April 27 2015

More feedback on US regulators’ surreally high latency “Flash Crash” action, with Michael Lewis’ impact a highlight. Jignesh under more pressure, as CME and ICE separately ponder ventures in the GIFT. EU deal with US on CCPs Imminent along with Swiss freedom to clear? DFM profits fall ahead of a busy week of results and AGMs. Thoughts on multiple areas of the business, idea of the day is right at the end…welcome to Monday’s Exchange Invest daily…

Meanwhile for those exchanges which survive the next few turbulent, litigious weeks, Wondrous milestones are ahead for Exchange Invest – with our 500th Anniversary and 2nd anniversary all falling into the same week in the middle of next month. Before then, may I just ask those of you not currently in a commercial relationship with our offices to consider support by Sponsorship or Premium Subscription?

Email me and let’s have a dialogue on the way you and your business can support the industry daily read on market infrastructure and give you more pith and insights going forward.

Meanwhile, we’re seeking interesting FinTech ideas to take to Startupbootcamp in London. My StartUp club in Poland Mission ToRun is co-organising the FastTrack pitch day in Warsaw, May 19th and we welcome participants from anywhere to apply…more details by clicking on the link below:

Warsaw 19 Poster Final

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?

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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:

Taiwan SE Cross Trading Links Brief NEW!
India – GIFT Exchanges Brief
A Taste Of HFT Scandal Brief – Part 1, Part 2, Part 3, Part 4, Part 5, Part 6
Vietnam Exchanges Merger Brief
CVC Betfair Bid Brief
India – NSE Sales Brief
EU CMU Brief
EU FTT Brief Part 1, Part 2
NSEL Scandal Brief – Main File
NSEL scandal – FTIL Group – Board and Management Changes Brief – Part 1 and Part 2

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Public Markets

DFM Q1 Net Profit Falls 69%

Dubai Financial Market (DFM) reported a 69% drop in Q1 net profit as trading volumes fell.

The firm, which runs securities trading in Dubai, made a net profit of 67.7 million dirhams ($18.4 million) in Q1, down from a net profit of 215.1 million dirhams in the year-ago period.

DFM press release here.

CME, ICE Plan Exchanges At GIFT City IFSC
Rajesh Bhayani – Business Standard

CME and ICE are exploring possibilities of opening centres at the International Financial Services Centre (IFSC) coming up at GIFT City in Gujarat near Ahmedabad.

Read our Premium India – GIFT Exchanges Brief

PLY: Clearly India is too large an opportunity to ignore and while CME has no position there ICE has a 3% stake in NCDEX.

EU & US Aim For May Deal On Derivatives Clearing (subscription)
Philip Stafford – Financial Times

The two main regions for derivatives trading aim to harmonise industry rules in the coming weeks, settling a long-running spat between US and European regulators with a draft deal perhaps in place by May 7, coinciding with talks in Brussels Commissioner Hill and CFTC Chairman Massad.

Swiss Expect Deal With EU Over Clearing House
Jan Strupczewski & Huw Jones – Reuters

The EU is expected to give a green light for the Swiss securities clearing house to keep handling trades involving parties based in the EU.

SEC’s Stock Market Reform Club Locks Out Retail Brokers
John McCrank – Reuters

U.S. SEC is convening a group of financial industry veterans for the first time next month to consider stock market reforms, but one group will be conspicuously absent: retail brokerages.

PLY: 16% of the market are not there. Presumably they can just sell their idea flow to aggregating market makers to deliver to the meeting rather akin to the US stock market itself?

U.S. Regulator Says ‘Flash Crash’ Manipulation Hard To Detect
Suzanne Barlyn – Reuters

FINRA Chief Ketchum: The type of alleged market manipulation by the British trader accused of helping provoke the “flash crash” in 2010 is hard to detect.

PLY: It is especially tricky to discern when you have no systems to analyse HFT at a regulatory body.

‘Flash Crash’ Investigators Likely Missed Clues (subscription)
Bradley Hope & Andrew Ackerman – Wall Street Journal

Investigators overlooked evidence given to them just hours after the 2010 “flash crash” that could have enabled them to uncover the strategies of Navinder Sarao…

PLY: Clearly there are data management issues even in the analogue P2P space with the regulators too.

Berkeley’s HFT Expert Buttresses Case Against U.K. Trader
Dave Michaels & Sam Mamudi – Bloomberg

The sleuth who pieced together Navinder Singh Sarao’s pattern of spoofing isn’t an FBI agent or regulator. He’s an academic whose research has taken the view that HFT is good for markets.

Crash Boys
Michael Lewis – Bloomberg View

The first question that arises from CFTC’s case against Navinder Singh Sarao is: Why did it take them five years to bring it?

A guy living with his parents next to London’s Heathrow Airport enters a lot of big, phony orders to sell U.S. stock market futures; the market promptly collapses on May 6, 2010; it takes five years for the army of U.S. financial regulators to work out that there might be some connection between the two events. It makes no sense.

PLY: Oh the precious irony of it all – in the end, he who damned HFT last year defends Mr Sarao who is no angel but far from being the criminal mastermind which Hyperbole Officers, er, I mean State Prosecutors, allege. Two magnificent quotations emerge here:

“After the flash crash, the commission focused exclusively on trades that had occurred that day, rather than orders designed not to trade — at least until some mysterious whistleblower came forward to explain how the futures market actually worked. But this can’t be true…

But it’s unfair to dwell too long on the regulators. Financial regulators, like editorial writers, are at best the markets’ last line of defense; they are less inclined to join any battle than they are to wander in afterward and shoot the wounded.”

Then again I think we can tell where Michael Lewis senses his next book project:

“[H]ere’s a fabulous yet-to-be-told story here, about a smart kid in the U.K. who somehow figures out that the machines that execute the stock market trades of others might be gamed — and so he games them. One day while he is busy trying to trick the U.S. stock market into falling, the market collapses, more sensationally than it has ever collapsed. And instead of digging some hole in Hounslow in which he might hide for a decade or so, or fleeing to Anguilla, where he has squirreled away his profits, he stays in his parents’ home and keeps right on spoofing the U.S. stock market — and then is shocked when people turn up to accuse him of wrongdoing. He’s not some kind of exception to the standard operating procedure in finance. He’s a parody of it.”

HFT Two-Thirds Of Chi-X Trades, Claims ASX Chief
Shaun Drummond – Sydney Morning Herald

Elmer Funke Kupper also claimed HFT accounts for less than 20% on ASX, with the rest of the market trading being done by retail and institutional investors.

Read our Premium: A Taste Of HFT Scandal Brief – Part 1, Part 2, Part 3, Part 4, Part 5, Part 6

$45m Service Centre Opened As ASX Responds To Competition (subscription)
Andrew White – The Australian
ASX Customer Support Centre Opened By Federal Treasurer

The hi-tech facility represents the ASX’s biggest physical response to the competition that emerged just over three years ago with the arrival of CHi-X.

Barclays Must Face U.S. Fraud Lawsuit Tied To ‘Dark Pool’ Probe
Jonathan Stempel – Reuters

U.S. District Judge Shira Scheindlin in Manhattan on Friday allowed most of the lawsuit brought on behalf of investors in Barclays’ American depositary shares to go forward.

The share price slid 7.4% last June 26 after NY AG Eric Schneiderman accused Barclays in his own lawsuit of concealing how it favoured high-speed traders in its dark pool, known as Barclays LX, and understated their activity.

Read our Premium NY AG – Barclays Dark Pool Brief

EU Finance Ministers Give Strong Support To CMU Idea
Jan Strupczewski – Reuters

Read our Premium EU CMU Brief.

One Last Chance To Stop The FTT. Again (subscription)
John Dizard – Financial Times

The previous death of the FTT lacked a sanity clause…

Read our Premium EU FTT Brief Part 1, Part 2

Harvey Pitt On the Future Of Stock Exchanges (subscription)
Harvey Pitt – Wall Street Journal

PLY: Pitt pith:

“These changes did not, unfortunately, result from careful planning or ingenious creativity (or even semi-maniacal musings of the technologically gifted). Rather, they reflect the private sector’s pursuit of enhanced trading profits (surely a noble preoccupation)—and civil service’s inability to understand, much less keep pace with, that sector’s innovative ideas.”

HKEx – Partial Cancellation Of The Bonds Due To Conversion

After last week’s bond conversion and issuance of 5,580,188 shares, an additional bond conversion and issuance of 8,257,715 shares. This second issuance represents approximately 0.71 per cent of the total shares in issue as at 31 March 2015 (1,168,309,636 Shares).

Private Markets

SIX 2014 Annual Report

Calcutta SE To Ink Deal With Clearing Corporation
Business Standard

Calcutta SE (CSE) is expecting to sign an agreement with a clearing corporation to ensure the exchange’s continuity, as it is awaiting the report from a Japan-based financial holding company to rope in new investors.

“We are expecting the report from Nomura Holdings to come shortly and are in talks with a clearing corporation which is expected to take a call on the proposal,” MD & CEO of CSE B. Madhav Reddy said on Saturday on the sidelines of an event organised by the Indian Chamber of Commerce.

South Asia’s oldest stock exchange, CSE is facing a critical scenario of not being able to transfer clearing and settlement functions to a clearing corporation in the absence of clarity on risk measurement issues.

Calcutta SE To Sell Three Acres Of Prime Land
Kumar Shankar Roy – my digital fc

Calcutta SE expects to seal the sale of three acres of prime land on the eastern commercial corridor of the metropolis in six months, according to B Madhav Reddy, MD & CEO.

HKMEx – Cheung Jailed For Six Weeks
Jasmine Siu – The Standard

Fallen highflier Barry Cheung Chun-yuen was sentenced to six weeks in prison after admitting he had failed to pay an employee more than HK$300,000 in wages from his now-defunct HKMEx.

But within minutes of Kowloon City magistrate Veronica Heung Shuk-han handing down the sentence on the former Executive Council member, she agreed to him being released on bail of HK$5,000 pending an appeal.

FAO: Previous mentions and comments on the fate of HKMEx here, here and here.

Allocated Bullion Exchange Hopes To Modernize the Global Precious Metals Market
Craig Hemke – GoldSeek

Special Section: FTI, NSEL, India at the Crossroads

PLY: Both FTIL and MCX off 3% as news comes in that perhaps there are more problems for Jignesh:

FIR Likely Against Jignesh Shah & Others In MCX Case
The Economic Times

Fresh trouble may be brewing for Jignesh Shah, his brother Manjay, former MCX managers Joseph Massey and Venkat Chary and others after a chief magistrate’s court in Mumbai directed the police to investigate them for alleged diversion of funds from MCX based on a complaint filed by Ketan Shah, an MCX shareholder and aggrieved NSEL investor.

PLY: #Shahdenfreude but clearly FTIL are, as always, fighting back:

FTIL Flays Complaint Based On PwC Report
Business Standard

Questioning the legitimacy of PwC audit report on MCX, FTIL on Sunday termed a complaint filed against it on the reports’ findings “baseless and highly motivated”.

The complaint “has been filed with the mala fide intent to put pressure on NSEL and FTIL in a bid to extort the monies allegedly lost by him (complainant Ketan Shah) while trading in commodities on NSEL’s exchange platform through his broker under client-broker agreement,” FTIL said in a statement.

Read our Premium NSEL-FTIL Merger Brief and NSEL Scandal Brief – Main File.


US Banks Push For Delay In Reporting Corporate Bond Trades (subscription)
Robin Wigglesworth – Financial Times

US banks and asset managers are pushing for a delay in reporting big corporate bond trades as a way of avoiding a possible liquidity crisis, potentially setting up a battle with regulators keen to preserve transparency in the traditionally murky market.

US corporate bond transactions have to be reported within 15 minutes to the FINRA’s Trade Reporting and Compliance Engine, first introduced in 2002 to increase price transparency in the clubby world of debt trading.

DTCC Encourages Action Ahead Of Next Phase Of OTC Derivatives Reporting Requirements In Australia

DTCC is encouraging institutions to act ahead of the third phase of derivatives reporting requirements to be implemented by ASIC next month.

ASX Signs MOU With China Futures Association

Need For Better Commodity Regulation Deepens (subscription)
Paul Reed – Financial Times

Governments must ensure best price for consumers, says BP’s Paul Reed.

MOEX: Tick Size Change On The Equity & Bond Market From 5 May

Kenya Set To Introduce ETFs To Strengthen Market Diversity
Elayne Wangalwa – CNBC Africa

Following approval by the Capital Markets Authority (CMA) board, key stakeholders on Thursday highlighted a roadmap for ETFs. The funds are expected to trade on the Nairobi Securities Exchange (NSE) by the middle of this year.

NMCE Launches Forward Trading In Rubber
The Economic Times

National Multi Commodity Exchange (NMCE) has launched auction-based forward contracts in rubber.

Career Paths

DTCC appointed Oliver Williams in Sydney as GTR Business Manager.

David Helps, head of Business Development at NLX, is leaving the company. He was formerly with LIFFE.

QV Premium posts such as NLX On Life Support and After NLX The Ramifications and our Premium NLX Brief.

CNBC reports that Patrick Healy will join IEX Group. Healy ran Issuer Advisory Group, which advised companies on where they should be listing and also acted as a general advocate for those companies.

Congratulations to Patrick McGuinness, Head of Communications for Europe at NASDAQ, who yesterday completed the London marathon in a highly impressive 2.59.59. Serial vendor Mark Thornberry finished in 3:43:29 while Bank of England Governor Mark Carney completed the course in 3:31:35…albeit we expect the Bank of England’s MPC to Quantitatively Ease that well below 3 hours in due course. Congratulations to all those and others in the exchange universe who were running yesterday.

Financial Calendar

BVB AGM – Monday
MOEX AGM – Tuesday
SIBEX AGM – Tuesday
BGC Partners’ & GFI Group’s Q1 2015 Financial Results – Wednesday
CME Q1 2015 Financial Results – Thursday

New announcement

LSE and Shares Magazine will host the second Stock Market Show, a major private investor conference and exhibition – September 12th 2015 – press release here.

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

Share Notes

Charles Schwab major shareholder Charles R. Schwab sold 1,260,000 shares Thursday, April 23rd at an average price of $30.48 (bargain $38,404,800.00).

Analyst Notes

NASDAQ OMX “Overweight” Rating Restated By Barclays – $56.00 Price Objective, Up From $55.00
TD Securities Hoisted Their Target Price On TMX From C$53.00 To C$57.00 – “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.

Other stories

Exchanges Remedy
Neil Crammond

I have thought a lot about how HFT can coexist with human traders and computers that aren’t co-located or wired for speed. We believe a strong and stable market requires a diversity of participants, which isn’t possible when speed is valued above everything else. If everything is wired for speed, then you can count on software engineers wringing every last line of analytical code out of their systems to gain that one extra cpu cycle that will put them ahead. Same goes for error checking. In fact, any code not involved in transmitting an order will be fair game in the race for speed.

PLY: Neil Crammond dispenses more wisdom on markets, the article of the day for me (yes, even above the Michael Lewis column!).

Trayport: REMIT Survey Finds Data Collection Risk Is The Key Issue

Trayport announced the results of its latest market participant survey. The survey was sent to over 50 companies including small and large trading firms and some of the industry’s largest utilities.

ESMA Publishes Updated EMIR Q&A – Focus On Reporting

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