April 22 2015

After a frantic day yesterday, a spot of respite. Lest you missed it details of the very latest Cinnober video and several interesting premium posts are below. Today in Exchange Invest, it’s a day of fraud allegations with one suburban semi in rural London suddenly the centre of attention as the originator of the ‘flash crash’ while one former exchange boss now exiled to Switzerland has finally been formally accused.

FXCM to concentrate on white labelling to other brokers, Goldman buys stake in Perseus networks, EU to delay clearing rules again? TMX gradually easing Alpha to a more competitive model with Aequitas.

Happy scrolling…

New Premium posts:

Nope-n Access – The Incumbents Strike Back
NLX On Life Support
After NLX The Ramifications
Bloomberg Down – Embarrassing But Hardly Scorched Earth?

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?

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, Part 5 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

FXCM To Focus On Wholesale Business (subscription)
Chelsey Dulaney – Wall Street Journal

FXCM said Monday that it plans to focus its institutional operations on its wholesale business, as the New York-based fx broker sells off noncore assets to repay debt.

“With the pending disposition of institutional noncore assets we are now purely focused on mobilizing more resources to our wholesale business, where we have seen tremendous success,” said Brandon Mulvihill, FXCM’s global head of institutional sales.

FXCM has been selling operations after it was left chasing $276 million from retail clients who were caught on the wrong side of bets on the Swiss franc in January. To continue operations, FXCM secured a $300 million loan from Jefferies parent Leucadia National.

PLY: An interesting statement insofar as the “Institutional Business” of which FXCM speak, appears more to be business oriented at enabling more ‘white label’ business through retail brokers as opposed to a business servicing institutional end users.

Read our Premium FXCM Stakes Sales Brief and FX – CHF Crisis – Brief

PSE Makes Final Offer To Shareholders Of PDS, Deal Sealed By August – Sicat
Daphne J. Magturo – Business World Online

Philippine SE (PSE) has made a final offer to buy out shareholders of Philippine Dealing System (PDS) and targets to seal the deal by August.

“We’ve asked the shareholders. It’s the same valuation — P2.25 billion (USD 51 mln). Of course, some want more, but we think that represents fair value,” PSE President & CEO Hans B. Sicat said on the sidelines of the Asia Finance Summit.

Mr. Sicat had earlier said the PSE was open to price adjustments.

Asked why he changed his mind, Mr. Sicat replied: “That’s our deal.

We already gave out the terms so either people accept it or they don’t. People can decide to monetize or people can decide to stay — it’s their choice.”

PSE is targeting to increase its ownership in PDS to at least 67% from 21% currently.

QV our Premium PSE-PDEX Merger Brief

Goldman Takes Minority Stake in High-Speed Telecom Provider Perseus (subscription)
Bradley Hope – Wall Street Journal

Goldman Sachs Group Inc. made a $20.5 million investment acquiring a minority stake in Perseus Telecom, a provider of high-speed telecommunications for exchanges, banks and other financial institutions, the companies said Tuesday. Perseus derives more than 80% of its revenue from financial-services clients, connecting to exchanges and markets across the world.

PLY: Clue here seems to be that GS’ Specialty Lending Group is involved so it probably is more a leverage / debt play as opposed to a pure effort to better control market network infrastructure which anyway, I suspect, would immediately attract the attention of anti trust authorities.

Perseus press release here.

Taiwan Says SGX Equity-Trade Link To Start July
Jonathan Burgos & Argin Chang – Bloomberg

Taiwan will open a cross-border stock trading platform with Singapore on July 1, a regulator said.

Taiwan is seeking to draw more global investors into its equity market, Financial Supervisory Commission Minister Tseng Ming-chung said in Taipei on Wednesday as he outlined the program’s start date. The link follows the opening of cross-border trading between Shanghai and Hong Kong in November.

PLY: Topic previously discussed here, here and here. Does this represent a branch line of the “through train” or a linkage akin to the failed ASX-Singapore Exchange link of a decade and more back?

EU Eyes More Delay In Clearing House Decision
Mike Kentz – Reuters

The EU is looking to again postpone imposing new capital rules on EU banks that trade derivatives through non-EU clearing houses, according to a document seen Tuesday, calling a vote Friday to delay the decision until December.

If approved it would be the third consecutive six-month grace period for European banks exempting them from an EU requirement to hold more capital when trading derivatives at unapproved foreign exchanges.

The current extension expires in June. The EU proposal seen by IFR warns of potential “disruption” in the roughly US$700trn global derivatives market if the grace period is not extended.

PLY: With so much uncertainty and the danger of such a ruling causing issues, the EU has little choice but to be pragmatic methinks.

TMX Announced Regulatory Approval Of TSX Alpha Exchange Model

TMX announced that it has received Ontario Securities Commission approval for changes to its TSX Alpha Exchange (“Alpha”) trading model. The changes are key elements of TMXs recently announced proposal to reposition its equities trading platforms to meet evolving customer needs and strengthen Canada’s capital markets.

Set to launch in September 2015, Alpha’s innovative new trading model is designed to deliver superior execution quality for natural investors and reduce trading costs for retail and institutional dealers. Alpha features will include a minimum size threshold for liquidity-providing orders, competitive pricing for active flow and a short order processing delay (speed bump). In addition, in response to feedback received from customers through the public comment process for the proposed changes, Alpha will operate as an unprotected market under the Order Protection Rule (OPR). TMX is encouraged by announced regulatory efforts to re-examine the application of OPR to all marketplaces which impose order processing delays, and supports an approach to harmonize unprotected status across all speed bump markets.

FAO: Aequitas Neo Exchange, Canada’s newest stock exchange, focusing on eliminating predatory HFT practices, launched at the end of last month, run by the folks who created Alpha.

Read our PremiumA Taste Of HFT Scandal Brief – Part 1, Part 2, Part 3, Part 4, Part 5

HK-Shanghai Through Train Tweak Expected To Boost Foreign Investors’ Interest (subscription)
Ray Chan – South China Morning Post

More large institutional investors in developed markets are expected to take a more active role in the Hong Kong-Shanghai stock connect programme, after the market participants launched a new solution to ease concerns over the pre-trade checking requirement.

The Hong Kong stock exchange rolled out the special segregated account system (SPSA) on Monday at a time when turnover of the stock market has turned robust since the stock through-train scheme was launched in November last year.

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

LME Strives For ‘Evolution’ Not ‘Revolution’: LME CEO

LME has seen a number of significant changes since HKEx completed its acquisition of the exchange in 2012, Garry Jones, CEO, LME said in a briefing late Monday.

“Over the last couple of years since HKEx bought LME we continue to see significant changes and I think the important thing is that it’s evolution not revolution…we’re not changing the entire exchange, we’re moving things forward considerably,” Jones said.

He said the starting point of this ‘evolution’ was looking at the ‘underpinnings’ of the exchange in order to strengthen its core functions in IT, risk management, regulation, compliance, internal audit and market surveillance.

PLY: Sensible.

Finra Prop Plan “Could Work In UK, EU” (subscription)
Alice Attwood – FOW

London-based prop traders have said proposed US rules over prop firms’ fees for trading on exchanges could work in the UK and European prop markets though more work would be required to ensure they were appropriate for those markets.

ISDA’s 30th AGM To Highlight Cross-Border Harmonization & Global Derivatives Regulation

Private Markets

ESMA Is Seeking Information On New Developments In Virtual Currency Investment

ESMA has launched a call for evidence on investments using virtual currency or distributed ledger technology.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX down 2%, FTIL flat, no news.


Nasdaq To Provide SMARTS Market Surveillance Technology To Japan Electric Power eXchange

Japan Electric Power eXchange (JEPX), the primary exchange for electricity in Japan, will enhance their market oversight capabilities with Nasdaq’s leading SMARTS Market Surveillance platform. The surveillance system will be operational before the full deregulation of Japan’s electricity industry which is slated to enter into the country’s retail sector in April 2016. Mitsubishi Electric will be the system integrator for this project.

EGX Launches Electronic Disclosure System


CME Leads ICE In Cocoa Battle Three Weeks On (subscription)
Alice Attwood – FOW

CME has traded more than triple the number of contracts of its rival ICE in its new Euro-denominated cocoa contract since launching three weeks ago.

CME said Tuesday that in the 14 days since launch on march 30, total volume in its new Euro cocoa offering is 1,562 contracts, in comparison to ICE with 463.

Previous comments here and here.

Bats To Offer Free Gold Trading On Hotspot Currency Platform
John Detrixhe – Bloomberg

Bats Hotspot FX currency market will offer free trading of gold and silver against the dollar beginning May 1, and that pricing will last at least through the end of 2015, according to a statement on Tuesday.

Bats press release here.

Bats completed the acquisition of Hotspot from KCG Holdings last month. Read our Premium Exchange Deals Brief.

i-Swap And ICAP Information Services Launch ‘i-Swap History’ – New Product Contains 4 Years Of Historical Over-The-Counter Euro Swap Data

Commodity Traders Warn On European Regulation (subscription)
Ese Erheriene & Sarah Kent – Wall Street Journal

New regulations currently being formulated by the EU could significantly disrupt key commodities markets and ultimately raise costs for consumers, a handful of the world’s largest commodities players warned Tuesday.

The move by ESMA to cap commodity ownership in a bid to encourage greater transparency is seen more likely to constrain trading, reduce the amount of money flowing through the system and even drive participants out of the market. This could leave smaller markets sensitive to price shocks.

SEBI Set To Tighten Commodity Derivatives Trading Regime
Shishir Sinha – The Hindu Business Line

SEBI will put in place a stricter regulatory regime for commodity derivative participants after FMC is merged with it.

PEGAS: Launch Of Physical Futures Contracts For PSV Market Area On 17 June 2015

Career Paths

LSE announced the appointments of Caroline O’Shaughnessy as Global Head of Sales & Marketing and Brian Rosenberg as MD, North America Sales, for the Group’s Information Services businesses.

O’Shaughnessy has been at DTCC since 2008 where she was MD Data Services and prior to that was Global Head of Sales. Previously she was Global Head of Alliances and Channel Development, Enterprise at Thomson Reuters for six years.

Rosenberg is a 20-year industry veteran and most recently worked for SunGard Financial Systems as Head of Sales for Hedge Funds and Asset Management in North America. During the previous nine years, he was Executive Director, Head of Analytics Sales, Asset Management at MSCI, and prior to this held key sales roles at Citigroup, Deutsche Bank and JP Morgan.

O’Shaughnessy will be based in London and report to Mark Makepeace, Group Director of Information Services, LSEG and CEO, FTSE Group. Rosenberg will be based in New York and report to O’Shaughnessy.

FN reports that Robert Close, the former CEO of fX settlement specialists CLS Group, has stepped down from his board role at ICE’s European clearing house after nearly two-and-a-half years.

Ziarul Financiar reports that Cristian Sima, who fled Romania in 2012 when President of the SIBEX exchange and running his own clandestine fund management operation (against the prevailing regulations), after it emerged that he had lost amounts of customer funds, has been accused of fraud and money laundering. After a spell in Iceland, Sima is currently in Switzerland.

Prosecutors have opened a criminal investigation against him for committing fraud and nine offenses of money laundering. In total there are five other people accused along with two companies and the civil party is claiming loss of 2.5 million Euros.

Financial Calendar

This week

SGX Q3 Results for Financial Year 2015 (FY2015)
Nasdaq Q1 2015 Financial Results
Arab Federation of Exchanges 2015 Bahrain Bourse (BHB) in partnership with Thomson Reuters
ISDA AGM in Montreal

New announcement

Philippine SE (PSE) AGM – May 2, 2015

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

Analyst Notes

HSBC Cut DB1 To A “Hold” 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.


Finnish Crowdfunding Startup Wins First EU-Wide Fundraising Licence
Kirsty Styles – Tech City News

Finnish crowdfunding startup Invesdor has won the first EU-wide licence for offering debt and equity crowdfunding services across all 31 EU and EEA countries.

The MiFID licence will enable Invesdor to offer its services to startups looking for investment, without having to apply for a new local operating licence every time it opens up in a new country.

PLY: Plaudits to Invesdor securing a licence that I believe many will be unaware exists as a separate category…

Other stories

CFTC Charges U.K. Resident Navinder Singh Sarao & His Company Nav Sarao Futures Limited PLC With Price Manipulation And Spoofing – The CFTC Complaint Alleges That Defendants’ Manipulative Conduct Contributed To The Market Conditions That Led To The May 6, 2010 Flash Crash
Hounslow Neighbours Saw Nothing Flashy (subscription)
Aliya Ram & Philip Stafford – Financial Times
Mystery Trader Armed With Algorithms Rewrites Flash Crash Story
Silla Brush & Tom Schoenberg – Bloomberg
UK Trader Arrested Over 2010 ‘Flash Crash’
Simon Goodley – The Guardian

A financial trader who played the world’s futures markets from a small suburban house in Hounslow, west London, has been arrested and faces extradition to the US after supposedly making $40m (£27m) for his alleged role in the so-called “flash crash” of 2010.

The US Department of Justice (DoJ) said on Tuesday that it was seeking the extradition of Navinder Singh Sarao, 37, who it claims “spoofed” financial markets using commercially available trading software to place $200m of false trades from his home in Hounslow.

The US agency added that Sarao’s supposed manipulation contributed to the flash crash on 6 May 2010, when the Dow Jones industrial average plunged 600 points in five minutes and created havoc on Wall Street.

PLY: Who would have thought it? Surely a perfect example of a ‘butterfly effect’ in chaos maths – here was a modest suburban house on the outskirts of London and when the trader flapped his algos, he managed one day to create a storm in markets on the other side of the Atlantic…

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