April 16 2014


Passover continues, Easter looms, whatever you’re celebrating we offer our best wishes.

Meanwhile in markets, Exchange Invest has news of IBKR results while Euronext will have some cornerstone shareholders – remarkably not all are directly owned by the French government. Professor Mike Aitken of CMCRC takes down Michael Lewis’ flashy views with an Ozzie rules style tackle. EU marathon session passes a miasma of financial laws including MIFID II, while ICE announces new SMX management (remember the old scout motto: ‘be prepared’ …for regulatory arbitrage long in advance). Various products, job moves, exchange developments while Exchange Invest’s key statistic of the day is a big fat zero: marking the number of public statements by NYSE CEO Duncan Niederauer about HFT since Michael Lewis book came out. Remarkable, no? For lovers of digits, this is 28 less than the number of approved order types at NYSE.

Happy scrolling…

Meanwhile, the latest five posts on Premium are:

New: HFT: The Early Years
(a primer for those who mistakenly think HFT came from the digital world…).

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

Interactive Brokers Q1 Results
Interactive Brokers

Diluted EPS on a comprehensive basis $0.35 Q1 2014, compared to diluted EPS (2013 $0.06). On a non-comprehensive basis, which excludes the effect of changes in the U.S. dollar value of the Company’s non-U.S. subsidiaries, the Company reported diluted EPS on net income of $0.34 ($0.14 2013). Net revenues were $355 million ($216 million Q1 2013) and income before income taxes was $218 million ($82 million 2013).

PLY: I can’t help but feel there is a sort of fin de siecle feeling about IBKR right now. The prop trading results appear to have bounced back with the help of a higher ViX this quarter but the business strikes me as lacking forward direction and the competitive advantage of the prop arm is no longer clearly evident. Dynamic founder Thomas Peterffy is a lot younger than Warren Buffett but, 70 is well, a point at which maybe some succession planning may be useful for the business, just in case?

Eight ‘Anchor’ Investors To Back Euronext Listing
Sophie Sassard, Freya Berry & Jean-Baptiste Vey – Reuters

A consortium of eight ‘anchor’ investors have committed to buying a 25-30 percent stake in stock exchange operator Euronext ahead of a potential 1.5 billion-euro (2 billion pounds) listing.

PLY: After an eerie period of silence, it seems as if the French government gamble to strong arm / beat into submission the finance sector to make a lousy bet backing a moribund business is succeeding. With a little help from the other members of the “PABLO” bourse consortium, this surreal ‘enterprise’ can continue to weave its way wearily and inadequately through market provision. The 8 names are: BNP Paribas, Societe Generale, Caisse des Depots, ING, ABN Amro, Banco Espirito Santo, the Belgian government investment vehicle SFPI and Belfius bank.

– Astute readers will note that Caisse des Depots is a French government entity, SPFI belongs to Belgium’s government. Various others tend to get bailed out in some shape or form with tedious regularity. Apparently Euroclear will also become a shareholder in due course. In other words, this process is a step towards a kind of crowdfunded nationalisation.

At least the good news is that ICE ought to have a much smaller liability, er, position, in Euronext by summertime.

Fund Managers Back HK’s “One Share, One Vote” After Alibaba Rule-Change Talks
Elzio Barreto – Reuters

54 Global fund managers of nearly $14 trillion in assets support Hong Kong’s “one share, one vote” principle, and oppose changing listing rules to allow non-standard shareholding structures, the Asian Corporate Governance Association (ACGA) said on Tuesday.

PLY: OSOV, is democracy for business, promoting the sort of good corporate governance which is pragmatic, sensible and logical for everybody. Exchanges which don’t practice it are plutocratic paradises where shareholders are an irritating afterthought. This practice needs to be stopped although many bourses have listed issues here – some even within their own structures (e.g. Warsaw). HKEx needs to stay untainted, whoever welcomes Alibaba is a prima facie case of “IPO emptor.” Speaking of which:

Alibaba’s Growth Accelerates, U.S. IPO Filing Expected Next Week
Edwin Chan – Reuters

Alibaba Group Holding Ltd’s revenue growth accelerated in the last quarter of 2013, a timely lift for the Chinese Internet company as it prepares to file a prospectus next week for its highly anticipated IPO.

Alibaba is expected to file prospectus for the share sale as early as Monday, as it prepares for the largest U.S. IPO since Facebook Inc’s 2012 coming-out party.

PLY: Of all the phrases deployed to discuss a floatation “coming-out party” is a whole new one.

China IPOs May Restart Earlier Than Expected

IPOs on China’s mainland stock exchanges may restart sooner than expected, after the China Securities Regulatory Commission (CSRSC) told underwriters to complete their submissions of revised disclosure materials as early as the end of this week. This order concerns 32 companies that have already submitted preliminary disclosures but later changed the exchange on which they planned to list.

Forex Rule Confusion Risk To UK Traders (subscription)
Delphine Strauss & Philip Stafford – Financial Times

London’s forex industry risks having to put up more capital to back its trades if European regulators rule against it in an arcane debate over the definition of widely traded spot and forward contracts.

European authorities are struggling to determine whether swaths of the foreign exchange market are caught under reporting requirements that came into effect two months ago as part of a sweeping overhaul of off-exchange markets.

PLY: The perils of having a lot of countries deciding on things is that really most of them just aren’t that financially literate – particularly not in a Europe where a third of the whole business is concentrated in the UK (much more if we just look at forex-related products). I mean if you thought the tail end of the G20 are financial illiterates when it comes to understanding swaps, then try various European states… At risk here, the definition of forwards. Under 7 days and the UK (wisely) reckons them not to be derivatives insofar as settling against big margining issues and capital requirements for clearing etc. If the numerically prevalent financial illiterates get their way then we could end up with a much reduced amount of leverage for hedging / trading at banks as they have to allocate a lot more money to collateral for clearing. Well summarised here by Delphine Strauss and Philip Stafford who note that forwards amounted last April to $680bn of the daily $5.3tn global market. As always a dearth of perspective has fuelled the latest dose of big regulation.

Six Ways Europe’s Financial Sector Is Meant To Mend Its Ways (subscription)
Alex Barker & Philip Stafford – Financial Times

While Europe showed many shortcomings in facing its multiple crises – from banking collapses to sovereign debt panics to benchmark manipulation scandals – few can fault its appetite for financial legislation. The parliament moved into law making overdrive, with a “Super Tuesday” finale during which seven financial services files were passed in one of its last voting sessions before elections.

PLY: A splendid deployment of cliche by Commissioner Barnier – he uber-aptly refers to a “rulemaking spring” from his department. Absolutely! We have ended up with invasive oppressive totalitarian tanks parked all over the lawn of market freedom while a smug clueless central bureaucracy think they have solved the situation.

TSE Applies For LEI Status

Tokyo SE (JPX) has applied to the FSA to be registered as LOU (Local Operating Unit) of the global LEI system.

PLY: Risk Warning: Don’t open this link unless your insomnia is really bothering you. “Arcane” is mainstream compared to this gem of acronymous bureaucrat-speak. Then again, how does one engender more interest in anything to do with LEIs? …is a fair defence.

Deutsche Börse And The Stock Exchange Of Thailand (SET) To Cooperate – MOU

The Stock Exchange of Thailand (SET) and Deutsche Börse AG signed a MoU on 11 April 2014. Both partners aim to enter into a cooperative relationship for the purpose of facilitating the development of the securities and derivatives markets between Thailand and Germany.

RBC To Close Proprietary-Trading Desk (subscription)
Rob Copeland – Wall Street Journal

RBC, Canada’s second-largest bank by assets, plans to spin off its New York-based Global Arbitrage and Trading arm into a stand-alone hedge fund as soon as the end of this year, thus removing one of the last proprietary-trading desks on Wall Street, another win for regulators that have pushed banks to cut back on proprietary trading. The bank will likely be an investor in the fund but not an owner so it complies with the so-called Volcker rule governing risk-taking by major financial institutions.

Private Markets

MCX-SX May Bring Foreign Investors
Rajesh Bhayani – Business Standard

MCX-SX is considering bringing in foreign investors and a couple of international stock exchanges have shown interest in buying a stake. The exchange has been struggling to raise funds with a rights issue, ending on Thursday. A spokesperson said, “The issue is not the only option available for capital infusion. Preferential placement, roping in strategic investors, M&A (merger and acquisition), etc, are under consideration, too.”

PLY: I think I can translate that spokesman comment to: “We’re so desperate, we would take cash from the North Korean Sovereign Wealth Fund.” MCX-SX has suffered a crucial management momentum failure when it was obvious the exchange was inching towards a crisis. There is a viable bourse in there but it needs radical surgery on all fronts to survive.

MCX-SX Equity Volumes Plunge Sans Incentives
Kashyap Shah & Sachin P Mampatta – Business Standard

The equity segment turnover of MCX-SX in April has fallen by 99 per cent from its all-time highs. The fall comes as the exchange moved to remove an incentive structure aimed at bringing volumes to its trading platform.

PLY: In other words volume was just a chimera without vast incentives. Cue my inbox swelling with readers pointing to other acronymous competitor exchanges and worried press departments preemptively trying to suggest their bourse is not like this. Look, I haven’t said a thing…


India – NSE Alleges Software Trademark Violation; Sues Domain Registrar
Khushboo Narayan & Malvika Joshi – Livemint

National SE (NSE) has dragged global domain name registrar GoDaddy and a Hyderabad-based technology firm to the Bombay high court over alleged copyright and trademark infringement of its software.

The case relates to NSE’s online trading platform NOW, which allows its subscribers to view and use its database and analysis based on primary data, to execute trades in real time, for a fee. The platform has over 500,000 subscribers. NSE, along with its group firm DotEx International Ltd, has alleged that Hyderabad-based Manshi Systems had been allowing customers to access the NSE Now platform and data available on it via its own software at prices far lower than those charged by NSE.

The website of Manshi Systems is hosted by the Indian arm of GoDaddy Operating Co. Llc, making both parties to the case.

Rooting For Reform: Samir Shah, NCDEX
Sneha Jha – CFO World

A call for change: Thats how the year 2013 will go down in history: Samir Shah, MD & CEO, NCDEX, was stirring up a small revolution. When Shah took over the Exchange in the summer of 2013, markets were down and growth prospects bleak. The Exchange itself was stuck in a time warp and needed a fresh coat of paint…

Investing Public To Own Stake In 60-Year-Old NSE
James Anyanzwa – Standard Digital

Kenyans can now own a stake in the Nairobi Securities Exchange (NSE), which will be offered to the public in two months time. Brokers and investment banks will sell part of the bourse to the investing public, marking the culmination of the nearly 6 year long demutualisation process.

Stoica, BRM: Romania Likely To Set Up Agricultural Commodity Exchange In 2014 (subscription)
Ecaterina Craciun – ZF

PLY: Incumbent Romanian Commodities Exchange (BRM) might soon be facing competition from an unnamed new bourse during 2014…

Nigeria’s ASeM Yet To Attract Listing 365 Days After Re-Launch
Iheanyi Nwachukwu – Business Day

Almost 365 days after the Nigerian SE (NSE) re-launched the Alternative Securities Market (ASeM) for emerging companies, this all-important segment of the market is yet to attract any listing.

Mt. Gox Files For Liquidation (subscription)
Takashi Mochizuki & Katy Stech – Wall Street Journal

Defunct bitcoin exchange Mt. Gox has given up its plan to rebuild under bankruptcy protection and has asked a Tokyo court to allow it to be liquidated.

Dividend News

Interactive Brokers BoD declared a quarterly cash dividend of $0.10 per share. This dividend is payable on June 13, 2014 to shareholders of record as of May 30, 2014.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX is up 2%, FTIL down 1%, even the Indian media have run out of things to say about NSEL every day but we’ll keep this section open until a few more bits of the resolution jigsaw fall into place…


Volta Welcomes Six Degrees Group To Their Great Sutton Street Data Centre – Six Degrees Group (6DG) Adds CityOof London PoP At Volta To Expand Their Datahop Network

Volta Data Centres, the specialist provider of data centres to the financial, media and content industries, today announced that 6DG, a provider of integrated data managed services, has added a Central London PoP at Volta’s Great Sutton Street data centre, to expand the coverage of its 6DG Datahop network.

CME Trading Outage Showed That Man Can Still Match The Machine
Cezary Podkul & Tom Polansek – Reuters

PLY: Reuters pick up the theme we started last week. The flaw in this article is that maintaining a floor is just too expensive in the modern world to compensate for the odd bit of downtime. We know floors can be remarkably efficient but it was cost which really killed them, not efficiency. Come to think of it, didn’t somebody write a book about this? Wonder what happened to him?


RBI To Ease Curbs On Exchange Traded Currency Futures
Lokeshwarri Sk – The Hindu Business Line

RBI may allow foreign institutional investors (FIIs) to participate in the exchange-traded currency derivatives market, where volumes have been dropping at an alarming rate. To resuscitate this market, the Reserve Bank has also relaxed some of the trading curbs imposed in 2013. The RBI had permitted futures and options on the rupee to be traded on the Indian stock exchanges in 2008. These instruments were aimed at helping small companies hedge their foreign exchange exposure.

PLY: One day India might even become an open trading nation and let us all invest without having to be monolithic massive entities. Imagine how the country could prosper then.

IOSCO Research Publishes Paper On Corporate Bond Markets

The Research Department of IOSCO today published a Staff Working Paper entitled Corporate Bond Markets: A Global Perspective.


MOEX To Publish New Russian Market Volatility Indicator (subscription)
Giulia Lasagni – waters technology

MOEX announced that, starting Wednesday, April 16, it will begin publishing a new index that provides an indicator of Russian volatility designed to give investors and traders a wider range of tools to assess the market.

Career Paths

ICE announced that Singapore Mercantile Exchange and Singapore Mercantile Exchange Clearing Corporation will be renamed ICE Futures Singapore and ICE Clear Singapore in the coming week.

ICE Futures Singapore and ICE Clear Singapore will be headed by Lucas Schmeddes, as President & COO. Schmeddes was previously Chief Operating Officer of ICE Endex in the Netherlands. Jennifer Ilkiw will be VP, ICE for the Asia Pacific region.

The following directors will serve on the boards of ICE Futures Singapore and ICE Clear Singapore:

Jeffrey C. Sprecher, Chairman and CEO, ICE;
David S. Goone, Chief Strategy Officer, ICE;
Vijay Iyengar, Founder and MD of Agrocorp International Pte Ltd;
Tan Soo Nan, CEO, Singapore Pools (Private) Limited
Ang Swee Tian, former President of SGX

ICE press release here.

PLY: Given his success with ENDEX Lucas Schmeddes gets a fascinating promotion to Singapore where he has the opportunity to create a massive powerhouse hub, especially as regulatory arbitrage against the tanks of Barnier’s “rulemaking spring” may yet drive trade out of the European Union.

Simon McDowell, a veteran technology and operations executive at several data technology vendors, has joined trading technology and connectivity services provider Ullink as global sales operations director.

Sungard Availability Services (Sungard AS), the managed IT, cloud and recovery services business, appointed Josh Crowe as CTO. Crowe joins with the mandate to consolidate the technology vision of Sungard AS following its recent establishment as an independent company, and drive future innovations in information availability.

Vendor Temenos, has appointed Martin Frick as Head of APAC, based out of the group’s Singapore office.

Advisory firm Kinetic Partners, has announced two promotions within its team in Hong Kong as it continues to grow and develop its business. AnnMarie Croswell has been promoted to Member and Katrina Banh to Associate Director within Kinetic Partners regulatory compliance team in Hong Kong.

SEC announced the appointment of David J. Gottesman as deputy chief litigation counsel in the Division of Enforcement.

Financial Calendar

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.

Share Notes

Interactive Brokers Group SVP Milan Galik sold 1,800 shares Friday, April 11th at an average price of $21.68 (bargain $39,024.00). He now owns 782,417 shares. Mr. Galik’s regular sales are chronicled on this specific page.

Analyst Notes

Goldman Sachs Restated Their “Neutral” Rating On Tullett Prebon – GBX 390 Target Price

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.


Crowdfunding Platform Crowdfunds For Itself
Matthew Flamm – Crain’s New York Business

SeedInvest wants to raise $1 million in New York , the final phase of a $3 million Series-A fundraising round. The other $2 million has already come the old-fashioned way, through venture capital firms Scout Ventures, Great Oaks Venture Capital, Avenue A Ventures and Krillion Ventures. By opening up the round to ordinary moneyed folks, SeedInvest becomes the first U.S.-based equity crowdfunder to publicly raise capital for itself.

PLY: Meanwhile in the UK, Crowdfunder will soon run a 500,000 Pound round where Nesta has already pledged 150,000 GBP.

Other stories

Flash Boys “Complete Nonsense” And Regulators Must Not React – CMCRC: Pre-Eminent Market Structure Researcher Says Michael Lewis’s New Book Appears To Be Evidence-Free Scaremongering

The Capital Markets Cooperative Research Centre (CMCRC) has released two videos commenting on the anti-HFT sentiment stirred up by the release of Michael Lewis’s new book Flash Boys.

PLY: An inimitable comment by the excellent Professor Michael Aitken CEO of CMCRC.

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