April 24 2014

elb2A wave of results from around the market infrastructure with great numbers from bonds (MarketAxess) and discount brokerage although I can’t help but feel storm clouds are overhead for both sectors… DFM leads for the exchange sector with a huge profit leap. Elsewhere people worrying about market structure and HFT while we wonder if anybody from Enron advised FTIL-MCX on their contracts for IT service provision. LSE IT systems fall over at JSE as they announce pivot to Cinnober clearing package. Metals news from conference, court and ring while Italy’s experiment in FTT makes for grim reading, just as America gears up for a debate on the same suicidally regressive measure. DTCC seeks T+2 in USA while Chile offers NASDAQ stocks, speaking of which their results arrive as the finger was on the publish button:

Meanwhile, the latest five posts on Premium are:

New: The ZA Pivot

New: ICAP Explores A New Galaxy

HFT: The Early Years

The Dark Pool Kiss of Death

Homer Simpson & The Supermodel Buffet – aka a Guide to Clearing in the New Era

As we approach our first anniversary, May 15th, I am keen to reduce my personal ‘burn’ on this project. As you know, Exchange Invest is a remarkable free newsletter. I want to keep it free but that does mean we rely on sponsors and Premium subscribers. We have various sponsors in the final heave of negotiation which we hope to close by year end. Meanwhile, If your body corporate can’t afford to sponsor us (if they can, get in touch!) then please consider a subscription or a package for your colleagues – the extra content is a useful value add at only $120 dollars a year plus we’re confident we’re tax deductible in most jurisdictions!

Public Markets

NASDAQ OMX Record Q1 2014 Results
Nasdaq OMX

Q1 2014 net revenues were a record $529 million, up 27% from the prior year quarter.

Generated record Q1 2014 non-GAAP diluted EPS of $0.72, which was 13% higher YoY. Q1 2014 GAAP diluted EPS was $0.59. Non-transaction based revenues were 72% of our total Q1 2014 net revenues, and increased 27% from the prior year quarter.

The company paid down $121 million in debt in the period, and the deleveraging plan remains on schedule to return NASDAQ OMX to its long-term leverage target by the end of Q2 of 2014.

PLY: With only a low latency glimpse of these before hitting send – numbers look good. The acquisitions appear to be coming along nicely as I predicted…

DFM Net Profit Soars 696% To AED 215.1 Mln (USD 58.6 Mln) In Q1 2014

Dubai Financial Market Company (PJSC) announced its financial results for Q1 ending March 31st 2014, recording a net profit of AED 215.1 Mln (USD 58.6 Mln), a 696% leap compared to AED 27 mln (USD 7.35 mln) during the corresponding period of 2013.

Total revenue increased 289% to AED 255.6 mln (USD 69.64 mln) in Q1-2014 compared to AED 65.7 mln (USD 17.9 mln) during Q1 –2013. The revenues are comprised of AED 241 mln USD 65.6 mln) of operating income and AED 14.6 mln (USD 3.97 mln) of investment returns. Meanwhile, operating expenses have reached to AED 40.5 mln (USD 11 mln) during Q1-2014 compared to AED 38.7 mln (USD 10.54 mln) during the same period of 2013.

PLY: DFM looks to be the second gulf market to break out as a lucrative business following in the footsteps of DGCX.

TD Ameritrade Q2 Profit Up 35 Percent On Net New Assets

TD Ameritrade Holding Corp, the biggest U.S. discount broker, saw fiscal Q2 profits jump 34.7% to $194 million on record revenue driven by net new client assets of $12.2 billion and heavy trading. The profit translates to 35 cents a share, also up 35% from the year-earlier quarter.

TD Ameritrade press release here.

E*Trade Financial Profit Soars As Loan Loss Provision Falls

Discount brokerage E*Trade Financial Corp’s quarterly profit more than doubled, helped by a drop in provision for loan losses and a surge in trading activity. The company’s net income rose to $97 million, or 33 cents per share, in Q1 ended March 31, from $35 million, or 12 cents per share, a year earlier.

PLY: A very good turn of events for the discount brokers, although they may yet be on the verge of a stormy ride if their payment for order flow revenue model is stymied going forward…

MarketAxess Holdings Q1 2014 Results
Globe Newswire

Revenues of $63.4 million, up 18.2%
Pre-tax income of $27.7 million, up 12.3%
Diluted EPS from continuing operations of $0.46, up from $0.41
Total trading volume of $187.4 billion, up 16.9%; record average daily trading volume of $3.1 billion
Estimated U.S. high-grade market share of 13.4%, up from 12.3%

PLY: MarketAxess riding the wave of the bond market although I am increasingly convinced we are close to the peak of this remarkable bubble.

FTIL-MCX Software Contract Was One-Sided: PwC
Jayshree Pyasi & Sharleen D’souza – Business Standard
Key Findings Of PwC’s Final Report On MCX

Following its special audit of MCX, PwC has given a report to the exchange and FMC, pointing out violations of corporate governance norms.

A source said among the major findings in the report was a technology supply contract by the anchor investors involving a payout of about Rs 1,000 crore (USD 164 mln) by the exchange. The contract, PwC said, was one-sided and favoured FTIL.

PLY: Apparently the FTIL-MCX IT contract was for 33 years, renewable twice up to 99 years. Beggars belief is a major understatement as to how that was sensible corporate governance.

…In 1981, I bought a Sinclair ZX81 computer. Under an FTIL-MCX agreement I would still have licensed Space Invaders as the state of the art application (aka your phone running Angry Birds is several thousand times more powerful) until it recently expired 33 years later. oh and I probably had to pay about 5000 dollars a year for the Space Invaders licence too…

The FTIL MCX contract we already had a good idea about but bidders will be worried that tax ramifications could mean a liability on MCX of possibly 200-300 Cr Rp (roughly 33-50 million dollars). That could take a touch of the premium off MCX stake bids, at the very least. It depends how bidders wish to price in the ‘can of worms’ factor: MCX & FTIL have apparently used, ahem, ‘unorthodox’ corporate governance standards, will western buyers run the risk?

‘Flash Boys’ Resonates As Survey Finds HFT Concerns
Sam Mamudi – Bloomberg

U.S. equity markets aren’t fair for all, according to 70% of respondents to a survey conducted by broker ConvergEx Group LLC. 51% also said HFT is harmful or very harmful.

PLY: “Call it the “Flash Boys” effect” is apt although the problem has been simmering for a long time. I still believe Mr Lewis got it wrong was in saying the market was rigged – a highly excessive and emotive term in my mind. That’s not to say there aren’t problems, picking a couple of acronyms out of the ether such as NMS and MIFID demonstrate clear regulatory failures which have helped create fundamental infrastructure problems. Practitioners are right to be concerned, especially when dealing with a US equity market which, as I have not tired of noting, is a dog’s dinner of deluded central planning gone wrong.* I have more to say on this topic with various premium discussions in preparation…

*Pedants may wish to ponder when central planning went right of course.

Barclays Likely To Join List Of Banks Selling Commodity Assets; Market Impact Small
Debbie Carlson – Kitco News

Patrick Young, executive director, DV Advisors, said banks haven’t necessarily fared well in commodity trading.

“Commodity markets have proven rather a poisoned chalice for banks. Good profits were available in many ways but some have accused the banks of extracting a monopoly rent from their activities whether in metals warehouses or trading itself. Likewise, the generally anti-banker zeitgeist of the age has tended to find them guilty in the court of public opinion of profiteering. Commodities are much more emotional than traditionally opaque banking practice – we all know the price of a coffee, or a tank of gas.

“Banks did little to dispel a populist argument that they were pushing up prices. Despite the fact that long-term commodity prices, particularly of foodstuffs, have been falling for the past century or longer, banks were seen as opportunists bagging vast profits.

“Now, faced with rising challenges to their core business in the form of new model competitors and particularly, a huge swathe of regulations, banks are reconsidering their commodity groups and mostly heading for the exit. Selling such groups can raise funds through spin-offs which can help bolster their balance sheets ahead of Basel III and multiple other requirements for more cash at hand,” Young said.

EI reported on April 22nd that Barclays plans to sell or exit most of its commodities businesses.

PLY: No further comment from me, other than to say good article by Debbie Carlson!

JSE: Trade Delayed By Another IT Glitch
Sean Martin – IBT

Trade did not start until 0800 GMT, instead of the usual 0700 GMT, after the JSE said that it had encountered a “technical issue” without expanding on the details. This is just the latest glitch in a series of errors that have hampered trading on the $900bn (€1.1tn, $1.5tn) stock exchange. Network problems brought the JSE down in 2010 for more than six hours and a similar problem occurred in 2011 when it ceased to work for over 30 minutes. In 2012, the Johannesburg bourse relocated its main trading system from the UK to South Africa’s largest city as it attempted to make trading faster and to cut down on trading errors that have plagued the system in recent years.

EI reported yesterday that JSE has selected Cinnober as partner for the development of a new multi-asset clearing technology platform.

PLY: A remarkable coincidence given the Cinnober clearing provision announcement yesterday but it certainly seems the LSE system has not been the best choice for South Africa and hence their pivot away from London’s IT.

SGX Losing Out To Regional Competitors (subscription)
Jeremy Grant – Financial Times

Last year the city-state’s stock exchange suffered the indignity of being overtaken in terms of trading volume by its Thai counterpart. More recently it was also overhauled by Japannext, a relatively small platform competing with the Tokyo bourse. This makes SGX Asia’s ninth-largest share market – a frustrating state of affairs for an exchange that prides itself on being “the Asian gateway” for investors in the region.

Singapore’s problems – a combination of low trading volume, or liquidity; relatively high transaction costs; and a dearth of big-ticket initial public offerings – were highlighted on Wednesday when SGX reported a 22% fall in net profit for the third quarter.

PLY: Follow up on our first glimpse low latency response to the numbers as we rushed to pixel yesterday. SGX has always profited from innovation, as it clearly has not got the domestic heft to expect the local economy to make it a major market outright. The exchange needs a major rethink of direction and strategy.

LME Says Up To Quarter Of Its Electronic Trade Comes From Asia
Melanie Burton – Reuters

“Ten-25 percent of outright trading on the electronic system comes from Asia,” LME CEO Garry Jones said at a conference in Hong Kong.

PLY: First public disclosure of any number by LME and significant as (per yesterday’s discussion) the Chinese alone are using up to 45% of world aluminum and copper.

Goldman, JPMorgan Seek Dismissal Of Aluminium Price-Fixing Lawsuits
Andrew Longstreth – Reuters

Goldman Sachs, JPMorgan, LME and warehouse operators want a judge to throw out lawsuits in New York saying that from May 2009 they conspired to reduce the supply and increase the price of aluminium.

Italian Stock Trading Falls 30% After FTT (subscription)
Anish Puaar – Financial News

Credit Suisse found that in the 12 months since the introduction of Italy’s FTT on equities in March 2013, the average daily turnover in Italian stocks fell 29.7% when compared with January to February 2013. During the same period, trading in stocks from European countries excluding Italy grew by 4.5%.

PLY: These are dangerous times for free markets in Europe and (see below) the US as reactionary forces seek to blunt the power of capital markets to raise debt/equity and provide trading services.

India – New SEBI Norms For Liquidity Enhancement Scheme Of Stock Exchanges

SEBI on Wednesday limited the period of liquidity enhancement schemes of stock exchanges to a maximum of three years for schemes which are “objective, transparent, non-discretionary and non-discriminatory” and do not compromise on market integrity or risk management.

New Block Trade Facility Available On BVB (subscription)
ACT Media

A new block trade facility will be available as of April 28 on the Bucharest SE (BVB) ‘Regular’ and ‘Rasdaq ‘ markets on the main and deal segments. This measure is aimed at reducing the diversity of trading blocks applicable for the shares traded on the BVB and at reducing the trading block for certain shares so as to render them more accessible to investors.

DTCC To Partner With Industry To Implement T+2 Settlement Cycle In U.S. Financial Markets

DTCC released a white paper outlining the rationale for supporting a move to shorten the settlement cycle (SSC) in the U.S. financial markets for equities, corporate and municipal bonds and unit investment trust (UIT) trades.

MOEX Supervisory Board Resolutions

Private Markets

TOCOM Circuit Breakers In And After May 2014

Circuit breakers in and after May 1st, 2014 will be handled as follows for the time being; provided, however, that the Exchange might change the Initial CB Trigger Levels, CB Expansion Amounts, and number of expansion, etc., when it deems necessary.

Chile’s Electronic Exchange To Offer Nasdaq Stocks, CEO Says
Eduardo Thomson – Businessweek

Bolsa Electronica de Chile will include 20 of the most-traded stocks when it starts the program this year, Juan Carlos Spencer, the exchange’s CEO, said in an interview at his office in Santiago.

Dividend News

Charles Schwab BoD declared a regular quarterly cash dividend of $0.06 per common share. The dividend is payable May 23, 2014 to stockholders of record as of the close of business on May 9, 2014.

TD Ameritrade has declared a $0.12 per share quarterly cash dividend, payable on May 16, 2014 to all holders of record of common stock as of May 2, 2014.

MarketAxess declared a quarterly cash dividend of $0.16 per share of common stock outstanding, to be paid on May 22, 2014 to stockholders of record as of the close of business on May 8, 2014.

Special Section: FTI, NSEL, India at the Crossroads

BSE, NSE, Forex, Money and all other commodity markets will remain closed on Thursday on account of Parliamentary elections in Mumbai constituency.

PLY: Incidentally, on the topic of India: I will be discussing Ukraine and Russia et al on the Thomson Reuters Global Market Forum India tomorrow (Friday) at 0730 CET which I think is 1100 IST.

NSEL Crisis: Bombay HC Sets Up Three-Member Panel To Recover Funds
Khushboo Narayan & Ami Shah- Livemint

Bombay high court on Wednesday said it will set up a three-member committee to recover money in the payment crisis at NSEL. The committee is likely to have powers to pass a decree against the borrowers who have defaulted in the NSEL case. It will comprise a retired judge, a lawyer and a chartered accountant. A single bench of the high court will decide on the members and the committee’s terms of reference on Friday. This move means the borrowers of NSEL will be bound to appear before the committee and the decree of the committee will be binding on them.

Market participants said this was a positive move.

PLY: Very positive methinks.


SSE To Act As Official Distributor And Licensor Of DB Market Data In Mainland China

Deutsche Börse (DB) and Shanghai Stock Exchange (SSE) today announced a partnership in which SSE via its wholly owned subsidiary China Investment Information Services (CIIS) will act as the official distributor and licensor of DB market data products in mainland China.

Eurex Plans Trading System Upgrade For Futures (subscription)
Joe Parsons – FOW Intelligence

Eurex plans to deliver a new version of its trading platform to support enhancements for Euribor futures trading and complex instruments in November.

Quincy Extends Microwave Data Service To Europe (subscription)
Faye Kilburn – waters technology

Oakland, Calif.-based low-latency microwave connectivity and market data provider Quincy Data has expanded its Quincy Extreme Data service into Europe, to provide automated trading firms in London and Frankfurt with low-latency futures market data from CME.

GEN-I Selects Trayport’s GlobalVision Trading Gateway To Drive Growth

Trayport announced that GEN-I, trgovanje in prodaja elektricne energije (GEN-I) are using GlobalVision Trading Gateway through a Software as a Service (SaaS) delivery model, for power trading in Central and Eastern Europe (CEE).

Second African Derivative’s Exchange Goes Live Using Securities and Trading Technology (STT)

Securities and Trading Technology (STT), a leading African technology solution provider, is pleased to announce that the Zambian Bond and derivative exchange (BaDEx ) has gone live (15/04/2014). The first day’s trade was successfully concluded and settled, using STT’s integrated trading, clearing and settlement technology.

EI reported on April 17th the launch of Zambia’s new derivatives market.

Colt Connects EuroCCP

Colt has connected the offices of clearing houses EuroCCP and EMCF as they combine to form Europe’s largest pan-European clearing house EuroCCP NV, extending a longstanding relationship with EuroCCP.


Cyprus Launches Bond For Retail Investors

The minimum subscription for the monthly issue is €1,000 and the first bond offering — to be open only to individuals, not companies — will be on June 2. The Cyprus Stock Exchange will be accepting applications from May 2 to 20. The bond offerings to follow will open on the first working day of the month and the applications should be submitted during the first 20 days of the previous month.

PLY: Cyprus government, shut out of international markets is using a new approach to raise money from local retail investors via the exchange.


SIX Swiss Exchange Launches SPI Select Dividend 20 Index

SIX Swiss Exchange today announced the launch of the SPI Select Dividend 20 Index. The new index includes those 20 stocks from the SPI Index which show the highest historical dividend- payments and the most solid profitability.

Career Paths

Independent agency broker Neonet Securities AB, has appointed Alasdair Haynes as non-executive Chairman. Mr. Haynes, who has been a member of the Neonet board since February 2013, replaces Peter Melbi, who is moving on to another board directorship.

PLY: Congratulations to Alasdair on his elevation to the Neonet Chairmanship alongside his leadership of Aquis Exchange, of which…little recent news.

Kinetic Partners announced the promotion of Jess Shakespeare to Member in the Cayman Islands. Jess becomes a Member within the corporate recovery and forensic & dispute advisory team.

KVH to Hire 20 University Graduates To Boost Engineering Work Force

KVH Co., Ltd., Asia’s leading information delivery platform, will open up 20 engineering positions to March 2014 university graduates as the company seeks to bolster its expansion throughout Asia.

SEC announced that Mauri L. Osheroff, associate director for regulatory policy in the Division of Corporation Finance, is retiring on April 30 after nearly 40 years at SEC.

Financial Calendar

This month

Record date HKEx $1.72 final dividend
Launch of CME Europe
Sibex – Sibiu SE AGM
Thomson Reuters Q1 2014 earnings
GFI Group Q1 2014 financial results

New announcement

Moscow Exchange”s Supervisory Board set the 2014 Annual General Meeting (AGM) for 26 June 2014. The AGM record date is 12 May 2014.

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


Denmark – Parliament To Consider Crowdfunding
Ray Weaver – The Copenhagen Post

Members of parliament have proposed removing legal barriers to equity crowd funding and allowing startups and entrepreneurs to take advantage of the alternative funding arrangement. MP Jakob Engel-Schmidt, a former head of the Danish Entrepreneur Association, is the driving force behind opening up equity crowdfunding in Denmark.

PLY: Encouraging news from Denmark.

Other stories

Rare Earth ‘Zombies’ Attack ASX & TSX
Kevin Michael Grace – Resource Investor

In 2010, rare earth and specialty metals market froth had speculators throwing money at a sector they didn’t understand, and opportunistic resource company managers stepped up to take their money. Two years later, so-called zombies, the walking dead companies, lurk on TSX and ASX, all talk and no product. Anemic cash flows will put many of these zombies to rest in the coming year, while the survivors—the companies that can drop a sample on an end-user’s desk for evaluation—will finally see the light of day.

PLY: Elsewhere I see Kinetic Partners have set up a team in the Cayman Islands to track zombie funds. Biggest risk issue for European voters this month are visits from zombie politicians looking to join the Brussels gravy train…

Overall zombie companies are a part of the ongoing cycle of the resources industry and exchanges which specialise therein such as ASX, JSE, LSE, TMX.

You Can Tax My Lunch, But Not Stock Trades?
Neil Steinberg – Chicago Sun-Times

PLY: A rather ill-considered article straight from a columnist’s shoulder chip which doesn’t do justice to the rich journalistic skill Mr Steinberg can muster. A cute metaphor about buying a value add product in a restaurant doesn’t stand up to examination (see Italy above – how many Italian savers are now losing money because the FTT has robbed markets of liquidity?). Indeed take the process to the extreme and visit countries like Italy or Romania, which are atrophied by a daft licence Raj where frictional taxes simply destroy commercial activity and drive trade to the equivalent of the speakeasy: underground and behind closed doors. To return to the core restaurant metaphor, Mr Steinberg neatly juxtaposes the situation by inferring that because many financiers are rich therefore finance is the tool of the rich – whereas it is the means by which investment occurs and indeed debt issues are raised for the dying newsprint industry etc. Raw foodstuffs are rarely burdened with sales taxes as that impedes basic consumption, harming the poor. Likewise bare market ingredients when taxed impede investment and trade, costing jobs…making more people poor.

Mr Steinberg appears to have a love for the late President John F Kennedy, never let it be forgotten that his transaction tax was a massive boon to London as a financial centre, harming America in the process. It was a bad idea in the age of the telex, it is a dire idea now in the digital age.

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