April 09 2014


KDPW is EMIR approved, ICAP pushing voice brokers to promote SEFs, non-banks win netting battle, CME suffers outage, ISE adds 650 names, now covers 99% of all competitive US equity option products. EuroCCP integration is Mission Accomplished. Senate approves Massad to chair CFTC. Jill Considine to chair LCH in US while elsewhere in NYC, US market structure guru Adam Sussman joins Liquidnet. Meanwhile, Cinnober is a very attractive employer, say Swedes… Welcome to Exchange Invest number 230, I know, it’s just incredible there is still more than a month to go before our first birthday!

Finally, an apology, I have a serious backlog of fascinating emails, especially pertaining to HFT, awaiting a response (and you deserve a measured reply which takes a little time!). After a slight lurgy last week I am battling to catch up – thank you for your email, I will revert as soon as I have time to address your well-considered points!

Meanwhile, the latest five posts on Premium are:

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

(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 turning for this free daily newsletter!).

Public Markets

Technical Glitch Hits CME Trading (subscription)
Jacob Bunge, Bradley Hope & Leslie Josephs – Wall Street Journal

Futures and options trading in 31 different markets ranging from corn to wheat to live cattle to rainfall futures were halted on Tuesday shortly before 2 p.m. EDT and CME said it resolved the issue about two hours later. A spokesman for the CME declined to comment about the cause of the problem.

PLY: CME ended up using its human back-up facility also known as the pits. However even that doesn’t justify the existence of the CME floor.

FMC-MCX Tussle: Ball In Finance Ministry’s Court
Rajesh Bhayani – Business Standard

PLY: Hmmm, a thorny problem: comex regulator FMC says FTIL is not “fit and proper” to hold MCX stock but it apparently has no absolute legal power to make them sell…

WSE To Pay Half Of Net Profit In Dividends

Warsaw SE plans to pay out almost half of its 2013 net profit, or 50.3 million zlotys ($16.57 million), in dividends, it said in a statement late on Monday. The state-controlled company also paid half of its 2012 annual profit in dividend.The bourse’s dividend policy is to pay out 30-50 percent of its net profit.

WSE press release here.

PLY: The Warsaw Stock Exchange is under government control due to the voting system being amended to allow a minority (circa 40%) government stake to hold the majority of votes shortly before the IPO in November 2010. The perennially disappointing Polish government is edging left (and spending as opposed to growing the economy) while seeking to suck as many dividends as possible out of a crypto-state industrial sector. This appears more ominously like the discredited Communist model that came before Poland’s successful early reform momentum which has been allowed to dwindle. Alas the current trajectory is a fast track to a big state slow growth nation – not the kind of harmonisation with the west we might have hoped. The government continues to create uncertainty about the future of the CEO as it endeavours to push the utterly discredited Vienna merger plan which is increasingly arousing the ire of Poland’s brokers. A disappointing state of affairs in a nation which ought to provide so much hope amid worrying symptoms of a market infrastructure which is not moving forward.

ICAP To Push Voice Brokers To Promote Electronic Platform (subscription)
Jenny Strasburg & Chiara Albanese – Wall Street Journal

ICAP is seeking to transform its London-based foreign-exchange voice brokers into active promoters of its electronic-trading platform, the latest move by a financial firm to cut humans out of direct roles in buying and selling currencies. ICAP told clients Tuesday that it’s rolling out new technology, packaged as an EBS offering under the name eFix Matching, aimed at enticing banks and other institutions to channel more of their currency trades to ICAP’s electronic EBS Market.

PLY: A natural extension of previous ICAP moves to promote the electronic platforms and the best performing staff in this new role will get to presumably maintain their employment as voice brokerage is phased out.

Non-Banks Notch A Win In Long-Running Derivatives Battle
Lauren Tara Lacapra – Reuters

Companies including INTL FCStone Inc, Nomura Holdings Inc, Cargill Inc and Royal Dutch Shell Plc lobbied a congressional committee to change a rule proposed by CFTC on how much capital they must hold against derivatives trades as dealers. Cargill and Shell have derivatives trading arms.

PLY: “Netting” for non banks helps provide a level playing field and thus a better market. Encouraging.

Goldman Mulls Closing Dark Pool (subscription)
Bradley Hope, Justin Baer & Scott Patterson – Wall Street Journal

Goldman Sachs is considering shutting down one of the world’s largest private stock-trading venues, Sigma X, concerned about the risks that have been highlighted by a series of trading glitches and growing criticism of dark pools.

PLY: Systematic internalisation sucks liquidity from organised markets and is, in my view superfluous – there ought to be open competition for order flow on exchanges and MTFs while Institutional Liquidity Pools maintain a reasonable opportunity to assist the matching of block trades between institutions.

EuroCCP Consolidation Is Complete – Migration Accomplished In Seven Weeks

European Central Counterparty N.V. (EuroCCP) has completed the consolidation of its constituent businesses, EuroCCP Limited and EMCF N.V., creating the largest cash equities clearer in Europe.

PLY: Plaudits to Diana Chan and the EuroCCP team on such a brisk integration – well done.

ESMA Adds KDP_CCP To List Of Authorised CCPs Under EMIR

ESMA has updated its list of CCPs that have been authorised to offer services and activities in the Union in accordance with EMIR.

PLY: Good news for KDPW, no news of their privatisation which had been originally envisaged under this government before they began edging to the left.

Crowded Trades A Risk In Clearing Houses (subscription)
Phillip Stafford – Financial Times

PLY: Discusses a paper outlining the possible risks to CCPs which may not be readily apparent and indeed which are impacted upon by the Homer Simpson Buffet Conundrum as discussed in Exchange Invest Premium. The original paper by Dutch academic Albert J Menkveld can be downloaded here.

If Market Is Rigged, Fix Market! (subscription)
Financial Times

PLY: Cameron Smith and Haim Bodek note: “To blame computerised trading for our woes is nonsense. Even Mr Lewis reiterated that “the computer is not the villain . . . computerised trading has been good for the markets.”” A simple recipe for reform is suggested with the laudable conclusion: “Nobody should have to become a market structure expert in order to determine the best way to execute an order. So, let’s get on with fixing the markets.”

Amen to that.

The Republican Stock Exchange “Toshkent” & Japan Exchange Group Signed A MoU

The Republican SE “Toshkent” and JPX signed a MOU on April 8, 2014 in order to establish a mutual agreement on long-term cooperation and furthering stock exchange development in Uzbekistan.

PLY: Hmmm, I am not sure why this release refers to what I would call Tashkent as “Toshkent” perhaps a polyglot reader can elucidate?

Private Markets

Nairobi Securities Exchange Nears Demutualisation
Anthony Langat – allAfrica

EDWARD Njoroge, the Chairman of the Nairobi Securities Exchange, said that the bourse had submitted the final application to the Capital Markets Authority and expected formal approval to be granted by authorities in the near future as the bourse moves towards a long-anticipated Self-Listing.

Bitcoin Believers Say It’s Poised For Rebound Once Dust Settles
Michael J. Casey – Wall Street Journal

Barry Silbert, CEO of SecondMarket, which has created a private bitcoin-dedicated investment vehicle called the Bitcoin Investment Trust, said he could count ten hedge funds interested in investing in bitcoin, “each of which doesn’t get out bed if they don’t have $50 million.”

U.S.A. Attorney General Eric Holder Testifies Before The U.S. House Committee On The Judiciary – Contending With New & Emerging Technology, Including Virtual Currencies Such As Bitcoin

AG Holder appears optimistic about finding a way to allow Bitcoin to progress…

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is up 1.33% while FTIL is flat.

NSEL Settles Rs 330 Crore (USD 55 Mln) Of Rs 5,500 Crore (USD 915 Mln) Dues In 33 Weeks
The Hindu

PLY: A review of the dismal FTIL/NSEL programme where a mere 6% of outstandings were settled – thankfully the Mumbai Fraud Squad (EOW) did much better with their programme of attachments!

Deloitte, BSR & Co Can’t Audit MCX Books, For Now
The Economic Times

Top-notch audit firms Deloitte and BSR and Co, a preferred partner of KPMG, will be barred from auditing the books of India’s largest commodity bourse, MCX, whose dealings with group entities have come under regulatory glare.

FMC has directed MCX to refrain from hiring Deloitte and BSR and Company as auditors until it ascertains that these questionable transactions could not have been detected by the two statutory auditors, a senior government official told ET.


Broadridge Introduces New Global Collateral Management Solution

Broadridge Financial Solutions announced the launch of CollateralPro. A comprehensive enterprise-wide solution, CollateralPro designed to help investment banks, asset management firms and service providers transform their regional or global collateral management functions.

OTC FX Added To CQG Network Via Three-Way Partnership Between Technology & FX Firms

British financial software and consulting firm First Derivatives has today announced that OTC FX trading will become available via the company’s Delta Flow trading platform over the CQG network.


Swap Market Unmoved By SEF Rules (subscription)
Anish Puaar – Financial News

The first months of new US rules for the OTC derivatives markets have not caused the slump in liquidity that many expected, according to new research from JP Morgan.

FIA Launches SEF Tracker To Measure Swap Trading Activity

FIA today is launching SEF Tracker, a periodic report on trading activity taking place on swap execution facilities to provide the public with a better understanding of these new venues for the trading of OTC derivatives.

PLY: An interesting development from the FIA to monitor the development of SEFs.

CME Mulls Albany, New York, Crude Futures Contract
Bridget Hunsucker – Platts

CME is considering the start of a crude oil futures contract based in Albany, New York, where a transportation hub is forming as shale oil moves more readily on rail around the US.

ISE Lists Additional 650 Products

ISE has successfully completed the rollout of 650 additional equity options products on the exchange. With the addition of these symbols, ISE now lists equity options covering more than 99% of average daily volume for multiply-listed products.

EEX Increases Continental Energy Futures Suite (subscription)
Jonathan Watkins – FOW Intelligence

EEX has launched new Italian power contracts and plans new Belgian and British gas contracts in an aggressive expansion of its continental European offerings.

DGCX To Offer Spot Gold Contract In June 2014

DGCX will launch its first spot gold contract in June this year allowing traders to buy and sell gold on a local exchange for the first time as demand for the metal increases in the region. The bourse currently offers gold and silver futures, the new spot contract is expected to be for one kilogramme (32 troy ounces) of 0.995 purity gold. Dubai has emerged as a leading global hub for gold trade and USD 75 billion worth of the precious metal was traded through the city in 2013.

ISDA AGM To Highlight Economic Value Of OTC Derivatives – Survey Finds Derivatives Are Important To Almost 90% of End-Users’ Risk Strategy

ISDA published the results of a survey of end-users on issues and trends in the OTC derivatives markets. The release of the survey comes on the eve of ISDA’s 29th Annual General Meeting in Munich, which will feature panels of academics, end-users and market leaders discussing the value and uses of these risk management tools.

PLY: An interesting survey although bank and end user has arguably been conflated within its pages. With swaps, banks may be the end user but not always…


FTSE TMX Global Debt Capital Markets Acquires MTS’ Indices Business
Automated Trader

FTSE TMX Global Debt Capital Markets has confirmed that it has acquired the index business of MTS, whose indices track the performance of government issued securities in European bonds. MTS is majority owned by LSE. FTSE TMX Global Debt Capital Markets is a joint venture between FTSE Group and TMX’s information services division, TMX Datalinx.

Career Paths

Jill Considine will join the board of LCH.Clearnet on April 25, and will also serve as Chairman of the board of LCH.Clearnet LLC, the group’s US-based entity, according to a statement today. Jacques Aigrain will remain chairman of LCH.Clearnet Group. Considine served as Chairman and CEO of DTCC from 1999 until 2008 and prior to that was President of the New York Clearing House Association LLC for five years.

HKEx has appointed Cecelia Zhong as Head of China Derivatives Business Development for its Asia commodities department.

HKEx press release here.

WSJ notes that David Herron will be replaced by John Kerin as CEO of Chicago SE. Mr. Kerin, president and COO of the exchange, will become CEO & President of the exchange and its parent company, CHX Holdings Inc., on April 18th.

Liquidnet announced that Adam Sussman has joined the company as Head of Market Structure & Liquidity Partnerships.

Senate Panel Approves Massad To Head CFTC
Douwe Miedema – Reuters

A U.S. Senate panel on Tuesday approved Timothy Massad as the next chairman of CFTC, but a second nominee to the derivatives watchdog hit a snag.

Massad, a lawyer who oversaw the U.S. government’s $700 billion bank bailout program, was nominated by President Barack Obama to replace Gary Gensler. He has spent most of his career at Wall Street law firm Cravath, Swaine & Moore, working on a wide variety of corporate transaction.

But, following the vote, Republican Senator David Vitter from Louisiana, who does not sit on the committee, blocked Sharon Bowen, a partner at law firm Latham & Watkins in New York, through a procedure that can delay her confirmation as a commissioner. Bowen was also the only nominee to draw a “no” vote in the Agriculture Committee, from Republican Senator Saxby Chambliss of Georgia.

PLY: The endless number of Obama-nominated lawyers to regulatory positions strikes me as inherently risky for financial markets.

Cinnober Named As One Of Sweden’s Most Attractive Employers In 2014

PLY: Lovers of the fine print ought to note that the overall Cinnober body corporate is “one of Sweden’s most attractive employers.” i.e. this splendid plaudit doesn’t merely apply to CEO, Veronica Augustsson.

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

ITG Q1 2014 financial results on Thursday, May 1, 2014

ITG press release here.

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

Analyst Notes

Barclays Cut Their Price Target On ICE From $239.00 To $234.00 – “Overweight” Rating
Credit Suisse Upped Their Target Price On NASDAQ OMX From $35.00 To $40.00
LSE “Hold” Rating Restated By Morningstar – GBX 1,700 Target Price
Zacks Upgraded GFI Group From “Underperform” To “Neutral” – $3.60 Price Objective

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.


Cross-Border P2P Lender isePankur Rebrands As Bondora

The first cross-border peer-lender isePankur rebrands as Bondora and reveals a recent capital raising of 1.3M EUR.

Other stories

LME Week Asia 2014 To Be Held In Hong Kong In Late April

HKEx and LME will host LME Week Asia 2014 in Hong Kong during the week of 21 April.

HKEx CEO Charles Li: Latest Charles Li Direct – A Clarification

HKEx CEO Charles Li publishes a short blog post clarifying some confusion about his blog on weighted shares.

PLY: A misunderstanding may have arisen over his comment on HK government’s right to nominate directors etc.

FSB Publishes Reports On Implementation Of OTC Derivatives Market Reforms

Financial Stability Board (FSB) published today the seventh of the FSB’s semi-annual progress reports on implementation of OTC derivatives market reforms.

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