April 29 2015

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First up, as first mentioned yesterday:

SAVE THE DATE: My focussed event about the Future of Finance, Young Markets will take place in Warsaw, Poland, on September 17th. More details to follow…

Moreover, 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, New Premium posts include:

Nope-n Access – The Incumbents Strike Back
NLX On Life Support

Happy Reading and Thanks to all our subscribers for their support You can Subscribe here.

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:

Pakistan Exchanges Merger Brief NEW!
Flash Crash & Hound of Hounslow – Brief 
Taiwan SE Cross Trading Links Brief
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

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Today in Exchange Invest: Cinnober call to industry seeking better IT standards. NASDAQ left with embarrassing (and likely costly) data leak – Twitter being effectively hoist by their own petard is, of course, beyond ironic. Bidders circle Russell, EU turns bankers’ poodle over data fees, as Goldmans announce 14x higher EU reg spending (a good return on capital – today’s water cooler topic n’est-ce pas?). Euronext SME promotions, LSE results as anticipated by the analysts but look simply spectacular if you can remember the company 5 years or so ago… FIA discuss clearing thoughts, with more from multiple market entities such as ASX, CME, HKEx, LME, OCC and more…

Greetings from Berlin where I have arrived for a few days and happy scrolling:

Public Markets

LSE IMS For The Period To 28 April 2015, Including Revenues & KPIs For Q1 2015
LSE

Highlights Q1 2015

Total revenue £581.0 mln, up 86%
Total income £602.5 mln, up 79%

PLY: In line with estimates somehow seems to degrade what have been the amazing achievements of the Rolet era in redefining LSE, if not quite revolutionising it into the derivatives world.

Bidders Circle Russell Investments Arm Auctioned By LSE (subscription)
Arash Massoudi, Joseph Cotterill & Philip Stafford – Financial Times

At least six bidders are circling Russell Investments. An auction process for the business, with $273 bn in funds under management and is expected to fetch as much as $1.5bn, is now in the second round.

The remaining strategic and private equity bidders include Towers Watson, the US human resources and risk management consultancy, and financial services group Ameriprise, which owns the UK’s Threadneedle Investments.

PLY: So LSE bought Frank Russell from insurer Northwestern Mutual last year for $2.7 billion and already the asset manager is up to circa $1.5 bln with round 2 in progress. As I said last year: a great deal for LSE (who are managing the sale process as well as they did the purchase) and a very poor play by Northwestern Mutual for not breaking the business up before sale.

Read our Premium LSE – Frank Russell Deal Brief.

UK ‘Flash Crash’ Trader To Appear In Court After Failing To Make Bail
The Guardian

Navinder Singh Sarao, “The Hound of Hounslow,” is to attend Westminster magistrates court on Wednesday.

CME’s Duffy Sounds Off On Gov’t Handling Of ‘Flash Crash’ Arrest
Julia Limitone – Fox Business

CME CEO Terry Duffy is poking holes in the government’s case against trader Navinder Singh Sarao’s arrest in London last week for his alleged role in the ‘Flash Crash’ of May 6, 2010.

Following the arrest, CME said the ‘Flash Crash’ “was not caused by the futures market.” Duffy elaborated Tuesday saying the facts are important and the CME “looks forward to working with the CFTC and DOJ to understand their complaint more fully.”

Read our Premium Flash Crash & Hound of Hounslow – Brief 

PLY: Terry Duffy is correct to poke holes in the rather spurious argument that it was solely Sarao creating a butterfly effect in a highly complex ecosystem but at the same time, I fear exchanges will soon be answering questions as to why they didn’t much earlier crack down on the hound’s rather flagrant market abuse.

CME Loses Bid To Dismiss Members’ Case
Lynne Marek – Crain’s Chicago Business

In a court battle instigated by some of its long-time futures exchange members, CME lost an early round when a judge refused to dismiss the case.

The long-time exchange members filed the case last year, alleging their rights as class B shareholders of the Chicago-based company have been diminished in connection with CME operational changes related to its Globex electronic trading platform. They say their superior and free access to the exchange was eroded when the company moved its main trading engine from Chicago to Aurora in 2012. They’re seeking hundreds of millions of dollars in damages in the breach-of-contract case, according to the complaint.

HKEx Exploring Stock Link With Taiwan
ejinsight

HKEx is in discussions with five of Taiwan’s biggest brokerages about a cross-border stock trading scheme: Yuanta Securities, KGI Securities, Fubon, SinoPac Securities and Capital Group.

Read our Premium HKEx – SSE – Stock Connect Part 1,Part 2,Part 3 and Taiwan SE Cross Trading Links Brief.

Exchange Consolidation ‘Inevitable’: ASX
Aleks Vickovich – Investor Daily

ASX CEO Elmer Funke Kupper says M&A activity among global securities exchanges will escalate, as ASX deepens its strategic relationships in Asia.

PLY: Some might allegedly paraphrase this statement as: ‘Dear World we have run out of ideas to cut costs, so please buy us…ooops sorry Magnus, you were just a bit early.’

FIA Global Issues Recommendations On Central Clearing Risks
MondoVisione

FIA Global issued recommendations for assessing and managing risks that arise from CCP clearing.

PLY: Document flows well but tough to discuss comprehensively on a race to pixel. However, I can see the granularity is tricky – yes fair enough to giving CMs a way to discuss governance as it applies to margins et al but does that mean the kids get to control access to the cookie jar? The devil is in the detail.

Banks Scale Back On Clearing Ambitions (subscription)
Joel Clark – Financial News

PLY: CMs need a new highly capitalised model, perhaps as separate silos or in banks where they become a massive business component as happened when certain niche banks took to custody (albeit the risks on cash instruments being very different and less dynamic).

OCC Looks To A Bright Confident Day
FTSE GM
Interview with Craig Donohue.

Previous comment last week.

Shooting The Messenger Won’t Help The Aluminum Market
Andy Home – Reuters

Rusal doesn’t like the aluminum price (reported yesterday). And why would it?

LME three-month price has perked up a little over the last week or so but at a current $1,860 per ton is historically low and barely changed from the start of the year.

Even worse from a producer’s perspective, the previous lifeline of high global physical premiums is rapidly sinking as well. Premiums are in free fall in both Asia and Europe and looking decidedly wobbly in the US.

The problem, according to Vladislav Soloviev, Rusal CEO, is all those speculators operating on the LME.

The solution, in Rusal’s view, is more transparency on what the money men are up to.

Nasdaq Takes Blame For Twitter’s Earnings Leak
Yoree Koh & Saumya Vaishampayan – Wall Street Journal

Twitter got a taste of its own broadcasting power yesterday when a Web crawler found and shared its earnings on the social-media service nearly an hour before its intended release.

Shortly after 3 p.m. Eastern time, Selerity, a New Jersey firm that crawls the Web for financial data, began tweeting Twitter’s Q1 numbers. The firm says its software found the link to Twitter’s press release announcing the earnings on the company’s publicly available investor relations page.

The disclosure created chaos on the floor of NYSE as Twitter badly missed revenue expectations. The NYSE halted trading of the stock and the company issued its press release about a half-hour before the 4 p.m. close. Investors promptly sent the shares down 18%.

Nasdaq, which hosts Twitter’s investor relations page through Shareholder.com, took the blame for the early release. “Our Shareholder.com inadvertently made an early version of Twitter’s earnings release publicly accessible,” said Joe Christinat, a spokesman for Nasdaq. “We’re investigating the root cause. The issue did not impact other shareholder.com clients.”

PLY: Perhaps the most expensive 140 characters in market history. A very messy outcome for NASDAQ given their significant investment in IR and related services in recent years.

Interactive Brokers Ordered To Pay $1.2 Mln For Trustee’s ‘Reckless’ Trades
Suzanne Barlyn – Reuters

Interactive Brokers must pay $1.2 million to two Texas siblings who alleged the firm failed to stop “reckless trading” by their trust fund overseer, arbitrators ruled on Tuesday.

MOEX: Equity Market Making Program Changed
MondoVisione

As from 5 May, MOEX will change its Equity Market Making Program with respect to quote maintenance as part of a regular review.

Private Markets

CEESEG Eyes Sale Of Ljubljana Bourse
Reuters

CEESEG wants to sell Slovenia’s Ljubljana bourse and aims to evaluate offers by mid-year, the head of the Vienna-based company said in a newspaper interview published on Tuesday.

Michael Buhl, CEO of CEESEG, which also owns Vienna’s exchange as well as majority stakes in the Prague and Budapest bourses, told Austrian newspaper Wirtschaftsblatt the company is open to offers for the Slovenian exchange.

FAO: Intention to sell Ljubljana bourse confirmed by CEESEG’s CEO after last week’s announcement made by the group’s spokesperson, Julia Resch.

PLY: This has potential to reshape CEE markets if Slovenia is a first sale of several while Ljubljana has great potential if creatively managed.

Sebi-FMC Merger To Delay Exchange IPOs
Business Standard

A merger between Sebi and FMC could delay IPOs by India’s stock exchanges. The merger is likely to alter the definition of the term ‘securities’ and this will have to be addressed before Sebi allows stock exchanges, including BSE, to list.

Coinbase Opens Bitcoin Exchange In UK
Reuters

After talks with UK financial watchdogs, held earlier this month, Coinbase opened an exchange and online wallet service in the UK on Tuesday, allowing people to convert sterling into bitcoin.

Coinbase raised $75 million from several major financial institutions, including NYSE, USAA Bank and Spanish banking group BBVA.

Bitcoin Mining Company Raised $2.3M In VC Funds
Sarah Jenn – NEWSBTC

Bitcoin Shop, a bitcoin mining company based in D.C., was able to raise a total of $2.3 million from hedge funds and private investors to expand its operations. According to Bitcoin Shop CEO Charles Allen, the funds will mostly be used to enhance the company’s bitcoin mining.

PLY: Interesting to see how some can still turn a profit mining, qv our Premium post: Bitcoin Mining Under Threat.

Dividend News

MOEX shareholders voted to pay a dividend for 2014 of RUB 8.82 bln, or 55.12% of consolidated IFRS net profit, which equates to RUB 3.87 per ordinary share. Dividends will be paid no later than 16 June this year. The record date has been set at 12 May.

Special Section: FTI, NSEL, India at the Crossroads

PLY: MCX up 3%, FTIL up 2%, most news on the Twittersphere it seems, as frustrated creditors read court filings…

Technology

Quality Standard Initiative For FinTech Industry
Cinnober

A bold new initiative is being launched today that has the potential to benefit the entire financial technology industry – the Financial IT Quality Assessment (FIQA). This is intended as the cornerstone of a public, industry-wide framework for quality assessment of financial software and systems. To kick off the initiative, Cinnober Financial Technology is inviting influential players in the industry to participate in a working group, which is being convened in London on June 8.

PLY: I look forward to attending the June 8 workshop. This is a very good idea, albeit the granular detail (as always!) will be key in ensuring that we don’t end up with higher prices for technology as opposed to better standards which encourage better technology leading to better markets. A very good initiative which I look forward to supporting.

EU Seeks To Clamp Down On Exchanges’ Data Fees (subscription)
Tim Cave – Financial News

European regulators want to toughen up new rules on the fees stock exchanges can charge for data, a topic which could form an important component of the EU’s planned CMU.

Read our Premium EU CMU Brief.

PLY: Cart horse repo trading still eagerly undertaken by the EU who despite their occasional limp protestations to the contrary, remain the bankers’ lackeys. No doubt monopoly data pricing can be a touch rich but how many basis points does every bank layer on top of the simplest transaction where they have no clear competition? I skimmed something this am in FT that Goldmans expended 14 times more than before on EU regulation recently. Sounds like money well spent to me (in terms of protecting their narrow vested interests – clearly not in terms of making a better market).

ITG Launches Dark List Algorithm
GLOBE NEWSWIRE via COMTEX

…A next-generation algorithm which brings ITG’s unique dark trading capacity to portfolio traders. Using a proprietary optimization technique, the algorithm is able to efficiently trade a list in POSIT Marketplace and POSIT Alert without creating cash imbalances or over-trading liquid names.

Nasdaq Develops Surveillance Tools For Trading Desks (subscription)
James Rundle – Financial News

Nasdaq is preparing customised market surveillance tools for trading desks, as impending European regulations begin to place a responsibility on trading firms to monitor client flow and avoid market instability.

PLY: Tools are great, good for the NASDAQ tech boffins – the problem is the past week has once again highlighted how when armed with such tools it seems many markets are simply turning a blind eye to questionable practices while making the entities police themselves with high tech while the regulators are still working with pencils and erasers is unlikely to coalesce in a happy ending.

Products

JPX Eyes September For Rates Cross-Margining (subscription)
Cian Burke – FOW

JPX has become the first Asian exchange to pledge to launch cross-margining of interest rate products.

GMEX IRS Constant Maturity Future Backed By Leading Asset Management Firms
MondoVisione

Buy-Side Firms Including Lyxor Asset Management & Old Mutual Global Investors Support New Hedging Products.

PLY: Proof, pudding, eating, tripartite risk arises here – After all the world, his wife and all parties’ lovers said they loved NLX but the evidence suggests pretty much none of them actually turned up to trade. True there is a vast chasm between a copycat and the well-considered, genuinely interesting innovation of GMEX but the results will be when we see these folks trading, not talking – as the latter is cheap and indeed settles in real-time.

Plan To Extend Market Timings Put On Hold
Ashish Rukhaiyar & Anirudh Laskar – Livemint

Five months after circulating a draft circular among all Indian stock exchanges seeking suggestions on a possible extension of market timings in the currency derivatives segment, the issue has been put on hold.

‘GST Regime, SEBI Supervision Will Boost Commodity Exchanges’
KPM Basheer – The Hindu Business Line

While the SEBI-FMC merger will bring huge liquidity, GST will help in increasing business volumes, says NMCE MD.

Barclays Takes Extra $1.2 Billion Hit For Potential FX Settlements
Reuters

Barclays set aside another 800 million pounds ($1.2 billion) on Wednesday to cover potential settlements for alleged fx manipulation, dragging its profits down by a quarter.

PLY: Give an old cliche a home week sponsored by Barclays: ‘What’s that reserve now, a couple of billion? Good grief, sooner or later we will be talking real money…’

Indexes

Euronext Plans For SME Tech Companies (subscription)
Anna Irrera – Financial News

Euronext’s subsidiary for SME companies has launched the Tech 40 label to promote a group of firms listed on its markets as part of a push announced late last year to attract more tech listings.

Chosen by a group of industry experts every year, EnterNext’s Tech 40 companies will form a new index set to launch on May 4.

PLY: Championing SMEs is a wondrous thing and LSE as well as Euronext are to be applauded alongside other bourses such as the Irish SE eagerly endeavouring to grow companies. As a director of a grassroots startup movement in Central Europe “Mission ToRun” the more of these initiatives we see the better…

Oh and on Mission ToRun news – great to see Exchange Invest readers signing up to our FastTack Day for the StartUpBootCamp FinTech Accelerator in Warsaw May 19th – enter your fintech startup here.

Career Paths

MOEX shareholders approved the new composition of the Supervisory Board, with 15 directors including five independent directors, as follows:

Nicola Beattie, Senior Executive Director, NBXC (NED);
Mikhail Bratanov, Head of Societe Generale Securities Services for Russia and CIS, Head of Depository Department at Rosbank (independent director);
Wang Yuan (independent director);
Sean Glodek, Director, Russian Direct Investment Fund (NED);
Andrey Golikov, Co-Chairman of the BoD, National Securities Market Association (NED);
Valery Goreglyad, Chief Auditor, Bank of Russia (NED);
Yury Denisov, Deputy Chairman of the Supervisory Board, National Clearing Center (NED);
Bella Zlatkis, Deputy Chairman of the Management Board, Sberbank (NED);
Anatoly Karachinsky, President, IBS Group (independent director);
Alexey Kudrin, Dean of the Faculty of Liberal Arts and Sciences, St. Petersburg State University (NED);
Sergei Lykov, Executive Board Deputy Chairman, Vnesheconombank (NED);
Reiner Riess, Director General, FESE (independent director);
Andrey Sharonov, Dean of the Moscow School of Management Skolkovo (independent director);
Kirill Shershun, Executive Board First Deputy Chairman, CentroCredit (NED);
Alexander Afanasiev, CEO, Moscow Exchange.

The newly appointed Supervisory Board re-elected Alexey Kudrin as Chairman, with Andrey Golikov re-elected to the post of Deputy Chairman.

MOEX Shareholders also approved a reduction in the number of Supervisory Board members to 12, to be elected at the 2016 AGM.

Alexander Afanasiev was re-elected as CEO / Chairman of the Executive Board for next three years.

ESMA Vacancy Notice – Senior Legal Officer (Enforcement Profile)
MondoVisione

Deadline: 01/06/2015. Please refer to our vacancy page for the details on this position (Ref: 2015/VAC4/AD8) and how to apply.

Financial Calendar

BGC Partners’ & GFI Group’s Q1 2015 Financial Results – Wednesday
CME Q1 2015 Financial Results – Thursday
ITG Q1 2015 Financial Results

New announcement

CFTC’s Global Markets Advisory Committee (GMAC) – public meeting – May 14, 2015 – press release here.

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

Analyst Notes

CME “Hold” Rating Restated By Credit Suisse – $95.00 Price Target
LSE “Outperform” Rating Reiterated By Credit Suisse – GBX 2,900 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.

Other stories

IIROC 2015-2016 Priorities
MondoVisione

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