April 01 2014

elb2

Amazing ICE plans released? FTIL, MCX, India, Chaos & litigation. Some amusing April fools but the ASEAN bourse is not one of them, and of course everybody is getting into a huge lather about HFT as Michael Lewis’ new book launches into the sort of headline grabbing controversy which makes grown publishers weep with joy…Oh and the Feds are in there – aka note to the industry: you failed to get your message across.

The latest five posts on Premium are:

New: FTIL MCX Round-Up

Buying A Stake In MCX – A Guide For The Perplexed

Indian Commodity Exchanges – Background

Reflections On NYFIX: An Offer You Can’t Refuse?

Neither Fit Nor Proper: The FTIL Fire Sale

More coming soon at Exchange Invest Premium.

(If you want to join the Exchange Invest Inner Circle and glean more detail than we can fit into this free daily Exchange Invest then please Subscribe Here, it’s only $120 per user/annum – it also helps keeps the wheels running for the free Exchange Invest daily which we encourage you to scroll through forthwith!).

Public Markets

World Exclusive: ICE 2020 Plan
Scooped by Exchange Invest

PLY: A fascinating insight awaits, we have made this exclusive post available free to ALL readers on our Premium service, just click the link above to be a step closer to elucidation…

Retreat, FTIL Tells MCX
Business Standard

The battle between FTIL and MCX, took a new turn on Monday. The former told the latter it would take legal action on any attempt by the latter to consider an allotment of preferential shares to reduce its stake.

MCX has convened a meeting of its board of directors on Thursday, to consider doing this and to alter its Memorandum of Association and Articles of the Exchange. It had sent notices in this regard to the BSE exchange.

PLY: While I can appreciate the position of the shareholders in pushing forward, the MCX appears a bit hasty in this process and thus is giving FTIL breathing room. There needs to be a due process and FTIL will clutch to any stick to demonstrate they are victims of a conspiracy. Poor strategic thinking on the part of MCX’s new management.

FBI Probes HFT Firms For Abuse Of Information
Keri Geiger & Patricia Hurtado – Bloomberg

Federal agents are investigating whether high-frequency trading firms break U.S. laws by acting on nonpublic information to gain an edge over competitors.

FBI’s inquiry stems from a multiyear crackdown on insider trading, which has led to at least 79 convictions of hedge-fund traders and others. Agents are examining, for example, whether traders abuse information to act ahead of orders by institutional investors, according to an FBI spokesman. Even trades based on computer algorithms could amount to wire fraud, securities fraud or insider trading.

The FBI joins a roster of authorities examining HFT, in which firms typically use super-fast computers to post and cancel orders at rates measured in thousandths or even millionths of a second to capture price discrepancies. New York Attorney General Eric Schneiderman opened a broad investigation into whether U.S. stock exchanges and alternative venues give such traders improper advantages.

PLY: Ugly. Once the FBI spend their cash on an investigation they tend to want a return on investment, no matter what they have to do to get there. Chicago traders will recall the impact of the two year undercover operation through 1989 on pit trading. At the same time, as I recall only about 50 traders were arrested (as we race to pixel I stand to be corrected to those who were closer to it than me!) out of thousands active on the floors during this time. Nonetheless, the issue is now one of PR damage if nothing else and while I doubt the Feds will be undercover masquerading as co located servers, the HFT business and the exchanges which have supported it, are in acute danger – at least in the court of public opinion.

BGC Partners Updates Its Outlook For Q1 2014
MondoVisione

BGC Partners announced that it has updated its outlook for Q1 of 2014.

CME Prevails In Lawsuit Over Grain Settlement Rules
Tom Polansek – Reuters

CME can keep in place rules that factor in electronic trades for settling end-of-day grain futures prices, an Illinois judge ruled on Monday following a legal challenge from veterans of the Chicago trading floor.

PLY: I realise pit traders have their traditions and while I recognise the angst of B share representation on the CME board, alas this action was a reaction too far. The pits (as opposed to the ring) have already long outlived their usefulness.

LME Warehousing Throws Up Roadblock For Charles Li
Melanie Burton & Polly Yam – Reuters

Earlier this month, the CEO of HKEx, Charles Li, was eager to talk about anything but the years-long warehousing crisis at LME.

At a lunch with reporters, Li brushed aside questions about forthcoming rules that should once and for all break through the logjams in the LME’s vast storage network, which end users including brewer MillerCoors alleged had artificially choked supply and inflated prices.

With the seal of approval from British regulators, after months of consultation, Li told Reuters he was “done” with the issue and intended to focus on the lucrative opportunities offered by China’s internationalisation of commodities trade.

Not quite yet it seems.

PLY: Charles Li didn’t make it on to our list of CEOs in danger (Premium Post: 2014 – A Year of Unprecedented Executive Change?) but his stock is slipping currently. The LME purchase is increasingly being viewed as a fail by Hong Kong traders – which is a rather harsh piece of forward pricing…then again that hefty £1.4bn ($2.1bn) price tag felt like a remarkable top of market multiple.

Rusal Could Get On Board With LME Warehouse Rules With More Work
Reuters

Russian aluminium giant United Company Rusal Plc could fall into line with proposed LME rules to cut logjams in warehouses, with a fuller and fair consultation process, a company executive said on Monday.

PLY: LME must clearly grab this opportunity to achieve a suitable agreement, a lifeline to HKEx having a workable strategy with its metals subsidiary.

NYSE Expecting IPO Window To Continue Throughout 2014
Erin Griffith – Fortune

PLY: A thousand candy crush mascots doesn’t make a bubble but the IPO market is certainly hot…

Europe Leads The Way As Global Market Listings Leap
Freya Berry – Reuters

The value of all global IPOs hit $44.3 billion in the first three months of this year, the best first quarter since 2011, and the value of European IPOs soared 191 percent to hit $15.2 billion – the highest since 2000.

ASX Seeking To Scrap Ownership Rules
Georgia Wilkins – The Age

ASX has stepped up its push for the government to abolish ownership rules that restrict entities from holding a more than 15 per cent stake in the bourse.

PLY: We can only live in hope some free market capitalists are looking at buying stakes to reinvigorate the becalmed Australian protectionist franchise.

ASX Calls For Australia-Based Exchanges
Mark Smith – Financial Standard

ASX has called for the Financial Services Inquiry to explore introducing requirements for systemically important financial markets infrastructure assets to be placed on-shore.

PLY: …those who felt I was harsh on the becalmed protectionist ASX only need to read the summary lines above to see how dire the problem is for a marketplace sorely out of touch with the rest of the world’s competitive ethos.

CFTC Enlists Treasury Support For Review Of Swap-Data Oversight
Silla Brush – Businessweek

CFTC, which for more than a year has cited an inability to fully understand swaps-market data, has enlisted the help of a Treasury Department unit to improve oversight. CFTC and Treasury’s Office of Financial Research are beginning a review of price and volume information collected by databases operated by DTCC, CME. and others, according to a statement. The review is aimed at coordinating data that has been reported in different ways to regulators since the beginning of last year.

CFTC press release here.

PLY: More detail on the discussion we first noted last week.

‘Swaptions’ Leap Over Regulatory Hurdles (subscription)
Financial Times

CDS index options bypass new clearing rules.

PLY: CDS options have gone from about $2 billion per month in 205 to an estimated $60 billion per month today. A huge coach and horses runs through the Dodd Frank laws as they have not been defined by a SEF platform and hence are outside the scope of the agreement. It will be fascinating to see which SEF risks annoying the banker oligopoly to push this onto the SEF-CCP route…

Highly unconvincing anonymous banker quotation of the day: “The problem is you have a lot of different options, at a lot of different strike prices so clearing is difficult.”

SET Joins With Malaysian, Singapore Bourses To Bolster Asean Exchanges Project
Erich Parpart – The Nation

Thailand, Malaysia and Singapore are taking the lead in making seven stock markets in six Asean countries a global force to be reckoned with through a push for greater cooperation within the Asean Exchanges (AE) and the launch of the Asean Stars Index.

PLY: So many April Fool’s stories around today make editing a challenge but actually this is a real venture it seems, complete with a FTSE Index to cross fertilize listing in different markets…

Private Markets

SIX Increases Its Stake In CETREL S.A. To 100%
MondoVisione

SIX has increased its stake in the Luxembourg financial services provider CETREL S.A. from 50% to 100% as of 31 March 2014. Roland Ludwig will remain CEO of CETREL S.A.

PLY: Given that the press release is most hyperbolic, let me assist: Cetrel are a card payment company which is a growing part of the SIX empire…

IEX Welcomes High-Speed Traders, As Long As They Behave
Sam Mamudi – Bloomberg

IEX Group’s trading platform was built to combat predatory practices. That doesn’t mean it’s on a crusade to kill HFT firms.

CEO Brad Katsuyama, whose firm is the subject of Michael Lewis’s new book “Flash Boys,” welcomes all kinds of traders on his five-month-old platform that’s trying to reshape the $22 trillion U.S. equity market. Virtu Financial, one of the biggest high-speed trading firms, trades on IEX, for instance.

PLY: One brilliant question and a splendid insight as IEX goes from upstart rebel with new tech into the platform leading innovation in America’s chaotic, crowded equity infrastructure: First Brad Katsuyama: “It’s not about being anti-HFT, but about being pro-fairness.” Then read the final paragraphs from this story where Ronan Ryan Chief Strategy Officer notes how when presented with the architecture and the “speed bump” HFT are receptive but some players still wonder where they can find a stage door back entrance – let’s call it the “cat flap” to access the market ahead of the rest…

Katsuyama’s Stock Exchange A Rallying Point For HFT Outrage
Mark Melin – ValueWalk

Is Brad Katsuyama, the “conformist” trader who exposed the previously secret behavior of high frequency traders (HFT) featured in Michael Lewis’s new book Flash Boys, about to disrupt the stock exchange business model?

PLY: Yip.

Inside IEX: The Buyside Takes On HFT
John D’Antona – Traders Magazine

PLY: Traders Magazine archives stories after 7 days but given the discussion about IEX, they have republished their excellent article which we first profiled last August…

It’s A Shameful Vilification Of The Entire Industry, Says BATS O’Brien On Lewis’ HFTs Allegations
MarketWatch

The head of one of the biggest exchanges in the U.S. blasted the allegations that HFT is rigging the markets against investors a day after the CBSNews “60 Minutes” interview with author Michael Lewis.

William O’Brien, president of BATs Global Markets said “it’s a shameful vilification of the entire industry in an effort to promote one firm’s business model and worldview.”

PLY: Worryingly Mr O’Brien risks sounding angry and shrill here. True the media will always headline his most controversial remarks and indeed without the benefit of reading Mr Lewis’ new book I cannot say whether the story is just an advertorial for IEX. However, what the current HFT argument reveals is the inherent weakness of a linear processing industry which shuns lateral thinking until the crisis is taking hold. Exchanges have been keen to accept business which is tainted alongside a vast welter of business which is just very speedy indeed. There’s a lot to say here so I will resort to the Premium service to outline it but the entire industry, not just BATS need to think about their ways of pushing back on this attack as it may be hugely unreasonable but the public doesn’t trust banks (quite fairly) and those platforms which simply reflect the bankers need to do more to (re)gain public trust.

Not Every High-Frequency Trader Is Predatory, Arthur Levitt Says
Sam Mamudi – Bloomberg

Lumping all speed traders together as predators and saying they rig the stock market exaggerates the hazards faced by investors, according to Arthur Levitt, who oversaw SEC in the 1990s.

PLY: Aided by the more measured less sensationalist tones of Bloomberg, Levitt leads the field in a marathon of “he says, she says” comment on HFT.

Rigging The Stock Market Is Old Hat
Ronald Delegge – Fox Business

Is the latest revelation of stock market manipulation by high-speed traders via a just released 60 Minutes report really new?

Before Michael Lewis’ latest book “Flash Boys,” there was “Wall Street Jungle” – a 1970 bestseller by Richard Ney.

Although Ney’s insightful book was written in an era before the dominance of electronic trading, his expose of stock market rigging (DIA) still applies today.

PLY: In a lighter tone, 30 years earlier Fred Schwed Jr wrote the hilarious “Where Are All the Customers’ Yachts?” In a recent edition Michael Lewis wrote the Foreword, wonder where his idea about an HFT book came from?

SHFE Cancels Commission For Daily Trading (subscription)
Metal Bulletin

Shanghai Futures Exchange has removed commissions for daily trading in aluminium, zinc, lead and rebar contracts, the bourse said on Monday.

NSE Seeks Long-Term Market Protection – Sets New Minimum Operating Standards For Dealing Members
MondoVisione

Nigerian SE (NSE) has set new minimum operating standards for all Dealing Members licensed by the Bourse, effective January 1, 2015 for all three classes of Dealing Members (Broker Dealers, Brokers and Dealers) addressing the five broad areas of Manpower and Equipment; Organizational Structure and Governance; Effective Processes; Global Competitiveness; and Technology.

Ex-Bitcoin Foundation’s Shrem in Plea Talks Over Laundering Case
Patricia Hurtado – Businessweek

Charlie Shrem, a prominent evangelist for Bitcoin who is charged by the U.S. with conspiring to launder more than $1 million in the virtual currency tied to the illicit online bazaar Silk Road, is in plea talks, prosecutors said.

Bitcoin’s Swings Hurt Viability As Currency, Fed Economist Says
Aki Ito – Businessweek

The value of the digital currency Bitcoin has fluctuated “violently,” making it less useful as a form of payment compared with more stable currencies such as the U.S. dollar, according to a Federal Reserve (FDTR) economist.

Special Section: FTI, NSEL, India at the Crossroads

PLY: Under pressure on all fronts, FTIL is down 1.5% while MCX is up marginally.

Was Jignesh Shah Done In By Rivals?
Rajesh Bhayani – Business Standard

Latest evidence suggests that powerful forces may have been at work to scuttle his foray into the stock exchange business.

PLY: A long article. Not news but noting how it is fair to say there was a lot of effort put into preventing an MCX stock exchange which has long been, I thought, patently obvious? The Indian establishment generally seem to loathe Jignesh Shah and thus his fall from grace has been regarded as an epic “told you so” by officialdom – who are now keen to try to reduce, if not preclude, capitalism in markets.

‘Sheth Brothers, Blackstone Beneficiaries Of NSEL’
Business Standard

NSEL Investors Forum says that both Sheth brothers and Blackstone were in the complete know of the payment crisis erupted at NSEL.

PLY: In other words, the NSEL Investors Forum will sue anybody and everybody until they get paid…

Technology

NASDAQ OMX & Catelas Establish Partnership To Deliver Advanced Compliance Supervision & Investigative Capabilities
NASDAQ OMX

Catelas, the leading provider of ‘Relationship Forensics’ solutions for email and electronic communications, will offer Catelas compliance, risk monitoring, and investigations solutions as a complement to, or integrated with NASDAQ OMX’s SMARTS surveillance platform for real-time cross-asset surveillance.

Abacus Group Announces Strategic Partnership With LiquidityBook
MondoVisione

Abacus Group LLC, will host LiquidityBook’s complete buy-side solution, LBX, in the AbacusFLEX private cloud environment.

Misys Enables International Companies To Comply With EMIR Derivative Trade Reporting
MondoVisione

Misys, has launched a new SaaS Regulatory Reporting Service, enabling corporates, fund managers and smaller banks to meet their EMIR-specific reporting requirements to report to a Trade Repository on the execution, modification and termination of a derivative transaction, without needing to implement or maintain new systems.

S&P Capital IQ Real-Time Solutions Announces The Availability Of TMX Group Markets & Information On QuantFEED & QuantLINK Solutions
MondoVisione

S&P Capital IQ Real-Time Solutions has announced the extension of its QuantFeed and QuantLINK technologies to TMX Group markets.

The Data Centers Powering The HFT Trend
Rich Miller – Data Center Knowledge

HFT is in the news this week, as are the data centers in northern New Jersey that serve as the technology engines powering the practice. Here’s a look at the four data centers mentioned prominently in this week’s news, along with some useful links to our coverage of low-latency trading and colocation.

Products

HKEx Initiates After-Hours RMB Currency Futures Amidst Popular Demand
Jeff Patterson – Forex Magnates

Hong Kong Futures Exchange Limited, a subsidiary of HKEx, has instituted an offering of after-hours RMB Currency Futures, slated to begin April 7. Bank of China (Hong Kong) Limited and Deutsche Bank AG were appointed as market makers.

HKEx press release here.

Liffe Goes Live With Ultra Long Gilt Futures (subscription)
Jonathan Watkins – FOW Intelligence

NYSE Liffe’s new Ultra Long Gilt futures contract has gone live today, five months after the initially planned launch date.

SGX To Launch Electricity Futures Contract
Channel NewsAsia

SGX plans to launch an electricity futures contract on its derivatives trading platform. It has launched a public consultation on the proposed introduction of SGX Uniform Singapore Energy Price (USEP) Quarterly Base Load Electricity Futures.

NCDEX To Launch World’s First Bajra Contract
The Economic Times

NCDEX announced the launch of world’s first bajra contract for the benefit of Indian farmers who contribute close to half of the global supply. The contract will be available for trading from April 1. Initially, May, June and July 2014 contracts will be available for trading.

Marijuana Futures Set For April 1st 2015 Launch In Colorado
MondoVisione

Colorado Commodity Exchange plans to launch a new marijuana futures contract that will be traded in US dollars and reflect the value of organically grown marijuana within designated regions. The current plan is to introduce the contract with listing of the April 1st 2015 contract.

PLY: LIke, are you serious, dude? Oh hey, it’s April 1st…
(Given that Colorado Commodity Exchange will presumably be abbreviated to COCEx does this give us an inkling of future offshore products in harder drugs to come?)

Indexes

Asean Index Set To Start
Bangkok Post

Seven Asean stock markets will jointly launch their own Asean/FTSE Index with 180 constituents aimed at drawing both Asean and global investors to increase their exposure to Asean markets.

The Indonesia SE (IDX), Philippines SE (PSE), SGX, Bursa Malaysia (KLSE), Stock Exchange of Thailand (SET), Ho Chi Minh City SE (HOSE) and Hanoi SE (HNX) will on Friday sign agreements for the new index to be launched in Indonesia.

Career Paths

ICAP announced that John Nixon, Group Executive Director, Americas, has announced his intention to retire from his role at the end of March 2015 after 16 years with the Group in various senior positions.

PLY: All the very best to Jon Nixon after a long tenure at ICAP including much in close proximity to the derivatives world.

GFI Group announced that it has appointed Fernando Del Cueto García as GM of GFI Group’s Mexican affiliate, GFI Group Mexico, S.A. de C.V.

WSJ notes that Goldman Sachs is shifting its head of foreign exchange trading to the role of global co-head of commodities trading. Guy Saidenberg, who assumed his post in foreign-exchange last year, will move into his new role in June, according to the memo, working alongside Greg Agran. A spokesperson for the bank in London confirmed the contents of the memo.

Appointments To Hong Kong’s Securities and Futures Commission Committees
MondoVisione

SFC announces new appointments and reappointments to the following committees with effect from 1 April 2014:

Academic and Accreditation Advisory Committee
Disciplinary Chair Committee
Investor Compensation Fund Committee
Nominations Committee
Products Advisory Committee
Securities Compensation Fund Committee
SFC Dual Filing Advisory Group
SFC (HKEC Listing) Committee
Takeovers and Mergers Panel
Takeovers Appeal Committee

Financial Calendar

This month

SGX Q3 results for FY2014
Record date HKEx $1.72 final dividend
Launch of CME Europe
Sibex – Sibiu SE AGM

New announcement

NASDAQ OMX’s Q1 2014 financial results – Thursday, April 24, 2014
BGC’s Q1 2014 financial results – Thursday, May 1, 2014

NASDAQ OMX press release here.

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

Share Notes

CBOE CAO David S. Reynolds sold 4,856 shares Thursday, March 27th at an average price of $55.69 (bargain $270,430.64). He now owns 10,391 shares.

Analyst Notes

LSE Price Target Increased By Numis Securities From GBX 1,690 To GBX 1,881

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.

Crowdfunding

Crowdfunding Sites Hit At New Rules (subscription)
Financial Times ‎

Crowdfunding websites and peer-to-peer lenders are divided over new rules that will govern their activities from Tuesday.

PLY: Britain’s problem with an insidious restrictive socialist protective regulatory ethos is threatening to strangle crowdfunding. People need to be educated and liberated to take risks.

Other stories

NZ Financial Markets Enter New Era
MondoVisione

Commerce Minister Craig Foss is welcoming a new era for New Zealand’s financial markets as the Financial Markets Conduct Act comes into force today.

FSB Plenary Meets In London
MondoVisione

At its meeting in London today, the Financial Stability Board (FSB) discussed vulnerabilities affecting the global financial system and reviewed work plans for completing core financial reforms.

ISDA Announces Annual Determinations Committees Outcome
MondoVisione

ISDA announced the outcome of the annual process to determine members of ISDA’s five regional Determinations Committees (DCs), which together comprise the global decision-making structure around events in the credit default swaps (CDS) industry.

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