April 08 2015


It’s the Second Anniversary of Margaret Thatcher’s death. RIP.

In today’s free Exchange Invest: “Through Train” benefitting Hong Kong as China investors seek value. Unsurprisingly, ESMA/EMIR/clearing/delay all appear to coalesce in one sentence. ADVFN in play but FCA may yet intervene to delay/prevent board upheaval? More on the OCC CALPERS waterfall guarantee scheme while new buyer questions City Index’s commitment to ‘papering’ clients as FXCM management feather their nest with better parachutes lest anybody might seek to oust them from office. Virtu IPO on, forcible IFI inspired merger of Pakistan bourses denied by regulator. Australian CCP discussions and more, happy scrolling:

Thanks as always to those bolstering the inbox with correspondence, snippets of insight and the like – all correspondence is welcome, particularly those subscribing or sending other commercial offers as feeling the love is great and clearly the so-called family value hard cash for hard pith.

Last month, you will recall our exhortations to vote in the vendor poll for the platform to supply Plato, the latest industry initiative seeking to better serve the equity market. Yesterday it emerged that BIDS, that wondrous provider of a splendid US block trading (“Institutional Liquidity Pool”) facility is also tendering its services. That’s the first time BIDS have sought to come to Europe and is a very exciting development for markets. There is still time to vote, to endorse whatever platform you prefer from amongst Aquis, BATS, BIDS, Cinnober, Euronext and NASDAQ: here. Whether we see more of BIDS working with Plato or not, I hope this is only the start of a European move by the business.

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, Part 2 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

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Public Markets

Hong Kong Stocks Lure Record Cash As Traders Flee China Via Link
Adam Haigh – Bloomberg
Chinese Equity Funds Draw Money Ahead Of Shenzhen-HK Stock Connection
Kim Eun-jung – Yonhap
HKEx Update: Southbound Trading Turnover Record High

The Hong Kong-to-Shanghai price convergence trade has never been more popular with stock investors.

Net purchases of Hong Kong shares through the city’s mainland exchange link surpassed the daily record within the initial half hour of trading Wednesday, before filling the 10.5 billion yuan ($1.7 billion) quota for the first time. Shanghai was poised for the opposite milestone, with foreign investors dumping the most equities since the cross-border program began in November.

With China’s world-beating stock rally sending valuations to an almost five-year high, the exchange link flows signal price gaps between shares listed in both cities are finally becoming too wide for investors to ignore. Mainland investment in Hong Kong jumped after China’s securities regulator broadened funds’ access to the shares in March, and HSBC says more policy changes to encourage use of the link are on the way.

PLY: The “arb” is alive on the “Through Train” – good to see the process working and even being acknowledged as such in the local media as we await the arrival of Shenzhen to create a three stop timetable.

See also our Premium briefs: HKEx – SSE – Stock Connect Part 1,Part 2,Part 3 and HKEx – SZSE Stock Connect

ADVFN PLC – Requisition Of General Meeting Update

On 13 March 2015, the company announced that it had received further communication regarding a purported requisition for a General Meeting from Sweet Sky Limited and Shellhouse Limited to remove all the directors of the Company and appoint a new board (the “Requisition”).

ADVFN’s wholly owned subsidiary, ALL IPO plc is authorised and regulated by FCA. Accordingly, shareholders seeking to own more than 10% of ADVFN must seek permission from, and subsequently be granted permission by, the FCA in accordance with its change of control provisions.

Zack Keinan, Sweet Sky Limited and Shellhouse Limited (the “Requisitioning Shareholders”) have disclosed a 25.71% shareholding in ADVFN as of 20 March 2015. Despite repeated requests by ADVFN, the company has been unable to ascertain whether correct FCA approvals have been sought.

The Board strongly recommends that shareholders take no action.

PLY: An interesting kerfuffle. ADVFN, vehicle of Clem Chambers has been around for a long time as a web-centric data aggregator and has a market cap around the 45 million dollar mark…

India – Govt Forms Panel For Sebi-FMC Merger
Ram Sahgal – Economic Times

The committee is headed by Ajay Tyagi, additional secretary, finance ministry and has representatives from both the regulators and the ministry. It met last month for the first time to sort out various issues involved in the merger process.

Top Executives At FXCM Redraw Their Contracts (subscription)
Chiara Albanese – Wall Street Journal

CEO Drew Niv and his FXCM co-founders David Sakhai,William Ahdout and Eduard Yusupov have all signed amended contracts granting them a larger payout if their employment is terminated, according to filings with the SEC dated March 17.

PLY: I wonder did they get any advice from Duncan? Given the failure of FXCM to appreciate one-sided market risk as a de facto CCP, I know my eyebrows tickled the cumulo-nimbus when I read what shareholders may regard as a one-sided reward for failure.

QV our Premium: FX – CHF Crisis – Brief & FXCM Stakes Sales Brief.

Emir Clearing Rules Set For Further Delays (subscription)
Chris Hall & Tim Cave – Financial News

European regulators are unlikely to force central clearing on the swaps market for at least another 12 months, increasing pressure on the units established by banks since the crisis to handle an expected surge in demand for clearing services.

PLY: Unsurprising that given the inverse relationship between the magnitude of the task leveraged by the importance of making markets actually safer and the size of ESMA’s budget, deciding EMIR clearing rules is proving challenging (particularly given the way MIFID II has also effectively cut across the pre-existing process with ill-conceived and risky open access proposals).

MOEX: Risk Parameters Change On OTC Market

This is to inform you that the currency risk rate on the Standardized OTC derivatives market will be applied to 11% from April 7, 2015.

CalPERS Boosts Cash Return Through Repurchase Facility
Rick Baert – Pensions & Investments

A repurchase facility announced this month with access to cash from CalPERS $301.7bln fund, to cover the cost of a counterparty default — the first such agreement involving an asset owner — is shining a light on potential roles for asset owners as sources of liquidity.

The one-year facility, created by CALPERS in collaboration with OCC and agency securities lending provider eSecLending LLC — would provide OCC with the option of a cash draw from CalPERS, facilitated by eSecLending, if a counterparty defaults on a derivatives trade.

OCC January announcement here.

PLY: The OCC approach is very interesting and demonstrates an eagerness on the part of Craig Donohue and his team to deliver waterfall safety measures while, yesterday, we noted the diplomacy required to reach agreement between shareholders and users on new capitalisation arrangements.

New City Index Boss Attacks Lax Checks On ‘Kermit’ Customers
Russell Lynch – The Independent

Customer background checks among some spread betting and currency trading firms are so lax that would-be punters are opening accounts under names including Kermit the Frog and Mickey Mouse, according to the new owner of City Index.

Glenn Stevens, CEO of Gain Capital, aimed a broadside at regulators yesterday after the New York-based firm completed its $118m (£79m) deal to buy City Index, the firm formerly owned by Icap’s founder Michael Spencer.

PLY: Brings a whole new sense to ‘you bunch of muppets!’ Once a regular element of management / staff interaction on many trading floors.

Read our Premium: Exchange Deals Brief

Private Markets

World Gold Council Quiet On Reports Of London-Based Exchange
Ben Kilbey – Platts

The World Gold Council would not comment Tuesday on reports that it and a group of banks have been in talks about opening an exchange in London — where about 70% of the world’s bullion trade takes place OTC – to try to increase market transparency.

“We are constantly exploring potential market development initiatives,” a WGC spokeswoman said. “So, it is in the normal course of business that we are engaged in discussions with a number of individuals and organizations regarding the operation of the global gold market.”

“As the market development organization for the gold industry, our overriding aim is to encourage a transparent, efficient and liquid gold market,” she said.

PLY: The World Gold Council are right to seek whatever avenues they can to improve the standing and marketability of gold. I remain impressed by their multi-faceted efforts to promote the precious metal.

Speed-Trading IPO Poised To Make Virtu’s Viola A Billionaire
Sam Mamudi & Matthew Leising – Bloomberg
Patience May Be A Virtu – Virtu Financial To resume IPO, With USD2.5B Valuation

Virtu Financial on Monday outlined plans to go public later this month. In a filing with the SEC, Virtu said that it plans to raise up to USD314 million at a valuation of about USD2.6 billion, having postponed last year’s planned IPO due to the “Flash Boys” factor.

Read our Premium Virtu Financial IPO Brief.

Pakistan – Stock Exchanges’ Integration Will Be Commercial Decision: SECP
Pakistan Today

Apparently denying that there is no plan to merge the three stock exchanges, SEC of Pakistan (SECP) has confirmed that the integration will be a purely commercial decision.

A clarification issued by SECP regarding a story appearing in the Pakistan Today on April 4 (reported yesterday) about the intended merger of the three stock exchanges says that the story was not based upon facts.

The story was based upon an official notification regarding constituting of a three member committee and its terms of reference, especially integration of the stock exchanges. The story mentioned that the chairmen of Lahore SE and Islamabad SE were hurriedly appointed and then made members of the committee.

The clarification did not contest the constitution of committee, hurried appointment of members or the terms of reference of the committee. It only contests the use of word “merger” which is similar to meaning in “integration”. However, the clarification admits candidly, “the integration is a purely commercial decision and the SECP will not interfere in the same.”

Exactly the same information was provided by the story using the term “merger” to make a more commercially viable domestic stock exchange for the strategic foreign investor. Merger of the stock exchanges is under discussion for last many months as the size of ISE and LSE is considered too small for IPOs as well as for daily trade.

PLY: Clarity is not readily apparent in this situation and worries remain that misguided international finance NGOs are pursuing an outmoded strategy which cannot help Pakistan’s markets develop.

NCDEX May Provide Technical Assistance To Myanmar Commodity Exchange
Dilip Kumar Jha – Business Standard

PLY: MICEX, in this case the Myanmar Commodity Exchange, shows up the difficulty of finding more anagrams in an alphabet constricted by 26 letters.

Special Section: FTI, NSEL, India at the Crossroads

PLY: No news as the blob presumably tries to make things right around NSEL although clearly my Twitter feed (@FrontierFinance) burgeoning with angry investor tweets, suggests their efforts are not pleasing the voluble creditors. MCX is up 1.5%, FTIL up 2.5%.


CME Targets 2015 For Inflation Swap Approval (subscription)
Alice Attwood – FOW

CME hopes to secure regulatory approval to launch inflation swaps clearing this year, following EUREX’s commitment to summer 2015 debut after LCH.Clearnet’s launch yesterday.

Xetra – 15 Years As Europe’s Leading ETF Trading Venue

On 11 April 2000, Deutsche Börse became the first European stock exchange to offer trading in ETFs with its XTF segment. Today there are 1,057 listed ETFs from 19 providers, fund assets under management of EUR 331.6 billion and an average monthly trading volume of EUR 17 billion in 2015.

Australian Derivatives Shift To Centralised Clearing (subscription)
Naomi Rovnick & Philip Stafford – Financial Times

The value of derivatives contracts compiled in ASX’s derivatives clearing house has soared. The exchange cleared A$136bn ($104bn) worth of OTC interest rate derivatives in March, up from just A$6.2bn in the same period a year ago. The total notional value of cleared rates in the year to date reached A$445.4bn compared with A$16.5bn a year ago, it added.

PLY: The land of the battler and perhaps one of the most incredible property booms in history, Australia has low rates, 2 competing CCPs for post OTC derivatives and a better market as a result of the LCH-ASX battle, even though ASX continues to flounder, having suffered the typical cash market exchange mentality hubris of expecting that the post OTC Ozzie biz would flock to the relatively modest ETD pool when, as all experience suggests, LCH was in pole position to sweep the day given its longstanding close global relationship with ANZ and the other major Antipodean banks. Last time we looked, LCH had taken a cool 99% of the market. ASX may have made some market share inroad but I doubt it is impacting ASX’s dominance. Presumably buying Yieldbroker has helped but in a competitive market ASX will not be able to exploit their monopoly role as they do with their expensive equity CCP silo.

New Breed Of Exchange-Traded Product Won’t Be Available For Months (subscription)
Daisy Maxey – Wall Street Journal

Investors shouldn’t expect to see NextShares, the new breed of funds from Eaton Vance, until at least H2 of this year. The Boston-based asset manager won regulatory approval to launch the funds, known as exchange-traded managed funds or ETMFs, late last year and dubbed them NextShares.

There’s still a lot of work to be done in the instruments which will have attributes of both ETFs and mutual funds. Launch could even slip into next year.


Introduction Of EEX Agricultural Index Futures

On 11 May 2015, European Energy Exchange (EEX) will launch Agricultural Index Futures.

Career Paths

After yesterday’s rumors JPX announced the following proposed changes of Representative Executive Officers and group senior management as a result of the decision made at the JPX’s nomination committee. These proposed changes will be submitted for and subject to approval at the company’s AGM and the subsequent BoD meeting to be held on June 16, 2015.

1. Representative Executive Officers

(1) Newly appointed – Representative Executive Officer, Group CEO Akira Kiyota
(2) Retiring – Representative Executive Officer, Group CEO Atsushi Saito & Representative Executive Officer, Group COO Michio Yoneda

2. Group senior management (Effective date of change:June 16, 2015)

(1) Japan Exchange Group, Chairman of the BoD Hiroki Tsuda (New appointment)
(2) Tokyo SE, President & CEO Koichiro Miyahara (New appointment)
(3) Osaka Exchange, President & CEO Hiromi Yamaji (Reappointment)
(4) Japan Exchange Regulation President Takafumi Sato (Reappointment)

OTC Markets Group announced its wholly-owned subsidiary, OTC Link ATS, has appointed Michael Corrao as its new CCO.

SEC announced that Andrew Bowden, Director of the Office of Compliance Inspections and Examinations (OCIE), will leave the agency at the end of April to return to the private sector.

FN reports that Barclays’ head of markets, Eric Felder, is leaving the bank a year after being appointed to the role, according to an internal memo.

Financial Calendar

New announcements

Nasdaq Q1 2015 Financial Results – April 23, 2015 – press release here.
BGC Partners’ & GFI Group’s Q1 2015 Financial Results – April 29, 2015 – press release here.

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

Analyst Notes

ICE Target Price Boosted By Jefferies Group From $250.00 To $260.00 – “Buy” Rating
ICAP Upgraded By Credit Suisse Group To “Neutral” 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.

Other stories

Arun Jaitley To Unveil IFSC Rules On April 10
Indian Express

The Union Finance Minister Arun Jaitley is scheduled to visit Gujarat on April 10 to formally announce rules for India’s first International Financial Services Centre (IFSC), that is being set up in the state capital Gandhinagar.

Read our Premium post: The GIFT Horse?

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