April 04 2014

elb2

LIFFE list new Bond/Swapnote products to take the fight head on to EUREX while the HFT bickering rumbles on – NYSE/NASDAQ management still visibly failing to support their own businesses. Sell siders claim it’s all the exchanges fault while suffering amnesia over their rebate addiction. Meanwhile Interactive Brokers connect to IEX, BATS offers more incentives to trade. MCX won’t dilute FTIL immediately but bickering continues as Jignesh Shah leaves Indian Energy Exchange board. A new US operation looks to become the organic answer to CME amidst a welter of product-related news.

It’s Friday, and my head cold is not really alleviating my irritation at the ongoing faux HFT debate when we could get to discussing the issues, happy scrolling…

Meanwhile, the latest five posts on Premium are:

New: Homer Simpson & The Supermodel Buffet – AKA A Guide To Clearing In The New Era

The Ring Cycle

FTIL MCX Round-Up

Buying A Stake In MCX – A Guide For The Perplexed

Indian Commodity Exchanges – Background

(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!).

Public Markets

Tullett Prebon Annual Report 2013
Tullett Prebon

Revenue: £803.7m in 2013, compared to £850.8m in 2012, down 6%
Underlying Operating Profit: £115.4m in 2013, compared to £125.5m in 2012, down 8%

PLY: All numbers are difficult to benchmark in IDB-world given the quantum leap to Dodd-EMIR-Frank.

MCX India – Outcome Of Board Meeting
Moneycontrol
MCX Defers Preferential Allotment
The Financial Express

MCX decided to defer its controversial preferential allotment issue.A statement by MCX here did not give any reason for the decision.

PLY: Common sense prevails here as while pressure needs to be brought on FTIL to exit MCX (or for Jignesh and co to exit FTIL which changes the situation materially too), this action would only bring legal challenge on MCX and draw the process out.

MCX Board Limits Voting Rights Of FTIL
business today

MCX amended company rules following which the voting rights of promoter FTIL would be restricted to just 2 per cent. Besides, crisis-hit FTIL’s excess holdings would get transferred to an escrow account if they fail to bring down the stake from 26 per cent to 2 per cent within the prescribed time.

PLY: Limiting voting rights is logical given the lack of “Fit & Proper” status at FTIL.

MCX Shareholders Suggest A Bonus Issue To Cut FTIL Stake
The Economic Times

Institutional shareholders of MCX have told its management not to make a preferential offer as a means to dilute FTIL stake in the bourse. Instead, the board should consider making a bonus issue to all shareholders except FTIL, which holds 26% in the bourse.

PLY: This form of dilution does not strike me as logical. FTIL still ought to have a right to sell their stake at a fair market price (and there is already clear price discovery available given MCX being publicly quoted).

U.S. Futures Regulator CFTC Probing Speed Traders
Douwe Miedema – Reuters

“Staff (is) responding to concerns brought to us about certain practices, whether it be spoofing just to give one example, whether that’s running afoul of our rule…and then whether or not it meets the definition of manipulative activity under our statute,” acting Chairman Mark Wetjen told reporters during a meeting.

The Need For Speed Is Costing Billions
Eric T. Schneiderman – New York Daily

New York’s attorney general explains his investigation into high-frequency trading.

PLY: When even the prosecutors are commenting on hyperbole, it’s fair to suggest Michael Lewis has gone too far. “Latency arbitrage’ is the AG’s focus but I just cannot see (maybe it is my cold medication!) the AG’s milk and honey inference that we can eliminate the curvature of the earth?

Johannah Ladd Q&A: ‘I’m Worried People Will Take Flash Boys As Fact’ (subscription)
Tim Cave – Financial News

HFT is under scrutiny from US regulators, law enforcers and best-selling authors – so it’s been a nice, easy start for the new head of the industry’s lobby group in Europe.

PLY: Good quotation: “Now I’m reading his perspective on a topic I know a lot about, I can see how faulty his fact-finding his, and how one sided it is, and I’m worried that others who are less informed will take it as fact.”

Johannah Ladd, the new secretary-general of Europe’s HFT lobby group is having a baptism of fire but the HFT industry is failing to mount any semblance of a coherent unified defence against what is increasingly clear is a sensationalist potboiler which appears to be “economical with the actualite” as UK Minister Alan Clark once remarked. Especially given:

Schwab Statement On HFT
Charles Schwab

Charles Schwab Corporation Chairman Charles Schwab and President and CEO Walt Bettinger posted the following statement on HFT: “HFT is a growing cancer that needs to be addressed.”

PLY: On order types I would agree with Chuck & his cohorts, although didn’t the SEC sign those off?

TD’s CEO Says He’s ‘Not A Big Fan’ Of HFT
Doug Alexander – Businessweek

Toronto-Dominion Bank CEO Ed Clark said he’s “not a big fan” of HFT and that the U.S. should act to ensure fairness.

PLY: It feels like national spineless week in financial markets, as experienced CNBC hacks suddenly turned ingenues on market structure and now various sell-siders want to score points but in a fashion which does not give much momentum to achieve solutions. Here the TD CEO is more measured than Schwab but it also looks ominously like sell side elements attempting to beat exchanges with a big stick which does suggest a touch of hypocrisy: how much transparency do their clients have they actually executed on an exchange or were systematically internalised for instance? Moreover, how many rebates get paid back to the client amongst these brokers?

M Stanley Hits Back Over Flash Boys Row (subscription)
Financial Times

PLY: MS are unhappy at assertions made by Mr Lewis while Goldman seems to have emerged unscathed because they don’t use HFT apparently…er?

…Readers blessed with more than a low latency flash memory chip in their cranium may recall that of course Goldman managed to essentially pervert the entire US options market last year (lobbying the likes of NYSE where management includes ex-Goldmans’ alumni) to cancel trades after they had a huge error (much discussed here). If that wasn’t a low latency HFT error, what was it?

Lewis Superhero Fighting Robots Can’t Foil Robot Rally
Michael P. Regan – Bloomberg

A funny thing happened after author Michael Lewis released a book portraying high-frequency traders as a bunch of crooks: the stock of the one publicly listed speed trader has rallied. Shares of exchange companies painted as co-conspirators are up, too. KCG Holdings rose 3.4% in the three days following the launch of the book “Flash Boys” & that “60 Minutes” report. ICE climbed 2.1%, Nasdaq OMX was up 0.7%.

PLY: Multiple reasons apart from the fact that Mr Lewis’ book appears inaccurate and his public comments are closer to ravings than logic (there was a fascinating book in there but he just went way too far in a quest for popular sales)… Note too that KCG, if you care to look, have been reducing their proprietary HFT business for some time.

Australia Market Model Curbs Speed As CEO Says U.S. Too Far Gone
Adam Haigh & Sam Mamudi – Businessweek

In Australia, where HFT firms are half as pervasive as in the U.S., the head of the biggest stock exchange has a message for Americans who would rein them in: forget it.

PLY: As ever coded messages from the ASX Knights Templar, Bond Street branch, can be translated as: “monopoly is good, if you foolishly allow competition too much HFT will lead people to eat babies…” etc.

LSE’s Turquoise Aims To Grow Block Market (subscription)
Anish Puaar – Financial News

LSE is looking at ways to boost block trading volumes on the anonymous market operated by its Turquoise subsidiary.

Interactive Brokers Adds IEX As An Electronic Trading Venue
Business Wire

Interactive Brokers is the first online broker to offer direct access to IEX to its investors, traders and institutions. IEX is an ATS designed to focus on investor protection and performance.

Interactive Brokers’ (IB) sophisticated customer base may now choose to send their US stock orders to IEX directly. Customers also have the choice of using IB SmartRoutingSM technology. IB SmartRouting searches for the best firm stock, option and combination prices available at the time of the order, and seeks to immediately execute the order electronically.

PLY: It has been a good week for IEX in publicity terms, although I worry that their well-considered model may be indirectly tainted by the fact that Michael Lewis is increasingly in danger of looking like a ranting fundamentalist freak show not entirely conjoined with facts or reality.

Vanguard Says Only Minority Of High-Speed Traders Merit Scrutiny
Christopher Condon – Businessweek

Vanguard Group, the world’s largest mutual-fund company, said only a minority of high-frequency traders may be hurting other investors.

Regulators should seek ways to prevent abuses without blocking high-speed firms that may actually benefit investors by providing liquidity to the markets, Joe Brennan, global head of Vanguard’s equity investment group, said today in a telephone interview.

PLY: Measured, logical comment as Vanguard Group focus on a better market.

Michael Lewis Feels No Shame As Book Curdles Tempers: Interview
Manuela Hoelterhoff – Businessweek

PLY: It is interesting to read the rather rude remarks of Mr Lewis (e.g. against BATS CEO O’Brien) in this interview which suggest he remains at heart a nauseating 1980’s investment banker yuppie. He may be riding a wave of publicity right now but, behind the hubris, his credibility is increasingly shot.

European MTFs In Limbo Over CFTC Compliance Ahead Of May 15 Deadline (subscription)
Michael Watt – FX Week

European swap trading platforms have hit out at the lack of guidance from CFTC on compliance standards as they face shutting down US-based clients from their platforms on May 15 if the CFTC fails to clarify its guidance by then.

PLY: A daft failure of big regulation has led to incoherence across borders in an otherwise globalised digital world. Both CFTC and EU regulators have failed in their primary job to keep markets functioning as they add layers of new regulation.

New Dubai Sukuk Standards Seek To Clarify Liability, Rights
Bernardo Vizcaino – Reuters

Dubai Financial Market’s (DFM) new rules are part of broader efforts to develop Islamic business in the emirate, which is increasingly competing with other Islamic finance centres such as London and Kuala Lumpur.

HKEx – Possible Establishment Of Mutual Market Connectivity
HKEX

Reference is made to the announcement made on 2 April 2014 by the BoD of HKEx in connection with the potential establishment of mutual market connectivity initiatives.

PLY: The news is: …no news so far…

The Board Of Bucharest SE Has Forgotten Its Own Regulation
MAKE – Bursa

PLY: In one way I am excited – we apparently have an exchange executive buying shares in their bourse! Perhaps the first since this daily newsletter launched nearly a year ago in fact!

Problem is that some daft rule says BvB staff cannot buy shares in their own exchange (no, I don’t understand that one either) and hence that leaves CEO Ludwik Sobolewski a touch exposed. A confusing tale emerges as the BvB boss is skewered by Romania’s leading columnist and financial publisher Make…

Private Markets

Bats Chi-X Europe Raises Rebates (subscription)
Anish Puaar – Financial News

As reported yesterday, Bats Chi-X Europe has introduced a new pricing model for one of its markets that will reward high-volume trading members, including banks, brokers and HFT firms.

The tariff offers rebates between 0.15 basis points and 0.25 bps to those who place orders to buy or sell securities, depending on notional value of a client’s monthly trades. Those trading above £4 billion in UK and Irish securities or above €4.25 billion in French, Dutch, Belgian and Portuguese securities per month, will receive the highest 0.25 bps rebate. Previously, Bats’ CXE market offered a flat rebate of 0.15 bps.

The charge for removing liquidity – those accepting buy and sell orders – will remain unchanged at 0.3 bps, but members will also have the option of paying a monthly subscription fee of £20,000 or €25,000 that will reduce this fee to 0.2 bps.

PLY: Interesting, BATS adds a subscription fee amongst a series of rebates. It’s not Aquis but is it a little shot across the bows of Alasdair Haynes’ platform?

BATS Global Markets Clarification Regarding Market Data Usage
MondoVisione
BATS Forced To Correct Statements By President O’Brien On How Its Exchanges Work
Scott Patterson – Wall Street Journal

BATS Global Markets, under pressure from the New York Attorney General’s office, corrected statements made by a senior executive during a televised interview this week about how its exchanges work.

BATS President William O’Brien, during a CNBC interview, said BATS’s Direct Edge exchanges use high-speed data feeds to price stock trades. Thursday, the exchange operator said two of its exchanges, EDGA and EGX, use a slower feed, known as the Securities Information Processor, to price trades.

PLY: To be fair Mr O’Brien remains the only equity exchange CEO to put his head above the parapet. The invisibility of Messrs Greifeld and Niederauer has been, frankly, unedifying.

Regulator Lets IPO Hopefuls Switch From Shenzhen To Shanghai
Jiang Fei – Caixin

China Securities Regulatory Commission (CSRC) has allowed companies to switch their planned listing venue from Shenzhen to Shanghai, where the waiting line is shorter.

Rwanda’s EA Exchange To Sell Nigerian Agricultural Produce
AllAfrica

Rwanda will soon be part of a connected African market with Nigeria ready to start selling their agricultural produce through the Rwanda East African Exchange (EAX).

Organic Crops May Get A Commodities Exchange
John Tozzi – Businessweek

If you want to know the price of a bushel of corn, you can find it on the website of CME.

Kellee James co-founder and CEO of Mercaris, a market data service and online trading platform for organic and non-genetically modified organism commodities, plans to build an exchange to trade these crops the same way as conventional commodities.

PLY: Transparent dealings will help this food chain and will provide a much more useful long-term function than the NGO messes created in other areas such as “Fair Trade” which tends to pervert the market with the gusto of a Michael Lewis book.

Swedish Exchange Safello Aims To Be ‘CoinBase for Europe’
Jona Kallgren – CoinDesk

Swedish bitcoin exchange Safello is making the push to establish itself as Europe’s leading bitcoin exchange with direct payments now available from 86 European banks in 11 countries.

Safello is using the instant SOFORT payment system, meaning there will be no need to wait for an international bank transfer to be cleared into the company’s accounts.

Bitcoin’s Boosters Struggle To Shore Up Confidence
Robin Sidel, Michael J. Casey & Christopher M. Matthews – Wall Street Journal

When Patrick Murck walked into a small, drab conference room at the U.S. attorney’s office in Manhattan last month, the freewheeling world of the virtual currency bitcoin got uncomfortably real. The 38-year-old Mr. Murck is general counsel of the Bitcoin Foundation, a trade group that promotes bitcoin. So he wasn’t surprised when the group got a subpoena from federal prosecutors who wanted to know all about Mt. Gox.

PLY: Bitcoin is oh so dead says the dead tree press. That must be why people like paying for coffee with it in my tech / startup cafe…

Special Section: FTI, NSEL, India at the Crossroads

PLY: A flat day for MCX and FTIL to end the week as the CBI bickering continues and at the top of this newsletter, disposing of the MCX shareholding remains a hot topic.

CBI Says MCX-SX Licence Given In A Hurry; Bhave Differs
The Indian Express

At the heart of an enquiry by the Central Bureau of Investigation (CBI) against CB Bhave and KM Abraham, former chairman and former member, respectively, of SEBI, is the alleged “undue haste” in granting licence for currency futures trading to MCX-SX, an exchange set up by FTIL, according to a senior CBI official.

The CBI’s preliminary enquiry revolves around 17 signatures obtained from various SEBI officials for approval to MCX-SX, all on the same day and instructions by Abraham and Bhave to grant in-principle approval despite a finance ministry communication not to grant licence without the closure of income tax case registered against MCX and FTIL.

Technology

NYSE Looks To RelSci For A Tech Upgrade
Matthew Flamm – Crain’s New York Business

The Rolodex on steroids is getting a shot of growth hormone: The software platform Relationship Science, which could also be described as LinkedIn plugged into a Bloomberg terminal, has partnered with NYSE to create a co-branded NYSE version. The customized RelSci edition will be marketed to the more than 4,500 companies listed on the exchange.

BCS Announces Partnership With Orc
Automated Trader

BCS Financial Group, the financial group for the Russian markets, has announced a partnership with Orc, the provider of derivatives trading technology, which allows Orc’s clients to trade Russian securities and derivatives on MoEx and on LSE.

PLY: A good deal for Orc as BCS expands in western Europe.

NOS Migration Into NASDAQ OMX Clearing And Introduction Of Block Trade Facility For Commodities Instruments On April 7th
NASDAQ OMX

NOS clearing will be migrated into Genium INET platform this weekend. The migration will commence Saturday morning April 5th, and planned to be completed on Saturday evening at 17:00 CET. Another Clearing and Exchange Notice will be published after completion of the migration. NASDAQ OMX also introduces its Block Trade Facility for Commodities instruments on April 7th.

Products

ICE Announces New NYSE LIFFE European Government Bond Futures & Swapnote Contracts
ICE

PLY: Let battle commence. EUREX has long encroached into EURIBOR while now LIFFE is going after the Euro bond and swapnote curve as competition gears up. Product launch is expected from May 27, 2014, subject to regulatory process.

Oslo Børs: Gear Up With New Exchange Traded Products
MondoVisione

DNB has launched new bull and bear products with exposure to a wider range of individual shares and a more highly leveraged exposure to the OBX Index.

NMCE Gets FMC Nod To Launch Rubber Mini Contracts
The Hindu Business Line

FMC has permitted national commodity bourse NMCE to launch rubber mini contracts for up to 5 tonnes from next month to increase the participation of small traders. Currently, the National Multi Commodity Exchange (NMCE) offers futures trading in rubber contracts with a maximum trading unit of 100 tonnes.

Indexes

Bloomberg Indexes Acquires UBS Australia Bond Indexes
Bloomberg

Bloomberg Indexes has completed the acquisition of Australia’s leading bond index family from UBS. The UBS Australia bond indexes, including the benchmark UBS Composite Bond Index will as a family be renamed the “Bloomberg AusBond Indexes” and be independently calculated, maintained and licensed by Bloomberg to support transparency in Australia’s fixed income market.

NASDAQ OMX And Chaikin Analytics Introduce Enhanced Alpha Indexes
NASDAQ OMX

NASDAQ OMX and Chaikin Analytics announced the launch of three NASDAQ Chaikin Power Indexes: the NASDAQ Chaikin Power US Large Cap IndexSM (NQULCHK), the NASDAQ Chaikin Power US Small Cap IndexSM (NQUSCHK), and the NASDAQ Chaikin Power US Dividend Achievers IndexSM (NQDACHK).

These new indexes are rules-based, quantitatively enabled investment strategies, designed to outperform their respective benchmarks and are based on the Chaikin Power Gauge, a multi-factor quantitative model.

BM&FBOVESPA Announces The 1st Preview For Ibovespa & Other Indices Valid For May-August 2014
MondoVisione

BM&FBOVESPA announces the first preview for the BOVESPA Index theoretical portfolio, which will be valid for the period of May 05-August 29, 2014, based on the closing of the March 31, 2014 session. The preview registers the entrance of MMXM3 (MMX MINER ON) onto the Ibovespa portfolio, which is now made up of 72 stocks from 68 companies.

Career Paths

Jignesh Shah Quits Indian Energy Exchange Board
Livemint

Jignesh Shah has quit the board of Indian Energy Exchange (IEX). FTIL has two nominees on IEX board. The exchange now has 10 members on its board, which is chaired by Venkat R. Chary while S.N. Goel is the CEO and MD.

Wendy Phillis has been appointed as Group Chief Risk Officer of ICAP, and will join the company on April 14 2014. Wendy will take over from Colin Smith, ICAP’s current Group Chief Risk Officer, who has decided to retire from the industry, as previously announced. She will be based in London, and reporting to ICAP’s Group COO Ken Pigaga.

Futures notes that Newedge appointed Steeve Charvet as global head of financial futures options, equities and fixed income (FFOE&FI) execution. Steeve will also join Newedge’s Executive Committee.

IFA Magazine notes that Fidessa has appointed John Worby as a NED and member of the audit, remuneration and nominations committees effective May 1st. The current Chairman of the group’s audit committee, Philip Hardaker, will step down from his post later in the year, following the handover.

Chartered Institute for Securities & Investments’ (CISI) MD, Ruth Martin, has given notice that she is stepping down from her role in January 2015, and plans to continue to support the CISI in a senior advisory capacity.

KCG Paid CEO Coleman $10.4 Million For 2013
John McCrank – Reuters

KCG Holding awarded its CEO, Daniel Coleman, $10.4 million in 2013, the year in which the company was formed by the $1.4 billion takeover of Knight Capital Group by rival Getco, according to a regulatory filing.

Financial Calendar

This month

Interactive Brokers Q1 Financial Results
SGX Q3 results for FY2014
NASDAQ OMX’s Q1 2014 Financial Results
Record date HKEx $1.72 final dividend
Launch of CME Europe
Sibex – Sibiu SE AGM
Thomson Reuters Q1 2014 earnings

New announcement

TMX Q1 2014 Financial Results On Friday, May 9, 2014

TMX press release here.

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

Crowdfunding

SoFi Closes On $80 Million To Expand Its Lending Business
TechCrunch

P2P lender Social Finance said it closed on $80 million in fresh funding, as it looks to expand its lending operations to mortgages and personal loans. The new round was led by the hedge fund Discovery Capital Management and included commitments from Wicklow Capital and the billionaire investor Peter Thiel — who is perhaps as famous for his stance against the necessity of a college education as he is for his investments. Previous investors, Renren, Baseline Ventures, and DCM also participated in the new financing.

Other stories

Statement Of Acting CFTC Chairman Mark Wetjen At Roundtable On Dodd-Frank End-User Issues
MondoVisione

Statement Of CFTC Commissioner Scott D. O’Malia On Public Roundtable Regarding End-User Issues
MondoVisione

Canadian Regulators Enter Into Agreement With CFTC To Enhance Cross-Border Supervision
MondoVisione

The Alberta Securities Commission (ASC), the British Columbia Securities Commission (BCSC), the Ontario Securities Commission (OSC), and the Autorité des marchés financiers (AMF) have entered into a MOU with CFTC aimed at enhancing the cross-border supervision of firms that operate in both countries.

Customers Of MF Global Inc. To Begin Receiving Final Restitution Payments From MF Global To Satisfy More Than $1 Billion In Customer Losses As Ordered By Federal Court In CFTC Action – Company Also Remains Subject To A $100 Million CFTC Penalty
MondoVisione

Pursuant to a federal court consent Order obtained by CFTC against MF Global, the Trustee for MF Global has announced that the company will now begin making final distributions to its customers to satisfy its obligation of full restitution for $1.212 billion in losses sustained by customers of MF Global when the company failed in 2011.

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