April 07 2014


Euronext closes Arca Europe (we’d forgotten it was still open). SmartPool continues. “Flash Boy” Michael Lewis’ aftermath continues to simmer as many seem to stumble confused around in the ‘dark.” Good Opinion piece by Liquidnet’s Seth Merrin on Institutional Liquidity Pool ecosystem thriving without HFT while regulators make perhaps their daftest prognostication of the year to date. “Trade At” momentum builds from NYSE/NASDAQ as investors increasingly appear keen to “trade out” of Bob Greifeld. Retail brokers suffer more than exchanges on HFT affair as rebates may be hit. India is, once again, complex, as the General Election campaign gets under way. Possible US way out of warehouse problems may prove Catch-22 for LME. Meanwhile: “Swaps, prepared, confusion, opportunity” – rearrange into at least several sentence variants…

It’s all here today from Ghana’s new comex to comms rooms the world over, welcome to Monday’s Exchange Invest – your free roundup of market infrastructure news.

Meanwhile, the latest five posts on Premium are:

New: The Dark Pool Kiss of Death

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

The Ring Cycle


Buying A Stake In MCX – A Guide For The Perplexed

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Public Markets

Euronext To Close NYSE Arca Europe Venue (subscription)
Anish Puaar – Financial News

“Following a comprehensive review of our business, including consultation with key market participants, we have concluded that the current operation of NYSE Arca Europe is not aligned with our core business strategy as a leading capital-raising centre in Europe. We will continue to evaluate the market landscape for both lit and dark trading, and will evolve our MTF product offering in line with client needs and business opportunities.”

PLY: On May 2 NYSE Arca Europe will close. Frankly, I had forgotten it even existed. Thus ends an experiment with trying to poach other bourse’s secondary market stocks by Euronext which follows similarly unsuccessful moves by DB1 and SiX. The emphasis by Euronext on being “a leading capital-raising centre” is an interesting construct given that overall Euronext often has far fewer IPOs than Warsaw in a year and tends to raise barely a fraction of LSE…

Can ICE Quench Its Thirst For Liffe? (subscription)
Anish Puaar – Financial News

PLY: Inconclusive article as it draws on a lot of “he said, she said” from others’ talking their books. Good starting point if you are not up to scratch here. Clearly there is a considerable demand for speculation on the future of ICE’s LIFFE. David Peniket is, as always, crisp and erudite. Article mentions Mark Ibbottson whose departure from LIFFE last year remains absolutely GHF’s gain and ICE’s interpolated loss, although LIFFE does retain much management talent.

Dark Markets May Be More Harmful Than HFT
John McCrank – Reuters

There may be a more serious threat to investors than HFT: the increasing amount of trading that happens outside of exchanges.

PLY: The problem here is also at least partly related to definitions. My latest Premium post discusses “The Dark Pool Kiss of Death.”

New Rules Help Stock Exchanges Fight Back Against ‘Dark Pools’
Alistair Smout & Clare Hutchison – Reuters

EU’s plan to cap the number of shares that can be traded anonymously could give traditional stock exchanges such as DB and the LSE the chance to win back some of the ground they have lost to new rivals. Anonymous dealing in private venues known as “dark pools” has been a major source of growth for new electronic share trading companies such as Chi-X Europe and Liquidnet.

PLY: The new rules posited by the EU demonstrate everything that is wrong with the EU amounting to another tax on savings.

NYSE, Nasdaq Push For “Trade At” Rule
John D’Antona Jr. – Traders Magazine

Nasdaq OMX and NYSE Euronext have formed an alliance of sorts to jump-start the creation and implementation of a controversial rule, dubbed “trade-at,” to be added to a pilot program under consideration by SEC to widen tick sizes, or the increments between price quotes, for certain companies.

The proposed trade-at rule would mandate that trades for those stocks take place on the exchanges unless other venues offer significant price improvements.

PLY: It is fascinating insofar as now the equity markets have ‘incumbent upstarts’ to coin an oxymoron. Thus had the regulators thought ahead and allowed competition to exist provided it improved on price, the world would now look like a very different place. At the same time, and in the race to pixel I may be missing something here but surely if a ‘trade at’ rule is created then any ‘stock exchange’ ought to be included in the core of the proposal so BATS could argue it is not outside the scope whereas the MTFs would be? As ever, the equity marketplace spends so much time on the arcane, it is not surprising that common sense is remarkably uncommon…

Fallout From HFT Hits Brokerages (subscription)
Bradley Hope – Wall Street Journal

Brokerages that cater to mom-and-pop investors are emerging as an early victim of the intensifying scrutiny of high-speed trading.

PLY: In his rush to sensationalise, Michael Lewis missed a key point. I have long argued that there must be pure transparency on where execution happens for retail investors and frankly a rebate culture which rewards the broker directly and the client (at best) indirectly doesn’t pass the smell test methinks…

Fears Over Nasdaq Hit From HFT Problems Seem Overdone: Barron’s

PLY: A topic of many calls with investors last week, it’s tricky to really see vast harm being done to NASDAQ on this issue on a pure revenue basis.

What’s Behind The Selloff In Exchange Shares (subscription)
Ben Levisohn – Barron’s

PLY: More the ‘what’ than the ‘who.’ The point I would note here is how robust the exchange sector has been. A high profile author has been given multiple platforms to rant and rave that the system is entirely biased, corrupt, and the moneychangers must leave the temple etc. Yet shares in exchanges have barely budged…

Large Investors Have Long Been Hit By HFT (subscription)
Financial Times

PLY: An excellent opinion piece by Liquidnet Founder Seth Merrin which notes multiple issues pertaining to equity market structure and why participants must have the opportunity to choose venues where they can interact with HFT and where they can trade without it.

Nasdaq Setbacks Test Shareholder Patience (subscription)
Arash Massoudi & Philip Stafford – Financial Times

Seven months after an embarrassing outage on Nasdaq ground US stock markets to an unprecedented three-hour halt, Robert Greifeld and his executive team stood confidently in front of shareholders at the company’s annual investor day.

PLY: I still believe Bob Greifeld is approaching the end of his tenure at NASDAQ. He has been there a long time and while he has done much for the business, his compensation would be a useful cost reduction as part of a new management strategy to leverage growth and not focus on the next quarter’s earnings with laser-like obsession (which is a key part of the reason why the overly cash centric business remains on a relatively low multiplier).

Ironically HFT may not cost NASDAQ that much if it is restrained but it could mark the final few demerit points which push Bob Greifeld into his next job…

NASDAQ OMX Commodities Expands Into New Markets As Part Of Global Strategy

NASDAQ OMX completed the integration of NOS Clearing ASA into NASDAQ OMX Clearing AB. The integration of NOS Clearing products and staff provides NASDAQ OMX Clearing with additional capabilities in the global commodities markets. Clients across the globe gain access to a wide variety of new products including tanker and dry cargo freight, fuel oil, seafood derivatives, iron ore and electricity certificates.

PLY: Good move.

Fast And Loose (subscription)
Financial Times

Michael Lewis’s exposé of high-frequency computerised trading is a narrative tour de force but passes over the case for defence.

PLY: John Gapper turns his wise focus to reviewing that book…

EU Hits Quick-Fire Traders
Iain Dey – Sunday Times

A crackdown by Brussels will force high-frequency traders to hand computer programs to regulators.

PLY: There are days when regulators are thoughtless. There are days when regulators demonstrate a lack of thought. Every single day at present regulators demonstrate a lack of financial resources to adequately oversee modern markets. However it is rare to see a proposal which is outright dumb.

Without even addressing the issue here, let’s consider just the information seepage issue. If one line of code is even perceived to leak, then expect the litigious HFT world to sue the living daylights out of the regulatory system. How will that make markets better?

MCX Board To Meet On Wednesday
Business Standard

MCX has informed the BSE that a meeting of its board of directors would be held on Wednesday. The meeting will consider issues on which the last board meeting on Thursday failed to take a decision. The Thursday’s meeting could not discuss preferential share issue.

PLY: Again we hope MCX will see sense and not give FTIL the window to argue that their valuation has been disturbed in their sale move, as this will only exacerbate an already complicated situation and allow FTIL management to exploit the notion they are victims in this affair.

MCX Bidders Want FTIL To Share Vital Information
Palak Shah – The Economic Times

Those in the race to buy a 24 per cent stake in MCX from FTIL have asked the company to divulge certain vital information before they make a non-binding offer.

PLY: Doing due diligence when confronting people who have reputations for controlling information flow is always tricky. In this case, the buyers have every right to ask about issues such as that apparent 99 year IT contract. Imagine if the London Stock Exchange had been stuck with a contract from Charles Babbage Inc for a century…

U.S. Exchanges May Show LME A Way Out Of Its Warehouse Dilemma
Susan Thoma & Veronica Brown – Reuters

The way U.S. commodities exchanges are dealing with warehouses could offer a template for LME to reform its chronically logjammed storage system, the backbone of the world’s biggest metals marketplace. But this route to reform could prove difficult, not least because competition law in Europe may rule out solutions that are acceptable in the US.

All NASDAQ OMX Nordic & Baltic Exchanges Will Implement T+2 Standard Settlement On 6 October 2014

Having previously announced that NASDAQ OMX exchanges in Copenhagen, Helsinki and Stockholm will introduce a T+2 standard settlement cycle as of October 6, 2014, a decision has been made to introduce the T+2 standard settlement also on the NASDAQ OMX Baltic exchanges. NASDAQ OMX Iceland is currently consulting its members on adopting T+2 from the same date as the other NASDAQ OMX exchanges.

Asean Exchanges Develop Unique Post Trade Solution & Appoint Deutsche Bank For Custody And Settlement Services

The 20th ASEAN Exchanges CEOs meeting held here today concluded with a milestone agreement regarding custody and settlement services on the ASEAN Trading Link. In the pursuit to develop an integrated ASEAN capital market, ASEAN Exchanges have appointed Deutsche Bank for custody and settlement services. This will mark yet another key milestone since the rollout of the ASEAN Trading Link in September 2012.

PLY: It will be interesting to see if this actually does develop markets or is just another hot air MOU…

NZX Out To Reassure Investors Over Rules
Tamsyn Parker – NZ Herald

Stock exchange operator NZX says it will ramp up its efforts to help investors understand how it regulates the market this year in a bid to allay concerns around its handling of investigations. CEO Tim Bennett said: “We need to communicate what we do and we need to do it more effectively with investors.”

Private Markets

IEX Eyes Stock Exchange Status
John McCrank – Reuters

IEX may apply to become a fully registered stock exchange sooner than planned..

TradeStation Announces Routing Of Orders To IEX

TradeStation started working with IEX to provide connectivity and access to its new and growing market center. (In addition to Interactive Brokers who made the same announcement Friday).

Ghana Commodities-Exchange Plan Revealed
Miriam Uku – Eleni

Eleni LLC. announces its plans for GCX: starting with spot trading and phase in futures and other derivatives contracts within a five-year timeframe, and will primarily trade agricultural commodities, including maize, soybeans, paddy rice, palm oil and groundnuts. Other key agricultural and non-agricultural commodities will be introduced as the exchange develops. However, as opposed to the government backed Ethiopia Commodities Exchange (ECX) GCX will be owned by a group of public and private partners from inception, says Eleni Gabre-Madhin, eleni’s CEO.

EI reported on March 14 the formation of a private-public investment consortium to finance the establishment of GCX.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is flat while FTIL has slipped 3%, largely on the back of concerns about the ongoing sell-off situation where tempers are flaring.

NSEL To Commence Rematerialization Of E-Series Contracts From 12 April​
Sunil B.S. – Livemint

The move will allow investors to exit any holding in e-series contracts that were offered by NSEL till August last year.


Are Comms Rooms Fit For Purpose?
Volta Data Centres

PLY: A thought provoking blog post from Volta CEO Matthew Dent which looks at the acute, if little discussed, topic of how fit comms rooms are for purpose…

Asia Dealers Review CCP Risk Management Approaches (subscription)
Viren Vaghela – Risk

As CCPs in the region gear up for clearing, banks need to make a critical decision about whether to join up. Which clearing house is currently on top?

PLY: A useful waterfall table is provided in this article, well worth a look…

Got An ITCH? Let It Spread
Max Bowie – waters technology

Nasdaq OMX’s proprietary ITCH data protocol has become the de facto standard used for data dissemination by equity markets, with more marketplaces adopting the protocol or ITCH-like alternatives. Will widespread adoption create standardization and support simpler access to markets worldwide, or could this ITCH ultimately become an irritant?


Trading With Derivative Securities Starts In Azerbaijan
Abbas Akhundov – Trend

Baku SE, the National Depository Center of Azerbaijan and the Azerbaijani company Invest-AZ signed a collective agreement on the organization and implementation of trade with derivative securities (commodity and currency), clearing and accounting on them.

Career Paths

CME Boosts Pay For Gill, Duffy
Lynne Marek – Crain’s Chicago Business

CME increased compensation for its top two executives more than 25 percent last year — a bigger boost than the Chicago-based futures exchange company delivered to public shareholders in earnings, revenue or trading volume increases.

CME, which operates the largest futures marketplace in the world, said in a proxy filing with SEC that total compensation for CEO Phupinder Gill jumped 28 percent to $4.15 million last year compared with 2012, including a near doubling of his bonus to $1.1 million. His pay package also included stock awards worth $1.9 million, the filing said.

PLY: Frankly the CME are to be applauded for managing to have such a high quality CEO at what compares very favourably with the likes of Bob Greifeld. I am a buyer of the spread anytime Gill is at a remuneration discount to the cash-centric NASDAQ head. At a circa 3:1 ratio in Bob’s favour, Gill is as hugely undervalued as Bob G is perverting the Peter Principal’s remuneration derivative.

Financial News reports that Terry Smith, CEO of Tullett Prebon, saw his base pay and bonus fall by nearly 10% last year, a period which he has described as “challenging” for the industry.

Traders reports that Instinet announced Jonathan Kellner, has taken over the CEO reins from Fumiki Kondo. Kondo has been designated to become head of Nomura Asset Management’s overseas client division in Tokyo. Prior to being named CEO, Kellner served as head of Instinet’s Americas businesses. He joined the Nomura Group in 2003 and moved to Instinet in 2007 following Nomura’s acquisition of the company. Kellner previously held senior trading and technology positions at Charles Schwab, Investment Technology Group and Morgan Stanley.

AQUIS Exchange has beefed up its board by adding former HSBC General Counsel Richard Bennett. Bennett becomes an additional INED to raise the board to 2 Independent directors as was always planned.

Aquis Exchange press release here.

Contango, the specialist derivatives consultancy, is delighted to announce a key addition to its burgeoning team of industry specialists with the arrival of Kevin Green, most recently, executive director at Santander as Director, Sales and Account Management.

PLY: Good luck to Kevin, enjoy the ride with Clive Furness, David Setters, Jonathan Cowan and the Contango team!

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.

Share Notes

GFI major shareholder Michael Gooch sold 100,000 shares Thursday, April 3rd at an average price of $3.69 (bargain $369,000.00). He now owns 300,073 shares. Mr Gooch’s regular sales are chronicled on this specific page.

Other stories

GreySpark: Majority Of Asia-Pacific Buyside Firms Are Unprepared For OTC Derivatives Clearing Regulations

Asia-Pacific buyside firms are largely unprepared for the future complexity of OTC derivatives central clearing regulations in the region, according to investment bank clearing brokers.

PLY: I am entirely unsurprised by this headline from GreySpark, given that western companies have been, at best, barely prepared overall, given the deadlines. With Asia still seeking clarity on US and EU rules, they have little chance of being adequately prepared no matter what their intentions.

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