LSE to Acquire LCH.Clearnet

The London Stock Exchange has won a bidding war with Markit, a data firm, over control of LCH.Clearnet, a clearinghouse.

A clearinghouse [or "clearing house" -- both forms are in common use] is the entity within an exchange mediated transaction that ensures each party against the default of the other. Joe buys asset X through an exchange, while Jane sells an equal quantity of asset X through that exchange.  There is always a risk that the deal will not "settle," that (to put it crudely) Joe's check will bounce.

But it doesn't matter to Jane if Joe's check bounces. She'll never know, She has sold asset X through the exchange, and the exchange, through its contract with the clearinghouse, will see to it that she is paid the agreed-upon amount.

The clearing house requires that market participants make a sort of deposit, known as a performance bond or margin. A margin amount might be, say, 5 percent of a contract's underlying value. By requiring margins, or contractually requiring that the exchange require margins, the clearing house ensures that only financially solvent parties participate in the exchange activities, thus limiting its own risk.

This is a critical difference between exchanges on the one hand and over-the-counter markets on the other. OTC markets have no central clearing. If you enter such a market, you take upon yourself the "counter-party risk" that you'll make a deal that won't settle.

Anyway, there has been a good deal of debate over the years as to whether clearing operations should be internal to an exchange, or whether they should be independent entities, at arm's length from the exchange.  Over time, though, independent clearinghouses have been captured by one or the other of the great exchanges, or at least they now have the same holding corporations that one or more of the exchanges they service has.  Thus, it is a matter of some significance, it is a landmark, that a rare still-independent clearinghouse has now fallen captive.

Cheers, then, to LCH, and its now-vanishing days as an independent body.

Another Rogue Trader

In the tradition of Jerome Kerviel, Nick Leeson, and Yasuo Hamanaka, here comes the latest rogue trader to force us to contemplate what the heck the "risk managers" at large banks actually do for a living: world, meet Kweku Adoboli. Mr Adoboli, meet world.  Oh, you two are already acquainted?

Let me backtrack and explain those other names, then. Nick Leeson was the Singapore-based derivatives broker whose trading losses of $1.4 billion caused the demise of a centuries-old bank, Barings, in 1995.  Leeson is my personal favorite member of the group, for reasons I won't try to explain.

Hamanaka was a Japanese copper trader who at one time controlled 5% of the world's copper supply. In June 1996, though, Sumitomo Corporation had to admit to a loss of $1.8 billion on Hamanaka's trades. He was sentenced to eight years in prison, served seven.

Jerome Kerviel, the biggest loser of the bunch, in the employ of giant French bank Société Générale, lost 4.9 billion euros, or roughly $7 billion in what Americans call money, in January 2008.  It was an early sign that this was going to be a very rough year.

Now we come back to Kweku Adoboli. He lost the equivalent of $2.3 billion dollars working for UBS in their London office.  But he makes an odd addition to this already-odd-enough pantheon. First, he was an ETF specialist.  ETFs are boring.  They're supposed to be boring, that is their charm.

Second, he seems to be the first rogue trader of the "social media" era. He kept a Facebook page, and as things turned against him, at a moment when he must have understood his UBS superiors were closing in, he updated his FB status to read, "I need a miracle."

Third, his life story is, up until now, the stuff of inspirational movies.  To  read of his family and his life and only then to consider his crimes is like -- well, it's a little like watching :"The Miracle Worker" in a special edition with a new tacked-on ending where Anne Sullivan embezzles money from the Keller family.

Fourth, though, it's good to see that the London law firm of Kingsley Napley is still with us.  They represented Nick Leeson.  He went to the recognized experts in rogue trader defense for counsel.

Liu Xiang

Every August of the last three years I have written an entry about the Chinese track-and-field star Liu Xiang.  Here are the earlier such entries:

2008
2009
2010 

Here is a trip down memory lane from the China Herald, their thoughts back in 2008 about "what killed Liu Xiang's Olympic ambitions?"

There is some news about Liu.  This year he is expected to be the PRC's star in the IAAF World Championships, to be held in Daegu, from August 28 to September 4.  The IAAF, by the way, the the International Association of Athletics Federations, and Daegu is the fourth-largest city in the Republic of Korea.

Apparently, in the hurdles, Liu has adopted a new technique since his injury, approaching the first hurdle in seven strides instead of -- as in his earlier days --  in eight.  Here is a discussion from China's Xinhua News Agency.

In that event Liu will face tough competition in the 110 meter hurdles from a US star, David Oliver, who has a season best in this event of 12.94 seconds. Liu's season best is 13 seconds flat.

Here's an Oliver biography.

Due respect to Oliver, but this blog has adopted Liu as its track-and-field fav, and we'll be cheering him on.  Besides, it's a good bet he won't be suffering from jet lag the way Oliver might be at the Daegu competition!

And there's London next year, i.e. the 2012 Olympics.  I'm psyched already.

Opalesque Roundtable

This week I received a press release assuring me that, on the authority of Opalesque and a "roundtable of UK based hedge fund experts" that they have convened, "London is still the dominant location for hedge funds in Europe, with the highest concentration of Europe's talent, assets, risk taking, service rpoviders and new launches."

Take THAT Zurich upstarts!

Click here for more, and here for the Roger Miller song it inevitably suggests.

Mad Men Thoughts: Part II

Cicily and I continue our viewing of episodes of the television show Mad Men. We aren't viewing them in "real time," but in our own time, and we've only recently moved from the later episodes of the second season into the earlier episodes of the third.

The second season covers the period from Valentine's Day 1962 until the Cuban Missile Crisis that October.

The Missile Crisis provides an obvious way to have the various characters contemplate their own mortality. Specifically, it leads to a conversation between Peggy and Father Gill that, I imagine, is meant to signify the state of the pre-Vatican-II-Council Catholic Church: just why it needed the reforms that Council brought.

Peggy is an ambitious career woman who arrived at Sterling Cooper in the first episode, and who has since become a copywriter. She had a brief fling with accounts manager Pete early on, became pregnant as a result, and gave up the child, so that her sister could raise him as her child. If I understand correctly, Father Gill has gotten wind of this and wants to get Peggy to confess it.

During the Cuba crisis, Gill makes an impassioned pitch that Peggy should confess her sins in order to save herself from hell -- to which she might be consigned rather quickly if the missiles start flying.

The Vatican II Council convened, as it happened, in October 1962, though unless I missed something the fact went unmentioned in the episode. Still, it is hard to believe the screenwriters were unaware of that fact, when seeing the Gill-Peggy interaction.

By the time of the opening episode of the third season, Sterling Cooper has become a subsidiary of a London-based ad company. The Londoners are laying off Americans, making everyone remaining quite nervous. Also, Don Draper and a closeted-guy member of his creative team, Sal, go to Baltimore to meet with the bosses of London Fog, a company with no actual London connection but which has had success branding its raincoats. (Also, as one of the actual Londoners explains, there's no such thing. The so-called "fog" of Dickens novels and other literature of the period was industrial soot -- London, as it happens, was the first industrialized metropolis in history.)

Draper catches sight (I won't try to explain how -- but Don was not playing the sneak -- the sight was an innocent accident) of an encounter that establishes for him that Sal is in fact gay. On the airplane flight back to NYC, Don tells Sal that he has an idea for a new ad campaign for London Fog. The tagline would be "Limit Your Exposure." At that moment, the significance of this phase is ambiguous. Are we really supposed to take this as an idea for a campaign, or is Don sending a message to Sal: "I don't care about your sexuality, but since others might I hope you'll keep it better hidden hereafter than you did last night."

It later turns out that Don and Sal are intent on putting together a "Limit Your Exposure" campaign. That doesn't change the obvious fact that Don was sending a message on the plane. Perhaps what was originally intended as a discreet message to Sal (to be discreet) got away from them both and became their actual campaign.

A Revival of "Evita"

This might be worth seeing.

Alas, these things are never known until they happen -- until opening night! And in this case, Opening Night on Broadway for the show "Evita," which was such a hit in London from the late 1970s through the first half of the 1980s, will take place in 2012 at the earliest.

Tim Rice lent his words to Andrew Lloyd Webber's music. In London, Elaine Paige was the title character, Joss Ackland was Juan Peron, and David Essex was Che.

"Che" was originally conceived as a generic Greek chorus type figure. Though the choice of name was not accidental, he was not supposewd to be too tightly linked to the historical Che Guevara. Nonetheless, that is how Essex chose to play him.

Fans of Second City Television will remember this parody.

God bless Andrea Martin.

Paul Kilduff

Of late I've been reading a novel by Dublin-based author Paul Kilduff, entitled The Dealer (2000).

You can read about him via the above link, and about The Dealer via this one.

What I'd like to mention today is simply the wide disparity between the dust jacket copy, which on its face is designed to tell you something about the contents, and those actual contents. Here's the dust jacket copy:

When the multi-billion-pound takeover of Provident Bank is sensationally announced at a West End press conference, life will never be the same for many influential players in the City of London.

A star equities dealer has just bought a million soaring Provident shares – and others wonder how he does it. A London Stock Exchange investigator begins his work. A leading research analyst speaks her mind to the media. A finance director celebrates with a visit to a discreet Docklands townhouse. A lucrative yet bizarre lifestyle is suddenly in jeopardy.

A Detective Inspector finds a bloated body in the mud of the River Thames and, unaware of the ultimate consequences, explores a complex web of inter-connected lives in his search for a ruthless killer.

Although we do get a brief scene in the novel in which a "leading research analyst" is speaking in an evening newscast, she is not "speaking her mind to the media" about the Provident deal, as this copy suggests. First, she isn't "speaking her mind" at all, she is toeing the company line. She is talking bullish stuff because that is what her brokerage firm bosses want her to do. Second, that interview isn't about the Provident deal, the center of the novel's plot. It is about an earnings report from County Beverages, which is featured in a subplot.

More irritatingly, the finance director who visits the discreet Docklands townhouse in connection with another character's "lucrative yet bizaare lifestyle" isn't doing so in order to "celebrate" the Provident deal. He was the only member of the board of directors of Provident to oppose that deal, and is consoling himself after having lost that vote.

Not important. Just annoying. I know that authors go along with this sort of distortion because they figure the marketing department of the publisher has to do ist thing ... but I really don't see how it would have hurt sales had they troubled to make the copy accurate about the contents.

Blackadder as Fagin

I see from The Financial Times that a revival of the musical Oliver! is playing on stage in London these days.

Rowan Atkinson is playing the part of Fagin. This is what the reviewer, Sarah Hemming, says of Atkinson: "Eyes glinting like the jewels he stashes, he is as quick, crafty and supple as a fox. He can be both funny and darkly sinister: this is an outsider, who has had to learn how to survive." She praises his performance of the song "Reviewing the Situation" for its "delightful, sinuous wit."

Of course, some of us still associate Atkinson with the various "Blackadders" of historical comedy. The earliest, medieval Blackadder was perhaps the best of the lot -- though he was too much of a bumbler, on would have thought, to ever become a Fagin.

Still, in the successive series', Atkinson's Blackadder did become an ever more crafty character, perhaps evolving toward Faginhood generation by generation.

By the way, Hemming thinks well of the production in general, though she's unhappy with the lightheartedness of it. It misses "Dickens' wrath and the desperation he exposes."

Yes, and I recall that was the criticism most often made when Oliver! (music and lyrics by Lionel Bart) was on movie screens, too, back in 1968. The shortcomings of this incarnation of the tale are Bart's fault, then, not peculiar to the production underway on Drury Lane in 2009.

Consider yourself ... informed.

Chapter Four

Continuing my reading of the Nicky Marsh book.

In chapter four, Ms Marsh turns her attention to works she evidently considers not-very-literary, low brow potboilers. These are the finance world's equivalent of John Grisham or Tom Clancy.

She says that there was a "rash of novels" that applied thriller conventions to the world of finance not long after the arrest of Nick Leeson at Frankfurt Airport in March 1995.

The resulting novels seem to be read largely by people with connections to the finance industry themselves, and to be read as if they're in code, in an effort to dope out who or what is the story-behind-the-story. One such author, Paul Kilduff, posts appreciative reader e-mails on his website and Marsh quotes a bit of that.

"Is your story really based on true facts? If yes, could you indicate to me a web site where I could access the information you used to write your novel? All I recognized was the LTCM bankruptcy in the first part of the book."

His readers have an eye for detail, and want to be helpful, as shown by other examples Marsh quotes. "And in HK the main MTR interchange is Admiralty not Central...the DAX is not the name for the German Stock Exchange. It is the name for the German counterpart of the Dow Jones," and so forth.

If this makes any one curious to see that website, feel free.

Just Click Here.

The Metropolitan Opera

The following productions will be playing at the Met in New York in February-March, 2008.

Manon Lescaut, Puccini
Die Walkure, Wagner
Il Barbiere di Siviglia, Rossini
Carmen, Bizet
Otello, Verdi
Peter Grimes, Britten
Lucia di Lammermoor, Donizetti
Tristan und Isolde, Wagner
Ernani, Verdi
The Gambler, Prokofiev
La Boheme, Puccini.

I'm no opera aficionado -- indeed, I've never seen an opera performed live -- but even I can recognize that this is the traditional canon.

Except perhaps for "Peter Grimes," which is of a more recent vintage that the others. It premiered in 1945 in Sadler's Wells, London.

I mention the Sadler's Wells theatre for a reason. That particular theatre has a fascinating history of its own, going back to the 17th century when a businessman excavating gravel for use on roads, Richard Sadler, discovered a natural spring there. Hence the name of the place. The water from Sadler's Wells was soon reputed to be medicinal.

Here's more: http://www.sadlerswells.com/?page=complete-history

Anyway, here's a question for such of my readers who might have an informed opinion about the items on the above list. If you could only see one of them this season, which one would it be?

Bram Stoker

It hasn't been so long since Halloween already that we can't spare a moment to remember Bram Stoker, 1847-1912, the novelist and dramatist who gave to vampire lore its classically Victorian formulation.

I say "dramatist" because Stoker -- an Irishman -- was an actor at, and the manager of, a London theatre beginning in 1878. To an ambitious Irishman in the arts in the 19th century, politics notwithstanding, going to London was "making the big time." Indeed, it is still thus, as you can see from the attitude of the Dublin musicians in the recent bittersweet romantic movie "Once."

It is, I submit, worth spending the time and pixels to make that observation because Stoker gave to vampire lore the element one might expect from a man who crashed the London dramatic scene in his early thirties. Dracula is the same way. A man trying to make it in the big time.

One theme of the fanous novel, I submit, is that the Count could be a frightening bigshot to the peasants of Transylvania. He could have the huge scary castle on the mountain. But if he really wanted to be in the center of the world he's have to bite some blood in London!

When we first see him, the Count is already negotiating with a real-estate agent to obtain a house in that city.

I can hear Frank Sinatra in the background of the novel. "If you can bite necks there you'll bite them ... anywhere."

Undercutting the Gothic with the footnotes

I'll be traveling for the next few days, so there'll be no new entries until, most likely, this coming Monday, March 26.

Today, I'm wondering: why did T.S. Eliot attach his own scholarly supplement to The Waste Land?

Clearly, when we're reading Homer or Dante, we expect some footnotes. Rare is the reader who doesn't find references to the Bronze Age Aegean or late-medieval Florence puzzling and appreciate the apparatus of enlightenment. But Eliot chose to write as if he were already at a considerable remove from his original audience, so he had to append some pages explaining himself

Even the best informed literati of the time required the explanations. In a review of the poem in The Dial (1922), Edmund Wilson told readers they shouldn't expect to find Eliot's work "intelligible at first reading," and he proceeded to navigate his way through what Eliot was doing with reference to the notes. Edmund Wilson!

The various philistine bones in my skeleton tell me to tell Eliot, "If you can't make yourself clear to the Wilsons in your readership, you need to re-write the text."

But of course that is philistinism, and if I try to rise above those impulses I can understand how Eliot's notes aren't merely a "supplement" to the text. They have a creative interplay with the lines upon which they expound, and have become part of the text.

In "The Burial of the Dead" for example, Eliot writes of the place "where Saint Mary Woolnoth kept the hours/ With a dead sound on the final stroke of nine."

If I didn't have the benefit of the footnotes, I would understand regardless that Eliot is referencing a Church's bell tower. The context makes it clear that the Church in question is in London, "Unreal City."

There's a footnote for this line. It doesn't tell me anything about Saint Mary Woolnoth. It simply says (of the dead sound on the final stroke), "A phenomenon which I have often noticed."

Why did he append such a note? I suspect it was simply that the poem's language sounded too Gothic, something one might encounter in a Poe story, where of course if there were Church bells they would ring with a "dead sound." Eliot wants to ground this in his living, pedestrian, reality. He wants to remind us that he has walked down that street and heard that bell, and knows what it bloody well sounds like. He wants to give us both the Gothic and the pedestrian.

He didn't want to drive away the philistines. He wanted to draw is in.

Here, by the way, is wikipedia on that Church. http://en.wikipedia.org/wiki/St_Mary_Woolnoth

There must be some Eliotan significance to be found in the fact that the Church is, as that article tells us, near the Bank of England.