April 21 2015

A frantic day for news and pith in several key areas. You can’t afford not to scroll through…and if you are one of those who hasn’t got around to subscribing to EI Premium today, then, oops, you’re going to be exposed at the watercooler!

Christian Katz to leave SIX, new FESE Chairman therefore likely in due course…would dominate the headlines on a normal day but today is, well, slightly exceptional!

Multiple incumbent CCPs have struck back against the naive views of various cash-centric markets on Open Access while the biggest news is that NLX may not be dead but it has apparently been wheeled into intensive care and a decision is likely imminent about switching off the life support.

One market venue is in its death throes after creating a lot of fuss about nothing…butterflies, arguably misleading advertising and repeated suggestions of market malpractice aside. Readers will recall I led the whole discussion of the dubious approach to market making deployed by NLX’s management almost a year ago in this daily and in more detail in Exchange Invest Premium.

I wish the foot soldiers of NLX who may be made unemployed every success in a rapid return to work and hope we are now at a point where the regulators will finally act against what has been a dubious episode in the intersection of hype and economic market benefit.

True, NLX may endeavour to stumble on but without customers, market makers and no apparent economically pertinent business, it’s tricky to see what it becomes other than a very expensive lunch club with fascinating software.

Schadenfreude? Not really. I come away deeply disappointed at how many individuals willingly pooled their ignorance when it came to operating derivatives markets and maintained a facade which bled NASDAQ shareholder cash for absolutely no benefit whatsoever – well apart from the coffers of many media outlets and market makers who willingly supped at the well of NLX marketing and incentives.

Thus, there are a trio of pithy new Premium posts today:

Nope-n Access – The Incumbents Strike Back
NLX On Life Support
After NLX The Ramifications

Happy Reading and Thanks to all our subscribers for their support You can Subscribe here.

And on top of that today we even have another new video today!

Here is the latest in my series of Cinnober Videos, discussing the new risk and clearing culture – here.

cinnober 7


Previous Cinnober videos

LME Clear’s impact on the clearing industry

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?

I added a Premium Post this morning: Bloomberg Down – Embarrassing But Hardly Scorched Earth?

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, Part 2, Part 3, Part 4 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 22

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Public Markets

Clearing Houses Hit Back At European Plans (subscription)
Philip Stafford – Financial Times

A group of seven European derivatives exchanges operators (DB1, ICE, Euronext, LME, BME, Athens Exchange and the ICE-owned Holland Clearing House) have hit back at regulators’ plans to give investors greater choice to trading futures and options, saying law drafts underplay risks to financial stability.

The seven warned that advanced European plans to require derivatives clearing houses to link to each other — intended to stimulate competition and lower trading costs — pose a threat to market stability and customer protections, “especially in distressed conditions”.

They also warned that plans clashed with European rules and global standards.

PLY: A clear concise letter which is based in reality. There is currently no coherent plan for Open Access which can make markets safer.

Read the joint letter here.
Read the open letter on open access sent to Esma by ICAP, LCH.Clearnet, LSE and Nasdaq here.

QV also our Premium posts:

New! Nope-n Access – The Incumbents Strike Back
Sometimes You Need A Plumber
The Homer Simpson Buffet Risk
The LCH.Clearnet Paradismal Shift

CME Mulls International Exchange At GIFT
Kalpesh Damor – Times of India

CME is in talks to set up an international stock and commodity exchange in GIFT in Gandhinagar. Senior executives from CME discussed options with GIFT officials on Monday.

“CME is keen to set up international stock and commodity exchange in GIFT IFSC. Initially, they are likely to tie-up with one of the Indian stock exchanges”. (sources)

With regulatory framework in place, many financial services players seem to have evinced keen interest in setting up operations in GIFT IFSC – GIFT has already approached international exchanges such as NYSE, LSE, SGX.

Last week, NCDEX signed a MoU with GIFT SEZ to set up an international commodity and derivatives exchange. BSE and NSE plan to set up exchanges in India’s first IFSC, GIFT as reported here and here.

PLY: Read our Premium post: The GIFT Horse? & note that I for one am not entirely sure the GIFT exchanges will initially be as numerous as suggested, most every exchange will kick the tyres but India retains unique regulatory bottlenecks as NSEL has shown.

EU Finance Ministers Asked To Set CMU Priorities
Huw Jones – Reuters

Setting clear priorities would generate momentum for the EU’s “CMU” plan to lift growth, EU president Latvia has proposed.

Read our Premium EU CMU Brief

Exchanges, SIFMA Go To SEC Trial In Battle Over Market Data Fees
Sarah N. Lynch – Reuters

Wall Street’s leading trade group went to battle on Monday against two top U.S. stock exchanges, arguing they should not have leeway to hike the fees they charge traders to access crucial proprietary equity market data. In a hearing before a SEC administrative law judge, an attorney for SIFMA tried to undercut testimony from an employee at ICE’s NYSE Arca.

At the heart of the case is a fundamental question about whether competition between NYSE and Nasdaq is constraining the two rivals enough to justify the fees they charge traders for proprietary data.

SIFMA argues that there are no competition constraints because the two data sets are significantly different, and traders rely heavily on both.

Volcker Urges UK-Style Regulatory Reforms (subscription)
Barney Jopson & Sam Fleming – Financial Times

Paul Volcker, former head of the Federal Reserve, has issued a radical call for the US to follow the UK’s lead by streamlining its mishmash of financial watchdogs in order to close worrisome gaps in regulation.

He called for the abolition of one of three main US bank regulators, the Office of the Comptroller of the Currency, and for the merger of two markets regulators — SEC and CFTC.

PLY: Great ideas revisited but, as always, politically unlikely…

China Overhauling IPO Process, Mulls Foreign Firms Listing

As briefly announced yesterday, China will switch to a “registration system” for IPOs, ending the current approval process – as used in mature markets such as the United States, where the market decides who gets to list, when, and for how much – will obviate the China Securities Regulatory Commission’s (CSRC) role as the approval agency.

PLY: Good.

China To Allow Short Selling
Stephen Durham – Securities Lending Times

China has decided to allow fund managers to lend shares for short selling, and also intends to expand the number of stocks investors can short sell, according to reports.

PLY: Also good.

China Needs More Reform To Avert ‘Boom Bust’ Market Scenarios: BlackRock

The CEO of BlackRock said on Tuesday that China will need to continue to reform its capital markets to avert what he called boom and bust scenarios.

PLY: Cause for concern growth pangs.

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

Private Markets

Blocks Boost Liquidnet’s European Revenues (subscription)
Tim Cave – Financial News

Growing demand for block trades helped propel Liquidnet’s European revenues to more than £40 million last year, with the group poised to apply the techniques it has honed in equity markets to a new corporate bond trading platform.

PLY: And as a final sign-off: I was delighted to play a modest role as a non-executive director of Liquidnet Europe during the swing to considerable profits during my term on the board. Great numbers which I applauded as I stepped down.

Cheung Awaits Fate As Questions Posed
The Standard

Barry Cheung Chun-yuen will learn his fate on Thursday for his failure to pay a former employee nearly HK$340,000. Sentencing for the disgraced, now- bankrupt ex-executive councillor, pictured, was postponed again after the court raised new questions about his finances.

Kowloon City magistrate Veronica Heung Shuk-han yesterday wanted to know how Cheung paid the rent on his luxury flats in Repulse Bay and Happy Valley, and when he received a HK$600 million injection to resuscitate the now-defunct HKMEx.

PLY: I applaud the fearless way the Hong Kong courts have approached such a high profile figure whose exchange odyssey turned to dust after vast expense in between.

NZ – “Unlisted” Seeks Exemption From New Financial Market Rules
Tina Morrison – Scoop

Unlisted, the share trading platform, is petitioning Commerce Minister Craig Foss for exemption from a rule change requiring it to be licenced by the Financial Markets Authority, saying the cost would be prohibitive for its service for smaller companies.

Under the Financial Markets Conduct Act, which came into force in December, Unlisted had to either apply for a licence from the FMA, seek an exemption, or shut down. Unlisted currently requires minimal disclosure, keeping costs low for the 17 securities that trade on its platform.

Special Section: FTI, NSEL, India at the Crossroads

PLY: FTIL flat, MCX off 1%, no other material news on NSEL resolution.


Turnover Explosion At SSE Has Too Many Zeros For Software
Samuel Shen & Pete Sweeney – Reuters

China’s stock trading fever has made the Shanghai SE (SSE) the world’s biggest in terms of turnover, surpassing NYSE, but the explosion in volumes has exceeded the ability of the exchange’s software to report it.

The exchange’s trading turnover exceeded 1 trillion yuan ($161.28 billion) for the first time on Monday, but the data could not be properly displayed because its software was not designed to report numbers that high.

“This is a software configuration issue, not a technical glitch,” SSE said in a statement, adding that trading and price quotes for individual stocks were not affected.

The exchange said it would need to replace its current software files that handle volume reporting to resolve the issue.

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

Colt Group Companies KVH & MarketPrizm Announce Launch Of PrizmNet extranet Service – Launch Partners Include NLX, Nasdaq, JPX & Aquis Exchange

PLY: Don’t expect the bandwidth to NLX to be huge…


LSE Sets March 2016 For Curve Futures Launch (subscription)
Luke Jeffs – FOW

LSE plans to launch a futures trading venue called Curve in March 2016 and has hired a former project head at a rival as the British exchange starts to ramp up its efforts ahead of the planned launch.

PLY: LSE can try as many brands as they want for Rita – it is still unclear how it can succeed.

LCH.Clearnet Opens Australian Dollar Account With Reserve Bank of Australia

LCH.Clearnet announced that it has established new deposit and liquidity facilities with the Reserve Bank of Australia (RBA).

LME To Cut Size Of New Steel Contracts To Boost Liquidity

LME said on Monday it plans to reduce the size of its new steel contracts to 10 tonnes from 100 tonnes to boost liquidity.

Futures Are More Cost-Efficient Than ETFs, Finds New CME White Paper

With capital efficiencies being such a hot ticket issue for hedge funders today, any opportunities to trade with a greater level of efficiency are surely welcome.

Which makes a new white paper written by CME all the more well timed. Entitled: “The Big Picture – A Cost Comparison of Futures and ETFs”, the paper deep dives into how the total costs of holding futures and ETFs differ over two time horizons: short term (three months or less) and long term (more than three months).

ECB Risks Freezing Repo Market, ICMA Official Says
John Geddie – Reuters

ECB risks secured-lending or repo markets grinding to a halt unless it works more closely with national central banks (NCBs) to improve liquidity.

PEGAS: Successful Launch Of ZEE Gas Spot And Futures – New PEGAS Spot Index On ZTP

PEGAS, the pan-European gas trading platform operated by Powernext, has successfully launched physically settled Spot and Futures contracts, quoted in pence per therms, for the Belgian Zeebrugge Beach (ZEE) gas hub on 17 April 2015. On the same day, a Daily Average Price index for the Zeebrugge Trading Point (ZTP) in Euros per Megawatt-Hour was introduced.

Career Paths

Finextra reports that Christian Katz, Division CEO Swiss Exchange, has decided to leave SIX. His decision is based on diverging views on the strategic direction and on the further development of the business area Swiss Exchange. Christian Katz will leave SIX at the end of April 2015. Christoph Landis, Head Operations and Deputy Division CEO Swiss Exchange, will assume responsibility for the management of the business area on an interim basis. Christian Katz will continue serving as the President of FESE until a suitable successor is established.

PLY: All the very best to Christian. I am sure he will be in demand whether in Zurich, the UK or US in the near future. The new FESE Chairman choice to complete Christian’s term will be interesting, as will be the final decision on Christian’s SIX replacement.

SEC announced that David Woodcock, Regional Director of the Fort Worth office and leader of the Enforcement Division’s nationwide Financial Reporting and Audit Task Force, is leaving the SEC later this spring.

Financial Calendar

Bahrain Bourse (BHB) will host the Arab Federation of Exchanges (AFE) Annual Conference 2015 in partnership with Thomson Reuters
SGX Q3 Results for Financial Year 2015 (FY2015)
Nasdaq Q1 2015 Financial Results

New announcement

SEC announced that its Equity Market Structure Advisory Committee will hold its first meeting on May 13 – see agenda here.

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

Analyst Notes

PSE Ponders Future
Cherie Marriott – Finance Asia

Trading at a forward P/E ratio of 20 times, Philippine SE (PSE) is one of the most expensive equity markets in the Asia-Pacific region.

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.


Why Small Businesses Are Not Yet Embracing P2P Lending and Crowdfunding
Marc Prosser – Forbes

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