April 15 2014

elb2I know I know it’s tough to believe we haven’t been arriving in your inbox for longer but it’s actually an official 11 months today since the first Exchange Invest daily newsletter…

In today’s edition, Ireland drops guarantee status to become a PLC, shareholders salivate at the prospect of a distribution, IaaS exchange agreement for CME, government could take control of FTIL… plus all the day’s ramifications on HK-Shanghai, HFT, FTIL-MCX-NSEL, EMIR, MIFID II, and every other acronym.

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

Irish SE Changes Structure (subscription)
Vincent Boland – Financial Times

PLY: Vincent Boland rather misleadingly states the ISE has gone public – a typical sensationalist tactic for the obscure correspondent fighting for column inches in a crowded newspaper. Rather, the exchange has changed to public limited company (“plc”) status, part of a previously announced strategy. Alas, the FT still don’t appear to understand the dynamics of mergers or the future of market structure, therefore this article fails to distinguish the various facets where Dublin has been able to create a capable business going forward.

Congratulations to Deirdre Somers and her team in managing this incremental progress.

ISE press release here.

Davy Becomes Largest Shareholder In ISE
Joe Brennan – Bloomberg

Davy, Ireland’s largest securities firm, became the largest single shareholder in the country’s stock exchange under a plan that will allow the market’s six members to share a 27.5 million-euro ($38.1 million) windfall. The ISE, a branch of LSE until 1995, had been unable to distribute its cash reserves to its members because, until today, it was a company limited by guarantee. It has also missed out on a wave of mergers and acquisitions in the industry in the past decade.

PLY: Quite how the ISE “missed out” on the wave of mergers in the last decade remains another sign of the confusion of the media. It has great value but is hardly a huge value acquisition target given the time to integrate…

NB There are seven shareholders – all local brokers. They are J & E Davy (37.5%), Goodbody (26.2%), Investec Ireland (18%), Campbell O’Connor, Cantor Fitzgerald Ireland, Royal Bank of Scotland, and Davy Corporate Finance, in a nominee capacity. Note that the previous legal dispute over the bankrupt Bloxham was settled in ISE’s favour, permitting this metamorphosis to take place.

6fusion, CME Group Sign Definitive Agreement To Develop IaaS Commodity Exchange

6fusion, the company standardizing economic measurement of IT infrastructure and enabling a global marketplace for buyers and sellers, and CME have signed a definitive agreement to develop and market an Infrastructure as a Service (IaaS) spot exchange that will list financial products based upon 6fusion’s Workload Allocation Cube (WAC).

The spot exchange will feature contracts using the WAC as the standard unit of measurement and be available for trading on an electronic platform using technology licensed from CME Group. 6fusion’s UC6 software platform will be used to track fulfillment of physically delivered contracts traded on the spot exchange. The spot exchange beta is expected to launch later this year featuring a host of infrastructure buyers, sellers and partners.

EI reported on October 1st, 2013, that 6fusion and CME signed the letter of intent to explore the development of the IaaS Exchange. EI reported on July 2nd, 2013, the DB announcement regarding the launch of Deutsche Börse Cloud Exchange, a marketplace for trading outsourced storage and computing capacity.

PLY: Exciting stuff although the PR folk stating “a definitive agreement” leads me to wonder has CME been signing “fuzzy agreements open to legal challenge” recently? Sticking to hype-free fact in press releases would be welcome in our offices. This is a good move: with DB1 and CME squaring up with different approaches to hedging and risk transfer in the cloud:

The Next Chapter In The Cloud Brokerage Story
Ben Kepes – Forbes

PLY: Cloud computing is an evolving commodity and like everything there are some differences – we deploy to specific financial centre hubs run by Volta or Equinix for more mission critical / low latency applications but overall the market ought to be ‘commoditizable’ and hence eminently tradeable (albeit with a fascinating inflationary capacity, deflationary pricing history: a permanently inverted yield curve awaits, no?) As this article notes, “Cloud computing is an area in which brokerages have been long talked about (ever since vendor Enomaly launched its ultimately ill-fated, but arguably prescient marketplace SpotCloud many years ago).” At the same time as CME”s announcement notes, we have no clear benchmark yet for measuring just what it is people want to hedge/trade. Interesting times…

Hong Kong’s Investment ‘Through Train’ Rides Again
Craig Stephen – MarketWatch

The much anticipated “through train” of mainland Chinese investment to Hong Kong appears back on track but it is still unclear how many investors will be boarding.

PLY: While here is a flavour of the complexity of the ‘simple’ cross-border (well intra-regional mainland: SAR) agreement between Shanghai and Hong Kong…

Queue To Rule In “Train” Plan
Imogene Wong – The Standard

Investment quotas under the future pilot scheme for cross-border trading will be on a “first come, first served” basis, with no special quota assigned to any brokerages or investors, according to mainland media reports. Yuan invested by mainland buyers via the “Shanghai-Hong Kong Stock Connect” through-train scheme will be processed under a closed system and exchanged to Hong Kong dollars offshore in the SAR. Likewise, local and international buyers of A shares with HK dollars will see the amount converted in the SAR to yuan before being invested. Onshore yuan rates will thus be unaffected as all currencies will be exchanged in the SAR offshore market. This also means investors on either side of the border will need domestic equity trading accounts using their respective currencies. So a mainland investor would both spend and collect in yuan when trading in H shares.

CME Urges China Futures Opening
Jame DiBiasio – FinanceAsia

China will not be able to grow its financial futures markets if it does not open them to the influence of international supply and demand, and it should do so now, said Leo Melamed, chairman emeritus at CME.

PLY: Mr Melamed’s major redeeming benefit to CME is in his China status – he has clout there thanks to his age and lengthy history of making trips to Asia since the earliest days of Asian financial derivatives.

Exchange Giants Clear The Way For Singapore Hub (subscription)
Jonathan Watkins – FOW Intelligence

Singapore is soon to play host to three major clearing houses by way of Eurex, ICE and domestic incumbent, SGX.

PLY: Let battle begin. Singapore is playing a financial centre blinder currently, just as the EU attempts a complex series of contiguous simultaneous, mass suicide manoeuvres.

MCX Shares Surge On FTIL Stake Sale Expectations
Ami Shah & Ravindra Sonavane – Livemint

Shares of MCX rose as much as 7.5% on Tuesday on expectations of a stake sale by FTIL whose shares rose 3.6%.

Nasdaq CEO Says Michael Lewis Comments On HFT ‘Irresponsible’
Nandini Sukumar – Businessweek

Michael Lewis’s argument that the $23 trillion U.S. stock market is rigged in favor of speed traders is careless, according to Nasdaq OMX CEO Robert Greifeld.

“I think that was irresponsible on his part,” Greifeld said in an interview on PBS’s “Charlie Rose” show. “I feel poorly for the academics. Our markets are researched more than any other market that’s out there.”

PLY: I agree with Bob here that Lewis has been irresponsible and sensationalist, although that reminds me I am behind in my HFT replies…bear with me readers, thanks for your patience!

EU Clampdown On ‘Flash Boy’ Traders Turns Technical (subscription)
Philip Stafford & Alex Barker – Financial Times

PLY: Key takeaway here (apart from bearing in mind that I cannot recall the EU ever managing to make a decision in haste which didn’t look half-baked in retrospect) is that ESMA will have to write about 175 technical rules around MIFID II and expects to make the first draft available for consultation in late May. By a rough estimate thats makes for about 4 rules per staff member…

Offsetting Risk While Taking On The Big Players
Elizabeth Fournier – CITY A.M.

PLY: City AM has a quick fawn over NLX CEO Charlotte Crosswell.

Regulators Weigh Curbs On Trading Fees (subscription)
Scott Patterson & Andrew Ackerman – Wall Street Journal

At issue are “maker-taker” fee plans, which pay firms that “make” orders happen—often HFT firms that specialize in trading strategies designed to capture payments. The trial program would eliminate maker-taker fees in a select number of stocks for a period to show how trading in those securities compares with similar stocks that keep the payment system.

PLY: As I have said before, I rather liked ‘maker taker’ as an idea when it was brought to market but nowadays I am wavering…

CME Wants To Double Its Share Of Forex Trades With New Exchange
Tim Wallace – CITY A.M.

CME hopes to channel another $160bn (£95.6bn) per day of currency trades through its marketplaces when
CME Europe opens on 27 April, initially offering futures contracts in 30 currency pairs as well as energy-related products like biofuels.

PLY: London’s forex market turns over around $2,547 billion a day (2013 forex JSC report). So CME’s ambitions are granularly modest against the absolute total but of course futures have always been the niche cousin of the the cash market, with 3% roughly of forex traded via futures.

ASIC Disputes ASX Rigging Claims
Business Spectator

Australia’s corporate watchdog has disputed claims ASX is rigged in the favour of fund managers. Yesterday the ­government-backed Capital Markets Co-operative Research Centre cautioned that significant moves in the last few minutes of the trading day may be a sign fund managers are influencing the market to boost their bonuses. But ASIC does not agree.

PLY: ASIC fights back against the CMCRC whose empirical studies in my experience have always been backed by the sort of level headed studies which tend to be difficult to dismiss…

ICAP And EBS Launch An Electronic FX FIX Service
John D’Antona Jr. – Traders Magazine

ICAP has taken two of its units and integrated then to form a new unified electronic FIX service for foreign exchange. The two units, ICAP’s EBS electronic trading group and its Global Broking group, its voice broking division, have launched eFix Matching, an electronic FX FIX service.

PLY: Algorithm is FIFO.

Clearstream Strengthens Commitment To Asia With Settlement Link Developments In Taiwan

Clearstream is working with the Taiwanese Central Securities Depository (TDCC) to develop a direct settlement link for global investors and issuers to access the Taiwanese international bond market such as the Renminbi-denominated “Formosa bond”.

By opening an account with the TDCC, Clearstream becomes the first international central securities depository (ICSD) foreign participant of this local CSD and kicks off the process to establish a settlement link in this market operated by Deutsche Bank AG, Taipei Branch, due for completion in the coming year. This will offer settlement and custody services for the foreign currency denominated bonds including the “Formosa bond”.

Private Markets

European Revenues Surge At Liquidnet (subscription)
Tim Cave – Financial News

Liquidnet, the US-based dark pool operator, saw its European revenues rise by 60% last year as institutional investors rediscovered an appetite for the region’s equities.

PLY: Excellent numbers from Liquidnet Europe where for the sake of transparency, note I am an Independent Non-Executive Director.

How Good Is NSE’s Trading Limit Rule?
Mobis Philipose – Livemint

NSE has decided to adopt the “limit up-limit down” mechanism introduced by US exchanges some time ago; but with some modifications. The mechanism prevents trades from occurring outside of a specified price band, and can be an effective tool for protecting the market from sharp movements caused by erroneous orders.

NSE said in a circular to its members that the new mechanism will apply to mid-month and far-month futures and options contracts; for now, the new rules won’t apply to the exchange’s most liquid contracts (with near-month expiry).

Ex-Bitcoin Foundation’s Shrem Indicted After Plea Talks
Patricia Hurtado – Bloomberg

Charlie Shrem, a prominent Bitcoin evangelist, was indicted for allegedly trying to launder more than $1 million in the virtual currency in a case tied to the illicit online bazaar Silk Road.

The indictment came after plea bargaining talks with federal prosecutors in Manhattan ended. Shrem, the former vice chairman of the Bitcoin Foundation, and Robert Faiella, who the U.S. said operated an underground Bitcoin exchange called “BTCKing,” are accused of engaging in a scheme to sell Bitcoins to users of Silk Road for illegal purchases.

PLY: Is Bitcoin edging towards its first martyr?

Mt. Gox Founder Won’t Appear In U.S. For Questions About Bankruptcy Case
Devika Krishna Kumar – Reuters

Mark Karpeles, the founder of Mt. Gox, said he would not come to the US to answer questions about the Japanese bitcoin exchange’s U.S. bankruptcy case, Mt. Gox lawyers told a federal judge on Monday.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX has been bouncing as it seems somebody knows stakes are close to sale (isn’t it remarkable how so often news around FTIL/MCX/NSEL et al seems to leak into the market?) and is up 4% while FTIL itself is up 1%, despite this from MCA:

Govt Can Take Charge Of FTIL On Proof Of Scam: Ministry Of Corporate Affairs
Shubham Batra – The Economic Times

The government can take control of FTIL by nominating its own directors to the company’s board if mismanagement at its subsidiary, NSEL, is established, according to the Ministry of Corporate Affairs (MCA).

The ministry had sought the opinion of its legal department on the extent to which FTIL, being the holding company of NSEL, can be held responsible for the misdoings in the latter.

PLY: MCA is clearly playing straight into the hands of the existing FTIL shareholders who appear allied with Mahindra to oust Jignesh. Mr Shah ought to sell now while he still has some clear pricing power imho. On the other hand given an MCX deal is near and the key FTIL shareholders do not want that, this story appears to have some way to run…


GuavaTech, Inc. Announces NASDAQ OMX NLX Hosting & Connectivity
herald online

GuavaTech, Inc., a managed service provider specializing in customized IT solutions, will begin offering proximity hosting and ultra-low latency connectivity solutions for NASDAQ OMX NLX at the LD4 data center located in London, UK.

SuperDerivatives Adds Icap G7 Data To DGX Store (subscription)
Faye Kilburn – waters technology

Vendor SuperDerivatives is adding real-time market data from Icap to the third-party app store on its DGX market data terminal.


ICE Clear Europe To Introduce Western European Sovereign CDS Clearing On April 28

ICE Clear Europe is the first clearing house to clear Western European Sovereign CDS, which will bring an additional measure of transparency and stability to the global credit derivatives market from April 28, 2014, following receipt of regulatory approval.

PLY: Good to see the excellent Paul Swann of ICE quoted here.

States Say Draft EU Rules Could Undermine Market Benchmarks

Five member states – Britain, Bulgaria, Denmark, the Netherlands and Poland – have submitted a list of questions to the Commission on the draft law, according to a document seen by Reuters as the regulation could undermine major market benchmarks such as Brent crude unless the same rules apply to non-EU countries, Britain and four other EU nations warned. The Commission, the EU executive, published a draft proposal last year on rules to prevent the rigging of financial benchmarks.

PLY: I actually suspect that allied with the misguided open access proposals (which probably won’t eventually change much even if one banking supplicant CEO was rumoured to have danced a late night jig upon the news), the financial benchmark rules won’t harm Brent Crude per se – it will just trade from Singapore on a variation of the OM Swedish bond future playbook.

ICAP Integrates AUD Into Its i-Swap Platform, Targeting Asian Clientele
Jeff Patterson – Forex Magnates

ICAP announced the launch of the Australian Dollar (AUD) on its i-Swap platform in Australia.

NCDEX To Launch Chilli Contract With Direct Delivery Facility
The Hindu Business Line

NCDEX will launch new chilli (teja) contract on Tuesday with an option to take delivery directly from the sellers’ godown. This will significantly save transportation cost.

Buyers can now be rest assured on quality of goods delivered meeting contract specifications since it entails compulsory quality check by exchange-approved assayer at the time of settlement.

Career Paths

FN notes that, Ryan Wuebbels, formerly head of IR and co-head of issuer and client services at HKEx, has joined Goldman Sachs’ principal strategic investments division, based in Hong Kong.

Financial Calendar


Interactive Brokers Q1 Financial Results

This month
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

MarketAxess Holdings Q1 2014 results on Wednesday, April 23, 2014

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

Analyst Notes

EVA Dimensions Upgraded ICE From “Sell” To “Underweight”
LSE “Sell” Rating Restated By Goldman Sachs – GBX 1,610 Price Objective
ICAP “Neutral” Rating Restated By Goldman Sachs – GBX 440 Price Target
Betfair Target Price Lowered By JPMorgan From GBX 1,100 To GBX 1,050

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.


P2P Lender Landbay Opens Doors To UK Consumers
JD Alois – Crowdfund Insider

The Beta launch of Landbay was announced for borrowers seeking a buy to let mortgage. Landbay secured some of their initial funding via equity crowdfunding platform Seedrs with a second Seedrs round imminent. The company was founded by John Goodall and Gray Stern both having strong backgrounds in management and property finance.

Other stories

India – FMC Asks Bourses To Clamp Down On Circular Trading
Ram Sahgal – The Economic Times

FMC has asked bourses to clamp down on circular trading as the commodity markets regulator tightens its scrutiny of transactions after being placed under the oversight of the finance ministry following the NSEL crisis last July.

PLY: Essentially “circular trades” are the same as “wash trades” – transactions which boost volume between 2 different counterparties who then undo them in a circular fashion.

Council Of The EU Adopts Strengthened Rules On Market Abuse

The Council today adopted strengthened EU rules aimed at clamping down on insider dealing and market manipulation on securities markets.

PLY: EU clamps down on Market abuse, no news of when they will clamp down on their own unaudited budgets…

ESAs Consult On Draft Technical Standards Under EMIR

ESAs launched today a consultation on draft Regulatory Technical Standards (‘RTS’) outlining the framework of EMIR. These RTS cover the risk management procedures for counterparties in non-centrally cleared OTC derivatives, the criteria concerning intragroup exemptions and the definitions of practical and legal impediments. The consultation will allow gathering public views on how to ensure a proportionate implementation of the requirements, as well as any other specific aspects that need discussion. The consultation runs until 14 July 2014.

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