UBS banker 'smuggled diamonds in a toothpaste tube'

An ex-UBS banker has claimed that the Swiss firm helped hide around $20 billion of wealthy customers' assets from the tax man.

Bradley Birkenfeld, who is pleading guilty to charges of conspiracy at a federal court in Ft Lauderdale, Florida, said that he himself had advised clients on a string of tax dodging schemes.

These included buying up artwork and expensive jewelry through the use of offshore accounts, putting money and jewels into Swiss safety deposit boxes and setting up bank accounts in other people's names.

On one occasion, the banker even agreed to buy diamonds for an American client - and to smuggle them out of the country in a toothpaste tube.

The Justice Department is aiming to make further arrests at UBS due to Mr Birkenfeld's evidence.

"Rather than risk losing the approximately $20 billion of assets under management in the United States undeclared business [UBS] assisted…wealthy US clients in concealing their ownership of the assets held offshore," the banker said in a statement accompanying his guilty plea.

1931: Hoover vs. the Depression

Unlike his successors Franklin Roosevelt and Harry Truman, Herbert Hoover is often remembered for what he didn't do during his tenure in the White House. In particular, Hoover has taken his share of knocks for supposedly failing to marshal the nation's legislative forces against the Great Depression. While it's true that Hoover viewed the business community as the primary engine of America's economic revival, he did help devise a number of initiatives that aimed to speed the end of the Depression. Case in point: on this day in 1931, Hoover urged leaders of various nations to suspend payment of international debts and reparations for the next year. The moratorium was intended as a precautionary measure: with the recent demise of a major Austrian bank, Hoover feared that the international economy was on the brink of a nasty slump that would only worsen the United State's woes. The international community readily acceded to Hoover's wishes and by July the freeze was in effect. But, though Hoover's moratorium initially helped restore confidence in the world's various markets and economies, its healing powers were short-lived: that fall, Great Britain abandoned the global economy, shattering most nation's fragile faith in the international economy.

source: http://www.history.com/

CME Opens Access to the Brazil Equity Market

In January, CME Group and BM&F Bovespa, the world's third largest exchange by market capitalization, entered into a cross-investment agreement. This agreement will open new equity market opportunities for our customers later this year, when our electronic order routing and trading platforms are connected.

You will have trading access to the dynamic Brazilian market with BM&F futures and options on the Bovespa Index, a benchmark index of 50 stocks traded on the Sao Paulo Stock Exchange. The index is designed to include stocks that accounted for 80 percent of the volume traded in the last 12 months and traded on at least 80 percent of those trading days.

Benefits to You

• Access to rapidly growing Brazilian equity market

• Diversification potential vs. existing CME Group equity index products

• Expansion of the already extensive line-up of small-, mid- and large-cap equity opportunities available through one platform

Read more at http://www.cmegroup-bmfbovespa.com/index_eng.asp

Basel II committee: We'll stop the next crunch

The regulatory committee of Basel II said yesterday that it would boost risk management practices among banks through the development of new rules.

In particular, valuation of complex financial products would be improved by the new guidelines from the Basel Committee on Banking Supervision, it commented.

The changes are to be made in response to the ongoing global financial crisis - which came about in part due to concerns over the value of certain types of the asset-backed securities held by banks.

These securities have "produced the majority of losses during the recent market turbulence," the committee said in a statement.

"Supervisors cannot predict the next crisis but they can carry forward the lessons from recent events to promote a more resilient banking system that can weather shocks, whatever the source," committee chairman Nout Wellink added.

A full set of proposals for banks is to be produced by the committee later this year.

'Biggest hedge fund earner' Paulson nets $3.7bn

The single biggest hedge fund earner for 2007 has been revealed: billionaire John Paulson of Paulson Credit Opportunities Fund.

According to a report in Alpha magazine, the top five hedge fund managers all took home over $1.5 billion apiece last year - with Mr Paulson netting around $3.7 billion.

Just behind was George Soros - with James Simons at Renaissance Technologies, Philip Falcone at Harbinger Capital and Kenneth Griffin at Citadel rounding out the top five.

The massive wealth earned by Mr Paulson was spread among investors in his fund, who garnered net returns of 590 per cent for 2007.

Paulson Credit Opportunities successfully called the record number of sub-prime defaults prior to the sector's meltdown last summer - a major factor in its strong year-end results.

Overall, the performance of the hedge fund sector last year "may well prove to be the greatest display of individual wealth creation in any year in the modern history of finance," Alpha said.

NYSE Euronext Takes Qatari Route

With the European and American exchange space becoming increasingly crowded, NYSE Euronext is looking to Qatar for growth.

NYSE Euronext, the world's first transatlantic exchange, announced Tuesday that it was buying a 25.0% stake in the Doha Securities Market in Qatar. The remaining shares will remain in the hands of the Qatar Investment Authority, the world's sixth-largest sovereign wealth fund, and the two partners will build the first derivatives exchange in Doha. NYSE Euronext will also receive three of the eleven seats on the board of directors of the Doha market.

The Doha Securities Market was established in 1995, and has grown rapidly to list 43 companies with a total market capitalization of $136.0 billion, from $5.2 billion, in 2000.

NYSE Euronext owns exchanges across six countries, including the New York Stock Exchange and Euronext, the world's and the euro zone's largest cash equities markets respectively, NYSE Arca Options, an option trading platform in the U.S., and Liffe, a European derivative trading platform.

But Western markets are getting crowded, with alternative trading platforms like BATS denting the dominance of established exchanges in the United States, and the same set to happen in Europe following the introduction of the Market in Financial Instrument Directive last year.

Hedge funds close as crunch continues

Around 170 hedge funds entered liquidation over the first three months of 2008, the Times reports.

A new study from Hedge Fund Research (HFR) also showed that the lowest number of funds was launched over this period than at any time since 2000, as the ongoing credit crunch continues to afflict the sector.

The closure rate is also 23 per cent above that of Q1 2007.Commenting on the new research, HFR president Ken Heinz said: "Investors continue to express a preference for funds with established track records and significant infrastructure."

The downwards trend also looks set to continue: a recent change in market sentiment over future interest rates has also caught some fund managers out over recent weeks, causing further "heavy losses".

Speaking to the newspaper, an anonymous hedger complained: "We quite like volatility. We like recessions and we like soup kitchens, because that's when we make our money."

But too much volatility just makes people scared."

Icahn’s Blog Goes Live

After many false alarms, it looks like this time it’s for real. The much-awaited blog of bone-crushing billionaire investor Carl Icahn has launched. Now, you can look forward to no shortage of written tirades against the myth of corporate democracy and the apostasy of the lazy CEO. He also likes quoting Churchill.

Read it at http://www.icahnreport.com/

Merrill Lynch boss quits 'nightmare' job

Merrill Lynch's chairman of investment banking in Hong Kong has quit his job, describing his four-year post at the world's biggest brokerage as a "nightmare".

Wilson Feng said he no longer even wants to stay in investment banking after losing sleep the whole time he was working in a top role at Merrill.

Forty-year-old Mr Feng said it was time for a career change and is considering working at a state-owned company in China rather than staying in the banking world.

"It's a nightmare," Mr Feng told Bloomberg. "My father won't recognise me if I stay in investment banking. I didn't see him for almost three years. I want to change my life."

"I never had five hours sleep during these four years," he added. "Salaries at state-owned enterprises are low compared with investment banking, but you can have a better life.''

After joining Merrill Lynch in 2004 as a junior banker, Mr Feng was promoted last year for helping the bank win a role in Industrial and Commercial Bank of China's $16 billion Hong Kong stock sale.

During his time in the role 70 per cent of Mr Feng's time was spent on executing deals.

Bloomberg calculates that Merrill was the premier arranger of China share sales in the US last year, in a market worth $60 billion.

Damian Chunilal, head of Pacific Rim investment banking, who hired Mr Feng said it was sad to see him go and that he would remain "a friend" of Merrill Lynch.

Affluent investors shift assets to brokerage alternatives

Industry insiders are noticing a shift among individuals with at least $2 million to invest. The wealthy are shifting assets from large global banks and brokerages to smaller firms in an effort to reduce risk. Many large firms, such as UBS, have taken major, highly public hits from the subprime meltdown. This has affluent clients weighing their options and discovering the benefits of trusts, which have fiduciary obligations to clients, and other alternatives.

Read more at http://www.bloomberg.com/apps/news?pid=20601085&sid=atd72vyfNWUU&refer=europe

U.S., China to seek investment treaty

China and the U.S. said they agreed to begin talks on an investment treaty. High-level delegations from the two countries ended two days of meetings saying they also would coordinate monetary and fiscal policies. Officials declined to define what that would mean in practice. The countries also plan to expand cooperation on energy and environmental issues.

Read more at http://www.reuters.com/article/ousiv/idUSN1822194420080618

DGCX launches crude contracts

The Dubai Gold and Commodities Exchange (DGCX) successfully launched its WTI light sweet crude and Brent crude oil futures contracts in late May. Malcolm Wall Morris, CEO of DGCX, says they are the most successful contracts in the exchange’s two and a half year history trading a notional value of $400 million on day one. “We launched the contracts due to customer demand and the desire of regional market participants based in the Middle East to have access to investment tools, and that demand increased due to high volatility,” Wall Morris says. DGCX’s WTI contracts will settle at the Nymex price and Brent contracts will settle at the ICE price.

Wall Morris notes that price benchmarks available on ICE and Nymex are now offered to regional investors in Dubai for the first time. “You’re bringing the world’s two premier crude oil benchmarks to the region, which produces the largest amount of crude oil in the world.”

Infrastructure Investment

Morgan Stanley predicts that emerging economies will spend $22 trillion on infrastructure between now and 2018. Australia's Macquarie Bank puts the number at $30 trillion through 2030. Last year, Brazil announced a four-year plan to spend $300 billion to modernize its infrastructure. The Indian government has penciled in $500 billion in infrastructure projects in its latest five-year plan. Russia now has plans to construct 39,000 miles of new roads and 5,300 miles of railways by 2015, including an eight-lane expressway that will link St. Petersburg to Helsinki and Moscow by 2015. And this investment boom isn't limited to emerging economies. A casual drive through the Northeast corridor of the United States will confirm that much of the United States' roads, airports, bridges and tunnels are in sore need of upgrading. The American Society of Civil Engineers estimated that $1.6 trillion would be required during a five-year period to bring U.S. infrastructure back into shape.

The China Factor
Unsurprisingly, the biggest player in the infrastructure boom is China. Four out of 10 dollars spent on infrastructure during the next 10 years will be spent by Asia's emerging economic giant. China's commitment to infrastructure has been relentless. Between 2001 and the end of 2005, it spent more on roads and railways than it did in the previous 50 years combined. By the end of 2007, China had built some 33,500 miles of roads, thereby achieving in 17 years wh
at the West took 40 years to accomplish. And its remarkable pace is continuing. Between 2006 and 2010, China will invest $200 billion in railways alone, four times more than in the previous five years.

Bullet trains are another high profile endeavor. Costing $30 billion, the Beijing-Shanghai high-speed line is the most expensive project in China's railway history. An 800-mile bullet train between Beijing and Shanghai -- the equivalent of going from New York to Chicago -- will reduce the travel time between the two cities to a mere five hours. But the ultimate trophy is yet to come. A plan published by the Ministry of Communications in 2004 mentions a highway from Beijing to Taipei, Taiwan, to be completed by 2030. The technical challenges of crossing the 94-mile Taiwan Strait aside, the document does not suggest how to tackle the even bigger political problem of reaching an agreement with renegade nation Taiwan. But no one can say the world wasn't warned.

1943: "Pay As You Go" Tax Established

World War II prompted sweeping fiscal changes in the United States, as President Franklin Roosevelt and his fellow legislators geared the nation for the rigors of wartime production. Along with reallocating vast chunks of America's work force to the task of manufacturing military items, Roosevelt helped establish tight controls on wages, prices, and consumption. While most of these initiatives were brought to a halt shortly after the declaration of peace in 1945, at least one wartime fiscal policy -- the Current Tax Payment Act -- has had some enduring impact. Indeed, the tax legislation, which hit the law books on this day in 1943, paved the path for withholding on income taxes. In particular, the bill, popularly known as the "Pay As You Go Tax," allowed Americans to taxpayers to withhold federal income taxes before getting paid their wages or salaries.

source: www.history.com

Lieberman wants to ban institutional investors from commodities

U.S. Sen. Joseph Lieberman, I-Conn., said he will propose banning institutional investors from the commodities markets. A committee he chairs meets next week to examine whether speculation has driven the prices of crops and fuel to record levels. Another proposal would strengthen regulations limiting the stake that each speculative investor can hold in a given market, Lieberman said.

more at http://www.nytimes.com/2008/06/12/washington/12trade.html

1915: Rockefeller Clan Grows

On this day in 1915, the Rockefellers, one of America's first families of industry and wealth, grew a touch larger with the birth of David Rockefeller. The youngest of five children sired by the imperious oil baron John D. Rockefeller, David ably continued the family tradition of acquiring vast sums of money. Before the dawn of 1941, David had racked up degrees from Harvard, the London of School Economics and the University of Chicago. Following a stint in World War II, Rockefeller started working at the Chase National Bank, which was chaired by his uncle, Winthrop W. Aldrich. David enjoyed a fast rise through the ranks at Chase and was named the bank's vice president in 1952. A few years after his promotion, Rockefeller helped engineer the merger between Chase and the Bank of Manhattan Company. But, befit his name and background, Rockefeller didn't stall as the second in command of the newly formed banking conglomerate: By 1969, he was tabbed to serve as both the chairman of the board and CEO of the Chase Manhattan Bank. A well-traveled expert in international finance, Rockefeller's reign at Chase lasted until the dawn of the 1980s.

source: www.history.com

Lawmaker introduces crude oil manipulation bill

U.S. lawmakers in the House of Representatives on Thursday unveiled legislation that would require federal energy market regulators to oversee all over-the-counter crude oil trading, including action on overseas exchanges like the IntercontinentalExchange.

Rep. Bart Stupak, chairman of the House Energy and Commerce Committee's Subcommittee on Oversight and Investigations, said a lack of regulation has left the door open to potential manipulation and may have contributed to the meteoric rise of crude oil prices to above $135 a barrel last month.

"You can certainly see manipulation of the price in the market that you never saw before," Stupak told reporters.

Stupak's bill would require the Commodity Futures Trading Commission to oversee U.S. crude oil futures even if they are traded on overseas exchanges.

Overseas trading of U.S. futures contracts, which Stupak called "dark markets," account for more than 30 percent of the volume of West Texas Intermediate oil contracts, the U.S. benchmark which has a delivery option in Cushing, Oklahoma.

"This is Enron all over again, just a little bit more sophisticated," he said, referring to the defunct Houston-based energy giant whose trading strategies were linked to the Western power crisis of 2000-01.

Stupak said his committee -- which has investigated Enron as well as pipeline leaks at BP Plc's Prudhoe Bay field in Alaska -- has not uncovered any evidence of wrongdoing.

CBOE & Korea Exchange to explore links

The Chicago Board Options Exchange said on Monday it has signed an agreement with the Korea Exchange to share information and look into potential business ventures as the CBOE looks to develop its presence in Asia.

Ventures could include developing new products within a year, the Financial Times reported on Monday. One possibility could be for CBOE to trade options contracts based on a Korean economic indicator and the Korean Exchange to do likewise with U.S. economic indicators.

The agreement comes a week after the CBOE reached a tentative agreement to settle its long standing dispute with members of the Chicago Board of Trade, now part of CME Group Inc.

The settlement, if approved by CBOE members and the U.S. Securities Exchange Commission, would pave the way for the CBOE, the largest options market in the United States with one third of the market, to go public and potentially be taken over.

The CBOE is one of the last remaining member-owned exchanges in a fast consolidating industry, and a stronger Asian foothold would likely enhance the price it could fetch, which analysts estimate to be around $4 billion.

The CBOE said the memorandum of understanding does not commit the exchanges to any joint deals.

CBOE reached a similar agreement with the Taiwan Futures Exchange last year. And in May, the Korea Exchange, the second largest derivatives market in the world after CME Group, agreed with Standard and Poor's, a division of McGraw-Hill Cos Inc., to develop electronic-traded funds and index derivatives underlying global and Asian equities.

HSBC chief calls for universal regulation rules

The head of HSBC has suggested that banks working internationally are insufficiently scrutinized by national regulators and need shared rules, in a recent interview.

Stephen Green, Chairman of HSBC Holdings, made the comments in light of Northern Rock's demise during the credit crunch.

"The lesson from the credit crisis is that supervision by a national regulator is not enough," said Mr Green.

Mr Green does not support the idea of an internationally wide body that would regulate banks instead he favours effective communication and directives within the industry.

"I don't think there is a need for special new law on banks. I think it is enough that the regulators adopt common policy standards and talk periodically to each other about big banks," added Mr Green.

A recent internal review by the FSA revealed an insufficient level of supervision of Northern Rock's high risk borrowing strategy in the changing credit climate.

High Oil Price Bubble -- Driven by Speculation?

Between February and May of this year the oil price went from below USD 90 to USD 128 a barrel, a monthly growth of 9 per cent. If the rise continued at this rate, it would mean an unprecedented doubling in price every eight months. In recent days, after the price briefly touched a high of USD 135, there has been a bout of profit-taking. Although the price fell it did not drop much below USD 125 and it has rocketed again to USD 135.

The latest price rise has baffled many. What has happened to supply and demand to cause such a steep and sudden price rise? Gordon Brown, the British prime minister, said last week that "the cause is clear: growing demand and too little supply". China and India are buying more oil. Costs of exploration and extraction are going up. Nigeria and Venezuela are causing anxieties about supply. But these factors are not new. Nothing has happened in the real oil economy to justify such a sharp and steep rise in its price.

There is a growing feeling that the latest sharp upsurge in the price of oil may be a speculative bubble rather than an outcome of market fundamentals. The US Commodity Futures Trading Commission indicated last week that there may be "system risk" and George Soros, the veteran investor, in testimony on Capitol Hill on Tuesday, warned that commodity index funds, which treat oil as an asset rather than a commodity to be bought and sold for use, are creating a bubble.

Bubbles come to an end eventually but there is no guarantee that this will happen soon. The global economy is likely to be forced into a serious crisis if we do not explore the possibility that this is a bubble that needs to be burst quickly. The market can then resume its trend, depending on whatever the fundamentals dictate.

Much of the rise in oil price is the result of activity on the New York Mercantile Exchange, the energy exchange. This is activity by index funds and pension funds that are investing in oil futures, not for direct use but as financial assets for profit. That contrasts with activity by oil producers and consumers who buy and sell to smooth out fluctuations in price and delivery.

These financial institutions -- index funds and pension funds -- are neither buying oil nor selling it. They are passive investors in commodities. They have invested USD 260bn (EUR 169bn, GBP 133bn) in commodity markets, compared with USD 13bn just five years ago. Much of this money is in oil. The Goldman Sachs Commodity Index is heavily weighted by oil -- 78 per cent compared with less than 2 per cent for precious metals.

The point is that this paper market is not driven by the pressures on demand and supply but entirely by price expectations. An underlying situation -- which may well indicate a medium-run rise in oil price -- is being exacerbated by the bolstering of expectations that prices will rise even faster. It is this extra layer of price rise that is driving money into even the farther future contracts. There are futures contracts being bought and sold for 2016 at USD 138 -- only astrologers pretend that they can forecast that far ahead.

How large is the speculator activity? The total open interest -- the number of open or outstanding contracts for which an individual is obliged to the exchange because that individual has not yet made an actual contract delivery -- in the 2008 contracts on May 21 was 849.472 contracts, which equals 849m barrels, or nearly 10 times the daily crude oil production. The daily volume in the 2008 contracts on May 21 was 657.391 contracts, equivalent to 657m barrels or nearly 8 times the daily crude oil production.

This is a problem that requires immediate action. The best way to counter speculation is to make it less profitable. Step one is to protect the regular traders in the real oil economy (those who intend to close their positions by making or taking delivery of oil) and charge them a lower margin than those who have no intention of plying the oil trade. The purely financial traders must be made to pay a proper price for their speculation. This can be done simply by increasing the margin that they have to put down to trade as open interest, from the current 7 per cent to about 50 per cent.

It is up to the Group of Eight leading industrialised nations leaders to urge Nymex to implement this policy. It is in tune with free market logic and at the same time it makes oil speculation less profitable. There is no need for western governments to go down on their knees to Arab oil sheikhs, or to ration oil to the increasingly cash-strapped and angry consumers.

1934: FDR Signs Securities Exchange Act

The New Deal swept through Wall Street on this day in 1934, as President Franklin Roosevelt signed the Securities Exchange Act. With the swoop of his pen, Roosevelt sanctioned a set of regulations designed to rein in the stock swapping shenanigans and duplicitous sales tactics that had riddled the New York Stock Exchange (NYSE) and helped spark the Great Crash of 1929. Along with imposing registration requirements for all exchanges and curbing stock purchases by cash-strapped traders, the legislation created the Securities Exchange Commission (SEC). The SEC was charged with nothing less than reviving the public's tattered faith in the stock market, and was thus given the lead to monitor both brokerage houses and investment banks. Few pieces of New Deal legislation played well on Wall Street; the Securities Exchange Act -- along with the adjoining Exchange Act passed in 1933 -- was particularly loathed by traders and investment leaders. Whatever the fiscal and moral impact of the Great Crash, Wall Street had operated almost entirely unfettered since the late eighteenth century and was hardly ready to submit to government control. However, the relative restraint of the Securities Exchange Act, which, despite its regulatory bent, left traders a fair amount of latitude, and ensuing appointment of Joeseph P. Kennedy, a business-friendly industrialist, to head the SEC eased Wall Street's fears.
source: www.history.com

Next exchange marriage: CBOE & NYSE?

(Reuters) - NYSE Euronext is an early favorite in a possible bidding war over the last unmined jewel of the global exchanges sector: the Chicago Board Options Exchange.

CBOE 's tentative settlement this week of a trading rights spat with the Chicago Board of Trade, now owned by CME Group Inc., places it in the cross hairs of potential acquirers eager to bulk up in the options space.

After a series of blockbuster deals in the past two years, the major U.S. exchanges, including NYSE Euronext and Nasdaq OMX, have said they will take the time to integrate their purchases rather than seek out new headline grabbing acquisitions.

But as the largest options trading market in the U.S., boasting a 33 percent market share, CBOE may prove to be irresistible.
"Their proprietary products make them extremely attractive," said Jon Najarian, founder of optionsmonster.com and a CBOE seat holder. "There is a long list of buyers."
The CBOT settlement allows CBOE to complete its two-year drive to become a for-profit shareholder-owned company from a member-owned organization, a process called demutualization that has been a first step in other exchange mergers.
CBOE holds its crown as the top options exchange thanks in part to its dominance in index options trading, including its exclusive rights to trade Standard & Poor's 500 contracts. According to the Options Clearing Corp, CBOE trades 87 percent of equity index options in the United States.
Analysts estimate CBOE could fetch about $4 billion.
While all the major exchanges could win market share in the fast-growing, high margins options business by buying CBOE , NYSE Euronext may have the most to gain.
"The NYSE could buy CBOE if the price is right, because CBOE 's index options fit in very well," said Diego Perfumo, an analyst with Greenwich, Connecticut-based Equity Research Desk.
Its purchase of the American Stock Exchange, expected to close in the fall, is supposed to beef up NYSE Euronext's options trading beyond the 12 percent market it has through its Arca unit. But AMEX's share of options trading has dwindled to less than 6 percent from about 10 percent last year.
Despite a lavish spending spree in the past two years, including a $14 billion deal with exchange operator Euronext, NYSE has the financial means to make another acquisition if necessary, analysts say.
"The larger issue is whether they can manage another acquisition," said Brad Hintz, an analyst with Sanford C. Bernstein.
IF NOT NYSE, WHO? If NYSE decides to pass up the opportunity, other exchanges could be tempted to jump into the fray, though each has a reason not to.
The acquisitive, cash rich CME Group, which in the past year has bought the Chicago Board of Trade for $12 billion and is trying to close its contentious $9 billion purchase of the New York Mercantile Exchange, might seem the perfect candidate.
"CME seems to pop up every time there's consolidation," said Sang Lee, an analyst with consulting group Aite group.

But ownership of CBOE and its equity options business, would mean U.S. Securities and Exchange Commission oversight, rather than the more accommodating U.S. Commodity Futures Trading Commission. That, Perfumo says, is something CME wants to "avoid at all costs." CME expressed concern after Treasury Secretary Henry Paulson's proposal in March to merge the SEC and CFTC, a move few expect to happen any time soon.

Analysts don't expect a CBOE -CME deal would attract the attention of antitrust regulators because the exchanges trade in different products.

But if Deutsche Boerse were interested, it likely would attract antitrust scrutiny because they both trade in equity options since the German exchange bought the International Securities Exchange — CBOE 's largest competitor. But that point is moot, Perfumo says, because the price for CBOE , even if as low as $3 billion, would force the German exchange to issue shares and be too dilutive.

And Nasdaq OMX, whose purchase of the Philadelphia Stock Exchange will give it another 18 percent share of the options market once it closes later this month, might find CBOE too big to swallow for shareholders' taste.

Given the pounding exchanges' stocks have taken this year and a slow initial public offering market, CBOE could simply opt to bide its time.

Nothing is expected to happen for year while the CBOE -CBOT settlement waits for CBOE member and SEC approval, leaving the exchanges to mull their options.

"The CBOE is a stronghold for options and it wouldn't dilute NYSE shares," said Perfumo. "NYSE is the most likely candidate."

ETF - Exchange Traded Fund

The ETF (Exchange Traded Fund) is the best way to analyze the sector groups.

There are over 500 ETFs trading on the AMEX. You can find ETFs trading on the Canadian markets by going to the TSX website, www.tsx.com.

Index ETFs
These consider broad market indexes and are useful for fining the areas of general strength or weakness in the overall stock market.
SPY - S&P 500
DIA - Dow 30
QQQQ - Nasdaq 100
IWM - Russell 2000

Short ETFs
An easy way to take advantage of markets that are likely to move lower, these ETFs go up when their underlying market does down, allowing the investor to buy something that improves in value during times of market weakness.
QID - Nasdaq 100 Short
DXD - Dow 30 Short
SDS - S&P 500 Short
DUG - Oil and Gas Short
SKF - Financials Short
SRS - Real Estate Short

Industry ETFs
Based on sectors of the market, you can buy the ETF to take advantage of developing trends in that sector or just use the ETF for analysis of that sector.
XLE - Energy
UYG - Financial
USO - Oil
GLD - Gold
XLB - Materials
XLI - Industrials
XLU - Utilities
XHB - Homebuilders
XLY - Consumer Discretionary
XLK - Technology
TLT - 20 Year Treasury Bonds
XLP - Consumer Staples
UNG - Natural Gas
DBA - Agriculture
XRT - Retail
XME - Metals and Mining
XLV - Health Care
IYT - Transportation
SLV - Silver
IAI - US Broker Dealers
IYZ - Telecom

Country ETFs
Country ETFs are an easy way to trade a basket of stocks from a specific country
EWZ - Brazil
EEM - Merging Markets
EWW - Mexico
EWT - Taiwan
EWJ - Japan
FXI - China
EWM - Malaysia
EWS - Singapore
EWY - South Korea
EWH - Hong Kong
RSX - Russia
EWA - Australia
ILF - Latin America
EWC - Canada
EWG - Germany
EWL - Switzerland

Hedge Funds Cut Oil Bets as Prices Rose, CFTC Probed

Just as U.S. regulators kick off a massive probe of the role of speculators in the energy market after oil prices more than doubled over the past year, the number of speculators visible in the Commodity Futures Trading Commission’s weekly report suddenly evaporates.

Hedge-fund managers and speculators reduced bets on higher oil prices by 80 percent since July as crude futures rose to records and U.S. regulators started investigating trading, government data show.

So-called speculative net long positions fell to 25,867 contracts on the New York Mercantile Exchange in the week ended May 27 from a record 127,491 on July 31, according to a U.S. Commodity Futures Trading Commission report on May 30.

The decline may complicate the CFTC's probe as regulators try to determine how much of the rise in oil to more than $135 a barrel last month was caused by speculators who may have manipulated the market instead of consumer demand. The CFTC, under pressure from Congress, said May 29 it was investigating the doubling of oil prices the past year and said it will consider giving more detail on the types of oil investors and their holdings.

"The real problem is with passive investors like pension funds and index traders, who do not really qualify as speculators because they're long term" holders of oil contracts, said Olivier Jakob, managing director of Petromatrix Gmbh, a consulting company in Zug, Switzerland.

"There are no numbers on index traders, that's why the CFTC is going to ask for them and publish them."

U.S. Treasury Secretary Henry Paulson rejected suggestions that the oil price surge is due to the falling dollar and speculative investment funds.

"If you look at the facts, they show that the price of oil is about supply and demand," Paulson told reporters traveling with him on May 30 on a plane to Jeddah, Saudi Arabia.

The US Misery Index (8.94) = Unemployment rate (5) + Inflation rate (3.94)

The misery index was initiated by economist Arthur Okun, an adviser to President Lyndon Johnson in the 1960's. It is simply the unemployment rate added to the inflation rate. It is assumed that both a higher rate of unemployment and a worsening of inflation both create economic and social costs for a country. A combination of rising inflation and more people of out of work implies a deterioration in economic performance and a rise in the misery index.

The Current Misery Index is 8.94% April 2008

Historical highs and lows
High: 21.98% June 1980

Low: 2.97% July 1953

Shareholders imperil CME’s proposed Nymex buy

(Reuters) — CME Group Inc.'s planned acquisition of NYMEX Holdings Inc. may be derailed due to heavy opposition from shareholders, the Financial Times reported on Monday.

The terms of the purchase by CME Group, the world's largest derivatives exchange, of the New York-based energy exchange were finalized in March, but the deal has faced increasing opposition from NYMEX shareholders after the value of CME's original bid in January dropped by $2 billion — or some $20 per share — to $9 billion after CME's shares fell.

The Financial Times reported one shareholder group planned to vote down the deal if CME did not raise its bid back up to near its original level.

The deal, that would create a U.S.-listed futures behemoth controlling 98 percent of the market, must be approved by three-quarters of NYMEX's members, meaning only 205 votes against the deal out of 816, would derail it, a threshold one stockholder says is within reach.

Shares of both companies dropped sharply in February after the U.S. Department of Justice issued a letter expressing concern that financial futures exchanges' ownership of clearing operations impedes competition. Investors feared any move to limit clearing operations would lessen profitability.

Another source of contention is the $612,000 price NYMEX offered its seatholders for their trading rights. One long-time seatholder told Reuters on Friday they are worth at least $800,000.

Several shareholders have filed a class-action lawsuit in Delaware against NYMEX and its senior management, including NYMEX Chairman Richard Schaeffer and President James Newsome, alleging they have undersold the energy exchange.

CME Group Inc has hinted that it would not substantially raise its bid for NYMEX and expects NYMEX management to sell the deal to shareholders.

"What would their alternatives be if they were to turn us down?" CME Chief Financial Officer James Parisi asked of NYMEX shareholders in May at an analyst conference.

NYMEX management was set to face NYMEX members on June 3, but that meeting has been rescheduled twice and will now take place on June 19.

CME, CBOE freeze seat markets, settlement near

CME Group Inc.’s Chicago Board of Trade and its adversary, the Chicago Board Options Exchange, both suspended trading in seats Monday ahead of an expected announcement of a settlement of their long-running legal dispute.

The exchanges have been battling in court for close to two years over whether Chicago Board of Trade members, whose exchange CME bought last year for $12 billion, are entitled to a stake in the CBOE. A key hearing in the case is scheduled for Wednesday in Delaware.

“In light of important matters to be considered by the board of directors that may be material to the value of exchange memberships, the executive committee has determined to declare a suspension of purchase and sale transactions in transferable CBOE memberships in order to allow for the possible dissemination of information regarding these matters,” a note to CBOE members this morning said. “In no event will the suspension last longer than today.”

A CME spokeswoman confirmed the suspended trading in CBOT seats. Spokeswomen from both exchanges did not respond further to requests for comment.

“My best guess is that this probably means a courthouse-steps settlement,” says Brendan Caldwell, president and CEO Caldwell Investment Management LLC, which has 45 seats in the CBOE. “The two sides were never that far apart.”

Talks between CBOT members and the CBOE fell apart in March. At the time, CBOT members suggested a settlement of about $1.3 billion; the CBOE had put forth a $900-million settlement proposal.

News of a potential settlement is the latest chapter in a dispute dating to 1973, when CBOT members funded the start-up options market, giving themselves the right to trade there.

The CBOT members and the Board of Trade sued the CBOE in August 2006, arguing that the trading rights also confer equity ownership in the options exchange.
CME is bankrolling the lawsuit.
The dispute has raised enough questions about who really owns the CBOE that it has kept the options market from pursuing an initial public offering or merger with another exchange.

In March CBOT members asked for 22% of the CBOE plus $300 million to $400 million in cash, people familiar with the matter said at the time. That’s about $1.3 billion, assuming CBOE is worth $4 billion. Analyst estimates for the CBOE’s value range from $2.5 billion to more than $6 billion. The CBOE had offered 15%, plus $200 million to $300 million in cash.

Caught in the middle are CBOT members holding on to millions of dollars of CME stock to remain eligible to participate in any payout from the CBOE.

With CME shares down more than $300 from their $714 high in December, some CBOT members simply want the lawsuit behind them.