April 07 2015


Back after the Easter break, we’re mid way through Passover and headed towards Orthodox Easter as, on the macro level, Greece’s Alexis Tsipras heads off to Moscow for what may be the most expensive (and probably futile) Easter egg hunt in history. (You may catch me on the hour via RT pontificating on the Greek tragedy today – my latest RT Op-Edge discussed the Greek endgame too last week: All Fools Day – But who are the Eurozone April fools?).

In today’s Exchange Invest: Virtu IPO looks likely as OCC wrestles to resolve the capital gap. Chi-X Australia suggests pragmatism over clearing. New Gold products, perhaps even an exchange in London? BM&F Bovespa fined for accounting issues. Tuncay Dinç named new CEO of BIST… and there’s more, complete with free pith: happy scrolling.

Meanwhile, our Premium Briefs keeping you abreast of various industry issues are updated daily when news arises. All topics covered can be found on our dedicated Briefs page via Exchange Invest Premium.

The latest include:

EU FTT Brief Part 1 NEW!
NSEL Scandal Brief – Main File
NSEL scandal – FTIL Group – Board and Management Changes Brief – Part 1 and Part 2
FXCM Sales Brief
BGC / GFI: Post Merger Disposals
Rise of Africa – Part 1Part 2Part 3Part 4Part 5
The Bond Platforms Rush – Part 1Part 2
ICE – NYSE Euronext Deal – Part 1Part 2Part 3

Our Premium service is a unique source of industry analysis – insight in a low latency environment if you like. Can you afford not to be a subscriber? $120 per user/year helps keep Exchange Invest daily Free. Subscribe here or reply to this email and I will invoice you forthwith.

Public Markets

Kotak Mahindra Seen Exiting MCX
Ashish Rukhaiyar – Livemint

Kotak Mahindra Bank Rs.459 crore (USD 76.1 mln) investment in MCX has almost doubled in less than nine months and some say the lender may sell its stake in the country’s largest commodity bourse after failing to get a board seat. In July, Kotak Mahindra Bank bought a 15% stake in MCX from FTIL for Rs.600 per share at a time when the prevailing market price was Rs.783, beating other bidders including BSE, Reliance Capital, Tata Capital, and CME.

PLY: As readers may recall, Kotak invested saying they didn’t want a board seat, then said they would like one and were told they couldn’t have one… see also our Premium FTIL Stakes Sales Brief and Exchange Deals Brief.

Bank of Russia Refuses To Sell All Shares In MOEX, SPCEX

Bank of Russia, the regulator of all of Russia’s financial markets, has stated it wishes to remain a shareholder in the country’s two biggest trading venues: MOEX and the Saint Petersburg Currency Exchange (SPCEX).

“However, due to the further developments in the geopolitical situation and consequently the necessity to retain comprehensive regulator’s control over the functioning and development of the national exchange infrastructure for an undetermined period, the Bank of Russia considers complete withdrawal from the capital of OJSC Moscow Exchange and CJSC SPCEX inexpedient”.

To view the official announcement by the Bank of Russia, click here.

PLY: “Inexpedient”. What an excellent word to wield in front of upcoming legislation as the Russian Central Bank has done here…

FSC May Block Combined Sale Of BSE & State Depository
Focus Fen

The Financial Supervision Commission (FSC) considers the combined sale of the Central Depository and the Bulgarian Stock Exchange-Sofia (BSE-Sofia) risky. This transpires in an opinion by Deputy Chairman of FSC Vladimir Savov sent to the Privatisation and Post-Privatisation Control Agency. The opinion will obstruct the sale as the Depository and BSE-Sofia are inseparable and potential buyers insist that the two are sold in package.

Read our Premium Bulgarian SE Sale Brief

PLY: Hmmm. The initial problem is the lack of appetite for BSE from the government’s desired buyers – large exchange groups are generally disinterested by a market too small to make any appreciable difference. Splitting the CSD off only makes the problem more acute even for those who ought to consider a bid but who, by dint of not being major bourses, are not desired partners by the government.

BM&FBovespa SA Fined $641 Mln On 2008 Merger Accounting

BM&FBovespa SA has been fined nearly 2 billion reais ($641 million) by the federal revenue service for booking goodwill amortization in 2010 and 2011 related to a 2008 merger, involving 1.45 billion reais for income taxes and 523.79 million reais for a tax related to social security. The fines already include 75 percent interest.

Chi-X In Push To Split ASX (subscription)
Adam Haigh – Sydney Morning Herald

Chi-X Australia, which is lobbying to loosen ASX’s grip on clearing and settling Australian equity trades, told regulators that forcing change would cut costs for investors and reduce conflicts of interest.

ASX Clear and ASX Settlement, part of the country’s main equities and derivatives exchange, should be split off into independent units with their own boards and staff, according to proposals Chi-X presented to regulators this week.

Policy makers asked for submissions on whether to end ASX’s monopoly and are expected to make a decision by July.

PLY: Scale is an issue in Australia probably negating the construction of a competitor CCP for equities but the maintenance of equity clearing within an avowedly anti-competitive monopolist like ASX makes no sense for Australia to develop a better market structure. In that sense, ASX’s shortsighted management position has driven themselves into the arms of this pragmatic proposal by Chi-X Australia.

Dual-Class Share Structures Would Be Ill-Advised In Hong Kong (subscription)
Robert Boxwell – South China Morning Post

Another regular screwings of investors – dual-class shareholding structures – has crept into the US markets and somehow, irrationally, HKEx is feeling less competitive because it doesn’t allow this particular kind of screwing – which it calls one of the “currently acceptable standards in the marketplace”.

PLY: Wholehearted agreement from this quarter – dual shareholding structures are a toxic tax on Schumpeterian logic, progress and investor freedom. They are utterly invalid in any market and Hong Kong would be foolish to permit them.

Previous comments on the same topic here.

ICE Endex Transitions UK On-the-Day Commodity Market To ICE Trading Platform

High-Speed Traders Face Capital Speed Bumps (subscription)
Tim Cave – Financial News

High-frequency traders, already under close scrutiny by regulators, may be running up against another speed bump in European securities markets.

OCC Files Motion With SEC To Lift Automatic Stay Of Approval Order Of Capital Plan – Clearing House Hopes For Quick Resolution To Benefit Clearing Member Firms & Markets
BATS In The OCC’s Belfry?, Or The Perils Of Natural Monopoly Regulation, CCP Edition
Streetwise Professor

PLY: Change is often difficult and particularly so when dealing with 99% linear, sub 1% lateral entities, such as clearinghouses and their capitalisation. The introduction of a preferred yield security to existing shareholders is upsetting other platforms/exchanges outside the OCC shareholder structure. Like all options plays where a host of Greek letters must be assessed, the situation is not a cut and dried right/wrong binary but clearly it will take a large amount of diplomacy by Craig Donohue to resolve the situation.

Private Markets

Virtu Restarts IPO With Plan To Raise Up To $314 Million
Sam Mamudi & Leslie Picker – Bloomberg

Virtu Financial renewed the fundraising effort with a plan to raise as much as $314 million. The company will offer about 16.5 million shares at $17 to $19 apiece, according to a regulatory filing Monday. At the high end of the offering range, Virtu would be valued at about $2.6 billion, based on 136.5 million shares outstanding.

Read our Premium Virtu Financial IPO Brief.

NSE Plans Discounts On Fees For Brokers Clocking High Turnovers
Ashish Rukhaiyar – Livemint

25-60% discount on transaction charges to be offered to members, based on their daily turnover, for two months till 31 May.

World Gold Council Considers Launch Of New London Exchange (subscription)
Henry Sanderson – Financial Times

The gold industry’s leading trade body and half a dozen banks have agreed to explore the idea of establishing an exchange in London as the existing market faces greater regulation.

The World Gold Council, a group consisting of 19 gold miners, and at least five banks are participating in initial discussions which could presage a move from London’s bilateral OTC gold market. The WGC has hired a number of consultants and spent the past six months pitching a business case for banks to consider the alternative trading infrastructure.

PLY: An interesting move as commodity exchanges look to be growing in interest thanks to growing OTC market restrictions.

Pakistan – Merger Of LSE & ISE Into KSE On The Cards
Amer Sial – Pakistan Today

Under pressure from the international financial institutions (IFIs) the SEC of Pakistan (SECP) has notified constitution of a committee to merge the three stock exchanges that would be later offered to some strategic foreign investor.

An official source said that the matter was decided hurriedly as the Finance Ministry had earlier directed the SECP to appoint Khalid Mirza as Chairman Lahore SE (LSE) and Moin Fudda as Chairman Islamabad SE (ISE).

After their appointment, the Finance Ministry directed SECP to notify the constitution of the committee. SECP was instructed not to spread its terms of reference of the committee which give it 45 days to finalise its recommendations.

PLY: A worrying development insofar as the international agencies seem to be seeking to simply repackage and sell to overseas entities previously competing markets as a de facto monopoly. A worrying piece of multinational ‘blobism’ – and let’s face it the world is a better place out west thanks to competition but IFIs are still stuck in a pre-1975 timewarp of postwar crypto-socialist consensus politics.

Trading Floors Can’t Feed Africa
Alan Bjerga & William Davison – Bloomberg

Mondelez International’s February announcement that it would increase production of coffee from Ethiopian beans 50% in two years was good news for the Ethiopia Commodity Exchange (ECX), started in 2008 with the help of foreign donors to improve food distribution in a country where millions often went hungry. By government decree, almost all buying and selling of coffee, sesame seeds, and navy beans for export must take place on the exchange.

PLY: Misleading headlines: the exchange model is NOT at fault here – governments putting an exchange element into a highly centralised command economy structure doesn’t work. It’s like pouring fresh coffee in a chocolate pot. The difficulty seems to be again a mix of the NGO / development bank / government control freakery which fails to understand that growth and exchanges grow from the bottom up, not the top down fiat of central control freakery…

QV our Premium brief: Rise of Africa – Part 5

Coinbase Poised To Open Britain’s First Bitcoin Exchange (subscription)
James Dean – The Times

One of the world’s biggest digital currency markets is in talks with financial watchdogs about setting up a regulated bitcoin exchange in Britain.

Coinbase opened the first regulated bitcoin exchange in the US this year with $106 million of backing from NYSE and several banks.

PLY: UK businesses still face an issue with banks not being overly supportive of cryptocurrency. It would be ironic if Coinbase can square that circle when home grown initiatives have been throttled in many places.

Big Investor Involvement Could Boost Bitcoin (subscription)
Bradley Hope & Michael J. Casey – Wall Street Journal

Some of the U.S.’s biggest proprietary traders and investors are testing the waters for a bigger move into bitcoin, giving a potential boost to the fledgling virtual-currency industry.

BNY Mellon Explores Bitcoin’s Potential (subscription)
Clint Boulton – Wall Street Journal

Bank of New York Mellon is experimenting with bitcoin, the disruptive digital currency, which it views as a potential new way to conduct financial transactions. But the bank is still working through the challenges of using the open source technology, whose decentralized architecture differs from the traditional computer systems businesses run today.

Special Section: FTI, NSEL, India at the Crossroads

April 2nd – closed Mahavir Jayanti
April 3rd – closed for Good Friday

01.04.2015 close prices

MCX 1176
FTIL 190.8

Current prices

MCX 1123.00, down 4.5% compared to April 1st close
FTIL 192.45, up 0.86% compared to April 1st close

MSXI Says Not Linked To FTIL, NSEL & Their Promoters Anymore
The Economic Times

Enforcement Directorate Fails To Trace Money Trail In NSEL Scam

The Enforcement Directorate (ED) has not found any evidence of money trail against Jignesh Shah, the top promoter of NSEL. ED’s first charge sheet restricts the role of Shah to ‘aiding and abetting’.

More Time Required For Order On NSEL-FTIL Merger, Says Government
The Economic Times

The suspense over the merger of crisis-hit NSEL with FTIL continues. The ministry of corporate affairs, granted time to issue a final order on the merger by April 6, has sought three months more from the Bombay High Court to review and consider more than 19,000 objections received from FTIL shareholders and related parties before passing an order. The HC is hearing an FTIL petition opposing the merger. It directed the government on February 4 to consider all objections before passing a final order.

FTIL-NSEL Merger Case: It’s A Catch-22 Situation For Corporate Affairs Ministry
KR Srivats – The Hindu Business Line

The Corporate Affairs Ministry clearly needs to do some tightrope walking on the FTIL-NSEL merger case.

This is more so given the backlash it is now faced with for its rather questionable move to usher in a forced merger of the scam-hit NSEL with its parent FTIL, sacrificing the interest of the 63,000 shareholders of the parent company. Both from a moral and legal point of view, it does not seem appropriate for the Ministry to ask FTIL to pay the price for the fraud perpetrated within NSEL.

PLY: From what appeared a rather tacit endorsement of the wanton destruction of the Indian corporate code, the dawning reality continues that the failures of the Indian blob are one thing, destroying corporate structure principles, entirely another.

QV our Premium NSEL-FTIL Merger Brief and NSEL Scandal Brief – Main File.


NYSE Arca Says ‘Inadvertently’ Sent Regulatory Halts After Glitch

ICE’s NYSE Arca said on Thursday that it “inadvertently” sent out regulatory halts in around 160 ETFs and notes on Tuesday after a glitch (reported here) interrupted trading on the electronic trading platform.

ASX Preps New Equities, Derivatives Feeds (subscription)
Waters Technology

ASX is preparing to release a set of new binary market data feeds over the next 18 months in conjunction with its migration to a new trading platform for its equities and derivatives markets. In February, ASX announced that it would unify its equities and derivatives systems onto a common platform using Cinnober’s TradExpress trading system.

New PSE Trading System Test Goes Off Without A Hitch; Rollout Scheduled For May
Business World Online

Philippine SE (PSE) has begun walking brokers through its new trading system powered by NASDAQ and the first of five rehearsals went off without a hitch, putting PSE on track to rol out PSEtrade XTS in May.


LCH.Clearnet Launches Inflation Swaps Clearing

First CCP to clear inflation-linked swaps
11 members live and clearing trades
Barclays and J.P. Morgan conduct first ever cleared inflation swap
Participants benefit from improved capital, margin and operational efficiency through portfolio margining

India – Commexes May Be Allowed Trading In Currency Derivatives
Shishir Sinha – The Hindu Business Line

Commodity Exchanges may be allowed to provide trading facility for currency derivatives after the merger of FMC with SEBI.

MCX Plans To Launch Spot Trading In Gold?
Ram Sahgal – The Economic Times

Rumours suggest MCX plans to start a spot market platform for trading gold. This would be on the lines of spot trading in agri commodities launched by NCDEX Spot, a subsidiary of MCX’s rival NCDEX.

New Joint Service By Tokyo Stock Exchange And ICJ

Career Paths

Japan Times reports that Tokyo SE President Akira Kiyota will succeed Atsushi Saito as CEO of the bourse’s parent, Japan Exchange (JPX). Saito, 75, will retire after serving as head of JPX for two years since its launch following the merger of the nation’s two biggest exchanges, in Tokyo and Osaka. Kiyota, 69, joined Daiwa Securities Co., the predecessor of Daiwa Securities Group, in 1969. After serving as honorary chairman of the brokerage, he became TSE president in June 2013.

JPX: Regarding Media Reports

Borsa İstanbul (BIST) Board Member Tuncay Dinç has been appointed as BIST CEO to replace Dr. İbrahim M. Turhan, who had previously resigned to run for a seat in the Parliament’s 25th term. BIST’s new Board, established at the Ordinary General Assembly meeting held on Tuesday, March 31, 2015 (reported here), convened by Chairman Talat Ulussever.

ED&F Man has hired Gary Pettit, the former global head of financial futures and options at Icap.

Jacob Dienelt is the latest Morgan Stanley veteran to leave Wall Street and join the Bitcoin industry. Mr. Dienelt of Morgan Stanley Private Wealth Management has joined Factom as Head Treasurer.

Betfair Opens New Development Office In Cluj, Romania
Ted Menmuir – SBC News

Betfair CTO Paul Cutter has unveiled the company’s new technical development offices in the Romanian city of Cluj. The Cluj development office will staff 330 Betfair employees and will become the operator’s largest technical development centre.

PLY: Cluj offers many great opportunities for developers, as do many cities in the New Europe – I have used developers in Poland and Romania amongst other CEE/SEE nations and readily attest to their excellence.

Financial Calendar

New announcement

MOEX AGM – 28 April 2015

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

Share Notes

CME CFO John W. Pietrowicz sold 1,000 shares Thursday, April 2nd at an average price of $94.68 (bargain $94,680.00). He now owns 36,153 shares.

Analyst Notes

LSE “Sell” Rating Reissued By AlphaValue – GBX 2,214 Price Target
Credit Suisse Set A $58.00 Price Target On CBOE – “Sell” Rating
Raymond James Lifted Their Price Objective On CBOE From $63.00 To $65.00 – “Outperform” Rating

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.


Temasek Eyes £30m Stake In Funding Circle (subscription)
Harriet Agnew & Jeremy Grant – Financial Times

Temasek, Singapore’s state investment company, is planning to buy a stake in P2P lending platform Funding Circle, in another example of how fast-growing European companies are increasingly opting to raise money privately rather than floating on the public markets.

London-based Funding Circle is planning to raise more than £50m in new capital and Temasek is intending to invest about £30m as part of the deal, which would value Funding Circle at more than $1bn.

Ireland’s Sovereign Fund Targets P2P Lending
Jonathan Williams – IPE

Ireland’s sovereign development fund may soon finance company loans advertised through peer-to-peer lending portals in an attempt to expand the range of credit available to SMEs.

The €7.2bn Ireland Strategic Investment Fund (ISIF) said it would consider providing capital to a vehicle, the Platform Investment Fund (PIF), that would invest in loans originated by next generation lending platforms (NGPs).

PLY: Great to see and clearly a vote of confidence for P2P – I made remarks to the effect that this was the future in my recent submission concerning the future of the Dublin IFSC.

Could Crowdfunding & New Markets Replace Hong Kong’s GEM Board? (subscription)
Enoch Yiu – South China Morning Post

Bankers and fund managers are urging Hong Kong’s government and stock exchange to introduce new platforms to help technology firms raise funds, saying the Growth Enterprise Market (GEM) has failed in its mission to become the city’s version of Nasdaq.

PLY: Certainly they can complement the funding mix.

Other stories

Fixing The Weak Link In Stock Broking
Mobis Philipose – Livemint

First it was Unicon Securities which misappropriated its clients’ funds and securities. Then, last month, Sebi passed an order against Kassa Finvest for misusing client funds. On Sunday, Press Trust of India reported that the regulator is investigating at least five stock brokers for siphoning off funds from client accounts.

PLY: It appears the tools are there. The regulators are for some reason, perhaps due to the overall sclerosis of the judicial system, or the blob as a whole, simply incapable of implementing speedy resolution to problems arising.

Michael Lewis: ‘I Knew Flash Boys Would Be A Bombshell’
Dominic Rushe – The Guardian

In his V-neck sweater, dad jeans and white New Balance sneakers, Michael Lewis doesn’t look like a troublemaker. Sitting in a tapas bar in Berkeley, California, he bears a passing resemblance to a stretched-out Michael J Fox and shares the actor’s boyish enthusiasm and easy charm.

This time last year, the bestselling author brought Wall Street to a standstill, and the book that caused the trouble continues to send shockwaves through the financial system.

This site is protected by Comment SPAM Wiper.