April 14 2014

elb2What an intriguing day. An HFT clampdown is growing as SEC seek to demonstrate they are relevant in a landscape they are largely responsible for (ahem) and EU seeks to make the single market an oxymoron for capitalism once again. CME gets sued over HFT access while MCX and FTIL appear to be disclosing information in what remains a remarkably long drawn out private placement of public stock. Soc Gen dark pool lets you choose your counterparty, Bitcoin miners suffering, Shanghai will launch gold leasing platform. A welcome toast to Tradeweb, NEPSE might privatise (but at what size?) while the Tanzanian bourse wisely requests more privatisations (don’t we all?). Target2 to concentrate clearing/settlement, or increase the base of the pyramid?

It’s a big day in here and there are many seams of pith added to highlight what is happening in markets, happy reading…

Public Markets

MCX Discloses Financial Details To JM Financial
Sunil B.S. – Livemint

MCX on Friday released its earnings to the stock exchanges in response to information sought by JM Financial Institutional Securities Pvt. Ltd, which is advising MCX’s parent FTIL on a stake sale.

MCX said its total income from operations was Rs.276.7 crore (USD 46 mln) in the nine months ended 31 December, according to its unaudited financial accounts. The company generated Rs.248.9 crore (USD 41.3 mln) from transaction fees. It also said it has Rs.320.8 crore (USD 53.3 mln) as cash and cash equivalents in its books, of which Rs.287.8 crore (USD 47.8 mln) is in the form of fixed deposits with banks. MCX also has invested Rs.849.8 crore (USD 141.2 mln) in mutual funds and Rs.128.4 crore (USD 21.3 mln) in warrants of MCX-SX.

Full details here.

PLY: Some minutiae as we race to pixel: note the value ascribed to the MCX-SX warrants, as previously debated in this Premium Post: Neither Fit Nor Proper: The FTIL Fire Sale.

Tata Capital, Kotak Mahindra Bank & BSE Lead Race To Buy FTIL’s 24% In MCX
Ram Sahgal – The Economic Times
FTIL To Finalise Bidders To Buy MCX Stake By Apr 25
Business Standard

Tata Capital, Kotak Mahindra Bank and BSE have emerged as the frontrunners to buy FTIL stake in the country’s largest commodity bourse MCX. The three companies are among the nine bidders, including R-ADAG, Warburg Pincus, US-based exchange CME, Deutsche Borse and Dubai-based commodity exchange DGCX, which submitted non-binding offers for FTIL’s 24% stake in the commodity exchange. They will, according to the person, have to submit binding bids for either part or the entire stake that FTIL seeks to divest. JM Financial is advising FTIL on the MCX sale.

PLY: Is it just me or does it feel as if FTIL are doing their level best to drag out this whole process? A private share placement wouldn’t be that difficult and the ongoing process of making the bidders run round in circles being played off against each other until April 25th strikes me as all a bit private equity. After all the public market has set a value, presumably FTIL think they can get a premium…I am inclined to think they ought to be accepting a modest discount to market price right now.

Raj Bagri Among Bidders For FTIL’ MCX Stake
Palak Shah – The Economic Times

PLY: The former LME Chairman joining the bidders is an intriguing move as he has a certain kudos from his peerage in the British House of Lords.

Ten Questions On The HKEx-Shanghai Stock Trading Tie-Up (subscription)
Michelle Price – Financial News

The Hong Kong market was aflutter with the news that the Hong Kong and Shanghai stock markets are hatching a plan to trade each others’ shares, in a new scheme that will further open up China’s capital market.

PLY: Michelle Price presents useful FAQs. The only one missing: what might test this to breaking point? Cross-limits in investment are noted but would a wave of foreign sales cause regulatory angst in either direction for instance? This may be a challenge as (Premium) China liberalises.

ECB Platform, EU Law To ‘Revolutionise’ Securities Settlement
Clare Hutchison & Huw Jones – Reuters

ECB lost patience with the industry’s efforts to streamline itself and stepped in to build Target 2 Securities (T2S), a single platform that goes live next year in the euro zone. It will leave many settlement houses redundant as cross-border fees are slashed and trigger a shake-up in the business, according to Clearstream CEO Jeff Tessler. He expects only three or four big settlement houses offering cross-border services will be left standing.

PLY: Yes and no. There will clearly be concentration but at the same time, the new CSD laws and the continuing micropayment culture (which will increasingly emerge despite the influence of outmoded monopoly payment systems such as SWIFT) will help disrupt the entire ecosystem of settlement. Therefore a concentration at the top will also result in a broadening pyramid of providers, just like exchanges where despite huge concentration in the top two tiers, there are more markets than ever…

CME Sued On Claims High-Frequency Traders Bought Access
Andrew Harris & Matthew Leising – Bloomberg

Traders William C. Braman, Mark Mendelson and John Simms claimed the owner of the Chicago Mercantile Exchange and the Chicago Board of Trade perpetrated “a fraud on the marketplace,” according to a complaint filed April 11 in Chicago federal court, by selling access to order information to high-frequency traders ahead of other market participants.

CME statement here.

PLY: The danger of such suits being mounted may be considerable for exchanges in terms of resources to expend to defend (whatever the result). The merits? Well, I am not about to usurp the Chicago Federal Court. However, the Bloomberg story notes the plaintiffs complaining that “the HFTs generally entered very large orders”…er, sorry? In an era where HFT has driven average execution size on many equity venues to a level equivalent to Groupon coupons, it seems incongruous to suggest that the CME would have uniquely huge orders?

SEC Nixes HFT Platforms
John Aidan Byrne – New York Post

SEC is preparing to remove some HFT firms.

In a purge of computerized markets, will see numerous enforcement actions, new rules and new business practices — a sweeping overhaul that could benefit the beleaguered NYSE.

“You’ll probably see the commission coalesce around those enforcement cases and then bring new rules on high-frequency trading,” a source with knowledge of the SEC’s thinking told The Post. “There’s a lot of pressure on the SEC to act.”

PLY: “Trade at” rule looks to be gaining momentum. Enforcement cases as a means to making policy demonstrate the prosecutorial style of Chairman White, I am never sure that making rules as a result of cases created from the hype of populist writing is always the best way forward. The proof of the pudding will be in the digestion of the rules, as opposed to what headline cases may be generated…

HFT Curbs As EU Reins In Flash Boys
Jim Brunsden – Bloomberg

EU lawmakers are poised to approve some of the toughest restrictions in the world on HFT.

PLY: Hmmm, issues such as mandatory liquidity rules are, imho, none of the EU’s business, that is up to the exchange to impose and if they allow market maker privileges without concomitant obligations, they are not running their business efficiently. There is much to be done to make HFT more reasonable overall but the clunking fists of the SEC and the EU are, on the basis of past screw-ups (notably the many SEC impositions which created the US structure (aka “Regulation Total Mess”, er, I mean “NMS”) not remotely qualified to do so.

No Flash Boys In China’s Sleepy OTC Markets

Shanghai’s OTC equity market was almost deserted on a weekday morning last week. Two cleaning ladies swept the floor of a trading hall devoid of brokers or computers, while a woman at an information desk ate breakfast and talked on her mobile phone.

Tradeweb Toasts The Thomson Years (subscription)
Tim Cave – Financial News

PLY: An exciting milestone: the Lee Olesky driven Tradeweb which he created with Jim Toffey is celebrating 10 years under the benign shareholdership of Thomson Reuters, a relationship which has been hugely beneficial to both parties. Having earlier co-founded Brokertec, Lee has driven the corporate bond market kicking and screaming from the Victorian age to the 21st century. Tradeweb is a fabulous business and perhaps the most exciting issue is the opportunity ahead remains as target rich as ever before – more so than ever I believe. Congratulations on the milestone to Lee and his excellent global team: the business remains in good hands.

Canadian Securities Administrators: Derivatives Trade Reporting Implementation Date To Be Extended

The Canadian Securities Administrators (CSA) announced yesterday that it intends to extend the date for the commencement of OTC derivatives trade reporting until October 31, 2014 for clearing agencies & dealers, and until June 30, 2015 for all other OTC derivatives market participants.

JPX Says Japan Inc. Disclosing More, Scraps Rule Change
Masumi Suga & Masatsugu Horie – Businessweek

JPX scrapped a plan to adopt tougher disclosure rules, saying the nation’s companies are getting better at communicating with investors. TSE had said in July it was looking to come up with new rules by the end of 2013, after Kawasaki Heavy Industries Ltd. (7012) issued conflicting statements on merger talks with a competitor.

BM&FBOVESPA: “Report Or Explain” Now Encourages Integrated Reporting Among Listed Companies

BM&FBOVESPA begins the 2014 “Report or Explain” Cycle with a new development: in an evolutionary process aligned to the international trend of integrating financial and non-financial information in annual corporate reports, the initiative is now named “Report or Explain for Sustainability or Integrated Reports” (the previous description was Report or Explain for Sustainability Reports or Similar).

SGX Aligns Names Of Shares In Trading Counter & CDP Statement

SGX will from 14 April 2014 standardise how shares of listed companies are identified on their trading counters and on investors’ Central Depository (CDP) statements.

SEFs & OTC Trading Special Report (subscription)
James Rundle – waters technology

Although the “Big Bang”-predicted to transpire in February, when certain instruments had to be executed electronically-never really happened…

Full report here.

PLY: Anybody expecting a SEF big bang was in thrall to the consultant/media hype and not the real world. The usual clueless ‘linearists’ trying and failing to appreciate change hyped and lost. Now the SEF business is rolling along, here’s a cluster of advertorial articles on the SEF topic for those who like that kind of thing.

Private Markets

Have Plan B If Rs 200cr Rights Issue Don’t Work: MCX-SX

MCX-SX is fighting to stay afloat.Thomas Mathew believes MCX-SX will be able to generate the necessary funds and rights issue is not the only way to infuse capital into the system. The exchange is confident of raising Rs 200 crore (USD 33.2 mln) via rights issue, beyond that, it has a plan B of preferential placement, strategic investors, mergers, which is for the long term, he added.

PLY: The exchange intends to focus on its forex segment where it still has reasonable liquidity.

Back To Duopoly In Equity Trading; It Is Advantage BSE, NSE

MCX-SX chairman Thomas Mathew’s declaration that MCX-SX will focus only on currency derivatives will be music to the ears of the BSE and NSE top brass.

Shanghai Gold Exchange To Start Leasing Platform By End Of June

Shanghai Gold Exchange will start a gold leasing platform in the first half of this year as China’s largest bullion market increases its range of products, introducing lease rates in yuan for fixed time periods. More than 20 banks and financial institutions including the China units of UOB and ANZ have used a gold lease contract promoted by the exchange since February.

PartnerY: The Dark Pool Where You Know You Are Among Friends (subscription)
Anish Puaar – Financial News

Off-exchange venues were once seen as safe places for institutional investors to trade large orders. Claims the market might be “rigged” against them by high-frequency traders, however, have heightened investors’ worries about who might be on the other side of a trade.

PLY: The Pittsburgh G20 principles implicitly drive an open market structure for OTC to rid us of the “can’t do the name’ culture. Now Soc Gen investment bank are keen to take the equity markets backwards (no, that’s not an oxymoron, they really could fall further behind the progressive ETD markets). Instead of open platforms amongst consenting groups, Soc Gen let you choose your counterparty. A lovely enticing idea over a pint which frankly doesn’t for me stand up to one moment’s scrutiny (well, perhaps unless you adhere to French concepts of protectionist capitalism – yip, another contemporary oxymoron). This is a symptom of the ongoing equity market structure failure, of which a symptom remains low liquidity compared to ETD. Private member clubs can demonstrate admirable liquidity but simply dealing between a small cluster of pre-chosen counterparties can only lead to worse deals and the threat of litigation from those who will have the ability to claim they were not getting best execution. This platform will rebound against both its users and Soc Gen I fear.

Trading In CSE Platform Will Resume
Business Standard

“The trading in C-star will resume and it is just a matter of time,” CSE MD and CEO B Madhav Rao told PTI keeping hopes alive for the over 180-year-old bourse.

“SEBI is expected to come out with modified clearing corporations regulations in which the ‘unlimited liability’ issue is likely to be addressed,” he said.

Trading at C-star has been suspended since April, 2013.

Nepse Considers Going Public

Nepal SE (Nepse) planning to raise its capital by issuing public shares. For the purpose, it is planning to seek the government’s approval for demutualization. According to Nepse, it has planned to conduct a Due Diligence Audit (DDA) to evaluate its financial position.

PLY: At issue here: will NEPSE be run as the successful microexchange it has been and can continue to be, or, as the engorged mini-leviathan which has been proposed by their recent usage of large consultancies without core exchange domain expertise (as reported in EI April 2nd) seeking a large and outmoded structure.

Tanzania Bourse Presses State For Privatizations
Edmund Blair & Fumbuka Ng’Wanakilala – Reuters

Tanzania’s stock exchange is pressing the government to sell shares in more state firms to help galvanize bigger private businesses to tap the capital market.

PLY: Good, government has no business owning anything much and the more privatisation, the better it will be for consumers (voters), the economy as a whole and of course the exchange and investment industry. Keep pushing that point Dar Es Salaam SE!

Bitcoin Mining Boom Sputters As Prospectors Face Losses
Olga Kharif – Businessweek

The bitcoin mining rush is sputtering.

PLY: The ‘Levi Straus rule’ strikes again: instead of the wonders of selling that southern French textile from Nimes this time around the miners bought wildly powerful computers and hoped to reap great rewards. In reality, only the vendors did. The problem was by the time much of the IT was delivered, precious few could mine and now we are a long way down from the 1000+ dollar peaks, suddenly everybody has really expensive mining equipment chasing too few Bitcoins. Oh and the technology will be obsolete within weeks, perhaps even by the time it was delivered…and it’s not much use for anything other than mining Bitcoin in most cases – d’oh! Perhaps the least surprising bubble top imaginable – I couldn’t economically justify mining last autumn and that was before the new wave arrived with the usual dumb money (hedge funds etc amongst them…). Many miners are uneconomic – the big winners are utility companies (unless you sensibly bought big solar panels in Australia, then you only lost on your hardware!).

Bitcoin Bound For ‘Guns And Gold Crowd’ (subscription)
Joe Morris – Financial Times

Bitcoin is making its way from shadowy digital exchanges to the mainstream US retail fund market and even retirement accounts – much to the dismay of financial advisers who term it “a doomsday asset.”

PLY: Given that financial advisors are so often a long way behind even the lagging hedge funds, it may be no bad thing to disintermediate them. Their dismay in losing their high commissions is hardly something to the detriment of investors, surely?

Bitcoin As The Ultimate Democratic Tool
Josh Zerla – Wired

Bitcoin is gaining more mindshare in the general population with each passing day, capturing the attention of people, governments and businesses around the world…

PLY: You may not agree with Wired but they do think about things and have interesting, apposite, comment (at least in their American edition, the UK version which blights many European newsstands is, at best, utterly second rate by comparison – fortunately the wondrous original edition is online and still to be found in a few ‘speakeasy’ newsagents across the continent).

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is slightly up, FTIL slightly down.

NSEL Scam: I-T Dept Denies Info, FMC Dodges Queries
The Hindu Business Line


Bellin Adds VWD Data To Treasury Platform (subscription)
Giulia Lasagni – waters technology

Ettenheim, Germany-based treasury management software provider Bellin has partnered with Frankfurt-based market data vendor VWD to offer its clients an “all-inclusive” package of foreign exchange and interest rate data from VWD.

IXcellerate Announces First Data Centre In Russia To Achieve Prestigious IBM Certification

The IXcellerate Moscow One Datacentre has been certified for design, build and operation accreditation to IBM Resilience Level 3. The carrier neutral datacenter is the first in Russia to receive this prestigious IBM accreditation.


NSE Prescribes Reference, Execution Limits For F&O Contracts
Ami Shah – Livemint

NSE has prescribed reference and execution range for futures and options (F&O) contracts which will be applicable from 5 May to promote orderly trading.

Commodity Trading Hours Set To Get A ‘Break’
Shishir Sinha – The Hindu Business Line

“We are planning to allow an hour or half-an-hour break for commodity trading as the trading hours are long,” Ramesh Abhishek, Chairman, FMC, told Business Line.

PLY: 09.15-15.30 may not strike many as particularly onerous hours but as I have previously complained in the “Trading Places” newsletter, I think exchange lunch breaks are a very civilised idea and their erosion has been a shame in many respects.

Tullet Prebon Expands Into Bankruptcy Claims Business
Emily Perryman – hedgeweek

Tullett Prebon’s alternative investments team has launched a service to manage the sale of bankruptcy claims on the secondary market.

Bringing Transparency & Scale To The Bullion Investment Market
The Trading Mesh

Mike O’Hara – in conversation with Seamus Donoghue, CEO of Allocated Bullion Solutions and Peter Fredriksson, CEO of Baymarkets – looks at how the introduction of a new centralized trading platform in Singapore is bringing about greater transparency to the physical gold market in the region.

Career Paths

Linda Recupero has left MSLGroup after one year of serving as SVP and New York corporate practice director to join stock exchange operator NASDAQ OMX as global head of communications.

PLY: We wish Linda Recupero every success in what must be a very exciting as well as challenging, position given the diverse dynamics of the NASDAQ OMX group.

StabroekNews (NB this site has patchy reliability as we go to pixel) reports that Subhas Ramkhelawan resigned as an Independent senator and as chairman of the Trinidad and Tobago SE (TTSE).

Ramkhelawan remains MD of his brokerage company, Bourse Securities, which is the subject of an investigation by SEC, on its role in the purchase and sale of former First Citizens chief risk officer Philip Rahaman’s 656,688 bank shares.

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.

Other stories

Brazilian Tycoon Batista Faces Insider Trading Probes
Jeb Blount & Juliana Schincariol – Reuters

Eike Batista, who was Brazil’s richest man for most of the past decade, is under investigation for allegedly engaging in insider trading while he chaired his now-bankrupt oil-producing and shipbuilding firms, securities industry watchdog CVM said on Friday.

PLY: Frankly given the rise and fall of Mr Batista (for which the adjective “meteoric” is almost suggestive of a leisurely pace), I expect these charges are a mere bagatelle on top of a welter of issues arising from his recent demise.

FESE European Equity Market Report – March 2014 Figures

The European Equity Market Report is a piece of analysis that allows for an accurate comparison of trading statistics across European trading venues.

PLY: And very very useful it is too, I must add…

SIFMA Pushes For Broad Use Of LEIs To Promote Financial Stability

SIFMA today submitted a letter encouraging Jacob Lew, Treasury Secretary and Chairperson of the Financial Stability Oversight Council (FSOC), to leverage his role as FSOC Chairperson to advocate for a more fulsome adoption and use by the US regulatory community of the Legal Entity Identifier (LEI). SIFMA believes FSOC and its members should work to expand the US adoption of the LEI and its related benefits by requiring LEIs to be used broadly in US regulatory reporting and other supervisory practices.

PLY: By adopting US hegemony in symbology we can make the world a better place. Discuss.

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