August 05 2013

elb2 Take the time today to go through this entire message. It is a data rich environment with material issues pertaining to all the majors in one way or another. Also, chaos in Indian spot commodities, various numbers past and due, multiple emerging markets and all sorts of Young Markets too. Trust me: your scrolling down will be rewarded with useful news and insight!

Public Markets

CBOE Profit Exceeds Estimates
Bloomberg

CBOE beat analyst projections in Q2 as trading volumes climbed. Net income increased 20% to $45.5 million (52 cents/share).

PLY: There is volume growth in US options but 7% is hardly stellar given new entrants such as Miami and indeed ISE Gemini which will launch today and the overall level of the US indices…

Press Release here.

LME, Goldman Sued Over Aluminium Storage
Reuters

PLY: Goldman has suddenly endeavoured to throw the doors wide open while LME seems to be suggesting the legal action is baseless. The problem is not merely the suit itself. In the court of public opinion the metals market looks bad, even though the exchange may be more guilty of overlooking a practice somewhat peripheral to its suzerainty (trying to prove for instance exchange collusion with the banks strikes me as a much much tougher order).

U.S. Regulator Reviews Bond Futures Spike Ahead Of Jobs Data
Reuters

U.S. regulators are looking into a spike in Treasury futures trades just seconds ahead of Friday’s highly anticipated U.S. jobs report, triggering a brief halt at CME Group.

CME halted trading in 10-year & 30-year Treasury futures for five seconds. Some 198,000 10-year Treasury futures, with a notional value of $19.8 billion, traded in the minute before the release or 14% of the entire prior day’s session.

CFTC Criticises CME Trade Monitoring Procedures
Reuters

CME should improve the way it polices its Chicago exchanges to ensure that traders are not using certain types of trades to disguise rule breaking, according to a CFTC report.

PLY: I see two sides to the story. Way back when open outcry was on the way out and electronic on its way in, I enjoyed a lucrative niche advising exchanges how to rework rule books to account for the brave new world. It strikes me CME may now be in the same position along with every other exchange which permits HFT. The old rules may overlook what can now be abuse, and therefore lateral thinking is required to upgrade trade monitoring procedures.

SGX Grows Derivatives As M&A Eludes
Businessweek

Singapore Exchange Ltd. (SGX), Southeast Asia’s biggest bourse, is relying on derivatives for growth amid a dearth of merger and acquisition candidates in Asia.

SGX is planning energy and bond futures while revenue from derivatives climbed 50 percent to S$234.5 million ($183.7 million) in the five years through June 2013, outpacing the 4.4 percent increase in equity trading to S$469.50 million (USD 369.68 mln),.

PLY: CEO Magnus Bocker has made great strides pushing SGX forward. A pertinent merger would be lovely but Asia is much earlier in its process of exchange competition and hence may not be merger territory for some time yet while available deals are just too small to affect SGX’s bottom line…

Special Section: FTI, NSEL, India at the Crossroads

PLY: Even the most insular of western readers cannot fail to have noticed the remarkable rise to prominence of Financial Technologies (FTI) first through MCX and then various other bourses in India and beyond (list below). Now NSEL is (temporarily?) shuttered with over 900 million dollars outstanding in payments. FT CEO Jignesh Shah is a determined entrepreneur but of late the authorities seem to have been pushing his businesses back. Today we are running several very good stories on the recent events and (final story) interesting background and analysis to Shah and MCX itself.

By the weekend, FTI had lost 94.99% of market value since its high of Rs.3,016.50 (USD 49.62) recorded in June 2007. FTI has 33 subsidiaries, four associate companies and one joint venture overseas (Dubai’s DGCX). The company owns several exchanges: Bahrain (BFX), GBOT in Mauritius, SIngapore Mercantile Exchange (SMX) and the yet to open Bourse Africa. In India, it’s portfolio of holidngs (minority following Jalan committee report and existing SEBI restrictions etc) are MCX (commodities), MCX-SE (stock/futures), IEX (power) and NSEL (spot commodities).

The latest FTI quarterly results published July 30th were healthy and can be read here. As we closed for press, FTI was up nearly 30% on the day while MCX is limit down (-10% new limit: see below). The latter is a touch puzzling as really MCX is not directly affected by the potential credit contagion as an entirely separate (futures) entity. However, given the sometimes curious actions of regulators in the past, investors are clearly concerned that MCX too may suffer some form of sanction… Reliance Capital a major FTI shareholder has been reported as an active seller of blocks of stock in recent days.

India: Payment Crisis At National Spot Exchange
The Economic Times

PLY: It is remarkable how quickly memories fade, as this story discussing the March 2001 Calcutta SE payment crisis and leads on to the “army of brokers” at NSEL Thursday demanding payment… Doubtless they will not be happy about this press conference where FTI Founder Jignesh Shah says it may take 5 months to repay them: Read “5 month delay?” Here

India – FTI Slumps For Second Day

Shares of FTI and MCX plummeted Friday by as much as 45 percent amid problems at group entity NSEL.

FTIL-promoted MCX shares were locked in lower circuit as they shed 20 percent.

PLY N.B. Amongst the larger shareholders of MCX is NYX who have been somewhat recalcitrant in selling their 4.79 % stake… They are nursing a loss in the region of 25 million US from the IPO and 50 million from the all-time high. (That I believe is roughly equivalent to the bonus being paid to one senior exchange manager for selling his employer in recent times).

BSE Halves Circuit Limit For MCX Shares
The Hindu

Bombay SE Friday, decided to halve the circuit limit for MCX shares, capping its maximum movement in a day at 10 per cent, effective from today’s session.

PLY: Which raises the spectre of course that a bounce back could be impeded by the limit…

Decision Likely Soon On Spot Exchanges’ Regulator
Business Standard

As the government grapples to find a way out of the mess surrounding NSEL, the issue of who is to regulate such exchanges has come to the fore.

Apparently the Department of Consumer Affairs (DCA) is working on this, ahead of the formal framing of a separate Spot Exchange Regulation Act. Either the commodities market regulator, the Forward Markets Commission (FMC), or the Warehousing Development Regulatory Authority (WDRA) could be entrusted with the job in the next few days. DCA is the parent agency for both bodies.

However, the method through which the powers will be entrusted has yet to be decided. India has 7,500 mandis, of which 630 are larger and district-level ones. Nationwide spot exchanges are a very recent phenomenon: NCDEX Spot (set up by NCDEX) and R-Next, set up by Reliance Capital (PLY N.B. a large seller of FTI recently). Another spot exchange, the National APMC, set up by the promoter of the National Muli-Commodity Exchange of India, is defunct.

PLY: It seems surprising that the nation which gave us the term “licence Raj’ has actually not yet managed to put in place a national spot commodity regulator.

India – FTI’s Jignesh Shah: Beginning Of The End?

menafn.com

Over two days last week, MCX shareholders were left poorer by Rs.1,175 crore (USD 193.3 mln). with MCX closing at Rs.409.65 (USD 6.73) on Friday.

From its high of Rs.1,594.40 (USD 26.23) in November 2012, MCX has lost 74.31% and currently sits well below the March 2012 IPO offer price of Rs.1,032 (USD 16.97).

Shah’s personal wealth has been eroded to the tune of Rs.944.43 crore (USD 155.3). He and his family hold about a 45% stake in FTIL, which owns 26% of MCX.

The mayhem was triggered by FTIL-promoted spot commodity exchange, NSEL suspending trading of all one-day contracts without assigning a clear reason. Then the government began asking uncomfortable questions about how exactly all this came to pass.

This is the critical plot twist in the story of Shah’s meteoric career — once unwavering support from influential quarters of the government even under sustained regulatory attack has turned into something else entirely.

PLY: As if he didn’t have enough to contend with, this headline is deeply ominous. Certainly on his way up Jignesh Shah didn’t endear himself to everybody, to put it mildly, and now he is facing a major test of his ongoing credibility…

Private Markets

Davy Said Set To Take Biggest Stake In 220-Year-Old Irish Market
Businessweek

Davy, Ireland’s largest securities firm, is poised to become the Irish SE’s biggest shareholder under plans which will trigger a 26 million euros ($34.5 million) windfall for six members of the 220 year-old market.

RBS will be paid to waive its claim to a stake in the exchange as it becomes a private company and ISE will have five minority owners:

DavyStockbrokers
Goodbody Stockbrokers
Investec PLC
Cantor Fitzgerald LP
Campbell O’Connor & Co.

PLY: Great story apart from an erroneous and harsh belief Irish SE should have losts its mojo and been rolled into one of the big groups. Given how, say, Brussels has losts its financial centre staff, Dublin and the IFSC has been very well served by the maintenance of ISE’s independence and indeed off the back of a highly challenging economy, I still see many reasons why ISE can thrive as a separate niche entity…

CFTC Starts To Approve Swaps-Trading Platforms (subscription)
The Wall Street Journal

PLY: The rumours of 40 or perhaps 80 SEFs have so far not been proven although competition in the segment is still going to be very significant and expect many more than the existing 8 applications (which means two applicants haven’t gone public, or perhaps ICAP have filed as they said they would?)…

HKMEx Founder Barry Cheung Sued Over HK$40 Million Debt
South China Morning Post

HKMEx founder Cheung Chun-yuen sank deeper into trouble yesterday as he was sued for HK$40 million (USD 5.15 mln) arising from loans to his BVI company New Effort Holdings which in turn owns 56% of the exchange. The lender is Leung Chee-hon, director and shareholder of Hong Kong-listed Sunley Holdings.

PLY: Sadly HKMEx again makes the wrong kinds of headlines. I remain shocked with the way this exchange has exemplified the really expensive (unnecessary) route to creating a bourse.

Argentine Market Operations Stall Amid New Rules
Buenos Aires Herald

Uncertainty reigned yesterday in the stock market after President Cristina Fernández de Kirchner signed into law the capital market reform. The Buenos Aires Stock Market traded only US$9 million, less than half recent volume.

PLY: With 95 of 150 articles unsigned, it is hardly surprising confusion reigned at the exchange, despite these laws appearing to have a decent aim of deregulating finance raising. That said, the current Argentine regime is creating an ugly legacy of rampant destruction in the economy which is a tragic blight on a great country.

Bangladesh – Jute Commodity Exchange Ready to Launch

The first-ever jute commodity exchange will start its operation on an experimental basis in four districts from this month.

PLY: Good luck bringing transparency to the Bangladeshis jute market which exports more than a billion dollars of the vegetable fibre noted for its thread which is popular in rope amongst other applications.

Karachi SE Redoubles Efforts To Find Strategic Buyer
dawn.com

PLY: Deutsche Bank, is looking for a ‘strategic buyer’ of 40 per cent shares in the demutualised stock exchanges by the end of September.

With the global and local equity markets trading at their historic high, the government has yet to realise that there could be no better time to sell-off the state-owned enterprises (SOEs) that are on the list of privatisation.

PLY: My problem with strategic shareholders are that most of them seem to confuse “strategy” with “bulking up.”

Technology

Japan Exchange in Talks With Tocom On Trading System
Businessweek

JEX is in talks to provide its trading system to Tokyo Commodity Exchange Inc.

PLY: Tocom’s 5 year NASDAQ licence is up next May and it has also been chatting with CME about co-operation. TOCOM is another of those ‘sleeping giants’ a bit like LME which not that many people paid attention to but has a remarkable franchise; in the case of TOCOM, trading gold, rubber, soybeans etc.

Indexes

Bulgarian SE – Sofia Added To FTSE Mondo Visione Index

Bulgarian Stock Exchange – Sofia was added to the FTSE Mondo Visione Exchanges Index prior to market open on Monday, August 5, 2013.

PLY: And then there were 26…MV Index grows despite a misleading belief that everybody has merged… True Sofia and Bucharest are at the end of a long tail in market cap but it is a timely reminder of just how many potential investible exchanges there are (and indeed several are not even in the MV Index).

Career Paths

Obama Nominates GFI Group’s Giancarlo To Serve On CFTC
Bloomberg

J. Christopher Giancarlo, EVP at IDB GFI was nominated by President Barack Obama to serve on the CFTC, replacing Republican Jill E Sommers who stepped down last month.

PLY: Given his energetic role as Americas Chairman of the IDB body the Wholesale Market Brokers’ Association (WMBA) Giancarlo marks an interesting step away from the CFTC’s past life as a purely futures/options regulator in the brave new world of Dodd-EMIR-Frank.

Former Egypt SE Chief To Reassume Post
Reuters

Egyptian SE chairman Mohamed Omran, who left the post June 30 when his term ended, will be reappointed, an anonymous government official said Sunday.

PM Hazem El-Beblawi’s administration also named Sherif Sami – a member of the board of the General Authority for Investment – as the head of the Egyptian Financial Services Authority.

Financial Calendar

IntercontinentalExchange, Inc. will release Q2 financial results tomorrow

Anticipated Earnings Increase For ICE
Forbes

Analysts project a profit of $2.17 a share, a rise from $1.95 per share a year ago.

Analyst Notes

UBS Reiterates “Buy” Rating for CME – $83.00 price target

Betfair Group’s “Overweight” Rating Reaffirmed at Morgan Stanley – GBX 1,000 ($15.38) price objective

Compass Point upped their price target on shares of CBOE from $42.00 to $50.00 – “Neutral” 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.

Crowdfunding

Crowdfunding Pioneer To Host Virtual Crowdfunding World Summit
Forbes

It seems only fitting that the latest rage on the internet, crowdfunding, should have its “World Summit” held entirely online. Mark Perlmutter, one of crowdfunding’s founding fathers, will host the two-week online event, expecting 50,000 people to tune in daily to hear from a variety of crowdfunding experts.

New Crowdfunding Website Launches Ambitious Bid To Raise £1.6m
thisismoney.co.uk

An ambitious bid to raise £1.6million has been launched by new crowdfunding website BanktoTheFuture.
So far it has helped firms secure nearly £400,000 in funding. Now it hopes that its own bid for finance – which will officially open in September – is equally as successful.

Its new plan is to ask investors to pool their money in a crowd investment bank and to apply for a banking licence.

Other stories

The Feds’ Plan To Protect Stock Exchanges From Hacking Isn’t Going To Work
motherjones.com

Last week, a US federal court indicted a Russian hacker named Aleksandr Kalinin for allegedly hacking into the NASDAQ stock exchange. Kalinin had access to two NASDAQ servers for a couple of years between 2007 and 2010, and during that time was able to enter commands to change and delete data. The case has heightened fears that the next time a trading system is hacked—which is becoming pretty common—rogue programmers could cause a financial collapse. The good news is that the US government has recently drafted a plan to combat stock exchange hackers. The bad news, experts say, is that the government’s plan is not going to help much.

SAFE To Hold October Conference On Regional Financial Integration
brecorder.com

South Asian Federation of Exchanges (SAFE) has announced a conference on regional financial integration in Islamabad during October 2013.

PLY: Combined rule book discussions et al, a very good thing for promoting exchanges without going down the cul-de-sac of co-operative agreements.

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