April 25 2014

elb2With LME Asia Week in full swing, that’s the bit in the middle of Exchange Invest today as Alias Li and Jones discuss all aspects of Asian metal opportunities. Elsewhere it’s almost time for one of those whacky EU courts to pass judgement on another British led challenge in favour of financial freedom. NASDAQ is oft mentioned as Bob Greifeld has been sensibly talking his book over the results announcement. The Economist discusses MiFiD while a couple of odd suggestions emerge from S-E Asia, alongside a lot of really crunchy potential products from China back at Metals Week Asia. Meanwhile, consider how big data will always out so long as we have open networks like WWW running apps like LinkedIn & how it affects the frontrunning arguments around HFT.

Meanwhile, the latest five posts on Premium (more coming later) 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

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Public Markets

EU Court To Rule On UK Challenge To Transaction Tax
Huw Jones – Reuters

Britain may lose its challenge to stop plans by 11 euro zone countries to tax financial transactions when the European Union’s top court rules next week, lawyers said on Thursday.

PLY: The EU is poised to make another great leap backwards.

Nasdaq Seeks Upside From Markets Debate As Profits Rise
John McCrank – Reuters

Author Michael Lewis’ claim that the U.S. stock market is rigged was “irresponsible,” but the debate it has sparked could lead to positive change, said Bob Greifeld, CEO of Nasdaq OMX, which reported higher earnings on Thursday.

PLY: Two phrases in one sentence where I would agree with Bob Greifeld. Anybody heard from Duncan Niederauer recently?

Nasdaq Not Yet Subpoenaed In N.Y. HFT probe: CEO
Reuters

Nasdaq OMX has not to date received a subpoena from the New York attorney general as part of its probe into allegedly unfair technological advantages on Wall Street.

KKR & Nasdaq Plan Market To Trade Shares In Private-Equity Funds (subscription)
Rob Copeland – Wall Street Journal

KKR plans to allow its investors to sell portions of their stakes in buyout funds through a private market run by Nasdaq OMX thought to be the first time pieces of these exclusive vehicles have been traded this way in the U.S.

PLY: Overall a much hyped platform segment which has not enjoyed much business after the Facebook flurry, the private shares market could yet see a second wind with these products. NASDAQ only just launched their platform officially, could this be a breakthrough to give them a lead in the very crowded pack?

SGX & ICE Signal Hopes For Closer Ties (subscription)
Jeremy Grant – Financial Times

PLY: Apparently Magnus Bocker said: “I have no reason to believe we can’t work with ICE.” Now that strikes me as lukewarm even if we were discussing the icier end of the reserved Scandinavian spectrum, let alone Magnus, who as we know is a gregarious and charming man (qv the Premium Post: A Remarkable Fraternal Exchange). What is the point in a tie-up of any kind when Jeff already has his ICE Singapore acquisition to play with? Nor does this possible discussion complicate the implication of DB1 making a move to open in the City State. Singapore Inc knows it must be an open playing field for credible multinationals (hence the many banks it has welcomed over the years). Rather DB1 has a huge opportunity either to open in their own right or perhaps they might even find value in SGX as an acquisition (clearly without Millennium Technology). While Messrs Sprecher and Bocker are being nice to each other and saying positive things, I remain to be convinced that these individual units aren’t best served pursuing their own interests.

LME Unconcerned Over Parent HKEx’s Plan To Launch New Commodity Platform (subscription)
Enoch Yiu – South China Morning Post

“There is definitely no conflict in HKEx introducing a new commodity platform…What we are going to do is increase the global liquidity of commodities trading. There will be different liquidity pools in the two markets,” Garry Jones said.

PLY: Not sure I like the headline “Unconcerned” – would not “wildly excited” or “Optimistic” have read better? SCMP infers internal political tensions here between topco and LME. Surely not?

LME To Start Clearing Collateral In Yuan As Asia Ascends
Bloomberg

LME will start accepting collateral denominated in Chinese yuan after setting up a clearing house in September as Asia increases its hold over the bourse. The clearing house will become the “heartbeat” of the LME, said CEO Garry Jones.

LME Targets Commodity Alliance With Mainland Bourses (subscription)
Nick Edwards & Enoch Yiu – South China Morning Post

High-level talks are under way to deliver seamless access between mainland and international commodities markets, the CEO of LME told SCMP.

“Those conversations are going on – conversations with the Chinese exchanges themselves, Chinese clients, the regulators, the central bank, the government. It’s a multi-faceted conversation,” Garry Jones, said on the sidelines of LME Week Asia.

HKEx: Why We Launched New Commodity Platform (video)
CNBC

Charles Li, CEO of HKEx, says the launch of a new commodity trading platform for three metal contracts will facilitate long-term cross-border investments.

Shanghai To Allow Exchanges For Raw Materials In Free-Trade Zone
Businessweek

Shanghai will allow exchanges for iron ore, metals and energy in its free-trade zone as China pushes for more influence in raw-material pricing and developing the yuan as an international currency.

Baosteel Group Corp. and Shanghai Ganglian E-Commerce Holdings Co., owner of China’s largest steel researcher Mysteel.com, are among eight companies with approval to set up exchanges in the zone,

The 29 square-kilometer (11 square-mile) FTZ opened in September as a testing ground for reducing government controls over interest rates, yuan convertibility and other market instruments.

PLY: There are a lot of ramifications here. A lot.

A Bigger Bang
The Economist

PLY: Sometimes helicoptering in an Economist journalist to consider a topic can provide an interesting perspective. Here they endeavour to do justice to MIFID and note one interesting conclusion: how London opposed the original MIFID but ended up the big winner because the City does flexibility and the rest of Europe, as a rule, doesn’t (DB1 an honourable exception, there aren’t any/many others apart from upstarts like TOM).

MIFID did do one good thing – trying to make a single market (of sorts) for European finance. A marketplace itself arguably undermined by, a single European currency project less well designed than Bitcoin). I think we are now at the point where MIFID II is already a failure. It adds no particular value and is an expensive reminder that the EU is will misguidedly drive European prosperity and markets backwards through deluded anti-democratic control freakery. Sorry to be so down on years of wrangling (past and to come) but it’s important we stop the silly talk about European progress and recognise the core failure of MIFID and Reg NMS in creating the infrastructure problems of today. It’s time for deregulation and a big revolution in regulatory process not more misguided grand plans where the regulators have no money to make any rules work for a free, fair and transparent market.

Buyside Clears SEF Regulatory Hurdles
Rob Daly – Traders Magazine

When CFTC rolled out SEF rules, it created a fragmented market structure in which buyside traders could access market liquidity directly, without routing orders through a futures contract merchant by becoming a member of an individual SEF.

It also created a regulatory headache for buyside firms in the process: To sign all of the rule books and become a member of the 24 SEFs that are temporarily registered or pending temporary registration in the U.S., a firm’s legal team would need to scour more than 1,750 pages of SEF rules.

PLY: SEFs are a great idea. The regulation that surrounds them is, however, leaving a great deal to be desired when it comes to creating a better market structure.

How Knowledge Of Credit Suisse’s Dark Pool For HFT Leaked Out On LinkedIn
Jim Edwards – Business Insider

PLY: DIscussing how John Schwall, former RBC global head of equities product management, learnt that Credit Suisse — among other banks — was operating an HFT “dark pool:” by looking at Linkedin. I have long thought Linkedin provides so much information as to be a marvellous tool. Problem is, the nuggets are really derivatives of the core data flow. That in and of itself ought to give pause for thought before we launch on a round of regulation against HFT. There are all manners of leakage in the big data world and if you don’t follow my gist, send some cash and we can set up a call to discuss…

LSE Welcomes The Abolition Of Stamp Duty On AIM-Quoted Shares
MondoVisione

LSE welcomes the abolition of stamp duty on growth market shares, including AIM-quoted stocks, which will come into effect from Monday 28 April.

PLY: Good news for investors in British growth stocks and clearly both AIM and ICAP subsidiary ISDX (under new CEO Patrick Birley). Hopefully soon stamp duty will be removed from the main market too – a monstrous carbuncle on the face of an otherwise free trading nation, as some Prince or other ought to have said.

Private Markets

UCX Promoter Commex Technology May Dilute Stake
Ram Sahgal – The Economic Times

Commex Technology, the promoter of Universal Commodity Exchange (UCX), is seeking to dilute its stake in the country’s newest bourse within a year of the exchange becoming operational. The dilution of Commex’s 40% stake will take place by the promoter relinquishing its rights in favour of existing shareholders during a proposed rights issue. This could be followed by the company selling equity to a new investor. They said that UCX would hold a board meeting on Friday to discuss the timing of the offer, but did not disclose the size of the rights issue.

Commex Technology, a listed software solutions company, holds 40% of UCX’s equity capital. The other main shareholders include IDBI Bank (10%), Rural Electrification Corporation (16%), Iffco (15%) and Nabard (16%).

SHFE’s Yang Explores Possibility Of Collaboration Between Global Exchanges (subscription)
Metal Bulletin

Maijun Yang, the chairman of the Shanghai Futures Exchange (SHFE), allowed a glimpse of the possibility that its metal contracts might in future be listed on the HKEx, or other exchanges, in a panel discussion at LME Week Asia 2014 in Hong Kong.

“We are exploring the collaboration possible between exchanges: this is something we are bound to do as part of the internationalisation process,” he said, in a speech translated from Chinese, seated next to HKEx CEO Charles Li.

EPEX SPOT SE: Launch Of Full SWE Coupling On 13 May 2014 – A Significant Step Towards An Integrated European Power Market
MondoVisione

The full coupling of the South-Western Europe (SWE) day-ahead market is scheduled to be launched on 13 May 2014. As a result, day-ahead markets of North-Western Europe (NWE) and SWE, projects stretching from Portugal to Finland, will be fully coupled. The achievement of the SWE full coupling is proof of the flexibility and reliability of the Price Coupling of Regions (PCR) solution.

Bitcoin Wannabe Litecoin Emerges As Low-Price Challenger
Olga Kharif – Businessweek

Merchants and investors are taking notice of litecoin, which is pitched by its developers as cheaper to generate, more plentiful and easier to use for small transactions than bitcoin. While prices for both have slid since a surge late last year, litecoin’s remains about 490 percent higher than six months ago, compared with about 140 percent for bitcoin. Daily litecoin transactions also have climbed faster.

The total value of litecoins available for use ranks second only to bitcoin’s, according to CoinMarketCap, a website tracking more than 200 digital currencies. That status has helped make litecoin an obvious alternative for investors and enthusiasts seeking new opportunities to profit from virtual money.

PLY: All cryptocurrency is still a minnow per se in the global money race but then again horses outnumbered automobiles by a pretty massive multiple in 1903 when the roads of Athy were alive with the sounds of “Gordon Bennett!” as speedy motorists raced for the fourth international trophy 101 years ago earlier this month. They don’t race around Athy any more but the automobile seems to have done rather well for itself.

Bitcoin Exchange MtGox To Start Liquidation Process
Parvez Jabri – Business Recorder

Failed Bitcoin exchange MtGox is to be liquidated after a Japanese court ordered bankruptcy proceedings on Thursday, a lawyer appointed to carry out the process said.

First Bitcoin Vaults, Now Xapo Debuts Debit Cards
Evelyn M. Rusli – Wall Street Journal

Xapo, the maker of underground bitcoin vaults, debuted a debit card on Thursday, marking its latest bid to woo more customers to the virtual currency.

The company — which currently offers two main services, a vault for people to store their bitcoins and a wallet to facilitate transactions — says the Xapo debit card will function like a normal debit card, except one backed by bitcoins instead of traditional currency. The card will be linked to the customer’s Xapo Wallet and will function anywhere traditional debit cards or credit cards are used, off or online. The digital version of the card is free, but a physical card will cost $15.

PLY: Very interesting indeed, I will investigate accepting payments by this method for my private horeca investments!

The Other Bitcoin Power Struggle
Jason Clenfield & Pavel Alpeyev – Businessweek

There have been a few get-rich-quick stories among the Bitcoin “miners,” who use stacks of powerful computers to solve complex math problems used to create the virtual currency. The trouble is, crunching those numbers takes a tremendous amount of energy. Fred Trotter, a co-founder of data journal and software company Not Only Dev, estimates that in the five years Bitcoins have existed, machines dedicated to mining them have consumed 150,000 megawatt-hours of electricity—enough to keep the Eiffel Tower lit for more than two and a half centuries.

EI discussions on the topic – on April 14th.

PLY: The Bitcoin mining maxim could be “Mining Bitcoin bankrupts and absolute Bitcoin mining bankrupts absolutely…when the power bill arrives” or words to that effect.

Special Section: FTI, NSEL, India at the Crossroads

PLY: No news, awaiting any updates on FTIL sales et al, with shares in FTIL 2% down and MCX essentially flat.

Technology

Backbone Of U.S. Equities Trading Said Poised For Upgrade
Nick Baker – Bloomberg

Following malfunctions that froze U.S. stock and options markets in the last year, the systems that serve as the backbone for trading are getting closer to an upgrade.

ICE’s SIAC unit, DB’s ISE and Miami International Holdings Inc.’s MIAX Options were picked as the three final candidates to run the options industry’s main price feed OPRA, and make it faster, less costly and more reliable. A separate committee overseeing the distributor of prices for Nasdaq-listed shares will start soliciting bids for firms to upgrade that service within a couple months.

Products

CME Said To Plan Physical Gold Futures Contract In Asia
Debarati Roy – Bloomberg

CME is planning to introduce a physically settled gold futures contract in Asia which could see a contract size set at 1 kilogram. The exchange is considering introducing the contract in Hong Kong. The contract would help Chicago-based CME tap demand in China, the world’s largest bullion buyer.

PLY: It is not immediately clear what introducing the contract in Hong Kong may mean… as I see it CME don’t have an exchange there currently but perhaps there are some exciting ramifications to come.

SHFE Plans To Launch Base Metals Index Contract
Reuters

Shanghai Futures Exchange (SHFE) plans to launch a futures contract on a base metals index as part of steps to internationalise its business, Chairman Maijun Yang said on Thursday. SHFE is China’s biggest exchange for base metals, already trading copper, zinc, aluminium and lead. It said last year it also has plans to trade nickel and tin. Yang did not provide a timeframe for the new contracts.

He also said SHFE’s new crude futures contract would allow foreign investors to participate, and that the bourse hoped that the new contract would gradually attract international investors to its other contracts such as base metals.

Dalian Bourse Plans To Launch Commodity Index Futures Contract
Reuters

China’s Dalian Commodity Exchange plans to launch a commodity index futures contract as soon as this year. “We hope this year we will have a breakthrough,” Chairman Xingqiang Liu said during Asia LME Week. The exchange also plans to launch options contracts, he said, without specifying which contracts they would apply to. Iron ore is among the futures contracts traded on the Dalian exchange.

Korea – Derivatives Transactions Shrinking Rapidly For Taxation Concerns
Business Korea

The daily average derivatives trading volume shrunk by over 30 percent this year when compared to last year. Besides, trading by foreign investors in the local futures market has dropped 15 percent or so, adding to the possibility of persistent market contraction, with discussions going on as to a tax on derivatives.

The Korea Exchange announced on April 23 that the daily average volume totaled 2,686,501 this year, approximately 3/4ths of the 3,535,136 of a year ago. The daily average trading value also dropped 30.61 percent from 51.6291 trillion won (US$49.7 billion) to 35.8233 trillion won (US$34.5 billion) during the same period.

Career Paths

Hong Kong Special Administrative Region CEO has, pursuant to Section 69 of the Securities and Futures Ordinance, today given his written approval of the re-appointment of Mr Chow as HKEx Chairman with immediate effect until the conclusion of HKEx’s annual general meeting to be held in 2016.

Liquidnet has strengthened its London-based surveillance team with two former traders, amid a wider regulatory clampdown on market abuse in Europe. Christopher Wall has joined as its head of market surveillance in Europe, while David Stockwell has been hired as a market surveillance specialist.

FN reports that MarketAxess has appointed a new product manager for its European business that posted a surge in volumes and revenues during the first quarter. Gareth Coltman joined MarketAxess this month, and will be responsible for the development of its European credit trading products. He was most recently head of product management at Algomi, a fledgling fixed income matching service, and before that, CEO of Icap’s Blockcross platform.

Instinet, the equity execution services arm of Nomura, appointed Tony Necakov as CTO. He joins Instinet from Baml, where most recently he was responsible for its global equities high touch trading technology group. Prior that role he served in senior trading technology development positions at JPMorgan, Merrill Lynch, Instinet, Bear Stearns, Swiss Bank and Goldman Sachs.

FINRA named Leslie F. Seidman as a new Public Governor. Ms. Seidman previously served as Chairman of the Financial Accounting Standards Board (FASB) from 2010 to 2013, having been appointed to the FASB as a Board member in 2003.

Financial Calendar

Today

Record date HKEx $1.72 final dividend

This month
Launch of CME Europe
Sibex – Sibiu SE AGM
Thomson Reuters Q1 2014 earnings
GFI Group Q1 2014 financial results

New announcements

DB Q1 2014 earnings results April 28, 2014
WSE Q1 2014 financial results 30 April 2014
MOEX AGM 26 June 2014

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

Analyst Notes

CBOE “Neutral” Rating Reiterated By Zacks – $55.00 Price Objective

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.

Crowdfunding

Funding Tree Launches Crowdfunding Platform
Crowdfund Insider

UK based investment crowdfunding platform Funding Tree has launched their platform which claims to be the UK’s first fully regulated loan and equity hybrid crowdfunding site.

Other stories

FINRA Board Approves Amendment To Supervision Rule Requiring Firms To Conduct Background Checks On Registration Applicants
MondoVisione

The FINRA Board of Governors approved amendments to FINRA’s supervision rule to expand the obligations of firms to check the background of applicants for registration, including first-time applications as well as transfers, to verify the accuracy and completeness of the information contained in an applicant’s Form U4. Firms would also be required to adopt written procedures in this area that include searching public records.

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