April 16 2015

cinnober video 6 Schwab results pretty flat, MCX has no redeeming MSXI appeal whatsoever while Virtu prices at top of range in a healthy market – how things have changed since the “Flash Boys” publication little more than a year ago… NASDAQ subsidiary seeks to reanimate its dead in the water copycat market (oh I mean the interest rate one…). ICAP boss Michael Spencer threatens departure from UK if the economically incoherent (yes, even by the collapsing standards of British politics), Labour Party wins the UK election.

And just when you think it can’t get more exciting here is the latest in my series of Cinnober Videos, discussing LME Clear’s impact on the clearing industry – link here.

Previous Cinnober videos

The most fascinating era for capital markets which we are lucky to be witnessing:

The future of money – where is cryptocurrency heading?

What will the launch of real-time clearing at BM&FBOVESPA mean for the industry?

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:

A Taste Of HFT Scandal Brief – Part 1 NEW!
Vietnam Exchanges Merger Brief 
CVC Betfair Bid Brief 
India – NSE Sales Brief
EU CMU Brief
EU FTT Brief Part 1Part 2 
NSEL Scandal Brief – Main File
NSEL scandal – FTIL Group – Board and Management Changes Brief – Part 1 and Part 2

Our Premium service is a unique source of industry analysis – insight in a low latency environment if you like. Can you afford not to be a subscriber? $120 per user/year helps keep Exchange Invest daily Free. Subscribe here or reply to this email and I will invoice you forthwith.

Public Markets

Charles Schwab Q1 2015 Financial Results
Charles Schwab

Financial Highlights

Net revenues $1,526 mln, up 3% compared to $1,478 mln in Q1 2014
Net income $302 mln, down 7% compared to $326 mln in Q1 2014

PLY: A rather healthy US stock market fails to drive profits at Schwab.

Plus500 Q1 2015 Financial Results
Andrew Saks-McLeod – LeapRate

Revenues $82.1 mln, up 35%

Read our Premium FX – CHF Crisis – Brief

FTIL’s Exit From MSXI (Former MCX-SX) Is Complete
The Economic Times

FTIL said it has completed the sale of its entire 5% stake in MSXI (ex MCX-SX) for nearly Rs 89 crore (USD 14.2 mln), thus exiting the bourse.

Read our Premium brief: FTIL Stakes Sales Brief.

Virtu To Price Shares In IPO At $19 Each, Top Of Range
Leslie Picker & Sam Mamudi – Bloomberg

Virtu Financial raised $314 million in its IPO, after the HFT’s shares were priced at the top of the marketed range. Virtu sold sold 16.5 million Class A shares for $19 each, according to a statement Wednesday, after offering them for $17 to $19. The shares will start trading Thursday, on Nasdaq (symbol VIRT).

Virtu IPO Tests Perceptions Of High-Speed Trading (subscription)
Bradley Hope – Wall Street Journal

When Virtu starts trading Thursday, its performance will be a test of how markets view a firm that has been at the center of controversy around high-speed, computerized trading.

Read our Premium Virtu Financial IPO Brief and A Taste Of HFT Scandal Brief – Part 1.

HKEx’s Large Investor Base Not Comparable With SGX’s
Vincent Khoo – Today

The report “HKEx is world’s largest exchange operator as SGX languishes” (April 15) paints an unfair comparison between HKEx and SGX. It is like comparing an apple to an orange.

PLY: Hmmm, what is the Cantonese for “Meow?”

SGX Says Not Setting Up A Stock Link To China
The Economic Times

SGX is not in the process of establishing a stock trading link with the Chinese stock market.

SGX press release here.

Previous comment yesterday.

PLY: Which isn’t happening anyway, apparently…

Alibaba Pays Price For U.S. IPO As China Link Stokes Tencent
Lulu Yilun Chen – Bloomberg

Alibaba spurned Hong Kong for an IPO after failing to get the management control it wanted. Now the company is missing out on billions of dollars flowing from mainland Chinese investors.

Hong Kong-listed Tencent Holdings surged 40% this year, adding $55 billion in market value, as an exchange link with Shanghai enables mainland Chinese to invest in the nation’s biggest instant-messaging services. Shares of Alibaba have slumped 18% in New York. That allowed Tencent to close the gap in overall market value to its narrowest since Alibaba went public.

PLY: A delightfully rich irony but then again Tencent has a structure in compliance with the sound strictures of HKEx whereas Alibaba is run under a much less democratic shareholder apartheid – perhaps that would also account for some of the investment deficit?

LME Closer To Coveted China Market As Stock Program Launches
Josephine Mason – Reuters

LME expects to make its first foray into the lucrative Chinese market in the next year or so:

The recently launched Stock Connect program allowing Chinese mutual funds to buy Hong Kong stocks is a “pivotal” moment in opening up the mainland to the West, Garry Jones told Reuters on the sidelines of the CRU Copper conference.

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

NLX Talks With Founders Over Trading Push (subscription)
Luke Jeffs – FOW

Nasdaq NLX has opened talks with its founders over the terms of their participation in the European futures exchange in a bid to revive trading volumes after a period of slower activity. NLX has seen this year volumes fall to a fraction of their levels six months ago.

PLY: Fickle fluttering volume which once enjoyed such rich subsidy – but alas I still struggle to spot trades which could be viably regarded as adding economic value to the world’s markets.

Disappointingly, the FCA has not done anything public about trading practices which were open to question via the earlier NLX incentive schemes and then when NLX offered a brief communique to the effect of ‘just be careful what you are up to, Oh highly remunerated prop traders’ volume collapsed and it turned out the end of the ICE age was a frosty mirage which had been swallowed only by a media eager to be paid to undertake the NASDAQ subsidiary’s somewhat questionable marketing campaign. Anyway, given the length of the fuse in the likes of LIBOR and recent forex scandals, the regulators still have time to crack down retrospectively on what were some rather odd trades, as first outlined in Exchange Invest Premium almost a year ago:

Read our Premium NLX Brief (amongst other Premium pieces!).

‘Groundhog Day’ Sets Tone For Assault On Europe’s Futures Giants
Matthew Leising & John Detrixhe – Bloomberg

Working to set up a futures exchange to compete with established rivals can sometimes resemble the plot of “Groundhog Day,” the movie in which Bill Murray’s character keeps repeating the same day until he gets it right.

With a nod to the film, a group of Wall Street executives convened in 2013 to plan a new European market they’ve dubbed “Project Rita” after the character played by Andie MacDowell who is pursued by Murray in the movie. In conjunction with LSE, the consortium aims to steal market share from established venues owned by ICE and DB1.

Eighteen months and a few tactical shifts later, the new exchange plans to list interest-rate futures as early as the end of the year.

PLY: The process of “Educating Rita” is clearly problematic as the model appears rather pre-2008 bank-centric. On this venture, LSE is now somewhat exposed as its ongoing bank blood brothership has delivered much to the group… but it won’t deliver any coherent interest rate derivatives upswing methinks.

ICAP CEO Spencer Says Firm Might Leave U.K. On Labour Win
Richard Partington, Guy Johnson & Stephen Morris – Bloomberg

ICAP CEO Michael Spencer said he would consider moving his firm abroad if Labour leader Ed Miliband wins Britain’s elections in May.

“It’ll be a horror story,” Spencer, a former Conservative Party co-treasurer and prominent donor, said at a Bloomberg event, referring to a possible Labour win. “There are circumstances in which I would leave this country. If the regulatory environment becomes materially adversarial, your board will say it’s about time you contemplated re-domiciling.”

PLY: “Horror story” is a diplomatic rendering of a Labour Party which will be torn asunder by its anti-capitalist delusional Euro-socialism in the face Britain where England remains intrigued by Brexit and the Scots fixated with becoming ex-Brits.

Dublin, New York and many other cities with much more business friendly jurisdiction will welcome the buccaneering brilliance of Spencer’s ICAP. Michael must defend his business – Milliband’s left wing policies are a direct attack on British enterprise.

European Dark-Pool Equity Trading Limits Won’t Work, Ferber Says
John Detrixhe & Jim Brunsden – Bloomberg

Limits on European dark pools will not work in their current form, according to the parliamentarian with a key role in implementing them. A survey from LSE suggests he’s right.

Dark-pool trading could become impossible for almost all of the U.K.’s 100 largest listed companies — the constituents of the FTSE 100 Index — when the EU rules take effect in 2017, according to LSE’s research. About half of the FTSE 250 Index, which measures the next biggest 250 firms, would also fall foul of the caps, the study showed. LSE looked at trades that took place on dark pools and privately negotiated deals during 2014.

PLY: Of course the sad fact about the EU blob is that once such things have been passed we have to implement them despite this specific rule being an imbecilic attack on attempts by Europeans to save for their future at a time when the EU itself has no coherent plan for growth and is in denial of the Euro crisis still smouldering. A tragic, damning indictment of the great waste of time which is MIFID II from an experienced insider Econ Committee MEP.

Romania – SIF Moldova Has Had Enough Of Sibex Losses
Adina Ardeleanu – Bursa

SIF Moldova and “Delta Solar Investments”, with a combined holding of 9.03% of Sibex, want the Sibiu exchange to return to shareholders the money it got from the liquidation of the Romanian Clearing House (CRC), as well as the reduction of the Capital of Sibex, as they are unhappy with the losses it posted over the last few years.

Thus, the two shareholders have asked for new additions to the agenda of the General Shareholder Meeting of April 28th/29th, which is also when the elections for the BoDs are scheduled.

In response, the representatives of Sibex are saying that the strategic goals defined by the General Shareholder Meeting on April 28th/29th 2014, have been 100% fulfilled from a quantitative and qualitative point of view, and the revenue and expense budget has been completely fulfilled.

PLY: Utterly unsurprising and really a tragedy given where the exchange would have been had it not descended into political chaos a few years back. The likelihood of its survival appears to be dwindling despite there being so much (missed) opportunity surrounding it. However, there is no management, no direction and no understanding of the problems. This makes recovery somewhat challenging.

Private Markets

LuxSE 2014 Financial Results

Consolidated operating turnover of EUR 42.7m, up 5%
Net profit of EUR 10.8m, up 32%

PLY: Great numbers and plaudits to Luxembourg for their prodigious number of new issues last year too!

Barry Cheung Bankrupt With $120m Debts
Kenneth Lau – The Standard

Former Chairman of the now-defunct Hong Kong Mercantile Exchange (HKMEx) Barry Cheung Chun-yuen has been declared bankrupt with debts topping HK$120 million.

The bankruptcy petition was filed by Leung Chee-hon, a former NED of Sunley Holdings (now CNQC International Holdings) and supported by two other creditors, Fully Field and Sinomax Finance.

The Court of First Instance heard that Cheung, 57, owed Leung HK$47.6 million and Fully Field HK$72.8 million.

But Cheung had paid Leung only HK$3 million last June.

PLY: Ah HKMEx, we had almost forgotten you existed which seems so cruel given how much the entity burnt in its relatively short life.

Trading Shares By Hand-Written Boards Erased As Uganda Automates
Fred Ojambo – Bloomberg

Uganda Securities Exchange is ending open-outcry trading, where offers are written on a board on the bourse’s floor, and moving to a system of electronic equity buying and selling.

The Kampala-based market expects to start electronic trading in July.

Read our Premium briefs: Rise of Africa – Part 1Part 2Part 3Part 4Part 5.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX and FTIL down 1%.

IIFL Commodities Behind NSEL Defamation Notice?
The Economic Times

Buzz doing the rounds in market circles has it that IIFL Commodities is the broker behind the Rs 500-crore defamation notice against scam-hit NSEL and its joint MD Prakash Chaturvedi. The broker is reportedly miffed with the bourse for having written to regulators like RBI and Sebi to declare the company “not fit and proper” to run its business after a director’s arrest in connection with the NSEL scam.

The 137k People Who Will Benefit From NSEL-FTIL Merger
Sundaresha Subramanian – Business Standard

NSEL’s ambitious pay-off plan will serve far less people than the 137,665 shareholders who will benefit from the merger.

PLY: Trouble is roughly 1.1 billion Indians will suffer from the desecration of the Indian corporate code as a result of the inability of the Indian legal-regulatory system to create a settlement.

Read our Premium NSEL-FTIL Merger Brief and NSEL Scandal Brief – Main File.


IRGiT Upgrades To Nasdaq’s X-Stream Clearing Technology

IRGiT (Izba Rozliczeniowa Gield Towarowych S.A.) or the Warsaw Commodity Clearing House, will replace its existing legacy engine (Condico Clearing) with one powered by X-stream technology. The upgrade is expected to be rolled out by mid-2016.

The new technology upgrade will give IRGiT improved functionality, offering scalability which will offer opportunities to expand its clearing capabilities to a variety of other asset classes, including commodities.

PLY: Rather a quantum leap in technology methinks for a market which is not much discussed.

BATS Successfully Migrates U.S. Options Exchange To NY5 Data Center
Business Wire

BATS reported the successful and complete migration of the BATS Options market to the Equinix NY5 data center in Secaucus, N.J., on Monday, April 13.

BSO Network Solutions & DGCX Announce Partnership
Automated Trader

DGCX customers now have access to BSO Network Solutions’s range of specialist connectivity services, including Market Data Connect, which provides access to market data without the need for a dedicated connection.


Euronext To Launch Spreads Between Wheat Contracts On May 6

Euronext will launch on May 6 Inter-Commodity Spread (ICS) trading between its standard milling wheat futures contract and its new premium one.

Previous comments on the topic here, here and here.

China – Launch Of Stock Index Futures Offers New Tools For Short Selling (subscription)
Gabriel Wildau – Financial Times

Amid a run-up in Chinese stock prices that has sparked warnings of a bubble, two new derivative products that offer investors tools to take bearish bets on the market debuted in Shanghai on Thursday.

Exactly five years after launching mainland China’s first equity future, based on the large-cap CSI 300 index, new futures products based on the CSI 500 and Shanghai Stock Exchange 50 began trading on Shanghai’s China Financial Futures Exchange. The move follows February’s roll-out of equity options based on the SSE 50.

Read our Premium post: China Liberalises

OptionsCity Partners With GFI Group’s EnergyMatch
Automated Trader

GFI Group has completed the integration between EnergyMatch, its electronic central limit order book for WTI, Brent and Natural Gas financial derivatives, and OptionsCity’s Metro, an end-to-end electronic trading and market making platform.

CME Calls For Circuit Breakers Across FX Platforms (subscription)
FX Week

CME would like to see so-called circuit breakers adopted across a greater number of foreign exchange platforms that facilitate OTC trading in order to prevent abnormal price discovery in currency pairs during volatile events, according to the exchange’s executive director for FX products.


NSE Likely To Include Shares With Differential Voting Rights In Nifty From June
The Economic Times

Shares with differential voting rights (DVRs) are likely to be included in the benchmark index Nifty of the National Stock Exchange (NSE) from June, according to a source in the know. Last month, the BSE had said DVR shares of companies which were constituents of the 30-share benchmark index S&P BSE Sensex too will be part of the index. Now, on the NSE, companies that are constituents of Nifty will see their DVRs being included in the index.

Career Paths

FTSE announced that it has further strengthened its environmental, social and governance (ESG) management team with the creation of three new global roles. John Jarrett has been appointed as Deputy Head, FTSE ESG where he will be responsible for overseeing ESG research at a global level. John has previously been Global Research Director and COO at GovernanceMetrics International (GMI) and has a wealth of experience assisting international businesses and intergovernmental organisations on corporate governance and ESG factors.

FTSE also named Tony Campos as the new Head of ESG Americas with Arisa Kishigami being appointed as Head of ESG Asia Pacific. Tony and Arisa bring over a decade of ESG expertise to their new positions, having already played important roles within FTSE’s research team for a number of years. All three will report to Head, FTSE ESG, David Harris who sits within FTSE’s Database Services Group led by Kevin Bourne.

NY Times reports that Ben Bernanke will become a senior adviser to Citadel Investment Group, the $25 billion hedge fund founded by the billionaire Kenneth C. Griffin. He will offer his analysis of global economic and financial issues to Citadel’s investment committees and meet with Citadel’s investors around the globe.

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.
TMX Q1 Financial Results – Monday, May 11, 2015 – press release here.
Lending Club Q1 Financial Results – Tuesday, May 5, 2015.

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

Analyst Notes

ICAP Price Target Upped By Barclays From GBX 500 To GBX 600 – “Overweight” 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.


Singapore Based P2P Lending Platform Capital Match Goes Live

Capital Match is a homegrown Singapore-based P2P lending platform that helps Singapore SMEs obtain loans financed by individual investors.

It’s Official – Prosper Is A Unicorn

Last week San Francisco welcomed the latest unicorn to the herd – P2P lending site Prosper. Prosper announced that it brought in another $165 million in venture funding and sailed right past the “unicorn-making” $1 billion mark to a total valuation of ~$1.9 billion.

For all you FinTech scorecard toting enthusiasts keeping a running tally at home, Prosper was last valued just about a year ago (May 2014) at roughly $600 million. While more than doubling-up is certainly pretty impressive – and joining the (increasingly ridiculously misnamed) Unicorn Club is a major achievement for any startup, this is not actually Prosper’s most impressive growth spurt. That actually happened between November of 2013 and May 2014 when Prosper sextuppled its value from a little over $100 million to the $600 million mark. In fact, Prosper’s valuation is currently about 50 times higher than it was January 2013 – when it was a member of the FinTech peanut club and valued at a mere $38 million.

Crowdfunding & Global Challenges
Richard Swart – Crowdfund Insider

I recently published a report with Mary Milner addressing how crowdfunding models can be used to address global challenges across multi-national networks.

Other stories

House Agriculture Subcommittee On Commodity Exchanges, Energy, & Credit Hearing
Insurance News Net

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