BM&F 100,000 Real 229,322,687 270,747,431 18.1% 4 Euribor Futures, Liffe U.K. 1,000,000 Euro 213,542,253 210,883,748 -1.2% 5 Euro-Bund Futures, Eurex 100,000 Euro 194,726,690 206,757,724 6.2% 6 5 Year Treasury Note Futures, CBOT 100,000 USD 107,039,405 147,512,655 37.8% 7 Euro-Schatz Futures, Eurex 100,000 Euro 119,601,854 146,321,519 22.3% 8 Euro-Bobl Futures, Eurex 100,000 Euro 111,971,526 125,135,965 11.8% 9 Euribor Options on Futures, Liffe U.K. 1,000,000 Euro 110,491,771 105,448,918 -4.6% 10 Short Sterling Futures, Liffe U.K. 500,000 GBP 94,522,370 102,392,375 8.3% 11 IDI Index Options on Futures, BM&F 1 Real 69,406,671 85,950,843 23.8% 12 Eurodollar Options on Futures, CME 1,000,000 USD 90,939,142 84,230,664 -7.4% 13 Eurodollar Mid-Curve Options on Futures, CME 1,000,000 USD 60,609,110 82,062,407 35.4% 14 30 Year Treasury Bond Futures, CBOT 100,000 USD 68,561,035 78,310,987 14.2% 15 2 Year Treasury Note Futures, CBOT 200,000 USD 56,336,351 63,408,375 12.6% 16 10 Year Treasury Note Options on Futures, CBOT 100,000 USD 44,161,241 43,985,883 -0.4% 17 3 Year Treasury Bond Futures, ASX 24 100,000 AUD 28,940,855 36,280,437 25.4% 18 Euro-Bund Options on Futures, Eurex 100,000 Euro 32,113,838 30,504,791 -5.0% 19 3 Year Treasury Bond Futures, KRX 100 million KRW 22,465,010 29,791,187 32.6% 20 ID x US Dollar FRA Futures, BM&F 50,000 USD 17,109,711 29,014,516 69.6%

Top 20 Metals Futures & Options Contracts Rank Contract Contract Size Jan-Oct 2010 Jan-Oct 2011 % Change 1 iShares Silver Trust ETF Options * NA 12,314,469 73,333,365 495.5% 2 SPDR Gold Shares ETF Options * NA 44,273,719 64,790,552 46.3% 3 Steel Rebar Futures, SHFE 10 tonnes 196,994,824 61,391,327 -68.8% 4 High Grade Primary Aluminum Futures, LME 25 tonnes 38,377,819 48,030,862 25.2% 5 Zinc Futures, SHFE 5 tonnes 121,154,895 46,345,295 -61.7% 6 Comex Gold Futures, Nymex 100 oz 36,230,261 42,168,399 16.4% 7 Silver Mini Futures, MCX 5 kilograms 16,250,616 39,224,210 141.4% 8 Silver Micro Futures, MCX ** 1 kilogram 0 35,151,127 NA 9 Copper Futures, SHFE 5 tonnes 43,411,767 30,775,616 -29.1% 10 Copper Grade A Futures, LME 25 tonnes 24,188,963 28,540,760 18.0% 11 Copper Futures, MCX 1 tonne 26,617,847 27,129,518 1.9% 12 Silver Futures, MCX 30 kilograms 12,541,974 21,239,289 69.3% 13 Gold Mini Futures, MCX 100 gram 13,030,272 20,840,700 59.9% 14 Special High Grade Zinc Futures, LME 25 tonnes 14,943,507 18,127,351 21.3% 15 Gold Petal Futures, MCX *** 1 gram 0 17,880,307 NA 16 Comex Silver Futures, Nymex 5,000 oz 9,274,933 17,515,601 88.8% 17 Gold Futures, TOCOM 1 kilogram 10,007,959 13,704,586 36.9% 18 Nickel Futures, MCX 250 kilograms 15,835,190 12,150,644 -23.3% 19 Gold Futures, RTS 1 oz 3,749,203 11,570,439 208.6% 20 Gold Futures, MCX 1 kilogram 10,365,206 10,512,565 1.4% * Traded on multiple U.S. options exchanges ** Began trading in February 2011 ** Began trading in April 2011

16 Futures Industry | www.futuresindustry.com FIA Law & Compliance Division Presents: Conference on the Regulation of Futures, Derivatives and OTC Products May 9-11, 2012 Marriott Waterfront l Baltimore, Maryland

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www.futuresindustry.org/lc l 202.466.5460 newsbriefs

G-20 Leaders position limits without first determining The sponsors also said it would protect the Reiterate Commitment whether they were necessary; failed to CFTC’s funding from “Wall Street lobbyists” to Derivatives Reforms develop a reasoned basis for its rule; and seeking to limit the agency’s regulatory ef- At the Group of 20 summit in Cannes in failed to conduct an adequate cost-benefit fectiveness. Currently the CFTC relies on an November, leaders of the G-20 countries analysis as required by law. annual appropriation from Congress to fund discussed several policy initiatives that This is the first time that the CFTC’s rule- its activities. The proposal would authorize could affect participants in the global making process has been challenged in this the CFTC to collect fees on futures, options futures and options markets. The lead- way, but there have been some precedents and swaps, including uncleared swaps, up ers reiterated their commitment to moving involving other U.S. agencies. In 2006 the to the amount appropriated by Congress standardized over-the-counter derivatives U.S. Court of Appeals for the District of each year. The sponsors noted that this type to electronic trading platforms and central Columbia Circuit invalidated a rule issued of “user fee” mechanism is used to fund clearing by the end of 2012. The leaders by the Securities and Exchange Commis- other U.S. government agencies such as also set a mid-2012 deadline for establish- sion requiring the registration of hedge fund the Securities and Exchange Commission, ing global standards for setting margin on managers. And in July 2011, the same court the Federal Deposit Insurance Corp., and non-cleared OTC derivatives. invalidated the SEC’s proxy access rule, the Federal Energy Regulatory Commission. The leaders expressed concern about which like the CFTC’s position limit rule, was the potential risks of high-frequency trading authorized by the Dodd-Frank Act. In both European Commission and agreed to implement recommendations cases, the court found that the SEC failed to Publishes MiFID II Proposal from the International Organization of Securi- conduct an adequate evaluation of the rule’s The European Commission on Oct. 20 ties Regulators to address these risks. The economic impact. released proposed legislation setting stan- leaders also called on IOSCO to make an dards and rules for the trading of securities assessment by mid-2012 of the credit default U.S. Democrats Propose and derivatives and the licensing and su- swaps markets and the role of those markets Transaction Taxes pervision of market participants and market in the price formation of underlying assets. On Nov. 2, Senator Tom Harkin (D-Iowa) and operators. The proposal seeks to implement With respect to commodity markets, Representative Peter DeFazio (D-Ore.) intro- post-crisis reforms agreed by the G-20 lead- the G-20 leaders said market regulators duced legislation in both the House and the ers, such as greater transparency for over- should have “effective intervention powers Senate that calls for a financial transactions the-counter derivatives. The proposal also to address disorderly markets and mar- tax aimed at “unnecessary speculation” in the addresses other policy initiatives backed by ket abuses,” including the power to set financial markets. If enacted by Congress, European leaders, such as position limits for position limits. The leaders endorsed the the proposal would raise an estimated $43 commodity derivatives and restrictions on recently issued IOSCO recommendations billion per year for the federal government high-frequency trading. on the regulation of commodity derivatives by applying a tax of three basis points on On Dec. 5, the European Parliament’s and asked for an update on the implemen- transactions in stocks, bonds, futures, op- Economic and Monetary Affairs Commit- tation of these recommendations by the tions and swaps. The tax would apply to any tee held an open hearing on the proposal. end of 2012. such transactions on exchanges or trading The hearing focused on the scope of the facilities in the U.S., or if purchaser or seller proposal, the provisions relating to investor ISDA and SIFMA Challenge is a U.S. person. Thirteen other members of protection, and the organizations of markets CFTC’s Position Limits Rule Congress have signed up as co-sponsors of and trading. During the hearing, members The Commodity Futures Trading Com- the legislation. The bill is currently pending of the committee sought information on mission’s final rule on speculative posi- at the Senate Finance Committee and the market structure, investor protection, high- tion limits has been challenged in court. House Ways and Means Committee. frequency trading, the powers of the Euro- On Dec. 2, the International Swaps and In related news, three House lawmakers pean Securities and Markets Authority, third Derivatives Association and the Securities proposed a more narrowly focused transac- country access and position limits, among Industry and Financial Markets Association tion tax on Dec. 2 that would cover the cost other topics. On the topic of high-frequency filed a complaint in the U.S. District Court of the Commodity Futures Trading Commis- trading, the committee heard Jean-Pierre for the District of Columbia asserting that sion’s annual budget. The bill’s sponsors— Jouyet, the head of France’s financial mar- the CFTC’s rule-making process was “pro- Representatives Leonard Boswell (D-Iowa), kets authority, call for tighter regulation to cedurally flawed” and asking the court to Rosa DeLauro (D-Conn.), and Peter Welch prevent a “flash crash” type of disturbance. set aside the rule. The associations argued (D-Vt.)—said the legislation would help pre- Markus Ferber, a German member of that the CFTC erred in concluding that the vent a repeat of the MF Global collapse by Parliament who will act as the “rapporteur” Dodd-Frank Act required it to establish boosting the agency’s financial resources. for the proposal as it moves through the

18 Futures Industry | www.futuresindustry.com legislative process, said at the hearing that new requirement that all derivatives that are adequate pre-trade controls, mechanisms to he intends to circulate working documents “sufficiently liquid” and eligible for clearing constrain or halt trading in case of significant on certain topics in the coming months. In should be traded on a regulated venue, variations in price, and “clear organizational addition, he issued a questionnaire seeking such as an exchange, a multilateral trading requirements” for members that are not public input on a number of issues related facility, or a new category called an “orga- regulated entities. The guidelines also re- to the MiFID proposal. The deadline for nized trading facility.” An OTF is any system quire protections against market abuse and responses was Jan. 13. or facility for multilateral trading that is not a market manipulation “that are proportionate The proposed legislation has two parts: regulated exchange or MTF, such as a dark to the nature, size and scale of the business a revised Markets in Financial Instruments pool for equities or an execution facility for done through the trading platform.” Directive and a new regulation called the swaps. An OTF operator has more discre- With respect to investment firms, the Markets in Financial Instruments Regulation. tion over how a transaction is executed, guidelines require firms that are using algo- While a directive is implemented through but is not allowed to use proprietary capital rithms to have organizational arrangements rules established at the national level, a when executing client orders. to maintain fair and orderly trading, such regulation establishes rules across Europe The revised directive includes a number as an appropriate governance process for and therefore gives less discretion to mem- of provisions aimed at algorithmic and high- developing or buying algorithms, staff with ber states. Both parts of the proposal will frequency trading. These include require- necessary skills and expertise to run and be reviewed by the Council of Ministers and ments that algorithmic trading strategies monitor the behavior of their live algorithms; the European Parliament, a process that is must be in “continuous operation” and and pre-trade controls which address er- expected to require considerable negotiation should provide liquidity “on a regular and roneous order entry and maintain pre-set and amendment before enactment. Once ongoing basis” under all market conditions. risk management thresholds. that is achieved, many of the provisions will In effect, these requirements would impose “The publication of today’s guidelines require the drafting of technical standards market-making obligations on firms using is an important step towards improv- by the European Securities and Markets algorithmic trading strategies. In addition, ing the oversight of automated trading,” Authority before they take effect. firms and venues that support direct market Steven Maijoor, the chairman of ESMA, Among other things, the new regulation access for algorithmic or high frequency commented. “These guidelines will help establishes requirements relating to the man- traders will be required to have systems and contribute to the stability and robustness of datory trading of derivatives on organized controls to prevent disruptive trading and European electronic trading systems, which venues, the disclosure of trade transparency capacity overload. is why ESMA implements these guidelines data to the public and transaction data to Of particular interest to firms and market now without waiting for the completion of national regulators, and the removal of barri- operators outside Europe, the revised the MiFID review.” ers to non-discriminatory access to clearing. directive establishes third-country rights Regarding the latter, the regulation requires of access, provided that the third-country European Commission clearinghouses to provide “non-discrimina- regulator meets certain standards. Publishes Market tory treatment” in terms of cross-margining of Abuse Proposal economically equivalent contracts. ESMA Sets Guidelines for The European Commission on Oct. 20 The revised directive, on the other hand, Automated Trading released legislative proposals to update its has been extended to capture instruments The European Securities and Markets Au- Market Abuse Directive, which establishes and activities not previously covered, such thority on Dec. 22 issued guidelines on sys- a pan-European framework for preventing as commodity derivatives and spot trading in tems and controls in an automated trading insider trading and market manipulation. emission allowances. As a result, many com- environment. The guidelines apply to trading The proposals replace the directive with modity businesses such as oil companies platforms, investment firms and competent a regulation, thereby leaving less flexibility and power generators may need to comply authorities and cover all types of financial for implementation at the member state with MiFID rules for the first time. The revised instruments, as defined in the Market in Fi- level, and a directive on criminal sanctions. directive also establishes a position report- nancial Instruments Directive. The guidelines Among other things, the proposed Market ing requirement, including the identity of the will take effect one month after publication Abuse Regulation extends the existing end-client, and provides regulators with the by national authorities. ESMA said it expects framework to all types of derivatives, clarifies authority to request a reduction in position market participants to comply with the that market abuse occurring size and impose position limits. The revised guidelines by May 1. across both commodity and directive also requires trading venues to es- In particular, the guidelines require related derivatives markets is tablish position limits or “alternative arrange- regulated markets and multilateral trading prohibited, reinforces regula- more ments” with equivalent effects. facilities to have “proper arrangements in tory investigative powers, and The revised directive also establishes a place” to maintain orderly markets, including establishes tougher sanctions

Futures Industry | January 2012 19 newsbriefs

LME reportedly expects to receive bids by the end of February. “Potential suitors

FIA Members Raise More than $390,000 for Fighting Hunger are preparing bids for the exchange but it Greater Chicago Food Depository is too early to say whether the board will The FIA is proud to announce that FIA Futures Cares, a charitable group recommend any bid to the shareholders,” backed by members of the futures and options industry, raised more than LME said in the Dec. 19 statement. $390,000 during the FIA’s annual Expo to help support the Greater Chicago In separate but related news, J.P. Mor- Food Depository, which provides food for hungry families in the Chicago area. gan has become the largest shareholder in FIA Futures Cares partnered with 19 Chicago steakhouses to host a gala LME. On Dec. 5, KPMG, the administrators dinner during the Expo. Nearly 800 tickets were sold for this event and CME for MF Global U.K., disclosed that it had Group donated a Ford Mustang for a raffle. Futures Cares has raised more sold the bankrupt firm’s 600,000 ordinary than $1.3 million dollars since 2008 for the food depository and its network of shares in LME to the U.S. investment bank. 650 pantries, soup kitchens and shelters. That brought J.P. Morgan’s total stake to 1.4 million shares, equivalent to 10.8% of the outstanding shares. J.P. Morgan also for violations. The proposed regulation also LME Confirms bought 25,000 non-voting B shares that clarifies which high-frequency trading strate- Move to Self-Clearing provide owners with trading rights. Goldman gies constitute prohibited market manipula- After several months of consultation with Sachs and Metdist reportedly are the next tion, such as submitting orders with the inten- its members, the London Metal Exchange two largest shareholders with 1.23 million tion to disrupt a trading system. The separate announced in December that it will move shares and 1.21 million shares, respectively. directive on criminal sanctions is intended to forward with plans to pursue self-clearing. harmonize policy in this area across Europe. The exchange—which currently relies on FIA PTG Responds to The next step is for the EU Council and the LCH.Clearnet for clearing—did not set a CFTC Effort to Define European Parliament to review the proposals target date for implementation but said it High-Frequency Trading for negotiation and adoption. will begin a tender process for technology The FIA Principal Traders Group submitted suppliers for the clearinghouse, which will be a letter to the Commodity Futures Trading Japan’s TSE and OSE named LMEclear. Commission on Dec. 12 in response to a Reach Agreement to Merge The exchange has not yet determined request for comment on a proposed seven- Tokyo Stock Exchange Group and Osaka how to finance the costs of building the part definition of high-frequency trading that Securities Exchange on Nov. 22 announced new clearinghouse, but it has decided to was issued by CFTC Commissioner Scott that after nine months of negotiations, they boost revenues through a new transaction O’Malia on Nov. 14. In the letter, the FIA have agreed on a plan to merge in Janu- fee of 50 pence per lot. The new fee will PTG warned that the proposed definition ary 2013. Under the merger plan, the TSE take effect on March 1. “The revenue from would be too arbitrary to be useful. The will first convert the OSE into a subsidiary the new levy will enable the exchange to FIA PTG suggested that the CFTC instead through a public tender offer for up to continue to operate commercially while still should focus on any firms or traders that two thirds of its common shares. Once operating a highly competitive service,” use an automated trading system that is the merger has been concluded, the two LME said on Dec. 19. connected directly to an exchange. The ad- companies will then establish a holding LME announced in May that it was con- vantage of this approach is that it would le- company, tentatively called Japan Exchange sidering a move to self-clearing. In October, verage data that are already collected by the Group, that will establish separate subsidiar- the exchange hired Trevor Spanner, an ex- major U.S. exchanges, the FIA PTG said. ies for their combined equities businesses ecutive at EuroCCP, as managing director of For example, CME’s Globex electronic trad- and combined derivatives businesses. TSE post-trade services, responsible for oversee- ing system requires each order to indicate President Atsushi Saito will serve as chief ing the exchange’s self-clearing review. whether it originated from an automated executive officer of the holding company, LME also disclosed that it has taken trading system. The FIA PTG also noted while OSE President Michio Yoneda will be- another step towards a possible sale that risk controls should apply to orders come chief operating officer. During a press of the exchange. In mid-December the submitted by all market participants, rather conference held to announce the merger, exchange sent non-disclosure agreements than a narrow subset that meets a definition the two executives said the combination to third parties interested in submitting of HFT, and encouraged O’Malia to form a will produce “significant” synergies through bids. Once those have been signed, the working group with industry participants to system integration, but did not indicate how LME will provide the interested parties consider what types of risk controls should they will determine which exchange’s trading with information needed for the initial bids. be applied to automated trading systems. systems will be retained.

20 Futures Industry | www.futuresindustry.com BRIC Exchanges Form Alliance BIS Issues Report derivatives. The CSA proposals would assist to Cross-List Equity Indices on Access to OTC securities regulators in monitoring market A group of stock exchanges based Derivatives Clearinghouses participants and enforcing new standards in Brazil, Russia, India and China an- The Bank for International Settlements of conduct. Comments on the consultation nounced an alliance on Oct. 12 to cross- issued a report in November that analyzes paper must be submitted by Jan. 25. list benchmark equity index derivatives the “macrofinancial implications” of various Australia’s Treasury on each other’s exchanges. The alliance arrangements through which market par- Examines Handling of Client brings together BM&FBovespa from ticipants obtain access to central counter- Funds in OTC Transactions Brazil, MICEX from Russia (currently parties for the clearing of over-the-counter merging with RTS Exchange), Hong Kong derivatives. The report, which was drafted Australia’s assistant treasurer and minister Exchanges and Clearing as the initial by a committee headed by the Bank of for financial services released a discussion China representative and the Johannes- Canada’s Timothy Lane, concluded that ex- paper on Nov. 19 regarding the handling burg Stock Exchange from South Africa. panding direct access to CCPs may reduce and use of client money held for over-the- The National Stock Exchange of India the concentration of risk in the largest global counter derivatives transactions. The paper and the BSE (formerly known as Bombay dealers and increase competition among discussed the appropriateness of pooling Stock Exchange) have also expressed an direct clearers. On the other hand, CCP money received by holders of Australian intention to join the alliance, which when risk management procedures should be financial services licenses and using those combined will represent an estimated adapted in order to ensure their continued funds in connection with derivatives trans- $9 trillion in market capitalization among effectiveness, the report said. The report actions. In addition, the paper discussed exchanges in the alliance. also examined the issues raised by the the adequacy of reporting arrangements During the first stage of this alliance, establishment of multiple domestic CCPs between financial services licensees holding the exchanges plan to launch cross-listed around the world, such as better oversight client money and clients. Comments must products by June 2012. The second and crisis management but also fragmenta- be submitted by Jan. 27. stage of the project involves developing tion of trading and risk. LCH.Clearnet new products for cross-listing and the Enhances SwapClear third stage may include further coop- Banking Associations eration in joint product design and new Warn Basel Committee LCH.Clearnet announced on Dec. 5 several services development. that CCP Capital Charge enhancements to its SwapClear service for Will Discourage Clearing U.S. participants in the interest rate swaps ISDA Study: A group of trade associations represent- market. SwapClear now accepts a broader Electronic Swaps Trading ing global financial firms on Nov. 25 filed a range of collateral for initial margin, offers Mandate Will Increase Costs joint response to the Basel Committee on more options for connectivity, and has The International Swaps and Derivatives Banking Supervision’s second consulta- extended the range of clearable instru- Association released a study on Nov. 10 tion paper regarding the proposed capital ments to include variable notional swaps. In finding that a Dodd-Frank provision man- treatment of bank exposures to central addition, the allocation workflow has been dating that many over-the-counter swaps counterparties. In the joint comment letter, enhanced so that trades can be allocated be executed on electronic trading plat- the groups warned that the current propos- across multiple futures commission mer- forms will increase transaction costs. The als would require a capital charge so large chants, with anonymity and trade status ISDA study found that possible benefits that it would “discourage the propagation updates for all counterparties. SwapClear for small end-users will be no more than of central clearing.” The group includes the is now directly accessible via Tradeweb and $1,000 for a $10 million interest rate swap British Bankers’ Association, the Futures Bloomberg through a new interface called before fees for execution and clearing. and Options Association, the Global Finan- ClearLink API. “Any net benefit for small end-users will cial Markets Association, the Institute for DTCC Launches Global OTC be dramatically outweighed by costs to International Finance and the International Interest Rate Trade Repository the market as a whole,” ISDA said. For Swaps and Derivatives Association. example, the study found that estimated The Depository Trust and Clearing Corpo- initial set-up costs to market participants Canadian Regulator Weighs ration announced on Dec. 7 from the new rules are more than $750 Regulation of OTC Derivatives the launch of its global trade million while ongoing costs are more than The Canadian Securities Administrators repository for over-the-counter $250 million per annum. Initial and ongo- on Nov. 25 released for public comment a interest rate derivatives. The ing costs identified in the paper amount to consultation paper seeking public com- repository is based in London more approximately $1,300 per transaction. ment on the regulation of over-the-counter and is receiving data from 15

Futures Industry | January 2012 21 newsbriefs dealers, DTCC said. The service currently as pave the way for portfolio margining. Korea Exchange supports trade submissions for OTC inter- ICE explained that the model will decom- Revamps Kospi Market est rate swaps (basis, fixed-float, cross pose CDS index swaps into single name The Korea Exchange is taking several steps currency, etc.), forward rate agreements, CDS. This will allow the clearinghouse to to shift the balance of trading in its deriva- overnight indexed swaps, debt options, incorporate “jump-to-default” risk in margin tives market. In March, the exchange plans swaptions, inflation swaps, and other calculations for index products and provide to change the multiplier for its wildly popular complex interest rate contract types. While margin offsets between index and single Kospi 200 stock index options from 100,000 the initial product release focuses primarily name products. Korean won to 500,000 won, the same size on meeting voluntary regulatory reporting At present, the clearinghouse can only as the Kospi 200 futures. The five-fold size commitments of the largest OTC interest offer portfolio margining for proprietary posi- increase will discourage speculative trading rate dealers, DTCC said that it will expand tions of its members. The clearinghouse does by retail investors, KRX officials said. Korean its systems to support trade reporting not yet offer clearing for customer positions retail investors account for about one third requirements established by the Dodd-Frank in single name products, partly because of of the volume in Kospi 200 options, and Act and other regulations as they emerge the regulatory approvals needed to hold both government officials have expressed concern around the world. DTCC already operates sets of products in a single account. about the losses incurred by retail investors in global trade repositories for credit default The new margin methodology has several this and other derivatives products. swaps and for OTC equity derivatives and other advantages over the previous model, The exchange also is making its stock is also planning initiatives in the foreign ex- ICE explained in the November filing. These index products more attractive to institu- change and commodity derivatives markets. include replacing standard deviation with tional traders by reducing the amount of mean absolute deviation as a measure of time it takes to submit orders. In June KRX ICE Brings Portfolio spread volatility, using an auto-regressive pro- plans to open a new access point in the Margining to CDS Clearing cess to obtain multi-horizon risk measures, city of Busan. That is where the matching ICE Clear Credit, the New York-based expanding the spread response scenarios, of derivatives trades take place. The new clearinghouse operated by Intercontinen- and introducing liquidity requirements. access point will have a lower latency than talExchange, is seeking regulatory permis- the current access point in Seoul, exchange sion to provide portfolio margining treat- ICE Seeks to Register ICE officials said. ment for its members and their customers. Trade Vault as Data Repository Farther out on the horizon, the exchange On Nov. 22, the clearinghouse passed a for Commodity Swaps expects to roll out a new trading platform key hurdle when the Commodity Futures IntercontinentalExchange has applied to the in September 2013 called Exture+. This Trading Commission asked for comment on Commodity Futures Trading Commission new system will aim to reduce latency from ICE Clear Credit’s petition for an exemptive to register its ICE Trade Vault service as a 20 milliseconds to 70 microseconds and order, which would allow the commingling swap data repository for energy and other increase throughput from 250 transactions of customer positions in credit default index commodity swaps. ICE Trade Vault is slated per second to 20,000 transactions per sec- swaps and credit default security-based to launch in the first half of 2012. ICE said ond. The new system also will use the FIX swaps. Under the rules established by the participants in the commodity markets will protocol for order messages and possibly Dodd-Frank Act, CDS based on indices be able to use the ICE eConfirm platform the FIX/Fast protocol for market data. The are subject to the jurisdiction of the CFTC, to submit non-cleared trades and end-user exchange expects the new platform to help whereas CDS based on single names are clearing exemptions in order to comply with KRX cater to the increasing number of mar- subject to the jurisdiction of the Securities new reporting requirements. ket participants that are using high-speed and Exchange Commission. The clearing- automated trading technology. house therefore needs regulatory permis- CME to Accept Chinese Kospi 200 options rank as the world’s sion from both agencies to margin both Currency as Collateral most actively traded derivatives contract, sets of products as a single portfolio. Starting in January, CME Group will accept off- with 3.67 billion contracts traded in 2011. ICE Clear Credit also is changing how it shore Chinese renminbi to meet performance The Korean exchange is attempting to calculates margins on credit default index bond requirements on all futures cleared increase the distribution of its Kospi prod- swaps. In documents filed with the CFTC through CME Clearing. CME also announced ucts outside of its home market through and the SEC in November, the clearing- that HSBC Hong Kong will serve as a clearing partnerships with CME Group and Eurex. house described its plans to implement custodian in Asia. CME said its clearinghouse Those partnerships are starting to bear a margin methodology called the “de- and HSBC have built an operational frame- fruit, with a significant uptick in volume comp model.” This model will allow the work that will allow the bank to hold offshore during the second half of 2011. (See “Ko- clearinghouse to more precisely measure renminbi deposits from CME clients and to rean Traders Flock to Eurex” elsewhere in risk in cleared CDS index swaps as well use those deposits as collateral. this magazine.)

22 Futures Industry | www.futuresindustry.com

Washington Examines MF Global

CollapseBy Joanne Morrison

MF Global’s bankruptcy has become a central focus in Congress. While the firm’s collapse was the eighth-largest bankruptcy in U.S. history, what is most troubling to lawmakers is how some $1.2 billion in customer funds and collateral went missing as the firm fell apart.

24 Futures Industry | www.futuresindustry.com any who have been impacted by the futures market to manage risk again. Industry. “I’m a bit concerned that we MF Global’s collapse were farmers, The protection of segregated customer will discover that if every part of Dodd- Mranchers and other “Main Street” funds has been a cornerstone of the futures Frank had been in place this still would customers in the agricultural sector who industry for years, but the MF Global situ- have happened.” use the futures markets to hedge against ation has brought all of that into question,” price fluctuations for their crops, fertilizer warned Senate Agriculture Committee How Did and fuel costs. These are the primary con- Chairwoman Debbie Stabenow (D-Mich.) Regulators Miss This? stituents of policymakers on the House and at the start of a Dec. 1 hearing. The first congressional hearing took place Senate Agriculture Committees and as a re- on Dec. 1 in the Senate Agriculture Com- sult, both Republicans and Democrats have mittee. That hearing was intended to given their full attention to the firm’s col- focus on Dodd-Frank rulemakings, but lapse and the recovery of customer funds. lawmakers spent most of the hearing Congress discussed MF Global at four grilling the heads of the CFTC and the hearings during the final legislative days Securities and Exchange Commission on of 2011 and is preparing to hold more in MF Global and how such a mishap could early 2012. At the hearings, lawmakers The protection of have gone undetected. Members also grilled regulators and former executives at questioned why Gary Gensler, the chair- the firm about how the MF Global debacle segregated customer man of the CFTC, recused himself from went undetected. The hearings were held by the MF Global investigation. the House and Senate Agriculture Commit- funds has been a The members of the Senate Agriculture tees and the oversight subcommittee of the Committee expressed frustration with reg- House Financial Services Committee. They cornerstone of the ulators who were monitoring MF Global. were widely attended with lawmakers leav- “What can you say to farmers and ranch- ing the hearing room only for final votes on futures industry for ers and others who legitimately hedge the House and Senate floors. as a good business practice and who are A central theme among their queries years, but the MF not being protected?” asked Senator Max about MF Global’s demise was how there Baucus (D-Mont.). “The agencies are not could have been such a massive breach of Global situation has looking sufficiently at these companies to the required segregation of customer funds. make sure the companies are doing what For decades, customer segregation has been brought all that into they’re supposed to be doing.” heralded as the cornerstone of the futures Stabenow cast doubts on the SEC and markets model. It was the success of this question. CFTC’s ability to detect potential prob- system during the 2008 collapse of Lehman lems at other firms. “I have great concern Brothers that helped inspire lawmakers to about the implications for other companies include many futures-like protections in the ’’ as well, if we are going to see other compa- Dodd-Frank Act when crafting new rules nies in the same situation... I have serious for the over-the-counter swaps markets. concerns that our system of audits is inad- “If our current segregation model for equate to address problems exemplified by futures could not protect customer funds MF Global. If the internal controls are as with regard to MF Global, how can we ex- bad as indicated, it would be shocking that pect it to protect counterparty collateral for a firm like this could have passed an audit,” the significantly larger swaps market in the Stabenow said. event of another large dealer bankruptcy?” Throughout that hearing and the three asked Representative Collin Peterson (D- subsequent hearings, regulators said they Minn.), the top Democrat on the House rely heavily on self-regulatory organiza- Agriculture Committee, in a Dec. 20 letter tions for oversight. “The SROs are the to the Commodity Futures Trading Com- Debbie Stabenow (D-Mich.), ones that are the frontline regulators,” mission. “Without sufficient protections in Chairwoman, Senate Agriculture Gensler said on Dec. 1. That was repeated place, confidence in the Dodd-Frank Act’s Committee by CFTC Commissioner Jill Sommers, system of swap clearing will be undermined who is in charge of the agency’s investiga- before it gets started.” That concern was echoed by Stabenow’s tion of MF Global. Lawmakers fear that confidence in the Republican counterpart in the House of “We’re doing everything we can to get futures market has been severely dam- Representatives. as much of their money back to them as aged and they have not yet begun to ad- “You have a lot of agricultural enti- quickly as possible. I have made this my dress what challenges might lie ahead in ties who use these futures products to number-one priority,” Sommers told the other financial markets such as the OTC manage their risk and protect their reve- Senate Agriculture Committee, indicat- derivatives markets, in the aftermath of nue streams. These are not entities who ing that the CFTC is close to discover- the MF Global collapse. are speculating,” said House Agricul- ing the location of the missing customer “I’m very concerned that customers are ture Committee Chairman Frank Lucas funds and is working around the clock now questioning whether they will ever use (R-Okla.) in an interview with Futures with the bankruptcy trustee.

Futures Industry | January 2012 25 MF Global Collapse

Where Is the Money? ages. MF Global didn’t keep their books oversight and investigations subcommittee Jon Corzine, the former chief executive offi- with feather quills and dusty ledgers. The of the House Financial Services Committee, cer of MF Global, appeared before Congress rules about keeping customer money seg- Corzine outlined some of the larger transac- at three of the four hearings. His second in regated are pretty straightforward. That it’s tions his firm undertook over the last few command—Bradley Abelow, the firm’s pres- been over a month and teams of lawyers and days before filing for bankruptcy, including ident and chief operating officer—appeared forensic accountants still can’t figure out the sale of $1.3 billion in commercial pa- at two of the hearings. Henri Steenkamp, what happened raises very troubling ques- per, “hundreds of millions of dollars of MF global chief financial officer, appeared at the tions,” Stabenow said. Global proprietary assets” and $4.5 billion Dec. 13 hearing. “I simply do not know where the money in government agency bonds. “As I sit here Despite the numerous questions from is, or why the accounts have not been rec- today, I do not know whether all of these the lawmakers, few if any details surfaced onciled to date,” Corzine responded. “I cer- and many other transactions were properly from any of the MF Global executives on tainly would never intend to direct or have recorded and effectuated, or whether banks the whereabouts of the customer funds that segregated funds moved,” he said. and other counterparties involved in such went missing as the firm plummeted over Frustrations and disbelief about the transactions properly credited the right ac- the course of a few days. They each repeated missing money came from both sides of the counts for these sales or are holding money that the firm had all of the proper safeguards political aisle during the hearings. “Funds that is rightfully due to either MF Global or in place and said they were stunned to learn don’t simply disappear. Someone took ac- its customers,” Corzine said. of the missing customer funds. tion, whether legal or illegal, to move that All three MF Global executives were Lawmakers and the MF Global trustee money. And the effect of that decision is be- consistent in their claims that it was not lauded the CME for its $550 million guar- ing felt across the countryside,” said Senator until late Sunday night, shortly before the antee, which enabled the trustee to make Pat Roberts (R-Kan.), the top Republican firm filed for bankruptcy, that they heard additional disbursements to MF Global on the Senate Agriculture Committee. of the shortfall in customer funds. Each of customers, but they expressed frustration Lawmakers grilled MF Global executives them explained repeatedly that they were with MF Global executives who were un- for details about how customer segregated not involved in the daily management of able to provide any details on the where- reports are managed and the timing of customer funds. abouts of the missing funds. when officials were notified of the shortfall. “As a general matter, I was not involved “Where is the money?” Stabenow asked They also asked the executives to name the with the details of the segregated funds in each of the executives who were sworn in officials who had been involved in manag- the course of my duties as global CFO, before delivering their testimony before her ing the customer segregated accounts. nor with the complex segregation calcula- committee on Dec. 13. “This isn’t the dark In his testimony on Dec. 15 before the tions performed by MFGI in Chicago and reported to regulators on a daily basis,” said Steenkamp. Lawmakers expressed some skepticism toward those claims. “It is hard to believe that senior management working with many, many skilled employees could have created a system where this kind of mess could occur,” Lucas said in an interview. “Do you realize how incredible your I simply do not know testimony and the other two gentlemen’s sounds to this committee?” asked Senator where the money is, Mike Johanns (R-Neb.). “That $1.2 billion, the first time in history this had ever hap- or why the accounts pened, could get drained away from customers and it doesn’t come to your atten- have not been tion… doesn’t that strike you as incredible?” On Dec. 23, just before leaving town reconciled to date. for the holiday recess, a bipartisan group of 17 senators sent a letter to the Justice De- I certainly would partment asking for a “comprehensive and exhaustive” investigation into MF Global never intend to direct and the “potentially illegal misappropria- tion” of customer funds from segregated or have segregated accounts. “We believe that justice must be brought to this issue to send a message funds moved. to Wall Street that the trust individual in- Jon Corzine, vestors place in these firms must always Former Chief Executive Officer, be returned with lawful, conscientious, MF Global ’’ and honest management of client funds,” said the group of lawmakers, which was

26 Futures Industry | www.futuresindustry.com spearheaded by Senators Max Baucus (D- liquidity issues in a series of transactions Lawmakers echoed their commitment to Mont.) and John Thune (R-S.D.). on Thursday, Friday, and possibly Wednes- help make MF Global customers whole. Terry Duffy, executive chairman of CME day.” MF Global officials also informed “We made a decision to ask you to speak Group, testified at three of the four hear- CME officials that there was a loan using first because you’re the focus of why we are ings. In his testimony, he outlined all the $175 million of segregated funds made to here,” said Stabenow. “Our number one steps the CME had taken in its review of MF Global’s U.K. affiliate. focus is to make sure that you are made MF Global’s customer segregation reports. whole and have confidence in the markets He stated that a draft report for Wednes- Impact of the moving forward.” day Oct. 26 showed MF Global held $200 MF Global Collapse “You certainly have our sympathy,” million in excess segregated funds. Duffy on Agricultural Sector agreed Senator Kent Conrad (D-N.D.). explained that it was not until Sunday Oct. The Dec. 13 hearing before the Senate Ag- “We are hopeful that before this is over 30 that the CME learned of a possible ac- riculture Committee began with testimony there will be 100% recovery. We are very fo- counting error showing a $900 million from a panel of agricultural sector witnesses cused on trying to make certain that you get shortfall in the segregated accounts. He fur- who described in detail how they have been every dime back that you put in customer ther alleged that Corzine knew that funds impacted by the MF Global collapse. accounts that should not have been at risk.” had been transferred from those accounts. The witnesses, who came from states such One witness, Dean Tofteland, a Minne- CME released a detailed timeline to as Michigan, Minnesota, Illinois and Kan- sota farmer, explained that he is not using lawmakers, indicating that MF Global of- sas, cited frozen accounts, additional margin the futures markets anymore. “I just don’t ficials knew of funds being transferred. In calls, unwound hedges and higher borrowing have the confidence right now until we get its timeline, CME stated that MF Global costs. All of these witnesses appealed to the 100% of our cash back,” Tofteland said. “I officials informed CME at 1:00 a.m. on committee to help find their lost customer was forced to liquidate my hedges and we’ve Monday Oct. 31 that approximately $700 funds. They also stressed that customers not been able to hedge since that time.” million of funds had been moved to the should take priority over creditor claims in Tofteland explained that when he heard broker-dealer side of MF Global “to meet the ongoing bankruptcy proceedings. news that MF Global was in financial

Ag Sector Pressures Congress to Respond to MF Global Collapse

coalition of farmers, lenders and others from the agricultural sector Ahas asked the House and Senate Agriculture Committees for help in recovering lost funds from the MF Global collapse and ensuring that customers receive “first priority” in the hierarchy of claims against the failed firm. The coalition also urged lawmakers to consider what changes are necessary to ensure that customer funds are safeguarded and restore confidence in the use of futures as risk management tools. “We have always believed that the risk to customer funds when trading on-exchange was virtually zero. Now we see that is not the case,” the 19-member coalition wrote in a Nov. 30 letter. The group includes a wide range of agricultural producer groups such as the National Grain and Feed Association, the American Farm Bureau Federation, the American Soybean Association, the National Association of Wheat Growers and the National Pork Producers Council. The group also includes several financial institutions serving the agricultural sector including AgriBank, Commerce Bank, Farm Credit Services of America and KeyBank. “Changes may be needed to begin restoring confidence in future use of exchange-traded risk management tools. Weaknesses in customer protections brought to light by MF Global’s failure have left customers unsure of whether segregated funds will continue to be fully available at other clearing firms,” the group wrote. The letter asked Congress to consider several possible remedies. For example, they asked lawmakers to consider whether the responsibility for safeguarding customer funds should be moved to third parties rather than clearing firms. They also asked the lawmakers to consider whether exchanges should bear some legal responsibility for customer funds lost in the case of bankruptcy or malfeasance by a clearing member. “Ultimately, our goals are twofold: to pursue all possible actions that will ensure that assets of MF Global customers will be returned quickly and to make sure this situation never recurs. The U.S. agricultural sector relies heavily on regulated exchanges for risk management,” the groups wrote.

Futures Industry | January 2012 27 MF Global Collapse trouble, he was assured by his broker that restore confidence in the futures markets. making and a violation of existing laws,” his $253,000 in collateral would be safe. “The commodities exchanges are strategically said Lucas. “I was told that no customer has ever lost important for U.S. agricultural producers and “It always happens in Congress. When a penny in segregated accounts,” he said. processors and for American consumers.” there is a problem, we have to do more reg- “The use of these markets is important to ulation, but I don’t think that is the case at reduce risk, but we must have the confi- Update from all,” said Senator Roberts in an interview. dence to do so. As you know, this impact Regulators and Trustee “What we need to do is make sure that has been felt far across this country and At the hearings, CFTC’s Sommers and the the CFTC has the funding to improve its not just in my local area,” Tofteland told court-appointed trustee handling the MF technology capability, but I’m not sure we the congressional panel. Global bankruptcy discussed their progress need 300 lawyers there, which is what Mr. Jeffrey Hainline, president of an intro- in recovering the missing customer funds. Gensler wants.” ducing broker based in Bloomington, Ill. Both officials at the CFTC and the trustee Representative Barney Frank (D-Mass.), called Advance Trading, said many of his explained that the process is complicated the ranking Democrat on the House Fi- customers are now considering using more and involves tracking transactions between nancial Services Committee, questioned than one futures commission merchant. multiple affiliates. whether the CME’s self-regulatory organi- “Numerous clients are asking about having Trustee James Giddens and his lead zation function ought to be spun off from more than one FCM so that at a moment’s counsel, James Kobak, briefed Congress its exchange business, as Nasdaq did with notice, we can transfer accounts if some- on progress in returning customer money. the FINRA. “I don’t mean to suggest in the body throws up a red flag,” he said, adding Although they have arranged for the return slightest that there was any conscious soft- that there are inefficiencies in spreading of 72% of the customer funds, they could ening by CME… But human beings are hu- business among several different FCMs. not say when or if the remainder would man beings, and I believe one of the things “We trusted the system. The [Chicago] be found. “At this time we do not know we have to look at is, if you’re going to have Board of Trade goes to lengths to explain with certainty the extent of the potential an SRO, should it be spun off,” he said. how nobody has ever lost money in this segregation and compliance shortfalls, but Those concerns were echoed by Repre- situation. You know, it’s their standard line I estimate the figure is not less than $1.2 sentative Michael Capuano (D-Mass.), the that they give, and it’s a line you could have billion for U.S. futures, foreign futures and ranking Democrat on the House Financial

We have a significant degree of self-regulation in this particular case.I think it’s a fair question of whether self-regulation is still applicable in today’s world. It was one thing in the 1880s. It’s another thing

today. Michael Capuano (D-mass.), Ranking Democrat on the House Financial Services’ oversight subcommittee been proud of up until the last six weeks,” for securities customers,” Giddens told the Services’ oversight subcommittee. “We have said Hainline. ’’ Senate Agriculture Committee. a significant degree of self-regulation in this When asked about what types of poli- Officials from the CFTC and the court- particular case. I think it’s a fair question of cies should be put in place to ensure that appointed trustee’s office have all agreed, whether self-regulation is still applicable in customer money will be protected in the fu- however, that returning customer funds is a today’s world. It was one thing in the 1880s. ture, the witnesses did not recommend new higher priority over handling creditor claims. It’s another thing today,” he said. rules but rather emphasized the importance “To be very clear, if we find that cus- The CFTC has already taken one step in of enforcing existing rules and laws. tomer property was transferred to the par- response to the MF Global bankruptcy. On “The segregated accounts need to be ent company, we will do everything within Dec. 5, the agency approved changes to Rule held above the bankruptcy, in my opinion. our power to return it to its rightful own- 1.25, which defines what types of invest- I think there needs to be a full investiga- ers,” said Sommers. ments FCMs are allowed to make with cus- tion and we need to have some safeguards tomer funds. In addition, the CFTC ordered in place where this can’t happen again,” said New Policy Needed? an audit of all registered FCMs shortly after Roger Hupfer, a Freeland, Mich. grain el- A number of proposals to better protect cus- the MF Global collapse to ensure that cus- evator operator. “I feel we need to enforce tomer segregated funds have been bandying tomer funds are properly segregated. the regulations that are in place,” he added. about among regulators, certain lawmakers “Futures customers generally and, in- “I do believe that we have regulations in and self-regulators, but there has been no deed, the public are rightly demanding that place and I’m not sure that they were enforced,” concrete policy that has been introduced. the Commission take immediate steps— said C.J. Blew, a Hutchison, Kan. rancher and Many policymakers have said it is critical even before the MF Global investigation is chairman of the board of directors for the Mid- to first uncover what happened at the bank- complete—to reassure them we are doing Kansas Cooperative Association. rupt MF Global before imposing new rules. everything we can to safeguard customer The National Pork Producers Council, in “I’m not prepared to throw everything money,” Mark Wetjen, the CFTC’s newest testimony they submitted to the House Ag- out the window with MF Global… It commissioner, said during the meeting. riculture Committee, urged members to help sounds more to me like a failure of decision- Once the CFTC’s investigation is com-

28 Futures Industry | www.futuresindustry.com FIA/FOA Internati onal Derivati ves Expo 26-27 June 2012 The Brewery, Chiswell Street, London EC1

Mark Your Diary! Reserve Your Exhibit Stand or Sponsorship Now Contact Toni Vitale Chan, [email protected], ph +1.312.636.2919 or Bernadette Connolly, [email protected], ph +44 [0]20.7090.1334 for information on becoming a sponsor or exhibitor. Gala Dinner 2012 Wednesday 27 June – The Artillery Garden at the HAC, London EC1 FIA and FOA are pleased to announce that the IDX Gala Dinner will, once again, be held in aid of Futures for Kids (FFK). FFK was established in March 2008 to provide a fundraising vehicle through which this industry can raise money to support charities working to improve the lives of children around the world. For further information, to reserve tables / places or to discuss supporting the Dinner as a sponsor, please contact Bernadette Connolly by email ([email protected]) or tel +44 (0)20.7090.1334. More information at www.idw.org.uk

plete, more rules will likely follow. it infeasible. He asserted that current customer Futures Association, in Dec. 8 testimony, “I think there’s no doubt that after the protections have worked for decades. suggested a number of safeguards that investigation is concluded and we look back Gerry Corcoran, chairman and CEO of should be considered to better protect cus- to know exactly what happened, that there R.J. O’Brien testifying at the Dec. 8 House tomer funds. Among those recommenda- will be a number of lessons learned and a Agriculture Committee hearing on behalf tions was that there be more frequent audits number of different recommendations that of the Commodity Markets Council, of- of FCM segregation reports, that FCMs be we can bring to you for your consideration,” fered a series of proposals. He asserted required to maintain excess funds in the seg- Sommers said. that the need to restore market confidence regated accounts and that customer funds Others, including CFTC Commissioner is urgent, but he also cautioned that the be held in third-party depository accounts. Bart Chilton, have proposed establishing an cause of MF Global’s collapse and missing Amid such proposals, however, lawmak- insurance fund similar to the Securities In- customer funds has not been determined. ers have vowed to continue their investiga- vestor Protection Corporation fund in the “The facts need to be unearthed before tion into the matter, promising at the end of securities markets. So far, there is little trac- concrete policy measures, if any, are taken.” each hearing that they have just begun their tion on that plan in Congress. However, he did offer several suggestions work regarding MF Global. “It’s premature I think to have those dis- for ways to strengthen the customer asset “When we look at the regulatory side, cussions,” said Representative Lucas. protection regime. They included improv- we need to see if we had regulators that Representative Peterson expressed strong ing the FCM net capital regime, enhanc- weren’t communicating, regulators that opposition to this plan. “I do not want to ing monitoring and reporting with respect weren’t doing their job,” said Represen- do any kind of thing where we are going to FCM segregation practices, considering tative Randy Neugebauer (R-Tex.), the to set up an insurance fund,” he said at the the impact of customer trading practices chairman of the House Financial Services’ Dec. 8 hearing. “I think that’s a bad idea on customer asset protection and poten- oversight subcommittee. and I’m against that.” tially requiring individual segregation of ...... When asked about the possibility of estab- customer accounts. Joanne Morrison is deputy editor of Futures lishing an insurance fund, CME’s Duffy called Daniel Roth, president of the National Industry.

Futures Industry | January 2012 29 New Era for Wheat

FuturesBy Joanne Morrison

In the final weeks of 2011, the Canadian Parliament brought an end to a 70-year old pricing and marketing system that has kept the bulk of Canada’s wheat producers from using futures markets.

30 Futures Industry | www.futuresindustry.com n Dec. 15, the government signed “It’s going to change the whole risk man- “Farmers realize that their livelihoods into law a bill to dismantle the Ca- agement and business model that we have and their futures depend much on insti- Onadian Wheat Board’s monopoly today for sure,” said Stephen Vandervalk, tutions and structures that seek to balance over the marketing of Canadian wheat, a fourth-generation Alberta farmer who is the huge powers exerted on them by large a throwback to the Great Depression de- president of the Grain Growers of Canada. railways, international grain companies and signed to guarantee a fair price for farm- Canada’s wheat is in high demand around consolidated input suppliers, like fuel, fer- ers. The new law will not abolish the wheat the world. Buyers of this wheat include grain tilizer, seed, chemical and machinery sup- board, but it will eliminate its position as and milling companies from Mexico to Ja- pliers,” Terry Boehm, president of the Na- the sole buyer of wheat from Canadian pan as well as pasta makers in Italy. tional Farmers’ Union, said in testimony farmers, and in so doing give the farmers on Dec. 8 before Canada’s Standing Senate the freedom to offer their wheat for sale in A Long Road to Change Committee on Agriculture. “The CWB is an open market. The issue of removing the wheat board’s one such institution that by virtue of its “We will have a lot more options. I think monopoly has been under discussion for single-desk marketing power brings some we are going to get a higher price for our many years in Canada, especially after wheat balance into the equation, as it acts in the wheat overall and it’s going to be a true market boards in other countries such as Australia farmers’ interests only. It also brings premi- price,” said Kevin Bender, a fourth-generation were dismantled. The strongest opposition ums into the marketplace for farmers’ wheat Alberta farmer and president of the Western came from Canada’s older generation of and barley by being a global trader that is Canadian Wheat Growers Association. farmers who liked the security of knowing able to exercise both market discipline and This landmark shift in how Canada’s where their grains would be sold and not the ability to price discriminate in the inter- wheat is priced and sold is set to bring having to market their crops. national and domestic markets.” about many changes in North American “The older generation of farmers was not The wheat board was established by the wheat futures markets. For example, In- businessmen as much as they were opera- Canadian Parliament in 1935 as a manda- tercontinentalExchange has launched tors. They farmed and they wanted to sell tory producer marketing system for wheat two wheat futures contracts at its ex- their products. They weren’t interested in and barley in the provinces of Alberta, change in Winnipeg, bringing wheat fu- markets, they were interested in getting Saskatchewan, Manitoba and British Co- tures trading back to Canada after more back on the fields and growing their crops,” lumbia. Since 1943, membership has been than a 70-year hiatus. In addition, the said Wade Sobkowich, executive director of compulsory for Western Canadian farmers Minneapolis Grain Exchange, the Chi- the Western Grain Elevator Association. via the War Measures Act. Under this sys- cago Board of Trade and the Kansas City Those opposed to opening up Western tem, farmers deliver their wheat to grain Board of Trade are anticipating a boost Canada’s wheat markets also argue that elevators throughout the crop year. The in liquidity with the influx of new Cana- farmers will lose the wheat board’s bargain- board acts as a single desk marketer of dian market participants. ing power. wheat and barley. Prices paid to producers are based on an average price set by the Global Players wheat board. “From what my dad has told me, the Canada is the 4th largest exporter of wheat in the world wheat board was brought in to provide a guaranteed food supply during the war and then the monopoly just stayed,” said Bender. “In more recent years, they told us it was there to get us the highest price, but we can’t compare it to an open market, because we have never had an open market.” Proponents of the change point to Aus- tralia, where several years ago the single- desk approach was dismantled. That move led to competitive pricing and increased wheat acreage, leading to an increase in Australia’s share of the world wheat trade. At the same time, Canada’s share of the world wheat trade declined to 12% from 22% two decades ago. “Australia surpassed us in 2010 and now has 13% market share,” said Bender, adding that Canadian farmers have seen the value of a competitive pricing system for their other crops but not wheat. The Western Canadian Wheat Growers estimated that in 2010 prices available to Source: USDA farmers in the U.S. open market over the 2010 crop year were significantly higher

Futures Industry | January 2012 31 Wheat Futures than the returns western Canadian farmers port in Canada, it would have made the con- have traded durum have had a very difficult received under the Canadian Wheat Board. tract a less attractive hedge for the 35% of time hedging off risk.” Price differentials ended up costing prairie Canadian production that does not typically The hedging activity among Canadian farmers about $500 million on their 2010 flow through that port. To reach Vancouver, producers for other crops is seen as a sign of wheat product and $190 million on durum, the exchange relies on railways and the trains the success of the new ICE contracts. “There the association estimated. must travel thousands of kilometers through has been a misconception out there that three mountain ranges. “These challenges are the Canadian farmers won’t know how to Wheels in Motion dealt with very effectively by the trade, but market their wheat. That’s entirely untrue. Steps are already underway to capture the are too unpredictable to subject the nearby The majority of farmers who grow wheat wheat board’s business. Right after the legis- futures contract to them,” he said. also market canola,” said Vannan. He added lation was enacted, Viterra, Canada’s biggest The milling wheat and durum wheat con- that prior to the establishment of the Cana- grain handler, announced that it has begun tracts are 100 metric tons in size and priced in dian Wheat Board, Canada’s wheat futures entering into forward purchase agreements Canadian dollars. Many market participants market was considered to be as significant with growers for delivery beginning in Au- say there is great hope for these new markets, as the Chicago market. Trading dissipated gust 2012. The company said that with but they note the difficulty in establishing new after the wheat board was formed. “Now we greater marketing choice, there will be new markets. Some also raised questions about cur- have an opportunity to re-emerge,” he said. contracting opportunities and additional risk rency risk. The contracts are priced in Cana- management tools, which is good news for dian dollars and typically global cash market More Business farmers and the broader sector. commodities are priced in U.S. dollars. for U.S. Markets? “The Government of Canada has fulfilled The Minneapolis Grain Exchange offers a its commitment to prairie growers, taking a hard red spring wheat contract that is most major step forward for western Canadian ag- similar to Canada’s crop. It has been traded riculture,” Mayo Schmidt, president and chief since 1881 and is based on delivery of a hard executive officer of Viterra, said in a statement. red spring crop grown in the northern U.S. On the exchange front, ICE Futures plains in Montana, Wyoming, North and Canada launched two wheat contracts in South Dakota as well as Idaho. It is the largest January—a milling wheat contract based The type of wheat that wheat crop in North America. Like its north- on protein-rich hard red spring wheat and ern counterpart in Canada, this wheat has a durum wheat contract based on similar is grown in Canada is typically 13% to 15% protein content, mak- high protein wheat used for pasta. The ex- ing it suitable for milling and use in breads. change also introduced a barley contract. most analogous to Scott Cordes, president of Country “We think there is a great opportunity Hedging, a futures broker that caters to ag- here. Certainly the Canadian marketplace our contract. ricultural customers, said the MGEX con- is significant enough in terms of being a tract will be a good fit for Canadian farmers. prominent supplier to support its own fu- Mark Bagan, President and CEO, “Somewhere this risk has got to be man- tures contract,” said Brad Vannan, president Minneapolis Grain Exchange aged,” said Cordes, who also serves on the and chief operating officer of the Winnipeg- ’’ MGEX board of directors. “Ideally with the based exchange. volume and what’s taking place in Minne- The contracts are modeled on ICE Fu- Canada is the world’s largest grower of apolis, I think initially that will match up tures Canada’s canola contract, which has durum wheat and the new durum contract and be what’s best for them.” annual trading volume in excess of four will give market participants a new tool to In August, MGEX removed its U.S. million contracts (80 million metric tons) hedge price risk in that commodity. Du- origin requirement for its hard red spring and is actively used by Canadian farmers, rum is different than the grades of wheat wheat contract, making it possible for Ca- merchants and processors as well as the that are deliverable into existing futures nadian wheat to be used as deliverable sup- international trading community. Van- contracts traded elsewhere in the world ply. Mark Bagan, president and chief execu- nan explained that all of the contracts are and there is no other contract for that tive officer at MGEX, said the exchange is designed around delivery at source. Deliv- specific grade of wheat. The milling wheat looking to boost its appeal to hedgers north ery at source means that there are multiple contract, on the other hand, will compete of the border. delivery points located in grain elevators with the hard red spring wheat futures “The type of wheat that is grown in Can- throughout the Canadian prairies rather contract traded in Minneapolis, which has ada is most analogous to our contract,” said than just at exporting port destinations. very similar quality specifications. Bagan. “We at the Minneapolis Grain Ex- The majority of the Canadian wheat crop Michael O’Dea, risk management con- change will position ourselves if they want is produced within 50 or 100 miles of one sultant at INTL FCStone in Kansas City, to use us for their risk management. We’d or more of these registered delivery points. said he expects that the MGEX contract will love to have them.” “We have a very dynamic market that re- see additional volumes from those hedging The MGEX hard red spring wheat con- sults from that, which is not prone to any hard spring wheat. However, the ICE du- tract has seen considerable growth in volume kind of logistics squeeze,” said Vannan. rum contract is likely to see some steady over the past few years, due to a number of He explained that if ICE had chosen tra- volume because there is no such contract reasons. Since moving to an entirely elec- ditional delivery points such as the port of anywhere else. “It is difficult to correlate tronic market, the exchange has seen an in- Vancouver, which is the dominant export futures with cash. For so long people who flux of international participants, proprietary

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The IFM is a nonprofit foundation and an independent affiliate of the Futures Industry Association. We are the industry’s source for unbiased education and informational data needed to conduct business and meet regulatory responsibilities. Wheat Futures traders and market makers. Over the past ticipants anticipate that this exchange also able storage rates and tougher standards for decade, total futures and options volume has will see some liquidity. In 2011, a total of the amount of allowable vomitoxin levels, increased 77%. The exchange has seen a 26% 6.3 million contracts were traded at the are intended to make the futures price more increase in the past five years alone. KCBT, setting a new record and marking closely track prices in the cash wheat market. The exchange is not planning to add new a 14.3% increase over the number of con- While the specifications for this contract contracts, however. In the past, the exchange tracts traded in 2010. are the least analogous to Canadian hard red tried without success to launch a durum Cordes said that depending on the qual- spring wheat, CME officials anticipate that contract. “The durum market in the U.S. ity of wheat grown in a crop year, the KCBT this market will see an influx of participants. is heavily controlled by a few commercial and the CBOT could also see increased vol- “Any time you are using a product that isn’t players and commercial market participants ume from Canadian wheat hedgers. “Long precisely the same type of grade, having the don’t always want price transparency. Just term you could see some volume depending deep liquidity is more important,” com- because a contract may be wanted by one on the crop year,” he said. mented Tim Andriesen, managing director, side of the market doesn’t mean the other Soft red winter wheat futures, traded agricultural commodities at CME. side of the market wants it,” said Bagan. on the CBOT, are the most actively traded CME’s Globex also offers 24-hour access The Kansas City Board of Trade offers a wheat futures contract in the world. The to the KCBT and MGEX contracts. contract based on hard red winter wheat. It contracts are based on lower protein wheat Andriesen added that farmers will also is a close second to the MGEX contract in grown in diverse areas of the country. Al- be able to use CBOT options. “There is a terms of the quality of the deliverable wheat. though that is the least commonly grown wide depth of different products around This wheat, which is also used in bread bak- wheat in the U.S, this contract is considered our wheat product,” he said. KCBT and ing, has a high protein level, but not as high as the global benchmark for wheat futures. In MGEX also list options on their contracts. the hard red spring wheat grown in the U.S. 2011, this contract saw average daily vol- “What everybody likes is a contract that northern plains or Canada. Hard red winter ume of 96,362 contracts and total volume perfectly fits their needs and has deep li- wheat is grown predominantly in Kansas, Ne- of 24.3 million contracts. quidity, but if you look at history those are braska, Oklahoma and the Texas panhandle. Over the past few years, CME has made a very tough things to do,” he added. Kansas City has not made changes to its number of modifications to this contract to ...... contract in anticipation of the new Cana- make it a better hedging tool. The changes, Joanne Morrison is deputy editor of Futures dian Wheat Board policy, but market par- which include increased delivery points, vari- Industry.

North American Wheat Futures Contracts

Chicago Board Minneapolis Kansas City ICE Futures Canada of Trade Grain Exchange Board of Trade Hard Red Spring Contract Name Wheat Futures KCBT Wheat Futures Milling Wheat Futures Durum Wheat Futures Wheat Futures Launch of Trading 1877 1881 1876 Jan. 23, 2012 Jan. 23, 2012 Contract Size 5,000 bushels 5,000 bushels 5,000 bushels 100 metric tons 100 metric tons March, May, July, March, May, July, July, September, March, May, July, March, May, July, Delivery Months September and December December, March, May October, December October, December December 1/4 of one cent per 1/4 of one cent per 1/4 of one cent per C$0.10 per metric ton C$0.10 per metric ton Tick Size bushel or $12.50 per bushel or $12.50 per bushel or $12.50 per (C$10 per contract) (C$10 per contract) contract contract contract No. 2 or better Northern Northern spring wheat Canadian wheat with a No. 2 soft red winter spring wheat with with a protein content minimum of 13% pro- Canadian amber durum wheat. Three cents per a protein content of 11% or higher. Deliverable Grade tein. (Wheat with 12.5% wheat with a minimum bushel premiums paid of 13.5% or higher. (Wheat with protein of protein deliverable at a of 12.5% protein. for higher grade wheat. (Wheat with 13% deliv- 10.5% or higher is deliv- discount.) erable at a discount.) erable at a discount.) Elevators in Various locations along Elevators in Elevators located in Elevators located in Saskatchewan, Delivery Points the Mississippi and Saskatchewan Minnesota Kansas and Missouri Manitoba, Alberta Ohio Rivers and Alberta and British Columbia. 2011 Volume 24.3 million contracts 1.7 million contracts 6.3 million contracts

34 Futures Industry | www.futuresindustry.com occ_ad_2012_fp_FIA_Jan12.pdf 1 12/8/2011 3:53:51 PM

The 30th Annual Options Industry Conference is the can’t-miss, premier event for top-level management and trading professionals to exchange ideas and forge relationships. Set in New Orleans—renowned for its rich history and vibrant culture—the conference will feature an amazing slate of networking events, including a visit to the world-renowned New Orleans Jazz & Heritage Festival! CFTC Moves Forward on Dodd-Frank Rulemaking By Will Acworth and Joanne Morrison

During the final three months of 2011, the Commodity Futures Trading Commission held several open meetings to finalize rulemakings required by the Dodd-Frank Act. Among the rules that were finalized were speculative position limits, real-time reporting of swaps transactions, amended rules for the investment of customer funds by futures commission merchants, registration requirements for foreign boards of trade, and core principles for derivatives clearinghouses. The agency issued an order extending the effective dates for certain rules by six months and asked for public comment on a process for determining when a swap is “made available to trade.” In addition, the agency issued guidelines for complying with the reporting requirements for large positions in commodity swaps as well as an interpretation of the term “actual delivery” as used in a provision of Dodd-Frank that exempts retail commodity contracts from CFTC oversight.

The following article describes the CFTC’s rulemaking actions in reverse chronological order, starting with the rules approved at the agency’s last meeting of the year.

36 Futures Industry | www.futuresindustry.com Swap Data Reporting economic terms” of the transaction and all to the swaps market, which lowers costs for On Dec. 20 the CFTC approved two final data relating to execution confirmations market participants and consumers.” Dodd-Frank rules related to the reporting and subsequent valuations. The data must CFTC Commissioner Scott O’Malia, of swap transaction data. CFTC Commis- be submitted both when the transaction is who expressed opposition to the first draft sioner Jill Sommers, a Republican who has executed and throughout the life of a con- of this rule, said the final outcome was been critical of the agency’s rulemakings in tract. The rule does not apply, however, to “significantly improved.” In particular, he the past, voted for both rules and praised “historical” swaps, i.e., swaps executed be- noted that the staff addressed concerns the staff for taking a more “reasonable” and fore the effective date of the rule. CFTC raised by end-users by giving them more “flexible” approach. staff explained that the requirements for time to comply with the rule and by exclud- CFTC Commissioner Mark Wetjen, a those swaps will be determined through a ing certain types of inter-affiliate swaps. former congressional aide who joined the separate rulemaking process. Under the final rule, it will be the respon- agency in October, also praised the staff for CFTC staff said that the rule takes a sibility of the SDRs to ensure the public dis- striking the right balance on these rules and “streamlined” approach to determining who semination of all “publicly reportable” swap emphasized their importance for identifying should report the data. For example, swaps transactions as soon as possible after execu- systemic risk and preventing market disrup- that are traded on a swap execution facility tion. The rule defines execution as occurring tion. “I was actually serving in Congress dur- will be reported by the SEF, rather than the simultaneously with or immediately following the fall of 2008 and [I] know from expe- counterparties to the trade, and cleared-only ing affirmation, i.e., the process by which the rience just how big a challenge it was that the swaps will be reported by the clearinghouse. counterparties verify that they agree on the regulatory community did not have informa- The rule also implements the new require- primary economic terms of the swap. tion about derivatives exposures,” he said. ments in several phases. For example, the re- Rather than applying the reporting re- Both final rules will take effect in three porting requirements will apply first to inter- quirements to all swap transactions, the phases. The first compliance date is the latter est rate swaps and credit swaps; other types of final rule only covers 1) swaps that are exe- of July 16, 2012 or 60 days after the CFTC swaps will be covered at a later date. cuted in an arm’s length transaction between finalizes its definition of “swap,” “swap The reporting requirements call for the two parties that results in a corresponding dealer,” and “major swap participant.” At this use of three unique identifiers being devel- change in the market risk position between This rule will give the public critical information on the pricing of transactions similar to what has been working for decades in the securities and futures markets. Real-time reporting introduces post-trade transparency to the swaps market, which lowers costs for

market participants and consumers. Gary Gensler, Chairman, CFTC point, the reporting requirements will only oped through global standard-setting col- the two parties, and 2) any termination, apply to transactions in interest rate swaps laborations: legal entity identifier (LEI), assignment, novation, exchange, transfer, and credit default swaps that involved swap unique swap identifier (USI) and unique amendment, conveyance, or extinguish- dealers and major swap participants on one product identifier (UPI). The LEI will pro- ing of rights or obligations of a swap that or both sides of the transaction. The second vide a universal means of identifying the changes the pricing of the swap. compliance date will expand the reporting counterparties to each swap; the USI will tie CFTC staff explained during the open requirements to include equity, commodity together all data reporting for a given swap; meeting that the final rule differs substan- and foreign exchange swaps and will come and the UPI will identify the asset or assets tially from the proposed rules issued in 90 days after the first compliance date. The on which the swap is based. Gensler said November 2010. For example, the CFTC final compliance date is set for 90 days after that these identifiers will be crucial for link- decided to revise the time delay for block the second compliance date and will extend ing data across counterparties, asset classes, trades and large bilateral trades. The origi- the reporting requirements to transactions in repositories and transactions. nal proposal provided for a 15-minute delay which neither counterparty is a swap dealer The second final rule implements a pro- before information on these trades is made or major swap participant. vision in the Dodd-Frank Act that seeks available to public view. A number of swap The first of the two final rules requires to improve transparency by making swap dealers and asset managers responded with the reporting of transaction data to swap transaction data available to the public. comments saying that this would not be data repositories. The rule applies to all “This rule will give the public critical infor- enough time for dealers to hedge large trades swap transactions, regardless of whether mation on the pricing of transactions simi- and consequently would harm liquidity and the swap is executed on a regulated trading lar to what has been working for decades in make it more expensive to trade. platform or bilaterally, and regardless of the securities and futures markets,” Gensler The final rule addressed this argument by whether the swap is cleared or not. The data said at the Dec. 20 meeting. “Real-time re- adjusting the length of the delays to such that must be reported include the “primary porting introduces post-trade transparency factors as the type of execution, the under-

Futures Industry | January 2012 37 Dodd-Frank Rulemaking lying asset and the market participant. For relief provided by a similar order issued on Permitted investments under the new example, during the first 12 months after July 14, 2011. The order addresses provi- rule include U.S. Treasury securities, mu- the rules take effect, the data for a block sions of the Commodity Exchange Act that nicipal securities, money market funds, cer- trade involving a swap dealer or major swap may apply to certain agreements, contracts tificates of deposit issued by a bank insured participant will not be made public until and transactions in exempt or excluded by the Federal Deposit Insurance Corpora- 30 minutes after execution. That time delay commodities as a result of the repeal of vari- tion, and commercial paper and corporate will shrink to 15 minutes after that initial ous CEA exemptions and exclusions as of notes guaranteed by the U.S. government 12-month period. For transactions in which the general effective date of July 16, 2011. It through the Temporary Liquidity Guaran- neither counterparty is a swap dealer or ma- also includes a provision to account for the tee Program. Investments in the sovereign jor swap participant, the time delay will be repeal and replacement as of Dec. 31, 2011 debt of non-U.S. governments are no lon- 48 hours during the first year, 36 hours dur- of Part 35 of the Commission’s regulations ger permitted. ing the second year, and 24 hours thereafter. related to agricultural swaps. The CFTC also adjusted the standards The final rule did not address one issue for permitted investments. The rule sets that caused a lot of contention when the Large-Trader Reports “concentration limits” on the amount of rule was first proposed—how the CFTC for Commodity Swaps customer funds that can be invested in a will determine what trades are large enough On Dec. 7, the CFTC’s division of mar- particular asset class, such as a 25% limit on to be considered block trades. Gensler ad- ket oversight issued detailed guidance for certificates of deposit. In addition, an FCM mitted that the CFTC set aside its initial submitting swap large-trader reports for or a DCO cannot invest more than 10% proposal on the size threshold because “we physical commodity swaps. The guidance of its total customer segregated funds in were told that we got it wrong” and said the includes a data dictionary for mapping data money market mutual funds that have less agency plans to issue a new proposal on that elements to a record layout, interim and fi- than $1 billion in assets or in a management issue early in 2012. nal reporting formats and record layouts for company with less than $25 billion in assets The CFTC also revised the “cap” on the submission of reports and 102S filings, under management. There is no limit on in- the transaction size information that is dis- and multiple examples for converting and vestments in money market mutual funds seminated to the public. This provision is reporting swaps in futures-equivalent units. that invest only in U.S. Treasury securities. designed to minimize the market impact of A working group formed by the FIA has a very large transaction by setting an upper been meeting since August to prepare for Registration of limit on the size data disclosed to the public. the new reporting requirements for cleared Foreign Boards of Trade In the proposed rule, the CFTC set the cap swaps. Both CME Group and Interconti- At its Dec. 5 meeting, the CFTC estab- at $250 million across the board. In response nentalExchange are providing files daily for lished a new set of registration require- to comments from the industry and consul- clearing members to submit to the CFTC. ments for foreign boards of trade. Under tations with other regulators, the staff recom- In addition, two vendors—ION and Sun- the CFTC’s previous rules, foreign boards mended setting the cap at different levels for gard—have developed software for their of trade were able to apply for a “no-action” each asset class. The final rule sets the caps at system users to generate reports. letter issued by CFTC staff that allowed $250 million for foreign exchange, $100 mil- them to provide U.S. customers with access lion for credit, $200 million for equity, and Revisions to Rule 1.25 to their products. Currently the CFTC has $25 million for commodities. In the interest At an open meeting held on Dec. 5, the more than 20 foreign exchanges operating rate sector, the cap is set at $250 million for CFTC approved a series of amendments to under this relief. The new rules identify the swaps with tenors of two years or less, $100 the agency’s Rule 1.25, which governs the criteria that an FBOT will have to meet to million for two to 10 years, and $75 million investment of customer funds by futures become registered to provide direct access for 10 years and beyond. commission merchants and designated from the U.S. In determining whether to In practical terms, this will mean that the clearing organizations. register an FBOT, the CFTC will evalu- size of any transaction above these thresholds The main change to Rule 1.25 is that ate whether the FBOT’s home regulatory will be “masked” from public view, the staff the CFTC narrowed the scope of invest- authority oversees the FBOT in a manner explained. For example, a $1 billion 30-year ments that FCMs can make using cus- that is comparable to the CFTC’s oversight interest rate swap will have to be reported tomer funds. The revised Rule 1.25 bans of designated contract markets. FBOTs cur- in full to an SDR, thus providing regulators FCMs from entering into certain in-house rently operating under no-action relief are with a complete view of the market, but the transactions such as repurchase agreements granted provisional registration. public record will show only that the trade with an affiliated firm. Gensler said this was larger than the $75 million cap. provision will prevent certain “conflicts Determining When a Swap of interest” when different parts of the Is “Made Available to Trade” Effective Dates same firm engage in such transactions. The Also at its Dec. 5 meeting, the CFTC pro- On Dec. 19, the CFTC’s five commission- CFTC clarified, however, that this ban posed a rule defining the process by which ers unanimously approved a final order ex- does not apply to in-house sales of per- swap execution facilities and designated tending the effective dates of certain Dodd- mitted investments and does not prevent contract markets determine which swaps Frank provisions that were originally slated FCMs from providing “collateral transfor- are “made available to trade.” Once such a to take effect in July 2011. The order will mation” services, in which an FCM will determination has been made, Dodd-Frank provide relief through July 16, 2012, or exchange customer collateral with other requires that all economically equivalent when otherwise specified in final rules. In forms of collateral that are acceptable for swaps must be traded on a SEF or DCM effect, the order extends by six months the meeting margin requirements. unless the transaction is covered by a lim-

38 Futures Industry | www.futuresindustry.com ited number of exceptions, such as the occur if delivery is shown only in book en- study 12 months after implementation. end-user exemption. For this reason, some try form or if the contract is rolled, offset or “If we discover that the position limit rule market participants have expressed the con- otherwise netted within another transaction is a cause of a major market disruption or has cern that a SEF or DCM could use a “made or settled in cash. an unintended consequence we realize must available for trade” determination to force be addressed, are you committed to working trading onto its venue. Speculative Position Limits with the commissioners, the exchanges and Under the proposed rule, SEFs and At an open meeting held on Oct. 18, the market participants to correct the problem as DCMs would be required to submit their CFTC approved the long-awaited final rule on expeditiously as possible?” Dunn asked. “Ab- determinations to the CFTC for review. speculative position limits by a vote of 3-2, with solutely yes,” responded Gensler. The proposed rule outlines eight factors Sommers and O’Malia in opposition. Both FIA President John Damgard issued a for consideration in such determinations, commissioners asserted that the rule went too statement in response to the CFTC’s final such as the frequency and size of trans- far in reducing the ability of commercial enti- position limits rule. “It is quite troubling to actions, the number and types of market ties to enter into hedging transactions. see that three out of the five CFTC com- participants, and the bid-ask spreads. The “I have always believed that there was a missioners have serious reservations about proposed rule also would require DCMs right way and a wrong way for us to move for- this rule,” Damgard said. “Of particular and SEFs to conduct an annual review ward on position limits,” said Sommers. “Un- concern to us is the potential adverse effect and assessment of each swap they have fortunately I believe we have chosen to go way on commercial entities that use derivatives made available for trade to determine beyond what is in the statute and have created to hedge price risk.” whether or not such swaps continue to a very complicated regulation that has the po- The Securities Industry and Financial meet these criteria. tential to irreparably harm these markets.” Markets Association and the International

Unfortunately I believe we have chosen to go way beyond what is in the statute and have created a very complicated regulation that has the potential to irreparably harm these markets.

Jill Sommers, CFTC Commissioner on the position limits rule

Sommers voted against the proposal, say- Democratic Commissioner Mike Dunn, Swaps and Derivatives Association are le- ing it was “deeply flawed” and would allow a despite voting for the rule, expressed serious gally challenging this rule (see News Briefs single DCM or SEF “to bind the entire mar- reservations about its purpose and effective- for details). ketplace” to trading on regulated platforms ness. Dunn, in his final appearance before The final rule will establish CFTC-ad- instead of over-the-counter. Sommers also handing over his seat to Wetjen, called the ministered limits on speculative positions in warned that the term “economically equiva- debate over position limits a “sideshow” that 28 “core” commodity futures contracts and lent swaps” is ill-defined and confusing. has diverted the agency’s resources away from “economically equivalent” futures, options, actions to prevent another financial crisis. He and swaps. The limits will be established in Interpretation of the also questioned the rationale for the rule and two phases. Spot-month limits will be effec- Term ‘Actual Delivery’ warned the implementation of position lim- tive 60 days after the effective date of a final On Dec. 2, the CFTC issued an interpre- its will not lead to lower prices for heating oil rule further defining the term “swap.” That tation of the term “actual delivery” as used and gasoline, as proponents have suggested, definition is being drafted jointly with the in a provision of the Dodd-Frank Act that and may actually lead to higher prices for Securities and Exchange Commission. deals with the regulation of retail com- food and fuel. The initial spot month limits will be the modity transactions. The CFTC noted “Congress has tasked the CFTC with CFTC’s legacy limits for agricultural com- that this interpretation does not address preventing excessive speculation by impos- modities and exchange limits for all other the long-standing exclusion for forward ing position limits. The law is clear, and I core contracts. Thereafter, spot limits will contracts. The interpretation took effect will follow the law,” Dunn said. “I am still be based on 25% of the deliverable supply on Dec. 14, but the CFTC will accept left with the conclusion that no one has pre- and will be adjusted annually for energy and comments until Feb. 13. sented to this agency any reliable economic metal contracts and every other year for ag- Under Dodd-Frank, the CFTC’s author- analysis to support either the contention ricultural contracts. Deliverable supply esti- ity over retail trading commodity contracts that excessive speculation is affecting the mates currently are provided to the CFTC does not include contracts that either result markets we regulate or that position limits by the exchanges. in actual delivery within 28 days or create will prevent excessive speculation.” Spot-month limits will be applied sepa- an enforceable obligation to deliver. The Before casting his vote, Dunn asked rately for physical-delivery contracts and CFTC’s interpretation clarified that “actual Gensler to confirm that the CFTC will moni- cash-settled contracts in the same commod- delivery” occurs only if the seller both phys- tor the effects of the position limits rule on the ity. Generally the limits will be set at the ically delivers the commodity and transfers futures and swaps markets, to which Gensler same levels for each type of contract, but the title to the buyer. Actual delivery will not responded that the CFTC will conduct a CFTC made an exception for cash-settled

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Henry Hub natural gas contracts. For these tions, including certain types of anticipated it “additional visibility” into the physical contracts, the spot-month limit will be five merchandising transactions, royalties, and and swaps portfolios of the largest traders, times the limit that applies to physical-de- service contracts. The final rule uses account the CFTC explained. livery Henry Hub natural gas contracts. aggregation standards that are “consistent” The final rule does not include the “class In the second phase, the CFTC will set with the CFTC’s current position limits ag- limits” that were included in the proposed limits for positions in all non-spot contract gregation policy, the CFTC staff said. The rule issued in January. In other words, a months combined or in a single contract final rule includes the agency’s long-stand- market participant holding both futures month after it has received one year of open ing independent account controller exemp- and swaps based on the same commodity interest data on cleared and uncleared swaps. tion but only for customer positions. Under will be required to comply with limits on That data will be collected under the agency’s current CFTC regulations, exchanges re- the net position, taking into account any recently finalized large-trader reporting rules. quire aggregation for non-agricultural com- offsets between the two types of derivatives. These limits will be based on 10% of the con- modities based solely on common control, When the spot-month position limits tract’s first 25,000 of open interest and 2.5% not based on common ownership. are implemented, the CFTC estimated that thereafter. They will be reset biennially based During the meeting, the CFTC amended approximately 84 traders in legacy agricul- on two years of data on open interest in fu- the position limit rule to include a provision tural contracts (contracts already subject to tures, cleared swaps and uncleared swaps. that allows the agency to provide an exemp- CFTC position limits), 50 traders in non- The CFTC expects to have 12 months tion on a case-by-case basis for firms to engage legacy agricultural contracts, 85 traders in of open interest data by the end of August in hedging transactions that are not otherwise energy contracts, and 12 traders in metal 2012, CFTC staff said. The CFTC will then permitted by the rule. The amendment was contracts would hold or control positions review the data and issue an order defining inserted in order to address concerns raised by that could exceed these limits. the position limits and giving the industry commercial entities that the bona fide hedg- For non-spot-month position limits, the two months to comply. In practical terms, ing definition in the rule was too narrow. CFTC estimated that approximately 84 it appears that the all months combined/ The final rule establishes a quarterly po- traders in legacy agricultural contracts, 80 single month limits therefore will take ef- sition visibility reporting regime for traders traders in non-legacy agricultural contracts, fect in late 2012 or early 2013. exceeding a certain threshold in energy and 10 traders in energy contracts, and 25 trad- CFTC staff said the final rule contains metal contracts. The purpose is to assist the ers in metal contracts would hold or control exemptions for bona fide hedging transac- CFTC in its surveillance program by giving positions that could exceed these limits.

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Clearinghouse Rules must have sufficient resources to meet a instrument. For example, futures contracts At the Oct. 18 open meeting, the CFTC default of its single largest clearing mem- would require a one-day horizon, as would approved a set of rules related to derivatives ber. The rules do not include a specific pre- agricultural, energy and metal swaps. Finan- clearing organizations. The rules, which had scribed stress-testing formula for DCOs, cial swaps, however, would have a five-day been proposed in five separate rulemakings but staff said the agency will be reviewing liquidation time horizon, reflecting how over the past year, cover such issues as core stress-testing models. The CFTC opted to DCOs currently operate in this asset class. principles, membership criteria, risk man- delay acting on rules for DCOs deemed CFTC staff said that liquidation horizons agement standards, default procedures, to be systemically important in order to would change as swaps become more liquid. financial resources, and reporting and re- coordinate with rules being drafted by the The final rule also includes provisions cordkeeping requirements. Financial Stability Oversight Council and related to gross margin. CFTC staff said Gensler supported the rules as critical for international regulators. the final rule is modified from an earlier financial system stability. “There are those Another key aspect of the DCO rules proposal with respect to the reporting of who might like to roll the Dodd-Frank Act’s is participant eligibility standards. Under positions. Under the rule, a DCO does not reforms back and put us back in the same the final rules, DCOs cannot require their have to break out positions by individual regulatory environment that preceded the cri- members to hold more than $50 million in customer but rather on a gross basis. One sis three years ago. But that regulatory system capital. This provision is intended to accom- other key change in the margin rules would failed to protect the American public,” he said. modate DCO access for smaller member allow for letters of credit as margin for fu- O’Malia voted against the final rules, is- firms, CFTC staff explained. CFTC staff tures contracts but not swaps. CFTC staff suing a 15-page statement of dissent that said the agency would monitor all DCO said this change was made to accommodate outlined several concerns, including the po- rules to ensure that other membership cri- for current practice in the futures markets. tential costs of the new regulations and the teria do not undermine efforts to allow for However, letters of credit may not be ac- prescribed membership criteria. Sommers open membership. Under the rules, DCOs cepted as guaranty fund contributions. also voted against the rules, saying they “are would be required to have scalable risk stan- ...... needlessly prescriptive and go beyond what dards depending on the size of the firm. Will Acworth is editor and Joanne Morri- is required by the statute.” On margin requirements, the rules set out son is deputy editor of Futures Industry. The rules spell out financial resource re- a liquidation time horizon for calculating quirements for DCOs, stating that a DCO margin that varies depending on the type of

Futures Industry | January 2012 41 tech Singapore Exchange Launches Pre-Trade Risk Controls By Will Acworth

uilding on its efforts to modernize traders seek to connect their trad- Even though it takes only a fraction of a its trading platform, the Singapore ing systems directly to exchanges to second for an order to pass through a risk B Exchange has installed a new set achieve lower latency, this initiative will filter, that extra latency can put certain of pre-trade risk controls modeled on equip our clearing members with the trading strategies at a disadvantage. If recommendations put forward by Futures ability to more effectively manage the the risk filters are applied to all incoming Industry Association in 2010. risk exposure of their customers,” said orders without exception, the effect is the The new controls, which will go live Dominic Lim, head of market access at same across the entire market. in February, are built into the exchange’s SGX. “As the first exchange in Asia to For that reason, both clearing firms and trading platform for futures and options implement exchange-level risk controls, trading firms have supported the intro- and provide clearing members with addi- this reinforces our commitment to en- duction of pre-trade risk controls at the tional tools for intraday risk management. sure adequate safeguards are in place to exchange level. That way, every customer The controls are set by clearing mem- maintain an orderly market.” order passes through the same risk bers and function like a filter on incom- The new approach at SGX is part of a checks even if the customers are sending ing trades, intercepting them before they global trend toward more advanced meth- orders directly to the exchange. reach the matching engine. This is espe- ods for risk management in futures and “SGX is taking the right approach,” said cially important for clients that use direct options markets. In a white paper issued Paul Hilgers, an executive at Optiver who market access to trade SGX products. in April 2010, the FIA’s Market Access heads the trading firm’s business in Asia- For example, clearing firms will be able to Working Group offered several recom- Pacific. “By having the risk filters at the set a limit on the number of contracts that a mendations for reducing the risk of direct exchange level, it creates a level playing customer can submit in a single order. Any market access. These recommendations field for all market participants. So long order that exceeds that limit will be rejected included the implementation of pre-trade as the extra latency caused by the filters before it reaches the SGX order book. The risk controls at the exchange level. is relatively marginal, there shouldn’t be controls also include limits on the aggregate While the working group agreed that much impact on trading strategies since amount of risk in any account or group risk controls should also be implemented every participant has to go through the of accounts as well as a “kill switch” that at the clearing firm level, it said that mak- same set of filters.” disables the trading activity of an individual ing these controls mandatory on all trading “This is a massive step forward,” said trader or group of traders. firms at the exchange level is critically Demetria O’Sullivan, global head of risk “As we move into the age where important to ensure a level playing field. for Citi’s futures and OTC clearing business. “What SGX is putting in place is Risk Control Algorithm something that the rest of the industry needs to embrace.” She noted that the This diagram shows the path taken by an order message as it travels from a trading account exchange is adopting the best practice through the risk filters in the SGX network gateway and into the SGX trading engine. recommendations set out in the FIA white paper, adding “SGX is giving us the tools that we need to meet its risk management requirements, which are very high and ap- propriately so.” SGX officials add that the new controls complement an existing “drop copy” service that provides clearing members with the details of every trade directly after the trades are filled. The “drop copy” service also allows clearing members to cancel customer orders directly in the matching engine, as an alternative to contacting the exchange’s market control department.

Source: Singapore Exchange Will Acworth is editor of Futures Industry.

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84839_MFA_8.5x11_ad .indd 1 12/19/11 11:47 AM BM&FBovespa Taps Calypso and INTL FCStone Acquires Cinnober for Clearing System Overhaul MF Global’s Metals Division BM&FBovespa announced agreements with two technology vendors INTL FCStone has boosted its presence in the metals markets with in November that will play a role in a major overhaul of its post-trade the acquisition of the metals division of MF Global U.K. in December. services. The Brazilian exchange plans to integrate its four clearing- The U.S. firm also upgraded its membership status at the London houses, which handle equities, derivatives, government bonds and Metal Exchange to a category one ring dealing membership. The spot foreign exchange. The exchange also plans to implement a new MF Global metals division is headed by Fred Demler, who will remain risk management system with real-time risk calculation capabilities in charge of this business at INTL FCStone, and has more than 50 and risk netting between different classes of assets and contracts. staff based in London, New York, Hong Kong and Sydney. Cinnober, a software vendor based in Stockholm, will supply a INTL FCStone also announced two acquisitions in the soft com- key component of the new system. BM&FBovespa will license its modities sector. In December, the company announced plans to buy TradeExpress real-time clearing system, which offers real time data TRX Futures, a small London-based futures broker that specializes processing and risk calculation capacities. BM&FBovespa officials in coffee and cocoa trading on NYSE Liffe and ICE Futures U.K. said in a November press release that the Cinnober technology will In November, the company bought the Coffee Network, an online be an important instrument for accelerating and enhancing the inte- news and analysis service, from Hencorp Group. The company also gration of the exchange’s four clearinghouses. “One of the important owns several other commodity information services, including eDairy features of this project is the CORE (Close-out Risk Evaluation) for the dairy industry and Globecot for the cotton industry. system,” Cícero Vieira Neto, the exchange’s chief operating, clearing and depository officer, said in a statement. He explained that this system “will permit risk netting between different classes of assets and contracts, granting users of the exchange’s clearing systems greater efficiency in the allocation of capital.” Calypso Technology, a San Francisco-based software vendor, was tapped for a more narrowly focused project that will enhance post-trade services for over-the-counter derivatives. The exchange will use technology provided by Calypso for the registration and valuation of over-the-counter derivatives. Brazilian regulations require ISE Implements Two-Way OTC trades to be registered so that the national securities regulator Quoting in Complex Order Book and market participants have transparency into overall derivatives The International Securities Exchange, the U.S. options exchange exposures and the intraday mark-to-market value of each trade. owned by Eurex, has enhanced its complex order book to enable “With the Calypso platform, BM&FBovespa intends to modern- market makers to provide two-sided quotes for multi-legged instru- ize, enhance and expand its OTC operations registration service, ments. The new quoting feature, which was launched on Dec. 1, offering quality and agility to its customers, and complete analysis was developed for use in the exchange’s Optimise trading platform, instruments for self-regulation and regulatory activities,” Marcelo a new system developed with Eurex that was launched in August. Maziero, the exchange’s chief products and customers officer, said Within the complex order book, ISE market makers can enter a in a statement announcing the partnership. complex quote in any symbol activated for complex quoting, regard- BM&FBovespa and Calypso will implement phase one of the less of their symbol appointments in ISE’s regular market. Further- project in 2012, which will allow for the registration of contracts more, complex quotes only trade with other complex orders and do between banks and their non-financial customers. Phase two, which not interact with individual legs on the regular order book. ISE will will allow for registration of contracts from other counterparties, is disseminate the aggregated size and price for complex quotes over targeted for the first quarter of 2013. Phase three will provide col- its spread book data feed. lateral management services for bilateral risk mitigation. Also in December, ISE rolled out a new release of the Optimise

44 Futures Industry | www.futuresindustry.com system that includes features designed to further reduce the amount of time it takes to process an order message. The exchange said that with release 2.0, median latency has been reduced by 10% from release 1.6 and what it calls the “latency tail” has been reduced by 20%. ISE uses the latter term for periods of time when message Nasdaq OMX Launches New traffic on its system spikes to extremely high levels. By reducing Clearing Platform for Nordic Markets the latency tail, the exchange said it can provide more consistent Nasdaq OMX has launched a new risk management platform latency performance, giving market-making firms more confidence called Genium Risk for its Nordic clearinghouse. The exchange to offer more liquidity at tighter spreads. said Genium Risk is capable of integrating all asset classes and both OTC and exchange-traded instruments on the same platform. It also offers real-time risk management, improved risk monitoring, and more capital-efficient risk models for fixed income and cash equities. “Our main ambition has been to make Genium Risk as flexible as possible, allowing a high degree of customization,” Fredrik Ekström, the exchange’s vice president of risk management, said in a state- CBOE Buys Stake in ment. “By being able to customize risk models and risk parameters Intellectual Property Exchange for different types of asset classes and credit risks, the risk mea- CBOE Holdings announced on Dec. 13 an investment in Intellectual sures can be much more accurate.” Property Exchange International. In addition, CBOE Executive Vice The new platform currently is used for clearing the exchange’s President Richard DuFour was named to IPXI’s board of directors. fixed income and equities markets and will be extended to its com- CBOE said the investment will help IPXI build out its infrastructure modity markets in March 2012. Nasdaq OMX plans to extend the and facilitate the issuance of “unit license right” contracts in 2012. platform’s risk management tools to the members of its clearinghouse These contracts will allow intellectual property owners to monetize and also intends to market the technology to other clearinghouses. their patents using standardized contracts and transparent pricing, “Genium Risk is the foundation for growing our clearing busi- versus traditional bilateral licensing of patents. ness as well as enabling us to launch risk management products to

Tech Vendors Build New High-Speed Links to Asia

everal technology vendors serving the derivatives industry RTS Realtime Systems Group, a German provider of trad- Shave announced plans to build high-speed links between mar- ing technology, has opened data center hubs in Singapore and ket centers in Asia and other parts of the world. The trend reflects Mumbai to support low-latency trading across asset classes on increasing international interest in accessing markets in Asia as major exchanges throughout the Asia-Pacific region. The new well as greater demand within the region for access to major hubs are linked to the firm’s global network, which includes hubs markets elsewhere in the world. in Chicago, New York, Frankfurt and London, and serve as the KVH, a telecommunications company based in Japan, now RTS gateway for the Asia-Pacific region. provides direct access to the co-location facility that CME Group CQG, a Colorado-based company that provides market data recently opened in the suburbs of Chicago. KVH, which is owned and technical analysis as well as market connectivity, announced by Fidelity Investments, estimates that its new Tokyo-to-Chicago on Nov. 29 that it has established a point of presence in Shang- route, which went live on Dec. 22, delivers latency below 128 mil- hai. This will allow Chinese traders and futures brokers to connect liseconds, making it one of the fastest connections between these to CQG’s network, giving them access to over 40 global ex- locations in the market. changes for order routing as well as market data from more than The new CME data center will host the matching engines for all 100 sources worldwide. CME products traded on Globex and will provide the fastest pos- Last but not least, NYSE Technologies, the commercial sible access for customers. The new KVH point-of-presence also technology division of NYSE Euronext, has opened one of its will provide U.S. traders with connectivity to Japanese exchanges “liquidity centers” in Tokyo to link traders worldwide to the and other markets on the KVH network. Japanese market. The data center offers connectivity to major Later this year KVH will expand its network to Australia by Japanese trading venues through its SFTI network as well as adding a point of presence at the co-location facility recently market data and other trading infrastructure services. NYSE opened by ASX. KVH expects that the new Tokyo-to-Sydney Euronext is planning to open several more data centers in ma- route, which will be operational on Feb. 6, will deliver latency jor financial centers around the globe, starting with Toronto and below 100 milliseconds. São Paulo later this year.

Futures Industry | January 2012 45 external clearinghouses and members,” said Hans-Ole Jochumsen, president of Nasdaq OMX Nordic. In related news, Nasdaq OMX announced a key date in the restructuring of the financial resources that support its Nordic clearinghouse. The Stockholm-based clearinghouse currently does not maintain a guarantee fund, relying instead on its own capital to protect against a default. That policy will have to change, however, under the requirements of the European Market Infrastructure Regu- Platts Partners with ICE lation, which will be finalized this year. Platts, a provider of market data and other information for energy, After months of consultation with members and regulators, Nas- petrochemicals and metals, has reached an agreement with Inter- daq OMX finalized the structure of a new member-sponsored default continentalExchange under which access to real-time news from fund in September, and in November it set the official launch for Platts will be available through ICE screens. Beginning in the second March 1. Clearing members will be required to post their contribu- quarter of 2012, ICE participants will be able to receive Platts’ infor- tions to the default fund by that date, based on the 12-month aver- mation services through WebIce, ICE’s front-end trading system, and age of the risk they pose to the clearinghouse. via ICE mobile. The new default fund will have a “semi-mutualized” structure with separate funds for the exchange’s commodity and financial markets as well as a third fund covering both markets. While the specific amounts have not been finalized yet, Nasdaq OMX estimated in Sep- tember that the financial default fund would be 650 million Swedish krona ($95 million) and the commodity default fund would be 700 million Swedish krona ($102 million). The clearinghouse will continue to contribute its own capital to the waterfall of financial resources, starting with a first layer of 100 million LSE Takes Full Ownership of FTSE Swedish krona ($15 million) that will be used before tapping the de- London Stock Exchange Group will take full ownership of FTSE fault fund and another layer of equivalent size that will come into play International through the purchase of the 50% stake in the company only if the default funds are exposed to loss. The clearinghouse also that it does not already own, the exchange announced on Dec. 12. will have the ability to require clearing members to provide additional Under the terms of the deal, LSE will pay £450 million ($705 million) capital if necessary through a limited assessment power. in cash to Pearson, the current owner of that stake in the company. “This transaction further delivers on our diversification strategy, expanding LSEG’s existing offering deeper into indices, derivatives and market-data products and services,” said Xavier Rolet, LSE’s chief executive.

FFastFill Buys WTD Consulting FFastFill, the London-based trading technology vendor, is ramping up its presence in the U.S. through the acquisition of WTD Consult- ing, a Chicago-based firm that specializes in post-trade processing. FFastfill said the $12 million deal, which closed in December, will strengthen FFastFill’s position in the global exchange-traded derivatives business and improve its ability to address the migration of over-the-counter derivatives into clearing. FFastFill said it plans to leverage WTD’s expertise to customize Eclipse, its back-office product, for the U.S. market. In addition, it will migrate WTD’s Prysm middle-office product into its Seals platform and continue to support WTD’s iDash customers.

46 Futures Industry | www.futuresindustry.com l

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Korean Traders Flock to Eurex By Bennett Voyles

t has taken three years to pay off, but Fast and Furious KRX plans to increase the multiplier on the the Eurex-Korean Exchange link is finally Starting with 14 contracts sold on its first day options contract by five times, a move that I fulfilling its promise. of trading in August 2010, volume gradually KRX officials said would address the “unusu- After several years of preparation, Eurex rose to 320,000 in May 2011. Then in July ally high” participation by retail investors. in August 2010 listed a version of the Kospi two Korean brokers began promoting the It is not clear what effect these changes 200 options listed on the Korean exchange. product as an after-hours trading vehicle. Vol- will have on the overall market. Peters Volume was slow at first, but in the second ume jumped to 1.7 million contracts in July, estimates that most of the contracts traded half of 2011 interest took off among Korean then jumped again to 4.2 million in November on Eurex are held by what he calls “profes- traders. In fact, the Kospi 200 product is as more brokers came online. sional retail investors” in Korea, and most now one of the top 15 most active contracts That is still only a small fraction of the vol- of the remainder is held by two firms that on Eurex, with 190,000 contracts traded per ume in its home market. On average 14 to 15 are acting as market-makers. Sixty percent day during November. million Kospi 200 options are traded on KRX of the daily volume on Eurex happens after The Eurex contract is legally a futures every day—the equivalent of one contract for the U.S. market opens, he says. Typically, contract that expires daily, with posi- every three citizens of South Korea. the Korean investors buy out-of-the-money tions transferred to KRX before the local A big part of that trading comes from options. Fees are four basis points of the market opens the next day. In economic retail investors. KRX statistics show that premium, which Eurex’s Peters says is in line terms, however, the contract is nearly local market participants account for around with KRX’s low pricing philosophy. identical to the Kospi 200 options traded 60% of the volume, with slightly more than The increased volume on Eurex may start on KRX. half coming from individual investors. The to attract institutional investors, proprietary That allows market participants to remaining 40% comes from foreign firms. trading firms and other market participants continue trading the Kospi 200 options The level of retail participation has raised connected to Eurex, according to brokerage during the European and U.S. trad- concerns among Korean regulators, partly industry executives. More than 20 members ing day, when the Korean exchange is because of reports that individual traders now trade the Eurex contract with more closed. “Today, the Kospi never sleeps,” generally lose money. In July 2011, South in the pipeline. Eurex says the number of says Michael Peters, a member of the Korea’s financial regulator raised margins to individual accounts settling positions into the Eurex executive board with responsibility 15 million won (about $13,000) to curb what KRX market exceeds 2,200. for marketing and sales. it saw as a frothy market. This coming March, “I think that there’s definitely institutional interest in it,” agrees Conor Cunningham, Round the Clock Trading head of Asia-Pacific region exchange-traded derivatives for Citigroup, “but perhaps it Trading cycle for Kospi 200 options warrants a little bit more education of the investor base to make it really fly.” Another feature that may make the Eurex contract of interest to large traders is the ability to use the exchange’s block trading facility. The minimum size is 25 contracts. KRX does not support block trades, says J.B. Choi, assistant manager of international sales and trading at Samsung Securities in Seoul. For market-makers and other firms looking to hedge market risk, the fact that the underlying market is closed creates some Note: The times are adjusted when Germany has daylight savings problems. During the overnight hours, KRX makes its Kospi 200 futures contract available Source: Eurex for trading on the Globex platform operated by

48 Futures Industry | www.futuresindustry.com CME Group. Citi’s Cunningham explains that delta hedging for the Eurex contract effectively Upside Breakout requires access to both exchanges. Since the launch in August 2010, trading volume Eurex officials caution that their Kospi in the Kospi 200 product listed on Eurex has exploded contract is not available to Eurex members in the U.S. or Taiwan, mainly due to regulatory issues.

Daily Position Transfers To trade in the Eurex Kospi contract, Eurex members must have a business relation- ship with at least one KRX member to facilitate delivery. KRX members can open an account with at least one Eurex member to facilitate outbound orders from Korea to trade the Eurex Kospi product. At the end of the Eurex trading session, variation margin is paid or received in Ko- rean won. The positions, which are netted on a financial beneficiary basis, are transferred from Eurex Clearing to KRX. KRX then transfers this information to the respective KRX member for entry of the corresponding Kospi 200 options into the KRX system via the exchange’s block trading functionality. All open interest in Kospi 200 options is consolidated at KRX, and positions cannot be transferred back to Europe. The Kospi 200 index represents 70% of the Korean Exchange’s market capi- Source: Eurex talization. Leading components of the

Overnight Access Firms that provide access to Kospi 200 products on Eurex Group 1: Group 2: Group 3: KRX members providing order routing service KRX members providing execution services Eurex members that participate for Korean retail investors as well as block for block trades at KRX for foreign institu- in the Kospi 200 market on Eurex trades at KRX for foreign institutional inves- tional investors that trade the Eurex Kospi 200 tors that trade the Eurex Kospi 200 product product directly through Eurex members. directly through Eurex members. Daewoo Securities BoA Merrill Lynch, Seoul ABN Amro Clearing Deutsche Securities Korea NH Investment & Securities Bank of America Merrill Lynch Hana Daetoo Securities Samsung Futures Deutsche Bank Hyundai Securities Samsung Securities Goldman Sachs Kiwoom Securities UBS Seoul Newedge Group Korea Investment & Securities Woori Investment & Futures RBS Global Banking & Markets Newedge Seoul UBS Shinhan Investment Corp. Archelon Deustschland GmbH Tong Yang Securities IMC Trading B.V. Source: Korea Exchange Futures Industry | January 2012 49 profile

index include Samsung Electronics, which a beautiful friendship between eastern and we open the international index setup on represents about 16% of the value, Posco (a western exchanges. Eurex is now con- KRX, it will be popular with domestic inves- steel company), Hyundai Heavy Industries, ducting a pilot project with the Singapore tors,” Kim predicts. and Kookmin Bank. Other familiar names Exchange as a licensor of its Eurostoxx Korean investors can buy foreign such as LG Display and Hyundai Motor index contract. products now, he says, but a crosslist- also make the top 10 list. Most of the big- At the same time, KRX executive direc- ing would make the process easier for gest names are heavily export driven and tor In-Soo Kim says his team is considering his exchange’s domestic customers. “It track the fortunes of the U.S. market fairly licensing an option on a European or Amer- would make it more convenient for them closely. ican benchmark index to trade on the KRX. to trade,” Kim says. For now at least, the Eurex/KRX partner- “More and more domestic investors are ship looks like it may be the beginning of interested in the overseas market. When Bennett Voyles is a freelance journalist.

CME and KRX

n addition to its partnership with Eurex, the Korea Exchange has a linkage with CME Group under which Kospi 200 futures can be traded on Globex Iduring the overnight hours. The trading hours are 6:00 p.m. to 5:00 a.m. Korean Standard Time. All trades are matched on Globex, but clearing and settlement are handled by KRX. In addition, anyone wanting to use this linkage must have an independent non-omnibus clearing account with a KRX member. Initially access to this market was available only through USG, a front-end application developed by KRX. In June 2010, KRX began permitting member firms to use their own software to provide an interface with the USG application. KRX officials said that currently 32 firms are providing access to the afterhours trading in Kospi 200 futures. Up until June of this year, the amount of trading during the afterhours session was only a few thousand contracts per day, accounting for less than five percent of the daytime volume in the Kospi 200 futures. In July, however, that started to change, and by November more than 300,000 contracts were changing hands daily during the afterhours session on Globex. That was equivalent to more than 10% of the daytime volume on KRX, and on some days the ratio went as high as 15%.

Kospi on Globex Firms that provide access to the Kospi 200 products traded on CME Group’s Globex platform Group 1: Group 2: Firms that provide access through an API Firms that provide access through USG-HTS, connection with the USG interface developed by KRX an internet-based trading application developed by KRX. Credit Suisse Securities (Europe) Limited, Seoul Branch Woori Investment & Securities Co., Ltd. Daewoo Securities Co., Ltd. Bookook Securities Co., Ltd. Daishin Securities Co., Ltd. BS Securities Co., Ltd. Hana Daetoo Securities, Ltd. Dongbu Securities Co., Ltd. Hyundai Securities Co., Ltd. E*Trade Korea Co., Ltd. Hyundai Futures Corporation Eugene Investment & Securities Co., Ltd. Kiwoom.com Securities Co., Ltd. Hanmag Securities Corporation Korea Investment & Securities Co., Ltd. Hi Investment & Securities Co., Ltd. Meritz Securities Co., Ltd. IBK Securities Co., Ltd. Merrill Lynch International Incorporated Seoul Branch KB Investment & Securities Co., Ltd Newedge Financial Hong Kong Limited, Seoul Branch Kyobo Securities Co., Ltd. Samsung Futures Inc. Mirae Asset Securities Co., Ltd. Shinhan Investment Corp. NH Investment & Futures Co., Ltd. Tong Yang Securities Inc. NH Investment & Securities Co., Ltd. Woori Futures Co., Ltd. Samsung Securities Co., Ltd. SK Securities Co., Ltd.

Source: Korea Exchange 50 Futures Industry | www.futuresindustry.com Thank You Expo 2011 Sponsors & Exhibitors! Sponsors

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The U.S. Senate confirmedC yrus Amir- Gallagher, a Republican who worked at The Securities and Exchange Commission Mokri as the Treasury Department’s the SEC from 2006 to 2010, filled the seat named Brian Bussey associate director assistant secretary for financial institutions. formerly held by Kathleen Casey, whose for derivatives policy and trading practices Amir-Mokri most recently served as senior term expired in June. in its trading and markets division and counsel to Gary Gensler, chairman of the Peter Curley as the division’s associ- Commodity Futures Trading Commission. President Obama ate director for clearance and settlement. He replaced Michael Barr, who left Trea- nominated Richard Bussey, who joined the SEC in 1998, will sury to return to the University of Michigan. Berner as director of oversee efforts to implement derivatives the Treasury Depart- provisions of the Dodd-Frank Act. Curley, The Senate also confirmed the nomination ment’s Office of Finan- who joined the SEC as an attorney fel- of Mark Wetjen, an aide to Senate Majority cial Research. Berner, low last year, had been an executive with Leader Harry Reid (D-Nev.), to fill a Demo- formerly the chief Hong Kong Exchanges and Clearing. The cratic seat on the Commodity Futures Trad- economist at Morgan Stanley, has been SEC also promoted Michael Conley to ing Commission. Wetjen, who was sworn serving as a special advisor helping to orga- the position of deputy general counsel for into office on Oct. 25, replacedMichael nize and manage OFR, which is responsible litigation and adjudication. He was formerly Dunn, who served as a commissioner at the for collecting data from financial services deputy solicitor at the agency. agency since 2004. Wetjen’s term as a com- firms to help manage systemic risk. missioner will expire on June 19, 2016. Martin Wheatley was elected to the Eu- The FIA issued a statement congratulat- The Federal Reserve Board appointed Mi- ropean Securities and Markets Authority’s ing Wetjen on his confirmation. “Mr. Wetjen chael Gibson as director of the division of six-member management board. Wheatley has assured Congress that he will listen banking supervision and regulation. Gibson is the managing director of the conduct to all viewpoints and gather the requisite is an economist who began his career at the business unit at the U.K.’s Financial Ser- information before reaching a decision on Fed in 1992. He replaced Patrick Parkin- vices Authority. He replaced Alexander the many complex regulatory issues facing son, who retired after more than 30 years of Justham, who recently left the FSA. the agency. His commitment to a careful, service at the Fed. measured and thoughtful process for con- Singapore Exchange appointed Richard sideration of regulatory matters is one that The Commodity Futures Trading Commis- Teng as deputy chief regulatory officer and we can all endorse,” the FIA said. sion appointed Matthew Hunter as head Sonia Zhang as head of risk management. Shortly after joining the CFTC, Wetjen of market surveillance. Hunter previously Teng, a former director of corporate finance reached out to Wall Street for expertise on worked in market oversight at the Federal at the Monetary Authority of Singapore, derivatives markets. He hired Scott Energy Regulatory Commission, which over- joined SGX in 2007 and most recently was Reinhart, a former director in global mar- sees power and natural gas markets. named head of regulation in July 2011. kets financing and futures at Bank of Amer- Industry veteran Kate Meyer joined the Zhang joined SGX from OCBC Bank where ica Merrill Lynch, as a policy advisor. Before CFTC as associate director in the agency’s she headed market risk control and analysis. joining BAML in March 2010, Reinhart division of clearing and risk. Meyer, who is She will be responsible for establishing risk worked on the structured products desk at based in Chicago, headed the Chicago Mer- policies enterprise-wide and management of Lehman Brothers. Wetjen also brought into cantile Exchange’s clearinghouse from 1987 clearinghouse risk exposures. his officeT erry Arbit, a long-time CFTC em- to 1998. After leaving CME, she served as ployee who served as the agency’s general chief executive officer for listed derivatives The Chinese government named Guo counsel from 2007 to 2009, and Joseph at Refco and president and chief operating Shuqing as chairman of the China Securi- Cisewski, who previously worked in the officer of Alaron Trading. ties Regulatory Commission. Guo previously CFTC’s market oversight division. Vincente Martinez was named director was the chairman of China Construction of the CFTC’s recently opened whistleblower Bank. Earlier in his career he was vice-gov- The Senate also confirmed the nominations office. Martinez was most recently an as- ernor of the People’s Bank of China and di- of Luis Aguilar and Daniel Gallagher as sistant director in the enforcement division rector of the State Administration of Foreign members of the Securities and Exchange at the Securities and Exchange Commis- Exchange. His predecessor at the CSRC, Commission. Aguilar, a Democrat, is serv- sion where he helped establish and run the Shang Fulin, was named chairman of the ing a second term as SEC commissioner. SEC’s office of market intelligence. China Banking Regulatory Commission.

52 Futures Industry | www.futuresindustry.com Greg Tanzer left his position as secretary growth and development of the bank’s cash policy. Earlier in his career he worked for five general for the International Organization of equity sales, trading and electronic execution years as a branch chief at the Securities and Securities Commissions at the end of De- business in the Americas. Exchange Commission. cember 2011 to take up his appointment as commissioner for the Australian Securities Newedge promoted Michael Dann as Glenn Koh was appointed head of and Investments Commission. IOSCO has global head of agricultural business. He Americas equity derivatives trading at not named his successor yet. reports to John Fay, global head of fixed Bank of America. He reports to Henry income, currency and commodities. Dann, Mulholland, head of Americas equities, HSBC named Najib who previously was head of cocoa, coffee and Fabrizio Gallo, global head of equi- Lamhaouar as global and sugar, took over from Franck Borgel, ties. Prior to joining Bank of America, head of exchange- who had been serving as acting head for the Koh was co-head of U.S. index trading traded derivatives and past six months in addition to his responsi- at Morgan Stanley. OTC clearing, based in bilities as chief operating officer for FICC. New York. He replaced Robert Pickel Greg Totts. Lamhaouar Citigroup hired Suzanne Hubble as a direc- replaced Conrad previously was managing director, global futures tor to help drive the firm’s OTC derivatives Volstad as the chief at Citigroup Global Markets. In addition, Rob- clearing platform in European markets. executive officer of the ert Cox left his position as managing director, Hubble most recently was director of credit International Swaps head of futures at HSBC Securities (USA). default swaps development at ICE Clear Eu- and Derivatives As- rope. She reports to Andrew Sterry, head sociation. Pickel had Goldman Sachs appointed Greg Agran and of OTC clearing Europe at Citigroup. been serving as executive vice chairman Magid Shenouda as co-heads of commod- of ISDA since 2009. Prior to that he was ity trading. Agran, who is based in New York, ICAP appointed Gary CEO. ISDA also named George Hand- runs U.S. natural gas and power trading and Pettit as global head jinicolaou as head of Europe and deputy heads global commodities principal investing. of financial futures and CEO. Volstad will serve as a special advi- Shenouda, who is based in London, runs options. Pettit was sor to the ISDA board. European crude oil and products trading and formerly global head European gas and power trading. They re- of futures and options Jerry del Missier, co-chief executive of place Jeffrey Resnick, global head of com- at MF Global. Pettit Barclays Capital and co-chief executive of modities trading, who will retire at year-end. is based in London and reports to Gary the bank’s corporate and investment bank- Smith, deputy chief executive officer, ICAP ing division, was elected as the chairman Liz James left Barclays Capital after 14 London and EMEA. ICAP said it has also of the Securities Industry and Financial years in listed derivatives and joined State recruited an additional 25 former MF Global Markets Association. Street Global Markets as a managing direc- staff across London, New York, Chicago tor and global head of client services for and Sydney. The Futures and Options Association ap- futures and OTC clearing. She is based in pointed Blake Stephenson as manager, New York and reports to Steve Winter, RBS Securities Inc., the U.S. subsidiary of regulation. He was previously part of the global head of futures and OTC clearing. the Royal Bank of Scotland, hired Fabian exchange supervision team at the Finan- State Street Global Markets also hired Shey as global head of futures, prime cial Services Authority. In addition, Simon Paul Winchester as head of exchange- services and electronic markets. Shey, Andrews was promoted to the new role traded derivatives and OTC clearing sales who is based in Stamford, Conn., reports of director of commodities. Stephenson for Europe, the Middle East and Africa. He to Michael Lyublinsky, co-head of global and Andrews report to Kathleen Traynor, is based in London and reports to Winter. banking and markets Americas and global executive director of regulation. Winchester previously was head of ETD co-head of FICC, Peter Rading, global co- clearing sales and execution in London for head of FICC, and Brian Reid, global head The FIA European Principal Traders As- Royal Bank of Canada. of FICC sales, research and strategy. Shey sociation appointed Maartje Bedijn previously worked at UBS, where he held a as secretary general. Bedijn is based in BNP Paribas appointed John Bohan as number of senior roles in the bank’s foreign Brussels where she will work with mem- head of commodity futures, Americas. He is exchange businesses. bers on regulatory initiatives, membership based in New York and reports globally to Tim coordination, and FIA EPTA projects and Knight, global head of commodity futures in Macquarie Group hired John Polanin as events. Bedijn spent her career in banking London and locally to Marc Fontaine, head head of Americas compliance. He previ- and real estate and most recently was the of commodity derivatives, Americas. Bohan ously worked at UBS in a number of senior director of BNP Paribas/Fortis Real Estate previously was responsible for managing the positions related to legal and compliance for the Netherlands.

Futures Industry | January 2012 53 prominent

LCH.Clearnet appointed Daniel Maguire to the newly created position of FIA Elects Board Members head of SwapClear U.S., underscoring At a board meeting in October, the FIA elected the following individuals to serve as direc- the company’s commitment to serving the tors until the next annual meeting in March: Jerome Kemp, global head of exchange- American market. Prior to this appointment, traded derivatives sales and clearing, Citigroup Global Markets; William Sexton, chief Maguire was SwapClear’s executive director executive officer, Newedge USA; Jeremy Wright, global head of futures and options, of OTC derivatives, risk and operations. RBS Futures; and Michael Yarian, head of futures and OTC derivatives clearing, Bar- clays Capital. The FIA also announced the appointment of two public directors: Michael The Hong Kong Mercantile Exchange ap- Schaefer, who recently retired from Citi, and Alice Patricia White, who recently retired pointed Spencer Campbell as managing from the Federal Reserve Board of Governors. director for Southeast Asia, responsible for marketing strategy, including membership recruitment and management, in the region. CME Group appointed CBOE Holdings. Lubin joined CFE as a Campbell previously was senior vice president William Knottenbelt full-time consultant in 2010. Before that he at the Singapore Mercantile Exchange, where to lead its Europe, was chief operating officer, head of business he led business development and marketing. Middle East and Africa development and a principal for Hyman Between 2006 and 2009, he was senior vice regions. Bob Ray, Beck, a New Jersey-based managed futures president for Mizuho Futures, managing the who previously led the firm with over $500 million in assets under firm’s sales team for Asia ex-Japan. company’s interna- management. HKMEX also appointed Li Wen Long as tional offices, will now be responsible for executive director, business development strategic initiatives for CME in Europe and MGEX, formerly known as the Minneapolis in China. He will report to Jimmy Ho, the South America. Both Knottenbelt and Ray Grain Exchange, appointed four public exchange’s chief operating officer. Li was are based in London and report to Bryan directors on Oct. 18. They are Curt previously at Industrial and Commercial Durkin, CME Group’s chief operating officer. Denisuik, director for commodity risk Bank of China, where he served as the head At RBS, Knottenbelt served as global head management at the Canadian Wheat Board; of research and development in the bank’s of futures between 2000 and 2010. He most Steve Fanady, a member of the MGEX precious metals department. recently served as global head of central board since 2007; William Power, who has HKMEX also appointed William Bark- counterparty clearing. He is also a board been a public director at the exchange since shire to the newly created role of chief member at the FIA and the Futures and Op- 2007; and Alan Swimmer, a former Bear operating officer. Barkshire was formerly the tions Association. Stearns executive. MGEX also named Scott exchange’s director of corporate strategy. CME also named Evelien van den Arend Cordes of Country Hedging as chairperson; as an associate director and assistant general Gary Weber, a member of the exchange, The Dubai Gold and Commodities Exchange counsel for the European, Middle East and as first vice chairperson; andR ichard appointed Stephen Gaterell as chief ex- Africa regions. She is based in the group’s Dusek of CHS as second vice chairperson. ecutive officer. Gaterell, a former managing London office and joined CME from Turquoise, director in the futures and options divisions an equities and derivatives platform. TMX Group announced that Peter Krenkel, of Merrill Lynch and UBS, served as a board president of NGX, the group’s energy trad- member of Liffe in the late 1990s. For the last Edward Tilly succeeded Edward Joyce ing and clearing division, will retire at the end 10 years he has been running a trading firm as president and chief operating officer of of 2012. Krenkel has been president of NGX in Australia. He replaced Eric Hasham, who CBOE Holdings, Chicago Board Options since its inception in 1994 and joined the served as head of the exchange since 2009. Exchange and C2 Options Exchange. Joyce TMX Group leadership team when NGX was stepped down for medical reasons, after acquired in 2004. Brad Levy left Gold- serving as president and CEO since June man Sachs, where he 2000. Tilly began serving as CBOE’s execu- LCH.Clearnet ap- was a managing directive vice chairman in August 2006. pointed Charlie tor in the firm’s principal Longden as chief strategic investments The CBOE Futures Exchange appointed executive officer of group, to join Wall Jim Lubin as managing director. He will CDSClear, the credit Street on Demand, lead CFE’s strategic direction and will be default swap clear- a technology company owned by Markit based in New York. Lubin took over this role ing service provided Group. Levy will be based in the company’s from Andrew Lowenthal, who will now through its Paris-based subsidiary. He joined head office in Boulder, Co., starting in Janu- focus on his primary responsibilities in busi- the clearinghouse from Markit, where he ary, and will be responsible for distribution ness development for the parent company, was managing director of fixed income. and strategy.

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