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August 11 2014

elb2Monday morning, nearly mid-August and market infrastructure is still subtly changing. Indian share shuffles ongoing, swaps rules moving on, IOSCO pondering commodity warehouses, EU pushing the envelope for more more and more Europe, Hong Kong – China link emphasises who wears the trousers…Neal Wolkoff adds new post to portfolio… and more…

Most worrying story of the day, apart from the ravings of regulators to kill EU markets in the next phase, is news that the current tri-partite issue of getting Clearstream, Euroclear and T2S all to work co-operate simultaneously isn’t happening – that is a huge hurdle for market efficiency.

Meanwhile, a friendly reminder: if you like the free stuff and want to support us building out the industry platform for markets, please join our top tier, it’s only $120 per annum and keeps this daily newsletter free (You can subscribe here). Recent stories include:

Has CME Europe Chosen the Right Man?

CME GFI & the New IDB Paradigm

NLX: Measuring Up the Coffin?

FTIL: The Divestment of MCX

The Democratisation of Swaps aka The Citadel Inverse Repo Breakthrough

Public Markets

NZX H1 2014 Financial Results
Mondo Visione

Net earnings $7.0 million, up 8.3%
Total revenues $31.2 million, up 2.8%

PLY: NZX continues to push forward.

Big Bull Enters IEX?
Joydeep Ghosh, Rajesh Bhayani & Samie Modak – Business Standard

After buying a stake in MCX, big bull Rakesh Jhunjhunwala is rumoured to have bought 4% of Indian Energy Exchange (IEX), apparently paying a premium of around 10% for the stake.

The last deal between Aditya Birla Private Equity and IDFC Private Equity, had valued IEX at Rs 1,700 crore (USD 278 mln). That value has now increased to Rs 1,850 crore (USD 302 mln).

Rakesh Jhunjhunwala bought 2% of MCX from FTIL on July 9th and on July 16th he bought another 490k (0.96%) shares of MCX. EI reported on July 22nd that FTIL appointed Axis Capital to look for a buyer for the 24.89% stake in IEX.

PLY: Very interesting with a noted Indian value investor is now buying into IEX, the dominant Indian power market.

FTIL May Move Supreme Court For Relief On MCX-SX Exit
Reena Zachariah & Ram Sahgal – The Economic Times

FTIL might have to consider moving the Supreme Court against a Securities Appellate Tribunal (SAT) order that directed it to divest its shares and warrants in the bourse by August 6, or risk forfeiting its warrants after capital markets regulator Sebi rejected its application last week for a further extension to divest its stake.

EI reported last week that FTIL missed the deadline of selling MCX-SX stake.

PLY: Ultimately SEBI is flexing its muscles in a fashion that may look vindictive. At the same time FTIL did appear to drag its heels, particularly when the (on remand) Jignesh Shah was still in charge.

Europe Grapples With New Derivatives Reporting Rules (subscription)
Anish Puaar – Financial News

A second wave of trade reporting rules hits Europe’s derivatives markets today but concerns persist over clarity. Under EMIR, both counterparties to a derivatives trade will from today need to report the valuation of transactions and the collateral that underpins them on a daily basis to approved trade repositories.

The reporting of derivatives trades is a key pillar of post-crisis reforms to the swaps market and is designed to improve transparency and reduce systemic risk.

Euroclear & Clearstream Collateral Pact Hits The Rocks (subscription)
Rachael Singh – Financial News

A landmark deal between Europe’s two largest settlement houses to improve collateral and funding flows has broken down less than a year after first being brokered, Financial News has learned.

PLY: A huge worry, preparing for T2S and the ongoing challenges of bringing Clearstream and Euroclear together co-operatively appears to be on the rocks. Good story from Financial News here, with an uncharacteristically blunt assessment from ICAP’s Godfried de Vidts: “The whole market is held to ransom because those two parties are unwilling to work together efficiently.”

LSE UnaVista Boosts Presence In North America (subscription)
Wallstreet & Technology

Europe’s overhaul of derivatives markets hits a new stage next week with Phase II of EMIR getting underway. From Aug. 12, banks and asset managers that qualify as counterparties to derivatives contracts under EEA are required to report collateral and valuations to an approved trade repository.

FMC Sharpens & Widens Auditor Remit In Exchange Inspection
Rajesh Bhayani – Business Standard

FMC has issued an inspection manual for examination of books of accounts and other documents of commodity exchanges, in which it has listed the objectives and scope of the audit.

IOSCO Surveys Warehouse Impact On Commodity Derivatives Market
Reuters

IOSCO has asked its members as well as storage & market infrastructure providers, participants & end-users in their jurisdictions to answer a questionnaire by Oct 31.

HKEx-Shanghai Stock Sale Curb Shows China’s Rules Apply
Richard Frost & Kana Nishizawa – Businessweek

HKEx CEO Charles Li – Latest Charles Li Direct: Bridging The Differences Between Hong Kong And Shanghai
Mondo Visione

Investors using the Hong Kong-Shanghai exchange link to access China’s $3.6 trillion stock market will have to play by mainland rules.

Traders who want to sell Shanghai-listed shares must transfer the securities to a broker before 7:30 a.m. to comply with Chinese regulations. The rule is more restrictive than the T+2 settlement system used in Hong Kong and other major stock markets, which allows traders to execute sell orders before transferring the securities.

PLY: Ultimately this deal could yet prove a poisoned chalice to HKEx which has gateway to China status but that is nonetheless a precariously balanced position.

EU Executive Wants To Beef Up Bloc’s Financial Watchdogs
Reuters

The European Union’s trio of new financial watchdogs should have more powers over banks, insurers and markets to ensure national regulators apply EU rules, the bloc’s executive body said on Friday in a review that may raise hackles in Britain.

The European Commission’s review looked at the three ESAs set up in 2011 to improve oversight of the 28-country bloc’s markets and banks after the 2007-09 financial crisis uncovered failings.

PLY: Given that the EU ignores foibles in some nations but rarely fails to score points against London’s world leading financial centre, this notice is clear that the EU has a desire to destroy free financial markets in order to build a poor facsimile of EU supplicants controlled by the authoritarian illiberal blob. Very very dangerous, building on existing suicide ploys such as the FTT and the vast nitpicking redundancy of MIFID II.

Private Markets

Why CAT Found NSE Guilty Of Abuse Of Dominance
Abir Roy – Business Standard

The Competition Appellate Tribunal has given a detailed order confirming the order of the Competition Commission of India (CCI) and has found that NSE has abused its dominance in the market of stock exchange services and has upheld the penalty imposition on NSE given by the CCI.

The case dates back to 2009 when MCX-SX had filed information before the CCI stating that NSE has abused its dominance in the market of stock exchange services by levying zero transaction fees only for the currency derivatives (CD) segment.

Previous discussions in EI: August 6th.

NCDEX Offers Special Concessions For FPOs
Moneycontrol

NCDEX has introduced a new membership category for the soon-to-be launched forwards segment on its national level electronic platform.

Dividend News

NZX declared a fully imputed interim dividend of 3.0 cents, in line with its previously announced dividend policy and guidance that NZX intends to pay a full year distribution for the 2014 financial year of 6.0 cents per share (subject to commitments, working capital and solvency requirements).

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is 1% and FTIl down nearly the same as there are signs of life in NSEL itself and difficult questions for those who occupied the responsible positions at NSEL.

NSEL Liberalises E-Series Auction Guidelines
Business Standard

NSEL has liberalised e-series auction norms to accommodate more bids.

Top National Spot Exchange Limited Brass, Executives Failed In Duty Leading To Scam: Enforcement Directorate
Economic Times

NSEL scam could have been averted had its top management and other functionaries “performed their duties and exercised due diligence” to check the dubious activities of defaulting firms which have been alleged to have cheated numerous investors, investigation by ED has revealed.

PLY: Not sure “revealed” is the correct word but certainly it is an unsurprising conclusion – the whole affair needs to be considered against the lens that is corporate governance and Indian standards are pretty good..when they are applied properly. How they failed to spot this problem remains a remarkable oversight.

Technology

Markit Adds Jefferies To Open Messaging Network
Finextra

Jefferies will join Collaboration Services, the open messaging network from Markit.

NYSE Outlines XDP Feed Migration Roadmap
Faye Kilburn – Waters Technology

NYSE has notified clients that it is migrating its NYSE and NYSE MKT best bid and offer datafeeds to its proprietary Exchange Data Publisher (XDP) format, as part of an ongoing project to consolidate all feeds from its equities and derivatives markets onto a single delivery mechanism.

Products

First Exchange Traded Instrument Launched
Times Of Malta

The first ETI issued under the Malta Securitisation Act went live recently on EWSM.

The Dynamic Trading Strategies ETI is linked to and backed by a performance linked bond issued by a Special Purpose Acquisition Vehicle allowable under the Securitisation Act of Malta with the sole purpose of holding managed accounts at Interactive Brokers LLC and Sensus Capital Markets plc.

Career Paths

FNEX, a platform for alternative investments, (press release here) appointed Mr. Neal Wolkoff to its Advisory Board. The former CEO and Leading Executive at AMEX and NYMEX will provide strategic guidance, business development and regulatory expertise.

PLY: The welcome addition of Neal to the Advisory board gives FNEX some added heft in the exchange world.

Waters reports that Thomson Reuters has hired Jeff Drew as Enterprise Proposition Manager, responsible for strategy for its platform transactions business, supporting the Thomson Reuters Enterprise Platform and Elektron Managed Services propositions.

FX-Week reported, Andrew Durrant is leaving EBS to join Thomson Reuters, as trading behaviour and rules proposition manager.

Mondo Visione reports that Dr. Hassan Ghalibaf Asl has been re-elected for a fourth successive term as the CEO of TSE for a two-year tenure (2014 – 2016).

SEC named Thomas M. Piccone to lead the National Exam Program in the Denver Regional Office.

High-Frequency Traders Flee Investment Banks (subscription)
Daniel Schäfer – Financial Times

High-frequency traders in London are increasingly defecting from investment banks to join specialised trading firms as they seek to escape tighter restrictions on pay and looming rules banning proprietary trading.

Financial Calendar

Today

NZX H1 2014 Financial Results

This week

MCX India Q1 Financial Results
FTIL Q1 Financial Results
Markit Q2 Financial Results
SIBEX H1 2014 Financial Results
MOEX RUB 2.38 dividend payment

All forthcoming exchange / investment related events are now listed on our Events page.

Share Notes

Interactive Brokers Group SVP Milan Galik sold 900 shares Monday, August 4th at an average price of $23.18 (bargain $20,862.00). He now owns 747,317 shares. Mr. Galik’s regular sales are chronicled on this specific page.

Analyst Notes

TMX “Sector Perform” Rating Reiterated By Scotiabank – C$62.00 Price Objective

A full table of current analysis can be found on our Analyst Ratings page which is updated daily.

All Analysts, Banks and Brokers are welcome to contribute to this section.

Other stories

Micro-Structure & Exchanges: A Complicated Relationship
Garrett Cook -Benzinga

In light of the major events that took place over the past year, aside from announced investigations by the SEC and NYAG, the recent actions taken by U.S. exchanges are suspect, whether they are attempts to engage in damage control or to sweep some things under the rug.

Main Findings Of The Review Reports On The European System Of Financial Supervision
Mondo Visione
The European Commission adopted the review reports on the European System of Financial Supervision (ESFS), consisting of a report on the operation of the European Supervisory Authorities (ESAs) – the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA),and the European Securities and Markets Authority (ESMA) – and a report on the mission and organisation of the European Systemic Risk Board (ESRB). These two reports set out the findings of a review of the functioning of the new supervisory architecture, which was put in place in 2011 as part of the comprehensive reforms in response to the financial crisis (see MEMO/10/424).

PLY: In brief: “we don’t have enough money to do the job we’re supposed to already but we’re determined to have total control until we drive capitalism back under the stone it crawled from…” I may be taking slight liberties with that interpretation but for one sentence it’s close enough for me.

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