April 29 2014

elb2I’ve been thinking.

Therefore in response to multiple correspondence, my longer form thoughts on HFT will be starting later today in Exchange Invest Premium. I have blended my own opinions with some excellent feedback from fellow students of markets the world over… At only $120 per user/ year, can you afford to miss out on the arguments and possible solutions to the problems of modern market structure?

Today in EI, DB1 beat estimates, MCX seem likely to share PwC report, FTIL to consider bids for 24% of MCX May 2nd. EUREX-TAIFEX cross listing approaching. HKMEX and Madras on exchange death row while class action settlement settlement means Mt Gox may yet be reprieved! LME to appeal warehouse case, Schwab’s mixed messages, CFTC increasingly extraterritorial over swaps market jurisdiction, while swaps participants confirm regulators have enforced Balkanisation of markets between US and Europe/elsewhere.

CME Europe got off to a slow start, as expected on its first day while as we go to pixel, news reaches us of a capital injection into NLX.

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

New: Gordon Bennett! Low Latency Data At The New York Yacht Club?
– a follow up to HFT: The Early Years

New: OSOV No Argument
– democracy is an essential antidote to plutocracy –

The ZA Pivot
– Cinnober grabs the clearing advantage in South Africa –

ICAP Explores A New Galaxy

Subscription to our Premium service is a mere $120 dollars per user / year plus we’re confident we’re tax deductible in most jurisdictions! Subscribe Here It all helps fund the free Exchange Invest daily alongside our sponsors!

Meanwhile, thanks to Divya, Savio and the good folks of the Thomson Reuters Global Markets Forum, with whom I enjoyed a splendid chat this morning about Ukraine and its impact on markets. Happy scrolling:

Public Markets

DB1 Profit Rise Helped By Gain On Merged Unit

DB1 posted a strong rise in quarterly operating profit that was boosted by gains from the previously announced BATS Direct Edge merger, where DB1 held a stake in Direct Edge (via ISE). EBIT 330 million euros ($457 million) in Q1, compared with an average expectation of 261 million euros in a Reuters poll of banks and brokerages. DB1 recorded a one-off gain of 63 million euros in the quarter from a revaluation of shares and a special dividend linked to the Direct Edge-BATS merger in January.

PLY: Good numbers beating consensus estimates by DB1.

DB1 Q1 2014 Financial Results
Deutsche Borse

In total, DB’s net revenue rose by 6 per cent YoY to €514.2 million in Q1 2014 (Q1/2013: €484.3 million).

Excluding consolidation effects (of EEX), net revenue was up 2%. In an environment of persistently low interest rates, a rise in average overnight customer deposits led to a slight increase in net interest income from banking business to €8.4 million (Q1/2013: €8.2 million).

PLY: Plaudits too to Peter Lenardos of RBC in London who was appreciably ahead of other analysts in forwarding his concise insight into the numbers last evening (if you were faster, alas we didn’t receive the note!).

Nasdaq’s NLX Receives Fresh Capital Injection (subscription)
Tim Cave – Financial News

Nasdaq OMX has injected a further £8 mln (USD 13.44 mln) into its fledgling European derivatives platform, taking total investment in one of the US exchange’s strategic plays to £43 mln (USD 72.2 mln).

PLY: This just in as we closed for pixel. NLX, in addition to the new directors announced yesterday, received extra funding February 25th from parent NASDAQ OMX. Total after tax losses since inception in 2011 are GBP 22.7 mln (USD 38.1 mln) of which 17.6 mln (USD 29.5 mln) occurred last year. NLX’s highest paid director (presumably CEO Charlotte Crosswell) received GBP 707,116 (USD 1.18 mln) during 2013. Elsewhere some 25.7 mln Pounds (USD 43.17 mln) has already been invested in CME Europe exchange.

MCX To Take ‘Appropriate Action’ After PwC Permission
Ami Shah – Livemint

MCX said late on Monday that it will initiate “appropriate actions” after obtaining an approval from PwC — the audit firm which conducted a special audit and submitted the final report.

FTIL Board To Reconvene May 2nd To Review MCX Bids

FTIL board decided to reconvene on May 2nd, 2014 to review the divestment process of its 24% holding in MCX.

PLY A fair bit of midnight oil burning can be expected as bidders will spend tomorrow and the Pan-European Day of Indolence May 1st reading the PwC report and presumably considering just what (if any) premium is justified to buy a stake in MCX.

First Stage Of Eurex-Taifex Cross-Listing Project To Go Live In May (subscription)
Xiao Wang – Risk

PLY: The first steps to provide TAIFEX contracts outside of traditional Taiwanese trading hours nears launch.

EI reported on April 10th that the two exchanges plan to launch exchange-traded offshore renminbi futures.

In January, DB purchased 5% in TAIFEX from Yuanta Financial Holdings, a 47 million USD bargain.

LME Seeks To Appeal Warehouse Ruling

LME plans to seek permission to appeal against a court ruling it lost last month, which halted a major reform aimed at cutting backlogs at warehouses.

NYSE Arca & NYSE MKT Announce Trading & Liquidity Enhancements For ETPs

NYSE Arca and NYSE MKT today announced a set of enhancements designed to increase liquidity and market quality in Exchange Traded Products (ETPs), while advancing the listing and trading experience of the ETP community.

PLY: Still no sign so far as we can see of the NYSE CEO discussing the remarkable accusations about HFT in recent weeks by Michael Lewis, speaking of which:

Citadel Says Lewis Book Tars Markets That Are Best Ever
Matthew Leising – Bloomberg

“It’s one of the few markets in the world where the little guy gets a better deal than the big guy,” Jamil Nazarali, the head of Citadel Execution Services, said yesterday during a panel discussion at the Milken Institute Global Conference in Beverly Hills, California. “Things are much better today than they were 10 to 15 years ago.”

PLY: An article frustratingly lacking in detail about a clear disagreement between Jamil Nazarali of Citadel and Liquidnet founder Seth Merrin. Fortunately, I found a video just before Exchange Invest went to pixel which is probably more useful!

Analyst Accuses Schwab Of Dueling Messages On HFT
Julie Steinberg – Wall Street Journal

Charles Schwab needs to un-mix its messages on HFT, according to one research analyst.

The brokerage’s management has released “extremely inconsistent” comments on high-speed trading, analyst Richard Repetto at Sandler O’Neill + Partners, L.P. wrote in a research note on Friday.

PLY: Haven’t seen this note but the headline takeaway by Rich Repetto is spot on.

CFTC Launches Inquiry Into Evasion Of Swaps Rules
Douwe Miedema – Reuters

Scott O’Malia, a Republican member of CFTC, said he had asked the agency’s staff for a legal opinion on whether U.S. banks were possibly evading its rules when doing business in Europe.

PLY: A massive extraterritorial undercurrent pervades the CFTC’s actions as it endeavours to grab more regulatory influence away from markets in London and elsewhere, as I mentioned last week.

DTCC Expands Support Of OTC Derivatives Trade Reporting In Singapore

DTCC announced the continued expansion of its Global Trade Repository (GTR) service in Asia, with all banks licensed in Singapore and merchant banks approved by the Monetary Authority of Singapore (MAS) now required to report their OTC credit and interest rate derivatives transactions to a licensed trade repository as of the April 1, 2014 deadline. Over 50 of Singapore’s leading licensed banks and broker/dealers have signed on to leverage the service.

DTCC Expands Global Trade Repository In Australia To Support Phase 2 Of Regulatory Reporting

DTCC extended its Global Trade Repository (GTR) service to enable a broader range of market participants to meet new Phase 2 reporting requirements for OTC derivatives transactions, as mandated by the Australian Securities & Investments Commission (ASIC). Ten of Australia’s leading broker/dealers have signed on to leverage the service.

Private Markets

Madras SE To Shut Shop After 76 Years
Rajesh Chandramouli – Times of India

South India’s fountainhead equity trading house, the 76-year-old Madras SE will cease to exist from May 30 after it failed to adhere to several new regulatory requirements, including increased net worth as outlined by markets regulator Sebi. The shutdown appears imminent unless there is a dramatic change in rules over the next couple of weeks.

PLY: For what it is worth, I still think the SEBI rules set capital requirements too high for exchanges but equally the likes of the Madras exchange have been some way behind the bourse development curve for a while.

Wind-up Order Seals HKMEx Fate
The Standard

The collapsed HKMEx was ordered to be wound up after creditors refused to accept the company’s new repayment plan.

PLY: It looks like an ignominious end to an exchange which was underpinned by excellent technology from Cinnober but was undermined by a budget which was rather extraordinary in its expense. I could have created a modest empire of markets for the excessive sums wasted on the HKMEx debacle.

Bitcoin Traders Settle Class Actions Over Failed Mt Gox Exchange
Tom Hals – Reuters

U.S. and Canadian customers of failed Tokyo-based bitcoin exchange Mt. Gox have agreed to settle their proposed class action lawsuits that alleged the company defrauded them of hundreds of millions of dollars. The class action plaintiffs agreed to support a plan by Sunlot Holdings to buy the shuttered exchange and accept their share of bitcoins still held by Mt. Gox, according to a statement and court filings.

PLY: Sunlot first tried to save Mt Gox when it went offline in February. This settlement giving the class action plaintiffs a mix of existing coins and a stake in the new exchange arising from the Mt Gox ashes would appear to have made a leap forward with this settlement.

Dividend News

HKEx Scrip Dividend Scheme: Final Dividend For Y/E 31 Dec 2013 – Calculation Of Market Value

At HKEx’s AGM held on 16 April 2014, Shareholders approved payment of the Final Dividend, as recommended by the Board…

Special Section: FTI, NSEL, India at the Crossroads

PLY: Unleashing the PwC report in some way has sent both MCX and FTIL up, 4% and 5% (limit) respectively as we dash to pixel., on an otherwise flat day for Indian stocks.


SunGard Survey Concludes Systems Testing Inadequate
Automated Trader

As the technology infrastructure relied upon by financial services firms to carry out their day-to-day operations becomes increasingly complex, a survey undertaken by SunGard Consulting Services has revealed concerns that the testing of these systems is insufficient to protect against failure.

More details here.

PLY: I hesitate to sound cynical but while broadly mindful that many IT tests are not substantial enough currently, I do always fear the agenda of any consultancy concluding you need more consultancy.

LMEselect Connectivity Issue

An intermittent network issue between 06:07 and 06:46 BST this morning may have caused some limited LME select connectivity problems.

MOEX Updates FX Risk Management & Clearing System With Derivatives Netting
Avi Mizrahi – Forex Magnates

The updated version of the system will have many technical improvements and two major functional changes.

X2M Connects Milan Data Centre To CME’s London POP

LSEG business X2M, an innovative gateway to international financial markets, is implementing a new connection from its Milan data centre to the CME Group POP in London.

NASDAQ OMX Launches Redesigned IR Mobile App

NASDAQ OMX announced a comprehensive redesign of its IR mobile application. IR Mobile is the most fully-featured, purpose-built IR mobile solution available, providing IR professionals with access to market data, real-time news and research, company transcripts, analysts estimates, ownership information, investor profiles and an integrated CRM system.


Singapore Overtakes London For Offshore Renminbi Trading (subscription)
Jeremy Grant & Delphine Strauss – Financial Times

PLY: An accurate assessment of a situation still in its infancy. Singapore is strong in S-E Asian trade finance which is also the primary flow driver in RMB, hence the lead right now. A very fluid situation which is likely to change frequently as RMB trade develops and the Yuan edges towards a free float. Meanwhile the UK clearing bank link agreed by the Bank of England and the PBOC last month will clearly propel a sea change in the London market.

US End-Users Are Losers In Swaps Liquidity Split (subscription)
Peter Madigan – Risk

Two-speed reforms in the US and Europe have broken the swap market, participants claim, with US persons being shunned by foreign counterparties that want to avoid Dodd-Frank Act rules.

PLY: The phrase “total shambles” would be a generous assessment of the abject regulatory failure driven by some arrogant personal ambition and the overarching extraterritorial aspiration of the US CFTC in particular. The swaps market wasn’t perfect as a closed opaque OTC market but at least it was unitary in many senses. Now we have the unedifying spectacle of the US dollar being diminished due to US over-regulation and a complete Balkanisation between the US and elsewhere. That certainly does not serve customers, nor will it make for a safer marketplace.


OCC Successfully Launches Clearing OTC S&P 500 Equity Index Options
The Options Insider

OCC launched its OTC S&P 500 equity index option clearing services on Friday, April 25 delivering capital and operational efficiencies and enhanced customer protections to the OTC equity derivatives marketplace.

FTSE Group Develops Ground-Breaking Global Ex Fossil Fuels Index Series

Indices will omit companies linked to ownership and/or extraction of carbon based fossil fuel reserves
BlackRock to launch investment solution that tracks benchmark. Natural Resources Defense Council (NRDC) providing seed investment.

Career Paths

The Sri Lankan Daily Mirror reports that Vajira Kulatilaka, a Colombo Stock Exchange (CSE) board member since October 2009, will succeed Krishan Balendra as the new Chairman of CSE from June 5. Balendra is expected step down as the Chairman of the CSE on June 5, 2014, at the AGM, concluding the customary three year term of a CSE Chairman.

Automated Trader notes that Trax, a provider of regulatory transaction reporting, financial market data and trade matching services, and a subsidiary of MarketAxess Holdings, has announced the appointment of Chris Smith as Head of Post-Trade Services, and Kevin Swann, as Head of Data.

Chris Smith joins Trax from NYSE Euronext where he was responsible for the firm’s commercial market program. Prior to NYSE, Mr. Smith was at NYFIX, and previously he was responsible for European post-trade STP services at Tradeweb. As Head of Post-Trade Services for Trax, he is responsible for the expansion and strategic direction of the firm’s post-trade solutions.

Kevin Swann joins Trax from Thomson Reuters where he was head of third party broker data. Previously he held senior roles at DirectFN, Tradeweb and Bloomberg. Mr. Swann is responsible for the development and commercial direction of Trax data products.

Traders Magazine reports that execution management system provider REDI Technologies has hired Sean Sullivan as its global head of business development. Sullivan, a pro with over 20 years of experience in financial technology, oversees global business and sales strategy for the newly independent company. He will bring to market the now broker-neutral REDIPlus EMS and associated products. Recently, Sullivan was the president of Advise Technologies and before that was the head of global sales for Eze Castle Software. He reports to REDI chief executive Rishi Nangalia.

Professional Trading Solutions, holding company of LightSpeed Trading, named Andrew Brenner as its chief strategy officer. Brenner, a veteran with over 30 year experience, is responsible for managing special projects. Prior to this, Brenner was a senior advisor at Apex Clearing. Before that, he developed a new U.S. stock exchange for the International Securities Exchange, which was subsequently acquired by Direct Edge ECN, LLC. He has also done stints at Electronic Brokerage Systems, Fidelity, Credit Suisse and Morgan Stanley. He reports to chief executive Farid Naib.

FN states that Algomi, which sells fixed-income market data software, has announced that Hugh Willis has joined the firm. Willis is also an investor in Algomi. Willis is the co-founder and current executive chairman of BlueBay Asset Management, which is a fixed income credit manager with $62.5 billion under management as of the end of March.

JPX: Candidates For Directors, Executive Officers, Etc.

JPX has nominated candidates for directors, executive officers, etc. at the meeting of the nomination committee held on April 18 and the meeting of its BoD held today.

Financial Calendar


GFI Group Q1 2014 financial results
Sibex – Sibiu SE AGM


WSE Q1 2014 financial results
Thomson Reuters Q1 2014 earnings

New announcements

TMX Annual and Special Meeting for shareholders on Friday, May 23, 2014
Bulgarian SE AGM June 03, 2014

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


OurCrowd $25M Round Shows Investors Are Hot On Equity Crowdfunding
Eric Blattberg – Venture Beat

A relatively new player on the crowdfunding scene — it officially launched in February 2013 — the Israel-based crowdfunding platform has already helped 36 portfolio companies raise a collective $43 million. Most of that money comes from its crowd of 4,000 accredited investors, although OurCrowd also takes a stake in those companies itself.

Now the startup wants to ramp up that growth in Israel and abroad: OurCrowd today announced it has raised $25 million in new funding from former Investec Bank Australia CEO Geoff Levy and other individual investors.

Other stories

India – FMC Asks Bourses To Conduct Free Audit Of Member Brokers

Since bourses are already collecting annual subscription charges from members, it is the responsibility of the exchanges to conduct such audits at their own cost, the commodity markets regulator FMC said.

Further Charges In LIBOR Investigation

Yesterday the Serious Fraud Office issued criminal proceedings against Jay Vijay Merchant, Alex Julian Pabon and Ryan Michael Reich, all former employees at Barclays Bank Plc., for conspiracy to defraud in connection with its investigation into the manipulation of LIBOR.

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