Lots of (not so) little notices slipped out in the quiet news window as a vast swathe of the world’s capital focussed on egg pursuits or the remainder of Passover. Virtu IPO is delayed, various exchanges are being sued over HFT. BSE, CME, DB1, DGCX exchanges bidding for MCX stake, while MCX-SX extends rights issue. EU helps kill Eurodollar market as US de facto regains sovereignty and suzerainty over dollar swaps. Regulatory confusion remains a key factor in the OTC morph… HFT lawsuits look likely to bloom more than any spring flowers as exchanges become frontline targets of Michael Lewis inspired backlash. DB1 pushing global business message with big thoughts tempered by small mindedness? More ramifications on shareholder democracy from Hong Kong and London too. SEC to demand brokers disclose execution venue? Will BIFO become the new FIFO?
There’s a lot of news to catch up on and a load of pith, trust me, it’s worth scrolling…
FTIL’s MCX Stake To Go To Multiple Investors
Reliance Capital Highest Bidder For 24% FTIL Stake In MCX
Sugata Ghosh & Ram Sahgal – The Economic Times
PLY: Entirely unsurprising news that the stake will be split up as India refuses a larger than 5% stake for any foreign holder in an exchange.
Apparently Reliance Capital has bid over 750 Rs per share which is wildly frothy compared to the current market price of circa 580 but then again if they are trying to gain control… At the same time, CME bidding in the 650-700 region for a stake where control is unlikely to emerge any time soon strikes me as a tad high (especially as there is nothing to stop FTIL selling 5% to other exchanges). A decision will be taken April 25th apparently.
The bidders appear to be:
Reliance Capital, CME, Kotak Mahindra Bank, BSE, Tata Capital, CME, Deutsche Borse, DGCX, Warburg Pincus and Medist, an entity representing the London-based Lord Bagri* family.
*At which point I am delighted to note my thanks to John Mackeonis who has pointed out that while ennobled, Lord Bagri appears to no longer be a member of the House of Lords (perhaps on account on non domicile or overseas tax status)..
Interesting to see DGCX looking at MCX shares when its own minority shareholder is, of course, FTIL… (although clearly FTIL are no longer a major influence on the progressive Dubai bourse’s management). Likewise Bombay SE and its shareholder DB1 are interested too.
By means of comparison, NYSE is reckoned to have offloaded its stake at around 450 Rps last year. I am still confused why other exchanges were not looking then when the price was so much more attractive than the premium now on offer and indeed there have been some pretty lumpy blocks traded recently, for instance:
Corp Bank Offloads MCX Shares
Suresh P Iyengar – The Hindu Business Line
State-owned Corporation Bank has offloaded stake worth 19.91 crore (USD 3.28 mln) in over the last four months, bringing down its stake to 1.32 per cent from 2.10 per cent.
MCX Audit Panel To Meet On Apr 23 To Take Up PwC Findings
The audit panel of MCX is set to meet on Wednesday to discuss the findings of the global audit firm PwC.
PLY: Before any bids are upgraded to binding, this is a 500lb gorilla in the room:
PwC Forensic Audit Report May Put Fat Tax Liability On MCX
Varinder Bansal – Moneycontrol
There is trouble brewing ahead for MCX, which may face a big tax liability post the PwC’s forensic audit report. The street and especially the bidders have been waiting for this report. It was mentioned in the initial report that there were transactions worth Rs 800-1,000 crore (USD 132-165 mln) between MCX and FT group.
Deutsche Börse Hopes That Its Philosophy Has Global Appeal (subscription)
Philip Stafford – Financial Times
North Atlantic rivals may have more volume in particular products, but none has the breadth of operations of Europe’s largest infrastructure operator by market capitalisation.
PLY: A long-ish piece which seems to endorse a “poor me” view of the world – DB1 feels badly done by in the merger world but then again the article quotes CEO Reto Francioni embracing the remarkable assertion (as disproven by the EU) that heavy regulation is good for long term growth. DB1 is suffering a crisis of internal confidence it seems. Yes, many long-term plans are coming closer than ever to being powerhouses in the brave new world – Clearstream is an excellent example. At the same time DB1 are doing a great job at the bottom end of capturing potential alpha innovation in a way which no other exchange has yet got its head around (and yet there are so many possible models to do so as I have long been happy to discuss…). However the “whole” still feels a bit directionless despite various Asian deals.
BofA, NYSE, Brokerages Sued Over HFT
Bob Van Voris – Bloomberg
Bank of America and NYSE were among dozens of exchanges, brokerages and traders sued over HFT by the city of Providence, Rhode Island, over claims they rigged securities markets to divert billions of dollars from buyers and sellers of shares.
PLY: Clearly exchanges lapped up HFT revenue without thinking of the consequences for years (and let’s face it some executives have retired on the profits while others, such as Duncan Niederauer remain conspicuously silent – frankly a shameful situation for supposedly a world leading equity market – presumably he hopes to ride off into the sunset unencumbered). Now, as always, thanks to a linear management style which has not adapted in many businesses from being a controlled club to a proper business, the industry is likely to end up wrapped in legal claims for years to come.
Are the claims justified? Well, there is no smoke without fire but then again Michael Lewis hysteria is not a sound basis to judge any case although below the ranting sensationalism he does make some apposite points. The exchange industry has, overall, been unthinkingly supplicant to HFT without coherently seeking to emphasise the advantages to users and preclude the disadvantages. A win for the court of anti-market opinion powered by fee-hungry lawyers and aggressive politicians eager to make names for themselves is now emerging. HFT is in danger of descending into a low latency legal drag on the industry. The City of Providence (and last week’s CME suit) may yet be proven to be opportunist but not before the industry wastes a lot of legal precious exchange resources on legal process. Investors ought to question the benefit of share option grants to many executives who have unthinkingly or unknowingly adopted HFT without considering the consequences beyond short term profits.
Schneiderman To Probe Virtu’s HTF Practices
Michelle Celarier – New York Post
HFT firm Virtu Financial is in New York Attorney General Eric Schneiderman’s sights. The AG first alluded to Virtu when he announced his probe of the controversial trading in early March.
PLY: Given the fact that the NY AG seems to have produced a volume of letters not dissimilar to a 1970’s Reader’s Digest mailshot it is hardly surprising he would write to Virtu but obviously this letter has consequences, to wit:
Virtu Financial Said to Shelve I.P.O. Plans
William Alden – New York Times
PLY: Clearly Virtu cannot expect a lively, or even ‘fair’ valuation against the backdrop of Michael Lewis’ book. At the same time, it is somewhat ironic that this IPO casualty is a trader on IEX, no?
HKEx Must Not Tamper With Its Sound Listing Rules (subscription)
Albert Cheng – South China Morning Post
PLY: A must read article all about the surprise announcement by Premier Li Keqiang of an HK-Shanghai trading link. Mr Cheng notes it was announced in a fashion rather contrary to Hong Kong’s rules on announcements while he goes on to query issues concerning the HKEx monopoly, the position of Charles Li on diluting shareholder rules and a host of other points.
SGX, Taiwan Mull Cross-Trading Of Shares
Lynette Khoo – Business Times
Singapore and Taiwan stock exchanges are discussing potential cross-trading of selected shares listed on both bourses. For a start, each side may shortlist a pool of high-quality stocks for the cross-trading.
PLY: It might even work but remember when ASX and SGX had a similar linkage a decade or so ago? Investor interest was very muted.
Singapore – T+3 Settlement Period Should Remain: Remisiers
R Sivanthy – Business Times
The Society of Remisiers (SOR) has asked the Monetary Authority of Singapore (MAS) and SGX to retain the present settlement period of T+3 and to require collateral only for trades above $50,000, two recommendations which, if accepted, would help preserve some contra trading. The MAS-SGX consultation paper issued in early February proposed reducing settlement from T+3 to T+2.
PLY: Essentially a call for more trading without settlement as “contra” allows offsetting of trades within T+3 thus generating a “mini-account’ effect, as per the classic LSE process where right now with Easter we had potentially a three week window to trade…
Icap Eyes Mid-May Launch For European SEF (subscription)
Joe Parsons – FOW Intelligence
Icap has confirmed to FOW it will launch its European SEF on May 12, making it the first to operate the new breed of electronic trading platform in both the US and Europe.
CFTC Gives Green Light For Gain Capital’s GTX SEF LLC Application As A SEF
Steven Hatzakis – Forex Magnates
CFTC has announced the issuance of a notice of temporary registration which provisionally approves GTX SEF, LLC (GTX) as a SEF.
FAO: Our list of approved SEFs can be found on the Exchange Invest website here – welcome to Gain as temporary registration number 20!
CFTC Told EU Platforms Not To Seek SEF Equivalence (subscription)
Peter Madigan – Risk
After realising an overhaul of its SEF-equivalence framework was needed, the CFTC told European platforms not to apply. At the same time, the FCA was working through rules with UK venues.
PLY: Good article by Peter Madigan outlining another area of what seems to be abject confusion in “SEFworld” – with regulatory staff giving confusing messages at a time of acute stress for transitioning markets.
US Regulators To Monitor London OTC Swaps (subscription)
Philip Stafford – Financial Times
PLY: An intriguing conundrum, which thanks to the EU’s desire for their own big regulations, has given the US de facto sovereignty over a considerable part of the London financial centre. To put this in perspective, remember the (entirely justified) wails of angst when ICE were suggesting letting the CFTC oversee open interest in ICE London (as in the old IPE)? Now US regulators have just become responsible for a market ending a 50 year situation (driven by the Kennedy/Johnson administration’s ill-conceived withholding taxation). Essentially the Eurodollar market is now dead, killed by the EU’s mistitled “Single Market.”
Goldman Says It Has No Plans To Exit Dark Pool Business
Rachel Abrams – New York Times
Harvey Schwartz, the chief financial officer of Goldman Sachs, told analysts during a conference call to discuss the bank’s first-quarter earnings on Thursday that he had “no strategic plans” to close the bank’s dark pool trading business known as Sigma X (covered on EI issue of April 9th).
PLY: In other words the reaction was not sufficiently fierce so systematic internalisation can continue – a process which I feel has become, at best, a dubious practice in a supposedly open market system.
ESMA Chief Warns Securities Regulators On Monitoring Risk (subscription)
Sam Fleming & Philip Stafford – Financial Times
Steven Maijoor, chairman of ESMA, said legislation passed last week by the European parliament amounted to the “biggest overhaul of the capital markets in a generation” – but warned that the authorities had a long way to go before putting the regime into practice.
PLY: As per my comments for several months. The new rules may yet have to be curtailed or broadly delayed as regulators have insufficient resources to manage the process of coherent rule-writing let alone actually monitoring any aspect of the brave new world (frankly they can’t cope with the existing HFT world anyway).
Time For A Change In Derivatives Trading (subscription)
Anish Puaar – Financial News
PLY: A long road to a brave new world awaits in clearing houses under EMIR…
SEC Weighs Making Brokers Disclose Where Trades Are Sent
Dave Michaels – Bloomberg
SEC is weighing a requirement that brokers tell investors exactly where their stock trades go to be executed, a proposal that may address complaints that the decisions are sometimes made against the client’s best interests.
PLY: Excellent, just what I have long advocated. A simple piece of transparency which if nothing else will help clients understand that “best execution” is not just a bit of blah blah they have to sign amongst their myriad of account opening documents.
EU Watchdog Chief Sees No Clearing Requirement For Forex
Huw Jones – Reuters
Foreign exchange dealers won’t face the added cost of having to clear some currency trades if the EU decides they must come under new EU rules to make derivatives markets safer, Stephen Maijoor said.
PLY: Essentially an admission of defeat. Mr Maijoor knows he can’t remotely cope with the weight of regulation already in the pipeline and therefore he needs to hack off vast slabs to leave outside the system (for now at least). I know some are bored by me banging on about this – but how does a bankrupt system of regulation which ends up entirely haphazard in its application of the law make for a better market for anybody? This is a travesty descending into farce.
On 17 April, an error occurred in the core of the Derivatives Market”s trading system during the evening session at 9:29 pm MSK, resulting in the suspension of trading. The error occurred while processing a service transaction updating cash limits. To resume trading, exchange staff rebooted and conducted pre-launch testing of the trading system”s core. The system was open for order cancellation from 10:30 pm MSK, trading was resumed at 11:00 pm MSK, and proceeded to the close normally.
MCX-SX Extends Rights Issue Subscription Deadline To 30 April
Sunil B.S. – Livemint
MCX-SX has extended the deadline for subscribing to its rights issue to 30 April.
The exchange said a few shareholder banks had requested it to extend the deadline as they needed more time to seek clearances from their investment committees, boards and the regulator. MCX-SX did not disclose how much of the rights issue has been subscribed so far.
PLY: MCX-SX is in trouble. If they opened a rights issue without understanding what time window investors require, then the board/management again demonstrate they aren’t really up to the job. On the other hand the investors may just be stalling. Either way the MCX-SX appears to have been materially endangered by its board of late and that is a very sad state of play.
IEX’s Exchange Plan Stirs U.S. Stocks Queue Jumping Argument
John McCrank – Reuters
PLY: A thought provoking discussion of how FIFO rules on exchanges but IEX has, well, BIFO (Broker In First Out) system…
Kuwait’s stock exchange took a step towards an IPO on Monday after the Gulf state’s financial regulator said it had established the bourse as a company with a capital of 60 million dinars ($213 million). The country has been considering an IPO of its stock market for years, but political infighting and entrenched bureaucracy have held up the process.
FRMO Corp Invests In Bermuda SE
FRMO Corp has purchased a 37.57 per cent stake in the Bermuda SE (BSX) and is now the exchange’s largest shareholder. Murray Stahl, chairman of FRMO, will be joining the BSX BoD. Stahl is also chairman of Horizon Asset Management, a registered investment adviser. A private equity fund managed by Horizon Asset Management invested in the BSX in 2008 and currently holds 2.21 per cent of the BSX’s shares.
This investment brings FRMO and affiliates’ commitment to the BSX to nearly 40 per cent. Other investors in the BSX include the TMX (purchased 16% December 2011), Capital G Bank and LOM Group among numerous others.
Taiwan SE (TWSE) is set to sign a MOU with Shanghai SE, in a move that would strengthen capital market links across the Taiwan Straits.
Special Section: FTI, NSEL, India at the Crossroads
PLY: With a focus on who might buy the 24% FTIL MCX stake as well as the extension of the MCX-SX rights issue, other news has been relatively sparse on the NSEL front although various court hearings are looming while the Income Tax Department is ordering a special audit of both MCX-SX and NSEL.
Over the weekend, MCX is slightly lower (mostly on the back of today’s -2%) while FTIL lost weekend gains today to slip less than 1% lower since the last edition of Exchange Invest Thursday.
Income Tax Department Orders Special Audit Of MCX-SX, NSEL
Ashwin Mohan – The Economic Times
The income tax department has ordered a special audit of MCX-SX and NSEL.
NSEL Borrowers Told To Be Present In Court
Dilip Kumar Jha – Business Standard
Hearing an application filed by NSEL seeking direction on the recovery of Rs 687 crore (USD 113.38 mln) from Karnal-based borrower P D Agroprocessors, the high court here on Monday directed seven of the company’s directors to be present before it on April 28, the next scheduled date of hearing in the case.
ADX Goes Live With X-Stream
Abu Dhabi Securities Exchange (ADX) has gone live with X-Stream Trading, developed by Nasdaq OMX, on Thursday following the agreement signed between ADX and Nasdaq OMX in May 2012.
Nasdaq Increases UTP Tape SIP Capacity (subscription)
Faye Kilburn – waters technology
Nasdaq OMX, operator of the Securities Information Processor (SIP) for the consolidated feed of quote and trade data on Nasdaq-listed stocks—known as Tape C, or the Unlisted Trading Privileges (UTP) Plan—has announced that it will increase the bandwidth allocations for the UTP data feeds at the beginning of the third quarter of this year to support higher market data rates.
The Currency Cloud Raises $10m
Alex Wood – Tech City News
The Currency Cloud, a London-based engine for international payments, has raised a $10m Series B funding round. This latest round was led by Atlas Ventures, Anthemis Group, Notion Capital, XAnge Private Equity and Silicon Valley Bank.
PLY: Congratulations to The Currency Cloud, apparently their engine powers Transferwise which I can readily attest is a bank buster in the payments business for retail and SME customers.
Tech Mahindra Acquires Big Data Start-Up FixStream Networks
The Economic Times
India’s fifth-largest IT services company Tech Mahindra has acquired US-based big data analytics startup FixStream Networks for around Rs 60 crore (USD 9.9 mln). Tech Mahindra has informed the Bombay SE, that it will acquire 75 per cent stake in the one year old company which counts large technology companies Cisco Systems, CenturyLink, and DirecTV among its early stage customers.
PLY: Not immediately pertinent to this parish but notes the large pockets of Tech Mahindra which could of course acquire FTIL in the near future, depending on the whim/status of Jignesh Shah to sell out it seems…
HKEx Eyes China With New Metal Contracts (subscription)
Enoch Yiu – South China Morning Post
Ahead of the LME week’s Asian edition beginning Thursday, HKEx said it will launch several metal and energy contracts aimed at top commodity consumer China, which will begin trading in the city later this year.
HKEx plans to launch its commodities business with four futures contracts that will be traded in its derivatives market in Hong Kong: London Aluminium Mini Futures, London Zinc Mini Futures, London Copper Mini Futures and API 8 Thermal Coal Futures. HKEx aims to introduce the contracts later this year, pending regulatory approval and market readiness.
Zambia Sees First Currency Futures Contract (subscription)
Luke Clancy – Risk
Dollar/kwacha futures contract at Zambia’s Bond & Derivatives Exchange (Badex) in response to central bank ban on pricing goods and services in foreign currency.
PLY: More on Allan Thomson’s Zambian Badex (great name, I still believe the tee shirt / paraphernalia alone has huge marketing potential) dealing with a thorny issue – how to get around a near ban on forex. Interesting.
TMX Clarifies Closing Level Of S&P/TSX After Discrepancy
Jeremy Herron – Businessweek
TMX said the Standard & Poor’s/TSX Index fell 0.1 percent after an initial discrepancy in the gauge’s final level. The Canadian equity benchmark closed down 6.71 points, or 0.1 percent, at 14,493.68, according to the exchange operator’s website. S&P DowJones Indices, which compiles the index, confirmed that level was correct after TMX Group’s website had earlier posted the closing price as 14,232.25, a decline of 1.9 percent.
Bangkok Post reports that The Stock Exchange of Thailand board is expected to finalise the selection process for a new president by the end of this month. At least four candidates hope to succeed Charamporn Jotikasthira as SET president, whose four-year term ends on May 31.
Two of the reported candidates are Chanitr Charnchainarong and Kesaree Manchusree, both SET executive vice-presidents. Mr Chanitr is currently head of the issuer and listing division, while Ms Kesara heads the market division.
Another strong candidate is Paiboon Nalinthrangkurn, CEO of Tisco Securities and also chairman of the Federation of Thai Capital Market Organizations.
MondoVisione reports that ISDA announced that its CEO, Robert Pickel, will step down from his role later this year.
India – Search On For New FMC Chief
With FMC Chairman Ramesh Abhishek’s term coming to an end in June, the union ministry of finance has started scouting for a new chief for the commodity derivatives markets regulator. In an advertisement on the FMC website, the ministry has invited applications in this regard.
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
MarketAxess Holdings Q1 2014 results on Wednesday, April 23, 2014
BoD of Dubai Financial Market PJSC will hold a meeting on Wednesday 23 April 2014, at 2:00 PM at Borse Dubai to discuss the financial performance of the company and approve the Review report and condensed consolidated interim financial information for the quarter ended 31 March 2014.
GFI Group Q1 2014 financial results on Tuesday, April 29, 2014
All forthcoming exchange / investment related events are now listed in our Events page.
Charles Schwab EVP Carrie E. Dwyer sold 8,805 shares Thursday, April 17th at an average price of $27.11 (bargain $238,703.55). Mrs. Dwyer’s regular sales are chronicled on this specific page.
Charles Schwab Price Objective Raised By Compass Point From $25.00 To $28.00
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.
Lending Club Valuation Rises To $3.76bn (subscription)
Arash Massoudi & Richard Waters – Financial Times
Lending Club, the largest peer-to-peer loans company by volume, has reached a valuation of $3.76bn after raising new funds to make its first acquisition of a more traditional finance company.
The San Francisco-based start-up paid $140m in cash and stock to purchase Springstone, which provides offline financing for elective medical procedures and private school education, as it races to expand into new markets ahead of an IPO.
PLY: A stunning valuation and a great validation of a leading P2P lending business and the industry as a whole.
China Warns Of Rising Risks From ‘P2P’ Lending (subscription)
Grace Zhu – Wall Street Journal
China on Monday warned of rising default risks from online credit platforms that have been involved in illegal fundraising just as the country’s economic growth slows and cash-strapped borrowers struggle to repay loans. These so-called P2P platforms, which match borrowers and lenders directly online, have grown rapidly in recent year as part of the informal sources of credit used by China’s smaller companies that typically have little access to the traditional banking system.
PLY: The problem is not per se P2P lending here but the overall structure of China’s hybrid market. The rate of interest has been kept low for savers and thus they are desperate to seek any form of return but this may also be fuelling all manner of slightly unorthodox loans fuelled by other anomalies in the highly regulated system (watch those forward copper prices).
Armillary Partners With Crowdcube To Offer Equity Crowdfunding In New Zealand
JD Alois – Crowdfund Insider
Wellington based Armillary Private Capital has partnered with UK based Crowdcube to offer equity crowdfunding to investors in New Zealand. Armillary has been involved in private capital markets since 1992. With the recent legalization of investment crowdfunding the company quickly moved forward to leverage the opportunity.
NASDAQ OMX Expands London Presence
NASDAQ OMX Group has expanded its London business to new, larger premises at Woolgate Exchange, 25 Basinghall Street. The move will bring together all of NASDAQ OMX’s 150+ employees in London, following the 2013 acquisitions of Thomson Reuters’ Investor Relations, Public Relations and Multimedia Solutions businesses and eSpeed, and the launch of the NLX derivatives market.
PLY: A simple expedient move. Bringing the former TMR unit in from Canary Wharf is itself logic enough to make the move, alongside NASDAQ OMX’s other ambitions in London.
Barclays To Exit Most Commodities Trading In Bid To Bolster Profit (subscription)
Francesca Freeman & Margot Patrick – Wall Street Journal
Barclays plans to sell or exit most of its commodities businesses as part of an effort to shrink its investment bank and improve returns. The U.K. bank will pull back from trading in base metals, energy and agricultural products and fold its precious-metals business into its currency-trading unit as it prepares to inform investors of its plans to deal with new regulations May 8th.
Danske Tells Dealers How To Interpret Rules After Nasdaq Fine
Christian Wienberg – Businessweek
Danske Bank A/S, which is being investigated for rigging mortgage bond prices, will step up efforts to ensure its traders comply with the rules after being fined by Nasdaq OMX for placing fake orders in AstraZeneca (AZN) Plc.
On 4 February 2014, the Financial Stability Board (FSB) published its consultative document Feasibility study on approaches to aggregate OTC derivatives trade repository data. Interested parties were invited to provide written comments by 28 February 2014. These comments are available below.
FCA has confirmed that new rules on the UK listing regime are scheduled to be taken to the Board for consideration on 1st May 2014. If approved, the new rules are expected to come into force on 16 May 2014.
PLY: While Hong Kong is considering a great leap backwards, the UK FCA adds some rules further strengthening minority shareholder positions, essentially introducing a double safeguard against a controlling shareholder taking a company private over minority independent positions. This solution may end up inflating some bumps in the carpet frankly but it cannot be worse than allowing a cabal of minority shareholders to control through a voting stock majority.